SUPERIOR BANCORP
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C.
20549
Form 10-K
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(Mark One)
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þ
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended
December 31, 2007
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or
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from
to
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Commission file number
0-25033
SUPERIOR BANCORP
(Exact Name of Registrant as
Specified in Its Charter)
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Delaware
(State or Other Jurisdiction
of
Incorporation or Organization)
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63-1201350
(I.R.S. Employer
Identification No.)
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17 North 20th Street
Birmingham, Alabama
(Address of Principal
Executive Offices)
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35203
(Zip Code)
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(205) 327-1400
(Registrants Telephone
Number, Including Area Code)
Securities registered pursuant to Section 12(b) of
the Act:
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.
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Large
accelerated
filer o
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Accelerated
filer þ
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Non-accelerated
filer o
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Smaller reporting
company o
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(Do
not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the
Act.) Yes o No þ
The aggregate market value of the voting common stock held by
non-affiliates of the registrant as of March 11, 2008,
based on a closing price of $5.24 per share of common stock, was
$186,911,088.
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 4, 2008, of the registrants only issued and
outstanding class of common stock, its $.001 per share par value
common stock, was 40,211,230.
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
2008 annual meeting of stockholders that will be filed no later
than April 30, 2008.
TABLE OF
CONTENTS
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Page
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2
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Business
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2
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Risk Factors
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13
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Unresolved Staff Comments
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15
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Properties
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15
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Legal Proceedings
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15
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Submission of Matters to a Vote of Security
Holders
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15
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PART II
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16
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Market for The Registrants Common Equity,
Related Stockholder Matters and Issuer Purchases of Equity
Securities
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16
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Selected Financial Data
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18
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Managements Discussion and Analysis of
Financial Condition and Results of Operations
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20
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Quantitative and Qualitative Disclosures about
Market Risk
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56
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Financial Statements and Supplementary Data
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56
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Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
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113
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Controls and Procedures
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113
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Other Information
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115
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PART III
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115
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Directors and Executive Officers of the
Registrant
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115
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Item 11.
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Executive Compensation
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115
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Item 12.
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Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters
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115
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Item 13.
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Certain Relationships and Related Transactions
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115
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Item 14.
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Principal Accounting Fees and Services
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115
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PART IV
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115
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Exhibits, Financial Statement Schedules
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115
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119
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EX-4.14 INDENTURE DATED DECEMBER 15, 2005 |
EX-4.15 PLACEMENT AGREEMENT DATED AS OF DECEMBER 7, 2005 |
EX-4.16 GUARANTEE AGREEMENT DATED AS OF DECEMBER 15, 2005 |
EX-4.17 AMENDED AND RESTATED DECLARATION OF TRUST |
EX-10.20 CHANGE IN CONTROL AGREEMENT DATED APRIL 1, 2002 |
EX-10.21 CHANGE IN CONTROL AGREEMENT |
EX-21 SUBSIDIARIES OF SUPERIOR BANCORP |
EX-23.1 CONSENT OF GRANT THORNTON, LLP |
EX-23.2 CONSENT OF CARR, RIGGS AND INGRAM, LLC |
EX-31 SECTION 302, CERTIFICATIONS |
EX-32 SECTION 906, CERTIFICATIONS |
PART I
General
Superior Bancorp is a Delaware-chartered thrift holding company
headquartered in Birmingham, Alabama. We offer a broad range of
banking and related services in 72 locations in Alabama and
Florida through Superior Bank, our principal subsidiary.
Superior Banks consumer finance subsidiaries operate an
additional 22 consumer finance offices in North Alabama. We had
assets of approximately $2.885 billion, loans of
approximately $2.017 billion, deposits of approximately
$2.201 billion and stockholders equity of
approximately $350 million at December 31, 2007. Our
principal executive offices are located at 17 North
20th Street, Birmingham, Alabama 35203, and our telephone
number is
(205) 327-1400.
We were founded in 1997 and completed our initial public
offering in December 1998. Beginning in the fall of 1998, we
grew through the acquisition of various financial institutions
in Alabama and Florida.
In January 2005, we began the transition from our founding
management team to a new senior management team composed of
veteran bankers with a strong track record and a history of
enhancing stockholder value. During the remainder of 2005, we
completed that management transition. In addition, in November
2005 we converted our principal subsidiary, 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.
During 2006 and 2007, we expanded our franchise with three
strategic acquisitions. On August 31, 2006, we entered the
Tampa, Florida market when we acquired Kensington Bankshares,
Inc. (Kensington) and its subsidiary, First
Kensington Bank. On November 7, 2006, we increased our
market presence in North Alabama by acquiring Community
Bancshares, Inc (Community) and its subsidiary,
Community Bank. On July 27, 2007, we acquired Peoples
Community Bancshares, Inc. (Peoples) and its
subsidiary, Peoples Community Bank of the West Coast,
adding three branches in Sarasota and Manatee Counties in
Florida to our franchise.
Strategy
Operations. We focus our services on small- to
medium-sized businesses, as well as professionals and
individuals, emphasizing our local decision-making, effective
response time and personalized service. As a result, we conduct
our business on a decentralized basis with respect to deposit
gathering and most credit decisions, utilizing local knowledge
and authority to make these decisions. We supplement this
decentralized management approach with centralized loan
administration, policy oversight, credit review, audit, legal,
asset/liability management, data processing, human resources and
risk management systems. We implement these standardized
administrative and operational policies at each of our locations
while retaining local management and advisory directors to
capitalize on their knowledge of the local community.
Products and Services. Superior Bank provides
a wide range of retail and small business services, including
noninterest-bearing and interest-bearing checking, savings and
money market accounts, negotiable order of withdrawal
(NOW) accounts, certificates of deposit and
individual retirement accounts. In addition, Superior Bank
offers an extensive array of consumer, small business,
residential real estate and commercial real estate loan
products. Other financial services include annuities, automated
teller machines, debit cards, credit-related life and disability
insurance, safety deposit boxes, Internet banking, bill payment
and telephone banking. Superior Bank attracts primary banking
relationships through the customer-oriented service environment
created by Superior Banks personnel combined with
competitive financial products.
Superior Bank also owns two consumer finance companies, Superior
Financial Services, LLC and
1st Community
Credit Corporation and Superior Financial Management, Inc. which
provides investment and insurance products. The finance
companies generally provide smaller loans to a market segment
traditionally not pursued by Superior Bank. These loans
typically involve greater risk and generate higher yields than
standard bank loans. We believe that, by conducting this
business, we reach a customer base not served by our banking
operations.
2
Market Areas. Superior Bancorp is
headquartered in Birmingham, Alabama. Our primary markets are
located in northern and central Alabama and in the panhandle and
west coast of Florida.
Superior Bank has branches in:
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Alabama(41)
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Florida(31)
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Albertville
Athens
Blountsville
Childersburg
Cullman
Elkmont
Frisco City
Gardendale
Gurley
Hamilton
Huntsville(3)
Meridianville
Mountain Brook
Oneonta(2)
Rainbow City
Samson
Sylacauga
Uniontown
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Andalusia
Birmingham(2)
Boaz
Cleveland
Decatur
Falkville
Gadsden
Guntersville
Haleyville
Hartselle
Madison
Monroeville
New Hope
Opp
Rogersville
Snead
Trussville
Warrior(2)
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Altha
Beverly Hills
Bradenton
Brooksville
Clearwater
Homosassa
Marianna
New Port Richey
Panama City Beach
Port St. Joe
Spring Hill
Tallahassee(2)
Venice
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Apalachicola
Blountstown
Bristol
Carrabelle
Dunnellon
Inverness
Mexico Beach
Palm Harbor
Port Richey
Sarasota
Sun City Center(4)
Tampa(2)
Wesley Chapel
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In addition to our branches, we operate a loan production office
in Montgomery, Alabama. Our finance company subsidiaries have
22 offices in Albertville, Arab, Attalla, Athens, Boaz,
Cullman(2), Decatur, Fort Payne, Gadsden, Hartselle,
Huntsville(3), Jasper (2), Moody, Northport, Oneonta,
Oxford, Pell City and Talladega, Alabama.
Growth. Our future growth depends primarily on
the expansion of the business of our primary wholly owned
subsidiary, Superior Bank. That expansion will depend on
internal growth and the opening of new branch offices in new and
existing markets. Superior Bank may also continue to engage in
the strategic acquisition of other financial institutions and
branches that have relatively high earnings and low-cost
deposits or that we believe to have exceptional growth
potential, such as the acquisitions completed in 2006 and 2007.
Our ability to increase profitability and to grow internally
depends primarily on our ability to attract and retain low-cost
core deposits while continuing to generate high-yielding,
quality loans. Our ability to grow profitably through the
opening or acquisition of new branches will depend primarily on,
among other things, our ability to identify growing markets and
branch locations within such markets that will enable us to
attract the necessary deposits to operate such branches
profitably, and identify lending and investment opportunities
within such markets.
We periodically evaluate business combination opportunities and
conduct discussions, due diligence activities and negotiations
in connection with those opportunities. As a result, we may
pursue business combination transactions involving cash, debt or
equity securities from time to time. Any future business
combination or series of business combinations that we might
undertake may be material to our business, financial condition
or results of operations in terms of assets acquired or
liabilities assumed. Any future acquisition is subject to
approval by the appropriate regulatory agencies. See
Supervision and Regulation.
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, 2007 were
$2.017 billion, or 82.2% of total earning
3
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 credit losses through various means. In
particular, on larger credits, we generally rely on the cash
flow of a debtor as the primary source of repayment and
secondarily on the value of the underlying collateral. In
addition, we attempt to utilize shorter loan terms in order to
reduce the risk of a decline in the value of such collateral. As
of December 31, 2007, approximately 78.9% 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
The following is a summary of our total loan portfolio as of
December 31, 2007 (dollars in thousands):
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Amount
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Percent
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Commercial and industrial
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$
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183,013
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9.07
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%
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Real estate:
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Construction and land development
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Residential development Alabama
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192,133
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9.52
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%
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Florida
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195,460
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9.68
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%
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Other
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7,929
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0.39
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%
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Total residential development
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395,522
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19.60
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%
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Commercial development Alabama
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60,407
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2.99
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%
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Florida
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162,286
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8.04
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%
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Other
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12,521
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0.62
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%
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Total commercial development
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235,214
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11.65
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%
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Other development
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34,567
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1.71
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%
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Total construction and land development
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665,303
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32.96
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%
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Single-family mortgages
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540,277
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26.77
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%
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Nonresidential mortgages
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575,146
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28.50
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%
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Total real estate portfolio
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1,780,726
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88.23
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%
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Consumer
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53,377
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2.64
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%
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Other
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1,235
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0.06
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%
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Total loans
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$
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2,018,351
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100.00
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%
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Our loan portfolio is our largest earning asset category
totaling $2,017 billion, net of unearned income as of
December 31, 2007. Loans secured by both residential and
commercial real estate are a significant component of our loan
portfolio, constituting $1.781 billion, or 88.2% of total
loans, at December 31, 2007.
4
Single-Family Mortgage Loans. At
December 31, 2007, $540.3 million, or 26.8% of our
total loan portfolio, consisted of single-family mortgage loans.
Single-family mortgage loans are loans that are traditionally
secured by first or second liens on the primary residences of
individuals. First liens are centrally underwritten by our
mortgage department with strict adherence to Federal National
Mortgage Association (Fannie Mae) and Federal Home
Loan Mortgage Corporation (Freddie Mac) secondary
market specifications, where applicable, to ensure
marketability. Loans outside these guidelines are held
in-portfolio but maintain conservative underwriting standards as
well. At December 31, 2007, single-family mortgage loans
secured by first liens accounted for $432 million, or 21%
of total loans. Home equity products totaled $108 million,
or 5% of total loans. Home equity products are also centrally
underwritten with strict adherence to internal loan policy
guidelines to ensure that borrowers have appropriate credit
ratings and capacity to repay and that adequate collateral or
loan-to-value (LTV) is obtained.
Nonresidential Mortgage Loans. Nonresidential
mortgage loans include commercial and industrial loans that are
secured by real estate. At December 31, 2007,
$575.2 million, or 28.5% of our total loan portfolio,
consisted of these loans. Our commercial real estate loans
primarily provide financing for income-producing properties such
as shopping centers, multi-family complexes and office buildings
and for owner-occupied properties (primarily light industrial
facilities and office buildings). These loans are underwritten
with LTV ratios ranging, on average, from 65% to 85% based upon
the type of property being financed and the financial strength
of the borrower. For owner-occupied commercial buildings, we
underwrite the financial capability of the owner, with an 85%
maximum LTV ratio. For income-producing improved real estate, we
underwrite based on the strength of the leases, especially those
of any anchor tenants, with minimum debt service coverage of
1.2:1 and an 85% maximum LTV ratio. While evaluation of
collateral is an essential part of the underwriting process for
these loans, repayment ability is determined from analysis of
the borrowers earnings and cash flow. Terms are typically
3 to 5 years and may have payments through the date of maturity
based on a 15- to
30-year
amortization schedule. As of December 31, 2007,
owner-occupied properties comprised approximately 6%, or
$127 million, of total loans of which $58 million were
located in Florida and the remaining amount located primarily in
Alabama. Non-owner occupied properties are primarily in the
office and retail sectors and totaled approximately
$84 million, or 15% of nonresidential mortgage loans, and
$41 million, or 7% of nonresidential mortgage loans,
respectively at December 31, 2007. Geographically, 77% of the
office sector and 74% of the retail sector were located in
Florida, with the remaining portfolio in Alabama.
Construction and Land Development Loans. We
make loans to finance the construction of and improvements to
single-family and multi-family housing and commercial structures
as well as loans for land development. At December 31,
2007, $665.3 million, or 33.0% of our total loan portfolio,
consisted of such loans. Approximately $631 million, or
95%, of construction and land development loans can be
categorized as commercial, where the borrower is not an
individual consumer. Within this portfolio, approximately
$396 million, or 63%, was related to residential
development and construction. Of the residential construction
loans, 49% were located in Florida. The largest category in the
residential development and construction portfolio is related to
development of single-family lots and single-family lots held by
experienced, licensed builders for the future construction of
single-family homes. This category represents approximately
$158 million, or 40%, of this portfolio. Geographically,
approximately 57% of this portfolio was located in Florida with
the remainder located in Alabama.
Single-family spec home construction loans represented
approximately $53 million, or 14% of the total residential
development and construction loan portfolio, with over 72% of
these loans located in Alabama, primarily in the Huntsville and
Birmingham markets, which have proven to be relatively stable.
For single-family spec home construction loans, management
closely monitors the aging of the builders spec home
inventories to ensure turnover and to enable management to look
for early signs of weakness within our markets. Spec homes that
are 100% complete and remain in inventory for over nine months
are considered aged spec homes. As of December 31, 2007,
approximately $3.8 million (17 homes with a $227,000
average loan balance), or 7%, fell into this aged category.
For construction loans related to income-producing properties,
the underwriting criteria are the same as outlined in the
preceding section Nonresidential Mortgage Loans.
Loans for this category accounted for $235 million, or 35%
of the total commercial construction and land development loans.
Geographically, approximately 69% of this total category was
located in Florida, with the remaining loans located primarily
in Alabama. The three largest sectors within this category were
retail, hotel/motel and office buildings which collectively
5
accounted for approximately $131 million, or 56% or the
total commercial construction loans. Individually, the retail
construction loans accounted for the largest sector, with
approximately $56 million (24%), office building loans
accounted for approximately $43 million (18%), and
hotel/motel construction loans accounted for approximately
$32 million (14%) of the total commercial construction.
Approximately 73% of these three sectors were located in
Florida, with the remainder primarily located in Alabama.
For construction and land development loans, we underwrite based
on the financial strength and reputation of the builder,
factoring in the general state of the economy and interest rates
and the location of the home, with an 85% maximum loan-to-value
ratio. This conservative approach to underwriting is further
demonstrated by the overall performance of this category. For
construction loans related to income-producing properties, the
underwriting criteria are the same as outlined in the preceding
paragraph.
Commercial and Industrial Loans. We make loans
for commercial purposes in various lines of business. These
loans are typically made on terms up to five years at fixed or
variable rates and are secured by eligible accounts receivable,
inventory or equipment. We attempt to reduce our credit risk on
commercial loans by limiting the loan to value ratio to 80% on
loans secured by eligible accounts receivable, 50% on loans
secured by inventory and 75% on loans secured by equipment.
Commercial and industrial loans comprised approximately
$183.0 million, or 9.1% of our loan portfolio, at
December 31, 2007. 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 comprised approximately $53.4 million, or 2.6% of our
loan portfolio, at December 31, 2007. 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
At December 31, 2007, our deposits totaled
$2.201 billion which consisted of approximately 90% in
direct customer deposits and 5% of wholesale money market
deposits and 5% of brokered certificates of deposits. Core
deposits are our principal source of funds, constituting
approximately 71.8% of our total deposits as of
December 31, 2007. 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 $620.7 million, or 28.2% of our deposits, of
which, approximately $119 million consist of wholesale, or
brokered, certificates of deposits, at
December 31, 2007.
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
6
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 community banks, as well
as non-bank financial services companies. We encounter strong
competition both in making loans and attracting deposits.
However, over the past two years, either through foreign
investment in local banks, mergers of equals or sales of
competitors to large regional banks, the competitive landscape
has changed in our markets. Superior Bank is now the third
largest bank headquartered in Alabama and the largest community
bank in Alabama. We fully anticipate being the beneficiary of
the chaos these changes have brought and will bring to the
affected organizations in our markets. Competition among
financial institutions is based upon interest rates offered on
deposit accounts, interest rates charged on loans and other
credit and service charges. Customers also consider the quality
and scope of the services rendered, the convenience of banking
facilities and, in the case of loans to 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, 2007, we employed approximately
790 full-time equivalent employees, primarily at Superior
Bank. We believe that our employee relations have been and
continue to be good.
Supervision
and Regulation
General. Superior Bancorp, as a unitary
savings and loan holding company, and Superior Bank, as a
federal savings bank, are required by federal law to report to,
and otherwise comply with the rules and regulations of, the OTS.
We are subject to extensive regulation, examination and
supervision by the OTS, as our primary federal regulator, and
the Federal Deposit Insurance Corporation (the
FDIC), as the deposit insurer. We are a member of
the Federal Home Loan Bank System and, with respect to deposit
insurance, of the Deposit Insurance Fund managed by the FDIC. We
must file periodic reports with the OTS and the FDIC concerning
our activities and financial condition in addition to obtaining
regulatory approvals prior to entering into certain transactions
such as mergers with, or acquisitions of, other financial
institutions. The OTS conducts periodic examinations to test our
safety and soundness and compliance with various regulatory
requirements. This regulation and supervision establishes a
comprehensive framework of activities in which a thrift can
engage and is intended primarily for the protection of the
insurance fund and depositors. The regulatory structure also
gives the regulatory authorities extensive discretion in
connection with their supervisory and enforcement activities and
examination policies, including policies with respect to the
classification of assets and the establishment of adequate loan
loss reserves for regulatory purposes. Any change in such
regulatory requirements and policies, whether by the OTS, the
FDIC or Congress, could have a material adverse impact on us and
our operations. Certain regulatory requirements applicable to us
are referred to below or elsewhere herein. The description of
statutory provisions and regulations applicable to thrifts and
their holding companies set forth below does not purport to be a
complete description of such statutes and regulations and their
effects on us and is qualified in its entirety by reference to
the actual laws and regulations.
7
Holding Company Regulation. We are a
nondiversified unitary savings and loan holding company within
the meaning of such terms under federal law. The
Gramm-Leach-Bliley Act of 1999 provides that no company may
acquire control of a savings institution after May 4, 1999,
unless it engages only in the financial activities permitted for
financial holding companies under the law or for multiple
savings and loan holding companies as described below. Further,
the Gramm-Leach-Bliley Act specifies that certain savings and
loan holding companies may only engage in such activities. Since
we became a savings and loan holding company in 2005, we are
limited to such activities. Upon any non-supervisory acquisition
by us of another savings institution or savings bank that meets
the qualified thrift lender test and is deemed to be a savings
institution by the OTS, we would become a multiple savings and
loan holding company (if the acquired institution is held as a
separate subsidiary) and would generally be limited to
activities permissible for bank holding companies under
Section 4(c)(8) of the Bank Holding Company Act, subject to
the prior approval of the OTS, and certain activities authorized
by the OTS regulation. However, the OTS has issued an
interpretation concluding that 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 the OTS and from
acquiring or retaining control of a depository institution that
is not insured by the FDIC. In evaluating applications by
holding companies to acquire other institutions, the OTS
considers, among other things, the financial and managerial
resources and future prospects of the institutions involved, the
effect of the acquisition on the risk to the deposit insurance
funds, the convenience and needs of the community and
competitive factors.
Subject to certain exceptions, the OTS may not approve any
acquisition that would result in a multiple savings and loan
holding companys controlling savings institutions in more
than one state.
Although savings and loan holding companies are not currently
subject to specific capital requirements or specific
restrictions on the payment of dividends or other capital
distributions, federal regulations prescribe such restrictions
on subsidiary savings institutions, as described below. Superior
Bank must notify the OTS before declaring any dividend to
Superior Bancorp. In addition, the financial impact of a holding
company on its subsidiary institution is a matter that is
evaluated by the OTS, and the OTS has authority to order
cessation of activities or divestiture of subsidiaries deemed to
pose a threat to the safety and soundness of the institution.
Change in Bank Control Act. Under the Federal
Change in Bank Control Act, a notice must be submitted to the
OTS if any person, or group acting in concert, seeks to acquire
control of a savings and loan holding company or a
savings association. A change of control may occur, and prior
notice may be required, upon the acquisition of more than 10% of
our outstanding voting stock, unless the OTS has found that the
acquisition will not result in a change of control of Superior
Bancorp. Under the Change in Bank Control Act, the OTS generally
has 60 days from the filing of a complete notice to act,
taking into consideration certain factors, including the
financial and managerial resources of the acquirer and the
anti-trust effects of the acquisition.
Regulation of Business Activities. The
activities of thrifts are governed by federal laws and
regulations. These laws and regulations delineate the nature and
extent of the activities in which thrifts may engage. In
particular, certain lending authority for thrifts, that is,
commercial loans, non-residential real property loans and
consumer loans, is limited to a specified percentage of the
institutions capital or assets.
Capital Requirements. The OTS capital
regulations require savings institutions to meet three minimum
capital standards: a 1.5% tangible capital to total assets
ratio, a 4% leverage ratio (3% for institutions receiving the
highest rating on the regulatory examination rating system) and
an 8% risk-based capital ratio. In addition, the prompt
corrective action standards discussed below also establish, in
effect, a minimum 2% tangible capital standard, a 4% leverage
ratio (3% for institutions receiving the highest examination
rating), and, together with the risk-based capital standard
itself, a 4% Tier 1 risk-based capital standard.
The risk-based capital standard for savings institutions
requires the maintenance of ratios of Tier 1 (core) and
total capital (which is defined as core capital and
supplementary capital) to risk-weighted assets of at least 4%
and 8%, respectively. In determining the amount of risk-weighted
assets, all assets, including certain off-balance sheet assets,
recourse obligations, residual interests and direct credit
substitutes, are multiplied by a risk-weight factor of 0% to
100%, assigned by the OTS capital regulation based on the risks
believed inherent in the type of asset. Core
8
(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.
The OTS also has authority to establish minimum capital
requirements in appropriate cases upon a determination that an
institutions capital level is or may become inadequate in
light of the particular circumstances. At December 31,
2007, Superior Bank met each of its capital requirements.
Prompt Corrective Regulatory Action. The OTS
is required to take certain supervisory actions against
undercapitalized institutions, the severity of which depends
upon the institutions degree of undercapitalization.
Generally, a savings institution that has a ratio of total
capital to risk weighted assets of less than 8%, a ratio of
Tier 1 (core) capital to risk-weighted assets of less than
4% or a ratio of core capital to total assets of less than 4%
(less than 3% for institutions with the highest examination
rating) is considered to be undercapitalized. A
savings institution that has a total risk-based capital ratio of
less than 6%, a Tier 1 capital ratio of less than 3% or a
leverage ratio that is less than 3% is considered to be
significantly undercapitalized, and a savings
institution that has a tangible capital to assets ratio equal to
or less than 2% is deemed to be critically
undercapitalized. Subject to a narrow exception, the OTS
is required to appoint a receiver or conservator within
specified time frames for an institution that is
critically undercapitalized. The regulation also
provides that a capital restoration plan must be filed with the
OTS within 45 days of the date a savings institution
receives notice that it is undercapitalized,
significantly undercapitalized or critically
undercapitalized. Compliance with the plan must be
guaranteed by any parent holding company. In addition, numerous
mandatory supervisory actions become immediately applicable to
an undercapitalized institution, including, but not limited to,
increased monitoring by regulators and restrictions on growth,
capital distributions and expansion. The OTS could also take any
one of a number of discretionary supervisory actions, including
the issuance of a capital directive and the replacement of
senior executive officers and directors.
Insurance of Deposit Accounts. Superior Bank
is a member of the Deposit Insurance Fund of the FDIC. The FDIC
maintains a risk-based assessment system by which institutions
are assigned to one of four categories based upon a combination
of their capitalization and examination ratings. An
institutions assessment depends upon the category to which
it is assigned. An institution assigned to the category with the
lowest risk also has certain financial ratios taken into account
in determining assessment rates, unless it is a large
institution with at least one long-term debt issuer rating, in
which case the rating will be taken into account in determining
its assessment rate. Assessment rates for Deposit Insurance Fund
members 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 year 2007, Financing Corporation payments for Savings
Association Insurance Fund members approximated 1.18 basis
points of assessable deposits.
Deposit insurance may be terminated by the FDIC upon a finding
that the institution has engaged in unsafe or unsound practices,
is in an unsafe or unsound condition to continue operations or
has violated any applicable law, regulation, rule, order or
condition imposed by the FDIC or the OTS. We do not know of any
practice, condition or violation that might lead to termination
of deposit insurance.
Loans to One Borrower. Federal law provides
that savings institutions are generally subject to the limits on
loans to one borrower applicable to national banks. Generally,
subject to certain exceptions, a savings institution may not
make a loan or extend credit to a single or related group of
borrowers in excess of 15% of its unimpaired capital and
surplus. An additional amount may be lent, equal to 10% of
unimpaired capital and surplus, if secured by specified
readily-marketable collateral.
9
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,
2007, Superior Bank met the qualified thrift lender test. Recent
legislation has expanded the extent to which education loans,
credit card loans and small business loans may be considered
qualified thrift investments.
Limitations on Capital Distributions. The OTS
regulations impose limitations upon all capital distributions by
a savings institution, including cash dividends, payments to
repurchase its shares and payments to shareholders of another
institution in a cash-out merger. Under the regulations, an
application to and prior approval of the OTS is required prior
to any capital distribution if the institution does not meet the
criteria for expedited treatment of applications
under the OTS regulations, the total capital distributions
(including the proposed capital distribution) for the calendar
year exceed net income for that year plus the amount of retained
net income for the preceding two years, the institution would be
undercapitalized following the distribution or the distribution
would otherwise be contrary to a statute, regulation or
agreement with the OTS. If an application is not required, the
institution must still provide prior notice to the OTS of the
capital distribution if, like Superior Bank, it is a subsidiary
of a holding company. In the event Superior Banks capital
fell below its regulatory requirements or the OTS notified it
that it was in need of increased supervision, Superior
Banks ability to make capital distributions could be
restricted. In addition, the OTS could prohibit a proposed
capital distribution by any institution, which would otherwise
be permitted by the regulation, if the OTS determines that such
distribution would constitute an unsafe or unsound practice.
Transactions with Related Parties. Superior
Banks authority to engage in transactions with
affiliates (i.e., any company that controls
or is under common control with Superior Bank, including
Superior Bancorp and its non-savings institution subsidiaries)
is limited by federal law. The aggregate amount of covered
transactions with any individual affiliate is limited to 10% of
the capital and surplus of the savings institution. The
aggregate amount of covered transactions with all affiliates is
limited to 20% of a savings institutions capital and
surplus. Certain transactions with affiliates are required to be
secured by collateral in an amount and of a type described in
federal law. The purchase of low quality assets from affiliates
is generally prohibited. The transactions with affiliates must
be on terms and under circumstances that are at least as
favorable to the institution as those prevailing at the time for
comparable transactions with non-affiliated companies. In
addition, savings institutions are prohibited from lending to
any affiliate that is engaged in activities that are not
permissible for bank holding companies, and no savings
institution may purchase the securities of any affiliate other
than a subsidiary.
The Sarbanes-Oxley Act of 2002 generally prohibits loans by
public companies to their executive officers and directors.
However, that act contains a specific exception for loans by a
financial institution, such as Superior Bank, to its executive
officers and directors that are made in compliance with federal
banking laws. Under such laws, Superior Banks authority to
extend credit to executive officers, directors and 10%
shareholders (insiders), as well as entities such
persons control, is limited. The law limits both the individual
and aggregate amount of loans Superior Bank may make to insiders
based, in part, on Superior Banks capital position and
requires certain board approval procedures to be followed. Such
loans are required to be made on terms substantially the same as
those offered to unaffiliated individuals and not involve more
than the normal risk of repayment. There is an exception for
loans made pursuant to a benefit or compensation program that is
widely available to all employees of the institution and does
not give preference to insiders over other employees.
Standards for Safety and Soundness. The
federal banking agencies have adopted Interagency Guidelines
prescribing Standards for Safety and Soundness. These guidelines
set forth the safety and soundness standards that the federal
banking agencies use to identify and address problems at insured
depository institutions before capital becomes impaired. If the
OTS determines that a savings institution fails to meet any
standard prescribed by the
10
guidelines, the OTS may require the institution to submit an
acceptable plan to achieve compliance with the standard.
Enforcement. The OTS has primary enforcement
responsibility over savings institutions and has the authority
to bring actions against the institution and all
institution-affiliated parties, including stockholders, and any
attorneys, appraisers and accountants who knowingly or
recklessly participate in wrongful action likely to have an
adverse effect on an insured institution. Formal enforcement
action may range from the issuance of a capital directive or
cease and desist order to removal of officers
and/or
directors to institution of receivership, conservatorship or
termination of deposit insurance. Civil money penalties cover a
wide range of violations and can amount to $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 the OTS that enforcement action be taken with
respect to a particular savings institution. If action is not
taken by the Director, the FDIC has authority to take such
action under certain circumstances. Federal law also establishes
criminal penalties for certain violations.
Federal Home Loan Bank System. Superior Bank
is a member of the Federal Home Loan Bank System, which consists
of 12 regional Federal Home Loan Banks. The Federal Home Loan
Bank System provides a central credit facility primarily for
member institutions. Superior Bank, as a member of the Federal
Home Loan Bank System, is required to acquire and hold shares of
capital stock in the applicable FHLB (Atlanta) in an amount at
least equal to 1.0% of the aggregate principal amount of its
unpaid residential mortgage loans and similar obligations at 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,
2007, with an investment in FHLB stock of $14.9 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
$45.8 million; a 10% reserve ratio is applied above
$45.8 million. The first $8.5 million of otherwise
reservable balances (subject to adjustments by the Federal
Reserve Board) are exempted from the reserve requirements. These
amounts are adjusted annually. Superior Bank complies with the
foregoing requirements.
Community Reinvestment Act. Superior Bank is
subject to the CRA. The CRA and the regulations issued
thereunder are intended to encourage financial institutions to
help meet the credit needs of their service areas, including low
and moderate income neighborhoods, consistent with the safe and
sound operations of the financial institutions. These
regulations also provide for regulatory assessment of an
institutions record in meeting the needs of its service
area when considering applications to establish branches, merger
applications, applications to engage in new activities and
applications to acquire the assets and assume the liabilities of
another institution. The Financial Institutions Reform, Recovery
and Enforcement Act of 1989 (FIRREA) requires
federal banking agencies to make public a rating of an
institutions performance under the CRA. In the case of a
holding company involved in a proposed transaction, the CRA
performance records of the banks involved are reviewed by
federal banking agencies in connection with the filing of an
application to acquire ownership or control of shares or assets
of a bank or thrift or to merge with any other bank holding
company. An unsatisfactory record can substantially delay or
block the transaction. Superior Bank maintains a satisfactory
CRA rating.
Confidentiality of Customer
Information. Federal laws and regulations,
including the Gramm-Leach-Bliley Act, require that financial
institutions take certain steps to protect the security and
confidentiality of customers non-public personal
information. Among other things, these regulations restrict the
ability of financial institutions to share non-public customer
information with non-affiliated third parties and require
financial institutions to provide customers with information
about their privacy policies. Superior Bank has procedures in
place that are intended to comply with these requirements.
Bank Secrecy Act. Superior Bancorp and
Superior Bank are subject to the federal Bank Secrecy Act of
1970, as amended, which establishes requirements for
recordkeeping and reporting by banks and other financial
institutions designed to help identify the source, volume and
movement of currency and monetary instruments into and out of
the United States in order to help detect and prevent money
laundering and other illegal activities. The Bank Secrecy Act
requires financial institutions to develop and maintain a
program reasonably designed to
11
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.
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.
12
Code of
Ethics
We have adopted a code of ethics that applies to all of our
employees, including our principal executive, financial and
accounting officers. A copy of our code of ethics is available
on our website. We intend to disclose information about any
amendments to, or waivers from, our code of ethics that are
required to be disclosed under applicable Securities and
Exchange Commission regulations by providing appropriate
information on our website. If at any time our code of ethics is
not available on our website, we will provide a copy of it free
of charge upon written request.
Our business, and an investment in our securities, involves
risks. The following summary describes factors we believe are
material risks relating to our business and to the ownership of
our securities. Our discussion of these risks contains
forward-looking statements, and our actual results may differ
materially from those anticipated by such forward-looking
statements. In addition, financial condition and results of
operations, and the market price of our common stock, may be
substantially affected by other risks, including risks we have
not identified or that we may believe are immaterial or
unlikely. This summary does not purport to describe all risks
that might possibly affect our business, financial condition or
results of operations or the market price of our common stock.
Risks
Relating To Our Business
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 collectability of our loan portfolio
and review our evaluation on a regular basis, and we provide an
allowance for loan losses that we believe is adequate based on
various factors that we believe may affect the credit quality of
our loans. However, there can be no assurance that actual loan
losses will not exceed the allowance that we have established,
as such allowance is adjusted from time to time.
13
If our allowance for loan losses is inadequate for the actual
losses we experience, there could be a material adverse effect
on our results of operations. In addition, if as a result of our
perception of adverse trends, we materially increase our
allowance for loan losses in the future, such increase would
also reduce our earnings.
Events in our geographic markets could adversely affect
us. Our business is concentrated in six
geographic regions in Alabama and Florida. Any adverse changes
in market or economic conditions in Florida and Alabama may
increase the risk that our customers will be unable to make
their loan payments. In addition, the market value of the real
estate securing loans as collateral could be adversely affected
by unfavorable changes in local market conditions and general
economic conditions. Any period of increased payment
delinquencies, foreclosures or losses caused by adverse market
or economic conditions in general or in our markets in Florida
and Alabama could adversely affect our results of operations and
financial condition.
With most of our loans concentrated in a small number of
markets, a decline in local economic conditions could adversely
affect the values of our real estate collateral. Thus, a decline
in local economic conditions may have a greater effect on our
earnings and capital than on the earnings and capital of larger
financial institutions whose real estate loan portfolios are
more geographically diverse.
In addition, natural disasters, such as hurricanes and tornados,
in our markets could adversely affect our business. The
occurrence of such natural disasters in our markets could result
in a decline in the value or destruction of mortgaged properties
and in an increase in the risk of delinquencies, foreclosures or
losses on these loans and may impact our customers ability
to repay loans.
We face substantial competition. There are
numerous competitors in our geographic markets, including
national, regional and local banks and thrifts and other
financial services businesses, some of which have substantially
greater resources, higher brand visibility and a wider
geographic presence than we have. Some of these competitors may
offer a greater range of services, more favorable pricing and
greater customer convenience than we are able to. In addition,
in some of our markets, there are a significant number of new
banks and other financial institutions that have opened in the
recent past or are expected to open in the near future, and such
new competitors may also seek to exploit our markets and
customer base. If we are unable to maintain and grow our market
share in the face of such competition, our results of operations
will be adversely affected.
We are subject to extensive regulation. Our
operations are subject to regulation by the Office of Thrift
Supervision and the Federal Deposit Insurance Corporation. We
are also subject to applicable regulations of the Federal Home
Loan Bank. Regulation by these entities is intended primarily
for the protection of our depositors and the deposit insurance
fund and not for the benefit of our stockholders. We may incur
substantial costs in complying with such regulations, and our
failure to comply with them may expose us to substantial
penalties.
In addition, we are subject to numerous consumer protection laws
and other laws relating to the operation of financial
institutions. Our failure to comply with such laws could expose
us to liability, which could have a material adverse effect on
our results of operations.
We may require additional capital to fund our growth
plans. Our business strategy includes the
expansion of our business through the development of new
locations and through the acquisition of other financial
institutions and, to the extent permitted by applicable law,
complementary businesses as appropriate opportunities arise. In
order to finance such growth and to maintain required regulatory
capital levels, we may require additional capital in the future.
There can be no assurance that such capital will be available
upon favorable terms, or at all.
We are dependent upon the services of our management
team. Our operations and strategy are directed by
our senior management team, most of whom have joined Superior
Bancorp since January 2005. Any loss of the services of members
of our management team could have a material adverse effect on
our results of operations and our ability to implement our
business strategy.
Risks
Related To an Investment in Our Common Stock
Superior Bancorps stock price may be volatile due to
limited trading volume and general market
conditions. Our common stock is traded on the
NASDAQ Global Market. However, the average daily trading volume
in our common stock is relatively small, typically under
60,000 shares per day and sometimes less. With the
increased number of outstanding shares due to acquisitions in
2006 and 2007, our average daily trading volume increased to
14
approximately 171,000 shares per day. 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.
In addition, market fluctuations, industry factors, general
economic conditions and political events, including as economic
slowdowns or recessions, interest rate changes or market trends,
also could cause our stock price to decrease regardless of our
operating results of operations.
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.
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.
|
|
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 13 condominium units. This space includes a branch of
Superior Bank, various administrative offices, operations
facilities and our headquarters. Twelve 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 93 locations. We own 52 of
these facilities and lease 41 of these facilities. Rental
expense on the leased properties totaled approximately
$2,109,000 in 2007.
|
|
Item 3.
|
Legal
Proceedings.
|
While we are a party to various legal proceedings arising in the
ordinary course of our business, we believe that there are no
proceedings threatened or pending against us at this time that
will individually, or in the aggregate, materially and adversely
affect our business, financial condition or results of
operations. We believe that we have strong claims and defenses
in each lawsuit in which we are involved. While we believe that
we will prevail in each lawsuit, there can be no assurance that
the outcome of the pending, or any future, litigation, either
individually or in the aggregate, will not have a material
adverse effect on our business, our financial condition or our
results of operations.
|
|
Item 4.
|
Submission
Of Matters To A Vote Of Security Holders.
|
None
15
PART II
|
|
Item 5.
|
Market
For The Registrants Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities.
|
Market
for Common Stock
Our common stock trades on NASDAQ Global Market under the ticker
symbol SUPR. As of December 31, 2007, there
were approximately 2,753 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:
|
|
|
|
|
|
|
|
|
|
|
High
|
|
Low
|
|
2006
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
11.94
|
|
|
$
|
10.70
|
|
Second Quarter
|
|
|
11.87
|
|
|
|
10.71
|
|
Third Quarter
|
|
|
11.93
|
|
|
|
10.54
|
|
Fourth Quarter
|
|
|
11.89
|
|
|
|
10.39
|
|
2007
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
11.87
|
|
|
$
|
10.57
|
|
Second Quarter
|
|
|
10.99
|
|
|
|
9.64
|
|
Third Quarter
|
|
|
10.43
|
|
|
|
8.10
|
|
Fourth Quarter
|
|
|
9.35
|
|
|
|
5.00
|
|
2008
|
|
|
|
|
|
|
|
|
First Quarter (through March 11, 2008)
|
|
$
|
6.06
|
|
|
$
|
4.25
|
|
On March 11, 2008, the last reported sale price for the
common stock was $5.24 per share.
Issuer
Purchases of Equity Securities
We announced in October 2007, that the Board of Directors
approved the purchase of an additional $1.0 million shares
of our outstanding common stock beginning on or after
November 2, 2007.
We repurchased 182,000 shares of our issued and outstanding
common stock during the fourth quarter of 2007 pursuant to this
program.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number of
|
|
Maximum Number
|
|
|
|
|
|
|
Shares Purchased as
|
|
of Shares That
|
|
|
|
|
|
|
Part of Publicly
|
|
May Yet be
|
|
|
Total Number of
|
|
Average Price
|
|
Announced Plans or
|
|
Purchased Under
|
Period
|
|
Shares Purchased
|
|
Paid Per Share
|
|
Programs
|
|
the Plans or Programs
|
|
November 2007
|
|
|
152,000
|
|
|
$
|
6.88
|
|
|
|
152,000
|
|
|
|
|
|
December 2007
|
|
|
30,000
|
|
|
|
5.28
|
|
|
|
30,000
|
|
|
|
818,000
|
|
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 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.
16
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, 2008, in connection with
our 2008 Annual Meeting of Stockholders.
17
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, 2002.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period Ending
|
Index
|
|
12/31/02
|
|
12/31/03
|
|
12/31/04
|
|
12/31/05
|
|
12/31/06
|
|
12/31/07
|
Superior Bancorp
|
|
|
100.00
|
|
|
|
109.54
|
|
|
|
106.06
|
|
|
|
147.04
|
|
|
|
146.13
|
|
|
|
69.20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NASDAQ Composite
|
|
|
100.00
|
|
|
|
150.01
|
|
|
|
162.89
|
|
|
|
165.13
|
|
|
|
180.85
|
|
|
|
198.60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NASDAQ Financial
|
|
|
100.00
|
|
|
|
131.16
|
|
|
|
151.20
|
|
|
|
154.76
|
|
|
|
176.94
|
|
|
|
210.99
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SNL Southeast Thrift Index
|
|
|
100.00
|
|
|
|
151.65
|
|
|
|
179.27
|
|
|
|
163.14
|
|
|
|
191.73
|
|
|
|
82.56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SNL Southeast Bank Index
|
|
|
100.00
|
|
|
|
125.58
|
|
|
|
148.92
|
|
|
|
152.44
|
|
|
|
178.75
|
|
|
|
134.65
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SNL Southeast Thrift : Includes all Major Exchange (NYSE, AMEX,
NASDAQ) Thrifts in SNLs coverage universe headquartered in
AL, AR, FL, GA, MS, NC, SC, TN, VA, WV.
SNL Southeast Bank : Includes all Major Exchange (NYSE, AMEX,
NASDAQ) Banks in SNLs coverage universe headquartered in
AL, AR, FL, GA, MS, NC, SC, TN, VA, WV.
|
|
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,
2007 and 2006 and for each of the three years in the period
ended December 31, 2007 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.
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of and For The Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
(Amounts in thousands, except per share data)
|
|
|
Selected Statement of Financial Condition Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,885,425
|
|
|
$
|
2,440,990
|
|
|
$
|
1,415,469
|
|
|
$
|
1,423,128
|
|
|
$
|
1,171,626
|
|
Loans, net of unearned income
|
|
|
2,017,011
|
|
|
|
1,639,528
|
|
|
|
963,253
|
|
|
|
934,868
|
|
|
|
856,941
|
|
Allowance for loan losses
|
|
|
22,868
|
|
|
|
18,892
|
|
|
|
12,011
|
|
|
|
12,543
|
|
|
|
25,174
|
|
Investment securities
|
|
|
361,171
|
|
|
|
354,716
|
|
|
|
242,595
|
|
|
|
288,308
|
|
|
|
141,601
|
|
Deposits
|
|
|
2,200,611
|
|
|
|
1,870,841
|
|
|
|
1,043,695
|
|
|
|
1,067,206
|
|
|
|
889,935
|
|
Advances from FHLB and other borrowings
|
|
|
222,828
|
|
|
|
211,255
|
|
|
|
214,496
|
|
|
|
205,546
|
|
|
|
131,919
|
|
Notes payable
|
|
|
9,500
|
|
|
|
5,545
|
|
|
|
3,755
|
|
|
|
3,965
|
|
|
|
1,925
|
|
Junior subordinated debentures owed to unconsolidated trusts
|
|
|
53,744
|
|
|
|
44,006
|
|
|
|
31,959
|
|
|
|
31,959
|
|
|
|
31,959
|
|
Stockholders equity
|
|
|
350,042
|
|
|
|
276,087
|
|
|
|
105,065
|
|
|
|
100,539
|
|
|
|
100,122
|
|
Selected Statement of Income Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
$
|
171,929
|
|
|
$
|
108,777
|
|
|
$
|
77,280
|
|
|
$
|
66,160
|
|
|
$
|
76,213
|
|
Interest expense
|
|
|
96,767
|
|
|
|
61,383
|
|
|
|
38,255
|
|
|
|
28,123
|
|
|
|
33,487
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
75,162
|
|
|
|
47,394
|
|
|
|
39,025
|
|
|
|
38,037
|
|
|
|
42,726
|
|
Provision for loan losses
|
|
|
4,541
|
|
|
|
2,500
|
|
|
|
3,500
|
|
|
|
975
|
|
|
|
20,975
|
|
Noninterest income
|
|
|
19,357
|
|
|
|
11,811
|
|
|
|
9,583
|
|
|
|
10,527
|
|
|
|
14,592
|
|
Gain on sale of branches
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
739
|
|
|
|
48,264
|
|
Insurance proceeds
|
|
|
|
|
|
|
|
|
|
|
5,114
|
|
|
|
|
|
|
|
|
|
Management separation costs
|
|
|
|
|
|
|
265
|
|
|
|
15,467
|
|
|
|
|
|
|
|
|
|
Noninterest expense
|
|
|
78,223
|
|
|
|
49,520
|
|
|
|
45,153
|
|
|
|
47,937
|
|
|
|
57,930
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes (benefit)
|
|
|
11,755
|
|
|
|
6,920
|
|
|
|
(10,398
|
)
|
|
|
391
|
|
|
|
26,677
|
|
Income tax expense (benefit)
|
|
|
4,134
|
|
|
|
1,923
|
|
|
|
(4,612
|
)
|
|
|
(796
|
)
|
|
|
9,178
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
7,621
|
|
|
|
4,997
|
|
|
|
(5,786
|
)
|
|
|
1,187
|
|
|
|
17,499
|
|
Preferred stock dividends
|
|
|
|
|
|
|
|
|
|
|
305
|
|
|
|
446
|
|
|
|
219
|
|
Effect of early conversion of preferred stock
|
|
|
|
|
|
|
|
|
|
|
2,006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) applicable to common stockholders
|
|
$
|
7,621
|
|
|
$
|
4,997
|
|
|
$
|
(8,097
|
)
|
|
$
|
741
|
|
|
$
|
17,280
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per Share Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) basic
|
|
$
|
0.21
|
|
|
$
|
0.21
|
|
|
$
|
(0.42
|
)
|
|
$
|
0.04
|
|
|
$
|
0.99
|
|
diluted(1)
|
|
$
|
0.20
|
|
|
$
|
0.21
|
|
|
$
|
(0.42
|
)
|
|
$
|
0.04
|
|
|
$
|
0.95
|
|
Weighted average shares outstanding basic
|
|
|
36,974
|
|
|
|
23,409
|
|
|
|
19,154
|
|
|
|
17,583
|
|
|
|
17,492
|
|
Weighted average shares outstanding diluted(1)
|
|
|
37,332
|
|
|
|
24,034
|
|
|
|
19,154
|
|
|
|
17,815
|
|
|
|
18,137
|
|
Book value at period end
|
|
$
|
8.73
|
|
|
$
|
7.97
|
|
|
$
|
5.21
|
|
|
$
|
5.31
|
|
|
$
|
5.31
|
|
Tangible book value per share
|
|
$
|
4.05
|
|
|
$
|
4.23
|
|
|
$
|
4.61
|
|
|
$
|
4.62
|
|
|
$
|
4.59
|
|
Preferred shares outstanding at period end
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62
|
|
|
|
62
|
|
Common shares outstanding at period end
|
|
|
40,108
|
|
|
|
34,652
|
|
|
|
20,172
|
|
|
|
17,750
|
|
|
|
17,695
|
|
Performance Ratios and Other Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on average assets
|
|
|
0.29
|
%
|
|
|
0.30
|
%
|
|
|
(0.41
|
)%
|
|
|
0.09
|
%
|
|
|
1.29
|
%
|
Return on average tangible assets
|
|
|
0.31
|
|
|
|
0.30
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Return on average stockholders equity
|
|
|
2.47
|
|
|
|
3.55
|
|
|
|
(5.68
|
)
|
|
|
1.18
|
|
|
|
19.08
|
|
Return on average tangible equity
|
|
|
4.91
|
|
|
|
4.89
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Net interest margin(2)(3)
|
|
|
3.37
|
|
|
|
3.17
|
|
|
|
3.14
|
|
|
|
3.31
|
|
|
|
3.50
|
|
Net interest spread(3)(4)
|
|
|
3.04
|
|
|
|
2.93
|
|
|
|
3.00
|
|
|
|
3.20
|
|
|
|
3.35
|
|
Noninterest income to average assets(5)
|
|
|
0.67
|
|
|
|
0.66
|
|
|
|
0.77
|
|
|
|
0.82
|
|
|
|
1.03
|
|
Noninterest expense to average assets(6)
|
|
|
2.83
|
|
|
|
2.84
|
|
|
|
3.14
|
|
|
|
3.52
|
|
|
|
4.07
|
|
Efficiency ratio(7)
|
|
|
79.48
|
|
|
|
81.46
|
|
|
|
87.99
|
|
|
|
91.72
|
|
|
|
100.09
|
|
Average loan to average deposit ratio
|
|
|
92.80
|
|
|
|
93.12
|
|
|
|
88.82
|
|
|
|
92.16
|
|
|
|
100.69
|
|
Average interest-earning assets to average interest bearing
liabilities
|
|
|
107.54
|
|
|
|
106.01
|
|
|
|
104.58
|
|
|
|
104.88
|
|
|
|
105.82
|
|
Assets Quality Ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses to nonperforming loans
|
|
|
90.31
|
%
|
|
|
219.88
|
%
|
|
|
252.76
|
%
|
|
|
169.36
|
%
|
|
|
78.59
|
%
|
Allowance for loan losses to loans, net of unearned income
|
|
|
1.13
|
|
|
|
1.15
|
|
|
|
1.25
|
|
|
|
1.34
|
|
|
|
2.94
|
|
Nonperforming assets (NPAs) to loans plus NPAs,
net of unearned income
|
|
|
1.47
|
|
|
|
0.63
|
|
|
|
0.68
|
|
|
|
1.32
|
|
|
|
4.41
|
|
NPAs to total assets
|
|
|
1.03
|
|
|
|
0.43
|
|
|
|
0.47
|
|
|
|
0.87
|
|
|
|
3.25
|
|
Net loan charge-offs to average loans
|
|
|
0.24
|
|
|
|
0.20
|
|
|
|
0.43
|
|
|
|
1.52
|
|
|
|
2.21
|
|
Net loan charge-offs as a percentage of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan losses
|
|
|
94.30
|
|
|
|
92.64
|
|
|
|
115.20
|
|
|
|
1,395.49
|
|
|
|
111.87
|
|
Allowance for loan losses
|
|
|
18.72
|
|
|
|
12.26
|
|
|
|
33.57
|
|
|
|
108.47
|
|
|
|
93.21
|
|
|
|
|
(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.
|
19
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operation.
|
General
The entire banking industry is operating in an adverse
environment relative to maximizing short-term performance.
Factors such as the challenging point in the credit cycle,
housing market softness, gloomy media coverage, weakened
consumer confidence and dramatic Federal Reserve rate reductions
provide a stiff headwind going into 2008. We continue to adapt
to these factors while remaining focused on taking the right
actions that should ultimately result in enhanced shareholder
value.
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 72 banking
offices and one loan production office throughout the states of
Alabama and 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), Superior Financial Management,
Inc., an Alabama corporation, Community (AL) Capital
Trust I, a Delaware trust, TBC Capital Statutory
Trust II (TBC Capital II), a Connecticut
statutory trust, Superior Capital Trust I (Superior
Capital I), a Delaware business trust, Peoples Community
Statutory Trust I (Peoples Trust I) 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 through 22
offices primarily in North Alabama and Superior Financial
Management, Inc. provides investment related services. Community
(AL) Capital Trust I, TBC Capital II, Superior Capital I
and Peoples Trust I 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.
On July 27, 2007, we merged with Peoples Community
Bancshares, Inc. (Peoples). Peoples was
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. Peoples had total assets of
approximately $321 million, total loans of approximately
$259 million and total deposits of approximately
$245 million. During the third quarter of 2006, we merged
with Kensington Bankshares, Inc. of Tampa, Florida
(Kensington) and in the fourth quarter of 2006, we
merged with Community Bancshares, Inc. of Blountsville, Alabama
(Community). Kensington and Community had combined
loans of approximately $470 million and deposits of
approximately $700 million.
In furtherance of our de novo branch strategy, 17 of 20 planned
new branches have been opened since September 2006 in key
Alabama and Florida markets attributing approximately
$162 million of core deposits as of December 31, 2007.
For the fourth quarter and year ended December 31, 2007,
noninterest expense associated with the new branches was $1.0
and $3.0 million, respectively, or an approximate 2%
premium on deposits. Three Alabama branches are scheduled to
open before the end of the third quarter of 2008. Upon
completion, the Bank will have invested approximately $25 to
$30 million toward its de novo branch expansion program.
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.
20
During 2007, our net interest income increased by 58.6%,
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 2007, we continued our strategy of realigning
our loan and deposit mix, primarily through our acquisitions.
Service charges and fees were up 61.9% in 2007 from 2006 due to
an increase in our customer base and adjustments for fee
structures to market rates. Mortgage banking income increased
28.8% in 2007 due to an increase in the volume of mortgage loan
originations throughout the year.
Total noninterest expenses increased from 2006 to 2007 primarily
due to our acquisitions and branch expansion which resulted in
higher personnel costs and occupancy expenses. All other
noninterest expenses remained relatively stable in 2007 compared
to 2006.
Our nonperforming assets have increased during 2007 as a result
of weaknesses in the residential construction and mortgage loan
portfolios. Management has increased its allocation of allowance
for loan losses related to these sectors of our loan portfolio.
The Bank is fortunate to have senior bankers who have
experienced several previous challenging credit cycles. As with
the first year of any credit cycle, nonperforming loans, past
due loans and charged-off loans will increase. The level of
deterioration is dependent on the quality of loan underwriting
and risk pricing used during the loans origination several
years ago. If underwriting and pricing is done properly, the
level of credit quality deterioration will be mild.
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 2007, our provision for
loan losses totaled $4.5 million and our net charge-offs
totaled $4.3 million. As of December 31, 2007, our
allowance for loan losses was $22.9 million, or 1.13% of
loans, net of unearned income.
Critical
Accounting Estimates
In preparing financial information, management is required to
make significant estimates and assumptions that affect the
reported amounts of assets, liabilities, revenues and expenses
for the periods shown. The accounting principles we follow and
the methods of applying these principles conform to accounting
principles generally accepted in the United States and to
general banking practices. Our most significant estimates and
assumptions are related primarily to our allowance for loan
losses, income taxes and goodwill impairment and are summarized
in the following discussion and in the notes to the consolidated
financial statements.
Allowance
for Loan Losses
Managements determination of the adequacy of the allowance
for loan losses, which is based on the factors and risk
identification procedures discussed in the 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
21
temporary differences, the timing and amount of future income
earned by our subsidiaries and the implementation of various tax
planning strategies to maximize realization of the deferred tax
assets. A portion of the amount of the deferred tax asset that
can be realized in any year is subject to certain statutory
federal income tax limitations. We believe that our subsidiaries
will be able to generate sufficient operating earnings to
realize the deferred tax benefits. We evaluate quarterly the
realizability of the deferred tax assets and, if necessary,
adjust any valuation allowance accordingly.
In July 2006, the Financial Accounting Standards Board
(FASB) issued FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes
(FIN 48). This interpretation clarifies the
accounting for uncertainty in income taxes recognized in a
companys financial statements in accordance with Statement
of Financial Accounting Standards (SFAS)
No. 109, Accounting for Income Taxes. Specifically,
the pronouncement prescribes a recognition threshold and a
measurement attribute for the financial statement recognition
and measurement of a tax position taken or expected to be taken
in a tax return. The interpretation also provides guidance on
the related recognition, classification, interest and penalties,
accounting for interim periods, disclosure and transition of
uncertain tax positions. The interpretation was effective for
fiscal years beginning after December 15, 2006. We adopted
FIN 48 on January 1, 2007 (see Note 14 to the
Consolidated Financial Statements).
Acquisitions
We recorded the assets and liabilities of Peoples,
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 Peoples, Kensington and Community. We also
engaged a real estate appraisal firm to value the more
significant properties that we acquired in the acquisitions. As
a result, we consider the values we have assigned to the
acquired assets and liabilities of Peoples, Kensington and
Community to be reasonable and consistent with the application
of generally accepted accounting principles.
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.
22
Results
of Operations
Earnings. Net income decreased $155,000, or
7.6%, to $1.90 million for the three months ended
December 31, 2007 (fourth quarter of 2007), from
$2.06 million for the three months ended December 31,
2006 (fourth quarter of 2006). Net income increased
$2.62 million, or 52.5%, to $7.62 million for the year
ended December 31, 2007, from $5.0 million for the
year ended December 31, 2006. The following table presents
key earnings data for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Year
|
|
|
|
Ended December 31,
|
|
|
Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in thousands, except per share data)
|
|
|
Superior Bancorp and Subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
1,904
|
|
|
$
|
2,059
|
|
|
$
|
7,621
|
|
|
$
|
4,997
|
|
Net income per common share (diluted)
|
|
|
0.05
|
|
|
|
0.06
|
|
|
|
0.20
|
|
|
|
0.21
|
|
Net interest margin
|
|
|
3.20
|
%
|
|
|
3.34
|
%
|
|
|
3.37
|
%
|
|
|
3.17
|
%
|
Net interest spread
|
|
|
2.88
|
|
|
|
3.01
|
|
|
|
3.04
|
|
|
|
2.93
|
|
Return on average assets
|
|
|
0.26
|
|
|
|
0.37
|
|
|
|
0.29
|
|
|
|
0.30
|
|
Return on average stockholders equity
|
|
|
2.16
|
|
|
|
3.71
|
|
|
|
2.47
|
|
|
|
3.55
|
|
Return on average tangible equity
|
|
|
4.66
|
|
|
|
6.52
|
|
|
|
4.91
|
|
|
|
4.89
|
|
Book value per share
|
|
$
|
8.73
|
|
|
$
|
7.97
|
|
|
$
|
8.73
|
|
|
$
|
7.97
|
|
Tangible book value per share
|
|
|
4.05
|
|
|
|
4.23
|
|
|
|
4.05
|
|
|
|
4.23
|
|
Banking Subsidiary, Superior Bank
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
2,329
|
|
|
$
|
3,884
|
|
|
$
|
12,473
|
|
|
$
|
9,156
|
|
Return on average assets
|
|
|
0.32
|
%
|
|
|
0.68
|
%
|
|
|
0.48
|
%
|
|
|
0.55
|
%
|
Return on average stockholders equity
|
|
|
2.36
|
|
|
|
6.64
|
|
|
|
3.63
|
|
|
|
5.85
|
|
Return on average tangible equity
|
|
|
4.50
|
|
|
|
11.23
|
|
|
|
6.54
|
|
|
|
7.78
|
|
Net income decreased during the fourth quarter of 2007 compared
to 2006. This decrease is primarily attributable to an increase
in the provision for loan losses. The increase in our net income
during the year ended December 31, 2007 compared to year
ended December 31, 2006 is primarily the result of an
increase in net interest income and noninterest income offset by
an increase in noninterest expenses. The increase in each of
these components is primarily attributable to our de novo branch
strategy and our acquisitions of Peoples in the third
quarter of 2007, and Kensington and Community in the third and
fourth quarters, respectively, of 2006.
23
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. The following table summarizes the changes in the
components of net interest income for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (Decrease) in
|
|
|
|
Fourth Quarter
|
|
|
Year Ended December 31,
|
|
|
|
2007 vs. 2006
|
|
|
2007 vs. 2006
|
|
|
|
Average
|
|
|
Income/
|
|
|
Yield/
|
|
|
Average
|
|
|
Income/
|
|
|
Yield/
|
|
|
|
Balance
|
|
|
Expense
|
|
|
Rate
|
|
|
Balance
|
|
|
Expense
|
|
|
Rate
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
ASSETS
|
Interest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, net of unearned income
|
|
$
|
545,413
|
|
|
$
|
9,978
|
|
|
|
(0.22
|
)%
|
|
$
|
662,185
|
|
|
$
|
57,784
|
|
|
|
0.31
|
%
|
Investment securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable
|
|
|
(5,051
|
)
|
|
|
131
|
|
|
|
0.24
|
|
|
|
64,862
|
|
|
|
4,180
|
|
|
|
0.30
|
|
Tax-exempt
|
|
|
21,494
|
|
|
|
361
|
|
|
|
0.54
|
|
|
|
11,575
|
|
|
|
770
|
|
|
|
0.43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities
|
|
|
16,443
|
|
|
|
492
|
|
|
|
0.31
|
|
|
|
76,437
|
|
|
|
4,950
|
|
|
|
0.33
|
|
Federal funds sold
|
|
|
(18,110
|
)
|
|
|
(244
|
)
|
|
|
(0.53
|
)
|
|
|
(2,128
|
)
|
|
|
(99
|
)
|
|
|
0.12
|
|
Other investments
|
|
|
1,761
|
|
|
|
(106
|
)
|
|
|
(1.08
|
)
|
|
|
10,385
|
|
|
|
779
|
|
|
|
0.36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest -earning assets
|
|
$
|
545,507
|
|
|
|
10,120
|
|
|
|
(0.03
|
)
|
|
$
|
746,879
|
|
|
|
63,414
|
|
|
|
0.40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits
|
|
$
|
192,738
|
|
|
|
1,769
|
|
|
|
0.05
|
|
|
$
|
208,863
|
|
|
|
8,934
|
|
|
|
0.36
|
|
Savings deposits
|
|
|
11,752
|
|
|
|
187
|
|
|
|
1.04
|
|
|
|
22,684
|
|
|
|
641
|
|
|
|
0.98
|
|
Time deposits
|
|
|
280,020
|
|
|
|
4,374
|
|
|
|
0.34
|
|
|
|
407,155
|
|
|
|
23,581
|
|
|
|
0.44
|
|
Other borrowings
|
|
|
16,770
|
|
|
|
(55
|
)
|
|
|
(0.41
|
)
|
|
|
20,812
|
|
|
|
1,368
|
|
|
|
0.13
|
|
Subordinated debentures
|
|
|
18,347
|
|
|
|
135
|
|
|
|
(2.55
|
)
|
|
|
14,915
|
|
|
|
860
|
|
|
|
(1.22
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities
|
|
$
|
519,627
|
|
|
|
6,410
|
|
|
|
0.10
|
|
|
$
|
674,429
|
|
|
|
35,384
|
|
|
|
0.29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income/net interest spread
|
|
|
|
|
|
|
3,710
|
|
|
|
(0.13
|
)%
|
|
|
|
|
|
|
28,030
|
|
|
|
0.11
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net yield on earning assets
|
|
|
|
|
|
|
|
|
|
|
(0.14
|
)%
|
|
|
|
|
|
|
|
|
|
|
0.20
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable equivalent adjustment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities
|
|
|
|
|
|
|
123
|
|
|
|
|
|
|
|
|
|
|
|
262
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
|
|
|
$
|
3,587
|
|
|
|
|
|
|
|
|
|
|
$
|
27,768
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24
The following table depicts, on a taxable equivalent basis for
the fourth quarters of 2007 and 2006, certain information
related to our average balance sheet and our average yields on
assets and average costs of liabilities. Average yields are
calculated by dividing income or expense by the average balance
of the corresponding assets or liabilities. Average balances
have been calculated on a daily basis.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
Average
|
|
|
Income/
|
|
|
Yield/
|
|
|
Average
|
|
|
Income/
|
|
|
Yield/
|
|
|
|
Balance
|
|
|
Expense
|
|
|
Rate
|
|
|
Balance
|
|
|
Expense
|
|
|
Rate
|
|
|
|
(Dollars in thousands)
|
|
|
ASSETS
|
Interest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, net of unearned income(1)
|
|
$
|
2,045,813
|
|
|
$
|
40,660
|
|
|
|
7.89
|
%
|
|
$
|
1,500,400
|
|
|
$
|
30,682
|
|
|
|
8.11
|
%
|
Investment securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable
|
|
|
331,596
|
|
|
|
4,369
|
|
|
|
5.23
|
|
|
|
336,647
|
|
|
|
4,238
|
|
|
|
4.99
|
|
Tax-exempt(2)
|
|
|
33,447
|
|
|
|
537
|
|
|
|
6.37
|
|
|
|
11,953
|
|
|
|
176
|
|
|
|
5.83
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities
|
|
|
365,043
|
|
|
|
4,906
|
|
|
|
5.33
|
|
|
|
348,600
|
|
|
|
4,414
|
|
|
|
5.02
|
|
Federal funds sold
|
|
|
8,500
|
|
|
|
97
|
|
|
|
4.53
|
|
|
|
26,610
|
|
|
|
341
|
|
|
|
5.06
|
|
Other investments
|
|
|
48,800
|
|
|
|
640
|
|
|
|
5.20
|
|
|
|
47,039
|
|
|
|
746
|
|
|
|
6.28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets
|
|
|
2,468,156
|
|
|
|
46,303
|
|
|
|
7.44
|
|
|
|
1,922,649
|
|
|
|
36,183
|
|
|
|
7.47
|
|
Noninterest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
|
48,618
|
|
|
|
|
|
|
|
|
|
|
|
32,628
|
|
|
|
|
|
|
|
|
|
Premises and equipment
|
|
|
99,190
|
|
|
|
|
|
|
|
|
|
|
|
81,068
|
|
|
|
|
|
|
|
|
|
Accrued interest and other assets
|
|
|
290,894
|
|
|
|
|
|
|
|
|
|
|
|
164,232
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses
|
|
|
(22,095
|
)
|
|
|
|
|
|
|
|
|
|
|
(17,152
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,884,763
|
|
|
|
|
|
|
|
|
|
|
$
|
2,183,425
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits
|
|
$
|
635,371
|
|
|
$
|
5,657
|
|
|
|
3.53
|
%
|
|
$
|
442,633
|
|
|
$
|
3,888
|
|
|
|
3.48
|
%
|
Savings deposits
|
|
|
59,946
|
|
|
|
314
|
|
|
|
2.08
|
|
|
|
48,194
|
|
|
|
127
|
|
|
|
1.04
|
|
Time deposits
|
|
|
1,278,976
|
|
|
|
16,037
|
|
|
|
4.97
|
|
|
|
998,956
|
|
|
|
11,663
|
|
|
|
4.63
|
|
Other borrowings
|
|
|
270,808
|
|
|
|
3,336
|
|
|
|
4.89
|
|
|
|
254,038
|
|
|
|
3,391
|
|
|
|
5.30
|
|
Subordinated debentures
|
|
|
53,799
|
|
|
|
1,066
|
|
|
|
7.86
|
|
|
|
35,452
|
|
|
|
931
|
|
|
|
10.41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities
|
|
|
2,298,900
|
|
|
|
26,410
|
|
|
|
4.56
|
|
|
|
1,779,273
|
|
|
|
20,000
|
|
|
|
4.46
|
|
Noninterest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits
|
|
|
206,977
|
|
|
|
|
|
|
|
|
|
|
|
159,239
|
|
|
|
|
|
|
|
|
|
Accrued interest and other liabilities
|
|
|
29,834
|
|
|
|
|
|
|
|
|
|
|
|
24,759
|
|
|
|
|
|
|
|
|
|
Stockholders equity
|
|
|
349,052
|
|
|
|
|
|
|
|
|
|
|
|
220,154
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
2,884,763
|
|
|
|
|
|
|
|
|
|
|
$
|
2,183,425
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income/net interest spread
|
|
|
|
|
|
|
19,893
|
|
|
|
2.88
|
%
|
|
|
|
|
|
|
16,183
|
|
|
|
3.01
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net yield on earning assets
|
|
|
|
|
|
|
|
|
|
|
3.20
|
%
|
|
|
|
|
|
|
|
|
|
|
3.34
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable equivalent adjustment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities(2)
|
|
|
|
|
|
|
183
|
|
|
|
|
|
|
|
|
|
|
|
60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
|
|
|
$
|
19,710
|
|
|
|
|
|
|
|
|
|
|
$
|
16,123
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Nonaccrual loans are included in loans, net of unearned income.
No adjustment has been made for these loans in the calculation
of yields. |
|
(2) |
|
Interest income and yields are presented on a fully taxable
equivalent basis using a tax rate of 34%. |
25
The following table sets forth, on a taxable equivalent basis,
the effect that the varying levels of interest-earning assets
and interest-bearing liabilities and the applicable rates have
had on changes in net interest income for the fourth quarters of
2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31, 2007 vs. 2006 (1)
|
|
|
|
Increase
|
|
|
Changes Due To
|
|
|
|
(Decrease)
|
|
|
Rate
|
|
|
Volume
|
|
|
|
(Dollars in thousands)
|
|
|
Increase (decrease) in:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from interest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and fees on loans
|
|
$
|
9,978
|
|
|
$
|
(856
|
)
|
|
$
|
10,834
|
|
Interest on securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable
|
|
|
131
|
|
|
|
197
|
|
|
|
(66
|
)
|
Tax-exempt
|
|
|
361
|
|
|
|
18
|
|
|
|
344
|
|
Interest on federal funds
|
|
|
(244
|
)
|
|
|
(33
|
)
|
|
|
(211
|
)
|
Interest on other investments
|
|
|
(106
|
)
|
|
|
(133
|
)
|
|
|
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
|
10,120
|
|
|
|
(807
|
)
|
|
|
10,928
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expense from interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on demand deposits
|
|
|
1,769
|
|
|
|
57
|
|
|
|
1,712
|
|
Interest on savings deposits
|
|
|
187
|
|
|
|
150
|
|
|
|
37
|
|
Interest on time deposits
|
|
|
4,374
|
|
|
|
908
|
|
|
|
3,466
|
|
Interest on other borrowings
|
|
|
(55
|
)
|
|
|
(271
|
)
|
|
|
216
|
|
Interest on subordinated debentures
|
|
|
135
|
|
|
|
(266
|
)
|
|
|
401
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
|
6,410
|
|
|
|
578
|
|
|
|
5,832
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
3,710
|
|
|
$
|
(1,385
|
)
|
|
$
|
5,096
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The change in interest due to both rate and volume has been
allocated to rate and volume changes in proportion to the
relationship of the absolute dollar amounts of the changes in
each. |
26
The following tables depict, on a taxable equivalent basis for
each of the three years in the period ended December 31,
2007, 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
Interest
|
|
|
Average
|
|
|
|
|
|
Interest
|
|
|
Average
|
|
|
|
|
|
Interest
|
|
|
Average
|
|
|
|
Average
|
|
|
Earned/
|
|
|
Yield/
|
|
|
Average
|
|
|
Earned/
|
|
|
Yield/
|
|
|
Average
|
|
|
Earned/
|
|
|
Yield/
|
|
|
|
Balance
|
|
|
Paid
|
|
|
Rate
|
|
|
Balance
|
|
|
Paid
|
|
|
Rate
|
|
|
Balance
|
|
|
Paid
|
|
|
Rate
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
Interest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, net of unearned income(1)
|
|
$
|
1,839,029
|
|
|
$
|
150,443
|
|
|
|
8.18
|
%
|
|
$
|
1,176,844
|
|
|
$
|
92,659
|
|
|
|
7.87
|
%
|
|
$
|
947,212
|
|
|
$
|
63,895
|
|
|
|
6.75
|
%
|
Investment securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable
|
|
|
328,893
|
|
|
|
17,174
|
|
|
|
5.22
|
|
|
|
264,031
|
|
|
|
12,994
|
|
|
|
4.92
|
|
|
|
255,663
|
|
|
|
11,632
|
|
|
|
4.55
|
|
Tax-exempt(2)
|
|
|
21,668
|
|
|
|
1,359
|
|
|
|
6.27
|
|
|
|
10,093
|
|
|
|
589
|
|
|
|
5.84
|
|
|
|
6,932
|
|
|
|
373
|
|
|
|
5.38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities
|
|
|
350,561
|
|
|
|
18,533
|
|
|
|
5.29
|
|
|
|
274,124
|
|
|
|
13,583
|
|
|
|
4.96
|
|
|
|
262,595
|
|
|
|
12,005
|
|
|
|
4.57
|
|
Federal funds sold
|
|
|
8,975
|
|
|
|
471
|
|
|
|
5.25
|
|
|
|
11,102
|
|
|
|
570
|
|
|
|
5.13
|
|
|
|
14,757
|
|
|
|
460
|
|
|
|
3.12
|
|
Other investments
|
|
|
47,612
|
|
|
|
2,944
|
|
|
|
6.18
|
|
|
|
37,227
|
|
|
|
2,165
|
|
|
|
5.82
|
|
|
|
22,266
|
|
|
|
1,047
|
|
|
|
4.70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets
|
|
|
2,246,177
|
|
|
|
172,391
|
|
|
|
7.67
|
|
|
|
1,499,297
|
|
|
|
108,977
|
|
|
|
7.27
|
|
|
|
1,246,830
|
|
|
|
77,407
|
|
|
|
6.21
|
|
Noninterest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
|
45,142
|
|
|
|
|
|
|
|
|
|
|
|
32,730
|
|
|
|
|
|
|
|
|
|
|
|
28,227
|
|
|
|
|
|
|
|
|
|
Premises and equipment
|
|
|
95,289
|
|
|
|
|
|
|
|
|
|
|
|
64,378
|
|
|
|
|
|
|
|
|
|
|
|
56,897
|
|
|
|
|
|
|
|
|
|
Accrued interest and other assets
|
|
|
254,785
|
|
|
|
|
|
|
|
|
|
|
|
100,514
|
|
|
|
|
|
|
|
|
|
|
|
83,743
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses
|
|
|
(20,431
|
)
|
|
|
|
|
|
|
|
|
|
|
(13,594
|
)
|
|
|
|
|
|
|
|
|
|
|
(12,504
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,620,962
|
|
|
|
|
|
|
|
|
|
|
$
|
1,683,325
|
|
|
|
|
|
|
|
|
|
|
$
|
1,403,193
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits
|
|
$
|
568,125
|
|
|
$
|
20,791
|
|
|
|
3.66
|
%
|
|
$
|
359,262
|
|
|
$
|
11,857
|
|
|
|
3.30
|
%
|
|
$
|
339,842
|
|
|
$
|
7,144
|
|
|
|
2.10
|
%
|
Savings deposits
|
|
|
50,652
|
|
|
|
818
|
|
|
|
1.61
|
|
|
|
27,968
|
|
|
|
177
|
|
|
|
0.63
|
|
|
|
25,935
|
|
|
|
40
|
|
|
|
0.15
|
|
Time deposits
|
|
|
1,171,942
|
|
|
|
58,058
|
|
|
|
4.95
|
|
|
|
764,787
|
|
|
|
34,477
|
|
|
|
4.51
|
|
|
|
607,141
|
|
|
|
20,731
|
|
|
|
3.41
|
|
Other borrowings
|
|
|
249,443
|
|
|
|
12,971
|
|
|
|
5.20
|
|
|
|
228,631
|
|
|
|
11,603
|
|
|
|
5.07
|
|
|
|
187,297
|
|
|
|
7,493
|
|
|
|
4.00
|
|
Subordinated debentures
|
|
|
48,557
|
|
|
|
4,129
|
|
|
|
8.50
|
|
|
|
33,642
|
|
|
|
3,269
|
|
|
|
9.72
|
|
|
|
31,959
|
|
|
|
2,847
|
|
|
|
8.91
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities
|
|
|
2,088,719
|
|
|
|
96,767
|
|
|
|
4.63
|
|
|
|
1,414,290
|
|
|
|
61,383
|
|
|
|
4.34
|
|
|
|
1,192,174
|
|
|
|
38,255
|
|
|
|
3.21
|
|
Noninterest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits
|
|
|
191,066
|
|
|
|
|
|
|
|
|
|
|
|
111,757
|
|
|
|
|
|
|
|
|
|
|
|
93,564
|
|
|
|
|
|
|
|
|
|
Accrued interest and other liabilities
|
|
|
32,905
|
|
|
|
|
|
|
|
|
|
|
|
16,451
|
|
|
|
|
|
|
|
|
|
|
|
15,651
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
2,312,690
|
|
|
|
|
|
|
|
|
|
|
|
1,542,498
|
|
|
|
|
|
|
|
|
|
|
|
1,301,389
|
|
|
|
|
|
|
|
|
|
Stockholders equity
|
|
|
308,272
|
|
|
|
|
|
|
|
|
|
|
|
140,827
|
|
|
|
|
|
|
|
|
|
|
|
101,804
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
2,620,962
|
|
|
|
|
|
|
|
|
|
|
$
|
1,683,325
|
|
|
|
|
|
|
|
|
|
|
$
|
1,403,193
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income/net interest spread
|
|
|
|
|
|
|
75,624
|
|
|
|
3.04
|
%
|
|
|
|
|
|
|
47,594
|
|
|
|
2.93
|
%
|
|
|
|
|
|
|
39,152
|
|
|
|
3.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net yield on earning assets
|
|
|
|
|
|
|
|
|
|
|
3.37
|
%
|
|
|
|
|
|
|
|
|
|
|
3.17
|
%
|
|
|
|
|
|
|
|
|
|
|
3.14
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable equivalent adjustment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities(2)
|
|
|
|
|
|
|
462
|
|
|
|
|
|
|
|
|
|
|
|
200
|
|
|
|
|
|
|
|
|
|
|
|
127
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
|
|
|
$
|
75,162
|
|
|
|
|
|
|
|
|
|
|
$
|
47,394
|
|
|
|
|
|
|
|
|
|
|
$
|
39,025
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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. |
27
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, 2007 and 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,(1)
|
|
|
|
2007 vs. 2006
|
|
|
2006 vs. 2005
|
|
|
|
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
|
|
$
|
57,784
|
|
|
$
|
3,780
|
|
|
$
|
54,004
|
|
|
$
|
28,764
|
|
|
$
|
11,688
|
|
|
$
|
17,076
|
|
Interest on securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable
|
|
|
4,180
|
|
|
|
831
|
|
|
|
3,349
|
|
|
|
1,362
|
|
|
|
390
|
|
|
|
972
|
|
Tax-exempt
|
|
|
770
|
|
|
|
46
|
|
|
|
724
|
|
|
|
216
|
|
|
|
33
|
|
|
|
183
|
|
Interest on federal funds
|
|
|
(99
|
)
|
|
|
13
|
|
|
|
(112
|
)
|
|
|
110
|
|
|
|
244
|
|
|
|
(134
|
)
|
Interest on other investments
|
|
|
779
|
|
|
|
141
|
|
|
|
638
|
|
|
|
1,118
|
|
|
|
997
|
|
|
|
121
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
|
63,414
|
|
|
|
4,811
|
|
|
|
58,603
|
|
|
|
31,570
|
|
|
|
13,352
|
|
|
|
18,218
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expense from interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on demand deposits
|
|
|
8,934
|
|
|
|
1,412
|
|
|
|
7,522
|
|
|
|
4,713
|
|
|
|
4,285
|
|
|
|
428
|
|
Interest on savings deposits
|
|
|
641
|
|
|
|
421
|
|
|
|
220
|
|
|
|
137
|
|
|
|
134
|
|
|
|
3
|
|
Interest on time deposits
|
|
|
23,581
|
|
|
|
3,651
|
|
|
|
19,930
|
|
|
|
13,746
|
|
|
|
7,616
|
|
|
|
6,130
|
|
Interest on other borrowings
|
|
|
1,368
|
|
|
|
301
|
|
|
|
1,067
|
|
|
|
4,110
|
|
|
|
2,252
|
|
|
|
1,858
|
|
Interest on subordinated debentures
|
|
|
860
|
|
|
|
(450
|
)
|
|
|
1,310
|
|
|
|
422
|
|
|
|
267
|
|
|
|
155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
|
35,384
|
|
|
|
5,335
|
|
|
|
30,049
|
|
|
|
23,128
|
|
|
|
14,554
|
|
|
|
8,574
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
28,030
|
|
|
$
|
(524
|
)
|
|
$
|
28,554
|
|
|
$
|
8,442
|
|
|
$
|
(1,202
|
)
|
|
$
|
9,644
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The changes in net interest income due to both rate and volume
have been allocated to rate and volume changes in proportion to
the relationship of the absolute dollar amounts of the changes
in each. |
Provision for Loan Losses. 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 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 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 chief credit officer. Impaired loans are reviewed
specifically and separately under Statement of Financial
Accounting Standards (SFAS) No. 114 to
determine the appropriate reserve allocation. Management
compares the investment in an impaired loan with the present
value of expected future cash flows 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. 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 $1.7 million for the
fourth quarter of 2007, an increase of $1.0 million, or
154.9%, from $650,000 in the fourth quarter of 2006. The
provision for loan losses was $4.5 million for the year
ended December 31, 2007, an increase of $2.0 million,
or 81.6%, from $2.5 million the year ended
December 31,
28
2006. During the fourth quarter and year ended December 31,
2007, we had net charged-off loans totaling $1.7 million
and $4.3 million, respectively, compared to net charged-off
loans of $662,000 and $2.3 million in the fourth quarter
and year ended December 31, 2006, respectively. The
annualized ratio of net charged-off loans to average loans was
0.33% and 0.24% for the fourth quarter of 2007 and year ended
December 31, 2007, compared to the .18% and 0.20% for the
fourth quarter of 2006 and year ended December 31, 2006.
The allowance for loan losses totaled $22.9 million, or
1.13% of loans, net of unearned income, at December 31,
2007, compared to $18.9 million, or 1.15% of loans, net of
unearned income, at December 31, 2006. See Financial
Condition Allowance for Loan Losses for
additional discussion.
Noninterest income. Noninterest income
increased $2.2 million and $7.5 million, or 61.1% and
63.9%, to $5.8 million and $19.4 million for the
fourth quarter and year ended December 31, 2007,
respectively, from $3.6 million and $11.9 million for
the fourth quarter and year ended December 31, 2006,
respectively. The components of noninterest income for the
fourth quarters and years ended December 31, 2007 and 2006
consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
% Change
|
|
|
|
(Dollars in thousands)
|
|
|
Service charges and fees on deposits
|
|
$
|
2,183
|
|
|
$
|
1,530
|
|
|
|
42.68
|
%
|
Mortgage banking income
|
|
|
808
|
|
|
|
839
|
|
|
|
(3.69
|
)
|
Investment securities gains
|
|
|
66
|
|
|
|
|
|
|
|
100.00
|
|
Change in fair value of derivatives
|
|
|
1,141
|
|
|
|
331
|
|
|
|
244.71
|
|
Increase in cash surrender value of life insurance
|
|
|
514
|
|
|
|
357
|
|
|
|
43.98
|
|
Other noninterest income
|
|
|
1,096
|
|
|
|
549
|
|
|
|
99.64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
5,808
|
|
|
$
|
3,606
|
|
|
|
61.06
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
% Change
|
|
|
|
(Dollars in thousands)
|
|
|
Service charges and fees on deposits
|
|
$
|
7,957
|
|
|
$
|
4,915
|
|
|
|
61.89
|
%
|
Mortgage banking income
|
|
|
3,860
|
|
|
|
2,997
|
|
|
|
28.80
|
|
Investment securities gains
|
|
|
308
|
|
|
|
|
|
|
|
100.00
|
|
Change in fair value of derivatives
|
|
|
1,310
|
|
|
|
374
|
|
|
|
250.27
|
|
Increase in cash surrender value of life insurance
|
|
|
1,895
|
|
|
|
1,580
|
|
|
|
19.94
|
|
Other noninterest income
|
|
|
4,027
|
|
|
|
1,945
|
|
|
|
107.04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
19,357
|
|
|
$
|
11,811
|
|
|
|
63.89
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The increases in service charges on deposits and fees are
primarily attributable to an increased customer base resulting
from our acquisitions. The increase in mortgage banking income
is the result of an increase in the volume of originations. The
increase in other noninterest income is primarily due to
increases in credit life insurance commissions, brokerage
commissions and ATM network fees. Our credit life insurance
commissions have increased due to the acquisition of a consumer
finance company subsidiary as part of the Community purchase.
The increase in brokerage commissions is the result of increased
volume in our investment subsidiary, and the increase in ATM
network fees is the result of increased volume related to new
customers and additional ATM locations acquired through
acquisitions or new branch locations.
29
Noninterest expenses. Noninterest expenses
increased $4.7 million, or 29.4%, to $20.8 million for
the fourth quarter of 2007 from $16.1 million for the
fourth quarter of 2006. This increase is primarily due to our
acquisitions and the opening of new branch locations. Selected
key ratios, as shown below, remained level between the periods
with noninterest expense to average assets ratio showing some
improvement. Continued branch expansion is expected to put
pressure on these ratios. However, increases in the volume of
net interest income and noninterest income are expected to begin
offsetting these costs. Noninterest expenses included the
following for the fourth quarters of 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
% Change
|
|
|
|
(Dollars in thousands)
|
|
|
Noninterest Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits
|
|
$
|
11,357
|
|
|
$
|
8,738
|
|
|
|
29.97
|
%
|
Occupancy, furniture and equipment expense
|
|
|
3,742
|
|
|
|
2,430
|
|
|
|
53.99
|
|
Management separation costs
|
|
|
|
|
|
|
265
|
|
|
|
(100.00
|
)
|
Amortization of core deposit intangibles
|
|
|
588
|
|
|
|
209
|
|
|
|
181.34
|
|
Merger-related costs
|
|
|
108
|
|
|
|
285
|
|
|
|
(62.11
|
)
|
Professional fees
|
|
|
720
|
|
|
|
738
|
|
|
|
(2.32
|
)
|
Insurance expense
|
|
|
638
|
|
|
|
588
|
|
|
|
8.56
|
|
Postage, stationery and supplies
|
|
|
570
|
|
|
|
438
|
|
|
|
30.11
|
|
Communications expense
|
|
|
538
|
|
|
|
401
|
|
|
|
34.08
|
|
Advertising expense
|
|
|
638
|
|
|
|
432
|
|
|
|
47.49
|
|
Other operating expense
|
|
|
1,951
|
|
|
|
1,593
|
|
|
|
22.47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
20,850
|
|
|
$
|
16,117
|
|
|
|
29.37
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected Key Ratios
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest expense to average assets(1)
|
|
|
2.76
|
%
|
|
|
2.84
|
%
|
|
|
|
|
Efficiency ratio(1)
|
|
|
81.82
|
|
|
|
79.19
|
|
|
|
|
|
|
|
|
(1) |
|
In calculating the selected key ratios, noninterest expense has
been adjusted for amortization of core deposit intangibles,
merger-related costs and other losses on the sale of assets. |
30
Noninterest expenses increased $28.4 million, or 57.1%, to
$78.2 million for the year ended December 31, 2007
from $49.8 million for the year ended December 31,
2006. This increase is primarily due to our acquisitions and the
opening of new branch locations. Selected key ratios, as shown
below, improved from the year ended December 31, 2006.
Continued branch expansion is expected to put pressure on these
ratios. However, increases in the volume of net interest income
and noninterest income are expected to begin offsetting these
costs. Noninterest expenses included the following for the years
ended December 31, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
% Change
|
|
|
|
(Dollars in thousands)
|
|
|
Noninterest Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits
|
|
$
|
42,316
|
|
|
$
|
26,805
|
|
|
|
57.87
|
%
|
Occupancy, furniture and equipment expense
|
|
|
13,391
|
|
|
|
7,754
|
|
|
|
72.70
|
|
Management separation costs
|
|
|
|
|
|
|
265
|
|
|
|
(100.00
|
)
|
Amortization of core deposit intangibles
|
|
|
1,691
|
|
|
|
442
|
|
|
|
282.58
|
|
Loss on extinguishment of debt
|
|
|
1,469
|
|
|
|
|
|
|
|
100.00
|
|
Merger-related costs
|
|
|
639
|
|
|
|
635
|
|
|
|
.63
|
|
Loss on termination of ESOP
|
|
|
158
|
|
|
|
|
|
|
|
100.00
|
|
Subsidiary startup costs
|
|
|
|
|
|
|
135
|
|
|
|
(100.00
|
)
|
Professional fees
|
|
|
2,269
|
|
|
|
2,598
|
|
|
|
(12.65
|
)
|
Insurance expense
|
|
|
2,189
|
|
|
|
1,899
|
|
|
|
15.29
|
|
Postage, stationery and supplies
|
|
|
2,252
|
|
|
|
1,250
|
|
|
|
80.20
|
|
Communications expense
|
|
|
2,007
|
|
|
|
988
|
|
|
|
103.04
|
|
Advertising expense
|
|
|
2,397
|
|
|
|
1,352
|
|
|
|
77.34
|
|
Other operating expense
|
|
|
7,445
|
|
|
|
5,662
|
|
|
|
31.47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
78,223
|
|
|
$
|
49,785
|
|
|
|
57.12
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected Key Ratios
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest expense to average assets(1)
|
|
|
2.83
|
%
|
|
|
2.84
|
%
|
|
|
|
|
Efficiency ratio(1)
|
|
|
79.48
|
|
|
|
81.46
|
|
|
|
|
|
|
|
|
(1) |
|
In calculating the selected key ratios, noninterest expense has
been adjusted for amortization of core deposit intangibles,
extinguishment of debt, merger-related costs, termination of
ESOP and other losses on the sale of assets. |
Income tax expense. We recognized income tax
expense of $1.1 million and $4.1 million for the
fourth quarter of 2007 and year ended December 31, 2007,
respectively, compared to $903,000 and $1.9 million for the
fourth quarter of 2006 and year ended December 31, 2006,
respectively. Our effective tax rate increased in 2007 compared
to 2006 due to higher levels of income, recognition of taxable
gains on the exchange of bank-owned life insurance and the
recapture of tax credits related to the sale of condominium
units. The difference between the effective tax rates in 2007
and 2006 and the blended federal statutory rate of 34% and state
tax rates between 5% and 6%, is primarily due to certain
tax-exempt income from investments and insurance policies. We
adopted the provisions of FIN 48 as of January 1,
2007, the effect of which is described in Note 14 to the
Consolidated Financial Statements.
We adopted the provisions of FIN 48 as of January 1,
2007 which resulted in a charge of approximately $555,000 to the
January 1, 2007 retained earnings balance. As of the
adoption date, we had unrecognized tax benefits of $459,000, all
of which, if recognized, would affect our effective tax rate.
Also, as of the adoption date, we had accrued interest expense
related to the unrecognized tax benefits of approximately
$146,000. Accrued interest related to unrecognized tax benefits
is recognized in income tax expense. Penalties, if incurred,
will be recognized in income tax expense as well.
31
We, along with our subsidiaries, are subject to
U.S. federal income tax as well as to Alabama and Florida
income taxes. We have concluded all U.S. federal income tax
matters for years through 2002, including acquisitions.
All state income tax matters have been concluded for years
through 2001. We 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. Our management anticipates that these examinations
may be finalized in the foreseeable future. However, based on
the status of these examinations, and the protocol of finalizing
audits by the taxing authority, which could include formal legal
proceedings, it is not possible to estimate the impact of any
changes to the previously recorded uncertain tax positions.
There have been no significant changes to the status of these
examinations during the twelve-month period ended
December 31, 2007.
Our net deferred tax assets decreased $4.5 million to
$20.9 million as of December 31, 2007 from
$25.4 million at December 31, 2006. This decrease is
primarily due to an increase in deferred tax liabilities related
to our acquisition of Peoples.
Our determination of the realization of deferred tax assets (net
of valuation allowance) is based upon managements judgment
of various future events and uncertainties, including future
reversals of existing taxable temporary differences, the timing
and amount of future income earned by our subsidiaries and the
implementation of various tax planning strategies to maximize
realization of the deferred tax assets. A portion of the amount
of the deferred tax asset that can be realized in any year is
subject to certain statutory federal income tax limitations. We
believe that our subsidiaries will be able to generate
sufficient operating earnings to realize the deferred tax
benefits. We evaluate quarterly the realizability of the
deferred tax assets and, if necessary, adjust any valuation
allowance accordingly.
Year
Ended December 31, 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 $4.23 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.
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.
32
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 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
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 14 to the Consolidated Financial Statements for more
detail on the components of our income tax expense.
33
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.
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.
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 million 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, 2007, the Bank had approximately
$454 million more in interest-bearing liabilities than
interest-earning assets 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. The Bank had approximately $717 million
of such administratively priced deposits on December 31,
2007.
The Banks net interest income simulation model projects
that net interest income will increase on an annual basis by
3.5%, or approximately $2.7 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 9.1%, or
approximately $7.1 million. The net interest income
produced by these scenarios is within our asset and liability
management policy.
34
EVE is a concept related to longer-term interest rate risk. EVE
is defined as the net present value of the balance sheets
cash flows or the residual value of future cash flows. While EVE
does not represent actual market liquidation or replacement
value, it is a useful tool for estimating our balance sheet
earnings capacity. The greater the EVE, the greater our earnings
capacity. The Banks EVE model projects that EVE will
increase 4.4% 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 9.8%. The EVE produced by these
scenarios is within our asset and liability management policy.
The following table sets forth the Banks EVE as of
December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
|
|
Change (in Basis Points) in Interest Rates
|
|
EVE
|
|
|
Amount
|
|
|
Percent
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
+ 200 BP
|
|
$
|
470,866
|
|
|
$
|
19,274
|
|
|
|
4.4
|
%
|
0 BP
|
|
|
451,142
|
|
|
|
|
|
|
|
|
|
200 BP
|
|
|
407,146
|
|
|
|
(43,996
|
)
|
|
|
(9.8
|
)
|
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 the 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.
The following is a discussion of our primary derivative
positions.
Interest Rate Swaps. As of December 31,
2007, we had entered into $43.5 million notional amount of
swaps (CD swaps) to hedge the interest rate risk
inherent in certain of our 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. Hedge accounting was discontinued on
$40.4 million of these swap positions during 2007 because
the instruments no longer qualified as an effective fair value
hedge under SFAS 133, due to market rate changes in the
bench-mark interest rate. 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 2007. As of December 31, 2007,
these CD swaps had a recorded fair value of $12,073 and a
weighted average life of 7.46 years, respectively. The
weighted average fixed rate (receiving rate) was 5.04% and the
weighted average variable rate (paying rate) was 5.00% (LIBOR
based). Subsequent to December 31, 2007, five CD swaps with
a notional value of $23 million were called at par value.
Fair Value Hedges. As of December 31,
2007, we had $3.2 million of notional amount of CD swaps
designated and qualified as fair value hedges. As fair value
hedges, the net cash settlements from the designated swaps are
reported as part of net interest income. In addition, we 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
assets or other liabilities and the change in fair value of the
related hedged brokered CD is reported as an adjustment to the
carrying value of the brokered CDs. As of December 31,
2007, the amount of CD swaps designated had a recorded fair
value of $55,000 and a weighted average life of
35
6.62 years. The weighted average fixed rate (receiving
rate) was 4.70% and the weighted average variable rate (paying
rate) was 4.90% (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
the difference between a current market rate of interest and an
agreed rate multiplied by the amount of the notional amount. We
entered into $50 million interest rate floor contracts for
a 3-year
period with a 4.25% floor on the
3-month
LIBOR rate. We paid a $248,000 premium for these investments.
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
$590,000 and $215,000 as of December 31, 2007 and 2006,
respectively. In March 2008, we terminated our interest rate
floor contracts for $1.3 million which resulted in a
realized pre-tax gain of $677,000 that we will recognize in our
first quarter 2008 consolidated statement of income.
Commitments to Originate Mortgage
Loans. During the ordinary course of business, we
enter into certain commitments with customers in connection with
residential mortgage loan applications. Such commitments are
considered derivatives under the provisions of
SFAS No. 133, as amended by SFAS No. 149,
Amendment to Statement 133 on Derivatives Instruments and
Hedging Activities, and are therefore required to be
recorded at fair value. The aggregate amount of these mortgage
loan origination commitments was $20.9 million and
$28.7 million at December 31, 2007 and 2006,
respectively. The net unrealized gain of the origination
commitments were $122,000 and $51,000 at December 31, 2007
and 2006, respectively. The fair values are calculated based on
changes in market interest rates after the commitment date.
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
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 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
2007, 2006 and 2005, primarily due to our low level of operating
income along with increased volume of mortgage loans held for
sale originations.
Investing activities in 2007 and 2006 were a net user of funds,
primarily due to loan funding and capital expenditures. During
2007, we received a higher level of funds from principal
payments and calls in our investment portfolio. During 2006, a
significant amount of securities that were acquired as part of
our business combinations were sold and reinvested in loans and
additional investment securities, continuing our strategy of
realigning our balance sheet which we began in 2005. 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.
Financing activities were a net provider of funds in 2007 and
2006, as we increased our level of deposits. During 2007, the
increase in deposit funding was offset by a decrease in
borrowings and the purchase of treasury stock. During 2006, the
increase in deposits was offset by the restructuring of FHLB
advances and maturity of repurchase agreements acquired in our
business combinations. 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.
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.
36
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)
|
|
$
|
222,828
|
|
|
$
|
74,488
|
|
|
$
|
55,032
|
|
|
$
|
34,968
|
|
|
$
|
58,340
|
|
Operating leases(2)
|
|
|
16,793
|
|
|
|
2,731
|
|
|
|
4,020
|
|
|
|
2,230
|
|
|
|
7,812
|
|
Capitalized leases(2)
|
|
|
8,222
|
|
|
|
367
|
|
|
|
734
|
|
|
|
734
|
|
|
|
6,387
|
|
Notes payable(3)
|
|
|
9,500
|
|
|
|
9,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase agreements(4)
|
|
|
7,075
|
|
|
|
7,075
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Junior subordinated debentures owed to unconsolidated trusts(5)
|
|
|
53,744
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
53,744
|
|
Deferred compensation agreements(6)
|
|
|
14,179
|
|
|
|
367
|
|
|
|
776
|
|
|
|
818
|
|
|
|
12,218
|
|
Employment separation agreements(7)
|
|
|
666
|
|
|
|
62
|
|
|
|
84
|
|
|
|
44
|
|
|
|
476
|
|
Other employment related contract obligations incurred in
business combinations(8)
|
|
|
4,948
|
|
|
|
3,002
|
|
|
|
1,536
|
|
|
|
410
|
|
|
|
|
|
Benefit Restoration Plan(9)
|
|
|
2,461
|
|
|
|
265
|
|
|
|
521
|
|
|
|
505
|
|
|
|
1,170
|
|
Income tax obligations under FIN 48(10)
|
|
|
600
|
|
|
|
|
|
|
|
600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Contractual cash obligations
|
|
$
|
341,016
|
|
|
$
|
97,857
|
|
|
$
|
63,303
|
|
|
$
|
39,709
|
|
|
$
|
140,147
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
See Note 8 to the Consolidated Financial Statements. |
(2) |
|
See Note 6 to the Consolidated Financial Statements. |
(3) |
|
See Note 10 to the Consolidated Financial Statements. |
(4) |
|
See Note 9 to the Consolidated Financial Statements. |
(5) |
|
See Note 11 to the Consolidated Financial Statements. |
(6) |
|
See Note 13 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. |
|
|
|
(10) |
|
See Note 14 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)
|
|
$
|
355,579
|
|
|
$
|
258,007
|
|
|
$
|
30,444
|
|
|
$
|
20,120
|
|
|
$
|
47,008
|
|
Standby letters of credit(1)
|
|
|
29,107
|
|
|
|
22,704
|
|
|
|
1,322
|
|
|
|
5,081
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Commercial Commitments
|
|
$
|
384,686
|
|
|
$
|
280,711
|
|
|
$
|
31,766
|
|
|
$
|
25,201
|
|
|
$
|
47,008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
See Note 17 to the Consolidated Financial Statements. |
In addition, the FHLB has issued for the Banks benefit a
$20.0 million irrevocable letter of credit in favor of the
Chief Financial Officer of the State of Florida to secure
certain deposits of the State of Florida. The letter of credit
expires January 6, 2009 upon 60 days prior
notice of non-renewal; otherwise, it automatically extends for a
successive one-year term.
37
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, 2007 for
the construction of these branch locations totaling
approximately $2,125,000.
Financial
Condition
Our total assets were $2.885 billion at December 31,
2007, an increase of $444 million, or 18.2%, from
$2.441 billion as of December 31, 2006. This growth is
primarily attributable to an increase in loans and the
Peoples acquisition, as discussed below. Our average total
assets for 2007 were $2.621 billion, which was supported by
average total liabilities of $2.313 billion and average
total stockholders equity of $308 million.
Recent
Acquisitions
Peoples Acquisition. We completed the
acquisition of 100% of the outstanding stock of Peoples of
Sarasota, Florida on July 27, 2007 in exchange for
6,635,125 shares of our common stock valued at
approximately $74.0 million. The shares were valued by
using the average of the closing prices of our stock for several
days prior to and after the terms of the acquisition were agreed
to and announced. The total purchase price, which includes
certain direct acquisition costs, was $76.4 million. As a
result of the acquisition, we now operate three banking
locations in Sarasota and Manatee Counties, Florida. This area
is a significant addition to our Florida market, which was
expanded in 2006 by the Kensington acquisition discussed below.
The Peoples transaction resulted in $47.4 million of
goodwill allocated to the Florida reporting unit and
$9.8 million of core deposit intangibles. The goodwill
acquired is not tax-deductible. The amount allocated to the core
deposit intangible was determined by an independent valuation
and is being amortized over an estimated useful life of ten
years based on the undiscounted cash flow.
Management is completing its plan to consolidate Peoples
data processing operations and convert Peoples accounts to
our system. This conversion is expected to be completed in the
first quarter of 2008. Certain costs associated with this
conversion totaling approximately $575,000, which primarily
includes contract cancellation costs, were estimated and accrued
as of the acquisition date. In addition, certain
employment-related contract obligations totaling approximately
$4.6 million were also accrued at the acquisition date.
The following table summarizes the estimated fair values of the
assets acquired and liabilities assumed at the date of
acquisition.
|
|
|
|
|
|
|
Amount
|
|
|
|
(In thousands)
|
|
|
Cash and due from banks
|
|
$
|
3,854
|
|
Federal funds sold
|
|
|
4,200
|
|
Investment securities
|
|
|
47,684
|
|
Loans, net
|
|
|
254,047
|
|
Premises and equipment, net
|
|
|
2,318
|
|
Goodwill
|
|
|
47,389
|
|
Core deposit intangibles
|
|
|
9,810
|
|
Other assets
|
|
|
10,612
|
|
Deposits
|
|
|
(245,459
|
)
|
Federal funds purchased and repurchase agreements
|
|
|
(6,905
|
)
|
Advances from FHLB
|
|
|
(37,983
|
)
|
Junior subordinated debentures
|
|
|
(3,962
|
)
|
Other liabilities
|
|
|
(9,176
|
)
|
|
|
|
|
|
Total consideration paid for Peoples
|
|
$
|
76,429
|
|
|
|
|
|
|
Community Acquisition. The Corporation
completed the acquisition of 100% of the outstanding stock of
Community Bancshares, Inc. (Community) of
Blountsville, Alabama on November 7, 2006 in exchange for
8,072,179 shares of the Corporations common stock
valued at approximately $92.8 million. 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
38
acquisition costs and cash payments due for the cancellation of
stock options totaled $97.2 million. As a result of the
acquisition, the Corporation added 18 banking locations and 15
consumer finance company locations in the State of Alabama.
The Community transaction resulted in $60.2 million of
goodwill allocated to the Alabama reporting unit and
$10.1 million of core deposit intangibles. The goodwill
acquired is not tax deductible. The amount allocated to the core
deposit intangible 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.
The following table summarizes the estimated fair values of the
assets acquired and liabilities assumed at the date of
acquisition.
|
|
|
|
|
|
|
Amount
|
|
|
|
(In thousands)
|
|
|
Cash and due from banks
|
|
$
|
23,167
|
|
Federal funds sold
|
|
|
35,273
|
|
Investment securities
|
|
|
117,424
|
|
Loans, net
|
|
|
337,148
|
|
Premises and equipment, net
|
|
|
22,529
|
|
Goodwill
|
|
|
60,148
|
|
Core deposit intangibles
|
|
|
10,142
|
|
Other assets
|
|
|
21,185
|
|
Deposits
|
|
|
(431,334
|
)
|
FHLB advances
|
|
|
(68,801
|
)
|
Junior subordinated debentures
|
|
|
(12,047
|
)
|
Other liabilities
|
|
|
(17,634
|
)
|
|
|
|
|
|
Total consideration paid for Community
|
|
$
|
97,200
|
|
|
|
|
|
|
Kensington Acquisition. We completed the
acquisition of 100% of the outstanding stock of Kensington on
August 31, 2006 in exchange for 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
$71.4 million As a result of the acquisition, we now
operate 12 banking locations in the Tampa Bay area of Florida.
This area will be our largest market and has a higher projected
population growth than any of our current banking markets.
The Kensington transaction resulted in $44.5 million of
goodwill allocated to the Florida reporting unit and
$3.5 million of core deposit intangibles. The goodwill
acquired is not tax deductible. The amount allocated to the core
deposit intangible 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 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.
39
The following table summarizes the estimated fair values of the
assets acquired and liabilities assumed at the date of
acquisition.
|
|
|
|
|
|
|
Amount
|
|
|
|
(In thousands)
|
|
|
Cash and due from banks
|
|
$
|
4,454
|
|
Federal funds sold
|
|
|
964
|
|
Investment securities
|
|
|
180,151
|
|
Loans, net
|
|
|
136,826
|
|
Premises and equipment, net
|
|
|
5,397
|
|
Goodwill
|
|
|
44,470
|
|
Core deposit intangibles
|
|
|
3,544
|
|
Other assets
|
|
|
5,128
|
|
Deposits
|
|
|
(276,186
|
)
|
Repurchase agreements
|
|
|
(30,050
|
)
|
Other liabilities
|
|
|
(3,326
|
)
|
|
|
|
|
|
Total consideration paid for Kensington
|
|
$
|
71,372
|
|
|
|
|
|
|
Loans, net of unearned income. Our loans, net
of unearned income, totaled $2.017 billion at
December 31, 2007, an increase of 23.0%, or
$377 million, from $1.640 billion at December 31,
2006. Of the increase, approximately $235 million can be
attributed to the Peoples acquisition. Mortgage loans held
for sale totaled $33.4 million at December 31, 2007,
an increase of $9.0 million from $24.4 million at
December 31, 2006. Average loans, including mortgage loans
held for sale, totaled $1.839 billion for 2007, compared to
$1.177 billion for 2006. Loans, net of unearned income,
comprised 82.2% of interest-earning assets at December 31,
2007, compared to 78.7% at December 31, 2006. Mortgage
loans held for sale comprised 1.4% of interest-earning assets at
December 31, 2007, compared to 1.2% at December 31,
2006. The average yield of the loan portfolio was 8.18%, 7.87%
and 6.75% for the years ended December 31, 2007, 2006 and
2005, respectively. The increase in average yield is primarily
the result of a general increase in market rates.
40
The following table details the distribution of our loan
portfolio by category for the periods presented:
Distribution
of Loans by Category
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
(Dollars in thousands)
|
|
|
Commercial and industrial
|
|
$
|
183,013
|
|
|
$
|
172,872
|
|
|
$
|
135,454
|
|
|
$
|
134,688
|
|
|
$
|
142,072
|
|
Real estate construction and land development(2)
|
|
|
665,303
|
|
|
|
547,772
|
|
|
|
326,418
|
|
|
|
249,715
|
|
|
|
147,917
|
|
Real estate mortgages
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single-family
|
|
|
540,277
|
|
|
|
456,341
|
|
|
|
243,183
|
|
|
|
250,758
|
|
|
|
231,064
|
|
Commercial
|
|
|
533,611
|
|
|
|
362,542
|
|
|
|
210,611
|
|
|
|
242,884
|
|
|
|
250,032
|
|
Other
|
|
|
41,535
|
|
|
|
46,895
|
|
|
|
27,503
|
|
|
|
25,764
|
|
|
|
31,645
|
|
Consumer
|
|
|
53,377
|
|
|
|
54,462
|
|
|
|
21,122
|
|
|
|
32,009
|
|
|
|
46,201
|
|
Other(1)
|
|
|
1,235
|
|
|
|
438
|
|
|
|
498
|
|
|
|
567
|
|
|
|
8,923
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
|
2,018,351
|
|
|
|
1,641,322
|
|
|
|
964,789
|
|
|
|
936,385
|
|
|
|
857,854
|
|
Unearned income
|
|
|
(1,340
|
)
|
|
|
(1,794
|
)
|
|
|
(1,536
|
)
|
|
|
(1,517
|
)
|
|
|
(913
|
)
|
Allowance for loan losses
|
|
|
(22,868
|
)
|
|
|
(18,892
|
)
|
|
|
(12,011
|
)
|
|
|
(12,543
|
)
|
|
|
(25,174
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loans
|
|
$
|
1,994,143
|
|
|
$
|
1,620,636
|
|
|
$
|
951,242
|
|
|
$
|
922,325
|
|
|
$
|
831,767
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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. |
|
(2) |
|
A further analysis of the components of our real estate
construction and land development loans as of December 31,
2007 is as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007
|
|
|
|
Residential
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
Development
|
|
|
Development
|
|
|
Other
|
|
|
Total
|
|
|
|
(Dollars in thousands)
|
|
|
Geographic Location
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alabama
|
|
$
|
192,133
|
|
|
$
|
60,407
|
|
|
$
|
16,003
|
|
|
$
|
268,543
|
|
Florida
|
|
|
195,460
|
|
|
|
162,286
|
|
|
|
18,564
|
|
|
|
376,310
|
|
Other
|
|
|
7,929
|
|
|
|
12,521
|
|
|
|
|
|
|
|
20,450
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
395,522
|
|
|
$
|
235,214
|
|
|
$
|
34,567
|
|
|
$
|
665,303
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional information and analysis regarding our loan portfolio
is included in the Business Section, Item 1, Part 1,
under the heading Loan Portfolio.
The following table shows the amount of total loans, net of
unearned income, by segment and the percent change for the dates
indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
Percent
|
|
|
|
2007
|
|
|
2006
|
|
|
Change
|
|
|
|
(Dollars in thousands)
|
|
|
Total loans, net of unearned income
|
|
$
|
2,017,011
|
|
|
$
|
1,639,528
|
|
|
|
23.02
|
%
|
Alabama segment
|
|
|
908,292
|
|
|
|
872,870
|
|
|
|
4.06
|
|
Florida segment
|
|
|
932,478
|
|
|
|
625,633
|
|
|
|
49.05
|
|
Other
|
|
|
176,241
|
|
|
|
141,025
|
|
|
|
24.97
|
|
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, 2007.
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
41
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
|
|
$
|
106,751
|
|
|
$
|
71,134
|
|
|
$
|
5,128
|
|
|
$
|
183,013
|
|
|
$
|
44,089
|
|
|
$
|
32,173
|
|
Real estate construction and land development
|
|
|
527,030
|
|
|
|
102,955
|
|
|
|
35,318
|
|
|
|
665,303
|
|
|
|
40,660
|
|
|
|
97,613
|
|
Real estate mortgages Single-family
|
|
|
44,526
|
|
|
|
149,168
|
|
|
|
346,583
|
|
|
|
540,277
|
|
|
|
142,452
|
|
|
|
353,299
|
|
Commercial
|
|
|
131,178
|
|
|
|
170,170
|
|
|
|
232,263
|
|
|
|
533,611
|
|
|
|
148,114
|
|
|
|
254,319
|
|
Other
|
|
|
16,010
|
|
|
|
12,407
|
|
|
|
13,118
|
|
|
|
41,535
|
|
|
|
15,328
|
|
|
|
10,197
|
|
Consumer
|
|
|
15,490
|
|
|
|
36,011
|
|
|
|
1,876
|
|
|
|
53,377
|
|
|
|
36,350
|
|
|
|
1,537
|
|
Other
|
|
|
1,235
|
|
|
|
|
|
|
|
|
|
|
|
1,235
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
$
|
842,220
|
|
|
$
|
541,845
|
|
|
$
|
634,286
|
|
|
$
|
2,018,351
|
|
|
$
|
426,993
|
|
|
$
|
749,138
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent to total loans
|
|
|
41.7
|
%
|
|
|
26.8
|
%
|
|
|
31.4
|
%
|
|
|
100.0
|
%
|
|
|
21.2
|
%
|
|
|
37.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, national and local economic trends and
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 and varying collateral types.
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
and in which 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
according to the following regulatory classifications: Special
Mention, Substandard, Doubtful or Loss.
Pursuant to SFAS No. 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
42
to expect that all amounts due will ultimately be collected
according to the terms of the loan agreement. Larger groups of
homogenous loans such as consumer installment and residential
real estate mortgage loans are collectively evaluated for
impairment.
Reserve percentages assigned to 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 internal loan review, which also performs ongoing,
independent review of the risk management process. The risk
management process includes underwriting, documentation and
collateral control. Loan review is centralized and independent
of the lending function. The loan review results are reported to
senior management and the Audit Committee of the Board of
Directors. We have a centralized loan administration department
to serve our entire bank. This department provides standardized
oversight for compliance with loan approval authorities and bank
lending policies and procedures, as well as centralized
supervision, monitoring and accessibility.
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,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
|
|
|
Percent
|
|
|
|
|
|
Percent
|
|
|
|
|
|
Percent
|
|
|
|
|
|
Percent
|
|
|
|
|
|
Percent
|
|
|
|
|
|
|
of Loans
|
|
|
|
|
|
of Loans
|
|
|
|
|
|
of Loans
|
|
|
|
|
|
of Loans
|
|
|
|
|
|
of Loans
|
|
|
|
|
|
|
in Each
|
|
|
|
|
|
in Each
|
|
|
|
|
|
in Each
|
|
|
|
|
|
in Each
|
|
|
|
|
|
in Each
|
|
|
|
|
|
|
Category
|
|
|
|
|
|
Category
|
|
|
|
|
|
Category
|
|
|
|
|
|
Category
|
|
|
|
|
|
Category
|
|
|
|
|
|
|
to Total
|
|
|
|
|
|
to Total
|
|
|
|
|
|
to Total
|
|
|
|
|
|
to Total
|
|
|
|
|
|
to Total
|
|
|
|
Amount
|
|
|
Loans
|
|
|
Amount
|
|
|
Loans
|
|
|
Amount
|
|
|
Loans
|
|
|
Amount
|
|
|
Loans
|
|
|
Amount
|
|
|
Loans
|
|
|
|
(Dollars in thousands)
|
|
|
Commercial and industrial
|
|
$
|
2,697
|
|
|
|
9.1
|
%
|
|
$
|
3,719
|
|
|
|
10.5
|
%
|
|
$
|
3,805
|
|
|
|
14.0
|
%
|
|
$
|
3,736
|
|
|
|
14.1
|
%
|
|
$
|
10,110
|
|
|
|
16.6
|
%
|
Real estate construction and land development
|
|
|
9,396
|
|
|
|
33.0
|
|
|
|
3,425
|
|
|
|
33.4
|
|
|
|
1,275
|
|
|
|
33.8
|
|
|
|
1,009
|
|
|
|
26.6
|
|
|
|
1,099
|
|
|
|
17.2
|
|
Real estate mortgages
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single-family
|
|
|
2,360
|
|
|
|
26.8
|
|
|
|
2,910
|
|
|
|
27.8
|
|
|
|
1,395
|
|
|
|
25.2
|
|
|
|
1,582
|
|
|
|
26.8
|
|
|
|
4,538
|
|
|
|
26.9
|
|
Commercial
|
|
|
6,781
|
|
|
|
26.4
|
|
|
|
6,206
|
|
|
|
22.0
|
|
|
|
4,194
|
|
|
|
21.8
|
|
|
|
4,594
|
|
|
|
25.9
|
|
|
|
7,613
|
|
|
|
29.1
|
|
Other
|
|
|
155
|
|
|
|
2.1
|
|
|
|
530
|
|
|
|
2.9
|
|
|
|
215
|
|
|
|
2.9
|
|
|
|
257
|
|
|
|
2.7
|
|
|
|
320
|
|
|
|
3.7
|
|
Consumer
|
|
|
1,479
|
|
|
|
2.6
|
|
|
|
2,102
|
|
|
|
3.4
|
|
|
|
1,127
|
|
|
|
2.2
|
|
|
|
1,336
|
|
|
|
3.0
|
|
|
|
1,374
|
|
|
|
5.4
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
.1
|
|
|
|
29
|
|
|
|
.9
|
|
|
|
120
|
|
|
|
1.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
22,868
|
|
|
|
100.0
|
%
|
|
$
|
18,892
|
|
|
|
100.0
|
%
|
|
$
|
12,011
|
|
|
|
100.0
|
%
|
|
$
|
12,543
|
|
|
|
100.0
|
%
|
|
$
|
25,174
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The allowance as a percentage of loans, net of unearned income,
at December 31, 2007 was 1.13%, compared to 1.15% as of
December 31, 2006. Net charge-offs increased
$2.0 million, from $2.3 million in 2006 to
$4.3 million in 2007. Net charge-offs of commercial loans
decreased $221,000, from $985,000 in 2006 to $764,000 in 2007.
Net charge-offs of real estate loans increased $998,000, from
$770,000 in 2006 to $1.77 million in 2007. Net charge-offs
of consumer loans increased $1.19 million, to
$1.75 million in 2007 from $561,000 in 2006. Net
charge-offs as a percentage of the allowance for loan losses
were 18.72% in 2007, up from 12.26% in 2006.
Our consumer loan charge-offs were higher during 2007 than in
previous periods, primarily due to the addition of our consumer
finance companies, which accounted for approximately
$1.2 million, or 68.9%, of the total net consumer loan
charge-offs. Going forward, we expect these losses to continue
to be a substantial portion of the overall consumer loan loss
experience for the bank; however, we believe the increased risk
associated with these loans is generally offset by their higher
yield.
43
During 2007, management increased its allocation of the
allowance for loan losses related to construction and land
development real estate loans as a result of the increasing
levels of risk associated with the general economic conditions
related to construction and land development real estate
portfolio throughout our franchise. Within this construction and
land development portfolio, approximately $396 million, or
63%, was related to residential development and construction. Of
the residential purpose loans, 49% were located in Florida at
December 31, 2007. The largest category in the residential
development and construction portfolio is related to development
of single-family lots and single-family lots held by
experienced, licensed builders for the future construction of
single-family homes. This category represents approximately
$158 million, or 40%, of this portfolio. Construction loans
related to income-producing properties accounted for
$235 million, or 35% or the total commercial construction
and development loans. Geographically, approximately 69% of the
total category was located in Florida, with the remaining loans
located primarily in Alabama.
The allowance for loan losses as a percentage of nonperforming
loans decreased to 90.31% at December 31, 2007 from 219.9%
at December 31, 2006. Approximately $958,000 in allowance
for loan losses has been allocated to nonperforming loans as of
December 31, 2007. As of December 31, 2007,
nonperforming loans totaled $25.3 million, of which
$24.0 million, or 94.9%, were loans secured by real estate
compared to $7.3 million, or 85.3%, as of December 31,
2006. Of the $958,000 in allowance for loan losses allocated to
nonperforming loans, $680,000 is attributable to these real
estate loans, with the remaining $278,000 allocated to remaining
nonperforming loans, which consist primarily of commercial
loans. (See Nonperforming Assets). Despite the
overall decline in the allowance for loan losses as a percentage
of nonperforming loans, management believes the overall
allowance for loan losses to be adequate.
44
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
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
Allowance for loan losses at beginning of year
|
|
$
|
18,892
|
|
|
$
|
12,011
|
|
|
$
|
12,543
|
|
|
$
|
25,174
|
|
|
$
|
27,766
|
|
Allowance of acquired banks (branches sold)
|
|
|
3,717
|
|
|
|
6,697
|
|
|
|
|
|
|
|
|
|
|
|
(102
|
)
|
Charge-offs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
|
1,162
|
|
|
|
1,450
|
|
|
|
2,097
|
|
|
|
7,690
|
|
|
|
10,823
|
|
Real estate construction and land development
|
|
|
301
|
|
|
|
378
|
|
|
|
358
|
|
|
|
765
|
|
|
|
630
|
|
Real estate mortgages
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single-family
|
|
|
1,149
|
|
|
|
625
|
|
|
|
795
|
|
|
|
1,012
|
|
|
|
1,505
|
|
Commercial
|
|
|
724
|
|
|
|
416
|
|
|
|
1,432
|
|
|
|
5,820
|
|
|
|
6,696
|
|
Other
|
|
|
206
|
|
|
|
15
|
|
|
|
85
|
|
|
|
86
|
|
|
|
1,187
|
|
Consumer
|
|
|
2,117
|
|
|
|
860
|
|
|
|
630
|
|
|
|
1,881
|
|
|
|
3,092
|
|
Other
|
|
|
63
|
|
|
|
2
|
|
|
|
345
|
|
|
|
87
|
|
|
|
517
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total charge-offs
|
|
|
5,722
|
|
|
|
3,746
|
|
|
|
5,742
|
|
|
|
17,341
|
|
|
|
24,450
|
|
Recoveries:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
|
398
|
|
|
|
465
|
|
|
|
413
|
|
|
|
1,468
|
|
|
|
554
|
|
Real estate construction and land development
|
|
|
286
|
|
|
|
126
|
|
|
|
37
|
|
|
|
4
|
|
|
|
23
|
|
Real estate mortgages
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single-family
|
|
|
174
|
|
|
|
102
|
|
|
|
335
|
|
|
|
470
|
|
|
|
23
|
|
Commercial
|
|
|
70
|
|
|
|
363
|
|
|
|
526
|
|
|
|
737
|
|
|
|
49
|
|
Other
|
|
|
82
|
|
|
|
73
|
|
|
|
118
|
|
|
|
97
|
|
|
|
48
|
|
Consumer
|
|
|
382
|
|
|
|
301
|
|
|
|
280
|
|
|
|
549
|
|
|
|
282
|
|
Other
|
|
|
48
|
|
|
|
|
|
|
|
1
|
|
|
|
410
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recoveries
|
|
|
1,440
|
|
|
|
1,430
|
|
|
|
1,710
|
|
|
|
3,735
|
|
|
|
985
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs
|
|
|
4,282
|
|
|
|
2,316
|
|
|
|
4,032
|
|
|
|
13,606
|
|
|
|
23,465
|
|
Provision for loan losses
|
|
|
4,541
|
|
|
|
2,500
|
|
|
|
3,500
|
|
|
|
975
|
|
|
|
20,975
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses at end of year
|
|
$
|
22,868
|
|
|
$
|
18,892
|
|
|
$
|
12,011
|
|
|
$
|
12,543
|
|
|
$
|
25,174
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans at end of period, net of unearned income
|
|
$
|
2,017,011
|
|
|
$
|
1,639,528
|
|
|
$
|
963,253
|
|
|
$
|
934,868
|
|
|
$
|
856,941
|
|
Average loans, net of unearned income
|
|
|
1,814,032
|
|
|
|
1,176,844
|
|
|
|
947,212
|
|
|
|
894,406
|
|
|
|
1,063,451
|
|
Ratio of ending allowance to ending loans
|
|
|
1.13
|
%
|
|
|
1.15
|
%
|
|
|
1.25
|
%
|
|
|
1.34
|
%
|
|
|
2.94
|
%
|
Ratio of net charge-offs to average loans
|
|
|
0.24
|
|
|
|
0.20
|
|
|
|
0.43
|
|
|
|
1.52
|
|
|
|
2.21
|
|
Net charge-offs as a percentage of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan losses
|
|
|
94.30
|
|
|
|
92.64
|
|
|
|
115.20
|
|
|
|
1,395.49
|
|
|
|
111.87
|
|
Allowance for loan losses
|
|
|
18.72
|
|
|
|
12.26
|
|
|
|
33.57
|
|
|
|
108.47
|
|
|
|
93.21
|
|
Allowance for loan losses as a percentage of nonperforming loans
|
|
|
90.31
|
|
|
|
219.88
|
|
|
|
252.76
|
|
|
|
169.36
|
|
|
|
78.59
|
|
Nonperforming Assets. Nonperforming assets
increased $19.3 million, to $29.7 million as of
December 31, 2007 from $10.4 million as of
December 31, 2006. As a percentage of net loans plus
nonperforming assets, nonperforming assets increased to 1.47% at
December 31, 2007 from .63% at December 31, 2006. The
overall increase in nonperforming assets was primarily related
to the residential construction and mortgage loan portfolios.
The increase in the construction category was directly related
to three large northwest Florida construction credits over
$1.0 million, where management does not currently expect
significant losses. The increase in the residential
45
mortgage category is primarily driven by single family
residences with limited loss exposure. The following table
represents our nonperforming assets for the dates shown.
Nonperforming
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
(Dollars in thousands)
|
|
|
Nonaccrual
|
|
$
|
22,533
|
|
|
$
|
7,773
|
|
|
$
|
4,550
|
|
|
$
|
6,344
|
|
|
$
|
29,630
|
|
Accruing loans 90 days or more delinquent
|
|
|
2,117
|
|
|
|
514
|
|
|
|
49
|
|
|
|
431
|
|
|
|
1,438
|
|
Restructured
|
|
|
671
|
|
|
|
305
|
|
|
|
153
|
|
|
|
631
|
|
|
|
966
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total nonperforming loans
|
|
|
25,321
|
|
|
|
8,592
|
|
|
|
4,752
|
|
|
|
7,406
|
|
|
|
32,034
|
|
Other real estate owned
|
|
|
4,277
|
|
|
|
1,684
|
|
|
|
1,842
|
|
|
|
4,906
|
|
|
|
5,806
|
|
Repossessed assets
|
|
|
138
|
|
|
|
137
|
|
|
|
|
|
|
|
103
|
|
|
|
219
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total nonperforming assets
|
|
$
|
29,736
|
|
|
$
|
10,413
|
|
|
$
|
6,594
|
|
|
$
|
12,415
|
|
|
$
|
38,059
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonperforming loans as a percentage of loans
|
|
|
1.26
|
%
|
|
|
.52
|
%
|
|
|
.49
|
%
|
|
|
.79
|
%
|
|
|
3.74
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonperforming assets as a percentage of loans plus nonperforming
assets
|
|
|
1.47
|
%
|
|
|
.63
|
%
|
|
|
.68
|
%
|
|
|
1.32
|
%
|
|
|
4.41
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonperforming assets as a percentage of total assets
|
|
|
1.03
|
%
|
|
|
.43
|
%
|
|
|
.47
|
%
|
|
|
.87
|
%
|
|
|
3.25
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following is a summary of nonperforming loans by category
for the dates shown:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
(Dollars in thousands)
|
|
|
Commercial and industrial
|
|
$
|
1,058
|
|
|
$
|
704
|
|
|
$
|
988
|
|
|
$
|
2,445
|
|
|
$
|
11,621
|
|
Real estate construction and land development
|
|
|
10,569
|
|
|
|
2,067
|
|
|
|
469
|
|
|
|
187
|
|
|
|
1,735
|
|
Real estate mortgages
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single-family
|
|
|
8,069
|
|
|
|
2,805
|
|
|
|
2,448
|
|
|
|
2,060
|
|
|
|
5,472
|
|
Commercial
|
|
|
4,045
|
|
|
|
1,765
|
|
|
|
675
|
|
|
|
2,273
|
|
|
|
12,378
|
|
Other
|
|
|
805
|
|
|
|
688
|
|
|
|
11
|
|
|
|
183
|
|
|
|
162
|
|
Consumer
|
|
|
775
|
|
|
|
559
|
|
|
|
161
|
|
|
|
250
|
|
|
|
465
|
|
Other
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
8
|
|
|
|
201
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total nonperforming loans
|
|
$
|
25,321
|
|
|
$
|
8,592
|
|
|
$
|
4,752
|
|
|
$
|
7,406
|
|
|
$
|
32,034
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 2007, our
recorded investment in impaired loans under SFAS 114
totaled $22.3 million, an increase of $15.4 million
from $6.9 million at December 31, 2006. Approximately
$10.6 million is located in the Alabama segment and
$11.7 million is located in the Florida segment.
Approximately $1.5 million of the allowance for loan losses
is specifically allocated to these loans, providing 6.8%
coverage. Additionally, $21.4 million, or 96.0%, of the
$22.3 million in impaired loans is secured by real estate.
46
The following is a summary of impaired loans and the
specifically allocated allowance for loan losses by category as
of December 31, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007
|
|
|
December 31, 2006
|
|
|
|
Outstanding
|
|
|
Specific
|
|
|
Outstanding
|
|
|
Specific
|
|
|
|
Balance
|
|
|
Allowance
|
|
|
Balance
|
|
|
Allowance
|
|
|
|
(Dollars in thousands)
|
|
|
Commercial and industrial
|
|
$
|
877
|
|
|
$
|
56
|
|
|
$
|
911
|
|
|
$
|
405
|
|
Real estate construction and land development
|
|
|
11,105
|
|
|
|
881
|
|
|
|
1,959
|
|
|
|
311
|
|
Real estate mortgages
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single-family
|
|
|
4,553
|
|
|
|
19
|
|
|
|
616
|
|
|
|
92
|
|
Commercial
|
|
|
4,972
|
|
|
|
464
|
|
|
|
2,381
|
|
|
|
656
|
|
Other
|
|
|
787
|
|
|
|
94
|
|
|
|
1,019
|
|
|
|
343
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
22,294
|
|
|
$
|
1,514
|
|
|
$
|
6,886
|
|
|
$
|
1,807
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Potential Problem Loans. In addition to
nonperforming loans, management has identified
$15-20 million in potential problem loans as of
December 31, 2007. Potential problem loans are loans where
known information about possible credit problems of the
borrowers causes management to have doubts as to the ability of
such borrowers to comply with the present repayment terms and
may result in disclosure of such loans as nonperforming in
future periods. The majority of these loans are located along
the west coast of Florida which has been considerably affected
by the recent downturn in the real estate markets. Management is
actively working a plan of action to ensure that any loss
exposure is mitigated and will continue to monitor their
respective cash flow positions.
Investment Securities. The investment
securities portfolio comprised 14.7% of our total
interest-earning assets as of December 31, 2007. Total
securities averaged $350.6 million in 2007, compared to
$274.1 million in 2006 and $262.6 million in 2005. The
investment securities portfolio produced average taxable
equivalent yields of 5.29%, 4.96%, and 4.57% for the years ended
December 31, 2007, 2006, and 2005, respectively. At
December 31, 2007, our investment securities portfolio had
an amortized cost of $362.0 million and an estimated fair
value of $361.1 million and weighted average yield of
5.07%. The acquisition of Peoples increased our tax-exempt
investments in state and political subdivisions. Our investment
in state and political subdivisions increased $27.7 million
to $40.7 million from $13.0 million. Our average
tax-equivalent yield on these securities was 6.27% during 2007.
As of December 31, 2007, the tax-equivalent yield is
approximately 6.41%.
The following table sets forth the amortized costs of the
securities we held at the dates indicated.
Investment
Portfolio
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
Available for Sale
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(Dollars in thousands)
|
|
|
U.S. agencies
|
|
$
|
93,207
|
|
|
$
|
113,259
|
|
|
$
|
99,365
|
|
State and political subdivisions
|
|
|
40,738
|
|
|
|
12,977
|
|
|
|
8,729
|
|
Mortgage-backed securities
|
|
|
191,202
|
|
|
|
185,814
|
|
|
|
93,689
|
|
Corporate debt
|
|
|
32,404
|
|
|
|
38,883
|
|
|
|
38,064
|
|
Other securities
|
|
|
4,480
|
|
|
|
6,675
|
|
|
|
7,028
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities
|
|
$
|
362,031
|
|
|
$
|
357,608
|
|
|
$
|
246,875
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47
The following table shows the scheduled maturities and average
yields of investment securities held at December 31, 2007.
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. agencies
|
|
$
|
4,500
|
|
|
|
4.08
|
%
|
|
$
|
49,700
|
|
|
|
4.28
|
%
|
|
$
|
28,843
|
|
|
|
5.26
|
%
|
|
$
|
10,164
|
|
|
|
5.18
|
%
|
|
$
|
93,207
|
|
|
|
4.67
|
%
|
State and political subdivision
|
|
|
|
|
|
|
|
|
|
|
2,076
|
|
|
|
3.32
|
|
|
|
5,877
|
|
|
|
4.38
|
|
|
|
32,785
|
|
|
|
4.26
|
|
|
|
40,738
|
|
|
|
4.23
|
|
Mortgage-backed securities
|
|
|
2,943
|
|
|
|
4.21
|
|
|
|
34,778
|
|
|
|
4.24
|
|
|
|
11,961
|
|
|
|
4.59
|
|
|
|
141,520
|
|
|
|
5.36
|
|
|
|
191,202
|
|
|
|
5.09
|
|
Other securities
|
|
|
535
|
|
|
|
4.05
|
|
|
|
7,083
|
|
|
|
6.72
|
|
|
|
|
|
|
|
|
|
|
|
29,266
|
|
|
|
6.99
|
|
|
|
36,884
|
|
|
|
6.90
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
7,978
|
|
|
|
4.13
|
%
|
|
$
|
93,637
|
|
|
|
4.43
|
%
|
|
$
|
46,681
|
|
|
|
4.98
|
%
|
|
$
|
213,735
|
|
|
|
5.41
|
%
|
|
$
|
362,031
|
|
|
|
5.07
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax lien certificates. During 2007, we
purchased $18 million in tax lien certificates from various
municipalities primarily in Alabama, Indiana, 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
nonaccrual 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, 2007, there were no delinquent or
nonperforming liens. The outstanding tax lien balances for the
years ended December 31, 2007 and 2006 were $15,615 and
$16,313, respectively.
Short-term liquid assets. Our short-term
liquid assets (cash and due from banks, interest-bearing
deposits in other banks and federal funds sold) decreased
$22.6 million, or (26.3)%, to $63.4 million at
December 31, 2007 from $86.0 million at
December 31, 2006. At December 31, 2007 and 2006, our
short-term liquid assets comprised 2.2% and 3.5% of total
assets, respectively. We continually monitor our liquidity
position and will increase or decrease our short-term liquid
assets as necessary.
Property and Equipment. Property and equipment
totaled $104.8 million at December 31, 2007, an
increase of 10.8%, or $10.2 million, from
$94.6 million at December 31, 2006. This increase is
primarily due to the purchase of land and the construction of
branch facilities. The Peoples acquisition added
approximately $2.3 million in property and equipment. We
also recorded the reclassification of certain properties to the
held-for-sale category and the sale and lease-back of two branch
facilities (See Note 6 to the Consolidated Financial
Statements). On January 30, 2008, we announced that our
Bank entered into agreements with a limited liability company,
of which one of our directors is a member, which purchased on
January 31, 2008 office buildings located in Albertville
and Athens, Alabama for a total of $4.3 million.
As a result of our acquisitions and recent sale-leaseback
transactions our operating lease commitments have increased
significantly. This resulted in a $1.2 million increase in
rental expense to $2.5 million in for 2007 from
$1.3 million in 2006. Please refer to our
Liquidity discussion for the amount of future
operating lease commitments.
Deposits. Noninterest-bearing deposits totaled
$207.6 million at December 31, 2007, an increase of
8.5%, or $16.3 million, from $191.3 million at
December 31, 2006. Noninterest-bearing deposits were 9.4%
of total deposits at December 31, 2007 compared to 10.2% at
December 31, 2006.
Interest-bearing deposits totaled $1.993 billion at
December 31, 2007, an increase of 18.7%, or
$313 million, from $1.680 billion at December 31,
2006. Interest-bearing deposits averaged $1,791 billion for
the year ended December 31, 2007 compared to
$1.151 billion for the year ended December 31, 2006.
The average rate paid on all interest-bearing deposits during
2007 was 4.45%, compared to 4.04% for 2006.
The Peoples acquisition contributed approximately
$245 million in deposits at the acquisition date. As of
December 31, 2007, Peoples deposits totaled
approximately $241 million, of which $35 million were
noninterest-bearing and $206 million were interest-bearing.
48
The following table sets forth the composition of our total
deposit accounts at the dates indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
Percent
|
|
|
|
2007
|
|
|
2006
|
|
|
Change
|
|
|
|
(Dollars in thousands)
|
|
|
Noninterest-bearing demand
|
|
$
|
207,602
|
|
|
$
|
191,323
|
|
|
|
8.51
|
%
|
Alabama segment
|
|
|
128,009
|
|
|
|
130,129
|
|
|
|
(1.63
|
)
|
Florida segment
|
|
|
73,061
|
|
|
|
49,742
|
|
|
|
46.88
|
|
Other
|
|
|
6,532
|
|
|
|
11,452
|
|
|
|
(42.96
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing demand
|
|
|
657,809
|
|
|
|
552,887
|
|
|
|
18.98
|
|
Alabama segment
|
|
|
295,794
|
|
|
|
220,514
|
|
|
|
34.14
|
|
Florida segment
|
|
|
253,017
|
|
|
|
115,528
|
|
|
|
119.01
|
|
Other
|
|
|
108,998
|
|
|
|
216,845
|
|
|
|
(49.73
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings
|
|
|
59,507
|
|
|
|
42,717
|
|
|
|
39.31
|
|
Alabama segment
|
|
|
33,919
|
|
|
|
28,161
|
|
|
|
20.45
|
|
Florida segment
|
|
|
25,056
|
|
|
|
14,323
|
|
|
|
74.94
|
|
Other
|
|
|
532
|
|
|
|
233
|
|
|
|
128.33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Time deposits
|
|
|
1,275,693
|
|
|
|
1,083,914
|
|
|
|
17.69
|
|
Alabama segment
|
|
|
694,380
|
|
|
|
592,900
|
|
|
|
17.12
|
|
Florida segment
|
|
|
462,071
|
|
|
|
341,161
|
|
|
|
35.44
|
|
Other
|
|
|
119,242
|
|
|
|
149,853
|
|
|
|
(20.43
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
$
|
2,200,611
|
|
|
$
|
1,870,841
|
|
|
|
17.63
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alabama segment
|
|
$
|
1,152,102
|
|
|
$
|
971,704
|
|
|
|
18.57
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Florida segment
|
|
$
|
813,205
|
|
|
$
|
520,754
|
|
|
|
56.16
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
$
|
235,304
|
|
|
$
|
378,383
|
|
|
|
(37.81
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2007 and 2006, we had deposits from related
parties of approximately $35.8 million and
$23.8 million, respectively. We believe that all of the
deposit transactions were made on terms and conditions in the
ordinary course of business.
The following table sets forth our average deposits by category
for the periods indicated.
Average
Deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average for the Year
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
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
|
|
$
|
191,066
|
|
|
|
|
%
|
|
$
|
111,757
|
|
|
|
|
%
|
|
$
|
93,564
|
|
|
|
|
%
|
Interest-bearing demand deposits
|
|
|
568,125
|
|
|
|
3.66
|
|
|
|
359,262
|
|
|
|
3.30
|
|
|
|
339,842
|
|
|
|
2.10
|
|
Savings deposits
|
|
|
50,652
|
|
|
|
1.61
|
|
|
|
27,968
|
|
|
|
.63
|
|
|
|
25,935
|
|
|
|
.15
|
|
Time deposits-customer
|
|
|
1,023,573
|
|
|
|
4.90
|
|
|
|
575,065
|
|
|
|
4.40
|
|
|
|
440,403
|
|
|
|
3.55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total average customer deposits
|
|
|
1,833,416
|
|
|
|
3.92
|
|
|
|
1,074,052
|
|
|
|
3.48
|
|
|
|
899,744
|
|
|
|
2.53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Time deposits-brokered
|
|
|
148,369
|
|
|
|
5.31
|
|
|
|
189,722
|
|
|
|
4.83
|
|
|
|
166,738
|
|
|
|
3.07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total average deposits
|
|
$
|
1,981,785
|
|
|
|
4.02
|
%
|
|
$
|
1,263,774
|
|
|
|
3.68
|
%
|
|
$
|
1,066,482
|
|
|
|
2.62
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
49
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 71.8% of our total deposits at
December 31, 2007 compared to 71.5% at December 31,
2006. We anticipate that such deposits will continue to be our
primary source of funding in the future. Our loan-to-deposit
ratio was 91.7% at December 31, 2007, compared to 87.7% at
December 31, 2006.
The maturity distribution of our time deposits over $100,000 at
December 31, 2007 is shown in the following table.
Maturities
of Time Deposits of $100,000 or More
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2007
|
Under
|
|
3-6
|
|
6-12
|
|
Over
|
|
|
3 Months
|
|
Months
|
|
Months
|
|
12 Months
|
|
Total
|
(Dollars in thousands)
|
|
$
|
243,516
|
|
|
$
|
206,256
|
|
|
$
|
101,343
|
|
|
$
|
69,603
|
|
|
$
|
620,718
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Approximately 39.2% of our time deposits over $100,000 had
scheduled maturities within three months of December 31,
2007. (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 2007, average borrowed
funds increased $20.8 million, or 9.1%, to
$249.4 million, from $228.6 million during 2006, which
in turn increased $41.3 million, or 22.1%, from
$187.3 million during 2005. The average rate paid on
borrowed funds during 2007, 2006 and 2005 was 5.20%, 5.07%, and
4.00%, respectively. Because of a relatively high
loan-to-deposit ratio, the existence and stability of these
funding sources are important to our maintenance of short-term
and long-term liquidity.
Borrowed funds as of December 31, 2007 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, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
Year
|
|
Average Rate
|
|
|
Balance
|
|
|
Average Rate
|
|
|
Balance
|
|
|
|
(Dollars in thousands)
|
|
|
2007
|
|
|
|
%
|
|
$
|
|
|
|
|
5.37
|
%
|
|
$
|
42,000
|
|
2008
|
|
|
4.62
|
|
|
|
74,488
|
|
|
|
5.38
|
|
|
|
55,500
|
|
2009
|
|
|
4.33
|
|
|
|
30,032
|
|
|
|
5.39
|
|
|
|
27,000
|
|
2010
|
|
|
4.83
|
|
|
|
25,000
|
|
|
|
6.41
|
|
|
|
5,000
|
|
2011
|
|
|
4.80
|
|
|
|
4,968
|
|
|
|
|
|
|
|
|
|
2012
|
|
|
4.49
|
|
|
|
30,000
|
|
|
|
|
|
|
|
|
|
2015
|
|
|
5.39
|
|
|
|
26,340
|
|
|
|
5.39
|
|
|
|
26,340
|
|
2020
|
|
|
4.28
|
|
|
|
32,000
|
|
|
|
4.28
|
|
|
|
32,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
4.63
|
%
|
|
$
|
222,828
|
|
|
|
5.22
|
%
|
|
$
|
187,840
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The above schedule is by contractual maturity. Call dates for
the above are as follows: 2008, $154.0; and 2010, $11.3.
The advances are secured by a blanket lien on certain
residential and commercial real estate loans all with a carrying
value of approximately $346.0 at December 31, 2007. We have
available approximately $174.0 in unused advances under the
blanket lien subject to the availability of qualifying
collateral.
In February 2008, FHLB advances totaling $100.0 million
were refinanced to lower the current interest rate in response
to current market conditions. This refinancing was accounted for
as debt modification, therefore no gain or loss was recognized
on the transaction.
50
The following table summarizes the current terms of the
refinanced advances by contractual maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Current
|
|
|
Average Rate
|
|
|
|
|
|
|
Weighted
|
|
|
Before
|
|
|
Balance
|
|
Matures
|
|
Average Rate
|
|
|
Refinancing
|
|
|
(In thousands)
|
|
|
2011
|
|
|
2.77
|
%
|
|
|
4.60
|
%
|
|
$
|
25,000
|
|
2013
|
|
|
3.46
|
|
|
|
4.21
|
|
|
|
35,000
|
|
2015
|
|
|
4.05
|
|
|
|
4.57
|
|
|
|
40,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
3.52
|
%
|
|
|
4.45
|
%
|
|
$
|
100,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Call dates for the refinanced advances are as follows: 2009,
$25.0; and 2010, $75.0.
The FHLB has issued for the benefit of the Bank a $20.0
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.
We have available approximately $35.0 million in unused
federal funds lines of credit with regional banks, subject to
certain restrictions and collateral requirements.
Junior subordinated debentures. On
July 19, 2007, we issued approximately $22 million in
aggregate principal amount of Trust Preferred Securities
and a like amount of related subordinated debentures through our
wholly-owned, unconsolidated subsidiary trust, Superior Capital
Trust I. The Trust Preferred Securities and
subordinated debentures bear interest at a floating rate of
three-month LIBOR plus 1.33% that is payable quarterly. The
Trust Preferred Securities, which may be redeemed on or
after September 15, 2012, will mature on September 15,
2037.
On July 25, 2007, we completed a redemption of
approximately $16 million in aggregate outstanding
principal amount of Trust Preferred Securities and related
six-month LIBOR plus 3.75% junior subordinated debentures due
July 25, 2031, both of which were issued by our
wholly-owned, unconsolidated subsidiary trust, TBC Capital
Statutory Trust III. We called the securities for
redemption effective July 25, 2007 at a redemption price
equal to 106.15% of par. We incurred a loss of approximately
$1.5 million ($925,000, net of tax, or $.02 per share),
during the third quarter of 2007 relating to the redemption of
the outstanding Trust Preferred Securities.
The remaining proceeds from the issuance of the new trust
preferred securities were used in the stock repurchase program
and for other corporate purposes.
We have three additional sponsored trusts, TBC Capital II,
Community Capital I and Peoples Trust I, of which 100% of
the common equity is owned by us. The trusts were formed for the
purpose of issuing Corporation-obligated mandatory redeemable
trust preferred securities to third-party investors and
investing the proceeds from the sale of such trust preferred
securities solely in junior subordinated debt securities of ours
(the debentures). The debentures held by each trust are the sole
assets of that trust. Distributions on the trust preferred
securities issued by each trust are payable semi-annually at a
rate per annum equal to the interest rate being earned by the
trust on the debentures held by that trust. The trust preferred
securities are subject to mandatory redemption, in whole or in
part, upon repayment of the debentures. We have entered into
agreements which, taken collectively, fully and unconditionally
guarantee the trust preferred securities subject to the terms of
each of the guarantees. The debentures held by the TBC Capital
II, Community Capital I and Peoples Trust I trusts are
first redeemable, in whole or in part, by us on
September 7, 2010, March 8, 2010 and December 15,
2010, respectively.
The trust preferred securities held by the trusts qualify as
Tier 1 capital for us under regulatory guidelines.
51
Consolidated debt obligations related to these subsidiary trusts
are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
10.6% junior subordinated debentures owed to TBC Capital
Statutory Trust II due September 7, 2030
|
|
$
|
15,464
|
|
|
$
|
15,464
|
|
6-month
LIBOR plus 3.75% junior subordinated debentures owed to TBC
Capital Statutory Trust III due July 25, 2031
|
|
|
|
|
|
|
16,495
|
|
10.875% junior subordinated debentures owed to Community Capital
Trust I due March 8, 2030
|
|
|
10,310
|
|
|
|
10,310
|
|
3-month
LIBOR plus 1.33% junior subordinated debentures owed to Superior
Capital Trust I due September 15, 2037(1)
|
|
|
22,681
|
|
|
|
|
|
6.41% junior subordinated debentures owed to Peoples Community
Capital Trust I due December 15, 2035(2)
|
|
|
4,124
|
|
|
|
|
|
Purchase accounting adjustment
|
|
|
1,165
|
|
|
|
1,737
|
|
|
|
|
|
|
|
|
|
|
Total junior subordinated debentures owed to unconsolidated
subsidiary trusts
|
|
$
|
53,744
|
|
|
$
|
44,006
|
|
|
|
|
|
|
|
|
|
|
(1) Current interest rate is equal to 6.32% at
December 31, 2007.
(2) Converts to quarterly floating rate of LIBOR plus 1.45%
in December 2010.
Stockholders
Equity
Stockholders equity increased $74.0 million during
2007, to $350.1 million at December 31, 2007 from
$276.1 million at December 31, 2006. As of
December 31, 2007, we had 41,522,633 shares of common
stock issued and 40,108,317 shares outstanding. As of
December 31, 2007, there were 1,390,145 shares held in
treasury at a total cost of $12,309,000. We had no shares of
preferred stock issued at December 31, 2007. In March 2008,
our Board of Directors approved, subject to approval by our
stockholders, a proposed amendment to Superior Bancorps
Restated Certificate of Incorporation effecting a
1-for-4
reverse split of its issued and outstanding shares of common
stock and decreasing the number of our authorized shares of
common stock from 60 million to 15 million. The
1-for-4
reverse stock split and reduction of authorized shares are
contingent on approval of this proposal by the requisite vote of
the stockholders at our 2008 annual meeting of stockholders, and
the filing of the proposed amendment with the Secretary of State
of the State of Delaware, We anticipate that the reverse stock
split will be effective shortly after the 2008 annual meeting of
stockholders, in accordance with the terms of the proposed
amendment.
Stock Repurchase Plan. We announced in June
2007 that our Board of Directors had approved the repurchase of
up to 1,000,000 shares of our outstanding common stock.
During the quarter ended September 30, 2007, the
Corporation purchased 1,000,000 shares of then outstanding
stock at an average price of $9.22 per share, which have been
recorded, at cost, as treasury stock in the consolidated
statement of financial condition. The shares were purchased in
the open market through negotiated or block transactions and
were not repurchased from our management team or other insiders.
We announced in October 2007, that our Board of Directors
approved the purchase of an additional 1,000,000 shares of
our outstanding common stock beginning on or after
November 2, 2007. During the quarter ended
December 31, 2007, we purchased 182,000 shares of then
outstanding stock at an average price of $6.61, which have been
recorded, at cost, as treasury stock in the consolidated
statement of financial condition. The shares were purchased in
the open market through negotiated or block transactions. We did
not repurchase any shares from our management team or other
insiders. This stock repurchase program does not obligate us to
acquire any specific number of shares and may be suspended or
discontinued at any time.
Stock Incentive Plan. 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
52
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, 2006. 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 2007 and 2006 includes
$473,000 and $165,000, respectively, in compensation cost for
all share-based payments granted subsequent to December 31,
2005, based on the grant-date fair value estimated in accordance
with the provisions of SFAS 123R. Results for prior periods
have not been restated.
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 12 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 12 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.
In January 2008, members of our management received restricted
stock grants totaling 107,150 shares. This grant excludes
certain senior executive management who received cash under the
short-term management incentive plan in lieu of restricted
stock. The grant date fair value is equal to $4.64 per share or
$497,000 which will be recognized over the next
24-month
period as 50% of the stock vests on January 22, 2009 and
50% vests on January 22, 2010. If the executives
employment terminates prior to a vesting date for any reason
other than death, disability or a change in control, the
unvested stock is forfeited. Unvested stock becomes immediately
vested upon death, disability or a change in control. Under the
restricted stock agreements, the stock may not be sold or
assigned in any manner during the vesting period, but the
executive will have the rights of a shareholder with respect to
the stock (i.e. vote, receive dividends, etc), prior to vesting.
Superior Bancorp ESOP. Effective
August 31, 2007, we terminated the Superior Bancorp
Employee Stock Ownership Plan (the ESOP). The ESOP
was leveraged, and a promissory note existed between the ESOP
and us
53
that had a remaining balance of $1,165,000 at the termination
date. The promissory note was satisfied by the transfer from the
ESOP to us of 127,469 unallocated shares of Corporation common
stock valued at a price of $9.14 per share, the closing price
that day. We transferred these shares during the third quarter
of 2007 to treasury stock at current market value from the
unallocated ESOP shares account. The remaining 17,178
unallocated shares were committed to be allocated to the
participants accounts, and, as a result, we recognized
additional compensation expense during the third quarter of 2007
of approximately $158,000.
On January 29, 2003, the ESOP trustees finalized a $2.1
promissory note, which has been fully repaid as discussed above,
to reimburse us for the funds used to leverage the ESOP. The
unreleased shares and our guarantee secured the promissory note,
which had been classified as notes payable on our statement of
financial condition. As the debt was repaid, shares were
released from collateral based on the proportion of debt
service. Principal payments on the debt were $17,500 per month
for 120 months. The interest rate adjusted to the Wall
Street Journal prime rate. Interest expense incurred on the
debt in 2007, 2006, and 2005 totaled $82,000, $122,000, and
$98,000, respectively. Total contributions to the plan during
2007, 2006, and 2005 totaled $1,326,000, $322,000, and $313,000,
respectively. Released shares were allocated to eligible
employees at the end of the plan year based on the
employees eligible compensation to total compensation. We
recognized compensation expense during the period as the shares
were earned and committed to be released. As shares were
committed to be released and compensation expense was
recognized, the shares became outstanding for basic and diluted
earnings per share computations. The amount of compensation
expense we reported 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 period ended
December 31, 2007, 2006. and 2005 was $371,000, $304,000,
and $281,000, respectively. The ESOP shares as of
December 31, 2006 and 2005 were as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
Allocated shares
|
|
|
70,519
|
|
|
|
52,501
|
|
Estimated shares committed to be released
|
|
|
26,700
|
|
|
|
26,700
|
|
Unreleased shares
|
|
|
164,672
|
|
|
|
191,372
|
|
|
|
|
|
|
|
|
|
|
Total ESOP shares
|
|
|
261,891
|
|
|
|
270,573
|
|
|
|
|
|
|
|
|
|
|
Fair value of unreleased shares
|
|
$
|
1,867,000
|
|
|
$
|
2,184,000
|
|
|
|
|
|
|
|
|
|
|
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 to us that bears interest at a floating rate
equal to the prime rate of interest. As of December 31,
2007, the interest rate on the note was 7.25%. Principal and
interest payments on the ESOP loan are due monthly through
August, 2011, based on the current amortization schedule, with
the remaining principal and interest, if any, due upon that
date. The ESOP loan may be prepaid in 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
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 have followed
SOP 93-6
accordingly. The principal balance of the loan from the ESOP at
December 31, 2007 was $941,000.
An employee becomes a participant in the ESOP after completing
12 months of service during which the employee is credited
with 1,000 hours or more of service. Contributions to the
plan are made at the discretion of the board but may not be less
than the amount required to service the ESOP debt. Under the
terms of the ESOP, after a person ceases to be an employee of
ours, 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 us.
54
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, 2007 and 2006 were
$125,000 and $39,000, respectively. The ESOP shares as of
December 31, 2007 and 2006 are as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
Allocated shares
|
|
|
333,840
|
|
|
|
319,774
|
|
Estimated shares committed to be released
|
|
|
11,932
|
|
|
|
14,066
|
|
Unreleased shares
|
|
|
54,727
|
|
|
|
66,659
|
|
|
|
|
|
|
|
|
|
|
Total ESOP shares
|
|
|
400,499
|
|
|
|
400,499
|
|
|
|
|
|
|
|
|
|
|
Fair value of unreleased shares
|
|
$
|
294,000
|
|
|
$
|
756,000
|
|
|
|
|
|
|
|
|
|
|
Regulatory Capital. During the fourth quarter
of 2005, we became a unitary thrift holding company and, as
such, we are subject to regulation, examination and supervision
by the OTS.
Simultaneously, the Banks charter was changed to a federal
savings bank charter, and the Bank is also subject to various
regulatory requirements administered by the OTS. Prior to
November 1, 2005, the Bank was regulated by the Alabama
Banking Department and the Federal Reserve. Failure to meet
minimum capital requirements can initiate certain mandatory and
possibly additional discretionary actions by regulators that, if
undertaken, could have a direct material effect on our financial
position and results of operations. Under capital adequacy
guidelines and the regulatory framework for prompt corrective
action, the Bank must meet specific capital guidelines that
involve quantitative measures of its assets, liabilities and
certain off-balance sheet items as calculated under regulatory
accounting practices. The Banks capital amounts and
classification are also subject to qualitative judgments by the
regulators about components, risk weightings and other factors.
Quantitative measures established by regulation to ensure
capital adequacy require the Bank to maintain minimum amounts
and ratios (set forth in the table below) of tangible and core
capital (as defined in the regulations) to adjusted total assets
(as defined), and of total capital (as defined) and Tier 1
capital to risk weighted assets (as defined). Management
believes, as of December 31, 2007 and 2006, that the Bank
meets all applicable capital adequacy requirements.
The table below represents the Banks actual regulatory and
minimum regulatory capital requirements at December 31,
2007 (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, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 Core Capital (to Adjusted Total Assets)
|
|
$
|
204,145
|
|
|
|
7.64
|
%
|
|
$
|
106,872
|
|
|
|
4.00
|
%
|
|
$
|
133,591
|
|
|
|
5.00
|
%
|
Total Capital (to Risk Weighted Assets)
|
|
|
225,602
|
|
|
|
10.45
|
|
|
|
172,683
|
|
|
|
8.00
|
|
|
|
215,854
|
|
|
|
10.00
|
|
Tier 1 Capital (to Risk Weighted Assets)
|
|
|
204,145
|
|
|
|
9.46
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
129,513
|
|
|
|
6.00
|
|
Tangible Capital (to Adjusted Total Assets)
|
|
|
204,145
|
|
|
|
7.64
|
|
|
|
40,077
|
|
|
|
1.50
|
|
|
|
N/A
|
|
|
|
N/A
|
|
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
55
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 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.
56
SUPERIOR
BANCORP AND SUBSIDIARIES
CONSOLIDATED
FINANCIAL STATEMENTS
Years
ended December 31, 2007, 2006 and 2005
CONTENTS
57
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
Superior Bancorp
We have audited the accompanying consolidated statement of
financial condition of Superior Bancorp (a Delaware corporation)
and Subsidiaries as of December 31, 2007, and the related
consolidated statements of operations, changes in
stockholders equity, and cash flows for the year ended
December 31, 2007. These financial statements are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of Superior Bancorp and Subsidiaries as of
December 31, 2007, and the results of their operations and
their cash flows for the year ended December 31, 2007 in
conformity with accounting principles generally accepted in the
United States of America.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States),
Superior Bancorps internal control over financial
reporting as of December 31, 2007, 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 14, 2008, expressed an unqualified
opinion.
Raleigh, North Carolina
March 14, 2008
58
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
the related consolidated statements of operations, changes in
stockholders equity, and cash flows for each of the two
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 the consolidated results of their
operations and their cash flows for each of the two 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.
/s/ Carr,
Riggs & Ingram, LLC
Dothan, Alabama
March 16, 2007
59
SUPERIOR
BANCORP AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In Thousands)
|
|
|
ASSETS
|
Cash and due from banks
|
|
$
|
52,983
|
|
|
$
|
49,783
|
|
Interest-bearing deposits in other banks
|
|
|
6,916
|
|
|
|
10,994
|
|
Federal funds sold
|
|
|
3,452
|
|
|
|
25,185
|
|
Investment securities available for sale
|
|
|
361,171
|
|
|
|
354,716
|
|
Tax lien certificates
|
|
|
15,615
|
|
|
|
16,313
|
|
Mortgage loans held for sale
|
|
|
33,408
|
|
|
|
24,433
|
|
Loans
|
|
|
2,018,351
|
|
|
|
1,641,322
|
|
Unearned income
|
|
|
(1,340
|
)
|
|
|
(1,794
|
)
|
|
|
|
|
|
|
|
|
|
Loans, net of unearned income
|
|
|
2,017,011
|
|
|
|
1,639,528
|
|
Allowance for loan losses
|
|
|
(22,868
|
)
|
|
|
(18,892
|
)
|
|
|
|
|
|
|
|
|
|
Net loans
|
|
|
1,994,143
|
|
|
|
1,620,636
|
|
Premises and equipment, net
|
|
|
104,799
|
|
|
|
94,626
|
|
Accrued interest receivable
|
|
|
16,512
|
|
|
|
14,387
|
|
Stock in FHLB and Federal Reserve Bank
|
|
|
14,945
|
|
|
|
12,382
|
|
Cash surrender value of life insurance
|
|
|
45,277
|
|
|
|
40,598
|
|
Goodwill and intangible assets
|
|
|
187,520
|
|
|
|
129,520
|
|
Other assets
|
|
|
48,684
|
|
|
|
47,417
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,885,425
|
|
|
$
|
2,440,990
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Deposits:
|
|
|
|
|
|
|
|
|
Noninterest-bearing demand
|
|
$
|
207,602
|
|
|
$
|
191,323
|
|
Interest-bearing demand
|
|
|
657,809
|
|
|
|
552,887
|
|
Savings
|
|
|
59,507
|
|
|
|
42,717
|
|
Time deposits $100,000 and over
|
|
|
620,718
|
|
|
|
533,700
|
|
Other time deposits
|
|
|
654,975
|
|
|
|
550,214
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
|
2,200,611
|
|
|
|
1,870,841
|
|
Advances from FHLB
|
|
|
222,828
|
|
|
|
187,840
|
|
Federal funds borrowed and security repurchase agreements
|
|
|
17,075
|
|
|
|
23,415
|
|
Notes payable
|
|
|
9,500
|
|
|
|
5,545
|
|
Junior subordinated debentures owed to unconsolidated subsidiary
trusts
|
|
|
53,744
|
|
|
|
44,006
|
|
Accrued expenses and other liabilities
|
|
|
31,625
|
|
|
|
33,256
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
2,535,383
|
|
|
|
2,164,903
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Notes 6 and 17)
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Convertible preferred stock, par value $.001 per share; shares
authorized 5,000,000; -0- shares issued and outstanding in 2007
and in 2006
|
|
|
|
|
|
|
|
|
Common stock, par value $.001 per share; shares authorized
60,000,000; shares issued 41,522,633 in 2007 and 34,732,345 in
2006; outstanding 40,108,317 in 2007 and 34,651,669 in 2006
|
|
|
41
|
|
|
|
35
|
|
Surplus
|
|
|
329,201
|
|
|
|
253,815
|
|
Retained earnings
|
|
|
33,557
|
|
|
|
26,491
|
|
Accumulated other comprehensive gain (loss)
|
|
|
174
|
|
|
|
(1,452
|
)
|
Treasury stock, at cost 1,390,145 and
80,676 shares, respectively
|
|
|
(12,309
|
)
|
|
|
(716
|
)
|
Unearned ESOP stock
|
|
|
(622
|
)
|
|
|
(2,086
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
350,042
|
|
|
|
276,087
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
2,885,425
|
|
|
$
|
2,440,990
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes
60
SUPERIOR
BANCORP AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In Thousands, Except Per Share Data)
|
|
|
Interest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and fees on loans
|
|
$
|
150,443
|
|
|
$
|
92,659
|
|
|
$
|
63,895
|
|
Interest on taxable securities
|
|
|
17,174
|
|
|
|
12,994
|
|
|
|
11,632
|
|
Interest on tax exempt securities
|
|
|
897
|
|
|
|
389
|
|
|
|
246
|
|
Interest on federal funds sold
|
|
|
471
|
|
|
|
570
|
|
|
|
460
|
|
Interest and dividends on other investments
|
|
|
2,944
|
|
|
|
2,165
|
|
|
|
1,047
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
|
171,929
|
|
|
|
108,777
|
|
|
|
77,280
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on deposits
|
|
|
79,667
|
|
|
|
46,511
|
|
|
|
27,915
|
|
Interest expense on advances from FHLB and other borrowed funds
|
|
|
12,971
|
|
|
|
11,603
|
|
|
|
7,493
|
|
Interest on subordinated debentures
|
|
|
4,129
|
|
|
|
3,269
|
|
|
|
2,847
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
|
96,767
|
|
|
|
61,383
|
|
|
|
38,255
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
75,162
|
|
|
|
47,394
|
|
|
|
39,025
|
|
Provision for loan losses
|
|
|
4,541
|
|
|
|
2,500
|
|
|
|
3,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for loan losses
|
|
|
70,621
|
|
|
|
44,894
|
|
|
|
35,525
|
|
Noninterest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Service charges and fees
|
|
|
7,957
|
|
|
|
4,915
|
|
|
|
4,687
|
|
Mortgage banking income
|
|
|
3,860
|
|
|
|
2,997
|
|
|
|
2,558
|
|
Investment securities gain (losses)
|
|
|
308
|
|
|
|
|
|
|
|
(948
|
)
|
Change in fair value of derivatives
|
|
|
1,310
|
|
|
|
374
|
|
|
|
(325
|
)
|
Increase in cash surrender value of life insurance
|
|
|
1,895
|
|
|
|
1,580
|
|
|
|
1,544
|
|
Insurance proceeds
|
|
|
|
|
|
|
|
|
|
|
5,114
|
|
Other
|
|
|
4,027
|
|
|
|
1,945
|
|
|
|
2,067
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest income
|
|
|
19,357
|
|
|
|
11,811
|
|
|
|
14,697
|
|
Noninterest expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits
|
|
|
42,316
|
|
|
|
26,805
|
|
|
|
23,104
|
|
Occupancy and equipment
|
|
|
13,391
|
|
|
|
7,754
|
|
|
|
7,680
|
|
Management separation costs
|
|
|
|
|
|
|
265
|
|
|
|
15,467
|
|
Amortization of core deposit intangibles
|
|
|
1,691
|
|
|
|
442
|
|
|
|
286
|
|
Loss on debt extinguishment
|
|
|
1,469
|
|
|
|
|
|
|
|
|
|
Merger costs
|
|
|
639
|
|
|
|
635
|
|
|
|
|
|
Loss on termination of ESOP
|
|
|
158
|
|
|
|
|
|
|
|
|
|
Subsidiary startup costs
|
|
|
|
|
|
|
135
|
|
|
|
|
|
Other
|
|
|
18,559
|
|
|
|
13,749
|
|
|
|
14,083
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expenses
|
|
|
78,223
|
|
|
|
49,785
|
|
|
|
60,620
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
11,755
|
|
|
|
6,920
|
|
|
|
(10,398
|
)
|
Income tax expense (benefit)
|
|
|
4,134
|
|
|
|
1,923
|
|
|
|
(4,612
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
7,621
|
|
|
|
4,997
|
|
|
|
(5,786
|
)
|
Preferred stock dividends
|
|
|
|
|
|
|
|
|
|
|
305
|
|
Preferred stock conversion
|
|
|
|
|
|
|
|
|
|
|
2,006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) applicable to common stockholders
|
|
$
|
7,621
|
|
|
$
|
4,997
|
|
|
$
|
(8,097
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
36,974
|
|
|
|
23,409
|
|
|
|
19,154
|
|
Weighted average common shares outstanding, assuming dilution
|
|
|
37,332
|
|
|
|
24,034
|
|
|
|
19,154
|
|
Basic net income (loss) per common share
|
|
$
|
0.21
|
|
|
$
|
0.21
|
|
|
$
|
(.42
|
)
|
Diluted net income (loss) per common share
|
|
|
0.20
|
|
|
|
0.21
|
|
|
|
(.42
|
)
|
See accompanying notes
61
SUPERIOR
BANCORP AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
Unearned
|
|
|
Unearned
|
|
|
Total
|
|
|
|
Common
|
|
|
Surplus
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
Treasury
|
|
|
ESOP
|
|
|
Restricted
|
|
|
Stockholders
|
|
|
|
Stock
|
|
|
Common
|
|
|
Preferred
|
|
|
Earnings
|
|
|
Gain (Loss)
|
|
|
Stock
|
|
|
Stock
|
|
|
Stock
|
|
|
Equity
|
|
|
|
(In Thousands, Except Share Data)
|
|
|
Balance at January 1, 2005
|
|
$
|
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 shares
|
|
|
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
|
|
Adoption of FIN 48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(555
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(555
|
)
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,621
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,621
|
|
Other comprehensive income, net of tax expense of $798,
unrealized gain on securities available for sale, arising during
the period, net of reclassification adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,238
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,238
|
|
Change in pension liability, net of tax effect
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
388
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
388
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,247
|
|
Repurchase of 1,182,000 shares of treasury stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,428
|
)
|
|
|
|
|
|
|
|
|
|
|
(10,428
|
)
|
Issuance of 6,635,125 shares for Peoples purchase
|
|
|
6
|
|
|
|
73,798
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
73,804
|
|
Issuance of 27,765 shares related to board compensation
|
|
|
|
|
|
|
278
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
278
|
|
Stock options exercised 85,000 shares
|
|
|
|
|
|
|
640
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
640
|
|
Compensation expense related to stock options
|
|
|
|
|
|
|
472
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
472
|
|
Release of 49,135 shares by ESOP
|
|
|
|
|
|
|
198
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
299
|
|
|
|
|
|
|
|
497
|
|
Termination of ESOP 127,469 shares transferred
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,165
|
)
|
|
|
1,165
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
$
|
41
|
|
|
$
|
329,201
|
|
|
$
|
|
|
|
$
|
33,557
|
|
|
$
|
174
|
|
|
$
|
(12,309
|
)
|
|
$
|
(622
|
)
|
|
$
|
|
|
|
$
|
350,042
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes
62
SUPERIOR
BANCORP AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In Thousands)
|
|
|
Operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
7,621
|
|
|
$
|
4,997
|
|
|
$
|
(5,786
|
)
|
Adjustments to reconcile net income(loss) to net cash provided
by (used in) operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
4,630
|
|
|
|
3,245
|
|
|
|
3,275
|
|
Amortization of intangibles
|
|
|
1,868
|
|
|
|
|
|
|
|
|
|
Net (discount) premium amortization on securities
|
|
|
(116
|
)
|
|
|
298
|
|
|
|
531
|
|
(Gain) loss on sale of investment securities
|
|
|
(308
|
)
|
|
|
|
|
|
|
948
|
|
Loss on foreclosed assets
|
|
|
170
|
|
|
|
181
|
|
|
|
818
|
|
Provision for loan losses
|
|
|
4,541
|
|
|
|
2,500
|
|
|
|
3,500
|
|
Decrease in accrued interest receivable
|
|
|
(386
|
)
|
|
|
(750
|
)
|
|
|
(844
|
)
|
Deferred income tax expense (benefit)
|
|
|
4,021
|
|
|
|
1,923
|
|
|
|
(3,168
|
)
|
Gain on sale of assets/branches
|
|
|
(139
|
)
|
|
|
(254
|
)
|
|
|
|
|
Net increase in mortgage loans held for sale
|
|
|
(8,975
|
)
|
|
|
(1,993
|
)
|
|
|
(13,260
|
)
|
Other operating activities, net
|
|
|
(9,184
|
)
|
|
|
(3,781
|
)
|
|
|
4,202
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
3,743
|
|
|
|
6,366
|
|
|
|
(9,784
|
)
|
Investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease in interest bearing deposits in other banks
|
|
|
4,078
|
|
|
|
1,222
|
|
|
|
1,639
|
|
Decrease in federal funds sold
|
|
|
25,933
|
|
|
|
11,052
|
|
|
|
11,000
|
|
Proceeds from sales of investment securities available for sale
|
|
|
18,378
|
|
|
|
215,717
|
|
|
|
57,372
|
|
Proceeds from maturities of investment securities available for
sale
|
|
|
82,873
|
|
|
|
39,233
|
|
|
|
40,642
|
|
Purchase of investment securities available for sale
|
|
|
(59,910
|
)
|
|
|
(72,319
|
)
|
|
|
(56,233
|
)
|
Net increase in loans
|
|
|
(132,769
|
)
|
|
|
(200,837
|
)
|
|
|
(34,225
|
)
|
Net cash received in business combinations
|
|
|
1,231
|
|
|
|
18,642
|
|
|
|
|
|
Net redemptions (purchase) of tax lien certificates
|
|
|
698
|
|
|
|
(16,024
|
)
|
|
|
(273
|
)
|
Purchase of premises and equipment
|
|
|
(23,833
|
)
|
|
|
(13,813
|
)
|
|
|
(2,665
|
)
|
Proceeds from sale of premises and equipment
|
|
|
5,630
|
|
|
|
1,835
|
|
|
|
3,343
|
|
Proceeds from sale of foreclosed assets
|
|
|
7,327
|
|
|
|
1,722
|
|
|
|
4,155
|
|
Other investing activities, net
|
|
|
1,442
|
|
|
|
2,087
|
|
|
|
1,247
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by investing activities
|
|
|
(68,922
|
)
|
|
|
(11,483
|
)
|
|
|
26,002
|
|
Financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in demand and savings deposits
|
|
|
(7,824
|
)
|
|
|
59,375
|
|
|
|
50,236
|
|
Net increase (decrease) in time deposits
|
|
|
92,150
|
|
|
|
60,766
|
|
|
|
(73,747
|
)
|
(Decrease) increase in FHLB advances
|
|
|
(2,995
|
)
|
|
|
(62,051
|
)
|
|
|
25,000
|
|
Proceeds from note payable
|
|
|
10,000
|
|
|
|
2,000
|
|
|
|
|
|
Principal payment on note payable
|
|
|
(6,045
|
)
|
|
|
(210
|
)
|
|
|
(210
|
)
|
Net (decrease) increase in other borrowed funds
|
|
|
(13,304
|
)
|
|
|
(41,060
|
)
|
|
|
(16,050
|
)
|
Proceeds from issuance of junior subordinated debentures
|
|
|
22,680
|
|
|
|
|
|
|
|
|
|
Principal payment on junior subordinated debentures
|
|
|
(16,495
|
)
|
|
|
|
|
|
|
|
|
Purchase of treasury stock
|
|
|
(10,428
|
)
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock
|
|
|
640
|
|
|
|
992
|
|
|
|
10,457
|
|
Cash dividends paid
|
|
|
|
|
|
|
|
|
|
|
(305
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
68,379
|
|
|
|
19,812
|
|
|
|
(4,619
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in cash and due from banks
|
|
|
3,200
|
|
|
|
14,695
|
|
|
|
11,599
|
|
Cash and due from banks at beginning of year
|
|
|
49,783
|
|
|
|
35,088
|
|
|
|
23,489
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks at end of year
|
|
$
|
52,983
|
|
|
$
|
49,783
|
|
|
$
|
35,088
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid (received) during the year for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
97,848
|
|
|
$
|
56,831
|
|
|
$
|
37,790
|
|
Income taxes
|
|
|
(564
|
)
|
|
|
(1,706
|
)
|
|
|
(3,066
|
)
|
Transfer of foreclosed assets
|
|
|
9,239
|
|
|
|
935
|
|
|
|
1,804
|
|
Assets acquired in business combinations
|
|
|
376,061
|
|
|
|
1,006,674
|
|
|
|
|
|
Liabilities assumed in business combinations
|
|
|
303,487
|
|
|
|
838,102
|
|
|
|
|
|
Issuance of common stock in acquisitions
|
|
|
73,804
|
|
|
|
162,858
|
|
|
|
|
|
See accompanying notes
63
SUPERIOR
BANCORP AND SUBSIDIARIES
December 31,
2007, 2006 and 2005
|
|
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 are based on a percentage of deposits. At
December 31, 2007 and 2006, the Corporations reserve
requirements were $6,759,000 and $10,800,000, which it was in
full compliance.
Investment
Securities
Investment securities are classified as either held to maturity,
available for sale or trading at the time of purchase. The
Corporation defines held to maturity securities as debt
securities which management has the positive intent and ability
to hold to maturity.
Held to maturity securities are reported at cost, adjusted for
amortization of premiums and accretion of discounts that are
recognized in interest income using the effective yield method.
Securities available for sale are reported at fair value and
consist of bonds, notes, debentures, and certain equity
securities not classified as trading securities nor as
securities to be held to maturity. Unrealized holding gains and
losses, net of deferred taxes, on securities available for sale
are excluded from earnings and reported in accumulated other
comprehensive income (loss) within stockholders equity.
Gains and losses on the sale of securities available for sale
are determined using the specific-identification method.
Tax lien
certificates
Tax lien certificates represent a priority lien against real
property for which assessed real estate taxes are delinquent.
Tax lien certificates are carried at cost plus accrued interest
which approximates fair value. Tax lien
64
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
1.
|
Summary
of Significant Accounting
Policies (Continued)
|
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 by
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 considered to be a significant
estimate and is established through a provision for loan losses
charged to expense. Loans are charged against the allowance for
loan losses when management believes the collectibility of
principal is unlikely. The allowance is the amount that
management believes will be adequate to absorb inherent losses
on existing loans.
Management prepares a quarterly analysis to assess the risk in
the loan portfolio and to determine the adequacy of the
allowance for loan losses. Generally, management estimates the
allowance using specific reserves for impaired loans under
SFAS 114, 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, national and local economic trends and conditions
and other pertinent information. The level of allowance for loan
losses to net loans may vary depending on the quarterly analysis.
The Corporation manages and controls risk in the loan portfolio
through adherence to credit standards established by the Board
of Directors and implemented by senior management. These
standards are set forth in a formal loan policy which
establishes loan underwriting and approval procedures, sets
limits on credit concentration and enforces regulatory
requirements.
65
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
1.
|
Summary
of Significant Accounting
Policies (Continued)
|
Loan portfolio concentration risk is reduced through
concentration limits for borrowers and varying collateral types.
Concentration risk is measured and reported to senior management
and the board of directors on a regular basis.
The 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
and in which 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
according to the following regulatory classifications: Special
Mention, Substandard, Doubtful or Loss.
Reserve percentages assigned to 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 internal loan review, which also performs ongoing,
independent review of the risk management process. The risk
management process includes underwriting, documentation and
collateral control. Loan review is centralized and independent
of the lending function. The loan review results are reported to
senior management and the Audit Committee of the Board of
Directors. We have a centralized loan administration department
to serve our entire bank. This department provides standardized
oversight for compliance with loan approval authorities and bank
lending policies and procedures, as well as centralized
supervision, monitoring and accessibility.
Acquired
Loans
The Corporation generally acquires loans through business
combinations rather than individually or in groups or
portfolios. An acquired loan which has experienced deterioration
of credit quality between origination and the acquisition, and
for which it is probable that the Corporation will be unable to
collect all amounts due according to the loans contractual
terms, is accounted for under the provisions of Statement of
Position
03-3,
Accounting for Certain Loans or Debt Securities Acquired in a
Transfer
(SOP 03-3).
For such loans, the Corporation estimates the amount and timing
of undiscounted expected principal, interest, and other cash
flows (including expected prepayments, if any) as of the
acquisition date. The excess of the loans contractually
required cash flows over the Corporation expected cash flows is
referred to as a nonaccretable difference and is not recorded by
the Corporation. The loan is initially recorded at fair value,
which represents the present value of the expected cash flows.
The difference between the undiscounted expected cash flows and
the fair value at which the loan is recorded is referred to as
accretable yield and is accreted into interest income over the
remaining expected life of the loan.
On a quarterly basis, the Corporation updates its estimate of
cash flows expected to be collected. If the estimated cash flows
have decreased, the Corporation will recognize a loss by
reducing the accretable yield. If the estimated cash flows have
increased, the Corporation will increase the accretable yield
which is accreted on a prospective basis over the loans
remaining life.
Mortgage
Loans Held for Sale
Mortgage loans held for sale are carried at the lower of cost or
market, determined on a net aggregate basis. The carrying value
of these loans is adjusted for any origination fees and cost
incurred to originate these loans. Differences between the
carrying amount of mortgage loans held for sale and the amounts
received upon sale are credited or charged to income at the time
the proceeds of the sale are collected. The fair values are
based on quoted market prices of similar loans, adjusted for
differences in loan characteristics.
66
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
1.
|
Summary
of Significant Accounting
Policies (Continued)
|
Premises
and Equipment
Premises and equipment are stated at cost less accumulated
depreciation and amortization. Depreciation is computed over the
estimated service lives of the assets using straight-line and
accelerated methods, generally using 5 to 40 years for
premises and 5 to 10 years for furniture and equipment.
Expenditures for maintenance and repairs are charged to
operations as incurred; expenditures for renewals and
betterments are capitalized and written off by depreciation
charges. Property retired or sold is removed from the asset and
related accumulated depreciation accounts and any gain or loss
resulting there from is reflected in the statement of operations.
The Corporation reviews any long-lived assets for impairment
whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable.
Goodwill
and Intangible Assets
At December 31, 2007 and 2006, goodwill totaled
$162,467,000 and $114,458,000, 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,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In Thousands)
|
|
|
Alabama Region
|
|
$
|
65,899
|
|
|
$
|
64,950
|
|
Florida Region
|
|
|
96,568
|
|
|
|
49,508
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
162,467
|
|
|
$
|
114,458
|
|
|
|
|
|
|
|
|
|
|
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 determination of the fair value of each
reporting unit is considered to be a significant estimate.
The Corporation performs the annual impairment test as of
December 31. As of December 31, 2007 and 2006, the
Corporation determined no impairment existed.
At December 31, 2007 and 2006, the Corporations core
deposit intangible, which is being amortized over ten years from
the date of acquisition, was as follows:
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In Thousands)
|
|
|
Core deposit intangible
|
|
$
|
26,355
|
|
|
$
|
16,545
|
|
Accumulated amortization
|
|
|
(3,238
|
)
|
|
|
(1,547
|
)
|
|
|
|
|
|
|
|
|
|
Net core deposit intangible
|
|
$
|
23,117
|
|
|
$
|
14,998
|
|
|
|
|
|
|
|
|
|
|
67
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
1.
|
Summary
of Significant Accounting
Policies (Continued)
|
Amortization expense was $1,691,000, $442,000, and $286,000 for
the years ended December 31, 2007, 2006, and 2005,
respectively. Aggregate amortization expense for the years
ending December 31, 2008 through December 31, 2012, is
estimated to be as follows:
|
|
|
|
|
Year
|
|
Annual Expense
|
|
|
|
(In Thousands)
|
|
|
2008
|
|
$
|
3,584
|
|
2009
|
|
|
3,942
|
|
2010
|
|
|
3,479
|
|
2011
|
|
|
3,049
|
|
2012
|
|
|
2,492
|
|
|
|
|
|
|
Total
|
|
$
|
16,546
|
|
|
|
|
|
|
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 value and
book value of the asset is charged to the allowance for loan
losses. Subsequent gains or losses on the sale or losses from
the valuation of and the cost of maintaining and operating other
real estate are included in other income or expense. Other real
estate totaled $4,378,000 and $1,684,000 at December 31,
2007 and 2006, respectively and is included in other assets on
the accompanying consolidated statement of financial condition.
Security
Repurchase Agreements
Securities sold under agreements to repurchase are generally
accounted for as collateralized financing transactions and are
recorded at the amounts at which the securities were sold plus
accrued interest. Securities, generally U.S. government and
Federal agency securities, pledged as collateral under these
financing arrangements cannot be sold or repledged by the
secured party.
Income
Taxes
The consolidated financial statements are prepared on the
accrual basis. The Corporation accounts for income taxes using
the liability method pursuant to SFAS No. 109,
Accounting for Income Taxes. Under this method, deferred
tax assets and liabilities are determined based on differences
between financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates
expected to apply to taxable income in the years in which those
temporary differences are expected to reverse.
In July 2006, the Financial Accounting Standards Board
(FASB) issued FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes
(FIN 48). This interpretation clarifies the
accounting for uncertainty in income taxes recognized in a
companys financial statements in accordance with Statement
of Financial Accounting Standards (SFAS)
No. 109, Accounting for Income Taxes. Specifically,
the pronouncement prescribes a recognition threshold and a
measurement attribute for the financial statement recognition
and measurement of a tax position taken or expected to be taken
in a tax return. The interpretation also provides guidance on
the related recognition, classification, interest and penalties,
accounting for interim periods, disclosure and transition of
uncertain tax positions. The interpretation was effective for
fiscal years beginning after December 15, 2006. The
Corporation adopted FIN 48 on January 1, 2007 (see
Note 14).
68
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
1.
|
Summary
of Significant Accounting
Policies (Continued)
|
Off-Balance
Sheet Financial Instruments
In the ordinary course of business the Corporation has entered
into off-balance sheet financial instruments consisting of
commitments to extend credit, commitments under credit card
arrangements and commercial letters of credit and standby
letters of credit. Such financial instruments are recorded in
the financial statements when they become payable to the extent
that they do not qualify as derivatives.
Per Share
Amounts
Earnings per common share computations are based on the weighted
average number of common shares outstanding during the periods
presented.
Diluted earnings per common share computations are based on the
weighted average number of common shares outstanding during the
period, plus the dilutive effect of stock options, convertible
preferred stock and restricted stock awards.
Stock-Based
Compensation
In December 2004, the FASB issued SFAS No. 123R,
Share-Based Payment (SFAS 123R), which
is a revision of SFAS 123, Accounting for Stock-Based
Compensation, and supersedes Opinion 25. The new standard,
which became effective for the Corporation in the first quarter
of 2006, requires companies to recognize an expense 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 stock option awards granted prior to
December 31, 2005 vested prior to December 31, 2005,
no future compensation expense will be recognized on these
awards (see Note 12).
Pension
Plan
Liabilities and contributions to the plan are calculated using
the actuarial unit credit method of funding, (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
69
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
1.
|
Summary
of Significant Accounting
Policies (Continued)
|
instruments not designated as a fair value or cash flow hedges,
gains and losses related to the change in fair value are
recognized in earnings during the period of change in fair value.
The Corporation formally documents all relationships between
hedging instruments and hedged items, as well as its risk
management objective and strategy for undertaking various hedge
transactions. This process includes linking all derivative
instruments that are designated as fair-value or cash-flow
hedges to specific assets and liabilities on the balance sheet
or to specific firm commitments or forecasted transactions.
The Corporation also formally assesses, both at the hedges
inception and on an ongoing basis, whether the derivative
instruments that are used in hedging transactions are highly
effective in offsetting changes in fair values or cash flows of
hedged items. When it is determined that a derivative instrument
is not highly effective as a hedge or that it has ceased to be a
highly effective hedge, the Corporation discontinues hedge
accounting prospectively, as discussed below.
The Corporation discontinues hedge accounting prospectively
when: (1) it is determined that the derivative instrument
is no longer effective in offsetting changes in the fair value
or cash flows of a hedged item (including firm commitments or
forecasted transactions); (2) the derivative instrument
expires or is sold, terminated or exercised; (3) the
derivative instrument is de-designated as a hedge instrument,
because it is unlikely that a forecasted transaction will occur;
(4) a hedged firm commitment no longer meets the definition
of a firm commitment; or (5) management determines that
designation of the derivative instrument as a hedge instrument
is no longer appropriate.
When hedge accounting is discontinued because it is determined
that the derivative instrument no longer qualifies as an
effective fair-value hedge, the derivative instrument will
continue to be carried on the balance sheet at its fair value
and the hedged asset or liability will no longer be adjusted for
changes in fair value. When hedge accounting is discontinued
because the hedged item no longer meets the definition of a firm
commitment, the derivative instrument will continue to be
carried on the balance sheet at its fair value and any asset or
liability that was recorded pursuant to recognition of the firm
commitment will be removed from the balance sheet and recognized
as a gain or loss in the then-current-period earnings. When
hedge accounting is discontinued because it is probable that a
forecasted transaction will not occur, the derivative instrument
will continue to be carried on the balance sheet at its fair
value, and gains and losses that were accumulated in other
comprehensive income will be recognized immediately in earnings.
When the derivative instrument is de-designated, terminated or
sold, any gain or loss will remain in accumulated other
comprehensive income and will be reclassified into earnings over
the same period during which the underlying hedged item affects
earnings. In all other situations in which hedge accounting is
discontinued, the derivative instrument will be carried at its
fair value on the balance sheet, with changes in its fair value
recognized in the then-current-period earnings.
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 was
applicable to
70
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
1.
|
Summary
of Significant Accounting
Policies (Continued)
|
the Corporation for period beginning January 1, 2007. The
provisions of SFAS 155 did not 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 was applicable to the Corporation beginning
January 1, 2007, and did not 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 was effective for
the Corporation beginning January 1, 2007. See Note 14
for the related impact of the adoption of FIN 48.
FSP
No. 48-1
Definition of Settlement in FASB Interpretation
No. 48.
FSP 48-1
provides guidance on how to determine whether a tax position is
effectively settled for the purpose of recognizing previously
unrecognized tax benefits.
FSP 48-1
was effective retroactively to January 1, 2007 and did not
significantly impact the Corporations financial statements.
Emerging
Issues Task Force Issue
No. 06-05
In September 2006, the FASB ratified a consensus reached by the
Emerging Issues Task Force (EITF) on Issue
No. 06-05,
Accounting for Purchases of Life Insurance
Determining the Amount That Could Be Realized in Accordance with
FASB Technical
Bulletin No. 85-4.
Technical
Bulletin No. 85-4,
Accounting for Purchases of Life Insurance,
requires that the amount that could be realized under a life
insurance contract as of the date of the statement of financial
position should be reported as an asset. The EITF concluded that
a policyholder should consider any additional amounts (i.e.,
amounts other than cash surrender value) included in the
contractual terms of the policy in determining the amount that
could be realized under the insurance contract. When it is
probable that contractual restrictions would limit the amount
that could be realized, these contractual limitations should be
considered when determining the realizable amounts. Amounts that
are recoverable by the policyholder at the discretion of the
insurance company should be excluded from the amount that could
be realized. Amounts that are recoverable beyond one year from
the surrender of the policy should be discounted to present
value. A policyholder should determine the amount that could be
realized under the insurance contract assuming the surrender of
an 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
71
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
1.
|
Summary
of Significant Accounting
Policies (Continued)
|
group policy) should be included in the amount that could be
realized under the insurance contract. A policyholder should not
discount the cash surrender value component of the amount that
could be realized when contractual restrictions on the ability
to surrender a policy exist. However, if the contractual
limitations prescribe that the cash surrender value component of
the amount that could be realized is a fixed amount, then the
amount that could be realized should be discounted. EITF Issue
No. 06-
05 was effective for fiscal years beginning after
December 15, 2006. The application of EITF Issue
No. 06-05
did not have a material impact on the Corporations
financial condition or results of operations.
Staff
Accounting Bulletin No. 108
In September 2006, the SEC issued Staff Accounting Bulletin
(SAB) No. 108, Quantifying Financial Misstatements,
which expresses the Staffs views regarding the process
of quantifying financial statement misstatements. Registrants
are required to quantify the impact of correcting all
misstatements, including both the carryover and reversing
effects of prior year misstatements, on the current year
financial statements. The techniques most commonly used in
practice to accumulate and quantify misstatements are generally
referred to as the rollover (current year income
statement perspective) and iron curtain (year-end
balance perspective) approaches. The financial statements would
require adjustment when either approach results in quantifying a
misstatement that is material, after considering all relevant
quantitative and qualitative factors. This guidance did not have
a material effect on the Corporations financial condition,
results of operations or cash flows.
Statement
of Financial Accounting Standards No. 158
In September 2006, the FASB issued SFAS No. 158,
Employers Accounting for Defined Benefit Pension and
Other Postretirement Plans an amendment of FASB
Statements No. 87, 88, 106 and 132(R)
(SFAS 158). SFAS 158 requires
employers to fully recognize the obligations associated with
single-employer defined benefit pension, retiree healthcare and
other postretirement plans in their financial statements.
SFAS 158 requires an employer to (a) recognize in its
statement of financial position an asset for a plans over
funded status or a liability for a plans under funded
status, (b) measure a plans assets and its
obligations that determine its funded status at the end of the
employers fiscal year and (c) recognize changes in
the funded status of a defined postretirement plan in the year
in which the changes occur. Those changes will be reported in
the comprehensive income of a business entity. The requirement
to recognize the funded status of a benefit plan and the
disclosure requirements were effective as of the end of the
fiscal year ending after December 15, 2006, for publicly
traded companies. The requirement to measure plan assets and
benefit obligations as of the date of the employers fiscal
year-end statement of financial position is effective for fiscal
years ending after December 15, 2008. SFAS 158 did not
have a material impact on the Corporations statement of
financial position at December 31, 2006 or on the
Corporations comprehensive income for the period ended
December 31, 2006.
Statement
of Financial Accounting Standards No. 157
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements (SFAS 157).
SFAS 157 defines fair value, establishes a framework for
measuring fair value in generally accepted accounting principles
and expands disclosures about fair value measurements.
SFAS 157 is effective for financial statements issued for
fiscal years beginning after November 15, 2007. Management
has evaluated the provisions of SFAS 157 and does not
believe that the adoption of this standard will have a material
impact on the Corporations financial statements.
Statement
of Financial Accounting Standards No. 159
In February 2007, the FASB issued SFAS No. 159, The
Fair Value Option for Financial Assets and Financial Liabilities
(SFAS 159). SFAS 159 would allow the
Corporation to make an irrevocable election to measure certain
financial assets and liabilities at fair value, with unrealized
gains and losses on the elected items recognized
72
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
1.
|
Summary
of Significant Accounting
Policies (Continued)
|
in earnings at each reporting period. The fair value option may
only be elected at the time of initial recognition of a
financial asset or financial liability or upon the occurrence of
certain specified events. The election is applied on an
instrument by instrument basis, with a few exceptions, and is
applied only to entire instruments and not to portions of
instruments. SFAS 159 also provides expanded disclosure
requirements regarding the effects of electing the fair value
option on the financial statements. SFAS 159 is effective
prospectively for fiscal years beginning after November 15,
2007. The Corporation has evaluated SFAS 159 and determined
that the fair value option will not be elected for any financial
asset or liability currently reported on the Corporations
consolidated 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,
2007, the Corporation had no endorsement split-dollar life
insurance arrangements outstanding on any of its bank- owned
life insurance.
Statement
of Financial Accounting Standards No. 160
SFAS No. 160, Noncontrolling Interest in
Consolidated Financial Statements, an amendment of ARB Statement
No. 51
(SFAS 160). SFAS 160 amends
Accounting Research Bulletin (ARB) No. 51,
Consolidated Financial Statements, to establish
accounting and reporting standards for the non-controlling
interest in a subsidiary and for the deconsolidation of a
subsidiary. SFAS 160 clarifies that a non-controlling
interest in a subsidiary, which is sometimes referred to as
minority interest, is an ownership interest in the consolidated
entity that should be reported as a component of equity in the
consolidated financial statements. Among other requirements,
SFAS 160 requires consolidated net income to be reported at
amounts that include the amounts attributable to both the parent
and the non-controlling interest. It also requires disclosure,
on the face of the consolidated income statement, of the amounts
of consolidated net income attributable to the parent and to the
non-controlling interest. SFAS 160 is effective for the
Corporation on January 1, 2009 and is not expected to have
a significant impact on the Corporations financial
statements.
Staff
Accounting Bulletin 109
SAB No. 109, Written Loan Commitments Recorded at
Fair Value Through Earnings
(SAB 109). SAB 109
supersedes SAB 105, Application of Accounting
Principles to Loan Commitments, and indicates that the
expected net future cash flows related to the associated
servicing of the loan should be included in the measurement of
all written loan commitments that are accounted for at fair
value through earnings. The guidance in SAB 109 is applied
on a prospective basis to derivative loan commitments issued or
modified in fiscal quarters beginning after December 15,
2007. SAB 109 is not expected to have a material impact on
the Corporations financial statements.
Peoples
Acquisition
The Corporation completed the acquisition of 100% of the
outstanding stock of Peoples Community Bancshares, Inc.
(Peoples), of Sarasota, Florida on
July 27, 2007 in exchange for 6,635,125 shares of the
73
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
2.
|
Business
Combinations (Continued)
|
Corporations common stock valued at approximately
$73,982,000. The shares were valued by using the average of the
closing prices of the Corporations stock for several days
prior to and after the terms of the acquisition were agreed to
and announced. The total purchase price, which includes certain
direct acquisition costs, was $76,429,000. As a result of the
acquisition, the Corporation now operates three banking
locations in Sarasota and Manatee Counties, Florida. This area
is a significant addition to the Corporations largest
market, which was expanded in 2006 by the Kensington acquisition
discussed below.
The Peoples transaction resulted in $47,389,000 of
goodwill allocated to the Florida reporting unit and $9,810,000
of core deposit intangibles. The goodwill acquired is not
tax-deductible. The amount allocated to the core deposit
intangible was determined by an independent valuation and is
being amortized over an estimated useful life of ten years based
on the undiscounted cash flow.
Management is completing its plan to consolidate Peoples
data processing operations and convert Peoples accounts to
the Corporations system. This conversion is expected to be
completed in the first quarter of 2008. Certain costs associated
with this conversion totaling approximately $575,000, which
primarily includes contract cancellation costs, were estimated
and accrued as of the acquisition date. In addition, certain
employment-related contract obligations totaling approximately
$4,600,000 were also accrued at the acquisition date.
The following table summarizes the estimated fair values of the
assets acquired and liabilities assumed at the date of
acquisition.
|
|
|
|
|
|
|
Amount
|
|
|
|
(In thousands)
|
|
|
Cash and due from banks
|
|
$
|
3,854
|
|
Federal funds sold
|
|
|
4,200
|
|
Investment securities
|
|
|
47,684
|
|
Loans, net
|
|
|
254,047
|
|
Premises and equipment, net
|
|
|
2,318
|
|
Goodwill
|
|
|
47,389
|
|
Core deposit intangibles
|
|
|
9,810
|
|
Other assets
|
|
|
10,612
|
|
Deposits
|
|
|
(245,459
|
)
|
Federal funds purchased and repurchase agreements
|
|
|
(6,905
|
)
|
Advances from FHLB
|
|
|
(37,983
|
)
|
Junior subordinated debentures
|
|
|
(3,962
|
)
|
Other liabilities
|
|
|
(9,176
|
)
|
|
|
|
|
|
Total consideration paid for Peoples
|
|
$
|
76,429
|
|
|
|
|
|
|
Community
Acquisition
The Corporation completed the acquisition of 100% of the
outstanding stock of Community Bancshares, Inc.
(Community) of Blountsville, Alabama on
November 7, 2006 in exchange for 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.
74
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
2.
|
Business
Combinations (Continued)
|
The Community transaction resulted in $60,148,000 of goodwill
allocated to the Alabama reporting unit and $10,142,000 of core
deposit intangibles. The goodwill acquired is not tax
deductible. The amount allocated to the core deposit intangible
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 costs associated with this conversion, totaling
approximately $1,200,000, which included primarily contract
cancellations and employment-related costs, were estimated and
accrued as of the acquisition date. In addition, certain
employment-related contract obligations totaling approximately
$3,500,000 were also accrued as of the acquisition date.
The following table summarizes the estimated fair values of the
assets acquired and liabilities assumed at the date of
acquisition.
|
|
|
|
|
|
|
Amount
|
|
|
|
(In thousands)
|
|
|
Cash and due from banks
|
|
$
|
23,167
|
|
Federal funds sold
|
|
|
35,273
|
|
Investment securities
|
|
|
117,424
|
|
Loans, net
|
|
|
337,148
|
|
Premises and equipment, net
|
|
|
22,529
|
|
Goodwill
|
|
|
60,148
|
|
Core deposit intangibles
|
|
|
10,142
|
|
Other assets
|
|
|
21,185
|
|
Deposits
|
|
|
(431,334
|
)
|
FHLB advances
|
|
|
(68,801
|
)
|
Junior subordinated debentures
|
|
|
(12,047
|
)
|
Other liabilities
|
|
|
(17,634
|
)
|
|
|
|
|
|
Total consideration paid for Community
|
|
$
|
97,200
|
|
|
|
|
|
|
Kensington
Acquisition
The Corporation completed the acquisition of 100% of the
outstanding stock of Kensington Bankshares, Inc.
(Kensington), of Tampa, Florida on August 31,
2006 in exchange for 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, which is one of the
Corporations largest markets and has a higher projected
population growth than any of its other banking markets.
The Kensington transaction resulted in $44,470,000 of goodwill
allocated to the Florida reporting unit and $3,544,000 of core
deposit intangibles. The goodwill acquired is not tax
deductible. The amount allocated to the core deposit intangible
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 costs associated
with this conversion,
75
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
2.
|
Business
Combinations (Continued)
|
totaling approximately $1,400,000, which includes 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
|
|
|
|
(In thousands)
|
|
|
Cash and due from banks
|
|
$
|
4,454
|
|
Federal funds sold
|
|
|
964
|
|
Investment securities
|
|
|
180,151
|
|
Loans, net
|
|
|
136,826
|
|
Premises and equipment, net
|
|
|
5,397
|
|
Goodwill
|
|
|
44,470
|
|
Core deposit intangibles
|
|
|
3,544
|
|
Other assets
|
|
|
5,128
|
|
Deposits
|
|
|
(276,186
|
)
|
Repurchase agreements
|
|
|
(30,050
|
)
|
Other liabilities
|
|
|
(3,326
|
)
|
|
|
|
|
|
Total consideration paid for Kensington
|
|
$
|
71,372
|
|
|
|
|
|
|
Pro Forma
Results of Operations
The results of operations of the Peoples, Kensington and
Community acquisitions subsequent to the acquisition dates are
included in the Corporations consolidated statements of
operations. The following pro forma information for the periods
ended December 31, 2007 and 2006 reflects the
Corporations estimated consolidated results of operations
as if the acquisition of Peoples, Kensington and Community
occurred at January 1, 2006, unadjusted for potential cost
savings.
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in thousands, except per share data)
|
|
|
Net interest income and noninterest income
|
|
$
|
101,620
|
|
|
$
|
104,149
|
|
Net income
|
|
|
7,413
|
|
|
|
9,215
|
|
Earnings per common share basic
|
|
$
|
0.18
|
|
|
$
|
0.23
|
|
Earnings per common share diluted
|
|
$
|
0.18
|
|
|
$
|
0.22
|
|
76
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
2.
|
Business
Combinations (Continued)
|
The amounts at which investment securities are carried and their
approximate fair values at December 31, 2007 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Estimated
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Fair Value
|
|
|
|
(In Thousands)
|
|
|
Investment securities available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. agency securities
|
|
$
|
93,207
|
|
|
$
|
1,086
|
|
|
$
|
75
|
|
|
$
|
94,218
|
|
State, county and municipal securities
|
|
|
40,738
|
|
|
|
222
|
|
|
|
395
|
|
|
|
40,565
|
|
Mortgage-backed securities
|
|
|
191,202
|
|
|
|
1,082
|
|
|
|
888
|
|
|
|
191,396
|
|
Corporate debt
|
|
|
32,404
|
|
|
|
11
|
|
|
|
1,030
|
|
|
|
31,385
|
|
Other securities
|
|
|
4,480
|
|
|
|
|
|
|
|
873
|
|
|
|
3,607
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
362,031
|
|
|
$
|
2,401
|
|
|
$
|
3,261
|
|
|
$
|
361,171
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities with an amortized cost of $239,875,000 and
$219,658,000 at December 31, 2007 and 2006, 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, 2007
|
|
|
|
Less Than 12 Months
|
|
|
More than 12 Months
|
|
|
Total
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
Unrealized
|
|
|
|
Fair Value
|
|
|
Losses
|
|
|
Fair Value
|
|
|
Losses
|
|
|
Fair Value
|
|
|
Losses
|
|
|
|
(In Thousands)
|
|
|
U.S. agency securities
|
|
$
|
500
|
|
|
$
|
|
|
|
$
|
36,633
|
|
|
$
|
75
|
|
|
$
|
37,133
|
|
|
$
|
75
|
|
State, county and municipal securities
|
|
|
15,170
|
|
|
|
331
|
|
|
|
3,659
|
|
|
|
64
|
|
|
|
18,829
|
|
|
|
395
|
|
Mortgage-backed securities
|
|
|
10,310
|
|
|
|
69
|
|
|
|
59,162
|
|
|
|
819
|
|
|
|
69,472
|
|
|
|
888
|
|
Corporate debt and other securities
|
|
|
19,224
|
|
|
|
1,056
|
|
|
|
12,874
|
|
|
|
847
|
|
|
|
32,098
|
|
|
|
1,903
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
45,204
|
|
|
$
|
1,456
|
|
|
$
|
112,328
|
|
|
$
|
1,805
|
|
|
$
|
157,532
|
|
|
$
|
3,261
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
77
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
3.
|
Investment
Securities (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 2007 represents an
other-than-temporary impairment. The unrealized losses relate
primarily to 115 securities issued by the Federal Home Loan Bank
(FHLB), Fannie Mae (FNMA) and Freddie
Mac (FHLMC), various counties and municipalities,
primarily within the State of Alabama, and corporate securities
consisting primarily of private label CMOs, corporate bonds, and
trust preferred securities. These unrealized losses 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. A summary of the total count by
category is shown below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007
|
|
|
|
Total Number of Securities
|
|
|
|
Less Than
|
|
|
More than
|
|
|
|
|
|
|
12 Months
|
|
|
12 Months
|
|
|
Total
|
|
|
U.S. agency securities
|
|
|
1
|
|
|
|
15
|
|
|
|
16
|
|
State, county and municipal securities
|
|
|
40
|
|
|
|
13
|
|
|
|
53
|
|
Mortgage-backed securities
|
|
|
7
|
|
|
|
26
|
|
|
|
33
|
|
Corporate debt and other securities
|
|
|
6
|
|
|
|
7
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
54
|
|
|
|
61
|
|
|
|
115
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The amortized cost and estimated fair values of investment
securities at December 31, 2007, 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
|
|
$
|
5,034
|
|
|
$
|
5,020
|
|
Due after one year through five years
|
|
|
58,858
|
|
|
|
58,568
|
|
Due after five years through ten years
|
|
|
34,721
|
|
|
|
35,505
|
|
Due after ten years
|
|
|
72,218
|
|
|
|
70,682
|
|
Mortgage-backed securities
|
|
|
191,200
|
|
|
|
191,396
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
362,031
|
|
|
$
|
361,171
|
|
|
|
|
|
|
|
|
|
|
Gross realized gains on sales of investment securities available
for sale in 2007, 2006 and 2005 were $308,000, $-0-, and
$34,000, respectively, and gross realized losses for the same
periods were $ -0-, $-0-, and $982,000, respectively.
78
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
3.
|
Investment
Securities (Continued)
|
The components of other comprehensive income (loss) for the
years ended December 31, 2007, 2006, and 2005 are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-Tax
|
|
|
Income Tax
|
|
|
Net of
|
|
|
|
Amount
|
|
|
Expense
|
|
|
Income Tax
|
|
|
|
(In Thousands)
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain on available for sale securities
|
|
$
|
2,344
|
|
|
$
|
(918
|
)
|
|
$
|
1,426
|
|
Less reclassification adjustment for gains realized in net income
|
|
|
(308
|
)
|
|
|
120
|
|
|
|
(188
|
)
|
Change in pension liability
|
|
|
615
|
|
|
|
(227
|
)
|
|
|
388
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gain
|
|
$
|
2,651
|
|
|
$
|
(1,025
|
)
|
|
$
|
1,626
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2007 and 2006, the composition of the loan
portfolio was as follows:
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In Thousands)
|
|
|
Commercial and industrial
|
|
$
|
183,013
|
|
|
$
|
172,872
|
|
Real estate construction and land development
|
|
|
665,303
|
|
|
|
547,772
|
|
Real estate mortgages
|
|
|
|
|
|
|
|
|
Single family
|
|
|
540,277
|
|
|
|
456,341
|
|
Commercial
|
|
|
533,611
|
|
|
|
362,542
|
|
Other
|
|
|
41,535
|
|
|
|
46,895
|
|
Consumer
|
|
|
53,377
|
|
|
|
54,462
|
|
All other loans
|
|
|
1,235
|
|
|
|
438
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
$
|
2,018,351
|
|
|
$
|
1,641,322
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2007 and 2006, the Corporations
recorded investment in loans considered to be impaired under
SFAS No. 114 was $22,294,000 and $6,886,000,
respectively. At December 31, 2007 and 2006, there was
approximately $1,514,000 and $1,807,000, respectively in the
allowance for loan losses specifically allocated to impaired
loans. The average recorded investment in impaired loans during
2007, 2006 and 2005 was approximately $11,767,000, $3,975,000,
and $4,687,000, respectively. Interest income recognized on
loans considered impaired totaled approximately $873,000,
$176,000, and $65,000 for the years ended December 31,
2007, 2006 and 2005, respectively.
79
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
At December 31, 2007, nonaccrual loans totaled
$22.5 million, compared to $7.8 million at
December 31, 2006. Loans past due 90 days or more and
still accruing totaled $2,117,000 at December 31, 2007
compared to $514,000 at December 31, 2006.
During 2007 and 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 totaled
$2,378, 000 and $260,000 at December 31, 2007 and 2006,
respectively. The carrying value of these loans at acquisition
and a summary of the change in accretable yield follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In Thousands)
|
|
|
Contractually required principal and interest at acquisition
|
|
$
|
5,677
|
|
|
$
|
1,696
|
|
Nonaccretable difference (expected losses and forgone interest)
|
|
|
(1,443
|
)
|
|
|
(1,231
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows expected to be collected at acquisition
|
|
|
4,234
|
|
|
|
465
|
|
Accretable yield
|
|
|
(209
|
)
|
|
|
(190
|
)
|
|
|
|
|
|
|
|
|
|
Basis in acquired loans at acquisition
|
|
$
|
4,025
|
|
|
$
|
275
|
|
|
|
|
|
|
|
|
|
|
Accretable yield, beginning of year
|
|
$
|
174
|
|
|
$
|
|
|
Additions
|
|
|
209
|
|
|
|
190
|
|
Accretion
|
|
|
(216
|
)
|
|
|
(9
|
)
|
Transfer for nonaccretable yield to accretable yield
|
|
|
138
|
|
|
|
|
|
Disposals
|
|
|
|
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
Accretable yield, end of the year
|
|
$
|
305
|
|
|
$
|
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 $1.3 million. The carrying
value at December 31, 2007 and 2006 was $297,000 and
$800,000, respectively. 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 2007 and 2006, no interest was recognized on
these loans.
|
|
5.
|
Allowance
for Loan Losses
|
A summary of the allowance for loan losses for the years ended
December 31, 2007, 2006 and 2005 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In Thousands)
|
|
|
Balance at beginning of year
|
|
$
|
18,892
|
|
|
$
|
12,011
|
|
|
$
|
12,543
|
|
Allowance of acquired banks
|
|
|
3,717
|
|
|
|
6,697
|
|
|
|
|
|
Provision for loan losses
|
|
|
4,541
|
|
|
|
2,500
|
|
|
|
3,500
|
|
Loan charge-offs
|
|
|
(5,722
|
)
|
|
|
(3,746
|
)
|
|
|
(5,742
|
)
|
Recoveries
|
|
|
1,440
|
|
|
|
1,430
|
|
|
|
1,710
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
22,868
|
|
|
$
|
18,892
|
|
|
$
|
12,011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
80
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
5.
|
Allowance
for Loan Losses (Continued)
|
|
|
6.
|
Premises
and Equipment
|
Components of premises and equipment at December 31, 2007
and 2006 are as follows:
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In Thousands)
|
|
|
Land
|
|
$
|
19,834
|
|
|
$
|
17,432
|
|
Premises
|
|
|
76,733
|
|
|
|
74,836
|
|
Furniture and equipment
|
|
|
22,956
|
|
|
|
17,737
|
|
|
|
|
|
|
|
|
|
|
|
|
|
119,523
|
|
|
|
110,005
|
|
Less accumulated depreciation and amortization
|
|
|
(24,842
|
)
|
|
|
(20,311
|
)
|
|
|
|
|
|
|
|
|
|
Net book value of premises and equipment in service
|
|
|
94,681
|
|
|
|
89,694
|
|
Construction in process (also includes land for branch expansion)
|
|
|
10,118
|
|
|
|
4,932
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
104,799
|
|
|
$
|
94,626
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense for the years ended December 31, 2007,
2006 and 2005 was $4,630,000, $3,245,000 and $3,275,000,
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):
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
Buildings
|
|
$
|
2,450
|
|
|
$
|
2,450
|
|
Accumulated depreciation
|
|
|
(98
|
)
|
|
|
(21
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,352
|
|
|
$
|
2,429
|
|
|
|
|
|
|
|
|
|
|
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, 2007 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
|
|
|
|
|
Years ending December 31,
|
|
Property
|
|
|
Equipment
|
|
|
Total
|
|
|
Capitalized
|
|
|
|
(In Thousands)
|
|
|
2008
|
|
$
|
2,411
|
|
|
$
|
320
|
|
|
$
|
2,731
|
|
|
$
|
367
|
|
2009
|
|
|
2,055
|
|
|
|
205
|
|
|
|
2,260
|
|
|
|
367
|
|
2010
|
|
|
1,653
|
|
|
|
107
|
|
|
|
1,760
|
|
|
|
367
|
|
2011
|
|
|
1,341
|
|
|
|
6
|
|
|
|
1,347
|
|
|
|
367
|
|
2012
|
|
|
883
|
|
|
|
|
|
|
|
883
|
|
|
|
367
|
|
2013 and thereafter
|
|
|
7,812
|
|
|
|
|
|
|
|
7,812
|
|
|
|
6,387
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total minimum lease payments
|
|
$
|
16,155
|
|
|
$
|
638
|
|
|
$
|
16,793
|
|
|
|
8,222
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount representing interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,483
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Present value of net minimum lease payments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,739
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental expense relating to operating leases amounted to
approximately $2,460,000, $1,258,000 and $810,000 for the years
ended December 31, 2007, 2006 and 2005, 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 ended on
May 31, 2007 and was subject to
81
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
6.
|
Premises
and Equipment (Continued)
|
options which gave the right for the seller to require the
purchaser to purchase the property and gave the right to the
purchaser to require the seller to sell the property. The
purchase option was exercised on May 31, 2007 and proceeds
totaling $2,621,544 were received by Superior Bank.
Property
Classified as Held-for-Sale
During the second quarter of 2007, management committed to a
plan to sell real estate that is no longer used in the
Corporations operations. The real estate consists of two
groups. The first group contains the former corporate
headquarters and administrative office facilities of Community
in Blountsville, Alabama, and the second group consists of seven
condominium units located in the John Hand Building in downtown
Birmingham, Alabama, where the Corporations headquarters
and operations center are housed.
Management committed to the sale of the Community property in
Blountsville because the size and location of the facility does
not meet the Corporations current needs or future
expansion plans. Management expects to sell the property within
the next 12 months to an unrelated party. The
propertys current carrying value, included in other
assets, is $1,967,000, which approximates its market value.
Management committed to the sale of the condominium units
because the rental operations are not a part of the
Corporations long-term strategy. Management expects to
sell the units within the next 12 months. Currently, there
are six condominium units with a current carrying value,
included in other assets, of $1,674,000, which is lower than the
current market price.
Both groups of assets are included as part of the administrative
reporting unit.
Sale-Leaseback
Transactions
On July 24, 2007, the Corporations banking subsidiary
sold a branch office building in Huntsville, Alabama to a
limited liability company, of which one of the
Corporations directors is a member, for $3,000,000. The
limited liability company then leased the building back to the
banking subsidiary. The initial term of the lease is
14 years and may be renewed, at the banking
subsidiarys option, for three additional terms of five
years each. The amount of the monthly lease payments to be made
by the banking subsidiary is $19,500 for the first year of the
lease and increases annually until it reaches $26,881 per month
in year 14. Annual rent escalations associated with this lease
are being accounted for on a straight-line basis over
14 years. Rent for the renewal terms is to be determined
based on appraisals of the property. No gain or loss was
recognized on this transaction, which was entered into in the
ordinary course of business and is being accounted for as an
operating lease.
On September 7, 2007, the Corporations banking
subsidiary sold an additional branch office building in
Huntsville, Alabama to an unrelated party for $2,445,000. The
purchaser then leased the building back to the banking
subsidiary. The initial term of the lease is 15 years and
may be renewed, at the banking subsidiarys option, for
three additional terms of five years each. The amount of the
monthly lease payments to be made by the banking subsidiary is
$11,225 for the initial term. Rent for the renewal terms is to
be determined based on future appraisals of the property. No
gain or loss was recognized on this transaction, which was
entered into in the ordinary course of business and is being
accounted for as an operating lease.
On January 30, 2008, the Corporations banking
subsidiary entered into agreements with a limited liability
company, of which one of the Corporations directors is a
member, pursuant to which the limited liability company
purchased on January 31, 2008 office buildings located in
Albertville and Athens, Alabama for a total of $4,250,000. The
limited liability company then leased the building back to the
banking subsidiary. The initial term of each lease is
13 years and each lease may be renewed, at the banking
subsidiarys option, for two additional terms of five years
each. The amount of the monthly lease payments to be made by the
banking subsidiary in the first year is $13,240 for the
Albertville office and $14,208 for the Athens office. These
amounts increase annually until
82
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
6.
|
Premises
and Equipment (Continued)
|
the monthly lease payments reach $17,393 for the Albertville
office and $18,666 for the Athens office in year 13. Annual rent
escalations associated with these leases are being accounted for
on a straight line basis over the lease terms. Rent for the
renewal terms is to be determined based on appraisals of the
properties. A gain of $73,000 was realized on these transactions
which will be recognized as a reduction of rental expense over
the remaining term of the leases. These transactions were
entered into in the ordinary course of business and are being
accounted for as operating leases.
The following schedule details interest expense on deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In Thousands)
|
|
|
Interest-bearing demand
|
|
$
|
20,791
|
|
|
$
|
11,857
|
|
|
$
|
7,144
|
|
Savings
|
|
|
819
|
|
|
|
177
|
|
|
|
40
|
|
Time deposits $100,000 and over
|
|
|
21,122
|
|
|
|
11,170
|
|
|
|
7,111
|
|
Other time deposits
|
|
|
36,935
|
|
|
|
23,307
|
|
|
|
13,620
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
79,667
|
|
|
$
|
46,511
|
|
|
$
|
27,915
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2007, the scheduled maturities of time
deposits are as follows (in thousands):
|
|
|
|
|
2008
|
|
$
|
1,149,042
|
|
2009
|
|
|
45,199
|
|
2010
|
|
|
21,886
|
|
2011
|
|
|
14,159
|
|
2012 and thereafter
|
|
|
45,407
|
|
|
|
|
|
|
|
|
$
|
1,275,693
|
|
|
|
|
|
|
|
|
8.
|
Advances
from Federal Home Loan Bank
|
The following is a summary, by year of maturity, of advances
from the FHLB as of December 31, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
Year
|
|
Average Rate
|
|
|
Balance
|
|
|
Average Rate
|
|
|
Balance
|
|
|
|
(Dollars in Thousands)
|
|
|
2007
|
|
|
|
%
|
|
$
|
|
|
|
|
5.37
|
%
|
|
$
|
42,000
|
|
2008
|
|
|
4.62
|
|
|
|
74,488
|
|
|
|
5.38
|
|
|
|
55,500
|
|
2009
|
|
|
4.33
|
|
|
|
30,032
|
|
|
|
5.39
|
|
|
|
27,000
|
|
2010
|
|
|
4.83
|
|
|
|
25,000
|
|
|
|
6.41
|
|
|
|
5,000
|
|
2011
|
|
|
4.80
|
|
|
|
4,968
|
|
|
|
|
|
|
|
|
|
2012
|
|
|
4.49
|
|
|
|
30,000
|
|
|
|
|
|
|
|
|
|
2015
|
|
|
5.39
|
|
|
|
26,340
|
|
|
|
5.39
|
|
|
|
26,340
|
|
2020
|
|
|
4.28
|
|
|
|
32,000
|
|
|
|
4.28
|
|
|
|
32,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
4.63
|
%
|
|
$
|
222,828
|
|
|
|
5.22
|
%
|
|
$
|
187,840
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The above schedule is by contractual maturity. Call dates for
the above are as follows: 2008, $154,000,000; and 2010,
$11,340,000.
83
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
8.
|
Advances
from Federal Home Loan
Bank (Continued)
|
The advances are secured by a blanket lien on certain
residential and commercial real estate loans all with a carrying
value of approximately $346,000,000 at December 31, 2007.
The Corporation has available approximately $174,000,000 in
unused advances under the blanket lien subject to the
availability of qualifying collateral.
In February 2008, FHLB advances totaling $100,000,000 were
refinanced to lower the current interest rate in response to
current market conditions. This refinancing was accounted for as
debt modification therefore no gain or loss was recognized on
the transaction. The following table summarizes the current
terms of the refinanced advances by contractual maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Current
|
|
|
Average Rate
|
|
|
|
|
|
|
Weighted
|
|
|
Before
|
|
|
|
|
Matures
|
|
Average Rate
|
|
|
Refinancing
|
|
|
Balance
|
|
|
2011
|
|
|
2.77
|
%
|
|
|
4.60
|
%
|
|
$
|
25,000
|
|
2013
|
|
|
3.46
|
|
|
|
4.21
|
|
|
|
35,000
|
|
2015
|
|
|
4.05
|
|
|
|
4.57
|
|
|
|
40,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
3.52
|
%
|
|
|
4.45
|
%
|
|
$
|
100,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Call dates for the refinanced advances are as follows: 2009,
$25,000,000; and 2010, $75,000,000.
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.
|
|
9.
|
Federal
Funds Borrowed and Security Repurchase Agreements
|
Detail of Federal funds borrowed and security repurchase
agreements follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
Balance at December 31:
|
|
|
|
|
|
|
|
|
Federal funds borrowed
|
|
$
|
10,000
|
|
|
$
|
|
|
Security repurchase agreements
|
|
|
7,075
|
|
|
|
23,415
|
|
Maximum outstanding at any month end:
|
|
|
|
|
|
|
|
|
Federal funds borrowed
|
|
|
10,000
|
|
|
|
9,000
|
|
Security repurchase agreements
|
|
|
28,545
|
|
|
|
31,464
|
|
Daily average amount outstanding:
|
|
|
|
|
|
|
|
|
Federal funds borrowed
|
|
|
1,263
|
|
|
|
1,811
|
|
Security repurchase agreements
|
|
|
15,798
|
|
|
|
30,629
|
|
Weighted daily average interest rate:
|
|
|
|
|
|
|
|
|
Federal funds borrowed
|
|
|
5.43
|
%
|
|
|
5.47
|
%
|
Security repurchase agreements
|
|
|
5.28
|
|
|
|
4.51
|
|
Weighted daily interest rate for amounts outstanding at December
31:
|
|
|
|
|
|
|
|
|
Federal funds borrowed
|
|
|
3.65
|
%
|
|
|
|
%
|
Security repurchase agreements
|
|
|
4.22
|
|
|
|
4.63
|
|
The carrying value of securities sold under repurchase
agreements is $20,500,000 and $30,327,000 as of
December 31, 2007 and 2006, respectively.
84
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following is a summary of notes payable as of
December 31, 2007 and 2006 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
Balance at December 31:
|
|
Principal
|
|
|
Rate
|
|
|
Principal
|
|
|
Rate
|
|
|
Note payable to bank, borrowed under $10,000,000 line of credit,
due January 26, 2008; interest is based on the
30-day LIBOR
plus 1.25%, secured by 51% of the outstanding Superior Bank
stock(1)
|
|
$
|
9,500
|
|
|
|
6.06
|
%
|
|
$
|
|
|
|
|
|
%
|
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
|
|
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 12
|
|
|
|
|
|
|
|
|
|
|
1,295
|
|
|
|
8.25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total notes payable
|
|
$
|
9,500
|
|
|
|
|
|
|
$
|
5,545
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Extended for
90-day
period until May 26, 2008. |
|
|
11.
|
Junior
Subordinated Debentures Owed to Unconsolidated Subsidiary
Trusts
|
On July 19, 2007, the Corporation issued approximately
$22,000,000 in aggregate principal amount of
Trust Preferred Securities and a like amount of related
subordinated debentures through the Corporations
wholly-owned, unconsolidated subsidiary trust, Superior Capital
Trust I. The Trust Preferred Securities and
subordinated debentures bear interest at a floating rate of
three-month LIBOR plus 1.33% that is payable quarterly. The
Trust Preferred Securities, which may be redeemed on or
after September 15, 2012, will mature on September 15,
2037.
On July 25, 2007, the Corporation completed its redemption
of approximately $16,000,000 in aggregate outstanding principal
amount of Trust Preferred Securities and related six-month
LIBOR plus 3.75% junior subordinated debentures due
July 25, 2031, both of which were issued by the
Corporations wholly-owned, unconsolidated subsidiary
trust, TBC Capital Statutory Trust III. The Corporation
called the securities for redemption effective July 25,
2007 at a redemption price equal to 106.15% of par. The
Corporation incurred a loss of approximately $1,469,000
($925,000 net of tax, or $.02 per share), during the third
quarter of 2007 relating to the redemption of the outstanding
Trust Preferred Securities.
The remaining proceeds from the issuance of the new trust
preferred securities were used in the stock repurchase program
and for other corporate purposes.
The Corporation has three additional sponsored trusts, TBC
Capital Statutory Trust II (TBC Capital II),
Community (AL) Capital Trust I (Community Capital
I) and Peoples Community Statutory Trust I
(Peoples Trust I), of which 100% of the common
equity is owned by the Corporation. The trusts were formed for
the purpose of issuing Corporation-obligated mandatory
redeemable trust preferred securities to third-party investors
and investing the proceeds from the sale of such trust preferred
securities solely in junior subordinated debt securities of the
Corporation (the debentures). The debentures held by each trust
are the sole assets of that trust. Distributions on the trust
preferred securities issued by each trust are payable
semi-annually at a rate per annum equal to the interest rate
being earned by the trust on the debentures held by that trust.
The trust preferred securities are subject to mandatory
redemption, in whole or in part, upon repayment of the
debentures. The Corporation has entered into agreements which,
taken collectively, fully and unconditionally guarantee the
trust preferred securities subject to the terms of each of the
guarantees. The debentures held by the TBC Capital II, Community
Capital I and Peoples
85
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
11.
|
Junior
Subordinated Debentures Owed to Unconsolidated Subsidiary
Trusts (Continued)
|
Trust I trusts are first redeemable, in whole or in part,
by the Corporation on September 7, 2010, March 8, 2010
and December 15, 2010, respectively.
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 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
10.6% junior subordinated debentures owed to TBC Capital
Statutory Trust II due September 7, 2030
|
|
$
|
15,464
|
|
|
$
|
15,464
|
|
6-month
LIBOR plus 3.75% junior subordinated debentures owed to TBC
Capital Statutory Trust III due July 25, 2031
|
|
|
|
|
|
|
16,495
|
|
10.875% junior subordinated debentures owed to Community Capital
Trust I due March 8, 2030
|
|
|
10,310
|
|
|
|
10,310
|
|
3-month
LIBOR plus 1.33% junior subordinated debentures owed to Superior
Capital Trust I due September 15, 2037(1)
|
|
|
22,681
|
|
|
|
|
|
6.41% junior subordinated debentures owed to Peoples Community
Capital Trust I due December 15, 2035(2)
|
|
|
4,124
|
|
|
|
|
|
Purchase accounting adjustment
|
|
|
1,165
|
|
|
|
1,737
|
|
|
|
|
|
|
|
|
|
|
Total junior subordinated debentures owed to unconsolidated
subsidiary trusts
|
|
$
|
53,744
|
|
|
$
|
44,006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Interest rate is equal to 6.32% at December 31, 2007. |
|
(2) |
|
Converts to quarterly floating rate of LIBOR plus 1.45% in
December 2010. |
|
|
12.
|
Stock
Incentive Plans
|
In December 2004, the FASB issued SFAS No. 123R,
Share-Based Payment (SFAS 123R), which
is a revision of SFAS No. 123, Accounting for
Stock-Based Compensation (SFAS 123), and
supersedes Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees (APB Opinion
25). The new standard, which became effective for the
Corporation in the first quarter of 2006, requires companies to
recognize an expense in the statement of operations for the
grant-date fair value of stock options and other equity-based
compensation issued to employees, but expresses no preference
for a type of valuation method. This expense 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 recognizes
compensation expense for all stock awards granted after
December 31, 2005. Since all of the Corporations
stock option awards granted prior to December 31, 2005 have
vested in full, no future compensation expense will be
recognized on these awards. 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 2007 and 2006
includes $473,000 and $165,000, respectively, in compensation
cost for all share-based payments granted subsequent to
December 31, 2005, based on
86
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
12.
|
Stock
Incentive Plans (Continued)
|
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 years ended December 31, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
Risk-free interest rate
|
|
|
4.49
|
%
|
|
|
4.54
|
%
|
Volatility factor
|
|
|
29.11
|
%
|
|
|
30.16
|
%
|
Expected term (in years)
|
|
|
5.00
|
|
|
|
5.00
|
|
Dividend yield
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
A summary of stock option activity as of December 31, 2007
and 2006, and changes during the years then ended is set forth
below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
|
|
|
|
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Aggregate
|
|
For The Year Ended December 31, 2007
|
|
Number
|
|
|
Price
|
|
|
Term
|
|
|
Intrinsic Value
|
|
|
Under option, beginning of period
|
|
|
3,042,597
|
|
|
$
|
8.07
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
276,596
|
|
|
|
10.05
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(85,000
|
)
|
|
|
(6.37
|
)
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(26,000
|
)
|
|
|
(10.35
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Under option, end of period
|
|
|
3,208,193
|
|
|
$
|
8.27
|
|
|
|
6.70
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at end of period
|
|
|
2,766,597
|
|
|
$
|
7.94
|
|
|
|
5.44
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average fair value per option of options granted during
the period
|
|
$
|
3.45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
87
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
12.
|
Stock
Incentive Plans (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
|
|
|
|
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Aggregate
|
|
For The Year Ended December 31, 2006
|
|
Number
|
|
|
Price
|
|
|
Term
|
|
|
Intrinsic Value
|
|
|
Under option, beginning of period
|
|
|
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 years
ended December 31, 2007 and 2006 was $287,000 and $814,000,
respectively. As of December 31, 2007, there was $967,000
of total unrecognized compensation expense related to the
unvested awards. This expense will be recognized over
approximately the next 25- to 30-months unless the shares vest
earlier based on achievement of benchmark trading price levels.
During the year ended December 31, 2007 and 2006, the
Corporation recognized approximately $473,000 and $165,000 in
compensation expense related to options granted.
A summary of activity for the period ended December 31,
2005 is as follows:
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Exercise
|
|
|
|
Number
|
|
|
Price
|
|
|
Under option, beginning of year
|
|
|
1,654,509
|
|
|
$
|
6.63
|
|
Granted
|
|
|
1,914,437
|
|
|
|
8.53
|
|
Exercised
|
|
|
(474,684
|
)
|
|
|
6.59
|
|
Forfeited
|
|
|
(62,316
|
)
|
|
|
7.73
|
|
|
|
|
|
|
|
|
|
|
Under option, end of year
|
|
|
3,031,946
|
|
|
$
|
7.81
|
|
|
|
|
|
|
|
|
|
|
Exercisable at end of year
|
|
|
3,031,946
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average fair value per option of options granted during
the year
|
|
$
|
4.91
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
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
88
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
12.
|
Stock
Incentive Plans (Continued)
|
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):
|
|
|
|
|
|
|
2005
|
|
|
Net loss applicable to common stockholders:
|
|
|
|
|
As reported
|
|
$
|
(8,097
|
)
|
Pro forma
|
|
|
(14,217
|
)
|
Basic net loss per common share:
|
|
|
|
|
As reported
|
|
$
|
(.42
|
)
|
Pro forma
|
|
|
(.74
|
)
|
Diluted net loss per common share:
|
|
|
|
|
As reported
|
|
|
(.42
|
)
|
Pro forma
|
|
|
(.74
|
)
|
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
|
|
|
Risk free interest rate
|
|
|
4.34
|
%
|
Volatility factor
|
|
|
43
|
%
|
Weighted average life of options (in years)
|
|
|
7.00
|
|
Dividend yield
|
|
|
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, 2007, all restricted shares had
vested. The outstanding shares of restricted stock are included
in the diluted earnings per share calculation, using the
treasury stock method, until the shares vest. Once vested, the
shares become outstanding for basic earnings per share. For the
year ended December 31, 2005, the Corporation recognized
$648,000, in restricted stock expense was primarily related to
the accelerated vesting from the management separation
agreements included in the amount of management separation cost.
89
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
12.
|
Stock
Incentive Plans (Continued)
|
In January 2008, members of the Corporations management
received restricted stock grants totaling 107,150 shares.
This grant excludes certain senior executive management who
received cash under the short-term management incentive plan in
lieu of restricted stock. The grant date fair value is equal to
$4.64 per share or $497,000 which will be recognized over the
next
24-month
period as 50% of the stock vests on January 22, 2009 and
50% vests on January 22, 2010. If the executives
employment terminates prior to a vesting date for any reason
other than death, disability or a change in control, the
unvested stock is forfeited. Unvested stock becomes immediately
vested upon death, disability or a change in control. Under the
restricted stock agreements, the stock may not be sold or
assigned in any manner during the vesting period, but the
executive will have the rights of a shareholder with respect to
the stock (i.e. vote, receive dividends, etc), prior to vesting.
Employee
Stock Ownership Plans
Superior
Bancorp ESOP
Effective August 31, 2007, the Corporation terminated the
Superior Bancorp Employee Stock Ownership Plan (the
ESOP). The ESOP was leveraged, and a promissory note
existed between the ESOP and the Corporation that had a
remaining balance of $1,165,000 at the termination date. The
promissory note was satisfied by the transfer from the ESOP to
the Corporation of 127,469 unallocated shares of Corporation
common stock valued at a price of $9.14 per share, the closing
price that day. The Corporation transferred these shares during
the third quarter of 2007 to treasury stock at current market
value from the unallocated ESOP shares account. The remaining
17,178 unallocated shares were committed to be allocated to the
participants accounts, and, as a result, the Corporation
recognized additional compensation expense during the third
quarter of 2007 of approximately $158,000.
On January 29, 2003, the ESOP trustees finalized a
$2,100,000 promissory note, which has been fully repaid as
discussed above, to reimburse the Corporation for the funds used
to leverage the ESOP. The unreleased shares and a guarantee of
the Corporation secured the promissory note, which had been
classified as notes payable on the Corporations statement
of financial condition. As the debt was repaid, shares were
released from collateral based on the proportion of debt
service. Principal payments on the debt were $17,500 per month
for 120 months. The interest rate adjusted to the Wall
Street Journal prime rate. Interest expense incurred on the
debt in 2007, 2006 and 2005 totaled $82,000, $122,000 and
$98,000, respectively. Total contributions to the plan during
2007, 2006 and 2005 totaled $1,326,000, $322,000, and $313,000,
respectively. Released shares were allocated to eligible
employees at the end of the plan year based on the
employees eligible compensation to total compensation. The
Corporation recognized compensation expense during the period as
the shares were earned and committed to be released. As shares
were committed to be released and compensation expense was
recognized, the shares became outstanding for basic and diluted
earnings per share computations. The amount of compensation
expense reported by the Corporation is equal to the average fair
value of the shares earned and committed to be released during
the period. Compensation expense that the Corporation recognized
during the period ended December 31, 2007, 2006 and
2005 was $371,000, $304,000 and $281,000, respectively. The ESOP
shares as of December 31, 2006 and 2005 were as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
Allocated shares
|
|
|
70,519
|
|
|
|
52,501
|
|
Estimated shares committed to be released
|
|
|
26,700
|
|
|
|
26,700
|
|
Unreleased shares
|
|
|
164,672
|
|
|
|
191,372
|
|
|
|
|
|
|
|
|
|
|
Total ESOP shares
|
|
|
261,891
|
|
|
|
270,573
|
|
|
|
|
|
|
|
|
|
|
Fair value of unreleased shares
|
|
$
|
1,867,000
|
|
|
$
|
2,184,000
|
|
|
|
|
|
|
|
|
|
|
90
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
12.
|
Stock
Incentive Plans (Continued)
|
Community
Bancshares ESOP
As a result of its merger with Community, the Corporation became
a sponsor of an internally leveraged ESOP maintained by
Community. This ESOP has an outstanding loan to the Corporation
that bears interest at a floating rate equal to the prime rate
of interest. As of December 31, 2007, the interest rate on
the note was 7.25%. Principal and interest payments on the ESOP
loan are due monthly through August, 2011, based on the current
amortization schedule, with the remaining principal and
interest, if any, due upon that date. The ESOP loan may be
prepaid in whole or in part without penalty under the loan
agreement, subject to applicable ERISA and tax restrictions. The
Corporation makes contributions to the ESOP that enables the
ESOP to make payments due under the ESOP loan. Under Statement
of Position
No. 93-6
(SOP 93-6),
Employers Accounting for Employee Stock Ownership
Plans, employers that sponsor an ESOP with an employer
loan should not report the ESOPs note payable or the
employers note receivable in the employers statement
of condition, nor should interest cost or interest income be
recognized on the employer loan. The Corporation has followed
SOP 93-6
accordingly. The principal balance of the Companys loan to
the ESOP at December 31, 2007 was $941,000.
An employee becomes a participant in the ESOP after completing
12 months of service during which the employee is credited
with 1,000 hours or more of service. Contributions to the
plan are made at the discretion of the board but may not be less
than the amount required to service the ESOP debt. Under the
terms of the ESOP, after a person ceases to be an employee of
the Corporation, that person is no longer eligible to
participate in the ESOP. In that case, the person may demand to
receive all stock credited to his benefit under the ESOP as of
the end of the year immediately preceding that persons
termination of employment with the Corporation.
Dividends paid on released ESOP shares are credited to the
accounts of the participants to whom the shares are allocated.
Dividends on unreleased shares may be used to repay the debt
associated with the ESOP or treated as other income of the ESOP
and allocated to the participants. Compensation cost recognized
during the period ended December 31, 2007 and 2006 was
$125,000 and $39,000, respectively. The ESOP shares as of
December 31, 2007 and 2006 are as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
Allocated shares
|
|
|
333,840
|
|
|
|
319,774
|
|
Estimated shares committed to be released
|
|
|
11,932
|
|
|
|
14,066
|
|
Unreleased shares
|
|
|
54,727
|
|
|
|
66,659
|
|
|
|
|
|
|
|
|
|
|
Total ESOP shares
|
|
|
400,499
|
|
|
|
400,499
|
|
|
|
|
|
|
|
|
|
|
Fair value of unreleased shares
|
|
$
|
294,000
|
|
|
$
|
756,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13. Profit-Sharing
Plan and Other Agreements
The Corporation sponsors a profit-sharing plan that permits
participants to make contributions by salary reduction pursuant
to Section 401(k) of the Internal Revenue Code. This plan
covers substantially all employees who meet certain age and
length of service requirements. The Corporation matches
contributions at its discretion. The Corporations
contributions to the plan were $886,000, $549,000 and $448,000
in 2007, 2006 and 2005, 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, 2007 and 2006,
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 $14,179,000 as of December 31,
2007 and $14,201,000 at December 31, 2006. The accrued
liability, included in other liabilities, associated with these
benefits totaled $6,331,000
91
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
13. Profit-Sharing Plan and Other
Agreements (Continued)
and $6,358,000 at December 31, 2007 and 2006, respectively,
which represents the present value of the future benefits.
Compensation expense related to these plans totaled $334,000,
$216,000 and $1,178,000 for 2007, 2006 and 2005, respectfully.
The components of the consolidated income tax expense (benefit)
are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
88
|
|
|
$
|
|
|
|
$
|
(1,439
|
)
|
State
|
|
|
25
|
|
|
|
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current expense (benefit)
|
|
|
113
|
|
|
|
|
|
|
|
(1,444
|
)
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
3,529
|
|
|
|
1,555
|
|
|
|
(2,096
|
)
|
State
|
|
|
492
|
|
|
|
368
|
|
|
|
(1,072
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax expense (benefit)
|
|
|
4,021
|
|
|
|
1,923
|
|
|
|
(3,168
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax expense (benefit)
|
|
$
|
4,134
|
|
|
$
|
1,923
|
|
|
$
|
(4,612
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Significant components of the Corporations deferred income
tax assets and liabilities as of December 31, 2007 and 2006
are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
Deferred income tax assets:
|
|
|
|
|
|
|
|
|
Rehabilitation tax credit
|
|
$
|
5,981
|
|
|
$
|
6,144
|
|
Allowance for loan losses
|
|
|
8,367
|
|
|
|
6,978
|
|
Deferred compensation
|
|
|
3,910
|
|
|
|
4,076
|
|
Net operating loss carryforwards
|
|
|
12,226
|
|
|
|
13,147
|
|
Alternative minimum tax credit carryover
|
|
|
1,122
|
|
|
|
1,034
|
|
Purchase accounting basis differences
|
|
|
2,770
|
|
|
|
2,936
|
|
Unrealized loss on securities
|
|
|
365
|
|
|
|
1,157
|
|
Other
|
|
|
2,194
|
|
|
|
2,085
|
|
|
|
|
|
|
|
|
|
|
Total deferred income tax assets
|
|
|
36,935
|
|
|
|
37,557
|
|
Less: valuation allowance on net operating loss carryforwards
|
|
|
(1,207
|
)
|
|
|
(1,207
|
)
|
Deferred income tax liabilities:
|
|
|
|
|
|
|
|
|
Difference in book and tax basis of premises and equipment
|
|
|
4,127
|
|
|
|
5,060
|
|
Excess purchase price and intangibles
|
|
|
9,901
|
|
|
|
5,784
|
|
Other
|
|
|
838
|
|
|
|
107
|
|
|
|
|
|
|
|
|
|
|
Total deferred income tax liabilities
|
|
|
14,866
|
|
|
|
10,951
|
|
|
|
|
|
|
|
|
|
|
Net deferred income tax asset
|
|
$
|
20,862
|
|
|
$
|
25,399
|
|
|
|
|
|
|
|
|
|
|
Management assesses the need for a valuation allowance against
the Corporations deferred tax assets in accordance with
SFAS No. 109, Accounting for Income Taxes. The
Corporations determination of the realization of deferred
tax assets (net of valuation allowances) is based upon
managements judgment of various future events and
uncertainties, including future reversals of existing taxable
temporary differences, the timing and amount of future income
earned by the Corporations subsidiaries and the
implementation of various tax planning strategies to maximize
realization of the deferred tax assets. A portion of the amount
of the deferred tax asset that can be realized in any year is
subject to certain statutory federal income tax limitations. The
Corporation believes that its subsidiaries will be able to
generate sufficient operating earnings to realize the deferred
tax benefits except as
92
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
14. |
Income Taxes (Continued)
|
discussed in the following paragraph. The Corporation evaluates
quarterly the realizability of the deferred tax assets and, if
necessary, adjusts any valuation allowance accordingly.
In 2006, due to limitations on the use of state net operating
losses acquired in the merger with Community, a valuation
allowance of $1,207,000 was established against such deferred
income tax assets in purchase accounting. Any subsequently
recognized income tax benefits relating to this valuation
allowance will be reflected as a reduction of goodwill related
to the acquisition.
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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Expected tax expense (benefit) at statutory rate of income
(loss) before taxes
|
|
$
|
3,996
|
|
|
$
|
2,353
|
|
|
$
|
(3,535
|
)
|
Add (deduct):
|
|
|
|
|
|
|
|
|
|
|
|
|
State income taxes, net of federal tax benefit
|
|
|
341
|
|
|
|
243
|
|
|
|
(711
|
)
|
Effect of interest income exempt from Federal income taxes
|
|
|
(468
|
)
|
|
|
(251
|
)
|
|
|
(191
|
)
|
Increase in cash surrender value of life insurance
|
|
|
(644
|
)
|
|
|
(537
|
)
|
|
|
(493
|
)
|
Taxable exchange of cash surrender value of life insurance
|
|
|
256
|
|
|
|
|
|
|
|
|
|
Other items net
|
|
|
653
|
|
|
|
115
|
|
|
|
318
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense (benefit)
|
|
$
|
4,134
|
|
|
$
|
1,923
|
|
|
$
|
(4,612
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
2010
|
|
$
|
|
|
|
$
|
1,795
|
|
2011
|
|
|
|
|
|
|
13,147
|
|
2012
|
|
|
|
|
|
|
6,815
|
|
2013
|
|
|
|
|
|
|
22,111
|
|
2014
|
|
|
|
|
|
|
7,083
|
|
2015
|
|
|
|
|
|
|
11,001
|
|
2016
|
|
|
|
|
|
|
176
|
|
2017
|
|
|
|
|
|
|
8
|
|
2018
|
|
|
|
|
|
|
165
|
|
2019
|
|
|
|
|
|
|
280
|
|
2020
|
|
|
|
|
|
|
563
|
|
2021
|
|
|
|
|
|
|
59
|
|
2022
|
|
|
|
|
|
|
6
|
|
2023
|
|
|
4,713
|
|
|
|
|
|
2024
|
|
|
13,043
|
|
|
|
|
|
2025
|
|
|
5,812
|
|
|
|
|
|
2026
|
|
|
5,721
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
29,289
|
|
|
$
|
63,209
|
|
|
|
|
|
|
|
|
|
|
93
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
14. |
Income Taxes (Continued)
|
The Corporation has available at December 31, 2007 unused
rehabilitation tax credits that can be carried forward and
utilized against future Federal income tax liability. Unused
credits and expiration dates are as follows (in thousands):
|
|
|
|
|
Year of expiration:
|
|
|
|
|
2018
|
|
$
|
1,734
|
|
2019
|
|
|
738
|
|
2020
|
|
|
1,261
|
|
2021
|
|
|
522
|
|
2022
|
|
|
366
|
|
2023
|
|
|
960
|
|
2024
|
|
|
400
|
|
|
|
|
|
|
|
|
$
|
5,981
|
|
|
|
|
|
|
This credit was established as a result of the restoration and
enhancement of the John A. Hand Building, which is designated as
an historical structure and serves as the corporate headquarters
for the Corporation. This credit is equal to 20% of certain
qualified expenditures incurred by the Corporation prior to
December 31, 2005. The Corporation is required to reduce
its tax basis in the John A. Hand Building by the amount of the
credit.
Applicable income tax (benefit) expense of $114,000, $-0-, and
$(351,000) on investment securities (losses) gains for the years
ended December 31, 2007, 2006, and 2005, respectively, is
included in income taxes.
The Corporation recognized a ($98,000) and a ($600,000) tax
benefit in 2007 and 2005 related to the exercise of nonqualified
stock options. This benefit was recognized as a credit to
stockholders equity as additional surplus.
The Corporation adopted FIN 48 on January 1, 2007. As
a result of the adoption, the Corporation recognized a charge of
approximately $555,000 to the January 1, 2007 retained
earnings balance. As of the adoption date, the Corporation had
unrecognized tax benefits of $459,000, all of which, if
recognized, would affect the effective tax rate. Also, as of the
adoption date, the Corporation had accrued interest expense
related to the unrecognized tax benefits of approximately
$146,000. Accrued interest related to unrecognized tax benefits
is recognized in income tax expense. Penalties, if incurred,
will be recognized in income tax expense as well. A
reconciliation of the beginning and ending amount of
unrecognized tax benefit is as follows:
|
|
|
|
|
Balance at January 1, 2007
|
|
$
|
459,000
|
|
Additions based upon tax positions related to the current year
|
|
|
|
|
Additions for tax positions of prior years
|
|
|
|
|
Reductions for tax positions of prior years
|
|
|
|
|
Settlements
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
$
|
459,000
|
|
|
|
|
|
|
The Corporation and its subsidiaries are subject to
U.S. federal income tax as well as to Alabama and Florida
income taxes. The Corporation has concluded all
U.S. federal income tax matters for years through 2002,
including acquisitions.
All state income tax matters have been concluded for years
through 2001. The Corporation has received notices of proposed
adjustments relating to state taxes due for the years 2002 and
2003, which include proposed adjustments relating to income
apportionment of a subsidiary. Management anticipates that these
examinations may be finalized in the foreseeable future.
However, based on the status of these examinations, and the
protocol of finalizing audits by the taxing authority, which
could include formal legal proceedings, it is not possible to
estimate the impact of any changes to the previously recorded
uncertain tax positions. There have been no significant changes
to the status of these examinations during the twelve-month
period ended December 31, 2007.
94
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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
As of December 31, 2007, the Corporation had entered into
$43,500,000 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. Hedge
accounting was discontinued on $40,350,000 of these swap
positions during 2007 because the instruments no longer
qualified as an effective fair value hedge under SFAS 133
due to market rate changes in the bench-mark interest rate.
Therefore, all changes in fair value were recognized in earnings
during the period of the change. The net cash settlement,
totaling $122,005, of these derivatives was included in
noninterest income during 2007. As of December 31, 2007,
these CD swaps had a recorded fair value of $12,073 and a
weighted average life of 7.46 years, respectively. The
weighted average fixed rate (receiving rate) was 5.04% and the
weighted average variable rate (paying rate) was 5.00% (LIBOR
based). Subsequent to December 31, 2007, five CD swaps with
a notional value of $23,000,000 were called at par value.
Fair
Value Hedges
As of December 31, 2007, the Corporation had $3,150,000 of
notional amount of CD swaps designated and qualified as fair
value hedges. As fair value hedges, the net cash settlements
from the designated swaps are reported as part of net interest
income. In addition, the Corporation will recognize in current
earnings the change in fair value of both the interest rate swap
and related hedged brokered CDs, with the ineffective portion of
the hedge relationship reported in noninterest income. The fair
value of the CD swaps is reported on the Consolidated Statements
of Financial Condition in other assets or other liabilities and
the change in fair value of the related hedged brokered CD is
reported as an adjustment to the carrying value of the brokered
CDs. As of December 31, 2007, the amount of CD swaps
designated had a recorded fair value of $55,000 and a weighted
average life of 6.62 years. The weighted average fixed rate
(receiving rate) was 4.70% and the weighted average variable
rate (paying rate) was 4.90% (LIBOR based).
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 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
$590,000 and $215,000 as of December 31, 2007 and 2006,
respectively. In March 2008, the Corporation terminated its
interest rate floor contracts for $1,267,000 which resulted in a
realized pre-tax gain of $677,000 that will be recognized in the
Corporations first quarter 2008 consolidated statement of
income.
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
95
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
15.
|
Derivatives (Continued)
|
these mortgage loan origination commitments was $20,908,000 and
$28,733,000 at December 31, 2007 and 2006, respectively.
The net unrealized gain of the origination commitments were
$122,000 and $51,000 at December 31, 2007 and 2006,
respectively. The fair values are calculated based on changes in
market interest rates after the commitment date.
|
|
16.
|
Related
Party Transactions
|
The Corporation has entered into transactions with its
directors, executive officers, significant stockholders and
their affiliates (related parties). Such transactions were made
in the ordinary course of business on substantially the same
terms and conditions, including interest rates and collateral,
as those prevailing at the same time for comparable transactions
with other customers, and did not, in the opinion of management,
involve more than normal credit risk or present other
unfavorable features. The aggregate amount of loans to such
related parties at December 31, 2007 and 2006 were
$24,381,000 and $11,340,000, respectively. Activity during the
year ended December 31, 2007 is summarized as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
|
|
|
|
|
|
|
|
Balance
|
December 31,
|
|
|
|
|
|
Other
|
|
December 31,
|
2006
|
|
Advances
|
|
Repayments
|
|
Changes
|
|
2007
|
|
$
|
11,064
|
|
|
$
|
17,831
|
|
|
$
|
6,359
|
|
|
$
|
1,845
|
|
|
$
|
24,381
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2007 and 2006, the deposits of such related
parties in the subsidiary bank amounted to approximately
$35,825,000 and $23,793,000, respectively.
An insurance agency owned by one of the Corporations
directors received commissions of approximately $185,328,
$166,876, and $180,567 from the sale of insurance to the
Corporation during 2007, 2006 and 2005, respectively. Also,
several sale-leaseback transaction were completed with one of
the directors of the corporation during 2007 and early 2008. The
total amount of rent paid by Superior Bank during 2007 pursuant
to these leases was $97,500, These transactions are discussed
further in Note 6.
The Corporation believes that all of the foregoing transactions
were made on terms and conditions reflective of arms
length transactions.
|
|
17.
|
Commitments
and Contingencies
|
The consolidated financial statements do not reflect the
Corporations various commitments and contingent
liabilities which arise in the normal course of business and
which involve elements of credit risk, interest rate risk and
liquidity risk. These commitments and contingent liabilities are
commitments to extend credit and standby letters of credit. The
following is a summary of the Corporations maximum
exposure to credit loss for loan commitments and standby letters
of credit (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
2007
|
|
2006
|
|
Commitments to extend credit
|
|
$
|
355,579
|
|
|
$
|
361,523
|
|
Standby letters of credit
|
|
|
29,107
|
|
|
|
23,630
|
|
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.
96
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
17.
|
Commitments
and Contingencies (Continued)
|
During 2007, 2006 and 2005, the Corporation settled various
litigation matters, none of which were significant. The
Corporation is also a defendant or co-defendant in various
lawsuits incidental to the banking business. Management, after
consultation with legal counsel, believes that liabilities, if
any, arising from such litigation and claims will not result in
a material adverse effect on the consolidated financial
statements of the Corporation.
The Corporation is constructing or has plans to construct
various new branch locations. In that regard, the Corporation
has entered into commitments as of, or subsequent to,
December 31, 2007 for the construction of these branch
locations totaling approximately $2,125,000.
|
|
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 $14,538,000
in retained earnings are available to be paid as dividends by
the subsidiary at December 31, 2007.
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 Corporations subsidiary bank
to maintain minimum amounts and ratios (set forth in the table
below) of tangible and core capital (as defined in the
regulations) to adjusted total assets (as defined), and of total
capital (as defined) and Tier 1 capital to risk weighted
assets (as defined). Management believes, as of
December 31, 2007 and 2006, that the Corporations
subsidiary bank meets all capital adequacy requirements to which
it is subject.
97
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
18.
|
Regulatory
Restrictions (Continued)
|
As of December 31, 2007 and 2006, the most recent
notification from the subsidiarys primary regulators
categorized the subsidiary as well capitalized under
the regulatory framework for prompt corrective action. The table
below represents the Corporations bank subsidiarys
regulatory and minimum regulatory capital requirements at
December 31, 2007 and 2006 (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, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 Core Capital
(to Adjusted Total Assets)
|
|
$
|
204,145
|
|
|
|
7.64
|
%
|
|
$
|
106,872
|
|
|
|
4.00
|
%
|
|
$
|
133,591
|
|
|
|
5.00
|
%
|
Total Capital (to Risk Weighted Assets)
|
|
|
225,602
|
|
|
|
10.45
|
|
|
|
172,683
|
|
|
|
8.00
|
|
|
|
215,854
|
|
|
|
10.00
|
|
Tier 1 Capital (to Risk Weighted Assets)
|
|
|
204,145
|
|
|
|
9.46
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
129,513
|
|
|
|
6.00
|
|
Tangible Capital (to Adjusted Total Assets)
|
|
|
204,145
|
|
|
|
7.64
|
|
|
|
40,077
|
|
|
|
1.50
|
|
|
|
N/A
|
|
|
|
N/A
|
|
As of December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 Core Capital
(to Adjusted Total Assets)
|
|
$
|
174,084
|
|
|
|
7.64
|
%
|
|
$
|
91,090
|
|
|
|
4.00
|
%
|
|
$
|
113,863
|
|
|
|
5.00
|
%
|
Total Capital (to Risk Weighted Assets)
|
|
|
192,259
|
|
|
|
10.69
|
|
|
|
143,843
|
|
|
|
8.00
|
|
|
|
179,803
|
|
|
|
10.00
|
|
Tier 1 Capital (to Risk Weighted Assets)
|
|
|
174,084
|
|
|
|
9.68
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
107,882
|
|
|
|
6.00
|
|
Tangible Capital (to Adjusted Total Assets)
|
|
|
174,084
|
|
|
|
7.64
|
|
|
|
34,159
|
|
|
|
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.
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
98
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
19.
|
Fair
Values of Financial
Instruments (Continued)
|
being offered on advances from the FHLB of Atlanta to a schedule
of aggregated expected monthly maturities on time deposits.
Advances from FHLB. Rates currently available
to the Corporation for debt with similar terms and remaining
maturities are used to estimate fair value of existing debt.
Federal funds borrowed and security repurchase
agreements. The carrying amount of federal funds
borrowed and security repurchase agreements approximate their
fair values.
Notes payable. The carrying amount of notes
payable approximates their fair values.
Subordinated debentures. Rates currently
available to the Corporation for preferred offerings with
similar terms and maturities are used to estimate fair value.
Interest rate swaps and floors. Fair values
for interest rate swaps and floors 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.
99
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, 2007
|
|
|
December 31, 2006
|
|
|
|
Carrying
|
|
|
Fair
|
|
|
Carrying
|
|
|
|
|
|
|
Amount
|
|
|
Value
|
|
|
Amount
|
|
|
Fair Value
|
|
|
|
(In thousands)
|
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
52,983
|
|
|
$
|
52,983
|
|
|
$
|
49,783
|
|
|
$
|
49,783
|
|
Interest-bearing deposits in other banks
|
|
|
6,916
|
|
|
|
6,916
|
|
|
|
10,994
|
|
|
|
10,994
|
|
Federal funds sold
|
|
|
3,452
|
|
|
|
3,452
|
|
|
|
25,185
|
|
|
|
25,185
|
|
Securities available for sale
|
|
|
361,171
|
|
|
|
361,171
|
|
|
|
354,716
|
|
|
|
354,716
|
|
Tax lien certificates
|
|
|
15,615
|
|
|
|
15,615
|
|
|
|
16,313
|
|
|
|
16,313
|
|
Mortgage loans held for sale
|
|
|
33,408
|
|
|
|
33,408
|
|
|
|
24,433
|
|
|
|
24,433
|
|
Net loans
|
|
|
2,017,011
|
|
|
|
2,010,120
|
|
|
|
1,639,528
|
|
|
|
1,634,782
|
|
Stock in FHLB and Federal Reserve Bank
|
|
|
14,945
|
|
|
|
14,945
|
|
|
|
12,382
|
|
|
|
12,382
|
|
Accrued interest receivable
|
|
|
16,512
|
|
|
|
16,512
|
|
|
|
14,387
|
|
|
|
14,387
|
|
Interest rate swaps
|
|
|
67
|
|
|
|
67
|
|
|
|
|
|
|
|
|
|
Interest rate floors
|
|
|
590
|
|
|
|
590
|
|
|
|
215
|
|
|
|
215
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
2,200,611
|
|
|
|
2,204,371
|
|
|
|
1,870,841
|
|
|
|
1,868,121
|
|
Advances from FHLB
|
|
|
222,828
|
|
|
|
229,042
|
|
|
|
187,840
|
|
|
|
189,628
|
|
Federal funds borrowed and security repurchase agreements
|
|
|
17,075
|
|
|
|
17,075
|
|
|
|
23,415
|
|
|
|
23,415
|
|
Notes payable
|
|
|
9,500
|
|
|
|
9,500
|
|
|
|
5,545
|
|
|
|
5,545
|
|
Junior subordinated debentures owed to unconsolidated subsidiary
trusts
|
|
|
53,744
|
|
|
|
53,526
|
|
|
|
44,006
|
|
|
|
47,481
|
|
Interest rate swaps
|
|
|
|
|
|
|
|
|
|
|
798
|
|
|
|
798
|
|
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.
100
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
20.
|
Pension
Plan (Continued)
|
The following tables set forth the funding status and the amount
recognized for both the Pension Plan and the Benefit Restoration
Plan in the Corporations consolidated statement of
financial condition and consolidated statement of operations.
Pension
Plan:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in thousands)
|
|
|
Change in benefit obligation
|
|
|
|
|
|
|
|
|
Benefit obligation as of December 31 and November 7, 2006,
respectively
|
|
$
|
10,301
|
|
|
$
|
10,540
|
|
Interest cost
|
|
|
590
|
|
|
|
97
|
|
Benefits paid (including expenses)
|
|
|
(556
|
)
|
|
|
(73
|
)
|
Actuarial (gain)/loss
|
|
|
(265
|
)
|
|
|
(263
|
)
|
|
|
|
|
|
|
|
|
|
Benefit obligation at end of year
|
|
$
|
10,070
|
|
|
$
|
10,301
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets
|
|
|
|
|
|
|
|
|
Fair value of plan assets as of December 31 and November 7,
2006, respectively
|
|
$
|
10,096
|
|
|
$
|
9,915
|
|
Actual return on plan assets
|
|
|
997
|
|
|
|
254
|
|
Benefits paid (including expenses)
|
|
|
(556
|
)
|
|
|
(73
|
)
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at end of year
|
|
$
|
10,537
|
|
|
$
|
10,096
|
|
|
|
|
|
|
|
|
|
|
Funded status at end of year
|
|
|
|
|
|
|
|
|
Net amount recognized in statement of financial condition (after
SFAS 158)
|
|
$
|
467
|
|
|
$
|
(205
|
)
|
|
|
|
|
|
|
|
|
|
Amounts Recognized in the Statement of Financial Condition
consist of:
|
|
|
|
|
|
|
|
|
Assets
|
|
$
|
467
|
|
|
$
|
|
|
Liabilities
|
|
|
|
|
|
|
(205
|
)
|
|
|
|
|
|
|
|
|
|
Net amount recognized in statement of financial condition (after
SFAS 158)
|
|
$
|
467
|
|
|
$
|
(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 gain
|
|
|
979
|
|
|
|
404
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income (AOCI)
|
|
|
979
|
|
|
|
404
|
|
Cumulative employer contributions in excess of net periodic
benefit cost
|
|
|
(512
|
)
|
|
|
(609
|
)
|
|
|
|
|
|
|
|
|
|
Net amount recognized in statement of financial condition
|
|
$
|
467
|
|
|
$
|
(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 in AOCI due to SFAS 158
|
|
|
|
|
|
|
404
|
|
101
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
20.
|
Pension
Plan (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Additional year-end information for pension plans with
accumulated benefit obligations in excess of plan assets:
|
|
|
|
|
|
|
|
|
Projected benefit obligation
|
|
$
|
N/A
|
|
|
$
|
10,301
|
|
|
|
|
|
|
|
|
|
|
Accumulated benefit obligation
|
|
$
|
N/A
|
|
|
$
|
10,301
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets
|
|
$
|
N/A
|
|
|
$
|
10,096
|
|
|
|
|
|
|
|
|
|
|
Weighted-average assumptions used to determine net periodic
benefit obligations
|
|
|
|
|
|
|
|
|
Projected benefit obligation
|
|
|
6.11
|
%
|
|
|
5.84
|
%
|
Rate of compensation increase
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
Expected Cash Flows
|
|
|
|
|
|
|
|
|
Expected return of assets to employer in next year
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Expected employer contribution for next fiscal year
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Expected benefit payments
|
|
|
|
|
|
|
|
|
Year ending December 31, 2008
|
|
$
|
582
|
|
|
|
|
|
Year ending December 31, 2009
|
|
|
585
|
|
|
|
|
|
Year ending December 31, 2010
|
|
|
583
|
|
|
|
|
|
Year ending December 31, 2011
|
|
|
580
|
|
|
|
|
|
Year ending December 31, 2012
|
|
|
594
|
|
|
|
|
|
Next five years
|
|
|
3,218
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Components of net periodic benefit cost
|
|
|
|
|
|
|
|
|
Interest cost
|
|
$
|
590
|
|
|
$
|
97
|
|
Expected return on plan assets
|
|
|
(687
|
)
|
|
|
(113
|
)
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
$
|
(97
|
)
|
|
$
|
(16
|
)
|
|
|
|
|
|
|
|
|
|
Weighted-average assumptions used to determine net periodic
benefit cost
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
5.84
|
%
|
|
|
5.65
|
%
|
Expected long-term return on plan assets
|
|
|
7.00
|
%
|
|
|
7.00
|
%
|
Rate of compensation increase
|
|
$
|
N/A
|
|
|
$
|
N/A
|
|
The long-term expected rate of return for determining net
periodic Pension Plan cost for the periods ending
December 31, 2007 and 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.
102
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
20.
|
Pension
Plan (Continued)
|
The Corporations Pension Plan weighted average asset
allocations at December 31, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of Pension Plan Assets at December 31,
|
|
|
Long-term
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
target
|
|
|
Range
|
|
|
Asset Category:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and equivalents
|
|
|
3.3
|
%
|
|
|
3.0
|
%
|
|
|
5.0
|
%
|
|
|
1-15
|
%
|
Equity securities
|
|
|
48.2
|
|
|
|
63.0
|
|
|
|
60.0
|
|
|
|
50-65
|
|
Debt securities
|
|
|
48.5
|
|
|
|
34.0
|
|
|
|
35.0
|
|
|
|
30-50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100.0
|
%
|
|
|
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.
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,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in thousands)
|
|
|
Change in benefit obligation
|
|
|
|
|
|
|
|
|
Benefit obligation as of December 31 and November 7, 2006,
respectively
|
|
$
|
2,771
|
|
|
$
|
2,802
|
|
Interest cost
|
|
|
158
|
|
|
|
26
|
|
Benefits paid (including expenses)
|
|
|
(60
|
)
|
|
|
(10
|
)
|
Actuarial (gain)/loss
|
|
|
(40
|
)
|
|
|
(47
|
)
|
|
|
|
|
|
|
|
|
|
Benefit obligation at end of year
|
|
$
|
2,829
|
|
|
$
|
2,771
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets
|
|
|
|
|
|
|
|
|
Fair value of plan assets as of December 31 and November 7,
2006, respectively
|
|
$
|
|
|
|
$
|
|
|
Actual return on plan assets
|
|
|
|
|
|
|
|
|
Employer contribution
|
|
|
60
|
|
|
|
10
|
|
Benefits paid (including expenses)
|
|
|
(60
|
)
|
|
|
(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)
|
|
$
|
(2,829
|
)
|
|
$
|
(2,771
|
)
|
|
|
|
|
|
|
|
|
|
103
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
20.
|
Pension
Plan (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in thousands)
|
|
|
Amounts Recognized in the Statement of Financial Condition
consist of:
|
|
|
|
|
|
|
|
|
Assets
|
|
$
|
|
|
|
$
|
|
|
Current liabilities
|
|
|
(265
|
)
|
|
|
(161
|
)
|
Noncurrent liabilities
|
|
|
(2,564
|
)
|
|
|
(2,610
|
)
|
|
|
|
|
|
|
|
|
|
Net amount recognized in statement of financial position (after
SFAS 158)
|
|
$
|
(2,829
|
)
|
|
$
|
(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 gain
|
|
|
88
|
|
|
|
47
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income (AOCI)
|
|
|
88
|
|
|
|
47
|
|
Cumulative employer contributions in excess of net periodic
benefit cost
|
|
|
(2,917
|
)
|
|
|
(2,818
|
)
|
|
|
|
|
|
|
|
|
|
Net amount recognized in statement of financial condition
|
|
$
|
(2,829
|
)
|
|
$
|
(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 in AOCI due to SFAS 158
|
|
|
|
|
|
|
47
|
|
|
|
|
|
|
|
|
|
|
Additional year-end information for pension plans with
accumulated benefit obligations in excess of plan assets:
|
|
|
|
|
|
|
|
|
Projected benefit obligation
|
|
$
|
2,829
|
|
|
$
|
2,771
|
|
|
|
|
|
|
|
|
|
|
Accumulated benefit obligation
|
|
$
|
2,829
|
|
|
$
|
2,771
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average assumptions used to determine net periodic
benefit obligations
|
|
|
|
|
|
|
|
|
Projected benefit obligation
|
|
|
6.11
|
%
|
|
|
5.84
|
%
|
Rate of compensation increase
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
Components of net periodic benefit cost
|
|
|
|
|
|
|
|
|
Interest cost
|
|
|
158
|
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
$
|
158
|
|
|
$
|
26
|
|
|
|
|
|
|
|
|
|
|
Weighted-average assumptions used to determine net periodic
benefit cost
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
5.84
|
%
|
|
|
5.65
|
%
|
Expected long-term return on plan assets
|
|
|
N/A
|
|
|
|
N/A
|
|
Rate of compensation increase
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
Expected Cash Flows
|
|
|
|
|
|
|
|
|
Expected return of assets to employer in next year
|
|
$
|
|
|
|
|
|
|
Expected employer contribution for next fiscal year
|
|
|
265
|
|
|
|
|
|
104
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
20.
|
Pension
Plan (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected benefit payments
|
|
|
|
|
|
|
|
|
Year ending December 31, 2008
|
|
$
|
265
|
|
|
|
|
|
Year ending December 31, 2009
|
|
|
262
|
|
|
|
|
|
Year ending December 31, 2010
|
|
|
258
|
|
|
|
|
|
Year ending December 31, 2011
|
|
|
254
|
|
|
|
|
|
Year ending December 31, 2012
|
|
|
250
|
|
|
|
|
|
Next five years
|
|
|
1,170
|
|
|
|
|
|
|
|
21.
|
Other
Noninterest Expense
|
Other noninterest expense consisted of the following (dollars in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Professional fees
|
|
$
|
2,269
|
|
|
$
|
2,593
|
|
|
$
|
2,745
|
|
Directors fees
|
|
|
397
|
|
|
|
345
|
|
|
|
380
|
|
Insurance and assessments
|
|
|
2,189
|
|
|
|
1,898
|
|
|
|
2,344
|
|
Postage, stationery and supplies
|
|
|
2,252
|
|
|
|
1,251
|
|
|
|
997
|
|
Communications
|
|
|
2,007
|
|
|
|
988
|
|
|
|
1,075
|
|
Advertising
|
|
|
2,397
|
|
|
|
1,348
|
|
|
|
857
|
|
Foreclosure losses
|
|
|
227
|
|
|
|
210
|
|
|
|
796
|
|
Other operating expense
|
|
|
6,821
|
|
|
|
5,116
|
|
|
|
4,889
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
18,559
|
|
|
$
|
13,749
|
|
|
$
|
14,083
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22.
|
Concentrations
of Credit Risk
|
All of the Corporations loans, commitments and standby
letters of credit have been granted to customers in the
Corporations market areas. The concentrations of credit by
type of loan or commitment are set forth in Notes 4 and 17,
respectively.
The Corporation maintains cash balances and federal funds sold
at several financial institutions. 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.
105
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
7,621
|
|
|
$
|
4,997
|
|
|
$
|
(5,786
|
)
|
Less preferred dividends
|
|
|
|
|
|
|
|
|
|
|
(305
|
)
|
Less conversion of preferred stock
|
|
|
|
|
|
|
|
|
|
|
(2,006
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For basic and diluted, net income (loss) applicable to common
stockholders
|
|
$
|
7,621
|
|
|
$
|
4,997
|
|
|
$
|
(8,097
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
For basic, weighted average common shares outstanding
|
|
|
36,974
|
|
|
|
23,409
|
|
|
|
19,154
|
|
Effect of dilutive stock options
|
|
|
358
|
|
|
|
625
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average common shares outstanding, assuming dilution
|
|
|
37,332
|
|
|
|
24,034
|
|
|
|
19,154
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per common share
|
|
$
|
0.21
|
|
|
$
|
0.21
|
|
|
$
|
(.42
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income (loss) per common share
|
|
$
|
0.20
|
|
|
$
|
0.21
|
|
|
$
|
(.42
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, as they are
considered anti-dilutive. No shares of convertible preferred
stock remained outstanding at December 31, 2007, 2006 and
2005.
The condensed financial information (unaudited) for Superior
Bancorp (Parent Company only) is presented as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
Statements of financial condition
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
662
|
|
|
$
|
1,318
|
|
Investment in subsidiaries
|
|
|
392,865
|
|
|
|
306,792
|
|
Intangibles, net
|
|
|
214
|
|
|
|
214
|
|
Premises and equipment net
|
|
|
4,252
|
|
|
|
6,713
|
|
Other assets
|
|
|
20,851
|
|
|
|
19,719
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
418,844
|
|
|
$
|
334,756
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Accrued expenses and other liabilities
|
|
$
|
5,558
|
|
|
$
|
9,118
|
|
Notes payable
|
|
|
9,500
|
|
|
|
5,545
|
|
Subordinated debentures
|
|
|
53,744
|
|
|
|
44,006
|
|
Stockholders equity
|
|
|
350,042
|
|
|
|
276,087
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
418,844
|
|
|
$
|
334,756
|
|
|
|
|
|
|
|
|
|
|
106
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
24.
|
Parent
Company (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Statements of operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends from subsidiaries
|
|
$
|
7,000
|
|
|
$
|
1,750
|
|
|
$
|
2,585
|
|
Interest
|
|
|
156
|
|
|
|
116
|
|
|
|
15
|
|
Other income
|
|
|
404
|
|
|
|
415
|
|
|
|
852
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,560
|
|
|
|
2,281
|
|
|
|
3,452
|
|
Expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Directors fees
|
|
|
269
|
|
|
|
276
|
|
|
|
270
|
|
Salaries and benefits
|
|
|
1,384
|
|
|
|
708
|
|
|
|
10,831
|
|
Occupancy expense
|
|
|
362
|
|
|
|
512
|
|
|
|
897
|
|
Interest expense
|
|
|
4,569
|
|
|
|
3,566
|
|
|
|
3,142
|
|
Other
|
|
|
2,373
|
|
|
|
886
|
|
|
|
2,257
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,957
|
|
|
|
5,948
|
|
|
|
17,397
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes and equity in undistributed earnings of
subsidiaries
|
|
|
(1,397
|
)
|
|
|
(3,667
|
)
|
|
|
(13,945
|
)
|
Income tax benefit
|
|
|
3,513
|
|
|
|
1,409
|
|
|
|
6,445
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before equity in undistributed earnings of
subsidiaries
|
|
|
2,116
|
|
|
|
(2,258
|
)
|
|
|
(7,500
|
)
|
Equity in undistributed earnings of subsidiaries
|
|
|
5,505
|
|
|
|
7,255
|
|
|
|
1,714
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
7,621
|
|
|
$
|
4,997
|
|
|
$
|
(5,786
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Statements of cash flows
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
7,621
|
|
|
$
|
4,997
|
|
|
$
|
(5,786
|
)
|
Adjustments to reconcile net income (loss) to net cash used by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization and depreciation expense
|
|
|
184
|
|
|
|
245
|
|
|
|
257
|
|
Equity in undistributed earnings of subsidiaries
|
|
|
(5,505
|
)
|
|
|
(7,255
|
)
|
|
|
(1,714
|
)
|
Other (decrease) increase
|
|
|
(1,120
|
)
|
|
|
1,392
|
|
|
|
(868
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by operating activities
|
|
|
1,180
|
|
|
|
(621
|
)
|
|
|
(8,111
|
)
|
Investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sale of premises and equipment
|
|
|
339
|
|
|
|
947
|
|
|
|
19
|
|
Purchases of premises and equipment
|
|
|
|
|
|
|
(5
|
)
|
|
|
|
|
Net cash paid in business combinations
|
|
|
(2,527
|
)
|
|
|
(3,855
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used) provided by investing activities
|
|
|
(2,188
|
)
|
|
|
(2,913
|
)
|
|
|
19
|
|
107
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
24.
|
Parent
Company (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock
|
|
|
640
|
|
|
|
992
|
|
|
|
10,542
|
|
Proceeds from note payable
|
|
|
10,000
|
|
|
|
2,000
|
|
|
|
|
|
Principal payment on note payable
|
|
|
(6,045
|
)
|
|
|
(210
|
)
|
|
|
(210
|
)
|
Proceeds from issuance of junior subordinated debentures
|
|
|
22,680
|
|
|
|
|
|
|
|
|
|
Principal payment on junior subordinated debentures
|
|
|
(16,495
|
)
|
|
|
|
|
|
|
|
|
Purchase of treasury stock
|
|
|
(10,428
|
)
|
|
|
|
|
|
|
|
|
Cash dividends paid
|
|
|
|
|
|
|
|
|
|
|
(305
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
352
|
|
|
|
2,782
|
|
|
|
10,027
|
|
Net (decrease) increase in cash
|
|
|
(656
|
)
|
|
|
(752
|
)
|
|
|
1,935
|
|
Cash at beginning of year
|
|
|
1,318
|
|
|
|
2,070
|
|
|
|
135
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash at end of year
|
|
$
|
662
|
|
|
$
|
1,318
|
|
|
$
|
2,070
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25.
|
Selected
Quarterly Results of Operations (Unaudited)
|
A summary of the unaudited results of operations for each
quarter of 2007 and 2006 follows (in thousands, except per share
data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
$
|
39,744
|
|
|
$
|
40,067
|
|
|
$
|
45,999
|
|
|
$
|
46,120
|
|
Total interest expense
|
|
|
21,710
|
|
|
|
22,554
|
|
|
|
26,093
|
|
|
|
26,410
|
|
Net interest income
|
|
|
18,034
|
|
|
|
17,513
|
|
|
|
19,906
|
|
|
|
19,710
|
|
Provision for loan losses
|
|
|
705
|
|
|
|
1,000
|
|
|
|
1,179
|
|
|
|
1,657
|
|
Securities gains
|
|
|
243
|
|
|
|
|
|
|
|
|
|
|
|
66
|
|
Changes in fair value of derivatives
|
|
|
(152
|
)
|
|
|
118
|
|
|
|
202
|
|
|
|
1,141
|
|
Income before income taxes
|
|
|
3,389
|
|
|
|
2,993
|
|
|
|
2,361
|
|
|
|
3,011
|
|
Net income
|
|
|
2,298
|
|
|
|
1,969
|
|
|
|
1,450
|
|
|
|
1,904
|
|
Basic net income per common share
|
|
|
0.07
|
|
|
|
0.06
|
|
|
|
0.04
|
|
|
|
0.05
|
|
Diluted net income per common share
|
|
|
0.07
|
|
|
|
0.06
|
|
|
|
0.04
|
|
|
|
0.05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
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
|
|
Due to the effect of quarterly weighted average share
calculations, the sum of the quarterly net income per share
amounts may not total the year-to-date net income per share
amounts.
Beginning in the third quarter of 2007, the Corporations
management made certain revisions to how it assesses the
performance of its reportable business segments. The following
presentation of segment data has been revised to
108
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
26.
|
Segment
Reporting (Continued)
|
reflect this change. The Corporation has two reportable
segments, the Alabama Region and the Florida Region. The Alabama
Region consists of operations located throughout Alabama. The
Florida Region consists of operations located primarily in the
Tampa Bay area and panhandle region of Florida. The
Corporations reportable segments are managed as separate
business units because they are located in different geographic
areas. Both segments derive revenues from the delivery of
financial services. These services include commercial loans,
mortgage loans, consumer loans, deposit accounts and other
financial services. All of the corporate administrative costs
and other banking activities have been removed from the Alabama
Region. Administrative and other banking activities included the
results of the Corporations investment portfolio, home
mortgage division, brokered deposits and borrowed funds
positions.
The Corporation evaluates performance and allocates resources
based on profit or loss from operations. There are no material
inter-segment sales or transfers. Net interest income is used as
the basis for performance evaluation rather than its components,
total interest income and total interest expense. The accounting
policies used by each reportable segment are the same as those
discussed in Note 1. All costs, except corporate
administration and income taxes, have been allocated to the
reportable segments. Therefore, combined amounts agree to the
consolidated totals (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
Superior
|
|
|
|
Alabama
|
|
|
Florida
|
|
|
Alabama and
|
|
|
Administrative
|
|
|
Bancorp
|
|
|
|
Region
|
|
|
Region
|
|
|
Florida
|
|
|
and Other
|
|
|
Combined
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
36,844
|
|
|
$
|
38,059
|
|
|
$
|
74,903
|
|
|
$
|
259
|
|
|
$
|
75,162
|
|
Provision for loan losses
|
|
|
3,845
|
|
|
|
1,632
|
|
|
|
5,477
|
|
|
|
(936
|
)
|
|
|
4,541
|
|
Noninterest income
|
|
|
7,021
|
|
|
|
1,723
|
|
|
|
8,744
|
|
|
|
10,613
|
|
|
|
19,357
|
|
Noninterest expense
|
|
|
24,924
|
|
|
|
14,702
|
|
|
|
39,626
|
|
|
|
38,597
|
|
|
|
78,223
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit (loss)
|
|
$
|
15,096
|
|
|
$
|
23,448
|
|
|
$
|
38,544
|
|
|
$
|
(26,789
|
)
|
|
|
11,755
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,134
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,621
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,029,652
|
|
|
$
|
1,124,816
|
|
|
$
|
2,154,468
|
|
|
$
|
730,957
|
|
|
$
|
2,885,425
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
27,369
|
|
|
$
|
25,379
|
|
|
$
|
52,748
|
|
|
$
|
(5,354
|
)
|
|
$
|
47,394
|
|
Provision for loan losses
|
|
|
2,152
|
|
|
|
1,150
|
|
|
|
3,302
|
|
|
|
(802
|
)
|
|
|
2,500
|
|
Noninterest income
|
|
|
4,468
|
|
|
|
1,092
|
|
|
|
5,560
|
|
|
|
6,251
|
|
|
|
11,811
|
|
Noninterest expense
|
|
|
14,064
|
|
|
|
7,156
|
|
|
|
21,220
|
|
|
|
28,565
|
|
|
|
49,785
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit (loss)
|
|
$
|
15,621
|
|
|
$
|
18,165
|
|
|
$
|
33,786
|
|
|
$
|
(26,866
|
)
|
|
|
6,920
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,923
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,997
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
985,423
|
|
|
$
|
862,462
|
|
|
$
|
1,847,885
|
|
|
$
|
593,105
|
|
|
$
|
2,440,990
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
24,920
|
|
|
$
|
16,807
|
|
|
$
|
41,727
|
|
|
$
|
(2,702
|
)
|
|
$
|
39,025
|
|
Provision for loan losses
|
|
|
2,439
|
|
|
|
1,061
|
|
|
|
3,500
|
|
|
|
|
|
|
|
3,500
|
|
Noninterest income
|
|
|
6,443
|
|
|
|
1,123
|
|
|
|
7,566
|
|
|
|
7,131
|
|
|
|
14,697
|
|
Noninterest expense
|
|
|
11,981
|
|
|
|
4,759
|
|
|
|
16,740
|
|
|
|
43,880
|
|
|
|
60,620
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit (loss)
|
|
$
|
16,943
|
|
|
$
|
12,110
|
|
|
$
|
29,053
|
|
|
$
|
(39,451
|
)
|
|
|
(10,398
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,612
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(5,786
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
511,077
|
|
|
$
|
414,045
|
|
|
$
|
925,122
|
|
|
$
|
490,347
|
|
|
$
|
1,415,469
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
109
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Stock
Repurchase Plan
The Corporation announced in June 2007 that the Board of
Directors had approved the repurchase of up to
1,000,000 shares of the Corporations outstanding
common stock. During the quarter ended September 30, 2007,
the Corporation purchased 1,000,000 shares of then
outstanding stock at an average price of $9.22 per share, which
have been recorded, at cost, as treasury stock in the
consolidated statement of financial condition. The shares were
purchased in the open market through negotiated or block
transactions and were not repurchased from the Corporations
management team or other insiders.
The Corporation announced in October 2007 that the Board of
Directors approved the purchase of an additional
1,000,000 shares of its outstanding common stock beginning
on or after November 2, 2007. During the quarter ended
December 31, 2007, the Corporation purchased
182,000 shares of then outstanding stock at an average
price of $6.61, which have been recorded, at cost, as treasury
stock in the consolidated statement of financial condition. The
shares were purchased in the open market through negotiated or
block transactions. The Corporation did not repurchase any
shares from its management team or other insiders. This stock
repurchase program does not obligate the Corporation to acquire
any specific number of shares and may be suspended or
discontinued at any time.
Termination
of Superior ESOP
Effective August 31, 2007, the Corporation terminated the
Superior Bancorp Employee Stock Ownership Plan (the
ESOP) (See Note 12). The ESOP was leveraged,
and a promissory note existed between the ESOP and the
Corporation that had a remaining balance of $1,165,000 at the
termination date. The promissory note was satisfied by the
transfer from the ESOP to the Corporation of 127,469 unallocated
shares of Corporation common stock valued at a price of $9.14
per share, the closing price that day. The Corporation
transferred these shares during the third quarter of 2007 to
treasury stock at current market value from the unallocated ESOP
shares account. The remaining 17,178 unallocated shares were
committed to be allocated to the participants accounts,
and, as a result, the Corporation recognized additional
compensation expense during the third quarter of 2007 of
approximately $158,000.
|
|
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 $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
110
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
28.
|
Management
Separation Costs and Insurance Settlement
(Continued)
|
directors of the Corporations banking subsidiary.
Mr. Taylor and Mr. Taylor, Jr. subsequently
resigned as directors of the Corporation 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.
(see Note 29.)
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, 2007 and 2006, the Corporation had $363,000
and $416,000, respectively of accrued liabilities related to
these agreements.
In January 2008, the Corporations banking subsidiary
entered into agreements with a limited liability company, of
which one of the Corporations directors is a member,
pursuant to which the limited liability company purchased on
January 31, 2008 office buildings located in Albertville
and Athens, Alabama for a total of $4,250,000. See Note 6
for further details of this transaction.
In January 2008, the Corporation securitized approximately
$18,000,000 of residential mortgage loans retaining
100 percent of the beneficial interest and retained
interest. The beneficial interest includes federal agency
securities issued by the Federal Home Loan Mortgage Corporation
(FHLMC) and the retained interest includes a
servicing asset. No gain or loss was recognized on the
securitization, however, the Corporation entered a commitment to
sell the securities for a gain of approximately $347,000 which
will close in February 2008. The Company retained servicing
responsibilities and will receive servicing fees amounting to
approximately 25 basis points of the outstanding balance of
these loans. The FHLMC has no recourse to the Corporation for
failure of debtors to pay when due.
In January 2008, various members of the Corporations
management received restricted stock grants totaling
107,150 shares. See note 12 for further details
regarding this grant.
In February 2008, James A. Taylor, Jr. and the Corporation
jointly agreed to terminate all current and future obligations
under the management separation agreement dated January 24,
2005 for a total payment of $568,000.
111
SUPERIOR
BANCORP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
29.
|
Subsequent
Events (Continued)
|
In March 2008, the Corporation terminated its interest rate
floor contracts for $1,267,000 which resulted in a realized
pre-tax gain of $677,000 that the Corporation will recognize in
the Corporations first quarter 2008 consolidated statement
of income (see Note 15).
In March 2008, the Corporations Board of Directors
approved, subject to approval by its stockholders, a proposed
amendment to Superior Bancorps Restated Certificate of
Incorporation effecting a 1-for-4 reverse split of its issued
and outstanding shares of common stock and decreasing the number
of its authorized shares of common stock from 60,000,000 to
15,000,000. Contingent on approval of this proposal by the
requisite vote of the stockholders at the Corporations
2008 annual meeting of stockholders, and the filing of the
proposed amendment with the Secretary of State of the State of
Delaware, the
1-for-4
reverse stock split and reduction of authorized shares would be
effective in accordance with the terms of the proposed
amendment. The Corporation anticipates that the reverse stock
split will become effective shortly after the 2008 annual
meeting of stockholders.
112
Item 9. Changes
in and Disagreements With Accountants on Accounting and
Financial Disclosure.
None.
Item 9A. Controls
And Procedures
Officer
Certifications
Appearing immediately following the Signatures section of this
report are Certifications of our Chief Executive Officer
(CEO) and our Chief Financial Officer, who is our
principal financial officer (PFO). The
Certifications are required to be made by
Rule 13a-14
of the Securities Exchange Act of 1934, as amended. This Item
contains the information about the evaluation that is referred
to in the Certifications, and the information set forth below in
this Item should be read in conjunction with the Certifications
for a more complete understanding of the Certifications.
Conclusion
Regarding the Effectiveness of Disclosure Controls and
Procedures
We maintain disclosure controls and procedures to ensure that
material information required to be disclosed in our Exchange
Act reports is made known to the officers who certify our
financial reports and to other members of our senior management
and our Board of Directors.
Based on their evaluation as of December 31, 2007, our CEO
and our PFO have concluded that our disclosure controls and
procedures (as defined in
Rule 13a-l5(e)
under the Securities Exchange Act of 1934) are effective to
ensure that the information required to be disclosed by us in
the reports that we file or submit under the Securities Exchange
Act of 1934 is recorded, processed, summarized and reported
within the time periods specified in SEC rules and forms and
that such information is accumulated and communicated to our
management as appropriate to allow timely decisions regarding
required disclosures.
Managements
Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting, as defined
in
Rule 13a-15(f)
under the Securities Exchange Act of 1934. Under the supervision
and with the participation of our management, including our CEO
and our PFO, our management conducted an evaluation of the
effectiveness of internal control over financial reporting based
on the framework in Internal Control Integrated
Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission, as of December 31, 2007. 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, 2007.
During 2007, we acquired Peoples as described in
Note 2 to the consolidated financial statements. Management
has excluded this business from its evaluation of the
effectiveness of our internal control over financial reporting
as of December 31, 2007. This business represented
approximately 12% of our consolidated total assets as of
December 31, 2007, and approximately 7% percent of our
consolidated net interest income for the year then ended.
113
Report of
Independent Registered Public Accounting Firm
Board of Directors and Shareholders
Superior Bancorp
We have audited Superior Bancorps (a Delaware Corporation)
internal control over financial reporting as of
December 31, 2007, based on criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). Superior Bancorps management is
responsible for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness
of internal control over financial reporting, included in the
accompanying Managements Report on Internal Control Over
Financial Reporting. Our responsibility is to express an opinion
on Superior Bancorps internal control over financial
reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
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 Peoples
Community Bancshares, Inc., the financial statements of which
are included in the 2007 consolidated financial statements of
Superior Bancorp and Subsidiaries, and constituted approximately
12 percent of the Companys consolidated total assets
as of December 31, 2007, and approximately 7 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 Peoples Community Bancshares, Inc.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, Superior Bancorp maintained, in all material
respects, effective internal control over financial reporting as
of December 31, 2007, based on criteria established in
Internal Control Integrated Framework issued
by COSO.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated statement of financial condition of Superior
Bancorp and Subsidiaries as of December 31, 2007, and the
related consolidated statements of operations, changes in
stockholders equity, and cash flows for the year ended
December 31, 2007, and our report dated March 14,
2008, expressed an unqualified opinion.
Raleigh, North Carolina
March 14, 2008
114
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
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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, 2008, in
connection with our 2008 Annual Meeting of Stockholders is
incorporated herein by reference.
PART IV
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|
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.
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(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.
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(3)-l
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|
Restated Certificate of Incorporation of Superior Bancorp, filed
as Exhibit 3 to Superior Bancorps Current Report on
Form 8-K
dated May 17, 2007, is hereby incorporated herein by
reference.
|
(3)-2
|
|
Bylaws of Superior Bancorp, filed as Exhibit 3 to Superior
Bancorps Current Report on
Form 8-K
dated November 20, 2007, is hereby incorporated herein by
reference.
|
(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.
|
115
|
|
|
(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.
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(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.
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(4)-6
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|
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
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|
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
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|
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.
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(4)-11
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|
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.
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(4)-12
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|
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.
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(4)-13
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|
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.
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(4)-14
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|
Indenture, dated as of December 15, 2005, by and between
Peoples Community Bancshares, Inc. and Wilmington
Trust Company.
|
(4)-15
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|
Placement Agreement, dated as of December 7, 2005, by and
among Peoples Community Bancshares, Inc., Peoples Community
Statutory Trust I, FTN Financial Capital Markets and Keefe,
Bruyette & Woods, Inc.
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(4)-16
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|
Guarantee Agreement, dated as of December 15, 2005, by and
between Peoples Community Bancshares, Inc. and Wilmington
Trust Company.
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(4)-17
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|
Amended and Restated Declaration of Trust, dated as of
December 15, 2005, by and among Wilmington
Trust Company, Peoples Community Bancshares, Inc., Neil D.
McCurry, Jr. and Dorothy S. Barth.
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(4)-18
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|
Declaration of Trust, dated July 10, 2007, by and among
Superior Bancorp, Wilmington Trust Company, Mark A.
Tarnakow, William H. Caughran and Rick D. Gardner filed as
Exhibit 4.01 to Superior Bancorps
Form 10-Q
for the quarter ended September 30, 2007.
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116
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(4)-19
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Indenture, dated as of July 19, 2007, between Superior
Bancorp and Wilmington Trust Company filed as
Exhibit 4.02 to Superior Bancorps
Form 10-Q
for the quarter ended September 30, 2007.
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(4)-20
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|
Guarantee Agreement, dated as of July 19, 2007, between
Superior Bancorp and Wilmington Trust Company filed as
Exhibit 4.03 to Superior Bancorps
Form 10-Q
for the quarter ended September 30, 2007.
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(4)-21
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Placement Agreement, dated July 18, 2007, by and among
Superior Bancorp, FTN Capital Markets and Keefe,
Bruyette & Woods, Inc. filed as Exhibit 4.04 to
Superior Bancorps
Form 10-Q
for the quarter ended September 30, 2007.
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(10)-1
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Third Amended and Restated 1998 Stock Incentive Plan of The Banc
Corporation, filed as Exhibit (10)-1 to The Banc
Corporations Annual Report on
Form 10-K
for the fiscal year ended December 31, 2005, is hereby
incorporated herein by reference.
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(10)-2
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|
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.
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(10)-3
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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.
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(10)-4
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|
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.
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(10)-5
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|
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.
|
(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.
|
(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.
|
(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.
|
(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.
|
(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.
|
117
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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.
|
(10)-17
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Change in Control Agreement between The Banc Corporation and
James C. Gossett dated April 1, 2002, filed as
Exhibit (10)-17 to Superior Bancorps
Form 10-K
for the year ended December 31, 2006 is hereby incorporated
herein by reference.
|
(10)-18
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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.
|
(10)-19
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|
Management Incentive Compensation Plan, filed as
Exhibit 10.1 to The Banc Corporations Current Report
on
Form 8-K,
dated April 26, 2005, is hereby incorporated herein by
reference.
|
(10)-20
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|
Change in Control Agreement, dated March 10, 2008, by and
among Superior Bancorp, Superior Bank and Mark A. Tarnakow.
|
(10)-21
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|
Change in Control Agreement, dated March 10, 2008, by and
among Superior Bancorp, Superior Bank and William H. Caughran.
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(21)
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Subsidiaries of Superior Bancorp.
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(23)-1
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Consent of Grant Thornton, LLP.
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(23)-2
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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).
|
(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.
118
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 14, 2008
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints C. Stanley Bailey and
Mark A. Tarnakow, 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 2007 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
|
|
Date
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/s/ C.
Stanley
Bailey C.
Stanley Bailey
|
|
Chairman of the Board and Chief Executive Officer (Principal
Executive Officer) and Director
|
|
March 14, 2008
|
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|
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/s/ Mark
A.
Tarnakow Mark
A. Tarnakow
|
|
Chief Financial Officer (Principal Financial and Accounting
Officer)
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|
March 14, 2008
|
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/s/ Roger
Barker Roger
Barker
|
|
Director
|
|
March 14, 2008
|
|
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/s/ K.
Earl
Durden K.
Earl Durden
|
|
Director
|
|
March 14, 2008
|
|
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/s/ Rick
D.
Gardner Rick
D. Gardner
|
|
Director
|
|
March 14, 2008
|
|
|
|
|
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/s/ Thomas
E. Jernigan,
Jr. Thomas
E. Jernigan, Jr.
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Director
|
|
March 14, 2008
|
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/s/ James
Mailon Kent,
Jr. James
Mailon Kent, Jr.
|
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Director
|
|
March 14, 2008
|
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/s/ Mark
A.
Lee Mark
A. Lee
|
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Director
|
|
March 14, 2008
|
|
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/s/ James
M.
Link James
M. Link
|
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Director
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|
March 14, 2008
|
119
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Signature
|
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Title
|
|
Date
|
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/s/ Peter
L.
Lowe Peter
L. Lowe
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Director
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March 14, 2008
|
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/s/ John
C.
Metz John
C. Metz
|
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Director
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|
March 14, 2008
|
|
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/s/ D.
Dewey
Mitchell D.
Dewey Mitchell
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|
Director
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|
March 14, 2008
|
|
|
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/s/ Barry
Morton Barry
Morton
|
|
Director
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|
March 14, 2008
|
|
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|
|
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/s/ Robert
R. Parrish,
Jr. Robert
R. Parrish, Jr.
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Director
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March 14, 2008
|
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|
|
|
|
/s/ Charles
W.
Roberts, III Charles
W. Roberts, III
|
|
Director
|
|
March 14, 2008
|
|
|
|
|
|
/s/ C.
Marvin
Scott C.
Marvin Scott
|
|
Director
|
|
March 14, 2008
|
|
|
|
|
|
/s/ James
C. White,
Sr. James
C. White, Sr.
|
|
Director
|
|
March 14, 2008
|
120