a5617986.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
(Mark
One)
T
|
Annual
Report Pursuant to Section 13 or 15(d) of the Exchange Act of
1934
|
For the fiscal year ended: December 31,
2007
or
£
|
Transition
Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
|
Commission
file number 0-6253
SIMMONS
FIRST NATIONAL CORPORATION
(Exact
name of registrant as specified in its charter)
Arkansas
|
71-0407808
|
(State
or other jurisdiction of
|
(I.R.S.
employer
|
incorporation
or organization)
|
identification
No.)
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|
|
501
Main Street, Pine Bluff, Arkansas
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71601
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(Address
of principal executive offices)
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(Zip
Code)
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(870)
541-1000
(Registrant's
telephone number, including area code)
Securities
registered pursuant to Section 12(b) of the Act:
Common
Stock, $0.01 par value
|
The
Nasdaq Stock Market®
|
(Title
of each class)
|
(Name
of each exchange on which
registered)
|
Securities
registered pursuant to Section 12(g) of the Act: None
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. £
Yes S
No
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. £ Yes S
No
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 if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant's knowledge in definitive proxy or in information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. £
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
aggregate market value of the Registrant’s Common Stock, par value $0.01 per
share, held by non-affiliates on June 30, 2007, was $347,617,887 based
upon the last trade price as reported on the Nasdaq Global Select Market® of
$27.59.
The number
of shares outstanding of the Registrant's Common Stock as of February 4, 2008
was 13,934,570.
Part III
is incorporated by reference from the Registrant's Proxy Statement relating to
the Annual Meeting of Shareholders to be held on April 8, 2008.
Introduction
The
Company has chosen to combine our Annual Report to Shareholders with our Form
10-K, which is a document that U.S. public companies file with the Securities
and Exchange Commission every year. Many readers are familiar with
“Part II” of the Form 10-K, as it contains the business information and
financial statements that were included in the financial sections of our past
Annual Reports. These portions include information about our business
that the Company believes will be of interest to investors. The
Company hopes investors will find it useful to have all of this information
available in a single document.
The
Securities and Exchange Commission allows the Company to report information in
the Form 10-K by “incorporated by reference” from another part of the Form 10-K,
or from the proxy statement. You will see that information is
“incorporated by reference” in various parts of our Form 10-K.
A more
detailed table of contents for the entire Form 10-K follows:
FORM
10-K INDEX
Part I
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|
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Item
1
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Business
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1
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Item
1A
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Risk
Factors
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6
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Item
1B
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Unresolved
Staff Comments
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7
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Item
2
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Properties
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7
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Item
3
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Legal
Proceedings
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7
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Item
4
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Submission
of Matters to a Vote of Security-Holders
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8
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Part II
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Item
5
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Market
for Registrant's Common Equity and Related Stockholder
Matters
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8
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Item
6
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Selected
Consolidated Financial Data
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10
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Item
7
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Management's
Discussion and Analysis of Financial Condition and
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|
|
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Results
of Operations
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12
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Item
7A
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Quantitative
and Qualitative Disclosures About Market Risk
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37
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Item
8
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Consolidated
Financial Statements and Supplementary Data
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40
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Item
9
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Changes
in and Disagreements with Accountants on Accounting and
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Financial
Disclosure
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72
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Item
9A
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Controls
and Procedures
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72
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Item
9B
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Other
Information
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72
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Part III
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Item
10
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Directors
and Executive Officers of the Company
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72
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Item
11
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Executive
Compensation
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72
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Item
12
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Security
Ownership of Certain Beneficial Owners and Management
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72
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Item
13
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Certain
Relationships and Related Transactions
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72
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Item
14
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Principal
Accounting Fees and Services
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72
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Part IV
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Item
15
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Exhibits
and Financial Statement Schedules
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73
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Signatures
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75
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PART
I
ITEM
1. BUSINESS
The
Company and the Banks
Simmons
First National Corporation (the “Company”) is a financial holding company
registered under the Bank Holding Company Act of 1956. The
Gramm-Leach-Bliley-Act ("GLB Act") has substantially increased the financial
activities that certain banks, bank holding companies, insurance companies and
securities brokerage companies are permitted to undertake. Under the
GLB Act, expanded activities in insurance underwriting, insurance sales,
securities brokerage and securities underwriting not previously allowed for
banks and bank holding companies are now permitted upon satisfaction of certain
guidelines concerning management, capitalization and satisfaction of the
applicable Community Reinvestment Act guidelines for the
banks. Generally these new activities are permitted for bank holding
companies whose banking subsidiaries are well managed, well capitalized and have
at least a satisfactory rating under the Community Reinvestment
Act. A bank holding company must apply to become a financial holding
company and the Board of Governors of the Federal Reserve System must approve
its application.
The
Company's application to become a financial holding company was approved by the
Board of Governors on March 13, 2000. The Company has reviewed
the new activities permitted under the Act. If the appropriate
opportunity presents itself, the Company is interested in expanding into other
financial services.
The
Company is a publicly traded financial holding company headquartered in Arkansas
with consolidated total assets of $2.7 billion, consolidated loans of $1.9
billion, consolidated deposits of $2.2 billion and total equity capital of $272
million as of December 31, 2007. The Company owns eight community
banks in Arkansas. The Company and its eight banking subsidiaries
conduct their operations through 86 offices, of which 83 are financial
centers, located in 48 communities in Arkansas.
Simmons
First National Bank (the “Bank”) is the Company’s lead bank. The Bank
is a national bank, which has been in operation since 1903. The
Bank's primary market area, with the exception of its nationally provided credit
card product, is Central and Western Arkansas. At December 31, 2007
the Bank had total assets of $1.3 billion, total loans of $914 million and
total deposits of $1.0 billion. Simmons First Trust Company N.A., a
wholly owned subsidiary of the Bank, performs the trust and fiduciary business
operations for the Bank as well as the Company. Simmons First Investment Group,
Inc. (“SFIG”), a wholly owned subsidiary of the Bank, which is a broker-dealer
registered with the Securities and Exchange Commission (“SEC”) and a member of
the National Association of Securities Dealers (“NASD”), performs the
broker-dealer operations of the Bank.
Simmons
First Bank of Jonesboro (“Simmons/Jonesboro”) is a state bank, which was
acquired in 1984. Simmons/Jonesboro’s primary market area is
Northeast Arkansas. At December 31, 2007, Simmons/Jonesboro had total
assets of $267 million, total loans of $217 million and total deposits of $236
million.
Simmons
First Bank of South Arkansas (“Simmons/South”) is a state bank, which was
acquired in 1984. Simmons/South’s primary market area is Southeast
Arkansas. At December 31, 2007, Simmons/South had total assets of
$147 million, total loans of $81 million and total deposits of $128
million.
Simmons
First Bank of Northwest Arkansas (“Simmons/Northwest”) is a state bank, which
was acquired in 1995. Simmons/Northwest’s primary market area is
Northwest Arkansas. At December 31, 2007, Simmons/Northwest had total
assets of $287 million, total loans of $214 million and total deposits of $243
million.
Simmons
First Bank of Russellville (“Simmons/Russellville”) is a state bank, which was
acquired in 1997. Simmons/Russellville’s primary market area is Russellville,
Arkansas. At December 31, 2007, Simmons/Russellville had total assets
of $195 million, total loans of $123 million and total deposits of $148
million.
Simmons
First Bank of Searcy (“Simmons/Searcy”) is a state bank, which was acquired in
1997. Simmons/Searcy’s primary market area is Searcy,
Arkansas. At December 31, 2007, Simmons/Searcy had total assets of
$142 million, total loans of $102 million and total deposits of $112
million.
Simmons
First Bank of El Dorado, N.A. (“Simmons/El Dorado”) is a national bank, which
was acquired in 1999. Simmons/El Dorado’s primary market area is
South Central Arkansas. At December 31, 2007, Simmons/El Dorado had
total assets of $243 million, total loans of $121 million and total deposits of
$212 million. Simmons First Bank of Hot Springs (“Simmons/Hot
Springs”) is a state bank, which was acquired in 2004. Simmons/Hot
Springs’ primary market area is Hot Springs, Arkansas. At December
31, 2007, Simmons/Hot Springs had total assets of $152 million, total loans of
$78 million and total deposits of $114 million.
The
Company's subsidiaries provide complete banking services to individuals and
businesses throughout the market areas they serve. Services include
consumer (credit card, student and other consumer), real estate (construction,
single family residential and other commercial) and commercial (commercial,
agriculture and financial institutions) loans, checking, savings and time
deposits, trust and investment management services, and securities and
investment services.
Loan
Risk Assessment
As part of
the ongoing risk assessment, the Company has an Asset Quality Review Committee
of management that meets quarterly to review the adequacy of the allowance for
loan losses. The Committee reviews the status of past due,
non-performing and other impaired loans, reserve ratios, and additional
performance indicators for all of its subsidiary banks. The allowance for loan
losses is determined based upon the aforementioned performance factors, and
adjustments are made accordingly. Also, an unallocated reserve is
established to compensate for the uncertainty in estimating loan losses,
including the possibility of improper risk ratings and specific reserve
allocations.
The Board
of Directors of each of the Company's subsidiary banks reviews the adequacy of
its allowance for loan losses on a monthly basis giving consideration to past
due loans, non-performing loans, other impaired loans, and current economic
conditions. The Company's loan review department monitors each of its
subsidiary bank's loan information monthly. In addition, the loan
review department prepares an analysis of the allowance for loan losses for each
subsidiary bank twice a year, and reports the results to the Company's Audit and
Security Committee. In order to verify the accuracy of the monthly
analysis of the allowance for loan losses, the loan review department performs
an on-site detailed review of each subsidiary bank's loan files on a semi-annual
basis. Additionally, the Company has instituted a Special Asset
Committee for the purpose of reviewing criticized loans in regard to collateral
adequacy, workout strategies, and proper reserve allocations.
Growth
Strategy
The
Company's growth strategy is to primarily focus on the state of
Arkansas. More specifically, the Company is interested in expansion
by opening new financial centers or by acquisitions of financial centers in
growth or strategic markets, preferably with assets totaling $200 million or
more. The Company added its first financial centers in the Arkansas
markets of North Little Rock, Beebe and Paragould during 2007. New
locations were opened in Little Rock and El Dorado during 2006. In
2005 the Company added three branch locations in the Little Rock/Conway
metropolitan area, one in the Fayetteville/Springdale/Rogers metropolitan area
and one in the Fort Smith metropolitan area. For 2008, the Company
plans to add a financial center in Little Rock, as well as a new headquarters
facility for Simmons/Northwest in Rogers. While new financial centers
can be dilutive to earnings in the short-term, the Company believes they will
reward shareholders in the intermediate and long-term. As completion
of its desired footprint within the state of Arkansas nears, the Company is
evaluating opportunities to expand into contiguous states.
With an
expanded presence in Arkansas, ongoing investments in technology, and enhanced
products and services, the Company is in position to meet the demands of
customers in the markets it serves.
Competition
The
activities engaged in by the Company and its subsidiaries are highly
competitive. In all aspects of its business, the Company encounters
intense competition from other banks, lending institutions, credit unions,
savings and loan associations, brokerage firms, mortgage companies, industrial
loan associations, finance companies, and several other financial and financial
service institutions. The amount of competition among commercial
banks and other financial institutions has increased significantly over the past
few years since the deregulation of the banking industry. The
Company's subsidiary banks actively compete with other banks and financial
institutions in their efforts to obtain deposits and make loans, in the scope
and type of services offered, in interest rates paid on time deposits and
charged on loans and in other aspects of commercial banking.
The
Company's banking subsidiaries are also in competition with major national and
international retail banking establishments, brokerage firms and other financial
institutions within and outside Arkansas. Competition with these
financial institutions is expected to increase, especially with the increase in
interstate banking.
Employees
As of
February 4, 2008, the Company and its subsidiaries had approximately 1,103 full
time equivalent employees. None of the employees is represented by
any union or similar groups, and the Company has not experienced any labor
disputes or strikes arising from any such organized labor groups. The
Company considers its relationship with its employees to be good.
Executive
Officers of the Company
The
following is a list of all executive officers of the Company. The
Board of Directors elects executive officers annually.
NAME
|
AGE
|
POSITION
|
YEARS SERVED
|
|
|
|
|
|
|
J.
Thomas May
|
61
|
Chairman
and Chief Executive Officer
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21
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David
L. Bartlett
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56
|
President
and Chief Operating Officer
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11
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|
Robert
A. Fehlman
|
43
|
Executive
Vice President and Chief Financial Officer
|
19
|
|
Marty
D. Casteel
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56
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Executive
Vice President
|
19
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|
Robert
C. Dill
|
64
|
Executive
Vice President, Marketing
|
41
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David
W. Garner
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38
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Senior
Vice President and Controller
|
10
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|
Tommie
K. Jones
|
60
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Senior
Vice President and Human Resources Director
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33
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|
L.
Ann Gill
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60
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Senior
Vice President and Auditor
|
42
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Kevin
J. Archer
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44
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Senior
Vice President/Credit Policy and Risk Assessment
|
12
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|
John
L. Rush
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73
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Secretary
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40
|
|
Board
of Directors of the Company
The
following is a list of the Board of Directors of the Company as of December 31,
2007, along with their principal occupation.
NAME
|
PRINCIPAL OCCUPATION
|
|
|
|
|
William
E. Clark II (1)
|
Chairman
and Chief Executive Officer
|
|
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CDI
Contractors, LLC
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|
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Steven
A. Cossé
|
Executive
Vice President and General Counsel
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Murphy
Oil Corporation
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Edward
Drilling (1)
|
President
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|
|
AT&T
Arkansas
|
|
|
|
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George
A. Makris, Jr.
|
President
|
|
|
M.K.
Distributors, Inc.
|
|
|
|
|
J.
Thomas May
|
Chairman
and Chief Executive Officer
|
|
|
Simmons
First National Corporation
|
|
|
|
|
W.
Scott McGeorge
|
President
|
|
|
Pine
Bluff Sand and Gravel Company
|
|
|
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Stanley
E. Reed
|
President
|
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Farm
Bureau Mutual Insurance of Arkansas
|
|
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Harry
L. Ryburn, D.D.S.
|
Orthodontist
(retired)
|
|
|
|
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Robert
L. Shoptaw
|
Chief
Executive Officer
|
|
|
Arkansas
Blue Cross and Blue Shield
|
|
|
|
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Henry
F. Trotter, Jr.
|
President
|
|
|
Trotter
Ford, Inc.; Trotter Auto, Inc.
|
|
|
|
|
(1) Mr.
Clark and Mr. Drilling were elected to the Board of Directors of the Company on
December 10, 2007, effective January 3, 2008.
SUPERVISION
AND REGULATION
The
Company
The
Company, as a bank holding company, is subject to both federal and state
regulation. Under federal law, a bank holding company generally must
obtain approval from the Board of Governors of the Federal Reserve System
("FRB") before acquiring ownership or control of the assets or stock of a bank
or a bank holding company. Prior to approval of any proposed
acquisition, the FRB will review the effect on competition of the proposed
acquisition, as well as other regulatory issues.
The
federal law generally prohibits a bank holding company from directly or
indirectly engaging in non-banking activities. This prohibition does
not include loan servicing, liquidating activities or other activities so
closely related to banking as to be a proper incident thereto. Bank
holding companies, including the Company, which have elected to qualify as
financial holding companies, are authorized to engage in financial activities.
Financial activities include any activity that is financial in nature or any
activity that is incidental or complimentary to a financial
activity.
As a
financial holding company, the Company is required to file with the FRB an
annual report and such additional information as may be required by
law. From time to time, the FRB examines the financial condition of
the Company and its subsidiaries. The FRB, through civil and criminal
sanctions, is authorized to exercise enforcement powers over bank holding
companies (including financial holding companies) and non-banking subsidiaries,
to limit activities that represent unsafe or unsound practices or constitute
violations of law.
The
Company is subject to certain laws and regulations of the state of Arkansas
applicable to financial and bank holding companies, including examination and
supervision by the Arkansas Bank Commissioner. Under Arkansas law, a
financial or bank holding company is prohibited from owning more than one
subsidiary bank, if any subsidiary bank owned by the holding company has been
chartered for less than five years and, further, requires the approval of the
Arkansas Bank Commissioner for any acquisition of more than 25% of the capital
stock of any other bank located in Arkansas. No bank acquisition may
be approved if, after such acquisition, the holding company would control,
directly or indirectly, banks having 25% of the total bank deposits in the state
of Arkansas, excluding deposits of other banks and public funds.
Legislation
enacted in 1994, allows bank holding companies (including financial holding
companies) from any state to acquire banks located in any state without regard
to state law, provided that the holding company (1) is adequately capitalized,
(2) is adequately managed, (3) would not control more than 10% of the insured
deposits in the United States or more than 30% of the insured deposits in such
state, and (4) such bank has been in existence at least five years if so
required by the applicable state law.
Subsidiary
Banks
The Bank,
Simmons/El Dorado and Simmons First Trust Company N.A., as national banking
associations, are subject to regulation and supervision, of which regular bank
examinations are a part, by the Office of the Comptroller of the Currency of the
United States ("OCC"). Simmons/Jonesboro, Simmons/South,
Simmons/Northwest and Simmons/Hot Springs, as state chartered banks, are subject
to the supervision and regulation, of which regular bank examinations are a
part, by the Federal Deposit Insurance Corporation ("FDIC") and the Arkansas
State Bank Department. Simmons/Russellville and Simmons/Searcy, as
state chartered member banks, are subject to the supervision and regulation, of
which regular bank examinations are a part, by the Federal Reserve Board and the
Arkansas State Bank Department. The lending powers of each of the
subsidiary banks are generally subject to certain restrictions, including the
amount, which may be lent to a single borrower.
Prior to
passage of the GLB Act in 1999, the subsidiary banks, with numerous exceptions,
were subject to the application of the laws of the state of Arkansas, regarding
the limitation of the maximum permissible interest rate on loans. The
Arkansas limitation for general loans was 5% over the Federal Reserve Discount
Rate, with an additional maximum limitation of 17% per annum for consumer loans
and credit sales. Certain loans secured by first liens on residential
real estate and certain loans controlled by federal law (e.g., guaranteed
student loans, SBA loans, etc.) were exempt from this limitation; however, a
substantial portion of the loans made by the subsidiary banks, including all
credit card loans, have historically been subject to this
limitation. The GLB Act included a provision which sets the maximum
interest rate on loans made in Arkansas, by banks with Arkansas as their home
state, at the greater of the rate authorized by Arkansas law or the highest rate
permitted by any of the out-of-state banks which maintain branches in
Arkansas. An action was brought in the Western District of Arkansas,
attacking the validity of the statute in 2000. Subsequently, the
District Court issued a decision upholding the statute, and during
October 2001, the Eighth Circuit Court of Appeals upheld the statute on
appeal. Thus, in the fourth quarter of 2001, the Company began to
implement the changes permitted by the GLB Act.
All of the
Company's subsidiary banks are members of the FDIC, which provides insurance on
deposits of each member bank up to applicable limits by the Deposit Insurance
Fund. For this protection, each bank pays a statutory assessment to
the FDIC each year.
Federal
law substantially restricts transactions between banks and their
affiliates. As a result, the Company's subsidiary banks are limited
in making extensions of credit to the Company, investing in the stock or other
securities of the Company and engaging in other financial transactions with the
Company. Those transactions, which are permitted, must generally be
undertaken on terms at least as favorable to the bank, as those prevailing in
comparable transactions with independent third parties.
Potential
Enforcement Action for Bank Holding Companies and Banks
Enforcement
proceedings seeking civil or criminal sanctions may be instituted against any
bank, any financial or bank holding company, any director, officer, employee or
agent of the bank or holding company, which is believed by the federal banking
agencies to be violating any administrative pronouncement or engaged in unsafe
and unsound practices. In addition, the FDIC may terminate the
insurance of accounts, upon determination that the insured institution has
engaged in certain wrongful conduct, or is in an unsound condition to continue
operations.
Risk-Weighted
Capital Requirements for the Company and the Banks
Since
1993, banking organizations (including financial holding companies, bank holding
companies and banks) were required to meet a minimum ratio of Total Capital to
Total Risk-Weighted Assets of 8%, of which at least 4% must be in the form of
Tier 1 Capital. A well-capitalized institution is one that has at
least a 10% "total risk-based capital" ratio. For a tabular summary
of the Company’s risk-weighted capital ratios, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations – Capital" and Note
19, Stockholders’ Equity, of the Notes to Consolidated Financial
Statements.
A banking
organization's qualifying total capital consists of two components: Tier 1
Capital and Tier 2 Capital. Tier 1 Capital is an amount
equal to the sum of common shareholders' equity, hybrid capital instruments
(instruments with characteristics of debt and equity) in an amount up to 25% of
Tier 1 Capital, certain preferred stock and the minority interest in the equity
accounts of consolidated subsidiaries. For bank holding companies and
financial holding companies, goodwill may not be included in Tier 1
Capital. Identifiable intangible assets may be included in
Tier 1 Capital for banking organizations, in accordance with certain
further requirements. At least 50% of the banking organization's
total regulatory capital must consist of Tier 1 Capital.
Tier 2
Capital is an amount equal to the sum of the qualifying portion of the allowance
for loan losses, certain preferred stock not included in Tier 1, hybrid capital
instruments (instruments with characteristics of debt and equity), certain
long-term debt securities and eligible term subordinated debt, in an amount up
to 50% of Tier 1 Capital. The eligibility of these items for
inclusion as Tier 2 Capital is subject to certain additional requirements and
limitations of the federal banking agencies.
Under the
risk-based capital guidelines, balance sheet assets and certain off-balance
sheet items, such as standby letters of credit, are assigned to one of four-risk
weight categories (0%, 20%, 50%, or 100%), according to the nature of the asset,
its collateral or the identity of the obligor or guarantor. The
aggregate amount in each risk category is adjusted by the risk weight assigned
to that category, to determine weighted values, which are then added to
determine the total risk-weighted assets for the banking
organization. For example, an asset, such as a commercial loan,
assigned to a 100% risk category, is included in risk-weighted assets at
its nominal face value, but a loan secured by a one-to-four family residence is
included at only 50% of its nominal face value. The applicable ratios
reflect capital, as so determined, divided by risk-weighted assets, as so
determined.
Federal
Deposit Insurance Corporation Improvement Act
The
Federal Deposit Insurance Corporation Improvement Act ("FDICIA"), enacted in
1991, requires the FDIC to increase assessment rates for insured banks and
authorizes one or more "special assessments," as necessary for the repayment of
funds borrowed by the FDIC or any other necessary purpose. As
directed in FDICIA, the FDIC has adopted a transitional risk-based assessment
system, under which the assessment rate for insured banks will vary, according
to the level of risk incurred in the bank's activities. The risk
category and risk-based assessment for a bank is determined from its
classification, pursuant to the regulation, as well capitalized, adequately
capitalized or undercapitalized.
FDICIA
substantially revised the bank regulatory provisions of the Federal Deposit
Insurance Act and other federal banking statutes, requiring federal banking
agencies to establish capital measures and classifications. Pursuant
to the regulations issued under FDICIA, a depository institution will be deemed
to be well capitalized if it significantly exceeds the minimum level required
for each relevant capital measure; adequately capitalized if it meets each such
measure; undercapitalized if it fails to meet any such measure; significantly
undercapitalized if it is significantly below any such measure; and critically
undercapitalized if it fails to meet any critical capital level set forth in
regulations. The federal banking agencies must promptly mandate corrective
actions by banks that fail to meet the capital and related requirements, in
order to minimize losses to the FDIC. The FDIC and OCC advised the
Company that the subsidiary banks have been classified as well capitalized under
these regulations.
The
federal banking agencies are required by FDICIA to prescribe standards for banks
and bank holding companies (including financial holding companies), relating to
operations and management, asset quality, earnings, stock valuation and
compensation. A bank or bank holding company that fails to comply
with such standards will be required to submit a plan designed to achieve
compliance. If no plan is submitted or the plan is not implemented,
the bank or holding company would become subject to additional regulatory action
or enforcement proceedings.
A variety
of other provisions included in FDICIA may affect the operations of the Company
and the subsidiary banks, including new reporting requirements, revised
regulatory standards for real estate lending, "truth in savings" provisions, and
the requirement that a depository institution give 90 days prior notice to
customers and regulatory authorities before closing any branch.
Available
Information
The
Company maintains an Internet website at www.simmonsfirst.com. On
this website under the section, investor relations – documents, the Company
makes its filings with the Securities and Exchange Commission available free of
charge. Additionally, the Company has adopted and posted on its
website a Code of Ethics that applies to its principal executive officer,
principal financial officer and principal accounting officer.
ITEM
1A. RISK
FACTORS
Investments
in the Company’s common stock involve risk. The market price of the
Company’s common stock may fluctuate significantly in response to a number of
factors, including:
•
|
changes
in securities analysts’ estimates of financial
performance
|
•
|
volatility
of stock market prices and volumes
|
•
|
rumors
or erroneous information
|
•
|
changes
in market valuations of similar
companies
|
•
|
changes
in interest rates
|
•
|
new
developments in the banking
industry
|
•
|
variations
in quarterly or annual operating
results
|
•
|
new
litigation or changes in existing
litigation
|
|
changes
in accounting policies or procedures as may be required by the Financial
Accounting Standards Board or other regulatory
agencies
|
If the
Company does not adjust to changes in the financial services industry, its
financial performance may suffer. The Company’s ability to maintain
its history of strong financial performance and return on investment to
shareholders will depend in part on its ability to expand its scope of available
financial services to its customers. In addition to other banks,
competitors include securities dealers, brokers, mortgage bankers, investment
advisors, and finance and insurance companies. The increasingly
competitive environment is, in part, a result of changes in regulation, changes
in technology and product delivery systems, and the accelerating pace of
consolidation among financial service providers.
Future
governmental regulation and legislation could limit growth. The
Company and its subsidiaries are subject to extensive state and federal
regulation, supervision and legislation that govern nearly every aspect of its
operations. Changes to these laws could affect the Company’s ability
to deliver or expand its services and diminish the value of its
business.
Changes in
interest rates could reduce income and cash flow. The Company’s
income and cash flow depends to a great extent on the difference between the
interest earned on loans and investment securities, and the interest paid on
deposits and other borrowings. Interest rates are beyond the
Company’s control, and they fluctuate in response to general economic conditions
and the policies of various governmental and regulatory agencies, in particular,
the Federal Reserve Board. Changes in monetary policy, including
changes in interest rates, will influence the origination of loans, the purchase
of investments, the generation of deposits and the rates received on loans and
investment securities and paid on deposits.
Additional
risks and uncertainties could have a negative effect on the financial
performance of the Company and the Company’s common stock. Some of
these factors are general economic and financial market conditions, competition,
continuing consolidation in the financial services industry, new litigation or
changes in existing litigation, regulatory actions, and losses.
ITEM
1B.
|
UNRESOLVED
STAFF COMMENTS
|
There are
currently no unresolved Commission staff comments.
The
principal offices of the Company and the Bank consist of an eleven-story office
building and adjacent office space, located in the central business district of
the city of Pine Bluff, Arkansas. Additionally, the Company has
corporate offices located in Little Rock, Arkansas.
The
Company and its subsidiaries own or lease additional offices throughout the
state of Arkansas. The Company and its eight banks conduct financial
operations from 86 offices, of which 83 are financial centers, in
48 communities throughout Arkansas.
ITEM
3.
|
LEGAL
PROCEEDINGS
|
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.
ITEM
4.
|
SUBMISSION
OF MATTERS TO A VOTE OF
SECURITY-HOLDERS
|
No matters
were submitted to a vote of security-holders, through the solicitation of
proxies or otherwise, during the fourth quarter of the fiscal year covered by
this report.
PART
II
ITEM
5.
|
MARKET
FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
|
|
|
|
|
|
|
|
|
Quarterly
|
|
|
|
Price
Per
|
|
|
Dividends
|
|
|
|
Common
Share
|
|
|
Per
Common
|
|
|
|
High
|
|
|
Low
|
|
|
Share
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
1st
quarter
|
|
$ |
32.19 |
|
|
$ |
25.33 |
|
|
$ |
0.18 |
|
2nd
quarter
|
|
|
30.49 |
|
|
|
25.75 |
|
|
|
0.18 |
|
3rd
quarter
|
|
|
29.00 |
|
|
|
22.33 |
|
|
|
0.18 |
|
4th
quarter
|
|
|
29.48 |
|
|
|
23.81 |
|
|
|
0.19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
1st
quarter
|
|
$ |
29.76 |
|
|
$ |
27.50 |
|
|
$ |
0.16 |
|
2nd
quarter
|
|
|
30.36 |
|
|
|
25.00 |
|
|
|
0.17 |
|
3rd
quarter
|
|
|
30.26 |
|
|
|
26.31 |
|
|
|
0.17 |
|
4th
quarter
|
|
|
32.97 |
|
|
|
28.01 |
|
|
|
0.18 |
|
As of
February 4, 2008, there were 1,400 shareholders of record of the Company’s
Common Stock.
The
Company's policy is to declare regular quarterly dividends based upon the
Company's earnings, financial position, capital requirements and such other
factors deemed relevant by the Board of Directors. This dividend
policy is subject to change, however, and the payment of dividends by the
Company is necessarily dependent upon the availability of earnings and the
Company's financial condition in the future. The payment of dividends
on the Common Stock is also subject to regulatory capital
requirements.
The
Company's principal source of funds for dividend payments to its stockholders is
dividends received from its subsidiary banks. Under applicable
banking laws, the declaration of dividends by the Bank and Simmons/El Dorado in
any year, in excess of its net profits, as defined, for that year, combined with
its retained net profits of the preceding two years, must be approved by the
Office of the Comptroller of the Currency. Further, as to
Simmons/Jonesboro, Simmons/Northwest, Simmons/South, Simmons/Hot Springs,
Simmons/Russellville and Simmons/Searcy regulators have specified that the
maximum dividends state banks may pay to the parent company without prior
approval is 75% of the current year earnings plus 75% of the retained net
earnings of the preceding year. At December 31, 2007, approximately
$10.7 million was available for the payment of dividends by the subsidiary banks
without regulatory approval. For further discussion of restrictions
on the payment of dividends, see "Quantitative and Qualitative Disclosures About
Market Risk – Liquidity and Market Risk Management," and Note 19, Stockholders’
Equity, of Notes to Consolidated Financial Statements.
Stock
Repurchase
The
Company made the following purchases of its common stock during the three months
ended December 31, 2007:
|
|
|
|
|
|
|
|
Total
Number
|
|
|
Maximum
|
|
|
|
|
|
|
|
|
|
of
Shares
|
|
|
Number
of
|
|
|
|
Total
Number
|
|
|
Average
|
|
|
Purchased
as
|
|
|
Shares
that May
|
|
|
|
of
Shares
|
|
|
Price
Paid
|
|
|
Part of Publicly
|
|
|
Yet
be Purchased
|
|
Period
|
|
Purchased
|
|
|
Per Share
|
|
|
Announced Plans
|
|
|
Under the Plans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October
1 – October 31
|
|
|
8,247 |
|
|
|
27.00 |
|
|
|
8,247 |
|
|
|
37,889 |
|
November
1 – November 30
|
|
|
9,500 |
|
|
|
25.71 |
|
|
|
9,500 |
|
|
|
699,000 |
|
December
1 – December 31
|
|
|
8,148 |
|
|
|
26.55 |
|
|
|
8,148 |
|
|
|
690,852 |
|
Total
|
|
|
25,895 |
|
|
$ |
26.38 |
|
|
|
25,895 |
|
|
|
|
|
At the
beginning of the calendar year 2007, the Company had a stock repurchase program
which authorized the repurchase of up to 733,485 shares of common
stock. On November 28, 2007, the Company announced the substantial
completion of the existing stock repurchase program and the adoption by the
Board of Directors of a new stock repurchase program. The new program
authorizes the repurchase of up to 700,000 shares of Class A common stock, or
approximately 5% of the outstanding common stock. Under the
repurchase program, there is no time limit for the stock repurchases, nor is
there a minimum number of shares the Company intends to
repurchase. The Company may discontinue purchases at any time that
management determines additional purchases are not warranted. The
shares are to be purchased from time to time at prevailing market prices,
through open market or unsolicited negotiated transactions, depending upon
market conditions. The Company intends to use the repurchased shares
to satisfy stock option exercise, payment of future stock dividends and general
corporate purposes.
Performance
Graph
The
performance graph below compares the cumulative total shareholder return on the
Company’s Common Stock with the cumulative total return on the equity securities
of companies included in the NASDAQ Bank Stock Index and the S&P 500 Stock
Index. The graph assumes an investment of $100 on December 31, 2002
and reinvestment of dividends on the date of payment without
commissions. The performance graph represents past performance and
should not be considered to be an indication of future performance.
|
|
|
Period
Ending
|
|
|
Index
|
12/31/02
|
12/31/03
|
12/31/04
|
12/31/05
|
12/31/06
|
12/31/07
|
|
Simmons
First National Corporation
|
100.00
|
154.04
|
165.29
|
161.87
|
187.82
|
162.89
|
|
NASDAQ
Bank Index
|
100.00
|
129.93
|
144.21
|
137.97
|
153.15
|
119.35
|
|
S&P
500 Index
|
100.00
|
128.68
|
142.69
|
149.70
|
173.34
|
182.86
|
Forward
Looking Statements
Certain
statements contained in this Annual Report may not be based on historical facts
and are “forward-looking statements” within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. These forward-looking statements may be
identified by reference to a future period(s) or by the use of forward-looking
terminology, such as “anticipate,” “estimate,” “expect,” “foresee,” “may,”
“might,” “will,” “would,” “could” or “intend,” future or conditional verb
tenses, and variations or negatives of such terms. These
forward-looking statements include, without limitation, those relating to the
Company’s future growth, revenue, assets, asset quality, profitability and
customer service, critical accounting policies, net interest margin,
non-interest revenue, market conditions related to the Company’s stock
repurchase program, allowance for loan losses, the effect of certain new
accounting standards on the Company’s financial statements, income tax
deductions, credit quality, the level of credit losses from lending commitments,
net interest revenue, interest rate sensitivity, loan loss experience,
liquidity, capital resources, market risk, earnings, effect of pending
litigation, acquisition strategy, legal and regulatory limitations and
compliance and competition.
We caution
the reader not to place undue reliance on the forward-looking statements
contained in this Report in that actual results could differ materially from
those indicated in such forward-looking statements, due to a variety of
factors. These factors include, but are not limited to, changes in
the Company’s operating or expansion strategy, availability of and costs
associated with obtaining adequate and timely sources of liquidity, the ability
to maintain credit quality, possible adverse rulings, judgments, settlements and
other outcomes of pending litigation, including Visa 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.
ITEM
6.
|
SELECTED
CONSOLIDATED FINANCIAL DATA
|
The
following table sets forth selected consolidated financial data concerning the
Company and is qualified in its entirety by the detailed information and
consolidated financial statements, including notes thereto, included
elsewhere in this report. The income statement, balance sheet
and per common share data as of and for the years ended December 31, 2007,
2006, 2005, 2004, and 2003 were derived from consolidated financial statements
of the Company, which were audited by BKD, LLP. The selected
consolidated financial data set forth below should be read in conjunction with
the financial statements of the Company and related notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this report.
|
|
SELECTED CONSOLIDATED FINANCIAL
DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31 (1)
|
|
(In
thousands,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
except per share data)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
statement data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income
|
|
$ |
92,116 |
|
|
$ |
88,804 |
|
|
$ |
90,257 |
|
|
$ |
85,636 |
|
|
$ |
77,870 |
|
Provision
for loan losses
|
|
|
4,181 |
|
|
|
3,762 |
|
|
|
7,526 |
|
|
|
8,027 |
|
|
|
8,786 |
|
Net
interest income after provision
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
for
loan losses
|
|
|
87,935 |
|
|
|
85,042 |
|
|
|
82,731 |
|
|
|
77,609 |
|
|
|
69,084 |
|
Non-interest
income
|
|
|
46,003 |
|
|
|
43,947 |
|
|
|
42,318 |
|
|
|
40,705 |
|
|
|
38,717 |
|
Non-interest
expense
|
|
|
94,197 |
|
|
|
89,068 |
|
|
|
85,584 |
|
|
|
82,385 |
|
|
|
73,117 |
|
Provision
for income taxes
|
|
|
12,381 |
|
|
|
12,440 |
|
|
|
12,503 |
|
|
|
11,483 |
|
|
|
10,894 |
|
Net
income
|
|
|
27,360 |
|
|
|
27,481 |
|
|
|
26,962 |
|
|
|
24,446 |
|
|
|
23,790 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per
share data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings
|
|
|
1.95 |
|
|
|
1.93 |
|
|
|
1.88 |
|
|
|
1.68 |
|
|
|
1.69 |
|
Diluted
earnings
|
|
|
1.92 |
|
|
|
1.90 |
|
|
|
1.84 |
|
|
|
1.65 |
|
|
|
1.65 |
|
Diluted
operating earnings (2)
|
|
|
1.97 |
|
|
|
1.90 |
|
|
|
1.84 |
|
|
|
1.68 |
|
|
|
1.62 |
|
Book
value
|
|
|
19.57 |
|
|
|
18.24 |
|
|
|
17.04 |
|
|
|
16.29 |
|
|
|
14.89 |
|
Dividends
|
|
|
0.73 |
|
|
|
0.68 |
|
|
|
0.61 |
|
|
|
0.57 |
|
|
|
0.53 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
sheet data at period end:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
2,692,447 |
|
|
|
2,651,413 |
|
|
|
2,523,768 |
|
|
|
2,413,944 |
|
|
|
2,235,778 |
|
Loans
|
|
|
1,850,454 |
|
|
|
1,783,495 |
|
|
|
1,718,107 |
|
|
|
1,571,376 |
|
|
|
1,418,314 |
|
Allowance
for loan losses
|
|
|
25,303 |
|
|
|
25,385 |
|
|
|
26,923 |
|
|
|
26,508 |
|
|
|
25,347 |
|
Deposits
|
|
|
2,182,857 |
|
|
|
2,175,531 |
|
|
|
2,059,958 |
|
|
|
1,959,195 |
|
|
|
1,803,468 |
|
Long-term
debt
|
|
|
82,285 |
|
|
|
83,311 |
|
|
|
87,020 |
|
|
|
94,663 |
|
|
|
100,916 |
|
Stockholders’
equity
|
|
|
272,406 |
|
|
|
259,016 |
|
|
|
244,085 |
|
|
|
238,222 |
|
|
|
209,995 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
ratios at period end:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
equity to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
total
assets
|
|
|
10.12 |
% |
|
|
9.75 |
% |
|
|
9.67 |
% |
|
|
9.87 |
% |
|
|
9.39 |
% |
Leverage
(3)
|
|
|
9.06 |
% |
|
|
8.83 |
% |
|
|
8.62 |
% |
|
|
8.46 |
% |
|
|
9.89 |
% |
Tier
1
|
|
|
12.43 |
% |
|
|
12.38 |
% |
|
|
12.26 |
% |
|
|
12.72 |
% |
|
|
14.12 |
% |
Total
risk-based
|
|
|
13.69 |
% |
|
|
13.64 |
% |
|
|
13.54 |
% |
|
|
14.00 |
% |
|
|
15.40 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected
ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return
on average assets
|
|
|
1.03 |
% |
|
|
1.07 |
% |
|
|
1.08 |
% |
|
|
1.03 |
% |
|
|
1.18 |
% |
Return
on average equity
|
|
|
10.26 |
% |
|
|
10.93 |
% |
|
|
11.24 |
% |
|
|
10.64 |
% |
|
|
11.57 |
% |
Return
on average tangible equity (4)
|
|
|
13.78 |
% |
|
|
15.03 |
% |
|
|
15.79 |
% |
|
|
14.94 |
% |
|
|
14.03 |
% |
Net
interest margin (5)
|
|
|
3.96 |
% |
|
|
3.96 |
% |
|
|
4.13 |
% |
|
|
4.08 |
% |
|
|
4.34 |
% |
Allowance/nonperforming
loans
|
|
|
226.10 |
% |
|
|
234.05 |
% |
|
|
319.48 |
% |
|
|
220.84 |
% |
|
|
219.13 |
% |
Allowance
for loan losses as a
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
percentage
of period-end loans
|
|
|
1.37 |
% |
|
|
1.42 |
% |
|
|
1.57 |
% |
|
|
1.69 |
% |
|
|
1.79 |
% |
Nonperforming
loans as a percentage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of
period-end loans
|
|
|
0.60 |
% |
|
|
0.56 |
% |
|
|
0.49 |
% |
|
|
0.76 |
% |
|
|
0.82 |
% |
Net
charge-offs as a percentage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of
average total assets
|
|
|
0.16 |
% |
|
|
0.15 |
% |
|
|
0.28 |
% |
|
|
0.34 |
% |
|
|
0.41 |
% |
Dividend
payout
|
|
|
38.02 |
% |
|
|
35.79 |
% |
|
|
33.15 |
% |
|
|
38.80 |
% |
|
|
31.14 |
% |
|
(1) The
selected consolidated financial data set forth above should be read in
conjunction with the financial statements of the Company and related
Management’s Discussion and Analysis of Financial Condition and Results of
Operations, included elsewhere in this report.
(2)
Diluted operating earnings exclude the following nonrecurring
items. In 2007, the Company recorded a $0.05 reduction in EPS from
litigation expense associated with the recognition of certain contingent
liabilities related to Visa, Inc.’s litigation. In 2004, the Company
recorded a $0.03 reduction in EPS from the write off of deferred debt issuance
cost associated with the redemption of trust preferred securities. In
2003, the Company recorded a $0.03 addition to EPS resulting from the sale of
its mortgage servicing portfolio.
(3)
Leverage ratio is Tier 1 capital to quarterly average total assets less
intangible assets and gross unrealized gains/losses on available-for-sale
investments.
(4)
Tangible calculations eliminate the effect of goodwill and acquisition related
intangible assets and the corresponding amortization expense on a tax-effected
basis where applicable.
(5) Fully
taxable equivalent (assuming an income tax rate of 37.5%).
ITEM
7.
|
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
|
Simmons
First National Corporation recorded net income of $27,360,000 for the year ended
December 31, 2007, a 0.4% decrease from net income of $27,481,000 in
2006. Net income in 2005 was $26,962,000. Diluted earnings
per share increased $0.02, or 1.1%, to $1.92 in 2007 compared to $1.90 in
2006. Diluted earnings per share in 2005 were $1.84. The
Company’s return on average assets and return on average stockholders’ equity
for the year ended December 31, 2007, were 1.03% and 10.26%, compared to 1.07%
and 10.93%, respectively, for the year ended 2006.
Operating
earnings (net income less nonrecurring items) for the years ended December 31,
2007, and 2006, were $28,104,000 and $27,481,000,
respectively. Diluted operating earnings per share for these same
periods were $1.97 and $1.90, respectively, an increase of $0.07 per share,
or 3.7%. During the fourth quarter 2007, the Company recorded a
nonrecurring $744,000 after tax charge, or a $0.05 reduction in diluted earnings
per share, related to indemnification obligations with Visa U.S.A.
litigation. For further discussion related to the Visa U.S.A.
litigation, see the analysis of “Non-Interest Expense” included elsewhere in
this section.
At
December 31, 2007, the Company’s loan portfolio totaled $1.850 billion, which is
a $67.0 million, or 3.8%, increase from the same period last
year. This increase is due primarily to a $29 million, or 11.8%,
increase in commercial loans and a $23 million, or 15.8%, increase in credit
cards. Loan growth was somewhat mitigated by a $16 million decline in
development and construction loans due to a slow down in the industry, and a $9
million decline in student loans due to early sales in order to avoid
consolidation lenders.
Asset
quality remained strong with the allowance for loan losses at 1.37% of total
loans and 226% of non-performing loans at December 31, 2007. The
Company does not own any securities backed by subprime mortgage assets, and has
no mortgage loan products that target subprime borrowers; therefore, our
financial results and asset quality have not been significantly affected by the
current subprime mortgage crisis.
Total
assets for the Company at December 31, 2007, were $2.692 billion, an increase of
$41 million, or 1.5%, over the period ended December 31,
2006. Stockholders’ equity as of December 31, 2007 was $272 million,
an increase of $13.4 million, or approximately 5.2%, from December 31,
2006.
Simmons
First National Corporation is an Arkansas based, Arkansas committed financial
holding company with $2.7 billion in assets and 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, in 48
communities.
Critical Accounting Policies
Overview
The
accounting and reporting policies followed by the Company conform, in all
material respects, to generally accepted accounting principles and to general
practices within the financial services industry. The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. While
the Company bases estimates on historical experience, current information and
other factors deemed to be relevant, actual results could differ from those
estimates.
The
Company considers accounting estimates to be critical to reported financial
results if (i) the accounting estimate requires management to make assumptions
about matters that are highly uncertain and (ii) different estimates that
management reasonably could have used for the accounting estimate in the current
period, or changes in the accounting estimate that are reasonably likely to
occur from period to period, could have a material impact on the Company’s
financial statements.
The
accounting policies that we view as critical to us are those relating to
estimates and judgments regarding (a) the determination of the adequacy of the
allowance for loan losses, (b) the valuation of goodwill and the useful lives
applied to intangible assets, (c) the valuation of employee benefit plans, and
(d) income taxes.
Allowance
for Loan Losses
The
allowance for loan losses is established as losses are estimated to have
occurred through a provision for loan losses charged to income. Loan
losses are charged against the allowance when management believes the
uncollectability of a loan balance is confirmed. Subsequent
recoveries, if any, are credited to the allowance.
The
allowance is maintained at a level considered adequate to provide for potential
loan losses related to specifically identified loans as well as probable credit
losses inherent in the remainder of the loan portfolio that have been incurred
as of period end. This estimate is based on management's evaluation
of the loan portfolio, as well as on prevailing and anticipated economic
conditions and historical losses by loan category. General reserves
have been established, based upon the aforementioned factors and allocated to
the individual loan categories. Allowances are accrued on specific
loans evaluated for impairment for which the basis of each loan, including
accrued interest, exceeds the discounted amount of expected future collections
of interest and principal or, alternatively, the fair value of loan
collateral. The unallocated reserve generally serves to compensate
for the uncertainty in estimating loan losses, including the possibility of
changes in risk ratings and specific reserve allocations in the loan portfolio
as a result of the Company’s ongoing risk management system.
A loan is
considered impaired when it is probable that the Company will not receive all
amounts due according to the contractual terms of the loan. This
includes loans that are delinquent 90 days or more, nonaccrual loans and certain
other loans identified by management. Certain other loans identified
by management consist of performing loans with specific allocations of the
allowance for loan losses. Specific allocations are applied when
quantifiable factors are present requiring a greater allocation than that
established using the classified asset approach, as defined by the Office of the
Comptroller of the Currency. Accrual of interest is discontinued and
interest accrued and unpaid is removed at the time such amounts are delinquent
90 days, unless management is aware of circumstances which warrant continuing
the interest accrual. Interest is recognized for nonaccrual loans
only upon receipt and only after all principal amounts are current according to
the terms of the contract.
Goodwill
and Intangible Assets
Goodwill
represents the excess of the cost of an acquisition over the fair value of the
net assets acquired. Other intangible assets represent purchased
assets that also lack physical substance but can be separately distinguished
from goodwill because of contractual or other legal rights or because the asset
is capable of being sold or exchanged either on its own or in combination with a
related contract, asset, or liability. The Company performs an annual
goodwill impairment test in accordance with Financial Accounting Standards Board
(“FASB”) Statement No. 142 (“SFAS No. 142”), which requires that goodwill and
intangible assets that have indefinite lives no longer be amortized but be
reviewed for impairment annually, or more frequently if certain conditions
occur. Prior to the adoption of SFAS No. 142, goodwill was being
amortized using the straight-line method over a period of 15
years. Impairment losses on recorded goodwill, if any, will be
recorded as operating expenses.
Employee
Benefit Plans
The
Company has adopted various stock-based compensation plans. The plans
provide for the grant of incentive stock options, nonqualified stock options,
stock appreciation rights, and bonus stock awards. Pursuant to the
plans, shares are reserved for future issuance by the Company, upon exercise of
stock options or awarding of bonus shares granted to directors, officers and
other key employees.
In
accordance with FASB Statement No. 123, Share-Based Payment (Revised 2004)
(“SFAS No. 123R), the fair value of each option award is estimated on the date
of grant using the Black-Scholes option-pricing model that uses various
assumptions. This model requires the input of highly subjective assumptions,
changes to which can materially affect the fair value estimate. For
additional information, see Note 11, Employee Benefit Plans, in the accompanying
Notes to Consolidated Financial Statements included elsewhere in this
report.
Income
Taxes
The
Company is subject to the federal income tax laws of the United States, and the
tax laws of the states and other jurisdictions where it conducts
business. Due to the complexity of these laws, taxpayers and the
taxing authorities may subject these laws to different
interpretations. Management must make conclusions and estimates about
the application of these innately intricate laws, related regulations, and case
law. When preparing the Company’s tax returns, management attempts to
make reasonable interpretations of the tax laws. Taxing authorities have the
ability to challenge management’s analysis of the tax law or any
reinterpretation management makes in its ongoing assessment of facts and the
developing case law. Management assesses the reasonableness of its
effective tax rate quarterly based on its current estimate of net income and the
applicable taxes expected for the full year. On a quarterly basis,
management also reviews circumstances and developments in tax law affecting the
reasonableness of deferred tax assets and liabilities and reserves for
contingent tax liabilities.
On
November 1, 2005, the Company completed a branch purchase in which Bank of
Little Rock sold its Southwest Little Rock, Arkansas location at 8500 Geyer
Springs Road to Simmons First National Bank, a subsidiary of the
Company. The acquisition included approximately $3.5 million in total
deposits in addition to the fixed assets used in the branch
operation. No loans were involved in the transaction. As a
result of this transaction, the Company recorded additional goodwill and core
deposit premiums of $151,000 and $31,000, respectively.
The system
integration for the 2005 acquisition was completed on the acquisition
date.
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
Federal Reserve Board sets various benchmark rates, including the Federal Funds
rate, and thereby influences the general market rates of interest, including the
deposit and loan rates offered by financial institutions. The
Company’s loan portfolio is significantly affected by changes in the prime
interest rate. The prime interest rate, which is the rate offered on
loans to borrowers with strong credit, began 2005 at 5.25% and increased 50
basis points in each of the four quarters to end the year at
7.25%. During 2006, the prime interest rate increased 50 basis points
in the first quarter and 50 basis points in the second quarter to end the year
at 8.25%. During 2007, the prime interest rate decreased 50 basis
points in the third quarter and 50 basis points in the fourth quarter to end the
year at 7.25%. The Federal Funds rate, which is the cost to banks of
immediately available overnight funds, began 2005 at 2.25%. During
2005, the Federal Funds rate increased 50 basis points in each of the four
quarters to end the year at 4.25%. During 2006, the Federal
Funds rate increased 50 basis points in the first quarter and 50 basis points in
the second quarter to end the year at 5.25%. During 2007, the Federal
Funds rate decreased 50 basis points in the third quarter and 50 basis points in
the fourth quarter to end the year at 4.25%.
The
Company’s practice is to limit exposure to interest rate movements by
maintaining a significant portion of earning assets and interest bearing
liabilities in short-term repricing. Historically, approximately
70% of the Company’s loan portfolio and approximately 80% of the Company’s
time deposits have repriced in one year or less. These historical
percentages are consistent with the Company’s current interest rate
sensitivity.
For the
year ended December 31, 2007, net interest income on a fully taxable equivalent
basis was $95.6 million, an increase of $3.6 million, or 3.9%, from the
same period in 2006. The increase in net interest income was the result of a
$15.5 million increase in interest income offset by an $11.9 million increase in
interest expense. As a result, the net interest margin was 3.96% for
the year ended December 31, 2007, unchanged from 2006.
The $15.5
million increase in interest income for 2007 is primarily the result of a 39
basis point increase in the yield on earning assets associated with the
repricing to a higher interest rate environment, along with a growth in
loans. The higher interest rates resulted in a $8.5 million increase
in interest income. More specifically, $5.1 million of the increase
is 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. Another $3.3 million of the increase
was due to the repricing of the investment portfolio that resulted from
investments that matured during the period or were tied to a rate that
fluctuated with changes in market rates. As a result, the average
rate earned on the loan portfolio increased 29 basis points from
7.50% to 7.79%, and the average rate on the investment portfolio
increased 68 basis points from 4.41% to 5.09%. The growth in average loans
accounted for an increase of $6.3 million in interest income.
The $11.9
million increase in interest expense for 2007 is primarily the result of a 45
basis point increase in the cost of funds due to competitive repricing during a
higher interest rate environment, coupled with a $76 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 $9.8
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. As a result of
this repricing, the average rate paid on time deposits increased 61 basis points
from 4.05% to 4.66%. The higher level of average interest bearing
liabilities resulted in a $3.2 million increase in interest
expense. More specifically, the higher level of average interest
bearing liabilities was primarily the result of increases of approximately $70.7
million from internal deposit growth.
For the
year ended December 31, 2006, net interest income on a fully taxable equivalent
basis was $92.0 million, a decrease of $1.5 million, or 1.6%, from the same
period in 2005. The decrease in net interest income was the result of
a $20.2 million increase in interest income offset by a $21.7 million increase
in interest expense. As a result, the net interest margin decreased
17 basis points to 3.96% for the year ended December 31, 2006, when compared to
4.13% for 2005.
During
January 2008, the federal funds rate and the prime interest rate each decreased
125 basis points to 3.00% and 6.00%, respectively. The Company
currently believes it is reasonably possible the federal funds rate and the
prime interest rate will decrease further in the foreseeable future; however,
there can be no assurance to that effect or as to the magnitude of any decrease
should a decrease occur, as changes in market interest rates are dependent upon
a variety of factors that are beyond the Company’s control. The
Company’ interest rate risk model reflects a slight margin compression for
approximately 60 days, then turning positive. Due to the previously
mentioned rate decreases and uncertainty of future rate movements, the Company
anticipates a flat to slightly declining margin during 2008.
Tables 1
and 2 reflect an analysis of net interest income on a fully taxable equivalent
basis for the years ended December 31, 2007, 2006 and 2005, respectively, as
well as changes in fully taxable equivalent net interest margin for the years
2007 versus 2006 and 2006 versus 2005.
Table
1:
|
Analysis
of Net Interest Income
|
(FTE
=Fully Taxable Equivalent)
|
|
Years Ended December 31
|
|
(In thousands)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
$ |
168,536 |
|
|
$ |
153,362 |
|
|
$ |
133,071 |
|
FTE
adjustment
|
|
|
3,463 |
|
|
|
3,185 |
|
|
|
3,234 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income - FTE
|
|
|
171,999 |
|
|
|
156,547 |
|
|
|
136,305 |
|
Interest
expense
|
|
|
76,420 |
|
|
|
64,558 |
|
|
|
42,814 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income - FTE
|
|
$ |
95,579 |
|
|
$ |
91,989 |
|
|
$ |
93,491 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Yield
on earning assets - FTE
|
|
|
7.13 |
% |
|
|
6.74 |
% |
|
|
6.02 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of interest bearing liabilities
|
|
|
3.69 |
% |
|
|
3.24 |
% |
|
|
2.21 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest spread - FTE
|
|
|
3.44 |
% |
|
|
3.50 |
% |
|
|
3.81 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest margin - FTE
|
|
|
3.96 |
% |
|
|
3.96 |
% |
|
|
4.13 |
% |
Table
2:
|
Changes
in Fully Taxable Equivalent Net Interest
Margin
|
(In thousands)
|
|
2007 vs. 2006
|
|
|
2006 vs. 2005
|
|
|
|
|
|
|
|
|
Increase
due to change in earning assets
|
|
$ |
6,959 |
|
|
$ |
5,056 |
|
Increase
due to change in earning asset yields
|
|
|
8,496 |
|
|
|
15,186 |
|
Decrease
due to change in interest rates paid on
|
|
|
|
|
|
|
|
|
interest
bearing liabilities
|
|
|
(8,638 |
) |
|
|
(19,813 |
) |
Decrease
due to change in interest bearing liabilities
|
|
|
(3,226 |
) |
|
|
(1,931 |
) |
|
|
|
|
|
|
|
|
|
Increase
(decrease) in net interest income
|
|
$ |
3,591 |
|
|
$ |
(1,502 |
) |
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 each of the years in the three-year period ended December 31,
2007. 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. Nonaccrual
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
|
|
Years Ended December 31
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
Average
|
|
|
Income/
|
|
|
Yield/
|
|
|
Average
|
|
|
Income/
|
|
|
Yield/
|
|
|
Average
|
|
|
Income/
|
|
|
Yield/
|
|
(In thousands)
|
|
Balance
|
|
|
Expense
|
|
|
Rate(%)
|
|
|
Balance
|
|
|
Expense
|
|
|
Rate(%)
|
|
|
Balance
|
|
|
Expense
|
|
|
Rate(%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earning
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
bearing balances
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
due
from banks
|
|
$ |
22,957 |
|
|
$ |
1,161 |
|
|
|
5.06 |
|
|
$ |
22,746 |
|
|
$ |
1,072 |
|
|
|
4.71 |
|
|
$ |
20,837 |
|
|
$ |
580 |
|
|
|
2.78 |
|
Federal
funds sold
|
|
|
26,798 |
|
|
|
1,418 |
|
|
|
5.29 |
|
|
|
20,223 |
|
|
|
1,057 |
|
|
|
5.23 |
|
|
|
30,598 |
|
|
|
925 |
|
|
|
3.02 |
|
Investment
securities - taxable
|
|
|
395,388 |
|
|
|
18,362 |
|
|
|
4.64 |
|
|
|
410,445 |
|
|
|
15,705 |
|
|
|
3.83 |
|
|
|
425,030 |
|
|
|
13,898 |
|
|
|
3.27 |
|
Investment
securities - non-taxable
|
|
|
131,369 |
|
|
|
8,454 |
|
|
|
6.44 |
|
|
|
117,931 |
|
|
|
7,573 |
|
|
|
6.42 |
|
|
|
122,047 |
|
|
|
7,670 |
|
|
|
6.28 |
|
Mortgage
loans held for sale
|
|
|
7,971 |
|
|
|
505 |
|
|
|
6.34 |
|
|
|
7,666 |
|
|
|
476 |
|
|
|
6.21 |
|
|
|
9,356 |
|
|
|
552 |
|
|
|
5.90 |
|
Assets
held in trading accounts
|
|
|
4,958 |
|
|
|
100 |
|
|
|
2.02 |
|
|
|
4,590 |
|
|
|
71 |
|
|
|
1.55 |
|
|
|
4,584 |
|
|
|
99 |
|
|
|
2.16 |
|
Loans
|
|
|
1,822,777 |
|
|
|
141,999 |
|
|
|
7.79 |
|
|
|
1,740,477 |
|
|
|
130,593 |
|
|
|
7.50 |
|
|
|
1,651,950 |
|
|
|
112,581 |
|
|
|
6.82 |
|
Total
interest earning assets
|
|
|
2,412,218 |
|
|
|
171,999 |
|
|
|
7.13 |
|
|
|
2,324,078 |
|
|
|
156,547 |
|
|
|
6.74 |
|
|
|
2,264,402 |
|
|
|
136,305 |
|
|
|
6.02 |
|
Non-earning
assets
|
|
|
254,656 |
|
|
|
|
|
|
|
|
|
|
|
251,261 |
|
|
|
|
|
|
|
|
|
|
|
233,132 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$ |
2,666,874 |
|
|
|
|
|
|
|
|
|
|
$ |
2,575,339 |
|
|
|
|
|
|
|
|
|
|
$ |
2,497,534 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
bearing liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
bearing transaction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
savings deposits
|
|
$ |
736,160 |
|
|
$ |
13,089 |
|
|
|
1.78 |
|
|
$ |
737,328 |
|
|
$ |
11,658 |
|
|
|
1.58 |
|
|
$ |
762,558 |
|
|
$ |
7,777 |
|
|
|
1.02 |
|
Time
deposits
|
|
|
1,124,557 |
|
|
|
52,385 |
|
|
|
4.66 |
|
|
|
1,052,705 |
|
|
|
42,592 |
|
|
|
4.05 |
|
|
|
950,820 |
|
|
|
26,431 |
|
|
|
2.78 |
|
Total
interest bearing deposits
|
|
|
1,860,717 |
|
|
|
65,474 |
|
|
|
3.52 |
|
|
|
1,790,033 |
|
|
|
54,250 |
|
|
|
3.03 |
|
|
|
1,713,378 |
|
|
|
34,208 |
|
|
|
2.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
funds purchased and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
securities
sold under agreement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
to
repurchase
|
|
|
113,167 |
|
|
|
5,371 |
|
|
|
4.75 |
|
|
|
100,280 |
|
|
|
4,615 |
|
|
|
4.60 |
|
|
|
102,041 |
|
|
|
3,104 |
|
|
|
3.04 |
|
Other
borrowed funds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term
debt
|
|
|
14,757 |
|
|
|
804 |
|
|
|
5.45 |
|
|
|
21,065 |
|
|
|
1,227 |
|
|
|
5.82 |
|
|
|
32,076 |
|
|
|
1,101 |
|
|
|
3.43 |
|
Long-term
debt
|
|
|
81,408 |
|
|
|
4,771 |
|
|
|
5.86 |
|
|
|
82,525 |
|
|
|
4,466 |
|
|
|
5.41 |
|
|
|
89,590 |
|
|
|
4,401 |
|
|
|
4.91 |
|
Total
interest bearing liabilities
|
|
|
2,070,049 |
|
|
|
76,420 |
|
|
|
3.69 |
|
|
|
1,993,903 |
|
|
|
64,558 |
|
|
|
3.24 |
|
|
|
1,937,085 |
|
|
|
42,814 |
|
|
|
2.21 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest
bearing liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest
bearing deposits
|
|
|
307,041 |
|
|
|
|
|
|
|
|
|
|
|
308,804 |
|
|
|
|
|
|
|
|
|
|
|
303,974 |
|
|
|
|
|
|
|
|
|
Other
liabilities
|
|
|
23,156 |
|
|
|
|
|
|
|
|
|
|
|
21,114 |
|
|
|
|
|
|
|
|
|
|
|
16,499 |
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
2,400,246 |
|
|
|
|
|
|
|
|
|
|
|
2,323,821 |
|
|
|
|
|
|
|
|
|
|
|
2,257,558 |
|
|
|
|
|
|
|
|
|
Stockholders’
equity
|
|
|
266,628 |
|
|
|
|
|
|
|
|
|
|
|
251,518 |
|
|
|
|
|
|
|
|
|
|
|
239,976 |
|
|
|
|
|
|
|
|
|
Total
liabilities and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
stockholders’
equity
|
|
$ |
2,666,874 |
|
|
|
|
|
|
|
|
|
|
$ |
2,575,339 |
|
|
|
|
|
|
|
|
|
|
$ |
2,497,534 |
|
|
|
|
|
|
|
|
|
Net
interest spread
|
|
|
|
|
|
|
|
|
|
|
3.44 |
|
|
|
|
|
|
|
|
|
|
|
3.50 |
|
|
|
|
|
|
|
|
|
|
|
3.81 |
|
Net
interest margin
|
|
|
|
|
|
$ |
95,579 |
|
|
|
3.96 |
|
|
|
|
|
|
$ |
91,989 |
|
|
|
3.96 |
|
|
|
|
|
|
$ |
93,491 |
|
|
|
4.13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table 4
shows changes in interest income and interest expense, resulting from changes in
volume and changes in interest rates for each of the years ended December 31,
2007 and 2006, as compared to prior years. 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
|
|
Years Ended December 31
|
|
|
|
2007 over 2006
|
|
|
2006 over 2005
|
|
(In
thousands, on a fully
|
|
|
|
|
Yield/
|
|
|
|
|
|
|
|
|
Yield/
|
|
|
|
|
taxable equivalent
basis)
|
|
Volume
|
|
|
Rate
|
|
|
Total
|
|
|
Volume
|
|
|
Rate
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
(decrease) in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
bearing balances
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
due
from banks
|
|
$ |
10 |
|
|
$ |
79 |
|
|
$ |
89 |
|
|
$ |
57 |
|
|
$ |
435 |
|
|
$ |
492 |
|
Federal
funds sold
|
|
|
348 |
|
|
|
13 |
|
|
|
361 |
|
|
|
(387 |
) |
|
|
518 |
|
|
|
131 |
|
Investment
securities - taxable
|
|
|
(594 |
) |
|
|
3,252 |
|
|
|
2,658 |
|
|
|
(491 |
) |
|
|
2,299 |
|
|
|
1,808 |
|
Investment
securities - non-taxable
|
|
|
865 |
|
|
|
17 |
|
|
|
882 |
|
|
|
(263 |
) |
|
|
166 |
|
|
|
(97 |
) |
Mortgage
loans held for sale
|
|
|
19 |
|
|
|
10 |
|
|
|
29 |
|
|
|
(104 |
) |
|
|
28 |
|
|
|
(76 |
) |
Assets
held in trading accounts
|
|
|
6 |
|
|
|
24 |
|
|
|
30 |
|
|
|
-- |
|
|
|
(28 |
) |
|
|
(28 |
) |
Loans
|
|
|
6,305 |
|
|
|
5,101 |
|
|
|
11,406 |
|
|
|
6,244 |
|
|
|
11,768 |
|
|
|
18,012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
6,959 |
|
|
|
8,496 |
|
|
|
15,455 |
|
|
|
5,056 |
|
|
|
15,186 |
|
|
|
20,242 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
bearing transaction and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
savings
deposits
|
|
|
(18 |
) |
|
|
1,450 |
|
|
|
1,432 |
|
|
|
(265 |
) |
|
|
4,145 |
|
|
|
3,880 |
|
Time
deposits
|
|
|
3,044 |
|
|
|
6,749 |
|
|
|
9,793 |
|
|
|
3,078 |
|
|
|
13,083 |
|
|
|
16,161 |
|
Federal
funds purchased
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
securities sold under
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
agreements
to repurchase
|
|
|
608 |
|
|
|
148 |
|
|
|
756 |
|
|
|
(55 |
) |
|
|
1,566 |
|
|
|
1,511 |
|
Other
borrowed funds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term
debt
|
|
|
(347 |
) |
|
|
(75 |
) |
|
|
(422 |
) |
|
|
(465 |
) |
|
|
591 |
|
|
|
126 |
|
Long-term
debt
|
|
|
(61 |
) |
|
|
366 |
|
|
|
305 |
|
|
|
(362 |
) |
|
|
428 |
|
|
|
66 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
3,226 |
|
|
|
8,638 |
|
|
|
11,864 |
|
|
|
1,931 |
|
|
|
19,813 |
|
|
|
21,744 |
|
Increase
(decrease) in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net
interest income
|
|
$ |
3,733 |
|
|
$ |
(142 |
) |
|
$ |
3,591 |
|
|
$ |
3,125 |
|
|
$ |
(4,627 |
) |
|
$ |
(1,502 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 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.
The
provision for loan losses for 2007, 2006 and 2005 was $4.2 million, $3.8 million
and $7.5 million, respectively. During 2007, the Company sustained a
low rate of net credit card charge-offs of 1.14%, allowing the provision to
remain at a level similar to that of 2006. However, the provision
increased somewhat due to an increase in non-performing assets and in net loan
charge-offs, particularly in the Northwest Arkansas region.
The
provision reduction from 2005 to 2006 was primarily driven by two
factors. First, credit card net charge-offs were down $2.6 million,
from $4.0 million in 2005 to $1.4 million in 2006. The Company
recorded credit card net charge-offs of 1.06% of credit card balances for 2006
compared to 2.85% for 2005. Second, there was improvement in the
credit quality of the loan portfolio, particularly due to the payoff of two
large credit relationships in 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 as
non-performing based upon various criteria; however, there were no specific
reserve allocations required for these loans. The provision for loan
losses was reduced due to the continued significant reduction in credit card
charge-offs and the improvement in credit quality of loans with specific
reserves.
Non-Interest
Income
Total
non-interest income was $46.0 million in 2007, compared to $43.9 million in 2006
and $42.3 million in 2005. Non-interest income is principally
derived from recurring fee income, which includes service charges, trust fees
and credit card fees. Non-interest income also includes income on the
sale of mortgage loans, investment banking income, premiums on sale of student
loans, income from the increase in cash surrender values of bank owned life
insurance, and gains (losses) from sales of securities.
Table 5
shows non-interest income for the years ended December 31, 2007, 2006 and 2005,
respectively, as well as changes in 2007 from 2006 and in 2006 from
2005.
Table
5: Non-Interest
Income
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
Years Ended December 31
|
|
|
Change
from
|
|
|
Change
from
|
|
(In thousands)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trust
income
|
|
$ |
6,218 |
|
|
$ |
5,612 |
|
|
$ |
5,589 |
|
|
$ |
606 |
|
|
|
10.80 |
% |
|
$ |
23 |
|
|
|
0.41 |
% |
Service
charges on deposit accounts
|
|
|
14,794 |
|
|
|
15,795 |
|
|
|
15,818 |
|
|
|
(1,001 |
) |
|
|
(6.34 |
) |
|
|
(23 |
) |
|
|
(0.15 |
) |
Other
service charges and fees
|
|
|
3,016 |
|
|
|
2,561 |
|
|
|
2,017 |
|
|
|
455 |
|
|
|
17.77 |
|
|
|
544 |
|
|
|
26.97 |
|
Income
on sale of mortgage loans, net of commissions
|
|
|
2,766 |
|
|
|
2,849 |
|
|
|
2,919 |
|
|
|
(83 |
) |
|
|
(2.91 |
) |
|
|
(70 |
) |
|
|
(2.40 |
) |
Income
on investment banking, net of commissions
|
|
|
623 |
|
|
|
341 |
|
|
|
416 |
|
|
|
282 |
|
|
|
82.70 |
|
|
|
(75 |
) |
|
|
(18.03 |
) |
Credit
card fees
|
|
|
12,217 |
|
|
|
10,742 |
|
|
|
10,252 |
|
|
|
1,475 |
|
|
|
13.73 |
|
|
|
490 |
|
|
|
4.78 |
|
Premiums
on sale of student loans
|
|
|
2,341 |
|
|
|
2,071 |
|
|
|
1,822 |
|
|
|
270 |
|
|
|
13.04 |
|
|
|
249 |
|
|
|
13.67 |
|
Bank
owned life insurance income
|
|
|
1,493 |
|
|
|
1,523 |
|
|
|
953 |
|
|
|
(30 |
) |
|
|
(1.97 |
) |
|
|
570 |
|
|
|
59.81 |
|
Other
income
|
|
|
2,535 |
|
|
|
2,453 |
|
|
|
2,700 |
|
|
|
82 |
|
|
|
3.34 |
|
|
|
(247 |
) |
|
|
(9.15 |
) |
Loss
on sale of securities, net
|
|
|
-- |
|
|
|
-- |
|
|
|
(168 |
) |
|
|
-- |
|
|
|
-- |
|
|
|
168 |
|
|
|
100.00 |
|
Total
non-interest income
|
|
$ |
46,003 |
|
|
$ |
43,947 |
|
|
$ |
42,318 |
|
|
$ |
2,056 |
|
|
|
4.68 |
% |
|
$ |
1,629 |
|
|
|
3.85 |
% |
Recurring
fee income for 2007 was $36.2 million, an increase of $1.5 million, or 4.4%,
when compared with the 2006 amounts. Trust income increased by
$606,000, mainly due to the addition of new customer
accounts. Service charges on deposit accounts decreased by $1.0
million, principally 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
$455,000, 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 $1.5 million, primarily due to
a higher volume of credit and debit card transactions.
Recurring
fee income for 2006 was $34.7 million, an increase of $1.0 million, or 3.0%,
when compared with the 2005 amounts. This increase was
principally the result of growth in ATM income due to increased volume and an
improvement in the fee structure. The increase in credit card fees
was primarily the result of a pricing change related to interchange fees, along
with an increase in transaction volume.
During the
year ended December 31, 2007, income on investment banking increased $282,000,
or 82.7% from the year ended 2006. This improvement was due to
additional sales volume driven by the yield curve and customers’ expectation of
future interest rate decreases.
Premiums
on sale of student loans increased by $270,000, or 13.0%, in 2007 over
2006. The increase was primarily due to accelerating the sale of
student loans during 2007. Normally, as student loans reach payout
status, the Company generally sells student loans into the secondary
market. Because of changes in the industry relative to loan
consolidations, and in order to protect the premium on these loans, the Company
made the decision to sell student loans prior to the payout
period. This resulted in recognition of premium in 2007 on loans that
normally would have been sold in 2008. Premiums on sale of student
loans increased by $249,000, or 13.7%, in 2006 over 2005 due to similar
accelerated sales during 2006.
On April
29, 2005, the Company invested an additional $25 million in Bank Owned Life
Insurance (“BOLI”). BOLI income increased by $570,000 in 2006 over
2005, primarily due to the timing of the investment, with approximately eight
months of earnings in 2005 compared to a full year in 2006. The
remainder of the increase can be attributed to an improved earnings credit on
the investment in 2006.
There were
no gains or losses on sale of securities during 2007 or 2006. During
the second quarter of 2005, the Company sold certain available-for-sale
investment securities obtained in a prior acquisition that did not fit its
current investment portfolio strategy. As a result of this
liquidation, the Company recognized an after-tax loss on sale of securities of
$168,000.
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 2007 was $94.2 million, an increase of $5.1 million or 5.8%, from
2006. The increase in non-interest expense during 2007 compared to
2006 is primarily attributed to normal on-going operating expenses and the
incremental expenses of approximately $634,000 associated with the operation of
new financial centers opened during 2007. Also, during 2007, the
Company recorded a nonrecurring expense of $1.2 million related to
indemnification obligations with Visa U.S.A. litigation. When
normalized for both the Visa litigation expense and the additional expenses from
the expansion, non-interest expense for 2007 increased by 3.7% over
2006.
Credit
card expense for 2007 increased $860,000, or 26.6%, over 2006, primarily due to
the increased volume in credit card applications, card creation, interchange and
other related expense resulting from initiatives the Company has taken to
stabilize its credit card portfolio. See Loan Portfolio section for
additional information.
Other
non-interest expense for 2007 increased $2.1 million, or 19.2%, compared to
2006. The most significant components of the increase were the $1.2
million in expense related to indemnification obligations with Visa U.S.A.
litigation and an increase of $442,000 of student loan origination fees paid by
the Company in 2007.
In October
2007, the Company, as a member of Visa U.S.A. Inc. (Visa U.S.A.), received
shares of restricted stock in Visa, Inc. (Visa) as a result of its participation
in the global restructuring of Visa U.S.A., Visa Canada Association, and Visa
International Service Association in preparation for an initial public
offering. Visa U.S.A asserts that the Company and other Visa U.S.A.
member banks are obligated to share in potential losses resulting from certain
litigation. As stated above, the Company accrued $1.2 million in 2007
in connection with the Company’s obligation to indemnify Visa U.S.A. for costs
and liabilities incurred in connection with certain litigation based on the
Company’s proportionate membership interest in Visa U.S.A. With
respect to the remaining litigation related to Visa U.S.A., at this time the
Company does not know the probable outcome of such litigation and cannot
reasonably estimate a range of loss. The Company will continue
to monitor these litigation matters and record any change in the liability
related to other litigation upon additional information becoming
available. Also as a result of the guidance from the SEC, the Company
will not reflect in its 2007 financial statements any value for its membership
interest in Visa as a result of the Visa Reorganization. Upon successful
completion of the anticipated IPO, expected to occur in the first half of 2008,
the fair value of such interest will be realized based on the value of shares
used to establish the escrow account and shares redeemed for cash (limited to
the amount of the obligation recorded). The Company expects the value
of these shares to exceed the aggregate amount of its recorded
liability. While the Company expects these events to occur, there can
be no assurance that the restructuring and initial public offering of Visa will
be successful and that the shares of Visa allocated to the Company will have
sufficient value to cover the Company’s obligations under the indemnification
agreement. Furthermore, additional accruals may be required in future
periods should the Company’s estimate of its obligations under the
indemnification agreement change.
As stated
above, the Company had a $442,000 increase in expense for payment of student
loan origination fees in 2007 from 2006. The Federal Student
Loan Program began a three-year phase out program of origination fees on its
loans late in 2006. 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 $558,000 of student loan origination fees during 2007, compared
to $116,000 in 2006, an increase of $442,000, or 381%. 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
Federal Deposit Insurance Reform Act of 2005 authorized eligible insured
depository institutions to share a one-time assessment credit
pool. Several of the Company’s subsidiary banks qualified for the
credit, and were not required to pay FDIC deposit insurance since that
time. However, during 2007, the credits at some of the banks were
depleted. Other subsidiary banks will deplete their credits during the first
half of 2008, resulting in an expected increase in deposit insurance expense of
approximately $400,000 during 2008, compared with 2007.
Non-interest
expense for 2006 was $89.1 million, an increase of $3.5 million or 4.1%, from
2005. The increase in non-interest expense during 2006 compared to
2005 is primarily attributed to normal on-going operating expenses and the
incremental expenses of approximately $1.1 million associated with the operation
of new financial centers opened during 2005 and 2006. When normalized
for the additional expenses from the expansion, non-interest expense for 2006
increased by 2.8% over 2005.
The
increase in credit card expense in 2006 over 2005 was primarily attributable to
the Company’s travel rewards program. Accumulated travel rewards
expire after 36 months. The Company has introduced several new
initiatives to make its product more competitive. One of the key
initiatives introduced in 2005 was to move as many qualifying accounts as
possible from a standard VISA product to a Platinum VISA Rewards
product. As a result of this conversion process, travel rewards
expense increased in 2006 over 2005.
Core
deposit premium amortization expense recorded for the years ended December 31,
2007, 2006 and 2005, was $817,000, $830,000 and $830,000,
respectively. The Company’s estimated amortization expense for each
of the following five years is: 2008 – $807,000; 2009 – $802,000;
2010 – $698,000; 2011 – $451,000; and 2012 – $321,000. The
estimated amortization expense decreases as core deposit premiums fully amortize
in future years.
Table 6
below shows non-interest expense for the years ended December 31, 2007, 2006 and
2005, respectively, as well as changes in 2007 from 2006 and in 2006 from
2005.
Table
6: Non-Interest
Expense
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
Years Ended December 31
|
|
|
Change
from
|
|
|
Change
from
|
|
(In thousands)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries
and employee benefits
|
|
$ |
54,865 |
|
|
$ |
53,442 |
|
|
$ |
51,270 |
|
|
$ |
1,423 |
|
|
|
2.66 |
% |
|
$ |
2,172 |
|
|
|
4.24 |
% |
Occupancy
expense, net
|
|
|
6,674 |
|
|
|
6,385 |
|
|
|
5,840 |
|
|
|
289 |
|
|
|
4.53 |
|
|
|
545 |
|
|
|
9.33 |
|
Furniture
and equipment expense
|
|
|
5,865 |
|
|
|
5,718 |
|
|
|
5,758 |
|
|
|
147 |
|
|
|
2.57 |
|
|
|
(40 |
) |
|
|
(0.69 |
) |
Loss
on foreclosed assets
|
|
|
212 |
|
|
|
136 |
|
|
|
191 |
|
|
|
76 |
|
|
|
55.88 |
|
|
|
(55 |
) |
|
|
(28.80 |
) |
Deposit
insurance
|
|
|
328 |
|
|
|
270 |
|
|
|
279 |
|
|
|
58 |
|
|
|
21.48 |
|
|
|
(9 |
) |
|
|
(3.23 |
) |
Other
operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Professional
services
|
|
|
2,779 |
|
|
|
2,490 |
|
|
|
2,201 |
|
|
|
289 |
|
|
|
11.61 |
|
|
|
289 |
|
|
|
13.13 |
|
Postage
|
|
|
2,309 |
|
|
|
2,278 |
|
|
|
2,281 |
|
|
|
31 |
|
|
|
1.36 |
|
|
|
(3 |
) |
|
|
(0.13 |
) |
Telephone
|
|
|
1,820 |
|
|
|
1,961 |
|
|
|
1,847 |
|
|
|
(141 |
) |
|
|
(7.19 |
) |
|
|
114 |
|
|
|
6.17 |
|
Credit
card expense
|
|
|
4,095 |
|
|
|
3,235 |
|
|
|
2,693 |
|
|
|
860 |
|
|
|
26.58 |
|
|
|
542 |
|
|
|
20.13 |
|
Operating
supplies
|
|
|
1,669 |
|
|
|
1,611 |
|
|
|
1,555 |
|
|
|
58 |
|
|
|
3.60 |
|
|
|
56 |
|
|
|
3.60 |
|
Amortization
of core deposits
|
|
|
817 |
|
|
|
830 |
|
|
|
830 |
|
|
|
(13 |
) |
|
|
(1.57 |
) |
|
|
-- |
|
|
|
0.00 |
|
Other
expense
|
|
|
12,764 |
|
|
|
10,712 |
|
|
|
10,839 |
|
|
|
2,052 |
|
|
|
19.16 |
|
|
|
(127 |
) |
|
|
(1.17 |
) |
Total
non-interest expense
|
|
$ |
94,197 |
|
|
$ |
89,068 |
|
|
$ |
85,584 |
|
|
$ |
5,129 |
|
|
|
5.76 |
% |
|
$ |
3,484 |
|
|
|
4.07 |
% |
Income
Taxes
The
provision for income taxes for 2007 was $12.4 million, compared to $12.4 million
in 2006 and $12.5 million in 2005. The effective income tax rates for
the years ended 2007, 2006 and 2005 were 31.2%, 31.2% and 31.7%,
respectively.
Loan
Portfolio
The
Company's loan portfolio averaged $1.823 billion during 2007 and $1.740 billion
during 2006. As of December 31, 2007, total loans were $1.850
billion, compared to $1.783 billion on 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
collectable 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 $379.9 million at December 31, 2007,
or 20.5% of total loans, compared to $370.8 million, or 20.8% of total loans at
December 31, 2006. The $9.2 million consumer loan increase from 2006
to 2007 is the result of a $22.7 million, or 15.8%, increase in credit cards,
offset by a decline in student loans and other consumer loans.
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 increased by a larger
increment each quarter of 2007, when compared to the same period in
2006.
After five
consecutive years of net decreases in the number of credit card accounts, the
Company experienced an addition of 1,650 net new accounts in
2006. The Company added approximately 15,000 net new accounts in
2007. 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 and uncertainty in the
economy, management cannot be assured that the growth trend can be
sustained.
As student
loans reach payout status, the Company generally sells these loans into the
secondary market. Because of changes in the industry relative to loan
consolidations, and in order to protect the premium, the Company made the
decision to sell some student loans prior to the payout period in 2006, and
continued the practice throughout 2007. These early sales created a
decline in the portfolio balance of student loans at December 31, 2007 and
2006.
Real
estate loans consist of construction loans, single family residential loans and
commercial loans. Real estate loans were $1.186 billion at December
31, 2007, or 64.1% of total loans, compared to $1.154 billion, or 64.7% of total
loans at December 31, 2006, an increase of $32 million. Commercial
real estate loans increased $29.8 million during 2007 and single-family
residential loans increased by $18.2 million. Real estate loan growth
was somewhat mitigated by a $16.5 million, or 5.9%, reduction in real estate
development and construction loans due to the slow down in the
industry.
Commercial
loans consist of commercial loans, agricultural loans and financial institution
loans. Commercial loans were $274.0 million at December 31, 2007, or
14.8% of total loans, compared to the $245.1 million, or 13.7% of total
loans at December 31, 2006. This $28.9 million increase in commercial
loans is primarily due to a $15.1 million increase in other commercial loans and
an $11.1 million increase in agricultural loans.
The
amounts of loans outstanding at the indicated dates are reflected in table 7,
according to type of loan.
Table
7: Loan
Portfolio
|
|
Years
Ended December 31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit
cards
|
|
$ |
166,044 |
|
|
$ |
143,359 |
|
|
$ |
143,058 |
|
|
$ |
155,326 |
|
|
$ |
165,919 |
|
Student
loans
|
|
|
76,277 |
|
|
|
84,831 |
|
|
|
89,818 |
|
|
|
83,283 |
|
|
|
86,301 |
|
Other
consumer
|
|
|
137,624 |
|
|
|
142,596 |
|
|
|
138,051 |
|
|
|
128,552 |
|
|
|
142,995 |
|
Real
Estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
260,924 |
|
|
|
277,411 |
|
|
|
238,898 |
|
|
|
169,001 |
|
|
|
111,567 |
|
Single
family residential
|
|
|
382,676 |
|
|
|
364,450 |
|
|
|
340,839 |
|
|
|
318,488 |
|
|
|
261,936 |
|
Other
commercial
|
|
|
542,184 |
|
|
|
512,404 |
|
|
|
479,684 |
|
|
|
481,728 |
|
|
|
408,452 |
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
193,091 |
|
|
|
178,028 |
|
|
|
184,920 |
|
|
|
158,613 |
|
|
|
162,122 |
|
Agricultural
|
|
|
73,470 |
|
|
|
62,293 |
|
|
|
68,761 |
|
|
|
62,340 |
|
|
|
57,393 |
|
Financial
institutions
|
|
|
7,440 |
|
|
|
4,766 |
|
|
|
20,499 |
|
|
|
1,079 |
|
|
|
6,370 |
|
Other
|
|
|
10,724 |
|
|
|
13,357 |
|
|
|
13,579 |
|
|
|
12,966 |
|
|
|
15,259 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
loans
|
|
$ |
1,850,454 |
|
|
$ |
1,783,495 |
|
|
$ |
1,718,107 |
|
|
$ |
1,571,376 |
|
|
$ |
1,418,314 |
|
Table 8
reflects the remaining maturities and interest rate sensitivity of loans at
December 31, 2007.
Table
8: Maturity
and Interest Rate Sensitivity of Loans
|
|
|
|
|
Over
1
|
|
|
|
|
|
|
|
|
|
|
|
|
year
|
|
|
|
|
|
|
|
|
|
1
year
|
|
|
through
|
|
|
Over
|
|
|
|
|
(In thousands)
|
|
or less
|
|
|
5 years
|
|
|
5 years
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
$ |
303,577 |
|
|
$ |
75,652 |
|
|
$ |
716 |
|
|
$ |
379,945 |
|
Real
estate
|
|
|
715,745 |
|
|
|
444,462 |
|
|
|
25,577 |
|
|
|
1,185,784 |
|
Commercial
|
|
|
215,246 |
|
|
|
57,558 |
|
|
|
1,197 |
|
|
|
274,001 |
|
Other
|
|
|
5,327 |
|
|
|
4,947 |
|
|
|
450 |
|
|
|
10,724 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
1,239,895 |
|
|
$ |
582,619 |
|
|
$ |
27,940 |
|
|
$ |
1,850,454 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predetermined
rate
|
|
$ |
669,830 |
|
|
$ |
520,576 |
|
|
$ |
27,768 |
|
|
$ |
1,218,174 |
|
Floating
rate
|
|
|
570,065 |
|
|
|
62,043 |
|
|
|
172 |
|
|
|
632,280 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
1,239,895 |
|
|
$ |
582,619 |
|
|
$ |
27,940 |
|
|
$ |
1,850,454 |
|
Asset Quality
A loan is
considered impaired when it is probable that the Company will not receive all
amounts due according to the contracted terms of the loans. Impaired
loans include non-performing loans (loans past due 90 days or more and
nonaccrual loans) and certain other loans identified by management that are
still performing.
Non-performing
loans are comprised of (a) nonaccrual loans, (b) loans that are contractually
past due 90 days and (c) other loans for which terms have been
restructured to provide a reduction or deferral of interest or principal,
because of deterioration in the financial position of the
borrower. The subsidiary banks recognize income principally on the
accrual basis of accounting. When loans are classified as nonaccrual,
generally, the accrued interest is charged off and no further interest is
accrued. Loans, excluding credit card loans, are placed on a
nonaccrual basis either: (1) when there are serious doubts regarding the
collectability of principal or interest, or (2) when payment of interest or
principal is 90 days or more past due and either (i) not fully secured or
(ii) not in the process of collection. If a loan is determined by
management to be uncollectable, the portion of the loan determined to be
uncollectable is then charged to the allowance for loan losses.
Credit
card loans are classified as impaired when payment of interest or principal is
90 days past due. Litigation accounts are placed on nonaccrual until
such time as deemed uncollectable. 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
uncollectable.
Table 9
presents information concerning non-performing assets, including nonaccrual and
restructured loans and other real estate owned.
Table
9: Non-performing
Assets
|
|
Years Ended December 31
|
|
(In thousands)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonaccrual
loans
|
|
$ |
9,909 |
|
|
$ |
8,958 |
|
|
$ |
7,296 |
|
|
$ |
10,918 |
|
|
$ |
10,049 |
|
Loans
past due 90 days or more
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(principal
or interest payments)
|
|
|
1,282 |
|
|
|
1,097 |
|
|
|
1,131 |
|
|
|
1,085 |
|
|
|
1,518 |
|
Restructured
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
Total
non-performing loans
|
|
|
11,191 |
|
|
|
10,055 |
|
|
|
8,427 |
|
|
|
12,003 |
|
|
|
11,567 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
non-performing assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreclosed
assets held for sale
|
|
|
2,629 |
|
|
|
1,940 |
|
|
|
1,540 |
|
|
|
1,839 |
|
|
|
2,979 |
|
Other
non-performing assets
|
|
|
17 |
|
|
|
52 |
|
|
|
16 |
|
|
|
83 |
|
|
|
393 |
|
Total
other non-performing assets
|
|
|
2,646 |
|
|
|
1,992 |
|
|
|
1,556 |
|
|
|
1,922 |
|
|
|
3,372 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
non-performing assets
|
|
$ |
13,837 |
|
|
$ |
12,047 |
|
|
$ |
9,983 |
|
|
$ |
13,925 |
|
|
$ |
14,939 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for loan losses to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
non-performing
loans
|
|
|
226.10 |
% |
|
|
252.46 |
% |
|
|
319.48 |
% |
|
|
220.84 |
% |
|
|
219.13 |
% |
Non-performing
loans to total loans
|
|
|
0.60 |
% |
|
|
0.56 |
% |
|
|
0.49 |
% |
|
|
0.76 |
% |
|
|
0.82 |
% |
Non-performing
assets to total assets
|
|
|
0.51 |
% |
|
|
0.45 |
% |
|
|
0.40 |
% |
|
|
0.58 |
% |
|
|
0.67 |
% |
There was
no interest income on the nonaccrual loans recorded for the years ended
December 31, 2007, 2006 and 2005.
At
December 31, 2007, impaired loans were $12.5 million compared to $12.8 million
in 2006. On an ongoing basis, management evaluates the underlying
collateral on all impaired loans and allocates specific reserves, where
appropriate, in order to absorb potential losses if the collateral were
ultimately foreclosed.
Allowance for Loan
Losses
Overview
The
Company maintains an allowance for loan losses. This allowance is
created through charges to income and maintained at a sufficient level to absorb
expected losses in the Company’s loan portfolio. The allowance for
loan losses is determined monthly based on management’s assessment of several
factors such as 1) historical loss experience based on volumes and types of
loans, 2) reviews or evaluations of the loan portfolio and allowance for loan
losses, 3) trends in volume, maturity and composition of the portfolio, 4)
off balance sheet credit risk, 5) volume and trends in delinquent and nonaccrual
loans, 6) lending policies and procedures including those for loan losses,
collections and recoveries, 7) national and local economic trends and
conditions, 8) concentrations of credit that might affect loss experience across
one or more components of the loan portfolio, 9) the experience, ability and
depth of lending management and staff and 10) other factors and trends, which
will affect specific loans or 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 for the last five years is shown in
table 10.
Table
10: Allowance
for Loan Losses
(In thousands)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
beginning of year
|
|
$ |
25,385 |
|
|
$ |
26,923 |
|
|
$ |
26,508 |
|
|
$ |
25,347 |
|
|
$ |
21,948 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
charged off
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit
card
|
|
|
2,663 |
|
|
|
2,454 |
|
|
|
4,950 |
|
|
|
4,589 |
|
|
|
4,705 |
|
Other
consumer
|
|
|
1,538 |
|
|
|
1,242 |
|
|
|
1,240 |
|
|
|
2,144 |
|
|
|
1,987 |
|
Real
estate
|
|
|
1,916 |
|
|
|
1,868 |
|
|
|
1,048 |
|
|
|
1,263 |
|
|
|
1,504 |
|
Commercial
|
|
|
715 |
|
|
|
1,317 |
|
|
|
3,688 |
|
|
|
2,409 |
|
|
|
2,674 |
|
Total
loans charged off
|
|
|
6,832 |
|
|
|
6,881 |
|
|
|
10,926 |
|
|
|
10,405 |
|
|
|
10,870 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recoveries
of loans previously charged off
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit
card
|
|
|
1,024 |
|
|
|
1,040 |
|
|
|
832 |
|
|
|
720 |
|
|
|
670 |
|
Other
consumer
|
|
|
483 |
|
|
|
629 |
|
|
|
636 |
|
|
|
683 |
|
|
|
644 |
|
Real
estate
|
|
|
648 |
|
|
|
901 |
|
|
|
251 |
|
|
|
277 |
|
|
|
218 |
|
Commercial
|
|
|
414 |
|
|
|
536 |
|
|
|
2,096 |
|
|
|
751 |
|
|
|
987 |
|
Total
recoveries
|
|
|
2,569 |
|
|
|
3,106 |
|
|
|
3,815 |
|
|
|
2,431 |
|
|
|
2,519 |
|
Net
loans charged off
|
|
|
4,263 |
|
|
|
3,775 |
|
|
|
7,111 |
|
|
|
7,974 |
|
|
|
8,351 |
|
Allowance
for loan losses of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
acquired
institutions
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
1,108 |
|
|
|
2,964 |
|
Reclass
to reserve for unfunded commitments (1)
|
|
|
-- |
|
|
|
(1,525 |
) |
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
Provision
for loan losses
|
|
|
4,181 |
|
|
|
3,762 |
|
|
|
7,526 |
|
|
|
8,027 |
|
|
|
8,786 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
end of year
|
|
$ |
25,303 |
|
|
$ |
25,385 |
|
|
$ |
26,923 |
|
|
$ |
26,508 |
|
|
$ |
25,347 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
charge-offs to average loans
|
|
|
0.23 |
% |
|
|
0.22 |
% |
|
|
0.43 |
% |
|
|
0.52 |
% |
|
|
0.64 |
% |
Allowance
for loan losses to period-end loans
|
|
|
1.37 |
% |
|
|
1.42 |
% |
|
|
1.57 |
% |
|
|
1.69 |
% |
|
|
1.79 |
% |
Allowance
for loan losses to net charge-offs
|
|
|
593.55 |
% |
|
|
672.45 |
% |
|
|
378.6 |
% |
|
|
332.4 |
% |
|
|
303.5 |
% |
|
(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 each year 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 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 interest rate volatility predicated
by the Federal Reserve’s adjustments to the prime index over the past
twenty-four months, the effect of fuel prices on the commercial and consumer
markets, uncertainty in the residential housing market and other loan sectors
which may be exhibiting weaknesses, further justifies the need for unallocated
reserves.
As of
December 31, 2007, the allowance for loan losses reflects a decrease of
approximately $82,000 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’s allocation of the allowance for loans losses at December 31, 2007
remained relatively consistent with the allocation at December 31,
2006. The unallocated portion of the allowance decreased
approximately $501,000 during the year ended December 31,
2007. This decrease in the unallocated portion of the allowance
is primarily related to increases in general allocations based on growth in the
loan portfolio.
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 its analysis of loans within
these business sectors, the Company believes the allowance for loan losses is
adequate for the year ended December 31, 2007. Management actively
monitors the status of these industries as they relate to the Company’s loan
portfolio and makes changes to the allowance for loan losses as
necessary.
The
Company allocates the allowance for loan losses according to the amount deemed
to be reasonably necessary to provide for losses incurred within the categories
of loans set forth in table 11.
Table
11: Allocation
of Allowance for Loan Losses
|
|
December 31
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
Allowance
|
|
|
%
of
|
|
|
Allowance
|
|
|
%
of
|
|
|
Allowance
|
|
|
%
of
|
|
|
Allowance
|
|
|
%
of
|
|
|
Allowance
|
|
|
%
of
|
|
(In thousands)
|
|
Amount
|
|
|
loans(1)
|
|
|
Amount
|
|
|
loans(1)
|
|
|
Amount
|
|
|
loans(1)
|
|
|
Amount
|
|
|
loans(1)
|
|
|
Amount
|
|
|
loans(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit
cards
|
|
$ |
3,841 |
|
|
|
9.0 |
% |
|
$ |
3,702 |
|
|
|
8.0 |
% |
|
$ |
3,887 |
|
|
|
8.3 |
% |
|
$ |
4,217 |
|
|
|
9.9 |
% |
|
$ |
3,913 |
|
|
|
11.7 |
% |
Other
consumer
|
|
|
1,501 |
|
|
|
11.5 |
% |
|
|
1,402 |
|
|
|
12.8 |
% |
|
|
1,158 |
|
|
|
13.3 |
% |
|
|
1,097 |
|
|
|
13.5 |
% |
|
|
1,597 |
|
|
|
16.2 |
% |
Real
estate
|
|
|
10,157 |
|
|
|
64.1 |
% |
|
|
9,835 |
|
|
|
64.7 |
% |
|
|
9,870 |
|
|
|
61.7 |
% |
|
|
9,357 |
|
|
|
61.7 |
% |
|
|
8,723 |
|
|
|
55.1 |
% |
Commercial
|
|
|
2,528 |
|
|
|
14.8 |
% |
|
|
2,856 |
|
|
|
13.7 |
% |
|
|
5,857 |
|
|
|
15.9 |
% |
|
|
4,820 |
|
|
|
14.1 |
% |
|
|
5,113 |
|
|
|
15.9 |
% |
Other
|
|
|
187 |
|
|
|
0.6 |
% |
|
|
-- |
|
|
|
0.8 |
% |
|
|
-- |
|
|
|
0.8 |
% |
|
|
-- |
|
|
|
0.8 |
% |
|
|
4 |
|
|
|
1.1 |
% |
Unallocated
|
|
|
7,089 |
|
|
|
|
|
|
|
7,590 |
|
|
|
|
|
|
|
6,151 |
|
|
|
|
|
|
|
7,017 |
|
|
|
|
|
|
|
5,997 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
25,303 |
|
|
|
100.0 |
% |
|
$ |
25,385 |
|
|
|
100.0 |
% |
|
$ |
26,923 |
|
|
|
100.0 |
% |
|
$ |
26,508 |
|
|
|
100.0 |
% |
|
$ |
25,347 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
Percentage of loans in each category to total
loans
|
Investments and
Securities
The
Company's securities portfolio is the second largest component of earning assets
and provides a significant source of revenue. Securities within the
portfolio are classified as either held-to-maturity, available-for-sale or
trading.
Held-to-maturity
securities, which include any security for which management has the positive
intent and ability to hold until maturity, are carried at historical cost,
adjusted for amortization of premiums and accretion of
discounts. Premiums and discounts are amortized and accreted,
respectively, to interest income using the constant yield method over the period
to maturity. Interest and dividends on investments in debt and equity
securities are included in income when earned.
Available-for-sale
securities, which include any security for which management has no immediate
plans to sell, but which may be sold in the future, are carried at fair
value. Realized gains and losses, based on amortized cost of the
specific security, are included in other income. Unrealized gains and
losses are recorded, net of related income tax effects, in stockholders'
equity. Premiums and discounts are amortized and accreted,
respectively, to interest income, using the constant yield method over the
period to maturity. Interest and dividends on investments in debt and
equity securities are included in income when earned.
The
Company's philosophy regarding investments is conservative, based on investment
type and maturity. Investments in the portfolio primarily include
U.S. Treasury securities, U.S. Government agencies, mortgage-backed securities
and municipal securities. The Company's general policy is not to
invest in derivative type investments or high-risk securities, except for
collateralized mortgage-backed securities for which collection of principal and
interest is not subordinated to significant superior rights held by
others.
Held-to-maturity
and available-for-sale investment securities were $190.3 million and $340.6
million, respectively, at December 31, 2007, compared to the
held-to-maturity amount of $179.9 million and available-for-sale amount of
$347.2 million at December 31, 2006.
As of
December 31, 2007, $38.5 million, or 20.2%, of the held-to-maturity securities
were invested in U.S. Treasury securities and obligations of U.S. government
agencies, 29.9% of which will mature in less than five years. In the
available-for-sale securities, $323.5 million, or 95.8%, were in U.S. Treasury
and U.S. government agency securities, 41.8% of which will mature in less than
five years.
In order
to reduce the Company's income tax burden, an additional $149.3 million, or
78.4%, of the held-to-maturity securities portfolio, as of December 31, 2007,
was invested in tax-exempt obligations of state and political
subdivisions. In the available-for-sale securities, $858,000, or
0.25% were invested in tax-exempt obligations of state and political
subdivisions. Most of the state and political subdivision debt
obligations are non-rated bonds and represent relatively small, Arkansas issues,
which are evaluated on an ongoing basis. There are no securities of
any one state and political subdivision issuer exceeding ten percent of the
Company's stockholders' equity at December 31, 2007.
The
Company has approximately $129,000, or 0.1%, in mortgaged-backed securities in
the held-to-maturity portfolio at December 31, 2007. In the
available-for-sale securities, $2.8 million, or 0.9% were invested in
mortgaged-backed securities.
As of
December 31, 2007, the held-to-maturity investment portfolio had gross
unrealized gains of $1.827 million and gross unrealized losses of
$373,000.
The
Company had no gross realized gains during the years ended December 31, 2007,
2006 and 2005, resulting from the sales and/or calls of
securities. There were no gross realized losses resulting from sales
and/or calls of securities for the years ended December 31, 2007
and 2006, with $275,000 of gross realized losses during
2005.
Trading
securities, which include any security held primarily for near-term sale, are
carried at fair value. Gains and losses on trading securities are
included in other income. The Company's trading account is
established and maintained for the benefit of investment banking. The
trading account is typically used to provide inventory for resale and is not
used to take advantage of short-term price movements.
Table 12
presents the carrying value and fair value of investment securities for each of
the years indicated.
Table
12: Investment
Securities
|
|
Years Ended December 31
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
Estimated
|
|
|
|
|
|
|
|
|
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 |
|
|
$ |
14 |
|
|
$ |
-- |
|
|
$ |
1,514 |
|
|
$ |
-- |
|
|
$ |
-- |
|
|
$ |
-- |
|
|
$ |
-- |
|
U.S.
Government
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
agencies
|
|
|
37,000 |
|
|
|
722 |
|
|
|
(19 |
) |
|
|
37,703 |
|
|
|
54,998 |
|
|
|
367 |
|
|
|
(272 |
) |
|
|
55,093 |
|
Mortgage-backed
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
securities
|
|
|
129 |
|
|
|
2 |
|
|
|
-- |
|
|
|
131 |
|
|
|
155 |
|
|
|
3 |
|
|
|
(1 |
) |
|
|
157 |
|
State
and political
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
subdivisions
|
|
|
149,262 |
|
|
|
1,089 |
|
|
|
(354 |
) |
|
|
149,997 |
|
|
|
122,472 |
|
|
|
667 |
|
|
|
(892 |
) |
|
|
122,247 |
|
Other
securities
|
|
|
2,393 |
|
|
|
-- |
|
|
|
-- |
|
|
|
2,393 |
|
|
|
2,319 |
|
|
|
-- |
|
|
|
-- |
|
|
|
2,319 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
190,284 |
|
|
$ |
1,827 |
|
|
$ |
(373 |
) |
|
$ |
191,738 |
|
|
$ |
179,944 |
|
|
$ |
1,037 |
|
|
$ |
(1,165 |
) |
|
$ |
179,816 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-Sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Treasury
|
|
$ |
5,498 |
|
|
$ |
26 |
|
|
$ |
-- |
|
|
$ |
5,524 |
|
|
$ |
6,970 |
|
|
$ |
-- |
|
|
$ |
(30 |
) |
|
$ |
6,940 |
|
U.S.
Government
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
agencies
|
|
|
317,998 |
|
|
|
3,090 |
|
|
|
(299 |
) |
|
|
320,789 |
|
|
|
326,301 |
|
|
|
287 |
|
|
|
(4,177 |
) |
|
|
322,411 |
|
Mortgage-backed
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
securities
|
|
|
2,923 |
|
|
|
-- |
|
|
|
(165 |
) |
|
|
2,758 |
|
|
|
3,032 |
|
|
|
-- |
|
|
|
(76 |
) |
|
|
2,956 |
|
State
and political
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
subdivisions
|
|
|
855 |
|
|
|
3 |
|
|
|
-- |
|
|
|
858 |
|
|
|
1,360 |
|
|
|
10 |
|
|
|
-- |
|
|
|
1,370 |
|
Other
securities
|
|
|
10,608 |
|
|
|
109 |
|
|
|
-- |
|
|
|
10,717 |
|
|
|
13,035 |
|
|
|
470 |
|
|
|
-- |
|
|
|
13,505 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
337,882 |
|
|
$ |
3,228 |
|
|
$ |
(464 |
) |
|
$ |
340,646 |
|
|
$ |
350,698 |
|
|
$ |
767 |
|
|
$ |
(4,283 |
) |
|
$ |
347,182 |
|
Table 13
reflects the amortized cost and estimated fair value of securities at December
31, 2007, by contractual maturity and the weighted average yields (for
tax-exempt obligations on a fully taxable equivalent basis, assuming a 37.5% tax
rate) of such securities. Expected maturities will differ from
contractual maturities, because borrowers may have the right to call or prepay
obligations, with or without call or prepayment penalties.
Table
13: Maturity
Distribution of Investment Securities
|
|
December 31, 2007
|
|
|
|
|
|
|
Over
|
|
|
Over
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
year
|
|
|
5
years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
year
|
|
|
through
|
|
|
through
|
|
|
Over
|
|
|
No
fixed
|
|
|
|
|
|
Par
|
|
|
Fair
|
|
(In thousands)
|
|
or less
|
|
|
5 years
|
|
|
10 years
|
|
|
10 years
|
|
|
maturity
|
|
|
Total
|
|
|
Value
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-to-Maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Treasury
|
|
$ |
1,500 |
|
|
$ |
-- |
|
|
$ |
-- |
|
|
$ |
-- |
|
|
$ |
-- |
|
|
$ |
1,500 |
|
|
$ |
1,500 |
|
|
$ |
1,514 |
|
U.S.
Government
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
agencies
|
|
|
8,000 |
|
|
|
2,000 |
|
|
|
27,000 |
|
|
|
-- |
|
|
|
-- |
|
|
|
37,000 |
|
|
|
37,000 |
|
|
|
37,703 |
|
Mortgage-backed
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
securities
|
|
|
-- |
|
|
|
-- |
|
|
|
43 |
|
|
|
86 |
|
|
|
-- |
|
|
|
129 |
|
|
|
129 |
|
|
|
131 |
|
State
and political
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
subdivisions
|
|
|
14,803 |
|
|
|
43,753 |
|
|
|
61,004 |
|
|
|
29,702 |
|
|
|
-- |
|
|
|
149,262 |
|
|
|
149,334 |
|
|
|
149,997 |
|
Other
securities
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
930 |
|
|
|
1,463 |
|
|
|
2,393 |
|
|
|
2,393 |
|
|
|
2,393 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
24,303 |
|
|
$ |
45,753 |
|
|
$ |
88,047 |
|
|
$ |
30,718 |
|
|
$ |
1,463 |
|
|
$ |
190,284 |
|
|
$ |
190,356 |
|
|
$ |
191,738 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage
of total
|
|
|
12.8 |
% |
|
|
24.0 |
% |
|
|
46.3 |
% |
|
|
16.1 |
% |
|
|
0.8 |
% |
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average yield
|
|
|
3.9 |
% |
|
|
4.1 |
% |
|
|
4.6 |
% |
|
|
4.2 |
% |
|
|
3.1 |
% |
|
|
4.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-Sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Treasury
|
|
$ |
5,498 |
|
|
$ |
-- |
|
|
$ |
-- |
|
|
$ |
-- |
|
|
$ |
-- |
|
|
$ |
5,498 |
|
|
$ |
5,500 |
|
|
$ |
5,524 |
|
U.S.
Government
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
agencies
|
|
|
86,697 |
|
|
|
43,183 |
|
|
|
188,118 |
|
|
|
-- |
|
|
|
-- |
|
|
|
317,998 |
|
|
|
318,066 |
|
|
|
320,789 |
|
Mortgage-backed
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
securities
|
|
|
-- |
|
|
|
1 |
|
|
|
849 |
|
|
|
2,073 |
|
|
|
-- |
|
|
|
2,923 |
|
|
|
2,967 |
|
|
|
2,758 |
|
State
and political
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
subdivisions
|
|
|
395 |
|
|
|
460 |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
855 |
|
|
|
855 |
|
|
|
858 |
|
Other
securities
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
10,608 |
|
|
|
10,608 |
|
|
|
10,717 |
|
|
|
10,717 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
92,590 |
|
|
$ |
43,644 |
|
|
$ |
188,967 |
|
|
$ |
2,073 |
|
|
$ |
10,608 |
|
|
$ |
337,882 |
|
|
$ |
338,105 |
|
|
$ |
340,646 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage
of total
|
|
|
27.4 |
% |
|
|
12.9 |
% |
|
|
55.9 |
% |
|
|
0.6 |
% |
|
|
3.2 |
% |
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average yield
|
|
|
3.9 |
% |
|
|
4.6 |
% |
|
|
5.7 |
% |
|
|
5.2 |
% |
|
|
6.5 |
% |
|
|
5.1 |
% |
|
|
|
|
|
|
|
|
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. 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 December 31, 2007, core deposits
comprised 77.5% of the Company’s total deposits.
The
Company continually monitors the funding requirements at each affiliate bank,
along with competitive interest rates in the markets it
serves. Because of the Company’s community banking philosophy,
affiliate executives in the local markets establish the interest rates 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 the funding requirements. The Company
believes it is paying a competitive rate, when compared with pricing in those
markets.
The
Company manages its interest expense through deposit pricing and does not
anticipate a significant change in total deposits. The Company believes that
additional funds can be attracted and deposit growth can be accelerated through
deposit pricing if it experiences increased loan demand or other liquidity
needs. The Company began to utilize brokered deposits during 2005 as
an additional source of funding to meet liquidity needs.
The
Company’s total deposits as of December 31, 2007 were $2.183 billion, an
increase of $7 million, or 0.32%, from $2.176 billion at December 31,
2006. The Company had $39 million and $50 million of brokered
deposits at December 31, 2007 and 2006, respectively.
Table 14
reflects the classification of the average deposits and the average rate paid on
each deposit category, which are in excess of 10 percent of average total
deposits for the three years ended December 31, 2007.
Table
14:
Average Deposit Balances and Rates
|
|
December 31
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
Average
|
|
|
Average
|
|
|
Average
|
|
|
Average
|
|
|
Average
|
|
|
Average
|
|
(In thousands)
|
|
Amount
|
|
|
Rate Paid
|
|
|
Amount
|
|
|
Rate Paid
|
|
|
Amount
|
|
|
Rate Paid
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest
bearing transaction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
accounts
|
|
$ |
307,041 |
|
|
|
-- |
|
|
$ |
308,804 |
|
|
|
-- |
|
|
$ |
303,974 |
|
|
|
-- |
|
Interest
bearing transaction and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
savings
deposits
|
|
|
736,160 |
|
|
|
1.78 |
% |
|
|
737,328 |
|
|
|
1.58 |
% |
|
|
762,558 |
|
|
|
1.02 |
% |
Time
deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$100,000
or more
|
|
|
441,854 |
|
|
|
4.83 |
% |
|
|
407,778 |
|
|
|
4.08 |
% |
|
|
371,871 |
|
|
|
2.83 |
% |
Other
time deposits
|
|
|
682,703 |
|
|
|
4.55 |
% |
|
|
644,927 |
|
|
|
3.92 |
% |
|
|
578,949 |
|
|
|
2.74 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
2,167,758 |
|
|
|
3.02 |
% |
|
$ |
2,098,837 |
|
|
|
2.59 |
% |
|
$ |
2,017,352 |
|
|
|
1.79 |
% |
The
Company's maturities of large denomination time deposits at December 31, 2007
and 2006 are presented in table 15.
Table
15: Maturities
of Large Denomination Time Deposits
|
|
Time
Certificates of Deposit
|
|
|
|
($100,000
or more)
|
|
|
|
December 31
|
|
|
|
2007
|
|
|
2006
|
|
(In thousands)
|
|
Balance
|
|
|
Percent
|
|
|
Balance
|
|
|
Percent
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturing
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
months or less
|
|
$ |
188,388 |
|
|
|
41.7 |
% |
|
$ |
123,214 |
|
|
|
27.4 |
% |
Over
3 months to 6 months
|
|
|
101,297 |
|
|
|
22.4 |
% |
|
|
108,716 |
|
|
|
24.1 |
% |
Over
6 months to 12 months
|
|
|
120,924 |
|
|
|
26.7 |
% |
|
|
145,716 |
|
|
|
32.4 |
% |
Over
12 months
|
|
|
41,653 |
|
|
|
9.2 |
% |
|
|
72,664 |
|
|
|
16.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
452,262 |
|
|
|
100.00 |
% |
|
$ |
450,310 |
|
|
|
100.00 |
% |
Short-Term
Debt
Federal
funds purchased and securities sold under agreements to repurchase were $128.8
million at December 31, 2007, as compared to $105.0 million at
December 31, 2006. Other short-term borrowings, consisting of
U.S. TT&L Notes and short-term FHLB borrowings, were $1.8 million at
December 31, 2007, as compared to $6.1 million at December 31,
2006.
The
Company has historically funded its growth in earning assets through the use of
core deposits, large certificates of deposits from local markets, FHLB
borrowings and Federal funds purchased. Management anticipates that these
sources will provide necessary funding in the foreseeable future.
Long-Term
Debt
The
Company’s long-term debt was $82.3 million and $83.3 million at December 31,
2007 and 2006, respectively. The outstanding balance for
December 31, 2007 includes $51.4 million in FHLB long-term advances
and $30.9 million of trust preferred securities. The outstanding
balance for December 31, 2006, includes $2.0 million in long-term debt,
$50.4 million in FHLB long-term advances and $30.9 million of trust
preferred securities.
During the
year ended December 31, 2007, the Company decreased long-term debt by
$1.0 million, or 1.2% from December 31, 2006. This decrease is
attributable to the Company’s final annual $2.0 million payment on its note
payable along with scheduled principal pay downs on FHLB long-term advances,
offset by additional FHLB long-term advances.
Aggregate
annual maturities of long-term debt at December 31, 2007 are presented in table
16.
Table
16: Maturities
of Long-Term Debt
|
|
|
Annual
|
|
(In thousands)
|
Year
|
|
Maturities
|
|
|
|
|
|
|
|
2008
|
|
$ |
12,859 |
|
|
2009
|
|
|
5,700 |
|
|
2010
|
|
|
5,647 |
|
|
2011
|
|
|
4,577 |
|
|
2012
|
|
|
3,749 |
|
|
Thereafter
|
|
|
49,753 |
|
|
Total
|
|
$ |
82,285 |
|
Capital
Overview
At
December 31, 2007, total capital reached $272.4 million. Capital
represents shareholder ownership in the Company –
the book value of assets in excess of liabilities. At December 31,
2007, the Company’s equity to asset ratio was 10.12% compared to 9.75% 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
At the
beginning of the calendar year 2007, the Company had a stock repurchase program
which authorized the repurchase of up to 733,485 shares of common
stock. On November 28, 2007, the Company announced the substantial
completion of the existing stock repurchase program and the adoption by the
Board of Directors of a new stock repurchase program. The new program
authorizes the repurchase of up to 700,000 shares of Class A common stock, or
approximately 5% of the outstanding common stock. Under the
repurchase program, there is no time limit for the stock repurchases, nor is
there a minimum number of shares the Company intends to
repurchase. The Company may discontinue purchases at any time that
management determines additional purchases are not warranted. The
shares are to be purchased from time to time at prevailing market prices,
through open market or unsolicited negotiated transactions, depending upon
market conditions. The Company intends to use the repurchased shares
to satisfy stock option exercise, payment of future stock dividends and general
corporate purposes.
During the
year ended December 31, 2007, the Company repurchased a total of 320,726 shares
of stock with a weighted average repurchase price of $26.75 per
share. Under the current stock repurchase plan, the Company can
repurchase an additional 690,852 shares.
Cash
Dividends
The
Company declared cash dividends on its Common Stock of $0.73 per share for the
twelve months ended December 31, 2007, compared to $0.68 per share for the
twelve months ended December 31, 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 liquidity needs of the Parent Company are the payment of dividends to
shareholders, the funding of debt obligations and the share repurchase
plan. The primary sources for meeting these liquidity needs are the
current cash on hand at the parent company and 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 Item 7A, Liquidity and Qualitative
Disclosures About Market Risk discussion 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). Management believes that, as of December 31, 2007, the
Company meets all capital adequacy requirements to which it is
subject.
As of the
most recent notification from regulatory agencies, the subsidiaries were well
capitalized under the regulatory framework for prompt corrective
action. To be categorized as well capitalized, the Company and
subsidiaries must maintain minimum total risk-based, Tier 1 risk-based and Tier
1 leverage ratios as set forth in the table. There are no conditions
or events since that notification that management believes have changed the
institutions’ categories.
The
Company's risk-based capital ratios at December 31, 2007 and 2006 are presented
in table 17.
Table
17: Risk-Based
Capital
|
|
December 31
|
|
(In thousands)
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
Tier
1 capital
|
|
|
|
|
|
|
Stockholders’
equity
|
|
$ |
272,406 |
|
|
$ |
259,016 |
|
Trust
preferred securities
|
|
|
30,000 |
|
|
|
30,000 |
|
Goodwill
and core deposit premiums
|
|
|
(63,706 |
) |
|
|
(64,334 |
) |
Unrealized
loss on available-
|
|
|
|
|
|
|
|
|
for-sale
securities
|
|
|
(1,728 |
) |
|
|
2,198 |
|
Other
|
|
|
-- |
|
|
|
-- |
|
|
|
|
|
|
|
|
|
|
Total
Tier 1 capital
|
|
|
236,972 |
|
|
|
226,880 |
|
|
|
|
|
|
|
|
|
|
Tier
2 capital
|
|
|
|
|
|
|
|
|
Qualifying
unrealized gain on
|
|
|
|
|
|
|
|
|
available-for-sale
equity securities
|
|
|
52 |
|
|
|
167 |
|
Qualifying
allowance for loan losses
|
|
|
23,866 |
|
|
|
22,953 |
|
|
|
|
|
|
|
|
|
|
Total
Tier 2 capital
|
|
|
23,918 |
|
|
|
23,120 |
|
|
|
|
|
|
|
|
|
|
Total
risk-based capital
|
|
$ |
260,890 |
|
|
$ |
250,000 |
|
|
|
|
|
|
|
|
|
|
Risk
weighted assets
|
|
$ |
1,906,321 |
|
|
$ |
1,831,063 |
|
|
|
|
|
|
|
|
|
|
Ratios
at end of year
|
|
|
|
|
|
|
|
|
Leverage
ratio
|
|
|
9.06 |
% |
|
|
8.83 |
% |
Tier
1 capital
|
|
|
12.43 |
% |
|
|
12.39 |
% |
Total
risk-based capital
|
|
|
13.69 |
% |
|
|
13.64 |
% |
Minimum
guidelines
|
|
|
|
|
|
|
|
|
Leverage
ratio
|
|
|
4.00 |
% |
|
|
4.00 |
% |
Tier
1 capital
|
|
|
4.00 |
% |
|
|
4.00 |
% |
Total
risk-based capital
|
|
|
8.00 |
% |
|
|
8.00 |
% |
Off-Balance Sheet Arrangements
and Aggregate Contractual Obligations
In the
normal course of business, the Company enters into a number of financial
commitments. Examples of these commitments include but are not
limited to long-term debt financing, operating lease obligations, unfunded loan
commitments and letters of credit.
The
Company’s long-term debt at December 31, 2007, includes notes payable, FHLB
long-term advances and trust preferred securities, all of which the Company is
contractually obligated to repay in future periods.
Operating
lease obligations entered into by the Company are generally associated with the
operation of a few of the Company’s financial centers located throughout the
state of Arkansas. The financial obligation by the Company on these
locations is considered immaterial due to the limited number of financial
centers, which operate under an agreement of this type.
Commitments
to extend credit and letters of credit are legally binding, conditional
agreements generally having fixed expiration or termination
dates. These commitments generally require customers to maintain
certain credit standards and are established based on management’s credit
assessment of the customer. The commitments may expire without being
drawn upon. Therefore, the total commitment does not necessarily
represent future requirements.
The
funding requirements of the Company's most significant financial commitments, at
December 31, 2007 are shown in table 18.
Table
18: Funding
Requirements of Financial Commitments
|
|
Payments due by period
|
|
|
|
Less
than
|
|
|
1-3
|
|
|
3-5
|
|
|
Greater
than
|
|
|
|
|
(In thousands)
|
|
1 Year
|
|
|
Years
|
|
|
Years
|
|
|
5 Years
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
debt
|
|
$ |
12,859 |
|
|
$ |
11,347 |
|
|
$ |
8,326 |
|
|
$ |
49,753 |
|
|
$ |
82,285 |
|
Credit
card loan commitments
|
|
|
244,052 |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
244,052 |
|
Other
loan commitments
|
|
|
411,421 |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
411,421 |
|
Letters
of credit
|
|
|
9,906 |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
9,906 |
|
The
Company has $64.0 million and $64.8 million total goodwill and core deposit
premiums for the periods ended December 31, 2007 and December 31, 2006,
respectively. Because of the Company’s high level of these two
intangible assets, management believes a useful calculation is tangible return
on equity. This non-GAAP calculation for the twelve months ended
December 31, 2007, 2006, 2005, 2004 and 2003, which is similar to the GAAP
calculation of return on average stockholders’ equity, is presented in table
19.
Table
19: Return
on Tangible Equity
(In
thousands)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve months
ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return
on average stockholders equity: (A/C)
|
|
|
10.26 |
% |
|
|
10.93 |
% |
|
|
11.24 |
% |
|
|
10.64 |
% |
|
|
11.57 |
% |
Return
on tangible equity: (A+B)/(C-D)
|
|
|
13.78 |
% |
|
|
15.03 |
% |
|
|
15.79 |
% |
|
|
14.94 |
% |
|
|
14.03 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
27,360 |
|
|
$ |
27,481 |
|
|
$ |
26,962 |
|
|
$ |
24,446 |
|
|
$ |
23,790 |
(A) |
Amortization
of intangibles, net of taxes
|
|
|
511 |
|
|
|
519 |
|
|
|
522 |
|
|
|
494 |
|
|
|
108 |
(B) |
Average
stockholders' equity
|
|
|
266,628 |
|
|
|
251,518 |
|
|
|
239,976 |
|
|
|
229,719 |
|
|
|
205,683 |
(C) |
Average
goodwill and core deposits, net
|
|
|
64,409 |
|
|
|
65,233 |
|
|
|
65,913 |
|
|
|
62,836 |
|
|
|
35,335 |
(D) |
During the
fourth quarter 2007, the Company recorded a nonrecurring $744,000 after tax
charge, or a $0.05 reduction in diluted earnings per share, related to
indemnification obligations with Visa U.S.A. litigation. For further
discussion related to the Visa U.S.A. litigation, see the analysis of
“Non-Interest Expense” included elsewhere in this section. On
December 31, 2004, the Company recorded a nonrecurring $470,000 after tax
charge, or a $0.03 reduction in diluted earnings per share, related to the
write off of deferred debt issuance cost associated with the redemption of its
9.12% trust preferred securities. During the second quarter
2003, the Company recorded a nonrecurring $0.03 addition to earnings per
share, resulting from the sale of its mortgage servicing
portfolio. In light of these events, management believes operating
earnings (earnings excluding nonrecurring items) is a useful calculation in
reflection the Company’s performance. This non-GAAP calculation for
the twelve months ended December 31, 2007, 2006, 2005, 2004 and
2003 is presented in table 20.
Table
20: Operating
Earnings
(In thousands, except share
data)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve months ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income
|
|
$ |
27,360 |
|
|
$ |
27,481 |
|
|
$ |
26,962 |
|
|
$ |
24,446 |
|
|
$ |
23,790 |
|
Nonrecurring
items
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Write
off of deferred debt issuance cost
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
771 |
|
|
|
-- |
|
Gain
on sale of mortgage servicing
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
(771 |
) |
VISA
litigation expense
|
|
|
1,220 |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
Tax
effect
|
|
|
(476 |
) |
|
|
-- |
|
|
|
-- |
|
|
|
(301 |
) |
|
|
301 |
|
Net
nonrecurring items
|
|
|
744 |
|
|
|
-- |
|
|
|
-- |
|
|
|
470 |
|
|
|
(470 |
) |
Operating
Income
|
|
$ |
28,104 |
|
|
$ |
27,481 |
|
|
$ |
26,962 |
|
|
$ |
24,916 |
|
|
$ |
23,320 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
earnings per share
|
|
$ |
1.92 |
|
|
$ |
1.90 |
|
|
$ |
1.84 |
|
|
$ |
1.65 |
|
|
$ |
1.65 |
|
Nonrecurring
items
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Write
off of deferred debt issuance cost
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
0.05 |
|
|
|
-- |
|
Gain
on sale of mortgage servicing
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
(0.05 |
) |
VISA
litigation expense
|
|
|
0.09 |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
Tax
effect
|
|
|
(0.04 |
) |
|
|
-- |
|
|
|
-- |
|
|
|
(0.02 |
) |
|
|
0.02 |
|
Net
nonrecurring items
|
|
|
0.05 |
|
|
|
-- |
|
|
|
-- |
|
|
|
0.03 |
|
|
|
(0.03 |
) |
Diluted
operating earnings per share
|
|
$ |
1.97 |
|
|
$ |
1.90 |
|
|
$ |
1.84 |
|
|
$ |
1.68 |
|
|
$ |
1.62 |
|
Quarterly
Results
Selected
unaudited quarterly financial information for the last eight quarters is shown
in table 21.
Table
21: Quarterly
Results
|
|
Quarter
|
|
(In thousands, except per share
data)
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income
|
|
$ |
22,231 |
|
|
$ |
22,793 |
|
|
$ |
23,570 |
|
|
$ |
23,522 |
|
|
$ |
92,116 |
|
Provision
for loan losses
|
|
|
751 |
|
|
|
831 |
|
|
|
850 |
|
|
|
1,749 |
|
|
|
4,181 |
|
Non-interest
income
|
|
|
11,454 |
|
|
|
11,337 |
|
|
|
11,373 |
|
|
|
11,839 |
|
|
|
46,003 |
|
Non-interest
expense
|
|
|
23,214 |
|
|
|
23,011 |
|
|
|
23,223 |
|
|
|
24,749 |
|
|
|
94,197 |
|
Net
income
|
|
|
6,637 |
|
|
|
7,031 |
|
|
|
7,500 |
|
|
|
6,192 |
|
|
|
27,360 |
|
Basic
earnings per share
|
|
|
0.47 |
|
|
|
0.50 |
|
|
|
0.53 |
|
|
|
0.45 |
|
|
|
1.95 |
|
Diluted
earnings per share
|
|
|
0.46 |
|
|
|
0.49 |
|
|
|
0.53 |
|
|
|
0.44 |
|
|
|
1.92 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income
|
|
$ |
21,952 |
|
|
$ |
22,192 |
|
|
$ |
22,377 |
|
|
$ |
22,283 |
|
|
$ |
88,804 |
|
Provision
for loan losses
|
|
|
1,708 |
|
|
|
789 |
|
|
|
602 |
|
|
|
663 |
|
|
|
3,762 |
|
Non-interest
income
|
|
|
10,612 |
|
|
|
11,516 |
|
|
|
11,026 |
|
|
|
10,793 |
|
|
|
43,947 |
|
Non-interest
expense
|
|
|
22,125 |
|
|
|
22,301 |
|
|
|
22,135 |
|
|
|
22,507 |
|
|
|
89,068 |
|
Net
income
|
|
|
5,988 |
|
|
|
7,296 |
|
|
|
7,447 |
|
|
|
6,750 |
|
|
|
27,481 |
|
Basic
earnings per share
|
|
|
0.42 |
|
|
|
0.51 |
|
|
|
0.53 |
|
|
|
0.47 |
|
|
|
1.93 |
|
Diluted
earnings per share
|
|
|
0.41 |
|
|
|
0.51 |
|
|
|
0.51 |
|
|
|
0.47 |
|
|
|
1.90 |
|
ITEM
7A. QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
Liquidity and Market Risk
Management
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 repurchases and
debt service requirements. At December 31, 2007, undivided profits of
the Company's subsidiaries were approximately $155 million, of which
approximately $11 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 December 31, 2007, each subsidiary bank was
within established guidelines and total corporate liquidity remains
strong. At December 31, 2007, cash and cash equivalents,
trading and available-for-sale securities and mortgage loans held for sale were
17.4% 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 a month-to-month
basis.
A second
source of liquidity is the retail deposits available through the Company’s
network of affiliate banks throughout Arkansas. Although this method
can be a somewhat 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 $428 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 64% 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 designed to minimize
structural interest rate risk are in place. 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 model incorporates 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. These assumptions are inherently uncertain and, as a
result, the model 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.
The
table below presents the Company’s interest rate sensitivity position at
December 31, 2007. This analysis is based on a point in time and may
not be meaningful because assets and liabilities are categorized according to
contractual maturities, repricing periods and expected cash flows rather than
estimating more realistic behaviors, as is done in the simulation
models. Also, this analysis does not consider subsequent changes in
interest rate level or spreads between asset and liability
categories.
Table: 22 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
|
|
$ |
27,600 |
|
|
$ |
-- |
|
|
$ |
-- |
|
|
$ |
-- |
|
|
$ |
-- |
|
|
$ |
-- |
|
|
$ |
-- |
|
|
$ |
27,600 |
|
Assets
held in trading
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
accounts
|
|
|
2,694 |
|
|
|
-- |
|
|
|
2,964 |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
5,658 |
|
Investment
securities
|
|
|
89,347 |
|
|
|
23,878 |
|
|
|
71,103 |
|
|
|
56,805 |
|
|
|
159,839 |
|
|
|
72,101 |
|
|
|
57,857 |
|
|
|
530,930 |
|
Mortgage
loans held for sale
|
|
|
11,097 |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
11,097 |
|
Loans
|
|
|
587,465 |
|
|
|
167,138 |
|
|
|
159,624 |
|
|
|
318,746 |
|
|
|
271,514 |
|
|
|
311,105 |
|
|
|
34,862 |
|
|
|
1,850,454 |
|
Total
earning assets
|
|
|
718,203 |
|
|
|
191,016 |
|
|
|
233,691 |
|
|
|
375,551 |
|
|
|
431,353 |
|
|
|
383,206 |
|
|
|
92,719 |
|
|
|
2,425,739 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
bearing liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
bearing transaction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
savings deposits
|
|
|
446,077 |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
63,031 |
|
|
|
189,093 |
|
|
|
63,032 |
|
|
|
761,233 |
|
Time
deposits
|
|
|
149,350 |
|
|
|
278,314 |
|
|
|
254,324 |
|
|
|
309,063 |
|
|
|
98,480 |
|
|
|
21,912 |
|
|
|
-- |
|
|
|
1,111,443 |
|
Short-term
debt
|
|
|
130,583 |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
130,583 |
|
Long-term
debt
|
|
|
630 |
|
|
|
15,943 |
|
|
|
2,287 |
|
|
|
4,762 |
|
|
|
5,763 |
|
|
|
25,308 |
|
|
|
27,592 |
|
|
|
82,285 |
|
Total
interest bearing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
liabilities
|
|
|
726,640 |
|
|
|
294,257 |
|
|
|
256,611 |
|
|
|
313,825 |
|
|
|
167,274 |
|
|
|
236,313 |
|
|
|
90,624 |
|
|
|
2,085,544 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
rate sensitivity Gap
|
|
$ |
(8,437 |
) |
|
$ |
(103,241 |
) |
|
$ |
(22,920 |
) |
|
$ |
61,726 |
|
|
$ |
264,079 |
|
|
$ |
146,893 |
|
|
$ |
2,095 |
|
|
$ |
340,195 |
|
Cumulative
interest rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
sensitivity
Gap
|
|
$ |
(8,437 |
) |
|
$ |
(111,678 |
) |
|
$ |
(134,598 |
) |
|
$ |
(72,872 |
) |
|
$ |
191,207 |
|
|
$ |
338,100 |
|
|
$ |
340,195 |
|
|
|
|
|
Cumulative
rate sensitive assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
to
rate sensitive liabilities
|
|
|
98.8 |
% |
|
|
89.1 |
% |
|
|
89.5 |
% |
|
|
95.4 |
% |
|
|
110.9 |
% |
|
|
116.9 |
% |
|
|
116.3 |
% |
|
|
|
|
Cumulative
Gap as a % of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
earning
assets
|
|
|
(0.3 |
)% |
|
|
(4.6 |
)% |
|
|
(5.5 |
)% |
|
|
(3.0 |
)% |
|
|
7.9 |
% |
|
|
13.9 |
% |
|
|
14.0 |
% |
|
|
|
|
ITEM
8.
|
CONSOLIDATED
FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA
|
INDEX
Management’s
Report on Internal Control Over Financial Reporting
|
41
|
Report
of Independent Registered Public Accounting Firm
|
|
Report
on Internal Control Over Financial Reporting
|
42
|
Report
on Consolidated Financial Statements
|
43
|
Consolidated
Balance Sheets, December 31, 2007 and 2006
|
44
|
Consolidated
Statements of Income, Years Ended
|
|
December
31, 2007, 2006 and 2005
|
45
|
Consolidated
Statements of Cash Flows, Years Ended
|
|
December
31, 2007, 2006 and 2005
|
46
|
Consolidated
Statements of Stockholders’ Equity, Years Ended
|
|
December
31, 2007, 2006 and 2005
|
47
|
Notes
to Consolidated Financial Statements,
|
|
December
31, 2007, 2006 and 2005
|
48
|
Note:
|
Supplementary
Data may be found in Item 7 “Management’s Discussion and Analysis of
Financial Condition and Results of Operations – Quarterly Results” on page
36 hereof.
|
Management’s
Report on Internal Control Over Financial Reporting
The
management of Simmons First National Corporation (the “Company”) is responsible
for establishing and maintaining adequate internal control over financial
reporting. The Company’s internal control over financial reporting is a process
designed under the supervision of the Company’s Chief Executive Officer and
Chief Financial Officer to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of the Company’s
financial statements for external purposes in accordance with generally accepted
accounting principles.
As of
December 31, 2007, management assessed the effectiveness of the Company’s
internal control over financial reporting based on the criteria for effective
internal control over financial reporting established in Internal Control - Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). Based on the assessment, management determined that
the Company maintained effective internal control over financial reporting as of
December 31, 2007, based on those criteria.
BKD, LLP,
the independent registered public accounting firm that audited the consolidated
financial statements of the Company included in this Annual Report on Form 10-K,
has issued an attestation report on the effectiveness of the Company’s internal
control over financial reporting as of December 31, 2007. The report,
which expresses an unqualified opinion on the effectiveness of the Company’s
internal control over financial reporting as of December 31, 2007, immediately
follows.
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Audit
Committee, Board of Directors and Stockholders
Simmons
First National Corporation
Pine
Bluff, Arkansas
We have
audited Simmons First National Corporation’s internal control over financial
reporting as of December 31, 2007, based on criteria established in Internal Control-Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). The Company’s management is responsible for
maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting,
included in the accompanying Management’s Report on Internal
Control over Financial Reporting. Our responsibility is to
express an opinion on the Company’s internal control over financial reporting
based on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists and
testing and evaluating the design and operating effectiveness of internal
control based on the assessed risk. Our audit also included performing such
other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenances of records that, in reasonable details, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of the company’s
assets that could have a material effect on the financial
statements.
Because of
its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions or that the degree of compliance
with the policies or procedures may deteriorate.
In our
opinion, Simmons First National Corporation maintained, in all material
respects, effective internal control over financial reporting as of December 31,
2007, based on criteria established in Internal Control-Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO).
We have
also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated financial statements of
Simmons First National Corporation and our report dated February 21, 2008,
expressed an unqualified opinion thereon.
BKD,
LLP
/s/ BKD,
LLP
Pine
Bluff, Arkansas
February
21, 2008
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Audit
Committee, Board of Directors and Stockholders
Simmons
First National Corporation
Pine
Bluff, Arkansas
We have
audited the accompanying consolidated balance sheets of Simmons First National
Corporation as of December 31, 2007, and 2006, and the related consolidated
statements of income, cash flows, and stockholders’ equity for each of the years
in the three-year period ended December 31, 2007. The Company’s management is
responsible for these financial statements. Our responsibility is to express an
opinion on these financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. Our audits included
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Simmons First National
Corporation as of December 31, 2007, and 2006, and the results of its operations
and its cash flows for each of the years in the three-year period ended December
31, 2007, in conformity with accounting principles generally accepted in the
United States of America.
We have
also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), Simmons First National Corporation’s internal
control over financial reporting as of December 31, 2007, based on criteria
established in Internal
Control-Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission (COSO) and our report dated February 21, 2008,
expressed an unqualified opinion on the effectiveness of the
Company’s internal control over financial reporting.
BKD,
LLP
/s/ BKD,
LLP
Pine
Bluff, Arkansas
February
21, 2008
CONSOLIDATED
BALANCE SHEETS
DECEMBER
31, 2007 and 2006
(In thousands, except share
data)
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and non-interest bearing balances due from banks
|
|
$ |
82,630 |
|
|
$ |
83,452 |
|
Interest
bearing balances due from banks
|
|
|
21,140 |
|
|
|
45,829 |
|
Federal
funds sold
|
|
|
6,460 |
|
|
|
21,870 |
|
Cash
and cash equivalents
|
|
|
110,230 |
|
|
|
151,151 |
|
Investment
securities
|
|
|
530,930 |
|
|
|
527,126 |
|
Mortgage
loans held for sale
|
|
|
11,097 |
|
|
|
7,091 |
|
Assets
held in trading accounts
|
|
|
5,658 |
|
|
|
4,487 |
|
Loans
|
|
|
1,850,454 |
|
|
|
1,783,495 |
|
Allowance
for loan losses
|
|
|
(25,303 |
) |
|
|
(25,385 |
) |
Net
loans
|
|
|
1,825,151 |
|
|
|
1,758,110 |
|
Premises
and equipment
|
|
|
75,473 |
|
|
|
67,926 |
|
Foreclosed
assets held for sale, net
|
|
|
2,629 |
|
|
|
1,940 |
|
Interest
receivable
|
|
|
21,345 |
|
|
|
21,974 |
|
Bank
owned life insurance
|
|
|
38,039 |
|
|
|
36,133 |
|
Goodwill
|
|
|
60,605 |
|
|
|
60,605 |
|
Core
deposit premiums
|
|
|
3,382 |
|
|
|
4,199 |
|
Other
assets
|
|
|
7,908 |
|
|
|
10,671 |
|
TOTAL
ASSETS
|
|
$ |
2,692,447 |
|
|
$ |
2,651,413 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest
bearing transaction accounts
|
|
$ |
310,181 |
|
|
$ |
305,327 |
|
Interest
bearing transaction accounts and savings deposits
|
|
|
761,233 |
|
|
|
738,763 |
|
Time
deposits
|
|
|
1,111,443 |
|
|
|
1,131,441 |
|
Total
deposits
|
|
|
2,182,857 |
|
|
|
2,175,531 |
|
Federal
funds purchased and securities sold
|
|
|
|
|
|
|
|
|
under
agreements to repurchase
|
|
|
128,806 |
|
|
|
105,036 |
|
Short-term
debt
|
|
|
1,777 |
|
|
|
6,114 |
|
Long-term
debt
|
|
|
82,285 |
|
|
|
83,311 |
|
Accrued
interest and other liabilities
|
|
|
24,316 |
|
|
|
22,405 |
|
Total
liabilities
|
|
|
2,420,041 |
|
|
|
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
|
|
|
|
|
|
|
13,918,368
issued and outstanding at 2007 and 14,196,855 at 2006
|
|
|
139 |
|
|
|
142 |
|
Surplus
|
|
|
41,019 |
|
|
|
48,678 |
|
Undivided
profits
|
|
|
229,520 |
|
|
|
212,394 |
|
Accumulated
other comprehensive income (loss)
|
|
|
|
|
|
|
|
|
Unrealized
appreciation (depreciation) on available-for-sale
|
|
|
|
|
|
|
|
|
securities,
net of income taxes of $1,037 at 2007
|
|
|
|
|
|
|
|
|
and
income tax credits $1,319 at 2006
|
|
|
1,728 |
|
|
|
(2,198 |
) |
Total
stockholders’ equity
|
|
|
272,406 |
|
|
|
259,016 |
|
TOTAL
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
$ |
2,692,447 |
|
|
$ |
2,651,413 |
|
See
Notes to Consolidated Financial Statements
CONSOLIDATED
STATEMENTS OF INCOME
YEARS
ENDED DECEMBER 31, 2007, 2006 and 2005
(In thousands, except per share
data)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
INTEREST
INCOME
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$ |
141,706 |
|
|
$ |
130,248 |
|
|
$ |
112,238 |
|
Federal
funds sold
|
|
|
1,418 |
|
|
|
1,057 |
|
|
|
925 |
|
Investment
securities
|
|
|
23,646 |
|
|
|
20,438 |
|
|
|
18,677 |
|
Mortgage
loans held for sale
|
|
|
505 |
|
|
|
476 |
|
|
|
552 |
|
Assets
held in trading accounts
|
|
|
100 |
|
|
|
71 |
|
|
|
99 |
|
Interest
bearing balances due from banks
|
|
|
1,161 |
|
|
|
1,072 |
|
|
|
580 |
|
TOTAL
INTEREST INCOME
|
|
|
168,536 |
|
|
|
153,362 |
|
|
|
133,071 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INTEREST
EXPENSE
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
65,474 |
|
|
|
54,250 |
|
|
|
34,208 |
|
Federal
funds purchased and securities sold
|
|
|
|
|
|
|
|
|
|
|
|
|
under
agreements to repurchase
|
|
|
5,371 |
|
|
|
4,615 |
|
|
|
3,104 |
|
Short-term
debt
|
|
|
804 |
|
|
|
1,227 |
|
|
|
1,101 |
|
Long-term
debt
|
|
|
4,771 |
|
|
|
4,466 |
|
|
|
4,401 |
|
TOTAL
INTEREST EXPENSE
|
|
|
76,420 |
|
|
|
64,558 |
|
|
|
42,814 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
INTEREST INCOME
|
|
|
92,116 |
|
|
|
88,804 |
|
|
|
90,257 |
|
Provision
for loan losses
|
|
|
4,181 |
|
|
|
3,762 |
|
|
|
7,526 |
|
NET
INTEREST INCOME AFTER PROVISION
|
|
|
|
|
|
|
|
|
|
|
|
|
FOR LOAN
LOSSES
|
|
|
87,935 |
|
|
|
85,042 |
|
|
|
82,731 |
|
NON-INTEREST
INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
Trust
income
|
|
|
6,218 |
|
|
|
5,612 |
|
|
|
5,589 |
|
Service
charges on deposit accounts
|
|
|
14,794 |
|
|
|
15,795 |
|
|
|
15,818 |
|
Other
service charges and fees
|
|
|
3,016 |
|
|
|
2,561 |
|
|
|
2,017 |
|
Income
on sale of mortgage loans, net of commissions
|
|
|
2,766 |
|
|
|
2,849 |
|
|
|
2,919 |
|
Income
on investment banking, net of commissions
|
|
|
623 |
|
|
|
341 |
|
|
|
416 |
|
Credit
card fees
|
|
|
12,217 |
|
|
|
10,742 |
|
|
|
10,252 |
|
Premiums
on sale of student loans
|
|
|
2,341 |
|
|
|
2,071 |
|
|
|
1,822 |
|
Bank
owned life insurance income
|
|
|
1,493 |
|
|
|
1,523 |
|
|
|
953 |
|
Other
income
|
|
|
2,535 |
|
|
|
2,453 |
|
|
|
2,700 |
|
Loss
on sale of securities, net of taxes
|
|
|
-- |
|
|
|
-- |
|
|
|
(168 |
) |
TOTAL
NON-INTEREST INCOME
|
|
|
46,003 |
|
|
|
43,947 |
|
|
|
42,318 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NON-INTEREST
EXPENSE
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries
and employee benefits
|
|
|
54,865 |
|
|
|
53,442 |
|
|
|
51,270 |
|
Occupancy
expense, net
|
|
|
6,674 |
|
|
|
6,385 |
|
|
|
5,840 |
|
Furniture
and equipment expense
|
|
|
5,865 |
|
|
|
5,718 |
|
|
|
5,758 |
|
Loss
on foreclosed assets
|
|
|
212 |
|
|
|
136 |
|
|
|
191 |
|
Deposit
insurance
|
|
|
328 |
|
|
|
270 |
|
|
|
279 |
|
Other
operating expenses
|
|
|
26,253 |
|
|
|
23,117 |
|
|
|
22,246 |
|
TOTAL
NON-INTEREST EXPENSE
|
|
|
94,197 |
|
|
|
89,068 |
|
|
|
85,584 |
|
INCOME
BEFORE INCOME TAXES
|
|
|
39,741 |
|
|
|
39,921 |
|
|
|
39,465 |
|
Provision
for income taxes
|
|
|
12,381 |
|
|
|
12,440 |
|
|
|
12,503 |
|
NET
INCOME
|
|
$ |
27,360 |
|
|
$ |
27,481 |
|
|
$ |
26,962 |
|
BASIC
EARNINGS PER SHARE
|
|
$ |
1.95 |
|
|
$ |
1.93 |
|
|
$ |
1.88 |
|
DILUTED
EARNINGS PER SHARE
|
|
$ |
1.92 |
|
|
$ |
1.90 |
|
|
$ |
1.84 |
|
See Notes to Consolidated
Financial Statements
CONSOLIDATED
STATEMENTS OF CASH FLOWS
YEARS
ENDED DECEMBER 31, 2007, 2006 and 2005
(In thousands)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
27,360 |
|
|
$ |
27,481 |
|
|
$ |
26,962 |
|
Items
not requiring (providing) cash
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
5,510 |
|
|
|
5,501 |
|
|
|
4,861 |
|
Provision
for loan losses
|
|
|
4,181 |
|
|
|
3,762 |
|
|
|
7,526 |
|
Net
amortization of investment securities
|
|
|
116 |
|
|
|
188 |
|
|
|
370 |
|
Deferred
income taxes
|
|
|
865 |
|
|
|
2,221 |
|
|
|
1,342 |
|
Loss
on sale of securities, net of taxes
|
|
|
-- |
|
|
|
-- |
|
|
|
168 |
|
Bank
owned life insurance income
|
|
|
(1,493 |
) |
|
|
(1,523 |
) |
|
|
(953 |
) |
Changes
in
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
receivable
|
|
|
629 |
|
|
|
(3,220 |
) |
|
|
(4,506 |
) |
Mortgage
loans held for sale
|
|
|
(4,006 |
) |
|
|
766 |
|
|
|
1,389 |
|
Assets
held in trading accounts
|
|
|
(1,171 |
) |
|
|
143 |
|
|
|
285 |
|
Other
assets
|
|
|
2,763 |
|
|
|
3,508 |
|
|
|
(1,949 |
) |
Accrued
interest and other liabilities
|
|
|
508 |
|
|
|
3,596 |
|
|
|
1,366 |
|
Income
taxes payable
|
|
|
538 |
|
|
|
(863 |
) |
|
|
142 |
|
Net
cash provided by operating activities
|
|
|
35,800 |
|
|
|
41,560 |
|
|
|
37,003 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
originations of loans
|
|
|
(75,161 |
) |
|
|
(72,137 |
) |
|
|
(156,243 |
) |
Purchase
of bank and branch locations,
|
|
|
|
|
|
|
|
|
|
|
|
|
net
funds received
|
|
|
-- |
|
|
|
-- |
|
|
|
1,945 |
|
Purchases
of premises and equipment, net
|
|
|
(12,240 |
) |
|
|
(9,238 |
) |
|
|
(10,150 |
) |
Proceeds
from sale of foreclosed assets
|
|
|
3,250 |
|
|
|
1,049 |
|
|
|
2,700 |
|
Proceeds
from sale of securities
|
|
|
-- |
|
|
|
2,161 |
|
|
|
1,225 |
|
Proceeds
from maturities of available-for-sale securities
|
|
|
146,379 |
|
|
|
130,345 |
|
|
|
88,382 |
|
Purchases
of available-for-sale securities
|
|
|
(136,033 |
) |
|
|
(106,088 |
) |
|
|
(73,921 |
) |
Proceeds
from maturities of held-to-maturity securities
|
|
|
31,123 |
|
|
|
29,431 |
|
|
|
32,921 |
|
Purchases
of held-to-maturity securities
|
|
|
(41,466 |
) |
|
|
(59,213 |
) |
|
|
(32,220 |
) |
Purchases
of bank owned life insurance
|
|
|
(413 |
) |
|
|
(1,341 |
) |
|
|
(25,000 |
) |
Net
cash used in investing activities
|
|
|
(84,561 |
) |
|
|
(85,031 |
) |
|
|
(170,361 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
change in deposits
|
|
|
7,326 |
|
|
|
115,573 |
|
|
|
98,609 |
|
Net
change in short-term debt
|
|
|
(4,337 |
) |
|
|
(1,917 |
) |
|
|
5,658 |
|
Dividends
paid
|
|
|
(10,234 |
) |
|
|
(9,666 |
) |
|
|
(8,757 |
) |
Proceeds
from issuance of long-term debt
|
|
|
10,786 |
|
|
|
7,275 |
|
|
|
1,821 |
|
Repayment
of long-term debt
|
|
|
(11,812 |
) |
|
|
(10,984 |
) |
|
|
(9,464 |
) |
Net
change in Federal funds purchased and
|
|
|
|
|
|
|
|
|
|
|
|
|
securities
sold under agreements to repurchase
|
|
|
23,770 |
|
|
|
(2,187 |
) |
|
|
2,438 |
|
Repurchase
of common stock, net
|
|
|
(7,659 |
) |
|
|
(5,045 |
) |
|
|
(9,105 |
) |
Net
cash provided by financing activities
|
|
|
7,840 |
|
|
|
93,049 |
|
|
|
81,200 |
|
(DECREASE)
INCREASE IN CASH AND
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH
EQUIVALENTS
|
|
|
(40,921 |
) |
|
|
49,578 |
|
|
|
(52,158 |
) |
CASH
AND CASH EQUIVALENTS,
|
|
|
|
|
|
|
|
|
|
|
|
|
BEGINNING
OF YEAR
|
|
|
151,151 |
|
|
|
101,573 |
|
|
|
153,731 |
|
CASH
AND CASH EQUIVALENTS, END OF YEAR
|
|
$ |
110,230 |
|
|
$ |
151,151 |
|
|
$ |
101,573 |
|
See Notes to
Consolidated Financial Statements
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY
YEARS
ENDED DECEMBER 31, 2007, 2006 and 2005
(In thousands, except share
data)
|
|
|
|
|
Surplus
|
|
|
Comprehensive Income
(Loss)
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2004
|
|
$ |
146 |
|
|
$ |
62,826 |
|
|
$ |
(1,124 |
) |
|
$ |
176,374 |
|
|
$ |
238,222 |
|
Comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
26,962 |
|
|
|
26,962 |
|
Change
in unrealized depreciation on
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
available-for-sale
securities, net of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
income
tax credits of $1,942
|
|
|
-- |
|
|
|
-- |
|
|
|
(3,236 |
) |
|
|
-- |
|
|
|
(3,236 |
) |
Comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,726 |
|
Stock
issued as bonus shares – 5,620 shares
|
|
|
-- |
|
|
|
138 |
|
|
|
-- |
|
|
|
-- |
|
|
|
138 |
|
Exercise
of stock options – 106,420 shares
|
|
|
1 |
|
|
|
1,432 |
|
|
|
-- |
|
|
|
-- |
|
|
|
1,433 |
|
Securities
exchanged under stock option plan
|
|
|
-- |
|
|
|
(988 |
) |
|
|
-- |
|
|
|
-- |
|
|
|
(988 |
) |
Repurchase
of common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
–
371,453 shares
|
|
|
(4 |
) |
|
|
(9,685 |
) |
|
|
-- |
|
|
|
-- |
|
|
|
(9,689 |
) |
Cash
dividends declared ($0.61 per share)
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
(8,757 |
) |
|
|
(8,757 |
) |
Balance,
December 31, 2005
|
|
|
143 |
|
|
|
53,723 |
|
|
|
(4,360 |
) |
|
|
194,579 |
|
|
|
244,085 |
|
Comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
27,481 |
|
|
|
27,481 |
|
Change
in unrealized depreciation on
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
available-for-sale
securities, net of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
income
taxes of $1,296
|
|
|
-- |
|
|
|
-- |
|
|
|
2,162 |
|
|
|
-- |
|
|
|
2,162 |
|
Comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29,643 |
|
Stock
issued as bonus shares – 10,200 shares
|
|
|
-- |
|
|
|
275 |
|
|
|
-- |
|
|
|
-- |
|
|
|
275 |
|
Exercise
of stock options – 106,880 shares
|
|
|
1 |
|
|
|
1,516 |
|
|
|
-- |
|
|
|
-- |
|
|
|
1,517 |
|
Stock
granted under
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
stock-based
compensation plans
|
|
|
-- |
|
|
|
88 |
|
|
|
-- |
|
|
|
-- |
|
|
|
88 |
|
Securities
exchanged under stock option plan
|
|
|
-- |
|
|
|
(1,291 |
) |
|
|
-- |
|
|
|
-- |
|
|
|
(1,291 |
) |
Repurchase
of common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
–
203,100 shares
|
|
|
(2 |
) |
|
|
(5,633 |
) |
|
|
-- |
|
|
|
-- |
|
|
|
(5,635 |
) |
Cash
dividends declared ($0.68 per share)
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
(9,666 |
) |
|
|
(9,666 |
) |
Balance,
December 31, 2006
|
|
|
142 |
|
|
|
48,678 |
|
|
|
(2,198 |
) |
|
|
212,394 |
|
|
|
259,016 |
|
Comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
27,360 |
|
|
|
27,360 |
|
Change
in unrealized depreciation on
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
available-for-sale
securities, net of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
income
taxes of $1,037
|
|
|
-- |
|
|
|
-- |
|
|
|
3,926 |
|
|
|
-- |
|
|
|
3,926 |
|
Comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31,286 |
|
Stock
issued as bonus shares – 15,146 shares
|
|
|
-- |
|
|
|
419 |
|
|
|
-- |
|
|
|
-- |
|
|
|
419 |
|
Exercise
of stock options – 33,720 shares
|
|
|
-- |
|
|
|
509 |
|
|
|
-- |
|
|
|
-- |
|
|
|
509 |
|
Stock
granted under
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
stock-based
compensation plans
|
|
|
-- |
|
|
|
178 |
|
|
|
-- |
|
|
|
-- |
|
|
|
178 |
|
Securities
exchanged under stock option plan
|
|
|
-- |
|
|
|
(203 |
) |
|
|
-- |
|
|
|
-- |
|
|
|
(203 |
) |
Repurchase
of common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
–
320,726 shares
|
|
|
(3 |
) |
|
|
(8,562 |
) |
|
|
-- |
|
|
|
-- |
|
|
|
(8,565 |
) |
Cash
dividends declared ($0.73 per share)
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
(10,234 |
) |
|
|
(10,234 |
) |
Balance,
December 31, 2007
|
|
$ |
139 |
|
|
$ |
41,019 |
|
|
$ |
1,728 |
|
|
$ |
229,520 |
|
|
$ |
272,406 |
|
See
Notes to Consolidated Financial Statements
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1: NATURE
OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Nature
of Operations
Simmons
First National Corporation is primarily engaged in providing a full range of
banking services to individual and corporate customers through its subsidiaries
and their branch banks in Arkansas. The Company is subject to
competition from other financial institutions. The Company also is
subject to the regulation of certain federal and state agencies and undergoes
periodic examinations by those regulatory authorities.
Operating
Segments
The
Company is organized on a subsidiary bank-by-bank basis upon which management
makes decisions regarding how to allocate resources and assess
performance. Each of the subsidiary banks provides a group of similar
community banking services, including such products and services as loans; time
deposits, checking and savings accounts; personal and corporate trust services;
credit cards; investment management; and securities and investment
services. The individual bank segments have similar operating and
economic characteristics and have been reported as one aggregated operating
segment.
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Material
estimates that are particularly susceptible to significant change relate to the
determination of the allowance for loan losses, the valuation of foreclosed
assets and the allowance for foreclosure expenses. In connection with
the determination of the allowance for loan losses and the valuation of
foreclosed assets, management obtains independent appraisals for significant
properties.
Principles
of Consolidation
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.
Reclassifications
Various
items within the accompanying financial statements for previous years have been
reclassified to provide more comparative information. These
reclassifications had no effect on net earnings.
Cash
Equivalents
For
purposes of the statement of cash flows, the Company considers due from banks,
Federal funds sold and securities purchased under agreements to resell as cash
equivalents.
Investment
Securities
Held-to-maturity
securities, which include any security for which the Company has the positive
intent and ability to hold until maturity, are carried at historical cost
adjusted for amortization of premiums and accretion of
discounts. Premiums and discounts are amortized and accreted,
respectively, to interest income using the constant yield method over the period
to maturity.
Available-for-sale
securities, which include any security for which the Company has no immediate
plan to sell but which may be sold in the future, are carried at fair
value. Realized gains and losses, based on specifically identified
amortized cost of the individual security, are included in other
income. Unrealized gains and losses are recorded, net of related
income tax effects, in stockholders' equity. Premiums and discounts
are amortized and accreted, respectively, to interest income using the constant
yield method over the period to maturity.
Trading
securities, which include any security held primarily for near-term sale, are
carried at fair value. Gains and losses on trading securities
are included in other income.
Interest
and dividends on investments in debt and equity securities are included in
income when earned.
Mortgage
Loans Held For Sale
Mortgage
loans held for sale are carried at the lower of cost or fair value, determined
using an aggregate basis. Write-downs to fair value are recognized as
a charge to earnings at the time the decline in value occurs. Forward
commitments to sell mortgage loans are acquired to reduce market risk on
mortgage loans in the process of origination and mortgage loans held for
sale. The forward commitments acquired by the Company for mortgage
loans in process of origination are not mandatory forward
commitments. These commitments are structured on a best efforts
basis; therefore the Company is not required to substitute another loan or to
buyback the commitment if the original loan does not fund. Gains and
losses resulting from sales of mortgage loans are recognized when the respective
loans are sold to investors. Gains and losses are determined by the
difference between the selling price and the carrying amount of the loans sold,
net of discounts collected or paid. Fees received from borrowers to
guarantee the funding of mortgage loans held for sale are recognized as income
or expense when the loans are sold or when it becomes evident that the
commitment will not be used.
Loans
Loans that
management has the intent and ability to hold for the foreseeable future or
until maturity or pay-offs are reported at their outstanding principal adjusted
for any loans charged off and any deferred fees or costs on originated loans and
unamortized premiums or discounts on purchased loans. Interest income
is reported on the interest method and includes amortization of net deferred
loan fees and costs over the estimated life of the loan. Generally,
loans are placed on nonaccrual 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.
Derivative
Financial Instruments
The
Company may enter into derivative contracts for the purposes of managing
exposure to interest rate risk to meet the financing needs of its
customers. The Company records all derivatives on the balance sheet
at fair value. Historically, the Company’s policy has been not to
invest in derivative type investments but in an effort to meet the financing
needs of its customers, the Company entered into its first fair value hedge
during the second quarter of 2003. Fair value hedges include interest
rate swap agreements on fixed rate loans. For derivatives designated
as hedging the exposure to changes in the fair value of the hedged item, the
gain or loss is recognized in earnings in the period of change together with the
offsetting loss or gain of the hedging instrument. The fair value
hedge is considered to be highly effective and any hedge ineffectiveness was
deemed not material. The notional amount of the loan being hedged was
$1.8 million at December 31, 2007 and $1.9 million at December 31,
2006.
Allowance
for Loan Losses
The
allowance for loan losses is established as losses are estimated to have
occurred through a provision for loan losses charged to income. Loan
losses are charged against the allowance when management believes the
uncollectability of a loan balance is confirmed. Subsequent
recoveries, if any, are credited to the allowance.
The
allowance is maintained at a level considered adequate to provide for potential
loan losses related to specifically identified loans as well as probable credit
losses inherent in the remainder of the loan portfolio that have been incurred
as of period end. This estimate is based on management's evaluation
of the loan portfolio, as well as on prevailing and anticipated economic
conditions and historical losses by loan category. General reserves
have been established, based upon the aforementioned factors and allocated to
the individual loan categories. Allowances are accrued on specific
loans evaluated for impairment for which the basis of each loan, including
accrued interest, exceeds the discounted amount of expected future collections
of interest and principal or, alternatively, the fair value of loan
collateral. The unallocated reserve generally serves to compensate
for the uncertainty in estimating loan losses, including the possibility of
changes in risk ratings and specific reserve allocations in the loan portfolio
as a result of the Company’s ongoing risk management system.
A loan is
considered impaired when it is probable that the Company will not receive all
amounts due according to the contractual terms of the loan. This
includes loans that are delinquent 90 days or more, nonaccrual loans and certain
other loans identified by management. Certain other loans identified
by management consist of performing loans with specific allocations of the
allowance for loan losses. Specific allocations are applied when
quantifiable factors are present requiring a greater allocation than that
established using the classified asset approach, as defined by the Office
of the Comptroller of the Currency. Accrual of interest is
discontinued and interest accrued and unpaid is removed at the time such amounts
are delinquent 90 days, unless management is aware of circumstances which
warrant continuing the interest accrual. Interest is recognized for
nonaccrual loans only upon receipt and only after all principal amounts are
current according to the terms of the contract.
Premises
and Equipment
Depreciable
assets are stated at cost, less accumulated
depreciation. Depreciation is charged to expense using the
straight-line method over the estimated useful lives of the
assets. Leasehold improvements are capitalized and amortized by the
straight-line method over the terms of the respective leases or the estimated
useful lives of the improvements whichever is shorter.
Foreclosed
Assets Held For Sale
Assets
acquired by foreclosure or in settlement of debt and held for sale are valued at
estimated fair value as of the date of foreclosure and a related valuation
allowance is provided for estimated costs to sell the
assets. Management evaluates the value of foreclosed assets held for
sale periodically and increases the valuation allowance for any subsequent
declines in fair value. Changes in the valuation allowance are
charged or credited to other expense.
Goodwill
Goodwill
represents the excess of cost over the fair value of net assets of acquired
subsidiaries and branches. Financial Accounting Standards Board
Statement No’s. 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.
Core
Deposit Premiums
Core
deposit premiums represent the amount allocated to the future earnings potential
of acquired deposits. The unamortized core deposit premiums are being
amortized using both straight-line and accelerated methods over periods ranging
from 8 to 11 years. Unamortized core deposit premiums are tested for
impairment annually, or more frequently if certain conditions
occur.
Fee
Income
Periodic
bankcard fees, net of direct origination costs, are recognized as revenue on a
straight-line basis over the period the fee entitles the cardholder to use the
card. Origination fees and costs for other loans are being amortized
over the estimated life of the loan.
Income
Taxes
Deferred
tax liabilities and assets are recognized for the tax effects of differences
between the financial statement and tax bases of assets and
liabilities. A valuation allowance is established to reduce deferred
tax assets if it is more likely than not that a deferred tax asset will not be
realized.
Earnings
Per Share
Basic
earnings per share are computed based on the weighted average number of 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.
The
computation of per share earnings is as follows:
(In thousands, except per share
data)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income
|
|
$ |
27,360 |
|
|
$ |
27,481 |
|
|
$ |
26,962 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
common shares outstanding
|
|
|
14,044 |
|
|
|
14,226 |
|
|
|
14,375 |
|
Average
common share stock options outstanding
|
|
|
197 |
|
|
|
248 |
|
|
|
312 |
|
Average
diluted common shares
|
|
|
14,241 |
|
|
|
14,474 |
|
|
|
14,687 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per share
|
|
$ |
1.95 |
|
|
$ |
1.93 |
|
|
$ |
1.88 |
|
Diluted
earnings per share
|
|
$ |
1.92 |
|
|
$ |
1.90 |
|
|
$ |
1.84 |
|
Stock-Based
Compensation
On January
1, 2006, the Company began recognizing compensation expense for stock options
with the adoption of Statement of Financial Accounting Standards (SFAS) No. 123,
Share-Based Payment (Revised 2004). See Note 11, Employee Benefit
Plans, for additional information.
SFAS No.
123R requires pro forma disclosures of net income and earnings per share for all
periods prior to the adoption of the fair value accounting method for
stock-based employee compensation. The pro forma disclosures
presented in Note 11, Employee Benefit Plans, use the fair value method of SFAS
123 to measure compensation expense for stock-based compensation plans for years
prior to 2006.
NOTE
2: ACQUISITIONS
On
November 1, 2005, the Company completed a branch purchase in which Bank of
Little Rock sold its Southwest Little Rock, Arkansas location at 8500 Geyer
Springs Road to Simmons First National Bank, a subsidiary of the
Company. The acquisition included approximately $3.5 million in total
deposits in addition to the fixed assets used in the branch
operation. No loans were involved in the transaction. As a
result of this transaction, the Company recorded additional goodwill and core
deposit premiums of $151,000 and $31,000, respectively.
The system integration for the 2005
acquisition was completed on the acquisition date.
NOTE
3: 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:
|
|
Years Ended December 31
|
|
|
2007
|
|
|
2006
|
|
|
|
Gross
|
|
|
Gross
|
|
|
Estimated
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
$ |
14 |
|
|
$ |
-- |
|
|
$ |
1,514 |
|
|
$ |
-- |
|
|
$ |
-- |
|
|
$ |
-- |
|
|
$ |
-- |
|
U.S.
Government
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
agencies
|
|
|
37,000 |
|
|
|
722 |
|
|
|
(19 |
) |
|
|
37,703 |
|
|
|
54,998 |
|
|
|
367 |
|
|
|
(272 |
) |
|
|
55,093 |
|
Mortgage-backed
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
securities
|
|
|
129 |
|
|
|
2 |
|
|
|
-- |
|
|
|
131 |
|
|
|
155 |
|
|
|
3 |
|
|
|
(1 |
) |
|
|
157 |
|
State
and political
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
subdivisions
|
|
|
149,262 |
|
|
|
1,089 |
|
|
|
(354 |
) |
|
|
149,997 |
|
|
|
122,472 |
|
|
|
667 |
|
|
|
(892 |
) |
|
|
122,247 |
|
Other
securities
|
|
|
2,393 |
|
|
|
-- |
|
|
|
-- |
|
|
|
2,393 |
|
|
|
2,319 |
|
|
|
-- |
|
|
|
-- |
|
|
|
2,319 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
190,284 |
|
|
$ |
1,827 |
|
|
$ |
(373 |
) |
|
$ |
191,738 |
|
|
$ |
179,944 |
|
|
$ |
1,037 |
|
|
$ |
(1,165 |
) |
|
$ |
179,816 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-Sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Treasury
|
|
$ |
5,498 |
|
|
$ |
26 |
|
|
$ |
-- |
|
|
$ |
5,524 |
|
|
$ |
6,970 |
|
|
$ |
-- |
|
|
$ |
(30 |
) |
|
$ |
6,940 |
|
U.S.
Government
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
agencies
|
|
|
317,998 |
|
|
|
3,090 |
|
|
|
(299 |
) |
|
|
320,789 |
|
|
|
326,301 |
|
|
|
287 |
|
|
|
(4,177 |
) |
|
|
322,411 |
|
Mortgage-backed
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
securities
|
|
|
2,923 |
|
|
|
-- |
|
|
|
(165 |
) |
|
|
2,758 |
|
|
|
3,032 |
|
|
|
-- |
|
|
|
(76 |
) |
|
|
2,956 |
|
State
and political
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
subdivisions
|
|
|
855 |
|
|
|
3 |
|
|
|
-- |
|
|
|
858 |
|
|
|
1,360 |
|
|
|
10 |
|
|
|
-- |
|
|
|
1,370 |
|
Other
securities
|
|
|
10,608 |
|
|
|
109 |
|
|
|
-- |
|
|
|
10,717 |
|
|
|
13,035 |
|
|
|
470 |
|
|
|
-- |
|
|
|
13,505 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
337,882 |
|
|
$ |
3,228 |
|
|
$ |
(464 |
) |
|
$ |
340,646 |
|
|
$ |
350,698 |
|
|
$ |
767 |
|
|
$ |
(4,283 |
) |
|
$ |
347,182 |
|
Certain
investment securities are valued at less than their historical
cost. Total fair value of these investments at December 31,
2007, was $153.8 million, which is approximately 29.0% of the Company’s
available-for-sale and held-to-maturity investment portfolio. These
declines primarily resulted from previous increases in market interest
rates.
Based on
evaluation of available evidence, management believes the declines in fair value
for these securities are temporary. It is management’s intent to hold
these securities to maturity.
Should the
impairment of any of these securities become other than temporary, the cost
basis of the investment will be reduced and the resulting loss recognized in net
income in the period the other-than-temporary impairment is
identified.
The
following table shows the Company’s investments’ estimated fair value and gross
unrealized losses, aggregated by investment category and length of time that
individual securities have been in a continuous unrealized loss position at
December 31, 2007:
|
|
Less Than 12 Months
|
|
|
|
|
|
Total
|
|
|
|
Estimated
|
|
|
Gross
|
|
|
Estimated
|
|
|
Gross
|
|
|
Estimated
|
|
|
Gross
|
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
(In thousands)
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-to-Maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Government Agencies
|
|
$ |
-- |
|
|
$ |
-- |
|
|
$ |
6,981 |
|
|
$ |
19 |
|
|
$ |
6,981 |
|
|
$ |
19 |
|
Mortgage-backed
securities
|
|
|
721 |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
721 |
|
|
|
-- |
|
State
and political subdivisions
|
|
|
9,717 |
|
|
|
93 |
|
|
|
32,921 |
|
|
|
261 |
|
|
|
42,638 |
|
|
|
354 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
10,438 |
|
|
$ |
93 |
|
|
$ |
39,902 |
|
|
$ |
280 |
|
|
$ |
50,340 |
|
|
$ |
373 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-Sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Government Agencies
|
|
$ |
15,931 |
|
|
$ |
21 |
|
|
$ |
84,755 |
|
|
$ |
278 |
|
|
$ |
100,686 |
|
|
$ |
299 |
|
Mortgage-backed
securities
|
|
|
-- |
|
|
|
-- |
|
|
|
2,757 |
|
|
|
165 |
|
|
|
2,757 |
|
|
|
165 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
15,931 |
|
|
$ |
21 |
|
|
$ |
87,512 |
|
|
$ |
443 |
|
|
$ |
103,443 |
|
|
$ |
464 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
following table shows the Company’s investments’ estimated fair value and
gross unrealized losses, aggregated by investment category and length of
time that individual securities have been in a continuous unrealized loss
position at December 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Than 12 Months
|
|
|
12 Months or More
|
|
|
|
Total
|
|
|
|
Estimated
|
|
|
Gross
|
|
|
Estimated
|
|
|
Gross
|
|
|
Estimated
|
|
|
Gross
|
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
(In thousands)
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-to-Maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Government Agencies
|
|
$ |
9,990 |
|
|
$ |
8 |
|
|
$ |
22,736 |
|
|
$ |
264 |
|
|
$ |
32,726 |
|
|
$ |
272 |
|
Mortgage-backed
securities
|
|
|
-- |
|
|
|
-- |
|
|
|
86 |
|
|
|
1 |
|
|
|
86 |
|
|
|
1 |
|
State
and political subdivisions
|
|
|
17,290 |
|
|
|
139 |
|
|
|
49,328 |
|
|
|
753 |
|
|
|
66,618 |
|
|
|
892 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
27,280 |
|
|
$ |
147 |
|
|
$ |
72,150 |
|
|
$ |
1,018 |
|
|
$ |
99,430 |
|
|
$ |
1,165 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-Sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Treasury
|
|
$ |
2,471 |
|
|
$ |
2 |
|
|
$ |
4,469 |
|
|
$ |
28 |
|
|
$ |
6,940 |
|
|
$ |
30 |
|
U.S.
Government Agencies
|
|
|
42,455 |
|
|
|
287 |
|
|
|
252,679 |
|
|
|
3,890 |
|
|
|
295,134 |
|
|
|
4,177 |
|
Mortgage-backed
securities
|
|
|
788 |
|
|
|
23 |
|
|
|
2,167 |
|
|
|
53 |
|
|
|
2,955 |
|
|
|
76 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
45,714 |
|
|
$ |
312 |
|
|
$ |
259,315 |
|
|
$ |
3,971 |
|
|
$ |
305,029 |
|
|
$ |
4,283 |
|
Income
earned on the above securities for the years ended December 31, 2007, 2006 and
2005 is as follows:
(In thousands)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
Taxable
|
|
|
|
|
|
|
|
|
|
Held-to-maturity
|
|
$ |
2,521 |
|
|
$ |
2,007 |
|
|
$ |
1,056 |
|
Available-for-sale
|
|
|
15,841 |
|
|
|
13,698 |
|
|
|
12,842 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-taxable
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-to-maturity
|
|
|
5,228 |
|
|
|
4,635 |
|
|
|
4,588 |
|
Available-for-sale
|
|
|
56 |
|
|
|
98 |
|
|
|
191 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
23,646 |
|
|
$ |
20,438 |
|
|
$ |
18,677 |
|
The
Statement of Stockholders’ Equity includes other comprehensive income
(loss). Other comprehensive income (loss) for the Company includes
the change in the unrealized appreciation (depreciation) on available-for-sale
securities. The changes in the unrealized appreciation (depreciation)
on available-for-sale securities for the years ended December 31, 2007,
2006, and 2005 are as follows:
(In thousands)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
holding gains (losses) arising during the period
|
|
$ |
3,926 |
|
|
$ |
2,162 |
|
|
$ |
(3,511 |
) |
Losses
realized in net income
|
|
|
-- |
|
|
|
-- |
|
|
|
275 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
change in unrealized appreciation (depreciation)
|
|
|
|
|
|
|
|
|
|
|
|
|
on
available-for-sale securities
|
|
$ |
3,926 |
|
|
$ |
2,162 |
|
|
$ |
(3,236 |
) |
The
amortized cost and estimated fair value by maturity of securities are shown in
the following table. Securities are classified according to their
contractual maturities without consideration of principal amortization,
potential prepayments or call options. Accordingly, actual maturities
may differ from contractual maturities.
|
|
Held-to-Maturity
|
|
|
Available-for-Sale
|
|
|
|
Amortized
|
|
|
Fair
|
|
|
Amortized
|
|
|
Fair
|
|
(In thousands)
|
|
Cost
|
|
|
Value
|
|
|
Cost
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One
year or less
|
|
$ |
24,303 |
|
|
$ |
24,327 |
|
|
$ |
92,590 |
|
|
$ |
92,386 |
|
After
one through five years
|
|
|
45,753 |
|
|
|
46,042 |
|
|
|
43,644 |
|
|
|
43,658 |
|
After
five through ten years
|
|
|
88,047 |
|
|
|
89,119 |
|
|
|
188,967 |
|
|
|
191,966 |
|
After
ten years
|
|
|
30,718 |
|
|
|
30,787 |
|
|
|
2,073 |
|
|
|
1,919 |
|
Other
securities
|
|
|
1,463 |
|
|
|
1,463 |
|
|
|
10,608 |
|
|
|
10,717 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
190,284 |
|
|
$ |
191,738 |
|
|
$ |
337,882 |
|
|
$ |
340,646 |
|
The
carrying value, which approximates the fair value, of securities pledged as
collateral, to secure public deposits and for other purposes, amounted to
$410,645,000 at December 31, 2007 and $400,668,000 at
December 31, 2006.
The book
value of securities sold under agreements to repurchase amounted to $91,466,000
and $80,566,000 for December 31, 2007 and 2006, respectively.
The
Company had no gross realized gains during the years ended December 31, 2007,
2006 and 2005, resulting from the sales and/or calls of
securities. There were no gross realized losses resulting from sales
and/or calls of securities for the years ended December 31, 2007 and 2006, with
$275,000 of gross realized losses during 2005.
Most of
the state and political subdivision debt obligations are non-rated bonds and
represent small Arkansas issues, which are evaluated on an ongoing
basis.
The
various categories of loans are summarized as follows:
(In thousands)
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
|
|
|
|
Credit
cards
|
|
$ |
166,044 |
|
|
$ |
143,359 |
|
Student
loans
|
|
|
76,277 |
|
|
|
84,831 |
|
Other
consumer
|
|
|
137,624 |
|
|
|
142,596 |
|
Real
estate
|
|
|
|
|
|
|
|
|
Construction
|
|
|
260,924 |
|
|
|
277,411 |
|
Single
family residential
|
|
|
382,676 |
|
|
|
364,450 |
|
Other
commercial
|
|
|
542,184 |
|
|
|
512,404 |
|
Commercial
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
193,091 |
|
|
|
178,028 |
|
Agricultural
|
|
|
73,470 |
|
|
|
62,293 |
|
Financial
institutions
|
|
|
7,440 |
|
|
|
4,766 |
|
Other
|
|
|
10,724 |
|
|
|
13,357 |
|
|
|
|
|
|
|
|
|
|
Total
loans before allowance for loan losses
|
|
$ |
1,850,454 |
|
|
$ |
1,783,495 |
|
At
December 31, 2007 and 2006, impaired loans totaled $12,519,000 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 at December 31, 2007 and
2006 were $2,851,000 and $3,418,000, respectively. Approximately,
$203,000, $350,000 and $452,000 of interest income was recognized on average
impaired loans of $11,724,000, $13,072,000 and $15,748,000 for 2007, 2006 and
2005 respectively. Interest recognized on impaired loans on a cash
basis during 2007, 2006 and 2005 was immaterial.
At
December 31, 2007 and 2006, accruing loans delinquent 90 days or more totaled
$1,282,000 and $1,097,000, respectively. Non-accruing loans at
December 31, 2007 and 2006 were $9,909,000 and $8,958,000,
respectively.
As of
December 31, 2007, credit card loans, which are unsecured, were $166,044,000 or
9.0%, 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.
Transactions in the
allowance for loan losses are as follows:
(In thousands)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
beginning of year
|
|
$ |
25,385 |
|
|
$ |
26,923 |
|
|
$ |
26,508 |
|
Additions
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for loan losses
|
|
|
4,181 |
|
|
|
3,762 |
|
|
|
7,526 |
|
|
|
|
29,566 |
|
|
|
30,685 |
|
|
|
34,034 |
|
Deductions
|
|
|
|
|
|
|
|
|
|
|
|
|
Losses
charged to allowance, net of recoveries
|
|
|
|
|
|
|
|
|
|
|
|
|
of
$2,569 for 2007, $3,106 for 2006 and $3,815 for 2005
|
|
|
4,263 |
|
|
|
3,775 |
|
|
|
7,111 |
|
Reclassification
of reserve for unfunded commitments (1)
|
|
|
-- |
|
|
|
1,525 |
|
|
|
-- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
end of year
|
|
$ |
25,303 |
|
|
$ |
25,385 |
|
|
$ |
26,923 |
|
(1) On
March 31, 2006, the reserve for unfunded commitments was reclassified from the
allowance for loan losses to other
liabilities.
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. Goodwill totaled $60.6 million at December 31, 2007,
unchanged from December 31, 2006, as the Company made no acquisitions during the
year ended December 31, 2007, and no goodwill impairment was
recorded.
The
carrying basis and accumulated amortization of core deposit premiums (net of
core deposit premiums that were fully amortized) at December 31, 2007 and 2006
were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007
|
|
|
December 31, 2006
|
|
|
|
|
Gross
|
|
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
|
|
(In thousands)
|
|
|
Amount
|
|
|
Amortization
|
|
|
Net
|
|
|
Amount
|
|
|
Amortization
|
|
|
Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core
deposit premiums
|
|
|
$ |
7,246 |
|
|
$ |
3,864 |
|
|
$ |
3,382 |
|
|
$ |
7,246 |
|
|
$ |
3,047 |
|
|
$ |
4,199 |
|
Core
deposit premium amortization expense recorded for the years ended December 31,
2007, 2006 and 2005, was $817,000, $830,000 and $830,000,
respectively. The Company’s estimated amortization expense for each
of the following five years is: 2008 – $807,000; 2009 – $802,000;
2010 – $699,000; 2011 – $451,000; and 2012 – $321,000.
NOTE
6: TIME
DEPOSITS
Time
deposits included approximately $452,262,000 and $450,310,000 of certificates of
deposit of $100,000 or more, at December 31, 2007 and 2006,
respectively. Brokered deposits were $39,185,000 and $42,522,000 at
December 31, 2007 and 2006, respectively. At December 31, 2007, time
deposits with a remaining maturity of one year or more amounted to
$120,777,000. Maturities of all time deposits are as
follows: 2008 – $990,666,000; 2009 – $98,480,000; 2010 – $21,607,000;
2011 – $504,000; 2012 – $186,000 and none thereafter.
Deposits
are the Company's primary funding source for loans and investment
securities. The mix and repricing alternatives can significantly
affect the cost of this source of funds and, therefore, impact the interest
margin.
The
provision for income taxes is comprised of the following
components:
(In thousands)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
Income
taxes currently payable
|
|
$ |
11,516 |
|
|
$ |
10,219 |
|
|
$ |
11,161 |
|
Deferred
income taxes
|
|
|
865 |
|
|
|
2,221 |
|
|
|
1,342 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for income taxes
|
|
$ |
12,381 |
|
|
$ |
12,440 |
|
|
$ |
12,503 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
tax effects of temporary differences related to deferred taxes shown on
the balance sheet were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
tax assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for loan losses
|
|
$ |
8,705 |
|
|
$ |
8,543 |
|
|
|
|
|
Valuation
of foreclosed assets
|
|
|
63 |
|
|
|
63 |
|
|
|
|
|
Deferred
compensation payable
|
|
|
1,432 |
|
|
|
1,275 |
|
|
|
|
|
FHLB
advances
|
|
|
29 |
|
|
|
58 |
|
|
|
|
|
Vacation
compensation
|
|
|
820 |
|
|
|
740 |
|
|
|
|
|
Loan
interest
|
|
|
88 |
|
|
|
140 |
|
|
|
|
|
Available-for-sale
securities
|
|
|
-- |
|
|
|
1,319 |
|
|
|
|
|
Other
|
|
|
234 |
|
|
|
174 |
|
|
|
|
|
|
|
|
11,371 |
|
|
|
12,312 |
|
|
|
|
|
Deferred
tax liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
depreciation
|
|
|
(558 |
) |
|
|
(852 |
) |
|
|
|
|
Deferred
loan fee income and expenses, net
|
|
|
(954 |
) |
|
|
(787 |
) |
|
|
|
|
FHLB
stock dividends
|
|
|
(717 |
) |
|
|
(887 |
) |
|
|
|
|
Goodwill
and core deposit premium amortization
|
|
|
(7,341 |
) |
|
|
(6,051 |
) |
|
|
|
|
Available-for-sale
securities
|
|
|
(1,037 |
) |
|
|
-- |
|
|
|
|
|
Other
|
|
|
(1,130 |
) |
|
|
(880 |
) |
|
|
|
|
|
|
|
(11,737 |
) |
|
|
(9,457 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
deferred tax (liability) asset
|
|
$ |
(366 |
) |
|
$ |
2,855 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A
reconciliation of income tax expense at the statutory rate to the
Company's actual income tax expense is shown below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Computed
at the statutory rate (35%)
|
|
$ |
13,910 |
|
|
$ |
13,972 |
|
|
$ |
13,813 |
|
Increase
(decrease) resulting from
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax
exempt income
|
|
|
(2,020 |
) |
|
|
(1,858 |
) |
|
|
(1,882 |
) |
Non-deductible
interest
|
|
|
328 |
|
|
|
276 |
|
|
|
187 |
|
State
income taxes
|
|
|
647 |
|
|
|
792 |
|
|
|
862 |
|
Other
non-deductible expenses
|
|
|
96 |
|
|
|
97 |
|
|
|
86 |
|
Other
differences, net
|
|
|
(580 |
) |
|
|
(839 |
) |
|
|
(563 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual
tax provision
|
|
$ |
12,381 |
|
|
$ |
12,440 |
|
|
$ |
12,503 |
|
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 2004 tax year and forward. The
Company’s various state income tax returns are generally open from the 2004 and
later tax return years based on individual state statute of
limitations.
NOTE
8: SHORT-TERM AND LONG-TERM
DEBT
Long-term
debt at December 31, 2007, and 2006 consisted of the following
components.
(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 2008 to 2032, 2.78% to 8.41%,
|
|
|
|
|
|
|
|
|
secured
by residential real estate loans
|
|
|
51,355 |
|
|
|
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 |
|
|
|
|
|
|
|
|
|
|
Total
long-term debt
|
|
$ |
82,285 |
|
|
$ |
83,311 |
|
At
December 31, 2007 the Company had Federal Home Loan Bank (“FHLB”) advances with
original maturities of one year or less of $1.5 million with a weighted average
rate of 4.30% which are not included in the above table.
The trust
preferred securities are tax-advantaged issues that qualify for Tier 1 capital
treatment. Distributions on these securities are included in interest expense on
long-term debt. Each of the trusts is a statutory business trust organized for
the sole purpose of issuing trust securities and investing the proceeds thereof
in junior subordinated debentures of the Corporation, the sole asset of each
trust. The preferred trust 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
Corporation. Each trust’s ability to pay amounts due on the trust preferred
securities is solely dependent upon the Corporation making payment on the
related junior subordinated debentures. The Corporation’s obligations under the
junior subordinated securities and other relevant trust agreements, in
aggregate, constitute a full and unconditional guarantee by the Corporation of
each respective trust’s obligations under the trust securities issued by each
respective trust.
Aggregate
annual maturities of long-term debt at December 31, 2007 are:
|
|
|
|
Annual
|
|
(In thousands)
|
|
Year
|
|
Maturities
|
|
|
|
|
|
|
|
|
|
2008
|
|
$ |
12,859 |
|
|
|
2009
|
|
|
5,700 |
|
|
|
2010
|
|
|
5,647 |
|
|
|
2011
|
|
|
4,577 |
|
|
|
2012
|
|
|
3,749 |
|
|
|
Thereafter
|
|
|
49,753 |
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
82,285 |
|
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.
At the
beginning of the calendar year 2007, the Company had a stock repurchase program
which authorized the repurchase of up to 733,485 shares of common
stock. On November 28, 2007, the Company announced the substantial
completion of the existing stock repurchase program and the adoption by the
Board of Directors of a new stock repurchase program. The new program
authorizes the repurchase of up to 700,000 shares of Class A common stock, or
approximately 5% of the outstanding common stock. Under the
repurchase program, there is no time limit for the stock repurchases, nor is
there a minimum number of shares the Company intends to
repurchase. The Company may discontinue purchases at any time that
management determines additional purchases are not warranted. The
shares are to be purchased from time to time at prevailing market prices,
through open market or unsolicited negotiated transactions, depending upon
market conditions. The Company intends to use the repurchased shares
to satisfy stock option exercise, payment of future stock dividends and general
corporate purposes.
During the
year ended December 31, 2007, the Company repurchased a total of 320,726 shares
of stock with a weighted average repurchase price of $26.75 per
share. Under the current stock repurchase plan, the Company can
repurchase an additional 690,852 shares.
At
December 31, 2007 and 2006, the subsidiary banks had extensions of credit to
executive officers, directors and to companies in which the banks' executive
officers or directors were principal owners, in the amount of $30.4 million in
2007 and $51.4 million in 2006.
(In thousands)
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
Balance,
beginning of year
|
|
$ |
51,442 |
|
|
$ |
61,544 |
|
New
extensions of credit
|
|
|
8,704 |
|
|
|
26,734 |
|
Repayments
|
|
|
(29,701 |
) |
|
|
(36,836 |
) |
|
|
|
|
|
|
|
|
|
Balance,
end of year
|
|
$ |
30,445 |
|
|
$ |
51,442 |
|
In
management's opinion, such loans and other extensions of credit and deposits
(which were not material) were made in the ordinary course of business and were
made on substantially the same terms (including interest rates and collateral)
as those prevailing at the time for comparable transactions with other
persons. Further, in management's opinion, these extensions of credit
did not involve more than the normal risk of collectability or present other
unfavorable features.
Retirement
Plans
The
Company’s 401(k) retirement plan covers substantially all
employees. Contribution expense totaled $550,000, $525,000 and
$505,000, in 2007, 2006 and 2005, respectively.
The
Company has a discretionary profit sharing and employee stock ownership plan
covering substantially all employees. Contribution expense totaled
$2,490,000 for 2007, $2,370,000 for 2006 and $2,258,000 for 2005.
The
Company also provides deferred compensation agreements with certain active and
retired officers. The agreements provide monthly payments which,
together with payments from the deferred annuities issued pursuant to the
terminated pension plan, equal 50 percent of average compensation prior to
retirement or death. The charges to income for the plans were
$358,000 for 2007, $481,000 for 2006 and $306,000 for 2005. Such
charges reflect the straight-line accrual over the employment period of the
present value of benefits due each participant, as of their full eligibility
date, using an 8 percent discount factor.
Employee
Stock Purchase Plan
The
Company established an Employee Stock Purchase Plan in 2007 which generally
allows participants to make contributions of up 3% of the employee’s salary, up
to a maximum of $7,500 per year, for the purpose of acquiring the Company’s
stock. Substantially all employees with at least two years of service
are eligible for the plan. At the end of each plan year, full shares
of the Company’s stock are purchased for each employee based on that employee’s
contributions. The stock is purchased for an amount equal to 95% of
its fair market value at the end of the plan year, or, if lower, 95% of its fair
market value at the beginning of the plan year.
Stock-Based
Compensation Plans
Prior to
January 1, 2006, employee compensation expense under stock option plans was
reported only if options were granted below market price at grant date in
accordance with the intrinsic value method of Accounting Principles Board
Opinion (APB) No.25, "Accounting for Stock Issued to Employees," and related
interpretations. Because the exercise price of the Company's employee
stock options always equaled the market price of the underlying stock on the
date of grant, no compensation expense was recognized on options
granted. As stated in Note 1, Significant Accounting Policies, the
Company adopted the provisions of SFAS 123R on January 1,
2006. SFAS 123R eliminates the ability to account for
stock-based compensation using APB 25 and requires that such transactions be
recognized as compensation cost in the income statement based on their fair
values on the measurement date, which is generally the date of the
grant. The Company transitioned to fair-value based accounting for
stock-based compensation using a modified version of prospective application
("modified prospective application"). Under modified prospective
application, as it is applicable to the Company, SFAS 123R applies to new awards
and to awards modified, repurchased, or cancelled after January 1,
2006. Additionally, compensation cost for the portion of awards for
which the requisite service has not been rendered (generally referring to
non-vested awards) that were outstanding as of January 1, 2006, will be
recognized as the remaining requisite service is rendered during the period of
and/or the periods after the adoption of SFAS 123R. The attribution of
compensation cost for those earlier awards is based on the same method and on
the same grant date fair values previously determined for the pro forma
disclosures required for companies that did not previously adopt the fair value
accounting method for stock-based employee compensation.
Stock-based
compensation expense for all stock-based compensation awards granted after
January 1, 2006, is based on the grant date fair value. For all
awards except stock option awards, the grant date fair value is the market value
per share as of the grant date. For stock option awards, the fair
value is estimated at the date of grant using the Black-Scholes option-pricing
model. This model requires the input of highly subjective
assumptions, changes to which can materially affect the fair value
estimate. Additionally, there may be other factors that would
otherwise have a significant effect on the value of employee stock options
granted but are not considered by the model. Accordingly, while
management believes that the Black-Scholes option-pricing model provides a
reasonable estimate of fair value, the model does not necessarily provide the
best single measure of fair value for the Company's employee stock
options.
The
Company’s Board of Directors has adopted various stock-based compensation
plans. The plans provide for the grant of incentive stock options,
nonqualified stock options, stock appreciation rights, and bonus stock
awards. Pursuant to the plans, shares are reserved for future
issuance by the Company, upon exercise of stock options or awarding of bonus
shares granted to directors, officers and other key employees.
The fair
value of each option award is estimated on the date of grant using the
Black-Scholes option-pricing model that uses various
assumptions. Expected volatility is based on historical volatility of
the Company’s stock and other factors. The Company uses historical
data to estimate option exercise and employee termination within the valuation
model. The expected term of options granted is derived from the
output of the option valuation model and represents the period of time that
options granted are expected to be outstanding. The risk-free rate
for periods within the contractual life of the option is based on the U.S.
Treasury yield curve in effect at the time of grant. Forfeitures are
estimated at the time of grant, and are based partially on historical
experience.
The table
below summarizes the transactions under the Company's active stock compensation
plans at December 31, 2007, 2006 and 2005 and changes during the years then
ended:
|
|
Stock
Options
|
|
|
Non-Vested
Stock
|
|
|
|
Outstanding
|
|
|
Awards Outstanding
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
Number
|
|
|
Average
|
|
|
Number
|
|
|
Average
|
|
|
|
of
Shares
|
|
|
Exercise
|
|
|
of
Shares
|
|
|
Grant-Date
|
|
|
|
(000)
|
|
|
Price
|
|
|
(000)
|
|
|
Fair-Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
January 1, 2005
|
|
|
676 |
|
|
$ |
14.00 |
|
|
|
17 |
|
|
$ |
24.66 |
|
Granted
|
|
|
40 |
|
|
|
24.53 |
|
|
|
6 |
|
|
|
24.50 |
|
Stock
Options Exercised
|
|
|
(106 |
) |
|
|
13.46 |
|
|
|
-- |
|
|
|
-- |
|
Stock
Awards Vested
|
|
|
-- |
|
|
|
-- |
|
|
|
(5 |
) |
|
|
24.62 |
|
Forfeited/Expired
|
|
|
(1 |
) |
|
|
22.63 |
|
|
|
-- |
|
|
|
-- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2005
|
|
|
609 |
|
|
|
14.77 |
|
|
|
18 |
|
|
|
24.63 |
|
Granted
|
|
|
60 |
|
|
|
26.19 |
|
|
|
10 |
|
|
|
26.96 |
|
Stock
Options Exercised
|
|
|
(107 |
) |
|
|
14.19 |
|
|
|
-- |
|
|
|
-- |
|
Stock
Awards Vested
|
|
|
-- |
|
|
|
-- |
|
|
|
(6 |
) |
|
|
24.60 |
|
Forfeited/Expired
|
|
|
(45 |
) |
|
|
13.50 |
|
|
|
-- |
|
|
|
-- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2006
|
|
|
517 |
|
|
|
16.32 |
|
|
|
22 |
|
|
|
25.69 |
|
Granted
|
|
|
57 |
|
|
|
28.42 |
|
|
|
15 |
|
|
|
27.68 |
|
Stock
Options Exercised
|
|
|
(34 |
) |
|
|
15.11 |
|
|
|
-- |
|
|
|
-- |
|
Stock
Awards Vested
|
|
|
-- |
|
|
|
-- |
|
|
|
(6 |
) |
|
|
25.31 |
|
Forfeited/Expired
|
|
|
(4 |
) |
|
|
12.13 |
|
|
|
-- |
|
|
|
-- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2007
|
|
|
536 |
|
|
$ |
17.71 |
|
|
|
31 |
|
|
$ |
26.72 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable,
December 31, 2007
|
|
|
439 |
|
|
$ |
15.62 |
|
|
|
|
|
|
|
|
|
The
following table summarizes information about stock options under the plans
outstanding at December 31, 2007:
|
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
Number
|
|
Remaining
|
|
Average
|
|
|
Number
|
|
|
Average
|
|
Range
of
|
|
|
of
Shares
|
|
Contractual
|
|
Exercise
|
|
|
of
Shares
|
|
|
Exercise
|
|
Exercise Prices
|
|
|
(000)
|
|
Life
|
|
Price
|
|
|
(000)
|
|
|
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$10.56-$12.22
|
|
|
|
307
|
|
|
|
$ |
12.08 |
|
|
|
307
|
|
|
$ |
12.08 |
|
15.35-16.32
|
|
|
|
13
|
|
|
|
|
15.85 |
|
|
|
13
|
|
|
|
15.85 |
|
23.78-24.50
|
|
|
|
98
|
|
|
|
|
24.06 |
|
|
|
91
|
|
|
|
24.06 |
|
26.19-28.42
|
|
|
|
118
|
|
|
|
|
27.27 |
|
|
|
28
|
|
|
|
26.93 |
|
Stock-based
compensation expense totaled $338 thousand in 2007, $233 thousand in 2006 and
$117 thousand in 2005. Stock-based compensation expense is recognized
ratably over the requisite service period for all stock-based
awards. Unrecognized stock-based compensation expense related to
stock options totaled $446 thousand at December 31, 2007. At such
date, the weighted-average period over which this unrecognized expense is
expected to be recognized was 1.93 years. Unrecognized
stock-based compensation expense related to non-vested stock awards was $841
thousand at December 31, 2007. At such date, the weighted-average
period over which this unrecognized expense is expected to be recognized was
1.92 years.
Aggregate
intrinsic value of outstanding stock options and exercisable stock options was
$4.7 million and $4.8 million at December 31, 2007. Aggregate
intrinsic value represents the difference between the Company’s closing stock
price on the last trading day of the period, which was $26.50 at December 31,
2007, and the exercise price multiplied by the number of options
outstanding. The total intrinsic value of stock options exercised was
$384 thousand in 2007, $1.6 million in 2006 and $1.4 million in
2005.
The fair
value of the Company’s employee stock options granted is estimated on the date
of grant using the Black-Scholes option-pricing model. The
weighted-average fair value of stock options granted was $5.96 for 2007, $5.01
for 2006 and $5.11 for 2005. The Company estimated expected market
price volatility and expected term of the options based on historical data and
other factors. The weighted-average assumptions used to determine the fair value
of options granted are detailed in the table below:
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Expected
dividend yield
|
|
|
2.53 |
% |
|
|
2.67 |
% |
|
|
2.61 |
% |
Expected
stock price volatility
|
|
|
19.00 |
% |
|
|
17.74 |
% |
|
|
16.00 |
% |
Risk-free
interest rate
|
|
|
5.17 |
% |
|
|
4.84 |
% |
|
|
5.17 |
% |
Expected
life of options
|
|
7 -
10 Years
|
|
|
5 -
10 Years
|
|
|
7
Years
|
|
The
following pro forma information presents net income and earnings per share for
2005 as if the fair value method of SFAS 123R had been applied to measure
compensation cost for stock-based compensation plans.
(In thousands, except per share
data)
|
|
2005
|
|
Net
income, as reported
|
|
$ |
26,962 |
|
Add: Stock-based
employee compensation included
|
|
|
|
|
in
reported net income, net of related tax effects
|
|
|
73 |
|
Less: Total
stock-based employee compensation
|
|
|
|
|
expense
determined under fair value based method
|
|
|
|
|
for
all awards, net of related tax effects
|
|
|
(544 |
) |
Pro
forma net income
|
|
$ |
26,491 |
|
Earnings
per share:
|
|
|
|
|
Basic
– as reported
|
|
$ |
1.88 |
|
Basic
– pro forma
|
|
|
1.84 |
|
Diluted
– as reported
|
|
|
1.84 |
|
Diluted
– pro forma
|
|
|
1.80 |
|
In
connection with cash acquisitions accounted for using the purchase method, the
Company acquired assets and assumed liabilities as follows:
(In thousands)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
assumed
|
|
$ |
-- |
|
|
$ |
-- |
|
|
$ |
2,156 |
|
Fair
value of assets acquired
|
|
|
-- |
|
|
|
-- |
|
|
|
311 |
|
Cash
received
|
|
|
-- |
|
|
|
-- |
|
|
|
1,845 |
|
Funds
acquired
|
|
|
-- |
|
|
|
-- |
|
|
|
100 |
|
Net
funds received
|
|
$ |
-- |
|
|
$ |
-- |
|
|
$ |
1,945 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
cash payment information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
paid
|
|
$ |
76,958 |
|
|
$ |
65,108 |
|
|
$ |
41,007 |
|
Income
taxes paid
|
|
|
10,563 |
|
|
|
7,926 |
|
|
|
11,232 |
|
NOTE
13: OTHER OPERATING
EXPENSES
Other
operating expenses consist of the following:
(In thousands)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
Professional
services
|
|
$ |
2,780 |
|
|
$ |
2,490 |
|
|
$ |
2,201 |
Postage
|
|
|
2,309 |
|
|
|
2,278 |
|
|
|
2,281 |
Telephone
|
|
|
1,820 |
|
|
|
1,961 |
|
|
|
1,847 |
Credit
card expense
|
|
|
4,095 |
|
|
|
3,235 |
|
|
|
2,693 |
Operating
supplies
|
|
|
1,669 |
|
|
|
1,611 |
|
|
|
1,555 |
Amortization
of core deposit premiums
|
|
|
817 |
|
|
|
830 |
|
|
|
830 |
Other
expense
|
|
|
12,763 |
|
|
|
10,712 |
|
|
|
10,839 |
Total
|
|
$ |
26,253 |
|
|
$ |
23,117 |
|
|
$ |
22,246 |
The
Company had aggregate annual equipment rental expense of approximately $546,000
in 2007, $534,000 in 2006 and $481,000 in 2005. The Company had
aggregate annual occupancy rental expense of approximately $1,168,000 in 2007,
$1,106,000 in 2006 and $1,111,000 in 2005.
The
following methods and assumptions were used to estimate the fair value of each
class of financial instruments:
Cash
and Cash Equivalents
The
carrying amount for cash and cash equivalents approximates fair
value.
Investment
Securities
Fair
values for investment securities equal quoted market prices, if
available. If quoted market prices are not available, fair values are
estimated based on quoted market prices of similar securities.
Loans
The fair
value of loans is estimated by discounting the future cash flows, using the
current rates at which similar loans would be made to borrowers with similar
credit ratings and for the same remaining maturities. Loans with
similar characteristics were aggregated for purposes of the
calculations. The carrying amount of accrued interest approximates
its fair value.
Deposits
The fair
value of demand deposits, savings accounts and money market deposits is the
amount payable on demand at the reporting date (i.e., their carrying
amount). The fair value of fixed-maturity time deposits is estimated
using a discounted cash flow calculation that applies the rates currently
offered for deposits of similar remaining maturities. The carrying
amount of accrued interest payable approximates its fair value.
Federal
Funds Purchased, Securities Sold Under Agreement to Repurchase
and
Short-Term Debt
The
carrying amount for Federal funds purchased, securities sold under agreement to
repurchase and short-term debt are a reasonable estimate of fair
value.
Long-Term
Debt
Rates
currently available to the Company for debt with similar terms and remaining
maturities are used to estimate the fair value of existing debt.
Commitments
to Extend Credit, Letters of Credit and Lines of Credit
The fair
value of commitments is estimated using the fees currently charged to enter into
similar agreements, taking into account the remaining terms of the agreements
and the present creditworthiness of the counterparties. For fixed
rate loan commitments, fair value also considers the difference between current
levels of interest rates and the committed rates. The fair values of
letters of credit and lines of credit are based on fees currently charged for
similar agreements or on the estimated cost to terminate or otherwise settle the
obligations with the counterparties at the reporting date.
The
following table represents estimated fair values of the Company's financial
instruments. The fair values of certain of these instruments were
calculated by discounting expected cash flows. This method involves significant
judgments by management considering the uncertainties of economic conditions and
other factors inherent in the risk management of financial
instruments. Fair value is the estimated amount at which financial
assets or liabilities could be exchanged in a current transaction between
willing parties, other than in a forced or liquidation sale. Because
no market exists for certain of these financial instruments and because
management does not intend to sell these financial instruments, the Company does
not know whether the fair values shown below represent values at which the
respective financial instruments could be sold individually or in the
aggregate.
|
|
December 31, 2007
|
|
|
December
31, 2006
|
|
|
|
Carrying
|
|
|
Fair
|
|
|
Carrying
|
|
|
Fair
|
|
(In thousands)
|
|
Amount
|
|
|
Value
|
|
|
Amount
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
110,230 |
|
|
$ |
110,230 |
|
|
$ |
151,151 |
|
|
$ |
151,151 |
|
Held-to-maturity
securities
|
|
|
190,284 |
|
|
|
191,738 |
|
|
|
179,944 |
|
|
|
179,816 |
|
Available-for-sale
securities
|
|
|
340,646 |
|
|
|
340,646 |
|
|
|
347,182 |
|
|
|
347,182 |
|
Assets
held in trading accounts
|
|
|
5,658 |
|
|
|
5,658 |
|
|
|
4,487 |
|
|
|
4,487 |
|
Mortgage
loans held for sale
|
|
|
11,097 |
|
|
|
11,097 |
|
|
|
7,091 |
|
|
|
7,091 |
|
Interest
receivable
|
|
|
21,345 |
|
|
|
21,345 |
|
|
|
21,974 |
|
|
|
21,974 |
|
Loans,
net
|
|
|
1,825,151 |
|
|
|
1,824,235 |
|
|
|
1,758,110 |
|
|
|
1,777,257 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest
bearing transaction accounts
|
|
|
310,181 |
|
|
|
310,181 |
|
|
|
305,327 |
|
|
|
305,327 |
|
Interest
bearing transaction accounts and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
savings
deposits
|
|
|
761,233 |
|
|
|
761,233 |
|
|
|
738,763 |
|
|
|
738,763 |
|
Time
deposits
|
|
|
1,111,443 |
|
|
|
1,116,368 |
|
|
|
1,131,441 |
|
|
|
1,150,274 |
|
Federal
funds purchased and securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
sold
under agreements to repurchase
|
|
|
128,806 |
|
|
|
128,806 |
|
|
|
105,036 |
|
|
|
105,036 |
|
Short-term
debt
|
|
|
1,777 |
|
|
|
1,777 |
|
|
|
6,114 |
|
|
|
6,114 |
|
Long-term
debt
|
|
|
82,285 |
|
|
|
94,590 |
|
|
|
83,311 |
|
|
|
85,125 |
|
Interest
payable
|
|
|
6,757 |
|
|
|
6,757 |
|
|
|
7,296 |
|
|
|
7,296 |
|
The fair
value of commitments to extend credit and letters of credit is not presented
since management believes the fair value to be insignificant.
Accounting
principles generally accepted in the United Sates of America require disclosure
of certain significant estimates and current vulnerabilities due to certain
concentrations. Estimates related to the allowance for loan losses
and certain concentrations of credit risk are reflected in Note 4, Loans and
Allowance for Loan Losses.
NOTE
16: COMMITMENTS AND CREDIT
RISK
The
Company grants agri-business, credit card, commercial and residential loans to
customers throughout Arkansas. 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
December 31, 2007, the Company had outstanding commitments to extend credit
aggregating approximately $244,052,000 and $411,421,000 for credit card
commitments and other loan commitments, respectively. At
December 31, 2006, the Company had outstanding commitments to extend credit
aggregating approximately $202,047,000 and $529,697,000 for credit card
commitments and other loan commitments, respectively.
Letters of
credit are conditional commitments issued by the Company to guarantee the
performance of a customer to a third party. Those guarantees are
primarily issued to support public and private borrowing arrangements, including
commercial paper, bond financing and similar transactions. The credit
risk involved in issuing letters of credit is essentially the same as that
involved in extending loans to customers. The Company had total
outstanding letters of credit amounting to $9,906,000 and $5,477,000 at December
31, 2007 and 2006, respectively, with terms ranging from 90 days to three
years. The Company’s deferred revenue under standby letter of credit
agreements was approximately $42,000 and $35,000 at December 31, 2007 and 2006,
respectively.
At
December 31, 2007, the Company did not have concentrations of 5% or more of the
investment portfolio in bonds issued by a single municipality.
In July
2006, the Financial Accounting Standards Board (“FASB”) issued Interpretation
No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of FASB
Statement 109 (“FIN 48”). FIN 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. FIN 48 also requires expanded disclosure with respect to the
uncertainty in income taxes. The Company adopted FIN 48 on January 1,
2007, with no significant impact on the Company’s financial position or results
of operations.
In
September 2006, the FASB issued Statement of Financial Accounting Standards No.
157, Fair Value Measurements (“SFAS No. 157”). SFAS No. 157 defines
fair value, establishes a framework for measuring fair value in generally
accepted accounting principles (“GAAP”), and expands disclosures about fair
value measurements. This Statement applies under other accounting
pronouncements that require or permit fair value measurements, FASB having
previously concluded in those accounting pronouncements that fair value is the
relevant measurement attribute. Accordingly, this Statement does not
require any new fair value measurements. SFAS No. 157 is effective
for financial statements issued for fiscal years beginning after November 15,
2007, and interim periods within those fiscal years. SFAS No.
157 is effective for the Company on January 1, 2008 and is not expected to have
a material effect on the Company’s financial position or results of
operations.
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 (“SFAS No. 159”), to provide
companies with an option to report selected financial assets and liabilities at
fair value. The objective is to improve financial reporting by
providing entities with the opportunity to mitigate volatility in reported
earnings caused by measuring related assets and liabilities differently without
having to apply complex hedge accounting provisions. This statement
shall be effective as of the beginning of each reporting entity's first fiscal
year that begins after November 15, 2007. SFAS No. 159 is effective
for the Company on January 1, 2008 and is not expected to have a material effect
on the Company’s financial position or results of operations.
In
September 2006, the FASB Emerging Issue Task Force (“EITF”) issued EITF 06-4,
Accounting for Deferred Compensation and Postretirement Benefit Aspects of
Endorsement Split-Dollar Life Insurance Arrangements. The EITF
determined that for an endorsement split-dollar life insurance arrangement
within the scope of the Issue, the employer should recognize a liability for
future benefits in accordance with SFAS No. 106, Employers' Accounting
for Postretirement Benefits Other Than Pensions, or APB Opinion 12,
Omnibus Opinion-1967, based on the substantive agreement with the
employee. In March 2007, the FASB EITF issued ElTF 06-10, Accounting
for Deferred Compensation and Postretirement Benefit Aspects of Collateral
Assignment Split-Dollar Life Insurance Arrangements. The EITF determined that an
employer should recognize a liability for the postretirement benefit related to
a collateral assignment split-dollar life insurance arrangement in accordance
with either Statement 106 (if, in substance, a postretirement benefit plan
exists) or Opinion 12 (if the arrangement is, in substance, an individual
deferred compensation contract) based on the substantive agreement with the
employee. These Issues are effective for fiscal years beginning after
December 15, 2007, with earlier application permitted. Entities
should recognize the effects of applying EITF 06-4 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. As of December 31, 2007, the Company has split-dollar life
insurance arrangements with executives of the Company that have death
benefits. EITF 06-4 is effective for the Company on January 1,
2008. The Company has elected to apply EITF 06-4 through a change in
accounting principle through a cumulative-effect adjustment to retained earnings
of approximately $1 million as of January 1, 2008. The Company does
not expect the adoption of EITF 06-4 to have a material impact on the Company’s
ongoing financial position or results of operations.
NOTE
18: CONTINGENT
LIABILITIES
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.
Also, in
October 2007, the Company, as a member of Visa U.S.A. Inc. (Visa U.S.A.),
received shares of restricted stock in Visa, Inc. (Visa) as a result of its
participation in the global restructuring of Visa U.S.A., Visa Canada
Association, and Visa International Service Association in preparation for an
initial public offering. Visa U.S.A asserts that the Company and
other Visa U.S.A. member banks are obligated to share in potential losses
resulting from certain litigation. The Company accrued $1.2 million
in 2007 in connection with the Company’s obligation to indemnify Visa U.S.A. for
costs and liabilities incurred in connection with certain litigation based on
the Company’s proportionate membership interest in Visa U.S.A. With
respect to the remaining litigation related to Visa U.S.A., at this time the
Company does not know the probable outcome of such litigation and cannot
reasonably estimate a range of loss. The Company will continue
to monitor these litigation matters and record any change in the liability
related to other litigation upon additional information becoming
available. Also as a result of the guidance from the SEC, the Company
will not reflect in its 2007 financial statements any value for its membership
interest in Visa as a result of the Visa Reorganization. Upon successful
completion of the anticipated IPO, expected to occur in the first half of 2008,
the fair value of such interest will be realized based on the value of shares
used to establish the escrow account and shares redeemed for cash (limited to
the amount of the obligation recorded). The Company expects the value
of these shares to exceed the aggregate amount of its recorded
liability. While the Company expects these events to occur, there can
be no assurance that the restructuring and initial public offering of Visa will
be successful and that the shares of Visa allocated to the Company will have
sufficient value to cover the Company’s obligations under the indemnification
agreement. Furthermore, additional accruals may be required in future
periods should the Company’s estimate of its obligations under the
indemnification agreement change.
NOTE
19: STOCKHOLDERS’
EQUITY
The
Company’s subsidiaries 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 Office of the Comptroller of
the Currency is required, if the total of all the 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 the current year earnings plus 75% of the retained net earnings of the
preceding year. At December 31, 2007, the Company subsidiaries
had approximately $10.7 million in undivided profits available for payment of
dividends to the Company, without prior approval of the regulatory
agencies.
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). Management believes that, as of December 31, 2007, the
Company meets all capital adequacy requirements to which it is
subject.
As of the
most recent notification from regulatory agencies, the subsidiaries were well
capitalized under the regulatory framework for prompt corrective
action. To be categorized as well capitalized, the Company and
subsidiaries must maintain minimum total risk-based, Tier 1 risk-based and Tier
1 leverage ratios as set forth in the table. There are no conditions
or events since that notification that management believes have changed the
institutions’ categories.
The
Company’s actual capital amounts and ratios along with the Company’s most
significant subsidiaries are presented in the following table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
To
Be Well
|
|
|
|
|
|
|
|
|
|
Minimum
|
|
|
Capitalized
Under
|
|
|
|
|
|
|
|
|
|
For
Capital
|
|
|
Prompt
Corrective
|
|
|
|
Actual
|
|
|
Adequacy Purposes
|
|
|
Action Provision
|
|
(In thousands)
|
|
Amount
|
|
|
Ratio-%
|
|
|
Amount
|
|
|
Ratio-%
|
|
|
Amount
|
|
|
Ratio-%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
of December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Risk-Based Capital Ratio
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Simmons
First National Corporation
|
|
$ |
260,890 |
|
|
|
13.7 |
|
|
$ |
152,345 |
|
|
|
8.0 |
|
|
$ |
N/A |
|
|
|
|
Simmons
First National Bank
|
|
|
104,961 |
|
|
|
11.2 |
|
|
|
74,972 |
|
|
|
8.0 |
|
|
|
93,715 |
|
|
|
10.0 |
|
Simmons
First Bank of Jonesboro
|
|
|
25,510 |
|
|
|
12.3 |
|
|
|
16,592 |
|
|
|
8.0 |
|
|
|
20,740 |
|
|
|
10.0 |
|
Simmons
First Bank of Russellville
|
|
|
20,349 |
|
|
|
15.7 |
|
|
|
10,369 |
|
|
|
8.0 |
|
|
|
12,961 |
|
|
|
10.0 |
|
Simmons
First Bank of Northwest Arkansas
|
|
|
23,803 |
|
|
|
10.7 |
|
|
|
17,797 |
|
|
|
8.0 |
|
|
|
22,246 |
|
|
|
10.0 |
|
Simmons
First Bank of El Dorado
|
|
|
19,741 |
|
|
|
14.0 |
|
|
|
11,281 |
|
|
|
8.0 |
|
|
|
14,101 |
|
|
|
10.0 |
|
Tier
1 Capital Ratio
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Simmons
First National Corporation
|
|
|
236,972 |
|
|
|
12.4 |
|
|
|
76,443 |
|
|
|
4.0 |
|
|
|
N/A |
|
|
|
|
|
Simmons
First National Bank
|
|
|
95,523 |
|
|
|
10.2 |
|
|
|
37,460 |
|
|
|
4.0 |
|
|
|
56,190 |
|
|
|
6.0 |
|
Simmons
First Bank of Jonesboro
|
|
|
23,085 |
|
|
|
11.2 |
|
|
|
8,245 |
|
|
|
4.0 |
|
|
|
12,367 |
|
|
|
6.0 |
|
Simmons
First Bank of Russellville
|
|
|
18,726 |
|
|
|
14.5 |
|
|
|
5,166 |
|
|
|
4.0 |
|
|
|
7,749 |
|
|
|
6.0 |
|
Simmons
First Bank of Northwest Arkansas
|
|
|
21,008 |
|
|
|
9.4 |
|
|
|
8,940 |
|
|
|
4.0 |
|
|
|
13,409 |
|
|
|
6.0 |
|
Simmons
First Bank of El Dorado
|
|
|
18,045 |
|
|
|
12.8 |
|
|
|
5,639 |
|
|
|
4.0 |
|
|
|
8,459 |
|
|
|
6.0 |
|
Leverage
Ratio
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Simmons
First National Corporation
|
|
|
236,972 |
|
|
|
9.1 |
|
|
|
104,164 |
|
|
|
4.0 |
|
|
|
N/A |
|
|
|
|
|
Simmons
First National Bank
|
|
|
95,523 |
|
|
|
7.5 |
|
|
|
50,946 |
|
|
|
4.0 |
|
|
|
63,682 |
|
|
|
5.0 |
|
Simmons
First Bank of Jonesboro
|
|
|
23,085 |
|
|
|
8.6 |
|
|
|
10,737 |
|
|
|
4.0 |
|
|
|
13,422 |
|
|
|
5.0 |
|
Simmons
First Bank of Russellville
|
|
|
18,726 |
|
|
|
10.4 |
|
|
|
7,202 |
|
|
|
4.0 |
|
|
|
9,003 |
|
|
|
5.0 |
|
Simmons
First Bank of Northwest Arkansas
|
|
|
21,008 |
|
|
|
7.5 |
|
|
|
11,204 |
|
|
|
4.0 |
|
|
|
14,005 |
|
|
|
5.0 |
|
Simmons
First Bank of El Dorado
|
|
|
18,045 |
|
|
|
8.1 |
|
|
|
8,911 |
|
|
|
4.0 |
|
|
|
11,139 |
|
|
|
5.0 |
|
As
of December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Risk-Based Capital Ratio
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Simmons
First National Corporation
|
|
$ |
250,000 |
|
|
|
13.6 |
|
|
$ |
147,059 |
|
|
|
8.0 |
|
|
$ |
N/A |
|
|
|
|
|
Simmons
First National Bank
|
|
|
100,895 |
|
|
|
11.3 |
|
|
|
71,430 |
|
|
|
8.0 |
|
|
|
89,288 |
|
|
|
10.0 |
|
Simmons
First Bank of Jonesboro
|
|
|
23,743 |
|
|
|
11.8 |
|
|
|
16,097 |
|
|
|
8.0 |
|
|
|
20,121 |
|
|
|
10.0 |
|
Simmons
First Bank of Russellville
|
|
|
19,789 |
|
|
|
15.4 |
|
|
|
10,280 |
|
|
|
8.0 |
|
|
|
12,850 |
|
|
|
10.0 |
|
Simmons
First Bank of Northwest Arkansas
|
|
|
22,699 |
|
|
|
10.6 |
|
|
|
17,131 |
|
|
|
8.0 |
|
|
|
21,414 |
|
|
|
10.0 |
|
Simmons
First Bank of El Dorado
|
|
|
18,728 |
|
|
|
14.0 |
|
|
|
10,702 |
|
|
|
8.0 |
|
|
|
13,377 |
|
|
|
10.0 |
|
Tier
1 Capital Ratio
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Simmons
First National Corporation
|
|
|
226,880 |
|
|
|
12.4 |
|
|
|
73,187 |
|
|
|
4.0 |
|
|
|
N/A |
|
|
|
|
|
Simmons
First National Bank
|
|
|
91,859 |
|
|
|
10.3 |
|
|
|
35,673 |
|
|
|
4.0 |
|
|
|
53,510 |
|
|
|
6.0 |
|
Simmons
First Bank of Jonesboro
|
|
|
21,217 |
|
|
|
10.5 |
|
|
|
8,083 |
|
|
|
4.0 |
|
|
|
12,124 |
|
|
|
6.0 |
|
Simmons
First Bank of Russellville
|
|
|
18,176 |
|
|
|
14.1 |
|
|
|
5,156 |
|
|
|
4.0 |
|
|
|
7,734 |
|
|
|
6.0 |
|
Simmons
First Bank of Northwest Arkansas
|
|
|
20,133 |
|
|
|
9.4 |
|
|
|
8,567 |
|
|
|
4.0 |
|
|
|
12,851 |
|
|
|
6.0 |
|
Simmons
First Bank of El Dorado
|
|
|
17,278 |
|
|
|
12.9 |
|
|
|
5,358 |
|
|
|
4.0 |
|
|
|
8,036 |
|
|
|
6.0 |
|
Leverage
Ratio
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Simmons
First National Corporation
|
|
|
226,880 |
|
|
|
8.8 |
|
|
|
103,127 |
|
|
|
4.0 |
|
|
|
N/A |
|
|
|
|
|
Simmons
First National Bank
|
|
|
91,859 |
|
|
|
7.4 |
|
|
|
50,334 |
|
|
|
4.0 |
|
|
|
62,917 |
|
|
|
5.0 |
|
Simmons
First Bank of Jonesboro
|
|
|
21,217 |
|
|
|
8.0 |
|
|
|
10,609 |
|
|
|
4.0 |
|
|
|
13,261 |
|
|
|
5.0 |
|
Simmons
First Bank of Russellville
|
|
|
18,176 |
|
|
|
9.8 |
|
|
|
7,419 |
|
|
|
4.0 |
|
|
|
9,273 |
|
|
|
5.0 |
|
Simmons
First Bank of Northwest Arkansas
|
|
|
20,133 |
|
|
|
7.4 |
|
|
|
11,032 |
|
|
|
4.0 |
|
|
|
13,790 |
|
|
|
5.0 |
|
Simmons
First Bank of El Dorado
|
|
|
17,278 |
|
|
|
7.9 |
|
|
|
8,748 |
|
|
|
4.0 |
|
|
|
10,935 |
|
|
|
5.0 |
|
CONDENSED
BALANCE SHEETS
DECEMBER
31, 2007 and 2006
(In thousands)
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
6,442 |
|
|
$ |
6,858 |
|
Investment
securities
|
|
|
2,447 |
|
|
|
2,490 |
|
Investments
in wholly-owned subsidiaries
|
|
|
288,744 |
|
|
|
275,872 |
|
Intangible
assets, net
|
|
|
133 |
|
|
|
134 |
|
Premises
and equipment
|
|
|
2,492 |
|
|
|
2,664 |
|
Other
assets
|
|
|
6,661 |
|
|
|
7,006 |
|
TOTAL
ASSETS
|
|
$ |
306,919 |
|
|
$ |
295,024 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
Long-term
debt
|
|
$ |
30,930 |
|
|
$ |
32,930 |
|
Other
liabilities
|
|
|
3,583 |
|
|
|
3,078 |
|
Total
liabilities
|
|
|
34,513 |
|
|
|
36,008 |
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’
EQUITY
|
|
|
|
|
|
|
|
|
Common
stock
|
|
|
139 |
|
|
|
142 |
|
Surplus
|
|
|
41,019 |
|
|
|
48,678 |
|
Undivided
profits
|
|
|
229,520 |
|
|
|
212,394 |
|
Accumulated
other comprehensive income (loss)
|
|
|
|
|
|
|
|
|
Unrealized
appreciation (depreciation) on available-for-sale
|
|
|
|
|
|
|
|
|
securities,
net of income taxes of $1,037 at 2007
|
|
|
|
|
|
|
|
|
and
income tax credits of $1,319 at 2006
|
|
|
1,728 |
|
|
|
(2,198 |
) |
Total
stockholders’ equity
|
|
|
272,406 |
|
|
|
259,016 |
|
TOTAL
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
$ |
306,919 |
|
|
$ |
295,024 |
|
CONDENSED
STATEMENTS OF INCOME
YEARS
ENDED DECEMBER 31, 2007, 2006 and 2005
(In thousands)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
INCOME
|
|
|
|
|
|
|
|
|
|
Dividends
from subsidiaries
|
|
$ |
21,548 |
|
|
$ |
20,472 |
|
|
$ |
18,394 |
|
Other
income
|
|
|
6,288 |
|
|
|
5,809 |
|
|
|
5,473 |
|
|
|
|
27,836 |
|
|
|
26,281 |
|
|
|
23,867 |
|
EXPENSE
|
|
|
10,797 |
|
|
|
10,111 |
|
|
|
9,346 |
|
Income
before income taxes and equity in
|
|
|
|
|
|
|
|
|
|
|
|
|
undistributed
net income of subsidiaries
|
|
|
17,039 |
|
|
|
16,170 |
|
|
|
14,521 |
|
Provision
for income taxes
|
|
|
(1,438 |
) |
|
|
(1,546 |
) |
|
|
(1,342 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before equity in undistributed net
|
|
|
|
|
|
|
|
|
|
|
|
|
income
of subsidiaries
|
|
|
18,477 |
|
|
|
17,716 |
|
|
|
15,863 |
|
Equity
in undistributed net income of subsidiaries
|
|
|
8,883 |
|
|
|
9,765 |
|
|
|
11,099 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
INCOME
|
|
$ |
27,360 |
|
|
$ |
27,481 |
|
|
$ |
26,962 |
|
CONDENSED
STATEMENTS OF CASH FLOWS
YEARS
ENDED DECEMBER 31, 2007, 2006 and 2005
(In thousands)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
27,360 |
|
|
$ |
27,481 |
|
|
$ |
26,962 |
|
Items
not requiring (providing) cash
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
298 |
|
|
|
213 |
|
|
|
178 |
|
Deferred
income taxes
|
|
|
33 |
|
|
|
226 |
|
|
|
(134 |
) |
Equity
in undistributed income of bank subsidiaries
|
|
|
(8,883 |
) |
|
|
(9,765 |
) |
|
|
(11,099 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes
in
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
assets
|
|
|
366 |
|
|
|
(996 |
) |
|
|
1,066 |
|
Other
liabilities
|
|
|
505 |
|
|
|
(58 |
) |
|
|
936 |
|
Net
cash provided by operating activities
|
|
|
19,679 |
|
|
|
17,101 |
|
|
|
17,909 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases
of premises and equipment
|
|
|
(126 |
) |
|
|
(629 |
) |
|
|
(232 |
) |
Return
of capital from subsidiary
|
|
|
-- |
|
|
|
1,706 |
|
|
|
-- |
|
Purchase
of held-to-maturity securities
|
|
|
(74 |
) |
|
|
(4,100 |
) |
|
|
(1,530 |
) |
Proceeds
from sale of investment securities
|
|
|
-- |
|
|
|
4,640 |
|
|
|
550 |
|
Net
cash (used in) provided by investing activities
|
|
|
(200 |
) |
|
|
1,617 |
|
|
|
(1,212 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal
reduction on long-term debt
|
|
|
(2,000 |
) |
|
|
(2,000 |
) |
|
|
(2,000 |
) |
Dividends
paid
|
|
|
(10,234 |
) |
|
|
(9,666 |
) |
|
|
(8,757 |
) |
Repurchase
of common stock, net
|
|
|
(7,661 |
) |
|
|
(5,047 |
) |
|
|
(9,105 |
) |
Net
cash used in financing activities
|
|
|
(19,895 |
) |
|
|
(16,713 |
) |
|
|
(19,862 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(DECREASE) INCREASE IN CASH
AND
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH
EQUIVALENTS
|
|
|
(416 |
) |
|
|
2,005 |
|
|
|
(3,165 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH
AND CASH EQUIVALENTS,
|
|
|
|
|
|
|
|
|
|
|
|
|
BEGINNING
OF YEAR
|
|
|
6,858 |
|
|
|
4,853 |
|
|
|
8,018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH
AND CASH EQUIVALENTS, END OF YEAR
|
|
$ |
6,442 |
|
|
$ |
6,858 |
|
|
$ |
4,853 |
|
ITEM
9. |
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
|
ITEM
9A. |
CONTROLS AND
PROCEDURES |
(a)
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-14(c) and 15 C. F. R. 240.15-14(c)) 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.
(b)
Changes in Internal Controls. 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.
ITEM
9B. |
OTHER
INFORMATION |
No items
are reportable.
PART
III
ITEM
10. |
DIRECTORS AND
EXECUTIVE OFFICERS OF THE
COMPANY |
Incorporated
herein by reference from the Company's definitive proxy statement for the Annual
Meeting of Stockholders to be held April 8, 2008, to be filed pursuant to
Regulation 14A on or about March 7, 2008.
ITEM
11. |
EXECUTIVE
COMPENSATION |
Incorporated
herein by reference from the Company's definitive proxy statement for the Annual
Meeting of Stockholders to be held April 8, 2008, to be filed pursuant to
Regulation 14A on or about March 7, 2008.
ITEM
12. |
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND
MANAGEMENT |
Incorporated
herein by reference from the Company's definitive proxy statement for the Annual
Meeting of Stockholders to be held April 8, 2008, to be filed pursuant to
Regulation 14A on or about March 7, 2008.
ITEM
13. |
CERTAIN
RELATIONSHIPS AND RELATED
TRANSACTIONS |
Incorporated
herein by reference from the Company's definitive proxy statement for the Annual
Meeting of Stockholders to be held April 8, 2008, to be filed pursuant to
Regulation 14A on or about March 7, 2008.
ITEM
14. |
PRINCIPAL
ACCOUNTING FEES AND
SERVICES |
Incorporated
herein by reference from the Company's definitive proxy statement for the Annual
Meeting of Stockholders to be held April 8, 2008, to be filed pursuant to
Regulation 14A on or about March 7, 2008.
PART
IV
ITEM
15.
|
EXHIBITS
AND FINANCIAL STATEMENT SCHEDULES
|
(a) 1 and
2. Financial Statements and any Financial Statement
Schedules
The
financial statements and financial statement schedules listed in the
accompanying index to the consolidated financial statements and financial
statement schedules are filed as part of this report.
(b)
Listing of Exhibits
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. 6253)).
|
|
3.2
|
Amended
By-Laws of Simmons First National
Corporation.*
|
|
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 Bob 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. 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.
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. 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 Bob 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. 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.
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. 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 Bob 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. 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.
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. 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. 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, Executive Vice
President and 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, Executive Vice
President and Chief Financial
Officer.*
|
* Filed
herewith.
SIGNATURES
Pursuant
to the requirements of Section 13 or 15 (d) 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.
|
|
/s/
John L. Rush |
February 25,
2008 |
|
|
John
L. Rush, Secretary
|
Pursuant
to the requirements of the Securities and Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the registrant and in
the capacities indicated on or about February 25, 2008.
Signature
|
Title
|
|
|
|
|
/s/ J.
Thomas May
|
Chairman
and Chief Executive Officer
|
J.
Thomas May
|
and
Director
|
|
|
|
|
/s/
Robert A. Fehlman
|
Executive
Vice President and Chief Financial Officer
|
Robert
A. Fehlman
|
(Principal
Financial and Accounting Officer)
|
|
|
|
|
/s/
William E. Clark II
|
Director
|
William
E. Clark II
|
|
|
|
|
|
/s/
Steven A. Cossé
|
Director
|
Steven
A. Cossé
|
|
|
|
|
|
/s/
Edward Drilling
|
Director
|
Edward
Drilling
|
|
|
|
|
|
/s/
George A. Makris, Jr.
|
Director
|
George
A. Makris, Jr.
|
|
|
|
|
|
/s/ W.
Scott McGeorge
|
Director
|
W.
Scott McGeorge
|
|
|
|
|
|
/s/
Stanley E. Reed
|
Director
|
Stanley
E. Reed
|
|
|
|
|
|
/s/ Harry
L. Ryburn
|
Director
|
Harry
L. Ryburn
|
|
|
|
|
|
/s/
Robert L. Shoptaw
|
Director
|
Robert
L. Shoptaw
|
|
|
|
|
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/s/ Henry F. Trotter,
Jr.
|
Director
|
Henry
F. Trotter, Jr.
|
|