SUPERIOR BANCORP
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C.
20549
Form 10-K
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(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended
December 31, 2006
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or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from
to
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Commission file number
0-25033
SUPERIOR BANCORP
(Exact Name of Registrant as
Specified in Its Charter)
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Delaware
(State or Other
Jurisdiction of
Incorporation or Organization)
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63-1201350
(I.R.S. Employer
Identification No.)
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17 North
20th Street
Birmingham, Alabama
(Address of Principal
Executive Offices)
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35203
(Zip
Code)
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(205) 327-1400
(Registrants Telephone
Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, par value $.001 per share
(Titles of Class)
Securities registered pursuant to Section 12(g) of the Act:
NONE
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No þ
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ
Indicate by check mark whether the
registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer or a non-accelerated
filer.
Large accelerated
filer o Accelerated
filer þ Non-accelerated
filer o
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Act.)
Yes o No þ
The aggregate market value of the voting common stock held by
non-affiliates of the registrant as of March 12, 2007,
based on a closing price of $11.21 per share of common stock,
was $361,356,984.
Indicate the number of shares outstanding of each of the
registrants classes of common stock as of the latest
practicable date: the number of shares outstanding as of
March 12, 2007, of the registrants only issued and
outstanding class of common stock, its $.001 per share par
value common stock, was 34,658,368.
DOCUMENTS INCORPORATED BY REFERENCE
The information set forth under Items 10, 11, 12, 13
and 14 of Part III of this Report is incorporated by
reference from the registrants definitive proxy statement
for its 2007 annual meeting of stockholders that will be filed
no later than April 30, 2007.
TABLE OF CONTENTS
PART I
General
We are a Delaware-chartered thrift holding company headquartered
in Birmingham, Alabama. We offer a broad range of banking and
related services in 54 locations in Alabama and Florida through
Superior Bank, our principal subsidiary. Superior Banks
consumer finance subsidiaries operate an additional 18 consumer
finance offices in North Alabama. We had assets of approximately
$2.441 billion, loans of approximately $1.640 billion,
deposits of approximately $1.871 billion and
stockholders equity of approximately $276 million at
December 31, 2006. Our principal executive offices are
located at 17 North 20th Street, Birmingham, Alabama 35203,
and our telephone number is
(205) 327-1400.
We were founded in 1997 and completed our initial public
offering in December 1998. Beginning in the fall of 1998, we
grew through the acquisition of various financial institutions
in Alabama and Florida.
In January 2005, we began the transition from our founding
management team to a new senior management team composed of
veteran bankers with a strong operational track record and a
history of enhancing stockholder value. During the remainder of
2005, we completed that management transition. In addition, in
November 2005 we converted our principal subsidiary, now known
as Superior Bank, from an Alabama state-chartered bank to a
federally chartered thrift regulated by the Office of Thrift
Supervision (OTS). We believe that this conversion
allows us greater flexibility in our operations, as well as
allowing Superior Bank to operate under a single regulatory
system rather than the dual federal/state regulatory system that
had been applicable to it.
During 2006, we expanded our franchise with two strategic
acquisitions. On August 31, 2006, we entered the Tampa,
Florida market when we acquired Kensington Bankshares, Inc.
(Kensington) and its subsidiary, First Kensington
Bank. On November 7, 2006, we increased our market presence
in North Alabama by acquiring Community Bancshares, Inc
(Community) and its subsidiary, Community Bank.
Recently
Announced Merger Agreement
On January 18, 2007, we announced that we had signed a
definitive agreement to merge with Peoples Community
Bancshares, Inc. (Peoples). Peoples is
the holding company for Peoples Community Bank of the West
Coast, a Florida state bank with three branches in Sarasota and
Manatee Counties in Florida. Under the terms of the merger
agreement, we will issue 2.9036 shares of our common stock
for each share of Peoples stock. Based on recent closing
prices per share for our common stock, the transaction would be
valued at approximately $77.1 million. The actual value at
consummation will be based on our share price at that time.
Completion of the merger is subject to approval by the
stockholders of Peoples, to the receipt of required
regulatory approvals, and to the satisfaction of usual and
customary closing conditions.
Strategy
Operations. We focus our services on small- to
medium-sized businesses, as well as professionals and
individuals, emphasizing our local decision-making, effective
response time and personalized service. As a result, we conduct
our business on a decentralized basis with respect to deposit
gathering and most credit decisions, utilizing local knowledge
and authority to make these decisions. We supplement this
decentralized management approach with centralized loan
administration, policy oversight, credit review, audit, legal,
asset/liability management, data processing, human resources and
risk management systems. We implement these standardized
administrative and operational policies at each of our locations
while retaining local management and advisory directors to
capitalize on their knowledge of the local community.
Products and Services. Superior Bank provides
a wide range of retail and small business services, including
noninterest-bearing and interest-bearing checking, savings and
money market accounts, negotiable order of withdrawal
(NOW) accounts, certificates of deposit and
individual retirement accounts. In addition, Superior Bank
offers an extensive array of consumer, small business,
residential real estate and commercial real estate loan
products. Other financial services include annuities, automated
teller machines, debit cards, credit-related life and
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disability insurance, safety deposit boxes, Internet banking,
bill payment and telephone banking. Superior Bank attracts
primary banking relationships through the customer-oriented
service environment created by Superior Banks personnel
combined with competitive financial products.
Superior Bank also owns two consumer finance companies, Superior
Financial Services, LLC and
1st Community
Credit Corporation. The finance companies generally provide
smaller loans to a market segment traditionally not pursued by
Superior Bank. These loans typically involve greater risk and
generate higher yields than standard bank loans. We believe
that, by conducting this business, we reach a customer base not
served by our banking operations.
Market Areas. We are headquartered in
Birmingham, Alabama. Our primary markets are located in northern
and central Alabama, the panhandle of Florida and the Tampa,
Florida area.
Superior Bank has branches in:
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Alabama
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Florida
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Albertville
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Andalusia
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Altha
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Athens
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Birmingham
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Apalachicola
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Blountsville
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Boaz
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Blountstown
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Childersburg
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Cleveland
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Bristol
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Decatur
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Elkmont
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Carrabelle
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Falkville
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Frisco City
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Clearwater
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Gadsden
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Gardendale
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Mexico Beach
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Guntersville
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Gurley
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New Port Richey
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Haleyville
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Hamilton
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Palm Harbor
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Hartselle
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Huntsville
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Port Richey
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Jones Valley
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Kinston
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Port St. Joe
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Madison
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Meridianville
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Spring Hill
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Monroeville
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New Hope
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Sun City Center
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Oneonta
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Opp
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Tallahassee
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Rainbow City
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Rogersville
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Tampa
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Samson
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Snead
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Wesley Chapel
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Sylacauga
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Uniontown
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Warrior
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In addition to our branches, we operate loan production offices
in Montgomery, Alabama, and Panama City and Tallahassee,
Florida. Our finance company subsidiaries have offices in
Albertville, Arab, Athens, Boaz, Cullman, Decatur,
Fort Payne, Gadsden, Hartselle, Huntsville, Jasper,
Oneonta, Oxford, Pell City and Talladega, Alabama.
Growth. Our future growth depends primarily on
the expansion of the business of our primary wholly owned
subsidiary, Superior Bank. That expansion will depend on
internal growth and the opening of new branch offices in new and
existing markets. Superior Bank may also continue to engage in
the strategic acquisition of other financial institutions and
branches that have relatively high earnings and low-cost
deposits or that we believe to have exceptional growth
potential, such as the acquisitions completed in 2006 and the
Peoples acquisition described above. Our ability to
increase profitability and to grow internally depends primarily
on our ability to attract and retain low-cost core deposits
while continuing to generate high-yielding, quality loans. Our
ability to grow profitably through the opening or acquisition of
new branches will depend primarily on, among other things, our
ability to identify growing markets and branch locations within
such markets that will enable us to attract the necessary
deposits to operate such branches profitably, and identify
lending and investment opportunities within such markets.
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We periodically evaluate business combination opportunities and
conduct discussions, due diligence activities and negotiations
in connection with those opportunities. As a result, we may
pursue business combination transactions involving cash, debt or
equity securities from time to time. Any future business
combination or series of business combinations that we might
undertake may be material to our business, financial condition
or results of operations in terms of assets acquired or
liabilities assumed. Any future acquisition is subject to
approval by the appropriate regulatory agencies. See
Supervision and Regulation.
Lending
Activities
General. We offer various lending services,
including real estate, consumer and commercial loans, primarily
to individuals and businesses and other organizations that are
located in or conduct a substantial portion of their business in
our market areas. Our total loans at December 31, 2006 were
$1.640 billion, or 78.9% of total earning assets. The
interest rates we charge on loans vary with the risk, maturity
and amount of the loan and are subject to competitive pressures,
money market rates, availability of funds and government
regulations. We do not have any foreign loans or loans for
highly leveraged transactions.
The lending activities of Superior Bank are subject to the
written underwriting standards and loan origination procedures
established by Superior Banks Board of Directors and
management. Loan originations are obtained from a variety of
sources, including referrals, existing customers, walk-in
customers and advertising. Loan applications are initially
processed by loan officers who have approval authority up to
designated limits.
We use generally recognized loan underwriting criteria, and
attempt to minimize loan losses through various means. In
particular, on larger credits, we generally rely on the cash
flow of a debtor as the primary source of repayment and
secondarily on the value of the underlying collateral. In
addition, we attempt to utilize shorter loan terms in order to
reduce the risk of a decline in the value of such collateral. As
of December 31, 2006, approximately 77.9% of our loan
portfolio consisted of loans that had variable interest rates or
matured within one year.
We address repayment risks by adhering to internal credit
policies and procedures that include officer and customer
lending limits, a multi-layered loan approval process that
includes senior management of Superior Bank and Superior Bancorp
for larger loans, periodic documentation examination and
follow-up
procedures for any exceptions to credit policies. The level in
our loan approval process at which a loan is approved depends on
the size of the borrowers overall credit relationship with
Superior Bank.
Loan
Portfolio
Real Estate Loans. Loans secured by real
estate are a significant component of our loan portfolio,
constituting $1.413 billion, or 86.1% of total loans, at
December 31, 2006. At that date, $456.3 million, or
27.8% of our total loan portfolio, consisted of single-family
mortgage loans. Nonresidential mortgage loans include commercial
and industrial loans. At December 31, 2006,
$409.4 million, or 24.9% of our total loan portfolio,
consisted of these loans. Our commercial real estate loans
primarily provide financing for income-producing properties such
as shopping centers, multi-family complexes and office buildings
and for owner-occupied properties (primarily light industrial
facilities and office buildings). These loans are underwritten
with
loan-to-value
ratios ranging, on average, from 65% to 85% based upon the type
of property being financed and the financial strength of the
borrower. For owner-occupied commercial buildings, we underwrite
the financial capability of the owner, with an 85% maximum
loan-to-value
ratio. For income-producing improved real estate, we underwrite
the strength of the leases, especially those of any anchor
tenants, with minimum debt service coverage of 1.2:1 and an 85%
maximum
loan-to-value
ratio. While evaluation of collateral is an essential part of
the underwriting process for these loans, repayment ability is
determined from analysis of the borrowers earnings and
cash flow. Terms are typically three to five years and may have
payments through the date of maturity based on a 15- to
30-year
amortization schedule.
We make loans to finance the construction of and improvements to
single-family and multi-family housing and commercial structures
as well as loans for land development. At December 31,
2006, $547.8 million, or 33.4% of our total portfolio,
consisted of such loans. Our construction lending is divided
into three general categories: owner-occupied commercial
buildings; income-producing improved real estate; and
single-family residential construction. For construction loans
related to income-producing properties, the underwriting
criteria are the same as
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outlined in the preceding paragraph. For single-family
residential construction, we underwrite the financial strength
and reputation of the builder, factoring in the general state of
the economy and interest rates and the location of the home,
with an 85% maximum
loan-to-value
ratio. The majority of land development loans consists of loans
to convert raw land into residential subdivisions.
Commercial and Industrial Loans. We make loans
for commercial purposes in various lines of business. These
loans are typically made on terms up to five years at fixed or
variable rates and are secured by eligible accounts receivable,
inventory or equipment. We attempt to reduce our credit risk on
commercial loans by limiting the loan to value ratio to 80% on
loans secured by eligible accounts receivable, 50% on loans
secured by inventory and 75% on loans secured by equipment.
Commercial and industrial loans constituted $172.9 million,
or 10.5% of our loan portfolio, at December 31, 2006. We
also, from time to time, make unsecured commercial loans.
Consumer Loans. Our consumer portfolio
includes installment loans to individuals in our market areas
and consists primarily of loans to purchase automobiles,
recreational vehicles, mobile homes and consumer goods. Consumer
loans constituted $54.5 million, or 3.3% of our loan
portfolio, at December 31, 2006. Consumer loans are
underwritten based on the borrowers income, current debt,
credit history and collateral. Terms generally range from one to
six years on automobile loans and one to three years on other
consumer loans.
Credit
Review and Procedures
There are credit risks associated with making any loan. These
include repayment risks, risks resulting from uncertainties in
the future value of collateral, risks resulting from changes in
economic and industry conditions and risks inherent in dealing
with individual borrowers. In particular, longer maturities
increase the risk that economic conditions will change and
adversely affect collectibility.
We have a loan review process designed to promote early
identification of credit quality problems. We employ a risk
rating system that assigns to each loan a rating that
corresponds to the perceived credit risk. Risk ratings are
subject to independent review by a centralized loan review
department, which also performs ongoing, independent review of
the risk management process, including underwriting,
documentation and collateral control. Regular reports are made
to senior management and the Board of Directors regarding credit
quality as measured by assigned risk ratings and other measures,
including, but not limited to, the level of past due percentages
and nonperforming assets. The loan review function is
centralized and independent of the lending function.
Deposits
Core deposits are our principal source of funds, constituting
approximately 71.4% of our total deposits as of
December 31, 2006. Core deposits consist of demand
deposits, interest-bearing transaction accounts, savings
deposits and certificates of deposit (excluding certificates of
deposits over $100,000). Transaction accounts include checking,
money market and NOW accounts that provide Superior Bank with a
source of fee income and cross-marketing opportunities, as well
as a low-cost source of funds. Time and savings accounts also
provide a relatively stable and low-cost source of funding. The
largest source of funds for Superior Bank is certificates of
deposit. Certificates of deposit in excess of $100,000 are
approximately $534 million, or 28.5% of our deposits.
Approximately $149 million consist of wholesale, or
brokered, certificates of deposits.
Our other primary source of funds is advances from the Federal
Home Loan Bank (FHLB). These advances are secured by
FHLB stock, agency securities and a blanket lien on certain
residential and commercial real estate loans. We also have
available unused federal funds lines of credit with regional
banks, subject to certain restrictions and collateral
requirements.
Deposit rates are set periodically by our internal
Asset/Liability Management Committee, which includes certain
members of senior management. We believe our rates are
competitive with those offered by competing institutions in our
market areas.
Competition
The banking industry is highly competitive, and our
profitability depends principally upon our ability to compete in
our market areas. In our market areas, we face competition from
both super-regional banks and smaller
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community banks, as well as non-bank financial services
companies. We encounter strong competition both in making loans
and attracting deposits. Competition among financial
institutions is based upon interest rates offered on deposit
accounts, interest rates charged on loans and other credit and
service charges. Customers also consider the quality and scope
of the services rendered, the convenience of banking facilities
and, in the case of loans to commercial borrowers, relative
lending limits. Customers may also take into account the fact
that other banks offer different services. Many of the large
super-regional banks against which we compete have significantly
greater lending limits and may offer additional products;
however, we believe we have been able to compete effectively
with other financial institutions, regardless of their size, by
emphasizing customer service and by providing a wide array of
services. In addition, most of our non-bank competitors are not
subject to the same extensive federal regulations that govern
bank holding companies and federally insured banks. See
Supervision and Regulation. Competition may further
intensify if additional financial services companies enter
markets in which we conduct business.
Employees
As of December 31, 2006, we employed approximately
711 full-time equivalent employees, primarily at Superior
Bank. We believe that our employee relations have been and
continue to be good.
Supervision
and Regulation
General. Superior Bancorp, as a unitary
savings and loan holding company, and Superior Bank, as a
federal savings bank, are required by federal law to report to,
and otherwise comply with the rules and regulations of, OTS. We
are subject to extensive regulation, examination and supervision
by OTS, as our primary federal regulator, and the Federal
Deposit Insurance Corporation (the FDIC), as the
deposit insurer. We are a member of the Federal Home
Loan Bank System and, with respect to deposit insurance, of
the Deposit Insurance Fund managed by the FDIC. We must file
reports with OTS and the FDIC concerning our activities and
financial condition in addition to obtaining regulatory
approvals prior to entering into certain transactions such as
mergers with, or acquisitions of, other financial institutions.
OTS conducts periodic examinations to test our safety and
soundness and compliance with various regulatory requirements.
This regulation and supervision establishes a comprehensive
framework of activities in which a thrift can engage and is
intended primarily for the protection of the insurance fund and
depositors. The regulatory structure also gives the regulatory
authorities extensive discretion in connection with their
supervisory and enforcement activities and examination policies,
including policies with respect to the classification of assets
and the establishment of adequate loan loss reserves for
regulatory purposes. Any change in such regulatory requirements
and policies, whether by OTS, the FDIC or Congress, could have a
material adverse impact on us and our operations. Certain
regulatory requirements applicable to us are referred to below
or elsewhere herein. The description of statutory provisions and
regulations applicable to thrifts and their holding companies
set forth below does not purport to be a complete description of
such statutes and regulations and their effects on us and is
qualified in its entirety by reference to the actual laws and
regulations.
Holding Company Regulation. We are a
nondiversified unitary savings and loan holding company within
the meaning of such terms under federal law. The
Gramm-Leach-Bliley Act of 1999 provides that no company may
acquire control of a savings institution after May 4, 1999,
unless it engages only in the financial activities permitted for
financial holding companies under the law or for multiple
savings and loan holding companies as described below. Further,
the Gramm-Leach-Bliley Act specifies that certain savings and
loan holding companies may only engage in such activities. Since
we became a savings and loan holding company in 2005, we are
limited to such activities. Upon any non-supervisory acquisition
by us of another savings institution or savings bank that meets
the qualified thrift lender test and is deemed to be a savings
institution by OTS, we would become a multiple savings and loan
holding company (if the acquired institution is held as a
separate subsidiary) and would generally be limited to
activities permissible for bank holding companies under
Section 4(c)(8) of the Bank Holding Company Act, subject to
the prior approval of the OTS, and certain activities authorized
by OTS regulation. However, OTS has issued an interpretation
concluding that the multiple savings and loan holding companies
may also engage in activities permitted for financial holding
companies.
A savings and loan holding company is prohibited from directly
or indirectly acquiring more than 5% of the voting stock of
another financial institution or savings and loan holding
company without prior written approval of
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OTS and from acquiring or retaining control of a depository
institution that is not insured by the FDIC. In evaluating
applications by holding companies to acquire other institutions,
OTS considers, among other things, the financial and managerial
resources and future prospects of the institutions involved, the
effect of the acquisition on the risk to the deposit insurance
funds, the convenience and needs of the community and
competitive factors.
Subject to certain exceptions, OTS may not approve any
acquisition that would result in a multiple savings and loan
holding companys controlling savings institutions in more
than one state.
Although savings and loan holding companies are not currently
subject to specific capital requirements or specific
restrictions on the payment of dividends or other capital
distributions, federal regulations prescribe such restrictions
on subsidiary savings institutions, as described below. Superior
Bank must notify OTS 30 days before declaring any dividend
to Superior Bancorp. In addition, the financial impact of a
holding company on its subsidiary institution is a matter that
is evaluated by OTS, and OTS has authority to order cessation of
activities or divestiture of subsidiaries deemed to pose a
threat to the safety and soundness of the institution.
Change in Bank Control Act. Under the Federal
Change in Bank Control Act, a notice must be submitted to OTS if
any person, or group acting in concert, seeks to acquire
control of a savings and loan holding company or a
savings association. A change of control may occur, and prior
notice may be required, upon the acquisition of more than 10% of
our outstanding voting stock, unless OTS has found that the
acquisition will not result in a change of control of Superior
Bancorp. Under the Change in Bank Control Act, OTS generally has
60 days from the filing of a complete notice to act, taking
into consideration certain factors, including the financial and
managerial resources of the acquirer and the anti-trust effects
of the acquisition.
Regulation of Business Activities. The
activities of thrifts are governed by federal laws and
regulations. These laws and regulations delineate the nature and
extent of the activities in which thrifts may engage. In
particular, certain lending authority for thrifts, e.g.,
commercial loans, non-residential real property loans and
consumer loans, is limited to a specified percentage of the
institutions capital or assets.
Capital Requirements. OTS capital regulations
require savings institutions to meet three minimum capital
standards: a 1.5% tangible capital to total assets ratio, a 4%
leverage ratio (3% for institutions receiving the highest rating
on the regulatory examination rating system) and an 8%
risk-based capital ratio. In addition, the prompt corrective
action standards discussed below also establish, in effect, a
minimum 2% tangible capital standard, a 4% leverage ratio (3%
for institutions receiving the highest examination rating), and,
together with the risk-based capital standard itself, a 4%
Tier 1 risk-based capital standard.
The risk-based capital standard for savings institutions
requires the maintenance of ratios of Tier 1 (core) and
total capital (which is defined as core capital and
supplementary capital) to risk-weighted assets of at least 4%
and 8%, respectively. In determining the amount of risk-weighted
assets, all assets, including certain off-balance sheet assets,
recourse obligations, residual interests and direct credit
substitutes, are multiplied by a risk-weight factor of 0% to
100%, assigned by OTS capital regulation based on the risks
believed inherent in the type of asset. Core
(Tier 1) capital includes, among other things, common
stockholders equity (including retained earnings), certain
noncumulative perpetual preferred stock and related surplus, and
minority interests in equity accounts of consolidated
subsidiaries. The components of supplementary capital currently
include, among other things, cumulative perpetual preferred
stock, mandatory convertible securities, and the allowance for
loan and lease losses limited to a maximum of 1.25% of
risk-weighted assets. Overall, the amount of supplementary
capital included as part of total capital cannot exceed 100% of
core capital.
OTS also has authority to establish minimum capital requirements
in appropriate cases upon a determination that an
institutions capital level is or may become inadequate in
light of the particular circumstances. At December 31,
2006, Superior Bank met each of its capital requirements.
Prompt Corrective Regulatory Action. OTS is
required to take certain supervisory actions against
undercapitalized institutions, the severity of which depends
upon the institutions degree of undercapitalization.
Generally, a savings institution that has a ratio of total
capital to risk weighted assets of less than 8%, a ratio of
Tier 1 (core) capital to risk-weighted assets of less than
4% or a ratio of core capital to total assets of less than 4%
(less than 3% for institutions with the highest examination
rating) is considered to be undercapitalized. A
savings institution that has a total risk-based capital ratio of
less than 6%, a Tier 1 capital ratio of less than 3% or a
leverage
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ratio that is less than 3% is considered to be
significantly undercapitalized, and a savings
institution that has a tangible capital to assets ratio equal to
or less than 2% is deemed to be critically
undercapitalized. Subject to a narrow exception, OTS is
required to appoint a receiver or conservator within specified
time frames for an institution that is critically
undercapitalized. The regulation also provides that a
capital restoration plan must be filed with OTS within
45 days of the date a savings institution receives notice
that it is undercapitalized, significantly
undercapitalized or critically
undercapitalized. Compliance with the plan must be
guaranteed by any parent holding company. In addition, numerous
mandatory supervisory actions become immediately applicable to
an undercapitalized institution, including, but not limited to,
increased monitoring by regulators and restrictions on growth,
capital distributions and expansion. OTS could also take any one
of a number of discretionary supervisory actions, including the
issuance of a capital directive and the replacement of senior
executive officers and directors.
Insurance of Deposit Accounts. Superior Bank
is a member of the Deposit Insurance Fund of the FDIC. The FDIC
maintains a risk-based assessment system by which institutions
are assigned to one of four categories based upon a combination
of their capitalization and examination ratings. An
institutions assessment depends upon the category to which
it is assigned. An institution assigned to the category with the
lowest risk also has certain financial ratios taken into account
in determining assessment rates, unless it is a large
institution with at least one long-term debt issuer rating, in
which case the rating will be taken into account in determining
its assessment rate. Assessment rates for Deposit Insurance Fund
members currently range from five basis points for the
healthiest institutions to 43 basis points of assessable
deposits for the riskiest. The FDIC has the authority to
increase insurance assessments. A significant increase in
Deposit Insurance Fund insurance premiums would likely have an
adverse effect on the operating expenses and results of
operations of Superior Bank. Management cannot predict what
insurance assessment rates will be in the future.
In addition to the assessment for deposit insurance,
institutions are required to make payments on bonds issued in
the late 1980s by the Financing Corporation to recapitalize the
predecessor to the Savings Association Insurance Fund. During
fiscal 2006, Financing Corporation payments for Savings
Association Insurance Fund members approximated 1.385 basis
points of assessable deposits.
Deposit insurance may be terminated by the FDIC upon a finding
that the institution has engaged in unsafe or unsound practices,
is in an unsafe or unsound condition to continue operations or
has violated any applicable law, regulation, rule, order or
condition imposed by the FDIC or OTS. We do not know of any
practice, condition or violation that might lead to termination
of deposit insurance.
Loans to One Borrower. Federal law provides
that savings institutions are generally subject to the limits on
loans to one borrower applicable to national banks. Generally,
subject to certain exceptions, a savings institution may not
make a loan or extend credit to a single or related group of
borrowers in excess of 15% of its unimpaired capital and
surplus. An additional amount may be lent, equal to 10% of
unimpaired capital and surplus, if secured by specified
readily-marketable collateral.
QTL Test. Federal law requires savings
institutions to meet a qualified thrift lender test. Under the
test, a savings association is required to either qualify as a
domestic building and loan association under the
Internal Revenue Code or maintain at least 65% of its
portfolio assets (total assets less:
(i) specified liquid assets up to 20% of total assets;
(ii) intangibles, including goodwill; and (iii) the
value of property used to conduct business) in certain
qualified thrift investments (primarily residential
mortgages and related investments, including certain
mortgage-backed securities) in at least nine months out of each
12-month
period.
A savings institution that fails the qualified thrift lender
test is subject to certain operating restrictions and may be
required to convert to a bank charter. As of December 31,
2006, Superior Bank met the qualified thrift lender test. Recent
legislation has expanded the extent to which education loans,
credit card loans and small business loans may be considered
qualified thrift investments.
Limitations on Capital Distributions. OTS
regulations impose limitations upon all capital distributions by
a savings institution, including cash dividends, payments to
repurchase its shares and payments to shareholders of another
institution in a cash-out merger. Under the regulations, an
application to and prior approval of the OTS is required prior
to any capital distribution if the institution does not meet the
criteria for expedited treatment of
8
applications under OTS regulations, the total capital
distributions (including the proposed capital distribution) for
the calendar year exceed net income for that year plus the
amount of retained net income for the preceding two years, the
institution would be undercapitalized following the distribution
or the distribution would otherwise be contrary to a statute,
regulation or agreement with OTS. If an application is not
required, the institution must still provide prior notice to OTS
of the capital distribution if, like Superior Bank, it is a
subsidiary of a holding company. In the event Superior
Banks capital fell below its regulatory requirements or
OTS notified it that it was in need of increased supervision,
Superior Banks ability to make capital distributions could
be restricted. In addition, OTS could prohibit a proposed
capital distribution by any institution, which would otherwise
be permitted by the regulation, if OTS determines that such
distribution would constitute an unsafe or unsound practice.
Transactions with Related Parties. Superior
Banks authority to engage in transactions with
affiliates (i.e., any company that controls
or is under common control with Superior Bank, including
Superior Bancorp and its non-savings institution subsidiaries)
is limited by federal law. The aggregate amount of covered
transactions with any individual affiliate is limited to 10% of
the capital and surplus of the savings institution. The
aggregate amount of covered transactions with all affiliates is
limited to 20% of a savings institutions capital and
surplus. Certain transactions with affiliates are required to be
secured by collateral in an amount and of a type described in
federal law. The purchase of low quality assets from affiliates
is generally prohibited. The transactions with affiliates must
be on terms and under circumstances that are at least as
favorable to the institution as those prevailing at the time for
comparable transactions with non-affiliated companies. In
addition, savings institutions are prohibited from lending to
any affiliate that is engaged in activities that are not
permissible for bank holding companies, and no savings
institution may purchase the securities of any affiliate other
than a subsidiary.
The Sarbanes-Oxley Act of 2002 generally prohibits loans by
Superior Bancorp and Superior Bank to their executive officers
and directors. However, that act contains a specific exception
for loans by a financial institution, such as Superior Bank, to
its executive officers and directors that are made in compliance
with federal banking laws. Under such laws, Superior Banks
authority to extend credit to executive officers, directors and
10% shareholders (insiders), as well as entities
such persons control, is limited. The law limits both the
individual and aggregate amount of loans Superior Bank may make
to insiders based, in part, on Superior Banks capital
position and requires certain board approval procedures to be
followed. Such loans are required to be made on terms
substantially the same as those offered to unaffiliated
individuals and not involve more than the normal risk of
repayment. There is an exception for loans made pursuant to a
benefit or compensation program that is widely available to all
employees of the institution and does not give preference to
insiders over other employees.
Standards for Safety and Soundness. The
federal banking agencies have adopted Interagency Guidelines
prescribing Standards for Safety and Soundness. These guidelines
set forth the safety and soundness standards that the federal
banking agencies use to identify and address problems at insured
depository institutions before capital becomes impaired. If OTS
determines that a savings institution fails to meet any standard
prescribed by the guidelines, OTS may require the institution to
submit an acceptable plan to achieve compliance with the
standard.
Enforcement. OTS has primary enforcement
responsibility over savings institutions and has the authority
to bring actions against the institution and all
institution-affiliated parties, including stockholders, and any
attorneys, appraisers and accountants who knowingly or
recklessly participate in wrongful action likely to have an
adverse effect on an insured institution. Formal enforcement
action may range from the issuance of a capital directive or
cease and desist order to removal of officers
and/or
directors to institution of receivership, conservatorship or
termination of deposit insurance. Civil money penalties cover a
wide range of violations and can amount to $5,000 per day,
or even $1 million per day in especially egregious cases.
In addition, the FDIC has the authority to recommend to the
Director of OTS that enforcement action be taken with respect to
a particular savings institution. If action is not taken by the
Director, the FDIC has authority to take such action under
certain circumstances. Federal law also establishes criminal
penalties for certain violations.
Federal Home Loan Bank System. Superior
Bank is a member of the Federal Home Loan Bank System,
which consists of 12 regional Federal Home Loan Banks. The
Federal Home Loan Bank System provides a central credit
facility primarily for member institutions. Superior Bank, as a
member of the Federal Home Loan Bank System, is required to
acquire and hold shares of capital stock in the applicable FHLB
(Atlanta) in an amount at least equal to 1.0% of the aggregate
principal amount of its unpaid residential mortgage loans and
similar obligations at
9
the beginning of each year, or 1/20 of its advances (borrowings)
from the applicable FHLB, whichever is greater. Superior Bank
was in compliance with this requirement at December 31,
2006, with an investment in FHLB stock of $12.4 million.
Federal Reserve System. The Federal Reserve
Board regulations require savings institutions to maintain
non-interest earning reserves against their transaction accounts
(primarily NOW and regular checking accounts). The regulations
generally provide that reserves be maintained against aggregate
transaction accounts as follows: a 3% reserve ratio is assessed
on net transaction accounts up to and including
$48.3 million; a 10% reserve ratio is applied above
$48.3 million. The first $7.8 million of otherwise
reservable balances (subject to adjustments by the Federal
Reserve Board) are exempted from the reserve requirements. These
amounts are adjusted annually. Superior Bank complies with the
foregoing requirements.
Community Reinvestment Act. Superior Bank is
subject to the CRA. The CRA and the regulations issued
thereunder are intended to encourage financial institutions to
help meet the credit needs of their service areas, including low
and moderate income neighborhoods, consistent with the safe and
sound operations of the financial institutions. These
regulations also provide for regulatory assessment of an
institutions record in meeting the needs of its service
area when considering applications to establish branches, merger
applications, applications to engage in new activities and
applications to acquire the assets and assume the liabilities of
another institution. The Financial Institutions Reform, Recovery
and Enforcement Act of 1989 (FIRREA) requires
federal banking agencies to make public a rating of an
institutions performance under the CRA. In the case of a
holding company involved in a proposed transaction, the CRA
performance records of the banks involved are reviewed by
federal banking agencies in connection with the filing of an
application to acquire ownership or control of shares or assets
of a bank or thrift or to merge with any other bank holding
company. An unsatisfactory record can substantially delay or
block the transaction. Superior Bank has a satisfactory CRA
rating.
Confidentiality of Customer
Information. Federal laws and regulations,
including the Gramm-Leach-Bliley Act, require that financial
institutions take certain steps to protect the security and
confidentiality of customers non-public personal
information. Among other things, these regulations restrict the
ability of financial institutions to share non-public customer
information with non-affiliated third parties and require
financial institutions to provide customers with information
about their privacy policies. Superior Bank has procedures in
place that are intended to comply with these requirements.
Bank Secrecy Act. Superior Bancorp and
Superior Bank are subject to the federal Bank Secrecy Act of
1970, as amended, which establishes requirements for
recordkeeping and reporting by banks and other financial
institutions designed to help identify the source, volume and
movement of currency and monetary instruments into and out of
the United States in order to help detect and prevent money
laundering and other illegal activities. The Bank Secrecy Act
requires financial institutions to develop and maintain a
program reasonably designed to ensure and monitor compliance
with its requirements, to train employees in such program, and
to test the effectiveness of such program. Any failure to meet
the requirements of the Bank Secrecy Act can involve substantial
penalties and adverse regulatory action. We have adopted
policies and procedures intended to comply with the requirements
of the Bank Secrecy Act.
USA Patriot Act. On October 26, 2001,
President Bush signed into law the Uniting and Strengthening
America by Providing Appropriate Tools Required to Intercept and
Obstruct Terrorism Act of 2001 (the USA Patriot
Act), which, among other things, amends the Bank Secrecy
Act. The USA Patriot Act strengthened the ability of the
U.S. government to detect and prosecute international money
laundering and the financing of terrorism. Among its provisions,
the USA Patriot Act requires that regulated financial
institutions: (i) establish an anti-money laundering
program that includes training and audit components;
(ii) comply with regulations regarding the verification of
the identity of any person seeking to open an account;
(iii) take additional required precautions with
non-U.S. owned
accounts; and (iv) perform certain verification and
certification of money laundering risk for any foreign
correspondent banking relationships. We have adopted policies,
procedures and controls to address compliance with the
requirements of the USA Patriot Act under the existing
regulations and will continue to revise and update our policies,
procedures and controls to reflect changes required by the USA
Patriot Act and implementing regulations.
10
Consumer Laws and Regulations. In addition to
the laws and regulations discussed herein, Superior Bank is also
subject to certain consumer laws and regulations that are
designed to protect consumers in transactions with banks. While
the list set forth herein is not exhaustive, these laws and
regulations include the Truth in Lending Act, the Truth in
Savings Act, the Electronic Funds Transfer Act, the Expedited
Funds Availability Act, the Equal Credit Opportunity Act, the
Fair Housing Act, the Fair Credit Reporting Act and the Real
Estate Settlement Procedures Act, among others. These laws and
regulations mandate certain disclosure requirements and regulate
the manner in which financial institutions must deal with
customers when taking deposits from, making loans to, or
engaging in other types of transactions with, such customers.
Instability
of Regulatory Structure
Various bills are routinely introduced in the United States
Congress and state legislatures with respect to the regulation
of financial institutions. Some of these proposals, if adopted,
could significantly change the regulation of banks and the
financial services industry. We cannot predict whether any of
these proposals will be adopted or, if adopted, how these
proposals would affect us.
Effect on
Economic Environment
The policies of regulatory authorities, especially the monetary
policy of the Federal Reserve Board, have a significant effect
on the operating results of savings and loan holding companies
and their subsidiaries. Among the means available to the Federal
Reserve Board to affect the money supply are open market
operations in U.S. Government securities, changes in the
discount rate on member bank borrowings and changes in reserve
requirements against member bank deposits. These means are used
in varying combinations to influence overall growth and
distribution of bank loans, investments and deposits, and their
use may affect interest rates charged on loans or paid for
deposits.
Federal Reserve Board monetary policies have materially affected
the operating results of commercial banks and thrifts in the
past and are expected to continue to do so in the future. The
nature of future monetary policies and the effect of such
policies on our business and earnings cannot be predicted.
Available
Information
We maintain an Internet website at www.superiorbank.com.
We make available free of charge through our website various
reports that we file with the Securities and Exchange
Commission, including our annual reports on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K,
and amendments to these reports. These reports are made
available as soon as reasonably practicable after these reports
are filed with, or furnished to, the Securities and Exchange
Commission. From our home page at www.superiorbank.com,
go to and click on Investor Relations and click on
SEC Filings to access these reports.
Code of
Ethics
We have adopted a code of ethics that applies to all of our
employees, including our principal executive, financial and
accounting officers. A copy of our code of ethics is available
on our website. We intend to disclose information about any
amendments to, or waivers from, our code of ethics that are
required to be disclosed under applicable Securities and
Exchange Commission regulations by providing appropriate
information on our website. If at any time our code of ethics is
not available on our website, we will provide a copy of it free
of charge upon written request.
Item 1A. Risk
Factors.
Our business, and an investment in our securities, involves
risks. The following summary describes factors we believe are
material risks relating to our business and to the ownership of
our securities. Our discussion of these risks contains
forward-looking statements, and our actual results may differ
materially from those anticipated by such forward-looking
statements. In addition, financial condition and results of
operations, and the market price of our common stock, may be
substantially affected by other risks, including risks we have
not identified or that we may
11
believe are immaterial or unlikely. This summary does not
purport to describe all risks that might possibly affect our
business, financial condition or results of operations or the
market price of our common stock.
Risks
Relating To Our Business
If the interest payments we make on our deposits increase
relative to our interest income, we may be less
profitable. Our profitability depends to a large
extent on Superior Banks net interest income, which is the
difference between income from interest-earning assets, such as
loans we make and investment securities we hold, and interest we
pay on deposits and our own borrowings. Our net interest income
is affected not only by actions we take, but by changes in
general interest rate levels and by other economic factors
beyond our control. Our net interest income may be reduced if
(i) more interest-earning assets than interest-bearing
liabilities reprice or mature at a time when interest rates are
declining, or (ii) more interest-bearing liabilities than
interest-earning assets reprice or mature at a time when
interest rates are rising.
In addition, we may be affected by changes in the difference
between short- and long-term interest rates. For example,
short-term deposits may be used to support longer-term loans. If
the difference between short-and long-term interest rates
becomes smaller, the spread between the rates we pay on deposits
and borrowings and the rates we receive on loans we make could
narrow significantly, decreasing our net interest income.
Further, if market interest rates rise rapidly, interest rate
adjustment caps may limit our ability to increase interest rates
on adjustable-rate mortgage loans, but we may have to pay higher
interest rates on deposits and borrowings. This could cause our
net interest income to decrease.
An increase in loan prepayments may adversely affect our
profitability. The rate at which borrowers prepay
loans is dependent on a number of factors outside our control,
including changes in market interest rates, conditions in the
housing and financial markets and general economic conditions.
We cannot always accurately predict prepayment rates. If the
prepayment rates with respect to our loans are greater than we
anticipate, there may be a negative impact on our profitability
because we may not be able to reinvest prepayment proceeds at
rates comparable to those we received on the prepaid loans,
particularly in a time of falling interest rates.
If our allowance for loan losses is inadequate, our
profitability will be reduced. We are exposed to
the risk that our customers will be unable to repay their loans
in accordance with their terms and that any collateral securing
such loans will be insufficient to ensure full repayment. Such
credit risk is inherent in the lending business, and our failure
to adequately assess such credit risk could have material
adverse effect on our financial condition and results of
operations. We evaluate the collectibility of our loan portfolio
and review our evaluation on a regular basis, and we provide an
allowance for loan losses that we believe is adequate based on
various factors that we believe may affect the credit quality of
our loans. However, there can be no assurance that actual loan
losses will not exceed the allowance that we have established,
as such allowance is adjusted from time to time.
If our allowance for loan losses is inadequate for the actual
losses we experience, there could be a material adverse effect
on our results of operations. In addition, if as a result of our
perception of adverse trends, we materially increase or
allowance for loan losses in the future, such increase would
also reduce our earnings.
Events in our geographic markets could adversely affect
us. Our business is concentrated in a limited
number of markets in Alabama and Florida. Changes in general
economic conditions and in the values of real estate in such
geographic markets could have an adverse impact on our ability
to achieve our loan and deposit growth targets and on our
customers ability to repay existing loans. In addition,
natural disasters, such as hurricanes and tornadoes, in our
geographic markets could adversely affect our business.
We face substantial competition. There are
numerous competitors in our geographic markets, including
national, regional and local banks and thrifts and other
financial services businesses, some of which have substantially
greater resources, higher brand visibility and a wider
geographic presence than we have. Some of these competitors may
offer a greater range of services, more favorable pricing and
greater customer convenience than we are able to. In addition,
in some of our markets, there are a significant number of new
banks and other financial institutions that have opened in the
recent past or are expected to open in the near future, and such
new competitors may also seek to exploit our markets and
customer base. If we are unable to maintain and grow our market
share in the face of such competition, our results of operations
will be adversely affected.
12
We are subject to extensive regulation. Our
operations are subject to regulation by the Office of Thrift
Supervision and the Federal Deposit Insurance Corporation. We
are also subject to applicable regulations of the Federal Home
Loan Bank. Regulation by these entities is intended
primarily for the protection of our depositors and the deposit
insurance fund and not for the benefit of our stockholders. We
may incur substantial costs in complying with such regulations,
and our failure to comply with them may expose us to substantial
penalties.
In addition, we are subject to numerous consumer protection laws
and other laws relating to the operation of financial
institutions. Our failure to comply with such laws could expose
us to liability, which could have a material adverse effect on
our results of operations.
We may require additional capital to fund our growth
plans. Our business strategy includes the
expansion of our business through the development of new
locations and through the acquisition of other financial
institutions and, to the extent permitted by applicable law,
complementary businesses as appropriate opportunities arise. In
order to finance such growth and to maintain required regulatory
capital levels, we may require additional capital in the future.
There can be no assurance that such capital will be available
upon favorable terms, or at all.
We are dependent upon the services of our management
team. Our operations and strategy are directed by
our senior management team, most of whom have joined Superior
Bancorp since January 2005. Any loss of the services of members
of our management team could have a material adverse effect on
our results of operations and our ability to implement our
business strategy.
Risks
Related To an Investment in Our Common Stock
Our stock price may be volatile due to limited trading
volume. Our common stock is traded on the NASDAQ
Global Market. However, the average daily trading volume in our
common stock is relatively small, historically under
60,000 shares per day and sometimes less than that. With
the increased number of outstanding shares, we expect trading
activity to increase. For the fourth quarter of 2006, the
average daily trading volume increased to 109,000 shares.
Notwithstanding this increase, trades involving a relatively
small number of shares may have a significant effect on the
market price of our common stock, and it may be difficult for
investors to acquire or dispose of large blocks of stock without
significantly affecting the market price.
Our ability to pay dividends is limited. Our
ability to pay dividends is limited by regulatory requirements
and the need to maintain sufficient consolidated capital to meet
the capital needs of our business, including capital needs
related to future growth. Our primary source of income is the
payment of dividends from Superior Bank to us. Superior Bank, in
turn, is likewise subject to regulatory requirements potentially
limiting its ability to pay such dividends to us and by the need
to maintain sufficient capital for its operations and
obligations. Further, we are obligated, subject to regulatory
limitations, to make periodic distributions on our trust
preferred securities, which reduces the income that might
otherwise be available to pay dividends on our common stock.
Thus, there can be no assurance that we will pay dividends to
our common stockholders, no assurance as to the amount or timing
of any such dividends, and no assurance that such dividends, if
and when paid, will be maintained, at the same level or at all,
in future periods.
The market price of our common stock has risen significantly
in a relatively short period of time. The market
price of our common stock, as reported on the NASDAQ Global
Market, increased by approximately 38% between December 31,
2004 and December 31, 2006. We believe that this increase
resulted in part from investors perception as to the
ability of our new senior management team to execute our
business strategy and enhance stockholder value. There can be no
assurance that the market price of our common stock will remain
at or near its current level, which is substantially above
historic trading prices prior to 2005.
Use of our common stock for future acquisitions or to raise
capital may be dilutive to existing
stockholders. When we determine that appropriate
strategic opportunities exist, we may acquire other financial
institutions and related businesses, subject to applicable
regulatory requirements. We may use our common stock for such
acquisitions. From time to time, we may also seek to raise
capital through selling additional common stock. It is possible
that the issuance of additional common stock in such acquisition
or capital transactions may be dilutive to the interests of our
existing stockholders (see Recently Announced Merger
Agreement above).
13
Item 1B. Unresolved
Staff Comments.
Not applicable.
Our headquarters are located at 17 North 20th Street,
Birmingham, Alabama. As of December 21, 1999, Superior
Bancorp and Superior Bank, who jointly owned the building,
converted the building into condominiums known as The Bank
Condominiums. Superior Bancorp and Superior Bank collectively
own 16 condominium units. This space includes a branch of
Superior Bank, various administrative offices, operations
facilities and our headquarters. Ten units are owned by third
parties. We have leased or are pursuing the lease or sale of
certain units (or parts thereof) not currently needed for our
operations.
We operate through facilities at 86 locations. We own 44 of
these facilities and lease 42 of these facilities. Rental
expense on the leased properties totaled approximately $955,000
in 2006.
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Item 3.
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Legal
Proceedings.
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While we are a party to various legal proceedings arising in the
ordinary course of our business, we believe that there are no
proceedings threatened or pending against us at this time that
will individually, or in the aggregate, materially and adversely
affect our business, financial condition or results of
operations. We believe that we have strong claims and defenses
in each lawsuit in which we are involved. While we believe that
we will prevail in each lawsuit, there can be no assurance that
the outcome of the pending, or any future, litigation, either
individually or in the aggregate, will not have a material
adverse effect on our business, our financial condition or our
results of operations.
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Item 4.
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Submission
Of Matters To A Vote Of Security Holders.
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On October 12, 2006, we held a special meeting of
stockholders, at which our stockholders voted to approve the
merger of Community Bancshares, Inc. with and into Superior
Bancorp, as follows:
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FOR
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AGAINST
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ABSTAIN
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12,952,790
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118,290
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14,820
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14
PART II
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Item 5.
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Market
For The Registrants Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities.
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Market
for Common Stock
Our common stock trades on NASDAQ Global Market under the ticker
symbol SUPR. As of December 31, 2006, there
were approximately 2,021 record holders of our common stock. The
following table sets forth, for the calendar periods indicated,
the range of high and low reported sales prices:
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High
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Low
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2005
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First Quarter
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$
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11.25
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$
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8.00
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Second Quarter
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10.85
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9.25
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Third Quarter
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10.91
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10.34
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Fourth Quarter
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12.00
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10.49
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2006
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First Quarter
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$
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11.94
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$
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10.70
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Second Quarter
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11.87
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10.71
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Third Quarter
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11.93
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10.54
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Fourth Quarter
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11.89
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10.39
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2007
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First Quarter (through
March 13, 2006)
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$
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11.87
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$
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10.85
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On March 12, 2007, the last reported sale price for the
common stock was $11.21 per share.
Dividends
We paid dividends on our preferred stock aggregating
$4.92 per preferred share in 2005. All of our preferred
stock was converted into common stock effective June 30,
2005.
Holders of our common stock are entitled to receive dividends
when, as and if declared by our board of directors. We derive
cash available to pay dividends primarily, if not entirely, from
dividends paid to us by our subsidiaries. There are certain
restrictions that limit Superior Banks ability to pay
dividends to us and, in turn, our ability to pay dividends. The
restrictions that may limit our ability to pay dividends are
discussed in this Report in Item 1 under the heading
Supervision and Regulation Limitations on
Capital Distributions. Our ability to pay dividends to our
stockholders will depend on our earnings and financial
condition, liquidity and capital requirements, the general
economic and regulatory climate, our ability to service any
equity or debt obligations senior to our common stock and other
factors deemed relevant by our board of directors. We do not
currently pay dividends on our common stock, but expect to
evaluate our common stock dividend policy from time to time as
circumstances indicate, subject to applicable regulatory
restrictions.
Equity
Compensation Plan Information
The information required to be provided under Item 201(d)
of
Regulation S-K
is incorporated by reference to the information provided under
the caption Executive Compensation and Other
Information included in our definitive proxy statement to
be filed not later than April 30, 2007, in connection with
our 2007 Annual Meeting of Stockholders.
15
Performance
Graph
The performance graph below compares our cumulative shareholder
return on our common stock over the last five fiscal years to
the cumulative total return of the NASDAQ Composite Index and
the NASDAQ Financial Index. Our cumulative shareholder return
over a five-year period is based on an initial investment of
$100 on December 31, 2001.
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Period Ending
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Index
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12/31/01
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12/31/02
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12/31/03
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12/31/04
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12/31/05
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12/31/06
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Superior Bancorp
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100.00
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111.95
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122.62
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118.73
|
|
|
|
164.60
|
|
|
|
163.59
|
|
NASDAQ Composite
|
|
|
100.00
|
|
|
|
68.76
|
|
|
|
103.67
|
|
|
|
113.16
|
|
|
|
115.57
|
|
|
|
127.58
|
|
NASDAQ Financial
|
|
|
100.00
|
|
|
|
98.39
|
|
|
|
129.06
|
|
|
|
148.77
|
|
|
|
152.27
|
|
|
|
174.10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Item 6.
|
Selected
Financial Data.
|
The following table sets forth selected financial data from our
consolidated financial statements and should be read in
conjunction with our consolidated financial statements including
the related notes and Managements Discussion and
Analysis of Financial Condition and Results of Operations.
The selected historical financial data as of December 31,
2006 and 2005 and for each of the three years in the period
ended December 31, 2006 is derived from our audited
consolidated financial statements and related notes included in
this
Form 10-K.
See Item 8. Superior Bancorp and Subsidiaries
Consolidated Financial Statements.
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of and For the Year Ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
2002
|
|
|
|
(Dollars in thousands, except per share data)
|
|
|
Selected Statement of Financial
Condition Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,440,990
|
|
|
$
|
1,415,469
|
|
|
$
|
1,423,128
|
|
|
$
|
1,171,626
|
|
|
$
|
1,406,800
|
|
Loans, net of unearned income
|
|
|
1,639,528
|
|
|
|
963,253
|
|
|
|
934,868
|
|
|
|
856,941
|
|
|
|
1,138,537
|
|
Allowance for loan losses
|
|
|
18,892
|
|
|
|
12,011
|
|
|
|
12,543
|
|
|
|
25,174
|
|
|
|
27,766
|
|
Investment securities
|
|
|
354,716
|
|
|
|
242,595
|
|
|
|
288,308
|
|
|
|
141,601
|
|
|
|
73,125
|
|
Deposits
|
|
|
1,870,841
|
|
|
|
1,043,695
|
|
|
|
1,067,206
|
|
|
|
889,935
|
|
|
|
1,107,798
|
|
Advances from FHLB and other
borrowings
|
|
|
211,255
|
|
|
|
214,496
|
|
|
|
205,546
|
|
|
|
131,919
|
|
|
|
174,922
|
|
Notes payable
|
|
|
5,545
|
|
|
|
3,755
|
|
|
|
3,965
|
|
|
|
1,925
|
|
|
|
|
|
Junior subordinated debentures owed
to unconsolidated trusts
|
|
|
44,006
|
|
|
|
31,959
|
|
|
|
31,959
|
|
|
|
31,959
|
|
|
|
31,959
|
|
Stockholders equity
|
|
|
276,087
|
|
|
|
105,065
|
|
|
|
100,539
|
|
|
|
100,122
|
|
|
|
76,541
|
|
Selected Statement of Income
Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
$
|
108,777
|
|
|
$
|
77,280
|
|
|
$
|
66,160
|
|
|
$
|
76,213
|
|
|
$
|
88,548
|
|
Interest expense
|
|
|
61,383
|
|
|
|
38,255
|
|
|
|
28,123
|
|
|
|
33,487
|
|
|
|
40,510
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
47,394
|
|
|
|
39,025
|
|
|
|
38,037
|
|
|
|
42,726
|
|
|
|
48,038
|
|
Provision for loan losses
|
|
|
2,500
|
|
|
|
3,500
|
|
|
|
975
|
|
|
|
20,975
|
|
|
|
51,852
|
|
Noninterest income
|
|
|
11,811
|
|
|
|
9,583
|
|
|
|
10,527
|
|
|
|
14,592
|
|
|
|
15,123
|
|
Gain on sale of branches
|
|
|
|
|
|
|
|
|
|
|
739
|
|
|
|
48,264
|
|
|
|
|
|
Insurance proceeds
|
|
|
|
|
|
|
5,114
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepayment penalty FHLB
advances
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,532
|
|
|
|
|
|
Loss on sale of loans
|
|
|
|
|
|
|
|
|
|
|
2,293
|
|
|
|
|
|
|
|
|
|
Management separation costs
|
|
|
265
|
|
|
|
15,467
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest expense
|
|
|
49,520
|
|
|
|
45,153
|
|
|
|
45,644
|
|
|
|
55,398
|
|
|
|
42,669
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income
taxes(benefit)
|
|
|
6,920
|
|
|
|
(10,398
|
)
|
|
|
391
|
|
|
|
26,677
|
|
|
|
(31,360
|
)
|
Income tax expense (benefit)
|
|
|
1,923
|
|
|
|
(4,612
|
)
|
|
|
(796
|
)
|
|
|
9,178
|
|
|
|
(12,959
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
4,997
|
|
|
|
(5,786
|
)
|
|
|
1,187
|
|
|
|
17,499
|
|
|
|
(18,401
|
)
|
Preferred stock dividends
|
|
|
|
|
|
|
305
|
|
|
|
446
|
|
|
|
219
|
|
|
|
|
|
Effect of early conversion of
preferred stock
|
|
|
|
|
|
|
2,006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) applicable to
common stockholders
|
|
$
|
4,997
|
|
|
$
|
(8,097
|
)
|
|
$
|
741
|
|
|
$
|
17,280
|
|
|
$
|
(18,401
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per Share Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) basic
|
|
$
|
0.21
|
|
|
$
|
(0.42
|
)
|
|
$
|
0.04
|
|
|
$
|
0.99
|
|
|
$
|
(1.09
|
)
|
diluted(1)
|
|
$
|
0.21
|
|
|
$
|
(0.42
|
)
|
|
$
|
0.04
|
|
|
$
|
0.95
|
|
|
$
|
(1.09
|
)
|
Weighted average shares
outstanding basic
|
|
|
23,409
|
|
|
|
19,154
|
|
|
|
17,583
|
|
|
|
17,492
|
|
|
|
16,829
|
|
Weighted average shares
outstanding diluted(1)
|
|
|
24,034
|
|
|
|
19,154
|
|
|
|
17,815
|
|
|
|
18,137
|
|
|
|
16,829
|
|
Book value at period end
|
|
$
|
7.97
|
|
|
$
|
5.21
|
|
|
$
|
5.31
|
|
|
$
|
5.31
|
|
|
$
|
4.35
|
|
Tangible book value per share
|
|
$
|
4.31
|
|
|
$
|
4.61
|
|
|
$
|
4.62
|
|
|
$
|
4.59
|
|
|
$
|
3.59
|
|
Preferred shares outstanding at
period end
|
|
|
|
|
|
|
|
|
|
|
62
|
|
|
|
62
|
|
|
|
|
|
Common shares outstanding at period
end
|
|
|
34,652
|
|
|
|
20,172
|
|
|
|
17,750
|
|
|
|
17,695
|
|
|
|
17,605
|
|
Performance Ratios and Other
Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on average assets
|
|
|
0.30
|
%
|
|
|
(0.41
|
)%
|
|
|
0.09
|
%
|
|
|
1.29
|
%
|
|
|
(1.36
|
)%
|
Return on average
stockholders equity
|
|
|
3.55
|
|
|
|
(5.68
|
)
|
|
|
1.18
|
|
|
|
19.08
|
|
|
|
(19.89
|
)
|
Net interest margin(2)(3)
|
|
|
3.17
|
|
|
|
3.14
|
|
|
|
3.31
|
|
|
|
3.50
|
|
|
|
3.93
|
|
Net interest spread(3)(4)
|
|
|
2.93
|
|
|
|
3.00
|
|
|
|
3.20
|
|
|
|
3.35
|
|
|
|
3.70
|
|
Noninterest income to average
assets(5)
|
|
|
0.66
|
|
|
|
0.77
|
|
|
|
0.82
|
|
|
|
1.03
|
|
|
|
.99
|
|
Noninterest expense to average
assets(6)
|
|
|
2.87
|
|
|
|
3.14
|
|
|
|
3.52
|
|
|
|
4.07
|
|
|
|
3.15
|
|
Efficiency ratio(7)
|
|
|
82.13
|
|
|
|
87.99
|
|
|
|
91.72
|
|
|
|
100.09
|
|
|
|
67.85
|
|
Average loan to average deposit
ratio
|
|
|
93.12
|
|
|
|
88.82
|
|
|
|
92.16
|
|
|
|
100.69
|
|
|
|
105.35
|
|
Average interest-earning assets to
average interest bearing liabilities
|
|
|
106.01
|
|
|
|
104.58
|
|
|
|
104.88
|
|
|
|
105.82
|
|
|
|
107.04
|
|
Assets Quality Ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses to
nonperforming loans
|
|
|
219.88
|
%
|
|
|
252.76
|
%
|
|
|
169.36
|
%
|
|
|
78.59
|
%
|
|
|
105.00
|
%
|
Allowance for loan losses to loans,
net of unearned income
|
|
|
1.15
|
|
|
|
1.25
|
|
|
|
1.34
|
|
|
|
2.94
|
|
|
|
2.44
|
|
Nonperforming assets
(NPAs) to loans plus NPAs, net of
unearned income
|
|
|
0.63
|
|
|
|
0.68
|
|
|
|
1.32
|
|
|
|
4.41
|
|
|
|
2.53
|
|
Nonaccrual loans to loans, net of
unearned income
|
|
|
0.47
|
|
|
|
0.47
|
|
|
|
0.68
|
|
|
|
3.46
|
|
|
|
2.17
|
|
Net loan charge-offs to average
loans
|
|
|
0.20
|
|
|
|
0.43
|
|
|
|
1.52
|
|
|
|
2.21
|
|
|
|
3.35
|
|
Net loan charge-offs as a
percentage of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan losses
|
|
|
92.64
|
|
|
|
115.20
|
|
|
|
1,395.49
|
|
|
|
111.87
|
|
|
|
72.69
|
|
Allowance for loan losses
|
|
|
12.26
|
|
|
|
33.57
|
|
|
|
108.47
|
|
|
|
93.21
|
|
|
|
135.74
|
|
Capital Ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 risk-based capital ratio
|
|
|
9.39
|
%
|
|
|
10.15
|
%
|
|
|
10.05
|
%
|
|
|
12.60
|
%
|
|
|
6.51
|
%
|
Total risk-based capital ratio
|
|
|
10.40
|
|
|
|
11.08
|
|
|
|
11.51
|
|
|
|
14.07
|
|
|
|
8.83
|
|
Leverage ratio
|
|
|
7.43
|
|
|
|
8.30
|
|
|
|
7.98
|
|
|
|
9.72
|
|
|
|
3.70
|
|
|
|
(1)-
|
Common stock equivalents of 775,000 and 1,002,000 shares
were not included in computing diluted earnings per share for
the years ended December 31, 2004 and 2005, respectively,
because their effects were antidilutive.
|
(2)-
|
Net interest income divided by average earning assets.
|
(3)-
|
Calculated on a taxable equivalent basis.
|
(4)-
|
Yield on average interest-earning assets less rate on average
interest-bearing liabilities.
|
(5)-
|
Noninterest income has been adjusted for certain nonrecurring
items such as gain on sale of branches, insurance proceeds,
change in fair value of derivatives and investment security
gains (losses).
|
(6)-
|
Noninterest expense has been adjusted for certain nonrecurring
items such as loss on sale of assets and management separation
costs.
|
(7)-
|
Efficiency ratio is calculated by dividing noninterest expense,
adjusted for management separation costs, losses on other real
estate and the loss on sale of assets, by noninterest income,
adjusted for gain on sale of branches, insurance proceeds,
changes in fair values of derivatives and investment security
gains (losses), plus net interest income on a fully taxable
equivalent basis.
|
17
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operation.
|
General
The following is a narrative discussion and analysis of
significant changes in our results of operations and financial
condition. This discussion should be read in conjunction with
the consolidated financial statements and selected financial
data included elsewhere in this document.
Overview
Our principal subsidiary is Superior Bank (the
Bank), which has since November 1, 2005, been
chartered as a federal savings bank. Prior to that date,
Superior Bank operated as an Alabama state bank. The Bank is
headquartered in Birmingham, Alabama and operates 54 banking
offices and three loan production offices in Alabama, and in the
panhandle and Tampa Bay areas of Florida. Other subsidiaries
include SFS, LLC, an Alabama limited liability company
(SFS), Superior Financial Services, LLC, an Alabama
limited liability company (Superior Financial),
1st
Community Credit Corporation, an Alabama corporation
(Community Credit), Community (AL) Capital
Trust I, a Delaware trust, TBC Capital Statutory
Trust II (TBC Capital II), a Connecticut
statutory trust, TBC Capital Statutory Trust III (TBC
Capital III), a Delaware business trust, and Morris Avenue
Management Group, Inc. (MAMG), an Alabama
corporation, all of which are wholly owned. SFS was formed to
acquire tax lien certificates. Superior Financial and Community
Credit provide consumer finance services. Community (AL)
Capital Trust I, TBC Capital II and TBC
Capital III are unconsolidated special purpose entities
formed solely to issue cumulative trust preferred securities.
MAMG is a real estate management company that manages our
headquarters, our branch facilities and certain other real
estate owned by the Bank.
During the third quarter of 2006, we merged with Kensington
Bancshares, Inc. of Tampa, Florida. In the fourth quarter of
2006, we merged with Community Bancshares of Blountsville,
Alabama. These acquired entities had combined loans of
approximately $470 million and deposits of
$700 million.
Our primary source of revenue is net interest income, which is
the difference between income earned on interest-earning assets,
such as loans and investments, and interest paid on
interest-bearing liabilities, such as deposits and borrowings.
Our results of operations are also affected by the provision for
loan losses and other noninterest expenses such as salaries and
benefits, occupancy expenses and provision for income taxes. The
effects of these noninterest expenses are partially offset by
noninterest sources of revenue such as service charges and fees
on deposit accounts and mortgage banking income. Our volume of
business is influenced by competition in our markets and overall
economic conditions including such factors as market interest
rates, business spending and consumer confidence.
During 2006, our net interest income increased by 21.4%,
primarily due to an increase in average interest-earning assets.
The increase in our interest-earning assets resulted primarily
from an overall increase in the average volume of our loan
portfolio. During 2006 we continued our strategy of realigning
our loan and deposit mix, primarily through our acquisitions.
Service charges and fees were up 4.9% in 2006 from 2005 due to
an increase in deposit accounts. Mortgage banking income
increased 17.2% in 2006 due to an increase in the volume of
mortgage loan originations throughout the year.
Salaries and benefits increased from 2005 to 2006 due to our
acquisitions and branch expansion. All other noninterest
expenses remained relatively flat in 2006 compared to 2005.
Several initiatives were implemented to control costs in 2005,
such as a reduction in force, the termination or buyout of
various deferred compensation agreements and tighter spending
controls. These cost controls carried over into 2006.
Management reviews the adequacy of the allowance for loan losses
on a quarterly basis. The provision for loan losses represents
the amount determined by management necessary to maintain the
allowance for loan losses at a level capable of absorbing
inherent losses in the loan portfolio. (See Critical
Accounting Estimates below.) For 2006 our provision for
loan losses totaled $2.5 million and our net charge-offs
totaled $2.3 million. As of December 31, 2006 our
allowance for loan losses was $18.9 million, or 1.15% of
loans, net of unearned income.
18
Critical
Accounting Estimates
In preparing financial information, management is required to
make significant estimates and assumptions that affect the
reported amounts of assets, liabilities, revenues and expenses
for the periods shown. The accounting principles we follow and
the methods of applying these principles conform to accounting
principles generally accepted in the United States and to
general banking practices. Estimates and assumptions most
significant to us are related primarily to our allowance for
loan losses, income taxes and goodwill impairment are summarized
in the following discussion and in the notes to the consolidated
financial statements.
Allowance
for Loan Losses
Managements determination of the adequacy of the allowance
for loan losses, which is based on the factors and risk
identification procedures discussed in the following pages,
requires the use of judgments and estimates that may change in
the future. Changes in the factors used by management to
determine the adequacy of the allowance or the availability of
new information could cause the allowance for loan losses to be
increased or decreased in future periods. In addition, our
regulators, as part of their examination process, may require
that additions or reductions be made to the allowance for loan
losses based on their judgments and estimates.
Income
Taxes
Deferred tax assets and liabilities are determined based on
temporary differences between financial reporting and tax bases
of assets and liabilities and are measured using the enacted tax
rates expected to apply to taxable income in the years in which
those temporary differences are expected to reverse. These
calculations are based on many complex factors, including
estimates of the timing of reversals of temporary differences,
the interpretation of federal and state income tax laws, and a
determination of the differences between the tax and the
financial reporting basis of assets and liabilities. Actual
results could differ significantly from the estimates and
interpretations used in determining the current and deferred
income tax assets and liabilities.
Our determination of the realization of deferred tax assets (net
of valuation allowances) is based upon managements
judgment of various future events and uncertainties, including
future reversals of existing taxable temporary differences, the
timing and amount of future income earned by our subsidiaries
and the implementation of various tax planning strategies to
maximize realization of the deferred tax assets. A portion of
the amount of the deferred tax asset that can be realized in any
year is subject to certain statutory federal income tax
limitations. We believe that our subsidiaries will be able to
generate sufficient operating earnings to realize the deferred
tax benefits. We evaluate quarterly the realizability of the
deferred tax assets and, if necessary, adjust any valuation
allowance accordingly.
In July 2006, the Financial Accounting Standards Board
(FASB) issued FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes. This
interpretation clarifies the accounting for uncertainty in
income taxes recognized in a companys financial statements
in accordance with SFAS No. 109, Accounting for
Income Taxes. Specifically, the pronouncement prescribes a
recognition threshold and a measurement attribute for the
financial statement recognition and measurement of a tax
position taken or expected to be taken in a tax return. The
interpretation also provides guidance on the related
derecognition, classification, interest and penalties,
accounting for interim periods, disclosure and transition of
uncertain tax positions. The interpretation is effective for
fiscal years beginning after December 15, 2006. We are in
the process of evaluating the impact, if any, the adoption of
this interpretation will have on our financial statements.
Acquisitions
We recorded the assets and liabilities of Kensington and
Community at their estimated fair values. Arriving at these fair
values required numerous assumptions regarding the economic life
of assets, decay rates for liabilities and other factors. We
engaged a third party to assist us in valuing certain of the
financial assets and liabilities of Kensington and Community. We
also engaged a real estate appraisal firm to value the more
significant properties that were acquired by us in the
acquisition. As a result, we consider the values we have
assigned to the acquired assets and liabilities of Kensington
and Community to be reasonable and consistent with the
application of generally accepted accounting principles.
However, we are still in the process of obtaining and evaluating
certain
19
additional information. Accordingly, we may reassess our
purchase price allocations in the future based on such
information. We believe that we will conclude the allocation of
the purchase price to the acquired net assets during the second
quarter of 2007.
Long-lived assets, including purchased intangible assets subject
to amortization, such as our core deposit intangible asset, are
reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may
not be recoverable. Recoverability of assets to be held and used
is measured by a comparison of the carrying amount of an asset
to estimated undiscounted future cash flows expected to be
generated by the asset. If the carrying amount of an asset
exceeds its estimated future cash flows, an impairment charge is
recognized by the amount by which the carrying amount of the
asset exceeds the fair value of the asset. Assets to be disposed
of would be separately presented in the balance sheet and
reported at the lower of the carrying amount or fair value less
costs to sell, and are no longer depreciated.
Goodwill and intangible assets that have indefinite useful lives
are tested annually for impairment, and are tested for
impairment more frequently if events and circumstances indicate
that the asset might be impaired. An impairment loss is
recognized to the extent that the carrying amount exceeds the
assets fair value. Our annual assessment date is
December 31. Should we determine in a future period that
the goodwill recorded in connection with our acquisitions has
become impaired, then a charge to our earnings will be recorded
in the period such determination is made.
Recent
Developments
On January 18, 2007, we announced that we had signed a
merger agreement with Peoples Community Bancshares, Inc.
(see Recently Announced Merger Agreement under
Item 1 above).
Results
of Operations
Year
Ended December 31, 2006, Compared with Year Ended
December 31, 2005
Our net income for the year ended December 31, 2006 was
$4.9 million, compared to a net loss of $5.8 million
for the year ended December 31, 2005. Net income available
to common stockholders was $4.9 million for the year ended
December 31, 2006, compared to a net loss of
($8.1 million) for the year ended December 31, 2005.
Our basic and diluted net income (loss) per common share was
$0.21 for the year ended December 31 2006, compared to
$(0.42) per common share for the year ended December 31,
2005. Our return on average assets was 0.30% in 2006, compared
to (0.41)% in 2005. Our return on average stockholders
equity was 3.55% in 2006, compared to (5.68)% in 2005. Our book
value per common share at December 31, 2006 and 2005 was
$7.97 and $5.21, respectively, and our tangible book value per
common share decreased to $4.31 at December 31, 2006 from
$4.61 as of December 31, 2005. Average equity to average
assets increased to 8.37% in 2006 from 7.26% in 2005.
The increase in earnings for the year ended December 31,
2006 compared to the year ended December 31, 2005 was
primarily the result of an increase in net interest income and a
decrease in management separation costs.
Net interest income is the difference between the income earned
on interest-earning assets and interest paid on interest-bearing
liabilities used to support such assets. Net interest income
increased $8.4 million, or 21.4%, to $47.4 million for
the year ended December 31, 2006 from $39.0 million
for the year ended December 31, 2005. This was due to an
increase in interest income of $31.5 million, or 40.8%,
offset by a increase in total interest expense of
$23.1 million, or 60.5%. The increase in total interest
income was primarily attributable to a $28.8 million, or
45.1%, increase in interest income on average loans, which
increased $230 million to $1.177 billion.
The increases in interest income were offset by a
$18.6 million, or 66.6%, increase in interest expense on
deposits and a $4.5 million, or 43.8%, increase in interest
expense on other borrowings. Average interest- bearing deposits
increased $179.1 million, or 18.4%, and average other
borrowings increased $41.3 million, or 22.1%. The average
rate paid on interest-bearing liabilities was 4.34% for the year
ended December 31, 2006, compared to 3.21% for the year
ended December 31, 2005. This increase is the result of
higher average rates paid on all interest-bearing deposits due
to higher market rates.
20
Our net interest spread and net interest margin were 2.93% and
3.17%, respectively, for the year ended December 31, 2006,
compared to 3.00% and 3.14%, respectively, for the year ended
December 31, 2005.
Our average interest-earning assets for the year ended
December 31, 2006 increased $252.5 million, or 20.2%,
to $1.499 billion from $1.247 billion for the year
ended December 31, 2005. This increase in our average
interest-earning assets was due primarily to mergers with
Kensington and Community in late 2006 and increased loan
production. Average interest-bearing liabilities increased
$222.1 million, or 18.6%, to $1.414 billion from
$1.192 billion for the year ended December 31, 2005.
The increase in average interest-bearing liabilities is
primarily due to mergers with Kensington and Community in late
2006. The ratio of our average interest-earning assets to
average interest-bearing liabilities was 106.0% and 104.6% for
the years ended December 31, 2006 and 2005, respectively.
Our average interest-bearing assets produced a taxable
equivalent yield of 7.27% for the year ended December 31,
2006, compared to 6.21% for the year ended December 31,
2005. The 106-basis point increase in the yield was offset by a
113-basis point increase in the average rate paid on
interest-bearing liabilities.
The provision for loan losses represents the amount determined
by management to be necessary to maintain the allowance for loan
losses at a level capable of absorbing inherent losses in the
loan portfolio. Management reviews the adequacy of the allowance
for loan losses on a quarterly basis. The allowance for loan
losses calculation is segregated into various segments that
include classified loans, loans with specific allocations and
pass rated loans. A pass rated loan is generally characterized
by a very low to average risk of default and in which management
perceives there is a minimal risk of loss. Loans are rated using
an eight-point scale with loan officers having the primary
responsibility for assigning risk ratings and for the timely
reporting of changes in the risk ratings. These processes, and
the assigned risk ratings, are subject to review by our internal
loan review function and senior management. Based on the
assigned risk ratings, the criticized and classified loans in
the portfolio are segregated into the following regulatory
classifications: Special Mention, Substandard, Doubtful or Loss.
Generally, regulatory reserve percentages are applied to these
categories to estimate the amount of loan loss allowance,
adjusted for previously mentioned risk factors. Impaired loans
are reviewed specifically and separately under Statement of
Financial Accounting Standards (SFAS) Statement
No. 114 to determine the appropriate reserve allocation.
Management compares the investment in an impaired loan with the
present value of expected future cash flow discounted at the
loans effective interest rate, the loans observable
market price or the fair value of the collateral, if the loan is
collateral-dependent, to determine the specific reserve
allowance. Reserve percentages assigned to non-rated loans are
based on historical charge-off experience adjusted for other
risk factors. To evaluate the overall adequacy of the allowance
to absorb losses inherent in our loan portfolio, management
considers historical loss experience based on volume and types
of loans, trends in classifications, volume and trends in
delinquencies and non-accruals, economic conditions and other
pertinent information. Based on future evaluations, additional
provisions for loan losses may be necessary to maintain the
allowance for loan losses at an appropriate level. See
Financial Condition Allowance for Loan
Losses for additional discussion.
The provision for loan losses was $2.5 million for the year
ended December 31, 2006, a decrease of $1.0 million in
comparison to $3.5 million in 2005. This decrease can be
attributed primarily to the continued improvement in the overall
quality of the Banks loan portfolios. While the provision
is moderately lower in comparison to 2005, management continues
to maintain a proactive approach to credit risk management as
the economy experiences cycles and as the Bank continues to grow
both internally and through mergers and acquisitions.
Nonperforming loans increased, to 0.52% of loans at
December 31, 2006 from 0.49% at December 31, 2005.
During 2006, we had net charged-off loans totaling
$2.3 million, compared to net charged-off loans of
$4.0 million for 2005. The ratio of net charged-off loans
to average loans was 0.20% for 2006 compared to 0.43% for 2005.
The allowance for loan losses totaled $18.9 million, or
1.15% of loans, net of unearned income, at December 31,
2006, compared to $12.0 million, or 1.25% of loans, net of
unearned income, at December 31, 2005. See Financial
Condition Allowance for Loan Losses for
additional discussion.
Noninterest income decreased $2.9 million, or 19.6%, to
$11.8 million in 2006 from $14.7 million in 2005. This
decrease is primarily due to insurance proceeds received in 2005
of $5.1 million and was partially offset by
$1.3 million in losses on the sale of
available-for-sale
securities in 2005 and changes in the fair values of
derivatives. In 2006, changes in the fair value of derivatives
totaled $374,000. The investment portfolio losses were realized
primarily in the first quarter of 2005 as a result of a
$50 million sale of bonds in the investment portfolio. We
21
reinvested the proceeds in bonds intended to enhance the yield
and cash flows of our investment securities portfolio. The new
investment securities were classified as available for sale.
Income from mortgage banking operations for the year ended
December 31, 2006 increased $439,000, or 17.2%, to
$3.0 million in 2006 from $2.6 million in 2005. This
increase is due to increased origination activity during 2006.
Income from customer service charges and fees increased
$228,000, or 4.9%, to $4.9 million in 2006 from
$4.6 million in 2005. This increase is primarily due to an
increase of transaction accounts from 2005 to 2006. Management
is currently pursuing new accounts and customers through direct
marketing and other promotional efforts to increase this source
of revenue. Other noninterest income was $3.5 million, a
decrease of $86,000, or 2.3%, from $3.6 million in 2005.
Noninterest expense decreased $10.8 million, or 17.9%, to
$49.8 million in 2006 from $60.6 million in 2005,
primarily due to the management separation costs of
$15.5 million incurred in the first six months of 2005.
Salaries and employee benefits increased $3.7 million, or
16.0%, to $26.8 million in 2006 compared to
$23.1 million in 2005. This increase is primarily the
result of an increased employee base which resulted from the
mergers with Kensington and Community in the third and fourth
quarters of 2006. We incurred internal merger-related costs and
subsidiary startup costs of $770,000.
All other noninterest expenses remained flat, at
$22.0 million in 2006 and in 2005, as the new executive
management team implemented certain cost control measures. See
Note 21 to the Consolidated Financial Statements for more
detail on the components of our noninterest expenses.
Income tax expense was $1.9 million in 2006, compared to a
tax benefit of $4.6 million in 2005. The primary difference
in the effective tax rate and the federal statutory rate of 34%
for 2006 is due to the effect of certain tax-exempt interest and
the increase in the cash surrender value of life insurance. See
Note 13 to the Consolidated Financial Statements for more
detail on the components of our income tax expense.
Our net deferred tax assets increased to $25.3 million as
of December 31, 2006 from $14.8 million at
December 31, 2005. This increase is primarily due to an
increase in federal net operating loss carryforwards
(NOLs). Approximately $26.0 million in NOLs
were generated in prior periods by Community, which we acquired
during the fourth quarter of 2006. These carryforwards are
subject to certain statutory limitations, but we expect that
future earnings will be sufficient to utilize these losses.
These carryforwards do not begin to expire until the year 2023.
Due to limitations on the use of net operating losses acquired
in the merger with Community, a valuation allowance of
$1.2 million has been established as of December 31,
2006 against such deferred income tax assets in purchase
accounting. Any subsequently recognized income tax benefits
relating to this valuation allowance will be reflected as a
reduction of goodwill related to the acquisition.
Our determination of the realization of deferred tax assets (net
of valuation allowance) is based upon managements judgment
of various future events and uncertainties, including future
reversals of existing taxable temporary differences, the timing
and amount of future income earned by our subsidiaries and the
implementation of various tax planning strategies to maximize
realization of the deferred tax assets. A portion of the amount
of the deferred tax asset that can be realized in any year is
subject to certain statutory federal income tax limitations. We
believe that our subsidiaries will be able to generate
sufficient operating earnings to realize the deferred tax
benefits. We evaluate quarterly the realizability of the
deferred tax assets and, if necessary, adjust any valuation
allowance accordingly.
Our federal and state income tax returns for the years 2000
through 2005 are open for review and examination by governmental
authorities. In the normal course of these examinations, we are
subject to challenges from governmental authorities regarding
amounts of taxes due. We have received notices of proposed
adjustments relating to state taxes due for the years 2002 and
2003, which include proposed adjustments relating to income
apportionment of one of the Banks subsidiaries. We believe
adequate provision for income taxes has been recorded for all
years open for review and intend to vigorously contest the
proposed adjustments. To the extent that final resolution of the
proposed adjustments results in significantly different
conclusions from our current assessment of the proposed
adjustments, our effective tax rate in any given financial
reporting period may be materially different from our current
effective tax rate.
22
Year
Ended December 31, 2005, Compared with Year Ended
December 31, 2004
Our net loss for the year ended December 31, 2005 was
($5.8 million), compared to net income of $1.2 million
for the year ended December 31, 2004. Net loss available to
common stockholders was ($8.1 million) for the year ended
December 31, 2005, compared to net income of $741,000 for
the year ended December 31, 2004. Our basic and diluted net
(loss) income per common share was $(.42) for the year ended
December 31 2005, compared to $.04 per common share
for the year ended December 31, 2004. Our return on average
assets was (.41)% in 2005, compared to .09% in 2004. Our return
on average stockholders equity was (5.68)% in 2005,
compared to 1.18% in 2004. Our book value per common share at
December 31, 2005 and 2004 was $5.21 and $5.31,
respectively, and our tangible book value per common share at
December 31, 2005 increased to $4.61 at December 31,
2005 from $4.62 as of December 31, 2004. Average equity to
average assets decreased to 7.26% in 2005 from 7.78% in 2004.
The decrease in earnings for the year ended December 31,
2005 compared to the year ended December 31, 2004 was
primarily the result of an increase in the provision for loan
losses, as more fully discussed below, and certain management
separation costs.
Net interest income increased $1.0 million, or 2.6%, to
$39.0 million for the year ended December 31, 2005
from $38.0 million for the year ended December 31,
2004. This was due to an increase in interest income of
$11.1 million, or 16.8%, offset by a increase in total
interest expense of $10.1 million, or 36.0%. This increase
in total interest income was attributable to a
$7.7 million, or 13.7%, increase in interest income on
loans as a result of a $52.8 million increase in average
loans, and a $2.8 million, or 31.7%, increase in interest
income on investment securities as a result of a
$54.7 million increase in average investment securities for
the year.
The increases in interest income were offset by an
$8.7 million, or 45.5%, increase in interest expense on
deposits and a $1.4 million, or 15.7%, increase in interest
expense on other borrowings. While average interest-bearing
deposits increased $91.1 million, or 10.3%, and average
other borrowings increased $4.2 million, or 2.0%, the
increase in interest expense is primarily attributable to a
65-basis point increase in the average interest rates paid on
interest-bearing liabilities. The average rate paid on
interest-bearing liabilities was 3.21% for the year ended
December 31, 2005, compared to 2.56% for the year ended
December 31, 2004. This increase was due primarily to
higher average rates paid on all deposits.
Our net interest spread and net interest margin were 3.00% and
3.14%, respectively, for the year ended December 31, 2005,
compared to 3.20% and 3.31%, respectively, for the year ended
December 31, 2004.
Our average interest-earning assets for the year ended
December 31, 2005 increased $96.5 million, or 8.4%, to
$1.247 billion from $1.150 billion for the year ended
December 31, 2004. This increase in our average
interest-earning assets was due primarily to increased loan
production and increased investment securities. Average
interest-bearing liabilities increased $95.3 million, or
8.7%, to $1.192 billion from $1.097 billion for the
year ended December 31, 2004. The increase in average
interest-bearing liabilities is primarily due to an increase in
interest-bearing demand accounts, which is part of our strategy
to improve our deposit mix. The ratio of our average
interest-earning assets to average interest-bearing liabilities
was 104.6% and 104.9% for the years ended December 31, 2005
and 2004, respectively. Our average interest-bearing assets
produced a taxable equivalent yield of 6.21% for the year ended
December 31, 2005, compared to 5.76% for the year ended
December 31, 2004. The 45-basis point increase in the yield
was offset by a 65-basis point increase in the average rate paid
on interest-bearing liabilities.
The provision for loan losses was $3.5 million for the year
ended December 31, 2005, an increase of $2.5 million
in comparison to $975,000 in 2004. This increase can be
attributed primarily to the reassessment of collateral values on
certain nonperforming commercial credits and the settlement of a
disputed collateral lien. These items accounted for
approximately $2.3 million of the total increase in
provision and represented 66.0% of the total net charge-off
activity for the year. It should be noted that the provision
expense for 2004 was unusually low due to the sale of
approximately $32.0 million in certain classified loans and
significant recoveries of charged-off loans of
$3.7 million. Also, nonperforming loans decreased
significantly, to .49% of loans at December 31, 2005 from
.79% at December 31, 2004. During 2005, we had net
charged-off loans totaling $4.0 million, compared to net
charged-off loans of $13.6 million for 2004. The ratio of
net charged-off loans to average loans was .43% for 2005
compared to 1.52% for 2004. The allowance for loan losses
totaled $12.0 million, or 1.25% of loans, net of unearned
income,
23
at December 31, 2005, compared to $12.5 million, or
1.34% of loans, net of unearned income, at December 31,
2004. See Financial Condition Allowance for
Loan Losses for additional discussion.
Noninterest income increased $3.4 million, or 30.5%, to
$14.7 million in 2005 from $11.3 million in 2004. This
increase is primarily due to insurance proceeds of
$5.1 million and was partially offset by $1.3 million
in losses on the sale of
available-for-sale
securities and changes in the fair values of derivatives (see
Note 1 to the Consolidated Financial Statements). The
investment portfolio losses were realized primarily in the first
quarter of 2005 as a result of a $50 million sale of bonds
in the investment portfolio. We reinvested the proceeds in bonds
intended to enhance the yield and cash flows of our investment
securities portfolio. The new investment securities were
classified as available for sale.
Income from mortgage banking operations for the year ended
December 31, 2005 increased $894,000, or 53.7%, to
$2.6 million in 2005 from $1.7 million in 2004. This
increase is due to increased origination activity during 2005.
Income from customer service charges and fees decreased
$517,000, or 9.9%, to $4.7 million in 2005 from
$5.2 million in 2004. This decrease is primarily due to a
loss of transaction accounts from 2004 to 2005. Management is
currently pursuing new accounts and customers through direct
marketing and other promotional efforts to increase this source
of revenue. Service charges on deposit accounts increased
$131,000, or 5.75%, in the last six-month period of 2005 over
the first six-month period of 2005. Other noninterest income was
$3.6 million, a decrease of $122,000, or 3.3%, from
$3.7 million in 2004. This decrease is primarily the result
of a decline in the amount earned on the cash surrender value of
life insurance.
Noninterest expense increased $12.7 million, or 26.4%, to
$60.6 million in 2005 from $47.9 million in 2004,
primarily due to the management separation costs of
$15.5 million incurred in the first six months of 2005.
Salaries and employee benefits decreased $377,000, or 1.6%, to
$23.1 million in 2005 compared to $23.5 million in
2004. This decrease is primarily the result of a reduction in
force which occurred during the second and third quarters of
2005, partially offset by the recruitment of several new
revenue-producing bankers.
All other noninterest expenses remained flat, at
$22.0 million in 2005 compared to $22.2 million in
2004, as the new executive management team implemented certain
cost control measures. See Note 21 to the Consolidated
Financial Statements for more detail on the components of our
noninterest expenses.
Our income tax benefit was $4.6 million in 2005, and
$796,000 in 2004. The primary difference in the effective tax
rate and the federal statutory rate of 34% for 2005 is due to
the effect of certain tax-exempt interest and the increase in
the cash surrender value of life insurance. (See Note 13 to
the Consolidated Financial Statements)
Net
Interest Income
The largest component of our net income is net interest income,
which is the difference between the income earned on
interest-earning assets and interest paid on deposits and
borrowings. Net interest income is determined by the rates
earned on our interest-earning assets, rates paid on our
interest-bearing liabilities, the relative amounts of
interest-earning assets and interest-bearing liabilities, the
degree of mismatch and the maturity and repricing
characteristics of our interest-earning assets and
interest-bearing liabilities. Net interest income divided by
average interest-earning assets represents our net interest
margin.
24
Average Balances, Income, Expenses and
Rates. The following tables depict, 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. Such yields are derived
by dividing income or expense by the average balance of the
corresponding assets or liabilities. Average balances have been
derived from daily averages.
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Year Ended December 31,
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2006
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2005
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2004
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Interest
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Average
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Interest
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Average
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Interest
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Average
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Average
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Earned/
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Yield/
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Average
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Earned/
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Yield/
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Average
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Earned/
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Yield/
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Balance
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Paid
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Rate
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Balance
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Paid
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Rate
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Balance
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Paid
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Rate
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(Dollars in thousands)
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ASSETS
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Interest-earning assets:
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Loans, net of unearned income(1)
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$
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1,176,844
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$
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92,659
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7.87
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%
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$
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947,212
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$
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63,895
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6.75
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%
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$
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894,406
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$
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56,184
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6.28
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%
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Investment securities:
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Taxable
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276,640
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12,994
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4.70
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|
|
255,663
|
|
|
|
11,632
|
|
|
|
4.55
|
|
|
|
203,996
|
|
|
|
8,897
|
|
|
|
4.36
|
|
Tax-exempt(2)
|
|
|
10,093
|
|
|
|
589
|
|
|
|
5.84
|
|
|
|
6,932
|
|
|
|
373
|
|
|
|
5.38
|
|
|
|
3,868
|
|
|
|
217
|
|
|
|
5.61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities
|
|
|
286,733
|
|
|
|
13,583
|
|
|
|
4.74
|
|
|
|
262,595
|
|
|
|
12,005
|
|
|
|
4.57
|
|
|
|
207,864
|
|
|
|
9,114
|
|
|
|
4.38
|
|
Federal funds sold
|
|
|
11,102
|
|
|
|
570
|
|
|
|
5.13
|
|
|
|
14,757
|
|
|
|
460
|
|
|
|
3.12
|
|
|
|
15,454
|
|
|
|
202
|
|
|
|
1.31
|
|
Other investments
|
|
|
24,618
|
|
|
|
2,165
|
|
|
|
8.79
|
|
|
|
22,266
|
|
|
|
1,047
|
|
|
|
4.70
|
|
|
|
32,637
|
|
|
|
734
|
|
|
|
2.25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets
|
|
|
1,499,297
|
|
|
|
108,977
|
|
|
|
7.27
|
|
|
|
1,246,830
|
|
|
|
77,407
|
|
|
|
6.21
|
|
|
|
1,150,361
|
|
|
|
66,234
|
|
|
|
5.76
|
|
Noninterest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
|
32,730
|
|
|
|
|
|
|
|
|
|
|
|
28,227
|
|
|
|
|
|
|
|
|
|
|
|
26,238
|
|
|
|
|
|
|
|
|
|
Premises and equipment
|
|
|
64,378
|
|
|
|
|
|
|
|
|
|
|
|
56,897
|
|
|
|
|
|
|
|
|
|
|
|
58,535
|
|
|
|
|
|
|
|
|
|
Accrued interest and other assets
|
|
|
100,514
|
|
|
|
|
|
|
|
|
|
|
|
83,743
|
|
|
|
|
|
|
|
|
|
|
|
81,970
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses
|
|
|
(13,594
|
)
|
|
|
|
|
|
|
|
|
|
|
(12,504
|
)
|
|
|
|
|
|
|
|
|
|
|
(20,530
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,683,325
|
|
|
|
|
|
|
|
|
|
|
$
|
1,403,193
|
|
|
|
|
|
|
|
|
|
|
$
|
1,296,574
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
STOCKHOLDERS EQUITY
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits
|
|
$
|
359,262
|
|
|
$
|
11,857
|
|
|
|
3.30
|
%
|
|
$
|
339,842
|
|
|
$
|
7,144
|
|
|
|
2.10
|
%
|
|
$
|
262,346
|
|
|
$
|
3,225
|
|
|
|
1.23
|
%
|
Savings deposits
|
|
|
27,968
|
|
|
|
177
|
|
|
|
0.63
|
|
|
|
25,935
|
|
|
|
40
|
|
|
|
0.15
|
|
|
|
29,383
|
|
|
|
48
|
|
|
|
0.16
|
|
Time deposits
|
|
|
764,787
|
|
|
|
34,477
|
|
|
|
4.51
|
|
|
|
607,141
|
|
|
|
20,731
|
|
|
|
3.41
|
|
|
|
590,070
|
|
|
|
15,915
|
|
|
|
2.70
|
|
Other borrowings
|
|
|
228,631
|
|
|
|
11,603
|
|
|
|
5.07
|
|
|
|
187,297
|
|
|
|
7,493
|
|
|
|
4.00
|
|
|
|
183,052
|
|
|
|
6,356
|
|
|
|
3.47
|
|
Subordinated debentures
|
|
|
33,642
|
|
|
|
3,269
|
|
|
|
9.72
|
|
|
|
31,959
|
|
|
|
2,847
|
|
|
|
8.91
|
|
|
|
31,959
|
|
|
|
2,579
|
|
|
|
8.07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities
|
|
|
1,414,290
|
|
|
|
61,383
|
|
|
|
4.34
|
|
|
|
1,192,174
|
|
|
|
38,255
|
|
|
|
3.21
|
|
|
|
1,096,810
|
|
|
|
28,123
|
|
|
|
2.56
|
|
Noninterest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits
|
|
|
111,757
|
|
|
|
|
|
|
|
|
|
|
|
93,564
|
|
|
|
|
|
|
|
|
|
|
|
88,695
|
|
|
|
|
|
|
|
|
|
Accrued interest and other
liabilities
|
|
|
16,451
|
|
|
|
|
|
|
|
|
|
|
|
15,651
|
|
|
|
|
|
|
|
|
|
|
|
10,154
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
1,542,498
|
|
|
|
|
|
|
|
|
|
|
|
1,301,389
|
|
|
|
|
|
|
|
|
|
|
|
1,195,659
|
|
|
|
|
|
|
|
|
|
Stockholders equity
|
|
|
140,827
|
|
|
|
|
|
|
|
|
|
|
|
101,804
|
|
|
|
|
|
|
|
|
|
|
|
100,915
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
stockholders equity
|
|
$
|
1,683,325
|
|
|
|
|
|
|
|
|
|
|
$
|
1,403,193
|
|
|
|
|
|
|
|
|
|
|
$
|
1,296,574
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income/net interest
spread
|
|
|
|
|
|
|
47,594
|
|
|
|
2.93
|
%
|
|
|
|
|
|
|
39,152
|
|
|
|
3.00
|
%
|
|
|
|
|
|
|
38,111
|
|
|
|
3.20
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net yield on earning assets
|
|
|
|
|
|
|
|
|
|
|
3.17
|
%
|
|
|
|
|
|
|
|
|
|
|
3.14
|
%
|
|
|
|
|
|
|
|
|
|
|
3.31
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable equivalent adjustment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities(2)
|
|
|
|
|
|
|
200
|
|
|
|
|
|
|
|
|
|
|
|
127
|
|
|
|
|
|
|
|
|
|
|
|
74
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
|
|
|
$
|
47,394
|
|
|
|
|
|
|
|
|
|
|
$
|
39,025
|
|
|
|
|
|
|
|
|
|
|
$
|
38,037
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Nonaccrual loans are included in loans, net of unearned income.
No adjustment has been made for these loans in the calculation
of yields. |
|
(2) |
|
Interest income and yields are presented on a fully taxable
equivalent basis using a tax rate of 34 percent. |
25
Analysis of Changes in Net Interest
Income. The following table sets forth, on a
taxable equivalent basis, the effect which the varying levels of
interest-earning assets and interest-bearing liabilities and the
applicable rates have had on changes in net interest income for
the years ended December 31, 2006 and 2005.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,(1)
|
|
|
|
2006 vs. 2005
|
|
|
2005 vs. 2004
|
|
|
|
Increase
|
|
|
Changes Due to
|
|
|
Increase
|
|
|
Changes Due to
|
|
|
|
(Decrease)
|
|
|
Rate
|
|
|
Volume
|
|
|
(Decrease)
|
|
|
Rate
|
|
|
Volume
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
Income from earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and fees on loans
|
|
$
|
28,764
|
|
|
$
|
11,688
|
|
|
$
|
17,076
|
|
|
$
|
7,711
|
|
|
$
|
4,311
|
|
|
$
|
3,400
|
|
Interest on securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable
|
|
|
1,362
|
|
|
|
390
|
|
|
|
972
|
|
|
|
2,735
|
|
|
|
401
|
|
|
|
2,334
|
|
Tax-exempt
|
|
|
216
|
|
|
|
33
|
|
|
|
183
|
|
|
|
156
|
|
|
|
(10
|
)
|
|
|
166
|
|
Interest on federal funds
|
|
|
110
|
|
|
|
244
|
|
|
|
(134
|
)
|
|
|
258
|
|
|
|
268
|
|
|
|
(10
|
)
|
Interest on other investments
|
|
|
1,118
|
|
|
|
997
|
|
|
|
121
|
|
|
|
313
|
|
|
|
604
|
|
|
|
(291
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
|
31,570
|
|
|
|
13,352
|
|
|
|
18,218
|
|
|
|
11,173
|
|
|
|
5,574
|
|
|
|
5,599
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expense from interest-bearing
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on demand deposits
|
|
|
4,713
|
|
|
|
4,285
|
|
|
|
428
|
|
|
|
3,919
|
|
|
|
2,764
|
|
|
|
1,155
|
|
Interest on savings deposits
|
|
|
137
|
|
|
|
134
|
|
|
|
3
|
|
|
|
(8
|
)
|
|
|
(3
|
)
|
|
|
(5
|
)
|
Interest on time deposits
|
|
|
13,746
|
|
|
|
7,616
|
|
|
|
6,130
|
|
|
|
4,816
|
|
|
|
4,339
|
|
|
|
477
|
|
Interest on other borrowings
|
|
|
4,110
|
|
|
|
2,252
|
|
|
|
1,858
|
|
|
|
1,137
|
|
|
|
987
|
|
|
|
150
|
|
Interest on subordinated debentures
|
|
|
422
|
|
|
|
267
|
|
|
|
155
|
|
|
|
268
|
|
|
|
268
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
|
23,128
|
|
|
|
14,554
|
|
|
|
8,574
|
|
|
|
10,132
|
|
|
|
8,355
|
|
|
|
1,777
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
8,442
|
|
|
$
|
(1,202
|
)
|
|
$
|
9,644
|
|
|
$
|
1,041
|
|
|
$
|
(2,781
|
)
|
|
$
|
3,822
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The changes in net interest income due to both rate and volume
have been allocated to rate and volume changes in proportion to
the relationship of the absolute dollar amounts of the changes
in each. |
Market
Risk Interest Rate Sensitivity
Market risk is the risk of loss arising from adverse changes in
the fair value of financial instruments due to a change in
interest rates, exchange rates and equity prices. Our primary
market risk is interest rate risk.
We evaluate interest rate sensitivity risk and then formulate
guidelines regarding asset generation and repricing, funding
sources and pricing, and off-balance sheet commitments in order
to moderate interest rate sensitivity risk. We use computer
simulations that reflect various interest rate scenarios and the
related impact on net interest income over specified periods of
time.
The primary objective of asset/liability management is to manage
interest rate risk and achieve reasonable stability in net
interest income throughout interest rate cycles. This is
achieved by maintaining the proper balance of interest rate
sensitive earning assets and interest rate sensitive
liabilities. In general, managements strategy is to match
asset and liability balances within maturity categories to limit
our exposure to earnings variations and variations in the value
of assets and liabilities as interest rates change over time.
Our asset and liability management strategy is formulated and
monitored by our Asset/Liability Management Committee
(ALCO), which is composed of our head of
asset/liability management and other senior officers, in
accordance with policies approved by the board of directors. The
ALCO meets monthly to review, among other things, the
sensitivity of our assets and liabilities to interest rate
changes, the book and market values of assets and liabilities,
unrealized gains and losses, including those attributable to
purchase and sale activity, and maturities of investments and
borrowings. The ALCO also approves and establishes pricing and
funding decisions with respect to overall asset and liability
composition and reports regularly to our Board Loan and
Investment Committee and the full board of directors.
26
One of the primary goals of the ALCO is to effectively manage
the duration of our assets and liabilities so that the
respective durations are matched as closely as possible. These
duration adjustments can be accomplished either internally by
restructuring our balance sheet, or externally by adjusting the
duration of our assets or liabilities through the use of
interest rate contracts, such as interest rate swaps, caps, and
floors. In the fourth quarter of 2006, as it appeared short-term
rates had reached a plateau, we purchased $50,000,000 in
interest rate floors, reducing our level of asset sensitivity.
(See Interest Rate Floors below)
We measure our interest rate risk by analyzing the correlation
of interest-bearing assets to interest-bearing liabilities
(gap analysis), net interest income simulation, and
economic value of equity (EVE) modeling.
As of December 31, 2006, we had approximately
$85 million more in interest-bearing assets than
interest-earning liabilities that could reprice to current
market rates during the next 12 months. However,
shortcomings are inherent in any gap analysis, because the rates
on certain assets and liabilities may not move proportionately
as market interest rates change. For example, when national
money market rates change, interest rates on our NOW, savings,
and money market deposit accounts may not change as much as
rates on commercial loans. We had approximately
$596 million of such administratively priced deposits on
December 31, 2006.
Our net interest income simulation model projects that net
interest income will increase on an annual basis by 7.0%, or
approximately $5.1 million, assuming an instantaneous and
parallel increase in interest rates of 200 basis points.
Assuming an instantaneous and parallel decrease of
200 basis points, net interest income is projected to
decrease on an annual basis by 8.6%, or again approximately
$6.2 million. The net interest income produced by these
scenarios is within our asset and liability management policy.
EVE is a concept related to our longer-term interest rate risk.
EVE is defined as the net present value of the balance
sheets cash flows or the residual value of future cash
flows. While EVE does not represent actual market liquidation or
replacement value, it is a useful tool for estimating our
balance sheet earnings capacity. The greater the EVE, the
greater our earnings capacity. Our EVE model projects that EVE
will increase 3.8% assuming an instantaneous and parallel
increase in interest rates of 200 basis points. Assuming an
instantaneous and parallel decrease of 200 basis points,
EVE is projected to decrease 8.7%. The EVE produced by these
scenarios is within our asset and liability management policy.
The following table sets forth our EVE as of December 31,
2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
|
|
Change (in Basis Points) in Interest Rates
|
|
EVE
|
|
|
Amount
|
|
|
Percent
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
+ 200 BP
|
|
$
|
404,377
|
|
|
$
|
14,626
|
|
|
|
3.8
|
%
|
0 BP
|
|
|
389,751
|
|
|
|
|
|
|
|
|
|
200 BP
|
|
|
355,976
|
|
|
|
(33,775
|
)
|
|
|
(8.7
|
)
|
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.
Our board has authorized the ALCO to utilize financial futures,
forward sales, options and interest rate swaps, caps and floors,
and other instruments to the extent necessary, in accordance
with OTS regulations and our internal policy. We expect that
interest rate swaps, caps and floors will be used as macro
hedges against our securities, our loan portfolios and our
liabilities.
We recognize that positions for hedging purposes are primarily a
function of three main areas of risk exposure:
(1) mismatches between assets and liabilities;
(2) prepayment and other option-type risks embedded in our
assets, liabilities and off-balance sheet instruments; and
(3) the mismatched commitments for mortgages and funding
sources. We will engage in only the following types of hedges:
(1) those which synthetically alter the maturities or
repricing characteristics of assets or liabilities to reduce
imbalances; (2) those which enable us to transfer the
interest rate risk exposure involved in our daily business
activities; and (3) those which serve to alter the market
risk inherent in our investment portfolio or liabilities and
thus help us to match the effective maturities of the assets and
liabilities.
27
The following is a discussion of our primary derivative
positions.
Interest
Rate Swaps
At December 31, 2006, we had interest rate swap positions
with notional amounts of $46.5 million related to brokered
CDs (See Fair Value Hedges below). Hedge accounting
was discontinued on $36.5 million of these swap positions
during the fourth quarter of 2006 because the instruments no
longer qualified as an effective fair value hedge under
SFAS 133. Therefore, all changes in fair value were
recognized in earnings during the period of the change. The net
cash settlement of these derivatives was included in noninterest
income during the fourth quarter of 2006. As of
December 31, 2006, these CD swaps had a recorded fair value
of ($713,000) and a weighted average life of 8.99 years.
The weighted average fixed rate (receiving rate) was 4.92% and
the weighted average variable rate (paying rate) was 5.33%
(LIBOR based). In the first quarter of 2007, we redesignated
these swaps as fair value hedges.
Fair
Value Hedges
As of December 31, 2006, we had entered into
$46.5 million notional amount of swaps (CD
swaps) to hedge the interest rate risk inherent in certain
of its brokered certificates of deposits (brokered
CDs). The CD swaps are used to convert the fixed rate paid
on the brokered CDs to a variable rate based upon three-month
LIBOR. Prior to the first quarter of 2006, these transactions
did not qualify for fair value hedge accounting under
SFAS 133 (see Note 1). During the first quarter of
2006, we designated these CD swaps as fair value hedges. As fair
value hedges, the net cash settlements from the designated swaps
are reported as part of net interest income. In addition, we
will recognize in current earnings the change in fair value of
both the interest rate swap and related hedged brokered CDs,
with the ineffective portion of the hedge relationship reported
in noninterest income. The fair value of the CD swaps is
reported on the Consolidated Statements of Financial Condition
in other liabilities and the change in fair value of the related
hedged brokered CD is reported as an adjustment to the carrying
value of the brokered CDs. Hedge accounting was discontinued on
$36.5 million of these swap positions during the fourth
quarter of 2006 because the instruments no longer qualified as
an effective fair value hedge under SFAS 133 (see
Interest Rate Swaps above). As of December 31,
2006, the amount of CD swaps designated as fair value hedges
totaled $10.0 million and had a recorded fair value of
($84,000) and a weighted average life of 3.87 years. The
weighted average fixed rate (receiving rate) was 4.13% and the
weighted average variable rate (paying rate) was 5.38% (LIBOR
based).
Interest
Rate Floors
During the fourth quarter of 2006, we entered into certain
interest rate floor contracts that have not been qualified for
hedge accounting treatment and will be used as an economic
hedge. An interest rate floor is a contract in which the
counterparty agrees to pay to the difference between a current
market rate of interest and an agreed rate multiplied by the
amount of the notional amount. We entered into
$50.0 million interest rate floor contracts for a
three-year period with a 4.25% floor on the three-month LIBOR
rate. We paid a $248,000 premium. These economic hedges will be
carried at fair value in other assets or other liabilities and
changes in the fair value of these derivatives and any payments
received will be recognized in noninterest income. The floors
had a positive fair value of $215,000 as of December 31,
2006.
Liquidity
The goal of liquidity management is to provide adequate funds to
meet changes in loan demand or any potential unexpected deposit
withdrawals. Additionally, management strives to maximize our
earnings by investing our excess funds in securities and other
securitized loan assets with maturities matching our offsetting
liabilities. See the Selected Loan Maturity and Interest
Rate Sensitivity and Maturity Distribution of
Investment Securities.
Historically, we have maintained a high
loan-to-deposit
ratio. To meet our short-term liquidity needs, we maintain core
deposits and have borrowing capacity through the FHLB,
repurchase agreements and federal funds
28
lines. Long-term liquidity needs are met primarily through these
sources, the repayment of loans, sales of loans and the maturity
or sale of investment securities.
As shown in the Consolidated Statements of Cash Flows, operating
activities did not provide any significant levels of funds in
2006, 2005 and 2004, primarily due to our having little or no
operating income.
Investing activities in 2006 were a net user of funds, primarily
due to loan fundings, capital expenditures and investments in
tax lien certificates. A significant amount of securities that
were acquired as part of our business combinations were sold and
reinvested in loans and additional investment securities,
continuing our strategy of realigning our balance sheet which we
began in 2005. Investing activities were a net provider of funds
in 2005 due to maturities and sale of securities available for
sale. As noted above, we sold securities in 2005 as part of a
strategy to deleverage and realign our balance sheet mentioned
above. Investing activities, primarily in loans and securities,
were a net user of funds in 2004, which required a significant
amount of funds for investing activities. Funds needed for
investing activities in 2004 were provided primarily by deposits
and borrowings.
Financing activities were a net provider of funds in 2006, as we
increased our level of deposits. The increase in deposits was
offset by the restructuring of FHLB advances and maturity of
repurchase agreements acquired in our business combinations.
Financing activities were a net user of funds in 2005, as we
decreased our levels of brokered certificates of deposit and
repurchase agreements. This decrease was offset by an increase
in interest-bearing demand deposit accounts, advances from the
FHLB and proceeds from equity transactions. Increased brokered
certificates of deposits, advances from the FHLB and repurchase
agreements provided funds in 2004.
We have entered into certain contractual obligations and
commercial commitments in the normal course of business that
involve elements of credit risk, interest rate risk and
liquidity risk.
The following tables summarize these relationships by
contractual cash obligations and commercial commitments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
|
|
|
Less than
|
|
|
One to
|
|
|
Four to
|
|
|
After Five
|
|
|
|
Total
|
|
|
One Year
|
|
|
Three Years
|
|
|
Five Years
|
|
|
Years
|
|
|
|
(Dollars in thousands)
|
|
|
Contractual
Obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advances from FHLB(1)
|
|
$
|
187,840
|
|
|
$
|
42,000
|
|
|
$
|
82,500
|
|
|
$
|
5,000
|
|
|
$
|
58,340
|
|
Operating leases(2)
|
|
|
6,357
|
|
|
|
1,971
|
|
|
|
2,255
|
|
|
|
1,352
|
|
|
|
779
|
|
Capitalized leases(2)
|
|
|
8,590
|
|
|
|
367
|
|
|
|
734
|
|
|
|
734
|
|
|
|
6,755
|
|
Notes payable(3)
|
|
|
5,545
|
|
|
|
4,460
|
|
|
|
420
|
|
|
|
420
|
|
|
|
245
|
|
Repurchase agreements(4)
|
|
|
23,415
|
|
|
|
23,415
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Junior subordinated debentures
owed to unconsolidated trusts(5)
|
|
|
42,269
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42,269
|
|
Deferred compensation agreements(6)
|
|
|
14,201
|
|
|
|
361
|
|
|
|
1,142
|
|
|
|
818
|
|
|
|
11,880
|
|
Employment separation agreements(7)
|
|
|
729
|
|
|
|
62
|
|
|
|
147
|
|
|
|
44
|
|
|
|
476
|
|
Other employment related contract
obligations incurred in business combinations(8)
|
|
|
3,509
|
|
|
|
2,098
|
|
|
|
1,305
|
|
|
|
106
|
|
|
|
|
|
Benefit Restoration Plan(9)
|
|
|
2,387
|
|
|
|
161
|
|
|
|
524
|
|
|
|
510
|
|
|
|
1,192
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Contractual Cash Obligations
|
|
$
|
294,842
|
|
|
$
|
74,895
|
|
|
$
|
89,027
|
|
|
$
|
8,984
|
|
|
$
|
121,936
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
See Note 7 to the Consolidated Financial Statements. |
(2) |
|
See Note 6 to the Consolidated Financial Statements. |
(3) |
|
See Note 9 to the Consolidated Financial Statements. |
(4) |
|
See Note 8 to the Consolidated Financial Statements |
(5) |
|
See Note 10 to the Consolidated Financial Statements. |
29
|
|
|
(6) |
|
See Note 12 to the Consolidated Financial Statements. |
(7) |
|
See Note 28 to the Consolidated Financial Statements. |
(8) |
|
See Note 2 to the Consolidated Financial Statements. |
(9) |
|
See Note 20 to the Consolidated Financial Statements. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
|
|
|
Less than
|
|
|
One to
|
|
|
Four to
|
|
|
After Five
|
|
|
|
Total
|
|
|
One Year
|
|
|
Three Years
|
|
|
Five Years
|
|
|
Years
|
|
|
|
(Dollars in thousands)
|
|
|
Commercial
commitments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments to extend credit(1)
|
|
$
|
361,525
|
|
|
$
|
239,411
|
|
|
$
|
88,976
|
|
|
$
|
4,068
|
|
|
$
|
29,070
|
|
Standby letters of credit(1)
|
|
|
23,630
|
|
|
|
23,034
|
|
|
|
596
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Commercial Commitments
|
|
$
|
385,155
|
|
|
$
|
262,445
|
|
|
$
|
89,572
|
|
|
$
|
4,068
|
|
|
$
|
29,070
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
See Note 16 to the Consolidated Financial Statements. |
In addition, the FHLB has issued for the Banks benefit a
$20,000,000 irrevocable letter of credit in favor of the Chief
Financial Officer of the State of Florida to secure certain
deposits of the State of Florida. The letter of credit expires
January 6, 2008 upon 60 days prior notice of
non-renewal; otherwise, it automatically extends for a
successive one-year term.
We are constructing or have plans to construct various new
branch locations. In that regard, we have entered into
commitments as of, or subsequent to, December 31, 2006 for
the construction of these branch locations totaling
approximately $4,396,000.
Superior Bancorp also made use of a line of credit provided by a
regional bank in the amount of $10,000,000, that was to maturing
on June 6, 2007 with interest payable monthly at the
30-day LIBOR
plus 2.50%. Collateral consisted of real estate owned by the
Corporation and 100% of Superior Bank stock. On January 26,
2007, we replaced this line with a line of credit from another
regional bank in the amount of $10,000,000, maturing on
January 26, 2008; interest is based on the 30-day LIBOR
plus 1.25% and the line is secured by 51% of the outstanding
Superior Bank stock.
Financial
Condition
Our total assets were $2.441 billion at December 31,
2006, a increase of $1.025 billion, or 72.4%, from
$1.415 billion as of December 31, 2005. This growth in
primarily attributable to the Community and Kensington
acquisitions, as discussed below. Our average total assets for
2006 were $1.683 billion, which was supported by average
total liabilities of $1.542 billion and average total
stockholders equity of $140.8 million.
Kensington
Acquisition
We completed the acquisition of 100% of the outstanding stock of
Kensington on August 31, 2006 in exchange for
6,226,722 shares of our common stock valued at
approximately $71.2 million. The shares were valued by
using the average of the closing prices of our stock for several
days prior to and after the terms of the acquisition were agreed
to and announced. The total purchase price, which includes
certain direct acquisition costs, was $71.3 million As a
result of the acquisition we now operate 12 banking locations in
the Tampa Bay area of Florida. This area is our largest market
and has a higher projected population growth than any of our
other current banking markets.
The Kensington transaction resulted in $44.9 million of
goodwill allocated to the Florida reporting unit and
$3.5 million of core deposit intangibles. The goodwill
acquired is not tax deductible. The amount allocated to the core
deposit intangible was determined by an independent valuation
and is being amortized over an estimated useful life of ten
years based on the undiscounted cash flow.
During the third quarter of 2006 management completed its plan
to terminate Kensingtons data processing operations and
convert Kensingtons accounts to our system. This
conversion was completed in the first quarter of
30
2007. Certain costs associated with this conversion totaling
approximately $1.4 million, which included primarily
contract cancellations and employment-related costs, were
estimated and accrued as of the acquisition date.
The following table summarizes the estimated fair values of the
assets acquired and liabilities assumed at the date of
acquisition.
|
|
|
|
|
|
|
Amount
|
|
|
|
(Dollars in thousands)
|
|
|
Cash and due from banks
|
|
$
|
4,454
|
|
Federal funds sold
|
|
|
964
|
|
Investment securities
|
|
|
180,151
|
|
Loans, net
|
|
|
136,414
|
|
Premises and equipment, net
|
|
|
5,397
|
|
Goodwill
|
|
|
44,922
|
|
Core deposit intangibles
|
|
|
3,544
|
|
Other assets
|
|
|
5,042
|
|
Deposits
|
|
|
(276,186
|
)
|
Repurchase agreements
|
|
|
(30,050
|
)
|
Other liabilities
|
|
|
(3,280
|
)
|
|
|
|
|
|
Total consideration paid for
Kensington
|
|
$
|
71,372
|
|
|
|
|
|
|
Community
Acquisition
We completed the acquisition of 100% of the outstanding stock of
Community on November 7, 2006 in exchange for
8,072,179 shares of our common stock valued at
approximately $91.9 million. The shares were valued by
using the average of the closing prices of our stock for several
days prior to and after the terms of the acquisition were agreed
to and announced. The total purchase price, which includes
certain direct acquisition costs and cash payments due for the
cancellation of stock options, was $97.2 million. As a
result of the acquisition we added 18 banking locations and 15
consumer finance company locations in the State of Alabama.
The Community transaction resulted in $59.1 million of
goodwill allocated to the Alabama reporting unit and
$10.1 million of core deposit intangibles. The goodwill
acquired is not tax deductible. The amount allocated to the core
deposit intangible was determined by an independent valuation
and is being amortized over an estimated useful life of ten
years based on the undiscounted cash flow.
During the third quarter of 2006 management completed its plan
to terminate Communitys data processing operations and
convert Communitys accounts to our system. This conversion
was completed in the fourth quarter of 2006. Certain costs
associated with this conversion totaling approximately
$1.2 million, which included primarily contract
cancellations and employment-related costs, were estimated and
accrued as of the acquisition date.
31
The following table summarizes the estimated fair values of the
assets acquired and liabilities assumed at the date of
acquisition. We are in the process of obtaining appraisals on
certain real property; thus, the allocation of the purchase
price is subject to refinement:
|
|
|
|
|
|
|
Amount
|
|
|
|
(Dollars in thousands)
|
|
|
Cash and due from banks
|
|
$
|
23,167
|
|
Federal funds sold
|
|
|
35,273
|
|
Investment securities
|
|
|
117,424
|
|
Loans, net
|
|
|
337,148
|
|
Premises and equipment, net
|
|
|
24,225
|
|
Goodwill
|
|
|
59,079
|
|
Core deposit intangibles
|
|
|
10,142
|
|
Other assets
|
|
|
19,328
|
|
Deposits
|
|
|
(431,334
|
)
|
FHLB advances
|
|
|
(68,801
|
)
|
Junior subordinated debentures
|
|
|
(12,047
|
)
|
Other liabilities
|
|
|
(16,404
|
)
|
|
|
|
|
|
Total consideration paid for
Community
|
|
$
|
97,200
|
|
|
|
|
|
|
Loans, net of unearned income. Our loans, net
of unearned income, totaled $1.640 billion at
December 31, 2006, an increase of 70.2%, or
$676.2 million, from $963.3 million at
December 31, 2005. Of the increase, approximately
$337 million can be attributed to the Community acquisition
and approximately $136 million can be attributed to the
Kensington acquisition. Mortgage loans held for sale totaled
$24.4 million at December 31, 2006, an increase of
$3.1 million from $21.3 million at December 31,
2005. Average loans, including mortgage loans held for sale,
totaled $1.177 billion for 2006, compared to
$947.2 million for 2005. Loans, net of unearned income,
comprised 78.9% of interest-earning assets at December 31,
2006, compared to 77.2% at December 31, 2005. Mortgage
loans held for sale comprised 1.2% of interest-earning assets at
December 31, 2006, compared to 1.7% at December 31,
2005. The average yield of the loan portfolio was 7.87%, 6.75%
and 6.28% for the years ended December 31, 2006, 2005 and
2004, respectively. The increase in average yield is primarily
the result of a general increase in market rates.
The following table details the distribution of our loan
portfolio by category for the periods presented:
Distribution
of Loans by Category
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
2002
|
|
|
|
(Dollars in thousands)
|
|
|
Commercial and industrial
|
|
$
|
172,872
|
|
|
$
|
135,454
|
|
|
$
|
134,688
|
|
|
$
|
142,072
|
|
|
$
|
213,210
|
|
Real estate
construction and land development
|
|
|
547,772
|
|
|
|
326,418
|
|
|
|
249,715
|
|
|
|
147,917
|
|
|
|
212,818
|
|
Real estate mortgages
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single-family
|
|
|
456,341
|
|
|
|
243,183
|
|
|
|
250,758
|
|
|
|
231,064
|
|
|
|
272,899
|
|
Commercial
|
|
|
362,542
|
|
|
|
210,611
|
|
|
|
242,884
|
|
|
|
250,032
|
|
|
|
340,998
|
|
Other
|
|
|
46,895
|
|
|
|
27,503
|
|
|
|
25,764
|
|
|
|
31,645
|
|
|
|
14,581
|
|
Consumer
|
|
|
54,462
|
|
|
|
21,122
|
|
|
|
32,009
|
|
|
|
46,201
|
|
|
|
79,398
|
|
Other(1)
|
|
|
438
|
|
|
|
498
|
|
|
|
567
|
|
|
|
8,923
|
|
|
|
5,931
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
|
1,641,322
|
|
|
|
964,789
|
|
|
|
936,385
|
|
|
|
857,854
|
|
|
|
1,139,835
|
|
Unearned income
|
|
|
(1,794
|
)
|
|
|
(1,536
|
)
|
|
|
(1,517
|
)
|
|
|
(913
|
)
|
|
|
(1,298
|
)
|
Allowance for loan losses
|
|
|
(18,892
|
)
|
|
|
(12,011
|
)
|
|
|
(12,543
|
)
|
|
|
(25,174
|
)
|
|
|
(27,766
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loans
|
|
$
|
1,620,636
|
|
|
$
|
951,242
|
|
|
$
|
922,325
|
|
|
$
|
831,767
|
|
|
$
|
1,110,771
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Certain reclassifications were made to the 2004 amounts to
conform to the 2005 presentation. This information was not
available for periods prior to 2004. |
32
The repayment of loans as they mature is a source of liquidity
for us. The following table sets forth our loans by category
maturing within specified intervals at December 31, 2006.
The information presented is based on the contractual maturities
of the individual loans, including loans which may be subject to
renewal at their contractual maturity. Renewal of such loans is
subject to review and credit approval, as well as modification
of terms upon their maturity. Consequently, management believes
this treatment presents fairly the maturity and repricing of the
loan portfolio.
Selected
Loan Maturity and Interest Rate Sensitivity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rate Structure for Loans
|
|
|
|
|
|
|
Over One Year
|
|
|
|
|
|
|
|
|
Maturing Over One Year
|
|
|
|
One Year
|
|
|
through Five
|
|
|
Over Five
|
|
|
|
|
|
Predetermined
|
|
|
Floating or
|
|
|
|
or Less
|
|
|
Years
|
|
|
Years
|
|
|
Total
|
|
|
Interest Rate
|
|
|
Adjustable Rate
|
|
|
|
(Dollars in thousands)
|
|
|
Commercial and industrial
|
|
$
|
114,864
|
|
|
$
|
52,594
|
|
|
$
|
5,414
|
|
|
$
|
172,872
|
|
|
$
|
35,239
|
|
|
$
|
22,769
|
|
Real estate
construction and land development
|
|
|
412,756
|
|
|
|
117,874
|
|
|
|
17,142
|
|
|
|
547,772
|
|
|
|
30,661
|
|
|
|
104,355
|
|
Real estate mortgages
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single-family
|
|
|
30,092
|
|
|
|
75,789
|
|
|
|
350,460
|
|
|
|
456,341
|
|
|
|
138,216
|
|
|
|
288,033
|
|
Commercial
|
|
|
66,341
|
|
|
|
139,983
|
|
|
|
156,218
|
|
|
|
362,542
|
|
|
|
106,816
|
|
|
|
189,385
|
|
Other
|
|
|
11,716
|
|
|
|
14,553
|
|
|
|
20,626
|
|
|
|
46,895
|
|
|
|
13,539
|
|
|
|
21,640
|
|
Consumer
|
|
|
15,000
|
|
|
|
37,442
|
|
|
|
2,021
|
|
|
|
54,463
|
|
|
|
37,974
|
|
|
|
1,489
|
|
Other
|
|
|
346
|
|
|
|
92
|
|
|
|
|
|
|
|
438
|
|
|
|
92
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
$
|
651,115
|
|
|
$
|
438,327
|
|
|
$
|
551,881
|
|
|
$
|
1,641,323
|
|
|
$
|
362,537
|
|
|
$
|
627,671
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent to total loans
|
|
|
39.7
|
%
|
|
|
26.7
|
%
|
|
|
33.6
|
%
|
|
|
100.0
|
%
|
|
|
22.1
|
%
|
|
|
38.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for Loan Losses. We maintain an
allowance for loan losses within a range we believe is adequate
to absorb estimated losses inherent in the loan portfolio. We
prepare a quarterly analysis to assess the risk in the loan
portfolio and to determine the adequacy of the allowance for
loan losses. Generally, we estimate the allowance using specific
reserves for impaired loans, and other factors, such as
historical loss experience based on volume and types of loans,
trends in classifications, volume and trends in delinquencies
and non-accruals, economic conditions and other pertinent
information. The level of allowance for loan losses to net loans
will vary depending on the quarterly analysis.
We manage and control risk in the loan portfolio through
adherence to credit standards established by the board of
directors and implemented by senior management. These standards
are set forth in a formal loan policy, which establishes loan
underwriting and approval procedures, sets limits on credit
concentration and enforces regulatory requirements.
Loan portfolio concentration risk is reduced through
concentration limits for borrowers, collateral types and
geographic diversification. Concentration risk is measured and
reported to senior management and the board of directors on a
regular basis.
The allowance for loan loss calculation is segregated into
various segments that include classified loans, loans with
specific allocations and pass rated loans. A pass rated loan is
generally characterized by a very low to average risk of default
where management perceives there is a minimal risk of loss.
Loans are rated using an eight-point scale with the loan officer
having the primary responsibility for assigning risk ratings and
for the timely reporting of changes in the risk ratings. These
processes, and the assigned risk ratings, are subject to review
by our internal loan review function and senior management.
Based on the assigned risk ratings, the criticized and
classified loans in the portfolio are segregated into the
following regulatory classifications: Special Mention,
Substandard, Doubtful or Loss. Generally, regulatory reserve
percentages (5%, Special Mention; 15%, Substandard; 50%,
Doubtful; 100% Loss) are applied to these categories to estimate
the amount of loan loss allowance required, adjusted for
previously mentioned risk factors.
33
Pursuant to Statement of Financial Accounting Standards
No. 114 (SFAS 114), impaired loans are
specifically reviewed loans for which it is probable that we
will be unable to collect all amounts due according to the terms
of the loan agreement. Impairment is measured by comparing the
recorded investment in the loan with the present value of
expected future cash flows discounted at the loans
effective interest rate, at the loans observable market
price or the fair value of the collateral if the loan is
collateral-dependent. A valuation allowance is provided to the
extent that the measure of the impaired loans is less than the
recorded investment. A loan is not considered impaired during a
period of delay in payment if we continue to expect that all
amounts due will ultimately be collected. Larger groups of
homogenous loans such as consumer installment and residential
real estate mortgage loans are collectively evaluated for
impairment.
Reserve percentages assigned to pass rated homogeneous loans are
based on historical charge-off experience adjusted for current
trends in the portfolio and other risk factors.
As stated above, risk ratings are subject to independent review
by our loan review function, 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
the Audit Committee of the board of directors and senior
management. We have also established a centralized loan
administration services department to serve our entire bank.
This department provides standardized oversight for compliance
with loan approval authorities and bank lending policies and
procedures, as well as centralized supervision, monitoring and
accessibility.
We historically have allocated our allowance for loan losses to
specific loan categories. Although the allowance 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.
Allocation
of the Allowance for Loan Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
2002
|
|
|
|
|
|
|
Percent
|
|
|
|
|
|
Percent
|
|
|
|
|
|
Percent
|
|
|
|
|
|
Percent
|
|
|
|
|
|
Percent
|
|
|
|
|
|
|
of Loans
|
|
|
|
|
|
of Loans
|
|
|
|
|
|
of Loans
|
|
|
|
|
|
of Loans
|
|
|
|
|
|
of Loans
|
|
|
|
|
|
|
in Each
|
|
|
|
|
|
in Each
|
|
|
|
|
|
in Each
|
|
|
|
|
|
in Each
|
|
|
|
|
|
in Each
|
|
|
|
|
|
|
Category
|
|
|
|
|
|
Category
|
|
|
|
|
|
Category
|
|
|
|
|
|
Category
|
|
|
|
|
|
Category
|
|
|
|
|
|
|
to Total
|
|
|
|
|
|
to Total
|
|
|
|
|
|
to Total
|
|
|
|
|
|
to Total
|
|
|
|
|
|
to Total
|
|
|
|
Amount
|
|
|
Loans
|
|
|
Amount
|
|
|
Loans
|
|
|
Amount
|
|
|
Loans
|
|
|
Amount
|
|
|
Loans
|
|
|
Amount
|
|
|
Loans
|
|
|
|
(Dollars in thousands)
|
|
|
Commercial and industrial
|
|
$
|
3,719
|
|
|
|
10.5
|
%
|
|
$
|
3,805
|
|
|
|
14.0
|
%
|
|
$
|
3,736
|
|
|
|
14.1
|
%
|
|
$
|
10,110
|
|
|
|
16.6
|
%
|
|
$
|
10,056
|
|
|
|
18.7
|
%
|
Real estate
construction and land development
|
|
|
3,425
|
|
|
|
33.4
|
|
|
|
1,275
|
|
|
|
33.8
|
|
|
|
1,009
|
|
|
|
26.6
|
|
|
|
1,099
|
|
|
|
17.2
|
|
|
|
1,317
|
|
|
|
18.7
|
|
Real estate
mortgages
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single-family
|
|
|
2,910
|
|
|
|
27.8
|
|
|
|
1,395
|
|
|
|
25.2
|
|
|
|
1,582
|
|
|
|
26.8
|
|
|
|
4,538
|
|
|
|
26.9
|
|
|
|
3,636
|
|
|
|
23.9
|
|
Commercial
|
|
|
6,206
|
|
|
|
22.0
|
|
|
|
4,194
|
|
|
|
21.8
|
|
|
|
4,594
|
|
|
|
25.9
|
|
|
|
7,613
|
|
|
|
29.1
|
|
|
|
10,174
|
|
|
|
29.9
|
|
Other
|
|
|
530
|
|
|
|
2.9
|
|
|
|
215
|
|
|
|
2.9
|
|
|
|
257
|
|
|
|
2.7
|
|
|
|
320
|
|
|
|
3.7
|
|
|
|
396
|
|
|
|
1.3
|
|
Consumer
|
|
|
2,102
|
|
|
|
3.4
|
|
|
|
1,127
|
|
|
|
2.2
|
|
|
|
1,336
|
|
|
|
3.0
|
|
|
|
1,374
|
|
|
|
5.4
|
|
|
|
2,075
|
|
|
|
6.9
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
.1
|
|
|
|
29
|
|
|
|
.9
|
|
|
|
120
|
|
|
|
1.1
|
|
|
|
112
|
|
|
|
.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
18,892
|
|
|
|
100.0
|
%
|
|
$
|
12,011
|
|
|
|
100.0
|
%
|
|
$
|
12,543
|
|
|
|
100.0
|
%
|
|
$
|
25,174
|
|
|
|
100.0
|
%
|
|
$
|
27,766
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The allowance as a percentage of loans, net of unearned income,
at December 31, 2006 was 1.15%, compared to 1.25% as of
December 31, 2005. Net charge-offs decreased
$1.7 million, from $4.0 million in 2005 to
$2.3 million in 2006. Net charge-offs of commercial loans
decreased $699,000, from $1.7 million in 2005 to $985,000
in 2006. Net charge-offs of real estate loans decreased
$884,000, from $1.7 million in 2005 to $770,000 in 2006.
Net charge-offs of consumer loans increased $209,000, to
$559,000 in 2006 from $350,000 in 2005. Net charge-offs as a
percentage of the allowance for loan losses were 12.26% in 2006,
down from 33.57% in 2005.
We expect our consumer loan charges-offs to be higher in future
periods due to the addition of our consumer finance companies.
However, we believe the increased risk associated with these
loans is generally offset by their higher yield.
34
The allowance for loan losses as a percentage of nonperforming
loans decreased to 219.9% at December 31, 2006 from 252.8%
at December 31, 2005. Approximately $1.3 million in
allowance for loan losses has been allocated to nonperforming
loans as of December 31, 2006. As of December 31,
2006, nonperforming loans totaled $8.6 million, which
$7.3 million, or 85.3%, was loans secured by real estate
compared to $3.6 million, or 75.8%, as of December 31,
2005. Of the $1.3 million in allowance for loan losses
allocated to nonperforming loans, $1.05 million is
attributable to these real estate loans, with the remaining
$250,000 allocated to remaining nonperforming loans, which
consist primarily of commercial loans. (See Nonperforming
Assets).
The following table summarizes certain information with respect
to our allowance for loan losses and the composition of
charge-offs and recoveries for the periods indicated.
Summary
of Loan Loss Experience
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
2002
|
|
|
|
(Dollars in thousands)
|
|
|
Allowance for loan losses at
beginning of year
|
|
$
|
12,011
|
|
|
$
|
12,543
|
|
|
$
|
25,174
|
|
|
$
|
27,766
|
|
|
$
|
12,546
|
|
Allowance of acquired bank
(branches sold)
|
|
|
6,697
|
|
|
|
|
|
|
|
|
|
|
|
(102
|
)
|
|
|
1,059
|
|
Charge-offs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
|
1,450
|
|
|
|
2,097
|
|
|
|
7,690
|
|
|
|
10,823
|
|
|
|
25,162
|
|
Real estate
construction and land development
|
|
|
378
|
|
|
|
358
|
|
|
|
765
|
|
|
|
630
|
|
|
|
1,704
|
|
Real estate mortgages
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single-family
|
|
|
625
|
|
|
|
795
|
|
|
|
1,012
|
|
|
|
1,505
|
|
|
|
2,608
|
|
Commercial
|
|
|
416
|
|
|
|
1,432
|
|
|
|
5,820
|
|
|
|
6,696
|
|
|
|
6,140
|
|
Other
|
|
|
15
|
|
|
|
85
|
|
|
|
86
|
|
|
|
1,187
|
|
|
|
141
|
|
Consumer
|
|
|
860
|
|
|
|
630
|
|
|
|
1,881
|
|
|
|
3,092
|
|
|
|
2,343
|
|
Other
|
|
|
2
|
|
|
|
345
|
|
|
|
87
|
|
|
|
517
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total charge-offs
|
|
|
3,746
|
|
|
|
5,742
|
|
|
|
17,341
|
|
|
|
24,450
|
|
|
|
38,098
|
|
Recoveries:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
|
465
|
|
|
|
413
|
|
|
|
1,468
|
|
|
|
554
|
|
|
|
93
|
|
Real estate
construction and land development
|
|
|
126
|
|
|
|
37
|
|
|
|
4
|
|
|
|
23
|
|
|
|
14
|
|
Real estate mortgages
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single-family
|
|
|
102
|
|
|
|
335
|
|
|
|
470
|
|
|
|
23
|
|
|
|
23
|
|
Commercial
|
|
|
363
|
|
|
|
526
|
|
|
|
737
|
|
|
|
49
|
|
|
|
|
|
Other
|
|
|
73
|
|
|
|
118
|
|
|
|
97
|
|
|
|
48
|
|
|
|
38
|
|
Consumer
|
|
|
301
|
|
|
|
280
|
|
|
|
549
|
|
|
|
282
|
|
|
|
239
|
|
Other
|
|
|
|
|
|
|
1
|
|
|
|
410
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recoveries
|
|
|
1,430
|
|
|
|
1,710
|
|
|
|
3,735
|
|
|
|
985
|
|
|
|
407
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs
|
|
|
2,316
|
|
|
|
4,032
|
|
|
|
13,606
|
|
|
|
23,465
|
|
|
|
37,691
|
|
Provision for loan losses
|
|
|
2,500
|
|
|
|
3,500
|
|
|
|
975
|
|
|
|
20,975
|
|
|
|
51,852
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses at end
of year
|
|
$
|
18,892
|
|
|
$
|
12,011
|
|
|
$
|
12,543
|
|
|
$
|
25,174
|
|
|
$
|
27,766
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans at end of period, net of
unearned income
|
|
$
|
1,639,528
|
|
|
$
|
963,253
|
|
|
$
|
934,868
|
|
|
$
|
856,941
|
|
|
$
|
1,138,537
|
|
Average loans, net of unearned
income
|
|
|
1,176,844
|
|
|
|
947,212
|
|
|
|
894,406
|
|
|
|
1,063,451
|
|
|
|
1,124,977
|
|
Ratio of ending allowance to
ending loans
|
|
|
1.15
|
%
|
|
|
1.25
|
%
|
|
|
1.34
|
%
|
|
|
2.94
|
%
|
|
|
2.44
|
%
|
Ratio of net charge-offs to
average loans
|
|
|
0.20
|
|
|
|
0.43
|
|
|
|
1.52
|
|
|
|
2.21
|
|
|
|
3.35
|
|
Net charge-offs as a percentage of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan losses
|
|
|
92.64
|
|
|
|
115.20
|
|
|
|
1,395.49
|
|
|
|
111.87
|
|
|
|
72.69
|
|
Allowance for loan losses
|
|
|
12.26
|
|
|
|
33.57
|
|
|
|
108.47
|
|
|
|
93.21
|
|
|
|
135.74
|
|
Allowance for loan losses as a
percentage of nonperforming loans
|
|
|
219.88
|
|
|
|
252.76
|
|
|
|
169.36
|
|
|
|
78.59
|
|
|
|
105.00
|
|
Nonperforming Assets. Nonperforming assets
increased $3.8 million, to $10.4 million as of
December 31, 2006 from $6.6 million as of
December 31, 2005, primarily due to the acquisition of
Community. As a percentage of
35
net loans plus nonperforming assets, nonperforming assets
decreased to .63% at December 31, 2006 from .68% at
December 31, 2005. The following table represents our
nonperforming assets for the dates shown.
Nonperforming
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
2002
|
|
|
|
(Dollars in thousands)
|
|
|
Nonaccrual
|
|
$
|
7,773
|
|
|
$
|
4,550
|
|
|
$
|
6,344
|
|
|
$
|
29,630
|
|
|
$
|
24,715
|
|
Accruing loans 90 days or
more delinquent
|
|
|
514
|
|
|
|
49
|
|
|
|
431
|
|
|
|
1,438
|
|
|
|
1,729
|
|
Restructured
|
|
|
305
|
|
|
|
153
|
|
|
|
631
|
|
|
|
966
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total nonperforming loans
|
|
|
8,592
|
|
|
|
4,752
|
|
|
|
7,406
|
|
|
|
32,034
|
|
|
|
26,444
|
|
Other real estate owned
|
|
|
1,684
|
|
|
|
1,842
|
|
|
|
4,906
|
|
|
|
5,806
|
|
|
|
2,360
|
|
Repossessed assets
|
|
|
137
|
|
|
|
|
|
|
|
103
|
|
|
|
219
|
|
|
|
102
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total nonperforming assets
|
|
$
|
10,413
|
|
|
$
|
6,594
|
|
|
$
|
12,415
|
|
|
$
|
38,059
|
|
|
$
|
28,906
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonperforming loans as a
percentage of loans
|
|
|
.52
|
%
|
|
|
.49
|
%
|
|
|
.79
|
%
|
|
|
3.74
|
%
|
|
|
2.32
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonperforming assets as a
percentage of loans plus nonperforming assets
|
|
|
.63
|
%
|
|
|
.68
|
%
|
|
|
1.32
|
%
|
|
|
4.41
|
%
|
|
|
2.53
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonperforming assets as a
percentage of total assets
|
|
|
.43
|
%
|
|
|
.47
|
%
|
|
|
.87
|
%
|
|
|
3.25
|
%
|
|
|
2.05
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following is a summary of nonperforming loans by category
for the dates shown:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
2002
|
|
|
|
(Dollars in thousands)
|
|
|
Commercial and industrial
|
|
$
|
704
|
|
|
$
|
988
|
|
|
$
|
2,445
|
|
|
$
|
11,621
|
|
|
$
|
9,661
|
|
Real estate
construction and land development
|
|
|
2,067
|
|
|
|
469
|
|
|
|
187
|
|
|
|
1,735
|
|
|
|
2,226
|
|
Real estate mortgages
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single-family
|
|
|
2,805
|
|
|
|
2,448
|
|
|
|
2,060
|
|
|
|
5,472
|
|
|
|
3,672
|
|
Commercial
|
|
|
1,765
|
|
|
|
675
|
|
|
|
2,273
|
|
|
|
12,378
|
|
|
|
8,434
|
|
Other
|
|
|
688
|
|
|
|
11
|
|
|
|
183
|
|
|
|
162
|
|
|
|
888
|
|
Consumer
|
|
|
559
|
|
|
|
161
|
|
|
|
250
|
|
|
|
465
|
|
|
|
1,548
|
|
Other
|
|
|
4
|
|
|
|
|
|
|
|
8
|
|
|
|
201
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total nonperforming loans
|
|
$
|
8,592
|
|
|
$
|
4,752
|
|
|
$
|
7,406
|
|
|
$
|
32,034
|
|
|
$
|
26,444
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A delinquent loan is placed on nonaccrual status when it becomes
90 days or more past due and management believes, after
considering economic and business conditions and collection
efforts, that the borrowers financial condition is such
that the collection of interest is doubtful. When a loan is
placed on non-accrual status, all interest which has been
accrued on the loan during the current period but remains unpaid
is reversed and deducted from earnings as a reduction of
reported interest income; any prior period accrued and unpaid
interest is reversed and charged against the allowance for loan
losses. No additional interest income is accrued on the loan
balance until the collection of both principal and interest
becomes reasonably certain. When a problem loan is finally
resolved, there may be an actual write-down or charge-off of the
principal balance of the loan to the allowance for loan losses,
which may necessitate additional charges to earnings.
Impaired Loans. At December 31, 2006, our
recorded investment in impaired loans under SFAS 114
totaled $6.9 million, a increase of $3.4 million from
$3.5 million at December 31, 2005. Approximately
$994,000, or 14.4% of our impaired loans, remains in our special
assets group along with $408,000 in allocated allowance for loan
losses; $4.0 million is in the Alabama segment and
$1.9 million is in the Florida segment. Approximately
$1.4 million is specifically allocated to these loans,
providing 23.8% coverage. Additionally, $6.1 million, or
88.4%, of the $6.9 million in impaired loans is secured by
real estate.
36
The following is a summary of impaired loans and the
specifically allocated allowance for loan losses by category as
of December 31, 2006 and 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2006
|
|
|
December 31, 2005
|
|
|
|
Outstanding
|
|
|
Specific
|
|
|
Outstanding
|
|
|
Specific
|
|
|
|
Balance
|
|
|
Allowance
|
|
|
Balance
|
|
|
Allowance
|
|
|
|
(Dollars in thousands)
|
|
|
Commercial and industrial
|
|
$
|
911
|
|
|
$
|
405
|
|
|
$
|
1,794
|
|
|
$
|
871
|
|
Real estate
construction and land development
|
|
|
1,959
|
|
|
|
311
|
|
|
|
73
|
|
|
|
26
|
|
Real estate mortgages
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single-family
|
|
|
616
|
|
|
|
92
|
|
|
|
169
|
|
|
|
25
|
|
Commercial
|
|
|
2,381
|
|
|
|
656
|
|
|
|
1,437
|
|
|
|
498
|
|
Other
|
|
|
1,019
|
|
|
|
343
|
|
|
|
10
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
6,886
|
|
|
$
|
1,807
|
|
|
$
|
3,483
|
|
|
$
|
1,425
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Potential Problem Loans. In addition to
nonperforming loans, management has identified $5.2 million
in potential problem loans as of December 31, 2006.
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. Considering that the
potential problem loans are primarily secured by low-risk real
estate, management does not expect to incur any significant
losses.
Investment Securities. The investment
securities portfolio comprised 17% of our total interest-earning
assets as of December 31, 2006. Total securities averaged
$286.7 million in 2006, compared to $262.6 million in
2005 and $207.9 million in 2004. The investment securities
portfolio produced average taxable equivalent yields of 4.74%,
4.57%, and 4.38% for the years ended December 31, 2006,
2005 and 2004, respectively. At December 31, 2006, our
investment securities portfolio had an amortized cost of
$357.6 million and an estimated fair value of
$354.7 million and weighted average yield of 5.33%. During
the third and fourth quarters of 2006, we reduced the investment
portfolios of Kensington and Community by approximately
$150 million and accordingly reduced our wholesale funding.
The expected carrying yields of the securities were
approximately equal to the interest rates of the funding.
The following table sets forth the amortized costs of the
securities we held at the dates indicated.
Investment
Portfolio
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
Available for Sale
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(Dollars in thousands)
|
|
|
U.S. Treasury and agencies
|
|
$
|
113,259
|
|
|
$
|
99,365
|
|
|
$
|
180,717
|
|
State and political subdivisions
|
|
|
12,977
|
|
|
|
8,729
|
|
|
|
7,195
|
|
Mortgage-backed securities
|
|
|
185,814
|
|
|
|
93,689
|
|
|
|
61,241
|
|
Corporate debt
|
|
|
38,883
|
|
|
|
38,064
|
|
|
|
34,176
|
|
Other securities
|
|
|
6,675
|
|
|
|
7,028
|
|
|
|
6,802
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities
|
|
$
|
357,608
|
|
|
$
|
246,875
|
|
|
$
|
290,131
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37
The following table shows the scheduled maturities and average
yields of investment securities held at December 31, 2006.
Maturity
Distribution of Investment Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturing
|
|
|
|
|
|
|
After One But
|
|
|
After Five But
|
|
|
|
|
|
|
|
|
|
Within One
|
|
|
Within Five
|
|
|
Within Ten
|
|
|
After
|
|
|
|
|
|
|
Year
|
|
|
Years
|
|
|
Years
|
|
|
Ten Years
|
|
|
Total
|
|
|
|
Amount
|
|
|
Yield
|
|
|
Amount
|
|
|
Yield
|
|
|
Amount
|
|
|
Yield
|
|
|
Amount
|
|
|
Yield
|
|
|
Amount
|
|
|
Yield
|
|
|
|
(Dollars in thousands)
|
|
|
Securities available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and agencies
|
|
$
|
3,077
|
|
|
|
5.54
|
%
|
|
$
|
50,863
|
|
|
|
4.25
|
%
|
|
$
|
49,439
|
|
|
|
5.88
|
%
|
|
$
|
9,880
|
|
|
|
6.93
|
%
|
|
$
|
113,259
|
|
|
|
5.23
|
%
|
State and political subdivision
|
|
|
280
|
|
|
|
2.60
|
|
|
|
815
|
|
|
|
3.13
|
|
|
|
3,090
|
|
|
|
4.07
|
|
|
|
8,792
|
|
|
|
4.42
|
|
|
|
12,977
|
|
|
|
4.21
|
|
Mortgage-backed securities
|
|
|
762
|
|
|
|
5.25
|
|
|
|
41,113
|
|
|
|
4.46
|
|
|
|
10,986
|
|
|
|
4.66
|
|
|
|
132,953
|
|
|
|
5.34
|
|
|
|
185,814
|
|
|
|
5.10
|
|
Other securities
|
|
|
|
|
|
|
|
|
|
|
7,729
|
|
|
|
5.35
|
|
|
|
|
|
|
|
|
|
|
|
37,829
|
|
|
|
7.13
|
|
|
|
45,558
|
|
|
|
6.83
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,119
|
|
|
|
5.29
|
%
|
|
$
|
100,520
|
|
|
|
4.41
|
%
|
|
$
|
63,515
|
|
|
|
5.58
|
%
|
|
$
|
189,454
|
|
|
|
5.73
|
%
|
|
$
|
357,608
|
|
|
|
5.33
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax lien certificates. During 2006, the
Corporation purchased $16.3 million in tax lien
certificates from various municipalities primarily in Alabama,
Illinois, Mississippi, New Jersey, and South Carolina. Tax lien
certificates are carried at cost plus accrued interest, which
approximates fair value. Tax lien certificates and resulting
deeds are classified as non-accrual when a tax lien certificate
is 24 to 48 months delinquent, depending on the
municipality, from the acquisition date. At that time, interest
ceases to be accrued. As of December 31, 2006, there were
no delinquent or nonperforming liens.
Short-term liquid assets. Our short-term
liquid assets (cash and due from banks, interest-bearing
deposits in other banks and federal funds sold) increased
$41.1 million, or 91.6%, to $86.0 million at
December 31, 2006 from $44.8 million at
December 31, 2005. At December 31, 2006 and
December 31, 2005, our short-term liquid assets comprised
3.4% and 3.2% of total assets, respectively. We continually
monitor our liquidity position and will increase or decrease our
short-term liquid assets as necessary.
Deposits. Noninterest-bearing deposits totaled
$191.3 million at December 31, 2006, an increase of
107.3%, or $99.0 million, from $92.3 million at
December 31, 2005. The increase is primarily due to the
approximately $68.0 million and $26.0 million in
noninterest-bearing deposits gained from the acquisition of
Community and Kensington, respectively. Noninterest-bearing
deposits comprised 10.23% of total deposits at December 31,
2006 and 8.8% at December 31, 2005. In addition,
$146.7 million, or 76.7% of total noninterest-bearing
deposits, were in our Alabama branches, while
$44.6 million, or 23.3%, were in our Florida branches.
Interest-bearing deposits totaled $1.679 billion at
December 31, 2006, an increase of 76.5%, or
$727.9 million, from $951.4 million at
December 31, 2005. The increase is primarily due to the
$366.0 million and $260.0 million in interest-bearing
deposits gained from the acquisition of Community and
Kensington, respectively. Interest-bearing deposits averaged
$1.152 billion in 2005 compared to $972.9 million in
2005, an increase of $179.0 million, or 18.4%. The average
rate paid on all interest-bearing deposits during 2006 was
4.04%, compared to 2.87% in 2005. Of total interest-bearing
deposits, $1.211 billion, or 72.1%, were in the Alabama
branches, while $468.1 million, or 27.9%, were in the
Florida branches.
At December 31, 2006 and 2005, we had deposits from related
parties of approximately $23.8 million and
$32.4 million, respectively. We believe that all of the
deposit transactions were made on terms and conditions
reflective of arms length transactions.
38
The following table sets forth our average deposits by category
for the periods indicated.
Average
Deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average for the Year
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Amount
|
|
|
Average
|
|
|
Amount
|
|
|
Average
|
|
|
Amount
|
|
|
Average
|
|
|
|
Outstanding
|
|
|
Rate Paid
|
|
|
Outstanding
|
|
|
Rate Paid
|
|
|
Outstanding
|
|
|
Rate Paid
|
|
|
|
(Dollars in thousands)
|
|
|
Noninterest-bearing demand deposits
|
|
$
|
111,757
|
|
|
|
|
%
|
|
$
|
93,564
|
|
|
|
|
%
|
|
$
|
88,695
|
|
|
|
|
%
|
Interest-bearing demand deposits
|
|
|
359,262
|
|
|
|
3.30
|
|
|
|
339,842
|
|
|
|
2.10
|
|
|
|
262,346
|
|
|
|
1.23
|
|
Savings deposits
|
|
|
27,968
|
|
|
|
.63
|
|
|
|
25,935
|
|
|
|
.15
|
|
|
|
29,383
|
|
|
|
.16
|
|
Time deposits
|
|
|
764,787
|
|
|
|
4.51
|
|
|
|
607,141
|
|
|
|
3.41
|
|
|
|
590,070
|
|
|
|
2.70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total average deposits
|
|
$
|
1,263,774
|
|
|
|
3.68
|
%
|
|
$
|
1,066,482
|
|
|
|
2.62
|
%
|
|
$
|
970,494
|
|
|
|
1.98
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits, particularly core deposits, have historically been our
primary source of funding and have enabled us to meet
successfully both our short-term and long-term liquidity needs.
Our core deposits, which exclude our time deposits greater than
$100,000, represent 71.1% of our total deposits at
December 31, 2006 compared to 66.9% at December 31,
2005. We anticipate that such deposits will continue to be our
primary source of funding in the future. Our
loan-to-deposit
ratio was 87.7% at December 31, 2006, compared to 92.2% at
December 31, 2005. The maturity distribution of our time
deposits over $100,000 at December 31, 2006 is shown in the
following table.
Maturities
of Time Deposits of $100,000 or More
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2006
|
|
Under
|
|
|
3-6
|
|
|
6-12
|
|
|
Over
|
|
|
|
|
3 Months
|
|
|
Months
|
|
|
Months
|
|
|
12 Months
|
|
|
Total
|
|
(Dollars in thousands)
|
|
|
$
|
151,883
|
|
|
$
|
153,214
|
|
|
$
|
151,537
|
|
|
$
|
77,066
|
|
|
$
|
533,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Approximately 28.1% of our time deposits over $100,000 had
scheduled maturities within three months of December 31,
2006. (These amounts include brokered CDs and State of Alabama
Time Demand Open Account). We believe customers who hold a large
denomination certificate of deposit tend to be extremely
sensitive to interest rate levels, making these deposits a less
reliable source of funding for liquidity planning purposes than
core deposits.
Borrowed Funds. During 2006, average borrowed
funds increased $41.3 million, or 22.1%, to
$228.6 million, from $187.3 million during 2005, which
in turn increased $4.2 million, or 2.3%, from
$183.1 million during 2004. The increase in 2006 can be
attributed to an increase in FHLB advances prior to the
acquisition of Kensington and Community. The average rate paid
on borrowed funds during 2006, 2005 and 2004 was 5.07%, 4.00%,
and 3.47%, 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.
39
Borrowed funds as of December 31, 2006 consist primarily of
advances from the FHLB. The following is a summary, by year of
contractual maturity, of advances from the FHLB as of
December 31, 2006 and 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
Year
|
|
Average Rate
|
|
|
Balance
|
|
|
Average Rate
|
|
|
Balance
|
|
|
|
(Dollars in thousands)
|
|
|
2006
|
|
|
|
%
|
|
$
|
|
|
|
|
4.40
|
%
|
|
$
|
85,250
|
|
2007
|
|
|
5.37
|
|
|
|
42,000
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
5.38
|
|
|
|
55,500
|
|
|
|
5.74
|
|
|
|
5,500
|
|
2009
|
|
|
5.39
|
|
|
|
27,000
|
|
|
|
2.32
|
|
|
|
27,000
|
|
2010
|
|
|
6.41
|
|
|
|
5,000
|
|
|
|
6.41
|
|
|
|
5,000
|
|
2015
|
|
|
5.39
|
|
|
|
26,340
|
|
|
|
4.45
|
|
|
|
26,340
|
|
2020
|
|
|
4.28
|
|
|
|
32,000
|
|
|
|
4.28
|
|
|
|
32,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
5.22
|
%
|
|
$
|
187,840
|
|
|
|
4.17
|
%
|
|
$
|
181,090
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certain advances are subject to call by the FHLB as follows:
2007 $17.0 million, 2008
$32.0 million and 2010 $11.3 million. The
$17.0 million in FHLB advances subject to call during 2007
carry a weighted average interest rate of 5.62%.
The advances are secured by a blanket lien on certain
residential and commercial real estate loans and by securities,
all with a lendable collateral value of approximately
$302,980,000 on December 31, 2006. The Corporation has
available approximately $95,000,000 in unused advances subject
to the availability of qualifying collateral.
As of December 31, 2006, we had borrowed $4.3 million
under a $10 million line of credit with a regional bank.
The note was secured by real estate and stock of the Bank. The
note was due June 7, 2007 and bore interest at
30-day LIBOR
plus 2.50%. On January 26, 2007, we replaced this line of
credit with a line of credit from another regional bank in the
amount of $10,000,000, maturing on January 26, 2008, with
interest and principal due at maturity based on the 30-day LIBOR
plus 1.25%. This line of credit is secured by 51% of the
outstanding Superior Bank stock.
As of December 31, 2006, we had entered into security
repurchase agreements totaling $23.4 million, a decrease of
$7.0 million from $30.4 million at December 31,
2005. This decrease is part of the deleveraging strategy
implemented in merging our balance sheet with those of
Kensington and Community. The average volume of repurchase
agreements during 2006 was $30.6 million, which carried an
average interest rate of 4.51%. The average rate on outstanding
repurchase agreements as of December 31, 2006 is 4.63%.
We have available approximately $30.0 million in unused
federal funds lines of credit with regional banks, subject to
certain restrictions and collateral requirements.
Junior subordinated debentures. We have
sponsored three trusts, TBC Capital Statutory Trust II
(TBC Capital II), TBC Capital Statutory
Trust III (TBC Capital III) and Community
(AL) Capital Trust I, of which we own 100% of the common
securities. The trusts were formed for the purpose of issuing
mandatory redeemable trust preferred securities to third-party
investors and investing the proceeds from the sale of such trust
preferred securities solely in our junior subordinated debt
securities (the debentures). The debentures held by each trust
are the sole assets of that trust. Distributions on the trust
preferred securities issued by each trust are payable
semi-annually at a rate per annum equal to the interest rate
being earned by the trust on the debentures held by that trust.
The trust preferred securities are subject to mandatory
redemption, in whole or in part, upon repayment of the
debentures. We have entered into agreements which, taken
collectively, fully and unconditionally guarantee the trust
preferred securities subject to the terms of each of the
guarantees. The debentures held by the TBC Capital II, TBC
Capital III and Community (AL) Capital I capital trusts are
first redeemable, at a premium, in whole or in part, by us on
September 7, 2010, July 25, 2006 and March 8,
2010, respectively.
40
As a result of applying the provisions of FASB Interpretation
No. 46R, Consolidation of Variable Interest Entities
(FIN 46R), governing when an equity interest
should be consolidated, we were required to deconsolidate these
subsidiary trusts from our financial statements in the fourth
quarter of 2003.
The trust preferred securities held by the trusts qualify as
Tier 1 capital under regulatory guidelines.
Consolidated debt obligations related to the trusts follow:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
10.6% junior subordinated
debentures owed to TBC Capital Statutory Trust II due
September 7, 2030
|
|
$
|
15,464,000
|
|
|
$
|
15,464,000
|
|
6-month
LIBOR plus 3.75% junior subordinated debentures owed to TBC
Capital Statutory Trust III due July 25, 2031
|
|
|
16,495,000
|
|
|
|
16,495,000
|
|
10.875% junior subordinated
debentures owed to Community (AL) Capital Trust I due
March 8, 2030
|
|
|
10,310,000
|
|
|
|
|
|
Purchase accounting
adjustment Community (AL) Capital Trust I
|
|
|
1,737,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total junior subordinated
debentures owed to unconsolidated subsidiary trusts
|
|
$
|
44,006,000
|
|
|
$
|
31,959,000
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2006 and December 31, 2005, the
interest rate on the $16,495,000 subordinated debentures was
9.30% and 7.67%, respectively.
Stockholders Equity. Stockholders
equity increased $171.0 million during 2006, to
$276.1 million at December 31, 2006 from
$105.1 million at December 31, 2005. As of
December 31, 2006, we had 34,732,345 shares of common
stock issued and 34,651,669 shares outstanding. As of
December 31, 2006, there were 80,676 shares held in
treasury at a total cost of $716,000. We had no shares of
preferred stock issued at December 31, 2006.
We established a stock incentive plan for directors and certain
key employees that provides for the granting of restricted stock
and incentive and nonqualified options to purchase up to
2,500,000 shares of our common stock. The compensation
committee of the Board of Directors determines the terms of the
restricted stock and options granted. All options granted have a
maximum term of ten years from the grant date, and the option
price per share of options granted cannot be less than the fair
market value of our common stock on the grant date. Some of the
options granted under the plan in the past vested over a
five-year period, while others vested based on certain
benchmarks relating to the trading price of our common stock,
with an outside vesting date of five years from the date of
grant. More recent grants have followed this benchmark-vesting
formula. During the first quarter of 2005, we granted 1,690,937
options to the new management team. These options have exercise
prices ranging from $8.17 to $9.63 per share and were
granted outside of the stock incentive plan as part of the
inducement package for new management
In December 2004, the FASB issued SFAS No. 123R,
Share-Based Payment (SFAS 123R), which
is a revision of SFAS No. 123, Accounting for
Stock-Based Compensation (SFAS 123), and
supersedes Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees (APB Opinion
25). The new standard, which became effective for us in
the first quarter of 2006, requires companies to recognize an
expense in the statement of operations for the grant-date fair
value of stock options and other equity-based compensation
issued to employees, but expresses no preference for a type of
valuation method. This expense will be recognized over the
period during which an employee is required to provide service
in exchange for the award. SFAS 123R carries forward prior
guidance on accounting for awards to non-employees. If an equity
award is modified after the grant date, incremental compensation
cost will be recognized in an amount equal to the excess of the
fair value of the modified award over the fair value of the
original award immediately prior to the modification. We are
recognizing compensation expense for any stock awards granted
after December 31, 2005. Since all of the
Corporations stock option awards granted prior to
December 31, 2005 have vested in full, no future
compensation expense will be recognized on these awards.
We adopted the provisions of SFAS 123R using the
modified-prospective transition method. Under that transition
method, compensation cost recognized in 2006 includes $158,000
in compensation cost for all share-
41
based payments granted subsequent to December 31, 2005,
based on the grant-date fair value estimated in accordance with
the provisions of SFAS 123R. Results for prior periods have
not been restated.
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 found in Note 11 to the consolidated financial
statements. 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.
Our board of directors approved the full vesting as of
November 15, 2005 of all unvested stock options outstanding
at that date. The effect of this accelerated vesting is
reflected in the pro forma net loss and pro forma loss per share
figures in Note 11 to the Consolidated Financial
Statements. During the fourth quarter of 2005, the pro forma
after-tax effect of compensation costs for stock-based employee
compensation awards totaled $2.1 million, or $0.10 per
share. In conjunction with the Boards approval of the full
vesting, members of the our senior management team announced
that they would not accept any performance bonus for which they
might have been eligible at year-end 2005. The number of shares
represented by unvested options that were vested effective
November 15, 2005 is approximately 800,000, of which
approximately 665,000 were held by our directors and executive
officers.
Superior Bancorp ESOP. We adopted a leveraged
employee stock ownership plan (the ESOP) effective
May 15, 2002 that covers all eligible employees who are at
least 21 years old and have completed a year of service. As
of December 31, 2005, the ESOP has been leveraged with
273,400 shares of our common stock purchased in the open
market and classified as a contra-equity account, Unearned
ESOP stock, in stockholders equity.
On January 29, 2003, the ESOP trustees finalized a
$2.1 million promissory note to reimburse us for the funds
used to leverage the ESOP. The unreleased shares and our
guarantee secure the promissory note, which has been classified
as notes payable on our statement of financial condition. As the
debt is repaid, shares are released from collateral based on the
proportion of debt service. Principal payments on the debt are
$17,500 per month for 120 months. The interest rate is
adjusted to the Wall Street Journal prime rate. Released shares
are allocated to each eligible employee at the end of a plan
year based on the ratio of the employees eligible
compensation to total compensation. We recognize compensation
expense during a period as the shares are earned and committed
to be released. As shares are committed to be released and
compensation expense is recognized, the shares become
outstanding for basic and diluted earnings per share
computations. The amount of compensation expense we report is
equal to the average fair value of the shares earned and
committed to be released during the period. Compensation expense
that we recognized during the periods ended December 31,
2006, 2005 and 2004 was $304,000, $281,000 and $189,000,
respectively. The ESOP shares as of December 31, 2006 were
as follows:
Superior
Bancorp
|
|
|
|
|
|
|
December 31,
|
|
|
|
2006
|
|
|
Allocated shares
|
|
|
82,028
|
|
Estimated shares committed to be
released
|
|
|
26,700
|
|
Unreleased shares
|
|
|
164,672
|
|
|
|
|
|
|
Total ESOP shares
|
|
|
273,400
|
|
|
|
|
|
|
Fair value of unreleased shares
|
|
$
|
3,100,000
|
|
|
|
|
|
|
Community Bancshares ESOP. As a result of our
merger with Community, we became a sponsor of an internally
leveraged ESOP maintained by Community. This ESOP has an
outstanding loan owed to us that bears interest at a floating
rate equal to the prime rate of interest. As of
December 31, 2006, the interest rate on the note was 8.25%.
Principal and interest payments on the ESOP loan are due monthly
through September 16, 2011, based on the current
amortization schedule, with the remaining principal and
interest, if any, due upon that date. The ESOP loan may be
prepaid in whole or in part without penalty under the loan
agreement, subject to applicable ERISA and tax restrictions. We
make contributions to the ESOP that enable the ESOP to make
payments due under the ESOP loan. Under Statement of Position
No. 93-6
(SOP 93-6),
Employers Accounting for Employee Stock Ownership
42
Plans, employers that sponsor an ESOP with an employer
loan should not report the ESOPs note payable or the
employers note receivable in the employers statement
of condition, nor should interest cost or interest income be
recognized on the employer loan. We followed
SOP 93-6
accordingly. The principal balance of our loan to the ESOP at
December 31, 2006 was $1.1 million.
An employee becomes a participant in the ESOP after completing
12 months of service during which the employee is credited
with 1,000 hours or more of service. Contributions to the
plan are made at the discretion of the board but may not be less
than the amount required to service the ESOP debt. Under the
terms of the ESOP, after a person ceases to be an employee, that
person is no longer eligible to participate in the ESOP. In that
case, the person may demand to receive all stock credited to his
benefit under the ESOP as of the end of the year immediately
preceding that persons termination of employment.
Dividends paid on released ESOP shares are credited to the
accounts of the participants to whom the shares are allocated.
Dividends on unreleased shares may be used to repay the debt
associated with the ESOP or treated as other income of the ESOP
and allocated to the participants. Compensation cost recognized
during the period ended December 31, 2006 was $39,000. The
ESOP shares as of December 31, 2006 are as follows:
|
|
|
|
|
|
|
December 31,
|
|
|
|
2006
|
|
|
Allocated shares
|
|
|
380,011
|
|
Estimated shares committed to be
released
|
|
|
14,066
|
|
Unreleased shares
|
|
|
66,659
|
|
|
|
|
|
|
Total ESOP shares
|
|
|
460,736
|
|
|
|
|
|
|
Fair value of unreleased shares
|
|
$
|
5,224,746
|
|
|
|
|
|
|
Regulatory Capital. During the fourth quarter
of 2005, we became a unitary thrift holding company and, as
such, we are subject to regulation, examination and supervision
by OTS.
Simultaneously, the Banks charter was changed to a federal
savings bank charter, and the Bank is also subject to various
regulatory requirements administered by the OTS. Prior to
November 1, 2005 the Bank was regulated by the Alabama
Banking Department and the Federal Reserve. Failure to meet
minimum capital requirements can initiate certain mandatory and
possibly additional discretionary actions by regulators that, if
undertaken, could have a direct material effect on our financial
position and results of operations. Under capital adequacy
guidelines and the regulatory framework for prompt corrective
action, the Bank must meet specific capital guidelines that
involve quantitative measures of its assets, liabilities and
certain off-balance sheet items as calculated under regulatory
accounting practices. The Banks capital amounts and
classification are also subject to qualitative judgments by the
regulators about components, risk weightings and other factors.
Quantitative measures established by regulation to ensure
capital adequacy require us and the Bank to maintain minimum
amounts and ratios (set forth in the table below) of tangible
and core capital (as defined in the regulations) to adjusted
total assets (as defined), and of total capital (as defined) and
Tier 1 capital to risk weighted assets (as defined).
Management believes, as of December 31, 2006 and 2005, that
we and the Bank meet all applicable capital adequacy
requirements.
43
The table below represents our and the Banks actual
regulatory and minimum regulatory capital requirements at
December 31, 2006 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
To Be Well
|
|
|
|
|
For Capital
|
|
Capitalized Under
|
|
|
|
|
Adequacy
|
|
Prompt Corrective
|
|
|
Actual
|
|
Purposes
|
|
Action
|
|
|
Amount
|
|
Ratio
|
|
Amount
|
|
Ratio
|
|
Amount
|
|
Ratio
|
|
As of December 31,
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 Core Capital (to
Adjusted Total Assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporation
|
|
$
|
170,513
|
|
|
|
7.43
|
%
|
|
$
|
91,768
|
|
|
|
4.00
|
%
|
|
$
|
114,710
|
|
|
|
5.00
|
%
|
Superior Bank
|
|
|
174,084
|
|
|
|
7.64
|
|
|
|
91,090
|
|
|
|
4.00
|
|
|
|
113,863
|
|
|
|
5.00
|
|
Total Capital (to Risk Weighted
Assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporation
|
|
|
188,688
|
|
|
|
10.40
|
|
|
|
145,198
|
|
|
|
8.00
|
|
|
|
181,498
|
|
|
|
10.00
|
|
Superior Bank
|
|
|
192,259
|
|
|
|
10.69
|
|
|
|
143,843
|
|
|
|
8.00
|
|
|
|
179,803
|
|
|
|
10.00
|
|
Tier 1 Capital (to Risk
Weighted Assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporation
|
|
|
170,513
|
|
|
|
9.39
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
108,899
|
|
|
|
6.00
|
|
Superior Bank
|
|
|
174,084
|
|
|
|
9.68
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
107,882
|
|
|
|
6.00
|
|
Tangible Capital (to Adjusted
Total Assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Superior Bank
|
|
|
174,084
|
|
|
|
7.64
|
|
|
|
34,159
|
|
|
|
1.50
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Impact of
Inflation
Unlike most industrial companies, our assets and liabilities are
primarily monetary in nature. Therefore, interest rates have a
more significant effect on our performance than do the effects
of changes in the general rate of inflation and changes in
prices. In addition, interest rates do not necessarily move in
the same direction or in the same magnitude as the prices of
goods and services. We seek to manage the relationships between
interest sensitive assets and liabilities in order to protect
against wide interest rate fluctuations, including those
resulting from inflation.
Forward-Looking
Statements
The Private Securities Litigation Reform Act of 1995 provides a
safe harbor for forward-looking statements made by us or on our
behalf. Some of the disclosures in this Annual Report on
Form 10-K,
including any statements preceded by, followed by or which
include the words may, could,
should, will, would,
hope, might, believe,
expect, anticipate,
estimate, intend, plan,
assume or similar expressions constitute
forward-looking statements.
These forward-looking statements, implicitly and explicitly,
include the assumptions underlying the statements and other
information with respect to our beliefs, plans, objectives,
goals, expectations, anticipations, estimates, intentions,
financial condition, results of operations, future performance
and business, including our expectations and estimates with
respect to our revenues, expenses, earnings, return on equity,
return on assets, efficiency ratio, asset quality, the adequacy
of our allowance for loan losses and other financial data and
capital and performance ratios.
Although we believe that the expectations reflected in our
forward-looking statements are reasonable, these statements
involve risks and uncertainties which are subject to change
based on various important factors (some of which are beyond our
control). The following factors, among others, could cause our
financial performance to differ materially from our goals,
plans, objectives, intentions, expectations and other
forward-looking statements: (1) the strength of the United
States economy in general and the strength of the regional and
local economies in which we conduct operations; (2) the
effects of, and changes in, trade, monetary and fiscal policies
and laws, including interest rate policies of the Board of
Governors of the Federal Reserve System; (3) inflation,
interest rate, market and monetary fluctuations; (4) our
ability to successfully integrate the assets, liabilities,
customers, systems and management we acquire or merge into our
operations; (5) our timely development of new products and
services in a
44
changing environment, including the features, pricing and
quality compared to the products and services of our
competitors; (6) the willingness of users to substitute
competitors products and services for our products and
services; (7) the impact of changes in financial services
policies, laws and regulations, including laws, regulations and
policies concerning taxes, banking, securities and insurance,
and the application thereof by regulatory bodies; (8) our
ability to resolve any legal proceeding on acceptable terms and
its effect on our financial condition or results of operations;
(9) technological changes; (10) changes in consumer
spending and savings habits; (11) the effect of natural
disasters, such as hurricanes, in our geographic markets; and
(12) regulatory, legal or judicial proceedings.
If one or more of the factors affecting our forward-looking
information and statements proves incorrect, then our actual
results, performance or achievements could differ materially
from those expressed in, or implied by, forward-looking
information and statements contained in this annual report.
Therefore, we caution you not to place undue reliance on our
forward-looking information and statements.
We do not intend to update our forward-looking information and
statements, whether written or oral, to reflect change. All
forward-looking statements attributable to us are expressly
qualified by these cautionary statements.
Item 7A. Quantitative
and Qualitative Disclosures About Market Risks.
Please refer to Item 7. Managements Discussion
and Analysis of Financial Condition and Results of
Operations Market Risk Interest Rate
Sensitivity, which is incorporated herein by reference.
Item 8. Financial
Statements and Supplementary Data.
Consolidated financial statements of Superior Bancorp meeting
the requirements of
Regulation S-X
are filed on the succeeding pages of this Item 8 of this
Annual Report on
Form 10-K.
45
SUPERIOR
BANCORP AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2006, 2005 and 2004
CONTENTS
|
|
|
Report of Independent Registered
Public Accounting Firm as of December 31, 2006 and 2005 and
for each of the three years in the period ended
December 31, 2006
|
|
47
|
Consolidated Statements of
Financial Condition
|
|
48
|
Consolidated Statements of
Operations
|
|
49
|
Consolidated Statements of Changes
in Stockholders Equity
|
|
50
|
Consolidated Statements of Cash
Flows
|
|
51
|
Notes to Consolidated Financial
Statements
|
|
52
|
46
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
Superior Bancorp
We have audited the accompanying consolidated statements of
financial condition of Superior Bancorp (formerly, The Banc
Corporation) and subsidiaries as of December 31, 2006 and
2005, and the related consolidated statements of operations,
changes in stockholders equity, and cash flows for each of
the three years in the period ended December 31, 2006.
These financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Superior Bancorp and subsidiaries as of
December 31, 2006 and 2005, and the consolidated results of
their operations and their cash flows for each of the three
years in the period ended December 31, 2006, in conformity
with U.S. generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial
statements, in 2006, the Company changed its method of
accounting for post-retirement benefit plans and share-based
compensation.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
effectiveness of Superior Bancorp and subsidiaries
internal control over financial reporting as of
December 31, 2006, based on criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO) and our report dated March 16, 2007,
expressed an unqualified opinion on managements assessment
of the effectiveness of Superior Bancorp and subsidiaries
internal control over financial reporting and an unqualified
opinion on the effectiveness of Superior Bancorp and
subsidiaries internal control over financial reporting.
/s/ Carr, Riggs & Ingram, LLC
Dothan, Alabama
March 16, 2007
47
SUPERIOR
BANCORP AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF FINANCIAL CONDITION
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
|
(In Thousands)
|
|
|
ASSETS
|
Cash and due from banks
|
|
$
|
49,783
|
|
|
$
|
35,088
|
|
Interest-bearing deposits in other
banks
|
|
|
10,994
|
|
|
|
9,772
|
|
Federal funds sold
|
|
|
25,185
|
|
|
|
|
|
Investment securities available for
sale
|
|
|
354,716
|
|
|
|
242,306
|
|
Tax lien certificates
|
|
|
16,313
|
|
|
|
289
|
|
Mortgage loans held for sale
|
|
|
24,433
|
|
|
|
21,355
|
|
Loans
|
|
|
1,641,322
|
|
|
|
964,789
|
|
Unearned income
|
|
|
(1,794
|
)
|
|
|
(1,536
|
)
|
|
|
|
|
|
|
|
|
|
Loans, net of unearned income
|
|
|
1,639,528
|
|
|
|
963,253
|
|
Allowance for loan losses
|
|
|
(18,892
|
)
|
|
|
(12,011
|
)
|
|
|
|
|
|
|
|
|
|
Net loans
|
|
|
1,620,636
|
|
|
|
951,242
|
|
Premises and equipment, net
|
|
|
94,626
|
|
|
|
56,017
|
|
Accrued interest receivable
|
|
|
14,387
|
|
|
|
7,081
|
|
Stock in FHLB and Federal Reserve
Bank
|
|
|
12,382
|
|
|
|
10,966
|
|
Cash surrender value of life
insurance
|
|
|
40,598
|
|
|
|
39,169
|
|
Goodwill and intangible assets
|
|
|
129,520
|
|
|
|
12,090
|
|
Other assets
|
|
|
47,417
|
|
|
|
30,094
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,440,990
|
|
|
$
|
1,415,469
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
STOCKHOLDERS EQUITY
|
Deposits:
|
|
|
|
|
|
|
|
|
Noninterest-bearing demand
|
|
$
|
191,323
|
|
|
$
|
92,342
|
|
Interest-bearing demand
|
|
|
552,887
|
|
|
|
349,271
|
|
Savings
|
|
|
42,717
|
|
|
|
21,705
|
|
Time deposits $100,000 and over
|
|
|
533,700
|
|
|
|
344,736
|
|
Other time deposits
|
|
|
550,214
|
|
|
|
235,642
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
|
1,870,841
|
|
|
|
1,043,696
|
|
Advances from FHLB
|
|
|
187,840
|
|
|
|
181,090
|
|
Federal funds borrowed and security
repurchase agreements
|
|
|
23,415
|
|
|
|
33,406
|
|
Notes payable
|
|
|
5,545
|
|
|
|
3,755
|
|
Junior subordinated debentures owed
to unconsolidated subsidiary trusts
|
|
|
44,006
|
|
|
|
31,959
|
|
Capital lease obligation
|
|
|
3,798
|
|
|
|
|
|
Accrued expenses and other
liabilities
|
|
|
29,458
|
|
|
|
16,498
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
2,164,903
|
|
|
|
1,310,404
|
|
Commitments and contingencies
(Note 16)
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Convertible preferred stock, par
value $.001 per share; shares authorized 5,000,000;
0 shares issued and outstanding in 2006 and in 2005
|
|
|
|
|
|
|
|
|
Common stock, par value
$.001 per share; shares authorized 50,000,000; shares
issued 34,732,345 in 2006 and 20,221,456 in 2005; outstanding
34,651,669 in 2006 and 19,980,261 in 2005
|
|
|
35
|
|
|
|
20
|
|
Surplus preferred
|
|
|
|
|
|
|
|
|
common
stock
|
|
|
253,815
|
|
|
|
87,979
|
|
Retained earnings
|
|
|
26,491
|
|
|
|
21,494
|
|
Accumulated other comprehensive loss
|
|
|
(1,452
|
)
|
|
|
(2,544
|
)
|
Treasury stock, at cost
80,676 and 49,823 shares, respectively
|
|
|
(716
|
)
|
|
|
(341
|
)
|
Unearned ESOP stock
|
|
|
(2,086
|
)
|
|
|
(1,543
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
276,087
|
|
|
|
105,065
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
stockholders equity
|
|
$
|
2,440,990
|
|
|
$
|
1,415,469
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes
48
SUPERIOR
BANCORP AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(In Thousands, Except Per Share Data)
|
|
|
Interest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and fees on loans
|
|
$
|
92,659
|
|
|
$
|
63,895
|
|
|
$
|
56,184
|
|
Interest on taxable securities
|
|
|
12,994
|
|
|
|
11,632
|
|
|
|
8,897
|
|
Interest on tax exempt securities
|
|
|
389
|
|
|
|
246
|
|
|
|
143
|
|
Interest on federal funds sold
|
|
|
570
|
|
|
|
460
|
|
|
|
202
|
|
Interest and dividends on other
investments
|
|
|
2,165
|
|
|
|
1,047
|
|
|
|
734
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
|
108,777
|
|
|
|
77,280
|
|
|
|
66,160
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on deposits
|
|
|
46,511
|
|
|
|
27,915
|
|
|
|
19,188
|
|
Interest expense on advances from
FHLB and other borrowed funds
|
|
|
11,603
|
|
|
|
7,493
|
|
|
|
6,356
|
|
Interest on subordinated debentures
|
|
|
3,269
|
|
|
|
2,847
|
|
|
|
2,579
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
|
61,383
|
|
|
|
38,255
|
|
|
|
28,123
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
47,394
|
|
|
|
39,025
|
|
|
|
38,037
|
|
Provision for loan losses
|
|
|
2,500
|
|
|
|
3,500
|
|
|
|
975
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after
provision for loan losses
|
|
|
44,894
|
|
|
|
35,525
|
|
|
|
37,062
|
|
Noninterest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Service charges and fees
|
|
|
4,915
|
|
|
|
4,687
|
|
|
|
5,204
|
|
Mortgage banking income
|
|
|
2,997
|
|
|
|
2,558
|
|
|
|
1,664
|
|
Investment securities losses
|
|
|
|
|
|
|
(948
|
)
|
|
|
(74
|
)
|
Change in fair value of derivatives
|
|
|
374
|
|
|
|
(325
|
)
|
|
|
|
|
Gain on sale of branches
|
|
|
|
|
|
|
|
|
|
|
739
|
|
Increase in cash surrender value
of life insurance
|
|
|
1,580
|
|
|
|
1,544
|
|
|
|
1,643
|
|
Insurance proceeds
|
|
|
|
|
|
|
5,114
|
|
|
|
|
|
Other
|
|
|
1,945
|
|
|
|
2,067
|
|
|
|
2,090
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest income
|
|
|
11,811
|
|
|
|
14,697
|
|
|
|
11,266
|
|
Noninterest expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits
|
|
|
26,805
|
|
|
|
23,104
|
|
|
|
23,481
|
|
Occupancy and equipment
|
|
|
7,754
|
|
|
|
7,680
|
|
|
|
8,047
|
|
Management separation costs
|
|
|
265
|
|
|
|
15,467
|
|
|
|
|
|
Merger costs
|
|
|
635
|
|
|
|
|
|
|
|
|
|
Loss on sale of loans
|
|
|
|
|
|
|
|
|
|
|
2,293
|
|
Subsidiary startup costs
|
|
|
135
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
14,191
|
|
|
|
14,369
|
|
|
|
14,116
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expenses
|
|
|
49,785
|
|
|
|
60,620
|
|
|
|
47,937
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
6,920
|
|
|
|
(10,398
|
)
|
|
|
391
|
|
Income tax expense (benefit)
|
|
|
1,923
|
|
|
|
(4,612
|
)
|
|
|
(796
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
4,997
|
|
|
|
(5,786
|
)
|
|
|
1,187
|
|
Preferred stock dividends
|
|
|
|
|
|
|
305
|
|
|
|
446
|
|
Preferred stock conversion
|
|
|
|
|
|
|
2,006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) applicable to
common stockholders
|
|
$
|
4,997
|
|
|
$
|
(8,097
|
)
|
|
$
|
741
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares
outstanding
|
|
|
23,409
|
|
|
|
19,154
|
|
|
|
17,583
|
|
Weighted average common shares
outstanding, assuming dilution
|
|
|
24,034
|
|
|
|
19,154
|
|
|
|
17,815
|
|
Basic net income (loss) per common
share
|
|
$
|
0.21
|
|
|
$
|
(.42
|
)
|
|
$
|
0.04
|
|
Diluted net income (loss) per
common share
|
|
|
0.21
|
|
|
|
(.42
|
)
|
|
|
0.04
|
|
See accompanying notes
49
SUPERIOR
BANCORP AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
Unearned
|
|
|
Unearned
|
|
|
Total
|
|
|
|
Common
|
|
|
Surplus
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
Treasury
|
|
|
ESOP
|
|
|
Restricted
|
|
|
Stockholders
|
|
|
|
Stock
|
|
|
Common
|
|
|
Preferred
|
|
|
Earnings
|
|
|
Loss
|
|
|
Stock
|
|
|
Stock
|
|
|
Stock
|
|
|
Equity
|
|
|
|
(In Thousands, Except Share Data)
|
|
Balance at January 1, 2004
|
|
$
|
18
|
|
|
$
|
68,363
|
|
|
$
|
6,193
|
|
|
$
|
28,851
|
|
|
$
|
(180
|
)
|
|
$
|
(501
|
)
|
|
$
|
(1,974
|
)
|
|
$
|
(648
|
)
|
|
$
|
100,122
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,187
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,187
|
|
Other comprehensive loss, net of
tax benefit of $609, unrealized loss on securities available for
sale, arising during the period, net of reclassification
adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(914
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(914
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
273
|
|
Issuance of 20,821 shares of
treasury stock
|
|
|
|
|
|
|
43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
111
|
|
|
|
|
|
|
|
|
|
|
|
154
|
|
Preferred dividends declared
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(446
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(446
|
)
|
Stock options exercised
|
|
|
|
|
|
|
49
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
48
|
|
Amortization of unearned restricted
stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
199
|
|
|
|
199
|
|
Release of 26,700 shares by
ESOP
|
|
|
|
|
|
|
(27
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
216
|
|
|
|
|
|
|
|
189
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2004
|
|
|
18
|
|
|
|
68,428
|
|
|
|
6,193
|
|
|
|
29,591
|
|
|
|
(1,094
|
)
|
|
|
(390
|
)
|
|
|
(1,758
|
)
|
|
|
(449
|
)
|
|
|
100,539
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,786
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,786
|
)
|
Other comprehensive loss, net of
tax benefit of $984, unrealized loss on securities available for
sale, arising during the period, net of reclassification
adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,473
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,473
|
)
|
Change in accumulated gain on cash
flow hedging instrument, net of tax expense of $16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,236
|
)
|
Issuance of 925,636 shares to
new executive management and others in a private placement
|
|
|
1
|
|
|
|
7,328
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,329
|
|
Issuance of 8,191 shares of
treasury stock
|
|
|
|
|
|
|
34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
49
|
|
|
|
|
|
|
|
|
|
|
|
83
|
|
Issuance of 49,375 shares of
restricted stock
|
|
|
|
|
|
|
403
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(122
|
)
|
|
|
281
|
|
Preferred dividends declared
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(305
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(305
|
)
|
Preferred stock
conversion 775,000 shares
|
|
|
1
|
|
|
|
8,198
|
|
|
|
(6,193
|
)
|
|
|
(2,006
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options exercised
474,684 shares
|
|
|
|
|
|
|
3,727
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,727
|
|
Forfeiture of unearned restricted
stock
|
|
|
|
|
|
|
(204
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
204
|
|
|
|
|
|
Amortization of unearned restricted
stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
367
|
|
|
|
367
|
|
Release of 26,700 shares by
ESOP
|
|
|
|
|
|
|
65
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
215
|
|
|
|
|
|
|
|
280
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2005
|
|
|
20
|
|
|
|
87,979
|
|
|
|
|
|
|
|
21,494
|
|
|
|
(2,544
|
)
|
|
|
(341
|
)
|
|
|
(1,543
|
)
|
|
|
|
|
|
|
105,065
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,997
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,997
|
|
Other comprehensive income, net of
tax expense of $556, unrealized gain on securities available for
sale, arising during the period, net of reclassification
adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
831
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
831
|
|
Change in accumulated gain on cash
flow hedge, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(23
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(23
|
)
|
Change in pension liability net of
tax effect
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
284
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
284
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,089
|
|
Issuance of 4,873 shares of
treasury stock
|
|
|
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32
|
|
|
|
|
|
|
|
|
|
|
|
52
|
|
Issuance of 6,226,722 shares
for Kensington purchase
|
|
|
6
|
|
|
|
70,965
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
70,971
|
|
Issuance of 56,170 shares
related to board compensation
|
|
|
|
|
|
|
569
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
569
|
|
Issuance of 8,072,179 shares
for Community
|
|
|
8
|
|
|
|
93,045
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(407
|
)
|
|
|
(759
|
)
|
|
|
|
|
|
|
91,887
|
|
Stock options exercised 155,818
|
|
|
1
|
|
|
|
991
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
992
|
|
Compensation expense related to
stock options
|
|
|
|
|
|
|
159
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
159
|
|
Release of 26,700 shares by
ESOP
|
|
|
|
|
|
|
87
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
216
|
|
|
|
|
|
|
|
303
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2006
|
|
$
|
35
|
|
|
$
|
253,815
|
|
|
$
|
|
|
|
$
|
26,491
|
|
|
$
|
(1,452
|
)
|
|
$
|
(716
|
)
|
|
$
|
(2,086
|
)
|
|
$
|
|
|
|
$
|
276,087
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes
50
SUPERIOR
BANCORP AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(In Thousands)
|
|
Operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
4,997
|
|
|
$
|
(5,786
|
)
|
|
$
|
1,187
|
|
Adjustments to reconcile net
income(loss) to net cash provided by (used in) operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
3,245
|
|
|
|
3,275
|
|
|
|
3,374
|
|
Net premium amortization on
securities
|
|
|
298
|
|
|
|
531
|
|
|
|
653
|
|
Loss on sale of investment
securities
|
|
|
|
|
|
|
948
|
|
|
|
74
|
|
Loss on foreclosed assets
|
|
|
181
|
|
|
|
818
|
|
|
|
969
|
|
Loss on sale of loans
|
|
|
|
|
|
|
|
|
|
|
2,293
|
|
Provision for loan losses
|
|
|
2,500
|
|
|
|
3,500
|
|
|
|
975
|
|
Increase in accrued interest
receivable
|
|
|
(750
|
)
|
|
|
(844
|
)
|
|
|
(1,199
|
)
|
Deferred income tax expense
(benefit)
|
|
|
1,923
|
|
|
|
(3,168
|
)
|
|
|
1,634
|
|
Gain on sale of assets/branches
|
|
|
(254
|
)
|
|
|
|
|
|
|
(739
|
)
|
Net increase in mortgage loans held
for sale
|
|
|
(1,993
|
)
|
|
|
(13,260
|
)
|
|
|
(1,687
|
)
|
Other operating activities, net
|
|
|
(3,781
|
)
|
|
|
4,202
|
|
|
|
(708
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
operating activities
|
|
|
6,366
|
|
|
|
(9,784
|
)
|
|
|
6,826
|
|
Investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease in interest bearing
deposits in other banks
|
|
|
1,222
|
|
|
|
1,639
|
|
|
|
458
|
|
Decrease (increase) in federal
funds sold
|
|
|
11,052
|
|
|
|
11,000
|
|
|
|
(11,000
|
)
|
Proceeds from sales of investment
securities available for sale
|
|
|
215,717
|
|
|
|
57,372
|
|
|
|
84,485
|
|
Proceeds from maturities of
investment securities available for sale
|
|
|
39,233
|
|
|
|
40,642
|
|
|
|
65,560
|
|
Purchase of investment securities
available for sale
|
|
|
(72,319
|
)
|
|
|
(56,233
|
)
|
|
|
(306,400
|
)
|
Proceeds from sale of loans
|
|
|
|
|
|
|
|
|
|
|
23,883
|
|
Net increase in loans
|
|
|
(200,837
|
)
|
|
|
(34,225
|
)
|
|
|
(126,059
|
)
|
Net cash received (paid) in
business combinations
|
|
|
18,642
|
|
|
|
|
|
|
|
(6,626
|
)
|
Purchase of tax lien certificates
|
|
|
(16,024
|
)
|
|
|
(273
|
)
|
|
|
|
|
Purchase of premises and equipment
|
|
|
(13,813
|
)
|
|
|
(2,665
|
)
|
|
|
(6,457
|
)
|
Proceeds from sale of premises and
equipment
|
|
|
1,835
|
|
|
|
3,343
|
|
|
|
497
|
|
Proceeds from sale of foreclosed
assets
|
|
|
1,722
|
|
|
|
4,155
|
|
|
|
7,689
|
|
Purchase of life insurance
|
|
|
|
|
|
|
|
|
|
|
(5,000
|
)
|
Other investing activities, net
|
|
|
2,087
|
|
|
|
1,247
|
|
|
|
(3,788
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by
investing activities
|
|
|
(11,483
|
)
|
|
|
26,002
|
|
|
|
(282,758
|
)
|
Financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in demand and savings
deposits
|
|
|
59,375
|
|
|
|
50,236
|
|
|
|
59,338
|
|
Net increase (decrease) in time
deposits
|
|
|
60,766
|
|
|
|
(73,747
|
)
|
|
|
126,134
|
|
(Decrease) increase in FHLB advances
|
|
|
(62,051
|
)
|
|
|
25,000
|
|
|
|
35,000
|
|
Proceeds from note payable
|
|
|
2,000
|
|
|
|
|
|
|
|
2,250
|
|
Principal payment on note payable
|
|
|
(210
|
)
|
|
|
(210
|
)
|
|
|
(210
|
)
|
Net (decrease) increase in other
borrowed funds
|
|
|
(41,060
|
)
|
|
|
(16,050
|
)
|
|
|
45,627
|
|
Proceeds from issuance of common
stock
|
|
|
992
|
|
|
|
10,457
|
|
|
|
49
|
|
Cash dividends paid
|
|
|
|
|
|
|
(305
|
)
|
|
|
(446
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
financing activities
|
|
|
19,812
|
|
|
|
(4,619
|
)
|
|
|
267,742
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and due
from banks
|
|
|
14,695
|
|
|
|
11,599
|
|
|
|
(8,190
|
)
|
Cash and due from banks at
beginning of year
|
|
|
35,088
|
|
|
|
23,489
|
|
|
|
31,679
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks at end of
year
|
|
$
|
49,783
|
|
|
$
|
35,088
|
|
|
$
|
23,489
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash
flow information
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid (received) during the
year for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
56,831
|
|
|
$
|
37,790
|
|
|
$
|
27,322
|
|
Income taxes
|
|
|
(1,706
|
)
|
|
|
(3,066
|
)
|
|
|
(2,708
|
)
|
Transfer of foreclosed assets
|
|
|
935
|
|
|
|
1,804
|
|
|
|
7,637
|
|
Assets acquired in business
combinations
|
|
|
1,006,674
|
|
|
|
|
|
|
|
|
|
Liabilities assumed in business
combinations
|
|
|
838,102
|
|
|
|
|
|
|
|
|
|
See accompanying notes
51
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
December 31,
2006
|
|
1.
|
Summary
of Significant Accounting Policies
|
Superior Bancorp (Corporation), through its
subsidiaries, provides a full range of banking and bank-related
services to individual and corporate customers in Alabama and
Florida. The accounting and reporting policies of the
Corporation conform with U.S. generally accepted accounting
principles and to general practice within the banking industry.
The following summarizes the most significant of these policies.
Basis of
Presentation and Principles of Consolidation
The accompanying consolidated financial statements and notes to
consolidated financial statements include the accounts of the
Corporation and its consolidated subsidiaries. All significant
intercompany transactions or balances have been eliminated in
consolidation.
Certain amounts in prior year financial statements have been
reclassified to conform to the current year presentation.
Use of
Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Cash and
Cash Equivalents
For the purpose of presentation in the statements of cash flows,
cash and cash equivalents are defined as those amounts included
in the statements of financial condition caption Cash and
Due from Banks.
The Corporations banking subsidiary is required to
maintain minimum average reserve balances by the Federal Reserve
Bank, which is based on a percentage of deposits. At
December 31, 2006, the Corporations reserve
requirement was $10,800,000. This increase in the reserve
balance resulted from the mergers with Kensington and Community.
Subsequent to December 31, 2006, the required reserve
balance had decreased to $2,000,000 and is expected to remain at
this level.
Investment
Securities
Investment securities are classified as either held to maturity,
available for sale or trading at the time of purchase. The
Corporation defines held to maturity securities as debt
securities which management has the positive intent and ability
to hold to maturity.
Held to maturity securities are reported at cost, adjusted for
amortization of premiums and accretion of discounts that are
recognized in interest income using the effective yield method.
Securities available for sale are reported at fair value and
consist of bonds, notes, debentures, and certain equity
securities not classified as trading securities nor as
securities to be held to maturity. Unrealized holding gains and
losses, net of deferred taxes, on securities available for sale
are excluded from earnings and reported in accumulated other
comprehensive (loss) income within stockholders equity.
Gains and losses on the sale of securities available for sale
are determined using the specific-identification method.
52
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
1.
|
Summary
of Significant Accounting
Policies (Continued)
|
Tax lien
certificates
Tax lien certificates represent a priority lien against real
property for which assessed real estate taxes are delinquent.
Tax lien certificates are carried at cost plus accrued interest
which approximates fair value. Tax lien certificates and
resulting deeds are classified as non-accrual when a tax lien
certificate is 24 to 48 months delinquent, depending on the
municipality, from the acquisition date at which time, interest
ceases to be accrued.
Loans and
Allowance for Loan Losses
Loans are stated at the amount of unpaid principal, reduced by
unearned income and an allowance for loan losses. The
Corporation defers certain nonrefundable loan origination and
commitment fees and the direct costs of originating or acquiring
loans. The net deferred amount is amortized over the estimated
lives of the related loans as an adjustment to yield. Interest
income with respect to loans is accrued on the principal amount
outstanding, except for loans classified as nonaccrual.
Accrual of interest is discontinued on loans which are more than
ninety days past due unless the loan is well secured and in the
process of collection. Well secured means that the
debt must be secured by collateral having sufficient realizable
value to discharge the debt, including accrued interest, in
full. In the process of collection means that
collection of the debt is proceeding in due course either
through legal action or other collection effort that is
reasonably expected to result in repayment of the debt in full
within a reasonable period of time, usually within one hundred
eighty days of the date the loan became past due. Any unpaid
interest previously accrued on these loans is reversed from
income. Interest payments received on these loans are applied as
a reduction of the loan principal balance.
Under the provisions of Statement of Financial Accounting
Standards (SFAS) No. 114, Accounting for
Creditors for Impairment of a Loan, impaired loans are
specifically reviewed loans for which it is probable that the
Corporation will be unable to collect all amounts due according
to the terms of the loan agreement. Impairment is measured by
comparing the recorded investment in the loan with the present
value of expected future cash flows discounted at the
loans effective interest rate, at the loans observable
market price, or the fair value of the collateral if the loan is
collateral dependent. A valuation allowance is provided to the
extent that the measure of the impaired loans is less than the
recorded investment. A loan is not considered impaired during a
period of delay in payment if the ultimate collectibility of all
amounts due is expected. Larger groups of homogenous loans such
as consumer installment and residential real estate mortgage
loans are collectively evaluated for impairment. Payments
received on impaired loans for which the ultimate collectibility
of principal is uncertain are generally applied first as
principal reductions. Impaired loans and other nonaccrual loans
are returned to accrual status if the loan is brought
contractually current as to both principal and interest and
repayment ability is demonstrated, or if the loan is in the
process of collection and no loss is anticipated.
The allowance for loan loss is established through a provision
for loan losses charged to expense. Loans are charged against
the allowance for loan losses when management believes the
collectibility of principal is unlikely. The allowance is the
amount that management believes will be adequate to absorb
possible losses on existing loans.
Management reviews the adequacy of the allowance on a quarterly
basis. The allowance for classified loans is established based
on risk ratings assigned by loan officers. Loans are risk rated
using an eight-point scale, and loan officers are responsible
for the timely reporting of changes in the risk ratings. This
process, and the assigned risk ratings, is subject to review by
the Corporations internal loan review function. Based on
the assigned risk ratings, the loan portfolio is segregated into
the regulatory classifications of: Special Mention, Substandard,
Doubtful or Loss. Generally, recommended regulatory reserve
percentages are applied to these categories to estimate the
amount of loan loss unless the loan has been specifically
reviewed for impairment. Reserve percentages assigned to
homogeneous and non-rated loans are based on historical
charge-off experience adjusted for other risk factors.
53
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
1.
|
Summary
of Significant Accounting
Policies (Continued)
|
Significant problem credits are individually reviewed by
management. Generally, these loans are commercial or real estate
construction loans selected for review based on their balance,
assigned risk rating, payment history, and other risk factors at
the time of managements review. Losses are estimated on
each loan based on managements review. These individually
reviewed credits are excluded from the classified loan loss
calculation discussed above.
To evaluate the overall adequacy of the allowance to absorb
losses inherent in the Corporations loan portfolio, the
Corporation considers general economic conditions, geographic
concentrations, and changes in the nature and volume of the loan
portfolio.
Acquired
Loans
The Corporation generally acquires loans through business
combinations rather than individually or in groups or
portfolios. An acquired loan which has experienced deterioration
of credit quality between origination and the acquisition, and
for which it is probable that the corporation will be unable to
collect all amounts due according to the loans contractual
terms, is accounted for under the provisions of Statement of
Position
03-3,
Accounting for Certain Loans or Debt Securities Acquired in a
Transfer
(SOP 03-3).
For such loans, the Corporation estimates the amount and timing
of undiscounted expected principal, interest, and other cash
flows (including expected prepayments, if any) as of the
acquisition date. The excess of the loans contractually
required cash flows over the Corporation expected cash flows is
referred to as a nonaccretable difference and is not recorded by
the Corporation. The loan is initially recorded at fair value,
which represents the present value of the expected cash flows.
The difference between the undiscounted expected cash flows and
the fair value at which the loan is recorded is referred to as
accretable yield and is accreted into interest income over the
remaining expected life of the loan.
On a quarterly basis, the Corporation updates its estimate of
cash flows expected to be collected. If the estimated cash flows
have decreased, the Corporation creates a valuation allowance
equal to the present value of the decrease in the cash flows and
recognizes a loss. If the estimated cash flows have increased,
the Corporation would first reverse any existing valuation
allowance for that loan, and would then account for the
remainder of the increase as an adjustment to the yield accreted
on a prospective basis over the loans remaining life.
Mortgage
Loans Held for Sale
Mortgage loans held for sale are carried at the lower of cost or
market, determined on a net aggregate basis. The carrying value
of these loans is adjusted for any origination fees and cost
incurred to originate these loans. Differences between the
carrying amount of mortgage loans held for sale and the amounts
received upon sale are credited or charged to income at the time
the proceeds of the sale are collected. The fair values are
based on quoted market prices of similar loans, adjusted for
differences in loan characteristics.
Premises
and Equipment
Premises and equipment are stated at cost less accumulated
depreciation and amortization. Depreciation is computed over the
estimated service lives of the assets using straight-line and
accelerated methods, generally using 5 to 40 years for
premises and 5 to 10 years for furniture and equipment.
Expenditures for maintenance and repairs are charged to
operations as incurred; expenditures for renewals and
betterments are capitalized and written off by depreciation
charges. Property retired or sold is removed from the asset and
related accumulated depreciation accounts and any gain or loss
resulting there from is reflected in the statement of operations.
The Corporation reviews any long-lived assets for impairment
whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable.
54
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
1.
|
Summary
of Significant Accounting
Policies (Continued)
|
Goodwill
and Intangible Assets
At December 31, 2006 and 2005, goodwill totaled
$114,522,000 and $10,336,000, respectively.
SFAS No. 142, Goodwill and Other Intangible Assets
(SFAS 142) requires goodwill and intangible
assets with indefinite useful lives to no longer be amortized
but instead tested for impairment at least annually in
accordance with the provisions of SFAS 142. (See
Note 2 Business Combinations)
The Corporation has determined that its reporting units for
purposes of this testing are the operating branches which are
included as part of its reportable segments: the Alabama Region
and the Florida Region. Goodwill is allocated to each reporting
unit based on the location of the acquisitions as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
|
(In Thousands)
|
|
|
Alabama Region
|
|
$
|
60,077
|
|
|
$
|
5,751
|
|
Florida Region
|
|
|
54,445
|
|
|
|
4,585
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
114,522
|
|
|
$
|
10,336
|
|
|
|
|
|
|
|
|
|
|
The first step in testing requires that the fair value of each
reporting unit be determined. If the carrying amount of any
reporting unit exceeds its fair value, goodwill impairment may
be indicated.
The Corporation performs the annual impairment test as of
December 31. As of December 31, 2006 and 2005, the
Corporation determined no impairment existed.
At December 31, 2006 and 2005, the Corporations core
deposit intangible, which is being amortized over ten years, was
as follows:
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
|
(In Thousands)
|
|
|
Core deposit intangible
|
|
$
|
16,545
|
|
|
$
|
2,859
|
|
Accumulated amortization
|
|
|
(1,547
|
)
|
|
|
(1,105
|
)
|
|
|
|
|
|
|
|
|
|
Net core deposit intangible
|
|
$
|
14,998
|
|
|
$
|
1,754
|
|
|
|
|
|
|
|
|
|
|
Amortization expense was $442,000 for the year ended
December 31, 2006 and $286,000 for each of the years ended
December 31, 2005 and 2004, respectively. Aggregate
amortization expense for the years ending December 31, 2007
through December 31, 2011 is estimated to be as follows:
|
|
|
|
|
Year
|
|
Annual Expense
|
|
|
|
(In Thousands)
|
|
|
2007
|
|
$
|
1,218
|
|
2008
|
|
|
2,191
|
|
2009
|
|
|
2,248
|
|
2010
|
|
|
2,002
|
|
2011
|
|
|
1,798
|
|
|
|
|
|
|
Total
|
|
$
|
9,457
|
|
|
|
|
|
|
Other
Real Estate
Other real estate, acquired through partial or total
satisfaction of loans, is carried at the lower of cost or fair
value, less estimated selling expenses, in other assets. At the
date of acquisition, any difference between the fair
55
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
1.
|
Summary
of Significant Accounting
Policies (Continued)
|
value and book value of the asset is charged to the allowance
for loan losses. Subsequent gains or losses on the sale or
losses from the valuation of and the cost of maintaining and
operating other real estate are included in other expense. Other
real estate totaled $1,684,000 and $1,842,000 at
December 31, 2006 and 2005, respectively.
Security
Repurchase Agreements
Securities sold under agreements to repurchase are generally
accounted for as collateralized financing transactions and are
recorded at the amounts at which the securities were sold plus
accrued interest. Securities, generally U.S. government and
Federal agency securities, pledged as collateral under these
financing arrangements cannot be sold or repledged by the
secured party.
Income
Taxes
The consolidated financial statements are prepared on the
accrual basis. The Corporation accounts for income taxes using
the liability method pursuant to SFAS No. 109,
Accounting for Income Taxes. Under this method, deferred
tax assets and liabilities are determined based on differences
between financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates
expected to apply to taxable income in the years in which those
temporary differences are expected to reverse.
Off-Balance
Sheet Financial Instruments
In the ordinary course of business the Corporation has entered
into off-balance sheet financial instruments consisting of
commitments to extend credit, commitments under credit card
arrangements and commercial letters of credit and standby
letters of credit. Such financial instruments are recorded in
the financial statements when they become payable.
Per Share
Amounts
Earnings per common share computations are based on the weighted
average number of common shares outstanding during the periods
presented.
Diluted earnings per common share computations are based on the
weighted average number of common shares outstanding during the
period, plus the dilutive effect of stock options, convertible
preferred stock and restricted stock awards.
Stock-Based
Compensation
In December 2004, the Financial Accounting Standards Board
(FASB) issued SFAS No. 123R,
Share-Based Payment (SFAS 123R), which
is a revision of SFAS 123, Accounting for Stock-Based
Compensation, and supersedes Opinion 25. The new standard,
which became effective for the Corporation in the first quarter
of 2006, requires companies to recognize an expense in the
statement of operations for the grant-date fair value of stock
options and other equity-based compensation issued to employees,
but expresses no preference for a type of valuation method. This
expense is recognized over the period during which an employee
is required to provide service in exchange for the award.
SFAS 123R carries forward prior guidance on accounting for
awards to non-employees. If an equity award is modified after
the grant date, incremental compensation cost will be recognized
in an amount equal to the excess of the fair value of the
modified award over the fair value of the original award
immediately prior to the modification. The Corporation will
recognize compensation expense for any stock awards granted
after December 31, 2005. Since all of the
Corporations current stock option grants vested prior to
December 31, 2005, no future compensation expense will be
recognized on these awards (see Note 11).
56
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
1.
|
Summary
of Significant Accounting
Policies (Continued)
|
Pension
Plan
Liabilities and contributions to the plan are calculated using
the actuarial unit credit method of funding, (see Recent
Accounting Pronouncements Statement of Financial
Accounting Standards No. 158.)
Derivative
Financial Instruments and Hedging Activities
SFAS No. 133, Accounting for Derivative Instruments
and Hedging Activities (SFAS 133), requires
companies to recognize all of their derivative instruments as
either assets or liabilities in the statement of financial
position at fair value.
Derivative financial instruments that qualify under
SFAS 133 in a hedging relationship are designated, based on
the exposure being hedged, as either fair value or cash flow
hedges. Fair value hedge relationships mitigate exposure to the
change in fair value of an asset, liability or firm commitment.
Under the fair value hedging model, gains or losses attributable
to the change in fair value of the derivative instrument, as
well as the gains and losses attributable to the change in fair
value of the hedged item, are recognized in earnings in the
period in which the change in fair value occurs.
Cash flow hedge relationships mitigate exposure to the
variability of future cash flows or other forecasted
transactions. Under the cash flow hedging model, the effective
portion of the gain or loss related to the derivative
instrument, if any, is recognized as a component of other
comprehensive income. For derivative financial instruments not
designated as a fair value or cash flow hedges, gains and losses
related to the change in fair value are recognized in earnings
during the period of change in fair value.
The Corporation formally documents all relationships between
hedging instruments and hedged items, as well as its risk
management objective and strategy for undertaking various hedge
transactions. This process includes linking all derivative
instruments that are designated as fair-value or cash-flow
hedges to specific assets and liabilities on the balance sheet
or to specific firm commitments or forecasted transactions. The
Corporation also formally assesses, both at the hedges
inception and on an ongoing basis, whether the derivative
instruments that are used in hedging transactions are highly
effective in offsetting changes in fair values or cash flows of
hedged items. When it is determined that a derivative instrument
is not highly effective as a hedge or that it has ceased to be a
highly effective hedge, the Corporation discontinues hedge
accounting prospectively, as discussed below.
The Corporation discontinues hedge accounting prospectively
when: (1) it is determined that the derivative instrument
is no longer effective in offsetting changes in the fair value
or cash flows of a hedged item (including firm commitments or
forecasted transactions); (2) the derivative instrument
expires or is sold, terminated or exercised; (3) the
derivative instrument is de-designated as a hedge instrument,
because it is unlikely that a forecasted transaction will occur;
(4) a hedged firm commitment no longer meets the definition
of a firm commitment; or (5) management determines that
designation of the derivative instrument as a hedge instrument
is no longer appropriate.
When hedge accounting is discontinued because it is determined
that the derivative instrument no longer qualifies as an
effective fair-value hedge, the derivative instrument will
continue to be carried on the balance sheet at its fair value
and the hedged asset or liability will no longer be adjusted for
changes in fair value. When hedge accounting is discontinued
because the hedged item no longer meets the definition of a firm
commitment, the derivative instrument will continue to be
carried on the balance sheet at its fair value and any asset or
liability that was recorded pursuant to recognition of the firm
commitment will be removed from the balance sheet and recognized
as a gain or loss in the then-current-period earnings. When
hedge accounting is discontinued because it is probable that a
forecasted transaction will not occur, the derivative instrument
will continue to be carried on the balance sheet at its fair
value, and gains and losses that were accumulated in other
comprehensive income will be recognized immediately in earnings.
When the derivative instrument is de-designated, terminated or
sold, any gain
57
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
1.
|
Summary
of Significant Accounting
Policies (Continued)
|
or loss will remain in accumulated other comprehensive income
and will be reclassified into earnings over the same period
during which the underlying hedged item affects earnings. In all
other situations in which hedge accounting is discontinued, the
derivative instrument will be carried at its fair value on the
balance sheet, with changes in its fair value recognized in the
then-current-period earnings.
Recent
Accounting Pronouncements
Statement
of Financial Accounting Standards No. 155
In February 2006, the FASB issued SFAS No. 155,
Accounting for Certain Hybrid Financial Instruments
(SFAS 155), which: (1) permits fair
value remeasurement for any hybrid financial instrument that
contains an embedded derivative that otherwise would require
bifurcation, (2) clarifies which interest-only strips and
principal-only strips are not subject to the requirements of
SFAS 133, (3) establishes a requirement to evaluate
interests in securitized financial assets to identify interests
that are freestanding derivatives or that are hybrid financial
instruments that contain an embedded derivative requiring
bifurcation, (4) clarifies that concentrations of credit in
the form of subordination are not embedded derivatives, and
(5) amends SFAS No. 140, Accounting for
Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities a replacement of FASB Statement
No. 125, to eliminate the prohibition of a qualifying
special-purpose entity from holding a derivative financial
instrument that pertains to a beneficial interest other than
another derivative financial instrument. SFAS 155 will be
applicable to the Corporation for periods beginning on or after
January 1, 2007. The provisions of SFAS 155 are not
expected to have a material impact on the Corporation.
Statement
of Financial Accounting Standards No. 156
In March 2006, the FASB issued SFAS No. 156,
Accounting for Servicing of Financial Assets
(SFAS 156), which: (1) provides
revised guidance on when a servicing asset and servicing
liability should be recognized, (2) requires all separately
recognized servicing assets and servicing liabilities to be
initially measured at fair value, if practicable,
(3) permits an entity to elect to measure servicing assets
and servicing liabilities at fair value each reporting date and
report changes in fair value in earnings in the period in which
the changes occur, (4) upon initial adoption, permits a
one-time reclassification of
available-for-sale
securities to trading securities for securities which are
identified as offsetting the entitys exposure to changes
in the fair value of servicing assets or liabilities that a
servicer elects to subsequently measure at fair value, and
(5) requires separate presentation of servicing assets and
servicing liabilities subsequently measured at fair value in the
statement of financial position and additional footnote
disclosures. SFAS 156 will be applicable to the Corporation
beginning January 1, 2007 with the effects of initial
adoption being reported as a cumulative-effect adjustment to
retained earnings. The provisions of SFAS 156 are not
expected to have a material impact on the Corporation.
FASB
Interpretation No. 48
In July 2006, the FASB issued FASB Interpretation No. 48,
Accounting for Uncertainty in Income
Taxes. This interpretation clarifies the
accounting for uncertainty in income taxes recognized in a
companys financial statements in accordance with
SFAS No. 109, Accounting for Income Taxes.
Specifically, the pronouncement prescribes a recognition
threshold and a measurement attribute for the financial
statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. The interpretation also
provides guidance on the related derecognition, classification,
interest and penalties, accounting for interim periods,
disclosure and transition of uncertain tax positions. The
interpretation is effective for fiscal years beginning after
December 15, 2006. The Corporation is in the process of
evaluating the impact, if any, the adoption of this
interpretation will have on its financial statements.
58
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
1.
|
Summary
of Significant Accounting
Policies (Continued)
|
Emerging
Issues Task Force Issue
No. 06-05
In September 2006, the FASB ratified a consensus reached by the
Emerging Issues Task Force (EITF) on Issue
No. 06-05,
Accounting for Purchases of Life Insurance
Determining the Amount That Could Be Realized in Accordance with
FASB Technical
Bulletin No. 85-4.
Technical
Bulletin No. 85-4,
Accounting for Purchases of Life Insurance, requires
that the amount that could be realized under a life insurance
contract as of the date of the statement of financial position
should be reported as an asset. The EITF concluded that a
policyholder should consider any additional amounts (i.e.,
amounts other than cash surrender value) included in the
contractual terms of the policy in determining the amount that
could be realized under the insurance contract. When it is
probable that contractual restrictions would limit the amount
that could be realized, these contractual limitations should be
considered when determining the realizable amounts. Amounts that
are recoverable by the policyholder at the discretion of the
insurance company should be excluded from the amount that could
be realized. Amounts that are recoverable beyond one year from
the surrender of the policy should be discounted to present
value. A policyholder should determine the amount that could be
realized under the insurance contract assuming the surrender of
an individual-life by individual-life policy (or certificate by
certificate in a group policy). Any amount that would ultimately
be realized by the policyholder upon the assumed surrender of
the final policy (or final certificate in a group policy) should
be included in the amount that could be realized under the
insurance contract. A policyholder should not discount the cash
surrender value component of the amount that could be realized
when contractual restrictions on the ability to surrender a
policy exist. However, if the contractual limitations prescribe
that the cash surrender value component of the amount that could
be realized is a fixed amount, then the amount that could be
realized should be discounted. EITF Issue
No. 06-05
is effective for fiscal years beginning after December 15,
2006 and should be applied through either (1) a change in
accounting principle through a cumulative-effect adjustment to
retained earnings as of the beginning of the year of adoption,
or (2) a change in accounting principle through
retrospective application to all prior periods. The application
of EITF Issue
No. 06-05
is not expected to have a material impact on the
Corporations financial condition or results of operations.
Staff
Accounting Bulletin No. 108
In September 2006 the SEC issued Staff Accounting Bulletin (SAB)
No. 108, Quantifying Financial Misstatements, which
expresses the Staffs views regarding the process of
quantifying financial statement misstatements. Registrants are
required to quantify the impact of correcting all misstatements,
including both the carryover and reversing effects of prior year
misstatements, on the current year financial statements. The
techniques most commonly used in practice to accumulate and
quantify misstatements are generally referred to as the
rollover (current year income statement perspective)
and iron curtain (year-end balance perspective)
approaches. The financial statements would require adjustment
when either approach results in quantifying a misstatement that
is material, after considering all relevant quantitative and
qualitative factors. Management does not expect this guidance to
have a material effect on the Corporations financial
condition, results of operations or cash flows.
Statement
of Financial Accounting Standards No. 158
In September 2006, the FASB issued SFAS No. 158,
Employers Accounting for Defined Benefit Pension and
Other Postretirement Plans an amendment of FASB
Statements No. 87, 88, 106 and 132(R)
SFAS No. 158 requires employers to fully recognize
the obligations associated with single-employer defined benefit
pension, retiree healthcare and other postretirement plans in
their financial statements. SFAS No. 158 requires an
employer to (a) recognize in its statement of financial
position an asset for a plans over funded status or a
liability for a plans under funded status,
(b) measure a plans assets and its obligations that
determine its funded status at the end of the employers
fiscal year and (c) recognize changes in the funded status
of a defined postretirement plan in the year in which the
changes occur. Those changes will be reported in the
comprehensive income of a business entity. The
59
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
1.
|
Summary
of Significant Accounting
Policies (Continued)
|
requirement to recognize the funded status of a benefit plan and
the disclosure requirements are effective as of the end of the
fiscal year ending after December 15, 2006, for publicly
traded companies. The requirement to measure plan assets and
benefit obligations as of the date of the employers fiscal
year-end statement of financial position is effective for fiscal
years ending after December 15, 2008.
SFAS No. 158 did not have a material impact on the
Corporations statement of financial position at
December 31, 2006 or on the Corporations
comprehensive income for the period ended December 31, 2006.
Statement
of Financial Accounting Standards No. 157
In September 2006, FASB issued SFAS No. 157, Fair
Value Measurements. SFAS No. 157 defines fair
value, establishes a framework for measuring fair value in
generally accepted accounting principles and expands disclosures
about fair value measurements. SFAS No. 157 is
effective for financial statements issued for fiscal years
beginning after November 15, 2007. Management does not
expect that the adoption of this standard will have a material
impact on the Corporations financial statements.
Emerging
Issues Task Force Issue
No. 06-04
In July 2006, the EITF issued a draft abstract for EITF Issue
No. 06-04,
Accounting for Deferred Compensation and Postretirement
Benefit Aspects of Endorsement Split-Dollar Life Insurance
Arrangement. This draft abstract from the EITF reached a
consensus that for an endorsement split-dollar life insurance
arrangement within the scope of this Issue, an employer should
recognize a liability for future benefits in accordance with
SFAS No. 106, Employers Accounting for
Postretirement Benefits Other Than Pensions. The EITF
concluded that a liability for the benefit obligation under
SFAS No. 106 has not been settled through the purchase
of an endorsement type life insurance policy. In September 2006,
FASB agreed to ratify the consensus reached in EITF Issue
No. 06-04.
This new accounting standard will be effective for fiscal years
beginning after December 15, 2007. At December 31,
2006, the Corporation had no endorsement split-dollar life
insurance arrangements outstanding on any of its bank- owned
life insurance.
Note 2
Business Combinations
Kensington
Acquisition
The Corporation completed the acquisition of 100% of the
outstanding stock of Kensington Bankshares, Inc.
(Kensington), of Tampa, Florida on August 31,
2006 in exchange for 6,226,722 shares of the
Corporations common stock valued at approximately
$71,200,000. The shares were valued by using the average of the
closing prices of the Corporations stock for several days
prior to and after the terms of the acquisition were agreed to
and announced. The total purchase price, which includes certain
direct acquisition costs, was $71,372,000. As a result of the
acquisition the Corporation now operates 12 banking
locations in the Tampa Bay area of Florida. This area will be
the Corporations largest market and has a higher projected
population growth than any of its current banking markets.
The Kensington transaction resulted in $44,922,000 of goodwill
allocated to the Florida reporting unit and $3,544,000 of core
deposit intangibles. The goodwill acquired is not tax
deductible. The amount allocated to the core deposit intangible
was determined by an independent valuation and is being
amortized over an estimated useful life of ten years based on
the undiscounted cash flow.
During the third quarter of 2006 management completed its plan
to terminate Kensingtons data processing operations and
convert Kensingtons accounts to the Corporations
system. This conversion was completed in the first quarter of
2007. Certain cost associated with this conversion, totaling
approximately $1.4 million, which includes primarily
contract cancellations and employment-related costs, were
estimated and accrued as of the acquisition date.
60
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Note 2
Business Combinations (Continued)
The following table summarizes the estimated fair values of the
assets acquired and liabilities assumed at the date of
acquisition.
|
|
|
|
|
|
|
Amount
|
|
|
|
(In thousands)
|
|
|
Cash and due from banks
|
|
$
|
4,454
|
|
Federal funds sold
|
|
|
964
|
|
Investment securities
|
|
|
180,151
|
|
Loans, net
|
|
|
136,414
|
|
Premises and equipment, net
|
|
|
5,397
|
|
Goodwill
|
|
|
44,922
|
|
Core deposit intangibles
|
|
|
3,544
|
|
Other assets
|
|
|
5,042
|
|
Deposits
|
|
|
(276,186
|
)
|
Repurchase agreements
|
|
|
(30,050
|
)
|
Other liabilities
|
|
|
(3,280
|
)
|
|
|
|
|
|
Total consideration paid for
Kensington
|
|
$
|
71,372
|
|
|
|
|
|
|
Community
Acquisition
The Corporation completed the acquisition of 100% of the
outstanding stock of Community Bancshares, Inc.
(Community) of Blountsville, Alabama on
November 7, 2006 in exchange for 8,072,179 shares of
the Corporations common stock valued at approximately
$91,848,000. The shares were valued by using the average of the
closing prices of the Corporations stock for several days
prior to and after the terms of the acquisition were agreed to
and announced. The total purchase price, which includes certain
direct acquisition costs and cash payments due for the
cancellation of stock options totaled $97,200,000. As a result
of the acquisition the Corporation added 18 banking locations
and 15 consumer finance company locations in the State of
Alabama.
The Community transaction resulted in $59,079,000 of goodwill
allocated to the Alabama reporting unit and $10,142,000 of core
deposit intangibles. The goodwill acquired is not tax
deductible. The amount allocated to the core deposit intangible
was determined by an independent valuation and is being
amortized over an estimated useful life of ten years based on
the undiscounted cash flow.
During the third quarter of 2006 management completed its plan
to terminate Communitys data processing operations and
convert Communitys accounts to the Corporations
system. This conversion was completed in the fourth quarter of
2006. Certain cost associated with this conversion, totaling
approximately $1.2 million, which includes primarily
contract cancellations and employment-related costs, were
estimated and accrued as of the acquisition date. In addition,
certain employment-related contract obligations totaling
approximately $3,500,000 were also accrued as of the acquisition
date.
61
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Note 2
Business Combinations (Continued)
The following table summarizes the estimated fair values of the
assets acquired and liabilities assumed at the date of
acquisition. The Corporation is in the process of obtaining
appraisals of certain real property; thus, the allocation of the
purchase price is subject to refinement:
|
|
|
|
|
|
|
Amount
|
|
|
|
(In thousands)
|
|
|
Cash and due from banks
|
|
$
|
23,167
|
|
Federal funds sold
|
|
|
35,273
|
|
Investment securities
|
|
|
117,424
|
|
Loans, net
|
|
|
337,148
|
|
Premises and equipment, net
|
|
|
24,225
|
|
Goodwill
|
|
|
59,079
|
|
Core deposit intangibles
|
|
|
10,142
|
|
Other assets
|
|
|
19,328
|
|
Deposits
|
|
|
(431,334
|
)
|
FHLB advances
|
|
|
(68,801
|
)
|
Junior subordinated debentures
|
|
|
(12,047
|
)
|
Other liabilities
|
|
|
(16,404
|
)
|
|
|
|
|
|
Total consideration paid for
Community
|
|
$
|
97,200
|
|
|
|
|
|
|
Pro Forma
Results of Operations
The results of operations of the Kensington and Community
subsequent to the acquisition date are included in the
Corporations consolidated statements of operations. The
following pro forma information for the periods ended
December 31, 2006 and 2005 reflects the Corporations
estimated consolidated results of operations as if the
acquisition of Kensington and Community occurred at January 1 of
the respective period, unadjusted for potential cost savings.
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
|
(Dollars in thousands,
|
|
|
|
except per share data)
|
|
|
Net interest income and
noninterest income
|
|
$
|
84,483
|
|
|
$
|
88,109
|
|
Net income
|
|
|
5,913
|
|
|
|
163
|
|
Net income (loss) available to
common shareholders
|
|
|
5,913
|
|
|
|
(2,148
|
)
|
Earnings per common
share basic
|
|
$
|
0.17
|
|
|
$
|
(0.06
|
)
|
Earnings per common
share diluted
|
|
$
|
0.17
|
|
|
$
|
(0.06
|
)
|
62
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The amounts at which investment securities are carried and their
approximate fair values at December 31, 2006 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Estimated
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Fair Value
|
|
|
|
(In Thousands)
|
|
|
Investment securities available
for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. agency securities
|
|
$
|
113,259
|
|
|
$
|
150
|
|
|
$
|
1,557
|
|
|
$
|
111,852
|
|
State, county and municipal
securities
|
|
|
12,977
|
|
|
|
54
|
|
|
|
89
|
|
|
|
12,942
|
|
Mortgage-backed securities
|
|
|
185,814
|
|
|
|
361
|
|
|
|
1,722
|
|
|
|
184,453
|
|
Corporate debt
|
|
|
38,883
|
|
|
|
103
|
|
|
|
334
|
|
|
|
38,652
|
|
Other securities
|
|
|
6,675
|
|
|
|
223
|
|
|
|
81
|
|
|
|
6,817
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
357,608
|
|
|
$
|
891
|
|
|
$
|
3,783
|
|
|
$
|
354,716
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The amounts at which investment securities are carried and their
approximate fair values at December 31, 2005 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Estimated
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Fair Value
|
|
|
|
(In Thousands)
|
|
|
Investment securities available
for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. agency securities
|
|
$
|
99,365
|
|
|
$
|
|
|
|
$
|
1,892
|
|
|
$
|
97,473
|
|
State, county and municipal
securities
|
|
|
8,729
|
|
|
|
28
|
|
|
|
111
|
|
|
|
8,646
|
|
Mortgage-backed securities
|
|
|
93,689
|
|
|
|
10
|
|
|
|
1,937
|
|
|
|
91,762
|
|
Corporate debt
|
|
|
38,064
|
|
|
|
75
|
|
|
|
411
|
|
|
|
37,728
|
|
Other securities
|
|
|
6,739
|
|
|
|
|
|
|
|
42
|
|
|
|
6,697
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
246,586
|
|
|
$
|
113
|
|
|
$
|
4,393
|
|
|
$
|
242,306
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities with an amortized cost of $219,658,000 and
$144,565,000 at December 31, 2006 and 2005, respectively,
were pledged to secure United States government deposits and
other public funds and for other purposes as required or
permitted by law.
The following table presents the age of gross unrealized losses
and fair value by investment category.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2006
|
|
|
|
Less Than 12 Months
|
|
|
More than 12 Months
|
|
|
Total
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
Unrealized
|
|
|
|
Fair Value
|
|
|
Losses
|
|
|
Fair Value
|
|
|
Losses
|
|
|
Fair Value
|
|
|
Losses
|
|
|
|
(In Thousands)
|
|
|
U.S. agency securities
|
|
$
|
|
|
|
$
|
|
|
|
$
|
83,347
|
|
|
$
|
1,557
|
|
|
$
|
83,347
|
|
|
$
|
1,557
|
|
State, county and municipal
securities
|
|
|
1,727
|
|
|
|
17
|
|
|
|
3,825
|
|
|
|
72
|
|
|
|
5,552
|
|
|
|
89
|
|
Mortgage-backed securities
|
|
|
16,223
|
|
|
|
76
|
|
|
|
78,000
|
|
|
|
1,646
|
|
|
|
94,223
|
|
|
|
1,722
|
|
Corporate debt and other securities
|
|
|
3,920
|
|
|
|
80
|
|
|
|
8,572
|
|
|
|
335
|
|
|
|
12,492
|
|
|
|
415
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
21,870
|
|
|
$
|
173
|
|
|
$
|
173,744
|
|
|
$
|
3,610
|
|
|
$
|
195,614
|
|
|
$
|
3,783
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management does not believe any of the above individual
unrealized loss as of December 31, 2006 represents an
other-than-temporary
impairment. The unrealized losses relate primarily to securities
issued by the Federal Home Loan Bank (FHLB),
Fannie Mae (FNMA) and Freddie Mac
(FHLMC), and seven corporate securities consisting
primarily of private label CMOs, corporate bonds, and trust
preferred securities. These unrealized losses
63
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
3.
|
Investment
Securities (Continued)
|
are primarily attributable to changes in interest rates. The
Corporation has both the intent and the ability to hold the
securities contained in the previous table for a time necessary
to recover the amortized cost.
The amortized cost and estimated fair values of investment
securities at December 31, 2006, by contractual maturity,
are shown below. Expected maturities will differ from
contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment
penalties.
|
|
|
|
|
|
|
|
|
|
|
Securities Available For Sale
|
|
|
|
Amortized
|
|
|
Estimated
|
|
|
|
Cost
|
|
|
Fair Value
|
|
|
|
(In Thousands)
|
|
|
Due in one year or less
|
|
$
|
3,357
|
|
|
$
|
3,358
|
|
Due after one year through five
years
|
|
|
59,407
|
|
|
|
58,009
|
|
Due after five years through ten
years
|
|
|
52,529
|
|
|
|
52,202
|
|
Due after ten years
|
|
|
56,501
|
|
|
|
56,694
|
|
Mortgage-backed securities
|
|
|
185,814
|
|
|
|
184,453
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
357,608
|
|
|
$
|
354,716
|
|
|
|
|
|
|
|
|
|
|
Gross realized gains on sales of investment securities available
for sale in 2006, 2005 and 2004 were -0-, $34,000 and $598,000,
respectively, and gross realized losses for the same periods
were -0-, $982,000 and $672,000, respectively.
The components of other comprehensive income (loss) for the
years ended December 31, 2006, 2005, and 2004 are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-Tax
|
|
|
Income Tax
|
|
|
Net of
|
|
|
|
Amount
|
|
|
Expense
|
|
|
Income Tax
|
|
|
|
(In Thousands)
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on derivatives
|
|
$
|
(39
|
)
|
|
$
|
(16
|
)
|
|
$
|
(23
|
)
|
Unrealized gain on available for
sale securities
|
|
|
1,387
|
|
|
|
556
|
|
|
|
831
|
|
Less reclassification adjustment
for losses realized in net income
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in pension liability
|
|
|
451
|
|
|
|
167
|
|
|
|
284
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gain
|
|
$
|
1,799
|
|
|
$
|
707
|
|
|
$
|
1,092
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain on derivative
|
|
$
|
39
|
|
|
$
|
16
|
|
|
$
|
23
|
|
Unrealized loss on available for
sale securities
|
|
|
(3,405
|
)
|
|
|
(1,335
|
)
|
|
|
(2,070
|
)
|
Less reclassification adjustment
for losses realized in net income
|
|
|
(948
|
)
|
|
|
(351
|
)
|
|
|
(597
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized loss
|
|
$
|
(2,418
|
)
|
|
$
|
(968
|
)
|
|
$
|
(1,450
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on available for
sale securities
|
|
$
|
(1,597
|
)
|
|
$
|
(636
|
)
|
|
$
|
(961
|
)
|
Less reclassification adjustment
for losses realized in net income
|
|
|
(74
|
)
|
|
|
(27
|
)
|
|
|
(47
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized loss
|
|
$
|
(1,523
|
)
|
|
$
|
(609
|
)
|
|
$
|
(914
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
64
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
At December 31, 2006 and 2005, the composition of the loan
portfolio was as follows:
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
|
(In Thousands)
|
|
|
Commercial and industrial
|
|
$
|
172,872
|
|
|
$
|
135,454
|
|
Real estate
construction and land development
|
|
|
547,772
|
|
|
|
326,418
|
|
Real estate mortgages
|
|
|
|
|
|
|
|
|
Single family
|
|
|
456,341
|
|
|
|
243,183
|
|
Commercial
|
|
|
362,542
|
|
|
|
210,611
|
|
Other
|
|
|
46,895
|
|
|
|
27,503
|
|
Consumer
|
|
|
54,462
|
|
|
|
21,122
|
|
All other loans
|
|
|
438
|
|
|
|
498
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
$
|
1,641,322
|
|
|
$
|
964,789
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2006 and 2005, the Corporations
recorded investment in loans considered to be impaired under
SFAS No. 114 was $6,886,000 and $3,483,000,
respectively. At December 31, 2006 and 2005, there was
approximately $1,807,000 and $1,425,000, respectively in the
allowance for loan losses specifically allocated to impaired
loans. The average recorded investment in impaired loans during
2006, 2005 and 2004 was approximately $3,975,000, $4,687,000,
and $17,752,000, respectively. Interest income recognized on
loans considered impaired totaled approximately $176,000,
$65,000, and $66,000 for the years ended December 31, 2006,
2005 and 2004, respectively.
At December 31, 2006, nonaccrual loans totaled $7,773,000,
compared to $4,550,000 at December 31, 2005. Loans past due
90 days or more and still accruing totaled $514,000 at
December 31, 2006 compared to $49,000 at December 31,
2005.
During 2006, the Corporation acquired certain impaired loans
through business combinations (Note 2) which are subject to
the income recognition provisions of
SOP 03-3
(see Note 1). The carrying value of these loans and a
summary of the change in accretable yield follows:
|
|
|
|
|
|
|
|
|
|
|
At
|
|
|
December 31,
|
|
|
|
Acquisition
|
|
|
2006
|
|
|
|
(In Thousands)
|
|
|
Contractually required principal
and interest
|
|
$
|
1,696
|
|
|
$
|
1,590
|
|
Nonaccretable difference (expected
losses and forgone interest)
|
|
|
(1,231
|
)
|
|
|
(1,156
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows expected to be collected
|
|
|
465
|
|
|
|
434
|
|
Accretable yield
|
|
|
(190
|
)
|
|
|
(174
|
)
|
|
|
|
|
|
|
|
|
|
Basis in acquired loans
|
|
$
|
275
|
|
|
$
|
260
|
|
|
|
|
|
|
|
|
|
|
Accretable yield, at acquisition
|
|
|
|
|
|
$
|
190
|
|
Accretion
|
|
|
|
|
|
|
(9
|
)
|
Disposals
|
|
|
|
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
Accretable yield,
December 31, 2006
|
|
|
|
|
|
$
|
174
|
|
|
|
|
|
|
|
|
|
|
Other acquired impaired loans that are within the scope of
SOP 03-3
but are not subject to the income recognition provisions had an
acquisition carrying value of $1,343,000 and an $800,000
carrying value at December 31, 2006. To recognize income on
these loans under
SOP 03-3,
there must be a reasonable expectation of the timing and amount
of expected cash flows. These loans are accounted for on the
cost recovery method with interest income recognized when
received. During 2006, no interest was recognized on the loans.
In September 2004 the Corporations banking subsidiary sold
approximately $32,000,000, before allowance for loan losses, in
certain nonperforming loans and other classified, performing
loans, resulting in a pre-tax loss of
65
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
$2,293,000. Prior to the sale, approximately $6,868,000 related
to these loans was recognized as a charge-off in September 2004
against the allowance for loan losses. The $6,868,000 in
allowance for loan losses associated with these loans had been
provided in previous periods.
|
|
5.
|
Allowance
for Loan Losses
|
A summary of the allowance for loan losses for the years ended
December 31, 2006, 2005 and 2004 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(In Thousands)
|
|
|
Balance at beginning of year
|
|
$
|
12,011
|
|
|
$
|
12,543
|
|
|
$
|
25,174
|
|
Allowance of acquired banks
|
|
|
6,697
|
|
|
|
|
|
|
|
|
|
Provision for loan losses
|
|
|
2,500
|
|
|
|
3,500
|
|
|
|
975
|
|
Loan charge-offs
|
|
|
(3,746
|
)
|
|
|
(5,742
|
)
|
|
|
(17,341
|
)
|
Recoveries
|
|
|
1,430
|
|
|
|
1,710
|
|
|
|
3,735
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
18,892
|
|
|
$
|
12,011
|
|
|
$
|
12,543
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6.
|
Premises
and Equipment
|
Components of premises and equipment at December 31, 2006
and 2005 are as follows:
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
|
(In Thousands)
|
|
|
Land
|
|
$
|
17,432
|
|
|
$
|
7,202
|
|
Premises
|
|
|
74,836
|
|
|
|
53,003
|
|
Furniture and equipment
|
|
|
17,737
|
|
|
|
12,818
|
|
|
|
|
|
|
|
|
|
|
|
|
|
110,005
|
|
|
|
73,023
|
|
Less accumulated depreciation and
amortization
|
|
|
(20,311
|
)
|
|
|
(17,235
|
)
|
|
|
|
|
|
|
|
|
|
Net book value of premises and
equipment in service
|
|
|
89,694
|
|
|
|
55,788
|
|
Construction in process (also
includes land for branch expansion)
|
|
|
4,932
|
|
|
|
229
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
94,626
|
|
|
$
|
56,017
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense for the years ended December 31, 2006,
2005 and 2004 was $3,245,000, $3,275,000 and $3,374,000,
respectively.
In March 2005, the Corporation sold its corporate aircraft,
realizing a $355,000 pre-tax loss.
During 2000, Community entered into sale/leaseback arrangements
on its Hamilton, Alabama bank location. Due to the structure of
this transaction, the lease qualified and has been accounted for
under capitalized lease rules.
The following is an analysis of the leased property located in
Hamilton, Alabama on which the Company maintains a capital lease
(in thousands):
|
|
|
|
|
|
|
2006
|
|
|
Buildings
|
|
$
|
2,450
|
|
Accumulated depreciation
|
|
|
(21
|
)
|
|
|
|
|
|
Total
|
|
$
|
2,429
|
|
|
|
|
|
|
66
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
6.
|
Premises
and Equipment (Continued)
|
The following is a schedule by year of future minimum lease
payments under the capital lease and all other operating leases,
together with the present value of the net minimum lease
payments as of December 31, 2006 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
Years ending December 31,
|
|
Operating
|
|
|
Capitalized
|
|
|
|
(In Thousands)
|
|
|
2007
|
|
$
|
1,971
|
|
|
$
|
367
|
|
2008
|
|
|
1,236
|
|
|
|
367
|
|
2009
|
|
|
1,019
|
|
|
|
367
|
|
2010
|
|
|
751
|
|
|
|
367
|
|
2011
|
|
|
601
|
|
|
|
367
|
|
2012 and thereafter
|
|
|
779
|
|
|
|
6,755
|
|
|
|
|
|
|
|
|
|
|
Total minimum lease payments
|
|
$
|
6,357
|
|
|
$
|
8,590
|
|
|
|
|
|
|
|
|
|
|
Amount representing interest
|
|
|
|
|
|
|
(4,792
|
)
|
|
|
|
|
|
|
|
|
|
Present value of net minimum lease
payments
|
|
|
|
|
|
$
|
3,798
|
|
|
|
|
|
|
|
|
|
|
Future minimum lease payments under the operating leases are
summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ending December 31,
|
|
Property
|
|
|
Equipment
|
|
|
Total
|
|
|
|
(In Thousands)
|
|
|
2007
|
|
$
|
1,716
|
|
|
$
|
255
|
|
|
$
|
1,971
|
|
2008
|
|
|
1,097
|
|
|
|
139
|
|
|
|
1,236
|
|
2009
|
|
|
946
|
|
|
|
73
|
|
|
|
1,019
|
|
2010
|
|
|
741
|
|
|
|
10
|
|
|
|
751
|
|
2011
|
|
|
601
|
|
|
|
|
|
|
|
601
|
|
2012 and thereafter
|
|
|
779
|
|
|
|
|
|
|
|
779
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total minimum lease payments
|
|
$
|
5,880
|
|
|
$
|
477
|
|
|
$
|
6,357
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental expense relating to operating leases amounted to
approximately $1,258,000, $810,000 and $947,000 for the years
ended December 31, 2006, 2005 and 2004, respectively.
On May 31, 2002, the purchaser of Communitys Marshall
County branch offices acquired the land, building and land
improvements located in Albertville, Alabama under a sales-type
lease. The lease agreement calls for 60 payments of
$14,000 per month beginning June 1, 2002. The lease
ends on May 31, 2007 and is subject to options which give
the right for the seller to require the purchaser to purchase
the property and gives the right to the purchaser to require the
seller to sell the property. The purchase price upon option by
either party is $2,621,544. This lease/sale qualifies and is
accounted for under capitalized lease rules.
The following is a schedule by year of the future minimum lease
payments to be received together with the present value of the
net minimum lease payments as of December 31, 2006 (in
thousands):
|
|
|
|
|
Years ending December 31,
|
|
|
|
|
2007
|
|
$
|
2,692
|
|
Amount representing interest
|
|
|
(144
|
)
|
|
|
|
|
|
Present value of net minimum lease
payments
|
|
$
|
2,548
|
|
|
|
|
|
|
67
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following schedule details interest expense on deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(In Thousands)
|
|
|
Interest-bearing demand
|
|
$
|
11,857
|
|
|
$
|
7,144
|
|
|
$
|
3,225
|
|
Savings
|
|
|
177
|
|
|
|
40
|
|
|
|
48
|
|
Time deposits $100,000 and over
|
|
|
11,170
|
|
|
|
7,111
|
|
|
|
8,876
|
|
Other time deposits
|
|
|
23,307
|
|
|
|
13,620
|
|
|
|
7,039
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
46,511
|
|
|
$
|
27,915
|
|
|
$
|
19,188
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2006, the scheduled maturities of time
deposits are as follows (in thousands):
|
|
|
|
|
2007
|
|
$
|
954,157
|
|
2008
|
|
|
43,741
|
|
2009
|
|
|
27,309
|
|
2010
|
|
|
16,992
|
|
2011
|
|
|
11,615
|
|
2012 and thereafter
|
|
|
30,100
|
|
|
|
|
|
|
|
|
$
|
1,083,914
|
|
|
|
|
|
|
|
|
7.
|
Advances
from Federal Home Loan Bank
|
The following is a summary, by year of maturity, of advances
from the FHLB as of December 31, 2006 and 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
Year
|
|
Average Rate
|
|
|
Balance
|
|
|
Average Rate
|
|
|
Balance
|
|
|
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
2006
|
|
|
|
%
|
|
$
|
|
|
|
|
4.40
|
%
|
|
$
|
85,250
|
|
2007
|
|
|
5.37
|
|
|
|
42,000
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
5.38
|
|
|
|
55,500
|
|
|
|
5.74
|
|
|
|
5,500
|
|
2009
|
|
|
5.39
|
|
|
|
27,000
|
|
|
|
2.32
|
|
|
|
27,000
|
|
2010
|
|
|
6.41
|
|
|
|
5,000
|
|
|
|
6.41
|
|
|
|
5,000
|
|
2015
|
|
|
5.39
|
|
|
|
26,340
|
|
|
|
4.45
|
|
|
|
26,340
|
|
2020
|
|
|
4.28
|
|
|
|
32,000
|
|
|
|
4.28
|
|
|
|
32,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
5.22
|
%
|
|
$
|
187,840
|
|
|
|
4.17
|
%
|
|
$
|
181,090
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The above schedule is by contractual maturity. Call dates for
the above are as follows: 2007, $17,000,000; 2008, $32,000,000,
and 2010, $11,340,000.
The advances are secured by a blanket lien on certain
residential and commercial real estate loans all with a carrying
value of approximately $302,980,000 at December 31, 2006.
The Corporation has available approximately $95,000,000 in
unused advances under the blanket lien subject to the
availability of qualifying collateral.
The FHLB has issued for the benefit of the Corporations
banking subsidiary a $20,000,000 irrevocable letter of credit in
favor of the Chief Financial Officer of the State of Florida to
secure certain deposits of the State of Florida. The letter of
credit expires January 4, 2008 upon sixty days prior
notice of non-renewal; otherwise, it shall automatically extend
for a successive one-year term.
68
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
8.
|
Federal
Funds Borrowed and Security Repurchase Agreements
|
Detail of Federal funds borrowed and security repurchase
agreements follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
Balance at December 31:
|
|
|
|
|
|
|
|
|
Federal funds borrowed
|
|
$
|
|
|
|
$
|
3,000
|
|
Security repurchase agreements
|
|
|
23,415
|
|
|
|
30,406
|
|
Maximum outstanding at any month
end:
|
|
|
|
|
|
|
|
|
Federal funds borrowed
|
|
|
9,000
|
|
|
|
11,000
|
|
Security repurchase agreements
|
|
|
31,464
|
|
|
|
49,521
|
|
Daily average amount outstanding:
|
|
|
|
|
|
|
|
|
Federal funds borrowed
|
|
|
1,811
|
|
|
|
488
|
|
Security repurchase agreements
|
|
|
30,629
|
|
|
|
35,064
|
|
Weighted daily average interest
rate:
|
|
|
|
|
|
|
|
|
Federal funds borrowed
|
|
|
5.47
|
%
|
|
|
4.18
|
%
|
Security repurchase agreements
|
|
|
4.51
|
|
|
|
3.02
|
|
Weighted daily interest rate for
amounts outstanding at December 31:
|
|
|
|
|
|
|
|
|
Federal funds borrowed
|
|
|
|
%
|
|
|
4.40
|
%
|
Security repurchase agreements
|
|
|
4.63
|
|
|
|
4.12
|
|
The carrying value of securities sold under repurchase
agreements is $30,327,000 and $37,047,000 as of
December 31, 2006 and 2005, respectively.
The following is a summary of notes payable as of
December 31, 2006 and 2005 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
Balance at December 31:
|
|
Principal
|
|
|
Rate
|
|
|
Principal
|
|
|
Rate
|
|
|
Note payable to bank,
borrowed under $10,000,000 line of credit, due June 7,
2007, plus interest payable monthly at 30 day LIBOR plus
2.50%, secured by real estate owned by the Corporation and 100%
of Superior Bank stock
|
|
$
|
4,250
|
|
|
|
7.85
|
%
|
|
$
|
2,250
|
|
|
|
6.89
|
%
|
ESOP Note Payable to bank,
due February 1, 2013, plus interest payable monthly at the
Wall Street Journal prime rate, secured by Corporation
stock; see discussion in Note 11
|
|
|
1,295
|
|
|
|
8.25
|
|
|
|
1,505
|
|
|
|
7.25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total notes payable
|
|
$
|
5,545
|
|
|
|
|
|
|
$
|
3,755
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On January 26, 2007, the Corporation replaced the $10,000,000
line of credit with a new line of credit from another regional
bank. The new line matures January 26, 2008; interest is
based on the
30-day LIBOR
plus 1.25% and the line is secured by 51% of the outstanding
Superior Bank stock.
69
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
9.
|
Notes Payable
(Continued)
|
Maturities of notes payable for the five years subsequent to
December 31, 2006 are as follows (in thousands):
|
|
|
|
|
2007
|
|
$
|
4,460
|
|
2008
|
|
|
210
|
|
2009
|
|
|
210
|
|
2010
|
|
|
210
|
|
2011
|
|
|
210
|
|
Thereafter
|
|
|
245
|
|
|
|
|
|
|
Total
|
|
$
|
5,545
|
|
|
|
|
|
|
|
|
10.
|
Junior
Subordinated Debentures Owed to Unconsolidated Subsidiary
Trusts
|
The Corporation has three sponsored trusts, TBC Capital
Statutory Trust II (TBC Capital II) TBC
Capital Statutory Trust III (TBC
Capital III) and Community (AL) Capital Trust I
(Community Capital I), of which 100% of the common
equity is owned by the Corporation. The trusts were formed for
the purpose of issuing Corporation-obligated mandatorily
redeemable trust preferred securities to third-party investors
and investing the proceeds from the sale of such trust preferred
securities solely in junior subordinated debt securities of the
Corporation (the debentures). The debentures held by each trust
are the sole assets of that trust. Distributions on the trust
preferred securities issued by each trust are payable
semi-annually at a rate per annum equal to the interest rate
being earned by the trust on the debentures held by that trust.
The trust preferred securities are subject to mandatory
redemption, in whole or in part, upon repayment of the
debentures. The Corporation has entered into agreements which,
taken collectively, fully and unconditionally guarantee the
trust preferred securities subject to the terms of each of the
guarantees. The debentures held by the TBC Capital II, TBC
Capital III and Community Capital I trusts are first
redeemable, in whole or in part, by the Corporation on
September 7, 2010, July 25, 2006 and March 8,
2010, respectively.
The trust preferred securities held by the trusts qualify as
Tier 1 capital for the Corporation under regulatory
guidelines.
Consolidated debt obligations related to these subsidiary trusts
are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
10.6% junior subordinated
debentures owed to TBC Capital Statutory Trust II due
September 7, 2030
|
|
$
|
15,464,000
|
|
|
$
|
15,464,000
|
|
6-month
LIBOR plus 3.75% junior subordinated debentures owed to TBC
Capital Statutory Trust III due July 25, 2031
|
|
|
16,495,000
|
|
|
|
16,495,000
|
|
10.875% junior subordinated
debentures owed to Community Capital Trust I due
March 8, 2030
|
|
|
10,310,000
|
|
|
|
|
|
Purchase accounting
adjustment Community Capital Trust I
|
|
|
1,737,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total junior subordinated
debentures owed to unconsolidated subsidiary trusts
|
|
$
|
44,006,000
|
|
|
$
|
31,959,000
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2006 and 2005, the interest rate on the
$16,495,000 subordinated debenture was 9.30% and 7.67%,
respectively.
Prior to the conversion of its subsidiarys charter to a
federal savings bank charter, the Corporation was required to
obtain regulatory approval prior to paying any dividends on
these trust preferred securities. The Federal
70
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
10.
|
Junior
Subordinated Debentures Owed to Unconsolidated Subsidiary
Trusts (Continued)
|
Reserve approved the timely payment of the Corporations
semi-annual distribution on its trust preferred securities in
January, March, July and September 2005.
|
|
11.
|
Stock
Incentive Plans
|
In December 2004, the FASB issued SFAS No. 123R,
Share-Based Payment (SFAS 123R), which
is a revision of SFAS No. 123, Accounting for
Stock-Based Compensation (SFAS 123), and
supersedes Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees (APB Opinion
25). The new standard, which became effective for the
Corporation in the first quarter of 2006, requires companies to
recognize an expense in the statement of operations for the
grant-date fair value of stock options and other equity-based
compensation issued to employees, but expresses no preference
for a type of valuation method. This expense will be recognized
over the period during which an employee is required to provide
service in exchange for the award. SFAS 123R carries
forward prior guidance on accounting for awards to
non-employees. If an equity award is modified after the grant
date, incremental compensation cost will be recognized in an
amount equal to the excess of the fair value of the modified
award over the fair value of the original award immediately
prior to the modification. The Corporation will recognize
compensation expense for any stock awards granted after
December 31, 2005. Since all of the Corporations
stock option awards granted prior to December 31, 2005 have
vested in full, no future compensation expense will be
recognized on these awards. During the first quarter of 2005,
the Corporation granted 1,690,937 options to the new management
team. These options have exercise prices ranging from $8.17 to
$9.63 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 Corporation adopted the provisions of SFAS 123R using
the modified-prospective transition method. Under that
transition method, compensation cost recognized in 2006 includes
$158,000 in compensation cost for all share-based payments
granted subsequent to December 31, 2005, based on the
grant-date fair value estimated in accordance with the
provisions of SFAS 123R. Results for prior periods have not
been restated.
The Corporation has established a stock incentive plan for
directors and certain key employees that provides for the
granting of restricted stock and incentive and nonqualified
options to purchase up to 2,500,000 shares of the
Corporations common stock. The compensation committee of
the Board of Directors determines the terms of the restricted
stock and options granted. All options granted have a maximum
term of ten years from the grant date, and the option price per
share of options granted cannot be less than the fair market
value of the Corporations common stock on the grant date.
Some of the options granted under the plan in the past vested
over a five-year period, while others vested based on certain
benchmarks relating to the trading price of the
Corporations common stock, with an outside vesting date of
five years from the date of grant. More recent grants have
followed this benchmark-vesting formula.
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 year ended December 31, 2006:
|
|
|
|
|
Risk-free interest rate
|
|
|
4.54
|
%
|
Volatility factor
|
|
|
30.16
|
%
|
Expected term (in years)
|
|
|
5.00
|
|
Dividend yield
|
|
|
0.00
|
%
|
71
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
11.
|
Stock
Incentive Plans (Continued)
|
A summary of stock option activity as of December 31, 2006
and changes during the year then ended is set forth below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
|
|
|
|
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Aggregate
|
|
|
|
Number
|
|
|
Price
|
|
|
Term
|
|
|
Intrinsic Value
|
|
|
Under option, beginning of period
|
|
|
3,031,946
|
|
|
$
|
7.81
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
186,500
|
|
|
|
10.84
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(155,818
|
)
|
|
|
6.37
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(20,031
|
)
|
|
|
7.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Under option, end of period
|
|
|
3,042,597
|
|
|
$
|
8.07
|
|
|
|
7.39
|
|
|
$
|
9,940,257
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at end of period
|
|
|
2,861,097
|
|
|
$
|
7.90
|
|
|
|
6.82
|
|
|
$
|
9,847,002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average fair value per
option of options granted during the period
|
|
$
|
3.79
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The total intrinsic value of options exercised during the year
ended December 31, 2006 was $814,000. As of
December 31, 2006, there was $522,000 of total unrecognized
compensation expense related to the unvested awards. This
expense will be recognized over approximately the next
20 months unless the shares vest earlier based on
achievement of benchmark trading price levels. During the year
ended December 31, 2006, the Corporation recognized
approximately $158,000 in compensation expense related to
options granted.
A summary of activity for the periods ended December 31,
2005 and 2004 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Exercise
|
|
|
|
|
|
Exercise
|
|
|
|
Number
|
|
|
Price
|
|
|
Number
|
|
|
Price
|
|
|
Under option, beginning of year
|
|
|
1,654,509
|
|
|
$
|
6.63
|
|
|
|
1,196,509
|
|
|
$
|
6.76
|
|
Granted
|
|
|
1,914,437
|
|
|
|
8.53
|
|
|
|
506,000
|
|
|
|
6.28
|
|
Exercised
|
|
|
(474,684
|
)
|
|
|
6.59
|
|
|
|
(13,600
|
)
|
|
|
6.44
|
|
Forfeited
|
|
|
(62,316
|
)
|
|
|
7.73
|
|
|
|
(34,400
|
)
|
|
|
6.83
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Under option, end of year
|
|
|
3,031,946
|
|
|
|
7.81
|
|
|
|
1,654,509
|
|
|
|
6.63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at end of year
|
|
|
3,031,946
|
|
|
|
|
|
|
|
1,378,809
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average fair value per
option of options granted during the year
|
|
$
|
4.91
|
|
|
|
|
|
|
$
|
3.16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Corporations Board of Directors approved the full
vesting as of November 15, 2005 of all unvested stock
options outstanding at that date. The effect of this accelerated
vesting is reflected in the pro forma net loss and pro forma
loss per share figures below. During the fourth quarter of 2005
the pro forma after-tax effect of compensation costs for
stock-based employee compensation awards totaled $2,067,000, or
$0.10 per share. In conjunction with the Boards
approval of the full vesting, members of the Corporations
senior management executive team announced that they would not
accept any performance bonus for which they might have been
eligible at year-end 2005. The number of shares represented by
unvested options that were vested effective November 15,
2005 is
72
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
11.
|
Stock
Incentive Plans (Continued)
|
approximately 800,000, of which approximately 665,000 were held
by directors and executive officers of the Corporation.
Prior to January 1, 2006 the Corporation applied the
disclosure-only provisions of SFAS 123, which allows an
entity to continue to measure compensation costs for those plans
using the intrinsic value-based method of accounting prescribed
by APB Opinion 25. The Corporation elected to follow APB Opinion
25 and related interpretations in accounting for its employee
stock options. Accordingly, compensation cost for fixed and
variable stock-based awards is measured by the excess, if any,
of the fair market price of the underlying stock over the amount
the individual is required to pay. Compensation cost for fixed
awards is measured at the grant date, while compensation cost
for variable awards is estimated until both the number of shares
an individual is entitled to receive and the exercise or
purchase price are known (measurement date). No option-based
employee compensation cost is reflected in net income, as all
options granted had an exercise price equal to the market value
of the underlying common stock on the date of grant. The pro
forma information below was determined as if the Corporation had
accounted for its employee stock options under the fair value
method of SFAS 123. For purposes of pro forma disclosures,
the estimated fair value of the options is amortized to expense
over the options vesting period. The Corporations
pro forma information for the period prior to the adoption of
SFAS 123R follows (in thousands, except earnings per share
information):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2005
|
|
|
2004
|
|
|
Net (loss) income applicable to
common stockholders:
|
|
|
|
|
|
|
|
|
As reported
|
|
$
|
(8,097
|
)
|
|
$
|
741
|
|
Pro forma
|
|
|
(14,217
|
)
|
|
|
(567
|
)
|
Basic net (loss) income per common
share:
|
|
|
|
|
|
|
|
|
As reported
|
|
$
|
(.42
|
)
|
|
$
|
.04
|
|
Pro forma
|
|
|
(.74
|
)
|
|
|
(.03
|
)
|
Diluted net (loss) income per
common share:
|
|
|
|
|
|
|
|
|
As reported
|
|
|
(.42
|
)
|
|
|
.04
|
|
Pro forma
|
|
|
(.74
|
)
|
|
|
(.03
|
)
|
The fair value of the options granted was based upon the
Black-Scholes pricing model. The Corporation used the following
weighted-average assumptions for the years indicated:
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
Risk free interest rate
|
|
|
4.34
|
%
|
|
|
4.56
|
%
|
Volatility factory
|
|
|
43
|
%
|
|
|
32
|
%
|
Weighted average life of options
(in years)
|
|
|
7.00
|
|
|
|
7.00
|
|
Dividend yield
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
On April 1, 2002, the Corporation issued
157,500 shares of restricted common stock to certain
directors and key employees pursuant to the Second Amended and
Restated 1998 Stock Incentive Plan. Under the restricted stock
agreements, the stock may not be sold or assigned in any manner
for a five-year period that began on April 1, 2002. During
this restricted period, the participant is eligible to receive
dividends and exercise voting privileges. The restricted stock
also has a corresponding vesting period with one-third vesting
in the third, fourth and fifth years. The restricted stock was
issued at $7.00 per share, or $1,120,000, and classified as
a contra-equity account, Unearned restricted stock,
in stockholders equity. During 2003, 15,000 shares of
this restricted stock were forfeited. During the second quarter
of 2005, an additional 29,171 shares of this restricted
stock were forfeited. On January 24, 2005 the Corporation
issued 49,375 additional shares of restricted common stock to
certain key employees. Under the terms of the management
separation agreements entered into during 2005 (Note 28),
vesting was accelerated on 124,375 shares of restricted
stock. As of December 31, 2006, 6,665 shares of
unvested restricted stock to continuing directors remained
outstanding. The outstanding shares of restricted stock are
included in the
73
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
11.
|
Stock
Incentive Plans (Continued)
|
diluted earnings per share calculation, using the treasury stock
method, until the shares vest. Once vested, the shares become
outstanding for basic earnings per share. For the years ended
December 31, 2005 and 2004, the Corporation has recognized
$648,000 and $199,000, respectively, in restricted stock
expense. The 2005 year expense is primarily related to the
accelerated vesting from the management separation agreements
included in the amount of management separation cost.
Employee
Stock Ownership Plans
The Corporation adopted a leveraged employee stock ownership
plan (the ESOP) effective May 15, 2002 that
covers all eligible employees who are at least 21 years old
and have completed a year of service. As of December 31,
2006, the ESOP has been leveraged with 273,400 shares of
the Corporations common stock purchased in the open market
and classified as a contra-equity account, Unearned ESOP
shares, in stockholders equity.
On January 29, 2003, the ESOP trustees finalized a
$2,100,000 promissory note to reimburse the Corporation for the
funds used to leverage the ESOP. The unreleased shares and a
guarantee of the Corporation secure the promissory note, which
has been classified as notes payable on the Corporations
statement of financial condition. As the debt is repaid, shares
are released from collateral based on the proportion of debt
service. Principal payments on the debt are $17,500 per
month for 120 months. The interest rate is adjusted to the
Wall Street Journal prime rate. Interest expense incurred
on the debt in 2006, 2005 and 2004 totaled $122,000, $98,000 and
$74,000, respectively. Total contributions to the plan during
2006, 2005 and 2004 totaled $322,000, $313,000, and $300,000,
respectively. Released shares are allocated to eligible
employees at the end of the plan year based on the
employees eligible compensation to total compensation. The
Corporation recognizes compensation expense during the period as
the shares are earned and committed to be released. As shares
are committed to be released and compensation expense is
recognized, the shares become outstanding for basic and diluted
earnings per share computations. The amount of compensation
expense reported by the Corporation is equal to the average fair
value of the shares earned and committed to be released during
the period. Compensation expense that the Corporation recognized
during the period ended December 31, 2006, 2005 and 2004
was $304,000, $289,000 and $189,000, respectively. The ESOP
shares as of December 31, 2006, 2005 and 2004 were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Allocated shares
|
|
|
82,028
|
|
|
|
55,328
|
|
|
|
28,628
|
|
Estimated shares committed to be
released
|
|
|
26,700
|
|
|
|
26,700
|
|
|
|
26,700
|
|
Unreleased shares
|
|
|
164,672
|
|
|
|
191,372
|
|
|
|
218,072
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total ESOP shares
|
|
|
273,400
|
|
|
|
273,400
|
|
|
|
273,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of unreleased shares
|
|
$
|
3,100,000
|
|
|
$
|
2,184,000
|
|
|
$
|
1,795,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As a result of its merger with Community, the Corporation became
a sponsor of an internally leveraged ESOP maintained by
Community. This ESOP has an outstanding loan to the Corporation
that bears interest at a floating rate equal to the prime rate
of interest. As of December 31, 2006, the interest rate on
the note was 8.25%. Principal and interest payments on the ESOP
loan are due monthly through September 16, 2011, based on
the current amortization schedule, with the remaining principal
and interest, if any, due upon that date. The ESOP loan may be
prepaid in whole or in part without penalty under the loan
agreement, subject to applicable ERISA and tax restrictions. The
Corporation makes contributions to the ESOP that enables the
ESOP to make payments due under the ESOP loan. Under Statement
of Position
No. 93-6
(SOP 93-6),
Employers Accounting for Employee Stock Ownership
Plans, employers that sponsor an ESOP with an employer
loan should not report the ESOPs note payable or the
employers note receivable in the employers statement
of condition, nor should interest cost or
74
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
11.
|
Stock
Incentive Plans (Continued)
|
interest income be recognized on the employer loan. The
Corporation has followed
SOP 93-6
accordingly. The principal balance of the Companys loan to
the ESOP at December 31, 2006 was $1.1 million.
An employee becomes a participant in the ESOP after completing
12 months of service during which the employee is credited
with 1,000 hours or more of service. Contributions to the
plan are made at the discretion of the board but may not be less
than the amount required to service the ESOP debt. Under the
terms of the ESOP, after a person ceases to be an employee of
the Corporation, that person is no longer eligible to
participate in the ESOP. In that case, the person may demand to
receive all stock credited to his benefit under the ESOP as of
the end of the year immediately preceding that persons
termination of employment with the Corporation.
Dividends paid on released ESOP shares are credited to the
accounts of the participants to whom the shares are allocated.
Dividends on unreleased shares may be used to repay the debt
associated with the ESOP or treated as other income of the ESOP
and allocated to the participants. Compensation cost recognized
during the period ended December 31, 2006 was $39,000. The
ESOP shares as of December 31, 2006 are as follows:
|
|
|
|
|
|
|
December 31,
|
|
|
|
2006
|
|
|
Allocated shares
|
|
|
380,011
|
|
Estimated shares committed to be
released
|
|
|
14,066
|
|
Unreleased shares
|
|
|
66,659
|
|
|
|
|
|
|
Total ESOP shares
|
|
|
460,736
|
|
|
|
|
|
|
Fair value of unreleased shares
|
|
$
|
5,224,746
|
|
|
|
|
|
|
|
|
12.
|
Profit-Sharing
Plan and Other Agreements
|
The Corporation sponsors a profit-sharing plan that permits
participants to make contributions by salary reduction pursuant
to Section 401(k) of the Internal Revenue Code. This plan
covers substantially all employees who meet certain age and
length of service requirements. The Corporation matches
contributions at its discretion. The Corporations
contributions to the plan were $549,000, $448,000 and $298,000
in 2006, 2005 and 2004, respectively.
The Corporation has various nonqualified retirement agreements
with certain current and former directors and former executive
officers. Generally, the agreements provide a fixed retirement
benefit that will be paid in installments ranging from 10 to
20 years. As of December 31, 2006 and 2005,
substantially all of the benefits due under these plans were
vested (Note 28). The Corporations nonqualified retirement
agreements had an aggregate unfunded projected benefit of
approximately $14,201,000 as of December 31, 2006 and
$14,880,000 at December 31, 2005. The accrued liability
associated with these benefits totaled $6,358,000 and $6,560,000
at December 31, 2006 and 2005, respectively, which
represents the present value of the future benefits.
Compensation expense related to these plans totaled $216,000,
$1,178,000 and $687,000 for 2006, 2005 and 2004.
75
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The components of the consolidated income tax expense (benefit)
are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
|
|
|
$
|
(1,439
|
)
|
|
$
|
(2,350
|
)
|
State
|
|
|
|
|
|
|
(5
|
)
|
|
|
(80
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current expense (benefit)
|
|
|
|
|
|
|
(1,444
|
)
|
|
|
(2,430
|
)
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
1,555
|
|
|
|
(2,096
|
)
|
|
|
1,381
|
|
State
|
|
|
368
|
|
|
|
(1,072
|
)
|
|
|
253
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax expense
(benefit)
|
|
|
1,923
|
|
|
|
(3,168
|
)
|
|
|
1,634
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax expense (benefit)
|
|
$
|
1,923
|
|
|
$
|
(4,612
|
)
|
|
$
|
(796
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Significant components of the Corporations deferred income
tax assets and liabilities as of December 31, 2006 and 2005
are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
Deferred income tax assets:
|
|
|
|
|
|
|
|
|
Rehabilitation tax credit
|
|
$
|
6,144
|
|
|
$
|
6,324
|
|
Allowance for loan losses
|
|
|
6,978
|
|
|
|
4,444
|
|
Deferred compensation
|
|
|
4,076
|
|
|
|
2,858
|
|
Net operating loss carryforwards
|
|
|
13,147
|
|
|
|
972
|
|
Alternative minimum tax credit
carryover
|
|
|
1,034
|
|
|
|
646
|
|
Purchase accounting basis
differences
|
|
|
2,936
|
|
|
|
|
|
Unrealized loss on securities
|
|
|
1,157
|
|
|
|
1,696
|
|
Other
|
|
|
2,085
|
|
|
|
1,711
|
|
|
|
|
|
|
|
|
|
|
Total deferred income tax assets
|
|
|
37,557
|
|
|
|
18,651
|
|
Less: valuation allowance on net
operating loss carryforwards
|
|
|
(1,207
|
)
|
|
|
|
|
Deferred income tax liabilities:
|
|
|
|
|
|
|
|
|
Difference in book and tax basis
of premises and equipment
|
|
|
5,060
|
|
|
|
3,046
|
|
Excess purchase price and
intangibles
|
|
|
5,784
|
|
|
|
|
|
Other
|
|
|
107
|
|
|
|
766
|
|
|
|
|
|
|
|
|
|
|
Total deferred income tax
liabilities
|
|
|
10,951
|
|
|
|
3,812
|
|
|
|
|
|
|
|
|
|
|
Net deferred income tax asset
|
|
$
|
25,399
|
|
|
$
|
14,839
|
|
|
|
|
|
|
|
|
|
|
Management assesses the need for a valuation allowance against
the Corporations deferred tax assets in accordance with
SFAS No. 109, Accounting for Income Taxes.
The Corporations determination of the realization of
deferred tax assets (net of valuation allowances) is based upon
managements judgment of various future events and
uncertainties, including future reversals of existing taxable
temporary differences, the timing and amount of future income
earned by the Corporations subsidiaries and the
implementation of various tax planning strategies to maximize
realization of the deferred tax assets. A portion of the amount
of the deferred tax asset that can be realized in any year is
subject to certain statutory federal income tax limitations. The
Corporation believes that its subsidiaries will be able to
generate sufficient operating earnings to realize the deferred
tax benefits. The Corporation evaluates quarterly the
realizability of the deferred tax assets and, if necessary,
adjusts any valuation allowance accordingly.
In 2006, due to limitations on the use of net operating losses
acquired in the merger with Community, a valuation allowance of
$1,207,000 has been established as of December 31, 2006
against such deferred income tax assets in purchase accounting.
Any subsequently recognized income tax benefits relating to this
valuation allowance will be reflected as a reduction of goodwill
related to the acquisition.
76
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
13.
|
Income
Taxes (Continued)
|
The effective tax rate differs from the expected tax using the
statutory rate. Reconciliation between the expected tax and the
actual income tax expense (benefit) follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Expected tax expense (benefit) at
statutory rate of income (loss) before taxes
|
|
$
|
2,353
|
|
|
$
|
(3,535
|
)
|
|
$
|
133
|
|
Add (deduct):
|
|
|
|
|
|
|
|
|
|
|
|
|
Rehabilitation tax credit
|
|
|
|
|
|
|
|
|
|
|
(725
|
)
|
State income taxes, net of federal
tax benefit
|
|
|
243
|
|
|
|
(711
|
)
|
|
|
114
|
|
Effect of interest income exempt
from Federal income taxes
|
|
|
(251
|
)
|
|
|
(191
|
)
|
|
|
(178
|
)
|
Basis reduction
|
|
|
|
|
|
|
|
|
|
|
247
|
|
Increase in cash surrender value
of life insurance
|
|
|
(537
|
)
|
|
|
(493
|
)
|
|
|
(559
|
)
|
Amortization
|
|
|
97
|
|
|
|
97
|
|
|
|
97
|
|
Travel and entertainment
|
|
|
34
|
|
|
|
28
|
|
|
|
85
|
|
Other items net
|
|
|
(16
|
)
|
|
|
193
|
|
|
|
(10
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense (benefit)
|
|
$
|
1,923
|
|
|
$
|
(4,612
|
)
|
|
$
|
(796
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal statutory rate
|
|
|
34
|
%
|
|
|
34
|
%
|
|
|
34
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Corporations unused net operating loss carryforwards
and expiration dates are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Year of expiration:
|
|
Federal
|
|
|
Alabama
|
|
|
Florida
|
|
|
2009
|
|
$
|
|
|
|
$
|
16,387
|
|
|
$
|
|
|
2010
|
|
|
|
|
|
|
12,806
|
|
|
|
|
|
2011
|
|
|
|
|
|
|
6,521
|
|
|
|
|
|
2023
|
|
|
6,690
|
|
|
|
|
|
|
|
|
|
2024
|
|
|
13,040
|
|
|
|
|
|
|
|
2,538
|
|
2026
|
|
|
5,955
|
|
|
|
|
|
|
|
|
|
2027
|
|
|
6,175
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
31,860
|
|
|
$
|
35,714
|
|
|
$
|
2,538
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Corporation has available at December 31, 2006 unused
rehabilitation tax credits that can be carried forward and
utilized against future Federal income tax liability. Unused
credits and expiration dates are as follows (in thousands):
|
|
|
|
|
Year of expiration:
|
|
|
|
|
2018
|
|
$
|
1,734
|
|
2019
|
|
|
738
|
|
2020
|
|
|
1,261
|
|
2021
|
|
|
522
|
|
2022
|
|
|
366
|
|
2023
|
|
|
960
|
|
2024
|
|
|
564
|
|
|
|
|
|
|
|
|
$
|
6,145
|
|
|
|
|
|
|
This credit was established as a result of the restoration and
enhancement of the John A. Hand Building, which is designated as
an historical structure and serves as the corporate headquarters
for the Corporation. This credit is equal to 20% of certain
qualified expenditures incurred by the Corporation prior to
December 31, 2005. The Corporation is required to reduce
its tax basis in the John A. Hand Building by the amount of the
credit.
Applicable income tax (benefit) expense of $-0-, $(351,000) and
$(27,000) on investment securities (losses) gains for the years
ended December 31, 2006, 2005 and 2004, respectively, is
included in income taxes.
77
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
13.
|
Income
Taxes (Continued)
|
The Corporation recognized a $600,000 tax benefit in 2005
related to the exercise of nonqualified stock options. This
benefit was recognized as a credit to stockholders equity
as additional surplus.
The Corporations federal and state income tax returns for
the years 2001 through 2005 are open for review and
examination by governmental authorities. In the normal course of
these examinations, the Corporation is subject to challenges
from governmental authorities regarding amounts of taxes due.
The Corporation has received notices of proposed adjustments
relating to state taxes due for the years 2002 and 2003, which
include proposed adjustments relating to income apportionment of
a subsidiary. Management believes adequate provision for income
taxes has been recorded for all years open for review and
intends to vigorously contest the proposed adjustments. To the
extent that final resolution of the proposed adjustments results
in significantly different conclusions from managements
current assessment of the proposed adjustments, the effective
tax rate in any given financial reporting period may be
materially different from the current effective tax rate.
The Corporation maintains positions in derivative financial
instruments to manage interest rate risk and facilitate
asset/liability management strategies. The fair value of
derivatives are recorded in other assets or other liabilities.
Interest
Rate Swaps
At December 31, 2006, the Corporation had interest rate
swap positions with notional amounts of $46,500,000 related to
brokered CDs (See Fair Value Hedges below). Hedge
accounting was discontinued on $36,500,000 of these swap
positions during the fourth quarter of 2006 because the
instruments no longer qualified as an effective fair value hedge
under SFAS 133. Therefore, all changes in fair value were
recognized in earnings during the period of the change. The net
cash settlement of these derivatives was included in noninterest
income during the fourth quarter of 2006. As of
December 31, 2006, these CD swaps had a recorded fair value
of ($713,000) and a weighted average life of 8.99 years,
respectively. The weighted average fixed rate (receiving rate)
was 4.92% and the weighted average variable rate (paying rate)
was 5.33% (LIBOR based).
Fair
Value Hedges
As of December 31, 2006, the Corporation had entered into
$46,500,000 notional amount of swaps (CD swaps) to
hedge the interest rate risk inherent in certain of its brokered
certificates of deposits (brokered CDs). The CD
swaps are used to convert the fixed rate paid on the brokered
CDs to a variable rate based upon three-month LIBOR. Prior to
the first quarter of 2006, these transactions did not qualify
for fair value hedge accounting under SFAS 133 (see
Note 1). During the first quarter of 2006, the Corporation
designated these CD swaps as fair value hedges. As fair value
hedges, the net cash settlements from the designated swaps are
reported as part of net interest income. In addition, the
Corporation will recognize in current earnings the change in
fair value of both the interest rate swap and related hedged
brokered CDs, with the ineffective portion of the hedge
relationship reported in noninterest income. The fair value of
the CD swaps is reported on the Consolidated Statements of
Financial Condition in other liabilities and the change in fair
value of the related hedged brokered CD is reported as an
adjustment to the carrying value of the brokered CDs. Hedge
accounting was discontinued on $36,500,000 of these swap
positions during the fourth quarter of 2006 because the
instruments no longer qualified as an effective fair value hedge
under SFAS 133(see Interest Rate Swaps above). As of
December 31, 2006, the amount of CD swaps designated as
fair value hedges totaled $10,000,000 and had a recorded fair
value of ($84,000) and a weighted average life of
3.87 years. The weighted average fixed rate (receiving
rate) was 4.13% and the weighted average variable rate (paying
rate) was 5.38% (LIBOR based).
78
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
14.
|
Derivatives (Continued)
|
Interest
Rate Floors
During the fourth quarter of 2006 the Corporation entered into
certain interest rate floor contracts that have not been
qualified for hedge accounting treatment and will be used as an
economic hedge. An interest rate floor is a contract in which
the counterparty agrees to pay to the difference between a
current market rate of interest and an agreed rate multiplied by
the amount of the notional amount. The Corporation entered into
$50,000,000 interest rate floor contracts for a
3-year
period with a 4.25% floor on the
3-month
LIBOR rate. The Corporation paid a $248,000 premium. These
economic hedges will be carried at fair value in other assets or
other liabilities and changes in the fair value of these
derivatives and any payments received will be recognized in
noninterest income. The floors had a positive fair value of
$215,000 as of December 31, 2006.
Commitments
to Originate Mortgage Loans
During the ordinary course of business, the Corporation enters
into certain commitments with customers in connection with
residential mortgage loan applications. Such commitments are
considered derivatives under the provisions of
SFAS No. 133, as amended by SFAS No. 149,
Amendment to Statement 133 on Derivatives Instruments
and Hedging Activities, and are therefore required to be
recorded at fair value. The aggregate amount of these mortgage
loan origination commitments was $28,733,000 at
December 31, 2006. The net unrealized gain of the
origination commitments were $51,000 at December 31, 2006.
The fair values are calculated based on changes in market
interest rates after the commitment date.
|
|
15.
|
Related
Party Transactions
|
The Corporation has entered into transactions with its
directors, executive officers, significant stockholders and
their affiliates (related parties). Such transactions were made
in the ordinary course of business on substantially the same
terms and conditions, including interest rates and collateral,
as those prevailing at the same time for comparable transactions
with other customers, and did not, in the opinion of management,
involve more than normal credit risk or present other
unfavorable features. The aggregate amount of loans to such
related parties at December 31, 2006 and 2005 were
$11,064,000 and $6,805,000, respectively. Activity during the
year ended December 31, 2006 is summarized as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
|
|
|
|
|
|
|
|
|
|
|
|
Balance
|
|
December 31,
|
|
|
|
|
|
|
|
|
Other
|
|
|
December 31,
|
|
2005
|
|
|
Advances
|
|
|
Repayments
|
|
|
Changes
|
|
|
2006
|
|
|
$
|
6,805
|
|
|
$
|
4,285
|
|
|
$
|
973
|
|
|
$
|
947
|
|
|
$
|
11,064
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2006 and 2005, the deposits of such related
parties in the subsidiary bank amounted to approximately
$23,793,000 and $32,084,000, respectively.
An insurance agency owned by one of the Corporations
directors received commissions of approximately $166,876,
$180,567, and $180,400 from the sale of insurance to the
Corporation during 2006, 2005 and 2004, respectively.
The Corporation believes that all of the foregoing transactions
were made on terms and conditions reflective of arms
length transactions.
|
|
16.
|
Commitments
and Contingencies
|
The consolidated financial statements do not reflect the
Corporations various commitments and contingent
liabilities which arise in the normal course of business and
which involve elements of credit risk, interest rate risk and
liquidity risk. These commitments and contingent liabilities are
commitments to extend credit and standby
79
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
16.
|
Commitments
and Contingencies (Continued)
|
letters of credit. The following is a summary of the
Corporations maximum exposure to credit loss for loan
commitments and standby letters of credit (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
2006
|
|
|
2005
|
|
|
Commitments to extend credit
|
|
$
|
361,523
|
|
|
$
|
215,951
|
|
Standby letters of credit
|
|
|
23,630
|
|
|
|
23,591
|
|
Commitments to extend credit and standby letters of credit all
include exposure to some credit loss in the event of
nonperformance by the customer. The Corporations credit
policies and procedures for credit commitments and financial
guarantees are the same as those for extension of credit that
are recorded in the consolidated statement of financial
condition. Because these instruments have fixed maturity dates,
and because many of them expire without being drawn upon, they
do not generally present any significant liquidity risk to the
Corporation.
During 2006, 2005 and 2004, the Corporation settled various
litigation matters. The Corporation is also a defendant or
co-defendant in various lawsuits incidental to the banking
business. Management, after consultation with legal counsel,
believes that liabilities, if any, arising from such litigation
and claims will not result in a material adverse effect on the
consolidated financial statements of the Corporation.
The Corporation is constructing or has plans to construct
various new branch locations. In that regard, the Corporation
has entered into commitments as of, or subsequent to,
December 31, 2006 for the construction of these branch
locations totaling approximately $4,396,000.
On February 6, 2004, the Corporations banking
subsidiary sold its Morris, Alabama branch, which had assets of
approximately $1,037,000 and liabilities of $8,217,000. The
Corporation realized a $739,000 pre-tax gain on the sale.
|
|
18.
|
Regulatory
Restrictions
|
A source of funds available to the Corporation is the payment of
dividends by its subsidiary. Regulations limit the amount of
dividends that may be paid without prior approval of the
subsidiarys regulatory agency. Approximately $9,800,000 in
retained earnings are available to be paid as dividends by the
subsidiary at December 31, 2006.
During the fourth quarter of 2005 the Corporation became a
unitary thrift holding company and, as such, is subject to
regulation, examination and supervision by the OTS.
Simultaneously, the Corporations subsidiary banks
charter was changed to a federal savings bank charter and is
also subject to various regulatory requirements administered by
the OTS. Prior to November 1, 2005 the Corporations
banking subsidiary was regulated by the Alabama Banking
Department and the Federal Reserve. Failure to meet minimum
capital requirements can initiate certain mandatory and possibly
additional discretionary actions by regulators that, if
undertaken, could have a direct material effect on the
Corporations and its subsidiaries financial condition and
results of operations. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the
subsidiary bank must meet specific capital guidelines that
involve quantitative measures of the its assets, liabilities and
certain off-balance sheet items as calculated under regulatory
accounting practices. The subsidiary banks capital amounts
and classification are also subject to qualitative judgments by
the regulators about components, risk weightings and other
factors.
Quantitative measures established by regulation to ensure
capital adequacy require the Corporation and its subsidiary bank
to maintain minimum amounts and ratios (set forth in the table
below) of tangible and core capital
80
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
18.
|
Regulatory
Restrictions (Continued)
|
(as defined in the regulations) to adjusted total assets (as
defined), and of total capital (as defined) and Tier 1
capital to risk weighted assets (as defined). Management
believes, as of December 31, 2006 and 2005, that the
Corporation and its subsidiary meet all capital adequacy
requirements to which it is subject.
As of December 31, 2006 and 2005, the most recent
notification from the subsidiarys primary regulators
categorized the subsidiary as well capitalized under
the regulatory framework for prompt corrective action. The table
below represents the Corporations and the
subsidiarys regulatory and minimum regulatory capital
requirements at December 31, 2006 and 2005 (dollars in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
To Be Well
|
|
|
|
|
|
|
For Capital
|
|
|
Capitalized
|
|
|
|
|
|
|
Adequacy
|
|
|
Under Prompt
|
|
|
|
Actual
|
|
|
Purposes
|
|
|
Corrective Action
|
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
As of December 31,
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 Core Capital (to
Adjusted Total Assets) Corporation
|
|
$
|
170,513
|
|
|
|
7.43
|
%
|
|
$
|
91,768
|
|
|
|
4.00
|
%
|
|
$
|
114,710
|
|
|
|
5.00
|
%
|
Superior Bank
|
|
|
174,084
|
|
|
|
7.64
|
|
|
|
91,090
|
|
|
|
4.00
|
|
|
|
113,863
|
|
|
|
5.00
|
|
Total Capital (to Risk Weighted
Assets) Corporation
|
|
|
188,688
|
|
|
|
10.40
|
|
|
|
145,198
|
|
|
|
8.00
|
|
|
|
181,498
|
|
|
|
10.00
|
|
Superior Bank
|
|
|
192,259
|
|
|
|
10.69
|
|
|
|
143,843
|
|
|
|
8.00
|
|
|
|
179,803
|
|
|
|
10.00
|
|
Tier 1 Capital (to Risk
Weighted Assets) Corporation
|
|
|
170,513
|
|
|
|
9.39
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
108,899
|
|
|
|
6.00
|
|
Superior Bank
|
|
|
174,084
|
|
|
|
9.68
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
107,882
|
|
|
|
6.00
|
|
Tangible Capital (to Adjusted
Total Assets) Superior Bank
|
|
|
174,084
|
|
|
|
7.64
|
|
|
|
34,159
|
|
|
|
1.50
|
|
|
|
N/A
|
|
|
|
N/A
|
|
As of December 31,
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 Core Capital (to
Adjusted Total Assets) Corporation
|
|
$
|
115,852
|
|
|
|
8.30
|
%
|
|
$
|
55,810
|
|
|
|
4.00
|
%
|
|
$
|
69,763
|
|
|
|
5.00
|
%
|
Superior Bank
|
|
|
110,929
|
|
|
|
8.02
|
|
|
|
55,332
|
|
|
|
4.00
|
|
|
|
69,165
|
|
|
|
5.00
|
|
Total Capital (to Risk Weighted
Assets) Corporation
|
|
|
126,444
|
|
|
|
11.08
|
|
|
|
91,295
|
|
|
|
8.00
|
|
|
|
114,119
|
|
|
|
10.00
|
|
Superior Bank
|
|
|
121,521
|
|
|
|
10.76
|
|
|
|
90,347
|
|
|
|
8.00
|
|
|
|
112,934
|
|
|
|
10.00
|
|
Tier 1 Capital (to Risk
Weighted Assets) Corporation
|
|
|
115,852
|
|
|
|
10.15
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
68,471
|
|
|
|
6.00
|
|
Superior Bank
|
|
|
110,929
|
|
|
|
9.82
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
67,760
|
|
|
|
6.00
|
|
Tangible Capital (to Adjusted
Total Assets) Superior Bank
|
|
|
110,929
|
|
|
|
8.02
|
|
|
|
20,749
|
|
|
|
1.50
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
19.
|
Fair
Values of Financial Instruments
|
The following methods and assumptions were used by the
Corporation in estimating fair values of financial instruments
as disclosed herein:
Cash and short-term instruments. The carrying
amounts of cash and short-term instruments, including
interest-bearing deposits in other banks, federal funds sold and
short-term commercial paper, approximate their fair value.
Investment securities available for sale. Fair
values for investment securities are based on quoted market
prices. The carrying values of stock in FHLB and Federal Reserve
Bank approximate fair values.
Tax lien certificates. The carrying amount of
tax lien certificates approximates their fair value.
81
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
19.
|
Fair
Values of Financial
Instruments (Continued)
|
Mortgage loans held for sale. The carrying
amounts of mortgage loans held for sale approximate their fair
value.
Net loans. Fair values for variable-rate loans
that reprice frequently and have no significant change in credit
risk are based on carrying values. Fair values for all other
loans are estimated using discounted cash flow analyses using
interest rates currently being offered for loans with similar
terms to borrowers of similar credit quality. Fair values for
impaired loans are estimated using discounted cash flow analyses
or underlying collateral values, where applicable.
Accrued interest receivable. The carrying
amounts of accrued interest receivable approximate their fair
values.
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 certificates to a schedule of aggregated expected monthly
maturities on time deposits.
Advances from FHLB. Rates currently available
to the Corporation for debt with similar terms and remaining
maturities are used to estimate fair value of existing debt.
Federal funds borrowed and security repurchase
agreements. The carrying amount of federal funds
borrowed and security repurchase agreements approximate their
fair values.
Notes payable. The carrying amount of notes
payable approximates their fair values.
Subordinated debentures. Rates currently
available to the Corporation for preferred offerings with
similar terms and maturities are used to estimate fair value.
Interest rate swaps. Fair values for interest
rate swaps are based on quoted market prices.
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.
82
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
19.
|
Fair
Values of Financial
Instruments (Continued)
|
The estimated fair values of the Corporations financial
instruments are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2006
|
|
|
December 31, 2005
|
|
|
|
Carrying
|
|
|
Fair
|
|
|
Carrying
|
|
|
|
|
|
|
Amount
|
|
|
Value
|
|
|
Amount
|
|
|
Fair Value
|
|
|
|
(In thousands)
|
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
49,783
|
|
|
$
|
49,783
|
|
|
$
|
35,088
|
|
|
$
|
35,088
|
|
Interest-bearing deposits in other
banks
|
|
|
10,994
|
|
|
|
10,994
|
|
|
|
9,772
|
|
|
|
9,772
|
|
Federal funds sold
|
|
|
25,185
|
|
|
|
25,185
|
|
|
|
|
|
|
|
|
|
Securities available for sale
|
|
|
354,716
|
|
|
|
354,716
|
|
|
|
242,306
|
|
|
|
242,306
|
|
Tax lien certificates
|
|
|
16,313
|
|
|
|
16,313
|
|
|
|
289
|
|
|
|
289
|
|
Mortgage loans held for sale
|
|
|
24,433
|
|
|
|
24,433
|
|
|
|
21,355
|
|
|
|
21,355
|
|
Net loans
|
|
|
1,639,528
|
|
|
|
1,634,782
|
|
|
|
951,242
|
|
|
|
949,177
|
|
Stock in FHLB and Federal Reserve
Bank
|
|
|
12,382
|
|
|
|
12,382
|
|
|
|
10,966
|
|
|
|
10,966
|
|
Accrued interest receivable
|
|
|
14,387
|
|
|
|
14,387
|
|
|
|
7,081
|
|
|
|
7,081
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
1,870,841
|
|
|
|
1,868,121
|
|
|
|
1,043,696
|
|
|
|
1,041,177
|
|
Advances from FHLB
|
|
|
187,840
|
|
|
|
189,628
|
|
|
|
181,090
|
|
|
|
184,188
|
|
Federal funds borrowed and
security repurchase agreements
|
|
|
23,415
|
|
|
|
23,415
|
|
|
|
33,406
|
|
|
|
33,286
|
|
Notes payable
|
|
|
5,545
|
|
|
|
5,545
|
|
|
|
3,755
|
|
|
|
3,755
|
|
Junior subordinated debentures
owed to unconsolidated subsidiary trusts
|
|
|
44,006
|
|
|
|
47,481
|
|
|
|
31,959
|
|
|
|
33,980
|
|
Interest rate swaps
|
|
|
798
|
|
|
|
798
|
|
|
|
953
|
|
|
|
953
|
|
Note 20
Pension Plan
As a result of its merger with Community, the Corporation became
the sponsor of a defined benefit pension plan (the Pension
Plan) and a nonqualified supplemental executive retirement
plan (the Benefit Restoration Plan). Both plans were
frozen by Community effective December 31, 2003. As long as
the plans remain frozen, no employees become eligible to
participate in the plans and no participants accrue any
additional benefits. Benefits accrued as of the date of the
freeze will be paid to participants in accordance with the terms
of the plans.
Benefits under the Pension Plan depend upon a participants
years of credited service and his or her average monthly
earnings for the highest five consecutive years out of the
participants final 10 years of employment. The number
of years of credited service and average monthly earnings for
each participant were fixed as of December 31, 2003. Normal
retirement age under the Pension Plan is age 65. A
participant with 10 years of service is eligible to receive
early retirement benefits beginning at age 55. The
Corporation is required to make contributions to the Pension
Plan in amounts sufficient to satisfy the funding requirements
of the Employee Retirement Income Security Act, as amended.
Pension Plan assets are held in a trust and consist primarily of
corporate stock and bonds.
The Benefit Restoration Plan was designed to provide certain key
executives of Community with benefits which would have been paid
to them under the Pension Plan except for certain limitations
imposed by the Internal Revenue Code of 1986, as amended. A
participants benefit under the Benefit Restoration Plan is
equal to the difference between his benefit under the Pension
Plan calculated without regard to such limitations less the
benefit payable to him from the Pension Plan. Benefit
Restoration Plan benefits are unfunded.
83
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Note 20
Pension Plan (Continued)
The following tables set forth the funding status and the amount
recognized for both the Pension Plan and the Benefit Restoration
Plan in the Corporations consolidated statement of
condition and consolidated statement of operations.
Pension
Plan:
|
|
|
|
|
|
|
December 31, 2006
|
|
|
|
(In thousands)
|
|
|
Change in benefit
obligation
|
|
|
|
|
Benefit obligation as of
November 7, 2006
|
|
$
|
10,540
|
|
Interest cost
|
|
|
97
|
|
Benefits paid (including expenses)
|
|
|
(73
|
)
|
Actuarial (gain)/ loss
|
|
|
(263
|
)
|
|
|
|
|
|
Benefit obligation at end of year
|
|
$
|
10,301
|
|
|
|
|
|
|
Change in plan assets
|
|
|
|
|
Fair value of plan assets as of
November 7, 2006
|
|
$
|
9,915
|
|
Actual return on plan assets
|
|
|
254
|
|
Benefits paid (including expenses)
|
|
|
(73
|
)
|
|
|
|
|
|
Fair value of plan assets at end
of year
|
|
$
|
10,096
|
|
|
|
|
|
|
Funded status at end of
year
|
|
|
|
|
Net amount recognized in statement
of financial condition (after SFAS 158)
|
|
$
|
(205
|
)
|
|
|
|
|
|
Amounts Recognized in the
Statement of Financial Condition consist of:
|
|
|
|
|
Assets
|
|
$
|
|
|
Liabilities
|
|
|
(205
|
)
|
|
|
|
|
|
Net amount recognized in statement
of financial condition (after SFAS 158)
|
|
$
|
(205
|
)
|
|
|
|
|
|
Amounts not yet reflected in
net periodic benefit cost and included in accumulated other
comprehensive income:
|
|
|
|
|
Transition (obligation) cost
|
|
$
|
|
|
Prior service (cost) credit
|
|
|
|
|
Net (loss) gain
|
|
|
404
|
|
|
|
|
|
|
Accumulated other comprehensive
(loss) income (AOCI)
|
|
|
404
|
|
Cumulative employer contributions
in excess of net periodic benefit cost
|
|
|
(609
|
)
|
|
|
|
|
|
Net amount recognized in statement
of financial condition
|
|
$
|
(205
|
)
|
|
|
|
|
|
Change in Accumulated other
comprehensive income due to application
of SFAS 158
|
|
|
|
|
Additional minimum liability
(before SFAS 158)
|
|
$
|
|
|
Intangible assets offset (before
SFAS 158)
|
|
|
|
|
AOCI (before SFAS 158)
|
|
|
|
|
Net increase (decrease) in AOCI
due to SFAS 158
|
|
|
404
|
|
Additional year-end information
for pension plans with accumulated
benefit obligations in excess of plan assets:
|
|
|
|
|
Projected benefit obligation
|
|
$
|
10,301
|
|
|
|
|
|
|
Accumulated benefit obligation
|
|
$
|
10,301
|
|
|
|
|
|
|
Fair value of plan assets
|
|
$
|
10,096
|
|
|
|
|
|
|
84
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
Note 20
Pension Plan (Continued)
|
|
|
|
December 31, 2006
|
|
|
|
(In thousands)
|
|
|
Weighted-average assumptions
used to determine net periodic
benefit obligations
|
|
|
|
|
Projected benefit obligation
|
|
|
5.84
|
%
|
Rate of compensation increase
|
|
|
N/A
|
|
Expected Cash Flows
|
|
|
|
|
Expected return of assets to
employer in next year
|
|
$
|
|
|
|
|
|
|
|
Expected employer contribution for
next fiscal year
|
|
$
|
|
|
|
|
|
|
|
Expected benefit
payments
|
|
|
|
|
Year ending December 31, 2007
|
|
$
|
490,616
|
|
Year ending December 31, 2008
|
|
|
531,713
|
|
Year ending December 31, 2009
|
|
|
536,653
|
|
Year ending December 31, 2010
|
|
|
550,656
|
|
Year ending December 31, 2011
|
|
|
574,716
|
|
Next five years
|
|
|
3,264,616
|
|
Components of Pension Plan net
periodic benefit cost:
|
|
|
|
|
Components of net periodic
benefit cost
(11/7/06
12/31/06)
|
|
|
|
|
Interest cost
|
|
|
97
|
|
Expected return on plan assets
|
|
|
(113
|
)
|
|
|
|
|
|
Net periodic benefit cost
|
|
$
|
(16
|
)
|
|
|
|
|
|
Weighted-average assumptions
used to determine net periodic
benefit cost
|
|
|
|
|
Discount rate
|
|
|
5.65
|
%
|
Expected long-term return on plan
assets
|
|
|
7.00
|
%
|
Rate of compensation increase
|
|
$
|
N/A
|
|
The long-term expected rate of return for determining net
periodic Pension Plan cost for the period ending 2006 (7.00%)
was chosen by the Corporation from a best estimate range based
upon the anticipated long-term returns and long-term volatility
for asset categories based on the target asset allocation of the
Pension Plan.
The Corporations Pension Plan weighted average asset
allocations at December 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of
|
|
|
|
|
|
|
|
|
|
Pension Plan
|
|
|
|
|
|
|
|
|
|
Assets at
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
Long-term
|
|
|
|
|
|
|
2006
|
|
|
target
|
|
|
Range
|
|
|
Asset Category:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and equivalents
|
|
|
3.0
|
%
|
|
|
5.0
|
%
|
|
|
1-15
|
%
|
Equity securities
|
|
|
63.0
|
|
|
|
60.0
|
|
|
|
50-65
|
|
Debt securities
|
|
|
34.0
|
|
|
|
35.0
|
|
|
|
30-50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The overall investment objective of the Pension Plan is to meet
the long-term benefit obligations accrued under the Pension Plan
through investment in a diversified mix of equity and fixed
income securities. The investment portfolio will be diversified
to comply with fiduciary standards set forth under ERISA.
Long-term asset allocation targets and ranges are based on
historical risk and return characteristics of the capital
markets, plan objective and plan investment time horizon.
Shorter term asset allocation strategies, executed within the
guidelines of the investment policy take into consideration plan
liquidity needs and current and expected market conditions.
85
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Note 20
Pension Plan (Continued)
The investment portfolio utilizes mutual funds to facilitate
investment in each of the asset classes and sectors. The fixed
income mutual funds currently utilized in the portfolio have
objectives and exhibit characteristics in aggregate of
intermediate and short-term maturity/duration securities.
Certain individual issues within these funds will have a
maturity/duration longer than what is typically considered
short-term or intermediate. Over the long term, the fixed income
portfolio would be expected to exhibit characteristics of the
aggregate bond market.
Benefit
Restoration Plan:
|
|
|
|
|
|
|
December 31, 2006
|
|
|
|
(In thousands)
|
|
|
Change in benefit
obligation
|
|
|
|
|
Benefit obligation as of
November 7, 2006
|
|
$
|
2,802
|
|
Interest cost
|
|
|
26
|
|
Benefits paid (including expenses)
|
|
|
(10
|
)
|
Actuarial (gain)/ loss
|
|
|
(47
|
)
|
|
|
|
|
|
Benefit obligation at end of year
|
|
$
|
2,771
|
|
|
|
|
|
|
Change in plan assets
|
|
|
|
|
Fair value of plan assets as of
November 7, 2006
|
|
$
|
|
|
Actual return on plan assets
|
|
|
|
|
Employer contribution
|
|
|
10
|
|
Benefits paid (including expenses)
|
|
|
(10
|
)
|
|
|
|
|
|
Fair value of plan assets at end
of year
|
|
$
|
|
|
|
|
|
|
|
Funded status at end of
year
|
|
|
|
|
Net amount recognized in statement
of financial condition (after SFAS 158)
|
|
$
|
(2,771
|
)
|
|
|
|
|
|
Amounts Recognized in the
Statement of Financial Condition consist of:
|
|
|
|
|
Assets
|
|
$
|
|
|
Current liabilities
|
|
|
(161
|
)
|
Noncurrent liabilities
|
|
|
(2,610
|
)
|
|
|
|
|
|
Net amount recognized in statement
of financial position (after SFAS 158)
|
|
$
|
(2,771
|
)
|
|
|
|
|
|
Amounts not yet reflected in
net periodic benefit cost and included in accumulated other
comprehensive income:
|
|
|
|
|
Transition (obligation) cost
|
|
$
|
|
|
Prior service (cost) credit
|
|
|
|
|
Net (loss) gain
|
|
|
47
|
|
|
|
|
|
|
Accumulated other comprehensive
income (loss) (AOCI)
|
|
|
47
|
|
Cumulative employer contributions
in excess of net periodic benefit cost
|
|
|
(2,818
|
)
|
|
|
|
|
|
Net amount recognized in statement
of financial condition
|
|
$
|
(2,771
|
)
|
|
|
|
|
|
Change in Accumulated other
comprehensive income due to application
of SFAS 158
|
|
|
|
|
Additional minimum liability
(before SFAS 158)
|
|
$
|
|
|
Intangible assets offset (before
SFAS 158)
|
|
|
|
|
AOCI (before SFAS 158)
|
|
|
|
|
Net increase (decrease) in AOCI
due to SFAS 158
|
|
|
47
|
|
86
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
Note 20
Pension Plan (Continued)
|
|
|
|
December 31, 2006
|
|
|
|
(In thousands)
|
|
|
Additional year-end information
for pension plans with accumulated
benefit obligations in excess of plan assets:
|
|
|
|
|
Projected benefit obligation
|
|
$
|
2,771
|
|
|
|
|
|
|
Accumulated benefit obligation
|
|
$
|
2,771
|
|
|
|
|
|
|
Fair value of plan assets
|
|
$
|
|
|
|
|
|
|
|
Weighted-average assumptions
used to determine net periodic benefit obligations
|
|
|
|
|
Projected benefit obligation
|
|
|
5.84
|
%
|
Rate of compensation increase
|
|
|
N/A
|
|
Components of Benefit Restoration
Plan net periodic benefit cost:
|
|
|
|
|
Components of net periodic
benefit cost
(11/7/06
12/31/06)
|
|
|
|
|
Interest cost
|
|
|
26
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
$
|
26
|
|
|
|
|
|
|
Weighted-average assumptions
used to determine net periodic benefit cost
|
|
|
|
|
Discount rate
|
|
|
5.65
|
%
|
Expected long-term return on plan
assets
|
|
|
N/A
|
|
Rate of compensation increase
|
|
|
N/A
|
|
Expected Cash Flows
|
|
|
|
|
Expected return of assets to
employer in next year
|
|
$
|
|
|
Expected employer contribution for
next fiscal year
|
|
|
161,443
|
|
Expected benefit
payments
|
|
|
|
|
Year ending December 31, 2007
|
|
$
|
161,443
|
|
Year ending December 31, 2008
|
|
|
263,641
|
|
Year ending December 31, 2009
|
|
|
260,501
|
|
Year ending December 31, 2010
|
|
|
256,974
|
|
Year ending December 31, 2011
|
|
|
253,069
|
|
Next five years
|
|
|
1,191,436
|
|
|
|
21.
|
Other
Noninterest Expense
|
Other noninterest expense consisted of the following (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Professional fees
|
|
$
|
2,593
|
|
|
$
|
2,745
|
|
|
$
|
3,344
|
|
Directors fees
|
|
|
345
|
|
|
|
380
|
|
|
|
191
|
|
Insurance and assessments
|
|
|
1,898
|
|
|
|
2,344
|
|
|
|
2,410
|
|
Postage, stationery and supplies
|
|
|
1,251
|
|
|
|
997
|
|
|
|
1,013
|
|
Advertising
|
|
|
1,348
|
|
|
|
857
|
|
|
|
657
|
|
Foreclosure losses
|
|
|
210
|
|
|
|
796
|
|
|
|
967
|
|
Other operating expense
|
|
|
6,546
|
|
|
|
6,250
|
|
|
|
5,534
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
14,191
|
|
|
$
|
14,369
|
|
|
$
|
14,116
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
87
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
22.
|
Concentrations
of Credit Risk
|
All of the Corporations loans, commitments and standby
letters of credit have been granted to customers in the
Corporations market areas. The concentrations of credit by
type of loan or commitment are set forth in Notes 4
and 16, respectively.
The Corporation maintains cash balances and federal funds sold
at several financial institutions. Cash balances at each
institution are insured by the Federal Deposit Insurance
Corporation (the FDIC) up to $100,000. At various
times throughout the year, cash balances held at these
institutions will exceed federally insured limits. Superior
Banks management monitors these institutions on a
quarterly basis in order to determine that the institutions meet
well-capitalized guidelines as established by the
FDIC.
|
|
23.
|
Net
Income (Loss) Per Common Share
|
The following table sets forth the computation of basic net
income (loss) per common share and diluted net income (loss) per
common share (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
4,997
|
|
|
$
|
(5,786
|
)
|
|
$
|
1,187
|
|
Less preferred dividends
|
|
|
|
|
|
|
(305
|
)
|
|
|
(446
|
)
|
Less conversion of preferred stock
|
|
|
|
|
|
|
(2,006
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For basic and diluted, net income
(loss) applicable to common stockholders
|
|
$
|
4,997
|
|
|
$
|
(8,097
|
)
|
|
$
|
741
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
For basic, weighted average common
shares outstanding
|
|
|
23,409
|
|
|
|
19,154
|
|
|
|
17,583
|
|
Effect of dilutive stock options
|
|
|
625
|
|
|
|
|
|
|
|
232
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average common shares outstanding,
assuming dilution
|
|
|
24,034
|
|
|
|
19,154
|
|
|
|
17,815
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per common
share
|
|
$
|
0.21
|
|
|
$
|
(.42
|
)
|
|
$
|
.04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income (loss) per
common share
|
|
$
|
0.21
|
|
|
$
|
(.42
|
)
|
|
$
|
.04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per common share is calculated by
dividing net income (loss), less dividend requirements on
outstanding convertible preferred stock, by the weighted-average
number of common shares outstanding for the period.
Diluted net income (loss) per common share takes into
consideration the pro forma dilution assuming outstanding
convertible preferred stock and certain unvested restricted
stock and unexercised stock option awards were converted or
exercised into common shares. Options on 620,301 shares of
common stock and the weighted average effect of
382,192 shares of convertible preferred stock prior to
conversion were not included in computing diluted net (loss) per
share for the year ended December 31, 2005, and for the
year ended December 31, 2004, the effect of
775,000 shares of convertible preferred stock was not
included because their effects were anti-dilutive. No shares of
convertible preferred stock remained outstanding at
December 31, 2006 and 2005.
88
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The condensed financial information (unaudited) for Superior
Bancorp (Parent Company only) is presented as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
Statements of financial
condition
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
1,318
|
|
|
$
|
2,070
|
|
Investment in subsidiaries
|
|
|
308,061
|
|
|
|
127,361
|
|
Intangibles, net
|
|
|
214
|
|
|
|
214
|
|
Premises and equipment
net
|
|
|
6,713
|
|
|
|
7,763
|
|
Other assets
|
|
|
19,220
|
|
|
|
8,964
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
335,526
|
|
|
$
|
146,372
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Accrued expenses and other
liabilities
|
|
$
|
9,888
|
|
|
$
|
5,593
|
|
Notes payable
|
|
|
5,545
|
|
|
|
3,755
|
|
Subordinated debentures
|
|
|
44,006
|
|
|
|
31,959
|
|
Stockholders equity
|
|
|
276,087
|
|
|
|
105,065
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
335,526
|
|
|
$
|
146,372
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
Statements of
operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends from subsidiaries
|
|
$
|
1,750
|
|
|
$
|
2,585
|
|
|
$
|
2,576
|
|
Interest
|
|
|
100
|
|
|
|
15
|
|
|
|
13
|
|
Other income
|
|
|
431
|
|
|
|
852
|
|
|
|
3,397
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,281
|
|
|
|
3,452
|
|
|
|
5,986
|
|
Expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Directors fees
|
|
|
276
|
|
|
|
270
|
|
|
|
74
|
|
Salaries and benefits
|
|
|
708
|
|
|
|
10,831
|
|
|
|
3,219
|
|
Occupancy expense
|
|
|
512
|
|
|
|
897
|
|
|
|
615
|
|
Interest expense
|
|
|
3,566
|
|
|
|
3,142
|
|
|
|
2,653
|
|
Other
|
|
|
886
|
|
|
|
2,257
|
|
|
|
937
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,948
|
|
|
|
17,397
|
|
|
|
7,498
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes and
equity in undistributed earnings of subsidiaries
|
|
|
(3,667
|
)
|
|
|
(13,945
|
)
|
|
|
(1,512
|
)
|
Income tax benefit
|
|
|
1,409
|
|
|
|
6,445
|
|
|
|
1,822
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before equity in
undistributed earnings of subsidiaries
|
|
|
(2,258
|
)
|
|
|
(7,500
|
)
|
|
|
310
|
|
Equity in undistributed earnings
of subsidiaries
|
|
|
7,255
|
|
|
|
1,714
|
|
|
|
877
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
4,997
|
|
|
$
|
(5,786
|
)
|
|
$
|
1,187
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
89
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
24. Parent
Company (Continued)
|
|
|
|
Year Ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
Statements of cash
flows
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
4,997
|
|
|
$
|
(5,786
|
)
|
|
$
|
1,187
|
|
Adjustments to reconcile net
income (loss) to net cash used by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization and depreciation
expense
|
|
|
245
|
|
|
|
257
|
|
|
|
213
|
|
Equity in undistributed earnings
of subsidiaries
|
|
|
(7,255
|
)
|
|
|
(1,714
|
)
|
|
|
(877
|
)
|
Other increase (decrease)
|
|
|
1,392
|
|
|
|
(868
|
)
|
|
|
(2,276
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used by operating
activities
|
|
|
(621
|
)
|
|
|
(8,111
|
)
|
|
|
(1,753
|
)
|
Investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sale of premises and
equipment
|
|
|
947
|
|
|
|
19
|
|
|
|
|
|
Purchases of premises and equipment
|
|
|
(5
|
)
|
|
|
|
|
|
|
(2,117
|
)
|
Net cash paid in business
combinations
|
|
|
(3,855
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing
activities
|
|
|
(2,913
|
)
|
|
|
19
|
|
|
|
(2,117
|
)
|
Financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common
stock
|
|
|
992
|
|
|
|
10,542
|
|
|
|
203
|
|
Proceeds from note payable
|
|
|
2,000
|
|
|
|
|
|
|
|
2,250
|
|
Principal payment on note payable
|
|
|
(210
|
)
|
|
|
(210
|
)
|
|
|
(210
|
)
|
Cash dividends paid
|
|
|
|
|
|
|
(305
|
)
|
|
|
(447
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing
activities
|
|
|
2,782
|
|
|
|
10,027
|
|
|
|
1,796
|
|
Net (decrease) increase in cash
|
|
|
(752
|
)
|
|
|
1,935
|
|
|
|
(2,074
|
)
|
Cash at beginning of year
|
|
|
2,070
|
|
|
|
135
|
|
|
|
2,209
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash at end of year
|
|
$
|
1,318
|
|
|
$
|
2,070
|
|
|
$
|
135
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
25.
|
Selected
Quarterly Results of Operations (Unaudited)
|
A summary of the unaudited results of operations for each
quarter of 2006 and 2005 follows (in thousands, except per share
data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
$
|
21,649
|
|
|
$
|
23,608
|
|
|
$
|
27,458
|
|
|
$
|
36,062
|
|
Total interest expense
|
|
|
11,645
|
|
|
|
13,195
|
|
|
|
16,543
|
|
|
|
20,000
|
|
Net interest income
|
|
|
10,004
|
|
|
|
10,413
|
|
|
|
10,915
|
|
|
|
16,062
|
|
Provision for loan losses
|
|
|
600
|
|
|
|
700
|
|
|
|
550
|
|
|
|
650
|
|
Securities (losses) gains
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in fair value of
derivatives
|
|
|
70
|
|
|
|
(33
|
)
|
|
|
6
|
|
|
|
331
|
|
Income before income taxes
|
|
|
1,100
|
|
|
|
1,880
|
|
|
|
979
|
|
|
|
2,961
|
|
Net income
|
|
|
850
|
|
|
|
1,274
|
|
|
|
813
|
|
|
|
2,060
|
|
Basic net income per common share
|
|
|
0.04
|
|
|
|
0.06
|
|
|
|
0.04
|
|
|
|
0.07
|
|
Diluted net income per common share
|
|
|
0.04
|
|
|
|
0.06
|
|
|
|
0.04
|
|
|
|
0.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
$
|
18,186
|
|
|
$
|
18,957
|
|
|
$
|
19,479
|
|
|
$
|
20,658
|
|
Total interest expense
|
|
|
8,579
|
|
|
|
9,108
|
|
|
|
10,005
|
|
|
|
10,563
|
|
Net interest income
|
|
|
9,607
|
|
|
|
9,849
|
|
|
|
9,474
|
|
|
|
10,095
|
|
Provision for loan losses
|
|
|
750
|
|
|
|
1,500
|
|
|
|
500
|
|
|
|
750
|
|
Securities (losses) gains
|
|
|
(909
|
)
|
|
|
(68
|
)
|
|
|
|
|
|
|
29
|
|
Changes in fair value of
derivatives
|
|
|
(230
|
)
|
|
|
933
|
|
|
|
(863
|
)
|
|
|
(165
|
)
|
(Loss) income before income taxes
|
|
|
(13,218
|
)
|
|
|
1,560
|
|
|
|
(127
|
)
|
|
|
1,387
|
|
Net (loss) income
|
|
|
(8,161
|
)
|
|
|
1,148
|
|
|
|
137
|
|
|
|
1,090
|
|
Basic net (loss) income per common
share
|
|
|
(.44
|
)
|
|
|
(.06
|
)
|
|
|
.01
|
|
|
|
.06
|
|
Diluted net (loss) income per
common share
|
|
|
(.44
|
)
|
|
|
(.06
|
)
|
|
|
.01
|
|
|
|
.05
|
|
The Corporation has two reportable segments, the Alabama Region
and the Florida Region. The Alabama Region consists of
operations located throughout the state of Alabama. The Florida
Region consists of operations located in the Tampa Bay area and
panhandle 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.
The Corporation evaluates performance and allocates resources
based on profit or loss from operations. There are no material
intersegment sales or transfers. Net interest revenue is used as
the basis for performance evaluation rather than its components,
total interest revenue and total interest expense. The
accounting policies used by each
91
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
26.
|
Segment
Reporting (Continued)
|
reportable segment are the same as those discussed in
Note 1. All costs have been allocated to the reportable
segments. Therefore, combined segment amounts agree to the
consolidated totals.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alabama
|
|
|
Florida
|
|
|
|
|
|
|
Region
|
|
|
Region
|
|
|
Combined
|
|
|
|
(In Thousands)
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
31,736
|
|
|
$
|
15,658
|
|
|
$
|
47,394
|
|
Provision for loan losses
|
|
|
280
|
|
|
|
2,220
|
|
|
|
2,500
|
|
Noninterest income
|
|
|
10,723
|
|
|
|
1,088
|
|
|
|
11,811
|
|
Noninterest expense(2)
|
|
|
43,000
|
|
|
|
6,785
|
|
|
|
49,785
|
|
Income tax (benefit) expense
|
|
|
(1,307
|
)
|
|
|
3,230
|
|
|
|
1,923
|
|
Net (loss) income
|
|
|
(1,734
|
)
|
|
|
6,731
|
|
|
|
4,997
|
|
Total assets
|
|
|
1,897,611
|
|
|
|
543,379
|
|
|
|
2,440,990
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
27,272
|
|
|
$
|
11,753
|
|
|
$
|
39,025
|
|
Provision for loan losses
|
|
|
3,455
|
|
|
|
45
|
|
|
|
3,500
|
|
Noninterest income(1)
|
|
|
13,426
|
|
|
|
1,271
|
|
|
|
14,697
|
|
Noninterest expense(2)(3)
|
|
|
56,462
|
|
|
|
4,158
|
|
|
|
60,620
|
|
Income tax (benefit) expense
|
|
|
(7,144
|
)
|
|
|
2,532
|
|
|
|
(4,612
|
)
|
Net (loss) income
|
|
|
(12,075
|
)
|
|
|
6,289
|
|
|
|
(5,786
|
)
|
Total assets
|
|
|
1,112,700
|
|
|
|
302,769
|
|
|
|
1,415,469
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
27,362
|
|
|
$
|
10,675
|
|
|
$
|
38,037
|
|
Provision for loan losses
|
|
|
3,223
|
|
|
|
(2,248
|
)
|
|
|
975
|
|
Noninterest income
|
|
|
9,922
|
|
|
|
1,344
|
|
|
|
11,266
|
|
Noninterest expense(2)
|
|
|
40,876
|
|
|
|
7,061
|
|
|
|
47,937
|
|
Income tax expense (benefit)
|
|
|
(3,739
|
)
|
|
|
2,943
|
|
|
|
(796
|
)
|
Net income (loss)
|
|
|
(3,076
|
)
|
|
|
4,263
|
|
|
|
1,187
|
|
Total assets
|
|
|
1,160,747
|
|
|
|
262,381
|
|
|
|
1,423,128
|
|
|
|
|
(1) |
|
Alabama Region includes proceeds from insurance settlement of
$5,114,000. |
|
(2) |
|
Noninterest expense for the Alabama Region includes all expenses
for the holding company and other administrative expenses, which
have not been prorated to the Florida region. |
|
(3) |
|
Alabama Region includes management separation costs of
$15,467,000. |
Effective June 30, 2005, 62,000 shares of the
Corporations convertible preferred stock were converted
into 775,000 shares of common stock at a conversion price
of $8.00 per share. As a result of such conversion, the
excess of the market value of the common stock issued at the
date of conversion over the aggregate issue price is reflected
as a reduction in retained earnings with a corresponding
increase in surplus, thereby reducing net income applicable to
common stockholders for purposes of calculating earnings per
common share. This non-cash charge did not affect total
stockholders equity.
|
|
28.
|
Management
Separation Costs and Insurance Settlement
|
On July 21, 2005, the Corporation announced that it had
bought out the employment contracts of its Chief Financial
Officer and its General Counsel, effective June 30, 2005.
Under these agreements, in lieu of the payments to which they
would have been entitled under their employment agreements, the
Corporation paid a total of
92
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
28.
|
Management
Separation Costs and Insurance Settlement
(Continued)
|
$2,392,343 on July 22, 2005. In addition, these officers
became fully vested in stock options and restricted stock
previously granted to them and in benefits under their deferred
compensation agreements with the Corporation.
In May 2005, the Corporation received $5,000,000 (approximately
$3,200,000 after-tax, or $.17 per common share) to resolve
its insurance claims relating to fraud losses which occurred in
previous periods.
On January 24, 2005, the Corporation announced that it had
entered into a series of executive management change agreements.
These agreements set forth the employment of C. Stanley Bailey
as Chief Executive Officer and a director of the Corporation and
chairman of the Corporations banking subsidiary, C. Marvin
Scott as President of the Corporation and the Corporations
banking subsidiary, and Rick D. Gardner as Chief Operating
Officer of the Corporation and the Corporations banking
subsidiary. These agreements also provided for the purchase by
Mr. Bailey, Mr. Scott and Mr. Gardner, along with
other investors, of 925,636 shares of common stock of the
Corporation at $8.17 per share. The Corporation also
entered into agreements with James A. Taylor and James A.
Taylor, Jr. under which they would continue to serve as
Chairman of the Board of the Corporation and as a director of
the Corporation, respectively, but would cease their employment
as officers of the Corporation and officers and directors of the
Corporations banking subsidiary. Mr. Taylor, Jr.
subsequently resigned as a director of the Corporation effective
September 28, 2005 to pursue other business opportunities.
Under the agreement with Mr. Taylor, in lieu of the
payments to which he would have been entitled under his
employment agreement, the Corporation paid Mr. Taylor
$3,940,155 on January 24, 2005 and $3,152,124 in December
2005, and $784,541 in December 2006. The agreement also provides
for the provision of certain insurance benefits to
Mr. Taylor, the transfer of a key man life
insurance policy to Mr. Taylor, and the maintenance of such
policy by the Corporation for five years (with the cost of
maintaining such policy included in the above amounts), in each
case substantially as required by his employment agreement. This
obligation to provide such payments and benefits to
Mr. Taylor is absolute and will survive the death or
disability of Mr. Taylor.
Under the agreement with Mr. Taylor, Jr., in lieu of
the payments to which he would have been entitled under his
employment agreement, the Corporation paid
Mr. Taylor, Jr., $1,382,872 on January 24, 2005.
The agreement also provides for the provision of certain
insurance benefits to Mr. Taylor, Jr. and for the
immediate vesting of his unvested incentive awards and deferred
compensation in each case substantially as required by his
employment agreement. This obligation to provide such payments
and benefits to Mr. Taylor, Jr. is absolute and will
survive the death or disability of Mr. Taylor, Jr.
In connection with the above described management separation
transactions, the Corporation recognized pre-tax expenses of
$15,467,000 for the year ended December 31, 2005. At
December 31, 2006 and 2005, the Corporation had $416,000
and $1,164,000, respectively of accrued liabilities related to
these agreements.
On January 18, 2007, the Corporation announced that it had
signed a definitive agreement to merge with Peoples
Community Bancshares, Inc. (Peoples).
Peoples is the holding company for Peoples Community
Bank of the West Coast, a Florida state bank with three branches
in Sarasota and Manatee Counties in Florida. Under the terms of
the merger agreement, the Corporation will issue
2.9036 shares of the Corporations common stock for
each share of Peoples stock or approximately
6,650,000 shares. Based on recent closing prices per share
for the Corporations common stock, the transaction would
be valued at approximately $77.1 million. The actual value
at consummation will be based on the Corporations share
price at that time. Completion of the merger is subject to
approval by the stockholders of Peoples, to the receipt of
required regulatory approvals, and to the satisfaction of usual
and customary closing conditions.
93
Item 9. Changes
in and Disagreements With Accountants on Accounting and
Financial Disclosure.
None.
Item 9A. Controls
And Procedures
Officer
Certifications
Appearing immediately following the Signatures section of this
report are Certifications of our Chief Executive Officer
(CEO) and our Chief Accounting Officer, who is
currently our principal financial officer (PFO). The
Certifications are required to be made by
Rule 13a-14
of the Securities Exchange Act of 1934, as amended. This Item
contains the information about the evaluation that is referred
to in the Certifications, and the information set forth below in
this Item should be read in conjunction with the Certifications
for a more complete understanding of the Certifications.
Conclusion
Regarding the Effectiveness of Disclosure Controls and
Procedures
We maintain disclosure controls and procedures to ensure that
material information required to be disclosed in our Exchange
Act reports is made known to the officers who certify our
financial reports and to other members of our senior management
and our Board of Directors.
Based on their evaluation as of December 31, 2006, our
Chief Executive Officer and our Principal Financial Officer have
concluded that our disclosure controls and procedures (as
defined in Rule
13a-l5(e)
under the Securities Exchange Act of 1934) are effective to
ensure that the information required to be disclosed by us in
the reports that we file or submit under the Securities Exchange
Act of 1934 is recorded, processed, summarized and reported
within the time periods specified in SEC rules and forms and
that such information is accumulated and communicated to our
management as appropriate to allow timely decisions regarding
required disclosures.
Managements
Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting, as defined
in
Rule 13a-15(f)
under the Securities Exchange Act of 1934. Under the supervision
and with the participation of our management, including our
Chief Executive Officer and our Principal Financial Officer, our
management conducted an evaluation of the effectiveness of
internal control over financial reporting based on the framework
in Internal Control Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway
Commission, as of December 31, 2006. Based on this
evaluation under the framework in Internal Control
Integrated Framework, our management concluded that our internal
control over financial reporting was effective as of
December 31, 2006.
During 2006, we acquired Kensington and Community as described
in Note 2 to the consolidated financial statements.
Management has excluded these businesses from its evaluation of
the effectiveness of our internal control over financial
reporting as of December 31, 2006. These businesses
represented approximately 40% of our consolidated total assets
as of December 31, 2006, and approximately 8% percent of
our consolidated net interest income for the year then ended.
Managements assessment of the effectiveness of our
internal control over financial reporting as of
December 31, 2006 has been audited by Carr,
Riggs & Ingram, LLC, an independent registered public
accounting firm, as stated in its report, which is set forth
below.
Report of
Independent Registered Public Accounting Firm
To the Board of Directors
Superior Bancorp
We have audited managements assessment, included in the
accompanying Managements Report on Internal Control Over
Financial Reporting, that Superior Bancorp (formerly, The Banc
Corporation) and subsidiaries maintained effective internal
control over financial reporting as of December 31, 2006,
based on criteria established
94
in Internal Control Integrated Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). Superior Bancorps management
is responsible for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness
of internal control over financial reporting. Our responsibility
is to express an opinion on managements assessment and an
opinion on the effectiveness of the Companys internal
control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, evaluating
managements assessment, testing and evaluating the design
and operating effectiveness of internal control, and performing
such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable
basis for our opinion.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
As indicated in the accompanying Managements Report on
Internal Control Over Financial Reporting, managements
assessment of the effectiveness of internal control over
financial reporting did not include an assessment of the
internal controls over financial reporting of Kensington
Bankshares, Inc. and Community Bancshares, Inc., the financial
statements of which are included in the 2006 consolidated
financial statements of Superior Bancorp and subsidiaries and
constituted approximately 40 percent of the Companys
consolidated total assets as of December 31, 2006, and
approximately 8 percent of the Companys consolidated
net interest income for the year then ended. Our audit of
internal control over financial reporting of Superior Bancorp
and subsidiaries also did not include an evaluation of the
internal control over financial reporting of Kensington
Bankshares, Inc. and Community Bancshares, Inc.
In our opinion, managements assessment that Superior
Bancorp and subsidiaries maintained effective internal control
over financial reporting as of December 31, 2006, is fairly
stated, in all material respects, based on criteria established
in Internal Control Integrated Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). Also in our opinion, Superior
Bancorp and subsidiaries maintained, in all material respects,
effective internal control over financial reporting as of
December 31, 2006, based on criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO).
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated statements of financial condition of Superior
Bancorp and subsidiaries as of December 31, 2006 and 2005,
and the related consolidated statements of operations, changes
in stockholders equity, and cash flows for each of the
three years in the period ended December 31, 2006, and our
report dated March 16, 2007 expressed an unqualified
opinion.
/s/ Carr,
Riggs & Ingram, LLC
Dothan, Alabama
March 16, 2007
95
Changes
in Internal Control Over Financial Reporting
There have been no changes in our internal control over
financial reporting during the most recent fiscal quarter that
have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
Item 9B. Other
Information.
None.
PART III
|
|
Items 10, 11, 12, 13
and 14.
|
Directors
and Executive Officers of the Registrant; Executive
Compensation; Security Ownership of Certain Beneficial Owners
and Management and Related Stockholder Matters; Certain
Relationships and Related Transactions; and Principal Accounting
Fees and Services.
|
The information set forth under the captions Security
Ownership of Certain Beneficial Owners and Management,
Nominees for Director, Executive
Officers, Certain Information Concerning the Board
of Directors and Its Committees, Stockholder
Communications with the Board, Director
Compensation, Code of Ethics,
Section 16(a) Beneficial Ownership Reporting
Compliance, Executive Compensation and Other
Information, Certain Transactions and
Relationships and Relationship with Independent
Public Accountants included in our definitive proxy
statement to be filed no later than April 30, 2007, in
connection with our 2007 Annual Meeting of Stockholders is
incorporated herein by reference.
PART IV
|
|
Item 15.
|
Exhibits,
Financial Statement Schedules.
|
(a) Financial Statements and Financial Schedules.
|
|
|
|
(l)
|
The consolidated financial statements of Superior Bancorp and
its subsidiaries filed as a part of this Annual Report on Form
10-K are
listed in Item 8 of this Annual Report on Form
10-K, which
is hereby incorporated by reference herein.
|
|
|
|
|
(2)
|
All schedules to the consolidated financial statements of
Superior Bancorp and its subsidiaries have been omitted because
they are not required under the related instructions or are
inapplicable, or because the required information has been
provided in the consolidated financial statements or the notes
thereto.
|
(b) Exhibits.
The exhibits required by
Regulation S-K
are set forth in the following list and are filed either by
incorporation by reference from previous filings with the
Securities and Exchange Commission or by attachment to this
Annual Report on
Form 10-K
as indicated below. Prior to May 2006, Superior Bancorp was
named The Banc Corporation. Many of the following
exhibits accordingly reference The Banc Corporation.
|
|
|
(3)-l
|
|
Restated Certificate of
Incorporation of Superior Bancorp, filed as Exhibit 3 to
Superior Bancorps Current Report on
Form 8-K
dated May 18, 2006, is hereby incorporated herein by
reference.
|
(3)-2
|
|
Bylaws of Superior Bancorp, filed
as Exhibit 3 to Superior Bancorps Current Report on
Form 8-K
dated October 1, 2006, is hereby incorporated herein by
reference.
|
(4)-1
|
|
Amended and Restated Declaration
of Trust, dated as of September 7, 2000, by and among State
Street Bank and Trust Company of Connecticut, National
Association, as Institutional Trustee, The Banc Corporation, as
Sponsor, David R. Carter and James A. Taylor, Jr., as
Administrators, filed as Exhibit(4)-l to The Banc
Corporations Annual Report on Form
10-K for the
year ended December 3l, 2000, is hereby incorporated herein
by reference.
|
96
|
|
|
(4)-2
|
|
Guarantee Agreement, dated as of
September 7, 2000, by and between The Banc Corporation and
State Street Bank and Trust Company of Connecticut, National
Association, filed as Exhibit(4)-2 to The Banc
Corporations Annual Report on
Form 10-K
for the year ended December 31, 2000, is hereby
incorporated herein by reference.
|
(4)-3
|
|
Indenture, dated as of
September 7, 2000, by and among The Banc Corporation as
issuer and State Street Bank and Trust Company of Connecticut,
National Association, as Trustee, filed as Exhibit(4)-3 to The
Banc Corporations Annual Report on
Form 10-K
for the year ended December 31, 2000, is hereby
incorporated herein by reference.
|
(4)-4
|
|
Placement Agreement, dated as of
August 31, 2000, by and among The Banc Corporation, TBC
Capital Statutory Trust II, Keefe Bruyette &
Woods, Inc., and First Tennessee Capital Markets, filed as
Exhibit(4)-4 to The Banc Corporations Annual Report on
Form 10-K
for the year ended December 31, 2000, is hereby
incorporated herein by reference.
|
(4)-5
|
|
Amended and Restated Declaration
of Trust, dated as of July 16, 2001, by and among The Banc
Corporation, The Bank of New York, David R. Carter, and James A.
Taylor, Jr. filed as Exhibit(4)-5 to The Banc
Corporations Registration Statement on
Form S-4
(Registration
No. 333-69734)
is hereby incorporated herein by reference.
|
(4)-6
|
|
Guarantee Agreement, dated as of
July 16, 2001, by The Banc Corporation and The Bank of New
York filed as Exhibit(4)-6 to The Banc Corporations
Registration Statement on
Form S-4
(Registration
No. 333-69734)
is hereby incorporated herein by reference.
|
(4)-7
|
|
Indenture, dated as of
July 16, 2001, by The Banc Corporation and The Bank of New
York filed as Exhibit(4)-7 to The Banc Corporations
Registration Statement on
Form S-4
(Registration
No. 333-69734)
is hereby incorporated herein by reference.
|
(4)-8
|
|
Placement Agreement, dated as of
June 28, 2001, among TBC Capital Statutory Trust III,
and The Banc Corporation and Sandler ONeill &
Partners, L.P. filed as Exhibit(4)-8 to The Banc
Corporations Registration Statement on
Form S-4
(Registration
No. 333-69734)
is hereby incorporated herein by reference.
|
(4)-9
|
|
Indenture, dated March 23,
2000, by and between Community Bancshares, Inc. and The Bank of
New York filed as Exhibit 4.4 to Community Bancshares
Form 10-Q
for the quarter ended March 31, 2000, is hereby
incorporated herein by reference.
|
(4)-10
|
|
Amended and Restated Declaration
of Trust, dated March 23, 2000, by and among The Bank of
New York (Delaware), The Bank of New York, Community Bancshares,
Inc. and Community (AL) Capital Trust I filed as
Exhibit 10.1 to Community Bancshares
Form 10-Q
for the quarter ended March 31, 2000, is hereby
incorporated herein by reference.
|
(4)-11
|
|
Guarantee Agreement, dated
March 23, 2000, by and between Community Bancshares, Inc.
and The Bank of New York filed as Exhibit 10.2 to Community
Bancshares
Form 10-Q
for the quarter ended March 31, 2000, is hereby
incorporated herein by reference.
|
(4)-12
|
|
Stock Purchase Agreement, dated
January 24, 2005, between The Banc Corporation and the
investors named therein, filed as
Exhibit 4-1
to The Banc Corporations Current Report on
Form 8-K
dated January 24, 2005, is hereby incorporated herein by
reference.
|
(4)-13
|
|
Registration Rights Agreement,
dated January 24, 2005, between The Banc Corporation and
the investors named therein, filed as
Exhibit 4-2
to The Banc Corporations Current Report on
Form 8-K
dated January 24, 2005, is hereby incorporated herein by
reference.
|
(10)-1
|
|
Third Amended and Restated 1998
Stock Incentive Plan of The Banc Corporation, filed as
Exhibit (10)-1 to The Banc Corporations Annual Report
on
Form 10-K
for the fiscal year ended December 31, 2004, is hereby
incorporated herein by reference.
|
(10)-2
|
|
Commerce Bank of Alabama Incentive
Stock Compensation Plan, filed as Exhibit(4)-3 to The Banc
Corporations Registration Statement on
Form S-8,
dated February 22, 1999 (Registration
No. 333-72747),
is hereby incorporated herein by reference.
|
(10)-3
|
|
Employment Agreement by and
between The Banc Corporation and James A. Taylor, filed as
Exhibit (10)-1 to The Banc Corporations Quarterly
Report on
Form 10-Q
for quarter ended March 31, 2002 is hereby incorporated
herein by reference.
|
(10)-4
|
|
Deferred Compensation Agreement by
and between The Banc Corporation and James A. Taylor, filed as
Exhibit (10)-2 to The Banc Corporations Registration
Statement on
Form S-l
(Registration
No. 333-67011),
is hereby incorporated herein by reference.
|
97
|
|
|
(10)-5
|
|
Form of Deferred Compensation
Agreement by and between The Banc Corporation and the
individuals listed on Schedule A attached thereto filed as
Exhibit (10)-11 to The Banc Corporations Annual
Report on Form
10-K for the
year ended December 31, 1999, is hereby incorporated herein
by reference.
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(10)-6
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Form of Deferred Compensation
Agreement by and between Superior Bank and the individuals
listed on Schedule A attached thereto filed as Exhibit
(10)-11 to The Banc Corporations Annual Report on
Form 10-K
for the year ended December 31, 1999, is hereby
incorporated herein by reference.
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(10)-7
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Agreement dated as of
June 30, 2005, by and between The Banc Corporation and
David R. Carter, filed as
Exhibit 10-3
to The Banc Corporations Current Report on
Form 10-K
dated July 21, 2005, is hereby incorporated herein by
reference.
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(10)-8
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Agreement, dated as of
June 30, 2005, by and between The Banc Corporation and F.
Hampton McFadden, Jr., filed as
Exhibit 10-4
to The Banc Corporations Current Report on
Form 8-K
dated July 21, 2005, is hereby incorporated herein by
reference.
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(10)-9
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Agreement, dated January 24,
2005, between The Banc Corporation and James A.
Taylor, Sr., filed as
Exhibit 10-3
to The Banc Corporations Current Report on
Form 8-K
dated January 24, 2005, is hereby incorporated herein by
reference.
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(10)-10
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Agreement, dated January 24,
2005, between The Banc Corporation and James A.
Taylor, Jr., filed as
Exhibit 10-4
to The Banc Corporations Current Report on
Form 8-K
dated January 24, 2005, is hereby incorporated herein by
reference.
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(10)-11
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Employment Agreement, dated
January 24, 2005, by and between The Banc Corporation, The
Bank and C. Stanley Bailey, filed as
Exhibit 10-5
to The Banc Corporations Current Report on
Form 8-K
dated January 24, 2005, is hereby incorporated herein by
reference.
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(10)-12
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Employment Agreement, dated
January 24, 2005, by and between The Banc Corporation, The
Bank and C. Marvin Scott, filed as
Exhibit 10-6
to The Banc Corporations Current Report on
Form 8-K
dated January 24, 2005, is hereby incorporated herein by
reference.
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(10)-13
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Employment Agreement, dated
January 24, 2005, by and between The Banc Corporation, The
Bank and Rick D. Gardner, filed as
Exhibit 10-7
to The Banc Corporations Current Report on
Form 8-K
dated January 24, 2005, is hereby incorporated herein by
reference.
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(10)-14
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|
Agreement and Plan of Merger
between Kensington Bankshares, Inc. and The Banc Corporation,
dated March 6, 2006, filed as Exhibit 10 to The Banc
Corporations Current Report on
Form 8-K
dated March 6, 2006, is hereby incorporated herein by
reference.
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(10)-15
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|
Agreement and Plan of Merger
between Community Bancshares, Inc. and The Banc Corporation,
dated April 29, 2006, filed as Exhibit 2.01 to The
Banc Corporations Quarterly Report on
Form 10-Q
for the quarter ended March 31, 2006, is hereby
incorporated herein by reference.
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(10)-16
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Agreement and Plan of Merger
between Peoples Community Bancshares, Inc. and Superior
Bancorp, dated January 18, 2007, filed as Exhibit 10
to Superior Bancorps Current Report on
Form 8-K
dated January 18, 2007, is hereby incorporated herein by
reference.
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(10)-17
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Change in Control Agreement
between The Banc Corporation and James C. Gossett dated
April 1, 2002.
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(10)-28
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Agreement between Superior Bank
and William H. Caughran, dated August 31, 2006, filed as
Exhibit 10.4 to Amendment No. 1 to Superior
Bancorps Registration Statement on
Form S-4
(Registration
No. 333-136419)
is hereby incorporated herein by reference.
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(21)
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Subsidiaries of Superior Bancorp.
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(23)
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Consent of Carr, Riggs &
Ingram, LLC
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(31)
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|
Certifications of Chief Executive
Officer and Principal Financial Officer pursuant to
Rule 13a-14(a).
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(32)
|
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Certifications of Chief Executive
Officer and Principal Financial Officer pursuant to
18 U.S.C. Section 1350.
|
(c) Financial Statement Schedules.
The Financial Statement Schedules required to be filed with this
Annual Report on
Form 10-K
are listed under Financial Statement Schedules in
Part IV, Item 15(a)(2) of this Annual Report on
Form 10-K,
and are incorporated herein by reference.
98
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
SUPERIOR BANCORP
C. Stanley Bailey
Chief Executive Officer
March 16, 2007
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints C. Stanley Bailey and
James C. Gossett, and each of them, the true and lawful agents
and his
attorneys-in-fact
with full power and authority in either of said agents and
attorneys-in-fact,
acting singly, to sign for the undersigned as Director or an
officer of the Corporation, or as both, the Corporations
2006 Annual Report on
Form 10-K
to be filed with the Securities and Exchange Commission,
Washington, D.C. under the Securities Exchange Act of 1934,
and to sign any amendment or amendments to such Annual Report,
including an Annual Report pursuant to
11-K to be
filed as an amendment to the
Form 10-K;
hereby ratifying and confirming all acts taken by such agents
and
attorneys-in-fact
as herein authorized.
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the Registrant and in the capacities and on the
date indicated.
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Signature
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Title
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Date
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/s/ C.
Stanley
Bailey C.
Stanley Bailey
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Chairman of the Board and Chief
Executive Officer (Principal Executive Officer) and Director
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March 16, 2007
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/s/ James
C.
Gossett James
C. Gossett
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Chief Accounting Officer
(Principal Financial and Accounting Officer)
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March 16, 2007
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/s/ Roger
Barker Roger
Barker
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Director
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March 16, 2007
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/s/ Glynn
C.
Debter Glynn
C. Debter
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Director
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March 16, 2007
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/s/ K.
Earl
Durden K.
Earl Durden
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Director
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March 16, 2007
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|
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/s/ Rick
D.
Gardner Rick
D. Gardner
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Director
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|
March 16, 2007
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/s/ Roy
B.
Jackson Roy
B. Jackson
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Director
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|
March 16, 2007
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|
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/s/ Thomas
E.
Jernigan, Jr. Thomas
E. Jernigan, Jr.
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Director
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|
March 16, 2007
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/s/ James
Mailon
Kent, Jr. James
Mailon Kent, Jr.
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Director
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|
March 16, 2007
|
99
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Signature
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Title
|
|
Date
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/s/ James
M.
Link James
M. Link
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Director
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March 16, 2007
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/s/ D.
Dewey
Mitchell D.
Dewey Mitchell
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Director
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|
March 16, 2007
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/s/ Barry
Morton Barry
Morton
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|
Director
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|
March 16, 2007
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/s/ Robert
R.
Parrish, Jr. Robert
R. Parrish, Jr.
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Director
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March 16, 2007
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/s/ C.
Marvin
Scott C.
Marvin Scott
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|
Director
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March 16, 2007
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/s/ Michael
E.
Stephens Michael
E. Stephens
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Director
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March 16, 2007
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/s/ James
C.
White, Sr. James
C. White, Sr.
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Director
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March 16, 2007
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100