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

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

Commission File number 0-25033

Superior Bancorp

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

(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 June 30, 2009
Common stock, $.001 par value		10,111,684

 

 

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			25
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK			52
ITEM 4. CONTROLS AND PROCEDURES			53
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS			54
ITEM 1A. RISK FACTORS			54
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS			54
ITEM 3. DEFAULTS UPON SENIOR SECURITIES			54
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS			55
ITEM 5. OTHER INFORMATION			55
ITEM 6. EXHIBITS			55
SIGNATURES			56
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)

		June 30,				December 31,
		2009				2008
		(UNAUDITED)
ASSETS
Cash and due from banks		$	80,589			$	74,237
Interest-bearing deposits in other banks			19,900				10,042
Federal funds sold			2,426				5,169
Total cash and cash equivalents			102,915				89,448
Investment securities available for sale			315,551				347,142
Tax lien certificates			25,533				23,786
Mortgage loans held for sale			100,707				22,040
Loans, net of unearned income			2,398,471				2,314,921
Allowance for loan losses			(33,504	)			(28,850	)
Net loans			2,364,967				2,286,071
Premises and equipment, net			105,343				104,085
Accrued interest receivable			16,210				14,794
Stock in FHLB			18,212				21,410
Cash surrender value of life insurance			49,174				48,291
Core deposit and other intangible assets			18,873				21,052
Other real estate			35,206				19,971
Other assets			62,819				54,611
Total assets		$	3,215,510			$	3,052,701
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:
Noninterest-bearing		$	246,724			$	212,732
Interest-bearing			2,357,834				2,130,256
TOTAL DEPOSITS			2,604,558				2,342,988
Advances from FHLB			228,320				361,324
Security repurchase agreements			2,164				3,563
Notes payable			45,688				7,000
Subordinated debentures, net			60,774				60,884
Accrued expenses and other liabilities			27,236				25,703
Total liabilities			2,968,740				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 June 30, 2009 and December 31, 2008, respectively			—				—
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			10				10
Surplus — preferred			63,563				62,978
— warrants			8,646				8,646
— common			329,736				329,461
Accumulated deficit			(136,662	)			(129,904	)
Accumulated other comprehensive loss			(6,723	)			(7,925	)
Treasury stock, at cost — 321,152 and 321,485 shares, respectively			(11,333	)			(11,373	)
Unearned ESOP stock			(353	)			(443	)
Unearned restricted stock			(114	)			(211	)
Total stockholders’ equity			246,770				251,239
Total liabilities and stockholders’ equity		$	3,215,510			$	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								Six Months Ended
		June 30,								June 30,
		2009				2008				2009				2008
INTEREST INCOME
Interest and fees on loans		$	35,959			$	36,708			$	70,911			$	74,053
Interest on taxable securities			3,976				4,143				7,985				8,195
Interest on tax-exempt securities			434				431				863				861
Interest on federal funds sold			2				18				7				98
Interest and dividends on other investments			456				732				818				1,376
Total interest income			40,827				42,032				80,584				84,583
INTEREST EXPENSE
Interest on deposits			14,109				16,709				29,002				36,962
Interest on other borrowed funds			2,597				3,016				4,938				5,808
Interest on subordinated debentures			1,206				919				2,400				1,934
Total interest expense			17,912				20,644				36,340				44,704
NET INTEREST INCOME			22,915				21,388				44,244				39,879
Provision for loan losses			5,982				5,967				9,434				7,838
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES			16,933				15,421				34,810				32,041
NONINTEREST INCOME
Service charges and fees on deposits			2,524				2,192				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)			(5,853	)		NA					(7,631	)		NA
Portion of OTTI recognized in other comprehensive income			1,776			NA					3,230			NA
Investment securities (loss) gain			(4,077	)			1,068				(4,401	)			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			2,531				9,006				7,817				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			(8,331	)			1,151				(9,232	)			2,109
INCOME TAX (BENEFIT) EXPENSE			(4,569	)			310				(4,784	)			572
NET (LOSS) INCOME			(3,762	)			841				(4,448	)			1,537
Preferred stock dividends and amortization			1,167				—				2,310				—
NET (LOSS) INCOME APPLICABLE TO COMMON STOCKHOLDERS		$	(4,929	)		$	841			$	(6,758	)		$	1,537
BASIC NET (LOSS) INCOME PER COMMON SHARE		$	(0.49	)		$	0.08			$	(0.67	)		$	0.15
DILUTED NET (LOSS) INCOME PER COMMON SHARE		$	(0.49	)		$	0.08			$	(0.67	)		$	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.

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.

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- 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 August 10, 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 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 Corporation’s 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 ($4,401,000, pre-tax) being recognized in current earnings, while the portion of OTTI related to other factors ($3,230,000, pre-tax) was recognized in other comprehensive loss (see Notes 3 and 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 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).

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 entity’s 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 Corporation’s financial statements for periods ending after June 15, 2009. SFAS 165 did not have a significant impact on the Corporation’s 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 Corporation’s 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 entity’s purpose and design and a company’s ability to direct the activities of the entity that most significantly impact the entity’s economic performance. SFAS 167 requires additional disclosures about the reporting entity’s involvement with variable-interest entities and any significant changes in risk exposure due to that involvement as well as its affect on the entity’s financial statements. SFAS 167 will be effective January 1, 2010 and is not expected to have a significant impact on the Corporation’s 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 Corporation’s 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 Corporation’s 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 Corporation’s financial statements for periods ending after September 15, 2009. SFAS 168 is not expected have a significant impact on the Corporation’s financial statements.

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			14,340				—				5,687				8,653
Single issue trust preferred securities			9,689				—				3,152				6,537
Other collateralized debt obligations			5,134				—				6				5,128
Total corporate obligations			33,337				—				9,219				24,118
Equity securities			563				—				313				250
Total investment securities available for sale		$	323,262			$	7,343			$	15,054			$	315,551

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				5,741
Due after ten years			62,477				52,574
Mortgage-backed securities			241,665				243,923
		$	323,262			$	315,551

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-.

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				4,259				16,978				4,275
Total MBS			406				16				16,919				4,271				17,325				4,287
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			—				—				8,593				3,943				8,593				3,943
Single issue trust preferred securities			—				—				3,202				1,798				3,202				1,798
Other collateralized debt obligations			5,128				6				—				—				5,128				6
Total corporate obligations			8,928				380				11,795				5,741				20,723				6,121
Equity securities			—				—				250				313				250				313
Total temporarily impaired securities			20,173				781				41,224				11,043				61,397				11,824
Other-than-temporarily Impaired
Mortgage-backed securities:
Private-label — CMO			—				—				1,749				132				1,749				132
Corporate obligations:
Pooled trust preferred securities			—				—				60				1,744				60				1,744
Single issue trust preferred securities			—				—				3,335				1,354				3,335				1,354
Total corporate obligations			—				—				3,395				3,098				3,395				3,098
Total OTTI securities			—				—				5,144				3,230				5,144				3,230
Total temporarily and other-than-temporarily impaired		$	20,173			$	781			$	46,368			$	14,273			$	66,541			$	15,054

     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			—				4				4
Single issue trust preferred securities			—				1				1
Other collateralized debt obligations			1				—				1
Total corporate obligations			4				5				9
Equity securities			—				3				3
Total temporarily impaired securities			41				50				91
Other-than-temporarily Impaired
Mortgage-backed securities:
Private-label — CMO			—				3				3
Corporate obligations:
Pooled trust preferred securities			—				1				1
Single issue trust preferred securities			—				1				1
Total corporate obligations			—				2				2
Total OTTI securities			—				5				5
Total temporarily and other-than-temporarily impaired			41				55				96

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.

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 investment’s 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 Corporation’s securities portfolio consisted of 263 securities, 96 of which were in an unrealized loss position. The majority of unrealized losses are related to the Corporation’s private-label collateralized mortgage obligations (“CMOs”) and trust preferred securities, as discussed below:

Mortgage-backed Securities

At June 30, 2009, approximately 87% 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 Corporation’s mortgage-backed securities portfolio also includes 12 private-label CMOs with a market value of $18,727,000 which had unrealized losses of approximately $4,406,000 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			(1,578	)
Ca/CCC (2)		3			0.11 - 0.85			(131	)
Total		12					$	(4,406	)

(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, 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
																										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, the Corporation’s 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 following tables provide various information regarding the Corporation’s 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			$	1,492			$	(667	)		$	—			$	—			$	—
MM Community Funding Ltd		(1)		Pooled		B			5,000				3,854				(1,146	)			—				—				—
Preferred Term Securities V		(2)		Pooled		M			1,378				862				(516	)			—				—				—
Tpref Funding III Ltd				Pooled		B-1			4,000				2,385				(1,615	)			—				—				—
Trapeza 2007-13A LLC		(3)		Pooled		D			1,803				60				(1,743	)			(32	)			(1,744	)			(1,776	)
New South Capital Corp		(4)		Single		Sole			4,689				3,335				(1,354	)			(324	)			(1,354	)			(1,678	)
Emigrant Capital Trust		(5)		Single		Sole			5,000				3,202				(1,798	)			—				—				—
								$	24,029			$	15,190			$	(8,839	)		$	(356	)		$	(3,098	)		$	(3,454	)

								Original Collateral				Performing Collateral
								Percent of Actual				Percent of Expected				(6)
				Lowest		Performing		Deferrals and				Deferrals and				Excess
Name				Rating		Banks		Defaults				Defaults				Subordination
MM Caps Funding I Ltd				Ca		26			9	%			25	%			8	%
MM Community Funding Ltd		(1)		CCC		6			10	%			25	%			0	%
Preferred Term Securities V		(2)		Ba3		3			2	%			25	%			25	%
Tpref Funding III Ltd				CC		28			16	%			20	%			15	%
Trapeza 2007-13A LLC		(3)		C		48			11	%			20	%			0	%
New South Capital Corp		(4)		NR		NA		NA				NA				NA
Emigrant Capital Trust		(5)		CC		NA		NA				NA				NA

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. At June 30, 2009, management believes that the credit quality of these securities remains adequate to absorb further economic declines, with the exception of a single issue trust preferred security (“ the New South security”) discussed below, for which the Corporation recognized a $324,000 credit-related OTTI during the first quarter of 2009, and a pooled trust preferred issue (“Trapeza”), for which the Corporation recognized a $32,000 credit-related loss in the second quarter of 2009.

In April, 2009, the Corporation received notice that under the terms of the New South 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 New South 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 New South 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 was considered to be credit loss based on the timing and amount of the interest payments. To determine the amount of credit loss, the Corporation 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 New South 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 New South security was reduced to create a new cost basis. The difference between the old and new basis will 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 New South security.

As of June 30, 2009, the Corporation’s 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		$	324			$	—
Amounts related to credit losses for which an OTTI was not previously recognized			32				356
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			4,045				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		$	4,401			$	4,401

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.

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 Corporation’s 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.

Management’s determination as to whether this investment is impaired is based on management’s 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 Corporation’s 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 Corporation’s 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 Atlanta’s assets consists of cash, interbank deposits, and collateralized advances to member banks, which management considers to be significantly lower in risk. Finally, Standard & Poor’s has rated FHLB Atlanta’s 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 Corporation’s 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 Atlanta’s current position does not indicate that the Corporation’s investment will not be recoverable at par, the Corporation’s cost, and thus the investment is not impaired as of June 30, 2009.

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 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			(1,312	)
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 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 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 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.

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, 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 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 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								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 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 June 30, 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 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 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).

										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			$	5,190			$	22,915
Provision for loan losses			1,424				1,486				2,910				3,072				5,982
Noninterest income			2,206				514				2,720				(189	)			2,531
Noninterest expense			9,113				5,832				14,945				12,850				27,795
Operating (loss) profit		$	(2	)		$	2,592			$	2,590			$	(10,921	)			(8,331	)
Income tax benefit																			(4,569	)
Net loss																		$	(3,762	)
Total assets		$	1,025,040			$	1,171,252			$	2,196,292			$	1,019,218			$	3,215,510
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			$	9,902			$	44,244
Provision for loan losses			3,036				2,964				6,000				3,434				9,434
Noninterest income			4,277				1,029				5,306				2,511				7,817
Noninterest expense			17,425				11,568				28,993				22,866				51,859
Operating (loss) profit		$	(309	)		$	4,964			$	4,655			$	(13,887	)			(9,232	)
Income tax benefit																			(4,784	)
Net loss																		$	(4,448	)
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