UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC

FORM 10-Q

(Mark One)

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED March 31, 2009

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM                      TO                     

Superior Bancorp

Delaware		63-1201350
(State or Other Jurisdiction of Incorporation)		(IRS Employer Identification No.)

17 North 20th Street, Birmingham, Alabama 35203
(Address of Principal Executive Offices)

(205) 327-1400

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes þ       No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes o       No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o		Accelerated filer þ		Non-accelerated filer o		Smaller reporting company o
				(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o       No þ

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class		Outstanding as of March 31, 2009
Common stock, $.001 par value		10,099,893

 

 

TABLE OF CONTENTS

PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS			3
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			19
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK			41
ITEM 4. CONTROLS AND PROCEDURES			42
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS			42
ITEM 1A. RISK FACTORS			42
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS			42
ITEM 3. DEFAULTS UPON SENIOR SECURITIES			42
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS			42
ITEM 5. OTHER INFORMATION			43
ITEM 6. EXHIBITS			43
SIGNATURES			44
EX-31.1
EX-31.2
EX-32.1
EX-32.2

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)

		March 31,				December 31,
		2009				2008
		(UNAUDITED)
ASSETS
Cash and due from banks		$	77,471			$	74,237
Interest-bearing deposits in other banks			39,336				10,042
Federal funds sold			2,455				5,169
Total cash and cash equivalents			119,262				89,448
Investment securities available for sale			338,590				347,142
Tax lien certificates			18,804				23,786
Mortgage loans held for sale			40,628				22,040
Loans, net of unearned income			2,359,299				2,314,921
Allowance for loan losses			(29,871	)			(28,850	)
Net loans			2,329,428				2,286,071
Premises and equipment, net			105,521				104,085
Accrued interest receivable			15,108				14,794
Stock in FHLB			19,337				21,410
Cash surrender value of life insurance			48,718				48,291
Core deposit and other intangible assets			19,963				21,052
Other real estate			25,609				19,971
Other assets			53,470				54,611
Total assets		$	3,134,438			$	3,052,701
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:
Noninterest-bearing		$	253,447			$	212,732
Interest-bearing			2,254,218				2,130,256
TOTAL DEPOSITS			2,507,665				2,342,988
Advances from FHLB			243,322				361,324
Federal funds borrowed and security repurchase agreements			1,737				3,563
Notes payable			45,575				7,000
Subordinated debentures, net			60,829				60,884
Accrued expenses and other liabilities			24,240				25,703
Total liabilities			2,883,368				2,801,462
Commitments and contingencies
Stockholders’ equity:
Preferred stock, par value $.001 per share; shares authorized 5,000,000:
Series A, fixed rate cumulative perpetual preferred stock, 69,000 shares issued and outstanding at March 31, 2009 and December 31, 2008, respectively			—				—
Common stock, par value $.001 per share; shares authorized 15,000,000; shares issued 10,427,981 and 10,403,087 respectively; outstanding 10,099,893 and 10,074,999 respectively			10				10
Surplus — preferred			63,259				62,978
— warrants			8,646				8,646
— common			329,601				329,461
Accumulated deficit			(131,733	)			(129,904	)
Accumulated other comprehensive loss			(6,803	)			(7,925	)
Treasury stock, at cost — 322,045 and 321,485 shares, respectively			(11,341	)			(11,373	)
Unearned ESOP stock			(398	)			(443	)
Unearned restricted stock			(171	)			(211	)
Total stockholders’ equity			251,070				251,239
Total liabilities and stockholders’ equity		$	3,134,438			$	3,052,701

See Notes to Condensed Consolidated Financial Statements.

SUPERIOR BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(Amounts in thousands, except per share data)

		Three Months Ended
		March 31,
		2009				2008
INTEREST INCOME
Interest and fees on loans		$	34,952			$	37,346
Interest on taxable securities			4,009				4,052
Interest on tax-exempt securities			428				430
Interest on federal funds sold			5				80
Interest and dividends on other investments			362				644
Total interest income			39,756				42,552
INTEREST EXPENSE
Interest on deposits			14,893				20,253
Interest on other borrowed funds			2,342				2,792
Interest on subordinated debentures			1,193				1,015
Total interest expense			18,428				24,060
NET INTEREST INCOME			21,328				18,492
Provision for loan losses			3,452				1,872
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES			17,876				16,620
NONINTEREST INCOME
Service charges and fees on deposits			2,387				2,103
Mortgage banking income			1,691				1,266
Total other-than-temporary impairment losses (“OTTI”) (see Note 3)			(1,777	)		NA
Portion of OTTI recognized in other comprehensive income			1,453			NA
Investment securities (loss) gain			(324	)			402
Change in fair value of derivatives			(199	)			1,050
Increase in cash surrender value of life insurance			515				552
Other income			1,216				1,228
TOTAL NONINTEREST INCOME			5,286				6,601
NONINTEREST EXPENSES
Salaries and employee benefits			12,309				12,141
Occupancy, furniture and equipment expense			4,416				4,060
Amortization of core deposit intangibles			985				896
Merger-related costs			—				108
Other expenses			6,353				5,059
TOTAL NONINTEREST EXPENSES			24,063				22,264
(Loss) income before income taxes			(901	)			957
INCOME TAX (BENEFIT) EXPENSE			(215	)			262
NET (LOSS) INCOME			(686	)			695
Preferred stock dividends and amortization			1,143				—
NET (LOSS) INCOME APPLICABLE TO COMMON STOCKHOLDERS		$	(1,829	)		$	695
BASIC NET (LOSS) INCOME PER COMMON SHARE		$	(0.18	)		$	0.07
DILUTED NET (LOSS) INCOME PER COMMON SHARE		$	(0.18	)		$	0.07
Weighted average common shares outstanding			10,053				10,011
Weighted average common shares outstanding, assuming dilution			10,053				10,045

See Notes to Condensed Consolidated Financial Statements.

SUPERIOR BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED)
(Dollars in thousands)

		Three Months Ended
		March 31,
		2009				2008
NET CASH USED BY OPERATING ACTIVITIES		$	(14,082	)		$	(5,316	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of securities available for sale			—				17,368
Proceeds from maturities of investment securities available for sale			15,335				71,607
Purchases of investment securities available for sale			(5,290	)			(54,930	)
Redemption of tax lien certificates			7,401				4,323
Purchase of tax lien certificates			(2.419	)			(793	)
Net increase in loans			(54,732	)			(55,890	)
Purchases of premises and equipment			(3,365	)			(4,245	)
Proceeds from sale of premises and equipment			77				4,249
Proceeds from sale of repossessed assets			1,993				2,898
Decrease (increase) in stock in FHLB			2,074				(4,281	)
Net cash used by investing activities			(38,926	)			(19,694	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits			164,809				(34,641	)
Net (decrease) increase in FHLB advances and other borrowed funds			(119,890	)			79,519
Proceeds from notes payable			38,575				—
Preferred cash dividend paid			(672	)			—
Net cash provided by financing activities			82,822				44,878
Net increase in cash and cash equivalents			29,814				19,868
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD			89,448				63,351
CASH AND CASH EQUIVALENTS AT END OF PERIOD		$	119,262			$	83,219

See Notes to Condensed Consolidated Financial Statements.

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 Bancorp’s (the “Corporation’s”) Annual Report on Form 10-K for the year ended December 31, 2008. It is management’s opinion that all adjustments, consisting of only normal and recurring items necessary for a fair presentation, have been included in these condensed consolidated financial statements. Operating results for the three-month period ended March 31, 2009, are not necessarily indicative of the results that may be expected for the year ending December 31, 2009.

The Condensed Consolidated Statement of Financial Condition at December 31, 2008, presented herein, has been derived from the financial statements audited by Grant Thornton LLP, independent registered public accountants, as indicated in their report, dated March 16, 2009, included in the Corporation’s 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.

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 entity’s income statement. The changes brought about by the FSPs provide greater clarity and reflect a more accurate representation of the credit and noncredit components of an OTTI event. The three FSPs are as follows:

	•		FSP “SFAS 157-4 Determining Fair Value When the Volume and Level of Activity for the Assets or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly” (“FSP 157-4”) provides guidelines for making fair value measurements more consistent with the principles presented in SFAS 157, “Fair Value Measurements” (“SFAS 157”). It emphasizes that even if there has been a significant decrease in the volume and level of activity for the asset or liability and regardless of the valuation technique used, the objective of a fair value measurement remains the same. Fair value is the price that would be received in a sale of an asset or paid to transfer a liability in an orderly transaction (that is, not a forced liquidation or distressed sale), between market participants at the measurement date under current market conditions.
	•		FSP “SFAS 115-2 and SFAS 124-2, Recognition and Presentation of Other-than-temporary impairments” (“FSP 115-2 and 124-2”) provides additional guidance designed to create greater clarity and consistency in accounting for and presenting impairment losses on securities. It amends OTTI impairment guidance for debt securities to make the guidance more operational and to improve the presentation and disclosure of OTTI on debt and equity securities in the financial statements. It does not amend existing recognition and measurement guidance related to OTTI of equity securities.
	•		FSP “SFAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments” (“FSP 107-1 and APB 28-1”) enhances consistency in financial reporting by increasing the frequency of fair value disclosures.

These staff positions are effective for financial statements issued for periods ending after June 15, 2009, with early application possible for the first quarter of 2009. The Corporation has elected to adopt FSP 157-4 and FSP 115-2 and 124-2 as of March 31, 2009, while deferring the election of FSP 107-1 and APB 28-1 until June 30, 2009. The adoption of FSP 107-1 and APB 28-1 is not expected to have a significant impact on the Corporation’s financial condition, results of operations or cash flow. The effect of the early adoption of FSP 115-2 and 124-2 has resulted in the portion of OTTI determined to be credit related ($324,000, or $204,000 after-tax) being recognized in current earnings, while the portion of OTTI related to other factors ($1,453,000, or $915,000 after-tax) was recognized in other comprehensive loss (see Notes 3 and 8).

Statement of Financial Accounting Standards No. 161

In March 2008, the FASB issued SFAS No. 161, Disclosures About Derivative Instruments and Hedging Activities, an Amendment of FASB Statement No. 133 (“SFAS 161”). SFAS 161 amends SFAS 133, Accounting for Derivative Instruments and Hedging Activities (“SFAS 133”) to amend and expand the disclosure requirements of SFAS 133 to provide greater transparency about (i) how and why an entity uses derivative

instruments, (ii) how derivative instruments and related hedge items are accounted for under SFAS 133 and its related interpretations, and (iii) how derivative instruments and related hedged items affect an entity’s 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 Corporation’s financial position, results of operations or cash flows (see Note 5).

Note 3 — Investment Securities

The amounts at which investment securities are carried and their approximate fair values at March 31, 2009 are as follows:

						Gross				Gross
		Amortized				Unrealized				Unrealized				Estimated
		Cost				Gains				Losses				Fair Value
		(In Thousands)
Investment securities available for sale:
U.S. agency securities		$	8,945			$	112			$	15			$	9,042
State, county and municipal securities			41,360				320				1,407				40,273
Mortgage-backed securities			265,219				7,202				5,533				266,888
Corporate debt and trust preferred securities			29,985				—				7,777				22,208
Other securities			563				—				384				179
Total		$	346,072			$	7,634			$	15,116			$	338,590

Investment securities with an amortized cost of $270,627,000 at March 31, 2009, were pledged to secure United States government deposits and other public funds and for other purposes as required or permitted by law.

The amortized cost and estimated fair values of investment securities at March 31, 2009, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

		Securities Available
		For Sale
		Amortized				Estimated
		Cost				Fair Value
		(In Thousands)
Due in one year or less		$	250			$	252
Due after one year through five years			9,936				9,795
Due after five years through ten years			8,364				8,595
Due after ten years			62,303				53,060
Mortgage-backed securities			265,219				266,888
		$	346,072			$	338,590

Gross realized gains on sales of investment securities available for sale for the three month periods ended March 31, 2009 and 2008 were $-0- and $402,000, respectively, and gross realized losses (includes OTTI) discussed below) for the same periods were $324,000 and $-0-, respectively.

Note 3 — Investment Securities — Continued

Changes in current market conditions, such as interest rates and the economic uncertainties in the mortgage, housing and banking industries, have severely constricted the structured securities market. The secondary market for various types of securities has been limited and has negatively impacted securities values. Quarterly, the Corporation reviews each investment security segment noted in the table below to determine the nature of the decline in the value of investment securities and evaluates if any of the underlying securities has experienced OTTI. The following table presents the age of gross unrealized losses and fair value by investment category.

		March 31, 2009
		Less Than 12 Months								More Than 12 Months								Total
						Unrealized								Unrealized								Unrealized
		Fair Value				Losses				Fair Value				Losses				Fair Value				Losses
		(In thousands)
U.S. agency securities		$	5,274			$	15			$	—			$	—			$	5,274			$	15
State, county and municipal securities			19,474				1,044				4,347				363				23,821				1,407
Mortgage-backed securities			2,009				839				18,156				4,694				20,165				5,533
Corporate debt and other securities			—				—				22,387				8,161				22,387				8,161
Total		$	26,757			$	1,898			$	44,890			$	13,218			$	71,647			$	15,116

		December 31, 2008
		Less Than 12 Months								More Than 12 Months								Total
						Unrealized								Unrealized								Unrealized
		Fair Value				Losses				Fair Value				Losses				Fair Value				Losses
		(In Thousands)
U.S. agency securities		$	—			$	—			$	248			$	2			$	248			$	2
State, county and municipal securities			17,275				831				3,662				371				20,937				1,202
Mortgage-backed securities			38,727				4,090				7,373				159				46,100				4,249
Corporate debt and other securities			1,061				880				21,493				7,464				22,554				8,344
Total		$	57,063			$	5,801			$	32,776			$	7,996			$	89,839			$	13,797

     The following is a summary of the total count by category of investment securities with gross unrealized losses:

		March 31, 2009
		Total Number of Securities
		Less Than				More Than
		12 Months				12 Months				Total
U.S. agency securities			1				—				1
State, county and municipal securities			51				12				63
Mortgage-backed securities			6				9				15
Corporate debt and other securities			4				11				15
Total			62				32				94

The following table provides further detail of the total investment securities portfolio at March 31, 2009:

										Net Unrealized
		Amortized Cost				Fair Value				Gain (Loss)
		(In thousands)
U.S. agency and agency MBS — AAA rated		$	245,239			$	252,485			$	7,246
State, county and municipal securities			41,360				40,273				(1,087	)
Non-agency mortgage-backed securities — AAA rated			22,781				17,264				(5,517	)
Non-agency mortgage-backed securities — B and CCC rated			6,144				6,181				37
Bank and pooled trust preferred securities			24,057				16,498				(7,559	)
Corporate securities			5,928				5,710				(218	)
Fannie Mae and Freddie Mac preferred stock			563				179				(384	)
Total		$	346,072			$	338,590			$	(7,482	)

The unrealized losses associated with the U.S. agency and agency mortgage-backed securities (“MBS”) securities are caused by changes in interest rates. Unrealized losses that are related to the prevailing interest rate environment will decline over time and recover as these securities approach maturity.

The unrealized losses in the municipal securities portfolio are due to widening credit spreads caused by downgraded ratings of the bond insurers associated with these securities. In addition, municipal securities were adversely impacted by changes in interest rates. This portfolio segment is not experiencing any credit problems at March 31, 2009. We believe that all contractual cash flows will be received on this portfolio.

Note 3 — Investment Securities — Continued

The non-agency MBS securities portfolio has experienced various levels of price declines over the previous 12-months. The AAA rated non-agency MBS securities have experienced price declines due to the current market environment and the currently limited secondary market for such securities. No losses are expected in this portfolio at March 31, 2009. During the third and fourth quarters of 2008, we recognized a $1,894,000, ($1,193,000, net of tax) non-cash OTTI charge on three non-agency MBS securities which experienced significant rating downgrades. With the exception of these three securities, we believe all contractual cash flows will be received on the non-agency MBS securities portfolio.

The bank and insurance pooled trust preferred securities prices continue to be affected by reduced demand for these securities and from the increased supply due to forced liquidations from some market participants. Additionally, there has been little secondary market trading for these types of securities. At March 31, 2009 management believes that the credit quality of these securities remains adequate to absorb further economic declines, with the exception of one bank issued trust preferred security (the “Security”) discussed below for which we recognized a $324,000 credit-related OTTI during the quarter. As a result, management currently believes all contractual cash flows on all other trust preferred securities will be received on this portfolio.

Subsequent to March 31, 2009, the Corporation received notice that under the terms of the Security interest payments were being deferred for a maximum term of 20 quarters due to various regulatory restrictions on the issuing bank. As of March 31, 2009, the Security had an amortized cost of $5,000,000 and an estimated fair value of $3,222,981 which resulted in a $1,777,019 total impairment. Of the total impairment $324,000 has been recognized in current earnings and $1,453,000 was recognized as a component of other comprehensive income. The Corporation estimated the fair value (which is considered a level 3 valuation) of the Security using a discounted cash flow method based on a rate equal to 3-month LIBOR plus 600 basis points. Of the total impairment, $324,000 is considered to be credit loss based on the timing and amount of the interest payments. To determine the amount of credit loss we applied the provisions of paragraph 23 of the FSP 115-2 and 124-2 (See Note 2) which provides that impairment may be measured on the basis of the present value of expected future cash flows and paragraph 14 of SFAS 114 which provides guidance on this calculation. Therefore, the Corporation discounted the expected cash flows at the effective rate implicit in the Security at the date of the acquisition. The credit loss was recognized in the first quarter of 2009 earnings and the amortized cost of the Security was reduced to create a new cost basis. The difference between the old and new basis shall be accreted into income. The Corporation will continue to estimate the present value of cash flows expected to be collected over the life of the Security.

The following table provides a rollforward of the amount of credit related losses recognized in earnings for which a portion of OTTI has been recognized in other comprehensive income through March 31, 2009 (in thousands):

Beginning balance at December 31, 2008		$	—
Current period credit loss recognized in earnings			324
Reductions for securities sold during the period			—
Reductions for securities where there is an intent to sale or requirement to sale			—
Reductions for increases in cash flows expected to be collected			—
Ended balance at March 31, 2009		$	324

As of March 31, 2009, the Corporation’s management does not intend to sell the Security described above, nor is it more likely than not that the Corporation will be required to sell the Security before the entire amortized cost basis of the Security is recovered since the current financial condition of the Corporation, including liquidity and interest rate risk, will not require such action.

The unrealized losses in the corporate securities portfolio are associated with the widening spreads in the financial sector of the corporate bond market. At March 31, 2009, all of the securities are current as to principal and interest payments, and we currently expect them to remain so in the foreseeable future.

We will continue to evaluate the investment ratings in the securities portfolio, severity in pricing declines, market price quotes along with timing and receipt of amounts contractually due. Based upon these and other factors, the securities portfolio may experience further impairment. At March 31, 2009, management does not intend to sell any investment security in the portfolio, nor is it more likely than not that the Corporation will be required to sell any security before the entire amortized cost basis of the security is recovered.

Note 4 — Notes Payable

The following is a summary of notes payable as of March 31, 2009 (in thousands):

Note payable to bank, borrowed under $10,000,000 line of credit, due September 3, 2009; interest is based on the lender’s base rate, secured by 100% of the outstanding Superior Bank stock		$	7,000
Senior note guaranteed under the TLGP, due March 30, 2012, 2.625% fixed rate due semi-annually			40,000
Less: Discount, FDIC guarantee premium and other issuance costs			(1,425	)
Total notes payable		$	45,575

On March 31, 2009, Superior Bank (the “Bank”), completed an offering of a $40,000,000 aggregate principal amount 2.625% Senior Note due 2012 (the “Note”). The Note is guaranteed by the Federal Deposit Insurance Corporation (“FDIC”) under its Temporary Liquidity Guarantee Program (the “TLGP”) and is backed by the full faith and credit of the United States. The Note is a direct, unsecured general obligation of the Bank and it is not subject to redemption prior to maturity. The Note is solely the obligation of the Bank and is not guaranteed by the Corporation. The Bank received net proceeds, after discount, FDIC guarantee premium and other issuance cost, of approximately $38,575,000, which will be used by the Bank for general corporate purposes. The debt will yield an effective interest rate, including amortization, of 3.89%.

In connection with the TLGP, the Bank entered into a Master Agreement with the FDIC. The Master Agreement contains certain terms and conditions that must be included in the governing documents for any senior debt securities issued by the Bank that are guaranteed pursuant to the TLGP.

Note 5 — Derivative Financial Instruments

The fair value of derivative positions outstanding is included in other assets and other liabilities in the accompanying condensed consolidated statement of financial condition and in the net change in each of these financial statement line items in the accompanying condensed consolidated statements of cash flows.

The Corporation utilizes interest rate swaps, caps and floors to mitigate exposure to interest rate risk and to facilitate the needs of its customers. The Corporation’s objectives for utilizing these derivative instruments are described below:

Interest Rate Swaps

The Corporation has entered interest rate swaps (“CD swaps”) to convert the fixed rate paid on brokered certificates of deposit (“CDs”) to a variable rate based upon three-month LIBOR. As of March 31, 2009 and December 31, 2008 the Corporation had $723,000 and $1,166, 000, respectively in notional amount of CD swaps which had not been designated as hedges. These CD swaps had not been designated as hedges because they represent the portion of the interest rate swaps that are over-hedged due to principal reductions on the brokered CDs.

The Corporation has entered into certain interest rate swaps on commercial loans that are not designated as hedging instruments. These derivative contracts relate to transactions in which the Corporation enters into an interest rate swap with a loan customer while at the same time entering into an offsetting interest rate swap with another financial institution. In connection with each swap transaction, the Corporation agrees to pay interest to the customer on a notional amount at a variable interest rate and receive interest from the customer on a similar notional amount at a fixed interest rate. At the same time, the Corporation agrees to pay another financial institution the same fixed interest rate on the same notional amount and receive the same variable interest rate on the same notional amount. The transaction allows the Corporation’s 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 Corporation’s results of operations.

Note 5 — Derivative Financial Instruments — Continued

Fair Value Hedges

As of December 31, 2008 and 2007, the Corporation had $2,777,000 and $5,334,000, respectively in notional amount of CD swaps designated and qualified as fair value hedges. These CD swaps were designated as hedging instruments to hedge the risk of changes in the fair value of the underlying brokered CD due to changes in interest rates. As of March 31, 2009 and December 31, 2008, the amount of CD swaps designated as hedging instruments had a recorded fair value of $355,000 and $799,000, respectively, and a weighted average life of 2.9 and 6.8 years, respectively. The weighted average fixed rate (receiving rate) was 4.70% and the weighted average variable rate (paying rate) was 1.26% (LIBOR based).

Cash Flow Hedges

The Corporation has entered into interest rate swap agreements designated and qualified as a hedge with notional amounts of $22,000,000 to hedge the variability in cash flows on $22,000,000 of junior subordinated debentures. Under the terms of the interest rate swaps, which mature September 15, 2012, the Corporation receives a floating rate based on 3-month LIBOR plus 1.33% (2.65% as of March 31, 2009) and pays a weighted average fixed rate of 4.42%. As of March 31, 2009 and December 31, 2008, these interest rate swap agreements are recorded as liabilities in the amount of $985,000 and $954,000, respectively.

Interest Rate Lock Commitments

During the ordinary course of business, the Corporation enters into certain commitments with customers in connection with residential mortgage loan applications. Such commitments are considered derivatives under the provisions of SFAS No. 133 and are required to be recorded at fair value. The aggregate amount of these mortgage loan origination commitments was $97,687,000 and $92,721,000 at March 31, 2009 and December 31, 2008, respectively. The fair value of the origination commitments was $159,000 and $(117,000) at March 31, 2009 and December 31, 2008, respectively.

The notional amounts and estimated fair values of interest rate derivative contracts outstanding at March 31, 2009 and December 31, 2008 are presented in the following table. The Corporation obtains dealer quotations to value its interest rate derivative contracts designated as hedges of cash flows, while the fair values of other interest rate derivative contracts are estimated utilizing internal valuation models with observable market data inputs (in thousands).

		March 31, 2009								December 31, 2008
		Notional				Estimated				Notional				Estimated
		Amount				Fair Value				Amount				Fair Value
Interest rate derivatives designated as hedges of fair value:
Interest rate swap on brokered certificates of deposit		$	2,777			$	355			$	5,334			$	799
Interest rate derivatives designated as hedges of cash flows:
Interest rate swaps on subordinated debenture			22,000				(985	)			22,000				(954	)
Non-hedging interest rate derivatives:
Brokered certificates of deposit interest rate swap			723				92				1,166				164
Mortgage loan held for sale interest rate lock commitment			97,687				159				92,721				(117	)
Commercial loan interest rate swap			3,838				447				3,861				462
Commercial loan interest rate swap			3,838				(447	)			3,861				(462	)

Note 5 — Derivative Financial Instruments — Continued

The weighted-average rates paid and received for interest rate swaps outstanding at March 31, 2009 were as follows:

		Weighted-Average
		Interest				Interest
		Rate				Rate
		Paid				Received
Interest rate swaps:
Fair value hedge on brokered certificates of deposit interest rate swap			1.26	%			4.70	%
Cash flow hedge interest rate swaps on subordinated debentures			4.42				2.65
Non-hedging interest rate swap on commercial loan			6.73				6.73

Gains, Losses and Derivative Cash Flows

For fair value hedges, the changes in the fair value of both the derivative hedging instrument and the hedged item are included in noninterest income to the extent that such changes in fair value do not offset represents hedge ineffectiveness. For cash flow hedges, the effective portion of the gain or loss due to changes in the fair value of the derivative hedging instrument is included in other comprehensive income, while the ineffective portion (indicated by the excess of the cumulative change in the fair value of the derivative over that which is necessary to offset the cumulative change in expected future cash flows on the hedge transaction) is included in noninterest income. Net cash flows from the interest rate swap on subordinated debentures designated as a hedging instrument in an effective hedge of cash flows are included in interest expense on subordinated debentures. For non-hedging derivative instruments, gains and losses due to changes in fair value and all cash flows are included in other noninterest income.

Amounts included in the consolidated statements of operations related to interest rate derivatives designated as hedges of fair value were as follows (in thousands):

		Three Months Ended
		March 31,
		2009				2008
Interest rate swap on brokered certificates of deposit:
Amount of gain (loss) included in interest expense on deposits		$	23			$	11
Amount of gain (loss) included in other noninterest income			(430	)			25

Amounts included in the consolidated statements of operations and in other comprehensive income (loss) for the period related to interest rate derivatives designated as hedges of cash flows were as follows (in thousands):

		Three Months Ended
		March 31,
		2009				2008
Interest rate swap on subordinated debenture:
Net gain (loss) included in interest expense on subordinated debt		$	(55	)		$	—
Amount of gain (loss) recognized in other comprehensive income			(29	)			—

No ineffectiveness related to interest rate derivatives designated as hedges of cash flows was recognized in the condensed consolidated statements of operations during the reported periods. The accumulated net after-tax loss related to effective cash flow hedge included in accumulated other comprehensive income totaled $620,000 at March 31, 2009 and $601,000 at December 31, 2008.

Amounts included in the consolidated statements of operations related to non-hedging interest rate swap on commercial loans were not

Note 5 — Derivative Financial Instruments — Continued

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 Corporation’s results of operations.

Gain (loss) included in noninterest income on the condensed consolidated statements of operations related to non-hedging derivative instruments were as follows (in thousands):

		Three Months Ended
		March 31,
		2009				2008
Non-hedging interest rate derivatives:
Brokered certificates of deposit interest rate swap		$	(45	)		$	131
Mortgage loan held for sale interest rate lock commitment			276				216
Interest rate floors			—				678

Counterparty Credit Risk

Derivative contracts involve the risk of dealing with both bank customers and institutional derivative counterparties and their ability to meet contractual terms. Institutional counterparties must have an investment grade credit rating and be approved by the Corporation’s Asset/Liability Management Committee. The Corporation’s 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 Corporation’s derivative contracts.

The aggregate cash collateral posted with the counterparties as collateral by the Corporation related to derivative contracts totaled $3.2 million at March 31, 2009.

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 Corporation’s 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 Corporation’s investment portfolio, mortgage banking division, brokered deposits and borrowed funds positions.

The Corporation evaluates performance and allocates resources based on profit or loss from operations. There are no material inter-segment sales or transfers. Net interest income is used as the basis for performance evaluation rather than its components, total interest income and total interest expense. The accounting policies used by each reportable segment are the same as those discussed in Note 1 to the Consolidated Financial Statements included in the Corporation’s 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).

Note 6 — Segment Reporting — Continued

										Total								Superior
		Alabama				Florida				Alabama and				Administrative				Bancorp
		Region				Region				Florida				and Other				Combined
Three months ended March 31, 2009
Net interest income		$	7,547			$	9,071			$	16,618			$	4,710			$	21,328
Provision for loan losses			1,612				1,478				3,090				362				3,452
Noninterest income			2,071				515				2,586				2,700				5,286
Noninterest expense			8,312				5,736				14,048				10,015				24,063
Operating (loss) profit		$	(306	)		$	2,372			$	2,066			$	(2,967	)			(901	)
Income tax benefit																			(215	)
Net loss																		$	(686	)
Total assets		$	1,050,658			$	1,147,653			$	2,198,311			$	936,127			$	3,134,438
Three months ended March 31, 2008
Net interest income		$	6,998			$	9,621			$	16,619			$	1,873			$	18,492
Provision for loan losses			855				858				1,713				159				1,872
Noninterest income			1,862				450				2,312				4,289				6,601
Noninterest expense			7,626				5,486				13,112				9,152				22,264
Operating profit (loss)		$	379			$	3,727			$	4,106			$	(3,149	)			957
Income tax expense																			262
Net income																		$	695
Total assets		$	993,808			$	1,155,201			$	2,149,009			$	814,890			$	2,963,899

Note 7 —Net (Loss) Income per Common Share

The following table sets forth the computation of basic net (loss)income per common share and diluted net (loss)income per common share (in thousands, except per share amounts):

		Three Months Ended
		March 31,
		2009				2008
Numerator:
Net (loss)income		$	(686	)		$	695
Less preferred dividends and amortization			(1,143	)			—
For basic and diluted, net (loss)income applicable to common stockholders		$	(1,829	)		$	695
Denominator:
For basic, weighted average common shares outstanding			10,053				10,011
Effect of dilutive stock options			—				34
Average common shares outstanding, assuming dilution			10,053				10,045
Basic net (loss)income per common share		$	(0.18	)		$	0.07
Diluted net (loss)income per common share		$	(0.18	)		$	0.07

Basic net (loss)income per common share is calculated by dividing net income(loss), less dividend requirements on outstanding preferred stock, by the weighted-average number of common shares outstanding for the period.

Diluted net income per common share takes into consideration the pro forma dilution assuming certain warrants, unvested restricted stock and unexercised stock option awards were converted or exercised into common shares. Options on 86,653 shares of common stock were not included in computing diluted net loss per share for the three-month period ending March 31, 2009, as they are considered anti-dilutive.

Note 8 — Comprehensive (Loss) Income

Total comprehensive income was $437,000 for the three-month period ended March 31, 2009, and $1,487,000 for the three-month period ended March 31, 2008. Total comprehensive income consists of net (loss)income and other comprehensive income. The components of other comprehensive income for the three-month period ending March 31, 2009 and 2008 are as follows:

Note 8 — Comprehensive (Loss) Income — Continued

		Pre-Tax								Net of
		Amount				Income Tax				Income Tax
		(In thousands)
2009
Unrealized gain on available for sale securities, net of total OTTI		$	1,487			$	(551	)		$	936
Less reclassification adjustment for OTTI realized in net loss			324				(120	)			204
Unrealized loss on derivatives			(29	)			11				(18	)
Net unrealized gain		$	1,782			$	(660	)		$	1,122
2008
Unrealized gain on available for sale securities		$	1,731			$	(687	)		$	1,044
Less reclassification adjustment for gains realized in net income			(402	)			149				(253	)
Net unrealized gain		$	1,329			$	(538	)		$	791

Note 9 — Income Taxes

The difference in the effective tax rate in the three-month period ended March 31, 2009 and 2008, and the blended federal statutory rate of 34% and state tax rates of 5% and 6% is due primarily to tax-exempt income from investments and insurance policies.

Note 10 — Stock Incentive Plan

The Corporation established the Third Amended and Restated 1998 Stock Incentive Plan (the “1998 Plan”) for directors and certain key employees that provides for the granting of restricted stock and incentive and nonqualified options to purchase up to 625,000 (restated for 1-for-4 reverse stock split) shares of the Corporation’s 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 Corporation’s 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 Corporation’s 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 Corporation’s stockholders approved the Superior Bancorp 2008 Incentive Compensation Plan (the “2008 Plan”) which succeeded the 1998 Plan. The purpose of the 2008 Plan is to provide additional incentive for our directors and key employees to further the growth, development and financial success of the Corporation and its subsidiaries by personally benefiting through the ownership of the Corporation’s common stock, or other rights which recognize such growth, development and financial success. The Corporation’s Board also believes the 2008 Plan will enable it to obtain and retain the services of directors and employees who are considered essential to its long-range success by offering them an opportunity to own stock and other rights that reflect the Corporation’s financial success. The maximum aggregate number of shares of common stock that may be issued or transferred pursuant to awards under the 2008 Plan is 300,000 (restated for 1-for-4 reverse stock split) shares, of which no more than 90,000 shares may be issued for “full value awards” (defined under the 2008 Plan to mean any awards permitted under the 2008 Plan that are neither stock options nor stock appreciation rights). Only those employees and directors who are selected to receive grants by the administrator may participate in the 2008 Plan.

During the first quarter of 2005, the Corporation granted 422,734 options to the new management team. These options have exercise prices ranging from $32.68 to $38.52 per share and were granted outside of the stock incentive plan as part of the inducement package for new management. These shares are included in the table below.

The fair value of each option award is estimated on the date of grant based upon the Black-Scholes pricing model that uses the assumptions noted in the following table. The risk-free interest rate is based on the implied yield on U.S. Treasury zero-coupon issues with a remaining term equal to the expected term of the underlying options. Expected volatility has been estimated based on historical data. The expected term has been estimated based on the five-year vesting date and change of control provisions. The Corporation used the following weighted-average assumptions for the three-month periods ended March 31, 2009 and 2008:

		2009				2008
Risk free interest rate		NA					4.50	%
Volatility factor		NA					29.11	%
Weighted average life of options (in years)		NA					5.00
Dividend yield		NA					0.00	%

Note 10 — Stock Incentive Plan - Continued

A summary of stock option activity as of March 31, 2009 and changes during the three months then ended is shown below:

										Weighted-
						Weighted-				Average
						Average				Remaining
						Exercise				Contractual				Aggregate
		Number				Price				Term				Intrinsic Value
Under option, January 1, 2009			848,922			$	29.94
Granted			—				—
Forfeited			(18,625	)			32.70
Under option, March 31, 2009			830,297			$	29.88				5.89			$	—
Exercisable at end of period			634,028			$	31.72				3.84			$	—
Weighted-average fair value per option of options granted during the period		$	—

As of March 31, 2009, there was $611,000 of total unrecognized compensation expense related to the unvested awards. This expense will be recognized over the next 12-to 30-month period unless the options vest earlier based on achievement of benchmark trading price levels. During the three-month period ended March 31, 2009, and 2008, the Corporation recognized approximately $121,000 and $161,000, respectively, in compensation expense related to options granted.

Note 11 — Fair Value Measurements

In September 2006, the FASB issued SFAS 157 which replaces multiple existing definitions of fair value with a single definition, establishes a consistent framework for measuring fair value and expands financial statement disclosures regarding fair value measurements. SFAS 157 applies only to fair value measurements that already are required or permitted by other accounting standards and does not require any new fair value measurements. In February 2008, the FASB issued FASB Staff Position No. 157-2 (“FSP No. 157-2”), which delayed until January 1, 2009, the effective date of SFAS 157 for nonfinancial assets and liabilities that are not recognized or disclosed at fair value in the financial statements on a recurring basis.

In accordance with the provisions of SFAS 157, the Corporation measures fair value at the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. SFAS 157 prioritizes the assumptions that market participants would use in pricing the asset or liability (the “inputs”) into a three-tier fair value hierarchy. This fair value hierarchy gives the highest priority (Level 1) to quoted prices in active markets for identical assets or liabilities and the lowest priority (Level 3) to unobservable inputs in which little or no market data exists, requiring companies to develop their own assumptions. Observable inputs that do not meet the criteria of Level 1, and include quoted prices for similar assets or liabilities in active markets or quoted prices for identical assets and liabilities in markets that are not active, are categorized as Level 2. Level 3 inputs are those that reflect management’s 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 management’s 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
		March 31,				Identical Assets				Observable Inputs				Inputs
		2009				(Level 1)				(Level 2)				(Level 3)
Available for sale securities		$	338,590			$	179			$	320,077			$	18,334
Derivative assets			1,054				—				1,054				—
Total recurring basis measured assets		$	339,644			$	179			$	321,131			$	18,334
Derivative liabilities		$	1,431			$	—			$	1,431			$	—
Total recurring basis measured liabilities		$	1,431			$	—			$	1,431			$	—

Note 11 — Fair Value Measurements — Continued

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 bank and pooled trust preferred securities where the fair value is calculated using an income approach based on various spreads to LIBOR determined after a review of applicable financial data and credit ratings.

Derivative financial instruments. Derivative financial instruments are measured at fair value based on modeling that utilizes observable market inputs for various interest rates published by leading third-party financial news and data providers. This is observable data that represents the rates used by market participants for instruments entered into at that date; however, they are not based on actual transactions so they are classified as Level 2.

Changes in Level 3 fair value measurements

The tables below include a roll-forward of the condensed consolidated statement of financial condition amounts for the three months ended March 31, 2009, including changes in fair value for financial instruments within Level 3 of the valuation hierarchy. Level 3 financial instruments typically include unobservable components, but may also include some observable components that may be validated to external sources. The gains or (losses) in the following table may include changes to fair value due in part to observable factors that may be part of the valuation methodology.

Level 3 assets measured at fair value on a recurring basis

		Available for
(in thousands)		Sale Securities
Balance at December 31, 2008		$	18,497
Total gains (losses) (realized and unrealized)
Included in earnings — investment security loss			(219	)
Included in other comprehensive income			73
Other changes due to principal payments			(17	)
Balance at March 31, 2009		$	18,334
Total amount of loss for the period year-to-date included in earnings attributable to the change in unrealized gains (losses) related to assets held at March 31, 2009		$	(219	)

Assets Recorded at Fair Value on a Nonrecurring Basis

The table below presents the assets measured at fair value on a nonrecurring basis categorized by the level of inputs used in the valuation of each asset (in thousands).

						Quoted Prices
						in
		Fair Value				Active Markets for				Significant Other				Significant
		at				Identical				Observable				Unobservable
		March 31,				Assets				Inputs				Inputs
		2009				(Level 1)				(Level 2)				(Level 3)
Mortgage loans held for sale		$	40,628			$	—			$	40,628			$	—
Impaired loans, net of specific allowance			54,927				—				—				54,927
Other real estate			25,609				—				—				25,609
Total nonrecurring basis measured assets		$	121,164			$	—			$	40,628			$	80,536

Valuation Techniques — Nonrecurring Basis

Mortgage Loans Held for Sale. Mortgage loans held for sale are recorded at the lower of aggregate cost or fair value. Fair value is generally based on quoted market prices of similar loans and is considered to be Level 2 in the fair value hierarchy.

Note 11 — Fair Value Measurements — Continued

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 management’s historical knowledge, changes in market conditions from the time of valuation, and/or management’s expertise and knowledge of the client and client’s 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 management’s historical knowledge, changes in market conditions from the time of valuation, and/or management’s expertise and knowledge of the client and client’s 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.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Basis of Presentation

The following is a discussion and analysis of our March 31, 2009 condensed consolidated financial condition and results of operations for the three-month period ended March 31, 2009 and 2008. All significant intercompany accounts and transactions have been eliminated. Our accounting and reporting policies conform to generally accepted accounting principles applicable to financial institutions.

This information should be read in conjunction with our unaudited condensed consolidated financial statements and related notes appearing elsewhere in this report and the audited consolidated financial statements and related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” appearing in our Annual Report on Form 10-K for the year ended December 31, 2008.

Overview

The quarter’s results reflect this difficult recessionary period and the challenges facing the entire banking industry. While our nonperforming assets increased as we anticipated, our credit losses remain low and consistent with our historical levels. Equally important, we showed dramatic growth in new customers and core deposits while seeing loan growth moderate in comparison to 2008. Currently, we are experiencing a very high level of liquidity, and our reliance on non-customer funding is quite low. We are also closely focused on our capital structure, which remains ‘well capitalized’ so that our capacity to finance new lending activity remains strong.

Even though we may be experiencing some early signs of economic improvement and some renewed confidence in the stock market, these are very preliminary, and at best, we are still in a protracted recession. In these unprecedented times, our focus will remain on the long run, on maintaining our ability to support our customers in their growth along conservative lines. Our new business development activities continue to be focused on relationship building, which we anticipate will result in stronger deposit growth along with new loans as new relationships are added. To a large degree, the funding improvement we experienced in this quarter is associated with our success in building relationship banking.

Our principal subsidiary is Superior Bank (the“Bank”), a federal savings bank headquartered in Birmingham, Alabama, which operates 77 banking offices from Huntsville, Alabama to Venice, Florida and 24 consumer finance company offices in Alabama. Our Florida franchise currently has 32 branches and Alabama has 45 branches.

Our first quarter 2009 net loss was $(686,000), or $(0.18) per share, compared to net income of $695,000 for the first quarter of 2008.

Our first quarter 2009 net interest income decreased to $21.3 million, or 2.1%, from $21.8 million for the fourth quarter of 2008 and increased by 15.3% from $18.5 million for the first quarter of 2008. Net interest margin declined to 3.12% compared to 3.29% for the fourth quarter of 2008. This narrowing is due principally to a decrease in the prime rate late in the fourth quarter of 2008, the effect of which was felt for the full first quarter, along with an increase in non-performing assets. The effect of non-accrual loans on the net interest margin for the first quarter of 2009 is estimated to be 0.13%. Our total assets remained level at $3.1 billion at March 31, 2009, compared to December 31, 2008. Our total deposits at March 31, 2009 increased 7.03% to $2.5 billion from December 31, 2008 and increased 15.8% from March 31, 2008.

Loans increased to $2.36 billion at March 31, 2009, an increase of 1.9% from December 31, 2008 and 14.2% from March 31, 2008. We approved approximately $327 million in new loan commitments in the first quarter of 2009, two-thirds of which were residential mortgages for sale in the secondary market.

At March 31, 2009, nonperforming loans (“NPLs”) were 3.15% of total loans compared to 2.71% at December 31, 2008, which is in line with management’s expectations. The $11.4 million NPL increase during the first quarter of 2009 from the fourth quarter of 2008 was principally due to increases in residential 1-4 mortgages ($7.5 million) in Alabama. Of total NPLs, $28.7 million is in Alabama and $44.5 million is in Florida.

Loans in the 30-89 days past due (DPD) category increased to 2.34% of total loans at March 31, 2009 from 1.05% of total loans at December 31, 2008, primarily as a result of one credit totaling $14.7 million.

Net loan charge-offs increased to 0.42% as a percentage of average loans during the first quarter of 2009, compared to 0.32% during the fourth quarter of 2008. Of the $2.4 million net charge-offs in the first quarter of 2009, the Bank’s charge-offs were $1.9 million, or 0.33% of consolidated average loans, and the consumer finance company charge-offs were $525,000, or 0.09% of consolidated average loans. Of total charge-offs, 22.5% related to 1-4 family mortgages and 37.2% related to real estate construction.

The provision for loan losses was $3.5 million in the first quarter of 2009, maintaining the allowance for loan losses at 1.27% of net loans, or $29.9 million, at March 31, 2009, compared to 1.25% of net loans, or $28.8 million, at December 31, 2008. Management has taken a proactive approach to management of these loans and will continue to maintain an active role in them to minimize loss.

Short-term liquid assets (cash and due from banks, interest-bearing deposits in other banks and federal funds sold) increased $29.8 million, or 33.3%, to $119.2 million at March 31, 2009 from $89.4 million at December 31, 2008. At March 31, 2009, short-term liquid assets comprised 3.8% of total assets, compared to 2.9% at December 31, 2008. On March 31, 2009, the Bank completed an offering of a $40 million aggregate principal amount 2.625% Senior Note due 2012 (the “Note”). The Note is guaranteed by the Federal Deposit Insurance Corporation (“FDIC”) under its Temporary Liquidity Guarantee Program (“TLGP”) and is backed by the full faith and credit of the United States. Management continually monitors our liquidity position and will increase or decrease short-term liquid assets as necessary. Our principal sources of funds are deposits, principal and interest payments on loans, federal funds sold and maturities and sales of investment securities. In addition to these sources of liquidity, we have access to a minimum of $250 million in additional funding from traditional sources. Management believes it has established sufficient sources of funds to meet its anticipated liquidity needs.

The Bank continues to be well-capitalized under regulatory guidelines, with a total risk-based capital ratio of 11.89%, a Tier I core capital ratio of 8.79% and a Tier I risk based capital ratio of 10.64% as of March 31, 2009. The Bank’s Tangible Common Equity Ratio is 8.85% at March 31, 2009.

Our Total Risk Based Capital Ratio was 11.45% and our Tangible Common Equity Ratio was 5.11% at March 31, 2009.

Recent Accounting Pronouncements

On April 9, 2009, the Financial Accounting Standards Board (‘FASB”) finalized three FASB Staff Positions (“FSPs”) regarding the accounting treatment for investments including mortgage-backed securities. These FSPs changed the method for determining if an other-than-temporary impairment (“OTTI”) exists and the amount of OTTI to be recorded through an entity’s income statement. The changes brought about by the FSPs provide greater clarity and reflect a more accurate representation of the credit and noncredit components of an OTTI event. The three FSPs are as follows:

	•		FSP “SFAS 157-4 Determining Fair Value When the Volume and Level of Activity for the Assets or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly” (“FSP 157-4”) provides guidelines for making fair value measurements more consistent with the principles presented in SFAS 157, “Fair Value Measurements” (“SFAS 157”), It emphasizes that even if there has been a significant decrease in the volume and level of activity for the asset or liability and regardless of the valuation technique used, the objective of a fair value measurement remains the same. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction (that is, not a forced liquidation or distressed sale), between market participants at the measurement date under current market conditions.
	•		FSP “SFAS 115-2 and SFAS 124-2, Recognition and Presentation of Other-than-temporary impairments” (‘FSP 115-2 and 124-2”) provides additional guidance designed to create greater clarity and consistency in accounting for and presenting impairment losses on securities. It amends OTTI impairment guidance for debt securities to make the guidance more operational and to improve the presentation and disclosure of OTTI on debt and equity securities in the financial statements. It does not amend existing recognition and measurement guidance related to OTTI of equity securities.
	•		FSP “SFAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments” (“FSP 107-1 and APB 28-1”) enhances consistency in financial reporting by increasing the frequency of fair value disclosures.

These staff positions are effective for financial statements issued for periods ending after June 15, 2009, with early application possible for the first quarter of 2009. We have elected to adopt FSP 157-4 and FSP 115-2 and 124-2 as of March 31, 2009, while deferring the election of FSP 107-1 and APB 28-1 until June 30, 2009. The adoption of FSP 107-1 and APB 28-1 is not expected to have a significant impact on our financial condition, results of operations or cash flow. The effect of the early adoption of FSP 115-2 and 124-2 has resulted in the portion of OTTI determined to be credit related ($324,000, or $204,000 after tax) being recognized in current earnings, while the portion of OTTI related to other factors ($1,453,000, or $915,000 after-tax) was recognized in other comprehensive loss (see Notes 3 and 8 to the condensed

consolidated financial statements).

Statement of Financial Accounting Standards No. 161

In March 2008, the FASB issued SFAS No. 161, Disclosures About Derivative Instruments and Hedging Activities, an Amendment of FASB Statement No. 133 (“SFAS 161”). SFAS 161 amends SFAS 133, Accounting for Derivative Instruments and Hedging Activities (“SFAS 133”) to amend and expand the disclosure requirements of SFAS 133 to provide greater transparency about (i) how and why an entity uses derivative instruments, (ii) how derivative instruments and related hedge items are accounted for under SFAS 133 and its related interpretations, and (iii) how derivative instruments and related hedged items affect an entity’s financial position, results of operations and cash flows. To meet those objectives, SFAS 161 requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses on derivative instruments and disclosures about credit-risk-related contingent features in derivative agreements. SFAS 161 was effective for us on January 1, 2009 and did not have a significant impact on our financial position, results of operations or cash flows (see Note 5 to the condensed consolidated financial statements).

Results of Operations

The following table sets forth key earnings and other financial data for the periods indicated:

		Three Months
		Ended March 31,
		2009				2008
		(Dollars in thousands, except per share data)
Net (loss) income		$	(686	)		$	695
Net (loss) income applicable to common shareholders			(1,829	)			695
Net (loss) income per common share (diluted)			(0.18	)			0.07
Net interest margin			3.12	%			3.04	%
Net interest spread			2.91	%			2.76	%
Return on average assets			(0.09	)%			0.10	%
Return on average tangible assets			(0.09	)%			0.10	%
Return on average stockholders’ equity			(1.11	)%			0.80	%
Return on average tangible equity			(1.20	)%			1.70	%
Common book value per share		$	17.74			$	35.00
Tangible common book value per share			15.76				16.44

The change in our net income during the first quarter of 2009 compared to the first quarter of 2008 is primarily the result of increases in the provision for loan losses and the accrual of dividends on preferred stock which began in the fourth quarter of 2008. The increase in provision for loan losses reflects the effect of the current credit cycle and the overall economic environment. See “Financial Condition — Allowance for Loan Losses” for additional discussion. Changes in other components of our operations are discussed in the various sections that follow.

Net Interest Income. Net interest income is the difference between the income earned on interest-earning assets and interest paid on interest-bearing liabilities used to support such assets. The following table summarizes the changes in the components of net interest income for the periods indicated:

		Increase (Decrease) in
		First Quarter 2009 vs 2008
		Average				Income/				Yield/
		Balance				Expense				Rate
		(Dollars in Thousands)
ASSETS
Interest-earning assets:
Loans, net of unearned income		$	321,833			$	(2,394	)			(1.33	)%
Investment securities
Taxable			(5,113	)			(43	)			0.07
Tax-exempt			308				(3	)			(0.03	)
Total investment securities			(4,805	)			(46	)			0.07
Federal funds sold			(2,301	)			(75	)			(3.09	)
Other investments			11,331				(282	)			(3.09	)
Total interest-earning assets		$	326,058				(2,797	)			(1.17	)
Interest-bearing liabilities:
Demand deposits		$	(34,619	)			(2,881	)			(1.63	)
Savings deposits			141,768				688				0.25
Time deposits			110,012				(3,167	)			(1.30	)
Other borrowings			65,510				(450	)			(1.34	)
Subordinated debentures			7,145				178				0.35
Total interest-bearing liabilities		$	289,816				(5,632	)			(1.32	)
Net interest income/net interest spread							2,835				0.15	%
Net yield on earning assets											0.08	%
Taxable equivalent adjustment:
Investment securities							(1	)
Net interest income						$	2,836

The following table depicts, on a taxable equivalent basis for the periods indicated, certain information related to our average balance sheet and our average yields on assets and average costs of liabilities. Average yields are calculated by dividing income or expense by the average balance of the corresponding assets or liabilities. Average balances have been calculated on a daily basis.

		Three Months Ended March 31,
		2009												2008
		Average				Income/				Yield/				Average				Income/				Yield/
		Balance				Expense				Rate				Balance				Expense				Rate
		(Dollars in thousands)
ASSETS
Interest-earning assets:
Loans, net of unearned income (1)		$	2,392,145			$	34,952				5.93	%		$	2,070,312			$	37,346				7.26	%
Investment securities
Taxable			302,082				4,009				5.38				307,195				4,052				5.31
Tax-exempt (2)			40,280				649				6.53				39,972				652				6.56
Total investment securities			342,362				4,658				5.52				347,167				4,704				5.45
Federal funds sold			7,240				5				0.28				9,541				80				3.37
Other investments			57,000				362				2.58				45,669				644				5.67
Total interest -earning assets			2,798,747				39,977				5.79				2,472,689				42,774				6.96
Noninterest-earning assets:
Cash and due from banks			70,943												56,657
Premises and equipment			105,079												103,624
Accrued interest and other assets			153,499												287,435
Allowance for loan losses			(29,123	)											(22,814	)
Total assets		$	3,099,145											$	2,897,591
LIABILITIES AND STOCKHOLDERS’ EQUITY
Interest-bearing liabilities:
Demand deposits		$	641,259			$	2,195				1.39	%		$	676,148			$	5,076				3.02	%
Savings deposits			199,161				921				1.88				57,393				233				1.63
Time deposits			1,359,453				11,777				3.51				1,249,440				14,944				4.81
Other borrowings			333,376				2,342				2.85				267,866				2,792				4.20
Subordinated debentures			60,852				1,193				7.95				53,707				1,015				7.60
Total interest -bearing liabilities			2,594,371				18,428				2.88				2,304,554				24,060				4.20
Noninterest-bearing liabilities:
Demand deposits			231,547												216,745
Accrued interest and other liabilities			21,576												24,942
Stockholders’ equity			251,651												351,350
Total liabilities and stockholders ‘equity		$	3,099,145											$	2,897,591
Net interest income/net interest spread							21,549				2.91	%							18,714				2.76	%
Net yield on earning assets											3.12	%											3.04	%
Taxable equivalent adjustment:
Investment securities (2)							221												222
Net interest income						$	21,328											$	18,492