e10vqza
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC
FORM 10-Q/A
(Amendment No. 1)
(Mark One)
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE QUARTERLY PERIOD ENDED March 31, 2009
OR
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE TRANSITION PERIOD FROM ____________ TO ____________
Commission File number 0-25033
Superior Bancorp
(Exact Name of Registrant as Specified in its Charter)
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Delaware
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63-1201350 |
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(State or Other Jurisdiction of Incorporation)
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(IRS Employer Identification No.) |
17 North 20th Street, Birmingham, Alabama 35203
(Address of Principal Executive Offices)
(205) 327-1400
(Registrants Telephone Number, Including Area Code)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files).
Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
(Check one):
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 March 31, 2009 |
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Common stock, $.001 par value |
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10,099,893 |
Explanatory Note
The audit committee of the board of directors of Superior Bancorp, upon identification by, and
recommendation of, management, concluded that the previously issued financial statements contained
in our quarterly reports for the quarters ended March 31 and June 30, 2009 should no longer be
relied upon because of changes in managements determination of fair value of certain trust preferred
securities within our investment portfolio and the recognition of additional other-than-temporary
impairment (OTTI) charges related to these securities.
This Amendment No. 1 on Form 10-Q/A to our Quarterly Report on Form 10-Q for the quarter ended
March 31, 2009 includes restated unaudited condensed consolidated financial statements as of, and
for the quarter ended March 31, 2009. In addition, we are currently filing an Amendment No. 1 on
Form 10-Q/A to amend and restate our unaudited condensed consolidated financial statements as of,
and for the quarter ended June 30, 2009.
During the first and second quarters of 2009, our rated trust preferred securities portfolio, which
includes five pooled issuances and one single issue (Emigrant), experienced significant ratings
downgrades (See Note 3 to the condensed consolidated financial statements). After further review
and in consultation with an outside valuation firm, we have determined that the credit spreads used
in our initial valuations for the periods ended March 31 and June 30, 2009 did not reflect
market rates for these types of instruments. In addition, considering the continued credit
deterioration, related disruption of the market for these instruments and the complexity of the
instruments structure, we revised the assumptions used in determining fair value and re-assessed
the need to recognize any OTTI. Our re-valuation and re-assessments were conducted with the
assistance of an experienced valuation firm selected from a listing of firms suggested to
management by our external auditors. In addition, we re-valued and re-assessed our investment in
the unrated New South Capital Trust V (New South). In retrospect, we do not believe there was
sufficient evidence to support our prior assumptions that this security would ever pay principal or
interest subsequent to December 31, 2008. In addition, New Souths external auditor issued a going
concern opinion on May 2, 2009, which was prior to the filing of our 10-Q for the first quarter of
2009 on May 8, 2009.
The following tables summarize the impact of the restatement on our unaudited condensed
consolidated statement of financial condition and unaudited condensed consolidated statements of
operations as of, and for the quarter ended March 31, 2009. There is no effect to our reported cash
flows:
Restatement Effects Condensed Consolidated Statements of Financial Condition (Unaudited) (In Thousands)
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As of March 31, 2009 |
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As |
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As Originally |
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Restated |
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Filed |
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Difference |
Investment securities available for sale |
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$ |
328,708 |
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$ |
338,590 |
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$ |
(9,882 |
) |
Other assets |
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58,383 |
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53,470 |
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4,913 |
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Total assets |
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3,129,469 |
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3,134,438 |
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(4,969 |
) |
Accrued
expenses and other liabilities |
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24,907 |
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24,240 |
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667 |
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Accumulated deficit |
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(134,621 |
) |
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(131,733 |
) |
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(2,888 |
) |
Accumulated other comprehensive loss |
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(9,550 |
) |
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(6,803 |
) |
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(2,747 |
) |
Total stockholders equity |
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245,434 |
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251,070 |
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(5,636 |
) |
Total liabilities and stockholders equity |
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3,129,469 |
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3,134,438 |
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(4,969 |
) |
2
Restatement Effects Condensed Consolidated Statements of Operations (Unaudited) (In Thousands)
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Three Months Ended |
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March 31, 2009 |
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As |
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As Originally |
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Restated |
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Filed |
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Difference |
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Total other-than-temporary
impairment losses |
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$ |
(10,504 |
) |
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$ |
(1,777 |
) |
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$ |
(8,727 |
) |
Portion of OTTI recognized in other
comprehensive income |
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4,659 |
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1,453 |
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3,206 |
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Investment securities (loss) gain |
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(5,845 |
) |
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(324 |
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(5,521 |
) |
Loss before income taxes |
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(6,422 |
) |
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(901 |
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(5,521 |
) |
Income tax benefit |
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(2,848 |
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(215 |
) |
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(2,633 |
) |
Net loss |
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(3,574 |
) |
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(686 |
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(2,888 |
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Net loss applicable to common shareholders |
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(4,717 |
) |
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(1,829 |
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(2,888 |
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Basic net loss per common share |
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$ |
(0.47 |
) |
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$ |
(0.18 |
) |
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$ |
(0.29 |
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Diluted net loss per common share |
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$ |
(0.47 |
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$ |
(0.18 |
) |
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$ |
(0.29 |
) |
Based on the foregoing, only the following items have been amended:
Part I Financial Information:
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Item 1 Financial Statements |
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Item 2 Managements Discussion and Analysis of Financial Condition and Results
of Operations |
For the convenience of the reader, this Form 10-Q/A sets forth the initial Form 10-Q in its
entirety, although we are only amending those portions affected by the restatement described above.
In addition, as required by Rule 12b-15 under the Securities Exchange Act of 1934, as amended, new
certifications by our principal executive officer and principal financial officer are filed
herewith as Exhibits 31.1, 31.2, 32.1 and 32.2.
3
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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March 31, |
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December 31, |
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2009 |
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2008 |
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(UNAUDITED) |
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ASSETS |
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Cash and due from banks |
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$ |
77,498 |
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$ |
74,237 |
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Interest-bearing deposits in other banks |
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39,309 |
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10,042 |
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Federal funds sold |
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2,455 |
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5,169 |
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Total cash and cash equivalents |
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119,262 |
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89,448 |
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Investment securities available for sale |
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328,708 |
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347,142 |
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Tax lien certificates |
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18,804 |
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23,786 |
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Mortgage loans held for sale |
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40,628 |
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22,040 |
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Loans, net of unearned income |
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2,359,299 |
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2,314,921 |
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Allowance for loan losses |
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(29,871 |
) |
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(28,850 |
) |
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Net loans |
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2,329,428 |
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2,286,071 |
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Premises and equipment, net |
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105,521 |
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104,085 |
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Accrued interest receivable |
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15,108 |
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14,794 |
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Stock in FHLB |
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19,337 |
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21,410 |
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Cash surrender value of life insurance |
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48,718 |
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48,291 |
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Core deposit and other intangible assets |
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19,963 |
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21,052 |
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Other real estate |
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25,609 |
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19,971 |
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Other assets |
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58,383 |
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54,611 |
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Total assets |
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$ |
3,129,469 |
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$ |
3,052,701 |
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LIABILITIES AND STOCKHOLDERS EQUITY |
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Deposits: |
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Noninterest-bearing |
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$ |
253,447 |
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$ |
212,732 |
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Interest-bearing |
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2,254,218 |
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2,130,256 |
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TOTAL DEPOSITS |
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2,507,665 |
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2,342,988 |
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Advances from FHLB |
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243,322 |
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361,324 |
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Federal funds borrowed and security repurchase agreements |
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1,737 |
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3,563 |
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Notes payable |
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45,575 |
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7,000 |
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Subordinated debentures, net |
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60,829 |
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60,884 |
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Accrued expenses and other liabilities |
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24,907 |
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25,703 |
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Total liabilities |
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2,884,035 |
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2,801,462 |
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Commitments and contingencies |
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Stockholders equity: |
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Preferred stock, par value $.001 per share; shares authorized 5,000,000: |
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Series A, fixed rate cumulative perpetual preferred stock, 69,000
shares issued and outstanding at March 31, 2009 and December 31, 2008,
respectively |
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Common stock, par value $.001 per share; shares authorized 15,000,000;
shares issued 10,427,981 and 10,403,087 respectively; outstanding
10,099,893 and 10,074,999 respectively |
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10 |
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10 |
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Surplus preferred |
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63,259 |
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62,978 |
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warrants |
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8,646 |
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8,646 |
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common |
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329,600 |
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329,461 |
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Accumulated deficit |
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(134,621 |
) |
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(129,904 |
) |
Accumulated other comprehensive loss |
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(9,550 |
) |
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(7,925 |
) |
Treasury stock, at cost 322,045 and 321,485 shares, respectively |
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(11,341 |
) |
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(11,373 |
) |
Unearned ESOP stock |
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(398 |
) |
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(443 |
) |
Unearned restricted stock |
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(171 |
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(211 |
) |
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Total stockholders equity |
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245,434 |
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251,239 |
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Total liabilities and stockholders equity |
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$ |
3,129,469 |
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$ |
3,052,701 |
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See Notes to Condensed Consolidated Financial Statements.
5
SUPERIOR BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(Amounts in thousands, except per share data)
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Three Months Ended |
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March 31, |
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2009 |
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2008 |
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INTEREST INCOME |
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Interest and fees on loans |
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$ |
34,952 |
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$ |
37,346 |
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Interest on taxable securities |
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4,009 |
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4,052 |
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Interest on tax-exempt securities |
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428 |
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430 |
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Interest on federal funds sold |
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5 |
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80 |
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Interest and dividends on other investments |
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362 |
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644 |
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Total interest income |
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39,756 |
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42,552 |
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INTEREST EXPENSE |
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Interest on deposits |
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14,893 |
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20,253 |
|
Interest on other borrowed funds |
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2,342 |
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|
2,792 |
|
Interest on subordinated debentures |
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|
1,193 |
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|
1,015 |
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Total interest expense |
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18,428 |
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|
24,060 |
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NET INTEREST INCOME |
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21,328 |
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|
18,492 |
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Provision for loan losses |
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3,452 |
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|
1,872 |
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NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES |
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17,876 |
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|
16,620 |
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NONINTEREST INCOME |
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Service charges and fees on deposits |
|
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2,387 |
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|
2,103 |
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Mortgage banking income |
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|
1,691 |
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|
1,266 |
|
Total other-than-temporary impairment losses (OTTI) (see Note 3) |
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(10,504 |
) |
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NA |
Portion of OTTI recognized in other comprehensive income (loss) |
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4,659 |
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NA |
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Investment securities (loss) gain |
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(5,845 |
) |
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|
402 |
|
Change in fair value of derivatives |
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(199 |
) |
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|
1,050 |
|
Increase in cash surrender value of life insurance |
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|
515 |
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|
|
552 |
|
Other income |
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1,216 |
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1,228 |
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TOTAL NONINTEREST INCOME |
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(235 |
) |
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6,601 |
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NONINTEREST EXPENSES |
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Salaries and employee benefits |
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12,309 |
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|
12,141 |
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Occupancy, furniture and equipment expense |
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|
4,416 |
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|
4,060 |
|
Amortization of core deposit intangibles |
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|
985 |
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|
|
896 |
|
Merger-related costs |
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|
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|
108 |
|
Other expenses |
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|
6,353 |
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|
5,059 |
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TOTAL NONINTEREST EXPENSES |
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24,063 |
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|
22,264 |
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(Loss) income before income taxes |
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(6,422 |
) |
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|
957 |
|
INCOME TAX (BENEFIT) EXPENSE |
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(2,848 |
) |
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|
262 |
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NET (LOSS) INCOME |
|
|
(3,574 |
) |
|
|
695 |
|
Preferred stock dividends and amortization |
|
|
1,143 |
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NET (LOSS) INCOME APPLICABLE TO COMMON STOCKHOLDERS |
|
$ |
(4,717 |
) |
|
$ |
695 |
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BASIC NET (LOSS) INCOME PER COMMON SHARE |
|
$ |
(0.47 |
) |
|
$ |
0.07 |
|
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|
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DILUTED NET (LOSS) INCOME PER COMMON SHARE |
|
$ |
(0.47 |
) |
|
$ |
0.07 |
|
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Weighted average common shares outstanding |
|
|
10,053 |
|
|
|
10,011 |
|
Weighted average common shares outstanding, assuming dilution |
|
|
10,053 |
|
|
|
10,045 |
|
See Notes to Condensed Consolidated Financial Statements.
6
SUPERIOR BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED)
(Dollars in thousands)
|
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|
|
|
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|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2009 |
|
|
2008 |
|
NET CASH USED BY OPERATING ACTIVITIES |
|
$ |
(14,082 |
) |
|
$ |
(5,316 |
) |
|
|
|
|
|
|
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CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
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Proceeds from sales of securities available for sale |
|
|
|
|
|
|
17,368 |
|
Proceeds from maturities of investment securities available for sale |
|
|
15,335 |
|
|
|
71,607 |
|
Purchases of investment securities available for sale |
|
|
(5,290 |
) |
|
|
(54,930 |
) |
Redemption of tax lien certificates |
|
|
7,401 |
|
|
|
4,323 |
|
Purchase of tax lien certificates |
|
|
(2.419 |
) |
|
|
(793 |
) |
Net increase in loans |
|
|
(54,732 |
) |
|
|
(55,890 |
) |
Purchases of premises and equipment |
|
|
(3,365 |
) |
|
|
(4,245 |
) |
Proceeds from sale of premises and equipment |
|
|
77 |
|
|
|
4,249 |
|
Proceeds from sale of repossessed assets |
|
|
1,993 |
|
|
|
2,898 |
|
Decrease (increase) in stock in FHLB |
|
|
2,074 |
|
|
|
(4,281 |
) |
|
|
|
|
|
|
|
Net cash used by investing activities |
|
|
(38,926 |
) |
|
|
(19,694 |
) |
|
|
|
|
|
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|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
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|
|
|
|
|
|
Net increase in deposits |
|
|
164,809 |
|
|
|
(34,641 |
) |
Net (decrease) increase in FHLB advances and other borrowed funds |
|
|
(119,890 |
) |
|
|
79,519 |
|
Proceeds from notes payable |
|
|
38,575 |
|
|
|
|
|
Preferred cash dividend paid |
|
|
(672 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
82,822 |
|
|
|
44,878 |
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents |
|
|
29,814 |
|
|
|
19,868 |
|
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD |
|
|
89,448 |
|
|
|
63,351 |
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS AT END OF PERIOD |
|
$ |
119,262 |
|
|
$ |
83,219 |
|
|
|
|
|
|
|
|
See Notes to Condensed Consolidated Financial Statements.
7
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, 2008. It is managements opinion that all adjustments, consisting of only
normal and recurring items necessary for a fair presentation, have been included in these condensed
consolidated financial statements. Operating results for the three-month period ended March 31,
2009, are not necessarily indicative of the results that may be expected for the year ending
December 31, 2009.
The Condensed Consolidated Statement of Financial Condition at December 31, 2008, 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 16, 2009, 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.
Certain
amounts in prior year financial statements have been reclassified to
conform to the current year presentation.
This
Amendment No. 1 on Form 10-Q/A to The Corporations Quarterly Report on Form 10-Q for the quarter ended
March 31, 2009 includes restated unaudited condensed
consolidated financial statements as of, its for the quarter ended
March 31, 2009. In addition, the
Corporation is currently filing an Amendment No. 1 on
Form 10-Q/A to amend and restate its unaudited condensed consolidated financial statements as of,
and for, the quarter ended June 30, 2009.
During the
first and second quarters of 2009, the Corporations rated trust preferred securities portfolio, which
includes five pooled issuances and one single issue (Emigrant), experienced significant ratings
downgrades (See Note 3 to the condensed consolidated financial statements). After further review
and in consultation with an outside valuation firm, management has determined that the credit spreads used
in its initial valuations for the periods ended March 31 and June 30, 2009 did not reflect
market rates for these types of instruments. In addition, considering the continued credit
deterioration, related disruption of the market for these instruments and the complexity of the
instruments structure, management revised the assumptions used in determining fair value and re-assessed
the need to recognize any OTTI. Managements re-valuation and re-assessments were conducted with the
assistance of an experienced valuation firm selected from a listing of firms suggested to
management by the Corporations external auditors. In addition,
management re-valued and re-assessed its investment in
the unrated New South Capital Trust V (New South). In
retrospect, management does not believe there was
sufficient evidence to support its prior assumptions that this security would ever pay principal or
interest subsequent to December 31, 2008. In addition, New Souths external auditor issued a going
concern opinion on May 2, 2009, which was prior to the filing of
the Corporations 10-Q for the first quarter of
2009 on May 8, 2009.
The
following tables summarize the impact of the restatement on the
Corporations unaudited condensed
consolidated statement of financial condition and unaudited condensed consolidated statements of
operations as of, and for the quarter ended March 31, 2009. There is no effect to the
Corporations reported
cash flows:
Restatement Effects Condensed Consolidated Statements of Financial Condition (Unaudited) (In
Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2009 |
|
|
As |
|
As Originally |
|
|
|
|
Restated |
|
Filed |
|
Difference |
Investment securities available for sale |
|
$ |
328,708 |
|
|
$ |
338,590 |
|
|
$ |
(9,882 |
) |
Other assets |
|
|
58,383 |
|
|
|
53,470 |
|
|
|
4,913 |
|
Total assets |
|
|
3,129,469 |
|
|
|
3,134,438 |
|
|
|
(4,969 |
) |
Accrued expenses and other liabilities |
|
|
24,907 |
|
|
|
24,240 |
|
|
|
667 |
|
Accumulated deficit |
|
|
(134,621 |
) |
|
|
(131,733 |
) |
|
|
(2,888 |
) |
Accumulated other comprehensive loss |
|
|
(9,550 |
) |
|
|
(6,803 |
) |
|
|
(2,747 |
) |
Total stockholders equity |
|
|
245,434 |
|
|
|
251,070 |
|
|
|
(5,636 |
) |
Total liabilities and stockholders equity |
|
|
3,129,469 |
|
|
|
3,134,438 |
|
|
|
(4,969 |
) |
Restatement Effects Condensed Consolidated Statements of Operations (Unaudited) (In Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
March 31, 2009 |
|
|
As |
|
As Originally |
|
|
|
|
Restated |
|
Filed |
|
Difference |
Total other-than-temporary impairment losses |
|
$ |
(10,504 |
) |
|
$ |
(1,777 |
) |
|
$ |
(8,727 |
) |
Portion of OTTI recognized in other comprehensive income |
|
|
4,659 |
|
|
|
1,453 |
|
|
|
3,206 |
|
Investment securities (loss) gain |
|
|
(5,845 |
) |
|
|
(324 |
) |
|
|
(5,521 |
) |
Loss before income taxes |
|
|
(6,422 |
) |
|
|
(901 |
) |
|
|
(5,521 |
) |
Income tax benefit |
|
|
(2,848 |
) |
|
|
(215 |
) |
|
|
(2,633 |
) |
Net loss |
|
|
(3,574 |
) |
|
|
(686 |
) |
|
|
(2,888 |
) |
Net loss applicable to common shareholders |
|
|
(4,717 |
) |
|
|
(1,829 |
) |
|
|
(2,888 |
) |
Basic net loss per common share |
|
$ |
(0.47 |
) |
|
$ |
(0.18 |
) |
|
$ |
(0.29 |
) |
Diluted net loss per common share |
|
$ |
(0.47 |
) |
|
$ |
(0.18 |
) |
|
$ |
(0.29 |
) |
Note 2 Recent Accounting Pronouncements
On April 9, 2009, the Financial Accounting Standards Board (FASB) finalized three FASB Staff
Positions (FSPs) regarding the accounting treatment for investments including mortgage-backed
securities. These FSPs changed the method for determining if an other-than-temporary impairment
(OTTI) exists and the amount of OTTI to be recorded through an entitys income statement. The
changes brought about by the FSPs provide greater clarity and reflect a more accurate
representation of the credit and noncredit components of an OTTI event. The three FSPs are as
follows:
|
|
|
FSP SFAS 157-4 Determining Fair Value When the Volume and Level of Activity for the
Assets or Liability Have Significantly Decreased and Identifying Transactions That Are Not
Orderly (FSP 157-4) provides guidelines for making fair value measurements more
consistent with the principles presented in SFAS 157, Fair Value Measurements (SFAS
157). It emphasizes that even if there has been a significant decrease in the volume and
level of activity for the asset or liability and regardless of the valuation technique used,
the objective of a fair value measurement remains the same. Fair value is the price that
would be received in a sale of an asset or paid to transfer a liability in an orderly
transaction (that is, not a forced liquidation or distressed sale), between market
participants at the measurement date under current market conditions. |
|
|
|
|
FSP SFAS 115-2 and SFAS 124-2, Recognition and Presentation of Other-than-temporary
impairments (FSP 115-2 and 124-2) provides additional guidance designed to create greater
clarity and consistency in accounting for and presenting impairment losses on securities. It
amends OTTI impairment guidance for debt securities to make the guidance more operational
and to improve the presentation and disclosure of OTTI on debt and equity securities in the
financial statements. It does not amend existing recognition and measurement guidance
related to OTTI of equity securities. |
|
|
|
|
FSP SFAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial
Instruments (FSP 107-1 and APB 28-1) enhances consistency in financial reporting by
increasing the frequency of fair value disclosures. |
These staff positions are effective for financial statements issued for periods ending after June
15, 2009, with early application possible for the first quarter of 2009. The Corporation has
elected to adopt FSP 157-4 and FSP 115-2 and 124-2 as of March 31, 2009, while deferring the
election of FSP 107-1 and APB 28-1 until June 30, 2009. The adoption of FSP 107-1 and APB 28-1 is
not expected to have a significant impact on the Corporations financial condition, results of
operations or cash flow. The effect of the early adoption of FSP 115-2 and 124-2 has resulted in
the portion of OTTI determined to be credit related ($5,845,000, or $3,682,000 after-tax) being
recognized in current earnings, while the portion of OTTI related to
other factors ($4,659,000, or
$2,935,000 after-tax) was recognized in other comprehensive loss (see Notes 3 and 8).
8
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 was effective for the Corporation on January 1, 2009 and did not have a
significant impact on the Corporations financial position, results of operations or cash flows
(see Note 5).
Note 3 Investment Securities
The amounts at which investment securities are carried and their approximate fair values at March
31, 2009 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross |
|
|
Gross |
|
|
|
|
|
|
Amortized |
|
|
Unrealized |
|
|
Unrealized |
|
|
Estimated |
|
|
|
Cost |
|
|
Gains |
|
|
Losses |
|
|
Fair Value |
|
|
|
(In Thousands) |
|
Investment securities available for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. agency securities |
|
$ |
8,945 |
|
|
$ |
112 |
|
|
$ |
15 |
|
|
$ |
9,042 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities (MBS): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Agency MBS residential |
|
|
221,890 |
|
|
|
6,900 |
|
|
|
11 |
|
|
|
228,779 |
|
U.S. Agency MBS collateralized mortgage obligation (CMO) |
|
|
14,404 |
|
|
|
259 |
|
|
|
|
|
|
|
14,663 |
|
Private-label CMO |
|
|
28,925 |
|
|
|
43 |
|
|
|
5,522 |
|
|
|
23,446 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total MBS |
|
|
265,219 |
|
|
|
7,202 |
|
|
|
5,533 |
|
|
|
266,888 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State, county and municipal securities |
|
|
41,360 |
|
|
|
320 |
|
|
|
1,407 |
|
|
|
40,273 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt |
|
|
5,927 |
|
|
|
|
|
|
|
217 |
|
|
|
5,710 |
|
Pooled trust preferred securities |
|
|
13,537 |
|
|
|
|
|
|
|
8,300 |
|
|
|
5,237 |
|
Single issue trust preferred securities |
|
|
5,000 |
|
|
|
|
|
|
|
3,621 |
|
|
|
1,379 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total corporate obligations |
|
|
24,464 |
|
|
|
|
|
|
|
12,138 |
|
|
|
12,326 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities |
|
|
563 |
|
|
|
|
|
|
|
384 |
|
|
|
179 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities available for sale |
|
$ |
340,551 |
|
|
$ |
7,634 |
|
|
$ |
19,477 |
|
|
$ |
328,708 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities with an amortized cost of $270,627,000 at March 31, 2009, were pledged to
secure public funds and for other purposes as required or permitted by law.
The amortized cost and estimated fair values of investment securities at March 31, 2009, by
contractual maturity, are shown below. Expected maturities will differ from contractual maturities
because borrowers may have the right to call or prepay obligations with or without call or
prepayment penalties.
|
|
|
|
|
|
|
|
|
|
|
Securities Available |
|
|
|
For Sale |
|
|
|
Amortized |
|
|
Estimated |
|
|
|
Cost |
|
|
Fair Value |
|
|
|
(In Thousands) |
|
Due in one year or less |
|
$ |
250 |
|
|
$ |
252 |
|
Due after one year through five years |
|
|
9,936 |
|
|
|
9,795 |
|
Due after five years through ten years |
|
|
8,364 |
|
|
|
8,595 |
|
Due after ten years |
|
|
56,782 |
|
|
|
43,178 |
|
Mortgage-backed securities |
|
|
265,219 |
|
|
|
266,888 |
|
|
|
|
|
|
|
|
|
|
$ |
340,551 |
|
|
$ |
328,708 |
|
|
|
|
|
|
|
|
Gross realized gains on sales of investment securities available for sale for the three-month
periods ended March 31, 2009 and 2008 were $-0- and $402,000, respectively, and gross realized
losses for the same periods were $-0- and $-0-.
9
The following table summarizes the investment securities with unrealized losses at March 31, 2009
by aggregated major security type and length of time in a continuous unrealized loss position:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2009 |
|
|
|
Less Than 12 Months |
|
|
More Than 12 Months |
|
|
Total |
|
|
|
|
|
|
|
Unrealized |
|
|
|
|
|
|
Unrealized |
|
|
|
|
|
|
Unrealized |
|
|
|
Fair Value |
|
|
Losses (1) |
|
|
Fair Value |
|
|
Losses (1) |
|
|
Fair Value |
|
|
Losses (1) |
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
|
|
|
|
Temporarily
Impaired
U.S. Agency securities: |
|
$ |
5,274 |
|
|
$ |
15 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
5,274 |
|
|
$ |
15 |
|
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Agency MBS residential |
|
|
73 |
|
|
|
|
|
|
|
242 |
|
|
|
11 |
|
|
|
315 |
|
|
|
11 |
|
Private-label CMO |
|
|
1,936 |
|
|
|
838 |
|
|
|
15,328 |
|
|
|
4,678 |
|
|
|
17,264 |
|
|
|
5,516 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total MBS |
|
|
2,009 |
|
|
|
838 |
|
|
|
15,570 |
|
|
|
4,689 |
|
|
|
17,579 |
|
|
|
5,527 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State, county and municipal securities |
|
|
19,474 |
|
|
|
1,044 |
|
|
|
4,347 |
|
|
|
363 |
|
|
|
23,821 |
|
|
|
1,407 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt |
|
|
|
|
|
|
|
|
|
|
5,710 |
|
|
|
217 |
|
|
|
5,710 |
|
|
|
217 |
|
Pooled trust preferred securities |
|
|
|
|
|
|
|
|
|
|
1,742 |
|
|
|
3,641 |
|
|
|
1,742 |
|
|
|
3,641 |
|
Single issue trust preferred securities |
|
|
|
|
|
|
|
|
|
|
1,379 |
|
|
|
3,621 |
|
|
|
1,379 |
|
|
|
3,621 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total corporate obligations |
|
|
|
|
|
|
|
|
|
|
8,831 |
|
|
|
7,479 |
|
|
|
8,831 |
|
|
|
7,479 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities |
|
|
|
|
|
|
|
|
|
|
179 |
|
|
|
384 |
|
|
|
179 |
|
|
|
384 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total temporarily impaired securities |
|
|
26,757 |
|
|
|
1,897 |
|
|
|
28,927 |
|
|
|
12,915 |
|
|
|
55,684 |
|
|
|
14,812 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other-than-temporarily
Impaired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed
securities (MBS) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private-label CMO |
|
|
|
|
|
|
|
|
|
|
2,585 |
|
|
|
6 |
|
|
|
2,585 |
|
|
|
6 |
|
Corporate
obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pooled trust preferred securities |
|
|
|
|
|
|
|
|
|
|
3,495 |
|
|
|
4,659 |
|
|
|
3,495 |
|
|
|
4,659 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total OTTI securities |
|
|
|
|
|
|
|
|
|
|
6,080 |
|
|
|
4,665 |
|
|
|
6,080 |
|
|
|
4,665 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total temporarily and
other-than-temporarily impaired |
|
$ |
26,757 |
|
|
$ |
1,897 |
|
|
$ |
35,007 |
|
|
$ |
17,580 |
|
|
$ |
61,764 |
|
|
$ |
19,477 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Unrealized losses are included in other comprehensive income (loss), net of unrealized
gains and applicable income taxes. |
10
The following is a summary of the total count by category of investment securities with
gross unrealized losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2009 |
|
|
Total Number of Securities |
|
|
Less Than 12 |
|
Greater Than |
|
|
|
|
Months |
|
12 Months |
|
Total |
Temporarily Impaired |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Agency securities: |
|
|
1 |
|
|
|
|
|
|
|
1 |
|
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Agency MBS residential |
|
|
2 |
|
|
|
7 |
|
|
|
9 |
|
Private-label CMO |
|
|
4 |
|
|
|
1 |
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total MBS |
|
|
6 |
|
|
|
8 |
|
|
|
14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State, county and municipal securities |
|
|
51 |
|
|
|
12 |
|
|
|
63 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt |
|
|
|
|
|
|
4 |
|
|
|
4 |
|
Pooled trust preferred securities |
|
|
|
|
|
|
3 |
|
|
|
3 |
|
Single issue trust preferred securities |
|
|
|
|
|
|
1 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total corporate obligations |
|
|
|
|
|
|
8 |
|
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities |
|
|
|
|
|
|
4 |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total temporarily impaired securities |
|
|
58 |
|
|
|
32 |
|
|
|
90 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other-than-temporarily Impaired |
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed
securities (MBS) |
|
|
|
|
|
|
|
|
|
|
|
|
Private-label CMO |
|
|
|
|
|
|
1 |
|
|
|
1 |
|
Corporate obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
Pooled trust preferred securities |
|
|
|
|
|
|
2 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total OTTI securities |
|
|
|
|
|
|
3 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total temporarily and other-than-temporarily impaired |
|
|
58 |
|
|
|
35 |
|
|
|
93 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other-Than-Temporary-Impairment
Management evaluates securities for other-than-temporary impairment (OTTI) at least on a
quarterly basis. The investment securities portfolio is evaluated for OTTI by segregating the
portfolio into the various segments outlined in the tables above and applying the appropriate OTTI
model. Investment securities classified as available for sale or held-to-maturity are generally
evaluated for OTTI under SFAS No. 115, Accounting for Certain Investments in Debt and Equity
Securities (SFAS 115). However, certain purchased beneficial interests, which may include
private-label mortgage-backed securities, asset-backed securities, and collateralized debt
obligations, that had credit ratings at the time of purchase of below AA are evaluated using the
model outlined in EITF Issue No. 99-20, Recognition of Interest Income and Impairment on Purchased
Beneficial Interests and Beneficial Interests that Continue to be Held by a Transfer in Securitized
Financial Assets (EITF 99-20).
In determining OTTI under the SFAS 115 model, management considers many factors, including: (1) the
length of time and the extent to which the fair value has been less than cost, (2) the financial
condition and near-term prospects of the issuer, (3) whether the market decline was affected by
macroeconomic conditions, and (4) whether the Corporation has the intent to sell the debt security
or more likely than not will be required to sell the debt security before its anticipated recovery.
The assessment of whether an other-than-temporary decline exists involves a high degree of
subjectivity and judgment and is based on the information available to management at a point in
time.
The pooled trust preferred segment of the portfolio uses the OTTI guidance provided by EITF 99-20
that is specific to purchased beneficial interests that, on the purchase date, were rated below AA.
Under the EITF 99-20 model, the Corporation compares the present value of the remaining cash flows
as estimated at the preceding evaluation date to the current expected remaining cash flows. An OTTI
is deemed to have occurred if there has been an adverse change in the remaining expected future
cash flows. See the Trust Preferred Securities section below.
When OTTI occurs under either model, the amount of the OTTI recognized in earnings depends on
whether an entity intends to sell the security or it is more likely than not it will be required to
sell the security before recovery of its amortized cost basis, less any current-period credit loss.
If an entity intends to sell or it is more likely than not it will be required to sell the security
before recovery of its amortized cost basis, less any current-period credit loss, the OTTI is
recognized in earnings equal at an amount equal to the entire difference between the investments
amortized cost basis and its fair value at the balance sheet date. If an entity does not intend to
sell the security and it is not more likely than not that the entity will be required to sell the
security before recovery of its amortized cost basis less any current-period loss, the OTTI is
separated into the amount representing the credit loss and the amount
related to all other factors. The amount of the total OTTI related to the credit loss
11
is determined based on the
present value of cash flows expected to be collected and is recognized in earnings. The amount of
the total OTTI related to other factors is recognized in other comprehensive income, net of
applicable taxes. The previous amortized cost basis less the OTTI recognized in earnings becomes
the new amortized cost basis of the investment.
As of
March 31, 2009, the Corporations securities portfolio consisted of 267 securities, 93 of
which were in an unrealized loss position. The majority of unrealized losses are related to the
Corporations private-label collateralized mortgage obligations (CMOs) and trust preferred
securities, as discussed below:
Mortgage-backed Securities
At March 31, 2009, approximately 91% of the dollar volume of mortgage-backed securities held by the
Corporation was issued by U.S. government-sponsored entities and agencies, primarily Fannie Mae and
Freddie Mac, institutions which the government has affirmed its commitment to support and these
securities have nominal unrealized losses. The Corporations mortgage-backed securities portfolio
also includes 12 private-label CMOs with a market value of $23,446,000 which had net unrealized
losses of approximately $5,479,000 at March 31, 2009. These private-label CMOs were rated AAA at
purchase and are not within the scope of EITF 99-20. The following is a summary of the investment
grades for these securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit Support |
|
|
Net |
|
Rating |
|
|
|
|
|
Coverage |
|
|
Unrealized |
|
Moody/Fitch |
|
Count |
|
|
Ratios (1) |
|
|
Loss |
|
A1/AAA |
|
|
1 |
|
|
|
3.04 |
|
|
$ |
(2,514 |
) |
Aa1/AAA |
|
|
1 |
|
|
|
N/A |
|
|
|
(122 |
) |
Aa2/NR |
|
|
1 |
|
|
|
6.57 |
|
|
|
(562 |
) |
Aaa/AAA |
|
|
1 |
|
|
|
15.11 |
|
|
|
(2 |
) |
Aaa/NR |
|
|
2 |
|
|
|
4.58 - 16.40 |
|
|
|
(485 |
) |
NR/AAA |
|
|
3 |
|
|
|
4.01 - 5.87 |
|
|
|
(1,831 |
) |
NR/CCC (2) |
|
|
2 |
|
|
|
0.98 - 1.26 |
|
|
|
(2 |
) |
Ca/NR (2) |
|
|
1 |
|
|
|
0.37 |
|
|
|
39 |
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
12 |
|
|
|
|
|
|
$ |
(5,479 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The Credit Support Coverage Ratio, which is the ratio that determines the multiple of credit
support, based on assumptions for the performance of the loans within the delinquency
pipeline. The assumptions used are: Current Collateral Support/ ((60 day delinquencies x.60) +
(90 day delinquencies x.70) + (foreclosures x 1.00) + (other real estate x 1.00)) x .40 for
loss severity. |
|
(2) |
|
Includes all private-label CMOs which have been reduced by OTTI charges in previous periods.
There was no OTTI impairment charges recognized for this portfolio in the quarter ended March
31, 2009. |
As of March 31, 2009, the Corporations management does not intend to sell these securities, nor is
it more likely than not that the Corporation will be required to sell the securities before the
entire amortized cost basis is recovered since the current financial condition of the Corporation,
including liquidity and interest rate risk, will not require such action.
State, county and municipal securities
The unrealized losses in the municipal securities portfolio are due to widening credit spreads
caused by downgraded ratings of the bond insurers associated with these securities. In addition,
municipal securities were adversely impacted by changes in interest rates. This portfolio segment
is not experiencing any credit problems at March 31, 2009. We believe that all contractual cash
flows will be received on this portfolio.
12
Trust Preferred Securities
The Corporations investment portfolio includes five pooled trust preferred securities (CDO) and
two single issuances. The determination of fair value of the CDOs was determined with the
assistance of an external valuation firm. The valuation was accomplished by evaluating all relevant
credit and structural aspects of the CDOs, determining appropriate performance assumptions and
performing a discounted cash flow analysis. The valuation was structured as follows:
|
|
|
Detailed credit and structural evaluation for each piece of collateral in the CDO; |
|
|
|
|
Collateral performance projections for each piece of
collateral in the CDO (default, recovery and prepayment/amortization probabilities); |
|
|
|
|
Terms of the CDO structure, as laid out in the indenture: |
|
|
|
|
The cash flow waterfall (for both interest and principal); |
|
|
|
|
Overcollateralization and interest coverage tests; |
|
|
|
|
Events of default/liquidation; |
|
|
|
|
Mandatory auction call; |
|
|
|
|
Optional redemption; |
|
|
|
|
Hedge agreements; and discounted cash flow modeling |
On the basis of the evaluation of collateral credit, and in combination with a review of historical
industry default data and current/near-term operating conditions, appropriate default and
recovery probabilities are determined for each piece of collateral in the CDO. Specifically, an
estimate of the probability that a given piece of collateral will default in any given year. Next,
on the basis of credit factors like asset quality and leverage, a recovery assumption is formulated
for each piece of collateral in the event of a default. For collateral that has already defaulted,
we assume a recovery of 10% and assume that the majority of deferring collateral continues to defer
and eventually defaults. It is also noted that there is a possibility, in some cases, that
deferring collateral will become current at some point in the future. As a result, deferring
issuers are evaluated on a case-by-case basis and in some instances, based on an analysis of the
credit, a probability is assigned that the deferral will ultimately cure.
The base-case collateral-specific assumptions are aggregated into cumulative weighted-average
default, recovery and prepayment probabilities. In light of generally weakening collateral credit
performance and a challenging U.S. credit and real estate environment, our assumptions generally
imply a larger amount of collateral defaults during the next three years than that which has been
experienced historically and a gradual leveling off of defaults thereafter.
The discount rates used to determine fair value are intended to reflect the uncertainty inherent in
the projection of the issuances cash flows. Therefore, spreads were chosen that are comparable to
spreads observed currently in the market for similarly rated instruments and is intended to reflect
general market discounts currently applied to structured credit products. The discount rates used
to determine the credit portion of the OTTI are equal to the current yield on the issuances as
prescribed under EITF 99-20.
The following tables provide various information and fair value model assumptions regarding the
CDOs as March 31, 2009 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
YTD |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other-than-temporary Impairment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(OTTI) |
|
|
|
|
|
|
Single/ |
|
Class/ |
|
Amortized |
|
Fair |
|
Unrealized |
|
Credit |
|
|
|
|
Name |
|
|
|
|
|
Pooled |
|
Tranche |
|
Cost |
|
Value |
|
Loss |
|
Portion |
|
Other |
|
Total |
MM Caps Funding I Ltd |
|
|
|
|
|
Pooled |
|
|
B |
|
|
$ |
2,168 |
|
|
$ |
1,015 |
|
|
$ |
(1,153 |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
MM
Community Funding Ltd |
|
|
|
|
|
Pooled |
|
|
M |
|
|
|
4,199 |
|
|
|
2,124 |
|
|
|
(2,075 |
) |
|
|
(801 |
) |
|
|
(2,075 |
) |
|
|
(2,876 |
) |
Preferred Term Securities V |
|
|
|
|
|
Pooled |
|
|
M |
|
|
|
1,379 |
|
|
|
539 |
|
|
|
(840 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Tpref Funding III Ltd |
|
|
|
|
|
Pooled |
|
|
B-2 |
|
|
|
3,955 |
|
|
|
1,371 |
|
|
|
(2,584 |
) |
|
|
(44 |
) |
|
|
(2,584 |
) |
|
|
(2,628 |
) |
Trapeza 2007-13A LLC |
|
|
|
|
|
Pooled |
|
|
D |
|
|
|
1,836 |
|
|
|
188 |
|
|
|
(1,648 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
New South Capital Corp |
|
|
(1 |
) |
|
Single |
|
Sole |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,000 |
) |
|
|
|
|
|
|
(5,000 |
) |
Emigrant Capital Trust |
|
|
(2 |
) |
|
Single |
|
Sole |
|
|
5,000 |
|
|
|
1,379 |
|
|
|
(3,621 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
18,537 |
|
|
$ |
6,616 |
|
|
$ |
(11,921 |
) |
|
$ |
(5,845 |
) |
|
$ |
(4,659 |
) |
|
$ |
(10,504 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Original Collateral |
|
Performing Collateral |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent of Actual |
|
Percent of Expected |
|
(3) |
|
|
|
|
|
|
Lowest |
|
Performing |
|
Deferrals and |
|
Deferrals and |
|
Excess |
Name |
|
|
|
|
|
Rating |
|
Banks |
|
Defaults |
|
Defaults |
|
Subordination |
MM Caps Funding I Ltd |
|
|
|
|
|
Ca |
|
|
26 |
|
|
|
9 |
% |
|
|
16 |
% |
|
|
8 |
% |
MM Community Funding Ltd |
|
|
|
|
|
Caa2 |
|
|
14 |
|
|
|
4 |
% |
|
|
30 |
% |
|
|
0 |
% |
Preferred Term Securities V |
|
|
|
|
|
Ba3 |
|
|
4 |
|
|
|
0 |
% |
|
|
33 |
% |
|
|
26 |
% |
Tpref Funding III Ltd |
|
|
|
|
|
Ca |
|
|
29 |
|
|
|
11 |
% |
|
|
35 |
% |
|
|
0 |
% |
Trapeza 2007-13A LLC |
|
|
|
|
|
|
C |
|
|
|
51 |
|
|
|
8 |
% |
|
|
19 |
% |
|
|
5 |
% |
New South Capital Corp |
|
|
(1 |
) |
|
NR |
|
NA |
|
NA |
|
NA |
|
NA |
Emigrant Capital Trust |
|
|
(2 |
) |
|
BB- |
|
NA |
|
NA |
|
NA |
|
NA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current |
|
|
Fair Value (Price |
|
Discount Margin |
|
Yield |
Name |
|
to Par) |
|
(Basis Points) |
|
(Basis Points) |
|
|
|
|
|
|
|
|
|
MM Caps Funding I Ltd
|
|
$ |
50.77 |
|
|
Swap + 1575
|
|
9.48% Fixed |
MM Community Funding Ltd
|
|
|
42.48 |
|
|
LIBOR + 1175
|
|
LIBOR + 310 |
Preferred Term Securities V
|
|
|
39.15 |
|
|
LIBOR + 1225
|
|
LIBOR + 210 |
Tpref Funding III Ltd
|
|
|
34.27 |
|
|
LIBOR + 1225
|
|
LIBOR + 190 |
Trapeza 2007-13A LLC
|
|
|
9.37 |
|
|
LIBOR + 1600
|
|
LIBOR + 120 |
|
|
|
(1) |
|
Management received notification in April 2009 that interest payments on this issue will be
deferred for up to 20 quarters. In addition, New Souths external auditor issued a going
concern opinion on May 2, 2009. Management determined that there was not sufficient positive
evidence that this issue will ever pay principal or interest. Therefore, OTTI was recognized
on the full amount of the security during the first quarter of 2009. |
|
(2) |
|
There has been no notification of deferral or default on this issue. An analysis of the
company indicates there is adequate capital and liquidity to service the debt. This particular
issue was priced by an independent pricing service. |
|
(3) |
|
Excess subordination represents the additional defaults in excess of both the current and
projected defaults the issue can absorb before the security experiences any credit impairment.
Excess subordination is calculated by determining what level of defaults an issue can
experience before the security has any credit impairment and then subtracting both the current
and projected future defaults. |
In
addition to the impact of interest rates, the estimated fair value of
these CDOs have been and continue to be depressed due to the unusual credit conditions that the
financial industry has faced since the middle of 2008 and a weakening economy, which has severely
reduced the demand for these securities and rendered their trading market inactive.
As of March 31, 2009, the Corporations management does not intend to sell these securities, nor is
it more likely than not that the Corporation will be required to sell the securities before the
entire amortized cost basis is recovered since the current financial condition of the Corporation,
including liquidity and interest rate risk, will not require such action.
The following table provides a rollforward of the amount of credit-related losses recognized in
earnings for which a portion of OTTI has been recognized in other comprehensive income through
March 31, 2009 (in thousands):
|
|
|
|
|
|
|
For the Three- |
|
|
|
Months Ended |
|
|
|
March 31, 2009 |
|
Balance at beginning of period |
|
$ |
|
|
Amounts related to credit losses for which an OTTI was not previously recognized |
|
|
5,845 |
|
Reductions for securities sold during the period |
|
|
|
|
Increases in credit loss for which an OTTI was previously recognized when the
investor does not intend to sell the security and it is not more likely than not
that the entity will be required to sell the security before recovery of its
amortized cost |
|
|
|
|
Reductions for securities where there is an intent to sale or requirement to sale |
|
|
|
|
Reductions for increases in cash flows expected to be collected |
|
|
|
|
|
|
|
|
Balance at end of period |
|
$ |
5,845 |
|
|
|
|
|
14
We will continue to evaluate the investment ratings in the securities portfolio, severity in
pricing declines, market price quotes along with timing and receipt of amounts contractually due.
Based upon these and other factors, the securities portfolio may experience further impairment. At
March 31, 2009, management does not intend to sell any investment security in the portfolio, nor is
it more likely than not that the Corporation will be required to sell any security before the
entire amortized cost basis of the security is recovered.
Note 4 Notes Payable
The following is a summary of notes payable as of March 31, 2009 (in thousands):
|
|
|
|
|
Note payable to bank, borrowed under $10,000,000 line of credit, due September 3, 2009;
interest is based on the lenders base rate, secured by 100% of the outstanding Superior Bank
stock |
|
$ |
7,000 |
|
Senior note guaranteed under the TLGP, due March 30, 2012, 2.625% fixed rate due semi-annually |
|
|
40,000 |
|
Less: Discount, FDIC guarantee premium and other issuance costs |
|
|
(1,425 |
) |
|
|
|
|
Total notes payable |
|
$ |
45,575 |
|
|
|
|
|
On March 31, 2009, Superior Bank (the Bank), completed an offering of a $40,000,000 aggregate
principal amount 2.625% Senior Note due 2012 (the Note). The Note is guaranteed by the Federal
Deposit Insurance Corporation (FDIC) under its Temporary Liquidity Guarantee Program (the TLGP)
and is backed by the full faith and credit of the United States. The Note is a direct, unsecured
general obligation of the Bank and it is not subject to redemption prior to maturity. The Note is
solely the obligation of the Bank and is not guaranteed by the Corporation. The Bank received net
proceeds, after discount, FDIC guarantee premium and other issuance cost, of approximately
$38,575,000, which will be used by the Bank for general corporate purposes. The debt will yield an
effective interest rate, including amortization, of 3.89%.
In connection with the TLGP, the Bank entered into a Master Agreement with the FDIC. The Master
Agreement contains certain terms and conditions that must be included in the governing documents
for any senior debt securities issued by the Bank that are guaranteed pursuant to the TLGP.
Note 5 Derivative Financial Instruments
The fair value of derivative positions outstanding is included in other assets and other
liabilities in the accompanying condensed consolidated statement of financial condition and in the
net change in each of these financial statement line items in the accompanying condensed
consolidated statements of cash flows.
The Corporation utilizes interest rate swaps, caps and floors to mitigate exposure to interest rate
risk and to facilitate the needs of its customers. The Corporations objectives for utilizing these
derivative instruments are described below:
Interest Rate Swaps
The Corporation has entered interest rate swaps (CD swaps) to convert the fixed rate paid on
brokered certificates of deposit (CDs) to a variable rate based upon three-month LIBOR. As of
March 31, 2009 and December 31, 2008 the Corporation had $723,000 and $1,166, 000, respectively in
notional amount of CD swaps which had not been designated as hedges. These CD swaps had not been
designated as hedges because they represent the portion of the interest rate swaps that are
over-hedged due to principal reductions on the brokered CDs.
The Corporation has entered into certain interest rate swaps on commercial loans that are not
designated as hedging instruments. These derivative contracts relate to transactions in which the
Corporation enters into an interest rate swap with a loan customer while at the same time entering
into an offsetting interest rate swap with another financial institution. In connection with each
swap transaction, the Corporation agrees to pay interest to the customer on a notional amount at a
variable interest rate and receive interest from the customer on a similar notional amount at a
fixed interest rate. At the same time, the Corporation agrees to pay another financial institution
the same fixed interest rate on the same notional amount and receive the same variable interest
rate on the same notional amount. The transaction allows the Corporations customer to effectively
convert a variable rate loan to a fixed rate. Because the Corporation acts as an intermediary for
its customer, changes in the fair value of the underlying derivative contracts for the most part
offset each other and do not significantly impact the Corporations results of operations.
Fair Value Hedges
As of December 31, 2008 and 2007, the Corporation had $2,777,000 and $5,334,000, respectively in
notional amount of CD swaps designated and qualified as fair value hedges. These CD swaps were
designated as hedging instruments to hedge the risk of changes in
15
the fair value of the underlying brokered CD due to changes in interest rates. As of March 31, 2009
and December 31, 2008, the amount of CD swaps designated as hedging instruments had a recorded fair
value of $355,000 and $799,000, respectively, and a weighted average life of 2.9 and 6.8 years,
respectively. The weighted average fixed rate (receiving rate) was 4.70% and the weighted average
variable rate (paying rate) was 1.26% (LIBOR based).
Cash Flow Hedges
The Corporation has entered into interest rate swap agreements designated and qualified as a hedge
with notional amounts of $22,000,000 to hedge the variability in cash flows on $22,000,000 of
junior subordinated debentures. Under the terms of the interest rate swaps, which mature September
15, 2012, the Corporation receives a floating rate based on 3-month LIBOR plus 1.33% (2.65% as of
March 31, 2009) and pays a weighted average fixed rate of 4.42%. As of March 31, 2009 and December
31, 2008, these interest rate swap agreements are recorded as liabilities in the amount of $985,000
and $954,000, respectively.
Interest Rate Lock Commitments
During the ordinary course of business, the Corporation enters into certain commitments with
customers in connection with residential mortgage loan applications. Such commitments are
considered derivatives under the provisions of SFAS No. 133 and are required to be recorded at fair
value. The aggregate amount of these mortgage loan origination commitments was $97,687,000 and
$92,721,000 at March 31, 2009 and December 31, 2008, respectively. The fair value of the
origination commitments was $159,000 and $(117,000) at March 31, 2009 and December 31, 2008,
respectively.
The notional amounts and estimated fair values of interest rate derivative contracts outstanding at
March 31, 2009 and December 31, 2008 are presented in the following table. The Corporation obtains
dealer quotations to value its interest rate derivative contracts designated as hedges of cash
flows, while the fair values of other interest rate derivative contracts are estimated utilizing
internal valuation models with observable market data inputs (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2009 |
|
December 31, 2008 |
|
|
Notional |
|
Estimated |
|
Notional |
|
Estimated |
|
|
Amount |
|
Fair Value |
|
Amount |
|
Fair Value |
Interest rate derivatives designated as hedges of fair value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap on brokered certificates of deposit |
|
$ |
2,777 |
|
|
$ |
355 |
|
|
$ |
5,334 |
|
|
$ |
799 |
|
Interest rate derivatives designated as hedges of cash flows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps on subordinated debenture |
|
|
22,000 |
|
|
|
(985 |
) |
|
|
22,000 |
|
|
|
(954 |
) |
Non-hedging interest rate derivatives: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brokered certificates of deposit interest rate swap |
|
|
723 |
|
|
|
92 |
|
|
|
1,166 |
|
|
|
164 |
|
Mortgage loan held for sale interest rate lock commitment |
|
|
97,687 |
|
|
|
159 |
|
|
|
92,721 |
|
|
|
(117 |
) |
Commercial loan interest rate swap |
|
|
3,838 |
|
|
|
447 |
|
|
|
3,861 |
|
|
|
462 |
|
Commercial loan interest rate swap |
|
|
3,838 |
|
|
|
(447 |
) |
|
|
3,861 |
|
|
|
(462 |
) |
The weighted-average rates paid and received for interest rate swaps outstanding at March 31, 2009
were as follows:
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average |
|
|
Interest |
|
Interest |
|
|
Rate |
|
Rate |
|
|
Paid |
|
Received |
Interest rate swaps: |
|
|
|
|
|
|
|
|
Fair value hedge on brokered certificates of deposit interest rate swap |
|
|
1.26 |
% |
|
|
4.70 |
% |
Cash flow hedge interest rate swaps on subordinated debentures |
|
|
4.42 |
|
|
|
2.65 |
|
Non-hedging interest rate swap on commercial loan |
|
|
6.73 |
|
|
|
6.73 |
|
Gains, Losses and Derivative Cash Flows
For fair value hedges, the changes in the fair value of both the derivative hedging instrument and
the hedged item are included in noninterest income to the extent that such changes in fair value do
not offset represents hedge ineffectiveness. For cash flow hedges, the effective portion of the
gain or loss due to changes in the fair value of the derivative hedging instrument is included in
other comprehensive income, while the ineffective portion (indicated by the excess of the
cumulative change in the fair value of the derivative over that which is necessary to offset the
cumulative change in expected future cash flows on the hedge transaction) is included in
noninterest income. Net cash flows from the interest rate swap on subordinated debentures
designated as a hedging
16
instrument in an effective hedge of cash flows are included in interest expense on subordinated
debentures. For non-hedging derivative instruments, gains and losses due to changes in fair value
and all cash flows are included in other noninterest income.
Amounts included in the consolidated statements of operations related to interest rate derivatives
designated as hedges of fair value were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
March 31, |
|
|
2009 |
|
2008 |
Interest rate swap on brokered certificates of deposit: |
|
|
|
|
|
|
|
|
Amount of gain (loss) included in interest expense on deposits |
|
$ |
23 |
|
|
$ |
11 |
|
Amount of gain (loss) included in other noninterest income |
|
|
(430 |
) |
|
|
25 |
|
Amounts included in the consolidated statements of operations and in other comprehensive income
(loss) for the period related to interest rate derivatives designated as hedges of cash flows were
as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
March 31, |
|
|
2009 |
|
2008 |
Interest rate swap on subordinated debenture: |
|
|
|
|
|
|
|
|
Net gain (loss) included in interest expense on subordinated debt |
|
$ |
(55 |
) |
|
$ |
|
|
Amount of gain (loss) recognized in other comprehensive income |
|
|
(29 |
) |
|
|
|
|
No ineffectiveness related to interest rate derivatives designated as hedges of cash flows was
recognized in the condensed consolidated statements of operations during the reported periods. The
accumulated net after-tax loss related to effective cash flow hedge included in accumulated other
comprehensive income totaled $620,000 at March 31, 2009 and $601,000 at December 31, 2008.
Amounts included in the consolidated statements of operations related to non-hedging interest rate
swap on commercial loans were not significant during any of the reported periods. As stated above,
the Corporation enters into non-hedge related derivative positions primarily to accommodate the
business needs of its customers. Upon the origination of a derivative contract with a customer, the
Corporation simultaneously enters into an offsetting derivative contract with a third party. The
Corporation recognizes immediate income based upon the difference in the bid/ask spread of the
underlying transactions with its customers and the third party. Because the Corporation acts only
as an intermediary for its customer, subsequent changes in the fair value of the underlying
derivative contracts for the most part offset each other and do not significantly impact the
Corporations results of operations.
Gain (loss) included in noninterest income on the condensed consolidated statements of operations
related to non-hedging derivative instruments were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
March 31, |
|
|
2009 |
|
2008 |
Non-hedging interest rate derivatives: |
|
|
|
|
|
|
|
|
Brokered certificates of deposit interest rate swap |
|
$ |
(45 |
) |
|
$ |
131 |
|
Mortgage loan held for sale interest rate lock commitment |
|
|
276 |
|
|
|
216 |
|
Interest rate floors |
|
|
|
|
|
|
678 |
|
Counterparty Credit Risk
Derivative contracts involve the risk of dealing with both bank customers and institutional
derivative counterparties and their ability to meet contractual terms. Institutional counterparties
must have an investment grade credit rating and be approved by the Corporations Asset/Liability
Management Committee. The Corporations credit exposure on interest rate swaps is limited to the
net favorable value and interest payments of all swaps by each counterparty. Credit exposure may be
reduced by the amount of collateral pledged by the counterparty. There are no credit-risk-related
contingent features associated with any of the Corporations derivative contracts.
The aggregate cash collateral posted with the counterparties as collateral by the Corporation
related to derivative contracts totaled $3.2 million at March 31, 2009.
17
Note 6 Segment Reporting
The Corporation has two reportable segments, the Alabama Region and the Florida Region. The Alabama
Region consists of operations located throughout Alabama. The Florida Region consists of operations
located primarily in the Tampa Bay area and the panhandle region of Florida. The Corporations
reportable segments are managed as separate business units because they are located in different
geographic areas. Both segments derive revenues from the delivery of financial services. These
services include commercial loans, mortgage loans, consumer loans, deposit accounts and other
financial services. Administrative and other banking activities include the results of the
Corporations investment portfolio, mortgage banking 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, 2008. 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 March 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
$ |
7,547 |
|
|
$ |
9,071 |
|
|
$ |
16,618 |
|
|
$ |
4,710 |
|
|
$ |
21,328 |
|
Provision for loan losses |
|
|
1,612 |
|
|
|
1,478 |
|
|
|
3,090 |
|
|
|
362 |
|
|
|
3,452 |
|
Noninterest income |
|
|
2,071 |
|
|
|
515 |
|
|
|
2,586 |
|
|
|
(2,821 |
) |
|
|
(235 |
) |
Noninterest expense |
|
|
8,312 |
|
|
|
5,736 |
|
|
|
14,048 |
|
|
|
10,015 |
|
|
|
24,063 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) profit |
|
$ |
(306 |
) |
|
$ |
2,372 |
|
|
$ |
2,066 |
|
|
$ |
(8,488 |
) |
|
|
(6,422 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,848 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(3,574 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
1,050,658 |
|
|
$ |
1,147,653 |
|
|
$ |
2,198,311 |
|
|
$ |
931,158 |
|
|
$ |
3,129,469 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
$ |
6,998 |
|
|
$ |
9,621 |
|
|
$ |
16,619 |
|
|
$ |
1,873 |
|
|
$ |
18,492 |
|
Provision for loan losses |
|
|
855 |
|
|
|
858 |
|
|
|
1,713 |
|
|
|
159 |
|
|
|
1,872 |
|
Noninterest income |
|
|
1,862 |
|
|
|
450 |
|
|
|
2,312 |
|
|
|
4,289 |
|
|
|
6,601 |
|
Noninterest expense |
|
|
7,626 |
|
|
|
5,486 |
|
|
|
13,112 |
|
|
|
9,152 |
|
|
|
22,264 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit (loss) |
|
$ |
379 |
|
|
$ |
3,727 |
|
|
$ |
4,106 |
|
|
$ |
(3,149 |
) |
|
|
957 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
262 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
695 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
993,808 |
|
|
$ |
1,155,201 |
|
|
$ |
2,149,009 |
|
|
$ |
814,890 |
|
|
$ |
2,963,899 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 7 Net (Loss) Income per Common Share
The following table sets forth the computation of basic net (loss)income per common share and
diluted net (loss)income per common share (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2009 |
|
|
2008 |
|
Numerator: |
|
|
|
|
|
|
|
|
Net (loss)income |
|
$ |
(3,574 |
) |
|
$ |
695 |
|
Less preferred dividends and amortization |
|
|
(1,143 |
) |
|
|
|
|
|
|
|
|
|
|
|
For basic and diluted, net (loss)income applicable to common stockholders |
|
$ |
(4,717 |
) |
|
$ |
695 |
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
For basic, weighted average common shares outstanding |
|
|
10,053 |
|
|
|
10,011 |
|
Effect of dilutive stock options |
|
|
|
|
|
|
34 |
|
|
|
|
|
|
|
|
Average common shares outstanding, assuming dilution |
|
|
10,053 |
|
|
|
10,045 |
|
|
|
|
|
|
|
|
Basic net (loss)income per common share |
|
$ |
(0.47 |
) |
|
$ |
0.07 |
|
|
|
|
|
|
|
|
Diluted net (loss)income per common share |
|
$ |
(0.47 |
) |
|
$ |
0.07 |
|
|
|
|
|
|
|
|
18
Basic net (loss)income per common share is calculated by dividing net income(loss), less dividend
requirements on outstanding preferred stock, by the weighted-average number of common shares
outstanding for the period.
Diluted net income per common share takes into consideration the pro forma dilution assuming
certain warrants, unvested restricted stock and unexercised stock option awards were converted or
exercised into common shares. Options on 86,653 shares of common stock were not included in
computing diluted net loss per share for the three-month period ending March 31, 2009, as they are
considered anti-dilutive.
Note 8 Comprehensive (Loss) Income
Total comprehensive loss was $5,199,000 for the three-month period ended March 31, 2009, compared
to comprehensive income of $1,486,000 for the three-month period ended March 31, 2008. Total
comprehensive income consists of net (loss)income and other comprehensive income. The components of
other comprehensive income for the three-month period ending March 31, 2009 and 2008 are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-Tax |
|
|
|
|
|
|
Net of |
|
|
|
Amount |
|
|
Income Tax |
|
|
Income Tax |
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on available for sale securities, net of total OTTI |
|
$ |
(8,394 |
) |
|
$ |
3,105 |
|
|
$ |
(5,289 |
) |
Less reclassification adjustment for OTTI realized in net loss |
|
|
5,845 |
|
|
|
(2,163 |
) |
|
|
3,682 |
|
Unrealized loss on derivatives |
|
|
(29 |
) |
|
|
11 |
|
|
|
(18 |
) |
|
|
|
|
|
|
|
|
|
|
Net unrealized loss |
|
$ |
(2,578 |
) |
|
$ |
(953 |
) |
|
$ |
(1,625 |
) |
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain on available for sale securities |
|
$ |
1,731 |
|
|
$ |
(687 |
) |
|
$ |
1,044 |
|
Less reclassification adjustment for gains realized in net income |
|
|
(402 |
) |
|
|
149 |
|
|
|
(253 |
) |
|
|
|
|
|
|
|
|
|
|
Net unrealized gain |
|
$ |
1,329 |
|
|
$ |
(538 |
) |
|
$ |
791 |
|
|
|
|
|
|
|
|
|
|
|
Note 9 Income Taxes
The difference in the effective tax rate in the three-month period ended March 31, 2009 and 2008,
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.
Note 10 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.
19
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 three-month periods ended March 31, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
2008 |
Risk free interest rate |
|
NA |
|
|
4.50 |
% |
Volatility factor |
|
NA |
|
|
29.11 |
% |
Weighted average life of options (in years) |
|
NA |
|
|
5.00 |
|
Dividend yield |
|
NA |
|
|
0.00 |
% |
A summary of stock option activity as of March 31, 2009 and changes during the three months then
ended is shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
Average |
|
|
|
|
|
|
|
|
|
|
Average |
|
|
Remaining |
|
|
|
|
|
|
|
|
|
|
Exercise |
|
|
Contractual |
|
|
Aggregate |
|
|
|
Number |
|
|
Price |
|
|
Term |
|
|
Intrinsic Value |
|
Under option, January 1, 2009 |
|
|
848,922 |
|
|
$ |
29.94 |
|
|
|
|
|
|
|
|
|
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited |
|
|
(18,625 |
) |
|
|
32.70 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Under option, March 31, 2009 |
|
|
830,297 |
|
|
$ |
29.88 |
|
|
|
5.89 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at end of period |
|
|
634,028 |
|
|
$ |
31.72 |
|
|
|
3.84 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average fair value per option of options granted during the period |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2009, there was $611,000 of total unrecognized compensation expense related to the
unvested awards. This expense will be recognized over the next 12-to 30-month period unless the
options vest earlier based on achievement of benchmark trading price levels. During the three-month
period ended March 31, 2009, and 2008, the Corporation recognized approximately $121,000 and
$161,000, respectively, in compensation expense related to options granted.
Note 11 Fair Value Measurements
In September 2006, the FASB issued SFAS 157 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.
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.
20
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 |
|
|
|
March 31, |
|
|
Identical Assets |
|
|
Observable Inputs |
|
|
Inputs |
|
|
|
2009 |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
Available for sale securities |
|
$ |
328,708 |
|
|
$ |
179 |
|
|
$ |
320,077 |
|
|
$ |
8,452 |
|
Derivative assets |
|
|
1,054 |
|
|
|
|
|
|
|
1,054 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recurring basis measured assets |
|
$ |
329,762 |
|
|
$ |
179 |
|
|
$ |
321,131 |
|
|
$ |
8,452 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities |
|
$ |
1,431 |
|
|
$ |
|
|
|
$ |
1,431 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recurring basis measured liabilities |
|
$ |
1,431 |
|
|
$ |
|
|
|
$ |
1,431 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation Techniques Recurring Basis
Securities Available for Sale. When quoted prices are available in an active market, securities are
classified as Level 1. These securities include investments in Fannie Mae and Freddie Mac preferred
stock. For securities reported at fair value utilizing Level 2 inputs, the Corporation obtains fair
value measurements from an independent pricing service. These fair value measurements consider
observable market data that may include benchmark yield curves, reported trades, broker/dealer
quotes, issuer spreads and credit information, among other inputs. In certain cases where there is
limited activity, securities are classified as Level 3 within the valuation hierarchy. These
securities include primarily single issue and pooled trust preferred securities. The fair value of
the trust preferred securities is calculated using an income approach based on various spreads to
LIBOR determined after a review of applicable financial data and credit ratings (See Note 3).
Derivative financial instruments. Derivative financial instruments are measured at fair value based
on modeling that utilizes observable market inputs for various interest rates published by leading
third-party financial news and data providers. This is observable data that represents the rates
used by market participants for instruments entered into at that date; however, they are not based
on actual transactions so they are classified as Level 2.
Changes in Level 3 fair value measurements
The tables below include a roll-forward of the condensed consolidated statement of financial
condition amounts for the three months ended March 31, 2009, including changes in fair value for
financial instruments within Level 3 of the valuation hierarchy. Level 3 financial instruments
typically include unobservable components, but may also include some observable components that may
be validated to external sources. The gains or (losses) in the following table may include changes
to fair value due in part to observable factors that may be part of the valuation methodology.
Level 3 assets measured at fair value on a recurring basis
|
|
|
|
|
|
|
Available for |
|
(in thousands) |
|
Sale Securities |
|
Balance at December 31, 2008 |
|
$ |
18,497 |
|
Total gains (losses) (realized and unrealized) |
|
|
|
|
Included in earnings investment security loss |
|
|
(5,845 |
) |
Included in other comprehensive income |
|
|
(4,175 |
) |
Other changes due to principal payments |
|
|
(25 |
) |
|
|
|
|
Balance at March 31, 2009 |
|
$ |
8,452 |
|
|
|
|
|
Total amount of loss for the period year-to-date included
in earnings attributable to the change in unrealized gains
(losses) related to assets held at March 31, 2009 |
|
$ |
(5,845 |
) |
|
|
|
|
21
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 |
|
|
|
|
|
|
|
|
|
Fair Value |
|
|
Active Markets for |
|
|
Significant Other |
|
|
Significant |
|
|
|
at |
|
|
Identical |
|
|
Observable |
|
|
Unobservable |
|
|
|
March 31, |
|
|
Assets |
|
|
Inputs |
|
|
Inputs |
|
|
|
2009 |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
Mortgage loans held for sale |
|
$ |
40,628 |
|
|
$ |
|
|
|
$ |
40,628 |
|
|
$ |
|
|
Impaired loans, net of specific allowance |
|
|
54,927 |
|
|
|
|
|
|
|
|
|
|
|
54,927 |
|
Other real estate |
|
|
25,609 |
|
|
|
|
|
|
|
|
|
|
|
25,609 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total nonrecurring basis measured assets |
|
$ |
121,164 |
|
|
$ |
|
|
|
$ |
40,628 |
|
|
$ |
80,536 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 approved
and hired by the Corporation. The value of business equipment is determined based on appraisals by
qualified licensed appraisers approved and hired by the Corporation, if significant. Appraised and
reported values are discounted based on managements historical knowledge, changes in market
conditions from the time of valuation, and/or managements expertise and knowledge of the client
and clients business. Impaired loans are reviewed and evaluated on at least a quarterly basis for
additional impairment and adjusted accordingly, based on the same factors identified above.
Other Real Estate. The value of other real estate collateral is determined based on appraisals by
qualified licensed appraisers approved and hired by the Corporation. Appraised and reported values
are discounted based on managements historical knowledge, changes in market conditions from the
time of valuation, and/or managements expertise and knowledge of the client and clients business.
Other real estate is reviewed and evaluated on at least a quarterly basis for additional impairment
and adjusted accordingly, based on the same factors identified above.
22
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Basis of Presentation
The following is a discussion and analysis of our March 31, 2009 condensed consolidated financial
condition and results of operations for the three-month period ended March 31, 2009 and 2008. 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, 2008.
Overview
The quarters results reflect this difficult recessionary period and the challenges facing the
entire banking industry. While our nonperforming assets increased as we anticipated, our credit
losses remain low and consistent with our historical levels. Equally important, we showed dramatic
growth in new customers and core deposits while seeing loan growth moderate in comparison to 2008.
Currently, we are experiencing a very high level of liquidity, and our reliance on non-customer
funding is quite low. We are also closely focused on our capital structure, which remains well
capitalized so that our capacity to finance new lending activity remains strong.
Even though we may be experiencing some early signs of economic improvement and some renewed
confidence in the stock market, these are very preliminary, and at best, we are still in a
protracted recession. In these unprecedented times, our focus will remain on the long run, on
maintaining our ability to support our customers in their growth along conservative lines. Our new
business development activities continue to be focused on relationship building, which we
anticipate will result in stronger deposit growth along with new loans as new relationships are
added. To a large degree, the funding improvement we experienced in this quarter is associated with
our success in building relationship banking.
Our principal subsidiary is Superior Bank (theBank), a federal savings bank headquartered in
Birmingham, Alabama, which operates 77 banking offices from Huntsville, Alabama to Venice, Florida
and 24 consumer finance company offices in Alabama. Our Florida franchise currently has 32 branches
and Alabama has 45 branches.
Our first quarter 2009 net loss was $(3,574,000), or $(0.47) per share, compared to net income of
$695,000 for the first quarter of 2008. This loss is primarily the result of OTTI charges of $5.8
million pre-tax incurred on certain trust preferred securities in our portfolio.
Our first quarter 2009 net interest income decreased to $21.3 million, or 2.1%, from $21.8 million
for the fourth quarter of 2008 and increased by 15.3% from $18.5 million for the first quarter of
2008. Net interest margin declined to 3.12% compared to 3.29% for the fourth quarter of 2008. This
narrowing is due principally to a decrease in the prime rate late in the fourth quarter of 2008,
the effect of which was felt for the full first quarter, along with an increase in non-performing
assets. The effect of non-accrual loans on the net interest margin for the first quarter of 2009 is
estimated to be 0.13%. Our total assets remained level at $3.1 billion at March 31, 2009, compared
to December 31, 2008. Our total deposits at March 31, 2009 increased 7.03% to $2.5 billion from
December 31, 2008 and increased 15.8% from March 31, 2008.
Loans increased to $2.36 billion at March 31, 2009, an increase of 1.9% from December 31, 2008 and
14.2% from March 31, 2008. We approved approximately $327 million in new loan commitments in the
first quarter of 2009, two-thirds of which were residential mortgages for sale in the secondary
market.
At March 31, 2009, nonperforming loans (NPLs) were 3.15% of total loans compared to 2.71% at
December 31, 2008, which is in line with managements expectations. The $11.4 million NPL increase
during the first quarter of 2009 from the fourth quarter of 2008 was principally due to increases
in residential 1-4 mortgages ($7.5 million) in Alabama. Of total NPLs, $28.7 million is in Alabama
and $44.5 million is in Florida.
23
Loans in the 30-89 days past due (DPD) category increased to 2.34% of total loans at March 31, 2009
from 1.05% of total loans at December 31, 2008, primarily as a result of one credit totaling $14.7
million.
Net loan charge-offs increased to 0.42% as a percentage of average loans during the first quarter
of 2009, compared to 0.32% during the fourth quarter of 2008. Of the $2.4 million net charge-offs
in the first quarter of 2009, the Banks charge-offs were $1.9 million, or 0.33% of consolidated
average loans, and the consumer finance company charge-offs were $525,000, or 0.09% of consolidated
average loans. Of total charge-offs, 22.5% related to 1-4 family mortgages and 37.2% related to
real estate construction.
The provision for loan losses was $3.5 million in the first quarter of 2009, maintaining the
allowance for loan losses at 1.27% of net loans, or $29.9 million, at March 31, 2009, compared to
1.25% of net loans, or $28.8 million, at December 31, 2008. Management has taken a proactive
approach to management of these loans and will continue to maintain an active role in them to
minimize loss.
Short-term liquid assets (cash and due from banks, interest-bearing deposits in other banks and
federal funds sold) increased $29.8 million, or 33.3%, to $119.2 million at March 31, 2009 from
$89.4 million at December 31, 2008. At March 31, 2009, short-term liquid assets comprised 3.8% of
total assets, compared to 2.9% at December 31, 2008. On March 31, 2009, the Bank completed an
offering of a $40 million aggregate principal amount 2.625% Senior Note due 2012 (the Note). The
Note is guaranteed by the Federal Deposit Insurance Corporation (FDIC) under its Temporary
Liquidity Guarantee Program (TLGP) and is backed by the full faith and credit of the United
States. Management continually monitors our liquidity position and will increase or decrease
short-term liquid assets as necessary. Our principal sources of funds are deposits, principal and
interest payments on loans, federal funds sold and maturities and sales of investment securities.
In addition to these sources of liquidity, we have access to a minimum of $250 million in
additional funding from traditional sources. Management believes it has established sufficient
sources of funds to meet its anticipated liquidity needs.
The Bank continues to be well-capitalized under regulatory guidelines, with a total risk-based
capital ratio of 11.18%, a Tier I core capital ratio of 8.37% and a Tier I risk based capital ratio
of 9.95% as of March 31, 2009. The Banks Tangible Common
Equity Ratio is 8.37% at March 31, 2009.
Our Total
Risk Based Capital Ratio was 11.13% and our Tangible Common Equity
Ratio was 8.14% at
March 31, 2009.
Recent Accounting Pronouncements
On April 9, 2009, the Financial Accounting Standards Board (FASB) finalized three FASB Staff
Positions (FSPs) regarding the accounting treatment for investments including mortgage-backed
securities. These FSPs changed the method for determining if an other-than-temporary impairment
(OTTI) exists and the amount of OTTI to be recorded through an entitys income statement. The
changes brought about by the FSPs provide greater clarity and reflect a more accurate
representation of the credit and noncredit components of an OTTI event. The three FSPs are as
follows:
|
|
|
FSP SFAS 157-4 Determining Fair Value When the Volume and Level of Activity for the
Assets or Liability Have Significantly Decreased and Identifying Transactions That Are Not
Orderly (FSP 157-4) provides guidelines for making fair value measurements more
consistent with the principles presented in SFAS 157, Fair Value Measurements (SFAS
157), It emphasizes that even if there has been a significant decrease in the volume and
level of activity for the asset or liability and regardless of the valuation technique used,
the objective of a fair value measurement remains the same. Fair value is the price that
would be received to sell an asset or paid to transfer a liability in an orderly transaction
(that is, not a forced liquidation or distressed sale), between market participants at the
measurement date under current market conditions. |
|
|
|
|
FSP SFAS 115-2 and SFAS 124-2, Recognition and Presentation of Other-than-temporary
impairments (FSP 115-2 and 124-2) provides additional guidance designed to create greater
clarity and consistency in accounting for and presenting impairment losses on securities. It
amends OTTI impairment guidance for debt securities to make the guidance more operational
and to improve the presentation and disclosure of OTTI on debt and equity securities in the
financial statements. It does not amend existing recognition and measurement guidance
related to OTTI of equity securities. |
|
|
|
|
FSP SFAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial
Instruments (FSP 107-1 and APB 28-1) enhances consistency in financial reporting by
increasing the frequency of fair value disclosures. |
These staff positions are effective for financial statements issued for periods ending after June
15, 2009, with early application possible for the first quarter of 2009. We have elected to adopt
FSP 157-4 and FSP 115-2 and 124-2 as of March 31, 2009, while
24
deferring the election of FSP 107-1 and APB 28-1 until June 30, 2009. The adoption of FSP 107-1 and
APB 28-1 is not expected to have a significant impact on our financial condition, results of
operations or cash flow. The effect of the early adoption of FSP 115-2 and 124-2 has resulted in
the portion of OTTI determined to be credit related ($5,845,000, or $3,682,000 after tax) being
recognized in current earnings, while the portion of OTTI related to
other factors ($4,659,000, or
$2,935,000 after-tax) was recognized in other comprehensive loss (see Notes 3 and 8 to the
condensed consolidated financial statements).
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 was effective for us on January 1, 2009 and did not have a significant impact
on our financial position, results of operations or cash flows (see Note 5 to the condensed
consolidated financial statements).
Results of Operations
The following table sets forth key earnings and other financial data for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Ended March 31, |
|
|
2009 |
|
2008 |
|
|
(Dollars in thousands, except per share data) |
Net (loss) income |
|
$ |
(3,574 |
) |
|
$ |
695 |
|
Net (loss) income applicable to common shareholders |
|
|
(4,717 |
) |
|
|
695 |
|
Net (loss) income per common share (diluted) |
|
|
(0.47 |
) |
|
|
0.07 |
|
Net interest margin |
|
|
3.12 |
% |
|
|
3.04 |
% |
Net interest spread |
|
|
2.91 |
% |
|
|
2.76 |
% |
Return on average assets |
|
|
(0.46 |
)% |
|
|
0.10 |
% |
Return on average tangible assets |
|
|
(0.46 |
)% |
|
|
0.10 |
% |
Return on average stockholders equity |
|
|
(5.64 |
)% |
|
|
0.80 |
% |
Return on average tangible equity |
|
|
(6.14 |
)% |
|
|
1.70 |
% |
Common book value per share |
|
$ |
17.18 |
|
|
$ |
35.00 |
|
Tangible common book value per share |
|
|
15.20 |
|
|
|
16.44 |
|
The change in our net income during the first quarter of 2009 compared to the first quarter of 2008
is primarily the result of increases in the provision for loan losses, increases in securities
losses resulting primarily from OTTI, and the accrual of dividends on preferred stock which began
in the fourth quarter of 2008. 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. Changes in other components of our operations are
discussed in the various sections that follow.
25
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 |
|
|
|
First Quarter 2009 vs 2008 |
|
|
|
Average |
|
|
Income/ |
|
|
Yield/ |
|
|
|
Balance |
|
|
Expense |
|
|
Rate |
|
|
|
(Dollars in Thousands) |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Loans, net of unearned income |
|
$ |
321,833 |
|
|
$ |
(2,394 |
) |
|
|
(1.33 |
)% |
Investment securities |
|
|
|
|
|
|
|
|
|
|
|
|
Taxable |
|
|
(5,222 |
) |
|
|
(43 |
) |
|
|
0.07 |
|
Tax-exempt |
|
|
308 |
|
|
|
(3 |
) |
|
|
(0.03 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total investment securities |
|
|
(4,914 |
) |
|
|
(46 |
) |
|
|
0.07 |
|
Federal funds sold |
|
|
(2,301 |
) |
|
|
(75 |
) |
|
|
(3.09 |
) |
Other investments |
|
|
12,082 |
|
|
|
(282 |
) |
|
|
(3.13 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets |
|
$ |
326,700 |
|
|
|
(2,797 |
) |
|
|
(1.17 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits |
|
$ |
(34,619 |
) |
|
|
(2,881 |
) |
|
|
(1.63 |
) |
Savings deposits |
|
|
141,768 |
|
|
|
688 |
|
|
|
0.25 |
|
Time deposits |
|
|
110,013 |
|
|
|
(3,167 |
) |
|
|
(1.30 |
) |
Other borrowings |
|
|
65,510 |
|
|
|
(450 |
) |
|
|
(1.34 |
) |
Subordinated debentures |
|
|
7,145 |
|
|
|
178 |
|
|
|
0.35 |
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities |
|
$ |
289,817 |
|
|
|
(5,632 |
) |
|
|
(1.32 |
) |
|
|
|
|
|
|
|
|
|
|
Net interest income/net interest spread |
|
|
|
|
|
|
2,835 |
|
|
|
0.15 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
Net yield on earning assets |
|
|
|
|
|
|
|
|
|
|
0.08 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
Taxable equivalent adjustment: |
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities |
|
|
|
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
|
|
|
$ |
2,836 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26
The following table depicts, on a taxable equivalent basis for the periods indicated, certain
information related to our average balance sheet and our average yields on assets and average costs
of liabilities. Average yields are calculated by dividing income or expense by the average balance
of the corresponding assets or liabilities. Average balances have been calculated on a daily basis.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
Average |
|
|
Income/ |
|
|
Yield/ |
|
|
Average |
|
|
Income/ |
|
|
Yield/ |
|
|
|
Balance |
|
|
Expense |
|
|
Rate |
|
|
Balance |
|
|
Expense |
|
|
Rate |
|
|
|
(Dollars in thousands) |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, net of unearned income (1) |
|
$ |
2,392,145 |
|
|
$ |
34,952 |
|
|
|
5.93 |
% |
|
$ |
2,070,312 |
|
|
$ |
37,346 |
|
|
|
7.26 |
% |
Investment securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable |
|
|
301,973 |
|
|
|
4,009 |
|
|
|
5.38 |
|
|
|
307,195 |
|
|
|
4,052 |
|
|
|
5.31 |
|
Tax-exempt (2) |
|
|
40,280 |
|
|
|
649 |
|
|
|
6.53 |
|
|
|
39,972 |
|
|
|
652 |
|
|
|
6.56 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities |
|
|
342,253 |
|
|
|
4,658 |
|
|
|
5.52 |
|
|
|
347,167 |
|
|
|
4,704 |
|
|
|
5.45 |
|
Federal funds sold |
|
|
7,240 |
|
|
|
5 |
|
|
|
0.28 |
|
|
|
9,541 |
|
|
|
80 |
|
|
|
3.37 |
|
Other investments |
|
|
57,751 |
|
|
|
362 |
|
|
|
2.54 |
|
|
|
45,669 |
|
|
|
644 |
|
|
|
5.67 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets |
|
|
2,799,389 |
|
|
|
39,977 |
|
|
|
5.79 |
|
|
|
2,472,689 |
|
|
|
42,774 |
|
|
|
6.96 |
|
Noninterest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks |
|
|
70,192 |
|
|
|
|
|
|
|
|
|
|
|
56,657 |
|
|
|
|
|
|
|
|
|
Premises and equipment |
|
|
105,079 |
|
|
|
|
|
|
|
|
|
|
|
103,624 |
|
|
|
|
|
|
|
|
|
Accrued interest and other assets |
|
|
153,517 |
|
|
|
|
|
|
|
|
|
|
|
287,435 |
|
|
|
|
|
|
|
|
|
Allowance for loan losses |
|
|
(29,123 |
) |
|
|
|
|
|
|
|
|
|
|
(22,814 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
3,099,054 |
|
|
|
|
|
|
|
|
|
|
$ |
2,897,591 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits |
|
$ |
641,529 |
|
|
$ |
2,195 |
|
|
|
1.39 |
% |
|
$ |
676,148 |
|
|
$ |
5,076 |
|
|
|
3.02 |
% |
Savings deposits |
|
|
199,161 |
|
|
|
921 |
|
|
|
1.88 |
|
|
|
57,393 |
|
|
|
233 |
|
|
|
1.63 |
|
Time deposits |
|
|
1,359,453 |
|
|
|
11,777 |
|
|
|
3.51 |
|
|
|
1,249,440 |
|
|
|
14,944 |
|
|
|
4.81 |
|
Other borrowings |
|
|
333,376 |
|
|
|
2,342 |
|
|
|
2.85 |
|
|
|
267,866 |
|
|
|
2,792 |
|
|
|
4.20 |
|
Subordinated debentures |
|
|
60,852 |
|
|
|
1,193 |
|
|
|
7.95 |
|
|
|
53,707 |
|
|
|
1,015 |
|
|
|
7.60 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities |
|
|
2,594,371 |
|
|
|
18,428 |
|
|
|
2.88 |
|
|
|
2,304,554 |
|
|
|
24,060 |
|
|
|
4.20 |
|
Noninterest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits |
|
|
231,547 |
|
|
|
|
|
|
|
|
|
|
|
216,745 |
|
|
|
|
|
|
|
|
|
Accrued interest and other liabilities |
|
|
21,547 |
|
|
|
|
|
|
|
|
|
|
|
24,942 |
|
|
|
|
|
|
|
|
|
Stockholders equity |
|
|
251,589 |
|
|
|
|
|
|
|
|
|
|
|
351,350 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
3,099,054 |
|
|
|
|
|
|
|
|
|
|
$ |
2,897,591 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income/net interest spread |
|
|
|
|
|
|
21,549 |
|
|
|
2.91 |
% |
|
|
|
|
|
|
18,714 |
|
|
|
2.76 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net yield on earning assets |
|
|
|
|
|
|
|
|
|
|
3.12 |
% |
|
|
|
|
|
|
|
|
|
|
3.04 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable equivalent adjustment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities (2) |
|
|
|
|
|
|
221 |
|
|
|
|
|
|
|
|
|
|
|
222 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
|
|
|
$ |
21,328 |
|
|
|
|
|
|
|
|
|
|
$ |
18,492 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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%. |
27
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 periods ended March 31, 2009 and 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
2009 vs. 2008 (1) |
|
|
|
Increase |
|
|
Changes Due To |
|
|
|
(Decrease) |
|
|
Rate |
|
|
Volume |
|
|
|
(Dollars in thousands) |
|
Increase (decrease) in: |
|
|
|
|
|
|
|
|
|
|
|
|
Income from interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest and fees on loans |
|
$ |
(2,394 |
) |
|
$ |
(7,528 |
) |
|
$ |
5,134 |
|
Interest on securities |
|
|
|
|
|
|
|
|
|
|
|
|
Taxable |
|
|
(43 |
) |
|
|
41 |
|
|
|
(84 |
) |
Tax-exempt |
|
|
(3 |
) |
|
|
(5 |
) |
|
|
2 |
|
Interest on federal funds |
|
|
(75 |
) |
|
|
(59 |
) |
|
|
(16 |
) |
Interest on other investments |
|
|
(282 |
) |
|
|
(419 |
) |
|
|
137 |
|
|
|
|
|
|
|
|
|
|
|
Total interest income |
|
|
(2,797 |
) |
|
|
7,970 |
|
|
|
5,173 |
|
|
|
|
|
|
|
|
|
|
|
Expense from interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest on demand deposits |
|
|
(2,881 |
) |
|
|
(2,631 |
) |
|
|
(250 |
) |
Interest on savings deposits |
|
|
688 |
|
|
|
40 |
|
|
|
648 |
|
Interest on time deposits |
|
|
(3,167 |
) |
|
|
(4,357 |
) |
|
|
1,190 |
|
Interest on other borrowings |
|
|
(450 |
) |
|
|
(1,022 |
) |
|
|
572 |
|
Interest on subordinated debentures |
|
|
178 |
|
|
|
46 |
|
|
|
132 |
|
|
|
|
|
|
|
|
|
|
|
Total interest expense |
|
|
(5,632 |
) |
|
|
(7,924 |
) |
|
|
2,292 |
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
$ |
2,835 |
|
|
$ |
(46 |
) |
|
$ |
2,881 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The change in interest due to both rate and volume has been allocated to rate and volume
changes in proportion to the relationship of the absolute dollar amounts of the changes in
each. |
Noninterest income. Noninterest income (loss) decreased $6.8 million to $(235,000) for the first
quarter of 2009, from $6.6 million in the first quarter of 2008. The components of noninterest
income for the first quarter of 2009 and 2008 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
2009 |
|
|
2008 |
|
|
% Change |
|
|
|
(Dollars in thousands) |
|
Service charges and fees on deposits |
|
$ |
2,387 |
|
|
$ |
2,103 |
|
|
|
13.50 |
% |
Mortgage banking income |
|
|
1,691 |
|
|
|
1,266 |
|
|
|
33.57 |
|
Investment securities (losses) gains |
|
|
(5,845 |
) |
|
|
402 |
|
|
NCM |
Change in fair value of derivatives |
|
|
(199 |
) |
|
|
1,050 |
|
|
|
(118.95 |
) |
Increase in cash surrender value of life insurance |
|
|
515 |
|
|
|
552 |
|
|
|
(6.70 |
) |
Other noninterest income |
|
|
1,216 |
|
|
|
1,228 |
|
|
|
(0.98 |
) |
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
(235 |
) |
|
$ |
6,601 |
|
|
|
(103.56 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
NCM not considered meaningful. |
The increase in service charges and fees on deposits is primarily attributable to pricing changes
and account growth. The increase in mortgage banking income during the first quarter of 2009 is the
result of an increase in the volume of refinancing. The investment securities loss is the result of
an impairment charge related to several trust preferred securities. See Financial Condition
Investment Securities for additional discussion. The decline resulting from the change in the fair
value of derivatives is primarily the result of a call on an interest rate swap (See Note 5 to
the condensed consolidated financial statements).
28
Noninterest expenses. Noninterest expenses increased $1.8 million, or 8.1%, to $24.1 million for
the first quarter of 2009 from $22.3 million for the first quarter of 2008. This increase is
primarily due to the full impact of our new branch program, which contributed to increases in
personnel, occupancy cost and equipment expense, totaled approximately $413,000. An additional
large increase of $427,000 was recorded in insurance expense due to a first quarter of 2009 FDIC
premium increase along with the exhaustion of premium rebates which were recorded in the first
quarter of 2008. We also recognized additional cost of approximately $386,000 associated with
foreclosed assets. Noninterest expenses included the following for the first quarters of 2009 and
2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
2009 |
|
|
2008 |
|
|
% Change |
|
|
|
(Dollars in thousands) |
|
Noninterest Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits |
|
$ |
12,309 |
|
|
$ |
12,141 |
|
|
|
1.4 |
% |
Occupancy, furniture and equipment expense |
|
|
4,416 |
|
|
|
4,060 |
|
|
|
8.8 |
|
Amortization of core deposit intangibles |
|
|
985 |
|
|
|
896 |
|
|
|
9.9 |
|
Merger-related costs |
|
|
|
|
|
|
108 |
|
|
NA |
|
Professional fees |
|
|
765 |
|
|
|
436 |
|
|
|
75.3 |
|
Insurance expense |
|
|
1,067 |
|
|
|
640 |
|
|
|
66.6 |
|
Postage, stationery and supplies |
|
|
727 |
|
|
|
779 |
|
|
|
(6.7 |
) |
Communications expense |
|
|
802 |
|
|
|
670 |
|
|
|
19.7 |
|
Advertising expense |
|
|
551 |
|
|
|
713 |
|
|
|
(22.8 |
) |
Other operating expense |
|
|
2,441 |
|
|
|
1,821 |
|
|
|
34.3 |
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
24,063 |
|
|
$ |
22,264 |
|
|
|
8.1 |
% |
|
|
|
|
|
|
|
|
|
|
Income tax (benefit) expense. We recognized an income tax benefit of $2.8 million compared to
income tax expense of $262,000 for the first quarter of 2009 and 2008, respectively. The difference
in the effective tax rate in the three-month period ended March 31, 2009 and 2008, 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.
Provision for Loan Losses and Loan Charge-offs. The provision for loan losses was $3.4 million for
the first quarter ended March 31, 2009 compared to $1.9 million and $3.0 million the quarters ended
March 31, 2008 and December 31, 2008, respectively. In the first quarter of 2009, we had net
charged-off loans totaling $2.4 million, compared to net charged-off loans of $1.5 million and $1.8
million in the quarters ended March 31, 2008 and December 31, 2008, respectively. The annualized
ratio of net charged-off loans to average loans was 0.42% for the quarter ended March 31, 2009,
compared to 0.29% and 0.32 for quarters ended March 31, 2008 and December 31, 2008, respectively.
The allowance for loan losses totaled $29.9 million, or 1.27% of loans, net of unearned income, at
March 31, 2009, compared to $23.3 million, or 1.13% and $28.9 million, or 1.25% of loans, net of
unearned income, at March 31, 2008 and December 31, 2008.
During the first quarter of 2009, the effects of the global recession continued to apply additional
stress to the overall performance of our loan portfolio. As a result, we increased our provision
for loan losses and our allowance for loan losses as the economy continued to show further signs of
deterioration. The following table shows the quarterly provision for loan losses, gross and net
charge-offs, and the level of allowance for loan losses that resulted from our ongoing assessment
of the loan portfolio during the year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
March 31, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2008 |
|
|
|
(Dollars in thousands) |
|
Beginning allowance for loan losses |
|
$ |
28,850 |
|
|
$ |
22,868 |
|
|
$ |
27,670 |
|
Provision for loan losses |
|
|
3,452 |
|
|
|
1,872 |
|
|
|
2,969 |
|
Total charge-offs |
|
|
2,809 |
|
|
|
1,745 |
|
|
|
1,971 |
|
Total recoveries |
|
|
(378 |
) |
|
|
(278 |
) |
|
|
(182 |
) |
|
|
|
|
|
|
|
|
|
|
Net charge-offs |
|
|
2,431 |
|
|
|
1,467 |
|
|
|
1,789 |
|
|
|
|
|
|
|
|
|
|
|
Ending allowance for loan losses |
|
$ |
29,871 |
|
|
$ |
23,273 |
|
|
$ |
28,850 |
|
|
|
|
|
|
|
|
|
|
|
Total loans, net of unearned income |
|
$ |
2,359,299 |
|
|
$ |
2,066,192 |
|
|
$ |
2,314,921 |
|
|
|
|
|
|
|
|
|
|
|
Ratio: Allowance for loan losses to total loans, net of unearned income |
|
|
1.27 |
% |
|
|
1.13 |
% |
|
|
1.25 |
% |
|
|
|
|
|
|
|
|
|
|
See Financial Condition Allowance for Loan Losses for additional discussion
29
Results of Segment Operations
We have two reportable segments, the Alabama Region and the Florida Region. The Alabama Region
consists of operations located throughout Alabama. The Florida Region consists of operations
located primarily in the Tampa Bay area and panhandle region of Florida. Please see Note 6
Segment Reporting in the accompanying notes to condensed consolidated financial statements included
elsewhere in this report for additional disclosure regarding our segment reporting. Operating
profit (loss) by segment is presented below for the periods ended March 31:
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
|
(In thousands) |
|
Alabama region |
|
$ |
(306 |
) |
|
$ |
379 |
|
Florida region |
|
|
2,372 |
|
|
|
3,727 |
|
Administrative and other |
|
|
(8,488 |
) |
|
|
(3,149 |
) |
Income tax (benefit) expense |
|
|
(2,848 |
) |
|
|
262 |
|
|
|
|
|
|
|
|
Consolidated net (loss) income |
|
$ |
(3,574 |
) |
|
$ |
695 |
|
|
|
|
|
|
|
|
Alabama Region. Operating loss for March 31, 2009 totaled $(306,000), compared to $379,000
operating profit for March 31, 2008. The decline in profits is due primarily to increased provision
for loan losses and noninterest expenses.
Net interest income for 2009 increased $549,000, or 7.9%, compared to first quarter of 2008. The
increase was primarily the result of an increase in the average volume of earning assets offset by
a decrease in the average yield on interest-earning assets. See the analysis of net interest income
included in the section captioned Net Interest Income elsewhere in this discussion.
The provision for loan losses for first quarter of 2009 totaled $1.6 million compared to $854,000
in first quarter of 2008. See the analysis of the provision for loan losses included in the section
captioned Provision for Loan Losses and Loan Charge-offs elsewhere in this discussion.
Noninterest income for first quarter of 2009 increased $209,000, or 11.2%, compared to first
quarter of 2008 which was due to increases in service charges and other fees on deposit accounts
due to increased account volume and pricing changes. See the analysis of noninterest income in the
section captioned Noninterest Income included elsewhere in this discussion.
Noninterest expense for first quarter of 2009 increased $686,000 or 9.0% which included increases
in salaries and benefits, occupancy expenses and costs of foreclosed assets. These increases are
primarily related to our new branch openings and the increased levels of foreclosure activity. See
additional analysis of noninterest expense included in the section captioned Noninterest Expense
elsewhere in this discussion.
Florida Region. Operating profit for first quarter of 2009 totaled $2.4 million compared to $3.7
million operating profit for first quarter of 2008. The decline in profits was primarily the result
of a decrease in the net interest income and an increase in the provision for loan losses.
Net interest income for first quarter of 2009 decreased $550,000, or 5.7%, to $9.1 million compared
to $9.6 million in the first quarter of 2008. The increase in the average volume of earning assets
was offset by a decrease in the average yield on interest-earning assets. See the analysis of net
interest income included in the section captioned Net Interest Income included elsewhere in this
discussion.
The provision for loan losses for first quarter of 2009 totaled $1.5 million compared to $858,000
in first quarter of 2008. See the analysis of the provision for loan losses included in the section
captioned Provision for Loan Losses and Loan Charge-offs elsewhere in this discussion.
Noninterest income for first quarter of 2009 increased to $515,000, or 14.4%, compared to first
quarter of 2008. The increase was due to increases in service charges on deposit accounts which
were primarily due to increases in service charges and other fees on deposits due to increased
account volume and pricing changes. See the analysis of noninterest income in the section captioned
Noninterest Income elsewhere in this discussion.
Noninterest expense for first quarter of 2009 increased to $5.8 million, or 4.6%, compared to $5.5
million in first quarter of 2008. This increase is primarily related to an increase in the costs of
foreclosed assets and amortization of intangibles. See additional analysis of noninterest expense
included in the section captioned Noninterest Expense elsewhere in this discussion.
30
Fair Value Measurements
In accordance with the provisions of SFAS 157 (see Note 11 to the Condensed Consolidated Financial
Statements), 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.
At March 31, 2009, we had $89.0 million, or 19.7% of total assets valued at fair value that are
considered Level 3 valuations using unobservable inputs. As shown in Note 11 to the condensed
consolidated financial statements, available-for-sale securities with a carrying value of $8.5
million at March 31, 2009 were included in the Level 3 assets category measured at fair value on a
recurring basis. These securities consist primarily of bank and pooled trust preferred securities
and have a fair value of $6.6 million at March 31, 2009. As the market for these securities became
less active and pricing less reliable, management determined that these securities should be
transferred to a Level 3 category during the third quarter of 2008. Management measures fair value
on these investments based on various spreads determined after its review of applicable financial
data and credit ratings (See Financial Condition Investment Securities section below). The
remaining Level 3 assets totaling $80.5 million include loans which have been impaired under SFAS
114 and foreclosed other real estate which are valued on a nonrecurring basis based on appraisals
of the collateral. The value of this collateral is determined based on appraisals by qualified
licensed appraisers approved and hired by management. Appraised and reported values are discounted
based on managements historical knowledge, changes in market conditions from the time of
valuation, and/or managements expertise and knowledge of the client and clients business. The
collateral is reviewed and evaluated on at least a quarterly basis for additional impairment and
adjusted accordingly, based on the same factors identified above.
Financial Condition
Total assets were $3.129 billion at March 31, 2009, an increase of $77 million, or 2.5%, from
$3.052 billion as of December 31, 2008. Average total assets for the first quarter of 2009 were
$3.099 billion, which were funded by average total liabilities of $2.847 billion and average total
stockholders equity of $252 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 $29.8 million, or 33.3%, to $119.2
million at March 31, 2009 from $89.4 million at December 31, 2008. At March 31, 2009, short-term
liquid assets were 3.8% of total assets, compared to 2.9% at December 31, 2008. On March 31, 2009,
the Bank completed an offering of a $40 million aggregate principal amount 2.625% Senior Note due
2012 (the Note). The Note is guaranteed by the FDIC under its TLGP and is backed by the full
faith and credit of the United States. See Borrowings for additional discussion. 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 $18.4 million, or 5.3%, to $328.7
million at March 31, 2009, from $347.1 million at December 31, 2008. Average investment securities
totaled $342.3 million for the first quarter of 2009, compared to $347.2 million for the first
quarter of 2008. Investment securities were 11.7% of interest-earning assets at March 31, 2009,
compared to 12.7% at December 31, 2008. The investment portfolio produced an average taxable
equivalent yield of 5.52% for the first quarter of 2009, compared to 5.45% for the first quarter of
2008.
31
The following table presents the carrying value of the securities we held at the dates indicated.
Investment Portfolio
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for Sale |
|
|
|
March 31, |
|
|
December 31, |
|
|
Percent |
|
|
|
2009 |
|
|
2008 |
|
|
Change |
|
|
|
(Dollars in thousands) |
|
Investment securities available for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. agency securities |
|
$ |
9,042 |
|
|
$ |
3,843 |
|
|
|
135.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities (MBS): |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Agency MBS residential |
|
|
228,779 |
|
|
|
237,508 |
|
|
|
(3.7 |
) |
U.S. Agency MBS collateralized mortgage obligation (CMO) |
|
|
14,663 |
|
|
|
16,186 |
|
|
|
(9.4 |
) |
Private-label CMO |
|
|
23,446 |
|
|
|
26,430 |
|
|
|
(11.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total MBS |
|
|
266,888 |
|
|
|
280,124 |
|
|
|
(4.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
State, county and municipal securities |
|
|
40,273 |
|
|
|
40,622 |
|
|
|
(0.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
Corporate obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt |
|
|
5,710 |
|
|
|
5,746 |
|
|
|
(0.6 |
) |
Pooled trust preferred securities |
|
|
5,237 |
|
|
|
9,939 |
|
|
|
(47.3 |
) |
Single issue trust preferred securities |
|
|
1,379 |
|
|
|
6,704 |
|
|
|
(79.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total corporate obligations |
|
|
12,326 |
|
|
|
22,389 |
|
|
|
(44.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
Equity securities |
|
|
179 |
|
|
|
164 |
|
|
|
9.1 |
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities available for sale |
|
$ |
328,708 |
|
|
$ |
347,142 |
|
|
|
(5.3 |
)% |
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes the investment securities with unrealized losses at March 31, 2009
by aggregated major security type and length of time in a continuous unrealized loss position:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2009 |
|
|
|
Less Than 12 Months |
|
|
More Than 12 Months |
|
|
Total |
|
|
|
|
|
|
|
Unrealized |
|
|
|
|
|
|
Unrealized |
|
|
|
|
|
|
Unrealized |
|
|
|
Fair Value |
|
|
Losses (1) |
|
|
Fair Value |
|
|
Losses (1) |
|
|
Fair Value |
|
|
Losses (1) |
|
|
|
(In thousands) |
|
Temporarily Impaired |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Agency securities: |
|
$ |
5,274 |
|
|
$ |
15 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
5,274 |
|
|
$ |
15 |
|
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Agency MBS residential |
|
|
73 |
|
|
|
|
|
|
|
242 |
|
|
|
11 |
|
|
|
315 |
|
|
|
11 |
|
Private-label CMO |
|
|
1,936 |
|
|
|
838 |
|
|
|
15,328 |
|
|
|
4,678 |
|
|
|
17,264 |
|
|
|
5,516 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total MBS |
|
|
2,009 |
|
|
|
838 |
|
|
|
15,570 |
|
|
|
4,689 |
|
|
|
17,579 |
|
|
|
5,527 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State, county and municipal securities |
|
|
19,474 |
|
|
|
1,044 |
|
|
|
4,347 |
|
|
|
363 |
|
|
|
23,821 |
|
|
|
1,407 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt |
|
|
|
|
|
|
|
|
|
|
5,710 |
|
|
|
217 |
|
|
|
5,710 |
|
|
|
217 |
|
Pooled trust preferred securities |
|
|
|
|
|
|
|
|
|
|
1,742 |
|
|
|
3,641 |
|
|
|
1,742 |
|
|
|
3,641 |
|
Single issue trust preferred securities |
|
|
|
|
|
|
|
|
|
|
1,379 |
|
|
|
3,621 |
|
|
|
1,379 |
|
|
|
3,621 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total corporate obligations |
|
|
|
|
|
|
|
|
|
|
8,831 |
|
|
|
7,479 |
|
|
|
8,831 |
|
|
|
7,479 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities |
|
|
|
|
|
|
|
|
|
|
179 |
|
|
|
384 |
|
|
|
179 |
|
|
|
384 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total temporarily impaired securities |
|
|
26,757 |
|
|
|
1,897 |
|
|
|
28,927 |
|
|
|
12,915 |
|
|
|
55,684 |
|
|
|
14,812 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other-than-temporarily Impaired |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed
securities (MBS) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private-label CMO |
|
|
|
|
|
|
|
|
|
|
2,585 |
|
|
|
6 |
|
|
|
2,585 |
|
|
|
6 |
|
Corporate obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pooled trust preferred securities |
|
|
|
|
|
|
|
|
|
|
3,495 |
|
|
|
4,659 |
|
|
|
3,495 |
|
|
|
4,659 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total OTTI securities |
|
|
|
|
|
|
|
|
|
|
6,080 |
|
|
|
4,665 |
|
|
|
6,080 |
|
|
|
4,665 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total temporarily and
other-than-temporarily impaired |
|
$ |
26,757 |
|
|
$ |
1,897 |
|
|
$ |
35,007 |
|
|
$ |
17,580 |
|
|
$ |
61,764 |
|
|
$ |
19,477 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Unrealized losses are included in other comprehensive income (loss), net of unrealized
gains and applicable income taxes. |
Other-Than-Temporary Impairment
Management evaluates securities for other-than-temporary impairment (OTTI) at least on a
quarterly basis. The investment securities portfolio is evaluated for OTTI by segregating the
portfolio into the various segments outlined in the tables above and
32
applying the appropriate OTTI model. Investment securities classified as available for sale or
held-to-maturity are generally evaluated for OTTI under SFAS No. 115, Accounting for Certain
Investments in Debt and Equity Securities (SFAS 115). However, certain purchased beneficial
interests, which may include private-label mortgage-backed securities, asset-backed securities, and
collateralized debt obligations, that had credit ratings at the time of purchase of below AA are
evaluated using the model outlined in EITF Issue No. 99-20, Recognition of Interest Income and
Impairment on Purchased Beneficial Interests and Beneficial Interests that Continue to be Held by a
Transfer in Securitized Financial Assets (EITF 99-20).
In determining OTTI under the SFAS 115 model, management considers many factors, including: (1) the
length of time and the extent to which the fair value has been less than cost, (2) the financial
condition and near-term prospects of the issuer, (3) whether the market decline was affected by
macroeconomic conditions, and (4) whether we have the intent to sell the debt security or more
likely than not will be required to sell the debt security before its anticipated recovery. The
assessment of whether an other-than-temporary decline exists involves a high degree of subjectivity
and judgment and is based on the information available to management at a point in time.
The pooled trust preferred segment of the portfolio uses the OTTI guidance provided by EITF 99-20
that is specific to purchased beneficial interests that, on the purchase date, were rated below AA.
Under the EITF 99-20 model, management compares the present value of the remaining cash flows as
estimated at the preceding evaluation date to the current expected remaining cash flows. An OTTI is
deemed to have occurred if there has been an adverse change in the remaining expected future cash
flows (see Trust preferred Securities section below).
When OTTI occurs under either model, the amount of the OTTI recognized in earnings depends on
whether an entity intends to sell the security or it is more likely than not it will be required to
sell the security before recovery of its amortized cost basis, less any current-period credit loss.
If an entity intends to sell or it is more likely than not it will be required to sell the security
before recovery of its amortized cost basis, less of its amortized cost basis, less any
current-period credit loss, the OTTI is recognized in earnings at an amount equal to the entire
difference between the investments amortized cost basis and its fair value at the balance sheet
date. If an entity does not intend to sell the security and it is not more likely than not that the
entity will be required to sell the security before recovery of its amortized cost basis less any
current-period loss, the OTTI is separated into the amount representing the credit loss and the
amount related to all other factors. The amount of the total OTTI related to the credit loss is
determined based on the present value of cash flows expected to be collected and is recognized in
earnings. The amount of the total OTTI related to other factors is recognized in other
comprehensive income, net of applicable taxes. The previous amortized cost basis less the OTTI
recognized in earnings becomes the new amortized cost basis of the investment.
As of
March 31, 2009, our securities portfolio consisted of 267 securities, 93 of which were in an
unrealized loss position. The majority of unrealized losses are related to our private-label
collateralized mortgage obligations (CMOs) and trust preferred securities, as discussed below:
Mortgage-backed Securities
At March 31, 2009, approximately 91% of the dollar volume of mortgage-backed securities we held was
issued by U.S. government-sponsored entities and agencies, primarily Fannie Mae and Freddie Mac,
institutions which the government has affirmed its commitment to support and these securities have
nominal unrealized losses. Our mortgage-backed securities portfolio also includes 12 private-label
CMOs with a market value of $23.5 million which had unrealized losses
of approximately $5.5 million at
March 31, 2009. These private-label CMOs were rated AAA at purchase and are not within the scope of
EITF 99-20. The following is a summary of the investment grades for these securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit Support |
|
|
|
|
Rating |
|
|
|
|
|
Coverage |
|
|
Unrealized |
|
Moody/Fitch |
|
Count |
|
|
Ratios (1) |
|
|
Loss |
|
A1/AAA |
|
|
1 |
|
|
|
3.04 |
|
|
$ |
(2,514 |
) |
Aa1/AAA |
|
|
1 |
|
|
|
N/A |
|
|
|
(122 |
) |
Aa2/NR |
|
|
1 |
|
|
|
6.57 |
|
|
|
(562 |
) |
Aaa/AAA |
|
|
1 |
|
|
|
15.11 |
|
|
|
(2 |
) |
Aaa/NR |
|
|
2 |
|
|
|
4.58 - 16.40 |
|
|
|
(485 |
) |
NR/AAA |
|
|
3 |
|
|
|
4.01 - 5.87 |
|
|
|
(1,831 |
) |
NR/CCC(2) |
|
|
2 |
|
|
|
0.98 - 1.26 |
|
|
|
(2 |
) |
Ca/NR (2) |
|
|
1 |
|
|
|
0.37 |
|
|
|
39 |
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
12 |
|
|
|
|
|
|
$ |
(5,479 |
) |
|
|
|
|
|
|
|
|
|
|
|
33
|
|
|
(1) |
|
The Credit Support Coverage Ratio, which is the ratio that determines the multiple of credit
support, based on assumptions for the performance of the loans within the delinquency
pipeline. The assumptions used are: Current Collateral Support/ ((60 day delinquencies x.60) +
(90 day delinquencies x.70) + (foreclosures x 1.00) + (other real estate x 1.00)) x .40 for
loss severity. |
|
(2) |
|
Includes all private-label CMOs which have been reduced by OTTI charges in previous
periods. There was no OTTI impairment charges recognized for this portfolio in the quarter
ended March 31, 2009. |
State, county and municipal securities
The unrealized losses in the municipal securities portfolio are due to widening credit spreads
caused by downgraded ratings of the bond insurers associated with these securities. In addition,
municipal securities were adversely impacted by changes in interest rates. This portfolio segment
is not experiencing any credit problems at March 31, 2009. We believe that all contractual cash
flows will be received on this portfolio.
Trust Preferred Securities
Our investment portfolio includes five pooled trust preferred securities (CDO) and two single
issuances. The determination of fair value of the CDOs was determined with the assistance of an
external valuation firm. The valuation was accomplished by evaluating all relevant credit and
structural aspects of the CDOs, determining appropriate performance assumptions and performing a
discounted cash flow analysis. The valuation was structured as follows:
|
|
|
Detailed credit and structural evaluation for each piece of collateral in the CDO; |
|
|
|
|
Collateral performance projections for each piece of
collateral in the CDO (default, recovery and prepayment/amortization probabilities); |
|
|
|
|
Terms of the CDO structure, as laid out in the indenture: |
|
|
|
|
The cash flow waterfall (for both interest and principal); |
|
|
|
|
Overcollateralization and interest coverage tests; |
|
|
|
|
Events of default/liquidation; |
|
|
|
|
Mandatory auction call; |
|
|
|
|
Optional redemption; |
|
|
|
|
Hedge agreements; and discounted cash flow modeling |
On the basis of the evaluation of collateral credit, and in combination with a review of historical
industry default data and current/near-term operating conditions, appropriate default and
recovery probabilities are determined for each piece of collateral in the CDO. Specifically, an
estimate of the probability that a given piece of collateral will default in any given year. Next,
on the basis of credit factors like asset quality and leverage, a recovery assumption is formulated
for each piece of collateral in the event of a default. For collateral that has already defaulted,
we assume a recovery of 10% and assume that the majority of deferring collateral continues to defer
and eventually defaults. It is also noted that there is a possibility, in some cases, that
deferring collateral will become current at some point in the future. As a result, deferring
issuers are evaluated on a case-by-case basis and in some instances, based on an analysis of the
credit, a probability is assigned that the deferral will ultimately cure.
The base-case collateral-specific assumptions are aggregated into cumulative weighted-average
default, recovery and prepayment probabilities. In light of generally weakening collateral credit
performance and a challenging U.S. credit and real estate environment, our assumptions generally
imply a larger amount of collateral defaults during the next three years than that which has been
experienced historically and a gradual leveling off of defaults thereafter.
The discount rates used to determine fair value are intended to reflect the uncertainty inherent in
the projection of the issuances cash flows. Therefore, spreads were chosen that are comparable to
spreads observed currently in the market for similarly rated instruments and is intended to reflect
general market discounts currently applied to structured credit products. The discount rates used
to determine the credit portion of the OTTI are equal to the current yield on the issuances as
prescribed under EITF 99-20.
34
The following tables provide various information and fair value model assumptions regarding our
CDOs as March 31, 2009 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
YTD |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other-than-temporary Impairment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(OTTI) |
|
|
|
|
|
|
Single/ |
|
Class/ |
|
Amortized |
|
Fair |
|
Unrealized |
|
Credit |
|
|
|
|
Name |
|
|
|
|
|
Pooled |
|
Tranche |
|
Cost |
|
Value |
|
Loss |
|
Portion |
|
Other |
|
Total |
MM Caps Funding I Ltd |
|
|
|
|
|
Pooled |
|
|
B |
|
|
$ |
2,168 |
|
|
$ |
1,015 |
|
|
$ |
(1,153 |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
MM Community Funding Ltd |
|
|
|
|
|
Pooled |
|
|
M |
|
|
|
4,199 |
|
|
|
2,124 |
|
|
|
(2,075 |
) |
|
|
(801 |
) |
|
|
(2,075 |
) |
|
|
(2,876 |
) |
Preferred Term Securities V |
|
|
|
|
|
Pooled |
|
|
M |
|
|
|
1,379 |
|
|
|
539 |
|
|
|
(840 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Tpref Funding III Ltd |
|
|
|
|
|
Pooled |
|
|
B-2 |
|
|
|
3,955 |
|
|
|
1,371 |
|
|
|
(2,584 |
) |
|
|
(44 |
) |
|
|
(2,584 |
) |
|
|
(2,628 |
) |
Trapeza 2007-13A LLC |
|
|
|
|
|
Pooled |
|
|
D |
|
|
|
1,836 |
|
|
|
188 |
|
|
|
(1,648 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
New South Capital Corp |
|
|
(1 |
) |
|
Single |
|
Sole |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,000 |
) |
|
|
|
|
|
|
(5,000 |
) |
Emigrant Capital Trust |
|
|
(2 |
) |
|
Single |
|
Sole |
|
|
5,000 |
|
|
|
1,379 |
|
|
|
(3,621 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
18,537 |
|
|
$ |
6,616 |
|
|
$ |
(11,921 |
) |
|
$ |
(5,845 |
) |
|
$ |
(4,659 |
) |
|
$ |
(10,504 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Original Collateral |
|
Performing Collateral |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent of Actual |
|
Percent of Expected |
|
(3) |
|
|
|
|
|
|
Lowest |
|
Performing |
|
Deferrals and |
|
Deferrals and |
|
Excess |
Name |
|
|
|
|
|
Rating |
|
Banks |
|
Defaults |
|
Defaults |
|
Subordination |
MM Caps Funding I Ltd |
|
|
|
|
|
Ca |
|
|
26 |
|
|
|
9 |
% |
|
|
16 |
% |
|
|
8 |
% |
MM Community Funding Ltd |
|
|
|
|
|
Caa2 |
|
|
14 |
|
|
|
4 |
% |
|
|
30 |
% |
|
|
0 |
% |
Preferred Term Securities V |
|
|
|
|
|
Ba3 |
|
|
4 |
|
|
|
0 |
% |
|
|
33 |
% |
|
|
26 |
% |
Tpref Funding III Ltd |
|
|
|
|
|
Ca |
|
|
29 |
|
|
|
11 |
% |
|
|
35 |
% |
|
|
0 |
% |
Trapeza 2007-13A LLC |
|
|
|
|
|
|
C |
|
|
|
51 |
|
|
|
8 |
% |
|
|
19 |
% |
|
|
5 |
% |
New South Capital Corp |
|
|
(1 |
) |
|
NR |
|
NA |
|
NA |
|
NA |
|
NA |
Emigrant Capital Trust |
|
|
(2 |
) |
|
BB- |
|
NA |
|
NA |
|
NA |
|
NA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current |
|
|
Fair Value (Price |
|
Discount Margin |
|
Yield |
Name |
|
to Par) |
|
(Basis Points) |
|
(Basis Points) |
MM Caps Funding I Ltd |
|
$ |
50.77 |
|
|
Swap + 1575 |
|
9.48% Fixed |
MM Community Funding Ltd |
|
|
42.48 |
|
|
LIBOR + 1175 |
|
LIBOR + 310 |
Preferred Term Securities V |
|
|
39.15 |
|
|
LIBOR + 1225 |
|
LIBOR + 210 |
Tpref Funding III Ltd |
|
|
34.27 |
|
|
LIBOR + 1225 |
|
LIBOR + 190 |
Trapeza 2007-13A LLC |
|
|
9.37 |
|
|
LIBOR + 1600 |
|
LIBOR + 120 |
|
|
|
(1) |
|
Management received notification in April 2009 that interest payments on this issue will be
deferred for up to 20 quarters. In addition, New Souths external auditor issued a going
concern opinion on May 2, 2009. Management determined that there was not sufficient positive
evidence that this issue will ever pay principal or interest. Therefore, OTTI was recognized
on the full amount of the security during the first quarter of 2009. |
|
(2) |
|
There has been no notification of deferral or default on this issue. An analysis of the
company indicates there is adequate capital and liquidity to service the debt. This particular
issue was priced by an independent pricing service. |
|
(3) |
|
Excess subordination represents the additional defaults in excess of both the current and
projected defaults the issue can absorb before the security experiences any credit impairment.
Excess subordination is calculated by determining what level of defaults an issue can
experience before the security has any credit impairment and then subtracting both the current
and projected future defaults. |
In
addition to the impact of interest rates, the estimated fair value of
these CDOs have been and continue to be depressed due to the unusual credit conditions that the
financial industry has faced since the middle of 2008 and a weakening economy, which has severely
reduced the demand for these securities and rendered their trading market inactive.
35
As of March 31, 2009, our management does not intend to sell these securities, nor is it more
likely than not that we will be required to sell the securities before the entire amortized cost
basis is recovered since our current financial condition, including liquidity and interest rate
risk, will not require such action.
The following table provides a rollforward of the amount of credit-related losses recognized in
earnings for which a portion of OTTI has been recognized in other comprehensive income through
March 31, 2009 (in thousands):
|
|
|
|
|
|
|
For the Three- |
|
|
|
Months Ended |
|
|
|
March 31, 2009 |
|
Balance at beginning of period |
|
$ |
|
|
Amounts related to credit losses for which an OTTI was not previously recognized |
|
|
5,845 |
|
Reductions for securities sold during the period |
|
|
|
|
Increases in credit loss for which an OTTI was previously recognized when the
investor does not intend to sell the security and it is not more likely than not
that the entity will be required to sell the security before recovery of its
amortized cost |
|
|
|
|
Reductions for securities where there is an intent to sale or requirement to sale |
|
|
|
|
Reductions for increases in cash flows expected to be collected |
|
|
|
|
|
|
|
|
Balance at end of period |
|
$ |
5,845 |
|
|
|
|
|
We will continue to evaluate the investment ratings in the securities portfolio, severity in
pricing declines, market price quotes along with timing and receipt of amounts contractually due.
Based upon these and other factors, the securities portfolio may experience further impairment. At
March 31, 2009, management does not intend to sell any investment security in the portfolio, nor is
it more likely than not that we will be required to sell any security before the entire amortized
cost basis of the security is recovered.
Loans
Composition of Loan Portfolio, Yield Changes and Diversification. Our loans, net of unearned
income, totaled $2.359 billion at March 31, 2009, an increase of 1.9%, or $44 million, from $2.315
billion at December 31, 2008. Mortgage loans held for sale totaled $40.6 million at March 31, 2009,
an increase of 84.3%, or $18.6 million from $22.0 million at December 31, 2008. Average loans,
including mortgage loans held for sale, totaled $2.392 billion during March 31, 2009, compared to
$2.173 billion for the year ended December 31, 2008. Loans, net of unearned income, comprised 83.8%
of interest-earning assets at March 31, 2009, compared to 84.4% at December 31, 2008. Mortgage
loans held for sale comprised 1.4% of interest-earning assets at March 31, 2009, compared to 0.8%
at December 31, 2008. The average yield of the loan portfolio was 5.93% for the three months ended
March 31, 2009, compared to 6.40% for the three months ended December 31, 2008 and 7.26% for the
three months ended March 31, 2008. The decrease in average yield is primarily the result of a
generally lower level of market rates that prevailed throughout the current economy.
Our focus in business development has been toward increasing commercial and industrial lending and
has continued to seek attractive commercial development loans, which we believe continue to be
profitable if properly underwritten.
36
The following table details the distribution of our loan portfolio by category for the periods
presented:
Distribution of Loans by Category
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2009 |
|
|
December 31, 2008 |
|
|
|
|
|
|
|
Percent of |
|
|
|
|
|
|
Percent of |
|
|
|
Amount |
|
|
Total |
|
|
Amount |
|
|
Total |
|
Commercial and industrial |
|
$ |
201,635 |
|
|
|
8.54 |
% |
|
$ |
207,372 |
|
|
|
8.95 |
% |
Real estate construction and land development (1) |
|
|
662,268 |
|
|
|
28.05 |
|
|
|
637,587 |
|
|
|
27.52 |
|
Real estate mortgages |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single-family |
|
|
659,840 |
|
|
|
27.94 |
|
|
|
655,216 |
|
|
|
28.28 |
|
Commercial |
|
|
743,890 |
|
|
|
31.50 |
|
|
|
726,704 |
|
|
|
31.37 |
|
Other |
|
|
30,202 |
|
|
|
1.28 |
|
|
|
31,187 |
|
|
|
1.34 |
|
Consumer |
|
|
59,379 |
|
|
|
2.51 |
|
|
|
57,877 |
|
|
|
2.50 |
|
Other |
|
|
4,186 |
|
|
|
0.18 |
|
|
|
972 |
|
|
|
0.04 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans |
|
|
2,361,400 |
|
|
|
100.0 |
% |
|
|
2,316,915 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unearned income |
|
|
(2,101 |
) |
|
|
|
|
|
|
(1,994 |
) |
|
|
|
|
Allowance for loan losses |
|
|
(29,871 |
) |
|
|
|
|
|
|
(28,850 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loans |
|
$ |
2,329,428 |
|
|
|
|
|
|
$ |
2,286,071 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
A further analysis of the components of our real estate construction and land development
loans as of March 31, 2009 and December 31, 2008 is as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential |
|
|
Commercial |
|
|
|
|
|
|
|
|
|
Development |
|
|
Development |
|
|
Other |
|
|
Total |
|
|
|
(Dollars in thousands) |
|
As of March 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alabama segment |
|
$ |
185,591 |
|
|
$ |
79,260 |
|
|
$ |
16,456 |
|
|
$ |
281,307 |
|
Florida segment |
|
|
156,778 |
|
|
|
198,109 |
|
|
|
12,416 |
|
|
|
367,303 |
|
Other |
|
|
196 |
|
|
|
13,462 |
|
|
|
|
|
|
|
13,658 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
342,565 |
|
|
$ |
290,831 |
|
|
$ |
28,872 |
|
|
$ |
662,268 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alabama segment |
|
$ |
173,579 |
|
|
$ |
76,315 |
|
|
$ |
17,830 |
|
|
$ |
267,724 |
|
Florida segment |
|
|
141,003 |
|
|
|
201,688 |
|
|
|
13,573 |
|
|
|
356,264 |
|
Other |
|
|
122 |
|
|
|
13,477 |
|
|
|
|
|
|
|
13,599 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
314,704 |
|
|
$ |
291,480 |
|
|
$ |
31,403 |
|
|
$ |
637,587 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table shows the amount of total loans, net of unearned income, by segment and the
percent change for the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
December 31, |
|
Percent |
|
|
2009 |
|
2008 |
|
Change |
|
|
(Dollars in thousands) |
Total loans, net of unearned income |
|
$ |
2,359,299 |
|
|
$ |
2,314,921 |
|
|
|
1.92 |
% |
Alabama segment |
|
|
958,135 |
|
|
|
935,232 |
|
|
|
2.45 |
|
Florida segment |
|
|
1,091,967 |
|
|
|
1,060,994 |
|
|
|
2.92 |
|
Other |
|
|
309,197 |
|
|
|
318,695 |
|
|
|
(2.98 |
) |
Allowance for Loan Losses
Overview. It is the responsibility of management to assess and maintain the allowance for loan
losses at a level it believes is appropriate to absorb the estimated credit losses within our loan
portfolio through the provision for loan losses. The determination of our allowance for loan losses
is based on managements analysis of the credit quality of the loan portfolio including its
judgment regarding certain internal and external factors that affect loan collectability. This
process is performed on a quarterly basis under the oversight of the board of directors. The
estimation of the allowance for loan losses is based on two basic components those estimations
calculated in accordance with the requirements of SFAS 5 and those specific impairments under SFAS
114 (see discussions below). The calculation of the allowance for loan losses is inherently
subjective and actual losses could be greater or less than the estimates.
37
SFAS 5. Under SFAS 5 estimated losses on all loans that have not been identified with specific
impairment, under SFAS 114, are calculated based on the historical loss ratios applied to our
standard loan categories using a rolling average adjusted for certain qualitative factors, as shown
below. In addition to these standard loan categories, management may identify other areas of risk
based on its analysis of such qualitative factors and estimate additional losses as it deems
necessary. The qualitative factors that management uses in its estimate include but are not limited
to the following:
|
|
|
trends in volume; |
|
|
|
|
effects of changes in credit concentrations; |
|
|
|
|
levels of and trends in delinquencies, classified loans, and non-performing assets; |
|
|
|
|
levels of and trends in charge-offs and recoveries; |
|
|
|
|
changes in lending policies and underwriting guidelines; |
|
|
|
|
national and local economic trends and condition; and |
|
|
|
|
mergers and acquisitions. |
SFAS 114. Pursuant to SFAS No. 114, impaired loans are loans which are specifically reviewed and
for which it is probable that we will be unable to collect all amounts due according to the terms
of the loan agreement. Impairment is measured by comparing the recorded investment in the loan with
the present value of expected future cash flows discounted at the loans effective interest rate,
at the loans observable market price or the fair value of the collateral if the loan is collateral
dependent. A valuation allowance is provided to the extent that the measure of the impaired loans
is less than the recorded investment. A loan is not considered impaired during a period of delay in
payment if we continue to expect that all amounts due will ultimately be collected according to the
terms of the loan agreement. Our Credit Administration department maintains supporting
documentation regarding collateral valuations and/or discounted cash flow analyses.
Allocation of the Allowance for Loan Losses. The allowance for loan losses calculation is
segregated into various segments that include specific allocations for loans, portfolio segments
and general allocations for portfolio risk.
Risk ratings are subject to independent review by internal loan review, which also performs
ongoing, independent review of the risk management process. The risk management process includes
underwriting, documentation and collateral control. Loan review is centralized and independent of
the lending function. The loan review results are reported to senior management and the Audit
Committee of the Board of Directors. Credit Administration relies upon the independent work of Loan
review in risk rating in developing its recommendations to the Audit Committee of the Board of
Directors for the allocation of the allowance for loan losses, and performs this function
independent of the lending area of the Bank.
We historically have allocated our allowance for loan losses to specific loan categories. Although
the allowance for loan losses is allocated, it is available to absorb losses in the entire loan
portfolio. This allocation is made for estimation purposes only and is not necessarily indicative
of the allocation between categories in which future losses may occur, nor is it limited to the
categories to which it is allocated.
38
Allocation of the Allowance for Loan Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
Percent of |
|
|
|
|
|
|
Percent of |
|
|
|
|
|
|
|
Loans in Each |
|
|
|
|
|
|
Loans in Each |
|
|
|
|
|
|
|
Category to |
|
|
|
|
|
|
Category to |
|
|
|
Amount |
|
|
Total Loans |
|
|
Amount |
|
|
Total Loans |
|
|
|
(Dollars in thousands) |
|
Commercial and industrial |
|
$ |
1,214 |
|
|
|
8.5 |
% |
|
$ |
2,136 |
|
|
|
8.9 |
% |
Real estate construction and land development |
|
|
13,065 |
|
|
|
28.1 |
|
|
|
12,168 |
|
|
|
27.5 |
|
Real estate mortgages |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single-family |
|
|
8,345 |
|
|
|
27.9 |
|
|
|
7,159 |
|
|
|
28.3 |
|
Commercial |
|
|
5,190 |
|
|
|
31.5 |
|
|
|
5,440 |
|
|
|
31.3 |
|
Other |
|
|
250 |
|
|
|
1.3 |
|
|
|
247 |
|
|
|
1.3 |
|
Consumer |
|
|
1,807 |
|
|
|
2.7 |
|
|
|
1,700 |
|
|
|
2.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
29,871 |
|
|
|
100.0 |
% |
|
$ |
28,850 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
The allowance as a percentage of loans, net of unearned income, at March 31, 2009 was 1.27%,
compared to 1.25% as of December 31, 2008. Net charge-offs increased $641,000, from $1.8 million
during the fourth quarter in 2008 to $2.4 million in the first quarter of 2009. Net charge-offs of
commercial loans decreased $64,000, from $53,000 in fourth quarter 2008, to $(11,000) (a net
recovery) in first quarter 2009. Net charge-offs of real estate loans increased $754,000, from $1.0
million in fourth quarter 2008 to $1.7 million in first quarter 2009. Net charge-offs of consumer
loans decreased $49,000, to $684,000 in first quarter 2009 from $733,000 in fourth quarter 2008.
Net charge-offs as a percentage of the allowance for loan losses were 33.01% for the quarter ended
March 31, 2009, up from 24.68% and 25.29% for the quarters ended December 31, 2008 and March 31,
2008, respectively.
Real estate construction and development loans are loans where real estate developers acquired raw
land with the intent of developing the land into either residential or commercial property. These
loans are highly dependent upon development of the property as the primary source of repayment with
the collateral disposal and/or guarantor strength as the secondary source, thus the borrowers are
dependent upon the completion of the project, the sale of the property, or their own personal cash
flow to service the debt. Continued weakness in this sector has been evident in Alabama among our
residential builder portfolio and this downturn has been particularly intense in our Florida
markets, with Tampa and Sarasota being impacted the most.
During the first quarter of 2009, management increased its allowance for loan losses related to
construction and land development real estate loans $900,000 from $12.2 million as of December 31,
2008 to $13.1 million as of March 31, 2009 as a result of the increasing levels of risk associated
with the general economic conditions related to construction and land development real estate
portfolio throughout our franchise. Net charge-offs for this category increased $800,000 from
$104,000 as of March 31, 2008 to $904,000 as of March 31, 2009. Within this construction and land
development portfolio, approximately $342 million, or 52%, was related to residential development
and construction. Of the residential purpose loans, 55% were located in the Alabama Region at March
31, 2009 with the remainder in the Florida Region. The largest category in the residential
development and construction portfolio is related to development of single-family lots and
single-family lots held by experienced, licensed builders for the future construction of
single-family homes. This category represents approximately $122 million, or 36%, of this
portfolio. Construction loans related to income-producing properties accounted for $166 million, or
52% of the total commercial construction and development loans. Geographically, approximately 69%
of this category was located in the Florida Region, with the remaining loans located primarily in
the Alabama Region.
Our allocation of the allowance for loan losses related to single family mortgage loans increased
$1.1 million to $8.3 million at March 31, 2009 from $7.2 million at December 31, 2008. This
allocation is reflective of the increased risk exposure due to the current downturn in the national
economy and the effect on the housing sector which has increased our foreclosure activity within
this portfolio. During the first quarter of 2009, we foreclosed on approximately $1.3 million in
single family homes; $351,000 or 27% of the total single-family foreclosures were located in
Florida Region; the remaining $956,000, or 73% were located in the Alabama Region. Another factor
resulting in an increase in allocation was the level of single-family nonperforming loans. At March
31, 2009, single-family mortgages accounted for $30.6 million, or 41%, of the total nonperforming
loans; up $7.9 million from $22.7 million as of December 31, 2008. Of this amount approximately 49%
were located in the Florida Region and the remainder in the Alabama Region. The overall increases
in loss experience, nonperforming loans and deflationary pressure on home values influenced
managements risk assessment and decision to increase the allocation of the allowance for loan
losses for single family mortgages during the first quarter of 2009.
39
Our consumer loan charge-offs were higher during the first quarter of 2009 when compared to the
fourth quarter of 2008, primarily due to the increased losses in our consumer finance companies,
which accounted for approximately $525,000, or 76.7%, of the total net consumer loan charge-offs.
Going forward, we expect these losses to continue to be a substantial portion of the overall
consumer loan losses; however, we believe the increased risk associated with these loans is offset
by their higher yield.
The allowance for loan losses as a percentage of nonperforming loans decreased to 40.24% at March
31, 2009 from 44.12% at December 31, 2008. Approximately $7.4 million of the allowance for loan
losses has been specifically allocated to selected nonperforming loans as of March 31, 2009. As of
March 31, 2009, nonperforming loans totaled $74.2 million, of which $72.4 million, or 97.6%, were
loans secured by real estate compared to $61.4 million, or 93.7%, as of December 31, 2008. (See
Nonperforming Assets). Despite the overall decline in the allowance for loan losses as a
percentage of nonperforming loans, management believes the overall allowance for loan losses to be
adequate.
Summary of Loan Loss Experience. The following table summarizes certain information with respect to
our allowance for loan losses and the composition of charge-offs and recoveries for the periods
indicated:
Summary of Loan Loss Experience
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
|
|
|
|
Ended |
|
|
Year Ended |
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2008 |
|
|
|
(Dollars in Thousands) |
|
|
|
|
|
Allowance for loan losses at beginning of period |
|
$ |
28,850 |
|
|
$ |
22,868 |
|
|
$ |
22,868 |
|
Charge-offs: |
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial |
|
|
56 |
|
|
|
152 |
|
|
|
504 |
|
Real estate construction and land development |
|
|
924 |
|
|
|
3 |
|
|
|
2,095 |
|
Real estate mortgages |
|
|
|
|
|
|
|
|
|
|
|
|
Single-family |
|
|
547 |
|
|
|
612 |
|
|
|
2,460 |
|
Commercial |
|
|
340 |
|
|
|
362 |
|
|
|
411 |
|
Other |
|
|
179 |
|
|
|
106 |
|
|
|
241 |
|
Consumer |
|
|
695 |
|
|
|
435 |
|
|
|
2,490 |
|
Other |
|
|
68 |
|
|
|
75 |
|
|
|
243 |
|
|
|
|
|
|
|
|
|
|
|
Total charge-offs |
|
|
2,809 |
|
|
|
1,745 |
|
|
|
8,444 |
|
Recoveries: |
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial |
|
|
67 |
|
|
|
138 |
|
|
|
646 |
|
Real estate construction and land development |
|
|
20 |
|
|
|
2 |
|
|
|
44 |
|
Real estate mortgage |
|
|
|
|
|
|
|
|
|
|
|
|
Single-family |
|
|
11 |
|
|
|
19 |
|
|
|
89 |
|
Commercial |
|
|
3 |
|
|
|
16 |
|
|
|
128 |
|
Other |
|
|
198 |
|
|
|
14 |
|
|
|
71 |
|
Consumer |
|
|
42 |
|
|
|
46 |
|
|
|
181 |
|
Other |
|
|
37 |
|
|
|
43 |
|
|
|
155 |
|
|
|
|
|
|
|
|
|
|
|
Total recoveries |
|
|
378 |
|
|
|
278 |
|
|
|
1,314 |
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs |
|
|
2,431 |
|
|
|
1,467 |
|
|
|
7,130 |
|
Provision for loan losses |
|
|
3,452 |
|
|
|
1,872 |
|
|
|
13,112 |
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses at end of period |
|
$ |
29,871 |
|
|
$ |
23,273 |
|
|
$ |
28,850 |
|
|
|
|
|
|
|
|
|
|
|
Loans at end of period, net of unearned income |
|
$ |
2,359,299 |
|
|
$ |
2,066,192 |
|
|
$ |
2,314,921 |
|
Average loans, net of unearned income |
|
|
2,342,025 |
|
|
|
2,032,730 |
|
|
|
2,147,524 |
|
Ratio of ending allowance to ending loans |
|
|
1.27 |
% |
|
|
1.13 |
% |
|
|
1.25 |
% |
Ratio of net charge-offs to average loans (1) |
|
|
0.42 |
|
|
|
0.29 |
|
|
|
0.33 |
|
Net charge-offs as a percentage of: |
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan losses |
|
|
70.43 |
|
|
|
78.37 |
|
|
|
54.38 |
|
Allowance for loan losses (1) |
|
|
33.01 |
|
|
|
25.28 |
|
|
|
24.71 |
|
Allowance for loan losses as a percentage of nonperforming loans |
|
|
40.24 |
|
|
|
75.42 |
|
|
|
44.12 |
|
40
Nonperforming Assets. Nonperforming assets increased $17.2 million, to $100.2 million as of March
31, 2009 from $83 million as of December 31, 2008. As a percentage of net loans plus nonperforming
assets, nonperforming assets increased to 4.20% at March 31, 2009 from 3.56% at December 31, 2008.
The overall increase in nonperforming assets was primarily related to commercial real estate and
residential mortgage loan portfolios. In contrast to December 31, 2008, credits and/or properties,
greater than $1.0 million, accounted for a smaller portion of the overall increase in nonperforming
assets during the first quarter of 2009, primarily due to the increase in nonperforming residential
mortgage loans. As of March 31, 2009, nonperforming residential mortgage loans increased $8.1
million to $30.9 million from $22.7 million as of December 31, 2008. Three loans in excess of
$500,000 accounted for $3.8 million or 47% of the increase; the inclusive overall average loan
balance of these new nonperforming loans was $169,000 with the majority, 67%, located in the
Alabama Region. The commercial real estate increase included two Florida commercial real estate
properties totaling $1.4 million or 8% of the total increase. Management continues to actively work
to mitigate the risks of loss across all categories of the loan portfolio. We see a continued
weakness in the Sarasota, Florida market and some improvement in the Northwest Florida market. As
of March 31, 2009, of our total nonperforming credits, only 15 are in excess of $1.0 million in
principal balance, which gives evidence of the granularity of this portfolio and explains our
approach of liquidating it on a loan-by-loan basis rather than in large bulk sales. The largest
single nonperforming credit in our portfolio is $4.9 million in the Sarasota market. The following
table shows our nonperforming assets for the dates shown:
Nonperforming Assets
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(Dollars in thousands) |
|
Nonaccrual |
|
$ |
68,311 |
|
|
$ |
54,712 |
|
Accruing loans 90 days or more delinquent |
|
|
5,923 |
|
|
|
8,033 |
|
|
|
|
|
|
|
|
Total nonperforming loans |
|
|
74,234 |
|
|
|
62,745 |
|
Other real estate owned assets |
|
|
25,609 |
|
|
|
19,971 |
|
Repossessed assets |
|
|
374 |
|
|
|
332 |
|
|
|
|
|
|
|
|
Total nonperforming assets |
|
$ |
100,217 |
|
|
$ |
83,048 |
|
|
|
|
|
|
|
|
Restructured and performing under restructured terms |
|
$ |
12,265 |
|
|
$ |
2,643 |
|
|
|
|
|
|
|
|
Nonperforming loans as a percentage of loans |
|
|
3.15 |
% |
|
|
2.72 |
% |
|
|
|
|
|
|
|
Nonperforming assets as a percentage of loans plus nonperforming assets |
|
|
4.20 |
% |
|
|
3.56 |
% |
|
|
|
|
|
|
|
Nonperforming assets as a percentage of total assets |
|
|
3.20 |
% |
|
|
2.72 |
% |
|
|
|
|
|
|
|
The following is a summary of nonperforming loans by category for the dates shown:
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(Dollars in thousands) |
|
Commercial and industrial |
|
$ |
457 |
|
|
$ |
166 |
|
Real estate construction and land development |
|
|
21,182 |
|
|
|
20,976 |
|
Real estate mortgages |
|
|
|
|
|
|
|
|
Single-family |
|
|
30,875 |
|
|
|
22,730 |
|
Commercial |
|
|
16,786 |
|
|
|
14,686 |
|
Other |
|
|
3,843 |
|
|
|
2,981 |
|
Consumer |
|
|
615 |
|
|
|
723 |
|
Other |
|
|
476 |
|
|
|
483 |
|
|
|
|
|
|
|
|
Total nonperforming loans |
|
$ |
74,234 |
|
|
$ |
62,745 |
|
|
|
|
|
|
|
|
A delinquent loan is ordinarily placed on nonaccrual status no later than when it becomes 90 days
past due and management believes, after considering economic and business conditions and collection
efforts, that the borrowers financial condition is such that the collection of interest is
doubtful. When a loan is placed on nonaccrual status, all unpaid interest which has been accrued on
the loan during the current period is reversed and deducted from earnings as a reduction of
reported interest income; any prior period accrued and unpaid interest is reversed and charged
against the allowance for loan losses. No additional interest income is accrued on the loan balance
until the collection of both principal and interest becomes reasonably certain. When a problem loan
is finally resolved, there may be an actual write-down or charge-off of the principal balance of
the loan to the allowance for loan losses.
41
The following is a summary of other real estate owned and repossessed assets by category for the
dates shown:
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(Dollars in thousands) |
|
Real estate construction and land development |
|
$ |
13,523 |
|
|
$ |
13,915 |
|
Real estate mortgages |
|
|
|
|
|
|
|
|
Single-family |
|
|
10,979 |
|
|
|
4,505 |
|
Commercial |
|
|
1,107 |
|
|
|
896 |
|
Other |
|
|
374 |
|
|
|
987 |
|
|
|
|
|
|
|
|
Other real estate owned and repossessed assets |
|
$ |
25,983 |
|
|
$ |
20,303 |
|
|
|
|
|
|
|
|
Impaired Loans. At March 31, 2009, our recorded investment in impaired loans under SFAS 114 totaled
$75.4 million, an increase of $22.5 million from $52.9 million at December 31, 2008. Approximately
$29.6 million is located in the Alabama Region and $45.8 million is located in the Florida Region.
Approximately $7.8 million of the allowance for loan losses is specifically allocated to these
loans, providing 10.4% coverage. Additionally, $74.9 million, or 99.3%, of the $75.4 million in
impaired loans is secured by real estate.
The following is a summary of impaired loans and the specifically allocated allowance for loan
losses by category as of March 31, 2009 and December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2009 |
|
|
December 31, 2008 |
|
|
|
Outstanding |
|
|
Specific |
|
|
Outstanding |
|
|
Specific |
|
|
|
Balance |
|
|
Allowance |
|
|
Balance |
|
|
Allowance |
|
|
|
(Dollars in thousands) |
|
Commercial and industrial |
|
$ |
462 |
|
|
$ |
177 |
|
|
$ |
515 |
|
|
$ |
42 |
|
Real estate construction and land development |
|
|
23,150 |
|
|
|
2,476 |
|
|
|
18,155 |
|
|
|
1,570 |
|
Real estate mortgages |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single-family |
|
|
24,741 |
|
|
|
4,037 |
|
|
|
18,063 |
|
|
|
2,251 |
|
Commercial |
|
|
24,496 |
|
|
|
975 |
|
|
|
15,615 |
|
|
|
1,173 |
|
Other |
|
|
2,537 |
|
|
|
133 |
|
|
|
532 |
|
|
|
70 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
75,386 |
|
|
$ |
7,798 |
|
|
$ |
52,880 |
|
|
$ |
5,106 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Potential Problem Loans. In addition to nonperforming loans, management has identified $47.2
million in potential problem loans as of March 31, 2009. Potential problem loans are loans where
known information about possible credit problems of the borrowers causes management to have doubts
as to the ability of such borrowers to comply with the present repayment terms and may result in
disclosure of such loans as nonperforming in future periods. Approximately $22.4 million, or 47%,
of the total are syndicated loans where discussions to restructure the terms of the loan and/or
settlement arrangements with the lead bank are underway. Excluding these syndicated loans, three
categories accounted for approximately 96% of the total with real estate construction loans
accounting for the largest, 48% and single family residential and commercial real estate loans
accounted for 35% and 13%, respectively. Excluding the syndicates, 54% of the remaining loans,
averaging a balance of $283,000 were located in Alabama. In each case, management is actively
working a plan of action to ensure that any loss exposure is mitigated and will continue to monitor
their respective cash flow positions.
Changes in Lending Policies and Procedures, Including Underwriting Standards. Since 2005, we have
undergone significant changes in our underwriting standards with the establishment of a centralized
underwriting group that underwrites and approves small business and consumer loans using FICO
scoring models. In addition, with our recent mergers the threshold for large credit requests with
Total Credit Exposures (TCEs) increased to a minimum of $2.0 million for review and approval by
Regional Loan Committee on a weekly basis; and credits with TCE exceeding $10 million are reviewed
and approved by the Executive Loan Committee and the Board Loan and Investment Committee as needed.
Credit Administration is responsible for identifying and reporting all loans that are underwritten
outside of these two processes to executive management and Loan Review. In recent months, in
conjunction with changes in the economic and credit cycles, we have adjusted our underwriting
standards. In particular, we have been more selective in the number and type of loans that are
made. We are requiring more relationship-driven deals, where we are the primary, and in many cases,
the only banking relationship for these prospective customers. All of these changes are intended to
further strengthen our positions and mitigate the associated risks in the current economic
environment.
42
Deposits. Noninterest-bearing deposits totaled $253.5 million at March 31, 2009, an increase of
19.1%, or $40.8 million, from $212.7 million at December 31, 2008. Noninterest-bearing deposits
were 10.1% of total deposits at March 31, 2009 compared to 9.1% at December 31, 2008.
Interest-bearing deposits totaled $2.254 billion at March 31, 2009, an increase of 5.8%, or $123
million, from $2.131 billion at December 31, 2008. Interest-bearing deposits averaged $2.200
billion for the first quarter of 2009 compared to $1.983 billion for the first quarter of 2008. The
average rate paid on all interest-bearing deposits during the first quarter of 2009 was 2.75%,
compared to 4.10% for the first quarter of 2008.
The following table sets forth the composition of our total deposit accounts at the dates
indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
Percent |
|
|
|
2009 |
|
|
2008 |
|
|
Change |
|
|
|
(Dollars in thousands) |
|
Noninterest-bearing demand |
|
$ |
253,447 |
|
|
$ |
212,732 |
|
|
|
19.1 |
% |
Alabama segment |
|
|
126,961 |
|
|
|
98,133 |
|
|
|
29.4 |
|
Florida segment |
|
|
80,017 |
|
|
|
72,250 |
|
|
|
10.8 |
|
Other |
|
|
46,469 |
|
|
|
42,349 |
|
|
|
9.7 |
|
Interest-bearing demand |
|
|
669,478 |
|
|
|
632,430 |
|
|
|
5.9 |
|
Alabama segment |
|
|
320,593 |
|
|
|
327,387 |
|
|
|
(2.1 |
) |
Florida segment |
|
|
208,806 |
|
|
|
185,239 |
|
|
|
12.7 |
|
Other |
|
|
140,079 |
|
|
|
119,804 |
|
|
|
16.9 |
|
Savings |
|
|
215,981 |
|
|
|
185,522 |
|
|
|
16.4 |
|
Alabama segment |
|
|
119,964 |
|
|
|
106,946 |
|
|
|
12.2 |
|
Florida segment |
|
|
93,923 |
|
|
|
76,449 |
|
|
|
22.9 |
|
Other |
|
|
2,094 |
|
|
|
2,127 |
|
|
|
(1.5 |
) |
Time deposits |
|
|
1,368,759 |
|
|
|
1,312,304 |
|
|
|
4.3 |
|
Alabama segment |
|
|
671,798 |
|
|
|
608,056 |
|
|
|
10.5 |
|
Florida segment |
|
|
532,047 |
|
|
|
490,266 |
|
|
|
8.5 |
|
Other |
|
|
164,914 |
|
|
|
213,982 |
|
|
|
(22.9 |
) |
|
|
|
|
|
|
|
|
|
|
Total deposits |
|
$ |
2,507,665 |
|
|
$ |
2,342,988 |
|
|
|
7.0 |
% |
|
|
|
|
|
|
|
|
|
|
Alabama segment |
|
$ |
1,239,316 |
|
|
$ |
1,140,522 |
|
|
|
8.7 |
% |
|
|
|
|
|
|
|
|
|
|
Florida segment |
|
$ |
914,793 |
|
|
$ |
824,204 |
|
|
|
11.0 |
% |
|
|
|
|
|
|
|
|
|
|
Other |
|
$ |
353,556 |
|
|
$ |
378,262 |
|
|
|
(6.5 |
)% |
|
|
|
|
|
|
|
|
|
|
Borrowings. Advances from the Federal Home Loan Bank (FHLB) totaled $243 million at March 31,
2009, a decrease of 32.7%, or $118 million, from $361 million at December 31, 2008. Borrowings from
the FHLB were used primarily to fund growth in the loan portfolio. FHLB advances had a weighted
average interest rate of approximately 3.49% at March 31, 2009. The advances are secured by FHLB
stock, agency securities and a blanket lien on certain residential real estate loans and commercial
loans.
On March 31, 2009, the Bank, completed an offering of a $40 million aggregate principal amount
2.625% Senior Note due 2012 (the Note). The Note is guaranteed by the FDIC under its TLGP and is
backed by the full faith and credit of the United States. The Note is a direct, unsecured general
obligation of the Bank and it is not subject to redemption prior to maturity. The Note is solely
the obligation of the Bank and is not guaranteed by us. The Bank received net proceeds, after
discount, FDIC guarantee premium and other issuance cost, of approximately $38.6 million, which
will be used by the Bank for general corporate purposes. The debt will yield an effective interest
rate, including amortization, of 3.89%.
Stockholders Equity
Overview. Our stockholders equity totaled $245.4 million at March 31, 2009 compared to $251.2
million at December 31, 2008. This decrease was primarily due to the amount of cumulative dividends
on preferred stock and net loss for the quarter offset by the components of other comprehensive
income as shown below.
43
Other Comprehensive Income. Our stockholders equity was affected by various components of other
comprehensive income during 2009. The components of other comprehensive (loss) income for the first
quarter of 2009 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-Tax |
|
|
Income Tax |
|
|
Net of |
|
|
|
Amount |
|
|
Expense |
|
|
Income Tax |
|
|
|
(In thousands) |
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on available for sale securities, net of total OTTI |
|
$ |
(8,394 |
) |
|
$ |
3,105 |
|
|
$ |
(5,289 |
) |
Less reclassification adjustment for OTTI realized in net loss |
|
|
5,845 |
|
|
|
(2,163 |
) |
|
|
3,682 |
|
Unrealized loss on derivatives |
|
|
(29 |
) |
|
|
11 |
|
|
|
(18 |
) |
|
|
|
|
|
|
|
|
|
|
Net unrealized loss |
|
$ |
(2,578 |
) |
|
$ |
(953 |
) |
|
$ |
(1,625 |
) |
|
|
|
|
|
|
|
|
|
|
Please refer to the Financial Condition Investment Securities section for additional
discussion regarding the realized/unrealized gains and losses on the investment securities
portfolio.
Regulatory Capital. The table below represents our Banks regulatory and minimum regulatory capital
requirements at March 31, 2009 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
To Be Well |
|
|
|
|
|
|
|
|
|
|
For Capital |
|
Capitalized Under |
|
|
|
|
|
|
|
|
|
|
Adequacy |
|
Prompt Corrective |
|
|
Actual |
|
Purposes |
|
Action |
Superior Bank |
|
Amount |
|
Ratio |
|
Amount |
|
Ratio |
|
Amount |
|
Ratio |
As of March 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 Core Capital (to Adjusted Total Assets) |
|
$ |
257,674 |
|
|
|
8.37 |
% |
|
$ |
123,130 |
|
|
|
4.00 |
% |
|
$ |
153,912 |
|
|
|
5.00 |
% |
Total Capital (to Risk Weighted Assets) |
|
|
289,538 |
|
|
|
11.18 |
|
|
|
207,234 |
|
|
|
8.00 |
|
|
|
259,043 |
|
|
|
10.00 |
|
Tier 1 Capital (to Risk Weighted Assets) |
|
|
257,674 |
|
|
|
9.95 |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
155,426 |
|
|
|
6.00 |
|
Tangible Capital (to Adjusted Total Assets) |
|
|
257,674 |
|
|
|
8.37 |
|
|
|
46,174 |
|
|
|
1.50 |
|
|
|
N/A |
|
|
|
N/A |
|
Currently, we are not subject to any consolidated regulatory capital requirements, however for
comparative information the following table shows our capital levels on a consolidated basis as of
March 31, 2009 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
To Be Well |
|
|
|
|
|
|
|
|
|
|
|
For Capital |
|
|
Capitalized Under |
|
|
|
|
|
|
|
|
|
|
|
Adequacy |
|
|
Prompt Corrective |
|
|
|
Actual |
|
|
Purposes |
|
|
Action |
|
Superior Bancorp |
|
Amount |
|
|
Ratio |
|
|
Amount |
|
|
Ratio |
|
|
Amount |
|
|
Ratio |
|
As of March 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 Core Capital (to Adjusted Total Assets) |
|
$ |
250,761 |
|
|
|
8.14 |
% |
|
$ |
123,263 |
|
|
|
4.00 |
% |
|
$ |
154,079 |
|
|
|
5.00 |
% |
Total Capital (to Risk Weighted Assets) |
|
|
282,625 |
|
|
|
11.13 |
% |
|
|
203,187 |
|
|
|
8.00 |
|
|
|
253,984 |
|
|
|
10.00 |
|
Tier 1 Capital (to Risk Weighted Assets) |
|
|
250,761 |
|
|
|
9.87 |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
152,930 |
|
|
|
6.00 |
|
Tangible Capital (to Adjusted Total Assets) |
|
|
250,761 |
|
|
|
8.14 |
|
|
|
46,224 |
|
|
|
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 used $14.1
million in funds in the first quarter of 2009, primarily due to an increase in mortgage loans held
for sale. This compares to net funds used in operating activities of $5.3 million in the first
quarter of 2008, primarily due to an increase in mortgage loans held for sale.
44
Investing activities resulted in a $39 million net use of funds in the first quarter of 2009,
primarily due to an increase in loans offset by principal paydowns in the investment securities
portfolio. Investing activities were a $20 million net use of funds in the first quarter of 2008,
primarily due to an increase in loans and the purchase of investment securities offset by the
maturity and sales of investment securities.
Financing activities provided $83 million in funds during the first quarter of 2009, primarily as a
result of an increase in customer deposits and proceeds from senior unsecured debt offset by the
maturity of FHLB advances. Financing activities provided funds in the first quarter of 2008,
primarily as a result of an increase in FHLB advances offset by the maturity of our brokered
certificates of deposits. Our liquidity improved significantly as compared to the corresponding
2008 quarter. Borrowings of the Bank as a percentage of deposits and borrowed funds of the Bank
(defined as bank fundings) were 10.5% at March 31, 2009, down from 13.0% at March 31, 2008, and
from 13.8% at December 2008. Similarly, reliance on brokered deposits, including the CDARs program,
has declined to 7.2%, down from 8.8% at December 31, 2008. This has been accomplished principally
due to increased levels of core deposits as a component of bank funding, with deposits of new
branches that have been opened in the past three years, a total of 22 new branches, having reached
$363 million in deposits, and through general growth in deposits across all product line offerings.
Forward-Looking Statements
The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking
statements made by us or on our behalf. Some of the disclosures in this Quarterly Report on Form
10-Q, including any statements preceded by, followed by or which include the words may, could,
should, will, would, hope, might, believe, expect, anticipate, estimate,
intend, plan, assume or similar expressions constitute forward-looking statements.
These forward-looking statements, implicitly and explicitly, include the assumptions underlying the
statements and other information with respect to our beliefs, plans, objectives, goals,
expectations, anticipations, estimates, intentions, financial condition, results of operations,
future performance and business, including our expectations and estimates with respect to our
revenues, expenses, earnings, return on equity, return on assets, efficiency ratio, asset quality,
the adequacy of our allowance for loan losses and other financial data and capital and performance
ratios.
Although we believe that the expectations reflected in our forward-looking statements are
reasonable, these statements involve risks and uncertainties which are subject to change based on
various important factors (some of which are beyond our control). Such forward looking statements
should, therefore, be considered in light of various important factors set forth from time to time
in our reports and registration statements filed with the SEC. The following factors, among others,
could cause our financial performance to differ materially from our goals, plans, objectives,
intentions, expectations and other forward-looking statements: (1) the strength of the United
States economy in general and the strength of the regional and local economies in which we conduct
operations; (2) the effects of, and changes in, trade, monetary and fiscal policies and laws,
including interest rate policies of the Board of Governors of the Federal Reserve System; (3)
inflation, interest rate, market and monetary fluctuations; (4) our ability to successfully
integrate the assets, liabilities, customers, systems and management we acquire or merge into our
operations; (5) our timely development of new products and services in a changing environment,
including the features, pricing and quality compared to the products and services of our
competitors; (6) the willingness of users to substitute competitors products and services for our
products and services; (7) the impact of changes in financial services policies, laws and
regulations, including laws, regulations and policies concerning taxes, banking, securities and
insurance, and the application thereof by regulatory bodies; (8) our ability to resolve any legal
proceeding on acceptable terms and its effect on our financial condition or results of operations;
(9) technological changes; (10) changes in consumer spending and savings habits; (11) the effect of
natural disasters, such as hurricanes or pandemic illnesses, in our geographic markets; and (12)
regulatory, legal or judicial proceedings; (13) the continuing instability in the domestic and
international capital markets; (14) the effects of new and proposed laws relating to financial
institutions and credit transactions; and (15) the effects of policy initiatives that may be
introduced by the new Presidential administration, including, but not limited to, economic stimulus
initiatives and so-called bailout initiatives.
If one or more of the factors affecting our forward-looking information and statements proves
incorrect, then our actual results, performance or achievements could differ materially from those
expressed in, or implied by, forward-looking information and statements contained in this annual
report. Therefore, we caution you not to place undue reliance on our forward-looking information
and statements.
We do not intend to update our forward-looking information and statements, whether written or oral,
to reflect change. All forward-looking statements attributable to us are expressly qualified by
these cautionary statements.
45
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, 2008, is hereby incorporated herein by
reference.
We measure our interest rate risk by analyzing the repricing 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 March
31, 2009 to December 31, 2008 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
December 31, |
12-Month Gap |
|
2009 |
|
2008 |
Interest-bearing liabilities in excess of interest-earning assets based on repricing date |
|
$ |
(187,000 |
) |
|
$ |
(297,000 |
) |
Cumulative 12-month Gap Ratio |
|
|
.91 |
|
|
|
.86 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (Decrease) in Net Interest Income |
Change (in Basis Points) in Interest |
|
March 31, 2009 |
|
December 31, 2008 |
Rates (12-Month Projection) |
|
Amount |
|
Percent |
|
Amount |
|
Percent |
+200 BP (1)
|
|
$ |
2,700 |
|
|
|
2.9 |
% |
|
$ |
1,200 |
|
|
|
1.7 |
% |
- 200 BP (2)
|
|
NCM
|
|
NCM
|
|
NCM
|
|
NCM
|
|
|
|
(1) |
|
Results are within our asset and liability management policy. |
|
(2) |
|
Not considered meaningful in the current rate environment |
Our net interest income simulation model assumes an instantaneous and parallel increase or decrease
in interest rates of 200 and 100 basis points. 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 and 100 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
March 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
Change (in Basis Points) in |
|
|
|
|
|
Change |
Interest Rates |
|
EVE |
|
Amount |
|
Percent |
|
|
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
+ 200 BP |
|
$ |
339,249 |
|
|
$ |
19,297 |
|
|
|
6.0 |
% |
+ 100 BP |
|
|
331,601 |
|
|
|
11,649 |
|
|
|
3.6 |
|
0 BP |
|
|
319,952 |
|
|
|
|
|
|
|
|
|
- 100 BP |
|
|
310,285 |
|
|
|
(9,667 |
) |
|
|
(3.0 |
) |
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.
46
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 March 31, 2009. Based upon the Evaluation, our CEO and
CFO have concluded that, as of March 31, 2009, 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.
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,
2008, 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 first quarter
of 2009.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the first quarter of 2009.
ITEM 5. OTHER INFORMATION
None.
47
ITEM 6. EXHIBITS
(a) Exhibit:
31.1 |
|
Certification of principal executive officer pursuant to Rule 13a-14(a). |
|
31.2 |
|
Certification of principal financial officer pursuant to 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. |
48
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
|
|
|
Date: November 9, 2009 |
By: |
/s/ C. Stanley Bailey
|
|
|
|
C. Stanley Bailey |
|
|
|
Chief Executive Officer |
|
|
|
|
|
Date: November 9, 2009 |
By: |
/s/ James A. White
|
|
|
|
James A. White |
|
|
|
Chief Financial Officer
(Principal Financial Officer) |
|
|
49