UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C.
20549
Form 10-K
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(Mark One)
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þ
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal
year ended December 31, 2009
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or
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period from
to
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Commission file number
0-25033
SUPERIOR BANCORP
(Exact Name of Registrant as
Specified in Its Charter)
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Delaware
(State or Other Jurisdiction
of
Incorporation or Organization)
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63-1201350
(I.R.S. Employer
Identification No.)
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17 North 20th Street
Birmingham, Alabama
(Address of Principal
Executive Offices)
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35203
(Zip
Code)
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(205) 327-1400
(Registrants Telephone
Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
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Title of each Class
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Name of each exchange on which registered
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Common Stock, par value $.001 per share
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NASDAQ Global Market
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Securities registered pursuant to Section 12(g) of the Act:
NONE
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No þ
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ
Indicate by check mark whether the
registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such
files). Yes o No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in Rule
12b-2 of the
Exchange Act. (Check one):
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Large
accelerated
filer o
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Accelerated
filer o
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Non-accelerated
filer þ
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Smaller reporting
company o
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(Do not check if a smaller
reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Act.) Yes
o No þ
The aggregate market value of the voting common stock held by
non-affiliates of the registrant as of June 30, 2009, based
on a closing price of $2.61 per share of common stock, was
$23,029,643.
Indicate the number of shares outstanding of each of the
registrants classes of common stock as of the latest
practicable date: the number of shares outstanding as of
March 3, 2010, of the registrants only issued and
outstanding class of common stock, its $.001 per share par value
common stock, was 11,687,406.
DOCUMENTS INCORPORATED BY REFERENCE
The information set forth under Items 10, 11, 12, 13 and 14
of Part III of this Report is incorporated by reference
from the registrants definitive proxy statement for its
2010 annual meeting of stockholders that will be filed no later
than April 30, 2010.
PART I
General
Superior Bancorp is a Delaware-chartered nondiversified unitary
savings and loan holding company headquartered in Birmingham,
Alabama. We offer a broad range of banking and related services
in 73 locations in Alabama and Florida through Superior Bank,
our principal subsidiary. Superior Banks consumer finance
subsidiaries operate an additional 24 consumer finance offices
in North Alabama. We had assets of approximately
$3.222 billion, loans of approximately $2.473 billion,
deposits of approximately $2.657 billion and
stockholders equity of approximately $191.7 million
at December 31, 2009. Our principal executive offices are
located at 17 North 20th Street, Birmingham, Alabama
35203, and our telephone number is
(205) 327-1400.
We were founded in 1997 and completed our initial public
offering in December 1998. Beginning in the fall of 1998, we
grew through the acquisition of various financial institutions
in Alabama and Florida.
In January 2005, we began the transition from our founding
management team to a new senior management team composed of
veteran bankers with a strong track record and a history of
enhancing stockholder value. During the remainder of 2005, we
completed that management transition.
During 2006 and 2007, we expanded our franchise with three
strategic acquisitions. On August 31, 2006, we entered the
Tampa, Florida market when we acquired Kensington Bankshares,
Inc. (Kensington) and its subsidiary, First
Kensington Bank. On November 7, 2006, we increased our
market presence in North Alabama by acquiring Community
Bancshares, Inc. (Community) and its subsidiary,
Community Bank. On July 27, 2007, we acquired Peoples
Community Bancshares, Inc. (Peoples) and its
subsidiary, Peoples Community Bank of the West Coast,
adding three branches in Sarasota and Manatee Counties in
Florida to our franchise.
Strategy
Operations. We focus our services on small to
medium-sized businesses, as well as professionals and
individuals, emphasizing our local decision-making, effective
response time and personalized service. As a result, we conduct
our business on a decentralized basis with respect to deposit
gathering and most credit decisions, utilizing local knowledge
and authority to make these decisions. We supplement this
decentralized management approach with centralized loan
administration, policy oversight, credit review, audit, legal,
asset/liability management, data processing, human resources and
risk management systems. We implement these standardized
administrative and operational policies at each of our locations
while retaining local management and advisory directors to
capitalize on their knowledge of the local community.
Products and Services. Superior Bank provides
a wide range of retail and small business services, including
noninterest-bearing and interest-bearing checking, savings and
money market accounts, negotiable order of withdrawal
(NOW) accounts, certificates of deposit and
individual retirement accounts. In addition, Superior Bank
offers an extensive array of consumer, small business,
residential real estate and commercial real estate loan
products. Other financial services include annuities, automated
teller machines, debit cards, credit-related life and disability
insurance, safety deposit boxes, Internet banking, bill payment
and telephone banking. Superior Bank attracts primary banking
relationships through the customer-oriented service environment
created by Superior Banks personnel combined with
competitive financial products.
Superior Bank also owns two consumer finance companies, Superior
Financial Services, LLC and 1st Community Credit
Corporation as well as Superior Financial Management, Inc. which
provides investment and insurance products. The finance
companies generally provide smaller loans to a market segment
traditionally not pursued by Superior Bank. These loans
typically involve greater risk and generate higher yields than
standard bank loans. We believe that, by conducting this
business, we reach a customer base not served by our banking
operations.
Market Areas. Superior Bancorp is
headquartered in Birmingham, Alabama. Our primary markets are
located in northern and central Alabama and in the panhandle and
west coast of Florida.
2
Superior Bank has branches in:
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Alabama(45)
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Florida(28)
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Albertville
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Andalusia
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Altha
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Apalachicola
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Arab
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Athens
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Beverly Hills
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Blountstown
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Birmingham
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Blountsville
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Bradenton
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Bristol
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Chelsea
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Childersburg
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Brooksville
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Clearwater
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Cleveland
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Cullman
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Dunnellon
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Homosassa
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Decatur
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Elkmont
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Inverness
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Marianna
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Falkville
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Gadsden
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New Port Richey
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Palm Harbor
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Gardendale
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Guntersville
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Panama City
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Port Richey
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Gurley
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Haleyville
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Port St. Joe
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Sarasota
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Hamilton
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Hartselle
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Spring Hill
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Sun City Center(4)
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Hoover(2)
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Huntsville(3)
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Tallahassee(2)
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Tampa(2)
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Madison(2)
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Meridianville
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Wesley Chapel
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Monroeville
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Montgomery
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Mountain Brook
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New Hope
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Oneonta(2)
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Opp
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Pelham
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Rainbow City
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Rogersville
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Samson
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Snead
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Sylacauga
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Trussville
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Uniontown
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Warrior(2)
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Superior Banks finance companies have 24 offices in
Albertville, Anniston, Arab, Attalla, Athens, Boaz, Cullman (2),
Decatur, Florence, Fort Payne, Gadsden, Gardendale,
Hartselle, Huntsville (2), Jasper (2), Moody, Northport,
Oneonta, Oxford, Pell City and Talladega, Alabama.
Growth. Our future growth depends primarily on
the expansion of the business of our primary wholly owned
subsidiary, Superior Bank. That expansion will depend on
internal growth and the opening of new branch offices in new and
existing markets. Superior Bank may also continue to engage in
the strategic acquisition of other financial institutions and
branches that have relatively high earnings and low-cost
deposits or that we believe to have exceptional growth
potential, such as the acquisitions completed in 2006 and 2007.
Our ability to increase profitability and to grow internally
depends primarily on our ability to attract and retain low-cost
core deposits while continuing to generate high-yielding,
quality loans. Our ability to grow profitably through the
opening or acquisition of new branches will depend primarily on,
among other things, our ability to identify growing markets and
branch locations within such markets that will enable us to
attract the necessary deposits to operate such branches
profitably, and identify lending and investment opportunities
within such markets.
We periodically evaluate business combination opportunities and
conduct discussions, due diligence activities and negotiations
in connection with those opportunities. As a result, we may
pursue business combination transactions involving cash, debt or
equity securities from time to time. Any future business
combination or series of business combinations that we might
undertake may be material to our business, financial condition
or results of operations in terms of assets acquired or
liabilities assumed. Any future acquisition is subject to
approval by the appropriate regulatory agencies. See
Supervision and Regulation.
Operating
Segments
Our operations are managed along two reportable operating
segments consisting of the geographical regions of Alabama and
Florida. See the sections captioned Results of Segment
Operations in Item 7. Managements Discussion
and Analysis of Financial Condition and Results of Operations
and Note 26 Segment Reporting in the notes to
consolidated financial statements included in Item 8.
Financial Statements and Supplementary Data, which are located
elsewhere in this report.
3
Lending
Activities
General. We offer various lending services,
including real estate, consumer and commercial loans, primarily
to businesses and other organizations and individuals that are
located in or conduct a substantial portion of their business in
our market areas. Our total loans at December 31, 2009 were
$2.473 billion, or 85.4% of total earning assets. The
interest rates we charge on loans vary with the risk, maturity
and amount of the loan and are subject to competitive pressures,
money market rates, availability of funds and government
regulations. We do not have any foreign loans or loans for
highly leveraged transactions.
The lending activities of Superior Bank are subject to our
written underwriting policy and loan origination procedures
established by Superior Banks Board of Directors and
management. Loan originations are obtained from a variety of
sources, including referrals, existing customers, walk-in
customers and advertising. Loan applications are initially
processed by loan officers who have approval authority up to
designated limits.
We use generally recognized loan underwriting criteria, and
attempt to minimize credit losses through various means. In
particular, on larger credits, we generally rely on the cash
flow of a debtor as the primary source of repayment and
secondarily on the value of the underlying collateral. In
addition, we attempt to utilize shorter loan terms in order to
reduce the risk of a decline in the value of such collateral. As
of December 31, 2009, approximately 72% of our loan
portfolio consisted of loans that had variable interest rates or
matured within one year.
We address repayment risks by adhering to internal credit
policies and procedures that include officer and customer
lending limits, a multi-layered loan approval process that
includes senior management of Superior Bank and Superior Bancorp
for larger loans, periodic documentation examination and
follow-up
procedures for any exceptions to credit policies. The level in
our loan approval process at which a loan is approved depends on
the size of the borrowers overall credit relationship with
Superior Bank.
Loan
Portfolio
The following is a summary of our total loan portfolio as of
December 31, 2009 (dollars in thousands):
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Amount
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Percent
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Commercial and industrial
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$
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213,329
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8.62
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%
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Real estate:
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Construction and land development
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Residential development Alabama
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163,978
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6.62
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%
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Florida
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129,590
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5.24
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%
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Other
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7,856
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0.32
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%
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Total residential development
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301,424
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12.18
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%
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Commercial development Alabama
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102,339
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4.13
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%
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Florida
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265,767
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10.74
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%
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Other
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10,915
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0.44
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%
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Total commercial development
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379,021
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15.31
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%
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Total construction and land development
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680,445
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27.49
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%
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Single-family mortgages
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691,364
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27.93
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%
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Nonresidential mortgages
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830,698
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33.55
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%
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Total real estate portfolio
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2,202,507
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88.97
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%
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Consumer
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58,785
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2.37
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%
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Other
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969
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0.04
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%
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Total loans
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$
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2,475,590
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100.00
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%
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4
Our loan portfolio is our largest earning asset category. Loans
secured by both residential and commercial real estate are a
significant component of our loan portfolio, constituting
$2.203 billion, or 89.0% of total loans, at
December 31, 2009.
Nonresidential Mortgage Loans. At
December 31, 2009, $830.7 million, or 33.6% of our
total loan portfolio, consisted of non-residential mortgage
loans. Our commercial real estate loans primarily provide
financing for income-producing properties such as shopping
centers, multi-family complexes and office buildings and for
owner-occupied properties (primarily light industrial facilities
and office buildings). These loans are underwritten with
loan-to-value
(LTV) ratios ranging, on average, from 65% to 85%
based upon the type of property being financed and the financial
strength of the borrower. For owner-occupied commercial
buildings, we underwrite the financial capability of the owner,
with an 85% maximum LTV ratio. For income-producing improved
real estate, we underwrite based on the strength of the leases,
especially those of any anchor tenants, with minimum debt
service coverage of 1.2:1 and an 85% maximum LTV ratio. While
evaluation of collateral is an essential part of the
underwriting process for these loans, repayment ability is
determined from analysis of the borrowers earnings and
cash flow. Terms are typically 3 to 5 years and may have
payments through the date of maturity based on a 15- to
30-year
amortization schedule. As of December 31, 2009,
owner-occupied properties comprised approximately 28.4%, or
$236.2 million, of total nonresidential mortgage loans, of
which $128.2 million were located in the Florida Region and
the remaining amount located primarily in the Alabama Region.
Non-owner occupied properties are primarily in the office,
hospitality, and retail sectors and totaled approximately
$118.0 million, or 14.2% of nonresidential mortgage loans,
$98.7 million, or 11.9% of nonresidential mortgage loans,
and $82.6 million, or 9.9% of nonresidential mortgages,
respectively, at December 31, 2009. Geographically, 74.9%
of the office sector, 88.5% of the hospitality sector, and 55.9%
of the retail sector were located in the Florida Region, with
the remaining portfolio in the Alabama Region.
Single-Family Mortgage Loans. At
December 31, 2009, $691.4 million, or 27.9% of our
total loan portfolio, consisted of single-family mortgage loans.
Single-family mortgage loans are loans that are traditionally
secured by first or second liens on 1-4 family properties. At
December 31, 2009, single-family mortgage loans secured by
first liens accounted for $556.9 million, or 22.5% of total
loans. Home equity products totaled $134.5 million, or 5.4%
of total loans. Home equity products are also centrally
underwritten with strict adherence to internal loan policy
guidelines to ensure that borrowers have appropriate credit
ratings and capacity to repay and that adequate collateral or
LTV is obtained.
Construction and Land Development Loans. We
make loans to finance the construction of and improvements to
single-family and multi-family housing and commercial structures
as well as loans for land development. At December 31,
2009, $680.4 million, or 27.5% of our total loan portfolio,
consisted of such loans. Within this portfolio, approximately
$301.4 million, or 44.3%, was related to residential
development and construction. Of the residential construction
loans, 57.0% were located in the Alabama Region with the
remainder located in the Florida Region. The largest category in
the residential development and construction portfolio was
related to the development of single-family lots and undeveloped
land held for future residential development. These categories
represent approximately $203.0 million, or 67.4%, of this
portfolio with the remaining $98.4 million relative to the
vertical construction of residential properties. An important
component of the vertical construction segment is the
single-family spec home construction loans. For these loans
management closely monitors the aging of the builders spec
home inventories to ensure turnover and to enable management to
look for early signs of weakness within our markets. Spec homes
that are 100% complete and remain in inventory for over nine
months after completion are considered aged spec homes. As of
December 31, 2009, approximately $21.1 million (76
homes with an approximate average loan balance of $275,000) were
classified as aged.
For construction loans related to income-producing properties,
the underwriting criteria are the same as outlined above under
the heading, Nonresidential Mortgage Loans. Loans
for this category accounted for $228.8 million, or 60.4% of
the total commercial construction and land development loans.
Geographically, approximately 70.1% of this total category was
located in the Florida Region, with the remaining loans located
primarily in the Alabama Region. The three largest sectors
within this category were retail, hotel/motel and office
buildings which collectively accounted for approximately
$158.9 million, or 41.9% of the total commercial
construction loans. Individually, the retail construction loans
accounted for the largest sector, with approximately
$64.1 million, or 16.9%, hotel/motel building loans
accounted for approximately $61.9 million, or 16.3%, and
5
office construction loans accounted for approximately
$32.9 million, or 8.7% of the total commercial
construction. Approximately 87.1% of these three sectors were
located in the Florida Region, with the remainder primarily
located in the Alabama Region.
Commercial and Industrial Loans. We make loans
for commercial purposes in various lines of business. These
loans are typically made on terms up to five years at fixed or
variable rates and are secured by eligible accounts receivable,
inventory or equipment. We attempt to reduce our credit risk on
commercial loans by limiting the
loan-to-value
ratio to 80% on loans secured by eligible accounts receivable,
50% on loans secured by inventory and 75% on loans secured by
equipment. Commercial and industrial loans comprised
approximately $213.3 million, or 8.6% of our loan
portfolio, at December 31, 2009. We also, from time to
time, make unsecured commercial loans based on the cash flow of
the business.
Consumer Loans. Our consumer portfolio
includes installment loans to individuals in our market areas
and consists primarily of loans to purchase automobiles,
recreational vehicles, mobile homes and consumer goods. Consumer
loans comprised approximately $58.8 million, or 2.4% of our
loan portfolio, at December 31, 2009. Consumer loans are
underwritten based on the borrowers income, current debt,
credit history and collateral. Terms generally range from one to
six years on automobile loans and one to three years on other
consumer loans.
Credit
Review and Procedures
There are credit risks associated with making any loan. These
include repayment risks, risks resulting from uncertainties in
the future value of collateral, risks resulting from changes in
economic and industry conditions and risks inherent in dealing
with individual borrowers. In particular, longer maturities
increase the risk that economic conditions will change and
adversely affect collectability.
We have a loan review process designed to promote early
identification of credit quality problems. We employ a risk
rating system that assigns to each loan a rating that
corresponds to its perceived credit risk. Risk ratings are the
primary responsibility of the loan officer, and are subject to
independent review by a centralized loan review department,
which also performs ongoing, independent review and evaluation
of the risk management process, including underwriting,
documentation and collateral control. Regular reports are made
to senior management and the Board of Directors regarding credit
quality as measured by assigned risk ratings and other measures,
including, but not limited to, the level of past due percentages
and nonperforming assets. The loan review function is
centralized and independent of the lending function.
Deposits
and Other Funding
At December 31, 2009, our deposits totaled
$2.657 billion which consisted of approximately 88.0% in
direct customer deposits, 2.8% of wholesale money market
deposits and 9.2% of brokered certificates of deposits. Core
deposits are our principal source of funds, constituting
approximately 71.1% of our total deposits as of
December 31, 2009. Core deposits consist of demand
deposits, interest-bearing transaction accounts, savings
deposits and certificates of deposit (excluding certificates of
deposits over $100,000). Transaction accounts include checking,
money market and NOW accounts that provide Superior Bank with a
source of fee income and cross-marketing opportunities, as well
as a low-cost source of funds. Time and savings accounts also
provide a relatively stable and low-cost source of funding. The
largest source of funds for Superior Bank is certificates of
deposit. Certificates of deposit in excess of $100,000 are
approximately $758.6 million, or 28.6% of our deposits, of
which, approximately $244.9 million consist of wholesale,
or brokered, certificates of deposits, at
December 31, 2009.
Our other primary source of funds is advances from the Federal
Home Loan Bank (FHLB). These advances are secured by
FHLB stock, agency securities and a blanket lien on certain
residential and commercial real estate loans. We also have
available unused federal funds lines of credit with regional
banks, subject to certain restrictions and collateral
requirements and may borrow from the discount window at the
Federal Reserve Bank.
Deposit rates are set periodically by our internal
Asset/Liability Management Committee, which includes certain
members of senior management. We believe our rates are
competitive with those offered by competing institutions in our
market areas.
6
Competition
The banking industry is highly competitive, and our
profitability depends principally upon our ability to compete in
our market areas. In our market areas, we face competition from
both super-regional banks and smaller community banks, as well
as non-bank financial services companies. We encounter strong
competition both in making loans and attracting deposits.
Superior Bank is now the second largest bank headquartered in
Alabama and the largest community bank in Alabama. We fully
anticipate being the beneficiary of the unsettled market
conditions these changes have brought and will bring to the
affected organizations in our markets. Competition among
financial institutions is based upon interest rates offered on
deposit accounts, interest rates charged on loans and other
credit and service charges. Customers also consider the quality
and scope of the services rendered, the convenience of banking
facilities and, in the case of loans to commercial borrowers,
relative lending limits. Customers may also take into account
the fact that other banks offer different services. Many of the
large super-regional banks against which we compete have
significantly greater lending limits and may offer additional
products; however, we believe we have been able to compete
effectively with other financial institutions, regardless of
their size, by emphasizing customer service and by providing a
wide array of services. In addition, most of our non-bank
competitors are not subject to the same extensive federal
regulations that govern bank holding companies and federally
insured banks. See Supervision and Regulation.
Competition may further intensify if additional financial
services companies enter markets in which we conduct business.
Employees
As of December 31, 2009, we employed approximately
828 full-time equivalent employees, primarily at Superior
Bank. We believe that our employee relations have been and
continue to be good.
Supervision
and Regulation
General. Superior Bancorp, as a nondiversified
unitary savings and loan holding company, and Superior Bank, as
a federal savings bank, are required by federal law to report
to, and otherwise comply with the rules and regulations of, the
Office of Thrift Supervision (OTS). We are subject
to extensive regulation, examination and supervision by the OTS,
as our primary federal regulator, and the Federal Deposit
Insurance Corporation (the FDIC), as the deposit
insurer. We are a member of the FHLB System and, with respect to
deposit insurance, of the Deposit Insurance Fund managed by the
FDIC. We must file periodic reports with the OTS and the FDIC
concerning our activities and financial condition in addition to
obtaining regulatory approvals prior to entering into certain
transactions such as mergers with, or acquisitions of, other
financial institutions. The OTS conducts periodic examinations
to test our safety and soundness and compliance with various
regulatory requirements. This regulation and supervision
establishes a comprehensive framework of activities in which a
thrift can engage and is intended primarily for the protection
of the insurance fund and depositors. The regulatory structure
also gives the regulatory authorities extensive discretion in
connection with their supervisory and enforcement activities and
examination policies, including policies with respect to the
classification of assets and the establishment of adequate loan
loss reserves for regulatory purposes. A number of proposals
have been introduced in Congress to change the regulation of
financial institutions like Superior Bancorp and Superior Bank.
Any change in regulatory requirements and policies, whether by
the OTS, the FDIC or Congress, could have a material adverse
impact on us and our operations. Certain regulatory requirements
applicable to us are referred to below or elsewhere herein. The
description of statutory provisions and regulations applicable
to thrifts and their holding companies set forth below does not
purport to be a complete description of such statutes and
regulations and their effects on us and is qualified in its
entirety by reference to the actual laws and regulations.
Holding Company Regulation. We are a
nondiversified unitary savings and loan holding company within
the meaning of such terms under federal law. The
Gramm-Leach-Bliley Act of 1999 provides that no company may
acquire control of a savings institution after May 4, 1999,
unless it engages only in the financial activities permitted for
financial holding companies under the law or for multiple
savings and loan holding companies as described below. Further,
the Gramm-Leach-Bliley Act specifies that certain savings and
loan holding companies may only engage in such activities. Since
we became a savings and loan holding company in 2005, we are
limited to such activities. Upon any non-supervisory acquisition
by us of another savings institution or savings bank that meets
the qualified thrift lender test and is deemed to be a savings
institution by the OTS, we would become a multiple savings and
loan holding company (if the acquired institution is held as a
separate subsidiary) and would generally be
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limited to activities permissible for bank holding companies
under Section 4(c)(8) of the Bank Holding Company Act,
subject to the prior approval of the OTS, and certain activities
authorized by the OTS regulations. However, the OTS has issued
an interpretation concluding that multiple savings and loan
holding companies may also engage in activities permitted for
financial holding companies.
A savings and loan holding company is prohibited from directly
or indirectly acquiring more than 5% of the voting stock of
another financial institution or savings and loan holding
company without prior written approval of the OTS and from
acquiring or retaining control of a depository institution that
is not insured by the FDIC. In evaluating applications by
holding companies to acquire other institutions, the OTS
considers, among other things, the financial and managerial
resources and future prospects of the institutions involved, the
effect of the acquisition on the risk to the deposit insurance
funds, the convenience and needs of the community and
competitive factors.
Subject to certain exceptions, the OTS may not approve any
acquisition that would result in a multiple savings and loan
holding companys controlling savings institutions in more
than one state.
Although savings and loan holding companies are not currently
subject to specific capital requirements or specific
restrictions on the payment of dividends or other capital
distributions, Superior Bancorp has agreed to seek approval of
the OTS prior to paying a dividend or making a capital
contribution to its stockholders. Federal regulations also
prescribe such restrictions on subsidiary savings institutions,
as described below. Superior Bank must notify the OTS before
declaring any dividend to Superior Bancorp. In addition, the
financial impact of a holding company on its subsidiary
institution is a matter that is evaluated by the OTS, and the
OTS has authority to order cessation of activities or
divestiture of subsidiaries deemed to pose a threat to the
safety and soundness of the institution.
Change in Bank Control Act. Under the Federal
Change in Bank Control Act, a notice must be submitted to the
OTS if any person, or group acting in concert, seeks to acquire
control of a savings and loan holding company or a
savings association. A change of control may occur, and prior
notice may be required, upon the acquisition of more than 10% of
our outstanding voting stock, unless the OTS has found that the
acquisition will not result in a change of control of Superior
Bancorp. Under the Change in Bank Control Act, the OTS generally
has 60 days from the filing of a complete notice to act,
taking into consideration certain factors, including the
financial and managerial resources of the acquirer and the
anti-trust effects of the acquisition.
Regulation of Business Activities. The
activities of thrifts are governed by federal laws and
regulations. These laws and regulations delineate the nature and
extent of the activities in which thrifts may engage. In
particular, certain lending authority for thrifts, that is,
commercial loans, non-residential real property loans and
consumer loans, is limited to a specified percentage of the
institutions capital or assets.
Capital Requirements. The OTS capital
regulations require savings institutions to meet three minimum
capital standards: a 1.5% tangible capital to total assets
ratio, a 4% leverage ratio (3% for institutions receiving the
highest rating on the regulatory examination rating system) and
an 8% risk-based capital ratio. In addition, the prompt
corrective action standards discussed below also establish, in
effect, a minimum 2% tangible capital standard, a 4% leverage
ratio (3% for institutions receiving the highest examination
rating), and, together with the risk-based capital standard
itself, a 4% Tier 1 risk-based capital standard.
The risk-based capital standard for savings institutions
requires the maintenance of ratios of Tier 1 (core) and
total capital (which is defined as core capital and
supplementary capital) to risk-weighted assets of at least 4%
and 8%, respectively. In determining the amount of risk-weighted
assets, all assets, including certain off-balance sheet assets,
recourse obligations, residual interests and direct credit
substitutes, are multiplied by a risk-weight factor of 0% to
100%, and assigned by the OTS capital regulation based on the
risks believed inherent in the type of asset. Core
(Tier 1) capital includes, among other things, common
stockholders equity (including retained earnings), certain
noncumulative perpetual preferred stock and related surplus, and
minority interests in equity accounts of consolidated
subsidiaries. The components of supplementary capital currently
include, among other things, mandatory convertible securities,
and the allowance for loan and lease losses limited to a maximum
of 1.25% of risk-weighted assets and up to 45% of unrealized
gains on
available-for-sale
equity securities with readily determinable fair market values.
Overall, the amount of supplementary capital included as part of
total capital cannot exceed 100% of core capital.
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The OTS also has authority to establish minimum capital
requirements in appropriate cases upon a determination that an
institutions capital level is or may become inadequate in
light of the particular circumstances. At December 31,
2009, Superior Bank met each of its capital requirements.
Prompt Corrective Regulatory Action. The OTS
is required to take certain supervisory actions against
undercapitalized institutions, the severity of which depends
upon the institutions degree of undercapitalization.
Generally, a savings institution that has a ratio of total
capital to risk weighted assets of less than 8%, a ratio of
Tier 1 (core) capital to risk-weighted assets of less
than 4% or a ratio of core capital to total assets of less than
4% (less than 3% for institutions with the highest examination
rating) is considered to be undercapitalized. A
savings institution that has a total risk-based capital ratio of
less than 6%, a Tier 1 capital ratio of less than 3% or a
leverage ratio that is less than 3% is considered to be
significantly undercapitalized, and a savings
institution that has a tangible capital to assets ratio equal to
or less than 2% is deemed to be critically
undercapitalized. Subject to a narrow exception, the OTS
is required to appoint a receiver or conservator within
specified time frames for an institution that is
critically undercapitalized. The regulation also
provides that a capital restoration plan must be filed with the
OTS within 45 days of the date a savings institution
receives notice that it is undercapitalized,
significantly undercapitalized or critically
undercapitalized. Compliance with the plan must be
guaranteed by any parent holding company. In addition, numerous
mandatory supervisory actions become immediately applicable to
an undercapitalized institution, including, but not limited to,
increased monitoring by regulators and restrictions on growth,
capital distributions and expansion. The OTS could also take any
one of a number of discretionary supervisory actions, including
the issuance of a capital directive and the replacement of
senior executive officers and directors.
Insurance of Deposit Accounts. Superior Bank
is a member of the Deposit Insurance Fund of the FDIC. The FDIC
maintains a risk-based assessment system by which institutions
are assigned to one of four categories based upon a combination
of their capitalization and examination ratings. An
institutions assessment depends upon the category to which
it is assigned. An institution assigned to the category with the
lowest risk also has certain financial ratios taken into account
in determining assessment rates, unless it is a large
institution with at least one long-term debt issuer rating, in
which case the rating will be taken into account in determining
its assessment rate. Assessment rates for Deposit Insurance Fund
members were amended effective April 1, 2009, to provide
for an initial base assessment rate ranging from 12 basis
points for the healthiest institutions to 45 basis points
for the riskiest. The initial base assessment rate will be
subject to potential decrease for long-term unsecured debt and,
for smaller institutions, a portion of Tier 1 capital, and
potential increases for secured liabilities above a certain
amount and, for institutions not in the lowest risk category,
brokered deposits above a certain amount. The adjusted
assessment rates can range from seven basis points for
institutions in the lowest risk category to 77.5 basis
points for institutions in the highest risk category. The FDIC
also imposed an emergency special assessment of up to
five basis points on all insured depository institutions as
of June 30, 2009. The FDIC required all insured
institutions to prepay insurance premiums through 2012. In the
case of Superior, this prepayment aggregated $15.9 million
in the fourth quarter of 2009. Future increases in Deposit
Insurance Fund insurance premiums would likely have an adverse
effect on the operating expenses and results of operations of
Superior Bank. Management cannot predict what insurance
assessment rates will be in the future.
In addition to the assessment for deposit insurance,
institutions are required to make payments on bonds issued in
the late 1980s by the Financing Corporation to recapitalize the
predecessor to the Savings Association Insurance Fund. During
fiscal year 2008, Financing Corporation payments for Savings
Association Insurance Fund members approximated 1.12 basis
points of assessable deposits.
Deposit insurance may be terminated by the FDIC upon a finding
that the institution has engaged in unsafe or unsound practices,
is in an unsafe or unsound condition to continue operations or
has violated any applicable law, regulation, rule, order or
condition imposed by the FDIC or the OTS. We do not know of any
practice, condition or violation that might lead to termination
of deposit insurance.
Loans to One Borrower. Federal law provides
that savings institutions are generally subject to the limits on
loans to one borrower applicable to national banks. Generally,
subject to certain exceptions, a savings institution may not
make a loan or extend credit to a single or related group of
borrowers in excess of 15% of its unimpaired
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capital and surplus. An additional amount may be lent, equal to
10% of unimpaired capital and surplus, if secured by specified
readily-marketable collateral.
QTL Test. Federal law requires savings
institutions to meet a qualified thrift lender test. Under the
test, a savings association is required to either qualify as a
domestic building and loan association under the
Internal Revenue Code or maintain at least 65% of its
portfolio assets (total assets less:
(i) specified liquid assets up to 20% of total assets;
(ii) intangibles, including goodwill; and (iii) the
value of property used to conduct business) in certain
qualified thrift investments (primarily residential
mortgages and related investments, including certain
mortgage-backed securities) in at least nine months out of each
12-month
period.
A savings institution that fails the qualified thrift lender
test is subject to certain operating restrictions and may be
required to convert to a bank charter. As of December 31,
2009, Superior Bank met the qualified thrift lender test. Recent
legislation has expanded the extent to which education loans,
credit card loans and small business loans may be considered
qualified thrift investments.
Limitations on Capital Distributions. The OTS
regulations impose limitations upon all capital distributions by
a savings institution, including cash dividends, payments to
repurchase its shares and payments to shareholders of another
institution in a cash-out merger. Under the regulations, an
application to and prior approval of the OTS is required prior
to any capital distribution if the institution does not meet the
criteria for expedited treatment of applications
under the OTS regulations, the total capital distributions
(including the proposed capital distribution) for the calendar
year exceed net income for that year plus the amount of retained
net income for the preceding two years, the institution would be
undercapitalized following the distribution or the distribution
would otherwise be contrary to a statute, regulation or
agreement with the OTS. If an application is not required, the
institution must still provide prior notice to the OTS of the
capital distribution if, like Superior Bank, it is a subsidiary
of a holding company. In the event Superior Banks capital
fell below its regulatory requirements or the OTS notified it
that it was in need of increased supervision, Superior
Banks ability to make capital distributions could be
restricted. In addition, the OTS could prohibit a proposed
capital distribution by any institution, which would otherwise
be permitted by the regulation, if the OTS determines that such
distribution would constitute an unsafe or unsound practice.
Transactions with Related Parties. Superior
Banks authority to engage in transactions with
affiliates (i.e., any company that controls
or is under common control with Superior Bank, including
Superior Bancorp and its non-savings institution subsidiaries)
is limited by federal law. The aggregate amount of covered
transactions with any individual affiliate is limited to 10% of
the capital and surplus of the savings institution. The
aggregate amount of covered transactions with all affiliates is
limited to 20% of a savings institutions capital and
surplus. Certain transactions with affiliates are required to be
secured by collateral in an amount and of a type described in
federal law. The purchase of low quality assets from affiliates
is generally prohibited. The transactions with affiliates must
be on terms and under circumstances that are at least as
favorable to the institution as those prevailing at the time for
comparable transactions with non-affiliated companies. In
addition, savings institutions are prohibited from lending to
any affiliate that is engaged in activities that are not
permissible for bank holding companies, and no savings
institution may purchase the securities of any affiliate other
than a subsidiary.
The Sarbanes-Oxley Act of 2002 generally prohibits loans by
public companies to their executive officers and directors.
However, that act contains a specific exception for loans by a
financial institution, such as Superior Bank, to its executive
officers and directors that are made in compliance with federal
banking laws. Under such laws, Superior Banks authority to
extend credit to executive officers, directors and 10%
shareholders (insiders), as well as entities such
persons control, is limited. The law limits both the individual
and aggregate amount of loans Superior Bank may make to insiders
based, in part, on Superior Banks capital position and
requires certain board approval procedures to be followed. Such
loans are required to be made on terms substantially the same as
those offered to unaffiliated individuals and not involve more
than the normal risk of repayment. There is an exception for
loans made pursuant to a benefit or compensation program that is
widely available to all employees of the institution and does
not give preference to insiders over other employees.
Standards for Safety and Soundness. The
federal banking agencies have adopted Interagency Guidelines
prescribing Standards for Safety and Soundness. These guidelines
set forth the safety and soundness standards that the federal
banking agencies use to identify and address problems at insured
depository institutions before capital
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becomes impaired. If the OTS determines that a savings
institution fails to meet any standard prescribed by the
guidelines, the OTS may require the institution to submit an
acceptable plan to achieve compliance with the standard.
Enforcement. The OTS has primary enforcement
responsibility over savings institutions and has the authority
to bring actions against the institution and all
institution-affiliated parties, including stockholders, and any
attorneys, appraisers and accountants who knowingly or
recklessly participate in wrongful action likely to have an
adverse effect on an insured institution. Formal enforcement
action may range from the issuance of a capital directive or
cease and desist order to removal of officers
and/or
directors to institution of receivership, conservatorship or
termination of deposit insurance. Civil money penalties cover a
wide range of violations and can amount to up to
$1.25 million per day in especially egregious cases. In
addition, the FDIC has the authority to recommend to the
Director of the OTS that enforcement action be taken with
respect to a particular savings institution. If action is not
taken by the Director, the FDIC has authority to take such
action under certain circumstances. Federal law also establishes
criminal penalties for certain violations.
FHLB System. Superior Bank is a member of the
FHLB System, which consists of 12 regional Federal Home Loan
Banks. The FHLB System provides a central credit facility
primarily for member institutions. Superior Bank, as a member of
the FHLB System, is required to acquire and hold shares of
capital stock in the applicable FHLB (Atlanta) in an amount at
least equal to 0.18% of our total assets not to exceed
$25 million plus 4.5% of our outstanding advances. Superior
Bank was in compliance with this requirement at
December 31, 2009, with an investment in FHLB stock of
$18.2 million.
Federal Reserve System. The Federal Reserve
Board regulations require savings institutions to maintain
non-interest earning reserves against their transaction accounts
(primarily NOW and regular checking accounts). The regulations
generally provide that reserves be maintained against aggregate
transaction accounts as follows: a 3% reserve ratio is assessed
on net transaction accounts up to and including
$44.4 million; a 10% reserve ratio is applied above
$44.4 million. The first $10.3 million of otherwise
reservable balances (subject to adjustments by the Federal
Reserve Board) are exempted from the reserve requirements. These
amounts are adjusted annually. Superior Bank complies with the
foregoing requirements.
Community Reinvestment Act. Superior Bank is
subject to the CRA. The CRA and the regulations issued
thereunder are intended to encourage financial institutions to
help meet the credit needs of their service areas, including low
and moderate income neighborhoods, consistent with the safe and
sound operations of the financial institutions. These
regulations also provide for regulatory assessment of an
institutions record in meeting the needs of its service
area when considering applications to establish branches, merger
applications, applications to engage in new activities and
applications to acquire the assets and assume the liabilities of
another institution. The Financial Institutions Reform, Recovery
and Enforcement Act of 1989 (FIRREA) requires
federal banking agencies to make public a rating of an
institutions performance under the CRA. In the case of a
holding company involved in a proposed transaction, the CRA
performance records of the banks involved are reviewed by
federal banking agencies in connection with the filing of an
application to acquire ownership or control of shares or assets
of a bank or thrift or to merge with any other bank holding
company. An unsatisfactory record can substantially delay or
block the transaction. Superior Bank maintains a satisfactory
CRA rating.
Confidentiality of Customer
Information. Federal laws and regulations,
including the Gramm-Leach-Bliley Act, require that financial
institutions take certain steps to protect the security and
confidentiality of customers non-public personal
information. Among other things, these regulations restrict the
ability of financial institutions to share non-public customer
information with non-affiliated third parties and require
financial institutions to provide customers with information
about their privacy policies. Superior Bank has procedures in
place that are intended to comply with these requirements.
Bank Secrecy Act. Superior Bancorp and
Superior Bank are subject to the federal Bank Secrecy Act of
1970, as amended, which establishes requirements for
recordkeeping and reporting by banks and other financial
institutions designed to help identify the source, volume and
movement of currency and monetary instruments into and out of
the United States in order to help detect and prevent money
laundering and other illegal activities. The Bank Secrecy Act
requires financial institutions to develop and maintain a
program reasonably designed to ensure and monitor compliance
with its requirements, to train employees in such program, and
to test the
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effectiveness of such program. Any failure to meet the
requirements of the Bank Secrecy Act can involve substantial
penalties and adverse regulatory action. We have adopted
policies and procedures intended to comply with the requirements
of the Bank Secrecy Act.
USA Patriot Act. The USA Patriot Act, passed
in 2001, strengthened the ability of the United States
government to detect and prosecute international money
laundering and the financing of terrorism. Among its provisions,
the USA Patriot Act requires that regulated financial
institutions: (i) establish an anti-money laundering
program that includes training and audit components;
(ii) comply with regulations regarding the verification of
the identity of any person seeking to open an account;
(iii) take additional required precautions with
non-U.S. owned
accounts; and (iv) perform certain verification and
certification of money laundering risk for any foreign
correspondent banking relationships. We have adopted policies,
procedures and controls to address compliance with the
requirements of the USA Patriot Act under the existing
regulations and will continue to revise and update our policies,
procedures and controls to reflect changes required by the USA
Patriot Act and implementing regulations.
Consumer Laws and Regulations. In addition to
the laws and regulations discussed herein, Superior Bank is also
subject to certain consumer laws and regulations that are
designed to protect consumers in transactions with banks. While
the list set forth herein is not exhaustive, these laws and
regulations include the Truth in Lending Act, the Truth in
Savings Act, the Electronic Funds Transfer Act, the Expedited
Funds Availability Act, the Equal Credit Opportunity Act, the
Fair Housing Act, the Fair Credit Reporting Act and the Real
Estate Settlement Procedures Act, among others. These laws and
regulations mandate certain disclosure requirements and regulate
the manner in which financial institutions must deal with
customers when taking deposits from, making loans to, or
engaging in other types of transactions with, such customers.
Emergency Economic Stabilization Act. In
response to the financial crises affecting the banking system
and financial markets and going concern threats to investment
banks and other financial institutions, on October 3, 2008,
the Emergency Economic Stabilization Act of 2008 (the
EESA) was signed into law. Pursuant to the EESA, the
United States Department of the Treasury ( the Treasury
Department) was given the authority to, among other
things, purchase up to $700 billion of mortgages,
mortgage-backed securities and certain other financial
instruments from financial institutions for the purpose of
stabilizing and providing liquidity to the U.S. financial
markets.
On October 14, 2008, the Secretary of the Treasury
Department announced that the Treasury Department would purchase
equity stakes in a wide variety of banks and thrifts. Under the
program, known as the Troubled Asset Relief Program Capital
Purchase Program (the CPP), from the
$700 billion authorized by the EESA, the Treasury
Department made $250 billion of capital available to
U.S. financial institutions, usually through the purchase
of preferred stock. The Treasury Department was to receive from
participating financial institutions, warrants to purchase
common stock with an aggregate market price equal to 15% of the
preferred stock investment. Participating financial institutions
were required to adopt the Treasury Departments standards
for executive compensation and corporate governance for the
period during which the Treasury Department holds equity issued
under the CPP.
On December 5, 2008, Superior Bancorp issued and sold, and
the Treasury Department purchased, (i) 69,000 shares
(the Preferred Stock) of Fixed Rate Cumulative
Perpetual Preferred Stock, Series A, having a liquidation
preference of $1,000 per share, and (ii) a ten-year warrant
to purchase up to 1,923,792 shares of its voting common
stock, par value $0.001 per share, at an exercise price of $5.38
per share, for an aggregate purchase price of $69 million
in cash. The issuance and sale of these securities was a private
placement exempt from registration pursuant to Section 4(2)
of the Securities Act of 1933. On December 11, 2009,
Superior Bancorp and the Treasury Department entered into an
exchange agreement pursuant to which the Preferred Stock held by
the Treasury Department was exchanged for new trust preferred
securities issued by Superior Capital Trust II, a
wholly-owned subsidiary of Superior Bancorp. Participants in the
CPP were required to accept several compensation-related
limitations. Each of Superior Bancorps senior executive
officers on December 5, 2008 agreed in writing to accept
the compensation standards in existence at that time under the
CPP and thereby cap or eliminate some of
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their contractual or legal rights. The provisions agreed to were
as follows (but see below under the heading American
Recovery and Reinvestment Act of 2009 for more recently
enacted compensation standards):
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No golden parachute payments. Golden
parachute payment under the CPP means a severance payment
resulting from involuntary termination of employment, or from
bankruptcy of the employer, that exceeds three times the
terminated employees average annual base salary over the
five years prior to termination. Superior Bancorps senior
executive officers have agreed to forego all golden parachute
payments for as long as: (i) they remain senior
executive officers (CEO, CFO and the next three
highest-paid executive officers); (ii) and the Treasury
Department continues to hold equity or debt securities Superior
Bancorp issued to it under the CPP (the Covered
Period).
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Recovery of Bonuses and Incentive Compensation if Based on
Certain Material Inaccuracies. Superior
Bancorps officers have also agreed to a clawback
provision, which means that we can recover incentive
compensation paid during our participation in the CPP that is
later found to have been based on materially inaccurate
financial statements or other materially inaccurate measurements
of performance.
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No Compensation Arrangements That Encourage Excessive
Risks. During the Covered Period, we are not
allowed to enter into compensation arrangements that encourage
senior executive officers to take unnecessary and
excessive risks that threaten the value of our company. To
make sure this does not happen, Superior Bancorps
Compensation Committee is required to meet at least once a year
with our senior risk officers to review our executive
compensation arrangements in the light of our risk management
policies and practices. Our senior executive officers
written agreements include their obligation to execute whatever
documents may be required in order to make any changes in
compensation arrangements resulting from the Compensation
Committees review.
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Limit on Federal Income Tax Deductions. During
the Covered Period, we are not allowed to take federal income
tax deductions for compensation paid to senior executive
officers in excess of $500,000 per year, with certain exceptions
that do not apply to our senior executive officers.
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American Recovery and Reinvestment Act of
2009. On February 17, 2009, President Obama
signed the American Recovery and Reinvestment Act of 2009 (the
ARRA) into law. The ARRA modified the
compensation-related limitations contained in the CPP, created
additional compensation-related limitations and directed the
Secretary of the Treasury Department to establish standards for
executive compensation applicable to participants in the CPP,
regardless of when participation commenced. Thus, the newly
enacted compensation-related limitations are applicable to
Superior Bancorp, and, to the extent the Treasury Department may
implement these restrictions unilaterally, Superior Bancorp will
apply these provisions.
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No severance payments. Under the ARRA
golden parachutes were redefined as any payment for
departure from the Company for any reason, except for payments
for services performed or benefits accrued. Consequently under
the ARRA Superior Bancorp is prohibited from making any
severance payment to our senior executive officers
(defined in the ARRA as the five highest paid senior executive
officers) and our next five most highly compensated employees
during the Covered Period).
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Recovery of Incentive Compensation if Based on Certain
Material Inaccuracies. The ARRA also contains the
clawback provision discussed above but extends its
application to any bonus awards and other incentive compensation
paid to any senior executive officers or the next 20 most highly
compensated employees during the Covered Period that is later
found to have been based on materially inaccurate financial
statements or other materially inaccurate measurements of
performance.
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No Compensation Arrangements That Encourage Earnings
Manipulation. During the Covered Period, the ARRA
prohibits compensation arrangements that encourage manipulation
of reported earnings to enhance the compensation of any
employees.
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Limit on Incentive Compensation. The ARRA
contains a provision that prohibits the payment or accrual of
any bonus, retention award or incentive compensation to any
senior executive officers during the Covered Period other than
awards of long-term restricted stock that (i) do not fully
vest during the Covered Period, (ii) have a value not
greater than one-third of the total annual compensation of the
officer and (iii) are subject
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to such other restrictions as determined by the Secretary of the
Treasury Department. The prohibition on bonus, incentive
compensation and retention awards does not preclude payments
required under written employment contracts entered into on or
prior to February 11, 2009.
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Compensation and Human Resources Committee
Functions. The ARRA requires that the
compensation committees of CPP recipients be composed solely of
independent directors and that those compensation committees
meet at least semiannually to discuss and evaluate employee
compensation plans in light of an assessment of any risk posed
from such compensation plans.
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Compliance Certifications. The ARRA also
requires a written certification by CEOs and CFOs of compliance
with the provisions of the ARRA.
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Treasury Department Review of Excessive Bonuses Previously
Paid. The ARRA directs the Secretary of the
Treasury Department to review all compensation paid to the
senior executive officers and the next 20 most highly
compensated employees of CPP participants to determine whether
any such payments were inconsistent with the purposes of the
ARRA or were otherwise contrary to the public interest. If the
Secretary of the Treasury Department makes such a finding, the
Secretary of the Treasury Department is directed to negotiate
with the CPP participant and the subject employee for
appropriate reimbursements to the federal government with
respect to the compensation and bonuses.
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Say on Pay Vote. Under the ARRA the Securities
and Exchange Commission is required to promulgate rules
requiring a non-binding say on pay vote by the
shareholders on executive compensation at the annual meeting
during the Covered Period. Superior Bancorp has included such a
proposal in its Proxy Statement for its upcoming 2010 annual
stockholders meeting.
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Temporary Liquidity Guarantee Program. On
November 21, 2008, the Board of Directors of the FDIC
adopted a final rule relating to the Temporary Liquidity
Guarantee Program (the TLG Program). The TLG Program
was announced by the FDIC on October 14, 2008, preceded by
the determination of systemic risk by the Secretary of the
Treasury Department, as an initiative to counter the system-wide
crisis in the nations financial sector. Under the TLG
Program the FDIC will (i) guarantee, through the earlier of
maturity or June 30, 2012, certain newly issued senior
unsecured debt issued by participating institutions on or after
October 14, 2008, and before June 30, 2009 and
(ii) provide full FDIC deposit insurance coverage for
non-interest bearing transaction deposit accounts and NOW
accounts paying less than 0.5% interest per annum through
December 31, 2009. Coverage under the TLG Program was
available for the first 30 days without charge. The fee
assessment for coverage of senior unsecured debt ranges from
50 basis points to 100 basis points per annum,
depending on the initial maturity of the debt. The fee
assessment for deposit insurance coverage is 10 basis
points per quarter on amounts in covered accounts exceeding
$250,000. During the first week of December 2008, Superior
Bancorp elected to participate in both guarantee programs.
Instability
of Regulatory Structure
Various bills are routinely introduced in the United States
Congress and state legislatures with respect to the regulation
of financial institutions. In addition, there has been a
significant increase over the past year in legislative proposals
and proposals by the administration to re-regulate financial
institutions on a fundamental basis. Some of these proposals, if
adopted, could significantly change the regulation of banks,
thrifts and the financial services industry. We cannot predict
whether any of these proposals will be adopted or, if adopted,
how these proposals would affect Superior Bancorp.
Effect on
Economic Environment
The policies of regulatory authorities, especially the monetary
policy of the Federal Reserve Board, have a significant effect
on the operating results of savings and loan holding companies
and their subsidiaries. Among the means available to the Federal
Reserve Board to affect the money supply are open market
operations in U.S. Government securities, changes in the
discount rate on member bank borrowings and changes in reserve
requirements against member bank deposits. These means are used
in varying combinations to influence overall growth and
distribution of bank loans, investments and deposits, and their
use may affect interest rates charged on loans or paid for
deposits.
14
Federal Reserve Board monetary policies have materially affected
the operating results of commercial banks and thrifts in the
past and are expected to continue to do so in the future. The
nature of future monetary policies and the effect of such
policies on our business and earnings cannot be predicted.
Available
Information
We maintain an Internet website at www.superiorbank.com.
We make available free of charge through our website various
reports that we file with the Securities and Exchange
Commission, including our annual reports on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K
and amendments to these reports. These reports are made
available as soon as reasonably practicable after these reports
are filed with, or furnished to, the Securities and Exchange
Commission. From our home page at www.superiorbank.com,
go to and click on About Superior and click on
SEC Filings to access these reports. You may read
and copy any document Superior Bancorp files with the Securities
and Exchange Commission at the Securities and Exchange
Commissions Public Reference Room at
100 F Street, N.E., Washington, D.C. 20549.
Please call the Securities and Exchange Commission at
1-800-SEC-0330
for further information about the public reference room. The
Securities and Exchange Commission maintains a website at
www.sec.gov that contains reports, proxy and other
information statements regarding issuers, like us, that file
electronically with the Securities and Exchange Commission.
Code of
Ethics
We have adopted a code of ethics that applies to all of our
employees, including our principal executive, financial and
accounting officers. A copy of our code of ethics is available
on our website. We intend to disclose information about any
amendments to, or waivers from, our code of ethics that are
required to be disclosed under applicable Securities and
Exchange Commission regulations by providing appropriate
information on our website. If at any time our code of ethics is
not available on our website, we will provide a copy of it free
of charge upon written request.
Enterprise
Risk Management (ERM)
Our business, and an investment in our securities, involves
risks. Our internal ERM program is a process designed to
identify and manage inherent risks within our allowable risk
profile and to provide reasonable assurance regarding
achievement of our objectives. ERM activities are coordinated by
the Chief Risk Officer and include participation of the business
line managers and oversight by executive management. During the
past year, our Board of Directors approved an ERM policy and
delegated responsibility for Board of Directors oversight to the
Audit and ERM Committee. Also, the Board of Directors approved
the first two phases of implementation.
In phase one, we identified and documented the major risks to be
tracked. These are: (1) capital, (2) compliance,
regulatory, legislative, legal and governance, (3) credit,
(4) interest rate risk, liquidity and funding,
(5) investments, (6) operational, information
technology, and environmental, (7) reporting,
(8) reputational, (9) strategic and
(10) compensation and human resources.
Capital risk is the ability to hold adequate levels of capital
so that we can absorb unexpected losses and withstand the
stresses that arise from the ups and downs of the economy.
Compliance, regulatory, legislative, legal and governance risk
is the risk of loss resulting from failure to comply with laws
as well as prudent ethical standards and contractual
obligations. Credit risk is the risk of loss arising from a
borrowers or counterpartys inability to meet its
obligations. Interest rate risk, liquidity, and funding risk
focus on the impact to earnings and capital arising from
movements in interest rates, the inability to accommodate
liability maturities and deposit withdrawals, fund asset growth
and meet contractual obligations through unconstrained access to
funding at reasonable market rates. Investment risk is the
variability of returns produced by an investment. Operational,
information technology, and environmental risk is the risk of
loss resulting from inadequate or failed internal processes,
people and information systems or external events. Reporting
risk includes events that may occur and adversely affect our
ability to initiate, record, process, and report financial data
consistent with the assertions of management in the financial
statements. Reputational risk is the risk to earnings and
capital arising from a negative public opinion and is assessed
by recognizing the potential effect the publics opinion
could have on our franchise value. Strategic risk is the risk
that adverse business decisions, ineffective or inappropriate
business plans or failure to respond to changes in the
15
competitive environment, business cycles, customer preferences,
product obsolescence, execution
and/or other
intrinsic risks of business will impact our ability to meet our
objectives. Compensation and human resource risk is the risk to
current and future earnings arising from the inability to
attract and retain talented employees, to comply with applicable
laws, and to manage through human calamities such as management
succession, management capabilities, local labor conditions, and
employee tragedies (illness, injury or death).
After identifying these risks, we surveyed our business to
determine the risk tracking and measuring activities already
taking place. The measuring activities were documented by
quarter throughout the year and compared to regulatory limits,
if applicable, Board of Directors limits and/ or management
established targets. Each risk was evaluated in the following
four categories: (1) Inherent risk represents the risk to
the company in the absence of any actions management might take
to alter either the risks likelihood or impact, and is
assessed as low, moderate, or high; (2) Quality of risk
management is how well risks are identified, measured,
controlled and monitored, and is assessed as weak, satisfactory,
or strong; (3) Residual risk is a summary judgment of the
risk that remains after managements response to the risk,
and is assessed as low, moderate, or high; and
(4) Direction of risk indicates likely changes to the risk
profile over the next twelve months and is assessed as
increasing, stable, or decreasing. We provided a full report of
the analytics, measuring activities, and assessments to the
Audit and ERM Committee and a summary dashboard report was
provided to the Board of Directors showing the outcome of the
assessments of the risk categories. This reporting process will
be continued in future quarters.
During the second phase risk owners identified the risks in
their respective areas and evaluated the likelihood and impact
of occurrence. The top ten risks where likelihood is almost
certain and impact is major were identified and documented.
These risks will be discussed with executive management and
reported to the Audit and ERM Committee and Board of Directors
at the next quarterly meetings. This reporting process will be
continued in future quarters.
The ERM program is a continuous process to evaluate current
risks and the appropriate analytics to measure it, and to
evaluate action needed.
The following summary describes factors we believe are material
risks relating to our business and to the ownership of our
securities. Our discussion of these risks contains
forward-looking statements, and our actual results may differ
materially from those anticipated by such forward-looking
statements. In addition, financial condition and results of
operations, and the market price of our common stock, may be
substantially affected by other risks, including risks we have
not identified or that we may believe are immaterial or
unlikely. This summary does not purport to describe all risks
that might possibly affect our business, financial condition or
results of operations or the market price of our common stock.
Risks
Relating To Our Business
Recent Negative Developments in the Financial Services
Industry and U.S. and Global Credit Markets May Adversely
Impact Our Operations and Results. Negative
developments in the latter half of 2007, throughout 2008 and
into 2009 in the capital markets have resulted in uncertainty in
the financial markets in general with the expectation of the
general economic downturn into 2010 and possibly beyond. Loan
portfolio performances have deteriorated at many institutions
resulting from, among other factors, a weak economy and a
decline in the value of the collateral supporting their loans.
The competition for our deposits has increased significantly due
to liquidity concerns at many of those same institutions. Stock
prices of thrift holding companies, such as ours, have been
negatively affected by the current condition of the financial
markets, as has our ability, if needed, to raise capital or
borrow in the debt markets compared to recent years. Further
negative developments in the financial services industry could
negatively impact our operations by restricting our business
operations, including our ability to originate or sell loans,
and adversely impact our financial performance.
If the interest payments we make on our deposits increase
relative to our interest income, we may be less
profitable. Our profitability depends to a large
extent on Superior Banks net interest income, which is the
difference between income from interest-earning assets, such as
loans we make and investment securities we hold, and interest we
pay on deposits and our own borrowings. Our net interest income
is affected not only by actions we take, but by changes in
general interest rate levels and by other economic factors
beyond our control. Our net interest income may be reduced if
(i) more interest-earning assets than interest-bearing
liabilities re-price or mature
16
at a time when interest rates are declining, or (ii) more
interest-bearing liabilities than interest-earning assets
re-price or mature at a time when interest rates are rising.
In addition, we may be affected by changes in the difference
between short- and long-term interest rates. For example,
short-term deposits may be used to support longer-term loans. If
the difference between short-and long-term interest rates
becomes smaller, the spread between the rates we pay on deposits
and borrowings and the rates we receive on loans we make could
narrow significantly, decreasing our net interest income.
Further, if market interest rates rise rapidly, interest rate
adjustment caps may limit our ability to increase interest rates
on adjustable-rate mortgage loans, but we may have to pay higher
interest rates on deposits and borrowings. This could cause our
net interest income to decrease.
An increase in loan prepayments may adversely affect our
profitability. The rate at which borrowers prepay
loans is dependent on a number of factors outside our control,
including changes in market interest rates, conditions in the
housing and financial markets and general economic conditions.
We cannot always accurately predict prepayment rates. If the
prepayment rates with respect to our loans are greater than we
anticipate, there may be a negative impact on our profitability
because we may not be able to reinvest prepayment proceeds at
rates comparable to those we received on the prepaid loans,
particularly in a time of falling interest rates.
If our allowance for loan losses is inadequate, our
profitability will be reduced. We are exposed to
the risk that our customers will be unable to repay their loans
in accordance with their terms and that any collateral securing
such loans will be insufficient to ensure full repayment. Such
credit risk is inherent in the lending business, and our failure
to adequately assess such credit risk could have material
adverse effect on our financial condition and results of
operations. We evaluate the collectability of our loan portfolio
and review our evaluation on a regular basis, and we provide an
allowance for loan losses that we believe is adequate based on
various factors that we believe may affect the credit quality of
our loans. However, there can be no assurance that actual loan
losses will not exceed the allowance that we have established,
as such allowance is adjusted from time to time.
If our allowance for loan losses is inadequate for the actual
losses we experience, there could be a material adverse effect
on our results of operations. In addition, if as a result of our
perception of adverse trends, we materially increase our
allowance for loan losses in the future, such increase would
also reduce our earnings.
Events in our geographic markets could adversely affect
us. Our business is concentrated in six
geographic regions in Alabama and Florida. Any adverse changes
in market or economic conditions in Florida and Alabama may
increase the risk that our customers will be unable to make
their loan payments. In addition, the market value of the real
estate securing loans as collateral could be adversely affected
by unfavorable changes in local market conditions and general
economic conditions. Any period of increased payment
delinquencies, foreclosures or losses caused by adverse market
or economic conditions in general or in our markets in Florida
and Alabama could adversely affect our results of operations and
financial condition.
With most of our loans concentrated in a small number of
markets, further declines in local economic conditions could
adversely affect the values of our real estate collateral. Thus,
a decline in local economic conditions may have a greater effect
on our earnings and capital than on the earnings and capital of
larger financial institutions whose real estate loan portfolios
are more geographically diverse.
In addition, natural disasters, such as hurricanes and tornados,
in our markets could adversely affect our business. The
occurrence of such natural disasters in our markets could result
in a decline in the value or destruction of mortgaged properties
and in an increase in the risk of delinquencies, foreclosures or
losses on these loans and may impact our customers ability
to repay loans.
We face substantial competition. There are
numerous competitors in our geographic markets, including
national, regional and local banks and thrifts and other
financial services businesses, some of which have substantially
greater resources, higher brand visibility and a wider
geographic presence than we have. Some of these competitors may
offer a greater range of services, more favorable pricing and
greater customer convenience than we are able to. In addition,
in some of our markets, there are a significant number of new
banks and other financial institutions that have opened in the
recent past or are expected to open in the near future, and such
new
17
competitors may also seek to exploit our markets and customer
base. If we are unable to maintain and grow our market share in
the face of such competition, our results of operations will be
adversely affected.
We are subject to extensive regulation. Our
operations are subject to regulation by the OTS and the FDIC. We
are also subject to applicable regulations of the FHLB.
Regulation by these entities is intended primarily for the
protection of our depositors and the deposit insurance fund and
not for the benefit of our stockholders. We may incur
substantial costs in complying with such regulations, and our
failure to comply with them may expose us to substantial
penalties.
In addition, we are subject to numerous consumer protection laws
and other laws relating to the operation of financial
institutions. Our failure to comply with such laws could expose
us to liability, which could have a material adverse effect on
our results of operations.
Federal regulation of the banking industry may change
significantly due to the unprecedented economic decline and
conditions in the banking industry. Banking
regulations are being reexamined, and the framework of bank
regulatory organizations reconsidered, in the aftermath of the
recent economic decline. In addition, for those financial
institutions that were eligible for participation in the
Treasury Departments CPP (as Superior Bancorp was) new
regulations have been promulgated addressing lending activity
and compensation. The effect of these developments, including
future regulatory changes, is impossible to predict.
Due to the current economic environment, the United States
Congress and the federal banking regulators may consider any
number of proposals for increased or different regulation of
financial institutions. We cannot predict at this time what the
effect of such changes in regulation would be.
We may require additional capital to fund our growth plans
and to augment our capital. Our business strategy
includes the expansion of our business through the development
of new locations and through the acquisition of other financial
institutions and, to the extent permitted by applicable law,
complementary businesses as appropriate opportunities arise. In
order to finance such growth and to maintain required regulatory
capital levels, we may require additional capital in the future.
There can be no assurance that such capital will be available
upon favorable terms, or at all.
We are dependent upon the services of our management
team. Our operations and strategy are directed by
our senior management team, most of whom have joined Superior
Bancorp since January 2005. Any loss of the services of members
of our management team could have a material adverse effect on
our results of operations and our ability to implement our
business strategy.
Additional requirements under our regulatory framework,
especially those imposed under ARRA, EESA or other legislation
intended to strengthen the U.S. financial system, could
adversely affect us. Recent government efforts to
strengthen the U.S. financial system, including the
implementation of the ARRA, the EESA, the Temporary Liquidity
Guarantee Program (TLGP) and special assessments
imposed by the FDIC, subject participants to additional
regulatory fees, corporate governance requirements, restrictions
on executive compensation, restrictions on declaring or paying
dividends, restrictions on stock repurchases, limits on
executive compensation tax deductions and prohibitions against
golden parachute payments. These fees, requirements and
restrictions, as well as any others that may be imposed
subsequently, may have a material and adverse effect on our
business, financial condition, and results of operations.
The imposition of certain restrictions on our executive
compensation as a result of our decision to participate in the
CPP may have material adverse effects on our business and
results of operations. As a result of our
election to participate in CPP, we have adopted the Treasury
Departments standards for executive compensation and
corporate governance for the period during which the Treasury
Department holds equity issued under the CPP. These standards
generally apply to our Chief Executive Officer, our Chief
Financial Officer and the three next most highly compensated
executive officers, referred to collectively as the senior
executive officers, and, in the case of some standards, to other
of our employees as well. The standards include:
(i) ensuring that incentive compensation plans and
arrangements do not encourage unnecessary and excessive risks
that threaten the value of us and Superior Bank,
(ii) prohibiting a bonus payment to any of the five most
highly compensated employees unless paid in the form of
long-term restricted stock, (iii) requiring a
clawback of any bonus or incentive compensation paid
to a senior executive officer or any of the 20 next most highly
compensation employees based on statements of earnings,
18
gains or other criteria that are later proven to be materially
inaccurate, (iv) prohibiting golden parachute payments to a
senior executive officer or any of the five next most highly
compensated employees, (v) prohibiting reimbursement or
gross-up
of taxes paid with respect to compensation for any of our senior
executive officers or the 20 next most highly compensated
employees, and (vi) agreeing not to deduct for tax purposes
compensation paid to an employee in excess of $500,000. These
restrictions may place us at a competitive disadvantage in
attracting and retaining management.
The holders of our subordinated debentures have rights that
are senior to those of our stockholders. As of
December 31, 2009, we had $121.7 million of
subordinated debentures issued in connection with trust
preferred securities including $69,100,000 issued in connection
with the trust preferred securities held by the Treasury
Department. Payments of the principal and interest on the trust
preferred securities are unconditionally guaranteed by us. The
subordinated debentures are senior to our common stock. As a
result, we must make payments on the subordinated debentures
(and the related trust preferred securities) before any
dividends, even if otherwise payable, can be paid on our common
stock and, in the event of our bankruptcy, dissolution or
liquidation, the holders of the debentures must be satisfied
before any distributions can be made to the holders of our
common stock. We have the right to defer distributions on the
subordinated debentures (and the related trust preferred
securities) for up to five years, during which time no dividends
may be paid to holders of our common stock.
Higher FDIC deposit insurance premiums and assessments could
adversely affect our financial condition. FDIC
insurance premiums increased substantially in 2009, and we
expect to pay significantly higher FDIC premiums in the future.
Market developments have significantly depleted the insurance
fund of the FDIC and reduced the ratio of reserves to insured
deposits. The FDIC adopted a revised risk-based deposit
insurance assessment schedule on February 27, 2009, which
raised deposit insurance premiums. On May 22, 2009, the
FDIC also implemented a five-basis-point special assessment of
each insured depository institutions assets minus
Tier 1 capital as of June 30, 2009, but no more than
10 basis points times the institutions assessment
base for the second quarter of 2009, to be collected on
September 30, 2009. Additional special assessments may be
imposed by the FDIC for future periods. We participate in the
FDICs Temporary Liquidity Guarantee Program, or TLGP, for
noninterest-bearing transaction deposit accounts. Banks that
participate in the TLGPs noninterest-bearing transaction
account guarantee will pay the FDIC an annual assessment of
10 basis points on the amounts in such accounts above the
amounts covered by FDIC deposit insurance. To the extent that
these TLGP assessments are insufficient to cover any loss or
expenses arising from the TLGP, the FDIC is authorized to impose
an emergency special assessment on all FDIC-insured depository
institutions. The FDIC has authority to impose charges for the
TLGP upon depository institution holding companies, as well.
These changes, along with the full utilization of our FDIC
insurance assessment credit in early 2009, will cause the
premiums and TLGP assessments charged by the FDIC to increase.
These actions could significantly increase our noninterest
expense currently and for the foreseeable future. The FDIC
required all insured institutions to prepay insurance premiums
through 2012 in order to recapitalize the Deposit Insurance
Fund. In the case of Superior, this prepayment aggregated
$15.9 million in the fourth quarter of 2009. Future
increases in Deposit Insurance Fund insurance premiums would
likely have an adverse effect on the operating expenses and
results of operations of Superior Bank. Management cannot
predict what insurance assessment rates will be in the future.
If we defer payments of interest on our outstanding junior
subordinated debentures or if certain defaults relating to those
debentures occur, we will be prohibited from declaring or paying
dividends or distributions on, and from making liquidation
payments with respect to, our common stock. At
December 2009, we had outstanding $121.7 million aggregate
principal amount of junior subordinated debentures issued in
connection with the sale of trust preferred securities through
statutory business trusts. We have unconditionally guaranteed
these trust preferred securities. There are currently five
separate series of these junior subordinated debentures
outstanding, each series having been issued under a separate
indenture and with a separate guarantee. Each of these
indentures, together with the related guarantee, prohibits us,
subject to limited exceptions, from declaring or paying any
dividends or distributions on, or redeeming, repurchasing,
acquiring or making any liquidation payments with respect to,
any of our capital stock at any time when (i) there shall
have occurred and be continuing an event of default under such
indenture or any event, act or condition that with notice or
lapse of time or both would constitute an event of default under
such indenture; (ii) we are in default with respect to
payment of any obligations under such guarantee; or
(iii) we have deferred payment of interest on the junior
subordinated debentures outstanding under that indenture. In
19
that regard, we are entitled, at our option but subject to
certain conditions, to defer payments of interest on the junior
subordinated debentures of each series from time to time for up
to five years.
Events of default under the indentures generally consist of our
failure to pay interest on the junior subordinated debt
securities under certain circumstances, our failure to pay any
principal of or premium on such junior subordinated debt
securities when due, our failure to comply with certain
covenants under the indenture, and certain events of bankruptcy,
insolvency or liquidation relating to us or Superior Bank.
As a result of these provisions, if we were to elect to defer
payments of interest on any series of junior subordinated
debentures, or if any of the other events described in
clause (i) or (ii) of the first paragraph of this risk
factor were to occur, we would be prohibited from declaring or
paying any dividends on our common stock, from repurchasing or
otherwise acquiring any such common stock, and from making any
payments to holders of common stock in the event of our
liquidation, which would likely have a material adverse effect
on the market value of our common stock.
Risks
Related To an Investment in Our Common Stock
Superior Bancorps stock price may be volatile due to
limited trading volume and general market
conditions. Our common stock is traded on the
NASDAQ Global Market. However, the average daily trading volume
in our common stock is relatively small, typically less than
75,000 shares per day and sometimes less. Trades involving
a relatively small number of shares may have a significant
effect on the market price of our common stock, and it may be
difficult for investors to acquire or dispose of large blocks of
stock without significantly affecting the market price.
In addition, market fluctuations, industry factors, general
economic conditions and political events, including economic
slowdowns or recessions, interest rate changes or market trends,
also could cause our stock price to decrease regardless of our
operating results of operations. Stock prices of thrift holding
companies, such as ours, have been negatively affected by the
current condition of the financial markets.
Our ability to pay dividends is limited. Our
ability to pay dividends is limited by regulatory requirements
and the need to maintain sufficient consolidated capital to meet
the capital needs of our business, including capital needs
related to future growth. Our primary source of income is the
payment of dividends from Superior Bank to us. Superior Bank, in
turn, is likewise subject to regulatory requirements potentially
limiting its ability to pay such dividends to us and by the need
to maintain sufficient capital for its operations and
obligations. Further, we are obligated, subject to regulatory
limitations, to make periodic distributions on our trust
preferred securities, subordinated debentures and preferred
stock, which reduces the income that might otherwise be
available to pay dividends on our common stock. Thus, there can
be no assurance that we will pay dividends to our common
stockholders, no assurance as to the amount or timing of any
such dividends, and no assurance that such dividends, if and
when paid, will be maintained, at the same level or at all, in
future periods.
Use of our common stock for future acquisitions or to raise
capital to augment our existing capital base may be dilutive to
existing stockholders. When we determine that
appropriate strategic opportunities exist, we may acquire other
financial institutions and related businesses, subject to
applicable regulatory requirements. We may use our common stock
for such acquisitions. From time to time, we may also seek to
raise capital through selling additional common stock. It is
possible that the issuance of additional common stock in such
acquisition or capital transactions may be dilutive to the
ownership interests of our existing stockholders.
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Item 1B.
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Unresolved
Staff Comments.
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Not applicable.
Our headquarters are located at 17 North 20th Street,
Birmingham, Alabama. As of December 21, 1999, Superior
Bancorp and Superior Bank, who jointly owned the building,
converted the building into condominiums known as The Bank
Condominiums. Superior Bank owns 16 condominium units. This
space includes a branch of Superior Bank, various administrative
offices, operations facilities and our headquarters. Thirteen
units are owned by third parties. We have leased or are pursuing
the lease or sale of certain units (or parts thereof) not
currently needed for our operations.
20
We operate through facilities at 97 locations. We own 48 of
these facilities and lease 49 of these facilities. Rental
expense on the leased properties totaled approximately
$3.8 million in 2009.
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Item 3.
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Legal
Proceedings.
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While we are a party to various legal proceedings arising in the
ordinary course of our business, we believe that there are no
proceedings threatened or pending against us at this time that
will individually, or in the aggregate, materially and adversely
affect our business, financial condition or results of
operations. We believe that we have strong claims and defenses
in each lawsuit in which we are involved. While we believe that
we will prevail in each lawsuit, there can be no assurance that
the outcome of the pending, or any future, litigation, either
individually or in the aggregate, will not have a material
adverse effect on our business, our financial condition or our
results of operations.
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Item 4.
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Submission
of Matters to a Vote of Security Holders.
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Our stockholders, at a special meeting held on November 19,
2009, voted to approve an amendment to our Restated Certificate
of Incorporation to increase the number of authorized shares of
our common stock from 20 million to 200 million as
follows:
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Broker
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For
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Against
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Abstain
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Non-Votes
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7,446,967
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1,765,439
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138,851
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0
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PART II
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Item 5.
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Market
for the Registrants Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities.
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Market
for Common Stock
Our common stock trades on the NASDAQ Global Market under the
ticker symbol SUPR. As of March 3, 2010, there
were approximately 3,108 record holders of our common stock. The
following table sets forth, for the calendar periods indicated,
the range of high and low reported sales prices:
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High
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Low
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2008
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First Quarter
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$
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24.24
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|
|
$
|
17.00
|
|
Second Quarter
|
|
|
22.64
|
|
|
|
8.30
|
|
Third Quarter
|
|
|
12.50
|
|
|
|
5.41
|
|
Fourth Quarter
|
|
|
9.00
|
|
|
|
2.53
|
|
2009
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
4.38
|
|
|
$
|
1.69
|
|
Second Quarter
|
|
|
5.75
|
|
|
|
2.60
|
|
Third Quarter
|
|
|
3.99
|
|
|
|
1.96
|
|
Fourth Quarter
|
|
|
3.97
|
|
|
|
1.50
|
|
2010
|
|
|
|
|
|
|
|
|
First Quarter (through March 3, 2010)
|
|
$
|
3.81
|
|
|
$
|
2.71
|
|
On March 3, 2010, the last reported sale price for the
common stock was $3.00 per share.
Issuer
Purchases of Equity Securities
As discussed in the Supervision and Regulation
section of Item 1. Business of this Annual
Report on
Form 10-K,
Superior Bancorps ability to repurchase its common stock
is limited by the terms of the Purchase Agreement between
Superior Bancorp and the Treasury Department. Under the CPP,
the consent of the Treasury Department is required to repurchase
any shares of common stock except in connection with benefit
plans in the ordinary course of business and certain other
limited exceptions prior to the earlier of
(i) December 5, 2011, or
21
(ii) the date on which the trust preferred securities held
by the Treasury Department are redeemed in whole or the Treasury
Department has transferred all of the trust preferred securities
to unaffiliated third parties. On December 11, 2009
Superior Bancorp and the Treasury Department entered into an
exchange agreement pursuant to which the Preferred Stock held by
the Treasury Department was exchanged for new trust preferred
securities issued by Superior Capital Trust II, a
wholly-owned subsidiary of Superior Bancorp.
Dividends
On December 5, 2008, we issued 69,000 shares of
preferred stock to the Treasury Department in connection with
our receipt of $69 million pursuant to the Troubled Assets
Relief Program Capital Purchase Program (TARP).
Dividends on this preferred stock were payable quarterly at an
annual rate of five percent for the first five years and
thereafter at an annual rate of nine percent. On
December 11, 2009, the preferred stock held by the Treasury
Department was exchanged for 69,000 shares of trust
preferred securities of Superior Capital Trust II, which
have a liquidation amount of $1,000 and on which we pay interest
at an equivalent rate.
Holders of our common stock are entitled to receive dividends
when and if declared by our board of directors. We derive cash
available to pay dividends primarily, if not entirely, from
dividends paid to us by our subsidiaries. There are certain
restrictions that limit Superior Banks ability to pay
dividends to us and, in turn, our ability to pay dividends. The
restrictions that may limit our ability to pay dividends are
discussed in this Report in Item 1 under the heading
Supervision and Regulation Limitations on
Capital Distributions. Our ability to pay dividends to our
stockholders will depend on our earnings and financial
condition, liquidity and capital requirements, the general
economic and regulatory climate, our ability to service any
equity or debt obligations senior to our common stock and other
factors deemed relevant by our board of directors. We do not
currently pay dividends on our common stock, but expect to
evaluate our common stock dividend policy from time to time as
circumstances indicate, subject to applicable regulatory
restrictions.
Equity
Compensation Plan Information
The following table summarizes information as of
December 31, 2009, relating to our equity compensation
plans pursuant to which grants of options, restricted stock
units or other rights to acquire shares may be granted in the
future.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
Number of Shares
|
|
|
|
Securities
|
|
|
|
|
|
Remaining Available for
|
|
|
|
to be Issued Upon
|
|
|
Weighted-
|
|
|
Future Issuance Under
|
|
|
|
Exercise of
|
|
|
Average Exercise
|
|
|
Equity Compensation
|
|
|
|
Outstanding
|
|
|
Price of
|
|
|
Plans (Excluding
|
|
|
|
Options, Warrants
|
|
|
Outstanding
|
|
|
Securities Reflected
|
|
Plan Category
|
|
and Rights
|
|
|
Options, Warrants
|
|
|
in Column (a))
|
|
|
|
(a)
|
|
|
(b)
|
|
|
(c)
|
|
|
Equity Compensation Plans Approved by Security Holders(1)
|
|
|
535,538
|
|
|
$
|
22.07
|
|
|
|
132,459
|
|
Equity Compensation Plans not Approved by Security Holders(2)
|
|
|
391,025
|
|
|
|
33.39
|
|
|
|
53,011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
926,563
|
|
|
$
|
26.85
|
|
|
|
185,470
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Excludes 74,301 shares of restricted stock granted under
the Third Amended and Restated 1998 Stock Incentive Plan of The
Banc Corporation. |
|
(2) |
|
Includes options covering (a) 390,735 shares issued to
Messrs. Bailey, Scott and Gardner and three other
management employees in connection with their employment
agreements, (b) 53,011 shares reserved for issuance to
other new management hires, and (c) 290 shares
authorized and issued under the Commerce Bank of Alabama Stock
Option Plan, which we assumed in the merger with Commerce Bank
of Alabama in November 1998. We do not intend to grant any
additional options under this plan. |
2008 Incentive Compensation Plan. The purpose
of the Superior Bancorp 2008 Incentive Compensation Plan is to
promote the success and enhance the value of Superior Bancorp by
linking the personal interests of its directors, officers and
employees to those of our stockholders and by providing such
individuals with an incentive for outstanding performance to
generate superior returns to our stockholders. The plan is
further intended to provide
22
flexibility to us in its ability to motivate, attract, and
retain the services of directors, officers and employees upon
whose judgment, interest, and special effort the successful
conduct of our operation is largely dependent. The plan
authorizes the grant of incentive stock options, nonqualified
stock options and other awards, including stock appreciation
rights, restricted stock and performance shares. The plan covers
300,000 shares of our common stock. As of December 31,
2009, the Compensation Committee has granted options to purchase
205,850 shares of our common stock which remain outstanding
and restricted stock awards covering 9,000 shares of our
common stock which remain outstanding. Those shares may be, in
whole or in part, authorized but unissued shares or issued
shares that we have reacquired.
Our Compensation Committee, which administers the Superior
Bancorp 2008 Incentive Compensation Plan, may grant options or
other awards to employees, officers and directors of Superior
Bancorp and its affiliates. The Compensation Committee, subject
to the approval of the board of directors and the provisions of
the plan, has full power to determine the types of awards to be
granted, to select the individuals to whom awards will be
granted, to fix the number of shares that each grantee may
purchase, to set the terms and conditions of each award, and to
determine all other matters relating to the plan.
Third Amended and Restated 1998 Stock Incentive
Plan. Superior Bancorp maintains the Third
Amended and Restated 1998 Stock Incentive Plan of The Banc
Corporation, but does not intend to make any additional awards
under this plan. The plan authorizes the grant of incentive
stock options, nonqualified stock options and other awards,
including stock appreciation rights, restricted stock and
performance shares. As of December 31, 2009, the
Compensation Committee has granted options to purchase
327,528 shares of our common stock which remain outstanding
and restricted stock awards covering 65,301 shares of our
common stock which remain outstanding.
The Commerce Bank of Alabama Stock Incentive Compensation
Plan. We assumed the Commerce Bank of Alabama
Incentive Compensation Plan in our acquisition of Commerce Bank
of Alabama on November 6, 1998. This plan authorized the
grant of incentive and nonqualified options to purchase common
stock of Superior Bancorp. As of December 31, 2009, there
were options outstanding under this plan to purchase
290 shares of common stock. We have not granted and do not
intend to grant any additional options under this plan.
23
Performance
Graph
The performance graph below compares our cumulative shareholder
return on our common stock over the last five fiscal years to
the cumulative total return of the NASDAQ Composite Index and
the NASDAQ Financial Index. Our cumulative shareholder return
over a five-year period is based on an initial investment of
$100 on December 31, 2004.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period Ending
|
Index
|
|
12/31/04
|
|
12/31/05
|
|
12/31/06
|
|
12/31/07
|
|
12/31/08
|
|
12/31/09
|
Superior Bancorp
|
|
|
100.00
|
|
|
|
138.64
|
|
|
|
137.79
|
|
|
|
65.25
|
|
|
|
9.63
|
|
|
|
9.99
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NASDAQ Composite
|
|
|
100.00
|
|
|
|
101.37
|
|
|
|
111.03
|
|
|
|
121.92
|
|
|
|
72.49
|
|
|
|
104.31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SNL Southeast Thrift Index
|
|
|
100.00
|
|
|
|
91.00
|
|
|
|
106.95
|
|
|
|
46.06
|
|
|
|
26.23
|
|
|
|
16.27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SNL Southeast Thrift : Includes all Major Exchange
(NYSE, AMEX, NASDAQ) Thrifts in SNLs coverage universe
headquartered in AL, AR, FL, GA, MS, NC, SC, TN, VA, WV.
24
|
|
Item 6.
|
Selected
Financial Data.
|
The following table sets forth selected financial data from our
consolidated financial statements and should be read in
conjunction with our consolidated financial statements,
including the related notes, and Managements
Discussion and Analysis of Financial Condition and Results of
Operations. The selected historical financial data as of
December 31, 2009 and 2008 and for each of the three years
in the period ended December 31, 2009 is derived from our
audited consolidated financial statements and related notes
included in this
Form 10-K.
See Item 8. Superior Bancorp and Subsidiaries
Consolidated Financial Statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of and For The Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(Dollars in thousands, except per share data)
|
|
|
Selected Statement of Financial Condition Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
$
|
3,221,869
|
|
|
$
|
3,052,701
|
|
|
$
|
2,885,425
|
|
|
$
|
2,440,990
|
|
|
$
|
1,415,469
|
|
Loans, net of unearned income
|
|
|
2,472,697
|
|
|
|
2,314,921
|
|
|
|
2,017,011
|
|
|
|
1,639,528
|
|
|
|
963,253
|
|
Allowance for loan losses
|
|
|
41,884
|
|
|
|
28,850
|
|
|
|
22,868
|
|
|
|
18,892
|
|
|
|
12,011
|
|
Investment securities
|
|
|
286,310
|
|
|
|
347,142
|
|
|
|
361,171
|
|
|
|
354,716
|
|
|
|
242,595
|
|
Deposits
|
|
|
2,656,573
|
|
|
|
2,342,988
|
|
|
|
2,200,611
|
|
|
|
1,870,841
|
|
|
|
1,043,695
|
|
Advances from FHLB
|
|
|
218,322
|
|
|
|
361,324
|
|
|
|
222,828
|
|
|
|
187,840
|
|
|
|
181,090
|
|
Notes payable
|
|
|
45,917
|
|
|
|
7,000
|
|
|
|
9,500
|
|
|
|
5,545
|
|
|
|
3,755
|
|
Subordinated debentures
|
|
|
84,170
|
|
|
|
60,884
|
|
|
|
53,744
|
|
|
|
44,006
|
|
|
|
31,959
|
|
Stockholders equity
|
|
|
191,704
|
|
|
|
251,239
|
|
|
|
350,042
|
|
|
|
276,087
|
|
|
|
105,065
|
|
Selected Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
$
|
162,082
|
|
|
$
|
167,888
|
|
|
$
|
171,929
|
|
|
$
|
108,777
|
|
|
$
|
77,280
|
|
Interest expense
|
|
|
69,520
|
|
|
|
84,603
|
|
|
|
96,767
|
|
|
|
61,383
|
|
|
|
38,255
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
92,562
|
|
|
|
83,285
|
|
|
|
75,162
|
|
|
|
47,394
|
|
|
|
39,025
|
|
Provision for loan losses
|
|
|
28,550
|
|
|
|
13,112
|
|
|
|
4,541
|
|
|
|
2,500
|
|
|
|
3,500
|
|
Noninterest income, excluding
other-than-temporary
impairment of securities (OTTI)
|
|
|
29,325
|
|
|
|
26,709
|
|
|
|
19,357
|
|
|
|
11,811
|
|
|
|
9,583
|
|
OTTI, net
|
|
|
(15,746
|
)
|
|
|
(9,942
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance Proceeds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,114
|
|
Management separation costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
265
|
|
|
|
15,467
|
|
Goodwill impairment charge
|
|
|
|
|
|
|
160,306
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest expense
|
|
|
110,485
|
|
|
|
94,372
|
|
|
|
78,223
|
|
|
|
49,520
|
|
|
|
45,153
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income (benefit) taxes
|
|
|
(32,894
|
)
|
|
|
(167,738
|
)
|
|
|
11,755
|
|
|
|
6,920
|
|
|
|
(10,398
|
)
|
Income tax (benefit) expense
|
|
|
(13,005
|
)
|
|
|
(4,588
|
)
|
|
|
4,134
|
|
|
|
1,923
|
|
|
|
(4,612
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
|
(19,889
|
)
|
|
|
(163,150
|
)
|
|
|
7,621
|
|
|
|
4,997
|
|
|
|
(5,786
|
)
|
Preferred stock dividends and amortization
|
|
|
(4,193
|
)
|
|
|
(311
|
)
|
|
|
|
|
|
|
|
|
|
|
(305
|
)
|
Gain on exchange of preferred stock to trust preferred securities
|
|
|
23,097
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of early conversion of preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,006
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income applicable to common stockholders
|
|
$
|
(985
|
)
|
|
$
|
(163,461
|
)
|
|
$
|
7,621
|
|
|
$
|
4,997
|
|
|
$
|
(8,097
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per Share Data:(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income basic
|
|
$
|
(0.09
|
)
|
|
$
|
(16.31
|
)
|
|
$
|
0.82
|
|
|
$
|
0.85
|
|
|
$
|
(1.69
|
)
|
diluted(1)
|
|
|
(0.09
|
)
|
|
|
(16.31
|
)
|
|
|
0.82
|
|
|
|
0.83
|
|
|
|
(1.69
|
)
|
Weighted average shares outstanding basic
|
|
|
10,687
|
|
|
|
10,021
|
|
|
|
9,244
|
|
|
|
5,852
|
|
|
|
4,789
|
|
Weighted average shares outstanding diluted(1)
|
|
|
10,687
|
|
|
|
10,021
|
|
|
|
9,333
|
|
|
|
6,008
|
|
|
|
4,789
|
|
Common book value at period end
|
|
$
|
15.69
|
|
|
$
|
17.83
|
|
|
$
|
34.91
|
|
|
$
|
31.87
|
|
|
$
|
20.83
|
|
Preferred shares outstanding at period end
|
|
|
|
|
|
|
69
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares outstanding at period end
|
|
|
11,668
|
|
|
|
10,075
|
|
|
|
10,027
|
|
|
|
8,663
|
|
|
|
5,043
|
|
Performance Ratios and Other Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on average assets
|
|
|
(0.63
|
)%
|
|
|
(5.42
|
)%
|
|
|
0.29
|
%
|
|
|
0.30
|
%
|
|
|
(0.41
|
)%
|
Return on average stockholders equity
|
|
|
(8.16
|
)
|
|
|
(46.58
|
)
|
|
|
2.47
|
|
|
|
3.55
|
|
|
|
(5.68
|
)
|
Net interest margin(2)(3)
|
|
|
3.28
|
|
|
|
3.27
|
|
|
|
3.37
|
|
|
|
3.17
|
|
|
|
3.14
|
|
Net interest spread(3)(4)
|
|
|
3.09
|
|
|
|
3.06
|
|
|
|
3.04
|
|
|
|
2.93
|
|
|
|
3.00
|
|
Average loan to average deposit ratio
|
|
|
97.11
|
|
|
|
97.50
|
|
|
|
92.80
|
|
|
|
93.12
|
|
|
|
88.82
|
|
Average interest-earning assets to average interest-bearing
liabilities
|
|
|
107.57
|
|
|
|
106.38
|
|
|
|
107.54
|
|
|
|
106.01
|
|
|
|
104.58
|
|
Assets Quality Ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses to nonperforming loans
|
|
|
26.25
|
%
|
|
|
45.98
|
%
|
|
|
92.77
|
%
|
|
|
227.97
|
%
|
|
|
261.17
|
%
|
Allowance for loan losses to loans, net of unearned income
|
|
|
1.69
|
|
|
|
1.25
|
|
|
|
1.13
|
|
|
|
1.15
|
|
|
|
1.25
|
|
Nonperforming assets (NPAs) to loans plus NPAs, net
of unearned income
|
|
|
8.01
|
|
|
|
3.56
|
|
|
|
1.44
|
|
|
|
0.62
|
|
|
|
0.67
|
|
NPAs to total assets
|
|
|
6.26
|
|
|
|
2.72
|
|
|
|
1.01
|
|
|
|
0.41
|
|
|
|
0.46
|
|
Net loan charge-offs to average loans
|
|
|
0.65
|
|
|
|
0.33
|
|
|
|
0.24
|
|
|
|
0.20
|
|
|
|
0.43
|
|
Net loan charge-offs as a percentage of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan losses
|
|
|
54.35
|
|
|
|
54.38
|
|
|
|
94.30
|
|
|
|
92.64
|
|
|
|
115.20
|
|
Allowance for loan losses
|
|
|
37.04
|
|
|
|
24.71
|
|
|
|
18.72
|
|
|
|
12.26
|
|
|
|
33.57
|
|
25
|
|
|
(1)
|
|
Common stock equivalents of
159,561, 65,226 and 250,500 shares were not included in
computing diluted earnings per share for the twelve-month
periods ended December 31, 2009, 2008 and 2005,
respectively, because their effects were antidilutive.
|
|
(2)
|
|
Net interest income divided by
average earning assets.
|
|
(3)
|
|
Calculated on a taxable equivalent
basis.
|
|
(4)
|
|
Yield on average interest-earnings
assets less rate on average interest-bearing liabilities.
|
|
(5)
|
|
Per-share data for all previous
periods presented have been retroactively restated to reflect a
1-for-4
reverse stock split effective April 28, 2008.
|
26
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operation.
|
General
The following is a narrative discussion and analysis of
significant changes in our results of operations and financial
condition. This discussion should be read in conjunction with
the consolidated financial statements and selected financial
data included elsewhere in this document.
Overview
Our principal subsidiary is Superior Bank, a federal savings
bank. Superior Bank has principal offices in Birmingham, Alabama
and Tampa, Florida, and operates 73 banking offices in Alabama
(45) and Florida (28). Superior Banks consumer
finance subsidiaries operate an additional 24 consumer finance
offices in North Alabama, doing business as
1st Community Credit and Superior Financial Services. We
had assets of approximately $3.222 billion, loans of
approximately $2.473 billion, deposits of approximately
$2.657 billion and stockholders equity of
approximately $191.7 million at December 31, 2009.
Total assets increased 5.5% compared to $3.053 billion at
December 31, 2008. Loans increased 6.8% compared to
$2.315 billion at December 31, 2008. Total deposits at
December 31, 2009 increased 13.4% from $2.343 billion
at December 31, 2008. Our primary source of revenue is net
interest income, the difference between income earned on
interest-earning assets, such as loans and investments, and
interest paid on interest-bearing liabilities, such as deposits
and borrowings. Our results of operations are also affected by
credit cost, including the provision for loan losses and losses
and other costs on foreclosed properties (foreclosure
losses), and other noninterest expenses, such as salaries
and benefits, occupancy expenses and provision for income taxes.
The effects of these noninterest expenses are partially offset
by noninterest sources of revenue, such as service charges and
fees on deposit accounts and mortgage banking income. Our volume
of business is influenced by competition in our markets and
overall economic conditions including such factors as market
interest rates, business spending and consumer confidence.
2009 proved to be a very challenging year, given the
economic conditions faced by our country, our markets and our
bank. In response to these challenges, we focused our efforts on
two primary objectives: assuring our customers that we were
still doing business with regard to making loans, accepting
deposits and fulfilling their banking needs, and managing the
current credit cycle at the least cost to our shareholders.
Additionally, we have focused internally on preparing our
company for 2010 by a number of logical, well-timed and sensible
steps designed to position us to have a capital structure that
is unassailable in these uncertain times. In November 2009, our
shareholders approved an increase in our authorized shares from
20 million to 200 million. In December 2009, we
successfully completed the conversion of the Preferred Stock
held by the Treasury Department under the TARP Capital Purchase
Program into trust preferred securities, realizing a
$23.1 million gain in the process. This non-dilutive action
was equivalent to approximately $1.98 per share in increased
common equity. After year-end, we announced agreements to
exchange $7.5 million of our then-currently outstanding
non-pooled trust preferred securities for newly issued common
stock, which should result in the creation of $6.5 million
additional common equity, and a projected gain of $0.15 per
common share. We plan additional capital actions in 2010
consistent with market conditions.
Net interest income increased from $83.3 million for the
year ended December 31, 2008 to $92.6 million for the
year ended December 31, 2009. The net interest margin was
3.28% in 2009 compared to 3.27% in 2008. The effect on net
interest margin of loans being placed on non-accruing status
approximated 0.35% in 2009 (which includes foregone interest and
the reversal of interest accrued during the year on those
loans). The increase during 2009 in net interest income resulted
from an increase in interest earning assets. Loan yields
declined 90 basis points from 2008, but funding costs also
declined 86 basis points from 2008. The decline in loan
yields was due principally to an overall lower level of interest
rates in 2009 as compared to 2008, plus the effect of higher
levels of non-performing loans in 2009 as compared to 2008.
Despite the increase in interest income and relatively
encouraging progress on the fee income front, the years
progress was negatively impacted by increases in overall
credit-related costs in light of the current economy. We
incurred a net loss in 2009 of $19.9 million (before a
$23.1 million gain on the exchange of Preferred Stock for
trust preferred securities) compared to a loss of
$163.2 million in 2008. (The 2008 loss included a goodwill
impairment charge of $160.3 million.) Included in this
years results were write-downs associated with investments
in trust
27
preferred securities issued by others and certain private-label
mortgage-backed securities in our investment portfolio totaling
$15.7 million for
other-than-temporary
impairments (OTTI) versus $9.9 million 2008,
and an increase in credit-related costs (i.e. provisions for
loan loans, OREO expense, collection costs, etc.) of
$36.7 million.
Our loan loss provision was well above those in previous years,
with a provision of $28.6 million for the year ended
December 31, 2009, compared to $13.1 million for the
prior year, and an increase in the allowance for loan losses of
$13.0 million to $41.9 million at December 31,
2009. A portion of this provision related to charged-off loans,
but a majority was used to increase our allowance for loan
losses based on managements estimate of loss in the loan
portfolio based on managements ongoing assessment of
certain areas of risk. In addition, our losses and expenses on
other real estate owned (OREO), were
$8.1 million during the year ended December 31, 2009,
which was a significant increase from the $0.9 million
recorded in the prior year, reflecting several dispositions of
foreclosed properties.
Managements
Response to Current Economic Environment.
Changes in Lending Policy. Since the beginning
of 2008, and in direct response to the depth of the current
economic downturn and its apparent length, we have made
significant and fundamental changes in our credit management
process.
Today, we have in place a centralized underwriting process for
each of our two states, under the supervision of a Senior Credit
Officer assigned to that state. Each Senior Credit Officer is
responsible for the maintenance of loan underwriting standards
within his state, including loan approvals up to a certain limit
through a State Loan Committee. Credits with a total exposure
exceeding $10 million are reviewed and approved by the
Executive Loan Committee and the Board Loan and Investment
Committee as needed.
|
|
|
|
|
Credit Administration and Loan Review.
|
These functions operate on a centralized basis, and are
responsible for reviewing for policy compliance and reporting
all loans that are underwritten at the state level to executive
management. In recent months, in response to the current
economic conditions, we have tightened our underwriting
standards. We are requiring more relationship-driven deals,
where we are the primary, and in many cases, the only banking
relationship for these prospective customers. All of these
changes are intended to further strengthen our position and
mitigate the risks associated with the current economic
environment. In addition, we have established concentration
guidelines for each major lending category, as well as
sub-limits
within each of these broad categories to provide risk rated
limitations on our lending activities, both by nature of
collateral and by geography.
|
|
|
|
|
Problem Asset Management.
|
Each significant problem asset is assigned to a senior officer
for workout. At December 31, 2009, each of the 23 largest
problem loans or foreclosed properties in a workout status is
assigned to one of the four top executive credit officers of our
company, reflecting our belief that in this manner we can bring
the right combination of experience, short decision making lines
of communication, and executive focus on reducing our totals of
these assets in the least costly manner. This encompasses
essentially all problem relationships of $1 million or more.
Loan Trends. Our position on new credit
formation is positive, but cautious. Our primary goal is to work
with existing borrowers in making sure that loans we presently
have are properly structured and are soundly underwritten. At
December 31, 2009, this has resulted in an increase in
balances outstanding in certain categories of loans, such as
commercial construction lending, which increased
$56.1 million, to a level of $379 million with the
majority of increases related to construction of income
producing properties such as apartments and student housing.
Conversely, residential construction lending decreased
approximately $13.3 million to a level of
$301 million, as activity in this sector continued to slow
over the course of 2009. This decrease included reductions in
non-pre-sold (spec) residential, condominium, and
undeveloped land loans. Other categories of commercial real
estate lending were up approximately $75.1 million, related
principally to increases in income producing
28
properties such as apartments, office buildings and the
hospitality industry. In addition, 1-4 family residential
mortgages grew approximately $36.1 million from
December 31, 2008. As we look forward into 2011, we expect
our stance to continue to remain cautious, with loan totals
remaining flat to growing slowly. This is also consistent with
our stance on capital preservation in the near term, as we seek
to maintain the highest capital ratios possible in this
uncertain environment so that we are in the position to resume
growth and profitable lending, as conditions improve.
During the fourth quarter of 2009, we took advantage of a unique
opportunity in the local market by bringing on board 60 mortgage
originators and associated staff from an existing Alabama bank
which had been taken into the Federal Deposit Insurance
Corporation (the FDIC) receivership and sold to
another financial institution. We believe this
no-cost acquisition affords us a tremendous
opportunity in both Alabama and Florida, not only to increase
shareholder value but also to help people achieve their dream of
home ownership through the expansion of our mortgage operation.
Initially, we expect the new staff to approximately double our
origination capability in Alabama, as well as significantly
improve the efficiency of the secondary placement of our
existing originations. Longer term, we expect this to raise our
origination capability to a higher level in support of our
Florida branches. These additions resulted in increases in
operating expenses in the fourth quarter, but we expect this
expansion to be solidly profitable on an incremental basis
starting in 2010.
Consistent with the continuing economic declines effect on
real estate-related credits, our non-performing loans increased
during 2009 to $159.6 million, or 6.45% of loans at
December 31, 2009, from $62.7 million, or 2.71% of
loans at December 31, 2008. The overall increase in
nonperforming assets was primarily related to real estate
construction, commercial real estate and residential mortgage
loan portfolios. Loans in the
30-89 days
past due category increased to 1.84% of total loans at
December 31, 2009 from 1.05% of total loans at
December 31, 2008. Non-performing assets are 6.26% of total
assets at December 31, 2009 compared to 2.72% at
December 31, 2008.
The annualized ratio of net charged-off loans to average loans
increased to 0.65% for the year ended December 31, 2009,
compared to 0.33% for the year ended December 31, 2008. Of
the $15.5 million net charge-offs in 2009, Superior
Banks net charge-offs were $13.0 million, or 0.54% of
consolidated average loans, and our two consumer finance
companies net charge-offs were $2.5 million, or 0.10%
of consolidated average loans.
The provision for loan losses was approximately
$28.6 million for the year ended December 31 2009,
increasing the allowance for loan losses to 1.69% of net loans,
or $41.9 million, at December 31, 2009, compared to
1.25% of net loans, or $28.9 million, at December 31,
2008.
Liquidity and Capital. Short-term liquid
assets (cash and due from banks, interest-bearing deposits in
other banks and federal funds sold) increased
$10.3 million, or 11.5%, to $99.8 million at
December 31, 2009 from $89.4 million at
December 31, 2008. At December 31, 2009, short-term
liquid assets were 3.1% of total assets, compared to 2.9% at
December 31, 2008. On March 31, 2009, Superior Bank
completed a placement of a $40 million aggregate principal
amount 2.625% Senior Note due 2012 (the Note).
The Note is guaranteed by the FDIC under its Temporary Liquidity
Guarantee Program (TLGP) and is backed by the full
faith and credit of the United States. Management continually
monitors our liquidity position and will increase or decrease
short-term liquid assets as necessary. Our principal sources of
funds are deposits, principal and interest payments on loans,
federal funds sold and maturities and sales of investment
securities. In addition to these sources of liquidity, we have
access to a minimum of $250 million in additional funding
from traditional sources. Management believes it has established
sufficient sources of funds to meet its anticipated liquidity
needs.
Superior Bank continues to be well-capitalized under regulatory
guidelines, with a total risk-based capital ratio of 10.69%, a
Tier I core capital ratio of 7.79% and a Tier I
risk-based capital ratio of 9.30% at December 31, 2009.
Superior Banks tangible common equity ratio was 7.79% at
December 31, 2009.
Our consolidated total risk based capital ratio was 11.01% and
our tangible common equity ratio was 6.74% at December 31,
2009. While we have always been well-capitalized, we
believe that the uncertain economic environment in which we find
ourselves warrants taking advantage of every opportunity to
strengthen our common equity. Our goal is to build a capital
base that is unassailable, and places us in the position of
being able to be a leader
29
in the recovery of the economy in both of our key
markets Florida and Alabama. The following are all
steps in a logical series to further improve our equity capital
base:
|
|
|
|
|
During the third quarter of 2009, we sold 1.5 million
shares of our common stock at prices ranging from $2.21 to $2.71
per share to approximately 20 accredited investors for total
cash consideration of approximately $3.3 million.
|
|
|
|
At a special shareholders meeting held on
November 19, 2009, we received shareholder approval for an
increase in authorized shares from 20 million to
200 million.
|
|
|
|
During the fourth quarter, we successfully completed a
conversion of $69 million of our Preferred Stock held by
the Treasury Department for an identical amount of trust
preferred securities issued by our wholly-owned subsidiary,
Superior Capital Trust II, which is reflected as
subordinated debt in our statement of financial condition. As a
result of this exchange transaction, we recorded an accounting
gain of approximately $23.1 million after-tax, reflecting
the net benefit of the favorable interest rate terms of the
trust preferred securities compared to current market rates.
This gain reduced the net loss to common shareholders by $1.98
per common share.
|
|
|
|
Additionally, in January 2010, we secured agreements from the
holders of $7.5 million of our then-currently outstanding
non-pooled trust preferred securities to exchange those
securities for newly issued common stock. When completed, we
expect to record a net after-tax gain of $1.8 million
($0.15 per common share) upon exchange of the trust preferred
securities. The ultimate effect of the transactions will be to
increase our common equity by approximately $6.5 million,
consisting of both the increase in equity upon recording the
gain, and the fair value of the shares of common stock issued in
conjunction with the exchange.
|
Regulatory Reform and Costs. Besides the
economy, the greatest risk of uncertainty for the banking
industry continues to be the regulatory reform initiatives under
consideration by the U.S. Congress and federal bank
regulatory agencies. The activities of the investment
banking and non-bank financial institutions
became major catalysts for our current economic challenges. We
believe that many of the proposed reforms are over-reactive and
represent a sweeping broad brush approach that will
be applied to all banks, regardless of size or culpability in
the economic situation we face. The result may be an increase in
government regulations, oversight and involvement in the daily
business activities that should be best left to experienced bank
management teams and their boards of directors. If enacted,
these proposals will result in additional burdensome disclosures
and red tape for our customers and additional cost to our
stockholders. For the vast majority of well-run community banks,
we believe this is totally unnecessary.
Healthy banks are clearly carrying the costly burden for the
closing of many failed banks. For example, on a cash basis, our
payments to the FDIC in 2009 exceeded $21 million,
including both our annual assessments, a special assessment and
a prepayment of three years estimated assessments as
deposit insurance for current and future years to fund the
current losses being incurred by the government for bank
closings. We fully expect the prepayment to be absorbed by
future bank failures prior to the end of three years, and
therefore anticipate additional FDIC costs above those reflected
above.
Critical
Accounting Estimates
In preparing financial information, management is required to
make significant estimates and assumptions that affect the
reported amounts of assets, liabilities, revenues and expenses
for the periods shown. The accounting principles we follow and
the methods of applying these principles conform to accounting
principles generally accepted in the United States and to
general banking practices. Our most significant estimates and
assumptions are related primarily to our allowance for loan
losses, income taxes and fair value measurements and are
summarized in the following discussion and in the notes to the
consolidated financial statements.
Allowance
for Loan Losses
Managements determination of the adequacy of the allowance
for loan losses, which is based on the factors and risk
identification procedures discussed in the section
Financial Condition Allowance for Loan
Losses, requires the use of judgments and estimates that
may change in the future. Changes in the factors used by
management to determine the adequacy of the allowance or the
availability of new information could cause the
30
allowance for loan losses to be increased or decreased in future
periods. In addition, our regulators, as part of their
examination process, may require that additions or reductions be
made to the allowance for loan losses based on their judgments
and estimates.
Income
Taxes
Deferred income tax assets and liabilities are determined using
the balance sheet method. Under this method, the net deferred
tax assets and liabilities are determined based on temporary
differences between financial reporting and tax bases of assets
and liabilities and are measured using the enacted tax rates
expected to apply to taxable income in the years in which those
temporary differences are expected to reverse. These
calculations are based on many complex factors, including
estimates of the timing of reversals of temporary differences,
the interpretation of federal and state income tax laws, and a
determination of the differences between the tax and the
financial reporting basis of assets and liabilities. Actual
results could differ significantly from the estimates and
interpretations used in determining the current and deferred
income tax assets and liabilities.
The recognition of deferred tax assets (DTA) is
based upon managements judgment that realization of the
asset is more likely than not. Managements judgment is
based on estimates concerning various future events and
uncertainties, including future reversals of existing taxable
temporary differences, the timing and amount of future income
earned by our subsidiaries and the implementation of various tax
planning strategies to maximize realization of the DTA. Although
realization is not assured, we believe that the realization of
the $29.5 million net DTA is more likely than not. This net
DTA is comprised of $56.5 million of deferred tax assets,
net of $25.8 million in deferred tax liabilities and a
$1.2 million valuation allowance. The major components of
the $56.5 million deferred tax asset are $7.4 million
in general and AMT tax credit carryforwards, $11.6 million
in net operating loss carryforwards and $37.5 million in
deductions that have not yet been taken on a tax return. Our
deferred tax liabilities of $25.8 million are comprised
primarily of differences between the book and tax bases of
certain assets and liabilities, of which $12.6 million are
expected to reverse during the carryforward period to offset a
corresponding amount of deferred tax asset. In general, net of
the existing deferred tax liabilities, we will need to generate
approximately $106 million of taxable income during the
respective carryforward periods in order to fully realize our
DTAs.
As a result of book losses incurred in 2009 and 2008, we are in
three-year-cumulative
loss position at December 31, 2009, and there are no taxes
paid in prior years that are available for the carryback period.
A cumulative loss position is considered significant negative
evidence in assessing the realizability of a DTA. Our management
has concluded that sufficient positive evidence exists to
overcome this negative evidence. The positive evidence on which
management based its conclusions includes the following:
|
|
|
|
|
Management forecasts sufficient taxable income in the next five
years, even under stressed economic scenarios, to realize our
DTA in the carryforward periods allowed under the respective
federal and state revenue codes (see discussion below).
|
|
|
|
Management has a history of extremely accurate forecasting of
asset/liability growth and corresponding interest margin, as
well as reasonably accurate forecasting of controllable income
and expense.
|
|
|
|
Our net interest margin remains strong and has steadily improved
even in this weak economy.
|
|
|
|
Our liquidity is strong due to a mature branch network which
provides a reliable and low cost funding source to support our
interest margin.
|
|
|
|
We have stable levels of core operating noninterest income and
noninterest expenses.
|
|
|
|
Our executive team is experienced in managing through difficult
credit cycles.
|
|
|
|
A recent economic forecast indicates a strengthening real estate
economy in Florida, which is the geographic focus of our credit
concerns, and where we have approximately 49% of our loans and
71% of our classified loans.
|
|
|
|
Our general tax credit and federal net operating loss
carryforwards do not begin expiring until the years 2018 and
2023, respectively. Our AMT credit carryforwards have no
expiration. In addition, we do not have a history of our
operating or tax credit carryforwards expiring unused.
|
31
The only tax planning strategy management considered involves
the decision to hold any
available-for-sale
debt security in an unrealized loss position until they mature
at which time our full investment will be recovered. The amount
of our DTA considered realizable, however, could be
significantly reduced in the near term if estimates of future
taxable income during the carryforward period are significantly
lower than forecasted due to further decreases in market
conditions, or the economy, which could produce additional
credit losses within our loan and investment portfolios. In that
regard, our forecasted taxable income has been based on several
economic scenarios which have been stressed in varying degrees
to reflect slower economic recovery than currently anticipated
by management, which under our model results in additional
credit losses and the corresponding impact on the net interest
margin. Each scenario was assigned individually for each year a
probability of occurring, with the final five-year forecast
comprising the scenarios that exceeded a cumulative probability
of 50% (the more likely than not threshold) in any year. Even
though our forecasts project taxable income for an eight-year
period, management did not rely on any forecast after the fifth
year because years six through eight did not exceed the more
likely than not threshold. We evaluate quarterly the
realizability of our net deferred tax assets and, if necessary
adjust our valuation allowance accordingly (See Note 14 to
the consolidated financial statements for additional disclosures
regarding income taxes).
Fair
Value Measurements
We measure fair value at the price we would receive by selling
an asset or pay to transfer a liability in an orderly
transaction between market participants at the measurement date.
We prioritize the assumptions that market participants would use
in pricing the asset or liability (the inputs) into
a three-tier fair value hierarchy. This fair value hierarchy
gives the highest priority (Level 1) to quoted prices
in active markets for identical assets or liabilities and the
lowest priority (Level 3) to unobservable inputs in
which little or no market data exists, requiring companies to
develop their own assumptions. Observable inputs that do not
meet the criteria of Level 1, and include quoted prices for
similar assets or liabilities in active markets or quoted prices
for identical assets and liabilities in markets that are not
active, are categorized as Level 2. Level 3 inputs are
those that reflect managements estimates about the
assumptions market participants would use in pricing the asset
or liability, based on the best information available in the
circumstances. Valuation techniques for assets and liabilities
measured using Level 3 inputs may include methodologies
such as the market approach, the income approach or the cost
approach, and may use unobservable inputs such as projections,
estimates and managements interpretation of current market
data. These unobservable inputs are only utilized to the extent
that observable inputs are not available or cost-effective to
obtain.
At December 31, 2009 and 2008, we had $213.8 million,
or 38.2%, and $66.3 million, or 15.8%, respectively, of
total assets valued at fair value that are considered
Level 3 valuations using unobservable inputs. As shown in
Note 19 to the consolidated financial statements,
available-for-sale
securities with a carrying value of $13.3 million and
$18.5 million, at December 31, 2009 and 2008,
respectively, were included in the Level 3 assets category
measured at fair value on a recurring basis. These securities
consist primarily of certain private-label mortgage-backed
securities and trust preferred securities. As the market for
these securities became less active and pricing less reliable,
management determined that the trust preferred securities should
be transferred to a Level 3 category during the third
quarter of 2008 and that six private-label mortgage-backed
securities be transferred during the second and third quarters
of 2009.
Management measures fair value on the trust preferred securities
based on various spreads to LIBOR determined after its review of
applicable financial data and credit ratings (See
Financial Condition Investment
Securities Trust Preferred Securities
below for additional discussion). At December 31, 2009, the
fair values of six private-label mortgage-backed securities
totaling $7.4 million were measured using Level 3
inputs because the market for them has become illiquid, as
indicated by few, if any, trades during the period. Prior to
June 30, 2009, these securities were measured using
Level 2 inputs. The assumptions used in the valuation model
include expected future default rates, loss severity and
prepayments. The model also takes into account the structure of
the security including credit support. Based on these
assumptions the model calculates and projects the timing and
amount of interest and principal payments expected for the
security. The discount rates used in the valuation model were
based on a yield that the market would require for such
securities with maturities and risk characteristics similar to
the securities being measured (See Financial
Condition Investment Securities
Mortgage-backed securities). The remaining Level 3
assets totaling $200.5 million include loans which have
been impaired, foreclosed other real estate and other real
estate held for sale, which are valued on a nonrecurring basis
based on appraisals of the
32
collateral. The value of this collateral is based primarily on
appraisals by qualified licensed appraisers approved and hired
by management. Appraised and reported values are discounted
based on managements historical knowledge, changes in
market conditions from the time of valuation,
and/or
managements expertise and knowledge of the client and the
clients business. The collateral is reviewed and evaluated
on at least a quarterly basis for additional impairment and
adjusted accordingly, based on the same factors identified
above. See Note 19 to the consolidated financial statements
for additional disclosures regarding fair value measurements.
Recently
Issued Accounting Standards
See Note 1 Summary of Significant Accounting
Policies to the consolidated financial statements for
information regarding recently issued accounting standards.
Results
of Operations
Year
ended December 31, 2009 compared with Year ended
December 31, 2008
Earnings. We reported a net loss of
$19.9 million for 2009, primarily the result of increases
in the provision for loan losses of $15.4 million,
foreclosure losses of $7.2 million, OTTI of
$5.8 million, and FDIC assessments of $5.2 million.
These expense increases were partially offset by an increase in
net interest income of $9.3 million and mortgage banking
income of $3.1 million. Changes in other components of our
operations are discussed in the various sections that follow.
The following table presents key earnings data for the periods
indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Year
|
|
|
|
Ended December 31,
|
|
|
Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(Dollars in thousands, except per share data)
|
|
|
Net loss
|
|
$
|
(11,501
|
)
|
|
$
|
(158,178
|
)
|
|
$
|
(19,889
|
)
|
|
$
|
(163,150
|
)
|
Net income (loss) applicable to common shareholders
|
|
|
10,880
|
|
|
|
(158,489
|
)
|
|
|
(985
|
)
|
|
|
(163,461
|
)
|
Net income (loss) per common share (diluted)
|
|
|
0.92
|
|
|
|
(15.80
|
)
|
|
|
(0.09
|
)
|
|
|
(16.31
|
)
|
Net interest margin
|
|
|
3.42
|
%
|
|
|
3.29
|
%
|
|
|
3.28
|
%
|
|
|
3.27
|
%
|
Net interest spread
|
|
|
3.25
|
|
|
|
3.12
|
|
|
|
3.09
|
|
|
|
3.06
|
|
Return on average assets
|
|
|
(1.43
|
)
|
|
|
NCM
|
|
|
|
(0.63
|
)
|
|
|
(5.42
|
)
|
Return on average stockholders equity
|
|
|
(19.52
|
)
|
|
|
NCM
|
|
|
|
(8.16
|
)
|
|
|
(46.58
|
)
|
Common book value per share
|
|
$
|
15.69
|
|
|
$
|
17.83
|
|
|
$
|
15.69
|
|
|
$
|
17.83
|
|
NCM Not considered meaningful.
33
Net Interest Income. The largest component of
our net income is net interest income, which is the difference
between the income earned on interest-earning assets and
interest paid on deposits and borrowings (See Market
Risk section for a discussion regarding our interest rate
risk). Net interest income is determined by the rates earned on
our interest-earning assets, rates paid on our interest-bearing
liabilities, the relative amounts of interest-earning assets and
interest-bearing liabilities, the degree of mismatch and the
maturity and re-pricing characteristics of our interest-earning
assets and interest-bearing liabilities. Net interest income
divided by average interest-earning assets represents our net
interest margin. The following table summarizes the changes in
the components of net interest income for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (Decrease) in
|
|
|
|
Fourth Quarter
|
|
|
Year Ended December 31,
|
|
|
|
2009 vs. 2008
|
|
|
2009 vs. 2008
|
|
|
|
Average
|
|
|
Income/
|
|
|
Yield/
|
|
|
Average
|
|
|
Income/
|
|
|
Yield/
|
|
|
|
Balance
|
|
|
Expense
|
|
|
Rate
|
|
|
Balance
|
|
|
Expense
|
|
|
Rate
|
|
|
|
(Dollars in thousands)
|
|
|
ASSETS
|
Interest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, net of unearned income
|
|
$
|
248,765
|
|
|
$
|
521
|
|
|
|
(0.56
|
)%
|
|
$
|
290,339
|
|
|
$
|
(2,502
|
)
|
|
|
(0.90
|
)%
|
Investment securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable
|
|
|
(31,324
|
)
|
|
|
(1,070
|
)
|
|
|
(0.98
|
)
|
|
|
(30,718
|
)
|
|
|
(2,225
|
)
|
|
|
(0.21
|
)
|
Tax-exempt
|
|
|
(8,529
|
)
|
|
|
(168
|
)
|
|
|
(0.37
|
)
|
|
|
(1,814
|
)
|
|
|
(162
|
)
|
|
|
(0.12
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities
|
|
|
(39,853
|
)
|
|
|
(1,238
|
)
|
|
|
(0.93
|
)
|
|
|
(32,532
|
)
|
|
|
(2,387
|
)
|
|
|
(0.19
|
)
|
Federal funds sold
|
|
|
(2,748
|
)
|
|
|
(7
|
)
|
|
|
(0.48
|
)
|
|
|
(1,534
|
)
|
|
|
(113
|
)
|
|
|
(2.16
|
)
|
Other investments
|
|
|
9,309
|
|
|
|
(110
|
)
|
|
|
(1.14
|
)
|
|
|
13,567
|
|
|
|
(860
|
)
|
|
|
(2.30
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets
|
|
$
|
215,473
|
|
|
|
(834
|
)
|
|
|
(0.60
|
)
|
|
$
|
269,840
|
|
|
|
(5,862
|
)
|
|
|
(0.83
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits
|
|
$
|
48,197
|
|
|
$
|
(511
|
)
|
|
|
(0.44
|
)%
|
|
$
|
15,571
|
|
|
$
|
(6,162
|
)
|
|
|
(1.00
|
)%
|
Savings deposits
|
|
|
101,452
|
|
|
|
(160
|
)
|
|
|
(1.12
|
)
|
|
|
121,921
|
|
|
|
920
|
|
|
|
(0.75
|
)
|
Time deposits
|
|
|
134,895
|
|
|
|
(2,718
|
)
|
|
|
(1.12
|
)
|
|
|
142,491
|
|
|
|
(8,803
|
)
|
|
|
(1.05
|
)
|
Other borrowings
|
|
|
(126,109
|
)
|
|
|
(467
|
)
|
|
|
0.70
|
|
|
|
(62,217
|
)
|
|
|
(2,007
|
)
|
|
|
0.03
|
|
Subordinated debentures
|
|
|
5,119
|
|
|
|
255
|
|
|
|
0.90
|
|
|
|
6,381
|
|
|
|
969
|
|
|
|
0.80
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities
|
|
$
|
163,554
|
|
|
|
(3,601
|
)
|
|
|
(0.73
|
)
|
|
$
|
224,147
|
|
|
|
(15,083
|
)
|
|
|
(0.86
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income/net interest spread
|
|
|
|
|
|
|
2,767
|
|
|
|
0.13
|
%
|
|
|
|
|
|
|
9,221
|
|
|
|
0.03
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net yield on earning assets
|
|
|
|
|
|
|
|
|
|
|
0.13
|
%
|
|
|
|
|
|
|
|
|
|
|
0.01
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable equivalent adjustment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities
|
|
|
|
|
|
|
(58
|
)
|
|
|
|
|
|
|
|
|
|
|
(56
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
|
|
|
$
|
2,825
|
|
|
|
|
|
|
|
|
|
|
$
|
9,277
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34
The following table depicts, on a taxable equivalent basis,
certain information for the fourth quarters of 2009 and 2008
related to our average balance sheet and our average yields on
assets and average costs of liabilities. Average yields are
calculated by dividing income or expense by the average balance
of the corresponding assets or liabilities. Average balances
have been calculated on a daily basis.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
Average
|
|
|
Income/
|
|
|
Yield/
|
|
|
Average
|
|
|
Income/
|
|
|
Yield/
|
|
|
|
Balance
|
|
|
Expense
|
|
|
Rate
|
|
|
Balance
|
|
|
Expense
|
|
|
Rate
|
|
|
|
(Dollars in thousands)
|
|
|
ASSETS
|
Interest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, net of unearned income(1)
|
|
$
|
2,512,441
|
|
|
$
|
36,966
|
|
|
|
5.84
|
%
|
|
$
|
2,263,676
|
|
|
$
|
36,445
|
|
|
|
6.40
|
%
|
Investment securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable
|
|
|
262,085
|
|
|
|
2,937
|
|
|
|
4.45
|
|
|
|
293,409
|
|
|
|
4,007
|
|
|
|
5.43
|
|
Tax-exempt(2)
|
|
|
30,694
|
|
|
|
477
|
|
|
|
6.17
|
|
|
|
39,223
|
|
|
|
645
|
|
|
|
6.54
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities
|
|
|
292,779
|
|
|
|
3,414
|
|
|
|
4.63
|
|
|
|
332,632
|
|
|
|
4,652
|
|
|
|
5.56
|
|
Federal funds sold
|
|
|
1,544
|
|
|
|
1
|
|
|
|
0.26
|
|
|
|
4,292
|
|
|
|
8
|
|
|
|
0.74
|
|
Other investments
|
|
|
68,523
|
|
|
|
429
|
|
|
|
2.48
|
|
|
|
59,214
|
|
|
|
539
|
|
|
|
3.62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets
|
|
|
2,875,287
|
|
|
|
40,810
|
|
|
|
5.63
|
|
|
|
2,659,814
|
|
|
|
41,644
|
|
|
|
6.23
|
|
Noninterest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
|
65,575
|
|
|
|
|
|
|
|
|
|
|
|
61,967
|
|
|
|
|
|
|
|
|
|
Premises and equipment
|
|
|
104,842
|
|
|
|
|
|
|
|
|
|
|
|
104,341
|
|
|
|
|
|
|
|
|
|
Accrued interest and other assets
|
|
|
171,006
|
|
|
|
|
|
|
|
|
|
|
|
298,477
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses
|
|
|
(34,420
|
)
|
|
|
|
|
|
|
|
|
|
|
(27,845
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
3,182,290
|
|
|
|
|
|
|
|
|
|
|
$
|
3,096,754
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits
|
|
$
|
649,419
|
|
|
$
|
2,048
|
|
|
|
1.25
|
%
|
|
$
|
601,222
|
|
|
$
|
2,559
|
|
|
|
1.69
|
%
|
Savings deposits
|
|
|
280,946
|
|
|
|
953
|
|
|
|
1.35
|
|
|
|
179,494
|
|
|
|
1,113
|
|
|
|
2.47
|
|
Time deposits
|
|
|
1,408,543
|
|
|
|
9,042
|
|
|
|
2.55
|
|
|
|
1,273,648
|
|
|
|
11,760
|
|
|
|
3.67
|
|
Other borrowings
|
|
|
271,548
|
|
|
|
2,539
|
|
|
|
3.71
|
|
|
|
397,657
|
|
|
|
3,006
|
|
|
|
3.01
|
|
Subordinated debentures
|
|
|
66,038
|
|
|
|
1,462
|
|
|
|
8.78
|
|
|
|
60,919
|
|
|
|
1,207
|
|
|
|
7.88
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities
|
|
$
|
2,676,494
|
|
|
|
16,044
|
|
|
|
2.38
|
|
|
$
|
2,512,940
|
|
|
|
19,645
|
|
|
|
3.11
|
|
Noninterest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits
|
|
|
256,320
|
|
|
|
|
|
|
|
|
|
|
|
218,685
|
|
|
|
|
|
|
|
|
|
Accrued interest and other liabilities
|
|
|
15,739
|
|
|
|
|
|
|
|
|
|
|
|
15,222
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
2,948,553
|
|
|
|
|
|
|
|
|
|
|
|
2,746,847
|
|
|
|
|
|
|
|
|
|
Stockholders equity
|
|
|
233,737
|
|
|
|
|
|
|
|
|
|
|
|
349,907
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
3,182,290
|
|
|
|
|
|
|
|
|
|
|
$
|
3,096,754
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income/net interest spread
|
|
|
|
|
|
|
24,766
|
|
|
|
3.25
|
%
|
|
|
|
|
|
|
21,999
|
|
|
|
3.12
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net yield on earning assets
|
|
|
|
|
|
|
|
|
|
|
3.42
|
%
|
|
|
|
|
|
|
|
|
|
|
3.29
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable equivalent adjustment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities
|
|
|
|
|
|
|
162
|
|
|
|
|
|
|
|
|
|
|
|
220
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
|
|
|
$
|
24,604
|
|
|
|
|
|
|
|
|
|
|
$
|
21,779
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Nonaccrual loans are included in loans, net of unearned income.
No adjustment has been made for these loans in the calculation
of yields. |
|
(2) |
|
Interest income and yields are presented on a fully taxable
equivalent basis using a tax rate of 34%. |
35
The following table sets forth, on a taxable equivalent basis,
the effect that the varying levels of interest-earning assets
and interest-bearing liabilities and the applicable rates have
had on changes in net interest income for the fourth quarters of
2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31,
|
|
|
|
2009 vs. 2008(1)
|
|
|
|
Increase
|
|
|
Changes Due To
|
|
|
|
(Decrease)
|
|
|
Rate
|
|
|
Volume
|
|
|
|
(Dollars in thousands)
|
|
|
Increase (decrease) in:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from interest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and fees on loans
|
|
$
|
521
|
|
|
$
|
(3,327
|
)
|
|
$
|
3,848
|
|
Interest on securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable
|
|
|
(1,070
|
)
|
|
|
(672
|
)
|
|
|
(398
|
)
|
Tax-exempt
|
|
|
(168
|
)
|
|
|
(35
|
)
|
|
|
(133
|
)
|
Interest on federal funds
|
|
|
(7
|
)
|
|
|
(4
|
)
|
|
|
(3
|
)
|
Interest on other investments
|
|
|
(110
|
)
|
|
|
(187
|
)
|
|
|
77
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
|
(834
|
)
|
|
|
(4,225
|
)
|
|
|
3,391
|
|
Expense from interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on demand deposits
|
|
|
(511
|
)
|
|
|
(394
|
)
|
|
|
(117
|
)
|
Interest on savings deposits
|
|
|
(160
|
)
|
|
|
(634
|
)
|
|
|
474
|
|
Interest on time deposits
|
|
|
(2,718
|
)
|
|
|
(3,870
|
)
|
|
|
1,152
|
|
Interest on other borrowings
|
|
|
(467
|
)
|
|
|
612
|
|
|
|
(1,079
|
)
|
Interest on subordinated debentures
|
|
|
255
|
|
|
|
147
|
|
|
|
108
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
|
(3,601
|
)
|
|
|
(4,139
|
)
|
|
|
538
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
2,767
|
|
|
$
|
(86
|
)
|
|
$
|
2,853
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The change in interest due to both rate and volume has been
allocated to rate and volume changes in proportion to the
relationship of the absolute dollar amounts of the changes in
each. |
36
The following tables depict, on a taxable equivalent basis,
certain information for each of the three years in the period
ended December 31, 2009 related to our average balance
sheet and our average yields on assets and average costs of
liabilities. Such yields are derived by dividing income or
expense by the average balance of the corresponding assets or
liabilities. Average balances have been calculated on a daily
basis.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
Average
|
|
|
Income/
|
|
|
Yield/
|
|
|
Average
|
|
|
Income/
|
|
|
Yield/
|
|
|
Average
|
|
|
Income/
|
|
|
Yield/
|
|
|
|
Balance
|
|
|
Expense
|
|
|
Rate
|
|
|
Balance
|
|
|
Expense
|
|
|
Rate
|
|
|
Balance
|
|
|
Expense
|
|
|
Rate
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
ASSETS
|
Interest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, net of unearned income
|
|
$
|
2,463,114
|
|
|
$
|
144,660
|
|
|
|
5.87
|
%
|
|
$
|
2,172,775
|
|
|
$
|
147,162
|
|
|
|
6.77
|
%
|
|
$
|
1,839,029
|
|
|
$
|
150,443
|
|
|
|
8.18
|
%
|
Investment securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable
|
|
|
275,065
|
|
|
|
14,085
|
|
|
|
5.12
|
|
|
|
305,783
|
|
|
|
16,310
|
|
|
|
5.33
|
|
|
|
328,893
|
|
|
|
17,174
|
|
|
|
5.22
|
|
Tax-exempt(2)
|
|
|
38,449
|
|
|
|
2,439
|
|
|
|
6.34
|
|
|
|
40,263
|
|
|
|
2,601
|
|
|
|
6.46
|
|
|
|
21,668
|
|
|
|
1,359
|
|
|
|
6.27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities
|
|
|
313,514
|
|
|
|
16,524
|
|
|
|
5.27
|
|
|
|
346,046
|
|
|
|
18,911
|
|
|
|
5.46
|
|
|
|
350,561
|
|
|
|
18,533
|
|
|
|
5.29
|
|
Federal funds sold
|
|
|
3,513
|
|
|
|
9
|
|
|
|
0.26
|
|
|
|
5,047
|
|
|
|
122
|
|
|
|
2.42
|
|
|
|
8,975
|
|
|
|
471
|
|
|
|
5.25
|
|
Other investments
|
|
|
66,204
|
|
|
|
1,718
|
|
|
|
2.60
|
|
|
|
52,637
|
|
|
|
2,578
|
|
|
|
4.90
|
|
|
|
47,612
|
|
|
|
2,944
|
|
|
|
6.18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets
|
|
|
2,846,345
|
|
|
|
162,911
|
|
|
|
5.72
|
|
|
|
2,576,505
|
|
|
|
168,773
|
|
|
|
6.55
|
|
|
|
2,246,177
|
|
|
|
172,391
|
|
|
|
7.67
|
|
Noninterest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
|
69,696
|
|
|
|
|
|
|
|
|
|
|
|
61,208
|
|
|
|
|
|
|
|
|
|
|
|
45,142
|
|
|
|
|
|
|
|
|
|
Premises and equipment
|
|
|
105,191
|
|
|
|
|
|
|
|
|
|
|
|
103,614
|
|
|
|
|
|
|
|
|
|
|
|
95,289
|
|
|
|
|
|
|
|
|
|
Accrued interest and other assets
|
|
|
163,986
|
|
|
|
|
|
|
|
|
|
|
|
294,245
|
|
|
|
|
|
|
|
|
|
|
|
254,785
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses
|
|
|
(31,823
|
)
|
|
|
|
|
|
|
|
|
|
|
(25,527
|
)
|
|
|
|
|
|
|
|
|
|
|
(20,431
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
3,153,395
|
|
|
|
|
|
|
|
|
|
|
$
|
3,010,045
|
|
|
|
|
|
|
|
|
|
|
$
|
2,620,962
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits
|
|
$
|
653,371
|
|
|
|
8,543
|
|
|
|
1.31
|
%
|
|
$
|
637,800
|
|
|
$
|
14,705
|
|
|
|
2.31
|
%
|
|
$
|
568,125
|
|
|
$
|
20,791
|
|
|
|
3.66
|
%
|
Savings deposits
|
|
|
243,566
|
|
|
|
3,651
|
|
|
|
1.50
|
|
|
|
121,645
|
|
|
|
2,731
|
|
|
|
2.25
|
|
|
|
50,652
|
|
|
|
819
|
|
|
|
1.61
|
|
Time deposits
|
|
|
1,392,963
|
|
|
|
42,166
|
|
|
|
3.03
|
|
|
|
1,250,472
|
|
|
|
50,969
|
|
|
|
4.08
|
|
|
|
1,171,942
|
|
|
|
58,057
|
|
|
|
4.95
|
|
Other borrowings
|
|
|
294,022
|
|
|
|
10,097
|
|
|
|
3.43
|
|
|
|
356,239
|
|
|
|
12,104
|
|
|
|
3.40
|
|
|
|
249,443
|
|
|
|
12,971
|
|
|
|
5.20
|
|
Subordinated debentures
|
|
|
62,117
|
|
|
|
5,063
|
|
|
|
8.15
|
|
|
|
55,736
|
|
|
|
4,094
|
|
|
|
7.35
|
|
|
|
48,557
|
|
|
|
4,129
|
|
|
|
8.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities
|
|
$
|
2,646,039
|
|
|
|
69,520
|
|
|
|
2.63
|
|
|
$
|
2,421,892
|
|
|
|
84,603
|
|
|
|
3.49
|
|
|
$
|
2,088,719
|
|
|
|
96,767
|
|
|
|
4.63
|
|
Noninterest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits
|
|
|
246,428
|
|
|
|
|
|
|
|
|
|
|
|
218,486
|
|
|
|
|
|
|
|
|
|
|
|
191,066
|
|
|
|
|
|
|
|
|
|
Accrued interest and other liabilities
|
|
|
17,311
|
|
|
|
|
|
|
|
|
|
|
|
19,438
|
|
|
|
|
|
|
|
|
|
|
|
32,905
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
2,909,778
|
|
|
|
|
|
|
|
|
|
|
|
2,659,816
|
|
|
|
|
|
|
|
|
|
|
|
2,312,690
|
|
|
|
|
|
|
|
|
|
Stockholders equity
|
|
|
243,617
|
|
|
|
|
|
|
|
|
|
|
|
350,229
|
|
|
|
|
|
|
|
|
|
|
|
308,272
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
3,153,395
|
|
|
|
|
|
|
|
|
|
|
$
|
3,010,045
|
|
|
|
|
|
|
|
|
|
|
$
|
2,620,962
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income/net interest spread
|
|
|
|
|
|
|
93,391
|
|
|
|
3.09
|
%
|
|
|
|
|
|
|
84,170
|
|
|
|
3.06
|
%
|
|
|
|
|
|
|
75,624
|
|
|
|
3.04
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net yield on earning assets
|
|
|
|
|
|
|
|
|
|
|
3.28
|
%
|
|
|
|
|
|
|
|
|
|
|
3.27
|
%
|
|
|
|
|
|
|
|
|
|
|
3.37
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable equivalent adjustment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities
|
|
|
|
|
|
|
829
|
|
|
|
|
|
|
|
|
|
|
|
885
|
|
|
|
|
|
|
|
|
|
|
|
462
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
|
|
|
$
|
92,562
|
|
|
|
|
|
|
|
|
|
|
$
|
83,285
|
|
|
|
|
|
|
|
|
|
|
$
|
75,162
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Nonaccrual loans are included in loans, net of unearned income.
No adjustment has been made for these loans in the calculation
of yields. |
|
(2) |
|
Interest income and yields are presented on a fully taxable
equivalent basis using a tax rate of 34%. |
37
The following table sets forth, on a taxable equivalent basis,
the effect which the varying levels of interest-earning assets
and interest-bearing liabilities and the applicable rates have
had on changes in net interest income for the years ended
December 31, 2009 and 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009 vs. 2008(1)
|
|
|
2008 vs. 2007(1)
|
|
|
|
Increase
|
|
|
Changes Due To
|
|
|
Increase
|
|
|
Changes Due To
|
|
|
|
(Decrease)
|
|
|
Rate
|
|
|
Volume
|
|
|
(Decrease)
|
|
|
Rate
|
|
|
Volume
|
|
|
|
(Dollars in thousands)
|
|
|
Increase (decrease) in:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from interest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and fees on loans
|
|
$
|
(2,502
|
)
|
|
$
|
(20,853
|
)
|
|
$
|
18,351
|
|
|
$
|
(3,281
|
)
|
|
$
|
(28,269
|
)
|
|
$
|
24,988
|
|
Interest on securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable
|
|
|
(2,225
|
)
|
|
|
(627
|
)
|
|
|
(1,598
|
)
|
|
|
(864
|
)
|
|
|
359
|
|
|
|
(1,223
|
)
|
Tax-exempt
|
|
|
(162
|
)
|
|
|
(47
|
)
|
|
|
(115
|
)
|
|
|
1,242
|
|
|
|
42
|
|
|
|
1,200
|
|
Interest on federal funds
|
|
|
(113
|
)
|
|
|
(84
|
)
|
|
|
(29
|
)
|
|
|
(349
|
)
|
|
|
(193
|
)
|
|
|
(156
|
)
|
Interest on other investments
|
|
|
(860
|
)
|
|
|
(1,413
|
)
|
|
|
553
|
|
|
|
(366
|
)
|
|
|
(655
|
)
|
|
|
289
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
|
(5,862
|
)
|
|
|
(23,024
|
)
|
|
|
17,162
|
|
|
|
(3,618
|
)
|
|
|
(28,716
|
)
|
|
|
25,098
|
|
Expense from interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on demand deposits
|
|
|
(6,162
|
)
|
|
|
(6,514
|
)
|
|
|
352
|
|
|
|
(6,086
|
)
|
|
|
(8,405
|
)
|
|
|
2,319
|
|
Interest on savings deposits
|
|
|
920
|
|
|
|
(1,140
|
)
|
|
|
2,060
|
|
|
|
1,913
|
|
|
|
423
|
|
|
|
1,490
|
|
Interest on time deposits
|
|
|
(8,803
|
)
|
|
|
(14,160
|
)
|
|
|
5,357
|
|
|
|
(7,089
|
)
|
|
|
(10,777
|
)
|
|
|
3,688
|
|
Interest on other borrowings
|
|
|
(2,007
|
)
|
|
|
107
|
|
|
|
(2,114
|
)
|
|
|
(867
|
)
|
|
|
(5,367
|
)
|
|
|
4,500
|
|
Interest on subordinated debentures
|
|
|
969
|
|
|
|
472
|
|
|
|
497
|
|
|
|
(35
|
)
|
|
|
(601
|
)
|
|
|
566
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
|
(15,083
|
)
|
|
|
(21,235
|
)
|
|
|
6,152
|
|
|
|
(12,164
|
)
|
|
|
(24,727
|
)
|
|
|
12,563
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
9,221
|
|
|
$
|
(1,789
|
)
|
|
$
|
11,010
|
|
|
$
|
8,546
|
|
|
$
|
(3,989
|
)
|
|
$
|
12,535
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The change in interest due to both rate and volume has been
allocated to rate and volume changes in proportion to the
relationship of the absolute dollar amounts of the changes in
each. |
Noninterest income. Noninterest income
increased $0.1 million and decreased $3.2 million, or
3.1% and (19.0)%, to $4.5 million and $13.6 million
for the fourth quarter and year ended December 31, 2009,
respectively, from $4.4 million and $16.8 million for
the fourth quarter and year ended December 31, 2008,
respectively. The components of noninterest income for the
fourth quarters and years ended December 31, 2009 and 2008
consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
% Change
|
|
|
|
(Dollars in thousands)
|
|
|
Service charges and fees on deposits
|
|
$
|
2,606
|
|
|
$
|
2,574
|
|
|
|
1.24
|
%
|
Mortgage banking income
|
|
|
1,617
|
|
|
|
855
|
|
|
|
89.12
|
|
Investment securities losses(1)
|
|
|
(596
|
)
|
|
|
(1,381
|
)
|
|
|
(56.84
|
)
|
Change in fair value of derivatives
|
|
|
(996
|
)
|
|
|
467
|
|
|
|
NCM
|
|
Increase in cash surrender value of life insurance
|
|
|
575
|
|
|
|
585
|
|
|
|
(1.71
|
)
|
Other noninterest income
|
|
|
1,303
|
|
|
|
1,274
|
|
|
|
2.28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,509
|
|
|
$
|
4,374
|
|
|
|
3.09
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
% Change
|
|
|
|
(Dollars in thousands)
|
|
|
Service charges and fees on deposits
|
|
$
|
10,112
|
|
|
$
|
9,295
|
|
|
|
8.79
|
%
|
Mortgage banking income
|
|
|
7,084
|
|
|
|
3,972
|
|
|
|
78.35
|
|
Investment securities losses(1)
|
|
|
(10,102
|
)
|
|
|
(8,453
|
)
|
|
|
19.51
|
|
Change in fair value of derivatives
|
|
|
(826
|
)
|
|
|
1,240
|
|
|
|
NCM
|
|
Increase in cash surrender value of life insurance
|
|
|
2,198
|
|
|
|
2,274
|
|
|
|
(3.34
|
)
|
Gain on extinguishment of liabilities
|
|
|
|
|
|
|
2,918
|
|
|
|
NA
|
|
Other noninterest income
|
|
|
5,113
|
|
|
|
5,521
|
|
|
|
(7.39
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
13,579
|
|
|
$
|
16,767
|
|
|
|
(19.01
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes a non-cash
other-than-temporary
impairment charge. See Financial Condition
Investment Securities |
NA Not applicable
NCM Not considered meaningful
The increase in service charges and fees on deposits was
primarily attributable to pricing changes and account growth.
The increase in mortgage banking income during 2009 was the
result of an increase in the volume of refinancing, which is
expected to decline in future periods. However, during the
fourth quarter of 2009, we took advantage of a unique
opportunity in the local market by bringing on board 60 mortgage
originators and associated staff from an existing Alabama bank
which had been taken into FDIC receivership and sold to another
financial institution. Initially, we expect the new staff to
approximately double our origination capability in Alabama, as
well as significantly improve the efficiency of the secondary
placement of our existing originations. Longer term, we expect
this to raise our origination capability to a higher level in
support of our Florida branches. The investment securities loss
was the result of impairment charges related to several
securities. See Financial Condition Investment
Securities for additional discussion. A gain of
$2.9 million from the extinguishment of certain liabilities
is also included in the total noninterest income for 2008.
Noninterest expenses. Noninterest expenses
increased $8.1 million, exclusive of the
$160.3 million goodwill impairment charge in the fourth
quarter of 2008, or 32.3%, to $33.0 million for the fourth
quarter of 2009 from $24.9 million for the fourth quarter
of 2008. This increase was primarily due to increased FDIC
assessments and foreclosure losses. The increase in FDIC
assessments was attributable to a prepaid assessment, which
occurred in the fourth quarter of 2009 and applied to all
insured depository institutions. The FDIC also imposed a special
assessment in the second quarter of 2009. Any additional
increases in Deposit Insurance Fund insurance premiums would
likely have an adverse effect on our operating expenses and
results of operations. Management cannot predict what insurance
assessment rates will be in the future. Our foreclosure losses
relate to various costs incurred to acquire, maintain and
dispose of other real estate acquired through foreclosure. These
costs are directly related to the volume of foreclosures, which
have increased due to the negative credit cycle. These costs
could increase in
39
future periods, depending on the duration of the credit cycle,
and have a material impact on our operating expenses.
Noninterest expenses included the following for the fourth
quarters of 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
% Change
|
|
|
|
(Dollars in thousands)
|
|
|
Noninterest Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits
|
|
$
|
12,988
|
|
|
$
|
13,094
|
|
|
|
(0.81
|
)%
|
Occupancy, furniture and equipment expense
|
|
|
5,246
|
|
|
|
4,583
|
|
|
|
14.47
|
|
Amortization of core deposit intangibles
|
|
|
985
|
|
|
|
896
|
|
|
|
9.93
|
|
Goodwill impairment charge
|
|
|
|
|
|
|
160,306
|
|
|
|
NA
|
|
FDIC assessment
|
|
|
3,038
|
|
|
|
447
|
|
|
|
NCM
|
|
Foreclosure losses
|
|
|
4,462
|
|
|
|
354
|
|
|
|
NCM
|
|
Professional fees
|
|
|
1,595
|
|
|
|
745
|
|
|
|
NCM
|
|
Insurance expense
|
|
|
652
|
|
|
|
601
|
|
|
|
8.49
|
|
Postage, stationery and supplies
|
|
|
738
|
|
|
|
773
|
|
|
|
(4.53
|
)
|
Communications expense
|
|
|
731
|
|
|
|
741
|
|
|
|
(1.35
|
)
|
Advertising expense
|
|
|
578
|
|
|
|
774
|
|
|
|
(25.32
|
)
|
Other operating expense
|
|
|
1,971
|
|
|
|
1,919
|
|
|
|
2.71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
32,984
|
|
|
$
|
185,233
|
|
|
|
(82.19
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NA Not applicable
NCM Not considered meaningful
Noninterest expenses increased $16.1 million, exclusive of
the $160.3 million goodwill impairment charge in 2008, or
17.1%, to $110.5 million for the year ended
December 31, 2009 from $94.4 million for the year
ended December 31, 2008. This increase was primarily due to
increased FDIC assessments and foreclosure losses as discussed
in the previous paragraph. Noninterest expenses included the
following for the years ended December 31, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
% Change
|
|
|
|
(Dollars in thousands)
|
|
|
Noninterest Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits
|
|
$
|
49,962
|
|
|
$
|
49,672
|
|
|
|
0.58
|
%
|
Occupancy, furniture and equipment expense
|
|
|
18,643
|
|
|
|
17,197
|
|
|
|
8.41
|
|
Amortization of core deposit intangibles
|
|
|
3,941
|
|
|
|
3,585
|
|
|
|
9.93
|
|
Goodwill impairment charge
|
|
|
|
|
|
|
160,306
|
|
|
|
NA
|
|
FDIC assessment
|
|
|
6,348
|
|
|
|
1,105
|
|
|
|
NCM
|
|
Foreclosure losses
|
|
|
8,116
|
|
|
|
908
|
|
|
|
NCM
|
|
Professional fees
|
|
|
4,202
|
|
|
|
2,637
|
|
|
|
59.35
|
|
Insurance expense
|
|
|
2,555
|
|
|
|
2,381
|
|
|
|
7.31
|
|
Postage, stationery and supplies
|
|
|
3,002
|
|
|
|
2,964
|
|
|
|
1.28
|
|
Communications expense
|
|
|
3,054
|
|
|
|
2,941
|
|
|
|
3.84
|
|
Advertising expense
|
|
|
2,530
|
|
|
|
3,522
|
|
|
|
(28.17
|
)
|
Merger-related costs
|
|
|
|
|
|
|
118
|
|
|
|
NA
|
|
Other operating expense
|
|
|
8,132
|
|
|
|
7,342
|
|
|
|
10.76
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
110,485
|
|
|
$
|
254,678
|
|
|
|
(56.62
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40
Income tax expense. We recognized an income
tax benefit of $(6.3) million and $(13.0) million for
the fourth quarter of 2009 and year ended December 31,
2009, respectively, compared to $(3.9) million and
$(4.6) million for the fourth quarter of 2008 and year
ended December 31, 2008, respectively. The difference
between the effective tax rates in 2009 and 2008 and the blended
federal statutory rate of 34% and state tax rates between 5% and
6% is primarily due to the goodwill impairment charge
(2008) and certain tax-exempt income from investments and
insurance policies. See Critical Accounting
Estimates for a discussion regarding our deferred tax
assets and liabilities.
Provision for Loan Losses and 2009 Loan
Charge-offs. The provision for loan losses was
$28.6 million for the year ended December 31, 2009, an
increase of $15.5 million from $13.1 million for the
year ended December 31, 2008. In 2009, we had net
charged-off loans totaling $15.5 million, compared to net
charged-off loans of $7.1 million in the year ended
December 31, 2008. The annualized ratio of net charged-off
loans to average loans was 0.65% for the year ended
December 31, 2009, compared to 0.33% for year ended
December 31, 2008. The allowance for loan losses totaled
$41.9 million, or 1.69% of loans, net of unearned income,
at December 31, 2009, compared to $28.9 million, or
1.25% of loans, net of unearned income, at December 31,
2008.
During 2009, the effects of the global recession continued to
apply additional stress to the overall performance of our loan
portfolio. As a result, we increased our provision for loan
losses and our allowance for loan losses. The following table
shows the quarterly provision for loan losses, gross and net
charge-offs, and the level of allowance for loan losses that
resulted from our ongoing assessment of the loan portfolio
during the year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 Quarters Ended
|
|
|
|
March 31
|
|
|
June 30
|
|
|
September 30
|
|
|
December 31
|
|
|
|
(Dollars in thousands)
|
|
|
Beginning allowance for loan losses
|
|
$
|
28,850
|
|
|
$
|
29,871
|
|
|
$
|
33,504
|
|
|
$
|
34,336
|
|
Provision for loan losses
|
|
|
3,452
|
|
|
|
5,982
|
|
|
|
5,169
|
|
|
|
13,947
|
(1)
|
Total charge-offs
|
|
|
2,809
|
|
|
|
2,513
|
|
|
|
4,546
|
|
|
|
6,793
|
|
Total recoveries
|
|
|
(378
|
)
|
|
|
(164
|
)
|
|
|
(209
|
)
|
|
|
(394
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs
|
|
|
2,431
|
|
|
|
2,349
|
|
|
|
4,337
|
|
|
|
6,399
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending allowance for loan losses
|
|
$
|
29,871
|
|
|
|
33,504
|
|
|
|
34,336
|
|
|
$
|
41,884
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans, net of unearned income
|
|
$
|
2,359,299
|
|
|
$
|
2,398,471
|
|
|
$
|
2,434,534
|
|
|
$
|
2,472,697
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses to total loans, net of unearned income
|
|
|
1.27
|
%
|
|
|
1.40
|
%
|
|
|
1.41
|
%
|
|
|
1.69
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
A portion of this provision related to charged-off loans, but a
majority was used to increase our allowance for loan losses
based on managements estimate of loss in the loan
portfolio based on managements ongoing assessment of
certain areas of risk. See Financial Condition
Allowance for Loan Losses for additional discussion |
41
Year
Ended December 31, 2008, Compared with Year Ended
December 31, 2007
Earnings. We reported a net loss for 2008
primarily as a result of the $160 million goodwill
impairment charge and $6.3 million non-cash after- tax
other-than-temporary
impairment charge on Fannie Mae and Freddie Mac preferred stock
and certain mortgage-backed securities. Our earnings were also
negatively impacted by a significantly higher provision for loan
losses and lower net interest margin, offset somewhat by an
increase in other noninterest income such as service charges on
customer deposits and mortgage banking income. The following
table presents key earnings data for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Year
|
|
|
|
Ended December 31,
|
|
|
Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
(Dollars in thousands, except per share data)
|
|
|
Net (loss) income
|
|
$
|
(158,178
|
)
|
|
$
|
1,904
|
|
|
$
|
(163,150
|
)
|
|
$
|
7,621
|
|
Net (loss) income applicable to common shareholders
|
|
|
(158,490
|
)
|
|
|
1,904
|
|
|
|
(163,461
|
)
|
|
|
7,621
|
|
Net (loss) income per common share (diluted)
|
|
|
(15.80
|
)
|
|
|
0.19
|
|
|
|
(16.31
|
)
|
|
|
0.82
|
|
Net interest margin
|
|
|
3.29
|
%
|
|
|
3.20
|
%
|
|
|
3.27
|
%
|
|
|
3.37
|
%
|
Net interest spread
|
|
|
3.12
|
|
|
|
2.88
|
|
|
|
3.06
|
|
|
|
3.04
|
|
Return on average assets
|
|
|
NCM
|
|
|
|
0.26
|
|
|
|
(5.42
|
)
|
|
|
0.29
|
|
Return on average stockholders equity
|
|
|
NCM
|
|
|
|
2.16
|
|
|
|
(46.58
|
)
|
|
|
2.47
|
|
Common book value per share
|
|
$
|
17.83
|
|
|
$
|
34.91
|
|
|
$
|
17.83
|
|
|
$
|
34.91
|
|
NCM Not considered meaningful.
42
Net Interest Income. The following table
summarizes the changes in the components of net interest income
for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (Decrease) in
|
|
|
|
Fourth Quarter
|
|
|
Year Ended December 31,
|
|
|
|
2008 vs. 2007
|
|
|
2008 vs. 2007
|
|
|
|
Average
|
|
|
Income/
|
|
|
Yield/
|
|
|
Average
|
|
|
Income/
|
|
|
Yield/
|
|
|
|
Balance
|
|
|
Expense
|
|
|
Rate
|
|
|
Balance
|
|
|
Expense
|
|
|
Rate
|
|
|
|
(Dollars in thousands)
|
|
|
ASSETS
|
Interest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, net of unearned income
|
|
$
|
217,863
|
|
|
$
|
(4,215
|
)
|
|
|
(1.49
|
)%
|
|
$
|
333,746
|
|
|
$
|
(3,281
|
)
|
|
|
(1.41
|
)%
|
Investment securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable
|
|
|
(38,187
|
)
|
|
|
(361
|
)
|
|
|
0.20
|
|
|
|
(23,110
|
)
|
|
|
(864
|
)
|
|
|
0.11
|
|
Tax-exempt
|
|
|
5,776
|
|
|
|
108
|
|
|
|
0.17
|
|
|
|
18,595
|
|
|
|
1,242
|
|
|
|
0.19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities
|
|
|
(32,411
|
)
|
|
|
(253
|
)
|
|
|
0.23
|
|
|
|
(4,515
|
)
|
|
|
378
|
|
|
|
0.17
|
|
Federal funds sold
|
|
|
(4,208
|
)
|
|
|
(89
|
)
|
|
|
(3.79
|
)
|
|
|
(3,929
|
)
|
|
|
(349
|
)
|
|
|
(2.83
|
)
|
Other investments
|
|
|
10,414
|
|
|
|
(101
|
)
|
|
|
(1.58
|
)
|
|
|
5,025
|
|
|
|
(366
|
)
|
|
|
(1.28
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets
|
|
$
|
191,658
|
|
|
|
(4,658
|
)
|
|
|
(1.21
|
)
|
|
$
|
330,327
|
|
|
|
(3,618
|
)
|
|
|
(1.12
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits
|
|
$
|
(34,149
|
)
|
|
$
|
(3,098
|
)
|
|
|
(1.84
|
)%
|
|
$
|
69,675
|
|
|
$
|
(6,086
|
)
|
|
|
(1.35
|
)%
|
Savings deposits
|
|
|
119,548
|
|
|
|
799
|
|
|
|
0.39
|
|
|
|
70,993
|
|
|
|
1,913
|
|
|
|
0.64
|
|
Time deposits
|
|
|
(5,328
|
)
|
|
|
(4,276
|
)
|
|
|
(1.30
|
)
|
|
|
78,530
|
|
|
|
(7,089
|
)
|
|
|
(0.87
|
)
|
Other borrowings
|
|
|
126,849
|
|
|
|
(330
|
)
|
|
|
(1.88
|
)
|
|
|
106,796
|
|
|
|
(867
|
)
|
|
|
(1.80
|
)
|
Subordinated debentures
|
|
|
7,120
|
|
|
|
141
|
|
|
|
0.02
|
|
|
|
7,179
|
|
|
|
(35
|
)
|
|
|
(1.15
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities
|
|
$
|
214,040
|
|
|
|
(6,764
|
)
|
|
|
(1.45
|
)
|
|
$
|
333,173
|
|
|
|
(12,164
|
)
|
|
|
(1.14
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income/net interest spread
|
|
|
|
|
|
|
2,106
|
|
|
|
0.24
|
%
|
|
|
|
|
|
|
8,546
|
|
|
|
(0.02
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net yield on earning assets
|
|
|
|
|
|
|
|
|
|
|
0.09
|
%
|
|
|
|
|
|
|
|
|
|
|
(0.10
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable equivalent adjustment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities
|
|
|
|
|
|
|
36
|
|
|
|
|
|
|
|
|
|
|
|
423
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
|
|
|
$
|
2,070
|
|
|
|
|
|
|
|
|
|
|
$
|
8,123
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43
The following table depicts, on a taxable equivalent basis,
certain information for the fourth quarters of 2008 and 2007
related to our average balance sheet and our average yields on
assets and average costs of liabilities. Average yields are
calculated by dividing income or expense by the average balance
of the corresponding assets or liabilities. Average balances
have been calculated on a daily basis.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
Average
|
|
|
Income/
|
|
|
Yield/
|
|
|
Average
|
|
|
Income/
|
|
|
Yield/
|
|
|
|
Balance
|
|
|
Expense
|
|
|
Rate
|
|
|
Balance
|
|
|
Expense
|
|
|
Rate
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
ASSETS
|
Interest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, net of unearned income(1)
|
|
$
|
2,263,676
|
|
|
$
|
36,445
|
|
|
|
6.40
|
%
|
|
$
|
2,045,813
|
|
|
$
|
40,660
|
|
|
|
7.89
|
%
|
Investment securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable
|
|
|
293,409
|
|
|
|
4,007
|
|
|
|
5.43
|
|
|
|
331,596
|
|
|
|
4,369
|
|
|
|
5.23
|
|
Tax-exempt(2)
|
|
|
39,223
|
|
|
|
645
|
|
|
|
6.54
|
|
|
|
33,447
|
|
|
|
537
|
|
|
|
6.37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities
|
|
|
332,632
|
|
|
|
4,652
|
|
|
|
5.56
|
|
|
|
365,043
|
|
|
|
4,906
|
|
|
|
5.33
|
|
Federal funds sold
|
|
|
4,292
|
|
|
|
8
|
|
|
|
0.74
|
|
|
|
8,500
|
|
|
|
97
|
|
|
|
4.53
|
|
Other investments
|
|
|
59,214
|
|
|
|
539
|
|
|
|
3.62
|
|
|
|
48,800
|
|
|
|
640
|
|
|
|
5.20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets
|
|
|
2,659,814
|
|
|
|
41,644
|
|
|
|
6.23
|
|
|
|
2,468,156
|
|
|
|
46,303
|
|
|
|
7.44
|
|
Noninterest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
|
61,967
|
|
|
|
|
|
|
|
|
|
|
|
48,618
|
|
|
|
|
|
|
|
|
|
Premises and equipment
|
|
|
104,341
|
|
|
|
|
|
|
|
|
|
|
|
99,190
|
|
|
|
|
|
|
|
|
|
Accrued interest and other assets
|
|
|
298,477
|
|
|
|
|
|
|
|
|
|
|
|
290,894
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses
|
|
|
(27,845
|
)
|
|
|
|
|
|
|
|
|
|
|
(22,095
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
3,096,754
|
|
|
|
|
|
|
|
|
|
|
$
|
2,884,763
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits
|
|
$
|
601,222
|
|
|
$
|
2,559
|
|
|
|
1.69
|
%
|
|
$
|
635,371
|
|
|
$
|
5,657
|
|
|
|
3.53
|
%
|
Savings deposits
|
|
|
179,494
|
|
|
|
1,113
|
|
|
|
2.47
|
|
|
|
59,946
|
|
|
|
314
|
|
|
|
2.08
|
|
Time deposits
|
|
|
1,273,648
|
|
|
|
11,760
|
|
|
|
3.67
|
|
|
|
1,278,976
|
|
|
|
16,037
|
|
|
|
4.97
|
|
Other borrowings
|
|
|
397,657
|
|
|
|
3,006
|
|
|
|
3.01
|
|
|
|
270,808
|
|
|
|
3,336
|
|
|
|
4.89
|
|
Subordinated debentures
|
|
|
60,919
|
|
|
|
1,207
|
|
|
|
7.88
|
|
|
|
53,799
|
|
|
|
1,066
|
|
|
|
7.86
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities
|
|
$
|
2,512,940
|
|
|
|
19,645
|
|
|
|
3.11
|
|
|
$
|
2,298,900
|
|
|
|
26,410
|
|
|
|
4.56
|
|
Noninterest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits
|
|
|
218,685
|
|
|
|
|
|
|
|
|
|
|
|
206,977
|
|
|
|
|
|
|
|
|
|
Accrued interest and other liabilities
|
|
|
15,222
|
|
|
|
|
|
|
|
|
|
|
|
29,834
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
2,746,847
|
|
|
|
|
|
|
|
|
|
|
|
2,535,711
|
|
|
|
|
|
|
|
|
|
Stockholders equity
|
|
|
349,907
|
|
|
|
|
|
|
|
|
|
|
|
349,052
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
3,096,754
|
|
|
|
|
|
|
|
|
|
|
$
|
2,884,763
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income/net interest spread
|
|
|
|
|
|
|
21,999
|
|
|
|
3.12
|
%
|
|
|
|
|
|
|
19,893
|
|
|
|
2.88
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net yield on earning assets
|
|
|
|
|
|
|
|
|
|
|
3.29
|
%
|
|
|
|
|
|
|
|
|
|
|
3.20
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable equivalent adjustment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities
|
|
|
|
|
|
|
219
|
|
|
|
|
|
|
|
|
|
|
|
183
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
|
|
|
$
|
21,780
|
|
|
|
|
|
|
|
|
|
|
$
|
19,710
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Nonaccrual loans are included in loans, net of unearned income.
No adjustment has been made for these loans in the calculation
of yields. |
|
(2) |
|
Interest income and yields are presented on a fully taxable
equivalent basis using a tax rate of 34%. |
44
The following table sets forth, on a taxable equivalent basis,
the effect that the varying levels of interest-earning assets
and interest-bearing liabilities and the applicable rates have
had on changes in net interest income for the fourth quarter:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31,
|
|
|
|
2008 vs. 2007(1)
|
|
|
|
Increase
|
|
|
Changes Due To
|
|
|
|
(Decrease)
|
|
|
Rate
|
|
|
Volume
|
|
|
|
(Dollars in thousands)
|
|
|
Increase (decrease) in:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from interest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and fees on loans
|
|
$
|
(4,215
|
)
|
|
$
|
(8,221
|
)
|
|
$
|
4,006
|
|
Interest on securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable
|
|
|
(361
|
)
|
|
|
160
|
|
|
|
(521
|
)
|
Tax-exempt
|
|
|
108
|
|
|
|
14
|
|
|
|
94
|
|
Interest on federal funds
|
|
|
(89
|
)
|
|
|
(56
|
)
|
|
|
(33
|
)
|
Interest on other investments
|
|
|
(101
|
)
|
|
|
(219
|
)
|
|
|
118
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
|
(4,658
|
)
|
|
|
(8,322
|
)
|
|
|
3,664
|
|
Expense from interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on demand deposits
|
|
|
(3,098
|
)
|
|
|
(2,808
|
)
|
|
|
(290
|
)
|
Interest on savings deposits
|
|
|
799
|
|
|
|
69
|
|
|
|
730
|
|
Interest on time deposits
|
|
|
(4,276
|
)
|
|
|
(4,209
|
)
|
|
|
(67
|
)
|
Interest on other borrowings
|
|
|
(330
|
)
|
|
|
(1,554
|
)
|
|
|
1,224
|
|
Interest on subordinated debentures
|
|
|
141
|
|
|
|
3
|
|
|
|
138
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
|
(6,764
|
)
|
|
|
(8,499
|
)
|
|
|
1,735
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
2,106
|
|
|
$
|
177
|
|
|
$
|
1,929
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The change in interest due to both rate and volume has been
allocated to rate and volume changes in proportion to the
relationship of the absolute dollar amounts of the changes in
each. |
Provision for Loan Losses and 2008 Loan
Charge-offs. The provision for loan losses was
$13.1 million for the year ended December 31, 2008, an
increase of $8.6 million, or 188.7%, from $4.5 million
the year ended December 31, 2007. In 2008, we had net
charged-off loans totaling $7.1 million, compared to net
charged-off loans of $4.3 million in the year ended
December 31, 2007. The annualized ratio of net charged-off
loans to average loans was 0.33% for the year ended
December 31, 2008, compared to 0.24% for year ended
December 31, 2007. The allowance for loan losses totaled
$28.9 million, or 1.25% of loans, net of unearned income,
at December 31, 2008, compared to $22.9 million, or
1.13% of loans, net of unearned income, at December 31,
2007. As 2008 progressed, we increased our provision for loan
losses and our allowance for loan losses as it became clear that
the economy was showing signs of deterioration. The following
table shows the quarterly provision for loan losses, gross and
net
45
charge-offs, and the level of allowance for loan losses that
resulted from our ongoing assessment of the loan portfolio
during the year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 Quarters Ended
|
|
|
|
March 31
|
|
|
June 30
|
|
|
September 30
|
|
|
December 31
|
|
|
|
(Dollars in thousands)
|
|
|
Beginning allowance for loan losses
|
|
$
|
22,868
|
|
|
$
|
23,273
|
|
|
$
|
27,243
|
|
|
$
|
27,671
|
|
Provision for loan losses
|
|
|
1,872
|
|
|
|
5,967
|
|
|
|
2,305
|
|
|
|
2,968
|
|
Total charge-offs
|
|
|
1,745
|
|
|
|
2,482
|
|
|
|
2,247
|
|
|
|
1,970
|
|
Total recoveries
|
|
|
(278
|
)
|
|
|
(485
|
)
|
|
|
(370
|
)
|
|
|
(181
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs
|
|
|
1,467
|
|
|
|
1,997
|
|
|
|
1,877
|
|
|
|
1,789
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending allowance for loan losses
|
|
$
|
23,273
|
|
|
$
|
27,243
|
|
|
$
|
27,671
|
|
|
|
28,850
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans, net of unearned income
|
|
$
|
2,066,192
|
|
|
$
|
2,148,750
|
|
|
$
|
2,219,041
|
|
|
$
|
2,314,921
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio: Allowance for loan losses to total loans, net of unearned
income
|
|
|
1.13
|
%
|
|
|
1.27
|
%
|
|
|
1.25
|
%
|
|
|
1.25
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest income. Noninterest income
decreased $1.4 million and $2.6 million, or 24.7% and
13.4%, to $4.4 million and $16.8 million for the
fourth quarter and year ended December 31, 2008,
respectively, from $5.8 million and $19.4 million for
the fourth quarter and year ended December 31, 2007,
respectively. The components of noninterest income for the
fourth quarters and years ended December 31, 2008 and 2007
consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
% Change
|
|
|
|
(Dollars in thousands)
|
|
|
Service charges and fees on deposits
|
|
$
|
2,574
|
|
|
$
|
2,183
|
|
|
|
17.91
|
%
|
Mortgage banking income
|
|
|
855
|
|
|
|
808
|
|
|
|
5.82
|
|
Investment securities (losses) gains(1)
|
|
|
(1,381
|
)
|
|
|
66
|
|
|
|
NA
|
|
Change in fair value of derivatives
|
|
|
467
|
|
|
|
1,141
|
|
|
|
(59.07
|
)
|
Increase in cash surrender value of life insurance
|
|
|
585
|
|
|
|
514
|
|
|
|
13.81
|
|
Other noninterest income
|
|
|
1,274
|
|
|
|
1,096
|
|
|
|
16.24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,374
|
|
|
$
|
5,808
|
|
|
|
(24.69
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
% Change
|
|
|
|
(Dollars in thousands)
|
|
|
Service charges and fees on deposits
|
|
$
|
9,295
|
|
|
$
|
7,957
|
|
|
|
16.82
|
%
|
Mortgage banking income
|
|
|
3,972
|
|
|
|
3,860
|
|
|
|
2.90
|
|
Investment securities (losses) gains(1)
|
|
|
(8,453
|
)
|
|
|
308
|
|
|
|
NA
|
|
Change in fair value of derivatives
|
|
|
1,240
|
|
|
|
1,310
|
|
|
|
(5.34
|
)
|
Increase in cash surrender value of life insurance
|
|
|
2,274
|
|
|
|
1,895
|
|
|
|
20.00
|
|
Gain on extinguishment of liabilities
|
|
|
2,918
|
|
|
|
|
|
|
|
NA
|
|
Other noninterest income
|
|
|
5,521
|
|
|
|
4,027
|
|
|
|
37.10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
16,767
|
|
|
$
|
19,357
|
|
|
|
(13.38
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes a non-cash OTTI charge. |
The increase in service charges and fees on deposits was
primarily attributable to an increased customer base resulting
from our acquisitions and new branch locations The increase in
mortgage banking income during 2008 was the result of an
increase in the volume of originations. The increase in other
noninterest income was primarily
46
due to increases in brokerage commissions and ATM network fees.
The increase in brokerage commissions was the result of
increased volume in our investment subsidiary, and the increase
in ATM network fees was the result of increased volume related
to new customers and additional ATM locations acquired through
acquisitions or new branch locations.
During the second quarter of 2008, we recognized two separate
gains from the extinguishment of approximately $5.8 million
in liabilities. The first gain related to a settlement of a
retirement agreement with a previous executive officer under
which we had a remaining unfunded obligation to pay
approximately $6.2 million in benefits over a
17-year
period. This obligation was settled through a cash payment of
$3.0 million with a recognized pre-tax gain of $574,000.
The second gain related to a forfeiture of benefits owed to a
former executive officer under the Community Bancshares, Inc.
Benefit Restoration Plan and resulted in a pre-tax gain of
$2.3 million.
Noninterest expenses. Noninterest expenses
increased $4.1 million, exclusive of the $160 million
goodwill impairment charge, or 19.6%, to $24.9 million for
the fourth quarter of 2008 from $20.8 million for the
fourth quarter of 2007. This increase was primarily due to our
opening of new branch locations, which contributed to increases
in personnel, occupancy cost, and equipment expense. An
additional large increase was recorded in insurance expense
($0.4 million, or 64%) as the full impact of FDIC premium
expense was realized due to the exhaustion of previous premium
rebates. Noninterest expenses included the following for the
fourth quarters of 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
% Change
|
|
|
|
(Dollars in thousands)
|
|
|
Noninterest Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits
|
|
$
|
13,094
|
|
|
$
|
11,357
|
|
|
|
15.29
|
%
|
Occupancy, furniture and equipment expense
|
|
|
4,583
|
|
|
|
3,742
|
|
|
|
22.47
|
|
Amortization of core deposit intangibles
|
|
|
896
|
|
|
|
588
|
|
|
|
52.38
|
|
Merger-related costs
|
|
|
|
|
|
|
108
|
|
|
|
NA
|
|
Professional fees
|
|
|
745
|
|
|
|
720
|
|
|
|
3.47
|
|
Goodwill impairment charge
|
|
|
160,306
|
|
|
|
|
|
|
|
NA
|
|
Insurance expense
|
|
|
1,048
|
|
|
|
638
|
|
|
|
64.26
|
|
Postage, stationery and supplies
|
|
|
559
|
|
|
|
570
|
|
|
|
(1.93
|
)
|
Communications expense
|
|
|
549
|
|
|
|
538
|
|
|
|
2.04
|
|
Advertising expense
|
|
|
666
|
|
|
|
638
|
|
|
|
4.39
|
|
Other operating expense
|
|
|
2,787
|
|
|
|
1,951
|
|
|
|
42.85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
185,233
|
|
|
$
|
20,850
|
|
|
|
NCM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NA Not applicable.
NCM Not considered meaningful.
Noninterest expenses increased $16.1 million, exclusive of
the $160 million goodwill impairment charge, or 20.6%, to
$94.3 million for the year ended December 31, 2008
from $78.2 million for the year ended December 31,
2007. This increase was primarily due to the opening of new
branch locations, which contributed to increases in
47
personnel, occupancy cost, and equipment. Noninterest expenses
included the following for the years ended December 31,
2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
% Change
|
|
|
|
(Dollars in thousands)
|
|
|
Noninterest Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits
|
|
$
|
49,672
|
|
|
$
|
42,316
|
|
|
|
17.38
|
%
|
Occupancy, furniture and equipment expense
|
|
|
17,197
|
|
|
|
13,391
|
|
|
|
28.42
|
|
Amortization of core deposit intangibles
|
|
|
3,585
|
|
|
|
1,691
|
|
|
|
112.00
|
|
Loss on extinguishment of debt
|
|
|
|
|
|
|
1,469
|
|
|
|
NA
|
|
Merger-related costs
|
|
|
118
|
|
|
|
639
|
|
|
|
(81.53
|
)
|
Loss on termination of ESOP
|
|
|
|
|
|
|
158
|
|
|
|
NA
|
|
Professional fees
|
|
|
2,637
|
|
|
|
2,269
|
|
|
|
16.22
|
|
Goodwill impairment charge
|
|
|
160,306
|
|
|
|
|
|
|
|
NA
|
|
Insurance expense
|
|
|
3,486
|
|
|
|
2,189
|
|
|
|
59.25
|
|
Postage, stationery and supplies
|
|
|
2,114
|
|
|
|
2,252
|
|
|
|
(6.13
|
)
|
Communications expense
|
|
|
2,203
|
|
|
|
2,007
|
|
|
|
9.77
|
|
Advertising expense
|
|
|
2,977
|
|
|
|
2,397
|
|
|
|
24.20
|
|
Other operating expense
|
|
|
10,383
|
|
|
|
7,445
|
|
|
|
39.46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
254,678
|
|
|
$
|
78,223
|
|
|
|
NCM
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Tax Expense. We recognized income tax
(benefit) expense of $(3.9) million and $(4.6) million
for the fourth quarter of 2008 and year ended December 31,
2008, respectively, compared to $1.1 million and
$4.1 million for the fourth quarter of 2007 and year ended
December 31, 2007, respectively. The difference between the
effective tax rates in 2009 and 2008 and the blended federal
statutory rate of 34% and state tax rates between 5% and 6% is
primarily due to the goodwill impairment charge (2008), certain
tax-exempt income from investments and insurance policies. We
adopted the provisions of Financial Accounting Standards Board
(FASB) Interpretation (FIN) 48 as of
January 1, 2007, the effect of which is described in
Note 14 to the consolidated financial statements.
Results
of Segment Operations
We have two reportable segments, the Alabama Region and the
Florida Region. The Alabama Region consists of operations
located throughout Alabama. The Florida Region consists of
operations located primarily in the Tampa Bay area and panhandle
region of Florida. Please see Note 26 Segment
Reporting in the accompanying notes to consolidated financial
statements included elsewhere in this report for additional
disclosure regarding our segment reporting. Operating profit
(loss) by segment is presented below for the periods ended
December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(Dollars in thousands)
|
|
|
Alabama region
|
|
$
|
4,240
|
|
|
$
|
(58,159
|
)
|
|
$
|
15,096
|
|
Florida region
|
|
|
5,099
|
|
|
|
(81,600
|
)
|
|
|
23,448
|
|
Administrative and other
|
|
|
(42,233
|
)
|
|
|
(27,979
|
)
|
|
|
(26,789
|
)
|
Income tax (benefit) expense
|
|
|
(13,005
|
)
|
|
|
(4,588
|
)
|
|
|
4,134
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated net (loss) income
|
|
$
|
(19,889
|
)
|
|
$
|
(163,150
|
)
|
|
$
|
7,621
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alabama Region. Operating income for 2009
totaled $4.2 million compared to an operating loss of
$(58.2) million for 2008. The increase in profits was due
primarily to a non-recurring goodwill impairment charge of
$63.8 million that occurred in 2008. Operating loss for
2008 totaled $(58.2) million, which included the
aforementioned goodwill impairment charge, compared to
$15.1 million operating profit for 2007. See
Note 1
48
Summary of Significant Accounting Policies
Intangible Assets to our consolidated financial statements
for additional information on the goodwill impairment charge.
Net interest income for 2009 increased $4.4 million, or
13.4%, compared to 2008. The increase was primarily the result
of an increase in the average volume of earning assets and a
decrease in the average cost of interest-bearing liabilities.
Net interest income for 2008 decreased $3.7 million, or
10.1%, compared to 2007. The decrease was primarily the result
of a decrease in the average yield on interest-earning assets
partly offset by an increase in the average volume of earning
assets. See the analysis of net interest income included in the
section captioned Net Interest Income elsewhere in
this discussion.
The provision for loan losses for 2009 totaled $6.5 million
compared to $4.4 million in 2008 and $3.8 million in
2007. See the analysis of the provision for loan losses included
in the section captioned Allowance for Loan Losses
elsewhere in this discussion.
Noninterest income for 2009 increased $1.1 million, or
14.1%, compared to 2008. The increase was due to increases in
service charges and other fees on deposit accounts due to
increased account volume and pricing changes. Noninterest income
for 2008 increased $0.6 million, or 8.1%, compared to 2007.
The increase was due to increases in service charges on deposit
accounts. See the analysis of noninterest income in the section
captioned Noninterest Income included elsewhere in
this discussion.
Noninterest expense for 2009 increased to $35.5 million
from $30.7 million, excluding the $63.8 million
non-cash goodwill impairment charge, in 2008. This increase was
primarily related to increased levels of foreclosure activity.
Noninterest expense for 2008 increased to $94.5 million,
which included the $63.8 million non-cash goodwill
impairment charge, compared to $24.9 million in 2007. Other
increases were primarily related to increases in salaries and
benefits and occupancy expenses that resulted from our new
branch openings. See additional analysis of noninterest expense
included in the section captioned Noninterest
Expense elsewhere in this discussion.
Florida Region. Operating income for 2009
totaled $5.1 million compared to an operating loss of
$(81.6) million for 2008. The increase in profits was due
primarily to a non-cash goodwill impairment charge of
$96.5 million that occurred in 2008. Operating loss for
2008 totaled $(81.6) million, which included the
$96.5 million non-cash goodwill impairment charge, compared
to $23.5 million operating profit for 2007. See
Note 1 Summary of Significant Accounting
Policies Intangible Assets to our consolidated
financial statements for additional information on the goodwill
impairment charge.
Net interest income for 2009 increased $0.6 million, or
1.7%, compared to 2008. The increase in net interest margin was
primarily the result of a decrease in the average cost of
interest-bearing liabilities. Net interest income for 2008
remained level at $38.1 million compared to 2007. The
increase in the average volume of earning assets was offset by a
decrease in the average yield on interest-earning assets. See
the analysis of net interest income included in the section
captioned Net Interest Income included elsewhere in
this discussion.
The provision for loan losses for 2009 totaled
$10.2 million compared to $3.5 million in 2008 and
$1.6 million in 2007. See the analysis of the provision for
loan losses included in the section captioned Allowance
for Loan Losses elsewhere in this discussion.
Noninterest income for 2009 increased to $2.1 million, or
8.6%, compared to 2008. The increase was due to service charges
on deposit accounts as a result of increases in account volumes
and pricing changes. Noninterest income for 2008 increased to
$1.9 million, or 12.2%, compared to 2007. The increase was
due to increases in service charges on deposit accounts. See the
analysis of noninterest income in the section captioned
Noninterest Income elsewhere in this discussion.
Noninterest expense for 2009 decreased to $25.6 million
from $118.2 million in 2008. The decrease was primarily
related to a $96.5 million non-cash goodwill impairment
charge in 2008. This decrease was offset by an increase in the
costs of foreclosed assets. Noninterest expense for 2008
increased to $118.2 million, which included the non-cash
goodwill impairment charge, compared to $14.7 million in
2007. Other increases were primarily related to increases in
salaries and benefits and occupancy expenses. These increases
were primarily related to our new branch openings. See
additional analysis of noninterest expense included in the
section captioned Noninterest Expense elsewhere in
this discussion.
49
Market
Risk
Market risk is the exposure to unanticipated changes in net
interest earnings or changes in the fair value of financial
instruments due to fluctuations in interest rates, exchange
rates and equity prices. Our primary market risk is interest
rate risk.
We evaluate interest rate risk and then develop guidelines
regarding asset generation and re-pricing, funding sources and
pricing, and off-balance sheet commitments in order to moderate
interest rate risk. We use computer simulations that reflect
various interest rate scenarios and the related impact on net
interest income over specified periods of time. We refer to this
process as asset/liability management, or (ALM).
The primary objective of ALM is to manage interest rate risk and
achieve reasonable stability in net interest income throughout
interest rate cycles. This is achieved by maintaining the proper
balance of interest rate sensitive earning assets and
liabilities. In general, managements strategy is to match
asset and liability balances within maturity categories to limit
our exposure to earnings volatility and changes in the value of
assets and liabilities as interest rates fluctuate over time.
Adjustments to maturity categories can be accomplished either by
lengthening or shortening the duration of either an individual
asset or liability category, or externally through the use of
interest rate contracts, such as interest rate swaps, caps and
floors. See the discussion below for a more detailed discussion
of our various derivative positions.
Our asset and liability management strategy is formulated and
monitored by our Asset/Liability Management Committee
(ALCO), which is composed of our head of
asset/liability management and other senior officers, in
accordance with policies approved by the Board of Directors. The
ALCO meets monthly to review, among other things, the
sensitivity of our assets and liabilities to interest rate
changes, the book and market values of assets and liabilities,
unrealized gains and losses, recent purchase and sale activity,
maturities of investments and borrowings, and projected future
transactions. The ALCO also establishes and approves pricing and
funding decisions with respect to overall asset and liability
composition. The ALCO reports regularly to our Board Loan and
Investment Committee and the full Board of Directors.
We measure our interest rate risk by analyzing the correlation
of interest-bearing assets to interest-bearing liabilities
(gap analysis), net interest income simulation and
economic value of equity (EVE) modeling.
As of December 31, 2009, Superior Bank had approximately
$374 million more in interest-bearing liabilities than
interest-earning assets that could re-price to current market
rates during the next 12 months. Shortcomings are inherent
in any gap analysis, because the rates on certain assets and
liabilities may not move proportionately as market interest
rates change. For example, when national money market rates
change, interest rates on our NOW, savings and money market
deposit accounts may not change as much as rates on commercial
loans. Superior Bank had approximately $975 million of such
administratively priced deposits on December 31, 2009.
Superior Banks net interest income simulation model
projects that net interest income will increase on an annual
basis by 2.3%, or approximately $2.2 million, assuming an
instantaneous and parallel increase in interest rates of
200 basis points. The following is a comparison of these
measurements as of December 31, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
12-Month Gap
|
|
2009
|
|
2008
|
|
|
(Dollars in thousands)
|
|
Interest-bearing liabilities in excess of interest-earning
assets based on repricing date
|
|
$
|
(374,000
|
)
|
|
$
|
(297,000
|
)
|
Cumulative Ratio
|
|
|
0.83
|
|
|
|
0.86
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in Net Interest Income
|
|
|
December 31, 2009
|
|
December 31, 2008
|
Change (in Basis Points) in Interest Rates (12-Month
Projection)
|
|
Amount
|
|
Percent
|
|
Amount
|
|
Percent
|
|
|
(Dollars in thousands)
|
|
+ 200 BP(1)
|
|
$
|
2,200
|
|
|
|
2.3
|
%
|
|
$
|
1,200
|
|
|
|
1.7
|
%
|
− 200 BP(2)
|
|
|
NCM
|
|
|
|
NCM
|
|
|
|
NCM
|
|
|
|
NCM
|
|
|
|
|
(1) |
|
Results are within our asset and liability management policy |
|
(2) |
|
Not considered meaningful in the current rate environment (NCM). |
50
EVE is a concept related to longer-term interest rate risk. EVE
is defined as the net present value of the balance sheets
cash flows or the residual value of future cash flows. While EVE
does not represent actual market liquidation or replacement
value, it is a useful tool for estimating our balance sheet
earnings sensitivity to changes in interest rates. The greater
the EVE, the greater our earnings capacity. Superior Banks
EVE model projects that EVE will increase 4.4% and 3.1% assuming
an instantaneous and parallel increase in interest rates of 100
and 200 basis points, respectively. Assuming an
instantaneous and parallel decrease of 100 basis points,
EVE is projected to decrease 1.6% (although such a decline is
unlikely given the present low level of interest rates). The EVE
shifts produced by these scenarios are within the limits of our
asset and liability management policy. The following table sets
forth Superior Banks EVE limits as of December 31,
2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
|
|
Change (in Basis Points) in Interest Rates
|
|
EVE
|
|
|
Amount
|
|
|
Percent
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
+ 200 BP
|
|
$
|
343,900
|
|
|
$
|
14,600
|
|
|
|
4.4
|
%
|
+ 100 BP
|
|
|
339,400
|
|
|
|
10,100
|
|
|
|
3.1
|
|
0 BP
|
|
|
329,300
|
|
|
|
|
|
|
|
|
|
− 100 BP
|
|
|
334,600
|
|
|
|
5,000
|
|
|
|
1.6
|
|
Both the net interest income and EVE simulations include
assumptions regarding balances, asset prepayment speeds and
interest rate relationships among balances that management
believes to be reasonable for the various interest rate
environments. Differences in actual occurrences from these
assumptions, as well as non-parallel changes in the yield curve,
may change our market risk exposure.
Derivative
Positions.
Overview. Our Board of Directors has
authorized the ALCO to utilize financial futures, forward sales,
options, interest rate swaps, caps and floors, and other
instruments to the extent necessary, in accordance with the OTS
regulations and our internal policy. We expect to use interest
rate swaps, caps and floors as macro hedges against inherent
rate sensitivity in our securities portfolio, our loan portfolio
and our liabilities.
Positions for hedging purposes are primarily a function of three
main areas of risk exposure: (1) mismatches between assets
and liabilities; (2) prepayment and other option-type risks
embedded in our assets, liabilities and off-balance sheet
instruments; and (3) the mismatched commitments for
mortgages and funding sources. We will engage in only the
following types of hedges: (1) those which synthetically
alter the maturities or re-pricing characteristics of assets or
liabilities to reduce imbalances; (2) those which enable us
to transfer the interest rate risk exposure involved in our
daily business activities; and (3) those which serve to
alter the market risk inherent in our investment portfolio or
liabilities and thus help us to match the effective maturities
of the assets and liabilities.
The following is a discussion of our primary derivative
positions.
Interest
Rate Swaps
We have entered interest rate swaps (CD swaps) to
convert the fixed rate paid on brokered certificates of deposit
(CDs) to a variable rate based upon three-month
LIBOR. At December 31, 2009 and December 31, 2008, we
had $0.7 million and $1.2 million, respectively, in
notional amount of CD swaps which had not been designated as
hedges. These CD swaps had not been designated as hedges because
they represent the portion of the interest rate swaps that are
over-hedged due to principal reductions on the brokered CDs.
We have entered into certain interest rate swaps on commercial
loans that are not designated as hedging instruments. These
derivative contracts relate to transactions in which we enter
into an interest rate swap with a loan customer while at the
same time enter into an offsetting interest rate swap with
another financial institution. In connection with each swap
transaction, we agree to pay interest to the customer on a
notional amount at a variable interest rate and receive interest
from the customer on a similar notional amount at a fixed
interest rate. At the same time, we agree to pay another
financial institution the same fixed interest rate on the same
notional amount and receive the same variable interest rate on
the same notional amount. The transaction allows our customer to
effectively convert a variable rate loan to a fixed rate.
Because we act as an intermediary for our customer, changes
51
in the fair value of the underlying derivative contracts for the
most part offset each other and do not significantly impact our
results of operations.
Fair
Value Hedges
As of December 31, 2009 and December 31, 2008, we had
$2.8 million and $5.3 million, respectively, in
notional amount of CD swaps designated and qualified as fair
value hedges. These CD swaps were designated as hedging
instruments to hedge the risk of changes in the fair value of
the underlying brokered CD due to changes in interest rates. At
December 31, 2009 and December 31, 2008, the amount of
CD swaps designated as hedging instruments had a recorded fair
value of $0.2 million and $0.8 million, respectively,
and a weighted average life of 2.5 and 6.8 years,
respectively. The weighted average fixed rate (receiving rate)
was 4.70% and the weighted average variable rate (paying rate)
was 0.52% (LIBOR based).
Cash Flow
Hedges
We have entered into interest rate swap agreements designated
and qualified as a hedge with notional amounts of
$22.0 million to hedge the variability in cash flows on
$22.0 million of junior subordinated debentures. Under the
terms of the interest rate swaps which mature September 15,
2012, we receive a floating rate based on
3-month
LIBOR plus 1.33% (1. 58% as of December 31, 2009) and
pay a weighted average fixed rate of 4.42%. As of
December 31, 2009 and December 31, 2008, these
interest rate swap agreements are recorded as liabilities in the
amount of $0.8 million and $1.0 million, respectively.
Interest
Rate Lock Commitments
In the ordinary course of business, we enter into certain
commitments with customers in connection with residential
mortgage loan applications. Such commitments are considered
derivatives under FASB guidance and are required to be recorded
at fair value. The aggregate amount of these mortgage loan
origination commitments was $41.0 million and
$92.7 million at December 31, 2009 and
December 31, 2008, respectively. The fair value of the
origination commitments was $(0.4) million and
$(0.1) million at December 31, 2009 and
December 31, 2008, respectively.
Liquidity,
Contractual Obligations and Off Balance Sheet
Arrangements
Overview. The goal of liquidity management is
to provide adequate funds to meet changes in loan demand or any
potential unexpected deposit withdrawals. Additionally,
management strives to maximize our earnings by investing our
excess funds in securities and other assets with maturities
matching our liabilities. Historically, we have maintained a
high
loan-to-deposit
ratio. To meet our short-term liquidity needs, we maintain core
deposits and have borrowing capacity through the Federal Home
Loan Bank (FHLB), Federal Reserve Bank, repurchase
agreements and federal funds lines. Long-term liquidity needs
are also met through these sources along with the repayment of
loans, sales of loans and the maturity or sale of investment
securities. See Maturity Distribution of Investment
Securities and Selected Loan Maturity and Interest
Rate Sensitivity below.
Short-term liquid assets. Our short-term
liquid assets (cash and due from banks, interest-bearing
deposits in other banks and federal funds sold) increased
$10.3 million, or 11.5%, to $99.8 million at
December 31, 2009 from $89.4 million at
December 31, 2008. At December 31, 2009 and 2008, our
short-term liquid assets comprised 3.1% and 2.9% of total
assets, respectively. We continually monitor our liquidity
position and will increase or decrease our short-term liquid
assets as necessary.
Maturity Distribution of Investment
Securities. The following table shows the
scheduled contractual maturities and average yields of
investment securities held at December 31, 2009. Within our
investment securities portfolio expected maturities will differ
from contractual maturities because borrowers have the right to
call or prepay obligations without call or prepayment penalties
in certain instances. During 2009, we received proceeds
52
from calls totaling approximately $0.4 million and
principal pay downs on mortgage-backed securities of
approximately $59 million.
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturing
|
|
|
|
|
|
|
|
|
|
After Five But
|
|
|
|
|
|
|
|
|
|
Within One
|
|
|
After One But
|
|
|
Within Ten
|
|
|
After
|
|
|
|
|
|
|
Year
|
|
|
Within Five Years
|
|
|
Years
|
|
|
Ten Years
|
|
|
Total
|
|
|
|
Amount
|
|
|
Yield
|
|
|
Amount
|
|
|
Yield
|
|
|
Amount
|
|
|
Yield
|
|
|
Amount
|
|
|
Yield
|
|
|
Amount
|
|
|
Yield
|
|
|
|
(Dollars in thousands)
|
|
|
Securities
available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Agency securities
|
|
$
|
|
|
|
|
|
%
|
|
$
|
242
|
|
|
|
4.76
|
%
|
|
$
|
53,914
|
|
|
|
3.99
|
%
|
|
$
|
|
|
|
|
|
%
|
|
$
|
54,156
|
|
|
|
3.99
|
%
|
Mortgage-backed securities
|
|
|
3,699
|
|
|
|
4.68
|
|
|
|
1,500
|
|
|
|
4.85
|
|
|
|
766
|
|
|
|
5.16
|
|
|
|
186,938
|
|
|
|
4.47
|
|
|
|
192,903
|
|
|
|
4.48
|
|
State, county and municipal securities
|
|
|
280
|
|
|
|
4.00
|
|
|
|
2,952
|
|
|
|
4.01
|
|
|
|
5,087
|
|
|
|
5.16
|
|
|
|
22,916
|
|
|
|
4.30
|
|
|
|
31,235
|
|
|
|
4.22
|
|
Corporate obligations
|
|
|
|
|
|
|
|
|
|
|
4,138
|
|
|
|
6.03
|
|
|
|
|
|
|
|
|
|
|
|
13,255
|
|
|
|
2.40
|
|
|
|
17,393
|
|
|
|
4.97
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
563
|
|
|
|
3.01
|
|
|
|
563
|
|
|
|
3.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total amortized cost
|
|
$
|
3,979
|
|
|
|
4.60
|
%
|
|
$
|
8,832
|
|
|
|
4.94
|
%
|
|
$
|
59,767
|
|
|
|
4.01
|
%
|
|
$
|
223,672
|
|
|
|
4.39
|
%
|
|
$
|
296,250
|
|
|
|
4.36
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected Loan Maturity and Interest Rate
Sensitivity. The repayment of loans as they
mature is a source of liquidity for us. The following table sets
forth our loans by category maturing within specified intervals
at December 31, 2009. The information presented is based on
the contractual maturities of the individual loans, including
loans which may be subject to renewal at their contractual
maturity. Renewal of such loans is subject to review and credit
approval, as well as modification of terms upon their maturity.
Consequently, management believes this treatment presents fairly
the maturity and re-pricing of the loan portfolio.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rate Structure for Loans
|
|
|
|
|
|
|
Over One Year
|
|
|
|
|
|
|
|
|
Maturing Over One Year
|
|
|
|
One Year
|
|
|
through Five
|
|
|
Over Five
|
|
|
|
|
|
Fixed
|
|
|
Floating or
|
|
|
|
or Less
|
|
|
Years
|
|
|
Years
|
|
|
Total
|
|
|
Interest Rate
|
|
|
Adjustable Rate
|
|
|
|
(Dollars in thousands)
|
|
|
Commercial and industrial
|
|
$
|
143,334
|
|
|
$
|
65,574
|
|
|
$
|
4,421
|
|
|
$
|
213,329
|
|
|
$
|
56,384
|
|
|
$
|
13,611
|
|
Real estate construction and land
development
|
|
|
508,564
|
|
|
|
158,311
|
|
|
|
13,570
|
|
|
|
680,445
|
|
|
|
84,969
|
|
|
|
86,912
|
|
Real estate mortgages
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single-family
|
|
|
127,133
|
|
|
|
114,947
|
|
|
|
449,284
|
|
|
|
691,364
|
|
|
|
218,559
|
|
|
|
345,672
|
|
Commercial
|
|
|
227,749
|
|
|
|
366,222
|
|
|
|
207,842
|
|
|
|
801,813
|
|
|
|
292,575
|
|
|
|
281,489
|
|
Other
|
|
|
16,975
|
|
|
|
6,965
|
|
|
|
4,945
|
|
|
|
28,885
|
|
|
|
8,505
|
|
|
|
3,405
|
|
Consumer
|
|
|
16,137
|
|
|
|
37,060
|
|
|
|
5,588
|
|
|
|
58,785
|
|
|
|
41,705
|
|
|
|
943
|
|
Other
|
|
|
969
|
|
|
|
|
|
|
|
|
|
|
|
969
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
$
|
1,040,861
|
|
|
$
|
749,079
|
|
|
$
|
685,650
|
|
|
$
|
2,475,590
|
|
|
$
|
702,697
|
|
|
$
|
732,032
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent to total loans
|
|
|
42.0
|
%
|
|
|
30.3
|
%
|
|
|
27.7
|
%
|
|
|
100.0
|
%
|
|
|
28.4
|
%
|
|
|
29.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturities of Time Deposits of $100,000 or
More. The maturity distribution of our time
deposits over $100,000 at December 31, 2009 is shown in the
following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Under
|
|
Three to
|
|
Six to
|
|
Over
|
|
|
Three
|
|
Six
|
|
Twelve
|
|
Twelve
|
|
|
Months
|
|
Months
|
|
Months
|
|
Months
|
|
Total
|
(Dollars in thousands)
|
|
$
|
146,399
|
|
|
$
|
157,901
|
|
|
$
|
288,202
|
|
|
$
|
169,083
|
|
|
$
|
761,585
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Approximately 19.2% of our time deposits over $100,000 had
scheduled maturities within three months of December 31,
2009. We believe customers who hold a large denomination
certificate of deposit tend to be
53
extremely sensitive to interest rate levels, making these
deposits a less reliable source of funding for liquidity
planning purposes than core deposits.
Cash Flow Analysis. As shown in the
Consolidated Statements of Cash Flows, operating activities used
$45.6 million, and provided $26.0 million and
$3.7 million in funds during the years 2009, 2008 and 2007,
respectively. The significant decrease in operating funds during
2009 was primarily due to a net operating loss, a net use of
funds from the origination of mortgage loans held for sale and
premiums paid to the FDIC. The significant increase in operating
funds during 2008 was primarily due to a net increase in the
proceeds from the sale of mortgage loans held for sale over a
net use of funds from the origination of mortgage loans held for
sale in 2007. The net effect on operating funds will vary
depending on the volume of originations and the timing of
receipt of the sale proceeds, which is usually 30 to
45 days.
Investing activities in 2009, 2008 and 2007 were a net user of
funds, primarily due to an increase in loan fundings and capital
expenditures. During 2009 and 2007, we received a higher level
of funds from principal payments and calls in our investment
portfolio.
Financing activities were a net provider of funds in 2009, 2008
and 2007, as we increased our level of deposits and received
$40 million during 2009 from the proceeds of a note
payable. During 2009, we had a significant reduction in
borrowings from the FHLB. During 2008, we had significant
increases in our borrowings from the FHLB and received
$69 million from the issuance of preferred stock under the
CPP. During 2007, the increase in deposit funding was offset by
a decrease in borrowings and the purchase of treasury stock.
Contractual Cash Obligations. We have entered
into certain contractual obligations and commercial commitments
in the normal course of business that involve elements of credit
risk, interest rate risk and liquidity risk.
The following tables summarize these relationships by
contractual cash obligations and commercial commitments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
|
|
|
Less than
|
|
|
One to
|
|
|
Four to
|
|
|
After Five
|
|
|
|
Total
|
|
|
One Year
|
|
|
Three Years
|
|
|
Five Years
|
|
|
Years
|
|
|
|
(Dollars in thousands)
|
|
|
Contractual Cash Obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advances from FHLB(1)
|
|
$
|
218,322
|
|
|
$
|
29,982
|
|
|
$
|
90,000
|
|
|
$
|
66,340
|
|
|
$
|
32,000
|
|
Operating leases(2)
|
|
|
28,902
|
|
|
|
3,771
|
|
|
|
8,358
|
|
|
|
1,952
|
|
|
|
14,821
|
|
Capitalized leases(2)
|
|
|
4,525
|
|
|
|
275
|
|
|
|
790
|
|
|
|
252
|
|
|
|
3,208
|
|
Note payable(3)
|
|
|
47,000
|
|
|
|
7,000
|
|
|
|
40,000
|
|
|
|
|
|
|
|
|
|
Repurchase agreements(4)
|
|
|
841
|
|
|
|
841
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subordinated debentures(5)
|
|
|
131,679
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
131,679
|
|
Limited partnership investments(6)
|
|
|
213
|
|
|
|
213
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred compensation agreements(7)
|
|
|
5,267
|
|
|
|
49
|
|
|
|
363
|
|
|
|
41
|
|
|
|
4,814
|
|
Other employment related contract obligations incurred in
business combinations(8)
|
|
|
830
|
|
|
|
420
|
|
|
|
410
|
|
|
|
|
|
|
|
|
|
Benefit Restoration Plan(9)
|
|
|
509
|
|
|
|
57
|
|
|
|
111
|
|
|
|
106
|
|
|
|
235
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual cash obligations
|
|
$
|
438,088
|
|
|
$
|
42,608
|
|
|
$
|
140,032
|
|
|
$
|
68,691
|
|
|
$
|
186,757
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
See Note 8 to the consolidated financial statements. |
|
(2) |
|
See Note 6 to the consolidated financial statements. |
|
(3) |
|
See Note 10 to the consolidated financial statements. |
|
(4) |
|
See Note 9 to the consolidated financial statements. |
54
|
|
|
(5) |
|
See Note 11 to the consolidated financial statements. |
|
(6) |
|
See Note 1 to the consolidated financial statements. |
|
(7) |
|
See Note 13 to the consolidated financial statements. |
|
(8) |
|
See Note 2 to the consolidated financial statements. |
|
(9) |
|
See Note 20 to the consolidated financial statements. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
|
|
|
Less Than
|
|
|
One to
|
|
|
Four to
|
|
|
After Five
|
|
|
|
Total
|
|
|
One Year
|
|
|
Three Years
|
|
|
Five Years
|
|
|
Years
|
|
|
|
(Dollars in thousands)
|
|
|
Commercial Commitments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments to extend credit(1)
|
|
$
|
266,550
|
|
|
$
|
152,083
|
|
|
$
|
67,251
|
|
|
$
|
9,612
|
|
|
$
|
37,604
|
|
Standby letters of credit(1)
|
|
|
21,845
|
|
|
|
11,430
|
|
|
|
10,325
|
|
|
|
90
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial commitments
|
|
$
|
288,395
|
|
|
$
|
163,513
|
|
|
$
|
77,576
|
|
|
$
|
9,702
|
|
|
$
|
37,604
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
See Note 17 to the consolidated financial statements. |
In addition, the FHLB has issued for Superior Banks
benefit two irrevocable letters of credit. Superior Bank has a
$20 million irrevocable letter of credit in favor of the
Chief Financial Officer of the State of Florida to secure
certain deposits of the State of Florida. The letter of credit
expires January 4, 2011 upon 60 days prior
notice of non-renewal; otherwise, it automatically extends for a
successive one-year term. In addition, Superior Bank has a
$50 million irrevocable letter of credit in favor of the
State of Alabama SAFE Program to secure certain deposits of the
State of Alabama. This letter of credit expires on
September 15, 2010 and will automatically be extended,
without amendments, for successive one-year periods from the
expiration date, without ninety days prior notice of
non-renewal.
Financial
Condition
Our total assets were $3.222 billion at December 31,
2009, an increase of $169.2 million, or 5.5%, from
$3.053 billion as of December 31, 2008. This growth is
primarily attributable to an increase in our loan portfolio, as
discussed below. Our average total assets for 2009 were
$3.153 billion, which was supported by average total
liabilities of $2.910 billion and average total
stockholders equity of $243.6 million.
Investment
Portfolio.
Total investment securities decreased $60.8 million, or
(17.5)%, to $286.3 million at December 31, 2009, from
$347.1 million at December 31, 2008. Average
investment securities totaled $313.5 million at
December 31, 2009, compared to $346.0 million at
December 31, 2008. Investment securities were 9.9% of our
total interest-earning assets at December 31, 2009,
compared to 12.8% at December 31, 2008. The investment
securities portfolio produced average taxable equivalent yields
of 5.27%, 5.46% and 5.29% for the years ended December 31,
2009, 2008 and 2007, respectively.
During 2009, we sold approximately 63 securities with combined
amortized cost and fair values of $152 million and
$158 million, respectively. Nearly all of the sale proceeds
were reinvested in 30 federal agency securities (direct and MBS)
and classified in the portfolio as
available-for-sale.
Given the reinvestment of nearly 100% of the sale proceeds and
the minor differences in the risk characteristics of the
securities sold versus those that were purchased, the net impact
on the interest rate risk profile of the entire investment
portfolio is relatively minor. The effective duration of the
portfolio increases by 0.49 years in the current interest
rate environment and increases by 0.92 and 0.77 years in
the instantaneous up and down 200 basis point rate shock
scenarios, respectively.
The credit quality of the portfolio was also enhanced as a
result of the repositioning by reinvesting the sale proceeds
associated with $16.2 million in amortized costs of
corporate and municipal securities into a U.S. Agency
debenture and U.S. Agency MBS.
The weighted average book yield of securities sold was 4.70% and
the weighted average book yield of securities purchased was
3.75% resulting in a 0.95% decline in the book yield involving
approximately $152 million
55
in book value of securities. This will result in an approximate
5.0 basis point decline in the overall net interest margin
going forward or an annual pre-tax effect of approximately
$1.44 million. In other words, we accelerated a book gain
of $5.65 million into the current period at the cost of
lower earnings of $1.44 million for the duration of the
decision (3.9 years). This sale also resulted in an
increase in our total capital to risk weighted assets of
approximately 5 basis points.
The following table sets forth the fair value of the
available-for-sale
securities we held at the dates indicated:
Investment
Portfolio
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
Percent
|
|
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
|
(Dollars in thousands)
|
|
|
Investment securities available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. agency securities
|
|
$
|
53,681
|
|
|
$
|
3,843
|
|
|
|
NCM
|
|
Mortgage-backed securities (MBS):
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Agency MBS residential
|
|
|
163,724
|
|
|
|
237,508
|
|
|
|
(31.1
|
)%
|
U.S. Agency MBS collateralized mortgage obligation
(CMO)
|
|
|
12,759
|
|
|
|
16,186
|
|
|
|
(21.2
|
)
|
Private-label CMO
|
|
|
16,191
|
|
|
|
26,430
|
|
|
|
(38.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total MBS
|
|
|
192,674
|
|
|
|
280,124
|
|
|
|
(31.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State, county and municipal securities
|
|
|
31,462
|
|
|
|
40,622
|
|
|
|
(22.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt
|
|
|
4,000
|
|
|
|
5,746
|
|
|
|
(30.4
|
)
|
Pooled trust preferred securities
|
|
|
3,203
|
|
|
|
9,939
|
|
|
|
(67.8
|
)
|
Single issue trust preferred securities
|
|
|
977
|
|
|
|
6,704
|
|
|
|
(85.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total corporate obligations
|
|
|
8,180
|
|
|
|
22,389
|
|
|
|
(63.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities
|
|
|
313
|
|
|
|
164
|
|
|
|
90.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities available for sale
|
|
$
|
286,310
|
|
|
$
|
347,142
|
|
|
|
(17.5
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NCM Not considered meaningful.
56
The following table summarizes the investment securities with
unrealized losses at December 31, 2009 by aggregated major
security type and length of time in a continuous unrealized loss
position:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
|
Less Than 12 Months
|
|
|
More Than 12 Months
|
|
|
Total
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
Unrealized
|
|
|
|
Fair Value
|
|
|
Losses(1)
|
|
|
Fair Value
|
|
|
Losses(1)
|
|
|
Fair Value
|
|
|
Losses(1)
|
|
|
|
(Dollars in thousands)
|
|
|
Temporarily Impaired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. agency securities
|
|
$
|
48,409
|
|
|
$
|
505
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
48,409
|
|
|
$
|
505
|
|
Mortgage-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Agency MBS residential
|
|
|
75,493
|
|
|
|
272
|
|
|
|
239
|
|
|
|
10
|
|
|
|
75,732
|
|
|
|
282
|
|
U.S. Agency MBS CMO
|
|
|
6,036
|
|
|
|
97
|
|
|
|
|
|
|
|
|
|
|
|
6,036
|
|
|
|
97
|
|
Private-label CMO
|
|
|
|
|
|
|
|
|
|
|
12,059
|
|
|
|
1,753
|
|
|
|
12,059
|
|
|
|
1,753
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total MBS
|
|
|
81,529
|
|
|
|
369
|
|
|
|
12,298
|
|
|
|
1,763
|
|
|
|
93,827
|
|
|
|
2,132
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State, county and municipal securities
|
|
|
7,360
|
|
|
|
121
|
|
|
|
1,019
|
|
|
|
102
|
|
|
|
8,379
|
|
|
|
223
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt
|
|
|
|
|
|
|
|
|
|
|
4,000
|
|
|
|
138
|
|
|
|
4,000
|
|
|
|
138
|
|
Single issue trust preferred securities
|
|
|
|
|
|
|
|
|
|
|
977
|
|
|
|
4,023
|
|
|
|
977
|
|
|
|
4,023
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total corporate obligations
|
|
|
|
|
|
|
|
|
|
|
4,977
|
|
|
|
4,161
|
|
|
|
4,977
|
|
|
|
4,161
|
|
Equity securities
|
|
|
|
|
|
|
|
|
|
|
314
|
|
|
|
250
|
|
|
|
314
|
|
|
|
250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total temporarily impaired securities
|
|
|
137,298
|
|
|
|
995
|
|
|
|
18,608
|
|
|
|
6,276
|
|
|
|
155,906
|
|
|
|
7,271
|
|
Other-than-temporarily
Impaired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private-label CMO
|
|
|
|
|
|
|
|
|
|
|
3,037
|
|
|
|
1,618
|
|
|
|
3,037
|
|
|
|
1,618
|
|
Corporate obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pooled trust preferred securities
|
|
|
|
|
|
|
|
|
|
|
3,203
|
|
|
|
5,052
|
|
|
|
3,203
|
|
|
|
5,052
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total OTTI securities
|
|
|
|
|
|
|
|
|
|
|
6,240
|
|
|
|
6,670
|
|
|
|
6,240
|
|
|
|
6,670
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total temporarily and
other-than-temporarily
impaired
|
|
$
|
137,298
|
|
|
$
|
995
|
|
|
$
|
24,848
|
|
|
$
|
12,946
|
|
|
$
|
162,146
|
|
|
$
|
13,941
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Unrealized losses are included in other comprehensive income
(loss), net of unrealized gains and applicable income taxes. |
57
The following table summarizes the investment securities with
unrealized losses at December 31, 2008 by aggregated major
security type and length of time in a continuous unrealized loss
position:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
|
|
Less Than 12 Months
|
|
|
More Than 12 Months
|
|
|
Total
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
Unrealized
|
|
|
|
Fair Value
|
|
|
Losses(1)
|
|
|
Fair Value
|
|
|
Losses(1)
|
|
|
Fair Value
|
|
|
Losses(1)
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
Temporarily Impaired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. agency securities
|
|
$
|
|
|
|
$
|
|
|
|
$
|
249
|
|
|
$
|
2
|
|
|
$
|
249
|
|
|
$
|
2
|
|
Mortgage-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Agency MBS residential
|
|
|
21,602
|
|
|
|
178
|
|
|
|
3,655
|
|
|
|
32
|
|
|
|
25,257
|
|
|
|
210
|
|
U.S. Agency MBS CMO
|
|
|
|
|
|
|
|
|
|
|
700
|
|
|
|
3
|
|
|
|
700
|
|
|
|
3
|
|
Private-label CMO
|
|
|
17,126
|
|
|
|
3,912
|
|
|
|
3,017
|
|
|
|
124
|
|
|
|
20,143
|
|
|
|
4,036
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total MBS
|
|
|
38,728
|
|
|
|
4,090
|
|
|
|
7,372
|
|
|
|
159
|
|
|
|
46,100
|
|
|
|
4,249
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State, county and municipal securities
|
|
|
17,275
|
|
|
|
831
|
|
|
|
3,662
|
|
|
|
371
|
|
|
|
20,937
|
|
|
|
1,202
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt
|
|
|
|
|
|
|
|
|
|
|
5,745
|
|
|
|
198
|
|
|
|
5,745
|
|
|
|
198
|
|
Pooled trust preferred securities
|
|
|
896
|
|
|
|
481
|
|
|
|
9,043
|
|
|
|
3,970
|
|
|
|
9,939
|
|
|
|
4,451
|
|
Single issue trust preferred securities
|
|
|
|
|
|
|
|
|
|
|
6,705
|
|
|
|
3,296
|
|
|
|
6,705
|
|
|
|
3,296
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total corporate obligations
|
|
|
896
|
|
|
|
481
|
|
|
|
21,493
|
|
|
|
7,464
|
|
|
|
22,389
|
|
|
|
7,945
|
|
Equity securities
|
|
|
164
|
|
|
|
399
|
|
|
|
|
|
|
|
|
|
|
|
164
|
|
|
|
399
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total temporarily impaired securities
|
|
$
|
57,063
|
|
|
$
|
5,801
|
|
|
$
|
32,776
|
|
|
$
|
7,996
|
|
|
$
|
89,839
|
|
|
$
|
13,797
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Unrealized losses are included in other comprehensive income
(loss), net of unrealized gains and applicable income taxes. |
Other-Than-Temporary
Impairment.
Management evaluates securities for OTTI at least on a quarterly
basis. The investment securities portfolio is evaluated for OTTI
by segregating the portfolio into the various segments outlined
in the tables above and applying the appropriate OTTI model.
Investment securities classified as available for sale or
held-to-maturity
are generally evaluated for OTTI according to ASC
320-10
guidance. In addition, certain purchased beneficial interests,
which may include private-label mortgage-backed securities,
asset-backed securities and collateralized debt obligations that
had credit ratings at the time of purchase of below AA are
evaluated using the model outlined in ASC
325-40
guidance.
In determining OTTI according to FASB guidance, management
considers many factors, including: (1) the length of time
and the extent to which the fair value has been less than cost,
(2) the financial condition and near-term prospects of the
issuer, (3) whether the market decline was affected by
macroeconomic conditions and (4) whether we have the intent
to sell the debt security or more likely than not will be
required to sell the debt security before its anticipated
recovery. The assessment of whether an
other-than-temporary
decline exists involves a high degree of subjectivity and
judgment and is based on the information available to management
at a point in time.
The pooled trust preferred segment of the portfolio uses the
OTTI guidance that is specific to purchased beneficial interests
that, on the purchase date, were rated below AA. Under the
model, we compare the present value of the remaining cash flows
as estimated at the preceding evaluation date to the current
expected remaining cash flows. An OTTI is deemed to have
occurred if there has been an adverse change in the remaining
expected future cash flows.
58
When OTTI occurs under either model, the amount of the OTTI
recognized in earnings depends on whether an entity intends to
sell the security or it is more likely than not it will be
required to sell the security before recovery of its amortized
cost basis, less any current-period credit loss. If an entity
intends to sell or it is more likely than not it will be
required to sell the security before recovery of its amortized
cost basis, less any current-period credit loss, the OTTI is
recognized in earnings at an amount equal to the entire
difference between the investments amortized cost basis
and its fair value at the balance sheet date. If an entity does
not intend to sell the security and it is not more likely than
not that the entity will be required to sell the security before
recovery of its amortized cost basis less any current-period
loss, the OTTI is separated into the amount representing the
credit loss and the amount related to all other factors. The
amount of the total OTTI related to the credit loss is
determined based on the present value of cash flows expected to
be collected and is recognized in earnings. The amount of the
total OTTI related to other factors is recognized in other
comprehensive income, net of applicable taxes. The previous
amortized cost basis less the OTTI recognized in earnings
becomes the new amortized cost basis of the investment.
At December 31, 2009, our securities portfolio consisted of
228 securities, 79 of which were in an unrealized loss position.
The majority of unrealized losses are related to our
private-label CMOs and trust preferred securities, as discussed
below.
Mortgage-backed
Securities.
At December 31, 2009, approximately 92% of the dollar
volume of mortgage-backed securities we held was issued by
U.S. government-sponsored entities and agencies, primarily
Fannie Mae, GNMA and Freddie Mac, institutions which the
government has affirmed its commitment to support, and these
securities have nominal unrealized losses. Our mortgage-backed
securities portfolio also includes 12 private-label CMOs with a
market value of $16.2 million, which had net unrealized
losses of approximately $3.2 million at December 31,
2009. These private-label CMOs were rated AAA at purchase. The
following is a summary of the investment grades for these
securities (Dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit Support
|
|
|
|
|
|
|
|
|
|
Coverage
|
|
|
Unrealized
|
|
Rating Moody/Fitch
|
|
Count
|
|
|
Ratios(1)
|
|
|
Loss
|
|
|
A1/AAA
|
|
|
1
|
|
|
|
3.07
|
|
|
$
|
(137
|
)
|
Aaa/AAA
|
|
|
1
|
|
|
|
4.18
|
|
|
|
(5
|
)
|
Aaa/NR
|
|
|
1
|
|
|
|
N/A
|
|
|
|
(1
|
)
|
NR/AAA
|
|
|
1
|
|
|
|
6.29
|
|
|
|
(374
|
)
|
NR/AA
|
|
|
1
|
|
|
|
2.84
|
|
|
|
(339
|
)
|
NR/A+
|
|
|
1
|
|
|
|
3.08
|
|
|
|
(111
|
)
|
Baa2/NR
|
|
|
1
|
|
|
|
N/A
|
|
|
|
(622
|
)
|
B2/AAA
|
|
|
1
|
|
|
|
3.59
|
|
|
|
(162
|
)
|
Caa1/NR(2)
|
|
|
1
|
|
|
|
1.43
|
|
|
|
(1,619
|
)
|
Ca/NR(2)
|
|
|
1
|
|
|
|
0.00
|
|
|
|
|
|
NR/CCC(2)
|
|
|
2
|
|
|
|
0.26-0.53
|
|
|
|
151
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
12
|
|
|
|
|
|
|
$
|
(3,219
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The Credit Support Coverage Ratio, which is the ratio that
determines the multiple of credit support, based on assumptions
for the performance of the loans within the delinquency
pipeline. The assumptions used are: Current Collateral Support/
((60 day delinquencies x.60) + (90 day delinquencies
x.70) + (foreclosures x 1.00) + (other real estate x 1.00)) x
.40 for loss severity. |
|
(2) |
|
Includes all private-label CMOs that have OTTI. See discussion
that follows. |
During the third and fourth quarters of 2008, we recognized a
$1.9 million, pre-tax non-cash OTTI charge on three
private-label CMOs which experienced significant rating
downgrades in those respective quarters. These downgrades
continued in the second, third and fourth quarters of 2009 and
resulted in a total OTTI of $6.9 million, including a
credit portion of $4.6 million. The assumptions used in the
valuation model include expected future
59
default rates, loss severity and prepayments. The model also
takes into account the structure of the security, including
credit support. Based on these assumptions, the model calculates
and projects the timing and amount of interest and principal
payments expected for the security. At December 31, 2009,
the fair values of these four securities totaling
$4.1 million were measured using Level 3 inputs
because the market for them has become illiquid, as indicated by
few, if any, trades during the period. These securities were
previously measured using Level 2 inputs prior to the
second quarter of 2009. The discount rates used in the valuation
model were based on a yield that the market would require for
such securities with maturities and risk characteristics similar
to the securities being measured (See Notes 3 and 19 to the
consolidated financial statements). The following table provides
additional information regarding these CMO valuations as of
December 31, 2009 (Dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life-to-Date
|
|
|
|
|
|
|
Margin
|
|
|
|
|
|
|
|
|
|
|
|
Actual
|
|
|
Other-Than-Temporary-Impairment
|
|
|
|
Price
|
|
|
Basis
|
|
|
|
|
|
Cumulative
|
|
|
Average
|
|
|
60+ Days
|
|
|
Credit Portion
|
|
|
|
|
|
|
|
Security
|
|
(%)
|
|
|
Points
|
|
|
Yield
|
|
|
Default
|
|
|
Security
|
|
|
Delinquent
|
|
|
2008
|
|
|
2009
|
|
|
Other
|
|
|
Total
|
|
|
CMO 1
|
|
|
19.90
|
|
|
|
1698
|
|
|
|
18.00
|
%
|
|
|
58.60
|
%
|
|
|
50.00
|
%
|
|
|
15.31
|
%
|
|
$
|
(599
|
)
|
|
$
|
(1,231
|
)
|
|
$
|
(195
|
)
|
|
$
|
(2,025
|
)
|
CMO 2
|
|
|
2.08
|
|
|
|
1777
|
|
|
|
18.00
|
%
|
|
|
59.70
|
%
|
|
|
60.00
|
%
|
|
|
31.52
|
%
|
|
|
(492
|
)
|
|
|
(1,443
|
)
|
|
|
(127
|
)
|
|
|
(2,062
|
)
|
CMO 3
|
|
|
22.15
|
|
|
|
1598
|
|
|
|
17.00
|
%
|
|
|
47.65
|
%
|
|
|
45.00
|
%
|
|
|
26.13
|
%
|
|
|
(803
|
)
|
|
|
(1,558
|
)
|
|
|
(332
|
)
|
|
|
(2,693
|
)
|
CMO 4
|
|
|
60.73
|
|
|
|
1362
|
|
|
|
17.00
|
%
|
|
|
27.60
|
%
|
|
|
45.00
|
%
|
|
|
14.82
|
%
|
|
|
|
|
|
|
(345
|
)
|
|
|
(1,619
|
)
|
|
|
(1,964
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(1,894
|
)
|
|
$
|
(4,577
|
)
|
|
$
|
(2,273
|
)
|
|
$
|
(8,744
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009, our management does not intend to
sell these securities, nor is it more likely than not that we
will be required to sell the securities before the entire
amortized cost basis is recovered since our current financial
condition, including liquidity and interest rate risk, will not
require such action.
State,
county and municipal securities.
The unrealized losses in the municipal securities portfolio are
primarily impacted by changes in interest rates. This portfolio
segment is not experiencing any credit problems at
December 31, 2009. We believe that all contractual cash
flows will be received on this portfolio.
Trust Preferred
Securities.
Our investment portfolio includes five pooled trust preferred
securities (CDO) and two single issuances. The
determination of fair value of the CDOs was determined
with the assistance of an external valuation firm. The valuation
was accomplished by evaluating all relevant credit and
structural aspects of the CDOs, determining appropriate
performance assumptions and performing a discounted cash flow
analysis. The valuation was structured as follows:
|
|
|
|
|
Detailed credit and structural evaluation for each piece of
collateral in the CDO;
|
|
|
|
Collateral performance projections for each piece of collateral
in the CDO (default, recovery and prepayment/amortization
probabilities);
|
|
|
|
Terms of the CDO structure, as laid out in the indenture;
|
|
|
|
The cash flow waterfall (for both interest and principal);
|
|
|
|
Overcollateralization and interest coverage tests;
|
|
|
|
Events of default/liquidation;
|
|
|
|
Mandatory auction call;
|
|
|
|
Optional redemption;
|
|
|
|
Hedge agreements; and
|
|
|
|
Discounted cash flow modeling.
|
On the basis of the evaluation of collateral credit, and in
combination with a review of historical industry default data
and current/near-term operating conditions, appropriate default
and recovery probabilities are
60
determined for each piece of collateral in the CDO.
Specifically, an estimate of the probability that a given piece
of collateral will default in any given year. Next, on the basis
of credit factors like asset quality and leverage, a recovery
assumption is formulated for each piece of collateral in the
event of a default. For collateral that has already defaulted,
we assume no recovery. For collateral that is deferring we
assume a recovery rate of 10%. It is also noted that there is a
possibility, in some cases, that deferring collateral will
become current at some point in the future. As a result,
deferring issuers are evaluated on a
case-by-case
basis and in some instances, based on an analysis of the credit;
a probability is assigned that the deferral will ultimately cure.
The base-case collateral-specific assumptions are aggregated
into cumulative weighted-average default, recovery and
prepayment probabilities. In light of generally weakening
collateral credit performance and a challenging U.S. credit
and real estate environment, our assumptions generally imply a
larger amount of collateral defaults during the next three years
than that which has been experienced historically and a gradual
leveling off of defaults thereafter.
The discount rates used to determine fair value are intended to
reflect the uncertainty inherent in the projection of the
issuances cash flows. Therefore, spreads were chosen that
are comparable to spreads observed currently in the market for
similarly rated instruments and is intended to reflect general
market discounts currently applied to structured credit
products. The discount rates used to determine the credit
portion of the OTTI are equal to the current yield on the
issuances as prescribed under ASC
325-40.
The following tables provide various information and fair value
model assumptions regarding our CDOs at December 31, 2009
(Dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year-to-Date
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other-Than-Temporary-Impairment
|
|
|
|
Single/
|
|
|
Class/
|
|
|
Amortized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Credit
|
|
|
|
|
|
|
|
Name
|
|
Pooled
|
|
|
Tranche
|
|
|
Cost
|
|
|
Value
|
|
|
Loss
|
|
|
Portion
|
|
|
Other
|
|
|
Total
|
|
|
MM Caps Funding I Ltd
|
|
|
Pooled
|
|
|
|
MEZ
|
|
|
$
|
1,895
|
|
|
$
|
745
|
|
|
$
|
(1,150
|
)
|
|
$
|
(245
|
)
|
|
$
|
(1,150
|
)
|
|
$
|
(1,395
|
)
|
MM Community Funding Ltd
|
|
|
Pooled
|
|
|
|
B
|
|
|
|
2,110
|
|
|
|
881
|
|
|
|
(1,229
|
)
|
|
|
(2,921
|
)
|
|
|
(1,229
|
)
|
|
|
(4,150
|
)
|
Preferred Term Securities V
|
|
|
Pooled
|
|
|
|
MEZ
|
|
|
|
1,218
|
|
|
|
436
|
|
|
|
(782
|
)
|
|
|
(165
|
)
|
|
|
(782
|
)
|
|
|
(947
|
)
|
Tpref Funding III Ltd
|
|
|
Pooled
|
|
|
|
B-2
|
|
|
|
3,032
|
|
|
|
1,141
|
|
|
|
(1,891
|
)
|
|
|
(962
|
)
|
|
|
(1,891
|
)
|
|
|
(2,853
|
)
|
Trapeza
2007-13A LLC
|
|
|
Pooled
|
|
|
|
D
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,876
|
)
|
|
|
|
|
|
|
(1,876
|
)
|
New South Capital Corp(1)
|
|
|
Single
|
|
|
|
Sole
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,000
|
)
|
|
|
|
|
|
|
(5,000
|
)
|
Emigrant Capital Trust(2)
|
|
|
Single
|
|
|
|
Sole
|
|
|
|
5,000
|
|
|
|
977
|
|
|
|
(4,023
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
13,255
|
|
|
$
|
4,180
|
|
|
$
|
(9,075
|
)
|
|
$
|
(11,169
|
)
|
|
$
|
(5,052
|
)
|
|
$
|
(16,221
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Original Collateral
|
|
|
Performing Collateral
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent of Actual
|
|
|
Percent of Expected
|
|
|
|
|
|
|
Lowest
|
|
|
Performing
|
|
|
Deferrals and
|
|
|
Deferrals and
|
|
|
Excess
|
|
Name
|
|
Rating
|
|
|
Banks
|
|
|
Defaults
|
|
|
Defaults
|
|
|
Subordination(3)
|
|
|
MM Caps Funding I Ltd
|
|
|
Ca
|
|
|
|
23
|
|
|
|
15%
|
|
|
|
23%
|
|
|
|
0%
|
|
MM Community Funding Ltd
|
|
|
Ca
|
|
|
|
8
|
|
|
|
21%
|
|
|
|
83%
|
|
|
|
0%
|
|
Preferred Term Securities V
|
|
|
CC
|
|
|
|
1
|
|
|
|
5%
|
|
|
|
54%
|
|
|
|
0%
|
|
Tpref Funding III Ltd
|
|
|
Ca
|
|
|
|
25
|
|
|
|
23%
|
|
|
|
24%
|
|
|
|
0%
|
|
Trapeza
2007-13A LLC
|
|
|
C
|
|
|
|
38
|
|
|
|
27%
|
|
|
|
27%
|
|
|
|
0%
|
|
New South Capital Corp(1)
|
|
|
NR
|
|
|
|
NA
|
|
|
|
NA
|
|
|
|
NA
|
|
|
|
NA
|
|
Emigrant Capital Trust(2)
|
|
|
CC
|
|
|
|
NA
|
|
|
|
NA
|
|
|
|
NA
|
|
|
|
NA
|
|
61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
|
Discount Margin
|
|
|
Yield
|
|
Name
|
|
(Price to Par)
|
|
|
(Basis Points)
|
|
|
(Basis Points)
|
|
|
MM Caps Funding I Ltd
|
|
$
|
37.26
|
|
|
|
Swap + 1800
|
|
|
|
9.48% Fixed
|
|
MM Community Funding Ltd
|
|
|
17.61
|
|
|
|
LIBOR + 1300
|
|
|
|
LIBOR + 310
|
|
Preferred Term Securities V
|
|
|
31.67
|
|
|
|
LIBOR + 1300
|
|
|
|
LIBOR + 210
|
|
Tpref Funding III Ltd
|
|
|
28.53
|
|
|
|
LIBOR + 1200
|
|
|
|
LIBOR + 190
|
|
Trapeza
2007-13A LLC
|
|
|
|
|
|
|
NA
|
|
|
|
LIBOR + 120
|
|
Emigrant Capital Trust(2)
|
|
|
19.53
|
|
|
|
LIBOR + 2342
|
|
|
|
LIBOR + 200
|
|
|
|
|
(1) |
|
Management received notification in April 2009 that interest
payments on this issue will be deferred for up to 20 quarters.
In addition, New Souths external auditor issued a going
concern opinion on May 2, 2009. Management determined that
there was not sufficient positive evidence that this issue will
ever pay principal or interest. Therefore, OTTI was recognized
on the full amount of the security during the first quarter of
2009. In December 2009, the banking subsidiary of New South
Capital was closed by its regulator and placed in receivership. |
|
(2) |
|
There has been no notification of deferral or default on this
issue. An analysis of the company, including discussion with its
management, indicates there is adequate capital and liquidity to
service the debt. The discount margin of 2342 basis points
was derived from implied credit spreads from certain publicly
traded trust preferred securities within the issuers peer group. |
|
(3) |
|
Excess subordination represents the additional defaults in
excess of both the current and projected defaults the issue can
absorb before the security experiences any credit impairment.
Excess subordination is calculated by determining what level of
defaults an issue can experience before the security has any
credit impairment and then subtracting both the current and
projected future defaults. |
In addition to the impact of interest rates, the estimated fair
value of these CDOs have been and continue to be depressed due
to the unusual credit conditions that the financial industry has
faced since the middle of 2008 and a weakening economy, which
has severely reduced the demand for these securities and
rendered their trading market inactive.
As of December 31, 2009, our management does not intend to
sell these securities, nor is it more likely than not that we
will be required to sell the securities before the entire
amortized cost basis is recovered since our current financial
condition, including liquidity and interest rate risk, will not
require such action.
The following table provides a rollforward of the amount of
credit-related losses recognized in earnings for which a portion
of OTTI has been recognized in other comprehensive income
through December 31, 2009:
|
|
|
|
|
|
|
For the
|
|
|
|
Year Ended
|
|
|
|
December 31, 2009
|
|
|
|
(Dollars in thousands)
|
|
|
Balance at beginning of period
|
|
$
|
|
|
Amounts related to credit losses for which an OTTI was not
previously recognized
|
|
|
4,637
|
|
Reductions for securities sold during the period
|
|
|
|
|
Increases in credit loss for which an OTTI was previously
recognized when the investor does not intend to sell the
security and it is not more likely than not that the entity will
be required to sell the security before recovery of its
amortized cost
|
|
|
4,232
|
|
Reductions for securities where there is an intent to sale or
requirement to sale
|
|
|
|
|
Reductions for increases in cash flows expected to be collected
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
8,869
|
|
|
|
|
|
|
62
We will continue to evaluate the investment ratings in the
securities portfolio, severity in pricing declines, market price
quotes along with timing and receipt of amounts contractually
due. Based upon these and other factors, the securities
portfolio may experience further impairment.
Stock in
the FHLB of Atlanta (FHLB Atlanta).
As of December 31, 2009, we have stock in FHLB Atlanta
totaling $18.2 million (its par value), which is presented
separately on the face of our statement of financial condition.
There is no ready market for the stock and no quoted market
values, as only member institutions are eligible to be
shareholders and all transactions are, by charter, to take place
at par with FHLB Atlanta as the only purchaser. Therefore, we
account for this investment as a long-term asset and carry it at
cost. Management reviews this stock quarterly for impairment and
conducts its analysis in accordance with ASC
942-325-35-3.
Managements determination as to whether this investment is
impaired is based on its assessment of the ultimate
recoverability of its par value (cost) rather than recognizing
temporary declines in its value. The determination of whether
the decline affects the ultimate recoverability of our
investment is influenced by available information regarding
criteria such as:
|
|
|
|
|
The significance of the decline in net assets of FHLB Atlanta as
compared to the capital stock amount for FHLB Atlanta and the
length of time this decline has persisted;
|
|
|
|
Commitments by FHLB Atlanta to make payments required by law or
regulation and the level of such payments in relation to the
operating performance of FHLB Atlanta;
|
|
|
|
The impact of legislative and regulatory changes on financial
institutions and, accordingly, on the customer base of FHLB
Atlanta; and
|
|
|
|
The liquidity position of FHLB Atlanta.
|
Management has reviewed publicly available information regarding
the financial condition of FHLB Atlanta and concluded that no
impairment existed based on its assessment of the ultimate
recoverability of the par value of the investment. Management
noted that FHLB Atlanta reported operating income of
$191.7 million and $11.1 million during the second and
third quarters of 2009, respectively. In addition, during the
second quarter of 2009, FHLB Atlanta reinstated its dividend, at
a rate of 0.84% and 0.41%, for the second and third quarters of
2009, respectively, compared to a prior rate of 2.89% for the
last dividend paid in the third quarter of 2008, prior to its
dividend suspension. On the basis of a review of the financial
condition, cash flow, liquidity and asset quality indicators of
the FHLB Atlanta as of the end of its third quarter of 2009, as
well as the decision of FHLB Atlanta to reinstate the dividend
announced in the third quarter, management has concluded that no
impairment exists on our investment in the stock of FHLB
Atlanta. This is a long-term investment that serves a business
purpose of enabling us to enhance the liquidity of Superior Bank
through access to the lending facilities of FHLB Atlanta. For
the foregoing reasons, management believes that FHLB
Atlantas current position does not indicate that our
investment will not be recoverable at par, our cost, and thus
the investment is not impaired as of December 31, 2009.
Tax lien certificates. During 2009, we
purchased $38.4 million in tax lien certificates from
various municipalities primarily in Alabama, Missouri, Indiana,
Mississippi, Illinois, New Jersey and South Carolina. During
2009, we also had tax lien certificates in Florida, Colorado and
Nebraska. At December 31, 2009, there were no outstanding
tax lien certificates in Colorado. Tax lien certificates are
carried at cost plus accrued interest, which approximates fair
value. Tax lien certificates and resulting deeds are classified
as nonaccrual when a tax lien certificate is 24 to
48 months delinquent from the acquisition date, depending
on the municipality. At that time, interest ceases to be
accrued. At December 31, 2009, approximately
$2.1 million in liens had a maturity date of less than one
year. As of December 31, 2009, there were no delinquent or
nonperforming liens. During 2009, approximately
$1.8 million in liens that had matured or had near term
maturities were sold to a third party. The outstanding tax lien
balances for the years ended December 31, 2009 and 2008
were $19.3 million and $23.8 million, respectively.
Property and Equipment. Property and equipment
totaled $104.0 million at December 31, 2009, a
decrease of (0.1)%, or $(0.1) million, from
$104.1 million at December 31, 2008. During 2009, we
had purchases of property and equipment of approximately
$8.5 million and dispositions of approximately
$1.3 million. Our purchases were
63
primarily related to new branch expansion and dispositions were
related to real property sales. Depreciation expense for the
years ended December 31, 2009, 2008 and 2007 was
$7.2 million, $6.6 million and $4.6 million,
respectively.
Rental expense related to operating lease commitments during
2009 was $3.8 million, a $0.1 million increase from
$3.7 million in 2008, which increased $1.2 million as
a result of our acquisitions, branch expansion and related
sale-lease back transactions from $2.5 million in 2007.
Please refer to our Liquidity discussion for the
amount of future operating lease commitments.
Loans,
net of unearned income.
Composition of Loan Portfolios, Yield Changes and
Diversification. Our loans, net of unearned
income, totaled $2.473 billion at December 31, 2009,
an increase of 6.8%, or $157.8 million, from
$2.315 billion at December 31, 2008. Mortgage loans
held for sale totaled $71.9 million at December 31,
2009, an increase of $49.8 million from $22.0 million
at December 31, 2008. Average loans, including mortgage
loans held for sale, totaled $2.463 billion for 2009,
compared to $2.173 billion for 2008. Loans, net of unearned
income, comprised 85.4% of interest-earning assets at
December 31, 2009, compared to 84.4% at December 31,
2008. Mortgage loans held for sale comprised 2.5% of
interest-earning assets at December 31, 2009, compared to
0.8% at December 31, 2008. The average yield of the loan
portfolio was 5.87%, 6.77% and 8.18% for the years ended
December 31, 2009, 2008 and 2007, respectively. The
decrease in average yield is primarily the result of a generally
lower level of market rates that prevailed throughout 2009.
Our focus in business development has been toward increasing
commercial and industrial lending and have continued to seek
attractive commercial development loans, which we believe
continue to be profitable if properly underwritten.
The following table details the distribution of our loan
portfolio by category for the periods presented:
Distribution
of Loans by Category
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(Dollars in thousands)
|
|
|
Commercial and industrial
|
|
$
|
213,329
|
|
|
$
|
207,372
|
|
|
$
|
183,013
|
|
|
$
|
172,872
|
|
|
$
|
135,454
|
|
Real estate construction and land development
|
|
|
680,445
|
|
|
|
637,587
|
|
|
|
665,303
|
|
|
|
547,772
|
|
|
|
326,418
|
|
Real estate mortgages
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single-family
|
|
|
691,364
|
|
|
|
655,216
|
|
|
|
540,277
|
|
|
|
456,341
|
|
|
|
243,183
|
|
Commercial
|
|
|
801,813
|
|
|
|
726,704
|
|
|
|
533,611
|
|
|
|
362,542
|
|
|
|
210,611
|
|
Other
|
|
|
28,885
|
|
|
|
31,187
|
|
|
|
41,535
|
|
|
|
46,895
|
|
|
|
27,503
|
|
Consumer
|
|
|
58,785
|
|
|
|
57,877
|
|
|
|
53,377
|
|
|
|
54,462
|
|
|
|
21,122
|
|
Other
|
|
|
969
|
|
|
|
972
|
|
|
|
1,235
|
|
|
|
438
|
|
|
|
498
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
|
2,475,590
|
|
|
|
2,316,915
|
|
|
|
2,018,351
|
|
|
|
1,641,322
|
|
|
|
964,789
|
|
Unearned income
|
|
|
(2,893
|
)
|
|
|
(1,994
|
)
|
|
|
(1,340
|
)
|
|
|
(1,794
|
)
|
|
|
(1,536
|
)
|
Allowance for loan losses
|
|
|
(41,884
|
)
|
|
|
(28,850
|
)
|
|
|
(22,868
|
)
|
|
|
(18,892
|
)
|
|
|
(12,011
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loans
|
|
$
|
2,430,813
|
|
|
$
|
2,286,071
|
|
|
$
|
1,994,143
|
|
|
$
|
1,620,636
|
|
|
$
|
951,242
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
64
The following table shows the amount of total loans, net of
unearned income, by segment and the percent change for the dates
indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
Percent
|
|
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
|
(Dollars in thousands)
|
|
|
Total loans, net of unearned income
|
|
$
|
2,472,697
|
|
|
$
|
2,314,921
|
|
|
|
6.8
|
%
|
Alabama segment
|
|
|
996,545
|
|
|
|
935,232
|
|
|
|
6.6
|
|
Florida segment
|
|
|
1,213,202
|
|
|
|
1,060,994
|
|
|
|
14.3
|
|
Other
|
|
|
262,950
|
|
|
|
318,695
|
|
|
|
(17.5
|
)
|
A further analysis of the components of our real estate
construction and land development and real estate mortgage loans
as of December 31, 2009 and 2008 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
Commercial
|
|
|
|
|
Real Estate Construction and Land
Development
|
|
Development
|
|
|
Development
|
|
|
Total
|
|
|
|
(Dollars in thousands)
|
|
|
As of December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
Alabama segment
|
|
$
|
163,978
|
|
|
$
|
102,339
|
|
|
$
|
266,317
|
|
Florida segment
|
|
|
129,590
|
|
|
|
265,767
|
|
|
|
395,357
|
|
Other
|
|
|
7,856
|
|
|
|
10,915
|
|
|
|
18,771
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
301,424
|
|
|
$
|
379,021
|
|
|
$
|
680,445
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
Alabama segment
|
|
$
|
173,579
|
|
|
$
|
94,145
|
|
|
$
|
267,724
|
|
Florida segment
|
|
|
141,003
|
|
|
|
215,261
|
|
|
|
356,264
|
|
Other
|
|
|
122
|
|
|
|
13,477
|
|
|
|
13,599
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
314,704
|
|
|
$
|
322,883
|
|
|
$
|
637,587
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single-
|
|
|
|
|
Real Estate Mortgages
|
|
Family
|
|
|
Commercial
|
|
|
|
(Dollars in thousands)
|
|
|
As of December 31, 2009
|
|
|
|
|
|
|
|
|
Alabama segment
|
|
$
|
461,365
|
|
|
$
|
296,520
|
|
Florida segment
|
|
|
189,245
|
|
|
|
475,218
|
|
Other
|
|
|
40,754
|
|
|
|
30,075
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
691,364
|
|
|
$
|
801,813
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2008
|
|
|
|
|
|
|
|
|
Alabama segment
|
|
$
|
416,129
|
|
|
$
|
305,714
|
|
Florida segment
|
|
|
176,315
|
|
|
|
391,609
|
|
Other
|
|
|
62,772
|
|
|
|
29,381
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
655,216
|
|
|
$
|
726,704
|
|
|
|
|
|
|
|
|
|
|
Additional information and analysis regarding our loan portfolio
is included in Item 1, Part 1, Business, under the
heading Loan Portfolio.
Allowance
for Loan Losses.
Overview. It is the responsibility of
management to assess and maintain the allowance for loan losses
at a level it believes is appropriate to absorb the estimated
credit losses within our loan portfolio through the provision
for loan losses. The determination of our allowance for loan
losses is based on managements analysis of the credit
quality of the loan portfolio including its judgment regarding
certain internal and external factors that affect loan
65
collectability. This process is performed on a quarterly basis
under the oversight of the Board of Directors. The estimation of
the allowance for loan losses is based on two basic
components those estimations calculated in
accordance with the requirements of ASC
450-20, and
those specific impairments under ASC
310-35 (see
discussions below). The calculation of the allowance for loan
losses is inherently subjective, and actual losses could be
greater or less than the estimates.
ASC
450-20. Under
ASC 450-20,
estimated losses on all loans that have not been identified with
specific impairment under ASC
310-35 are
calculated based on the historical loss ratios applied to our
standard loan categories using a rolling average adjusted for
certain qualitative factors, as shown below. In addition to
these standard loan categories, management may identify other
areas of risk based on its analysis of such qualitative factors
and estimate additional losses as it deems necessary. The
qualitative factors that management uses in its estimate include
but are not limited to the following:
|
|
|
|
|
trends in volume;
|
|
|
effects of changes in credit concentrations;
|
|
|
levels of and trends in delinquencies, classified loans and
non-performing assets;
|
|
|
levels of and trends in charge-offs and recoveries;
|
|
|
changes in lending policies and underwriting guidelines;
|
|
|
national and local economic trends and condition; and
|
|
|
mergers and acquisitions.
|
ASC
310-35. Pursuant
to ASC
310-35,
impaired loans are loans (See Impaired Loans
section below) which are specifically reviewed and for which it
is probable that we will be unable to collect all amounts due
according to the terms of the loan agreement. Impairment is
measured by comparing the recorded investment in the loan with
the present value of expected future cash flows discounted at
the loans effective interest rate, at the loans
observable market price or the fair value of the collateral if
the loan is collateral dependent. A valuation allowance is
provided to the extent that the measure of the impaired loans is
less than the recorded investment. A loan is not considered
impaired during a period of delay in payment if we continue to
expect that all amounts due will ultimately be collected
according to the terms of the loan agreement. Our Credit
Administration department maintains supporting documentation
regarding collateral valuations
and/or
discounted cash flow analyses.
Allocation of the Allowance for Loan
Losses. The allowance for loan losses calculation
is segregated into various segments that include specific
allocations for loans, portfolio segments and general
allocations for portfolio risk.
Risk ratings are subject to independent review by internal loan
review, which also performs ongoing, independent review of the
risk management process. The risk management process includes
underwriting, documentation and collateral control. Loan review
is centralized and independent of the lending function. The loan
review results are reported to senior management and the Audit
and Enterprise Risk Management Committee of the Board of
Directors. Credit Administration relies upon the independent
work of loan review in risk rating in developing its
recommendations to the Audit and Enterprise Risk Management
Committee of the Board of Directors for the allocation of the
allowance for loan losses, and performs this function
independent of the lending area of Superior Bank.
We historically have allocated our allowance for loan losses to
specific loan categories. Although the allowance for loan losses
is allocated, it is available to absorb losses in the entire
loan portfolio. This allocation is made for estimation purposes
only and is not necessarily indicative of the allocation between
categories in which future losses may occur, nor is it limited
to the categories to which it is allocated.
66
Allocation
of the Allowance for Loan Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
Percent
|
|
|
|
|
|
Percent
|
|
|
|
|
|
Percent
|
|
|
|
|
|
Percent
|
|
|
|
|
|
Percent
|
|
|
|
|
|
|
of Loans
|
|
|
|
|
|
of Loans
|
|
|
|
|
|
of Loans
|
|
|
|
|
|
of Loans
|
|
|
|
|
|
of Loans
|
|
|
|
|
|
|
in Each
|
|
|
|
|
|
in Each
|
|
|
|
|
|
in Each
|
|
|
|
|
|
in Each
|
|
|
|
|
|
in Each
|
|
|
|
|
|
|
Category
|
|
|
|
|
|
Category
|
|
|
|
|
|
Category
|
|
|
|
|
|
Category
|
|
|
|
|
|
Category
|
|
|
|
|
|
|
to Total
|
|
|
|
|
|
to Total
|
|
|
|
|
|
to Total
|
|
|
|
|
|
to Total
|
|
|
|
|
|
to Total
|
|
|
|
Amount
|
|
|
Loans
|
|
|
Amount
|
|
|
Loans
|
|
|
Amount
|
|
|
Loans
|
|
|
Amount
|
|
|
Loans
|
|
|
Amount
|
|
|
Loans
|
|
|
|
(Dollars in thousands)
|
|
|
Commercial and industrial
|
|
$
|
2,356
|
|
|
|
8.6
|
%
|
|
$
|
2,136
|
|
|
|
8.9
|
%
|
|
$
|
2,697
|
|
|
|
9.1
|
%
|
|
$
|
3,719
|
|
|
|
10.5
|
%
|
|
$
|
3,805
|
|
|
|
14.0
|
%
|
Real estate construction and land development
|
|
|
17,971
|
|
|
|
27.5
|
|
|
|
12,168
|
|
|
|
27.5
|
|
|
|
9,396
|
|
|
|
33.0
|
|
|
|
3,425
|
|
|
|
33.4
|
|
|
|
1,275
|
|
|
|
33.8
|
|
Real estate mortgages
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single-family
|
|
|
12,342
|
|
|
|
27.9
|
|
|
|
7,159
|
|
|
|
28.3
|
|
|
|
2,360
|
|
|
|
26.8
|
|
|
|
2,910
|
|
|
|
27.8
|
|
|
|
1,395
|
|
|
|
25.2
|
|
Commercial
|
|
|
7,019
|
|
|
|
32.4
|
|
|
|
5,440
|
|
|
|
31.3
|
|
|
|
6,781
|
|
|
|
26.4
|
|
|
|
6,206
|
|
|
|
22.0
|
|
|
|
4,194
|
|
|
|
21.8
|
|
Other
|
|
|
371
|
|
|
|
1.2
|
|
|
|
247
|
|
|
|
1.3
|
|
|
|
155
|
|
|
|
2.1
|
|
|
|
530
|
|
|
|
2.9
|
|
|
|
215
|
|
|
|
2.9
|
|
Consumer
|
|
|
1,825
|
|
|
|
2.4
|
|
|
|
1,700
|
|
|
|
2.7
|
|
|
|
1,479
|
|
|
|
2.6
|
|
|
|
2,102
|
|
|
|
3.4
|
|
|
|
1,127
|
|
|
|
2.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
41,884
|
|
|
|
100.0
|
%
|
|
$
|
28,850
|
|
|
|
100.0
|
%
|
|
$
|
22,868
|
|
|
|
100.0
|
%
|
|
$
|
18,892
|
|
|
|
100.0
|
%
|
|
$
|
12,011
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The allowance as a percentage of loans, net of unearned income,
at December 31, 2009 was 1.69%, compared to 1.25% as of
December 31, 2008. Net charge-offs increased
$8.4 million, from $7.1 million in 2008 to
$15.5 million in 2009. Net charge-offs of commercial loans
increased $1.3 million, from (a net recovery) of
$(0.1) million in 2008 to $1.2 million in 2009. Net
charge-offs of real estate loans increased $6.0 million,
from $4.9 million in 2008 to $10.9 million in 2009.
Net charge-offs of consumer loans increased $0.9 million,
to $3.2 million in 2009 from $2.3 million in 2008. Net
charge-offs as a percentage of the allowance for loan losses
were 37.04% in 2009, up from 24.71% in 2008.
Real estate construction and development loans are loans where
real estate developers acquired raw land with the intent of
developing the land into either residential or commercial
property. These loans are highly dependent upon development of
the property as the primary source of repayment with the
collateral disposal
and/or
guarantor strength as the secondary source; thus, the borrowers
are dependent upon the completion of the project, the sale of
the property or their own personal cash flow to service the
debt. The largest category in the residential development and
construction portfolio is related to development of
single-family lots and single-family lots held by experienced,
licensed builders for the future construction of single-family
homes. This category represents approximately
$123.4 million, or 40.9%, of this portfolio.
Geographically, approximately 49.8% of this portfolio was
located in the Florida Region with the remainder located in the
Alabama Region.
During 2009, we increased the allowance for loan losses related
to construction and land development real estate loans by
$5.8 million, from $12.2 million as of
December 31, 2008 to $18.0 million as of
December 31, 2009, because of increasing levels of risk due
to general economic conditions in the construction and land
development real estate markets throughout our franchise. Net
charge-offs for this category increased $2.7 million, from
$2.1 million in 2008 to $4.8 million in 2009. Net
losses in residential development and construction accounted for
$4.7 million, or 99.5%, of the total losses from this
portfolio segment, with a negligible portion coming from
commercial construction. Of the residential purpose loan losses,
82% were located in Florida, with the remainder in Alabama.
Our allocation of the allowance for loan losses related to
single-family mortgage loans increased $5.2 million, to
$12.3 million at December 31, 2009 from
$7.2 million at December 31, 2008. This allocation
reflects the increased risk exposure due to the current downturn
in the national economy and the effect on the housing sector
which has increased our foreclosure activity within this
portfolio. The following table includes our high
67
loan-to-value
(LTV) loans secured by single family properties,
without private mortgage insurance (PMI) or other
government guarantee at December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Past Due and Nonaccrual
|
|
|
|
|
|
|
Percent
|
|
|
|
|
|
Percent
|
|
|
|
|
|
Percent
|
|
|
|
|
|
Percent
|
|
|
|
|
|
Percent
|
|
|
|
|
|
|
of Loans
|
|
|
|
|
|
of Loans
|
|
|
|
|
|
of Loans
|
|
|
|
|
|
of Loans
|
|
|
|
|
|
of Loans
|
|
|
|
|
|
|
to
|
|
|
|
|
|
to
|
|
|
|
|
|
to
|
|
|
|
|
|
to
|
|
|
|
|
|
to
|
|
|
|
Total
|
|
|
Total
|
|
|
|
|
|
Total
|
|
|
|
|
|
Total
|
|
|
|
|
|
Total
|
|
|
|
|
|
Total
|
|
|
|
Outstanding
|
|
|
Single-
|
|
|
30-
|
|
|
Single-
|
|
|
90 days
|
|
|
Single-
|
|
|
Non-
|
|
|
Single-
|
|
|
|
|
|
Single-
|
|
|
|
Balance
|
|
|
Family
|
|
|
89 days
|
|
|
Family
|
|
|
or more
|
|
|
Family
|
|
|
accrual
|
|
|
Family
|
|
|
Total
|
|
|
Family
|
|
|
|
(Dollars in thousands)
|
|
|
90% up to 100% LTV
|
|
$
|
31,751
|
|
|
|
4.6
|
%
|
|
$
|
260
|
|
|
|
0.0
|
%
|
|
$
|
|
|
|
|
|
|
|
$
|
1,446
|
|
|
|
0.2
|
%
|
|
$
|
1,706
|
|
|
|
0.2
|
%
|
100% and greater LTV
|
|
|
4,937
|
|
|
|
0.7
|
|
|
|
469
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
392
|
|
|
|
0.1
|
|
|
|
861
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
36,688
|
|
|
|
5.3
|
|
|
$
|
729
|
|
|
|
0.1
|
|
|
$
|
|
|
|
|
|
|
|
$
|
1,838
|
|
|
|
0.3
|
|
|
$
|
2,567
|
|
|
|
0.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The overall increases in loss experience, nonperforming loans
and pressure on home values continued to influence
managements risk assessment and decision to increase the
allocation of the allowance for loan losses for single-family
residential mortgages during 2009. At December 31, 2009,
single-family residential mortgages accounted for
$52.3 million, or 33%, of total nonperforming loans, up
$29.6 million from $22.7 million as of
December 31, 2008. Foreclosure activity during 2009
resulted in $28.9 million of new foreclosures, with
residential construction properties accounting for
$11.9 million, 41% of the new foreclosures, commercial
construction represented $0.9 million, or 3% of the total;
single family residential properties accounting for
$11.7 million, or 40%, of the total; and commercial real
estate (CRE) properties accounting for another
$4.7 million, or 16%. Approximately 52% of 2009
foreclosures originated in Alabama, the remaining 48% in
Florida. Our ORE acquired through foreclosure totaled
$41.6 million at December 31, 2009 an increase of
$21.6 million from $20.0 million at December 31,
2008. See the Nonperforming Assets section below for
more information regarding our foreclosed ORE.s
Our consumer loan charge-offs were higher during 2009 when
compared to 2008, primarily due to the increased losses in our
consumer finance companies, which accounted for approximately
$2.5 million, or 78.9%, of the total net consumer loan
charge-offs. Going forward, we expect these losses to continue
to be a substantial portion of the overall consumer loan losses;
however, we believe the increased risk associated with these
loans is offset by their higher yield.
The allowance for loan losses as a percentage of nonperforming
loans, excluding troubled debt restructurings
(TDRs), decreased to 26.25% at
December 31, 2009 from 45.98% at December 31, 2008.
Approximately $11.6 million of the allowance for loan
losses has been specifically allocated to nonperforming loans as
of December 31, 2009. As of December 31, 2009,
nonperforming loans totaled $159.6 million, of which
$156.2 million, or 97.9%, were loans secured by real estate
compared to $61.4 million, or 97.8%, as of
December 31, 2008. See Nonperforming Assets.
Despite the overall decline in the allowance for loan losses as
a percentage of nonperforming loans, management believes the
overall allowance for loan losses to be adequate.
68
Summary of Loan Loss Experience. The following
table summarizes certain information with respect to our
allowance for loan losses and the composition of charge-offs and
recoveries for the periods indicated:
Summary
of Loan Loss Experience
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
Allowance for loan losses at beginning of period
|
|
$
|
28,850
|
|
|
$
|
22,868
|
|
|
$
|
18,892
|
|
|
$
|
12,011
|
|
|
$
|
12,543
|
|
Allowance of acquired banks
|
|
|
|
|
|
|
|
|
|
|
3,717
|
|
|
|
6,697
|
|
|
|
|
|
Charge-offs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
|
1,390
|
|
|
|
504
|
|
|
|
1,162
|
|
|
|
1,450
|
|
|
|
2,097
|
|
Real estate construction and land development
|
|
|
4,870
|
|
|
|
2,095
|
|
|
|
301
|
|
|
|
378
|
|
|
|
358
|
|
Real estate mortgage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single-family
|
|
|
5,372
|
|
|
|
2,460
|
|
|
|
1,149
|
|
|
|
625
|
|
|
|
795
|
|
Commercial
|
|
|
1,094
|
|
|
|
411
|
|
|
|
724
|
|
|
|
416
|
|
|
|
1,432
|
|
Other
|
|
|
210
|
|
|
|
241
|
|
|
|
206
|
|
|
|
15
|
|
|
|
85
|
|
Consumer
|
|
|
3,346
|
|
|
|
2,490
|
|
|
|
2,117
|
|
|
|
860
|
|
|
|
630
|
|
Other
|
|
|
379
|
|
|
|
243
|
|
|
|
63
|
|
|
|
2
|
|
|
|
345
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total charge-offs
|
|
|
16,661
|
|
|
|
8,444
|
|
|
|
5,722
|
|
|
|
3,746
|
|
|
|
5,742
|
|
Recoveries:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
|
161
|
|
|
|
646
|
|
|
|
398
|
|
|
|
465
|
|
|
|
413
|
|
Real estate construction and land development
|
|
|
68
|
|
|
|
44
|
|
|
|
286
|
|
|
|
126
|
|
|
|
37
|
|
Real estate mortgage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single-family
|
|
|
71
|
|
|
|
89
|
|
|
|
174
|
|
|
|
102
|
|
|
|
335
|
|
Commercial
|
|
|
277
|
|
|
|
128
|
|
|
|
70
|
|
|
|
363
|
|
|
|
526
|
|
Other
|
|
|
251
|
|
|
|
71
|
|
|
|
82
|
|
|
|
73
|
|
|
|
118
|
|
Consumer
|
|
|
186
|
|
|
|
181
|
|
|
|
382
|
|
|
|
301
|
|
|
|
280
|
|
Other
|
|
|
131
|
|
|
|
155
|
|
|
|
48
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recoveries
|
|
|
1,145
|
|
|
|
1,314
|
|
|
|
1,440
|
|
|
|
1,430
|
|
|
|
1,710
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs
|
|
|
15,516
|
|
|
|
7,130
|
|
|
|
4,282
|
|
|
|
2,316
|
|
|
|
4,032
|
|
Provision for loan losses
|
|
|
28,550
|
|
|
|
13,112
|
|
|
|
4,541
|
|
|
|
2,500
|
|
|
|
3,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses at end of period
|
|
$
|
41,884
|
|
|
$
|
28,850
|
|
|
$
|
22,868
|
|
|
$
|
18,892
|
|
|
$
|
12,011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans at end of period, net of unearned income
|
|
$
|
2,472,697
|
|
|
$
|
2,314,921
|
|
|
$
|
2,017,011
|
|
|
$
|
1,639,528
|
|
|
$
|
963,253
|
|
Average loans, net of unearned income
|
|
|
2,401,805
|
|
|
|
2,147,524
|
|
|
|
1,814,032
|
|
|
|
1,176,844
|
|
|
|
947,212
|
|
Ratio of ending allowance to ending loans
|
|
|
1.69
|
%
|
|
|
1.25
|
%
|
|
|
1.13
|
%
|
|
|
1.15
|
%
|
|
|
1.25
|
%
|
Ratio of net charge-offs to average loans
|
|
|
0.65
|
|
|
|
0.33
|
|
|
|
0.24
|
|
|
|
0.20
|
|
|
|
0.43
|
|
Net charge-offs as a percentage of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan losses
|
|
|
54.35
|
|
|
|
54.38
|
|
|
|
94.30
|
|
|
|
92.64
|
|
|
|
115.20
|
|
Allowance for loan losses
|
|
|
37.04
|
|
|
|
24.71
|
|
|
|
18.72
|
|
|
|
12.26
|
|
|
|
33.57
|
|
Allowance for loan losses as a percentage of nonperforming loans
|
|
|
26.25
|
|
|
|
45.98
|
|
|
|
92.77
|
|
|
|
227.97
|
|
|
|
261.17
|
|
Nonperforming Assets. Nonperforming assets
increased $118.5 million, to $201.5 million as of
December 31, 2009 from $83.0 million as of
December 31, 2008. As a percentage of net loans plus
nonperforming assets, nonperforming assets increased to 8.01% at
December 31, 2009 from 3.56% at December 31, 2008. The
overall increase in nonperforming assets was primarily related
to real estate construction, residential mortgage loans and
commercial real estate portfolios. As of December 31, 2009,
nonperforming residential mortgage loans increased
$29.6 million to $52.3 million from $22.7 million
as of December 31, 2008. Sixteen loans in excess of
$0.5 million accounted for $17.3 million, or 59% of
the increase; the average loan balance of all new nonperforming
residential loans was $148,000, with the majority, or 57%,
located in Florida. Approximately 86% of the increase in
nonperforming real estate construction consists of ten real
estate construction credits over $1 million totaling
69
$44.0 million. Seven of these large credits, totaling
$21.6 million, are located in Florida, $14.7 million
in Alabama and $7.7 million in Kentucky. The commercial
real estate increase of $15.0 million from
December 31, 2008 consists primarily of three Florida
commercial real estate credits, representing $12.0 million
of the total increase, in the hospitality, multifamily and
retail concentration categories. Our management continues to
actively work to mitigate the risks of loss across all
categories of the loan portfolio. As of December 31, 2009,
of our total nonperforming credits, only 23 are in excess of
$1.0 million in principal balance, which gives evidence of
the granularity of this portfolio and explains our approach of
liquidating it on a
loan-by-loan
basis rather than in large bulk sales. The following table shows
our nonperforming assets for the dates shown:
Nonperforming
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(Dollars in thousands)
|
|
|
Nonaccrual
|
|
$
|
155,631
|
|
|
$
|
54,712
|
|
|
$
|
22,533
|
|
|
$
|
7,773
|
|
|
$
|
4,550
|
|
Accruing loans 90 days or more delinquent
|
|
|
3,920
|
|
|
|
8,033
|
|
|
|
2,117
|
|
|
|
514
|
|
|
|
49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total nonperforming loans
|
|
|
159,551
|
|
|
|
62,745
|
|
|
|
24,650
|
|
|
|
8,287
|
|
|
|
4,599
|
|
Other real estate owned assets
|
|
|
41,618
|
|
|
|
19,971
|
|
|
|
4,277
|
|
|
|
1,684
|
|
|
|
1,842
|
|
Repossessed assets
|
|
|
380
|
|
|
|
332
|
|
|
|
138
|
|
|
|
137
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total nonperforming assets
|
|
$
|
201,549
|
|
|
$
|
83,048
|
|
|
$
|
29,065
|
|
|
$
|
10,108
|
|
|
$
|
6,441
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructured and performing under restructured terms, net of
specific allowance
|
|
$
|
110,777
|
|
|
$
|
2,643
|
|
|
$
|
671
|
|
|
$
|
305
|
|
|
$
|
153
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonperforming loans as a percentage of loans
|
|
|
6.45
|
%
|
|
|
2.71
|
%
|
|
|
1.22
|
%
|
|
|
0.51
|
%
|
|
|
0.48
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonperforming assets as a percentage of loans plus nonperforming
assets
|
|
|
8.01
|
%
|
|
|
3.56
|
%
|
|
|
1.44
|
%
|
|
|
0.62
|
%
|
|
|
0.67
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonperforming assets as a percentage of total assets
|
|
|
6.26
|
%
|
|
|
2.72
|
%
|
|
|
1.01
|
%
|
|
|
0.41
|
%
|
|
|
0.46
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following is a summary of nonperforming loans by category
for the dates shown:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(Dollars in thousands)
|
|
|
Commercial and industrial
|
|
$
|
1,797
|
|
|
$
|
166
|
|
|
$
|
387
|
|
|
$
|
399
|
|
|
$
|
835
|
|
Real estate construction and land development
|
|
|
73,058
|
|
|
|
20,976
|
|
|
|
10,569
|
|
|
|
2,067
|
|
|
|
469
|
|
Real estate mortgages
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single-family
|
|
|
52,323
|
|
|
|
22,730
|
|
|
|
8,069
|
|
|
|
2,805
|
|
|
|
2,448
|
|
Commercial
|
|
|
30,343
|
|
|
|
15,378
|
|
|
|
4,045
|
|
|
|
1,765
|
|
|
|
675
|
|
Other
|
|
|
436
|
|
|
|
2,289
|
|
|
|
805
|
|
|
|
688
|
|
|
|
11
|
|
Consumer
|
|
|
734
|
|
|
|
723
|
|
|
|
775
|
|
|
|
559
|
|
|
|
161
|
|
Other
|
|
|
860
|
|
|
|
483
|
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total nonperforming loans
|
|
$
|
159,551
|
|
|
$
|
62,745
|
|
|
$
|
24,650
|
|
|
$
|
8,287
|
|
|
$
|
4,599
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A delinquent loan is ordinarily placed on nonaccrual status no
later than when it becomes 90 days past due and management
believes, after considering economic and business conditions and
collection efforts, that the borrowers financial condition
is such that the collection of interest is doubtful. When a loan
is placed on nonaccrual status, all unpaid interest which has
been accrued on the loan during the current period is reversed
and deducted from earnings as a reduction of reported interest
income; any prior period accrued and unpaid interest is reversed
and charged against the allowance for loan losses. No additional
interest income is accrued on the loan balance until the
collection of both principal and interest becomes reasonably
certain. When a problem loan is finally resolved, there may be
an actual write-down or charge-off of the principal balance of
the loan to the allowance for loan losses.
70
The following is a summary of other real estate owned by
category for the dates shown:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(Dollars in thousands)
|
|
|
Acreage
|
|
$
|
2,251
|
|
|
$
|
1,222
|
|
Commercial buildings
|
|
|
5,226
|
|
|
|
656
|
|
Residential condominiums
|
|
|
2,730
|
|
|
|
1,314
|
|
Residential single-family homes
|
|
|
15,696
|
|
|
|
9,394
|
|
Residential lots
|
|
|
14,613
|
|
|
|
7,277
|
|
Other
|
|
|
1,102
|
|
|
|
108
|
|
|
|
|
|
|
|
|
|
|
Other real estate owned
|
|
$
|
41,618
|
|
|
$
|
19,971
|
|
|
|
|
|
|
|
|
|
|
Other real estate, acquired through partial or total
satisfaction of loans, is carried at the lower of cost or fair
value, less estimated selling expenses. At the date of
acquisition, any difference between the fair value and book
value of the asset is charged to the allowance for loan losses.
The value of other foreclosed real estate collateral is
determined based on appraisals by qualified licensed appraisers
approved and hired by our management. Appraised and reported
values are discounted based on managements historical
knowledge, changes in market conditions from the time of
valuation,
and/or
managements expertise and knowledge of the client and the
clients business. Foreclosed real estate is reviewed and
evaluated on at least a quarterly basis for additional
impairment and adjusted accordingly, based on the same factors
identified above.
Impaired Loans. At December 31, 2009, our
recorded investment in impaired loans, under ASC
310-35
totaled $280.3 million, an increase of $227.5 million
from $52.9 million at December 31, 2008. Approximately
$78.7 million is located in the Alabama Region and
$201.6 million is located in the Florida Region.
Approximately $14.5 million of the allowance for loan
losses is specifically allocated to these loans, providing 5.18%
coverage. Additionally, $277.2 million, or 98.9%, of the
$280.3 million in impaired loans is secured by real estate.
The following is a summary of impaired loans and the
specifically allocated allowance for loan losses by category for
the dates shown:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
Outstanding
|
|
|
Specific
|
|
|
Outstanding
|
|
|
Specific
|
|
|
|
Balance
|
|
|
Allowance
|
|
|
Balance
|
|
|
Allowance
|
|
|
|
(Dollars in thousands)
|
|
|
Commercial and industrial
|
|
$
|
3,032
|
|
|
$
|
1,053
|
|
|
$
|
515
|
|
|
$
|
42
|
|
Real estate construction and land development
|
|
|
114,268
|
|
|
|
6,719
|
|
|
|
18,155
|
|
|
|
1,570
|
|
Real estate mortgages
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single-family
|
|
|
53,229
|
|
|
|
5,005
|
|
|
|
18,063
|
|
|
|
2,251
|
|
Commercial
|
|
|
109,222
|
|
|
|
1,686
|
|
|
|
15,615
|
|
|
|
1,173
|
|
Other
|
|
|
500
|
|
|
|
62
|
|
|
|
532
|
|
|
|
70
|
|
Consumer
|
|
|
97
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
280,348
|
|
|
$
|
14,527
|
|
|
$
|
52,880
|
|
|
$
|
5,106
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At the time a loan is identified as impaired, it is evaluated
and valued at the lower of cost or fair value. For collateral
dependent loans, of which $155.5 million is included above
and primarily secured by real estate, fair value is measured
based on the value of the collateral securing these loans and is
classified at a Level 3 in the fair value hierarchy. The
value of real estate collateral is determined based on
appraisals by qualified licensed appraisers approved and hired
by management. The value of business equipment is determined
based on appraisals by qualified licensed appraisers approved
and hired by management, if significant. Appraised and reported
values are discounted based on managements historical
knowledge, changes in market conditions from the time of
valuation,
and/or
managements expertise and knowledge of the client and
clients business.
Our other impaired loans are measured based on the present value
of the expected future cash flows discounted at the loans
effective interest rate. Impairment measured under this method
is comprised primarily of loans
71
considered troubled debt restructurings (TDRs) where
the terms of these loans have been restructured based on the
expected future cash flows. A restructuring of debt constitutes
a TDR if for economic or legal reasons related to
borrowers financial difficulties we grant a concession to
the borrower that we would not otherwise consider.
All impaired loans are reviewed and evaluated on at least a
quarterly basis for additional impairment and adjusted
accordingly.
Included in our impaired loans are nonperforming loans with
specific impairment and loans considered TDRs. The following is
a summary of our TDRs as of December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructured
|
|
|
|
Performing
|
|
|
Not-Performing
|
|
|
|
in Accordance
|
|
|
in Accordance
|
|
|
|
with Restructured Terms
|
|
|
with Restructured Terms
|
|
|
|
Outstanding
|
|
|
Specific
|
|
|
Outstanding
|
|
|
Specific
|
|
|
|
Balance
|
|
|
Allowance
|
|
|
Balance
|
|
|
Allowance
|
|
|
|
(Dollars in thousands)
|
|
|
Alabama:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Real estate construction and land development
|
|
|
924
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
Real estate mortgages
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single-family
|
|
|
8,317
|
|
|
|
287
|
|
|
|
1,106
|
|
|
|
93
|
|
Commercial
|
|
|
22,580
|
|
|
|
222
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
97
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Alabama
|
|
$
|
31,918
|
|
|
$
|
511
|
|
|
$
|
1,106
|
|
|
$
|
93
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Florida
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
$
|
1,212
|
|
|
$
|
883
|
|
|
$
|
|
|
|
$
|
|
|
Real estate construction and land development
|
|
|
19,369
|
|
|
|
482
|
|
|
|
|
|
|
|
|
|
Real estate mortgages
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single-family
|
|
|
4,334
|
|
|
|
276
|
|
|
|
2,760
|
|
|
|
388
|
|
Commercial
|
|
|
56,038
|
|
|
|
442
|
|
|
|
2,227
|
|
|
|
85
|
|
Consumer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Florida
|
|
$
|
80,953
|
|
|
$
|
2,083
|
|
|
$
|
4,987
|
|
|
$
|
473
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
$
|
1,212
|
|
|
$
|
883
|
|
|
$
|
|
|
|
$
|
|
|
Real estate construction and land development
|
|
|
20,293
|
|
|
|
483
|
|
|
|
|
|
|
|
|
|
Real estate mortgages
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single-family
|
|
|
12,651
|
|
|
|
563
|
|
|
|
3,866
|
|
|
|
481
|
|
Commercial
|
|
|
78,618
|
|
|
|
664
|
|
|
|
2,227
|
|
|
|
85
|
|
Consumer
|
|
|
97
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total TDRs
|
|
$
|
112,871
|
|
|
$
|
2,594
|
|
|
$
|
6,093
|
|
|
$
|
566
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Potential Problem Loans. In addition to
nonperforming loans, management has identified
$31.5 million in potential problem loans as of
December 31, 2009. Potential problem loans are loans where
known information about possible credit problems of the
borrowers causes management to have doubts as to the ability of
such borrowers to comply with the present repayment terms and
may result in disclosure of such loans as nonperforming in
future periods. Three categories accounted for 99% of total
potential problem loans. Real estate construction loans account
for 49% of the total and single family residential loans and
commercial real estate loans accounted for 17% and 33%,
respectively. Geographically, 72% of the loans were located in
Florida, with the remainder located in Alabama. In each case,
management is actively working a plan of action to ensure that
any loss exposure is mitigated and will continue to monitor the
cash flow and collateral characteristics of each credit.
72
Deposits. Noninterest-bearing deposits totaled
$257.7 million at December 31, 2009, an increase of
21.2%, or $45.0 million, from $212.7 million at
December 31, 2008. Noninterest-bearing deposits were 9.7%
of total deposits at December 31, 2009 compared to 9.1% at
December 31, 2008.
Interest-bearing deposits totaled $2.399 billion at
December 31, 2009, an increase of 12.6%, or
$268.6 million, from $2.130 billion at
December 31, 2008. Interest-bearing deposits averaged
$2.290 billion for the year ended December 31, 2009
compared to $2.010 billion for the year ended
December 31, 2008. The average rate paid on all
interest-bearing deposits during 2009 was 2.60%, compared to
3.40% for 2008.
As shown below, there were significant increases in our demand
and savings deposits within our reportable segments that
represent core deposits received through our branch network.
Growth in our core deposit base has largely been concentrated in
22 de novo branches opened between 2006 and 2009, which
have grown to $432.9 million by December 31, 2009. Of
this growth, $147.9 million occurred in 2009. This
expansion of our core funding has significantly improved our
liquidity and has enabled us to grow earning assets while
reducing reliance on borrowings and other non-core sources.
The following table sets forth the composition of our total
deposit accounts at the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
Percent
|
|
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
Noninterest-bearing demand
|
|
$
|
257,744
|
|
|
$
|
212,732
|
|
|
|
21.2
|
%
|
Alabama segment
|
|
|
137,160
|
|
|
|
127,115
|
|
|
|
7.9
|
|
Florida segment
|
|
|
103,621
|
|
|
|
78,639
|
|
|
|
31.8
|
|
Other
|
|
|
16,963
|
|
|
|
6,978
|
|
|
|
NCM
|
|
Interest-bearing demand
|
|
|
690,677
|
|
|
|
632,430
|
|
|
|
9.2
|
|
Alabama segment
|
|
|
385,246
|
|
|
|
298,405
|
|
|
|
29.1
|
|
Florida segment
|
|
|
233,740
|
|
|
|
178,850
|
|
|
|
30.7
|
|
Other
|
|
|
71,691
|
|
|
|
155,175
|
|
|
|
(53.8
|
)
|
Savings
|
|
|
284,430
|
|
|
|
185,522
|
|
|
|
53.3
|
|
Alabama segment
|
|
|
151,263
|
|
|
|
106,946
|
|
|
|
41.4
|
|
Florida segment
|
|
|
131,185
|
|
|
|
76,449
|
|
|
|
71.6
|
|
Other
|
|
|
1,982
|
|
|
|
2,127
|
|
|
|
(6.8
|
)
|
Time deposits
|
|
|
1,423,722
|
|
|
|
1,312,304
|
|
|
|
8.5
|
|
Alabama segment
|
|
|
663,510
|
|
|
|
608,056
|
|
|
|
9.1
|
|
Florida segment
|
|
|
555,262
|
|
|
|
490,266
|
|
|
|
13.3
|
|
Other
|
|
|
204,950
|
|
|
|
213,982
|
|
|
|
(4.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
$
|
2,656,573
|
|
|
$
|
2,342,988
|
|
|
|
13.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alabama segment
|
|
$
|
1,337,179
|
|
|
$
|
1,140,522
|
|
|
|
17.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Florida segment
|
|
$
|
1,023,808
|
|
|
$
|
824,204
|
|
|
|
24.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
$
|
295,586
|
|
|
$
|
378,262
|
|
|
|
(21.9
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NCM Not considered meaningful
At December 31, 2009 and 2008, we had deposits from related
parties of approximately $31.5 million and
$22.1 million, respectively. We believe that all of the
deposit transactions were made on terms and conditions in the
ordinary course of business.
73
The following table sets forth our average deposits by category
for the periods indicated:
Average
Deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Amount
|
|
|
Average
|
|
|
Amount
|
|
|
Average
|
|
|
Amount
|
|
|
Average
|
|
|
|
Outstanding
|
|
|
Rate Paid
|
|
|
Outstanding
|
|
|
Rate Paid
|
|
|
Outstanding
|
|
|
Rate Paid
|
|
|
|
(Dollars in thousands)
|
|
|
Noninterest-bearing demand
|
|
$
|
246,428
|
|
|
|
|
%
|
|
$
|
218,486
|
|
|
|
|
%
|
|
$
|
191,066
|
|
|
|
|
%
|
Interest-bearing demand
|
|
|
653,371
|
|
|
|
1.31
|
|
|
|
637,800
|
|
|
|
2.31
|
|
|
|
568,125
|
|
|
|
3.66
|
|
Savings
|
|
|
243,566
|
|
|
|
1.50
|
|
|
|
121,645
|
|
|
|
2.25
|
|
|
|
50,652
|
|
|
|
1.61
|
|
Time deposits customer
|
|
|
1,163,530
|
|
|
|
3.12
|
|
|
|
1,096,841
|
|
|
|
4.07
|
|
|
|
1,023,573
|
|
|
|
4.90
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total average customer deposits
|
|
|
2,306,895
|
|
|
|
2.10
|
|
|
|
2,074,772
|
|
|
|
3.00
|
|
|
|
1,833,416
|
|
|
|
3.92
|
|
Time deposits brokered
|
|
|
229,433
|
|
|
|
2.60
|
|
|
|
153,631
|
|
|
|
4.08
|
|
|
|
148,369
|
|
|
|
5.31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total average deposits
|
|
$
|
2,536,328
|
|
|
|
2.14
|
%
|
|
$
|
2,228,403
|
|
|
|
3.07
|
%
|
|
$
|
1,981,785
|
|
|
|
4.02
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits, particularly core deposits, have historically been our
primary source of funding and have enabled us to meet
successfully both our short-term and long-term liquidity needs.
Our core deposits, which exclude our time deposits greater than
$100,000, represent 71.1% of our total deposits at
December 31, 2009 compared to 70.1% at December 31,
2008. We anticipate that such deposits will continue to be our
primary source of funding in the future. Our
loan-to-deposit
ratio was 93.1% at December 31, 2009, compared to 98.8% at
December 31, 2008.
Borrowings. During 2009, average borrowed
funds decreased $62.2 million, or (17.5)%, to
$294.0 million, from $356.2 million during 2008, which
in turn increased $106.8 million, or 42.8%, from
$249.4 million during 2007. The average rate paid on
borrowed funds during 2009, 2008 and 2007 was 3.43%, 3.40% and
5.20%, respectively. Because of a relatively high
loan-to-deposit
ratio, the existence and stability of these funding sources are
important to our maintenance of short-term and long-term
liquidity.
Advances from the FHLB totaled $218.3 million at
December 31, 2009, a decrease of 39.6%, or
$143.0 million, from $361.3 million at
December 31, 2008. Borrowings from the FHLB have declined
as the increase in customer deposits has outpaced loan growth
since December 31, 2008. FHLB advances had a weighted
average interest rate of approximately 3.74% at
December 31, 2009. The advances are secured by FHLB stock,
agency securities and a blanket lien on certain residential real
estate loans and commercial loans, all with a carrying value of
approximately $942.7 million at December 31, 2009. We
have available approximately $177.2 million in unused
advances under the blanket lien subject to the availability of
qualifying collateral.
The following is a summary, by year of contractual maturity, of
advances from the FHLB for the periods ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
Year:
|
|
Average Rate
|
|
|
Balance
|
|
|
Average Rate
|
|
|
Balance
|
|
|
|
(Dollars in thousands)
|
|
|
2009
|
|
|
|
%
|
|
$
|
|
|
|
|
1.03
|
%
|
|
$
|
142,984
|
|
2010
|
|
|
3.36
|
|
|
|
29,982
|
|
|
|
6.41
|
|
|
|
5,000
|
|
2011
|
|
|
2.66
|
|
|
|
50,000
|
|
|
|
2.69
|
|
|
|
75,000
|
|
2012
|
|
|
4.44
|
|
|
|
5,000
|
|
|
|
4.44
|
|
|
|
5,000
|
|
2013
|
|
|
3.46
|
|
|
|
35,000
|
|
|
|
3.46
|
|
|
|
35,000
|
|
2015
|
|
|
4.58
|
|
|
|
66,340
|
|
|
|
4.58
|
|
|
|
66,340
|
|
2020
|
|
|
4.28
|
|
|
|
32,000
|
|
|
|
4.28
|
|
|
|
32,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
3.74
|
%
|
|
$
|
218,322
|
|
|
|
2.67
|
%
|
|
$
|
361,324
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The above schedule is by contractual maturity. Call dates for
the above are as follows: 2010, $215.3 million.
74
On March 31, 2009, Superior Bank completed a placement of a
$40 million aggregate principal amount 2.625% Senior
Note due 2012 (the Note). The Note is guaranteed by
the FDIC under its TLGP and is backed by the full faith and
credit of the United States. The Note is a direct, unsecured
general obligation of Superior Bank and it is not subject to
redemption prior to maturity. The Note is solely the obligation
of Superior Bank and is not guaranteed by us. Superior Bank
received net proceeds, after discount, FDIC guarantee premium
and other issuance cost, of approximately $38.6 million,
which will be used by Superior Bank for general corporate
purposes. The debt will yield an effective interest rate,
including amortization, of 3.89%.
In connection with the TLGP, the Bank entered into a Master
Agreement with the FDIC. The Master Agreement contains certain
terms and conditions that must be included in the governing
documents for any senior debt securities issued by the Bank that
are guaranteed pursuant to the TLGP.
Subordinated
Debentures.
Issuance of Subordinated Debt and Related
Warrant. On September 17, 2008, Superior
Bank entered into an Agreement to Purchase Subordinated Notes
(the Agreement) with Durden Enterprises, LLC (the
Purchaser). Pursuant to the terms of the Agreement,
Superior Bank issued to the Purchaser $10 million in
aggregate principal amount of 9.5% Subordinated Notes due
September 15, 2018 (the Notes), and Superior
Bancorp issued to the Purchaser a warrant (the
Warrant) to purchase up to one million shares of our
common stock, $.001 par value per share, at a price of
$7.53 per share. The exercise price for the Warrant was based on
the average of the closing prices of our common stock for the 10
trading days immediately preceding September 17, 2008.
Interest on the Note is payable quarterly. The Purchaser may,
subject to regulatory approval, accelerate the payment of
principal and interest if there is an event of default under the
terms of the Note. Events of default are limited to the
commencement of voluntary or involuntary bankruptcy or similar
proceedings with respect to Superior Bank. Beginning on
September 15, 2013, Superior Bank may redeem all or a
portion of the Notes on any interest payment date at a price
equal to 100% of the principal amount of the redeemed Notes plus
accrued but unpaid interest.
The fair value of the Warrant totaling $2.6 million was
determined using the Black-Scholes option-pricing model. The
value of the Warrant is being amortized into interest expense
over the term of the Agreement. The Warrant is exercisable at
any time prior to the close of business on September 15,
2013. We agreed to register with the Securities and Exchange
Commission the stock that would be issued to the Purchaser upon
the exercise of the Warrant. We also granted to the Purchaser an
option to purchase up to $10 million in additional
subordinated notes and receive additional warrants in the future
on similar terms and conditions with such changes as are
necessary to reflect market conditions at that time. K. Earl
Durden, the managing member of the Purchaser, is a director of
Superior Bancorp and Superior Bank.
Junior Subordinated Debentures. On
July 19, 2007, we issued approximately $22 million in
aggregate principal amount of trust preferred securities and a
like amount of related subordinated debentures through our
wholly-owned, unconsolidated subsidiary trust, Superior Capital
Trust I. The trust preferred securities and subordinated
debentures bear interest at a floating rate of three-month LIBOR
plus 1.33% that is payable quarterly. The trust preferred
securities, which may be redeemed on or after September 15,
2012, will mature on September 15, 2037 (See Note 30
to the consolidated financial statements).
On July 25, 2007, we completed a redemption of
approximately $16 million in aggregate outstanding
principal amount of trust preferred securities and related
six-month LIBOR plus 3.75% junior subordinated debentures due
July 25, 2031, both of which were issued by our
wholly-owned, unconsolidated subsidiary trust, TBC Capital
Statutory Trust III. We called the securities for
redemption effective July 25, 2007 at a redemption price
equal to 106.15% of par. The remaining proceeds from the
issuance of the new trust preferred securities were used in the
stock repurchase program and for other corporate purposes. We
incurred a loss of approximately $1.5 million
($0.9 million, net of tax, or $.02 per share), during the
third quarter of 2007 relating to the redemption of the
outstanding trust preferred securities.
In addition to the trust described in the immediately following
paragraph, we have three more sponsored trusts, TBC Capital II,
Community Capital I and Peoples Trust I, of which 100% of
the common equity is owned by us. The trusts were formed for the
purpose of issuing obligated mandatory redeemable trust
preferred securities to third-party investors and investing the
proceeds from the sale of such trust preferred securities solely
in junior
75
subordinated debt securities of ours (the debentures). The
debentures held by each trust are the sole assets of that trust.
Distributions on the trust preferred securities issued by each
trust are payable semi-annually at a rate per annum equal to the
interest rate being earned by the trust on the debentures held
by that trust. The trust preferred securities are subject to
mandatory redemption, in whole or in part, upon repayment of the
debentures. We have entered into agreements which, taken
collectively, fully and unconditionally guarantee the trust
preferred securities subject to the terms of each of the
guarantees. The debentures held by the TBC Capital II, Community
Capital I and Peoples Trust I trusts are first redeemable,
in whole or in part, by us on September 7, 2010,
March 8, 2010 and December 15, 2010, respectively.
On December 11, 2009, we issued approximately
$69.0 million in aggregate principal amount of trust
preferred securities and a like amount of related subordinated
debentures through our wholly-owned, unconsolidated subsidiary
trust, Superior Capital Trust II. The trust preferred
securities and subordinated debentures bear interest, payable
quarterly, at a rate of 5% until February 15, 2014 when the
rate increases to 9%. The trust preferred securities are
perpetual, having no stated maturity, but may be redeemed at any
time by us on 30 days notice. See Note 29 to the
consolidated financial statements for additional details.
Consolidated debt obligations related to these subsidiary trusts
and other subordinated debt are as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(Dollars in thousands)
|
|
|
Junior Subordinated Debentures
|
|
|
|
|
|
|
|
|
5.00% perpetual junior subordinated debentures owed to Superior
Capital Trust II(3)(4)
|
|
$
|
69,100
|
|
|
$
|
|
|
10.6% junior subordinated debentures owed to TBC Capital
Statutory Trust II due September 7, 2030
|
|
|
15,464
|
|
|
|
15,464
|
|
10.875% junior subordinated debentures owed to Community Capital
Trust I due March 8, 2030
|
|
|
10,310
|
|
|
|
10,310
|
|
3-month
LIBOR plus 1.33% junior subordinated debentures owed to Superior
Capital Trust I due September 15, 2037(1)
|
|
|
22,681
|
|
|
|
22,681
|
|
6.41% junior subordinated debentures owed to Peoples Community
Capital Trust I due December 15, 2035(2)
|
|
|
4,124
|
|
|
|
4,124
|
|
Add (subtract):
|
|
|
|
|
|
|
|
|
Purchase accounting adjustment
|
|
|
471
|
|
|
|
819
|
|
Discount related to 5.00% perpetual junior subordinated
debentures owed to Superior Capital Trust II(4)
|
|
|
(45,598
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total junior subordinated debentures owed to unconsolidated
subsidiary trusts
|
|
|
76,552
|
|
|
|
53,398
|
|
Other Subordinated Debt
|
|
|
|
|
|
|
|
|
9.5% subordinated debentures owed to Durden Enterprises,
LLC due September 15, 2013
|
|
|
10,000
|
|
|
|
10,000
|
|
Add (subtract):
|
|
|
|
|
|
|
|
|
Discount related to 9.5% subordinated debentures owed to
Durden Enterprises, LLC
|
|
|
(2,382
|
)
|
|
|
(2,514
|
)
|
|
|
|
|
|
|
|
|
|
Total other subordinated debt
|
|
|
7,618
|
|
|
|
7,486
|
|
|
|
|
|
|
|
|
|
|
Total subordinated debentures
|
|
$
|
84,170
|
|
|
$
|
60,884
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Interest rate is equal to 1.58% at December 31, 2009. The
Corporation has entered into interest rate swap agreements to an
average effective fixed rate of 4.42%. (see Note 15 to the
consolidated financial statements). |
|
(2) |
|
Converts to quarterly floating rate of LIBOR plus 1.45% in
December 2010. |
|
(3) |
|
Converts to 9.00% on February 15, 2014 (see Note 29 to
the consolidated financial statements). |
|
(4) |
|
Effective yield is equal to 20.22% (see Note 29 to the
consolidated financial statements). |
76
Stockholders
Equity.
Overview. Our stockholders equity
totaled $191.7 million at December 31, 2009 compared
to $251.2 million at December 31, 2008. This decrease
was primarily due to the amount of cumulative dividends on
preferred stock, exchange of preferred stock for trust preferred
securities and the net loss for the period, partially offset by
the components of other comprehensive income (loss) as shown
below. See the Statement of Changes in Stockholders
Equity in the consolidated financial statements included
elsewhere in this report.
In November 2009, after approval by our Board of Directors and
our stockholders, we amended our Restated Certificate of
Incorporation to increase the number of authorized shares of our
common stock from 20 million to 200 million.
During 2009, we sold approximately 1.5 million shares of
our common stock at prices ranging from $2.21 to $2.71 per share
to approximately 20 accredited investors in a series of
transactions exempt from the registration requirements of the
Securities Act of 1933 pursuant to Securities and Exchange
Commission Regulation D. Of the shares issued,
approximately $0.3 million were issued from Treasury. We
received total cash consideration of approximately
$3.3 million in connection with these transactions.
On April 28, 2008, we completed a
1-for-4
reverse split of our common stock, reducing the number of
authorized shares of common stock from 60 million to
15 million and the number of common shares outstanding from
40.2 million to 10.1 million. This action brought our
authorized common shares and common shares outstanding more
nearly in line with peer community banks. All disclosures in
this annual report regarding common stock and related per share
information have been retroactively restated for all periods
presented to reflect the reverse stock split. The
1-for-4
reverse stock split was effective in the market as of the
opening of trading on April 28, 2008.
Other Comprehensive (Loss) Income. Our
stockholders equity was affected by various components of
our comprehensive loss. The components of other comprehensive
(loss) income for the years ended December 31, 2009 and
2008 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-Tax
|
|
|
Income Tax
|
|
|
Net of
|
|
|
|
Amount
|
|
|
Expense
|
|
|
Income Tax
|
|
|
|
(Dollars in thousands)
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on available for sale securities
|
|
$
|
(10,748
|
)
|
|
$
|
3,977
|
|
|
$
|
(6,771
|
)
|
Less reclassification adjustment for losses realized in net loss
|
|
|
10,102
|
|
|
|
(3,738
|
)
|
|
|
6,364
|
|
Unrealized gain on derivatives
|
|
|
189
|
|
|
|
(71
|
)
|
|
|
118
|
|
Defined benefit pension plan net gain arising during
the period
|
|
|
617
|
|
|
|
(228
|
)
|
|
|
389
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gain
|
|
$
|
160
|
|
|
$
|
(60
|
)
|
|
$
|
100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on available for sale securities
|
|
$
|
(16,885
|
)
|
|
$
|
6,203
|
|
|
$
|
(10,682
|
)
|
Less reclassification adjustment for losses realized in net loss
|
|
|
8,453
|
|
|
|
(3,128
|
)
|
|
|
5,325
|
|
Unrealized loss on derivatives
|
|
|
(955
|
)
|
|
|
354
|
|
|
|
(601
|
)
|
Defined benefit pension plan net loss arising during
the period
|
|
|
(3,398
|
)
|
|
|
1,257
|
|
|
|
(2,141
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized loss
|
|
$
|
(12,785
|
)
|
|
$
|
4,686
|
|
|
$
|
(8,099
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Please refer to the Financial Condition
Investment Securities section for additional discussion
regarding the realized/unrealized gains and losses on the
investment securities portfolio. Additional discussion is
included in the Market Risk Derivative
Positions on the unrealized loss on derivatives. Certain
information regarding our pension liability is disclosed in
Note 20 to the consolidated financial statements, which
includes asset values, projected benefit obligations, investment
policies and asset allocations.
77
Exchange of preferred stock held by the Treasury Department
for trust preferred securities. On
December 5, 2008, as part of the Troubled Asset Relief
Program (TARP) Capital Purchase Program, we issued
and sold, and the Treasury Department purchased,
(i) 69,000 shares (the Preferred Stock) of
our Fixed Rate Cumulative Perpetual Preferred Stock,
Series A, having a liquidation preference of $1,000 per
share, and (ii) a ten-year warrant (the
Warrant) to purchase up to 1,923,792 shares of
our voting common stock, par value $0.001 per share at an
exercise price of $5.38 per share, for an aggregate purchase
price of $69 million in cash. The issuance and sale of
these securities was a private placement exempt from
registration pursuant to Section 4(2) of the Securities Act
of 1933.
On December 11, 2009, we entered into an exchange agreement
with the Treasury Department pursuant to which the Treasury
Department agreed that it would exchange all 69,000 shares
of our outstanding Preferred Stock owned by the Treasury
Department for 69,000 newly issued trust preferred securities,
$1,000 liquidation amount per capital security, issued by
Superior Capital Trust II, a wholly-owned, unconsolidated
subsidiary of Superior Bancorp. The trust preferred securities
were issued to the Treasury Department on December 11,
2009. In connection with this exchange, the trust used the
Preferred Stock, together with the proceeds of the issuance and
sale by the trust of $0.1 million aggregate liquidation
amount of their fixed rate common securities, to purchase the
$69.1 million aggregate principal amount of junior
subordinated debentures we issued.
The trust preferred securities issued to the Treasury Department
have a distribution rate of 5% until, but excluding
February 15, 2014 and 9% thereafter (which is the same as
the dividend rate on the Preferred Stock). We hold the common
securities of the trust, in the amount of $0.1 million. The
sole asset and only source of funds to make payments on the
trust preferred securities and the common securities of the
trust is $69.1 million of our Fixed Rate Perpetual Junior
Subordinated Debentures, which we issued to the trust. The
debentures are perpetual and we may redeem them at any time on
30 days notice.
Under the guarantee agreement dated as of December 11,
2009, we irrevocably and unconditionally agree to pay in full to
the Treasury Department the guaranteed payments, as and when
due. Our obligation to make the guaranteed payment may be
satisfied by direct payment of the required amounts to the
Treasury Department of the trust preferred securities or by
causing the issuer trust to pay such amounts to the Treasury
Department. Our obligations under the guarantee agreement
constitute unsecured obligations and rank subordinate and junior
in right of payment to all senior debt. Our obligations under
the guarantee agreement rank pari passu with any of our
obligations under similar guarantee agreements which we issue on
behalf of the holders of preferred or capital securities issued
by any statutory trust, among others stated in the guarantee
agreement. Under the guarantee agreement, we have guaranteed the
payment of the liquidation amount of the trust preferred
securities upon liquidation of the trust, but only to the extent
that the trust has funds available to make such payments.
Under the exchange agreement, our agreement that, without the
consent of the Treasury Department, we would not increase our
dividend rate per share of common stock above that in effect as
of October 13, 2008 or repurchase shares of our common
stock until, in each case, the earlier of December 5, 2011
or such time as all of the new trust preferred securities have
been redeemed or transferred by the Treasury Department, remains
in effect.
Initially, in connection with the issuance of the Preferred
Stock on December 5, 2008, the Treasury Department was
issued a warrant to purchase 1,923,392 shares of our common
stock at an exercise price of $5.38 per share. However, as a
result of the issuance of 1,491,618 additional shares in July
2009, we adjusted the warrant share position to
1,975,688 shares with a strike price of $5.239.
The trust preferred securities issued to the Treasury Department
continue to qualify as Tier 1 regulatory capital as of
December 31, 2009. The trust preferred securities are
subject to the 25% limitation on Tier 1 capital.
This transaction with the Treasury Department was accounted for
as an extinguishment of previously issued Preferred Stock. The
accounting impact of this transaction included
(1) recognition of junior subordinated debentures and
derecognition of the Preferred Stock; (2) recognition of a
favorable impact to accumulated deficit resulting from the
excess of (a) the carrying amount of the securities
exchanged (Preferred Stock) over (b) the fair value of the
consideration exchanged (the trust preferred securities);
(3) the reversal of any unamortized discount outstanding on
the Preferred Stock and (4) issuance costs.
At the date of the exchange agreement, the fair value of the
trust preferred securities (junior subordinated debentures for
purposes of our financial statements) was determined internally
using a discounted cash flow model.
78
The main considerations were (1) quarterly interest payment
of 5% until, but excluding February 15 2014 and 9% thereafter;
(2) assumed maturity date of 30 years; and
(3) assumed discount rate of 19.63%. The assumed discount
rate used for estimating the fair value was estimated by
obtaining the yields at which comparable issuers were trading as
assets in the market and computing an implied credit spread. The
discount rate used is the amount of the implied credit spread of
14.69% plus the
30-year swap
rate of 4.94%.
The discount as well as the debt issuance costs will be
amortized through interest expense using the interest yield
method over the estimated life of the junior subordinated
debentures. The effective yield of the issue will be 20.22%.
This particular exchange resulted in a gain on retirement of
preferred stock favorably impacting accumulated deficit by
$23.1 million (net of deferred taxes), which is also
considered as part of earnings (losses) applicable to common
stockholders in the earnings (losses) per common share
(EPS) computations. See Note 23 to the
consolidated financial statements for a reconciliation of EPS. A
summary of this transaction and the increases (decreases) in the
related asset, liability and stockholders equity accounts
is as follows (Dollars in thousands):
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Other assets investment in common stock of trust
|
|
|
|
|
|
$
|
100
|
|
deferred income taxes (see Note 14 to the
consolidated financial statements)
|
|
|
|
|
|
|
(16,544
|
)
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
|
|
|
$
|
(16,444
|
)
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Subordinated debentures, net (see Note 11 to the
consolidated financial statements):
|
|
|
|
|
|
|
|
|
Issuance
|
|
|
|
|
|
$
|
69,100
|
|
Discount
|
|
|
|
|
|
|
(44,714
|
)
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
|
|
|
|
24,386
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity (see Note 27 to the consolidated
financial statements)
|
|
|
|
|
|
|
|
|
Preferred stock, par value $.001 per share
|
|
|
|
|
|
$
|
|
|
Surplus preferred ($69,000 less discount of $5,073)
|
|
|
|
|
|
|
(63,927
|
)
|
Accumulated deficit (net of $16,544 deferred taxes)
|
|
|
|
|
|
|
23,097
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
|
|
|
|
(40,830
|
)
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
|
|
|
|
$
|
(16,444
|
)
|
|
|
|
|
|
|
|
|
|
Exchange
of non-pooled trust preferred securities for newly issued common
stock
On January 15, 2010, we entered into an agreement with
Cambridge Savings Bank (Cambridge) pursuant to which
Cambridge will exchange $3.5 million of trust preferred
securities issued by our wholly owned unconsolidated subsidiary,
Superior Capital Trust I, for shares of our common stock.
The number of shares of common stock to be issued to Cambridge
will equal 77% of the face value of the trust preferred
securities divided by a weighted average of the sales prices of
newly issued shares of our common stock sold between the date of
the agreement and the closing of the exchange or, if lower, the
weighted average of the sales prices of such stock within
forty-eight hours prior to the closing of the exchange. The
consummation of the transaction is conditioned upon selling at
least $75 million of our common stock either for cash or in
exchange for trust preferred securities or debt, obtaining
consent of our stockholders if required by NASDAQ, and other
customary closing conditions.
On January 20, 2010, we entered into an agreement with KBW,
Inc. (KBW) pursuant to which KBW will exchange
$4.0 million of trust preferred securities issued by our
unconsolidated subsidiary, Superior Capital Trust I, for
shares of our common stock. The number of shares of common stock
to be issued to KBW will equal 50% of the face value of the
trust preferred securities divided by the greater of the
following prices of our common stock during the ten trading days
prior to the closing of the exchange: (1) the average of
the closing prices or (2) 90% of the volume weighted
average price. The consummation of the transaction is
conditioned upon obtaining consent of our stockholders if
required by NASDAQ, and other customary closing conditions.
Neither we nor our affiliates have any material relationship
with Cambridge other than in respect of the exchange agreement.
Neither we nor our affiliates have any material relationship
with KBW except that we have
79
engaged an affiliate of KBW to assist us in formulating and
implementing strategies to strengthen our capital position.
We expect to record a net after-tax gain of $1.8 million
upon exchange of the trust preferred securities. The ultimate
effect of the transactions will be to increase
stockholders equity by approximately $6.5 million,
consisting of both the increase in equity upon recording gains
on retirement of the securities, and the value of the newly
issued shares.
See Notes 27, 29 and 30 to the consolidated financial
statements.
Stock Repurchase Plan. We announced in June
2007 that our Board of Directors had approved the repurchase of
up to 250,000 shares of our outstanding common stock.
During the quarter ended September 30, 2007, we purchased
250,000 shares of then outstanding stock at an average
price of $36.88 per share, which have been recorded, at cost, as
treasury stock in the consolidated statement of financial
condition. The shares were purchased in the open market through
negotiated or block transactions and were not repurchased from
our management team or other insiders.
We announced in October 2007, that our Board of Directors
approved the purchase of an additional 250,000 shares of
our outstanding common stock beginning on or after
November 2, 2007. During the quarter ended
December 31, 2007, we purchased 45,500 shares of then
outstanding stock at an average price of $26.44, which have been
recorded, at cost, as treasury stock in the consolidated
statement of financial condition. The shares were purchased in
the open market through negotiated or block transactions. We did
not repurchase any shares from our management team or other
insiders. This stock repurchase program does not obligate us to
acquire any specific number of shares and may be suspended or
discontinued at any time.
Stock Incentive Plan. In April 2008, our
stockholders approved the Superior Bancorp 2008 Incentive
Compensation Plan (the 2008 Plan) which succeeded
the 1998 Plan. The purpose of the 2008 Plan is to provide
additional incentive for our directors and key employees to
further the growth, development and our financial success by
personally benefiting through the ownership of our common stock,
or other rights which recognize such growth, development and
financial success. Our Board also believes the 2008 Plan will
enable it to obtain and retain the services of directors and
employees who are considered essential to its long-range success
by offering them an opportunity to own stock and other rights
that reflect our financial success. The maximum aggregate number
of shares of common stock that may be issued or transferred
pursuant to awards under the 2008 Plan is 300,000 (restated for
1-for-4
reverse stock split) shares, of which no more than
90,000 shares may be issued for full value
awards (defined under the 2008 Plan to mean any awards
permitted under the 2008 Plan that are neither stock options nor
stock appreciation rights). Only those employees and directors
who are selected to receive grants by the administrator may
participate in the 2008 Plan.
A summary of stock option activity as of December 31, 2009
and changes during the year then ended is set forth below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
Number
|
|
|
Price
|
|
|
Term
|
|
|
Value
|
|
|
Under option, beginning of period
|
|
|
848,922
|
|
|
$
|
29.94
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
104,100
|
|
|
|
2.97
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(27,375
|
)
|
|
|
(31.77
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Under option, end of period
|
|
|
925,647
|
|
|
$
|
26.85
|
|
|
|
5.65
|
|
|
$
|
39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at end of period
|
|
|
625,903
|
|
|
$
|
31.76
|
|
|
|
2.90
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average fair value per option of options granted during
the period
|
|
$
|
1.47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
80
During the year ended December 31, 2009, 2008 and 2007, the
Corporation recognized approximately $0.5 million,
$0.6 million and $0.5 million in compensation expense
related to options granted. Additional disclosure regarding our
stock incentive plan is included in Note 12 to the
consolidated financial statements.
In January 2008, members of our management received restricted
common stock grants totaling 26,788 shares. These grants
exclude certain senior executive management who received cash
under the short-term management incentive plan in lieu of
restricted stock. The grant date fair value of this restricted
common stock is equal to $18.56 per share, or $0.5 million
in the aggregate which will be recognized over a
24-month
period as 50% of the stock vests on January 22, 2009 and
the remaining 50% vests on January 22, 2010. During the
twelve-month periods ended December 31, 2009 and 2008, we
recognized approximately $0.2 million and
$0.3 million, respectively, in compensation expense related
to restricted stock. The outstanding shares of restricted common
stock are included in the diluted earnings per share
calculation, using the treasury stock method, until the shares
vest. Once vested, the shares become outstanding for basic
earnings per share. If an executives employment terminates
prior to a vesting date for any reason other than death,
disability or a change in control, the unvested stock is
forfeited pursuant to the terms of the restricted common stock
agreement. Unvested restricted common stock becomes immediately
vested upon death, disability or a change in control. Under the
restricted common stock agreements, the restricted stock may not
be sold or assigned in any manner during the vesting period, but
the executive will have the rights of a shareholder with respect
to the stock (i.e. the right to vote, receive dividends, etc),
prior to vesting.
Regulatory Capital. During the fourth quarter
of 2005, we became a unitary thrift holding company and, as
such, we are subject to regulation, examination and supervision
by the OTS.
Simultaneously, Superior Banks charter was changed to a
federal savings bank charter, and Superior Bank is also subject
to various regulatory requirements administered by the OTS.
Prior to November 1, 2005, Superior Bank was regulated by
the Alabama Banking Department and the Federal Reserve. Failure
to meet minimum capital requirements can initiate certain
mandatory and possibly additional discretionary actions by
regulators that, if undertaken, could have a direct material
effect on our financial position and results of operations.
Under capital adequacy guidelines and the regulatory framework
for prompt corrective action, Superior Bank must meet specific
capital guidelines that involve quantitative measures of its
assets, liabilities and certain off-balance sheet items as
calculated under regulatory accounting practices. Superior
Banks capital amounts and classification are also subject
to qualitative judgments by the regulators about components,
risk weightings and other factors.
Quantitative measures established by regulation to ensure
capital adequacy require Superior Bank to maintain minimum
amounts and ratios (set forth in the table below) of tangible
and core capital (as defined in the regulations) to adjusted
total assets (as defined), and of total capital (as defined) and
Tier 1 capital to risk weighted assets (as defined).
Management believes that Superior Bank meets all applicable
capital adequacy requirements as of December 31, 2009.
The table below represents Superior Banks actual
regulatory and minimum regulatory capital requirements at
December 31, 2009 (Dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
To Be Well
|
|
|
|
|
|
|
For Capital
|
|
|
Capitalized Under
|
|
|
|
|
|
|
Adequacy
|
|
|
Prompt Corrective
|
|
|
|
Actual
|
|
|
Purposes
|
|
|
Action
|
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
|
(Dollars in thousands)
|
|
|
Tier 1 Core Capital (to Adjusted Total Assets)
|
|
$
|
249,253
|
|
|
|
7.79
|
%
|
|
$
|
127,957
|
|
|
|
4.00
|
%
|
|
$
|
159,947
|
|
|
|
5.00
|
%
|
Total Capital (to Risk Weighted Assets)
|
|
|
286,748
|
|
|
|
10.69
|
|
|
|
214,517
|
|
|
|
8.00
|
|
|
|
268,146
|
|
|
|
10.00
|
|
Tier 1 Capital (to Risk Weighted Assets)
|
|
|
249,253
|
|
|
|
9.30
|
|
|
|
NA
|
|
|
|
NA
|
|
|
|
160,888
|
|
|
|
6.00
|
|
Tangible Capital (to Adjusted Total Assets)
|
|
|
249,253
|
|
|
|
7.79
|
|
|
|
47,984
|
|
|
|
1.50
|
|
|
|
NA
|
|
|
|
NA
|
|
81
Impact of
Inflation
Unlike most industrial companies, our assets and liabilities are
primarily monetary in nature. Therefore, interest rates have a
more significant effect on our performance than do the effects
of changes in the general rate of inflation and changes in
prices. In addition, interest rates do not necessarily move in
the same direction or in the same magnitude as the prices of
goods and services. We seek to manage the relationships between
interest sensitive assets and liabilities in order to protect
against wide interest rate fluctuations, including those
resulting from inflation.
Forward-Looking
Statements
The Private Securities Litigation Reform Act of 1995 provides a
safe harbor for forward-looking statements made by us or on our
behalf. Some of the disclosures in this Annual Report on
Form 10-K,
including any statements preceded by, followed by or which
include the words may, could,
should, will, would,
hope, might, believe,
expect, anticipate,
estimate, intend, plan,
assume or similar expressions constitute
forward-looking statements.
These forward-looking statements, implicitly and explicitly,
include the assumptions underlying the statements and other
information with respect to our beliefs, plans, objectives,
goals, expectations, anticipations, estimates, intentions,
financial condition, results of operations, future performance
and business, including our expectations and estimates with
respect to our revenues, expenses, earnings, return on equity,
return on assets, efficiency ratio, asset quality, the adequacy
of our allowance for loan losses and other financial data and
capital and performance ratios.
Although we believe that the expectations reflected in our
forward-looking statements are reasonable, these statements
involve risks and uncertainties which are subject to change
based on various important factors (some of which are beyond our
control). Such forward looking statements should, therefore, be
considered in light of various important factors set forth from
time to time in our reports and registration statements filed
with the SEC. The following factors, among others, could cause
our financial performance to differ materially from our goals,
plans, objectives, intentions, expectations and other
forward-looking statements: (1) the strength of the United
States economy in general and the strength of the regional and
local economies in which we conduct operations; (2) the
effects of, and changes in, trade, monetary and fiscal policies
and laws, including interest rate policies of the Board of
Governors of the Federal Reserve System; (3) inflation,
interest rate, market and monetary fluctuations; (4) our
ability to successfully integrate the assets, liabilities,
customers, systems and management we acquire or merge into our
operations; (5) our timely development of new products and
services in a changing environment, including the features,
pricing and quality compared to the products and services of our
competitors; (6) the willingness of users to substitute
competitors products and services for our products and
services; (7) the impact of changes in financial services
policies, laws and regulations, including laws, regulations and
policies concerning taxes, banking, securities and insurance,
and the application thereof by regulatory bodies; (8) our
ability to resolve any legal proceeding on acceptable terms and
its effect on our financial condition or results of operations;
(9) technological changes; (10) changes in consumer
spending and savings habits; (11) the effect of natural
disasters, such as hurricanes, in our geographic markets;
(12) regulatory, legal or judicial proceedings;
(13) the continuing instability in the domestic and
international capital markets; (14) the effects of new and
proposed laws relating to financial institutions and credit
transactions; (15) the effects of policy initiatives that
have been and may continue to be introduced by the new
Presidential administration and related regulatory actions; and
(16) our success in any new capital financing activities we
may undertake.
82
If one or more of the factors affecting our forward-looking
information and statements proves incorrect, then our actual
results, performance or achievements could differ materially
from those expressed in, or implied by, forward-looking
information and statements contained in this annual report.
Therefore, we caution you not to place undue reliance on our
forward-looking information and statements.
We do not intend to update our forward-looking information and
statements, whether written or oral, to reflect change. All
forward-looking statements attributable to us are expressly
qualified by these cautionary statements.
|
|
Item 7A.
|
Quantitative
and Qualitative Disclosures About Market Risks.
|
Please refer to Item 7. Managements Discussion
and Analysis of Financial Condition and Results of
Operations Market Risk Interest Rate
Sensitivity, which is incorporated herein by reference.
|
|
Item 8.
|
Financial
Statements and Supplementary Data.
|
Consolidated financial statements of Superior Bancorp meeting
the requirements of
Regulation S-X
are filed on the succeeding pages of this Item 8 of this
Annual Report on
Form 10-K.
83
SUPERIOR
BANCORP AND SUBSIDIARIES
CONSOLIDATED
FINANCIAL STATEMENTS
Years
ended December 31, 2009, 2008 and 2007
CONTENTS
84
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
Superior Bancorp
We have audited the accompanying consolidated statements of
financial condition of Superior Bancorp (a Delaware corporation)
and subsidiaries as of December 31, 2009 and 2008, and the
related consolidated statements of operations, changes in
stockholders equity and cash flows for each of the three
years in the period ended December 31, 2009. These
financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of Superior Bancorp and subsidiaries as of
December 31, 2009 and 2008, and the results of their
operations and their cash flows for each of the three years in
the period ended December 31, 2009, in conformity with
accounting principles generally accepted in the United States of
America.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States),
Superior Bancorps internal control over financial
reporting as of December 31, 2009, based on criteria
established in Internal Control Integrated Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO) and our report dated March 11,
2010, expressed an unqualified opinion.
Raleigh, North Carolina
March 11, 2010
85
SUPERIOR
BANCORP AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(Dollars in thousands, except per share amounts)
|
|
|
ASSETS
|
Cash and due from banks
|
|
$
|
74,020
|
|
|
$
|
74,237
|
|
Interest-bearing deposits in other banks
|
|
|
23,714
|
|
|
|
10,042
|
|
Federal funds sold
|
|
|
2,036
|
|
|
|
5,169
|
|
|
|
|
|
|
|
|
|
|
Total cash and cash equivalents
|
|
|
99,770
|
|
|
|
89,448
|
|
Investment securities
available-for-sale
|
|
|
286,310
|
|
|
|
347,142
|
|
Tax lien certificates
|
|
|
19,292
|
|
|
|
23,786
|
|
Mortgage loans held for sale
|
|
|
71,879
|
|
|
|
22,040
|
|
Loans
|
|
|
2,475,590
|
|
|
|
2,316,915
|
|
Unearned income
|
|
|
(2,893
|
)
|
|
|
(1,994
|
)
|
|
|
|
|
|
|
|
|
|
Loans, net of unearned income
|
|
|
2,472,697
|
|
|
|
2,314,921
|
|
Allowance for loan losses
|
|
|
(41,884
|
)
|
|
|
(28,850
|
)
|
|
|
|
|
|
|
|
|
|
Net loans
|
|
|
2,430,813
|
|
|
|
2,286,071
|
|
Premises and equipment, net
|
|
|
104,022
|
|
|
|
104,085
|
|
Accrued interest receivable
|
|
|
15,581
|
|
|
|
14,794
|
|
Stock in FHLB
|
|
|
18,212
|
|
|
|
21,410
|
|
Cash surrender value of life insurance
|
|
|
50,142
|
|
|
|
48,291
|
|
Core deposit and other intangible assets
|
|
|
16,694
|
|
|
|
21,052
|
|
Other real estate
|
|
|
41,618
|
|
|
|
19,971
|
|
Other assets
|
|
|
67,536
|
|
|
|
54,611
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
3,221,869
|
|
|
$
|
3,052,701
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Deposits:
|
|
|
|
|
|
|
|
|
Noninterest-bearing demand
|
|
$
|
257,744
|
|
|
$
|
212,732
|
|
Interest-bearing demand
|
|
|
690,677
|
|
|
|
632,430
|
|
Savings
|
|
|
284,430
|
|
|
|
185,522
|
|
Time deposits $100,000 and over
|
|
|
761,585
|
|
|
|
662,175
|
|
Other time deposits
|
|
|
662,137
|
|
|
|
650,129
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
|
2,656,573
|
|
|
|
2,342,988
|
|
Advances from FHLB
|
|
|
218,322
|
|
|
|
361,324
|
|
Security repurchase agreements
|
|
|
841
|
|
|
|
3,563
|
|
Notes payable
|
|
|
45,917
|
|
|
|
7,000
|
|
Subordinated debentures, net
|
|
|
84,170
|
|
|
|
60,884
|
|
Accrued expenses and other liabilities
|
|
|
24,342
|
|
|
|
25,703
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
3,030,165
|
|
|
|
2,801,462
|
|
Commitments and contingencies (Notes 6 and 17)
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Preferred stock, par value $.001 per share; shares authorized
5,000,000:
|
|
|
|
|
|
|
|
|
Series A, fixed rate cumulative perpetual preferred stock,
-0- and 69,000 shares issued and outstanding as of
December 31, 2009 and 2008, respectively
|
|
|
|
|
|
|
|
|
Common stock, par value $.001 per share; shares authorized
200,000,000; shares issued 11,673,837 in 2009 and 10,403,087 in
2008; outstanding 11,667,794 in 2009 and 10,074,999 in 2008
|
|
|
12
|
|
|
|
10
|
|
Surplus preferred
|
|
|
|
|
|
|
62,978
|
|
warrants
|
|
|
8,646
|
|
|
|
8,646
|
|
common
|
|
|
322,043
|
|
|
|
329,461
|
|
Accumulated deficit
|
|
|
(130,889
|
)
|
|
|
(129,904
|
)
|
Accumulated other comprehensive loss
|
|
|
(7,825
|
)
|
|
|
(7,925
|
)
|
Treasury stock, at cost 321,485 shares
outstanding as of December 31, 2008
|
|
|
|
|
|
|
(11,373
|
)
|
Unearned ESOP stock
|
|
|
(263
|
)
|
|
|
(443
|
)
|
Unearned restricted stock
|
|
|
(20
|
)
|
|
|
(211
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
191,704
|
|
|
|
251,239
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
3,221,869
|
|
|
$
|
3,052,701
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes
86
SUPERIOR
BANCORP AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(Dollars in thousands)
|
|
|
Interest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and fees on loans
|
|
$
|
144,660
|
|
|
$
|
147,162
|
|
|
$
|
150,443
|
|
Interest on taxable securities
|
|
|
14,085
|
|
|
|
16,310
|
|
|
|
17,174
|
|
Interest on tax-exempt securities
|
|
|
1,610
|
|
|
|
1,716
|
|
|
|
897
|
|
Interest on federal funds sold
|
|
|
9
|
|
|
|
122
|
|
|
|
471
|
|
Interest and dividends on other investments
|
|
|
1,718
|
|
|
|
2,578
|
|
|
|
2,944
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
|
162,082
|
|
|
|
167,888
|
|
|
|
171,929
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on deposits
|
|
|
54,360
|
|
|
|
68,405
|
|
|
|
79,667
|
|
Interest on other borrowed funds
|
|
|
10,097
|
|
|
|
12,104
|
|
|
|
12,971
|
|
Interest on subordinated debentures
|
|
|
5,063
|
|
|
|
4,094
|
|
|
|
4,129
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
|
69,520
|
|
|
|
84,603
|
|
|
|
96,767
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
92,562
|
|
|
|
83,285
|
|
|
|
75,162
|
|
Provision for loan losses
|
|
|
28,550
|
|
|
|
13,112
|
|
|
|
4,541
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for loan losses
|
|
|
64,012
|
|
|
|
70,173
|
|
|
|
70,621
|
|
Noninterest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Service charges and fees on deposits
|
|
|
10,112
|
|
|
|
9,295
|
|
|
|
7,957
|
|
Mortgage banking income
|
|
|
7,084
|
|
|
|
3,972
|
|
|
|
3,860
|
|
Investment securities gains (losses)
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on sale of securities
|
|
|
5,644
|
|
|
|
1,489
|
|
|
|
308
|
|
Total
other-than-temporary
impairment losses (OTTI)
|
|
|
(23,079
|
)
|
|
|
(9,942
|
)
|
|
|
|
|
Portion of OTTI recognized in other comprehensive
|
|
|
|
|
|
|
|
|
|
|
|
|
income
|
|
|
7,333
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities (loss) gain
|
|
|
(10,102
|
)
|
|
|
(8,453
|
)
|
|
|
308
|
|
Change in fair value of derivatives
|
|
|
(826
|
)
|
|
|
1,240
|
|
|
|
1,310
|
|
Increase in cash surrender value of life insurance
|
|
|
2,198
|
|
|
|
2,274
|
|
|
|
1,895
|
|
Gain on extinguishment of liabilities
|
|
|
|
|
|
|
2,918
|
|
|
|
|
|
Other income
|
|
|
5,113
|
|
|
|
5,521
|
|
|
|
4,027
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest income
|
|
|
13,579
|
|
|
|
16,767
|
|
|
|
19,357
|
|
Noninterest expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits
|
|
|
49,962
|
|
|
|
49,672
|
|
|
|
42,316
|
|
Occupancy, furniture and equipment
|
|
|
18,643
|
|
|
|
17,197
|
|
|
|
13,391
|
|
Amortization of core deposit intangibles
|
|
|
3,941
|
|
|
|
3,585
|
|
|
|
1,691
|
|
Goodwill impairment charge
|
|
|
|
|
|
|
160,306
|
|
|
|
|
|
FDIC assessments
|
|
|
6,348
|
|
|
|
1,105
|
|
|
|
282
|
|
Foreclosure losses
|
|
|
8,116
|
|
|
|
908
|
|
|
|
227
|
|
Loss on extinguishment of debt
|
|
|
|
|
|
|
|
|
|
|
1,469
|
|
Other expenses
|
|
|
23,475
|
|
|
|
21,905
|
|
|
|
18,847
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expenses
|
|
|
110,485
|
|
|
|
254,678
|
|
|
|
78,223
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes
|
|
|
(32,894
|
)
|
|
|
(167,738
|
)
|
|
|
11,755
|
|
Income tax (benefit) expense
|
|
|
(13,005
|
)
|
|
|
(4,588
|
)
|
|
|
4,134
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
|
(19,889
|
)
|
|
|
(163,150
|
)
|
|
|
7,621
|
|
Preferred stock dividends and amortization
|
|
|
(4,193
|
)
|
|
|
(311
|
)
|
|
|
|
|
Gain on exchange of preferred stock for trust preferred debt
|
|
|
23,097
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income applicable to common stockholders
|
|
$
|
(985
|
)
|
|
$
|
(163,461
|
)
|
|
$
|
7,621
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
10,687
|
|
|
|
10,021
|
|
|
|
9,243
|
|
Weighted average common shares outstanding, assuming dilution
|
|
|
10,687
|
|
|
|
10,021
|
|
|
|
9,333
|
|
Basic net (loss) income per common share
|
|
$
|
(0.09
|
)
|
|
$
|
(16.31
|
)
|
|
$
|
0.82
|
|
Diluted net (loss) income per common share
|
|
|
(0.09
|
)
|
|
|
(16.31
|
)
|
|
|
0.82
|
|
See accompanying notes
87
SUPERIOR
BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS
EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Deficit)
|
|
|
Other
|
|
|
|
|
|
Unearned
|
|
|
Unearned
|
|
|
Total
|
|
|
|
Preferred
|
|
|
Common
|
|
|
Surplus
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
Treasury
|
|
|
ESOP
|
|
|
Restricted
|
|
|
Stockholders
|
|
|
|
Stock
|
|
|
Stock
|
|
|
Preferred
|
|
|
Warrants
|
|
|
Common
|
|
|
Earnings
|
|
|
(Loss) Gain
|
|
|
Stock
|
|
|
Stock
|
|
|
Stock
|
|
|
Equity
|
|
|
|
(Dollars in thousands, except per share data)
|
|
|
Balance at January 1, 2007
|
|
$
|
|
|
|
$
|
8
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
253,842
|
|
|
$
|
26,491
|
|
|
$
|
(1,452
|
)
|
|
$
|
(716
|
)
|
|
$
|
(2,086
|
)
|
|
$
|
|
|
|
$
|
276,087
|
|
Adoption of FIN 48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(555
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(555
|
)
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,621
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,621
|
|
Other comprehensive income, net of tax expense of $798,
unrealized gain on securities available for sale, arising during
the period, net of reclassification adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,238
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,238
|
|
Defined benefit pension plan net gain
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
388
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
388
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,247
|
|
Repurchase of 295,500 shares of treasury stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,428
|
)
|
|
|
|
|
|
|
|
|
|
|
(10,428
|
)
|
Issuance of 1,658,781 shares for Peoples purchase
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
73,802
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
73,804
|
|
Issuance of 6,941 shares related to board compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
278
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
278
|
|
Stock options exercised 21,250 shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
640
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
640
|
|
Compensation expense related to stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
472
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
472
|
|
Release of 12,284 shares by ESOP
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
198
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
299
|
|
|
|
|
|
|
|
497
|
|
Termination of ESOP 31,867 shares transferred
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,165
|
)
|
|
|
1,165
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
|
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
329,232
|
|
|
|
33,557
|
|
|
|
174
|
|
|
|
(12,309
|
)
|
|
|
(622
|
)
|
|
|
|
|
|
|
350,042
|
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(163,150
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(163,150
|
)
|
Other comprehensive loss, net of tax benefit of $3,075
unrealized loss on securities available for sale, arising during
the period, net of reclassification adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,357
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,357
|
)
|
Change in accumulated loss on cash flow hedging instrument, net
of tax expense of $354
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(601
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(601
|
)
|
Defined benefit pension plan net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,141
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,141
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(171,249
|
)
|
Issuance of warrant to purchase 1,000,000 shares of common
stock related to subordinated notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,553
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,553
|
|
Issuance of 69,000 shares of cumulative preferred stock
|
|
|
|
|
|
|
|
|
|
|
69,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
69,000
|
|
Issuance of warrant to purchase 1,923,392 shares of common
stock related to preferred stock; adjusted to 1,975,688
|
|
|
|
|
|
|
|
|
|
|
(6,093
|
)
|
|
|
6,093
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative preferred stock dividend of $240, net of amortization
|
|
|
|
|
|
|
|
|
|
|
71
|
|
|
|
|
|
|
|
|
|
|
|
(311
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(240
|
)
|
Issuance of 26,788 shares of restricted stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(447
|
)
|
|
|
|
|
|
|
|
|
|
|
944
|
|
|
|
|
|
|
|
(497
|
)
|
|
|
|
|
Amortization of unearned restricted stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8
|
)
|
|
|
|
|
|
|
286
|
|
|
|
278
|
|
Issuance of 26,795 shares related to board compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
292
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
292
|
|
Compensation expense related to stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
623
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
623
|
|
Fractional shares and issuance costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(94
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(94
|
)
|
Release of 3,881 shares by ESOP
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(145
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
179
|
|
|
|
|
|
|
|
34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
|
|
|
|
|
10
|
|
|
|
62,978
|
|
|
|
8,646
|
|
|
|
329,461
|
|
|
|
(129,904
|
)
|
|
|
(7,925
|
)
|
|
|
(11,373
|
)
|
|
|
(443
|
)
|
|
|
(211
|
)
|
|
|
251,239
|
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(19,889
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(19,889
|
)
|
Other comprehensive loss, net of tax benefit of $239 on
unrealized loss on securities available for sale, arising during
the period, net of reclassification adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(407
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(407
|
)
|
Change in accumulated gain on cash flow hedging instrument, net
of tax expense of $71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
118
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
118
|
|
Defined benefit pension plan net gain, net of tax
expense of $228
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
389
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
389
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(19,789
|
)
|
Cumulative preferred stock dividend of $3,245, net of
amortization
|
|
|
|
|
|
|
|
|
|
|
948
|
|
|
|
|
|
|
|
|
|
|
|
(4,193
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,245
|
)
|
Exchange of preferred stock for trust preferred debt
|
|
|
|
|
|
|
|
|
|
|
(63,926
|
)
|
|
|
|
|
|
|
|
|
|
|
23,097
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(40,829
|
)
|
Issuance of 1,491,618 shares
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
(8,036
|
)
|
|
|
|
|
|
|
|
|
|
|
11,333
|
|
|
|
|
|
|
|
|
|
|
|
3,299
|
|
Issuance of restricted stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
40
|
|
|
|
|
|
|
|
(52
|
)
|
|
|
6
|
|
Amortization of unearned restricted stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
243
|
|
|
|
243
|
|
Issuance of 91,284 shares related to board compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
768
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
768
|
|
Release of 3,938 shares by ESOP
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(168
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
180
|
|
|
|
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
$
|
|
|
|
$
|
12
|
|
|
$
|
|
|
|
$
|
8,646
|
|
|
$
|
322,043
|
|
|
$
|
(130,889
|
)
|
|
$
|
(7,825
|
)
|
|
$
|
|
|
|
$
|
(263
|
)
|
|
$
|
(20
|
)
|
|
$
|
191,704
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes
88
SUPERIOR
BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(Dollars in thousands)
|
|
|
Operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(19,889
|
)
|
|
$
|
(163,150
|
)
|
|
$
|
7,621
|
|
Adjustments to reconcile net (loss) income to net cash (used)
provided by operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill impairment charge
|
|
|
|
|
|
|
160,306
|
|
|
|
|
|
Depreciation
|
|
|
7,249
|
|
|
|
6,576
|
|
|
|
4,630
|
|
Amortization of core deposit and other intangibles
|
|
|
4,358
|
|
|
|
4,001
|
|
|
|
1,868
|
|
Net (discount) premium amortization on securities
|
|
|
136
|
|
|
|
(63
|
)
|
|
|
(116
|
)
|
OTTI
|
|
|
15,746
|
|
|
|
9,942
|
|
|
|
|
|
Gain on sale of investment securities
|
|
|
(5,644
|
)
|
|
|
(1,489
|
)
|
|
|
(308
|
)
|
Gain on sale of interest rate floors
|
|
|
|
|
|
|
(678
|
)
|
|
|
|
|
Loss on the sale of foreclosed assets
|
|
|
5,670
|
|
|
|
528
|
|
|
|
170
|
|
Provision for loan losses
|
|
|
28,550
|
|
|
|
13,112
|
|
|
|
4,541
|
|
(Decrease) increase in accrued interest receivable
|
|
|
(787
|
)
|
|
|
1,718
|
|
|
|
(386
|
)
|
Deferred income tax (benefit) expense
|
|
|
(13,739
|
)
|
|
|
(4,736
|
)
|
|
|
4,021
|
|
Loss (gain) on sale of assets
|
|
|
130
|
|
|
|
(11
|
)
|
|
|
(139
|
)
|
(Gain) loss on extinguishment of liabilities
|
|
|
|
|
|
|
(2,918
|
)
|
|
|
1,469
|
|
Origination of mortgage loans held for sale
|
|
|
(729,716
|
)
|
|
|
(396,330
|
)
|
|
|
(335,424
|
)
|
Proceeds from sale of mortgage loans held for sale
|
|
|
679,877
|
|
|
|
407,698
|
|
|
|
326,449
|
|
Other operating activities, net
|
|
|
(17,495
|
)
|
|
|
(8,538
|
)
|
|
|
(10,653
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used) provided by operating activities
|
|
|
(45,554
|
)
|
|
|
25,968
|
|
|
|
3,743
|
|
Investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sales of investment securities available for sale
|
|
|
157,614
|
|
|
|
44,620
|
|
|
|
18,378
|
|
Proceeds from maturities of investment securities available for
sale
|
|
|
65,848
|
|
|
|
112,106
|
|
|
|
82,873
|
|
Purchase of investment securities available for sale
|
|
|
(173,556
|
)
|
|
|
(159,430
|
)
|
|
|
(59,910
|
)
|
Net increase in loans
|
|
|
(215,153
|
)
|
|
|
(328,452
|
)
|
|
|
(132,769
|
)
|
Net cash received in business combinations
|
|
|
|
|
|
|
|
|
|
|
1,231
|
|
Redemptions of tax lien certificates
|
|
|
42,885
|
|
|
|
27,242
|
|
|
|
20,499
|
|
Purchase of tax lien certificates
|
|
|
(38,391
|
)
|
|
|
(35,413
|
)
|
|
|
(19,801
|
)
|
Purchase of premises and equipment
|
|
|
(8,476
|
)
|
|
|
(12,045
|
)
|
|
|
(23,833
|
)
|
Proceeds from sale of premises and equipment
|
|
|
1,134
|
|
|
|
7,643
|
|
|
|
5,630
|
|
Proceeds from sale of foreclosed assets
|
|
|
14,496
|
|
|
|
6,996
|
|
|
|
7,327
|
|
Decrease (increase) in stock of FHLB
|
|
|
3,198
|
|
|
|
(6,465
|
)
|
|
|
(2,563
|
)
|
Other investing activities, net
|
|
|
|
|
|
|
177
|
|
|
|
4,005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(150,401
|
)
|
|
|
(343,021
|
)
|
|
|
(98,933
|
)
|
Financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in demand and savings deposits
|
|
|
202,365
|
|
|
|
105,222
|
|
|
|
(7,824
|
)
|
Net increase in time deposits
|
|
|
111,418
|
|
|
|
36,611
|
|
|
|
92,150
|
|
(Decrease) increase in FHLB advances
|
|
|
(143,002
|
)
|
|
|
138,496
|
|
|
|
(2,995
|
)
|
Proceeds from note payable
|
|
|
38,575
|
|
|
|
10,000
|
|
|
|
10,000
|
|
Principal payment on note payable
|
|
|
|
|
|
|
(12,500
|
)
|
|
|
(6,045
|
)
|
Net decrease in other borrowed funds
|
|
|
(2,870
|
)
|
|
|
(13,679
|
)
|
|
|
(13,304
|
)
|
Proceeds from issuance of subordinated debentures
|
|
|
|
|
|
|
10,000
|
|
|
|
22,680
|
|
Principal payment on junior subordinated debentures
|
|
|
|
|
|
|
|
|
|
|
(16,495
|
)
|
Purchase of treasury stock
|
|
|
|
|
|
|
|
|
|
|
(10,428
|
)
|
Proceeds from issuance of common stock
|
|
|
3,299
|
|
|
|
|
|
|
|
640
|
|
Proceeds from issuance of preferred stock
|
|
|
|
|
|
|
69,000
|
|
|
|
|
|
Cash dividends paid
|
|
|
(3,508
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
206,277
|
|
|
|
343,150
|
|
|
|
68,379
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in cash and cash equivalents
|
|
|
10,322
|
|
|
|
26,097
|
|
|
|
(26,811
|
)
|
Cash and cash equivalents at beginning of year
|
|
|
89,448
|
|
|
|
63,351
|
|
|
|
90,162
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
99,770
|
|
|
$
|
89,448
|
|
|
$
|
63,351
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid (received) during the year for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
70,278
|
|
|
$
|
86,229
|
|
|
$
|
97,848
|
|
Income taxes
|
|
|
941
|
|
|
|
(1,432
|
)
|
|
|
(564
|
)
|
Exchange of preferred stock for trust preferred debt
|
|
|
69,000
|
|
|
|
|
|
|
|
|
|
Transfer of foreclosed assets
|
|
|
42,136
|
|
|
|
28,419
|
|
|
|
9,239
|
|
Assets acquired in business combinations
|
|
|
|
|
|
|
|
|
|
|
376,061
|
|
Liabilities assumed in business combinations
|
|
|
|
|
|
|
|
|
|
|
303,487
|
|
Issuance of common stock in acquisitions
|
|
|
|
|
|
|
|
|
|
|
73,804
|
|
See accompanying notes
89
SUPERIOR
BANCORP AND SUBSIDIARIES
December 31,
2009, 2008 and 2007
|
|
1.
|
Summary
of Significant Accounting Policies
|
Superior Bancorp (Corporation), through its
subsidiaries, provides a full range of banking and bank-related
services to individual and corporate customers in Alabama and
Florida. The accounting and reporting policies of the
Corporation conform with U.S. generally accepted accounting
principles and to general practice within the banking industry.
The following summarizes the most significant of these policies.
Basis of
Presentation and Variable Interest Entities
The accompanying consolidated financial statements and notes to
consolidated financial statements include the accounts of the
Corporation and its consolidated wholly-owned subsidiaries. The
Corporation also has investments in certain unconsolidated
variable interest entities (VIE) as described below.
All significant intercompany balances and transactions have been
eliminated. Certain amounts in the prior years financial
statements have been reclassified to conform to the 2009
presentation. These reclassifications are immaterial and had no
effect on net income (loss), total assets or stockholders
equity.
The Corporation considers a voting rights entity to be a
subsidiary and consolidates it if the Corporation has a
controlling financial interest in the entity. VIEs are
consolidated if the Corporation is exposed to the majority of
the VIEs expected losses
and/or
residual returns (i.e., the Corporation is considered to be the
primary beneficiary).
The Corporation holds variable interests in five special purpose
trusts which were formed for the issuance of trust preferred
securities to outside investors (See Note 11). The
Corporation does not absorb a majority of the expected losses or
residual returns of the trusts; therefore, the Corporation is
not considered the primary beneficiary and does not consolidate
the trusts. At December 31, 2009 and 2008, the Corporation
had recorded common equity investments in other assets on its
Consolidated Statement of Financial Condition of $1,679,000 and
$1,579,000, respectively that were associated with these trusts.
The Corporation also has limited partnership investments in
affordable housing projects for which it provides funding as a
limited partner and anticipates receiving future income tax
credits related to its investments in the projects. At
December 31, 2009 and 2008, the Corporation had recorded
equity method investments in other assets on its Consolidated
Statement of Financial Condition of approximately $4,207,000 and
$2,241,000, respectively. The projects were certified for
occupancy and placed into service during the early part of 2009.
The Corporation has determined that these structures meet the
definition of VIEs but that consolidation of these direct
limited partnership investments in affordable housing projects
is not required, as the Corporation is not the primary
beneficiary. At December 31, 2009, the Corporations
maximum exposure to loss associated with these limited
partnerships was limited to the Corporations investment.
The Corporation accounts for these investments and the related
tax credits using the effective yield method. Under the
effective-yield method, the Corporation recognizes the tax
credits as they are allocated and amortizes the initial costs of
the investment to provide a constant effective yield over the
period that the tax credits are allocated. Unfunded commitments
to the partnerships included in other liabilities were $213,000
as of December 31, 2009 and $2,241,000 as of
December 31, 2008.
Restatement
to Reflect
1-for-4
Reverse Stock Split
All disclosures regarding common stock and related earnings per
share have been retroactively restated for all periods presented
prior to 2008 to reflect a
1-for-4
reverse stock split effective April 28, 2008 (see
Note 27).
Use of
Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
90
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
1.
|
Summary
of Significant Accounting
Policies (Continued)
|
Cash and
Cash Equivalents
For the purpose of presentation in the statements of cash flows,
cash and cash equivalents are defined as those amounts included
in the statements of financial condition caption Total
cash and cash equivalents. These amounts include cash and
due from banks, interest-bearing deposits with other financial
institutions and federal funds sold.
The Corporations banking subsidiary is required to
maintain minimum average reserve balances by the Federal Reserve
Bank, which are based on a percentage of deposits. At
December 31, 2009 and 2008, the Corporations reserve
requirements were $4,656,000 and $2,941,000, respectively, with
which it was in full compliance.
Investment
Securities
Investment securities are classified as either held to maturity,
available for sale or trading at the time of purchase. The
Corporation defines held to maturity securities as debt
securities which management has the positive intent and ability
to hold to maturity.
Held to maturity securities are reported at cost, adjusted for
amortization of premiums and accretion of discounts that are
recognized in interest income using the effective yield method.
Securities available for sale are reported at fair value and
consist of bonds, notes, debentures, and certain equity
securities not classified as trading securities or as securities
to be held to maturity. Unrealized holding gains and losses, net
of deferred taxes, on securities available for sale are excluded
from earnings and reported in accumulated other comprehensive
income (loss) within stockholders equity.
Gains and losses on the sale of securities available for sale
are determined using the specific-identification method.
Other-Than-Temporary-Impairment
Management evaluates securities for
other-than-temporary
impairment (OTTI) at least on a quarterly basis. The
investment securities portfolio is evaluated for OTTI by
segregating the portfolio into the various segments outlined in
Note 3 and applying the appropriate OTTI model. Investment
securities classified as available for sale or
held-to-maturity
are generally evaluated for OTTI according to ASC
320-10
guidance. In addition, certain purchased beneficial interests,
which may include private-label mortgage-backed securities,
asset-backed securities, and collateralized debt obligations,
that had credit ratings at the time of purchase of below AA are
evaluated using the model outlined in ASC
325-40.
In determining OTTI according to the Financial Accounting
Standards Board (FASB) guidance, management
considers many factors, including: (1) the length of time
and the extent to which the fair value has been less than cost,
(2) the financial condition and near-term prospects of the
issuer, (3) whether the market decline was affected by
macroeconomic conditions and (4) whether the Corporation
has the intent to sell the debt security or more likely than not
will be required to sell the debt security before its
anticipated recovery. The assessment of whether an
other-than-temporary
decline exists involves a high degree of subjectivity and
judgment and is based on the information available to management
at a point in time.
When OTTI occurs under either model, the amount of the OTTI
recognized in earnings depends on whether an entity intends to
sell the security or it is more likely than not it will be
required to sell the security before recovery of its amortized
cost basis, less any current-period credit loss. If an entity
intends to sell or it is more likely than not it will be
required to sell the security before recovery of its amortized
cost basis, less any current-period credit loss, the OTTI is
recognized in earnings at an amount equal to the entire
difference between the investments amortized cost basis
and its fair value at the balance sheet date. If an entity does
not intend to sell the security and it is not more likely than
not that the entity will be required to sell the security before
recovery of its amortized cost basis less any
91
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
1.
|
Summary
of Significant Accounting
Policies (Continued)
|
current-period loss, the OTTI is separated into the amount
representing the credit loss and the amount related to all other
factors. The amount of the total OTTI related to the credit loss
is determined based on the present value of cash flows expected
to be collected and is recognized in earnings. The amount of the
total OTTI related to other factors is recognized in other
comprehensive income, net of applicable taxes. The previous
amortized cost basis less the OTTI recognized in earnings
becomes the new amortized cost basis of the investment.
Tax lien
certificates
Tax lien certificates represent a priority lien against real
property for which assessed real estate taxes are delinquent.
Tax lien certificates are carried at cost plus accrued interest
which approximates fair value. Tax lien certificates and
resulting deeds are classified as non-accrual when a tax lien
certificate is 24 to 48 months delinquent, depending on the
municipality, from the acquisition date, at which time interest
ceases to be accrued.
Loans and
Allowance for Loan Losses
Loans are stated at the amount of unpaid principal, reduced by
unearned income and an allowance for loan losses. The
Corporation defers certain nonrefundable loan origination and
commitment fees and the direct costs of originating loans. The
net deferred amount is amortized over the estimated lives of the
related loans as an adjustment to yield. Interest income with
respect to loans is accrued on the principal amount outstanding,
except for loans classified as nonaccrual.
Accrual of interest is discontinued on loans which are more than
ninety days past due unless the loan is well secured and in the
process of collection. Well secured indicates that
the debt must be secured by collateral having sufficient
realizable value to discharge the debt, including accrued
interest, in full. In the process of collection
indicates that collection of the debt is proceeding in due
course either through legal action or other collection effort
that is reasonably expected to result in repayment of the debt
in full within a reasonable period of time, usually within one
hundred eighty days of the date the loan became past due. Any
unpaid interest previously accrued on these loans is reversed
from income. Interest payments received on these loans are
applied as a reduction of the loan principal balance.
It is the responsibility of management to assess and maintain
the allowance for loan losses at a level it believes is
appropriate to absorb the estimated credit losses within our
loan portfolio through the provision for loan losses. The
determination of the allowance for loan losses is based on
managements analysis of the credit quality of the loan
portfolio including its judgment regarding certain internal and
external factors that affect loan collectability. This process
is performed on a quarterly basis under the oversight of the
Board of Directors. The estimation of the allowance for loan
losses is based on two basic components those
estimations calculated in accordance with the requirements of
ASC 450-20
and those specific impairments under ASC
310-35 (see
discussions below). The calculation of the allowance for loan
losses is inherently subjective and actual losses could be
greater or less than the estimates.
The allowance for loan loss is considered to be a significant
estimate and is established through a provision for loan losses
charged to expense. Loans are charged against the allowance for
loan losses when management believes the collectability of
principal is unlikely. The allowance is the amount that
management believes will be adequate to absorb inherent losses
on existing loans.
Under ASC
450-20,
estimated losses on all loans that have not been identified with
specific impairment, under ASC
310-35, are
calculated based on the historical loss ratios applied to
standard loan categories using a rolling average, adjusted for
certain qualitative factors, as shown below. In addition to
these standard loan categories, management may identify other
areas of risk based on its analysis of such qualitative factors
and estimate additional
92
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
1.
|
Summary
of Significant Accounting
Policies (Continued)
|
losses as it deems necessary. The qualitative factors that
management uses in its estimate include but are not limited to
the following:
|
|
|
|
|
trends in volume;
|
|
|
effects of changes in credit concentrations;
|
|
|
levels of and trends in delinquencies, classified loans and
non-performing assets;
|
|
|
levels of and trends in charge-offs and recoveries;
|
|
|
changes in lending policies and underwriting guidelines;
|
|
|
national and local economic trends and condition; and
|
|
|
mergers and acquisitions
|
Pursuant to ASC
310-35,
impaired loans are loans which are specifically reviewed and for
which it is probable that we will be unable to collect all
amounts due according to the terms of the loan agreement.
Impairment is measured by comparing the recorded investment in
the loan with the present value of expected future cash flows
discounted at the loans effective interest rate, at the
loans observable market price or the fair value of the
collateral if the loan is collateral dependent. A valuation
allowance is provided to the extent that the measure of the
impaired loans is less than the recorded investment. A loan is
not considered impaired during a period of delay in payment if
the ultimate collectability of all amounts due is expected. The
Credit Administration department maintains supporting
documentation regarding collateral valuations
and/or
discounted cash flow analyses. Payments received on impaired
loans for which the ultimate collectability of principal is
uncertain are generally applied first as principal reductions.
Impaired loans and other nonaccrual loans are returned to
accrual status if the loan is brought contractually current as
to both principal and interest and repayment ability is
demonstrated, or if the loan is in the process of collection and
no loss is anticipated.
The Corporation manages and controls risk in the loan portfolio
through adherence to credit standards established by the Board
of Directors and implemented by senior management. These
standards are set forth in a formal loan policy which
establishes loan underwriting and approval procedures, sets
limits on credit concentration and enforces regulatory
requirements.
Loan portfolio concentration risk is reduced through
concentration limits for borrowers and varying collateral types.
Concentration risk is measured and reported to senior management
and the board of directors on a regular basis.
The assignment of loan risk ratings is the primary
responsibility of the lending officer and is subject to
independent review by internal loan review, which also performs
ongoing, independent review of the risk management process. The
risk management process includes underwriting, documentation and
collateral control. Loan review is centralized and independent
of the lending function. The loan review results are reported to
senior management and the Audit and Enterprise Risk Management
Committee of the Board of Directors. The Corporation has a
centralized loan administration department to serve our entire
bank. This department provides standardized oversight for
compliance with loan approval authorities and bank lending
policies and procedures, as well as centralized supervision,
monitoring and accessibility.
Mortgage
Loans Held for Sale
Mortgage loans held for sale are carried at the lower of cost or
market, determined on a net aggregate basis. The carrying value
of these loans is adjusted for any origination fees and cost
incurred to originate these loans. Differences between the
carrying amount of mortgage loans held for sale and the amounts
received upon sale are credited or charged to income at the time
the proceeds of the sale are collected. The fair values are
based on quoted market prices of similar loans, adjusted for
differences in loan characteristics.
93
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
1.
|
Summary
of Significant Accounting
Policies (Continued)
|
Premises
and Equipment
Premises and equipment are stated at cost less accumulated
depreciation and amortization. Depreciation is computed over the
estimated service lives of the assets using straight-line and
accelerated methods, generally using 5 to 40 years for
premises and 5 to 10 years for furniture and equipment.
Expenditures for maintenance and repairs are charged to
operations as incurred; expenditures for renewals and
betterments are capitalized and written off by depreciation
charges. Property retired or sold is removed from the asset and
related accumulated depreciation accounts and any gain or loss
resulting there from is reflected in the statement of operations.
The Corporation reviews any long-lived assets for impairment
whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable.
Intangible
Assets
Intangible assets include primarily core deposit intangible
assets that are amounts recorded related to the value of
acquired non-maturity deposits. Core deposit intangibles are
amortized over their expected useful lives. The Corporation
realized a goodwill impairment charge in the fourth quarter of
2008, representing the entire goodwill intangible asset. As of
December 31, 2009, the Corporation did not have any
goodwill.
ASC Topic 350 requires goodwill and intangible assets with
indefinite useful lives to no longer be amortized but instead
tested for impairment at least annually, or more often if events
or circumstances indicate that there may be impairment. Adverse
changes in the economic environment, declining operations, or
other factors could result in a decline in the implied fair
value of goodwill. If the implied fair value is less than the
carrying amount, a loss is recognized in noninterest expense to
reduce the carrying amount to implied fair value of goodwill. A
goodwill impairment test includes two steps. Step One, used to
identify potential impairment, compares the estimated fair value
of a reporting unit with its carrying amount, including
goodwill. If the estimated fair value of a reporting unit
exceeds its carrying amount, goodwill of the reporting unit is
considered not impaired. If the carrying amount of a reporting
unit exceeds its estimated fair value, the second step of the
goodwill impairment test is performed to measure the amount of
impairment loss, if any. Step Two of the goodwill impairment
test compares the implied estimated fair value of reporting unit
goodwill with the carrying amount of that goodwill. If the
carrying amount of goodwill for that reporting unit exceeds the
implied fair value of that units goodwill, an impairment
loss is recognized in an amount equal to that excess.
Management tested goodwill for impairment during the fourth
quarter of 2008 and recorded a $160,306,000 impairment charge
($63,815,000 Alabama Region and $96,491,000 Florida Region), for
that quarter representing all of the goodwill intangible asset.
The primary cause of the goodwill impairment within these
reporting units was the significant decline in the estimated
fair value of the units as a result of increases in
nonperforming loans, overall decline in our market
capitalization and compression of the net interest margin, all
resulting from the economic crisis and its effect on financial
institutions which occurred during the fourth quarter.
For purposes of testing goodwill for impairment, management uses
both the income and market approaches to value its reporting
units. The income approach quantifies the present value of
future economic benefits by the capitalizing of
benefits method or the discounted cash flow
(DCF) method. In estimating the fair value of our
reporting units under the income approach model, management used
the DCF method which relies on a forecast of growth and earnings
over a period of time and includes a measure of cash flow based
on projected earnings and projected dividends, or dividend
paying capacity, in addition to an estimate of a residual value.
The projected future cash flows are discounted using a discount
rate determined under a
build-up
approach using the risk-free rate of return, adjusted equity
beta, equity risk premium, and a company-specific risk factor.
The company-specific risk factor is used to address the
uncertainty of growth estimates and earnings projections of
management.
94
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
1.
|
Summary
of Significant Accounting
Policies (Continued)
|
The Corporation uses the guideline company
transaction method to apply the market approach.
Management selected a group of comparable transactions that it
believes would likely reference comparable transactions pricing
when making a decision to purchase the applicable reporting
unit. An estimate of value can be determined by comparing the
financial condition of the subject reporting unit against the
financial characteristics and pricing information of the
comparable companies.
Management used the results of these methods to estimate fair
value. The table below shows the assumptions used in estimating
the fair value of each reporting unit at December 31, 2008.
The table includes the discount rate used in the income approach
model and the market multipliers used in the market approach.
|
|
|
|
|
|
|
|
|
|
|
Alabama
|
|
|
Florida
|
|
|
|
Region
|
|
|
Region
|
|
|
Discount rate used in income approach
|
|
|
14.0
|
%
|
|
|
14.5
|
%
|
Transaction method multiplier Price to tangible
book(1)
|
|
|
2.00
|
x
|
|
|
1.35
|
x
|
Premium to deposit valuation(2)
|
|
|
5.0
|
%
|
|
|
4.0
|
%
|
Implied premium to trading prices(3)
|
|
|
30.0
|
%
|
|
|
30.0
|
%
|
|
|
|
(1) |
|
This multiplier is applied to tangible book value. |
|
(2) |
|
This multiplier is applied to tangible book value plus deposits. |
|
(3) |
|
Average based on bank and thrift transactions in Southeast
Region announced since January 1, 2003. |
At December 31, 2009 and 2008, the Corporations core
deposit intangible, which is being amortized over ten years from
the date of acquisition, was as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(Dollars in thousands)
|
|
|
Core deposit intangible
|
|
$
|
26,355
|
|
|
$
|
26,355
|
|
Accumulated amortization
|
|
|
(10,764
|
)
|
|
|
(6,823
|
)
|
|
|
|
|
|
|
|
|
|
Net core deposit intangible
|
|
$
|
15,591
|
|
|
$
|
19,532
|
|
|
|
|
|
|
|
|
|
|
Amortization expense was $3,941,000, $3,585,000, and $1,691,000
for the years ended December 31, 2009, 2008, and 2007,
respectively. Aggregate amortization expense for the years
ending December 31, 2009 through December 31, 2014, is
estimated to be as follows:
|
|
|
|
|
Year
|
|
Annual Expense
|
|
|
|
(In thousands)
|
|
|
2010
|
|
$
|
3,479
|
|
2011
|
|
|
3,049
|
|
2012
|
|
|
2,492
|
|
2013
|
|
|
2,235
|
|
2014
|
|
|
2,051
|
|
|
|
|
|
|
Total
|
|
$
|
13,306
|
|
|
|
|
|
|
Other
Real Estate
Other real estate, acquired through partial or total
satisfaction of loans, is carried at fair value, less estimated
selling expenses, in other assets. At the date of acquisition,
any difference between the fair value and book value of the
asset is charged to the allowance for loan losses. Subsequent
gains or losses on the sale or losses from the
95
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
1.
|
Summary
of Significant Accounting
Policies (Continued)
|
valuation of and the cost of maintaining and operating other
real estate are included in other income or expense. Other real
estate totaled $41,618,000 and $19,971,000 at December 31,
2009 and 2008, respectively.
Security
Repurchase Agreements
Securities sold under agreements to repurchase are generally
accounted for as collateralized financing transactions and are
recorded at the amounts at which the securities were sold plus
accrued interest. Securities, generally U.S. government and
Federal agency securities, pledged as collateral under these
financing arrangements cannot be sold or re-pledged by the
secured party.
Income
Taxes
The consolidated financial statements are prepared on the
accrual basis. The Corporation accounts for income taxes using
the balance sheet method pursuant to ASC Topic 740. Under this
method, deferred tax assets and liabilities are determined based
on differences between financial reporting and tax bases of
assets and liabilities and are measured using the enacted tax
rates expected to apply to taxable income in the years in which
those temporary differences are expected to reverse.
Off-Balance
Sheet Financial Instruments
In the ordinary course of business the Corporation has entered
into off-balance sheet financial instruments consisting of
commitments to extend credit, commitments under credit card
arrangements and commercial letters of credit and standby
letters of credit. Such financial instruments are recorded in
the financial statements when they become payable to the extent
that they do not qualify as derivatives.
Per Share
Amounts
Earnings per common share computations are based on the weighted
average number of common shares outstanding during the periods
presented.
Diluted earnings per common share computations are based on the
weighted average number of common shares outstanding during the
period, plus the dilutive effect of stock options, warrants,
convertible preferred stock and restricted stock awards.
Stock-Based
Compensation
Under ASC Topic 718, which became effective for the Corporation
in the first quarter of 2006, companies are required to
recognize an expense in the statement of operations for the
grant-date fair value of stock options and other equity-based
compensation issued to employees, but expresses no preference
for a type of valuation method. This expense is recognized over
the period during which an employee is required to provide
service in exchange for the award. This topic carried forward
prior guidance on accounting for awards to non-employees. If an
equity award is modified after the grant date, incremental
compensation cost will be recognized in an amount equal to the
excess of the fair value of the modified award over the fair
value of the original award immediately prior to the
modification.
Pension
Plan
Liabilities and contributions to the plan are calculated using
the actuarial unit credit method of funding.
Derivative
Financial Instruments and Hedging Activities
ASC Topic 815 requires companies to recognize all of their
derivative instruments as either assets or liabilities in the
consolidated statement of financial position at fair value.
Under the guidance, derivative financial instruments that
qualify as a hedging relationship are designated, based on the
exposure being hedged, as either fair value or cash flow hedges.
Fair value hedge relationships mitigate
96
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
1.
|
Summary
of Significant Accounting
Policies (Continued)
|
exposure to the change in fair value of an asset, liability or
firm commitment. Under the fair value hedging model, gains or
losses attributable to the change in fair value of the
derivative instrument, as well as the gains and losses
attributable to the change in fair value of the hedged item, are
recognized in earnings in the period in which the change in fair
value occurs.
Cash flow hedge relationships mitigate exposure to the
variability of future cash flows or other forecasted
transactions. Under the cash flow hedging model, the effective
portion of the gain or loss related to the derivative
instrument, if any, is recognized as a component of other
comprehensive income. For derivative financial instruments not
designated as a fair value or cash flow hedges, gains and losses
related to the change in fair value are recognized in earnings
during the period of change in fair value.
The Corporation formally documents all relationships between
hedging instruments and hedged items, as well as its risk
management objective and strategy for undertaking various hedge
transactions. This process includes linking all derivative
instruments that are designated as fair-value or cash-flow
hedges to specific assets and liabilities on the balance sheet
or to specific firm commitments or forecasted transactions.
The Corporation also formally assesses, both at the hedges
inception and on an ongoing basis, whether the derivative
instruments that are used in hedging transactions are highly
effective in offsetting changes in fair values or cash flows of
hedged items. When it is determined that a derivative instrument
is not highly effective as a hedge or that it has ceased to be a
highly effective hedge, the Corporation discontinues hedge
accounting prospectively, as discussed below.
The Corporation discontinues hedge accounting prospectively
when: (1) it is determined that the derivative instrument
is no longer effective in offsetting changes in the fair value
or cash flows of a hedged item (including firm commitments or
forecasted transactions); (2) the derivative instrument
expires or is sold, terminated or exercised; (3) the
derivative instrument is de-designated as a hedge instrument,
because it is unlikely that a forecasted transaction will occur;
(4) a hedged firm commitment no longer meets the definition
of a firm commitment; or (5) management determines that
designation of the derivative instrument as a hedge instrument
is no longer appropriate.
When hedge accounting is discontinued because it is determined
that the derivative instrument no longer qualifies as an
effective fair-value hedge, the derivative instrument will
continue to be carried on the balance sheet at its fair value
and the hedged asset or liability will no longer be adjusted for
changes in fair value. When hedge accounting is discontinued
because the hedged item no longer meets the definition of a firm
commitment, the derivative instrument will continue to be
carried on the balance sheet at its fair value and any asset or
liability that was recorded pursuant to recognition of the firm
commitment will be removed from the balance sheet and recognized
as a gain or loss in the then-current-period earnings. When
hedge accounting is discontinued because it is probable that a
forecasted transaction will not occur, the derivative instrument
will continue to be carried on the balance sheet at its fair
value, and gains and losses that were accumulated in other
comprehensive income will be recognized immediately in earnings.
When the derivative instrument is de-designated, terminated or
sold, any gain or loss will remain in accumulated other
comprehensive income and will be reclassified into earnings over
the same period during which the underlying hedged item affects
earnings. In all other situations in which hedge accounting is
discontinued, the derivative instrument will be carried at its
fair value on the balance sheet, with changes in its fair value
recognized in the then-current-period earnings.
Fair
Value Measurements
Management measures fair value at the price the Corporation
would receive by selling an asset or pay to transfer a liability
in an orderly transaction between market participants at the
measurement date. Management prioritizes the assumptions that
market participants would use in pricing the asset or liability
(the inputs) into a
97
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
1.
|
Summary
of Significant Accounting
Policies (Continued)
|
three-tier fair value hierarchy. This fair value hierarchy gives
the highest priority (Level 1) to quoted prices in
active markets for identical assets or liabilities and the
lowest priority (Level 3) to unobservable inputs in
which little or no market data exists, requiring companies to
develop their own assumptions. Observable inputs that do not
meet the criteria of Level 1, and include quoted prices for
similar assets or liabilities in active markets or quoted prices
for identical assets and liabilities in markets that are not
active, are categorized as Level 2. Level 3 inputs are
those that reflect managements estimates about the
assumptions market participants would use in pricing the asset
or liability, based on the best information available in the
circumstances. Valuation techniques for assets and liabilities
measured using Level 3 inputs may include methodologies
such as the market approach, the income approach or the cost
approach, and may use unobservable inputs such as projections,
estimates and managements interpretation of current market
data. These unobservable inputs are only utilized to the extent
that observable inputs are not available or cost-effective to
obtain.
Accounting
Pronouncements Recently Adopted
In March of 2008, FASB issued Accounting Standards
Codification (ASC)
815-10,
Disclosures About Derivative Instruments and Hedging Activities
(ASC
815-10),
which amended and expanded the disclosure requirements to
provide greater transparency about (i) how and why an
entity uses derivative instruments, (ii) how derivative
instruments and related hedge items are accounted for, and
(iii) how derivative instruments and related hedged items
affect an entitys financial position, results of
operations and cash flows. To meet those objectives, the
guidance requires qualitative disclosures about objectives and
strategies for using derivatives, quantitative disclosures about
fair value amounts of gains and losses on derivative instruments
and disclosures about credit-risk-related contingent features in
derivative agreements. ASC
815-10
became effective on January 1, 2009 and did not have a
significant impact on the Corporations financial position,
results of operations or cash flows (see Note 15 to the
consolidated financial statements).
In December of 2008, FASB issued guidance that requires
additional disclosures related to Postretirement Benefit Plan
Assets. This guidance will provide users of financial statements
with an understanding of: 1) how investment allocation
decisions are made, including the factors that are pertinent to
an understanding of investment policies and strategies,
2) the major categories of plan assets, 3) the inputs
and valuation techniques used to measure the fair value of plan
assets, 4) the effect of fair value measurements using
significant unobservable inputs (Level 3) on changes
in plan assets for the period, and 5) significant
concentrations of risk within plan assets. This guidance does
not require any changes to current accounting. The disclosure
requirements became effective for the Corporation during this
period ending December 31, 2009. The adoption of this
guidance did not have an impact on the Corporations
results of operations or financial condition.
In April of 2009, FASB finalized certain guidance regarding the
accounting treatment for investments including mortgage-backed
securities which included revising the method for determining if
OTTI exists and the amount of OTTI to be recorded through an
entitys income statement. These revisions provide greater
clarity and reflect a more accurate representation of the credit
and noncredit components of an OTTI event and are summarized as
follows:
|
|
|
|
|
ASC
820-10,
Determining Fair Value When the Volume and Level of Activity for
the Asset or Liability Have Significantly Decreased and
Identifying Transactions That Are Not Orderly (ASC
820-10)
provides guidelines for making fair value measurements more
consistent by emphasizing that even if there has been a
significant decrease in the volume and level of activity for the
asset or liability and regardless of the valuation technique
used, the objective of a fair value measurement remains the
same. Fair value is the price that would be received in a sale
of an asset or paid to transfer a liability in an orderly
transaction (that is, not a forced liquidation or distressed
sale), between market participants at the measurement date under
current market conditions.
|
98
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
1.
|
Summary
of Significant Accounting
Policies (Continued)
|
|
|
|
|
|
ASC
320-10,
Recognition and Presentation of
Other-than-temporary
impairments (ASC
320-10)
provides additional guidance designed to create greater
clarity and consistency in accounting for and presenting
impairment losses on securities. It amends OTTI impairment
guidance for debt securities to make the guidance more
operational and to improve the presentation and disclosure of
OTTI on debt and equity securities in the financial statements.
It does not amend existing recognition and measurement guidance
related to OTTI of equity securities.
|
|
|
|
ASC
825-10 and
ASC 270-10,
Interim Disclosures about Fair Value of Financial Instruments
(ASC
825-10 and
ASC
270-10)
enhance consistency in financial reporting by increasing the
frequency of fair value disclosures.
|
This guidance became effective for financial statements issued
for periods ending after June 15, 2009, with early
application possible for the first quarter of 2009. The
Corporation elected to adopt ASC
820-10 and
ASC 320-10
as of March 31, 2009, while deferring the election of ASC
825-10 and
ASC 270-10
until June 30, 2009. The adoption of this guidance did not
have a significant impact on the Corporations financial
condition, results of operations or cash flow other than
requiring additional disclosures (See Note 19 to the
condensed consolidated financial statements). The effect of the
adoption of ASC
320-10
resulted in the portion of OTTI determined to be credit-related
($15.7 million, pre-tax) being recognized in current
earnings, while the portion of OTTI related to other factors
($7.3 million, pre-tax) was recognized in other
comprehensive loss (see Notes 3 and 28 to the consolidated
financial statements).
In June of 2009, FASB issued Accounting Standard Update
(ASU)
No. 2009-01
Generally Accepted Accounting Principles amendments based on
FASB Statement of Financial Accounting Standards
(SFAS) No. 168, The FASB Accounting
Standards Codification and the Hierarchy of Generally Accepted
Accounting Principles (SFAS No. 168).
In June of 2009, the FASB issued SFAS No. 168 to
replace FASB Statement No. 162, The Hierarchy of
Generally Accepted Accounting Principles
(SFAS No. 162) and authorize
the Accounting Standard Codification (ASC or
Codification) as the new source for authoritative
U.S. GAAP and ends the practice of FASB issuing standards
in the familiar forms. On July 1, 2009, the FASB
implemented the ASC as the authoritative source, along with SEC
guidance, for U.S. GAAP through issuance of Accounting
Standards Update (ASU or Update)
2009-01. The
FASB will no longer issue Statements of Financial Accounting
Standards, but rather will issue Updates that will provide
background information about the amended guidance along with a
basis for conclusions regarding the change. These Updates will
amend the ASC to reflect the new guidance issued by the FASB.
The Corporation implemented the use of the ASC in the third
quarter of 2009. The ASC changed the way the Corporation will
reference authoritative accounting literature in its filings.
The recently adopted standards are now part of the ASC.
Accounting standards not yet adopted will consist of Updates as
well as Statements issued before July 1, 2009 that are not
yet effective.
In August of 2009, FASB issued ASU
No. 2009-05
Fair Value Measurements and
Disclosures Measuring Liabilities at Fair Value
(ASU
2009-05).
This Update provides amendments to Subtopic
820-10,
Fair Value Measurements and Disclosures, for the fair
value measurement of liabilities. This Update provides
clarification that in circumstances in which a quoted price in
an active market for the identical liability is not available, a
reporting entity is required to measure fair value using one or
more of the following techniques: 1) a valuation technique
that uses the quoted price of the identical liability when
traded as an asset
and/or
quoted prices for similar liabilities when traded as assets;
2) another valuation technique that is consistent with the
principles of Topic 820. This Update became effective for the
Corporation on September 30, 2009, and had a material
impact on the Corporations financial statements during the
fourth quarter of 2009. At the date of the exchange agreement,
the Corporations valuation of the trust preferred
securities received in the exchange of $69,000,000 in preferred
stock held by the U.S. Treasury was determined internally
using a discounted cash flow model. The assumed discount rate
used for estimating the fair value was estimated by obtaining
the yields at which comparable issues were trading as assets in
99
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
1.
|
Summary
of Significant Accounting
Policies (Continued)
|
the market. This valuation yielded a discount of $44,714,000
which resulted in a $23, 097,000 increase of common
stockholders equity, net of tax (see Note 29).
Accounting
Pronouncements Not Yet Adopted
There are no new accounting pronouncements that have not yet
been adopted that will have a significant impact to the
Corporations consolidated financial statements.
Peoples
Acquisition
The Corporation completed the acquisition of 100% of the
outstanding stock of Peoples Community Bancshares, Inc.
(Peoples), of Sarasota, Florida on
July 27, 2007 in exchange for 1,658,781 shares
(restated to reflect
1-for-4
reverse stock split) of the Corporations common stock
valued at approximately $73,982,000. The shares were valued by
using the average of the closing prices of the
Corporations stock for several days prior to and after the
terms of the acquisition were agreed to and announced. The total
purchase price, which includes certain direct acquisition costs,
was $76,429,000. As a result of the acquisition, the Corporation
now operates three banking locations in Sarasota and Manatee
Counties, Florida. This area is a significant addition to the
Corporations largest market, which was expanded in 2006 by
the acquisition of Kensington Bankshares, Inc., in Tampa,
Florida.
The Peoples transaction resulted in $47,313,000 of
goodwill allocated to the Florida reporting unit and $9,810,000
of core deposit intangibles (see Note 1). The goodwill
acquired is not tax-deductible. The amount allocated to the core
deposit intangible is being amortized over an estimated useful
life of ten years based on the undiscounted cash flow.
The following table summarizes the estimated fair values of the
assets acquired and liabilities assumed at the date of
acquisition (dollars in thousands):
|
|
|
|
|
|
|
Amount
|
|
|
Cash and due from banks
|
|
$
|
3,854
|
|
Federal funds sold
|
|
|
4,200
|
|
Investment securities
|
|
|
47,684
|
|
Loans, net
|
|
|
254,047
|
|
Premises and equipment, net
|
|
|
2,318
|
|
Goodwill
|
|
|
47,313
|
|
Core deposit intangibles
|
|
|
9,810
|
|
Other assets
|
|
|
10,478
|
|
Deposits
|
|
|
(245,459
|
)
|
Federal funds purchased and repurchase agreements
|
|
|
(6,905
|
)
|
Advances from FHLB
|
|
|
(37,983
|
)
|
Junior subordinated debentures
|
|
|
(3,962
|
)
|
Other liabilities
|
|
|
(8,966
|
)
|
|
|
|
|
|
Total consideration paid for Peoples
|
|
$
|
76,429
|
|
|
|
|
|
|
100
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The amounts at which investment securities are carried and their
approximate fair values at December 31, 2009 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Estimated
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Fair Value
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
Investment securities
available-for-sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. agency securities
|
|
$
|
54,156
|
|
|
$
|
30
|
|
|
$
|
505
|
|
|
$
|
53,681
|
|
Mortgage-backed securities (MBS):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Agency MBS residential
|
|
|
160,713
|
|
|
|
3,293
|
|
|
|
282
|
|
|
|
163,724
|
|
U.S. Agency MBS collateralized mortgage obligation
(CMO)
|
|
|
12,780
|
|
|
|
76
|
|
|
|
97
|
|
|
|
12,759
|
|
Private-label CMO
|
|
|
19,410
|
|
|
|
152
|
|
|
|
3,371
|
|
|
|
16,191
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total MBS
|
|
|
192,903
|
|
|
|
3,521
|
|
|
|
3,750
|
|
|
|
192,674
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State, county and municipal securities
|
|
|
31,235
|
|
|
|
450
|
|
|
|
223
|
|
|
|
31,462
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate obligations :
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt
|
|
|
4,138
|
|
|
|
|
|
|
|
138
|
|
|
|
4,000
|
|
Pooled trust preferred securities
|
|
|
8,255
|
|
|
|
|
|
|
|
5,052
|
|
|
|
3,203
|
|
Single issue trust preferred securities
|
|
|
5,000
|
|
|
|
|
|
|
|
4,023
|
|
|
|
977
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total corporate obligations
|
|
|
17,393
|
|
|
|
|
|
|
|
9,213
|
|
|
|
8,180
|
|
Equity securities
|
|
|
563
|
|
|
|
|
|
|
|
250
|
|
|
|
313
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities
available-for-sale
|
|
$
|
296,250
|
|
|
$
|
4,001
|
|
|
$
|
13,941
|
|
|
$
|
286,310
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
3.
|
Investment
Securities (Continued)
|
The amounts at which investment securities are carried and their
approximate fair values at December 31, 2008 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Estimated
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Fair Value
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
Investment securities
available-for-sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. agency securities
|
|
$
|
3,713
|
|
|
$
|
132
|
|
|
$
|
2
|
|
|
$
|
3,843
|
|
Mortgage-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Agency MBS residential
|
|
|
234,026
|
|
|
|
3,692
|
|
|
|
210
|
|
|
|
237,508
|
|
U.S. Agency MBS CMO
|
|
|
16,000
|
|
|
|
189
|
|
|
|
3
|
|
|
|
16,186
|
|
Private-label CMO
|
|
|
30,421
|
|
|
|
45
|
|
|
|
4,036
|
|
|
|
26,430
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total MBS
|
|
|
280,447
|
|
|
|
3,926
|
|
|
|
4,249
|
|
|
|
280,124
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State, county and municipal securities
|
|
|
41,379
|
|
|
|
445
|
|
|
|
1,202
|
|
|
|
40,622
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate obligations :
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt
|
|
|
5,944
|
|
|
|
|
|
|
|
198
|
|
|
|
5,746
|
|
Pooled trust preferred securities
|
|
|
14,390
|
|
|
|
|
|
|
|
4,451
|
|
|
|
9,939
|
|
Single issue trust preferred securities
|
|
|
10,000
|
|
|
|
|
|
|
|
3,296
|
|
|
|
6,704
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total corporate obligations
|
|
|
30,334
|
|
|
|
|
|
|
|
7,945
|
|
|
|
22,389
|
|
Equity securities
|
|
|
563
|
|
|
|
|
|
|
|
399
|
|
|
|
164
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities
available-for-sale
|
|
$
|
356,436
|
|
|
$
|
4,503
|
|
|
$
|
13,797
|
|
|
$
|
347,142
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities with an amortized cost of $237,535,000 and
$268,245,000 at December 31, 2009 and 2008, respectively,
were pledged to secure public funds and for other purposes as
required or permitted by law.
The amortized cost and estimated fair values of investment
securities at December 31, 2009, by contractual maturity,
are shown below. Expected maturities will differ from
contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment
penalties.
|
|
|
|
|
|
|
|
|
|
|
Securities
Available-for-Sale
|
|
|
|
Amortized
|
|
|
Estimated
|
|
|
|
Cost
|
|
|
Fair Value
|
|
|
|
(Dollars in thousands)
|
|
|
Due in one year or less
|
|
$
|
280
|
|
|
$
|
281
|
|
Due after one year through five years
|
|
|
7,331
|
|
|
|
7,297
|
|
Due after five years through ten years
|
|
|
59,001
|
|
|
|
58,566
|
|
Due after ten years
|
|
|
36,735
|
|
|
|
27,492
|
|
Mortgage-backed securities
|
|
|
192,903
|
|
|
|
192,674
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
296,250
|
|
|
$
|
286,310
|
|
|
|
|
|
|
|
|
|
|
Gross realized gains on sales of investment securities available
for sale in 2009, 2008 and 2007 were $5,644,000, $1,509,000, and
$308,000, respectively, and gross realized losses for the same
periods were $-0-, $20,000, and $-0-, respectively. During the
third quarter of 2009, management sold approximately 63
securities with combined amortized cost and market values of
$151,970,000 and $157,620,000, respectively. Nearly all of the
102
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
3.
|
Investment
Securities (Continued)
|
sale proceeds were reinvested in 30 federal agency securities
(direct and MBS) and classified in portfolio as
available-for-sale.
In January 2008, the Corporation securitized approximately
$18,000,000 of residential mortgage loans retaining
100 percent of the beneficial interest and retained
interest. The beneficial interest includes federal agency
securities issued by the Federal Home Loan Mortgage Corporation
(FHLMC) and the retained interest includes a
servicing asset, which was not significant. No gain or loss was
recognized on the securitization; however, the Corporation
entered a commitment to sell the securities for a gain of
approximately $347,000 which closed in February 2008. The
Company retained servicing responsibilities and will receive
servicing fees amounting to approximately 25 basis points
of the outstanding balance of these loans. The FHLMC has no
recourse to the Corporation for failure of debtors to pay when
due.
The following tables present the age of gross unrealized losses
and fair value by investment category for the periods shown:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
|
Less Than 12 Months
|
|
|
More Than 12 Months
|
|
|
Total
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
Unrealized
|
|
|
|
Fair Value
|
|
|
Losses(1)
|
|
|
Fair Value
|
|
|
Losses(1)
|
|
|
Fair Value
|
|
|
Losses(1)
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
Temporarily Impaired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Agency securities
|
|
$
|
48,409
|
|
|
$
|
505
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
48,409
|
|
|
$
|
505
|
|
Mortgage-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Agency MBS residential
|
|
|
75,493
|
|
|
|
272
|
|
|
|
239
|
|
|
|
10
|
|
|
|
75,732
|
|
|
|
282
|
|
U.S. Agency MBS CMO
|
|
|
6,036
|
|
|
|
97
|
|
|
|
|
|
|
|
|
|
|
|
6,036
|
|
|
|
97
|
|
Private-label CMO
|
|
|
|
|
|
|
|
|
|
|
12,059
|
|
|
|
1,753
|
|
|
|
12,059
|
|
|
|
1,753
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total MBS
|
|
|
81,529
|
|
|
|
369
|
|
|
|
12,298
|
|
|
|
1,763
|
|
|
|
93,827
|
|
|
|
2,132
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State, county and municipal securities
|
|
|
7,360
|
|
|
|
121
|
|
|
|
1,019
|
|
|
|
102
|
|
|
|
8,379
|
|
|
|
223
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt
|
|
|
|
|
|
|
|
|
|
|
4,000
|
|
|
|
138
|
|
|
|
4,000
|
|
|
|
138
|
|
Single issue trust preferred securities
|
|
|
|
|
|
|
|
|
|
|
977
|
|
|
|
4,023
|
|
|
|
977
|
|
|
|
4,023
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total corporate obligations
|
|
|
|
|
|
|
|
|
|
|
4,977
|
|
|
|
4,161
|
|
|
|
4,977
|
|
|
|
4,161
|
|
Equity securities
|
|
|
|
|
|
|
|
|
|
|
314
|
|
|
|
250
|
|
|
|
314
|
|
|
|
250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total temporarily impaired securities
|
|
|
137,298
|
|
|
|
995
|
|
|
|
18,608
|
|
|
|
6,276
|
|
|
|
155,906
|
|
|
|
7,271
|
|
Other-than-temporarily
Impaired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private-label CMO
|
|
|
|
|
|
|
|
|
|
|
3,037
|
|
|
|
1,618
|
|
|
|
3,037
|
|
|
|
1,618
|
|
Corporate obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pooled trust preferred securities
|
|
|
|
|
|
|
|
|
|
|
3,203
|
|
|
|
5,052
|
|
|
|
3,203
|
|
|
|
5,052
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total OTTI securities
|
|
|
|
|
|
|
|
|
|
|
6,240
|
|
|
|
6,670
|
|
|
|
6,240
|
|
|
|
6,670
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total temporarily and other-than-temporarily impaired
|
|
$
|
137,298
|
|
|
$
|
995
|
|
|
$
|
24,848
|
|
|
$
|
12,946
|
|
|
$
|
162,146
|
|
|
$
|
13,941
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Unrealized losses are included in other comprehensive income
(loss), net of unrealized gains and applicable income taxes. |
103
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
3.
|
Investment
Securities (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
|
|
Less Than 12 Months
|
|
|
More Than 12 Months
|
|
|
Total
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
Unrealized
|
|
|
|
Fair Value
|
|
|
Losses(1)
|
|
|
Fair Value
|
|
|
Losses(1)
|
|
|
Fair Value
|
|
|
Losses(1)
|
|
|
|
(Dollars in thousands)
|
|
|
Temporarily Impaired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. agency securities
|
|
$
|
|
|
|
$
|
|
|
|
$
|
249
|
|
|
$
|
2
|
|
|
$
|
249
|
|
|
$
|
2
|
|
Mortgage-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Agency MBS residential
|
|
|
21,602
|
|
|
|
178
|
|
|
|
3,655
|
|
|
|
32
|
|
|
|
25,257
|
|
|
|
210
|
|
U.S. Agency MBS CMO
|
|
|
|
|
|
|
|
|
|
|
700
|
|
|
|
3
|
|
|
|
700
|
|
|
|
3
|
|
Private-label CMO
|
|
|
17,126
|
|
|
|
3,912
|
|
|
|
3,017
|
|
|
|
124
|
|
|
|
20,143
|
|
|
|
4,036
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total MBS
|
|
|
38,728
|
|
|
|
4,090
|
|
|
|
7,372
|
|
|
|
159
|
|
|
|
46,100
|
|
|
|
4,249
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State, county and municipal securities
|
|
|
17,275
|
|
|
|
831
|
|
|
|
3,662
|
|
|
|
371
|
|
|
|
20,937
|
|
|
|
1,202
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt
|
|
|
|
|
|
|
|
|
|
|
5,745
|
|
|
|
198
|
|
|
|
5,745
|
|
|
|
198
|
|
Pooled trust preferred securities
|
|
|
896
|
|
|
|
481
|
|
|
|
9,043
|
|
|
|
3,970
|
|
|
|
9,939
|
|
|
|
4,451
|
|
Single issue trust preferred securities
|
|
|
|
|
|
|
|
|
|
|
6,705
|
|
|
|
3,296
|
|
|
|
6,705
|
|
|
|
3,296
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total corporate obligations
|
|
|
896
|
|
|
|
481
|
|
|
|
21,493
|
|
|
|
7,464
|
|
|
|
22,389
|
|
|
|
7,945
|
|
Equity securities
|
|
|
164
|
|
|
|
399
|
|
|
|
|
|
|
|
|
|
|
|
164
|
|
|
|
399
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total temporarily impaired securities
|
|
$
|
57,063
|
|
|
$
|
5,801
|
|
|
$
|
32,776
|
|
|
$
|
7,996
|
|
|
$
|
89,839
|
|
|
$
|
13,797
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Unrealized losses are included in other comprehensive income
(loss), net of unrealized gains and applicable income taxes. |
104
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
3.
|
Investment
Securities (Continued)
|
The following is a summary of the total count by category of
investment securities with gross unrealized losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
|
Less Than
|
|
|
Greater Than
|
|
|
|
|
|
|
12 Months
|
|
|
12 Months
|
|
|
Total
|
|
|
Temporarily Impaired
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Agency securities
|
|
|
10
|
|
|
|
|
|
|
|
10
|
|
Mortgage-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Agency MBS residential
|
|
|
17
|
|
|
|
1
|
|
|
|
18
|
|
U.S. Agency MBS CMO
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
Private-label CMO
|
|
|
|
|
|
|
8
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total MBS
|
|
|
18
|
|
|
|
9
|
|
|
|
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State, county and municipal securities
|
|
|
22
|
|
|
|
4
|
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt
|
|
|
|
|
|
|
3
|
|
|
|
3
|
|
Single issue trust preferred securities
|
|
|
|
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total corporate obligations
|
|
|
|
|
|
|
4
|
|
|
|
4
|
|
Equity securities
|
|
|
|
|
|
|
3
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total temporarily impaired securities
|
|
|
50
|
|
|
|
20
|
|
|
|
70
|
|
Other-than-temporarily
Impaired
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Private-label CMO
|
|
|
|
|
|
|
4
|
|
|
|
4
|
|
Corporate obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Pooled trust preferred securities
|
|
|
|
|
|
|
5
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total OTTI securities
|
|
|
|
|
|
|
9
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total temporarily and other-than-temporarily impaired
|
|
|
50
|
|
|
|
29
|
|
|
|
79
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other-Than-Temporary
Impairment.
Management evaluates securities for OTTI at least on a quarterly
basis. The investment securities portfolio is evaluated for OTTI
by segregating the portfolio into the various segments outlined
in the tables above and applying the appropriate OTTI model.
Investment securities classified as available for sale or
held-to-maturity
are generally evaluated for OTTI according to ASC
320-10
guidance. In addition, certain purchased beneficial interests,
which may include private-label mortgage-backed securities,
asset-backed securities and collateralized debt obligations that
had credit ratings at the time of purchase of below AA are
evaluated using the model outlined in ASC
325-40
guidance.
In determining OTTI according to FASB guidance, management
considers many factors, including: (1) the length of time
and the extent to which the fair value has been less than cost,
(2) the financial condition and near-term prospects of the
issuer, (3) whether the market decline was affected by
macroeconomic conditions and (4) whether the Corporation
has the intent to sell the debt security or more likely than not
will be required to sell the debt security before its
anticipated recovery. The assessment of whether an
other-than-temporary
decline exists involves a high degree of subjectivity and
judgment and is based on the information available to management
at a point in time.
105
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
3.
|
Investment
Securities (Continued)
|
The pooled trust preferred segment of the portfolio uses the
OTTI guidance that is specific to purchased beneficial interests
that, on the purchase date, were rated below AA. Under the
model, the Corporation compares the present value of the
remaining cash flows as estimated at the preceding evaluation
date to the current expected remaining cash flows. An OTTI is
deemed to have occurred if there has been an adverse change in
the remaining expected future cash flows.
When OTTI occurs under either model, the amount of the OTTI
recognized in earnings depends on whether an entity intends to
sell the security or it is more likely than not it will be
required to sell the security before recovery of its amortized
cost basis, less any current-period credit loss. If an entity
intends to sell or it is more likely than not it will be
required to sell the security before recovery of its amortized
cost basis, less any current-period credit loss, the OTTI is
recognized in earnings at an amount equal to the entire
difference between the investments amortized cost basis
and its fair value at the balance sheet date. If an entity does
not intend to sell the security and it is not more likely than
not that the entity will be required to sell the security before
recovery of its amortized cost basis less any current-period
loss, the OTTI is separated into the amount representing the
credit loss and the amount related to all other factors. The
amount of the total OTTI related to the credit loss is
determined based on the present value of cash flows expected to
be collected and is recognized in earnings. The amount of the
total OTTI related to other factors is recognized in other
comprehensive income, net of applicable taxes. The previous
amortized cost basis less the OTTI recognized in earnings
becomes the new amortized cost basis of the investment.
At December 31, 2009, the Corporations securities
portfolio consisted of 228 securities, 79 of which were in an
unrealized loss position. The majority of unrealized losses are
related to the Corporations private-label CMOs and trust
preferred securities, as discussed below.
Mortgage-backed
Securities
At December 31, 2009, approximately 92% of the dollar
volume of mortgage-backed securities we held was issued by
U.S. government-sponsored entities and agencies, primarily
Fannie Mae, GNMA and Freddie Mac, institutions which the
government has affirmed its commitment to support, and these
securities have nominal unrealized losses. Our mortgage-backed
securities portfolio also includes 12 private-label CMOs with a
market value of $16,191,000, which had net unrealized losses of
approximately $3,219,000 at December 31, 2009. These
private-label CMOs were rated AAA at purchase. The following is
a summary of the investment grades for these securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit Support
|
|
|
|
|
|
|
|
|
|
Coverage
|
|
|
Unrealized
|
|
Rating Moody/Fitch
|
|
Count
|
|
|
Ratios(1)
|
|
|
Loss
|
|
|
A 1/A A A
|
|
|
1
|
|
|
|
3.07
|
|
|
$
|
(137
|
)
|
Aaa/AAA
|
|
|
1
|
|
|
|
4.18
|
|
|
|
(5
|
)
|
Aaa/NR
|
|
|
1
|
|
|
|
N/A
|
|
|
|
(1
|
)
|
NR/AAA
|
|
|
1
|
|
|
|
6.29
|
|
|
|
(374
|
)
|
NR/AA
|
|
|
1
|
|
|
|
2.84
|
|
|
|
(339
|
)
|
NR/A+
|
|
|
1
|
|
|
|
3.08
|
|
|
|
(111
|
)
|
Baa2/NR
|
|
|
1
|
|
|
|
N/A
|
|
|
|
(622
|
)
|
B2/AAA
|
|
|
1
|
|
|
|
3.59
|
|
|
|
(162
|
)
|
Caa1/NR(2)
|
|
|
1
|
|
|
|
1.43
|
|
|
|
(1,619
|
)
|
Ca/NR(2)
|
|
|
1
|
|
|
|
0.00
|
|
|
|
|
|
NR/CCC(2)
|
|
|
2
|
|
|
|
0.26-0.53
|
|
|
|
151
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
12
|
|
|
|
|
|
|
$
|
(3,219
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
106
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
3.
|
Investment
Securities (Continued)
|
|
|
|
(1) |
|
The Credit Support Coverage Ratio, which is the ratio that
determines the multiple of credit support, based on assumptions
for the performance of the loans within the delinquency
pipeline. The assumptions used are: Current Collateral Support/
((60 day delinquencies x.60) + (90 day delinquencies
x.70) + (foreclosures x 1.00) + (other real estate x 1.00)) x
.40 for loss severity. |
|
(2) |
|
Includes all private-label CMOs that have OTTI. See discussion
that follows. |
During the third and fourth quarters of 2008, the Corporation
recognized a $1,894,000, pre-tax non-cash OTTI charge on three
private-label CMOs which experienced significant rating
downgrades in those respective quarters. These downgrades
continued in 2009 and resulted in a total OTTI of $6,850,000 on
the CMOs, including a credit portion of $4,577,000. The
assumptions used in the valuation model include expected future
default rates, loss severity and prepayments. The model also
takes into account the structure of the security, including
credit support. Based on these assumptions, the model calculates
and projects the timing and amount of interest and principal
payments expected for the security. At December 31, 2009,
the fair values of these four securities totaling $4,131,000
were measured using Level 3 inputs because the market for
them has become illiquid, as indicated by few, if any, trades
during the period. These securities were previously measured
using Level 2 inputs. The discount rates used in the
valuation model were based on a yield that the market would
require for such securities with maturities and risk
characteristics similar to the securities being measured (See
Note 19 for additional disclosure). The following table
provides additional information regarding these CMO valuations
as of December 31, 2009 (Dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life-to-Date
|
|
|
|
|
|
|
Margin
|
|
|
|
|
|
|
|
|
|
|
|
Actual
|
|
|
Other-Than-Temporary-Impairment
|
|
|
|
Price
|
|
|
Basis
|
|
|
|
|
|
Cumulative
|
|
|
Average
|
|
|
60+ Days
|
|
|
Credit Portion
|
|
|
|
|
|
|
|
Security
|
|
(%)
|
|
|
Points
|
|
|
Yield
|
|
|
Default
|
|
|
Security
|
|
|
Delinquent
|
|
|
2008
|
|
|
2009
|
|
|
Other
|
|
|
Total
|
|
|
CMO 1
|
|
|
19.90
|
|
|
|
1698
|
|
|
|
18.00
|
%
|
|
|
58.60
|
%
|
|
|
50.00
|
%
|
|
|
15.31
|
%
|
|
$
|
(599
|
)
|
|
$
|
(1,231
|
)
|
|
$
|
(195
|
)
|
|
$
|
(2,025
|
)
|
CMO 2
|
|
|
2.08
|
|
|
|
1777
|
|
|
|
18.00
|
%
|
|
|
59.70
|
%
|
|
|
60.00
|
%
|
|
|
31.52
|
%
|
|
|
(492
|
)
|
|
|
(1,443
|
)
|
|
|
(127
|
)
|
|
|
(2,062
|
)
|
CMO 3
|
|
|
22.15
|
|
|
|
1598
|
|
|
|
17.00
|
%
|
|
|
47.65
|
%
|
|
|
45.00
|
%
|
|
|
26.13
|
%
|
|
|
(803
|
)
|
|
|
(1,558
|
)
|
|
|
(332
|
)
|
|
|
(2,693
|
)
|
CMO 4
|
|
|
60.73
|
|
|
|
1362
|
|
|
|
17.00
|
%
|
|
|
27.60
|
%
|
|
|
45.00
|
%
|
|
|
14.82
|
%
|
|
|
|
|
|
|
(345
|
)
|
|
|
(1,619
|
)
|
|
|
(1,964
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(1,894
|
)
|
|
$
|
(4,577
|
)
|
|
$
|
(2,273
|
)
|
|
$
|
(8,744
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009, management does not intend to sell
these securities, nor is it more likely than not that we will be
required to sell the securities before the entire amortized cost
basis is recovered since our current financial condition,
including liquidity and interest rate risk, will not require
such action.
State,
county and municipal securities
The unrealized losses in the municipal securities portfolio are
primarily impacted by changes in interest rates. This portfolio
segment is not experiencing any credit problems at
December 31, 2009. We believe that all contractual cash
flows will be received on this portfolio.
107
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
3.
|
Investment
Securities (Continued)
|
Trust Preferred
Securities
The Corporations investment portfolio includes five pooled
trust preferred securities (CDO) and two single
issuances. The determination of fair value of the CDOs was
determined with the assistance of an external valuation firm.
The valuation was accomplished by evaluating all relevant credit
and structural aspects of the CDOs, determining appropriate
performance assumptions and performing a discounted cash flow
analysis. The valuation was structured as follows:
|
|
|
|
|
Detailed credit and structural evaluation for each piece of
collateral in the CDO;
|
|
|
|
Collateral performance projections for each piece of collateral
in the CDO (default, recovery and prepayment/amortization
probabilities);
|
|
|
|
Terms of the CDO structure, as laid out in the indenture;
|
|
|
|
The cash flow waterfall (for both interest and principal);
|
|
|
|
Overcollateralization and interest coverage tests;
|
|
|
|
Events of default/liquidation;
|
|
|
|
Mandatory auction call;
|
|
|
|
Optional redemption;
|
|
|
|
Hedge agreements; and
|
|
|
|
Discounted cash flow modeling.
|
On the basis of the evaluation of collateral credit, and in
combination with a review of historical industry default data
and current/near-term operating conditions, appropriate default
and recovery probabilities are determined for each piece of
collateral in the CDO. Specifically, an estimate of the
probability that a given piece of collateral will default in any
given year. Next, on the basis of credit factors like asset
quality and leverage, a recovery assumption is formulated for
each piece of collateral in the event of a default. For
collateral that has already defaulted, we assume no recovery.
For collateral that is deferring we assume a recovery rate of
10%. It is also noted that there is a possibility, in some
cases, that deferring collateral will become current at some
point in the future. As a result, deferring issuers are
evaluated on a
case-by-case
basis and in some instances, based on an analysis of the credit;
a probability is assigned that the deferral will ultimately cure.
The base-case collateral-specific assumptions are aggregated
into cumulative weighted-average default, recovery and
prepayment probabilities. In light of generally weakening
collateral credit performance and a challenging U.S. credit
and real estate environment, our assumptions generally imply a
larger amount of collateral defaults during the next three years
than that which has been experienced historically and a gradual
leveling off of defaults thereafter.
The discount rates used to determine fair value are intended to
reflect the uncertainty inherent in the projection of the
issuances cash flows. Therefore, spreads were chosen that
are comparable to spreads observed currently in the market for
similarly rated instruments and is intended to reflect general
market discounts currently applied to structured credit
products. The discount rates used to determine the credit
portion of the OTTI are equal to the current yield on the
issuances as prescribed under ASC
325-40.
108
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
3.
|
Investment
Securities (Continued)
|
The following tables provide various information and fair value
model assumptions regarding our CDOs at December 31, 2009
(Dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year-to-Date
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other-Than-Temporary-Impairment
|
|
|
|
Single/
|
|
Class/
|
|
Amortized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Credit
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Pooled
|
|
Tranche
|
|
Cost
|
|
|
Value
|
|
|
Loss
|
|
|
Portion
|
|
|
Other
|
|
|
|
|
|
Total
|
|
|
MM Caps Funding I Ltd
|
|
Pooled
|
|
MEZ
|
|
$
|
1,895
|
|
|
$
|
745
|
|
|
$
|
(1,150
|
)
|
|
$
|
(245
|
)
|
|
$
|
(1,150
|
)
|
|
|
|
|
|
$
|
(1,395
|
)
|
MM Community Funding Ltd
|
|
Pooled
|
|
B
|
|
|
2,110
|
|
|
|
881
|
|
|
|
(1,229
|
)
|
|
|
(2,921
|
)
|
|
|
(1,229
|
)
|
|
|
|
|
|
|
(4,150
|
)
|
Preferred Term Securities V
|
|
Pooled
|
|
MEZ
|
|
|
1,218
|
|
|
|
436
|
|
|
|
(782
|
)
|
|
|
(165
|
)
|
|
|
(782
|
)
|
|
|
|
|
|
|
(947
|
)
|
Tpref Funding III Ltd
|
|
Pooled
|
|
B-2
|
|
|
3,032
|
|
|
|
1,141
|
|
|
|
(1,891
|
)
|
|
|
(962
|
)
|
|
|
(1,891
|
)
|
|
|
|
|
|
|
(2,853
|
)
|
Trapeza
2007-13A LLC
|
|
Pooled
|
|
D
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,876
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,876
|
)
|
New South Capital Corp(1)
|
|
Single
|
|
Sole
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,000
|
)
|
|
|
|
|
|
|
|
|
|
|
(5,000
|
)
|
Emigrant Capital Trust(2)
|
|
Single
|
|
Sole
|
|
|
5,000
|
|
|
|
977
|
|
|
|
(4,023
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
13,255
|
|
|
$
|
4,180
|
|
|
$
|
(9,075
|
)
|
|
$
|
(11,169
|
)
|
|
$
|
(5,052
|
)
|
|
|
|
|
|
$
|
(16,221
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Original Collateral
|
|
Performing Collateral
|
|
|
|
|
|
|
|
|
Percent of Actual
|
|
Percent of Expected
|
|
|
|
|
Lowest
|
|
Performing
|
|
Deferrals and
|
|
Deferrals and
|
|
Excess
|
Name
|
|
Rating
|
|
Banks
|
|
Defaults
|
|
Defaults
|
|
Subordination(3)
|
|
MM Caps Funding I Ltd
|
|
Ca
|
|
23
|
|
15%
|
|
23%
|
|
0%
|
MM Community Funding Ltd
|
|
Ca
|
|
8
|
|
21%
|
|
83%
|
|
0%
|
Preferred Term Securities V
|
|
CC
|
|
1
|
|
5%
|
|
54%
|
|
0%
|
Tpref Funding III Ltd
|
|
Ca
|
|
25
|
|
23%
|
|
24%
|
|
0%
|
Trapeza
2007-13A LLC
|
|
C
|
|
38
|
|
27%
|
|
27%
|
|
0%
|
New South Capital Corp(1)
|
|
NR
|
|
NA
|
|
NA
|
|
NA
|
|
NA
|
Emigrant Capital Trust(2)
|
|
CC
|
|
NA
|
|
NA
|
|
NA
|
|
NA
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
|
Discount Margin
|
|
Yield
|
Name
|
|
(Price to Par)
|
|
|
(Basis Points)
|
|
(Basis Points)
|
|
MM Caps Funding I Ltd
|
|
$
|
37.26
|
|
|
Swap + 1800
|
|
9.48% Fixed
|
MM Community Funding Ltd
|
|
|
17.61
|
|
|
LIBOR + 1300
|
|
LIBOR + 310
|
Preferred Term Securities V
|
|
|
31.67
|
|
|
LIBOR + 1300
|
|
LIBOR + 210
|
Tpref Funding III Ltd
|
|
|
28.53
|
|
|
LIBOR + 1200
|
|
LIBOR + 190
|
Trapeza
2007-13A LLC
|
|
|
|
|
|
NA
|
|
LIBOR + 120
|
Emigrant Capital Trust(2)
|
|
|
19.53
|
|
|
LIBOR + 2342
|
|
LIBOR + 200
|
|
|
|
(1) |
|
Management received notification in April 2009 that interest
payments on this issue will be deferred for up to 20 quarters.
In addition, New Souths external auditor issued a going
concern opinion on May 2, 2009. Management determined that
there was not sufficient positive evidence that this issue will
ever pay principal or interest. Therefore, OTTI was recognized
on the full amount of the security during the first quarter of
2009. In December 2009, the banking subsidiary of New South
Capital was closed by its regulator and placed in receivership. |
|
(2) |
|
There has been no notification of deferral or default on this
issue. An analysis of the company, including discussion with its
management, indicates there is adequate capital and liquidity to
service the debt. The discount margin of 2342 basis points
was derived from implied credit spreads from certain publicly
traded trust preferred securities within the issuers peer group. |
|
(3) |
|
Excess subordination represents the additional defaults in
excess of both the current and projected defaults the issue can
absorb before the security experiences any credit impairment.
Excess subordination is calculated by |
109
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
3.
|
Investment
Securities (Continued)
|
|
|
|
|
|
determining what level of defaults an issue can experience
before the security has any credit impairment and then
subtracting both the current and projected future defaults. |
In addition to the impact of interest rates, the estimated fair
value of these CDOs have been and continue to be depressed due
to the unusual credit conditions that the financial industry has
faced since the middle of 2008 and a weakening economy, which
has severely reduced the demand for these securities and
rendered their trading market inactive.
As of December 31, 2009, management does not intend to sell
these securities, nor is it more likely than not that the
Corporation will be required to sell the securities before the
entire amortized cost basis is recovered since the current
financial condition of the Corporation, including liquidity and
interest rate risk, will not require such action.
The following table provides a rollforward of the amount of
credit-related losses recognized in earnings for which a portion
of OTTI has been recognized in other comprehensive income
through December 31, 2009:
|
|
|
|
|
|
|
For the
|
|
|
|
Year Ended
|
|
|
|
December 31, 2009
|
|
|
|
(Dollars in thousands)
|
|
|
Balance at beginning of period
|
|
$
|
|
|
Amounts related to credit losses for which an OTTI was not
previously recognized
|
|
|
4,637
|
|
Reductions for securities sold during the period
|
|
|
|
|
Increases in credit loss for which an OTTI was previously
recognized when the investor does not intend to sell the
security and it is not more likely than not that the entity will
be required to sell the security before recovery of its
amortized cost
|
|
|
4,232
|
|
Reductions for securities where there is an intent to sale or
requirement to sale
|
|
|
|
|
Reductions for increases in cash flows expected to be collected
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
8,869
|
|
|
|
|
|
|
Management will continue to evaluate the investment ratings in
the securities portfolio, severity in pricing declines, market
price quotes along with timing and receipt of amounts
contractually due. Based upon these and other factors, the
securities portfolio may experience further impairment.
Stock in
the Federal Home Loan Bank of Atlanta (FHLB
Atlanta)
As of December 31, 2009, the Corporation has stock in FHLB
Atlanta totaling $18,212,000 (its par value), which is presented
separately on the face of our statement of financial condition.
There is no ready market for the stock and no quoted market
values, as only member institutions are eligible to be
shareholders and all transactions are, by charter, to take place
at par with FHLB Atlanta as the only purchaser. Therefore, the
Corporation accounts for this investment as a long-term asset
and carries it at cost. Management reviews this stock quarterly
for impairment and conducts its analysis in accordance with ASC
942-325-35-3.
Managements determination as to whether this investment is
impaired is based on managements assessment of the
ultimate recoverability of its par value (cost) rather than
recognizing temporary declines in its value. The
110
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
3.
|
Investment
Securities (Continued)
|
determination of whether the decline affects the ultimate
recoverability of our investment is influenced by available
information regarding criteria such as:
|
|
|
|
|
The significance of the decline in net assets of FHLB Atlanta as
compared to the capital stock amount for FHLB Atlanta and the
length of time this decline has persisted;
|
|
|
|
Commitments by FHLB Atlanta to make payments required by law or
regulation and the level of such payments in relation to the
operating performance of FHLB Atlanta;
|
|
|
|
The impact of legislative and regulatory changes on financial
institutions and, accordingly, on the customer base of FHLB
Atlanta; and
|
|
|
|
The liquidity position of FHLB Atlanta.
|
Management has reviewed publicly available information regarding
the financial condition of FHLB Atlanta and concluded that no
impairment existed based on its assessment of the ultimate
recoverability of the par value of the investment. Management
noted that FHLB Atlanta reported operating income of
$191,700,000 and $11,100,000 during the second and third
quarters of 2009, respectively. In addition, during the second
quarter of 2009, FHLB Atlanta reinstated its dividend, at a rate
of 0.84% and 0.41%, for the second and third quarters of 2009,
respectively, compared to a prior rate of 2.89% for the last
dividend paid in the third quarter of 2008, prior to its
dividend suspension. On the basis of a review of the financial
condition, cash flow, liquidity and asset quality indicators of
the FHLB Atlanta as of the end of its third quarter of 2009, as
well as the decision of FHLB Atlanta to reinstate the dividend
announced in the second and third quarters, management has
concluded that no impairment exists on our investment in the
stock of FHLB Atlanta. This is a long-term investment that
serves a business purpose of enabling us to enhance the
liquidity of the Bank through access to the lending facilities
of FHLB Atlanta. For the foregoing reasons, management believes
that FHLB Atlantas current position does not indicate that
our investment will not be recoverable at par, our cost, and
thus the investment is not impaired as of December 31, 2009.
At December 31, 2009 and 2008, the composition of the loan
portfolio was as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(Dollars in thousands)
|
|
|
Commercial and industrial
|
|
$
|
213,329
|
|
|
$
|
207,372
|
|
Real estate construction and land development
|
|
|
680,445
|
|
|
|
637,587
|
|
Real estate mortgages
|
|
|
|
|
|
|
|
|
Single-family
|
|
|
691,364
|
|
|
|
655,216
|
|
Commercial
|
|
|
801,813
|
|
|
|
726,704
|
|
Other
|
|
|
28,885
|
|
|
|
31,187
|
|
Consumer
|
|
|
58,785
|
|
|
|
57,877
|
|
Other
|
|
|
969
|
|
|
|
972
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
$
|
2,475,590
|
|
|
$
|
2,316,915
|
|
|
|
|
|
|
|
|
|
|
Nonperforming loans and impaired loans are defined differently.
Some loans may be included in both categories, whereas other
loans may only be included in one category. Included in our
impaired loans are nonperforming loans with specific impairment
and loans considered troubled debt restructurings
(TDRs). A restructuring of debt constitutes a TDR if
for economic or legal reasons related to borrowers
financial difficulties we grant a concession to the borrower
that we would not otherwise consider.
111
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following is a summary of information pertaining to impaired
loans:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(Dollars in thousands)
|
|
|
Impaired loans with specific valuation allowance
|
|
$
|
129,298
|
|
|
$
|
32,299
|
|
Valuation allowance related to impaired loans
|
|
|
(14,527
|
)
|
|
|
(5,106
|
)
|
Impaired loans without specific valuation allowance
|
|
|
151,050
|
|
|
|
20,581
|
|
|
|
|
|
|
|
|
|
|
Impaired loans, net
|
|
$
|
265,821
|
|
|
$
|
47,774
|
|
|
|
|
|
|
|
|
|
|
Nonperforming loans were as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(Dollars in thousands)
|
|
|
Nonaccrual loans
|
|
$
|
155,631
|
|
|
|
54,712
|
|
Accruing loans 90 days or more delinquent
|
|
|
3,920
|
|
|
|
8,033
|
|
The following is a summary of our TDRs, net of specific
allowance:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(Dollars in thousands)
|
|
|
Restructured and performing under restructured terms
|
|
$
|
110,277
|
|
|
$
|
2,643
|
|
Restructured and not performing under restructured terms
|
|
|
5,527
|
|
|
|
|
|
Interest income on impaired loans is recognized as earned on an
accrual basis except for impaired loans that have been placed on
nonaccrual status. Interest income received on nonaccrual
impaired loans is recognized as received on a cash basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(Dollars in thousands)
|
|
|
Average investment in impaired loans for the period
|
|
$
|
136,567
|
|
|
$
|
37,385
|
|
|
$
|
11,767
|
|
Interest recognized during the period for impaired loans
|
|
|
4,661
|
|
|
|
1,714
|
|
|
|
873
|
|
Interest recognized on a cash basis during the period for
impaired loans
|
|
|
274
|
|
|
|
|
|
|
|
|
|
There are commitments to lend additional funds to the borrowers
of impaired or non-accrual loans at December 31, 2009 of
approximately $2,700,000.
112
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
5.
|
Allowance
for Loan Losses
|
A summary of the allowance for loan losses for the years ended
December 31, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
Balance at beginning of year
|
|
$
|
28,850
|
|
|
$
|
22,868
|
|
|
$
|
18,892
|
|
Allowance of acquired banks
|
|
|
|
|
|
|
|
|
|
|
3,717
|
|
Provision for loan losses
|
|
|
28,550
|
|
|
|
13,112
|
|
|
|
4,541
|
|
Total charge-offs
|
|
|
(16,661
|
)
|
|
|
(8,444
|
)
|
|
|
(5,722
|
)
|
Total recoveries
|
|
|
1,145
|
|
|
|
1,314
|
|
|
|
1,440
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
41,884
|
|
|
$
|
28,850
|
|
|
$
|
22,868
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6.
|
Premises
and Equipment
|
Components of premises and equipment at December 31, are as
follows:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(Dollars in thousands)
|
|
|
Land
|
|
$
|
22,867
|
|
|
$
|
21,575
|
|
Premises
|
|
|
85,891
|
|
|
|
83,986
|
|
Furniture and equipment
|
|
|
31,360
|
|
|
|
27,646
|
|
|
|
|
|
|
|
|
|
|
|
|
|
140,118
|
|
|
|
133,207
|
|
Less accumulated depreciation and amortization
|
|
|
(37,926
|
)
|
|
|
(31,253
|
)
|
|
|
|
|
|
|
|
|
|
Net book value of premises and equipment in service
|
|
|
102,192
|
|
|
|
101,954
|
|
Construction in process (also includes land for branch expansion)
|
|
|
1,830
|
|
|
|
2,131
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
104,022
|
|
|
$
|
104,085
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense for the years ended December 31, 2009,
2008 and 2007 was $7,249,000, $6,576,000 and $4,630,000,
respectively.
During 2000, Community entered into sale/leaseback arrangements
on its Hamilton, Alabama bank location. Due to the structure of
this transaction, the lease qualified and has been accounted for
under capitalized lease rules.
The following is an analysis of the leased property located in
Hamilton, Alabama on which the Company maintains a capital lease:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(Dollars in thousands)
|
|
|
Buildings
|
|
$
|
2,450
|
|
|
$
|
2,450
|
|
Accumulated depreciation
|
|
|
(261
|
)
|
|
|
(180
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,189
|
|
|
$
|
2,270
|
|
|
|
|
|
|
|
|
|
|
113
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
6.
|
Premises
and Equipment (Continued)
|
The following is a schedule by year of future minimum lease
payments under the capital lease and all other operating leases,
together with the present value of the net minimum lease
payments as of December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
|
|
|
|
|
Years Ending December 31,
|
|
Property
|
|
|
Equipment
|
|
|
Total
|
|
|
Capitalized
|
|
|
|
(Dollars in thousands)
|
|
|
2010
|
|
$
|
3,536
|
|
|
$
|
235
|
|
|
$
|
3,771
|
|
|
$
|
275
|
|
2011
|
|
|
3,275
|
|
|
|
129
|
|
|
|
3,404
|
|
|
|
269
|
|
2012
|
|
|
2,724
|
|
|
|
69
|
|
|
|
2,793
|
|
|
|
263
|
|
2013
|
|
|
2,153
|
|
|
|
8
|
|
|
|
2,161
|
|
|
|
258
|
|
2014
|
|
|
1,952
|
|
|
|
|
|
|
|
1,952
|
|
|
|
252
|
|
2015 and thereafter
|
|
|
14,821
|
|
|
|
|
|
|
|
14,821
|
|
|
|
3,208
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total minimum lease payments
|
|
$
|
28,461
|
|
|
$
|
441
|
|
|
$
|
28,902
|
|
|
|
4,525
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount representing interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,141
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Present value of net minimum lease payments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,384
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental expense relating to operating leases amounted to
approximately $3,835,000, $3,721,000 and $2,460,000 for the
years ended December 31, 2009, 2008 and 2007, respectively.
On May 31, 2002, the purchaser of Communitys Marshall
County branch offices acquired the land, building and land
improvements located in Albertville, Alabama under a sales-type
lease. The lease agreement called for 60 payments of $14,000 per
month beginning June 1, 2002. The lease ended on
May 31, 2007 and was subject to options which gave the
right for the seller to require the purchaser to purchase the
property and gave the right to the purchaser to require the
seller to sell the property. The purchase option was exercised
on May 31, 2007 and proceeds totaling $2,621,544 were
received by the Bank.
Property
Classified as
Held-for-Sale
During the second quarter of 2008, management committed to a
plan to sell real estate which consists of the former corporate
headquarters and administrative office facilities of Community
in Blountsville, Alabama. Management committed to the sale of
the Community property in Blountsville because the size and
location of the facility does not meet the Corporations
current needs or future expansion plans. Management initially
expected the property to sell within 12 months but has not
been able to secure a buyer. Management believes the property is
appropriately priced and expects a sale within the next year.
The propertys current carrying value, included in other
assets, is $1,965,000, which approximates its market value.
This asset is included as part of the administrative reporting
unit.
Sale-Leaseback
Transactions
On July 24, 2007, the Corporations banking subsidiary
sold a branch office building in Huntsville, Alabama to a
limited liability company, of which one of the
Corporations directors is a member, for $3,000,000. The
limited liability company then leased the building back to the
banking subsidiary. The initial term of the lease is
14 years and may be renewed, at the banking
subsidiarys option, for three additional terms of five
years each. The amount of the monthly lease payments to be made
by the banking subsidiary is $19,500 for the first year of the
lease and increases annually until it reaches $26,881 per month
in year 14. Annual rent escalations associated with this lease
are being accounted for on a straight-line basis over
14 years. Rent for the renewal terms is to be determined
based on appraisals of the property. No gain or loss was
recognized on this transaction, which was entered into in the
ordinary course of business and is being accounted for as an
operating lease.
114
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
6.
|
Premises
and Equipment (Continued)
|
On September 7, 2007, the Corporations banking
subsidiary sold an additional branch office building in
Huntsville, Alabama to an unrelated party for $2,445,000. The
purchaser then leased the building back to the banking
subsidiary. The initial term of the lease is 15 years and
may be renewed, at the banking subsidiarys option, for
three additional terms of five years each. The amount of the
monthly lease payments to be made by the banking subsidiary is
$11,225 for the initial term. Rent for the renewal terms is to
be determined based on future appraisals of the property. No
gain or loss was recognized on this transaction, which was
entered into in the ordinary course of business and is being
accounted for as an operating lease.
On January 30, 2008, the Corporations banking
subsidiary entered into agreements with a limited liability
company, of which one of the Corporations directors is a
member, pursuant to which the limited liability company
purchased on January 31, 2008 office buildings located in
Albertville and Athens, Alabama for a total of $4,250,000. The
limited liability company then leased the building back to the
banking subsidiary. The initial term of each lease is
13 years and each lease may be renewed, at the banking
subsidiarys option, for two additional terms of five years
each. The amount of the monthly lease payments to be made by the
banking subsidiary in the first year is $13,240 for the
Albertville office and $14,208 for the Athens office. These
amounts increase annually until the monthly lease payments reach
$17,393 for the Albertville office and $18,666 for the Athens
office in year 13. Annual rent escalations associated with these
leases are being accounted for on a straight line basis over the
lease terms. Rent for the renewal terms is to be determined
based on appraisals of the properties. A gain of $73,000 was
realized on these transactions which will be recognized as a
reduction of rental expense over the remaining term of the
leases. These transactions were entered into in the ordinary
course of business and are being accounted for as operating
leases.
On June 27, 2008, the Bank entered into a lease with a
limited liability company of which one of our directors is a
member. The initial term of the lease is 10 years and
commenced on September 1, 2009. The lease may be renewed,
at the Banks option, for two additional terms of five
years each. The amount of the monthly lease payments to be made
by the Bank is $21,221 for the first year of the lease and
increases annually until it reaches $27,688 per month in year 10.
The following schedule details interest expense on deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(Dollars in thousands)
|
|
|
Interest-bearing demand
|
|
$
|
8,543
|
|
|
$
|
14,705
|
|
|
$
|
20,791
|
|
Savings
|
|
|
3,651
|
|
|
|
2,731
|
|
|
|
819
|
|
Time deposits $100,000 and over
|
|
|
15,975
|
|
|
|
19,356
|
|
|
|
21,122
|
|
Other time deposits
|
|
|
26,191
|
|
|
|
31,613
|
|
|
|
36,935
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
54,360
|
|
|
$
|
68,405
|
|
|
$
|
79,667
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2009, the scheduled maturities of time
deposits are as follows (Dollars in thousands):
|
|
|
|
|
2010
|
|
$
|
1,144,280
|
|
2011
|
|
|
207,520
|
|
2012
|
|
|
27,721
|
|
2013
|
|
|
8,603
|
|
2014 and thereafter
|
|
|
35,598
|
|
|
|
|
|
|
Total
|
|
$
|
1,423,722
|
|
|
|
|
|
|
115
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
8.
|
Advances
from Federal Home Loan Bank (FHLB)
|
The following is a summary, by year of maturity, of advances
from the FHLB as of December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
Year:
|
|
Average Rate
|
|
|
Balance
|
|
|
Average Rate
|
|
|
Balance
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
2009
|
|
|
|
%
|
|
$
|
|
|
|
|
1.03
|
%
|
|
$
|
142,984
|
|
2010
|
|
|
3.36
|
|
|
|
29,982
|
|
|
|
6.41
|
|
|
|
5,000
|
|
2011
|
|
|
2.66
|
|
|
|
50,000
|
|
|
|
2.69
|
|
|
|
75,000
|
|
2012
|
|
|
4.44
|
|
|
|
5,000
|
|
|
|
4.44
|
|
|
|
5,000
|
|
2013
|
|
|
3.46
|
|
|
|
35,000
|
|
|
|
3.46
|
|
|
|
35,000
|
|
2015
|
|
|
4.58
|
|
|
|
66,340
|
|
|
|
4.58
|
|
|
|
66,340
|
|
2020
|
|
|
4.28
|
|
|
|
32,000
|
|
|
|
4.28
|
|
|
|
32,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
3.74
|
%
|
|
$
|
218,322
|
|
|
|
2.67
|
%
|
|
$
|
361,324
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The above schedule is by contractual maturity. Call dates for
the above are as follows: 2010, $215,340,000.
The advances are secured by a blanket lien on certain
residential and commercial real estate loans and agency
mortgage-backed securities, all with a carrying value of
approximately $942,728,000 at December 31, 2009. The
Corporation has available approximately $177,229,000 in unused
advances under the blanket lien subject to the availability of
qualifying collateral.
In February 2008, FHLB advances totaling $100,000,000 were
refinanced to lower the current interest rate in response to
current market conditions. This refinancing was accounted for as
debt modification therefore no gain or loss was recognized on
the transaction. The following table summarizes the terms of the
refinanced advances by contractual maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Current
|
|
|
Rate
|
|
|
|
|
|
|
Weighted
|
|
|
Before
|
|
|
|
|
Matures
|
|
Average Rate
|
|
|
Refinancing
|
|
|
Balance
|
|
|
|
(Dollars in thousands)
|
|
|
2011
|
|
|
2.77
|
%
|
|
|
4.60
|
%
|
|
$
|
25,000
|
|
2013
|
|
|
3.46
|
|
|
|
4.21
|
|
|
|
35,000
|
|
2015
|
|
|
4.05
|
|
|
|
4.57
|
|
|
|
40,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
3.52
|
%
|
|
|
4.45
|
%
|
|
$
|
100,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The FHLB has issued for the benefit of the Corporations
banking subsidiary two irrevocable letters of credit. The Bank
has a $20,000,000 irrevocable letter of credit in favor of the
Chief Financial Officer of the State of Florida to secure
certain deposits of the State of Florida. The letter of credit
expires January 4, 2011 upon 60 days prior
notice of non-renewal; otherwise it automatically extends for a
successive one-year term. In addition, the Bank has a
$50,000,000 irrevocable letter of credit in favor of the State
of Alabama SAFE Program to secure certain deposits of the State
of Alabama. This letter of credit expires on September 15,
2010 and will automatically be extended, without amendments, for
successive one-year periods from the expiration date, without
ninety days prior notice of non-renewal.
116
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
9.
|
Federal
Funds Borrowed and Security Repurchase Agreements
|
Detail of Federal funds borrowed and security repurchase
agreements follows:
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(Dollars in thousands)
|
|
|
Balance at December 31:
|
|
|
|
|
|
|
|
|
Federal funds borrowed
|
|
$
|
|
|
|
$
|
|
|
Security repurchase agreements
|
|
|
841
|
|
|
|
3,563
|
|
Maximum outstanding at any month end:
|
|
|
|
|
|
|
|
|
Federal funds borrowed
|
|
|
|
|
|
|
3,135
|
|
Security repurchase agreements
|
|
|
4,026
|
|
|
|
7,817
|
|
Daily average amount outstanding:
|
|
|
|
|
|
|
|
|
Federal funds borrowed
|
|
|
17
|
|
|
|
1,145
|
|
Security repurchase agreements
|
|
|
1,935
|
|
|
|
6,367
|
|
Weighted daily average interest rate:
|
|
|
|
|
|
|
|
|
Federal funds borrowed
|
|
|
1.01
|
%
|
|
|
2.93
|
%
|
Security repurchase agreements
|
|
|
0.85
|
|
|
|
2.14
|
|
Weighted daily interest rate for amounts outstanding at December
31:
|
|
|
|
|
|
|
|
|
Federal funds borrowed
|
|
|
|
%
|
|
|
|
%
|
Security repurchase agreements
|
|
|
1.82
|
|
|
|
0.29
|
|
The carrying value of securities sold under repurchase
agreements is $4,227,000 and $10,015,000 as of December 31,
2009 and 2008, respectively.
The following is a summary of notes payable for the periods
shown:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
Principal
|
|
|
Rate
|
|
|
Principal
|
|
|
Rate
|
|
|
|
(Dollars in thousands)
|
|
|
Note payable to bank, borrowed under $7,000,000 line of credit,
due September 3, 2010; interest is based on Wall Street
prime plus 1.25 but not less than 4.5%, secured by 100% of the
outstanding Superior Bank stock(1)
|
|
$
|
7,000
|
|
|
|
4.50
|
%
|
|
$
|
|
|
|
|
|
|
Note payable to bank, borrowed under $10,000,000 line of credit,
due September 3, 2009; interest is based on the
lenders base rate, secured by 100% of the outstanding
Superior Bank stock
|
|
|
|
|
|
|
|
|
|
|
7,000
|
|
|
|
4.50
|
%
|
Senior note guaranteed under the TLGP, due March 30, 2012,
2.625% fixed rate due semi-annually
|
|
|
40,000
|
|
|
|
2.625
|
%
|
|
|
|
|
|
|
|
|
Less: Discount, FDIC guarantee premium and other issuance costs
|
|
|
(1,083
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total notes payable
|
|
$
|
45,917
|
|
|
|
|
|
|
$
|
7,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Borrowings under this line are subject to certain customary
affirmative and negative covenants on capital levels,
indebtedness, mergers and other related matters. As of
December 31, 2009, the Corporation was in compliance with
all covenants. |
117
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
10.
|
Notes
Payable (Continued)
|
On March 31, 2009, Superior Bank (the Bank),
completed an offering of a $40,000,000 aggregate principal
amount 2.625% Senior Note due 2012 (the Note).
The Note is guaranteed by the Federal Deposit Insurance
Corporation (FDIC) under its Temporary Liquidity
Guarantee Program (the TLGP) and is backed by the
full faith and credit of the United States. The Note is a
direct, unsecured general obligation of the Bank and it is not
subject to redemption prior to maturity. The Note is solely the
obligation of the Bank and is not guaranteed by the Corporation.
The Bank received net proceeds, after discount, FDIC guarantee
premium and other issuance costs, of approximately $38,575,000,
which will be used by the Bank for general corporate purposes.
The debt will yield an effective interest rate, including
amortization, of 3.89%.
In connection with the TLGP, the Bank entered into a Master
Agreement with the FDIC. The Master Agreement contains certain
terms and conditions that must be included in the governing
documents for any senior debt securities issued by the Bank that
are guaranteed pursuant to the TLGP.
|
|
11.
|
Subordinated
Debentures
|
Subordinated
Debt and Related Warrant
On September 17, 2008, the Corporations banking
subsidiary (Bank) entered into an Agreement to
Purchase Subordinated Notes (the Agreement) with
Durden Enterprises, LLC (the Purchaser). Pursuant to
the terms of the Agreement, the Bank issued to the Purchaser
$10,000,000 in aggregate principal amount of
9.5% Subordinated Notes due September 15, 2018 (the
Notes), and the Bank issued to the Purchaser a
warrant (the Warrant) to purchase up to one million
shares of our common stock, $.001 par value per share, at a
price of $7.53 per share. The exercise price for the Warrant was
based on the average of the closing prices of the
Corporations common stock for the 10 trading days
immediately preceding September 17, 2008. Interest on the
Notes is payable quarterly. The Purchaser may, subject to
regulatory approval, accelerate the payment of principal and
interest if there is an event of default under the terms of the
Notes. Events of default are limited to the commencement of
voluntary or involuntary bankruptcy or similar proceedings with
respect to the Bank. Beginning on September 15, 2013, the
Bank may redeem all or a portion of the Notes on any interest
payment date at a price equal to 100% of the principal amount of
the redeemed Notes plus accrued but unpaid interest.
The fair value of the Warrant of $2,553,000 was determined using
the Black-Scholes option-pricing model and the value allocated
on an incremental basis. The assumptions used in the model were;
risk-free rate of 2.57%, volatility factor of 37.14%, and a
dividend rate of 0.00%. The value of the Warrant is being
amortized into interest expense over the term of the Agreement.
The Warrant is exercisable at any time prior to the close of
business on September 15, 2013. The Corporation agreed to
register with the Securities and Exchange Commission
(SEC) the stock that would be issued to the
Purchaser upon the exercise of the Warrant. We also granted to
the Purchaser an option to purchase up to $10,000,000 in
additional subordinated notes and receive additional warrants in
the future on similar terms and conditions with such changes as
are necessary to reflect market conditions at that time. K. Earl
Durden, the managing member of the Purchaser, is a director of
the Corporation and the Bank.
Junior
Subordinated Debentures
On July 19, 2007, the Corporation issued approximately
$22,000,000 in aggregate principal amount of trust preferred
securities and a like amount of related subordinated debentures
through the Corporations wholly-owned, unconsolidated
subsidiary trust, Superior Capital Trust I. The trust
preferred securities and subordinated debentures bear interest
at a floating rate of three-month LIBOR plus 1.33% that is
payable quarterly. The trust preferred securities, which may be
redeemed on or after September 15, 2012, will mature on
September 15, 2037 (see Note 30).
On July 25, 2007, the Corporation completed its redemption
of approximately $16,000,000 in aggregate outstanding principal
amount of Trust Preferred Securities and related six-month
LIBOR plus 3.75% junior subordinated debentures due
July 25, 2031, both of which were issued by the
Corporations wholly-owned,
118
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
11.
|
Subordinated
Debentures (Continued)
|
unconsolidated subsidiary trust, TBC Capital Statutory
Trust III. The Corporation called the securities for
redemption effective July 25, 2007 at a redemption price
equal to 106.15% of par. The remaining proceeds from the
issuance of the new trust preferred securities were used in the
stock repurchase program and for other corporate purposes. The
Corporation incurred a loss of approximately $1,469,000
($925,000 net of tax, or $.02 per share), during the third
quarter of 2007 relating to the redemption of the outstanding
trust preferred securities.
In addition to the trust described in the immediately following
paragraph, the Corporation has three more sponsored trusts, TBC
Capital Statutory Trust II (TBC Capital II),
Community (AL) Capital Trust I (Community Capital
I) and Peoples Community Statutory Trust I
(Peoples Trust I), of which 100% of the common
equity is owned by the Corporation. All trusts were formed for
the purpose of issuing Corporation-obligated mandatory
redeemable trust preferred securities to third-party investors
and investing the proceeds from the sale of such trust preferred
securities solely in junior subordinated debt securities of the
Corporation (the debentures). The debentures held by each trust
are the sole assets of that trust. Distributions on the trust
preferred securities issued by each trust are payable quarterly
and semi-annually, at a rate per annum equal to the interest
rate being earned by the trust on the debentures held by that
trust. The trust preferred securities are subject to mandatory
redemption, in whole or in part, upon repayment of the
debentures. The Corporation has entered into agreements which,
taken collectively, fully and unconditionally guarantee the
trust preferred securities subject to the terms of each of the
guarantees. The debentures held by the TBC Capital II, Community
Capital I and Peoples Trust I trusts are first redeemable,
in whole or in part, by the Corporation on September 7,
2010, March 8, 2010 and December 15, 2010,
respectively.
Also, as described in Note 29, on December 11, 2009,
the Corporation established the Superior Capital Trust II
for the purpose of exchanging the shares of Series A
preferred stock held by the United States Department of the
Treasury (the Treasury Department) for trust
preferred securities issued by this trust. The Corporation
issued approximately $69,100,000 in aggregate principal amount
of Trust Preferred Securities. The proceeds from such
issuance was used by the trusts to purchase junior subordinated
deferrable interest debentures issued by the Corporation. The
Trust Preferred Securities and subordinated debentures bear
interest, payable quarterly, at a rate of 5% until
February 15, 2014 when the rate increases to 9%. The
Trust Preferred Securities are perpetual, having no stated
maturity, but may be redeemed at any time by the Company on
30 days notice.
Refer to Note 29 to the consolidated financial statements
for further information on the impact of the Exchange Offer on
the trust preferred securities.
At December 31, 2009, the Corporation had five separate
series of junior subordinated debentures outstanding with an
aggregate principal amount of $121,700,000. Each series was
issued under a separate indenture and with a separate guarantee.
Each of these indentures, together with the related guarantee,
prohibits the Corporation, subject to limited exceptions, from
declaring or paying any dividends or distributions on, or
redeeming, repurchasing, acquiring or making any liquidation
payments with respect to, any of its capital stock at any time
when (i) there shall have occurred and be continuing an
event of default under such indenture or any event, act or
condition that with notice or lapse of time or both would
constitute an event of default under such indenture;
(ii) the Corporation is in default with respect to payment
of any obligations under such guarantee; or (iii) the
Corporation has deferred payment of interest on the junior
subordinated debentures outstanding under that indenture. In
that regard, the Corporation is entitled, at its option but
subject to certain conditions, to defer payments of interest on
the junior subordinated debentures of each series from time to
time for up to five years.
Events of default under the indentures generally consist of the
Corporations failure to pay interest on the junior
subordinated debt securities under certain circumstances,
failure to pay any principal of or premium on such junior
subordinated debt securities when due, the failure to comply
with certain covenants under the indenture, and certain events
of bankruptcy, insolvency or liquidation relating to the
Corporation or Superior Bank.
As a result of these provisions, if the Corporation were to
elect to defer payments of interest on any series of junior
subordinated debentures, or if any of the other events described
in clause (i) or (ii) of the first paragraph of this
119
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
11.
|
Subordinated
Debentures (Continued)
|
risk factor were to occur, the Corporation would be prohibited
from declaring or paying any dividends on its common stock, from
repurchasing or otherwise acquiring any such common stock, and
from making any payments to holders of common stock in the event
of the Corporations liquidation.
Consolidated debt obligations related to these subsidiary trusts
and other subordinated debt are as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(Dollars in thousands)
|
|
|
Junior Subordinated Debentures
|
|
|
|
|
|
|
|
|
5.00% perpetual junior subordinated debentures owed to Superior
Capital Trust II(3)(4)
|
|
$
|
69,100
|
|
|
$
|
|
|
10.6% junior subordinated debentures owed to TBC Capital
Statutory Trust II due September 7, 2030
|
|
|
15,464
|
|
|
|
15,464
|
|
10.875% junior subordinated debentures owed to Community Capital
Trust I due March 8, 2030
|
|
|
10,310
|
|
|
|
10,310
|
|
3-month
LIBOR plus 1.33% junior subordinated debentures owed to Superior
Capital Trust I due September 15, 2037(1)
|
|
|
22,681
|
|
|
|
22,681
|
|
6.41% junior subordinated debentures owed to Peoples Community
Capital Trust I due December 15, 2035(2)
|
|
|
4,124
|
|
|
|
4,124
|
|
Add (subtract):
|
|
|
|
|
|
|
|
|
Purchase accounting adjustment
|
|
|
471
|
|
|
|
819
|
|
Discount related to 5.00% perpetual junior subordinated
debentures owed to Superior Capital Trust II(4)
|
|
|
(45,598
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total junior subordinated debentures owed to unconsolidated
subsidiary trusts
|
|
|
76,552
|
|
|
|
53,398
|
|
Other Subordinated Debt
|
|
|
|
|
|
|
|
|
9.5% subordinated debentures owed to Durden Enterprises,
LLC due September 15, 2013
|
|
|
10,000
|
|
|
|
10,000
|
|
Add (subtract):
|
|
|
|
|
|
|
|
|
Discount related to 9.5% subordinated debentures owed to
Durden Enterprises, LLC
|
|
|
(2,382
|
)
|
|
|
(2,514
|
)
|
|
|
|
|
|
|
|
|
|
Total other subordinated debt
|
|
|
7,618
|
|
|
|
7,486
|
|
|
|
|
|
|
|
|
|
|
Total subordinated debentures
|
|
$
|
84,170
|
|
|
$
|
60,884
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Interest rate is equal to 1.58% at December 31, 2009. The
Corporation has entered into interest rate swap agreements to an
average effective fixed rate of 4.42%. (see Note 15) |
|
(2) |
|
Converts to quarterly floating rate of LIBOR plus 1.45% in
December 2010. |
|
(3) |
|
Converts to 9.00% on February 15, 2014 (see Note 29). |
|
(4) |
|
Effective yield is equal to 20.22% (see Note 29). |
|
|
12.
|
Stock
Incentive Plans
|
The Corporation recognized compensation cost of $720,000
$910,000 and $473,000, in 2009, 2008, and 2007, respectively,
for all share-based payments, based on the grant-date fair value
estimated in accordance with the provisions of ASC 718.
120
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
12.
|
Stock
Incentive Plans (Continued)
|
The Corporation established the Third Amended and Restated 1998
Stock Incentive Plan (the 1998 Plan) for directors
and certain key employees that provides for the granting of
restricted stock and incentive and nonqualified options to
purchase up to 625,000 (restated for
1-for-4
reverse stock split) shares of the Corporations common
stock of which substantially all available shares have been
granted. The compensation committee of the Board of Directors
determines the terms of the restricted stock and options
granted. All options granted have a maximum term of ten years
from the grant date, and the option price per share of options
granted cannot be less than the fair market value of the
Corporations common stock on the grant date. Some of the
options granted under the plan in the past vested over a
five-year period, while others vested based on certain
benchmarks relating to the trading price of the
Corporations common stock, with an outside vesting date of
five years from the date of grant. More recent grants have
followed this benchmark-vesting formula.
In April 2008, the Corporations stockholders approved the
Superior Bancorp 2008 Incentive Compensation Plan (the
2008 Plan) which succeeded the 1998 Plan. The
purpose of the 2008 Plan is to provide additional incentive for
the Corporations directors and key employees to further
the growth, development and financial success of the Corporation
and its subsidiaries by personally benefiting through the
ownership of the Corporations common stock, or other
rights which recognize such growth, development and financial
success. The Corporations Board also believes the 2008
Plan will enable it to obtain and retain the services of
directors and employees who are considered essential to its
long-range success by offering them an opportunity to own stock
and other rights that reflect the Corporations financial
success. The maximum aggregate number of shares of common stock
that may be issued or transferred pursuant to awards under the
2008 Plan is 300,000 (restated for
1-for-4
reverse stock split) shares, of which no more than
90,000 shares may be issued for full value
awards (defined under the 2008 Plan to mean any awards
permitted under the 2008 Plan that are neither stock options nor
stock appreciation rights). Only those employees and directors
who are selected to receive grants by the administrator may
participate in the 2008 Plan.
During the first quarter of 2005, the Corporation granted
422,734 options to the new management team. These options have
exercise prices ranging from $32.68 to $38.52 per share and were
granted outside of the stock incentive plan as part of the
inducement package for new management. These shares are included
in the tables below.
The fair value of each option award is estimated on the date of
grant based upon the Black-Scholes pricing model that uses the
assumptions noted in the following table. The risk-free interest
rate is based on the implied yield on U.S. Treasury
zero-coupon issues with a remaining term equal to the expected
term. Expected volatility has been estimated based on historical
data. The expected term has been estimated based on the
five-year vesting date and change of control provisions. The
Corporation used the following weighted-average assumptions for
the years ended December 31, 2009, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Risk-free interest rate
|
|
|
2.57
|
%
|
|
|
3.65
|
%
|
|
|
4.49
|
%
|
Volatility factor
|
|
|
55.38
|
%
|
|
|
35.19
|
%
|
|
|
29.11
|
%
|
Expected term (in years)
|
|
|
5.00
|
|
|
|
5.00
|
|
|
|
5.00
|
|
Dividend yield
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
121
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
12.
|
Stock
Incentive Plans (Continued)
|
A summary of stock option activity as of December 31, 2009,
2008 and 2007, and changes during the years then ended is set
forth below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Intrinsic
|
|
For the Year Ended December 31, 2009
|
|
Number
|
|
|
Price
|
|
|
Term
|
|
|
Value
|
|
|
Under option, beginning of period
|
|
|
848,922
|
|
|
$
|
29.94
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
104,100
|
|
|
|
2.97
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(27,375
|
)
|
|
|
(31.77
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Under option, end of period
|
|
|
925,647
|
|
|
$
|
26.85
|
|
|
|
5.65
|
|
|
$
|
39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at end of period
|
|
|
625,903
|
|
|
$
|
31.76
|
|
|
|
2.90
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average fair value per option of options granted during
the period
|
|
$
|
1.47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Under option, beginning of period
|
|
|
802,048
|
|
|
$
|
33.08
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
114,875
|
|
|
|
9.45
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(68,001
|
)
|
|
|
(32.35
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Under option, end of period
|
|
|
848,922
|
|
|
$
|
29.94
|
|
|
|
6.19
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at end of period
|
|
|
634,028
|
|
|
$
|
31.72
|
|
|
|
3.94
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average fair value per option of options granted during
the period
|
|
$
|
3.95
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Under option, beginning of period
|
|
|
760,649
|
|
|
$
|
32.28
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
69,149
|
|
|
|
40.20
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(21,250
|
)
|
|
|
25.48
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(6,500
|
)
|
|
|
41.40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Under option, end of period
|
|
|
802,048
|
|
|
$
|
33.08
|
|
|
|
6.70
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at end of period
|
|
|
691,649
|
|
|
$
|
31.76
|
|
|
|
5.44
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average fair value per option of options granted during
the period
|
|
$
|
13.80
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The total intrinsic value of options exercised during the years
ended December 31, 2009, 2008 and 2007 was $-0-, $-0- and
$287,000, respectively. As of December 31, 2009, there was
$409,000 of total unrecognized compensation expense related to
the unvested awards. This expense will be recognized over
approximately the next
30-months
unless the shares vest earlier based on achievement of benchmark
trading price levels. During the year ended December 31,
2009, 2008 and 2007, the Corporation recognized approximately
$471,000, $623,000 and $473,000 in compensation expense related
to options granted.
122
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
12.
|
Stock
Incentive Plans (Continued)
|
In January 2008, members of the Corporations management
received restricted common stock grants totaling
26,788 shares. These grants exclude certain senior
executive management who received cash under the short-term
management incentive plan in lieu of restricted stock. The grant
date fair value of this restricted common stock is equal to
$18.56 per share or $497,000 in the aggregate which will be
recognized over a
24-month
period as 50% of the stock vested on January 22, 2009 with
the remaining 50% vesting on January 22, 2010. During the
twelve month periods ended December 31, 2009 and 2008, the
Corporation recognized approximately $249,000 and $286,000,
respectively, in compensation expense related to restricted
stock. The outstanding shares of restricted common stock are
included in the diluted earnings per share calculation, using
the treasury stock method, until the shares vest. Once vested,
the shares become outstanding for basic earnings per share. If
an executives employment terminates prior to a vesting
date for any reason other than death, disability or a change in
control, the unvested stock is forfeited pursuant to the terms
of the restricted common stock agreement. Unvested restricted
common stock becomes immediately vested upon death, disability
or a change in control. Under the restricted common stock
agreements, the restricted stock may not be sold or assigned in
any manner during the vesting period, but the executive will
have the rights of a shareholder with respect to the stock (i.e.
the right to vote, receive dividends, etc), prior to vesting.
Employee
Stock Ownership Plans
Superior
Bancorp ESOP
Effective August 31, 2007, the Corporation terminated the
Superior Bancorp Employee Stock Ownership Plan (the
ESOP). The ESOP was leveraged, and a promissory note
existed between the ESOP and the Corporation that had a
remaining balance of $1,165,000 at the termination date. The
promissory note was satisfied by the transfer from the ESOP to
the Corporation of 31,867 unallocated shares of Corporation
common stock valued at a price of $36.56 per share, the closing
price that day. The Corporation transferred these shares during
the third quarter of 2007 to treasury stock at current market
value from the unallocated ESOP shares account. The remaining
4,295 unallocated shares were committed to be allocated to the
participants accounts, and, as a result, the Corporation
recognized additional compensation expense during the third
quarter of 2007 of approximately $158,000.
On January 29, 2003, the ESOP trustees finalized a
$2,100,000 promissory note, which has been fully repaid as
discussed above, to reimburse the Corporation for the funds used
to leverage the ESOP. The unreleased shares and a guarantee of
the Corporation secured the promissory note, which had been
classified as notes payable on the Corporations statement
of financial condition. As the debt was repaid, shares were
released from collateral based on the proportion of debt
service. Principal payments on the debt were $17,500 per month
for 120 months. The interest rate adjusted to the Wall
Street Journal prime rate. Interest expense incurred on the
debt in 2007 totaled $82,000. Total contributions to the plan
during 2007 totaled $1,326,000. Released shares were allocated
to eligible employees at the end of the plan year based on the
employees eligible compensation to total compensation. The
Corporation recognized compensation expense during the period as
the shares were earned and committed to be released. As shares
were committed to be released and compensation expense was
recognized, the shares became outstanding for basic and diluted
earnings per share computations. The amount of compensation
expense reported by the Corporation is equal to the average fair
value of the shares earned and committed to be released during
the period. Compensation expense that the Corporation recognized
during the period ended December 31, 2007 was $371,000.
Community
Bancshares ESOP
As a result of its merger with Community, the Corporation became
a sponsor of an internally leveraged ESOP maintained by
Community. This ESOP has an outstanding loan to the Corporation
that bears interest at a floating rate equal to the prime rate
of interest. As of December 31, 2009, the interest rate on
the note was 3.25%. Principal and interest payments on the ESOP
loan are due monthly through August, 2011, based on the current
amortization schedule, with the remaining principal and
interest, if any, due upon that date. The ESOP loan may be
prepaid in
123
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
12.
|
Stock
Incentive Plans (Continued)
|
whole or in part without penalty under the loan agreement,
subject to applicable ERISA and tax restrictions. The
Corporation makes contributions to the ESOP that enables the
ESOP to make payments due under the ESOP loan. Under ASC
718-40,
Employee Stock Ownership Plans, (ASC
718-40)
employers that sponsor an ESOP with an employer loan should not
report the ESOPs note payable or the employers note
receivable in the employers statement of condition, nor
should interest cost or interest income be recognized on the
employer loan. The Corporation has followed the provisions of
ASC 718-40
accordingly. The ESOP was terminated effective December 31,
2009.
An employee becomes a participant in the ESOP after completing
12 months of service during which the employee is credited
with 1,000 hours or more of service. Contributions to the
plan are made at the discretion of the board but may not be less
than the amount required to service the ESOP debt. Under the
terms of the ESOP, after a person ceases to be an employee of
the Corporation, that person is no longer eligible to
participate in the ESOP. In that case, the person may demand to
receive all stock credited to his benefit under the ESOP as of
the end of the year immediately preceding that persons
termination of employment with the Corporation.
Dividends paid on released ESOP shares are credited to the
accounts of the participants to whom the shares are allocated.
Dividends on unreleased shares may be used to repay the debt
associated with the ESOP or treated as other income of the ESOP
and allocated to the participants. Compensation cost recognized
during the period ended December 31, 2009, 2008 and 2007
was $16,000, $36,000 and $125,000, respectively. The ESOP shares
as of December 31, 2009 and 2008 are as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Allocated shares
|
|
|
69,695
|
|
|
|
65,787
|
|
Estimated shares committed to be released
|
|
|
3,938
|
|
|
|
3,908
|
|
Unreleased shares
|
|
|
12,335
|
|
|
|
16,273
|
|
|
|
|
|
|
|
|
|
|
Total ESOP shares
|
|
|
85,968
|
|
|
|
85,968
|
|
|
|
|
|
|
|
|
|
|
Fair value of unreleased shares
|
|
$
|
40,582
|
|
|
$
|
51,585
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13.
|
Profit-Sharing
Plan and Other Agreements
|
The Corporation sponsors a profit-sharing plan that permits
participants to make contributions by salary reduction pursuant
to Section 401(k) of the Internal Revenue Code. This plan
covers substantially all employees who meet certain age and
length of service requirements. The Corporation matches
contributions at its discretion. The Corporations
contributions to the plan were $1,082,000, $1,062,000 and
$886,000 in 2009, 2008 and 2007, respectively.
The Corporation has various nonqualified retirement agreements
with certain current and former directors and former executive
officers. Generally, the agreements provide a fixed retirement
benefit that will be paid in installments ranging from 10 to
20 years. As of December 31, 2009 and 2008,
substantially all of the benefits due under these plans were
vested. The Corporations nonqualified retirement
agreements had an aggregate unfunded projected benefit of
approximately $5,267,000 (see settlement discussion below) as of
December 31, 2009 and $5,316,000 at December 31, 2008.
The accrued liability, included in other liabilities, associated
with these benefits totaled $2,346,000 and $2,312,000 at
December 31, 2009 and 2008, respectively, which represents
the present value of the future benefits. Compensation expense
related to these plans totaled $83,000, $175,000 and $334,000
for 2009, 2008 and 2007, respectfully.
During 2008, the Corporation recognized two separate gains from
the extinguishment of approximately $5,800,000 in liabilities.
The first gain related to a settlement of a retirement agreement
with a previous executive officer under which the Corporation
had a remaining unfunded obligation to pay approximately
$6,200,000 in
124
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
13.
|
Profit-Sharing
Plan and Other Agreements (Continued)
|
benefits over a
17-year
period. This obligation was settled through a cash settlement
payment of $3,000,000 with a recognized pre-tax gain of
$574,000. The second gain related to a forfeiture of benefits
owed to a former executive officer under the Community
Bancshares, Inc. Benefit Restoration Plan (see
Note 20) and resulted in a pre-tax gain of $2,344,000.
The components of the consolidated income tax (benefit) expense
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(Dollars in thousands)
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
533
|
|
|
$
|
73
|
|
|
$
|
88
|
|
State
|
|
|
201
|
|
|
|
75
|
|
|
|
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current expense
|
|
|
734
|
|
|
|
148
|
|
|
|
113
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(12,062
|
)
|
|
|
(4,243
|
)
|
|
|
3,529
|
|
State
|
|
|
(1,677
|
)
|
|
|
(493
|
)
|
|
|
492
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax (benefit) expense
|
|
|
(13,739
|
)
|
|
|
(4,736
|
)
|
|
|
4,021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax (benefit) expense
|
|
$
|
(13,005
|
)
|
|
$
|
(4,588
|
)
|
|
$
|
4,134
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
125
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
14.
|
Income
Taxes (Continued)
|
Significant components of the Corporations deferred income
tax assets and liabilities as of December 31, 2009 and 2008
are as follows:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(Dollars in thousands)
|
|
|
Deferred income tax assets:
|
|
|
|
|
|
|
|
|
Rehabilitation tax credit
|
|
$
|
5,981
|
|
|
$
|
5,981
|
|
Allowance for loan losses
|
|
|
15,455
|
|
|
|
10,601
|
|
Nonaccrual interest
|
|
|
2,993
|
|
|
|
998
|
|
Deferred compensation
|
|
|
1,194
|
|
|
|
1,423
|
|
Net operating loss carryforwards
|
|
|
11,635
|
|
|
|
12,562
|
|
Alternative minimum tax credit carryover
|
|
|
1,418
|
|
|
|
1,243
|
|
Purchase accounting basis differences
|
|
|
542
|
|
|
|
1,234
|
|
Other-than-temporary
impairment loss on securities
|
|
|
9,587
|
|
|
|
3,761
|
|
Unrealized loss on securities
|
|
|
3,678
|
|
|
|
3,439
|
|
Other
|
|
|
4,094
|
|
|
|
2,991
|
|
|
|
|
|
|
|
|
|
|
Total deferred income tax assets
|
|
|
56,577
|
|
|
|
44,233
|
|
Less: valuation allowance on net operating loss carryforwards
|
|
|
(1,207
|
)
|
|
|
(1,207
|
)
|
Deferred income tax liabilities:
|
|
|
|
|
|
|
|
|
Difference in book and tax basis of premises and equipment
|
|
|
4,418
|
|
|
|
4,389
|
|
Difference in book and tax basis on exchange of preferred stock
|
|
|
|
|
|
|
|
|
for trust preferred securities
|
|
|
16,521
|
|
|
|
|
|
Excess purchase price and intangibles
|
|
|
4,660
|
|
|
|
5,848
|
|
Other
|
|
|
233
|
|
|
|
466
|
|
|
|
|
|
|
|
|
|
|
Total deferred income tax liabilities
|
|
|
25,832
|
|
|
|
10,703
|
|
|
|
|
|
|
|
|
|
|
Net deferred income tax asset
|
|
$
|
29,538
|
|
|
$
|
32,323
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax assets and liabilities are determined using
the balance sheet method. Under this method, the net deferred
tax assets and liabilities are determined based on temporary
differences between financial reporting and tax bases of assets
and liabilities and are measured using the enacted tax rates
expected to apply to taxable income in the years in which those
temporary differences are expected to reverse. These
calculations are based on many complex factors, including
estimates of the timing of reversals of temporary differences,
the interpretation of federal and state income tax laws, and a
determination of the differences between the tax and the
financial reporting basis of assets and liabilities. Actual
results could differ significantly from the estimates and
interpretations used in determining the current and deferred
income tax assets and liabilities.
The recognition of deferred tax assets (DTA) is
based upon managements judgment that realization of the
asset is more likely than not. Managements judgment is
based on estimates concerning various future events and
uncertainties, including future reversals of existing taxable
temporary differences, the timing and amount of future income
earned by the Corporations subsidiaries and the
implementation of various tax planning strategies to maximize
realization of the DTA. Although realization is not assured,
management believes that the realization of the
$29,538,000 net DTA is more likely than not. This net DTA
is comprised of $56,577,000 of deferred tax assets, net of
$25,832,000 in deferred tax liabilities and a $1,200,000
valuation allowance. The major components of the $56,577,000
deferred tax asset are $7,400,000 in general and AMT tax credit
carryforwards, $11,635,000 in net operating loss carryforwards
and $37,500,000 in deductions that have not yet been taken on a
tax return. The
126
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
14.
|
Income
Taxes (Continued)
|
Corporations deferred tax liabilities of $25,832,000 are
comprised primarily of differences between the book and tax
bases of certain assets and liabilities of which $12,600,000 are
expected to reverse during the carryforward period to offset a
corresponding amount of deferred tax asset. In general, net of
the existing deferred tax liabilities the Corporation will need
to generate approximately $106,000,000 of taxable income during
the respective carryforward periods in order to fully realize
its DTAs.
As a result of book losses incurred in 2009 and 2008, the
Corporation is in
three-year-cumulative
loss position at December 31, 2009 and there are no taxes
paid in prior years that are available for the carryback period.
A cumulative loss position is considered significant negative
evidence in assessing the realizability of a DTA. The
Corporations management has concluded that sufficient
positive evidence exists to overcome this negative evidence. The
positive evidence which management based its conclusions
includes the following:
|
|
|
|
|
Management forecasts sufficient taxable income in the next five
years, even under stressed economic scenarios, to realize the
Corporations DTA in the carryforward periods allowed under
the respective federal and state revenue codes (see discussion
below).
|
|
|
|
Management has a history of extremely accurate forecasting of
asset/liability growth and corresponding interest margin, as
well as reasonably accurate forecasting of controllable income
and expense.
|
|
|
|
The Corporations net interest margin remains strong and
has steadily improved even in this weak economy.
|
|
|
|
The Corporations liquidity is strong due to a mature
branch network which provides a reliable and low cost funding
source to support the interest margin.
|
|
|
|
The Corporation has stable levels of core operating noninterest
income and noninterest expenses.
|
|
|
|
The Corporations executive team is experienced in managing
through difficult credit cycles.
|
|
|
|
A recent economic forecast indicates a strengthening real estate
economy in Florida, where approximately 46% of the
Corporations total loans and 71% of total classified loans
are located.
|
|
|
|
The Corporations general tax credit and federal net
operating loss carryforwards do not begin expiring until the
years 2018 and 2023, respectively. The AMT credit carryforwards
have no expiration. In addition, the Corporation has no history
of operating or tax credit carryforwards expiring unused.
|
The only tax planning strategy management considered involves
the decision to hold any
available-for-sale
debt security in an unrealized loss position until they mature
at which time the Corporations full investment will be
recovered. The amount of the Corporations DTA considered
realizable, however, could be significantly reduced in the near
term if estimates of future taxable income during the
carryforward period are significantly lower than forecasted due
to further decreases in market conditions, or the economy, which
could produce additional credit losses within the loan and
investment portfolios. In that regard, the forecasted taxable
income has been based on several economic scenarios which have
been stressed in varying degrees to reflect slower economic
recovery than currently anticipated by management, which under
the model results in additional credit losses and the
corresponding impact net interest margin. Each scenario was
assigned individually for each year a probability of occurring,
with the final five-year forecast comprising the scenarios that
exceeded a cumulative probability of 50% (the more likely than
not threshold) in any year. Even though the Corporations
forecasts project taxable income for an eight-year period,
management did not rely on any forecast after the fifth year
because years six through eight did not exceed the more likely
than not threshold. Management evaluates quarterly the
realizability of the net deferred tax assets and, if necessary
adjust the valuation allowance accordingly.
In 2006, due to limitations on the use of state net operating
losses acquired in the merger with Community, a valuation
allowance of $1,207,000 was established against such deferred
income tax assets in purchase accounting.
127
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
14.
|
Income
Taxes (Continued)
|
The effective tax rate differs from the expected tax using the
statutory rate. Reconciliation between the expected tax and the
actual income tax (benefit) expense follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(Dollars in thousands)
|
|
|
Expected tax (benefit) expense at statutory rate of income
(loss) before taxes
|
|
$
|
(11,184
|
)
|
|
$
|
(57,031
|
)
|
|
$
|
3,996
|
|
Add (deduct):
|
|
|
|
|
|
|
|
|
|
|
|
|
State income tax (benefit) expense, net of federal tax
|
|
|
(974
|
)
|
|
|
(276
|
)
|
|
|
341
|
|
Effect of interest income exempt from Federal income taxes
|
|
|
(633
|
)
|
|
|
(665
|
)
|
|
|
(468
|
)
|
Increase in cash surrender value of life insurance
|
|
|
(747
|
)
|
|
|
(654
|
)
|
|
|
(644
|
)
|
Effect of nondeductible goodwill impairment charge
|
|
|
|
|
|
|
53,656
|
|
|
|
|
|
Taxable exchange of cash surrender value of life insurance
|
|
|
|
|
|
|
|
|
|
|
256
|
|
Other items net
|
|
|
533
|
|
|
|
382
|
|
|
|
653
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax (benefit) expense
|
|
$
|
(13,005
|
)
|
|
$
|
(4,588
|
)
|
|
$
|
4,134
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal statutory rate
|
|
|
34
|
%
|
|
|
34
|
%
|
|
|
34
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Corporations unused net operating loss carryforwards
and expiration dates are as follows:
|
|
|
|
|
|
|
|
|
Year of expiration:
|
|
Federal
|
|
|
Alabama
|
|
|
|
(Dollars in thousands)
|
|
|
2011
|
|
$
|
|
|
|
$
|
12,233
|
|
2012
|
|
|
|
|
|
|
14,769
|
|
2013
|
|
|
|
|
|
|
22,016
|
|
2014
|
|
|
|
|
|
|
6,751
|
|
2015
|
|
|
|
|
|
|
3,453
|
|
2016
|
|
|
|
|
|
|
2,527
|
|
2017
|
|
|
|
|
|
|
8
|
|
2018 through 2022
|
|
|
|
|
|
|
1,040
|
|
2023
|
|
|
2,788
|
|
|
|
56
|
|
2024
|
|
|
13,043
|
|
|
|
|
|
2025
|
|
|
5,813
|
|
|
|
|
|
2026
|
|
|
5,788
|
|
|
|
|
|
2027
|
|
|
143
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
27,575
|
|
|
$
|
62,853
|
|
|
|
|
|
|
|
|
|
|
128
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
14.
|
Income
Taxes (Continued)
|
The Corporation has available at December 31, 2009 unused
rehabilitation tax credits that can be carried forward and
utilized against future Federal income tax liability. Unused
credits and expiration dates are as follows (in thousands):
|
|
|
|
|
Year of expiration:
|
|
|
|
|
2018
|
|
$
|
1,734
|
|
2019
|
|
|
738
|
|
2020
|
|
|
1,261
|
|
2021
|
|
|
522
|
|
2022
|
|
|
366
|
|
2023
|
|
|
960
|
|
2024
|
|
|
400
|
|
|
|
|
|
|
|
|
$
|
5,981
|
|
|
|
|
|
|
This credit was established as a result of the restoration and
enhancement of the John A. Hand Building, which is designated as
an historical structure and serves as the corporate headquarters
for the Corporation. This credit is equal to 20% of certain
qualified expenditures incurred by the Corporation prior to
December 31, 2005. The Corporation is required to reduce
its tax basis in the John A. Hand Building by the amount of the
credit.
Applicable income tax (benefit) expense of $(3,738,000),
$(3,128,000), and $114,000 on investment securities (losses)
gains for the years ended December 31, 2009, 2008, and
2007, respectively, is included in income taxes.
The Corporation recognized a ($98,000) tax benefit in 2007
related to the exercise of nonqualified stock options. This
benefit was recognized as a credit to stockholders equity
as additional surplus.
The Corporation adopted the revised provisions of ASC Topic
740-10,
Recognition of Income Taxes, (ASC
740-10)
on January 1, 2007. As a result of the adoption, the
Corporation recognized a charge of approximately $555,000 to the
January 1, 2007 retained earnings balance. As of the
adoption date, the Corporation had unrecognized tax benefits of
$459,000, all of which, if recognized, would affect the
effective tax rate. Also, as of the adoption date, the
Corporation had accrued interest expense related to the
unrecognized tax benefits of approximately $146,000. Accrued
interest related to unrecognized tax benefits is recognized in
income tax expense. Penalties, if incurred, will be recognized
in income tax expense as well. A reconciliation of the beginning
and ending amount of unrecognized tax benefit is as follows
(Dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Balance at January 1
|
|
$
|
336,000
|
|
|
$
|
459,000
|
|
Additions based upon tax positions related to the current year
|
|
|
|
|
|
|
|
|
Additions for tax positions of prior years
|
|
|
|
|
|
|
|
|
Reductions for tax positions of prior years
|
|
|
|
|
|
|
(123,000
|
)
|
Settlements
|
|
|
(336,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31
|
|
$
|
|
|
|
$
|
336,000
|
|
|
|
|
|
|
|
|
|
|
The Corporation and its subsidiaries are subject to
U.S. federal income tax as well as to Alabama and Florida
income taxes. The Corporation has concluded all
U.S. federal and Florida income tax matters for years
through 2005, including acquisitions.
All state income tax matters have been concluded for years
through 2007. The Corporation had received notices of proposed
adjustments relating to state taxes due for the years 2002,
2003, 2005, 2006 and 2007, which include proposed adjustments
relating to income apportionment of a subsidiary. During the
first quarter of 2009,
129
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
14.
|
Income
Taxes (Continued)
|
management settled these matters for $800,000 which had been
estimated and accrued through December 31, 2008; therefore
there was no effect on our reported earnings for 2009 or 2008.
The $123,000 reduction in 2008 of the unrecognized tax benefit
above was the result of a three-year statue of limitations on
the 2004 taxable year.
The fair value of derivative positions outstanding is included
in other assets and other liabilities in the accompanying
consolidated statement of financial condition and in the net
change in each of these financial statement line items in the
accompanying consolidated statements of cash flows.
The Corporation utilizes interest rate swaps, caps and floors to
mitigate exposure to interest rate risk and to facilitate the
needs of its customers. The Corporations objectives for
utilizing these derivative instruments are described below:
Interest
Rate Swaps
The Corporation has entered interest rate swaps (CD
swaps) to convert the fixed rate paid on brokered
certificates of deposit (CDs) to a variable rate
based upon three-month LIBOR. At December 31, 2009 and
December 31, 2008, the Corporation had $723,000 and
$1,166,000, respectively, in notional amount of CD swaps which
had not been designated as hedges. These CD swaps had not been
designated as hedges because they represent the portion of the
interest rate swaps that are over-hedged due to principal
reductions on the brokered CDs.
The Corporation has entered into certain interest rate swaps on
commercial loans that are not designated as hedging instruments.
These derivative contracts relate to transactions in which the
Corporation enters into an interest rate swap with a loan
customer while at the same time entering into an offsetting
interest rate swap with another financial institution. In
connection with each swap transaction, the Corporation agrees to
pay interest to the customer on a notional amount at a variable
interest rate and receive interest from the customer on a
similar notional amount at a fixed interest rate. At the same
time, the Corporation agrees to pay another financial
institution the same fixed interest rate on the same notional
amount and receive the same variable interest rate on the same
notional amount. The transaction allows the Corporations
customer to effectively convert a variable rate loan to a fixed
rate. Because the Corporation acts as an intermediary for its
customer, changes in the fair value of the underlying derivative
contracts for the most part offset each other and do not
significantly impact the Corporations results of
operations.
Fair
Value Hedges
As of December 31, 2009 and December 31, 2008, the
Corporation had $2,777,000 and $5,334,000, respectively, in
notional amount of CD swaps designated and qualified as fair
value hedges. These CD swaps were designated as hedging
instruments to hedge the risk of changes in the fair value of
the underlying brokered CD due to changes in interest rates. At
December 31, 2009 and December 31, 2008, the amount of
CD swaps designated as hedging instruments had a recorded fair
value of $228,000 and $799,000, respectively, and a weighted
average life of 2.5 and 6.8 years, respectively. The
weighted average fixed rate (receiving rate) was 4.70% and the
weighted average variable rate (paying rate) was 0.52% (LIBOR
based).
Cash Flow
Hedges
The Corporation has entered into interest rate swap agreements
designated and qualified as a hedge with notional amounts of
$22,000,000 to hedge the variability in cash flows on
$22,000,000 of junior subordinated debentures. Under the terms
of the interest rate swaps, which mature September 15,
2012, the Corporation receives a floating rate based on
3-month
LIBOR plus 1.33% (1. 58% as of December 31, 2009) and
pays a weighted average fixed rate of 4.42%. As of
December 31, 2009 and December 31, 2008, these
interest rate swap agreements are recorded as liabilities in the
amount of $766,000 and $954,000, respectively.
130
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
15.
|
Derivatives (Continued)
|
Interest
Rate Lock Commitments
In the ordinary course of business, the Corporation enters into
certain commitments with customers in connection with
residential mortgage loan applications. Such commitments are
considered derivatives under FASB guidance and are required to
be recorded at fair value. The aggregate amount of these
mortgage loan origination commitments was $41,038,000 and
$92,721,000 at December 31, 2009 and December 31,
2008, respectively. The fair value of the origination
commitments was $(370,000) and $(117,000) at December 31,
2009 and December 31, 2008, respectively.
The notional amounts and estimated fair values of interest rate
derivative contracts outstanding at December 31, 2009 and
December 31, 2008 are presented in the following table. The
Corporation obtains dealer quotations to value its interest rate
derivative contracts designated as hedges of cash flows, while
the fair values of other interest rate derivative contracts are
estimated utilizing internal valuation models with observable
market data inputs. The estimated fair values of these
derivatives are included in the Assets and Liabilities
Recorded at Fair Value on a Recurring Basis table of
Note 19 to the consolidated financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
Estimated
|
|
|
|
Notional
|
|
|
Fair
|
|
|
Notional
|
|
|
Fair
|
|
|
|
Amount
|
|
|
Value
|
|
|
Amount
|
|
|
Value
|
|
|
|
(Dollars in thousands)
|
|
|
Interest rate derivatives designated as hedges of fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap on brokered certificates of deposit
|
|
$
|
2,777
|
|
|
$
|
228
|
|
|
$
|
5,334
|
|
|
$
|
799
|
|
Interest rate derivatives designated as hedges of cash flows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps on subordinated debenture
|
|
|
22,000
|
|
|
|
(766
|
)
|
|
|
22,000
|
|
|
|
(954
|
)
|
Non-hedging interest rate derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brokered certificates of deposit interest rate swap
|
|
|
723
|
|
|
|
59
|
|
|
|
1,166
|
|
|
|
164
|
|
Mortgage loan held for sale interest rate lock commitment
|
|
|
41,038
|
|
|
|
(370
|
)
|
|
|
92,721
|
|
|
|
(117
|
)
|
Commercial loan interest rate swap
|
|
|
3,766
|
|
|
|
323
|
|
|
|
3,861
|
|
|
|
462
|
|
Commercial loan interest rate swap
|
|
|
3,766
|
|
|
|
(323
|
)
|
|
|
3,861
|
|
|
|
(462
|
)
|
The weighted-average rates paid and received for interest rate
swaps outstanding at December 31, 2009 were as follows:
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average
|
|
|
Interest
|
|
Interest
|
|
|
Rate
|
|
Rate
|
|
|
Paid
|
|
Received
|
|
Interest rate swaps:
|
|
|
|
|
|
|
|
|
Fair value hedge on brokered certificates of deposit interest
rate swap
|
|
|
0.52
|
%
|
|
|
4.70
|
%
|
Cash flow hedge interest rate swaps on subordinated debentures
|
|
|
4.42
|
|
|
|
1.58
|
|
Non-hedging interest rate swap on commercial loan
|
|
|
6.73
|
|
|
|
6.73
|
|
Gains,
Losses and Derivative Cash Flows
For fair value hedges, the changes in the fair value of both the
derivative hedging instrument and the hedged item are included
in noninterest income to the extent that such changes in fair
value do not offset represents hedge ineffectiveness. For cash
flow hedges, the effective portion of the gain or loss due to
changes in the fair value of the derivative hedging instrument
is included in other comprehensive income, while the ineffective
portion (indicated by the excess of the cumulative change in the
fair value of the derivative over that which is necessary to
offset the
131
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
15.
|
Derivatives (Continued)
|
cumulative change in expected future cash flows on the hedge
transaction) is included in noninterest income. Net cash flows
from the interest rate swap on subordinated debentures
designated as a hedging instrument in an effective hedge of cash
flows are included in interest expense on subordinated
debentures. For non-hedging derivative instruments, gains and
losses due to changes in fair value and all cash flows are
included in other noninterest income.
Amounts included in the consolidated statements of operations
related to interest rate derivatives designated as hedges of
fair value were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(Dollars in thousands)
|
|
|
Interest rate swap on brokered certificates of deposit:
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of gain (loss) included in interest expense on deposits
|
|
$
|
109
|
|
|
$
|
65
|
|
|
$
|
(61
|
)
|
Amount of (loss) gain included in other noninterest income
|
|
|
(506
|
)
|
|
|
342
|
|
|
|
73
|
|
Amounts included in the consolidated statements of operations
and in other comprehensive income (loss) for the period related
to interest rate derivatives designated as hedges of cash flows
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(Dollars in thousands)
|
|
|
Interest rate swap on subordinated debenture:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) gain included in interest expense on subordinated debt
|
|
$
|
(474
|
)
|
|
$
|
(50
|
)
|
|
$
|
|
|
Amount of gain (loss) recognized in other comprehensive income
|
|
|
119
|
|
|
|
(601
|
)
|
|
|
|
|
No ineffectiveness related to interest rate derivatives
designated as hedges of cash flows was recognized in the
consolidated statements of operations during the reported
periods. The accumulated net after-tax loss related to effective
cash flow hedge included in accumulated other comprehensive
income totaled $483,000, $602,000, and $-0- at December 31,
2009, 2008 and 2007, respectively.
Amounts included in the consolidated statements of operations
related to non-hedging interest rate swap on commercial loans
were not significant during any of the reported periods. As
stated above, the Corporation enters into non-hedge related
derivative positions primarily to accommodate the business needs
of its customers. Upon the origination of a derivative contract
with a customer, the Corporation simultaneously enters into an
offsetting derivative contract with a third party. The
Corporation recognizes immediate income based upon the
difference in the bid/ask spread of the underlying transactions
with its customers and the third party. Because the Corporation
acts only as an intermediary for its customer, subsequent
changes in the fair value of the underlying derivative contracts
for the most part offset each other and do not significantly
impact the Corporations results of operations.
Gain (loss) included in noninterest income on the consolidated
statements of operations related to non-hedging derivative
instruments were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2009
|
|
2008
|
|
2007
|
|
|
(Dollars in thousands)
|
|
Non-hedging interest rate derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
Brokered certificates of deposit interest rate swap
|
|
$
|
(67
|
)
|
|
$
|
426
|
|
|
$
|
742
|
|
Mortgage loan held for sale interest rate lock commitment
|
|
|
(253
|
)
|
|
|
(239
|
)
|
|
|
122
|
|
Interest rate floors
|
|
|
|
|
|
|
678
|
|
|
|
374
|
|
Commercial loan interest rate swap
|
|
|
|
|
|
|
34
|
|
|
|
|
|
132
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
15.
|
Derivatives (Continued)
|
Counterparty
Credit Risk
Derivative contracts involve the risk of dealing with both bank
customers and institutional derivative counterparties and their
ability to meet contractual terms. Institutional counterparties
must have an investment grade credit rating and be approved by
the Corporations Asset/Liability Management Committee. The
Corporations credit exposure on interest rate swaps is
limited to the net favorable value and interest payments of all
swaps by each counterparty. Credit exposure may be reduced by
the amount of collateral pledged by the counterparty. There are
no credit-risk-related contingent features associated with any
of the Corporations derivative contracts.
The aggregate cash collateral posted with the counterparties as
collateral by the Corporation related to derivative contracts
totaled approximately $3,240,000 at December 31, 2009.
|
|
16.
|
Related
Party Transactions
|
The Corporation has entered into transactions with its
directors, executive officers, significant stockholders and
their affiliates (related parties). Such transactions were made
in the ordinary course of business on substantially the same
terms and conditions, including interest rates and collateral,
as those prevailing at the same time for comparable transactions
with other customers, and did not, in the opinion of management,
involve more than normal credit risk or present other
unfavorable features. The aggregate amount of loans to such
related parties at December 31, 2009 and 2008 were
$54,505,000 and $48,414,000, respectively. Activity during the
year ended December 31, 2009 is summarized as follows (in
thousands):
|
|
|
|
|
Balance at December 31, 2008
|
|
$
|
48,414
|
|
Loans originated
|
|
|
|
|
Advances
|
|
|
27,114
|
|
Repayments
|
|
|
(16,697
|
)
|
Other changes and reclassifications
|
|
|
(4,326
|
)
|
|
|
|
|
|
Balance at December 31, 2009
|
|
$
|
54,505
|
|
|
|
|
|
|
The other changes and reclassifications primarily relate to one
loan that was transferred to an outside party.
At December 31, 2009 and 2008, the deposits of such related
parties in the subsidiary bank amounted to approximately
$31,500,000 and $22,100,000, respectively.
An insurance agency owned by one of the Corporations
directors received commissions of approximately $187,000,
$197,000, and $185,000 from the sale of insurance to the
Corporation during 2009, 2008 and 2007, respectively. Also,
several sale-leaseback transactions were completed with one of
the directors of the Corporation during 2007 and 2008. The total
amount of rent paid by Superior Bank during 2009 and 2008
pursuant to these leases was $691,244 and $300,680,
respectively. These transactions are discussed further in
Note 6.
The Corporation believes that all of the foregoing transactions
were made on terms and conditions on an arms length basis.
|
|
17.
|
Commitments
and Contingencies
|
The consolidated financial statements do not reflect the
Corporations various commitments and contingent
liabilities which arise in the normal course of business and
which involve elements of credit risk, interest rate risk and
liquidity risk. These commitments and contingent liabilities are
commitments to extend credit and standby
133
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
17.
|
Commitments
and Contingencies (Continued)
|
letters of credit. The following is a summary of the
Corporations maximum exposure to credit loss for loan
commitments and standby letters of credit:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2009
|
|
2008
|
|
|
(Dollars in thousands)
|
|
Commitments to extend credit
|
|
$
|
266,550
|
|
|
$
|
355,243
|
|
Standby letters of credit
|
|
|
21,845
|
|
|
|
35,636
|
|
Commitments to extend credit and standby letters of credit all
include exposure to some credit loss in the event of
nonperformance by the customer. The Corporations credit
policies and procedures for credit commitments and financial
guarantees are the same as those for extension of credit that
are recorded in the consolidated statement of financial
condition. Because these instruments have fixed maturity dates,
and because many of them expire without being drawn upon, they
do not generally present any significant liquidity risk to the
Corporation.
During 2009, 2008 and 2007, the Corporation settled various
litigation matters, none of which were significant. The
Corporation is also a defendant or co-defendant in various
lawsuits incidental to the banking business. Management, after
consultation with legal counsel, believes that liabilities, if
any, arising from such litigation and claims will not result in
a material adverse effect on the consolidated financial
statements of the Corporation.
|
|
18.
|
Regulatory
Restrictions
|
A source of funds available to the Corporation is the payment of
dividends by its subsidiary. Regulations limit the amount of
dividends that may be paid without prior approval of the
subsidiarys regulatory agency. No amounts are available to
be paid as dividends by the subsidiary at December 31, 2009.
During the fourth quarter of 2005 the Corporation became a
unitary thrift holding company and, as such, is subject to
regulation, examination and supervision by the OTS.
Simultaneously, the Corporations subsidiary banks
charter was changed to a federal savings bank charter and is
also subject to various regulatory requirements administered by
the OTS. Prior to November 1, 2005 the Corporations
banking subsidiary was regulated by the Alabama Banking
Department and the Federal Reserve. Failure to meet minimum
capital requirements can initiate certain mandatory and possibly
additional discretionary actions by regulators that, if
undertaken, could have a direct material effect on the
Corporations and its subsidiaries financial condition and
results of operations. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the
subsidiary bank must meet specific capital guidelines that
involve quantitative measures of its assets, liabilities and
certain off-balance sheet items as calculated under regulatory
accounting practices. The subsidiary banks capital amounts
and classification are also subject to qualitative judgments by
the regulators about components, risk weightings and other
factors
Quantitative measures established by regulation to ensure
capital adequacy require the Corporations subsidiary bank
to maintain minimum amounts and ratios (set forth in the table
below) of tangible and core capital (as defined in the
regulations) to adjusted total assets (as defined), and of total
capital (as defined) and Tier 1 capital to risk weighted
assets (as defined). Management believes, as of
December 31, 2009 and 2008, that the Corporations
subsidiary bank meets all capital adequacy requirements to which
it is subject.
As of December 31, 2009 and 2008, the most recent
notification from the subsidiarys primary regulators
categorized the subsidiary as well capitalized under
the regulatory framework for prompt corrective action. The
134
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
18.
|
Regulatory
Restrictions (Continued)
|
table below represents the Corporations bank
subsidiarys regulatory and minimum regulatory capital
requirements at December 31, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
To Be Well
|
|
|
|
|
|
|
|
|
|
For Capital Adequacy
|
|
|
Capitalized
|
|
|
|
Actual
|
|
|
Purposes
|
|
|
Under Prompt Corrective Action
|
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
|
(Dollars in thousands)
|
|
|
December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 Core Capital (to Adjusted Total Assets)
|
|
$
|
249,253
|
|
|
|
7.79
|
%
|
|
$
|
127,957
|
|
|
|
4.00
|
%
|
|
$
|
159,947
|
|
|
|
5.00
|
%
|
Total Capital (to Risk Weighted Assets)
|
|
|
286,748
|
|
|
|
10.69
|
|
|
|
214,517
|
|
|
|
8.00
|
|
|
|
268,146
|
|
|
|
10.00
|
|
Tier 1 Capital (to Risk Weighted Assets)
|
|
|
249,253
|
|
|
|
9.30
|
|
|
|
NA
|
|
|
|
NA
|
|
|
|
160,888
|
|
|
|
6.00
|
|
Tangible Capital (to Adjusted Total Assets)
|
|
|
249,253
|
|
|
|
7.79
|
|
|
|
47,984
|
|
|
|
1.50
|
|
|
|
NA
|
|
|
|
NA
|
|
December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 Core Capital (to Adjusted Total Assets)
|
|
$
|
271,146
|
|
|
|
9.00
|
%
|
|
$
|
120,510
|
|
|
|
4.00
|
%
|
|
$
|
150,638
|
|
|
|
5.00
|
%
|
Total Capital (to Risk Weighted Assets)
|
|
|
304,892
|
|
|
|
12.15
|
|
|
|
200,761
|
|
|
|
8.00
|
|
|
|
250,951
|
|
|
|
10.00
|
|
Tier 1 Capital (to Risk Weighted Assets)
|
|
|
271,146
|
|
|
|
10.80
|
|
|
|
N/A
|
|
|
|
NA
|
|
|
|
150,571
|
|
|
|
6.00
|
|
Tangible Capital (to Adjusted Total Assets)
|
|
|
271,146
|
|
|
|
9.00
|
|
|
|
45,191
|
|
|
|
1.50
|
|
|
|
NA
|
|
|
|
NA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19.
|
Fair
Values of Financial Instruments
|
In accordance with FASB guidance, the Corporation measures fair
value at the price that would be received by selling an asset or
pay to transfer a liability in an orderly transaction between
market participants at the measurement date. We prioritize the
assumptions that market participants would use in pricing the
asset or liability (the inputs) into a three-tier
fair value hierarchy. This fair value hierarchy gives the
highest priority (Level 1) to quoted prices in active
markets for identical assets or liabilities and the lowest
priority (Level 3) to unobservable inputs in which
little or no market data exists, requiring companies to develop
their own assumptions. Observable inputs that do not meet the
criteria of Level 1, and include quoted prices for similar
assets or liabilities in active markets or quoted prices for
identical assets and liabilities in markets that are not active,
are categorized as Level 2. Level 3 inputs are those
that reflect managements estimates about the assumptions
market participants would use in pricing the asset or liability,
based on the best information available in the circumstances.
Valuation techniques for assets and liabilities measured using
Level 3 inputs may include methodologies such as the market
approach, the income approach or the cost approach, and may use
unobservable inputs such as projections, estimates and
managements interpretation of current market data. These
unobservable inputs are only utilized to the extent that
observable inputs are not available or cost-effective to obtain.
135
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
19.
|
Fair
Values of Financial
Instruments (Continued)
|
Assets
and Liabilities Recorded at Fair Value on a Recurring
Basis
The table below presents our assets and liabilities measured at
fair value on a recurring basis categorized by the level of
inputs used in the valuation of each asset at December 31,
2009 and 2008 (Dollars in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
|
|
|
Significant
|
|
|
|
|
|
|
Active Markets for
|
|
|
Significant Other
|
|
|
Unobservable
|
|
|
|
Fair
|
|
|
Identical Assets
|
|
|
Observable Inputs
|
|
|
Inputs
|
|
|
|
Value
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for sale securities
|
|
$
|
286,310
|
|
|
$
|
314
|
|
|
$
|
272,667
|
|
|
$
|
13,329
|
|
Derivative assets
|
|
|
610
|
|
|
|
|
|
|
|
610
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recurring basis measured assets
|
|
$
|
286,920
|
|
|
$
|
314
|
|
|
$
|
273,277
|
|
|
$
|
13,329
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities
|
|
$
|
1,459
|
|
|
$
|
|
|
|
$
|
1,459
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recurring basis measured liabilities
|
|
$
|
1,459
|
|
|
$
|
|
|
|
$
|
1,459
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for sale securities
|
|
$
|
347,142
|
|
|
$
|
164
|
|
|
$
|
328,481
|
|
|
$
|
18,497
|
|
Derivative assets
|
|
|
1,427
|
|
|
|
|
|
|
|
1,427
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recurring basis measured assets
|
|
$
|
348,569
|
|
|
$
|
164
|
|
|
$
|
329,908
|
|
|
$
|
18,497
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities
|
|
$
|
1,534
|
|
|
$
|
|
|
|
$
|
1,534
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recurring basis measured liabilities
|
|
$
|
1,534
|
|
|
$
|
|
|
|
$
|
1,534
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation
Techniques Recurring Basis
Securities Available for Sale. When quoted
prices are available in an active market, securities are
classified as Level 1. These securities include investments
in Fannie Mae and Freddie Mac preferred stock. For securities
reported at fair value utilizing Level 2 inputs, the
Corporation obtains fair value measurements from an independent
pricing service. These fair value measurements consider
observable market data that may include benchmark yield curves,
reported trades, broker/dealer quotes, issuer spreads and credit
information, among other inputs. In certain cases where there is
limited activity, securities are classified as Level 3
within the valuation hierarchy. These securities include
primarily single issue and pooled trust preferred securities and
certain private-label mortgage-backed securities. The fair value
of the trust preferred securities is calculated using an income
approach based on various spreads to LIBOR determined after a
review of applicable financial data and credit ratings (see
Note 3 Trust Preferred Securities).
At December 31, 2009, the fair values of six private-label
mortgage-backed securities totaling $7,420,000 were measured
using Level 3 inputs because the market has become
illiquid, as indicated by few, if any, trades during the period.
Prior to June 30, 2009, these securities were previously
measured using Level 2 inputs. The assumptions used in the
valuation model include expected future default rates, loss
severity and prepayments. The model also takes into account the
structure of the security including credit support. Based on
these assumptions the model calculates and projects the timing
and amount of interest and principal payments expected for the
security. The discount rates used in the valuation model were
based on a yield that the market would require for such
securities with maturities and risk characteristics similar to
the securities being measured (see Note 3
Mortgage-backed Securities).
Derivative financial instruments. Derivative
financial instruments are measured at fair value based on
modeling that utilizes observable market inputs for various
interest rates published by leading third-party financial news
and data providers. This is observable data that represents the
rates used by market participants for instruments entered into
at that date; however, they are not based on actual transactions
so they are classified as Level 2.
136
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
19.
|
Fair
Values of Financial
Instruments (Continued)
|
Changes
in Level 3 fair value measurements
The tables below include a roll-forward of the condensed
consolidated statement of financial condition amounts for the
twelve months ended December 31, 2009 and 2008, including
changes in fair value for financial instruments within
Level 3 of the valuation hierarchy. Level 3 financial
instruments typically include unobservable components, but may
also include some observable components that may be validated to
external sources. The gains or (losses) in the following table
may include changes to fair value due in part to observable
factors that may be part of the valuation methodology:
Level 3
Assets Measured at Fair Value on a Recurring Basis
|
|
|
|
|
|
|
|
|
|
|
Available for
|
|
|
|
Sale Securities
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(Dollars in thousands)
|
|
|
Balance at January 1
|
|
$
|
18,497
|
|
|
$
|
|
|
Transfer into level 3 category during the year
|
|
|
13,978
|
|
|
|
25,956
|
|
Total gains (losses) (realized and unrealized)
|
|
|
|
|
|
|
|
|
Included in earnings investment security loss
|
|
|
(15,746
|
)
|
|
|
(7,459
|
)
|
Included in other comprehensive loss
|
|
|
(1,610
|
)
|
|
|
|
|
Other changes due to principal payments
|
|
|
(1,790
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31
|
|
$
|
13,329
|
|
|
$
|
18,497
|
|
|
|
|
|
|
|
|
|
|
Total amount of loss for the period
year-to-date
included in earnings attributable to the change in unrealized
gains (losses) related to assets held at December 31
|
|
$
|
(15,746
|
)
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Assets
Recorded at Fair Value on a Nonrecurring Basis
The table below presents the assets measured at fair value on a
nonrecurring basis categorized by the level of inputs used in
the valuation of each asset (Dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices
|
|
|
|
|
|
|
|
|
|
|
|
|
in
|
|
|
|
|
|
|
|
|
|
|
|
|
Active Markets for
|
|
|
Significant Other
|
|
|
Significant
|
|
|
|
|
|
|
Identical
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
Fair
|
|
|
Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
|
Value
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans held for sale
|
|
$
|
71,879
|
|
|
$
|
|
|
|
$
|
71,879
|
|
|
$
|
|
|
Impaired loans, net of specific allowance
|
|
|
155,545
|
|
|
|
|
|
|
|
|
|
|
|
155,545
|
|
Other foreclosed real estate
|
|
|
41,618
|
|
|
|
|
|
|
|
|
|
|
|
41,618
|
|
Other real estate held for sale
|
|
|
3,349
|
|
|
|
|
|
|
|
|
|
|
|
3,349
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total nonrecurring basis measured assets
|
|
$
|
272,391
|
|
|
$
|
|
|
|
$
|
71,879
|
|
|
$
|
200,512
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans held for sale
|
|
$
|
22,040
|
|
|
$
|
|
|
|
$
|
22,040
|
|
|
$
|
|
|
Impaired loans, net of specific allowance
|
|
|
47,774
|
|
|
|
|
|
|
|
|
|
|
|
47,774
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total nonrecurring basis measured assets
|
|
$
|
69,814
|
|
|
$
|
|
|
|
$
|
22,040
|
|
|
$
|
47,774
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
137
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
19.
|
Fair
Values of Financial
Instruments (Continued)
|
Valuation
Techniques Nonrecurring Basis
Mortgage Loans Held for Sale. Mortgage loans
held for sale are recorded at the lower of aggregate cost or
fair value. Fair value is generally based on quoted market
prices of similar loans and is considered to be Level 2 in
the fair value hierarchy.
Impaired Loans. Impaired loans are evaluated
and valued at the time the loan is identified as impaired, at
the lower of cost or fair value. These loans are collateral
dependent and their fair value is measured based on the value of
the collateral securing these loans and is classified at a
Level 3 in the fair value hierarchy. Collateral typically
includes real estate
and/or
business assets including equipment. The value of real estate
collateral is determined based on appraisals by qualified
licensed appraisers approved and hired by the Corporation. The
value of business equipment is determined based on appraisals by
qualified licensed appraisers approved and hired by the
Corporation, if significant. Appraised and reported values are
discounted based on managements historical knowledge,
changes in market conditions from the time of valuation,
and/or
managements expertise and knowledge of the client and
clients business. Impaired loans are reviewed and
evaluated on at least a quarterly basis for additional
impairment and adjusted accordingly, based on the same factors
identified above.
Other Foreclosed Real Estate. Other real
estate, acquired through partial or total satisfaction of loans,
is carried at fair value, less estimated selling expenses. At
the date of acquisition, any difference between the fair value
and book value of the asset is charged to the allowance for loan
losses. The value of other foreclosed real estate collateral is
determined based on appraisals by qualified licensed appraisers
approved and hired by the Corporation. Appraised and reported
values are discounted based on managements historical
knowledge, changes in market conditions from the time of
valuation,
and/or
managements expertise and knowledge of the client and the
clients business. Foreclosed real estate is reviewed and
evaluated on at least a quarterly basis for additional
impairment and adjusted accordingly, based on the same factors
identified above.
Other Real Estate Held for Sale. Other real
estate held for sale, which consists primarily of closed branch
locations, is carried at the lower of cost or fair value, less
estimated selling expenses. The fair value of other real estate
held for sale is determined based on managements appraisal
of properties assessed values and general market
conditions. Other real estate held for sale is reviewed and
evaluated on at least a quarterly basis for additional
impairment and adjusted accordingly, based on the same factors
identified above.
The methodologies for estimating the fair value of financial
assets and financial liabilities that are measured at fair value
on a recurring or non-recurring basis are discussed above. The
estimated fair value approximates carrying value for cash and
short-term instruments, accrued interest and the cash surrender
value of life insurance policies. The methodologies for other
financial assets and financial liabilities are discussed below:
Tax lien certificates. The carrying amount of
tax lien certificates approximates their fair value.
Net loans. Fair values for variable-rate loans
that re-price frequently and have no significant change in
credit risk are based on carrying values. Fair values for all
other loans are estimated using discounted cash flow analyses
using interest rates currently being offered for loans with
similar terms to borrowers of similar credit quality. Fair
values for impaired loans are estimated using discounted cash
flow analyses or underlying collateral values, where applicable.
Deposits. The fair values disclosed for demand
deposits are, by definition, equal to the amount payable on
demand at the reporting date (that is, their carrying amounts).
The carrying amounts of variable-rate, fixed-term money market
accounts and certificates of deposit (CDs)
approximate their fair values at the reporting date. Fair values
for fixed-rate CDs are estimated using a discounted cash flow
calculation that applies interest rates currently being offered
on advances from the FHLB of Atlanta to a schedule of aggregated
expected monthly maturities on time deposits.
138
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
19.
|
Fair
Values of Financial
Instruments (Continued)
|
Advances from FHLB. The fair values of the
FHLB advances were based on pricing supplied by the FHLB.
Federal funds borrowed and security repurchase
agreements. The carrying amount of federal funds
borrowed and security repurchase agreements approximate their
fair values.
Notes payable. The carrying amount of notes
payable approximates their fair values.
Subordinated debentures. Rates currently
available in the market for preferred offerings with similar
terms and maturities are used to estimate fair value.
Limitations. Fair value estimates are made at
a specific point of time and are based on relevant market
information, which is continuously changing. Because no quoted
market prices exist for a significant portion of the
Corporations financial instruments, fair values for such
instruments are based on managements assumptions with
respect to future economic conditions, estimated discount rates,
estimates of the amount and timing of future cash flows,
expected loss experience, and other factors. These estimates are
subjective in nature involving uncertainties and matters of
significant judgment; therefore, they cannot be determined with
precision. Changes in the assumptions could significantly affect
the estimates.
The estimated fair values of the Corporations financial
instruments are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
December 31, 2008
|
|
|
|
Carrying
|
|
|
Fair
|
|
|
Carrying
|
|
|
Fair
|
|
|
|
Amount
|
|
|
Value
|
|
|
Amount
|
|
|
Value
|
|
|
|
(In thousands)
|
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
74,020
|
|
|
$
|
74,020
|
|
|
$
|
74,237
|
|
|
$
|
74,237
|
|
Interest-bearing deposits in other banks
|
|
|
23,714
|
|
|
|
23,714
|
|
|
|
10,042
|
|
|
|
10,042
|
|
Federal funds sold
|
|
|
2,036
|
|
|
|
2,036
|
|
|
|
5,169
|
|
|
|
5,169
|
|
Securities available for sale
|
|
|
286,310
|
|
|
|
286,310
|
|
|
|
347,142
|
|
|
|
347,142
|
|
Tax lien certificates
|
|
|
19,292
|
|
|
|
19,292
|
|
|
|
23,786
|
|
|
|
23,786
|
|
Mortgage loans held for sale
|
|
|
71,879
|
|
|
|
71,879
|
|
|
|
22,040
|
|
|
|
22,040
|
|
Net loans
|
|
|
2,430,813
|
|
|
|
2,440,026
|
|
|
|
2,286,071
|
|
|
|
2,374,637
|
|
Stock in FHLB
|
|
|
18,212
|
|
|
|
18,212
|
|
|
|
21,410
|
|
|
|
21,410
|
|
Accrued interest receivable
|
|
|
50,142
|
|
|
|
50,142
|
|
|
|
14,794
|
|
|
|
14,794
|
|
Derivative assets
|
|
|
610
|
|
|
|
610
|
|
|
|
1,427
|
|
|
|
1,427
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
2,656,573
|
|
|
|
2,671,504
|
|
|
|
2,342,988
|
|
|
|
2,363,270
|
|
Advances from FHLB
|
|
|
218,322
|
|
|
|
233,028
|
|
|
|
361,324
|
|
|
|
382,547
|
|
Security repurchase agreements
|
|
|
841
|
|
|
|
841
|
|
|
|
3,563
|
|
|
|
3,563
|
|
Note payable
|
|
|
45,917
|
|
|
|
45,917
|
|
|
|
7,000
|
|
|
|
7,000
|
|
Subordinated debentures
|
|
|
84,170
|
|
|
|
51,609
|
|
|
|
60,884
|
|
|
|
46,839
|
|
Derivative liabilities
|
|
|
1,459
|
|
|
|
1,459
|
|
|
|
1,534
|
|
|
|
1,534
|
|
As a result of its merger with Community, the Corporation became
the sponsor of a defined benefit pension plan (the Pension
Plan) and a nonqualified supplemental executive retirement
plan (the Benefit Restoration Plan). Both plans were
frozen by Community effective December 31, 2003. As long as
the plans remain frozen, no
139
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
20.
|
Pension
Plan (Continued)
|
employees become eligible to participate in the plans and no
participants accrue any additional benefits. Benefits accrued as
of the date of the freeze will be paid to participants in
accordance with the terms of the plans.
Benefits under the Pension Plan depend upon a participants
years of credited service and his or her average monthly
earnings for the highest five consecutive years out of the
participants final 10 years of employment. The number
of years of credited service and average monthly earnings for
each participant were fixed as of December 31, 2003. Normal
retirement age under the Pension Plan is age 65. A
participant with 10 years of service is eligible to receive
early retirement benefits beginning at age 55. The
Corporation is required to make contributions to the Pension
Plan in amounts sufficient to satisfy the funding requirements
of the Employee Retirement Income Security Act, as amended. The
Corporation was not required to make a contribution during the
year ended December 31, 2009 and does not anticipate that
any significant contribution will be required during the year
ending December 31, 2010.
The Benefit Restoration Plan was designed to provide certain key
executives of Community with benefits which would have been paid
to them under the Pension Plan except for certain limitations
imposed by the Internal Revenue Code of 1986, as amended. A
participants benefit under the Benefit Restoration Plan is
equal to the difference between his benefit under the Pension
Plan calculated without regard to such limitations less the
benefit payable to him from the Pension Plan. Benefit
Restoration Plan benefits are unfunded.
140
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
20.
|
Pension
Plan (Continued)
|
The following tables set forth the funding status and the amount
recognized for both the Pension Plan and the Benefit Restoration
Plan in the Corporations consolidated statements of
financial condition and consolidated statements of operations:
Pension
Plan:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(Dollars in thousands)
|
|
|
Change in benefit obligation
|
|
|
|
|
|
|
|
|
Benefit obligation as of December 31, 2009 and 2008,
respectively
|
|
$
|
10,634
|
|
|
$
|
10,070
|
|
Interest cost
|
|
|
601
|
|
|
|
602
|
|
Benefits paid (including expenses)
|
|
|
(631
|
)
|
|
|
(602
|
)
|
Actuarial (gain)/loss
|
|
|
413
|
|
|
|
564
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at end of year
|
|
$
|
11,017
|
|
|
$
|
10,634
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets
|
|
|
|
|
|
|
|
|
Fair value of plan assets as of December 31, 2009 and 2008,
respectively
|
|
$
|
7,909
|
|
|
$
|
10,537
|
|
Actual return on plan assets
|
|
|
1,439
|
|
|
|
(2,026
|
)
|
Benefits paid (including expenses)
|
|
|
(631
|
)
|
|
|
(602
|
)
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at end of year
|
|
$
|
8,717
|
|
|
$
|
7,909
|
|
|
|
|
|
|
|
|
|
|
Funded status at end of year
|
|
|
|
|
|
|
|
|
Net amount recognized in statement of financial condition (after
ASC 715)
|
|
$
|
(2,300
|
)
|
|
$
|
(2,725
|
)
|
|
|
|
|
|
|
|
|
|
Amounts Recognized in the Statement of Financial Condition
consist of:
|
|
|
|
|
|
|
|
|
Assets
|
|
$
|
|
|
|
$
|
|
|
Liabilities
|
|
|
(2,300
|
)
|
|
|
(2,725
|
)
|
|
|
|
|
|
|
|
|
|
Net amount recognized in statement of financial condition (after
ASC 715)
|
|
$
|
(2,300
|
)
|
|
$
|
(2,725
|
)
|
|
|
|
|
|
|
|
|
|
Amounts not yet reflected in net periodic benefit cost and
included in accumulated other comprehensive (loss) income:
|
|
|
|
|
|
|
|
|
Transition (obligation) cost
|
|
$
|
|
|
|
$
|
|
|
Prior service (cost) credit
|
|
|
|
|
|
|
|
|
Net (loss) gain
|
|
|
(1,691
|
)
|
|
|
(2,327
|
)
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive (loss) income (AOCI)
|
|
|
(1,691
|
)
|
|
|
(2,327
|
)
|
Cumulative employer contributions in excess of net periodic
benefit cost
|
|
|
(609
|
)
|
|
|
(398
|
)
|
|
|
|
|
|
|
|
|
|
Net amount recognized in statement of financial condition
|
|
$
|
(2,300
|
)
|
|
$
|
(2,725
|
)
|
|
|
|
|
|
|
|
|
|
Additional year-end information for pension plans with
accumulated benefit obligations in excess of plan assets:
|
|
|
|
|
|
|
|
|
Projected benefit obligation
|
|
$
|
11,017
|
|
|
$
|
10,634
|
|
|
|
|
|
|
|
|
|
|
Accumulated benefit obligation
|
|
$
|
11,017
|
|
|
$
|
10,634
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets
|
|
$
|
8,717
|
|
|
$
|
7,909
|
|
|
|
|
|
|
|
|
|
|
Weighted-average assumptions used to determine net periodic
benefit obligations
|
|
|
|
|
|
|
|
|
Projected benefit obligation
|
|
|
5.84
|
%
|
|
|
5.76
|
%
|
Rate of compensation increase
|
|
|
NA
|
|
|
|
NA
|
|
141
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
20.
|
Pension
Plan (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(Dollars in thousands)
|
|
|
Expected Cash Flows
|
|
|
|
|
|
|
|
|
Expected return of assets to employer in next year
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Expected employer contribution for next fiscal year
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Expected benefit payments
|
|
|
|
|
|
|
|
|
Year ending December 31, 2010
|
|
$
|
648
|
|
|
|
|
|
Year ending December 31, 2011
|
|
|
635
|
|
|
|
|
|
Year ending December 31, 2012
|
|
|
636
|
|
|
|
|
|
Year ending December 31, 2013
|
|
|
620
|
|
|
|
|
|
Year ending December 31, 2014
|
|
|
640
|
|
|
|
|
|
Next five years
|
|
|
3,498
|
|
|
|
|
|
Components of net periodic benefit cost
|
|
|
|
|
|
|
|
|
Interest cost
|
|
$
|
601
|
|
|
$
|
602
|
|
Expected return on plan assets
|
|
|
(531
|
)
|
|
|
(716
|
)
|
Amortization of net (gain) loss
|
|
|
141
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
$
|
211
|
|
|
$
|
(114
|
)
|
|
|
|
|
|
|
|
|
|
Weighted-average assumptions used to determine net periodic
benefit cost
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
5.76
|
%
|
|
|
6.11
|
%
|
Expected long-term return on plan assets
|
|
|
7.00
|
%
|
|
|
7.00
|
%
|
Rate of compensation increase
|
|
|
N/A
|
|
|
|
N/A
|
|
The long-term expected rate of return for determining net
periodic Pension Plan cost for the periods ending
December 31, 2009 and 2008 (7.00%) was chosen by the
Corporation from a best estimate range based upon the
anticipated long-term returns and long-term volatility for asset
categories based on the target asset allocation of the Pension
Plan.
The overall investment objective of the Pension Plan is to meet
the long-term benefit obligations accrued under the Pension Plan
through investment in a diversified mix of equity and fixed
income securities. The investment policy as established by the
Benefits Committee, to be followed by the Trustee, is to invest
assets based on the target allocations shown in the table below.
The assets are reallocated periodically to meet the target
allocations. The investment policy is reviewed periodically,
under the advisement of a certified investment advisor, to
determine if the policy should be modified.
Within the equity asset allocation, domestic large cap equities
comprise the majority of this category with a target of 36%;
international and small to mid cap equities comprise the
remaining with target goals of 18% and 8%, respectively. The
equity securities allocation does not include any of the
Corporations securities in 2009 or 2008. This portfolio is
measured against an index such as the S&P 500 Index or
Russell 1000 Index.
For the fixed income allocation, a prudent total return
consisting of both capital appreciation and interest income is
the expectation. The assets invested in this portfolio should
not be those which are necessary for immediate operation.
Liquidity will be managed through the use of readily marketable
securities and adherence to certain fixed income specifications
outlined in the investment policy. This portfolio will be
measured against the Lehman Intermediate Government/Credit Index.
142
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
20.
|
Pension
Plan (Continued)
|
The Corporations Pension Plan weighted average asset
allocations at December 31, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of
|
|
|
|
|
|
|
|
|
|
Pension Plan
|
|
|
|
|
|
|
|
|
|
Assets at
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
Long-term
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
target
|
|
|
Range
|
|
|
Asset Category:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
3.4
|
%
|
|
|
6.0
|
%
|
|
|
3.0
|
%
|
|
|
0-10
|
%
|
Equity securities
|
|
|
56.2
|
|
|
|
50.5
|
|
|
|
62.0
|
|
|
|
40-65
|
%
|
Debt securities
|
|
|
40.4
|
|
|
|
43.5
|
|
|
|
35.0
|
|
|
|
30-55
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The fair value of the Corporations pension plan assets at
December 31, 2009, by asset category are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
|
|
|
Significant
|
|
|
|
Fair Value at
|
|
|
Active Markets for
|
|
|
Significant Other
|
|
|
Unobservable
|
|
|
|
December 31,
|
|
|
Identical Assets
|
|
|
Observable Inputs
|
|
|
Inputs
|
|
|
|
2009
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
|
(Dollars in thousands)
|
|
|
Cash
|
|
$
|
293
|
|
|
$
|
293
|
|
|
$
|
|
|
|
$
|
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Companies
|
|
|
4,046
|
|
|
|
4,046
|
|
|
|
|
|
|
|
|
|
International Companies
|
|
|
852
|
|
|
|
852
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities
|
|
|
3,526
|
|
|
|
3,526
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
8,717
|
|
|
$
|
8,717
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The fair value of the Corporations pension plan assets at
December 31, 2008, by asset category are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
|
|
|
Significant
|
|
|
|
Fair Value at
|
|
|
Active Markets for
|
|
|
Significant Other
|
|
|
Unobservable
|
|
|
|
December 31,
|
|
|
Identical Assets
|
|
|
Observable Inputs
|
|
|
Inputs
|
|
|
|
2008
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
|
(Dollars in thousands)
|
|
|
Cash
|
|
$
|
477
|
|
|
$
|
477
|
|
|
$
|
|
|
|
$
|
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Companies
|
|
|
3,327
|
|
|
|
3,327
|
|
|
|
|
|
|
|
|
|
International Companies
|
|
|
665
|
|
|
|
665
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities
|
|
|
3,440
|
|
|
|
3,440
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
7,909
|
|
|
$
|
7,909
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
143
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
20.
|
Pension
Plan (Continued)
|
Benefit
Restoration Plan:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(Dollars in thousands)
|
|
|
Change in benefit obligation
|
|
|
|
|
|
|
|
|
Benefit obligation as of December 31, 2009 and 2008,
respectively
|
|
$
|
610
|
|
|
$
|
2,829
|
|
Interest cost
|
|
|
34
|
|
|
|
90
|
|
Benefits paid (including expenses)
|
|
|
(58
|
)
|
|
|
(57
|
)
|
Forfeiture of benefits
|
|
|
|
|
|
|
(2,224
|
)
|
Actuarial (gain)/loss
|
|
|
18
|
|
|
|
(28
|
)
|
|
|
|
|
|
|
|
|
|
Benefit obligation at end of year
|
|
$
|
604
|
|
|
$
|
610
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets
|
|
|
|
|
|
|
|
|
Fair value of plan assets as of December 31, 2009 and 2008,
respectively
|
|
$
|
|
|
|
$
|
|
|
Actual return on plan assets
|
|
|
|
|
|
|
|
|
Employer contribution
|
|
|
58
|
|
|
|
57
|
|
Benefits paid (including expenses)
|
|
|
(58
|
)
|
|
|
(57
|
)
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at end of year
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Funded status at end of year
|
|
|
|
|
|
|
|
|
Net amount recognized in statement of financial condition (ASC
715)
|
|
$
|
604
|
|
|
$
|
610
|
|
|
|
|
|
|
|
|
|
|
Amounts Recognized in the Statement of Financial Condition
consist of:
|
|
|
|
|
|
|
|
|
Assets
|
|
$
|
|
|
|
$
|
|
|
Current liabilities
|
|
|
(57
|
)
|
|
|
(56
|
)
|
Noncurrent liabilities
|
|
|
(547
|
)
|
|
|
(554
|
)
|
|
|
|
|
|
|
|
|
|
Net amount recognized in statement of financial condition (after
ASC 715)
|
|
$
|
(604
|
)
|
|
$
|
(610
|
)
|
|
|
|
|
|
|
|
|
|
Amounts not yet reflected in net periodic benefit cost and
included in accumulated other comprehensive (loss) income:
|
|
|
|
|
|
|
|
|
Transition (obligation) cost
|
|
$
|
|
|
|
$
|
|
|
Prior service (cost) credit
|
|
|
|
|
|
|
|
|
Net (loss) gain
|
|
|
(22
|
)
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive (loss) income (AOCI)
|
|
|
(22
|
)
|
|
|
(4
|
)
|
Cumulative employer contributions in excess of net periodic
benefit cost
|
|
|
(582
|
)
|
|
|
(606
|
)
|
|
|
|
|
|
|
|
|
|
Net amount recognized in statement of financial condition
|
|
$
|
(604
|
)
|
|
$
|
(610
|
)
|
|
|
|
|
|
|
|
|
|
144
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
20.
|
Pension
Plan (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(Dollars in thousands)
|
|
|
Additional year-end information for pension plans with
accumulated benefit obligations in excess of plan assets:
|
|
|
|
|
|
|
|
|
Projected benefit obligation
|
|
$
|
604
|
|
|
$
|
610
|
|
|
|
|
|
|
|
|
|
|
Accumulated benefit obligation
|
|
$
|
604
|
|
|
$
|
610
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average assumptions used to determine net periodic
benefit obligations
|
|
|
|
|
|
|
|
|
Projected benefit obligation
|
|
|
5.84
|
%
|
|
|
5.76
|
%
|
Rate of compensation increase
|
|
|
NA
|
|
|
|
NA
|
|
Components of net periodic benefit cost
|
|
|
|
|
|
|
|
|
Interest cost
|
|
$
|
34
|
|
|
$
|
90
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
$
|
34
|
|
|
$
|
90
|
|
|
|
|
|
|
|
|
|
|
Weighted-average assumptions used to determine net periodic
benefit cost
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
5.76
|
%
|
|
|
6.11
|
%
|
Expected long-term return on plan assets
|
|
|
NA
|
|
|
|
NA
|
|
Rate of compensation increase
|
|
|
NA
|
|
|
|
NA
|
|
Expected Cash Flows
|
|
|
|
|
|
|
|
|
Expected return of assets to employer in next year
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Expected employer contribution for next fiscal year
|
|
$
|
57
|
|
|
$
|
56
|
|
|
|
|
|
|
|
|
|
|
Expected benefit payments
|
|
|
|
|
|
|
|
|
Year ending December 31, 2010
|
|
$
|
57
|
|
|
|
|
|
Year ending December 31, 2011
|
|
|
56
|
|
|
|
|
|
Year ending December 31, 2012
|
|
|
55
|
|
|
|
|
|
Year ending December 31, 2013
|
|
|
54
|
|
|
|
|
|
Year ending December 31, 2014
|
|
|
52
|
|
|
|
|
|
Next five years
|
|
|
235
|
|
|
|
|
|
|
|
21.
|
Other
Noninterest Expense
|
Other noninterest expense consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(Dollars in thousands)
|
|
|
Professional fees
|
|
$
|
4,202
|
|
|
$
|
2,637
|
|
|
$
|
2,269
|
|
Directors fees
|
|
|
377
|
|
|
|
438
|
|
|
|
397
|
|
Insurance
|
|
|
2,555
|
|
|
|
2,381
|
|
|
|
1,907
|
|
Postage, stationery and supplies
|
|
|
3,002
|
|
|
|
2,964
|
|
|
|
2,252
|
|
Communications
|
|
|
3,054
|
|
|
|
2,941
|
|
|
|
2,007
|
|
Advertising
|
|
|
2,530
|
|
|
|
3,522
|
|
|
|
2,397
|
|
Other operating expense
|
|
|
7,755
|
|
|
|
7,022
|
|
|
|
7,618
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
23,475
|
|
|
$
|
21,905
|
|
|
$
|
18,847
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
145
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
22.
|
Concentrations
of Credit Risk
|
All of the Corporations loans, commitments and standby
letters of credit have been granted to customers in the
Corporations market areas. The concentrations of credit by
type of loan or commitment are set forth in Notes 4 and 17,
respectively.
The Corporation maintains cash balances and federal funds sold
at several financial institutions. At various times throughout
the year, cash balances held at these institutions will exceed
federally insured limits. Superior Banks management
monitors these institutions on a quarterly basis in order to
determine that the institutions meet
well-capitalized guidelines as established by the
FDIC.
|
|
23.
|
Net
(Loss) Income Per Common Share
|
The following table sets forth the computation of basic net
(loss) income per common share and diluted net (loss) income per
common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(Dollars in thousands, except per share amounts)
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(19,889
|
)
|
|
$
|
(163,150
|
)
|
|
$
|
7,621
|
|
Less: preferred stock dividends and amortization
|
|
|
4,193
|
|
|
|
311
|
|
|
|
|
|
Add: gain on exchange of Series A preferred stock to
|
|
|
|
|
|
|
|
|
|
|
|
|
trust preferred securities (See Note 29)
|
|
|
23,097
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For basic and diluted, net income (loss) applicable to common
stockholders
|
|
$
|
(985
|
)
|
|
$
|
(163,461
|
)
|
|
$
|
7,621
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
For basic, weighted average common shares outstanding
|
|
|
10,687
|
|
|
|
10,021
|
|
|
|
9,243
|
|
Effect of dilutive stock options
|
|
|
|
|
|
|
|
|
|
|
90
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average common shares outstanding, assuming dilution
|
|
|
10,687
|
|
|
|
10,021
|
|
|
|
9,333
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per common share
|
|
$
|
(0.09
|
)
|
|
$
|
(16.31
|
)
|
|
$
|
0.82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income (loss) per common share
|
|
$
|
(0.09
|
)
|
|
$
|
(16.31
|
)
|
|
$
|
0.82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net (loss) income per common share is calculated by
dividing net income (loss), less dividend requirements on
outstanding preferred stock, by the weighted-average number of
common shares outstanding for the period.
Diluted net (loss) income per common share takes into
consideration the pro forma dilution assuming certain warrants,
unvested restricted stock and unexercised stock option awards
were converted or exercised into common shares. Common stock
equivalents of 159,561 and 65,226 were not included in computing
diluted net loss per share for the years ended December 31,
2009 and 2008, respectively, as they were considered
anti-dilutive.
146
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The condensed financial information (unaudited) for Superior
Bancorp (Parent Company only) is presented as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(Dollars in thousands)
|
|
|
Statements of financial condition
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
2,093
|
|
|
$
|
1,414
|
|
Investment in subsidiaries
|
|
|
273,074
|
|
|
|
294,377
|
|
Premises and equipment net
|
|
|
762
|
|
|
|
787
|
|
Other assets
|
|
|
3,947
|
|
|
|
18,115
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
279,876
|
|
|
$
|
314,693
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Accrued expenses and other liabilities
|
|
$
|
4,620
|
|
|
$
|
3,057
|
|
Note payable
|
|
|
7,000
|
|
|
|
7,000
|
|
Subordinated debentures
|
|
|
76,552
|
|
|
|
53,397
|
|
Stockholders equity
|
|
|
191,704
|
|
|
|
251,239
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
279,876
|
|
|
$
|
314,693
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(Dollars in thousands)
|
|
|
Statements of operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends from subsidiaries
|
|
$
|
6,000
|
|
|
$
|
4,000
|
|
|
$
|
7,000
|
|
Interest
|
|
|
127
|
|
|
|
156
|
|
|
|
156
|
|
Other income
|
|
|
145
|
|
|
|
3,160
|
|
|
|
404
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
6,272
|
|
|
$
|
7,316
|
|
|
$
|
7,560
|
|
Expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Directors fees
|
|
|
301
|
|
|
|
293
|
|
|
|
269
|
|
Salaries and benefits
|
|
|
827
|
|
|
|
1,147
|
|
|
|
1,384
|
|
Occupancy expense
|
|
|
180
|
|
|
|
265
|
|
|
|
362
|
|
Interest expense
|
|
|
4,270
|
|
|
|
4,231
|
|
|
|
4,569
|
|
Other
|
|
|
1,020
|
|
|
|
766
|
|
|
|
2,373
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,598
|
|
|
|
6,702
|
|
|
|
8,957
|
|
Income (loss) before income taxes and equity in undistributed
earnings of subsidiaries
|
|
|
(326
|
)
|
|
|
614
|
|
|
|
(1,397
|
)
|
Income tax benefit
|
|
|
1,734
|
|
|
|
1,948
|
|
|
|
3,513
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before equity in undistributed (loss) earnings of
subsidiaries
|
|
|
1,408
|
|
|
|
2,562
|
|
|
|
2,116
|
|
Equity in undistributed (loss) earnings of subsidiaries
|
|
|
(21,297
|
)
|
|
|
(165,712
|
)
|
|
|
5,505
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(19,889
|
)
|
|
$
|
(163,150
|
)
|
|
$
|
7,621
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
147
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
24.
|
Parent
Company (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(Dollars in thousands)
|
|
|
Statements of cash flows
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(19,889
|
)
|
|
$
|
(163,150
|
)
|
|
$
|
7,621
|
|
Adjustments to reconcile net (loss) income to net cash provided
by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization and depreciation expense
|
|
|
25
|
|
|
|
60
|
|
|
|
184
|
|
Equity in undistributed loss (earnings) of subsidiaries
|
|
|
21,297
|
|
|
|
165,712
|
|
|
|
(5,505
|
)
|
Other decreases
|
|
|
(545
|
)
|
|
|
(2,079
|
)
|
|
|
(1,120
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
888
|
|
|
|
543
|
|
|
|
1,180
|
|
Investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in subsidiary
|
|
|
|
|
|
|
(66,550
|
)
|
|
|
|
|
Proceeds from sale of premises and equipment
|
|
|
|
|
|
|
316
|
|
|
|
339
|
|
Purchases of premises and equipment
|
|
|
|
|
|
|
(57
|
)
|
|
|
|
|
Net cash paid in business combinations
|
|
|
|
|
|
|
|
|
|
|
(2,527
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used by investing activities
|
|
|
|
|
|
|
(66,291
|
)
|
|
|
(2,188
|
)
|
Financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock
|
|
|
3,299
|
|
|
|
|
|
|
|
640
|
|
Proceeds from issuance of preferred stock
|
|
|
|
|
|
|
69,000
|
|
|
|
|
|
Proceeds from note payable
|
|
|
|
|
|
|
10,000
|
|
|
|
10,000
|
|
Principal payment on note payable
|
|
|
|
|
|
|
(12,500
|
)
|
|
|
(6,045
|
)
|
Proceeds from issuance of junior subordinated debentures
|
|
|
|
|
|
|
|
|
|
|
22,680
|
|
Principal payment on junior subordinated debentures
|
|
|
|
|
|
|
|
|
|
|
(16,495
|
)
|
Purchase of treasury stock
|
|
|
|
|
|
|
|
|
|
|
(10,428
|
)
|
Cash dividends paid
|
|
|
(3,508
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used) provided by financing activities
|
|
|
(209
|
)
|
|
|
66,500
|
|
|
|
352
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash
|
|
|
679
|
|
|
|
752
|
|
|
|
(656
|
)
|
Cash at beginning of year
|
|
|
1,414
|
|
|
|
662
|
|
|
|
1,318
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash at end of year
|
|
$
|
2,093
|
|
|
$
|
1,414
|
|
|
$
|
662
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
148
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
25.
|
Selected
Quarterly Results of Operations (Unaudited)
|
A summary of the unaudited results of operations for each
quarter of 2009 and 2008 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
|
(Dollars in thousands, except per share data)
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
$
|
39,756
|
|
|
$
|
40,629
|
|
|
$
|
41,049
|
|
|
$
|
40,648
|
|
Total interest expense
|
|
|
18,428
|
|
|
|
17,912
|
|
|
|
17,136
|
|
|
|
16,044
|
|
Net interest income
|
|
|
21,328
|
|
|
|
22,717
|
|
|
|
23,913
|
|
|
|
24,604
|
|
Provision for loan losses
|
|
|
3,452
|
|
|
|
5,982
|
|
|
|
5,169
|
|
|
|
13,947
|
|
Securities loss
|
|
|
(5,845
|
)
|
|
|
(5,781
|
)
|
|
|
2,121
|
|
|
|
(597
|
)
|
Changes in fair value of derivatives
|
|
|
(199
|
)
|
|
|
(67
|
)
|
|
|
435
|
|
|
|
(995
|
)
|
(Loss) income before income taxes
|
|
|
(6,422
|
)
|
|
|
(10,233
|
)
|
|
|
1,581
|
|
|
|
(17,820
|
)
|
Net (loss) income
|
|
|
(3,574
|
)
|
|
|
(5,694
|
)
|
|
|
880
|
|
|
|
(11,501
|
)
|
Net (loss) income applicable to common shareholders
|
|
|
(4,717
|
)
|
|
|
(6,861
|
)
|
|
|
(287
|
)
|
|
|
10,880
|
|
Basic net (loss) income per common share
|
|
|
(0.47
|
)
|
|
|
(0.68
|
)
|
|
|
(0.03
|
)
|
|
|
0.94
|
|
Diluted net (loss) income per common share
|
|
|
(0.47
|
)
|
|
|
(0.68
|
)
|
|
|
(0.03
|
)
|
|
|
0.92
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
$
|
42,552
|
|
|
$
|
42,032
|
|
|
$
|
41,880
|
|
|
$
|
41,424
|
|
Total interest expense
|
|
|
24,060
|
|
|
|
20,644
|
|
|
|
20,254
|
|
|
|
19,645
|
|
Net interest income
|
|
|
18,492
|
|
|
|
21,388
|
|
|
|
21,626
|
|
|
|
21,779
|
|
Provision for loan losses
|
|
|
1,872
|
|
|
|
5,967
|
|
|
|
2,305
|
|
|
|
2,968
|
|
Securities gain (loss)
|
|
|
402
|
|
|
|
1,068
|
|
|
|
(8,541
|
)
|
|
|
(1,382
|
)
|
Changes in fair value of derivatives
|
|
|
1,050
|
|
|
|
(418
|
)
|
|
|
141
|
|
|
|
467
|
|
Goodwill impairment charge
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
160,306
|
|
Income (loss) before income taxes
|
|
|
957
|
|
|
|
1,151
|
|
|
|
(7,800
|
)
|
|
|
(162,046
|
)
|
Net loss
|
|
|
695
|
|
|
|
841
|
|
|
|
(6,508
|
)
|
|
|
(158,178
|
)
|
Net income (loss) applicable to common shareholders
|
|
|
695
|
|
|
|
841
|
|
|
|
(6,508
|
)
|
|
|
(158,489
|
)
|
Basic net income (loss) per common share
|
|
|
0.07
|
|
|
|
0.08
|
|
|
|
(0.65
|
)
|
|
|
(15.80
|
)
|
Diluted net income (loss) per common share
|
|
|
0.07
|
|
|
|
0.08
|
|
|
|
(0.65
|
)
|
|
|
(15.80
|
)
|
Due to the effect of quarterly weighted average share
calculations, the sum of the quarterly net income (loss) per
share amounts may not total to the
year-to-date
net (loss) income per share amounts.
The Corporation has two reportable segments, the Alabama Region
and the Florida Region. The Alabama Region consists of
operations located throughout Alabama. The Florida Region
consists of operations located primarily in the Tampa Bay area
and panhandle region of Florida. The Corporations
reportable segments are managed as separate business units
because they are located in different geographic areas. Both
segments derive revenues from the delivery of financial
services. These services include commercial loans, mortgage
loans, consumer loans, deposit accounts and other financial
services. Administrative and other banking activities include
the results of the Corporations investment portfolio, home
mortgage division, brokered deposits and borrowed funds
positions.
149
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
26.
|
Segment
Reporting (Continued)
|
The Corporation evaluates performance and allocates resources
based on profit or loss from operations. There are no material
inter-segment sales or transfers. Net interest income is used as
the basis for performance evaluation rather than its components,
total interest income and total interest expense. The accounting
policies used by each reportable segment are the same as those
discussed in Note 1 to the consolidated financial
statements. All costs, except corporate administration and
income taxes, have been allocated to the reportable segments.
Therefore, combined amounts agree to the consolidated totals.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
Superior
|
|
|
|
Alabama
|
|
|
Florida
|
|
|
Alabama and
|
|
|
Administrative
|
|
|
Bancorp
|
|
|
|
Region
|
|
|
Region
|
|
|
Florida
|
|
|
and Other
|
|
|
Combined
|
|
|
|
(Dollars in thousands)
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
37,554
|
|
|
$
|
38,785
|
|
|
$
|
76,339
|
|
|
$
|
16,223
|
|
|
$
|
92,562
|
|
Provision for loan losses
|
|
|
6,496
|
|
|
|
10,150
|
|
|
|
16,646
|
|
|
|
11,904
|
|
|
|
28,550
|
|
Noninterest income
|
|
|
8,662
|
|
|
|
2,101
|
|
|
|
10,763
|
|
|
|
2,816
|
|
|
|
13,579
|
|
Noninterest expense
|
|
|
35,480
|
|
|
|
25,637
|
|
|
|
61,117
|
|
|
|
49,368
|
|
|
|
110,485
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit (loss)
|
|
$
|
4,240
|
|
|
$
|
5,099
|
|
|
$
|
9,339
|
|
|
$
|
(42,233
|
)
|
|
|
(32,894
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13,005
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(19,889
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,060,530
|
|
|
$
|
1,259,223
|
|
|
$
|
2,319,753
|
|
|
$
|
902,116
|
|
|
$
|
3,221,869
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
33,114
|
|
|
$
|
38,151
|
|
|
$
|
71,265
|
|
|
$
|
12,020
|
|
|
$
|
83,285
|
|
Provision for loan losses
|
|
|
4,393
|
|
|
|
3,464
|
|
|
|
7,857
|
|
|
|
5,255
|
|
|
|
13,112
|
|
Noninterest income
|
|
|
7,589
|
|
|
|
1,934
|
|
|
|
9,523
|
|
|
|
7,244
|
|
|
|
16,767
|
|
Noninterest expense
|
|
|
30,654
|
|
|
|
21,730
|
|
|
|
52,384
|
|
|
|
41,988
|
|
|
|
94,372
|
|
Goodwill impairment charge(1)
|
|
|
63,815
|
|
|
|
96,491
|
|
|
|
160,306
|
|
|
|
|
|
|
|
160,306
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) profit
|
|
$
|
(58,159
|
)
|
|
$
|
(81,600
|
)
|
|
$
|
(139,759
|
)
|
|
$
|
(27,979
|
)
|
|
|
(167,738
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,588
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(163,150
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,062,230
|
|
|
$
|
1,109,011
|
|
|
$
|
2,171,241
|
|
|
$
|
881,460
|
|
|
$
|
3,052,701
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
36,844
|
|
|
$
|
38,059
|
|
|
$
|
74,903
|
|
|
$
|
259
|
|
|
$
|
75,162
|
|
Provision for loan losses
|
|
|
3,845
|
|
|
|
1,632
|
|
|
|
5,477
|
|
|
|
(936
|
)
|
|
|
4,541
|
|
Noninterest income
|
|
|
7,021
|
|
|
|
1,723
|
|
|
|
8,744
|
|
|
|
10,613
|
|
|
|
19,357
|
|
Noninterest expense
|
|
|
24,924
|
|
|
|
14,702
|
|
|
|
39,626
|
|
|
|
38,597
|
|
|
|
78,223
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit (loss)
|
|
$
|
15,096
|
|
|
$
|
23,448
|
|
|
$
|
38,544
|
|
|
$
|
(26,789
|
)
|
|
|
11,755
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,134
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,621
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,029,652
|
|
|
$
|
1,124,816
|
|
|
$
|
2,154,468
|
|
|
$
|
730,957
|
|
|
$
|
2,885,425
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) See Note 1 Intangible
Assets for additional information.
150
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Common
Stock
On November 19, 2009, after approval by the Board of
Directors and the Corporations stockholders, the
Corporation amended the Corporations Restated Certificate
of Incorporation to increase the number of authorized shares of
the Corporations common stock from 20,000,000 to
200,000,000.
During the third quarter of 2009 the Corporation sold
1,491,618 shares of its common stock at prices ranging from
$2.21 to $2.71 per share to approximately 20 accredited
investors in a series of transactions exempt from the
registration requirements of the Securities Act of 1933 pursuant
to Securities and Exchange Commission Regulation D. Of the
shares issued approximately 321,000 had been held as treasury
stock. The Corporation received total cash consideration of
approximately $3,299,000 in connection with these transactions.
If the Corporation defers payments of interest on its
outstanding junior subordinated debentures or if certain
defaults relating to those debentures occur, the Corporation
will be prohibited from declaring or paying dividends or
distributions on, and from making liquidation payments with
respect to, its common stock (See Note 11 for additional
details).
1-for-4
Reverse Stock Split
On April 28, 2008, the Corporation completed a
1-for-4
reverse split of its common stock, reducing the number of
authorized shares of common stock from 60,000,000 to 15,000,000
and the number of common shares outstanding from 40,211,230 to
10,052,808. This action brought the Corporations
authorized common shares and common shares outstanding more
nearly in line with peer community banks. All disclosures in
this annual report regarding common stock and related per share
information have been retroactively restated for all periods
presented to reflect the reverse stock split. The
1-for-4
reverse stock split was effective in the market as of the
opening of trading on April 28, 2008.
Stock
Repurchase Plan
The Corporation announced in June 2007 that the Board of
Directors had approved the repurchase of up to
250,000 shares of the Corporations outstanding common
stock. During the quarter ended September 30, 2007, the
Corporation purchased 250,000 shares of then outstanding
stock at an average price of $36.88 per share, which have been
recorded, at cost, as treasury stock in the consolidated
statement of financial condition. The shares were purchased in
the open market through negotiated or block transactions and
were not repurchased from the Corporations management team or
other insiders.
The Corporation announced in October 2007 that the Board of
Directors approved the purchase of an additional
250,000 shares of its outstanding common stock beginning on
or after November 2, 2007. During the quarter ended
December 31, 2007, the Corporation purchased
45,500 shares of then outstanding stock at an average price
of $26.44, which have been recorded, at cost, as treasury stock
in the consolidated statement of financial condition. The shares
were purchased in the open market through negotiated or block
transactions. The Corporation did not repurchase any shares from
its management team or other insiders. This stock repurchase
program does not obligate the Corporation to acquire any
specific number of shares and may be suspended or discontinued
at any time.
Issuance
of Preferred Stock and Related Warrant
On December 5, 2008, as part of the Troubled Asset Relief
Program (TARP) Capital Purchase Program, the
Corporation issued and sold, and the United States Department of
the Treasury (the Treasury Department) purchased,
(i) 69,000 shares (the Preferred Stock) of
the Corporations Fixed Rate Cumulative Perpetual Preferred
Stock, Series A, having a liquidation preference of $1,000
per share, and (ii) a ten-year warrant (the
Warrant) to purchase up to 1,923,792 shares of
the Corporations voting common stock, par value $0.001 per
share (Common Stock), at an exercise price of $5.38
per share, for an aggregate purchase price of $69,000,000 in
151
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
27.
|
Stockholders
Equity (Continued)
|
cash. The issuance and sale of these securities was a private
placement exempt from registration pursuant to Section 4(2)
of the Securities Act of 1933. On December 11, 2009,
Superior Bancorp and the Treasury Department entered into an
exchange agreement pursuant to which the Preferred Stock held by
the Treasury Department were exchanged for the trust preferred
securities issued by Superior Capital Trust II.
Cumulative dividends on the Preferred Shares accrued on the
liquidation preference at a rate of 5% per annum for the first
five years, and at a rate of 9% per annum thereafter, but would
be paid only if, as and when declared by the Corporations
Board of Directors. The Preferred Stock had no maturity date and
rank senior to the Common Stock (and pari passu with the
Corporations other authorized series of preferred stock,
of which no shares are currently outstanding) with respect to
the payment of dividends and distributions and amounts payable
upon any liquidation, dissolution and winding up of the
Corporation. Subject to the approval of the Office of Thrift
Supervision, the Preferred Stock was redeemable at the option of
the Corporation at 100% of their liquidation preference,
provided that the Preferred Shares were redeemed prior to the
first dividend payment date falling after the third anniversary
of the Closing Date (December 5, 2011) only if
(i) the Corporation had raised aggregate gross proceeds in
one or more Qualified Equity Offerings (as defined in the letter
agreement, dated December 5, 2008 between the Corporation
and the Treasury Department (including the Securities Purchase
Agreement Standard Terms incorporated by reference
therein) (the Purchase Agreement) and set forth
below) in excess of $17,250,000 and (ii) the aggregate
redemption price did not exceed the aggregate net proceeds from
such Qualified Equity Offerings. Notwithstanding the foregoing
provisions of the TARP agreements, the American Recovery and
Reinvestment Act (ARRA) eliminated most of the
restrictions on redemption of the Preferred Stock. Subject to
consultation with the Office of Thrift Supervision, the
Corporation could have redeemed the Preferred Stock without
regard to any waiting period or whether the Corporation has
participated in a Qualified Equity Offering.
The Treasury Department could not transfer a portion or portions
of the Warrant with respect to,
and/or
exercise the Warrant for more than one-half of, the
1,923,792 shares of Common Stock issuable upon exercise of
the Warrant, in the aggregate, until the earlier of (i) the
date on which the Corporation had received aggregate gross
proceeds of not less than $69,000,000 from one or more Qualified
Equity Offerings (as defined in the Purchase Agreement and set
forth below) and (ii) December 31, 2009. In the event
the Corporation completed one or more Qualified Equity Offerings
(as defined in the Purchase Agreement and set forth below) on or
prior to December 31, 2009 that result in the Corporation
receiving aggregate gross proceeds of not less than $69,000,000,
the number of the shares of Common Stock underlying the portion
of the Warrant then held by the Treasury will be reduced by
one-half of the shares of Common Stock originally covered by the
Warrant. For the purposes of the foregoing, Qualified
Equity Offering is defined as the sale and issuance for
cash by the Corporation to persons other than the Corporation or
any Corporation subsidiary after the Closing Date of shares of
perpetual Preferred Stock, Common Stock or any combination of
such stock, that, in each case, qualify as and may be included
in Tier I capital of the Corporation at the time of
issuance under the applicable risk-based capital guidelines of
the Corporations federal banking agency (other than any
such sales and issuances made pursuant to agreements or
arrangements entered into, or pursuant to financing plans which
were publicly announced, on or prior to October 13, 2008).
As a result of the issuance of 1,491,618 additional shares in
July 2009, the Treasury Department adjusted the warrant share
position to 1,975,688 shares with a strike price of $5.239.
The fair value of the Warrant of $6,093,000 was determined using
the Black-Scholes option-pricing model and the value allocated
using the proportional method. The assumptions used in the model
were; risk-free rate of 3.52%, volatility factor of 59.00% and a
dividend yield of 0.00% . The value of the Warrant was being
amortized against retained earnings as part of the preferred
stock dividend until December 11, 2009, which was the
exchange date (see below); it is currently being amortized as
interest expense on subordinated debentures. The amortization of
the warrant increased the effective yield on the preferred stock
to 7.11%.
152
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
27.
|
Stockholders
Equity (Continued)
|
The Corporation accrued cash dividends on the Series A
preferred stock during the years ended December 31, 2009
and 2008 amounting to $4,193,000 and $311,000, respectively.
Exchange
of Preferred Stock
Refer to Note 29 to the consolidated financial statements
for information on the exchange agreement dated
December 11, 2009 related to these shares of preferred
stock.
Exchange
of non-pooled trust preferred securities for newly issued common
stock
Refer to Note 30 to the consolidated financial statements
for information on the exchange agreements dated
January 10, 2010 and January 15, 2010 related to these
trust preferred securities.
|
|
28.
|
Other
Comprehensive (Loss) Income
|
The components of other comprehensive (loss) income for the
years ended December 31, 2009, 2008, and 2007 are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-Tax
|
|
|
Income Tax
|
|
|
Net of
|
|
|
|
Amount
|
|
|
Expense
|
|
|
Income Tax
|
|
|
|
(Dollars in thousands)
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on available for sale securities
|
|
$
|
(10,748
|
)
|
|
$
|
3,977
|
|
|
$
|
(6,771
|
)
|
Reclassification adjustment for losses realized in net loss
|
|
|
10,102
|
|
|
|
(3,738
|
)
|
|
|
6,364
|
|
Unrealized gain on derivatives
|
|
|
189
|
|
|
|
(71
|
)
|
|
|
118
|
|
Defined benefit pension plan net gain arising during
the period
|
|
|
617
|
|
|
|
(228
|
)
|
|
|
389
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gain
|
|
$
|
160
|
|
|
$
|
(60
|
)
|
|
$
|
100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on available for sale securities
|
|
$
|
(16,885
|
)
|
|
$
|
6,203
|
|
|
$
|
(10,682
|
)
|
Reclassification adjustment for losses realized in net loss
|
|
|
8,453
|
|
|
|
(3,128
|
)
|
|
|
5,325
|
|
Unrealized loss on derivatives
|
|
|
(955
|
)
|
|
|
354
|
|
|
|
(601
|
)
|
Defined benefit pension plan net loss arising during
the period
|
|
|
(3,398
|
)
|
|
|
1,257
|
|
|
|
(2,141
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized loss
|
|
$
|
(12,785
|
)
|
|
$
|
4,686
|
|
|
$
|
(8,099
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain on available for sale securities
|
|
$
|
2,344
|
|
|
$
|
(918
|
)
|
|
$
|
1,426
|
|
Reclassification adjustment for gains realized in net income
|
|
|
(308
|
)
|
|
|
120
|
|
|
|
(188
|
)
|
Defined benefit pension plan net gain arising during
the period
|
|
|
615
|
|
|
|
(227
|
)
|
|
|
388
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gain
|
|
$
|
2,651
|
|
|
$
|
(1,025
|
)
|
|
$
|
1,626
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
153
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Exchange
of preferred stock held by the Treasury Department for trust
preferred securities
On December 11, 2009, the Corporation entered into an
exchange agreement with the Treasury Department pursuant to
which the Treasury Department agreed that it would exchange all
69,000 shares of the Corporations outstanding
Preferred Stock, owned by the Treasury Department for 69,000
newly issued trust preferred securities, $1,000 liquidation
amount per capital security, issued by Superior Capital
Trust II, a wholly-owned, unconsolidated subsidiary of
Superior Bancorp. The trust preferred securities were issued to
the Treasury Department on December 11, 2009. In connection
with this exchange, the trust used the Preferred Stock, together
with the proceeds of the issuance and sale by the trust to the
Corporation of $100,000 aggregate liquidation amount of its
fixed rate common securities, to purchase $69,100,000 aggregate
principal amount of the junior subordinated debentures issued by
the Corporation.
The trust preferred securities issued to the Treasury Department
have a distribution rate of 5% until, but excluding
February 15, 2014 and 9% thereafter (which is the same as
the dividend rate on the Preferred Stock). The common securities
of the trust, in the amount of $100,000, are held by the
Corporation. The sole asset and only source of funds to make
payments on the trust preferred securities and the common
securities of the trust is $69,100,000 of the Corporations
Fixed Rate Perpetual Junior Subordinated Debentures, issued by
the Corporation to the trust. The debentures are perpetual and
may be redeemed by the Corporation at any time by the
Corporation on 30 days notice.
Under the guarantee agreement dated as of December 11,
2009, the Corporation irrevocably and unconditionally agrees to
pay in full to the Treasury Department of the trust preferred
securities the guaranteed payments, as and when due. The
Corporations obligation to make the guaranteed payment may
be satisfied by direct payment of the required amounts to the
Treasury Department of the trust preferred securities or by
causing the issuer trust to pay such amounts to the Treasury
Department. The obligations of the Corporation under the
guarantee agreement constitute unsecured obligations and rank
subordinate and junior in right of payment to all senior debt.
The obligations of the Corporation under the guarantee agreement
rank pari passu with the obligations of Corporation under
any similar guarantee agreements issued by the Corporation on
behalf of the holders of preferred or capital securities issued
by any statutory trust, among others stated in the guarantee
agreement. Under the guarantee agreement, the Corporation has
guaranteed the payment of the liquidation amount of the trust
preferred securities upon liquidation of the trust, but only to
the extent that the trust has funds available to make such
payments.
Under the exchange agreement, the Corporations agreement
that, without the consent of the Treasury Department, it would
not increase its dividend rate per share of common stock above
that in effect as of October 13, 2008 or repurchase shares
of its common stock until, in each case, the earlier of
December 5, 2011 or such time as all of the new trust
preferred securities have been redeemed or transferred by the
Treasury Department, remains in effect.
Initially, in connection with the issuance of the Preferred
Stock on December 5, 2008, the Treasury Department was
issued a warrant to purchase 1,923,392 shares of the
Corporations common stock at an exercise price of $5.38
per share. However, as a result of the issuance of 1,491,618
additional shares in July 2009, the Corporation adjusted the
warrant share position to 1,975,688 shares with a strike
price of $5.239.
The trust preferred securities issued to the Treasury Department
continue to qualify as Tier 1 regulatory capital as of
December 31, 2009. The trust preferred securities are
subject to the 25% limitation on Tier 1 capital.
This transaction with the Treasury Department was accounted for
as an extinguishment of previously issued Preferred Stock. The
accounting impact of this transaction included
(1) recognition of junior subordinated debentures and
derecognition of the Preferred Stock; (2) recognition of a
favorable impact to accumulated deficit resulting from the
excess of (a) the carrying amount of the securities
exchanged (the Preferred Stock) over (b) the
154
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
29.
|
Exchange
Offer (Continued)
|
fair value of the consideration exchanged (the trust preferred
securities); (3) the reversal of any unamortized discount
outstanding on the Preferred Stock and (4) issuance costs.
At the date of the exchange agreement, the fair value of the
trust preferred securities (junior subordinated debentures for
purposes of the Corporations financial statements) was
determined internally using a discounted cash flow model. The
main considerations were (1) quarterly interest payment of
5% until, but excluding February 15, 2014 and 9%,
thereafter; (2) assumed maturity date of 30 years; and
(3) assumed discount rate of 19.63%. The assumed discount
rate used for estimating the fair value was estimated by
obtaining the yields at which comparable issuers were trading as
assets in the market and computing a implied credit spread. The
discount rate used is the amount of the implied credit spread of
14.69% plus the
30-year swap
rate of 4.94%.
The discount as well as the debt issuance costs will be
amortized through interest expense using the interest yield
method over the estimated life of the junior subordinated
debentures. The effective yield of the issue will be 20.22%.
This particular exchange resulted in a gain on retirement of
preferred stock favorably impacting accumulated deficit by
$23,097,000 (net of deferred taxes), which is also considered as
part of earnings (losses) applicable to common stockholders in
the earnings (losses) per common share (EPS)
computations. See Note 23 to the consolidated financial
statements for a reconciliation of EPS. A summary of this
transaction and the increases (decreases) in the related asset,
liability and stockholders equity accounts is as follows
(Dollars in thousands):
|
|
|
|
|
Assets
|
|
|
|
|
Other assets investment in common stock of trust
|
|
$
|
100
|
|
deferred income taxes (see Note 14)
|
|
|
(16,544
|
)
|
|
|
|
|
|
Total assets
|
|
$
|
(16,444
|
)
|
|
|
|
|
|
Liabilities
|
|
|
|
|
Subordinated debentures, net (see Note 11):
|
|
|
|
|
Issuance
|
|
$
|
69,100
|
|
Discount
|
|
|
(44,714
|
)
|
|
|
|
|
|
Total liabilities
|
|
|
24,386
|
|
|
|
|
|
|
Stockholders equity (see Note 27)
|
|
|
|
|
Preferred stock, par value $.001 per share
|
|
$
|
|
|
Surplus preferred ($69,000 less discount of $5,073)
|
|
|
(63,927
|
)
|
Accumulated deficit (net of $16,544 deferred taxes)
|
|
|
23,097
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
(40,830
|
)
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
(16,444
|
)
|
|
|
|
|
|
Exchange
of non-pooled trust preferred securities for newly issued common
stock
On January 15, 2010, the Corporation entered into an
agreement with Cambridge Savings Bank (Cambridge)
pursuant to which Cambridge will exchange $3,500,000 of trust
preferred securities issued by the Corporations wholly
owned unconsolidated subsidiary, Superior Capital Trust I,
for shares of the Corporations common stock. The number of
shares of common stock to be issued to Cambridge will equal 77%
of the face value of the trust preferred securities divided by a
weighted average of the sales prices of newly issued shares of
the Corporations common stock sold between the date of the
agreement and the closing of the exchange or, if lower, the
155
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
30.
|
Subsequent
Events (Continued)
|
weighted average of the sales prices of such stock within
forty-eight hours prior to the closing of the exchange. The
consummation of the transaction is conditioned upon selling at
least $75 million of the Corporations common stock
either for cash or in exchange for trust preferred securities or
debt, obtaining consent of the Corporations stockholders
if required by NASDAQ, and other customary closing conditions.
On January 20, 2010, the Corporation entered into an
agreement with KBW, Inc. (KBW) pursuant to which KBW
will exchange $4,000,000 of trust preferred securities issued by
the Corporations wholly owned unconsolidated subsidiary,
Superior Capital Trust I, for shares of the
Corporations common stock. The number of shares of common
stock to be issued to KBW will equal 50% of the face value of
the trust preferred securities divided by the greater of the
following prices of the Corporations common stock during
the ten trading days prior to the closing of the exchange:
(1) the average of the closing prices or (2) 90% of
the volume weighted average price. The consummation of the
transaction is conditioned upon obtaining consent of the
Corporations stockholders if required by NASDAQ, and other
customary closing conditions.
Neither the Corporation nor its affiliates have any material
relationship with Cambridge other than in respect of the
exchange agreement. Neither the Corporation nor its affiliates
have any material relationship with KBW except that the
Corporation has engaged an affiliate of KBW to assist it in
formulating and implementing strategies to strengthen its
capital position.
The Corporation expects to record a net after-tax gain of
$1,800,000 upon exchange of the trust preferred securities. The
ultimate effect of the transactions will be to increase
stockholders equity by approximately $6,500,000,
consisting of both the increase in equity upon recording gains
on retirement of the securities, and the value of the newly
issued shares. See Note 27 to the consolidated financial
statements.
156
|
|
Item 9.
|
Changes
in and Disagreements With Accountants on Accounting and
Financial Disclosure.
|
None.
|
|
Item 9A.
|
Controls
And Procedures
|
Officer
Certifications
Appearing immediately following the Signatures section of this
report are Certifications of our Chief Executive Officer
(CEO) and our Chief Financial Officer, who is our
principal financial officer (PFO). The
Certifications are required to be made by
Rule 13a-14
of the Securities Exchange Act of 1934, as amended. This Item
contains the information about the evaluation that is referred
to in the Certifications, and the information set forth below in
this Item should be read in conjunction with the Certifications
for a more complete understanding of the Certifications.
Conclusion
Regarding the Effectiveness of Disclosure Controls and
Procedures
We maintain disclosure controls and procedures to ensure that
material information required to be disclosed in our Exchange
Act reports is made known to the officers who certify our
financial reports and to other members of our senior management
and our Board of Directors.
Based on their evaluation as of December 31, 2009, our CEO
and our CFO have concluded that our disclosure controls and
procedures (as defined in
Rule 13a-l5(e)
under the Securities Exchange Act of 1934) are effective to
ensure that the information required to be disclosed by us in
the reports that we file or submit under the Securities Exchange
Act of 1934 is recorded, processed, summarized and reported
within the time periods specified in SEC rules and forms and
that such information is accumulated and communicated to our
management as appropriate to allow timely decisions regarding
required disclosures.
All internal controls systems, no matter how well designed, have
inherent limitations and may not prevent or detect misstatements
in our financial statements, including the possibility of
circumvention or overriding of controls. Therefore, even those
systems determined to be effective can provide only reasonable
assurance with respect to financial statement preparation and
presentation. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures
may deteriorate.
Managements
Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting, as defined
in
Rule 13a-15(f)
under the Securities Exchange Act of 1934. Under the supervision
and with the participation of our management, including our CEO
and our PFO, our management conducted an evaluation of the
effectiveness of internal control over financial reporting based
on the framework in Internal Control Integrated
Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission, as of December 31, 2009. Based on
this evaluation under the framework in Internal
Control Integrated Framework, our management
concluded that our internal control over financial reporting was
effective as of December 31, 2009. Grant Thornton LLP, the
independent registered public accounting firm that audited our
financial statements included in this Annual Report on
Form 10-K,
has issued an audit report on the effectiveness of Superior
Bancorps internal control over financial reporting as of
December 31, 2009. The report is included in this item
under the heading Report of Independent Registered Public
Accounting Firm.
157
Report of
Independent Registered Public Accounting Firm
Board of Directors and Shareholders
Superior Bancorp
We have audited Superior Bancorps (a Delaware corporation)
internal control over financial reporting as of
December 31, 2009, based on criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). Superior Bancorps management is
responsible for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness
of internal control over financial reporting, included in the
accompanying Managements Report on Internal Control Over
Financial Reporting. Our responsibility is to express an opinion
on Superior Bancorps internal control over financial
reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, Superior Bancorp maintained, in all material
respects, effective internal control over financial reporting as
of December 31, 2009, based on criteria established in
Internal Control Integrated Framework issued
by COSO.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated statements of financial condition of Superior
Bancorp and subsidiaries as of December 31, 2009 and 2008,
and the related consolidated statements of operations, changes
in stockholders equity and cash flows for each of the
three years ended December 31, 2009, and our report dated
March 11, 2010, expressed an unqualified opinion.
Raleigh, North Carolina
March 11, 2010
158
Changes
in Internal Control Over Financial Reporting
There have been no changes in our internal control over
financial reporting during the most recent fiscal quarter that
have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
|
|
Item 9B.
|
Other
Information.
|
None.
PART III
|
|
Items 10,
11, 12, 13 and 14.
|
Directors,
Executive Officers and Corporate Governance; Executive
Compensation; Security Ownership of Certain Beneficial Owners
and Management and Related Stockholder Matters; Certain
Relationships and Related Transactions, and Director
Independence; and Principal Accountant Fees and
Services.
|
The information set forth under the captions Security
Ownership of Certain Beneficial Owners and Management,
Nominees for Director, Executive
Officers, Certain Information Concerning the Board
of Directors and Its Committees, Stockholder
Communications with the Board, Director
Compensation, Code of Ethics,
Section 16(a) Beneficial Ownership Reporting
Compliance, Executive Compensation and Other
Information, Ratification of Selection of
Independent Public Accounting Firm included in our
definitive proxy statement to be filed no later than
April 30, 2010, in connection with our 2010 Annual Meeting
of Stockholders is incorporated herein by reference.
PART IV
|
|
Item 15.
|
Exhibits
and Financial Statement Schedules.
|
(a) Financial Statements and Financial Schedules.
|
|
|
|
(l)
|
The consolidated financial statements of Superior Bancorp and
its subsidiaries filed as a part of this Annual Report on
Form 10-K
are listed in Item 8 of this Annual Report on
Form 10-K,
which is hereby incorporated by reference herein.
|
|
|
|
|
(2)
|
All schedules to the consolidated financial statements of
Superior Bancorp and its subsidiaries have been omitted because
they are not required under the related instructions or are
inapplicable, or because the required information has been
provided in the consolidated financial statements or the notes
thereto.
|
(b) Exhibits.
The exhibits required by
Regulation S-K
are set forth in the following list and are filed either by
incorporation by reference from previous filings with the
Securities and Exchange Commission or by attachment to this
Annual Report on
Form 10-K
as indicated below. Prior to May 2006, Superior Bancorp was
named The Banc Corporation. Many of the following
exhibits accordingly reference The Banc Corporation.
|
|
|
(3)-1
|
|
Restated Certificate of Incorporation of Superior Bancorp, filed
as Exhibit 3 to Superior Bancorps Current Report on Form
8-K dated November 19, 2009, is hereby incorporated herein by
reference.
|
(3)-2
|
|
Bylaws of Superior Bancorp, filed as Exhibit 3 to Superior
Bancorps Current Report on Form 8-K dated October 22,
2009, is hereby incorporated herein by reference.
|
(3)-3
|
|
Certificate of Designations of Superior Bancorp Fixed Rate
Cumulative Perpetual Preferred Stock, Series A, filed as Exhibit
3 to Superior Bancorps Current Report on Form 8-K dated
November 26, 2008, is hereby incorporated herein by reference.
|
159
|
|
|
(4)-1
|
|
Amended and Restated Declaration of Trust, dated as of September
7, 2000, by and among State Street Bank and Trust Company of
Connecticut, National Association, as Institutional Trustee, The
Banc Corporation, as Sponsor, David R. Carter and James A.
Taylor, Jr., as Administrators, filed as
Exhibit(4)-1
to The Banc Corporations Annual Report on Form 10-K for
the year ended December 31, 2000, is hereby incorporated
herein by reference.
|
(4)-2
|
|
Guarantee Agreement, dated as of September 7, 2000, by and
between The Banc Corporation and State Street Bank and Trust
Company of Connecticut, National Association, filed as
Exhibit(4)-2 to The Banc Corporations Annual Report on
Form 10-K for the year ended December 31, 2000, is hereby
incorporated herein by reference.
|
(4)-3
|
|
Indenture, dated as of September 7, 2000, by and among The Banc
Corporation as issuer and State Street Bank and Trust Company of
Connecticut, National Association, as Trustee, filed as
Exhibit(4)-3 to The Banc Corporations Annual Report on
Form 10-K for the year ended December 31, 2000, is hereby
incorporated herein by reference.
|
(4)-4
|
|
Placement Agreement, dated as of August 31, 2000, by and among
The Banc Corporation, TBC Capital Statutory Trust II, Keefe
Bruyette & Woods, Inc., and First Tennessee Capital
Markets, filed as Exhibit(4)-4 to The Banc Corporations
Annual Report on Form 10-K for the year ended December 31, 2000,
is hereby incorporated herein by reference.
|
(4)-5
|
|
Amended and Restated Declaration of Trust, dated as of July 16,
2001, by and among The Banc Corporation, The Bank of New York,
David R. Carter, and James A. Taylor, Jr. filed as Exhibit(4)-5
to The Banc Corporations Registration Statement on Form
S-4 (Registration No. 333-69734) is hereby incorporated herein
by reference.
|
(4)-6
|
|
Guarantee Agreement, dated as of July 16, 2001, by The Banc
Corporation and The Bank of New York filed as Exhibit(4)-6 to
The Banc Corporations Registration Statement on Form S-4
(Registration No. 333-69734) is hereby incorporated herein
by reference.
|
(4)-7
|
|
Indenture, dated as of July 16, 2001, by The Banc Corporation
and The Bank of New York filed as Exhibit #(4)-7 to The Banc
Corporations Registration Statement on Form S-4
(Registration
No. 333-69734)
is hereby incorporated herein by reference.
|
(4)-8
|
|
Placement Agreement, dated as of June 28, 2001, among TBC
Capital Statutory Trust III, and The Banc Corporation and
Sandler ONeill & Partners, L.P. filed as Exhibit
#(4)-8 to The Banc Corporations Registration Statement on
Form S-4 (Registration No. 333-69734) is hereby incorporated
herein by reference.
|
(4)-9
|
|
Indenture, dated March 23, 2000, by and between Community
Bancshares, Inc. and The Bank of New York filed as Exhibit
4.4 to Community Bancshares Form 10-Q for the quarter
ended March 31, 2000, is hereby incorporated herein by reference.
|
(4)-10
|
|
Amended and Restated Declaration of Trust, dated March 23, 2000,
by and among The Bank of New York (Delaware), The Bank of
New York, Community Bancshares, Inc. and Community (AL) Capital
Trust I filed as Exhibit 10.1 to Community Bancshares Form
10-Q for the quarter ended March 31, 2000, is hereby
incorporated herein by reference.
|
(4)-11
|
|
Guarantee Agreement, dated March 23, 2000, by and between
Community Bancshares, Inc. and The Bank of New York filed as
Exhibit 10.2 to Community Bancshares Form 10-Q for the
quarter ended March 31, 2000, is hereby incorporated herein by
reference.
|
(4)-12
|
|
Stock Purchase Agreement, dated January 24, 2005, between The
Banc Corporation and the investors named therein, filed as
Exhibit 4-1 to The Banc Corporations Current Report on
Form 8-K dated January 24, 2005, is hereby incorporated herein
by reference.
|
(4)-13
|
|
Registration Rights Agreement, dated January 24, 2005, between
The Banc Corporation and the investors named therein, filed as
Exhibit 4-2 to The Banc Corporations Current Report on
Form 8-K dated January 24, 2005, is hereby incorporated herein
by reference.
|
(4)-14
|
|
Indenture, dated as of December 15, 2005, by and between Peoples
Community Bancshares, Inc. and Wilmington Trust Company, filed
as Exhibit 4.14 to Superior Bancorps Annual Report on Form
10-K for the fiscal year ended December 31, 2007, is hereby
incorporated herein by reference.
|
160
|
|
|
(4)-15
|
|
Placement Agreement, dated as of December 7, 2005, by and among
Peoples Community Bancshares, Inc., Peoples Community Statutory
Trust I, FTN Financial Capital Markets and Keefe, Bruyette
& Woods, Inc, filed as Exhibit 4.15 to Superior
Bancorps Annual Report on Form 10-K for the fiscal year
ended December 31, 2007, is hereby incorporated herein by
reference.
|
(4)-16
|
|
Guarantee Agreement, dated as of December 15, 2005, by and
between Peoples Community Bancshares, Inc. and Wilmington Trust
Company, filed as Exhibit 4.16 to Superior Bancorps Annual
Report on Form 10-K for the fiscal year ended December 31, 2007,
is hereby incorporated herein by reference.
|
(4)-17
|
|
Amended and Restated Declaration of Trust, dated as of December
15, 2005, by and among Wilmington Trust Company, Peoples
Community Bancshares, Inc., Neil D. McCurry, Jr. and Dorothy S.
Barth, filed as Exhibit 4.17 to Superior Bancorps Annual
Report on Form 10-K for the fiscal year ended December 31,
2007, is hereby incorporated herein by reference.
|
(4)-18
|
|
Declaration of Trust, dated July 10, 2007, by and among Superior
Bancorp, Wilmington Trust Company, Mark A. Tarnakow, William H.
Caughran and Rick D. Gardner filed as Exhibit 4.01 to Superior
Bancorps Quarterly Report on Form 10-Q for the quarter
ended September 30, 2007, is hereby incorporated herein by
reference.
|
(4)-19
|
|
Indenture, dated as of July 19, 2007, between Superior Bancorp
and Wilmington Trust Company filed as Exhibit 4.02 to Superior
Bancorps Quarterly Report on Form 10-Q for the quarter
ended September 30, 2007, is hereby incorporated herein by
reference.
|
(4)-20
|
|
Guarantee Agreement, dated as of July 19, 2007, between Superior
Bancorp and Wilmington Trust Company filed as Exhibit 4.03 to
Superior Bancorps Quarterly Report on Form 10-Q for the
quarter ended September 30, 2007, is hereby incorporated herein
by reference.
|
(4)-21
|
|
Placement Agreement, dated July 18, 2007, by and among Superior
Bancorp, FTN Capital Markets and Keefe, Bruyette & Woods,
Inc. filed as Exhibit 4.04 to Superior Bancorps Quarterly
Report on
Form 10-Q
for the quarter ended September 30, 2007, is hereby incorporated
herein by reference.
|
(4)-22
|
|
Summary Description of Non-Employee Directors Stock Plan., filed
as Exhibit 4 to Superior Bancorps Registration Statement
on Form S-8, dated May 30, 2006 (Registration No. 333-134561),
and is hereby incorporated herein by reference.
|
(4)-23
|
|
Amended and Restated Declaration of Trust and Trust Agreement,
dated as of December 11, 2009, by and among Superior Bancorp,
The Bank of New York Mellon Trust Company, N.A., BNY Mellon
Trust of Delaware, James A. White, and William H. Caughran.
|
(4)-24
|
|
Indentures, dated as of December 11, 2009, by Superior Bancorp
and The Bank of New York Mellon Trust Company, N.A.
|
(4)-25
|
|
First Supplemental Indenture, dated as of December 11, 2009,
between Superior Bancorp and The Bank of New York Mellon Trust
Company, N.A.
|
(4)-26
|
|
Guarantee Agreement, dated as of December 11, 2009, between
Superior Bancorp and The Bank of New York Mellon Trust
Company, N.A.
|
(10)-1*
|
|
Third Amended and Restated 1998 Stock Incentive Plan of The Banc
Corporation, filed as
Exhibit (10)-1
to The Banc Corporations Annual Report on Form 10-K for
the fiscal year ended December 31, 2005, is hereby incorporated
herein by reference.
|
(10)-2*
|
|
Commerce Bank of Alabama Incentive Stock Compensation Plan,
filed as Exhibit(4)-3 to The Banc Corporations
Registration Statement on Form S-8, dated February 22, 1999
(Registration
No. 333-72747),
is hereby incorporated herein by reference.
|
(10)-3*
|
|
Employment Agreement, dated January 24, 2005, by and between The
Banc Corporation, The Bank and C. Stanley Bailey, filed as
Exhibit 10-5 to The Banc Corporations Current Report on
Form 8-K dated January 24, 2005, is hereby incorporated herein
by reference.
|
(10)-4*
|
|
Employment Agreement, dated January 24, 2005, by and between The
Banc Corporation, The Bank and C. Marvin Scott, filed as Exhibit
10-6 to The Banc Corporations Current Report on Form 8-K
dated January 24, 2005, is hereby incorporated herein by
reference.
|
(10)-5*
|
|
Employment Agreement, dated January 24, 2005, by and between The
Banc Corporation, The Bank and Rick D. Gardner, filed as Exhibit
10-7 to The Banc Corporations Current Report on Form 8-K
dated January 24, 2005, is hereby incorporated herein by
reference.
|
161
|
|
|
(10)-6*
|
|
Agreement between Superior Bank and William H. Caughran, dated
August 31, 2006, filed as Exhibit 10.4 to Amendment No. 1 to
Superior Bancorps Registration Statement on Form S-4
(Registration No. 333-136419) is hereby incorporated herein
by reference.
|
(10)-7*
|
|
Management Incentive Compensation Plan, filed as Exhibit 10.1 to
The Banc Corporations Current Report on Form 8-K, dated
April 26, 2005, is hereby incorporated herein by reference.
|
(10)-8*
|
|
Change in Control Agreement, dated March 10, 2008, by and among
Superior Bancorp, Superior Bank and William H. Caughran, filed
as Exhibit 10.22 to Superior Bancorps Annual Report on
Form 10-K for the fiscal year ended December 31, 2007, is hereby
incorporated herein by reference.
|
(10)-9
|
|
Loan Agreement, dated as of September 4, 2008, between Superior
Bancorp and Colonial Bank, filed as Exhibit 10.1 to Superior
Bancorps Quarterly Report on Form 10-Q for the quarter
ended September 30, 2008, is hereby incorporated herein by
reference.
|
(10)-10
|
|
Revolving Credit Note, dated September 4, 2008, between Superior
Bancorp and Colonial Bank,, filed as Exhibit 10.2 to Superior
Bancorps Quarterly Report on Form 10-Q for the quarter
ended September 30, 2008, is hereby incorporated herein by
reference.
|
(10)-11
|
|
Stock Pledge Agreement, dated as of September 4, 2008, given by
Superior Bancorp, filed as Exhibit 10.3 to Superior
Bancorps Quarterly Report on Form 10-Q for the quarter
ended September 30, 2008, is hereby incorporated herein by
reference.
|
(10)-12
|
|
Agreement to Purchase Subordinated Notes, dated as of September
17, 2008, by and among Superior Bank, Superior Bancorp and
Durden Enterprises, LLC, filed as Exhibit 10.4 to Superior
Bancorps Quarterly Report on Form 10-Q for the quarter
ended September 30, 2008, is hereby incorporated herein by
reference.
|
(10)-13
|
|
Letter to Durden Enterprises, LLC, dated as of September 17,
2008, filed as Exhibit 10.5 to Superior Bancorps Quarterly
Report on Form 10-Q for the quarter ended September 30, 2008, is
hereby incorporated herein by reference.
|
(10)-14
|
|
9.5% Subordinated Note Due September 15, 2018 given by
Superior Bank, filed as Exhibit 10.6 to Superior Bancorps
Quarterly Report on Form 10-Q for the quarter ended September
30, 2008, is hereby incorporated herein by reference.
|
(10)-15
|
|
Warrant to Purchase Common Stock of Superior Bancorp dated as of
September 17, 2008, filed as Exhibit 10.7 to Superior
Bancorps Quarterly Report on Form 10-Q for the quarter
ended September 30, 2008, is hereby incorporated herein by
reference.
|
(10)-16*
|
|
Agreement, dated as of September 8, 2008, between Superior
Bancorp and James A. White, filed as Exhibit 10.8 to Superior
Bancorps Quarterly Report on Form 10-Q for the quarter
ended September 30, 2008, is hereby incorporated herein by
reference.
|
(10)-17*
|
|
Change in Control Agreement, dated as of September 8, 2008, by
and among Superior Bancorp, Superior Bank and James A. White,
filed as Exhibit 10.8 to Superior Bancorps Quarterly
Report on Form 10-Q for the quarter ended September 30, 2008, is
hereby incorporated herein by reference.
|
(10)-18
|
|
Warrant, dated December 5, 2008, to purchase up to
1,923,792 shares of common stock of Superior Bancorp, filed
as Exhibit 3 to Superior Bancorps Current Report on Form
8-K dated December 5, 2008, is hereby incorporated herein by
reference.
|
(10)-19
|
|
Letter Agreement, dated December 5, 2008, including Securities
Purchase Agreement Standard Terms incorporated
by reference therein, between the Company and the United States
Department of the Treasury, filed as Exhibit 10.1 to Superior
Bancorps Current Report on Form 8-K dated December 5,
2008, is hereby incorporated herein by reference.
|
(10)-20
|
|
Form of Waiver, executed as of December 5, 2008, by each of the
Senior Executive Officers of Superior Bancorp, filed as Exhibit
10.2 to Superior Bancorps Current Report on Form 8-K dated
December 5, 2008, is hereby incorporated herein by reference.
|
(10)-21
|
|
Form of Letter Agreement, executed as of December 5, 2008, by
each of the Senior Executive Officers of Superior Bancorp, filed
as Exhibit 10.3 to Superior Bancorps Current Report on
Form 8-K dated December 5, 2008, is hereby incorporated herein
by reference.
|
(10)-22*
|
|
Superior Bancorp 2008 Incentive Compensation Plan, filed as
Exhibit 10.1 to Superior Bancorps Quarterly Report on Form
10-Q for the quarter ended June 30, 2008, is hereby incorporated
herein by reference.
|
162
|
|
|
(10)-23*
|
|
Amended and Restated Employment Agreement, dated
December 29, 2008, between Superior Bancorp and C. Stanley
Bailey, filed as Exhibit 10.23 to Superior Bancorps
Annual Report on
Form 10-K
for the year ended December 31, 2008, is hereby
incorporated herein by reference.
|
(10)-24*
|
|
Amended and Restated Employment Agreement, dated
December 29, 2008, between Superior Bancorp and C. Marvin
Scott, filed as Exhibit 10.24 to Superior Bancorps
Annual Report on
Form 10-K
for the year ended December 31, 2008, is hereby
incorporated herein by reference.
|
(10)-25*
|
|
Amended and Restated Employment Agreement, dated
December 29, 2008, between Superior Bancorp and Rick D.
Gardner, filed as Exhibit 10.25 to Superior Bancorps
Annual Report on
Form 10-K
for the year ended December 31, 2008, is hereby
incorporated herein by reference.
|
(10)-26*
|
|
Amendment to Third Amended and Restated 1998 Stock Incentive
Plan of The Banc Corporation, filed as Exhibit 10.26 to
Superior Bancorps Annual Report on
Form 10-K
for the year ended December 31, 2008, is hereby
incorporated herein by reference.
|
(10)-27*
|
|
Agreement, dated as of January 1, 2006, between The Banc
Corporation and James Mailon Kent, Jr., field as
Exhibit 10.27 to Superior Bancorps Annual Report on
Form 10-K
for the year ended December 31, 2008, is hereby
incorporated herein by reference.
|
(10)-28*
|
|
Amendment to Agreement, dated as of November 3, 2008,
between Superior Bancorp and James Mailon Kent, Jr., filed as
Exhibit 10.28 to Superior Bancorps Annual Report on
Form 10-K
for the year ended December 31, 2008, is hereby
incorporated herein by reference.
|
(10)-29
|
|
Exchange Agreement, dated as of December 11, 2009, by and among
Superior Bancorp, Superior Capital Trust II and The United
States Department of the Treasury.
|
(10)-30
|
|
Exchange Agreement and Plan of Reorganization, dated as of
January 15, 2010, by and among Superior Bancorp, Superior
Holdings, LLC, and Cambridge Savings bank.
|
(10)-31
|
|
Exchange Agreement and Plan of Reorganization, dated as of
January 15, 2010, by and among Superior Bancorp, Superior
Holdings, LLC, and KBW, Inc.
|
(21)
|
|
Subsidiaries of Superior Bancorp.
|
(23)
|
|
Consent of Grant Thornton, LLP.
|
(31)
|
|
Certifications of Chief Executive Officer and Principal
Financial Officer pursuant to Rule 13a-14(a).
|
(32)
|
|
Certifications of Chief Executive Officer and Principal
Financial Officer pursuant to 18 U.S.C. Section 1350.
|
(99)
|
|
Certifications of Chief Executive Officer and Principal
Financial Officer pursuant to 12 U.S.C. Section 5221
|
|
|
|
* |
|
Compensatory plan or arrangement |
|
(c) |
|
Financial Statement Schedules. |
The Financial Statement Schedules required to be filed with this
Annual Report on
Form 10-K
are listed under Financial Statement Schedules in
Part IV, Item 15(a)(2) of this Annual Report on
Form 10-K,
and are incorporated herein by reference.
163
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
SUPERIOR BANCORP
C. Stanley Bailey
Chief Executive Officer
March 11, 2010
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints C. Stanley Bailey and
James A. White, and each of them, the true and lawful agents and
his attorneys-in-fact with full power and authority in either of
said agents and attorneys-in-fact, acting singly, to sign for
the undersigned as Director or an officer of the Corporation, or
as both, the Corporations 2009 Annual Report on
Form 10-K
to be filed with the Securities and Exchange Commission,
Washington, D.C. under the Securities Exchange Act of 1934,
and to sign any amendment or amendments to such Annual Report,
including an Annual Report pursuant to
11-K to be
filed as an amendment to the
Form 10-K;
hereby ratifying and confirming all acts taken by such agents
and attorneys-in-fact as herein authorized.
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the Registrant and in the capacities and on the
date indicated.
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ C.
Stanley
Bailey C.
Stanley Bailey
|
|
Chairman of the Board and Chief
Executive Officer (Principal Executive Officer) and Director
|
|
March 11, 2010
|
|
|
|
|
|
/s/ James
A.
White James
A. White
|
|
Chief Financial Officer (Principal
Financial Officer)
|
|
March 11, 2010
|
|
|
|
|
|
/s/ James
C. Gossett
James
C. Gossett
|
|
Chief Accounting Officer (Principal
Accounting Officer)
|
|
March 11, 2010
|
|
|
|
|
|
/s/ Roger
Barker
Roger
Barker
|
|
Director
|
|
March 11, 2010
|
|
|
|
|
|
/s/ Thomas
E. Dobbs, Jr.
Thomas
E. Dobbs, Jr.
|
|
Director
|
|
March 11, 2010
|
|
|
|
|
|
/s/ K.
Earl Durden
K.
Earl Durden
|
|
Director
|
|
March 11, 2010
|
|
|
|
|
|
/s/ Rick
D. Gardner
Rick
D. Gardner
|
|
Director and Vice Chairman
|
|
March 11, 2010
|
|
|
|
|
|
/s/ Thomas
E. Jernigan, Jr.
Thomas
E. Jernigan, Jr.
|
|
Director
|
|
March 11, 2010
|
|
|
|
|
|
/s/ James
Mailon Kent, Jr.
James
Mailon Kent, Jr.
|
|
Director
|
|
March 11, 2010
|
164
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ Mark
A. Lee
Mark
A. Lee
|
|
Director
|
|
March 11, 2010
|
|
|
|
|
|
/s/ Peter
L. Lowe
Peter
L. Lowe
|
|
Director
|
|
March 11, 2010
|
|
|
|
|
|
/s/ John
C. Metz
John
C. Metz
|
|
Director
|
|
March 11, 2010
|
|
|
|
|
|
/s/ D.
Dewey Mitchell
D.
Dewey Mitchell
|
|
Director
|
|
March 11, 2010
|
|
|
|
|
|
/s/ Robert
R. Parrish, Jr.
Robert
R. Parrish, Jr.
|
|
Director
|
|
March 11, 2010
|
|
|
|
|
|
/s/ Charles
W. Roberts, III
Charles
W. Roberts, III
|
|
Director
|
|
March 11, 2010
|
|
|
|
|
|
/s/ C.
Marvin Scott
C.
Marvin Scott
|
|
Director and Vice Chairman
|
|
March 11, 2010
|
|
|
|
|
|
/s/ James
C. White, Sr.
James
C. White, Sr.
|
|
Director
|
|
March 11, 2010
|
165