SUPR Superior Bancorp (MM)

BIRMINGHAM, Ala., Aug. 13 /PRNewswire-FirstCall/ --

HIGHLIGHTS:

• Deposits grew approximately 3.1% to a new high of $2.84 billion.
• Loans decreased slightly from the previous quarter to $2.48 billion.
• New capital raised totaling $11.4 million. Capital optimization continues as planned.
• Net loss of $53.7 million for the quarter, driven principally by a provision for loan losses of $50.4 million and losses on other real estate owned (OREO) of $3.4 million.

Superior Bancorp (Nasdaq: SUPR) today reported its second quarter 2010 results, which included a loss for the quarter of $53.7 million as the company expensed $50.4 million to bring its loan loss reserves to 3.2% of loans.  A summary of the results is provided below and in the attached financial data:

Comments on our Second Quarter Performance

Stan Bailey, Chairman & CEO, stated, "Superior's second quarter results reflect the continued challenge presented by the current credit environment.  After our $50 million second quarter provision for loan losses, our new reserve level is 3.20% of loans and stands at 2.4X our last 12 months' level of chargeoffs.   Regardless, our capital plus reserves at quarter-end were $229 million versus $230 million at March 31.  Our top priority remains the completion of our capital optimization plan during 2010, while we continue to focus on credit quality improvement and a return to profitability during 2011."

Capital Optimization Plan  

In late 2009, our shareholders approved an increase in authorized shares to 200 million, a preparatory step in our program to build our equity base.  In December 2009, we retired the entire outstanding $69.0 million principal amount of TARP Preferred Stock in exchange for a like amount of newly issued Trust Preferred Securities, which resulted in a $23.1 million accounting gain, resulting in an increase to tangible common equity.  As noted above, however, this conversion also had a 0.22% negative net interest margin impact in the second quarter due to interest expense on the Trust Preferred Securities.  

During the second quarter, we issued $11.4 million of cumulative mandatory convertible preferred stock for cash, at par.  At the same time, we issued the purchaser five-year warrants to purchase 814,288 shares of our common stock at an exercise price of $3.50 per share.  In addition, we exchanged $3.5 million of privately held Trust Preferred Securities for common stock and recognized an after-tax gain of $0.5 million in connection with this transaction.

Comparison of Second Quarter 2010 with First Quarter 2010

Net interest income declined slightly, from $23.5 million to $23.2 million.  Our net interest margin declined from 3.19% to 3.02%.  Several factors contributed to this decline, including our maintenance of significantly higher levels of lower yielding short-term investments increased for liquidity purposes, lower yields on our overall investment portfolio, the negative impact of an increase in non-accrual loans, and a higher volume of interest-bearing deposits.  We lowered the yield on our investment portfolio through a restructuring which reduced our interest rate risk and improved our risk-based capital. The effect on net interest margin of loans being placed on non-accrual status approximated 0.19% in the second quarter of 2010.  The total impact of non-accruals, including foregone interest, was approximately 0.57%.  We estimate that the cost of excess liquidity maintained in the second quarter was approximately 0.04%.  The conversion of preferred stock issued to the US Treasury under the Capital Purchase Program to Trust Preferred Stock, which had the effect of converting dividend payments into interest expense, lowered the net interest margin by 0.22%.  This additional interest expense will continue to hold down our net interest margin until the Treasury obligation is repaid. Deposit costs continued to decline, following the favorable trend demonstrated throughout the past several quarters.  

Core noninterest income was $6.9 million for the quarter, and increased $0.7 million, or 11.4%, from the first quarter, after adjusting both quarters to eliminate investment securities gains and losses and derivatives transactions.  Mortgage banking income increased $0.7 million to $2.7 million in the second quarter, as the result of the expansion of our mortgage operations.  In addition, we recognized a $0.5 million gain on the exchange of trust preferred debt for common stock.  Both of these items are discussed in more detail below.    

Core noninterest expense increased $0.5 million from the first quarter to $26.3 million after eliminating credit costs for other real estate owned and FDIC insurance costs from both quarters.  

We also recorded a $22.0 million valuation allowance against our deferred tax assets during the second quarter which eliminated any tax benefit on our net losses year-to-date.

Credit Quality  

Loans 30-89 days past due ("DPD") and still accruing decreased to 1.78% of total loans at June 30, 2010 compared to 1.88% at March 31, 2010.  Non-performing loans, including loans 90 DPD and still accruing, increased to $231.4 million, or 9.3%, of total loans in the second quarter, compared to 7.1% of total loans at March 31, 2010.  Of the non-performing loans, approximately 70% are in Florida and 30% in Alabama.  Of our $45.2 million OREO portfolio, approximately 56% is in Alabama and 44% is in Florida.  Net charge-offs for the quarter were $14.1 million, or an annualized rate of 2.26% of total loans. The provision for loan losses for the quarter was $50.4 million compared to a provision of $9.1 million for the first quarter.  The allowance for loan losses at June 30, 2010 was $79.4 million, or 3.20% of loans, up from $43.2 million at the end of the first quarter. During the quarter we experienced (1) a migration of performing classified loans into non-performing status, (2) an increase in troubled debt restructurings ("TDRs") resulting from workout activity, and/or (3) an increase in collateral impairments relative to other external factors such as short sales, updated appraisals, etc.  These factors created the need for increased loan loss provisions during the second quarter of 2010.  In addition, management increased the general allowance for loan losses to account for the estimated increase in losses related to the recent oil spill in the Gulf of Mexico.

Balance Sheet

Loan demand in the second quarter was relatively flat, with total loans decreasing slightly, by 0.9% from March 31, 2010 to June 30, 2010.  We expect this slowed rate of loan growth to continue throughout 2010, due to the current condition of the economy.  We continue to experience strong growth in our deposit base, with deposits up 3.1% from the first quarter, as we continue to experience the benefits of our de novo branching program and our focus on relationship banking.  Deposits at our 22 de novo branches reached $540 million at June 30, 2010. This expansion, which was initiated in 2006 and which continued into 2010 with the opening of our 22nd new branch, has been the single largest contributing factor in the increase in liquidity in our bank, and in our demonstrated transformation of Superior from a transaction-based bank into a relationship-based bank.

Liquidity and Capital

Liquidity at Superior Bank remained excellent.  Federal Home Loan Bank borrowings were approximately 7.6% of deposits.  Brokered deposits, excluding CDARS, totaled approximately 6.5% of deposits.  Including CDARS, brokered deposits totaled approximately 8.3% of deposits.  

Superior Bank's Total Risk Based Capital was $229.4 million at June 30, 2010.  Our capital ratios slipped during the quarter as the result of our increased provision for loan losses described above.  We are responding to the decline in the capital ratio by instituting several initiatives, including a repositioning of our securities portfolio and a focus on lending activity to meet the needs of existing customers.  

About Superior Bancorp

Superior Bancorp is a $3.4 billion thrift holding company headquartered in Birmingham, and the second largest bank holding company headquartered in Alabama. The principal subsidiary of Superior Bancorp is Superior Bank, a southeastern community bank that currently has 73 branches, with 45 locations throughout the state of Alabama and 28 locations in Florida.  Superior Bank also operates 24 consumer finance offices in North Alabama as 1st Community Credit and Superior Financial Services.

This press release contains financial information determined by methods other than in accordance with U.S. generally accepted accounting principles ("GAAP"). Superior's management uses these "non-GAAP" measures in its analysis of Superior's performance. Non-GAAP measures typically adjust GAAP performance measures to exclude the effects of significant gains, losses or expenses that are unusual in nature and not expected to recur. Since these items and their impact on Superior's performance are difficult to predict, management believes presentations of financial measures excluding the impact of these items provide useful supplemental information that is important for a proper understanding of the operating results of Superior's core business. These disclosures should not be viewed as a substitute for operating results determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that are presented by other companies.

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) changes in local economic conditions in the markets in which we operate; (3) the continued weakening in the real estate values in the markets in which we operate; (4) 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; (5) increases in FDIC deposit insurance premiums and assessments; (6) inflation or deflation and interest rate, market and monetary fluctuations; (7) the adequacy of our allowance for loan losses to cover actual losses and impact of credit risk exposures; (8) greater loan losses than historic levels and increased allowance for loan loss;  (9) 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; (10) the willingness of users to substitute competitors' products and services for our products and services; (11) changes in loan underwriting, credit review or loss reserve policies associated with economic conditions, examination conclusions, or regulatory developments; (12) 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; (13) our ability to comply with any requirements imposed on us and Superior Bank by our regulators; (14) restrictions or limitations on our access to funds from Superior Bank; (15) changes in accounting policies, principles and guidelines applicable to us; (16) our focus on lending to small to mid-size community-based businesses, which may increase our credit risk; (17) our ability to resolve any regulatory, legal or judicial proceeding on acceptable terms and its effect on our financial condition or results of operations; (18) technological changes; (19) changes in consumer spending and savings habits; (20) the effect of natural or environmental disasters, such as, among other things, hurricanes and oil spills, in our geographic markets; (21)  the continuing instability in the domestic and international capital markets; (22) (the effects on our operations of policy initiatives or laws that have been and may continue to be  introduced by the Presidential administration or Congress and related regulatory actions, including but not limited to the Dodd-Frank Wall Street Reform and Consumer Protection Act and the regulations promulgated thereunder; (23) our ability to successfully integrate the assets, liabilities, customers, systems and management we acquire or merge into our operations;  (24) our ability to raise additional capital to fund growth plans or to meet regulatory requirements; and (25) other factors and information contained in reports  and other filings we make with the SEC.  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 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 changes. All forward-looking statements attributable to us are expressly qualified by these cautionary statements.

More information on Superior Bancorp and its subsidiaries may be obtained over the Internet, http://www.superiorbank.com, or by calling 1-877-326-BANK (2265).

SOURCE Superior Bancorp