a5541026.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
QUARTERLY
REPORT UNDER SECTION 13 OR 15(d)
OF
THE
SECURITIES EXCHANGE ACT OF 1934
For
Quarter Ended September 30, 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 incorporation or organization)
|
(I.R.S.
Employer Identification No.)
|
|
|
501
Main Street, Pine Bluff, Arkansas
|
71601
|
(Address
of principal executive offices)
|
(Zip
Code)
|
870-541-1000
(Registrant's
telephone number, including area code)
Not
Applicable
Former
name, former address and former fiscal year, if changed since last
report
Indicate
by check mark whether the registrant (1) has filed all reports required to
be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements
for
the past 90 days. S
Yes £
No
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of
“accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange
Act. (Check one):
£
Large
accelerated filer
|
S
Accelerated filer
|
£
Non-accelerated filer
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act.). £
Yes S
No
The
number
of shares outstanding of the Registrant’s Common Stock as of October 25, 2007
was 13,928,262.
Simmons
First National Corporation
Quarterly
Report on Form 10-Q
September
30, 2007
INDEX
Simmons
First National Corporation
September
30, 2007 and December 31, 2006
ASSETS
|
|
September
30,
|
|
|
December
31,
|
|
(In
thousands, except share data)
|
|
2007
|
|
|
2006
|
|
|
|
(Unaudited)
|
|
|
|
|
Cash
and non-interest bearing balances due from banks
|
|
$ |
85,370
|
|
|
$ |
83,452
|
|
Interest
bearing balances due from banks
|
|
|
6,557
|
|
|
|
45,829
|
|
Federal
funds sold
|
|
|
25,655
|
|
|
|
21,870
|
|
Cash
and cash equivalents
|
|
|
117,582
|
|
|
|
151,151
|
|
|
|
|
|
|
|
|
|
|
Investment
securities
|
|
|
529,488
|
|
|
|
527,126
|
|
Mortgage
loans held for sale
|
|
|
8,244
|
|
|
|
7,091
|
|
Assets
held in trading accounts
|
|
|
5,482
|
|
|
|
4,487
|
|
Loans
|
|
|
1,875,235
|
|
|
|
1,783,495
|
|
Allowance
for loan losses
|
|
|
(25,107 |
) |
|
|
(25,385 |
) |
Net
loans
|
|
|
1,850,128
|
|
|
|
1,758,110
|
|
|
|
|
|
|
|
|
|
|
Premises
and equipment
|
|
|
73,088
|
|
|
|
67,926
|
|
Foreclosed
assets held for sale, net
|
|
|
1,629
|
|
|
|
1,940
|
|
Interest
receivable
|
|
|
25,699
|
|
|
|
21,974
|
|
Bank
owned life insurance
|
|
|
37,632
|
|
|
|
36,133
|
|
Goodwill
|
|
|
60,605
|
|
|
|
60,605
|
|
Core
deposit premiums
|
|
|
3,583
|
|
|
|
4,199
|
|
Other
assets
|
|
|
8,527
|
|
|
|
10,671
|
|
|
|
|
|
|
|
|
|
|
TOTAL
ASSETS
|
|
$ |
2,721,687
|
|
|
$ |
2,651,413
|
|
See
Condensed Notes to Consolidated Financial Statements.
Simmons
First National Corporation
Consolidated
Balance Sheets
September
30, 2007 and December 31, 2006
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
September
30,
|
|
|
December
31,
|
|
(In
thousands, except share data)
|
|
2007
|
|
|
2006
|
|
|
|
(Unaudited)
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
Non-interest
bearing transaction accounts
|
|
$ |
319,792
|
|
|
$ |
305,327
|
|
Interest
bearing transaction accounts and savings deposits
|
|
|
730,533
|
|
|
|
738,763
|
|
Time
deposits
|
|
|
1,122,994
|
|
|
|
1,131,441
|
|
Total
deposits
|
|
|
2,173,319
|
|
|
|
2,175,531
|
|
Federal
funds purchased and securities sold
|
|
|
|
|
|
|
|
|
under
agreements to repurchase
|
|
|
106,984
|
|
|
|
105,036
|
|
Short-term
debt
|
|
|
67,595
|
|
|
|
6,114
|
|
Long-term
debt
|
|
|
79,655
|
|
|
|
83,311
|
|
Accrued
interest and other liabilities
|
|
|
26,533
|
|
|
|
22,405
|
|
Total
liabilities
|
|
|
2,454,086
|
|
|
|
2,392,397
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’
EQUITY
|
|
|
|
|
|
|
|
|
Capital
stock
|
|
|
|
|
|
|
|
|
Class
A, common, par value $0.01 a share, authorized
|
|
|
|
|
|
|
|
|
60,000,000
shares at 2007 and 30,000,000 shares at 2006,
|
|
|
|
|
|
|
|
|
13,934,509
issued and outstanding at 2007 and 14,196,855 at 2006
|
|
|
139
|
|
|
|
142
|
|
Surplus
|
|
|
41,470
|
|
|
|
48,678
|
|
Undivided
profits
|
|
|
225,972
|
|
|
|
212,394
|
|
Accumulated
other comprehensive income (loss)
|
|
|
|
|
|
|
|
|
Unrealized
appreciation (depreciation) on available-for-sale
securities,
|
|
|
|
|
|
|
|
|
net
of income taxes of $12 at 2007 and income tax credits of
|
|
|
20
|
|
|
|
(2,198 |
) |
$1,319
at 2006
|
|
|
|
|
|
|
|
|
Total
stockholders’ equity
|
|
|
267,601
|
|
|
|
259,016
|
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
$ |
2,721,687
|
|
|
$ |
2,651,413
|
|
See
Condensed Notes to Consolidated Financial Statements.
Simmons
First National Corporation
Three
and Nine Months Ended September 30, 2007 and 2006
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
|
|
September
30,
|
|
|
September
30,
|
|
(In
thousands, except per share data)
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
INTEREST
INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$ |
36,604
|
|
|
$ |
33,924
|
|
|
$ |
105,751
|
|
|
$ |
95,705
|
|
Federal
funds sold
|
|
|
302
|
|
|
|
325
|
|
|
|
1,303
|
|
|
|
692
|
|
Investment
securities
|
|
|
6,046
|
|
|
|
5,183
|
|
|
|
17,656
|
|
|
|
14,991
|
|
Mortgage
loans held for sale
|
|
|
147
|
|
|
|
141
|
|
|
|
383
|
|
|
|
369
|
|
Assets
held in trading accounts
|
|
|
71
|
|
|
|
14
|
|
|
|
124
|
|
|
|
58
|
|
Interest
bearing balances due from banks
|
|
|
131
|
|
|
|
229
|
|
|
|
938
|
|
|
|
785
|
|
TOTAL
INTEREST INCOME
|
|
|
43,301
|
|
|
|
39,816
|
|
|
|
126,155
|
|
|
|
112,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INTEREST
EXPENSE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
16,635
|
|
|
|
14,404
|
|
|
|
49,299
|
|
|
|
38,313
|
|
Federal
funds purchased and securities sold
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
under
agreements to repurchase
|
|
|
1,404
|
|
|
|
1,152
|
|
|
|
4,057
|
|
|
|
3,320
|
|
Short-term
debt
|
|
|
519
|
|
|
|
761
|
|
|
|
637
|
|
|
|
1,082
|
|
Long-term
debt
|
|
|
1,173
|
|
|
|
1,122
|
|
|
|
3,568
|
|
|
|
3,364
|
|
TOTAL
INTEREST EXPENSE
|
|
|
19,731
|
|
|
|
17,439
|
|
|
|
57,561
|
|
|
|
46,079
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
INTEREST INCOME
|
|
|
23,570
|
|
|
|
22,377
|
|
|
|
68,594
|
|
|
|
66,521
|
|
Provision
for loan losses
|
|
|
850
|
|
|
|
602
|
|
|
|
2,432
|
|
|
|
3,099
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
INTEREST INCOME AFTER PROVISION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FOR
LOAN LOSSES
|
|
|
22,720
|
|
|
|
21,775
|
|
|
|
66,162
|
|
|
|
63,422
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NON-INTEREST
INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trust
income
|
|
|
1,528
|
|
|
|
1,435
|
|
|
|
4,639
|
|
|
|
4,095
|
|
Service
charges on deposit accounts
|
|
|
3,759
|
|
|
|
3,973
|
|
|
|
10,912
|
|
|
|
11,945
|
|
Other
service charges and fees
|
|
|
698
|
|
|
|
596
|
|
|
|
2,198
|
|
|
|
1,846
|
|
Income
on sale of mortgage loans, net of commissions
|
|
|
715
|
|
|
|
763
|
|
|
|
2,121
|
|
|
|
2,194
|
|
Income
on investment banking, net of commissions
|
|
|
90
|
|
|
|
55
|
|
|
|
393
|
|
|
|
252
|
|
Credit
card fees
|
|
|
3,115
|
|
|
|
2,755
|
|
|
|
8,789
|
|
|
|
7,912
|
|
Premiums
on sale of student loans
|
|
|
419
|
|
|
|
413
|
|
|
|
2,042
|
|
|
|
1,808
|
|
Bank
owned life insurance income
|
|
|
367
|
|
|
|
382
|
|
|
|
1,090
|
|
|
|
1,098
|
|
Other
income
|
|
|
682
|
|
|
|
654
|
|
|
|
1,980
|
|
|
|
2,004
|
|
TOTAL
NON-INTEREST INCOME
|
|
|
11,373
|
|
|
|
11,026
|
|
|
|
34,164
|
|
|
|
33,154
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NON-INTEREST
EXPENSE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries
and employee benefits
|
|
|
13,778
|
|
|
|
13,298
|
|
|
|
41,406
|
|
|
|
40,269
|
|
Occupancy
expense, net
|
|
|
1,671
|
|
|
|
1,612
|
|
|
|
4,945
|
|
|
|
4,673
|
|
Furniture
and equipment expense
|
|
|
1,455
|
|
|
|
1,407
|
|
|
|
4,428
|
|
|
|
4,281
|
|
Loss
on foreclosed assets
|
|
|
77
|
|
|
|
32
|
|
|
|
137
|
|
|
|
105
|
|
Deposit
insurance
|
|
|
85
|
|
|
|
64
|
|
|
|
220
|
|
|
|
204
|
|
Other
operating expenses
|
|
|
6,157
|
|
|
|
5,722
|
|
|
|
18,312
|
|
|
|
17,029
|
|
TOTAL
NON-INTEREST EXPENSE
|
|
|
23,223
|
|
|
|
22,135
|
|
|
|
69,448
|
|
|
|
66,561
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME
BEFORE INCOME TAXES
|
|
|
10,870
|
|
|
|
10,666
|
|
|
|
30,878
|
|
|
|
30,015
|
|
Provision
for income taxes
|
|
|
3,370
|
|
|
|
3,219
|
|
|
|
9,710
|
|
|
|
9,284
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
INCOME
|
|
$ |
7,500
|
|
|
$ |
7,447
|
|
|
$ |
21,168
|
|
|
$ |
20,731
|
|
BASIC
EARNINGS PER SHARE
|
|
$ |
0.53
|
|
|
$ |
0.53
|
|
|
$ |
1.50
|
|
|
$ |
1.46
|
|
DILUTED
EARNINGS PER SHARE
|
|
$ |
0.53
|
|
|
$ |
0.51
|
|
|
$ |
1.48
|
|
|
$ |
1.43
|
|
See
Condensed Notes to Consolidated Financial Statements.
Simmons
First National Corporation
Nine
Months Ended September 30, 2007 and 2006
|
|
September
30,
|
|
|
September
30,
|
|
(In
thousands)
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
(Unaudited)
|
|
OPERATING
ACTIVITIES
|
|
Net
income
|
|
$ |
21,168
|
|
|
$ |
20,731
|
|
Items
not requiring (providing) cash
|
|
Depreciation
and amortization
|
|
|
4,161
|
|
|
|
4,104
|
|
Provision
for loan losses
|
|
|
2,432
|
|
|
|
3,099
|
|
Net
amortization of investment securities
|
|
|
119
|
|
|
|
185
|
|
Deferred
income taxes
|
|
|
725
|
|
|
|
864
|
|
Bank
owned life insurance income
|
|
|
(1,090 |
) |
|
|
(1,098 |
) |
Changes
in
|
|
|
|
|
|
|
|
|
Interest
receivable
|
|
|
(3,725 |
) |
|
|
(3,199 |
) |
Mortgage
loans held for sale
|
|
|
(1,153 |
) |
|
|
1,266
|
|
Assets
held in trading accounts
|
|
|
(995 |
) |
|
|
56
|
|
Other
assets
|
|
|
2,140
|
|
|
|
61
|
|
Accrued
interest and other liabilities
|
|
|
3,278
|
|
|
|
7,445
|
|
Income
taxes payable
|
|
|
123
|
|
|
|
(1,444 |
) |
Net
cash provided by operating activities
|
|
|
27,183
|
|
|
|
32,070
|
|
|
|
|
|
|
|
|
|
|
INVESTING
ACTIVITIES
|
|
Net
originations of loans
|
|
|
(96,521 |
) |
|
|
(75,408 |
) |
Purchases
of premises and equipment, net
|
|
|
(8,706 |
) |
|
|
(6,890 |
) |
Proceeds
from sale of foreclosed assets
|
|
|
2,382
|
|
|
|
982
|
|
Proceeds
from sale of securities
|
|
|
--
|
|
|
|
1,542
|
|
Proceeds
from maturities of available-for-sale securities
|
|
|
72,601
|
|
|
|
78,503
|
|
Purchases
of available-for-sale securities
|
|
|
(72,614 |
) |
|
|
(65,625 |
) |
Proceeds
from maturities of held-to-maturity securities
|
|
|
20,224
|
|
|
|
18,841
|
|
Purchases
of held-to-maturity securities
|
|
|
(20,512 |
) |
|
|
(41,620 |
) |
Purchases
of bank owned life insurance
|
|
|
(405 |
) |
|
|
(1,341 |
) |
Net
cash used in investing activities
|
|
|
(103,551 |
) |
|
|
(91,016 |
) |
|
|
|
|
|
|
|
|
|
FINANCING
ACTIVITIES
|
|
Net
change in deposits
|
|
|
(2,174 |
) |
|
|
88,518
|
|
Net
change in short-term debt
|
|
|
61,481
|
|
|
|
53,819
|
|
Dividends
paid
|
|
|
(7,590 |
) |
|
|
(7,110 |
) |
Proceeds
from issuance of long-term debt
|
|
|
6,135
|
|
|
|
6,785
|
|
Repayment
of long-term debt
|
|
|
(9,791 |
) |
|
|
(11,632 |
) |
Net
change in Federal funds purchased and
|
|
securities
sold under agreements to repurchase
|
|
|
1,948
|
|
|
|
(21,688 |
) |
Repurchase
of common stock, net
|
|
|
(7,210 |
) |
|
|
(4,656 |
) |
Net
cash provided by financing activities
|
|
|
42,799
|
|
|
|
104,036
|
|
|
|
|
|
|
|
|
|
|
(DECREASE)
INCREASE IN CASH AND CASH EQUIVALENTS
|
|
|
(33,569 |
) |
|
|
45,090
|
|
CASH
AND CASH EQUIVALENTS, BEGINNING OF PERIOD
|
|
|
151,151
|
|
|
|
101,573
|
|
|
|
|
|
|
|
|
|
|
CASH
AND CASH EQUIVALENTS, END OF PERIOD
|
|
$ |
117,582
|
|
|
$ |
146,663
|
|
See
Condensed Notes to Consolidated Financial Statements.
Simmons
First National Corporation
Nine
Months Ended September 30, 2007 and 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
|
|
|
|
|
|
Comprehensive
|
|
|
Undivided
|
|
|
|
|
(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
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
20,731
|
|
|
|
20,731
|
|
Change
in unrealized depreciation on
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
available-for-sale
securities, net of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
income
tax credits of $924
|
|
|
--
|
|
|
|
--
|
|
|
|
1,542
|
|
|
|
--
|
|
|
|
1,542
|
|
Comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,273
|
|
Stock
issued as bonus shares – 10,200 shares
|
|
|
--
|
|
|
|
275
|
|
|
|
--
|
|
|
|
--
|
|
|
|
275
|
|
Exercise
of stock options – 67,580 shares
|
|
|
1
|
|
|
|
992
|
|
|
|
--
|
|
|
|
--
|
|
|
|
993
|
|
Securities
exchanged under stock option plan
|
|
|
--
|
|
|
|
(799
|
) |
|
|
--
|
|
|
|
--
|
|
|
|
(799 |
) |
Stock
granted under
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
--
|
|
|
|
|
|
Stock-based
compensation plans
|
|
|
--
|
|
|
|
69
|
|
|
|
--
|
|
|
|
|
|
|
|
69 |
|
Repurchase
of common stock – 188,900 shares
|
|
|
(2 |
) |
|
|
(5,192 |
) |
|
|
--
|
|
|
|
--
|
|
|
|
(5,194 |
) |
Dividends
paid – $0.50 per share
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
(7,110
|
) |
|
|
(7,110 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
September 30, 2006 (Unaudited)
|
|
|
142
|
|
|
|
49,068
|
|
|
|
(2,818 |
) |
|
|
208,200
|
|
|
|
254,592
|
|
Comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
6,750
|
|
|
|
6,750
|
|
Change
in unrealized depreciation on
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
available-for-sale
securities, net of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
income
taxes of $372
|
|
|
--
|
|
|
|
--
|
|
|
|
620
|
|
|
|
--
|
|
|
|
620
|
|
Comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,370
|
|
Exercise
of stock options – 39,300 shares
|
|
|
1
|
|
|
|
524
|
|
|
|
--
|
|
|
|
--
|
|
|
|
525
|
|
Stock
granted under
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based
compensation plans
|
|
|
--
|
|
|
|
19
|
|
|
|
--
|
|
|
|
--
|
|
|
|
19
|
|
Securities
exchanged under stock option plan
|
|
|
--
|
|
|
|
(492 |
) |
|
|
--
|
|
|
|
--
|
|
|
|
(492 |
) |
Repurchase
of common stock – 14,200 shares
|
|
|
(1 |
) |
|
|
(441 |
) |
|
|
--
|
|
|
|
--
|
|
|
|
(442 |
) |
Dividends
paid – $0.18 per share
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
(2,556 |
) |
|
|
(2,556 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2006
|
|
|
142
|
|
|
|
48,678
|
|
|
|
(2,198 |
) |
|
|
212,394
|
|
|
|
259,016
|
|
Comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
21,168
|
|
|
|
21,168
|
|
Change
in unrealized depreciation on
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
available-for-sale
securities, net of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
income
tax credits of $1,331
|
|
|
--
|
|
|
|
--
|
|
|
|
2,218
|
|
|
|
--
|
|
|
|
2,218
|
|
Comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,386
|
|
Stock
issued as bonus shares – 8,800 shares
|
|
|
--
|
|
|
|
250
|
|
|
|
--
|
|
|
|
--
|
|
|
|
250
|
|
Exercise
of stock options – 30,200 shares
|
|
|
--
|
|
|
|
466
|
|
|
|
--
|
|
|
|
--
|
|
|
|
466
|
|
Stock
granted under
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based
compensation plans
|
|
|
--
|
|
|
|
143
|
|
|
|
--
|
|
|
|
--
|
|
|
|
143
|
|
Securities
exchanged under stock option plan
|
|
|
--
|
|
|
|
(187 |
) |
|
|
--
|
|
|
|
--
|
|
|
|
(187 |
) |
Repurchase
of common stock – 294,831 shares
|
|
|
(3 |
) |
|
|
(7,880 |
) |
|
|
--
|
|
|
|
--
|
|
|
|
(7,883 |
) |
Dividends
paid – $0.54 per share
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
(7,590 |
) |
|
|
(7,590 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
September 30, 2007 (Unaudited)
|
|
$ |
139
|
|
|
$ |
41,470
|
|
|
$ |
20
|
|
|
$ |
225,972
|
|
|
$ |
267,601
|
|
See
Condensed Notes to Consolidated Financial Statements.
SIMMONS
FIRST NATIONAL CORPORATION
CONDENSED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 to 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 and 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 and nine months ended
September 30, 2007 and 2006.
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
|
|
September
30,
|
|
|
September
30,
|
|
(In
thousands, except per share data)
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
7,500
|
|
|
$ |
7,447
|
|
|
$ |
21,168
|
|
|
$ |
20,731
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
common shares outstanding
|
|
|
13,977
|
|
|
|
14,196
|
|
|
|
14,084
|
|
|
|
14,236
|
|
Average
potential dilutive common shares
|
|
|
200
|
|
|
|
255
|
|
|
|
200
|
|
|
|
255
|
|
Average
diluted common shares
|
|
|
14,177
|
|
|
|
14,451
|
|
|
|
14,284
|
|
|
|
14,491
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per share
|
|
$ |
0.53
|
|
|
$ |
0.53
|
|
|
$ |
1.50
|
|
|
$ |
1.46
|
|
Diluted
earnings per share
|
|
$ |
0.53
|
|
|
$ |
0.51
|
|
|
$ |
1.48
|
|
|
$ |
1.43
|
|
NOTE
2: INVESTMENT
SECURITIES
The
amortized cost and fair value of investment securities that are classified
as
held-to-maturity and available-for-sale are as follows:
|
|
September
30, 2007
|
|
|
December
31, 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.
Treasury
|
|
$ |
1,500
|
|
|
$ |
10
|
|
|
$ |
--
|
|
|
$ |
1,510
|
|
|
$ |
--
|
|
|
$ |
--
|
|
|
$ |
--
|
|
|
$ |
--
|
|
|
|
|
43,000
|
|
|
|
352
|
|
|
|
(58 |
) |
|
|
43,294
|
|
|
|
54,998
|
|
|
|
367
|
|
|
|
(272
|
) |
|
|
55,093
|
|
Mortgage-backed securities
|
|
|
136
|
|
|
|
3
|
|
|
|
--
|
|
|
|
139
|
|
|
|
155
|
|
|
|
3
|
|
|
|
(1 |
) |
|
|
157
|
|
State
and political subdivisions
|
|
|
133,196
|
|
|
|
409
|
|
|
|
(1,237 |
) |
|
|
132,368
|
|
|
|
122,472
|
|
|
|
667
|
|
|
|
(892
|
) |
|
|
122,247
|
|
Other
securities
|
|
|
2,374
|
|
|
|
--
|
|
|
|
--
|
|
|
|
2,374
|
|
|
|
2,319
|
|
|
|
--
|
|
|
|
--
|
|
|
|
2,319
|
|
|
|
$ |
180,206
|
|
|
$ |
774
|
|
|
$ |
(1,295 |
) |
|
$ |
179,685
|
|
|
$ |
179,944
|
|
|
$ |
1,037
|
|
|
$ |
(1,165 |
) |
|
$ |
179,816
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-Sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Treasury
|
|
$ |
7,492
|
|
|
$ |
25
|
|
|
$ |
--
|
|
|
$ |
7,517
|
|
|
$ |
6,970
|
|
|
$ |
--
|
|
|
$ |
(30 |
) |
|
$ |
6,940
|
|
|
|
|
325,603
|
|
|
|
700
|
|
|
|
(889 |
) |
|
|
325,414
|
|
|
|
326,301
|
|
|
|
287
|
|
|
|
(4,177 |
) |
|
|
322,411
|
|
Mortgage-backed securities
|
|
|
2,928
|
|
|
|
36
|
|
|
|
(195 |
) |
|
|
2,769
|
|
|
|
3,032
|
|
|
|
--
|
|
|
|
(76 |
) |
|
|
2,956
|
|
State
and political subdivisions
|
|
|
980
|
|
|
|
59
|
|
|
|
(55 |
) |
|
|
984
|
|
|
|
1,360
|
|
|
|
10
|
|
|
|
--
|
|
|
|
1,370
|
|
Other
securities
|
|
|
12,248
|
|
|
|
350
|
|
|
|
--
|
|
|
|
12,598
|
|
|
|
13,035
|
|
|
|
470
|
|
|
|
--
|
|
|
|
13,505
|
|
|
|
$ |
349,251
|
|
|
$ |
1,170
|
|
|
$ |
(1,139 |
) |
|
$ |
349,282
|
|
|
$ |
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
$401,545,000 at September 30, 2007 and $400,668,000 at December 31,
2006.
The
book
value of securities sold under agreements to repurchase amounted to $79,994,000
and $80,566,000 for September 30, 2007 and December 31, 2006,
respectively.
Income
earned on securities for the nine months ended September 30, 2007 and 2006
is as
follows:
(In
thousands)
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
Taxable
|
|
|
|
|
|
|
Held-to-maturity
|
|
$ |
1,991
|
|
|
$ |
1,321
|
|
Available-for-sale
|
|
|
11,785
|
|
|
|
10,136
|
|
|
|
|
|
|
|
|
|
|
Non-taxable
|
|
|
|
|
|
|
|
|
Held-to-maturity
|
|
|
3,837
|
|
|
|
3,454
|
|
Available-for-sale
|
|
|
43
|
|
|
|
80
|
|
Total
|
|
$ |
17,656
|
|
|
$ |
14,991
|
|
Maturities
of investment securities at September 30, 2007 are as follows:
|
|
Held-to-Maturity
|
|
|
Available-for-Sale
|
|
|
|
Amortized
|
|
|
Fair
|
|
|
Amortized
|
|
|
Fair
|
|
(In
thousands)
|
|
Cost
|
|
|
Value
|
|
|
Cost
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One
year or less
|
|
$ |
22,914
|
|
|
$ |
22,845
|
|
|
$ |
96,125
|
|
|
$ |
95,815
|
|
After
one through five years
|
|
|
48,995
|
|
|
|
48,906
|
|
|
|
76,077
|
|
|
|
75,663
|
|
After
five through ten years
|
|
|
84,072
|
|
|
|
84,031
|
|
|
|
162,727
|
|
|
|
163,262
|
|
After
ten years
|
|
|
22,781
|
|
|
|
22,459
|
|
|
|
2,074
|
|
|
|
1,944
|
|
Other
securities
|
|
|
1,444
|
|
|
|
1,444
|
|
|
|
12,248
|
|
|
|
12,598
|
|
Total
|
|
$ |
180,206
|
|
|
$ |
179,685
|
|
|
$ |
349,251
|
|
|
$ |
349,282
|
|
There
were
no realized gains or losses for the nine-months ended September 30, 2007
or
2006.
The
state
and political subdivision debt obligations are primarily non-rated bonds
and
represent small, Arkansas issues, which are evaluated on an ongoing
basis.
NOTE
3: LOANS
AND ALLOWANCE FOR LOAN LOSSES
The
various categories of loans are summarized as follows:
|
|
September
30,
|
|
|
December
31,
|
|
(In
thousands)
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
|
|
|
|
Credit
cards
|
|
$ |
149,185
|
|
|
$ |
143,359
|
|
Student
loans
|
|
|
78,377
|
|
|
|
84,831
|
|
Other
consumer
|
|
|
140,771
|
|
|
|
142,596
|
|
Real
Estate
|
|
|
|
|
|
|
|
|
Construction
|
|
|
259,705
|
|
|
|
277,411
|
|
Single
family residential
|
|
|
377,153
|
|
|
|
364,450
|
|
Other
commercial
|
|
|
538,924
|
|
|
|
512,404
|
|
Commercial
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
201,903
|
|
|
|
178,028
|
|
Agricultural
|
|
|
111,984
|
|
|
|
62,293
|
|
Financial
institutions
|
|
|
5,905
|
|
|
|
4,766
|
|
Other
|
|
|
11,328
|
|
|
|
13,357
|
|
Total
loans before allowance for loan losses
|
|
$ |
1,875,235
|
|
|
$ |
1,783,495
|
|
As
of
September 30, 2007, credit card loans, which are unsecured, were $149,185,000,
or 8.0% 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
September 30, 2007 and December 31, 2006, impaired loans totaled $11,686,000
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 $3,597,000
at
September 30, 2007 and $3,418,000 at December 31,
2006. Approximately $161,000 and $297,000 of interest income was
recognized on average impaired loans of $11,525,000 and $13,133,000 as
of
September 30, 2007 and 2006, respectively. Interest recognized on
impaired loans on a cash basis during the first nine 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
|
|
|
2,432
|
|
|
|
3,099
|
|
|
|
|
27,817
|
|
|
|
30,022
|
|
Deductions
|
|
|
|
|
|
|
|
|
Losses
charged to allowance, net of recoveries
|
|
|
|
|
|
|
|
|
of
$2,160 and $2,266 for the first nine months of
|
|
|
|
|
|
|
|
|
2007
and 2006, respectively
|
|
|
2,710
|
|
|
|
2,618
|
|
Reclassification
of reserve related to unfunded commitments(1)
|
|
|
--
|
|
|
|
1,525
|
|
|
|
|
|
|
|
|
|
|
Balance,
September 30
|
|
$ |
25,107
|
|
|
|
25,879
|
|
|
|
|
|
|
|
|
|
|
Additions
|
|
|
|
|
|
|
|
|
Provision
charged to expense
|
|
|
|
|
|
|
663
|
|
Deductions
|
|
|
|
|
|
|
|
|
Losses
charged to allowance, net of recoveries
|
|
|
|
|
|
|
|
|
of
$840 for the last three months of 2006
|
|
|
|
|
|
|
1,157
|
|
|
|
|
|
|
|
|
|
|
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 September 30, 2007 and
December 31, 2006, were as follows:
|
|
September
30,
|
|
|
December
31,
|
|
(In
thousands)
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
Gross
carrying amount
|
|
$ |
6,822
|
|
|
$ |
6,822
|
|
Accumulated
amortization
|
|
|
(3,239 |
) |
|
|
(2,623 |
) |
|
|
|
|
|
|
|
|
|
Net
core deposit premiums
|
|
$ |
3,583
|
|
|
$ |
4,199
|
|
Core
deposit premium amortization expense recorded for the nine months ended
September 30, 2007 and 2006, was $616,000 and $623,000,
respectively. The Company’s estimated amortization expense for the
remainder of 2007 is $202,000, 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 $442,706,000 and $450,310,000 of certificates
of
deposit of $100,000 or more at September 30, 2007 and December 31, 2006
respectively.
NOTE
6: INCOME
TAXES
The
provision for income taxes is comprised of the following
components:
|
|
September
30,
|
|
|
September
30,
|
|
(In
thousands)
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
Income
taxes currently payable
|
|
$ |
8,985
|
|
|
$ |
8,420
|
|
Deferred
income taxes
|
|
|
725
|
|
|
|
864
|
|
|
|
|
|
|
|
|
|
|
Provision
for income taxes
|
|
$ |
9,710
|
|
|
$ |
9,284
|
|
The
tax
effects of temporary differences related to deferred taxes shown on the balance
sheets were:
|
|
September
30,
|
|
|
December
31,
|
|
(In
thousands)
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
Deferred
tax assets
|
|
|
|
|
|
|
Allowance
for loan losses
|
|
$ |
8,548
|
|
|
$ |
8,543
|
|
Valuation
of foreclosed assets
|
|
|
63
|
|
|
|
63
|
|
Deferred
compensation payable
|
|
|
1,397
|
|
|
|
1,275
|
|
FHLB
advances
|
|
|
34
|
|
|
|
58
|
|
Vacation
compensation
|
|
|
800
|
|
|
|
740
|
|
Loan
interest
|
|
|
140
|
|
|
|
140
|
|
Available-for-sale
securities
|
|
|
--
|
|
|
|
1,319
|
|
Other
|
|
|
334
|
|
|
|
174
|
|
Total
deferred tax assets
|
|
|
11,316
|
|
|
|
12,312
|
|
|
|
|
|
|
|
|
|
|
Deferred
tax liabilities
|
|
|
|
|
|
|
|
|
Accumulated
depreciation
|
|
|
(592 |
) |
|
|
(852 |
) |
Deferred
loan fee income and expenses, net
|
|
|
(921 |
) |
|
|
(787 |
) |
FHLB
stock dividends
|
|
|
(956 |
) |
|
|
(887 |
) |
Goodwill
and core deposit premium amortization
|
|
|
(6,991 |
) |
|
|
(6,051 |
) |
Available-for-sale
securities
|
|
|
(12 |
) |
|
|
--
|
|
Other
|
|
|
(1,044 |
) |
|
|
(880 |
) |
Total
deferred tax liabilities
|
|
|
(10,516 |
) |
|
|
(9,457 |
) |
|
|
|
|
|
|
|
|
|
Net
deferred tax assets included in other
|
|
|
|
|
|
|
|
|
assets
on balance sheets
|
|
$ |
800
|
|
|
$ |
2,855
|
|
A
reconciliation of income tax expense at the statutory rate to the Company's
actual income tax expense is shown below:
|
|
September
30,
|
|
|
September
30,
|
|
(In
thousands)
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
Computed
at the statutory rate (35%)
|
|
$ |
10,807
|
|
|
$ |
10,505
|
|
Increase
(decrease) resulting from:
|
|
|
|
|
|
|
|
|
Tax
exempt income
|
|
|
(1,490 |
) |
|
|
(1,389 |
) |
Other
differences, net
|
|
|
393
|
|
|
|
168
|
|
Actual
tax provision
|
|
$ |
9,710
|
|
|
$ |
9,284
|
|
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 September 30, 2007 and December 31, 2006, consisted of the following
components:
|
|
September
30,
|
|
|
December
31,
|
|
(In
thousands)
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
Note
Payable, due July 2007, at a floating rate of
|
|
|
|
|
|
|
0.90%
above the one-month LIBOR rate, reset
|
|
|
|
|
|
|
monthly,
unsecured
|
|
$ |
--
|
|
|
$ |
2,000
|
|
FHLB
advances, due 2007 to 2024, 2.58% to 8.41%
|
|
|
|
|
|
|
|
|
secured
by residential real estate loans
|
|
|
48,725
|
|
|
|
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,
|
|
|
|
|
|
|
|
|
at
a
floating rate of 2.80% above the three-month
|
|
|
|
|
|
|
|
|
LIBOR
rate, reset quarterly, callable
|
|
|
|
|
|
|
|
|
in
2010 without penalty
|
|
|
10,310
|
|
|
|
10,310
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
79,655
|
|
|
$ |
83,311
|
|
At
September 30, 2007, the Company had Federal Home Loan Bank (“FHLB”) advances
with original maturities of one year or less of $66.5 million with a weighted
average rate of 5.21% which are not included in the above table.
The
trust
preferred securities are tax-advantaged issues that qualify for Tier 1 capital
treatment. Distributions on these securities are included in interest expense
on
long-term debt. Each of the trusts is a statutory business trust
organized for the sole purpose of issuing trust securities and investing the
proceeds thereof in junior subordinated debentures of the Company, the sole
asset of each trust. The preferred securities of each trust represent
preferred beneficial interests in the assets of the respective trusts and are
subject to mandatory redemption upon payment of the junior subordinated
debentures held by the trust. The common securities of each trust are
wholly-owned by the Company. Each trust’s ability to pay amounts due
on the trust preferred securities is solely dependent upon the Company making
payment on the related junior subordinated debentures. The Company’s
obligations under the junior subordinated securities and other relevant trust
agreements, in aggregate, constitute a full and unconditional guarantee by
the
Company of each respective trust’s obligations under the trust securities issued
by each respective trust.
Aggregate
annual maturities of long-term debt at September 30, 2007 are:
|
|
|
Annual
|
|
(In
thousands)
|
Year
|
|
Maturities
|
|
|
|
|
|
|
|
2007
|
|
$ |
2,005
|
|
|
2008
|
|
|
12,891
|
|
|
2009
|
|
|
5,509
|
|
|
2010
|
|
|
5,442
|
|
|
2011
|
|
|
4,254
|
|
|
Thereafter
|
|
|
49,554
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
79,655
|
|
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 one (1) lawsuit 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 Company was later
added as a party defendant. The plaintiffs are seeking $2,000,000 in
compensatory damages and $10,000,000 in punitive damages. The Company
and the banks have filed Motions to Dismiss. The plaintiffs were
granted additional time to discover any evidence for litigation, and have
submitted such findings. At the hearing on the Motions for Summary
Judgment, the Court dismissed Simmons First National Bank due to lack of
venue. Venue has been changed to Jefferson County for the Company and
Simmons First Bank of South Arkansas. At this time, no basis for any
material liability has been identified. The Company and the bank
continue 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
nine-month period ended September 30, 2007, the Company repurchased 294,831
shares of stock under the repurchase plan with a weighted average repurchase
price of $26.79 per share. Under the current stock repurchase plan,
the Company can repurchase an additional 46,136 shares.
NOTE
10: UNDIVIDED
PROFITS
The
Company’s subsidiary banks are subject to a legal limitation on dividends that
can be paid to the parent company without prior approval of the applicable
regulatory agencies. The approval of the Comptroller of the Currency
is required, if the total of all dividends declared by a national bank in
any
calendar year exceeds the total of its net profits, as defined, for that
year
combined with its retained net profits of the preceding two
years. Arkansas bank regulators have specified that the maximum
dividend limit state banks may pay to the parent company without prior approval
is 75% of current year earnings plus 75% of the retained net earnings of
the preceding year. At September 30, 2007, the bank subsidiaries had
approximately $10 million available for payment of dividends to the Company,
without prior approval of the regulatory agencies.
The
Federal Reserve Board's risk-based capital guidelines include the definitions
for (1) a well-capitalized institution, (2) an adequately-capitalized
institution, and (3) an undercapitalized institution. The criteria
for a well-capitalized institution are: a 5% "Tier l leverage capital" ratio,
a
6% "Tier 1 risk-based capital" ratio, and a 10% "total risk-based capital"
ratio. As of September 30, 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 13.35% at September 30,
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 nine months ended September 30, 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
|
|
|
56,500
|
|
|
|
28.42
|
|
|
|
8,800
|
|
|
|
28.42
|
|
Stock
Options Exercised
|
|
|
(30,200
|
) |
|
|
15.43
|
|
|
|
--
|
|
|
|
--
|
|
Stock
Awards Vested
|
|
|
--
|
|
|
|
--
|
|
|
|
(6,314
|
) |
|
|
25.31
|
|
Forfeited/Expired
|
|
|
(4,000
|
) |
|
|
12.13
|
|
|
|
--
|
|
|
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
September 30, 2007
|
|
|
538,970
|
|
|
$ |
17.67
|
|
|
|
25,132
|
|
|
$ |
26.74
|
|
Exercisable,
September 30, 2007
|
|
|
440,484
|
|
|
$ |
15.54
|
|
|
|
|
|
|
|
|
|
The
following table summarizes information about stock options under the plans
outstanding at September 30, 2007:
|
Options
Outstanding
|
|
Options
Exercisable
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
Weighted
|
|
|
Weighted
|
|
|
Remaining
|
Average
|
|
|
Average
|
Range
of
|
Options
|
Contractual
|
Exercise
|
|
Options
|
Exercise
|
Exercise
Prices
|
Outstanding
|
Life
|
Price
|
|
Exercisable
|
Price
|
|
|
|
|
|
|
|
$10.56
to
$12.22
|
310,200
|
1.4
Years
|
$12.08
|
|
310,200
|
$12.08
|
$15.35
to
$16.32
|
12,860
|
1.5
Years
|
$15.85
|
|
12,860
|
$15.85
|
$23.78
to
$24.50
|
98,210
|
3.9
Years
|
$24.06
|
|
91,184
|
$24.06
|
$26.19
to
$28.42
|
117,700
|
5.9
Years
|
$27.27
|
|
26,240
|
$26.88
|
Stock-based
compensation expense totaled $306,611 and $213,341 during the nine months
ended
September 30, 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 $480,668 at September 30, 2007. At
such date, the weighted-average period over which this unrecognized expense
is
expected to be recognized was 2.01 years. Unrecognized stock-based
compensation expense related to non-vested stock awards was $671,998 at
September 30, 2007. At such date, the weighted-average period over
which this unrecognized expense is expected to be recognized was 1.91
years.
Aggregate
intrinsic values of outstanding stock options and exercisable stock options
at
September 30, 2007 were $4.7 million and $4.8 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 $26.34 as of September 28, 2007, and the exercise price multiplied
by
the number of options outstanding. The total intrinsic values of
stock options exercised during the nine months ended September 30, 2007 and
2006, were $329,539 and $913,682, respectively.
NOTE
12: ADDITIONAL CASH FLOW
INFORMATION
|
|
Nine
Months Ended September
30,
|
|
(In
thousands)
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
Interest
paid
|
|
$ |
57,557
|
|
|
$ |
43,552
|
|
Income
taxes paid
|
|
$ |
8,447
|
|
|
$ |
9,865
|
|
NOTE
13: CERTAIN
TRANSACTIONS
From
time
to time the Company and its subsidiaries have made loans and other extensions
of
credit to directors, officers, their associates and members of their immediate
families. From time to time directors, officers and their associates and
members
of their immediate families have placed deposits with the Company’s subsidiary
banks. Such loans, other extensions of credit and deposits were made
in the ordinary course of business, on substantially the same terms (including
interest rates and collateral) as those prevailing at the time for comparable
transactions with other persons and did not involve more than normal risk
of
collectibility or present other unfavorable features.
NOTE
14: COMMITMENTS AND
CREDIT RISK
The
Company grants agri-business, commercial and residential loans to customers
throughout Arkansas, along with credit card loans to customers throughout
the
United States. Commitments to extend credit are agreements to lend to
a customer as long as there is no violation of any condition established
in the
contract. Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. Since a portion
of the commitments may expire without being drawn upon, the total commitment
amounts do not necessarily represent future cash requirements. Each
customer's creditworthiness is evaluated on a case-by-case basis. The
amount of collateral obtained, if deemed necessary, is based on management's
credit evaluation of the counterparty. Collateral held varies, but
may include accounts receivable, inventory, property, plant and equipment,
commercial real estate and residential real estate.
At
September 30, 2007, the Company had outstanding commitments to extend credit
aggregating approximately $231,728,000 and $343,635,000 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 $10,583,000 and $5,477,000 at
September 30, 2007 and December 31, 2006, respectively, with terms ranging
from
ninety days to three years. At September 30, 2007 and December
31, 2006 the Company’s deferred revenue under standby letter of credit
agreements is approximately $73,000 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 September 30, 2007, and the related
consolidated statements of income for the three-month and nine-month periods
ended September 30, 2007 and 2006, and the related consolidated statements
of
stockholders’ equity and cash flows for the nine-month periods ended September
30, 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.
Pine
Bluff, Arkansas
November
8, 2007
OVERVIEW
Simmons
First National Corporation recorded earnings of $7,500,000, or $0.53 diluted
earnings per share for the third quarter of 2007, compared to earnings of
$7,447,000, or $0.51 diluted earnings per share for same period in
2006. This represents a $53,000, or 0.7% increase in the third
quarter 2007 earnings compared to 2006. From September 30, 2006 to
September 30, 2007, quarterly diluted earnings per share increased by $0.02,
or
3.9%. Annualized return on average assets and annualized return on
average stockholders’ equity for the three-month period ended September 30,
2007, were 1.11% and 11.16%, compared to 1.13% and 11.70%, respectively,
for the
same period in 2006.
Earnings
for the nine-month period ended September 30, 2007, were $21,168,000, or
$1.48
per diluted share. These earnings reflect an increase of $437,000, or
$0.05 per share, when compared to the nine-month period ended September 30,
2006
earnings of $20,731,000, or $1.43 per diluted share. Annualized
return on average assets and annualized return on average stockholders’ equity
for the nine-month period ended September 30, 2007 were 1.06% and 10.69%,
compared to 1.08% and 11.13%, respectively, for the same period in
2006.
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 62 basis
points at September 30, 2007, compared to 67 basis points at December 31,
2006. Non-performing loans to total loans were 53 basis points
at the end of the quarter, compared to 56 basis points at December 31,
2006. The allowance for loan losses equaled 251% of non-performing
loans as of September 30, 2007, compared to 252% as of year-end
2006. The allowance for loan losses as a percent of total loans
equaled 1.34% and 1.42% as of September 30, 2007 and December 31, 2006,
respectively.
Annualized
net charge-offs to total loans for the third quarter of 2007 were 20 basis
points. Excluding credit cards, annualized net charge-offs to total
loans were 13 basis points. The credit card annualized net
charge-offs as a percent of the credit card portfolio were 1.02% for the
quarter
ended September 30, 2007, more than 400 basis points below the most recently
published industry average of 5.06%. For the nine-month period ended
September 30, 2007, the credit card annualized net charge-offs as a percent
of
the credit card portfolio were 1.16%. 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. Bankruptcy filings have declined
significantly from the high levels of the fourth quarter of 2005, and the
Company’s credit card charge-offs have remained at historically low levels since
the first quarter of 2006. The Company expects credit card
charge-offs to gradually return to the Company’s more historical level in excess
of 2%, although the trend continues to be slower than previously
anticipated.
Total
assets for the Company at September 30, 2007, were $2.722 billion, an increase
of $70.3 million, or 2.6% from December 31, 2006. Stockholders’
equity at the end of the third quarter of 2007 was $267.6 million, an $8.6
million, or 3.3% 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 83 are financial centers,
located in 47 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 ninety 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
ninety 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 eight to eleven 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.
Net
Interest Income Quarter-to-Date Analysis
For
the
three-month period ended September 30, 2007, net interest income on a fully
taxable equivalent basis was $24.4million, an increase of $1.3 million, or
5.5%,
from the same period in 2006. The increase in net interest income was the result
of a $3.6 million increase in interest income offset by a $2.3 million increase
in interest expense.
The
$3.6
million increase in interest income primarily is the result of a 38 basis point
increase in yield on earning assets associated with the repricing to a higher
interest rate environment, as well as a $71.3 million increase in average
interest earning assets due to internal growth. The higher interest
rates accounted for a $2.0 million increase in interest
income. The most significant component of this increase was the $1.1
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 24 basis points from 7.63% to 7.87%. The growth in
average interest earning assets resulted in a $1.5 million improvement in
interest income, due entirely to growth in average loans.
The
$2.3
million increase in interest expense is the result of a 35 basis point increase
in cost of funds due to competitive repricing during a higher interest rate
environment, coupled with a $54.2 million increase in average interest
bearing liabilities generated through internal growth. The higher
interest rates accounted for a $1.7 million increase in interest expense. The
most significant component of this increase was the $1.4 million increase
associated with the repricing of the Company’s time deposits that resulted from
time deposits that matured during the period or were tied to a rate that
fluctuated with changes in market rates. Historically, approximately
80% of the Company’s time deposits reprice in one year or less. As a
result, the average rate paid on time deposits increased 50 basis points
from 4.20% to 4.70%. The higher level of average interest bearing
liabilities resulted in a $568,000 increase in interest expense. More
specifically, the higher level of average interest bearing liabilities was
the
result of an increase of approximately $51.0 million from internal deposit
growth and $3.2 million in federal funds purchased and other debt.
Net
Interest Income Year-to-Date Analysis
For
the
nine-month period ended September 30, 2007, net interest income on a fully
taxable equivalent basis was $71.1 million, an increase of $2.2 million,
or
3.3%, from the same period in 2006. The increase in net interest
income was the result of a $13.7 million increase in interest income offset
by
an $11.5 million increase in interest expense.
The
$13.7
million increase in interest income primarily is the result of a 48 basis
point
increase in yield on earning assets associated with the repricing to a higher
interest rate environment, as well as a $100.6 million increase in average
interest earning assets due to internal growth. The higher interest
rates accounted for an $8.1 million increase in interest
income. The most significant component of this increase was the $5.2
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 39 basis points from 7.43% to 7.82%. Another $2.6 million
of the increase in interest income was due to repricing within the Company’s
investment portfolio. The average rate earned on the investment
portfolio increased 72 basis points from 4.33% to 5.05%. The growth
in average interest earning assets resulted in a $5.6 million improvement
in
interest income. The growth in average loans accounted for $4.8
million of this increase.
The
$11.5
million increase in interest expense is the result of a 61 basis point increase
in cost of funds due to competitive repricing during a higher interest rate
environment, coupled with an $89.2 million increase in average interest
bearing liabilities generated through internal growth. The higher
interest rates accounted for an $8.6 million increase in interest expense.
The
most significant component of this increase was the $6.6 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 81 basis points
from
3.87% to 4.68%. The higher level of average interest bearing
liabilities resulted in a $ 2.8 million increase in interest
expense. More specifically, the higher level of average interest
bearing liabilities was the result of an increase of approximately
$89.7 million from internal deposit growth.
Net
Interest Margin
The
Company’s net interest margin increased 10 basis points to 4.01% for the
three-month period ended September 30, 2007, when compared to 3.91% for the
same
period in 2006. Net interest margin increased by 5 basis points from
the previous quarter, the third consecutive improvement in net interest margin
following seven successive quarterly declines. The margin improvement
was primarily due to the improvement in the yield on securities from maturities
and repricing during the quarter, along with reasonable good growth in the
loan
portfolio. The rate of increase in the average cost of deposits also
continued to slow during the quarter. The drop in the Federal Funds
rate occurred too late in the quarter to have any impact on margin; though
the
Company’s interest model reflects a slight margin compression for approximately
sixty days, then turning positive. Due to the uncertainty of future rate
movements and the current yield curve, the Company anticipates a flat to
slightly declining 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 and nine-month periods ended September 30, 2007
and
2006, respectively, as well as changes in fully taxable equivalent net interest
margin for the three-month and nine-month periods ended September 30, 2007
versus September 30, 2006.
Table
1: Analysis of Net Interest Income
(FTE
=Fully Taxable Equivalent)
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
|
|
September
30,
|
|
|
September
30,
|
|
(In
thousands)
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
$ |
43,301
|
|
|
$ |
39,816
|
|
|
$ |
126,155
|
|
|
$ |
112,600
|
|
FTE
adjustment
|
|
|
871
|
|
|
|
796
|
|
|
|
2,554
|
|
|
|
2,380
|
|
Interest
income - FTE
|
|
|
44,172
|
|
|
|
40,612
|
|
|
|
128,709
|
|
|
|
114,980
|
|
Interest
expense
|
|
|
19,731
|
|
|
|
17,439
|
|
|
|
57,561
|
|
|
|
46,079
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income – FTE
|
|
$ |
24,441
|
|
|
$ |
23,173
|
|
|
$ |
71,148
|
|
|
$ |
68,901
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Yield
on earning assets – FTE
|
|
|
7.24 |
% |
|
|
6.86 |
% |
|
|
7.14 |
% |
|
|
6.66 |
% |
Cost
of interest bearing liabilities
|
|
|
3.76 |
% |
|
|
3.41 |
% |
|
|
3.72 |
% |
|
|
3.11 |
% |
Net
interest spread – FTE
|
|
|
3.48 |
% |
|
|
3.45 |
% |
|
|
3.42 |
% |
|
|
3.55 |
% |
Net
interest margin – FTE
|
|
|
4.01 |
% |
|
|
3.91 |
% |
|
|
3.95 |
% |
|
|
3.99 |
% |
Table
2: Changes in Fully Taxable Equivalent Net Interest
Margin
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
|
|
September
30,
|
|
|
September
30,
|
|
(In
thousands)
|
|
2007
vs. 2006
|
|
|
2007
vs. 2006
|
|
|
|
|
|
|
|
|
Increase
due to change in earning assets
|
|
$ |
1,535
|
|
|
$ |
5,632
|
|
Increase
due to change in earning asset yields
|
|
|
2,025
|
|
|
|
8,097
|
|
Decrease
due to change in interest
|
|
|
|
|
|
|
|
|
bearing
liabilities
|
|
|
(569 |
) |
|
|
(2,835 |
) |
Decrease
due to change in interest rates
|
|
|
|
|
|
|
|
|
paid
on interest bearing liabilities
|
|
|
(1,723 |
) |
|
|
(8,647 |
) |
Increase
in net interest income
|
|
$ |
1,268
|
|
|
$ |
2,247
|
|
Table
3
shows, for each major category of earning assets and interest bearing
liabilities, the average (computed on a daily basis) amount outstanding,
the
interest earned or expensed on such amount and the average rate earned or
expensed for the three-month and nine-month periods ended September 30,
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 September 30
|
|
|
|
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
|
|
$ |
9,382
|
|
|
$ |
131
|
|
|
|
5.54
|
|
|
$ |
16,851
|
|
|
$ |
229
|
|
|
|
5.39
|
|
Federal
funds sold
|
|
|
21,083
|
|
|
|
302
|
|
|
|
5.68
|
|
|
|
22,966
|
|
|
|
325
|
|
|
|
5.61
|
|
Investment
securities - taxable
|
|
|
395,038
|
|
|
|
4,709
|
|
|
|
4.73
|
|
|
|
410,542
|
|
|
|
4,005
|
|
|
|
3.87
|
|
Investment
securities - non-taxable
|
|
|
132,663
|
|
|
|
2,139
|
|
|
|
6.40
|
|
|
|
117,224
|
|
|
|
1,885
|
|
|
|
6.38
|
|
Mortgage
loans held for sale
|
|
|
8,747
|
|
|
|
147
|
|
|
|
6.67
|
|
|
|
8,368
|
|
|
|
141
|
|
|
|
6.69
|
|
Assets
held in trading accounts
|
|
|
4,930
|
|
|
|
71
|
|
|
|
5.71
|
|
|
|
4,598
|
|
|
|
14
|
|
|
|
1.21
|
|
Loans
|
|
|
1,849,091
|
|
|
|
36,673
|
|
|
|
7.87
|
|
|
|
1,769,131
|
|
|
|
34,013
|
|
|
|
7.63
|
|
Total
interest earning assets
|
|
|
2,420,934
|
|
|
|
44,172
|
|
|
|
7.24
|
|
|
|
2,349,680
|
|
|
|
40,612
|
|
|
|
6.86
|
|
Non-earning
assets
|
|
|
255,655
|
|
|
|
|
|
|
|
|
|
|
|
254,517
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$ |
2,676,589
|
|
|
|
|
|
|
|
|
|
|
$ |
2,604,197
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’
EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
bearing liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
bearing transaction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
savings accounts
|
|
$ |
724,782
|
|
|
$ |
3,328
|
|
|
|
1.82
|
|
|
$ |
722,920
|
|
|
$ |
3,023
|
|
|
|
1.66
|
|
Time
deposits
|
|
|
1,123,967
|
|
|
|
13,307
|
|
|
|
4.70
|
|
|
|
1,074,875
|
|
|
|
11,381
|
|
|
|
4.20
|
|
Total
interest bearing deposits
|
|
|
1,848,749
|
|
|
|
16,635
|
|
|
|
3.57
|
|
|
|
1,797,795
|
|
|
|
14,404
|
|
|
|
3.18
|
|
Federal
funds purchased and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
securities
sold under agreement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
to
repurchase
|
|
|
113,060
|
|
|
|
1,404
|
|
|
|
4.93
|
|
|
|
93,670
|
|
|
|
1,152
|
|
|
|
4.88
|
|
Other
borrowed funds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term
debt
|
|
|
38,710
|
|
|
|
519
|
|
|
|
5.32
|
|
|
|
54,120
|
|
|
|
761
|
|
|
|
5.58
|
|
Long-term
debt
|
|
|
80,123
|
|
|
|
1,173
|
|
|
|
5.81
|
|
|
|
80,825
|
|
|
|
1,122
|
|
|
|
5.51
|
|
Total
interest bearing liabilities
|
|
|
2,080,642
|
|
|
|
19,731
|
|
|
|
3.76
|
|
|
|
2,026,410
|
|
|
|
17,439
|
|
|
|
3.41
|
|
Non-interest
bearing liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest
bearing deposits
|
|
|
305,453
|
|
|
|
|
|
|
|
|
|
|
|
302,490
|
|
|
|
|
|
|
|
|
|
Other
liabilities
|
|
|
23,943
|
|
|
|
|
|
|
|
|
|
|
|
22,804
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
2,410,038
|
|
|
|
|
|
|
|
|
|
|
|
2,351,704
|
|
|
|
|
|
|
|
|
|
Stockholders’
equity
|
|
|
266,551
|
|
|
|
|
|
|
|
|
|
|
|
252,493
|
|
|
|
|
|
|
|
|
|
Total
liabilities and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
stockholders’
equity
|
|
$ |
2,676,589
|
|
|
|
|
|
|
|
|
|
|
$ |
2,604,197
|
|
|
|
|
|
|
|
|
|
Net
interest spread
|
|
|
|
|
|
|
|
|
|
|
3.48
|
|
|
|
|
|
|
|
|
|
|
|
3.45
|
|
Net
interest margin
|
|
|
|
|
|
$ |
24,441
|
|
|
|
4.01
|
|
|
|
|
|
|
$ |
23,173
|
|
|
|
3.91
|
|
|
|
Nine
Months Ended September 30
|
|
|
|
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
|
|
$ |
23,325
|
|
|
$ |
938
|
|
|
|
5.38
|
|
|
$ |
22,209
|
|
|
$ |
785
|
|
|
|
4.73
|
|
Federal
funds sold
|
|
|
32,576
|
|
|
|
1,303
|
|
|
|
5.35
|
|
|
|
18,471
|
|
|
|
692
|
|
|
|
5.01
|
|
Investment
securities - taxable
|
|
|
401,105
|
|
|
|
13,776
|
|
|
|
4.59
|
|
|
|
410,500
|
|
|
|
11,457
|
|
|
|
3.73
|
|
Investment
securities - non-taxable
|
|
|
128,268
|
|
|
|
6,208
|
|
|
|
6.47
|
|
|
|
117,566
|
|
|
|
5,654
|
|
|
|
6.43
|
|
Mortgage
loans held for sale
|
|
|
8,116
|
|
|
|
383
|
|
|
|
6.31
|
|
|
|
7,794
|
|
|
|
369
|
|
|
|
6.33
|
|
Assets
held in trading accounts
|
|
|
4,748
|
|
|
|
124
|
|
|
|
3.49
|
|
|
|
4,602
|
|
|
|
58
|
|
|
|
1.69
|
|
Loans
|
|
|
1,811,378
|
|
|
|
105,977
|
|
|
|
7.82
|
|
|
|
1,727,725
|
|
|
|
95,965
|
|
|
|
7.43
|
|
Total
interest earning assets
|
|
|
2,409,516
|
|
|
|
128,709
|
|
|
|
7.14
|
|
|
|
2,308,867
|
|
|
|
114,980
|
|
|
|
6.66
|
|
Non-earning
assets
|
|
|
252,766
|
|
|
|
|
|
|
|
|
|
|
|
249,069
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$ |
2,662,282
|
|
|
|
|
|
|
|
|
|
|
$ |
2,557,936
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’
EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
bearing liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
bearing transaction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
savings accounts
|
|
$ |
731,989
|
|
|
$ |
9,832
|
|
|
|
1.80
|
|
|
$ |
740,321
|
|
|
$ |
8,476
|
|
|
|
1.53
|
|
Time
deposits
|
|
|
1,128,660
|
|
|
|
39,467
|
|
|
|
4.68
|
|
|
|
1,030,591
|
|
|
|
29,837
|
|
|
|
3.87
|
|
Total
interest bearing deposits
|
|
|
1,860,649
|
|
|
|
49,299
|
|
|
|
3.54
|
|
|
|
1,770,912
|
|
|
|
38,313
|
|
|
|
2.89
|
|
Federal
funds purchased and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
securities
sold under agreement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
to
repurchase
|
|
|
110,293
|
|
|
|
4,057
|
|
|
|
4.92
|
|
|
|
99,613
|
|
|
|
3,320
|
|
|
|
4.46
|
|
Other
borrowed funds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term
debt
|
|
|
15,276
|
|
|
|
637
|
|
|
|
5.58
|
|
|
|
25,400
|
|
|
|
1,082
|
|
|
|
5.70
|
|
Long-term
debt
|
|
|
81,495
|
|
|
|
3,568
|
|
|
|
5.85
|
|
|
|
82,570
|
|
|
|
3,364
|
|
|
|
5.45
|
|
Total
interest bearing liabilities
|
|
|
2,067,713
|
|
|
|
57,561
|
|
|
|
3.72
|
|
|
|
1,978,495
|
|
|
|
46,079
|
|
|
|
3.11
|
|
Non-interest
bearing liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest
bearing deposits
|
|
|
307,075
|
|
|
|
|
|
|
|
|
|
|
|
309,873
|
|
|
|
|
|
|
|
|
|
Other
liabilities
|
|
|
22,804
|
|
|
|
|
|
|
|
|
|
|
|
20,451
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
2,397,592
|
|
|
|
|
|
|
|
|
|
|
|
2,308,819
|
|
|
|
|
|
|
|
|
|
Stockholders’
equity
|
|
|
264,690
|
|
|
|
|
|
|
|
|
|
|
|
249,117
|
|
|
|
|
|
|
|
|
|
Total
liabilities and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
stockholders’
equity
|
|
$ |
2,662,282
|
|
|
|
|
|
|
|
|
|
|
$ |
2,557,936
|
|
|
|
|
|
|
|
|
|
Net
interest spread
|
|
|
|
|
|
|
|
|
|
|
3.42
|
|
|
|
|
|
|
|
|
|
|
|
3.55
|
|
Net
interest margin
|
|
|
|
|
|
$ |
71,148
|
|
|
|
3.95
|
|
|
|
|
|
|
$ |
68,901
|
|
|
|
3.99
|
|
Table
4
presents changes in interest income and interest expense, resulting from
changes
in volume and changes in interest rates for the three-month and nine-month
period ended September 30, 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
|
|
Three
Months Ended September 30,
2007
over 2006
|
|
|
Nine
Months Ended September 30,
2007
over 2006
|
|
(In
thousands, on a fully
|
|
|
|
|
Yield/
|
|
|
|
|
|
|
|
|
Yield/
|
|
|
|
|
taxable
equivalent basis)
|
|
Volume
|
|
|
Rate
|
|
|
Total
|
|
|
Volume
|
|
|
Rate
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
(decrease) in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
bearing balances
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
due
from banks
|
|
$ |
(105 |
) |
|
$ |
6
|
|
|
$ |
(99 |
) |
|
$ |
40
|
|
|
$ |
112
|
|
|
$ |
152
|
|
Federal
funds sold
|
|
|
(27 |
) |
|
|
4
|
|
|
|
(23 |
) |
|
|
561
|
|
|
|
50
|
|
|
|
611
|
|
Investment
securities-taxable
|
|
|
(156 |
) |
|
|
860
|
|
|
|
704
|
|
|
|
(268 |
) |
|
|
2,588
|
|
|
|
2,320
|
|
Investment
securities-non-taxable
|
|
|
250
|
|
|
|
5
|
|
|
|
255
|
|
|
|
518
|
|
|
|
36
|
|
|
|
554
|
|
Mortgage
loans held for sale
|
|
|
6
|
|
|
|
--
|
|
|
|
6
|
|
|
|
15
|
|
|
|
(1 |
) |
|
|
14
|
|
Assets
held in trading accounts
|
|
|
1
|
|
|
|
56
|
|
|
|
57
|
|
|
|
2
|
|
|
|
64
|
|
|
|
66
|
|
Loans
|
|
|
1,566
|
|
|
|
1,094
|
|
|
|
2,660
|
|
|
|
4,764
|
|
|
|
5,248
|
|
|
|
10,012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,535
|
|
|
|
2,025
|
|
|
|
3,560
|
|
|
|
5,632
|
|
|
|
8,097
|
|
|
|
13,729
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
bearing transaction and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
savings
accounts
|
|
|
8
|
|
|
|
297
|
|
|
|
305
|
|
|
|
(96 |
) |
|
|
1,452
|
|
|
|
1,356
|
|
Time
deposits
|
|
|
537
|
|
|
|
1,389
|
|
|
|
1,926
|
|
|
|
3,023
|
|
|
|
6,607
|
|
|
|
9,630
|
|
Federal
funds purchased
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
securities sold under
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
agreements
to repurchase
|
|
|
240
|
|
|
|
11
|
|
|
|
251
|
|
|
|
375
|
|
|
|
362
|
|
|
|
737
|
|
Other
borrowed funds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term
debt
|
|
|
(207 |
) |
|
|
(34 |
) |
|
|
(241 |
) |
|
|
(423 |
) |
|
|
(22 |
) |
|
|
(445 |
) |
Long-term
debt
|
|
|
(9 |
) |
|
|
60
|
|
|
|
51
|
|
|
|
(44 |
) |
|
|
248
|
|
|
|
204
|
|
Total
|
|
|
569
|
|
|
|
1,723
|
|
|
|
2,292
|
|
|
|
2,835
|
|
|
|
8,647
|
|
|
|
11,482
|
|
Increase
(decrease) in net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
interest
income
|
|
$ |
966
|
|
|
$ |
302
|
|
|
$ |
1,268
|
|
|
$ |
2,797
|
|
|
$ |
(550 |
) |
|
$ |
2,247
|
|
PROVISION
FOR LOAN LOSSES
The
provision for loan losses represents management's determination of the amount
necessary to be charged against the current period's earnings, in order to
maintain the allowance for loan losses at a level, which is considered adequate,
in relation to the estimated risk inherent in the loan portfolio. The
level of provision to the allowance is based on management's judgment, with
consideration given to the composition, maturity and other qualitative
characteristics of the portfolio, historical loan loss experience, assessment
of
current economic conditions, past due and non-performing loans and net loan
loss
experience. It is management's practice to review the allowance on a
quarterly basis to determine the level of provision made to the allowance
after
considering the factors noted above.
The
provision for loan losses for the three-month period ended September 30,
2007,
was $850,000, compared to $602,000 for the three-month period ended September
30, 2006, an increase of $248,000. The provision increase was
primarily due to an increase in commercial real estate delinquencies in the
Northwest Arkansas region.
The
provision for loan losses for the nine-month period ended September 30, 2007,
was $2.4 million, compared to $3.1 million for the nine-month period ended
September 30, 2006, a reduction of $0.7 million. The provision
reduction for the nine-month period 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 2007 as non-performing based upon various criteria;
however, there were no specific reserve allocations required for these
loans. Second, the Company continued to see a sustained decrease in
credit card charge-offs, recording only 1.16% of credit card net charge-offs
as
a percent of the credit card portfolio during the nine-months ended September
30, 2007, still well below its historical level in excess of 2%. The
provision for loan losses after the first quarter of 2006 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 $11.4 million for the three-month period ended September
30, 2007, compared to $11.0 million for the same period in 2006. For
the nine-months ended September 30, 2007, non-interest income was $34.2 million
compared to the $33.2 million reported for the same period ended September
30,
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
details non-interest income for the three-month and nine-month periods ended
September 30, 2007 and 2006, respectively, as well as changes in 2007 from
2006.
Table
5: Non-Interest Income
|
|
Three
Months
|
|
|
2007
|
|
|
Nine
Months
|
|
|
2007
|
|
|
|
Ended
September 30
|
|
|
Change
from
|
|
|
Ended
September 30
|
|
|
Change
from
|
|
(In
thousands)
|
|
2007
|
|
|
2006
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
2006
|
|
Trust
income
|
|
$ |
1,528
|
|
|
$ |
1,435
|
|
|
$ |
93
|
|
|
|
6.48 |
% |
|
$ |
4,639
|
|
|
$ |
4,095
|
|
|
$ |
544
|
|
|
|
13.28 |
% |
Service
charges on
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
deposit
accounts
|
|
|
3,759
|
|
|
|
3,973
|
|
|
|
(214 |
) |
|
|
(5.39 |
) |
|
|
10,912
|
|
|
|
11,945
|
|
|
|
(1,033 |
) |
|
|
(8.65 |
) |
Other
service charges and fees
|
|
|
698
|
|
|
|
596
|
|
|
|
102
|
|
|
|
17.11
|
|
|
|
2,198
|
|
|
|
1,846
|
|
|
|
352
|
|
|
|
19.07
|
|
Income
on sale of mortgage loans,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net
of commissions
|
|
|
715
|
|
|
|
763
|
|
|
|
(48 |
) |
|
|
(6.29
|
) |
|
|
2,121
|
|
|
|
2,194
|
|
|
|
(73 |
) |
|
|
(3.33 |
) |
Income
on investment banking,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net
of commissions
|
|
|
90
|
|
|
|
55
|
|
|
|
35
|
|
|
|
63.64
|
|
|
|
393
|
|
|
|
252
|
|
|
|
141
|
|
|
|
55.95
|
|
Credit
card fees
|
|
|
3,115
|
|
|
|
2,755
|
|
|
|
360
|
|
|
|
13.07
|
|
|
|
8,789
|
|
|
|
7,912
|
|
|
|
877
|
|
|
|
11.08
|
|
Premiums
on sale of student loans
|
|
|
419
|
|
|
|
413
|
|
|
|
6
|
|
|
|
1.45
|
|
|
|
2,042
|
|
|
|
1,808
|
|
|
|
234
|
|
|
|
12.94
|
|
Bank
owned life insurance income
|
|
|
367
|
|
|
|
382
|
|
|
|
(15 |
) |
|
|
(3.93 |
) |
|
|
1,090
|
|
|
|
1,098
|
|
|
|
(8 |
) |
|
|
(0.73 |
) |
Other
income
|
|
|
682
|
|
|
|
654
|
|
|
|
28
|
|
|
|
4.28
|
|
|
|
1,980
|
|
|
|
2,004
|
|
|
|
(24 |
) |
|
|
(1.20 |
) |
Total
non-interest income
|
|
$ |
11,373
|
|
|
$ |
11,026
|
|
|
$ |
347
|
|
|
|
3.15 |
% |
|
$ |
34,164
|
|
|
$ |
33,154
|
|
|
$ |
1,010
|
|
|
|
3.05 |
% |
Recurring
fee income for the three-month period ended September 30, 2007, was $9.1
million, an increase of $341,000, or 3.9% from the three-month period ended
September 30, 2006. Trust income increased by $93,000, due mainly to
the addition of new customer accounts. Service charges on deposit
accounts decreased by $214,000 due to reduced income on insufficient funds
(NSF)
charges. The decrease in NSF income is primarily due to the increase in
consumer
use of debit cards and internet banking, and the associated decrease in
paper
transactions. Other service charges and fees increased by $102,000,
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. Credit
card fees increased by $360,000 due primarily to a higher volume of credit
and
debit card transactions.
Recurring
fee income for the nine-month period ended September 30, 2007, was $26.5
million, an increase of $740,000, or 2.9% from the nine-month period ended
September 30, 2006. Trust income increased by $544,000, due mainly to
the addition of new customer accounts and an improvement in fee
structure. Service charges on deposit accounts decreased by $1.0
million due to a reduction in NSF income, primarily resulting from the
increase
in consumer use of debit cards and internet banking, and the associated
decrease
in paper transactions. The Company’s debit card transaction volume for the
nine-month period ended September 30, 2007, increased 27% over the same
period
of 2006. Other service charges and fees increased by $352,000,
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. Credit
card fees increased by $877,000 due primarily to a higher volume of credit
and
debit card transactions.
Premiums
of sale of student loans increased by $234,000 for the nine-months ended
September 30, 2007, compared to the same period in 2006, due primarily
to early
sales to avoid losing the premium to consolidation lenders.
There
were
no gains or losses on sale of securities during the three-months or nine-months
ended September 30, 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 and nine-month periods ended September 30, 2007,
was
$23.2 million and $69.4 million, an increase of $1.1 million, or 4.9%, and
$2.9 million, or 4.3%, respectively, from the same periods in
2006. These increases are primarily the result of an increase in
normal ongoing operating expenses and the additional expense associated with
the
operation of the five new financial centers opened in 2006 and
2007. Two other items contributed significantly to the increase in
non-interest expense.
Credit
card expense increased for the three-month and nine-month periods ended
September 30, 2007, over the same periods in 2006 by $215,000, or 25.3%, and
$642,000, or 27.5%, respectively. These increases were primarily due
to 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. See Loan
Portfolio section for additional information.
Other
non-interest expense for the nine-month period ended September 30, 2007, was
$8.3 million, an increase of $378,000 over the nine-months ended September
30,
2006. The increase is primarily due to student loan origination fees
paid by the Company during 2007. The Federal Student Loan Program is
phasing out origination fees on its loans over the next three
years. Most of the national market began 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 $413,000 of student
loan origination fees during the nine-months ended September 30, 2007, compared
to $35,000 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 $375,000, or $.03
diluted earnings per share.
Table
6
below details non-interest expense for the three-month and nine-month periods
ended September 30, 2007 and 2006, respectively, as well as changes in 2007
from
2006.
Table
6: Non-Interest Expense
|
|
Three
Months
|
|
|
2007
|
|
|
Nine
Months
|
|
|
2007
|
|
|
|
Ended
September 30
|
|
|
Change
from
|
|
|
Ended
September 30
|
|
|
Change
from
|
|
(In
thousands)
|
|
2007
|
|
|
2006
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries
and employee benefits
|
|
$ |
13,778
|
|
|
$ |
13,298
|
|
|
$ |
480
|
|
|
|
3.61 |
% |
|
$ |
41,406
|
|
|
$ |
40,269
|
|
|
$ |
1,137
|
|
|
|
2.82 |
% |
Occupancy
expense, net
|
|
|
1,671
|
|
|
|
1,612
|
|
|
|
59
|
|
|
|
3.66
|
|
|
|
4,945
|
|
|
|
4,673
|
|
|
|
272
|
|
|
|
5.82
|
|
Furniture
and equipment expense
|
|
|
1,455
|
|
|
|
1,407
|
|
|
|
48
|
|
|
|
3.41
|
|
|
|
4,428
|
|
|
|
4,281
|
|
|
|
147
|
|
|
|
3.43
|
|
Loss
on foreclosed assets
|
|
|
77
|
|
|
|
32
|
|
|
|
45
|
|
|
|
140.63
|
|
|
|
137
|
|
|
|
105
|
|
|
|
32
|
|
|
|
30.48
|
|
Other
operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Professional
services
|
|
|
741
|
|
|
|
469
|
|
|
|
272
|
|
|
|
58.00
|
|
|
|
2,032
|
|
|
|
1,770
|
|
|
|
262
|
|
|
|
14.80
|
|
Postage
|
|
|
597
|
|
|
|
555
|
|
|
|
42
|
|
|
|
7.57
|
|
|
|
1,780
|
|
|
|
1,691
|
|
|
|
89
|
|
|
|
5.26
|
|
Telephone
|
|
|
462
|
|
|
|
492
|
|
|
|
(30 |
) |
|
|
(6.10 |
) |
|
|
1,331
|
|
|
|
1,471
|
|
|
|
(140 |
) |
|
|
(9.52 |
) |
Credit
card expenses
|
|
|
1,064
|
|
|
|
849
|
|
|
|
215
|
|
|
|
25.32
|
|
|
|
2,974
|
|
|
|
2,332
|
|
|
|
642
|
|
|
|
27.53
|
|
Operating
supplies
|
|
|
374
|
|
|
|
390
|
|
|
|
(16 |
) |
|
|
(4.10 |
) |
|
|
1,264
|
|
|
|
1,205
|
|
|
|
59
|
|
|
|
4.90
|
|
FDIC
insurance
|
|
|
85
|
|
|
|
64
|
|
|
|
21
|
|
|
|
32.81
|
|
|
|
220
|
|
|
|
204
|
|
|
|
16
|
|
|
|
7.84
|
|
Amortization
of intangibles
|
|
|
203
|
|
|
|
207
|
|
|
|
(4 |
) |
|
|
(1.93 |
) |
|
|
616
|
|
|
|
623
|
|
|
|
(7 |
) |
|
|
(1.12 |
) |
Other
expense
|
|
|
2,716
|
|
|
|
2,760
|
|
|
|
(44 |
) |
|
|
(1.59 |
) |
|
|
8,315
|
|
|
|
7,937
|
|
|
|
378
|
|
|
|
4.76
|
|
Total
non-interest expense
|
|
$ |
23,223
|
|
|
$ |
22,135
|
|
|
$ |
1,088
|
|
|
|
4.92 |
% |
|
$ |
69,448
|
|
|
$ |
66,561
|
|
|
$ |
2,887
|
|
|
|
4.34 |
% |
LOAN
PORTFOLIO
The
Company's loan portfolio averaged $1.811 billion and $1.727 billion during
the
first nine months of 2007 and 2006, respectively. As of September 30,
2007, total loans were $1.875 billion, an increase of $91.7 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 $368.3 million at September 30, 2007, or
19.6% 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 September 30, 2007 is the result of the Company’s seasonal decline and
early sale of student loans, almost entirely offset by an increase 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 has increased by a larger
increment each quarter of 2007, compared to the same period in
2006. The credit card portfolio balance at September 30, 2007,
increased by $15.6 million, or 11.7%, compared to the balance at September
30, 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 September 30, 2007, the Company has added
over 11,000 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 $1.176 billion at September
30, 2007, or 62.7% 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 $26.5 million from December 31, 2006 to September 30, 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 $319.8 million at September 30,
2007, or 17.1% 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 seasonal increases in agricultural and commercial
loans.
The
amounts of loans outstanding at the indicated dates are reflected in Table
7,
according to type of loan.
Table
7: Loan Portfolio
|
|
September
30,
|
|
|
December
31,
|
|
(In
thousands)
|
|
2007
|
|
|
2006
|
|
Consumer
|
|
|
|
|
|
|
Credit
cards
|
|
$ |
149,185
|
|
|
$ |
143,359
|
|
Student
loans
|
|
|
78,377
|
|
|
|
84,831
|
|
Other
consumer
|
|
|
140,771
|
|
|
|
142,596
|
|
Real
Estate
|
|
|
|
|
|
|
|
|
Construction
|
|
|
259,705
|
|
|
|
277,411
|
|
Single
family residential
|
|
|
377,153
|
|
|
|
364,450
|
|
Other
commercial
|
|
|
538,924
|
|
|
|
512,404
|
|
Commercial
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
201,903
|
|
|
|
178,028
|
|
Agricultural
|
|
|
111,984
|
|
|
|
62,293
|
|
Financial
institutions
|
|
|
5,905
|
|
|
|
4,766
|
|
Other
|
|
|
11,328
|
|
|
|
13,357
|
|
|
|
|
|
|
|
|
|
|
Total
loans before allowance for loan losses
|
|
$ |
1,875,235
|
|
|
$ |
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 ninety 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 ninety 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 ninety 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
ninety days past due. Litigation accounts are placed on nonaccrual until
such
time as deemed uncollectible. Credit card loans are generally charged
off when payment of interest or principal exceeds 180 days past due, but
are
turned over to the credit card recovery department, to be pursued until such
time as they are determined, on a case-by-case basis, to be
uncollectible.
At
September 30, 2007, impaired loans were $11.7 million compared to $12.8 million
at December 31, 2006.
Table
8
presents information concerning non-performing assets, including nonaccrual
and
other real estate owned.
Table
8: Non-performing Assets
|
|
September
30,
|
|
|
December
31,
|
|
($
in thousands)
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
Nonaccrual
loans
|
|
$ |
9,065
|
|
|
$ |
8,958
|
|
Loans
past due ninety days or more
|
|
|
|
|
|
|
|
|
(principal
or interest payments)
|
|
|
946
|
|
|
|
1,097
|
|
Total
non-performing loans
|
|
|
10,011
|
|
|
|
10,055
|
|
|
|
|
|
|
|
|
|
|
Other
non-performing assets
|
|
|
|
|
|
|
|
|
Foreclosed
assets held for sale
|
|
|
1,629
|
|
|
|
1,940
|
|
Other
non-performing assets
|
|
|
38
|
|
|
|
52
|
|
Total
other non-performing assets
|
|
|
1,667
|
|
|
|
1,992
|
|
|
|
|
|
|
|
|
|
|
Total
non-performing assets
|
|
$ |
11,678
|
|
|
$ |
12,047
|
|
|
|
|
|
|
|
|
|
|
Allowance
for loan losses to
|
|
|
|
|
|
|
|
|
non-performing
loans
|
|
|
250.79 |
% |
|
|
252.46 |
% |
Non-performing
loans to total loans
|
|
|
0.53 |
% |
|
|
0.56 |
% |
Non-performing
assets to total assets
|
|
|
0.43 |
% |
|
|
0.45 |
% |
Non-performing
assets ratio(1)
|
|
|
0.62 |
% |
|
|
0.67 |
% |
(1)
(Non-performing loans + foreclosed assets) / (total loans + foreclosed
assets)
There
was
no interest income on the nonaccrual loans recorded for the nine-month periods
ended September 30, 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, state and local economic trends and conditions, 8) concentrations
of
credit that might affect loss experience across one or more components
of the
loan portfolio, 9) the experience, ability and depth of lending management
and
staff and 10) other factors and trends, which will affect specific loans
and
categories of loans.
As
the
Company evaluates the allowance for loan losses, it is categorized as
follows: 1) specific allocations, 2) allocations for classified
assets with no specific allocation, 3) general allocations for each major
loan
category and 4) unallocated portion.
Specific
Allocations
Specific
allocations are made when factors are present requiring a greater reserve than
would be required when using the assigned risk rating allocation. As
a general rule, if a specific allocation is warranted, it is the result of
an
analysis of a previously classified credit or relationship. The
evaluation process in specific allocations for the Company includes a review
of
appraisals or other collateral analysis. These values are compared to
the remaining outstanding principal balance. If a loss is determined
to be reasonably possible, the possible loss is identified as a specific
allocation. If the loan is not collateral dependent, the measurement
of loss is based on the expected future cash flows of the loan.
Allocations
for Classified Assets with no Specific Allocation
The
Company establishes allocations for loans rated “watch” through “doubtful” 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
|
|
|
1,993
|
|
|
|
1,854
|
|
Other
consumer
|
|
|
1,126
|
|
|
|
847
|
|
Real
estate
|
|
|
1,247
|
|
|
|
1,075
|
|
Commercial
|
|
|
504
|
|
|
|
1,108
|
|
Total
loans charged off
|
|
|
4,870
|
|
|
|
4,884
|
|
|
|
|
|
|
|
|
|
|
Recoveries
of loans previously charged off
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit
card
|
|
|
793
|
|
|
|
798
|
|
Other
consumer
|
|
|
379
|
|
|
|
456
|
|
Real
estate
|
|
|
610
|
|
|
|
498
|
|
Commercial
|
|
|
378
|
|
|
|
514
|
|
Total
recoveries
|
|
|
2,160
|
|
|
|
2,266
|
|
Net
loans charged off
|
|
|
2,710
|
|
|
|
2,618
|
|
Reclassification
of reserve
|
|
|
|
|
|
|
|
|
related
to unfunded commitments(1)
|
|
|
--
|
|
|
|
(1,525
|
) |
Provision
for loan losses
|
|
|
2,432
|
|
|
|
3,099
|
|
Balance,
September 30
|
|
$ |
25,107
|
|
|
$ |
25,879
|
|
|
|
|
|
|
|
|
|
|
Loans
charged off
|
|
|
|
|
|
|
|
|
Credit
card
|
|
|
|
|
|
|
600
|
|
Other
consumer
|
|
|
|
|
|
|
395
|
|
Real
estate
|
|
|
|
|
|
|
793
|
|
Commercial
|
|
|
|
|
|
|
209
|
|
Total
loans charged off
|
|
|
|
|
|
|
1,997
|
|
|
|
|
|
|
|
|
|
|
Recoveries
of loans previously charged off
|
|
|
|
|
|
|
|
|
Credit
card
|
|
|
|
|
|
|
242
|
|
Other
consumer
|
|
|
|
|
|
|
173
|
|
Real
Estate
|
|
|
|
|
|
|
403 |
|
Commerical
|
|
|
|
|
|
|
22 |
|
Total
recoveries
|
|
|
|
|
|
|
840
|
|
Net
loans charged off
|
|
|
|
|
|
|
1,157
|
|
Provision
for loan losses
|
|
|
|
|
|
|
663
|
|
|
|
|
|
|
|
|
|
|
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 nine-month periods ended September
30,
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
September 30, 2007, the allowance for loan losses reflects a decrease of
approximately $278,000 from December 31, 2006. As a general rule, the
allocation in each category within the allowance reflects the overall changes
in
loan portfolio mix.
The
Company still has some concerns over the uncertainty of the economy and the
impact of pricing in the poultry and timber industries in
Arkansas. The Company is also cautious regarding the softening of the
real estate market in Arkansas. Based on our analysis of loans within
these business sectors, the Company believes the allowance for loan losses
is
adequate for the period ended September 30, 2007. Management actively
monitors the status of these industries as they relate to the Company’s loan
portfolio and makes changes to the allowance for loan losses as
necessary.
An
analysis of the allocation of allowance for loan losses is presented in Table
10.
Table
10: Allocation of Allowance for Loan Losses
|
|
September
30, 2007
|
|
|
December
31, 2006
|
|
|
|
Allowance
|
|
|
%
of
|
|
|
Allowance
|
|
|
%
of
|
|
($
in thousands)
|
|
Amount
|
|
|
loans(1)
|
|
|
Amount
|
|
|
loans(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit
cards
|
|
$ |
3,416
|
|
|
|
7.9 |
% |
|
$ |
3,702
|
|
|
|
8.0 |
% |
Other
consumer
|
|
|
1,489
|
|
|
|
11.7 |
% |
|
|
1,402
|
|
|
|
12.8 |
% |
Real
estate
|
|
|
10,504
|
|
|
|
62.7 |
% |
|
|
9,835
|
|
|
|
64.7 |
% |
Commercial
|
|
|
2,587
|
|
|
|
17.1 |
% |
|
|
2,856
|
|
|
|
13.7 |
% |
Other
|
|
|
198
|
|
|
|
0.6 |
% |
|
|
--
|
|
|
|
0.8 |
% |
Unallocated
|
|
|
6,913
|
|
|
|
|
|
|
|
7,590
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
25,107
|
|
|
|
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 83 financial centers as of September
30, 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 September 30, 2007, core deposits comprised 77.6% 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. Total deposits as of
September 30, 2007, were $2.173 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 decreased approximately $8.4 million to $1.123 billion at September
30,
2007, from $1.131 billion at December 31, 2006. Non-interest
bearing transaction accounts increased $14.5 million to $319.8 million at
September 30, 2007, compared to $305.3 million at December 31,
2006. Interest bearing transaction and savings accounts were
$730.5 million at September 30, 2007, an $8.2 million decrease
compared to $738.8 million on December 31, 2006. The Company had
$44.1 million and $50.0 million of brokered deposits at September 30, 2007
and December 31, 2006, respectively.
LONG-TERM
DEBT
During
the
nine month period ended September 30, 2007, the Company decreased long-term
debt
by $3.7 million, or 4.4% from December 31, 2006. This decrease is
primarily attributable to the Company’s final $2.0 million annual payment on its
note payable along with scheduled principal pay downs on FHLB long-term
advances.
CAPITAL
Overview
At
September 30, 2007, total capital reached $267.6 million. Capital
represents shareholder ownership in the Company – the book value of assets in
excess of liabilities. At September 30, 2007, the Company’s equity to
asset ratio was 9.83% 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
nine-month period ended September 30, 2007, the Company repurchased 294,831
shares of stock under the repurchase plan with a weighted average repurchase
price of $26.79 per share. Under the current stock repurchase plan,
the Company can repurchase an additional 46,136 shares.
Cash
Dividends
The
Company declared cash dividends on its common stock of $0.54 per share for
the
first nine months of 2007 compared to $0.50 per share for the first nine 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 September 30, 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 September 30, 2007 and December 31,
2006,
are presented in table 11.
Table
11: Risk-Based Capital
|
|
September
30,
|
|
|
December
31,
|
|
($
in thousands)
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
Tier
1 capital
|
|
|
|
|
|
|
Stockholders’
equity
|
|
$ |
267,601
|
|
|
$ |
259,016
|
|
Trust
preferred securities
|
|
|
30,000
|
|
|
|
30,000
|
|
Intangible
assets
|
|
|
(63,924 |
) |
|
|
(64,334 |
) |
Unrealized
(gain) loss on available-
|
|
|
|
|
|
|
|
|
for-sale
securities, net of taxes
|
|
|
(20 |
) |
|
|
2,198
|
|
|
|
|
|
|
|
|
|
|
Total
Tier 1 capital
|
|
|
233,657
|
|
|
|
226,880
|
|
|
|
|
|
|
|
|
|
|
Tier
2 capital
|
|
|
|
|
|
|
|
|
Qualifying
unrealized gain on
|
|
|
|
|
|
|
|
|
available-for-sale
equity securities
|
|
|
158
|
|
|
|
167
|
|
Qualifying
allowance for loan losses
|
|
|
24,188
|
|
|
|
22,953
|
|
Total
Tier 2 capital
|
|
|
24,346
|
|
|
|
23,120
|
|
|
|
|
|
|
|
|
|
|
Total
risk-based capital
|
|
$ |
258,003
|
|
|
$ |
250,000
|
|
|
|
|
|
|
|
|
|
|
Risk
weighted assets
|
|
$ |
1,932,608
|
|
|
$ |
1,831,063
|
|
|
|
|
|
|
|
|
|
|
Assets
for leverage ratio
|
|
$ |
2,615,527
|
|
|
$ |
2,568,472
|
|
|
|
|
|
|
|
|
|
|
Ratios
at end of period
|
|
|
|
|
|
|
|
|
Leverage
ratio
|
|
|
8.93 |
% |
|
|
8.83 |
% |
Tier
1 capital
|
|
|
12.09 |
% |
|
|
12.39 |
% |
Total
risk-based capital
|
|
|
13.35 |
% |
|
|
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 to 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 and 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 September 30, 2007, undivided profits
of the Company's subsidiaries were approximately $152.8 million, of which
approximately $10 million was available for the payment of dividends to the
Company without regulatory approval. In addition to dividends, other sources
of
liquidity for the Company are the sale of equity securities and the borrowing
of
funds.
Banking
Subsidiaries
Generally
speaking, the Company's banking subsidiaries rely upon net inflows of cash
from
financing activities, supplemented by net inflows of cash from operating
activities, to provide cash used in investing activities. Typical of
most banking companies, significant financing activities include: deposit
gathering; use of short-term borrowing facilities, such as federal funds
purchased and repurchase agreements; and the issuance of long-term
debt. The banks' primary investing activities include loan
originations and purchases of investment securities, offset by loan payoffs
and
investment maturities.
Liquidity
represents an institution's ability to provide funds to satisfy demands from
depositors and borrowers, by either converting assets into cash or accessing
new
or existing sources of incremental funds. A major responsibility of
management is to maximize net interest income within prudent liquidity
constraints. Internal corporate guidelines have been established to
constantly measure liquid assets, as well as relevant ratios concerning earning
asset levels and purchased funds. The management and board of
directors of each bank subsidiary monitor these same indicators and make
adjustments as needed. At September 30, 2007, each subsidiary bank
was within established guidelines and total corporate liquidity remains
strong. At September 30, 2007, cash and cash equivalents, trading and
available-for-sale securities and mortgage loans held for sale were 17.7% 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 $359 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 66% of the investment portfolio is
classified as available-for-sale. The Company also uses securities held in
the
securities portfolio to pledge when obtaining public funds.
The
fifth
source of liquidity is the ability to access large deposits from both the public
and private sector to fund short-term liquidity needs.
Finally,
the Company has established a $5 million unsecured line of credit with a major
commercial bank that could be used to meet unexpected liquidity needs at both
the parent company level as well as at any affiliate bank.
The
Company believes the various sources available are ample liquidity for
short-term, intermediate-term and long-term liquidity.
Market
Risk Management
Market
risk arises from changes in interest rates. The Company has risk
management policies to monitor and limit exposure to market risk. In
asset and liability management activities, policies are in place designed to
minimize structural interest rate risk. The measurement of market
risk associated with financial instruments is meaningful only when all related
and offsetting on- and off-balance-sheet transactions are aggregated, and the
resulting net positions are identified.
Interest
Rate Sensitivity
Interest
rate risk represents the potential impact of interest rate changes on net income
and capital resulting from mismatches in repricing opportunities of assets
and
liabilities over a period of time. A number of tools are used to
monitor and manage interest rate risk, including simulation models and interest
sensitivity gap analysis. Management uses simulation models to
estimate the effects of changing interest rates and various balance sheet
strategies on the level of the Company’s net income and capital. As a
means of limiting interest rate risk to an acceptable level, management may
alter the mix of floating and fixed-rate assets and liabilities, change pricing
schedules and manage investment maturities during future security
purchases.
The
simulation models incorporate management’s assumptions regarding the level of
interest rates or balance changes for indeterminate maturity deposits for a
given level of market rate changes. These assumptions have been
developed through anticipated pricing behavior. Key assumptions in
the simulation models include the relative timing of prepayments, cash flows
and
maturities. In addition, the impact of planned growth and anticipated
new business is factored into the simulation models. These
assumptions are inherently uncertain and, as a result, the models cannot
precisely estimate net interest income or precisely predict the impact of a
change in interest rates on net income or capital. Actual results
will differ from simulated results due to the timing, magnitude and frequency
of
interest rate changes and changes in market conditions and management
strategies, among other factors.
Table
A
below presents the Company’s interest rate sensitivity position at September 30,
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
|
|
$ |
32,212
|
|
|
$ |
--
|
|
|
$ |
--
|
|
|
$ |
--
|
|
|
$ |
--
|
|
|
$ |
--
|
|
|
$ |
--
|
|
|
$ |
32,212
|
|
Assets
held in trading
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
accounts
|
|
|
5,482
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
5,482
|
|
Investment
securities
|
|
|
51,487
|
|
|
|
27,093
|
|
|
|
34,614
|
|
|
|
86,967
|
|
|
|
165,742
|
|
|
|
100,081
|
|
|
|
63,504
|
|
|
|
529,488
|
|
Mortgage
loans held for sale
|
|
|
8,244
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
8,244
|
|
Loans
|
|
|
609,224
|
|
|
|
186,293
|
|
|
|
153,644
|
|
|
|
327,319
|
|
|
|
258,423
|
|
|
|
309,848
|
|
|
|
30,484
|
|
|
|
1,875,235
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
earning assets
|
|
|
706,649
|
|
|
|
213,386
|
|
|
|
188,258
|
|
|
|
414,286
|
|
|
|
424,165
|
|
|
|
409,929
|
|
|
|
93,988
|
|
|
|
2,450,661
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
bearing liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
bearing transaction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
savings deposits
|
|
|
407,931
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
64,520
|
|
|
|
193,562
|
|
|
|
64,520
|
|
|
|
730,533
|
|
Time
deposits
|
|
|
148,610
|
|
|
|
197,718
|
|
|
|
368,987
|
|
|
|
292,532
|
|
|
|
91,750
|
|
|
|
23,397
|
|
|
|
--
|
|
|
|
1,122,994
|
|
Short-term
debt
|
|
|
174,579
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
174,579
|
|
Long-term
debt
|
|
|
727
|
|
|
|
11,496
|
|
|
|
6,322
|
|
|
|
3,923
|
|
|
|
6,368
|
|
|
|
26,207
|
|
|
|
24,612
|
|
|
|
79,655
|
|
Total
interest bearing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
liabilities
|
|
|
731,847
|
|
|
|
209,214
|
|
|
|
375,309
|
|
|
|
296,455
|
|
|
|
162,638
|
|
|
|
243,166
|
|
|
|
89,132
|
|
|
|
2,107,761
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
rate sensitivity Gap
|
|
$ |
(25,198 |
) |
|
$ |
4,172
|
|
|
$ |
(187,051 |
) |
|
$ |
117,831
|
|
|
$ |
261,527
|
|
|
$ |
166,763
|
|
|
$ |
4,856
|
|
|
$ |
342,900
|
|
Cumulative
interest rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
sensitivity
Gap
|
|
$ |
(25,198 |
) |
|
$ |
(21,026 |
) |
|
$ |
(208,077 |
) |
|
$ |
(90,246 |
) |
|
$ |
171,281
|
|
|
$ |
338,044
|
|
|
$ |
342,900
|
|
|
|
|
|
Cumulative
rate sensitive asset
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
to
rate sensitive liabilities
|
|
|
96.6 |
% |
|
|
97.8 |
% |
|
|
84.2 |
% |
|
|
94.4 |
% |
|
|
109.6 |
% |
|
|
116.7 |
% |
|
|
116.3 |
% |
|
|
|
|
Cumulative
Gap as a % of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
earning
assets
|
|
|
(1.0 |
)% |
|
|
(0.9 |
)% |
|
|
(8.5 |
)% |
|
|
(3.7 |
)% |
|
|
7.0 |
% |
|
|
13.8 |
% |
|
|
14.0 |
% |
|
|
|
|
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
been no 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 September 30,
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July
1 – July 31
|
|
|
67,188
|
|
|
$ |
25.76
|
|
|
|
67,188
|
|
|
|
113,201
|
|
August
1 – August 31
|
|
|
59,000
|
|
|
|
24.87
|
|
|
|
59,000
|
|
|
|
54,201
|
|
September
1 – September 30
|
|
|
8,065
|
|
|
|
26.70
|
|
|
|
8,065
|
|
|
|
46,136
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
134,253
|
|
|
$ |
25.43
|
|
|
|
134,253
|
|
|
|
|
|
Exhibit
No.
|
Description
|
|
|
3.1
|
Restated
Articles of Incorporation of Simmons First National Corporation
(incorporated by reference to Exhibit 3.1 to Simmons First
National
Corporation’s Quarterly Report on Form 10-Q for the Quarter ended June
30,
2007 (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)
|
|
|
|
|
|
|
|
|
|
November
8, 2007 |
|
|
/s/
J. Thomas May
|
|
|
|
|
J.
Thomas May
|
|
|
|
|
Chairman
and Chief
Executive Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November
8, 2007 |
|
|
/s/
Robert A. Fehlman
|
|
|
|
Robert
A. Fehlman
|
|
|
|
Executive
Vice President and Chief
Financial Officer
|
|
|
|
|
|
52