Edgar Filing: SUPERIOR BANCORP

SUPERIOR BANCORP

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, 2007


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
(Address of Principal Executive Offices)

(205) 327-1400

(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Large Accelerated Filer o Accelerated Filer þ Non-Accelerated Filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No þ

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.


Class		Outstanding as of June 30, 2007

Common stock, $.001 par value		34,670,907

TABLE OF CONTENTS


PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS			2
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			11
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK			29
ITEM 4. CONTROLS AND PROCEDURES			29
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS			29
ITEM 1A. RISK FACTORS			30
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS			31
ITEM 3. DEFAULTS UPON SENIOR SECURITIES			31
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS			31
ITEM 5. OTHER INFORMATION			31
ITEM 6. EXHIBITS			31
SIGNATURES			32
EX-31.01 SECTION 302 CERTIFICATION OF THE PEO
EX-31.02 SECTION 302 CERTIFICATION OF THE PFO
EX-32.01 SECTION 906 CERTIFICATION OF THE PEO
EX-32.02 SECTION 906 CERTIFICATION OF THE PFO

PART I FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

SUPERIOR BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands, except per share data)


	June 30,			December 31,
	2007			2006
	(UNAUDITED)
ASSETS
Cash and due from banks	$	49,664		$	49,783
Interest-bearing deposits in other banks		4,718			10,994
Federal funds sold		12,843			25,185
Investment securities available for sale		322,739			354,716
Tax lien certificates		18,457			16,313
Mortgage loans held for sale		23,213			24,433
Loans, net of unearned income		1,719,808			1,639,528
Less: Allowance for loan losses		(19,147	)		(18,892	)

Net loans		1,700,661			1,620,636

Premises and equipment, net		89,620			94,626
Accrued interest receivable		14,405			14,387
Stock in FHLB		12,798			12,382
Cash surrender value of life insurance		41,273			40,598
Goodwill and other intangibles		128,976			129,520
Other assets		50,926			47,417

TOTAL ASSETS	$	2,470,293		$	2,440,990


LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:
Noninterest-bearing	$	182,807		$	191,323
Interest-bearing		1,701,998			1,679,518

TOTAL DEPOSITS		1,884,805			1,870,841
Advances from FHLB		187,840			187,840
Federal funds borrowed and security repurchase agreements		20,586			23,415
Notes payable		5,958			5,545
Junior subordinated debentures owed to unconsolidated subsidiary trusts		43,770			44,006
Capital lease obligation		3,772			3,798
Accrued expenses and other liabilities		44,609			29,458

TOTAL LIABILITIES		2,191,340			2,164,903
STOCKHOLDERS’ EQUITY
Common stock, par value $.001 per share; authorized 60,000,000 shares; shares issued 34,752,583 and 34,732,345, respectively; outstanding 34,670,907 and 34,651,669, respectively		35			35
Surplus		254,207			253,815
Retained earnings		30,205			26,491
Accumulated other comprehensive loss		(2,876	)		(1,452	)
Treasury stock, at cost		(716	)		(716	)
Unearned ESOP stock		(1,902	)		(2,086	)

TOTAL STOCKHOLDERS’ EQUITY		278,953			276,087

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	2,470,293		$	2,440,990

See Notes to Condensed Consolidated Financial Statements.

SUPERIOR BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(Dollars in thousands, except per share data)


	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2007		2006			2007			2006
INTEREST INCOME
Interest and fees on loans	$	34,986	$	20,254		$	69,297		$	38,672
Interest on taxable securities		4,096		2,749			8,535			5,510
Interest on tax-exempt securities		138		90			266			167
Interest on federal funds sold		156		51			283			86
Interest and dividends on other investments		691		464			1,429			822

Total interest income		40,067		23,608			79,810			45,257
INTEREST EXPENSE
Interest on deposits		18,780		9,767			36,249			18,180
Interest on other borrowed funds		2,770		2,648			6,019			5,120
Interest on subordinated debentures		1,004		780			1,996			1,541

Total interest expense		22,554		13,195			44,264			24,841

NET INTEREST INCOME		17,513		10,413			35,546			20,416
Provision for loan losses		1,000		700			1,705			1,300

NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES		16,513		9,713			33,841			19,116
NONINTEREST INCOME
Service charges and fees on deposits		1,894		1,129			3,684			2,160
Mortgage banking income		1,132		708			2,082			1,238
Investment securities gains		—		—			242			—
Change in fair value of derivatives		118		(33	)		(34	)		37
Increase in cash surrender value of life insurance		452		359			900			780
Other income		942		664			1,750			1,114

TOTAL NONINTEREST INCOME		4,538		2,827			8,624			5,329
NONINTEREST EXPENSES
Salaries and employee benefits		10,168		5,798			20,236			11,666
Occupancy, furniture and equipment expense		2,995		1,739			6,142			3,586
Amortization of intangibles		304		—			609			—
Merger-related costs		107		51			426			72
Other expenses		4,484		3,072			8,670			6,141

TOTAL NONINTEREST EXPENSES		18,058		10,660			36,083			21,465

Income before income taxes		2,993		1,880			6,382			2,980
INCOME TAX EXPENSE		1,024		606			2,116			856

NET INCOME	$	1,969	$	1,274		$	4,266		$	2,124


BASIC NET INCOME PER COMMON SHARE	$	0.06	$	0.06		$	0.12		$	0.11

DILUTED NET INCOME PER COMMON SHARE	$	0.06	$	0.06		$	0.12		$	0.10

Weighted average common shares outstanding		34,452		20,129			34,445			20,073
Weighted average common shares outstanding, assuming dilution		34,940		20,757			34,989			20,716

See Notes to Condensed Consolidated Financial Statements.

SUPERIOR BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED)
(Dollars in thousands)


	Six Months Ended
	June 30,
	2007			2006
NET CASH PROVIDED BY OPERATING ACTIVITIES	$	9,518		$	549


CASH FLOWS FROM INVESTING ACTIVITIES:
Net decrease in interest-bearing deposits in other banks		6,276			4,581
Net decrease (increase) in federal funds sold		12,342			(9,055	)
Proceeds from sales of securities available for sale		2,400			—
Proceeds from maturities of investment securities available for sale		45,040			7,412
Purchases of investment securities available for sale		(12,451	)		(2,887	)
Purchase of tax lien certificates		(2,144	)		(5,765	)
Net increase in loans		(71,556	)		(118,460	)
Proceeds from sales of premises and equipment		1,223			1,104
Purchases of premises and equipment		(4,483	)		(6,049	)
Proceeds from sale of repossessed assets		1,943			1,070
Increase in stock in FHLB		(416	)		(881	)
Other investing activities, net		72			7

Net cash used by investing activities		(21,754	)		(128,923	)


CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits		14,503			97,593
Net (decrease) increase in FHLB advances and other borrowed funds		(2,829	)		17,569
Proceeds from notes payable		500			—
Payments made on notes payable		(87	)		(105	)
Proceeds from sale of common stock		30			941

Net cash provided by financing activities		12,117			115,998

Net decrease in cash and due from banks		(119	)		(12,376	)
CASH AND DUE FROM BANKS AT BEGINNING OF PERIOD		49,783			35,088

CASH AND DUE FROM BANKS AT END OF PERIOD	$	49,664		$	22,712

See Notes to Condensed Consolidated Financial Statements.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 1 — Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions for Form 10-Q, and, therefore, do not include all information and footnotes necessary for a fair presentation of financial position, results of operations and cash flows in conformity with generally accepted accounting principles. For a summary of significant accounting policies that have been consistently followed, see Note 1 to the Consolidated Financial Statements included in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2006. It is management’s opinion that all adjustments, consisting of only normal and recurring items necessary for a fair presentation, have been included. Operating results for the three- and six-month periods ended June 30, 2007, are not necessarily indicative of the results that may be expected for the year ending December 31, 2007.

The condensed statement of financial condition at December 31, 2006, which has been derived from the financial statements audited by Carr, Riggs & Ingram, LLC, independent public accountants, as indicated in their report, dated March 16, 2007, included in the Corporation’s Annual Report on Form 10-K, does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.

Note 2 — Recent Accounting Pronouncements

FASB Interpretation No. 48

In July 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (“FIN 48”). This interpretation clarifies the accounting for uncertainty in income taxes recognized in a company’s financial statements in accordance with SFAS No. 109, Accounting for Income Taxes. Specifically, the pronouncement prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The interpretation also provides guidance on the related derecognition, classification, interest and penalties, accounting for interim periods, disclosure and transition of uncertain tax positions. The interpretation was effective for fiscal years beginning after December 15, 2006. See Note 7 for other disclosures related to income taxes.

The Corporation adopted FIN 48 on January 1, 2007. As a result of the adoption, the Corporation recognized a charge of approximately $554,000 to the January 1, 2007 retained earnings balance. As of the adoption date, the Corporation had unrecognized tax benefits of $459,000 all of which, if recognized, would affect the effective tax rate. Also, as of the adoption date, we had accrued interest expense related to the unrecognized tax benefits of approximately $145,000. Accrued interest related to unrecognized tax benefits is recognized in income tax expense. Penalties, if incurred, will be recognized in income tax expense as well.

The Corporation and its subsidiaries are subject to U.S. federal income tax as well as to income tax of Alabama and Florida jurisdictions. The Corporation has concluded all U.S. federal income tax matters for years through 2002 including acquisitions.

All state income tax matters have been concluded for years through 2001. The Corporation has received notices of proposed adjustments relating to state taxes due for the years 2002 and 2003, which include proposed adjustments relating to income apportionment of a subsidiary. Management anticipates that these examinations may be finalized in the foreseeable future. However, based on the status of these examinations, and the protocol of finalizing audits by the taxing authority, which could include formal legal proceedings, it is not possible to estimate the impact of any changes to the previously recorded uncertain tax positions. There have been no significant changes to the status of these examinations during the three- and six-month periods ended June 30, 2007.

Statement of Financial Accounting Standards No. 157

In September 2006, FASB issued SFAS No. 157, Fair Value Measurements (“SFAS 157”). SFAS No. 157 defines fair value, establishes a frame work for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements.

SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007. The Corporation will adopt SFAS 157 on January 1, 2008 and is assessing the impact of the adoption of this statement.

Statement of Financial Accounting Standards No. 159

In February 2007, the FASB issued Statement No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS 159”). SFAS 159 would allow the Corporation an irrevocable election to measure certain financial assets and liabilities at fair value, with unrealized gains and losses on the elected items recognized in earnings at each reporting period. The fair value option may only be elected at the time of initial recognition of a financial asset or financial liability or upon the occurrence of certain specified events. The election is applied on an instrument by instrument basis, with a few exceptions, and is applied only to entire instruments and not to portions of instruments. SFAS 159 also provides expanded disclosure requirements regarding the effects of electing the fair value option on the financial statements. SFAS 159 is effective prospectively for fiscal years beginning after November 15, 2007. The Corporation is currently evaluating this statement and has not yet determined the financial assets and liabilities, if any, for which the fair value option would be elected or the potential impact on the consolidated financial statements, if such election were made.

Note 3 — Acquisitions

The Corporation completed the acquisition of 100% of the outstanding stock of Kensington Bankshares, Inc. of Tampa, Florida (“Kensington”) on August 31, 2006 in exchange for 6,226,722 shares of the Corporation’s common stock valued at approximately $71,200,000. The shares were valued by using the average of the closing prices of the Corporation’s stock for several days prior to and after the terms of the acquisition were agreed to and announced. The total purchase price, which includes certain direct acquisition costs, totaled $71,372,000. As a result of the acquisition, the Corporation added 12 banking locations in the Tampa Bay area of Florida. This area will be the Corporation’s largest market and has a higher projected population growth than any of its current banking markets.

The Corporation completed the acquisition of 100% of the outstanding stock of Community Bancshares, Inc. (“Community”) of Blountsville, Alabama on November 7, 2006 in exchange for 8,072,179 shares of the Corporation’s common stock valued at approximately $91,848,000. The shares were valued by using the average of the closing prices of the Corporation’s stock for several days prior to and after the terms of the acquisition were agreed to and announced. The total purchase price, which includes certain direct acquisition costs, totaled $97,200,000. As a result of the acquisition, the Corporation added 18 banking locations and 15 consumer finance company locations in the State of Alabama.

Pro forma Results of Operations

The results of operations of Kensington and Community subsequent to the acquisition dates are included in the Corporation’s consolidated statements of income. The following pro forma information for the six-months ended June 30, 2006 reflects the Corporation’s pro forma consolidated results of operations as if the acquisition of Kensington and Community occurred at January 1 of the period, unadjusted for potential cost savings.


	Six Months Ended
*(Dollars in thousands, except per share data)*	June 30, 2006
Pro forma net interest income and noninterest income after provision for loan losses	$	42,987
Pro forma net income		5,175
Pro forma earnings per common share — basic	$	0.15
Pro forma earnings per common share — diluted	$	0.15

People’s Community Bancshares, Inc.

On July 27, 2007, the Corporation announced that it had completed its merger with People’s Community Bancshares, Inc. (“People’s”). People’s is the holding company for People’s Community Bank of the West Coast, a Florida state bank with three branches in Sarasota and Manatee Counties in Florida. Peoples has total assets of approximately $321,000,000, total loans of approximately $259,000,000 and total deposits of approximately $245,000,000. Under the terms of the merger agreement, the Corporation issued 2.9036 shares of the Corporation’s common stock for each share of People’s stock or approximately 6,650,000 shares.

Note 4 — Segment Reporting

The Corporation has two reportable segments, the Alabama Region and the Florida Region. The Alabama Region consists of operations located throughout the state of Alabama. The Florida Region consists of operations primarily located in the Tampa Bay area and panhandle region of Florida. The Corporation’s reportable segments are managed as separate business units because they are located in different geographic areas. Both segments derive revenues from the delivery of financial services. These services include commercial loans, mortgage loans, consumer loans, deposit accounts and other financial services.

The Corporation evaluates performance and allocates resources based on profit or loss from operations. There are no material inter-segment sales or transfers. Net interest revenue is used as the basis for performance evaluation rather than its components, total interest revenue and total interest expense. The accounting policies used by each reportable segment are the same as those discussed in Note 1 to the Consolidated Financial Statements included in the Corporation’s Form 10-K for the year ended December 31, 2006. All costs have been allocated to the reportable segments. Therefore, combined amounts agree to the consolidated totals (in thousands).


	Alabama			Florida
	Region			Region		Combined
Three months ended June 30, 2007
Net interest income	$	13,118		$	4,395	$	17,513
Provision for loan losses		685			315		1,000
Noninterest income		4,188			350		4,538
Noninterest expense (1)		15,155			2,903		18,058
Income tax expense		500			524		1,024
Net income		966			1,003		1,969
Total assets		1,920,501			549,792		2,470,293
Three months ended June 30, 2006
Net interest income	$	6,536		$	3,877	$	10,413
Provision for loan losses		243			457		700
Noninterest income		2,579			248		2,827
Noninterest expense (1)		9,585			1,075		10,660
Income tax (benefit) expense		(222	)		828		606
Net (loss) income		(491	)		1,765		1,274
Total assets		1,214,545			316,682		1,531,227
Six months ended June 30, 2007
Net interest income	$	26,502		$	9,044	$	35,546
Provision for loan losses		1,326			379		1,705
Noninterest income		7,962			662		8,624
Noninterest expense (1)		30,203			5,880		36,083
Income tax expense		978			1,138		2,116
Net income		1,957			2,309		4,266
Six months ended June 30, 2006
Net interest income	$	12,895		$	7,521	$	20,416
Provision for loan losses		1,032			268		1,300
Noninterest income		4,835			494		5,329
Noninterest expense (1)		19,298			2,167		21,465
Income tax (benefit) expense		(928	)		1,784		856
Net (loss) income		(1,672	)		3,796		2,124


(1)		Noninterest expense for the Alabama region includes all expenses for the holding company and all administrative expenses of the bank, which have not been prorated to the Florida region.

Note 5 — Net Income per Common Share

The following table sets forth the computation of basic and diluted net income per common share (in thousands, except per share amounts):


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2007		2006		2007		2006
Numerator:
For basic and diluted, net income	$	1,969	$	1,274	$	4,266	$	2,124


Denominator:
For basic, weighted average common shares outstanding		34,452		20,129		34,445		20,073
Effect of dilutive stock options and restricted stock		488		628		544		643

Average diluted common shares outstanding		34,940		20,757		34,989		20,716

Basic net income per common share	$	.06	$	.06	$	.12	$	.11

Diluted net income per common share	$	.06	$	.06	$	.12	$	.10

Note 6 — Comprehensive Income (Loss)

Total comprehensive income (loss) was $118,000 and $2,842,000 for the three- and six-months ended June 30, 2007, respectively, and $(170,000) and $(281,000) for the three- and six-months ended June 30, 2006, respectively. Total comprehensive income (loss) consists of net income and the unrealized gain or loss on the Corporation’s available-for-sale investment securities portfolio arising during the period.

Note 7 — Income Taxes

The effective tax rate increased in the three-month periods ended June 30, 2007 and 2006 due to the recapture of tax credits related to the sale of condominium units. The difference in the effective tax rate in the six months ended June 30, 2007 and 2006 and the federal statutory rate of 34% is due primarily to certain tax-exempt income from investments and insurance policies. The Corporation adopted the provisions of FIN 48 as of January 1, 2007, the effect of which is included in Note 2.

Note 8 — Stockholders’ Equity

The Corporation has established a stock incentive plan for directors and certain key employees that provides for the granting of restricted stock and incentive and nonqualified options to purchase up to 2,500,000 shares of the Corporation’s common stock. The compensation committee of the Board of Directors determines the terms of the restricted stock and options granted. All options granted have a maximum term of ten years from the grant date, and the option price per share of options granted cannot be less than the fair market value of the Corporation’s common stock on the grant date. Some of the options granted under the plan in the past vested over a five-year period, while others vested based on certain benchmarks relating to the trading price of the Corporation’s common stock, with an outside vesting date of five years from the date of grant. More recent grants have followed this benchmark-vesting formula.

The fair value of each option award is estimated on the date of grant based upon the Black-Scholes pricing model that uses the assumptions noted in the following table. The risk-free interest rate is based on the implied yield on U. S. Treasury zero-coupon issues with a remaining term equal to the expected term. Expected volatility has been estimated based on historical data. The expected term has been estimated based on the five-year vesting date and change of control provisions. The Corporation used the following weighted-average assumptions for the six-months ended June 30, 2007 and 2006:


	2007			2006
Risk free interest rate		4.37	%		4.92	%
Volatility factor		29	%		47	%
Weighted average life of options (in years)		5.00			7.00
Dividend yield		0.00	%		0.00	%

A summary of stock option activity as of June 30, 2007 and changes during the six-months then ended is set forth below:


							Weighted-
				Weighted-			Average
				Average			Remaining
				Exercise			Contractual		Aggregate
	Number			Price			Term		Intrinsic Value
Under option, January 1, 2007		3,042,597		$	8.07
Granted		21,096			11.22
Exercised		(5,000	)		(6.25	)
Forfeited		(18,500	)		(10.46	)

Under option, June 30, 2007		3,040,193		$	8.09			6.90	$	6,747,155

Exercisable at end of period		2,847,597		$	7.90			6.33	$	6,747,155

Weighted-average fair value per option of options granted during the period	$	3.83

The total intrinsic value of options exercised during the three- and six-month periods ended June 30, 2007 was $52,000. The total intrinsic value of options exercised during the three- and six-month periods ended June 30, 2006 was $125,000 and $742,000, respectively. As of June 30, 2007, there was $433,000 of total unrecognized compensation expense related to the unvested awards. This expense will be recognized over a twenty- month period unless the shares vest earlier based on achievement of benchmark trading price levels. During the three- and six-month periods ended June 30, 2007, the Corporation recognized approximately $86,000 and $169,000, respectively, in compensation expense related to options granted. During the three- and six-month periods ended June 30, 2006, the Corporation recognized approximately $9,000 and $47,000, respectively, in compensation expense related to options granted.

Note 9 – Property Classified as Held-for-Sale

During the second quarter of 2007, management committed to a plan to sell real estate that is no longer used in the Corporation’s operations. The real estate comprises two groups. The first group consists of the former corporate headquarters and administrative office facilities of Community in Blountsville, Alabama, and the second group consists of seven condominium units located in the John Hand Building in downtown Birmingham, Alabama where the Corporation’s headquarters and operations center are housed.

Management committed to the sale of the Community property because the size and location of the facility does not meet the Corporation’s current needs or future expansion plans. Management expects to sell the property within the next twelve months to an unrelated party. The property’s current carrying value, included in other assets, is $4,292,000, which approximates its market value. Management is in the process of obtaining a final estimate of fair value which, if different, will be adjusted through the final allocation of Community’s purchase price (See Note 3).

Management committed to the sale of the condominium units because the rental operations are not a part of the Corporation’s long-term strategy. Management expects to sell the units within the next twelve months. The property’s current carrying value, included in other assets, is $1,992,000, which is lower than the current market price.

Both groups of assets are included as part of the Alabama reporting segment.

Note 10– Subsequent Events

Stock Repurchase Plan

The Corporation announced in June 2007 that, beginning on or after August 2, 2007, the Corporation may purchase up to 1,000,000 shares of its outstanding common stock. The shares may be purchased in the open market through negotiated or block transactions. The Corporation does not intend to repurchase any shares from its management team or other insiders. This stock repurchase program does not obligate the Corporation to acquire any specific number of shares and may be suspended or discontinued at any time.

Junior Subordinated Debentures Owed to Unconsolidated Subsidiary Trusts

On July 19, 2007, the Corporation issued approximately $22,000,000 in aggregate principal amount of Trust Preferred Securities and a like amount of related subordinated debentures through the Corporation’s wholly-owned, unconsolidated subsidiary trust, Superior Capital Trust I. The Trust Preferred Securities bear interest at a floating rate of three-month LIBOR plus 1.33% that is payable quarterly. The Trust Preferred Securities, which may be redeemed on or after September 15, 2012, will mature on September 15, 2037.

On July 25, 2007, the Corporation completed its redemption of approximately $16,000,000 in aggregate outstanding principal amount of Trust Preferred Securities and related six-month LIBOR plus 3.75% junior subordinated debentures due July 25, 2031, both of which were issued by the Corporation’s wholly-owned, unconsolidated subsidiary trust, TBC Capital Statutory Trust III. The Corporation called the securities for redemption effective July 25, 2007 at a redemption price equal to 106.15% of par. The Corporation expects to incur an earnings charge of approximately $925,000 net of tax, or $.02 per share, in the third quarter of 2007 relating to the redemption of the outstanding Trust Preferred Securities.

The remaining proceeds from the issuance of the new trust preferred securities will be available for use in the stock repurchase program or for other corporate purposes.

Acquisition

On July 27, 2007, the Corporation announced it had completed its merger with People’s Community Bancshares, Inc. (See Note 3).

Purchase of Branch Facilities

The Corporation announced on July 25, 2007 that its banking subsidiary will be expanding into Citrus and Marion Counties in the Tampa Bay area with four new offices. The four new offices will be in Homosassa, Inverness, Dunnellon and Beverly Hills. These existing facilities, to be purchased from a large regional bank, are expected to open and begin serving customers in the fourth quarter of 2007. The Corporation has entered into a Purchase and Sale Agreement, which is subject to due diligence, to purchase these facilities for approximately $4,500,000. The Corporation is in the process of due diligence and the transaction is expected to close during the third quarter.

Sale-Leaseback Transaction

On July 24, 2007, the Corporation’s banking subsidiary sold an office building in Huntsville, Alabama to a limited liability company, of which one of the Corporation’s directors is a member, for $3,000,000. The limited liability company then leased the building back to the bank. The initial term of the lease is 14 years and may be renewed, at the bank’s option, for three additional terms of five years each. The amount of the monthly lease payments to be made by Superior Bank is $19,500 for the first year of the lease and increases annually until it reaches $26,881 in year 14. Rent for the renewal terms is to be determined based on appraisals of the property. No gain or loss will be recognized on this transaction, which was entered into in the ordinary course of business and is expected to be accounted for as an operating lease.

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

Basis of Presentation

The following is a discussion and analysis of our June 30, 2007 consolidated financial condition and results of operations for the three- and six-months ended June 30, 2007 and 2006. All significant intercompany accounts and transactions have been eliminated. Our accounting and reporting policies conform to generally accepted accounting principles.

This information should be read in conjunction with our unaudited condensed consolidated financial statements and related notes appearing elsewhere in this report and the audited consolidated financial statements and related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” appearing in our Annual Report on Form 10-K for the year ended December 31, 2006.

Recent Developments

On July 27, 2007, we announced we had completed our merger with People’s Community Bancshares, Inc.. (“People’s”). People’s is the holding company for People’s Community Bank of the West Coast, a Florida state bank with three branches in Sarasota and Manatee Counties in Florida. People’s has total assets of approximately $321 million, total loans of approximately $259 million and total deposits of approximately $245 million. Under the terms of the merger agreement, we issued 2.9036 shares for each share of People’s stock, or approximately 6.7 million shares of our common stock.

Overview

Our principal subsidiary is Superior Bank, a federal savings bank headquartered in Birmingham, Alabama, which operates 63 banking offices from Huntsville, Alabama to Venice, Florida and 19 consumer finance company offices in Alabama. Our Florida franchise currently has 25 branches.

Our total assets were $2.470 billion at June 30, 2007 an increase of $29 million, or 1.20%, from $2.441 billion as of December 31, 2006. Our total loans, net of unearned income, were $1.720 billion at June 30, 2007, an increase of $81 million, or 4.90%, from $1.639 billion as of December 31, 2006. Our total deposits were $1.885 billion at June 30, 2007, an increase of $14 million or .75%, from $1.870 billion as of December 31, 2006. Our total stockholders’ equity was $279 million at June 30, 2007, an increase of $3 million, or 1.04%, from $276 million as of December 31, 2006.

The primary source of our revenue is net interest income, which is the difference between income earned on interest-earning assets, such as loans and investments, and interest paid on interest-bearing liabilities, such as deposits and borrowings. Our results of operations are also affected by the provision for loan losses and other noninterest expenses such as salaries and benefits, occupancy expenses and provision for income taxes. The effects of these noninterest expenses are partially offset by noninterest sources of revenue such as service charges and fees on deposit accounts and mortgage banking income. Our volume of business is influenced by competition in our markets and overall economic conditions, including such factors as market interest rates, business spending and consumer confidence.

Results of Operations

Net income increased $695,000, or 54.6% to $2.0 million for the three-months ended June 30, 2007 (second quarter of 2007), from $1.3 million for the three-months ended June 30, 2006 (second quarter of 2006). Net income increased $2.2 million, or 100.9% to $4.3 million for the six-months ended June 30, 2007 (first six months of 2007), from $2.1 million for the six-months ended June 30, 2006 (first six months of 2006). The following table sets forth key earnings data for the periods indicated:


	Three-Months						Six-Months
	Ended June 30,						Ended June 30,
	2007			2006			2007			2006
	(Dollars in thousands, except per share data)
Superior Bancorp and Subsidiaries
Net income	$	1,969		$	1,274		$	4,266		$	2,124
Net income per common share (diluted)		0.06			0.06			0.12			0.10
Net interest margin		3.39	%		3.18	%		3.46	%		3.19	%
Net interest spread		3.06	%		2.97	%		3.14	%		2.99	%
Return on average assets		0.32	%		0.35	%		0.35	%		0.30	%
Return on average stockholders’ equity		2.83	%		4.84	%		3.10	%		4.06	%
Return on average tangible equity		5.26	%		5.45	%		5.79	%		4.58	%
Book value per share	$	8.05		$	5.25		$	8.05		$	5.25
Tangible book value per share		4.33			4.66			4.33			4.66

Banking Subsidiary, Superior Bank
Net income	$	3,160		$	2,126		$	6,444		$	3,757
Return on average assets		0.53	%		0.59	%		0.54	%		0.53	%
Return on average stockholders’ equity		4.10	%		6.69	%		4.22	%		5.96	%
Return on tangible equity		7.04	%		7.39	%		7.26	%		6.59	%

The increase in our net income during the second quarter and first six months of 2007 compared to the second quarter and first six months of 2006 is primarily the result of an increase in net interest income and noninterest income offset by an increase in noninterest expenses. The increase in each of these components is primarily attributable to our acquisitions of Kensington and Community which closed in the third and fourth quarters, respectively, of 2006.

Net Interest Income.Net interest income is the difference between the income earned on interest-earning assets and interest paid on interest-bearing liabilities used to support such assets. The following table summarizes the changes in the components of net interest income for the periods indicated:


	Increase (Decrease) in
	Second Quarter 2007 vs 2006								First Six Months of 2007 vs 2006
	Average			Income/		Yield/			Average		Income/		Yield/
	Balance			Expense		Rate			Balance		Expense		Rate
	(Dollars in thousands)
ASSETS
Interest-earning assets:
Loans, net of unearned income	$	645,512		$	14,732		0.54	%	$	658,201	$	30,625		0.69	%
Investment securities
Taxable		90,285			1,347		0.33			99,067		3,025		0.40
Tax-exempt		4,266			73		0.29			4,266		151		0.45

Total investment securities		94,551			1,420		0.56			103,333		3,176		0.40
Federal funds sold		7,720			105		0.26			6,806		197		0.59
Other investments		14,729			227		0.05			16,183		607		0.74

Total interest-earning assets	$	762,512			16,484		0.54		$	784,523		34,605		0.69


Interest-bearing liabilities:
Demand deposits	$	211,187			2,642		0.88		$	199,512		4,994		0.88
Savings deposits		24,329			123		1.01			23,339		221		0.92
Time deposits		434,361			6,248		0.51			454,290		12,854		0.58
Other borrowings		(685	)		122		0.25			14,179		899		0.49
Subordinated debentures		11,867			224		(0.60	)		11,922		456		(0.55	)

Total interest-bearing liabilities	$	681,059			9,359		0.45		$	703,242		19,424		0.54


Net interest income/net interest spread					7,125		0.09	%				15,181		0.15	%

Net yield on earning assets							0.21	%						0.27	%

Taxable equivalent adjustment:
Investment securities					25							51

Net interest income				$	7,100						$	15,130

The following table depicts, on a taxable equivalent basis for the periods indicated, certain information related to our average balance sheet and our average yields on assets and average costs of liabilities. Average yields are calculated by dividing income or expense by the average balance of the corresponding assets or liabilities. Average balances have been calculated on a daily basis.


	Three Months Ended June 30,
	2007								2006
	Average			Income/		Yield/			Average			Income/		Yield/
	Balance			Expense		Rate			Balance			Expense		Rate
	(Dollars in thousands)
ASSETS
Interest-earning assets:
Loans, net of unearned income (1)	$	1,693,341		$	34,986		8.29	%	$	1,047,829		$	20,254		7.75	%
Investment securities
Taxable		317,434			4,096		5.18			227,149			2,749		4.85
Tax-exempt (2)		13,588			209		6.16			9,322			136		5.87

Total investment securities		331,022			4,305		5.22			236,471			2,885		4.66
Federal funds sold		11,748			156		5.34			4,028			51		5.08
Other investments		45,614			691		6.08			30,885			464		6.03

Total interest-earning assets		2,081,725			40,138		7.73			1,319,213			23,654		7.19
Noninterest-earning assets:
Cash and due from banks		43,635								25,828
Premises and equipment		95,099								57,465
Accrued interest and other assets		229,238								78,501
Allowance for loan losses		(18,867	)							(12,232	)

Total assets	$	2,430,830							$	1,468,775


	Three Months Ended June 30,
	2007							2006
	Average		Income/		Yield/			Average		Income/		Yield/
	Balance		Expense		Rate			Balance		Expense		Rate
	(Dollars in thousands)
LIABILITIES AND STOCKHOLDERS’ EQUITY
Interest-bearing liabilities:
Demand deposits	$	519,646	$	4,830		3.73	%	$	308,459	$	2,188		2.85
Savings deposits		44,211		133		1.21			19,882		10		0.20
Time deposits		1,116,713		13,817		4.96			682,352		7,569		4.45
Other borrowings		211,593		2,770		5.25			212,278		2,648		5.00
Subordinated debentures		43,826		1,004		9.19			31,959		780		9.79

Total interest-bearing liabilities		1,935,989		22,554		4.67			1,254,930		13,195		4.22
Noninterest-bearing liabilities:
Demand deposits		179,366							93,705
Accrued interest and other liabilities		36,780							14,663
Stockholders’ equity		278,695							105,477

Total liabilities and stockholders’ equity	$	2,430,830						$	1,468,775

Net interest income/net interest spread				17,584		3.06	%				10,459		2.97	%

Net yield on earning assets						3.39	%						3.18	%

Taxable equivalent adjustment:
Investment securities (2)				71							46

Net interest income			$	17,513						$	10,413


(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.

The following table sets forth, on a taxable equivalent basis, the effect that the varying levels of interest-earning assets and interest-bearing liabilities and the applicable rates have had on changes in net interest income for the three months ended June 30, 2007 and 2006.


	Three Months Ended June 30, (1)
	2007 vs. 2006
	Increase		Changes Due To
	(Decrease)		Rate			Volume
	(Dollars in thousands)
Increase (decrease) in:
Income from interest-earning assets:
Interest and fees on loans	$	14,732	$	1,497		$	13,235
Interest on securities:
Taxable		1,347		197			1,150
Tax-exempt		73		7			66
Interest on federal funds		105		3			102
Interest on other investments		227		4			223

Total interest income		16,484		1,708			14,776

Expense from interest-bearing liabilities:
Interest on demand deposits		2,642		821			1,821
Interest on savings deposits		123		99			24
Interest on time deposits		6,248		953			5,295
Interest on other borrowings		122		130			(8	)
Interest on subordinated debentures		224		(50	)		274

Total interest expense		9,359		1,953			7,406

Net interest income	$	7,125	$	(245	)	$	7,370


(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.


	Six Months Ended June 30,
	2007								2006
	Average			Income/		Yield/			Average			Income/		Yield/
	Balance			Expense		Rate			Balance			Expense		Rate
	(Dollars in thousands)
ASSETS
Interest-earning assets:
Loans, net of unearned income (1)	$	1,680,439		$	69,297		8.32	%	$	1,022,238		$	38,672		7.63	%
Investment securities
Taxable		328,691			8,535		5.24			229,624			5,510		4.84
Tax-exempt (2)		13,155			403		6.19			8,889			253		5.74

Total investment securities		341,846			8,938		5.27			238,513			5,763		4.87
Federal funds sold		10,326			283		5.52			3,520			86		4.93
Other investments		46,844			1,429		6.15			30,661			822		5.41

Total interest-earning assets		2,079,455			79,947		7.75			1,294,932			45,343		7.06
Noninterest-earning assets:
Cash and due from banks		43,478								27,241
Premises and equipment		95,118								56,850
Accrued interest and other assets		227,630								77,683
Allowance for loan losses		(18,883	)							(12,169	)

Total assets	$	2,426,798							$	1,444,537


LIABILITIES AND STOCKHOLDERS’ EQUITY
Interest-bearing liabilities:
Demand deposits	$	517,918		$	9,333		3.63	%	$	318,406		$	4,338		2.75
Savings deposits		43,813			239		1.10			20,474			18		0.18
Time deposits		1,103,274			26,677		4.88			648,984			13,824		4.30
Other borrowings		226,316			6,019		5.36			212,137			5,120		4.87
Subordinated debentures		43,881			1,996		9.17			31,959			1,541		9.72

Total interest - bearing liabilities		1,935,202			44,264		4.61			1,231,960			24,841		4.07
Noninterest-bearing liabilities:
Demand deposits		179,465								92,583
Accrued interest and other liabilities		34,568								14,576
Stockholders’ equity		277,563								105,418

Total liabilities and stockholders’ equity	$	2,426,798							$	1,444,537

Net interest income/net interest spread					35,683		3.14	%					20,502		2.99	%

Net yield on earning assets							3.46	%							3.19	%

Taxable equivalent adjustment:
Investment securities (2)					137								86

Net interest income				$	35,546							$	20,416


(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.

The following table sets forth, on a taxable equivalent basis, the effect which the varying levels of interest-earning assets and interest-bearing liabilities and the applicable rates have had on changes in net interest income for the six months ended June 30, 2007 and 2006.


	Six Months Ended June 30, (1)
	2007 vs. 2006
	Increase		Changes Due To
	(Decrease)		Rate			Volume
	(Dollars in thousands)
Increase (decrease) in:
Income from interest-earning assets:
Interest and fees on loans	$	30,625	$	3,772		$	26,853
Interest on securities:
Taxable		3,025		486			2,539
Tax-exempt		150		20			130
Interest on federal funds		197		11			186
Interest on other investments		607		125			482

Total interest income		34,604		4,414			30,190

Expense from interest-bearing liabilities:
Interest on demand deposits		4,995		1,689			3,306
Interest on savings deposits		221		181			40
Interest on time deposits		12,853		2,076			10,777
Interest on other borrowings		899		540			359
Interest on subordinated debentures		455		(92	)		547

Total interest expense		19,423		4,394			15,029

Net interest income	$	15,181	$	20		$	15,161


(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. Noninterest income increased $1.7 million and $3.3 million, or 60.5% and 61.8%, to $4.5 million and $8.6 million for the second quarter and first six months of 2007, respectively, and from $2.8 million and $5.3 million for the second quarter and first six months of 2006, respectively. The components of noninterest income for the second quarter and first six months of 2007 and 2006 consisted of the following:


	Three-months Ended June 30,
	2007		2006			% Change
	(Dollars in thousands)
Service charges and fees on deposits	$	1,894	$	1,129			67.72	%
Mortgage banking income		1,132		708			59.75
Change in fair value of derivatives		118		(33	)		(456.9	)
Increase in cash surrender value of life insurance		452		359			25.85
Other noninterest income		942		664			41.78

Total	$	4,538	$	2,827			60.52	%


	Six-months Ended June 30,
	2007			2006		% Change
	(Dollars in thousands)
Service charges and fees on deposits	$	3,684		$	2,160		70.52	%
Mortgage banking income		2,082			1,238		68.17
Investment securities gains		242			—		—
Change in fair value of derivatives		(34	)		37		(191.71	)
Increase in cash surrender value of life insurance		900			780		15.32
Other noninterest income		1,750			1,114		57.16

Total	$	8,624		$	5,329		61.83	%

The increases in service charges on deposits and fees are primarily attributable to the Kensington and Community acquisitions. The increase in mortgage banking income is the result of an increase in the volume of originations. The increase in other noninterest income is primarily due to increases in credit life insurance commissions, brokerage commissions and ATM network fees. Our credit life insurance commissions have increased due to our finance company subsidiary which was acquired in the Community acquisition. The increase in brokerage commissions is the result of increased volume in our investment subsidiary and the increase in ATM network fees is the result of increased volume related to new customers and additional ATM locations, acquired through acquisition or new branch locations.

Noninterest expenses. Noninterest expenses increased $7.4 million, or 69.4%, to $18 million for the second quarter of 2007 from $10.6 million for the second quarter of 2006. This increase is primarily due to the acquisitions of Kensington and Community and the opening of new branch locations. Selected key ratios, as shown below, remained level between the periods. Continued branch expansion is expected to put pressure on these ratios, however, increases in the volume of net interest income and noninterest income are expected to begin offsetting these costs. Noninterest expenses included the following for the second quarters of 2007 and 2006:


	Three-months Ended June 30,
	2007			2006			% Change
	(Dollars in thousands)
Noninterest Expenses
Salaries and employee benefits	$	10,168		$	5,798			75.37	%
Occupancy, furniture and equipment expense		2,995			1,739			72.23
Amortization of intangibles		304			—			—
Merger related costs		107			51			109.80
Professional fees		559			670			(16.59	)
Insurance expense		540			374			44.43
Postage, stationery and supplies		548			289			89.69
Communications expense		460			149			208.74
Advertising expense		568			260			118.38
Other operating expense		1,809			1,330			36.01

Total	$	18,058		$	10,660			69.40	%


Selected Key Ratios
Noninterest expense to average assets (1)		2.91	%		2.89	%
Efficiency ratio (1)		80.23			80.36


(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.

Noninterest expenses increased $14.6 million, or 68.1%, to $36.1 million for the first six months of 2007 from $21.5 million for the first six months of 2006. This increase is primarily due to the acquisitions of Kensington and Community and the opening of new branch locations. Selected key ratios, as shown below, improved between the periods. Continued branch expansion is expected to put pressure on these ratios, however, increases in the volume of net interest income and noninterest income are expected to begin offsetting these costs Noninterest expenses included the following for the first six months of 2007 and 2006:


	Six-months Ended June 30,
	2007			2006			% Change
	(Dollars in thousands)
Noninterest Expenses
Salaries and employee benefits	$	20,236		$	11,666			73.46	%
Occupancy, furniture and equipment expense		6,142			3,586			71.28
Amortization of intangibles		609			—			—
Merger related costs		426			72			491.67
Professional fees		1,020			1,257			(18.85	)
Insurance expense		540			374			44.43
Postage, stationery and supplies		1,174			539			117.93
Communications expense		980			373			162.52
Advertising expense		1,224			553			121.16
Other operating expense		3,732			3,045			22.56

Total	$	36,083		$	21,465			68.10	%


Selected Key Ratios
Noninterest expense to average assets (1)		2.91	%		2.98	%
Efficiency ratio (1)		79.50			83.24


(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.

Income tax expense. We recognized income tax expense of $1.0 million for the second quarter of 2007, compared to $606,000 for the second quarter of 2006. Our effective tax rate increased slightly in the second quarter of 2007 and 2006 due to the recapture of tax credits related to the sale of condominium units. We recognized income tax expense of $2.1 million in the first six months of 2007, compared to $856,000 in the first six months of 2006. The difference in the effective tax rate in the first six months of 2007 and 2006 and the federal statutory rate of 34% is due primarily to certain tax-exempt income from investments and insurance policies. We adopted the provisions of FIN 48 as of January 1, 2007, the effect of which is included in Note 2 to the Condensed Consolidated financial statements.

Provision for Loan Losses. The provision for loan losses represents the amount determined by management to be necessary to maintain the allowance for loan losses at a level capable of absorbing inherent losses in the loan portfolio. Management reviews the adequacy of the allowance for loan losses on a quarterly basis. The allowance for loan loss calculation is segregated into various segments that include classified loans, loans with specific allocations and pass rated loans. A pass rated loan is generally characterized by a very low to average risk of default and in which management perceives there is a minimal risk of loss. Loans are rated using an eight-point scale, with loan officers having the primary responsibility for assigning risk ratings and for the timely reporting of changes in the risk ratings. These processes, and the assigned risk ratings, are subject to review by our internal loan review function and chief credit officer. Impaired loans are reviewed specifically and separately under Statement of Financial Accounting Standards (“SFAS”) No. 114 to determine the appropriate reserve allocation. Management compares the investment in an impaired loan with the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s observable market price, or the fair value of the collateral, if the loan is collateral-dependent,

to determine the specific reserve allowance. To evaluate the overall adequacy of the allowance to absorb losses inherent in our loan portfolio, management considers historical loss experience based on volume and types of loans, trends in classifications, volume and trends in delinquencies and non-accruals, economic conditions and other pertinent information. Based on future evaluations, additional provisions for loan losses may be necessary to maintain the allowance for loan losses at an appropriate level. See “Financial Condition — Allowance for Loan Losses” for additional discussion.

The provision for loan losses was $1.0 million for the second quarter of 2007, an increase of $300,000, or 42.8%, from $700,000 in the second quarter of 2006. The provision for loan losses was $1.7 million for the first six months of 2007, an increase of $405,000, or 31.2%, from $1.3 million in the first six months of 2006. During the second quarter and first six months of 2007, we had net charged-off loans totaling $830,000 and $1.5 million, respectively, compared to net charged-off loans of $388,000 and $1.0 million in the second quarter and first six months of 2006, respectively. The annualized ratio of net charged-off loans to average loans was 0.20% and 0.17% for the three- and six-month periods ended June 30, 2007, compared to the .15% and 0.20% for the three- and six-month periods ended June 30, 2006, and .20% for the year ended December 31, 2006, respectively. The allowance for loan losses totaled $19.1 million, or 1.11% of loans, net of unearned income, at June 30, 2007, compared to $18.9 million, or 1.15% of loans, net of unearned income, at December 31, 2006. See “Financial Condition — Allowance for Loan Losses” for additional discussion.

Financial Condition

Total assets were $2.470 billion at June 30, 2007, an increase of $29 million, or 1.20%, from $2.441 billion as of December 31, 2006. Average total assets for the first six months of 2007 were $2.427 billion, which was supported by average total liabilities of $2.173 billion and average total stockholders’ equity of $277 million.

Short-term liquid assets. Short-term liquid assets (cash and due from banks, interest-bearing deposits in other banks and federal funds sold) decreased $18.8 million, or 21.80%, to $67.2 million at June 30, 2007 from $86.0 million at December 31, 2006. At June 30, 2007, short-term liquid assets comprised 2.72% of total assets, compared to 3.5% at December 31, 2006. We continually monitor our liquidity position and will increase or decrease our short-term liquid assets as we deem necessary.

Investment Securities. Total investment securities decreased $32.0 million, or 9.0%, to $322.7 million at June 30, 2007, from $354.7 million at December 31, 2006. The decrease in investments is primarily due to maturities, calls and principal pay-downs which have been used to fund loan growth. Average investment securities totaled $341.8 million for the first six months of 2007 compared to $238.5 million for the first six months of 2006. Investment securities, net of unearned income, comprised 15.3% of interest-earning assets at June 30, 2007, compared to 17.0% at December 31, 2006. The investment portfolio produced an average tax-equivalent yield of 5.27% for the first six months of 2007, compared to 4.87% for the first six months of 2006.

The following table sets forth the carrying value of the securities we held at the dates indicated.

Investment Portfolio


	Available for Sale
	June 30,		December 31,		Percent
	2007		2006		Change
	(Dollars in thousands)
U.S. Treasury and agencies	$	95,359	$	111,852		(14.75	)%
State and political subdivisions		14,179		12,942		9.56
Mortgage-backed securities		176,702		184,453		(4.20	)
Corporate debt and other securities		36,499		45,469		(19.73	)

Total investment securities	$	322,739	$	354,716		(9.01	)%

Loans. Loans, net of unearned income, totaled $1.720 billion at June 30, 2007, an increase of 4.9%, or $80 million, from $1.640 billion at December 31, 2006. Mortgage loans held for sale totaled $23.2 million at June 30, 2007, a decrease of $1.2 million from $24.4 million at December 31, 2006. Average loans, including mortgage loans held for sale, totaled $1.680 billion for the first six months of 2007 compared to $1.022 billion for the first six months of 2006. Loans, net of unearned income, comprised 81.3% of interest-earning assets at June 30, 2007, compared to 78.7% at December 31, 2006. The loan portfolio produced an average yield of 8.32% for the first six months of 2007, compared to 7.63% for the first six months of 2006.

The following table details the distribution of the loan portfolio by category as of June 30, 2007 and December 31, 2006:

DISTRIBUTION OF LOANS BY CATEGORY
(Dollars in thousands)


	June 30, 2007						December 31, 2006
				Percent of						Percent of
	Amount			Total			Amount			Total
Commercial and industrial	$	164,945			9.58	%	$	172,872			10.53	%
Real estate — construction and land development		594,410			34.53			547,772			33.37
Real estate — mortgage
Single-family		488,025			28.35			456,341			27.80
Commercial		378,285			21.98			362,542			22.09
Other		42,100			2.45			46,895			2.86
Consumer		52,431			3.05			54,462			3.32
Other		995			.06			438			.03

Total loans		1,721,191			100.0	%		1,641,322			100.0	%

Unearned income		(1,383	)					(1,794	)
Allowance for loan losses		(19,147	)					(18,892	)


Net loans	$	1,700,661					$	1,620,636

Of total loans net of unearned income, $1.244 billion, or 72%, are included in our Alabama segment, while $475 million, or 28%, are included in our Florida segment as of June 30, 2007. Since December 31, 2006, loans in the Alabama segment have increased approximately $49 million, or 4.0%, while loans in the Florida segment have increased approximately $31 million, or 8.8%.

Property and Equipment. Property and equipment totaled $89.6 million at June 30, 2007, a decrease of 5.3%, or $5.0 million, from $94.6 million at December 31, 2006. This decrease is primarily due to a reclassification of certain properties to the held-for-sale category. During the second quarter of 2007 our management committed to a plan to sell real estate that is no longer used in our operations. The real estate comprises two groups. The first group consists of the former corporate headquarters and administrative office facilities of Community in Blountsville, Alabama, and the second group consists of seven condominium units located in the John Hand Building in downtown Birmingham, Alabama where our headquarters and operations center are housed.

Management committed to the sale of the Community property because the size and location of the facility does not meet our current needs or future expansion plans. Management expects to sell the property within the next twelve months to an unrelated party. The property’s current carrying value, included in other assets, is $4,292,000, which approximates its market value. Management is in the process of obtaining a final estimate of fair value which, if different, will be adjusted through the final allocation of Community’s purchase price (See Note 3 to the Condensed Consolidated Financial Statements).

Both groups of assets are included as part of the Alabama reporting segment.

We also announced on July 25, 2007 that our banking subsidiary will be expanding into Citrus and Marion Counties with four new offices in the Tampa Bay area. The four new offices will be in Homosassa, Inverness, Dunnellon and Beverly Hills. These existing facilities, to be purchased from a large regional bank, are expected to open and begin serving customers in the fourth quarter 2007. We have entered into a Purchase and Sale Agreement, which is subject to due diligence, to purchase these facilities for approximately $4,500,000. We are in the process of due diligence, and the transaction is expected to close during the third quarter.

On July 24, 2007, our banking subsidiary sold an office building in Huntsville, Alabama to a limited liability company, of which one of our directors is a member, for $3,000,000. The limited liability company then leased the building back to the bank. The initial term of the lease is for 14 years and may be renewed, at the bank’s option, for three additional terms of five years each. The amount of the monthly lease payments to be made by the bank is $19,500 for the first year of the lease and increases annually until it reaches $26,881 in year 14. Rent for the renewal terms is to be determined based on appraisals of the property. No gain or loss will be recognized on this transaction, which was entered into in the ordinary course of business and is expected to be accounted for as an operating lease.

Deposits. Noninterest-bearing deposits totaled $182.8 million at June 30, 2007, a decrease of 4.5%, or $8.5 million, from $191.3 million at December 31, 2006. Noninterest-bearing deposits comprised 9.7% of total deposits at June 30, 2007 compared to 10.2% at December 31, 2006. Of total noninterest-bearing deposits, $142.4 million, or 77.9%, were in the Alabama segment, while $40.4 million, or 22.1%, were in the Florida segment. Total noninterest bearing deposits decreased $4.3 million, or 2.9%, in the Alabama segment while total noninterest bearing deposits decreased $4.2 million, or 9.4%, in the Florida segment.

Interest-bearing deposits totaled $1.702 billion at June 30, 2007, an increase of 1.35%, or $22 million, from $1.680 billion at December 31, 2006. Interest-bearing deposits averaged $1.665 billion for the first six months of 2007 compared to $988 million for the first six months of 2006. The average rate paid on all interest-bearing deposits during the first six months of 2007 was 4.39%, compared to 3.71% for the first six months of 2006. Of total interest-bearing deposits, $1.230 billion, or 72.3%, were in the Alabama segment, while $472 million, or 27.7%, were in the Florida branches.

The following table sets forth the composition of our total deposit accounts at the dates indicated.


	June 30,		December 31,		Percent
	2007		2006		Change
	(Dollars in thousands)
Non-interest bearing demand	$	182,807	$	191,323		(4.45	)%
Alabama segment		142,389		146,705		(2.94	)
Florida segment		40,418		44,618		(9.41	)

Interest-bearing demand		532,688		552,887		(3.65	)
Alabama segment		411,914		440,299		(6.45	)
Florida segment		120,774		112,588		7.27

Savings		44,964		42,717		5.26
Alabama segment		32,125		28,394		13.14
Florida segment		12,839		14,323		(10.36	)

Time deposits		1,124,346		1,083,914		3.73
Alabama segment		786,010		742,753		5.82
Florida segment		338,336		341,161		(.83	)


Total deposits	$	1,884,805	$	1,870,841		0.75	%

Alabama segment	$	1,372,438	$	1,358,151		1.05	%

Florida segment	$	512,367	$	512,690		(0.06	)%

Borrowings. Advances from the Federal Home Loan Bank (“FHLB”) totaled $187.8 million at June 30, 2007 and December 31, 2006. Borrowings from the FHLB were used primarily to fund growth in the loan portfolio and have a weighted average interest rate of approximately 5.16% at June 30, 2007. The advances are secured by FHLB stock, agency securities and a blanket lien on certain residential real estate loans and commercial loans.

Accrued Expenses and Other Liabilities. Accrued expenses and other liabilities totaled $44.6 million at June 30, 2007, an increase of 51.4%, or $15.2 million, from $29.5 million at December 31, 2006. This increase is primarily due to an $11.0 million loan participation sold with recourse and a $5.0 investment security purchase that settled after June 30, 2007. Both these liabilities were satisfied during July 2007.

Junior Subordinated Debentures Owed to Unconsolidated Subsidiary Trusts

On July 19, 2007, we issued approximately $22 million in aggregate principal amount of Trust Preferred Securities and a like amount of related subordinated debentures through our wholly-owned, unconsolidated subsidiary trust, Superior Capital Trust I. The Trust Preferred Securities bear interest at a floating rate of three-month LIBOR plus 1.33% that is payable quarterly. The Trust Preferred Securities, which may be redeemed on or after September 15, 2012, will mature on September 15, 2037.

On July 25, 2007, we completed our redemption of approximately $16 million in aggregate outstanding principal amount of Trust Preferred Securities and related six-month LIBOR plus 3.75% junior subordinated debentures due July 25, 2031, both of which were issued by our wholly-owned, unconsolidated subsidiary trust, TBC Capital Statutory Trust III. We called the securities for redemption effective July 25, 2007 at a redemption price equal to 106.15% of par. We expect to incur an earnings charge of approximately $925,000 net of tax, or $.02 per share, in the third quarter of 2007 relating to the redemption of the outstanding trust preferred securities.

The remaining proceeds from the issuance of the new trust preferred securities will be available for use in the stock repurchase program or for other corporate purposes.

Allowance for Loan Losses. We maintain an allowance for loan losses within a range we believe is adequate to absorb estimated losses inherent in the loan portfolio. We prepare a quarterly analysis to assess the risk in the loan portfolio and to determine the adequacy of the allowance for loan losses. Generally, we estimate the allowance using specific reserves for impaired loans, and other factors, such as historical loss experience based on volume and types of loans, trends in classifications, volume and trends in delinquencies and non-accruals, national and local economic trends and conditions and other pertinent information. The level of allowance for loan losses to net loans will vary depending on the quarterly analysis.

We manage and control risk in the loan portfolio through adherence to credit standards established by the board of directors and implemented by senior management. These standards are set forth in a formal loan policy which establishes loan underwriting and approval procedures, sets limits on credit concentration and enforces regulatory requirements.

Loan portfolio concentration risk is reduced through concentration limits for borrowers, varying collateral types and geographic diversification. Concentration risk is measured and reported to senior management and the board of directors on a regular basis.

The allowance for loan loss calculation is segregated into various segments that include classified loans, loans with specific allocations and pass rated loans. A pass rated loan is generally characterized by a very low to average risk of default and in which management perceives there is a minimal risk of loss. Loans are rated using an eight-point scale, with the loan officer having the primary responsibility for assigning risk ratings and for the timely reporting of changes in the risk ratings. These processes, and the assigned risk ratings, are subject to review by our internal loan review function and senior management. Based on the assigned risk ratings, the criticized and classified loans in the portfolio are segregated into the following regulatory classifications: Special Mention, Substandard, Doubtful or Loss.

Pursuant to SFAS No. 114, impaired loans are specifically reviewed loans for which it is probable that we will be unable to collect all amounts due according to the terms of the loan agreement. Impairment is measured by comparing the recorded investment in the loan with the present value of expected future cash flows discounted at the loan’s effective interest rate, at the loan’s observable market price or the fair value of the collateral if the loan is collateral dependent. A valuation allowance is provided to the extent that the measure of the impaired loans is less than the recorded investment. A loan is not considered impaired during a period of delay in payment if we continue to expect that all amounts due will ultimately be collected. Larger groups of homogenous loans such as consumer installment and residential real estate mortgage loans are collectively evaluated for impairment.

Reserve percentages assigned to homogeneous loans are based on historical charge-off experience adjusted for current trends in the portfolio and other risk factors.

As stated above, risk ratings are subject to independent review by internal loan review, which also performs ongoing, independent review of the risk management process. The risk management process includes underwriting, documentation and collateral control. Loan review is centralized and independent of the lending function. The loan review results are reported to senior management and the Audit Committee of the board of directors . We have a centralized loan administration services department to serve our entire bank. This department provides standardized oversight for compliance with loan approval authorities and bank lending policies and procedures, as well as centralized supervision, monitoring and accessibility.

The following table summarizes certain information with respect to our allowance for loan losses and the composition of charge-offs and recoveries for the periods indicated.

SUMMARY OF LOAN LOSS EXPERIENCE


	Three-Months						Six-Months
	Ended						Ended						Year Ended
	June 30,						June 30,						December 31,
	2007			2006			2007			2006			2006
	(Dollars in Thousands)
Allowance for loan losses at beginning of period	$	18,977		$	11,999		$	18,892		$	12,011		$	12,011
Allowance of acquired bank		—			—			—			—			6,697
Charge-offs:
Commercial and industrial		327			334			437			615			1,450
Real estate — construction and land development		1			1			1			44			378
Real estate — mortgage
Single-family		189			175			449			450			625
Commercial		5			81			19			95			416
Other		4			—			206			11			15
Consumer		537			184			937			404			860
Other		—			2			—			2			2

Total charge-offs		1,063			777			2,049			1,621			3,746
Recoveries:
Commercial and industrial		86			137			256			218			465
Real estate — construction and land development		1			120			8			121			126
Real estate — mortgage
Single-family		30			24			57			56			102
Commercial		2			30			20			54			363
Other		11			14			58			46			73
Consumer		101			64			198			126			301
Other		2			—			2			—			—

Total recoveries		233			389			599			621			1,430

Net charge-offs		830			388			1,450			1,000			2,316
Provision for loan losses		1,000			700			1,705			1,300			2,500

Allowance for loan losses at end of period	$	19,147		$	12,311		$	19,147		$	12,311		$	18,892

Loans at end of period, net of unearned income	$	1,719,808		$	1,080,713		$	1,719,808		$	1,080,713		$	1,639,528
Average loans, net of unearned income		1,693,341			1,047,829			1,680,439			1,022,238			1,176,844
Ratio of ending allowance to ending loans		1.11	%		1.14	%		1.11	%		1.14	%		1.15	%
Ratio of net charge-offs to average loans (1)		0.20	%		0.15	%		0.17	%		0.20	%		0.20	%
Net charge-offs as a percentage of:
Provision for loan losses		83.00	%		55.43	%		85.04	%		76.92	%		92.64	%
Allowance for loan losses (1)		17.39	%		12.64	%		15.27	%		16.38	%		12.26	%
Allowance for loan losses as a percentage of nonperforming loans		160.64	%		258.04	%		160.64	%		258.09	%		219.88	%


(1)		Annualized.

Compared to the second quarter of 2006 we have realized some weakness in overall asset quality. Nonperforming assets as a percentage of total loans plus nonperforming assets increased to 0.76% as of June 30, 2007, compared to 0.63% as of December 31, 2006 and 0.53% as of June 30, 2006. The overall increase in NPA’s can be primarily attributed to credits located in northwest Florida that have been affected by the real estate slowdown in that region. Management is actively monitoring these credits and does not expect any significant losses. The provision for loan losses was $1.7 million for the first six months of 2007, an increase of $405,000, or 31.2%, from $1.3 million in the first six months of 2006. We had net charged-off loans totaling $830,000 and $1.5 million during the second quarter and first six months of 2007, respectively, compared to net charged-off loans totaling $388,000 and $1.0 million in the second quarter and first six months of 2006, respectively. The annualized ratio of net charged-off loans to average loans was 0.20% and 0.17% for the three- and six-month periods ended June 30, 2007,respectively, compared to .15% and 0.20% for the three- and six-month periods ended June 30, 2006, respectively, and 0.20% for the year ended December 31, 2006. The total required allowance for loan losses as a percentage of total loans decreased from 1.15% at December 31, 2006 to 1.11% at June 30, 2007.

Nonperforming Assets. Nonperforming assets increased $2.6 million, to $13.0 million as of June 30, 2007 from $10.4 million at December 31, 2006. The following table represents our nonperforming assets for the dates indicated:

NONPERFORMING ASSETS


	June 30,			December 31,
	2007			2006
	(Dollars in thousands)
Nonaccrual	$	11,020		$	7,773
Accruing loans 90 days or more delinquent		397			514
Restructured		502			305

Total nonperforming loans		11,919			8,592
Other real estate owned assets and repossessed assets		1,125			1,821

Total nonperforming assets	$	13,044		$	10,413

Nonperforming loans as a percentage of loans		0.69	%		0.52	%

Nonperforming assets as a percentage of loans plus nonperforming assets		0.76	%		0.63	%

Nonperforming assets as a percentage of total assets		0.53	%		0.43	%

Loans past due 30 days or more, net of non-accruals, increased to 1.28% for June 30, 2007, compared to 1.15% at December 31, 2006. The majority of the past dues was comprised of approximately $11.8 million in single-family mortgage loans, or 54% of the total past dues. Within this $11.8 million, most of the loans were originated at an loan-to-value (“LTV”) of 80% or less, thus reducing the overall potential loss exposure. Despite the overall increases, management believes that these numbers are manageable and is actively working to ensure that no significant loss exposure occurs.

The following is a summary of nonperforming loans by category for the dates shown:


	June 30,		December 31,
	2007		2006
	(Dollars in thousands)
Commercial and industrial	$	1,138	$	704
Real estate — construction and land development		2,720		2,067
Real estate — mortgages
Single-family		3,599		2,805
Commercial		2,830		1,765
Other		575		688
Consumer		1,057		559
Other		—		4

Total nonperforming loans	$	11,919	$	8,592

A delinquent loan is placed on nonaccrual status when it becomes 90 days or more past due and management believes, after considering economic and business conditions and collection efforts, that the borrower’s financial condition is such that the collection of interest is doubtful. When a loan is placed on nonaccrual status, all interest, that has been accrued on the loan during the current period but remains unpaid, is reversed and deducted from earnings as a reduction of reported interest income; any prior period accrued and unpaid interest is reversed and charged against the allowance for loan losses. No additional interest income is accrued on the loan balance until the collection of both principal and interest becomes reasonably certain. When a problem loan is finally resolved, there may ultimately be an actual write-down or charge-off of the principal balance of the loan to the allowance for loan losses, which may necessitate additional charges to earnings.

Impaired Loans. At June 30, 2007, the recorded investment in impaired loans under SFAS 114 totaled $7.6 million, with approximately $1.2 million in allowance for loan losses specifically allocated to impaired loans. This represents a increase of $0.7 million from $6.9 million at December 31, 2006. The following is a summary of impaired loans and the specifically allocated allowance for loan losses by category as of June 30, 2007:


	Outstanding		Specific
	Balance		Allowance
	(Dollars in thousands)
Commercial and industrial	$	1,221	$	114
Real estate — construction and land development		2,766		548
Real estate — mortgages
Commercial		3,082		470
Other		551		73

Total	$	7,620	$	1,205

Potential Problem Loans. In addition to nonperforming loans, management has identified $16.3 million in potential problem loans as of June 30, 2007, compared to $5.2 million as of December 31, 2006. Potential problem loans are loans where known information about possible credit problems of the borrowers causes management to have doubts as to the ability of such borrowers to comply with the present repayment terms and may result in disclosure of such loans as nonperforming. These potential problem loans primarily consist of two large relationships totaling $11.4 million and $4.8 million, respectively, in which the borrowers were experiencing cash-flow shortages due to the slowdown in real estate activity along the northwest Florida coastal region. We are working closely with the borrowers and will continue to monitor the borrowers’ cash-flow position.

Stockholders’ Equity

Stock Repurchase Plan. We announced in June 2007 that beginning on or after August 2, 2007, we may purchase up to 1,000,000 shares of our outstanding common stock. The shares may be purchased, in the open market through negotiated or block transactions. We do not intend to repurchase any shares from our management team or other insiders. This stock repurchase program does not obligate us to acquire any specific number of shares and may be suspended or discontinued at any time.

Regulatory Capital. The table below represents our and our federal thrift subsidiary’s regulatory and minimum regulatory capital requirements at June 30, 2007 (dollars in thousands):


											To Be Well
						For Capital					Capitalized Under
						Adequacy					Prompt Corrective
	Actual					Purposes					Action
	Amount		Ratio			Amount		Ratio			Amount		Ratio
As of June 30, 2007
Tier 1 Core Capital (to Adjusted Total Assets)
Corporation	$	178,377		7.66	%	$	93,152		4.00	%	$	116,440		5.00	%
Superior Bank		181,960		7.85			92,702		4.00			115,878		5.00
Total Capital (to Risk Weighted Assets)
Corporation		196,113		10.63			147,628		8.00			184,534		10.00	%
Superior Bank		199,697		10.89			146,728		8.00			183,410		10.00
Tier 1 Capital (to Risk Weighted Assets)
Corporation		178,377		9.67			N/A		N/A		$	110,721		6.00	%
Superior Bank		181,960		9.92			N/A		N/A			110,046		6.00
Tangible Capital (to Adjusted Total Assets)
Superior Bank		181,960		7.85			34,763		1.50			N/A		N/A

Liquidity

Our principal sources of funds are deposits, principal and interest payments on loans, federal funds sold and maturities and sales of investment securities. In addition to these sources of liquidity, we have access to purchased funds from several regional financial institutions and brokered deposits, and may borrow from the FHLB under a blanket floating lien on certain commercial loans and residential real estate loans. Also, we have established certain repurchase agreements with a large financial institution. While scheduled loan repayments and maturing investments are relatively predictable, interest rates, general economic conditions and competition primarily influence deposit flows and early loan payments. Management places constant emphasis on the maintenance of adequate liquidity to meet conditions that might reasonably be expected to occur. Management believes it has established sufficient sources of funds to meet its anticipated liquidity needs.

As shown in the Condensed Consolidated Statement of Cash Flows, operating activities provided $9.5 million in funds in the first six months of 2007, primarily due to net income of $4.3 million plus $2.1 million in depreciation and $1.7 million provision for loan losses. This compares to a net funds provided of $549,000 in the first six months of 2006 primarily due to net income, depreciation, and provision for loan losses of $2.1 million, $1.5 million, and $1.3 million, respectively, which were offset by increases in mortgage loans held for sale of $1.8 million and other assets of $2.0 million due to the prepayment of insurance.

Investing activities were a net user of funds in the first six months of 2007 primarily due to an increase in loans offset by investment security maturities. Investing activities were a net user of funds in the first six months of 2006 due to an increase in loans.

Financing activities were a net provider of funds in the first six months of 2007, primarily as a result of an increase in deposits. Financing activities were a net provider of funds in the first six months of 2006, as we increased our levels of brokered certificates of deposit while decreasing repurchase agreements and other borrowings.

Forward-Looking Statements

The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements made by us or on our behalf. Some of the disclosures in this Quarterly Report on Form 10-Q, including any statements preceded by, followed by, or which include, the words “may,” “could,” “should,” “will,” “would,” “hope,” “might,” “believe,” “expect,” “anticipate,” “estimate,” “intend,” “plan,” “assume” or similar expressions constitute forward-looking statements.

These forward-looking statements, implicitly and explicitly, include the assumptions underlying the statements and other information with respect to our beliefs, plans, objectives, goals, expectations, anticipations, estimates, intentions, financial condition, results of operations, future performance and business, including our expectations and estimates with respect to our revenues, expenses, earnings, return on equity, return on assets, efficiency ratio, asset quality, the adequacy of our allowance for loan losses and other financial data and capital and performance ratios.

Although we believe that the expectations reflected in our forward-looking statements are reasonable, these statements involve risks and uncertainties which are subject to change based on various important factors (some of which are beyond our control). The following factors, among others, could cause our financial performance to differ materially from our goals, plans, objectives, intentions, expectations and other forward-looking statements: (1) the strength of the United States economy in general and the strength of the regional and local economies in which we conduct operations; (2) the effects of, and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System; (3) inflation, interest rate, market and monetary fluctuations; (4) our ability to successfully integrate the assets, liabilities, customers, systems and management we acquire or merge into our operations; (5) our timely development of new products and services in a changing environment, including the features, pricing and quality compared to the products and services of our competitors; (6) the willingness of users to substitute competitors’ products and services for our products and services; (7) the impact of changes in financial services policies, laws and regulations, including laws, regulations and policies concerning taxes, banking, securities and insurance, and the application thereof by regulatory bodies; (8) our ability to resolve any legal proceeding on acceptable terms and its effect on our financial condition or results of operations; (9) technological changes; (10) changes in consumer spending and savings habits; (11) regulatory, legal or judicial proceedings, and (12) the effect of natural disasters, such as hurricanes, in our geographic markets.

If one or more of the factors affecting our forward-looking statements proves incorrect, then our actual results, performance or achievements could differ materially from those expressed in, or implied by, forward-looking statements contained in this report. Therefore, we caution you not to place undue reliance on our forward-looking information and statements.

We do not intend to update our forward-looking statements, whether written or oral, to reflect changes. All forward-looking statements attributable to us are expressly qualified by these cautionary statements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes in our quantitative or qualitative disclosures about market risk as of June 30, 2007 from those presented in our annual report on Form 10-K for the year ended December 31, 2006.

The information set forth under the caption “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations-Market Risk-Interest Rate Sensitivity” included in our Annual Report on Form 10-K for the year ended December 31, 2006, is hereby incorporated herein by reference.

ITEM 4. CONTROLS AND PROCEDURES

CEO AND CFO CERTIFICATION

Appearing as exhibits to this report are Certifications of our Chief Executive Officer (“CEO”) and our Chief Financial Officer (“CFO”). The Certifications are required to be made by Rule 13a-14 under the Securities Exchange Act of 1934, as amended. This Item contains the information about the evaluation that is referred to in the Certifications, and the information set forth below in this Item 4 should be read in conjunction with the Certifications for a more complete understanding of the Certifications.

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.

We conducted an evaluation (the “Evaluation”) of the effectiveness of the design and operation of our disclosure controls and procedures under the supervision and with the participation of our management, including our CEO and CFO, as of June 30, 2007. Based upon the Evaluation, our CEO and CFO have concluded that, as of June 30, 2007, our disclosure controls and procedures are effective to ensure that material information relating to Superior Bancorp and its subsidiaries is made known to management, including the CEO and CFO, particularly during the period when our periodic reports are being prepared.

There have not been any changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities and Exchange Act of 1934, as amended) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

While we are a party to various legal proceedings arising in the ordinary course of business, we believe that there are no proceedings threatened or pending against us at this time that will individually, or in the aggregate, materially adversely affect our business, financial condition or results of operations. We believe that we have strong claims and defenses in each lawsuit in which we are involved. While we believe that we will prevail in each lawsuit, there can be no assurance that the outcome of the pending, or any future, litigation, either individually or in the aggregate, will not have a material adverse effect on our financial condition or our results of operations.

ITEM 1A. RISK FACTORS

Our business is influenced by many factors that are difficult to predict, involve uncertainties that may materially affect actual results and are often beyond our control. We have identified a number of these risk factors in our Annual Report on Form 10-K for the year ended December 31, 2006, which should be taken into consideration when reviewing the information contained in this report. There have been no material changes with regard to the risk factors previously disclosed in our most recent Form 10-K. For other factors that may cause actual results to differ materially from those indicated in any forward-looking statement or projection contained in this report, see “Forward-Looking Statements” under Part I, Item 2 above.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

On May 16, 2007, we held our annual meeting of stockholders, at which the following actions were taken:

The stockholders voted as follows to elect the following persons as directors, each to hold office for a one-year term:


NAME	FOR		WITHHELD
C. Stanley Bailey		26,031,085		676,951
Roger D. Barker		25,790,894		917,142
K. Earl Durden		25,872,603		835,433
Rick D. Gardner		26,111,653		596,383
Thomas E. Jernigan, Jr.		25,946,011		762,025
James Mailon Kent, Jr.		25,879,094		828,942
James M. Link		26,077,265		630,771
D. Dewey Mitchell		26,111,832		596,204
Barry Morton		26,111,500		596,536
Robert R. Parrish, Jr.		26,087,293		620,743
C. Marvin Scott		26,106,364		601,672
James C. White, Sr.		25,970,125		737,911

The stockholders voted to approve an amendment to our Restated Certificate of Incorporation to increase the number of authorized shares of our common stock to 60 million, as follows:


FOR	AGAINST	ABSTAIN

25,756,687	739,944	211,405

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

(a) Exhibit:

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.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	SUPERIOR BANCORP (Registrant)
Date: August 9, 2007	By:	/s/ C. Stanley Bailey
		C. Stanley Bailey
		Chief Executive Officer


Date: August 9, 2007	By:	/s/ Mark Tarnakow
		Mark Tarnakow
		Chief Financial Officer (Principal Financial Officer)

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