##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, DC
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2006
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
 FOR THE TRANSITION PERIOD FROM  TO
 Commission File number 0-25033
 Superior Bancorp
 (Exact Name of Registrant as Specified in its Charter)
 Delaware
    
    63-1201350(State or Other Jurisdiction of Incorporation)
    
    (IRS Employer Identification No.)
 17 North 20th Street, Birmingham, Alabama 35203
 (Registrants Telephone Number, Including Area Code)
  þ o
 12b-2 of the Exchange Act).
 o þ o
  o þ
  Class
    
    Outstanding as of September 30, 2006Common stock, $.001 par value
    
    26,428,942




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##### 



TABLE OF CONTENTS
 PART I FINANCIAL INFORMATIONITEM 1. FINANCIAL STATEMENTS
    
    
    2ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
    
    
    16ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
    
    
    33ITEM 4. CONTROLS AND PROCEDURES
    
    
    33PART II. OTHER INFORMATIONITEM 1. LEGAL PROCEEDINGS
    
    
    34ITEM 1A. RISK FACTORS
    
    
    34ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
    
    
    34ITEM 3. DEFAULTS UPON SENIOR SECURITIES
    
    
    34ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    
    
    34ITEM 5. OTHER INFORMATION
    
    
    34ITEM 6. EXHIBITS
    
    
    35SIGNATURES
    
    
    36EX-31.01 SECTION 302, CERTIFICATION OF THE PEOEX-31.02 SECTION 302, CERTIFICATION OF THE PFOEX-32.01 SECTION 906, CERTIFICATION OF THE PEOEX-32.02 SECTION 906, CERTIFICATION OF THE PFO




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##### Table of Contents



SUPERIOR BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands, except per share data)
 September 30,
    
    
    December 31,2006
    
    
    2005(UNAUDITED)ASSETSCash and due from banks
    
    $
    32,964
    
    
    $
    35,088Interest-bearing deposits in other banks
    
    
    7,063
    
    
    
    9,772Federal funds sold
    
    
    1,973
    
    
    
    Investment securities available for sale
    
    
    306,339
    
    
    
    242,306Tax lien certificates
    
    
    7,254
    
    
    
    289Mortgage loans held for sale
    
    
    18,523
    
    
    
    21,355Loans, net of unearned income
    
    
    1,257,640
    
    
    
    963,253Less: Allowance for loan losses
    
    
    (13,222
    )
    
    
    (12,011
    )Net loans
    
    
    1,244,418
    
    
    
    951,242Premises and equipment, net
    
    
    66,921
    
    
    
    56,017Accrued interest receivable
    
    
    9,801
    
    
    
    7,081Stock in FHLB
    
    
    9,372
    
    
    
    10,966Cash surrender value of life insurance
    
    
    40,228
    
    
    
    39,169Goodwill and other intangibles
    
    
    60,293
    
    
    
    12,090Other assets
    
    
    30,949
    
    
    
    30,094TOTAL ASSETS
    
    $
    1,836,098
    
    
    $
    1,415,469LIABILITIES AND STOCKHOLDERS EQUITYDeposits:Noninterest-bearing
    
    $
    119,030
    
    
    $
    92,342Interest-bearing
    
    
    1,303,413
    
    
    
    951,354TOTAL DEPOSITS
    
    
    1,422,443
    
    
    
    1,043,696Advances from FHLB
    
    
    146,090
    
    
    
    181,090Federal funds borrowed and security repurchase agreements
    
    
    32,464
    
    
    
    33,406Notes payable
    
    
    3,597
    
    
    
    3,755Junior subordinated debentures owed to unconsolidated subsidiary trusts
    
    
    31,959
    
    
    
    31,959Accrued expenses and other liabilities
    
    
    18,661
    
    
    
    16,498TOTAL LIABILITIES
    
    
    1,655,214
    
    
    
    1,310,404STOCKHOLDERS EQUITYCommon stock, par value $.001 per share; authorized 50,000,000
shares; shares issued 26,645,239 and 20,221,456, respectively;
outstanding 26,428,942 and 19,980,261, respectively
    
    
    27
    
    
    
    20Surplus
    
    
    160,571
    
    
    
    87,979Retained earnings
    
    
    24,431
    
    
    
    21,494Accumulated other comprehensive loss
    
    
    (2,454
    )
    
    
    (2,544
    )Treasury stock, at cost
    
    
    (310
    )
    
    
    (341
    )Unearned ESOP stock
    
    
    (1,381
    )
    
    
    (1,543
    )TOTAL STOCKHOLDERS EQUITY
    
    
    180,884
    
    
    
    105,065TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    1,836,098
    
    
    $
    1,415,469
  2




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SUPERIOR BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(Dollars in thousands, except per share data)INTEREST INCOMEInterest and fees on loans
    
    $
    23,366
    
    
    $
    16,063
    
    
    $
    62,038
    
    
    $
    46,531Interest on taxable securities
    
    
    3,248
    
    
    
    2,919
    
    
    
    8,757
    
    
    
    8,789Interest on tax-exempt securities
    
    
    106
    
    
    
    62
    
    
    
    273
    
    
    
    179Interest on federal funds sold
    
    
    142
    
    
    
    163
    
    
    
    229
    
    
    
    354Interest and dividends on other investments
    
    
    596
    
    
    
    272
    
    
    
    1,418
    
    
    
    769Total interest income
    
    
    27,458
    
    
    
    19,479
    
    
    
    72,715
    
    
    
    56,622INTEREST EXPENSEInterest on deposits
    
    
    12,653
    
    
    
    7,346
    
    
    
    30,833
    
    
    
    19,911Interest on other borrowed funds
    
    
    3,093
    
    
    
    1,927
    
    
    
    8,212
    
    
    
    5,665Interest on subordinated debentures
    
    
    797
    
    
    
    732
    
    
    
    2,338
    
    
    
    2,116Total interest expense
    
    
    16,543
    
    
    
    10,005
    
    
    
    41,383
    
    
    
    27,692NET INTEREST INCOME
    
    
    10,915
    
    
    
    9,474
    
    
    
    31,332
    
    
    
    28,930Provision for loan losses
    
    
    550
    
    
    
    500
    
    
    
    1,850
    
    
    
    2,750NET INTEREST INCOME AFTER PROVISION FOR LOAN
LOSSES
    
    
    10,365
    
    
    
    8,974
    
    
    
    29,482
    
    
    
    26,180NONINTEREST INCOMEService charges and fees on deposits
    
    
    1,137
    
    
    
    1,239
    
    
    
    3,417
    
    
    
    3,517Mortgage banking income
    
    
    919
    
    
    
    693
    
    
    
    2,158
    
    
    
    1,901Investment securities losses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (977
    )Change in fair value of derivatives
    
    
    6
    
    
    
    (863
    )
    
    
    43
    
    
    
    (160
    )Increase in cash surrender value of life insurance
    
    
    443
    
    
    
    389
    
    
    
    1,222
    
    
    
    1,131Insurance proceeds
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,000Other income
    
    
    315
    
    
    
    479
    
    
    
    1,377
    
    
    
    1,466TOTAL NONINTEREST INCOME
    
    
    2,820
    
    
    
    1,937
    
    
    
    8,217
    
    
    
    11,878NONINTEREST EXPENSESSalaries and employee benefits
    
    
    6,390
    
    
    
    6,048
    
    
    
    18,064
    
    
    
    17,377Occupancy, furniture and equipment expense
    
    
    1,806
    
    
    
    1,898
    
    
    
    5,391
    
    
    
    5,938Management separation costs
    
    
    
    
    
    
    64
    
    
    
    
    
    
    
    15,402Merger-related costs
    
    
    350
    
    
    
    
    
    
    
    350
    
    
    
    Subsidiary start-up costs
    
    
    135
    
    
    
    
    
    
    
    135
    
    
    
    Other operating expenses
    
    
    3,525
    
    
    
    3,028
    
    
    
    9,799
    
    
    
    11,126TOTAL NONINTEREST EXPENSES
    
    
    12,206
    
    
    
    11,038
    
    
    
    33,739
    
    
    
    49,843Income (loss) before income taxes
    
    
    979
    
    
    
    (127
    )
    
    
    3,960
    
    
    
    (11,785
    )INCOME TAX EXPENSE (BENEFIT)
    
    
    166
    
    
    
    (264
    )
    
    
    1,022
    
    
    
    (4,909
    )NET INCOME (LOSS)
    
    
    813
    
    
    
    137
    
    
    
    2,938
    
    
    
    (6,876
    )PREFERRED STOCK DIVIDENDS
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    305EFFECT OF EARLY CONVERSION OF PREFFERED STOCK
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,006NET INCOME (LOSS) APPLICABLE TO COMMON
STOCKHOLDERS
    
    $
    813
    
    
    $
    137
    
    
    $
    2,938
    
    
    $
    (9,187
    )BASIC NET INCOME (LOSS) PER COMMON SHARE
    
    $
    0.04
    
    
    $
    0.01
    
    
    $
    0.14
    
    
    $
    (0.49
    )DILUTED NET INCOME (LOSS) PER COMMON SHARE
    
    $
    0.04
    
    
    $
    0.01
    
    
    $
    0.14
    
    
    $
    (0.49
    )Weighted average common shares outstanding
    
    
    22,234
    
    
    
    19,625
    
    
    
    20,810
    
    
    
    18,920Weighted average common shares outstanding,
assuming dilution
    
    
    22,849
    
    
    
    20,240
    
    
    
    21,444
    
    
    
    18,920
  3




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SUPERIOR BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED)
(Dollars in thousands)
 Nine Months EndedSeptember 30,2006
    
    
    2005NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES
    
    $
    8,741
    
    
    $
    (6.540
    )CASH FLOWS FROM INVESTING ACTIVITIES:Net decrease in interest-bearing deposits in other banks
    
    
    2,709
    
    
    
    4,071Net increase in federal funds sold
    
    
    (1,009
    )
    
    
    (14,565
    )Proceeds from sales of securities available for sale
    
    
    149,730
    
    
    
    57,150Proceeds from maturities of investment securities available for sale
    
    
    10,921
    
    
    
    26,274Purchases of investment securities available for sale
    
    
    (44,729
    )
    
    
    (54,765
    )Purchases of tax lien certificates
    
    
    (6,965
    )
    
    
    Net (increase) decrease in loans
    
    
    (159,078
    )
    
    
    30,332Net cash
received in business combination
    
    
    4,459
    
    
    
    Proceeds from sales of premises and equipment
    
    
    1,228
    
    
    
    3,243Purchases of premises and equipment
    
    
    (8,683
    )
    
    
    (1,654
    )Proceeds from sale of repossessed assets
    
    
    1,214
    
    
    
    Other
operating activities, net
    
    
    1,594
    
    
    
    (34
    )Net cash (used) provided by investing activities
    
    
    (48,609
    )
    
    
    50,052CASH FLOWS FROM FINANCING ACTIVITIES:Net increase (decrease) in deposit accounts
    
    
    103,084
    
    
    
    (14,925
    )Net decrease  in FHLB advances and other borrowed funds
    
    
    (66,396
    )
    
    
    (38,595
    )Payments made on notes payable
    
    
    (158
    )
    
    
    (158
    )Proceeds from sale of common stock
    
    
    1,214
    
    
    
    9,122Cash dividends paid
    
    
    
    
    
    
    (305
    )Net cash provided (used) by financing activities
    
    
    37,744
    
    
    
    (44,861
    )Net decrease in cash and due from banks
    
    
    (2,124
    )
    
    
    (1,349
    )Cash and due from banks at beginning of period
    
    
    35,088
    
    
    
    23,489CASH AND DUE FROM BANKS AT END OF PERIOD
    
    $
    32,964
    
    
    $
    22,140
  4




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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 Note 1  Basis of Presentation
   Accounting for Derivative Instruments and Hedging Activities
 Note 2  Recent Accounting Pronouncements
 Statement of Financial Accounting Standards No. 155
 Accounting
for Certain Hybrid Financial Instruments Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities  a replacement of FASB Statement No. 125,
 5




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Statement of Financial Accounting Standards No. 156
 Accounting for Servicing of Financial Assets
 FASB Interpretation No. 48
 Accounting for Uncertainty in Income
Taxes Accounting for Income Taxes
 Emerging
Issues Task Force No. 06-05
  Staff
Accounting Bulletin No. 108
 Quantifying Financial
Misstatements,
 Statement
of Financial Accounting Standards No. 158
 Employers Accounting for Defined Benefit Pension and Other Postretirement Plans  an amendment of
FASB Statements No. 87, 88, 106 and 132(R)
 Statement
of Financial Accounting Standards No. 157
 Fair Value Measurements
 Emerging
Issues Task Force No. 06-04
  6




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Employers Accounting for Postretirement Benefits
Other Than Pensions
 Note 3  Acquisitions
    (Dollars in thousands)
    
    AmountCash and due from banks
    
    $
    4,454Federal funds sold
    
    
    964Investment securities
    
    
    180,151Loans, net
    
    
    136,854Premises and equipment, net
    
    
    5,559Goodwill
    
    
    44,826Core deposit and other intangibles
    
    
    3,544Other assets
    
    
    4,732Deposits
    
    
    (276,186
    )Repurchase agreements
    
    
    (30,050
    )Other liabilities
    
    
    (3,045
    )Total
consideration paid for Kensington
    
    $
    71,803
  7




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##### Table of Contents



(Dollars in thousands, except per share data)
    
    2006
    
    2005Net interest income and noninterest income
    
    $
    46,337
    
    
    $
    48,998Net income (loss)
    
    
    4,807
    
    
    
    (4,329
    )Net income (loss) available to common shareholders
    
    
    4,807
    
    
    
    (6,640
    )Earnings per
common share  basic
    
    $
    0.18
    
    
    $
    (0.26
    )Earnings per
common share  diluted
    
    $
    0.17
    
    
    $
    (0.26
    )
   Note 4  Asset Sales
  Note 5  Segment Reporting
   8




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Alabama
    
    FloridaRegion
    
    Region
    
    CombinedThree months ended Sept 30, 2006Net interest income
    
    $
    6,500
    
    
    $
    4,415
    
    
    $
    10,915Provision for loan losses
    
    
    (71
    )
    
    
    621
    
    
    
    550Noninterest income
    
    
    2,556
    
    
    
    264
    
    
    
    2,820Noninterest expense (1)
    
    
    10,531
    
    
    
    1,675
    
    
    
    12,206Income tax (benefit) expense
    
    
    (623
    )
    
    
    789
    
    
    
    166Net (loss) income
    
    
    (781
    )
    
    
    1,594
    
    
    
    813Total assets
    
    
    1,167,107
    
    
    
    668,991
    
    
    
    1,836,098Three months ended Sept 30, 2005Net interest income
    
    $
    6,277
    
    
    $
    3,197
    
    
    $
    9,474Provision for loan losses
    
    
    503
    
    
    
    (3
    )
    
    
    500Noninterest income
    
    
    1,917
    
    
    
    20
    
    
    
    1,937Noninterest expense (1) (2)
    
    
    9,986
    
    
    
    1,052
    
    
    
    11,038Income tax (benefit) expense
    
    
    (968
    )
    
    
    704
    
    
    
    (264
    )Net (loss) income
    
    
    (1,327
    )
    
    
    1,464
    
    
    
    137Total assets
    
    
    1,149,436
    
    
    
    226,883
    
    
    
    1,376,319Nine months ended Sept 30, 2006Net interest income
    
    $
    19,395
    
    
    $
    11,936
    
    
    $
    31,331Provision for loan losses
    
    
    961
    
    
    
    889
    
    
    
    1,850Noninterest income
    
    
    7,459
    
    
    
    758
    
    
    
    8,217Noninterest expense (1)(2)
    
    
    29,896
    
    
    
    3,842
    
    
    
    33,738Income tax (benefit) expense
    
    
    (1,551
    )
    
    
    2,573
    
    
    
    1,022Net (loss) income
    
    
    (2,452
    )
    
    
    5,390
    
    
    
    2,938Nine months ended Sept 30, 2005Net interest income
    
    $
    19,812
    
    
    $
    9,118
    
    
    $
    28,930Provision for loan losses
    
    
    2,615
    
    
    
    135
    
    
    
    2,750Noninterest income (3)
    
    
    11,205
    
    
    
    673
    
    
    
    11,878Noninterest expense (1) (2)
    
    
    46,616
    
    
    
    3,227
    
    
    
    49,843Income tax (benefit) expense
    
    
    (6,813
    )
    
    
    1,904
    
    
    
    (4,909
    )Net (loss) income
    
    
    (11,401
    )
    
    
    4,525
    
    
    
    (6,876
    )
 
 (1)
    
    Noninterest expense for the Alabama region includes all expenses for the holding company,
which have not been prorated to the Florida region.(2)
    
    See Notes 4 and 12 concerning the amount of gain on the sale of assets and management
separation costs.(3)
    
    Noninterest income for the nine-month period ended September 30, 2005 includes $5.0 million
in insurance proceeds. 9




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Note 6  Net Income (Loss) per Common Share
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Numerator:Net income (loss)
    
    $
    813
    
    
    $
    137
    
    
    $
    2,938
    
    
    $
    (6,876
    )Less preferred dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    305Less effect of preferred stock conversion
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,006For basic and diluted, net income (loss)
    
    $
    813
    
    
    $
    137
    
    
    $
    2,938
    
    
    $
    (9,187
    )Denominator:For basic, weighted average common shares outstanding
    
    
    22,234
    
    
    
    19,625
    
    
    
    20,810
    
    
    
    18,920Effect of dilutive stock options and restricted stock
    
    
    615
    
    
    
    615
    
    
    
    634
    
    
    
    Average diluted common shares outstanding
    
    
    22,849
    
    
    
    20,240
    
    
    
    21,444
    
    
    
    18,920Basic net income (loss) per common share
    
    $
    .04
    
    
    $
    .01
    
    
    $
    .14
    
    
    $
    (.49
    )Diluted net income (loss) per common share
    
    $
    .04
    
    
    $
    .01
    
    
    $
    .14
    
    
    $
    (.49
    )
   Note 7  Comprehensive (Loss) Income
  Note 8  Income Taxes
   10




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Note 9  Junior Subordinated Debentures
    September 30,
    
    
    December 31,2006
    
    
    2005(In thousands)10.6% junior subordinated debentures owed to TBC Capital Statutory
Trust II due September 7, 2030
    
    $
    15,464
    
    
    $
    15,4646-month LIBOR plus 3.75% junior subordinated debentures owed to TBC Capital
Statutory Trust III July 25, 2031
    
    
    16,495
    
    
    
    16,495Total junior subordinated debentures owed to unconsolidated subsidiary trusts
    
    $
    31,959
    
    
    $
    31,959
   Note 10  Stockholders Equity
   11




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Allocated shares
    
    
    82,028Estimated shares committed to be released
    
    
    20,025Unreleased shares
    
    
    171,347Total ESOP shares
    
    
    273,400Fair value of unreleased shares
    
    $
    3,144,100
 Share-Based Payment
  12




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Risk-free interest rate
    
    
    4.54
    %Volatility factor
    
    
    30.16
    %Expected term (in years)
    
    
    5.00Dividend yield
    
    
    0.00
    %
  Weighted-Weighted-
    
    
    AverageAverage
    
    
    RemainingExercise
    
    
    Contractual
    
    
    AggregateNumber
    
    
    Price
    
    
    Term
    
    
    Intrinsic ValueUnder option, beginning of period
    
    
    3,031,946
    
    
    $
    7.81Granted
    
    
    159,000
    
    
    
    10.72Exercised
    
    
    (145,818
    )
    
    
    6.34Forfeited
    
    
    (20,031
    )
    
    
    7.06Under option, end of period
    
    
    3,025,097
    
    
    $
    8.04
    
    
    
    7.61
    
    
    $
    9,694,401Exercisable at end of period
    
    
    2,871,097
    
    
    $
    7.89
    
    
    
    7.61
    
    
    $
    8,926,957Weighted-average fair value per
option of options granted during the
period
    
    $
    3.75
   13




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##### Table of Contents



For the Three Months
    
    For the Nine MonthsEnded
    
    EndedSeptember 30, 2005
    
    September 30, 2005Net income (loss):As reported
    
    $
    137
    
    
    $
    (6,876
    )Pro forma
    
    
    (200
    )
    
    
    (10,929
    )Loss per common share:As reported
    
    $
    .01
    
    
    $
    (.49
    )Pro forma
    
    
    (.01
    )
    
    
    (.70
    )Diluted loss per common share:As reported
    
    $
    .01
    
    
    $
    (.49
    )Pro forma
    
    
    (.01
    )
    
    
    (.70
    )
  Risk-free interest rate
    
    
    4.33
    %Volatility factor
    
    
    44.00
    %Weighted average expected term
    
    
    7.00Dividend yield
    
    
    0.00
    %
 Note 11  Derivative Instruments and Hedging Activities
      14




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##### Table of Contents



Note 12  Management Separation Costs
      Note
13  Tax Lien Certificates
  15




---



##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
            16




---



##### Table of Contents



17




---



##### Table of Contents



Average Balances Income, Expense and Rates
 18




---



##### Table of Contents



Three Months Ended September 30,2006
    
    
    2005Average
    
    
    Income/
    
    
    Yield/
    
    
    Average
    
    
    Income/
    
    
    Yield/Balance
    
    
    Expense
    
    
    Rate
    
    
    Balance
    
    
    Expense
    
    
    Rate(Dollars in thousands)ASSETSInterest-earning assets:Loans, net of unearned income (1)
    
    $
    1,157,948
    
    
    $
    23,366
    
    
    
    8.01
    %
    
    $
    931,598
    
    
    $
    16,063
    
    
    
    6.84
    %Investment securitiesTaxable
    
    
    271,730
    
    
    
    3,248
    
    
    
    4.74
    
    
    
    253,960
    
    
    
    2,919
    
    
    
    4.56Tax-exempt (2)
    
    
    10,600
    
    
    
    161
    
    
    
    6.01
    
    
    
    6,897
    
    
    
    94
    
    
    
    5.40Total investment securities
    
    
    282,330
    
    
    
    3,409
    
    
    
    4.79
    
    
    
    260,857
    
    
    
    3,013
    
    
    
    4.58Federal funds sold
    
    
    10,512
    
    
    
    142
    
    
    
    5.36
    
    
    
    18,904
    
    
    
    163
    
    
    
    3.42Other investments
    
    
    27,368
    
    
    
    596
    
    
    
    8.64
    
    
    
    22,743
    
    
    
    272
    
    
    
    4.74Total interest -earning assets
    
    
    1,478,158
    
    
    
    27,513
    
    
    
    7.38
    
    
    
    1,234,102
    
    
    
    19,511
    
    
    
    6.27Noninterest-earning assets:Cash and due from banks
    
    
    32,339
    
    
    
    
    
    
    
    
    
    
    
    34,991Premises and equipment
    
    
    62,702
    
    
    
    
    
    
    
    
    
    
    
    55,849Accrued interest and other assets
    
    
    93,061
    
    
    
    
    
    
    
    
    
    
    
    84,175Allowance for loan losses
    
    
    (12,832
    )
    
    
    
    
    
    
    
    
    
    
    (12,368
    )Total assets
    
    $
    1,653,428
    
    
    
    
    
    
    
    
    
    
    $
    1,396,749LIABILITIES AND STOCKHOLDERS EQUITYInterest-bearing liabilities:Demand deposits
    
    $
    356,319
    
    
    $
    3,631
    
    
    
    4.04
    
    
    $
    362,520
    
    
    $
    2,094
    
    
    
    2.29Savings deposits
    
    
    22,488
    
    
    
    33
    
    
    
    0.58
    
    
    
    25,178
    
    
    
    9
    
    
    
    0.14Time deposits
    
    
    758,425
    
    
    
    8,989
    
    
    
    4.70
    
    
    
    579,977
    
    
    
    5,243
    
    
    
    3.59Other borrowings
    
    
    235,218
    
    
    
    3,093
    
    
    
    5.22
    
    
    
    179,306
    
    
    
    1,927
    
    
    
    4.26Subordinated debentures
    
    
    31,959
    
    
    
    797
    
    
    
    9.89
    
    
    
    31,959
    
    
    
    732
    
    
    
    9.09Total
interest - bearing liabilities
    
    
    1,404,409
    
    
    
    16,543
    
    
    
    4.67
    
    
    
    1,178,940
    
    
    
    10,005
    
    
    
    3.37Noninterest-bearing liabilities:Demand deposits
    
    
    100,872
    
    
    
    
    
    
    
    
    
    
    
    94,219Accrued interest and other liabilities
    
    
    16,984
    
    
    
    
    
    
    
    
    
    
    
    22,112Stockholders equity
    
    
    131,163
    
    
    
    
    
    
    
    
    
    
    
    101,478Total liabilities and
stockholders equity
    
    $
    1,653,428
    
    
    
    
    
    
    
    
    
    
    $
    1,396,749Net interest income/net interest spread
    
    
    
    
    
    
    10,970
    
    
    
    2.71
    %
    
    
    
    
    
    
    9,506
    
    
    
    2.90
    %Net yield on earning assets
    
    
    
    
    
    
    
    
    
    
    2.94
    %
    
    
    
    
    
    
    
    
    
    
    3.06
    %Taxable equivalent adjustment:Investment securities (2)
    
    
    
    
    
    
    55
    
    
    
    
    
    
    
    
    
    
    
    32Net interest income
    
    
    
    
    
    $
    10,915
    
    
    
    
    
    
    
    
    
    
    $
    9,474
 
 (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 percent. 19




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##### Table of Contents



Three Months Ended September 30, (1)2006 vs. 2005Increase
    
    
    Changes Due To(Decrease)
    
    
    Rate
    
    
    Volume(Dollars in thousands)Increase (decrease) in:Income from interest-earning assets:Interest and fees on loans
    
    $
    7,303
    
    
    $
    3,017
    
    
    $
    4,286Interest on securities:Taxable
    
    
    329
    
    
    
    119
    
    
    
    210Tax-exempt
    
    
    67
    
    
    
    11
    
    
    
    56Interest on federal funds
    
    
    (21
    )
    
    
    69
    
    
    
    (90
    )Interest on other investments
    
    
    324
    
    
    
    260
    
    
    
    64Total interest income
    
    
    8,002
    
    
    
    3,476
    
    
    
    4,526Expense from interest-bearing liabilities:Interest on demand deposits
    
    
    1,537
    
    
    
    1,573
    
    
    
    (36
    )Interest on savings deposits
    
    
    24
    
    
    
    25
    
    
    
    (1
    )Interest on time deposits
    
    
    3,746
    
    
    
    1,878
    
    
    
    1,868Interest on other borrowings
    
    
    1,166
    
    
    
    489
    
    
    
    677Interest on subordinated debentures
    
    
    65
    
    
    
    65
    
    
    
    Total interest expense
    
    
    6,538
    
    
    
    4,030
    
    
    
    2,508Net interest income
    
    $
    1,464
    
    
    $
    (554
    )
    
    $
    2,018
 
 (1)
    
    The change in interest due to both rate and volume has been allocated to volume and rate
changes in proportion to the relationship of the absolute dollar amounts of the changes in
each. 20




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##### Table of Contents



Average Balances Income, Expense and Rates
 Nine Months Ended September 30,2006
    
    
    2005Average
    
    
    Income/
    
    
    Yield/
    
    
    Average
    
    
    Income/
    
    
    Yield/Balance
    
    
    Expense
    
    
    Rate
    
    
    Balance
    
    
    Expense
    
    
    Rate(Dollars in thousands)ASSETSInterest-earning assets:Loans, net of unearned income (1)
    
    $
    1,067,972
    
    
    $
    62,038
    
    
    
    7.77
    %
    
    $
    943,550
    
    
    $
    46,531
    
    
    
    6.59
    %Investment securitiesTaxable
    
    
    251,590
    
    
    
    8,757
    
    
    
    4.65
    
    
    
    260,734
    
    
    
    8,789
    
    
    
    4.51Tax-exempt (2)
    
    
    9,466
    
    
    
    414
    
    
    
    5.84
    
    
    
    6,716
    
    
    
    271
    
    
    
    5.39Total investment securities
    
    
    261,056
    
    
    
    9,171
    
    
    
    4.70
    
    
    
    267,450
    
    
    
    9,060
    
    
    
    4.53Federal funds sold
    
    
    5,876
    
    
    
    228
    
    
    
    5.19
    
    
    
    16,134
    
    
    
    354
    
    
    
    2.93Other investments
    
    
    21,775
    
    
    
    1,418
    
    
    
    8.71
    
    
    
    23,551
    
    
    
    769
    
    
    
    4.37Total interest -earning assets
    
    
    1,356,679
    
    
    
    72,855
    
    
    
    7.18
    
    
    
    1,250,685
    
    
    
    56,714
    
    
    
    6.06Noninterest-earning assets:Cash and due from banks
    
    
    24,927
    
    
    
    
    
    
    
    
    
    
    
    32,212Premises and equipment
    
    
    58,823
    
    
    
    
    
    
    
    
    
    
    
    57,325Accrued interest and other assets
    
    
    84,416
    
    
    
    
    
    
    
    
    
    
    
    83,712Allowance for loan losses
    
    
    (12,394
    )
    
    
    
    
    
    
    
    
    
    
    (12,649
    )Total assets
    
    $
    1,512,451
    
    
    
    
    
    
    
    
    
    
    $
    1,411,285LIABILITIES AND STOCKHOLDERS EQUITYInterest-bearing liabilities:Demand deposits
    
    $
    331,086
    
    
    $
    7,969
    
    
    
    3.22
    
    
    $
    333,912
    
    
    $
    4,849
    
    
    
    1.94Savings deposits
    
    
    21,152
    
    
    
    51
    
    
    
    0.32
    
    
    
    26,812
    
    
    
    30
    
    
    
    0.15Time deposits
    
    
    685,864
    
    
    
    22,813
    
    
    
    4.45
    
    
    
    614,288
    
    
    
    15,032
    
    
    
    3.27Other borrowings
    
    
    217,535
    
    
    
    8,212
    
    
    
    5.05
    
    
    
    190,589
    
    
    
    5,665
    
    
    
    3.97Subordinated debentures
    
    
    31,959
    
    
    
    2,338
    
    
    
    9.78
    
    
    
    31,959
    
    
    
    2,116
    
    
    
    8.85Total
interest - bearing liabilities
    
    
    1,287,596
    
    
    
    41,383
    
    
    
    4.30
    
    
    
    1,197,560
    
    
    
    27,692
    
    
    
    3.09Noninterest-bearing liabilities:Demand deposits
    
    
    95,376
    
    
    
    
    
    
    
    
    
    
    
    93,936Accrued interest and other liabilities
    
    
    15,386
    
    
    
    
    
    
    
    
    
    
    
    18,636Stockholders equity
    
    
    114,093
    
    
    
    
    
    
    
    
    
    
    
    101,153Total liabilities and
stockholders equity
    
    $
    1,512,451
    
    
    
    
    
    
    
    
    
    
    $
    1,411,285Net interest income/net interest spread
    
    
    
    
    
    
    31,472
    
    
    
    2.88
    %
    
    
    
    
    
    
    29,022
    
    
    
    2.97
    %Net yield on earning assets
    
    
    
    
    
    
    
    
    
    
    3.10
    %
    
    
    
    
    
    
    
    
    
    
    3.10
    %Taxable equivalent adjustment:Investment securities (2)
    
    
    
    
    
    
    141
    
    
    
    
    
    
    
    
    
    
    
    92Net interest income
    
    
    
    
    
    $
    31,331
    
    
    
    
    
    
    
    
    
    
    $
    28,930
 
 (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 percent. 21




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##### Table of Contents



Nine Months Ended September 30, (1)2006 vs. 2005Increase
    
    
    Changes Due To(Decrease)
    
    
    Rate
    
    
    Volume(Dollars in thousands)Increase (decrease) in:Income from interest-earning assets:Interest and fees on loans
    
    $
    15,507
    
    
    $
    8,931
    
    
    $
    6,576Interest on securities:Taxable
    
    
    (32
    )
    
    
    275
    
    
    
    (307
    )Tax-exempt
    
    
    143
    
    
    
    24
    
    
    
    119Interest on federal funds
    
    
    (126
    )
    
    
    177
    
    
    
    (303
    )Interest on other investments
    
    
    649
    
    
    
    711
    
    
    
    (62
    )Total interest income
    
    
    16,141
    
    
    
    10,118
    
    
    
    6,023Expense from interest-bearing liabilities:Interest on demand deposits
    
    
    3,120
    
    
    
    3,161
    
    
    
    (41
    )Interest on savings deposits
    
    
    21
    
    
    
    28
    
    
    
    (7
    )Interest on time deposits
    
    
    7,781
    
    
    
    5,882
    
    
    
    1,899Interest on other borrowings
    
    
    2,547
    
    
    
    1,676
    
    
    
    871Interest on subordinated debentures
    
    
    222
    
    
    
    222
    
    
    
    Total interest expense
    
    
    13,691
    
    
    
    10,969
    
    
    
    2,722Net interest income
    
    $
    2,450
    
    
    $
    (851
    )
    
    $
    3,301
 
 (1)
    
    The change in interest due to both rate and volume has been allocated to volume and rate
changes in proportion to the relationship of the absolute dollar amounts of the changes in
each. Noninterest income
  22




---



##### Table of Contents



Noninterest expenses
  Income tax expense
  Provision for Loan Losses
 23




---



##### Table of Contents



Short-term liquid assets
 Investment Securities
  Tax lien certificates.
 24




---



##### Table of Contents



Loans
  
 September 30, 2006
    
    
    December 31, 2005Percent of
    
    
    
    
    
    
    Percent ofAmount
    
    
    Total
    
    
    Amount
    
    
    TotalCommercial and industrial
    
    $
    154,228
    
    
    
    12.2
    %
    
    $
    135,454
    
    
    
    14.0
    %Real estate  construction and land development
    
    
    472,316
    
    
    
    37.5
    
    
    
    326,418
    
    
    
    33.8Real estate  mortgageSingle-family
    
    
    316,930
    
    
    
    25.2
    
    
    
    243,183
    
    
    
    25.2Commercial
    
    
    266,674
    
    
    
    21.2
    
    
    
    210,611
    
    
    
    21.8Other
    
    
    29,977
    
    
    
    2.4
    
    
    
    27,503
    
    
    
    2.9Consumer
    
    
    17,871
    
    
    
    1.4
    
    
    
    21,122
    
    
    
    2.2Other
    
    
    1,511
    
    
    
    .1
    
    
    
    498
    
    
    
    .1Total loans
    
    
    
    
    
    
    100.0
    %
    
    
    964,789
    
    
    
    100.0
    %Unearned income
    
    
    (1,867
    )
    
    
    
    
    
    
    (1,536
    )Allowance for loan losses
    
    
    (13,222
    )
    
    
    
    
    
    
    (12,011
    )Net loans
    
    $
    1,244,418
    
    
    
    
    
    
    $
    951,242
 Premises and Equipment, net.
 Goodwill
and other intangible assets
 Deposits
  25




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##### Table of Contents



Borrowings
 Junior Subordinated Debentures
   September 30, 2006
    
    
    December 31, 2005(In thousands)10.6% junior subordinated debentures owed to TBC Capital Statutory
Trust II due September 7, 2030
    
    $
    15,464
    
    
    $
    15,4646-month LIBOR plus 3.75% junior subordinated debentures owed to TBC Capital
Statutory Trust III due July 25, 2031
    
    
    16,495
    
    
    
    16,495Total junior subordinated debentures owed to unconsolidated subsidiary trusts
    
    $
    31,959
    
    
    $
    31,959
   Derivatives
   26




---



##### Table of Contents



Allowance for Loan Losses
     27




---



##### Table of Contents



28




---



##### Table of Contents



SUMMARY OF LOAN LOSS EXPERIENCE
 Three-Month
    
    
    Nine-MonthPeriod Ended
    
    
    Period Ended
    
    
    Year EndedSeptember 30,
    
    
    September 30,
    
    
    December 31,2006
    
    
    2005
    
    
    2006
    
    
    2005
    
    
    2005(Dollars in thousands)Allowance for loan losses at
beginning of period
    
    $
    12,311
    
    
    $
    12,263
    
    
    $
    12,011
    
    
    $
    12,543
    
    
    $
    12,543Allowance of acquired bank
    
    
    1,016
    
    
    
    
    
    
    
    1,016
    
    
    
    
    
    
    
    Charge-offs:Commercial and industrial
    
    
    456
    
    
    
    256
    
    
    
    1,071
    
    
    
    1,417
    
    
    
    2,097Real estate  construction and
land development
    
    
    
    
    
    
    280
    
    
    
    44
    
    
    
    354
    
    
    
    358Real estate  mortgageSingle-family
    
    
    87
    
    
    
    102
    
    
    
    537
    
    
    
    601
    
    
    
    795Commercial
    
    
    226
    
    
    
    136
    
    
    
    321
    
    
    
    1,131
    
    
    
    1,432Other
    
    
    4
    
    
    
    6
    
    
    
    15
    
    
    
    26
    
    
    
    85Consumer
    
    
    141
    
    
    
    251
    
    
    
    545
    
    
    
    631
    
    
    
    630Other
    
    
    
    
    
    
    1
    
    
    
    2
    
    
    
    255
    
    
    
    345Total charge-offs
    
    
    914
    
    
    
    1,032
    
    
    
    2,535
    
    
    
    4,415
    
    
    
    5,742Recoveries:Commercial and industrial
    
    
    104
    
    
    
    75
    
    
    
    322
    
    
    
    285
    
    
    
    413Real estate  construction and
land development
    
    
    2
    
    
    
    11
    
    
    
    123
    
    
    
    36
    
    
    
    37Real estate  mortgageSingle-family
    
    
    27
    
    
    
    47
    
    
    
    83
    
    
    
    329
    
    
    
    335Commercial
    
    
    21
    
    
    
    11
    
    
    
    75
    
    
    
    135
    
    
    
    526Other
    
    
    17
    
    
    
    24
    
    
    
    63
    
    
    
    97
    
    
    
    118Consumer
    
    
    89
    
    
    
    114
    
    
    
    215
    
    
    
    211
    
    
    
    280Other
    
    
    
    
    
    
    11
    
    
    
    
    
    
    
    53
    
    
    
    1Total recoveries
    
    
    260
    
    
    
    293
    
    
    
    881
    
    
    
    1,146
    
    
    
    1,710Net charge-offs
    
    
    654
    
    
    
    739
    
    
    
    1,654
    
    
    
    3,269
    
    
    
    4,032Provision for loan losses
    
    
    550
    
    
    
    500
    
    
    
    1,850
    
    
    
    2,750
    
    
    
    3,500Allowance for loan losses at end
of period
    
    $
    13,223
    
    
    $
    12,024
    
    
    $
    13,223
    
    
    $
    12,024
    
    
    $
    12,011Loans at end of period, net of
unearned income
    
    $
    1,257,640
    
    
    $
    903,398
    
    
    $
    1,257,640
    
    
    $
    903,398
    
    
    $
    963,253Average loans, net of unearned
income
    
    
    1,135,317
    
    
    
    931,598
    
    
    
    1,050,562
    
    
    
    943,550
    
    
    
    947,212Ratio of ending allowance to
ending loans
    
    
    1.05
    %
    
    
    1.33
    %
    
    
    1.05
    %
    
    
    1.33
    %
    
    
    1.25
    %Ratio of net charge-offs to
average loans (1)
    
    
    0.23
    %
    
    
    0.31
    %
    
    
    0.21
    %
    
    
    0.46
    %
    
    
    0.43
    %Net charge-offs as a percentage of:Provision for loan losses
    
    
    118.91
    %
    
    
    147.80
    %
    
    
    89.41
    %
    
    
    118.87
    %
    
    
    115.20
    %Allowance for loan losses (1)
    
    
    19.62
    %
    
    
    24.38
    %
    
    
    16.72
    %
    
    
    36.35
    %
    
    
    33.57
    %Allowance for loan losses as a
percentage of nonperforming loans
    
    
    307.15
    %
    
    
    196.21
    %
    
    
    307.15
    %
    
    
    196.21
    %
    
    
    252.76
    %
 
 (1)
    
    Annualized. 29




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##### Table of Contents



Nonperforming
Assets
 NONPERFORMING ASSETS
 September 30,
    
    
    December 31,2006
    
    
    2005(Dollars in thousands)Nonaccrual
    
    $
    4,032
    
    
    $
    4,550Accruing loans 90 days or more delinquent
    
    
    65
    
    
    
    49Restructured
    
    
    208
    
    
    
    153Total nonperforming loans
    
    
    4,305
    
    
    
    4,752Other real estate owned
    
    
    1,304
    
    
    
    1,842Total nonperforming assets
    
    $
    5,609
    
    
    $
    6,594Nonperforming loans as a percentage of loans
    
    
    0.34
    %
    
    
    0.49
    %Nonperforming assets as a percentage of loans plus nonperforming assets
    
    
    0.45
    %
    
    
    0.68
    %Nonperforming assets as a percentage of total assets
    
    
    0.32
    %
    
    
    0.47
    %
   September 30,
    
    
    December 31,2006
    
    
    2005(Dollars in thousands)Commercial and industrial
    
    $
    988
    
    
    $
    1,797Real estate  construction and land development
    
    
    425
    
    
    
    469Real estate  mortgagesSingle-family
    
    
    2,159
    
    
    
    1,639Commercial
    
    
    638
    
    
    
    675Other
    
    
    
    
    
    
    11Consumer
    
    
    95
    
    
    
    161Total nonperforming loans
    
    $
    4,305
    
    
    $
    4,752
  30




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##### Table of Contents



Impaired Loans
 Outstanding
    
    SpecificBalance
    
    Allowance(Dollars in thousands)Commercial and industrial
    
    $
    864
    
    
    $
    413Real estate  construction and land development
    
    
    476
    
    
    
    134Real estate  mortgagesCommercial
    
    
    859
    
    
    
    254Other
    
    
    450
    
    
    
    68Total
    
    $
    2,649
    
    
    $
    869
 Potential
Problem Loans
 Stockholders Equity
 Regulatory Capital.
 To Be WellFor Capital
    
    
    Capitalized UnderAdequacy
    
    
    Prompt CorrectiveActual
    
    
    Purposes
    
    
    ActionAmount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio
    
    
    Amount
    
    
    RatioAs of September 30, 2006Tier 1 Core Capital (to
Adjusted Total Assets)Corporation
    
    $
    146,127
    
    
    
    8.25
    %
    
    $
    70,814
    
    
    
    4.00
    %
    
    $
    88,517
    
    
    
    5.00
    %Superior Bank
    
    
    140,518
    
    
    
    7.99
    
    
    
    70,387
    
    
    
    4.00
    
    
    
    87,983
    
    
    
    5.00Total Capital (to Risk
Weighted Assets)Corporation
    
    
    158,708
    
    
    
    11.00
    
    
    
    115,476
    
    
    
    8.00
    
    
    
    144,345
    
    
    
    10.00
    %Superior Bank
    
    
    153,099
    
    
    
    10.69
    
    
    
    114,622
    
    
    
    8.00
    
    
    
    143,278
    
    
    
    10.00Tier 1 Capital (to Risk
Weighted Assets)Corporation
    
    
    146,127
    
    
    
    10.12
    
    
    
    N/A
    
    
    
    N/A
    
    
    $
    86,607
    
    
    
    6.00
    %Superior Bank
    
    
    140,518
    
    
    
    9.81
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    85,967
    
    
    
    6.00Tangible Capital (to
Adjusted Total Assets)Superior Bank
    
    
    140,518
    
    
    
    7.99
    
    
    
    26,395
    
    
    
    1.50
    
    
    
    N/A
    
    
    
    N/A
 31




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##### Table of Contents



32




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##### Table of Contents



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
   
 ITEM 4. CONTROLS AND PROCEDURES
        33




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##### Table of Contents



PART II. OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 1A. RISK FACTORS
  
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  FOR
    
    AGAINST
    
    ABSTAIN12,997,496
    
    
    26,035
    
    
    
    5,491
 
 ITEM 5. OTHER INFORMATION
  34




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##### Table of Contents



ITEM 6. EXHIBITS
  31.01
    
    Certification of principal executive officer pursuant to Rule 13a-14(a).31.02
    
    Certification of principal financial officer pursuant to 13a-14(a).32.01
    
    Certification of principal executive officer pursuant to 18 U.S.C. Section 1350.32.02
    
    Certification of principal financial officer pursuant to 18 U.S.C. Section 1350.
 35




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##### Table of Contents



SUPERIOR BANCORP
(Registrant)Date: November 9, 2006
    By:
    /s/ C. Stanley BaileyC. Stanley BaileyChief Executive OfficerDate: November 9, 2006
    By:
    /s/ James C. GossettJames C. GossettChief Accounting Officer

(Principal Financial and Accounting Officer) 36