##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, DC
 FORM 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 FOR THE QUARTERLY PERIOD ENDED June 30, 2008
 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
  Delaware
    
    63-1201350(State or Other Jurisdiction of Incorporation)
    
    (IRS Employer Identification No.)
 17 North 20th Street, Birmingham, Alabama 35203
 
  þ o
  Large accelerated filer oAccelerated filer þNon-accelerated filer o(Do not check if a smaller reporting company)Smaller reporting company o  o þ
  Class
    
    Outstanding as of June 30, 2008Common stock, $.001 par value
    
    10,055,879




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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
    
    
    14ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
    
    
    34ITEM 4. CONTROLS AND PROCEDURES
    
    
    35PART II. OTHER INFORMATIONITEM 1. LEGAL PROCEEDINGS
    
    
    36ITEM 1A. RISK FACTORS
    
    
    36ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
    
    
    36ITEM 3. DEFAULTS UPON SENIOR SECURITIES
    
    
    36ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    
    
    36ITEM 5. OTHER INFORMATION
    
    
    37ITEM 6. EXHIBITS
    
    
    37SIGNATURES
    
    
    38EX-10.1 2008 INCENTIVE COMPENSATION PLANEX-31.1 SECTION 302 CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICEREX-31.2 SECTION 302 CERTIFICATION OF PRINCIPAL FINANCIAL OFFICEREX-32.1 SECTION 906 CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICEREX-32.2 SECTION 906 CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
  1




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##### Table of Contents



SUPERIOR BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands, except per share data)
 June 30,
    
    
    December 31,2008
    
    
    2007(UNAUDITED)ASSETSCash and due from banks
    
    $
    71,959
    
    
    $
    52,983Interest-bearing deposits in other banks
    
    
    4,010
    
    
    
    6,916Federal funds sold
    
    
    3,366
    
    
    
    3,452Investment securities available for sale
    
    
    356,408
    
    
    
    361,171Tax lien certificates
    
    
    25,032
    
    
    
    15,615Mortgage loans held for sale
    
    
    29,097
    
    
    
    33,408Loans, net of unearned income
    
    
    2,148,751
    
    
    
    2,017,011Less: Allowance for loan losses
    
    
    (27,243
    )
    
    
    (22,868
    )Net loans
    
    
    2,121,508
    
    
    
    1,994,143Premises and equipment, net
    
    
    103,565
    
    
    
    104,799Accrued interest receivable
    
    
    15,857
    
    
    
    16,512Stock in FHLB
    
    
    23,412
    
    
    
    14,945Cash surrender value of life insurance
    
    
    47,290
    
    
    
    45,277Goodwill and other intangibles
    
    
    185,442
    
    
    
    187,520Other assets
    
    
    52,612
    
    
    
    48,684TOTAL ASSETS
    
    $
    3,039,558
    
    
    $
    2,885,425LIABILITIES AND STOCKHOLDERS EQUITYDeposits:Noninterest-bearing
    
    $
    221,087
    
    
    $
    207,602Interest-bearing
    
    
    1,973,020
    
    
    
    1,993,009TOTAL DEPOSITS
    
    
    2,194,107
    
    
    
    2,200,611Advances from FHLB
    
    
    405,830
    
    
    
    222,828Federal funds purchased and security repurchase agreements
    
    
    7,218
    
    
    
    17,075Note payable
    
    
    9,500
    
    
    
    9,500Junior subordinated debentures owed to unconsolidated subsidiary trusts
    
    
    53,571
    
    
    
    53,744Accrued expenses and other liabilities
    
    
    20,547
    
    
    
    31,625TOTAL LIABILITIES
    
    
    2,690,773
    
    
    
    2,535,383STOCKHOLDERS EQUITYCommon stock, par value $.001 per share; authorized 15,000,000
shares; shares issued 10,382,410 and 10,380,658, respectively;
outstanding 10,055,879 and 10,027,079, respectively
    
    
    10
    
    
    
    10Surplus
    
    
    329,087
    
    
    
    329,232Retained earnings
    
    
    35,094
    
    
    
    33,557Accumulated other comprehensive (loss) income
    
    
    (3,138
    )
    
    
    174Treasury stock, at cost  320,764 and 347,536 shares, respectively
    
    
    (11,364
    )
    
    
    (12,309
    )Unearned ESOP stock
    
    
    (531
    )
    
    
    (622
    )Unearned restricted stock
    
    
    (373
    )
    
    
    TOTAL STOCKHOLDERS EQUITY
    
    
    348,785
    
    
    
    350,042TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    3,039,558
    
    
    $
    2,885,425
  2




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SUPERIOR BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(Amounts in thousands, except per share data)
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007INTEREST INCOMEInterest and fees on loans
    
    $
    36,708
    
    
    $
    34,986
    
    
    $
    74,053
    
    
    $
    69,297Interest on taxable securities
    
    
    4,143
    
    
    
    4,096
    
    
    
    8,195
    
    
    
    8,535Interest on tax-exempt securities
    
    
    431
    
    
    
    138
    
    
    
    861
    
    
    
    266Interest on federal funds sold
    
    
    18
    
    
    
    156
    
    
    
    98
    
    
    
    283Interest and dividends on other investments
    
    
    732
    
    
    
    691
    
    
    
    1,376
    
    
    
    1,429Total interest income
    
    
    42,032
    
    
    
    40,067
    
    
    
    84,583
    
    
    
    79,810INTEREST EXPENSEInterest on deposits
    
    
    16,709
    
    
    
    18,780
    
    
    
    36,962
    
    
    
    36,249Interest on other borrowed funds
    
    
    3,016
    
    
    
    2,770
    
    
    
    5,808
    
    
    
    6,019Interest on junior subordinated debentures
    
    
    919
    
    
    
    1,004
    
    
    
    1,934
    
    
    
    1,996Total interest expense
    
    
    20,644
    
    
    
    22,554
    
    
    
    44,704
    
    
    
    44,264NET INTEREST INCOME
    
    
    21,388
    
    
    
    17,513
    
    
    
    39,879
    
    
    
    35,546Provision for loan losses
    
    
    5,967
    
    
    
    1,000
    
    
    
    7,838
    
    
    
    1,705NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES
    
    
    15,421
    
    
    
    16,513
    
    
    
    32,041
    
    
    
    33,841NONINTEREST INCOMEService charges and fees on deposits
    
    
    2,192
    
    
    
    1,894
    
    
    
    4,296
    
    
    
    3,684Mortgage banking income
    
    
    1,031
    
    
    
    1,132
    
    
    
    2,297
    
    
    
    2,082Investment securities gains
    
    
    1,068
    
    
    
    
    
    
    
    1,470
    
    
    
    242Change in fair value of derivatives
    
    
    (418
    )
    
    
    118
    
    
    
    632
    
    
    
    (34
    )Increase in cash surrender value of life insurance
    
    
    555
    
    
    
    452
    
    
    
    1,107
    
    
    
    900Gain on extinguishment of liabilities
    
    
    2,918
    
    
    
    
    
    
    
    2,918
    
    
    
    Other income
    
    
    1,660
    
    
    
    942
    
    
    
    2,888
    
    
    
    1,750TOTAL NONINTEREST INCOME
    
    
    9,006
    
    
    
    4,538
    
    
    
    15,608
    
    
    
    8,624NONINTEREST EXPENSESSalaries and employee benefits
    
    
    12,058
    
    
    
    10,168
    
    
    
    24,199
    
    
    
    20,236Occupancy, furniture and equipment expense
    
    
    4,120
    
    
    
    2,995
    
    
    
    8,180
    
    
    
    6,142Amortization of core deposit intangibles
    
    
    896
    
    
    
    304
    
    
    
    1,792
    
    
    
    609Merger-related costs
    
    
    13
    
    
    
    107
    
    
    
    121
    
    
    
    426Other expenses
    
    
    6,189
    
    
    
    4,484
    
    
    
    11,248
    
    
    
    8,670TOTAL NONINTEREST EXPENSES
    
    
    23,276
    
    
    
    18,058
    
    
    
    45,540
    
    
    
    36,083Income before income taxes
    
    
    1,151
    
    
    
    2,993
    
    
    
    2,109
    
    
    
    6,382INCOME TAX EXPENSE
    
    
    310
    
    
    
    1,024
    
    
    
    572
    
    
    
    2,116NET INCOME
    
    $
    841
    
    
    $
    1,969
    
    
    $
    1,537
    
    
    $
    4,266BASIC NET INCOME PER COMMON SHARE
    
    $
    0.08
    
    
    $
    0.23
    
    
    $
    0.15
    
    
    $
    0.50DILUTED NET INCOME PER COMMON SHARE
    
    $
    0.08
    
    
    $
    0.23
    
    
    $
    0.15
    
    
    $
    0.49Weighted average common shares outstanding
    
    
    10,016
    
    
    
    8,613
    
    
    
    10,014
    
    
    
    8,611Weighted average common shares outstanding, assuming dilution
    
    
    10,056
    
    
    
    8,735
    
    
    
    10,051
    
    
    
    8,747
  3




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SUPERIOR BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED)
(Dollars in thousands)
 Six Months EndedJune 30,2008
    
    
    2007NET CASH PROVIDED BY OPERATING ACTIVITIES
    
    $
    11,446
    
    
    $
    9,518CASH FLOWS FROM INVESTING ACTIVITIES:Net decrease in interest-bearing deposits in other banks
    
    
    2,906
    
    
    
    6,276Net decrease in federal funds sold
    
    
    86
    
    
    
    12,342Proceeds from sales of securities available for sale
    
    
    36,142
    
    
    
    2,400Proceeds from maturities of investment securities available for sale
    
    
    92,189
    
    
    
    45,040Purchases of investment securities available for sale
    
    
    (127,153
    )
    
    
    (12,451
    )Purchase of tax lien certificates
    
    
    (9,417
    )
    
    
    (2,144
    )Net increase in loans
    
    
    (147,573
    )
    
    
    (71,556
    )Purchases of premises and equipment
    
    
    (8,078
    )
    
    
    (4,483
    )Proceeds from sale of premises and equipment
    
    
    7,567
    
    
    
    1,223Proceeds from sale of repossessed assets
    
    
    4,009
    
    
    
    1,943Increase in stock in FHLB
    
    
    (8,467
    )
    
    
    (416
    )Other investing activities, net
    
    
    (1,089
    )
    
    
    72Net cash used by investing activities
    
    
    (158,878
    )
    
    
    (21,754
    )CASH FLOWS FROM FINANCING ACTIVITIES:Net (decrease) increase in deposits
    
    
    (6,666
    )
    
    
    14,503Net increase (decrease) in FHLB advances and other borrowed funds
    
    
    173,074
    
    
    
    (2,829
    )Payments made on notes payable
    
    
    
    
    
    
    (87
    )Proceeds from notes payable
    
    
    
    
    
    
    500Proceeds from sale of common stock
    
    
    
    
    
    
    30Net cash provided by financing activities
    
    
    166,408
    
    
    
    12,117Net increase (decrease) in cash and due from banks
    
    
    18,976
    
    
    
    (119
    )CASH AND DUE FROM BANKS AT BEGINNING OF PERIOD
    
    
    52,983
    
    
    
    49,783CASH AND DUE FROM BANKS AT END OF PERIOD
    
    $
    71,959
    
    
    $
    49,664
  4




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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 Note 1  Basis of Presentation
   Restatement to Reflect 1-for-4 Reverse Stock Split
  Note 2  Recent Accounting Pronouncements
 Statement of Financial Accounting Standards No. 157
 Fair
Value Measurements
 Statement of Financial Accounting Standards No. 159
 The Fair Value Option for Financial Assets and
Financial Liabilities
 Statement of Financial Accounting Standards No. 141(R)
 Business Combinations  a replacement of FASB
No. 141 Business Combinations,
 5




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Note 2  Recent Accounting Pronouncements  (Continued)
 Accounting for Costs Associated with Exit or
Disposal Activities Accounting for Contingencies
 Staff Accounting Bulletin No. 109
 Written Loan Commitments Recorded at Fair Value Through Earnings Application of Accounting Principles to Loan Commitments,
 Statement of Financial Accounting Standards No. 161
 Disclosures About Derivative Instruments and Hedging
Activities, an Amendment of FASB Statement No. 133 Accounting for Derivative Instruments and Hedging Activities,
 Note 3  Acquisitions
   6




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Note 3  Acquisitions  (Continued)
 Pro forma Results of Operations
  Six MonthsEnded(Dollars in thousands, except per share data)
    
    June 30, 2007Pro forma net interest income and noninterest income
    
    $
    50,836Pro forma net income
    
    
    6,156Pro forma earnings per common share  basic
    
    $
    0.60Pro forma earnings per common share  diluted
    
    
    0.59
 Note 4  Segment Reporting
   Total
    
    
    
    
    
    
    SuperiorAlabama
    
    
    Florida
    
    
    Alabama and
    
    
    Administrative
    
    
    BancorpRegion
    
    
    Region
    
    
    Florida
    
    
    and Other
    
    
    CombinedThree months ended June 30, 2008Net interest income
    
    $
    8,012
    
    
    $
    9,108
    
    
    $
    17,120
    
    
    $
    4,268
    
    
    $
    21,388Provision for loan losses
    
    
    946
    
    
    
    660
    
    
    
    1,606
    
    
    
    4,361
    
    
    
    5,967Noninterest income
    
    
    1,745
    
    
    
    490
    
    
    
    2,235
    
    
    
    6,771
    
    
    
    9,006Noninterest expense
    
    
    7,468
    
    
    
    5,405
    
    
    
    12,873
    
    
    
    10,403
    
    
    
    23,276Operating profit (loss)
    
    $
    1,343
    
    
    $
    3,533
    
    
    $
    4,876
    
    
    $
    (3,725
    )
    
    
    1,151Income tax expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    310Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    841Total assets
    
    $
    1,046,413
    
    
    $
    1,141,009
    
    
    $
    2,187,422
    
    
    $
    852,136
    
    
    $
    3,039,558Three months ended June 30, 2007Net interest income
    
    $
    8,972
    
    
    $
    8,024
    
    
    $
    16,996
    
    
    $
    517
    
    
    $
    17,513Provision for loan losses
    
    
    434
    
    
    
    256
    
    
    
    690
    
    
    
    310
    
    
    
    1,000Noninterest income
    
    
    1,675
    
    
    
    351
    
    
    
    2,026
    
    
    
    2,512
    
    
    
    4,538Noninterest expense
    
    
    6,286
    
    
    
    3,018
    
    
    
    9,304
    
    
    
    8,754
    
    
    
    18,058Operating profit (loss)
    
    $
    3,927
    
    
    $
    5,101
    
    
    $
    9,028
    
    
    $
    (6,035
    )
    
    
    2,993Income tax expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,024Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    1,969Total assets
    
    $
    975,538
    
    
    $
    725,860
    
    
    $
    1,701,398
    
    
    $
    768,895
    
    
    $
    2,470,293
 7




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##### Table of Contents



Note 4  Segment Reporting  (Continued)
 Total
    
    
    
    
    
    
    SuperiorAlabama
    
    
    Florida
    
    
    Alabama and
    
    
    Administrative
    
    
    BancorpRegion
    
    
    Region
    
    
    Florida
    
    
    and Other
    
    
    CombinedSix months ended June 30, 2008Net interest income
    
    $
    15,624
    
    
    $
    18,728
    
    
    $
    34,352
    
    
    $
    5,527
    
    
    $
    39,879Provision for loan losses
    
    
    1,802
    
    
    
    1,518
    
    
    
    3,320
    
    
    
    4,518
    
    
    
    7,838Noninterest income
    
    
    3,606
    
    
    
    940
    
    
    
    4,546
    
    
    
    11,062
    
    
    
    15,608Noninterest expense
    
    
    15,092
    
    
    
    10,889
    
    
    
    25,981
    
    
    
    19,559
    
    
    
    45,540Operating profit (loss)
    
    $
    2,336
    
    
    $
    7,261
    
    
    $
    9,597
    
    
    $
    (7,488
    )
    
    
    2,109Income tax expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    572Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    1,537Six months ended June 30, 2007Net interest income
    
    $
    18,396
    
    
    $
    16,555
    
    
    $
    34,951
    
    
    $
    595
    
    
    $
    35,546Provision for loan losses
    
    
    1,038
    
    
    
    350
    
    
    
    1,388
    
    
    
    317
    
    
    
    1,705Noninterest income
    
    
    3,411
    
    
    
    663
    
    
    
    4,074
    
    
    
    4,550
    
    
    
    8,624Noninterest expense
    
    
    12,367
    
    
    
    6,098
    
    
    
    18,465
    
    
    
    17,618
    
    
    
    36,083Operating profit (loss)
    
    $
    8,402
    
    
    $
    10,770
    
    
    $
    19,172
    
    
    $
    (12,790
    )
    
    
    6,382Income tax expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,116Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    4,266
 Note 5  Net Income per Common Share
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Numerator:For basic and diluted, net income
    
    $
    841
    
    
    $
    1,969
    
    
    $
    1,537
    
    
    $
    4,266Denominator:For basic, weighted average common shares outstanding
    
    
    10,016
    
    
    
    8,613
    
    
    
    10,014
    
    
    
    8,611Effect of dilutive stock options and restricted stock
    
    
    40
    
    
    
    122
    
    
    
    37
    
    
    
    136Average diluted common shares outstanding
    
    
    10,056
    
    
    
    8,735
    
    
    
    10,051
    
    
    
    8,747Basic net income per common share
    
    $
    .08
    
    
    $
    .23
    
    
    $
    .15
    
    
    $
    .50Diluted net income per common share
    
    $
    .08
    
    
    $
    .23
    
    
    $
    .15
    
    
    $
    .49
 Note 6  Comprehensive (Loss) Income
  Net Unrealized Gain (Loss)June 30,
    
    
    December 31,
    
    
    Dollar2008
    
    
    2007
    
    
    Change, Pre-tax(Dollars in thousands)U.S. agencies
    
    $
    129
    
    
    $
    1,011
    
    
    $
    (882
    )State and political subdivisions
    
    
    (793
    )
    
    
    (173
    )
    
    
    (620
    )Mortgage-backed securities
    
    
    (1,742
    )
    
    
    194
    
    
    
    (1,936
    )Corporate debt & other securities
    
    
    (3,643
    )
    
    
    (1,892
    )
    
    
    (1,751
    )Net unrealized loss
    
    $
    (6,049
    )
    
    $
    (860
    )
    
    $
    (5,189
    )
 8




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Note 6  Comprehensive (Loss) Income  (Continued)
  Note 7  Income Taxes
  FASB Interpretation No. 48
 Accounting for Uncertainty in Income
Taxes Accounting for Income Taxes
    Note 8  Stockholders Equity
 1-for-4 Reverse Stock Split
 .
 9




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Note 8  Stockholders Equity  (Continued)
 Stock Incentive Plan
     2008
    
    2007Risk free interest rate
    
    
    4.50
    %
    
    
    4.37
    %Volatility factor
    
    
    29.11
    %
    
    
    29.34
    %Weighted average life of options (in years)
    
    
    5.00
    
    
    
    5.00Dividend yield
    
    
    0.00
    %
    
    
    0.00
    %
  Weighted-Weighted-
    
    
    AverageAverage
    
    
    RemainingExercise
    
    
    Contractual
    
    
    AggregateNumber
    
    
    Price
    
    
    Term
    
    
    Intrinsic ValueUnder option, January 1, 2008
    
    
    802,048
    
    
    $
    32.28Granted
    
    
    6,625
    
    
    
    19.60Forfeited
    
    
    (1,250
    )
    
    
    45.40Under option, June 30, 2008
    
    
    807,423
    
    
    $
    32.95
    
    
    
    6.23
    
    
    $
    Exercisable at end of period.
    
    
    691,653
    
    
    $
    31.76
    
    
    
    4.98
    
    
    $
    Weighted-average fair value
per option of options
granted during the period
    
    $
    6.70
 10




---



##### Table of Contents



Note 8  Stockholders Equity  (Continued)
   Note 9  Fair Value Measurements
    11




---



##### Table of Contents



Note 9  Fair Value Measurements  (Continued)
 Assets and Liabilities Recorded at Fair Value on a Recurring Basis
  Quoted Prices in
    
    
    
    
    
    
    SignificantFair Value at
    
    
    Active Markets for
    
    
    Significant Other
    
    
    UnobservableJune 30,
    
    
    Identical Assets
    
    
    Observable Inputs
    
    
    Inputs2008
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Available for sale securities
    
    $
    356,408
    
    
    $
    
    
    
    $
    356,408
    
    
    $
    Derivative assets
    
    
    114
    
    
    
    
    
    
    
    114
    
    
    
    Total recurring basis measured assets
    
    $
    356,522
    
    
    $
    
    
    
    $
    356,522
    
    
    $
    Derivative liabilities
    
    $
    103
    
    
    $
    
    
    
    $
    103
    
    
    $
    Total recurring basis measured
liabilities
    
    $
    103
    
    
    $
    
    
    
    $
    103
    
    
    $
    
 Valuation Techniques  Recurring Basis
 Securities Available for Sale
 Derivative financial instruments
 Assets Recorded at Fair Value on a Nonrecurring Basis
  Quoted Prices in
    
    
    Significant Other
    
    
    SignificantFair Value at
    
    
    Active Markets for
    
    
    Observable
    
    
    UnobservableJune 30,
    
    
    Identical Assets
    
    
    Inputs
    
    
    Inputs2008
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Mortgage loans held for sale
    
    $
    29,097
    
    
    $
    
    
    
    $
    29,097
    
    
    $
    Impaired loans, net of specific allowance
    
    
    39,468
    
    
    
    
    
    
    
    
    
    
    
    39,468Total nonrecurring basis measured assets
    
    $
    68,565
    
    
    $
    
    
    
    $
    29,097
    
    
    $
    39,468
 Valuation Techniques  Nonrecurring Basis
 Mortgage Loans Held for Sale.
 Impaired Loans.
 12




---



##### Table of Contents



Note 9  Fair Value Measurements  (Continued)
  Note 10  Gain on Extinguishment of Liabilities
  13




---



##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Basis of Presentation
   Recent Developments
  Overview
      14




---



##### Table of Contents



Fair Value Measurements
   15




---



##### Table of Contents



Assets and Liabilities Recorded at Fair Value on a Recurring Basis
  Quoted Prices in
    
    
    
    
    
    
    SignificantFair Value at
    
    
    Active Markets for
    
    
    Significant Other
    
    
    UnobservableJune 30,
    
    
    Identical Assets
    
    
    Observable Inputs
    
    
    Inputs2008
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Available for sale securities
    
    $
    356,408
    
    
    $
    
    
    
    $
    356,408
    
    
    $
    Derivative assets
    
    
    114
    
    
    
    
    
    
    
    114
    
    
    
    Total recurring basis measured assets
    
    $
    356,522
    
    
    $
    
    
    
    $
    356,522
    
    
    $
    Derivative liabilities
    
    $
    103
    
    
    $
    
    
    
    $
    103
    
    
    $
    Total recurring basis measured
liabilities
    
    $
    103
    
    
    $
    
    
    
    $
    103
    
    
    $
    
 Valuation Techniques  Recurring Basis
 Securities Available for Sale
 Derivative financial instruments
 Assets Recorded at Fair Value on a Nonrecurring Basis
  AssetsMeasured at
    
    
    Quoted Prices in
    
    
    
    
    
    
    SignificantFair Value at
    
    
    Active Markets for
    
    
    Significant Other
    
    
    UnobservableJune 30,
    
    
    Identical Assets
    
    
    Observable Inputs
    
    
    Inputs2008
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Mortgage loans held for sale
    
    $
    29,097
    
    
    $
    
    
    
    $
    29,097
    
    
    $
    Impaired loans, net of specific allowance
    
    
    39,468
    
    
    
    
    
    
    
    
    
    
    
    39,468Total nonrecurring basis measured assets
    
    $
    68,565
    
    
    $
    
    
    
    $
    29,097
    
    
    $
    39,468
 16




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##### Table of Contents



Valuation Techniques  Nonrecurring Basis
 Mortgage Loans Held for Sale.
 Impaired Loans.
 Results of Operations
  Three Months
    
    
    Six MonthsEnded June 30,
    
    
    Ended June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(Dollars in thousands, except per share data)Superior Bancorp and SubsidiariesNet income
    
    $
    841
    
    
    $
    1,969
    
    
    $
    1,537
    
    
    $
    4,266Net income per common share (diluted)
    
    
    0.08
    
    
    
    0.23
    
    
    
    0.15
    
    
    
    0.49Net interest margin
    
    
    3.39
    %
    
    
    3.39
    %
    
    
    3.21
    %
    
    
    3.46
    %Net interest spread
    
    
    3.17
    %
    
    
    3.06
    %
    
    
    2.96
    %
    
    
    3.14
    %Return on average assets
    
    
    0.11
    %
    
    
    0.32
    %
    
    
    0.10
    %
    
    
    0.35
    %Return on average tangible assets
    
    
    0.12
    %
    
    
    0.34
    %
    
    
    0.11
    %
    
    
    0.37
    %Return on average stockholders equity
    
    
    0.96
    %
    
    
    2.83
    %
    
    
    0.88
    %
    
    
    3.10
    %Return on average tangible equity
    
    
    2.04
    %
    
    
    5.26
    %
    
    
    1.87
    %
    
    
    5.79
    %Book value per share
    
    $
    34.68
    
    
    $
    32.18
    
    
    $
    34.68
    
    
    $
    32.18Tangible book value per share
    
    
    16.24
    
    
    
    17.30
    
    
    
    16.24
    
    
    
    17.30
  17




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##### Table of Contents



Net Interest Income.
 Increase (Decrease) inSecond Quarter 2008 vs 2007
    
    
    First Six Months of 2008 vs 2007Average
    
    
    Income/
    
    
    Yield/
    
    
    Average
    
    
    Income/
    
    
    Yield/Balance
    
    
    Expense
    
    
    Rate
    
    
    Balance
    
    
    Expense
    
    
    Rate(Dollars in thousands)ASSETSInterest-earning assets:Loans, net of unearned income
    
    $
    460,736
    
    
    $
    1,722
    
    
    
    (1.44
    )%
    
    $
    431,755
    
    
    $
    4,756
    
    
    
    (1.29
    )%Investment securitiesTaxable
    
    
    (4,008
    )
    
    
    47
    
    
    
    0.14
    
    
    
    (18,380
    )
    
    
    (340
    )
    
    
    0.06Tax-exempt
    
    
    27,696
    
    
    
    444
    
    
    
    0.20
    
    
    
    27,473
    
    
    
    902
    
    
    
    0.25Total investment securities
    
    
    23,688
    
    
    
    491
    
    
    
    0.22
    
    
    
    9,093
    
    
    
    562
    
    
    
    0.16Federal funds sold
    
    
    (8,371
    )
    
    
    (138
    )
    
    
    (3.20
    )
    
    
    (3,868
    )
    
    
    (185
    )
    
    
    (2.48
    )Other investments
    
    
    4,327
    
    
    
    41
    
    
    
    0.18
    
    
    
    961
    
    
    
    (53
    )
    
    
    (0.38
    )Total interest-earning assets
    
    $
    480,380
    
    
    
    2,116
    
    
    
    1.10
    
    
    $
    437,941
    
    
    
    5,080
    
    
    
    (0.98
    )Interest-bearing liabilities:Demand deposits
    
    $
    143,457
    
    
    
    (1,050
    )
    
    
    (1.44
    )
    
    $
    151,707
    
    
    
    (477
    )
    
    
    (0.98
    )Savings deposits
    
    
    42,627
    
    
    
    252
    
    
    
    0.57
    
    
    
    28,303
    
    
    
    379
    
    
    
    0.62Time deposits
    
    
    115,935
    
    
    
    (1,273
    )
    
    
    (0.87
    )
    
    
    137,770
    
    
    
    811
    
    
    
    (0.44
    )Other borrowings
    
    
    150,445
    
    
    
    246
    
    
    
    (1.90
    )
    
    
    88,636
    
    
    
    (211
    )
    
    
    (1.66
    )Subordinated debentures
    
    
    9,787
    
    
    
    (85
    )
    
    
    (2.30
    )
    
    
    9,779
    
    
    
    (62
    )
    
    
    (1.94
    )Total interest-bearing liabilities
    
    $
    462,251
    
    
    
    (1,910
    )
    
    
    (1.21
    )
    
    $
    416,195
    
    
    
    440
    
    
    
    (0.80
    )Net interest income/net interest spread
    
    
    
    
    
    
    4,026
    
    
    
    0.11
    %
    
    
    
    
    
    
    4,640
    
    
    
    (0.18
    )%Net yield on earning assets
    
    
    
    
    
    
    
    
    
    
    0.00
    %
    
    
    
    
    
    
    
    
    
    
    (0.25
    )%Taxable equivalent adjustment:Investment securities
    
    
    
    
    
    
    151
    
    
    
    
    
    
    
    
    
    
    
    307Net interest income
    
    
    
    
    
    $
    3,875
    
    
    
    
    
    
    
    
    
    
    $
    4,333
 18




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##### Table of Contents



Three Months Ended June 30,2008
    
    
    2007Average
    
    
    Income/
    
    
    Yield/
    
    
    Average
    
    
    Income/
    
    
    Yield/Balance
    
    
    Expense
    
    
    Rate
    
    
    Balance
    
    
    Expense
    
    
    Rate(Dollars in thousands)ASSETSInterest-earning assets:Loans, net of unearned income (1)
    
    $
    2,154,077
    
    
    $
    36,708
    
    
    
    6.85
    %
    
    $
    1,693,341
    
    
    $
    34,986
    
    
    
    8.29
    %Investment securitiesTaxable
    
    
    313,426
    
    
    
    4,143
    
    
    
    5.32
    
    
    
    317,434
    
    
    
    4,096
    
    
    
    5.18Tax-exempt (2)
    
    
    41,284
    
    
    
    653
    
    
    
    6.36
    
    
    
    13,588
    
    
    
    209
    
    
    
    6.16Total investment securities
    
    
    354,710
    
    
    
    4,796
    
    
    
    5.44
    
    
    
    331,022
    
    
    
    4,305
    
    
    
    5.22Federal funds sold
    
    
    3,377
    
    
    
    18
    
    
    
    2.14
    
    
    
    11,748
    
    
    
    156
    
    
    
    5.34Other investments
    
    
    49,941
    
    
    
    732
    
    
    
    5.90
    
    
    
    45,614
    
    
    
    691
    
    
    
    6.08Total interest-earning assets
    
    
    2,562,105
    
    
    
    42,254
    
    
    
    6.63
    
    
    
    2,081,725
    
    
    
    40,138
    
    
    
    7.73Noninterest-earning assets:Cash and due from banks
    
    
    61,729
    
    
    
    
    
    
    
    
    
    
    
    43,635Premises and equipment
    
    
    102,445
    
    
    
    
    
    
    
    
    
    
    
    95,099Accrued interest and other assets
    
    
    289,167
    
    
    
    
    
    
    
    
    
    
    
    229,238Allowance for loan losses
    
    
    (24,104
    )
    
    
    
    
    
    
    
    
    
    
    (18,867
    )Total assets
    
    $
    2,991,342
    
    
    
    
    
    
    
    
    
    
    $
    2,430,830LIABILITIES AND STOCKHOLDERS EQUITYInterest-bearing liabilities:Demand deposits
    
    $
    663,103
    
    
    $
    3,780
    
    
    
    2.29
    %
    
    $
    519,646
    
    
    $
    4,830
    
    
    
    3.73
    %Savings deposits
    
    
    86,838
    
    
    
    385
    
    
    
    1.78
    
    
    
    44,211
    
    
    
    133
    
    
    
    1.21Time deposits
    
    
    1,232,648
    
    
    
    12,544
    
    
    
    4.09
    
    
    
    1,116,713
    
    
    
    13,817
    
    
    
    4.96Other borrowings
    
    
    362,038
    
    
    
    3,016
    
    
    
    3.35
    
    
    
    211,593
    
    
    
    2,770
    
    
    
    5.25Subordinated debentures
    
    
    53,613
    
    
    
    919
    
    
    
    6.89
    
    
    
    43,826
    
    
    
    1,004
    
    
    
    9.19Total interest-bearing liabilities
    
    
    2,398,240
    
    
    
    20,644
    
    
    
    3.46
    
    
    
    1,935,989
    
    
    
    22,554
    
    
    
    4.67Noninterest-bearing liabilities:Demand deposits
    
    
    219,647
    
    
    
    
    
    
    
    
    
    
    
    179,366Accrued interest and other liabilities
    
    
    21,701
    
    
    
    
    
    
    
    
    
    
    
    36,780Stockholders equity
    
    
    351,754
    
    
    
    
    
    
    
    
    
    
    
    278,695Total liabilities and
stockholders equity
    
    $
    2,991,342
    
    
    
    
    
    
    
    
    
    
    $
    2,430,830Net interest income/net interest spread
    
    
    
    
    
    
    21,610
    
    
    
    3.17
    %
    
    
    
    
    
    
    17,584
    
    
    
    3.06
    %Net yield on earning assets
    
    
    
    
    
    
    
    
    
    
    3.39
    %
    
    
    
    
    
    
    
    
    
    
    3.39
    %Taxable equivalent adjustment:Investment securities (2)
    
    
    
    
    
    
    222
    
    
    
    
    
    
    
    
    
    
    
    71Net interest income
    
    
    
    
    
    $
    21,388
    
    
    
    
    
    
    
    
    
    
    $
    17,513
 
 (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%. 19




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##### Table of Contents



Three Months Ended June 30,2008 vs. 2007 (1)Increase
    
    
    Changes Due To(Decrease)
    
    
    Rate
    
    
    Volume(Dollars in thousands)Increase (decrease) in:Income from interest-earning assets:Interest and fees on loans
    
    $
    1,722
    
    
    $
    (6,750
    )
    
    $
    8,472Interest on securities:Taxable
    
    
    47
    
    
    
    103
    
    
    
    (56
    )Tax-exempt
    
    
    444
    
    
    
    7
    
    
    
    437Interest on federal funds
    
    
    (138
    )
    
    
    (63
    )
    
    
    (75
    )Interest on other investments
    
    
    41
    
    
    
    (21
    )
    
    
    62Total interest income
    
    
    2,116
    
    
    
    (6,724
    )
    
    
    8,840Expense from interest-bearing liabilities:Interest on demand deposits
    
    
    (1,050
    )
    
    
    (2,168
    )
    
    
    1,118Interest on savings deposits
    
    
    252
    
    
    
    83
    
    
    
    169Interest on time deposits
    
    
    (1,273
    )
    
    
    (2,601
    )
    
    
    1,328Interest on other borrowings
    
    
    246
    
    
    
    (1,245
    )
    
    
    1,491Interest on subordinated debentures
    
    
    (85
    )
    
    
    (282
    )
    
    
    197Total interest expense
    
    
    (1,910
    )
    
    
    (6,213
    )
    
    
    4,303Net interest income
    
    $
    4,026
    
    
    $
    (511
    )
    
    $
    4,537
 
 (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. 20




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##### Table of Contents



Six Months Ended June 30,2008
    
    
    2007Average
    
    
    Income/
    
    
    Yield/
    
    
    Average
    
    
    Income/
    
    
    Yield/Balance
    
    
    Expense
    
    
    Rate
    
    
    Balance
    
    
    Expense
    
    
    Rate(Dollars in thousands)ASSETSInterest-earning assets:Loans, net of unearned income (1)
    
    $
    2,112,194
    
    
    $
    74,053
    
    
    
    7.03
    %
    
    $
    1,680,439
    
    
    $
    69,297
    
    
    
    8.32
    %Investment securities:Taxable
    
    
    310,311
    
    
    
    8,195
    
    
    
    5.30
    
    
    
    328,691
    
    
    
    8,535
    
    
    
    5.24Tax-exempt (2)
    
    
    40,628
    
    
    
    1,305
    
    
    
    6.44
    
    
    
    13,155
    
    
    
    403
    
    
    
    6.19Total investment securities
    
    
    350,939
    
    
    
    9,500
    
    
    
    5.43
    
    
    
    341,846
    
    
    
    8,938
    
    
    
    5.27Federal funds sold
    
    
    6,459
    
    
    
    98
    
    
    
    3.04
    
    
    
    10,326
    
    
    
    283
    
    
    
    5.52Other investments
    
    
    47,805
    
    
    
    1,376
    
    
    
    5.77
    
    
    
    46,844
    
    
    
    1,429
    
    
    
    6.15Total interest-earning assets
    
    
    2,517,397
    
    
    
    85,027
    
    
    
    6.77
    
    
    
    2,079,455
    
    
    
    79,947
    
    
    
    7.75Noninterest-earning assets:Cash and due from banks
    
    
    59,193
    
    
    
    
    
    
    
    
    
    
    
    43,478Premises and equipment
    
    
    103,035
    
    
    
    
    
    
    
    
    
    
    
    95,118Accrued interest and other assets
    
    
    288,300
    
    
    
    
    
    
    
    
    
    
    
    227,630Allowance for loan losses
    
    
    (23,459
    )
    
    
    
    
    
    
    
    
    
    
    (18,883
    )Total assets
    
    $
    2,944,466
    
    
    
    
    
    
    
    
    
    
    $
    2,426,798LIABILITIES AND STOCKHOLDERS EQUITYInterest-bearing liabilities:Demand deposits
    
    $
    669,625
    
    
    $
    8,856
    
    
    
    2.65
    %
    
    $
    517,918
    
    
    $
    9,333
    
    
    
    3.63
    %Savings deposits
    
    
    72,116
    
    
    
    618
    
    
    
    1.72
    
    
    
    43,813
    
    
    
    239
    
    
    
    1.10Time deposits
    
    
    1,241,044
    
    
    
    27,488
    
    
    
    4.44
    
    
    
    1,103,274
    
    
    
    26,677
    
    
    
    4.88Other borrowings
    
    
    314,952
    
    
    
    5,808
    
    
    
    3.70
    
    
    
    226,316
    
    
    
    6,019
    
    
    
    5.36Subordinated debentures
    
    
    53,660
    
    
    
    1,934
    
    
    
    7.23
    
    
    
    43,881
    
    
    
    1,996
    
    
    
    9.17Total interest-bearing liabilities
    
    
    2,351,397
    
    
    
    44,704
    
    
    
    3.81
    
    
    
    1,935,202
    
    
    
    44,264
    
    
    
    4.61Noninterest-bearing liabilities:Demand deposits
    
    
    218,196
    
    
    
    
    
    
    
    
    
    
    
    179,465Accrued interest and other liabilities
    
    
    23,321
    
    
    
    
    
    
    
    
    
    
    
    34,568Stockholders equity
    
    
    351,552
    
    
    
    
    
    
    
    
    
    
    
    277,563Total liabilities and
stockholders equity
    
    $
    2,944,466
    
    
    
    
    
    
    
    
    
    
    $
    2,426,798Net interest income/net interest spread
    
    
    
    
    
    
    40,323
    
    
    
    2.96
    %
    
    
    
    
    
    
    35,683
    
    
    
    3.14
    %Net yield on earning assets
    
    
    
    
    
    
    
    
    
    
    3.21
    %
    
    
    
    
    
    
    
    
    
    
    3.46
    %Taxable equivalent adjustment:Investment securities (2)
    
    
    
    
    
    
    444
    
    
    
    
    
    
    
    
    
    
    
    137Net interest income
    
    
    
    
    
    $
    39,879
    
    
    
    
    
    
    
    
    
    
    $
    35,546
 
 (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%. 21




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##### Table of Contents



Six Months Ended June 30,2008 vs. 2007 (1)Increase
    
    
    Changes Due To(Decrease)
    
    
    Rate
    
    
    Volume(Dollars in thousands)Increase (decrease) in:Income from interest-earning assets:Interest and fees on loans
    
    $
    4,756
    
    
    $
    (11,692
    )
    
    $
    16,448Interest on securities:Taxable
    
    
    (340
    )
    
    
    105
    
    
    
    (445
    )Tax-exempt
    
    
    902
    
    
    
    17
    
    
    
    885Interest on federal funds
    
    
    (185
    )
    
    
    (101
    )
    
    
    (84
    )Interest on other investments
    
    
    (53
    )
    
    
    (84
    )
    
    
    31Total interest income
    
    
    5,080
    
    
    
    (11,755
    )
    
    
    16,835Expense from interest-bearing liabilities:Interest on demand deposits
    
    
    (477
    )
    
    
    (2,863
    )
    
    
    2,386Interest on savings deposits
    
    
    379
    
    
    
    177
    
    
    
    202Interest on time deposits
    
    
    811
    
    
    
    (2,472
    )
    
    
    3,283Interest on other borrowings
    
    
    (211
    )
    
    
    (2,185
    )
    
    
    1,974Interest on subordinated debentures
    
    
    (62
    )
    
    
    (466
    )
    
    
    404Total interest expense
    
    
    440
    
    
    
    (7,809
    )
    
    
    8,249Net interest income
    
    $
    4,640
    
    
    $
    (3,946
    )
    
    $
    8,586
 22




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##### Table of Contents



Noninterest income
 Three Months Ended June 30,2008
    
    
    2007
    
    
    % Change(Dollars in thousands)Service charges and fees on deposits
    
    $
    2,192
    
    
    $
    1,894
    
    
    
    15.75
    %Mortgage banking income
    
    
    1,031
    
    
    
    1,132
    
    
    
    (8.88
    )Investment securities gains
    
    
    1,068
    
    
    
    
    
    
    
    100.00Change in fair value of derivatives
    
    
    (418
    )
    
    
    118
    
    
    
    (452.99
    )Increase in cash surrender value of life insurance
    
    
    555
    
    
    
    452
    
    
    
    22.72Gain on extinguishment of liabilities
    
    
    2,918
    
    
    
    
    
    
    
    100.00Other noninterest income
    
    
    1,660
    
    
    
    942
    
    
    
    76.22Total
    
    $
    9,006
    
    
    $
    4,538
    
    
    
    98.44
    %Six Months Ended June 30,2008
    
    
    2007
    
    
    % Change(Dollars in thousands)Service charges and fees on deposits
    
    $
    4,296
    
    
    $
    3,684
    
    
    
    16.61
    %Mortgage banking income
    
    
    2,297
    
    
    
    2,082
    
    
    
    10.32Investment securities gains
    
    
    1,470
    
    
    
    242
    
    
    
    506.14Change in fair value of derivatives
    
    
    632
    
    
    
    (34
    )
    
    
    1,985.74Increase in cash surrender value of life insurance
    
    
    1,107
    
    
    
    900
    
    
    
    22.97Gain on extinguishment of liabilities
    
    
    2,918
    
    
    
    
    
    
    
    100.00Other noninterest income
    
    
    2,888
    
    
    
    1,750
    
    
    
    64.97Total
    
    $
    15,608
    
    
    $
    8,624
    
    
    
    80.97
    %
  23




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##### Table of Contents



Noninterest expenses
 Three Months Ended June 30,2008
    
    
    2007
    
    
    % Change(Dollars in thousands)Noninterest ExpensesSalaries and employee benefits
    
    $
    12,058
    
    
    $
    10,168
    
    
    
    18.59
    %Occupancy, furniture and equipment expense
    
    
    4,120
    
    
    
    2,995
    
    
    
    37.56Amortization of core deposit intangibles
    
    
    896
    
    
    
    304
    
    
    
    194.74Merger-related costs
    
    
    13
    
    
    
    107
    
    
    
    (87.85
    )Professional fees
    
    
    701
    
    
    
    559
    
    
    
    25.44Insurance expense
    
    
    760
    
    
    
    540
    
    
    
    40.53Postage, stationery and supplies
    
    
    506
    
    
    
    548
    
    
    
    (7.61
    )Communications expense
    
    
    556
    
    
    
    460
    
    
    
    20.69Advertising expense
    
    
    879
    
    
    
    568
    
    
    
    54.64Other operating expense
    
    
    2,787
    
    
    
    1,809
    
    
    
    54.18Total
    
    $
    23,276
    
    
    $
    18,058
    
    
    
    28.90
    %Selected Key RatiosNoninterest expense to average assets (1)
    
    
    2.98
    %
    
    
    2.91
    %Efficiency ratio (1)
    
    
    82.12
    
    
    
    80.23
  Six Months Ended June 30,2008
    
    
    2007
    
    
    % Change(Dollars in thousands)Noninterest ExpensesSalaries and employee benefits
    
    $
    24,199
    
    
    $
    20,236
    
    
    
    19.58
    %Occupancy, furniture and equipment expense
    
    
    8,180
    
    
    
    6,142
    
    
    
    33.18Amortization of core deposit intangibles
    
    
    1,792
    
    
    
    609
    
    
    
    194.25Merger-related costs
    
    
    121
    
    
    
    426
    
    
    
    (71.60
    )Professional fees
    
    
    1,137
    
    
    
    1,020
    
    
    
    11.50Insurance expense
    
    
    1,400
    
    
    
    540
    
    
    
    159.26Postage, stationery and supplies
    
    
    1,108
    
    
    
    1,174
    
    
    
    (5.65
    )Communications expense
    
    
    1,050
    
    
    
    980
    
    
    
    7.10Advertising expense
    
    
    1,469
    
    
    
    1,224
    
    
    
    20.01Other operating expense
    
    
    5,084
    
    
    
    3,732
    
    
    
    36.24Total
    
    $
    45,540
    
    
    $
    36,083
    
    
    
    26.21
    %Selected Key RatiosNoninterest expense to average assets (1)
    
    
    2.96
    %
    
    
    2.91
    %Efficiency ratio (1)
    
    
    85.32
    
    
    
    79.50
 
 (1)
    
    In calculating the selected key ratios, noninterest expense has been adjusted for
amortization of intangibles, merger-related costs and other losses on the sale of assets. 24




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##### Table of Contents



Income tax expense
 Provision for Loan Losses
  Financial Condition
  Short-term liquid assets
 Investment Securities
 25




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##### Table of Contents



Investment Portfolio
 Available for SaleJune 30,
    
    
    December 31,
    
    
    Percent2008
    
    
    2007
    
    
    Change(Dollars in thousands)U.S. agencies
    
    $
    6,771
    
    
    $
    94,215
    
    
    
    (92.81
    )%State and political subdivisions
    
    
    40,624
    
    
    
    40,587
    
    
    
    0.09Mortgage-backed securities
    
    
    271,830
    
    
    
    191,378
    
    
    
    42.04Corporate debt & other securities
    
    
    37,183
    
    
    
    34,991
    
    
    
    6.26Total investment securities
    
    $
    356,408
    
    
    $
    361,171
    
    
    
    (1.32
    )%
 Net Unrealized Gain (Loss)DollarJune 30,
    
    
    December 31,
    
    
    Change Pre-2008
    
    
    2007
    
    
    tax(Dollars in thousands)U.S. agencies
    
    $
    129
    
    
    $
    1,011
    
    
    $
    (882
    )State and political subdivisions
    
    
    (793
    )
    
    
    (173
    )
    
    
    (620
    )Mortgage-backed securities
    
    
    (1,742
    )
    
    
    194
    
    
    
    (1,936
    )Corporate debt & other securities
    
    
    (3,643
    )
    
    
    (1,892
    )
    
    
    (1,751
    )Net unrealized loss
    
    $
    (6,049
    )
    
    $
    (860
    )
    
    $
    (5,189
    )
  Loans
 26




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##### Table of Contents



DISTRIBUTION OF LOANS BY CATEGORY
(Dollars in thousands)
 June 30, 2008
    
    
    December 31, 2007Percent of
    
    
    
    
    
    
    Percent ofAmount
    
    
    Total
    
    
    Amount
    
    
    TotalCommercial and industrial
    
    $
    205,841
    
    
    
    9.57
    %
    
    $
    183,013
    
    
    
    9.07
    %Real estate  construction and land
development (1)
    
    
    680,628
    
    
    
    31.65
    
    
    
    665,303
    
    
    
    32.96Real estate  mortgageSingle-family
    
    
    607,938
    
    
    
    28.27
    
    
    
    540,277
    
    
    
    26.77Commercial
    
    
    562,658
    
    
    
    26.17
    
    
    
    533,611
    
    
    
    26.44Other
    
    
    38,864
    
    
    
    1.81
    
    
    
    41,535
    
    
    
    2.06Consumer
    
    
    53,378
    
    
    
    2.48
    
    
    
    53,377
    
    
    
    2.64Other
    
    
    1,081
    
    
    
    .05
    
    
    
    1,235
    
    
    
    .06Total loans
    
    
    2,150,388
    
    
    
    100.00
    %
    
    
    2,018,351
    
    
    
    100.00
    %Unearned income
    
    
    (1,637
    )
    
    
    
    
    
    
    (1,340
    )Allowance for loan losses
    
    
    (27,243
    )
    
    
    
    
    
    
    (22,868
    )Net loans
    
    $
    2,121,508
    
    
    
    
    
    
    $
    1,994,143
 
 (1)
    
    A further analysis of the components of our real estate construction and land development
loans as of June 30, 2008 and December 31, 2007 is as follows: Residential
    
    
    CommercialDevelopment
    
    
    Development
    
    
    Other
    
    
    Total(Dollars in thousands)As of June 30, 2008Alabama segment
    
    $
    172,992
    
    
    $
    80,861
    
    
    $
    12,960
    
    
    $
    266,813Florida segment
    
    
    167,569
    
    
    
    200,682
    
    
    
    24,133
    
    
    
    392,384Other
    
    
    8,232
    
    
    
    13,199
    
    
    
    
    
    
    
    21,431Total
    
    $
    348,793
    
    
    $
    294,742
    
    
    $
    37,093
    
    
    $
    680,628As of December 31, 2007Alabama segment
    
    $
    192,133
    
    
    $
    60,407
    
    
    $
    16,003
    
    
    $
    268,543Florida segment
    
    
    195,460
    
    
    
    162,286
    
    
    
    18,564
    
    
    
    376,310Other
    
    
    7,929
    
    
    
    12,521
    
    
    
    
    
    
    
    20,450Total
    
    $
    395,522
    
    
    $
    235,214
    
    
    $
    34,567
    
    
    $
    665,303
  June 30,
    
    December 31,
    
    Percent2008
    
    2007
    
    Change(Dollars in thousands)Total loans, net of unearned income
    
    $
    2,148,751
    
    
    $
    2,017,011
    
    
    
    6.53
    %Alabama segment
    
    
    916,653
    
    
    
    888,007
    
    
    
    3.23Florida segment
    
    
    993,831
    
    
    
    932,478
    
    
    
    6.58Other (2)
    
    
    238,267
    
    
    
    196,526
    
    
    
    21.24
 
 (2)
    
    Increase is due to the purchase of a pool of residential mortgage loans with a balance of
approximately $52 million during the second quarter of 2008. This pool of loans was purchased at a 5% discount and
is carrying a yield in excess of 8%. Any losses on these loans are guaranteed by the seller up to approximately $3.0 million
for a 36-month period. 27




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##### Table of Contents



Deposits
   June 30,
    
    
    December 31,
    
    
    Percent2008
    
    
    2007
    
    
    Change(Dollars in thousands)Noninterest-bearing demand
    
    $
    221,087
    
    
    $
    207,602
    
    
    
    6.50
    %Alabama segment
    
    
    131,335
    
    
    
    128,009
    
    
    
    2.60Florida segment
    
    
    83,451
    
    
    
    73,061
    
    
    
    14.22Other
    
    
    6,301
    
    
    
    6,532
    
    
    
    (3.54
    )Interest-bearing demand
    
    
    626,665
    
    
    
    657,809
    
    
    
    (4.73
    )Alabama segment
    
    
    290,759
    
    
    
    295,794
    
    
    
    (1.70
    )Florida segment
    
    
    231,540
    
    
    
    253,017
    
    
    
    (8.49
    )Other
    
    
    104,366
    
    
    
    108,998
    
    
    
    (4.25
    )Savings (1)
    
    
    131,940
    
    
    
    59,507
    
    
    
    121.72Alabama segment
    
    
    77,834
    
    
    
    33,919
    
    
    
    129.47Florida segment
    
    
    53,209
    
    
    
    25,056
    
    
    
    112.36Other
    
    
    897
    
    
    
    532
    
    
    
    68.61Time deposits
    
    
    1,214,415
    
    
    
    1,275,693
    
    
    
    (4.80
    )Alabama segment
    
    
    597,022
    
    
    
    694,380
    
    
    
    (14.02
    )Florida segment
    
    
    482,830
    
    
    
    462,071
    
    
    
    4.49Other
    
    
    134,563
    
    
    
    119,242
    
    
    
    12.85Total deposits
    
    $
    2,194,107
    
    
    $
    2,200,611
    
    
    
    (0.30
    )%Alabama segment
    
    $
    1,096,950
    
    
    $
    1,152,102
    
    
    
    (4.79
    )%Florida segment
    
    $
    851,030
    
    
    $
    813,205
    
    
    
    4.65
    %Other
    
    $
    246,127
    
    
    $
    235,304
    
    
    
    4.60
    %
 
 (1)
    
    Increase resulted from the introduction of a new savings deposit product carrying a yield of
3.25%. Borrowings
 Accrued Expenses and Other Liabilities
 Allowance for Loan Losses
 28




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##### Table of Contents



29




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##### Table of Contents



SUMMARY OF LOAN LOSS EXPERIENCE
 Three Months
    
    
    Six monthsEnded
    
    
    Ended
    
    
    Year EndedJune 30,
    
    
    June 30,
    
    
    December 31,2008
    
    
    2007
    
    
    2008
    
    
    2007
    
    
    2007(Dollars in Thousands)Allowance for loan losses at
beginning of period
    
    $
    23,273
    
    
    $
    18,977
    
    
    $
    22,868
    
    
    $
    18,892
    
    
    $
    18,892Allowance of acquired bank
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,717Charge-offs:Commercial and industrial
    
    
    160
    
    
    
    327
    
    
    
    312
    
    
    
    437
    
    
    
    1,162Real estate  construction and
land development
    
    
    662
    
    
    
    1
    
    
    
    665
    
    
    
    1
    
    
    
    301Real estate  mortgageSingle-family
    
    
    871
    
    
    
    189
    
    
    
    1,483
    
    
    
    449
    
    
    
    1,149Commercial
    
    
    49
    
    
    
    5
    
    
    
    411
    
    
    
    19
    
    
    
    724Other
    
    
    
    
    
    
    4
    
    
    
    106
    
    
    
    206
    
    
    
    206Consumer
    
    
    715
    
    
    
    537
    
    
    
    1,150
    
    
    
    937
    
    
    
    2,117Other
    
    
    24
    
    
    
    
    
    
    
    99
    
    
    
    
    
    
    
    63Total charge-offs
    
    
    2,481
    
    
    
    1,063
    
    
    
    4,226
    
    
    
    2,049
    
    
    
    5,722Recoveries:Commercial and industrial
    
    
    339
    
    
    
    86
    
    
    
    478
    
    
    
    256
    
    
    
    398Real estate  construction and
land development
    
    
    31
    
    
    
    1
    
    
    
    33
    
    
    
    8
    
    
    
    286Real estate  mortgageSingle-family
    
    
    24
    
    
    
    30
    
    
    
    43
    
    
    
    57
    
    
    
    174Commercial
    
    
    9
    
    
    
    2
    
    
    
    25
    
    
    
    20
    
    
    
    70Other
    
    
    9
    
    
    
    11
    
    
    
    23
    
    
    
    58
    
    
    
    82Consumer
    
    
    39
    
    
    
    101
    
    
    
    85
    
    
    
    198
    
    
    
    382Other
    
    
    33
    
    
    
    2
    
    
    
    76
    
    
    
    2
    
    
    
    48Total recoveries
    
    
    484
    
    
    
    233
    
    
    
    763
    
    
    
    599
    
    
    
    1,440Net charge-offs
    
    
    1,997
    
    
    
    830
    
    
    
    3,463
    
    
    
    1,450
    
    
    
    4,282Provision for loan losses
    
    
    5,967
    
    
    
    1,000
    
    
    
    7,838
    
    
    
    1,705
    
    
    
    4,541Allowance for loan losses at end
of period
    
    $
    27,243
    
    
    $
    19,147
    
    
    $
    27,243
    
    
    $
    19,147
    
    
    $
    22,868Loans at end of period, net of
unearned income
    
    $
    2,148,751
    
    
    $
    1,719,808
    
    
    $
    2,148,751
    
    
    $
    1,719,808
    
    
    $
    2,017,011Average loans, net of unearned
income
    
    
    2,123,039
    
    
    
    1,663,551
    
    
    
    2,077,884
    
    
    
    1,665,747
    
    
    
    1,814,032Ratio of ending allowance to
ending loans
    
    
    1.27
    %
    
    
    1.11
    %
    
    
    1.27
    %
    
    
    1.11
    %
    
    
    1.13
    %Ratio of net charge-offs to
average loans (1)
    
    
    0.38
    
    
    
    0.20
    
    
    
    0.34
    
    
    
    0.17
    
    
    
    0.24Net charge-offs as a percentage of:Provision for loan losses
    
    
    33.46
    
    
    
    83.00
    
    
    
    44.18
    
    
    
    85.04
    
    
    
    94.30Allowance for loan losses (1)
    
    
    29.39
    
    
    
    17.39
    
    
    
    25.49
    
    
    
    15.27
    
    
    
    18.72Allowance for loan losses as a
percentage of nonperforming loans
    
    
    69.33
    
    
    
    160.64
    
    
    
    69.33
    
    
    
    160.64
    
    
    
    90.31
 
 (1)
    
    Annualized. 30




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##### Table of Contents



Nonperforming Assets
 June 30,
    
    
    December 31,2008
    
    
    2007(Dollars in thousands)Nonaccrual
    
    $
    37,111
    
    
    $
    22,533Accruing loans 90 days or more delinquent
    
    
    1,859
    
    
    
    2,117Restructured
    
    
    326
    
    
    
    671Total nonperforming loans
    
    
    39,296
    
    
    
    25,321Other real estate owned and repossessed assets
    
    
    12,588
    
    
    
    4,415Total nonperforming assets
    
    $
    51,884
    
    
    $
    29,736Nonperforming loans as a percentage of loans
    
    
    1.83
    %
    
    
    1.26
    %Nonperforming assets as a percentage of loans plus nonperforming assets
    
    
    2.40
    %
    
    
    1.47
    %Nonperforming assets as a percentage of total assets
    
    
    1.71
    %
    
    
    1.03
    %
  June 30,
    
    
    December 31,2008
    
    
    2007(Dollars in thousands)Commercial and industrial
    
    $
    614
    
    
    $
    1,058Real estate  construction and land development
    
    
    18,684
    
    
    
    10,569Real estate  mortgagesSingle-family
    
    
    10,349
    
    
    
    8,069Commercial
    
    
    7,551
    
    
    
    4,045Other
    
    
    1,257
    
    
    
    805Consumer
    
    
    841
    
    
    
    775Total nonperforming loans
    
    $
    39,296
    
    
    $
    25,321
 31




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##### Table of Contents



Past Due Loans.
 Impaired Loans
 Outstanding
    
    
    SpecificBalance
    
    
    Allowance(Dollars in thousands)Commercial and industrial
    
    $
    635
    
    
    $
    8Real estate  construction and land development
    
    
    26,900
    
    
    
    1,735Real estate  mortgagesCommercial
    
    
    5,751
    
    
    
    7661-4 family
    
    
    8,503
    
    
    
    356Other
    
    
    615
    
    
    
    71Total
    
    $
    42,404
    
    
    $
    2,936
 Potential Problem Loans
 Stockholders Equity
 Stock Incentive Plan .
 32




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##### Table of Contents



Regulatory Capital.
 To Be WellFor Capital
    
    Capitalized UnderAdequacy
    
    Prompt CorrectiveActual
    
    Purposes
    
    ActionAmount
    
    Ratio
    
    Amount
    
    Ratio
    
    Amount
    
    RatioAs of June 30, 2008Tier 1 Core Capital
(to Adjusted Total
Assets)
    
    $
    211,905
    
    
    
    7.47
    %
    
    $
    113,499
    
    
    
    4.00
    %
    
    $
    141,873
    
    
    
    5.00
    %Total Capital (to
Risk Weighted
Assets)
    
    
    236,310
    
    
    
    10.22
    
    
    
    184,894
    
    
    
    8.00
    
    
    
    231,118
    
    
    
    10.00Tier 1 Capital (to
Risk Weighted
Assets)
    
    
    211,905
    
    
    
    9.17
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    136,671
    
    
    
    6.00Tangible Capital
(to Adjusted Total
Assets)
    
    
    211,905
    
    
    
    7.47
    
    
    
    42,562
    
    
    
    1.50
    
    
    
    N/A
    
    
    
    N/A
 Liquidity
      Forward-Looking Statements
   33




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##### Table of Contents



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
   June 30,
    
    December 31,12-Month Gap
    
    2008
    
    2007Interest-bearing liabilities in excess of interest-earning assets
    
    $
    (472,000
    )
    
    $
    (455,000
    )Cumulative 12-month Gap Ratio
    
    
    .78
    
    
    
    .77
 Increase (Decrease) in Net Interest IncomeJune 30, 2008
    
    December 31, 2007Change (in Basis Points) in Interest Rates (12-Month Projection)
    
    Amount
    
    Percent
    
    Amount
    
    Percent+200 BP (1)
    
    $
    4,050
    
    
    
    5.0
    %
    
    $
    2,700
    
    
    
    3.5
    %- 200 BP (1)
    
    
    (4,400
    )
    
    
    (5.5
    )
    
    
    (7,100
    )
    
    
    (9.1
    )
 
 (1)
    
    Results are within our asset and liability management policy.  34




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##### Table of Contents



June 30, 2008
    
    
    
    
    
    ChangeChange (in Basis Points) in Interest Rates
    
    EVE
    
    Amount
    
    Percent(Dollars in thousands)+ 200 BP
    
    $
    539,942
    
    
    $
    13,005
    
    
    
    2.5
    %0 BP
    
    
    526,937
    
    
    
    
    
    
    
    - 200 BP
    
    
    490,789
    
    
    
    (36,148
    )
    
    
    (6.9
    )
 December 31, 2007Change (in Basis Points) in Interest Rates+ 200 BP
    
    $
    470,866
    
    
    $
    19,274
    
    
    
    4.4
    %0 BP
    
    
    451,142
    
    
    
    
    
    
    
    - 200 BP
    
    
    407,146
    
    
    
    (43,996
    )
    
    
    (9.8
    )
   
 ITEM 4. CONTROLS AND PROCEDURES
      35




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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
  1.
    
    The stockholders voted as follows to elect the following persons
as directors, each to hold office for a one-year term:
 NAME
    
    FOR
    
    WITHHELDC. Stanley Bailey
    
    
    29,930,386
    
    
    
    2,860,317Roger D. Barker
    
    
    29,439,676
    
    
    
    3,351,027Rick D. Gardner
    
    
    29,979,552
    
    
    
    2,811,339Thomas E. Jernigan, Jr.
    
    
    29,978,552
    
    
    
    2,812,151James Mailon Kent, Jr.
    
    
    26,834,838
    
    
    
    5,955,865Mark A. Lee
    
    
    29,978,719
    
    
    
    2,811,984James M. Link
    
    
    28,355,781
    
    
    
    4,434,922Peter L. Lowe
    
    
    29,441,187
    
    
    
    3,349,516John C. Metz
    
    
    29,916,073
    
    
    
    2,874,630D. Dewey Mitchell
    
    
    29,978,387
    
    
    
    2,812,316Barry Morton
    
    
    29,928,832
    
    
    
    2,861,871Robert R. Parrish, Jr.
    
    
    29,984,520
    
    
    
    2,806,183Charles W. Roberts, III
    
    
    29,984,733
    
    
    
    2,806,272C. Marvin Scott
    
    
    29,277,733
    
    
    
    3,512,970James C. White, Sr.
    
    
    28,419,646
    
    
    
    4,371,057
 36




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##### Table of Contents



2.
    
    The stockholders voted to approve an amendment to our
Restated Certificate of Incorporation to effect a
1-for-4 reverse split of our outstanding common stock
and to decrease the number of authorized shares of our
common stock to 15 million as follows:
 FOR
    
    AGAINST
    
    ABSTAIN
    
    BROKER NON-VOTES28,548,803
    
    4,044,986
    
    196,914
    
    -0-
 3.
    
    The stockholders voted to approve our 2008 Incentive Compensation Plan as follows:
 FOR
    
    AGAINST
    
    ABSTAIN
    
    BROKER NON-VOTES18,770,579
    
    7,166,204
    
    207,581
    
    6,646,339
 
 ITEM 5. OTHER INFORMATION
  
 ITEM 6. EXHIBITS
  10.1
    
    Superior Bancorp 2008 Incentive Compensation Plan approved by the stockholders on April 23, 2008,
adjusted to reflect the effect of the 1-for-4 reverse split of Superior Bancorp common stock on
April 28, 200831.1
    
    Certification of principal executive officer pursuant to Rule 13a-14(a).31.2
    
    Certification of principal financial officer pursuant to 13a-14(a).32.1
    
    Certification of principal executive officer pursuant to 18 U.S.C. Section 1350.32.2
    
    Certification of principal financial officer pursuant to 18 U.S.C. Section 1350.
 37




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##### Table of Contents



SUPERIOR BANCORP
(Registrant)Date: August 8, 2008
    By:
    /s/ C. Stanley BaileyC. Stanley BaileyChief Executive OfficerDate: August 8, 2008
    By:
    /s/ Mark TarnakowMark TarnakowChief Financial Officer
(Principal Financial Officer) 38