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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
(Mark one)
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Fiscal Year Ended December 31, 2000
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File #0-25239
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SUPERIOR FINANCIAL CORP.
(Exact name of registrant as specified in its charter)
Delaware 51-0379417
(State of incorporation) (IRS Employer
Identification No.)
16101 LaGrande Drive, Suite 103, Little Rock, Arkansas 72223
(Address of principal executive offices)
(501) 324-7282
(Telephone No.)
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Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, Par Value $0.01
(Title of Class)
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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 [X] No [_]
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 registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to the Form 10-K.
The aggregate market value of the voting stock of the registrant held by
non-affiliates as of March 21, 2001 based on the average bid and ask prices of
$13.25 per share for Common Stock was approximately $63,900,000. (For purposes
of calculating this amount, all directors, officers and principal shareholders
of record of the registrant are treated as affiliates).
Shares of Common Stock outstanding at March 21, 2001 were 9,050,921.
DOCUMENTS INCORPORATED BY REFERENCE
Part of
Document Form 10-K
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Portions of Definitive Proxy Statement for the 2001 Annual Meeting
as specifically referred to herein................................... Part III
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PART I
Item 1. Business
General
The Registrant, Superior Financial Corp. ("the Company") is a unitary
thrift holding company organized under the laws of Delaware and headquartered
in Little Rock, Arkansas. The Company was organized in 1997 as SFC Acquisition
Corp. for the purpose of acquiring Superior Federal Bank F.S.B. (the "Bank"),
a federally chartered thrift institution, from NationsBank, N.A. (now Bank of
America). The acquisition was consummated on April 1, 1998. The Bank was
founded in 1934 in Fort Smith, Arkansas. In 1992, the Bank was acquired by
Boatmen's Bancshares, Inc. ("Boatmen's"). In turn, Boatmen's was acquired by
NationsBank in 1997. The Bank has expanded through de novo growth and
acquisitions to 55 branches concentrated in Ft. Smith, Little Rock, and
eastern Oklahoma. At December 31, 2000 the Company had consolidated assets of
$1.66 billion, shareholders equity of $111 million, deposits of $1.08 billion
and gross loans of $1.07 billion.
Financial Products and Services
The Company provides a wide range of retail and small business services
including noninterest bearing and interest bearing checking, savings and money
market accounts, certificates of deposit and individual retirement accounts.
In addition, the Company offers an extensive array of real estate, consumer,
small business and commercial real estate loan products. Other financial
services include automated teller machines, debit card, credit related life
and disability insurance, safety deposit boxes, internet banking, bill
payment, and telephone banking. The Company serves 184,000 households with
average noninterest revenue of approximately $155 per account annually. The
Bank attracts primary banking relationships in part through the customer-
oriented service environment created by the Bank's personnel.
Asset Quality
The successful implementation of the Company's business strategy requires
an emphasis on maintaining asset quality. The Board of Directors and senior
management regularly monitor asset quality with staff support provided by a
dedicated loan review function. In addition, lending units are supported by
credit scoring models and centralized review.
As of December 31, 2000, the Company's allowance for loan losses is
approximately 1.13% of total loans. In addition, the Company has adopted
procedures to achieve rapid resolution of nonperforming loans and prompt and
efficient liquidation of real estate, automobiles and other forms of
collateral.
Subsidiaries
The Company's only subsidiary is the Bank. The Bank owns several
subsidiaries, including Superior Financial Services, Inc., an Arkansas
corporation, which acts as an investment advisor and sells certain investment
products, as well as owning a second-tier subsidiary, Southwest Protective
Life Insurance Company, which sells consumer loan credit life and disability
insurance to consumer loan borrowers of the Bank, and Superior Finance
Company, a consumer finance company.
Competition
The banking industry in the Company's market area is highly competitive. In
addition to competing with commercial and savings banks, the Company competes
with credit unions, finance companies, mortgage companies, brokerage and
investment banking firms, asset-based non-bank lenders and other non-financial
institutions. The Company has been able to compete effectively through use of
its "totally free checking" program, strong community reputation and excellent
customer service.
The competitive environment for both the Company and the Bank may be
materially affected by the recent enactment of the Gramm-Leach-Bliley
Financial Services Modernization Act. This law modifies or eliminates
many barriers between investment banking, commercial banking and insurance
underwriting and sales. See "--Certain Regulatory Considerations." These
changes in the law may create greater competition for the Company and its
subsidiaries, including the Bank, by increasing the number and types of
competitors and by encouraging increased consolidation within the financial
services industry.
Employees
As of December 31, 2000, the Company had 766 full-time employees, and 102
part-time employees. None of the employees were represented by any union or
similar group, and the Company has not experienced any labor disputes arising
from any such organized labor group. The Company provides medical,
hospitalization and group life insurance to eligible employees. In addition,
the Company provides a competitive 401(k) plan to which it contributes up to
3% of employee salaries on a matching basis with customary vesting
requirements.
CERTAIN REGULATORY CONSIDERATIONS
General
The Bank is a federally chartered and insured stock savings bank subject to
extensive regulation and supervision by the Office of Thrift Supervision
("OTS"), as its chartering agency, and the Federal Deposit Insurance
Corporation ("FDIC"), as the insurer of its deposits. In addition, the Company
is a registered savings and loan holding company subject to OTS regulation,
examination, supervision and reporting.
The federal banking laws contain numerous provisions affecting various
aspects of the business and operations of savings institutions and savings and
loan holding companies. The following description of statutory and regulatory
provisions and proposals, which is not intended to be a complete description
of these provisions or their effects on the Company or the Bank, is qualified
in its entirety by reference to the particular statutory or regulatory
provisions or proposals.
Regulation of Savings and Loan Holding Companies
Holding Company Activities. The Company currently operates as a unitary
savings and loan holding company by virtue of its direct ownership of the
Bank. As a unitary savings and loan holding company, the Company generally is
not subject to activity restrictions under the HOLA. If the Company acquires
control of another savings association as a separate subsidiary other than in
a supervisory acquisition, it would become a multiple savings and loan holding
company. There generally are more restrictions on the activities of a multiple
savings and loan holding company than on those of a unitary savings and loan
holding company. The HOLA provides that, among other things, no multiple
savings and loan holding company or subsidiary thereof which is not an insured
association shall commence or continue for more than two years after becoming
a multiple savings and loan holding company or subsidiary thereof, any
business activity other than: (i) furnishing or performing management services
for a subsidiary insured institution, (ii) conducting an insurance agency or
escrow business, (iii) holding, managing, or liquidating assets owned by or
acquired from a subsidiary insured institution, (iv) holding or managing
properties used or occupied by a subsidiary insured institution, (v) acting as
trustee under deeds of trust, (vi) those activities previously directly
authorized by regulation as of March 5, 1987 to be engaged in by multiple
savings and loan holding companies or (vii) those activities authorized by the
Federal Reserve Board as permissible for bank holding companies, unless the
OTS by regulation, prohibits or limits such activities for savings and loan
holding companies. Those activities described in (vii) above must be approved
by the OTS prior to being engaged in by a multiple savings and loan holding
company.
Affiliate Restrictions. Transactions between a savings association and its
"affiliates" are subject to quantitative and qualitative restrictions under
Sections 23A and 23B of the Federal Reserve Act. Affiliates of a savings
association include, among other entities, the savings association's holding
company and companies that are under common control with the savings
association.
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In general, Sections 23A and 23B and OTS regulations issued in connection
therewith limit the extent to which a savings association or its subsidiaries
may engage in certain "covered transactions" with affiliates to an amount
equal to 10% of the association's capital and surplus, in the case of covered
transactions with any one affiliate, and to an amount equal to 20% of such
capital and surplus, in the case of covered transactions with all affiliates.
In addition, a savings association and its subsidiaries may engage in covered
transactions and certain other transactions only on terms and under
circumstances that are substantially the same, or at least as favorable to the
savings association or its subsidiary, as those prevailing at the time for
comparable transactions with nonaffiliated companies. A "covered transaction"
is defined to include a loan or extension of credit to an affiliate; a
purchase of investment securities issued by an affiliate; a purchase of assets
from an affiliate, with certain exceptions; the acceptance of securities
issued by an affiliate as collateral for a loan or extension of credit to any
party; or the issuance of a guarantee, acceptance or letter of credit on
behalf of an affiliate.
In addition, under the OTS regulations, a savings association may not make
a loan or extension of credit to an affiliate unless the affiliate is engaged
only in activities permissible for bank holding companies; a savings
association may not purchase or invest in securities of an affiliate other
than shares of a subsidiary; a savings association and its subsidiaries may
not purchase a low-quality asset from an affiliate; and covered transactions
and certain other transactions between a savings association or its
subsidiaries and an affiliate must be on terms and conditions that are
consistent with safe and sound banking practices. With certain exceptions,
each loan or extension of credit by a savings association to an affiliate must
be secured by collateral with a market value ranging from 100% to 130%
(depending on the type of collateral) of the amount of the loan or extension
of credit.
The OTS regulations generally exclude all non-bank and non-savings
association subsidiaries of savings associations from treatment as affiliates,
except to the extent that the OTS or the Federal Reserve Board decides to
treat such subsidiaries as affiliates. The regulations also require savings
associations to make and retain records that reflect affiliate transactions in
reasonable detail, and provide that certain classes of savings associations
may be required to give the OTS prior notice of affiliate transactions.
Regulation of Federal Savings Institutions
Regulatory System. The activities of federal savings institutions are
governed by the HOLA and, in certain respects, the Federal Deposit Insurance
Act (the "FDIA") and the regulations issued by the OTS and the FDIC to
implement these statutes. These laws and regulations delineate the nature and
extent of the activities in which federal savings associations may engage.
Lending activities and other investments must comply with various statutory
and regulatory capital requirements. In addition, the Bank's relationship with
its depositors and borrowers is also regulated to a great extent, especially
in such matters as the ownership of deposit accounts and the form and content
of the Bank's mortgage documents. The Bank must file reports with the OTS and
the FDIC concerning its 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. There
are periodic examinations by the OTS and the FDIC to review the Bank's
compliance with various regulatory requirements. 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.
Regulatory Capital Requirements. OTS capital regulations require savings
institutions to satisfy minimum capital standards: risk-based capital
requirements, a leverage requirement and a tangible capital requirement.
Savings institutions must meet each of these standards in order to be deemed
in compliance with OTS capital requirements. In addition, the OTS may require
savings institutions to maintain capital above the minimum capital levels.
All savings institutions are required to meet a minimum risk-based capital
requirement of total capital (core capital plus supplementary capital) equal
to 8% of risk-weighted assets (which includes the credit risk
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equivalents of certain off-balance sheet items). In calculating total capital
for purposes of the risk-based requirement, supplementary capital may not
exceed 100% of core capital. Under the leverage requirement, the most highly-
rated savings institutions are required to maintain core capital equal to a
minimum of 3% of adjusted total assets. All other savings institutions are
required to maintain core capital equal to a minimum of 4% of adjusted total
assets. (In addition, under the prompt corrective action provisions of the OTS
regulations, all but the most highly-rated institutions must maintain a
minimum leverage ratio of 4% in order to be adequately capitalized. See "--
Prompt Corrective Action.") A savings institution is also required to maintain
tangible capital in an amount at least equal to 1.5% of its adjusted total
assets.
Under OTS regulations, a savings institution with a greater than "normal"
level of interest rate exposure must deduct an interest rate risk ("IRR")
component in calculating its total capital for purposes of determining whether
it meets its risk-based capital requirement. These capital requirements are
viewed as minimum standards by the OTS, and most institutions are expected to
maintain capital levels well above the minimum. In addition, the OTS
regulations provide that minimum capital levels higher than those provided in
the regulations may be established by the OTS for individual savings
institutions, upon a determination that the savings institution's capital is
or may become inadequate in view of its circumstances. The Bank is not
currently subject to any such individual minimum regulatory capital
requirement. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources--Capital
Resources."
Certain Consequences of Failure to Comply with Regulatory Capital
Requirements. A savings institution's failure to maintain capital at or above
the minimum capital requirements may be deemed an unsafe and unsound practice
and may subject the savings institution to enforcement actions and other
proceedings. Any savings institution not in compliance with all of its capital
requirements is required to submit a capital plan that addresses the
institution's need for additional capital and meets certain additional
requirements. The savings institution must certify that, among other things,
while the capital plan is being reviewed by the OTS, the savings association
will not, without the approval of the appropriate OTS Regional Director, grow
beyond net interest credited or make any capital distributions. If a savings
institution's capital plan is not approved, the institution will become
subject to asset growth restrictions and other restrictions or limitations set
forth in the OTS Regional Director's notice of disapproval. In addition, the
OTS, through a capital directive or otherwise, may restrict the ability of a
savings institution not in compliance with the capital requirements to pay
dividends and compensation, and may require such a bank to take one or more of
certain corrective actions, including, without limitation: (i) increasing its
capital to specified levels, (ii) reducing the rate of interest that may be
paid on savings accounts, (iii) limiting receipt of deposits to those made to
existing accounts, (iv) ceasing issuance of new accounts of any or all classes
or categories except in exchange for existing accounts, (v) ceasing or
limiting the purchase of loans or the making of other specified investments,
and (vi) limiting operational expenditures to specified levels.
Prompt Corrective Action. Under Section 38 of the FDIA, as added by the
FDIC Improvement Act of 1991 ("FDICIA"), each federal banking agency is
required to implement a system of prompt corrective action for institutions
that it regulates. The prompt corrective action regulation of the OTS requires
certain mandatory actions and authorizes certain other discretionary actions
to be taken by the OTS against a savings institution that falls within certain
undercapitalized capital categories specified in the regulation.
The regulations establish five categories of capital classification: "well
capitalized," "adequately capitalized," "undercapitalized," "significantly
undercapitalized," and "critically undercapitalized." Under the regulations,
the ratio of total capital to risk-weighted assets, Tier 1 capital to risk-
weighted assets and the leverage ratio are used to determine an institution's
capital classification. Under the prompt corrective action regulations of the
OTS, an institution shall be deemed to be (i) "well-capitalized" if it has
total risk-based capital of 10.0% or more, has a Tier 1 risk-based capital
ratio of 6.0% or more, has a leverage capital ratio of 5.0% or more and is not
subject to any written agreement, order or final capital directive to meet and
maintain a specific capital level for any capital measure, (ii) "adequately
capitalized" if it has a total risk-based capital ratio of 8.0% or more, a
Tier 1 risk-based capital ratio of 4.0% or more and a leverage capital ratio
of 4.0% or
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more (3.0% under certain circumstances) and does not meet the definition of
"well capitalized," (iii) "undercapitalized" if it has a total risk-based
capital ratio that is less than 8.0%, a Tier 1 risk-based capital ratio that
is less than 4.0% or a leverage capital ratio that is less than 4.0% (3.0%
under certain circumstances), (iv) "significantly undercapitalized" if it has
total risk-based capital ratio that is less than 6.0%, a Tier 1 risk-based
capital ratio that is less than 3.0% or a leverage capital ratio that is less
than 3.0% and (v) "critically undercapitalized" if it has a ratio of tangible
equity to total assets that is equal to or less than 2.0%. Federal law
authorizes the OTS to reclassify a "well-capitalized" institution as
"adequately-capitalized" and may require an "adequately-capitalized"
institution or an "undercapitalized" institution to comply with supervisory
actions as if it were in the next lower category (except that the OTS may not
reclassify a "significantly-undercapitalized" institution as "critically
undercapitalized").
At December 31, 2000, the Bank met the capital requirements of a "well-
capitalized" institution under applicable OTS regulations.
Enforcement Powers. The OTS and, under certain circumstances, the FDIC,
have substantial enforcement authority with respect to savings institutions,
including authority to bring various enforcement actions against a savings
institution and any of its "institution-affiliated parties" (a term defined to
include, among other persons, directors, officers, employees, controlling
stockholders, agents and stockholders who participate in the conduct of the
affairs of the institution). This enforcement authority includes, without
limitation: (i) the ability to terminate a savings institution's deposit
insurance, (ii) institute cease-and-desist proceedings, (iii) bring
suspension, removal, prohibition and criminal proceedings against institution-
affiliated parties, and (iv) assess substantial civil money penalties. As part
of a cease-and-desist order, the agencies may require a savings institution or
an institution-affiliated party to take affirmative action to correct
conditions resulting from that party's actions, including to make restitution
or provide reimbursement, indemnification or guarantee against loss; restrict
the growth of the institution; and rescind agreements and contracts.
Capital Distribution Regulation. In addition to the prompt corrective
action restriction on paying dividends, OTS regulations limit certain "capital
distributions" by OTS-regulated savings institutions. Capital distributions
are defined to include, in part, dividends and payments for stock repurchases
and other distributions charged against the capital accounts of a savings
institution.
Under OTS regulations, an institution must file an application with the OTS
in order to obtain OTS approval of a proposed capital distribution under the
following circumstances: (i) the institution is not eligible for expedited
treatment under applicable OTS regulations; (ii) the total amount of the
institution's capital distributions, including the proposed capital
distribution, for the applicable calendar year exceeds its net income for that
year to date plus its retained net income for the preceding two years; (iii)
the institution would not be at least adequately capitalized following the
distribution; or (iv) the proposed capital distribution would violate a
prohibition contained in any applicable statute, regulation, or agreement
between the institution and the OTS or the FDIC, or violate a condition
imposed on it in an OTS-approved application or notice. If an institution is
not required to file an application prior to a capital distribution, but one
of the following conditions is met, the institution must file a notice with
the OTS prior to the proposed capital distribution: (i) the institution would
not be well capitalized following the distribution; (ii) the proposed capital
distribution would reduce the amount of or retire any part of certain debt
instruments such as notes or debentures included in capital; or (iii) the
institution is a subsidiary of a savings and loan holding company. If none of
the application requirements are met, and none of the notice requirements are
met, the institution is not required to file either a notice or an application
with the OTS before making a capital distribution.
Qualified Thrift Lender Test. All savings associations are required to meet
a qualified thrift lender ("QTL") test to avoid certain restrictions on their
operations. A savings institution that fails to become or remain a QTL shall
either become a national bank or be subject to the following restrictions on
its operations: (i) the association may not make any new investment or engage
in activities that would not be permissible for national banks; (ii) the
association may not establish any new branch office where a national bank
located in the savings institution's home state would not be able to establish
a branch office; and (iii) the payment of dividends by the
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association shall be subject to the statutory and regulatory dividend
restrictions applicable to national banks. Also, beginning three years after
the date on which the savings institution ceases to be a QTL, the savings
institution would be prohibited from retaining any investment or engaging in
any activity not permissible for a national bank. In addition, within one year
of the date on which a savings association controlled by a company ceases to
be a QTL, the company must register as a bank holding company and become
subject to the rules applicable to such companies. A savings institution may
re-qualify as a QTL if it thereafter complies with the QTL test.
Currently, the QTL test requires that either an institution qualify as a
domestic building and loan association under the Code or that 65% of its
"portfolio assets" (as defined) consist of certain housing and consumer-
related assets on a monthly average basis in nine out of every 12 months.
Assets that qualify without limit for inclusion as part of the 65% requirement
are loans made to purchase, refinance, construct, improve or repair domestic
residential housing and manufactured housing; home equity loans; mortgage-
backed securities (where the mortgages are secured by domestic residential
housing or manufactured housing); FHLB stock; direct or indirect obligations
of the FDIC; and loans for educational purposes, loans to small businesses and
loans made through credit cards or credit card accounts. In addition, the
following assets, among others, may be included in meeting the test subject to
an overall limit of 20% of the savings institution's portfolio assets: 50% of
residential mortgage loans originated and sold within 90 days of origination;
100% of consumer loans; and 100% of stock issued by the Federal Home Loan
Mortgage Corporation or FNMA. "Portfolio assets" consist of total assets minus
the sum of (i) goodwill and other intangible assets, (ii) property used by the
savings institution to conduct its business, and (iii) liquid assets up to 20%
of the institution's total assets. At December 31, 2000, the Bank met the QTL
test.
Activities of Associations and Their Subsidiaries. Subject to a number of
restrictions and limitations, savings associations are permitted to establish
or acquire subsidiaries that engage in various activities. Pursuant to the
FDIA and OTS regulations, at least 30 days prior to establishing or acquiring
such a subsidiary, or conducting any new activity through a subsidiary, the
savings association must notify the FDIC and the OTS and provide the
information each agency may, by regulation, require. In certain circumstances,
written approval of the OTS must be obtained prior to acquiring or
establishing a subsidiary or engaging in a new activity in an existing
subsidiary. Savings associations also must conduct the activities of
subsidiaries in accordance with existing regulations and orders.
The OTS may determine that the continuation by a savings association of its
ownership control of, or its relationship to, the subsidiary constitutes a
serious risk to the safety, soundness or stability of the association or is
inconsistent with sound banking practices or with the purposes of the FDIA.
Based upon that determination, the FDIC or the OTS has the authority to order
the savings association to divest itself of control of the subsidiary. The
FDIC also may determine by regulation or order that any specific activity
poses a serious threat to the SAIF. If so, it may require that no SAIF member
engage in that activity directly.
FDIC Assessments. The FDIC is an independent federal agency established
originally to insure the deposits, up to prescribed statutory limits, of
federally insured banks and to preserve the safety and soundness of the
banking industry. The FDIC maintains two separate insurance funds: the BIF and
the SAIF. As insurer of the Bank's deposits, the FDIC has examination,
supervisory and enforcement authority over all savings associations. The
Bank's deposit accounts are insured by the FDIC under the SAIF to the maximum
extent permitted by law. The Bank pays deposit insurance premiums to the FDIC
based on a risk-based assessment system established by the FDIC for all SAIF-
member institutions.
Under FDIC regulations, institutions are assigned to one of three capital
groups for insurance premium purposes--"well capitalized," "adequately
capitalized" and "undercapitalized." "Well capitalized" and "adequately
capitalized" institutions are defined in the same manner as the regulations
establishing the prompt corrective action system, as discussed previously.
"Undercapitalized" institutions are those that do not qualify as either "well
capitalized" or "adequately capitalized." These three groups are then divided
into subgroups which are based on supervisory evaluations by the institution's
primary federal regulator, resulting in nine
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assessment classifications. Assessment rates vary depending upon the
assessment classification. In addition, regardless of the potential risk to
the insurance fund, federal law requires the FDIC to establish assessment
rates that will maintain each insurance funds' ratio of reserves to insured
deposits at 1.25%. During 2000 and for the first semiannual assessment period
of 2001, assessment rates for both SAIF-insured institutions and BIF-insured
institutions ranged from 0% of insured deposits for well-capitalized
institutions with minor supervisory concerns to .27% of insured deposits for
undercapitalized institutions with substantial supervisory concerns.
In addition to deposit insurance assessments, the FDIC is authorized to
collect assessments against insured deposits to be paid to the Finance
Corporation ("FICO") to serve FICO debt incurred in the 1980s. The FICO
assessment rate is adjusted quarterly. Before 2000, the FICO assessment rate
for SAIF-insured deposits was five times higher than the rate for BIF-insured
deposits. The average annual assessment rate in 2000 was 2.07% for both SAIF-
insured deposits and BIF-insured deposits. For the first quarter of 2001, the
FICO assessment rate for such deposits will be 1.96%.
The Bank's assessment expense for the year ended December 31, 2000 equaled
$208,000.
Community Reinvestment Act and the Fair Lending Laws. Savings institutions
have a responsibility under the Community Reinvestment Act ("CRA") and related
regulations of the OTS to help meet the credit needs of their communities,
including low-and moderate-income neighborhoods. In addition, the Equal Credit
Opportunity Act and the Fair Housing Act (together, the "Fair Lending Laws")
prohibit lenders from discriminating in their lending practices on the basis
of characteristics specified in those statutes. An institution's failure to
comply with the provisions of CRA could, at a minimum, result in regulatory
restrictions on its activities, and failure to comply with the Fair Lending
Laws could result in enforcement actions by the OTS, as well as other federal
regulatory agencies and the Department of Justice.
Safety and Soundness Guidelines. The OTS and the other federal banking
agencies have established guidelines for safety and soundness, addressing
operational and managerial, as well as compensation matters for insured
financial institutions. Institutions failing to meet these standards are
required to submit compliance plans to their appropriate federal regulators.
The OTS and the other agencies have also established guidelines regarding
asset quality and earnings standards for insured institutions.
Change of Control. Subject to certain limited exceptions, no company can
acquire control of a savings association without the prior approval of the
OTS, and no person may acquire control of a savings association without the
prior approval of the OTS. Any company that acquires control of a savings
association becomes a savings and loan holding company subject to extensive
registration, examination and regulation by the OTS. Conclusive control
exists, among other ways, when an acquiring party acquires more than 25% of
any class of voting stock of a savings association or savings and loan holding
company, or controls in any manner the election of a majority of the directors
of the company. In addition, a rebuttable presumption of control exists if,
among other things, a person acquires more than 10% of any class of a savings
association or savings and loan holding company's voting stock (or 25% of any
class of stock) and, in either case, any of certain additional control factors
exist.
Privacy. In 2000, the federal banking regulators issued final regulations
implementing certain provisions of the GLB Act governing the privacy of
consumer financial information. The regulations, which were effective November
13, 2000 but are not mandatory until July 1, 2001, limit the disclosure by
financial institutions such as the Bank of nonpublic personal information
about individuals who obtain financial products or services for personal,
family, or household purposes. Subject to certain exceptions allowed by law,
the regulations cover information sharing between financial institutions and
nonaffiliated third parties. More specifically, the regulations require
financial institutions to (i) provide initial notices to customers about their
privacy policies, describing the conditions under which they may disclose
nonpublic personal financial information to nonaffiliated third parties and
affiliates; (ii) provide annual notices of their privacy policies to their
current customers; and (iii) provide a reasonable method for consumers to "opt
out" of disclosures to nonaffiliated third parties.
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Legislation. On November 12, 1999, President Clinton signed into law the
GLB Act. The primary purpose of the GLB Act is to eliminate barriers between
investment banking and commercial banking, permitting, with certain
limitations, the affiliation of banks, securities firms, insurance companies,
and other financial service providers. Generally, the GLB Act: (i) repeals the
historical restrictions and eliminates many federal and state law barriers to
affiliations among banks and securities firms, insurance companies and other
financial service providers, (ii) provides a uniform framework for the
activities of banks, savings institutions and their holding companies, (iii)
broadens the activities that may be conducted by national banks and banking
subsidiaries of bank holding companies, (iv) provides an enhanced framework
for protecting the privacy of consumers' information, (v) adopts a number of
provisions related to the capitalization, membership, corporate governance and
other measures designed to modernize the FHLB System, (vi) modifies the laws
governing the implementation of the Community Reinvestment Act, and (vii)
addresses a variety of other legal and regulatory issues affecting both day-
to-day operations and long-term activities of financial institutions.
In particular, the GLB Act places restrictions on the activities of certain
savings and loan holding companies. More specifically, unitary savings and
loan holding companies in existence on May 4, 1999, or which became unitary
savings and loan holding companies pursuant to an application filed with the
OTS before May 4, 1999, are unaffected by the activities restrictions
contained in the GLB Act as long as such savings and loan holding companies
continue to meet the definition of a unitary savings and loan holding company.
See "--Holding Company Activities." All other savings and loan holding
companies ("Restricted Holding Companies") are permitted to engage only in
certain financially-related activities including, but not limited to,
activities permissible for bank holding companies under Section 4(c) of the
Bank Holding Company Act of 1956, as amended, and activities permitted for
financial holding companies as defined under the GLB Act. The Company has been
a unitary savings and loan holding company since its acquisition of the Bank
on April 1, 1998.
In addition to imposing the foregoing activities restrictions on Restricted
Holding Companies, the GLB Act also prohibits a company from acquiring
control, after May 4, 1999, of a savings association, such as the Bank, unless
such company engages only in activities that are permitted for Restricted
Holding Companies.
Additional Information
Additional information, including statistical information concerning the
business of the Company, is contained herein at Items 6 and 7 under the
captions "Selected Consolidated Financial Data" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations".
Executive Officers and Directors
Pursuant to general instruction G, information regarding executive officers
of the Company is contained herein at Item 10.
Item 2. Properties
The Company currently offers a broad range of banking services through a
total of 55 branch banks and 10 loan production offices located in central and
northwestern Arkansas, Oklahoma, and Alabama as follows:
No. of Square
Market Area Locations Footage
----------- --------- -------
Ft. Smith/Van Buren MSA.................................... 9 135,430
Little Rock MSA............................................ 19 126,736
North and Central Arkansas................................. 14 54,624
Oklahoma................................................... 12 54,551
Fayetteville/Springdale MSA................................ 4 10,831
Tulsa MSA.................................................. 3 8,549
Alabama.................................................... 4 5,620
8
The Company owns 40 offices and leases the remaining 25 locations. The
leases have a range of terms and renewal options. Two of these facilities are
multi-story, multi-tenant offices. The Superior Tower located in Ft. Smith
consists of 95,000 square feet and is 75% occupied by the Company. The other
facility located in downtown Little Rock contains 45,000 square feet and is
53% occupied by the Company.
Item 3. Legal Proceedings
As a result of the acquisition of the Bank from Bank of America (formerly
NationsBank), the Company succeeded to Bank of America's right and interest in
the proceedings brought under the caption Superior Federal Bank, F.S.B. vs.
United States (No. 95-769C) (the "Goodwill Litigation"). The Goodwill
Litigation relates to claims for damages by the Bank against the United
States. Under the terms of the acquisition, the Company has agreed to pay Bank
of America 50% of any net recovery (total recovery obtained in a judgment or
settlement of the claims less litigation expenses). The Company is unable to
estimate the likelihood or amount of any judgment or settlement.
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable
9
PART II
Item 5. Market for Registrant's Common Stock and Related Security Holder
Matters
The Company's Common Stock is traded on the NASDAQ National Market System
under the symbol "SUFI". As of March 15, 2001, the Company had outstanding
9,050,921 shares of Common Stock, with 1,183 shareholders of record. Prior to
February 4, 1999, there was no established Trading market for the Common
Stock. On February 4, 1999, the Common Stock began trading on the NASDAQ
bulletin board. On November 11, 1999, the Common Stock began trading on the
NASDAQ National Market System.
The following table indicates the high and low bid prices for the Common
Stock for each quarter of 2000 and 1999. During the time that the Common Stock
was traded in the over-the-counter market, such quotations reflect interdealer
prices, without retail mark-up, mark-down or commission and may not
necessarily represent actual transactions. The Company paid no dividends on
the Common Stock in 1998, 1999 or 2000.
Bid Price of
2000 Common Stock
---- ---------------
High Low
------- -------
1st Quarter.................................................. $11.750 $ 7.937
2nd Quarter.................................................. 10.625 8.937
3rd Quarter.................................................. 11.250 10.062
4th Quarter.................................................. 12.812 10.750
Bid Price of
1999 Common Stock
---- ---------------
High Low
------- -------
1st Quarter.................................................. $11.250 $ 9.375
2nd Quarter.................................................. 11.000 9.500
3rd Quarter.................................................. 13.000 10.500
4th Quarter.................................................. 12.500 10.500
10
Item 6. Selected Financial Data
FINANCIAL INFORMATION
SELECTED CONSOLIDATED FINANCIAL DATA
Superior Federal Bank,
Superior Financial Corp. F.S.B.(2)
------------------------------- -------------------------------
Year Ended December 31 Year Ended December 31
------------------------------- -------------------------------
2000 1999 1998(1) 1998 1997 1996
--------- --------- --------- --------- --------- ---------
(Dollars in thousands except ratio amounts)
Income statement data:
Net interest income.... $ 41,620 $ 41,263 $ 24,282 $ 38,899 $ 38,305 $ 36,676
Provision for loan
losses................ 2,300 2,270 1,021 8,786 2,155 1,125
--------- --------- --------- --------- --------- ---------
Net interest income
after provision for
loan losses........... 39,320 38,993 23,261 30,113 36,150 35,551
Noninterest income..... 31,028 26,926 18,712 24,228 23,280 23,370
Noninterest expense.... 52,004 48,086 31,053 41,679 39,316 46,362
--------- --------- --------- --------- --------- ---------
Income before taxes.... 18,344 17,833 10,920 12,662 20,114 12,559
Net income............. 12,315 11,386 6,675 6,409 10,922 7,634
Balance sheet data at
December 31:
Total assets........... 1,661,465 1,591,945 1,378,716 1,368,171 1,256,153 1,206,235
Investments............ 363,008 354,915 364,061 358,877 382,211 449,006
Loans.................. 1,068,943 1,004,961 818,371 818,371 697,869 674,861
Allowance for loan
losses................ 12,086 11,346 10,472 10,472 4,660 5,058
Deposits............... 1,078,508 977,936 967,743 971,590 982,442 990,203
Total stockholders'
equity................ 111,317 105,586 101,812 168,968 161,832 84,521
Average balance sheet
data:
Total assets........... 1,615,841 1,516,603 1,292,196 1,287,756 1,291,295 1,252,641
Investments............ 360,681 357,318 334,321 339,384 410,876 480,728
Loans.................. 1,024,549 971,640 711,798 706,700 684,379 652,172
Allowance for loan
losses................ 11,874 11,041 10,465 9,055 4,886 5,003
Deposits............... 1,037,496 978,503 981,987 991,311 995,237 1,041,920
Total stockholders'
equity................ 111,714 106,309 88,410 167,296 156,432 85,556
Performance Ratios:
Return on average
assets................ .76% .75% .69% .50% .85% .61%
Return on average
common equity......... 11.02 10.71 10.05 3.83 6.98 8.92
Net interest margin.... 2.92 3.06 2.83 3.42 3.44 3.15
Efficiency ratio....... 66.92 70.32 72.25 66.34 63.84 77.21
Asset Quality Ratios:
Nonperforming assets to
total loans and other
real estate........... .49 .24 .48 .48 .82 .79
Net charge-offs to
average loans......... .15 .15 .20 .42 .37 .15
Allowance for loan
losses to total
loans................. 1.13 1.13 1.27 1.27 .67 .75
Allowance for loan
losses to
nonperforming loans... 269 579 313 313 91 107
Capital Ratios:
Tangible capital
ratio................. 3.35 3.16 2.85 7.99 7.40 6.66
Average stockholders'
equity to average
total assets.......... 6.80 7.00 6.84 12.99 12.11 6.83
Core capital ratio..... 3.35 3.16 2.85 7.99 7.40 6.60
Risk-based capital
ratio................. 6.46 6.19 5.50 16.70 15.69 15.06
- --------
(1) Superior Financial Corp. (the "Company") was organized on November 12,
1997 for the purpose of acquiring Superior Federal Bank, S.F.B. (the
"Bank"). The Company had no operations in 1997 other than the costs
associated with the private placement offering. The results of operations
of the Bank were consolidated with those of the Company from April 1,
1998, the date of the acquisition.
(2) The results of operations of the Bank are presented for the years ended
December 31, 1998, 1997, and 1996 as the Company was not organized until
1997 and had no significant operations until the Bank was acquired on
April 1, 1998.
11
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Superior Financial Corp. (the "Company") is a unitary thrift holding
company offering full service banking primarily in Arkansas and Oklahoma. The
Company was organized in 1997 as SFC Acquisition Corp. for the purpose of
acquiring Superior Federal Bank, F.S.B. (the "Bank"). On April 1, 1998 the
Company completed a private placement, and the proceeds were used to acquire,
in a purchase transaction, 100% of the common stock of the Bank. Prior to the
acquisition of the Bank on April 1, 1998, the Company did not have any
operations, other than the costs associated with the private placement
offering. The Bank is a federally chartered savings association. The following
Management's Discussion and Analysis of Financial Condition and Results of
Operations analyzes the major elements of the Company's consolidated balance
sheets and statements of operations. This section should be read in
conjunction with the Company's consolidated financial statements and
accompanying notes and other detailed information contained in this Annual
Report.
The Company's primary asset is its investment in 100% of the common stock
of the Bank and the Company's operations are funded primarily from the
operations of the Bank. The Bank's operating subsidiaries include Superior
Finance Company ("Superior Finance"), a consumer finance company, Superior
Financial Services, Inc., a discount brokerage, investment advisory and
insurance company, and SREH, Inc., a real estate investment trust holding
company.
In November 2000, Superior Finance completed the acquisition of four
consumer finance offices in north Alabama for approximately $125,000 in cash
from Southern Financial, Inc., a Nashville, Tennessee based finance company.
The four offices had net loans outstanding of approximately $6.5 million. The
acquisition was accounted for under the purchase method of accounting.
For the years ended December 31, 2000, 1999, and 1998
Results of Operations
Net income for the year ended December 31, 2000 was $12.3 million, an
increase of $.9 million from $11.4 million in 1999. The primary reason for
this increase was an increase in noninterest income which offset increased
noninterest expense. Net interest income, or the difference between interest
income and interest expense, and the provision for loan losses for 2000
remained relatively unchanged compared to 1999 with an increase of $.3
million, or .87% in net interest income, and an increase of $30 thousand, or
1.32% in the provision for loan losses. Net income per share--basic and
diluted for the year ended December 31, 2000 was $1.30, a 15.0% increase over
basic and diluted earnings per share of $1.13 for the year ended December 31,
1999. The increase in net income per share--basic and diluted, is due to the
increase in net income for 2000 and a decrease of 598,000 and 615,000 average
outstanding common shares basic and diluted, respectively, due to the
Company's stock repurchase programs. Return on average assets was .76% and
return on average common equity was 11.02% for the year ended December 31,
2000 compared to .75% and 10.71%, respectively, for the same time period in
1999. For the year ended December 31, 1998, net income was $6.7 million or
$.88 per share--basic and diluted. Returns on average assets and common equity
were .69% and 10.05%, respectively.
Total assets increased $69.5 million to $1.661 billion at December 31, 2000
from $1.592 billion at December 31, 1999. Increased loans outstanding were the
principal contributor to this increase in total assets as loans increased to
$1.069 billion at December 31, 2000 compared to $1.005 billion at December 31,
1999, an increase of $64 million or 6.4%. Deposits increased $100.6 million to
$1.079 billion at December 31, 2000 from $978 million at December 31, 1999. At
December 31, 1998, total assets were $1.379 billion, loans were $818 million,
and deposits were $968 million.
12
The table below presents the following:
(A) Historical results of Superior Financial Corp. for the year ended December
31, 2000 and 1999.
(B) Historical results of Superior Financial Corp. for the year ended December
31, 1998, including the results of operations of Superior Federal Bank,
F.S.B. from April 1, 1998, the date of the acquisition.
Superior Financial Corp.
------------------------
Year Ended December 31,
------------------------
2000 1999 1998
(A) (A) (B)
(Dollars in thousands)
Interest income....................................... $111,816 $99,776 $63,015
Interest expense...................................... 70,196 58,513 38,733
-------- ------- -------
Net interest income................................... 41,620 41,263 24,282
Provision for loan losses............................. 2,300 2,270 1,021
-------- ------- -------
Net interest income after provision................... 39,320 38,993 23,261
Noninterest income.................................... 31,028 26,926 18,712
Noninterest expense................................... 52,004 48,086 31,053
-------- ------- -------
Income before income taxes............................ 18,344 17,833 10,920
Income tax expense.................................... 6,029 6,447 4,245
-------- ------- -------
Net income............................................ $ 12,315 $11,386 $ 6,675
======== ======= =======
The following discussion compares the results of operations for the Company
for the years ended December 31, 2000, 1999, and 1998 unless otherwise
indicated. Any tables with data from 1997 or prior years represent amounts of
the Bank prior to being acquired by the Company.
Net Interest Income
Net interest income represents the amount by which interest income on
interest-earning assets, including investments and loans, exceeds interest
expense incurred on interest-bearing liabilities, including deposits and other
borrowed funds. Net interest income is the principal source of earnings.
Interest rate fluctuations, as well as changes in the amount and type of
earning assets and liabilities, combine to affect net interest income.
Factors that determine the level of net interest income include the volume
of earning assets and interest-bearing liabilities, yields earned and rates
paid, fee income from portfolio loans, the level of nonperforming loans and
other non-earning assets and the amount of noninterest bearing liabilities
supporting earning assets.
Net interest income for the year ended December 31, 2000 was $41.6 million,
an increase of $.3 million or .87% from the $41.3 million for the year ended
December 31, 1999. The net interest margin was 2.92% and 3.06% for the year
ended December 31, 2000 and 1999, respectively. For the Bank, the net interest
margin was 3.37% and 3.53% for the year ended December 31, 2000 and 1999,
respectively. The primary difference in the net interest margin for the
Company and the Bank, is the note payable and Senior Notes of the Company
which lower the net interest margin from that of the Bank. For the year ended
December 31, 1998, net interest income was $24.3 million and the net interest
margins for the Company and the Bank were 2.83% and 3.42%, respectively.
The increase in net interest income for 2000 over 1999 was primarily the
result of higher levels of earning assets offsetting the affects of higher
rates paid on interest-bearing liabilities. Earning assets averaged $1.472
billion for 2000 compared to $1.375 billion for 1999, an increase of $97
million or 7.1%. The Bank's rate paid on interest-bearing liabilities
increased to 4.74% in 2000 from 4.16% in 1999, an increase of .58% due to the
higher borrowing and deposit costs due to increases in market interest rates
by the Federal Reserve's Open
13
Market Committee and introduction of the Bank's new "Treasury Checking"
product. The yield on assets did not increase as quickly as the rate paid on
liabilities. The Bank's yield on earning assets for 2000 was 7.67% compared to
7.30% in 1999, an increase of .37%. The yield on earning assets for the year
ended 1998 and the rate paid on interest-bearing liabilities were 7.35% and
4.33%, respectively.
The following table presents the Bank's total dollar amount of average
balances, interest income from average interest-earning assets and interest
expense on average interest-bearing liabilities, expressed both in tax-
equivalent dollars and rates. Nonaccruing loans have been included in the
table as loans carrying a zero yield. Assets and liabilities of the Company
have been excluded.
Year Ended December 31,
-----------------------------------------------------------------------------------
2000 1999 1998
--------------------------- --------------------------- ---------------------------
Average Interest Avg. Average Interest Avg. Average Interest Avg.
Outstanding Earned/ Yield/ Outstanding Earned/ Yield/ Outstanding Earned/ Yield/
Balance Paid Rate Balance Paid Rate Balance Paid Rate
----------- -------- ------ ----------- -------- ------ ----------- -------- ------
(Dollars in thousands)
Assets
Interest-earning assets:
Loans................... $1,062,358 $ 85,465 8.04% $ 971,602 $75,388 7.79% $ 706,700 $56,536 8.00%
Investments............. 378,405 25,057 6.62 375,112 23,199 6.20 339,384 21,487 6.33
Other earning assets.... 25,363 1,974 7.78 22,580 1,227 5.41 92,815 5,638 6.07
---------- -------- ---------- ------- ---------- -------
Total interest-earning
assets................. 1,466,126 112,496 7.67 1,369,294 99,814 7.30 1,138,899 83,661 7.35
Less allowance for loan
losses................. 11,874 11,041 9,055
---------- ---------- ----------
Total earning assets,
net of allowance....... 1,454,252 1,358,253 1,129,844
Nonearning assets....... 152,127 146,623 157,912
---------- ---------- ----------
Total assets............ $1,606,379 $1,504,876 $1,287,756
========== ========== ==========
Liabilities and
stockholder's equity
Interest-bearing
liabilities:
Interest-bearing demand
deposits............... $ 265,509 $ 7,493 2.82% $ 205,444 $ 3,552 1.73% $ 197,182 $ 3,787 1.92%
Savings and money market
accounts............... 138,524 3,311 2.39 171,752 4,290 2.50 164,012 4,573 2.79
Certificates of
deposit................ 547,755 30,628 5.59 522,262 26,128 5.01 556,699 29,551 5.31
Borrowed funds.......... 387,992 22,047 5.68 344,682 17,953 5.14 114,463 6,795 5.94
---------- -------- ---------- ------- ---------- -------
Total interest-bearing
liabilities............ 1,339,780 63,479 4.74 1,244,140 51,923 4.16 1,032,356 44,706 4.33
Noninterest-bearing
liabilities:
Noninterest-bearing
demand deposits........ 88,655 80,578 70,962
Other liabilities....... 14,331 13,880 17,143
---------- ---------- ----------
Total liabilities....... 1,442,766 1,338,598 1,120,461
Stockholder's equity.... 163,613 166,278 167,295
---------- ---------- ----------
Total liabilities and
stockholder's equity... $1,606,379 $1,504,876 $1,287,756
========== ========== ==========
Net interest income..... $ 49,017 $47,891 $38,955
======== ======= =======
Net interest spread..... 2.93% 3.14% 3.02%
==== ==== ====
Net interest margin..... 3.37% 3.53% 3.42%
==== ==== ====
14
The following table presents the dollar amount of changes in tax-equivalent
interest income and interest expense for the major components of the Bank's
interest-earning assets and interest-bearing liabilities and distinguishes
between the increase (decrease) related to higher outstanding balances and the
volatility of interest rates. For purposes of this table, changes attributable
to both rate and volume, which can be segregated, have been allocated. Changes
not solely due to volume or rate changes are allocated to rate.
Year Ended December 31,
---------------------------------------------------
2000 versus 1999 1999 versus 1998
------------------------ -------------------------
Increase Increase
(decrease) (decrease)
--------------- ----------------
Volume Rate Total Volume Rate Total
------ ------- ------- ------- ------- -------
(Dollars in thousands)
Interest-earning assets:
Loans.................... $7,070 $ 3,007 $10,077 $20,503 $(1,651) $18,852
Investments.............. 204 1,654 1,858 2,204 (492) 1,712
Other earning assets..... 151 596 747 (3,800) (611) (4,411)
------ ------- ------- ------- ------- -------
Total increase (decrease)
in interest income...... 7,425 5,257 12,682 18,907 (2,754) 16,153
Interest-bearing
liabilities:
Interest-bearing demand
deposits................ 1,038 2,903 3,941 159 (394) (235)
Savings and money market
accounts................ (830) (149) (979) 216 (499) (283)
Certificates of deposit.. 1,277 3,223 4,500 (1,832) (1,591) (3,423)
Borrowed funds........... 2,226 1,868 4,094 13,663 (2,505) 11,158
------ ------- ------- ------- ------- -------
Total increase (decrease)
in interest expense..... 3,711 7,845 11,556 12,206 (4,989) 7,217
------ ------- ------- ------- ------- -------
Increase (decrease) in net
interest income.......... $3,714 $(2,588) $ 1,126 $ 6,701 $ 2,235 $ 8,936
====== ======= ======= ======= ======= =======
Noninterest Income
Noninterest income for the year ended December 31, 2000 was $31.0 million,
an increase of $4.1 million, or 15.2%, over the same period in 1999. For the
year ended December 31, 1998, noninterest income was $18.7 million.
The following table presents for the periods indicated the major components
of noninterest income:
Year Ended December 31,
-----------------------
2000 1999 1998
------- ------- -------
(Dollars in thousands)
Service charges on deposit accounts................. $25,666 $22,062 $15,229
Mortgage operations, net............................ 2,663 2,428 1,875
Other noninterest income............................ 2,699 2,436 1,608
------- ------- -------
Total noninterest income........................... $31,028 $26,926 $18,712
======= ======= =======
Service charges on deposit accounts consist primarily of insufficient funds
fees charged to customers. Service charges were $25.7 million for the year
ended December 31, 2000, compared to $22.1 million for the year ended December
31, 1999, an increase of $3.6 million, or 16.3%, and $15.2 million for the
year ended December 31, 1998. The increase in the number of transaction
accounts and the related service fee generation is the primary reason for the
growth in service charges and is largely due to the Company's successful
execution of its "Totally Free Checking" program to the lower to middle income
customers in the markets in which the Company operates. As demonstrated by the
trend from 1998 through 2000, management believes growth will continue as the
number of transaction accounts increase and the rate charged per item is
increased.
15
Noninterest Expense
For the year ended December 31, 2000, noninterest expense totaled $52.0
million, an increase of $3.9 million, or 8.1%, from $48.1 million in 1999. The
efficiency ratio, which is noninterest expense, excluding goodwill
amortization, divided by the sum of noninterest income excluding securities
transactions plus net interest income, for the year ended December 31, 2000,
was 66.92%, compared to 70.32% in 1999. For the year ended December 31, 1998,
noninterest expense was $31.1 million and the efficiency ratio was 72.25%.
Salary and benefit expense for the year ended December 31, 2000 was $24.6
million, an increase of $3.1 million, or 14.5%, from $21.5 million for the
year ended December 31, 1999. The increases during 2000 were due primarily to
the hiring of additional personnel required to accommodate loan growth,
expanded products and services, and additional branch offices.
Occupancy expense for the year ended December 31, 2000 was $3.6 million, an
increase of $.5 million, or 17.3%, from $3.1 million for the year ended
December 31, 1999. This increase was due to the opening of four new retail
banking branches and two new finance company offices. Major categories
included in occupancy expense are building lease expense, depreciation
expense, and maintenance expense.
Income Taxes
Income tax expense includes the regular federal income tax at the statutory
rate plus the income tax component of the applicable franchise taxes. The
amount of federal income tax expense is influenced by the amount of taxable
income, the amount of tax-exempt income, the amount of nondeductible interest
expense and the amount of other nondeductible expenses. For the year ended
December 31, 2000, income tax expense was $6.0 million, a decrease of $.4
million or 6.5% from $6.4 million for the year ended December 31, 1999 due to
higher levels of tax exempt income. The effective tax rate for 2000 was 32.9%
compared to 36.1% in 1999, due primarily to increased income exempt from
federal and state income taxes. For the year ended December 31, 1998, income
tax expense was $4.2 million and the effective tax rate was 38.9%.
Impact of Inflation
The effects of inflation on the local economy and on the Company's
operating results have been relatively modest for the past several years.
Since substantially all assets and liabilities are monetary in nature, such as
cash, securities, loans and deposits, their values are less sensitive to the
effects of inflation than to changing interest rates, which do not necessarily
change in accordance with inflation rates. The Company tries to control the
impact of interest rate fluctuations by managing the relationship between its
interest rate sensitive assets and liabilities. See "Financial Condition-
Interest Rate Sensitivity and Liquidity" below.
Financial Condition
Loan Portfolio
Loans were $1.069 billion at December 31, 2000, an increase of $64 million,
or 6.4%, from $1.005 billion at December 31, 1999. Consistent with the
Company's historically high rate of growth, this increase is believed to be
the result of the style of relationship banking featuring professional,
attentive and responsive service to customers' needs, and focusing on
commercial lending to middle market companies and private banking for
individuals. Additionally, financial institution mergers in the primary
markets that the Bank services have provided opportunities to attract under-
serviced customers.
16
The following table summarizes the loan portfolio by loan type:
December 31,
----------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
------------------ ------------------ ---------------- ---------------- ----------------
Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
---------- ------- ---------- ------- -------- ------- -------- ------- -------- -------
(Dollars in thousands)
Commercial.............. $ 41,920 3.9% $ 24,166 2.4% $ 10,800 1.3% $ 4,403 0.6% $ 2,704 0.4%
Consumer:
Direct................. 163,956 15.4 127,056 12.7 99,704 12.2 75,269 10.8 70,179 10.4
Indirect............... 188,416 17.6 196,988 19.6 174,316 21.3 156,072 22.4 145,059 21.5
Real Estate:
Construction and land
development........... 56,876 5.3 36,395 3.6 15,920 1.9 12,734 1.8 13,304 2.0
1-4 family
residential........... 468,144 43.8 520,871 51.8 477,062 58.3 409,135 58.6 416,668 61.7
Commercial owner
occupied.............. 149,631 14.0 99,485 9.9 40,569 5.0 40,257 5.8 26,947 4.0
---------- ----- ---------- ----- -------- ----- -------- ----- -------- -----
$1,068,943 100.0% $1,004,961 100.0% $818,371 100.0% $697,870 100.0% $674,861 100.0%
========== ===== ========== ===== ======== ===== ======== ===== ======== =====
The primary lending focus of the Company is on small and medium sized
commercial, residential mortgage and consumer loans. The Company offers a
variety of commercial lending products including term loans, lines of credit
and equipment financing. A broad range of short-to-medium-term commercial
loans, both secured and unsecured, is made available to business for working
capital (including inventory and receivables), business expansion (including
acquisitions of real estate and improvements) and the purchase of equipment.
The purpose of a particular loan determines its structure.
Generally, the Company's commercial loans are underwritten in the Company's
primary market area on the basis of the borrower's ability to service such
debt from income. As a general practice, the Company takes as collateral a
lien on any available real estate, equipment or other assets. Working capital
loans are primarily collateralized by short-term assets whereas term loans are
primarily collateralized by long-term assets.
A substantial portion of the Company's real estate loans consists of
single-family residential mortgage loans collateralized by owner-occupied
properties located in the Company's primary market area. The Company offers a
variety of mortgage loan products, which generally are amortized over 3 to 30
years. Loans collateralized by single-family residential real estate generally
have been originated in amounts of no more than 90% of appraised value. The
Company requires mortgage title insurance and hazard insurance in the amount
of the loan.
Consumer loans made by the Company include automobile loans, recreational
vehicle loans, boat loans, home improvement loans, personal loans (secured and
unsecured) and deposit account collateralized loans. The terms of these loans
typically range from 12 to 60 months and vary based upon the nature of
collateral and size of the loan.
A loan is considered impaired, based on current information and events, if
it is probable that the Company will be unable to collect the scheduled
payments of principal or interest when due according to the contractual terms
of the loan agreement. The measurement of impaired loans is based on the
present value of expected future cash flows discounted at the loan's effective
interest rate or the loan's observable market price or based on the fair value
of the collateral if the loan is collateral-dependent.
17
Maturity and Interest Rate Sensitivity of Loans
The following table reflects commercial and construction loans by remaining
maturity and by predetermined or variable rate:
At December 31, 2000, maturing
in:
-------------------------------
Over One
One Through Over
Year or Five Five
Less Years Years Total
------- -------- ------ -------
(Dollars in thousands)
Commercial..................................... $19,589 $15,321 $7,010 $41,920
Real estate-construction....................... 56,876 -- -- 56,876
------- ------- ------ -------
Total......................................... $76,465 $15,321 $7,010 $98,796
======= ======= ====== =======
Predetermined rates............................ $67,725 $ 8,230 $6,308 $82,263
Variable rates................................. 8,740 7,091 702 16,533
Nonperforming Assets
The Company's conservative lending approach has resulted in strong asset
quality. Nonperforming assets at December 31, 2000 were $5.3 million, compared
with $2.4 million at December 31, 1999. The increase was primarily the result
of three commercial real estate and construction relationships. This resulted
in a ratio of nonperforming assets to loans plus other real estate of .49%,
and .24% as of year-end 2000 and 1999, respectively.
The following table presents information regarding nonperforming assets as
of the dates indicated:
December 31,
--------------------------------------
2000 1999 1998 1997 1996
------ ------ ------ ------ ------
(Dollars in thousands)
Nonaccrual loans...................... $4,495 $1,959 $3,348 $5,098 $4,715
Other real estate and foreclosed
property............................. 779 437 594 662 600
------ ------ ------ ------ ------
Total nonperforming assets........... $5,274 $2,396 $3,942 $5,760 $5,315
====== ====== ====== ====== ======
Nonperforming assets to total loans
and other real estate................ .49% .24% .48% .82% .79%
====== ====== ====== ====== ======
The Company has well developed procedures in place to maintain a high
quality loan portfolio. These procedures begin with approval of lending
policies and underwriting guidelines by the Board of Directors, low individual
lending limits for officers, Senior Loan Committee approval for large credit
relationships and quality loan documentation procedures. The loan review
department identifies and analyzes weaknesses in the portfolio and reports
credit risk grade changes on a quarterly basis to bank management and
directors. The Company also maintains a well developed monitoring process for
credit extensions. The Company has established underwriting guidelines to be
followed by its officers. The Company also monitors its delinquency levels for
any negative or adverse trends, and collection efforts are done on a
centralized basis. The Company also has procedures to bring rapid resolution
of non-performing loans and prompt and orderly liquidation of real estate,
automobiles and other forms of collateral.
The Company generally places a loan on nonaccrual status and ceases
accruing interest when loan payment performance is deemed unsatisfactory. All
loans past due 90 days, however, are placed on nonaccrual status, unless the
loan is both well collateralized and in the process of collection. Cash
payments received while a loan is classified as nonaccrual are recorded as a
reduction of principal as long as doubt exists as to collection. The Company
is sometimes required to revise a loan's interest rate or repayment terms in a
troubled debt restructuring. The Company regularly updates appraisals on loans
collateralized by real estate, particularly those categorized as nonperforming
loans and potential problem loans. In instances where updated appraisals
reflect
18
reduced collateral values, an evaluation of the borrower's overall financial
condition is made to determine the need, if any, for possible write-downs or
appropriate additions to the allowance for loan losses.
As of December 31, 2000, the Company had no non-government sponsored
accruing loans that were contractually past due 90 days or more. However, the
Company continues to accrue interest for government-sponsored loans such as
FHA insurance and VA guaranteed loans which are past due 90 or more days, as
the interest on these loans is insured by the federal government. The
aggregate unpaid principal balance of accruing loans past due 90 days or more
was $16.0 million and $48.2 million as of December 31, 2000 and 1999,
respectively. Of the 90 or more days past due and still accruing balances as
of December 31, 2000, $11.3 million represent the remaining principal balance
of $46 million of FHA insured and VA guaranteed mortgages purchased by the
Bank in June, 1999. The contract called for the Bank to receive a pass through
net yield of 7.13% and the loans would be paid off upon foreclosure and the
servicer's receipt of the individual claims from either FHA or VA. The
servicing of these loans has been terminated upon the default of the servicer,
which subsequently filed for bankruptcy. Management believes that the
remaining principal balance and interest on these loans will be collected with
no material adverse impact to the Bank.
The Company records real estate acquired by foreclosure at the lesser of
the outstanding loan balance, net of any reduction in basis, or the fair value
at the time of foreclosure, less estimated costs to sell.
Allowance for Loan Losses
The following table presents, for the periods indicated, an analysis of the
allowance for loan losses and other related data:
Years Ended December 31,
-----------------------------------------
2000 1999 1998 1997 1996
------- ------- ------- ------ ------
(Dollars in thousands)
Allowance for loan losses at
January 1......................... $11,346 $10,472 $ 4,660 $5,058 $4,930
Provision for loan losses.......... 2,300 2,270 8,786 2,115 1,125
Charge-offs:
Commercial........................ (316) (107) -- -- --
Real estate-construction.......... (74) -- (43) -- --
Real estate-mortgage.............. (81) (104) -- -- --
Consumer.......................... (2,624) (2,684) (4,308) (2,969) (1,322)
------- ------- ------- ------ ------
Total charge-offs................ (3,095) (2,895) (4,351) (2,969) (1,322)
Recoveries:
Commercial........................ 54 27 -- -- --
Real estate-construction.......... 2 -- 58 -- --
Real estate-mortgage.............. 9 52 -- -- --
Consumer.......................... 1,470 1,420 1,319 456 325
------- ------- ------- ------ ------
Total recoveries................. 1,535 1,499 1,377 456 325
------- ------- ------- ------ ------
Net charge-offs.................... (1,560) (1,396) (2,974) (2,513) (997)
------- ------- ------- ------ ------
Allowance for loan losses at
December 31....................... $12,086 $11,346 $10,472 $4,660 $5,058
======= ======= ======= ====== ======
Allowance to period-end loans...... 1.13% 1.13% 1.27% 0.67% 0.75%
Net charge-offs to average loans... 0.15 0.15 0.20 0.37 0.15
Allowance to period-end
nonperforming loans............... 269 579 313 91 107
The Company continuously monitors its underwriting procedures in an attempt
to maintain loan quality. Additionally, the Company is executing a strategy of
achieving more balance between the amount of commercial, mortgage, and
consumer loans outstanding. This strategy has resulted in growth of
commercial, construction, commercial real estate, and consumer loans while
maintaining a fairly stable level of mortgage loans.
19
Automobile loans are the largest component of consumer loans which are
summarized below:
Direct Indirect Total
----------- ------------ ------------
1996................................... $22,038,000 $145,059,000 $167,097,000
1997................................... 27,321,000 156,072,000 183,393,000
1998................................... 25,308,000 174,316,000 199,624,000
1999................................... 39,875,000 196,988,000 236,863,000
2000................................... 50,500,000 188,416,000 238,916,000
The provisions to the allowance for loan losses are based on management's
judgment and evaluation of the loan portfolio utilizing both objective and
subjective criteria. The objective criteria utilized by the Company to assess
the adequacy of its allowance for loan losses and required additions to such
reserve are (1) an internal grading system, (2) a peer group analysis, and (3)
a historical analysis. In addition to these objective criteria, the Company
subjectively assesses adequacy of the allowance for loan losses and the need
for additions thereto, with consideration given to the nature and volume of
the portfolio, overall portfolio quality, review of specific problem loans,
national, regional and local business and economic conditions that may affect
the borrowers' ability to pay or the value of collateral securing the loans,
and other relevant factors. The Company's allowance for loan losses increased
to $12.1 million at December 31, 2000, or 1.13% of total loans, compared with
$11.3 million, or 1.13% of total loans, at December 31, 1999. While management
believes the current allowance is adequate, changing economic and other
conditions may require future adjustments to the allowance for loan losses.
The Company uses an internal credit grading system in determining the
adequacy of the allowance for loan losses. This analysis assigns grades to all
loans except owner-occupied 1-4 family residential loans and consumer loans.
Graded loans are assigned to one of nine risk reserve allocation percentage.
The loan grade for each individual loan is determined by the loan officer at
the time it is made and changed from time to time to reflect an ongoing
assessment of loan risk. Loan grades are reviewed on specific loans from time
to time by senior management and as part of the Company's internal loan review
process. Owner-occupied 1-4 family residential and consumer loans are assigned
a reserve allocation percentage based on past due status and the level of
cumulative net charge-offs for the five preceding calendar years.
The sum of all reserve amounts determined by this methodology is utilized
by management as the primary indicator of the appropriate reserve level. The
unallocated reserve generally serves to compensate for the uncertainty in
estimating loan losses, including the possibility of changing risk ratings or
specific reserve allocations.
The Company subjectively assesses the adequacy of the allowance for loan
losses by considering the nature and volume of the portfolio, overall
portfolio quality, review of specific problem loans, national, regional and
local business and economic conditions that may affect the borrowers' ability
to pay or the value of collateral securing the loans, and other relevant
factors. Although the Company does not determine the overall allowance based
upon the amount of loans in a particular type or category (except in the case
of owner-occupied 1-4 family residential and consumer installment loans), risk
elements attributable to particular loan types or categories are considered in
assigning loan grades to individual loans. These risk elements include the
following: (1) for non-farm/non-residential loans and multifamily residential
loans, the debt service coverage ratio (income from the property in excess of
operating expenses compared to loan payment requirements), operating results
of the owner in the case of owner-occupied properties, the loan to value
ratio, the age and condition of the collateral and the volatility of income,
property value and future operating results typical of properties of that
type; (2) for construction and land development loans, the perceived
feasibility of the project including the ability to sell developed lots or
improvements constructed for resale or ability to lease property constructed
for lease, the quality and nature of contracts for presale or preleasing if
any, experience and ability of the developer and loan to value ratios; (3) for
commercial and industrial loans, the operating results of the commercial,
industrial or professional enterprise, the borrower's business, professional
and financial ability and expertise, the specific risks
20
and volatility of income and operating results typical for businesses in that
category and the value, nature and marketability of collateral. In addition,
for each category the Company considers secondary sources of income and the
financial strength of the borrower and any guarantors.
Management reviews the allowance on a quarterly basis to determine whether
the amount of regular monthly provision should be increased or decreased or
whether additional provisions should be made to the allowance. The allowance
is determined by management's assessment and grading of individual loans in
the case of loans other than owner-occupied 1-4 family residential and
consumer loans and specific reserves made for other categories of loans. The
total allowance amount is available to absorb losses across the Company's
entire portfolio.
The following tables describe the allocation of the allowance for loan
losses among various categories of loans and certain other information as of
the dates indicated. The allocation is made for analytical purposes and is not
necessarily indicative of the categories in which future loan losses may
occur. The total allowance is available to absorb losses from any segment of
loans.
Percent of Percent of
Allowance Loans
to Total to Total
Amount Allowance Loans
------- ---------- ----------
(Dollars in thousands)
December 31, 2000
Balance of allowance for loan losses applicable
to:
Commercial..................................... $ 314 3% 3.9%
Real estate:
Construction and land development............. 1,677 14 5.3
1-4 family residential........................ 1,615 13 43.8
Commercial owner occupied..................... 1,646 14 14.0
Consumer....................................... 4,388 36 33.0
Unallocated.................................... 2,446 20 --
------- --- -----
Total allowance for loan losses................ $12,086 100% 100.0%
======= === =====
December 31, 1999
Balance of allowance for loan losses applicable
to:
Commercial..................................... $ 299 3% 2.4%
Real estate:
Construction and land development............. 618 6 3.6
1-4 family residential........................ 1,575 14 51.8
Commercial owner occupied..................... 1,059 9 9.9
Consumer....................................... 4,618 40 32.3
Unallocated.................................... 3,177 28 --
------- --- -----
Total allowance for loan losses................. $11,346 100% 100.0%
======= === =====
December 31, 1998
Balance of allowance for loan losses applicable
to:
Commercial..................................... $ 165 2% 1.3%
Real estate:
Construction and land development............. -- -- 1.9
1-4 family residential........................ 1,466 14 58.3
Commercial owner occupied..................... 638 6 5.0
Consumer....................................... 6,527 62 33.5
Unallocated.................................... 1,676 16 --
------- --- -----
Total allowance for loan losses................. $10,472 100% 100.0%
======= === =====
21
Percent of Percent of
Allowance Loans
to Total to Total
Amount Allowance Loans
------ ---------- ----------
(Dollars in thousands)
December 31, 1997
Balance of allowance for loan losses applicable
to:
Commercial...................................... $ -- -- % 0.6%
Real estate:
Construction and land development.............. -- -- 1.8
1-4 family residential......................... 694 15 58.6
Commercial owner occupied...................... 319 7 5.8
Consumer........................................ 3,603 77 33.2
Unallocated..................................... 44 1 --
------ --- -----
Total allowance for loan losses.................. $4,660 100% 100.0%
====== === =====
December 31, 1996
Balance of allowance for loan losses applicable
to:
Commercial...................................... $ -- -- % 0.4%
Real estate:
Construction and land development.............. -- -- 2.0
1-4 family residential......................... 678 13 61.7
Commercial owner occupied...................... 557 11 4.0
Consumer........................................ 3,641 72 31.9
Unallocated..................................... 182 4 --
------ --- -----
Total allowance for loan losses.................. $5,058 100% 100.0%
====== === =====
The principal area of risk continues to be in the indirect consumer loan
portfolio, as this category has experienced the highest level of charge-offs
during the past five years. Charge-offs for the years 1996-2000 have primarily
been in the indirect consumer loan portfolio.
Investments
The Company's investment portfolio is the second largest component of
earning assets. It provides a significant source of revenue for the Company
and acts as a source of funding should the Company experience unanticipated
deposit withdrawals or loan demand. At the date of purchase, the Company is
required to classify debt and equity securities into one of three categories:
held to maturity, trading or available for sale. At each reporting date, the
appropriateness of the classification is reassessed. Investments in debt
securities are classified as held to maturity and measured at amortized cost
in the financial statements only if management has the positive intent and
ability to hold those securities to maturity. Securities that the Company does
not have the positive intent and ability to hold to maturity and all
marketable equity securities are classified as available for sale or trading
and carried at fair value. Unrealized holding gains and losses on securities
classified as available for sale are carried as a separate component of
stockholders' equity. All investments held by the Company as of December 31,
2000, 1999 and 1998 are classified as available for sale.
22
The following table presents the amortized cost and estimated market values
for investment securities as of the dates shown.
December 31, 2000 December 31, 1999
---------------------------------------- ----------------------------------------
Estimated Estimated
Unrealized Unrealized Fair Unrealized Unrealized Fair
Cost Gains Losses Value Cost Gains Losses Value
-------- ---------- ---------- --------- -------- ---------- ---------- ---------
(Dollars in thousands)
Mortgage-backed
securities............. $176,401 $ -- $(1,591) $174,810 $180,394 $12 $(3,305) $177,101
CMOs.................... 87,729 -- (1,744) 85,985 96,074 -- (3,078) 92,996
Corporate securities.... 45,813 -- (1,807) 44,006 45,652 -- (1,831) 43,821
Agency notes/bonds...... 32,001 388 -- 32,389 32,165 -- (488) 31,677
Municipal securities.... 25,337 481 -- 25,818 10,087 -- (767) 9,320
-------- ------ ------- -------- -------- --- ------- --------
Total investments....... $367,281 $ 869 $(5,142) $363,008 $364,372 $12 $(9,469) $354,915
======== ====== ======= ======== ======== === ======= ========
December 31, 1998
----------------------------------------
Estimated
Unrealized Unrealized Fair
Cost Gains Losses Value
-------- ---------- ---------- ---------
(Dollars in thousands)
Mortgage-backed
securities............. $296,895 $1,814 $(1,350) $297,359
CMOs.................... 59,130 56 (47) 59,139
Corporate securities.... 7,563 -- -- 7,563
Agency notes/bonds...... -- -- -- --
Municipal securities.... -- -- -- --
-------- ------ ------- --------
Total investments....... $363,588 $1,870 $(1,397) $364,061
======== ====== ======= ========
At December 31, 2000, investments totaled $363.0 million, an increase of
$8.1 million, or 2.3%, from December 31, 1999. This increase was due to a
decrease in unrealized holding losses on available for sale securities of
approximately $5.1 million and purchases of municipal securities. The weighted
average yield on investments was 6.62% in 2000, 6.20% in 1999, and 6.33% in
1998. During 2000, the Company purchased $15.9 million of federal tax-exempt
municipal bonds. With the anticipated growth in deposits and loans, management
believes the securities portfolio will remain at approximately the December
31, 2000 level.
The Company did not hold any securities classified as trading securities
during 2000, 1999 or 1998.
The Company has no mortgage-backed securities that have been issued by non-
agency entities.
At December 31, 2000, 70% of investments available for sale held by the
Company had final maturities of more than 10 years. At December 31, 2000,
approximately $80.8 million of the Company's mortgage-backed securities earned
interest at floating rates and repriced within one year, and accordingly were
less susceptible to declines in value should interest rates increase, but
benefit less than fixed rate securities in value changes during a time of
declining interest rates.
23
The following table summarizes the amortized cost, by contractual maturity,
of investments (including securities, federal funds sold and interest-bearing
deposits) and their weighted average tax-equivalent yields. Expected
maturities will differ from contractual maturities because issuers may have
the right to call or prepay obligations with or without call or prepayment
penalties.
December 31, 2000
---------------------------------------------------------------------------------------
After One Year After Five Years
but within but within
Within One Year Five Years Ten Years After Ten Years Total
---------------- --------------- ------------------ ----------------- --------------
Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
-------- ------- -------- ------ ---------- ------- --------- ------- -------- -----
(Dollars in thousands)
Mortgage-backed
securities............. $ -- -- % $ 31 6.37% $ 50,491 6.37% $ 125,879 6.56% $176,401 6.51%
CMOs.................... -- -- -- -- -- -- 87,729 6.36 87,729 6.36
Corporate securities.... -- -- 4,311 6.82 30,809 7.12 10,693 7.35 45,813 7.14
Agency notes/bonds...... 5,202 5.75 231,923 7.42 24,876 6.89 -- -- 32,001 6.74
Municipal Securities.... -- -- 190 8.64 810 8.29 24,337 8.32 25,337 8.32
-------- ------ -------- ----- ---------- ------ --------- ----- -------- ----
Total investments
available for sale..... $ 5,202 5.75% $ 6,455 7.05% $ 106,986 6.72% $ 248,638 6.69% $367,281 6.69%
Federal Home Loan Bank
stock.................. -- -- -- -- -- -- 23,713 6.50 23,713 6.50
Interest-bearing
deposits............... 686 5.95 -- -- -- -- -- -- 686 5.95
-------- ------ -------- ----- ---------- ------ --------- ----- -------- ----
Total................... $ 5,888 5.77% $ 6,455 7.05% $ 106,986 6.72% $ 272,351 6.67% $391,680 6.68%
======== ====== ======== ===== ========== ====== ========= ===== ======== ====
Deposits
The Company's ratio of average demand deposits to average total deposits
for years ended December 31, 2000, 1999, and 1998 were 34%, 29%, and 27%,
respectively.
Average total deposits during 2000 increased to $1.037 billion from $978.5
million in 1999, an increase of $59.0 million or 6.0%. Average noninterest-
bearing deposits increased to $85.7 million in 2000 from $79.1 million in 1999
due to the increase in the number of deposit accounts. During the first
quarter of 1999, the Company completed the sale of one branch facility located
in Oklahoma. The total deposits for the sold branch were approximately $10.7
million. In the third quarter of 1998, the Company sold nine branches located
in Arkansas and Oklahoma. Deposits for these branches totaled $84.5 million.
The daily average balances and weighted average rates paid on deposits for
each of the years ended December 31, 2000, 1999, and 1998 are presented below:
Year Ended December 31,
---------------------------------------------
2000 1999 1998
--------------- ------------- -------------
Amount Rate Amount Rate Amount Rate
---------- ---- -------- ---- -------- ----
(Dollars in thousands)
NOW accounts................... $ 265,509 2.82% $205,444 1.73% $197,182 1.92%
Regular savings................ 96,979 2.11 107,297 2.13 105,400 2.33
Money market................... 41,546 3.05 64,455 3.12 58,612 3.61
CDs............................ 547,755 5.59 522,221 5.01 556,699 5.31
---------- -------- --------
Total interest-bearing
deposits...................... 951,789 4.35 899,417 3.78 917,893 4.13
Noninterest-bearing deposits... 85,707 79,086 64,094
---------- -------- --------
Total deposits................. $1,037,496 $978,503 $981,987
========== ======== ========
The Company's strategy is focused on the growth of transaction accounts
(checking and savings accounts) through the "Totally Free Checking" product.
Additionally, the Company introduced a new product in late 1999, "Treasury
Checking", an interest-bearing demand account which was designed to attract
higher balance accounts. These transaction accounts have lower interest rates
than certificates of deposit, which will tend to increase the Company's net
interest margin, and generate service charge income. The Company continues to
experience growth in the noninterest-bearing checking accounts and NOW
accounts.
24
Maturity Distribution of Time Deposits $100,000 and Over
December 31,
2000
------------
Certificates
of Deposit
------------
(Dollars in
thousands)
Three months or less......................................... $49,133
Over three months to six months.............................. 11,541
Over six months to year...................................... 12,724
Over year.................................................... 8,961
-------
Total........................................................ $82,359
=======
Borrowings
Other short-term borrowings, consisting of Federal Home Loan Bank Advances;
Treasury, Tax and Loan deposits; and repurchase agreements, generally
represent borrowings with maturities under one year. Information relating to
these borrowings at December 31 is summarized as follows:
2000 1999 1998
-------- -------- --------
(Dollars in thousands)
Other short-term borrowings:
Average daily outstanding........................ $147,556 $126,474 $ 12,213
Year-end......................................... 110,535 205,500 12,040
Maximum month-end balance during year............. 195,061 205,500 162,217
Interest rate:
Average.......................................... 6.06% 5.29% 3.83%
Year-end......................................... 6.11% 5.78% 4.95%
Interest Rate Sensitivity and Liquidity
Asset and liability management is concerned with the timing and magnitude
of repricing assets compared to liabilities. It is the objective of the
Company to generate stable growth in net interest income and to attempt to
control risks associated with interest rate movements. In general,
management's strategy is to reduce the impact of changes in interest rates on
its net interest income by maintaining a favorable match between the
maturities or repricing dates of its interest-earning assets and interest-
bearing liabilities. The Company's asset and liability management strategy is
formulated and monitored by the Asset Liability Committee, which is composed
of senior officers of the Company, in accordance with policies approved by the
Company's Board of Directors. This committee meets regularly to review, among
other things, the sensitivity of the Company's assets and liabilities to
interest rate changes, the book and market values of assets and liabilities,
unrealized gains and losses, purchase and sale activity, and maturities of
investments and borrowings. The Asset Liability Committee also approves and
establishes pricing and funding decisions with respect to the Company's
overall asset and liability composition. The Committee reviews the Company's
liquidity, cash flow flexibility, maturities of investments, deposits and
borrowings, retail and institutional deposit activity, current market
conditions, and interest rates on both a local and national level.
The Company reports to the Board of Directors rate sensitive assets minus
rate sensitive liabilities divided by total earning assets on a cumulative
basis quarterly. At December 31, 2000, this ratio was a positive 7.3%. The
Company estimates that a 100 basis point change in interest rates would have
no significant impact on its net interest income over a twelve-month period.
The Committee regularly reviews interest rate risk exposure by forecasting the
impact of alternative interest rate environments on net interest income. The
interest rate sensitivity ("GAP") is defined as the difference between
interest-earning assets and interest-bearing liabilities maturing or repricing
within a given time period. A GAP is considered positive when the amount of
interest rate sensitive
25
assets exceeds the amount of interest rate sensitive liabilities. A GAP is
considered negative when the amount of interest rate sensitive liabilities
exceeds interest rate sensitive assets. During a period of rising interest
rates, a negative GAP would tend to adversely affect net interest income,
while a positive GAP would tend to result in an increase in net interest
income. During a period of falling interest rates, a negative GAP would tend
to result in an increase in net interest income, while a positive GAP would
tend to affect net interest income adversely. While the interest rate
sensitivity GAP is a useful measurement and contributes toward effective asset
and liability management, it is difficult to predict the effect of changing
interest rates solely on the measure. Because different types of assets and
liabilities with the same or similar maturities may react differently to
changes in overall market rates or conditions, changes in interest rates may
affect net interest income positively or negatively even if an institution
were perfectly matched in each maturity category.
Shortcomings are inherent in any GAP analysis since certain assets and
liabilities may not move proportionally as interest rates change.
Consequently, as the interest rate environment has become more volatile, the
Company's management has increased monitoring its net interest rate
sensitivity position and the effect of various interest rate environments on
earnings.
U.S. money market interest rate market presents the primary risk exposure
to the Company. In measuring and managing interest rate risk, the Company uses
gap analysis, net interest income simulation, and economic value equity
modeling. The following table sets forth a gap interest rate sensitivity
analysis for the Bank as of December 31, 2000. Assets and liabilities of the
Company have been excluded.
Period/Cumulative GAP Analysis
----------------------------------------------------------
91-180 181-360 After One
0-90 Days Days Days Year Total
--------- --------- --------- ---------- ----------
(Dollars in thousands)
Interest-earning assets:
Money market funds..... $ 686 $ -- $ -- $ -- $ 686
Investments............ 35,039 45,391 45,045 260,317 385,792
Loans.................. 63,697 96,531 165,542 768,026 1,093,796
--------- --------- --------- ---------- ----------
Total interest-earning
assets............... $ 99,422 $ 141,922 $ 210,587 $1,028,343 $1,480,274
========= ========= ========= ========== ==========
Interest-bearing
liabilities:
Demand, money market
and savings deposits.. $ 426,226 $ -- $ -- $ -- $ 426,226
Certificates of deposit
and other time
deposits.............. 193,202 139,335 129,495 100,425 562,457
Borrowings............. 92,423 -- 18,000 273,112 383,535
--------- --------- --------- ---------- ----------
Total interest-bearing
liabilities.......... $ 711,851 $ 139,335 $ 147,495 $ 373,537 $1,372,218
========= ========= ========= ========== ==========
Period GAP.............. $(612,429) $ 2,587 $ 63,092 $ 654,806 $ 108,506
Cumulative GAP.......... (612,429) (609,842) (546,750) 108,506
Period GAP to earning
assets................. (41.4)% .2 % 4.3 % 44.2% 7.3%
Cumulative GAP to
earning assets......... (41.4)% (41.2)% (36.9)% 7.3%
The GAP sensitivity analysis shows when balances may be repriced. Net
interest income, however, is also affected by how much the interest rates
change for each of the balances. For example, when national money market rates
change, interest rates on the Company's savings accounts may not change as
much as interest rates on its commercial loans. This is a limiting factor for
the GAP analysis. Management does not believe the Note Payable and the Senior
Notes used to finance the acquisition of the Bank have a significant impact on
the Company's interest rate exposure. The Note Payable has a floating interest
rate based upon LIBOR. The Senior Notes mature on April 1, 2003 and have a
fixed interest rate. The combination of these two financing options minimize
the impact of the interest rate changes of the risk profile of the Company.
26
As of December 31, 2000, the Company's net interest income simulation model
indicates that a parallel 100 basis point increase in interest rates along the
yield curve would lower net interest income by up to 6% for the next 12
months, while a 100 basis point decrease would raise net interest income by up
to 6%. The model includes balances, asset prepayment speeds, and the interest
rate relationships among balances that management judges 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 the Company's market risk exposure. Among the interest rate
relationships, there are caps and floors on the Bank's portfolio of adjustable
rate mortgage loans and mortgage backed securities.
The Company manages its interest rate risk through investment in
appropriate fixed and variable rate assets, acquisition of non-rate sensitive
core deposits, and adjustments in maturities of Federal Home Loan Bank
advances. The Bank does not use off-balance sheet instruments.
Short and intermediate term interest rates have declined substantially
since year-end, while longer term interest rate have decreased moderately.
Still, there is a slight inversion of the U.S. Treasury yield curve through
two years, with a normal positive sloping curve thereafter. The Federal
Reserve may further ease money market conditions in upcoming months to
counteract softness in economic conditions. Additionally, yields on non-U.S
Treasury securities all along the yield curve may have wider spreads relative
to yields on U.S. Treasury securities than has generally been the case. This
would be caused by the reduced supply of U.S. Treasury securities due to the
federal government's continuing budget surplus.
Capital Resources
Stockholders' equity increased $5.7 million, or 5.1%, to $111.3 million at
December 31, 2000 from $105.6 million at December 31, 1999. This increase was
the result of the $12.3 million in net income for 2000, $3.4 million
improvement in the net equity adjustment from the unrealized loss on
available-for-sale investments, and a $10 million reduction for treasury stock
purchased in 2000. The Company paid no dividends in 2000, 1999, or 1998.
The following table provides a comparison of the Bank's leverage and risk-
weighted capital ratios to the minimum regulatory standards:
December 31, 2000
--------------------------------
Well-Capitalized
Bank Minimum Minimum
Ratio Required Required
----- -------- ----------------
Tangible capital ratio...................... 7.27% 1.50% 5.00%
Core capital ratio.......................... 7.27% 4.00% 6.00%
Risk-based capital ratio.................... 12.62% 8.00% 10.00%
December 31, 1999
--------------------------------
Well-Capitalized
Bank Minimum Minimum
Ratio Required Required
----- -------- ----------------
Tangible capital ratio...................... 7.20% 1.50% 5.00%
Core capital ratio.......................... 7.20% 4.00% 6.00%
Risk-based capital ratio.................... 12.59% 8.00% 10.00%
Year 2000
The Company completed its Year 2000 Project as scheduled. The Company's
computer and other systems with imbedded microchips have operated without Year
2000 related problems and appear to be Year 2000 compliant. The Company is not
aware that any of its software and hardware vendors, major loan customers,
correspondent banks or governmental agencies with which the company interacts
have experienced material Year 2000 related problems.
27
While the Company believes all of its critical systems are Year 2000
compliant, there can be no guarantee the Company has discovered all possible
failure points including all of its systems, non-ready third parties whose
systems and failures could impact the Company, or other uncertainties. Many
experts believe that the risk of potential Year 2000 related failures
continues beyond January 1, 2000 as certain sensitive target dates occur. As a
result, the Company continues to monitor its own systems (including new
systems brought into operation by the Company) and maintain contact with
mission critical third parties as these target dates pass. Additionally, the
Company will maintain its previously developed contingency plan for
implementation in the event that mission critical third party systems fail to
address remaining Year 2000 issues.
The Company's aggregate expenses incurred with respect to its Year 2000
Project were less than $250,000, all of which have been expensed through
December 31, 2000. A significant portion of these costs were represented by
the redeployment of existing staff to the Year 2000 Project. No projects under
consideration by the Company have been deferred because of Year 2000 efforts.
The Company does not anticipate further material costs relating to the Year
2000 issue.
Recent Accounting Standards
In June 1998, The Financial Accounting Standards Board ("FASB") issued
Statement No. 133 ("SFAS 133"), "Accounting for Derivative Instruments and
Hedging Activities". SFAS 133, which requires the Company to recognize all
derivatives on the balance sheet at fair value, is effective for years
beginning after June 15, 2000. SFAS 133 permits early adoption as of the
beginning of any fiscal quarter that begins after June 1998. The Company will
adopt SFAS 133 effective January 1, 2001. Derivatives that are not hedges must
be adjusted to fair value through income. If the derivative is a hedge,
depending on the nature of the hedge, changes in the fair value of derivatives
are either offset against the change in fair value of the assets, liabilities,
or firm commitments through operating results or recognized in other
comprehensive income until the hedged item is recognized in operating results.
The ineffective portions of a derivative's change in fair value will be
immediately recognized in operating results. The Company does not anticipate
the adoption of this statement to have a material impact on its operations or
financial position.
In March 2000, the FASB issued FASB Interpretation No. 44 ("FIN 44"),
Accounting of Certain Transactions involving Stock Compensation an
Interpretation of APB Opinion No. 25. FIN 44 clarifies the application of
Opinion 25 for (a) the definition of employee for purposes of applying Opinion
25, (b) the criteria for determining whether a plan qualifies as a
noncompensatory plan, (c) the accounting consequences of various modifications
to the terms of a previously fixed stock option or award, and (d) the
accounting for an exchange of stock compensation awards in a business
combination. FIN 44 is effective July 1, 2000, but certain conclusions cover
specific events that occur after either December 15, 1998, or January 12,
2000. The impact of FIN 44 did not have a material effect on the financial
position or results of operations of the Company.
28
SUMMARY OF QUARTERLY RESULTS OF OPERATIONS-COMPANY
2000--Three Months Ended Year
-------------------------------- Ended
Mar. 31 June 30 Sept. 30 Dec. 31 12/31/00
------- ------- -------- ------- --------
(Dollars in thousands except per share
amounts)
Interest Income..................... $26,954 $27,712 $28,253 $28,897 $111,816
Interest Expense.................... 16,190 17,138 18,231 18,637 70,196
------- ------- ------- ------- --------
Net interest income................. 10,764 10,574 10,022 10,260 41,620
Provision for loan losses........... 550 750 500 500 2,300
------- ------- ------- ------- --------
Net interest income after provision
for loan losses.................... 10,214 9,824 9,522 9,760 39,320
Noninterest income.................. 6,853 7,964 7,961 8,250 31,028
Noninterest expense................. 12,447 13,107 12,962 13,488 52,004
------- ------- ------- ------- --------
Income before income taxes.......... 4,620 4,681 4,521 4,522 18,344
Income taxes........................ 1,548 1,569 1,465 1,447 6,029
------- ------- ------- ------- --------
Net income.......................... $ 3,072 $ 3,112 $ 3,056 $ 3,075 $ 12,315
======= ======= ======= ======= ========
Basic and diluted earnings per
common share....................... $ 0.31 $ 0.32 $ 0.33 $ 0.34 $ 1.30
======= ======= ======= ======= ========
Bid price per common share:
Low................................ $ 7.94 $ 8.94 $ 10.06 $ 10.75 $ 10.88
======= ======= ======= ======= ========
High............................... $ 11.75 $ 10.63 $ 11.25 $ 12.81 $ 12.81
======= ======= ======= ======= ========
1999--Three Months Ended Year
-------------------------------- Ended
Mar. 31 June 30 Sept. 30 Dec. 31 12/31/99
------- ------- -------- ------- --------
(Dollars in thousands except per share
amounts)
Interest Income..................... $23,253 $24,474 $25,818 $26,231 $ 99,776
Interest Expense.................... 13,404 14,192 15,183 15,734 58,513
------- ------- ------- ------- --------
Net interest income................. 9,849 10,282 10,635 10,497 41,263
Provision for loan losses........... 570 700 500 500 2,270
------- ------- ------- ------- --------
Net interest income after provision
for loan losses.................... 9,279 9,582 10,135 9,997 38,993
Noninterest income.................. 6,118 6,923 6,774 7,111 26,926
Noninterest expense................. 11,300 12,051 12,376 12,359 48,086
------- ------- ------- ------- --------
Income before income taxes.......... 4,097 4,454 4,533 4,749 17,833
Income taxes........................ 1,582 1,724 1,534 1,607 6,447
------- ------- ------- ------- --------
Net income.......................... $ 2,515 $ 2,730 $ 2,999 $ 3,142 $ 11,386
======= ======= ======= ======= ========
Basic and diluted earnings per
common share....................... $ 0.25 $ 0.27 $ 0.30 $ 0.31 $ 1.13
======= ======= ======= ======= ========
Bid price per common share:
Low................................ $ 9.38 $ 9.50 $ 10.50 $ 10.50 $ 9.38
======= ======= ======= ======= ========
High............................... $ 11.25 $ 11.00 $ 13.00 $ 12.50 $ 13.00
======= ======= ======= ======= ========
29
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
For quantitative and qualitative disclosures about market risk, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" on pages 12 through 28 herein.
Item 8. Financial Statements and Supplementary Data
Consolidated Financial Statements and Other Financial Information
Superior Financial Corp.
Years ended December 31, 2000 and 1999 and 1998 with Report of Independent
Auditors
30
SUPERIOR FINANCIAL CORP.
CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2000, 1999, and 1998
Contents
Report of Independent Auditors.............................................. 32
Audited Consolidated Financial Statements
Consolidated Balance Sheets................................................ 33
Consolidated Statements of Operations...................................... 34
Consolidated Statements of Changes in Stockholders' Equity................. 35
Consolidated Statements of Cash Flows...................................... 36
Notes to Consolidated Financial Statements................................. 38
31
Report of Independent Auditors
The Board of Directors of
Superior Financial Corp.
We have audited the accompanying consolidated balance sheets of Superior
Financial Corp. (the "Company") and its wholly owned subsidiary, Superior
Federal Bank, F.S.B. (the "Bank") as of December 31, 2000 and 1999, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 2000. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the 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 consolidated financial position
of Superior Financial Corp. at December 31, 2000 and 1999 and the consolidated
results of its operations and its cash flows for each of the three years in
the period ended December 31, 2000, in conformity with accounting principles
generally accepted in the United States.
/s/ Ernst & Young LLP
January 19, 2001
32
SUPERIOR FINANCIAL CORP.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share amounts)
December 31,
---------------------
2000 1999
---------- ----------
Assets
Cash and cash equivalents................................ $ 55,321 $ 48,241
Loans available for sale................................. 27,226 51,406
Loans.................................................... 1,068,943 1,004,961
Less: allowance for loan losses.......................... 12,086 11,346
---------- ----------
Loans, net............................................... 1,056,857 993,615
Investments available for sale, net...................... 363,008 354,915
Accrued interest receivable.............................. 17,515 15,530
Federal Home Loan Bank stock............................. 23,713 21,907
Premises and equipment, net.............................. 35,407 32,507
Mortgage servicing rights, net........................... 6,630 4,310
Prepaid expenses and other assets........................ 13,392 3,837
Goodwill, net............................................ 59,653 62,851
Real estate acquired in settlement of loans, net......... 324 202
Deferred acquisition costs............................... 2,419 2,624
---------- ----------
Total assets............................................ $1,661,465 $1,591,945
========== ==========
Liabilities and stockholders' equity
Liabilities:
Deposits................................................ $1,078,508 $ 977,936
Federal Home Loan Bank borrowings....................... 330,000 424,000
Other borrowed funds.................................... 53,628 --
Note payable............................................ 11,500 13,000
Senior notes............................................ 60,000 60,000
Custodial escrow balances............................... 8,114 7,420
Other liabilities....................................... 8,398 4,003
---------- ----------
Total liabilities........................................ 1,550,148 1,486,359
Commitments and contingencies............................ -- --
Stockholders' equity:
Preferred stock--$0.01 par value; 1 million and 10
million shares authorized at December 31, 2000 and
1999, respectively, none issued and outstanding...... -- --
Common stock--$0.01 par value; 20 million shares
authorized, 10,081,921 and 10,081,152 issued at
December 31, 2000 and 1999, respectively............. 101 101
Capital in excess of par value........................ 94,764 94,755
Retained earnings..................................... 30,356 18,041
Accumulated other comprehensive loss.................. (2,777) (6,147)
---------- ----------
122,444 106,750
Treasury stock at cost--1,031,000 and 96,000 shares at
December 31, 2000 and 1999, respectively.............. (11,127) (1,164)
---------- ----------
Total stockholders' equity............................. 111,317 105,586
---------- ----------
Total liabilities and stockholders' equity............ $1,661,465 $1,591,945
========== ==========
See accompanying notes.
33
SUPERIOR FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
Year Ended December 31,
-------------------------
2000 1999 1998
-------- ------- -------
Interest income
Loans.............................................. $ 85,138 $75,153 $42,728
Investments........................................ 24,695 23,349 15,702
Interest-bearing deposits.......................... 177 281 4,211
Other.............................................. 1,806 993 374
-------- ------- -------
Total interest income............................... 111,816 99,776 63,015
Interest expense
Deposits........................................... 41,449 33,971 28,230
Federal Home Loan Bank borrowings.................. 21,884 17,952 6,246
Other borrowings................................... 6,863 6,590 4,257
-------- ------- -------
Total interest expense.............................. 70,196 58,513 38,733
-------- ------- -------
Net interest income................................. 41,620 41,263 24,282
Provision for loan losses........................... 2,300 2,270 1,021
-------- ------- -------
Net interest income after provision for loan
losses............................................. 39,320 38,993 23,261
Noninterest income
Service charges on deposit accounts................ 25,666 22,062 15,229
Mortgage operations, net........................... 2,663 2,428 1,875
Income from real estate operations, net............ 493 480 374
Gain (loss) on sale of investments................. 90 (197) 12
Other.............................................. 2,116 2,153 1,222
-------- ------- -------
Total noninterest income............................ 31,028 26,926 18,712
Noninterest expense
Salaries and employee benefits..................... 24,647 21,527 13,690
Occupancy expense.................................. 3,633 3,098 2,135
Data and item processing........................... 5,097 4,463 2,856
Advertising and promotion.......................... 1,765 1,993 1,411
Amortization of goodwill........................... 3,448 3,405 2,715
Postage and supplies............................... 3,026 3,389 2,200
Equipment expense.................................. 2,416 1,914 1,053
Other.............................................. 7,972 8,297 4,993
-------- ------- -------
Total noninterest expense........................... 52,004 48,086 31,053
-------- ------- -------
Income before income taxes.......................... 18,344 17,833 10,920
Income taxes........................................ 6,029 6,447 4,245
-------- ------- -------
Net income.......................................... $ 12,315 $11,386 $ 6,675
======== ======= =======
Basic and diluted earnings per share:............... $ 1.30 $ 1.13 $ 0.88
======== ======= =======
See accompanying notes.
34
SUPERIOR FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years ended December 31, 2000, 1999 and 1998
(Dollars in thousands, except share amounts)
Accumulated
Capital in Other Retained Total
Preferred Common Excess of Comprehensive Earnings Treasury Stockholders'
Stock Stock Par Value (Loss) Income (Deficit) Stock Equity
--------- ------ ---------- ------------- --------- -------- -------------
Balance at January 1,
1998................... $-- $-- $ 260 $ -- $ (20) $ -- $ 240
Original issuance of
common stock
10,079,703 shares,
(less cost of issuance
of $3,429)............ -- 101 94,481 -- -- -- 94,582
Issuance of common
stock to employees,
800 shares............ -- -- 8 -- -- -- 8
Comprehensive income:
Net income............. -- -- -- -- 6,675 -- 6,675
Other comprehensive
income, net of tax:
Net change in
unrealized gains on
investments available
for sale, net of
taxes of $166........ -- -- -- 307 -- -- 307
--------
Total comprehensive
income................. 6,982
---- ---- ------- ------- ------- -------- --------
Balance at December 31,
1998................... -- 101 94,749 307 6,655 -- 101,812
Issuance of common
stock to employees,
649 shares............ -- -- 6 -- -- -- 6
Purchase of treasury
stock, 96,000 shares.. (1,164) (1,164)
Comprehensive income
(loss):
Net income............. -- -- -- -- 11,386 -- 11,386
Other comprehensive
income net of tax:
Net change in
unrealized
gains/losses on
investments available
for sale, net of tax
benefit of $3,310.... -- -- -- (6,740) -- -- (6,740)
Add: reclassification
adjustment for losses
included in income,
net of taxes of
$154................. -- -- -- 286 -- -- 286
--------
Total comprehensive
income................. 4,932
---- ---- ------- ------- ------- -------- --------
Balance at December 31,
1999................... -- 101 94,755 (6,147) 18,041 (1,164) 105,586
Issuance of common
stock to employees,
769 shares............ -- -- 9 -- -- -- 9
Purchase of treasury
stock, 935,000
shares................ -- -- -- -- -- (9,963) (9,963)
Comprehensive income:
Net income............. -- -- -- -- 12,315 -- 12,315
Other comprehensive
income, net of tax:
Net change in
unrealized
gains/losses on
investments available
for sale, net of
taxes of $1,815...... -- -- -- 3,312 -- -- 3,312
Add: reclassification
adjustment for gain
included in income,
net of tax of $32.... -- -- -- 58 -- -- 58
--------
Total comprehensive
income................. 15,685
---- ---- ------- ------- ------- -------- --------
Balance at December 31,
2000................... $-- $101 $94,764 $(2,777) $30,356 $(11,127) $111,317
==== ==== ======= ======= ======= ======== ========
See accompanying notes.
35
SUPERIOR FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Year Ended December 31,
-------------------------------
2000 1999 1998
--------- --------- ---------
Operating activities
Net income................................... $ 12,315 $ 11,386 $ 6,675
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Provision for loan losses................... 2,300 2,270 1,021
Deferred income taxes....................... 564 756 375
Depreciation................................ 2,388 1,961 1,027
Additions to mortgage servicing rights...... (3,189) (2,419) --
Amortization of mortgage servicing rights... 869 307 145
Amortization of premiums on investments..... 546 1,377 1,458
Amortization of goodwill.................... 3,448 3,405 2,715
Amortization of other intangibles........... 697 682 770
Loss (gain) on sale of real estate.......... 25 5 (9)
Mortgage loans originated for sale.......... (104,863) (43,767) (39,016)
Mortgage loans purchased and held for sale.. -- (55,427) --
Proceeds from sale of mortgage loans held
for sale................................... 102,227 55,050 30,750
Gain on sale of loans....................... (569) (94) (162)
(Gain) loss on sale of investments.......... (90) 197 (12)
Net increase in custodial escrow balances... 694 331 1,845
Increase in accrued interest receivable..... (1,985) (8,004) (1,466)
Increase in prepaid expenses and other
assets..................................... (10,305) (1,424) (4,658)
Increase (decrease) in other liabilities.... 2,015 (5) 2,211
--------- --------- ---------
Net cash provided by (used in) operating
activities.................................. 7,087 (33,413) 3,669
Investing activities
Increase in loans, net....................... (38,446) (187,921) (128,032)
Principal payments on investments............ 39,551 64,645 68,766
Settlement of retail branch sales............ -- (10,123) (79,044)
Proceeds from sale or maturity of available
for sale investments........................ 11,012 63,195 15,903
Purchases of available for sale investments.. (53,918) (130,197) (103,086)
Purchase of FHLB stock....................... (1,806) (10,957) (2,676)
Proceeds from sale of FHLB stock............. -- -- 4,381
Proceeds from sale of real estate............ 142 1,122 371
Purchases of premises and equipment.......... (5,288) (9,783) (3,923)
Purchase of Superior Federal Bank, F.S.B.,
net of cash acquired........................ -- -- 127,576
--------- --------- ---------
Net cash used in investing activities........ (48,753) (220,019) (99,764)
36
SUPERIOR FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(Dollars in thousands)
Year Ended December 31,
----------------------------
2000 1999 1998
-------- -------- --------
Financing activities
Net increase in deposits........................ $100,572 $ 20,906 $ 38,534
Net FHLB borrowings (repayments)................ (94,000) 207,500 (35,698)
Proceeds from borrowings under note payable..... -- -- 20,000
Proceeds from other borrowed funds.............. 53,628 -- --
Principal payments on note payable.............. (1,500) (7,000) --
Proceeds from borrowings under senior notes..... -- -- 60,000
Proceeds from common stock issued, net.......... 9 6 94,590
Purchase of treasury stock...................... (9,963) (1,164) --
-------- -------- --------
Net cash provided by financing activities....... 48,746 220,248 177,426
-------- -------- --------
Net increase (decrease) in cash................. 7,080 (33,184) 81,331
Cash and cash equivalents at beginning of
period......................................... 48,241 81,425 94
-------- -------- --------
Cash and cash equivalents at end of period...... $ 55,321 $ 48,241 $ 81,425
======== ======== ========
See accompanying notes.
37
SUPERIOR FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000
1. Summary of Significant Accounting Policies
Nature of Operations
Superior Financial Corp. ("SFC" or "Company") is a unitary thrift holding
company organized under the laws of Delaware and headquartered in Little Rock,
Arkansas. The Company was organized on November 12, 1997 as SFC Acquisition
Corp. for the purpose of acquiring Superior Federal Bank, F.S.B. (the "Bank"),
a federally chartered savings institution. The Bank provides a broad line of
financial products to small-and medium-sized businesses and to consumers,
primarily in Arkansas and Oklahoma. On April 1, 1998, SFC acquired the Bank
from NationsBank, Inc. for approximately $162.5 million. This purchase was
accounted for using the purchase method of accounting for business
combinations whereby the assets and liabilities of the Bank were recorded at
fair value at the date of acquisition and the difference between the net book
value of the Bank and the purchase price was recorded as goodwill of
approximately $76.4 million.
Basis of Presentation
The accounting and reporting policies of the Company conform to generally
accepted accounting principles ("GAAP") and general practices within the
thrift and mortgage banking industries. The following summarizes the more
significant of these policies.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and 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 may differ from those estimates.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company,
the Bank, and the Bank's wholly owned subsidiaries, Superior Finance Company,
Superior Financial Services, Inc., and SREH, Inc. All significant intercompany
accounts and transactions have been eliminated in consolidation.
Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents includes
cash on hand and interest bearing deposits in other depository institutions as
well as purchases of investments with original maturities of three months or
less. Interest bearing deposits were approximately $670,000 and $8,138,000 at
December 31, 2000 and 1999, respectively.
Liquidity Requirements
Regulations require the Bank to maintain an amount equal to 4% of deposits
(net of loans on deposits) and short-term borrowings in cash and U.S.
Government and other approved securities.
Investments
Investments that the Bank has the positive intent and ability to hold to
maturity are classified as held to maturity and recorded at cost, adjusted for
the amortization of premiums and the accretion of discounts, which are
recognized in interest income using the interest method over the period to
maturity.
38
SUPERIOR FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Investments that the Bank intends to hold for indefinite periods of time
are classified as available for sale and are recorded at fair value.
Unrealized holding gains and losses are excluded from operating results until
realized and reported net of tax as other comprehensive income (loss) in
stockholders' equity. Investments in the available for sale portfolio may be
used as part of the Bank's asset and liability management practices and may be
sold in response to changes in interest rate risk, prepayment risk or other
economic factors.
The overall return or yield earned on mortgage-backed securities included
in investments depends on the amount of interest collected over the
amortization of any premium or discount. Premiums and discounts are recognized
in income using the level-yield method over the assets' remaining lives
adjusted for anticipated prepayments. Although the Bank receives the full
amount of principal if prepaid, the interest income that would have been
collected during the remaining period to maturity, net of any discount or
premium amortization, is lost. Accordingly, the actual yields and maturities
of mortgage-backed securities included in investments depend on when the
underlying mortgage principal and interest are repaid. Prepayments primarily
result when market interest rates fall below a mortgage's contractual interest
rate and it is to the borrower's advantage to prepay the existing loan and
obtain new, lower rate financing. In addition to changes in interest rates,
mortgage prepayments are affected by other factors such as loan types and
geographic location of the related properties.
If the fair value of an investment classified as available for sale
declines for reasons other than temporary market conditions, the carrying
value of such an investment would be written down to current value by a charge
to operations. Gains and losses on the sale of investments classified as
available for sale are determined using the specific-identification method.
The Bank did not hold any investments classified as held to maturity or as
trading securities at December 31, 2000 and 1999.
Loans
Loans generally are stated at their unpaid principal balances plus premium
or discount from acquisition less allowance for loan losses and deferred fees.
The discount or premium arising from fair value adjustments of loans in
business combinations is being accreted or amortized over the remaining
contractual lives of the loans using the level-yield method adjusted for
actual experience.
Uncollectible interest on loans that are contractually past due 90 days or
greater and is not probable of collection is charged off and the loan is
placed on nonaccrual status. Income is subsequently recognized when cash
payments for interest are received. When collectibility is determined to be
probable, the loan is returned to accrual status.
Allowance for Loan Losses
The allowance for loan losses is established through a provision for loan
losses charged against income. Loans deemed to be uncollectible are charged
against the allowance for loan losses when management believes that the
collectibility of the principal is unlikely, and subsequent recoveries, if
any, are credited to the allowance.
The allowance is maintained at a level that management believes will be
adequate to absorb losses on existing loans that may become uncollectible,
based on evaluations of the collectibility of loans and prior loan loss
experience. The evaluations take into consideration such factors as changes in
the nature and volume of the loan portfolio, overall portfolio quality, review
of specific problem loans, historical loan loss experience and current
economic and business conditions that may affect the borrowers' ability to pay
or the value of the collateral securing the loans.
Advertising and Promotion Costs
Advertising and promotion costs are expensed as incurred.
39
SUPERIOR FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Income Taxes
The liability method is used in 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 and laws that will be
in effect when the differences are expected to reverse.
Real Estate Acquired in Settlement of Loans
Real estate acquired in settlement of loans is initially recorded at
estimated fair value, less estimated selling costs, and is subsequently
carried at the lower of depreciated cost or fair value, less estimated selling
costs. Valuations are periodically performed by management, and an allowance
for losses is established by a charge to operations if the carrying value of a
property exceeds its estimated fair value. The ability of the Bank to recover
the carrying value of real estate is based upon future sales of the land and
the projects. The ability to affect such sales is subject to market conditions
and other factors, many of which are beyond the Bank's control.
Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation.
Depreciation is computed using straight-line and accelerated methods over the
respective estimated useful lives of the assets of approximately 3 to 30
years. Depreciation expense on building and leasehold improvements is included
in occupancy expense in the statements of operations. Depreciation expense on
furniture and equipment is included in equipment expense in the statements of
operations.
Impairment of Assets
The Company accounts for any impairment of its long-lived assets using SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to be Disposed Of". Under SFAS No. 121, impairment losses are
recognized when information indicates the carrying amount of long-lived
assets, identifiable intangibles and goodwill related to those assets will not
be recovered through future operations.
Goodwill
Goodwill (excess of purchase price of the Bank over the fair value of net
assets acquired) is being amortized on a straight-line basis over 20 years.
The carrying value of goodwill will be reviewed if the facts and circumstances
suggest that it may be impaired. If this review indicates that goodwill has
diminished in fair value based on the undiscounted cash flows produced by
goodwill over the remaining amortization period, the Company's carrying value
will be reduced accordingly.
Debt Issuance Costs
Costs associated with the issuance of the $20 million note payable and the
$60 million Senior Notes have been capitalized and are being amortized over
the life of the debt. These costs are included in prepaid expenses and other
assets on the consolidated balance sheet.
Prepaid Expenses and Other Assets
Foreclosure receivables from FHA insured and VA guaranteed mortgages that
are being serviced for the Bank by a third party approximated $6.5 million at
December 31, 2000 and are included in prepaid expenses and other assets on the
consolidated balance sheets. $2.3 million represent funds that have been
advanced to the servicer on these loans and is also included in prepaid
expenses and other assets. These are nonearning assets to the Bank.
40
SUPERIOR FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Loan Origination and Commitment Fees
The Bank defers loan fees received and certain incremental direct costs on
mortgage loans, and recognizes them as adjustments to interest income over the
estimated remaining life of the related loans. When a loan is fully repaid or
sold, the unamortized portion of the deferred fee and cost is recognized in
interest income. Other loan fees, such as prepayment penalties, late charges,
and release fees are recorded as income when collected.
Mortgage Servicing Rights
Mortgage servicing rights represent the cost of acquiring or originating
the rights to service mortgage loans owned by others, and such cost is
capitalized and amortized in proportion to, and over the period of, estimated
net servicing income. The Bank's carrying value of mortgage servicing rights
and the amortization thereon are periodically evaluated in relation to
estimated future net servicing income to be received, and such carrying values
are adjusted for indicated impairments based on management's best estimate of
remaining cash flows, using the disaggregated method. Such estimates may vary
from the actual remaining cash flows due to prepayments of the underlying
mortgage loans, increases in servicing costs, and changes in other factors.
The Bank's carrying values of mortgage servicing rights do not purport to
represent the amount that would be realized by a sale of these assets in the
open market.
Comprehensive Income (Loss)
Unrealized gains or losses on available for sale investments are included
in other comprehensive income (loss). The components of comprehensive income
(loss) are disclosed in the statements of changes in stockholders' equity.
Segment Disclosures
The Company operates in only one segment--community banking. All the
Company's revenues result from services offered by its bank subsidiary. No
revenues are derived from foreign countries and no single external customer
comprises more than 10% of the Company's revenues.
Recent Accounting Standards
In June 1998, The Financial Accounting Standards Board ("FASB") issued
Statement No. 133 ("SFAS 133"), "Accounting for Derivative Instruments and
Hedging Activities". SFAS 133, which requires the Company to recognize all
derivatives on the balance sheet at fair value, is effective for years
beginning after June 15, 2000. SFAS 133 permits early adoption as of the
beginning of any fiscal quarter that begins after June 1998. The Company will
adopt SFAS 133 effective January 1, 2001. Derivatives that are not hedges must
be adjusted to fair value through income. If the derivative is a hedge,
depending on the nature of the hedge, changes in the fair value of derivatives
are either offset against the change in fair value of the assets, liabilities,
or firm commitments through operating results or recognized in other
comprehensive income until the hedged item is recognized in operating results.
The ineffective portions of a derivative's change in fair value will be
immediately recognized in operating results. The Company does not anticipate
the adoption of this statement to have a material impact on its operations or
financial position.
In March 2000, the FASB issued FASB Interpretation No. 44 ("FIN 44"),
Accounting of Certain Transactions involving Stock Compensation an
Interpretation of APB Opinion No. 25. FIN 44 clarifies the application of
Opinion 25 for (a) the definition of employee for purposes of applying Opinion
25, (b) the criteria for determining whether a plan qualifies as a
noncompensatory plan, (c) the accounting consequences of various modifications
to the terms of a previously fixed stock option or award, and (d) the
accounting for an exchange of
41
SUPERIOR FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
stock compensation awards in a business combination. FIN 44 is effective July
1, 2000, but certain conclusions cover specific events that occur after either
December 15, 1998, or January 12, 2000. The impact of FIN 44 did not have a
material effect on the financial position or results of operations of the
Company.
Reclassifications
Certain amounts in the 1999 financial statements have been reclassified to
conform to the current year presentation.
2. Private Placement and Acquisitions
On April 1, 1998, the Company completed a private placement offering
totaling $175 million, consisting of $95 million in common stock, $60 million
in 8.65% Senior Notes due in 2003, and $20 million in LIBOR plus 1.75% bank
debt due in 2000. The proceeds from the private placement offering were used
to acquire, in a purchase transaction, 100% of the common stock of the Bank.
In connection with the private placement offering, the Company entered into a
Registration Rights Agreement and completed a Shelf Registration Statement on
December 10, 1998 to register the common stock and senior notes with the
Securities and Exchange Commission.
On April 1, 1998, the Company acquired the Bank for a purchase price of
$162.5 million. The transaction was accounted for as a purchase and resulted
in the recording of goodwill in the amount of $76.4 million. The Bank's
results of operations since the purchase date are included in operations of
the Company.
The following table sets forth selected unaudited financial information for
the Company as if the above described transaction had been consummated as of
January 1, 1998, with adjustments primarily for interest charges attributable
to the financing of the purchase and amortization of goodwill. The pro forma
data is based on pre-acquisition earnings and is therefore not necessarily
indicative of future performance.
1998
------------------
(Dollars in
thousands,except
per share amounts)
Total revenue............................................. $107,985
Income before income taxes................................ 6,861
Net income................................................ 2,898
Earnings per common share-diluted......................... 0.29
During the third quarter of 1998, the Company completed the sale of nine
branch facilities located in Oklahoma and Arkansas. The sale of these branches
resulted in a gain of $4.5 million, which was recorded as an adjustment to the
purchase price allocation for the acquisition of the Bank and resulted in a
related reduction in goodwill. The total deposits for the 9 branches sold were
approximately $84.5 million. These deposits were funded by the Company through
the reduction of interest bearing deposits held by the Company at the Federal
Home Loan Bank. In addition, after the completion of an appraisal in the third
quarter of 1998, the Company recorded an adjustment to the purchase price
allocation based on the fair value of the Bank's headquarters building in Fort
Smith. This resulted in a $5.7 million increase to office premises and
equipment and an equal reduction to goodwill.
During the first quarter of 1999, the Company completed the sale of one
branch facility located in Oklahoma. The sale resulted in a gain of $450,000,
which was recorded as an adjustment to the purchase price allocation for the
acquisition of the Bank and resulted in a related reduction in goodwill. The
total deposits of the branch were approximately $10.7 million.
42
SUPERIOR FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In November 2000, the Bank's wholly owned subsidiary, Superior Finance
Company, completed the acquisition of the assets of four consumer finance
offices in north Alabama for approximately $125,000 in cash from Southern
Financial, Inc., a Nashville, Tennessee-based consumer finance company. The
four offices had net loans outstanding of approximately $6.5 million. The
acquisition was accounted for under the purchase method of accounting.
3. Fair Value of Financial Instruments
The estimated fair value amounts have been determined by the Company using
available market information and appropriate valuation methodologies. However,
considerable judgment is required to interpret market data to develop the
estimates of fair value. The basis for market information and other valuation
methodologies are significantly affected by assumptions used including the
timing of future cash flows, discount rates, judgments regarding economic
conditions, risk characteristics and other factors. Because assumptions are
inherently subjective in nature, the estimated fair values of certain
financial instruments cannot be substantiated by comparison to independent
market quotes and, in many cases, the estimated fair values could not
necessarily be realized in an immediate sale or settlement of the instrument.
Accordingly, the estimates presented herein are not necessarily indicative of
the amounts the Company could realize in a current market exchange, and the
use of different market assumptions and /or estimation methodologies may have
a material effect on the estimated fair value amounts. Potential tax
ramifications related to the realization of unrealized gains and losses that
would be incurred in an actual sale and/or settlement have not been taken into
consideration.
The estimated fair values of financial instruments consist of the
following:
December 31, 2000
---------------------
Carrying Estimated
Value Fair Value
---------- ----------
(Dollars in
thousands)
Financial assets
Cash and cash equivalents................................ $ 55,321 $ 55,321
Loans, net............................................... 1,056,857 1,055,257
Investments available for sale, net...................... 363,008 363,008
Accrued interest receivable.............................. 17,515 17,515
Federal Home Loan Bank stock............................. 23,713 23,713
Financial liabilities
Demand and savings deposits.............................. 516,051 516,051
Time deposits............................................ 562,457 563,702
Federal Home Loan Bank borrowings........................ 330,000 322,855
Other borrowed funds..................................... 53,628 53,628
Notes payable............................................ 71,500 73,143
Off-balance sheet financial instruments.................. 5,061 5,061
43
SUPERIOR FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1999
------------------
Estimated
Carrying Fair
Value Value
-------- ---------
(Dollars in
thousands)
Financial assets
Cash and cash equivalents.................................... $48,241 $48,241
Loans, net................................................... 993,615 980,744
Investments available for sale, net.......................... 354,915 354,915
Accrued interest receivable.................................. 15,530 15,530
Federal Home Loan Bank stock................................. 21,907 21,907
Financial liabilities
Demand and savings deposits.................................. 442,003 442,003
Time deposits................................................ 535,933 535,758
Federal Home Loan Bank borrowings............................ 424,000 401,300
Notes payable................................................ 73,000 70,511
Off-balance sheet financial instruments...................... 4,089 4,089
The fair value of loans is estimated based on present values using
applicable risk-adjusted spreads to the U.S. Treasury curve to approximate
current entry-level interest rates considering anticipated prepayment speeds.
The fair value of nonperforming loans with a recorded book value of $4.5
million and $2.0 million at December 31, 2000 and 1999, respectively was not
estimated, and therefore is included in estimated fair value at the carrying
amount because it is not practicable to reasonably assess the credit
adjustment that would be applied in the marketplace for such loss.
The fair value of investments available for sale is based on quoted market
prices, dealer quotes and prices obtained from independent pricing services.
The fair value of accrued interest receivable and Federal Home Loan Bank
("FHLB") stock is considered to be carrying value.
The fair value of cash and cash equivalents is considered the same as its
carrying value. The fair value of demand deposits, savings accounts and
certain money market deposits is the amount payable on demand at the reporting
date. The fair value of fixed-maturity certificates of deposit, Federal Home
Loan Bank borrowings and notes payable is estimated using the rates currently
offered for liabilities of similar remaining maturities.
The fair value of off-balance sheet financial instruments is estimated
using the fees currently charged to enter into similar agreements taking into
account the remaining terms of the agreements and the present creditworthiness
of the counterparties. For fixed-rate loan commitments, fair value also
considers the difference between current levels of interest rates and the
committed rates. The fair value of letters of credit is based on fees
currently charged for similar agreements or on the estimated cost to terminate
them or otherwise settle the obligations with the counterparties at the
reporting date.
The fair value estimates presented herein are based on pertinent
information available to management as of December 31, 2000. Although
management is not aware of any factors that would significantly affect the
estimated fair value amounts, such amounts have not been comprehensively
revalued for purposes of these financial statements since the reporting date
and, therefore, current estimates of fair value may differ significantly from
the amounts presented herein.
44
SUPERIOR FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
4. Loans and Financial Instruments with Off-Balance Sheet Risk
Loans consisted of approximately the following at December 31:
2000 1999
---------- --------
(Dollars in
thousands)
First mortgage loans (principally conventional):
Collateralized by one-to-four family residences......... $ 467,583 $520,444
Collateralized by other properties...................... 149,631 99,485
Construction loans...................................... 87,714 43,843
---------- --------
704,928 663,772
Undisbursed portion of construction loans............... (30,838) (7,448)
---------- --------
Total first mortgage loans............................... 674,090 656,324
Consumer and other loans:
Automobile.............................................. 238,916 236,863
Savings................................................. 8,465 7,620
Home equity and second mortgage......................... 28,184 19,394
Commercial.............................................. 41,920 24,166
Other................................................... 76,807 60,167
---------- --------
Total consumer and other loans........................... 394,292 348,210
Deferred loan costs, net of deferred origination fees.... 561 427
Allowance for loan losses................................ (12,086) (11,346)
---------- --------
Loans, net............................................... $1,056,857 $993,615
========== ========
Impairment of loans having carrying values of $4,495,000 and $1,959,000 at
December 31, 2000 and 1999, respectively, have been recognized in conformity
with Statement of Financial Accounting Standards No. 114 ("SFAS 114"), as
amended by Statement of Financial Accounting Standards No. 118 ("SFAS 118").
The average carrying value of impaired loans was $3,127,000 and $2,556,000 for
the years ended December 31, 2000 and 1999, respectively. The total allowance
for credit losses related to these impaired loans was $803,000 and $309,000 at
December 31, 2000 and 1999, respectively. The Company does not segregate
income recognized on a cash basis in its financial records, and thus, such
disclosure is not practicable. For impairment recognized in conformity with
SFAS 114, as amended, the entire change in present value of expected cash
flows is reported as provision for loan losses in the same manner in which
impairment initially was recognized or as a reduction in the amount of
provision for loan losses that otherwise would be reported.
Loans to directors and executive officers totaled $747,000 at December 31,
2000, and $1,106,000 at December 31, 1999. Such loans are made on
substantially the same terms as those for other loan customers. New loans and
advances on prior commitments made to such related parties was $24,000, and
$442,000 for the years ended December 31, 2000 and 1999, respectively.
Repayments of loans made by such related parties were $11,000, and $878,000
for the years ended December 31, 2000 and 1999, respectively. Loans to
directors who retired from the Board during 2000 totaled $372,000.
The Bank, through its normal lending activity, originates and maintains
loans, which are substantially concentrated in its lending territory
(primarily Arkansas and Oklahoma). The Bank's policy calls for collateral or
other forms of repayment assurance to be received from the borrower at the
time of loan origination. Such collateral or other form of repayment assurance
is subject to changes in economic value due to various factors beyond the
control of the Bank and such changes could be significant.
45
SUPERIOR FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Bank originates and purchases adjustable rate mortgage loans to hold
for investment. The Bank also originates 15-year and 30-year fixed rate
mortgage loans and sells substantially all new originations of 30-year and 15-
year loans to outside investors with servicing released. Loans available for
sale totaled approximately $27.2 million and $51.4 million at December 31,
2000 and 1999, respectively.
The Bank is a party to financial instruments with off-balance sheet risk in
the normal course of business to meet the financial needs of its customers.
These financial instruments include commitments to extend credit and standby
letters of credit. Those instruments involve, to varying degrees, elements of
credit risk in excess of the amount recognized in the consolidated balance
sheets. The Bank does not use financial instruments with off-balance sheet
risk as part of its own asset/liability management program or for trading
purposes.
The Bank's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit and
standby letters of credit is represented by the contractual amount of those
instruments. The Bank uses the same credit policies in making commitments and
conditional obligations as it does for on-balance sheet instruments.
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses. The amount of collateral obtained, if deemed necessary by the Bank
upon extension of credit, is based on management's credit evaluation of the
counterparty. Such collateral consists primarily of residential properties.
Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. The credit risk
involved in issuing letters of credit is essentially the same as that involved
in extending loan facilities to customers. The Bank had outstanding loan
commitments and lines of credit aggregating approximately $55,747,000 and
$43,096,000 at December 31, 2000 and 1999, respectively. There were no standby
letters of credit outstanding at December 31, 2000. Standby letters of credit
outstanding totaled approximately $81,000 at December 31, 1999.
5. Mortgage Loan Servicing
Mortgage loans serviced for others are not included in the accompanying
consolidated balance sheets. The unpaid principal balances of these loans at
December 31, 2000 and 1999 are summarized as follows:
2000 1999
-------- --------
(Dollars in
thousands)
FHLMC...................................................... $217,046 $ 92,359
FNMA....................................................... 269,294 --
GNMA....................................................... 84,471 100,236
Private investors.......................................... 9,344 5,331
-------- --------
$580,155 $197,926
======== ========
Servicing loans for others generally consists of collecting mortgage
payments, maintaining escrow accounts, disbursing payments to investors, and
foreclosure processing. Loan servicing income is recorded on the cash basis
and includes servicing fees from investors and certain charges collected from
borrowers, such as late payment fees. In connection with these loans serviced
for others, the Bank held borrowers' escrow balances of approximately
$8,114,000 and $7,420,000 at December 31, 2000 and 1999, respectively. Of the
loans serviced by the Bank, approximately $1,817,000 and $2,613,000 were sold
with recourse at December 31, 2000 and 1999, respectively.
46
SUPERIOR FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
At December 31, 2000, the Company's loan servicing bond included errors and
omissions coverage of $5 million and fidelity bond insurance coverage of $10
million. Additionally, at December 31, 2000, the Company was covered by an
excess liability umbrella policy in the amount of $20 million.
Following is a summary of the changes in purchased mortgage servicing
rights:
2000 1999 1998
------ ------ ------
(Dollars in
thousands)
Balance, beginning of year........................... $4,085 $2,198 $ --
Acquired in Bank acquisition on April 1, 1998........ -- -- 2,343
Additions............................................ 2,812 2,127 --
Amortization......................................... (743) (240) (145)
------ ------ ------
Balance, end of year................................. $6,154 $4,085 $2,198
====== ====== ======
Following is a summary of the changes in originated mortgage servicing
rights:
2000 1999 1998
------ ------ ------
(Dollars in
thousands)
Balance, beginning of year........................... $ 225 $ -- $ --
Acquired in Bank acquisition on April 1, 1998........ -- -- --
Additions............................................ 377 292 --
Amortization......................................... (126) (67) --
------ ------ ------
Balance, end of year................................. $ 476 $ 225 $ --
====== ====== ======
Under OTS regulations, the lower of the amortized carrying value, 90% of
the fair market value, or 90% of the original cost of mortgage servicing
rights may be included in calculating capital standards. The amount to be
included as regulatory capital cannot exceed 50% of tangible capital.
47
SUPERIOR FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
6. Investments Available for Sale
The amortized cost and estimated fair value of investments available for
sale are summarized as follows:
December 31, 2000
-----------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ---------
(Dollars in thousands)
Agencies.............................. $ 32,001 $388 $ -- $ 32,389
Municipals............................ 25,337 481 -- 25,818
GNMA.................................. 20,159 -- (54) 20,105
FNMA.................................. 99,820 -- (1,032) 98,788
FHLMC................................. 56,422 -- (505) 55,917
CMOs.................................. 87,729 -- (1,744) 85,985
Corporates............................ 45,813 -- (1,807) 44,006
-------- ---- ------- --------
$367,281 $869 $(5,142) $363,008
======== ==== ======= ========
December 31, 1999
-----------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ---------
(Dollars in thousands)
Agencies.............................. $ 32,165 $-- $ (488) $ 31,677
Municipals............................ 10,087 -- (767) 9,320
GNMA.................................. 23,074 -- (322) 22,752
FNMA.................................. 117,607 12 (2,186) 115,433
FHLMC................................. 39,713 -- (797) 38,916
CMOs.................................. 96,074 -- (3,078) 92,996
Corporates............................ 45,652 -- (1,831) 43,821
-------- ---- ------- --------
$364,372 $ 12 $(9,469) $354,915
======== ==== ======= ========
The amortized cost and estimated fair value by contractual maturity of
available-for-sale investments at December 31, 2000 are as follows:
Estimated
Amortized Fair
Cost Value
--------- ---------
(Dollars in
thousands)
Due in one year or less..................................... $ 5,202 $ 5,192
Due from one year to five years............................. 6,455 6,447
Due from five years to ten years............................ 106,986 107,192
Due after ten years......................................... 248,638 244,177
-------- --------
Totals.................................................... $367,281 $363,008
======== ========
Expected maturities may differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without
call or prepayment penalties.
For purposes of the maturity table, investments which are not due at a
single maturity date have been allocated over maturity groupings based on
anticipated maturities. The investments may mature earlier than their weighted
average contractual maturities because of principal prepayments.
48
SUPERIOR FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Mortgage-backed securities with carrying values of approximately
$80,821,000 at December 31, 2000 were subject to adjustable rates.
During the years ended December 31, 2000 and 1999, investments available
for sale with a fair value at the date of sale of $5,502,000 and $58,005,000
respectively, were sold. The gross realized gains on such sales totaled
$139,051, and $73,535, respectively. The gross realized losses totaled
$49,230, and $270,320, respectively. The income tax expense related to net
security gains in 2000 was $31,437. The income tax benefit related to net
security losses was $71,236 in 1999.
The carrying value of investments pledged for letters of credit, treasury,
tax and loan note accounts, public fund deposits, and repurchase agreements
were approximately $133,492,000 and $49,564,000 at December 31, 2000 and 1999,
respectively.
7. Allowance for Loan Losses
A summary of the activity in the allowance for loan losses follows:
2000 1999 1998
------- ------- -------
(Dollars in thousands)
Balance, beginning of year...................... $11,346 $10,472 $ --
Allowance resulting from acquisition of Bank on
April 1, 1998................................. -- -- 10,593
Provision for loan losses...................... 2,300 2,270 1,021
Charge-offs, net of recoveries................. (1,560) (1,396) (1,142)
------- ------- -------
Balance, end of year............................ $12,086 $11,346 $10,472
======= ======= =======
8. Premises and Equipment
Premises and equipment consisted of the following at December 31:
2000 1999
------- -------
(Dollars in
thousands)
Land....................................................... $ 8,959 $ 8,547
Buildings and improvements................................. 19,467 17,437
Furniture and equipment.................................... 9,537 7,681
Construction in progress................................... 2,763 1,825
------- -------
40,726 35,490
Accumulated depreciation................................... (5,319) (2,983)
------- -------
Premises and equipment, net................................ $35,407 $32,507
======= =======
9. Deposits
Deposits consisted of the following at December 31:
2000 1999
---------- --------
(Dollars in
thousands)
Demand and NOW accounts, including noninterest-bearing
deposits of $92,879 and $76,960 at December 31, 2000
and December 31, 1999, respectively.................... $ 398,150 $280,587
Money market............................................ 30,781 61,619
Statement and passbook savings.......................... 87,120 99,797
Certificates of deposit................................. 562,457 535,933
---------- --------
$1,078,508 $977,936
========== ========
49
SUPERIOR FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The aggregate amount of certificates of deposit with a minimum denomination
of $100,000 was approximately $82,359,000 at December 31, 2000.
At December 31, 2000, the scheduled maturities of certificates of deposit
are as follows:
(Dollars
in
thousands)
2001.............................................................. $458,845
2002.............................................................. 78,798
2003.............................................................. 16,611
2004.............................................................. 2,227
2005.............................................................. 5,100
Thereafter........................................................ 876
--------
$562,457
========
Interest expense on deposits for the years ended December 31 was as
follows:
2000 1999 1998
------- ------- -------
(Dollars in thousands)
Demand and NOW accounts............................. $ 7,509 $ 3,535 $ 2,782
Money market........................................ 1,269 2,001 1,634
Statement and passbook savings...................... 2,042 2,281 1,839
Certificates of deposit............................. 30,629 26,154 21,975
------- ------- -------
$41,449 $33,971 $28,230
======= ======= =======
10. Federal Home Loan Bank ("FHLB") Borrowings
At December 31, 2000 the Bank had long-term FHLB borrowings of $223,000,000
with interest rates ranging from 4.65% to 6.49% and maturity dates ranging
from September 2, 2003 to May 10, 2010. Of this total, $65,000,000 matures in
2003 and $68,000,000 matures in 2010 with interest rates ranging from 4.65% to
6.49%, are callable in 2001 on a quarterly basis and may be refinanced on a
long-term basis. FHLB advances of $30,000,000, $30,000,000 and $30,000,000,
all maturing in 2008, with interest rates of 5.35%, 5.47% and 5.59%,
respectively, are callable in 2002, 2003 and 2004, respectively, and may be
refinanced on a long-term basis.
The Bank had short-term FHLB borrowings of $107,000,000 and $205,500,000 at
December 31, 2000 and 1999, respectively. The weighted average interest rate
on short-term borrowings was 6.108% at December 31, 2000, and 5.785% at
December 31, 1999.
As a member of the FHLB, the Bank is required to maintain an investment in
capital stock of the FHLB of Dallas in an amount equal to the greater of 1% of
its outstanding home loans or 1/20 of its outstanding advances from the FHLB
of Dallas. No ready market exists for such stock and it has no quoted market
value. Pursuant to collateral agreements with the FHLB, advances are
collateralized by all stock in the FHLB and qualifying first mortgage loans.
Additionally, at December 31, 2000, the Bank has a $50 million line of
credit, which expires on May 10, 2001. The Bank had no outstanding borrowings
under the line of credit at December 31, 2000. There is no commitment fee to
maintain this credit line.
50
SUPERIOR FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Bank had long-term borrowings from the FHLB with maturities as follows
at December 31, 2000:
FHLB Long-
Term
Borrowings
----------
(Dollars
in
thousands)
Maturing in the year ending December 31:
2002.............................................................. $ --
2003.............................................................. 65,000
2004.............................................................. --
2005.............................................................. --
Thereafter........................................................ 158,000
--------
$223,000
========
11. Other Borrowings
At December 31, 2000, borrowings included an $11.5 million advance under a
line of credit ("LOC") and $60 million of Senior Notes ("Senior Notes"). These
are obligations of the parent, Superior Financial Corp. Other borrowings for
the Bank consisted of $3.4 million in Treasury, Tax and Loan deposits received
through the Direct Investment Program with the Federal Reserve Bank of St.
Louis and $50.1 million in repurchase agreements.
On April 1, 2000, Superior Financial Corp. converted its note payable into
a $20 million line of credit, which matures April 1, 2003. $8.5 million was
available under the LOC at December 31, 2000. The LOC bears interest at LIBOR
plus l.50% (8.375% at December 31, 2000) and requires quarterly interest
payments. The line of credit is secured by shares of the Bank in such an
amount that the book value of pledged stock will be equal to at least two
times the outstanding balance of the loan. The line of credit contains certain
covenants of which the most restrictive includes a minimum total capital,
minimum return on assets and maximum nonperforming assets to total loans and
other real estate ratio. At December 31, 2000, the Company was in compliance
with the covenants.
The $60 million Senior Notes bear interest at 8.65% and require semiannual
interest payments that began October 1, 1998. The entire principal balance is
due April 1, 2003. The agreement requires the Company to maintain an interest
reserve account with cash or permitted investments sufficient to pay interest
due on the next two succeeding interest payment dates. At December 31, 2000,
the interest reserve account held a mortgage-backed security with a carrying
value of approximately $5.2 million. This account is classified in investments
available for sale on the balance sheet. The loan agreement contains certain
covenants of which the most restrictive include minimum total capital and
minimum liquidity maintenance. Additionally, the agreement restricts certain
payments for dividends. At December 31, 2000, the Company was in compliance
with these covenants. Debt issuance costs of $2,465,000 were incurred with the
offering, and the remaining unamortized balance of $1,118,000 is included in
prepaid expenses and other assets at December 31, 2000.
As of December 31, 2000, the Bank may receive up to $15 million in
Treasury, Tax and Loan deposits. The interest rate on these deposits is the
Fed Funds rate less 25 basis points (6.25% at December 31, 2000). The
repurchase agreements consist of $112,000 in retail agreements and $50 million
with Salomon Smith Barney, Inc. The bank customer agreements mature in March
2001 and pay interest monthly or quarterly at a weighted average rate of
6.345%.
51
SUPERIOR FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In December, 2000 the Bank entered into an agreement to sell securities
under an agreement to repurchase with Salomon Smith Barney for $50 million.
The Bank is obligated to repurchase these securities at maturity in 2010 or
after 2 years at any quarterly interest payment date following at the issuer's
option, pay quarterly interest at 5.22%, and maintain collateral of 110% of
the agreement. The Bank had $50 million outstanding at December 31, 2000.
There were no repurchase agreements at December 31, 1999.
12. Regulatory Matters
The Company is a unitary thrift holding company and, as such, is subject to
regulation, examination and supervision by the Office of Thrift Supervision
("OTS").
The Bank is also subject to various regulatory requirements administered by
the OTS. 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 Bank's financial
statements. Under capital adequacy guidelines and the regulatory framework for
prompt corrective action, the Bank must meet specific capital guidelines that
involve quantitative measures of the Bank's assets, liabilities, and certain
off-balance sheet items as calculated under regulatory accounting practices.
The Bank's 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 to risk weighted assets (as defined). Management believes, as of December
31, 2000, that the Bank meets all capital adequacy requirements to which it is
subject.
The most recent notification from the OTS categorized the Bank as well
capitalized under the regulatory framework for prompt corrective action. To be
categorized as well capitalized the Bank must maintain minimum total,
tangible, and core capital ratios as set forth in the table below. There are
no conditions or events since that notification that management believes have
changed the institution's category.
52
SUPERIOR FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company's and the Bank's actual capital amounts and ratios as of
December 31, 2000 and 1999 are presented below (dollars in thousands):
Required to be
Categorized as
Well Capitalized
Under Prompt
Company Bank Required for Corrective
--------------- ----------------- Capital Adequacy Action
Actual Actual Purposes Provisions
--------------- ----------------- ------------------ -----------------
Amount Ratio Amount Ratio Amount Ratio Amount Ratio
-------- ----- --------- ------ --------- ------- --------- ------
As of December 31, 2000
Tangible Capital to
adjusted total assets.. $53,778 3.35% $115,924 7.27% $ 23,987 1.50% $ N/A N/A
Core capital to adjusted
total assets........... 53,778 3.35 115,924 7.27 63,967 4.00 79,958 5.00
Total capital to risk
weighted assets........ 65,864 6.46 128,010 12.62 81,134 8.00 101,418 10.00
Tier I capital to risk
weighted assets........ 53,778 3.35 115,924 11.43 N/A N/A 60,851 6.00
As of December 31, 1999
Tangible capital to
adjusted total assets.. $48,451 3.16% $110,086 7.20% $ 22,939 1.50% $ N/A N/A
Core capital to adjusted
total assets........... 48,451 3.16 110,086 7.20 61,171 4.00 76,464 5.00%
Total capital to risk
weighted assets........ 59,797 6.19 121,432 12.59 77,178 8.00 96,473 10.00
Tier I capital to risk
weighted assets 48,451 4.75 110,086 11.41 N/A N/A 57,884 6.00
53
SUPERIOR FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
13. Income Taxes
Included in other liabilities are deferred income taxes, which reflect the
net tax effects of temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts used
for income tax purposes. Significant components of the Company's deferred tax
liabilities and assets as of December 31 are as follows:
2000 1999
----------- -----------
(Dollars in thousands)
Deferred tax liabilities:
Prepaid assets................................... $ 264 $ 482
Goodwill amortization............................. 374 226
FHLB dividends................................... 1,244 536
Premises and equipment........................... 297 306
Other............................................ 247 25
----------- -----------
Total deferred liabilities........................ 2,426 1,575
Deferred tax assets:
Allowance for loan losses........................ 622 332
Mortgage servicing rights........................ 110 32
Accrued bonuses and other........................ -- 80
Unrealized loss on investments available for
sale............................................ 1,495 3,310
----------- -----------
Total deferred assets............................. 2,227 3,754
----------- -----------
Net deferred tax (liability) asset................ $ (199) $ 2,179
=========== ===========
Significant components of the provision for income taxes for the years
ended December 31 are as follows:
2000 1999 1998
------ ------ ------
(Dollars in
thousands)
Current:
Federal................................................ $5,465 $5,218 $3,242
State.................................................. -- 473 628
------ ------ ------
Total current........................................... 5,465 5,691 3,870
Deferred:
Federal................................................ 564 713 295
State.................................................. -- 43 80
------ ------ ------
Total deferred.......................................... 564 756 375
------ ------ ------
$6,029 $6,447 $4,245
====== ====== ======
The reconciliation of income tax attributable to continuing operations
computed at the U.S. Federal statutory tax rates to income tax expense for the
years ended December 31 are as follows:
2000 1999 1998
---- ---- ----
Tax at U.S. statutory rate............................... 35.0% 35.0% 35.0%
State income tax expense, net of Federal income tax
benefit................................................. 0.0 1.7 3.9
Tax exempt interest income............................... (2.9) (1.1) 0.0
Other.................................................... .8 .5 0.0
---- ---- ----
32.9% 36.1% 38.9%
==== ==== ====
54
SUPERIOR FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Bank files a consolidated federal income tax return with the Company.
Income tax expense is allocated to the Bank and recorded in the Bank's
consolidated financial statements, generally on the basis of the tax, which
would be, payable if the Bank had filed a separate return.
14. Earnings Per Common Share
The Company computes earnings per share ("EPS") in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 128. Basic EPS is
computed by dividing reported earnings available to common stockholders by
weighted average shares outstanding. No dilution for any potentially dilutive
securities is included. Diluted EPS includes the dilutive effect of stock
options. In computing dilution for stock options, the average share price is
used for the period presented.
Basic and diluted earnings per common share at December 31 is computed as
follows:
2000 1999 1998
------- ------- ------
(In thousands, except
per share amounts)
Common shares--weighted average (basic).............. 9,475 10,073 7,595
Common share equivalents--weighted average........... 30 47 --
------- ------- ------
Common shares--weighted average (diluted)............ 9,505 10,120 7,595
======= ======= ======
Net income........................................... $12,315 $11,386 $6,675
======= ======= ======
Basic and diluted earnings per common share.......... $ 1.30 $ 1.13 $ .88
======= ======= ======
15. Commitments and Contingencies
The Bank leases branch locations under operating leases with remaining
terms ranging from 2 to 19 years. These leases all contain renewal options
with varying periods. A schedule of future minimum rental payments under
operating leases, as of December 31, 2000 follows:
(Dollars
in
thousands)
----------
2001.............................................................. $ 796
2002.............................................................. 583
2003.............................................................. 432
2004.............................................................. 285
2005.............................................................. 162
Thereafter........................................................ 1,334
------
$3,592
======
Rental expense was $925,000, $786,000, and $420,000 for the years ended
December 31, 2000, 1999, and 1998, respectively.
On April 1, 1998, the Company became the legal successor to NationsBank's
right and interest in the related proceedings brought under the action
Superior Federal Bank, F.S.B. vs. United States (No. 95-769C) (the "Goodwill
Litigation"). Within five business days following the Company's receipt of
payment pursuant to irrevocable settlement or other resolution of the Goodwill
Litigation by final judgment subject to no further appeal, and, as further
consideration for the sale of the Bank to the Company, the Company shall pay
NationsBank fifty percent (50%) of the "net recovery" from the Goodwill
Litigation. "Net recovery" shall be the gross aggregate amount the Company
receives from such settlement or resolution, net of the total litigation
expenses incurred and paid by the Company after the Closing Date. "Total
litigation expense" shall include, without limitation, attorneys' fees, court
costs, expenses, fees of experts and consultants, filing fees and all other
costs reasonably incurred in prosecution of the Goodwill Litigation.
55
SUPERIOR FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company and its legal counsel are unable to estimate the amount or
likelihood of any potential settlement, if any that may result from the
Goodwill Litigation. Although the outcome of the Goodwill Litigation cannot be
determined, the Company's legal counsel and management are of the opinion that
such final outcome should not have a material adverse effect on the Company's
results of operations or financial condition.
The Company is involved in various lawsuits and litigation matters on an
ongoing basis as a result of its day-to-day operations. However, the Company
does not believe that any of these or any threatened lawsuits and litigation
matters will have a materially adverse effect on the Company or its business.
16. Supplemental Disclosure of Cash Flow Information and Noncash Activity
Cash Flow Information
The Company purchased all of the capital stock of Superior Federal Bank,
F.S.B. on April 1, 1998. In conjunction with the acquisition, liabilities were
assumed as follows:
(Dollars
in
thousands)
----------
Fair value of noncash assets acquired............................ $1,081,436
Cash acquired.................................................... 288,692
Cash paid for the capital stock.................................. (162,500)
Transaction costs................................................ (8,757)
Excess of investment over fair value of net assets acquired...... 76,426
----------
Liabilities assumed.............................................. $1,275,297
==========
2000 1999 1998
------- ------- -------
(Dollars in thousands)
Cash paid for the years ending December 31:
Interest.......................................... $69,170 $57,247 $37,728
Taxes............................................. 5,145 6,325 4,199
Costs paid from the proceeds of the issuance of
common stock and borrowings under the bank debt
and senior notes:
Debt issuance costs.............................. -- -- 2,870
Stock issuance costs............................. -- -- 3,429
Noncash Activity:
Additions to other real estate from settlement of
loans............................................ 1,287 998 344
Repayment of funds advanced by the Placement Agent
and Lead Investor to pay transactions costs
through issuance of 200,000 shares of common
stock............................................ -- -- 1,000
Deferred acquisition costs incurred but not paid.. -- -- 183
Acquisition and purchase accounting adjustments:
Goodwill, net.................................... 250 2,576 --
Premises and equipment, net...................... 98 (1,412) --
Other liabilities................................ -- (1,164) --
56
SUPERIOR FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
17. Employee Benefit Plan
In April 1998 the Company established a qualified retirement plan, with a
salary deferral feature designed to qualify under Section 401 of the Internal
Revenue Code (the "401(k) Plan"). The 401(k) Plan permits the employees of the
Company to defer a portion of their compensation in accordance with the
provisions of Section 401(k) of the Code. Matching contributions may be made
in amounts and at times determined by the Company. Certain other statutory
limitations with respect to the Company's contribution under the 401(k) Plan
also apply. Amounts contributed by the Company for a participant will vest
over four years and will be held in trust until distributed pursuant to the
terms of the 401(k) Plan.
Employees of the Company are eligible to participate in the 401(k) Plan
when they meet certain requirements concerning minimum age and period of
credited service. All contributions to the 401(k) Plan will be invested in
accordance with participant elections among certain investment options.
Distributions from participant accounts will not be permitted before age 59,
except in the event of death, permanent disability, certain financial
hardships or termination of employment. The Company made matching
contributions of $332,534, $257,868, and $203,863 to the 401(k) Plan in 2000,
1999, and 1998, respectively.
18. Stock Option Plan
On June 17, 1998, the Company adopted the 1998 Long-Term Incentive Plan
(the "LTIP"). The LTIP is an omnibus plan administered by the Company's
Compensation Committee to provide equity-based incentive compensation for the
Company's key employees. It provides for issuance of incentive stock options,
qualified under Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code"), and non-qualified stock options. The LTIP also provides for
issuance of stock appreciation rights, whether in tandem with options or
separately, and awards of restricted shares subject to time-based restrictions
and/or performance goals.
The LTIP imposes a limit on the total number of shares that may be issued
during the ten-year term of the LTIP equal to 10% of the number of shares
outstanding as of December 31, 1998 (1,008,000 total shares limit). It imposes
a limit on the number of awards that may be granted to all employees in any
one calendar year equal to 1% of the number of shares outstanding on December
31, 1998 (100,800 annual shares limit). Any unused portion of the annual
shares limit shall be carried forward and available for awards in future
years. Finally, the LTIP limits the number of restricted stock awards that may
be granted each year, which are time-based restricted only (i.e., without
regard to any performance goals), to a number of shares equal to .33% (1/3 of
1%) of the number of shares outstanding on December 31, 1998 (33,932 annual
restricted shares limit). For the years ended December 31, 2000, 1999, and
1998, respectively, the Company granted 113,500, 95,645 and 35,549 options,
respectively, under the LTIP.
A total of 487,500 options have been granted to the Chairman and Chief
Executive Officer of the Company and 243,750 options have been granted to the
President of the Company pursuant to their Founder's Agreements and Employment
Agreements (collectively referred to as the "Agreements"), respectively. Those
options were issued before the adoption of the LTIP by the Company's Board
and, therefore, are non-qualified stock options. They have not been issued
pursuant to the LTIP. Under the Agreements, 292,500 options vested upon the
successful completion of the acquisition of the Bank and consummation of
public offering of equity securities. The remaining options granted under the
Agreements vested upon achieving certain performance targets.
57
SUPERIOR FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following summarizes the stock option activity:
2000 1999 1998
---------------- ---------------- ----------------
Weighted Weighted Weighted
Average- Average- Average-
Exercise Exercise Exercise
Options Price Options Price Options Price
------- -------- ------- -------- ------- --------
Outstanding--beginning of
year...................... 862,444 $10.08 766,799 $10.04 731,250 $10.00
Granted.................... 113,500 10.00 95,645 10.38 35,549 10.83
Exercised.................. -- -- -- -- -- --
Canceled................... -- -- -- -- -- --
------- ------ ------- ------ ------- ------
Outstanding--end of year... 975,944 $10.07 862,444 $10.08 766,799 $10.04
======= ====== ======= ====== ======= ======
Exercisable at end of
year...................... 738,752 $10.01 738,752 $10.01 292,500 $10.00
======= ====== ======= ====== ======= ======
Exercise prices for options outstanding as of December 31, 2000 ranged from
$10.00 to $10.83. The weighted-average remaining contractual life of the
outstanding options is 8.0 years. All stock options issued by the Company have
an original contractual life of 10 years.
The fair value of each option granted is estimated on the date of grant
using the Black-Scholes option-pricing model. The fair value of the options
granted and the respective weighted-average assumptions are as follows:
2000 1999 1998
--------- --------- ---------
Weighted-average fair value of options
granted................................. $ 5.53 $ 5.15 $ 4.81
Risk-free interest rate.................. 6.13% 6.46% 6.73%
Dividend yield........................... 0.00 0.00 0.00
Expected stock volatility................ .30 .21 0.00
Weighted average expected life........... 10 years 10 years 10 years
In October 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation" ("SFAS No. 123"). Under the provisions of SFAS No. 123,
companies can elect to account for stock-based compensation plans using a fair
value based method or continue measuring compensation expense for those plans
using the intrinsic value method prescribed by Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees." SFAS No. 123
requires that companies electing to continue using the intrinsic value method
must make pro forma disclosures of net income and earnings per share as if the
fair value based method of accounting had been applied. The Company elected to
account for its stock-based compensation plans using the intrinsic value
method. Accordingly, no compensation cost has been recognized for the stock
option plans. The pro forma effects on reported net income and earnings per
share for the years ended December 31, 2000, 1999, and 1998, assuming the
Company had elected to account for its stock option grants in accordance with
SFAS No. 123, would have resulted in net income of approximately $11,947,000
and $11,116,000, and $6,441,000, respectively, or $1.26 basic and diluted
earnings per share for 2000, $1.10 basic and diluted earnings per share for
1999, and $.85 basic and diluted earnings per share for 1998. Such pro forma
effects are not necessarily indicative of the effect on future years.
58
SUPERIOR FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
19. Parent Company Financial Information
Presented below are the condensed balance sheets, statements of operations
and cash flows for the parent company, Superior Financial Corp., as of December
31, 2000 and 1999 and for the years ended December 31, 2000, 1999, and 1998.
Balance Sheets
(Dollars in thousands)
December 31,
-----------------
2000 1999
-------- --------
Assets
Cash and cash equivalents.................................... $ 2,204 $ 2,286
Investment in subsidiary..................................... 173,483 167,247
Investments.................................................. 5,191 5,166
Other........................................................ 3,606 4,521
-------- --------
Total assets................................................. $184,484 $179,220
======== ========
Liabilities and Stockholders' Equity
Notes payable................................................ $ 71,500 $ 73,000
Accrued interest and other liabilities....................... 1,667 634
-------- --------
Total liabilities............................................ 73,167 73,634
Stockholders' equity......................................... 111,317 105,586
-------- --------
Total liabilities and stockholders' equity................... $184,484 $179,220
======== ========
Statements of Operations
(Dollars in thousands)
Year ended December 31
----------------------
2000 1999 1998
------- ------- ------
Income
Dividends from subsidiary............................... $14,000 $11,000 $4,000
Expenses
Interest, net........................................... 6,393 6,278 5,582
Other................................................... 788 533 194
------- ------- ------
Total expenses.......................................... 7,181 6,811 5,776
------- ------- ------
Income (loss) before income tax benefit and equity in
undistributed earnings of subsidiary................... 6,819 4,189 (1,776)
Income tax benefit...................................... 2,611 2,503 2,291
Equity in undistributed earnings of subsidiary.......... 2,885 4,694 6,160
------- ------- ------
Net income.............................................. $12,315 $11,386 $6,675
======= ======= ======
59
SUPERIOR FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Statements of Cash Flows
(Dollars in thousands)
Year ended December 31
---------------------------
2000 1999 1998
------- ------- ---------
Operating Activities
Net income....................................... $12,315 $11,386 $ 6,675
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Undistributed earnings of subsidiary............. (2,885) (4,694) (6,160)
(Decrease) increase in other assets.............. 909 639 (4,831)
Increase (decrease) in accrued interest and other
liabilities..................................... 1,033 (860) 1,311
------- ------- ---------
Net cash provided by (used in) operating
activities...................................... 11,372 6,471 (3,005)
Investing Activities
Purchase of investments.......................... -- (5,206) (5,330)
Sale of investments.............................. -- 5,333 --
Gain on sale of investments...................... -- (3) --
Purchase of Superior Federal Bank, F.S.B......... -- -- (162,500)
Purchase treasury stock.......................... (9,963) (1,164) --
------- ------- ---------
Net cash used in investing activities............ (9,963) (1,040) (167,830)
Financing Activities
Proceeds from common stock issued, net........... 9 7 94,589
Proceeds from notes payable...................... -- -- 80,000
Payments on notes payable........................ (1,500) (7,000) --
------- ------- ---------
Net cash (used in) provided by financing
activities...................................... (1,491) (6,993) 174,589
Net (decrease) increase in cash.................. (82) (1,562) 3,754
Cash and cash equivalents at beginning of
period.......................................... 2,286 3,848 94
------- ------- ---------
Cash and cash equivalents at end of period....... $ 2,204 $ 2,286 $ 3,848
======= ======= =========
60
SUPERIOR FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
The information required by this item as to the Company directors is
contained in the Company's proxy statement dated April 13, 2001, under the
captions "Election of Directors" and "Section 16 (a) Beneficial Ownership
Reporting Compliance," and is incorporated herein by reference.
EXECUTIVE OFFICERS OF THE REGISTRANT
Name, Age and
Year Position and Office Held with the Present and Principal
Became Executive Company and Superior Federal Bank, Occupation
Officer F.S.B. for the Last Five Years
---------------- ---------------------------------- -----------------------
C. Stanley Bailey Chairman of the Board, Chief Executive Officer
52, 1998............ Chief Executive Officer and Chairman of the
of both Superior and Board of the Company
Superior Federal Bank, and the Bank, Little
F.S.B. Rock, Arkansas, 1998-
present, Chief
Financial Officer and
Executive Vice
President of Hancock
Holding Company and
Hancock Bank,
Gulfport, Mississippi,
1995-1998, Vice
Chairman of the Board
of Directors, AmSouth
Bancorporation and
AmSouth Bank,
Birmingham, Alabama
1971-1994.
C. Marvin Scott President, Chief Operating President, Chief
51, 1998............ Officer and Director, of Operating Officer and
both Superior and Director of the
Superior Federal Bank, Company and the Bank,
F.S.B. Fort Smith, Arkansas,
1998-present, Chief
Retail Officer and
Senior Vice President,
Hancock Holding
Company and Hancock
Bank, Gulfport
Mississippi, 1996-
1998; Executive Vice
President--Consumer
Banking, AmSouth Bank
Birmingham, Alabama
1988-1996.
Rick D. Gardner Chief Financial Officer Chief Financial Officer
41, 1998............ and Treasurer of Superior and Treasurer of the
and Superior Federal Company and the Bank,
Bank, F.S.B. Little Rock, Arkansas,
1998-present, Chief
Executive Officer,
First Commercial
Mortgage Company
Little Rock, Arkansas
1997-1998; Chief
Financial Officer,
First Commercial
Mortgage Company,
Little Rock, Arkansas,
1996-1997; Chief
Financial Officer,
Metmor Financial Inc.,
Kansas City, Missouri,
1990-1995.
61
SUPERIOR FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Item 11. Executive Compensation
The information required by this item is contained in the Company's proxy
statement dated April 13, 2001 under the caption "Executive Compensation" and
is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this item is contained in the Company's proxy
statement dated April 13, 2001, under the caption "Voting Securities and
Principal Stockholders" and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
The information required by this item is contained in the Company's proxy
statement dated April 13, 2001, under the captions "Compensation Committee
Interlocks and Insider Participation" and "Executive Compensation" and is
incorporated herein by reference.
CAUTIONARY STATEMENT PURSUANT TO SAFE HARBOR PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995:
This report contains "forward-looking statements" within the meaning of the
federal securities laws. The forward-looking statements in this report are
subject to risks and uncertainties that could cause actual results to differ
materially from those expressed in or implied by the statements. Factors that
may cause actual results to differ materially from those contemplated by such
forward-looking statements include, among other things, the following
possibilities: (i) deposit attrition, customer loss, or revenue loss in the
ordinary course of business; (ii) increases in competitive pressure in the
banking industry; (iii) the Company's ability to attract new business through
merger related customer dislocation is less than expected; (iv)changes in the
interest rate environment which reduce margins; (v) general economic
conditions, either nationally or regionally, that are less favorable then
expected, resulting in, among other things, a deterioration in credit quality,
vendor representations, technological advancements, and economic factors
including liquidity availability; (vi) changes which may occur in the
regulatory environment; (vii) a significant rate of inflation (deflation); and
(viii) changes in the securities markets. When used in this Report, the words
"believes," "estimates," "plans," "expects," "should," "may," "might,"
"outlook," and "anticipates," and similar expressions as they relate to the
Company (including its subsidiaries), or its management are intended to
identify forward-looking statements.
62
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) 1. Financial Statements
Superior Financial Corp.
Report of Independent Auditors
Consolidated Balance Sheets as of December 31, 2000 and 1999
Consolidated Statements of Operations for years ended December 31, 2000,
1999 and 1998
Consolidated Statements of Changes in Stockholders' Equity for the years
ended December 31, 2000, 1999 and 1998
Consolidated Statements of Cash Flows for the years ended December 31,
2000, 1999 and 1998
Notes to Consolidated Financial Statements, including parent company only
information.
2. Financial Statements Schedule
The financial statements schedules required to be included pursuant to this
Item are not included herein because they are not applicable or the required
information is shown in the financial statements or notes thereto which are
incorporated by reference at subsection 1 of this Item above.
63
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, in the City of
Little Rock, Arkansas on the 28th day of March, 2001.
SUPERIOR FINANCIAL CORP.
/s/ C. Stanley Bailey
By:__________________________________
C. Stanley Bailey
Its Chairman of the Board of
Directors
and Chief Executive Officer
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 dates indicated.
Signature Title Date
--------- ----- ----
/s/ C. Stanley Bailey Chairman of the Board of **
________________________________________ Directors and Chief
C. Stanley Bailey Executive Officer
/s/ C. Marvin Scott President, Chief Operating **
________________________________________ Officer and Director
C. Marvin Scott
/s/ Rick D. Gardner Chief Financial Officer and **
________________________________________ Treasurer (Principal
Rick D. Gardner Financial Officer and
Principal Accounting
Officer and Director)
* Director **
________________________________________
Ben F. Scroggin, Jr.
* Director **
________________________________________
John M. Stein
* Director **
________________________________________
David E. Stubblefield
* Director **
________________________________________
John M. Steuri
* Director **
________________________________________
Howard "Buddy" McMahon
* Director **
________________________________________
Brian A. Gahr
* The undersigned, acting pursuant to a power of attorney, has signed this
Annual Report on Form 10-K for and on behalf of the persons indicated above
as such persons' true and lawful attorney-in-fact and in their names, places
and stead, in the capacities indicated above and on the date indicated
below.
/s/ C. Stanley Bailey
*By:_______________________________
C. Stanley Bailey
Attorney-in-Fact
**Dated: March 28, 2001
64
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Numbered
Exhibits Description Page
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3 -- Articles of Incorporation and Bylaws:
3.1 -- Restated and Amended Certificate of Incorporation
of Superior Financial Corp. ("Superior"), filed as
Exhibit 3.1 to Superior's Annual Report on Form
10-K for the year ended December 31, 1998, and
incorporated herein by reference.
3.2 -- Bylaws of Superior, filed as Exhibit 3.2 to
Superior's Annual Report on Form 10-K for the year
ended December 31, 1998, and incorporated herein
by reference.
4 -- Instruments defining the rights of security
holders:
4.1 -- Form of Equity Subscription Agreement among
Superior, Keefe, Bruyette & Woods, Inc. ("KBW")
and various investors named therein, dated April
1, 1998, filed as Exhibit 4.1 to Superior's Annual
Report on Form 10-K for the year ended December
31, 1998, and incorporated herein by reference.
4.2 -- Form of Registration Rights Agreement between
Superior, KBW and various investors named therein,
dated April 1, 1998, filed as Exhibit 4.2 to
Superior's Annual Report on Form 10-K for the year
ended December 31, 1998, and incorporated herein
by reference.
4.3 -- Form of Common Stock Certificate of Superior,
filed as Exhibit 4.3 to Superior's Annual Report
on Form 10-K for the year ended December 31, 1998,
and incorporated herein by reference.
4.4 -- Article 4 of Superior's Amended and Restated
Certificate of Incorporation (included in
Exhibit 3.1), filed as part of Exhibit 3.1 to
Superior's Annual Report on Form 10-K for the year
ended December 31, 1998, and incorporated herein
by reference.
4.5 -- All instruments defining the rights of holders of
long-term debt of Superior and its subsidiaries.
Not filed pursuant to clause 4 (iii) of Item
601(b) of Regulation S-K; to be furnished upon
request of the Commission.
10 -- Material Contracts:
10.1 -- Custody and Security Agreement between Superior
and Bank of New York ("BONY"), as Trustee, dated
April 1, 1998, filed as Exhibit 10.1 to Superior's
Annual Report on Form 10-K for the year ended
December 31, 1998, and incorporated herein by
reference.
10.2 -- Securities Account Control Agreement between
Superior, Trustee and BONY, dated April 1, 1998,
filed as Exhibit 10.2 to Superior's Annual Report
on Form 10-K for the year ended December 31, 1998,
and incorporated herein by reference.
10.3 -- Founders Agreement between Superior and C. Stanley
Bailey, dated December 2, 1997, filed as Exhibit
10.3 to Superior's Annual Report on Form 10-K for
the year ended December 31, 1998, and incorporated
herein by reference.
10.4 -- Founders Agreement between Superior and KBW, dated
December 2, 1997, filed as Exhibit 10.4 to
Superior's Annual Report on Form 10-K for the year
ended December 31, 1998, and incorporated herein
by reference.
10.5 -- Founders Agreement between Superior and Financial
Stocks, Inc., dated December 2, 1997, filed as
Exhibit 10.5 to Superior's Annual Report on Form
10-K for the year ended December 31, 1998, and
incorporated herein by reference.
10.6 -- Agreement between C. Marvin Scott and Superior,
dated January 1, 1998, filed as Exhibit 10.6 to
Superior's Annual Report on Form 10-K for the year
ended December 31, 1998, and incorporated herein
by reference.
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Exhibits Description Page
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10.7 -- 1998 Long Term Incentive Plan, filed as Exhibit
10.7 to Superior's Annual Report on Form 10-K for
the year ended December 31, 1998, and incorporated
herein by reference.
10.8 -- Stock Purchase Agreement by and among Superior, NB
Holdings Corporation and Superior Federal Bank,
F.S.B. providing for the acquisition of the stock
of Superior Federal Bank, F.S.B. by Superior,
dated as of December 3, 1997, filed as Exhibit
10.8 to Superior's Annual Report on Form 10-K for
the year ended December 31, 1998, and incorporated
herein by reference.
10.9 -- Agreement between Rick D. Gardner and Superior
dated September 21, 1998, filed as Exhibit 10.9 to
Superior's Annual Report on Form 10-K for the year
ended December 31, 1998, and incorporated herein
by reference.
11 -- Statement Regarding Computation of Earnings Per
Share is included in the Annual Report on Form 10-
K at footnote 14 to the financial statements on
Item 8.
12 -- Statement Regarding Computation of Ratio of
Earnings to Fixed Charges.
21 -- List of subsidiaries of the Registrant.
23 -- Consents of Experts and Counsel.
23.1 -- Consent of Ernst & Young LLP.
24 -- Power of Attorney.
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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EXHIBITS
to
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of the
Securities and Exchange Act of 1934
For the fiscal year ended December 31, 2000
Commission File No. 0-25239
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SUPERIOR FINANCIAL CORP.
(Exact name of registrant as specified in the charter)
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