a6088495.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
QUARTERLY
REPORT UNDER SECTION 13 OR 15(d)
OF THE
SECURITIES EXCHANGE ACT OF 1934
For
Quarter Ended September 30,
2009
|
Commission
File Number 0-6253
|
SIMMONS
FIRST NATIONAL CORPORATION
(Exact
name of registrant as specified in its charter)
Arkansas
|
71-0407808
|
(State
or other jurisdiction of
|
(I.R.S.
Employer
|
incorporation
or organization)
|
Identification
No.)
|
|
|
501
Main Street, Pine Bluff, Arkansas
|
71601
|
(Address
of principal executive offices)
|
(Zip
Code)
|
870-541-1000
|
(Registrant's
telephone number, including area code)
|
|
Not Applicable
|
Former
name, former address and former fiscal year, if changed since last
report
|
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. S
Yes £
No
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of
“accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange
Act. (Check one):
£ Large
accelerated filer
|
S
Accelerated filer
|
£
Non-accelerated filer
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act.). £
Yes S
No
The number
of shares outstanding of the Registrant’s Common Stock as of October 21, 2009,
was 14,045,631.
Simmons
First National Corporation
Quarterly
Report on Form 10-Q
September
30, 2009
Table
of Contents
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Page |
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3 |
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4 |
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5 |
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6 |
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7-26 |
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27 |
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28-57
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58-60 |
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61 |
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61-66 |
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67 |
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67 |
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70 |
|
Simmons
First National Corporation
September
30, 2009 and December 31, 2008
|
|
September
30,
|
|
|
December
31,
|
|
(In thousands, except share
data)
|
|
2009
|
|
|
2008
|
|
|
|
(Unaudited)
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
Cash
and non-interest bearing balances due from banks
|
|
$ |
54,176 |
|
|
$ |
71,801 |
|
Interest
bearing balances due from banks
|
|
|
142,714 |
|
|
|
61,085 |
|
Federal
funds sold
|
|
|
12,500 |
|
|
|
6,650 |
|
Cash
and cash equivalents
|
|
|
209,390 |
|
|
|
139,536 |
|
Investment
securities
|
|
|
571,615 |
|
|
|
646,134 |
|
Mortgage
loans held for sale
|
|
|
13,355 |
|
|
|
10,336 |
|
Assets
held in trading accounts
|
|
|
6,839 |
|
|
|
5,754 |
|
Loans
|
|
|
1,925,101 |
|
|
|
1,933,074 |
|
Allowance
for loan losses
|
|
|
(25,830 |
) |
|
|
(25,841 |
) |
Net
loans
|
|
|
1,899,271 |
|
|
|
1,907,233 |
|
Premises
and equipment
|
|
|
78,674 |
|
|
|
78,904 |
|
Foreclosed
assets held for sale, net
|
|
|
6,019 |
|
|
|
2,995 |
|
Interest
receivable
|
|
|
19,618 |
|
|
|
20,930 |
|
Bank
owned life insurance
|
|
|
40,612 |
|
|
|
39,617 |
|
Goodwill
|
|
|
60,605 |
|
|
|
60,605 |
|
Core
deposit premiums
|
|
|
1,970 |
|
|
|
2,575 |
|
Other
assets
|
|
|
7,469 |
|
|
|
8,490 |
|
Total
assets
|
|
$ |
2,915,437 |
|
|
$ |
2,923,109 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
Non-interest
bearing transaction accounts
|
|
$ |
325,594 |
|
|
$ |
334,998 |
|
Interest
bearing transaction accounts and savings deposits
|
|
|
1,090,842 |
|
|
|
1,026,824 |
|
Time
deposits
|
|
|
914,833 |
|
|
|
974,511 |
|
Total
deposits
|
|
|
2,331,269 |
|
|
|
2,336,333 |
|
Federal
funds purchased and securities sold under agreements to
repurchase
|
|
|
96,666 |
|
|
|
115,449 |
|
Short-term
debt
|
|
|
3,493 |
|
|
|
1,112 |
|
Long-term
debt
|
|
|
161,560 |
|
|
|
158,671 |
|
Accrued
interest and other liabilities
|
|
|
24,626 |
|
|
|
22,752 |
|
Total
liabilities
|
|
|
2,617,614 |
|
|
|
2,634,317 |
|
|
|
|
|
|
|
|
|
|
Stockholders’
equity:
|
|
|
|
|
|
|
|
|
Preferred
stock, $0.01 par value; 40,040,000 shares authorized
|
|
|
|
|
|
|
|
|
and
unissued at September 30, 2009; no shares authorized at December 31,
2008
|
|
|
-- |
|
|
|
-- |
|
Common
stock, Class A, $0.01 par value; 60,000,000 shares
authorized;
|
|
|
|
|
|
|
|
|
14,045,631
and 13,960,680 shares issued and outstanding
|
|
|
|
|
|
|
|
|
at
September 30, 2009, and December 31, 2008, respectively
|
|
|
140 |
|
|
|
140 |
|
Surplus
|
|
|
41,048 |
|
|
|
40,807 |
|
Undivided
profits
|
|
|
255,062 |
|
|
|
244,655 |
|
Accumulated
other comprehensive income
|
|
|
|
|
|
|
|
|
Unrealized
appreciation on available-for-sale securities,
|
|
|
|
|
|
|
|
|
net
of income taxes of $944 at 2009 and $1,913 at 2008
|
|
|
1,573 |
|
|
|
3,190 |
|
Total
stockholders’ equity
|
|
|
297,823 |
|
|
|
288,792 |
|
Total
liabilities and stockholders’ equity
|
|
$ |
2,915,437 |
|
|
$ |
2,923,109 |
|
See
Condensed Notes to Consolidated Financial Statements.
Simmons
First National Corporation
Three
and Nine Months Ended September 30, 2009 and 2008
|
|
Three
Months Ended |
|
|
Nine
Months Ended |
|
|
|
September
30, |
|
|
September
30, |
|
(In
thousands, except share data) |
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
(Unaudited) |
|
|
(Unaudited) |
|
INTEREST
INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$ |
29,122 |
|
|
$ |
31,548 |
|
|
$ |
85,373 |
|
|
$ |
95,812 |
|
Federal
funds sold
|
|
|
10 |
|
|
|
176 |
|
|
|
25 |
|
|
|
716 |
|
Investment
securities
|
|
|
5,089 |
|
|
|
7,063 |
|
|
|
16,762 |
|
|
|
20,687 |
|
Mortgage
loans held for sale
|
|
|
136 |
|
|
|
112 |
|
|
|
489 |
|
|
|
338 |
|
Assets
held in trading accounts
|
|
|
3 |
|
|
|
-- |
|
|
|
13 |
|
|
|
42 |
|
Interest
bearing balances due from banks
|
|
|
87 |
|
|
|
309 |
|
|
|
235 |
|
|
|
1,184 |
|
TOTAL
INTEREST INCOME
|
|
|
34,447 |
|
|
|
39,208 |
|
|
|
102,897 |
|
|
|
118,779 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INTEREST
EXPENSE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
7,133 |
|
|
|
12,607 |
|
|
|
24,537 |
|
|
|
41,700 |
|
Federal
funds purchased and securities sold
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
under
agreements to repurchase
|
|
|
172 |
|
|
|
429 |
|
|
|
597 |
|
|
|
1,813 |
|
Short-term
debt
|
|
|
6 |
|
|
|
62 |
|
|
|
18 |
|
|
|
101 |
|
Long-term
debt
|
|
|
1,743 |
|
|
|
1,763 |
|
|
|
5,239 |
|
|
|
4,929 |
|
TOTAL
INTEREST EXPENSE
|
|
|
9,054 |
|
|
|
14,861 |
|
|
|
30,391 |
|
|
|
48,543 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
INTEREST INCOME
|
|
|
25,393 |
|
|
|
24,347 |
|
|
|
72,506 |
|
|
|
70,236 |
|
Provision
for loan losses
|
|
|
2,789 |
|
|
|
2,214 |
|
|
|
7,549 |
|
|
|
5,895 |
|
NET
INTEREST INCOME AFTER PROVISION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FOR LOAN LOSSES
|
|
|
22,604 |
|
|
|
22,133 |
|
|
|
64,957 |
|
|
|
64,341 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NON-INTEREST
INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trust
income
|
|
|
1,361 |
|
|
|
1,608 |
|
|
|
3,910 |
|
|
|
4,707 |
|
Service
charges on deposit accounts
|
|
|
4,763 |
|
|
|
4,009 |
|
|
|
13,061 |
|
|
|
11,134 |
|
Other
service charges and fees
|
|
|
642 |
|
|
|
648 |
|
|
|
2,034 |
|
|
|
2,021 |
|
Income
on sale of mortgage loans, net of commissions
|
|
|
798 |
|
|
|
595 |
|
|
|
3,198 |
|
|
|
2,077 |
|
Income
on investment banking, net of commissions
|
|
|
598 |
|
|
|
131 |
|
|
|
1,684 |
|
|
|
779 |
|
Credit
card fees
|
|
|
3,745 |
|
|
|
3,491 |
|
|
|
10,495 |
|
|
|
10,144 |
|
Premiums
on sale of student loans
|
|
|
2,047 |
|
|
|
3 |
|
|
|
2,333 |
|
|
|
1,135 |
|
Bank
owned life insurance income
|
|
|
293 |
|
|
|
370 |
|
|
|
970 |
|
|
|
1,157 |
|
Gain
on mandatory partial redemption of Visa shares
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
2,973 |
|
Other
income
|
|
|
716 |
|
|
|
433 |
|
|
|
1,951 |
|
|
|
1,870 |
|
Gain
on sale of securities
|
|
|
-- |
|
|
|
-- |
|
|
|
144 |
|
|
|
-- |
|
TOTAL
NON-INTEREST INCOME
|
|
|
14,963 |
|
|
|
11,288 |
|
|
|
39,780 |
|
|
|
37,997 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NON-INTEREST
EXPENSE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries
and employee benefits
|
|
|
14,441 |
|
|
|
14,056 |
|
|
|
43,698 |
|
|
|
42,697 |
|
Occupancy
expense, net
|
|
|
1,846 |
|
|
|
1,912 |
|
|
|
5,559 |
|
|
|
5,526 |
|
Furniture
and equipment expense
|
|
|
1,553 |
|
|
|
1,543 |
|
|
|
4,623 |
|
|
|
4,505 |
|
Other
real estate and foreclosure expense
|
|
|
132 |
|
|
|
57 |
|
|
|
292 |
|
|
|
185 |
|
Deposit
insurance
|
|
|
865 |
|
|
|
267 |
|
|
|
3,955 |
|
|
|
468 |
|
Other
operating expenses
|
|
|
7,470 |
|
|
|
6,606 |
|
|
|
20,789 |
|
|
|
18,395 |
|
TOTAL
NON-INTEREST EXPENSE
|
|
|
26,307 |
|
|
|
24,441 |
|
|
|
78,916 |
|
|
|
71,776 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME
BEFORE INCOME TAXES
|
|
|
11,260 |
|
|
|
8,980 |
|
|
|
25,821 |
|
|
|
30,562 |
|
Provision
for income taxes
|
|
|
3,600 |
|
|
|
2,506 |
|
|
|
7,416 |
|
|
|
9,278 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
INCOME
|
|
$ |
7,660 |
|
|
$ |
6,474 |
|
|
$ |
18,405 |
|
|
$ |
21,284 |
|
BASIC
EARNINGS PER SHARE
|
|
$ |
0.54 |
|
|
$ |
0.47 |
|
|
$ |
1.31 |
|
|
$ |
1.53 |
|
DILUTED
EARNINGS PER SHARE
|
|
$ |
0.54 |
|
|
$ |
0.46 |
|
|
$ |
1.30 |
|
|
$ |
1.51 |
|
See Condensed Notes to Consolidated Financial
Statements.
Simmons
First National Corporation
Nine
Months Ended September 30, 2009 and 2008
|
|
September
30, |
|
|
|
|
(In
thousands)
|
|
2009
|
|
|
2008
|
|
|
|
(Unaudited) |
|
OPERATING
ACTIVITIES
|
|
|
|
|
|
|
Net
income
|
|
$ |
18,405 |
|
|
$ |
21,284 |
|
Items
not requiring (providing) cash
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
4,396 |
|
|
|
4,268 |
|
Provision
for loan losses
|
|
|
7,549 |
|
|
|
5,895 |
|
Gain
on mandatory partial redemption of Visa shares
|
|
|
-- |
|
|
|
(2,973
|
) |
Gain
on sale of investment securities
|
|
|
(144
|
) |
|
|
-- |
|
Net
(amortization) accretion of investment securities
|
|
|
(92
|
) |
|
|
205 |
|
Stock-based
compensation expense
|
|
|
448 |
|
|
|
466 |
|
Deferred
income taxes
|
|
|
1,237 |
|
|
|
563 |
|
Bank
owned life insurance income
|
|
|
(970
|
) |
|
|
(1,157
|
) |
Changes
in
|
|
|
|
|
|
|
|
|
Interest
receivable
|
|
|
1,312 |
|
|
|
(1,977
|
) |
Mortgage
loans held for sale
|
|
|
(3,019
|
) |
|
|
6,720 |
|
Assets
held in trading accounts
|
|
|
(1,085
|
) |
|
|
4,768 |
|
Other
assets
|
|
|
(665
|
) |
|
|
(2,444
|
) |
Accrued
interest and other liabilities
|
|
|
(1,283
|
) |
|
|
(2,429
|
) |
Income
taxes payable
|
|
|
1,920 |
|
|
|
(1,142
|
) |
Net
cash provided by operating activities
|
|
|
28,009 |
|
|
|
32,047 |
|
|
|
|
|
|
|
|
|
|
INVESTING
ACTIVITIES
|
|
|
|
|
|
|
|
|
Net
originations of loans
|
|
|
(5,672
|
) |
|
|
(96,871
|
) |
Purchases
of premises and equipment, net
|
|
|
(3,561
|
) |
|
|
(6,547
|
) |
Proceeds
from sale of foreclosed assets
|
|
|
3,061 |
|
|
|
3,981 |
|
Proceeds
from mandatory partial redemption of Visa shares
|
|
|
-- |
|
|
|
2,973 |
|
Sales
(purchases) of short-term investment securities
|
|
|
84,033 |
|
|
|
(6,294
|
) |
Proceeds
from sale of available-for-sale securities
|
|
|
194 |
|
|
|
-- |
|
Proceeds
from maturities of available-for-sale securities
|
|
|
570,997 |
|
|
|
274,503 |
|
Purchases
of available-for-sale securities
|
|
|
(382,136
|
) |
|
|
(325,485
|
) |
Proceeds
from maturities of held-to-maturity securities
|
|
|
170,944 |
|
|
|
34,276 |
|
Purchases
of held-to-maturity securities
|
|
|
(370,894
|
) |
|
|
(25,823
|
) |
Purchases
of bank owned life insurance
|
|
|
(25
|
) |
|
|
(25
|
) |
Net
cash provided by (used in) investing activities
|
|
|
66,941 |
|
|
|
(145,312
|
) |
|
|
|
|
|
|
|
|
|
FINANCING
ACTIVITIES
|
|
|
|
|
|
|
|
|
Net
(decrease) increase in deposits
|
|
|
(5,064
|
) |
|
|
111,535 |
|
Net
change in short-term debt
|
|
|
2,381 |
|
|
|
(297
|
) |
Dividends
paid
|
|
|
(7,998
|
) |
|
|
(7,948
|
) |
Proceeds
from issuance of long-term debt
|
|
|
7,666 |
|
|
|
86,025 |
|
Repayment
of long-term debt
|
|
|
(4,777
|
) |
|
|
(11,291
|
) |
Net
change in federal funds purchased and
|
|
|
|
|
|
|
|
|
securities
sold under agreements to repurchase
|
|
|
(18,783
|
) |
|
|
(24,804
|
) |
Shares
issued (exchanged) under stock compensation plans, net
|
|
|
1,479 |
|
|
|
882 |
|
Repurchase
of common stock
|
|
|
-- |
|
|
|
(1,280
|
) |
Net
cash (used in) provided by financing activities
|
|
|
(25,096
|
) |
|
|
152,822 |
|
|
|
|
|
|
|
|
|
|
INCREASE
IN CASH AND CASH EQUIVALENTS
|
|
|
69,854 |
|
|
|
39,557 |
|
CASH
AND CASH EQUIVALENTS, BEGINNING OF PERIOD
|
|
|
139,536 |
|
|
|
110,230 |
|
|
|
|
|
|
|
|
|
|
CASH
AND CASH EQUIVALENTS, END OF PERIOD
|
|
$ |
209,390 |
|
|
$ |
149,787 |
|
See Condensed Notes to Consolidated Financial Statements.
Simmons
First National Corporation
Nine
Months Ended September 30, 2009 and 2008
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
Common |
|
|
|
|
|
|
|
Comprehensive
|
|
|
|
Undivided
|
|
|
|
|
|
(In
thousands, except share data) |
|
|
Stock
|
|
|
|
Surplus
|
|
|
|
Income
(loss)
|
|
|
|
Profits
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2007
|
|
$ |
139 |
|
|
$ |
41,019 |
|
|
$ |
1,728 |
|
|
$ |
229,520 |
|
|
$ |
272,406 |
|
Cumulative
effect of adoption of a new accounting
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
principle
on January 1, 2008 (Note 1)
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1,174
|
) |
|
|
(1,174 |
) |
Comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
21,284 |
|
|
|
21,284 |
|
Change
in unrealized appreciation on
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
available-for-sale
securities, net of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
income
tax credits of $2,086
|
|
|
— |
|
|
|
— |
|
|
|
(3,477
|
) |
|
|
— |
|
|
|
(3,477
|
) |
Comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,807 |
|
Stock
issued as bonus shares - 17,490 shares
|
|
|
— |
|
|
|
530 |
|
|
|
— |
|
|
|
— |
|
|
|
530 |
|
Stock
issued for employee stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
purchase
plan - 5,359 shares
|
|
|
— |
|
|
|
135 |
|
|
|
— |
|
|
|
— |
|
|
|
135 |
|
Exercise
of stock options - 95,497shares
|
|
|
1 |
|
|
|
1,182 |
|
|
|
— |
|
|
|
— |
|
|
|
1,183 |
|
Stock
granted under
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
stock-based
compensation plans
|
|
|
— |
|
|
|
123 |
|
|
|
— |
|
|
|
— |
|
|
|
123 |
|
Securities
exchanged under stock option plan
|
|
|
— |
|
|
|
(965
|
) |
|
|
— |
|
|
|
— |
|
|
|
(965 |
) |
Repurchase
of common stock - 45,180 shares
|
|
|
— |
|
|
|
(1,280
|
) |
|
|
— |
|
|
|
— |
|
|
|
(1,280 |
) |
Dividends
paid - $0.57 per share
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(7,948
|
) |
|
|
(7,948
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
September 30, 2008 (Unaudited)
|
|
|
140 |
|
|
|
40,744 |
|
|
|
(1,749
|
) |
|
|
241,682 |
|
|
|
280,817 |
|
Comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
5,626 |
|
|
|
5,626 |
|
Change
in unrealized appreciation on
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
available-for-sale
securities, net of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
income
taxes of $(1,209)
|
|
|
— |
|
|
|
— |
|
|
|
4,939 |
|
|
|
— |
|
|
|
4,939 |
|
Comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,565 |
|
Exercise
of stock options - 2,000 shares
|
|
|
— |
|
|
|
25 |
|
|
|
— |
|
|
|
— |
|
|
|
25 |
|
Stock
granted under
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
stock-based
compensation plans
|
|
|
— |
|
|
|
46 |
|
|
|
— |
|
|
|
— |
|
|
|
46 |
|
Securities
exchanged under stock option plan
|
|
|
— |
|
|
|
(8
|
) |
|
|
— |
|
|
|
— |
|
|
|
(8 |
) |
Cash
dividends declared - $0.19 per share
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(2,653
|
) |
|
|
(2,653 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2008
|
|
|
140 |
|
|
|
40,807 |
|
|
|
3,190 |
|
|
|
244,655 |
|
|
|
288,792 |
|
Comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
18,405 |
|
|
|
18,405 |
|
Change
in unrealized appreciation on
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
available-for-sale
securities, net of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
income
tax credits of $907
|
|
|
— |
|
|
|
— |
|
|
|
(1,617
|
) |
|
|
— |
|
|
|
(1,617
|
) |
Comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,788 |
|
Stock
issued as bonus shares - 27,915 shares
|
|
|
— |
|
|
|
702 |
|
|
|
— |
|
|
|
— |
|
|
|
702 |
|
Cancelled
bonus shares - 1,113 shares
|
|
|
— |
|
|
|
29 |
|
|
|
— |
|
|
|
— |
|
|
|
29 |
|
Non-vested
bonus shares
|
|
|
— |
|
|
|
(1,343
|
) |
|
|
— |
|
|
|
— |
|
|
|
(1,343
|
) |
Stock
issued for employee stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
purchase
plan - 5,823 shares
|
|
|
— |
|
|
|
141 |
|
|
|
— |
|
|
|
— |
|
|
|
141 |
|
Exercise
of stock options - 55,900 shares
|
|
|
— |
|
|
|
678 |
|
|
|
— |
|
|
|
— |
|
|
|
678 |
|
Stock
granted under
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
stock-based
compensation plans
|
|
|
— |
|
|
|
136 |
|
|
|
— |
|
|
|
— |
|
|
|
136 |
|
Securities
exchanged under stock option plan
|
|
|
— |
|
|
|
(102
|
) |
|
|
— |
|
|
|
— |
|
|
|
(102 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
dividends declared - $0.57 per share
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(7,998
|
) |
|
|
(7,998 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
September 30, 2009 (Unaudited)
|
|
$ |
140 |
|
|
$ |
41,048 |
|
|
$ |
1,573 |
|
|
$ |
255,062 |
|
|
$ |
297,823 |
|
See
Condensed Notes to Consolidated Financial Statements.
SIMMONS
FIRST NATIONAL CORPORATION
(Unaudited)
NOTE
1: BASIS
OF PRESENTATION
The
consolidated financial statements include the accounts of Simmons First National
Corporation and its subsidiaries. Significant intercompany accounts
and transactions have been eliminated in consolidation.
All
adjustments made to the unaudited financial statements were of a normal
recurring nature. In the opinion of management, all adjustments
necessary for a fair presentation of the results of interim periods have been
made. Certain prior year amounts are reclassified to conform to current year
classification. The consolidated balance sheet of the Company as of
December 31, 2008, has been derived from the audited consolidated balance sheet
of the Company as of that date. The results of operations for the
period are not necessarily indicative of the results to be expected for the full
year.
Certain
information and note disclosures normally included in the Company’s annual
financial statements prepared in accordance with accounting principles generally
accepted in the United States of America have been condensed or
omitted. These consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
included in the Company’s Form 10-K annual report for 2008 filed with the U.S.
Securities and Exchange Commission (the “SEC”).
Subsequent
events have been evaluated through November 2, 2009, which is the date the
financial statements were issued.
Recently
Issued Accounting Pronouncements
In June
2009, the Financial Accounting Standards Board (“FASB”) issued an accounting
standard which established the Accounting Standards Codification (“Codification”
or “ASC”) to become the single source of authoritative U.S. generally accepted
accounting principles (“GAAP”) recognized by the FASB to be applied by
nongovernmental entities, with the exception of guidance issued by the SEC and
its staff. All guidance contained in the Codification carries an
equal level of authority. The Codification is not intended to change
GAAP, but rather is expected to simplify accounting research by reorganizing
current GAAP into approximately 90 accounting topics. The switch to
the ASC affects the away companies refer to GAAP in financial statements and
accounting policies. Citing particular content in the ASC involves
specifying the unique numeric path to the content through the Topic, Subtopic,
Section and Paragraph structure. The Company adopted this accounting
standard in preparing the Consolidated Financial Statements for the period ended
September 30, 2009. The adoption of this accounting standard, which
was subsequently codified into ASC Topic 105, Generally Accepted Accounting
Principles, had no impact on the Company’s ongoing financial position or
results of operations.
New
authoritative accounting guidance under ASC Topic 810, Consolidation, amends prior
guidance to establish accounting and reporting standards for the non-controlling
interest in a subsidiary and for the deconsolidation of a
subsidiary. ASC Topic 810 clarifies that a non-controlling interest
in a subsidiary, which is sometimes referred to as minority interest, is an
ownership interest in the consolidated entity that should be reported as a
component of equity in the consolidated financial statements. Among
other requirements, ASC Topic 810 requires consolidated net income to be
reported at amounts that include the amounts attributable to both the parent and
the non-controlling interest. It also requires disclosure, on the
face of the consolidated income statement, of the amounts of consolidated net
income attributable to the parent and to the non-controlling
interest. ASC Topic 810 was effective on January 1, 2009, and did not
have a significant impact on the Company’s ongoing financial position or results
of operations.
New
authoritative accounting guidance under ASC Topic 815, Derivatives and Hedging,
amends prior guidance to amend and enhance the disclosure requirements for
derivatives and hedging to provide greater transparency about (i) how and why an
entity uses derivative instruments, (ii) how derivative instruments and related
hedge items are accounted for under ASC Topic 815, and (iii) how derivative
instruments and related hedged items affect an entity’s financial position,
results of operations and cash flows. To meet those objectives, ASC
Topic 815 requires qualitative disclosures about objectives and strategies for
using derivative instruments, quantitative disclosures about fair values of
derivative instruments and their gains and losses and disclosures about
credit-risk-related contingent features of the derivative instruments and their
potential impact on an entity’s liquidity. ASC Topic 815 was
effective on January 1, 2009, and did not have a significant impact on the
Company’s ongoing financial position or results of operations.
New
authoritative accounting guidance under ASC Topic 855, Subsequent Events,
establishes general standards of accounting for and disclosure of events that
occur after the balance sheet date but before financial statements are issued or
available to be issued. ASC Topic 855 defines (i) the period after
the balance sheet date during which a reporting entity’s management should
evaluate events or transactions that may occur for potential recognition or
disclosure in the financial statements, (ii) the circumstances under which an
entity should recognize events or transactions occurring after the balance sheet
date in its financial statements, and (iii) the disclosures an entity should
make about events or transactions that occurred after the balance sheet
date. ASC Topic 855 became effective for the Company’s financial
statements for periods ending after June 15, 2009, and did not have a
significant impact on the Company’s ongoing financial position or results of
operations.
New
authoritative accounting guidance under ASC Topic 820, Fair Value Measurements and
Disclosures, affirms that the objective of fair value when the market for
an asset is not active is the price that would be received to sell the asset in
an orderly transaction, and clarifies and includes additional factors for
determining whether there has been a significant decrease in market activity for
an asset when the market for that asset is not active. ASC Topic 820
requires an entity to base its conclusion about whether a transaction was not
orderly on the weight of the evidence. The new accounting guidance
amended prior guidance to expand certain disclosure requirements. The
Company adopted the new authoritative accounting guidance under ASC Topic 820
during the first quarter of 2009. Adoption of the new guidance did
not have a significant impact on the Company’s ongoing financial position or
results of operations.
Further
new authoritative accounting guidance (Accounting Standards Update No. 2009-5)
under ASC Topic 820 provides guidance for measuring the fair value of a
liability in circumstances in which a quoted price in an active market for the
identical liability is not available. In such instances, a reporting
entity is required to measure fair value utilizing a valuation technique that
uses (i) the quoted price of the identical liability when traded as an asset,
(ii) quoted prices for similar liabilities or similar liabilities when traded as
assets, or (iii) another valuation technique that is consistent with the
existing principles of ASC Topic 820, such as an income approach or market
approach. The new authoritative accounting guidance also clarifies
that when estimating the fair value of a liability, a reporting entity is not
required to include a separate input or adjustment to other inputs relating to
the existence of a restriction that prevents the transfer of the
liability. The foregoing new authoritative accounting guidance under
ASC Topic 820 will be effective for the Company’s financial statements beginning
October 1, 2009, and is not expected to have a significant impact on the
Company’s ongoing financial position or results of operations.
New
authoritative accounting guidance under ASC Topic 825, Financial Instruments,
requires an entity to provide disclosures about the fair value of financial
instruments in interim financial information and amends prior guidance to
require those disclosures in summarized financial information at interim
reporting periods. The Company adopted this accounting standard in
preparing its financial statements for the period ended June 30,
2009. As ASC Topic 825 amended only the disclosure requirements about
the fair value of financial instruments in interim periods, the adoption had no
impact on the Company’s ongoing financial position or results of operations. The
new interim disclosures required under ASC Topic 825 are included in Note 16,
Fair Value Measurements.
New
authoritative accounting guidance under ASC Topic 320, Investments – Debt and Equity
Securities, amended other-than-temporary impairment (“OTTI”) guidance in
GAAP for debt securities by requiring a write-down when fair value is below
amortized cost in circumstances where: (1) an entity has the intent to sell a
security; (2) it is more likely than not that an entity will be required to sell
the security before recovery of its amortized cost basis; or (3) an entity does
not expect to recover the entire amortized cost basis of the
security. If an entity intends to sell a security or if it is more
likely than not that the entity will be required to sell the security before
recovery, an OTTI write-down is recognized in earnings equal to the entire
difference between the security’s amortized cost basis and its fair
value. If an entity does not intend to sell the security or it is not
more likely than not that it will be required to sell the security before
recovery, the OTTI write-down is separated into an amount representing credit
loss, which is recognized in earnings, and an amount related to all other
factors, which is recognized in other comprehensive income. This
accounting standard does not amend existing recognition and measurement guidance
related to OTTI write-downs of equity securities. This accounting
standard also extends disclosure requirements related to debt and equity
securities to interim reporting periods. ASC Topic 320 became
effective for the Company’s financial statements for periods ending after June
15, 2009, and did not have a significant impact on the Company’s ongoing
financial position or results of operations.
On January
1, 2009, new authoritative accounting guidance under ASC Topic 805, Business Combinations, became
applicable to the Company’s accounting for business combinations closing on or
after January 1, 2009. ASC Topic 805 applies to all transactions and
other events in which one entity obtains control over one or more other
businesses. ASC Topic 805 requires an acquirer, upon initially
obtaining control of another entity, to recognize the assets, liabilities and
any non-controlling interest in the acquiree at fair value as of the acquisition
date. Contingent consideration is required to be recognized and
measured at fair value on the date of acquisition rather than at a later date
when the amount of that consideration may be determinable beyond a reasonable
doubt. This fair value approach replaces the cost-allocation process
required under previous accounting guidance whereby the cost of an acquisition
was allocated to the individual assets acquired and liabilities assumed based on
their estimated fair value. ASC Topic 805 requires acquirers to
expense acquisition-related costs as incurred rather than allocating such costs
to the assets acquired and liabilities assumed, as was previously the case under
prior accounting guidance. Assets acquired and liabilities assumed in
a business combination that arise from contingencies are to be recognized at
fair value if fair value can be reasonably estimated. If fair value
of such an asset or liability cannot be reasonably estimated, the asset or
liability would generally be recognized in accordance with ASC Topic 450, Contingencies. Under
ASC Topic 805, the requirements of ASC Topic 420, Exit or Disposal Cost
Obligations, would have to be met in order to accrue for a restructuring
plan in purchase accounting. Pre-acquisition contingencies are to be
recognized at fair value, unless it is a non-contractual contingency that is not
likely to materialize, in which case, nothing should be recognized in purchase
accounting and, instead, that contingency would be subject to the probable and
estimable recognition criteria of ASC Topic 450, Contingencies. Although
the Company has not entered into any business combinations since adopting ASC
Topic 805 on January 1, 2009, the new accounting guidance is expected to have a
significant impact on the Company’s accounting for future business
combinations.
There have
been no other significant changes to the Company’s accounting policies from the
2008 Form 10-K.
Earnings
Per Share
Basic
earnings per share are computed based on the weighted average number of common
shares outstanding during each year. Diluted earnings per share are
computed using the weighted average common shares and all potential dilutive
common shares outstanding during the period.
Following
is the computation of per share earnings for the three and nine-months ended
September 30, 2009 and 2008.
|
|
|
Three
Months Ended |
|
|
|
Nine
Months Ended |
|
|
|
|
September
30,
|
|
|
|
September
30, |
|
|
|
|
2009
|
|
|
|
2008
|
|
|
|
2009
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
7,660 |
|
|
$ |
6,474 |
|
|
$ |
18,405 |
|
|
$ |
21,284 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
common shares outstanding
|
|
|
14,043 |
|
|
|
13,951 |
|
|
|
14,019 |
|
|
|
13,941 |
|
Average
potential dilutive common shares
|
|
|
90 |
|
|
|
168 |
|
|
|
90 |
|
|
|
168 |
|
Average
diluted common shares
|
|
|
14,133 |
|
|
|
14,119 |
|
|
|
14,109 |
|
|
|
14,109 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per share
|
|
$ |
0.54 |
|
|
$ |
0.47 |
|
|
$ |
1.31 |
|
|
$ |
1.53 |
|
Diluted
earnings per share
|
|
$ |
0.54 |
|
|
$ |
0.46 |
|
|
$ |
1.30 |
|
|
$ |
1.51 |
|
Stock
options to purchase 100,290 shares for the three and nine-months ended September
30, 2009, were not included in the earnings per share calculation because the
exercise price exceeded the average market price. All stock options
were included in the earnings per share calculation for the three and
nine-months ended September 30, 2008.
NOTE
2: INVESTMENT
SECURITIES
The
amortized cost and fair value of investment securities that are classified as
held-to-maturity and available-for-sale are as follows:
|
|
September
30, 2009 |
|
|
December
31, 2008 |
|
(In
thousands) |
|
Amortized Cost |
|
|
Gross Unrealized Gains |
|
|
Gross Unrealized (Losses) |
|
|
Estimated Fair Value |
|
|
Amortized Cost |
|
|
Gross Unrealized Gains |
|
|
Gross Unrealized (Losses) |
|
|
Estimated
Fair Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-to-Maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Government
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
agencies
|
|
$ |
176,340 |
|
|
$ |
834 |
|
|
$ |
(95 |
) |
|
$ |
177,079 |
|
|
$ |
18,000 |
|
|
$ |
629 |
|
|
$ |
— |
|
|
$ |
18,629 |
|
Mortgage-backed
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
securities
|
|
|
95 |
|
|
|
3 |
|
|
|
— |
|
|
|
98 |
|
|
|
109 |
|
|
|
2 |
|
|
|
— |
|
|
|
111 |
|
State
and political
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
subdivisions
|
|
|
209,757 |
|
|
|
4,803 |
|
|
|
(217
|
) |
|
|
214,343 |
|
|
|
168,262 |
|
|
|
1,264 |
|
|
|
(1,876
|
) |
|
|
167,650 |
|
Other
securities
|
|
|
930 |
|
|
|
— |
|
|
|
— |
|
|
|
930 |
|
|
|
930 |
|
|
|
— |
|
|
|
— |
|
|
|
930 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
387,122 |
|
|
$ |
5,640 |
|
|
$ |
(312 |
) |
|
$ |
392,450 |
|
|
$ |
187,301 |
|
|
$ |
1,895 |
|
|
$ |
(1,876 |
) |
|
$ |
187,320 |
|
Available-for-Sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Treasury
|
|
$ |
4,294 |
|
|
$ |
51 |
|
|
$ |
— |
|
|
$ |
4,345 |
|
|
$ |
5,976 |
|
|
$ |
113 |
|
|
$ |
— |
|
|
$ |
6,089 |
|
U.S.
Government
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
agencies
|
|
|
160,754 |
|
|
|
2,007 |
|
|
|
(1
|
) |
|
|
162,760 |
|
|
|
346,585 |
|
|
|
5,444 |
|
|
|
(868
|
) |
|
|
351,161 |
|
Mortgage-backed
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
securities
|
|
|
2,899 |
|
|
|
102 |
|
|
|
(3
|
) |
|
|
2,998 |
|
|
|
2,909 |
|
|
|
37 |
|
|
|
(67
|
) |
|
|
2,879 |
|
State
and political
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
subdivisions
|
|
|
365 |
|
|
|
1 |
|
|
|
— |
|
|
|
366 |
|
|
|
635 |
|
|
|
2 |
|
|
|
— |
|
|
|
637 |
|
Other
securities
|
|
|
13,664 |
|
|
|
363 |
|
|
|
(3
|
) |
|
|
14,024 |
|
|
|
97,625 |
|
|
|
448 |
|
|
|
(6
|
) |
|
|
98,067 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
181,976 |
|
|
$ |
2,524 |
|
|
$ |
(7 |
) |
|
$ |
184,493 |
|
|
$ |
453,730 |
|
|
$ |
6,044 |
|
|
$ |
(941 |
) |
|
$ |
458,833 |
|
Certain
investment securities are valued at less than their historical
cost. These declines primarily resulted from the rate for these
investments yielding less than current market rates. Based on
evaluation of available evidence, management believes the declines in fair value
for these securities are temporary. Management does not have the
intent to sell these securities and management believes it is more likely than
not the Company will not have to sell these securities before recovery of their
amortized cost basis less any current period credit losses. Should
the impairment of any of these securities become other than temporary, the cost
basis of the investment will be reduced and the resulting loss recognized in net
income in the period the other-than-temporary impairment is
identified.
As of
September 30, 2009, securities with unrealized losses, segregated by length of
impairment, were as follows:
|
|
Less
Than 12 Months |
|
|
12
Months or More |
|
|
Total |
|
(In
thousands) |
|
Estimated Fair Value |
|
|
Gross Unrealized Losses |
|
|
Estimated Fair Value |
|
|
Gross Unrealized Losses |
|
|
Estimated
Fair Value |
|
|
Gross Unrealized Losses |
|
Held-to-Maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Government agencies
|
|
$ |
29,905 |
|
|
$ |
95 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
29,905 |
|
|
$ |
95 |
|
State
and political subdivisions
|
|
|
1,033 |
|
|
|
14 |
|
|
|
4,446 |
|
|
|
203 |
|
|
|
5,479 |
|
|
|
217 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
30,938 |
|
|
$ |
109 |
|
|
$ |
4,446 |
|
|
$ |
203 |
|
|
$ |
35,384 |
|
|
$ |
312 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-Sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Government agencies
|
|
$ |
1,034 |
|
|
$ |
1 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
1,034 |
|
|
$ |
1 |
|
Mortgage-backed
securities
|
|
|
72 |
|
|
|
1 |
|
|
|
61 |
|
|
|
2 |
|
|
|
133 |
|
|
|
3 |
|
Other
securities
|
|
|
— |
|
|
|
— |
|
|
|
2 |
|
|
|
3 |
|
|
|
2 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
1,106 |
|
|
$ |
2 |
|
|
$ |
63 |
|
|
$ |
5 |
|
|
$ |
1,169 |
|
|
$ |
7 |
|
Declines
in the fair value of held-to-maturity and available-for-sale securities below
their cost that are deemed to be other than temporary are reflected in earnings
as realized losses. In estimating other-than-temporary impairment
losses, management considers, among other things, (i) the length of time and the
extent to which the fair value has been less than cost, (ii) the financial
condition and near-term prospects of the issuer, and (iii) the intent and
ability of the Company to retain its investment in the issuer for a period of
time sufficient to allow for any anticipated recovery in fair
value.
Management
has the ability and intent to hold the securities classified as held to maturity
until they mature, at which time the Company expects to receive full value for
the securities. Furthermore, as of September 30, 2009, management
also had the ability and intent to hold the securities classified as
available-for-sale for a period of time sufficient for a recovery of
cost. The unrealized losses are largely due to increases in market
interest rates over the yields available at the time the underlying securities
were purchased. The fair value is expected to recover as the bonds
approach their maturity date or repricing date or if market yields for such
investments decline. Management does not believe any of the
securities are impaired due to reasons of credit
quality. Accordingly, as of September 30, 2009, management believes
the impairments detailed in the table above are temporary.
The
carrying value, which approximates the fair value, of securities pledged as
collateral, to secure public deposits and for other purposes, amounted to
$444,976,000 at September 30, 2009, and $435,120,000 at December 31,
2008.
The book
value of securities sold under agreements to repurchase amounted to $78,476,000
and $87,514,000 for September 30, 2009, and December 31, 2008,
respectively.
Income
earned on securities for the nine-months ended September 30, 2009 and 2008, is
as follows:
(In thousands)
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Taxable
|
|
|
|
|
|
|
Held-to-maturity
|
|
$ |
1,741 |
|
|
$ |
1,169 |
|
Available-for-sale
|
|
|
9,234 |
|
|
|
14,793 |
|
|
|
|
|
|
|
|
|
|
Non-taxable
|
|
|
|
|
|
|
|
|
Held-to-maturity
|
|
|
5,768 |
|
|
|
4,698 |
|
Available-for-sale
|
|
|
19 |
|
|
|
27 |
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
16,762 |
|
|
$ |
20,687 |
|
Maturities
of investment securities at September 30, 2009, are as follows:
|
|
Held-to-Maturity
|
|
|
Available-for-Sale
|
|
|
|
Amortized
|
|
|
Fair
|
|
|
Amortized
|
|
|
Fair
|
|
(In thousands)
|
|
Cost
|
|
|
Value
|
|
|
Cost
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One
year or less
|
|
$ |
6,933 |
|
|
$ |
6,983 |
|
|
$ |
4,659 |
|
|
$ |
4,711 |
|
After
one through five years
|
|
|
113,898 |
|
|
|
115,198 |
|
|
|
33,357 |
|
|
|
33,532 |
|
After
five through ten years
|
|
|
185,833 |
|
|
|
187,843 |
|
|
|
130,288 |
|
|
|
132,218 |
|
After
ten years
|
|
|
80,458 |
|
|
|
82,426 |
|
|
|
8 |
|
|
|
8 |
|
Other
securities
|
|
|
-- |
|
|
|
-- |
|
|
|
13,664 |
|
|
|
14,024 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
387,122 |
|
|
$ |
392,450 |
|
|
$ |
181,976 |
|
|
$ |
184,493 |
|
During the
three-month periods ended September 30, 2009 and 2008, respectively, no
available for sale securities were sold. Gross realized gains of
$144,000 were recognized from the sale of securities for the nine-month period
ended September 30, 2009, with no realized gains for the nine-month period ended
September 30, 2008. There were no realized losses over the same
periods. The income tax expense related to security gains was 39.225% of the
gross amounts.
The state
and political subdivision debt obligations are primarily non-rated bonds and
represent small, Arkansas issues, which are evaluated on an ongoing
basis.
NOTE
3: LOANS
AND ALLOWANCE FOR LOAN LOSSES
The
various categories of loans are summarized as follows:
|
|
September
30,
|
|
|
December
31,
|
|
(In thousands)
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
|
|
|
|
Credit
cards
|
|
$ |
175,493 |
|
|
$ |
169,615 |
|
Student
loans
|
|
|
106,080 |
|
|
|
111,584 |
|
Other
consumer
|
|
|
144,155 |
|
|
|
138,145 |
|
Total
consumer
|
|
|
425,728 |
|
|
|
419,344 |
|
Real
Estate
|
|
|
|
|
|
|
|
|
Construction
|
|
|
192,051 |
|
|
|
224,924 |
|
Single
family residential
|
|
|
403,035 |
|
|
|
409,540 |
|
Other
commercial
|
|
|
600,436 |
|
|
|
584,843 |
|
Total
real estate
|
|
|
1,195,522 |
|
|
|
1,219,307 |
|
Commercial
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
165,747 |
|
|
|
192,496 |
|
Agricultural
|
|
|
125,566 |
|
|
|
88,233 |
|
Financial
institutions
|
|
|
4,087 |
|
|
|
3,471 |
|
Total
commercial
|
|
|
295,400 |
|
|
|
284,200 |
|
Other
|
|
|
8,451 |
|
|
|
10,223 |
|
|
|
|
|
|
|
|
|
|
Total
loans before allowance for loan losses
|
|
$ |
1,925,101 |
|
|
$ |
1,933,074 |
|
As of
September 30, 2009, credit card loans, which are unsecured, were $175,493,000 or
9.1% of total loans, versus $169,615,000, or 8.8% of total loans at December 31,
2008. The credit card loans are diversified by geographic region to
reduce credit risk and minimize any adverse impact on the
portfolio. Credit card loans are regularly reviewed to facilitate the
identification and monitoring of creditworthiness.
At
September 30, 2009, and December 31, 2008, impaired loans, net of Government
guarantees, totaled $47,688,000 and $15,689,000,
respectively. Allocations of the allowance for loan losses relative
to impaired loans were $6,414,000 at September 30, 2009, and $4,238,000 at
December 31, 2008. During the second quarter of 2009, the
Company made adjustments to its methodology in the evaluation of the
collectability of loans, which added quantitative factors to the internal and
external influences used in determining the credit quality of loans and the
allocation of the allowance. This adjustment in methodology resulted
in an addition to impaired loans from classified loans and a redistribution of
allocated and unallocated reserves. Approximately $651,000 and
$198,000 of interest income was recognized on average impaired loans of
$33,367,000 and $14,839,000 as of September 30, 2009 and 2008,
respectively. Interest recognized on impaired loans on a cash basis
during the first nine months of 2009 and 2008 was immaterial.
Transactions
in the allowance for loan losses are as follows:
(In thousands)
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Balance,
beginning of year
|
|
$ |
25,841 |
|
|
$ |
25,303 |
|
Additions
|
|
|
|
|
|
|
|
|
Provision
charged to expense
|
|
|
7,549 |
|
|
|
5,895 |
|
|
|
|
|
|
|
|
|
|
Deductions
|
|
|
|
|
|
|
|
|
Losses
charged to allowance, net of recoveries
|
|
|
|
|
|
|
|
|
of
$2,989 and $1,588 for the first nine months of
|
|
|
|
|
|
|
|
|
2009
and 2008, respectively
|
|
|
7,560 |
|
|
|
5,650 |
|
|
|
|
|
|
|
|
|
|
Balance,
September 30
|
|
$ |
25,830 |
|
|
$ |
25,548 |
|
|
|
|
|
|
|
|
|
|
Additions
|
|
|
|
|
|
|
|
|
Provision
charged to expense
|
|
|
|
|
|
|
2,751 |
|
|
|
|
|
|
|
|
|
|
Deductions
|
|
|
|
|
|
|
|
|
Losses
charged to allowance, net of recoveries
|
|
|
|
|
|
|
|
|
of
$550 for the last three months of 2008
|
|
|
|
|
|
|
2,458 |
|
|
|
|
|
|
|
|
|
|
Balance,
end of year
|
|
|
|
|
|
$ |
25,841 |
|
NOTE
4: GOODWILL AND CORE
DEPOSIT PREMIUMS
Goodwill
is tested annually for impairment. If the implied fair value of
goodwill is lower than its carrying amount, goodwill impairment is indicated and
goodwill is written down to its implied fair value. Subsequent
increases in goodwill value are not recognized in the financial
statements.
Core
deposit premiums are periodically evaluated as to the recoverability of their
carrying value.
The
carrying basis and accumulated amortization of core deposit premiums (net of
core deposit premiums that were fully amortized) at September 30, 2009, and
December 31, 2008, were as follows:
|
|
September
30,
|
|
|
December
31,
|
|
(In thousands)
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Gross
carrying amount
|
|
$ |
6,822 |
|
|
$ |
6,822 |
|
Accumulated
amortization
|
|
|
(4,852 |
) |
|
|
(4,247 |
) |
|
|
|
|
|
|
|
|
|
Net
core deposit premiums
|
|
$ |
1,970 |
|
|
$ |
2,575 |
|
Core
deposit premium amortization expense recorded for the nine-months ended
September 30, 2009 and 2008, was $604,000 and $605,000,
respectively. The Company’s estimated amortization expense for the
remainder of 2009 is $198,000, and for each of the following four years
is: 2010 – $702,000; 2011 – $451,000; 2012 – $321,000; and 2013 –
$268,000.
NOTE
5: TIME
DEPOSITS
Time
deposits include approximately $401,137,000 and $418,394,000 of certificates of
deposit of $100,000 or more at September 30, 2009, and December 31, 2008,
respectively.
NOTE
6: INCOME
TAXES
The
provision for income taxes is comprised of the following
components:
|
|
September
30,
|
|
|
September
30,
|
|
(In thousands)
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Income
taxes currently payable
|
|
$ |
6,179 |
|
|
$ |
8,715 |
|
Deferred
income taxes
|
|
|
1,237 |
|
|
|
563 |
|
|
|
|
|
|
|
|
|
|
Provision
for income taxes
|
|
$ |
7,416 |
|
|
$ |
9,278 |
|
The tax
effects of temporary differences related to deferred taxes shown on the balance
sheets were:
|
|
September
30,
|
|
|
December
31,
|
|
(In thousands)
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Deferred
tax assets
|
|
|
|
|
|
|
Allowance
for loan losses
|
|
$ |
9,128 |
|
|
$ |
9,057 |
|
Valuation
of foreclosed assets
|
|
|
94 |
|
|
|
63 |
|
Deferred
compensation payable
|
|
|
1,519 |
|
|
|
1,451 |
|
FHLB
advances
|
|
|
8 |
|
|
|
14 |
|
Vacation
compensation
|
|
|
881 |
|
|
|
866 |
|
Loan
interest
|
|
|
58 |
|
|
|
88 |
|
Other
|
|
|
369 |
|
|
|
276 |
|
Total
deferred tax assets
|
|
|
12,057 |
|
|
|
11,815 |
|
|
|
|
|
|
|
|
|
|
Deferred
tax liabilities
|
|
|
|
|
|
|
|
|
Accumulated
depreciation
|
|
|
(443 |
) |
|
|
(406 |
) |
Deferred
loan fee income and expenses, net
|
|
|
(1,255 |
) |
|
|
(1,229 |
) |
FHLB
stock dividends
|
|
|
(502 |
) |
|
|
(586 |
) |
Goodwill
and core deposit premium amortization
|
|
|
(9,505 |
) |
|
|
(8,643 |
) |
Available-for-sale
securities
|
|
|
(944 |
) |
|
|
(1,913 |
) |
Other
|
|
|
(1,657 |
) |
|
|
(1,019 |
) |
Total
deferred tax liabilities
|
|
|
(14,306 |
) |
|
|
(13,796 |
) |
|
|
|
|
|
|
|
|
|
Net
deferred tax liabilities included in other
|
|
|
|
|
|
|
|
|
liabilities
on balance sheets
|
|
$ |
(2,249 |
) |
|
$ |
(1,981 |
) |
A
reconciliation of income tax expense at the statutory rate to the Company's
actual income tax expense is shown below:
|
|
September
30,
|
|
|
September
30,
|
|
(In thousands)
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Computed
at the statutory rate (35%)
|
|
$ |
9,037 |
|
|
$ |
10,697 |
|
Increase
(decrease) in taxes resulting from:
|
|
|
|
|
|
|
|
|
State
income taxes, net of federal tax benefit
|
|
|
378 |
|
|
|
427 |
|
Tax
exempt interest income
|
|
|
(2,119 |
) |
|
|
(1,760 |
) |
Tax
exempt earnings on BOLI
|
|
|
(339 |
) |
|
|
(405 |
) |
Other
differences, net
|
|
|
459 |
|
|
|
319 |
|
|
|
|
|
|
|
|
|
|
Actual
tax provision
|
|
$ |
7,416 |
|
|
$ |
9,278 |
|
The
Company follows ASC Topic 740, Income Taxes, which
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. Benefits from tax positions should be
recognized in the financial statements only when it is more likely than not that
the tax position will be sustained upon examination by the appropriate taxing
authority that would have full knowledge of all relevant
information. A tax position that meets the more-likely-than-not
recognition threshold is measured at the largest amount of benefit that is
greater than fifty percent likely of being realized upon ultimate
settlement. Tax positions that previously failed to meet the
more-likely-than-not recognition threshold should be recognized in the first
subsequent financial reporting period in which that threshold is
met. Previously recognized tax positions that no longer meet the
more-likely-than-not recognition threshold should be derecognized in the first
subsequent financial reporting period in which that threshold is no longer
met. ASC Topic 740 also provides guidance on the accounting for and
disclosure of unrecognized tax benefits, interest and penalties.
The amount
of unrecognized tax benefits may increase or decrease in the future for various
reasons including adding amounts for current tax year positions, expiration of
open income tax returns due to the statutes of limitation, changes in
management’s judgment about the level of uncertainty, status of examinations,
litigation and legislative activity and the addition or elimination of uncertain
tax positions.
The
Company files income tax returns in the U.S. federal
jurisdiction. The Company’s U.S. federal income tax returns are open
and subject to examinations from the 2006 tax year and forward. The
Company’s various state income tax returns are generally open from the 2006 and
later tax return years based on individual state statute of
limitations.
NOTE
7: SHORT-TERM AND
LONG-TERM DEBT
Long-term
debt at September 30, 2009, and December 31, 2008, consisted of the following
components:
|
|
September
30,
|
|
|
December
31,
|
|
(In thousands)
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
FHLB
advances, due 2009 to 2033, 2.02% to 8.41%
|
|
|
|
|
|
|
secured
by residential real estate loans
|
|
$ |
130,630 |
|
|
$ |
127,741 |
|
Trust
preferred securities, due 12/30/2033,
|
|
|
|
|
|
|
|
|
fixed
at 8.25%, callable without penalty
|
|
|
10,310 |
|
|
|
10,310 |
|
Trust
preferred securities, due 12/30/2033,
|
|
|
|
|
|
|
|
|
floating
rate of 2.80% above the three-month LIBOR
|
|
|
|
|
|
|
|
|
rate,
reset quarterly, callable without penalty
|
|
|
10,310 |
|
|
|
10,310 |
|
Trust
preferred securities, due 12/30/2033,
|
|
|
|
|
|
|
|
|
fixed
rate of 6.97% through 2010, thereafter,
|
|
|
|
|
|
|
|
|
at a
floating rate of 2.80% above the three-month
|
|
|
|
|
|
|
|
|
LIBOR
rate, reset quarterly, callable
|
|
|
|
|
|
|
|
|
in
2010 without penalty
|
|
|
10,310 |
|
|
|
10,310 |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
161,560 |
|
|
$ |
158,671 |
|
At
September 30, 2009, the Company had Federal Home Loan Bank (“FHLB”) advances
with original maturities of one year or less of $2.0 million with a weighted
average rate of 0.65% which are not included in the above table.
The trust
preferred securities are tax-advantaged issues that partially qualify for Tier 1
capital treatment. Distributions on these securities are included in interest
expense on long-term debt. Each of the trusts is a statutory business
trust organized for the sole purpose of issuing trust securities and investing
the proceeds thereof in junior subordinated debentures of the Company, the sole
asset of each trust. The preferred securities of each trust represent
preferred beneficial interests in the assets of the respective trusts and are
subject to mandatory redemption upon payment of the junior subordinated
debentures held by the trust. The common securities of each trust are
wholly-owned by the Company. Each trust’s ability to pay amounts due
on the trust preferred securities is solely dependent upon the Company making
payment on the related junior subordinated debentures. The Company’s
obligations under the junior subordinated securities and other relevant trust
agreements, in aggregate, constitute a full and unconditional guarantee by the
Company of each respective trust’s obligations under the trust securities issued
by each respective trust.
Aggregate
annual maturities of long-term debt at September 30, 2009, are:
|
|
|
Annual
|
|
(In thousands)
|
Year
|
|
Maturities
|
|
|
2009
|
|
$ |
2,769 |
|
|
2010
|
|
|
28,954 |
|
|
2011
|
|
|
43,702 |
|
|
2012
|
|
|
6,645 |
|
|
2013
|
|
|
11,616 |
|
|
Thereafter
|
|
|
67,874 |
|
|
|
|
|
|
|
|
Total
|
|
$ |
161,560 |
|
NOTE
8: CONTINGENT
LIABILITIES
The
Company and/or its subsidiaries have various unrelated legal proceedings, most
of which involve loan foreclosure activity pending, which, in the aggregate, are
not expected to have a material adverse effect on the financial position of the
Company and its subsidiaries.
On October
1, 2003, an action in Pulaski County Circuit Court was filed by Thomas F.
Carter, Tena P. Carter and certain related entities against Simmons First Bank
of South Arkansas and Simmons First National Bank alleging wrongful conduct by
the banks in the collection of certain loans. The Company was later
added as a party defendant. The plaintiffs were seeking $2,000,000 in
compensatory damages and $10,000,000 in punitive damages. The Company
and the banks filed Motions to Dismiss. The plaintiffs were granted
additional time to discover any evidence for litigation, and submitted such
findings. At the hearing on the Motions for Summary Judgment, the
Court dismissed Simmons First National Bank due to lack of
venue. Venue was changed to Jefferson County for the Company and
Simmons First Bank of South Arkansas. Non-binding mediation failed on June 24,
2008. A pretrial was conducted on July 24, 2008. Several
dispositive motions previously filed were heard on April 9, 2009, and arguments
were presented on June 22, 2009. On July 10, 2009, the Court issued
its Order dismissing five claims, leaving only a single claim for further
pursuit in this matter. On August 18, 2009, Plaintiffs took a nonsuit
on their remaining claim of breach of good faith and fair dealing, thereby
bringing all claims set forth in this action to a conclusion.
The
Plaintiffs subsequently filed a Notice of Appeal to the appellate
court. The Company intends to contest the appeal and seek affirmance
of the Court's dismissal of Plaintiffs' claims. At this time, no
basis for any material liability has been identified.
NOTE
9: CAPITAL
STOCK
At a
special shareholders’ meeting held on February 27, 2009, the Company’s
shareholders approved an amendment to the Articles of Incorporation to establish
40,040,000 authorized shares of Preferred Stock, $0.01 par value, of the
Company. The shareholders also approved the issuance of common stock
warrants for the purchase of up to 500,000 shares of the Company’s Class A
common stock with the exercise price and number of shares subject to final
computation in accordance with the rules of the U.S. Department of the Treasury
(“Treasury”) Troubled Asset Relief Program – Capital Purchase Program
(“CPP”).
The
Company notified the Treasury on July 7, 2009, that it will not participate in
the CPP; therefore, the Company will not issue preferred stock or common stock
warrants to the Treasury. For further discussion on the CPP, see
“Management’s Discussion and Analysis of Financial Condition and Results of
Operation – Overview – U.S. Treasury’s Capital Purchase Program” included
elsewhere in this report.
On
November 28, 2007, the Company announced the adoption by the Board of Directors
of a stock repurchase program. The program authorizes the repurchase
of up to 700,000 shares of Class A common stock, or approximately 5% of the
outstanding common stock. Under the repurchase program, there is no
time limit for the stock repurchases, nor is there a minimum number of shares
the Company intends to repurchase. The Company may discontinue
purchases at any time that management determines additional purchases are not
warranted. The shares are to be purchased from time to time at
prevailing market prices, through open market or unsolicited negotiated
transactions, depending upon market conditions. The Company intends
to use the repurchased shares to satisfy stock option exercises, payment of
future stock dividends and general corporate purposes.
Effective
July 1, 2008, the Company made a strategic decision to temporarily suspend stock
repurchases. This decision was made to preserve capital at the parent
company due to the lack of liquidity in the credit markets and the uncertainties
in the overall economy.
On August
26, 2009, the Company filed a shelf registration statement with the Securities
and Exchange Commission (“SEC”). The shelf registration statement,
which was declared effective on September 9, 2009, will allow the Company to
raise capital from time to time, up to an aggregate of $175 million,
through the sale of common stock, preferred stock, or a combination thereof,
subject to market conditions. Specific terms and prices will be
determined at the time of any offering under a separate prospectus supplement
that the Company will be required to file with the SEC at the time of the
specific offering.
NOTE
10: UNDIVIDED
PROFITS
The
Company’s subsidiary banks are subject to a legal limitation on dividends that
can be paid to the parent company without prior approval of the applicable
regulatory agencies. The approval of the Comptroller of the Currency
is required, if the total of all dividends declared by a national bank in any
calendar year exceeds the total of its net profits, as defined, for that year
combined with its retained net profits of the preceding two
years. Arkansas bank regulators have specified that the maximum
dividend limit state banks may pay to the parent company without prior approval
is 75% of current year earnings plus 75% of the retained net earnings of
the preceding year. At September 30, 2009, the bank subsidiaries
had approximately $12.6 million available for payment of dividends to the
Company, without prior approval of the regulatory agencies.
The
Federal Reserve Board's risk-based capital guidelines include the definitions
for (1) a well-capitalized institution, (2) an adequately-capitalized
institution, and (3) an undercapitalized institution. The criteria
for a well-capitalized institution are: a 5% "Tier l leverage capital" ratio, a
6% "Tier 1 risk-based capital" ratio, and a 10% "total risk-based capital"
ratio. As of September 30, 2009, each of the eight subsidiary banks
met the capital standards for a well-capitalized institution. The
Company's “total risk-based capital” ratio was 15.14% at September 30,
2009.
NOTE
11: STOCK-BASED
COMPENSATION
The
Company’s Board of Directors has adopted various stock compensation
plans. The plans provide for the grant of incentive stock options,
nonqualified stock options, stock appreciation rights, and bonus stock
awards. Pursuant to the plans, shares are reserved for future
issuance by the Company upon the exercise of stock options or awarding of bonus
shares granted to directors, officers and other key employees.
The table
below summarizes the transactions under the Company's active stock compensation
plans for the nine-months ended September, 2009:
|
|
Stock
Options
|
|
|
Non-Vested
Stock
|
|
|
|
Outstanding
|
|
|
Awards Outstanding
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
Number
|
|
|
Average
|
|
|
Number
|
|
|
Average
|
|
|
|
of
|
|
|
Exercise
|
|
|
of
|
|
|
Grant-Date
|
|
|
|
Shares
|
|
|
Price
|
|
|
Shares
|
|
|
Fair-Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
January 1, 2009
|
|
|
451,673 |
|
|
$ |
20.46 |
|
|
|
36,925 |
|
|
$ |
28.28 |
|
Granted
|
|
|
-- |
|
|
|
-- |
|
|
|
27,915 |
|
|
|
25.15 |
|
Stock
Options Exercised
|
|
|
(55,900 |
) |
|
|
12.12 |
|
|
|
-- |
|
|
|
-- |
|
Stock
Awards Vested
|
|
|
-- |
|
|
|
-- |
|
|
|
(12,202 |
) |
|
|
26.96 |
|
Forfeited/Expired
|
|
|
(20,840 |
) |
|
|
19.36 |
|
|
|
(1,113 |
) |
|
|
26.22 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
September 30, 2009
|
|
|
374,933 |
|
|
$ |
21.76 |
|
|
|
51,525 |
|
|
$ |
26.94 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable,
September 30, 2009
|
|
|
289,461 |
|
|
$ |
19.71 |
|
|
|
|
|
|
|
|
|
The
following table summarizes information about stock options under the plans
outstanding at September 30, 2009:
|
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Remaining
|
|
Average
|
|
|
|
|
|
Average
|
|
Range
of
|
|
|
Options
|
|
Contractual
|
|
Exercise
|
|
|
Options
|
|
|
Exercise
|
|
Exercise Prices
|
|
|
Outstanding
|
|
Life
|
|
Price
|
|
|
Exercisable
|
|
|
Price
|
|
$12.13
to $12.13 |
|
|
|
121,380 |
|
1.6
years
|
|
$ |
12.13 |
|
|
|
121,380 |
|
|
$ |
12.13 |
|
$15.35 to
$16.32 |
|
|
|
7,153 |
|
2.2
years
|
|
$ |
15.99 |
|
|
|
7,153 |
|
|
$ |
15.99 |
|
$23.78
to $24.50 |
|
|
|
90,510 |
|
5.1
years
|
|
$ |
24.05 |
|
|
|
90,510 |
|
|
$ |
24.05 |
|
$26.19
to $27.67 |
|
|
|
56,100 |
|
6.5
years
|
|
$ |
26.20 |
|
|
|
35,300 |
|
|
$ |
26.21 |
|
$28.42
to $28.42 |
|
|
|
51,800 |
|
7.7
years
|
|
$ |
28.42 |
|
|
|
25,520 |
|
|
$ |
28.42 |
|
$30.31
to $30.31 |
|
|
|
47,990 |
|
8.7
years
|
|
$ |
30.31 |
|
|
|
9,598 |
|
|
$ |
30.31 |
|
Stock-based
compensation expense totaled $448,667 and $465,706 during the nine-months ended
September 30, 2009 and 2008, respectively. Stock-based
compensation expense is recognized ratably over the requisite service period for
all stock-based awards. Unrecognized stock-based compensation expense
related to stock options totaled $464,887 at September 30, 2009. At
such date, the weighted-average period over which this unrecognized expense is
expected to be recognized was 1.52 years. Unrecognized stock-based
compensation expense related to non-vested stock awards was $1,284,680 at
September 30, 2009. At such date, the weighted-average period over
which this unrecognized expense is expected to be recognized was 2.72
years.
Aggregate
intrinsic values of outstanding stock options and exercisable stock options at
September 30, 2009, were $2.6 million and $2.6 million,
respectively. Aggregate intrinsic value represents the difference
between the Company’s closing stock price on the last trading day of the period,
which was $28.81 as of September 30, 2009, and the exercise price multiplied by
the number of options outstanding. The total intrinsic values of
stock options exercised during the nine-months ended September 30, 2009 and
2008, were $933,000 and $2.2 million, respectively.
NOTE
12: ADDITIONAL CASH FLOW
INFORMATION
|
|
Nine
Months Ended
|
|
|
|
September
30,
|
|
(In thousands)
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Interest
paid
|
|
$ |
31,755 |
|
|
$ |
50,471 |
|
Income
taxes paid
|
|
|
4,274 |
|
|
|
9,857 |
|
Transfers
of loans to other real estate
|
|
|
6,085 |
|
|
|
5,396 |
|
Post-retirement
benefit liability established upon
|
|
|
|
|
|
|
|
|
adoption
of amendment to ASC Topic 715,
|
|
|
|
|
|
|
|
|
Compensation
– Retirement Benefits
|
|
|
-- |
|
|
|
1,174 |
|
NOTE
13: OTHER OPERATING
EXPENSE
Other
operating expenses consist of the following:
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
|
|
September
30,
|
|
|
September
30,
|
|
(In thousands)
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Professional
services
|
|
$ |
981 |
|
|
$ |
661 |
|
|
$ |
2,516 |
|
|
$ |
1,990 |
|
Postage
|
|
|
626 |
|
|
|
407 |
|
|
|
1,805 |
|
|
|
1,319 |
|
Telephone
|
|
|
528 |
|
|
|
468 |
|
|
|
1,579 |
|
|
|
1,300 |
|
Credit
card expense
|
|
|
1,294 |
|
|
|
1,215 |
|
|
|
3,792 |
|
|
|
3,497 |
|
Operating
supplies
|
|
|
371 |
|
|
|
373 |
|
|
|
1,118 |
|
|
|
1,248 |
|
Amortization
of core deposit premiums
|
|
|
201 |
|
|
|
201 |
|
|
|
604 |
|
|
|
605 |
|
Visa
litigation liability reversal
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
(1,220 |
) |
Other
expense
|
|
|
3,469 |
|
|
|
3,281 |
|
|
|
9,375 |
|
|
|
9,656 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
other operating expenses
|
|
$ |
7,470 |
|
|
$ |
6,606 |
|
|
$ |
20,789 |
|
|
$ |
18,395 |
|
NOTE
14: CERTAIN
TRANSACTIONS
From time
to time the Company and its subsidiaries have made loans and other extensions of
credit to directors, officers, their associates and members of their immediate
families. From time to time directors, officers and their associates
and members of their immediate families have placed deposits with the Company’s
subsidiary banks. Such loans, other extensions of credit and deposits
were made in the ordinary course of business, on substantially the same terms
(including interest rates and collateral) as those prevailing at the time for
comparable transactions with other persons and did not involve more than normal
risk of collectibility or present other unfavorable features.
NOTE
15: COMMITMENTS AND
CREDIT RISK
The
Company grants agri-business, commercial and residential loans to customers
throughout Arkansas, along with credit card loans to customers throughout the
United States. Commitments to extend credit are agreements to lend to
a customer as long as there is no violation of any condition established in the
contract. Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. Since a portion
of the commitments may expire without being drawn upon, the total commitment
amounts do not necessarily represent future cash requirements. Each
customer's creditworthiness is evaluated on a case-by-case basis. The
amount of collateral obtained, if deemed necessary, is based on management's
credit evaluation of the counterparty. Collateral held varies, but
may include accounts receivable, inventory, property, plant and equipment,
commercial real estate and residential real estate.
At
September 30, 2009, the Company had outstanding commitments to extend credit
aggregating approximately $267,291,000 and $418,540,000 for credit card
commitments and other loan commitments, respectively. At December 31,
2008, the Company had outstanding commitments to extend credit aggregating
approximately $247,969,000 and $422,127,000 for credit card commitments and
other loan commitments, respectively.
Standby
letters of credit are conditional commitments issued by the Company, to
guarantee the performance of a customer to a third party. Those
guarantees are primarily issued to support public and private borrowing
arrangements, including commercial paper, bond financing, and similar
transactions. The credit risk involved in issuing letters of credit
is essentially the same as that involved in extending loans to
customers. The Company had total outstanding letters of credit
amounting to $10,640,000 and $10,186,000 at September 30, 2009, and December 31,
2008, respectively, with terms ranging from 90 days to three
years. At September 30, 2009, the Company had $73,000 deferred
revenue under standby letter of credit agreements. At December 31,
2008, the Company’s deferred revenue under standby letter of credit agreements
was approximately $52,000.
NOTE
16: FAIR
VALUE MEASUREMENTS
Effective
January 1, 2008, the Company adopted ASC Topic 820, Fair Value Measurements and
Disclosures. ASC Topic 820 defines fair value, establishes a framework
for measuring fair value and expands disclosures about fair value
measurements.
ASC Topic
820 defines fair value as the price that would be received to sell an asset or
paid to transfer a liability in an orderly transaction between market
participants at the measurement date. The guidance also establishes a
fair value hierarchy that requires the use of observable inputs and minimizes
the use of unobservable inputs when measuring fair value. Topic 820
describes three levels of inputs that may be used to measure fair
value:
·
|
Level 1 Inputs – Quoted
prices in active markets for identical assets or
liabilities.
|
·
|
Level 2 Inputs –
Observable inputs other than Level 1 prices, such as quoted prices for
similar assets or liabilities in active markets; quoted prices for similar
assets or liabilities in markets that are not active; or other inputs that
are observable or can be corroborated by observable market data for
substantially the full term of the assets or
liabilities.
|
·
|
Level 3 Inputs –
Unobservable inputs that are supported by little or no market activity and
that are significant to the fair value of the assets or
liabilities.
|
Following
is a description of the inputs and valuation methodologies used for assets and
liabilities measured at fair value on a recurring basis and recognized in the
accompanying balance sheets, as well as the general classification of such
assets and liabilities pursuant to the valuation hierarchy.
Available-for-sale securities
– Where quoted market prices are available in an active market,
securities are classified within Level 1 of the valuation
hierarchy. Level 1 securities would include highly liquid Government
bonds, mortgage products and exchange traded equities. If quoted
market prices are not available, then fair values are estimated by using pricing
models, quoted prices of securities with similar characteristics or discounted
cash flows. Level 2 securities include U.S. agency securities,
mortgage-backed agency securities, obligations of states and political
subdivisions and certain corporate, asset backed and other
securities. In certain cases where Level 1 or Level 2 inputs are not
available, securities are classified within Level 3 of the
hierarchy. The Company’s investment in a Government money market
mutual fund (the “AIM Fund”) is reported at fair value utilizing Level 1
inputs. The remainder of the Company's available-for-sale securities
are reported at fair value utilizing Level 2 inputs.
Assets held in trading accounts
– The Company’s trading account investment in the AIM Fund is reported at
fair value utilizing Level 1 inputs. The remainder of the Company's
assets held in trading accounts are reported at fair value utilizing Level 2
inputs.
The
following table sets forth the Company’s financial assets and liabilities by
level within the fair value hierarchy that were measured at fair value on a
recurring basis as of September 30, 2009 and December 31, 2008.
|
|
|
|
|
Fair Value Measurements
Using
|
|
|
|
|
|
|
Quoted
Prices in
|
|
|
|
|
|
|
|
|
|
|
|
|
Active
Markets for
|
|
|
Significant
Other
|
|
|
Significant
|
|
|
|
|
|
|
Identical
Assets
|
|
|
Observable
Inputs
|
|
|
Unobservable
Inputs
|
|
(In thousands)
|
|
Fair Value
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
securities
|
|
$ |
184,493 |
|
|
$ |
1,502 |
|
|
$ |
182,991 |
|
|
$ |
-- |
|
Assets
held in trading accounts
|
|
|
6,839 |
|
|
|
5,225 |
|
|
|
1,614 |
|
|
|
-- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
securities
|
|
|
458,833 |
|
|
|
85,536 |
|
|
|
373,297 |
|
|
|
-- |
|
Assets
held in trading accounts
|
|
|
5,754 |
|
|
|
4,850 |
|
|
|
904 |
|
|
|
-- |
|
Certain
financial assets and financial liabilities are measured at fair value on a
nonrecurring basis; that is, the instruments are not measured at fair value on
an ongoing basis but are subject to fair value adjustments in certain
circumstances (for example, when there is evidence of
impairment). Financial assets and liabilities measured at fair value
on a nonrecurring basis include the following:
Impaired loans – Loan
impairment is reported when full payment under the loan terms is not
expected. Impaired loans are carried at the present value of
estimated future cash flows using the loan's existing rate, or the fair value of
collateral if the loan is collateral dependent. A portion of the
allowance for loan losses is allocated to impaired loans if the value of such
loans is deemed to be less than the unpaid balance. If these
allocations cause the allowance for loan losses to require an increase, such
increase is reported as a component of the provision for loan
losses. Loan losses are charged against the allowance when Management
believes the uncollectability of a loan is confirmed. Impaired loans,
net of Government guarantees and specific allowance, were $41,274,000 as of
September 30, 2009. This valuation would be considered Level 3,
consisting of appraisals of underlying collateral and discounted cash flow
analysis.
Mortgage loans held for sale
– Mortgage loans held for sale are reported at fair value if, on an aggregate
basis, the fair value of the loans is less than cost. In determining
whether the fair value of loans held for sale is less than cost when quoted
market prices are not available, the Company may consider outstanding investor
commitments, discounted cash flow analyses with market assumptions or the fair
value of the collateral if the loan is collateral dependent. Such
loans are classified within either Level 2 or Level 3 of the fair value
hierarchy. Where assumptions are made using significant unobservable
inputs, such loans held for sale are classified as Level 3. At
September 30, 2009, the aggregate fair value of mortgage loans held for sale
exceeded their cost. Accordingly, no mortgage loans held for sale
were marked down and reported at fair value.
The
following table sets forth the Company’s financial assets and liabilities by
level within the fair value hierarchy that were measured at fair value on a
non-recurring basis as of September 30, 2009 and December 31, 2008.
|
|
|
|
|
Fair Value Measurements
Using
|
|
|
|
|
|
|
Quoted
Prices in
|
|
|
|
|
|
|
|
|
|
|
|
|
Active
Markets for
|
|
|
Significant
Other
|
|
|
Significant
|
|
|
|
|
|
|
Identical
Assets
|
|
|
Observable
Inputs
|
|
|
Unobservable
Inputs
|
|
(In thousands)
|
|
Fair Value
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired
loans
|
|
$ |
41,274 |
|
|
$ |
-- |
|
|
$ |
-- |
|
|
$ |
41,274 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired
loans
|
|
|
11,451 |
|
|
|
-- |
|
|
|
-- |
|
|
|
11,451 |
|
ASC Topic
825, Financial
Instruments, requires disclosure in annual financial statements of the
fair value of financial assets and financial liabilities, including those
financial assets and financial liabilities that are not measured and reported at
fair value on a recurring basis or nonrecurring basis. Recent
guidance amends ASC Topic 825 to require disclosures about fair value of
financial instruments for interim reporting periods. The following
methods and assumptions were used to estimate the fair value of each class of
financial instruments.
Cash and cash equivalents –
The carrying amount for cash and cash equivalents approximates fair
value.
Held-to-maturity securities –
Fair values for held-to-maturity securities equal quoted market prices, if
available. If quoted market prices are not available, fair values are
estimated based on quoted market prices of similar securities.
Loans – The fair value of
loans is estimated by discounting the future cash flows, using the current rates
at which similar loans would be made to borrowers with similar credit ratings
and for the same remaining maturities. Loans with similar
characteristics were aggregated for purposes of the calculations. The
carrying amount of accrued interest approximates its fair value.
Deposits – The fair value of
demand deposits, savings accounts and money market deposits is the amount
payable on demand at the reporting date (i.e., their carrying
amount). The fair value of fixed-maturity time deposits is estimated
using a discounted cash flow calculation that applies the rates currently
offered for deposits of similar remaining maturities. The carrying
amount of accrued interest payable approximates its fair value.
Federal
Funds purchased, securities sold under agreement to repurchase and short-term debt – The
carrying amount for Federal funds purchased, securities sold under agreement to
repurchase and short-term debt are a reasonable estimate of fair
value.
Long-term debt – Rates
currently available to the Company for debt with similar terms and remaining
maturities are used to estimate the fair value of existing debt.
Commitments to Extend Credit,
Letters of Credit and Lines of Credit – The fair value of commitments is
estimated using the fees currently charged to enter into similar agreements,
taking into account the remaining terms of the agreements and the present
creditworthiness of the counterparties. For fixed rate loan
commitments, fair value also considers the difference between current levels of
interest rates and the committed rates. The fair values of letters of
credit and lines of credit are based on fees currently charged for similar
agreements or on the estimated cost to terminate or otherwise settle the
obligations with the counterparties at the reporting date.
The
following table represents estimated fair values of the Company's financial
instruments. The fair values of certain of these instruments were
calculated by discounting expected cash flows. This method involves significant
judgments by management considering the uncertainties of economic conditions and
other factors inherent in the risk management of financial
instruments. Fair value is the estimated amount at which financial
assets or liabilities could be exchanged in a current transaction between
willing parties, other than in a forced or liquidation sale. Because
no market exists for certain of these financial instruments and because
management does not intend to sell these financial instruments, the Company does
not know whether the fair values shown below represent values at which the
respective financial instruments could be sold individually or in the
aggregate.
|
|
September 30, 2009
|
|
|
December 31, 2008
|
|
|
|
Carrying
|
|
|
Fair
|
|
|
Carrying
|
|
|
Fair
|
|
(In thousands)
|
|
Amount
|
|
|
Value
|
|
|
Amount
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
209,390 |
|
|
$ |
209,390 |
|
|
$ |
139,536 |
|
|
$ |
139,356 |
|
Held-to-maturity
securities
|
|
|
387,122 |
|
|
|
392,450 |
|
|
|
187,301 |
|
|
|
187,320 |
|
Mortgage
loans held for sale
|
|
|
13,355 |
|
|
|
13,355 |
|
|
|
10,336 |
|
|
|
10,336 |
|
Interest
receivable
|
|
|
19,618 |
|
|
|
19,618 |
|
|
|
20,930 |
|
|
|
20,930 |
|
Loans,
net
|
|
|
1,899,271 |
|
|
|
1,893,548 |
|
|
|
1,907,233 |
|
|
|
1,904,421 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest
bearing transaction accounts
|
|
|
325,594 |
|
|
|
325,594 |
|
|
|
334,998 |
|
|
|
334,998 |
|
Interest
bearing transaction accounts and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
savings
deposits
|
|
|
1,090,842 |
|
|
|
1,090,842 |
|
|
|
1,026,824 |
|
|
|
1,026,824 |
|
Time
deposits
|
|
|
914,833 |
|
|
|
917,890 |
|
|
|
974,511 |
|
|
|
977,789 |
|
Federal
funds purchased and securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
sold
under agreements to repurchase
|
|
|
96,666 |
|
|
|
96,666 |
|
|
|
115,449 |
|
|
|
115,449 |
|
Short-term
debt
|
|
|
3,493 |
|
|
|
3,493 |
|
|
|
1,112 |
|
|
|
1,112 |
|
Long-term
debt
|
|
|
161,560 |
|
|
|
175,889 |
|
|
|
158,671 |
|
|
|
173,046 |
|
Interest
payable
|
|
|
3,215 |
|
|
|
3,215 |
|
|
|
4,579 |
|
|
|
4,579 |
|
The fair
value of commitments to extend credit and letters of credit is not presented
since management believes the fair value to be insignificant.
Audit
Committee, Board of Directors and Stockholders
Simmons
First National Corporation
Pine
Bluff, Arkansas
We have
reviewed the accompanying consolidated balance sheet of SIMMONS FIRST NATIONAL
CORPORATION as of September 30, 2009, and the related consolidated
statements of income for the three-month and nine-month periods ended September
30, 2009 and 2008 and statements of stockholders’ equity and cash flows for the
nine-month periods ended September 30, 2009 and 2008. These
interim financial statements are the responsibility of the Company’s
management.
We
conducted our reviews in accordance with the standards of the Public Company
Accounting Oversight Board (United States). A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit
conducted in accordance with the standards of the Public Company Accounting
Oversight Board, the objective of which is the expression of an opinion
regarding the financial statements taken as a whole. Accordingly, we
do not express such an opinion.
Based on
our reviews, we are not aware of any material modifications that should be made
to the consolidated financial statements referred to above for them to be in
conformity with accounting principles generally accepted in the United States of
America.
We have
previously audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the consolidated balance sheet as of
December 31, 2008, and the related consolidated statements of income,
stockholders' equity and cash flows for the year then ended (not presented
herein); and in our report dated February 23, 2009, we expressed an unqualified
opinion on those consolidated financial statements. In our opinion,
the information set forth in the accompanying consolidated balance sheet as of
December 31, 2008, is fairly stated, in all material respects, in relation to
the consolidated balance sheet from which it has been derived.
Pine
Bluff, Arkansas
November
2, 2009
OVERVIEW
Simmons
First National Corporation recorded net income of $7.7 million for the
three-months ended September 30, 2009, a $1.2 million increase from the same
period in 2008. Diluted earnings per share increased $0.08, or 17.4%,
from the comparable prior year period to $0.54 for the three-months ended
September 30, 2009. The increase in earnings is primarily
attributable to an improvement in net interest margin and non-interest
income.
Net income
for the nine-month period ended September 30, 2009, was $18.4 million, or $1.30
diluted earnings per share, compared to $21.3 million, or $1.51 per share for
the same period in 2008. Core earnings (non-GAAP) (net income
excluding nonrecurring items {Visa litigation expense reversal and gain from the
cash proceeds on mandatory Visa stock redemption}) for the nine-months ended
September 30, 2009 and 2008, were $18.4 million and $18.7 million,
respectively. Diluted core earnings per share (non-GAAP) for these
same periods were $1.30 and $1.33, respectively, a decrease of
$0.03 per share, or 2.26%.
During the
first quarter of 2008, the Company recorded a nonrecurring $0.05 increase in
diluted earnings per share related to the reversal of a $1.2 million pre-tax
contingent liability established during the fourth quarter of
2007. That contingent liability represented the Company’s pro-rata
portion of Visa, Inc.’s, and its related subsidiary Visa U.S.A.’s (collectively
“Visa”), litigation liabilities, which was satisfied in conjunction with Visa’s
initial public offering (“IPO”). Also as a result of Visa’s IPO, the
Company received cash proceeds from the mandatory partial redemption of its
equity interest in Visa, resulting in a nonrecurring $3.0 million pre-tax
gain in the first quarter 2008, or $0.13 per diluted common share.
Also
impacting net income for the nine-months ended September 30, 2009, was a $1.5
million increase in deposit insurance resulting from the FDIC’s second quarter
industry-wide special assessment. The after-tax impact to earnings
from the special assessment was $0.06 diluted earnings per share. See the
Non-Interest Expense section for additional information on deposit
insurance.
The
allowance for loan losses as a percent of total loans was 1.34% as of September
30, 2009. Non-performing loans equaled 0.99% of total
loans. Non-performing assets were 0.86% of total assets, up 22 basis
points from year end. The allowance for loan losses was 135% of
non-performing loans. The Company’s annualized net charge-offs to total loans
for the third quarter of 2009 was 0.40%. Excluding credit cards, the
annualized net charge-offs to total loans for the third quarter was
0.19%. Annualized net credit card charge-offs to total credit card
loans for the third quarter were 2.58%, a decrease of 25 basis points from the
previous quarter, and almost 900 basis points below the most recently published
credit card charge-off industry average. The Company does not own any
securities backed by subprime mortgage assets, and has no mortgage loan products
that target subprime borrowers.
Total
assets for the Company at September 30, 2009, were $2.915 billion, a decrease of
$7.7 million, or 0.3%, from December 31, 2008. Stockholders’
equity as of September 30, 2008, was $297.8 million, an increase of $9.0
million, or approximately 3.1%, from December 31, 2008.
Simmons
First National Corporation is an Arkansas based financial holding company with
eight community banks in Pine Bluff, Lake Village, Jonesboro, Rogers, Searcy,
Russellville, El Dorado and Hot Springs, Arkansas. The Company's eight banks
conduct financial operations from 88 offices, of which 84 are financial centers,
located in 47 communities.
U.S.
Treasury’s Capital Purchase Program
On October
29, 2008, the U.S. Department of the Treasury (“Treasury”) gave the Company
approval to participate in the Troubled Asset Relief Program – Capital Purchase
Program (“CPP”), designed to provide additional capital to healthy financial
institutions, thereby increasing confidence in our banking industry and
encouraging increased lending. On January 6, 2009, the Treasury
amended its approval to allow the Company to participate in the CPP at a level
up to $59.7 million. At a Special Meeting of Shareholders held on
February 27, 2009, the Company’s shareholders voted to amend the Articles of
Incorporation to authorize the issuance of preferred shares and common stock
warrants required for participation in the CPP.
Approximately
600 banks nationwide have participated in the CPP. The Company was
the thirty-second bank in the country to be approved. The Company’s
original plans were to issue the shares under the CPP on March 27,
2009. However, due to the continued ambiguity resulting from changes
being proposed by Congress, the Company requested and was granted an extension
by the Treasury due to the ambiguity and uncertainty regarding the ability to
repay the funds at the time of its choosing.
On July 7,
2009, management notified the Treasury that the Company would not participate in
the CPP. After careful consideration and analysis, the Company
believes there has been considerable improvement in the economic indicators
since October 2008. The Arkansas economy is doing well relative to
many other geographic regions of the country, and the Company continues to have
strong asset quality, liquidity and capital. Accordingly, the Company
does not believe its participation in the CPP is necessary nor in the best
interest of the Company’s shareholders. While the Company has chosen
not to participate, the Company believes the CPP has served the original purpose
of the Treasury.
CRITICAL ACCOUNTING
POLICIES
Overview
As
discussed in Note 1, Basis of Presentation – Recently Issued Accounting
Pronouncements, in the accompanying Condensed Notes to Consolidated Financial
Statements included elsewhere in this report, on July 1, 2009, the Accounting
Standards Codification (“ASC”) became the Financial Accounting Standards Board’s
(“FASB”) officially recognized source of authoritative U.S. generally accepted
accounting principles (“GAAP”) for all nongovernmental entities, with the
exception of guidance issued by the SEC and its staff. All other
accounting literature is considered non-authoritative. The switch to
the ASC affects the away companies refer to GAAP in financial statements and
accounting policies. Citing particular content in the ASC involves
specifying the unique numeric path to the content through the Topic, Subtopic,
Section and Paragraph structure. The Company adopted this
accounting standard in preparing the Consolidated Financial Statements for the
period ended September 30, 2009.
The
accounting and reporting policies followed by the Company conform, in all
material respects, to generally accepted accounting principles and to general
practices within the financial services industry. The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. While
the Company bases estimates on historical experience, current information and
other factors deemed to be relevant, actual results could differ from those
estimates.
The
Company considers accounting estimates to be critical to reported financial
results if (i) the accounting estimate requires management to make assumptions
about matters that are highly uncertain and (ii) different estimates that
management reasonably could have used for the accounting estimate in the current
period, or changes in the accounting estimate that are reasonably likely to
occur from period to period, could have a material impact on the Company’s
financial statements.
The
accounting policies that we view as critical to us are those relating to
estimates and judgments regarding (a) the determination of the adequacy of the
allowance for loan losses, (b) the valuation of goodwill and the useful lives
applied to intangible assets, (c) the valuation of employee benefit plans, and
(d) income taxes.
Allowance
for Loan Losses
The
allowance for loan losses is established as losses are estimated to have
occurred through a provision for loan losses charged to income. Loan
losses are charged against the allowance when management believes the
uncollectability of a loan balance is confirmed. Subsequent
recoveries, if any, are credited to the allowance.
The
allowance is maintained at a level considered adequate to provide for potential
loan losses related to specifically identified loans as well as probable credit
losses inherent in the remainder of the loan portfolio as of period
end. This estimate is based on management's evaluation of the loan
portfolio, as well as on prevailing and anticipated economic conditions and
historical losses by loan category. General reserves have been
established, based upon the aforementioned factors and allocated to the
individual loan categories. Allowances are accrued on specific loans
evaluated for impairment for which the basis of each loan, including accrued
interest, exceeds the discounted amount of expected future collections of
interest and principal or, alternatively, the fair value of loan
collateral. The unallocated reserve generally serves to compensate
for the uncertainty in estimating loan losses, including the possibility of
changes in risk ratings and specific reserve allocations in the loan portfolio
as a result of the Company’s ongoing risk management system.
A loan is
considered impaired when it is probable that the Company will not receive all
amounts due according to the contractual terms of the loan. This
includes loans that are delinquent 90 days or more, nonaccrual loans and certain
other loans identified by management. Certain other loans identified
by management consist of performing loans with specific allocations of the
allowance for loan losses. Specific allocations are applied when
quantifiable factors are present requiring a greater allocation than that
established by the Company based on its analysis of historical losses for each
loan category. Accrual of interest is discontinued and interest
accrued and unpaid is removed at the time such amounts are delinquent 90 days
unless management is aware of circumstances which warrant continuing the
interest accrual. Interest is recognized for nonaccrual loans only
upon receipt and only after all principal amounts are current according to the
terms of the contract.
Goodwill
and Intangible Assets
Goodwill
represents the excess of the cost of an acquisition over the fair value of the
net assets acquired. Other intangible assets represent purchased
assets that also lack physical substance but can be separately distinguished
from goodwill because of contractual or other legal rights or because the asset
is capable of being sold or exchanged either on its own or in combination with a
related contract, asset or liability. The Company performs an annual
goodwill impairment test, and more than annually if circumstances warrant, in
accordance with ASC Topic 350, Intangibles – Goodwill and
Other. ASC Topic 350 requires that goodwill and intangible
assets that have indefinite lives be reviewed for impairment annually, or more
frequently if certain conditions occur. Impairment losses on recorded
goodwill, if any, will be recorded as operating expenses.
Employee
Benefit Plans
The
Company has adopted various stock-based compensation plans. The plans
provide for the grant of incentive stock options, nonqualified stock options,
stock appreciation rights, and bonus stock awards. Pursuant to the
plans, shares are reserved for future issuance by the Company, upon exercise of
stock options or awarding of bonus shares granted to directors, officers and
other key employees.
In
accordance with ASC Topic 718, Compensation – Stock
Compensation, the fair value of each option award is estimated on the
date of grant using the Black-Scholes option-pricing model that uses various
assumptions. This model requires the input of highly subjective
assumptions, changes to which can materially affect the fair value
estimate. For additional information, see Note 11, Stock-Based
Compensation, in the accompanying Condensed Notes to Consolidated Financial
Statements included elsewhere in this report.
Income
Taxes
The
Company is subject to the federal income tax laws of the United States, and the
tax laws of the states and other jurisdictions where it conducts
business. Due to the complexity of these laws, taxpayers and the
taxing authorities may subject these laws to different
interpretations. Management must make conclusions and estimates about
the application of these innately intricate laws, related regulations, and case
law. When preparing the Company’s tax returns, management attempts to
make reasonable interpretations of the tax laws. Taxing authorities have the
ability to challenge management’s analysis of the tax law or any
reinterpretation management makes in its ongoing assessment of facts and the
developing case law. Management assesses the reasonableness of its
effective tax rate quarterly based on its current estimate of net income and the
applicable taxes expected for the full year. On a quarterly basis,
management also reviews circumstances and developments in tax law affecting the
reasonableness of deferred tax assets and liabilities and reserves for
contingent tax liabilities.
NET INTEREST
INCOME
Overview
Net
interest income, the Company's principal source of earnings, is the difference
between the interest income generated by earning assets and the total interest
cost of the deposits and borrowings obtained to fund those
assets. Factors that determine the level of net interest income
include the volume of earning assets and interest bearing liabilities, yields
earned and rates paid, the level of non-performing loans and the amount of
non-interest bearing liabilities supporting earning assets. Net
interest income is analyzed in the discussion and tables below on a fully
taxable equivalent basis. The adjustment to convert certain income to
a fully taxable equivalent basis consists of dividing tax-exempt income by one
minus the combined federal and state income tax rate of 37.50%.
The
Company’s practice is to limit exposure to interest rate movements by
maintaining a significant portion of earning assets and interest bearing
liabilities in short-term repricing. Historically, approximately 70%
of the Company’s loan portfolio and approximately 80% of the Company’s time
deposits have repriced in one year or less. However, due to the
extremely low interest rate environment, approximately 89% of the Company’s time
deposits as of September 30, 2009, are scheduled to reprice within one
year.
Net
Interest Income Quarter-to-Date Analysis
For the
three-month period ended September 30, 2009, net interest income on a fully
taxable equivalent basis was $26.7 million, an increase of $1.3 million, or
5.2%, over the same period in 2008. The increase in net interest
income was the result of a $5.8 million decrease in interest expense offset by a
$4.5 million decrease in interest income.
The $5.8
million decrease in interest expense is the result of a 102 basis point decrease
in cost of funds due to competitive repricing during a falling interest rate
environment, coupled with a shift in the Company’s mix of interest bearing
deposits. The lower interest rates accounted for a $5.6 million
decrease in interest expense. The most significant component of this
decrease was the $2.8 million decrease associated with the repricing of the
Company’s time deposits that resulted from time deposits that matured during the
period or were tied to a rate that fluctuated with changes in market
rates. Historically, approximately 80% of the Company’s time deposits
reprice in one year or less. As a result, the average rate paid on
time deposits decreased 122 basis points from 3.47% to 2.25%. Lower
rates on interest bearing transaction and savings accounts resulted in an
additional $2.4 million decrease in interest expense, with the average rate
decreasing by 90 basis points from 1.60% to 0.70%. Although the level
of average interest bearing liabilities only decreased slightly by $746,000,
interest expense due to volume decreased by $185,000 as a result of a change in
deposit mix (higher costing time deposits declined while lower costing
transaction accounts increased).
The $4.5
million decrease in interest income primarily is the result of a 78 basis point
decrease in yield on earning assets associated with the repricing to a lower
interest rate environment, partially offset by a $42.4 million increase in
average interest earning assets due to internal growth. The lower
interest rates accounted for a $5.7 million decrease in interest
income. The most significant component of this decrease was the $3.3
million decrease associated with the repricing of the Company’s loan portfolio
that resulted from loans that matured during the period or were tied to a rate
that fluctuated with changes in market rates. Historically,
approximately 70% of the Company’s loan portfolio reprices in one year or
less. As a result, the average rate earned on the loan portfolio
decreased 69 basis points from 6.60% to 5.91%. The growth in
average interest earning assets resulted in a $1.2 million improvement in
interest income. The growth in average loans accounted for
$838,000 of this increase, while the growth in investment securities
resulted in $328,000 of the increase.
Net
Interest Income Year-to-Date Analysis
For the
nine-month period ended September 30, 2009, net interest income on a fully
taxable equivalent basis was $76.1 million, an increase of $2.9 million, or
3.9%, over the same period in 2008. The increase in net interest
income was the result of an $18.2 million decrease in interest expense offset by
a $15.3 million decrease in interest income.
The $18.2
million decrease in interest expense is the result of a 113 basis point decrease
in cost of funds due to competitive repricing during a falling interest rate
environment, coupled with a shift in the Company’s mix of interest bearing
deposits. The lower interest rates accounted for a $17.7 million
decrease in interest expense. The most significant component of this
decrease was the $9.8 million decrease associated with the repricing of the
Company’s time deposits that resulted from time deposits that matured during the
period or were tied to a rate that fluctuated with changes in market
rates. Historically, approximately 80% of the Company’s time deposits
reprice in one year or less. As a result, the average rate paid on
time deposits decreased 135 basis points from 3.92% to 2.57%. Lower
rates on interest bearing transaction and savings accounts resulted in an
additional $6.4 million decrease in interest expense, with the average rate
decreasing by 82 basis points from 1.62% to 0.80%. Lower rates on
federal funds purchased and other debt resulted in an additional $1.5 million
decrease in interest expense, with the average rate paid on debt decreasing by
65 basis points from 3.52% to 2.87%. Although the level of average
interest bearing liabilities increased by $58.0 million, primarily due to $45.7
million of internal deposit growth, interest expense due to volume decreased as
a result of a change in deposit mix (higher costing time deposits declined while
lower costing transaction accounts increased).
The $15.3
million decrease in interest income primarily is the result of a 97 basis point
decrease in yield on earning assets associated with the repricing to a lower
interest rate environment, partially offset by a $93.4 million increase in
average interest earning assets due to internal growth. The lower
interest rates accounted for a $20.8 million decrease in interest
income. The most significant component of this decrease was the $13.5
million decrease associated with the repricing of the Company’s loan portfolio
that resulted from loans that matured during the period or were tied to a rate
that fluctuated with changes in market rates. Historically,
approximately 70% of the Company’s loan portfolio reprices in one year or
less. As a result, the average rate earned on the loan portfolio
decreased 93 basis points from 6.85% to 5.92%. The growth in
average interest earning assets resulted in a $5.6 million improvement in
interest income. The growth in average loans accounted for
$3.0 million of this increase, the growth in investment securities resulted
in $2.8 million of the increase, offset slightly by a decline in short-term
investments.
Net
Interest Margin
The
Company’s net interest margin increased 13 basis points to 3.97% for the
three-month period ended September 30, 2009, when compared to 3.84% for the same
period in 2008. For the nine-month period ended September 30, 2009,
net interest margin decreased 2 basis points to 3.79%, when compared to 3.77%
for the same period in 2008. Based on its current pricing model, and
considering a continuance of more rational competitive deposit and loan pricing,
the Company anticipates flat to slight net interest margin improvement for the
remainder of 2009.
Net
Interest Income Tables
Table 1
and 2 reflect an analysis of net interest income on a fully taxable equivalent
basis for the three-month and nine-month periods ended September 30, 2009 and
2008, respectively, as well as changes in fully taxable equivalent net interest
margin for the three-month and nine-month periods ended September 30, 2009
versus September 30, 2008.
Table
1: Analysis of Net Interest Margin
(FTE
=Fully Taxable Equivalent)
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
|
|
September
30,
|
|
|
September
30,
|
|
(In thousands)
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
$ |
34,447 |
|
|
$ |
39,208 |
|
|
$ |
102,897 |
|
|
$ |
118,779 |
|
FTE
adjustment
|
|
|
1,304 |
|
|
|
1,031 |
|
|
|
3,633 |
|
|
|
3,017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income – FTE
|
|
|
35,751 |
|
|
|
40,239 |
|
|
|
106,530 |
|
|
|
121,796 |
|
Interest
expense
|
|
|
9,054 |
|
|
|
14,861 |
|
|
|
30,391 |
|
|
|
48,543 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income – FTE
|
|
$ |
26,697 |
|
|
$ |
25,378 |
|
|
$ |
76,139 |
|
|
$ |
73,253 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Yield
on earning assets – FTE
|
|
|
5.31 |
% |
|
|
6.09 |
% |
|
|
5.30 |
% |
|
|
6.27 |
% |
Cost
of interest bearing liabilities
|
|
|
1.59 |
% |
|
|
2.61 |
% |
|
|
1.78 |
% |
|
|
2.91 |
% |
Net
interest spread – FTE
|
|
|
3.72 |
% |
|
|
3.48 |
% |
|
|
3.52 |
% |
|
|
3.36 |
% |
Net
interest margin – FTE
|
|
|
3.97 |
% |
|
|
3.84 |
% |
|
|
3.79 |
% |
|
|
3.77 |
% |
Table
2: Changes in Fully Taxable Equivalent Net Interest
Income
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
|
|
September
30,
|
|
|
September
30,
|
|
(In thousands)
|
|
2009 vs. 2008
|
|
|
2009 vs. 2008
|
|
|
|
|
|
|
|
|
Increase
due to change in earning assets
|
|
$ |
1,224 |
|
|
$ |
5,574 |
|
Decrease
due to change in earning asset yields
|
|
|
(5,712 |
) |
|
|
(20,840 |
) |
Increase
due to change in interest
|
|
|
|
|
|
|
|
|
bearing
liabilities
|
|
|
185 |
|
|
|
485 |
|
Increase
due to change in interest rates
|
|
|
|
|
|
|
|
|
paid
on interest bearing liabilities
|
|
|
5,622 |
|
|
|
17,667 |
|
|
|
|
|
|
|
|
|
|
Increase
in net interest income
|
|
$ |
1,319 |
|
|
$ |
2,886 |
|
Table 3
shows, for each major category of earning assets and interest bearing
liabilities, the average (computed on a daily basis) amount outstanding, the
interest earned or expensed on such amount and the average rate earned or
expensed for the three-month and nine-month periods ended September 30, 2009 and
2008. The table also shows the average rate earned on all earning
assets, the average rate expensed on all interest bearing liabilities, the net
interest spread and the net interest margin for the same periods. The analysis
is presented on a fully taxable equivalent basis. Non-accrual loans
were included in average loans for the purpose of calculating the rate earned on
total loans.
Table
3: Average Balance Sheets and Net Interest Income
Analysis
|
|
Three Months Ended September 30, |
|
|
|
2009 |
|
|
2008 |
|
|
|
Average
|
|
|
Income/
|
|
|
Yield/
|
|
|
Average
|
|
|
Income/
|
|
|
Yield/
|
|
($ in thousands)
|
|
Balance
|
|
|
Expense
|
|
|
Rate(%)
|
|
|
Balance
|
|
|
Expense
|
|
|
Rate(%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earning
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
bearing balances
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
due
from banks
|
|
$ |
91,832 |
|
|
$ |
87 |
|
|
|
0.38 |
|
|
$ |
65,819 |
|
|
$ |
309 |
|
|
|
1.87 |
|
Federal
funds sold
|
|
|
5,962 |
|
|
|
10 |
|
|
|
0.67 |
|
|
|
32,910 |
|
|
|
176 |
|
|
|
2.13 |
|
Investment
securities - taxable
|
|
|
390,635 |
|
|
|
3,001 |
|
|
|
3.05 |
|
|
|
482,495 |
|
|
|
5,451 |
|
|
|
4.49 |
|
Investment
securities - non-taxable
|
|
|
207,152 |
|
|
|
3,341 |
|
|
|
6.40 |
|
|
|
133,454 |
|
|
|
2,579 |
|
|
|
7.69 |
|
Mortgage
loans held for sale
|
|
|
11,063 |
|
|
|
136 |
|
|
|
4.88 |
|
|
|
6,759 |
|
|
|
112 |
|
|
|
6.59 |
|
Assets
held in trading accounts
|
|
|
6,293 |
|
|
|
3 |
|
|
|
0.19 |
|
|
|
727 |
|
|
|
-- |
|
|
|
0.00 |
|
Loans
|
|
|
1,957,600 |
|
|
|
29,173 |
|
|
|
5.91 |
|
|
|
1,905,979 |
|
|
|
31,612 |
|
|
|
6.60 |
|
Total
interest earning assets
|
|
|
2,670,537 |
|
|
|
35,751 |
|
|
|
5.31 |
|
|
|
2,628,143 |
|
|
|
40,239 |
|
|
|
6.09 |
|
Non-earning
assets
|
|
|
244,344 |
|
|
|
|
|
|
|
|
|
|
|
259,800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$ |
2,914,881 |
|
|
|
|
|
|
|
|
|
|
$ |
2,887,943 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’
EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
bearing liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
bearing transaction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
savings accounts
|
|
$ |
1,074,415 |
|
|
$ |
1,891 |
|
|
|
0.70 |
|
|
$ |
1,021,519 |
|
|
$ |
4,116 |
|
|
|
1.60 |
|
Time
deposits
|
|
|
922,575 |
|
|
|
5,242 |
|
|
|
2.25 |
|
|
|
974,553 |
|
|
|
8,491 |
|
|
|
3.47 |
|
Total
interest bearing deposits
|
|
|
1,996,990 |
|
|
|
7,133 |
|
|
|
1.42 |
|
|
|
1,996,072 |
|
|
|
12,607 |
|
|
|
2.51 |
|
Federal
funds purchased and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
securities
sold under agreement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
to
repurchase
|
|
|
100,470 |
|
|
|
172 |
|
|
|
0.68 |
|
|
|
102,704 |
|
|
|
429 |
|
|
|
1.66 |
|
Other
borrowed funds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term
debt
|
|
|
3,032 |
|
|
|
6 |
|
|
|
0.79 |
|
|
|
9,668 |
|
|
|
62 |
|
|
|
2.55 |
|
Long-term
debt
|
|
|
161,882 |
|
|
|
1,743 |
|
|
|
4.27 |
|
|
|
154,676 |
|
|
|
1,763 |
|
|
|
4.53 |
|
Total
interest bearing liabilities
|
|
|
2,262,374 |
|
|
|
9,054 |
|
|
|
1.59 |
|
|
|
2,263,120 |
|
|
|
14,861 |
|
|
|
2.61 |
|
Non-interest
bearing liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest
bearing deposits
|
|
|
329,427 |
|
|
|
|
|
|
|
|
|
|
|
320,160 |
|
|
|
|
|
|
|
|
|
Other
liabilities
|
|
|
25,107 |
|
|
|
|
|
|
|
|
|
|
|
21,948 |
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
2,616,908 |
|
|
|
|
|
|
|
|
|
|
|
2,605,228 |
|
|
|
|
|
|
|
|
|
Stockholders’
equity
|
|
|
297,973 |
|
|
|
|
|
|
|
|
|
|
|
282,715 |
|
|
|
|
|
|
|
|
|
Total
liabilities and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
stockholders’
equity
|
|
$ |
2,914,881 |
|
|
|
|
|
|
|
|
|
|
$ |
2,887,943 |
|
|
|
|
|
|
|
|
|
Net
interest spread
|
|
|
|
|
|
|
|
|
|
|
3.72 |
|
|
|
|
|
|
|
|
|
|
|
3.48 |
|
Net
interest margin
|
|
|
|
|
|
$ |
26,697 |
|
|
|
3.97 |
|
|
|
|
|
|
$ |
25,378 |
|
|
|
3.84 |
|
|
|
Nine Months Ended September
30,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
Average
|
|
|
Income/
|
|
|
Yield/
|
|
|
Average
|
|
|
Income/
|
|
|
Yield/
|
|
($ in thousands)
|
|
Balance
|
|
|
Expense
|
|
|
Rate(%)
|
|
|
Balance
|
|
|
Expense
|
|
|
Rate(%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earning
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
bearing balances
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
due
from banks
|
|
$ |
63,611 |
|
|
$ |
235 |
|
|
|
0.49 |
|
|
$ |
69,248 |
|
|
$ |
1,184 |
|
|
|
2.28 |
|
Federal
funds sold
|
|
|
5,267 |
|
|
|
25 |
|
|
|
0.63 |
|
|
|
41,304 |
|
|
|
716 |
|
|
|
2.32 |
|
Investment
securities - taxable
|
|
|
475,094 |
|
|
|
10,975 |
|
|
|
3.09 |
|
|
|
443,403 |
|
|
|
15,962 |
|
|
|
4.81 |
|
Investment
securities - non-taxable
|
|
|
191,818 |
|
|
|
9,259 |
|
|
|
6.45 |
|
|
|
156,405 |
|
|
|
7,560 |
|
|
|
6.46 |
|
Mortgage
loans held for sale
|
|
|
13,703 |
|
|
|
489 |
|
|
|
4.77 |
|
|
|
7,658 |
|
|
|
338 |
|
|
|
5.90 |
|
Assets
held in trading accounts
|
|
|
5,496 |
|
|
|
13 |
|
|
|
0.32 |
|
|
|
4,068 |
|
|
|
42 |
|
|
|
1.38 |
|
Loans
|
|
|
1,932,879 |
|
|
|
85,534 |
|
|
|
5.92 |
|
|
|
1,872,370 |
|
|
|
95,994 |
|
|
|
6.85 |
|
Total
interest earning assets
|
|
|
2,687,868 |
|
|
|
106,530 |
|
|
|
5.30 |
|
|
|
2,594,456 |
|
|
|
121,796 |
|
|
|
6.27 |
|
Non-earning
assets
|
|
|
246,394 |
|
|
|
|
|
|
|
|
|
|
|
255,356 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$ |
2,934,262 |
|
|
|
|
|
|
|
|
|
|
$ |
2,849,812 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’
EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
bearing liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
bearing transaction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
savings accounts
|
|
$ |
1,069,488 |
|
|
$ |
6,386 |
|
|
|
0.80 |
|
|
$ |
932,549 |
|
|
$ |
11,280 |
|
|
|
1.62 |
|
Time
deposits
|
|
|
946,021 |
|
|
|
18,151 |
|
|
|
2.57 |
|
|
|
1,037,242 |
|
|
|
30,420 |
|
|
|
3.92 |
|
Total
interest bearing deposits
|
|
|
2,015,509 |
|
|
|
24,537 |
|
|
|
1.63 |
|
|
|
1,969,791 |
|
|
|
41,700 |
|
|
|
2.83 |
|
Federal
funds purchased and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
securities
sold under agreement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
to
repurchase
|
|
|
108,868 |
|
|
|
597 |
|
|
|
0.73 |
|
|
|
113,269 |
|
|
|
1,813 |
|
|
|
2.14 |
|
Other
borrowed funds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term
debt
|
|
|
2,177 |
|
|
|
18 |
|
|
|
1.11 |
|
|
|
4,725 |
|
|
|
101 |
|
|
|
2.86 |
|
Long-term
debt
|
|
|
161,213 |
|
|
|
5,239 |
|
|
|
4.34 |
|
|
|
141,948 |
|
|
|
4,929 |
|
|
|
4.64 |
|
Total
interest bearing liabilities
|
|
|
2,287,767 |
|
|
|
30,391 |
|
|
|
1.78 |
|
|
|
2,229,733 |
|
|
|
48,543 |
|
|
|
2.91 |
|
Non-interest
bearing liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest
bearing deposits
|
|
|
328,238 |
|
|
|
|
|
|
|
|
|
|
|
316,182 |
|
|
|
|
|
|
|
|
|
Other
liabilities
|
|
|
22,924 |
|
|
|
|
|
|
|
|
|
|
|
22,684 |
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
2,638,929 |
|
|
|
|
|
|
|
|
|
|
|
2,568,599 |
|
|
|
|
|
|
|
|
|
Stockholders’
equity
|
|
|
295,333 |
|
|
|
|
|
|
|
|
|
|
|
281,213 |
|
|
|
|
|
|
|
|
|
Total
liabilities and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
stockholders’
equity
|
|
$ |
2,934,262 |
|
|
|
|
|
|
|
|
|
|
$ |
2,849,812 |
|
|
|
|
|
|
|
|
|
Net
interest spread
|
|
|
|
|
|
|
|
|
|
|
3.52 |
|
|
|
|
|
|
|
|
|
|
|
3.36 |
|
Net
interest margin
|
|
|
|
|
|
$ |
76,139 |
|
|
|
3.79 |
|
|
|
|
|
|
$ |
73,253 |
|
|
|
3.77 |
|
Table 4
shows changes in interest income and interest expense, resulting from changes in
volume and changes in interest rates for the three-month and nine-month period
ended September 30, 2009, as compared to the same period of the prior
year. The changes in interest rate and volume have been allocated to
changes in average volume and changes in average rates, in proportion to the
relationship of absolute dollar amounts of the changes in rates and
volume.
Table
4: Volume/Rate Analysis
|
|
Three
Months Ended September 30,
|
|
|
Nine
Months Ended September 30,
|
|
|
|
2009 over 2008
|
|
|
2009 over 2008
|
|
(In
thousands, on a fully
|
|
|
|
|
Yield/
|
|
|
|
|
|
|
|
|
Yield/
|
|
|
|
|
taxable equivalent
basis)
|
|
Volume
|
|
|
Rate
|
|
|
Total
|
|
|
Volume
|
|
|
Rate
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
(decrease) in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
bearing balances
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
due
from banks
|
|
$ |
90 |
|
|
$ |
(312 |
) |
|
$ |
(222 |
) |
|
$ |
(89 |
) |
|
$ |
(860 |
) |
|
$ |
(949 |
) |
Federal
funds sold
|
|
|
(90 |
) |
|
|
(76 |
) |
|
|
(166 |
) |
|
|
(377 |
) |
|
|
(314 |
) |
|
|
(691 |
) |
Investment
securities - taxable
|
|
|
(914 |
) |
|
|
(1,536 |
) |
|
|
(2,450 |
) |
|
|
1,073 |
|
|
|
(6,060 |
) |
|
|
(4,987 |
) |
Investment
securities - non-taxable
|
|
|
1,242 |
|
|
|
(480 |
) |
|
|
762 |
|
|
|
1,709 |
|
|
|
(10 |
) |
|
|
1,699 |
|
Mortgage
loans held for sale
|
|
|
58 |
|
|
|
(34 |
) |
|
|
24 |
|
|
|
226 |
|
|
|
(75 |
) |
|
|
151 |
|
Assets
held in trading accounts
|
|
|
-- |
|
|
|
3 |
|
|
|
3 |
|
|
|
11 |
|
|
|
(40 |
) |
|
|
(29 |
) |
Loans
|
|
|
838 |
|
|
|
(3,277 |
) |
|
|
(2,439 |
) |
|
|
3,021 |
|
|
|
(13,481 |
) |
|
|
(10,460 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,224 |
|
|
|
(5,712 |
) |
|
|
(4,488 |
) |
|
|
5,574 |
|
|
|
(20,840 |
) |
|
|
(15,266 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
bearing transaction and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
savings
accounts
|
|
|
203 |
|
|
|
(2,428 |
) |
|
|
(2,225 |
) |
|
|
1,468 |
|
|
|
(6,362 |
) |
|
|
(4,894 |
) |
Time
deposits
|
|
|
(432 |
) |
|
|
(2,817 |
) |
|
|
(3,249 |
) |
|
|
(2,487 |
) |
|
|
(9,782 |
) |
|
|
(12,269 |
) |
Federal
funds purchased
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
securities sold under
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
agreements
to repurchase
|
|
|
(9 |
) |
|
|
(248 |
) |
|
|
(257 |
) |
|
|
(67 |
) |
|
|
(1,149 |
) |
|
|
(1,216 |
) |
Other
borrowed funds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term
debt
|
|
|
(28 |
) |
|
|
(28 |
) |
|
|
(56 |
) |
|
|
(39 |
) |
|
|
(44 |
) |
|
|
(83 |
) |
Long-term
debt
|
|
|
81 |
|
|
|
(101 |
) |
|
|
(20 |
) |
|
|
640 |
|
|
|
(330 |
) |
|
|
310 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
(185 |
) |
|
|
(5,622 |
) |
|
|
(5,807 |
) |
|
|
(485 |
) |
|
|
(17,667 |
) |
|
|
(18,152 |
) |
Increase
(decrease) in net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
interest
income
|
|
$ |
1,409 |
|
|
$ |
(90 |
) |
|
$ |
1,319 |
|
|
$ |
6,059 |
|
|
$ |
(3,173 |
) |
|
$ |
2,886 |
|
PROVISION FOR LOAN
LOSSES
The
provision for loan losses represents management's determination of the amount
necessary to be charged against the current period's earnings in order to
maintain the allowance for loan losses at a level considered adequate in
relation to the estimated risk inherent in the loan portfolio. The
level of provision to the allowance is based on management's judgment, with
consideration given to the composition, maturity and other qualitative
characteristics of the portfolio, historical loan loss experience, assessment of
current economic conditions, past due and non-performing loans and net loan loss
experience. It is management's practice to review the allowance on at
least a quarterly basis, but generally on a monthly basis, and after considering
the factors previously noted, to determine the level of provision made to the
allowance.
The
provision for loan losses for the three-month period ended September 30, 2009,
was $2.8 million, compared to $2.2 million for the three-month period ended
September 30, 2008, an increase of $575,000. The provision for loan losses for
the nine-month period ended September 30, 2009, was $7.5 million, compared to
$5.9 million for the nine-month period ended September 30, 2008, an increase of
$1.6 million. The provision increase was primarily due to an increase in net
loan charge-offs, an increase in non-performing loans and a continued
deterioration in the real estate market in the Northwest Arkansas
region. See the Allowance for Loan Losses section for additional
information.
NON-INTEREST
INCOME
Total
non-interest income was $15.0 million for the three-month period ended September
30, 2009, an increase of $3.7 million, or 32.6%, compared to $11.3 million for
the same period in 2008. For the nine-months ended September 30,
2009, non-interest income was $39.8 million compared to $38.0 million reported
for the same period ended September 30, 2008. The most significant
factor for the increase in non-interest income for the three-months ended
September 30, 2009, was a $2.0 million increase in premiums on sale of
student loans (see further discussion below). The increase in
non-interest income for the nine-months ended September 30, 2009, was
partially mitigated by a nonrecurring $3.0 million gain in the first quarter of
2008 from cash proceeds received on the mandatory partial redemption of the
Company’s equity interest in Visa. Excluding the gain on Visa shares,
non-interest income increased $4.8 million, or 13.6%, in the first nine-months
of 2009 from the comparable period in 2008.
Non-interest
income is principally derived from recurring fee income, which includes service
charges, trust fees and credit card fees. Non-interest income also
includes income on the sale of mortgage loans, investment banking income,
premiums on sale of student loans, income from the increase in cash surrender
values of bank owned life insurance and gains (losses) from sales of
securities.
Table 5
shows non-interest income for the three-month and nine-month periods ended
September 30, 2009 and 2008, respectively, as well as changes in 2009 from
2008.
Table
5: Non-Interest Income
|
|
Three
Months Ended
September 30
|
|
|
|
|
|
Nine
Months Ended
September 30
|
|
|
2009
Change
from
|
|
(In thousands)
|
|
2009
|
|
|
2008
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trust
income
|
|
$ |
1,361 |
|
|
$ |
1,608 |
|
|
$ |
(247 |
) |
|
|
-15.36 |
% |
|
$ |
3,910 |
|
|
$ |
4,707 |
|
|
$ |
(797 |
) |
|
|
-16.93 |
% |
Service
charges on
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
deposit
accounts
|
|
|
4,763 |
|
|
|
4,009 |
|
|
|
754 |
|
|
|
18.81 |
|
|
|
13,061 |
|
|
|
11,134 |
|
|
|
1,927 |
|
|
|
17.31 |
|
Other
service charges and fees
|
|
|
642 |
|
|
|
648 |
|
|
|
(6 |
) |
|
|
-0.93 |
|
|
|
2,034 |
|
|
|
2,021 |
|
|
|
13 |
|
|
|
0.64 |
|
Income
on sale of mortgage loans,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net
of commissions
|
|
|
798 |
|
|
|
595 |
|
|
|
203 |
|
|
|
34.12 |
|
|
|
3,198 |
|
|
|
2,077 |
|
|
|
1,121 |
|
|
|
53.97 |
|
Income
on investment banking,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net
of commissions
|
|
|
598 |
|
|
|
131 |
|
|
|
467 |
|
|
|
356.49 |
|
|
|
1,684 |
|
|
|
779 |
|
|
|
905 |
|
|
|
116.17 |
|
Credit
card fees
|
|
|
3,745 |
|
|
|
3,491 |
|
|
|
254 |
|
|
|
7.28 |
|
|
|
10,495 |
|
|
|
10,144 |
|
|
|
351 |
|
|
|
3.46 |
|
Premiums
on sale of student loans
|
|
|
2,047 |
|
|
|
3 |
|
|
|
2,044 |
|
|
|
-- |
|
|
|
2,333 |
|
|
|
1,135 |
|
|
|
1,198 |
|
|
|
105.55 |
|
Bank
owned life insurance income
|
|
|
293 |
|
|
|
370 |
|
|
|
(77 |
) |
|
|
-20.81 |
|
|
|
970 |
|
|
|
1,157 |
|
|
|
(187 |
) |
|
|
-16.16 |
|
Gain
on mandatory partial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
redemption
of Visa shares
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
2,973 |
|
|
|
(2,973 |
) |
|
|
-100.00 |
|
Other
income
|
|
|
716 |
|
|
|
433 |
|
|
|
283 |
|
|
|
65.36 |
|
|
|
1,951 |
|
|
|
1,870 |
|
|
|
81 |
|
|
|
4.33 |
|
Gain
on sale of securities
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
144 |
|
|
|
-- |
|
|
|
144 |
|
|
|
-- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
non-interest income
|
|
$ |
14,963 |
|
|
$ |
11,288 |
|
|
$ |
3,675 |
|
|
|
32.56 |
% |
|
$ |
39,780 |
|
|
$ |
37,997 |
|
|
$ |
1,783 |
|
|
|
4.69 |
% |
Recurring
fee income for the three-month period ended September 30, 2009, was $10.5
million, an increase of $755,000 from the three-month period ended September 30,
2008. Recurring fee income for the nine-month period ended September
30, 2009, was $29.5 million, an increase of $1.5 million from the nine-month
period ended September 30, 2008. The improvement in recurring fee
income primarily resulted from increases in service charges on deposit accounts,
partially offset by decreases in trust income. Trust income decreased
by $247,000 and $797,000, respectively, for the three-months and nine-months
ended September 30, due primarily to depressed market values and declines in the
overall stock market, since trust fees are generally based on the market value
of customer accounts. Service charges on deposit accounts increased
by $754,000 and $1.9 million, respectively, for the three-months and nine-months
ended September 30, 2009, due primarily to improvements in fee structure and
core deposit growth.
Income on
sale of mortgage loans increased by $203,000 and $1.1 million, respectively, for
the three and nine-months ended September 30, 2009, compared to the same periods
in 2008. This improvement was primarily due to lower mortgage rates
leading to a significant increase in residential refinancing
volume.
Income on
investment banking increased $467,000 and $905,000, respectively for the three
and nine-months ended September 30, 3009, over the same periods in 2008,
primarily due to a volume-driven revenue increase in dealer-bank
operations.
Premiums
on sale of student loans increased by $2.0 million and $1.2 million,
respectively, for the three and nine-months ended September 30, 2009, compared
to the same periods in 2008. Although income from student loans
increased from the previous year, the increase is due to timing of sales and
does not reflect historical levels of income.
During
2008, the student loan industry began going through major challenges related to
secondary market liquidity, leaving the Company with no private market to sell
student loans at a premium. In July 2008, the United States
Department of Education announced a one-year program to create temporary
stability and liquidity in the student loan market. The Company sold
one package of student loans into the government program during the second
quarter of 2009, and, during the third quarter of 2009, sold the remaining
student loans originated and fully funded during the 2008-2009 school year. The
federal government has announced a one-year extension of its program to purchase
student loans. For the immediate future, it is the Company’s
intention, and we have the liquidity, to continue to fund new loans and hold
those loans that normally would be sold into the secondary market through the
2009-2010 school year. Those loans would all be sold into the
government program during the second and third quarters of 2010. Under the terms
of the government program, the loans are sold at par plus reimbursement of the
1% lender fee and a premium of $75 per loan. The Company expects
to record a total of approximately $2.5 million of non-interest income from
premiums on sale of student loans during the second and third quarters of 2010,
when the loans are sold.
The
Company realized gross gains of $144,000 on the sale of securities during the
three and nine-months ended September 30, 2009, with no realized gains for the
three and nine-month periods ended September 30, 2008. There
were no realized losses over the same periods.
NON-INTEREST
EXPENSE
Non-interest
expense consists of salaries and employee benefits, occupancy, equipment,
foreclosure losses and other expenses necessary for the operation of the
Company. Management remains committed to controlling the level of
non-interest expense, through the continued use of expense control measures that
have been installed. The Company utilizes an extensive profit
planning and reporting system involving all affiliates. Based on a
needs assessment of the business plan for the upcoming year, monthly and annual
profit plans are developed, including manpower and capital expenditure
budgets. These profit plans are subject to extensive initial reviews
and monitored by management on a monthly basis. Variances from the
plan are reviewed monthly and, when required, management takes corrective action
intended to ensure financial goals are met. Management also regularly
monitors staffing levels at each affiliate, to ensure productivity and overhead
are in line with existing workload requirements.
Non-interest
expense for the three-month and nine-month periods ended September 30, 2009, was
$26.3 million and $78.9 million, an increase of $1.9 million, or 7.6%, and
$7.1 million, or 10.0%, from the same periods in 2008. Included in
non-interest expense for the first quarter of 2008 was a $1.2 million
nonrecurring item related to the reversal of the Company’s portion of Visa’s
contingent litigation liabilities that was originally recorded in the fourth
quarter of 2007. This liability represented the Company’s share of
legal judgments and settlements related to Visa’s litigation, which was
satisfied by the $3 billion escrow account funded by the proceeds from Visa’s
IPO, which was completed during the quarter ended March 31, 2008.
Deposit
insurance expense for the three-month and nine-month periods ended September 30,
2009, increased by $0.6 million and $3.5 million, respectively, from the same
periods in 2008. The increases in deposit insurance expense were due
to increases in the fee assessment rates during 2009 and a special assessment
applied to all insured institutions as of June 30, 2009. The
increase in deposit insurance expense during the nine-months ended September 30,
2009, compared to the same period a year ago was also partly related to the
Company’s utilization of available credits to offset assessments during the
first nine months of 2008.
In May
2009, the FDIC issued a final rule which levied a special assessment applicable
to all insured depository institutions totaling 5 basis points of each
institution’s total assets less Tier 1 capital as of September 30, 2009, not to
exceed 10 basis points of domestic deposits. The special assessment
is part of the FDIC’s efforts to rebuild the Deposit Insurance Fund
(“DIF”). Deposit insurance expense during the nine-months ended
September 30, 2009, included a $1.5 million accrual related to the special
assessment. The final rule also allows the FDIC to impose additional
special assessments of 5 basis points for the third and fourth quarters of 2009,
if the FDIC estimates that the DIF reserve ratio will fall to a level that would
adversely affect public confidence in federal deposit insurance or to a level
that would be close to or below zero. Any additional special
assessment would also be capped at 10 basis points of domestic deposits.
The Company cannot provide any assurance as to the ultimate amount or timing of
any such special assessments, should such special assessments occur, as such
special assessments depend upon a variety of factors which are beyond the
Company’s control.
In
September 2009, the FDIC proposed a rule that will require all insured
depository institutions, with limited exceptions, to prepay their estimated
quarterly risk-based assessments for the fourth quarter of 2009 and for all of
2010, 2011 and 2012. The FDIC also proposed to adopt a uniform
3 basis point increase in assessment rates effective on January 1,
2011. If the rule is finalized as proposed, the Company expects to be
required to pay approximately $10.0 million in prepaid risk-based
assessments.
When
normalized for both the nonrecurring Visa litigation liability reversal and the
FDIC special assessment, non-interest expense for the nine-month period ended
September 30, 2009, increased by 6.1% over the same period in 2008.
In January
2009, the Company received notice from Visa and MasterCard of a large nationwide
breach in security at Heartland Payment Systems, a major payment transaction
processing center, in which approximately 57,000 of our debit and credit cards
were potentially compromised. Included in other non-interest expense
is approximately $125,000 of fraud losses resulting from the compromised
cards. In an abundance of caution, we initiated significant card
replacements at an additional cost of approximately $100,000. We
subsequently received insurance recovery of approximately $73,000 for the card
replacements.
Table 6
below shows non-interest expense for the three-month and nine-month periods
ended September 30, 2009 and 2008, respectively, as well as changes in 2009 from
2008.
Table
6: Non-Interest Expense
|
|
Three
Months Ended
September 30
|
|
|
2009
Change from
|
|
|
Nine Months Ended September
30
|
|
|
2009
Change from
|
|
(In thousands)
|
|
2009
|
|
|
2008
|
|
|
2008 |
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries
and employee benefits
|
|
$ |
14,441 |
|
|
$ |
14,056 |
|
|
$ |
385 |
|
|
|
2.74 |
% |
|
$ |
43,698 |
|
|
$ |
42,697 |
|
|
$ |
1,001 |
|
|
|
2.34 |
% |
Occupancy
expense, net
|
|
|
1,846 |
|
|
|
1,912 |
|
|
|
(66 |
) |
|
|
-3.45 |
|
|
|
5,559 |
|
|
|
5,526 |
|
|
|
33 |
|
|
|
0.60 |
|
Furniture
and equipment expense
|
|
|
1,553 |
|
|
|
1,543 |
|
|
|
10 |
|
|
|
0.65 |
|
|
|
4,623 |
|
|
|
4,505 |
|
|
|
118 |
|
|
|
2.62 |
|
Other
real estate and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
foreclosure
expense
|
|
|
132 |
|
|
|
57 |
|
|
|
75 |
|
|
|
131.58 |
|
|
|
292 |
|
|
|
185 |
|
|
|
107 |
|
|
|
57.84 |
|
Deposit
insurance
|
|
|
865 |
|
|
|
267 |
|
|
|
598 |
|
|
|
223.97 |
|
|
|
3,955 |
|
|
|
468 |
|
|
|
3,487 |
|
|
|
745.09 |
|
Other
operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Professional
services
|
|
|
981 |
|
|
|
661 |
|
|
|
320 |
|
|
|
48.41 |
|
|
|
2,516 |
|
|
|
1,990 |
|
|
|
526 |
|
|
|
26.43 |
|
Postage
|
|
|
626 |
|
|
|
407 |
|
|
|
219 |
|
|
|
53.81 |
|
|
|
1,805 |
|
|
|
1,319 |
|
|
|
486 |
|
|
|
36.85 |
|
Telephone
|
|
|
528 |
|
|
|
468 |
|
|
|
60 |
|
|
|
12.82 |
|
|
|
1,579 |
|
|
|
1,300 |
|
|
|
279 |
|
|
|
21.46 |
|
Credit
card expenses
|
|
|
1,294 |
|
|
|
1,215 |
|
|
|
79 |
|
|
|
6.50 |
|
|
|
3,792 |
|
|
|
3,497 |
|
|
|
295 |
|
|
|
8.44 |
|
Operating
supplies
|
|
|
371 |
|
|
|
373 |
|
|
|
(2 |
) |
|
|
-0.54 |
|
|
|
1,118 |
|
|
|
1,248 |
|
|
|
(130 |
) |
|
|
-10.42 |
|
Amortization
of intangibles
|
|
|
201 |
|
|
|
201 |
|
|
|
-- |
|
|
|
-- |
|
|
|
604 |
|
|
|
605 |
|
|
|
(1 |
) |
|
|
-0.17 |
|
Visa
litigation liability reversal
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
(1,220 |
) |
|
|
1,220 |
|
|
|
-100.00 |
|
Other
expense
|
|
|
3,469 |
|
|
|
3,281 |
|
|
|
188 |
|
|
|
5.73 |
|
|
|
9,375 |
|
|
|
9,656 |
|
|
|
(281 |
) |
|
|
-2.91 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
non-interest expense
|
|
$ |
26,307 |
|
|
$ |
24,441 |
|
|
$ |
1,866 |
|
|
|
7.63 |
% |
|
$ |
78,916 |
|
|
$ |
71,776 |
|
|
$ |
7,140 |
|
|
|
9.95 |
% |
The
Company's loan portfolio averaged $1.933 billion and $1.872 billion during the
first nine months of 2009 and 2008, respectively. As of September 30,
2009, total loans were $1.925 billion, a decrease of $8.0 million from December
31, 2008. The most significant components of the loan portfolio were
loans to businesses (commercial loans, commercial real estate loans and
agricultural loans) and individuals (consumer loans, credit card loans and
single-family residential real estate loans).
The
Company seeks to manage its credit risk by diversifying its loan portfolio,
determining that borrowers have adequate sources of cash flow for loan repayment
without liquidation of collateral, obtaining and monitoring collateral,
providing an adequate allowance for loan losses and regularly reviewing loans
through the internal loan review process. The loan portfolio is
diversified by borrower, purpose and industry and, in the case of credit card
loans, which are unsecured, by geographic region. The Company seeks
to use diversification within the loan portfolio to reduce credit risk, thereby
minimizing the adverse impact on the portfolio, if weaknesses develop in either
the economy or a particular segment of borrowers. Collateral
requirements are based on credit assessments of borrowers and may be used to
recover the debt in case of default. The Company uses the allowance
for loan losses as a method to value the loan portfolio at its estimated
collectible amount. Loans are regularly reviewed to facilitate the
identification and monitoring of deteriorating credits.
Consumer
loans consist of credit card loans, student loans and other consumer
loans. Consumer loans were $425.7 million at September 30, 2009, or
22.1% of total loans, compared to $419.3 million, or 21.7% of total loans
at December 31, 2008. The consumer loan increase from December 31,
2008, to September 30, 2009, is primarily due an increase in credit card and
other consumer loans, offset by a decrease in the student loan
portfolio.
The
student loan portfolio balance at September 30, 2009, was $106.1 million,
compared to $111.6 million at December 31, 2008, a decrease of $5.5
million, or 4.9%, from December 31, 2008. The student loan balance at June 30,
2009, was $139.9 million. The Company sold approximately $74 million of student
loans to the federal government during the third quarter of 2009 (the remainder
of the student loans made during the 2008-2009 school year). See Non-Interest
Income section for additional information. The Company expects to
fund approximately $10 million through our normal student loan funding process
during the fourth quarter of 2009.
Real
estate loans consist of construction loans, single-family residential loans and
commercial real estate loans. Real estate loans were $1.196 billion
at September 30, 2009, or 62.1% of total loans, compared to the $1.219 billion,
or 63.1% of total loans at December 31, 2008. Commercial real estate
loans increased by $15.6 million, or 2.7%, from December 31, 2008, to September
30, 2009, primarily due to the permanent financing of completed projects
previously included in the construction and development loan
category. Construction and development loans decreased by $32.9
million, or 14.6%, from December 31, 2008 to September 30,
2009. Construction and development loans represent only 10.0% of the
total loan portfolio.
Commercial
loans consist of commercial loans, agricultural loans and loans to financial
institutions. Commercial loans were $295.4 million at September 30,
2009, or 15.3% of total loans, compared to $284.2 million, or 14.7% of total
loans at December 31, 2008. The commercial loan increase is primarily
due to an increase in agricultural loans due to seasonality in the agricultural
loan portfolio, partially offset by softening commercial loan
demand.
The
balances of loans outstanding at the indicated dates are reflected in Table 7,
according to type of loan.
Table
7: Loan Portfolio
|
|
September
30,
|
|
|
December
31,
|
|
(In thousands)
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
|
|
|
|
Credit
cards
|
|
$ |
175,493 |
|
|
$ |
169,615 |
|
Student
loans
|
|
|
106,080 |
|
|
|
111,584 |
|
Other
consumer
|
|
|
144,155 |
|
|
|
138,145 |
|
Total
consumer
|
|
|
425,728 |
|
|
|
419,344 |
|
Real
Estate
|
|
|
|
|
|
|
|
|
Construction
|
|
|
192,051 |
|
|
|
224,924 |
|
Single
family residential
|
|
|
403,035 |
|
|
|
409,540 |
|
Other
commercial
|
|
|
600,436 |
|
|
|
584,843 |
|
Total
real estate
|
|
|
1,195,522 |
|
|
|
1,219,307 |
|
Commercial
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
165,747 |
|
|
|
192,496 |
|
Agricultural
|
|
|
125,566 |
|
|
|
88,233 |
|
Financial
institutions
|
|
|
4,087 |
|
|
|
3,471 |
|
Total
commercial
|
|
|
295,400 |
|
|
|
284,200 |
|
Other
|
|
|
8,451 |
|
|
|
10,223 |
|
|
|
|
|
|
|
|
|
|
Total
loans before allowance for loan losses
|
|
$ |
1,925,101 |
|
|
$ |
1,933,074 |
|
ASSET
QUALITY
A loan is
considered impaired when it is probable that the Company will not receive all
amounts due according to the contractual terms of the loans. Impaired
loans include non-performing loans (loans past due 90 days or more and
nonaccrual loans) and certain other loans identified by management that are
still performing.
Non-performing
loans are comprised of (a) nonaccrual loans, (b) loans that are contractually
past due 90 days and (c) other loans for which terms have been restructured to
provide a reduction or deferral of interest or principal, because of
deterioration in the financial position of the borrower. The
subsidiary banks recognize income principally on the accrual basis of
accounting. When loans are classified as nonaccrual, generally, the
accrued interest is charged off and no further interest is
accrued. Loans, excluding credit card loans, are placed on a
nonaccrual basis either: (1) when there are serious doubts regarding the
collectability of principal or interest, or (2) when payment of interest or
principal is 90 days or more past due and either (i) not fully secured or (ii)
not in the process of collection. If a loan is determined by
management to be uncollectible, the portion of the loan determined to be
uncollectible is then charged to the allowance for loan losses.
Credit
card loans are classified as impaired when payment of interest or principal is
90 days past due. Litigation accounts are placed on nonaccrual until such time
as deemed uncollectible. Credit card loans are generally charged off
when payment of interest or principal exceeds 180 days past due, but are turned
over to the credit card recovery department, to be pursued until such time as
they are determined, on a case-by-case basis, to be uncollectible.
Historically,
the Company has sold its student loans into the secondary market before they
reached payout status, thus requiring no servicing by the
Company. Currently, with the banking industry no longer able to
access the secondary market, and because the temporary federal government
program only purchases student loans originated in the current year, we are
required to service loans that have converted to a payout
basis. Student loans are classified as impaired when payment of
interest of principal is 90 days past due. Approximately $2.3 million
of government guaranteed student loans were over 90 days past due as of
September 30, 2009. Under existing rules, when these loans exceed
270 days past due, the Department of Education will purchase them at 97% of
principal and accrued interest. Although these student loans remain
guaranteed by the federal government, because they are over 90 days past due
they will impact the Company’s non-performing asset ratios.
Table 8
presents information concerning non-performing assets, including nonaccrual and
other real estate owned.
Table
8: Non-performing Assets
|
|
September
30,
|
|
|
December
31,
|
|
($ in thousands)
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Nonaccrual
loans
|
|
$ |
15,396 |
|
|
$ |
14,358 |
|
Loans
past due 90 days or more
|
|
|
|
|
|
|
|
|
(principal
or interest payments):
|
|
|
|
|
|
|
|
|
Government
guaranteed student loans (1)
|
|
|
2,258 |
|
|
|
-- |
|
Other
loans
|
|
|
1,475 |
|
|
|
1,292 |
|
Total
loans past due 90 days or more
|
|
|
3,733 |
|
|
|
1,292 |
|
Total
non-performing loans
|
|
|
19,129 |
|
|
|
15,650 |
|
|
|
|
|
|
|
|
|
|
Other
non-performing assets:
|
|
|
|
|
|
|
|
|
Foreclosed
assets held for sale
|
|
|
6,019 |
|
|
|
2,995 |
|
Other
non-performing assets
|
|
|
21 |
|
|
|
12 |
|
Total
other non-performing assets
|
|
|
6,040 |
|
|
|
3,007 |
|
|
|
|
|
|
|
|
|
|
Total
non-performing assets
|
|
$ |
25,169 |
|
|
$ |
18,657 |
|
|
|
|
|
|
|
|
|
|
Allowance
for loan losses to
|
|
|
|
|
|
|
|
|
non-performing
loans
|
|
|
135.03 |
% |
|
|
165.12 |
% |
Non-performing
loans to total loans
|
|
|
0.99 |
% |
|
|
0.81 |
% |
Non-performing
loans to total loans
|
|
|
|
|
|
|
|
|
(excluding
government guaranteed student loans) (1)
|
|
|
0.88 |
% |
|
|
0.81 |
% |
Non-performing
assets to total assets
|
|
|
0.86 |
% |
|
|
0.64 |
% |
Non-performing
assets to total assets
|
|
|
|
|
|
|
|
|
(excluding
government guaranteed student loans) (1)
|
|
|
0.79 |
% |
|
|
0.64 |
% |
(1)
|
Student
loans past due 90 days or more are included in non-performing
loans. Student loans are guaranteed by the federal government
and will be purchased at 97% of principal and accrued interest when they
exceed 270 days past due; therefore, non-performing ratios have been
calculated excluding these loans.
|
There was
no interest income on the nonaccrual loans recorded for the nine-month periods
ended September 30, 2009 and 2008.
At
September 30, 2009, impaired loans, net of government guarantees, were $47.7
million compared to $15.7 million at December 31, 2008. Impaired
loans at September 30, 2009, include $2.3 million of government guaranteed
student loans. On an ongoing basis, management evaluates the
underlying collateral on all impaired loans and allocates specific reserves,
where appropriate, in order to absorb potential losses if the collateral were
ultimately foreclosed.
ALLOWANCE FOR LOAN
LOSSES
Overview
The
Company maintains an allowance for loan losses. This allowance is
created through charges to income and maintained at a sufficient level to absorb
expected losses in the Company’s loan portfolio. The allowance for
loan losses is determined monthly based on management’s assessment of several
factors such as 1) historical loss experience based on volumes and types, 2)
reviews or evaluations of the loan portfolio and allowance for loan losses, 3)
trends in volume, maturity and composition, 4) off balance sheet credit risk, 5)
volume and trends in delinquencies and non-accruals, 6) lending policies and
procedures including those for loan losses, collections and recoveries,
7) national, state and local economic trends and conditions, 8)
concentrations of credit that might affect loss experience across one or more
components of the loan portfolio, 9) the experience, ability and depth of
lending management and staff and 10) other factors and trends, which will affect
specific loans and categories of loans.
As the
Company evaluates the allowance for loan losses, it is categorized as
follows: 1) specific allocations, 2) allocations for classified
assets with no specific allocation, 3) general allocations for each major loan
category and 4) unallocated portion.
Specific
Allocations
Specific
allocations are made when factors are present requiring a greater reserve than
would be required when using the assigned risk rating allocation. As
a general rule, if a specific allocation is warranted, it is the result of an
analysis of a previously classified credit or relationship. The
evaluation process in specific allocations for the Company includes a review of
appraisals or other collateral analysis. These values are compared to
the remaining outstanding principal balance. If a loss is determined
to be reasonably possible, the possible loss is identified as a specific
allocation. If the loan is not collateral dependent, the measurement
of loss is based on the expected future cash flows of the loan.
Allocations
for Classified Assets with no Specific Allocation
The
Company establishes allocations for loans rated “watch” through “doubtful” based
upon analysis of historical loss experience by category. A percentage
rate is applied to each of these loan categories to determine the level of
dollar allocation. During the second quarter of 2009, the Company
made adjustments to its methodology in the evaluation of the collectability of
loans, which added quantitative factors to the internal and external influences
used in determining the credit quality of loans and the allocation of the
allowance. This adjustment in methodology resulted in an addition to
impaired loans from classified loans and a redistribution of allocated and
unallocated reserves.
It is
likely that the methodology will continue to evolve over
time. Allocated reserves are presented in Table 10 below detailing
the components of the allowance for loan losses.
General
Allocations
The
Company establishes general allocations for each major loan
category. This section also includes allocations to loans which are
collectively evaluated for loss such as credit cards, one-to-four family owner
occupied residential real estate loans and other consumer loans. The
allocations in this section are based on a historical review of loan loss
experience and past due accounts. The Company gives consideration to
trends, changes in loan mix, delinquencies, prior losses, and other related
information.
Unallocated
Portion
Allowance
allocations other than specific, classified and general for the Company are
included in unallocated. While allocations are made for loans based
upon historical loss analysis, the unallocated portion is designed to cover the
uncertainty of how current economic conditions and other uncertainties may
impact the existing loan portfolio. Factors to consider include
national and state economic conditions such as increases in unemployment, the
recent real estate lending crisis, the volatility in the stock market and the
unknown impact of the Economic Stimulus package. The unallocated
reserve addresses inherent probable losses not included elsewhere in the
allowance for loan losses. The decrease in the unallocated portion of
the reserve was due to allocations for higher historical losses and a higher
percentage allocated to qualitative factors for internal and external
influences. While calculating allocated reserve, the unallocated
reserve supports uncertainties within the loan portfolio.
Reserve
for Unfunded Commitments
In
addition to the allowance for loan losses, the Company has established a reserve
for unfunded commitments, classified in other liabilities. This
reserve is maintained at a level sufficient to absorb losses arising from
unfunded loan commitments. The adequacy of the reserve for unfunded
commitments is determined monthly based on methodology similar to the Company’s
methodology for determining the allowance for loan losses. Net
adjustments to the reserve for unfunded commitments are included in other
non-interest expense.
An
analysis of the allowance for loan losses is shown in Table 9.
Table
9: Allowance for Loan Losses
(In thousands)
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Balance,
beginning of year
|
|
$ |
25,841 |
|
|
$ |
25,303 |
|
|
|
|
|
|
|
|
|
|
Loans
charged off
|
|
|
|
|
|
|
|
|
Credit
card
|
|
|
3,983 |
|
|
|
2,727 |
|
Other
consumer
|
|
|
1,710 |
|
|
|
1,408 |
|
Real
estate
|
|
|
3,569 |
|
|
|
2,470 |
|
Commercial
|
|
|
1,287 |
|
|
|
633 |
|
Total
loans charged off
|
|
|
10,549 |
|
|
|
7,238 |
|
|
|
|
|
|
|
|
|
|
Recoveries
of loans previously charged off
|
|
|
|
|
|
|
|
|
Credit
card
|
|
|
657 |
|
|
|
681 |
|
Other
consumer
|
|
|
555 |
|
|
|
422 |
|
Real
estate
|
|
|
1,252 |
|
|
|
172 |
|
Commercial
|
|
|
525 |
|
|
|
313 |
|
Total
recoveries
|
|
|
2,989 |
|
|
|
1,588 |
|
Net
loans charged off
|
|
|
7,560 |
|
|
|
5,650 |
|
Provision
for loan losses
|
|
|
7,549 |
|
|
|
5,895 |
|
|
|
|
|
|
|
|
|
|
Balance,
September 30
|
|
$ |
25,830 |
|
|
$ |
25,548 |
|
|
|
|
|
|
|
|
|
|
Loans
charged off
|
|
|
|
|
|
|
|
|
Credit
card
|
|
|
|
|
|
|
1,033 |
|
Other
consumer
|
|
|
|
|
|
|
697 |
|
Real
estate
|
|
|
|
|
|
|
517 |
|
Commercial
|
|
|
|
|
|
|
761 |
|
Total
loans charged off
|
|
|
|
|
|
|
3,008 |
|
|
|
|
|
|
|
|
|
|
Recoveries
of loans previously charged off
|
|
|
|
|
|
|
|
|
Credit
card
|
|
|
|
|
|
|
202 |
|
Other
consumer
|
|
|
|
|
|
|
97 |
|
Real
estate
|
|
|
|
|
|
|
35 |
|
Commercial
|
|
|
|
|
|
|
216 |
|
Total
recoveries
|
|
|
|
|
|
|
550 |
|
Net
loans charged off
|
|
|
|
|
|
|
2,458 |
|
Provision
for loan losses
|
|
|
|
|
|
|
2,751 |
|
|
|
|
|
|
|
|
|
|
Balance,
end of year
|
|
|
|
|
|
$ |
25,841 |
|
Provision
for Loan Losses
The amount
of provision to the allowance during the three and nine-month periods ended
September 30, 2009 and 2008, and for the year ended December 31, 2008, was
based on management's judgment, with consideration given to the composition of
the portfolio, historical loan loss experience, assessment of current economic
conditions, past due and non-performing loans and net loan loss
experience. It is management's practice to review the allowance on at
least a quarterly basis, but generally on a monthly basis, to determine the
level of provision made to the allowance after considering the factors noted
above.
Allocated
Allowance for Loan Losses
The
Company utilizes a consistent methodology in the calculation and application of
its allowance for loan losses. Because there are portions of the
portfolio that have not matured to the degree necessary to obtain reliable loss
statistics from which to calculate estimated losses, the unallocated portion of
the allowance is an integral component of the total
allowance. Although unassigned to a particular credit relationship or
product segment, this portion of the allowance is vital to safeguard against the
uncertainty and imprecision inherent when estimating credit losses, especially
when trying to determine the impact the current and unprecedented economic
crisis will have on the existing loan portfolios.
Accordingly,
several factors in the national economy, including the increase of unemployment
rates, the continuing credit crisis, the mortgage crisis, the uncertainty in the
residential and commercial real estate markets and other loan sectors which may
be exhibiting weaknesses and the unknown impact of various current and future
federal government economic stimulus programs influence the Company's
determination of the size of unallocated reserves.
As of
September 30, 2009, the allowance for loan losses reflects a decrease of
approximately $11,000 from December 31, 2008. While an increase in
the allowance might be expected during such uncertain times, the decrease in the
allowance is primarily related to decreases in specific allocations for loans
secured by assets located in the Northwest Arkansas region, which is also
reflected by the decrease in the allocation to real estate loans. In
late 2006 the economy in Northwest Arkansas, particularly in the residential
real estate market, started showing signs of deterioration, which caused
concerns over the full recoverability of this portion of the Company’s loan
portfolio. The Company continues to monitor the Northwest Arkansas
economy and, beginning in the third quarter of 2007, specific credit
relationships deteriorated to a level requiring increased general and specific
reserves. These credit relationships continued to deteriorate, and
others were identified, prompting special loan loss provisions each quarter,
beginning with the second quarter of 2008, consequently increasing the allowance
allocation to real estate loans through December 31, 2008. During the
first quarter of 2009, several of these non-performing loans with large specific
allocations were charged off, resulting in the decrease in specific allocations
to real estate loans as of September 30, 2009.
As of
September 30, 2009, the allocation of the allowance for loan losses to credit
card loans increased by approximately $1.1 million from December 31, 2008, while
credit card loan balances increased by $5.9 million during the
period. Annualized net credit card charge-offs to credit card loans
increased from 2.02% at December 31, 2008, to 2.58% at September 30,
2009. Due to this increase in charge-offs, along with an increase in
past due levels, the Company increased the allocation to credit
cards.
The
unallocated allowance for loan losses is based on the Company’s concerns over
the uncertainty of the national economy and the economy in
Arkansas. The impact of market pricing in the poultry, timber and
catfish industries in Arkansas remains uncertain. Excessive rains
received in Arkansas this year have delayed efforts to harvest and have reduced
the quality of some crops. The Company is also cautious regarding the
continued softening of the real estate market in Arkansas, specifically in the
Northwest Arkansas region. Although Arkansas’s unemployment rate
is better than the national average, it has continued to
rise. Management actively monitors the status of these industries and
economic factors as they relate to the Company’s loan portfolio and makes
changes to the allowance for loan losses as necessary. Based on its
analysis of loans and external uncertainties, the Company believes the allowance
for loan losses is adequate for the period ended September 30,
2009.
The
Company allocates the allowance for loan losses according to the amount deemed
to be reasonably necessary to provide for losses incurred within the categories
of loans set forth in Table 10.
Table
10: Allocation of Allowance for Loan Losses
|
|
September 30, 2009
|
|
|
December 31, 2008
|
|
|
|
Allowance
|
|
|
%
of
|
|
|
Allowance
|
|
|
%
of
|
|
($ in thousands)
|
|
Amount
|
|
|
loans (1)
|
|
|
Amount
|
|
|
loans (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit
cards
|
|
$ |
5,090 |
|
|
|
9.1 |
% |
|
$ |
3,957 |
|
|
|
8.8 |
% |
Other
consumer
|
|
|
1,841 |
|
|
|
13.0 |
% |
|
|
1,325 |
|
|
|
12.9 |
% |
Real
estate
|
|
|
9,939 |
|
|
|
62.1 |
% |
|
|
11,695 |
|
|
|
63.1 |
% |
Commercial
|
|
|
2,834 |
|
|
|
15.3 |
% |
|
|
2,255 |
|
|
|
14.7 |
% |
Other
|
|
|
263 |
|
|
|
0.5 |
% |
|
|
209 |
|
|
|
0.5 |
% |
Unallocated
|
|
|
5,863 |
|
|
|
|
|
|
|
6,400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
25,830 |
|
|
|
100.00 |
% |
|
$ |
25,841 |
|
|
|
100.0 |
% |
(1)
Percentage of loans in each category to total loans
DEPOSITS
Deposits
are the Company’s primary source of funding for earning assets and are primarily
developed through the Company’s network of 84 financial centers. The
Company offers a variety of products designed to attract and retain customers
with a continuing focus on developing core deposits. The Company’s
core deposits consist of all deposits excluding time deposits of $100,000 or
more and brokered deposits. As of September 30, 2009, core deposits
comprised 81.8% of the Company’s total deposits.
The
Company continually monitors the funding requirements at each of its
subsidiary banks along with competitive interest rates in the markets it
serves. Because the Company has a community banking philosophy,
managers in the local markets establish the interest rates being offered on both
core and non-core deposits. This approach ensures that the interest
rates being paid are competitively priced for each particular deposit product
and structured to meet each subsidiary bank’s respective funding
requirements. The Company believes it is paying a competitive
interest rate, when compared with our competitors' interest rates offered in
those markets.
The
Company manages its interest expense through deposit pricing and does not
anticipate a significant change in total deposits. The Company
believes that additional funds can be attracted and deposit growth can be
accelerated through promotion and deposit pricing if it experiences accelerated
loan demand or other liquidity needs beyond its current
projections. The Company also utilizes brokered deposits as an
additional source of funding to meet liquidity needs.
The
Company’s total deposits as of September 30, 2009, were $2.3 billion, a decrease
of $5.1 million from December 31, 2008. Non-interest bearing
transaction accounts decreased $9.4 million to $325.6 million at September
30, 2009, compared to $335 million at December 31, 2008.
The
Company introduced a new high yield investment deposit account during the first
quarter of 2008 as part of its strategy to enhance liquidity. While
attracting new customers, the account has also resulted in existing customers
moving more volatile, expensive time deposits to the high yield investment
account. Interest bearing transaction and savings accounts were
$1.1 billion at September 30, 2009, a $64.0 million increase
compared to $1.0 billion on December 31, 2008. Total time deposits
decreased approximately $60 million to $915 million at September 30, 2009, from
$975 million at December 31, 2008.
The
Company had $22.5 million and $33.2 million of brokered deposits at
September 30, 2009, and December 31, 2008, respectively.
LONG-TERM
DEBT
The
Company’s long-term debt was $161.6 million and $158.7 million at September 30,
2009, and December 31, 2008, respectively. The outstanding
balance for September 30, 2009, includes $130.6 million in FHLB long-term
advances and $30.9 million of trust preferred securities.
CAPITAL
Overview
At
September 30, 2009, total capital reached $297.8 million. Capital
represents shareholder ownership in the Company – the book value of assets in
excess of liabilities. At September 30, 2009, the Company’s equity to
asset ratio was 10.22% compared to 9.89% at year-end 2008.
Capital
Stock
At the
Company’s annual shareholder meeting held on April 10, 2007, the shareholders
approved an amendment to the Articles of Incorporation increasing the number of
authorized shares of Class A, $0.01 par value, Common Stock from 30,000,000
to 60,000,000.
At a
special shareholders’ meeting held on February 27, 2009, the Company’s
shareholders approved an amendment to the Articles of Incorporation to establish
40,040,000 authorized shares of Preferred Stock, $0.01 par value, of the
Company. The shareholders also approved the issuance of common stock
warrants for the purchase of up to 500,000 shares of the Company’s Class A
common stock with the exercise price and number of shares subject to final
computation in accordance with the rules of the Treasury’s CPP.
The
Company notified the Treasury on July 7, 2009, that it will not participate in
the CPP; therefore, the Company will not issue preferred stock or common stock
warrants to the Treasury. For further discussion on the CPP, see the
Overview – U.S. Treasury’s Capital Purchase Program section.
On August
26, 2009, the Company filed a shelf registration statement with the Securities
and Exchange Commission (“SEC”). The shelf registration statement,
which was declared effective on September 9, 2009, will allow the Company to
raise capital from time to time, up to an aggregate of $175 million,
through the sale of common stock, preferred stock, or a combination thereof,
subject to market conditions. Specific terms and prices will be
determined at the time of any offering under a separate prospectus supplement
that the Company will be required to file with the SEC at the time of the
specific offering.
Stock
Repurchase
On
November 28, 2007, the Company announced the adoption by the Board of Directors
of a stock repurchase program. The program authorizes the repurchase
of up to 700,000 shares of Class A common stock, or approximately 5% of the
outstanding common stock. Under the repurchase program, there is no
time limit for the stock repurchases, nor is there a minimum number of shares
the Company intends to repurchase. The Company may discontinue
purchases at any time that management determines additional purchases are not
warranted. The shares are to be purchased from time to time at
prevailing market prices, through open market or unsolicited negotiated
transactions, depending upon market conditions. The Company intends
to use the repurchased shares to satisfy stock option exercises, payment of
future stock dividends and general corporate purposes.
Effective
July 1, 2008, the Company made a strategic decision to temporarily suspend stock
repurchases. This decision was made to preserve capital at the
Company due to the lack of liquidity in the credit markets and the uncertainties
in the overall economy.
Cash
Dividends
The
Company declared cash dividends on its common stock of $0.57 per share for the
first nine months of 2009 compared to $0.57 per share for the first nine months
of 2008. In recent years the Company has increased dividends no less
than annually, but was required to temporarily suspend dividend increases upon
Treasury approval in order to participate in the CPP. Since the
Company has decided not to participate in the CPP, any future decisions to
reinstate dividend increases will not require the Treasury’s
consent.
Company
Liquidity
The
primary sources for payment of dividends by the Company to its shareholders and
the share repurchase plan are the current cash on hand at the Company plus the
future dividends received from the Company's eight subsidiary
banks. Payment of dividends by the eight subsidiary banks is
subject to various regulatory limitations. See the Liquidity and
Market Risk Management discussions of Item 3 – Quantitative and Qualitative
Disclosure About Market Risk for additional information regarding the Company’s
liquidity.
Risk
Based Capital
The
Company’s bank subsidiaries are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to
meet minimum capital requirements can initiate certain mandatory and possibly
additional discretionary actions by regulators that, if undertaken, could have a
direct material effect on the Company’s financial statements. Under
capital adequacy guidelines and the regulatory framework for prompt corrective
action, the Company must meet specific capital guidelines that involve
quantitative measures of the Company’s assets, liabilities and certain
off-balance-sheet items as calculated under regulatory accounting
practices. The Company’s capital amounts and classifications are also
subject to qualitative judgments by the regulators about components, risk
weightings and other factors.
Quantitative
measures established by regulation to ensure capital adequacy require the
Company to maintain minimum amounts and ratios (set forth in the table below) of
total and "Tier 1 capital" to "risk-weighted assets" and of Tier 1 capital to
"average assets" (each such term as defined in the applicable
regulations). As of September 30, 2009, the Company meets all capital
adequacy requirements to which it is subject.
To be
categorized as well capitalized, the Company’s bank subsidiaries must maintain
minimum total risk-based, Tier 1 risk-based and Tier 1 leverage
ratios. As of the most recent notification from regulatory agencies,
the bank subsidiaries were well capitalized under the regulatory framework for
prompt corrective action. There are no conditions or events since
that notification that management believes have changed the institutions’
categories.
The
Company's risk-based capital ratios at September 30, 2009, and December 31,
2008, are presented in table 11.
Table
11: Risk-Based Capital
|
|
September
30,
|
|
|
December
31,
|
|
($ in thousands)
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Tier
1 capital
|
|
|
|
|
|
|
Stockholders’
equity
|
|
$ |
297,823 |
|
|
$ |
288,792 |
|
Trust
preferred securities
|
|
|
30,000 |
|
|
|
30,000 |
|
Intangible
assets
|
|
|
(51,483 |
) |
|
|
(53,034 |
) |
Unrealized
gain on available-
|
|
|
|
|
|
|
|
|
for-sale
securities, net of taxes
|
|
|
(1,573 |
) |
|
|
(3,190 |
) |
Total
Tier 1 capital
|
|
|
274,767 |
|
|
|
262,568 |
|
|
|
|
|
|
|
|
|
|
Tier
2 capital
|
|
|
|
|
|
|
|
|
Qualifying
unrealized gain on
|
|
|
|
|
|
|
|
|
available-for-sale
equity securities
|
|
|
-- |
|
|
|
198 |
|
Qualifying
allowance for loan losses
|
|
|
24,754 |
|
|
|
24,828 |
|
Total
Tier 2 capital
|
|
|
24,754 |
|
|
|
25,026 |
|
Total
risk-based capital
|
|
$ |
299,521 |
|
|
$ |
287,594 |
|
|
|
|
|
|
|
|
|
|
Risk
weighted assets
|
|
$ |
1,977,736 |
|
|
$ |
1,983,654 |
|
Assets
for leverage ratio
|
|
$ |
2,861,329 |
|
|
$ |
2,870,882 |
|
|
|
|
|
|
|
|
|
|
Ratios
at end of period
|
|
|
|
|
|
|
|
|
Tier
1 leverage ratio
|
|
|
9.60 |
% |
|
|
9.15 |
% |
Tier
1 risk-based capital ratio
|
|
|
13.89 |
% |
|
|
13.24 |
% |
Total
risk-based capital ratio
|
|
|
15.14 |
% |
|
|
14.50 |
% |
|
|
|
|
|
|
|
|
|
Minimum
guidelines
|
|
|
|
|
|
|
|
|
Tier
1 leverage ratio
|
|
|
4.00 |
% |
|
|
4.00 |
% |
Tier
1 risk-based capital ratio
|
|
|
4.00 |
% |
|
|
4.00 |
% |
Total
risk-based capital ratio
|
|
|
8.00 |
% |
|
|
8.00 |
% |
RECENTLY ISSUED ACCOUNTING
PRONOUNCEMENTS
See the
section titled Recently Issued
Accounting Pronouncements in Note 1, Basis of Presentation, in the
accompanying Condensed Notes to Consolidated Financial Statements included
elsewhere in this report for details of recently issued accounting
pronouncements and their expected impact on the Company’s ongoing financial
position and results of operation.
FORWARD-LOOKING
STATEMENTS
Certain
statements contained in this quarterly report may not be based on historical
facts and are “forward-looking statements” within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. These forward-looking statements
may be identified by reference to a future period(s) or by the use of
forward-looking terminology, such as “anticipate,” “estimate,” “expect,”
“foresee,” “may,” “might,” “will,” “would,” “could” or “intend,” future or
conditional verb tenses, and variations or negatives of such
terms. These forward-looking statements include, without limitation,
those relating to the Company’s future growth, revenue, assets, asset quality,
profitability and customer service, critical accounting policies, net interest
margin, non-interest revenue, market conditions related to the Company’s stock
repurchase program, allowance for loan losses, the effect of certain new
accounting standards on the Company’s financial position, operations, cash
flows, income tax deductions, credit quality, the level of credit losses from
lending commitments, net interest revenue, interest rate sensitivity, loan loss
experience, liquidity, capital resources, market risk, earnings, effect of
pending litigation, acquisition strategy, legal and regulatory limitations and
compliance and competition.
We caution
the reader not to place undue reliance on the forward-looking statements
contained in this report in that actual results could differ materially from
those indicated in such forward-looking statements, due to a variety of
factors. These factors include, but are not limited to, changes in
the Company’s operating or expansion strategy, availability of and costs
associated with obtaining adequate and timely sources of liquidity, the ability
to maintain credit quality, possible adverse rulings, judgments, settlements and
other outcomes of pending litigation, the ability of the Company to collect
amounts due under loan agreements, changes in consumer preferences,
effectiveness of the Company’s interest rate risk management strategies, laws
and regulations affecting financial institutions in general or relating to
taxes, the effect of pending or future legislation, the ability of the Company
to repurchase its common stock on favorable terms and other risk
factors. Other relevant risk factors may be detailed from time to
time in the Company’s press releases and filings with the Securities and
Exchange Commission. We undertake no obligation to update these
forward-looking statements to reflect events or circumstances that occur after
the date of this report.
RECONCILIATION OF NON-GAAP
MEASURES
The table
below presents computations of core earnings (net income excluding nonrecurring
items {Visa litigation expense reversal and gain from the cash proceeds on
mandatory Visa stock redemption}) and diluted core earnings per share
(non-GAAP). Nonrecurring items are included in financial results
presented in accordance with generally accepted accounting principles
(GAAP).
The
Company believes the exclusion of these nonrecurring items in expressing
earnings and certain other financial measures, including “core earnings”,
provides a meaningful base for period-to-period and company-to-company
comparisons, which management believes will assist investors and analysts in
analyzing the core financial measures of the Company and predicting future
performance. This non-GAAP financial measure is also used by management to
assess the performance of the Company’s business, because management does not
consider these nonrecurring items to be relevant to ongoing financial
performance. Management and the Board of Directors utilize “core
earnings” (non-GAAP) for the following purposes:
• Preparation
of the Company’s operating budgets
• Monthly
financial performance reporting
• Monthly
“flash” reporting of consolidated results (management only)
• Investor
presentations of Company performance
The
Company believes the presentation of “core earnings” on a diluted per share
basis, “diluted core earnings per share” (non-GAAP), provides a meaningful base
for period-to-period and company-to-company comparisons, which management
believes will assist investors and analysts in analyzing the core financial
measures of the Company and predicting future performance. This
non-GAAP financial measure is also used by management to assess the performance
of the Company’s business, because management does not consider these
nonrecurring items to be relevant to ongoing financial performance on a per
share basis. Management and the Board of Directors utilize “diluted
core earnings per share” (non-GAAP) for the following purposes:
• Calculation
of annual performance-based incentives for certain executives
• Calculation
of long-term performance-based incentives for certain executives
• Investor
presentations of Company performance
The
Company believes that presenting these non-GAAP financial measures will permit
investors and analysts to assess the performance of the Company on the same
basis as that applied by management and the Board of Directors.
“Core
earnings” and “diluted core earnings per share” (non-GAAP) have inherent
limitations, are not required to be uniformly applied and are not
audited. To mitigate these limitations, the Company has procedures in
place to identify and approve each item that qualifies as nonrecurring to ensure
that the Company’s “core” results are properly reflected for period-to-period
comparisons. Although these non-GAAP financial measures are
frequently used by stakeholders in the evaluation of a Company, they have
limitations as analytical tools, and should not be considered in isolation, or
as a substitute for analyses of results as reported under GAAP. In
particular, a measure of earnings that excludes nonrecurring items does not
represent the amount that effectively accrues directly to stockholders (i.e.,
nonrecurring items are included in earnings and stockholders’
equity).
See Table
12 below for the reconciliation of non-GAAP financial measures, which exclude
nonrecurring items for the periods presented.
Table
12: Reconciliation of Core Earnings (non-GAAP)
|
|
Three
Months Ended
September
30,
|
|
|
Nine
Months Ended September
30, |
|
($ in thousands)
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income
|
|
$ |
7,660 |
|
|
$ |
6,474 |
|
|
$ |
18,405 |
|
|
$ |
21,284 |
|
Nonrecurring
items
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mandatory
stock redemption gain (Visa)
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
(2,973 |
) |
Litigation
liability reversal (Visa)
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
(1,220 |
) |
Tax
effect (39%)
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
1,635 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
nonrecurring items
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
(2,558 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core
earnings (non-GAAP)
|
|
$ |
7,660 |
|
|
$ |
6,474 |
|
|
$ |
18,405 |
|
|
$ |
18,726 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
earnings per share
|
|
$ |
0.54 |
|
|
$ |
0.46 |
|
|
$ |
1.30 |
|
|
$ |
1.51 |
|
Nonrecurring
items
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mandatory
stock redemption gain (Visa)
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
(0.21 |
) |
Litigation
liability reversal (Visa)
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
(0.09 |
) |
Tax
effect (39%)
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
0.12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
nonrecurring items
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
(0.18 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
core earnings per share (non-GAAP)
|
|
$ |
0.54 |
|
|
$ |
0.46 |
|
|
$ |
1.30 |
|
|
$ |
1.33 |
|
Company
The
Company has leveraged its investment in its subsidiary banks and depends upon
the dividends paid to it, as the sole shareholder of such subsidiary banks,
as a principal source of funds for dividends to shareholders, stock repurchase
and debt service requirements. At September 30, 2009, undivided
profits of the Company's subsidiary banks were approximately $161.9
million, of which approximately $12.6 million was available for the payment of
dividends to the Company without regulatory approval. In addition to
dividends, other sources of liquidity for the Company are the sale of equity
securities and the borrowing of funds.
Subsidiary
Banks
Generally
speaking, the Company's subsidiary banks rely upon net inflows of cash
from financing activities, supplemented by net inflows of cash from operating
activities, to provide cash used in investing activities. Typical of
most banking companies, significant financing activities include: deposit
gathering; use of short-term borrowing facilities, such as federal funds
purchased and repurchase agreements; and the issuance of long-term
debt. The banks' primary investing activities include loan
originations and purchases of investment securities, offset by loan payoffs and
investment maturities.
Liquidity
represents an institution's ability to provide funds to satisfy demands from
depositors and borrowers, by either converting assets into cash or accessing new
or existing sources of incremental funds. A major responsibility of
management is to maximize net interest income within prudent liquidity
constraints. Internal corporate guidelines have been established to
constantly measure liquid assets, as well as relevant ratios concerning earning
asset levels and purchased funds. The management and board of
directors of each subsidiary bank monitor these same indicators and make
adjustments as needed. At September 30, 2009, each subsidiary bank
was within established liquidity guidelines and total Company liquidity
remains strong. At September 30, 2009, cash and cash equivalents,
trading and available-for-sale securities and mortgage loans held for sale were
14.2% of total assets, as compared to 21.0% at December 31, 2008.
Liquidity
Management
The
objective of the Company’s liquidity management is to access adequate sources of
funding to ensure that cash flow requirements of depositors and borrowers are
met in an orderly and timely manner. Sources of liquidity are managed
so that reliance on any one funding source is kept to a minimum. The
Company’s liquidity sources are prioritized for both availability and time to
activation.
The
Company’s liquidity is a primary consideration in determining funding needs and
is an integral part of asset/liability management. Pricing of the
liability side is a major component of interest margin and spread
management. Adequate liquidity is a necessity in addressing this
critical task. There are five primary and secondary sources of
liquidity available to the Company. The particular liquidity need and
timeframe determine the use of these sources.
The first
source of liquidity available to the Company is Federal
funds. Federal funds, primarily from downstream correspondent banks,
are available on a daily basis and are used to meet the normal fluctuations of a
dynamic balance sheet. In addition, the Company and its affiliates
have approximately $104 million in Federal funds lines of credit from upstream
correspondent banks that can be accessed, when needed. In order to
ensure availability of these upstream funds, the Company has a plan for rotating
the usage of the funds among the upstream correspondent banks, thereby providing
approximately $40 million in funds on a given day. Historical
monitoring of these funds has made it possible for the Company to project
seasonal fluctuations and structure its funding requirements on a month-to-month
basis.
A second
source of liquidity is the retail deposits available through the Company’s
network of affiliate banks throughout Arkansas. Although this method
can be a more expensive alternative to supplying liquidity, this source can be
used to meet intermediate term liquidity needs.
Third, the
Company’s affiliate banks have lines of credits available with the
FHLB. While the Company uses portions of those lines to match off
longer-term mortgage loans, the Company also uses those lines to meet liquidity
needs. Approximately $431 million of these lines of credit are
currently available, if needed.
Fourth,
the Company uses a laddered investment portfolio that ensures there is a steady
source of intermediate term liquidity. These funds can be used to
meet seasonal loan patterns and other intermediate term balance sheet
fluctuations. Approximately 32% of the investment portfolio is
classified as available-for-sale. The Company also uses securities
held in the securities portfolio to pledge when obtaining public
funds.
Finally,
the Company has the ability to access large deposits from both the public and
private sector to fund short-term liquidity needs.
The
Company believes the various sources available are ample liquidity for
short-term, intermediate-term and long-term liquidity.
Market
Risk Management
Market
risk arises from changes in interest rates. The Company has risk
management policies to monitor and limit exposure to market risk. In
asset and liability management activities, policies are in place designed to
minimize structural interest rate risk. The measurement of market
risk associated with financial instruments is meaningful only when all related
and offsetting on- and off-balance-sheet transactions are aggregated, and the
resulting net positions are identified.
Interest
Rate Sensitivity
Interest
rate risk represents the potential impact of interest rate changes on net income
and capital resulting from mismatches in repricing opportunities of assets and
liabilities over a period of time. A number of tools are used to
monitor and manage interest rate risk, including simulation models and interest
sensitivity gap analysis. Management uses simulation models to
estimate the effects of changing interest rates and various balance sheet
strategies on the level of the Company’s net income and capital. As a
means of limiting interest rate risk to an acceptable level, management may
alter the mix of floating and fixed-rate assets and liabilities, change pricing
schedules and manage investment maturities during future security
purchases.
The
simulation models incorporate management’s assumptions regarding the level of
interest rates or balance changes for indeterminate maturity deposits for a
given level of market rate changes. These assumptions have been
developed through anticipated pricing behavior. Key assumptions in
the simulation models include the relative timing of prepayments, cash flows and
maturities. In addition, the impact of planned growth and anticipated
new business is factored into the simulation models. These
assumptions are inherently uncertain and, as a result, the models cannot
precisely estimate net interest income or precisely predict the impact of a
change in interest rates on net income or capital. Actual results
will differ from simulated results due to the timing, magnitude and frequency of
interest rate changes and changes in market conditions and management
strategies, among other factors.
Table A
below presents the Company’s interest rate sensitivity position at September 30,
2009. This analysis is based on a point in time and may not be
meaningful because assets and liabilities are categorized according to
contractual maturities, repricing periods and expected cash flows rather than
estimating more realistic behaviors, as is done in the simulation
models. Also, this analysis does not consider subsequent changes in
interest rate level or spreads between asset and liability
categories.
Table
A: Interest Rate Sensitivity
|
|
Interest Rate Sensitivity Period |
|
|
|
|
0-30 |
|
|
|
31-90 |
|
|
|
91-180 |
|
|
|
181-365 |
|
|
|
1-2 |
|
|
|
2-5 |
|
|
Over
5
|
|
|
|
|
(In thousands, except
ratios)
|
|
Days
|
|
|
Days
|
|
|
Days
|
|
|
Days
|
|
|
Years
|
|
|
Years
|
|
|
Years
|
|
|
Total
|
|
Earning
assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term
investments
|
|
$ |
155,214 |
|
|
$ |
-- |
|
|
$ |
-- |
|
|
$ |
-- |
|
|
$ |
-- |
|
|
$ |
-- |
|
|
$ |
-- |
|
|
$ |
155,214 |
|
Assets
held in trading
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
accounts
|
|
|
6,839 |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
6,839 |
|
Investment
securities
|
|
|
65,787 |
|
|
|
102,030 |
|
|
|
70,952 |
|
|
|
27,069 |
|
|
|
111,803 |
|
|
|
147,226 |
|
|
|
46,748 |
|
|
|
571,615 |
|
Mortgage
loans held for sale
|
|
|
13,355 |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
13,355 |
|
Loans
|
|
|
659,767 |
|
|
|
233,409 |
|
|
|
169,665 |
|
|
|
277,157 |
|
|
|
280,090 |
|
|
|
265,911 |
|
|
|
39,102 |
|
|
|
1,925,101 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
earning assets
|
|
|
900,962 |
|
|
|
335,439 |
|
|
|
240,617 |
|
|
|
304,226 |
|
|
|
391,893 |
|
|
|
413,137 |
|
|
|
85,850 |
|
|
|
2,672,124 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
bearing liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
bearing transaction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
savings deposits
|
|
|
706,748 |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
76,819 |
|
|
|
230,456 |
|
|
|
76,819 |
|
|
|
1,090,842 |
|
Time
deposits
|
|
|
106,112 |
|
|
|
201,490 |
|
|
|
281,096 |
|
|
|
223,587 |
|
|
|
80,837 |
|
|
|
21,711 |
|
|
|
-- |
|
|
|
914,833 |
|
Short-term
debt
|
|
|
100,159 |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
100,159 |
|
Long-term
debt
|
|
|
2,242 |
|
|
|
11,273 |
|
|
|
21,810 |
|
|
|
4,699 |
|
|
|
53,112 |
|
|
|
29,404 |
|
|
|
39,020 |
|
|
|
161,560 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
interest bearing liabilities
|
|
|
915,261 |
|
|
|
212,763 |
|
|
|
302,906 |
|
|
|
228,286 |
|
|
|
210,768 |
|
|
|
281,571 |
|
|
|
115,839 |
|
|
|
2,267,394 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
rate sensitivity Gap
|
|
$ |
(14,299 |
) |
|
$ |
122,676 |
|
|
$ |
(62,289 |
) |
|
$ |
75,940 |
|
|
$ |
181,125 |
|
|
$ |
131,566 |
|
|
$ |
(29,989 |
) |
|
$ |
404,730 |
|
Cumulative
interest rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
sensitivity
Gap
|
|
$ |
(14,299 |
) |
|
$ |
108,377 |
|
|
$ |
46,088 |
|
|
$ |
122,028 |
|
|
$ |
303,153 |
|
|
$ |
434,719 |
|
|
$ |
404,730 |
|
|
|
|
|
Cumulative
rate sensitive asset
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
to
rate sensitive liabilities
|
|
|
98.4 |
% |
|
|
109.6 |
% |
|
|
103.2 |
% |
|
|
107.4 |
% |
|
|
116.2 |
% |
|
|
120.2 |
% |
|
|
117.9 |
% |
|
|
|
|
Cumulative
Gap as a % of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
earning
assets
|
|
|
-0.5 |
% |
|
|
4.1 |
% |
|
|
1.7 |
% |
|
|
4.6 |
% |
|
|
11.3 |
% |
|
|
16.3 |
% |
|
|
15.1 |
% |
|
|
|
|
Evaluation
of Disclosure Controls and Procedures
The
Company’s Chief Executive Officer and Chief Financial Officer have reviewed and
evaluated the effectiveness of the Company’s disclosure controls and procedures
(as defined in 15 C.F.R. 240.13a-15(e) or 15 C.F.R. 240.15d-15(e)) as of the end
of the period covered by this report. Based upon that evaluation, the
Chief Executive Officer and Chief Financial Officer have concluded that the
Company’s current disclosure controls and procedures are effective.
Changes
in Internal Control over Financial Reporting
There were
no significant changes in the Company’s internal controls or in other factors
that could significantly affect those controls subsequent to the date of
evaluation.
Risks
Related to the Banking Industry
The
Company's Business May Be Adversely Affected by Conditions in the Financial
Markets and Economic Conditions Generally.
Since
December 2007, the United States has been in a recession. Business
activity across a wide range of industries and regions has been greatly reduced
and local governments and many businesses are having difficulty due to the lack
of consumer spending, the lack of liquidity in the credit markets and high
unemployment.
Market
conditions have also led to the failure or merger of a number of prominent
financial institutions. Financial institution failures or
near-failures have resulted in further losses as a consequence of defaults on
securities issued by them and defaults under contracts entered into with such
entities as counterparties. Furthermore, declining asset values,
defaults on mortgages and consumer loans, and the lack of market and investor
confidence, as well as other factors, have all combined to increase credit
default swap spreads, to cause rating agencies to lower credit ratings, and to
otherwise increase the cost and decrease the availability of liquidity, despite
very significant declines in Federal Reserve borrowing rates and other
government actions. Some banks and other lenders have suffered
significant losses and have become reluctant to lend, even on a secured basis,
due to the increased risk of default and the impact of declining asset values on
the value of collateral. The foregoing has significantly weakened the
strength and liquidity of some financial institutions worldwide.
The
Company’s financial performance generally, and in particular the ability of
borrowers to pay interest on and repay principal of outstanding loans and the
value of collateral securing those loans, is highly dependent upon on the
business environment in the State of Arkansas and in the United States as a
whole. A favorable business environment is generally characterized
by, among other factors, economic growth, efficient capital markets, low
inflation, high business and investor confidence and strong business
earnings. Unfavorable or uncertain economic and market conditions can
be caused by: declines in economic growth, business activity or investor or
business confidence; limitations on the availability or increases in the cost of
credit and capital; increases in inflation or interest rates; natural disasters;
or a combination of these or other factors.
The
business environment in Arkansas could continue to deteriorate. There
can be no assurance that these business and economic conditions will improve in
the near term. The continuation of these conditions could adversely
affect the credit quality of the Company's loan portfolio, results of operations
and financial condition.
Recent
legislative and regulatory initiatives to address difficult market and economic
conditions may not stabilize the U.S. banking system.
Under the
Troubled Asset Relief Program (“TARP”), the U.S. Treasury is authorized to
purchase from financial institutions and their holding companies up to $700
billion in mortgage loans, mortgage-related securities and certain other
financial instruments, including debt and equity securities issued by financial
institutions and their holding companies. The purpose of TARP is to
restore confidence and stability to the U.S. banking system and to
encourage financial institutions to increase their lending to customers and to
each other. The Treasury allocated $250 billion toward TARP’s
Capital Purchase Program to fund the purchase of equity securities from
participating institutions.
Numerous
actions have been taken by the United States Congress, the Federal Reserve,
the Treasury, the FDIC, the SEC and other governmental agencies to address the
recent liquidity and credit crisis. These actions have included,
among others:
·
|
encouraging
residential mortgage loan restructuring and modification to provide
homeowners relief;
|
·
|
establishing
significant liquidity and credit facilities for financial institutions and
investment banks;
|
·
|
lowering
of the federal funds rate;
|
·
|
taking
emergency action against short selling
practices;
|
·
|
establishing
a temporary guaranty program for money market
funds;
|
·
|
establishing
of a commercial paper funding facility to provide back-stop liquidity to
commercial paper issuers; and
|
·
|
coordinating
international efforts to address illiquidity and other weaknesses in the
banking sector.
|
A
significant goal of these legislative and regulatory actions is to stabilize the
U.S. banking system. The legislative and regulatory initiatives
described above may not have their desired effects or may have unintended
consequences. Should these or other legislative or regulatory
initiatives fail to stabilize the financial markets, the Company's business,
financial condition, results of operations and prospects could be materially and
adversely affected.
Recent
increases in deposit insurance coverage and the FDIC’s efforts to restore the
deposit insurance fund have increased its FDIC insurance assessments and
resulted in higher non-interest expense. Additional increases in
deposit insurance rates may occur and continue to negatively impact the
Company's operations.
The
Emergency Economic Stabilization Act of 2008 (the “EESA”) temporarily raised the
limit on federal deposit insurance coverage from $100,000 to $250,000 per
depositor. The limits are scheduled to return to $100,000 on
January 1, 2014. The temporary increase in insured deposits has
been accompanied by a higher assessment for the Company's subsidiary banks and
will adversely affect its results of operations as an increase in non-interest
expense.
Separate
from the EESA, in October 2008, the FDIC announced the Temporary Liquidity
Guarantee Program (the “TLG Program”). Banks that participate in the
TLG Program are subject to a coverage charge of ten (10) basis points per
annum for non-interest-bearing deposit accounts exceeding the existing deposit
insurance limit of $250,000. In August 2009, the FDIC issued a final
rule regarding the extension of the deposit guarantee portion of the TLG
Program. Under this rule, the expiration of the program is extended
to June 30, 2010. In connection with the extension, the annual
fees associated with the deposit guarantee portion of the TLG Program increase
from ten (10) basis points to 15 to 25 basis points after
December 31, 2009. The particular rate to be assessed will be
based upon the risk category to which an institution is assigned.
In
addition, the large number of recent bank failures combined with the potential
for significant numbers of additional bank failures has placed significant
stress on the deposit insurance fund. In order to maintain a strong
funding position and restore reserve ratios of the deposit insurance fund, the
FDIC increased assessment rates of insured institutions uniformly by seven cents
for every $100 of deposits beginning with the first quarter of 2009, with
additional charges beginning April 1, 2009.
In May
2009, the FDIC voted to amend the deposit insurance fund restoration plan and
impose a special assessment of 5 basis points of each insured institution’s
assets less its Tier 1 capital as of June 30, 2009, which was
collected on September 30, 2009. Based on deposit levels at June
30, 2009, the Company accrued a special assessment amount of approximately $1.5
million. The amended rule also permits the FDIC to impose an
additional emergency special assessment after June 30, 2009, of up to five basis
points if necessary to maintain public confidence in federal deposit
insurance. The imposed special assessment, as well as any future
increases in assessments, will adversely affect the Company's non-interest
expense and results of operations.
In
September, 2009, the FDIC announced that it would require insured banks to
prepay their estimated FDIC assessments for the next three years on December 30,
2009. The Company expects the amount of the prepaid assessment to be
approximately $10.0 million.
Should
more bank failures occur, the FDIC’s premium assessments may continue to
increase or accelerate. The Company is generally unable to control
the amount of premiums that it is required to pay for FDIC
insurance. There is a significant possibility that the FDIC will
further increase or accelerate the timing of payment of FDIC insurance premiums,
whether or not there are more bank failures.
Current
levels of market volatility are unprecedented.
The
financial markets have continued to experience significant
volatility. In some cases, the financial markets have produced
downward pressure on stock prices and credit availability for certain issuers
without regard to those issuers’ underlying financial strength. If
financial market volatility continues or worsens, or if there are more
disruptions in the financial markets, including disruptions to the United States
or international banking systems, there can be no assurance that the Company
will not experience an adverse effect, which may be material, on the Company's
ability to access capital and on its business, financial condition and results
of operations.
Risks
Related to the Company's Business
The
Company's concentration of banking activities in Arkansas, including its real
estate loan portfolio, makes the Company more vulnerable to adverse conditions
in the particular Arkansas markets in which it operates.
The
Company's bank subsidiaries operate exclusively within the state of Arkansas,
where the majority of the buildings and properties securing its loans and the
businesses of its customers are located. The Company's financial
condition, results of operations and cash flows are subject to changes in the
economic conditions in its home state, the ability of its borrowers to repay
their loans, and the value of the collateral securing such loans. It largely
depends on the continued growth and stability of the communities the Company
serves for continued success. Declines in the economies of these
communities or the state of Arkansas in general could adversely affect the
Company's ability to generate new loans or to receive repayments of existing
loans, and its ability to attract new deposits, thus adversely affecting the
Company's net income, profitability and financial condition.
The
ability of its borrowers to repay their loans could also be adversely impacted
by the significant changes in market conditions in the region or by changes in
local real estate markets, including deflationary effects of collateral value
caused by property foreclosures. This could result in an increase in
the Company's charge-offs and provision for loan losses. Either of these events
would have an adverse impact on its results of operations.
The
Company's loan portfolio in Northwest Arkansas has been more negatively impacted
than its loan portfolio comprised from other regions in
Arkansas. This fact results primarily from the acute contraction in
that region’s economy and its real estate markets as compared to Arkansas as a
whole. In 2009, the Company put an additional $5 million in capital
into its Northwest Arkansas bank. A continued deterioration of the
Northwest Arkansas economy or its failure to fully participate in an economic
recovery could require the Company to further tighten its local lending
standards, inject more capital into its Northwest Arkansas bank and increase
allowances for loan losses relative to loans made in the region.
A
significant decline in general economic conditions caused by inflation,
recession, unemployment, acts of terrorism, or other factors beyond the
Company's control could also have an adverse effect on its financial condition
and results of operations. In addition, because multi-family and
commercial real estate loans represent the majority of the Company's real estate
loans outstanding, a decline in tenant occupancy due to such factors or for
other reasons could adversely impact the ability of its borrowers to repay their
loans on a timely basis, which could have a negative impact on the Company's
results of operations.
Deteriorating
credit quality, particularly in the Company's credit card portfolio, may
adversely impact it
The
Company has a significant consumer credit card portfolio that has experienced an
increased amount of net charge-offs in 2009, which could continue or
worsen. While the Company continues to experience a better
performance with respect to net charge-offs than the national average in its
credit card portfolio, its net charge-offs nevertheless increased to 2.58% of
its average outstanding credit card balances for the quarter ended September 30,
2009 from 1.80% of the average outstanding balances for the quarter ended on
September 30, 2008. The current economic downturn could adversely
affect consumers in a more delayed fashion compared to commercial businesses in
general. Increasing unemployment and diminished asset values may
prevent the Company's credit card customers from repaying their credit card
balances which could result in an increased amount of its net charge-offs that
could have a material adverse effect on its unsecured credit card
portfolio.
Changes
to consumer protection laws may impede the origination or collection efforts
with respect to credit card accounts, change account holder use patterns, or
reduce collections, any of which may result in decreased profitability of the
Company's credit card portfolio.
Credit
card receivables that do not comply with consumer protection laws may not be
valid or enforceable under their terms against the obligors of those credit card
receivables. Federal and state consumer protection laws regulate the
creation and enforcement of consumer loans, including credit card
receivables. For instance, the federal Truth in Lending Act was
recently amended by the “Credit Card Accountability, Responsibility and
Disclosure Act of 2009” (“Credit CARD Act”), which, among other
things:
·
|
prevents
any increases in interest rates and fees during the first year after a
credit card account is opened, and increases at any time on interest rates
on existing credit card balances, unless (i) the minimum payment on the
related account is 60 or more days delinquent, (ii) the rate increase is
due to the expiration of a promotional rate, (iii) the account holder
fails to comply with a negotiated workout plan or (iv) the increase is due
to an increase in the index rate for a variable rate credit
card;
|
·
|
requires
that any promotional rates for credit cards be effective for at least six
months;
|
·
|
requires
45 days notice for any change of an interest rate or any other significant
changes to a credit card account;
|
·
|
empowers
federal bank regulators to promulgate rules to limit the amount of any
penalty fees or charges for credit card accounts to amounts that are
“reasonable and proportional to the related omission or
violation”;
|
·
|
requires
credit card companies to mail billing statements 21 calendar days before
the due date for account holder
payments;
|
As a
result of the Credit CARD Act and other consumer protection laws and
regulations, it may be more difficult for the Company to originate additional
credit card accounts or to collect payments on credit card receivables, and the
finance charges and other fees that it can charge on credit card account
balances may be reduced. Furthermore, account holders may choose to
use credit cards less as a result of these consumer protection
laws. Each of these results, independently or collectively, could
reduce the effective yield on revolving credit card accounts and could result in
decreased profitability of the Company's credit card portfolio.
The
Company's cost of funds may increase as a result of general economic
conditions, interest rates and competitive pressures.
The
Company's cost of funds may increase as a result of general economic conditions,
fluctuations in interest rates and competitive pressures. The Company
has traditionally obtained funds principally through local deposits as it has a
base of lower cost transaction deposits. The Company's costs of funds
and its profitability and liquidity are likely to be adversely affected, if it
has to rely upon higher cost borrowings from other institutional lenders or
brokers to fund loan demand or liquidity needs. Also, changes in the
Company's deposit mix and growth could adversely affect its profitability and
the ability to expand its loan portfolio.
The
Company has been active in making student loans, and this part of its business
could decrease or terminate in the future.
The
Company's bank subsidiaries historically have been active in the student loan
market, and its student loan portfolio has been profitable in the
past. Recent interruptions in the credit markets and certain changes
in the federal government programs affecting student loans, however, have
decreased the marketability of student loans and increased its holding period
for such loans. These events have increased its expenses associated
with making and holding student loans and have decreased the profitability of
making such loans. The federal government is currently considering
additional revisions to the student loan program which may either eliminate
participation by banks or substantially reduce the profitability to banks of
participating in student loan programs. Future regulatory and
legislative changes may further decrease the profitability of its student loan
portfolio and may cause the Company to decrease the size of the student loan
portfolio or eliminate it all together. Eliminating or decreasing
that portfolio could adversely affect the Company's profitability in the
future.
Accounting
standards periodically change and the application of the Company's accounting
policies and methods may require management to make estimates about matters that
are uncertain.
The
regulatory bodies that establish accounting standards, including, among others,
the Financial Accounting Standards Board and the SEC, periodically revise or
issue new financial accounting and reporting standards that govern the
preparation of the Company's consolidated financial statements. The
effect of such revised or new standards on the Company's financial statements
can be difficult to predict and can materially impact how it records and reports
its financial condition and results of operations.
In
addition, management must exercise judgment in appropriately applying many of
its accounting policies and methods so they comply with generally accepted
accounting principles. In some cases, management may have to select a
particular accounting policy or method from two or more
alternatives. In some cases, the accounting policy or method chosen
might be reasonable under the circumstances and yet might result in its
reporting materially different amounts than would have been reported if it had
selected a different policy or method. Accounting policies are
critical to fairly presenting he Company's financial condition and results of
operations and may require management to make difficult, subjective or complex
judgments about matters that are uncertain.
The
Company may incur environmental liabilities with respect to properties to which
it takes title.
A
significant portion of the Company's loan portfolio is secured by real
property. In the course of its business, the Company may own or
foreclose and take title to real estate and could become subject to
environmental liabilities with respect to these properties. The Company may
become responsible to a governmental agency or third parties for property
damage, personal injury, investigation and clean-up costs incurred by those
parties in connection with environmental contamination, or may be required to
investigate or clean-up hazardous or toxic substances, or chemical releases at a
property. The costs associated with environmental investigation or
remediation activities could be substantial. If the Company were to
become subject to significant environmental liabilities, it could have a
material adverse effect on the Company's results of operations and financial
condition.
These risk
factors should be considered along with additional risk factors contained in the
Company’s 2008 Form 10-K for the fiscal year ended December 31,
2008.
(c) Issuer
Purchases of Equity Securities. The Company made no purchases of its
common stock during the three-months ended September 30, 2009.
Exhibit
No. Description
|
3.1
|
Restated
Articles of Incorporation of Simmons First National Corporation
(incorporated by reference to Exhibit 3.1 to Simmons First National
Corporation’s Quarterly Report on Form 10-Q for the Quarter ended
March 31, 2009 (File No.
0-6253)).
|
|
3.2
|
Amended
By-Laws of Simmons First National Corporation (incorporated by reference
to Exhibit 3.2 to Simmons First National Corporation’s Annual Report on
Form 10-K for the Year ended December 31, 2007 (File No.
0-6253)).
|
|
10.1
|
Amended
and Restated Trust Agreement, dated as of December 16, 2003, among the
Company, Deutsche Bank Trust Company Americas, Deutsche Bank Trust Company
Delaware and each of J. Thomas May, Barry L. Crow and Robert A. Fehlman as
administrative trustees, with respect to Simmons First Capital Trust II
(incorporated by reference to Exhibit 10.1 to Simmons First National
Corporation’s Annual Report on Form 10-K for the Year ended December 31,
2003 (File No. 0-6253)).
|
|
10.2
|
Guarantee
Agreement, dated as of December 16, 2003, between the Company and Deutsche
Bank Trust Company Americas, as guarantee trustee, with respect to Simmons
First Capital Trust II (incorporated by reference to Exhibit 10.2 to
Simmons First National Corporation’s Annual Report on Form 10-K for the
Year ended December 31, 2003 (File No.
0-6253)).
|
|
10.3
|
Junior
Subordinated Indenture, dated as of December 16, 2003, among the Company
and Deutsche Bank Trust Company Americas, as trustee, with respect to the
junior subordinated note held by Simmons First Capital Trust II
(incorporated by reference to Exhibit 10.3 to Simmons First National
Corporation’s Annual Report on Form 10-K for the Year ended
December 31, 2003 (File No.
0-6253)).
|
|
10.4
|
Amended
and Restated Trust Agreement, dated as of December 16, 2003, among the
Company, Deutsche Bank Trust Company Americas, Deutsche Bank Trust Company
Delaware and each of J. Thomas May, Barry L. Crow and Robert A. Fehlman as
administrative trustees, with respect to Simmons First Capital Trust III
(incorporated by reference to Exhibit 10.4 to Simmons First National
Corporation’s Annual Report on Form 10-K for the Year ended December 31,
2003 (File No. 0-6253)).
|
|
10.5
|
Guarantee
Agreement, dated as of December 16, 2003, between the Company and Deutsche
Bank Trust Company Americas, as guarantee trustee, with respect to Simmons
First Capital Trust III (incorporated by reference to Exhibit 10.5 to
Simmons First National Corporation’s Annual Report on Form 10-K for the
Year ended December 31, 2003 (File
No. 0-6253)).
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10.6
|
Junior
Subordinated Indenture, dated as of December 16, 2003, among the Company
and Deutsche Bank Trust Company Americas, as trustee, with respect to the
junior subordinated note held by Simmons First Capital Trust III
(incorporated by reference to Exhibit 10.6 to Simmons First National
Corporation’s Annual Report on Form 10-K for the Year ended
December 31, 2003 (File No.
0-6253)).
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10.7
|
Amended
and Restated Trust Agreement, dated as of December 16, 2003, among the
Company, Deutsche Bank Trust Company Americas, Deutsche Bank Trust Company
Delaware and each of J. Thomas May, Barry L. Crow and Robert A. Fehlman as
administrative trustees, with respect to Simmons First Capital Trust IV
(incorporated by reference to Exhibit 10.7 to Simmons First National
Corporation’s Annual Report on Form 10-K for the Year ended December 31,
2003 (File No. 0-6253)).
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|
10.8
|
Guarantee
Agreement, dated as of December 16, 2003, between the Company and Deutsche
Bank Trust Company Americas, as guarantee trustee, with respect to Simmons
First Capital Trust IV (incorporated by reference to Exhibit 10.8 to
Simmons First National Corporation’s Annual Report on Form 10-K for the
Year ended December 31, 2003 (File
No. 0-6253)).
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|
10.9
|
Junior
Subordinated Indenture, dated as of December 16, 2003, among the Company
and Deutsche Bank Trust Company Americas, as trustee, with respect to the
junior subordinated note held by Simmons First Capital Trust IV
(incorporated by reference to Exhibit 10.9 to Simmons First National
Corporation’s Annual Report on Form 10-K for the Year ended
December 31, 2003 (File No.
0-6253)).
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|
10.10.1
|
Simmons
First National Corporation Long Term Incentive Plan, adopted March 24,
2008, and Notice of Grant of Long Term Incentive Award to J. Thomas
May, David L. Bartlett, Marty Casteel, and Robert A. Fehlman (incorporated
by reference to Exhibits 10.1 through 10.5 to Simmons First National
Corporation’s Current Report on Form 8-K for March 24, 2008 (File No.
0-6253)).
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|
10.10.2
|
Termination
of Simmons First National Corporation Long Term Incentive Plan, adopted
March 24, 2008, terminated and cancelled February 25, 2009, and
Termination of Grant Under Long Term Incentive Award to J. Thomas May,
David L. Bartlett, Marty Casteel, and Robert A. Fehlman (incorporated by
reference to exhibits 10.1 through 10.5 to Simmons First National
Corporation’s Current Report on Form 8-K for February 25, 2009 (File No.
0-6253)).
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|
12.1
|
Computation
of Ratios of Earnings to Fixed
Charges.*
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|
14
|
Code
of Ethics, dated December 2003, for CEO, CFO, controller and other
accounting officers (incorporated by reference to Exhibit 14 to Simmons
First National Corporation’s Annual Report on Form 10-K for the Year ended
December 31, 2003 (File No.
0-6253)).
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|
15.1
|
Awareness
Letter of BKD, LLP.*
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|
31.1
|
Rule
13a-14(a)/15d-14(a) Certification – J. Thomas May, Chairman and Chief
Executive Officer.*
|
|
31.2
|
Rule
13a-14(a)/15d-14(a) Certification – Robert A. Fehlman, Chief Financial
Officer.*
|
|
32.1
|
Certification
Pursuant to 18 U.S.C. Sections 1350, as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002 – J. Thomas May, Chairman and Chief
Executive Officer.*
|
|
32.2
|
Certification
Pursuant to 18 U.S.C. Sections 1350, as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002 – Robert A. Fehlman, Chief Financial
Officer.*
|
* Filed
herewith.
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.
SIMMONS FIRST NATIONAL
CORPORATION
(Registrant)
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|
/s/ J. Thomas May
|
|
|
|
J.
Thomas May
|
|
|
|
Chairman
and
|
|
|
|
Chief
Executive Officer
|
|
|
|
/s/ Robert A. Fehlman
|
|
|
|
Robert
A. Fehlman
|
|
|
|
Executive
Vice President and
|
|
|
|
Chief
Financial Officer
|
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70