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 March
31, 2007
|
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)
Former
name, former address and former fiscal year, if changed since last
report
Indicate
by check mark whether the registrant (1) has filed all reports required to
be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements
for
the past 90 days.
S
Yes
£
No
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
one):
£ Large
accelerated filer
|
S Accelerated
filer
|
£ Non-accelerated
filer
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act.). £
Yes
S
No
The
number
of shares outstanding of the Registrant’s Common Stock as of April 27, 2007 was
14,127,731.
Simmons
First National Corporation
Quarterly
Report on Form 10-Q
March
31, 2007
Simmons
First National Corporation
March
31, 2007 and December 31, 2006
ASSETS
|
|
|
|
|
|
|
|
March
31,
|
|
December
31,
|
|
(In
thousands, except share data)
|
|
2007
|
|
2006
|
|
|
|
(Unaudited)
|
|
|
|
Cash
and non-interest bearing balances due from banks
|
|
$
|
71,513
|
|
$
|
83,452
|
|
Interest
bearing balances due from banks
|
|
|
43,614
|
|
|
45,829
|
|
Federal
funds sold
|
|
|
60,270
|
|
|
21,870
|
|
Cash
and cash equivalents
|
|
|
175,397
|
|
|
151,151
|
|
|
|
|
|
|
|
|
|
Investment
securities
|
|
|
520,123
|
|
|
527,126
|
|
Mortgage
loans held for sale
|
|
|
8,718
|
|
|
7,091
|
|
Assets
held in trading accounts
|
|
|
10,464
|
|
|
4,487
|
|
Loans
|
|
|
1,798,234
|
|
|
1,783,495
|
|
Allowance
for loan losses
|
|
|
(25,151
|
)
|
|
(25,385
|
)
|
Net
loans
|
|
|
1,773,083
|
|
|
1,758,110
|
|
|
|
|
|
|
|
|
|
Premises
and equipment
|
|
|
69,443
|
|
|
67,926
|
|
Foreclosed
assets held for sale, net
|
|
|
2,321
|
|
|
1,940
|
|
Interest
receivable
|
|
|
21,312
|
|
|
21,974
|
|
Bank
owned life insurance
|
|
|
36,498
|
|
|
36,133
|
|
Goodwill
|
|
|
60,605
|
|
|
60,605
|
|
Core
deposit premiums
|
|
|
3,993
|
|
|
4,199
|
|
Other
assets
|
|
|
9,739
|
|
|
10,671
|
|
|
|
|
|
|
|
|
|
TOTAL
ASSETS
|
|
$
|
2,691,696
|
|
$
|
2,651,413
|
|
|
|
|
|
|
|
|
|
See
Condensed Notes to Consolidated Financial Statements.
Simmons
First National Corporation
Consolidated
Balance Sheets
March
31, 2007 and December 31, 2006
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
March
31,
|
|
December
31,
|
|
(In
thousands, except share data)
|
|
2007
|
|
2006
|
|
|
|
(Unaudited)
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
Non-interest
bearing transaction accounts
|
|
$
|
316,603
|
|
$
|
305,327
|
|
Interest
bearing transaction accounts and savings deposits
|
|
|
753,110
|
|
|
738,763
|
|
Time
deposits
|
|
|
1,137,208
|
|
|
1,131,441
|
|
Total
deposits
|
|
|
2,206,921
|
|
|
2,175,531
|
|
Federal
funds purchased and securities sold
|
|
|
|
|
|
|
|
under
agreements to repurchase
|
|
|
108,661
|
|
|
105,036
|
|
Short-term
debt
|
|
|
5,009
|
|
|
6,114
|
|
Long-term
debt
|
|
|
83,582
|
|
|
83,311
|
|
Accrued
interest and other liabilities
|
|
|
25,353
|
|
|
22,405
|
|
Total
liabilities
|
|
|
2,429,526
|
|
|
2,392,397
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’
EQUITY
|
|
|
|
|
|
|
|
Capital
stock
|
|
|
|
|
|
|
|
Class
A, common, par value $0.01 a share, authorized
|
|
|
|
|
|
|
|
30,000,000
shares, 14,139,631 issued and outstanding
|
|
|
|
|
|
|
|
at
2007 and 14,196,855 at 2006
|
|
|
141
|
|
|
142
|
|
Surplus
|
|
|
46,890
|
|
|
48,678
|
|
Undivided
profits
|
|
|
216,483
|
|
|
212,394
|
|
Accumulated
other comprehensive income (loss)
|
|
|
|
|
|
|
|
Unrealized
depreciation on available-for-sale securities,
|
|
|
|
|
|
|
|
net
of income tax credits of $806 at 2007 and $1,319 at 2006
|
|
|
(1,344
|
)
|
|
(2,198
|
)
|
Total
stockholders’ equity
|
|
|
262,170
|
|
|
259,016
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
$
|
2,691,696
|
|
$
|
2,651,413
|
|
See
Condensed Notes to Consolidated Financial Statements.
Simmons
First National Corporation
Three
Months Ended March 31, 2007 and 2006
|
|
Three
Months Ended
|
|
|
|
March
31,
|
|
(In
thousands, except per share data)
|
|
2007
|
|
2006
|
|
|
|
(Unaudited)
|
|
INTEREST
INCOME
|
|
|
|
|
|
Loans
|
|
$
|
34,095
|
|
$
|
30,087
|
|
Federal
funds sold
|
|
|
701
|
|
|
175
|
|
Investment
securities
|
|
|
5,721 |
|
|
4,830
|
|
Mortgage
loans held for sale
|
|
|
104
|
|
|
100
|
|
Assets
held in trading accounts
|
|
|
18
|
|
|
25
|
|
Interest
bearing balances due from banks
|
|
|
510
|
|
|
297
|
|
TOTAL
INTEREST INCOME
|
|
|
41,149
|
|
|
35,514
|
|
|
|
|
|
|
|
|
|
INTEREST
EXPENSE
|
|
|
|
|
|
|
|
Deposits
|
|
|
16,194
|
|
|
11,268
|
|
Federal
funds purchased and securities sold
|
|
|
|
|
|
|
|
under
agreements to repurchase
|
|
|
1,456
|
|
|
1,104
|
|
Short-term
debt
|
|
|
70
|
|
|
96
|
|
Long-term
debt
|
|
|
1,198
|
|
|
1,094
|
|
TOTAL
INTEREST EXPENSE
|
|
|
18,918
|
|
|
13,562
|
|
|
|
|
|
|
|
|
|
NET
INTEREST INCOME
|
|
|
22,231
|
|
|
21,952
|
|
Provision
for loan losses
|
|
|
751
|
|
|
1,708
|
|
|
|
|
|
|
|
|
|
NET
INTEREST INCOME AFTER PROVISION
|
|
|
|
|
|
|
|
FOR
LOAN LOSSES
|
|
|
21,480
|
|
|
20,244
|
|
|
|
|
|
|
|
|
|
NON-INTEREST
INCOME
|
|
|
|
|
|
|
|
Trust
income
|
|
|
1,637
|
|
|
1,367
|
|
Service
charges on deposit accounts
|
|
|
3,497
|
|
|
3,763
|
|
Other
service charges and fees
|
|
|
808
|
|
|
658
|
|
Income
on sale of mortgage loans, net of commissions
|
|
|
679
|
|
|
676
|
|
Income
on investment banking, net of commissions
|
|
|
150
|
|
|
107
|
|
Credit
card fees
|
|
|
2,649
|
|
|
2,458
|
|
Premiums
on sale of student loans
|
|
|
882
|
|
|
736
|
|
Bank
owned life insurance income
|
|
|
364
|
|
|
301
|
|
Other
income
|
|
|
788
|
|
|
546
|
|
TOTAL
NON-INTEREST INCOME
|
|
|
11,454
|
|
|
10,612
|
|
|
|
|
|
|
|
|
|
NON-INTEREST
EXPENSE
|
|
|
|
|
|
|
|
Salaries
and employee benefits
|
|
|
13,725
|
|
|
13,505
|
|
Occupancy
expense, net
|
|
|
1,650
|
|
|
1,520
|
|
Furniture
and equipment expense
|
|
|
1,466
|
|
|
1,418
|
|
Loss
on foreclosed assets
|
|
|
24
|
|
|
33
|
|
Deposit
insurance
|
|
|
67
|
|
|
69
|
|
Other
operating expenses
|
|
|
6,282
|
|
|
5,580
|
|
TOTAL
NON-INTEREST EXPENSE
|
|
|
23,214
|
|
|
22,125
|
|
|
|
|
|
|
|
|
|
INCOME
BEFORE INCOME TAXES
|
|
|
9,720
|
|
|
8,731
|
|
Provision
for income taxes
|
|
|
3,083
|
|
|
2,743
|
|
|
|
|
|
|
|
|
|
NET
INCOME
|
|
$
|
6,637
|
|
$
|
5,988
|
|
BASIC
EARNINGS PER SHARE
|
|
$
|
0.47
|
|
$
|
0.42
|
|
DILUTED
EARNINGS PER SHARE
|
|
$
|
0.46
|
|
$
|
0.41
|
|
|
|
|
|
|
|
|
|
See
Condensed Notes to Consolidated Financial Statements.
Simmons
First National Corporation
Three
Months Ended March 31, 2007 and 2006
|
|
|
|
|
|
|
|
March
31,
|
|
March
31,
|
|
(In
thousands)
|
|
2007
|
|
2006
|
|
|
|
(Unaudited)
|
|
OPERATING
ACTIVITIES
|
|
|
|
|
|
Net
income
|
|
$
|
6,637
|
|
$
|
5,988
|
|
Items
not requiring (providing) cash
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
1,408
|
|
|
1,657
|
|
Provision
for loan losses
|
|
|
751
|
|
|
1,708
|
|
Net
amortization of investment securities
|
|
|
48
|
|
|
115
|
|
Deferred
income taxes
|
|
|
110
|
|
|
(414
|
)
|
Bank
owned life insurance income
|
|
|
(364
|
)
|
|
(301
|
)
|
Changes
in
|
|
|
|
|
|
|
|
Interest
receivable
|
|
|
662
|
|
|
1,688
|
|
Mortgage
loans held for sale
|
|
|
(1,627
|
)
|
|
1,004
|
|
Assets
held in trading accounts
|
|
|
(5,977
|
)
|
|
(16
|
)
|
Other
assets
|
|
|
930
|
|
|
(3,897
|
)
|
Accrued
interest and other liabilities
|
|
|
249
|
|
|
2,015
|
|
Income
taxes payable
|
|
|
2,589
|
|
|
3,157
|
|
Net
cash provided by operating activities
|
|
|
5,416
|
|
|
12,704
|
|
|
|
|
|
|
|
|
|
INVESTING
ACTIVITIES
|
|
|
|
|
|
|
|
Net
originations of loans
|
|
|
(16,551
|
)
|
|
24,477
|
|
Purchases
of premises and equipment, net
|
|
|
(2,718
|
)
|
|
(3,130
|
)
|
Proceeds
from sale of foreclosed assets
|
|
|
446
|
|
|
316
|
|
Proceeds
from maturities of available-for-sale securities
|
|
|
35,756
|
|
|
8,480
|
|
Purchases
of available-for-sale securities
|
|
|
(25,980
|
)
|
|
(17,700
|
)
|
Proceeds
from maturities of held-to-maturity securities
|
|
|
4,220
|
|
|
12,230
|
|
Purchases
of held-to-maturity securities
|
|
|
(6,188
|
)
|
|
(10,686
|
)
|
Net
cash (used in) provided by investing activities
|
|
|
(11,015
|
)
|
|
13,987
|
|
|
|
|
|
|
|
|
|
FINANCING
ACTIVITIES
|
|
|
|
|
|
|
|
Net
increase in deposits
|
|
|
31,390
|
|
|
33,698
|
|
Net
repayments of short-term debt
|
|
|
(1,105
|
)
|
|
(5,786
|
)
|
Dividends
paid
|
|
|
(2,548
|
)
|
|
(2,280
|
)
|
Proceeds
from issuance of long-term debt
|
|
|
6,975
|
|
|
--
|
|
Repayment
of long-term debt
|
|
|
(6,704
|
)
|
|
(3,927
|
)
|
Net
increase (decrease) in federal funds purchased and
|
|
|
|
|
|
|
|
securities
sold under agreements to repurchase
|
|
|
3,625
|
|
|
(15,406
|
)
|
Repurchase
of common stock, net
|
|
|
(1,788
|
)
|
|
(2,343
|
)
|
Net
cash provided by financing activities
|
|
|
29,845
|
|
|
3,956
|
|
|
|
|
|
|
|
|
|
INCREASE
IN CASH AND CASH EQUIVALENTS
|
|
|
24,246
|
|
|
30,647
|
|
CASH
AND CASH EQUIVALENTS,
|
|
|
|
|
|
|
|
BEGINNING
OF PERIOD
|
|
|
151,151
|
|
|
101,573
|
|
CASH
AND CASH EQUIVALENTS, END OF PERIOD
|
|
$
|
175,397
|
|
$
|
132,220
|
|
|
|
|
|
|
|
|
|
See
Condensed Notes to Consolidated Financial Statements.
Simmons
First National Corporation
Three
Months Ended March 31, 2007 and 2006
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
Common
|
|
|
|
|
|
|
|
|
|
(In
thousands, except share data)
|
|
Stock
|
|
Surplus
|
|
Income
(loss)
|
|
Profits
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2005
|
|
$
|
143
|
|
$
|
53,723
|
|
$
|
(4,360
|
)
|
$
|
194,579
|
|
$
|
244,085
|
|
Comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
5,988
|
|
|
5,988
|
|
Change
in unrealized depreciation on
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
available-for-sale
securities, net of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
income
tax credit of $143
|
|
|
--
|
|
|
--
|
|
|
(239
|
)
|
|
--
|
|
|
(239
|
)
|
Comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,749
|
|
Stock
issued as bonus shares - 2,500 shares
|
|
|
--
|
|
|
73
|
|
|
--
|
|
|
--
|
|
|
73
|
|
Exercise
of stock options - 45,980 shares
|
|
|
1
|
|
|
728
|
|
|
--
|
|
|
--
|
|
|
729
|
|
Securities
exchanged under stock option plan
|
|
|
--
|
|
|
(627
|
)
|
|
--
|
|
|
--
|
|
|
(627
|
)
|
Repurchase
of common stock - 89,500 shares
|
|
|
(1
|
)
|
|
(2,517
|
)
|
|
--
|
|
|
--
|
|
|
(2,518
|
)
|
Dividends
paid - $0.16 per share
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
(2,280
|
)
|
|
(2,280
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
March 31, 2006 (Unaudited)
|
|
|
143
|
|
|
51,380
|
|
|
(4,599
|
)
|
|
198,287
|
|
|
245,211
|
|
Comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
21,493
|
|
|
21,493
|
|
Change
in unrealized depreciation on
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
available-for-sale
securities, net of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
income
tax credit of $1,439
|
|
|
--
|
|
|
--
|
|
|
2,401
|
|
|
--
|
|
|
2,401
|
|
Comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,894
|
|
Stock
issued as bonus shares - 7,700
|
|
|
--
|
|
|
202
|
|
|
--
|
|
|
--
|
|
|
202
|
|
Exercise
of stock options - 60,900 shares
|
|
|
--
|
|
|
788
|
|
|
--
|
|
|
--
|
|
|
788
|
|
Securities
exchanged under stock option plan
|
|
|
--
|
|
|
(664
|
)
|
|
--
|
|
|
--
|
|
|
(664
|
)
|
Repurchase
of common stock - 113,600 shares
|
|
|
(1
|
)
|
|
(3,028
|
)
|
|
--
|
|
|
--
|
|
|
(3,029
|
)
|
Dividends
paid - $0.52 per share
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
(7,386
|
)
|
|
(7,386
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2006
|
|
|
142
|
|
|
48,678
|
|
|
(2,198
|
)
|
|
212,394
|
|
|
259,016
|
|
Comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
6,637
|
|
|
6,637
|
|
Change
in unrealized depreciation on
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
available-for-sale
securities, net of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
income
taxes of $513
|
|
|
--
|
|
|
--
|
|
|
854
|
|
|
--
|
|
|
854
|
|
Comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,491
|
|
Exercise
of stock options - 15,800 shares
|
|
|
--
|
|
|
281
|
|
|
--
|
|
|
--
|
|
|
281
|
|
Securities
exchanged under stock option plan
|
|
|
--
|
|
|
(98
|
)
|
|
--
|
|
|
--
|
|
|
(98
|
)
|
Stock
granted under
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
stock-based
compensation plans
|
|
|
--
|
|
|
19
|
|
|
--
|
|
|
--
|
|
|
19
|
|
Repurchase
of common stock - 69,678 shares
|
|
|
(1
|
)
|
|
(1,990
|
)
|
|
--
|
|
|
--
|
|
|
(1,991
|
)
|
Dividends
paid - $0.18 per share
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
(2,548
|
)
|
|
(2,548
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
March 31, 2007 (Unaudited)
|
|
$
|
141
|
|
$
|
46,890
|
|
$
|
(1,344
|
)
|
$
|
216,483
|
|
$
|
262,170
|
|
See
Condensed Notes to Consolidated Financial Statements.
SIMMONS
FIRST NATIONAL CORPORATION
(Unaudited)
NOTE
1: BASIS
OF PRESENTATION
The
consolidated financial statements include the accounts of Simmons First National
Corporation and its subsidiaries. Significant intercompany accounts and
transactions have been eliminated in consolidation.
All
adjustments made to the unaudited financial statements were of a normal
recurring nature. In the opinion of management, all adjustments necessary for
a
fair presentation of the results of interim periods have been made. Certain
prior year amounts are reclassified to conform to current year classification.
The consolidated balance sheet of the Company as of December 31, 2006 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 2006 filed with the Securities and Exchange
Commission.
The
Company adopted the provisions of Financial Accounting Standards Board (FASB)
Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an
interpretation of FASB Statement No. 109, on January 1, 2007. See Note 6 -
Income Taxes for additional information. There have been no other significant
changes to the Company’s accounting policies from the 2006 Form
10-K.
Recently
Issued Accounting Pronouncements
In
September 2006, the FASB issued Statement of Financial Accounting Standards
No.
157, Fair Value Measurements. Statement No. 157 defines fair value, establishes
a framework for measuring fair value in generally accepted accounting
principles, and expands disclosures about fair value measurements. The Statement
is effective for the Company on January 1, 2008 and is not expected to have
a
significant impact on the Company’s financial position, operations or cash
flows.
In
February 2007, the FASB issued Statement of Financial Accounting Standards
No.
159, The Fair Value Option for Financial Assets and Financial Liabilities -
Including an amendment of FASB Statement No. 115. Statement No. 159 permits
entities to choose to measure eligible items at fair value at specified election
dates. Unrealized gains and losses on items for which the fair value option
has
been elected are reported in earnings at each subsequent reporting date. The
fair value option (i) may be applied instrument by instrument, with certain
exceptions, (ii) is irrevocable (unless a new election date occurs) and (iii)
is
applied only to entire instruments and not to portions of instruments. Statement
No. 159 is effective for the Company on January 1, 2008 and is not expected
to
have a significant impact on the Company’s financial position, operations or
cash flows.
In
September 2006, the FASB ratified the consensus reached by the FASB’s Emerging
Issues Task Force (EITF) relating to EITF 06-4, Accounting for the Deferred
Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar
Life
Insurance Arrangements. EITF 06-4 requires employers accounting for endorsement
split-dollar life insurance arrangements that provide a benefit to an employee
that extends to postretirement periods should recognize a liability for future
benefits in accordance with FASB Statement of Financial Accounting Standards
No.
106, Employers’ Accounting for Postretirement Benefits Other Than Pensions, or
Accounting Principles Board (APB) Opinion No. 12, Omnibus Opinion - 1967.
Entities should recognize the effects of applying this issue through either
(a)
a change in accounting principle through a cumulative-effect adjustment to
retained earnings or to other components of equity or net assets in the
statement of financial position as of the beginning of the year of adoption
or
(b) a change in accounting principle through retrospective application to all
prior periods. EITF 06-4 is effective for the Company on January 1, 2008. The
Company is currently evaluating the effect the implementation of EITF 06-4
will
have on its financial position, operations or cash flows.
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 months ended March 31,
2007 and 2006.
(In
thousands, except per share data)
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
Net
Income
|
|
$
|
6,637
|
|
$
|
5,988
|
|
|
|
|
|
|
|
|
|
Average
common shares outstanding
|
|
|
14,178
|
|
|
14,265
|
|
Average
potential
dilutive common shares
|
|
|
217
|
|
|
274
|
|
Average
diluted common shares
|
|
|
14,395
|
|
|
14,539
|
|
|
|
|
|
|
|
|
|
Basic
earnings per share
|
|
$
|
0.47
|
|
$
|
0.42
|
|
Diluted
earnings per share
|
|
$
|
0.46
|
|
$
|
0.41
|
|
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:
|
|
March
31,
|
|
December
31,
|
|
|
|
2007
|
|
2006
|
|
|
|
|
|
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.
Government
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
agencies
|
|
$
|
54,998
|
|
$
|
362
|
|
$
|
(213
|
)
|
$
|
55,147
|
|
$
|
54,998
|
|
$
|
367
|
|
$
|
(272
|
)
|
$
|
55,093
|
|
Mortgage-backed
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
securities
|
|
|
151
|
|
|
3
|
|
|
(1
|
)
|
|
153
|
|
|
155
|
|
|
3
|
|
|
(1
|
)
|
|
157
|
|
State
and political
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
subdivisions
|
|
|
124,415
|
|
|
637
|
|
|
(897
|
)
|
|
124,155
|
|
|
122,472
|
|
|
667
|
|
|
(892
|
)
|
|
122,247
|
|
Other
securities
|
|
|
2,337
|
|
|
--
|
|
|
--
|
|
|
2,337
|
|
|
2,319
|
|
|
--
|
|
|
--
|
|
|
2,319
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
181,901
|
|
$
|
1,002
|
|
$
|
(1,111
|
)
|
$
|
181,792
|
|
$
|
179,944
|
|
$
|
1,037
|
|
$
|
(1,165
|
)
|
$
|
179,816
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-Sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Treasury
|
|
$
|
11,452
|
|
$
|
1
|
|
$
|
(19
|
)
|
$
|
11,434
|
|
$
|
6,970
|
|
$
|
--
|
|
$
|
(30
|
)
|
$
|
6,940
|
|
U.S.
Government
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
agencies
|
|
|
313,105
|
|
|
363
|
|
|
(2,857
|
)
|
|
310,611
|
|
|
326,301
|
|
|
287
|
|
|
(4,177
|
)
|
|
322,411
|
|
Mortgage-backed
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
securities
|
|
|
3,010
|
|
|
1
|
|
|
(63
|
)
|
|
2,948
|
|
|
3,032
|
|
|
--
|
|
|
(76
|
)
|
|
2,956
|
|
State
and political
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
subdivisions
|
|
|
1,125
|
|
|
7
|
|
|
--
|
|
|
1,132
|
|
|
1,360
|
|
|
10
|
|
|
--
|
|
|
1,370
|
|
Other
securities
|
|
|
11,680
|
|
|
417
|
|
|
--
|
|
|
12,097
|
|
|
13,035
|
|
|
470
|
|
|
--
|
|
|
13,505
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
340,372
|
|
$
|
789
|
|
$
|
(2,939
|
)
|
$
|
338,222
|
|
$
|
350,698
|
|
$
|
767
|
|
$
|
(4,283
|
)
|
$
|
347,182
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
carrying value, which approximates the fair value, of securities pledged as
collateral, to secure public deposits and for other purposes, amounted to
$389,408,000 at March 31, 2007 and $400,668,000 at December 31, 2006.
The
book
value of securities sold under agreements to repurchase amounted to $78,786,000
and $80,566,000 for March 31, 2007 and December 31, 2006,
respectively.
Income
earned on securities for the three months ended March 31, 2007 and 2006 is
as
follows:
(In
thousands)
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
Taxable
|
|
|
|
|
|
Held-to-maturity
|
|
$
|
725
|
|
$
|
319
|
|
Available-for-sale
|
|
|
3,761
|
|
|
3,352
|
|
|
|
|
|
|
|
|
|
Non-taxable
|
|
|
|
|
|
|
|
Held-to-maturity
|
|
|
1,219
|
|
|
1,120
|
|
Available-for-sale
|
|
|
16
|
|
|
39
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
5,721
|
|
$
|
4,830
|
|
Maturities
of investment securities at March 31, 2007 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Held-to-Maturity
|
|
Available-for-Sale
|
|
|
|
Amortized
|
|
Fair
|
|
Amortized
|
|
Fair
|
|
(In
thousands)
|
|
Cost
|
|
Value
|
|
Cost
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
One
year or less
|
|
$
|
18,240
|
|
$
|
18,199
|
|
$
|
85,563
|
|
$
|
84,837
|
|
After
one through five years
|
|
|
57,733
|
|
|
57,568
|
|
|
110,119
|
|
|
108,647
|
|
After
five through ten years
|
|
|
85,359
|
|
|
85,408
|
|
|
130,904
|
|
|
130,591
|
|
After
ten years
|
|
|
19,162
|
|
|
19,210
|
|
|
2,106
|
|
|
2,050
|
|
Other
securities
|
|
|
1,407
|
|
|
1,407
|
|
|
11,680
|
|
|
12,097
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
181,901
|
|
$
|
181,792
|
|
$
|
340,372
|
|
$
|
338,222
|
|
There
were
no realized gains or losses as of March 31, 2007 or 2006.
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:
|
|
March
31,
|
|
December
31,
|
|
(In
thousands)
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
Consumer
|
|
|
|
|
|
|
|
Credit
cards
|
|
$
|
133,511
|
|
$
|
143,359
|
|
Student
loans
|
|
|
84,358
|
|
|
84,831
|
|
Other
consumer
|
|
|
141,212
|
|
|
142,596
|
|
Real
Estate
|
|
|
|
|
|
|
|
Construction
|
|
|
276,582
|
|
|
277,411
|
|
Single
family residential
|
|
|
366,219
|
|
|
364,450
|
|
Other
commercial
|
|
|
536,421
|
|
|
512,404
|
|
Commercial
|
|
|
|
|
|
|
|
Commercial
|
|
|
182,548
|
|
|
178,028
|
|
Agricultural
|
|
|
61,617
|
|
|
62,293
|
|
Financial
institutions
|
|
|
5,080
|
|
|
4,766
|
|
Other
|
|
|
10,686
|
|
|
13,357
|
|
|
|
|
|
|
|
|
|
Total
loans before allowance for loan losses
|
|
$
|
1,798,234
|
|
$
|
1,783,495
|
|
As
of
March 31, 2007, credit card loans, which are unsecured, were $133,511,000,
or
7.4% of total loans, versus $143,359,000, or 8.0% of total loans at December
31,
2006. 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
March
31, 2007 and December 31, 2006, impaired loans totaled $9,810,000 and
$12,829,000, 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 $3,151,000 at March 31, 2007
and
$3,418,000 at December 31, 2006. Approximately $73,000 and $122,000 of
interest income was recognized on average impaired loans of $11,320,000 and
$14,020,000 as of March 31, 2007 and 2006, respectively. Interest recognized
on
impaired loans on a cash basis during the first three months of 2007 and 2006
was immaterial.
Transactions
in the allowance for loan losses are as follows:
|
|
|
|
|
|
(In
thousands)
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
Balance,
beginning of year
|
|
$
|
25,385
|
|
$
|
26,923
|
|
Additions
|
|
|
|
|
|
|
|
Provision
charged to expense
|
|
|
751
|
|
|
1,708
|
|
|
|
|
26,136
|
|
|
28,631
|
|
Deductions
|
|
|
|
|
|
|
|
Losses
charged to allowance, net of recoveries
|
|
|
|
|
|
|
|
of
$689 and $691 for the first three months of
|
|
|
|
|
|
|
|
2007
and 2006, respectively
|
|
|
985
|
|
|
643
|
|
Reclassification
of reserve related to unfunded commitments(1)
|
|
|
--
|
|
|
1,525
|
|
|
|
|
|
|
|
|
|
Balance,
March 31
|
|
$
|
25,151
|
|
|
26,463
|
|
|
|
|
|
|
|
|
|
Additions
|
|
|
|
|
|
|
|
Provision
charged to expense
|
|
|
|
|
|
2,054
|
|
|
|
|
|
|
|
28,517 |
|
Deductions
|
|
|
|
|
|
|
|
Losses
charged to allowance, net of recoveries
|
|
|
|
|
|
|
|
of
$2,415 for the last nine months of 2006
|
|
|
|
|
|
3,132
|
|
|
|
|
|
|
|
|
|
Balance,
end of year
|
|
|
|
|
$
|
25,385
|
|
(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 March 31, 2007 and December
31, 2006, were as follows:
|
|
March
31,
|
|
December
31,
|
|
(In
thousands)
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
Gross
carrying amount
|
|
$
|
6,822
|
|
$
|
6,822
|
|
Accumulated
amortization
|
|
|
(2,829
|
)
|
|
(2,623
|
)
|
|
|
|
|
|
|
|
|
Net
core deposit premiums
|
|
$
|
3,993
|
|
$
|
4,199
|
|
Core
deposit premium amortization expense recorded for the three months ended March
31, 2007 and 2006, was $207,000 and $207,000, respectively. The Company’s
estimated amortization expense for the remainder of 2007 is $611,000, and for
each of the following four years is:
2008
-
$807,000; 2009 - $802,000; 2010 - $699,000; and 2011 - $451,000.
NOTE
5: TIME
DEPOSITS
Time
deposits include approximately $450,558,000 and $450,310,000 of certificates
of
deposit of $100,000 or more at March 31, 2007 and December 31, 2006
respectively.
NOTE
6: INCOME
TAXES
The
provision for income taxes is comprised of the following
components:
|
|
March
31,
|
|
March
31,
|
|
(In
thousands)
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
Income
taxes currently payable
|
|
$
|
2,973
|
|
$
|
3,157
|
|
Deferred
income taxes
|
|
|
110
|
|
|
(414
|
)
|
|
|
|
|
|
|
|
|
Provision
for income taxes
|
|
$
|
3,083
|
|
$
|
2,743
|
|
The
tax
effects of temporary differences related to deferred taxes shown on the balance
sheets were:
|
|
March
31,
|
|
December
31,
|
|
(In
thousands)
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
Deferred
tax assets
|
|
|
|
|
|
Allowance
for loan losses
|
|
$
|
8,814
|
|
$
|
8,543
|
|
Valuation
of foreclosed assets
|
|
|
63
|
|
|
63
|
|
Deferred
compensation payable
|
|
|
1,316
|
|
|
1,275
|
|
FHLB
advances
|
|
|
47
|
|
|
58
|
|
Vacation
compensation
|
|
|
761
|
|
|
740
|
|
Loan
interest
|
|
|
140
|
|
|
140
|
|
Available-for-sale
securities
|
|
|
806
|
|
|
1,319
|
|
Other
|
|
|
102
|
|
|
174
|
|
Total
deferred tax assets
|
|
|
12,049
|
|
|
12,312
|
|
|
|
|
|
|
|
|
|
Deferred
tax liabilities
|
|
|
|
|
|
|
|
Accumulated
depreciation
|
|
|
(755
|
)
|
|
(852
|
)
|
Deferred
loan fee income and expenses, net
|
|
|
(812
|
)
|
|
(787
|
)
|
FHLB
stock dividends
|
|
|
(917
|
)
|
|
(887
|
)
|
Goodwill
and core deposit premium amortization
|
|
|
(6,289
|
)
|
|
(6,051
|
)
|
Other
|
|
|
(1,044
|
)
|
|
(880
|
)
|
Total
deferred tax liabilities
|
|
|
(9,817
|
)
|
|
(9,457
|
)
|
|
|
|
|
|
|
|
|
Net
deferred tax assets included in other
|
|
|
|
|
|
|
|
assets
on balance sheets
|
|
$
|
2,232
|
|
$
|
2,855
|
|
A
reconciliation of income tax expense at the statutory rate to the Company's
actual income tax expense is shown below:
|
|
March
31,
|
|
March
31,
|
|
(In
thousands)
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
Computed
at the statutory rate (35%)
|
|
$
|
3,402
|
|
$
|
3,056
|
|
|
|
|
|
|
|
|
|
Increase
(decrease) resulting from:
|
|
|
|
|
|
|
|
Tax
exempt income
|
|
|
(482
|
)
|
|
(455
|
)
|
Other
differences, net
|
|
|
163
|
|
|
142
|
|
|
|
|
|
|
|
|
|
Actual
tax provision
|
|
$
|
3,083
|
|
$
|
2,743
|
|
The
Company adopted the provisions of FASB Interpretation No. 48, Accounting for
Uncertainty in Income Taxes, an interpretation of FASB Statement 109, effective
January 1, 2007. Interpretation 48 prescribes a recognition threshold and a
measurement attribute for the financial statement recognition and measurement
of
a tax position taken or expected to be taken in a tax return. Benefits from
tax
positions should be recognized in the financial statements only when it is
more
likely than not that the tax position will be sustained upon examination by
the
appropriate taxing authority that would have full knowledge of all relevant
information. A tax position that meets the more-likely-than-not recognition
threshold is measured at the largest amount of benefit that is greater than
fifty percent likely of being realized upon ultimate settlement. Tax positions
that previously failed to meet the more-likely-than-not recognition threshold
should be recognized in the first subsequent financial reporting period in
which
that threshold is met. Previously recognized tax positions that no longer meet
the more-likely-than-not recognition threshold should be derecognized in the
first subsequent financial reporting period in which that threshold is no longer
met. Interpretation 48 also provides guidance on the accounting for and
disclosure of unrecognized tax benefits, interest and penalties. Adoption of
Interpretation 48 did not have a significant impact on the Company’s financial
position, operations or cash flows.
The
amount
of unrecognized tax benefits may increase or decrease in the future for various
reasons including adding amounts for current tax year positions, expiration
of
open income tax returns due to the statutes of limitation, changes in
management’s judgment about the level of uncertainty, status of examinations,
litigation and legislative activity and the addition or elimination of uncertain
tax positions.
The
Company files income tax returns in the U.S. federal jurisdiction. The Company’s
U.S. federal income tax returns are open and subject to examinations from the
2003 tax year and forward. The Company’s various state income tax returns are
generally open from the 2003 and later tax return years based on individual
state statute of limitations.
NOTE
7: SHORT-TERM
AND LONG-TERM DEBT
Long-term
debt at March 31, 2007 and December 31, 2006, consisted of the following
components:
|
|
March
31,
|
|
December
31,
|
|
(In
thousands)
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
Note
Payable, due 2007, at a floating rate of
|
|
|
|
|
|
0.90%
above the one-month LIBOR rate, reset
|
|
|
|
|
|
monthly,
unsecured
|
|
$
|
2,000
|
|
$
|
2,000
|
|
FHLB
advances, due 2007 to 2024, 2.58% to 8.41%
|
|
|
|
|
|
|
|
secured
by residential real estate loans
|
|
|
50,652
|
|
|
50,381
|
|
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,
|
|
|
|
|
|
|
|
in
2010 without penalty at a floating rate of 2.80% above the
three-month
|
|
|
|
|
|
|
|
LIBOR
rate, reset quarterly, callable
|
|
|
10,310
|
|
|
10,310
|
|
|
|
|
|
|
|
|
|
|
|
$
|
83,582
|
|
$
|
83,311
|
|
At
March
31, 2007, the Company had Federal Home Loan Bank (“FHLB”) advances with original
maturities of one year or less of $4.5 million with a weighted average rate
of
5.20% 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 March 31, 2007 are:
|
|
|
|
Annual
|
|
(In
thousands)
|
|
Year
|
|
Maturities
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
$
|
8,410
|
|
|
|
|
2008
|
|
|
13,058
|
|
|
|
|
2009
|
|
|
5,291
|
|
|
|
|
2010
|
|
|
5,212
|
|
|
|
|
2011
|
|
|
4,012
|
|
|
|
|
Thereafter
|
|
|
47,599
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
83,582
|
|
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 and the banks have 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 continue 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 Company and the bank plan to vigorously
defend the claims asserted in the suit.
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
three-month period ended March 31, 2007, the Company repurchased 69,678 shares
of stock under the repurchase plan with a weighted average repurchase price
of
$28.62 per share. Under the current stock repurchase plan, the Company can
repurchase an additional 271,289 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 March 31,
2007, the bank subsidiaries had approximately $9 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 March 31, 2007, each of the eight subsidiary banks met the capital
standards for a well-capitalized institution. The Company's “total risk-based
capital” ratio was 13.61% at March 31, 2007.
NOTE
11: STOCK
BASED COMPENSATION
The
Company’s Board of Directors has adopted various stock compensation plans. The
plans provide for the grant of incentive stock options, nonqualified stock
options, stock appreciation rights, and bonus stock awards. Pursuant to the
plans, shares are reserved for future issuance by the Company, upon exercise
of
stock options or awarding of bonus shares granted to officers and other key
employees.
The
table
below summarizes the transactions under the Company's active stock compensation
plans for the three months ended March 31, 2007:
|
|
Stock
Options
|
|
Non-Vested
Stock
|
|
|
|
Outstanding
|
|
Awards
Outstanding
|
|
|
|
|
|
Weighted
|
|
|
|
Weighted
|
|
|
|
Number
|
|
Average
|
|
Number
|
|
Average
|
|
|
|
of
|
|
Exercise
|
|
of
|
|
Grant-Date
|
|
|
|
Shares
|
|
Price
|
|
Shares
|
|
Fair-Value
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
January 1, 2007
|
|
|
516,670
|
|
$
|
16.32
|
|
|
22,646
|
|
$
|
25.69
|
|
Granted
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
Stock
Options Exercised
|
|
|
(15,800
|
)
|
|
17.80
|
|
|
--
|
|
|
--
|
|
Stock
Awards Vested
|
|
|
--
|
|
|
--
|
|
|
(900
|
)
|
|
27.67
|
|
Forfeited/Expired
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
March 31, 2007
|
|
|
500,870
|
|
$
|
16.27
|
|
|
21,746
|
|
$
|
25.60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable,
March 31, 2007
|
|
|
436,368
|
|
$
|
14.86
|
|
|
|
|
|
|
|
The
following table summarizes information about stock options under the plans
outstanding at March 31, 2007:
|
|
Options
Outstanding
|
|
Options
Exercisable
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
|
|
Remaining
|
|
|
|
|
|
Average
|
|
Range
of
|
|
Options
|
|
Contractual
|
|
Exercise
|
|
Options
|
|
Exercise
|
|
Exercise
Prices
|
|
Outstanding
|
|
Life
|
|
Price
|
|
Exercisable
|
|
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$10.56
to $12.22
|
|
|
326,800
|
|
|
1.4
Years
|
|
$
|
12.06
|
|
|
326,800
|
|
$
|
12.06
|
|
$15.35
to $16.32
|
|
|
13,660
|
|
|
1.5
Years
|
|
$
|
15.82
|
|
|
13,660
|
|
$
|
15.82
|
|
$23.78
to $24.50
|
|
|
98,210
|
|
|
3.9
Years
|
|
$
|
24.06
|
|
|
86,808
|
|
$
|
24.06
|
|
$26.19
to $27.67
|
|
|
62,200
|
|
|
5.3
Years
|
|
$
|
26.20
|
|
|
9,100
|
|
$
|
26.21
|
|
Stock-based
compensation expense totaled $19,395 and $14,614 during the three months ended
March 31, 2007 and 2006, respectively. Stock-based compensation expense is
recognized ratably over the requisite service period for all stock-based awards.
Unrecognized stock-based compensation expense related to stock options totaled
$267,595 at March 31, 2007. At such date, the weighted-average period over
which
this unrecognized expense is expected to be recognized was 1.88 years.
Unrecognized stock-based compensation expense related to non-vested stock awards
was $556,781 at March 31, 2007. At such date, the weighted-average period over
which this unrecognized expense is expected to be recognized was 1.57
years.
Aggregate
intrinsic values of outstanding stock options and exercisable stock options
at
March 31, 2007 were $6.9 million and $6.6 million, respectively. Aggregate
intrinsic value represents the difference between the Company’s closing stock
price on the last trading day of the period, which was $30.07 as of March 30,
2007, and the exercise price multiplied by the number of options outstanding.
The total intrinsic values of stock options exercised during the three months
ended March 31, 2007 and 2006, were $193,825 and $639,581,
respectively.
NOTE
12: ADDITIONAL
CASH FLOW INFORMATION
|
|
Three
Months Ended
|
|
|
|
March
31,
|
|
(In
thousands)
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
Interest
paid
|
|
$
|
16,675
|
|
$
|
13,440
|
|
Income
taxes paid
|
|
$
|
0
|
|
$
|
0
|
|
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
March
31, 2007, the Company had outstanding commitments to extend credit aggregating
approximately $213,017,000 and $454,438,000 for credit card commitments and
other loan commitments, respectively. At December 31, 2006, the Company had
outstanding commitments to extend credit aggregating approximately $202,047,000
and $529,697,000 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 $9,890,000 and $5,477,000 at March 31, 2007 and December
31,
2006, respectively, with terms ranging from 90 days to three years. At
March 31, 2007 and December 31, 2006 the Company’s deferred revenue under
standby letter of credit agreements is approximately $9,000 and $35,000,
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
March 31, 2007, and the related consolidated statements of income for the
three-month periods ended March 31, 2007 and 2006, and the related consolidated
statements of stockholders’ equity and cash flows for the three-month periods
ended March 31, 2007 and 2006. 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, 2006, 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 19, 2007, 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, 2006, is fairly stated, in all material respects, in relation
to
the consolidated balance sheet from which it has been derived.
|
BKD,
LLP
|
|
|
|
/s/
BKD, LLP
|
|
|
Pine
Bluff, Arkansas
|
|
May
3, 2007
|
|
OVERVIEW
Simmons
First National Corporation recorded earnings of $6,637,000, or $0.46 diluted
earnings per share for the first quarter of 2007, compared to earnings of
$5,988,000, or $0.41 diluted earnings per share for same period in 2006. This
represents a $649,000, or 10.8% increase in the first quarter 2007 earnings
over
2006. From March 31, 2006 to March 31, 2007, quarterly diluted earnings per
share increased by $0.05, or 12.2%. Return on average assets and return on
average stockholders’ equity for the three-month period ended March 31, 2007,
were 1.01% and 10.25%, compared to 0.96% and 9.87%, respectively, for the same
period in 2006. The
increase in earnings
for the
quarter over the same period last year was due to growth in the loan portfolio,
an improved yield in the securities portfolio, increased non-interest income
and
the continued control of non-interest expense, even during the Company’s de novo
expansion process. The primary reason for the increase in earnings was the
continued improvement in asset quality and the related reduction in the
provision for loan losses.
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 61 basis
points and 67 basis points at March 31, 2007 and December 31, 2006,
respectively. Non-performing loans to total loans were 48 basis points at
the end of the quarter, compared to 56 basis points at December 31, 2006.
The allowance for loan losses equaled 292% of non-performing loans as of March
31, 2007, compared to 252% as of year-end 2006. The allowance for loan losses
as
a percent of total loans equaled 1.40% and 1.42% as of March 31, 2007 and
December 31, 2006, respectively.
Annualized
net charge-offs to total loans for the first quarter of 2007 were 22 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 1.41% for the quarter ended March 31, 2007, nearly
350 basis points below the most recently published industry average of 4.85%.
However, net credit card charge offs as a percent of the credit card portfolio
increased from 1.05% in the previous quarter. 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 throughout the balance of 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 March 31, 2007, were $2.692 billion, an increase
of
$40.3 million, or 1.5% from December 31, 2006. Stockholders’ equity at the
end of the first quarter of 2007 was $262.2 million, a $3.2 million, or 1.2%
increase from December 31, 2006.
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 86 offices, of which 82 are financial centers,
located in 48 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 accrual 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 (FASB) 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 2007 or 2006.
Core
Deposit Premiums
Core
deposit premiums are being amortized using both straight-line and accelerated
methods over periods ranging from 8 to 11 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
The
Company adopted the provisions of FASB Interpretation No. 48, Accounting for
Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109, on
January 1, 2007. See Note 6 - Income Taxes in the accompanying notes to
consolidated financial statements included elsewhere in this report for
additional information.
Employee
Benefit Plans
The
Company has stock-based employee compensation plans and recognizes compensation
expense for stock options in accordance with FASB Statement No. 123, Share-Based
Payment (Revised 2004).
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.
For
the
three-month period ended March 31, 2007, net interest income on a fully taxable
equivalent basis was $23.1 million, an increase of $325,000, or 1.4%, from
the
same period in 2006. The increase in net interest income was the result of
a
$5.7 million increase in interest income offset by a $5.4 million increase
in
interest expense.
The
$5.7
million increase in interest income primarily is the result of a 60 basis point
increase in yield on earning assets associated with the repricing to a higher
interest rate environment, as well as a $134 million increase in average
interest earning assets due to internal growth. The growth in average interest
earning assets resulted in a $2.2 million improvement in interest income. The
growth in average loans accounted for $1.6 million of this increase. The higher
interest rates accounted for a $3.5 million increase in interest income.
The most significant component of this increase was the $2.4 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 57 basis points from 7.21% to 7.78%.
The
$5.4
million increase in interest expense is the result of an 87 basis point increase
in cost of funds due to competitive repricing during a higher interest rate
environment, coupled with a $130.3 million increase in average interest
bearing liabilities generated through internal growth. The higher interest
rates
accounted for a $4.0 million increase in interest expense. The most significant
component of this increase was the $2.9 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 109 basis points from 3.55% to 4.64%. The higher level of average
interest bearing liabilities resulted in a $1.3 million increase in interest
expense. More specifically, the higher level of average interest bearing
liabilities was the result of increases of approximately $125.1 million
from internal deposit growth and $5.2 million in federal funds purchased and
other debt.
Net
Interest Margin
The
Company’s net interest margin decreased 17 basis points to 3.88% for the
three-month period ended March 31, 2007, when compared to 4.05% for the same
period in 2006. This decrease in the net interest margin was primarily due
to
the increase in the cost of funds resulting from deposit repricing, coupled
with
the effect of the inverted yield curve between short-term and long-term interest
rates. Net interest margin increased by 2 basis points from the previous quarter
due primarily to the improvement in the yield on securities from maturities
and
repricing in the first quarter. The rate of increase in the average cost of
deposits also began to slow during the quarter. Due to the current inverted
yield curve and the competitive deposit market, the Company anticipates a flat
to slightly improving margin for the balance of 2007.
Net
Interest Income Tables
Table
1
and 2 reflect an analysis of net interest income on a fully taxable equivalent
basis for the three-month periods ended March 31, 2007 and 2006, respectively,
as well as changes in fully taxable equivalent net interest margin for the
three-month periods ended March 31, 2007 versus March 31, 2006.
Table
1: Analysis of Net Interest Income
|
(FTE
=Fully Taxable Equivalent)
|
|
|
Period
Ended March 31,
|
|
($
in thousands)
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
Interest
income
|
|
$
|
41,149
|
|
$
|
35,514
|
|
FTE
adjustment
|
|
|
826
|
|
|
780
|
|
Interest
income - FTE
|
|
|
41,975
|
|
|
36,294
|
|
Interest
expense
|
|
|
18,918
|
|
|
13,562
|
|
|
|
|
|
|
|
|
|
Net
interest income - FTE
|
|
$
|
23,057
|
|
$
|
22,732
|
|
|
|
|
|
|
|
|
|
Yield
on earning assets - FTE
|
|
|
7.06
|
%
|
|
6.46
|
%
|
Cost
of interest bearing liabilities
|
|
|
3.70
|
%
|
|
2.83
|
%
|
Net
interest spread - FTE
|
|
|
3.36
|
%
|
|
3.63
|
%
|
Net
interest margin - FTE
|
|
|
3.88
|
%
|
|
4.05
|
%
|
Table
2: Changes in Fully Taxable Equivalent Net Interest
Margin
|
|
|
|
|
|
|
March
31,
|
|
(In
thousands)
|
|
2007
vs. 2006
|
|
|
|
|
|
Increase
due to change in earning assets
|
|
$
|
2,230
|
|
Increase
due to change in earning asset yields
|
|
|
3,451
|
|
Decrease
due to change in interest bearing liabilities
|
|
|
(1,337
|
)
|
Decrease
due to change in interest rates paid on
|
|
|
|
|
interest
bearing liabilities
|
|
|
(4,018
|
)
|
|
|
|
|
|
Increase
in net interest income
|
|
$
|
326
|
|
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 periods ended March 31, 2007 and 2006. 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 March 31,
|
|
|
|
2007
|
|
2006
|
|
|
|
Average
|
|
Income/
|
|
Yield/
|
|
Average
|
|
Income/
|
|
Yield/
|
|
($
in thousands)
|
|
Balance
|
|
Expense
|
|
Rate(%)
|
|
Balance
|
|
Expense
|
|
Rate(%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earning
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
bearing balances
|
|
|
|
|
|
|
|
|
|
|
|
|
|
due
from banks
|
|
$
|
37,957
|
|
$
|
510
|
|
|
5.45
|
|
$
|
27,968
|
|
$
|
297
|
|
|
4.31
|
|
Federal
funds sold
|
|
|
51,383
|
|
|
701
|
|
|
5.53
|
|
|
16,235
|
|
|
175
|
|
|
4.37
|
|
Investment
securities - taxable
|
|
|
406,342
|
|
|
4,485
|
|
|
4.48
|
|
|
409,399
|
|
|
3,671
|
|
|
3.64
|
|
Investment
securities - non-taxable
|
|
|
123,024
|
|
|
1,977
|
|
|
6.52
|
|
|
116,325
|
|
|
1,854
|
|
|
6.46
|
|
Mortgage
loans held for sale
|
|
|
6,362
|
|
|
104
|
|
|
6.63
|
|
|
6,570
|
|
|
100
|
|
|
6.17
|
|
Assets
held in trading accounts
|
|
|
4,746
|
|
|
18
|
|
|
1.54
|
|
|
4,632
|
|
|
25
|
|
|
2.19
|
|
Loans
|
|
|
1,782,125
|
|
|
34,180
|
|
|
7.78
|
|
|
1,696,855
|
|
|
30,172
|
|
|
7.21
|
|
Total
interest earning assets
|
|
|
2,411,939
|
|
|
41,975
|
|
|
7.06
|
|
|
2,277,984
|
|
|
36,294
|
|
|
6.46
|
|
Non-earning
assets
|
|
|
252,112
|
|
|
|
|
|
|
|
|
245,476
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
2,664,051
|
|
|
|
|
|
|
|
$
|
2,523,460
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’
EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
bearing liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
bearing transaction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
savings accounts
|
|
$
|
731,214
|
|
$
|
3,179
|
|
|
1.76
|
|
$
|
747,046
|
|
$
|
2,544
|
|
|
1.38
|
|
Time
deposits
|
|
|
1,138,113
|
|
|
13,015
|
|
|
4.64
|
|
|
997,156
|
|
|
8,724
|
|
|
3.55
|
|
Total
interest bearing deposits
|
|
|
1,869,327
|
|
|
16,194
|
|
|
3.51
|
|
|
1,744,202
|
|
|
11,268
|
|
|
2.62
|
|
Federal
funds purchased and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
securities
sold under agreement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
to
repurchase
|
|
|
118,011
|
|
|
1,456
|
|
|
5.00
|
|
|
109,299
|
|
|
1,104
|
|
|
4.10
|
|
Other
borrowed funds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term
debt
|
|
|
4,031
|
|
|
70
|
|
|
7.04
|
|
|
5,744
|
|
|
96
|
|
|
6.78
|
|
Long-term
debt
|
|
|
82,185
|
|
|
1,198
|
|
|
5.94
|
|
|
83,961
|
|
|
1,094
|
|
|
5.28
|
|
Total
interest bearing liabilities
|
|
|
2,073,554
|
|
|
18,918
|
|
|
3.70
|
|
|
1,943,206
|
|
|
13,562
|
|
|
2.83
|
|
Non-interest
bearing liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest
bearing deposits
|
|
|
306,020
|
|
|
|
|
|
|
|
|
316,178
|
|
|
|
|
|
|
|
Other
liabilities
|
|
|
22,002
|
|
|
|
|
|
|
|
|
18,012
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
2,401,576
|
|
|
|
|
|
|
|
|
2,277,396
|
|
|
|
|
|
|
|
Stockholders’
equity
|
|
|
262,475
|
|
|
|
|
|
|
|
|
246,064
|
|
|
|
|
|
|
|
Total
liabilities and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
stockholders’
equity
|
|
$
|
2,664,051
|
|
|
|
|
|
|
|
$
|
2,523,460
|
|
|
|
|
|
|
|
Net
interest spread
|
|
|
|
|
|
|
|
|
3.36
|
|
|
|
|
|
|
|
|
3.63
|
|
Net
interest margin
|
|
|
|
|
$
|
23,057
|
|
|
3.88
|
|
|
|
|
$
|
22,732
|
|
|
4.05
|
|
Table
4
shows changes in interest income and interest expense, resulting from changes
in
volume and changes in interest rates for the three-month period ended March
31,
2007, as compared to the same period of the prior year. The changes in interest
rate and volume have been allocated to changes in average volume and changes
in
average rates, in proportion to the relationship of absolute dollar amounts
of
the changes in rates and volume.
Table
4: Volume/Rate Analysis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period
Ended March 31
|
|
|
|
|
|
2007
over 2006
|
|
(In
thousands, on a fully
|
|
|
|
|
|
Yield/
|
|
|
|
taxable
equivalent basis)
|
|
|
|
Volume
|
|
Rate
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Increase
(decrease) in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
|
|
|
|
|
|
|
Interest
bearing balances
|
|
|
|
|
|
|
|
|
|
due
from banks
|
|
|
|
|
$
|
121
|
|
$
|
91
|
|
$
|
212
|
|
Federal
funds sold
|
|
|
|
|
|
469
|
|
|
57
|
|
|
526
|
|
Investment
securities - taxable
|
|
|
|
|
|
(27
|
)
|
|
842
|
|
|
815
|
|
Investment
securities - non-taxable
|
|
|
|
|
|
108
|
|
|
15
|
|
|
123
|
|
Mortgage
loans held for sale
|
|
|
|
|
|
(4
|
)
|
|
7
|
|
|
3
|
|
Assets
held in trading accounts
|
|
|
|
|
|
1
|
|
|
(7
|
)
|
|
(6
|
)
|
Loans
|
|
|
|
|
|
1,562
|
|
|
2,446
|
|
|
4,008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
2,230
|
|
|
3,451
|
|
|
5,681
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
bearing transaction and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
savings
accounts
|
|
|
|
|
|
(55
|
)
|
|
689
|
|
|
634
|
|
Time
deposits
|
|
|
|
|
|
1,352
|
|
|
2,939
|
|
|
4,291
|
|
Federal
funds purchased
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
securities sold under
|
|
|
|
|
|
|
|
|
|
|
|
|
|
agreements
to repurchase
|
|
|
|
|
|
93
|
|
|
259
|
|
|
352
|
|
Other
borrowed funds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term
debt
|
|
|
|
|
|
(30
|
)
|
|
4
|
|
|
(26
|
)
|
Long-term
debt
|
|
|
|
|
|
(23
|
)
|
|
127
|
|
|
104
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
1,337
|
|
|
4,018
|
|
|
5,355
|
|
Increase
(decrease) in net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
interest
income
|
|
|
|
|
$
|
893
|
|
$
|
(567
|
)
|
$
|
326
|
|
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 March 31, 2007,
was
$0.7 million, compared to $1.7 million for the three-month period ended March
31, 2006, a reduction of $1.0 million. The provision reduction was
primarily driven by two factors.
First,
there was improvement in the credit quality of the loan portfolio in 2006,
particularly due to the payoff of two large credit relationships after March
31,
2006. One was upgraded two levels from substandard to watch, based on improved
financial condition of the borrower, and was ultimately paid off. The other
impaired relationship, graded substandard, was refinanced with another financial
institution. A specific reserve was applied to both of these credit
relationships. Additional loans were classified in 2006 and in the first
quarter
of 2007 as non-performing based upon various criteria; however, there were
no
specific reserve allocations required for these loans. Second, the Company
saw a
sustained decrease in credit card charge-offs, recording 1.41% credit card
net
charge-offs as a percent of the credit card portfolio during the quarter
ended
March 31, 2007, still well below its historical level of approximately 2.50%.
The provision for loan losses was reduced due to the improvement in credit
quality of loans with specific reserves and the continued significant reduction
in credit card charge-offs.
NON-INTEREST
INCOME
Total
non-interest income was $11.5 million for the three-month period ended March
31,
2007, compared to $10.6 million for the same period in 2006. 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 period ended March 31, 2007
and
2006, respectively, as well as changes in 2007 from 2006.
Table
5: Non-Interest Income
|
|
|
|
|
|
|
2007
|
|
|
|
Period
Ended March 31
|
|
Change
from
|
|
(In
thousands)
|
|
2007
|
|
2006
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
Trust
income
|
|
$
|
1,637
|
|
$
|
1,367
|
|
$
|
270
|
|
|
19.75
|
%
|
Service
charges on deposit accounts
|
|
|
3,497
|
|
|
3,763
|
|
|
(266
|
)
|
|
(7.07
|
)
|
Other
service charges and fees
|
|
|
808
|
|
|
658
|
|
|
150
|
|
|
22.80
|
|
Income
on sale of mortgage loans,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net
of commissions
|
|
|
679
|
|
|
676
|
|
|
3
|
|
|
0.44
|
|
Income
on investment banking,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net
of commissions
|
|
|
150
|
|
|
107
|
|
|
43
|
|
|
40.19
|
|
Credit
card fees
|
|
|
2,649
|
|
|
2,458
|
|
|
191
|
|
|
7.77
|
|
Premiums
on sale of student loans
|
|
|
882
|
|
|
736
|
|
|
146
|
|
|
19.84
|
|
Bank
owned life insurance income
|
|
|
364
|
|
|
301
|
|
|
63
|
|
|
20.93
|
|
Other
income
|
|
|
788
|
|
|
546
|
|
|
242
|
|
|
44.32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
non-interest income
|
|
$
|
11,454
|
|
$
|
10,612
|
|
$
|
842
|
|
|
7.93
|
%
|
Recurring
fee income for the three-month period ended March 31, 2007, was $8.6 million,
an
increase of $345,000, or 4.2% from the three-month period ended March 31,
2006.
Trust income increased by $270,000, due mainly to a billing change which
distributes trust income more evenly throughout the year. Trust income for
the
balance of 2007 should return to levels comparable to 2006. Other service
charges and fees increased by $150,000, primarily due to an increase in ATM
income, driven by an increase in pin based debit card volume and an improvement
in the fee structure. Service charges on deposit accounts decreased by $266,000
due to reduced income on insufficient funds charges. Credit card fees increased
by $191,000 due primarily to a higher volume of credit and debit card
transactions.
Premiums
of sale of student loans increased by $146,000 for the three-months ended
March
31, 2007, compared to the same period in 2006, due primarily to early sales
to
avoid losing the premium to consolidation lenders.
Other
non-interest income for the three-months ended March 31, 2007, was $788,000,
an
increase of $242,000 over the three-months ended March 31, 2006. A number
of
items resulted in this increase, including additional ATM surcharge fees,
gains
on sale of other real estate and income from equity investments.
There
were
no gains or losses on sale of securities during the three months ended March
31,
2007 or 2006.
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 period ended March 31, 2007, was $23.2 million,
an increase of $1.1 million, or 4.9% from the same period in 2006. This increase
is primarily the result of an increase in normal ongoing operating expenses
and
the additional expense associated with the operation of three new financial
centers opened in 2006 and early 2007. Two other items contributed significantly
to the increase in non-interest expense.
Credit
card expense increased for the three-month period ended March 31, 2007 over
the
same period in 2006 by $230,000, or 31.0%. This increase is primary due the
increased volume in credit card applications, card creation, interchange
and
other related expense resulting from the previously reported initiatives
the
Company has taken to stabilize its credit card portfolio.
Other
non-interest expense for the three-months ended March 31, 2007, was $2.9
million, an increase of $392,000 over the three-months ended March 31, 2006.
The
increase is primarily due to student loan origination fees paid by the Company
during the first quarter of 2007. The Federal Student Loan Program is phasing
out origination fees on its loans over the next three years. Most of the
national market has begun waiving and absorbing the fees themselves during
the
phase-out period; therefore, as a leader in the Arkansas student loan market,
the Company decided to do the same in order to prevent putting itself at
a
competitive disadvantage. Proper accounting for these fees requires them
to be
amortized over the period in which the Company holds the loans. The Company
expensed $185,000 of student loan origination fees in the first quarter of
2007,
compared to none in the same period of 2006. As future loans are originated
with
waived fees, management anticipates this expense to increase through March
31,
2008, then to gradually decline each quarter through the end of the three
year
phase-out period, March 31, 2009. Thereafter, the expense should decline
as the
remaining fees are amortized over the remaining life of the loans. The Company
believes the full year 2007 impact of this expense will decrease income,
net of
income taxes, by approximately $550,000, or $.04 diluted earnings per
share.
Table
6
below shows non-interest expense for the three-month period ended March 31,
2007
and 2006, respectively, as well as changes in 2007 from 2006.
Table
6: Non-Interest Expense
|
|
|
|
|
|
|
2007
|
|
|
|
Period
Ended March 31
|
|
Change
from
|
|
(In
thousands)
|
|
2007
|
|
2006
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
Salaries
and employee benefits
|
|
$
|
13,725
|
|
$
|
13,505
|
|
$
|
220
|
|
|
1.63
|
%
|
Occupancy
expense, net
|
|
|
1,650
|
|
|
1,520
|
|
|
130
|
|
|
8.55
|
|
Furniture
and equipment expense
|
|
|
1,466
|
|
|
1,418
|
|
|
48
|
|
|
3.39
|
|
Loss
on foreclosed assets
|
|
|
24
|
|
|
33
|
|
|
(9
|
)
|
|
(27.27
|
)
|
Other
operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Professional
services
|
|
|
742
|
|
|
662
|
|
|
80
|
|
|
12.08
|
|
Postage
|
|
|
578
|
|
|
573
|
|
|
5
|
|
|
0.87
|
|
Telephone
|
|
|
411
|
|
|
471
|
|
|
(60
|
)
|
|
(12.74
|
)
|
Credit
card expenses
|
|
|
972
|
|
|
742
|
|
|
230
|
|
|
31.00
|
|
Operating
supplies
|
|
|
459
|
|
|
404
|
|
|
55
|
|
|
13.61
|
|
FDIC
insurance
|
|
|
67
|
|
|
69
|
|
|
(2
|
)
|
|
(2.90
|
)
|
Amortization
of intangibles
|
|
|
207
|
|
|
207
|
|
|
--
|
|
|
0.00
|
|
Other
expense
|
|
|
2,913
|
|
|
2,521
|
|
|
392
|
|
|
15.55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
non-interest expense
|
|
$
|
23,214
|
|
$
|
22,125
|
|
$
|
1,089
|
|
|
4.92
|
%
|
LOAN
PORTFOLIO
The
Company's loan portfolio averaged $1.782 billion and $1.697 billion during
the
first three months of 2007 and 2006, respectively. As of March 31, 2007,
total
loans were $1.798 billion, an increase of $14.7 million from December 31,
2006.
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 $359.1 million at March 31, 2007, or 20.0% of total loans,
compared to $370.8 million, or 20.8% of total loans at December 31, 2006.
The consumer loan decrease from December 31, 2006 to March 31, 2007 is the
result of the seasonal decline in the Company’s credit card
portfolio.
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. The Company
continues to experience significant competitive pressure from the credit
card
industry. From 2002 through 2005, the credit card portfolio decreased by
approximately $10 million to $14 million each year, primarily due to closed
accounts. However, the Company experienced a slow-down in this trend throughout
2006, with the credit card portfolio balance increasing by approximately
$300,000 from December 31, 2005 to December 31, 2006. The credit card portfolio
balance at March 31, 2007 increased by $3.7 million, or 2.83%, compared to
the
same period in 2006.
After
five
consecutive years of net decreases in the number of credit card accounts,
the
Company experienced an addition of 1,650 net new accounts in 2006. This year,
through March 31, 2007, the Company has added over 2,600 net new accounts.
Management believes the increase in outstanding balances and the addition
of new
accounts are the result of the introduction of several initiatives over the
past
two years to make the Company’s credit card products more competitive. The
latest of those initiatives was the introduction of a 7.25% fixed rate card
in
July 2006, with no fees and no rewards. While these results are positive,
because of the significant competitive pressures in the credit card industry,
management cannot be assured that a sustained growth trend has yet been
established.
Real
estate loans consist of construction loans, single-family residential loans
and
commercial real estate loans. Real estate loans were $1.179 billion at March
31,
2007, or 65.6% of total loans, compared to the $1.154 billion, or 64.7% of
total
loans at December 31, 2006. Commercial real estate loans increased by $24.0
million from December 31, 2006 to March 31, 2007, 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 $249.2 million at March 31, 2007, or
13.9%
of total loans, compared to $245.1 million, or 13.7% of total loans at December
31, 2006. The commercial loan increase is primarily due to the increased
loan
demand in the nonagricultural commercial area.
The
amounts of loans outstanding at the indicated dates are reflected in Table
7,
according to type of loan.
Table
7: Loan Portfolio
|
|
|
|
|
|
|
|
|
March
31,
|
|
December
31,
|
|
(In
thousands)
|
|
2007
|
|
2006
|
|
Consumer
|
|
|
|
|
|
Credit
cards
|
|
$
|
133,511
|
|
$
|
143,359
|
|
Student
loans
|
|
|
84,358
|
|
|
84,831
|
|
Other
consumer
|
|
|
141,212
|
|
|
142,596
|
|
Real
Estate
|
|
|
|
|
|
|
|
Construction
|
|
|
276,582
|
|
|
277,411
|
|
Single
family residential
|
|
|
366,219
|
|
|
364,450
|
|
Other
commercial
|
|
|
536,421
|
|
|
512,404
|
|
Commercial
|
|
|
|
|
|
|
|
Commercial
|
|
|
182,548
|
|
|
178,028
|
|
Agricultural
|
|
|
61,617
|
|
|
62,293
|
|
Financial
institutions
|
|
|
5,080
|
|
|
4,766
|
|
Other
|
|
|
10,686
|
|
|
13,357
|
|
|
|
|
|
|
|
|
|
Total
loans before allowance for loan losses
|
|
$
|
1,798,234
|
|
$
|
1,783,495
|
|
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
March
31, 2007, impaired loans were $9.8 million compared to $12.8 million at December
31, 2006.
Table
8
presents information concerning non-performing assets, including nonaccrual
and
other real estate owned.
Table
8: Non-performing Assets
|
|
|
March
31,
|
|
December
31,
|
|
($
in thousands)
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
Nonaccrual
loans
|
|
$
|
7,738
|
|
$
|
8,958
|
|
Loans
past due 90 days or more
|
|
|
|
|
|
|
|
(principal
or interest payments)
|
|
|
879
|
|
|
1,097
|
|
Total
non-performing loans
|
|
|
8,617
|
|
|
10,055
|
|
|
|
|
|
|
|
|
|
Other
non-performing assets
|
|
|
|
|
|
|
|
Foreclosed
assets held for sale
|
|
|
2,321
|
|
|
1,940
|
|
Other
non-performing assets
|
|
|
40
|
|
|
52
|
|
Total
other non-performing assets
|
|
|
2,361
|
|
|
1,992
|
|
|
|
|
|
|
|
|
|
Total
non-performing assets
|
|
$
|
10,978
|
|
$
|
12,047
|
|
|
|
|
|
|
|
|
|
Allowance
for loan losses to
|
|
|
|
|
|
|
|
non-performing
loans
|
|
|
291.88
|
%
|
|
252.46
|
%
|
Non-performing
loans to total loans
|
|
|
0.48
|
%
|
|
0.56
|
%
|
Non-performing
assets to total assets
|
|
|
0.41
|
%
|
|
0.45
|
%
|
Non-performing
assets ratio(1)
|
|
|
0.61
|
%
|
|
0.67
|
%
|
(1)
(Non-performing loans + foreclosed assets) / (total loans + foreclosed
assets)
There
was
no interest income on the nonaccrual loans recorded for the three-month periods
ended March 31, 2007 and 2006.
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)
|
|
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
Balance,
beginning of year
|
|
|
|
|
$
|
25,385
|
|
$
|
26,923
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
charged off
|
|
|
|
|
|
|
|
|
|
|
Credit
card
|
|
|
|
|
|
735
|
|
|
593
|
|
Other
consumer
|
|
|
|
|
|
425
|
|
|
272
|
|
Real
estate
|
|
|
|
|
|
295
|
|
|
260
|
|
Commercial
|
|
|
|
|
|
219
|
|
|
209
|
|
Total
loans charged off
|
|
|
|
|
|
1,674
|
|
|
1,334
|
|
|
|
|
|
|
|
|
|
|
|
|
Recoveries
of loans previously charged off
|
|
|
|
|
|
|
|
|
|
|
Credit
card
|
|
|
|
|
|
261
|
|
|
236
|
|
Other
consumer
|
|
|
|
|
|
105
|
|
|
153
|
|
Real
estate
|
|
|
|
|
|
162
|
|
|
198
|
|
Commercial
|
|
|
|
|
|
161
|
|
|
104
|
|
Total
recoveries
|
|
|
|
|
|
689
|
|
|
691
|
|
Net
loans charged off
|
|
|
|
|
|
985
|
|
|
643
|
|
Reclassification
of reserve
|
|
|
|
|
|
|
|
|
|
|
related
to unfunded commitments(1)
|
|
|
|
|
|
--
|
|
|
(1,525
|
)
|
Provision
for loan losses
|
|
|
|
|
|
751
|
|
|
1,708
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
March 31
|
|
|
|
|
$
|
25,151
|
|
$
|
26,463
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
charged off
|
|
|
|
|
|
|
|
|
|
|
Credit
card
|
|
|
|
|
|
|
|
|
1,861
|
|
Other
consumer
|
|
|
|
|
|
|
|
|
970
|
|
Real
estate
|
|
|
|
|
|
|
|
|
1,608
|
|
Commercial
|
|
|
|
|
|
|
|
|
1,108
|
|
Total
loans charged off
|
|
|
|
|
|
|
|
|
5,547
|
|
|
|
|
|
|
|
|
|
|
|
|
Recoveries
of loans previously charged off
|
|
|
|
|
|
|
|
|
|
|
Credit
card
|
|
|
|
|
|
|
|
|
804
|
|
Other
consumer
|
|
|
|
|
|
|
|
|
476
|
|
Real
estate
|
|
|
|
|
|
|
|
|
703 |
|
Commercial
|
|
|
|
|
|
|
|
|
432
|
|
Total
recoveries
|
|
|
|
|
|
|
|
|
2,415
|
|
Net
loans charged off
|
|
|
|
|
|
|
|
|
3,132
|
|
Provision
for loan losses
|
|
|
|
|
|
|
|
|
2,054
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
end of year
|
|
|
|
|
|
|
|
$
|
25,385
|
|
(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 three-month periods ended March
31,
2007 and 2006, and for the year ended December 31, 2006, 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.
As
of
March 31, 2007, the allowance for loan losses reflects a decrease of
approximately $234,000 from December 31, 2006. As a general rule, the allocation
in each category within the allowance reflects the overall changes in loan
portfolio mix.
The
Company still has some concerns over the uncertainty of the economy and the
impact of pricing in the poultry and timber industries in Arkansas. The Company
is also cautious regarding the softening of the real estate market in Arkansas.
Based on our analysis of loans within these business sectors, the Company
believes the allowance for loan losses is adequate for the period ended March
31, 2007. Management actively monitors the status of these industries as
they
relate to the Company’s loan portfolio and makes changes to the allowance for
loan losses as necessary.
An
analysis of the allocation of allowance for loan losses is presented in Table
10.
Table
10: Allocation of Allowance for Loan Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2006
|
|
|
|
|
|
Allowance
|
|
%
of
|
|
|
Allowance
|
|
%
of
|
|
($
in thousands)
|
|
|
|
Amount
|
|
loans(1)
|
|
|
Amount
|
|
loans(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit
cards
|
|
|
|
|
$
|
3,707
|
|
7.4%
|
|
|
$
|
3,702
|
|
8.0%
|
|
Other
consumer
|
|
|
|
|
|
1,526
|
|
12.5%
|
|
|
|
1,402
|
|
12.8%
|
|
Real
estate
|
|
|
|
|
|
9,945
|
|
65.6%
|
|
|
|
9,835
|
|
64.7%
|
|
Commercial
|
|
|
|
|
|
2,595
|
|
13.9%
|
|
|
|
2,856
|
|
13.7%
|
|
Other
|
|
|
|
|
|
--
|
|
0.6%
|
|
|
|
--
|
|
0.8%
|
|
Unallocated
|
|
|
|
|
|
7,378
|
|
|
|
|
|
|
7,590
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
$
|
25,151
|
|
100.0%
|
|
|
$
|
25,385
|
|
100.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
Percentage of loans in each category to total loans
DEPOSITS
Deposits
are the Company’s primary source of funding for earning assets and are primarily
developed through the Company’s network of 82 financial centers as of March 31,
2007. 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 March 31, 2007, core deposits comprised
77.5%
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 $31.4 million. More specifically,
total
deposits as of March 31, 2007, were $2.207 billion versus $2.176 billion
on
December 31, 2006.
The
Company manages its interest expense through deposit pricing and does
not
anticipate a significant change in total deposits. The Company believes
that
additional funds can be attracted and deposit growth can be accelerated
through
promotion and deposit pricing if it experiences accelerated loan demand
or other
liquidity needs beyond its current projections. The Company also utilizes
brokered deposits as an additional source of funding to meet liquidity
needs.
Total
time
deposits increased approximately $5.8 million to $1.137 billion at March
31,
2007, from $1.131 billion at December 31, 2006. Non-interest bearing
transaction accounts increased $11.3 million to $316.6 million at March 31,
2007, compared to $305.3 million at December 31, 2006. Interest bearing
transaction and savings accounts were $753.1 million at March 31, 2007, a
$14.3 million increase compared to $738.8 million on December 31, 2006.
The
Company had $46.7 million and $42.5 million of brokered deposits at March
31, 2007 and December 31, 2006, respectively.
LONG-TERM
DEBT
During
the
three month period ended March 31, 2007, the Company decreased long-term
debt by
$271,000, or 0.33% from December 31, 2006. This decrease is primarily
the result
of scheduled principal pay downs on FHLB long-term advances.
CAPITAL
Overview
At
March
31, 2007, total capital reached $262.2 million. Capital represents shareholder
ownership in the Company - the book value of assets in excess of liabilities.
At
March 31, 2007, the Company’s equity to asset ratio was 9.74% compared to 9.77%
at year-end 2006.
Capital
Stock
At
the
Company’s annual shareholder meeting held on April 10, 2007, the shareholders
approved an amendment
to the Articles of Incorporation increasing the number of authorized
shares of
Class A, $0.01 par value, Common Stock from 30,000,000 to 60,000,000. Class
A Common Stock is the Company’s only outstanding class of 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
three-month period ended March 31, 2007, the Company repurchased 69,678
shares
of stock under the repurchase plan with a weighted average repurchase
price of
$28.62 per share. Under the current stock repurchase plan, the Company
can
repurchase an additional 271,289 shares.
Cash
Dividends
The
Company declared cash dividends on its common stock of $0.18 per share
for the
first three months of 2007 compared to $0.16 per share for the first
three
months of 2006. 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 March 31, 2007, 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 March 31, 2007 and December 31,
2006, are
presented in table 11.
Table
11: Risk-Based Capital
|
|
|
|
|
|
|
|
March
31,
|
|
December
31,
|
|
($
in thousands)
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
Tier
1 capital
|
|
|
|
|
|
Stockholders’
equity
|
|
$
|
262,170
|
|
$
|
259,016
|
|
Trust
preferred securities
|
|
|
30,000
|
|
|
30,000
|
|
Intangible
assets
|
|
|
(64,367
|
)
|
|
(64,334
|
)
|
Unrealized
loss on available-
|
|
|
|
|
|
|
|
for-sale
securities, net of taxes
|
|
|
1,344
|
|
|
2,198
|
|
|
|
|
|
|
|
|
|
Total
Tier 1 capital
|
|
|
229,147
|
|
|
226,880
|
|
|
|
|
|
|
|
|
|
Tier
2 capital
|
|
|
|
|
|
|
|
Qualifying
unrealized gain on available-for-sale equity securities
|
|
|
129
|
|
|
167
|
|
Qualifying
allowance for loan losses
|
|
|
23,237
|
|
|
22,953
|
|
|
|
|
|
|
|
|
|
Total
Tier 2 capital
|
|
|
23,366
|
|
|
23,120
|
|
|
|
|
|
|
|
|
|
Total
risk-based capital
|
|
$
|
252,513
|
|
$
|
250,000
|
|
|
|
|
|
|
|
|
|
Risk
weighted assets
|
|
$
|
1,855,511
|
|
$
|
1,831,063
|
|
|
|
|
|
|
|
|
|
Assets
for leverage ratio
|
|
$
|
2,603,178
|
|
$
|
2,568,472
|
|
|
|
|
|
|
|
|
|
Ratios
at end of period
|
|
|
|
|
|
|
|
Leverage
ratio
|
|
|
8.80
|
%
|
|
8.83
|
%
|
Tier
1 capital
|
|
|
12.35
|
%
|
|
12.39
|
%
|
Total
risk-based capital
|
|
|
13.61
|
%
|
|
13.65
|
%
|
|
|
|
|
|
|
|
|
Minimum
guidelines
|
|
|
|
|
|
|
|
Leverage
ratio
|
|
|
4.00
|
%
|
|
4.00
|
%
|
Tier
1 capital
|
|
|
4.00
|
%
|
|
4.00
|
%
|
Total
risk-based capital
|
|
|
8.00
|
%
|
|
8.00
|
%
|
RECENTLY
ISSUED ACCOUNTING PRONOUNCEMENTS
In
September 2006, the FASB issued Statement of Financial Accounting Standards
No.
157, Fair Value Measurements. Statement No. 157 defines fair value, establishes
a framework for measuring fair value in generally accepted accounting
principles, and expands disclosures about fair value measurements. The Statement
is effective for the Company on January 1, 2008 and is not expected to have
a
significant impact on the Company’s financial position, operations or cash
flows.
In
February 2007, the FASB issued Statement of Financial Accounting Standards
No.
159, The Fair Value Option for Financial Assets and Financial Liabilities
-
Including an amendment of FASB Statement No. 115. Statement No. 159 permits
entities to choose to measure eligible items at fair value at specified election
dates. Unrealized gains and losses on items for which the fair value option
has
been elected are reported in earnings at each subsequent reporting date.
The
fair value option (i) may be applied instrument by instrument, with certain
exceptions, (ii) is irrevocable (unless a new election date occurs) and (iii)
is
applied only to entire instruments and not to portions of instruments. Statement
No. 159 is effective for the Company on January 1, 2008 and is not expected
to
have a significant impact on the Company’s financial position, operations or
cash flows.
In
September 2006, the FASB ratified the consensus reached by the FASB’s Emerging
Issues Task Force (EITF) relating to EITF 06-4, Accounting for the Deferred
Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar
Life
Insurance Arrangements. EITF 06-4 requires employers accounting for endorsement
split-dollar life insurance arrangements that provide a benefit to an employee
that extends to postretirement periods should recognize a liability for future
benefits in accordance with FASB Statement of Financial Accounting Standards
No.
106, Employers’ Accounting for Postretirement Benefits Other Than Pensions, or
Accounting Principles Board (APB) Opinion No. 12, Omnibus Opinion - 1967.
Entities should recognize the effects of applying this issue through either
(a)
a change in accounting principle through a cumulative-effect adjustment to
retained earnings or to other components of equity or net assets in the
statement of financial position as of the beginning of the year of adoption
or
(b) a change in accounting principle through retrospective application to
all
prior periods. EITF 06-4 is effective for the Company on January 1, 2008.
The
Company is currently evaluating the effect the implementation of EITF 06-4
will
have on its financial position, operations or cash flows.
FORWARD-LOOKING
STATEMENTS
Certain
statements contained in this quarterly report may not be based on historical
facts and are “forward-looking statements” within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. These forward-looking statements may be
identified by reference to a future period(s) or by the use of forward-looking
terminology, such as “anticipate,” “estimate,” “expect,” “foresee,” “may,”
“might,” “will,” “would,” “could” or “intend,” future or conditional verb
tenses, and variations or negatives of such terms. These forward-looking
statements include, without limitation, those relating to the Company’s future
growth, revenue, assets, asset quality, profitability and customer service,
critical accounting policies, net interest margin, non-interest revenue,
market
conditions related to the Company’s stock repurchase program, allowance for loan
losses, the effect of certain new accounting standards on the Company’s
financial position, operations, cash flows, income tax deductions, credit
quality, the level of credit losses from lending commitments, net interest
revenue, interest rate sensitivity, loan loss experience, liquidity, capital
resources, market risk, earnings, effect of pending litigation, acquisition
strategy, legal and regulatory limitations and compliance and
competition.
We
caution
the reader not to place undue reliance on the forward-looking statements
contained in this Report in that actual results could differ materially from
those indicated in such forward-looking statements, due to a variety of factors.
These factors include, but are not limited to, changes in the Company’s
operating or expansion strategy, availability of and costs associated with
obtaining adequate and timely sources of liquidity, the ability to maintain
credit quality, possible adverse rulings, judgments, settlements and other
outcomes of pending litigation, the ability of the Company to collect amounts
due under loan agreements, changes in consumer preferences, effectiveness
of the
Company’s interest rate risk management strategies, laws and regulations
affecting financial institutions in general or relating to taxes, the effect
of
pending or future legislation, the ability of the Company to repurchase its
Common Stock on favorable terms and other risk factors. Other relevant risk
factors may be detailed from time to time in the Company’s press releases and
filings with the Securities and Exchange Commission. We undertake no obligation
to update these forward-looking statements to reflect events or circumstances
that occur after the date of this Report.
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 March 31, 2007, undivided profits of the Company's
subsidiaries were approximately $148.3 million, of which approximately
$9 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 March 31, 2007,
each
subsidiary bank was within established guidelines and total corporate liquidity
remains strong. At March 31, 2007, cash and cash equivalents, trading and
available-for-sale securities and mortgage loans held for sale were 19.8%
of
total assets, as compared to 19.4% at December 31, 2006.
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 $413 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 65% 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 March 31,
2007. This analysis is based on a point in time and may not be meaningful
because assets and liabilities are categorized according to contractual
maturities, repricing periods and expected cash flows rather than estimating
more realistic behaviors, as is done in the simulation models. Also, this
analysis does not consider subsequent changes in interest rate level or spreads
between asset and liability categories.
Table
A: Interest Rate Sensitivity
|
|
|
Interest
Rate Sensitivity Period
|
|
|
|
0-30
|
|
31-90
|
|
91-180
|
|
181-365
|
|
1-2
|
|
2-5
|
|
Over
5
|
|
|
|
(In
thousands, except ratios)
|
|
Days
|
|
Days
|
|
Days
|
|
Days
|
|
Years
|
|
Years
|
|
Years
|
|
Total
|
|
Earning
assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term
investments
|
|
$
|
103,884
|
|
$
|
--
|
|
$
|
--
|
|
$
|
--
|
|
$
|
--
|
|
$
|
--
|
|
$
|
--
|
|
$
|
103,884
|
|
Assets
held in trading
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
accounts
|
|
|
10,464
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
10,464
|
|
Investment
securities
|
|
|
6,081
|
|
|
25,263
|
|
|
17,005
|
|
|
54,815
|
|
|
79,141
|
|
|
78,851
|
|
|
258,967
|
|
|
520,123
|
|
Mortgage
loans held for sale
|
|
|
8,718
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
8,718
|
|
Loans
|
|
|
603,345
|
|
|
139,280
|
|
|
249,433
|
|
|
262,505
|
|
|
304,615
|
|
|
226,723
|
|
|
12,333
|
|
|
1,798,234
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
earning assets
|
|
|
732,492
|
|
|
164,543
|
|
|
266,438
|
|
|
317,320
|
|
|
383,756
|
|
|
305,574
|
|
|
271,300
|
|
|
2,441,423
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
bearing liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
bearing transaction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
savings deposits
|
|
|
420,840
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
66,454
|
|
|
199,361
|
|
|
66,455
|
|
|
753,110
|
|
Time
deposits
|
|
|
130,060
|
|
|
168,139
|
|
|
280,022
|
|
|
453,382
|
|
|
78,681
|
|
|
26,924
|
|
|
--
|
|
|
1,137,208
|
|
Short-term
debt
|
|
|
113,670
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
113,670
|
|
Long-term
debt
|
|
|
10,872
|
|
|
1,478
|
|
|
4,325
|
|
|
7,028
|
|
|
9,142
|
|
|
12,684
|
|
|
38,053
|
|
|
83,582
|
|
Total
interest bearing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
liabilities
|
|
|
675,442
|
|
|
169,617
|
|
|
284,347
|
|
|
460,410
|
|
|
154,277
|
|
|
238,969
|
|
|
104,508
|
|
|
2,087,570
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
rate sensitivity Gap
|
|
$
|
57,050
|
|
$
|
(5,074
|
)
|
$
|
(17,909
|
)
|
$
|
(143,090
|
)
|
$
|
229,479
|
|
$
|
66,605
|
|
$
|
166,792
|
|
$
|
353,853
|
|
Cumulative
interest rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
sensitivity
Gap
|
|
$
|
57,050
|
|
$
|
51,976
|
|
$
|
34,067
|
|
$
|
(109,023
|
)
|
$
|
120,456
|
|
$
|
187,061
|
|
$
|
353,853
|
|
|
|
|
Cumulative
rate sensitive asset
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
to
rate sensitive liabilities
|
|
|
108.4
|
%
|
|
106.2
|
%
|
|
103.0
|
%
|
|
93.1
|
%
|
|
106.9
|
%
|
|
109.4
|
%
|
|
117.0
|
%
|
|
|
|
Cumulative
Gap as a % of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
earning
assets
|
|
|
2.3
|
%
|
|
2.1
|
%
|
|
1.4
|
%
|
|
-4.5
|
%
|
|
4.9
|
%
|
|
7.7
|
%
|
|
14.5
|
%
|
|
|
|
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 2006 Form 10-K for the fiscal year ended December 31,
2006.
(c)
Issuer
Purchases of Equity Securities. The Company made the following purchases
of its
common stock during the three months ended March 31, 2007:
|
|
|
|
|
|
Total
Number
|
|
|
|
|
|
|
|
Maximum
|
|
of
Shares
|
|
Number
of
|
|
|
|
Total
Number
|
|
Average
|
|
Purchased
as
|
|
Shares
that May
|
|
|
|
of
Shares
|
|
Price
Paid
|
|
Part
of Publicly
|
|
Yet
be Purchased
|
|
Period
|
|
Purchased
|
|
Per
Share
|
|
Announced
Plans
|
|
Under
the Plans
|
|
|
|
|
|
|
|
|
|
|
|
January
1 - January 31
|
|
|
8,000
|
|
$
|
30.01
|
|
|
8,000
|
|
|
332,967
|
|
February
1 - February 28
|
|
|
16,500
|
|
|
30.23
|
|
|
16,500
|
|
|
316,467
|
|
March
1 - March 31
|
|
|
45,178
|
|
|
27.79
|
|
|
45,178
|
|
|
271,289
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
69,678
|
|
$
|
28.62
|
|
|
69,678
|
|
|
|
|
|
Exhibit
No.
|
Description
|
|
|
|
|
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)).
|
|
|
|
|
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)).
|
|
|
|
|
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)).
|
|
|
|
|
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)).
|
|
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)).
|
|
|
|
|
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)).
|
|
|
|
|
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)).
|
|
|
|
|
31.1
|
Rule
13a-14(a)/15d-14(a) Certification - J. Thomas May, Chairman and
Chief
Executive Officer.*
|
|
|
|
|
31.2
|
Rule
13a-14(a)/15d-14(a) Certification - Robert A. Fehlman, Chief Financial
Officer.*
|
|
|
|
|
32.1
|
Certification
Pursuant to 18 U.S.C. Sections 1350, as Adopted Pursuant to Section
906 of
the Sarbanes-Oxley Act of 2002 - J. Thomas May, Chairman and Chief
Executive Officer.*
|
|
|
|
|
32.2
|
Certification
Pursuant to 18 U.S.C. Sections 1350, as Adopted Pursuant to Section
906 of
the Sarbanes-Oxley Act of 2002 - Robert A. Fehlman, Chief Financial
Officer.*
|
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)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Date:
|
|
May
8, 2007
|
|
|
|
/s/
J. Thomas May
|
|
|
|
|
|
|
|
J.
Thomas May
|
|
|
|
|
|
|
|
Chairman
and
|
|
|
|
|
|
|
|
Chief
Executive Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Date:
|
|
May
8, 2007
|
|
|
|
/s/
Robert A. Fehlman
|
|
|
|
|
|
|
|
Robert
A. Fehlman
|
|
|
|
|
|
|
|
Executive
Vice President and
|
|
|
|
|
|
|
|
Chief
Financial Officer
|
|
50