SUPERIOR BANCORP
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC
FORM 10-Q
(Mark One)
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
FOR THE QUARTERLY PERIOD ENDED June 30, 2008
OR
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
FOR
THE TRANSITION PERIOD FROM TO
Commission File number 0-25033
(Exact Name of Registrant as Specified in its Charter)
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Delaware
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63-1201350 |
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(State or Other Jurisdiction of Incorporation)
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(IRS Employer Identification No.) |
17 North 20th Street, Birmingham, Alabama 35203
(Address of Principal Executive Offices)
(205) 327-1400
(Registrants Telephone Number, Including Area Code)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o | Accelerated filer þ | Non-accelerated filer o (Do not check if a smaller reporting company) | Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
Yes o No þ
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of
the latest practicable date.
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Class
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Outstanding as of June 30, 2008 |
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Common stock, $.001 par value
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10,055,879 |
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SUPERIOR BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands, except per share data)
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June 30, |
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December 31, |
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2008 |
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2007 |
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(UNAUDITED) |
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ASSETS |
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Cash and due from banks |
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$ |
71,959 |
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$ |
52,983 |
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Interest-bearing deposits in other banks |
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4,010 |
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6,916 |
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Federal funds sold |
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3,366 |
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3,452 |
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Investment securities available for sale |
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356,408 |
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361,171 |
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Tax lien certificates |
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25,032 |
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15,615 |
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Mortgage loans held for sale |
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29,097 |
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33,408 |
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Loans, net of unearned income |
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2,148,751 |
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2,017,011 |
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Less: Allowance for loan losses |
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(27,243 |
) |
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(22,868 |
) |
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Net loans |
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2,121,508 |
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1,994,143 |
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Premises and equipment, net |
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103,565 |
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104,799 |
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Accrued interest receivable |
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15,857 |
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16,512 |
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Stock in FHLB |
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23,412 |
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14,945 |
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Cash surrender value of life insurance |
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47,290 |
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45,277 |
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Goodwill and other intangibles |
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185,442 |
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187,520 |
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Other assets |
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52,612 |
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48,684 |
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TOTAL ASSETS |
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$ |
3,039,558 |
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$ |
2,885,425 |
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LIABILITIES AND STOCKHOLDERS EQUITY |
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Deposits: |
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Noninterest-bearing |
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$ |
221,087 |
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$ |
207,602 |
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Interest-bearing |
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1,973,020 |
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1,993,009 |
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TOTAL DEPOSITS |
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2,194,107 |
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2,200,611 |
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Advances from FHLB |
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405,830 |
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222,828 |
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Federal funds purchased and security repurchase agreements |
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7,218 |
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17,075 |
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Note payable |
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9,500 |
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9,500 |
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Junior subordinated debentures owed to unconsolidated subsidiary trusts |
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53,571 |
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53,744 |
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Accrued expenses and other liabilities |
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20,547 |
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31,625 |
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TOTAL LIABILITIES |
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2,690,773 |
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2,535,383 |
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STOCKHOLDERS EQUITY |
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Common stock, par value $.001 per share; authorized 15,000,000
shares; shares issued 10,382,410 and 10,380,658, respectively;
outstanding 10,055,879 and 10,027,079, respectively |
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10 |
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10 |
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Surplus |
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329,087 |
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329,232 |
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Retained earnings |
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35,094 |
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33,557 |
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Accumulated other comprehensive (loss) income |
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(3,138 |
) |
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174 |
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Treasury stock, at cost 320,764 and 347,536 shares, respectively |
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(11,364 |
) |
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(12,309 |
) |
Unearned ESOP stock |
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(531 |
) |
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(622 |
) |
Unearned restricted stock |
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(373 |
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TOTAL STOCKHOLDERS EQUITY |
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348,785 |
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350,042 |
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TOTAL LIABILITIES AND STOCKHOLDERS EQUITY |
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$ |
3,039,558 |
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$ |
2,885,425 |
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See Notes to Condensed Consolidated Financial Statements.
2
SUPERIOR BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(Amounts in thousands, except per share data)
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Three Months Ended |
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Six Months Ended |
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June 30, |
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June 30, |
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2008 |
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2007 |
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2008 |
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2007 |
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INTEREST INCOME |
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Interest and fees on loans |
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$ |
36,708 |
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$ |
34,986 |
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$ |
74,053 |
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$ |
69,297 |
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Interest on taxable securities |
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4,143 |
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4,096 |
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8,195 |
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8,535 |
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Interest on tax-exempt securities |
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431 |
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138 |
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861 |
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266 |
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Interest on federal funds sold |
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18 |
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156 |
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98 |
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283 |
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Interest and dividends on other investments |
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732 |
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691 |
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1,376 |
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1,429 |
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Total interest income |
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42,032 |
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40,067 |
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84,583 |
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79,810 |
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INTEREST EXPENSE |
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Interest on deposits |
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16,709 |
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18,780 |
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36,962 |
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36,249 |
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Interest on other borrowed funds |
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3,016 |
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2,770 |
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5,808 |
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6,019 |
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Interest on junior subordinated debentures |
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919 |
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1,004 |
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1,934 |
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1,996 |
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Total interest expense |
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20,644 |
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22,554 |
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44,704 |
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44,264 |
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NET INTEREST INCOME |
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21,388 |
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17,513 |
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39,879 |
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35,546 |
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Provision for loan losses |
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5,967 |
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1,000 |
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7,838 |
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1,705 |
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NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES |
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15,421 |
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16,513 |
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32,041 |
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33,841 |
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NONINTEREST INCOME |
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Service charges and fees on deposits |
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2,192 |
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1,894 |
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4,296 |
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3,684 |
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Mortgage banking income |
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1,031 |
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1,132 |
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2,297 |
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2,082 |
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Investment securities gains |
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1,068 |
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1,470 |
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|
242 |
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Change in fair value of derivatives |
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(418 |
) |
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118 |
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|
632 |
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(34 |
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Increase in cash surrender value of life insurance |
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555 |
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|
452 |
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1,107 |
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|
900 |
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Gain on extinguishment of liabilities |
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2,918 |
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2,918 |
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Other income |
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1,660 |
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942 |
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2,888 |
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1,750 |
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TOTAL NONINTEREST INCOME |
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9,006 |
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4,538 |
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15,608 |
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8,624 |
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NONINTEREST EXPENSES |
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Salaries and employee benefits |
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12,058 |
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10,168 |
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24,199 |
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20,236 |
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Occupancy, furniture and equipment expense |
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4,120 |
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2,995 |
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8,180 |
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|
6,142 |
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Amortization of core deposit intangibles |
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|
896 |
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|
304 |
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1,792 |
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|
609 |
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Merger-related costs |
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13 |
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|
107 |
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|
121 |
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|
426 |
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Other expenses |
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6,189 |
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|
4,484 |
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11,248 |
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8,670 |
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TOTAL NONINTEREST EXPENSES |
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23,276 |
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18,058 |
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45,540 |
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|
36,083 |
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Income before income taxes |
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1,151 |
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2,993 |
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2,109 |
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6,382 |
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INCOME TAX EXPENSE |
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|
310 |
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|
1,024 |
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|
572 |
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2,116 |
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NET INCOME |
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$ |
841 |
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|
$ |
1,969 |
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|
$ |
1,537 |
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$ |
4,266 |
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BASIC NET INCOME PER COMMON SHARE |
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$ |
0.08 |
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$ |
0.23 |
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$ |
0.15 |
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$ |
0.50 |
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DILUTED NET INCOME PER COMMON SHARE |
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$ |
0.08 |
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|
$ |
0.23 |
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|
$ |
0.15 |
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|
$ |
0.49 |
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Weighted average common shares outstanding |
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10,016 |
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|
8,613 |
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|
10,014 |
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|
|
8,611 |
|
Weighted average common shares outstanding, assuming dilution |
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|
10,056 |
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|
8,735 |
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|
|
10,051 |
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|
8,747 |
|
See Notes to Condensed Consolidated Financial Statements.
3
SUPERIOR BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED)
(Dollars in thousands)
|
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|
|
|
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Six Months Ended |
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|
June 30, |
|
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|
2008 |
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|
2007 |
|
NET CASH PROVIDED BY OPERATING ACTIVITIES |
|
$ |
11,446 |
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|
$ |
9,518 |
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CASH FLOWS FROM INVESTING ACTIVITIES: |
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Net decrease in interest-bearing deposits in other banks |
|
|
2,906 |
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|
|
6,276 |
|
Net decrease in federal funds sold |
|
|
86 |
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|
|
12,342 |
|
Proceeds from sales of securities available for sale |
|
|
36,142 |
|
|
|
2,400 |
|
Proceeds from maturities of investment securities available for sale |
|
|
92,189 |
|
|
|
45,040 |
|
Purchases of investment securities available for sale |
|
|
(127,153 |
) |
|
|
(12,451 |
) |
Purchase of tax lien certificates |
|
|
(9,417 |
) |
|
|
(2,144 |
) |
Net increase in loans |
|
|
(147,573 |
) |
|
|
(71,556 |
) |
Purchases of premises and equipment |
|
|
(8,078 |
) |
|
|
(4,483 |
) |
Proceeds from sale of premises and equipment |
|
|
7,567 |
|
|
|
1,223 |
|
Proceeds from sale of repossessed assets |
|
|
4,009 |
|
|
|
1,943 |
|
Increase in stock in FHLB |
|
|
(8,467 |
) |
|
|
(416 |
) |
Other investing activities, net |
|
|
(1,089 |
) |
|
|
72 |
|
|
|
|
|
|
|
|
Net cash used by investing activities |
|
|
(158,878 |
) |
|
|
(21,754 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
Net (decrease) increase in deposits |
|
|
(6,666 |
) |
|
|
14,503 |
|
Net increase (decrease) in FHLB advances and other borrowed funds |
|
|
173,074 |
|
|
|
(2,829 |
) |
Payments made on notes payable |
|
|
|
|
|
|
(87 |
) |
Proceeds from notes payable |
|
|
|
|
|
|
500 |
|
Proceeds from sale of common stock |
|
|
|
|
|
|
30 |
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
166,408 |
|
|
|
12,117 |
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and due from banks |
|
|
18,976 |
|
|
|
(119 |
) |
CASH AND DUE FROM BANKS AT BEGINNING OF PERIOD |
|
|
52,983 |
|
|
|
49,783 |
|
|
|
|
|
|
|
|
CASH AND DUE FROM BANKS AT END OF PERIOD |
|
$ |
71,959 |
|
|
$ |
49,664 |
|
|
|
|
|
|
|
|
See Notes to Condensed Consolidated Financial Statements.
4
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 1 Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in
accordance with the instructions for Form 10-Q, and, therefore, do not include all information and
footnotes necessary for a fair presentation of financial position, results of operations and cash
flows in conformity with generally accepted accounting principles. For a summary of significant
accounting policies that have been consistently followed, see Note 1 to the Consolidated Financial
Statements included in Superior Bancorps (the Corporations) Annual Report on Form 10-K for the
year ended December 31, 2007. It is managements opinion that all adjustments, consisting of only
normal and recurring items necessary for a fair presentation, have been included in these condensed
consolidated financial statements. Operating results for the three- and six-month periods ended
June 30, 2008, are not necessarily indicative of the results that may be expected for the year
ending December 31, 2008.
The Condensed Consolidated Statement of Financial Condition at December 31, 2007, presented herein,
has been derived from the financial statements audited by Grant Thornton LLP, independent
registered public accountants, as indicated in their report, dated March 14, 2008, included in the
Corporations Annual Report on Form 10-K. The Condensed Consolidated Financial Statements do not
include all of the information and footnotes required by generally accepted accounting principles
for complete financial statements.
Restatement to Reflect 1-for-4 Reverse Stock Split
All disclosures, in this quarterly report, regarding common stock and related earnings per share
have been retroactively restated for all periods presented to reflect a 1-for-4 reverse stock split
effective April 28, 2008 (see Note 8).
Note 2 Recent Accounting Pronouncements
Statement of Financial Accounting Standards No. 157
In September 2006, the Financial Accounting Standards Board (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. The Corporation adopted SFAS 157 on January 1, 2008 and the impact of this
adoption is included in Note 9.
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 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
evaluated SFAS 159 and determined that the fair value option would not be elected for any financial
asset or liability reported on the Corporations consolidated statement of financial condition as
of January 1, 2008 (date of adoption), nor has the Corporation applied the provisions of SFAS 159
to any financial asset or liability recognized during the six-month period ended June 30, 2008.
Statement of Financial Accounting Standards No. 141(R)
In December 2007, the FASB issued SFAS No. 141(R), Business Combinations a replacement of FASB
No. 141 (SFAS 141R). SFAS 141R replaces SFAS 141, Business Combinations, and applies to all
transactions and other events in which one entity obtains control over one or more other
businesses. SFAS 141R requires an acquirer, upon initially obtaining control of another entity, to
recognize the assets, liabilities and any non-controlling interest in the acquiree at fair value as
of the acquisition date. Contingent consideration is required to be recognized and measured at fair
value on the date of acquisition rather than at a later date when the
amount of that consideration may be
5
Note 2 Recent Accounting Pronouncements (Continued)
determinable beyond a reasonable doubt. This fair value approach replaces the
cost-allocation process required under SFAS 141 whereby the cost of an acquisition was allocated to
the individual assets acquired and liabilities assumed based on their estimated fair value. SFAS
141R requires acquirers to expense acquisition-related costs as incurred rather than allocating
such costs to the assets acquired and liabilities assumed, as was previously the case under SFAS
141. Under SFAS 141R, the requirements of SFAS 146, Accounting for Costs Associated with Exit or
Disposal Activities, would have to be met in order to accrue for a restructuring plan in purchase
accounting. Pre-acquisition contingencies are to be recognized at fair value, unless it is a
non-contractual contingency that is not likely to materialize, in which case, nothing should be
recognized in purchase accounting and, instead, that contingency would be subject to the probable
and estimable recognition criteria of SFAS 5, Accounting for Contingencies. SFAS 141R is expected
to have an impact on the Corporations accounting for business combinations, if any, closing on or
after January 1, 2009.
Staff Accounting Bulletin No. 109
In November 2007, the Securities and Exchange Commission issued Staff Accounting Bulletin 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. SAB 109 became effective beginning January 1, 2008 and did not have a material effect on
the Corporations financial position, results of operations or cash flows.
Statement of Financial Accounting Standards No. 161
In March 2008, the FASB issued SFAS No. 161, Disclosures About Derivative Instruments and Hedging
Activities, an Amendment of FASB Statement No. 133 (SFAS 161). SFAS 161 amends SFAS 133,
Accounting for Derivative Instruments and Hedging Activities, (SFAS 133) to amend and expand
the disclosure requirements of SFAS 133 to provide greater transparency about (i) how and why an
entity uses derivative instruments, (ii) how derivative instruments and related hedge items are
accounted for under SFAS 133 and its related interpretations, and (iii) how derivative instruments
and related hedged items affect an entitys financial position, results of operations and cash
flows. To meet those objectives, SFAS 161 requires qualitative disclosures about objectives and
strategies for using derivatives, quantitative disclosures about fair value amounts of gains and
losses on derivative instruments and disclosures about credit-risk-related contingent features in
derivative agreements. SFAS 161 is effective for the Corporation on January 1, 2009 and is not
expected to have a significant impact on the Corporations financial position, results of
operations or cash flows.
Note 3 Acquisitions
The Corporation completed the acquisition of 100% of the outstanding stock of Peoples Community
Bancshares, Inc. (Peoples), of Sarasota, Florida on July 27, 2007 in exchange for 1,658,781
shares (restated to reflect 1-for-4 reverse stock split) of the Corporations common stock valued
at approximately $73,982,000. The shares were valued by using the average of the closing prices of
the Corporations stock for several days prior to and after the terms of the acquisition were
agreed to and announced. The total purchase price, which includes certain direct acquisition costs,
was $76,429,000. As a result of the acquisition, the Corporation now operates three banking
locations in Sarasota and Manatee Counties, Florida. This area is a significant addition to the
Corporations largest market, which was expanded in 2006 by the acquisition of Kensington
Bankshares, Inc., in Tampa, Florida.
The Peoples transaction resulted in $47,313,000 of goodwill allocated to the Florida reporting
unit and $9,810,000 of core deposit intangibles. 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.
6
Note 3 Acquisitions (Continued)
Pro forma Results of Operations
The results of operations of Peoples subsequent to its acquisition date are included in the
Corporations consolidated statements of income. The following pro forma information for the six
months ended June 30, 2007 reflects the Corporations pro forma consolidated results of operations
as if the acquisition of Peoples occurred at January 1, 2007, unadjusted for potential cost
savings.
|
|
|
|
|
|
|
Six Months |
|
|
Ended |
(Dollars in thousands, except per share data) |
|
June 30, 2007 |
Pro forma net interest income and noninterest income |
|
$ |
50,836 |
|
Pro forma net income |
|
|
6,156 |
|
Pro forma earnings per common share basic |
|
$ |
0.60 |
|
Pro forma earnings per common share diluted |
|
|
0.59 |
|
Note 4 Segment Reporting
The Corporation has two reportable segments, the Alabama Region and the Florida Region. The Alabama
Region consists of operations located throughout Alabama. The Florida Region consists of operations
located primarily in the Tampa Bay area and panhandle region of Florida. The Corporations
reportable segments are managed as separate business units because they are located in different
geographic areas. Both segments derive revenues from the delivery of financial services. These
services include commercial loans, mortgage loans, consumer loans, deposit accounts and other
financial services. All of the corporate administrative costs and other banking activities have
been removed from the Alabama Region. Administrative and other banking activities include the
results of the Corporations investment portfolio, home mortgage division, brokered deposits and
borrowed funds positions.
The Corporation evaluates performance and allocates resources based on profit or loss from
operations. There are no material inter-segment sales or transfers. Net interest income is used as
the basis for performance evaluation rather than its components, total interest income and total
interest expense. The accounting policies used by each reportable segment are the same as those
discussed in Note 1 to the Consolidated Financial Statements included in the Corporations Form
10-K for the year ended December 31, 2007. 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 |
|
Three months ended June 30, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
$ |
8,012 |
|
|
$ |
9,108 |
|
|
$ |
17,120 |
|
|
$ |
4,268 |
|
|
$ |
21,388 |
|
Provision for loan losses |
|
|
946 |
|
|
|
660 |
|
|
|
1,606 |
|
|
|
4,361 |
|
|
|
5,967 |
|
Noninterest income |
|
|
1,745 |
|
|
|
490 |
|
|
|
2,235 |
|
|
|
6,771 |
|
|
|
9,006 |
|
Noninterest expense |
|
|
7,468 |
|
|
|
5,405 |
|
|
|
12,873 |
|
|
|
10,403 |
|
|
|
23,276 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit (loss) |
|
$ |
1,343 |
|
|
$ |
3,533 |
|
|
$ |
4,876 |
|
|
$ |
(3,725 |
) |
|
|
1,151 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
310 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
841 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
1,046,413 |
|
|
$ |
1,141,009 |
|
|
$ |
2,187,422 |
|
|
$ |
852,136 |
|
|
$ |
3,039,558 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
$ |
8,972 |
|
|
$ |
8,024 |
|
|
$ |
16,996 |
|
|
$ |
517 |
|
|
$ |
17,513 |
|
Provision for loan losses |
|
|
434 |
|
|
|
256 |
|
|
|
690 |
|
|
|
310 |
|
|
|
1,000 |
|
Noninterest income |
|
|
1,675 |
|
|
|
351 |
|
|
|
2,026 |
|
|
|
2,512 |
|
|
|
4,538 |
|
Noninterest expense |
|
|
6,286 |
|
|
|
3,018 |
|
|
|
9,304 |
|
|
|
8,754 |
|
|
|
18,058 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit (loss) |
|
$ |
3,927 |
|
|
$ |
5,101 |
|
|
$ |
9,028 |
|
|
$ |
(6,035 |
) |
|
|
2,993 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,024 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,969 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
975,538 |
|
|
$ |
725,860 |
|
|
$ |
1,701,398 |
|
|
$ |
768,895 |
|
|
$ |
2,470,293 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7
Note 4 Segment Reporting (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
Superior |
|
|
|
Alabama |
|
|
Florida |
|
|
Alabama and |
|
|
Administrative |
|
|
Bancorp |
|
|
|
Region |
|
|
Region |
|
|
Florida |
|
|
and Other |
|
|
Combined |
|
Six months ended June 30, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
$ |
15,624 |
|
|
$ |
18,728 |
|
|
$ |
34,352 |
|
|
$ |
5,527 |
|
|
$ |
39,879 |
|
Provision for loan losses |
|
|
1,802 |
|
|
|
1,518 |
|
|
|
3,320 |
|
|
|
4,518 |
|
|
|
7,838 |
|
Noninterest income |
|
|
3,606 |
|
|
|
940 |
|
|
|
4,546 |
|
|
|
11,062 |
|
|
|
15,608 |
|
Noninterest expense |
|
|
15,092 |
|
|
|
10,889 |
|
|
|
25,981 |
|
|
|
19,559 |
|
|
|
45,540 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit (loss) |
|
$ |
2,336 |
|
|
$ |
7,261 |
|
|
$ |
9,597 |
|
|
$ |
(7,488 |
) |
|
|
2,109 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
572 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,537 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
$ |
18,396 |
|
|
$ |
16,555 |
|
|
$ |
34,951 |
|
|
$ |
595 |
|
|
$ |
35,546 |
|
Provision for loan losses |
|
|
1,038 |
|
|
|
350 |
|
|
|
1,388 |
|
|
|
317 |
|
|
|
1,705 |
|
Noninterest income |
|
|
3,411 |
|
|
|
663 |
|
|
|
4,074 |
|
|
|
4,550 |
|
|
|
8,624 |
|
Noninterest expense |
|
|
12,367 |
|
|
|
6,098 |
|
|
|
18,465 |
|
|
|
17,618 |
|
|
|
36,083 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit (loss) |
|
$ |
8,402 |
|
|
$ |
10,770 |
|
|
$ |
19,172 |
|
|
$ |
(12,790 |
) |
|
|
6,382 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,116 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
4,266 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 5 Net Income per Common Share
The following table shows the computation of basic and diluted net income per common share (in
thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For basic and diluted, net income |
|
$ |
841 |
|
|
$ |
1,969 |
|
|
$ |
1,537 |
|
|
$ |
4,266 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For basic, weighted average common shares outstanding |
|
|
10,016 |
|
|
|
8,613 |
|
|
|
10,014 |
|
|
|
8,611 |
|
Effect of dilutive stock options and restricted stock |
|
|
40 |
|
|
|
122 |
|
|
|
37 |
|
|
|
136 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average diluted common shares outstanding |
|
|
10,056 |
|
|
|
8,735 |
|
|
|
10,051 |
|
|
|
8,747 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income per common share |
|
$ |
.08 |
|
|
$ |
.23 |
|
|
$ |
.15 |
|
|
$ |
.50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per common share |
|
$ |
.08 |
|
|
$ |
.23 |
|
|
$ |
.15 |
|
|
$ |
.49 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 6 Comprehensive (Loss) Income
Total comprehensive (loss) income was $(3,263,000) and $(1,775,000) for the three- and six-month
periods ended June 30, 2008, respectively, and $118,000 and $2,842,000 for the three- and six-month
periods ended June 30, 2007, respectively. Total comprehensive (loss) income consists of net income
and the unrealized gain or loss on the Corporations available-for-sale investment securities
portfolio arising during the period. A summary of the Corporations net unrealized gains and losses
before tax is shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Unrealized Gain (Loss) |
|
|
|
June 30, |
|
|
December 31, |
|
|
Dollar |
|
|
|
2008 |
|
|
2007 |
|
|
Change, Pre-tax |
|
|
|
(Dollars in thousands) |
|
U.S. agencies |
|
$ |
129 |
|
|
$ |
1,011 |
|
|
$ |
(882 |
) |
State and political subdivisions |
|
|
(793 |
) |
|
|
(173 |
) |
|
|
(620 |
) |
Mortgage-backed securities |
|
|
(1,742 |
) |
|
|
194 |
|
|
|
(1,936 |
) |
Corporate debt & other securities |
|
|
(3,643 |
) |
|
|
(1,892 |
) |
|
|
(1,751 |
) |
|
|
|
|
|
|
|
|
|
|
Net unrealized loss |
|
$ |
(6,049 |
) |
|
$ |
(860 |
) |
|
$ |
(5,189 |
) |
|
|
|
|
|
|
|
|
|
|
8
Note 6 Comprehensive (Loss) Income (Continued)
The market for certain securities held in the available-for-sale investment securities portfolio
remained volatile during the second quarter of 2008 due to extraordinary economic and market
conditions. As a result of this volatility, the market price for many types of securities at June
30, 2008 were lower than at March 31, 2008 and December 31, 2007. Management continually monitors
our securities portfolio regarding cash flow and credit-rating adjustments, among other factors.
Based on its review, management does not believe any unrealized loss as of June 30, 2008 represents
an other-than-temporary impairment. Management believes the unrealized losses on these securities
are primarily the result of changes in the liquidity levels in the market in addition to changes in
general market interest rates and not the result of material changes in the credit characteristics
of the investment portfolio. In addition, at June 30, 2008 management had the positive intent and
ability to hold these securities to recovery or maturity.
Note 7 Income Taxes
The effective tax rate decreased in the three- and six- month periods ended June 30, 2008 primarily
as a result of lower levels of pre-tax income. The difference in the effective tax rate in the
three- and six-month periods ended June 30, 2008 and 2007, and the blended federal statutory rate
of 34% and state tax rates of 5% and 6% is due primarily to tax-exempt income from investments and
insurance policies. The Corporation adopted the provisions of FIN 48 as of January 1, 2007, the
effect of which is described below.
FASB Interpretation No. 48
In July 2006, the 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 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. As a result of the adoption, the Corporation
recognized a charge of approximately $554,000 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 $145,000.
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.
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 six-month period ended June 30, 2008.
Note 8 Stockholders Equity
1-for-4 Reverse Stock Split
On April 28, 2008, the Corporation completed a 1-for-4 reverse split of its issued and outstanding
shares of common stock, reducing the number of authorized shares of common stock from 60,000,000 to
15,000,000 and the number of common shares outstanding from 40,211,230 to 10,052,808. This action
brings the Corporations authorized common shares and common shares outstanding more nearly in line
with peer community banks. All disclosures in this quarterly report regarding common stock and
related per share information have been retroactively restated for all periods presented to reflect
the reverse stock split. The 1-for-4 reverse stock split was effective in the market as of the open
of business April 28, 2008.
9
Note 8 Stockholders Equity (Continued)
Stock Incentive Plan
The Corporation established the Third Amended and Restated 1998 Stock Incentive Plan (the 1998
Plan) for directors and certain key employees that provides for the granting of restricted stock
and incentive and nonqualified options to purchase up to 625,000 (restated for 1-for-4 reverse
stock split) shares of the Corporations common stock of which substantially all available shares
have been granted. The compensation committee of the Board of Directors determines the terms of the
restricted stock and options granted. All options granted have a maximum term of ten years from the
grant date, and the option price per share of options granted cannot be less than the fair market
value of the Corporations common stock on the grant date. Some of the options granted under the
plan in the past vested over a five-year period, while others vested based on certain benchmarks
relating to the trading price of the Corporations common stock, with an outside vesting date of
five years from the date of grant. More recent grants have followed this benchmark-vesting formula.
In April 2008, the Corporations stockholders approved the Superior Bancorp 2008 Incentive
Compensation Plan (the 2008 Plan) which succeeded the 1998 Plan. The purpose of the 2008 Plan is
to provide additional incentive for our directors and key employees to further the growth,
development and financial success of the Corporation and its subsidiaries by personally benefiting
through the ownership of the Corporations common stock, or other rights which recognize such
growth, development and financial success. The Corporations Board also believes the 2008 Plan will
enable it to obtain and retain the services of directors and employees who are considered essential
to its long-range success by offering them an opportunity to own stock and other rights that
reflect the Corporations financial success. The maximum aggregate number of shares of common stock
that may be issued or transferred pursuant to awards under the 2008 Plan is 300,000 (restated for
1-for-4 reverse stock split) shares, of which no more than 90,000 shares may be issued for full
value awards (defined under the 2008 Plan to mean any awards permitted under the 2008 Plan that
are neither stock options nor stock appreciation rights). Only those employees and directors who
are selected to receive grants by the administrator may participate in the 2008 Plan.
During the first quarter of 2005, the Corporation granted 422,734 options to the new management
team. These options have exercise prices ranging from $32.68 to $38.52 per share and were granted
outside of the stock incentive plan as part of the inducement package for new management. These
shares are included in the table below.
The fair value of each option award is estimated on the date of grant based upon the Black-Scholes
pricing model that uses the assumptions noted in the following table. The risk-free interest rate
is based on the implied yield on U.S. Treasury zero-coupon issues with a remaining term equal to
the expected term of the underlying options. 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 six-month periods ended June 30, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
2007 |
Risk free interest rate |
|
|
4.50 |
% |
|
|
4.37 |
% |
Volatility factor |
|
|
29.11 |
% |
|
|
29.34 |
% |
Weighted average life of options (in years) |
|
|
5.00 |
|
|
|
5.00 |
|
Dividend yield |
|
|
0.00 |
% |
|
|
0.00 |
% |
A summary of stock option activity as of June 30, 2008 and changes during the six months then ended
is shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
Average |
|
|
|
|
|
|
|
|
|
|
Average |
|
|
Remaining |
|
|
|
|
|
|
|
|
|
|
Exercise |
|
|
Contractual |
|
|
Aggregate |
|
|
|
Number |
|
|
Price |
|
|
Term |
|
|
Intrinsic Value |
|
Under option, January 1, 2008 |
|
|
802,048 |
|
|
$ |
32.28 |
|
|
|
|
|
|
|
|
|
Granted |
|
|
6,625 |
|
|
|
19.60 |
|
|
|
|
|
|
|
|
|
Forfeited |
|
|
(1,250 |
) |
|
|
45.40 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Under option, June 30, 2008 |
|
|
807,423 |
|
|
$ |
32.95 |
|
|
|
6.23 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at end of period. |
|
|
691,653 |
|
|
$ |
31.76 |
|
|
|
4.98 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average fair value
per option of options
granted during the period |
|
$ |
6.70 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
Note 8 Stockholders Equity (Continued)
As of June 30, 2008, there was $696,000 of total unrecognized compensation expense related to the
unvested awards. This expense will be recognized over a 25- to 30- month period unless the options
vest earlier based on achievement of benchmark trading price levels. During the three-and six-
month periods ended June 30, 2008, the Corporation recognized approximately $161,000 and $321,000,
respectively, in compensation expense related to options granted. During the three- and six- month
periods ended June 30, 2007, the Corporation recognized approximately $86,000 and $169,000,
respectively, in compensation expense related to options granted.
In January 2008, members of the Corporations management received restricted common stock grants
totaling 26,788 shares. These grants exclude certain senior executive management who received cash
under the short-term management incentive plan in lieu of restricted stock. The grant date fair
value of this restricted common stock is equal to $18.56 per share or $497,000 which will be
recognized over a 24-month period as 50% of the stock vests on January 22, 2009 with the remaining
50% vesting on January 22, 2010. During the three- and six- month periods ended June 30, 2008, the
Corporation recognized approximately $62,000 and $124,000, respectively, in compensation expense
related to restricted stock. The outstanding shares of restricted common stock are included in the
diluted earnings per share calculation, using the treasury stock method, until the shares vest.
Once vested, the shares become outstanding for basic earnings per share. If an executives
employment terminates prior to a vesting date for any reason other than death, disability or a
change in control, the unvested stock is forfeited pursuant to the terms of the restricted common
stock agreement. Unvested restricted common stock becomes immediately vested upon death, disability
or a change in control. Under the restricted common stock agreements, the restricted stock may not
be sold or assigned in any manner during the vesting period, but the executive will have the rights
of a shareholder with respect to the stock (i.e. the right to vote, receive dividends, etc), prior
to vesting.
Note 9 Fair Value Measurements
In September 2006, the FASB issued SFAS 157 (see Note 2 above) which replaces multiple existing
definitions of fair value with a single definition, establishes a consistent framework for
measuring fair value and expands financial statement disclosures regarding fair value measurements.
SFAS 157 applies only to fair value measurements that already are required or permitted by other
accounting standards and does not require any new fair value measurements. In February 2008, the
FASB issued FASB Staff Position No. 157-2 (FSP No. 157-2), which delayed until January 1, 2009,
the effective date of SFAS 157 for nonfinancial assets and liabilities that are not recognized or
disclosed at fair value in the financial statements on a recurring basis.
The adoption of SFAS 157 in the first quarter of 2008 did not have a material impact on the
Corporations financial position or results of operations. The Corporations nonfinancial assets
and liabilities that meet the deferral criteria set forth in FSP No. 157-2 include goodwill, core
deposit intangibles, net property and equipment and other real estate, which primarily represents
collateral that is received through troubled loans. The Corporation does not expect that the
adoption of SFAS 157 for these nonfinancial assets and liabilities will have a material impact on
its financial position or results of operations.
In accordance with the provisions of SFAS 157, the Corporation measures fair value at the price
that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. SFAS 157 prioritizes the assumptions that
market participants would use in pricing the asset or liability (the inputs) into a three-tier
fair value hierarchy. This fair value hierarchy gives the highest priority (Level 1) to quoted
prices in active markets for identical assets or liabilities and the lowest priority (Level 3) to
unobservable inputs in which little or no market data exists, requiring companies to develop their
own assumptions. Observable inputs that do not meet the criteria of Level 1, and include quoted
prices for similar assets or liabilities in active markets or quoted prices for identical assets
and liabilities in markets that are not active, are categorized as Level 2. Level 3 inputs are
those that reflect managements estimates about the assumptions market participants would use in
pricing the asset or liability, based on the best information available in the circumstances.
Valuation techniques for assets and liabilities measured using Level 3 inputs may include
methodologies such as the market approach, the income approach or the cost approach, and may use
unobservable inputs such as projections, estimates and managements interpretation of current
market data. These unobservable inputs are only utilized to the extent that observable inputs are
not available or cost-effective to obtain.
11
Note 9 Fair Value Measurements (Continued)
Assets and Liabilities Recorded at Fair Value on a Recurring Basis
The table below presents the assets and liabilities measured at fair value on a recurring basis
categorized by the level of inputs used in the valuation of each asset (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices in |
|
|
|
|
|
|
Significant |
|
|
|
Fair Value at |
|
|
Active Markets for |
|
|
Significant Other |
|
|
Unobservable |
|
|
|
June 30, |
|
|
Identical Assets |
|
|
Observable Inputs |
|
|
Inputs |
|
|
|
2008 |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
Available for sale securities |
|
$ |
356,408 |
|
|
$ |
|
|
|
$ |
356,408 |
|
|
$ |
|
|
Derivative assets |
|
|
114 |
|
|
|
|
|
|
|
114 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recurring basis measured assets |
|
$ |
356,522 |
|
|
$ |
|
|
|
$ |
356,522 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities |
|
$ |
103 |
|
|
$ |
|
|
|
$ |
103 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recurring basis measured
liabilities |
|
$ |
103 |
|
|
$ |
|
|
|
$ |
103 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation Techniques Recurring Basis
Securities Available for Sale. Securities classified as available for sale are reported at fair
value utilizing Level 2 inputs. For these securities, the Corporation obtains fair value
measurements from an independent pricing service. The fair value measurements consider observable market data that may include benchmark yield
curves, reported trades, broker/dealer quotes, issuer spreads and credit information, among other
inputs.
Derivative financial instruments. Derivative financial instruments are measured at fair value based
on modeling that utilizes observable market inputs for various interest rates published by
third-party leading financial news and data providers. This is observable data that represents the
rates used by market participants for instruments entered into at that date; however, they are not
based on actual transactions so they are classified as Level 2.
Assets Recorded at Fair Value on a Nonrecurring Basis
The table below presents the assets measured at fair value on a nonrecurring basis categorized by
the level of inputs used in the valuation of each asset (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices in |
|
|
Significant Other |
|
|
Significant |
|
|
|
Fair Value at |
|
|
Active Markets for |
|
|
Observable |
|
|
Unobservable |
|
|
|
June 30, |
|
|
Identical Assets |
|
|
Inputs |
|
|
Inputs |
|
|
|
2008 |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
Mortgage loans held for sale |
|
$ |
29,097 |
|
|
$ |
|
|
|
$ |
29,097 |
|
|
$ |
|
|
Impaired loans, net of specific allowance |
|
|
39,468 |
|
|
|
|
|
|
|
|
|
|
|
39,468 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total nonrecurring basis measured assets |
|
$ |
68,565 |
|
|
$ |
|
|
|
$ |
29,097 |
|
|
$ |
39,468 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation Techniques Nonrecurring Basis
Mortgage Loans Held for Sale. Mortgage loans held for sale are recorded at the lower of aggregate
cost or fair value. Fair value is generally based on quoted market prices of similar loans and is
considered to be Level 2 in the fair value hierarchy.
Impaired Loans. Impaired loans are evaluated and valued at the time the loan is identified as
impaired, at the lower of cost or fair value. Fair value is measured based on the value of the
collateral securing these loans and is classified at a Level 3 in the fair value hierarchy. Collateral
12
Note 9 Fair Value Measurements (Continued)
typically includes real estate and/or business
assets including equipment. The value of real estate collateral is determined based on appraisals
by qualified licensed appraisers approved and hired by the Corporation. The value of business
equipment is based on an appraisal by qualified licensed appraisers approved and hired by the
Corporation, if significant. Appraised and reported values may be discounted based on managements
historical knowledge, changes in market conditions from the time of valuation, and/or managements
expertise and knowledge of the client and clients business. Impaired loans are reviewed and
evaluated on at least a quarterly basis for additional impairment and adjusted accordingly, based
on the same factors identified above.
Note 10 Gain on Extinguishment of Liabilities
During the second quarter of 2008, the Corporation recognized two separate gains from the
extinguishment of approximately $5,800,000 in liabilities. The first gain related to a settlement
of a retirement agreement with a previous executive officer under which the Corporation had a
remaining unfunded obligation to pay approximately $6,200,000 in benefits over a 17-year period.
This obligation was settled through a cash settlement payment of $3,000,000 with a recognized
pre-tax gain of $574,000. The second gain related to a forfeiture of benefits due to a previous
executive officer under the Community Bancshares, Inc. Benefit Restoration Plan (see Note 20 to the
Consolidated Financial Statements included in the Corporations 2007 Form 10-K) and resulted in a
pre-tax gain of $2,344,000.
13
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Basis of Presentation
The following is a discussion and analysis of our June 30, 2008 condensed consolidated financial
condition and results of operations for the three- and six-month periods ended June 30, 2008 and
2007. All significant intercompany accounts and transactions have been eliminated. Our accounting
and reporting policies conform to generally accepted accounting principles applicable to financial
institutions.
This information should be read in conjunction with our unaudited condensed consolidated financial
statements and related notes appearing elsewhere in this report and the audited consolidated
financial statements and related notes and Managements Discussion and Analysis of Financial
Condition and Results of Operations appearing in our Annual Report on Form 10-K for the year ended
December 31, 2007.
Recent Developments
On April 28, 2008, we completed a 1-for-4 reverse split of our issued and outstanding shares of
common stock, reducing the number of authorized shares of common stock from 60,000,000 to
15,000,000 and the number of common shares outstanding from 40,211,230 to 10,052,808. This action
brings our authorized common shares and common shares outstanding more nearly in line with peer
community banks. All disclosures in this quarterly report regarding common stock and related per
share information have been retroactively restated for all periods presented to reflect the reverse
stock split. The 1-for-4 reverse stock split is effective in the market as of the open of business
April 28, 2008.
Overview
The entire banking industry is operating in an adverse environment relative to maximizing
short-term performance. Factors such as the challenging credit cycle, housing softness, gloomy
media coverage, weakened consumer confidence and dramatic Federal Reserve rate reductions are
providing a stiff headwind in 2008. Our management continues to adapt to these factors while
remaining focused on taking the actions that management believes will ultimately result in enhanced
shareholder value.
Our principal subsidiary is Superior Bank (Bank), a federal savings bank headquartered in
Birmingham, Alabama, which operates 75 banking offices from Huntsville, Alabama to Venice, Florida
and 22 consumer finance company offices in Alabama. Our Florida franchise currently has 31
branches. The Bank has completed its de novo branch strategy with 20 planned branches opened in key
Alabama and Florida markets since September 2006. The Bank has invested approximately $25 to $30
million toward its de novo expansion program.
Second quarter 2008 net income was $841,000, or $.08 per share, compared to $695,000 for the first
quarter of 2008 and $2.0 million for the second quarter of 2007. Second quarter 2008 net income
includes the effect of $1.3 million, net of tax, in new branch overhead expense and $564,000, net
of tax, in core deposit intangible amortization compared to second quarter 2007 core deposit
amortization of $192,000, net of tax. Also, included in our second quarter net income are $2.5
million, net of tax, in gains from the sale of securities and the extinguishment of certain
liabilities. Second quarter 2007 results do not include the effect of our acquisition of Peoples
Community Bancshares, Inc.(Peoples), which was completed on July 27, 2007.
Our second quarter 2008 net interest income increased to $21.4 million or 16% from $18.5 million
for the first quarter of 2008 and 22% from $17.5 million for the second quarter of 2007. Net
interest margin increased to 3.39% compared to 3.04% for the first quarter of 2008.
Our total assets were $3.0 billion at June 30, 2008, an increase of $154 million, or 5.34%, from
$2.9 billion as of December 31, 2007. Our total deposits at June 30, 2008 remained level at $2.2
billion from March 31, 2008 and December 31, 2007. Total deposits increased 16% from June 30, 2007.
The acquisition of Peoples accounted for approximately 13% of the 16% deposit growth since June
30, 2007. As of June 30, 2008 our de novo branches accounted for approximately $223 million of
core deposits, predominantly from new customer relationships. Customer dislocation resulting from
recent merger activities of certain other financial institutions in our markets also contributed to
the deposit performance.
14
Loans increased to $2.2 billion at June 30, 2008, an increase of 6.5% from December 31, 2007 and
24.9% from June 30, 2007. Loan growth occurred across all of our Alabama and Florida markets, with
primary expansion occurring in the commercial, mortgage and commercial real estate sectors of our
loan portfolio. In addition, we purchased a pool of residential mortgage loans with a balance of
approximately $52 million during the second quarter of 2008.
With regard to credit quality at June 30, 2008, non-performing loans (NPLs) were 1.83% of total
loans compared to 1.49% at March 31, 2008 and 1.26% at December 31, 2007, which is in line with
managements expectations. The $8.4 million NPL increase during the second quarter of 2008 from
the first quarter of 2008 was predominantly located in Florida and includes real estate
relationships primarily secured by residential properties in various stages of development.
Other Real Estate Owned (OREO) increased $5.8 million during the second quarter of 2008 to $12.6
million. The increase in OREO is composed primarily of properties in Alabama consisting of
single-family homes and residential lots. Of total OREO, $10.3 million is located in Alabama and
$2.3 million is in Florida.
Overall past due loans increased during the second quarter with the 90 days past due (DPD) and
still accruing category moving to 0.09% at June 30, 2008 from 0.00% and 0.10% as a percentage of
total loans at March 31, 2008 and December 31, 2007, respectively. Loans in the 30-89 DPD category
increased to 2.05% from 1.25% and 1.13% as a percentage of total loans at March 31, 2008 and
December 31, 2007, respectively.
Net loan charge-offs as a percentage of average loans were 0.38% during the second quarter of 2008,
compared to 0.29% and 0.33% during the first quarter of 2008 and fourth quarter of 2007,
respectively. Of the $2.0 million net charge-offs in the second quarter of 2008, our subsidiary
Banks charge-offs were $1.5 million or 0.28% of average loans, and the consumer finance company
charge-offs were $490,000 or 0.10% of average loans. Of the Banks charge-offs, 56% related to 1-4
family mortgages and 42% related to real estate construction.
The provision for loan losses was $6.0 million in the second quarter of 2008, increasing the
allowance for loan losses to 1.27% of net loans, or $27.2 million, at June 30, 2008, compared to
1.13% of net loans, or $23.3 million at March 31, 2008. Our management believes the allowance for
loan losses at June 30, 2008 appropriately reflects managements best estimate of potential losses
in the loan portfolio. Managements assessment of our credit quality is based on various internal
and external factors that affect the collectability of loans.
Our subsidiary Bank continues to be categorized as well capitalized under regulatory guidelines
with a total risk-based capital ratio of 10.22% as of June 30, 2008. Other key equity ratios of the
Bank at June 30, 2008 were total equity to total assets of 13.08% and tangible equity to tangible
assets of 7.40%.
Short-term liquid assets (cash and due from banks, interest-bearing deposits in other banks and
federal funds sold) increased $16.0 million, or 25.2%, to $79.3 million at June 30, 2008 from $63.3
million at December 31, 2007. At June 30, 2008, short-term liquid assets comprised 2.6% of total
assets, compared to 2.2% at December 31, 2007. Management continually monitors our liquidity
position and will increase or decrease short-term liquid assets as necessary. Our principal sources
of funds are deposits, principal and interest payments on loans, federal funds sold and maturities
and sales of investment securities. In addition to these sources of liquidity, we have access to a
minimum of $250 million in additional funding from traditional sources. Management believes it has
established sufficient sources of funds to meet its anticipated liquidity needs.
Fair Value Measurements
In September 2006, the FASB issued SFAS 157 (see Note 2 to the Condensed Consolidated Financial
Statements) which replaces multiple existing definitions of fair value with a single definition,
establishes a consistent framework for measuring fair value and expands financial statement
disclosures regarding fair value measurements. SFAS 157 applies only to fair value measurements
that already are required or permitted by other accounting standards and does not require any new
fair value measurements. In February 2008, the FASB issued FASB Staff Position No. 157-2 (FSP No.
157-2), which delayed until January 1, 2009, the effective date of SFAS 157 for nonfinancial
assets and liabilities that are not recognized or disclosed at fair value in the financial
statements on a recurring basis.
Our nonfinancial assets and liabilities that meet the deferral criteria set forth in FSP No. 157-2
include goodwill, core deposit intangibles, net property and equipment and other real estate, which
primarily represents collateral that is received in satisfaction of troubled loans. We do not
expect that the adoption of SFAS 157 for these nonfinancial assets and liabilities will have a
material impact on its financial position or results of operations.
15
In accordance with the provisions of SFAS 157, we measure fair value at the price that would be
received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. SFAS 157 prioritizes the assumptions that market participants
would use in pricing the asset or liability (the inputs) into a three-tier fair value hierarchy.
This fair value hierarchy gives the highest priority (Level 1) to quoted prices in active markets
for identical assets or liabilities and the lowest priority (Level 3) to unobservable inputs in
which little or no market data exists, requiring companies to develop their own assumptions.
Observable inputs that do not meet the criteria of Level 1, and include quoted prices for similar
assets or liabilities in active markets or quoted prices for identical assets and liabilities in
markets that are not active, are categorized as Level 2. Level 3 inputs are those that reflect
managements estimates about the assumptions market participants would use in pricing the asset or
liability, based on the best information available in the circumstances. Valuation techniques for
assets and liabilities measured using Level 3 inputs may include methodologies such as the market
approach, the income approach or the cost approach, and may use unobservable inputs such as
projections, estimates and managements interpretation of current market data. These unobservable
inputs are only utilized to the extent that observable inputs are not available or cost-effective
to obtain.
Assets and Liabilities Recorded at Fair Value on a Recurring Basis
The table below presents the assets and liabilities measured at fair value on a recurring basis
categorized by the level of inputs used in the valuation of each asset (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices in |
|
|
|
|
|
|
Significant |
|
|
|
Fair Value at |
|
|
Active Markets for |
|
|
Significant Other |
|
|
Unobservable |
|
|
|
June 30, |
|
|
Identical Assets |
|
|
Observable Inputs |
|
|
Inputs |
|
|
|
2008 |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
Available for sale securities |
|
$ |
356,408 |
|
|
$ |
|
|
|
$ |
356,408 |
|
|
$ |
|
|
Derivative assets |
|
|
114 |
|
|
|
|
|
|
|
114 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recurring basis measured assets |
|
$ |
356,522 |
|
|
$ |
|
|
|
$ |
356,522 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities |
|
$ |
103 |
|
|
$ |
|
|
|
$ |
103 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recurring basis measured
liabilities |
|
$ |
103 |
|
|
$ |
|
|
|
$ |
103 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation Techniques Recurring Basis
Securities Available for Sale. Securities classified as available for sale are reported at fair
value utilizing Level 2 inputs. For these securities, we obtain fair value measurements from an
independent pricing service. The fair value measurements consider observable market data that may
include benchmark yield curves, reported trades, broker/dealer quotes, issuer spreads and credit
information, among other inputs.
Derivative financial instruments. Derivative financial instruments are measured at fair value based
on modeling that utilizes observable market inputs for various interest rates published by
third-party leading financial news and data providers. This is observable data that represents the
rates used by market participants for instruments entered into at that date; however, they are not
based on actual transactions so they are classified as Level 2.
Assets Recorded at Fair Value on a Nonrecurring Basis
The table below presents the assets measured at fair value on a nonrecurring basis categorized by
the level of inputs used in the valuation of each asset (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
Measured at |
|
|
Quoted Prices in |
|
|
|
|
|
|
Significant |
|
|
|
Fair Value at |
|
|
Active Markets for |
|
|
Significant Other |
|
|
Unobservable |
|
|
|
June 30, |
|
|
Identical Assets |
|
|
Observable Inputs |
|
|
Inputs |
|
|
|
2008 |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
Mortgage loans held for sale |
|
$ |
29,097 |
|
|
$ |
|
|
|
$ |
29,097 |
|
|
$ |
|
|
Impaired loans, net of specific allowance |
|
|
39,468 |
|
|
|
|
|
|
|
|
|
|
|
39,468 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total nonrecurring basis measured assets |
|
$ |
68,565 |
|
|
$ |
|
|
|
$ |
29,097 |
|
|
$ |
39,468 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16
Valuation Techniques Nonrecurring Basis
Mortgage Loans Held for Sale. Mortgage loans held for sale are recorded at the lower of aggregate
cost or fair value. Fair value is generally based on quoted market prices of similar loans and is
considered to be Level 2 in the fair value hierarchy.
Impaired Loans. Impaired loans are evaluated and valued at the time the loan is identified as
impaired, at the lower of cost or fair value. Fair value is measured based on the value of the
collateral securing these loans and is classified at a Level 3 in the fair value hierarchy.
Collateral typically includes real estate and/or business assets including equipment. The value of
real estate collateral is determined based on appraisals by qualified licensed appraisers hired by
our management. The value of business equipment is based on an appraisal by qualified licensed
appraisers hired by our management, if significant. Appraised and reported values may be discounted
based on our managements historical knowledge, changes in market conditions from the time of
valuation, and/or our managements expertise and knowledge of the client and clients business.
Impaired loans are reviewed and evaluated on at least a quarterly basis for additional impairment
and adjusted accordingly, based on the same factors identified above.
Results of Operations
Net income decreased $1.2 million, or 57.3% to $841,000 for the three-months ended June 30, 2008
(second quarter of 2008), from $2.0 million for the three months ended June 30, 2007 (second
quarter of 2007). Net income decreased $2.8 million, or 64.0% to $1.5 million for the six months
ended June 30, 2008 (first six months of 2008), from $4.3 million for the six months ended June 30,
2007 (first six months of 2007). The following table sets forth key earnings data for the periods
indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Six Months |
|
|
|
Ended June 30, |
|
|
Ended June 30, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
|
|
(Dollars in thousands, except per share data) |
|
Superior Bancorp and Subsidiaries |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
841 |
|
|
$ |
1,969 |
|
|
$ |
1,537 |
|
|
$ |
4,266 |
|
Net income per common share (diluted) |
|
|
0.08 |
|
|
|
0.23 |
|
|
|
0.15 |
|
|
|
0.49 |
|
Net interest margin |
|
|
3.39 |
% |
|
|
3.39 |
% |
|
|
3.21 |
% |
|
|
3.46 |
% |
Net interest spread |
|
|
3.17 |
% |
|
|
3.06 |
% |
|
|
2.96 |
% |
|
|
3.14 |
% |
Return on average assets |
|
|
0.11 |
% |
|
|
0.32 |
% |
|
|
0.10 |
% |
|
|
0.35 |
% |
Return on average tangible assets |
|
|
0.12 |
% |
|
|
0.34 |
% |
|
|
0.11 |
% |
|
|
0.37 |
% |
Return on average stockholders equity |
|
|
0.96 |
% |
|
|
2.83 |
% |
|
|
0.88 |
% |
|
|
3.10 |
% |
Return on average tangible equity |
|
|
2.04 |
% |
|
|
5.26 |
% |
|
|
1.87 |
% |
|
|
5.79 |
% |
Book value per share |
|
$ |
34.68 |
|
|
$ |
32.18 |
|
|
$ |
34.68 |
|
|
$ |
32.18 |
|
Tangible book value per share |
|
|
16.24 |
|
|
|
17.30 |
|
|
|
16.24 |
|
|
|
17.30 |
|
The decrease in our net income during the second quarter and first six months of 2008 compared to
the second quarter and first six months of 2007 is primarily the result of increases in the
provision for loan losses. The increase in provision for loan losses reflects the effect of the
current credit cycle and the overall economic environment. See Financial Condition Allowance
for Loan Losses for additional discussion.
17
Net Interest Income.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. The following table summarizes the changes in the components of net interest income for the
periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (Decrease) in |
|
|
|
Second Quarter 2008 vs 2007 |
|
|
First Six Months of 2008 vs 2007 |
|
|
|
Average |
|
|
Income/ |
|
|
Yield/ |
|
|
Average |
|
|
Income/ |
|
|
Yield/ |
|
|
|
Balance |
|
|
Expense |
|
|
Rate |
|
|
Balance |
|
|
Expense |
|
|
Rate |
|
|
|
(Dollars in thousands) |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, net of unearned income |
|
$ |
460,736 |
|
|
$ |
1,722 |
|
|
|
(1.44 |
)% |
|
$ |
431,755 |
|
|
$ |
4,756 |
|
|
|
(1.29 |
)% |
Investment securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable |
|
|
(4,008 |
) |
|
|
47 |
|
|
|
0.14 |
|
|
|
(18,380 |
) |
|
|
(340 |
) |
|
|
0.06 |
|
Tax-exempt |
|
|
27,696 |
|
|
|
444 |
|
|
|
0.20 |
|
|
|
27,473 |
|
|
|
902 |
|
|
|
0.25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities |
|
|
23,688 |
|
|
|
491 |
|
|
|
0.22 |
|
|
|
9,093 |
|
|
|
562 |
|
|
|
0.16 |
|
Federal funds sold |
|
|
(8,371 |
) |
|
|
(138 |
) |
|
|
(3.20 |
) |
|
|
(3,868 |
) |
|
|
(185 |
) |
|
|
(2.48 |
) |
Other investments |
|
|
4,327 |
|
|
|
41 |
|
|
|
0.18 |
|
|
|
961 |
|
|
|
(53 |
) |
|
|
(0.38 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets |
|
$ |
480,380 |
|
|
|
2,116 |
|
|
|
1.10 |
|
|
$ |
437,941 |
|
|
|
5,080 |
|
|
|
(0.98 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits |
|
$ |
143,457 |
|
|
|
(1,050 |
) |
|
|
(1.44 |
) |
|
$ |
151,707 |
|
|
|
(477 |
) |
|
|
(0.98 |
) |
Savings deposits |
|
|
42,627 |
|
|
|
252 |
|
|
|
0.57 |
|
|
|
28,303 |
|
|
|
379 |
|
|
|
0.62 |
|
Time deposits |
|
|
115,935 |
|
|
|
(1,273 |
) |
|
|
(0.87 |
) |
|
|
137,770 |
|
|
|
811 |
|
|
|
(0.44 |
) |
Other borrowings |
|
|
150,445 |
|
|
|
246 |
|
|
|
(1.90 |
) |
|
|
88,636 |
|
|
|
(211 |
) |
|
|
(1.66 |
) |
Subordinated debentures |
|
|
9,787 |
|
|
|
(85 |
) |
|
|
(2.30 |
) |
|
|
9,779 |
|
|
|
(62 |
) |
|
|
(1.94 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities |
|
$ |
462,251 |
|
|
|
(1,910 |
) |
|
|
(1.21 |
) |
|
$ |
416,195 |
|
|
|
440 |
|
|
|
(0.80 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income/net interest spread |
|
|
|
|
|
|
4,026 |
|
|
|
0.11 |
% |
|
|
|
|
|
|
4,640 |
|
|
|
(0.18 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net yield on earning assets |
|
|
|
|
|
|
|
|
|
|
0.00 |
% |
|
|
|
|
|
|
|
|
|
|
(0.25 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable equivalent adjustment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities |
|
|
|
|
|
|
151 |
|
|
|
|
|
|
|
|
|
|
|
307 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
|
|
|
$ |
3,875 |
|
|
|
|
|
|
|
|
|
|
$ |
4,333 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
The following table depicts, on a taxable equivalent basis for the periods indicated, certain
information related to our average balance sheet and our average yields on assets and average costs
of liabilities. Average yields are calculated by dividing income or expense by the average balance
of the corresponding assets or liabilities. Average balances have been calculated on a daily basis.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
|
2008 |
|
|
2007 |
|
|
|
Average |
|
|
Income/ |
|
|
Yield/ |
|
|
Average |
|
|
Income/ |
|
|
Yield/ |
|
|
|
Balance |
|
|
Expense |
|
|
Rate |
|
|
Balance |
|
|
Expense |
|
|
Rate |
|
|
|
(Dollars in thousands) |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, net of unearned income (1) |
|
$ |
2,154,077 |
|
|
$ |
36,708 |
|
|
|
6.85 |
% |
|
$ |
1,693,341 |
|
|
$ |
34,986 |
|
|
|
8.29 |
% |
Investment securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable |
|
|
313,426 |
|
|
|
4,143 |
|
|
|
5.32 |
|
|
|
317,434 |
|
|
|
4,096 |
|
|
|
5.18 |
|
Tax-exempt (2) |
|
|
41,284 |
|
|
|
653 |
|
|
|
6.36 |
|
|
|
13,588 |
|
|
|
209 |
|
|
|
6.16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities |
|
|
354,710 |
|
|
|
4,796 |
|
|
|
5.44 |
|
|
|
331,022 |
|
|
|
4,305 |
|
|
|
5.22 |
|
Federal funds sold |
|
|
3,377 |
|
|
|
18 |
|
|
|
2.14 |
|
|
|
11,748 |
|
|
|
156 |
|
|
|
5.34 |
|
Other investments |
|
|
49,941 |
|
|
|
732 |
|
|
|
5.90 |
|
|
|
45,614 |
|
|
|
691 |
|
|
|
6.08 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets |
|
|
2,562,105 |
|
|
|
42,254 |
|
|
|
6.63 |
|
|
|
2,081,725 |
|
|
|
40,138 |
|
|
|
7.73 |
|
Noninterest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks |
|
|
61,729 |
|
|
|
|
|
|
|
|
|
|
|
43,635 |
|
|
|
|
|
|
|
|
|
Premises and equipment |
|
|
102,445 |
|
|
|
|
|
|
|
|
|
|
|
95,099 |
|
|
|
|
|
|
|
|
|
Accrued interest and other assets |
|
|
289,167 |
|
|
|
|
|
|
|
|
|
|
|
229,238 |
|
|
|
|
|
|
|
|
|
Allowance for loan losses |
|
|
(24,104 |
) |
|
|
|
|
|
|
|
|
|
|
(18,867 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
2,991,342 |
|
|
|
|
|
|
|
|
|
|
$ |
2,430,830 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits |
|
$ |
663,103 |
|
|
$ |
3,780 |
|
|
|
2.29 |
% |
|
$ |
519,646 |
|
|
$ |
4,830 |
|
|
|
3.73 |
% |
Savings deposits |
|
|
86,838 |
|
|
|
385 |
|
|
|
1.78 |
|
|
|
44,211 |
|
|
|
133 |
|
|
|
1.21 |
|
Time deposits |
|
|
1,232,648 |
|
|
|
12,544 |
|
|
|
4.09 |
|
|
|
1,116,713 |
|
|
|
13,817 |
|
|
|
4.96 |
|
Other borrowings |
|
|
362,038 |
|
|
|
3,016 |
|
|
|
3.35 |
|
|
|
211,593 |
|
|
|
2,770 |
|
|
|
5.25 |
|
Subordinated debentures |
|
|
53,613 |
|
|
|
919 |
|
|
|
6.89 |
|
|
|
43,826 |
|
|
|
1,004 |
|
|
|
9.19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities |
|
|
2,398,240 |
|
|
|
20,644 |
|
|
|
3.46 |
|
|
|
1,935,989 |
|
|
|
22,554 |
|
|
|
4.67 |
|
Noninterest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits |
|
|
219,647 |
|
|
|
|
|
|
|
|
|
|
|
179,366 |
|
|
|
|
|
|
|
|
|
Accrued interest and other liabilities |
|
|
21,701 |
|
|
|
|
|
|
|
|
|
|
|
36,780 |
|
|
|
|
|
|
|
|
|
Stockholders equity |
|
|
351,754 |
|
|
|
|
|
|
|
|
|
|
|
278,695 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
stockholders equity |
|
$ |
2,991,342 |
|
|
|
|
|
|
|
|
|
|
$ |
2,430,830 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income/net interest spread |
|
|
|
|
|
|
21,610 |
|
|
|
3.17 |
% |
|
|
|
|
|
|
17,584 |
|
|
|
3.06 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net yield on earning assets |
|
|
|
|
|
|
|
|
|
|
3.39 |
% |
|
|
|
|
|
|
|
|
|
|
3.39 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable equivalent adjustment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities (2) |
|
|
|
|
|
|
222 |
|
|
|
|
|
|
|
|
|
|
|
71 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
|
|
|
$ |
21,388 |
|
|
|
|
|
|
|
|
|
|
$ |
17,513 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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%. |
19
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 three-month period ended
June 30, 2008 compared to the three-month period ended
June 30, 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
|
2008 vs. 2007 (1) |
|
|
|
Increase |
|
|
Changes Due To |
|
|
|
(Decrease) |
|
|
Rate |
|
|
Volume |
|
|
|
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in: |
|
|
|
|
|
|
|
|
|
|
|
|
Income from interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest and fees on loans |
|
$ |
1,722 |
|
|
$ |
(6,750 |
) |
|
$ |
8,472 |
|
Interest on securities: |
|
|
|
|
|
|
|
|
|
|
|
|
Taxable |
|
|
47 |
|
|
|
103 |
|
|
|
(56 |
) |
Tax-exempt |
|
|
444 |
|
|
|
7 |
|
|
|
437 |
|
Interest on federal funds |
|
|
(138 |
) |
|
|
(63 |
) |
|
|
(75 |
) |
Interest on other investments |
|
|
41 |
|
|
|
(21 |
) |
|
|
62 |
|
|
|
|
|
|
|
|
|
|
|
Total interest income |
|
|
2,116 |
|
|
|
(6,724 |
) |
|
|
8,840 |
|
|
|
|
|
|
|
|
|
|
|
Expense from interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest on demand deposits |
|
|
(1,050 |
) |
|
|
(2,168 |
) |
|
|
1,118 |
|
Interest on savings deposits |
|
|
252 |
|
|
|
83 |
|
|
|
169 |
|
Interest on time deposits |
|
|
(1,273 |
) |
|
|
(2,601 |
) |
|
|
1,328 |
|
Interest on other borrowings |
|
|
246 |
|
|
|
(1,245 |
) |
|
|
1,491 |
|
Interest on subordinated debentures |
|
|
(85 |
) |
|
|
(282 |
) |
|
|
197 |
|
|
|
|
|
|
|
|
|
|
|
Total interest expense |
|
|
(1,910 |
) |
|
|
(6,213 |
) |
|
|
4,303 |
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
$ |
4,026 |
|
|
$ |
(511 |
) |
|
$ |
4,537 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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. |
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, |
|
|
|
2008 |
|
|
2007 |
|
|
|
Average |
|
|
Income/ |
|
|
Yield/ |
|
|
Average |
|
|
Income/ |
|
|
Yield/ |
|
|
|
Balance |
|
|
Expense |
|
|
Rate |
|
|
Balance |
|
|
Expense |
|
|
Rate |
|
|
|
(Dollars in thousands) |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, net of unearned income (1) |
|
$ |
2,112,194 |
|
|
$ |
74,053 |
|
|
|
7.03 |
% |
|
$ |
1,680,439 |
|
|
$ |
69,297 |
|
|
|
8.32 |
% |
Investment securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable |
|
|
310,311 |
|
|
|
8,195 |
|
|
|
5.30 |
|
|
|
328,691 |
|
|
|
8,535 |
|
|
|
5.24 |
|
Tax-exempt (2) |
|
|
40,628 |
|
|
|
1,305 |
|
|
|
6.44 |
|
|
|
13,155 |
|
|
|
403 |
|
|
|
6.19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities |
|
|
350,939 |
|
|
|
9,500 |
|
|
|
5.43 |
|
|
|
341,846 |
|
|
|
8,938 |
|
|
|
5.27 |
|
Federal funds sold |
|
|
6,459 |
|
|
|
98 |
|
|
|
3.04 |
|
|
|
10,326 |
|
|
|
283 |
|
|
|
5.52 |
|
Other investments |
|
|
47,805 |
|
|
|
1,376 |
|
|
|
5.77 |
|
|
|
46,844 |
|
|
|
1,429 |
|
|
|
6.15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets |
|
|
2,517,397 |
|
|
|
85,027 |
|
|
|
6.77 |
|
|
|
2,079,455 |
|
|
|
79,947 |
|
|
|
7.75 |
|
Noninterest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks |
|
|
59,193 |
|
|
|
|
|
|
|
|
|
|
|
43,478 |
|
|
|
|
|
|
|
|
|
Premises and equipment |
|
|
103,035 |
|
|
|
|
|
|
|
|
|
|
|
95,118 |
|
|
|
|
|
|
|
|
|
Accrued interest and other assets |
|
|
288,300 |
|
|
|
|
|
|
|
|
|
|
|
227,630 |
|
|
|
|
|
|
|
|
|
Allowance for loan losses |
|
|
(23,459 |
) |
|
|
|
|
|
|
|
|
|
|
(18,883 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
2,944,466 |
|
|
|
|
|
|
|
|
|
|
$ |
2,426,798 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits |
|
$ |
669,625 |
|
|
$ |
8,856 |
|
|
|
2.65 |
% |
|
$ |
517,918 |
|
|
$ |
9,333 |
|
|
|
3.63 |
% |
Savings deposits |
|
|
72,116 |
|
|
|
618 |
|
|
|
1.72 |
|
|
|
43,813 |
|
|
|
239 |
|
|
|
1.10 |
|
Time deposits |
|
|
1,241,044 |
|
|
|
27,488 |
|
|
|
4.44 |
|
|
|
1,103,274 |
|
|
|
26,677 |
|
|
|
4.88 |
|
Other borrowings |
|
|
314,952 |
|
|
|
5,808 |
|
|
|
3.70 |
|
|
|
226,316 |
|
|
|
6,019 |
|
|
|
5.36 |
|
Subordinated debentures |
|
|
53,660 |
|
|
|
1,934 |
|
|
|
7.23 |
|
|
|
43,881 |
|
|
|
1,996 |
|
|
|
9.17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities |
|
|
2,351,397 |
|
|
|
44,704 |
|
|
|
3.81 |
|
|
|
1,935,202 |
|
|
|
44,264 |
|
|
|
4.61 |
|
Noninterest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits |
|
|
218,196 |
|
|
|
|
|
|
|
|
|
|
|
179,465 |
|
|
|
|
|
|
|
|
|
Accrued interest and other liabilities |
|
|
23,321 |
|
|
|
|
|
|
|
|
|
|
|
34,568 |
|
|
|
|
|
|
|
|
|
Stockholders equity |
|
|
351,552 |
|
|
|
|
|
|
|
|
|
|
|
277,563 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
stockholders equity |
|
$ |
2,944,466 |
|
|
|
|
|
|
|
|
|
|
$ |
2,426,798 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income/net interest spread |
|
|
|
|
|
|
40,323 |
|
|
|
2.96 |
% |
|
|
|
|
|
|
35,683 |
|
|
|
3.14 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net yield on earning assets |
|
|
|
|
|
|
|
|
|
|
3.21 |
% |
|
|
|
|
|
|
|
|
|
|
3.46 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable equivalent adjustment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities (2) |
|
|
|
|
|
|
444 |
|
|
|
|
|
|
|
|
|
|
|
137 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
|
|
|
$ |
39,879 |
|
|
|
|
|
|
|
|
|
|
$ |
35,546 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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%. |
21
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 six-month period ended
June 30, 2008 compared to the six-month period ended
June 30, 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, |
|
|
|
2008 vs. 2007 (1) |
|
|
|
Increase |
|
|
Changes Due To |
|
|
|
(Decrease) |
|
|
Rate |
|
|
Volume |
|
|
|
(Dollars in thousands) |
|
Increase (decrease) in: |
|
|
|
|
|
|
|
|
|
|
|
|
Income from interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest and fees on loans |
|
$ |
4,756 |
|
|
$ |
(11,692 |
) |
|
$ |
16,448 |
|
Interest on securities: |
|
|
|
|
|
|
|
|
|
|
|
|
Taxable |
|
|
(340 |
) |
|
|
105 |
|
|
|
(445 |
) |
Tax-exempt |
|
|
902 |
|
|
|
17 |
|
|
|
885 |
|
Interest on federal funds |
|
|
(185 |
) |
|
|
(101 |
) |
|
|
(84 |
) |
Interest on other investments |
|
|
(53 |
) |
|
|
(84 |
) |
|
|
31 |
|
|
|
|
|
|
|
|
|
|
|
Total interest income |
|
|
5,080 |
|
|
|
(11,755 |
) |
|
|
16,835 |
|
|
|
|
|
|
|
|
|
|
|
Expense from interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest on demand deposits |
|
|
(477 |
) |
|
|
(2,863 |
) |
|
|
2,386 |
|
Interest on savings deposits |
|
|
379 |
|
|
|
177 |
|
|
|
202 |
|
Interest on time deposits |
|
|
811 |
|
|
|
(2,472 |
) |
|
|
3,283 |
|
Interest on other borrowings |
|
|
(211 |
) |
|
|
(2,185 |
) |
|
|
1,974 |
|
Interest on subordinated debentures |
|
|
(62 |
) |
|
|
(466 |
) |
|
|
404 |
|
|
|
|
|
|
|
|
|
|
|
Total interest expense |
|
|
440 |
|
|
|
(7,809 |
) |
|
|
8,249 |
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
$ |
4,640 |
|
|
$ |
(3,946 |
) |
|
$ |
8,586 |
|
|
|
|
|
|
|
|
|
|
|
22
Noninterest income. Noninterest income increased $4.5 million, or 98.4%, to $9.0 million for the
second quarter of 2008, from $4.5 million in the second quarter of 2007. Noninterest income
increased $7.0 million, or 80.9%, to $15.6 million for the second quarter of 2008, from $8.6
million in the second quarter of 2007. The components of noninterest income for the second quarter
and first six-months of 2008 and 2007 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
|
2008 |
|
|
2007 |
|
|
% Change |
|
|
|
(Dollars in thousands) |
|
Service charges and fees on deposits |
|
$ |
2,192 |
|
|
$ |
1,894 |
|
|
|
15.75 |
% |
Mortgage banking income |
|
|
1,031 |
|
|
|
1,132 |
|
|
|
(8.88 |
) |
Investment securities gains |
|
|
1,068 |
|
|
|
|
|
|
|
100.00 |
|
Change in fair value of derivatives |
|
|
(418 |
) |
|
|
118 |
|
|
|
(452.99 |
) |
Increase in cash surrender value of life insurance |
|
|
555 |
|
|
|
452 |
|
|
|
22.72 |
|
Gain on extinguishment of liabilities |
|
|
2,918 |
|
|
|
|
|
|
|
100.00 |
|
Other noninterest income |
|
|
1,660 |
|
|
|
942 |
|
|
|
76.22 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
9,006 |
|
|
$ |
4,538 |
|
|
|
98.44 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, |
|
|
|
2008 |
|
|
2007 |
|
|
% Change |
|
|
|
(Dollars in thousands) |
|
Service charges and fees on deposits |
|
$ |
4,296 |
|
|
$ |
3,684 |
|
|
|
16.61 |
% |
Mortgage banking income |
|
|
2,297 |
|
|
|
2,082 |
|
|
|
10.32 |
|
Investment securities gains |
|
|
1,470 |
|
|
|
242 |
|
|
|
506.14 |
|
Change in fair value of derivatives |
|
|
632 |
|
|
|
(34 |
) |
|
|
1,985.74 |
|
Increase in cash surrender value of life insurance |
|
|
1,107 |
|
|
|
900 |
|
|
|
22.97 |
|
Gain on extinguishment of liabilities |
|
|
2,918 |
|
|
|
|
|
|
|
100.00 |
|
Other noninterest income |
|
|
2,888 |
|
|
|
1,750 |
|
|
|
64.97 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
15,608 |
|
|
$ |
8,624 |
|
|
|
80.97 |
% |
|
|
|
|
|
|
|
|
|
|
The increases in service charges on deposits and fees are primarily attributable to an increased
customer base resulting from our acquisitions and new branch locations. The increase in mortgage
banking income during the first six months of 2008 is the result of an increase in the volume of
originations; however, the slight decline during the second quarter of 2008 over the second quarter
of 2007 is primarily the result of a decreased margin on the sale of these loans due to market
conditions. The increase in other noninterest income is primarily due to increases in brokerage
commissions and ATM network fees. 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.
23
Noninterest expenses. Noninterest expenses increased $5.2 million, or 28.9%, to $23.3 million for
the second quarter of 2008 from $18.1 million for the second quarter of 2007. This increase is
primarily due to the Peoples acquisition, and the opening of new branch locations. Our new branch
locations added approximately $2.0 million to noninterest expenses during the second quarter of
2008. 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 second
quarters of 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
|
2008 |
|
|
2007 |
|
|
% Change |
|
|
|
(Dollars in thousands) |
|
Noninterest Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits |
|
$ |
12,058 |
|
|
$ |
10,168 |
|
|
|
18.59 |
% |
Occupancy, furniture and equipment expense |
|
|
4,120 |
|
|
|
2,995 |
|
|
|
37.56 |
|
Amortization of core deposit intangibles |
|
|
896 |
|
|
|
304 |
|
|
|
194.74 |
|
Merger-related costs |
|
|
13 |
|
|
|
107 |
|
|
|
(87.85 |
) |
Professional fees |
|
|
701 |
|
|
|
559 |
|
|
|
25.44 |
|
Insurance expense |
|
|
760 |
|
|
|
540 |
|
|
|
40.53 |
|
Postage, stationery and supplies |
|
|
506 |
|
|
|
548 |
|
|
|
(7.61 |
) |
Communications expense |
|
|
556 |
|
|
|
460 |
|
|
|
20.69 |
|
Advertising expense |
|
|
879 |
|
|
|
568 |
|
|
|
54.64 |
|
Other operating expense |
|
|
2,787 |
|
|
|
1,809 |
|
|
|
54.18 |
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
23,276 |
|
|
$ |
18,058 |
|
|
|
28.90 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected Key Ratios |
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest expense to average assets (1) |
|
|
2.98 |
% |
|
|
2.91 |
% |
|
|
|
|
Efficiency ratio (1) |
|
|
82.12 |
|
|
|
80.23 |
|
|
|
|
|
Noninterest expenses increased $9.4 million, or 26.21%, to $45.5 million for the first six months
of 2008 from $36.1 million for the first six months of 2007. This increase is primarily due to the
Peoples acquisition, and the opening of new branch locations. Our new branch locations added
approximately $4.2 million to noninterest expenses during the first six months of 2008. 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 first six months of
2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, |
|
|
|
2008 |
|
|
2007 |
|
|
% Change |
|
|
|
(Dollars in thousands) |
|
Noninterest Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits |
|
$ |
24,199 |
|
|
$ |
20,236 |
|
|
|
19.58 |
% |
Occupancy, furniture and equipment expense |
|
|
8,180 |
|
|
|
6,142 |
|
|
|
33.18 |
|
Amortization of core deposit intangibles |
|
|
1,792 |
|
|
|
609 |
|
|
|
194.25 |
|
Merger-related costs |
|
|
121 |
|
|
|
426 |
|
|
|
(71.60 |
) |
Professional fees |
|
|
1,137 |
|
|
|
1,020 |
|
|
|
11.50 |
|
Insurance expense |
|
|
1,400 |
|
|
|
540 |
|
|
|
159.26 |
|
Postage, stationery and supplies |
|
|
1,108 |
|
|
|
1,174 |
|
|
|
(5.65 |
) |
Communications expense |
|
|
1,050 |
|
|
|
980 |
|
|
|
7.10 |
|
Advertising expense |
|
|
1,469 |
|
|
|
1,224 |
|
|
|
20.01 |
|
Other operating expense |
|
|
5,084 |
|
|
|
3,732 |
|
|
|
36.24 |
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
45,540 |
|
|
$ |
36,083 |
|
|
|
26.21 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected Key Ratios |
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest expense to average assets (1) |
|
|
2.96 |
% |
|
|
2.91 |
% |
|
|
|
|
Efficiency ratio (1) |
|
|
85.32 |
|
|
|
79.50 |
|
|
|
|
|
|
|
|
(1) |
|
In calculating the selected key ratios, noninterest expense has been adjusted for
amortization of intangibles, merger-related costs and other losses on the sale of assets. |
24
Income tax expense. We recognized income tax expense of $310,000 and $572,000 for the second
quarter of 2008 and first six months of 2008, respectively, compared to $1.0 million and $2.1
million for the second quarter of 2007 and first six months of 2007, respectively. Our effective
tax rate decreased in 2008 compared to 2007 due to lower levels of pre-tax income. The difference
in the effective tax rates in the second quarters and first six months of 2008 and 2007, 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.
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 No. 114
(SFAS 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 $6.0 million for the second quarter of 2008, an increase of $5.0
million, from $1.0 in the second quarter of 2007. The provision for loan losses was $7.8 million
for the first six months of 2008, an increase of $6.1 million, from $1.7 in the first six months of
2007. During the second quarter and first six months of 2008, we had net charged-off loans totaling
$2.0 and $3.5 million, respectively, compared to net charged-off loans of $830,000 and $1.5 million
in the second quarter and first six months of 2007. The annualized ratio of net charged-off loans
to average loans was 0.38% and 0.34% for the three- and six-month periods ended June 30, 2008,
compared to 0.20% and 0.17% for the three- and six-month periods ended June 30, 2007, and .24% for
the year ended December 31, 2007. The allowance for loan losses totaled $27.2 million, or 1.27% of
loans, net of unearned income, at June 30, 2008, compared to $22.9 million, or 1.13% of loans, net
of unearned income, at December 31, 2007. See Financial Condition Allowance for Loan Losses
for additional discussion.
Financial Condition
Total assets were $3.040 billion at June 30, 2008, an increase of $154 million, or 5.34%, from
$2.885 billion as of December 31, 2007. Average total assets for the first six months of 2008 were
$2.944 billion, which was supported by average total liabilities of $2.592 billion and average
total stockholders equity of $352 million.
Short-term liquid assets. Short-term liquid assets (cash and due from banks, interest-bearing
deposits in other banks and federal funds sold) increased $16.0 million, or 25.2%, to $79.3 million
at June 30, 2008 from $63.3 million at December 31, 2007. At June 30, 2008, short-term liquid
assets comprised 2.6% of total assets, compared to 2.2% at December 31, 2007. We continually
monitor our liquidity position and will increase or decrease our short-term liquid assets as we
deem necessary. See Liquidity section for additional discussion.
Investment Securities. Total investment securities decreased $4.8 million, or 1.32%, to $356.4
million at June 30, 2008, from $361.2 million at December 31, 2007. Average investment securities
totaled $350.9 million for the first six months of 2008 compared to $341.8 million for the first
six months of 2007. Investment securities were 13.8% of interest-earning assets at June 30, 2008,
compared to 14.7% at December 31, 2007. The investment portfolio produced an average tax-equivalent
yield of 5.43% for the first six months of 2008, compared to 5.27% for the first six months of
2007.
25
The following table presents the carrying value of the securities we held at the dates indicated.
Investment Portfolio
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for Sale |
|
|
|
June 30, |
|
|
December 31, |
|
|
Percent |
|
|
|
2008 |
|
|
2007 |
|
|
Change |
|
|
|
(Dollars in thousands) |
|
U.S. agencies |
|
$ |
6,771 |
|
|
$ |
94,215 |
|
|
|
(92.81 |
)% |
State and political subdivisions |
|
|
40,624 |
|
|
|
40,587 |
|
|
|
0.09 |
|
Mortgage-backed securities |
|
|
271,830 |
|
|
|
191,378 |
|
|
|
42.04 |
|
Corporate debt & other securities |
|
|
37,183 |
|
|
|
34,991 |
|
|
|
6.26 |
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities |
|
$ |
356,408 |
|
|
$ |
361,171 |
|
|
|
(1.32 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Unrealized Gain (Loss) |
|
|
|
|
|
|
|
|
|
|
|
Dollar |
|
|
|
June 30, |
|
|
December 31, |
|
|
Change Pre- |
|
|
|
2008 |
|
|
2007 |
|
|
tax |
|
|
|
(Dollars in thousands) |
|
U.S. agencies |
|
$ |
129 |
|
|
$ |
1,011 |
|
|
$ |
(882 |
) |
State and political subdivisions |
|
|
(793 |
) |
|
|
(173 |
) |
|
|
(620 |
) |
Mortgage-backed securities |
|
|
(1,742 |
) |
|
|
194 |
|
|
|
(1,936 |
) |
Corporate debt & other securities |
|
|
(3,643 |
) |
|
|
(1,892 |
) |
|
|
(1,751 |
) |
|
|
|
|
|
|
|
|
|
|
Net unrealized loss |
|
$ |
(6,049 |
) |
|
$ |
(860 |
) |
|
$ |
(5,189 |
) |
|
|
|
|
|
|
|
|
|
|
The market for certain securities held in our available-for-sale investment securities portfolio
remained volatile during the second quarter of 2008 due to extraordinary economic and market
conditions. As a result of this volatility, the market price for many types of securities at June
30, 2008 was lower than at March 31, 2008 and December 31, 2007. Management continually monitors
our securities portfolio regarding cash flow and credit-rating adjustments, among other factors.
Based on its review, management does not believe any unrealized loss as of June 30, 2008 represents
an other-than-temporary impairment. Management believes the unrealized losses on these securities
are primarily the result of changes in the liquidity levels in the market in addition to changes in
general market interest rates and not the result of material changes in the credit characteristics
of the investment portfolio. In addition, at June 30, 2008 management had the positive intent and
ability to hold these securities to recovery or maturity.
Loans. Loans, net of unearned income, totaled $2.149 billion at June 30, 2008, an increase of
6.53%, or $131.7 million, from $2.017 billion at December 31, 2007. The increase in loans includes
the purchase of a pool of residential mortgage loans with a balance of approximately $52 million
during the second quarter of 2008. Mortgage loans held for sale totaled $29.1 million at June 30,
2008, a decrease of $4.3 million from $33.4 million at December 31, 2007. Average loans, including
mortgage loans held for sale, totaled $2.112 billion for the first six months of 2008 compared to
$1.681 billion for the first six months of 2007. Loans, net of unearned income, were 83.0% of
interest-earning assets at June 30, 2008, compared to 82.2% at December 31, 2007. The loan
portfolio produced an average yield of 7.03% for the first six months of 2008, compared to 8.32%
for the first six months of 2007.
26
The following table details the distribution of the loan portfolio by category as of June 30, 2008
and December 31, 2007:
DISTRIBUTION OF LOANS BY CATEGORY
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2008 |
|
|
December 31, 2007 |
|
|
|
|
|
|
|
Percent of |
|
|
|
|
|
|
Percent of |
|
|
|
Amount |
|
|
Total |
|
|
Amount |
|
|
Total |
|
Commercial and industrial |
|
$ |
205,841 |
|
|
|
9.57 |
% |
|
$ |
183,013 |
|
|
|
9.07 |
% |
Real estate construction and land
development (1) |
|
|
680,628 |
|
|
|
31.65 |
|
|
|
665,303 |
|
|
|
32.96 |
|
Real estate mortgage |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single-family |
|
|
607,938 |
|
|
|
28.27 |
|
|
|
540,277 |
|
|
|
26.77 |
|
Commercial |
|
|
562,658 |
|
|
|
26.17 |
|
|
|
533,611 |
|
|
|
26.44 |
|
Other |
|
|
38,864 |
|
|
|
1.81 |
|
|
|
41,535 |
|
|
|
2.06 |
|
Consumer |
|
|
53,378 |
|
|
|
2.48 |
|
|
|
53,377 |
|
|
|
2.64 |
|
Other |
|
|
1,081 |
|
|
|
.05 |
|
|
|
1,235 |
|
|
|
.06 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans |
|
|
2,150,388 |
|
|
|
100.00 |
% |
|
|
2,018,351 |
|
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unearned income |
|
|
(1,637 |
) |
|
|
|
|
|
|
(1,340 |
) |
|
|
|
|
Allowance for loan losses |
|
|
(27,243 |
) |
|
|
|
|
|
|
(22,868 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loans |
|
$ |
2,121,508 |
|
|
|
|
|
|
$ |
1,994,143 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
A further analysis of the components of our real estate construction and land development
loans as of June 30, 2008 and December 31, 2007 is as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential |
|
|
Commercial |
|
|
|
|
|
|
|
|
|
Development |
|
|
Development |
|
|
Other |
|
|
Total |
|
|
|
(Dollars in thousands) |
|
As of June 30, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alabama segment |
|
$ |
172,992 |
|
|
$ |
80,861 |
|
|
$ |
12,960 |
|
|
$ |
266,813 |
|
Florida segment |
|
|
167,569 |
|
|
|
200,682 |
|
|
|
24,133 |
|
|
|
392,384 |
|
Other |
|
|
8,232 |
|
|
|
13,199 |
|
|
|
|
|
|
|
21,431 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
348,793 |
|
|
$ |
294,742 |
|
|
$ |
37,093 |
|
|
$ |
680,628 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alabama segment |
|
$ |
192,133 |
|
|
$ |
60,407 |
|
|
$ |
16,003 |
|
|
$ |
268,543 |
|
Florida segment |
|
|
195,460 |
|
|
|
162,286 |
|
|
|
18,564 |
|
|
|
376,310 |
|
Other |
|
|
7,929 |
|
|
|
12,521 |
|
|
|
|
|
|
|
20,450 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
395,522 |
|
|
$ |
235,214 |
|
|
$ |
34,567 |
|
|
$ |
665,303 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table shows the amount of total loans, net of unearned income, by segment and the
percent change for the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
December 31, |
|
Percent |
|
|
2008 |
|
2007 |
|
Change |
|
|
(Dollars in thousands) |
Total loans, net of unearned income |
|
$ |
2,148,751 |
|
|
$ |
2,017,011 |
|
|
|
6.53 |
% |
Alabama segment |
|
|
916,653 |
|
|
|
888,007 |
|
|
|
3.23 |
|
Florida segment |
|
|
993,831 |
|
|
|
932,478 |
|
|
|
6.58 |
|
Other (2) |
|
|
238,267 |
|
|
|
196,526 |
|
|
|
21.24 |
|
|
|
|
(2) |
|
Increase is due to the purchase of a pool of residential mortgage loans with a balance of
approximately $52 million during the second quarter of 2008. This pool of loans was purchased at a 5% discount and
is carrying a yield in excess of 8%. Any losses on these loans are guaranteed by the seller up to approximately $3.0 million
for a 36-month period. |
27
Deposits. Noninterest-bearing deposits totaled $221.1 million at June 30, 2008, an increase of
6.5%, or $13.5 million, from $207.6 million at December 31, 2007. Noninterest-bearing deposits were
10.1% of total deposits at June 30, 2008 compared to 9.4% at December 31, 2007.
Interest-bearing deposits totaled $1.973 billion at June 30, 2008, a decrease of 1.00%, or $20.0
million, from $1.993 billion at December 31, 2007. Interest-bearing deposits averaged $1.983
billion for the first six months of 2008 compared to $1.665 billion for the first six months of
2007. The average rate paid on all interest-bearing deposits during the first six months of 2008
was 3.74%, compared to 4.39% for the first six months of 2007.
The following table sets forth the composition of our total deposit accounts at the dates
indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
Percent |
|
|
|
2008 |
|
|
2007 |
|
|
Change |
|
|
|
(Dollars in thousands) |
|
Noninterest-bearing demand |
|
$ |
221,087 |
|
|
$ |
207,602 |
|
|
|
6.50 |
% |
Alabama segment |
|
|
131,335 |
|
|
|
128,009 |
|
|
|
2.60 |
|
Florida segment |
|
|
83,451 |
|
|
|
73,061 |
|
|
|
14.22 |
|
Other |
|
|
6,301 |
|
|
|
6,532 |
|
|
|
(3.54 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing demand |
|
|
626,665 |
|
|
|
657,809 |
|
|
|
(4.73 |
) |
Alabama segment |
|
|
290,759 |
|
|
|
295,794 |
|
|
|
(1.70 |
) |
Florida segment |
|
|
231,540 |
|
|
|
253,017 |
|
|
|
(8.49 |
) |
Other |
|
|
104,366 |
|
|
|
108,998 |
|
|
|
(4.25 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings (1) |
|
|
131,940 |
|
|
|
59,507 |
|
|
|
121.72 |
|
Alabama segment |
|
|
77,834 |
|
|
|
33,919 |
|
|
|
129.47 |
|
Florida segment |
|
|
53,209 |
|
|
|
25,056 |
|
|
|
112.36 |
|
Other |
|
|
897 |
|
|
|
532 |
|
|
|
68.61 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Time deposits |
|
|
1,214,415 |
|
|
|
1,275,693 |
|
|
|
(4.80 |
) |
Alabama segment |
|
|
597,022 |
|
|
|
694,380 |
|
|
|
(14.02 |
) |
Florida segment |
|
|
482,830 |
|
|
|
462,071 |
|
|
|
4.49 |
|
Other |
|
|
134,563 |
|
|
|
119,242 |
|
|
|
12.85 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits |
|
$ |
2,194,107 |
|
|
$ |
2,200,611 |
|
|
|
(0.30 |
)% |
|
|
|
|
|
|
|
|
|
|
Alabama segment |
|
$ |
1,096,950 |
|
|
$ |
1,152,102 |
|
|
|
(4.79 |
)% |
|
|
|
|
|
|
|
|
|
|
Florida segment |
|
$ |
851,030 |
|
|
$ |
813,205 |
|
|
|
4.65 |
% |
|
|
|
|
|
|
|
|
|
|
Other |
|
$ |
246,127 |
|
|
$ |
235,304 |
|
|
|
4.60 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Increase resulted from the introduction of a new savings deposit product carrying a yield of
3.25%. |
Borrowings. Advances from the Federal Home Loan Bank (FHLB) totaled $405.8 million at June 30,
2008, an increase of 82.13%, or $183 million, from $222.8 million at December 31, 2007. Borrowings
from the FHLB were used primarily to fund growth in the loan portfolio. FHLB advances had a
weighted average interest rate of approximately 3.19% at June 30, 2008. The advances are secured by
FHLB stock, agency securities and a blanket lien on certain residential real estate loans and
commercial loans.
Accrued Expenses and Other Liabilities. During the second quarter of 2008, we recognized two
separate gains from the extinguishment of liabilities totaling approximately $5.8 million. The
first gain related to the settlement of a retirement agreement with a previous executive officer
under which we had a remaining unfunded obligation to pay approximately $6.2 million in benefits
over a 17-year period. This obligation was settled through a cash settlement payment of $3.0
million with a recognized pre-tax gain of $574,000. The second gain related to the forfeiture
of benefits due to a previous executive officer under the Community Bancshares, Inc.
Benefit Restoration Plan (see Note 20 to the Consolidated Financial Statements included in the
Corporations 2007 Form 10-K) and resulted in a pre-tax gain of $2.3 million.
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.
28
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, varying
collateral types and geographic diversification. Concentration risk is measured and reported to
senior management and the board of directors on a regular basis.
The allowance for loan loss calculation is segregated into various segments that include classified
loans, loans with specific allocations and pass rated loans. A pass rated loan is generally
characterized by a very low to average risk of default 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 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.
29
The following table summarizes certain information with respect to our allowance for loan losses
and the composition of charge-offs and recoveries for the periods indicated.
SUMMARY OF LOAN LOSS EXPERIENCE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Six months |
|
|
|
|
|
|
Ended |
|
|
Ended |
|
|
Year Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
December 31, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
|
2007 |
|
|
|
(Dollars in Thousands) |
|
Allowance for loan losses at
beginning of period |
|
$ |
23,273 |
|
|
$ |
18,977 |
|
|
$ |
22,868 |
|
|
$ |
18,892 |
|
|
$ |
18,892 |
|
Allowance of acquired bank |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,717 |
|
Charge-offs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial |
|
|
160 |
|
|
|
327 |
|
|
|
312 |
|
|
|
437 |
|
|
|
1,162 |
|
Real estate construction and
land development |
|
|
662 |
|
|
|
1 |
|
|
|
665 |
|
|
|
1 |
|
|
|
301 |
|
Real estate mortgage |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single-family |
|
|
871 |
|
|
|
189 |
|
|
|
1,483 |
|
|
|
449 |
|
|
|
1,149 |
|
Commercial |
|
|
49 |
|
|
|
5 |
|
|
|
411 |
|
|
|
19 |
|
|
|
724 |
|
Other |
|
|
|
|
|
|
4 |
|
|
|
106 |
|
|
|
206 |
|
|
|
206 |
|
Consumer |
|
|
715 |
|
|
|
537 |
|
|
|
1,150 |
|
|
|
937 |
|
|
|
2,117 |
|
Other |
|
|
24 |
|
|
|
|
|
|
|
99 |
|
|
|
|
|
|
|
63 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total charge-offs |
|
|
2,481 |
|
|
|
1,063 |
|
|
|
4,226 |
|
|
|
2,049 |
|
|
|
5,722 |
|
Recoveries: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial |
|
|
339 |
|
|
|
86 |
|
|
|
478 |
|
|
|
256 |
|
|
|
398 |
|
Real estate construction and
land development |
|
|
31 |
|
|
|
1 |
|
|
|
33 |
|
|
|
8 |
|
|
|
286 |
|
Real estate mortgage |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single-family |
|
|
24 |
|
|
|
30 |
|
|
|
43 |
|
|
|
57 |
|
|
|
174 |
|
Commercial |
|
|
9 |
|
|
|
2 |
|
|
|
25 |
|
|
|
20 |
|
|
|
70 |
|
Other |
|
|
9 |
|
|
|
11 |
|
|
|
23 |
|
|
|
58 |
|
|
|
82 |
|
Consumer |
|
|
39 |
|
|
|
101 |
|
|
|
85 |
|
|
|
198 |
|
|
|
382 |
|
Other |
|
|
33 |
|
|
|
2 |
|
|
|
76 |
|
|
|
2 |
|
|
|
48 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recoveries |
|
|
484 |
|
|
|
233 |
|
|
|
763 |
|
|
|
599 |
|
|
|
1,440 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs |
|
|
1,997 |
|
|
|
830 |
|
|
|
3,463 |
|
|
|
1,450 |
|
|
|
4,282 |
|
Provision for loan losses |
|
|
5,967 |
|
|
|
1,000 |
|
|
|
7,838 |
|
|
|
1,705 |
|
|
|
4,541 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses at end
of period |
|
$ |
27,243 |
|
|
$ |
19,147 |
|
|
$ |
27,243 |
|
|
$ |
19,147 |
|
|
$ |
22,868 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans at end of period, net of
unearned income |
|
$ |
2,148,751 |
|
|
$ |
1,719,808 |
|
|
$ |
2,148,751 |
|
|
$ |
1,719,808 |
|
|
$ |
2,017,011 |
|
Average loans, net of unearned
income |
|
|
2,123,039 |
|
|
|
1,663,551 |
|
|
|
2,077,884 |
|
|
|
1,665,747 |
|
|
|
1,814,032 |
|
Ratio of ending allowance to
ending loans |
|
|
1.27 |
% |
|
|
1.11 |
% |
|
|
1.27 |
% |
|
|
1.11 |
% |
|
|
1.13 |
% |
Ratio of net charge-offs to
average loans (1) |
|
|
0.38 |
|
|
|
0.20 |
|
|
|
0.34 |
|
|
|
0.17 |
|
|
|
0.24 |
|
Net charge-offs as a percentage of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan losses |
|
|
33.46 |
|
|
|
83.00 |
|
|
|
44.18 |
|
|
|
85.04 |
|
|
|
94.30 |
|
Allowance for loan losses (1) |
|
|
29.39 |
|
|
|
17.39 |
|
|
|
25.49 |
|
|
|
15.27 |
|
|
|
18.72 |
|
Allowance for loan losses as a
percentage of nonperforming loans |
|
|
69.33 |
|
|
|
160.64 |
|
|
|
69.33 |
|
|
|
160.64 |
|
|
|
90.31 |
|
30
Compared to the second quarter of 2007, we have realized some weakness in overall asset quality.
Nonperforming assets (NPAs) as a percentage of total loans plus nonperforming assets increased to
2.40% as of June 30, 2008, compared to 1.47% as of December 31, 2007 and 0.76% as of June 30, 2007,
which is in line with managements expectations (See Nonperforming Assets section below). The
$14.0 million NPL increase during the first six months of 2008 was located predominantly in Florida
and includes real estate relationships primarily secured by residential properties in various
stages of development. Management is actively monitoring these credits and does not currently
expect any significant losses. OREO increased $8.2 million during the first six months of 2008 to
$12.6 million. The increase in OREO is composed primarily of properties in Alabama consisting of
single-family homes and residential lots. Of total OREO, $10.3 million is located in Alabama and
$2.3 million is in Florida.
Nonperforming loans (NPLs) to total loans increased to 1.83% at June 30, 2008 from 1.26% at
December 31, 2007 and 0.69% at June 30, 2007, with the increase primarily related to the
construction and single-family residential portfolios, which collectively accounted for
approximately 86% of the total increase. The ratio of allowance for loan losses to NPLs decreased
to 69.33% at June 30, 2008 from 90.31% at December 31, 2007 and 160.64% at June 30, 2007.
Net loan charge-offs as a percentage of average loans were 0.38% and 0.34% for the three- and
six-month periods ended June 30, 2008, respectively, compared to 0.20% and 0.17% during the three-
and six-month periods ended June 30, 2007, respectively, and 0.24% for the year ended December 31,
2007. Of the $2.0 million net charge-offs in the second quarter of 2008, the Banks charge-offs
were $1.5 million or 0.28% of average loans and the consumer finance company charge-offs were
$490,000 or 0.10% of average loans. Of the Banks charge-offs, 56% related to 1-4 family mortgages
and 42% related to real estate construction.
The provision for loan losses increased to $6.0 million in the second quarter of 2008, compared to
$1.0 million in the second quarter of 2007. This increase in the provision maintained the allowance
for loan losses at 1.27% of net loans, or $27.2 million, at June 30, 2008, compared to 1.13% of net
loans or $22.9 million, at December 31, 2007. Our management believes the allowance for loan losses
at June 30, 2008 is appropriate to absorb any estimated losses in the loan portfolio.
Nonperforming Assets. Nonperforming assets increased $22.2 million, to $51.9 million as of June 30,
2008 from $29.7 million at December 31, 2007. The following table represents our nonperforming
assets for the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2008 |
|
|
2007 |
|
|
|
(Dollars in thousands) |
|
Nonaccrual |
|
$ |
37,111 |
|
|
$ |
22,533 |
|
Accruing loans 90 days or more delinquent |
|
|
1,859 |
|
|
|
2,117 |
|
Restructured |
|
|
326 |
|
|
|
671 |
|
|
|
|
|
|
|
|
Total nonperforming loans |
|
|
39,296 |
|
|
|
25,321 |
|
Other real estate owned and repossessed assets |
|
|
12,588 |
|
|
|
4,415 |
|
|
|
|
|
|
|
|
Total nonperforming assets |
|
$ |
51,884 |
|
|
$ |
29,736 |
|
|
|
|
|
|
|
|
Nonperforming loans as a percentage of loans |
|
|
1.83 |
% |
|
|
1.26 |
% |
|
|
|
|
|
|
|
Nonperforming assets as a percentage of loans plus nonperforming assets |
|
|
2.40 |
% |
|
|
1.47 |
% |
|
|
|
|
|
|
|
Nonperforming assets as a percentage of total assets |
|
|
1.71 |
% |
|
|
1.03 |
% |
|
|
|
|
|
|
|
The following is a summary of nonperforming loans by category for the dates shown:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2008 |
|
|
2007 |
|
|
|
(Dollars in thousands) |
|
Commercial and industrial |
|
$ |
614 |
|
|
$ |
1,058 |
|
Real estate construction and land development |
|
|
18,684 |
|
|
|
10,569 |
|
Real estate mortgages |
|
|
|
|
|
|
|
|
Single-family |
|
|
10,349 |
|
|
|
8,069 |
|
Commercial |
|
|
7,551 |
|
|
|
4,045 |
|
Other |
|
|
1,257 |
|
|
|
805 |
|
Consumer |
|
|
841 |
|
|
|
775 |
|
|
|
|
|
|
|
|
Total nonperforming loans |
|
$ |
39,296 |
|
|
$ |
25,321 |
|
|
|
|
|
|
|
|
31
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 nonaccrual status, all interest that 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 ultimately be an actual write-down, charge-off or recovery of
previous charged-off amounts of the principal balance to the allowance for loan losses, which may
affect earnings.
Past Due Loans. Loans past due 30 to 89 days for the Bank increased to 2.04% for June 30, 2008,
compared to 1.08% at December 31, 2007 (see Potential Problem Loans section below). Consolidated loans past due 30 to 89 days, including the
finance company subsidiaries, increased to 2.05% for June 30, 2008 compared to 1.13% at December
31, 2007. The majority of our Banks past due loans consisted of approximately $30.8 million, or
72% of total past due loans, in the commercial real estate and real estate construction loan
categories. Within these two categories, $18.8 million, or 44%, of the total past due loans, are
attributed to four large relationships, all of which are located in the Florida region. The Florida
region has been most affected by the recent slowdown in the real estate market. Management is
actively working with each of these borrowers to restore the credits to a consistent performance
level while minimizing our loss exposure. In spite of the increased levels of delinquency within
our portfolio, as well as the overall challenges faced by the banking industry, the level of
associated credit losses has remained within managements expectations.
Impaired Loans. At June 30, 2008, our impaired loans under SFAS 114 totaled
$42.4 million, with approximately $2.9 million in allowance for loan losses specifically allocated
to impaired loans. This represents an increase of $20.1 million from $22.3 million at December 31,
2007. The following is a summary of impaired loans and the specifically allocated allowance for
loan losses by category as of June 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
Outstanding |
|
|
Specific |
|
|
|
Balance |
|
|
Allowance |
|
|
|
(Dollars in thousands) |
|
Commercial and industrial |
|
$ |
635 |
|
|
$ |
8 |
|
Real estate construction and land development |
|
|
26,900 |
|
|
|
1,735 |
|
Real estate mortgages |
|
|
|
|
|
|
|
|
Commercial |
|
|
5,751 |
|
|
|
766 |
|
1-4 family |
|
|
8,503 |
|
|
|
356 |
|
Other |
|
|
615 |
|
|
|
71 |
|
|
|
|
|
|
|
|
Total |
|
$ |
42,404 |
|
|
$ |
2,936 |
|
|
|
|
|
|
|
|
Potential Problem Loans. In addition to nonperforming loans, management has identified $19.1 million
in potential problem loans as of June 30, 2008, compared to $13.0 million as of March 31, 2008.
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 recognition of such loans as nonperforming. Our potential problem loans are currently included
in our 30-89 days past due category and include borrowers that are experiencing cash-flow shortages due to general economic conditions
and the slowdown in the real estate market. Approximately $9.8 million of our potential problem loans are
related to 1-4 single family properties with $3.1 million of these properties located in Alabama and $6.7 million located
in Florida. The remaining $9.3 million consist primarily of commercial and retail related properties with $7.5 million
in Florida and $1.8 million in Alabama. We are working closely with the borrowers and will
continue to monitor their respective cash flow positions.
Stockholders Equity
Stock Incentive Plan . In April 2008, our stockholders approved the Superior Bancorp 2008 Incentive
Compensation Plan (the 2008 Plan) which succeeded the 1998 Plan. The purpose of the 2008 Plan is
to provide additional incentive for our directors and key employees to further our growth,
development and financial success by personally benefiting through the ownership of the common
stock, or other rights which recognize such growth, development and financial success. Our Board
also believes the 2008 Plan will enable us to obtain and retain the services of directors and
employees who are considered essential to our long-range success by offering them an opportunity to
own stock and other rights that reflect our financial success. The maximum aggregate number of
shares of common stock that may be issued or transferred pursuant to awards under the 2008 Plan is
300,000 (restated for 1-for-4 reverse stock split) shares, of which no more than 90,000 shares may
be issued for full value awards (defined under the 2008 Plan to mean any awards permitted under
the 2008 Plan that are neither stock
32
options nor stock appreciation rights). Only those employees and directors who are selected to
receive grants by the administrator may participate in the 2008 Plan.
Regulatory Capital. The table below represents our Banks regulatory and minimum regulatory capital
requirements at June 30, 2008 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
To Be Well |
|
|
|
|
|
|
|
|
|
|
For Capital |
|
Capitalized Under |
|
|
|
|
|
|
|
|
|
|
Adequacy |
|
Prompt Corrective |
|
|
Actual |
|
Purposes |
|
Action |
|
|
Amount |
|
Ratio |
|
Amount |
|
Ratio |
|
Amount |
|
Ratio |
As of June 30, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 Core Capital
(to Adjusted Total
Assets) |
|
$ |
211,905 |
|
|
|
7.47 |
% |
|
$ |
113,499 |
|
|
|
4.00 |
% |
|
$ |
141,873 |
|
|
|
5.00 |
% |
Total Capital (to
Risk Weighted
Assets) |
|
|
236,310 |
|
|
|
10.22 |
|
|
|
184,894 |
|
|
|
8.00 |
|
|
|
231,118 |
|
|
|
10.00 |
|
Tier 1 Capital (to
Risk Weighted
Assets) |
|
|
211,905 |
|
|
|
9.17 |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
136,671 |
|
|
|
6.00 |
|
Tangible Capital
(to Adjusted Total
Assets) |
|
|
211,905 |
|
|
|
7.47 |
|
|
|
42,562 |
|
|
|
1.50 |
|
|
|
N/A |
|
|
|
N/A |
|
Liquidity
Our principal sources of funds are deposits, principal and interest payments on loans, federal
funds sold and maturities and sales of investment securities. In addition to these sources of
liquidity, we have access to purchased funds from several regional financial institutions, the
Federal Reserve Discount Window and brokered deposits, and may borrow from the FHLB under a blanket
floating lien on certain commercial loans and residential real estate loans.
Also, we have established certain repurchase agreements with a large financial institution. While
scheduled loan repayments and maturing investments are relatively predictable, interest rates,
general economic conditions and competition primarily influence deposit flows and early loan
payments. Management places constant emphasis on the maintenance of adequate liquidity to meet
conditions that might reasonably be expected to occur. Management believes it has established
sufficient sources of funds to meet its anticipated liquidity needs.
As shown in the Condensed Consolidated Statement of Cash Flows, operating activities provided $11.5
million in funds in the first six months of 2008, primarily due to $1.5 million in net income plus
$5.4 million in depreciation and amortization expense and $7.8 million in the provision for loan
losses. This compares to a net funds provided of $9.5 million in the first six months of 2007,
primarily due to net income of $4.3 million plus $2.1 million in depreciation and $1.7 million
provision for loan losses.
Investing activities were a $158 million net use of funds in the first six months of 2008,
primarily due to an increase in loans and the purchase of investment securities offset by the
maturity and sales of investment securities. Investing activities were a $22 million net use of
funds in the first six months of 2007 primarily due to an increase in loans offset by investment
security maturities.
Financing activities provided $166 million in funds during the first six months of 2008, primarily
as a result of an increase in FHLB advances. Financing activities provided $12 million in funds in
the first six months of 2007, primarily as a result of an increase in deposits.
Forward-Looking Statements
The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking
statements made by us or on our behalf. Some of the disclosures in this Quarterly Report on Form
10-Q, including any statements preceded by, followed by, or which include, the words may,
could, should, will, would, hope, might, believe, expect, anticipate, estimate,
intend, plan, assume or similar expressions constitute forward-looking statements.
These forward-looking statements, implicitly and explicitly, include the assumptions underlying the
statements and other information with respect to our beliefs, plans, objectives, goals,
expectations, anticipations, estimates, intentions, financial condition, results of operations,
future performance and business, including our expectations and estimates with respect to our
revenues, expenses, earnings, return on equity, return on assets, efficiency ratio,
33
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 statements proves incorrect, then our
actual results, performance or achievements could differ materially from those expressed in, or
implied by, forward-looking statements contained in this 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 statements, whether written or oral, to reflect
changes. All forward-looking statements attributable to us are expressly qualified by these
cautionary statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information shown under the caption Item 7. Managements Discussion and Analysis of Financial
Condition and Results of Operations-Market Risk-Interest Rate Sensitivity included in our Annual
Report on Form 10-K for the year ended December 31, 2007, is hereby incorporated herein by
reference.
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. The following is a comparison of these measurements as of June 30, 2008
to December 31, 2007 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
December 31, |
12-Month Gap |
|
2008 |
|
2007 |
Interest-bearing liabilities in excess of interest-earning assets |
|
$ |
(472,000 |
) |
|
$ |
(455,000 |
) |
Cumulative 12-month Gap Ratio |
|
|
.78 |
|
|
|
.77 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (Decrease) in Net Interest Income |
|
|
June 30, 2008 |
|
December 31, 2007 |
Change (in Basis Points) in Interest Rates (12-Month Projection) |
|
Amount |
|
Percent |
|
Amount |
|
Percent |
+200 BP (1) |
|
$ |
4,050 |
|
|
|
5.0 |
% |
|
$ |
2,700 |
|
|
|
3.5 |
% |
- 200 BP (1) |
|
|
(4,400 |
) |
|
|
(5.5 |
) |
|
|
(7,100 |
) |
|
|
(9.1 |
) |
|
|
|
(1) |
|
Results are within our asset and liability management policy. |
Our net interest income simulation model assumes an instantaneous and parallel increase or decrease
in interest rates of 200 basis points.
34
EVE is a concept related to our longer-term interest rate risk. EVE is defined as the net present
value of the balance sheets cash flows or the residual value of future cash flows. While EVE does
not represent actual market liquidation or replacement value, it is a useful tool for estimating
our balance sheet earnings capacity. The greater the EVE, the greater our earnings capacity. Our
EVE model assumes an instantaneous and parallel increase or decrease of 200 basis points. The EVE
produced by these scenarios is within our asset and liability management policy. The following
table shows the Banks EVE as of June 30, 2008 and December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2008 |
|
|
|
|
|
Change |
Change (in Basis Points) in Interest Rates |
|
EVE |
|
Amount |
|
Percent |
|
|
(Dollars in thousands) |
+ 200 BP |
|
$ |
539,942 |
|
|
$ |
13,005 |
|
|
|
2.5 |
% |
0 BP |
|
|
526,937 |
|
|
|
|
|
|
|
|
|
- 200 BP |
|
|
490,789 |
|
|
|
(36,148 |
) |
|
|
(6.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
Change (in Basis Points) in Interest Rates |
|
|
|
|
|
|
|
|
|
|
|
|
+ 200 BP |
|
$ |
470,866 |
|
|
$ |
19,274 |
|
|
|
4.4 |
% |
0 BP |
|
|
451,142 |
|
|
|
|
|
|
|
|
|
- 200 BP |
|
|
407,146 |
|
|
|
(43,996 |
) |
|
|
(9.8 |
) |
The Banks EVE has increased approximately $76 million since December 31, 2007. This increase is
attributable to several factors including the purchase of a $52 million1-4 family mortgage pool
during the second quarter of 2008 which is earning a yield in excess of 8%. In addition, the
current level of interest rates as well as the steepening yield curve provided increased EVE
related to our non-maturity deposits and certain FHLB advances.
Both the net interest income and EVE simulations include balances, asset prepayment speeds, and
interest rate relationships among balances that management believes to be reasonable for the
various interest rate environments. Differences in actual occurrences from these assumptions, as
well as non-parallel changes in the yield curve, may change our market risk exposure.
ITEM 4. CONTROLS AND PROCEDURES
CEO AND CFO CERTIFICATION
Appearing as exhibits to this report are Certifications of our Chief Executive Officer (CEO) and
our Chief Financial Officer (CFO). The Certifications are required to be made by Rule 13a-14
under the Securities Exchange Act of 1934, as amended. This Item contains the information about the
evaluation that is referred to in the Certifications, and the information set forth below in this
Item 4 should be read in conjunction with the Certifications for a more complete understanding of
the Certifications.
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
We maintain disclosure controls and procedures that are designed to ensure that information
required to be disclosed in our Exchange Act reports is recorded, processed, summarized and
reported within the time periods specified in the SECs rules and forms, and that such information
is accumulated and communicated to our management, including our CEO and CFO, as appropriate, to
allow timely decisions regarding required disclosure. In designing and evaluating the disclosure
controls and procedures, management recognized that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of achieving the desired control
objectives.
We conducted an evaluation (the Evaluation) of the effectiveness of the design and operation of
our disclosure controls and procedures under the supervision and with the participation of our
management, including our CEO and CFO, as of June 30, 2008. Based upon the Evaluation, our CEO and
CFO have concluded that, as of June 30, 2008, our disclosure controls and procedures are effective
to ensure that material information relating to Superior Bancorp and its subsidiaries is made known
to management, including the CEO and CFO, particularly during the period when our periodic reports
are being prepared.
35
There have not been any changes in our internal control over financial reporting (as defined in
Rule 13a-15(f) under the Securities and Exchange Act of 1934, as amended) during the fiscal quarter
to which this report relates that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
While we are a party to various legal proceedings arising in the ordinary course of business, we
believe that there are no proceedings threatened or pending against us at this time that will
individually, or in the aggregate, materially adversely affect our business, financial condition or
results of operations. We believe that we have strong claims and defenses in each lawsuit in which
we are involved. While we believe that we will prevail in each lawsuit, there can be no assurance
that the outcome of the pending, or any future, litigation, either individually or in the
aggregate, will not have a material adverse effect on our financial condition or our results of
operations.
ITEM 1A. RISK FACTORS
Our business is influenced by many factors that are difficult to predict, involve uncertainties
that may materially affect actual results and are often beyond our control. We have identified a
number of these risk factors in our Annual Report on Form 10-K for the year ended December 31,
2007, which should be taken into consideration when reviewing the information contained in this
report. There have been no material changes with regard to the risk factors previously disclosed in
our most recent Form 10-K. For other factors that may cause actual results to differ materially
from those indicated in any forward-looking statement or projection contained in this report, see
Forward-Looking Statements under Part I, Item 2 above.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
There were no unregistered sales of equity securities by Superior Bancorp during the second quarter
of 2008.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On April 23, 2008, we held our annual meeting of stockholders, at which the following actions were
taken:
|
1. |
|
The stockholders voted as follows to elect the following persons
as directors, each to hold office for a one-year term: |
|
|
|
|
|
|
|
|
|
NAME |
|
FOR |
|
WITHHELD |
C. Stanley Bailey |
|
|
29,930,386 |
|
|
|
2,860,317 |
|
Roger D. Barker |
|
|
29,439,676 |
|
|
|
3,351,027 |
|
Rick D. Gardner |
|
|
29,979,552 |
|
|
|
2,811,339 |
|
Thomas E. Jernigan, Jr. |
|
|
29,978,552 |
|
|
|
2,812,151 |
|
James Mailon Kent, Jr. |
|
|
26,834,838 |
|
|
|
5,955,865 |
|
Mark A. Lee |
|
|
29,978,719 |
|
|
|
2,811,984 |
|
James M. Link |
|
|
28,355,781 |
|
|
|
4,434,922 |
|
Peter L. Lowe |
|
|
29,441,187 |
|
|
|
3,349,516 |
|
John C. Metz |
|
|
29,916,073 |
|
|
|
2,874,630 |
|
D. Dewey Mitchell |
|
|
29,978,387 |
|
|
|
2,812,316 |
|
Barry Morton |
|
|
29,928,832 |
|
|
|
2,861,871 |
|
Robert R. Parrish, Jr. |
|
|
29,984,520 |
|
|
|
2,806,183 |
|
Charles W. Roberts, III |
|
|
29,984,733 |
|
|
|
2,806,272 |
|
C. Marvin Scott |
|
|
29,277,733 |
|
|
|
3,512,970 |
|
James C. White, Sr. |
|
|
28,419,646 |
|
|
|
4,371,057 |
|
36
|
2. |
|
The stockholders voted to approve an amendment to our
Restated Certificate of Incorporation to effect a
1-for-4 reverse split of our outstanding common stock
and to decrease the number of authorized shares of our
common stock to 15 million as follows: |
|
|
|
|
|
|
|
FOR |
|
AGAINST |
|
ABSTAIN |
|
BROKER NON-VOTES |
28,548,803
|
|
4,044,986
|
|
196,914
|
|
-0- |
|
3. |
|
The stockholders voted to approve our 2008 Incentive Compensation Plan as follows: |
|
|
|
|
|
|
|
FOR |
|
AGAINST |
|
ABSTAIN |
|
BROKER NON-VOTES |
18,770,579
|
|
7,166,204
|
|
207,581
|
|
6,646,339 |
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
(a) Exhibit:
10.1 |
|
Superior Bancorp 2008 Incentive Compensation Plan approved by the stockholders on April 23, 2008,
adjusted to reflect the effect of the 1-for-4 reverse split of Superior Bancorp common stock on
April 28, 2008 |
|
31.1 |
|
Certification of principal executive officer pursuant to Rule 13a-14(a). |
|
31.2 |
|
Certification of principal financial officer pursuant to 13a-14(a). |
|
32.1 |
|
Certification of principal executive officer pursuant to 18 U.S.C. Section 1350. |
|
32.2 |
|
Certification of principal financial officer pursuant to 18 U.S.C. Section 1350. |
37
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
|
SUPERIOR BANCORP
(Registrant)
|
|
Date: August 8, 2008 |
By: |
/s/ C. Stanley Bailey
|
|
|
|
C. Stanley Bailey |
|
|
|
Chief Executive Officer |
|
|
|
|
|
Date: August 8, 2008 |
By: |
/s/ Mark Tarnakow
|
|
|
|
Mark Tarnakow |
|
|
|
Chief Financial Officer
(Principal Financial Officer) |
|
|
38