SIMMONS FIRST NATIONAL CORPORATION 10-Q
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, 2006
|
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. x
Yes
o
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):
o Large
accelerated filer x Accelerated
filer o Non-accelerated
filer
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act.). o
Yes
x
No
The
number
of shares outstanding of the Registrant’s Common Stock as of October 27, 2006
was 14,206,728.
Simmons
First National Corporation
Quarterly
Report on Form 10-Q
September
30, 2006
INDEX
Simmons
First National Corporation
September
30, 2006 and December 31, 2005
ASSETS
|
|
September
30,
|
|
December
31,
|
|
(In
thousands, except share data)
|
|
2006
|
|
2005
|
|
|
|
(Unaudited)
|
|
|
|
Cash
and non-interest bearing balances due from banks
|
|
$
|
77,724
|
|
$
|
75,461
|
|
Interest
bearing balances due from banks
|
|
|
19,599
|
|
|
14,397
|
|
Federal
funds sold
|
|
|
49,340
|
|
|
11,715
|
|
Cash
and cash equivalents
|
|
|
146,663
|
|
|
101,573
|
|
|
|
|
|
|
|
|
|
Investment
securities
|
|
|
531,505
|
|
|
521,789
|
|
Mortgage
loans held for sale
|
|
|
6,591
|
|
|
7,857
|
|
Assets
held in trading accounts
|
|
|
4,574
|
|
|
4,631
|
|
Loans
|
|
|
1,788,517
|
|
|
1,718,107
|
|
Allowance
for loan losses
|
|
|
(25,879
|
)
|
|
(26,923
|
)
|
Net
loans
|
|
|
1,762,638
|
|
|
1,691,184
|
|
|
|
|
|
|
|
|
|
Premises
and equipment
|
|
|
66,769
|
|
|
63,360
|
|
Foreclosed
assets held for sale, net
|
|
|
1,413
|
|
|
1,540
|
|
Interest
receivable
|
|
|
21,953
|
|
|
18,754
|
|
Bank
owned life insurance
|
|
|
35,708
|
|
|
33,269
|
|
Goodwill
|
|
|
60,605
|
|
|
60,605
|
|
Core
deposit premiums
|
|
|
4,406
|
|
|
5,029
|
|
Other
assets
|
|
|
14,117
|
|
|
14,177
|
|
|
|
|
|
|
|
|
|
TOTAL
ASSETS
|
|
$
|
2,656,942
|
|
$
|
2,523,768
|
|
See
Condensed Notes to Consolidated Financial Statements.
Simmons
First National Corporation
September
30, 2006 and December 31, 2005
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
September
30,
|
|
December
31,
|
|
(In
thousands, except share data)
|
|
2006
|
|
2005
|
|
|
|
(Unaudited)
|
|
|
|
LIABILITIES
|
|
|
|
|
|
Non-interest
bearing transaction accounts
|
|
$
|
302,700
|
|
$
|
331,113
|
|
Interest
bearing transaction accounts and savings deposits
|
|
|
745,649
|
|
|
749,925
|
|
Time
deposits
|
|
|
1,100,127
|
|
|
978,920
|
|
Total
deposits
|
|
|
2,148,476
|
|
|
2,059,958
|
|
Federal
funds purchased and securities sold
|
|
|
|
|
|
|
|
under
agreements to repurchase
|
|
|
85,535
|
|
|
107,223
|
|
Short-term
debt
|
|
|
61,850
|
|
|
8,031
|
|
Long-term
debt
|
|
|
82,173
|
|
|
87,020
|
|
Accrued
interest and other liabilities
|
|
|
24,316
|
|
|
17,451
|
|
Total
liabilities
|
|
|
2,402,350
|
|
|
2,279,683
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’
EQUITY
|
|
|
|
|
|
|
|
Capital
stock
|
|
|
|
|
|
|
|
Class
A, common, par value $0.01 a share, authorized
|
|
|
|
|
|
|
|
30,000,000
shares, 14,188,008 issued and outstanding
|
|
|
|
|
|
|
|
at
2006 and 14,326,923 at 2005
|
|
|
142
|
|
|
143
|
|
Surplus
|
|
|
49,068
|
|
|
53,723
|
|
Undivided
profits
|
|
|
208,200
|
|
|
194,579
|
|
Accumulated
other comprehensive income (loss)
|
|
|
|
|
|
|
|
Unrealized
appreciation (depreciation) on available-for-sale
securities,
|
|
|
|
|
|
|
|
net
of income tax credits of $1,691 at 2006 and $2,615 at 2005
|
|
|
(2,818
|
)
|
|
(4,360
|
)
|
Total
stockholders’ equity
|
|
|
254,592
|
|
|
244,085
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
$
|
2,656,942
|
|
$
|
2,523,768
|
|
See
Condensed Notes to Consolidated Financial Statements.
Simmons
First National Corporation
Three
Months and Nine Months Ended September 30, 2006 and 2005
|
|
Three
Months Ended
|
|
Nine
Months Ended
|
|
|
|
September
30,
|
|
September
30,
|
|
(In
thousands, except per share data)
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
|
|
(Unaudited)
|
|
(Unaudited)
|
|
INTEREST
INCOME
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$
|
33,924
|
|
$
|
29,225
|
|
$
|
95,705
|
|
$
|
81,813
|
|
Federal
funds sold
|
|
|
325
|
|
|
262
|
|
|
692
|
|
|
863
|
|
Investment
securities
|
|
|
5,183
|
|
|
4,693
|
|
|
14,991
|
|
|
13,926
|
|
Mortgage
loans held for sale
|
|
|
141
|
|
|
168
|
|
|
369
|
|
|
421
|
|
Assets
held in trading accounts
|
|
|
14
|
|
|
25
|
|
|
58
|
|
|
74
|
|
Interest
bearing balances due from banks
|
|
|
229
|
|
|
119
|
|
|
785
|
|
|
418
|
|
TOTAL
INTEREST INCOME
|
|
|
39,816
|
|
|
34,492
|
|
|
112,600
|
|
|
97,515
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INTEREST
EXPENSE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
14,404
|
|
|
9,046
|
|
|
38,313
|
|
|
23,889
|
|
Federal
funds purchased and securities sold
|
|
|
|
|
|
|
|
|
|
|
|
|
|
under
agreements to repurchase
|
|
|
1,152
|
|
|
815
|
|
|
3,320
|
|
|
2,088
|
|
Short-term
debt
|
|
|
761
|
|
|
646
|
|
|
1,082
|
|
|
790
|
|
Long-term
debt
|
|
|
1,122
|
|
|
1,113
|
|
|
3,364
|
|
|
3,306
|
|
TOTAL
INTEREST EXPENSE
|
|
|
17,439
|
|
|
11,620
|
|
|
46,079
|
|
|
30,073
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
INTEREST INCOME
|
|
|
22,377
|
|
|
22,872
|
|
|
66,521
|
|
|
67,442
|
|
Provision
for loan losses
|
|
|
602
|
|
|
1,736
|
|
|
3,099
|
|
|
5,895
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
INTEREST INCOME AFTER PROVISION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FOR
LOAN LOSSES
|
|
|
21,775
|
|
|
21,136
|
|
|
63,422
|
|
|
61,547
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NON-INTEREST
INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trust
income
|
|
|
1,435
|
|
|
1,430
|
|
|
4,095
|
|
|
4,164
|
|
Service
charges on deposit accounts
|
|
|
3,973
|
|
|
4,154
|
|
|
11,945
|
|
|
11,721
|
|
Other
service charges and fees
|
|
|
596
|
|
|
472
|
|
|
1,846
|
|
|
1,511
|
|
Income
on sale of mortgage loans, net of commissions
|
|
|
763
|
|
|
826
|
|
|
2,194
|
|
|
2,221
|
|
Income
on investment banking, net of commissions
|
|
|
55
|
|
|
146
|
|
|
252
|
|
|
364
|
|
Credit
card fees
|
|
|
2,755
|
|
|
2,619
|
|
|
7,912
|
|
|
7,543
|
|
Premiums
on sale of student loans
|
|
|
413
|
|
|
295
|
|
|
1,808
|
|
|
1,572
|
|
Bank
owned life insurance income
|
|
|
382
|
|
|
279
|
|
|
1,098
|
|
|
636
|
|
Other
income
|
|
|
654
|
|
|
519
|
|
|
2,004
|
|
|
2,078
|
|
Gain
(loss) on sale of securities, net of taxes
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
(168
|
)
|
TOTAL
NON-INTEREST INCOME
|
|
|
11,026
|
|
|
10,740
|
|
|
33,154
|
|
|
31,642
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NON-INTEREST
EXPENSE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries
and employee benefits
|
|
|
13,298
|
|
|
12,703
|
|
|
40,269
|
|
|
38,231
|
|
Occupancy
expense, net
|
|
|
1,612
|
|
|
1,483
|
|
|
4,673
|
|
|
4,314
|
|
Furniture
and equipment expense
|
|
|
1,407
|
|
|
1,421
|
|
|
4,281
|
|
|
4,277
|
|
Loss
on foreclosed assets
|
|
|
32
|
|
|
57
|
|
|
105
|
|
|
160
|
|
Deposit
insurance
|
|
|
64
|
|
|
72
|
|
|
204
|
|
|
214
|
|
Other
operating expenses
|
|
|
5,722
|
|
|
5,490
|
|
|
17,029
|
|
|
16,412
|
|
TOTAL
NON-INTEREST EXPENSE
|
|
|
22,135
|
|
|
21,226
|
|
|
66,561
|
|
|
63,608
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME
BEFORE INCOME TAXES
|
|
|
10,666
|
|
|
10,650
|
|
|
30,015
|
|
|
29,581
|
|
Provision
for income taxes
|
|
|
3,219
|
|
|
3,316
|
|
|
9,284
|
|
|
9,444
|
|
NET
INCOME
|
|
$
|
7,447
|
|
$
|
7,334
|
|
$
|
20,731
|
|
$
|
20,137
|
|
BASIC
EARNINGS PER SHARE
|
|
$
|
0.53
|
|
$
|
0.51
|
|
$
|
1.46
|
|
$
|
1.40
|
|
DILUTED
EARNINGS PER SHARE
|
|
$
|
0.51
|
|
$
|
0.50
|
|
$
|
1.43
|
|
$
|
1.37
|
|
See
Condensed Notes to Consolidated Financial Statements.
Simmons
First National Corporation
Nine
Months Ended September 30, 2006 and 2005
|
|
September
30,
|
|
September
30,
|
|
(In
thousands)
|
|
2006
|
|
2005
|
|
OPERATING
ACTIVITIES
|
|
(Unaudited)
|
|
Net
income
|
|
$
|
20,731
|
|
$
|
20,137
|
|
Items
not requiring (providing) cash
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
4,104
|
|
|
4,052
|
|
Provision
for loan losses
|
|
|
3,099
|
|
|
5,895
|
|
Net
amortization (accretion) of investment securities
|
|
|
185
|
|
|
247
|
|
Deferred
income taxes
|
|
|
864
|
|
|
(1,227
|
)
|
(Gain)
loss on sale of securities, net of taxes
|
|
|
--
|
|
|
168
|
|
Bank
owned life insurance income
|
|
|
(1,098
|
)
|
|
(636
|
)
|
Changes
in
|
|
|
|
|
|
|
|
Interest
receivable
|
|
|
(3,199
|
)
|
|
(4,307
|
)
|
Mortgage
loans held for sale
|
|
|
1,266
|
|
|
(171
|
)
|
Assets
held in trading accounts
|
|
|
56
|
|
|
186
|
|
Other
assets
|
|
|
61
|
|
|
106
|
|
Accrued
interest and other liabilities
|
|
|
7,445
|
|
|
4,224
|
|
Income
taxes payable
|
|
|
(1,444
|
)
|
|
(1,515
|
)
|
Net
cash provided (used) by operating activities
|
|
|
32,070
|
|
|
27,159
|
|
|
|
|
|
|
|
|
|
INVESTING
ACTIVITIES
|
|
|
|
|
|
|
|
Net
originations of loans
|
|
|
(75,408
|
)
|
|
(144,918
|
)
|
Purchases
of premises and equipment, net
|
|
|
(6,890
|
)
|
|
(7,573
|
)
|
Proceeds
from sale of foreclosed assets
|
|
|
982
|
|
|
1,568
|
|
Proceeds
from sale of securities
|
|
|
1,542
|
|
|
1,225
|
|
Proceeds
from maturities of available-for-sale securities
|
|
|
78,503
|
|
|
58,757
|
|
Purchases
of available-for-sale securities
|
|
|
(65,625
|
)
|
|
(60,671
|
)
|
Proceeds
from maturities of held-to-maturity securities
|
|
|
18,841
|
|
|
24,071
|
|
Purchases
of held-to-maturity securities
|
|
|
(41,620
|
)
|
|
(24,140
|
)
|
Purchase
of bank owned life insurance
|
|
|
(1,341
|
)
|
|
(25,000
|
)
|
Net
cash provided (used) by investing activities
|
|
|
(91,016
|
)
|
|
(176,681
|
)
|
|
|
|
|
|
|
|
|
FINANCING
ACTIVITIES
|
|
|
|
|
|
|
|
Net
increase (decrease) in deposits
|
|
|
88,518
|
|
|
88,532
|
|
Net
proceeds (repayments) of short-term debt
|
|
|
53,819
|
|
|
90,374
|
|
Dividends
paid
|
|
|
(7,110
|
)
|
|
(6,464
|
)
|
Proceeds
from issuance of long-term debt
|
|
|
6,785
|
|
|
1,821
|
|
Repayment
of long-term debt
|
|
|
(11,632
|
)
|
|
(9,488
|
)
|
Net
increase (decrease) in federal funds purchased and
|
|
|
|
|
|
|
|
securities
sold under agreements to repurchase
|
|
|
(21,688
|
)
|
|
(12,465
|
)
|
Repurchase
of common stock, net
|
|
|
(4,656
|
)
|
|
(8,400
|
)
|
Net
cash provided (used) by financing activities
|
|
|
104,036
|
|
|
143,910
|
|
|
|
|
|
|
|
|
|
INCREASE
(DECREASE) IN CASH AND CASH EQUIVALENTS
|
|
|
45,090
|
|
|
(5,612
|
)
|
CASH
AND CASH EQUIVALENTS,
|
|
|
|
|
|
|
|
BEGINNING
OF PERIOD
|
|
|
101,573
|
|
|
153,731
|
|
CASH
AND CASH EQUIVALENTS, END OF PERIOD
|
|
$
|
146,663
|
|
$
|
148,119
|
|
See
Condensed Notes to Consolidated Financial Statements.
Simmons
First National Corporation
Nine
Months Ended September 30, 2006 and 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
Common
|
|
|
|
Comprehensive
|
|
|
|
|
|
(In
thousands, except share data)
|
|
Stock
|
|
Surplus
|
|
Income
(loss)
|
|
Profits
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2004
|
|
$
|
146
|
|
$
|
62,826
|
|
$
|
(1,124
|
)
|
$
|
176,374
|
|
$
|
238,222
|
|
Comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
20,137
|
|
|
20,137
|
|
Change
in unrealized depreciation on
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
available-for-sale
securities, net of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
income
tax credit of $1,394
|
|
|
--
|
|
|
--
|
|
|
(2,324
|
)
|
|
--
|
|
|
(2,324
|
)
|
Comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,813
|
|
Stock
issued as bonus shares - 5,620 shares
|
|
|
--
|
|
|
138
|
|
|
--
|
|
|
--
|
|
|
138
|
|
Exercise
of stock options - 80,460 shares
|
|
|
1
|
|
|
1,112
|
|
|
--
|
|
|
--
|
|
|
1,113
|
|
Securities
exchanged under stock option plan
|
|
|
(1
|
)
|
|
(775
|
)
|
|
--
|
|
|
--
|
|
|
(776
|
)
|
Repurchase
of common stock - 341,995 shares
|
|
|
(3
|
)
|
|
(8,872
|
)
|
|
--
|
|
|
--
|
|
|
(8,875
|
)
|
Dividends
paid - $0.45 per share
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
(6,464
|
)
|
|
(6,464
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
September 30, 2005 (Unaudited)
|
|
|
143
|
|
|
54,429
|
|
|
(3,448
|
)
|
|
190,047
|
|
|
241,171
|
|
Comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
6,825
|
|
|
6,825
|
|
Change
in unrealized depreciation on
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
available-for-sale
securities, net of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
income
tax credit of $548
|
|
|
--
|
|
|
--
|
|
|
(912
|
)
|
|
--
|
|
|
(912
|
)
|
Comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,913
|
|
Exercise
of stock options - 25,960 shares
|
|
|
--
|
|
|
320
|
|
|
--
|
|
|
--
|
|
|
320
|
|
Securities
exchanged under stock option plan
|
|
|
1
|
|
|
(213
|
)
|
|
--
|
|
|
--
|
|
|
(212
|
)
|
Repurchase
of common stock - 29,458 shares
|
|
|
(1
|
)
|
|
(813
|
)
|
|
--
|
|
|
--
|
|
|
(814
|
)
|
Dividends
paid - $0.16 per share
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
(2,293
|
)
|
|
(2,293
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2005
|
|
|
143
|
|
|
53,723
|
|
|
(4,360
|
)
|
|
194,579
|
|
|
244,085
|
|
Comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
20,731
|
|
|
20,731
|
|
Change
in unrealized depreciation on
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
available-for-sale
securities, net of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
income
taxes of $924
|
|
|
--
|
|
|
--
|
|
|
1,542
|
|
|
--
|
|
|
1,542
|
|
Comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,274
|
|
Stock
issued as bonus shares - 10,200 shares
|
|
|
--
|
|
|
275
|
|
|
--
|
|
|
--
|
|
|
275
|
|
Exercise
of stock options - 67,580 shares
|
|
|
1
|
|
|
992
|
|
|
--
|
|
|
--
|
|
|
993
|
|
Securities
exchanged under stock option plan
|
|
|
--
|
|
|
(799
|
)
|
|
--
|
|
|
--
|
|
|
(799
|
)
|
Stock
granted under
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
stock-based
compensation plans
|
|
|
--
|
|
|
69
|
|
|
--
|
|
|
--
|
|
|
69
|
|
Repurchase
of common stock - 188,900 shares
|
|
|
(2
|
)
|
|
(5,192
|
)
|
|
--
|
|
|
--
|
|
|
(5,194
|
)
|
Dividends
paid - $0.50 per share
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
(7,110
|
)
|
|
(7,110
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
September 30, 2006 (Unaudited)
|
|
$
|
142
|
|
$
|
49,068
|
|
$
|
(2,818
|
)
|
$
|
208,200
|
|
$
|
254,592
|
|
See
Condensed Notes to Consolidated Financial Statements.
SIMMONS
FIRST NATIONAL CORPORATION
(Unaudited)
NOTE
1: ACCOUNTING
POLICIES
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, 2005 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 2005 filed with the Securities and Exchange
Commission.
On
January
1, 2006, the Company began recognizing compensation expense for stock options
with the adoption of Statement of Financial Accounting Standards (SFAS) No.
123,
Share-Based Payment (Revised 2004). See Note 11 - Stock Based Compensation
for
additional information. There have been no other significant changes to the
Company’s accounting policies from the 2005 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, 2006 and 2005.
|
|
Three
Months Ended
|
|
Nine
Months Ended
|
|
|
|
September
30,
|
|
September
30,
|
|
(In
thousands, except per share data)
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
7,447
|
|
$
|
7,334
|
|
$
|
20,731
|
|
$
|
20,137
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
common shares outstanding
|
|
|
14,196
|
|
|
14,357
|
|
|
14,236
|
|
|
14,386
|
|
Average
potential dilutive common shares
|
|
|
255
|
|
|
297
|
|
|
255
|
|
|
297
|
|
Average
diluted common shares
|
|
|
14,451
|
|
|
14,654
|
|
|
14,491
|
|
|
14,683
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per share
|
|
$
|
0.53
|
|
$
|
0.51
|
|
$
|
1.46
|
|
$
|
1.40
|
|
Diluted
earnings per share
|
|
$
|
0.51
|
|
$
|
0.50
|
|
$
|
1.43
|
|
$
|
1.37
|
|
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,
|
|
December
31,
|
|
|
|
2006
|
|
2005
|
|
|
|
|
|
Gross
|
|
Gross
|
|
Estimated
|
|
|
|
Gross
|
|
Gross
|
|
Estimated
|
|
|
|
Amortized
|
|
Unrealized
|
|
Unrealized
|
|
Fair
|
|
Amortized
|
|
Unrealized
|
|
Unrealized
|
|
Fair
|
|
(In
thousands)
|
|
Cost
|
|
Gains
|
|
(Losses)
|
|
Value
|
|
Cost
|
|
Gains
|
|
(Losses)
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-to-Maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Treasury
|
|
$
|
1,001
|
|
$
|
--
|
|
$
|
(4
|
)
|
$
|
997
|
|
$
|
1,004
|
|
$
|
--
|
|
$
|
(20
|
)
|
$
|
984
|
|
U.S.
Government
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
agencies
|
|
|
53,000
|
|
|
107
|
|
|
(115
|
)
|
|
52,992
|
|
|
28,000
|
|
|
--
|
|
|
(473
|
)
|
|
27,527
|
|
Mortgage-backed
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
securities
|
|
|
161
|
|
|
3
|
|
|
(1
|
)
|
|
163
|
|
|
187
|
|
|
3
|
|
|
--
|
|
|
190
|
|
State
and political
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
subdivisions
|
|
|
116,481
|
|
|
314
|
|
|
(297
|
)
|
|
116,498
|
|
|
117,148
|
|
|
662
|
|
|
(1,298
|
)
|
|
116,512
|
|
Other
securities
|
|
|
2,301
|
|
|
--
|
|
|
--
|
|
|
2,301
|
|
|
3,960
|
|
|
--
|
|
|
--
|
|
|
3,960
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
172,944
|
|
$
|
424
|
|
$
|
(417
|
)
|
$
|
172,951
|
|
$
|
150,299
|
|
$
|
665
|
|
$
|
(1,791
|
)
|
$
|
149,173
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-Sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Treasury
|
|
$
|
6,792
|
|
$
|
--
|
|
$
|
(43
|
)
|
$
|
6,749
|
|
$
|
10,989
|
|
$
|
--
|
|
$
|
(102
|
)
|
$
|
10,887
|
|
U.S.
Government
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
agencies
|
|
|
336,545
|
|
|
--
|
|
|
(4,836
|
)
|
|
331,709
|
|
|
348,570
|
|
|
35
|
|
|
(7,615
|
)
|
|
340,990
|
|
Mortgage-backed
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
securities
|
|
|
3,187
|
|
|
--
|
|
|
(92
|
)
|
|
3,095
|
|
|
3,392
|
|
|
9
|
|
|
(92
|
)
|
|
3,309
|
|
State
and political
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
subdivisions
|
|
|
1,360
|
|
|
13
|
|
|
--
|
|
|
1,373
|
|
|
3,014
|
|
|
39
|
|
|
--
|
|
|
3,053
|
|
Other
securities
|
|
|
15,183
|
|
|
452
|
|
|
--
|
|
|
15,635
|
|
|
12,561
|
|
|
690
|
|
|
--
|
|
|
13,251
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
363,067
|
|
$
|
465
|
|
$
|
(4,971
|
)
|
$
|
358,561
|
|
$
|
378,526
|
|
$
|
773
|
|
$
|
(7,809
|
)
|
$
|
371,490
|
|
The
carrying value, which approximates the fair value, of securities pledged as
collateral, to secure public deposits and for other purposes, amounted to
$398,516,000 at September 30, 2006 and $411,580,000 at December 31, 2005.
The
book
value of securities sold under agreements to repurchase amounted to $70,610,000
and $67,778,000 for September 30, 2006 and December 31, 2005,
respectively.
Income
earned on securities for the nine months ended September 30, 2006 and 2005,
is
as follows:
(In
thousands)
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
Taxable
|
|
|
|
|
|
Held-to-maturity
|
|
$
|
1,321
|
|
$
|
773
|
|
Available-for-sale
|
|
|
10,136
|
|
|
9,542
|
|
|
|
|
|
|
|
|
|
Non-taxable
|
|
|
|
|
|
|
|
Held-to-maturity
|
|
|
3,454
|
|
|
3,460
|
|
Available-for-sale
|
|
|
80
|
|
|
151
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
14,991
|
|
$
|
13,926
|
|
Maturities
of investment securities at September 30, 2006 are as follows:
|
|
Held-to-Maturity
|
|
Available-for-Sale
|
|
|
|
Amortized
|
|
Fair
|
|
Amortized
|
|
Fair
|
|
(In
thousands)
|
|
Cost
|
|
Value
|
|
Cost
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
One
year or less
|
|
$
|
19,459
|
|
$
|
19,377
|
|
$
|
102,837
|
|
$
|
101,962
|
|
After
one through five years
|
|
|
54,952
|
|
|
54,831
|
|
|
161,855
|
|
|
158,704
|
|
After
five through ten years
|
|
|
82,370
|
|
|
82,384
|
|
|
79,082
|
|
|
78,168
|
|
After
ten years
|
|
|
14,792
|
|
|
14,988
|
|
|
4,112
|
|
|
4,092
|
|
Other
securities
|
|
|
1,371
|
|
|
1,371
|
|
|
15,181
|
|
|
15,635
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
172,944
|
|
$
|
172,951
|
|
$
|
363,067
|
|
$
|
358,561
|
|
Gross
realized losses of $0 and $275,000 were recognized for the nine-month periods
ended September 30, 2006 and 2005. There were no realized gains over the same
periods.
Most
of
the state and political subdivision debt obligations are 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 are summarized as follows:
|
|
September
30,
|
|
December
31,
|
|
(In
thousands)
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
Consumer
|
|
|
|
|
|
Credit
cards
|
|
$
|
133,607
|
|
$
|
143,058
|
|
Student
loans
|
|
|
86,875
|
|
|
89,818
|
|
Other
consumer
|
|
|
146,039
|
|
|
138,051
|
|
Real
Estate
|
|
|
|
|
|
|
|
Construction
|
|
|
267,600
|
|
|
238,898
|
|
Single
family residential
|
|
|
364,657
|
|
|
340,839
|
|
Other
commercial
|
|
|
494,514
|
|
|
479,684
|
|
Commercial
|
|
|
|
|
|
|
|
Commercial
|
|
|
175,576
|
|
|
184,920
|
|
Agricultural
|
|
|
103,301
|
|
|
68,761
|
|
Financial
institutions
|
|
|
576
|
|
|
20,499
|
|
Other
|
|
|
15,772
|
|
|
13,579
|
|
|
|
|
|
|
|
|
|
Total
loans before allowance for loan losses
|
|
$
|
1,788,517
|
|
$
|
1,718,107
|
|
As
of
September 30, 2006, credit card loans, which are unsecured, were $133,607,000,
or 7.5% of total loans, versus $143,058,000, or 8.3% of total loans at December
31, 2005. 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, 2006 and December 31, 2005, impaired loans totaled $11,961,000
and
$14,804,000, respectively. All impaired loans had either specific or general
allocations within the allowance for loan losses. Allocations of the allowance
for loan losses relative to impaired loans were $4,060,000 at September 30,
2006
and $3,868,000 at December 31, 2005. Approximately $297,000 and $313,000 of
interest income was recognized on average impaired loans of $13,133,000 and
$15,984,000 as of September 30, 2006 and 2005, respectively. Interest
recognized on impaired loans on a cash basis during the first nine months of
2006 and 2005 was immaterial.
Transactions
in the allowance for loan losses are as follows:
|
|
September
30,
|
|
December
31,
|
|
(In
thousands)
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
Balance,
beginning of year
|
|
$
|
26,923
|
|
$
|
26,508
|
|
Additions
|
|
|
|
|
|
|
|
Provision
charged to expense
|
|
|
3,099
|
|
|
5,895
|
|
|
|
|
30,022
|
|
|
32,403
|
|
Deductions
|
|
|
|
|
|
|
|
Losses
charged to allowance, net of recoveries
|
|
|
|
|
|
|
|
of
$2,266 and $3,305 for the first nine months of
|
|
|
|
|
|
|
|
2006
and 2005, respectively
|
|
|
2,618
|
|
|
5,074
|
|
Reclassification
of reserve related to unfunded commitments (1)
|
|
|
1,525
|
|
|
--
|
|
|
|
|
|
|
|
|
|
Balance,
September 30
|
|
$
|
25,879
|
|
|
27,329
|
|
|
|
|
|
|
|
|
|
Additions
|
|
|
|
|
|
|
|
Provision
charged to expense
|
|
|
|
|
|
1,631
|
|
|
|
|
|
|
|
|
|
Deductions
|
|
|
|
|
|
|
|
Losses
charged to allowance, net of recoveries
|
|
|
|
|
|
|
|
of
$511 for the last three months of 2005
|
|
|
|
|
|
2,037
|
|
|
|
|
|
|
|
|
|
Balance,
end of year
|
|
|
|
|
$
|
26,923
|
|
|
(1)
|
On
March 31, 2006, the reserve for unfunded commitments was reclassified
from
the allowance for loan losses to other
liabilities.
|
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, 2006 and
December 31, 2005, were as follows:
|
|
September
30,
|
|
December
31,
|
|
(In
thousands)
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
Gross
carrying amount
|
|
$
|
7,246
|
|
$
|
7,246
|
|
Accumulated
amortization
|
|
|
(2,840
|
)
|
|
(2,217
|
)
|
|
|
|
|
|
|
|
|
Net
core deposit premiums
|
|
$
|
4,406
|
|
$
|
5,029
|
|
Core
deposit premium amortization expense recorded for the nine months ended
September 30, 2006 and 2005, was $623,000 and $622,000, respectively. The
Company’s estimated amortization expense for the remainder of 2006 is $207,000,
and for each of the following four years is:
2007 –
$818,000; 2008 – $807,000; 2009 – $802,000; and 2010 –
$698,000.
NOTE
5: TIME
DEPOSITS
Time
deposits include approximately $436,022,000 and $364,177,000 of certificates
of
deposit of $100,000 or more at September 30, 2006 and December 31, 2005
respectively.
NOTE
6: INCOME
TAXES
The
provision for income taxes is comprised of the following
components:
|
|
September
30,
|
|
September
30,
|
|
(In
thousands)
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
Income
taxes currently payable
|
|
$
|
10,148
|
|
$
|
10,671
|
|
Deferred
income taxes
|
|
|
(864
|
)
|
|
(1,227
|
)
|
|
|
|
|
|
|
|
|
Provision
for income taxes
|
|
$
|
9,284
|
|
$
|
9,444
|
|
The
tax
effects of temporary differences related to deferred taxes shown on the balance
sheets were:
|
|
September
30,
|
|
December
31,
|
|
(In
thousands)
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
Deferred
tax assets
|
|
|
|
|
|
Allowance
for loan losses
|
|
$
|
8,655
|
|
$
|
8,329
|
|
Valuation
of foreclosed assets
|
|
|
63
|
|
|
74
|
|
Deferred
compensation payable
|
|
|
1,230
|
|
|
1,109
|
|
FHLB
advances
|
|
|
64
|
|
|
97
|
|
Vacation
compensation
|
|
|
757
|
|
|
727
|
|
Loan
interest
|
|
|
140
|
|
|
241
|
|
Available-for-sale
securities
|
|
|
1,691
|
|
|
2,615
|
|
Other
|
|
|
393
|
|
|
363
|
|
Total
deferred tax assets
|
|
|
12,993
|
|
|
13,555
|
|
|
|
|
|
|
|
|
|
Deferred
tax liabilities
|
|
|
|
|
|
|
|
Accumulated
depreciation
|
|
|
(867
|
)
|
|
(1,128
|
)
|
Deferred
loan fee income and expenses, net
|
|
|
(771
|
)
|
|
(657
|
)
|
FHLB
stock dividends
|
|
|
(847
|
)
|
|
(740
|
)
|
Goodwill
and core deposit premium amortization
|
|
|
(5,044
|
)
|
|
(3,852
|
)
|
Other
|
|
|
(880
|
)
|
|
(807
|
)
|
Total
deferred tax liabilities
|
|
|
(8,409
|
)
|
|
(7,184
|
)
|
|
|
|
|
|
|
|
|
Net
deferred tax assets included in other
|
|
|
|
|
|
|
|
assets
on balance sheets
|
|
$
|
4,584
|
|
$
|
6,371
|
|
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)
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
Computed
at the statutory rate (35%)
|
|
$
|
10,505
|
|
$
|
10,353
|
|
|
|
|
|
|
|
|
|
Increase
(decrease) resulting from:
|
|
|
|
|
|
|
|
Tax
exempt income
|
|
|
(1,389
|
)
|
|
(1,422
|
)
|
Other
differences, net
|
|
|
168
|
|
|
513
|
|
|
|
|
|
|
|
|
|
Actual
tax provision
|
|
$
|
9,284
|
|
$
|
9,444
|
|
NOTE
7: SHORT-TERM
AND LONG-TERM DEBT
Long-term
debt at September 30, 2006 and December 31, 2005, consisted of the following
components:
|
|
September
30,
|
|
December
31,
|
|
(In
thousands)
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
Note
Payable, due 2007, at a floating rate of
|
|
|
|
|
|
0.90%
above the one-month LIBOR rate, reset
|
|
|
|
|
|
monthly,
unsecured
|
|
$
|
2,000
|
|
$
|
4,000
|
|
FHLB
advances, due 2006 to 2024, 2.58% to 8.41%
|
|
|
|
|
|
|
|
secured
by residential real estate loans
|
|
|
49,243
|
|
|
52,090
|
|
Trust
preferred securities, due 2033,
|
|
|
|
|
|
|
|
fixed
at 8.25%, callable in 2008 without penalty
|
|
|
10,310
|
|
|
10,310
|
|
Trust
preferred securities,
due 2033,
|
|
|
|
|
|
|
|
floating
rate of 2.80% above the three-month LIBOR
|
|
|
|
|
|
|
|
rate,
reset quarterly, callable in 2008 without penalty
|
|
|
10,310
|
|
|
10,310
|
|
Trust
preferred securities, due 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
|
|
|
|
|
|
|
|
|
|
|
|
$
|
82,173
|
|
$
|
87,020
|
|
At
September 30, 2006 the Company had Federal Home Loan Bank (“FHLB”) advances with
original maturities of one year or less of $59.7 million with a weighted average
rate of 5.30% which are not included in the above table.
The
trust
preferred securities are tax-advantaged issues that 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, 2006 are:
|
|
|
|
Annual
|
|
(In
thousands)
|
|
Year
|
|
Maturities
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
$
|
3,244
|
|
|
|
|
2007
|
|
|
10,154
|
|
|
|
|
2008
|
|
|
12,939
|
|
|
|
|
2009
|
|
|
5,767
|
|
|
|
|
2010
|
|
|
2,446
|
|
|
|
|
Thereafter
|
|
|
47,623
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
82,173
|
|
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. The Company or its subsidiaries remain the subject
of two (2) lawsuits asserting claims against the Company or 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 plaintiffs are seeking
$2,000,000 in compensatory damages and $10,000,000 in punitive damages. The
Company has filed a Motion to Dismiss. The plaintiffs have been granted
additional time to discover any evidence for litigation. At this time, no basis
for any material liability has been identified. The Company and the banks plan
to vigorously defend the claims asserted in the suit.
On
April
3, 2006, an action in Johnson County Circuit Court was filed by Tria Xiong
and
Mai Lee Xiong against Simmons First Bank of Russellville and certain individuals
alleging wrongful conduct by the bank in the underwriting and origination of
certain loans. The plaintiffs are seeking an unspecified sum in compensatory
damages and $1,000,000.00 in punitive damages. Discovery is in process, and
the
suit is pending, with no court date set. At this time, no basis for any material
liability has been identified. The bank plans to vigorously defend the claims
asserted in the suit.
On
June
22, 2006, an action in Johnson County Circuit Court was filed by Wa Khue Moua
and Maycha Moua against Simmons First Bank of Russellville alleging wrongful
conduct by the bank in the underwriting and origination of certain loans. The
plaintiffs were seeking $275,000.00 in compensatory damages and $500,000.00
in
punitive damages. On October 6, 2006, an Order of Dismissal was signed in
Johnson County Circuit Court dismissing the case without prejudice.
NOTE
9: CAPITAL
STOCK
On
May 25,
2004, the Company announced the adoption by the Board of Directors of a stock
repurchase program. The program authorizes the repurchase of up to 5% of the
then outstanding Common Stock, or 733,485 shares. 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.
During
the
nine-month period ended September 30, 2006, the Company repurchased 188,900
shares of stock under the repurchase plan with a weighted average repurchase
price of $27.54 per share. Under the current stock repurchase plan, the Company
can repurchase an additional 355,167 shares.
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,
2006, the bank subsidiaries had approximately $12 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, 2006, each of the eight subsidiary banks met the capital
standards for a well-capitalized institution. The Company's “total risk-based
capital” ratio was 13.35% at September 30, 2006.
NOTE
11: STOCK
BASED COMPENSATION
Prior
to
January 1, 2006, employee compensation expense under stock option plans was
reported only if options were granted below market price at grant date in
accordance with the intrinsic value method of Accounting Principles Board
Opinion (APB) No.25, "Accounting for Stock Issued to Employees," and related
interpretations. Because the exercise price of the Company's employee stock
options always equaled the market price of the underlying stock on the date
of
grant, no compensation expense was recognized on options granted. As stated
in
Note 1 - Significant Accounting Policies, the Company adopted the provisions
of
SFAS 123R on January 1, 2006. SFAS 123R eliminates the ability to account
for stock-based compensation using APB 25 and requires
that such transactions be recognized as compensation cost in the income
statement based on their fair values on the measurement date, which is generally
the date of the grant. The Company transitioned to fair-value based accounting
for stock based compensation using a modified version of prospective application
("modified prospective application"). Under modified prospective application,
as
it is applicable to the Company, SFAS 123R applies to new awards and to awards
modified, repurchased, or cancelled after January 1, 2006. Additionally,
compensation cost for the portion of awards for which the requisite service
has
not been rendered (generally referring to non-vested awards) that were
outstanding as of January 1, 2006, will be recognized as the remaining requisite
service is rendered during the period of and/or the periods after the adoption
of SFAS 123R. The attribution of compensation cost for those earlier awards
is
based on the same method and on the same grant date fair values previously
determined for the pro forma disclosures required for companies that did not
previously adopt the fair value accounting method for stock-based employee
compensation.
Stock-based
compensation expense for all stock-based compensation awards granted after
January 1, 2006, is based on the grant date fair value. For all awards except
stock option awards, the grant date fair value is the market value per share
as
of the grant date. For stock option awards, the fair value is estimated at
the
date of grant using the Black-Scholes option-pricing model. This model requires
the input of highly subjective assumptions, changes to which can materially
affect the fair value estimate. Additionally, there may be other factors that
would otherwise have a significant effect on the value of employee stock options
granted but are not considered by the model. Accordingly, while management
believes that the Black-Scholes option-pricing model provides a reasonable
estimate of fair value, the model does not necessarily provide the best single
measure of fair value for the Company's employee stock options.
As
a
result of applying the provisions of SFAS 123R during the three and nine months
ended September 30, 2006, the Company recognized additional stock-based
compensation expense related to stock options of $18,773 and $69,112. The
increase in stock-based compensation expense related to stock options during
the
three and nine months ended September 30, 2006, resulted in no change in basic
or diluted earnings per share.
Stock-based
compensation expense totaled $18,773 and $213,341 during the three and nine
months ended September 30, 2006 and $0 and $116,691 during the three and nine
months ended September 30, 2005. 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
$306,387 at September 30, 2006. At such date, the weighted-average period over
which this unrecognized expense is expected to be recognized was 2.11 years.
Unrecognized stock-based compensation expense related to non-vested stock awards
was $437,456 at September 30, 2006. At such date, the weighted-average
period over which this unrecognized expense is expected to be recognized was
2.48 years.
The
following pro forma information presents net income and earnings per share
for
the three and nine months ended September 30, 2005, as if the fair value method
of SFAS 123R had been applied.
|
|
Three
Months Ended
|
|
Nine
Months Ended
|
|
(In
thousands, except per share data)
|
|
September
30, 2005
|
|
September
30, 2005
|
|
Net
income, as reported
|
|
$
|
7,334
|
|
$
|
20,137
|
|
Add:
Stock-based employee compensation included
|
|
|
|
|
|
|
|
in
reported net income, net of related tax effects
|
|
|
--
|
|
|
73
|
|
Less:
Total stock-based employee compensation
|
|
|
|
|
|
|
|
expense
determined under fair value based method
|
|
|
|
|
|
|
|
for
all awards, net of related tax effects
|
|
|
(65
|
)
|
|
(269
|
)
|
Pro
forma net income
|
|
$
|
7,269
|
|
$
|
19,941
|
|
Earnings
per share:
|
|
|
|
|
|
|
|
Basic
- as reported
|
|
$
|
0.51
|
|
$
|
1.40
|
|
Basic
- pro forma
|
|
$
|
0.51
|
|
$
|
1.39
|
|
|
|
|
|
|
|
|
|
Diluted
- as reported
|
|
$
|
0.50
|
|
$
|
1.37
|
|
Diluted
- pro forma
|
|
$
|
0.50
|
|
$
|
1.36
|
|
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 exercise
of
stock options or awarding of bonus shares granted to officers and other key
employees.
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. Expected
volatility is based on historical volatility of the Company’s stock and other
factors. The Company uses historical data to estimate option exercise and
employee termination within the valuation model. The expected term of options
granted is derived from the output of the option valuation model and represents
the period of time that options granted are expected to be outstanding. The
risk-free rate for periods within the contractual life of the option is based
on
the U.S. Treasury yield curve in effect at the time of grant. Forfeitures are
estimated at the time of grant, and are based partially on historical
experience.
The
table
below summarizes the transactions under the Company's stock option plans for
the
nine months ended September 30, 2006:
|
|
|
|
Weighted
|
|
|
|
|
|
Average
|
|
|
|
|
|
Exercisable
|
|
(In
thousands, except per share data)
|
|
Shares
|
|
Price
|
|
|
|
|
|
|
|
Outstanding,
January 1, 2006
|
|
|
609
|
|
$
|
14.77
|
|
Granted
|
|
|
60
|
|
|
26.19
|
|
Forfeited/Expired
|
|
|
(27)
|
|
|
13.50
|
|
Exercised
|
|
|
(68)
|
|
|
14.68
|
|
|
|
|
|
|
|
|
|
Outstanding,
September 30, 2006
|
|
|
574
|
|
$
|
16.03
|
|
|
|
|
|
|
|
|
|
Exercisable
at September 30, 2006
|
|
|
509
|
|
$
|
14.79
|
|
Total
intrinsic value of options exercised for the nine months ended September 30,
2006, was $913,682.
There
were
59,700 options granted during the nine months ended September 30, 2006. The
weighted-average fair value of options granted during the nine months ended
September 30, 2006 was $5.01. The following weighted-average assumptions were
used to estimate the fair value of options granted during the nine months ended
September 30, 2006:
Expected
dividend yield
|
2.67%
|
Expected
stock price volatility
|
17.74%
|
Risk-free
interest rate
|
4.84%
|
Expected
life of options
|
5
-
10 Years
|
As
of
September 30, 2006, there was $743,343 of total unrecognized compensation cost
related to nonvested share-based compensation arrangements. That cost is
expected to be recognized over a weighted-average period of 2.33
years.
NOTE
12: ADDITIONAL
CASH FLOW INFORMATION
|
|
Nine
Months Ended
|
|
|
|
September
30,
|
|
(In
thousands)
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
Interest
paid
|
|
$
|
43,552
|
|
$
|
29,019
|
|
Income
taxes paid
|
|
$
|
9,865
|
|
$
|
9,732
|
|
NOTE
13: 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
14: 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, 2006, the Company had outstanding commitments to extend credit
aggregating approximately $214,882,000 and $443,950,000 for credit card
commitments and other loan commitments, respectively. At December 31, 2005,
the
Company had outstanding commitments to extend credit aggregating approximately
$194,614,000 and $429,442,000 for credit card commitments and other loan
commitments, respectively.
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 $6,339,000 and $4,573,000 at September 30, 2006 and December
31, 2005, respectively, with terms ranging from 90 days to three years. At
September 30, 2006 and December 31, 2005 the Company’s deferred revenue under
standby letter of credit agreements is approximately $62,000 and $43,000,
respectively.
BKD,
LLP
Certified
Public Accountants
200
East
Eleventh
Pine
Bluff, Arkansas
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, 2006, and the related consolidated statements of income for the
three-month and nine-month periods ended September 30, 2006 and 2005, and the
related consolidated statements of stockholders’ equity and cash flows for the
nine-month periods ended September 30, 2006 and 2005. 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, 2005, 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 15, 2006, 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, 2005, is fairly stated, in all material respects, in relation
to
the consolidated balance sheet from which it has been derived.
Pine
Bluff, Arkansas
November
6, 2006
Item
2. Management’s
Discussion and Analysis of Financial Condition
and
Results of
Operations
OVERVIEW
Simmons
First National Corporation recorded earnings of $7,447,000, or $0.51 diluted
earnings per share for the third quarter of 2006, compared to earnings of
$7,334,000, or $0.50 diluted earnings per share for same period in 2005. This
represents a $113,000, or 1.5% increase in the third quarter 2006 earnings
over
2005. From September 30, 2005 to September 30, 2006, quarterly diluted earnings
per share increased by $0.01, or 2.0%. Annualized return on average assets
and
annualized return on average stockholders’ equity for the three-month period
ended September 30, 2006, were 1.13% and 11.70%, compared to 1.15% and 12.05%,
respectively, for the same period in 2005. The
increase in earnings
for the
quarter over the same period last year is primarily attributable to an increase
in non-interest income, a reduced provision for loan losses resulting from
fewer
credit card charge-offs, and a minimal increase in non-interest expense due
to
the Company’s emphasis on the budgeting process.
Earnings
for the nine-month period ended September 30, 2006, were $20,731,000, or $1.43
per diluted share. These earnings reflect an increase of $594,000, or $0.06
per
share, when compared to the nine-month period ended September 30, 2005, earnings
of $20,137,000, or $1.37 per diluted share. Annualized return on average assets
and annualized return on average stockholders’ equity for the nine-month period
ended September 30, 2006, were 1.08% and 11.13%, compared to 1.08% and
11.29%, respectively, for the same period in 2005.
The
non-performing assets ratio (the sum of non-performing loans and foreclosed
assets divided by the sum of total loans and foreclosed assets) was 69 basis
points and 58 basis points at September 30, 2006 and December 31, 2005,
respectively. Non-performing loans to total loans were 61 basis points at
the end of the quarter, compared to 49 basis points at December 31, 2005.
The allowance for loan losses equaled 239% of non-performing loans as of
September 30, 2006, compared to 319% as of year-end 2005. The allowance for
loan
losses as a percent of total loans equaled 1.45% and 1.57 % as of September
30,
2006 and December 31, 2005, respectively.
Annualized
net charge-offs to total loans for the third quarter of 2006 were 20 basis
points. Excluding credit cards, annualized net charge-offs to total loans were
13 basis points. The credit card annualized net charge-offs as a percent of
the
credit card portfolio were 1.10% for the quarter ended September 30, 2006,
more
than 300 basis points below the most recently published industry average of
4.23%. Credit card charge-offs increased during the fourth quarter of 2005
due
to a new bankruptcy law that went into effect in October of 2005. While
bankruptcy filings have declined significantly from the high levels of the
fourth quarter of 2005, the Company does not expect the year-to-date results
to
be maintained during 2007. The Company anticipates credit card charge-offs
will
gradually return to the Company’s historical level of approximately
2.50%.
Total
assets for the Company at September 30, 2006, were $2.657 billion, an increase
of $133.2 million, or 5.3% from December 31, 2005. Stockholders’ equity at
the end of the third quarter of 2006 was $254.6 million, a $10.5 million, or
4.3% increase from December 31, 2005.
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 84 offices, of which 81 are financial centers,
located in 46 communities.
CRITICAL
ACCOUNTING POLICIES
Overview
Management
has reviewed its various accounting policies. Based on this review management
believes the policies most critical to the Company are the policies associated
with its lending practices including the accounting for the allowance for loan
losses, treatment of goodwill, recognition of fee income, estimates of income
taxes and employee benefit plans as it relates to stock options.
Loans
Loans
which the Company has the intent and ability to hold for the foreseeable future
or until maturity or pay-off are reported at their outstanding principal balance
adjusted for any loans charged-off, any deferred fees or costs on originated
loans and unamortized premiums or discounts on purchased loans. Interest income
is reported on the interest method and includes amortization of net deferred
loan fees and costs over the estimated life of the loan. Generally, loans are
placed on non-accrual status at ninety days past due and interest is considered
a loss, unless the loan is well secured and in the process of
collection.
Discounts
and premiums on purchased residential real estate loans are amortized to income
using the interest method over the remaining period to contractual maturity,
adjusted for anticipated prepayments. Discounts and premiums on purchased
consumer loans are recognized over the expected lives of the loans using methods
that approximate the interest method.
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 uncollectibility
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 that have been incurred
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 using the classified asset approach,
as defined by the Office of the Comptroller of the Currency. 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
Goodwill
represents the excess of cost over the fair value of net assets of acquired
subsidiaries and branches. Financial Accounting Standards Board Statement No.
142 and No. 147 eliminated the amortization for these assets as of January
1,
2002. While goodwill is not amortized, impairment testing of goodwill is
performed annually, or more frequently if certain conditions occur. The Company
did not record impairment of goodwill in 2006 or 2005.
Core
Deposit Premiums
Core
deposit premiums are being amortized using both straight-line and accelerated
methods over periods ranging from 8 to 15 years. Such assets are periodically
evaluated as to the recoverability of their carrying value.
Fee
Income
Periodic
credit card fees, net of direct origination costs, are recognized as revenue
on
a straight-line basis over the period the fee entitles the cardholder to use
the
card. Origination fees and costs for other loans are being amortized over the
estimated life of the loan.
Income
Taxes
Deferred
tax assets and liabilities are recognized for the tax effects of differences
between the financial statement and tax bases of assets and liabilities. A
valuation allowance is established to reduce deferred tax assets if it is more
likely than not that a deferred tax asset will not be realized.
Employee
Benefit Plans
The
Company has a stock-based employee compensation plan. In December 2004, FASB
issued SFAS No. 123, Share-Based Payment (Revised 2004), which requires all
companies to measure compensation cost for all share-based payments (including
employee stock options) at fair value. As discussed in Note 11 -
Stock-Based Compensation in the accompanying condensed notes to consolidated
financial statements included elsewhere in this report, the standard requires
companies to expense the fair value of all stock options that have future
vesting provisions, are modified, or are newly granted beginning on the grant
date of such options. SFAS 123R became effective and was adopted by the Company
on January 1, 2006.
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. These historical percentages are consistent
with the Company’s current interest rate sensitivity.
Net
Interest Income Quarter-to-Date
Analysis
For
the
three-month period ended September 30, 2006, net interest income on a fully
taxable equivalent basis was $23.2 million, a decrease of $502,000, or 2.1%,
from the same period in 2005. The decrease in net interest income was the result
of a $5.3 million increase in interest income offset by a $5.8 million increase
in interest expense.
The
$5.3
million increase in interest income primarily is the result of a 75 basis point
increase in yield on earning assets associated with the higher interest rate
environment, as well as a $57 million increase in average interest earning
assets due to internal growth and seasonal increases in the loan portfolio.
The
growth in average interest earning assets resulted in a $1.2 million improvement
in interest income. The growth in average loans accounted for a $1.4 million
increase, offset by lower average balances in other interest earning assets.
The
higher interest rates accounted for a $4.2 million increase in interest
income. The most significant component of this increase was the $3.3 million
increase 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 increased 75 basis points from 6.88% to
7.63%.
The
$5.8
million increase in interest expense is the result of a 107 basis point increase
in cost of funds due to competitive repricing during a higher interest rate
environment, coupled with a $54.8 million increase in average interest
bearing liabilities generated through internal growth. The higher level of
average interest bearing liabilities resulted in a $510,000 increase in interest
expense. More specifically, the higher level of average interest bearing
liabilities was the result of an increase of approximately $89.4 million from
internal deposit growth, offset by a reduction of $27.2 million in federal
funds
purchased and short-term debt, along with a $7.4 million reduction in average
long-term debt due primarily to scheduled repayments of FHLB borrowings. The
higher interest rates accounted for a $5.3 million increase in interest expense.
The most significant component of this increase was the $3.4 million increase
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 85% of
the
Company’s time deposits reprice in one year or less. As a result, the average
rate paid on time deposits increased 128 basis points from 2.92% to
4.20%.
Net
Interest Income Year-to-Date
Analysis
For
the
nine-month period ended September 30, 2006, net interest income on a fully
taxable equivalent basis was $68.9 million, a decrease of $986,000, or 1.4%,
from the same period in 2005. The decrease in net interest income was the result
of a $15.0 million increase in interest income offset by a $16.0 million
increase in interest expense.
The
$15.0
million increase in interest income primarily is the result of a 74 basis point
increase in yield on earning assets associated with the higher interest rate
environment, as well as a $50.3 million increase in average interest
earning assets due to internal growth and seasonal increases in the loan
portfolio. The growth in average interest earning assets resulted in a
$3.7 million improvement in interest income. The growth in average loans
accounted for a $5.1 million increase, offset by lower average balances in
other interest earning assets. The higher interest rates accounted for an $11.4
million increase in interest income. The most significant component of this
increase was the $8.8 million increase 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 paid on the loan portfolio increased
73 basis points from 6.70% to 7.43%.
The
$16.0
million increase in interest expense is the result of a 103 basis point increase
in cost of funds due to competitive repricing during a higher interest rate
environment, coupled with a $48.7 million increase in average interest
bearing liabilities generated through internal growth. The higher level of
average interest bearing liabilities resulted in a $1.2 million increase in
interest expense. More specifically, the higher level of average interest
bearing liabilities was the result of an increase of approximately $64.3 million
from internal deposit growth, offset by an $8.3 million reduction in average
long-term debt due primarily to scheduled repayments of FHLB borrowings. The
higher interest rates accounted for a $14.8 million increase in interest
expense. The most significant component of this increase was the $9.5 million
increase 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 increased 126 basis points from 2.61% to
3.87%.
Net
Interest Margin
The
Company’s net interest margin decreased 19 basis points to 3.91% for the
three-month period ended September 30, 2006, when compared to 4.10% for the
same
period in 2005. This decrease in the net interest margin was primarily due
to
the increase in the cost of funds resulting from deposit repricing, coupled
with
the effect of the inverted yield curve between short-term and long-term interest
rates. The Company also completed a corporate-wide time deposit promotion during
the quarter based on its projected liquidity needs for the balance of the year.
The approximately $43 million of new deposits from this promotion, along
with the transfer of funds to these accounts by existing customers, caused
some
additional margin compression. The Company expects to see continuing competitive
pressure in deposit repricing in the short term, and anticipates flat to slight
margin compression for the fourth quarter of 2006.
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, 2006 and
2005, respectively, as well as changes in fully taxable equivalent net interest
margin for the three-month and nine-month periods ended September 30, 2006
versus September 30, 2005.
Table
1: Analysis of Net Interest Income
(FTE
=Fully Taxable Equivalent)
|
|
Three
Months Ended
|
|
Nine
Months Ended
|
|
|
|
September
30,
|
|
September
30,
|
|
(In
thousands)
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
$
|
39,816
|
|
$
|
34,492
|
|
$
|
112,600
|
|
$
|
97,515
|
|
FTE
adjustment
|
|
|
796
|
|
|
803
|
|
|
2,380
|
|
|
2,445
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income - FTE
|
|
|
40,612
|
|
|
35,295
|
|
|
114,980
|
|
|
99,960
|
|
Interest
expense
|
|
|
17,439
|
|
|
11,620
|
|
|
46,079
|
|
|
30,073
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income - FTE
|
|
$
|
23,173
|
|
$
|
23,675
|
|
$
|
68,901
|
|
$
|
69,887
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Yield
on earning assets - FTE
|
|
|
6.86
|
%
|
|
6.11
|
%
|
|
6.66
|
%
|
|
5.90
|
%
|
Cost
of interest bearing liabilities
|
|
|
3.41
|
%
|
|
2.34
|
%
|
|
3.11
|
%
|
|
2.08
|
%
|
Net
interest spread - FTE
|
|
|
3.45
|
%
|
|
3.77
|
%
|
|
3.55
|
%
|
|
3.84
|
%
|
Net
interest margin - FTE
|
|
|
3.91
|
%
|
|
4.10
|
%
|
|
3.99
|
%
|
|
4.14
|
%
|
Table
2: Changes in Fully Taxable Equivalent Net Interest Margin
|
|
Three
Months Ended
|
|
Nine
Months Ended
|
|
|
|
September
30,
|
|
September
30,
|
|
(In
thousands)
|
|
2006
vs. 2005
|
|
2006
vs. 2005
|
|
|
|
|
|
|
|
Increase
due to change in earning assets
|
|
$
|
1,159
|
|
$
|
3,651
|
|
Increase
due to change in earning asset yields
|
|
|
4,160
|
|
|
11,368
|
|
Decrease
due to change in interest
|
|
|
|
|
|
|
|
bearing
liabilities
|
|
|
(510
|
)
|
|
(1,204
|
)
|
Decrease
due to change in interest rates
|
|
|
|
|
|
|
|
paid
on interest bearing liabilities
|
|
|
(5,309
|
)
|
|
(14,801
|
)
|
Decrease
in net interest income
|
|
$
|
(500
|
)
|
$
|
(986
|
)
|
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, 2006
and
2005. 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,
|
|
|
|
2006
|
|
2005
|
|
|
|
Average
|
|
Income/
|
|
Yield/
|
|
Average
|
|
Income/
|
|
Yield/
|
|
($
in thousands)
|
|
Balance
|
|
Expense
|
|
Rate(%)
|
|
Balance
|
|
Expense
|
|
Rate(%)
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earning
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
bearing balances
|
|
|
|
|
|
|
|
|
|
|
|
|
|
due
from banks
|
|
$
|
16,851
|
|
$
|
229
|
|
|
5.39
|
|
$
|
16,384
|
|
$
|
119
|
|
|
2.88
|
|
Federal
funds sold
|
|
|
22,966
|
|
|
325
|
|
|
5.61
|
|
|
29,375
|
|
|
262
|
|
|
3.54
|
|
Investment
securities - taxable
|
|
|
410,542
|
|
|
4,005
|
|
|
3.87
|
|
|
419,204
|
|
|
3,503
|
|
|
3.32
|
|
Investment
securities - non-taxable
|
|
|
117,224
|
|
|
1,885
|
|
|
6.38
|
|
|
122,030
|
|
|
1,904
|
|
|
6.19
|
|
Mortgage
loans held for sale
|
|
|
8,368
|
|
|
141
|
|
|
6.69
|
|
|
11,395
|
|
|
168
|
|
|
5.85
|
|
Assets
held in trading accounts
|
|
|
4,598
|
|
|
14
|
|
|
1.21
|
|
|
4,711
|
|
|
25
|
|
|
2.11
|
|
Loans
|
|
|
1,769,131
|
|
|
34,013
|
|
|
7.63
|
|
|
1,689,883
|
|
|
29,314
|
|
|
6.88
|
|
Total
interest earning assets
|
|
|
2,349,680
|
|
|
40,612
|
|
|
6.86
|
|
|
2,292,982
|
|
|
35,295
|
|
|
6.11
|
|
Non-earning
assets
|
|
|
254,517
|
|
|
|
|
|
|
|
|
241,732
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
2,604,197
|
|
|
|
|
|
|
|
$
|
2,534,714
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’
EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
bearing liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
bearing transaction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
savings accounts
|
|
$
|
722,920
|
|
$
|
3,023
|
|
|
1.66
|
|
$
|
751,877
|
|
$
|
2,015
|
|
|
1.06
|
|
Time
deposits
|
|
|
1,074,875
|
|
|
11,381
|
|
|
4.20
|
|
|
956,558
|
|
|
7,031
|
|
|
2.92
|
|
Total
interest bearing deposits
|
|
|
1,797,795
|
|
|
14,404
|
|
|
3.18
|
|
|
1,708,435
|
|
|
9,046
|
|
|
2.10
|
|
Federal
funds purchased and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
securities
sold under agreement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
to
repurchase
|
|
|
93,670
|
|
|
1,152
|
|
|
4.88
|
|
|
92,508
|
|
|
815
|
|
|
3.50
|
|
Other
borrowed funds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term
debt
|
|
|
54,120
|
|
|
761
|
|
|
5.58
|
|
|
82,463
|
|
|
646
|
|
|
3.11
|
|
Long-term
debt
|
|
|
80,825
|
|
|
1,122
|
|
|
5.51
|
|
|
88,242
|
|
|
1,113
|
|
|
5.00
|
|
Total
interest bearing liabilities
|
|
|
2,026,410
|
|
|
17,439
|
|
|
3.41
|
|
|
1,971,648
|
|
|
11,620
|
|
|
2.34
|
|
Non-interest
bearing liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest
bearing deposits
|
|
|
302,490
|
|
|
|
|
|
|
|
|
303,387
|
|
|
|
|
|
|
|
Other
liabilities
|
|
|
22,804
|
|
|
|
|
|
|
|
|
18,120
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
2,351,704
|
|
|
|
|
|
|
|
|
2,293,155
|
|
|
|
|
|
|
|
Stockholders’
equity
|
|
|
252,493
|
|
|
|
|
|
|
|
|
241,559
|
|
|
|
|
|
|
|
Total
liabilities and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
stockholders’
equity
|
|
$
|
2,604,197
|
|
|
|
|
|
|
|
$
|
2,534,714
|
|
|
|
|
|
|
|
Net
interest spread
|
|
|
|
|
|
|
|
|
3.45
|
|
|
|
|
|
|
|
|
3.77
|
|
Net
interest margin
|
|
|
|
|
$
|
23,173
|
|
|
3.91
|
|
|
|
|
$
|
23,675
|
|
|
4.10
|
|
|
|
Nine
Months Ended September 30,
|
|
|
|
2006
|
|
2005
|
|
|
|
Average
|
|
Income/
|
|
Yield/
|
|
Average
|
|
Income/
|
|
Yield/
|
|
(In
thousands)
|
|
Balance
|
|
Expense
|
|
Rate(%)
|
|
Balance
|
|
Expense
|
|
Rate(%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earning
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
bearing balances
|
|
|
|
|
|
|
|
|
|
|
|
|
|
due
from banks
|
|
$
|
22,209
|
|
$
|
785
|
|
|
4.73
|
|
$
|
22,324
|
|
$
|
418
|
|
|
2.49
|
|
Federal
funds sold
|
|
|
18,471
|
|
|
692
|
|
|
5.01
|
|
|
38,768
|
|
|
863
|
|
|
2.97
|
|
Investment
securities - taxable
|
|
|
410,500
|
|
|
11,457
|
|
|
3.73
|
|
|
429,258
|
|
|
10,316
|
|
|
3.20
|
|
Investment
securities - non-taxable
|
|
|
117,566
|
|
|
5,654
|
|
|
6.43
|
|
|
122,857
|
|
|
5,801
|
|
|
6.29
|
|
Mortgage
loans held for sale
|
|
|
7,794
|
|
|
369
|
|
|
6.33
|
|
|
9,794
|
|
|
421
|
|
|
5.73
|
|
Assets
held in trading accounts
|
|
|
4,602
|
|
|
58
|
|
|
1.69
|
|
|
4,549
|
|
|
74
|
|
|
2.17
|
|
Loans
|
|
|
1,727,725
|
|
|
95,965
|
|
|
7.43
|
|
|
1,630,995
|
|
|
82,067
|
|
|
6.70
|
|
Total
interest earning assets
|
|
|
2,308,867
|
|
|
114,980
|
|
|
6.66
|
|
|
2,258,545
|
|
|
99,960
|
|
|
5.90
|
|
Non-earning
assets
|
|
|
249,069
|
|
|
|
|
|
|
|
|
226,599
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
2,557,936
|
|
|
|
|
|
|
|
$
|
2,485,144
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’
EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
bearing liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
bearing transaction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
savings accounts
|
|
$
|
740,321
|
|
$
|
8,476
|
|
|
1.53
|
|
$
|
767,160
|
|
$
|
5,508
|
|
|
0.96
|
|
Time
deposits
|
|
|
1,030,591
|
|
|
29,837
|
|
|
3.87
|
|
|
939,464
|
|
|
18,381
|
|
|
2.61
|
|
Total
interest bearing deposits
|
|
|
1,770,912
|
|
|
38,313
|
|
|
2.89
|
|
|
1,706,624
|
|
|
23,889
|
|
|
1.86
|
|
Federal
funds purchased and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
securities
sold under agreement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
to
repurchase
|
|
|
99,613
|
|
|
3,320
|
|
|
4.46
|
|
|
99,673
|
|
|
2,088
|
|
|
2.79
|
|
Other
borrowed funds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term
debt
|
|
|
25,400
|
|
|
1,082
|
|
|
5.70
|
|
|
32,629
|
|
|
790
|
|
|
3.23
|
|
Long-term
debt
|
|
|
82,570
|
|
|
3,364
|
|
|
5.45
|
|
|
90,865
|
|
|
3,306
|
|
|
4.85
|
|
Total
interest bearing liabilities
|
|
|
1,978,495
|
|
|
46,079
|
|
|
3.11
|
|
|
1,929,791
|
|
|
30,073
|
|
|
2.08
|
|
Non-interest
bearing liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest
bearing deposits
|
|
|
309,873
|
|
|
|
|
|
|
|
|
300,430
|
|
|
|
|
|
|
|
Other
liabilities
|
|
|
20,451
|
|
|
|
|
|
|
|
|
16,380
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
2,308,819
|
|
|
|
|
|
|
|
|
2,246,601
|
|
|
|
|
|
|
|
Stockholders’
equity
|
|
|
249,117
|
|
|
|
|
|
|
|
|
238,543
|
|
|
|
|
|
|
|
Total
liabilities and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
stockholders’
equity
|
|
$
|
2,557,936
|
|
|
|
|
|
|
|
$
|
2,485,144
|
|
|
|
|
|
|
|
Net
interest spread
|
|
|
|
|
|
|
|
|
3.55
|
|
|
|
|
|
|
|
|
3.84
|
|
Net
interest margin
|
|
|
|
|
$
|
68,901
|
|
|
3.99
|
|
|
|
|
$
|
69,887
|
|
|
4.14
|
|
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 periods
ended September 30, 2006, as compared to the same periods 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,
|
|
|
|
2006
over 2005
|
|
2006
over 2005
|
|
(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
|
|
$
|
3
|
|
$
|
107
|
|
$
|
110
|
|
$
|
(2
|
)
|
$
|
369
|
|
$
|
367
|
|
Federal
funds sold
|
|
|
(66
|
)
|
|
129
|
|
|
63
|
|
|
(586
|
)
|
|
414
|
|
|
(172
|
)
|
Investment
securities - taxable
|
|
|
(73
|
)
|
|
577
|
|
|
504
|
|
|
(467
|
)
|
|
1,609
|
|
|
1,142
|
|
Investment
securities - non-taxable
|
|
|
(76
|
)
|
|
57
|
|
|
(19
|
)
|
|
(254
|
)
|
|
106
|
|
|
(148
|
)
|
Mortgage
loans held for sale
|
|
|
(48
|
)
|
|
22
|
|
|
(26
|
)
|
|
(91
|
)
|
|
40
|
|
|
(51
|
)
|
Assets
held in trading accounts
|
|
|
(1
|
)
|
|
(11
|
)
|
|
(12
|
)
|
|
--
|
|
|
(17
|
)
|
|
(17
|
)
|
Loans
|
|
|
1,420
|
|
|
3,279
|
|
|
4,699
|
|
|
5,051
|
|
|
8,847
|
|
|
13,898
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,159
|
|
|
4,160
|
|
|
5,319
|
|
|
3,651
|
|
|
11,368
|
|
|
15,019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
bearing transaction and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
savings
accounts
|
|
|
(81
|
)
|
|
1,089
|
|
|
1,008
|
|
|
(199
|
)
|
|
3,166
|
|
|
2,967
|
|
Time
deposits
|
|
|
954
|
|
|
3,396
|
|
|
4,350
|
|
|
1,927
|
|
|
9,528
|
|
|
11,455
|
|
Federal
funds purchased
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
securities sold under
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
agreements
to repurchase
|
|
|
10
|
|
|
327
|
|
|
337
|
|
|
(1
|
)
|
|
1,233
|
|
|
1,232
|
|
Other
borrowed funds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term
debt
|
|
|
(275
|
)
|
|
390
|
|
|
115
|
|
|
(205
|
)
|
|
498
|
|
|
293
|
|
Long-term
debt
|
|
|
(98
|
)
|
|
107
|
|
|
9
|
|
|
(318
|
)
|
|
376
|
|
|
58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
510
|
|
|
5,309
|
|
|
5,819
|
|
|
1,204
|
|
|
14,801
|
|
|
16,005
|
|
Increase
(decrease) in net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
interest
income
|
|
$
|
649
|
|
$
|
(1,149
|
)
|
$
|
(500
|
)
|
$
|
2,447
|
|
$
|
(3,433
|
)
|
$
|
(986
|
)
|
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, which is 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 a quarterly basis to
determine the level of provision made to the allowance after considering the
factors noted above.
The
provision for loan losses for the three-month period ended September 30, 2006,
was $0.6 million, compared to $1.7 million for the three-month period ended
September 30, 2005, a reduction of $1.1 million. The provision for loan losses
for the nine-month period ended September 30, 2006, was $3.1 million,
compared to $5.9 million for the nine-month period ended September 30, 2005,
a
reduction of $2.8 million. These provision reductions were primarily driven
by
two factors.
First,
credit card net charge-offs were down $542,000 and $1.8 million for the
three-month and nine-month periods ended September 30, 2006, respectively,
when
compared to the same periods in 2005. Credit card net charge-offs as a percent
of the credit card portfolio were 1.10% for the quarter ended September 30,
2006, compared to 2.59% for the same period in 2005. This positive trend of
significant reduction in credit card charge-offs has continued throughout the
year, as the Company has recorded credit card net charge-offs of 1.06% of credit
card balances for the nine-months ended September 30, 2006, compared to 2.68%
for the same period in 2006. Second, there was improvement in the credit quality
of the loan portfolio, particularly one large credit relationship that was
upgraded two levels from substandard to watch, based upon improved financial
condition of the borrower, for which a specific reserve was no longer required.
During the quarter ended September 30, 2006, additional loans were classified
as
non-performing based upon various criteria; however, there were no specific
reserve allocations required for these loans. The provision for loan losses
was
reduced due to the continued significant reduction in credit card charge-offs
and the improvement in credit quality of loans with specific
reserves.
NON-INTEREST
INCOME
Total
non-interest income was $11.0 million for the three-month period ended September
30, 2006, compared to $10.7 million for the same period in 2005. For the
nine-months ended September 30, 2006, non-interest income was $33.2 million
compared to the $31.6 reported for the same period ended September 30, 2005.
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, 2006 and 2005, respectively, as well as changes in 2006 from
2005.
Table
5:
Non-Interest Income
|
|
|
Three
Months Ended Sept 30,
|
|
|
2006
Change from
|
|
|
|
Nine
Months Ended Sept 30,
|
|
|
2006 Change
from
|
|
(In
thousands)
|
|
|
2006
|
|
|
2005
|
|
|
2005
|
|
|
|
2006
|
|
|
2005
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trust
income
|
|
$
|
1,435
|
|
$
|
1,430
|
|
$
|
5
|
|
|
0.35
|
%
|
|
$
|
4,095
|
|
$
|
4,164
|
|
$
|
(69
|
)
|
|
(1.66
|
)%
|
|
Service
charges on
|
|
|
3,973
|
|
|
4,154
|
|
|
(181
|
)
|
|
(4.36
|
)
|
|
|
11,945
|
|
|
11,721
|
|
|
224
|
|
|
1.91
|
|
|
Other
service charges and fees
|
|
|
596
|
|
|
472
|
|
|
124
|
|
|
26.27
|
|
|
|
1,846
|
|
|
1,511
|
|
|
335
|
|
|
22.17
|
|
|
Income
on sale of mortgage loans, net
of commissions
|
|
|
763
|
|
|
826
|
|
|
(63
|
)
|
|
(7.63
|
)
|
|
|
2,194
|
|
|
2,221
|
|
|
(27
|
)
|
|
(1.22
|
)
|
|
Income
on investment banking, net
of commissions
|
|
|
55
|
|
|
146
|
|
|
(91
|
)
|
|
(62.33
|
)
|
|
|
252
|
|
|
364
|
|
|
(112
|
)
|
|
(30.77
|
)
|
|
Credit
card fees
|
|
|
2,755
|
|
|
2,619
|
|
|
136
|
|
|
5.19
|
|
|
|
7,912
|
|
|
7,543
|
|
|
369
|
|
|
4.89
|
|
|
Premiums
on sale of student loans
|
|
|
413
|
|
|
295
|
|
|
118
|
|
|
40.00
|
|
|
|
1,808
|
|
|
1,572
|
|
|
236
|
|
|
15.01
|
|
|
Bank
owned life insurance income
|
|
|
382
|
|
|
279
|
|
|
103
|
|
|
36.92
|
|
|
|
1,098
|
|
|
636
|
|
|
462
|
|
|
72.64
|
|
|
Other
income
|
|
|
654
|
|
|
519
|
|
|
135
|
|
|
26.01
|
|
|
|
2,004
|
|
|
2,078
|
|
|
(74
|
)
|
|
(3.56
|
)
|
|
Gain
(loss) on sale of securities, net
of tax
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
|
|
|
|
--
|
|
|
(168
|
)
|
|
168
|
|
|
(100.00
|
)%
|
|
Total
non-interest income
|
|
$
|
11,026
|
|
$
|
10,740
|
|
$
|
286
|
|
|
2.66
|
%
|
|
$
|
33,154
|
|
$
|
31,642
|
|
$
|
1,512
|
|
|
4.78
|
%
|
|
Recurring
fee income for the three-month period ended September 30, 2006, was $8.8
million, an increase of $84,000, or 1.0% from the three-month period ended
September 30, 2005. Other service charges and fees increased by $124,000,
primarily due to an increase in ATM income, based on increased volume and
an
improvement in the fee structure. Service charges on deposit accounts decreased
by $181,000 due to reduced income on insufficient funds charges. Recurring
fee
income for the nine-month period ended September 30, 2006, was $25.8 million,
an
increase of $859,000, or 3.4% from the nine-month period ended September
30,
2005. Other service charges and fees increased by $335,000, primarily due
to an
increase in ATM income, based on increased volume and an improvement in the
fee
structure.
On
April 29, 2005, the Company invested an additional $25 million in Bank
Owned Life Insurance (“BOLI”). BOLI income increased by $103,000 for the
three-months ended September 30, 2006, compared to the same period in 2005,
due
primarily to an improved earnings credit on the investment. BOLI income
increased by $462,000 for the nine-months ended September 30, 2006, compared
to
the same period in 2005. Approximately $315,000 of this increase can be
attributed to an improved earnings credit on the investment, while the remainder
of the increase relates to the acquisition timing of the
investment.
Other
non-interest income for the nine-months ended September 30, 2006, was $2.0
million, a decrease of $74,000 over the nine-months ended September 30, 2005.
The decrease primarily resulted from a one-time distribution of approximately
$250,000 the Company received in the first quarter of 2005 as part of the
proceeds when Pulse EFT, a regional ATM switching network used by the Company,
merged with Discover Financial Services.
There
were
no gains or losses on sale of securities during the three and nine-months
ended
September 30, 2006. During the quarter ended June 30, 2005, the Company sold
certain investment securities obtained in a prior acquisition that did not
fit
its current investment portfolio strategy. As a result of this liquidation,
the
Company recognized an after-tax loss on sale of securities of $168,000 for
the
nine-months ended September 30, 2005.
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, 2006,
was
$22.1 million and $66.6 million, an increase of $0.9 million, or 4.3% and
$3.0 million, or 4.65%, respectively, from the same periods in 2005. These
increases are primarily the result of an increase in normal ongoing operating
expenses and the additional expense associated with the operation of seven
new
financial centers opened since the second quarter of 2005. The new locations
accounted for approximately $321,000 and $1,172,000 of the non-interest expense
increase during the three-month and nine-month periods ended September 30,
2006,
respectively. Normalizing for the expansion expenses, non-interest expense
increased by 2.8% for both the three-months and nine-months ended September
30,
2006, over the same periods of 2005.
Credit
card expense increased for the three-month and nine-month periods ended
September 30, 2006 and 2005 by $108,000, or 14.6%, and $329,000, or 16.4%,
respectively. As a result of previously reported initiatives, the Company
converted approximately 15,000 accounts to its Platinum rewards card. The
conversion process resulted in increased expense for the rewards program
in
2006.
Table
6
below shows non-interest expense for the three-month and nine-month periods
ended September 30, 2006 and 2005, respectively, as well as changes in 2006
from
2005.
Table
6: Non-Interest Expense
|
|
|
Three
Months Ended Sept 30
|
|
|
2006
Change from
|
|
|
|
Nine
Months Ended Sept 30
|
|
|
2006 Change
from
|
|
|
(In
thousands) |
|
|
2006
|
|
|
2005
|
|
|
2005
|
|
|
|
2006
|
|
|
2005
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries
and employee benefits
|
|
$
|
13,298
|
|
$
|
12,703
|
|
$
|
595
|
|
|
4.68
|
%
|
|
$
|
40,269
|
|
$
|
38,231
|
|
$
|
2,038
|
|
|
5.33
|
%
|
|
Occupancy
expense, net
|
|
|
1,612
|
|
|
1,483
|
|
|
129
|
|
|
8.70
|
|
|
|
4,673
|
|
|
4,314
|
|
|
359
|
|
|
8.32
|
|
|
Furniture
and equipment expense
|
|
|
1,407
|
|
|
1,421
|
|
|
(14
|
)
|
|
(0.99
|
)
|
|
|
4,281
|
|
|
4,277
|
|
|
4
|
|
|
0.09
|
|
|
Loss
on foreclosed assets
|
|
|
32
|
|
|
57
|
|
|
(25
|
)
|
|
(43.86
|
)
|
|
|
105
|
|
|
160
|
|
|
(55
|
)
|
|
(34.38
|
)
|
|
Other
operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Professional
services
|
|
|
469
|
|
|
512
|
|
|
(43
|
)
|
|
(8.40
|
)
|
|
|
1,770
|
|
|
1,655
|
|
|
115
|
|
|
6.95
|
|
|
Postage
|
|
|
555
|
|
|
555
|
|
|
--
|
|
|
|
|
|
|
1,691
|
|
|
1,693
|
|
|
(2
|
)
|
|
(0.12
|
)
|
|
Telephone
|
|
|
492
|
|
|
442
|
|
|
50
|
|
|
11.31
|
|
|
|
1,471
|
|
|
1,328
|
|
|
143
|
|
|
10.77
|
|
|
Credit
card expenses
|
|
|
849
|
|
|
741
|
|
|
108
|
|
|
14.57
|
|
|
|
2,332
|
|
|
2,003
|
|
|
329
|
|
|
16.43
|
|
|
Operating
supplies
|
|
|
390
|
|
|
399
|
|
|
(9
|
)
|
|
(2.26
|
)
|
|
|
1,205
|
|
|
1,190
|
|
|
15
|
|
|
1.26
|
|
|
FDIC
insurance
|
|
|
64
|
|
|
72
|
|
|
(8
|
)
|
|
(11.11
|
)
|
|
|
204
|
|
|
214
|
|
|
(10
|
)
|
|
(4.67
|
)
|
|
Amortization
of intangibles
|
|
|
207
|
|
|
207
|
|
|
--
|
|
|
|
|
|
|
623
|
|
|
622
|
|
|
1
|
|
|
0.16
|
|
|
Other
expense
|
|
|
2,760
|
|
|
2,634
|
|
|
126
|
|
|
4.78
|
|
|
|
7,937
|
|
|
7,921
|
|
|
16
|
|
|
0.20
|
|
|
Total
non-interest expense
|
|
$
|
22,135
|
|
$
|
21,226
|
|
$
|
909
|
|
|
4.28
|
%
|
|
$
|
66,561
|
|
$
|
63,608
|
|
$
|
2,953
|
|
|
4.64
|
%
|
|
LOAN
PORTFOLIO
The
Company's loan portfolio averaged $1.726 billion and $1.631 billion during
the
first nine months of 2006 and 2005, respectively. As of September 30, 2006,
total loans were $1.789 billion, an increase of $70.4 million from December
31,
2005. 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 $366.5 million at September 30, 2006, or 20.5% of total
loans, compared to $370.9 million, or 21.6% of total loans at December 31,
2005. The consumer loan decrease from December 31, 2005 to September 30,
2006 is
the result of the decline in the Company’s credit card portfolio, along with a
seasonal decline in student loans, partially offset by an increase in other
consumer loans.
As
a
general rule, the Company’s credit card portfolio experiences seasonal
fluctuations, reaching its highest level during the fourth quarter and dropping
off with paydowns to its lowest level during the first quarter. Even so,
the
Company continues to experience significant competitive pressure from the
credit
card industry. Over the last three years, the credit card portfolio has
decreased by approximately $10 to $12 million each year, primarily due to
closed
accounts. However, during the second and third quarters of 2006, the Company
experienced some slow-down in this trend. When compared to September 30,
2005,
outstanding balances decreased by only $4.5 million. Also, the balance of
the
credit card portfolio has increased each of the past two quarters. When compared
to March 31, 2006, the portfolio increased $3.8 million, the first March 31
to September 30 increase since 2001.
In
order
to reverse the negative trend of closed accounts within the credit card
portfolio, the Company previously introduced several initiatives to make
the
product more competitive. Management believes these initiatives resulted
in a
slowing of the number of accounts closed. As a continuation of its efforts
to
stabilize the credit card portfolio, at the end of July the Company introduced
a
new initiative to increase new accounts. This initiative is a 7.25% fixed
rate
card with no fees and no rewards, and, to management’s knowledge, is one of the
lowest fixed rate cards in America. Since introducing the new initiatives,
the
Company has experienced a positive net growth in credit card
accounts.
Real
estate loans consist of construction loans, single-family residential loans
and
commercial real estate loans. Real estate loans were $1.127 billion at September
30, 2006, or 63.0% of total loans, compared to the $1.059 billion, or 61.7%
of
total loans at December 31, 2005. Construction loans increased $28.7 million,
while single-family residential loans increased by $23.8 million from
December 31, 2005 to September 30, 2006. These increases are primarily due
to
increased loan demand in various growth areas of Arkansas.
Commercial
loans consist of commercial loans, agricultural loans and loans to financial
institutions. Commercial loans were $279.5 million at September 30, 2006,
or
15.6% of total loans, compared to $274.2 million, or 16.0% of total loans
at
December 31, 2005. The commercial loan increase is primarily due to seasonal
increases in agricultural loans. This increase was partially offset by a
$19.9
million decrease in loans to financial institutions due primarily to the
early
payoff by one borrower.
The
amounts of loans outstanding at the indicated dates are reflected in Table
7,
according to type of loan.
Table
7: Loan Portfolio
(In
thousands) |
|
|
September
30, 2006
|
|
|
December
31, 2005
|
|
Consumer |
|
|
|
|
|
|
|
Credit
cards
|
|
$
|
133,607
|
|
$
|
143,058
|
|
Student
loans
|
|
|
86,875
|
|
|
89,818
|
|
Other
consumer
|
|
|
146,039
|
|
|
138,051
|
|
Real
Estate
|
|
|
|
|
|
|
|
Construction
|
|
|
267,600
|
|
|
238,898
|
|
Single
family residential
|
|
|
364,657
|
|
|
340,839
|
|
Other
commercial
|
|
|
494,514
|
|
|
479,684
|
|
Commercial
|
|
|
|
|
|
|
|
Commercial
|
|
|
175,576
|
|
|
184,920
|
|
Agricultural
|
|
|
103,301
|
|
|
68,761
|
|
Financial
institutions
|
|
|
576
|
|
|
20,499
|
|
Other
|
|
|
15,772
|
|
|
13,579
|
|
Total
loans before allowance for loan losses
|
|
$
|
1,788,517
|
|
$
|
1,718,107
|
|
ASSET
QUALITY
A
loan is
considered impaired when it is probable that the Company will not receive
all
amounts due according to the contracted 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.
At
September 30, 2006, impaired loans were $12.0 million compared to $14.8 million
at December 31, 2005.
Table
8
presents information concerning non-performing assets, including nonaccrual
and
other real estate owned.
Table
8: Non-performing Assets
|
|
September
30,
|
|
December
31,
|
|
($
in thousands)
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
Nonaccrual
loans
|
|
$
|
9,817
|
|
$
|
7,296
|
|
Loans
past due 90 days or more (principal or interest payments)
|
|
|
1,029 |
|
|
1,131 |
|
Total
non-performing loans
|
|
|
10,846
|
|
|
8,427
|
|
|
|
|
|
|
|
|
|
Other
non-performing assets
|
|
|
|
|
|
|
|
Foreclosed
assets held for sale
|
|
|
1,413
|
|
|
1,540
|
|
Other
non-performing assets
|
|
|
16
|
|
|
16
|
|
Total
other non-performing assets
|
|
|
1,429
|
|
|
1,556
|
|
|
|
|
|
|
|
|
|
Total
non-performing assets
|
|
$
|
12,275
|
|
$
|
9,983
|
|
|
|
|
|
|
|
|
|
Allowance
for loan losses to non-performing loans
|
|
|
238.60
|
%
|
|
319.48
|
%
|
Non-performing
loans to total loans
|
|
|
0.61
|
%
|
|
0.49
|
%
|
Non-performing
assets to total assets
|
|
|
0.46
|
%
|
|
0.40
|
%
|
Non-performing
assets ratio(1)
|
|
|
0.69
|
%
|
|
0.58
|
%
|
(1)
(Non-performing loans + foreclosed assets) / (total loans + foreclosed
assets)
|
|
|
|
|
|
|
|
There
was
no interest income on the nonaccrual loans recorded for the nine-month periods
ended September 30, 2006 and 2005.
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
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” in
accordance with the guidelines established by the regulatory agencies. A
percentage rate is applied to each category of these loan categories to
determine the level of dollar allocation.
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.
Reserve
for Unfunded Commitments
Historically,
the Company has included reserves for unfunded commitments in the allowance
for
loan losses. On March 31, 2006, the reserve for unfunded commitments was
reclassified from the allowance for loan losses to other liabilities. This
reserve will be 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. Future net adjustments to
the
reserve for unfunded commitments will be 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)
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
Balance,
beginning of year
|
|
$
|
26,923
|
|
$
|
26,508
|
|
|
|
|
|
|
|
|
|
Loans
charged off
|
|
|
|
|
|
|
|
Credit
card
|
|
|
1,854
|
|
|
3,495
|
|
Other
consumer
|
|
|
847
|
|
|
941
|
|
Real
estate
|
|
|
1,075
|
|
|
786
|
|
Commercial
|
|
|
1,108 |
|
|
3,157 |
|
Total
loans charged off
|
|
|
4,884
|
|
|
8,379
|
|
|
|
|
|
|
|
|
|
Recoveries
of loans previously charged off
|
|
|
|
|
|
|
|
Credit
card
|
|
|
798
|
|
|
640
|
|
Other
consumer
|
|
|
456
|
|
|
505
|
|
Real
estate
|
|
|
498
|
|
|
205
|
|
Commercial
|
|
|
514 |
|
|
1,955 |
|
Total
recoveries
|
|
|
2,266
|
|
|
3,305
|
|
Net
loans charged off
|
|
|
2,618
|
|
|
5,074
|
|
|
|
|
|
|
|
|
|
Reclassification
of reserve related to unfunded commitments(1)
|
|
|
(1,525
|
)
|
|
--
|
|
Provision
for loan losses
|
|
|
3,099
|
|
|
5,895
|
|
Balance,
September 30
|
|
$
|
25,879
|
|
$
|
27,329
|
|
|
|
|
|
|
|
|
|
Loans
charged off
|
|
|
|
|
|
|
|
Credit
card
|
|
|
|
|
|
1,455
|
|
Other
consumer
|
|
|
|
|
|
299
|
|
Real
estate
|
|
|
|
|
|
262
|
|
Commercial
|
|
|
|
|
|
531
|
|
Total
loans charged off
|
|
|
|
|
|
2,547
|
|
|
|
|
|
|
|
|
|
Recoveries
of loans previously charged off
|
|
|
|
|
|
|
|
Credit
card
|
|
|
|
|
|
192
|
|
Other
consumer
|
|
|
|
|
|
131 |
|
Real
Estate
|
|
|
|
|
|
46 |
|
Commercial
|
|
|
|
|
|
141
|
|
Total
recoveries
|
|
|
|
|
|
510
|
|
Net
loans charged off
|
|
|
|
|
|
2,037
|
|
Provision
for loan losses
|
|
|
|
|
|
1,631
|
|
|
|
|
|
|
|
|
|
Balance,
end of year
|
|
|
|
|
$
|
26,923
|
|
|
|
(1)
On March 31, 2006, the reserve for unfunded commitments was reclassified
from the allowance for loan losses to other liabilities.
|
|
|
|
|
|
|
|
Provision
for Loan Losses
The
amount
of provision to the allowance during the nine-month periods ended September
30,
2006 and 2005, and for the year ended December 31, 2005, 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 imprecision inherent when estimating credit
losses.
Several
factors in the national economy, including seventeen successive interest-rate
increases by the Federal Reserve from June 2004 through June 2006, the effect
of
fuel prices on the commercial and consumer market, and certain loan sectors
which may be exhibiting weaknesses, further justifies the need for unallocated
reserves.
The
Company’s unallocated portion of the allowance increased approximately $1.7
million during the nine-months ended September 30, 2006, offset by a $2.5
million decrease the allocation for commercial loans. The increase in
unallocated is primarily due to the credit quality upgrade of several
significant commercial loan customers.
The
Company still has some concerns over the uncertainty of the economy and the
impact of pricing in the catfish, poultry and timber industries in Arkansas.
Based on our analysis of loans within these business sectors, the Company
believes the allowance for loan losses is adequate for the period ended
September 30, 2006. Management actively monitors the status of these industries
as they relate to the Company’s loan portfolio and makes changes to the
allowance for loan losses as necessary.
An
analysis of the allocation of allowance for loan losses is presented in Table
10.
Table
10: Allocation of Allowance for Loan Losses
|
|
September
30, 2006
|
|
December
31, 2005
|
|
|
|
Allowance
|
|
%
of
|
|
Allowance
|
|
%
of
|
|
($
in thousands)
|
|
Amount
|
|
loans(1)
|
|
Amount
|
|
loans(1)
|
|
|
|
|
|
|
|
|
|
|
|
Credit
cards
|
|
$
|
3,692
|
|
|
7.50%
|
|
$
|
3,887
|
|
|
8.30%
|
|
Other
consumer
|
|
|
1,282
|
|
|
13.00%
|
|
|
1,158
|
|
|
13.30%
|
|
Real
estate
|
|
|
9,668
|
|
|
63.00%
|
|
|
9,870
|
|
|
61.70%
|
|
Commercial
|
|
|
3,350
|
|
|
15.60%
|
|
|
5,857
|
|
|
15.90%
|
|
Other
|
|
|
--
|
|
|
0.90%
|
|
|
--
|
|
|
0.80%
|
|
Unallocated
|
|
|
7,887
|
|
|
|
|
|
6,151
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
25,879
|
|
|
100.00%
|
|
$
|
26,923
|
|
|
100.00%
|
|
|
|
(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 81 financial centers as of September
30, 2006. 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, 2006, core deposits
comprised 79.7% of the Company’s total deposits.
The
Company continually monitors the funding requirements at each affiliate bank
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 affiliate
bank’s respective funding requirements. The Company believes it is paying a
competitive rate, when compared with pricing in those markets. As a result,
year-to-date internal deposit growth was $88.0 million. More specifically,
total
deposits as of September 30, 2006, were $2.148 billion versus $2.060 billion
on
December 31, 2005.
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. During the third quarter
of
2006, the Company generated approximately $43 million of new deposits with
a
corporate-wide time deposit promotion based on its projected liquidity needs
for
the balance of the year. The Company began to utilize brokered deposits during
2005 as an additional source of funding to meet liquidity needs.
Total
time
deposits increased approximately $43.0 million as a result of the deposit
promotion and $78.1 million through internal deposit growth, to $1.100 billion
at September 30, 2006, from $978.9 million at December 31, 2005.
Non-interest bearing transaction accounts decreased $28.4 million to $302.7
million at September 30, 2006, compared to $331.1 million at December 31,
2005. Interest bearing transaction and savings accounts were $745.6 million
at September 30, 2006, a $4.4 million decrease compared to $750.0 million
on
December 31, 2005. The Company had $42.8 million and $50.7 million of
brokered deposits at September 30, 2006 and December 31, 2005,
respectively.
LONG-TERM
DEBT
During
the
nine month period ended September 30, 2006, the Company decreased long-term
debt
by $4.8 million, or 5.6% from December 31, 2005. This decrease is primarily
attributable to the Company’s annual $2.0 million payment on its note payable
along with scheduled principal pay downs on FHLB long-term
advances.
CAPITAL
Overview
At
September 30, 2006, total capital reached $254.6 million. Capital represents
shareholder ownership in the Company - the book value of assets in excess
of
liabilities. At September 30, 2006, the Company’s equity to asset ratio was
9.58% compared to 9.67% at year-end 2005.
Capital
Stock
At
the
Company’s annual shareholder meeting held on March 30, 2004, the shareholders
approved an amendment
to the Articles of Incorporation reducing the par value of the Class A Common
Stock from $1.00 to $0.01 and eliminating the authority of the Company to
issue
Class B common stock, Class A Preferred Stock and Class B Preferred
Stock.
Stock
Repurchase
On
May 25,
2004, the Company announced the adoption by the Board of Directors of a stock
repurchase program. The program authorizes the repurchase of up to 5% of
the
then outstanding Common Stock, or 733,485 shares. 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.
During
the
nine-month period ended September 30, 2006, the Company repurchased 188,900
shares of stock under the repurchase plan with a weighted average repurchase
price of $27.54 per share. Under the current stock repurchase plan, the Company
can repurchase an additional 355,167 shares.
Cash
Dividends
The
Company declared cash dividends on its common stock of $0.50 per share for
the
first nine months of 2006 compared to $0.45 per share for the first nine
months
of 2005. In recent years, the Company increased dividends no less than annually
and presently plans to continue with this practice.
Parent
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 parent company
plus the future dividends received from the eight affiliate banks. Payment
of
dividends by the eight affiliate banks is subject to various regulatory
limitations. Reference is made to the Liquidity and Market Risk Management
discussions of Item 3 - Quantitative and Qualitative Disclosure About Market
Risk for additional information regarding the parent company’s
liquidity.
Risk
Based Capital
The
Company’s 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 (as defined in the regulations) to risk-weighted
assets
(as defined) and of Tier 1 capital (as defined) to average assets (as defined).
As of September 30, 2006, the Company meets all capital adequacy requirements
to
which it is subject.
As
of the
most recent notification from regulatory agencies, the subsidiaries were
well
capitalized under the regulatory framework for prompt corrective action.
To be
categorized as well capitalized, the Company and subsidiaries must maintain
minimum total risk-based, Tier 1 risk-based and Tier 1 leverage ratios as
set
forth in the table. 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, 2006 and December 31,
2005,
are presented in table 11.
Table
11: Risk-Based Capital
|
|
September
30,
|
|
December
31,
|
|
($
in thousands)
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
Tier
1 capital
|
|
|
|
|
|
Stockholders’
equity
|
|
$
|
254,592
|
|
$
|
244,085
|
|
Trust
preferred securities
|
|
|
30,000
|
|
|
30,000
|
|
Intangible
assets
|
|
|
(64,557
|
)
|
|
(65,278
|
)
|
Unrealized
loss on available-for-sale securities
|
|
|
2,818
|
|
|
4,360
|
|
|
|
|
|
|
|
|
|
Total
Tier 1 capital
|
|
|
222,853
|
|
|
213,167
|
|
|
|
|
|
|
|
|
|
Tier
2 capital
|
|
|
|
|
|
|
|
Qualifying
unrealized gain on available-for-sale equity securities
|
|
|
177
|
|
|
338
|
|
Qualifying
allowance for loan losses
|
|
|
23,103
|
|
|
21,811
|
|
|
|
|
|
|
|
|
|
Total
Tier 2 capital
|
|
|
23,280
|
|
|
22,149
|
|
|
|
|
|
|
|
|
|
Total
risk-based capital
|
|
$
|
246,133
|
|
$
|
235,316
|
|
|
|
|
|
|
|
|
|
Risk
weighted assets
|
|
$
|
1,843,960
|
|
$
|
1,739,771
|
|
|
|
|
|
|
|
|
|
Assets
for leverage ratio
|
|
$
|
2,547,237
|
|
$
|
2,475,428
|
|
|
|
|
|
|
|
|
|
Ratios
at end of period
|
|
|
|
|
|
|
|
Leverage
ratio
|
|
|
8.75
|
%
|
|
8.61
|
%
|
Tier
1 capital
|
|
|
12.09
|
%
|
|
12.25
|
%
|
Total
risk-based capital
|
|
|
13.35
|
%
|
|
13.53
|
%
|
|
|
|
|
|
|
|
|
Minimum
guidelines
|
|
|
|
|
|
|
|
Leverage
ratio
|
|
|
4.00
|
%
|
|
4.00
|
%
|
Tier
1 capital
|
|
|
4.00
|
%
|
|
4.00
|
%
|
Total
risk-based capital
|
|
|
8.00
|
%
|
|
8.00
|
%
|
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 statements, 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.
Parent
Company
The
Company has leveraged its investment in subsidiary banks and depends upon
the
dividends paid to it, as the sole shareholder of the subsidiary banks, as
a
principal source of funds for dividends to shareholders, stock repurchase
and
debt service requirements. At September 30, 2006, undivided profits of the
Company's subsidiaries were approximately $140 million, of which approximately
$12 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.
Banking
Subsidiaries
Generally
speaking, the Company's banking subsidiaries 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 bank subsidiary monitor
these same indicators and make adjustments as needed. At September 30, 2006,
each subsidiary bank was within established guidelines and total corporate
liquidity remains strong. At September 30, 2006, cash and cash equivalents,
trading and available-for-sale securities and mortgage loans held for sale
were
19.4% of total assets, as compared to 19.2% at December 31, 2005.
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 six
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 $106 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 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
somewhat of 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 Federal Home
Loan Bank. 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 $335 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 67% 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.
The
fifth
source of liquidity is the ability to access large deposits from both the
public
and private sector to fund short-term liquidity needs.
Finally,
the Company has established a $5 million unsecured line of credit with a
major
commercial bank that could be used to meet unexpected liquidity needs at
both
the parent company level as well as at any affiliate bank.
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,
2006. 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
|
(In
thousands, except ratios)
|
|
0-30 Days
|
|
31-90 Days
|
|
91-180 Days
|
|
181-365 Days
|
|
1-2 Years
|
|
2-5 Years
|
|
Over
5 Years
|
|
Total
|
|
Earning
assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term
investments
|
|
$
|
63,581
|
|
$
|
--
|
|
$
|
--
|
|
$
|
--
|
|
$
|
--
|
|
$
|
--
|
|
$
|
5,358
|
|
$
|
68,939
|
|
Assets
held in trading accounts
|
|
|
4,574
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
4,574
|
|
Investment
securities
|
|
|
5,988
|
|
|
42,091
|
|
|
36,069
|
|
|
36,584
|
|
|
91,919
|
|
|
117,953
|
|
|
200,901
|
|
|
531,505
|
|
Mortgage
loans held for sale
|
|
|
6,591
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
6,591
|
|
Loans
|
|
|
586,153
|
|
|
216,521
|
|
|
196,208
|
|
|
256,558
|
|
|
297,691
|
|
|
225,885
|
|
|
9,501
|
|
|
1,788,517
|
|
Total
earning assets
|
|
|
666,887
|
|
|
258,612
|
|
|
232,277
|
|
|
293,142
|
|
|
389,610
|
|
|
343,838
|
|
|
215,760
|
|
|
2,400,126
|
|
Interest
bearing liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
bearing transaction and savings deposits
|
|
|
405,047
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
68,120
|
|
|
204,362
|
|
|
68,120
|
|
|
745,649
|
|
Time
deposits
|
|
|
116,461
|
|
|
182,288
|
|
|
249,479
|
|
|
316,630
|
|
|
210,984
|
|
|
24,285
|
|
|
--
|
|
|
1,100,127
|
|
Short-term
debt
|
|
|
147,385
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
147,385
|
|
Long-term
debt
|
|
|
12,126
|
|
|
1,399
|
|
|
2,121
|
|
|
6,325
|
|
|
10,885
|
|
|
14,937
|
|
|
34,380
|
|
|
82,173
|
|
Total
interest bearing liabilities
|
|
|
681,019
|
|
|
183,687
|
|
|
251,600
|
|
|
322,955
|
|
|
289,989
|
|
|
243,584
|
|
|
102,500
|
|
|
2,075,334
|
|
Interest
rate sensitivity Gap
|
|
$
|
(14,132
|
)
|
$
|
74,925
|
|
$
|
(19,323
|
)
|
$
|
(29,813
|
)
|
$
|
99,621
|
|
$
|
100,254
|
|
$
|
113,260
|
|
$
|
324,792
|
|
Cumulative
interest rate sensitivity Gap
|
|
$
|
(14,132
|
)
|
$
|
60,793
|
|
$
|
41,470
|
|
$
|
11,657
|
|
$
|
111,278
|
|
$
|
211,532
|
|
$
|
324,792
|
|
|
|
|
Cumulative
rate sensitive asset to rate sensitive liabilities
|
|
|
97.9
|
%
|
|
107.0
|
%
|
|
103.7
|
%
|
|
100.8
|
%
|
|
106.4
|
%
|
|
110.7
|
%
|
|
115.7
|
%
|
|
|
|
Cumulative
Gap as a % of earning assets
|
|
|
(0.6
|
)%
|
|
2.5
|
%
|
|
1.7
|
%
|
|
0.5
|
%
|
|
4.6
|
%
|
|
8.8
|
%
|
|
13.5
|
%
|
|
|
|
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.
There
has
not been any material change in the risk factors disclosure from that contained
in the Company’s 2005 Form 10-K for the fiscal year ended December 31,
2005.
(c)
Issuer
Purchases of Equity Securities. The Company made the following purchases
of its
common stock during the three months ended September 30, 2006:
Period |
|
|
Total
Number of Shares Purchased
|
|
|
Average Price
Paid Per Share
|
|
|
Total
Number of Shares Purchased as Part of Publicly Announced
Plans
|
|
|
Maximum Number
of Shares that May Yet be Purchased Under the
Plans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July
1 - July 31
|
|
|
14,000
|
|
|
27.32
|
|
|
14,000
|
|
|
365,167
|
|
August
1 - August 31
|
|
|
4,500
|
|
|
28.33
|
|
|
4,500
|
|
|
360,667
|
|
September
1 - September 30
|
|
|
5,500
|
|
|
29.17
|
|
|
5,500
|
|
|
355,167
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
24,000
|
|
$
|
27.93
|
|
|
24,000
|
|
|
|
|
|
3.1
|
Restated
Articles of Incorporation of Simmons First National Corporation
(incorporated by reference to Exhibit 4 to Simmons First National
Corporation’s Quarterly Report on Form 10-Q for the Quarter ended
March 31, 2004 (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 Quarterly
Report on
Form 10-Q for the Quarter ended March 31, 2005 (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
|
Long-Term
Executive Incentive Agreement, dated as of January 1, 2005, by
and between
the Company and J. Thomas May (incorporated by reference to Exhibit
10.10
to Simmons First National Corporation’s Annual Report on Form 10-K for the
Year ended December 31, 2005 (File No.
0-6253)).
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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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|
31.1
|
Rule
13a-14(a)/15d-14(a) Certification - J. Thomas May, Chairman and
Chief
Executive Officer.*
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|
31.2
|
Rule
13a-14(a)/15d-14(a) Certification - Robert A. Fehlman, Chief Financial
Officer.*
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|
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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|
|
|
|
|
|
|
Date: |
November
9, 2006 |
By: |
/s/ J.
Thomas May |
|
|
J.
Thomas May |
|
|
Chairman
and Chief Executive Officer |
|
|
|
|
|
|
|
|
Date: |
November
9, 2006 |
By: |
/s/ Robert
A. Fehlman |
|
|
Robert
A. Fehlman |
|
|
Executive
Vice President and Chief Financial
Officer |
53