e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE QUARTERLY PERIOD ENDED March 31, 2010
OR
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE TRANSITION PERIOD FROM TO
Commission File number 0-25033
Superior Bancorp
(Exact Name of Registrant as Specified in its Charter)
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Delaware
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63-1201350 |
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(State or Other Jurisdiction of Incorporation)
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(IRS Employer Identification No.) |
17
North 20th Street, Birmingham, Alabama 35203
(Address of Principal Executive Offices)
(205) 327-1400
(Registrants Telephone Number, Including Area Code)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes þ No o
Indicate by check mark whether the registrant 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 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 o
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Smaller reporting company þ |
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(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
Yes o No þ
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of
the latest practicable date.
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Class
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Outstanding as of May 7, 2010 |
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Common stock, $.001 par value
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12,560,457 |
SUPERIOR BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands, except per share data)
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March 31, |
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December 31, |
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2010 |
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2009 |
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(Unaudited) |
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ASSETS
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Cash and due from banks |
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$ |
50,529 |
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$ |
74,020 |
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Interest-bearing deposits in other banks |
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113,531 |
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23,714 |
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Federal funds sold |
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2,129 |
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2,036 |
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Total cash and cash equivalents |
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166,189 |
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99,770 |
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Investment securities available-for-sale |
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324,823 |
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286,310 |
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Tax lien certificates |
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15,832 |
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19,292 |
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Mortgage loans held-for-sale |
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54,367 |
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71,879 |
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Loans, net of unearned income |
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2,505,465 |
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2,472,697 |
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Allowance for loan losses |
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(43,190 |
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(41,884 |
) |
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Net loans |
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2,462,275 |
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2,430,813 |
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Premises and equipment, net |
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102,485 |
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104,022 |
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Accrued interest receivable |
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15,181 |
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15,581 |
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Stock in FHLB |
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18,212 |
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18,212 |
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Cash surrender value of life insurance |
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50,616 |
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50,142 |
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Core deposit and other intangible assets |
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15,720 |
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16,694 |
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Other real estate |
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46,679 |
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41,618 |
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Other assets |
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71,978 |
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67,536 |
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Total assets |
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$ |
3,344,357 |
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$ |
3,221,869 |
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LIABILITIES AND STOCKHOLDERS EQUITY
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Deposits: |
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Noninterest-bearing |
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$ |
263,546 |
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$ |
257,744 |
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Interest-bearing |
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2,489,832 |
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2,398,829 |
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Total deposits |
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2,753,378 |
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2,656,573 |
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Advances from FHLB |
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218,323 |
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218,322 |
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Security repurchase agreements |
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1,201 |
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841 |
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Notes payable |
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46,032 |
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45,917 |
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Subordinated debentures, net |
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84,413 |
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84,170 |
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Accrued expenses and other liabilities |
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53,857 |
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24,342 |
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Total liabilities |
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3,157,204 |
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3,030,165 |
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Commitments and contingencies |
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Stockholders equity: |
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Preferred stock, par value $.001 per share; shares authorized 5,000,000: |
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Series A, fixed rate cumulative perpetual preferred stock, -0- shares
issued and outstanding as of March 31, 2010 and December 31, 2009,
respectively |
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Common stock, par value $.001 per share; shares authorized 200,000,000;
shares issued 11,687,406 and 11,673,837, respectively; outstanding
11,687,406 and 11,667,794, respectively |
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12 |
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12 |
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Surplus warrants |
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8,646 |
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8,646 |
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common |
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322,189 |
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322,043 |
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Accumulated deficit |
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(136,630 |
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(130,889 |
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Accumulated other comprehensive loss |
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(6,829 |
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(7,825 |
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Unearned ESOP stock |
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(219 |
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(263 |
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Unearned restricted stock |
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(16 |
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(20 |
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Total stockholders equity |
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187,153 |
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191,704 |
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Total liabilities and stockholders equity |
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$ |
3,344,357 |
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$ |
3,221,869 |
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See Notes to Condensed Consolidated Financial Statements.
3
SUPERIOR BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(Dollars in thousands, except per share data)
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Three Months Ended |
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March 31, |
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2010 |
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2009 |
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Interest income: |
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Interest and fees on loans |
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$ |
36,342 |
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$ |
34,952 |
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Interest on taxable securities |
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2,911 |
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4,009 |
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Interest on tax-exempt securities |
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312 |
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428 |
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Interest on federal funds sold |
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1 |
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5 |
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Interest and dividends on other investments |
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372 |
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362 |
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Total interest income |
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39,938 |
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39,756 |
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Interest expense: |
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Interest on deposits |
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11,525 |
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14,893 |
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Interest on other borrowed funds |
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2,522 |
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2,342 |
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Interest on subordinated debentures |
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2,386 |
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1,193 |
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Total interest expense |
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16,433 |
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18,428 |
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Net interest income |
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23,505 |
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21,328 |
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Provision for loan losses |
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9,127 |
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3,452 |
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Net interest income after provision for loan losses |
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14,378 |
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17,876 |
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Noninterest income: |
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Service charges and fees on deposits |
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2,216 |
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2,387 |
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Mortgage banking income |
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2,010 |
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1,691 |
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Investment securities losses |
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Total other-than-temporary impairment losses (OTTI) |
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(200 |
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(10,504 |
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Portion of OTTI recognized in other comprehensive
loss |
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2 |
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4,659 |
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Investment securities loss |
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(198 |
) |
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(5,845 |
) |
Change in fair value of derivatives |
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210 |
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(199 |
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Increase in cash surrender value of life insurance |
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568 |
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515 |
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Other income |
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1,406 |
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1,216 |
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Total noninterest income (loss) |
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6,212 |
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(235 |
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Noninterest expenses: |
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Salaries and employee benefits |
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14,200 |
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12,309 |
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Occupancy, furniture and equipment |
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4,763 |
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4,416 |
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Amortization of core deposit intangibles |
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870 |
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985 |
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FDIC assessments |
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1,380 |
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457 |
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Foreclosure losses |
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2,577 |
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569 |
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Other expenses |
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6,019 |
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5,327 |
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Total noninterest expenses |
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29,809 |
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24,063 |
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Loss before income taxes |
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(9,219 |
) |
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(6,422 |
) |
Income tax benefit |
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(3,479 |
) |
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(2,848 |
) |
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Net loss |
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(5,740 |
) |
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(3,574 |
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Preferred stock dividends and amortization |
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1,143 |
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Net loss applicable to common stockholders |
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$ |
(5,740 |
) |
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$ |
(4,717 |
) |
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Weighted average common shares outstanding |
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11,645 |
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|
10,053 |
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Weighted average common shares outstanding, assuming dilution |
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11,645 |
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10,053 |
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Basic net loss per common share |
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$ |
(0.49 |
) |
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$ |
(0.47 |
) |
Diluted net loss per common share |
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$ |
(0.49 |
) |
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$ |
(0.47 |
) |
See Notes to Condensed Consolidated Financial Statements.
4
SUPERIOR BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED)
(Dollars in thousands)
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Three Months Ended |
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March 31, |
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2010 |
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2009 |
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Net cash provided by (used in) operating activities |
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$ |
20,226 |
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$ |
(14,082 |
) |
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Investing activities |
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Proceeds from maturities of investment securities available-for-sale |
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29,989 |
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15,335 |
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Purchase of investment securities available-for-sale |
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(37,262 |
) |
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(5,290 |
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Net increase in loans |
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(52,596 |
) |
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(54,732 |
) |
Redemptions of tax lien certificates |
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4,236 |
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7,401 |
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Purchase of tax lien certificates |
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(776 |
) |
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(2,419 |
) |
Purchase of premises and equipment |
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(234 |
) |
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(3,365 |
) |
Proceeds from sale of premises and equipment |
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77 |
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Proceeds from sale of foreclosed assets |
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5,720 |
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1,993 |
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Decrease in stock of FHLB |
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2,074 |
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Net cash used in investing activities |
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(50,923 |
) |
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(38,926 |
) |
Financing activities |
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Net increase in deposits |
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96,785 |
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164,809 |
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Decrease in FHLB advances |
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(119,890 |
) |
Proceeds from note payable |
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38,575 |
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Net increase in other borrowed funds |
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331 |
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Cash dividends paid |
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(672 |
) |
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Net cash provided by financing activities |
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97,116 |
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82,822 |
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Net increase in cash and cash equivalents |
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66,419 |
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|
29,814 |
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Cash and cash equivalents at beginning of period |
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99,770 |
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89,448 |
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Cash and cash equivalents at end of period |
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$ |
166,189 |
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$ |
119,262 |
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See Notes to Condensed Consolidated Financial Statements.
5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 1 Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in
accordance with the instructions for Form 10-Q, and therefore, do not include all information and
footnotes necessary for a fair presentation of financial position, results of operations and cash
flows in conformity with generally accepted accounting principles. For a summary of significant
accounting policies that have been consistently followed, see Note 1 to the Consolidated Financial
Statements included in Superior Bancorps (the Corporations) Annual Report on Form 10-K for the
year ended December 31, 2009. It is managements opinion that all adjustments, consisting of only
normal and recurring items necessary for a fair presentation, have been included in these condensed
consolidated financial statements. Operating results for the three-month period ended March 31,
2010, are not necessarily indicative of the results that may be expected for the year ending
December 31, 2010.
The Condensed Consolidated Statement of Financial Condition as of December 31, 2009, presented
herein has been derived from the financial statements audited by Grant Thornton LLP, independent
registered public accountants, as indicated in their report, dated March 11, 2010, included in our
Annual Report on Form 10-K. The Condensed Consolidated Financial Statements do not include all of
the information and footnotes required by generally accepted accounting principles for complete
financial statements.
Reclassifications
Certain reclassifications have been made in the previously reported financial statements and
accompanying notes to make the prior year amounts comparable to those of the current year. Such
reclassifications had no effect on previously reported net income or stockholders equity.
Note 2 Recent Accounting Pronouncements
In June, 2009 the Financial Accounting Standards Board (FASB) issued Accounting Standards
Codification (ASC) 860 - Accounting for Transfers of Financial Assets (Topic 860). Topic 860
is a revision to preceding guidance and requires more information about transfers of financial
assets, including securitization transactions, and where entities have continuing exposure to the
risks related to transferred financial assets. It eliminates the concept of a qualifying special
purpose entity, changes the requirements for derecognizing financial assets, and requires
additional disclosures. In December 2009, the FASB issued Accounting Standards Update (ASU) No.
2009-16 Transfers and Servicing Accounting for Transfers of Financial Assets (ASU 2009 -16).
This update formally codifies FASB Statement No. 166, Accounting for Transfers of Financial Assets
and provides a revision for Topic 860 to require more information about transfers of financial
assets. This statement and update became effective for interim and annual reporting periods
beginning January 1, 2010. The adoption of this statement and update did not have a material
impact on the Corporations consolidated financial statements.
In December 2009, FASB issued ASU No. 2009-17 Consolidation Improvements to Financial Reporting
by Enterprises Involved with Variable Interest Entities (ASU 2009-17). ASU 2009-17 amends the
consolidation guidance applicable to variable interest entities. The amendments to the
consolidation guidance affect all entities, as well as qualifying special-purpose entities that
were previously excluded from previous consolidation guidance. ASU 2009-17 became effective as of
the beginning of the first annual reporting period that began after November 15, 2009. The
adoption of the update did not have a significant impact on the Corporations ongoing financial
position or results of operations.
In January 2010, FASB issued ASU No. 2010-06 Fair Value Measurements and Disclosures Improving
Disclosures about Fair Value Measurements (ASU 2010-06). This Update provides amendments to
Subtopic 820-10, Fair Value Measurements and Disclosures, that require new disclosures for
transfers in and out of Levels 1 and 2, and for activity in Level 3 fair value measurements. In
addition, this Update provides amendments that clarify existing disclosures relating to the level
of disaggregation and inputs and valuation techniques. Fair value measurement disclosures should
be provided for each class of assets and liabilities, and disclosures should be made about the
valuation techniques and inputs used to measure fair value for both recurring and nonrecurring
measurements that fall in either Level 2 or Level 3. The new disclosures and clarification of
existing disclosures are effective for interim and annual reporting
6
periods beginning after December 15, 2009. The Corporation adopted these disclosure requirements
of ASU 2010-06 as of January 1, 2010. The adoption of this update did not have an impact to the
Corporations financial position, results of operations or cash flows (See Note 11). The
disclosures about purchases, sales, issuances and settlements in the roll forward activity of
activity in the Level 3 fair value measurements will become effective for fiscal years beginning
after December 15, 2010, and for interim periods within those fiscal years.
Note 3 Investment Securities
The amortized cost and estimated fair values of investment securities as of March 31, 2010 are
shown below:
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Gross |
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Gross |
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Amortized |
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Unrealized |
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Unrealized |
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Estimated |
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Cost |
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Gains |
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Losses |
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Fair Value |
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(Dollars in thousands) |
|
Investment securities available-for-sale |
|
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|
|
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|
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|
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|
U.S. Agency securities |
|
$ |
37,105 |
|
|
$ |
93 |
|
|
$ |
318 |
|
|
$ |
36,880 |
|
Mortgage-backed securities (MBS): |
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|
|
|
|
|
|
|
|
|
|
|
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|
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U.S. Agency pass-through |
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|
176,551 |
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|
3,111 |
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|
|
209 |
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|
|
179,453 |
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U.S. Agency collateralized mortgage obligation (CMO) |
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|
52,318 |
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|
|
174 |
|
|
|
164 |
|
|
|
52,328 |
|
Private-label CMO |
|
|
17,973 |
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|
|
181 |
|
|
|
2,958 |
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|
15,196 |
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Total MBS |
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246,842 |
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|
|
3,466 |
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|
|
3,331 |
|
|
|
246,977 |
|
State, county and municipal securities |
|
|
31,216 |
|
|
|
331 |
|
|
|
372 |
|
|
|
31,175 |
|
Corporate obligations: |
|
|
|
|
|
|
|
|
|
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|
|
|
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|
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Corporate debt |
|
|
4,120 |
|
|
|
|
|
|
|
120 |
|
|
|
4,000 |
|
Pooled trust preferred securities |
|
|
8,180 |
|
|
|
|
|
|
|
4,809 |
|
|
|
3,371 |
|
Single issue trust preferred securities |
|
|
5,000 |
|
|
|
|
|
|
|
2,938 |
|
|
|
2,062 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total corporate obligations |
|
|
17,300 |
|
|
|
|
|
|
|
7,867 |
|
|
|
9,433 |
|
Equity securities |
|
|
563 |
|
|
|
|
|
|
|
205 |
|
|
|
358 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities available-for-sale |
|
$ |
333,026 |
|
|
$ |
3,890 |
|
|
$ |
12,093 |
|
|
$ |
324,823 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities with an amortized cost of $241.9 million as of March 31, 2010 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 as of March 31, 2010, 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 |
|
|
$ |
280 |
|
Due after one year through five years |
|
|
7,286 |
|
|
|
7,212 |
|
Due after five years through ten years |
|
|
41,958 |
|
|
|
41,780 |
|
Due after ten years |
|
|
36,660 |
|
|
|
28,574 |
|
Mortgage-backed securities |
|
|
246,842 |
|
|
|
246,977 |
|
|
|
|
|
|
|
|
|
|
$ |
333,026 |
|
|
$ |
324,823 |
|
|
|
|
|
|
|
|
There were no sales of available-for-sale securities during the three-month periods ended March 31,
2010 and 2009. In April 2010, the Corporation sold certain U.S Agency MBS with combined amortized
cost and market values of $79.2 million and $80.7 million, respectively. The Corporation
reinvested a portion of the proceeds into a like amount of U. S Agency MBS guaranteed by Government National Mortgage Association (Ginnie Mae). This repositioning is expected to reduce the duration of the portfolio and improve risk-based
capital. In addition, the Corporation will realize a net gain of approximately $1.4 million. A
portion of these securities had impairment losses of approximately $0.2 million, which management
realized in the first quarter.
7
The following table summarizes the investment securities with unrealized losses as of March 31,
2010 by aggregated major security type and length of time in a continuous unrealized loss position:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 Months |
|
More than 12 Months |
|
Total |
|
|
Fair |
|
Unrealized |
|
Fair |
|
Unrealized |
|
Fair |
|
Unrealized |
|
|
Value |
|
Losses (1) |
|
Value |
|
Losses (1) |
|
Value |
|
Losses (1) |
|
|
(Dollars in thousands) |
Temporarily Impaired |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Agency securities |
|
$ |
22,998 |
|
|
$ |
318 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
22,998 |
|
|
$ |
318 |
|
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Agency pass-through |
|
|
13,955 |
|
|
|
201 |
|
|
|
239 |
|
|
|
8 |
|
|
|
14,194 |
|
|
|
209 |
|
U.S. Agency CMO |
|
|
9,969 |
|
|
|
164 |
|
|
|
|
|
|
|
|
|
|
|
9,969 |
|
|
|
164 |
|
Private-label CMO |
|
|
|
|
|
|
|
|
|
|
11,215 |
|
|
|
1,337 |
|
|
|
11,215 |
|
|
|
1,337 |
|
|
|
|
|
|
|
|
Total MBS |
|
|
23,924 |
|
|
|
365 |
|
|
|
11,454 |
|
|
|
1,345 |
|
|
|
35,378 |
|
|
|
1,710 |
|
State, county and municipal securities |
|
|
8,581 |
|
|
|
196 |
|
|
|
2,061 |
|
|
|
176 |
|
|
|
10,642 |
|
|
|
372 |
|
Corporate obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt |
|
|
|
|
|
|
|
|
|
|
4,000 |
|
|
|
120 |
|
|
|
4,000 |
|
|
|
120 |
|
Single issue trust preferred securities |
|
|
|
|
|
|
|
|
|
|
2,062 |
|
|
|
2,938 |
|
|
|
2,062 |
|
|
|
2,938 |
|
|
|
|
|
|
|
|
Total corporate obligations |
|
|
|
|
|
|
|
|
|
|
6,062 |
|
|
|
3,058 |
|
|
|
6,062 |
|
|
|
3,058 |
|
Equity securities |
|
|
|
|
|
|
|
|
|
|
358 |
|
|
|
205 |
|
|
|
358 |
|
|
|
205 |
|
|
|
|
|
|
|
|
Total temporarily impaired securities |
|
|
55,503 |
|
|
|
879 |
|
|
|
19,935 |
|
|
|
4,784 |
|
|
|
75,438 |
|
|
|
5,663 |
|
Other-than-temporarily Impaired |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private-label CMO |
|
|
|
|
|
|
|
|
|
|
3,017 |
|
|
|
1,621 |
|
|
|
3,017 |
|
|
|
1,621 |
|
Corporate obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pooled trust preferred securities |
|
|
|
|
|
|
|
|
|
|
3,371 |
|
|
|
4,809 |
|
|
|
3,371 |
|
|
|
4,809 |
|
|
|
|
|
|
|
|
Total OTTI securities |
|
|
|
|
|
|
|
|
|
|
6,388 |
|
|
|
6,430 |
|
|
|
6,388 |
|
|
|
6,430 |
|
|
|
|
|
|
|
|
Total temporarily and other-than-temporarily impaired |
|
$ |
55,503 |
|
|
$ |
879 |
|
|
$ |
26,323 |
|
|
$ |
11,214 |
|
|
$ |
81,826 |
|
|
$ |
12,093 |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Unrealized losses are included in other comprehensive loss, net of unrealized gains and
applicable income taxes. |
8
The following is a summary of the total count by category of investment securities with gross
unrealized losses as of March 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than |
|
Greater Than |
|
|
|
|
12 Months |
|
12 Months |
|
Total |
Temporarily Impaired |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Agency securities |
|
|
4 |
|
|
|
|
|
|
|
4 |
|
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Agency pass-through |
|
|
3 |
|
|
|
1 |
|
|
|
4 |
|
U.S. Agency CMO |
|
|
1 |
|
|
|
|
|
|
|
1 |
|
Private-label CMO |
|
|
|
|
|
|
7 |
|
|
|
7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total MBS |
|
|
4 |
|
|
|
8 |
|
|
|
12 |
|
State, county and municipal securities |
|
|
24 |
|
|
|
7 |
|
|
|
31 |
|
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 |
|
|
32 |
|
|
|
22 |
|
|
|
54 |
|
Other-than-temporarily Impaired |
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
Private-label CMO |
|
|
|
|
|
|
1 |
|
|
|
1 |
|
Corporate obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
Pooled trust preferred securities |
|
|
|
|
|
|
4 |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total OTTI securities |
|
|
|
|
|
|
5 |
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total temporarily and other-than-temporarily impaired |
|
|
32 |
|
|
|
27 |
|
|
|
59 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other-Than-Temporary
Impairment (OTTI)
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.
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
9
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.
As of March 31, 2010, our securities portfolio consisted of 225 securities, 59 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
As of March 31, 2010, approximately 94% of the dollar volume of mortgage-backed securities we held
was issued by U.S. government-sponsored entities and agencies, primarily the Federal National
Mortgage Association (Fannie Mae), Federal Home Loan Mortgage Corporation (Freddie Mac) and
Ginnie Mae, institutions which the government has
affirmed its commitment to support, and these securities have nominal unrealized losses. Our
mortgage-backed securities portfolio also includes 10 private-label CMOs with a market value of
$15.2 million, which had net unrealized losses of approximately $2.8 million as of March 31, 2010.
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 |
|
|
Net |
|
Rating |
|
|
|
|
|
Coverage |
|
|
Unrealized |
|
Moody/Fitch |
|
Count |
|
|
Ratios (1) |
|
|
(Loss) Gain |
|
A1/NR |
|
|
1 |
|
|
|
3.04 |
|
|
$ |
(114 |
) |
Aaa/NR |
|
|
1 |
|
|
|
3.76 |
|
|
|
(1 |
) |
NR/AAA |
|
|
1 |
|
|
|
3.04 |
|
|
|
(154 |
) |
NR/AA |
|
|
1 |
|
|
|
2.90 |
|
|
|
(313 |
) |
Baa2-/AA |
|
|
1 |
|
|
|
N/A |
|
|
|
(582 |
) |
B2-/NR |
|
|
1 |
|
|
|
4.09 |
|
|
|
(116 |
) |
NR/BBB |
|
|
1 |
|
|
|
2.62 |
|
|
|
(57 |
) |
Caa1-/CCC (2) |
|
|
1 |
|
|
|
1.24 |
|
|
|
(1,621 |
) |
NR/C (2) |
|
|
2 |
|
|
|
0.08 - 0.36 |
|
|
|
181 |
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
10 |
|
|
|
|
|
|
$ |
(2,777 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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. |
10
During the first quarter of 2010, the Corporation recognized an immaterial amount of OTTI on one of
the private-label CMOs. 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. As of
March 31, 2010, the fair values of the three private-label CMO securities with OTTI totaling $4.0
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. 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 11 for additional disclosure).
The following table provides additional information regarding these CMO valuations as of March 31,
2010 (Dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year-to-Date |
|
|
|
|
|
|
|
|
|
|
Margin |
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual |
|
OTTI |
|
|
Price |
|
Basis |
|
|
|
|
|
Cumulative |
|
Average |
|
60+ Days |
|
Credit |
|
|
|
|
Security |
|
(%) |
|
Points |
|
Yield |
|
Default |
|
Security |
|
Delinquent |
|
Portion |
|
Other |
|
Total |
CMO 1
|
|
|
18.45 |
|
|
|
1710 |
|
|
|
18 |
% |
|
|
58.33 |
% |
|
|
50 |
% |
|
|
9.30 |
% |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
CMO 2
|
|
|
20.30 |
|
|
|
1608 |
|
|
|
17 |
% |
|
|
49.07 |
% |
|
|
45 |
% |
|
|
28.33 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
CMO 4
|
|
|
60.34 |
|
|
|
1387 |
|
|
|
17 |
% |
|
|
27.16 |
% |
|
|
45 |
% |
|
|
15.82 |
% |
|
|
(21 |
) |
|
|
|
|
|
|
(21 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$(21 |
) |
|
|
$ |
|
|
|
$(21 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the first quarter of 2010, CMO 3, which had a nominal remaining amortized cost, was
completely written off. The Corporation does not expect to recover any future cash flows.
As of March 31, 2010, management did not intend to sell these securities, nor was 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.
State, county and municipal securities
The unrealized losses in the municipal securities portfolio are primarily impacted by changes in
interest rates. This portfolio segment was not experiencing any credit problems as of March 31,
2010. We believe that all contractual cash flows will be received on this portfolio.
As of March 31, 2010, management did not intend to sell these securities, nor was 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.
11
Trust preferred securities
The Corporations investment portfolio includes four collateralized debt obligations (CDO) whose
collateral are pooled trust preferred securities of various financial institutions. The
Corporation also owns a single issuers trust preferred security. 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.
12
The following tables provide various information and fair value model assumptions regarding our
CDOs as of March 31, 2010 (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 |
|
$ |
1,940 |
|
|
$ |
902 |
|
|
$ |
(1,038 |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
MM Community Funding Ltd |
|
Pooled |
|
B |
|
|
2,028 |
|
|
|
839 |
|
|
|
(1,189 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Term Securities V |
|
Pooled |
|
MEZ |
|
|
1,209 |
|
|
|
403 |
|
|
|
(806 |
) |
|
|
(24 |
) |
|
|
|
|
|
|
(24 |
) |
Tpref Funding III Ltd |
|
Pooled |
|
B-2 |
|
|
3,027 |
|
|
|
1,227 |
|
|
|
(1,800 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Emigrant Capital Trust (1) |
|
Single |
|
Sole |
|
|
5,000 |
|
|
|
2,062 |
|
|
|
(2,938 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
13,204 |
|
|
$ |
5,433 |
|
|
$ |
(7,771 |
) |
|
$ |
(24 |
) |
|
$ |
|
|
|
$ |
(24 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Original Collateral - |
|
Performing Collateral - |
|
|
|
|
|
|
|
|
|
|
|
|
Percent of Actual |
|
Percent of Expected |
|
|
|
|
Lowest |
|
Performing |
|
Deferrals and |
|
Deferrals and |
|
Excess |
Name |
|
Rating |
|
Banks |
|
Defaults |
|
Defaults |
|
Subordination (2) |
MM Caps Funding I Ltd |
|
Ca |
|
|
22 |
|
|
|
17 |
% |
|
|
18 |
% |
|
|
0 |
% |
MM Community Funding Ltd |
|
Ca |
|
|
8 |
|
|
|
21 |
% |
|
|
39 |
% |
|
|
0 |
% |
Preferred Term Securities V |
|
Ba3 |
|
|
1 |
|
|
|
5 |
% |
|
|
44 |
% |
|
|
0 |
% |
Tpref Funding III Ltd |
|
Ca |
|
|
24 |
|
|
|
24 |
% |
|
|
28 |
% |
|
|
0 |
% |
Emigrant Capital Trust (1) |
|
NR |
|
NA |
|
NA |
|
NA |
|
NA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value |
|
Discount Margin |
|
Yield |
Name |
|
(Price to Par) |
|
(Basis Points) |
|
(Basis Points) |
MM Caps Funding I Ltd |
|
$ |
43.04 |
|
|
Swap + 1700 |
|
9.48% Fixed |
MM Community Funding Ltd |
|
|
16.78 |
|
|
LIBOR + 1500 |
|
LIBOR + 310 |
Preferred Term Securities V |
|
|
29.34 |
|
|
LIBOR + 1400 |
|
LIBOR + 210 |
Tpref Funding III Ltd |
|
|
30.67 |
|
|
LIBOR + 1200 |
|
LIBOR + 190 |
Emigrant Capital Trust (1) |
|
|
41.24 |
|
|
LIBOR + 1123 |
|
LIBOR + 200 |
|
|
|
(1) |
|
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 1123 basis points was derived from
implied credit spreads from certain publicly traded trust preferred securities within the
issuers peer group. |
|
(2) |
|
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 April 2009, management received notification that interest payments related to New South Capital
would be deferred for up to 20
quarters. In addition, New South Capitals 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 into receivership.
13
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 March 31, 2010, management did 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 roll forward of the amount of credit-related losses recognized in
earnings for which a portion of OTTI has been recognized in other comprehensive income for the
period shown:
|
|
|
|
|
|
|
For the |
|
|
|
Three Months Ended |
|
|
|
March 31, 2010 |
|
|
|
(Dollars in thousands) |
|
Balance at beginning of period |
|
$ |
8,869 |
|
Amounts related to credit losses for which an OTTI was not previously recognized |
|
|
154 |
|
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 |
|
|
45 |
|
Reductions for securities where there is an intent to sell or requirement to sell |
|
|
(154 |
) |
Reductions for increases in cash flows expected to be collected |
|
|
(28 |
) |
|
|
|
|
Balance at end of period |
|
$ |
8,886 |
|
|
|
|
|
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 March 31, 2010, the Corporation had stock in FHLB Atlanta totaling $18.2 million (its par
value), which is presented separately on the face of the 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 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. FHLB Atlanta reported net income of $283.5
million for 2009, a $29.7 million, or 11.7% increase from 2008. During the second quarter of 2009,
FHLB Atlanta reinstated its dividend at a rate of 0.84%, 0.41% and 0.27%, for the second, third and
fourth quarters of 2009, respectively, resulting in an annualized dividend rate of 0.38%. In addition, a decision
was made by the Board of the FHLB Atlanta to retain a larger portion of earnings and
significantly higher capital ratios than in previous years. 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 2009, management has concluded that no impairment exists on the Corporations 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 Corporations subsidiary, 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 the Corporations investment will not be recoverable at par, the cost, and thus
the investment was not impaired as of March 31, 2010.
14
Note 4 Notes Payable
The following is a summary of notes payable as of March 31, 2010 (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 |
|
$ |
7,000 |
|
Senior note guaranteed under the TLGP, due March 30, 2012, 2.625% fixed rate due
semi-annually |
|
|
40,000 |
|
Less: Discount, FDIC guarantee premium and other issuance costs |
|
|
(968 |
) |
|
|
|
|
Total notes payable |
|
$ |
46,032 |
|
|
|
|
|
The Corporation has agreed to seek OTS approval before incurring any new debt or renewing any
existing debt.
Note 5 Derivative Financial Instruments
The fair value of derivative positions outstanding is included in other assets and other
liabilities in the accompanying condensed consolidated statement of financial condition and in the
net change in each of these financial statement line items in the accompanying condensed
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 into 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 London Interbank Offered Rate (LIBOR). As of
March 31, 2010 and December 31, 2009, the Corporation had $0.7 million 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.
15
Fair Value Hedges
As of March 31, 2010 and December 31, 2009, the Corporation had $2.8 million 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. As of March 31, 2010 and December 31, 2009, the amount of CD swaps
designated as hedging instruments had a recorded fair value of $0.3 million and $0.2 million,
respectively, and a weighted average life of 2.4 years and 2.5 years, respectively. The weighted
average fixed rate (receiving rate) was 4.70% and the weighted average variable rate (paying rate)
was 0.30% (LIBOR based).
Cash Flow Hedges
The Corporation has entered into interest rate swap agreements designated and qualified as a hedge
with notional amounts of $22.0 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, the Corporation receives a floating rate based on 3-month LIBOR plus 1.33% (1.59% as of
March 31, 2010) and pays a weighted average fixed rate of 4.42%. As of March 31, 2010 and December
31, 2009, these interest rate swap agreements are recorded as liabilities in the amount of $0.9
million and $0.8 million, respectively.
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 $65.4 million and $41.0 million as of March 31,
2010 and December 31, 2009, respectively. The fair value of the origination commitments was $(0.2)
million and $(0.4) million as of March 31, 2010 and December 31, 2009, respectively.
The notional amounts and estimated fair values of interest rate derivative contracts outstanding as
of March 31, 2010 and December 31, 2009 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 11 to the condensed consolidated financial statements.
..
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010 |
|
December 31, 2009 |
|
|
|
|
|
|
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 |
|
|
$ |
260 |
|
|
$ |
2,777 |
|
|
$ |
228 |
|
Interest rate derivatives designated as hedges of cash flows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps on subordinated debenture |
|
|
22,000 |
|
|
|
(924 |
) |
|
|
22,000 |
|
|
|
(766 |
) |
Non-hedging interest rate derivatives: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brokered certificates of deposit interest rate swap |
|
|
723 |
|
|
|
68 |
|
|
|
723 |
|
|
|
59 |
|
Mortgage loan held for sale interest rate lock commitment |
|
|
65,365 |
|
|
|
(177 |
) |
|
|
41,038 |
|
|
|
(370 |
) |
Commercial loan interest rate swap |
|
|
3,740 |
|
|
|
347 |
|
|
|
3,766 |
|
|
|
323 |
|
Commercial loan interest rate swap |
|
|
3,740 |
|
|
|
(347 |
) |
|
|
3,766 |
|
|
|
(323 |
) |
16
The weighted-average rates paid and received for interest rate swaps outstanding as of March 31,
2010 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 |
|
|
0.30 |
% |
|
|
4.70 |
% |
Cash flow hedge interest rate swaps on subordinated debentures |
|
|
4.42 |
|
|
|
1.59 |
|
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 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 loss, 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 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 condensed consolidated statements of operations related to interest rate
derivatives designated as hedges of fair value are as follows:
|
|
|
|
|
|
|
|
|
|
|
For the |
|
|
Three Months Ended |
|
|
March 31, |
|
|
2010 |
|
2009 |
|
|
(Dollars in thousands) |
Interest rate swap on brokered certificates of deposit: |
|
|
|
|
|
|
|
|
Amount of gain included in interest expense on deposits |
|
$ |
30 |
|
|
$ |
23 |
|
Amount of gain (loss) included in other noninterest income |
|
|
1 |
|
|
|
(430 |
) |
Amounts included in the condensed consolidated statements of operations and in other comprehensive
loss for the period related to interest rate derivatives designated as hedges of cash flows are as
follows:
|
|
|
|
|
|
|
|
|
|
|
For the |
|
|
Three Months Ended |
|
|
March 31, |
|
|
2010 |
|
2009 |
|
|
(Dollars in thousands) |
Interest rate swap on subordinated debenture: |
|
|
|
|
|
|
|
|
Net loss included in interest expense on subordinated debt |
|
$ |
(156 |
) |
|
$ |
(55 |
) |
Amount of loss recognized in other comprehensive income |
|
|
(99 |
) |
|
|
(29 |
) |
No ineffectiveness related to interest rate derivatives designated as hedges of cash flows was
recognized in the condensed 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 was $0.6 million as of March 31, 2010 and 2009.
Amounts included in the condensed 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.
17
Gain (loss) included in noninterest income in the condensed consolidated statements of operations
related to non-hedging derivative instruments are as follows:
|
|
|
|
|
|
|
|
|
|
|
For the |
|
|
Three Months Ended |
|
|
March 31, |
|
|
2010 |
|
2009 |
|
|
(Dollars in thousands) |
Non-hedging interest rate derivatives: |
|
|
|
|
|
|
|
|
Brokered certificates of deposit interest rate swap |
|
$ |
16 |
|
|
$ |
(45 |
) |
Mortgage loan held for sale interest rate lock commitment |
|
|
193 |
|
|
|
276 |
|
Commercial loan interest rate swap
|
|
|
|
|
|
|
|
|
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. 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 was approximately $3.2 million as of March 31, 2010.
18
Note 6 Segment Reporting
The Corporation has two reportable segments, the Alabama Region and the Florida Region. The Alabama
Region consists of operations located throughout Alabama. The Florida Region consists of operations
located primarily in the Tampa Bay area and 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.
The Corporation evaluates performance and allocates resources based on profit or loss from
operations. There are no material inter-segment sales or transfers. Net interest income is used as
the basis for performance evaluation rather than its components, total interest income and total
interest expense. The accounting policies used by each reportable segment are the same as those
discussed in Note 1 to the consolidated financial statements included in the Corporations Form 10K
for the year ended December 31, 2009. 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) |
|
Three Months Ended March 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
$ |
10,148 |
|
|
$ |
10,727 |
|
|
$ |
20,875 |
|
|
$ |
2,630 |
|
|
$ |
23,505 |
|
Provision for loan losses |
|
|
973 |
|
|
|
7,218 |
|
|
|
8,191 |
|
|
|
936 |
|
|
|
9,127 |
|
Noninterest income |
|
|
1,964 |
|
|
|
452 |
|
|
|
2,416 |
|
|
|
3,796 |
|
|
|
6,212 |
|
Noninterest expense |
|
|
8,741 |
|
|
|
6,956 |
|
|
|
15,697 |
|
|
|
14,112 |
|
|
|
29,809 |
|
|
|
|
Operating profit (loss) |
|
$ |
2,398 |
|
|
$ |
(2,995 |
) |
|
$ |
(597 |
) |
|
$ |
(8,622 |
) |
|
|
(9,219 |
) |
|
|
|
|
|
|
|
Income tax benefit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,479 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(5,740 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
1,056,322 |
|
|
$ |
1,283,070 |
|
|
$ |
2,339,392 |
|
|
$ |
1,004,965 |
|
|
$ |
3,344,357 |
|
|
|
|
Three Months Ended March 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
$ |
8,060 |
|
|
$ |
9,071 |
|
|
$ |
17,131 |
|
|
$ |
4,197 |
|
|
$ |
21,328 |
|
Provision for loan losses |
|
|
1,612 |
|
|
|
1,478 |
|
|
|
3,090 |
|
|
|
362 |
|
|
|
3,452 |
|
Noninterest income |
|
|
2,071 |
|
|
|
515 |
|
|
|
2,586 |
|
|
|
(2,821 |
) |
|
|
(235 |
) |
Noninterest expense |
|
|
8,312 |
|
|
|
5,736 |
|
|
|
14,048 |
|
|
|
10,015 |
|
|
|
24,063 |
|
|
|
|
Operating profit (loss) |
|
$ |
207 |
|
|
$ |
2,372 |
|
|
$ |
2,579 |
|
|
$ |
(9,001 |
) |
|
$ |
(6,422 |
) |
|
|
|
|
|
|
|
Income tax benefit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,848 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(3,574 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
1,096,855 |
|
|
$ |
1,147,653 |
|
|
$ |
2,244,508 |
|
|
$ |
884,961 |
|
|
$ |
3,129,469 |
|
|
|
|
19
Note 7 Net Loss per Common Share
The following table sets forth the computation of basic net loss per common share and diluted net
loss per common share (Dollars in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
For the |
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2010 |
|
|
2009 |
|
Numerator: |
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(5,740 |
) |
|
$ |
(3,574 |
) |
Less preferred stock dividends and amortization |
|
|
|
|
|
|
1,143 |
|
|
|
|
|
|
|
|
For basic and diluted, net loss applicable to common stockholders |
|
$ |
(5,740 |
) |
|
$ |
(4,717 |
) |
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
For basic, weighted average common shares outstanding |
|
|
11,645 |
|
|
|
10,053 |
|
Effect of dilutive stock options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average common shares outstanding, assuming dilution |
|
|
11,645 |
|
|
|
10,053 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net loss per common share |
|
$ |
(0.49 |
) |
|
$ |
(0.47 |
) |
|
|
|
|
|
|
|
Diluted net loss per common share |
|
$ |
(0.49 |
) |
|
$ |
(0.47 |
) |
|
|
|
|
|
|
|
Basic net loss per common share is calculated by dividing net loss, less dividend requirements on
outstanding preferred stock, by the weighted-average number of common shares outstanding for the
period.
Diluted net loss 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 463,871 and 86,663 were not included in computing
diluted net loss per share for the three-month periods ended March 31, 2010 and 2009, respectively,
as they were considered anti-dilutive.
Note 8 Comprehensive Loss
Total comprehensive loss was $4.7 million and $5.2 million for the three-month periods ended March
31, 2010 and 2009, respectively. Total comprehensive loss consists of net loss and other
comprehensive loss. The components of other comprehensive loss for the three-month periods ending
March 31, 2010 and 2009 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-Tax |
|
|
Income Tax |
|
|
Net of |
|
|
|
Amount |
|
|
Expense |
|
|
Income Tax |
|
|
|
(Dollars in thousands) |
|
Three Months Ended March 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain on available-for-sale securities |
|
$ |
1,540 |
|
|
$ |
(570 |
) |
|
$ |
970 |
|
Reclassification adjustment for losses realized in net loss |
|
|
198 |
|
|
|
(73 |
) |
|
|
125 |
|
Unrealized loss on derivatives |
|
|
(158 |
) |
|
|
59 |
|
|
|
(99 |
) |
|
|
|
|
|
|
|
|
|
|
Net unrealized gain |
|
$ |
1,580 |
|
|
$ |
(584 |
) |
|
$ |
996 |
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on available-for-sale securities |
|
$ |
(8,394 |
) |
|
$ |
3,105 |
|
|
$ |
(5,289 |
) |
Reclassification adjustment for losses realized in net loss |
|
|
5,845 |
|
|
|
(2,163 |
) |
|
|
3,682 |
|
Unrealized loss on derivatives |
|
|
(29 |
) |
|
|
11 |
|
|
|
(18 |
) |
|
|
|
|
|
|
|
|
|
|
Net unrealized loss |
|
$ |
(2,578 |
) |
|
$ |
953 |
|
|
$ |
(1,625 |
) |
|
|
|
|
|
|
|
|
|
|
Note 9 Income Taxes
The Corporation recognized an income tax benefit of $3.5 million for the first quarter of 2010
compared to $2.8 million for the first quarter of 2009. The difference between the effective tax
rates in 2010 and 2009 and the blended federal statutory rate of 34% and state tax rates between 5%
and 6% was primarily due to certain tax-exempt income from investments and income reported from
insurance policies.
20
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, management believes that the realization of the net DTA is more likely
than not. A complete discussion of managements assessment of the realizability of the
Corporations DTA is included in the 2009 Annual Report on Form 10-K under the heading Critical
Accounting Estimates, of Managements Discussion and Analysis and in Note 14 to the 2009
consolidated financial statements. There have been no significant changes to the Corporations DTA
during the first quarter of 2010, or managements assessment or conclusions regarding its
realizability that need to be addressed in this Quarterly Report on Form 10-Q.
Note 10 Stock Incentive Plan
In April 2010, the Corporations stockholders approved the Superior Bancorp 2010 Incentive
Compensation Plan (the 2010 Plan) which succeeded the 2008 Plan. The purpose of the 2010 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 2010 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 2010 Plan is 1,500,000 shares
plus an annual addition of shares on January 1 of each year equal to two percent of the number of
shares of the Corporations outstanding common stock at that time.
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 three-month periods ended March
31:
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
2009 |
Risk-free interest rate |
|
|
2.57 |
% |
|
NA |
Volatility factor |
|
|
55.79 |
|
|
NA |
Expected term (in years) |
|
|
5.00 |
|
|
NA |
Dividend yield |
|
|
0.00 |
|
|
NA |
21
A summary of stock option activity as of March 31, 2010 and changes during the three months ended
is shown below (Dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
Average |
|
|
|
|
|
|
|
|
|
|
Average |
|
|
Remaining |
|
|
Aggregate |
|
|
|
|
|
|
|
Exercise |
|
|
Contractual |
|
|
Intrinsic |
|
For the Three Months Ended March 31, 2010 |
|
Number |
|
|
Price |
|
|
Term |
|
|
Value |
|
Under option, beginning of period |
|
|
925,647 |
|
|
$ |
26.85 |
|
|
|
|
|
|
|
|
|
Granted |
|
|
5,000 |
|
|
|
3.44 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited |
|
|
(10,744 |
) |
|
|
5.82 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Under option, end of period |
|
|
919,903 |
|
|
$ |
26.97 |
|
|
|
5.64 |
|
|
$ |
37 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at end of period |
|
|
625,153 |
|
|
$ |
31.76 |
|
|
|
2.92 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average fair value per option of options granted during the period |
|
$ |
3.44 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2010, there was $0.3 million 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 three
months ended March 31, 2010 and 2009, the Corporation recognized approximately $0.1 million and
$0.1 million, respectively, in compensation expense related to options granted.
Note 11 Fair Value Measurements
In accordance with FASB guidance, the Corporation measures fair value at the price that would be
received by selling an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date. The Corporation prioritizes the assumptions that
market participants would use in pricing the asset or liability (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.
22
Assets and Liabilities Recorded at Fair Value on a Recurring Basis
The table below presents the Corporations assets and liabilities measured at fair value on a
recurring basis categorized by the level of inputs used in the valuation of each asset as of March
31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices in |
|
|
|
|
|
Significant |
|
|
|
|
|
|
Active Markets for |
|
Significant Other |
|
Unobservable |
|
|
Fair |
|
Identical Assets |
|
Observable Inputs |
|
Inputs |
|
|
Value |
|
(Level 1) |
|
(Level 2) |
|
(Level 3) |
March 31, 2010 |
|
(Dollars in thousands) |
Investment securities available-for-sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Agency securities |
|
$ |
36,880 |
|
|
$ |
|
|
|
$ |
36,880 |
|
|
$ |
|
|
Mortgage-backed securities (MBS): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Agency MBS pass-through |
|
|
179,453 |
|
|
|
|
|
|
|
179,453 |
|
|
|
|
|
U.S. Agency CMO |
|
|
52,328 |
|
|
|
|
|
|
|
52,328 |
|
|
|
|
|
Private-label CMO |
|
|
15,196 |
|
|
|
|
|
|
|
8,302 |
|
|
|
6,894 |
|
|
|
|
Total MBS |
|
|
246,977 |
|
|
|
|
|
|
|
240,083 |
|
|
|
6,894 |
|
State, county and municipal securities |
|
|
31,175 |
|
|
|
|
|
|
|
29,517 |
|
|
|
1,658 |
|
Corporate obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt |
|
|
4,000 |
|
|
|
|
|
|
|
4,000 |
|
|
|
|
|
Pooled trust preferred securities |
|
|
3,371 |
|
|
|
|
|
|
|
|
|
|
|
3,371 |
|
Single issue trust preferred securities |
|
|
2,062 |
|
|
|
|
|
|
|
|
|
|
|
2,062 |
|
|
|
|
Total corporate obligations |
|
|
9,433 |
|
|
|
|
|
|
|
4,000 |
|
|
|
5,433 |
|
Equity securities |
|
|
358 |
|
|
|
358 |
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities available-for-sale |
|
|
324,823 |
|
|
|
358 |
|
|
|
310,480 |
|
|
|
13,985 |
|
Derivative assets |
|
|
675 |
|
|
|
|
|
|
|
675 |
|
|
|
|
|
|
|
|
Total recurring basis measured assets |
|
$ |
325,498 |
|
|
$ |
358 |
|
|
$ |
311,155 |
|
|
$ |
13,985 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities |
|
$ |
1,448 |
|
|
$ |
|
|
|
$ |
1,448 |
|
|
$ |
|
|
|
|
|
Total recurring basis measured liabilities |
|
$ |
1,448 |
|
|
$ |
|
|
|
$ |
1,448 |
|
|
$ |
|
|
|
|
|
23
The table below presents the Corporations assets and liabilities measured at fair value on a
recurring basis categorized by the level of inputs used in the valuation of each asset as of
December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
(Dollars in thousands) |
Investment securities available-for-sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Agency securities |
|
$ |
53,681 |
|
|
$ |
|
|
|
$ |
53,681 |
|
|
$ |
|
|
Mortgage-backed securities (MBS): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Agency pass-through |
|
|
163,724 |
|
|
|
|
|
|
|
163,724 |
|
|
|
|
|
U.S. Agency CMO |
|
|
12,759 |
|
|
|
|
|
|
|
12,759 |
|
|
|
|
|
Private-label CMO |
|
|
16,191 |
|
|
|
|
|
|
|
8,771 |
|
|
|
7,420 |
|
|
|
|
Total MBS |
|
|
192,674 |
|
|
|
|
|
|
|
185,254 |
|
|
|
7,420 |
|
State, county and municipal securities |
|
|
31,462 |
|
|
|
|
|
|
|
29,733 |
|
|
|
1,729 |
|
Corporate obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt |
|
|
4,000 |
|
|
|
|
|
|
|
4,000 |
|
|
|
|
|
Pooled trust preferred securities |
|
|
3,203 |
|
|
|
|
|
|
|
|
|
|
|
3,203 |
|
Single issue trust preferred securities |
|
|
977 |
|
|
|
|
|
|
|
|
|
|
|
977 |
|
|
|
|
Total corporate obligations |
|
|
8,180 |
|
|
|
|
|
|
|
4,000 |
|
|
|
4,180 |
|
Equity securities |
|
|
313 |
|
|
|
313 |
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities available-for-sale |
|
|
286,310 |
|
|
|
313 |
|
|
|
272,668 |
|
|
|
13,329 |
|
Derivative assets |
|
|
610 |
|
|
|
|
|
|
|
610 |
|
|
|
|
|
|
|
|
Total recurring basis measured assets |
|
$ |
286,920 |
|
|
$ |
313 |
|
|
$ |
273,278 |
|
|
$ |
13,329 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities |
|
$ |
1,459 |
|
|
$ |
|
|
|
$ |
1,459 |
|
|
$ |
|
|
|
|
|
Total recurring basis measured liabilities |
|
$ |
1,459 |
|
|
$ |
|
|
|
$ |
1,459 |
|
|
$ |
|
|
|
|
|
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 a
single issue trust preferred security and CDOs backed by 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). As of
March 31, 2010, the fair values of five private-label mortgage-backed securities totaling $6.9
million 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).
24
Derivative financial instruments
Derivative financial instruments are measured at fair value based on modeling that utilizes
observable market inputs for various interest rates published by leading third-party financial news
and data providers. This is observable data that represents the rates used by market participants
for instruments entered into at that date; however, they are not based on actual transactions so
they are classified as Level 2.
Changes in Level 3 fair value measurements
The tables below include a roll-forward of the condensed consolidated statement of financial
condition amounts for the periods indicated, 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 |
|
|
|
March 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(Dollars in thousands) |
|
Balance at January 1 |
|
$ |
13,329 |
|
|
$ |
18,497 |
|
Transfer into level 3 category during the year |
|
|
|
|
|
|
|
|
Total gains (losses) (realized and unrealized) |
|
|
|
|
|
|
|
|
Included in earnings investment security loss |
|
|
(45 |
) |
|
|
(5,845 |
) |
Included in other comprehensive loss |
|
|
1,389 |
|
|
|
(4,175 |
) |
Other changes due to principal payments |
|
|
(688 |
) |
|
|
(25 |
) |
|
|
|
|
|
|
|
Balance at March 31 |
|
$ |
13,985 |
|
|
$ |
8,452 |
|
|
|
|
|
|
|
|
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 March 31 |
|
$ |
(45 |
) |
|
$ |
(5,845 |
) |
|
|
|
|
|
|
|
25
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 for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices |
|
|
|
|
|
|
|
|
|
|
in |
|
|
|
|
|
|
|
|
|
|
Active Markets
for |
|
Significant Other |
|
Significant |
|
|
|
|
|
|
Identical |
|
Observable |
|
Unobservable |
|
|
Fair |
|
Assets |
|
Inputs |
|
Inputs |
|
|
Value |
|
(Level 1) |
|
(Level 2) |
|
(Level 3) |
|
|
(Dollars in thousands) |
March 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans held for sale |
|
$ |
54,367 |
|
|
$ |
|
|
|
$ |
54,367 |
|
|
$ |
|
|
Impaired loans, net of specific allowance |
|
|
143,653 |
|
|
|
|
|
|
|
|
|
|
|
143,653 |
|
Other foreclosed real estate |
|
|
46,679 |
|
|
|
|
|
|
|
|
|
|
|
46,679 |
|
Other real estate held for sale |
|
|
3,342 |
|
|
|
|
|
|
|
|
|
|
|
3,342 |
|
|
|
|
Total nonrecurring basis measured assets |
|
$ |
248,041 |
|
|
$ |
|
|
|
$ |
54,367 |
|
|
$ |
193,674 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
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.
26
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 Atlanta to a schedule of aggregated expected monthly maturities on time deposits.
Advances
from FHLB Atlanta
The fair
values of the FHLB Atlanta advances were based on pricing supplied by the FHLB Atlanta.
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.
27
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 for the periods indicated are
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010 |
|
December 31, 2009 |
|
|
Carrying |
|
Fair |
|
Carrying |
|
Fair |
|
|
Amount |
|
Value |
|
Amount |
|
Value |
|
|
(Dollars in thousands) |
Financial assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks |
|
$ |
50,529 |
|
|
$ |
50,529 |
|
|
$ |
74,020 |
|
|
$ |
74,020 |
|
Interest-bearing deposits in other banks |
|
|
113,531 |
|
|
|
113,531 |
|
|
|
23,714 |
|
|
|
23,714 |
|
Federal funds sold |
|
|
2,129 |
|
|
|
2,129 |
|
|
|
2,036 |
|
|
|
2,036 |
|
Securities available for sale |
|
|
324,823 |
|
|
|
324,823 |
|
|
|
286,310 |
|
|
|
286,310 |
|
Tax lien certificates |
|
|
15,832 |
|
|
|
15,832 |
|
|
|
19,292 |
|
|
|
19,292 |
|
Mortgage loans held for sale |
|
|
54,367 |
|
|
|
54,367 |
|
|
|
71,879 |
|
|
|
71,879 |
|
Net loans |
|
|
2,462,275 |
|
|
|
2,462,166 |
|
|
|
2,430,813 |
|
|
|
2,440,026 |
|
Stock in FHLB |
|
|
18,212 |
|
|
|
18,212 |
|
|
|
18,212 |
|
|
|
18,212 |
|
Accrued interest receivable |
|
|
50,616 |
|
|
|
50,616 |
|
|
|
50,142 |
|
|
|
50,142 |
|
Derivative assets |
|
|
675 |
|
|
|
675 |
|
|
|
610 |
|
|
|
610 |
|
Financial liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
|
2,753,378 |
|
|
|
2,768,140 |
|
|
|
2,656,573 |
|
|
|
2,671,504 |
|
Advances from FHLB |
|
|
218,323 |
|
|
|
232,869 |
|
|
|
218,322 |
|
|
|
233,028 |
|
Security repurchase agreements |
|
|
1,201 |
|
|
|
1,201 |
|
|
|
841 |
|
|
|
841 |
|
Note payable |
|
|
46,032 |
|
|
|
47,191 |
|
|
|
45,917 |
|
|
|
45,917 |
|
Subordinated debentures |
|
|
84,413 |
|
|
|
59,207 |
|
|
|
84,170 |
|
|
|
51,609 |
|
Derivative liabilities |
|
|
1,448 |
|
|
|
1,448 |
|
|
|
1,459 |
|
|
|
1,459 |
|
Note 12 Stockholders Equity
On January 15, 2010, the Corporation entered into an agreement with Cambridge Savings Bank
(Cambridge) pursuant to which Cambridge will exchange $3.5 million 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 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 $4.0 million 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.
28
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 $1.8 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.
On May 6, 2010, the Corporation entered into an agreement to issue $10 million of its Series B
Cumulative Convertible Preferred Stock (the Preferred Stock) for cash consideration equal to $10
million. There are no underwriting discounts or commissions in connection with the transaction.
The Corporation anticipates issuing up to $25 million of Preferred Stock in the aggregate. The
Preferred Stock is mandatorily convertible upon the earlier of December 15, 2010 or the completion
of additional capital financing by the Corporation, but is not voluntarily convertible by the
holder prior to such time. If the Preferred Stock converts in conjunction with the consummation
of additional capital financing, the conversion rate will be the lower of $2.89 or 83% of the
offering price of the additional financing. If the Preferred Stock converts on December 15, 2010,
the conversion rate will be the lower of $2.89 or 83% of the 10-day volume-weighted trailing
average of closing prices of the Corporations common stock.
The Corporation will issue to the purchasers of the Preferred Stock five-year warrants to purchase
approximately 1.8 million shares in the aggregate of the Corporations common stock at an exercise
price of $3.50 per share. The Corporation also anticipates issuing similar warrants to purchase up
to an additional 2.5 million shares of common stock at an exercise price of $3.00 per share to the
purchasers of subordinated debt of the Corporations subsidiary, Superior Bank.
|
|
|
ITEM 2. |
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Basis of Presentation
The following is a discussion and analysis of our March 31, 2010 condensed consolidated financial
condition and results of operations for the three month periods ended March 31, 2010 and 2009. All
significant intercompany accounts and transactions have been eliminated. Our accounting and
reporting policies conform to generally accepted accounting principles applicable to financial
institutions.
This information should be read in conjunction with our unaudited condensed consolidated financial
statements and related notes appearing elsewhere in this report and the audited consolidated
financial statements and related notes and Managements Discussion and Analysis of Financial
Condition and Results of Operations appearing in our Annual Report on Form 10-K for the year ended
December 31, 2009.
Recent Developments
In January 2010, 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.
Also, on May 6, 2010,
we entered into an agreement to issue $10 million of our Preferred Stock for cash
consideration equal to $10 million. See Note 12 to the condensed consolidated financial
statements.
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 northern Alabama, doing business as 1st Community Credit and Superior
Financial Services. We had assets of approximately $3.344 billion, loans of approximately
$2.505 billion, deposits of approximately $2.753 billion and stockholders equity of approximately
$187.2 million as of March 31, 2010. Total assets increased 3.8% compared to $3.222 billion as of
December 31, 2009. Loans increased 1.3% compared to $2.473 billion as of December 31, 2009. Total
deposits increased 3.6% from $2.657 billion as of December 31, 2009. Our primary source of revenue
is net interest income, which is determined by calculating 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, 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.
Net interest income decreased to $23.5 million during the three months ended March 31, 2010 from
$24.6 million for the three months ended December 31, 2009 and increased from the $21.3 million for
the three months ended March 31, 2009. The net interest margin was 3.19% for the three months ended
March 31, 2010 compared to 3.42% for the three months ended December 31, 2009 and 3.12% for the
three months ended March 31, 2009. In prior periods, payments on our preferred stock were treated
as dividends, but effective with the conversion of that preferred stock to trust preferred
securities in December, 2009, payments on that security are treated as interest expense. This had
an effect on the reported net interest margin for the quarter of 0.22%. The effect on net interest
margin of loans being placed on non-accrual status approximated 0.05% for the three months ended
March 31, 2010. Including both foregone interest and the reversal of interest accrued during the
year on those loans, the effect on net interest margin was 0.39%. Additionally, the net interest margin was
impacted by our decision to maintain higher levels of very short-term investments for liquidity
purposes. These investments, which
averaged $90.5 million for the quarter, had an average yield of 0.40%, which led to a decline in
the yield on earning assets.
29
We incurred a net loss for the three months ended March 31, 2010 of $5.7 million compared to $3.6
million in the three months ended March 31, 2009. Included in the current quarters net loss was
an increase in credit-related costs (i.e. provisions for loan loss,
other real estate owned (OREO) expense, collection costs,
etc.) of $7.7 million. However, this increase was partially offset by a $5.6 million decline in
other-than-temporary impairments (OTTI) associated with investments in trust preferred securities
issued by others and certain private-label mortgage-backed securities in our investment portfolio.
Our loans, net of unearned income, were $2.505 billion as of March 31, 2010, an increase of 1.3%,
or $32.8 million, from $2.473 billion as of December 31, 2009. As of March 31, 2010, we had an
increase in balances outstanding in certain categories of loans, primarily commercial construction
lending, which increased $12.9 million to $391.9 million. The majority of this increase related to
advances on existing loans for construction of income producing properties such as retail shopping
centers, hospitality and student housing. Residential construction lending increased slightly by
approximately $0.5 million to $301.9 million.
Other categories of commercial real estate lending were up approximately $20.2 million, related
principally to increases in income producing properties such as assisted living facilities and the
reclassification of loans to the hospitality industry that were formerly under construction. In
addition, 1-4 family residential mortgages grew approximately $12.6 million from December 31, 2009.
Our stance on new credit will continue to remain cautious, with loan totals likely 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.
Our non-performing loans increased to $178.0 million, or 7.10% of loans as of March 31, 2010, from
$159.6 million, or 6.45% of loans as of December 31, 2009. The overall increase in nonperforming
assets was primarily related to real estate construction and commercial real estate mortgage loan
portfolios. Loans in the 30-89 days past due category increased to 1.88% of total loans as of March
31, 2010 from 1.84% of total loans as of December 31, 2009. Non-performing assets were 6.73% of
total assets as of March 31, 2010 compared to 6.26% as of December 31, 2009.
Our annualized ratio of net charged-off loans to average loans increased to 1.27% for the three
months ended March 31, 2010 compared to 1.03% for the three months ended December 31, 2009. Of the
$7.8 million net charge-offs, for the three months ended March 31, 2010, Superior Banks net
charge-offs were $7.3 million, or 0.29% of consolidated average loans, and our two consumer finance
companies net charge-offs were $0.5 million, or 0.02% of consolidated average loans.
Our provision for loan losses was approximately $9.1 million for the three months ended March 31,
2010, increasing the allowance for loan losses to 1.72% of net loans, or $43.2 million, as of March
31, 2010, compared to 1.69% of net loans, or $41.9 million, as of December 31, 2009.
Our loan loss provision was well above those in previous years, with a provision of $9.1 million
for the three months ended March 31, 2010, compared to $13.9 million for the fourth quarter of 2009
and $3.5 million for the first quarter of 2009, and an increase in the allowance for loan losses of
$1.3 million to $43.2 million as of March 31, 2010. In addition, our losses and expenses on OREO were $2.6 million during the three months ended March 31, 2010, which was a significant
increase from the $0.6 million recorded in the three months ended March 31, 2009, reflecting
dispositions of several foreclosed properties.
Liquidity and Capital
Short-term liquid assets (cash and due from banks, interest-bearing deposits in other banks
and federal funds sold) increased $66.4 million, or 66.6%, to $166.2 million as of March 31, 2010
from $99.8 million as of December 31, 2009. As of March 31, 2010, short-term liquid assets were
5.0% of total assets, compared to 3.1% as of December 31, 2009. 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 and federal funds
sold. Management believes it has established sufficient sources of funds to
meet its anticipated liquidity needs.
30
Superior Bank continues to be well-capitalized under regulatory guidelines, with a total risk-based
capital ratio of 10.11%, a Tier I core capital ratio of 7.18% and a Tier I risk-based capital ratio
of 8.91% as of March 31, 2010. Superior Banks tangible common equity ratio was 7.61% as of March
31, 2010.
Our consolidated total risk based capital ratio was 10.63% and our tangible common equity ratio was
4.89% as of March 31, 2010. 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 capital base, including common equity
offerings. Our goal is to build a capital
base that is unassailable, and places us in the position of being able to be a leader in the
recovery of the economy in both of our key markets Florida and Alabama, and toward that end, we
have several initiatives underway to increase capital.
Recent Accounting Pronouncements
See Note 1 to the condensed consolidated financial statements for other recent accounting
pronouncements that are not expected to have a significant effect on our financial condition,
results of operations or cash flows.
Results of Operations
We reported a net loss of $5.7 million for the three months ended March 31, 2010, primarily the
result of increases in the provision for loan losses of $5.7 million, foreclosure losses of $2.0
million, and salaries and benefits of $1.9 million. These expense increases were offset by a
decrease in OTTI of $5.6 million and an increase in net interest income of $2.2 million. Changes
in other components of our operations are discussed in the various sections that follow. The
following table presents key data for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
For the |
|
|
Three Months Ended |
|
|
March 31, |
|
|
2010 |
|
2009 |
|
|
(Dollars in thousands, except per share data) |
Net loss |
|
$ |
(5,740 |
) |
|
$ |
(3,574 |
) |
Net loss applicable to common shareholders |
|
|
(5,740 |
) |
|
|
(4,717 |
) |
Net loss per common share (diluted) |
|
|
(0.49 |
) |
|
|
(0.47 |
) |
Net interest margin |
|
|
3.19 |
% |
|
|
3.12 |
% |
Net interest spread |
|
|
3.06 |
|
|
|
2.91 |
|
Return on average assets |
|
|
(0.71 |
) |
|
|
(0.46 |
) |
Return on average stockholders equity |
|
|
(12.14 |
) |
|
|
(5.64 |
) |
Common book value per share |
|
$ |
15.27 |
|
|
$ |
17.18 |
|
31
The following table depicts, on a taxable equivalent basis for the periods indicated, certain
information related to our average balance sheet and our average yields on assets and average costs
of liabilities. Average yields are calculated by dividing income or expense by the average balance
of the corresponding assets or liabilities. Average balances have been calculated on a daily basis.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
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) |
|
$ |
2,538,559 |
|
|
$ |
36,342 |
|
|
|
5.81 |
% |
|
$ |
2,392,145 |
|
|
$ |
34,952 |
|
|
|
5.93 |
% |
Investment securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable |
|
|
253,784 |
|
|
|
2,911 |
|
|
|
4.65 |
|
|
|
301,973 |
|
|
|
4,009 |
|
|
|
5.38 |
|
Tax-exempt (2) |
|
|
30,267 |
|
|
|
473 |
|
|
|
6.34 |
|
|
|
40,280 |
|
|
|
649 |
|
|
|
6.53 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities |
|
|
284,051 |
|
|
|
3,384 |
|
|
|
4.83 |
|
|
|
342,253 |
|
|
|
4,658 |
|
|
|
5.52 |
|
Federal funds sold |
|
|
2,212 |
|
|
|
1 |
|
|
|
0.18 |
|
|
|
7,240 |
|
|
|
5 |
|
|
|
0.28 |
|
Other investments |
|
|
128,139 |
|
|
|
372 |
|
|
|
1.18 |
|
|
|
57,751 |
|
|
|
362 |
|
|
|
2.54 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets |
|
|
2,952,961 |
|
|
|
40,099 |
|
|
|
5.51 |
|
|
|
2,799,389 |
|
|
|
39,977 |
|
|
|
5.79 |
|
Noninterest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks |
|
|
73,857 |
|
|
|
|
|
|
|
|
|
|
|
70,192 |
|
|
|
|
|
|
|
|
|
Premises and equipment |
|
|
102,910 |
|
|
|
|
|
|
|
|
|
|
|
105,079 |
|
|
|
|
|
|
|
|
|
Accrued interest and other assets |
|
|
184,704 |
|
|
|
|
|
|
|
|
|
|
|
153,517 |
|
|
|
|
|
|
|
|
|
Allowance for loan losses |
|
|
(41,809 |
) |
|
|
|
|
|
|
|
|
|
|
(29,123 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
3,272,623 |
|
|
|
|
|
|
|
|
|
|
$ |
3,099,054 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits |
|
$ |
665,268 |
|
|
$ |
2,054 |
|
|
|
1.25 |
% |
|
$ |
641,529 |
|
|
$ |
2,195 |
|
|
|
1.39 |
% |
Savings deposits |
|
|
297,552 |
|
|
|
973 |
|
|
|
1.33 |
|
|
|
199,161 |
|
|
|
921 |
|
|
|
1.88 |
|
Time deposits |
|
|
1,482,018 |
|
|
|
8,498 |
|
|
|
2.33 |
|
|
|
1,359,453 |
|
|
|
11,777 |
|
|
|
3.51 |
|
Other borrowings |
|
|
268,973 |
|
|
|
2,522 |
|
|
|
3.80 |
|
|
|
333,376 |
|
|
|
2,342 |
|
|
|
2.85 |
|
Subordinated debentures (2) |
|
|
84,255 |
|
|
|
2,830 |
|
|
|
13.62 |
|
|
|
60,852 |
|
|
|
1,193 |
|
|
|
7.95 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities |
|
$ |
2,798,066 |
|
|
|
16,877 |
|
|
|
2.45 |
|
|
$ |
2,594,371 |
|
|
|
18,428 |
|
|
|
2.88 |
|
Noninterest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits |
|
|
262,139 |
|
|
|
|
|
|
|
|
|
|
|
231,547 |
|
|
|
|
|
|
|
|
|
Accrued interest and other liabilities |
|
|
20,722 |
|
|
|
|
|
|
|
|
|
|
|
21,547 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
3,080,927 |
|
|
|
|
|
|
|
|
|
|
|
2,847,465 |
|
|
|
|
|
|
|
|
|
Stockholders equity |
|
|
191,696 |
|
|
|
|
|
|
|
|
|
|
|
251,589 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
3,272,623 |
|
|
|
|
|
|
|
|
|
|
$ |
3,099,054 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income/net interest spread |
|
|
|
|
|
|
23,222 |
|
|
|
3.06 |
% |
|
|
|
|
|
|
21,549 |
|
|
|
2.91 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net yield on earning assets |
|
|
|
|
|
|
|
|
|
|
3.19 |
% |
|
|
|
|
|
|
|
|
|
|
3.12 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable equivalent adjustment (2): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities |
|
|
|
|
|
|
(161 |
) |
|
|
|
|
|
|
|
|
|
|
(221 |
) |
|
|
|
|
Interest expense on subordinated debentures |
|
|
|
|
|
|
444 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
|
|
|
$ |
23,505 |
|
|
|
|
|
|
|
|
|
|
$ |
21,328 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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/expense and yields are presented on a fully taxable equivalent basis using a
tax rate of 34%. |
32
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. The
following table summarizes the changes in the components of net interest income for the periods
indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (Decrease) in |
|
|
|
|
|
|
|
First Quarter |
|
|
|
|
|
|
|
2010 vs. 2009 |
|
|
|
Average |
|
|
Income/ |
|
|
Yield/ |
|
|
|
Balance |
|
|
Expense |
|
|
Rate |
|
|
|
(Dollars in thousands) |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Loans, net of unearned income |
|
$ |
146,414 |
|
|
$ |
1,390 |
|
|
|
(0.12 |
)% |
Investment securities |
|
|
|
|
|
|
|
|
|
|
|
|
Taxable |
|
|
(48,189 |
) |
|
|
(1,098 |
) |
|
|
(0.73 |
) |
Tax-exempt |
|
|
(10,013 |
) |
|
|
(176 |
) |
|
|
(0.19 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total investment securities |
|
|
(58,202 |
) |
|
|
(1,274 |
) |
|
|
(0.69 |
) |
Federal funds sold |
|
|
(5,028 |
) |
|
|
(4 |
) |
|
|
(0.10 |
) |
Other investments |
|
|
70,388 |
|
|
|
10 |
|
|
|
(1.36 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets |
|
$ |
153,572 |
|
|
|
122 |
|
|
|
(0.28 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits |
|
$ |
23,739 |
|
|
$ |
(141 |
) |
|
|
(0.14 |
)% |
Savings deposits |
|
|
98,391 |
|
|
|
52 |
|
|
|
(0.55 |
) |
Time deposits |
|
|
122,565 |
|
|
|
(3,279 |
) |
|
|
(1.18 |
) |
Other borrowings |
|
|
(64,403 |
) |
|
|
180 |
|
|
|
0.95 |
|
Subordinated debentures |
|
|
23,403 |
|
|
|
1,637 |
|
|
|
5.67 |
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities |
|
$ |
203,695 |
|
|
|
(1,551 |
) |
|
|
(0.43 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net interest income/net interest spread |
|
|
|
|
|
|
1,673 |
|
|
|
0.15 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
Net yield on earning assets |
|
|
|
|
|
|
|
|
|
|
0.07 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
Taxable equivalent adjustment: |
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities |
|
|
|
|
|
|
60 |
|
|
|
|
|
Interest expense on subordinated debentures |
|
|
|
|
|
|
444 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
|
|
|
$ |
2,177 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33
The following table sets forth, on a taxable equivalent basis, the effect that the varying levels
of interest-earning assets and interest-bearing liabilities and the applicable rates have had on
changes in net interest income for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
2010 vs. 2009 (1) |
|
|
|
Increase |
|
|
Changes Due To |
|
|
|
(Decrease) |
|
|
Rate |
|
|
Volume |
|
|
|
(Dollars in thousands) |
|
Increase (decrease) in: |
|
|
|
|
|
|
|
|
|
|
|
|
Income from interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest and fees on loans |
|
$ |
1,390 |
|
|
$ |
(718 |
) |
|
$ |
2,108 |
|
Interest on securities: |
|
|
|
|
|
|
|
|
|
|
|
|
Taxable |
|
|
(1,098 |
) |
|
|
(505 |
) |
|
|
(593 |
) |
Tax-exempt |
|
|
(176 |
) |
|
|
(18 |
) |
|
|
(158 |
) |
Interest on federal funds |
|
|
(4 |
) |
|
|
(1 |
) |
|
|
(3 |
) |
Interest on other investments |
|
|
10 |
|
|
|
(266 |
) |
|
|
276 |
|
|
|
|
|
|
|
|
|
|
|
Total interest income |
|
|
122 |
|
|
|
(1,508 |
) |
|
|
1,630 |
|
Expense from interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest on demand deposits |
|
|
(141 |
) |
|
|
(104 |
) |
|
|
(37 |
) |
Interest on savings deposits |
|
|
52 |
|
|
|
(320 |
) |
|
|
372 |
|
Interest on time deposits |
|
|
(3,279 |
) |
|
|
(4,258 |
) |
|
|
979 |
|
Interest on other borrowings |
|
|
180 |
|
|
|
687 |
|
|
|
(507 |
) |
Interest on subordinated debentures |
|
|
1,637 |
|
|
|
1,064 |
|
|
|
573 |
|
|
|
|
|
|
|
|
|
|
|
Total interest expense |
|
|
(1,551 |
) |
|
|
(2,931 |
) |
|
|
1,380 |
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
$ |
1,673 |
|
|
$ |
1,423 |
|
|
$ |
250 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The change in interest due to both rate and volume has been allocated to rate and volume
changes in proportion to the relationship of the absolute dollar amounts of the changes in
each. |
34
Noninterest income (loss)
Noninterest income increased $6.4 million to $6.2 million for the first quarter of 2010 from a
noninterest loss of $0.2 million in the first quarter of 2009. The increase was primarily due to a
reduction in OTTI of $5.6 million and an increase in income related to the change in the fair value
of derivatives. See Financial Condition Investment Securities for additional discussion. The
components of noninterest income for the periods indicated consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
2010 |
|
|
2009 |
|
|
%Change |
|
|
|
(Dollars in thousands) |
|
Service charges and fees on deposits |
|
$ |
2,216 |
|
|
$ |
2,387 |
|
|
|
(7.16 |
)% |
Mortgage banking income |
|
|
2,010 |
|
|
|
1,691 |
|
|
|
18.86 |
|
Investment securities losses |
|
|
(198 |
) |
|
|
(5,845 |
) |
|
|
(96.61 |
) |
Change in fair value of derivatives |
|
|
210 |
|
|
|
(199 |
) |
|
NCM |
Increase in cash surrender value of life insurance |
|
|
568 |
|
|
|
515 |
|
|
|
10.29 |
|
Other noninterest income |
|
|
1,406 |
|
|
|
1,216 |
|
|
|
15.63 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
6,212 |
|
|
$ |
(235 |
) |
|
NCM |
% |
|
|
|
|
|
|
|
|
|
|
NCM not considered meaningful.
35
Noninterest expenses
Noninterest expenses increased $5.7 million, or 23.9%, to $29.8 million for the first quarter of
2010 from $24.1 million for the first quarter of 2009. This increase was primarily due to
increased foreclosure losses, salaries and employee benefits and FDIC assessments. 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 future
periods, depending on the duration of the credit cycle, and have a material impact on our operating
expenses. The increase in salaries and employee benefits was primarily related to the expansion of
our mortgage operations. Noninterest expenses included the following for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
2010 |
|
|
2009 |
|
|
%Change |
|
|
|
(Dollars in thousands) |
|
Noninterest Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits |
|
$ |
14,200 |
|
|
$ |
12,309 |
|
|
|
15.36 |
% |
Occupancy, furniture and equipment expense |
|
|
4,763 |
|
|
|
4,416 |
|
|
|
7.86 |
|
Amortization of core deposit intangibles |
|
|
870 |
|
|
|
985 |
|
|
|
(11.68 |
) |
FDIC assessments |
|
|
1,380 |
|
|
|
457 |
|
|
NCM |
Foreclosure losses |
|
|
2,577 |
|
|
|
569 |
|
|
NCM |
Professional fees |
|
|
1,380 |
|
|
|
765 |
|
|
|
80.39 |
|
Insurance expense |
|
|
739 |
|
|
|
1,067 |
|
|
|
(30.74 |
) |
Postage, stationery and supplies |
|
|
720 |
|
|
|
727 |
|
|
|
(0.96 |
) |
Communications expense |
|
|
655 |
|
|
|
802 |
|
|
|
(18.33 |
) |
Advertising expense |
|
|
672 |
|
|
|
551 |
|
|
|
21.96 |
|
Other operating expense |
|
|
1,853 |
|
|
|
1,415 |
|
|
|
30.95 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
29,809 |
|
|
$ |
24,063 |
|
|
|
23.88 |
% |
|
|
|
|
|
|
|
|
|
|
NCM not considered meaningful.
Income tax
We recognized an income tax benefit of $3.5 million for the first quarter of 2010 compared to
$2.8 million for the first quarter of 2009. The difference between the effective tax rates in 2010
and 2009 and the blended federal statutory rate of 34% and state tax rates between 5% and 6% is
primarily due to certain tax-exempt income from investments and income reported from insurance
policies.
Our 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 our 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 our net DTA is more likely than not.
A complete discussion of managements assessment of the realizability of our DTA is included in our
2009 Annual Report on Form 10-K under the heading Critical Accounting Estimates, of Managements
Discussion and Analysis and in Note 14 to the 2009 consolidated financial statements. There have
been no significant changes to our DTA during the first quarter of 2010, or managements assessment
or conclusions regarding its realizability that need to be addressed in this Quarterly Report on
Form 10-Q.
36
Provision for Loan Losses and Loan Charge-offs
The provision for loan losses was $9.1 million for the first quarter of 2010 compared to $3.5
million for the first quarter of 2009 and $13.9 million in the fourth quarter of 2009. During the
first quarter of 2010, we had net charged-off loans totaling $7.8 million compared to net
charged-off loans of $2.4 million and $6.4 million in the first and fourth quarters of 2009,
respectively. The annualized ratio of net charged-off loans to
average loans was 1.27% for the
three-month period ended March 31, 2010, compared to 0.42% for the three-month period ended March
31, 2009 and 0.65% for the year ended December 31, 2009. The allowance for loan losses was $43.2
million, or 1.72% of loans, net of unearned income, as of March 31, 2010, compared to $29.9
million, or 1.27%, and $41.9 million, or 1.69%, as of March 31,
2009 and December 31, 2009, respectively.
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 for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For The Three Months Ended |
|
|
|
March 31, |
|
|
March 31, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2009 |
|
|
|
(Dollars in thousands) |
|
Beginning allowance for loan losses |
|
$ |
41,884 |
|
|
$ |
28,850 |
|
|
$ |
34,336 |
|
Provision for loan losses |
|
|
9,127 |
|
|
|
3,452 |
|
|
|
13,947 |
|
Total charge-offs |
|
|
8,087 |
|
|
|
2,809 |
|
|
|
6,793 |
|
Total recoveries |
|
|
(266 |
) |
|
|
(378 |
) |
|
|
(394 |
) |
|
|
|
|
|
|
|
|
|
|
Net charge-offs |
|
|
7,821 |
|
|
|
2,431 |
|
|
|
6,399 |
|
|
|
|
|
|
|
|
|
|
|
Ending allowance for loan losses |
|
$ |
43,190 |
|
|
$ |
29,871 |
|
|
$ |
41,884 |
|
|
|
|
|
|
|
|
|
|
|
Total loans, net of unearned income |
|
$ |
2,505,465 |
|
|
$ |
2,359,299 |
|
|
$ |
2,472,697 |
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses to total loans, net of unearned income |
|
|
1.72 |
% |
|
|
1.27 |
% |
|
|
1.69 |
% |
|
|
|
|
|
|
|
|
|
|
See Financial Condition Allowance for Loan Losses for additional discussion
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 6
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 indicated:
|
|
|
|
|
|
|
|
|
|
|
For the |
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(Dollars in thousands) |
|
Alabama region |
|
$ |
2,398 |
|
|
$ |
207 |
|
Florida region |
|
|
(2,995 |
) |
|
|
2,372 |
|
Administrative and other |
|
|
(8,622 |
) |
|
|
(9,001 |
) |
Income tax benefit |
|
|
(3,479 |
) |
|
|
(2,848 |
) |
|
|
|
|
|
|
|
Consolidated net loss |
|
$ |
(5,740 |
) |
|
$ |
(3,574 |
) |
|
|
|
|
|
|
|
37
Alabama Region
Operating income was $2.4 million for the first quarter of 2010 compared to $0.2 million for the
first quarter of 2009, primarily due to an increase in net interest income.
Net interest income for the three-month periods ending March 31, 2010 increased $2.1 million, or
25.9%, compared to the three-month period ending March 31, 2009. The increase was the result of a
decrease in the average cost of interest-bearing liabilities and a slight increase in the yield on
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 the three-month period ending March 31, 2010 decreased $0.6
million, or 39.6%, compared to the three-month period ending March 31, 2009. See the analysis of
the provision for loan losses included in the section captioned Provision for Loan Losses and Loan
Charge-offs elsewhere in this discussion.
Noninterest income for the three-month period ending March 31, 2010 decreased $0.1 million, or
5.2%, compared to the three-month period ending March 31, 2009, primarily to a decline in service
charges. See the analysis of noninterest income in the section captioned Noninterest Income
included elsewhere in this discussion.
Noninterest expense for the three-month period ending March 31, 2010 increased $0.4 million, or
5.2%, compared to the three-month period ending March 31, 2009. This was primarily the result of an
increase in the costs of foreclosed assets and was partially offset by a decline in salaries. See
additional analysis of noninterest expense included in the section captioned Noninterest Expense
included elsewhere in this discussion.
Florida Region
The Florida segment experienced an operating loss of $3.0 million for the three-month period ending
March 31, 2010 compared to operating income of $2.4 million for the three-month period ending March
31, 2009. The decrease in profits was primarily the result of an increase in the provision for loan
losses and an increase in noninterest expense.
Net interest income for the three-month period ending March 31, 2010 increased $1.7 million, or
18.3%, compared to the three-month period ending March 31, 2009. The increase in margin was
primarily related to a decrease in the average cost of interest-bearing liabilities and an increase
in the volume of 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 the three-month period ending March 31, 2010 increased $5.7
million compared to the three-month period ending March 31, 2009. See the analysis of the provision
for loan losses included in the section captioned Provision for Loan Losses and Loan Charge-offs
included elsewhere in this discussion.
Noninterest income for the three-month period ending March 31, 2010 decreased approximately $0.1
million, or 12.2%, compared to the three-month period ending March 31, 2009, primarily due to a
decline in service charges. See the analysis of noninterest income in the section captioned
Noninterest Income included elsewhere in this discussion.
Noninterest expense for the three-month period ending March 31, 2010 increased $1.2 million, or
21.3%, compared to the three-month period ending March 31, 2009, primarily as a result of an
increase in the costs of foreclosed assets and salaries. See additional analysis of noninterest
expense included in the section captioned Noninterest Expense included elsewhere in this discussion.
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
38
data. These unobservable inputs are only utilized to the extent that observable inputs are not
available or cost-effective to obtain.
As of March 31, 2010 and December 31, 2009, we had $207.7 million, or 36.2%, and $213.8 million, or
49.0%, respectively, of total assets valued at fair value that are considered Level 3 valuations
using unobservable inputs. As shown in Note 11 to the consolidated financial statements,
available-for-sale securities with a carrying value of $14.0 million and $13.3 million, as of March
31, 2010 and December 31, 2009, 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 collateralized debt obligations (CDOs) backed by pooled trust
preferred securities and a single issuers trust preferred security. 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 below for additional discussion). As of March 31, 2010 the fair
values of five private-label mortgage-backed securities totaling $6.9 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 $193.7
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 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 11 to the condensed consolidated financial
statements for additional disclosures regarding fair value measurements.
Financial Condition
Total assets were $3.334 billion as of March 31, 2010, an increase of $122.5 million, or 3.8%, from
$3.222 billion as of December 31, 2009. Average total assets for the first quarter of 2010 were
$3.273 billion, which were funded by average total liabilities of $3.081 billion and average total
stockholders equity of $191.7 million.
Short-term liquid assets
Short-term liquid assets (cash and due from banks, interest-bearing deposits in other banks and
federal funds sold) increased $66.4 million, or 66.6%, to $166.2 million as of March 31, 2010 from
$99.8 million as of December 31, 2009. As of March 31, 2010, short-term liquid assets were 5.0% of
total assets, compared to 3.1% as of December 31, 2009. We continually monitor our liquidity
position and will increase or decrease our short-term liquid assets as we deem necessary. See
Liquidity for additional discussion.
Investment Securities
Total investment securities increased $38.5 million, or 13.5%, to $324.8 million as of March 31,
2010, from $286.3 million as of December 31, 2009. Average investment securities were $284.1
million and $342.3 million for the three-month periods ended March 31, 2010 and 2009, respectively.
Investment securities were 10.7% of interest-earning assets as of March 31, 2010 compared to 10.0%
as of December 31, 2009. The investment portfolio produced an average taxable equivalent yield of
4.83% and 5.52% for the three-month periods ended March 31, 2010 and 2009, respectively.
There were no sales of available-for-sale securities during the three-month periods ended March 31,
2010 and 2009. In April 2010, we sold certain U.S Agency MBS with combined amortized cost and
market values of $79.2 million and $80.7 million, respectively. We reinvested a portion of the
proceeds into a like amount of U. S Agency MBS guaranteed by the Government National Mortgage
Association (Ginnie Mae). This repositioning is expected to reduce the duration of the portfolio
and improve risk-based capital. In addition, we will realize a net gain of approximately $1.4
million. A portion of these securities had impairment losses of approximately $0.2 million, which
we realized in the first quarter.
39
Investment Portfolio
The following table presents the carrying value of securities we held as of the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-Sale |
|
|
|
March 31, |
|
|
December 31, |
|
|
Percent |
|
|
|
2010 |
|
|
2009 |
|
|
Change |
|
|
|
(Dollars in thousands) |
|
Investment securities available-for-sale: |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. agency securities |
|
$ |
36,880 |
|
|
$ |
53,681 |
|
|
|
(31.3 |
)% |
Mortgage-backed securities (MBS): |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Agency pass-through |
|
|
179,453 |
|
|
|
163,724 |
|
|
|
9.6 |
|
U.S. Agency collateralized mortgage obligation (CMO) |
|
|
52,328 |
|
|
|
12,759 |
|
|
|
310.1 |
|
Private-label CMO |
|
|
15,196 |
|
|
|
16,191 |
|
|
|
(6.1 |
) |
|
|
|
|
|
|
|
|
|
|
Total MBS |
|
|
246,977 |
|
|
|
192,674 |
|
|
|
28.2 |
|
State, county and municipal securities |
|
|
31,175 |
|
|
|
31,462 |
|
|
|
(0.9 |
) |
Corporate obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt |
|
|
4,000 |
|
|
|
4,000 |
|
|
|
|
|
Pooled trust preferred securities |
|
|
3,371 |
|
|
|
3,203 |
|
|
|
5.2 |
|
Single issue trust preferred securities |
|
|
2,062 |
|
|
|
977 |
|
|
|
111.1 |
|
|
|
|
|
|
|
|
|
|
|
Total corporate obligations |
|
|
9,433 |
|
|
|
8,180 |
|
|
|
15.3 |
|
|
|
|
|
|
|
|
|
|
|
Equity securities |
|
|
358 |
|
|
|
313 |
|
|
|
14.4 |
|
|
|
|
|
|
|
|
|
|
|
Total investment securities available-for-sale |
|
$ |
324,823 |
|
|
$ |
286,310 |
|
|
|
13.5 |
% |
|
|
|
|
|
|
|
|
|
|
40
The following table summarizes the investment securities with unrealized losses as of March 31,
2010 by aggregated major security type and length of time in a continuous unrealized loss position:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 Months |
|
More than 12 Months |
|
Total |
|
|
Fair |
|
Unrealized |
|
Fair |
|
Unrealized |
|
Fair |
|
Unrealized |
|
|
Value |
|
Losses (1) |
|
Value |
|
Losses (1) |
|
Value |
|
Losses (1) |
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands) |
|
|
|
|
|
|
|
|
Temporarily Impaired |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Agency securities |
|
$ |
22,998 |
|
|
$ |
318 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
22,998 |
|
|
$ |
318 |
|
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Agency pass-through |
|
|
13,955 |
|
|
|
201 |
|
|
|
239 |
|
|
|
8 |
|
|
|
14,194 |
|
|
|
209 |
|
U.S. Agency CMO |
|
|
9,969 |
|
|
|
164 |
|
|
|
|
|
|
|
|
|
|
|
9,969 |
|
|
|
164 |
|
Private-label CMO |
|
|
|
|
|
|
|
|
|
|
11,215 |
|
|
|
1,337 |
|
|
|
11,215 |
|
|
|
1,337 |
|
|
|
|
|
|
|
|
Total MBS |
|
|
23,924 |
|
|
|
365 |
|
|
|
11,454 |
|
|
|
1,345 |
|
|
|
35,378 |
|
|
|
1,710 |
|
State, county and municipal securities |
|
|
8,581 |
|
|
|
196 |
|
|
|
2,061 |
|
|
|
176 |
|
|
|
10,642 |
|
|
|
372 |
|
Corporate obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt |
|
|
|
|
|
|
|
|
|
|
4,000 |
|
|
|
120 |
|
|
|
4,000 |
|
|
|
120 |
|
Single issue trust preferred securities |
|
|
|
|
|
|
|
|
|
|
2,062 |
|
|
|
2,938 |
|
|
|
2,062 |
|
|
|
2,938 |
|
|
|
|
|
|
|
|
Total corporate obligations |
|
|
|
|
|
|
|
|
|
|
6,062 |
|
|
|
3,058 |
|
|
|
6,062 |
|
|
|
3,058 |
|
Equity securities |
|
|
|
|
|
|
|
|
|
|
358 |
|
|
|
205 |
|
|
|
358 |
|
|
|
205 |
|
|
|
|
|
|
|
|
Total temporarily impaired securities |
|
|
55,503 |
|
|
|
879 |
|
|
|
19,935 |
|
|
|
4,784 |
|
|
|
75,438 |
|
|
|
5,663 |
|
Other-than-temporarily Impaired |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private-label CMO |
|
|
|
|
|
|
|
|
|
|
3,017 |
|
|
|
1,621 |
|
|
|
3,017 |
|
|
|
1,621 |
|
Corporate obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pooled trust preferred securities |
|
|
|
|
|
|
|
|
|
|
3,371 |
|
|
|
4,809 |
|
|
|
3,371 |
|
|
|
4,809 |
|
|
|
|
|
|
|
|
Total OTTI securities |
|
|
|
|
|
|
|
|
|
|
6,388 |
|
|
|
6,430 |
|
|
|
6,388 |
|
|
|
6,430 |
|
|
|
|
|
|
|
|
Total temporarily and
other-than-temporarily impaired |
|
$ |
55,503 |
|
|
$ |
879 |
|
|
$ |
26,323 |
|
|
$ |
11,214 |
|
|
$ |
81,826 |
|
|
$ |
12,093 |
|
|
|
|
|
|
|
|
|
|
|
(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.
41
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.
As of March 31, 2010, our securities portfolio consisted of 225 securities, 59 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
As of March 31, 2010, approximately 94% of the dollar volume of mortgage-backed securities we held
was issued by U.S. government-sponsored entities and agencies, primarily the Federal National
Mortgage Association (Fannie Mae), Federal Home Loan Mortgage Corporation (Freddie Mac) and
Ginnie Mae, institutions which the government has affirmed its commitment to support, and these
securities have nominal unrealized losses. Our mortgage-backed securities portfolio also includes
10 private-label CMOs with a market value of $15.2 million, which had net unrealized losses of
approximately $2.8 million as of March 31, 2010. 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 |
|
|
Net |
|
Rating |
|
|
|
|
|
Coverage |
|
|
Unrealized |
|
Moody/Fitch |
|
Count |
|
|
Ratios (1) |
|
|
Loss |
|
A1/NR |
|
|
1 |
|
|
|
3.04 |
|
|
$ |
(114 |
) |
Aaa/NR |
|
|
1 |
|
|
|
3.76 |
|
|
|
(1 |
) |
NR/AAA |
|
|
1 |
|
|
|
3.04 |
|
|
|
(154 |
) |
NR/AA |
|
|
1 |
|
|
|
2.90 |
|
|
|
(313 |
) |
Baa2-/AA |
|
|
1 |
|
|
|
N/A |
|
|
|
(582 |
) |
B2-/NR |
|
|
1 |
|
|
|
4.09 |
|
|
|
(116 |
) |
NR/BBB |
|
|
1 |
|
|
|
2.62 |
|
|
|
(57 |
) |
Caa1-/CCC (2) |
|
|
1 |
|
|
|
1.24 |
|
|
|
(1,621 |
) |
NR/C (2) |
|
|
2 |
|
|
|
0.08 - 0.36 |
|
|
|
181 |
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
10 |
|
|
|
|
|
|
$ |
(2,777 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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. |
42
During the first quarter of 2010, we recognized an immaterial amount of OTTI on one of the
private-label CMOs. 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. As of March 31,
2010, the fair values of the three private-label CMO securities with OTTI totaling $4.0 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. 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 11 for additional disclosure).
The following table provides additional information regarding these CMO valuations as of March 31,
2010 (Dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year-to-Date |
|
|
|
|
|
|
|
|
Margin |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual |
|
OTTI |
|
|
|
|
Price |
|
|
Basis |
|
|
|
|
|
|
Cumulative |
|
|
Average |
|
|
60+ Days |
|
Credit |
|
|
|
|
|
|
|
Security |
|
|
(%) |
|
|
Points |
|
|
Yield |
|
|
Default |
|
|
Security |
|
|
Delinquent |
|
Portion |
|
|
Other |
|
|
Total |
|
CMO 1 |
|
|
18.45 |
|
|
|
1710 |
|
|
|
18% |
|
|
58.33% |
|
|
50% |
|
|
9.30% |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
CMO 2 |
|
|
20.30 |
|
|
|
1608 |
|
|
|
17% |
|
|
49.07% |
|
|
45% |
|
|
28.33% |
|
|
|
|
|
|
|
|
|
|
|
|
CMO 4 |
|
|
60.34 |
|
|
|
1387 |
|
|
|
17% |
|
|
27.16% |
|
|
45% |
|
|
15.82% |
|
|
(21 |
) |
|
|
|
|
|
|
(21 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(21 |
) |
|
$ |
|
|
|
$ |
(21 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the first quarter of 2010, CMO 3, which had a nominal remaining amortized cost, was
completely written off. We do not expect to recover any future cash flows.
As of March 31, 2010, 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 as of March 31,
2010. We believe that all contractual cash flows will be received on this portfolio.
As of March 31, 2010, 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.
Trust preferred securities
Our investment portfolio includes
four CDOs whose collateral
are pooled trust preferred securities of various financial institutions. We also own a single
issuers trust preferred security. 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; |
|
|
|
Discounted cash flow modeling. |
43
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, gradually leveling off 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.
44
The following tables provide various information and fair value model assumptions regarding our
CDOs as of March 31, 2010 (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 |
|
$ |
1,940 |
|
|
$ |
902 |
|
|
$ |
(1,038 |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
MM Community Funding Ltd |
|
Pooled |
|
B |
|
|
2,028 |
|
|
|
839 |
|
|
|
(1,189 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Term Securities V |
|
Pooled |
|
MEZ |
|
|
1,209 |
|
|
|
403 |
|
|
|
(806 |
) |
|
|
(24 |
) |
|
|
|
|
|
|
(24 |
) |
Tpref Funding III Ltd |
|
Pooled |
|
B-2 |
|
|
3,027 |
|
|
|
1,227 |
|
|
|
(1,800 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Emigrant Capital Trust (1) |
|
Single |
|
Sole |
|
|
5,000 |
|
|
|
2,062 |
|
|
|
(2,938 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
13,204 |
|
|
$ |
5,433 |
|
|
$ |
(7,771 |
) |
|
$ |
(24 |
) |
|
$ |
|
|
|
$ |
(24 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Original Collateral - |
|
Performing Collateral - |
|
|
|
|
|
|
|
|
|
|
|
|
Percent of Actual |
|
Percent of Expected |
|
|
|
|
Lowest |
|
Performing |
|
Deferrals and |
|
Deferrals and |
|
Excess |
Name |
|
Rating |
|
Banks |
|
Defaults |
|
Defaults |
|
Subordination (2) |
MM Caps Funding I Ltd |
|
Ca |
|
|
22 |
|
|
|
17 |
% |
|
|
18 |
% |
|
|
0 |
% |
MM Community Funding Ltd |
|
Ca |
|
|
8 |
|
|
|
21 |
% |
|
|
39 |
% |
|
|
0 |
% |
Preferred Term Securities
V |
|
Ba3 |
|
|
1 |
|
|
|
5 |
% |
|
|
44 |
% |
|
|
0 |
% |
Tpref Funding III Ltd |
|
Ca |
|
|
24 |
|
|
|
24 |
% |
|
|
28 |
% |
|
|
0 |
% |
Emigrant Capital Trust (1) |
|
NR |
|
NA |
|
NA |
|
NA |
|
NA |
|
|
|
|
|
|
|
|
|
|
|
Fair Value |
|
Discount Margin |
|
Yield |
Name |
|
(Price to Par) |
|
(Basis Points) |
|
(Basis Points) |
MM Caps Funding I Ltd |
|
$ |
43.04 |
|
|
Swap + 1700 |
|
9.48% Fixed |
MM Community Funding Ltd |
|
|
16.78 |
|
|
LIBOR + 1500 |
|
LIBOR + 310 |
Preferred Term Securities V |
|
|
29.34 |
|
|
LIBOR + 1400 |
|
LIBOR + 210 |
Tpref Funding III Ltd |
|
|
30.67 |
|
|
LIBOR + 1200 |
|
LIBOR + 190 |
Emigrant Capital Trust (1) |
|
|
41.24 |
|
|
LIBOR + 1123 |
|
LIBOR + 200 |
|
|
|
(1) |
|
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 1123 basis points was derived from
implied credit spreads from certain publicly traded trust preferred securities within the
issuers peer group. |
|
(2) |
|
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 April 2009, management received notification that interest payments related to New South Capital
would be deferred for up to 20 quarters. In addition, New South Capitals 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 into receivership.
45
In addition to the impact of interest rates, the estimated fair value of these CDOs have been and
will continue to be depressed, as a result of unusual credit conditions that the financial industry has faced
since the middle of 2008 and a weakening economy, both of which have severely reduced the demand for these
securities and rendered their trading market inactive.
As of March 31, 2010, 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 for the
period indicated:
|
|
|
|
|
|
|
For the |
|
|
|
Three Months Ended |
|
|
|
March 31, 2010 |
|
|
|
(Dollars in thousands) |
|
Balance at beginning of period |
|
$ |
8,869 |
|
Amounts related to credit losses for which an OTTI was not previously recognized
|
|
|
154 |
|
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 |
|
|
45 |
|
Reductions
for securities where there is an intent to sale or requirement to sale |
|
|
(154 |
) |
Reductions for increases in cash flows expected to be collected |
|
|
(28 |
) |
|
|
|
|
Balance at end of period |
|
$ |
8,886 |
|
|
|
|
|
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 March 31, 2010,
we had stock in FHLB Atlanta in the amount of $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 managements
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. FHLB Atlanta reported net income of $283.5
million for 2009, a $29.7 million, or 11.7% increase from 2008. During the second quarter of 2009,
FHLB Atlanta reinstated its dividend at a rate of 0.84%, 0.41% and 0.27%, for the second, third and
fourth quarters of 2009, respectively, resulting in an annualized dividend rate of 0.38%. In addition, a
decision was made by the Board of the FHLB Atlanta to retain a larger portion of earnings and
significantly higher capital ratios than in previous years. 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 2009, 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
46
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, the cost, and thus the investment
was not impaired as of March 31, 2010.
Loans
Composition of Loan Portfolio, Yield Changes and Diversification
Our loans, net of unearned income, were $2.505 billion as of March 31, 2010, an increase of 1.3%,
or $32.8 million, from $2.473 billion as of December 31, 2009. Mortgage loans held for sale were
$54.4 million as of March 31, 2010, a decrease of 24.4%, or $17.5 million from $71.9 million as of
December 31, 2009. Average loans, including mortgage loans held for sale, for the three months
ended March 31, 2010, were $2.539 billion compared to $2.463 billion for the year ended December
31, 2009. Loans, net of unearned income, comprised 82.6% of interest-earning assets as of March 31,
2010, compared to 85.4% as of December 31, 2009. Mortgage loans held for sale comprised 1.8% of
interest-earning assets as of March 31, 2010, compared to 2.5% as of December 31, 2009. The average
yield of the loan portfolio was 5.81% and 5.84% for the three months ended March 31, 2010 and
December 31, 2009, respectively. The decrease in the average yield was primarily the result of a
generally lower level of market rates.
The following table details the distribution of our loan portfolio by category for the periods
presented:
Distribution of Loans by Category
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010 |
|
|
December 31, 2009 |
|
|
|
|
|
|
|
Percent of |
|
|
|
|
|
|
Percent of |
|
|
|
Amount |
|
|
Total |
|
|
Amount |
|
|
Total |
|
|
|
(Dollars in thousands) |
|
|
(Dollars in thousands) |
|
Commercial and industrial |
|
$ |
203,488 |
|
|
|
8.11 |
% |
|
$ |
213,329 |
|
|
|
8.62 |
% |
Real estate
construction and land
development |
|
|
693,851 |
|
|
|
27.66 |
|
|
|
680,445 |
|
|
|
27.48 |
|
Real estate mortgages |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single-family |
|
|
703,968 |
|
|
|
28.06 |
|
|
|
691,364 |
|
|
|
27.93 |
|
Commercial |
|
|
823,260 |
|
|
|
32.82 |
|
|
|
801,813 |
|
|
|
32.39 |
|
Other |
|
|
27,655 |
|
|
|
1.10 |
|
|
|
28,885 |
|
|
|
1.17 |
|
Consumer |
|
|
55,476 |
|
|
|
2.21 |
|
|
|
58,785 |
|
|
|
2.37 |
|
Other |
|
|
873 |
|
|
|
0.04 |
|
|
|
969 |
|
|
|
0.04 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans |
|
|
2,508,571 |
|
|
|
100.00 |
% |
|
|
2,475,590 |
|
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unearned income |
|
|
(3,106 |
) |
|
|
|
|
|
|
(2,893 |
) |
|
|
|
|
Allowance for loan losses |
|
|
(43,190 |
) |
|
|
|
|
|
|
(41,884 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loans |
|
$ |
2,462,275 |
|
|
|
|
|
|
$ |
2,430,813 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47
The following table shows the amount of total loans, net of unearned income, by segment and the
percent change for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
December 31, |
|
Percent |
|
|
2010 |
|
2009 |
|
Change |
|
|
(Dollars in thousands) |
|
|
|
|
Total loans, net of unearned income |
|
$ |
2,505,465 |
|
|
$ |
2,472,697 |
|
|
|
1.3 |
% |
Alabama segment |
|
|
992,702 |
|
|
|
996,545 |
|
|
|
(0.4 |
) |
Florida segment |
|
|
1,232,388 |
|
|
|
1,213,202 |
|
|
|
1.6 |
|
Other |
|
|
280,375 |
|
|
|
262,950 |
|
|
|
6.6 |
|
A further analysis of the components of our real estate construction and land development and real
estate mortgage loans for the periods indicated is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential |
|
|
Commercial |
|
|
|
|
|
|
Development |
|
|
Development |
|
|
Total |
|
|
|
(Dollars in thousands) |
|
Real estate construction and land development |
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
Alabama segment |
|
$ |
164,316 |
|
|
$ |
101,325 |
|
|
$ |
265,641 |
|
Florida segment |
|
|
129,730 |
|
|
|
273,524 |
|
|
|
403,254 |
|
Other |
|
|
7,856 |
|
|
|
17,100 |
|
|
|
24,956 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
301,902 |
|
|
$ |
391,949 |
|
|
$ |
693,851 |
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single- |
|
|
|
|
|
|
family |
|
|
Commercial |
|
|
|
(Dollars in thousands) |
|
Real estate mortgages |
|
|
|
|
|
|
|
|
|
As of March 31, 2010 |
|
|
|
|
|
|
|
|
Alabama segment |
|
$ |
470,601 |
|
|
$ |
307,154 |
|
Florida segment |
|
|
194,456 |
|
|
|
485,039 |
|
Other |
|
|
38,911 |
|
|
|
31,067 |
|
|
|
|
|
|
|
|
Total |
|
$ |
703,968 |
|
|
$ |
823,260 |
|
|
|
|
|
|
|
|
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 |
|
|
|
|
|
|
|
|
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 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.
48
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:
|
|
|
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) that 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.
49
The following table summarizes certain information with respect to our allowance for loan
losses and the composition of charge-offs and recoveries for the periods indicated:
Summary of Loan Loss Experience
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Year Ended |
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2009 |
|
|
|
(Dollars in thousands) |
|
Allowance for loan losses at beginning of period |
|
$ |
41,884 |
|
|
$ |
28,850 |
|
|
$ |
28,850 |
|
Charge-offs: |
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial |
|
|
55 |
|
|
|
56 |
|
|
|
1,390 |
|
Real estate construction and land development |
|
|
5,592 |
|
|
|
924 |
|
|
|
4,870 |
|
Real estate mortgage |
|
|
|
|
|
|
|
|
|
|
|
|
Single-family |
|
|
1,052 |
|
|
|
547 |
|
|
|
5,372 |
|
Commercial |
|
|
542 |
|
|
|
340 |
|
|
|
1,094 |
|
Other |
|
|
|
|
|
|
179 |
|
|
|
210 |
|
Consumer |
|
|
704 |
|
|
|
695 |
|
|
|
3,346 |
|
Other |
|
|
142 |
|
|
|
68 |
|
|
|
379 |
|
|
|
|
|
|
|
|
|
|
|
Total charge-offs |
|
|
8,087 |
|
|
|
2,809 |
|
|
|
16,661 |
|
Recoveries: |
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial |
|
|
32 |
|
|
|
67 |
|
|
|
161 |
|
Real estate construction and land development |
|
|
16 |
|
|
|
20 |
|
|
|
68 |
|
Real estate mortgage |
|
|
|
|
|
|
|
|
|
|
|
|
Single-family |
|
|
55 |
|
|
|
11 |
|
|
|
71 |
|
Commercial |
|
|
24 |
|
|
|
3 |
|
|
|
277 |
|
Other |
|
|
47 |
|
|
|
198 |
|
|
|
251 |
|
Consumer |
|
|
70 |
|
|
|
42 |
|
|
|
186 |
|
Other |
|
|
22 |
|
|
|
37 |
|
|
|
131 |
|
|
|
|
|
|
|
|
|
|
|
Total recoveries |
|
|
266 |
|
|
|
378 |
|
|
|
1,145 |
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs |
|
|
7,821 |
|
|
|
2,431 |
|
|
|
15,516 |
|
Provision for loan losses |
|
|
9,127 |
|
|
|
3,452 |
|
|
|
28,550 |
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses at end of period |
|
$ |
43,190 |
|
|
$ |
29,871 |
|
|
$ |
41,884 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans at end of period, net of unearned |
|
$ |
2,505,465 |
|
|
$ |
2,359,299 |
|
|
$ |
2,472,697 |
|
Average loans, net of unearned income |
|
|
2,492,209 |
|
|
|
2,342,025 |
|
|
|
2,401,805 |
|
Ratio of ending allowance to ending loans |
|
|
1.72 |
% |
|
|
1.27 |
% |
|
|
1.69 |
% |
Ratio of net
charge-offs to average loans(1) |
|
|
1.27 |
|
|
|
0.42 |
|
|
|
0.65 |
|
Net charge-offs as a percentage of: |
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan losses |
|
|
85.70 |
|
|
|
70.43 |
|
|
|
54.35 |
|
Allowance
for loan losses(1) |
|
|
73.44 |
|
|
|
33.01 |
|
|
|
37.04 |
|
Allowance for loan losses as a percentage of nonperforming loans |
|
|
24.27 |
|
|
|
40.24 |
|
|
|
26.25 |
|
50
The allowance as a percentage of loans, net of unearned income, as of March 31, 2010 was
1.72%, compared to 1.69% as of December 31, 2009. Net charge-offs increased $1.4 million, from
$6.4 million during the fourth quarter of 2009 to $7.8 million for the three months ended March 31,
2010. Net charge-offs of commercial loans decreased by $0.9 million for the three months ended
March 31, 2010. Net charge-offs of real estate loans increased $2.4 million, from $4.6 million in
the fourth quarter of 2009 to $7.0 million for the three months ended March 31, 2010. Net
charge-offs of consumer loans decreased $0.3 million, to $0.6 million for the three months ended
March 31, 2010 from $0.9 million in the fourth quarter of 2009. Net charge-offs as a percentage of
the allowance for loan losses were 73.44% for the three months ended March 31, 2010, up from 60.63%
for the fourth quarter of 2009 and 33.01% for three months ended March 31, 2009.
Net charge-offs related to construction and land development real estate loans increased $3.6
million in the three months ended March 31, 2010, from $2.0 million in the fourth quarter of 2009
to $5.6 million. Commercial real estate construction and land development net charge-offs accounted
for $4.1 million, or 74.1%, of the total losses from this portfolio, with $1.5 million, or 25.9%,
coming from residential construction and land development. Of the commercial purpose loan losses,
all were located in Florida.
Our consumer loan charge-offs decreased during the three months ended March 31, 2010 when compared
to the fourth quarter of 2009, primarily due to reduced losses in our consumer finance companies,
which accounted for approximately $0.5 million, or 80.3%, 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 24.27% as of March 31, 2010 from 26.25% as of December 31,
2009. Approximately $17.8 million of the allowance for loan losses was specifically allocated to
nonperforming loans as of March 31, 2010. As of March 31, 2010, nonperforming loans were $178.0
million, of which $173.7 million, or 97.6%, were loans secured by real estate compared to $159.6
million, or 97.9%, as of December 31, 2009. 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.
51
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.
Allocation of the Allowance for Loan Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010 |
|
|
December 31, 2009 |
|
|
|
|
|
|
|
Percent |
|
|
|
|
|
|
Percent |
|
|
|
|
|
|
|
of Loans |
|
|
|
|
|
|
of Loans |
|
|
|
|
|
|
|
in Each |
|
|
|
|
|
|
in Each |
|
|
|
|
|
|
|
Category |
|
|
|
|
|
|
Category |
|
|
|
|
|
|
|
to Total |
|
|
|
|
|
|
to Total |
|
|
|
Amount |
|
|
Loans |
|
|
Amount |
|
|
Loans |
|
|
|
(Dollars in thousands) |
|
Commercial and industrial |
|
$ |
2,473 |
|
|
|
8.1 |
% |
|
$ |
2,356 |
|
|
|
8.6 |
% |
Real estate construction and land development |
|
|
22,224 |
|
|
|
27.7 |
|
|
|
17,971 |
|
|
|
27.5 |
|
Real estate mortgages |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single-family |
|
|
11,988 |
|
|
|
28.1 |
|
|
|
12,342 |
|
|
|
27.9 |
|
Commercial |
|
|
4,585 |
|
|
|
32.8 |
|
|
|
7,019 |
|
|
|
32.4 |
|
Other |
|
|
133 |
|
|
|
1.1 |
|
|
|
371 |
|
|
|
1.2 |
|
Consumer |
|
|
1,787 |
|
|
|
2.2 |
|
|
|
1,825 |
|
|
|
2.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
43,190 |
|
|
|
100.0 |
% |
|
$ |
41,884 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
During the three months ended March 31, 2010, we increased the allowance for loan losses related to
construction and land development real estate loans by $4.2 million, from $18.0 million as of
December 31, 2009 to $22.2 million as of March 31, 2010, because of continued weakness and
increasing levels of risk due to general economic conditions in the construction and land
development real estate markets throughout our franchise.
Our allocation of the allowance for loan losses related to single-family mortgage loans decreased
slightly to $12.0 million as of March 31, 2010 from $12.3 million as of December 31, 2009. This
allocation reflects the continued 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.
52
Nonperforming Assets
Nonperforming
assets increased $23.5 million, or 11.6%, to $225.0 million as of March 31, 2010 from $201.5
million as of December 31, 2009. As a percentage of net loans plus nonperforming assets,
nonperforming assets increased to 8.82% as of March 31, 2010 from 8.01% as of December 31, 2009.
The overall increase in nonperforming assets was primarily related to real estate construction and
commercial mortgage loan portfolios. Sixteen loans in excess of $0.5 million accounted for $18.5
million, or 79.0% of the total net increase in nonperforming assets. Approximately 74.5% of the net
increase in nonperforming real estate construction consisted of eight real estate construction
credits over $1.0 million totaling $11.9 million. All of these large credits are located in
Florida. The commercial real estate increase was primarily the result of two Florida commercial
real estate credits in the hospitality and warehouse categories that totaled $4.3 million.
Management continues to actively work to mitigate the risks of loss across all categories of the
loan portfolio. As of March 31, 2010, of our total nonperforming credits, only 28 were 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 periods indicated:
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(Dollars in thousands) |
|
Nonaccrual |
|
$ |
167,490 |
|
|
$ |
155,631 |
|
Accruing loans 90 days or more delinquent |
|
|
10,477 |
|
|
|
3,920 |
|
|
|
|
|
|
|
|
Total nonperforming loans |
|
|
177,967 |
|
|
|
159,551 |
|
Other real estate owned assets |
|
|
46,679 |
|
|
|
41,618 |
|
Repossessed assets |
|
|
375 |
|
|
|
380 |
|
|
|
|
|
|
|
|
Total nonperforming assets |
|
$ |
225,021 |
|
|
$ |
201,549 |
|
|
|
|
|
|
|
|
Restructured and performing under restructured terms, net of specific allowance |
|
$ |
133,707 |
|
|
$ |
110,777 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonperforming loans as a percentage of loans |
|
|
7.10 |
% |
|
|
6.45 |
% |
|
|
|
|
|
|
|
Nonperforming assets as a percentage of loans plus nonperforming assets |
|
|
8.82 |
% |
|
|
8.01 |
% |
|
|
|
|
|
|
|
Nonperforming assets as a percentage of total assets |
|
|
6.73 |
% |
|
|
6.26 |
% |
|
|
|
|
|
|
|
53
The following is a summary of nonperforming loans by category for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(Dollars in thousands) |
|
Commercial and industrial |
|
$ |
2,981 |
|
|
$ |
1,797 |
|
Real estate construction and land development |
|
|
|
|
|
|
|
|
Residential |
|
|
34,459 |
|
|
|
23,818 |
|
Commercial |
|
|
54,542 |
|
|
|
49,240 |
|
Real estate mortgages |
|
|
|
|
|
|
|
|
Single-family |
|
|
50,836 |
|
|
|
52,323 |
|
Commercial |
|
|
33,530 |
|
|
|
30,343 |
|
Other |
|
|
336 |
|
|
|
436 |
|
Consumer |
|
|
629 |
|
|
|
734 |
|
Other |
|
|
654 |
|
|
|
860 |
|
|
|
|
|
|
|
|
Total nonperforming loans |
|
$ |
177,967 |
|
|
$ |
159,551 |
|
|
|
|
|
|
|
|
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.
As of March 31, 2010, single-family residential mortgages accounted for $50.8 million, or 28.6%, of
total nonperforming loans, down $1.5 million from $52.3 million as of December 31, 2009.
Foreclosure activity during the three months ended March 31, 2010 resulted in $12.3 million of new
foreclosures, with residential construction properties accounting for $4.6 million, or 37.5%, of
the new foreclosures, commercial construction represented $2.2 million, or 18.1%; single family
residential properties accounting for $4.2 million, or 33.7%, commercial real estate (CRE)
properties accounted for another $1.3 million, or 10.7%. Approximately 66.4% of foreclosures
originated in Florida and the remaining 33.6% originated in
Alabama. Our OREO acquired through
foreclosure was $46.7 million as of March 31, 2010 an increase of $5.1 million from $41.6 million
as of December 31, 2009.
The following is a summary of other real estate owned by category for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(Dollars in thousands) |
|
Acreage |
|
$ |
2,177 |
|
|
$ |
2,251 |
|
Commercial buildings |
|
|
8,012 |
|
|
|
5,226 |
|
Residential condominiums |
|
|
1,568 |
|
|
|
2,730 |
|
Residential single-family homes |
|
|
19,384 |
|
|
|
15,696 |
|
Residential lots |
|
|
14,736 |
|
|
|
14,613 |
|
Other |
|
|
802 |
|
|
|
1,102 |
|
|
|
|
|
|
|
|
Other real estate owned |
|
$ |
46,679 |
|
|
$ |
41,618 |
|
|
|
|
|
|
|
|
54
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
As of March 31, 2010, our recorded investment in impaired loans, under ASC 310-35 was $290.0
million, an increase of $9.7 million from $280.3 million as of December 31, 2009. Approximately
$196.5 million was located in the Florida Region and $93.5 million was located in the Alabama
Region. Approximately $21.2 million of the allowance for loan losses was specifically allocated to
these loans, providing 7.30% coverage. Additionally, $288.0 million, or 99.3%, of the $290.0
million in impaired loans was secured by real estate.
The following is a summary of impaired loans and the specifically allocated allowance for loan
losses by category for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010 |
|
|
December 31, 2009 |
|
|
|
Oustanding |
|
|
Specific |
|
|
Oustanding |
|
|
Specific |
|
|
|
Balance |
|
|
Allowance |
|
|
Balance |
|
|
Allowance |
|
|
|
|
|
|
|
(Dollars in thousands) |
|
|
|
|
|
Commercial and industrial |
|
$ |
2,085 |
|
|
$ |
1,243 |
|
|
$ |
3,032 |
|
|
$ |
1,053 |
|
Real estate construction and land development |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential |
|
|
41,424 |
|
|
|
4,188 |
|
|
|
31,912 |
|
|
|
3,044 |
|
Commercial |
|
|
70,166 |
|
|
|
7,765 |
|
|
|
82,356 |
|
|
|
3,675 |
|
Real estate mortgages |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single-family |
|
|
56,890 |
|
|
|
5,771 |
|
|
|
53,229 |
|
|
|
5,005 |
|
Commercial |
|
|
119,267 |
|
|
|
2,161 |
|
|
|
109,222 |
|
|
|
1,686 |
|
Other |
|
|
219 |
|
|
|
59 |
|
|
|
500 |
|
|
|
62 |
|
Consumer |
|
|
|
|
|
|
|
|
|
|
97 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
290,051 |
|
|
$ |
21,187 |
|
|
$ |
280,348 |
|
|
$ |
14,527 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 $143.7 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 considered troubled debt restructurings (TDRs) where the terms of
these loans have been restructured based on the expected future cash flows. Included in our
impaired loans are nonperforming loans with specific impairment and loans considered 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.
All impaired loans are reviewed and evaluated on at least a quarterly basis for additional
impairment and adjusted accordingly.
55
The following is a summary of our TDRs as of March 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructured |
|
|
|
Performing |
|
|
Not-Performing |
|
|
|
in accordance |
|
|
in accordance |
|
|
|
with restructured terms |
|
|
with restructured terms |
|
|
|
Oustanding |
|
|
Specific |
|
|
Oustanding |
|
|
Specific |
|
|
|
Balance |
|
|
Allowance |
|
|
Balance |
|
|
Allowance |
|
|
|
(Dollars in thousands) |
|
Alabama: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Real estate construction and land development |
|
|
2,728 |
|
|
|
1 |
|
|
|
252 |
|
|
|
|
|
Real estate mortgages |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single-family |
|
|
12,803 |
|
|
|
350 |
|
|
|
1,748 |
|
|
|
238 |
|
Commercial |
|
|
22,769 |
|
|
|
360 |
|
|
|
152 |
|
|
|
|
|
Consumer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
38,300 |
|
|
$ |
711 |
|
|
$ |
2,152 |
|
|
$ |
238 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Florida |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial |
|
$ |
908 |
|
|
$ |
865 |
|
|
$ |
303 |
|
|
$ |
7 |
|
Real estate construction and land development |
|
|
27,528 |
|
|
|
566 |
|
|
|
|
|
|
|
|
|
Real estate mortgages |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single-family |
|
|
5,880 |
|
|
|
912 |
|
|
|
3,211 |
|
|
|
410 |
|
Commercial |
|
|
64,667 |
|
|
|
522 |
|
|
|
|
|
|
|
|
|
Consumer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
98,983 |
|
|
$ |
2,865 |
|
|
$ |
3,514 |
|
|
$ |
417 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial |
|
$ |
908 |
|
|
$ |
865 |
|
|
$ |
303 |
|
|
$ |
7 |
|
Real estate construction and land development |
|
|
30,256 |
|
|
|
567 |
|
|
|
252 |
|
|
|
|
|
Real estate mortgages |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single-family |
|
|
18,683 |
|
|
|
1,262 |
|
|
|
4,959 |
|
|
|
648 |
|
Commercial |
|
|
87,436 |
|
|
|
882 |
|
|
|
152 |
|
|
|
|
|
Consumer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
137,283 |
|
|
$ |
3,576 |
|
|
$ |
5,666 |
|
|
$ |
655 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Potential Problem Loans
In addition to nonperforming loans, management has identified $51.8 million in potential problem
loans as of March 31, 2010. 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 93.3% of total potential
problem loans. Real estate construction loans account for 59.7% of the total and single family
residential loans and commercial real estate loans accounted for 24.7% and 8.9%, respectively.
Geographically, 72.1% 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.
Included in potential problem loans is a single relationship in the Florida region, totaling
approximately $21.6 million, which is primarily secured by land and the assignment of cash flows
from certain income producing properties. Management expects to reach a resolution on this credit
prior to the end of the second quarter.
56
High Loan-to-Value (LTV)
The following table includes our high LTV loans secured by single family properties, without
private mortgage insurance (PMI) or other government guarantee as of March 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
$ |
32,734 |
|
|
|
4.7 |
% |
|
$ |
516 |
|
|
|
0.1 |
% |
|
$ |
|
|
|
|
|
|
|
$ |
1,982 |
|
|
|
0.3 |
% |
|
$ |
2,498 |
|
|
|
0.4 |
% |
100% and greater LTV |
|
|
5,894 |
|
|
|
0.9 |
|
|
|
293 |
|
|
|
0.0 |
|
|
|
124 |
|
|
|
0.0 |
|
|
|
651 |
|
|
|
0.1 |
|
|
|
1,068 |
|
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
38,628 |
|
|
|
5.6 |
|
|
$ |
809 |
|
|
|
0.1 |
|
|
$ |
124 |
|
|
|
0.0 |
|
|
$ |
2,633 |
|
|
|
0.4 |
|
|
$ |
3,566 |
|
|
|
0.5 |
|
|
|
|
|
|
|
|
|
|
|
|
57
Deposits
Noninterest-bearing deposits were $263.5 million as of March 31, 2010, an increase of 2.3%, or
$5.8 million, from $257.7 million as of December 31, 2009. Noninterest-bearing deposits were 9.6%
of total deposits as of March 31, 2009 compared to 9.7% as of December 31, 2009.
Interest-bearing deposits were $2.490 billion as of March 31, 2010, an increase of 3.8%, or
$91.0 million, from $2.399 billion as of December 31, 2009. Interest-bearing deposits averaged
$2.445 billion for the three months ended March 31, 2010 compared to $2.200 billion for the three
months ended March 31, 2009. The average rate paid on all interest-bearing deposits during the
three months ended March 31, 2010 and 2009, was 1.91% and 2.75%, respectively.
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
2010, which have grown to $479.6 million as of March 31, 2010. Of this growth, $46.8 million
occurred in the first three months of 2010. 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 as of the periods
indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
Percent |
|
|
|
2010 |
|
|
2009 |
|
|
Change |
|
|
|
(Dollars in thousands) |
|
|
|
|
|
Noninterest-bearing demand |
|
$ |
263,546 |
|
|
$ |
257,744 |
|
|
|
2.3 |
% |
Alabama segment |
|
|
136,615 |
|
|
|
137,160 |
|
|
|
(0.4 |
) |
Florida segment |
|
|
118,299 |
|
|
|
103,621 |
|
|
|
14.2 |
|
Other |
|
|
8,632 |
|
|
|
16,963 |
|
|
|
(49.1 |
) |
Interest-bearing demand |
|
|
669,152 |
|
|
|
690,677 |
|
|
|
(3.1 |
) |
Alabama segment |
|
|
382,242 |
|
|
|
385,246 |
|
|
|
(0.8 |
) |
Florida segment |
|
|
243,171 |
|
|
|
233,740 |
|
|
|
4.0 |
|
Other |
|
|
43,739 |
|
|
|
71,691 |
|
|
|
(39.0 |
) |
Savings |
|
|
321,921 |
|
|
|
284,430 |
|
|
|
13.2 |
|
Alabama segment |
|
|
166,675 |
|
|
|
151,263 |
|
|
|
10.2 |
|
Florida segment |
|
|
153,253 |
|
|
|
131,185 |
|
|
|
16.8 |
|
Other |
|
|
1,993 |
|
|
|
1,982 |
|
|
|
0.6 |
|
Time deposits |
|
|
1,498,759 |
|
|
|
1,423,722 |
|
|
|
5.3 |
|
Alabama segment |
|
|
709,287 |
|
|
|
663,510 |
|
|
|
6.9 |
|
Florida segment |
|
|
596,549 |
|
|
|
555,262 |
|
|
|
7.4 |
|
Other |
|
|
192,923 |
|
|
|
204,950 |
|
|
|
(5.9 |
) |
|
|
|
|
|
|
|
|
|
|
Total deposits |
|
$ |
2,753,378 |
|
|
$ |
2,656,573 |
|
|
|
3.6 |
% |
|
|
|
|
|
|
|
|
|
|
Alabama segment |
|
$ |
1,394,819 |
|
|
$ |
1,337,179 |
|
|
|
4.3 |
% |
|
|
|
|
|
|
|
|
|
|
Florida segment |
|
$ |
1,111,272 |
|
|
$ |
1,023,808 |
|
|
|
8.5 |
% |
|
|
|
|
|
|
|
|
|
|
Other |
|
$ |
247,287 |
|
|
$ |
295,586 |
|
|
|
(16.3 |
)% |
|
|
|
|
|
|
|
|
|
|
Borrowings
During the three months ended March 31, 2010, average borrowed funds decreased $2.5 million, or
0.9%, to $269.0 million, from $271.5 million for the three months ended December 31, 2009. The
average rate paid on borrowed funds during the three months ended March 31, 2010 and 2009 was
3.80%, and 3.71%, 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.
As of March 31, 2010, advances from the FHLB were $218.3 million comparable to December 31, 2009.
FHLB Atlanta advances had a weighted average interest rate of approximately 3.74% as of March 31, 2010. The
advances are secured by FHLB Atlanta stock, agency securities and a blanket lien on certain residential
real estate loans and commercial loans, all with a carrying value of approximately $934.2 million as of March 31, 2010. We had approximately $147.1 million available in unused
advances under the blanket lien subject to the availability of qualifying collateral.
58
Accrued Expenses and Other Liabilities
Our Accrued Expenses and other liabilities increased $29.6 million to $53.9 million as of March 31,
2010 from $24.3 million as of December 31, 2009. This increase was primarily related to commitments
to purchase certain investment securities totaling approximately $30 million which settled in April
2010.
Stockholders Equity
Overview
Our stockholders equity was $187.2 million as of March 31, 2010 compared to $191.7 million as of
December 31, 2009. This decrease was primarily due to the net loss for the period, partially offset
by the components of other comprehensive income (loss) as shown below.
On May 6, 2010, we entered into an agreement to issue $10 million of our Series B Cumulative
Convertible Preferred Stock (the Preferred Stock) for cash consideration equal to $10 million.
See Recent Developments for additional disclosure.
Other Comprehensive Income
The components of other comprehensive (loss) income for the periods indicated are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-Tax |
|
|
Income Tax |
|
|
Net of |
|
|
|
Amount |
|
|
Expense |
|
|
Income Tax |
|
|
|
(Dollars in thousands) |
|
Three Months Ended March 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain on available-for-sale securities |
|
$ |
1,540 |
|
|
$ |
(570 |
) |
|
$ |
970 |
|
Reclassification adjustment for losses realized in net loss |
|
|
198 |
|
|
|
(73 |
) |
|
|
125 |
|
Unrealized loss on derivatives |
|
|
(158 |
) |
|
|
59 |
|
|
|
(99 |
) |
|
|
|
|
|
|
|
|
|
|
Net unrealized gain |
|
$ |
1,580 |
|
|
$ |
(584 |
) |
|
$ |
996 |
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on available-for-sale securities |
|
$ |
(8,394 |
) |
|
$ |
3,105 |
|
|
$ |
(5,289 |
) |
Reclassification adjustment for losses realized in net loss |
|
|
5,845 |
|
|
|
(2,163 |
) |
|
|
3,682 |
|
Unrealized loss on derivatives |
|
|
(29 |
) |
|
|
11 |
|
|
|
(18 |
) |
|
|
|
|
|
|
|
|
|
|
Net unrealized loss |
|
$ |
(2,578 |
) |
|
$ |
953 |
|
|
$ |
(1,625 |
) |
|
|
|
|
|
|
|
|
|
|
Please refer to the Financial Condition Investment Securities section for additional discussion
regarding the realized/unrealized gains and losses on the investment securities portfolio.
59
Regulatory Capital
The table
below represents Superior Banks regulatory and minimum regulatory capital requirements for
the period indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
To Be Well |
|
|
|
|
|
|
|
|
|
|
For |
|
Capitalized Under |
|
|
|
|
|
|
|
|
|
|
Capital Adequacy |
|
Prompt Corrective |
|
|
Actual |
|
Purposes |
|
Action |
|
|
Amount |
|
Ratio |
|
Amount |
|
Ratio |
|
Amount |
|
Ratio |
|
|
(Dollars in thousands) |
|
Superior Bank |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 Core Capital (to Adjusted Total Assets) |
|
$ |
237,763 |
|
|
|
7.18 |
% |
|
$ |
132,459 |
|
|
|
4.00 |
% |
|
$ |
165,574 |
|
|
|
5.00 |
% |
Total Capital (to Risk Weighted Assets) |
|
|
269,766 |
|
|
|
10.11 |
|
|
|
213,384 |
|
|
|
8.00 |
|
|
|
266,730 |
|
|
|
10.00 |
|
Tier 1 Capital (to Risk Weighted Assets) |
|
|
237,763 |
|
|
|
8.91 |
|
|
NA |
|
NA |
|
|
160,038 |
|
|
|
6.00 |
|
Tangible Capital (to Adjusted Total Assets) |
|
|
237,763 |
|
|
|
7.18 |
|
|
|
49,672 |
|
|
|
1.50 |
|
|
NA |
|
NA |
Liquidity
Our principal sources of funds are deposits, principal and interest payments on loans, federal
funds sold and maturities and sales of investment securities. In addition to these sources of
liquidity, we have access to purchased funds from several regional financial institutions, the
Federal Reserve Discount Window and brokered deposits, and may borrow from the FHLB Atlanta under a blanket
floating lien on certain commercial loans and residential real estate loans.
Also, we have established certain repurchase agreements with a large financial institution. While
scheduled loan repayments and maturing investments are relatively predictable, interest rates,
general economic conditions and competition primarily influence deposit flows and early loan
payments. Management places constant emphasis on the maintenance of adequate liquidity to meet
conditions that might reasonably be expected to occur. Management believes it has established
sufficient sources of funds to meet its anticipated liquidity needs.
As shown
in the Condensed Consolidated Statement of Cash Flows, operating activities provided $20.2
million and used $14.1 million for the three months ended March 31, 2010 and 2009, respectively,
primarily due to changes in mortgage loans held-for-sale.
Investing
activities resulted in a $50.9 million and $38.9 million net use of funds for the three
months ended March 31, 2010 and 2009, respectively, primarily due to an increase in loans and
purchases of investment securities, partially offset by principal paydowns in the investment
securities portfolio.
Financing activities provided $97.1 million and $82.8 million in funds for the three months ended
March 31, 2010 and 2009, respectively, primarily as a result of an increase in customer deposits.
In addition, in the first quarter of 2009, funds were also provided by proceeds from senior
unsecured debt and were partially offset by the maturity of FHLB Atlanta advances.
Forward-Looking Statements
The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking
statements made by us or on our behalf. Some of the disclosures in this Quarterly Report on Form
10-Q, including any statements preceded by, followed by or which include the words may, could,
should, will, would, hope, might, believe, expect, anticipate, estimate,
intend, plan, assume or similar expressions constitute forward-looking statements.
These forward-looking statements, implicitly and explicitly, include the assumptions underlying the
statements and other information with respect to our beliefs, plans, objectives, goals,
expectations, anticipations, estimates, intentions, financial condition, results of operations,
future performance and business, including our expectations and estimates with respect to our
revenues, expenses, earnings, return on equity, return on assets, efficiency ratio, asset quality,
the adequacy of our allowance for loan losses and other financial data and capital and performance
ratios.
Although we believe that the expectations reflected in our forward-looking statements are
reasonable, these statements involve risks and uncertainties which are subject to change based on
various important factors (some of which are beyond our control). Such forward looking statements
should, therefore, be considered in light of various important factors set forth from time to time
in our reports and
60
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) increases in
FDIC deposit insurance premiums and assessments; (4) inflation, interest rate, market and monetary
fluctuations; (5) our ability to successfully integrate the assets, liabilities, customers, systems
and management we acquire or merge into our operations; (6) 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; (7) the willingness of users to substitute competitors
products and services for our products and services; (8) changes in loan underwriting, credit
review or loss reserve policies associated with economic conditions, examination conclusions, or
regulatory developments; our ability to resolve any legal proceeding on acceptable terms and its
effect on our financial condition or results of operations; (9) 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; (10) our focus
on lending to small to mid-size community-based businesses, which may increase our credit risk;
(11) our ability to resolve any legal proceeding on acceptable terms and its effect on our
financial condition or results of operations; (12) technological changes; (13) changes in consumer
spending and savings habits; (14) the effect of natural or environmental disasters, such as, among
other things, hurricanes and oil spills, in our geographic markets; (15) regulatory, legal or
judicial proceedings; (16) the continuing instability in the domestic and international capital
markets; (17) the effects of new and proposed laws relating to financial institutions and credit
transactions; (18) the effects of policy initiatives that have been and may continue to be
introduced by the Presidential administration or Congress and related regulatory actions; and (19)
our success in any new capital financing activities we may undertake.
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 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information shown under the caption Item 7. Managements Discussion and Analysis of Financial
Condition and Results of Operations-Market Risk-Interest Rate Sensitivity included in our Annual
Report on Form 10-K for the year ended December 31, 2009, is hereby incorporated herein by
reference.
Market risk is the risk of loss arising from adverse changes in the fair values of financial
instruments due to changes in interest rates, exchange rates, commodity prices, equity prices or
credit quality.
Interest Rate Sensitivity
Our primary market risk component is interest rate risk (IRR). We define interest rate risk as
an adverse change in our net interest income (NII) or economic value of equity (EVE) due to
changing interest rates. IRR results because changing interest rates affect the values of and the
cash flows generated by our assets, liabilities, and off-balance sheet items in different ways.
Sensitivity Measurement
Financial simulation models are the primary tools we use to measure interest rate risk exposures.
By examining a range of hypothetical deterministic interest rate scenarios, these models provide
management with information regarding the potential impact on NII and EVE caused by changes in
interest rates.
The models are built to simulate the cash flows and accounting accruals generated by the financial
instruments on our balance sheet, and for NII simulations, the cash flows generated by the new
business we anticipate over a 12-month forecast horizon. Numerous assumptions are made in the
modeling process, including balance sheet composition, the pricing, re-pricing and maturity
characteristics of existing business and new business. Additionally, loan and investment
prepayment, administered rate account elasticity and other option risks are considered as well as
the uncertainty surrounding future customer behavior.
61
Interest Rate Exposures
Superior Banks net interest income simulation model projects that net interest income over a
12-month horizon will increase on an annual basis by 1.1%, or approximately $1.1 million, assuming
an instantaneous and parallel increase in interest rates of 200 basis points. The following is a
comparison of these measurements for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change (in Basis Points) |
|
Increase in Net Interest Income |
in Interest Rates |
|
March 31, 2010 |
|
December 31, 2009 |
(12-Month Projection) |
|
Amount |
|
Percent |
|
Amount |
|
Percent |
|
|
|
|
|
|
(Dollars in thousands) |
|
|
|
|
+ 200 BP (1) |
|
$ |
1,139 |
|
|
|
1.1 |
% |
|
$ |
2,200 |
|
|
|
2.3 |
% |
- 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. |
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
over a longer time horizon. A higher EVE results in a greater earnings capacity. Superior Banks
EVE model projects that EVE will increase 2.4% and 2.0% 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 1.5% (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 March 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change |
Change (in Basis Points) in Interest Rates |
|
EVE |
|
Amount |
|
Percent |
|
|
(Dollars in thousands) |
|
|
|
|
+ 200 BP |
|
$ |
300,342 |
|
|
$ |
7,154 |
|
|
|
2.4 |
% |
+ 100 BP |
|
|
299,116 |
|
|
|
5,922 |
|
|
|
2.0 |
|
0 BP |
|
|
293,184 |
|
|
|
|
|
|
|
|
|
- 100 BP |
|
|
297,447 |
|
|
|
4,251 |
|
|
|
1.5 |
|
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.
ITEM 4. CONTROLS AND PROCEDURES
CEO and CFO Certification
Appearing as exhibits to this report are Certifications of our Chief Executive Officer (CEO) and
our Chief Financial Officer (CFO). The Certifications are required to be made by Rule 13a-14
under the Securities Exchange Act of 1934, as amended. This Item contains the information about the
evaluation that is referred to in the Certifications, and the information set forth below in this
Item 4 should be read in conjunction with the Certifications for a more complete understanding of
the Certifications.
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures 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 March 31, 2010, 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
62
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.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
While we are a party to various legal proceedings arising in the ordinary course of business, we
believe that there are no proceedings threatened or pending against us at this time that will
individually, or in the aggregate, materially adversely affect our business, financial condition or
results of operations. We believe that we have strong claims and defenses in each lawsuit in which
we are involved. While we believe that we will prevail in each lawsuit, there can be no assurance
that the outcome of the pending, or any future, litigation, either individually or in the
aggregate, will not have a material adverse effect on our financial condition or our results of
operations.
ITEM 1A. RISK FACTORS
Our business is influenced by many factors that are difficult to predict, involve uncertainties
that may materially affect actual results and are often beyond our control. We have identified a
number of these risk factors and summarized our Enterprise Risk Management process in our Annual
Report on Form 10-K for the year ended December 31, 2009, which should be taken into consideration
when reviewing the information contained in this report.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
There were no unregistered sales of equity securities during the first quarter of 2010.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. OTHER INFORMATION
ITEM 5. EXHIBITS
(a) Exhibit:
31.1 |
|
Certification of principal executive officer pursuant to Rule 13a-14(a). |
|
31.2 |
|
Certification of principal financial officer pursuant to Rule 13a-14(a). |
|
32.1 |
|
Certification of principal executive officer pursuant to 18 U.S.C. Section 1350. |
|
32.2 |
|
Certification of principal financial officer pursuant to 18 U.S.C. Section 1350. |
63
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
|
|
|
Date: May 10, 2010 |
By: |
/s/ C. Stanley Bailey
|
|
|
|
C. Stanley Bailey |
|
|
|
Chief Executive Officer |
|
|
|
|
|
Date: May 10, 2010 |
By: |
/s/ James A. White
|
|
|
|
James A. White |
|
|
|
Chief Financial Officer
(Principal Financial Officer) |
|
64