e10vqza
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC
FORM 10-Q/A
(Amendment No. 1)
(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE QUARTERLY PERIOD ENDED June 30, 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):
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Large accelerated filer o
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Accelerated filer þ
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Non-accelerated filer o
(Do not check if a smaller reporting company)
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Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
Yes o No þ
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of
the latest practicable date.
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Class
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Outstanding as of June 30, 2009 |
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Common stock, $.001 par value
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10,111,684 |
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 and six
months ended June 30, 2009 includes restated unaudited condensed consolidated financial statements
as of, and for the quarter ended June 30, 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 March 31, 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 and six months ended June 30, 2009. There is no effect to our
reported cash flows:
Restatement effects Condensed Consolidated Statements of Financial Condition (In Thousands)
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As of June 30, 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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$ |
306,300 |
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$ |
315,551 |
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$ |
(9,251 |
) |
Accrued interest receivable |
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16,025 |
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16,210 |
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(185 |
) |
Other assets |
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66,166 |
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62,819 |
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3,347 |
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Total assets |
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3,209,421 |
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3,215,510 |
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(6,089 |
) |
Accumulated deficit |
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(141,483 |
) |
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(136,662 |
) |
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(4,821 |
) |
Accumulated other comprehensive loss |
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(7,991 |
) |
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(6,723 |
) |
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(1,268 |
) |
Total stockholders equity |
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240,681 |
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246,770 |
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(6,089 |
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Total liabilities and stockholders equity |
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3,209,421 |
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3,215,510 |
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(6,089 |
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2
Restatement effects Condensed Consolidated Statements of Operations (In Thousands)
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Three Months Ended |
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June 30, 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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Net interest income |
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$ |
22,717 |
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$ |
22,915 |
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$ |
(198 |
) |
Total other-than-temporary impairment losses |
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(6,685 |
) |
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(5,853 |
) |
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(832 |
) |
Portion of OTTI recognized in other
comprehensive income |
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904 |
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1,776 |
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(872 |
) |
Investment securities (loss) gain |
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(5,781 |
) |
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(4,077 |
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(1,704 |
) |
Loss before income taxes |
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(10,233 |
) |
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(8,331 |
) |
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(1,902 |
) |
Income tax benefit |
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(4,539 |
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(4,569 |
) |
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30 |
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Net loss |
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(5,694 |
) |
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(3,762 |
) |
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(1,932 |
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Net loss applicable to common shareholders |
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(6,861 |
) |
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(4,929 |
) |
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(1,932 |
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Basic net loss per common share |
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$ |
(0.68 |
) |
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$ |
(0.49 |
) |
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$ |
(0.19 |
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Diluted net loss per common share |
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$ |
(0.68 |
) |
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$ |
(0.49 |
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$ |
(0.19 |
) |
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Six Months Ended |
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June 30, 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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Net interest income |
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$ |
44,046 |
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$ |
44,244 |
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$ |
(198 |
) |
Total other-than-temporary impairment losses |
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(17,189 |
) |
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(7,631 |
) |
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(9,558 |
) |
Portion of OTTI recognized in other
comprehensive income |
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5,563 |
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3,230 |
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2,333 |
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Investment securities (loss) gain |
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(11,626 |
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(4,401 |
) |
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(7,225 |
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Loss before income taxes |
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(16,655 |
) |
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(9,232 |
) |
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(7,423 |
) |
Income tax benefit |
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(7,387 |
) |
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(4,784 |
) |
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(2,603 |
) |
Net loss |
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(9,268 |
) |
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(4,448 |
) |
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(4,820 |
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Net loss applicable to common shareholders |
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(11,578 |
) |
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(6,758 |
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(4,820 |
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Basic net loss per common share |
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$ |
(1.15 |
) |
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$ |
(0.67 |
) |
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$ |
(0.48 |
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Diluted net loss per common share |
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$ |
(1.15 |
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$ |
(0.67 |
) |
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$ |
(0.48 |
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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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June 30, |
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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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$ |
80,621 |
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$ |
74,237 |
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Interest-bearing deposits in other banks |
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19,868 |
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10,042 |
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Federal funds sold |
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2,426 |
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5,169 |
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Total cash and cash equivalents |
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102,915 |
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89,448 |
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Investment securities available for sale |
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306,300 |
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347,142 |
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Tax lien certificates |
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25,533 |
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23,786 |
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Mortgage loans held for sale |
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100,707 |
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22,040 |
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Loans, net of unearned income |
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2,398,471 |
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2,314,921 |
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Allowance for loan losses |
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(33,504 |
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(28,850 |
) |
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Net loans |
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2,364,967 |
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2,286,071 |
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Premises and equipment, net |
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105,343 |
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104,085 |
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Accrued interest receivable |
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16,025 |
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14,794 |
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Stock in FHLB |
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18,212 |
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21,410 |
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Cash surrender value of life insurance |
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49,174 |
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48,291 |
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Core deposit and other intangible assets |
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18,873 |
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21,052 |
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Other real estate |
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35,206 |
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19,971 |
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Other assets |
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66,166 |
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54,611 |
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Total assets |
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$ |
3,209,421 |
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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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$ |
246,724 |
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$ |
212,732 |
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Interest-bearing |
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2,357,834 |
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2,130,256 |
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TOTAL DEPOSITS |
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2,604,558 |
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2,342,988 |
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Advances from FHLB |
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228,320 |
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361,324 |
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Security repurchase agreements |
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2,164 |
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3,563 |
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Notes payable |
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45,688 |
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7,000 |
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Subordinated debentures, net |
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60,774 |
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60,884 |
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Accrued expenses and other liabilities |
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27,236 |
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25,703 |
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Total liabilities |
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2,968,740 |
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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 June 30, 2009 and December 31, 2008,
respectively |
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Common stock, par value $.001 per share; shares authorized 20,000,000;
shares issued 10,438,590 and 10,403,087 respectively; outstanding
10,111,684 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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63,563 |
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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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329,736 |
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329,461 |
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Accumulated deficit |
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(141,483 |
) |
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(129,904 |
) |
Accumulated other comprehensive loss |
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(7,991 |
) |
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(7,925 |
) |
Treasury stock, at cost 321,152 and 321,485 shares, respectively |
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(11,333 |
) |
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(11,373 |
) |
Unearned ESOP stock |
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(353 |
) |
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(443 |
) |
Unearned restricted stock |
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(114 |
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(211 |
) |
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Total stockholders equity |
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240,681 |
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251,239 |
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Total liabilities and stockholders equity |
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$ |
3,209,421 |
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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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Six Months Ended |
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June 30, |
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June 30, |
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2009 |
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2008 |
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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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$ |
35,959 |
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$ |
36,708 |
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$ |
70,911 |
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$ |
74,053 |
|
Interest on taxable securities |
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3,778 |
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|
4,143 |
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7,787 |
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|
8,195 |
|
Interest on tax-exempt securities |
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|
434 |
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|
|
431 |
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|
863 |
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|
861 |
|
Interest on federal funds sold |
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2 |
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|
18 |
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|
7 |
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|
98 |
|
Interest and dividends on other investments |
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|
456 |
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|
|
732 |
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|
|
818 |
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|
1,376 |
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Total interest income |
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40,629 |
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|
42,032 |
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80,386 |
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|
84,583 |
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INTEREST EXPENSE |
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Interest on deposits |
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14,109 |
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16,709 |
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29,002 |
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|
36,962 |
|
Interest on other borrowed funds |
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|
2,597 |
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|
3,016 |
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|
4,938 |
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|
5,808 |
|
Interest on subordinated debentures |
|
|
1,206 |
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|
919 |
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|
2,400 |
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|
1,934 |
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Total interest expense |
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17,912 |
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|
|
20,644 |
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36,340 |
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44,704 |
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NET INTEREST INCOME |
|
|
22,717 |
|
|
|
21,388 |
|
|
|
44,046 |
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|
|
39,879 |
|
Provision for loan losses |
|
|
5,982 |
|
|
|
5,967 |
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|
9,434 |
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|
7,838 |
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NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES |
|
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16,735 |
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|
|
15,421 |
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|
34,612 |
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|
32,041 |
|
NONINTEREST INCOME |
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Service charges and fees on deposits |
|
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2,524 |
|
|
|
2,192 |
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|
|
4,911 |
|
|
|
4,296 |
|
Mortgage banking income |
|
|
2,271 |
|
|
|
1,031 |
|
|
|
3,961 |
|
|
|
2,297 |
|
Total other-than-temporary impairment losses (OTTI) (see Note 3) |
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(6,685 |
) |
| |
NA |
| |
|
(17,189 |
) |
|
|
NA |
|
Portion of OTTI recognized in other comprehensive income |
|
|
904 |
|
| |
NA |
|
|
|
5,563 |
|
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|
NA |
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|
|
|
|
|
|
|
|
|
|
|
|
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|
Investment securities (loss) gain |
|
|
(5,781 |
) |
|
|
1,068 |
|
|
|
(11,626 |
) |
|
|
1,470 |
|
Change in fair value of derivatives |
|
|
(67 |
) |
|
|
(418 |
) |
|
|
(266 |
) |
|
|
632 |
|
Increase in cash surrender value of life insurance |
|
|
540 |
|
|
|
555 |
|
|
|
1,055 |
|
|
|
1,107 |
|
Gain on extinguishment of liabilities |
|
|
|
|
|
|
2,918 |
|
|
|
|
|
|
|
2,918 |
|
Other income |
|
|
1,340 |
|
|
|
1,660 |
|
|
|
2,557 |
|
|
|
2,888 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL NONINTEREST INCOME |
|
|
827 |
|
|
|
9,006 |
|
|
|
592 |
|
|
|
15,608 |
|
NONINTEREST EXPENSES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits |
|
|
12,304 |
|
|
|
12,058 |
|
|
|
24,613 |
|
|
|
24,199 |
|
Occupancy, furniture and equipment expense |
|
|
4,503 |
|
|
|
4,120 |
|
|
|
8,907 |
|
|
|
8,180 |
|
Amortization of core deposit intangibles |
|
|
985 |
|
|
|
896 |
|
|
|
1,971 |
|
|
|
1,792 |
|
FDIC assessment |
|
|
1,932 |
|
|
|
162 |
|
|
|
2,389 |
|
|
|
224 |
|
Foreclosure losses |
|
|
1,748 |
|
|
|
178 |
|
|
|
2,317 |
|
|
|
364 |
|
Other expenses |
|
|
6,323 |
|
|
|
5,862 |
|
|
|
11,662 |
|
|
|
10,781 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL NONINTEREST EXPENSES |
|
|
27,795 |
|
|
|
23,276 |
|
|
|
51,859 |
|
|
|
45,540 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes |
|
|
(10,233 |
) |
|
|
1,151 |
|
|
|
(16,655 |
) |
|
|
2,109 |
|
INCOME TAX (BENEFIT) EXPENSE |
|
|
(4,539 |
) |
|
|
310 |
|
|
|
(7,387 |
) |
|
|
572 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET (LOSS) INCOME |
|
|
(5,694 |
) |
|
|
841 |
|
|
|
(9,268 |
) |
|
|
1,537 |
|
Preferred stock dividends and amortization |
|
|
1,167 |
|
|
|
|
|
|
|
2,310 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET (LOSS) INCOME APPLICABLE TO COMMON STOCKHOLDERS |
|
$ |
(6,861 |
) |
|
$ |
841 |
|
|
$ |
(11,578 |
) |
|
$ |
1,537 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BASIC NET (LOSS) INCOME PER COMMON SHARE |
|
$ |
(0.68 |
) |
|
$ |
0.08 |
|
|
$ |
(1.15 |
) |
|
$ |
0.15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DILUTED NET (LOSS) INCOME PER COMMON SHARE |
|
$ |
(0.68 |
) |
|
$ |
0.08 |
|
|
$ |
(1.15 |
) |
|
$ |
0.15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding |
|
|
10,071 |
|
|
|
10,016 |
|
|
|
10,062 |
|
|
|
10,014 |
|
Weighted average common shares outstanding, assuming dilution |
|
|
10,071 |
|
|
|
10,056 |
|
|
|
10,062 |
|
|
|
10,051 |
|
See Notes to Condensed Consolidated Financial Statements.
6
SUPERIOR BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED)
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
NET CASH (USED) PROVIDED BY OPERATING ACTIVITIES |
|
$ |
(71,019 |
) |
|
$ |
11,446 |
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
Proceeds from sales of securities available for sale |
|
|
|
|
|
|
36,142 |
|
Proceeds from maturities of investment securities available for sale |
|
|
40,602 |
|
|
|
92,189 |
|
Purchases of investment securities available for sale |
|
|
(11,683 |
) |
|
|
(127,153 |
) |
Redemption of tax lien certificates |
|
|
18,582 |
|
|
|
9,886 |
|
Purchase of tax lien certificates |
|
|
(20,329 |
) |
|
|
(19,303 |
) |
Net increase in loans |
|
|
(110,932 |
) |
|
|
(147,573 |
) |
Purchases of premises and equipment |
|
|
(5,295 |
) |
|
|
(8,078 |
) |
Proceeds from sale of premises and equipment |
|
|
338 |
|
|
|
7,567 |
|
Proceeds from sale of repossessed assets |
|
|
5,673 |
|
|
|
4,009 |
|
Decrease (increase) in stock in FHLB |
|
|
3,198 |
|
|
|
(9,556 |
) |
|
|
|
|
|
|
|
Net cash used by investing activities |
|
|
(79,846 |
) |
|
|
(161,870 |
) |
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
Net increase in deposits |
|
|
261,784 |
|
|
|
(6,666 |
) |
Net (decrease) increase in FHLB advances and other borrowed funds |
|
|
(134,493 |
) |
|
|
173,074 |
|
Proceeds from notes payable |
|
|
38,575 |
|
|
|
|
|
Preferred cash dividend paid |
|
|
(1,534 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
164,332 |
|
|
|
166,408 |
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents |
|
|
13,467 |
|
|
|
15,984 |
|
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD |
|
|
89,448 |
|
|
|
63,351 |
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS AT END OF PERIOD |
|
$ |
102,915 |
|
|
$ |
79,335 |
|
|
|
|
|
|
|
|
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- and six month periods ended
June 30, 2009, are not necessarily indicative of the results that may be expected for the year
ending December 31, 2009. Management has evaluated subsequent events for disclosure or recognition
up to the time of filing these financial statements with the Securities and Exchange Commission on
November 9, 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 and six months ended June 30, 2009 includes restated
unaudited condensed consolidated financial statements as of, and for, the quarter ended June 30, 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 March 31, 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. Managaments 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 Southְs 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 and six months ended June 30, 2009.
There is no effect to our reported cash flows:
Restatement effects Condensed Consolidated Statements of Financial Condition (In Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2009 |
|
|
As |
|
As Originally |
|
|
|
|
Restated |
|
Filed |
|
Difference |
Investment securities available for sale |
|
$ |
306,300 |
|
|
$ |
315,551 |
|
|
$ |
(9,251 |
) |
Accrued interest receivable |
|
|
16,025 |
|
|
|
16,210 |
|
|
|
(185 |
) |
Other assets |
|
|
66,166 |
|
|
|
62,819 |
|
|
|
3,347 |
|
Total assets |
|
|
3,209,421 |
|
|
|
3,215,510 |
|
|
|
(6,089 |
) |
Accumulated deficit |
|
|
(141,483 |
) |
|
|
(136,662 |
) |
|
|
(4,821 |
) |
Accumulated other comprehensive loss |
|
|
(7,991 |
) |
|
|
(6,723 |
) |
|
|
(1,268 |
) |
Total stockholders equity |
|
|
240,681 |
|
|
|
246,770 |
|
|
|
(6,089 |
) |
Total liabilities and stockholders equity |
|
|
3,209,421 |
|
|
|
3,215,510 |
|
|
|
(6,089 |
) |
Restatement effects Condensed Consolidated Statements of Operations (In Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
June 30, 2009 |
|
|
|
As |
|
|
As Originally |
|
|
|
|
|
|
Restated |
|
|
Filed |
|
|
Difference |
|
Net interest income |
|
$ |
22,717 |
|
|
$ |
22,915 |
|
|
$ |
(198 |
) |
Total other-than-temporary impairment losses |
|
|
(6,685 |
) |
|
|
(5,853 |
) |
|
|
(832 |
) |
Portion of OTTI recognized in other
comprehensive income |
|
|
904 |
|
|
|
1,776 |
|
|
|
(872 |
) |
Investment securities (loss) gain |
|
|
(5,781 |
) |
|
|
(4,077 |
) |
|
|
(1,704 |
) |
Loss before income taxes |
|
|
(10,233 |
) |
|
|
(8,331 |
) |
|
|
(1,902 |
) |
Income tax benefit |
|
|
(4,539 |
) |
|
|
(4,569 |
) |
|
|
30 |
|
Net loss |
|
|
(5,694 |
) |
|
|
(3,762 |
) |
|
|
(1,932 |
) |
Net loss applicable to common shareholders |
|
|
(6,861 |
) |
|
|
(4,929 |
) |
|
|
(1,932 |
) |
Basic net loss per common share |
|
$ |
(0.68 |
) |
|
$ |
(0.49 |
) |
|
$ |
(0.19 |
) |
Diluted net loss per common share |
|
$ |
(0.68 |
) |
|
$ |
(0.49 |
) |
|
$ |
(0.19 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
June 30, 2009 |
|
|
|
As |
|
|
As Originally |
|
|
|
|
|
|
Restated |
|
|
Filed |
|
|
Difference |
|
Net interest income |
|
$ |
44,046 |
|
|
$ |
44,244 |
|
|
$ |
(198 |
) |
Total other-than-temporary impairment losses |
|
|
(17,189 |
) |
|
|
(7,631 |
) |
|
|
(9,558 |
) |
Portion of OTTI recognized in other
comprehensive income |
|
|
5,563 |
|
|
|
3,230 |
|
|
|
2,333 |
|
Investment securities (loss) gain |
|
|
(11,626 |
) |
|
|
(4,401 |
) |
|
|
(7,225 |
) |
Loss before income taxes |
|
|
(16,655 |
) |
|
|
(9,232 |
) |
|
|
(7,423 |
) |
Income tax benefit |
|
|
(7,387 |
) |
|
|
(4,784 |
) |
|
|
(2,603 |
) |
Net loss |
|
|
(9,268 |
) |
|
|
(4,448 |
) |
|
|
(4,820 |
) |
Net loss applicable to common shareholders |
|
|
(11,578 |
) |
|
|
(6,758 |
) |
|
|
(4,820 |
) |
Basic net loss per common share |
|
$ |
(1.15 |
) |
|
$ |
(0.67 |
) |
|
$ |
(0.48 |
) |
Diluted net loss per common share |
|
$ |
(1.15 |
) |
|
$ |
(0.67 |
) |
|
$ |
(0.48 |
) |
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 No. 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 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 other than requiring additional disclosures (See Note 11). The effect of the adoption of FSP
115-2 and 124-2 resulted in the portion of OTTI determined to be credit-related ($11,626,000,
pre-tax) being recognized in current earnings, while the portion of OTTI related to other factors
($5,563,000, pre-tax) was recognized in other comprehensive loss (see Notes 3 and 8).
8
SFAS No. 161, Disclosures About Derivative Instruments and Hedging Activities, an Amendment of FASB
Statement No. 133 . SFAS 161 amends SFAS No. 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).
SFAS No. 165, Subsequent Events (SFAS 165). SFAS 165 establishes general standards of accounting
for and disclosure of events that occur after the balance sheet date but before financial
statements are issued or available to be issued. SFAS 165 defines (i) the period after the balance
sheet date during which a reporting entitys management should evaluate events or transactions that
may occur for potential recognition or disclosure in the financial statements (ii) the
circumstances under which an entity should recognize events or transactions occurring after the
balance sheet date in its financial statements, and (iii) the disclosures an entity should make
about events or transactions that occurred after the balance sheet date. This Statement also
requires entities to disclose the date through which subsequent events have been evaluated and the
nature and estimated financial effects of certain subsequent events. SFAS 165 became effective for
the Corporations financial statements for periods ending after June 15, 2009. SFAS 165 did not
have a significant impact on the Corporations financial statements.
SFAS No. 166, Accounting for Transfers of Financial Assets, an Amendment of FASB Statement No. 140
(SFAS 166). SFAS 166 amends SFAS 140, Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities, to enhance reporting about transfers of financial assets,
including securitizations, and where companies have continuing exposure to the risks related to
transferred financial assets. SFAS 166 eliminates the concept of a qualifying special-purpose
entity and changes the requirements for derecognizing financial assets. SFAS 166 also requires
additional disclosures about all continuing involvements with transferred financial assets
including information about gains and losses resulting from transfers during the period. SFAS 166
will be effective January 1, 2010 and is not expected to have a significant impact on the
Corporations financial statements.
SFAS No. 167, Amendments to FASB Interpretation No. 46(R) (SFAS 167). SFAS 167 amends FIN 46
(Revised December 2003), Consolidation of Variable Interest Entities, to change how a company
determines when an entity that is insufficiently capitalized or is not controlled through voting
(or similar rights) should be consolidated. The determination of whether a company is required to
consolidate an entity is based on, among other things, an entitys purpose and design and a
companys ability to direct the activities of the entity that most significantly impact the
entitys economic performance. SFAS 167 requires additional disclosures about the reporting
entitys involvement with variable-interest entities and any significant changes in risk exposure
due to that involvement as well as its affect on the entitys financial statements. SFAS 167 will
be effective January 1, 2010 and is not expected to have a significant impact on the Corporations
financial statements.
SFAS No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted
Accounting Principles, a Replacement of FASB Statement No. 162 (SFAS 168). SFAS 168 replaces SFAS
No. 162, The Hierarchy of Generally Accepted Accounting Principles, and establishes the FASB
Accounting Standards Codification (the Codification) as the Corporations source of authoritative
accounting principles recognized by the FASB to be applied by non-governmental entities in the
preparation of financial statements in conformity with generally accepted accounting principles.
Rules and interpretive releases of the SEC under authority of federal securities laws are also the
Corporations source of authoritative guidance for SEC registrants. All guidance contained in the
Codification carries an equal level of authority. All non-grandfathered, non-SEC accounting
literature not included in the Codification is superseded and deemed non-authoritative. SFAS 168
will be effective for the Corporations financial statements for periods ending after September 15,
2009. SFAS 168 is not expected have a significant impact on the Corporations financial statements.
9
Note 3 Investment Securities
The amounts at which investment securities are carried and their approximate fair values at June
30, 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 |
|
$ |
5,548 |
|
|
$ |
82 |
|
|
$ |
|
|
|
$ |
5,630 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities (MBS): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Agency MBS residential |
|
|
206,168 |
|
|
|
6,325 |
|
|
|
12 |
|
|
|
212,481 |
|
U.S. Agency MBS collateralized mortgage obligation (CMO) |
|
|
12,364 |
|
|
|
352 |
|
|
|
|
|
|
|
12,716 |
|
Private-label CMO |
|
|
23,133 |
|
|
|
|
|
|
|
4,407 |
|
|
|
18,726 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total MBS |
|
|
241,665 |
|
|
|
6,677 |
|
|
|
4,419 |
|
|
|
243,923 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State, county and municipal securities |
|
|
42,149 |
|
|
|
584 |
|
|
|
1,103 |
|
|
|
41,630 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt |
|
|
4,174 |
|
|
|
|
|
|
|
374 |
|
|
|
3,800 |
|
Pooled trust preferred securities |
|
|
11,791 |
|
|
|
|
|
|
|
7,417 |
|
|
|
4,374 |
|
Single issue trust preferred securities |
|
|
5,000 |
|
|
|
|
|
|
|
3,434 |
|
|
|
1,566 |
|
Other collateralized debt obligations |
|
|
5,134 |
|
|
|
|
|
|
|
6 |
|
|
|
5,128 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total corporate obligations |
|
|
26,099 |
|
|
|
|
|
|
|
11,231 |
|
|
|
14,868 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities |
|
|
563 |
|
|
|
|
|
|
|
314 |
|
|
|
249 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities available for sale |
|
$ |
316,024 |
|
|
$ |
7,343 |
|
|
$ |
17,067 |
|
|
$ |
306,300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities with an amortized cost of $250,499,000 at June 30, 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 June 30, 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 |
|
$ |
530 |
|
|
$ |
533 |
|
Due after one year through five years |
|
|
13,029 |
|
|
|
12,780 |
|
Due after five years through ten years |
|
|
5,561 |
|
|
|
5,740 |
|
Due after ten years |
|
|
55,239 |
|
|
|
43,324 |
|
Mortgage-backed securities |
|
|
241,665 |
|
|
|
243,923 |
|
|
|
|
|
|
|
|
|
|
$ |
316,024 |
|
|
$ |
306,300 |
|
|
|
|
|
|
|
|
Gross realized gains on sales of investment securities available for sale for the six-month periods
ended June 30, 2009 and 2008 were $-0- and $1,470,000, respectively, and gross realized losses for
the same periods were $-0-.
10
The following table summarizes the investment securities with unrealized losses at June 30, 2009 by
aggregated major security type and length of time in a continuous unrealized loss position:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Agency MBS residential |
|
$ |
107 |
|
|
$ |
|
|
|
$ |
240 |
|
|
$ |
12 |
|
|
$ |
347 |
|
|
$ |
12 |
|
Private-label CMO |
|
|
299 |
|
|
|
16 |
|
|
|
16,679 |
|
|
|
4,260 |
|
|
|
16,978 |
|
|
|
4,276 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total MBS |
|
|
406 |
|
|
|
16 |
|
|
|
16,919 |
|
|
|
4,272 |
|
|
|
17,325 |
|
|
|
4,288 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State, county and municipal securities |
|
|
10,839 |
|
|
|
385 |
|
|
|
12,260 |
|
|
|
718 |
|
|
|
23,099 |
|
|
|
1,103 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt |
|
|
3,800 |
|
|
|
374 |
|
|
|
|
|
|
|
|
|
|
|
3,800 |
|
|
|
374 |
|
Pooled trust preferred securities |
|
|
|
|
|
|
|
|
|
|
1,551 |
|
|
|
1,986 |
|
|
|
1,551 |
|
|
|
1,986 |
|
Single issue trust preferred securities |
|
|
|
|
|
|
|
|
|
|
1,566 |
|
|
|
3,434 |
|
|
|
1,566 |
|
|
|
3,434 |
|
Other collateralized debt obligations |
|
|
5,128 |
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
5,128 |
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total corporate obligations |
|
|
8,928 |
|
|
|
380 |
|
|
|
3,117 |
|
|
|
5,420 |
|
|
|
12,045 |
|
|
|
5,800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities |
|
|
|
|
|
|
|
|
|
|
250 |
|
|
|
314 |
|
|
|
250 |
|
|
|
314 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total temporarily impaired securities |
|
|
20,173 |
|
|
|
781 |
|
|
|
32,546 |
|
|
|
10,724 |
|
|
|
52,719 |
|
|
|
11,505 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other-than-temporarily Impaired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private-label CMO |
|
|
|
|
|
|
|
|
|
|
1,749 |
|
|
|
131 |
|
|
|
1,749 |
|
|
|
131 |
|
Corporate obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pooled trust preferred securities |
|
|
|
|
|
|
|
|
|
|
2,823 |
|
|
|
5,431 |
|
|
|
2,823 |
|
|
|
5,431 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total corporate obligations |
|
|
|
|
|
|
|
|
|
|
2,823 |
|
|
|
5,431 |
|
|
|
2,823 |
|
|
|
5,431 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total OTTI securities |
|
|
|
|
|
|
|
|
|
|
4,572 |
|
|
|
5,562 |
|
|
|
4,572 |
|
|
|
5,562 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total temporarily and
other-than-temporarily impaired |
|
$ |
20,173 |
|
|
$ |
781 |
|
|
$ |
37,118 |
|
|
$ |
16,286 |
|
|
$ |
57,291 |
|
|
$ |
17,067 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) - Unrealized losses are included in other comprehensive income (loss), net of unrealized
gains and applicable income taxes. |
11
The following is a summary of the total count by category of investment securities with gross
unrealized losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009 |
|
|
|
Total Number of Securities |
|
|
|
Less Than 12 |
|
|
Greater Than |
|
|
|
|
|
|
Months |
|
|
12 Months |
|
|
Total |
|
Temporarily Impaired |
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Agency MBS residential |
|
|
3 |
|
|
|
1 |
|
|
|
4 |
|
Private-label CMO |
|
|
1 |
|
|
|
8 |
|
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
Total MBS |
|
|
4 |
|
|
|
9 |
|
|
|
13 |
|
|
|
|
|
|
|
|
|
|
|
State, county and municipal securities |
|
|
33 |
|
|
|
33 |
|
|
|
66 |
|
|
|
|
|
|
|
|
|
|
|
Corporate obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt |
|
|
3 |
|
|
|
|
|
|
|
3 |
|
Pooled trust preferred securities |
|
|
|
|
|
|
2 |
|
|
|
2 |
|
Single issue trust preferred securities |
|
|
|
|
|
|
1 |
|
|
|
1 |
|
Other collateralized debt obligations |
|
|
1 |
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
Total corporate obligations |
|
|
4 |
|
|
|
3 |
|
|
|
7 |
|
|
|
|
|
|
|
|
|
|
|
Equity securities |
|
|
|
|
|
|
3 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
Total temporarily impaired securities |
|
|
41 |
|
|
|
48 |
|
|
|
89 |
|
|
|
|
|
|
|
|
|
|
|
Other-than-temporarily Impaired
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
Private-label CMO |
|
|
|
|
|
|
3 |
|
|
|
3 |
|
Corporate obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
Pooled trust preferred securities |
|
|
|
|
|
|
3 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
Total OTTI securities |
|
|
|
|
|
|
6 |
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
Total
temporarily and other-than-temporarily impaired |
|
|
41 |
|
|
|
54 |
|
|
|
95 |
|
|
|
|
|
|
|
|
|
|
|
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.
12
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 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
June 30, 2009, the Corporations securities portfolio consisted of 263 securities, 95 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
June 30, 2009, approximately 92% 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 $18,727,000 which had unrealized losses
of approximately $4,407,000 at June 30, 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/NR |
|
1 |
|
3,75 |
|
$ |
(395) |
Aaa/AAA |
|
1 |
|
12.72 |
|
|
(17) |
Aaa/NR |
|
1 |
|
9.05 |
|
|
(46) |
NR/AAA |
|
4 |
|
2.72 17.94 |
|
|
(1,864) |
B2/NR |
|
1 |
|
5.03 |
|
|
(375) |
Caa1/BBB |
|
1 |
|
2.19 |
|
|
(1,579) |
Ca/CCC (2) |
|
3 |
|
0.11 0.85 |
|
|
(131) |
|
|
|
|
|
|
|
Total |
|
12 |
|
|
|
$ |
(4,407) |
|
|
|
|
|
|
|
|
|
|
(1) |
|
The Credit Support Coverage Ratio, which is the ratio that determines the multiple of credit
support, based on assumptions for the performance of the loans within the delinquency
pipeline. The assumptions used are: Current Collateral Support/ ((60 day delinquencies x.60) +
(90 day delinquencies x.70) + (foreclosures x 1.00) + (other real estate x 1.00)) x .40 for
loss severity. |
|
(2) |
|
Includes all private-label CMOs that have OTTI. See discussion that follows. |
13
During the third and fourth quarters of 2008, the Corporation recognized a $1,894,000, pre-tax
non-cash OTTI charge on three private-label CMOs which experienced significant rating downgrades in
those respective quarters. These downgrades continued in the second quarter of 2009 and resulted in
a total OTTI of $4,176,000, including a credit portion of $4,045,000 recognized in current earnings
during the second quarter. The assumptions used in the valuation model include expected future
default rates, loss severity and prepayments. The model also takes into account the structure of
the security, including credit support. Based on these assumptions, the model calculates and
projects the timing and amount of interest and principal payments expected for the security. At
June 30, 2009, the fair values of these three securities totaling $1,749,000 were measured using
Level 3 inputs because the market for them has become illiquid, as indicated by few, if any, trades
during the period. These securities were previously measured using Level 2 inputs. The discount
rates used in the valuation model were based on a yield that the market would require for such
securities with maturities and risk characteristics similar to the securities being measured (See
Note 11 for additional disclosure). The following table provides additional information regarding
these CMO valuations as of June 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life-to-Date |
|
|
|
|
|
|
Discount |
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual |
|
Other-than-temporary Impairment (OTTI) |
|
|
|
|
|
|
Margin |
|
|
|
|
|
Cumulative |
|
Average |
|
60+ Days |
|
Credit Portion |
|
|
|
|
Security |
|
Price (%) |
|
(Basis Points) |
|
Yield |
|
Default |
|
Severity |
|
Delinquent |
|
2008 |
|
2009 |
|
Other |
|
Total |
CMO 1
|
|
|
24.90 |
|
|
|
1640 |
|
|
|
18.00 |
% |
|
|
56.40 |
% |
|
|
50.00 |
% |
|
|
25.90 |
% |
|
$ |
(599 |
) |
|
$ |
(1,231 |
) |
|
$ |
(43 |
) |
|
$ |
(1,873 |
) |
CMO 2
|
|
|
10.21 |
|
|
|
1801 |
|
|
|
19.00 |
% |
|
|
57.85 |
% |
|
|
50.00 |
% |
|
|
31.02 |
% |
|
|
(492 |
) |
|
|
(1,341 |
) |
|
|
(4 |
) |
|
|
(1,837 |
) |
CMO 3
|
|
|
28.62 |
|
|
|
1543 |
|
|
|
17.00 |
% |
|
|
42.74 |
% |
|
|
40.00 |
% |
|
|
19.17 |
% |
|
|
(803 |
) |
|
|
(1,473 |
) |
|
|
(84 |
) |
|
|
(2,360 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(1,894 |
) |
|
$ |
(4,045 |
) |
|
$ |
(131 |
) |
|
$ |
(6,070 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 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 June 30, 2009. We believe that all contractual cash
flows will be received on this portfolio.
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
14
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
Corporations CDOs as June 30, 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 |
|
|
$ |
2,159 |
|
|
$ |
1,019 |
|
|
$ |
(1,140 |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
MM Community Funding Ltd |
|
|
|
|
|
Pooled |
|
|
B |
|
|
|
2,814 |
|
|
|
1,424 |
|
|
|
(1,390 |
) |
|
|
(2,186 |
) |
|
|
(1,390 |
) |
|
|
(3,576 |
) |
Preferred Term Securities V |
|
|
|
|
|
Pooled |
|
|
M |
|
|
|
1,378 |
|
|
|
532 |
|
|
|
(846 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Tpref Funding III Ltd |
|
|
|
|
|
Pooled |
|
|
B-1 |
|
|
|
3,636 |
|
|
|
1,339 |
|
|
|
(2,297 |
) |
|
|
(363 |
) |
|
|
(2,297 |
) |
|
|
(2,660 |
) |
Trapeza 2007-13A LLC |
|
|
|
|
|
Pooled |
|
|
D |
|
|
|
1,804 |
|
|
|
60 |
|
|
|
(1,744 |
) |
|
|
(32 |
) |
|
|
(1,744 |
) |
|
|
(1,776 |
) |
New South Capital Corp |
|
|
(1 |
) |
|
Single |
|
Sole |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,000 |
) |
|
|
|
|
|
|
(5,000 |
) |
Emigrant Capital Trust |
|
|
(2 |
) |
|
Single |
|
Sole |
|
|
5,000 |
|
|
|
1,566 |
|
|
|
(3,434 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
16,791 |
|
|
$ |
5,940 |
|
|
$ |
(10,851 |
) |
|
$ |
(7,581 |
) |
|
$ |
(5,431 |
) |
|
$ |
(13,012 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
% |
|
|
10 |
% |
MM Community Funding Ltd |
|
|
|
|
|
CCC |
|
|
11 |
|
|
|
12 |
% |
|
|
33 |
% |
|
|
0 |
% |
Preferred Term Securities V |
|
|
|
|
|
Ba3 |
|
|
2 |
|
|
|
4 |
% |
|
|
45 |
% |
|
|
19 |
% |
Tpref Funding III Ltd |
|
|
|
|
|
CC |
|
|
28 |
|
|
|
16 |
% |
|
|
19 |
% |
|
|
0 |
% |
Trapeza 2007-13A LLC |
|
|
|
|
|
|
C |
|
|
|
48 |
|
|
|
11 |
% |
|
|
20 |
% |
|
|
0 |
% |
New South Capital Corp |
|
|
(1 |
) |
|
NR |
|
NA |
|
NA |
|
NA |
|
NA |
Emigrant Capital Trust |
|
|
(2 |
) |
|
CC |
|
NA |
|
NA |
|
NA |
|
NA |
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current |
|
|
|
|
|
|
Fair Value (Price |
|
Discount Margin |
|
Yield |
Name |
|
|
|
|
|
to Par) |
|
(Basis Points) |
|
(Basis Points) |
|
|
|
|
|
|
|
MM Caps Funding I Ltd |
|
|
|
|
|
$ |
50.96 |
|
|
Swap + 1475 |
|
9.48% Fixed |
MM Community Funding Ltd |
|
|
|
|
|
|
28.47 |
|
|
LIBOR + 1275 |
|
LIBOR + 310 |
Preferred Term Securities V |
|
|
|
|
|
|
38.61 |
|
|
LIBOR + 1325 |
|
LIBOR + 210 |
Tpref Funding III Ltd |
|
|
|
|
|
|
33.48 |
|
|
LIBOR + 1275 |
|
LIBOR + 190 |
Trapeza 2007-13A LLC |
|
|
|
|
|
|
3.59 |
|
|
LIBOR + 1800 |
|
LIBOR + 120 |
Emigrant Capital Trust |
|
|
(2 |
) |
|
|
31.32 |
|
|
LIBOR + 1462 |
|
LIBOR + 200 |
|
|
|
(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. The discount
margin of 1462 basis points was derived from implied credit spreads from certain publicly
traded trust preferred securities within the issuers peer group. |
|
(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 trust preferred
securities 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 June 30, 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 June
30, 2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
For the Three- |
|
|
For the Six- |
|
|
|
Months Ended |
|
|
Months Ended |
|
|
|
June 30, 2009 |
|
|
June 30, 2009 |
|
Balance at beginning of period |
|
$ |
5,845 |
|
|
$ |
|
|
Amounts related to credit losses for which an OTTI was not previously recognized |
|
|
32 |
|
|
|
7,581 |
|
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 |
|
|
5,749 |
|
|
|
4,045 |
|
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 |
|
$ |
11,626 |
|
|
$ |
11,626 |
|
|
|
|
|
|
|
|
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
June 30, 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.
16
Stock in the FHLB Atlanta
As of June 30, 2009, the Corporation has stock in the Federal Home Loan Bank of Atlanta (FHLB
Atlanta) totaling $18,212,000 (its par value), which is presented separately on the face of the
Corporations statement of financial condition. There is no ready market for the FHLB stock and no
quoted market values, as only member institutions are eligible to be shareholders and all
transactions are, by charter, to take place at par with FHLB Atlanta as the only purchaser.
Therefore, the Corporation accounts for this investment as a long-term asset and carries it at
cost. Management reviews this stock quarterly for impairment and conducts its analysis in
accordance with FASB Statement of Position (SOP) 01-6, Accounting by Certain Entities (Including
Entities With Trade Receivables) That Lend to or Finance the Activities of Others.
Managements determination as to whether this investment is impaired is based on managements
assessment of the ultimate recoverability of its par value (cost) rather than recognizing temporary
declines in its value. The determination of whether the decline affects the ultimate recoverability
of the Corporations investment is influenced by available information regarding criteria such as:
|
|
|
The significance of the decline in net assets of FHLB Atlanta as compared to the capital
stock amount for FHLB Atlanta and the length of time this decline has persisted. |
|
|
|
|
Commitments by FHLB Atlanta to make payments required by law or regulation and the level
of such payments in relation to the operating performance of FHLB Atlanta. |
|
|
|
|
The impact of legislative and regulatory changes on financial institutions and,
accordingly, on the customer base of FHLB Atlanta. |
|
|
|
|
The liquidity position of FHLB Atlanta. |
Management has reviewed publicly available information regarding the financial condition of FHLB
Atlanta in preparing the Corporations Form 10-Q for the quarter ended June 30, 2009 and concluded
that no impairment existed based on its assessment of the ultimate recoverability of the par value
of the investment. Management noted that FHLB Atlanta recorded a loss from operations of $1.5
million for the first quarter of 2009 and had suspended its dividend. Despite the lack of a
dividend, FHLB Atlanta did redeem some of its stock at par during the second quarter, including
redemption of $1.1 million of stock the Corporation held. Also, FHLB Atlanta had a positive
operating net interest margin for its first quarter, and its loss was the result of losses on its
own securities holdings. The equity base of FHLB Atlanta is $6 billion, approximately 26% of the
major risk components of its balance sheet, which are investments in securities and mortgage loans.
The balance of FHLB Atlantas assets consists of cash, interbank deposits, and collateralized
advances to member banks, which management considers to be significantly lower in risk. Finally,
Standard & Poors has rated FHLB Atlantas counterparty risk as AAA in a report dated July 13,
2009.
FHLB Atlanta has communicated clearly with its membership that it believes that the dividend
suspension is a prudent move in light of the present pressure on earnings, and that its current
focus will be on preservation of capital. Management expects that this position may continue for
FHLB Atlanta for the next several quarters, but does not believe this situation is appropriately
characterized as an impairment in the value of the Corporations investment. This is a long-term
investment that serves a business purpose of enabling us to enhance the liquidity of the Bank
through access to the lending facilities of FHLB Atlanta. For the foregoing reasons, management
believes that FHLB Atlantas current position does not indicate that the Corporations investment
will not be recoverable at par, the Corporations cost, and thus the investment is not impaired as
of June 30, 2009.
17
Note 4 Notes Payable
The following is a summary of notes payable as of June 30, 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
|
|
|
(1,312 |
) |
|
|
|
|
|
Total notes payable
|
|
$ |
45,688 |
|
|
|
|
|
|
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 costs, 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
June 30, 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 June 30, 2009 and December 31, 2008, 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 the fair value of
the underlying brokered CD due to changes in interest rates. As of June 30, 2009 and December 31,
2008,
18
the amount of CD swaps designated as hedging instruments had a recorded fair value of
$224,000 and $799,000, respectively, and a weighted average life of 2.8 and 6.8 years,
respectively. The weighted average fixed rate (receiving rate) was 4.70% and the weighted average
variable rate (paying rate) was 0.99% (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% (1.96% as of
June 30, 2009) and pays a weighted average fixed rate of 4.42%. As of June 30, 2009 and December
31, 2008, these interest rate swap agreements are recorded as liabilities in the amount of $629,000
and $954,000, respectively.
Interest Rate Lock Commitments
In the ordinary course of business, the Corporation enters into certain commitments with customers
in connection with residential mortgage loan applications. Such commitments are considered
derivatives under 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 $65,510,000 and $92,721,000 at
June 30, 2009 and December 31, 2008, respectively. The fair value of the origination commitments
was $170,000 and $(117,000) at June 30, 2009 and December 31, 2008, respectively.
The notional amounts and estimated fair values of interest rate derivative contracts outstanding at
June 30, 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).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 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 |
|
|
$ |
224 |
|
|
$ |
5,334 |
|
|
$ |
799 |
|
Interest rate derivatives designated as hedges of cash flows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps on subordinated debenture |
|
|
22,000 |
|
|
|
(629 |
) |
|
|
22,000 |
|
|
|
(954 |
) |
Non-hedging interest rate derivatives: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brokered certificates of deposit interest rate swap |
|
|
723 |
|
|
|
58 |
|
|
|
1,166 |
|
|
|
164 |
|
Mortgage loan held for sale interest rate lock commitment |
|
|
65,510 |
|
|
|
170 |
|
|
|
92,721 |
|
|
|
(117 |
) |
Commercial loan interest rate swap |
|
|
3,814 |
|
|
|
331 |
|
|
|
3,861 |
|
|
|
462 |
|
Commercial loan interest rate swap |
|
|
3,814 |
|
|
|
(331 |
) |
|
|
3,861 |
|
|
|
(462 |
) |
The weighted-average rates paid and received for interest rate swaps outstanding at June 30, 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 |
|
|
0.99 |
% |
|
|
4.70 |
% |
Cash flow hedge interest rate swaps on subordinated debentures |
|
|
4.42 |
|
|
|
1.96 |
|
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
19
included in noninterest income. Net cash flows from the interest rate swap on subordinated
debentures designated as a hedging instrument in an effective hedge of cash flows are included in
interest expense on subordinated debentures. For non-hedging derivative instruments, gains and
losses due to changes in fair value and all cash flows are included in other noninterest income.
Amounts included in the consolidated statements of operations related to interest rate derivatives
designated as hedges of fair value were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Interest rate swap on brokered certificates of deposit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of gain (loss) included in interest expense on deposits |
|
$ |
26 |
|
|
$ |
15 |
|
|
$ |
49 |
|
|
$ |
27 |
|
Amount of gain (loss) included in other noninterest income |
|
|
(51 |
) |
|
|
(29 |
) |
|
|
(481 |
) |
|
|
(4 |
) |
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 |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Interest rate swap on subordinated debenture: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gain (loss) included in interest expense on subordinated debt |
|
$ |
(104 |
) |
|
$ |
|
|
|
$ |
(159 |
) |
|
$ |
|
|
Amount of gain (loss) recognized in other comprehensive income |
|
|
223 |
|
|
|
|
|
|
|
205 |
|
|
|
|
|
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 $397,000 at June 30, 2009 and $602,000 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 |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Non-hedging interest rate derivatives: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brokered certificates of deposit interest rate swap |
|
$ |
(27 |
) |
|
$ |
(95 |
) |
|
$ |
(72 |
) |
|
$ |
37 |
|
Mortgage loan held for sale interest rate lock commitment |
|
|
12 |
|
|
|
(327 |
) |
|
|
288 |
|
|
|
(112 |
) |
Interest rate floors |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
678 |
|
Commercial loan interest rate swap |
|
|
|
|
|
|
34 |
|
|
|
|
|
|
|
34 |
|
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 June 30, 2009.
20
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 its 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 June 30, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
$ |
8,329 |
|
|
$ |
9,396 |
|
|
$ |
17,725 |
|
|
$ |
4,992 |
|
|
$ |
22,717 |
|
Provision for loan losses |
|
|
1,424 |
|
|
|
1,486 |
|
|
|
2,910 |
|
|
|
3,072 |
|
|
|
5,982 |
|
Noninterest income |
|
|
2,206 |
|
|
|
514 |
|
|
|
2,720 |
|
|
|
(1,893 |
) |
|
|
827 |
|
Noninterest expense |
|
|
9,113 |
|
|
|
5,832 |
|
|
|
14,945 |
|
|
|
12,850 |
|
|
|
27,795 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) profit |
|
$ |
(2 |
) |
|
$ |
2,592 |
|
|
$ |
2,590 |
|
|
$ |
(12,823 |
) |
|
|
(10,233 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,539 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(5,694 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
1,025,040 |
|
|
$ |
1,171,252 |
|
|
$ |
2,196,292 |
|
|
$ |
1,013,129 |
|
|
$ |
3,209,421 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
$ |
7,505 |
|
|
$ |
9,108 |
|
|
$ |
16,613 |
|
|
$ |
4,775 |
|
|
$ |
21,388 |
|
Provision for loan losses |
|
|
945 |
|
|
|
660 |
|
|
|
1,605 |
|
|
|
4,362 |
|
|
|
5,967 |
|
Noninterest income |
|
|
1,745 |
|
|
|
490 |
|
|
|
2,235 |
|
|
|
6,771 |
|
|
|
9,006 |
|
Noninterest expense |
|
|
7,469 |
|
|
|
5,406 |
|
|
|
12,875 |
|
|
|
10,401 |
|
|
|
23,276 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit (loss) |
|
$ |
836 |
|
|
$ |
3,532 |
|
|
$ |
4,368 |
|
|
$ |
(3,217 |
) |
|
|
1,151 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
310 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
841 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
1,005,586 |
|
|
$ |
1,141,009 |
|
|
$ |
2,146,595 |
|
|
$ |
892,963 |
|
|
$ |
3,039,558 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
$ |
15,875 |
|
|
$ |
18,467 |
|
|
$ |
34,342 |
|
|
$ |
9,704 |
|
|
$ |
44,046 |
|
Provision for loan losses |
|
|
3,036 |
|
|
|
2,964 |
|
|
|
6,000 |
|
|
|
3,434 |
|
|
|
9,434 |
|
Noninterest income |
|
|
4,277 |
|
|
|
1,029 |
|
|
|
5,306 |
|
|
|
(4,714 |
) |
|
|
592 |
|
Noninterest expense |
|
|
17,425 |
|
|
|
11,568 |
|
|
|
28,993 |
|
|
|
22,866 |
|
|
|
51,859 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) profit |
|
$ |
(309 |
) |
|
$ |
4,964 |
|
|
$ |
4,655 |
|
|
$ |
(21,310 |
) |
|
|
(16,655 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,387 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(9,268 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
$ |
14,502 |
|
|
$ |
18,728 |
|
|
$ |
33,230 |
|
|
$ |
6,649 |
|
|
$ |
39,879 |
|
Provision for loan losses |
|
|
1,800 |
|
|
|
1,518 |
|
|
|
3,318 |
|
|
|
4,520 |
|
|
|
7,838 |
|
Noninterest income |
|
|
3,607 |
|
|
|
940 |
|
|
|
4,547 |
|
|
|
11,061 |
|
|
|
15,608 |
|
Noninterest expense |
|
|
15,095 |
|
|
|
10,889 |
|
|
|
25,984 |
|
|
|
19,556 |
|
|
|
45,540 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit (loss) |
|
$ |
1,214 |
|
|
$ |
7,261 |
|
|
$ |
8,475 |
|
|
$ |
(6,366 |
) |
|
|
2,109 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
572 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,537 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
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 |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
(5,694 |
) |
|
$ |
841 |
|
|
$ |
(9,268 |
) |
|
$ |
1,537 |
|
Less preferred dividends and amortization |
|
|
1,167 |
|
|
|
|
|
|
|
2,310 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For basic and diluted, net (loss) income applicable
to common stockholders |
|
$ |
(6,861 |
) |
|
$ |
841 |
|
|
$ |
(11,578 |
) |
|
$ |
1,537 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For basic, weighted average common shares outstanding |
|
|
10,071 |
|
|
|
10,016 |
|
|
|
10,062 |
|
|
|
10,014 |
|
Effect of dilutive stock options |
|
|
|
|
|
|
40 |
|
|
|
|
|
|
|
37 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average common shares outstanding, assuming dilution |
|
|
10,071 |
|
|
|
10,056 |
|
|
|
10,062 |
|
|
|
10,051 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net (loss) income per common share |
|
$ |
(0.68 |
) |
|
$ |
0.08 |
|
|
$ |
(1.15 |
) |
|
$ |
0.15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net (loss) income per common share |
|
$ |
(0.68 |
) |
|
$ |
0.08 |
|
|
$ |
(1.15 |
) |
|
$ |
0.15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 67,422 and 77,027 shares of common stock were not included
in computing diluted net loss per share for the three- and six-month periods ending June 30, 2009,
respectively, as they are considered anti-dilutive.
Note 8 Comprehensive (Loss) Income
Total comprehensive loss was $(4,135,000) and $(9,333,000) for the three- and six-month periods
ended June 30, 2009, respectively, and $(3,263,000) and $(1,775,000) for the three- and six-month
periods ended June 30, 2008. Total comprehensive loss consists of net (loss) income and other
comprehensive loss. The components of other comprehensive loss for the three- and six-month periods
ending June 30, 2009 and 2008 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-Tax |
|
|
|
|
|
|
Net of |
|
|
|
Amount |
|
|
Income Tax |
|
|
Income Tax |
|
|
|
(In thousands) |
|
Three months ended June 30, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on available for sale securities |
|
$ |
(3,660 |
) |
|
$ |
1,354 |
|
|
$ |
(2,306 |
) |
Less reclassification adjustment for OTTI realized in net loss |
|
|
5,781 |
|
|
|
(2,139 |
) |
|
|
3,642 |
|
Unrealized gain on derivatives |
|
|
354 |
|
|
|
(131 |
) |
|
|
223 |
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gain |
|
$ |
2,475 |
|
|
$ |
(916 |
) |
|
$ |
1,559 |
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on available for sale securities |
|
$ |
(5,449 |
) |
|
$ |
2,018 |
|
|
$ |
(3,431 |
) |
Less reclassification adjustment for gains realized in net income |
|
|
(1,068 |
) |
|
|
395 |
|
|
|
(673 |
) |
|
|
|
|
|
|
|
|
|
|
Net unrealized loss |
|
$ |
(6,517 |
) |
|
$ |
2,413 |
|
|
$ |
(4,104 |
) |
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on available for sale securities |
|
$ |
(12,054 |
) |
|
$ |
4,460 |
|
|
$ |
(7,594 |
) |
Less reclassification adjustment for OTTI realized in net loss |
|
|
11,626 |
|
|
|
(4,302 |
) |
|
|
7,324 |
|
Unrealized gain on derivatives |
|
|
325 |
|
|
|
(120 |
) |
|
|
205 |
|
|
|
|
|
|
|
|
|
|
|
Net unrealized loss |
|
$ |
(103 |
) |
|
$ |
38 |
|
|
$ |
(65 |
) |
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on available for sale securities |
|
$ |
(3,719 |
) |
|
$ |
1,333 |
|
|
$ |
(2,386 |
) |
Less reclassification adjustment for gains realized in net income |
|
|
(1,470 |
) |
|
|
544 |
|
|
|
(926 |
) |
|
|
|
|
|
|
|
|
|
|
Net unrealized loss |
|
$ |
(5,189 |
) |
|
$ |
1,877 |
|
|
$ |
(3,312 |
) |
|
|
|
|
|
|
|
|
|
|
22
Note 9 Income Taxes
The difference in the effective tax rate in the three- and six-month periods ended June 30, 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 the Corporations directors and key employees to further the
growth, development and financial success of the Corporation and its subsidiaries by personally
benefiting through the ownership of the Corporations common stock, or other rights which recognize
such growth, development and financial success. The Corporations Board of Directors also believes
the 2008 Plan will enable it to obtain and retain the services of directors and employees who are
considered essential to its long-range success by offering them an opportunity to own stock and
other rights that reflect the Corporations financial success. The maximum aggregate number of
shares of common stock that may be issued or transferred pursuant to awards under the 2008 Plan is
300,000 (restated for 1-for-4 reverse stock split) shares, of which no more than 90,000 shares may
be issued for full value awards (defined under the 2008 Plan to mean any awards permitted under
the 2008 Plan that are neither stock options nor stock appreciation rights). Only those employees
and directors who are selected to receive grants by the administrator may participate in the 2008
Plan.
During the first quarter of 2005, the Corporation granted 422,734 options to its new management
team. These options have exercise prices ranging from $32.68 to $38.52 per share and were granted
outside of the stock incentive plan as part of the inducement package for new management. These
shares are included in the table below.
The fair value of each option award is estimated on the date of grant based upon the Black-Scholes
pricing model that uses the assumptions noted in the following table. The risk-free interest rate
is based on the implied yield on U.S. Treasury zero-coupon issues with a remaining term equal to
the expected term of the underlying options. Expected volatility has been estimated based on
historical data. The expected term has been estimated based on the five-year vesting date and
change of control provisions. The Corporation used the following weighted-average assumptions for
the six-month periods ended June 30, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
Risk free interest rate |
|
|
3.59 |
% |
|
|
4.50 |
% |
Volatility factor |
|
|
35.59 |
% |
|
|
29.11 |
% |
Weighted average life of options (in years) |
|
|
5.00 |
|
|
|
5.00 |
|
Dividend yield |
|
|
0.00 |
% |
|
|
0.00 |
% |
23
A summary of stock option activity as of June 30, 2009 and changes during the six months then ended
is shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
Average |
|
|
|
|
|
|
|
|
|
|
Average |
|
|
Remaining |
|
|
|
|
|
|
|
|
|
|
Exercise |
|
|
Contractual |
|
|
Aggregate |
|
|
|
Number |
|
|
Price |
|
|
Term |
|
|
Intrinsic Value |
|
Under option, January 1, 2009 |
|
|
848,922 |
|
|
$ |
29.94 |
|
|
|
|
|
|
|
|
|
Granted |
|
|
2,250 |
|
|
|
5.48 |
|
|
|
|
|
|
|
|
|
Forfeited |
|
|
(26,750 |
) |
|
|
31.47 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Under option, June 30, 2009 |
|
|
824,422 |
|
|
$ |
29.82 |
|
|
|
5.73 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at end of period |
|
|
625,903 |
|
|
$ |
31.76 |
|
|
|
3.70 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average fair value per option of options granted during the period |
|
$ |
2.04 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2009, there was $502,000 of total unrecognized compensation expense related to the
unvested awards. This expense will be recognized over the next 9- to 30-month period unless the
options vest earlier based on achievement of benchmark trading price levels. During the three- and
six-month periods ended June 30, 2009, the Corporation recognized approximately $121,000 and
$234,000, respectively, in compensation expense related to options granted. During the three and
six-month periods ended June 30, 2008, the Corporation recognized approximately $161,000 and
$321,000, respectively, in compensation expense related to options granted.
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 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.
Assets and Liabilities Recorded at Fair Value on a Recurring Basis
The table below presents the assets and liabilities measured at fair value on a recurring basis
categorized by the level of inputs used in the valuation of each asset (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices in |
|
|
|
|
|
|
Significant |
|
|
|
Fair Value at |
|
|
Active Markets for |
|
|
Significant Other |
|
|
Unobservable |
|
|
|
June 30, |
|
|
Identical Assets |
|
|
Observable Inputs |
|
|
Inputs |
|
|
|
2009 |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
Available for sale securities |
|
$ |
306,300 |
|
|
$ |
250 |
|
|
$ |
296,345 |
|
|
$ |
9,705 |
|
Derivative assets |
|
|
783 |
|
|
|
|
|
|
|
783 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recurring basis measured assets |
|
$ |
307,083 |
|
|
$ |
250 |
|
|
$ |
297,128 |
|
|
$ |
9,705 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities |
|
$ |
961 |
|
|
$ |
|
|
|
$ |
961 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recurring basis measured liabilities |
|
$ |
961 |
|
|
$ |
|
|
|
$ |
961 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24
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 and certain
private-label mortgage-backed securities. The fair value of the trust preferred securities is
calculated using an income approach based on various spreads to LIBOR determined after a review of
applicable financial data and credit ratings (see Note 3). At June 30, 2009, the fair values of
three private-label mortgage-backed securities totaling $1,749,000 were measured using Level 3
inputs because the market has become illiquid, as indicated by few, if any, trades during the
period. These securities were previously measured using Level 2 inputs. The assumptions used in the
valuation model include expected future default rates, loss severity and prepayments. The model
also takes into account the structure of the security including credit support. Based on these
assumptions the model calculates and projects the timing and amount of interest and principal
payments expected for the security. The discount rates used in the valuation model were based on a
yield that the market would require for such securities with maturities and risk characteristics
similar to the securities being measured (See Note 3).
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 six months ended June 30, 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 |
|
Transfer into level 3 category during the second quarter |
|
|
6,181 |
|
Total gains (losses) (realized and unrealized) |
|
|
|
|
Included in earnings investment security loss |
|
|
(11,626 |
) |
Included in other comprehensive loss |
|
|
(3,038 |
) |
Other changes due to principal payments |
|
|
(309 |
) |
|
|
|
|
Balance at June 30, 2009 |
|
$ |
9,705 |
|
|
|
|
|
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 June 30, 2009 |
|
$ |
(11,626 |
) |
|
|
|
|
25
Assets Recorded at Fair Value on a Nonrecurring Basis
The table below presents the assets measured at fair value on a nonrecurring basis categorized by
the level of inputs used in the valuation of each asset (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices |
|
|
|
|
|
|
|
|
|
|
|
|
|
in |
|
|
|
|
|
|
|
|
|
Fair Value |
|
|
Active Markets for |
|
|
Significant Other |
|
|
Significant |
|
|
|
at |
|
|
Identical |
|
|
Observable |
|
|
Unobservable |
|
|
|
June 30, |
|
|
Assets |
|
|
Inputs |
|
|
Inputs |
|
|
|
2009 |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
Mortgage loans held for sale |
|
$ |
100,707 |
|
|
$ |
|
|
|
$ |
100,707 |
|
|
$ |
|
|
Impaired loans, net of specific allowance |
|
|
87,799 |
|
|
|
|
|
|
|
|
|
|
|
87,799 |
|
Other real estate |
|
|
35,206 |
|
|
|
|
|
|
|
|
|
|
|
35,206 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total nonrecurring basis measured assets |
|
$ |
223,712 |
|
|
$ |
|
|
|
$ |
100,707 |
|
|
$ |
123,005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 the 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.
SFAS No. 107, Disclosures about Fair Value of Financial Instruments, requires disclosure of
the fair value of financial assets and financial liabilities, including those financial assets and
financial liabilities that are not measured and reported at fair value on a recurring basis or
non-recurring basis. The methodologies for estimating the fair value of financial assets and
financial liabilities that are measured at fair value on a recurring or non-recurring basis are
discussed above. The estimated fair value approximates carrying value for cash and short-term
instruments, accrued interest and the cash surrender value of life insurance policies. The
methodologies for other financial assets and financial liabilities are discussed below:
Tax lien certificates. The carrying amount of tax lien certificates approximates their fair
value.
Net loans. Fair values for variable-rate loans that reprice frequently and have no significant
change in credit risk are based on carrying values. Fair values for all other loans are estimated
using discounted cash flow analyses using interest rates currently being offered for loans with
similar terms to borrowers of similar credit quality. Fair values for impaired loans are estimated
using discounted cash flow analyses or underlying collateral values, where applicable.
Deposits. The fair values disclosed for demand deposits are, by definition, equal to the
amount payable on demand at the reporting date (that is, their carrying amounts). The carrying
amounts of variable-rate, fixed-term money market accounts and certificates of deposit (CDs)
approximate their fair values at the reporting date. Fair values for fixed-rate CDs are estimated
using a discounted cash flow calculation that applies interest rates currently being offered on
advances from the FHLB of Atlanta to a schedule of aggregated expected monthly maturities on time
deposits.
26
Advances
from FHLB. Rates currently available in the market for debt with similar terms
and remaining maturities are used to estimate fair value of existing debt.
Federal funds borrowed and security repurchase agreements. The carrying amount of federal
funds borrowed and security repurchase agreements approximate their fair values.
Notes payable. The carrying amount of notes payable approximates their fair values.
Subordinated
debentures. Rates currently available to the market for preferred offerings
with similar terms and maturities are used to estimate fair value.
Limitations. Fair value estimates are made at a specific point of time and are based on
relevant market information, which is continuously changing. Because no quoted market prices exist
for a significant portion of the Corporations financial instruments, fair values for such
instruments are based on managements assumptions with respect to future economic conditions,
estimated discount rates, estimates of the amount and timing of future cash flows, expected loss
experience, and other factors. These estimates are subjective in nature involving uncertainties and
matters of significant judgment; therefore, they cannot be determined with precision. Changes in
the assumptions could significantly affect the estimates.
The estimated fair values of the Corporations financial instruments are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009 |
|
|
December 31, 2008 |
|
|
|
Carrying |
|
|
Fair |
|
|
Carrying |
|
|
Fair |
|
|
|
Amount |
|
|
Value |
|
|
Amount |
|
|
Value |
|
|
|
(In thousands) |
|
Financial assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks |
|
$ |
80,621 |
|
|
$ |
80,621 |
|
|
$ |
74,237 |
|
|
$ |
74,237 |
|
Interest-bearing deposits in other banks |
|
|
19,868 |
|
|
|
19,868 |
|
|
|
10,042 |
|
|
|
10,042 |
|
Federal funds sold |
|
|
2,426 |
|
|
|
2,426 |
|
|
|
5,169 |
|
|
|
5,169 |
|
Securities available for sale |
|
|
306,300 |
|
|
|
306,300 |
|
|
|
347,142 |
|
|
|
347,142 |
|
Tax lien certificates |
|
|
25,533 |
|
|
|
25,533 |
|
|
|
23,786 |
|
|
|
23,786 |
|
Mortgage loans held for sale |
|
|
100,707 |
|
|
|
100,707 |
|
|
|
22,040 |
|
|
|
22,040 |
|
Net loans |
|
|
2,364,967 |
|
|
|
2,404,620 |
|
|
|
2,286,071 |
|
|
|
2,374,637 |
|
Stock in FHLB |
|
|
18,212 |
|
|
|
18,212 |
|
|
|
21,410 |
|
|
|
21,410 |
|
Accrued interest receivable |
|
|
16,025 |
|
|
|
16,025 |
|
|
|
14,794 |
|
|
|
14,794 |
|
Derivative assets |
|
|
783 |
|
|
|
783 |
|
|
|
1,427 |
|
|
|
1,427 |
|
Financial liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
|
2,604,558 |
|
|
|
2,624,339 |
|
|
|
2,342,988 |
|
|
|
2,363,270 |
|
Advances from FHLB |
|
|
228,320 |
|
|
|
243,423 |
|
|
|
361,324 |
|
|
|
382,547 |
|
Security repurchase agreements |
|
|
2,164 |
|
|
|
2,164 |
|
|
|
3,563 |
|
|
|
3,563 |
|
Note payable |
|
|
45,688 |
|
|
|
45,688 |
|
|
|
7,000 |
|
|
|
7,000 |
|
Subordinated debentures |
|
|
60,774 |
|
|
|
35,248 |
|
|
|
60,884 |
|
|
|
46,839 |
|
Derivative liabilities |
|
|
961 |
|
|
|
961 |
|
|
|
1,534 |
|
|
|
1,534 |
|
Note 12 Subsequent Event
On July 15, 2009, the Corporation began closing on a private placement of its common stock, $0.001
par value per share, pursuant to which the Corporation anticipates issuing approximately 1,700,000
shares for an aggregate price of approximately $3,700,000. There will be no underwriting discounts
or commissions. The issuance and sale of the common stock is exempt from registration under the
Securities Act of 1933 (the Act) in reliance on the exemptions from the registration requirement
of the Act for transactions not involving any public offering pursuant to Section 4(2) of the Act
and Rule 506 of Regulation D promulgated pursuant to the Act. The issuance and sale of the common
stock qualifies for these exemptions because the offering was made to a limited number of
sophisticated investors who were accredited investors within the meaning of such term under
Regulation D.
27
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Basis of Presentation
The following is a discussion and analysis of our June 30, 2009 condensed consolidated financial
condition and results of operations for the three- and six-month periods ended June 30, 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
We saw a continued improvement in our net interest margin, continued favorable trends in
controllable income and expenses, growth in deposits and strong liquidity, all of which are in line
with our expectations in this most difficult economic environment. Because of the current economic
conditions, we have instituted several measures to reduce expenses in coming quarters. These
include the closing of six of our smaller branches over the next quarter and a reduction in
overhead in certain other administrative units largely accomplished by attrition over the same
timeframe. We anticipate that these measures will reduce expenses by approximately $3.0 million
annually. The deposits of the closed branches will be transferred to nearby branches, with little
anticipated impact on deposit levels or liquidity.
The quarters results included three items that adversely impacted our earnings. These items
included charges for non-cash securities impairments on mortgage-backed securities and trust
preferred securities deemed to be other-than-temporary impairment (OTTI) of $5.8 million, an
increase in the allowance for loan losses above last quarters level by $3.6 million, and a special
assessment by the FDIC imposed on all banks, of which our share was $1.5 million. These items
aggregated $10.9 million or $6.9 million after tax.
The quarters results reflect this difficult recessionary period and the challenges facing the
entire banking industry. 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 to ensure 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 is being shown 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 this year is associated with our
success in building relationship banking.
Our principal subsidiary is Superior Bank (the Bank), a federal savings bank headquartered in
Birmingham, Alabama, which currently 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, Alabama has 45 branches. We have announced our intention to close two banking
offices in Alabama and four in Florida as a cost reduction measure as mentioned above.
Our second quarter 2009 net loss was $(5.7) million, or $(0.68) per share, compared to net income
of $841,000 for the second quarter of 2008.
Net interest income increased significantly, from $21.3 million in the first quarter of 2009 to
$22.7 million in the second quarter of 2009. The net interest margin for the second quarter of 2009
was 3.21% compared to 3.12% for the first quarter of 2009. This increase is due principally to
improved loan and deposit pricing, which more than offset the impact of the higher level of
non-performing
28
assets. The negative effect of loans placed on non-accrual on the net interest margin for the
second quarter of 2009 is estimated to be 0.11%.
Our total assets increased to $3.2 billion at June 30, 2009, compared to $3.1 million at December
31, 2008. Loans increased to $2.39 billion at June 30, 2009, an increase of 3.6% from December 31,
2008 and 11.6% from June 30, 2008. Our total deposits at June 30, 2009 increased 3.8% to $2.6
billion from March 31, 2009 and increased 11.2% from December 31, 2008.
Consistent with the continuing economic declines effect on real estate-related credits, our
non-performing loans increased during the quarter to $117.7 million, or 4.91% of loans at June 30,
2009, from $74.2 million, or 3.15% of loans at March 31, 2009. This increase was largely driven by
three shared participation credits totaling $22.4 million and increases in the 1-4 family mortgage
portfolio of $6.5 million and real estate construction of $15 million. Loans in the 30-89 days past
due category decreased to 1.50% of total loans at June 30, 2009 from 2.33% of total loans at March
31, 2009. Non-performing assets are 4.77% of total assets at June 30, 2009.
Net loan charge-offs decreased slightly to 0.39% as a percentage of average loans during the second
quarter of 2009, compared to 0.42% during the first quarter of 2009. Of the $2.3 million net
charge-offs in the second quarter of 2009, the Banks net charge-offs were $1.8 million, or 0.31%
of consolidated average loans, and our two consumer finance companies net charge-offs were $0.5
million, or 0.08% of consolidated average loans.
The provision for loan losses was approximately $6.0 million in the second quarter of 2009,
increasing the allowance for loan losses to 1.40% of net loans, or $33.5 million, at June 30, 2009,
compared to 1.27% of net loans, or $29.9 million, at March 31, 2009.
Short-term liquid assets (cash and due from banks, interest-bearing deposits in other banks and
federal funds sold) increased $13.5 million, or 15.1%, to $102.9 million at June 30, 2009 from
$89.4 million at December 31, 2008. At June 30, 2009, short-term liquid assets were 3.2% of total
assets, compared to 2.9% at December 31, 2008. On March 31, 2009, the Bank completed a placement 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 11.04%, a Tier I core capital ratio of 8.31% and a Tier I risk-based capital ratio
of 9.83% as of June 30, 2009. The Banks tangible common equity ratio is 8.31% at June 30, 2009.
Our total
risk based capital ratio was 10.64% and our tangible common equity
ratio was 7.96% at
June 30, 2009. In addition, on July 15, 2009, we began closing on a private placement of or common
stock, $0.001 par value per share, pursuant to which we anticipate issuing approximately 1.7
million shares for an aggregate price of approximately $3.7 million.
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 No. 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 |
29
|
|
|
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 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 as of June 30, 2009 did not
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 in the first quarter of 2009 resulted in the
portion of OTTI determined to be credit-related ($5.8 million, pre-tax) being recognized in current
earnings, while the portion of OTTI related to other factors ($4.6 million, pre-tax) was recognized
in other comprehensive loss (see Notes 3 and 8 to the condensed consolidated financial statements).
For the second quarter of 2009, the portion of OTTI determined to be credit-related ($5.8 million,
pre-tax) being recognized in current earnings, while the portion of OTTI related to other factors
($0.9 million, pre-tax)
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).
See Note 1 to the condensed consolidated financial statements for other recent accounting
pronouncements that are not expected to have a significant effect on our financial condition,
results of operations or cash flows.
30
Results of Operations
The following table sets forth key earnings and other financial data for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
Six Months |
|
|
Ended June 30, |
|
Ended June 30, |
|
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
|
(Dollars in thousands, except per share data) |
Net (loss) income |
|
$ |
(5,694 |
) |
|
$ |
841 |
|
|
$ |
(9,268 |
) |
|
$ |
1,537 |
|
Net (loss) income applicable to common shareholders |
|
|
(6,861 |
) |
|
|
841 |
|
|
|
(11,578 |
) |
|
|
1,537 |
|
Net (loss) income per common share (diluted) |
|
|
(0.68 |
) |
|
|
0.08 |
|
|
|
(1.15 |
) |
|
|
0.15 |
|
Net interest margin |
|
|
3.24 |
% |
|
|
3.39 |
% |
|
|
3.18 |
% |
|
|
3.21 |
% |
Net interest spread |
|
|
3.04 |
% |
|
|
3.17 |
% |
|
|
2.98 |
% |
|
|
2.96 |
% |
Return on average assets |
|
|
(0.72 |
)% |
|
|
0.11 |
% |
|
|
(0.60 |
)% |
|
|
0.10 |
% |
Return on average tangible assets |
|
|
(0.72 |
)% |
|
|
0.12 |
% |
|
|
(0.60 |
)% |
|
|
0.11 |
% |
Return on average stockholders equity |
|
|
(9.28 |
)% |
|
|
0.96 |
% |
|
|
(7.51 |
)% |
|
|
0.88 |
% |
Return on average tangible equity |
|
|
(10.07 |
)% |
|
|
2.04 |
% |
|
|
(8.17 |
)% |
|
|
1.87 |
% |
Common book value per share |
|
$ |
16.66 |
|
|
$ |
34.68 |
|
|
$ |
16.66 |
|
|
$ |
34.68 |
|
Tangible common book value per share |
|
|
14.79 |
|
|
|
16.24 |
|
|
|
14.79 |
|
|
|
16.24 |
|
The change in our net income during the periods ended June 30, 2009 compared to 2008 is primarily
the result of security impairment losses (OTTI), foreclosure losses, FDIC assessments and the
accrual of dividends on preferred stock which began in the fourth quarter of 2008. Changes in other
components of our operations are discussed in the various sections that follow.
Net Interest Income. Net interest income is the difference between the income earned on
interest-earning assets and interest paid on interest-bearing liabilities used to support such
assets. The following table summarizes the changes in the components of net interest income for the
periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (Decrease) in |
|
|
|
Second Quarter 2009 vs 2008 |
|
|
First Six Months of 2009 vs 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 |
|
$ |
304,943 |
|
|
$ |
(749 |
) |
|
|
(0.98 |
)% |
|
$ |
313,573 |
|
|
$ |
(3,142 |
) |
|
|
(1.14 |
)% |
Investment securities |
|
|
| | | | |
| | | | |
| | | | | |
| | | | |
|
Taxable |
|
|
(32,771 |
) |
|
|
(365 |
) |
|
|
0.08 |
|
|
|
(19,056 |
) |
|
|
(408 |
) |
|
|
0.09 |
|
Tax-exempt |
|
|
226 |
|
|
|
5 |
|
|
|
|
|
|
|
270 |
|
|
|
2 |
|
|
|
(0.00 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment
securities |
|
|
(32,545 |
) |
|
|
(360 |
) |
|
|
0.08 |
|
|
|
(18,786 |
) |
|
|
(406 |
) |
|
|
0.09 |
|
Federal funds sold |
|
|
121 |
|
|
|
(16 |
) |
|
|
(1.91 |
) |
|
|
(1,100 |
) |
|
|
(91 |
) |
|
|
(2.78 |
) |
Other investments |
|
|
21,709 |
|
|
|
(276 |
) |
|
|
(3.35 |
) |
|
|
16,934 |
|
|
|
(558 |
) |
|
|
(3.22 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest
-earning assets |
|
$ |
294,228 |
|
|
|
(1,401 |
) |
|
|
(0.89 |
) |
|
$ |
310,621 |
|
|
|
(4,197 |
) |
|
|
(1.01 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits |
|
$ |
9,766 |
|
|
|
(1,608 |
) |
|
|
(1.00 |
) |
|
$ |
(12,339 |
) |
|
|
(4,490 |
) |
|
|
(1.31 |
) |
Savings deposits |
|
|
149,108 |
|
|
|
519 |
|
|
|
(0.24 |
) |
|
|
145,539 |
|
|
|
1,207 |
|
|
|
(0.03 |
) |
Time deposits |
|
|
169,607 |
|
|
|
(1,511 |
) |
|
|
(0.93 |
) |
|
|
139,928 |
|
|
|
(4,677 |
) |
|
|
(1.11 |
) |
Other borrowings |
|
|
(69,564 |
) |
|
|
(419 |
) |
|
|
0.21 |
|
|
|
(2,140 |
) |
|
|
(870 |
) |
|
|
(0.52 |
) |
Subordinated debentures |
|
|
7,182 |
|
|
|
287 |
|
|
|
1.07 |
|
|
|
7,163 |
|
|
|
466 |
|
|
|
0.73 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest -bearing
liabilities |
|
$ |
266,099 |
|
|
|
(2,732 |
) |
|
|
(0.76 |
) |
|
$ |
278,151 |
|
|
|
(8,364 |
) |
|
|
(1.02 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income/net interest
spread |
|
|
|
|
|
|
1,331 |
|
|
|
(0.13 |
)% |
|
|
|
|
|
|
4,167 |
|
|
|
0.01 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net yield on earning assets |
|
|
|
|
|
|
|
|
|
|
(0.17 |
)% |
|
|
|
|
|
|
|
|
|
|
(0.04 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable equivalent adjustment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities |
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
|
|
|
$ |
1,329 |
|
|
|
|
|
|
|
|
|
|
$ |
4,167 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31
The following table depicts, on a taxable equivalent basis for the periods indicated, certain
information related to our average balance sheet and our average yields on assets and average costs
of liabilities. Average yields are calculated by dividing income or expense by the average balance
of the corresponding assets or liabilities. Average balances have been calculated on a daily basis.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
|
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) |
|
$ |
2,459,020 |
|
|
$ |
35,959 |
|
|
|
5.87 |
% |
|
$ |
2,154,077 |
|
|
$ |
36,708 |
|
|
|
6.85 |
% |
Investment securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable |
|
|
280,655 |
|
|
|
3,778 |
|
|
|
5.40 |
|
|
|
313,426 |
|
|
|
4,143 |
|
|
|
5.32 |
|
Tax-exempt (2) |
|
|
41,510 |
|
|
|
658 |
|
|
|
6.36 |
|
|
|
41,284 |
|
|
|
653 |
|
|
|
6.36 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities |
|
|
322,165 |
|
|
|
4,436 |
|
|
|
5.52 |
|
|
|
354,710 |
|
|
|
4,796 |
|
|
|
5.44 |
|
Federal funds sold |
|
|
3,498 |
|
|
|
2 |
|
|
|
0.23 |
|
|
|
3,377 |
|
|
|
18 |
|
|
|
2.14 |
|
Other investments |
|
|
71,650 |
|
|
|
456 |
|
|
|
2.55 |
|
|
|
49,941 |
|
|
|
732 |
|
|
|
5.90 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest -earning assets |
|
|
2,856,333 |
|
|
|
40,853 |
|
|
|
5.74 |
|
|
|
2,562,105 |
|
|
|
42,254 |
|
|
|
6.63 |
|
Noninterest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks |
|
|
81,951 |
|
|
|
|
|
|
|
|
|
|
|
61,729 |
|
|
|
|
|
|
|
|
|
Premises and equipment |
|
|
105,519 |
|
|
|
|
|
|
|
|
|
|
|
102,445 |
|
|
|
|
|
|
|
|
|
Accrued interest and other assets |
|
|
160,060 |
|
|
|
|
|
|
|
|
|
|
|
289,167 |
|
|
|
|
|
|
|
|
|
Allowance for loan losses |
|
|
(29,889 |
) |
|
|
|
|
|
|
|
|
|
|
(24,104 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
3,173,974 |
|
|
|
|
|
|
|
|
|
|
$ |
2,991,342 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits |
|
$ |
672,869 |
|
|
$ |
2,172 |
|
|
|
1.29 |
% |
|
$ |
663,103 |
|
|
$ |
3,780 |
|
|
|
2.29 |
% |
Savings deposits |
|
|
235,946 |
|
|
|
904 |
|
|
|
1.54 |
|
|
|
86,838 |
|
|
|
385 |
|
|
|
1.78 |
|
Time deposits |
|
|
1,402,255 |
|
|
|
11,033 |
|
|
|
3.16 |
|
|
|
1,232,648 |
|
|
|
12,544 |
|
|
|
4.09 |
|
Other borrowings |
|
|
292,474 |
|
|
|
2,597 |
|
|
|
3.56 |
|
|
|
362,038 |
|
|
|
3,016 |
|
|
|
3.35 |
|
Subordinated debentures |
|
|
60,795 |
|
|
|
1,206 |
|
|
|
7.96 |
|
|
|
53,613 |
|
|
|
919 |
|
|
|
6.89 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest -bearing liabilities |
|
|
2,664,339 |
|
|
|
17,912 |
|
|
|
2.70 |
|
|
|
2,398,240 |
|
|
|
20,644 |
|
|
|
3.46 |
|
Noninterest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits |
|
|
245,819 |
|
|
|
|
|
|
|
|
|
|
|
219,647 |
|
|
|
|
|
|
|
|
|
Accrued interest and other liabilities |
|
|
17,663 |
|
|
|
|
|
|
|
|
|
|
|
21,701 |
|
|
|
|
|
|
|
|
|
Stockholders equity |
|
|
246,153 |
|
|
|
|
|
|
|
|
|
|
|
351,754 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
3,173,974 |
|
|
|
|
|
|
|
|
|
|
$ |
2,991,342 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income/net interest spread |
|
|
|
|
|
|
22,941 |
|
|
|
3.04 |
% |
|
|
|
|
|
|
21,610 |
|
|
|
3.17 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net yield on earning assets |
|
|
|
|
|
|
|
|
|
|
3.22 |
% |
|
|
|
|
|
|
|
|
|
|
3.39 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable equivalent adjustment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities (2) |
|
|
|
|
|
|
224 |
|
|
|
|
|
|
|
|
|
|
|
222 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
|
|
|
$ |
22,717 |
|
|
|
|
|
|
|
|
|
|
$ |
21,388 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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%. |
32
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 June 30, 2009 and 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
|
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 |
|
$ |
(749 |
) |
|
$ |
(5,612 |
) |
|
$ |
4,863 |
|
Interest on securities |
|
|
|
|
|
|
|
|
|
|
|
|
Taxable |
|
|
(365 |
) |
|
|
63 |
|
|
|
(428 |
) |
Tax-exempt |
|
|
5 |
|
|
|
|
|
|
|
5 |
|
Interest on federal funds |
|
|
(16 |
) |
|
|
(17 |
) |
|
|
1 |
|
Interest on other investments |
|
|
(276 |
) |
|
|
(518 |
) |
|
|
242 |
|
|
|
|
|
|
|
|
|
|
|
Total interest income |
|
|
(1,401 |
) |
|
|
(6,084 |
) |
|
|
4,683 |
|
|
|
|
|
|
|
|
|
|
|
Expense from interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest on demand deposits |
|
|
(1,608 |
) |
|
|
(1,663 |
) |
|
|
55 |
|
Interest on savings deposits |
|
|
519 |
|
|
|
(59 |
) |
|
|
578 |
|
Interest on time deposits |
|
|
(1,511 |
) |
|
|
(3,096 |
) |
|
|
1,585 |
|
Interest on other borrowings |
|
|
(419 |
) |
|
|
183 |
|
|
|
(602 |
) |
Interest on subordinated debentures |
|
|
287 |
|
|
|
154 |
|
|
|
133 |
|
|
|
|
|
|
|
|
|
|
|
Total interest expense |
|
|
(2,732 |
) |
|
|
(4,481 |
) |
|
|
1,749 |
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
$ |
1,331 |
|
|
$ |
(1,603 |
) |
|
$ |
2,934 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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. |
33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, |
|
|
|
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) |
|
$ |
2,425,767 |
|
|
$ |
70,911 |
|
|
|
5.89 |
% |
|
$ |
2,112,194 |
|
|
$ |
74,053 |
|
|
|
7.03 |
% |
Investment securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable |
|
|
291,255 |
|
|
|
7,787 |
|
|
|
5.39 |
|
|
|
310,311 |
|
|
|
8,195 |
|
|
|
5.30 |
|
Tax-exempt (2) |
|
|
40,898 |
|
|
|
1,307 |
|
|
|
6.44 |
|
|
|
40,628 |
|
|
|
1,305 |
|
|
|
6.44 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities |
|
|
332,153 |
|
|
|
9,094 |
|
|
|
5.52 |
|
|
|
350,939 |
|
|
|
9,500 |
|
|
|
5.43 |
|
Federal funds sold |
|
|
5,359 |
|
|
|
7 |
|
|
|
0.26 |
|
|
|
6,459 |
|
|
|
98 |
|
|
|
3.04 |
|
Other investments |
|
|
64,739 |
|
|
|
818 |
|
|
|
2.55 |
|
|
|
47,805 |
|
|
|
1,376 |
|
|
|
5.77 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest -earning assets |
|
|
2,828,018 |
|
|
|
80,830 |
|
|
|
5.76 |
|
|
|
2,517,397 |
|
|
|
85,027 |
|
|
|
6.77 |
|
Noninterest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks |
|
|
76,104 |
|
|
|
|
|
|
|
|
|
|
|
59,193 |
|
|
|
|
|
|
|
|
|
Premises and equipment |
|
|
105,300 |
|
|
|
|
|
|
|
|
|
|
|
103,035 |
|
|
|
|
|
|
|
|
|
Accrued interest and other assets |
|
|
156,807 |
|
|
|
|
|
|
|
|
|
|
|
288,300 |
|
|
|
|
|
|
|
|
|
Allowance for loan losses |
|
|
(29,508 |
) |
|
|
|
|
|
|
|
|
|
|
(23,459 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
3,136,721 |
|
|
|
|
|
|
|
|
|
|
$ |
2,944,466 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits |
|
$ |
657,286 |
|
|
$ |
4,366 |
|
|
|
1.34 |
% |
|
$ |
669,625 |
|
|
$ |
8,856 |
|
|
|
2.65 |
% |
Savings deposits |
|
|
217,655 |
|
|
|
1,825 |
|
|
|
1.69 |
|
|
|
72,116 |
|
|
|
618 |
|
|
|
1.72 |
|
Time deposits |
|
|
1,380,972 |
|
|
|
22,811 |
|
|
|
3.33 |
|
|
|
1,241,044 |
|
|
|
27,488 |
|
|
|
4.44 |
|
Other borrowings |
|
|
312,812 |
|
|
|
4,938 |
|
|
|
3.18 |
|
|
|
314,952 |
|
|
|
5,808 |
|
|
|
3.70 |
|
Subordinated debentures |
|
|
60,823 |
|
|
|
2,400 |
|
|
|
7.96 |
|
|
|
53,660 |
|
|
|
1,934 |
|
|
|
7.23 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest -bearing liabilities |
|
|
2,629,548 |
|
|
|
36,340 |
|
|
|
2.79 |
|
|
|
2,351,397 |
|
|
|
44,704 |
|
|
|
3.81 |
|
Noninterest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits |
|
|
238,722 |
|
|
|
|
|
|
|
|
|
|
|
218,196 |
|
|
|
|
|
|
|
|
|
Accrued interest and other liabilities |
|
|
19,594 |
|
|
|
|
|
|
|
|
|
|
|
23,321 |
|
|
|
|
|
|
|
|
|
Stockholders equity |
|
|
248,857 |
|
|
|
|
|
|
|
|
|
|
|
351,552 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
3,136,721 |
|
|
|
|
|
|
|
|
|
|
$ |
2,944,466 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income/net interest spread |
|
|
|
|
|
|
44,490 |
|
|
|
2.97 |
% |
|
|
|
|
|
|
40,323 |
|
|
|
2.96 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net yield on earning assets |
|
|
|
|
|
|
|
|
|
|
3.17 |
% |
|
|
|
|
|
|
|
|
|
|
3.21 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable equivalent adjustment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities (2) |
|
|
|
|
|
|
444 |
|
|
|
|
|
|
|
|
|
|
|
444 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
|
|
|
$ |
44,046 |
|
|
|
|
|
|
|
|
|
|
$ |
39,879 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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%. |
34
The following table sets forth, on a taxable equivalent basis, the effect that the varying levels
of interest-earning assets and interest-bearing liabilities and the applicable rates have had on
changes in net interest income for the six-month period ended June 30, 2009 compared to the
six-month period ended June 30, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, |
|
|
|
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 |
|
$ |
(3,142 |
) |
|
$ |
(13,054 |
) |
|
$ |
9,912 |
|
Interest on securities: |
|
|
|
|
|
|
|
|
|
|
|
|
Taxable |
|
|
(408 |
) |
|
|
129 |
|
|
|
(537 |
) |
Tax-exempt |
|
|
2 |
|
|
|
|
|
|
|
2 |
|
Interest on federal funds |
|
|
(91 |
) |
|
|
(77 |
) |
|
|
(14 |
) |
Interest on other investments |
|
|
(558 |
) |
|
|
(934 |
) |
|
|
376 |
|
|
|
|
|
|
|
|
|
|
|
Total interest income |
|
|
(4,197 |
) |
|
|
(13,936 |
) |
|
|
9,739 |
|
|
|
|
|
|
|
|
|
|
|
Expense from interest-bearing
liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest on demand deposits |
|
|
(4,490 |
) |
|
|
(4,329 |
) |
|
|
(161 |
) |
Interest on savings deposits |
|
|
1,207 |
|
|
|
(11 |
) |
|
|
1,218 |
|
Interest on time deposits |
|
|
(4,677 |
) |
|
|
(7,471 |
) |
|
|
2,794 |
|
Interest on other borrowings |
|
|
(870 |
) |
|
|
(830 |
) |
|
|
(40 |
) |
Interest on subordinated debentures |
|
|
466 |
|
|
|
201 |
|
|
|
265 |
|
|
|
|
|
|
|
|
|
|
|
Total interest expense |
|
|
(8,364 |
) |
|
|
(12,440 |
) |
|
|
4,076 |
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
$ |
4,167 |
|
|
$ |
(1,496 |
) |
|
$ |
5,663 |
|
|
|
|
|
|
|
|
|
|
|
Noninterest income (loss). Noninterest income decreased $8.2 million to $827,000 for the second
quarter of 2009 from $9 million in the second quarter of 2008, and $15 million, or (96.2)%, to
$592,000 for the first six months of 2009 from $15.6 million in the first six months of 2008. The
components of noninterest income for the second quarter and first six months of 2009 and 2008
consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
% Change |
|
|
|
(Dollars in thousands) |
|
Service charges and fees on deposits |
|
$ |
2,524 |
|
|
$ |
2,192 |
|
|
|
15.2 |
% |
Mortgage banking income |
|
|
2,271 |
|
|
|
1,031 |
|
|
|
120.3 |
|
Investment securities (loss) gain |
|
|
(5,781 |
) |
|
|
1,068 |
|
|
NCM |
Change in fair value of derivatives |
|
|
(67 |
) |
|
|
(418 |
) |
|
|
(83.9 |
) |
Increase in cash surrender value of life insurance |
|
|
540 |
|
|
|
555 |
|
|
|
2.7 |
|
Gain on extinguishment of liabilities |
|
|
|
|
|
|
2,918 |
|
|
NCM |
Other noninterest income |
|
|
1,340 |
|
|
|
1,660 |
|
|
|
(19.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
827 |
|
|
$ |
9,006 |
|
|
NCM |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NCM |
|
not considered meaningful. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
% Change |
|
|
|
(Dollars in thousands) |
|
Service charges and fees on deposits |
|
$ |
4,911 |
|
|
$ |
4,296 |
|
|
|
14.3 |
% |
Mortgage banking income |
|
|
3,961 |
|
|
|
2,297 |
|
|
|
72.4 |
|
Investment securities (loss) gain |
|
|
(11,626 |
) |
|
|
1,470 |
|
|
NCM |
Change in fair value of derivatives |
|
|
(266 |
) |
|
|
632 |
|
|
|
(142.1 |
) |
Increase in cash surrender value of life insurance |
|
|
1,055 |
|
|
|
1,107 |
|
|
|
(4.7 |
) |
Gain on extinguishment of liabilities |
|
|
|
|
|
|
2,918 |
|
|
|
(100 |
) |
Other noninterest income |
|
|
2,557 |
|
|
|
2,888 |
|
|
|
(11.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
592 |
|
|
$ |
15,608 |
|
|
NCM |
|
|
|
|
|
|
|
|
|
|
|
35
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 second quarter and first six
months of 2009 is the result of an increase in the volume of refinancing which is expected to
decline in future periods. The investment securities loss is the result of impairment charges
related to several securities. See Financial Condition Investment Securities for additional
discussion. A gain from the extinguishment of certain liabilities is also included in the total
noninterest income for the second quarter of 2008 and the first six months of 2008.
Noninterest expenses. Noninterest expenses increased $4.5 million, or 19.41%, to $27.8 million for
the second quarter of 2009 from $23.2 million for the second quarter of 2008. Noninterest expenses
increased $6.3 million, or 13.88%, to $51.8 million for the first six months of 2009 from $45.5
million for the first six months of 2008. Noninterest expenses included the following for the
second quarters and first six months of 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
% Change |
|
|
|
(Dollars in thousands) |
|
Noninterest Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits |
|
$ |
12,304 |
|
|
$ |
12,058 |
|
|
|
2.04 |
% |
Occupancy, furniture and equipment expense |
|
|
4,503 |
|
|
|
4,120 |
|
|
|
9.30 |
|
Amortization of core deposit intangibles |
|
|
985 |
|
|
|
896 |
|
|
|
9.93 |
|
FDIC assessment |
|
|
1,932 |
|
|
|
162 |
|
|
NCM |
Foreclosure losses |
|
|
1,748 |
|
|
|
178 |
|
|
NCM |
Professional fees |
|
|
1,027 |
|
|
|
701 |
|
|
|
46.55 |
|
Insurance expense |
|
|
612 |
|
|
|
598 |
|
|
|
2.42 |
|
Postage, stationery and supplies |
|
|
760 |
|
|
|
750 |
|
|
|
1.23 |
|
Communications expense |
|
|
760 |
|
|
|
735 |
|
|
|
3.37 |
|
Advertising expense |
|
|
787 |
|
|
|
1,098 |
|
|
|
(28.31 |
) |
Other operating expense |
|
|
2,377 |
|
|
|
1,980 |
|
|
|
20.05 |
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
27,795 |
|
|
$ |
23,276 |
|
|
|
19.41 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
NCM |
|
not considered meaningful. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
% Change |
|
|
|
(Dollars in thousands) |
|
Noninterest Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits |
|
$ |
24,613 |
|
|
$ |
24,199 |
|
|
|
1.71 |
% |
Occupancy, furniture and equipment expense |
|
|
8,907 |
|
|
|
8,180 |
|
|
|
8.89 |
|
Amortization of core deposit intangibles |
|
|
1,971 |
|
|
|
1,792 |
|
|
|
9.99 |
|
FDIC assessment |
|
|
2,389 |
|
|
|
224 |
|
|
NCM |
Foreclosure losses |
|
|
2,317 |
|
|
|
364 |
|
|
NCM |
Professional fees |
|
|
1,792 |
|
|
|
1,137 |
|
|
|
57.61 |
|
Insurance expense |
|
|
1,221 |
|
|
|
1,176 |
|
|
|
3.83 |
|
Postage, stationery and supplies |
|
|
1,487 |
|
|
|
1,530 |
|
|
|
(2.81 |
) |
Communications expense |
|
|
1,563 |
|
|
|
1,405 |
|
|
|
11.21 |
|
Advertising expense |
|
|
1,337 |
|
|
|
1,811 |
|
|
|
(26.16 |
) |
Other operating expense |
|
|
4,262 |
|
|
|
3,722 |
|
|
|
14.49 |
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
51,859 |
|
|
$ |
45,540 |
|
|
|
13.88 |
% |
|
|
|
|
|
|
|
|
|
|
The increases in noninterest expenses are due primarily to increased FDIC assessments and
foreclosure losses. The increase in FDIC assessments is attributable to a special assessment which
occurred in the second quarter of 2009 and applied to all insured depository institutions. The FDIC
could impose additional special assessments in the third and fourth quarters of 2009, which could
have a material impact on our operating expenses and results of operations. Our foreclosure losses
relate to various costs incurred to acquire, maintain and dispose of other real estate acquired
through foreclosure. These costs are directly related to the volume of foreclosures which have
increased due to the negative credit cycle. These costs could increase in future periods, depending
on the duration of the credit cycle, and have a material impact on our operating expenses.
Income tax (benefit) expense. We recognized income tax benefit of $(7.2) million and $(7.4) million
for the second quarter of 2009 and first six months of 2009, respectively, compared to an expense
of $310,000 and $572,000 for the second quarter of 2008 and first
36
six months of 2008. The difference in the effective tax rate in the three- and six-month periods
ended June 30, 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 $5.98 million for
the second quarter ended June 30, 2009, an increase of $15,000 from $5.96 million in the second
quarter of 2008. The provision for loan losses was $9.4 million for the first six months of 2009,
an increase of $1.6 million from $7.8 million in the first six months of 2008. During the second
quarter and first six months of 2009, we had net charged-off loans totaling $2.4 million, and $4.8
million, respectively, compared to net charged-off loans of $2.0 million and $3.5 million in the
second quarter and first six months ended June 30, 2008, respectively. The annualized ratio of net
charged-off loans to average loans was 0.39% and 0.41% for the three- and six-month periods ended
June 30, 2009, compared to 0.38% and 0.34% for the three- and six-month periods ended June 30, 2008
and 0.33% and the year ended December 31, 2008. The allowance for loan losses totaled $33.5
million, or 1.40% of loans, net of unearned income, at June 30, 2009, compared to $27.2 million, or
1.27% and $28.9 million, or 1.25% of loans, net of unearned income, at June 30, 2008 and December
31, 2008.
During the second 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 |
|
|
|
June 30, |
|
|
June 30, |
|
|
March 31, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
(Dollars in thousands) |
|
Allowance for loan losses at beginning of period |
|
$ |
29,870 |
|
|
$ |
23,273 |
|
|
$ |
28,850 |
|
|
$ |
27,670 |
|
Provision for loan losses |
|
|
5,982 |
|
|
|
5,967 |
|
|
|
3,452 |
|
|
|
2,969 |
|
Total charge-offs |
|
|
2,513 |
|
|
|
2,481 |
|
|
|
2,809 |
|
|
|
1,971 |
|
Total recoveries |
|
|
(165 |
) |
|
|
(484 |
) |
|
|
(377 |
) |
|
|
(182 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs |
|
|
2,348 |
|
|
|
1,997 |
|
|
|
2,432 |
|
|
|
1,789 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses at end of period |
|
$ |
33,504 |
|
|
$ |
27,243 |
|
|
$ |
29,870 |
|
|
$ |
28,850 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans, net of unearned income |
|
$ |
2,398,471 |
|
|
$ |
2,148,750 |
|
|
$ |
2,359,299 |
|
|
$ |
2,314,921 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio: Allowance for loan losses to total
loans, net of unearned income |
|
|
1.40 |
% |
|
|
1.27 |
% |
|
|
1.27 |
% |
|
|
1.25 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six-Month Period |
|
|
|
|
|
|
Ended |
|
|
Year Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2008 |
|
Allowance for loan losses at beginning of period |
|
$ |
28,850 |
|
|
$ |
22,868 |
|
|
$ |
22,868 |
|
Provision for loan losses |
|
|
9,434 |
|
|
|
7,838 |
|
|
|
13,112 |
|
Total charge-offs |
|
|
5,322 |
|
|
|
4,226 |
|
|
|
8,444 |
|
Total recoveries |
|
|
(542 |
) |
|
|
(763 |
) |
|
|
(1,314 |
) |
|
|
|
|
|
|
|
|
|
|
Net charge-offs |
|
|
4,780 |
|
|
|
3,463 |
|
|
|
7,130 |
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses at end of period |
|
$ |
35,504 |
|
|
$ |
27,243 |
|
|
$ |
28,850 |
|
|
|
|
|
|
|
|
|
|
|
Total loans, net of unearned income |
|
$ |
2,398,471 |
|
|
$ |
2,148,750 |
|
|
$ |
2,314,921 |
|
|
|
|
|
|
|
|
|
|
|
Ratio: Allowance for loan losses to total loans, net of unearned income |
|
|
1.40 |
% |
|
|
1.27 |
% |
|
|
1.25 |
% |
|
|
|
|
|
|
|
|
|
|
See Financial Condition Allowance for Loan Losses for additional discussion
37
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 June 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
(In thousands) |
|
Alabama region |
|
$ |
(2 |
) |
|
$ |
836 |
|
|
$ |
(309 |
) |
|
$ |
1,214 |
|
Florida region |
|
|
2,592 |
|
|
|
3,532 |
|
|
|
4,964 |
|
|
|
7,261 |
|
Administrative and other |
|
|
(12,823 |
) |
|
|
(3,217 |
) |
|
|
(21,310 |
) |
|
|
(6,366 |
) |
Income tax (benefit) expense |
|
|
(4,539 |
) |
|
|
310 |
|
|
|
(7,387 |
) |
|
|
572 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated net (loss) income |
|
$ |
(5,694 |
) |
|
$ |
841 |
|
|
$ |
(9,268 |
) |
|
$ |
1,537 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alabama Region. Operating losses totaled $(2,000) and $(309,000) for the second quarter and first
six months of 2009, respectively, compared to $836,000 and $1.2 million operating income for the
second quarter and first six months of 2008, respectively. The decrease in profits is due primarily
to increased provision for loan losses and noninterest expenses.
Net interest income for the three- and six-month periods ending June 30, 2009 increased $824,000
and $1.4 million, or 10.9% and 9.5%, respectively, compared to the three- and six-month periods
ending June 30, 2008. The increase was primarily the result of an increase in the average volume of
earning assets and a decrease in the average yield on interest-bearing liabilities. See the
analysis of net interest income included in the section captioned Net Interest Income elsewhere
in this discussion.
The provision for loan losses for the three- and six-month periods ending June 30, 2009 increased
$478,000 and $1.2 million, or 50.6% and 68.5%, respectively, compared to the three- and six-month
periods ending June 30, 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 the three- and six-month periods ending June 30, 2009 increased $462,000 and
$671,000, or 26.5% and 18.6%, respectively, compared to the three- and six-month periods ending
June 30, 2008. This 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 the three- and six-month periods ending June 30, 2009 increased $2.0
million and $3.1 million, or 28.8% and 21.8%, respectively, compared to the three- and six-month
periods ending June 30, 2008. This 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 income totaled $2.6 and $5.0 million for the second quarter and first six
months of 2009, respectively, compared to $3.5 and $7.3 million for the second quarter and first
six months of 2008, respectively. The decrease in profits was primarily the result of an increase
in the provision for loan losses and noninterest expenses.
Net interest income for the three- and six-month periods ending June 30, 2009 increased $288,000
and decreased $(262,000) or 3.2% and (1.4)%, respectively, compared to the three- and six-month
periods ending June 30, 2008. For the three months ended June 30, 2009, the increase in margin is
primarily related to a decline in the average yield on interest bearing liabilities. For the six
months ended June 30, 2009, the decrease in net interest margin is primarily the result of a
decline in the average yield on interest-earning assets offset by a decrease in the average yield
on interest-bearing liabilities. See the analysis of net interest income included in the section
captioned Net Interest Income included elsewhere in this discussion.
38
The provision for loan losses for the three- and six-month periods ending June 30, 2009 increased
$826,000 and $1.4 million, or 125.3% and 95.3%, respectively, compared to the three- and six-month
periods ending June 30, 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 the three- and six-month periods ending June 30, 2009 increased $23,000 and
$88,000, or 4.7% and 9.3%, respectively, compared to the three- and six-month periods ending June
30, 2008. The increase was due to service charges on deposit accounts as a result of increases in
account volumes and pricing changes. See the analysis of noninterest income in the section
captioned Noninterest Income elsewhere in this discussion.
Noninterest expense for the three- and six-month periods ending June 30, 2009 increased $427,000
and $678,000, or 7.9% and 6.2%, respectively, compared to the three- and six-month periods ending
June 30, 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.
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 June 30, 2009, we had $133 million, or 25.0%, 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 $10
million at June 30, 2009 were included in the Level 3 assets category measured at fair value on a
recurring basis. These securities consist primarily of certain private-label mortgage-backed
securities and trust preferred securities. As the market for these securities became less active
and pricing less reliable, management determined that the trust preferred securities should be
transferred to a Level 3 category during the third quarter of 2008 and that three private-label
mortgage-backed securities be transferred during the second quarter of 2009 (See Notes 3 and 11 to
the Condensed Consolidated Financial Statements). Management measures fair value on the trust
preferred securities based on various spreads to LIBOR determined after its review of applicable
financial data and credit ratings ( See Financial Condition Investment Securities for
additional discussion). At June 30, 2009, the fair values of three private-label mortgage-backed
securities totaling $1.8 million were measured using Level 3 inputs because the market for them has
become illiquid, as indicated by few, if any, trades during the period. These securities were
previously measured using Level 2 inputs. The assumptions used in the valuation model include
expected future default rates, loss severity and prepayments. The model also takes into account the
structure of the security including credit support. Based on these assumptions the model calculates
and projects the timing and amount of interest and principal payments expected for the security.
The discount rates used in the valuation model were based on a yield that the market would require
for such securities with maturities and risk characteristics similar to the securities being
measured. The remaining Level 3 assets totaling $123 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 the clients business.
The collateral is reviewed and evaluated on at least a quarterly basis for additional impairment
and adjusted accordingly, based on the same factors identified above.
39
Financial Condition
Total assets were $3.209 billion at June 30, 2009, an increase of $157 million, or 5.1%, from
$3.052 billion as of December 31, 2008. Average total assets for the second quarter of 2009 were
$3.174 billion, which were funded by average total liabilities of $2.928 billion and average total
stockholders equity of $246 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 $13.5 million, or 15.1%, to $102.9
million at June 30, 2009 from $89.4 million at December 31, 2008. At June 30, 2009, short-term
liquid assets were 3.2% of total assets, compared to 2.9% at December 31, 2008. We continually
monitor our liquidity position and will increase or decrease our short-term liquid assets as we
deem necessary. See Liquidity for additional discussion.
Investment Securities. Total investment securities decreased $40.8 million, or (11.8)%, to $306.3
million at June 30, 2009, from $347.1 million at December 31, 2008. Average investment securities
totaled $322.2 million and $332.2 million for the second quarter and first six months of 2009,
compared to $354.7 and $350.9 million for the second quarter and first six months of 2008.
Investment securities were 10.7% of interest-earning assets at June 30, 2009, compared to 12.7% at
December 31, 2008. The investment portfolio produced an average taxable equivalent yield of 5.52%
for both the second quarter and first six months of 2009, compared to 5.44% and 5.43% for the
second quarter and first six months of 2008.
The following table presents the carrying value of the securities we held at the dates indicated.
Investment Portfolio
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for Sale |
|
|
|
June 30, |
|
|
December 31, |
|
|
Percent |
|
|
|
2009 |
|
|
2008 |
|
|
Change |
|
|
|
(Dollars in thousands) |
|
Investment securities available for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. agency securities |
|
$ |
5,630 |
|
|
$ |
3,843 |
|
|
|
46.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities (MBS): |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Agency MBS residential |
|
|
212,481 |
|
|
|
237,508 |
|
|
|
(10.5 |
) |
U.S. Agency MBS collateralized mortgage obligation (CMO) |
|
|
12,716 |
|
|
|
16,186 |
|
|
|
(21.4 |
) |
Private-label CMO |
|
|
18,726 |
|
|
|
26,430 |
|
|
|
(29.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total MBS |
|
|
243,923 |
|
|
|
280,124 |
|
|
|
(12.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
State, county and municipal securities |
|
|
41,630 |
|
|
|
40,622 |
|
|
|
2.5 |
|
|
|
|
|
|
|
|
|
|
|
|
Corporate obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt |
|
|
3,800 |
|
|
|
5,746 |
|
|
|
(33.9 |
) |
Pooled trust preferred securities |
|
|
4,374 |
|
|
|
9,939 |
|
|
|
(56.0 |
) |
Single issue trust preferred securities |
|
|
1,566 |
|
|
|
6,704 |
|
|
|
(76.6 |
) |
Other collateralized debt obligations |
|
|
5,128 |
|
|
|
|
|
|
NA |
|
|
|
|
|
|
|
|
|
|
|
Total corporate obligations |
|
|
14,868 |
|
|
|
22,389 |
|
|
|
(33.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
Equity securities |
|
|
249 |
|
|
|
164 |
|
|
|
51.8 |
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities available for sale |
|
$ |
306,300 |
|
|
$ |
347,142 |
|
|
|
(11.8 |
)% |
|
|
|
|
|
|
|
|
|
|
|
40
The following table summarizes the investment securities with unrealized losses at June 30,
2009 by aggregated major security type and length of time in a continuous unrealized loss position:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Agency MBS residential |
|
$ |
107 |
|
|
$ |
|
|
|
$ |
240 |
|
|
$ |
12 |
|
|
$ |
347 |
|
|
$ |
12 |
|
Private-label CMO |
|
|
299 |
|
|
|
16 |
|
|
|
16,679 |
|
|
|
4,260 |
|
|
|
16,978 |
|
|
|
4,276 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total MBS |
|
|
406 |
|
|
|
16 |
|
|
|
16,919 |
|
|
|
4,272 |
|
|
|
17,325 |
|
|
|
4,288 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State, county and municipal securities |
|
|
10,839 |
|
|
|
385 |
|
|
|
12,260 |
|
|
|
718 |
|
|
|
23,099 |
|
|
|
1,103 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt |
|
|
3,800 |
|
|
|
374 |
|
|
|
|
|
|
|
|
|
|
|
3,800 |
|
|
|
374 |
|
Pooled trust preferred securities |
|
|
|
|
|
|
|
|
|
|
1,551 |
|
|
|
1,986 |
|
|
|
1,551 |
|
|
|
1,986 |
|
Single issue trust preferred securities |
|
|
|
|
|
|
|
|
|
|
1,566 |
|
|
|
3,434 |
|
|
|
1,566 |
|
|
|
3,434 |
|
Other collateralized debt obligations |
|
|
5,128 |
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
5,128 |
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total corporate obligations |
|
|
8,928 |
|
|
|
380 |
|
|
|
3,117 |
|
|
|
5,420 |
|
|
|
12,045 |
|
|
|
5,800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities |
|
|
|
|
|
|
|
|
|
|
250 |
|
|
|
314 |
|
|
|
250 |
|
|
|
314 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total temporarily impaired securities |
|
|
20,173 |
|
|
|
781 |
|
|
|
32,546 |
|
|
|
10,724 |
|
|
|
52,719 |
|
|
|
11,505 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other-than-temporarily Impaired |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private-label CMO |
|
|
|
|
|
|
|
|
|
|
1,749 |
|
|
|
131 |
|
|
|
1,749 |
|
|
|
131 |
|
Corporate obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pooled trust preferred securities |
|
|
|
|
|
|
|
|
|
|
2,823 |
|
|
|
5,431 |
|
|
|
2,823 |
|
|
|
5,431 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total OTTI securities |
|
|
|
|
|
|
|
|
|
|
4,572 |
|
|
|
5,562 |
|
|
|
4,572 |
|
|
|
5,562 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total temporarily and
other-than-temporarily impaired |
|
$ |
20,173 |
|
|
$ |
781 |
|
|
$ |
37,118 |
|
|
$ |
16,286 |
|
|
$ |
57,291 |
|
|
$ |
17,067 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 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 the Trust
41
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 June 30, 2009, our securities portfolio
consisted of 263 securities, 95 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
June 30, 2009, approximately 92% 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 $18.7 million, which had unrealized losses of approximately $4.4
million at June 30, 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:
|
|
|
|
|
|
|
|
|
Rating |
|
|
|
Credit Support Coverage |
|
Unrealized |
|
Moody/Fitch |
|
Count |
|
Ratio (1) |
|
Loss |
|
|
|
|
|
|
|
(In thousands) |
|
A1/NR |
|
1 |
|
3.75 |
|
$(395) |
Aaa/AAA |
|
1 |
|
12.72 |
|
(17) |
Aaa/NR |
|
1 |
|
9.05 |
|
(46) |
NR/AAA |
|
4 |
|
2.72 17.94 |
|
(1,864) |
B2/NR |
|
1 |
|
5.03 |
|
(375) |
Caa1/BBB (2) |
|
1 |
|
2.19 |
|
(1,579) |
Ca/CCC (2) |
|
3 |
|
0.11 0.85 |
|
(131) |
|
|
|
|
|
|
|
|
Total |
|
12 |
|
|
|
$(4,407) |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The Credit Support Coverage Ratio, which is the ratio that determines the multiple of
credit support, based on assumptions for the performance of the loans within the delinquency
pipeline. The assumptions used are: Current Collateral Support/ ((60 day delinquencies x.60) +
(90 day delinquencies x.70) + (foreclosures x 1.00) + (other real estate x 1.00)) x .40 for
loss severity. |
|
(2) |
|
Includes all private-label CMOs that have OTTI. See discussion that follows. |
During the third and fourth quarters of 2008, we recognized a $1.9 million, pre-tax non-cash OTTI
charge on three private-label CMOs which experienced significant rating downgrades in those
respective quarters. These downgrades continued in the second quarter of 2009 and resulted in a
total OTTI of $4.2 million, including a credit portion of $4.1 million recognized in current
earnings during the second quarter. The assumptions used in the valuation model include expected
future default rates, loss severity and prepayments. The model also takes into account the
structure of the security, including credit support. Based on these assumptions, the model
calculates and projects the timing and amount of interest and principal payments expected for the
security. At June 30, 2009, the fair values of these three securities totaling $1.8 million were measured using Level 3 inputs
because the market for them has become illiquid, as indicated by few, if any, trades during the
period. These securities were previously measured using Level 2 inputs.
42
The discount rates used in
the valuation model were based on a yield that the market would require for such securities with
maturities and risk characteristics similar to the securities being measured (See Notes 3 and 11 to
the Condensed Consolidated Financial Statements). The following table provides additional
information regarding these CMO valuations as of June 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life-to-Date |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other-than-temporary Impairment (OTTI) |
|
|
|
|
|
|
Discount |
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual |
|
Credit Portion |
|
|
|
|
|
|
|
|
|
|
Margin |
|
|
|
|
|
Cumulative |
|
Average |
|
60+ Days |
|
|
|
|
|
|
|
|
Security |
|
Price (%) |
|
(Basis Points) |
|
Yield |
|
Default |
|
Severity |
|
Delinquent |
|
2008 |
|
2009 |
|
Other |
|
Total |
CMO 1
|
|
|
24.90 |
|
|
|
1640 |
|
|
|
18.00 |
% |
|
|
56.40 |
% |
|
|
50.00 |
% |
|
|
25.90 |
% |
|
$ |
(599 |
) |
|
$ |
(1,231 |
) |
|
$ |
(43 |
) |
|
$ |
(1,873 |
) |
CMO 2
|
|
|
10.21 |
|
|
|
1801 |
|
|
|
19.00 |
% |
|
|
57.85 |
% |
|
|
50.00 |
% |
|
|
31.02 |
% |
|
|
(492 |
) |
|
|
(1,341 |
) |
|
|
(4 |
) |
|
|
(1,837 |
) |
CMO 3
|
|
|
28.62 |
|
|
|
1543 |
|
|
|
17.00 |
% |
|
|
42.74 |
% |
|
|
40.00 |
% |
|
|
19.17 |
% |
|
|
(803 |
) |
|
|
(1,473 |
) |
|
|
(84 |
) |
|
|
(2,360 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(1,894 |
) |
|
$ |
(4,045 |
) |
|
$ |
(131 |
) |
|
$ |
(6,070 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 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.
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 June 30, 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,
43
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 our
trust preferred securities as June 30, 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 |
|
|
$ |
2,159 |
|
|
$ |
1,019 |
|
|
$ |
(1,140 |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
MM Community Funding Ltd |
|
|
|
|
|
Pooled |
|
|
B |
|
|
|
2,814 |
|
|
|
1,424 |
|
|
|
(1,390 |
) |
|
|
(2,186 |
) |
|
|
(1,390 |
) |
|
|
(3,576 |
) |
Preferred Term Securities V |
|
|
|
|
|
Pooled |
|
|
M |
|
|
|
1,378 |
|
|
|
532 |
|
|
|
(846 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Tpref Funding III Ltd |
|
|
|
|
|
Pooled |
|
|
B-1 |
|
|
|
3,636 |
|
|
|
1,339 |
|
|
|
(2,297 |
) |
|
|
(363 |
) |
|
|
(2,297 |
) |
|
|
(2,660 |
) |
Trapeza 2007-13A LLC |
|
|
|
|
|
Pooled |
|
|
D |
|
|
|
1,804 |
|
|
|
60 |
|
|
|
(1,744 |
) |
|
|
(32 |
) |
|
|
(1,744 |
) |
|
|
(1,776 |
) |
New South Capital Corp |
|
|
(1 |
) |
|
Single |
|
Sole |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,000 |
) |
|
|
|
|
|
|
(5,000 |
) |
Emigrant Capital Trust |
|
|
(2 |
) |
|
Single |
|
Sole |
|
|
5,000 |
|
|
|
1,566 |
|
|
|
(3,434 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
16,791 |
|
|
$ |
5,940 |
|
|
$ |
(10,851 |
) |
|
$ |
(7,581 |
) |
|
$ |
(5,431 |
) |
|
$ |
(13,012 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
% |
|
|
10 |
% |
MM Community Funding Ltd |
|
|
|
|
|
CCC |
|
|
11 |
|
|
|
12 |
% |
|
|
33 |
% |
|
|
0 |
% |
Preferred Term Securities V |
|
|
|
|
|
Ba3 |
|
|
2 |
|
|
|
4 |
% |
|
|
45 |
% |
|
|
19 |
% |
Tpref Funding III Ltd |
|
|
|
|
|
CC |
|
|
28 |
|
|
|
16 |
% |
|
|
19 |
% |
|
|
0 |
% |
Trapeza 2007-13A LLC |
|
|
|
|
|
|
C |
|
|
|
48 |
|
|
|
11 |
% |
|
|
20 |
% |
|
|
0 |
% |
New South
Capital Corp (1) |
|
|
|
|
|
NR |
|
NA |
|
NA |
|
NA |
|
NA |
Emigrant
Capital Trust (2) |
|
|
|
|
|
CC |
|
NA |
|
NA |
|
NA |
|
NA |
44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current |
|
|
|
|
|
|
Fair Value (Price |
|
Discount Margin |
|
Yield |
Name |
|
|
|
|
|
to Par) |
|
(Basis Points) |
|
(Basis Points) |
MM Caps Funding I Ltd |
|
|
|
|
|
$ |
50.96 |
|
|
Swap + 1475 |
|
9.48% Fixed |
MM Community Funding Ltd |
|
|
|
|
|
|
28.47 |
|
|
LIBOR + 1275 |
|
LIBOR + 310 |
Preferred Term Securities V |
|
|
|
|
|
|
38.61 |
|
|
LIBOR + 1325 |
|
LIBOR + 210 |
Tpref Funding III Ltd |
|
|
|
|
|
|
33.48 |
|
|
LIBOR + 1275 |
|
LIBOR + 190 |
Trapeza 2007-13A LLC |
|
|
|
|
|
|
3.59 |
|
|
LIBOR + 1800 |
|
LIBOR + 120 |
Emigrant
Capital Trust (2) |
|
|
|
|
|
|
31.32 |
|
|
LIBOR + 1462 |
|
LIBOR + 200 |
|
|
|
(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. The discount
margin of 1462 basis points was derived from implied credit spreads from certain publicly
traded trust preferred securities within the issuers peer group. |
|
(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 trust preferred
securities 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 June 30, 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 June
30, 2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
For the Three- |
|
|
For the Six- |
|
|
|
Months Ended |
|
|
Months Ended |
|
|
|
June 30, 2009 |
|
|
June 30, 2009 |
|
Balance at beginning of period |
|
$ |
5,845 |
|
|
$ |
|
|
Amounts related to credit losses for which an OTTI was not previously recognized |
|
|
32 |
|
|
|
7,581 |
|
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 |
|
|
5,749 |
|
|
|
4,045 |
|
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 |
|
$ |
11,626 |
|
|
$ |
11,626 |
|
|
|
|
|
|
|
|
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
June 30, 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.
45
Stock in the FHLB Atlanta
As of June 30, 2009, we have stock in the Federal Home Loan Bank of Atlanta (FHLB Atlanta)
totaling $18.2 million (its par value), which is presented separately on the face of our statement
of financial condition. There is no ready market for the FHLB stock and no quoted market values, a
as only member institutions are eligible to be shareholders and all transactions are, by charter,
to take place at par with FHLB Atlanta as the only purchaser. Therefore, we account for this
investment as a long-term asset and carries it at cost. Management reviews this stock quarterly for
impairment and conducts its analysis in accordance with FASB Statement of Position (SOP) 01-6,
Accounting by Certain Entities (Including Entities With Trade Receivables) That Lend to or Finance
the Activities of Others. Managements determination as to whether this investment is impaired is
based on managements assessment of the ultimate recoverability of its par value (cost) rather than
recognizing temporary declines in its value. The determination of whether the decline affects the
ultimate recoverability of the investment is influenced by available information regarding criteria
such as:
|
|
|
The significance of the decline in net assets of FHLB Atlanta as compared to the capital
stock amount for FHLB Atlanta and the length of time this decline has persisted. |
|
|
|
|
Commitments by FHLB Atlanta to make payments required by law or regulation and the level
of such payments in relation to the operating performance of FHLB Atlanta. |
|
|
|
|
The impact of legislative and regulatory changes on financial institutions and,
accordingly, on the customer base of FHLB Atlanta. |
|
|
|
|
The liquidity position of FHLB Atlanta. |
Management has reviewed publicly available information regarding the financial condition of FHLB
Atlanta in preparing this report for the quarter ended June 30, 2009 and concluded that no
impairment existed based on assessment of the ultimate recoverability of the par value of the
investment. Management noted that FHLB Atlanta recorded a loss from operations of $1.5 million for
the first quarter of 2009 and had suspended its dividend. Despite the lack of a dividend, FHLB
Atlanta did redeem some of its stock at par during the second quarter, including redemption of $1.1
million of stock we held. Also, FHLB Atlanta had a positive operating net interest margin for its
first quarter, and its loss was the result of losses on its own securities holdings. The equity
base of FHLB Atlanta is $6 billion, approximately 26% of the major risk components of its balance
sheet, which are investments in securities and mortgage loans. The balance of FHLB Atlantas assets
consists of cash, interbank deposits, and collateralized advances to member banks, which management
considers to be significantly lower in risk. Finally, Standard & Poors has rated FHLB Atlantas
counterparty risk as AAA in a report dated July 13, 2009.
FHLB Atlanta has communicated clearly with its membership that it believes that the dividend
suspension is a prudent move in light of the present pressure on earnings, and that its current
focus will be on preservation of capital. Management expects that this position may continue for
FHLB Atlanta for the next several quarters, but does not believe this situation is appropriately
characterized as an impairment in the value of our investment. This is a long-term investment that
serves a business purpose of enabling us to enhance the liquidity of the Bank through access to the
lending facilities of FHLB Atlanta. For the foregoing reasons, management believes that FHLB
Atlantas current position does not indicate that our investment will not be recoverable at par,
our cost, and thus the investment is not impaired as of June 30, 2009.
Loans
Composition of Loan Portfolio, Yield Changes and Diversification. Our loans, net of unearned
income, totaled $2.398 billion at June 30, 2009, an increase of 3.6%, or $83 million, from $2.315
billion at December 31, 2008. Mortgage loans held for sale totaled $100.7 million at June 30, 2009,
an increase of 356.9%, or $78.7 million from $22.0 million at December 31, 2008 due to an unusually
high refinancing volume that is not expected to continue. Average loans, including mortgage loans
held for sale, totaled $2.459 billion during June 30, 2009, compared to $2.173 billion for the year
ended December 31, 2008. Loans, net of unearned income, comprised 83.3% of interest-earning assets
at June 30, 2009, compared to 84.4% at December 31, 2008. Mortgage loans held for sale comprised
3.5% of interest-earning assets at June 30, 2009, compared to 0.8% at December 31, 2008. The
average yield of the loan portfolio was 5.87% for the three months ended June 30, 2009, compared to
5.93% for the three months ended March 31, 2009 and 6.85% for the three months ended June 30, 2008.
The decrease in average yield is primarily the result of a generally lower level of market rates
that prevailed throughout the current economy.
46
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.
The following table details the distribution of our loan portfolio by category for the periods
presented:
Distribution of Loans by Category
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009 |
|
|
December 31, 2008 |
|
|
|
|
|
|
|
Percent of |
|
|
|
|
|
|
Percent of |
|
|
|
Amount |
|
|
Total |
|
|
Amount |
|
|
Total |
|
Commercial and industrial |
|
$ |
200,350 |
|
|
|
8.34 |
% |
|
$ |
207,372 |
|
|
|
8.95 |
% |
Real estate construction and land development (1) |
|
|
671,107 |
|
|
|
27.95 |
|
|
|
637,587 |
|
|
|
27.52 |
|
Real estate mortgages
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single-family |
|
|
670,833 |
|
|
|
27.94 |
|
|
|
655,216 |
|
|
|
28.28 |
|
Commercial |
|
|
766,542 |
|
|
|
31.93 |
|
|
|
726,704 |
|
|
|
31.37 |
|
Other |
|
|
30,685 |
|
|
|
1.28 |
|
|
|
31,187 |
|
|
|
1.34 |
|
Consumer |
|
|
59,923 |
|
|
|
2.50 |
|
|
|
57,877 |
|
|
|
2.50 |
|
Other |
|
|
1,464 |
|
|
|
0.06 |
|
|
|
972 |
|
|
|
0.04 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans |
|
|
2,400,904 |
|
|
|
100.0 |
% |
|
|
2,316,915 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unearned income |
|
|
(2,433 |
) |
|
|
|
|
|
|
(1,994 |
) |
|
|
|
|
Allowance for loan losses |
|
|
(33,504 |
) |
|
|
|
|
|
|
(28,850 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loans |
|
$ |
2,364,967 |
|
|
|
|
|
|
$ |
2,286,071 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
A further analysis of the components of our real estate construction and land development
loans as of June 30, 2009 and December 31, 2008 is as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential |
|
|
Commercial |
|
|
|
|
|
|
|
|
|
Development |
|
|
Development |
|
|
Other |
|
|
Total |
|
|
|
(Dollars in thousands) |
|
As of June 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alabama segment |
|
$ |
180,597 |
|
|
$ |
85,263 |
|
|
$ |
14,425 |
|
|
$ |
280,285 |
|
Florida segment |
|
|
142,309 |
|
|
|
217,400 |
|
|
|
11,760 |
|
|
|
371,469 |
|
Other |
|
|
7,855 |
|
|
|
11,498 |
|
|
|
|
|
|
|
19,353 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
330,761 |
|
|
$ |
314,161 |
|
|
$ |
26,185 |
|
|
$ |
671,107 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
Percent |
|
|
|
2009 |
|
|
2008 |
|
|
Change |
|
|
|
(Dollars in thousands) |
|
Total loans, net of unearned income |
|
$ |
2,398,471 |
|
|
$ |
2,314,921 |
|
|
|
3.61 |
% |
Alabama segment |
|
|
960,477 |
|
|
|
935,232 |
|
|
|
2.70 |
|
Florida segment |
|
|
1,119,481 |
|
|
|
1,060,994 |
|
|
|
5.51 |
|
Other |
|
|
318,513 |
|
|
|
318,695 |
|
|
|
(0.06 |
) |
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
No 5, Accounting for Contingencies (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.
47
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 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.
48
Allocation of the Allowance for Loan Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
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 |
|
$ |
1,720 |
|
|
|
8.3 |
% |
|
$ |
2,136 |
|
|
|
8.9 |
% |
Real estate construction and land development |
|
|
13,721 |
|
|
|
27.9 |
|
|
|
12,168 |
|
|
|
27.5 |
|
Real estate mortgages |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single-family |
|
|
10,174 |
|
|
|
27.9 |
|
|
|
7,159 |
|
|
|
28.3 |
|
Commercial |
|
|
5,629 |
|
|
|
31.9 |
|
|
|
5,440 |
|
|
|
31.3 |
|
Other |
|
|
292 |
|
|
|
1.3 |
|
|
|
247 |
|
|
|
1.3 |
|
Consumer |
|
|
1,968 |
|
|
|
2.7 |
|
|
|
1,700 |
|
|
|
2.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
33,504 |
|
|
|
100.0 |
% |
|
$ |
28,850 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
The allowance as a percentage of loans, net of unearned income, at June 30, 2009 was 1.40%,
compared to 1.25% as of December 31, 2008. Net charge-offs decreased $83,000, from $2.4 million
during the first quarter of 2009 to $2.3 million in the second quarter of 2009, and increased $1.3
million to $4.8 million from $3.5 million for the six months ended June 30, 2009 and 2008,
respectively. Net charge-offs of commercial loans increased $111,000, from $(11,000) (a net
recovery) in first quarter of 2009 to $100,000 in the second quarter of 2009, and increased
$255,000, to $89,000 from $(166,000) (a net recovery) for the six months ended June 30, 2009 and
2008, respectively. Net charge-offs of real estate loans decreased $339,000, from $1.7 million in
the first quarter of 2009 to $1.4 million in the second quarter of 2009, and increased $636,000, to
$3.1 million from $2.5 million for the six months ended June 30, 2009 and 2008, respectively. Net
charge-offs of consumer loans increased $145,000, from $684,000 in the first quarter of 2009 to
$829,000 in the second quarter of 2009, and increased $424,000, to $1.5 million from $1.1 million
for the six months ended June 30, 2009 and 2008, respectively. Net charge-offs as a percentage of
the allowance for loan losses were 28.11% and 28.77% for the three- and six-month periods ended
June 30, 2009, compared to 29.48% and 25.57% for the three- and six-month periods ended June 30,
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 portfolios and this downturn has been particularly intense in our Florida
markets, with Tampa and Sarasota being impacted the most.
During the six-month period ended June 30, 2009, management increased its allowance for loan losses
related to construction and land development real estate loans by $1.6 million, from $12.1 million
as of December 31, 2008 to $13.7 million as of June 30, 2009, as a result of 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
$926,000, from $104,000 as of June 30, 2008 to $1,030,000 as of June 30, 2009. Within this
construction and land development portfolio, approximately $321 million, or 48%, was related to
residential development and construction. Of the residential purpose loans, 57% were located in
Alabama at June 30, 2009, with the remainder in Florida. The largest category in the residential
development and construction portfolio is related to development of single-family lots and
single-family lots held by experienced, licensed builders for the future construction of
single-family homes. This category represents approximately $140 million, or 44%, of this
portfolio. Construction loans related to income-producing properties accounted for $202 million, or
58% of the total commercial construction and development loans. Geographically, approximately 68%
of this category was located in Florida, with the remaining loans located primarily in Alabama.
Our allocation of the allowance for loan losses related to single-family mortgage loans increased
$3 million, to $10.2 million at June 30, 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.
49
Foreclosure activity during the second quarter of 2009 resulted in $12.6 million of new
foreclosures, with residential construction properties accounting for $7.1 million, or 56%, of the
new foreclosures, commercial real estate (CRE) properties accounting for another $2.7 million, or
22%, and single-family residences accounting for $2.2 million. Approximately 72% of second quarter
2009 foreclosures originated in Florida, the remaining 28% in Alabama. At June 30, 2009,
single-family mortgages accounted for $37.3 million, or 32%, of total nonperforming loans, up $14.6
million from $22.7 million as of December 31, 2008. The overall increases in loss experience,
nonperforming loans and pressure on home values continued to influence managements risk assessment
and decision to increase the allocation of the allowance for loan losses for single-family
mortgages during the second quarter of 2009.
Our consumer loan charge-offs were higher during the second quarter of 2009 when compared to the
first quarter of 2009, primarily due to the increased losses in our consumer finance companies,
which accounted for approximately $522,000, or 57.8%, of the total net consumer loan charge-offs.
Going forward, we expect these losses to continue to be a substantial portion of the overall
consumer loan losses; however, we believe the increased risk associated with these loans is offset
by their higher yield.
The allowance for loan losses as a percentage of nonperforming loans, excluding troubled debt
restructurings (TDRs), decreased to 28.46% at June 30, 2009 from 45.98% at December 31, 2008, and
69.91% at June 30, 2008. The allowance for loan losses as a percentage of nonperforming loans plus
TDRs decreased to 24.48% at June 30, 2009 from 44.12% at December 31, 2008, and 69.33% at June 30,
2008. Approximately $10.8 million of the allowance for loan losses has been specifically allocated
to selected nonperforming loans as of June 30, 2009. As of June 30, 2009, nonperforming loans
totaled $117.7 million, of which $114.9 million, or 97.7%, 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.
50
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 |
|
|
Six months |
|
|
|
|
|
|
Ended |
|
|
Ended |
|
|
Year Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
2008 |
|
|
|
(Dollars in Thousands) |
|
Allowance for loan losses at beginning of period |
|
$ |
29,870 |
|
|
$ |
23,273 |
|
|
$ |
28,850 |
|
|
$ |
22,868 |
|
|
$ |
22,868 |
|
Charge-offs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial |
|
|
141 |
|
|
|
160 |
|
|
|
197 |
|
|
|
312 |
|
|
|
504 |
|
Real estate construction and land development |
|
|
131 |
|
|
|
662 |
|
|
|
1,055 |
|
|
|
665 |
|
|
|
2,095 |
|
Real estate mortgage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single-family |
|
|
821 |
|
|
|
871 |
|
|
|
1,368 |
|
|
|
1,483 |
|
|
|
2,460 |
|
Commercial |
|
|
508 |
|
|
|
49 |
|
|
|
848 |
|
|
|
411 |
|
|
|
411 |
|
Other |
|
|
7 |
|
|
|
|
|
|
|
186 |
|
|
|
106 |
|
|
|
241 |
|
Consumer |
|
|
707 |
|
|
|
715 |
|
|
|
1,402 |
|
|
|
1,150 |
|
|
|
2,490 |
|
Other |
|
|
198 |
|
|
|
24 |
|
|
|
266 |
|
|
|
99 |
|
|
|
243 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total charge-offs |
|
|
2,513 |
|
|
|
2,481 |
|
|
|
5,322 |
|
|
|
4,226 |
|
|
|
8,444 |
|
Recoveries: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial |
|
|
41 |
|
|
|
339 |
|
|
|
108 |
|
|
|
478 |
|
|
|
646 |
|
Real estate construction and land development |
|
|
6 |
|
|
|
31 |
|
|
|
26 |
|
|
|
33 |
|
|
|
44 |
|
Real estate mortgage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single-family |
|
|
21 |
|
|
|
24 |
|
|
|
32 |
|
|
|
43 |
|
|
|
89 |
|
Commercial |
|
|
2 |
|
|
|
9 |
|
|
|
5 |
|
|
|
25 |
|
|
|
128 |
|
Other |
|
|
19 |
|
|
|
9 |
|
|
|
217 |
|
|
|
23 |
|
|
|
71 |
|
Consumer |
|
|
41 |
|
|
|
39 |
|
|
|
83 |
|
|
|
85 |
|
|
|
181 |
|
Other |
|
|
35 |
|
|
|
33 |
|
|
|
71 |
|
|
|
76 |
|
|
|
155 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recoveries |
|
|
165 |
|
|
|
484 |
|
|
|
542 |
|
|
|
763 |
|
|
|
1,314 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs |
|
|
2,348 |
|
|
|
1,997 |
|
|
|
4,780 |
|
|
|
3,463 |
|
|
|
7,130 |
|
Provision for loan losses |
|
|
5,982 |
|
|
|
5,967 |
|
|
|
9,434 |
|
|
|
7,838 |
|
|
|
13,112 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses at end of period |
|
$ |
33,504 |
|
|
$ |
27,243 |
|
|
$ |
33,504 |
|
|
$ |
27,243 |
|
|
$ |
28,850 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans at end of period, net of unearned income |
|
$ |
2,398,471 |
|
|
$ |
2,148,751 |
|
|
$ |
2,398,471 |
|
|
$ |
2,148,751 |
|
|
$ |
2,314,921 |
|
Average loans, net of unearned income |
|
|
2,387,078 |
|
|
|
2,123,039 |
|
|
|
2,364,676 |
|
|
|
2,077,884 |
|
|
|
2,147,524 |
|
Ratio of ending allowance to ending loans |
|
|
1.40 |
% |
|
|
1.27 |
% |
|
|
1.40 |
% |
|
|
1.27 |
% |
|
|
1.25 |
% |
Ratio of net charge-offs to average loans (1) |
|
|
0.39 |
|
|
|
0.38 |
|
|
|
0.41 |
|
|
|
0.34 |
|
|
|
0.33 |
|
Net charge-offs as a percentage of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan losses |
|
|
39.26 |
|
|
|
33.46 |
|
|
|
50.66 |
|
|
|
44.18 |
|
|
|
54.38 |
|
Allowance for loan losses (1) |
|
|
28.11 |
|
|
|
29.39 |
|
|
|
28.77 |
|
|
|
25.49 |
|
|
|
24.71 |
|
Allowance for loan losses as a percentage of
nonperforming loans |
|
|
24.48 |
|
|
|
69.33 |
|
|
|
24.48 |
|
|
|
69.33 |
|
|
|
44.12 |
|
Nonperforming Assets. Nonperforming assets increased $70.3 million, to $153.3 million as of June
30, 2009 from $83 million as of December 31, 2008. As a percentage of net loans plus nonperforming
assets, nonperforming assets increased to 6.30% at June 30, 2009 from 3.56% at December 31, 2008.
The overall increase in nonperforming assets was primarily related to real estate construction,
commercial real estate and residential mortgage loan portfolios. As of June 30, 2009, nonperforming
residential mortgage loans increased $14.6 million to $37.3 million from $22.7 million as of
December 31, 2008. Five loans in excess of $500,000 accounted for $3.8 million, or 38% of the
increase; the average loan balance of all new nonperforming residential loans was $182,000, with
the majority, or 67%, located in Alabama. Approximately 89% of the increase in nonperforming real
estate construction consists of six real estate construction credits over $1 million totaling $33.1
million. Three of these large credits, totaling $10.8 million, are located in Florida, while the
other $22.3 million are shared national credits located outside of Florida. The commercial real
estate increase of $1.3 million from December 31, 2008 consists primarily of one Florida commercial
real estate property. Management continues to actively work to mitigate the risks of loss across
all categories of the loan portfolio. We see
51
continued weakness in the Sarasota, Florida market and some improvement in the Northwest Florida
market. As of June 30, 2009, of our total nonperforming credits, only 23 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 following table shows our nonperforming assets for the dates shown:
Nonperforming Assets
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(Dollars in thousands) |
|
Nonaccrual |
|
$ |
105,356 |
|
|
$ |
54,712 |
|
Accruing loans 90 days or more delinquent |
|
|
12,373 |
|
|
|
8,033 |
|
|
|
|
|
|
|
|
Total nonperforming loans |
|
|
117,729 |
|
|
|
62,745 |
|
Other real estate owned assets |
|
|
35,206 |
|
|
|
19,971 |
|
Repossessed assets |
|
|
454 |
|
|
|
332 |
|
|
|
|
|
|
|
|
Total nonperforming assets |
|
$ |
153,389 |
|
|
$ |
83,048 |
|
|
|
|
|
|
|
|
Restructured and performing under restructured terms |
|
$ |
19,143 |
|
|
$ |
2,643 |
|
|
|
|
|
|
|
|
Nonperforming loans as a percentage of loans |
|
|
4.91 |
% |
|
|
2.72 |
% |
|
|
|
|
|
|
|
Nonperforming assets as a percentage of loans plus nonperforming assets |
|
|
6.30 |
% |
|
|
3.56 |
% |
|
|
|
|
|
|
|
Nonperforming assets as a percentage of total assets |
|
|
4.77 |
% |
|
|
2.72 |
% |
|
|
|
|
|
|
|
The following is a summary of nonperforming loans by category for the dates shown:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(Dollars in thousands) |
|
Commercial and industrial |
|
$ |
1,463 |
|
|
$ |
166 |
|
Real estate construction and land development |
|
|
57,964 |
|
|
|
20,976 |
|
Real estate mortgages |
|
|
|
|
|
|
|
|
Single-family |
|
|
37,268 |
|
|
|
22,730 |
|
Commercial |
|
|
16,362 |
|
|
|
14,686 |
|
Other |
|
|
3,386 |
|
|
|
2,981 |
|
Consumer |
|
|
662 |
|
|
|
723 |
|
Other |
|
|
624 |
|
|
|
483 |
|
|
|
|
|
|
|
|
Total nonperforming loans |
|
$ |
117,729 |
|
|
$ |
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.
The following is a summary of other real estate owned by category as of the
dates shown below (In thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
Acreage |
|
$ |
2,154 |
|
|
$ |
1,222 |
|
Commercial building |
|
|
3,519 |
|
|
|
656 |
|
Residential condominiums |
|
|
3,659 |
|
|
|
1,314 |
|
Residential single-family homes |
|
|
10,299 |
|
|
|
9,394 |
|
Residential lots |
|
|
15,089 |
|
|
|
7,277 |
|
Other |
|
|
486 |
|
|
|
108 |
|
|
|
|
|
|
|
|
Other real estate owned |
|
$ |
35,206 |
|
|
$ |
19,971 |
|
|
|
|
|
|
|
|
52
Impaired Loans. At June 30, 2009, our recorded investment in impaired loans under SFAS 114 totaled
$117 million, an increase of $64.1 million from $52.9 million at December 31, 2008. Approximately
$67.5 million is located in the Alabama Region and $49.5 million is located in the Florida Region.
Approximately $10.6 million of the allowance for loan losses is specifically allocated to these
loans, providing 9.05% coverage. Additionally, $115.8 million, or 98.9%, of the $117 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 June 30, 2009 and December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009 |
|
|
December 31, 2008 |
|
|
|
Outstanding |
|
|
Specific |
|
|
Outstanding |
|
|
Specific |
|
|
|
Balance |
|
|
Allowance |
|
|
Balance |
|
|
Allowance |
|
|
|
(Dollars in thousands) |
|
Commercial and industrial |
|
$ |
1,243 |
|
|
$ |
220 |
|
|
$ |
515 |
|
|
$ |
42 |
|
Real estate construction and land development |
|
|
52,719 |
|
|
|
5,182 |
|
|
|
18,155 |
|
|
|
1,570 |
|
Real estate mortgages |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single-family |
|
|
37,190 |
|
|
|
4,565 |
|
|
|
18,063 |
|
|
|
2,251 |
|
Commercial |
|
|
23,342 |
|
|
|
487 |
|
|
|
15,615 |
|
|
|
1,173 |
|
Other |
|
|
2,523 |
|
|
|
134 |
|
|
|
532 |
|
|
|
70 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
117,017 |
|
|
$ |
10,588 |
|
|
$ |
52,880 |
|
|
$ |
5,106 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Potential Problem Loans. In addition to nonperforming loans, management has identified $36.5
million in potential problem loans as of June 30, 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. Three categories accounted for
approximately 98% of total potential problem loans. Real estate construction loans account for 74%
of the total and single family residential loans and commercial real estate loans accounted for 20%
and 5%, respectively. Geographically, 79% of the loans were located in Florida, with the remainder
located in Alabama. In each case, management is actively working a plan of action to ensure that
any loss exposure is mitigated and will continue to monitor 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.
Deposits. Noninterest-bearing deposits totaled $246.7 million at June 30, 2009, an increase of
15.9%, or $34.0 million, from $212.7 million at December 31, 2008. Noninterest-bearing deposits
were 9.5% of total deposits at June 30, 2009 compared to 9.1% at December 31, 2008.
Interest-bearing deposits totaled $2.358 billion at June 30, 2009, an increase of 10.7%, or $227
million, from $2.131 billion at December 31, 2008. Interest-bearing deposits averaged $2.256
billion for the first six months of 2009 compared to $1.983 billion for the first six months of
2008. The average rate paid on all interest-bearing deposits during the first six months of 2009
was 2.59%, compared to 3.75% for the first six months of 2008.
53
The following table sets forth the composition of our total deposit accounts at the dates
indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
Percent |
|
|
|
2009 |
|
|
2008 |
|
|
Change |
|
|
|
(Dollars in thousands) |
|
Noninterest-bearing demand |
|
$ |
246,724 |
|
|
$ |
212,732 |
|
|
|
15.9 |
% |
Alabama segment |
|
|
126,110 |
|
|
|
98,133 |
|
|
|
28.5 |
|
Florida segment |
|
|
79,792 |
|
|
|
72,250 |
|
|
|
10.4 |
|
Other |
|
|
40,822 |
|
|
|
42,349 |
|
|
|
(3.6 |
) |
Interest-bearing demand |
|
|
692,133 |
|
|
|
632,430 |
|
|
|
9.4 |
|
Alabama segment |
|
|
353,294 |
|
|
|
327,387 |
|
|
|
7.9 |
|
Florida segment |
|
|
212,306 |
|
|
|
185,239 |
|
|
|
14.6 |
|
Other |
|
|
126,533 |
|
|
|
119,804 |
|
|
|
5.6 |
|
Savings |
|
|
247,522 |
|
|
|
185,522 |
|
|
|
33.4 |
|
Alabama segment |
|
|
132,176 |
|
|
|
106,946 |
|
|
|
23.6 |
|
Florida segment |
|
|
113,564 |
|
|
|
76,449 |
|
|
|
48.5 |
|
Other |
|
|
1,782 |
|
|
|
2,127 |
|
|
|
(16.2 |
) |
Time deposits |
|
|
1,418,179 |
|
|
|
1,312,304 |
|
|
|
8.1 |
|
Alabama segment |
|
|
743,245 |
|
|
|
608,056 |
|
|
|
22.2 |
|
Florida segment |
|
|
545,370 |
|
|
|
490,266 |
|
|
|
11.2 |
|
Other |
|
|
129,564 |
|
|
|
213,982 |
|
|
|
(39.5 |
) |
|
|
|
|
|
|
|
|
|
|
Total deposits |
|
$ |
2,604,558 |
|
|
$ |
2,342,988 |
|
|
|
11.2 |
% |
|
|
|
|
|
|
|
|
|
|
Alabama segment |
|
$ |
1,354,825 |
|
|
$ |
1,140,522 |
|
|
|
18.8 |
% |
|
|
|
|
|
|
|
|
|
|
Florida segment |
|
$ |
951,032 |
|
|
$ |
824,204 |
|
|
|
15.4 |
% |
|
|
|
|
|
|
|
|
|
|
Other |
|
$ |
298,701 |
|
|
$ |
378,262 |
|
|
|
(21.0 |
)% |
|
|
|
|
|
|
|
|
|
|
Borrowings. Advances from the Federal Home Loan Bank (FHLB) totaled $228 million at June 30,
2009, a decrease of 36.8%, or $133 million, from $361 million at December 31, 2008. Borrowings from
the FHLB have declined as the increase in customer deposits have outpaced loan growth since
December 31, 2008. FHLB advances had a weighted average interest rate of approximately 3.60% at
June 30, 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 $240.7 million at June 30, 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. On July 15, 2009, we began closing on a private placement of or common
stock, $0.001 par value per share, pursuant to which we anticipate issuing approximately 1.7
million shares for an aggregate price of approximately $3.7 million.
54
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 three
and six months ended June 30, 2009 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-Tax |
|
|
|
|
|
|
Net of |
|
|
|
Amount |
|
|
Income Tax |
|
|
Income Tax |
|
|
|
(In thousands) |
|
Three months ended June 30, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on available for sale securities |
|
$ |
(3,660 |
) |
|
$ |
1,354 |
|
|
$ |
(2,306 |
) |
Less reclassification adjustment for OTTI realized in net loss |
|
|
5,781 |
|
|
|
(2,139 |
) |
|
|
3,642 |
|
Unrealized gain on derivatives |
|
|
354 |
|
|
|
(131 |
) |
|
|
223 |
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gain |
|
$ |
2,475 |
|
|
$ |
(916 |
) |
|
$ |
1,559 |
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on available for sale securities |
|
$ |
(5,449 |
) |
|
$ |
2,018 |
|
|
$ |
(3,431 |
) |
Less reclassification adjustment for gains realized in net income |
|
|
(1,068 |
) |
|
|
395 |
|
|
|
(673 |
) |
|
|
|
|
|
|
|
|
|
|
Net unrealized loss |
|
$ |
(6,517 |
) |
|
$ |
2,413 |
|
|
$ |
(4,104 |
) |
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on available for sale securities |
|
$ |
(12,054 |
) |
|
$ |
4,460 |
|
|
$ |
(7,594 |
) |
Less reclassification adjustment for OTTI realized in net loss |
|
|
11,626 |
|
|
|
(4,302 |
) |
|
|
7,324 |
|
Unrealized gain on derivatives |
|
|
325 |
|
|
|
(120 |
) |
|
|
205 |
|
|
|
|
|
|
|
|
|
|
|
Net unrealized loss |
|
$ |
(103 |
) |
|
$ |
38 |
|
|
$ |
(65 |
) |
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on available for sale securities |
|
$ |
(3,719 |
) |
|
$ |
1,333 |
|
|
$ |
(2,386 |
) |
Less reclassification adjustment for gains realized in net income |
|
|
(1,470 |
) |
|
|
544 |
|
|
|
(926 |
) |
|
|
|
|
|
|
|
|
|
|
Net unrealized loss |
|
$ |
(5,189 |
) |
|
$ |
1,877 |
|
|
$ |
(3,312 |
) |
|
|
|
|
|
|
|
|
|
|
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 the Banks regulatory and minimum regulatory capital
requirements at June 30, 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 June 30, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 Core Capital (to Adjusted Total Assets) |
|
$ |
263,398 |
|
|
|
8.31 |
% |
|
$ |
126,832 |
|
|
|
4.00 |
% |
|
$ |
158,540 |
|
|
|
5.00 |
% |
Total Capital (to Risk Weighted Assets) |
|
|
296,058 |
|
|
|
11.04 |
|
|
|
214,450 |
|
|
|
8.00 |
|
|
|
268,063 |
|
|
|
10.00 |
|
Tier 1 Capital (to Risk Weighted Assets) |
|
|
263,398 |
|
|
|
9.83 |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
160,838 |
|
|
|
6.00 |
|
Tangible Capital (to Adjusted Total Assets) |
|
|
263,398 |
|
|
|
8.31 |
|
|
|
47,562 |
|
|
|
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
June 30, 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 June 30, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 Core Capital (to Adjusted Total Assets) |
|
$ |
251,795 |
|
|
|
7.96 |
% |
|
$ |
126,510 |
|
|
|
4.00 |
% |
|
$ |
158,137 |
|
|
|
5.00 |
% |
Total Capital (to Risk Weighted Assets) |
|
|
284,455 |
|
|
|
10.64 |
|
|
|
213,840 |
|
|
|
8.00 |
|
|
|
267,300 |
|
|
|
10.00 |
|
Tier 1 Capital (to Risk Weighted Assets) |
|
|
251,795 |
|
|
|
9.42 |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
160,380 |
|
|
|
6.00 |
|
Tangible Capital (to Adjusted Total Assets) |
|
|
251,795 |
|
|
|
7.96 |
|
|
|
47,441 |
|
|
|
1.50 |
|
|
|
N/A |
|
|
|
N/A |
|
55
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 $71.0
million in funds in the first six months of 2009, primarily due to an increase in mortgage loans
held for sale. This compares to net funds provided by operating activities of $11.4 million in the
first six months of 2008, primarily due to a decrease in mortgage loans held for sale.
Investing activities resulted in a $79.8 million net use of funds in the first six months of 2009,
primarily due to an increase in loans offset by principal paydowns in the investment securities
portfolio. Investing activities were a $162 million net use of funds in the first six months of
2008, primarily due to an increase in loans and the purchase of investment securities offset by the
maturity and sales of investment securities.
Financing activities provided $164 million in funds during the first six months 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 six months 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. We continue to make significant progress in reducing reliance on non-customer funding
sources for the Bank. This has been one of our key strategic goals, and this quarters results are
very significant. We reduced reliance on borrowings and brokered deposits to levels where they are
now approximately 8% and 4%, respectively, of the Banks funding, as we continue to bring core
customer-based deposits in to transform the Bank into a leading relationship-based community bank
in its markets. Our branching program contributed significantly to this progress. To date, new
branches have added approximately $400 million in core deposits. We expect these branches to make
continued contributions to our growth in the future, as most of them have yet to reach maturity in
their markets.
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
56
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.
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 June
30, 2009 to December 31, 2008 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
December 31, |
12-Month Gap |
|
2009 |
|
2008 |
Interest-bearing liabilities in excess of interest-earning assets based on repricing date |
|
$ |
(262,000 |
) |
|
$ |
(297,000 |
) |
Cumulative 12-month Gap Ratio |
|
|
.87 |
|
|
|
.86 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (Decrease) in Net Interest Income |
Change (in Basis Points) in Interest |
|
June 30, 2009 |
|
December 31, 2008 |
Rates (12-Month Projection) |
|
Amount |
|
Percent |
|
Amount |
|
Percent |
+200 BP (1)
|
|
$ |
3,126 |
|
|
|
3.1 |
% |
|
$ |
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 |
57
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 our 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
June 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
Change (in Basis Points) in |
|
|
|
|
|
Change |
Interest Rates |
|
EVE |
|
Amount |
|
Percent |
|
|
(Dollars in thousands) |
+ 200 BP |
|
$ |
352,061 |
|
|
$ |
18,828 |
|
|
|
5.7 |
% |
+ 100 BP |
|
|
344,906 |
|
|
|
11,673 |
|
|
|
3.5 |
|
0 BP |
|
|
333,233 |
|
|
|
|
|
|
|
|
|
- 100 BP |
|
|
331,167 |
|
|
|
(2,066 |
) |
|
|
(0.6 |
) |
Both the net interest income and EVE simulations include balances, asset prepayment speeds, and
interest rate relationships among balances that management believes to be reasonable for the
various interest rate environments. Differences in actual occurrences from these assumptions, as
well as non-parallel changes in the yield curve, may change our market risk exposure.
ITEM 4. CONTROLS AND PROCEDURES
CEO AND CFO CERTIFICATION
Appearing as exhibits to this report are Certifications of our Chief Executive Officer (CEO) and
our Chief Financial Officer (CFO). The Certifications are required to be made by Rule 13a-14
under the Securities Exchange Act of 1934, as amended. This Item contains the information about the
evaluation that is referred to in the Certifications, and the information set forth below in this
Item 4 should be read in conjunction with the Certifications for a more complete understanding of
the Certifications.
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
We maintain disclosure controls and procedures that are designed to ensure that information
required to be disclosed in our Exchange Act reports is recorded, processed, summarized and
reported within the time periods specified in the SECs rules and forms, and that such information
is accumulated and communicated to our management, including our CEO and CFO, as appropriate, to
allow timely decisions regarding required disclosure. In designing and evaluating the disclosure
controls and procedures, management recognized that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of achieving the desired control
objectives.
We conducted an evaluation (the Evaluation) of the effectiveness of the design and operation of
our disclosure controls and procedures under the supervision and with the participation of our
management, including our CEO and CFO, as of June 30, 2009. Based upon the Evaluation, our CEO and
CFO have concluded that, as of June 30, 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
58
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. The item below is included as an addition to these risk factors. 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.
Higher FDIC deposit insurance premiums and assessments could adversely affect our financial
condition.
FDIC insurance premiums have increased substantially in 2009 already, and we expect to pay
significantly higher FDIC premiums in the future. Market developments have significantly depleted
the insurance fund of the FDIC and reduced the ratio of reserves to insured deposits. The FDIC
adopted a revised risk-based deposit insurance assessment schedule on February 27, 2009, which
raised deposit insurance premiums. On May 22, 2009, the FDIC also implemented a five-basis-point
special assessment of each insured depository institutions assets minus Tier 1 capital as of June
30, 2009, but no more than 10 basis points times the institutions assessment base for the second
quarter of 2009, to be collected on September 30, 2009. Additional special assessments may be
imposed by the FDIC for future periods. We participate in the FDICs Temporary Liquidity Guarantee
Program, or TLGP, for noninterest-bearing transaction deposit accounts. Banks that participate in
the TLGPs noninterest-bearing transaction account guarantee will pay the FDIC an annual assessment
of 10 basis points on the amounts in such accounts above the amounts covered by FDIC deposit
insurance. To the extent that these TLGP assessments are insufficient to cover any loss or expenses
arising from the TLGP, the FDIC is authorized to impose an emergency special assessment on all
FDIC-insured depository institutions. The FDIC has authority to impose charges for the TLGP upon
depository institution holding companies, as well. These changes, along with the full utilization
of our FDIC insurance assessment credit in early 2009, will cause the premiums and TLGP assessments
charged by the FDIC to increase. These actions could significantly increase our noninterest expense
in 2009 and for the foreseeable future.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
There were no unregistered sales of equity securities by Superior Bancorp during the second quarter
of 2009.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
59
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On April 22, 2009, we held our annual meeting of stockholders, at which the following actions were
taken:
1. |
|
The stockholders voted as follows to elect the following persons as directors, each to hold
office for a one-year term: |
|
|
|
|
|
|
|
|
|
NAME |
|
FOR |
|
WITHHELD |
C. Stanley Bailey |
|
|
7,934,857 |
|
|
|
281,954 |
|
Roger D. Barker |
|
|
8,011,066 |
|
|
|
205,744 |
|
Rick D. Gardner |
|
|
7,964,291 |
|
|
|
252,519 |
|
Thomas E. Jernigan, Jr. |
|
|
7,946,937 |
|
|
|
269,873 |
|
James Mailon Kent, Jr. |
|
|
7,832,557 |
|
|
|
384,253 |
|
Mark A. Lee |
|
|
7,985,140 |
|
|
|
231,670 |
|
Peter L. Lowe |
|
|
7,895,532 |
|
|
|
321,278 |
|
John C. Metz |
|
|
7,984,830 |
|
|
|
231,980 |
|
D. Dewey Mitchell |
|
|
8,002,362 |
|
|
|
214,448 |
|
Robert R. Parrish, Jr. |
|
|
7,874,277 |
|
|
|
342,533 |
|
Charles W. Roberts, III |
|
|
7,902,195 |
|
|
|
314,615 |
|
C. Marvin Scott |
|
|
7,822,226 |
|
|
|
394,584 |
|
James C. White, Sr. |
|
|
7,991,011 |
|
|
|
225,799 |
|
2. |
|
The stockholders voted to approve an amendment to our Restated Certificate of Incorporation
to increase the number of authorized shares of our common stock to 20 million shares as
follows: |
|
|
|
|
|
|
|
FOR |
|
AGAINST |
|
ABSTAIN |
|
BROKER NON-VOTES |
7,530,012
|
|
645,765
|
|
41,033
|
|
0 |
3. |
|
The stockholders voted to ratify the appointment of Grant Thornton LLP as our registered
independent public accounting firm: |
|
|
|
|
|
|
|
FOR |
|
AGAINST |
|
ABSTAIN |
|
BROKER NON-VOTES |
7,992,041
|
|
74,243
|
|
150,525
|
|
0 |
4. |
|
The stockholders voted to approve the overall compensation of our executives named in the
proxy statement for the 2009 annual meeting of stockholders : |
|
|
|
|
|
|
|
FOR |
|
AGAINST |
|
ABSTAIN |
|
BROKER NON-VOTES |
7,560,258
|
|
598,393
|
|
58,159
|
|
0 |
ITEM 5. OTHER INFORMATION
None.
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. |
60
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) |
|
|
61