We were thinking of covering rising non-performing assets at Birmingham, Ala.-based Superior Bancorp, who saw its NPAs rise well ahead of loss reserves during the second quarter. The bank saw its allowance for loan losses fall to just 69 percent of total nonperforming loans, down from 160 percent coverage one year earlier and 90 percent to start the year. But then we saw that the bank was blaming the media for a resulting drop in Q2 earnings:
The entire banking industry is operating in an adverse environment relative to maximizing short-term performance. Factors such as the challenging credit cycle, housing softness, gloomy media coverage, weakened consumer confidence and dramatic Federal Reserve rate reductions are causing a stiff headwind in 2008. [emphasis added]
We don't make investment calls here, but seeing a bank's loss coverage ratios fall precipitously while non-performing assets rise -- and then seeing the bank blame "gloomy media coverage" as a factor behind an "adverse environment" --- well, it suggests a management that hasn't yet come to terms with market reality. It also gave us an idea, to test out Superior's thesis: if a bank's earnings keep falling, and loss coverage ratios keep falling, but the media doesn't cover it, does it still happen? Note: no positions in SUPR