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| SUPR > SEC Filings for SUPR > Form 10-Q on 8-May-2009 | All Recent SEC Filings |
8-May-2009
Quarterly Report
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
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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
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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
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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 |
(1) Nonaccrual loans are included in loans, net of unearned income. No adjustment has been made for these loans in the calculation of yields.
(2) Interest income and yields are presented on a fully taxable equivalent basis using a tax rate of 34%.
The following table sets forth, on a taxable equivalent basis, the effect that the varying levels of interest-earning assets and interest-bearing liabilities and the applicable rates have had on changes in net interest income for the three-month periods ended March 31, 2009 and 2008.
Three Months Ended March 31,
2009 vs. 2008 (1)
Increase Changes Due To
(Decrease) Rate Volume
(Dollars in thousands)
Increase (decrease) in:
Income from interest-earning assets:
Interest and fees on loans $ (2,394 ) $ (7,528 ) $ 5,134
Interest on securities
Taxable (43 ) 40 (83 )
Tax-exempt (3 ) (5 ) 2
Interest on federal funds (75 ) (59 ) (16 )
Interest on other investments (282 ) (411 ) 129
Total interest income (2,797 ) (7,963 ) 5,166
Expense from interest-bearing liabilities:
Interest on demand deposits (2,881 ) (2,631 ) (250 )
Interest on savings deposits 688 40 648
Interest on time deposits (3,167 ) (4,357 ) 1,190
Interest on other borrowings (450 ) (1,022 ) 572
Interest on subordinated debentures 178 46 132
Total interest expense (5,632 ) (7,924 ) 2,292
Net interest income $ 2,835 $ (39 ) $ 2,874
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(1) The change in interest due to both rate and volume has been allocated to rate and volume changes in proportion to the relationship of the absolute dollar amounts of the changes in each.
Noninterest income. Noninterest income decreased $1.3 million, or 19.9%, to $5.3 million for the first quarter of 2009, from $6.6 million in the first quarter of 2008. The components of noninterest income for the first quarter of 2009 and 2008 consisted of the following:
Three Months Ended March 31,
2009 2008 % Change
(Dollars in thousands)
Service charges and fees on deposits $ 2,387 $ 2,103 13.50 %
Mortgage banking income 1,691 1,266 33.57
Investment securities (losses) gains (324 ) 402 (180.60 )
Change in fair value of derivatives (199 ) 1,050 (118.95 )
Increase in cash surrender value of life insurance 515 552 (6.70 )
Other noninterest income 1,216 1,228 (0.98 )
Total $ 5,286 $ 6,601 (19.92 )%
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The increase in service charges and fees on deposits is primarily attributable
to pricing changes and account growth. The increase in mortgage banking income
during the first quarter of 2009 is the result of an increase in the volume of
refinancing. The investment securities loss is the result of an impairment
charge related to a bank trust preferred security. See "Financial Condition -
Investment Securities" for additional discussion. The decline resulting from the
change in the fair value of derivatives is primarily the result of a "call" on
an interest rate swap (See Note 5 to the condensed consolidated financial
statements).
Noninterest expenses. Noninterest expenses increased $1.8 million, or 8.1%, to
$24.1 million for the first quarter of 2009 from $22.3 million for the first
quarter of 2008. This increase is primarily due to the full impact of our new
branch program, which contributed to increases in personnel, occupancy cost and
equipment expense, totaled approximately $413,000. An additional large increase
of $427,000 was recorded in insurance expense due to a first quarter of 2009
FDIC premium increase along with the exhaustion of premium rebates which were
recorded in the first quarter of 2008. We also recognized additional cost of
approximately $386,000 associated with foreclosed assets. Noninterest expenses
included the following for the first quarters of 2009 and 2008:
Three Months Ended March 31,
2009 2008 % Change
(Dollars in thousands)
Noninterest Expenses
Salaries and employee benefits $ 12,309 $ 12,141 1.4 %
Occupancy, furniture and equipment expense 4,416 4,060 8.8
Amortization of core deposit intangibles 985 896 9.9
Merger-related costs - 108 NA
Professional fees 765 436 75.3
Insurance expense 1,067 640 66.6
Postage, stationery and supplies 727 779 (6.7 )
Communications expense 802 670 19.7
Advertising expense 551 713 (22.8 )
Other operating expense 2,441 1,821 34.3
Total $ 24,063 $ 22,264 8.1 %
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Income tax (benefit) expense. We recognized an income tax benefit of $(215,000)
compared to income tax expense of $262,000 for the first quarter of 2009 and
2008, respectively. The difference in the effective tax rate in the three-month
period ended March 31, 2009 and 2008, and the blended federal statutory rate of
34% and state tax rates of 5% and 6% is due primarily to tax-exempt income from
investments and insurance policies.
Provision for Loan Losses and Loan Charge-offs. The provision for loan losses
. . .
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