a5823614.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
QUARTERLY
REPORT UNDER SECTION 13 OR 15(d)
OF THE
SECURITIES EXCHANGE ACT OF 1934
For
Quarter Ended September 30,
2008
|
Commission
File Number 0-6253
|
SIMMONS
FIRST NATIONAL CORPORATION
(Exact
name of registrant as specified in its charter)
Arkansas
|
71-0407808
|
(State
or other jurisdiction of
|
(I.R.S.
Employer
|
incorporation
or organization)
|
Identification
No.)
|
|
|
501
Main Street, Pine Bluff, Arkansas
|
71601
|
(Address
of principal executive offices)
|
(Zip
Code)
|
870-541-1000
(Registrant's
telephone number, including area code)
Former
name, former address and former fiscal year, if changed since last
report
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. S
Yes £
No
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of
“accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange
Act. (Check one):
£ Large
accelerated filer
|
S
Accelerated filer
|
£
Non-accelerated filer
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act.). £
Yes S
No
The number
of shares outstanding of the Registrant’s Common Stock as of October 23, 2008
was 13,958,932.
Simmons
First National Corporation
Quarterly
Report on Form 10-Q
September
30, 2008
Table
of Contents
|
|
Page
|
|
|
|
|
|
Item
1.
|
|
|
|
|
3-4
|
|
|
5
|
|
|
6
|
|
|
7
|
|
|
8-22
|
|
|
23
|
Item
2.
|
|
|
|
|
24-49
|
Item
3.
|
|
50-52
|
Item
4.
|
|
53
|
|
|
|
|
|
Item
1A.
|
|
53
|
Item
2.
|
|
53
|
Item
6.
|
|
53-55
|
|
|
|
|
56
|
Consolidated
Balance Sheets
September
30, 2008 and December 31, 2007
ASSETS
|
|
September
30,
|
|
|
December
31,
|
|
(In thousands, except share
data)
|
|
2008
|
|
|
2007
|
|
|
|
(Unaudited)
|
|
|
|
|
Cash
and non-interest bearing balances due from banks
|
|
$ |
70,640 |
|
|
$ |
82,630 |
|
Interest
bearing balances due from banks
|
|
|
71,837 |
|
|
|
21,140 |
|
Federal
funds sold
|
|
|
7,310 |
|
|
|
6,460 |
|
Cash
and cash equivalents
|
|
|
149,787 |
|
|
|
110,230 |
|
|
|
|
|
|
|
|
|
|
Investment
securities
|
|
|
576,072 |
|
|
|
530,930 |
|
Mortgage
loans held for sale
|
|
|
4,377 |
|
|
|
11,097 |
|
Assets
held in trading accounts
|
|
|
890 |
|
|
|
5,658 |
|
Loans
|
|
|
1,936,279 |
|
|
|
1,850,454 |
|
Allowance
for loan losses
|
|
|
(25,548 |
) |
|
|
(25,303 |
) |
Net
loans
|
|
|
1,910,731 |
|
|
|
1,825,151 |
|
|
|
|
|
|
|
|
|
|
Premises
and equipment
|
|
|
78,357 |
|
|
|
75,473 |
|
Foreclosed
assets held for sale, net
|
|
|
4,044 |
|
|
|
2,629 |
|
Interest
receivable
|
|
|
23,322 |
|
|
|
21,345 |
|
Bank
owned life insurance
|
|
|
39,220 |
|
|
|
38,039 |
|
Goodwill
|
|
|
60,605 |
|
|
|
60,605 |
|
Core
deposit premiums
|
|
|
2,777 |
|
|
|
3,382 |
|
Other
assets
|
|
|
10,010 |
|
|
|
7,908 |
|
|
|
|
|
|
|
|
|
|
TOTAL
ASSETS
|
|
$ |
2,860,192 |
|
|
$ |
2,692,447 |
|
See
Condensed Notes to Consolidated Financial Statements.
Simmons
First National Corporation
Consolidated
Balance Sheets
September
30, 2008 and December 31, 2007
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
September
30,
|
|
|
December
31,
|
|
(In thousands, except share
data)
|
|
2008
|
|
|
2007
|
|
|
|
(Unaudited)
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
Non-interest
bearing transaction accounts
|
|
$ |
318,660 |
|
|
$ |
310,181 |
|
Interest
bearing transaction accounts and savings deposits
|
|
|
1,024,176 |
|
|
|
761,233 |
|
Time
deposits
|
|
|
951,556 |
|
|
|
1,111,443 |
|
Total
deposits
|
|
|
2,294,392 |
|
|
|
2,182,857 |
|
Federal
funds purchased and securities sold
|
|
|
|
|
|
|
|
|
under
agreements to repurchase
|
|
|
104,002 |
|
|
|
128,806 |
|
Short-term
debt
|
|
|
1,480 |
|
|
|
1,777 |
|
Long-term
debt
|
|
|
157,019 |
|
|
|
82,285 |
|
Accrued
interest and other liabilities
|
|
|
22,482 |
|
|
|
24,316 |
|
Total
liabilities
|
|
|
2,579,375 |
|
|
|
2,420,041 |
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’
EQUITY
|
|
|
|
|
|
|
|
|
Capital
stock
|
|
|
|
|
|
|
|
|
Class
A, common, par value $0.01 a share, authorized
|
|
|
|
|
|
|
|
|
60,000,000
shares, 13,958,932 issued and outstanding
|
|
|
|
|
|
|
|
|
at
2008 and 13,918,368 at 2007
|
|
|
140 |
|
|
|
139 |
|
Surplus
|
|
|
40,744 |
|
|
|
41,019 |
|
Undivided
profits
|
|
|
241,682 |
|
|
|
229,520 |
|
Accumulated
other comprehensive income
|
|
|
|
|
|
|
|
|
Unrealized
(depreciation) appreciation on available-for-sale
|
|
|
|
|
|
|
|
|
securities,
net of income tax credits of $1,094 at 2008 and
|
|
|
|
|
|
|
|
|
income
taxes of $1,037 at 2007
|
|
|
(1,749 |
) |
|
|
1,728 |
|
Total
stockholders’ equity
|
|
|
280,817 |
|
|
|
272,406 |
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
$ |
2,860,192 |
|
|
$ |
2,692,447 |
|
See Condensed
Notes to Consolidated Financial Statements.
Consolidated
Statements of Income
Three
and Nine Months Ended September 30, 2008 and 2007
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
|
|
September
30,
|
|
|
September
30,
|
|
(In thousands, except per share
data)
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
INTEREST
INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$ |
31,548 |
|
|
$ |
36,604 |
|
|
$ |
95,812 |
|
|
$ |
105,751 |
|
Federal
funds sold
|
|
|
176 |
|
|
|
302 |
|
|
|
716 |
|
|
|
1,303 |
|
Investment
securities
|
|
|
7,063 |
|
|
|
6,046 |
|
|
|
20,687 |
|
|
|
17,656 |
|
Mortgage
loans held for sale
|
|
|
112 |
|
|
|
147 |
|
|
|
338 |
|
|
|
383 |
|
Assets
held in trading accounts
|
|
|
-- |
|
|
|
71 |
|
|
|
42 |
|
|
|
124 |
|
Interest
bearing balances due from banks
|
|
|
309 |
|
|
|
131 |
|
|
|
1,184 |
|
|
|
938 |
|
TOTAL
INTEREST INCOME
|
|
|
39,208 |
|
|
|
43,301 |
|
|
|
118,779 |
|
|
|
126,155 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INTEREST
EXPENSE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
12,607 |
|
|
|
16,635 |
|
|
|
41,700 |
|
|
|
49,299 |
|
Federal
funds purchased and securities sold
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
under
agreements to repurchase
|
|
|
429 |
|
|
|
1,404 |
|
|
|
1,813 |
|
|
|
4,057 |
|
Short-term
debt
|
|
|
62 |
|
|
|
519 |
|
|
|
101 |
|
|
|
637 |
|
Long-term
debt
|
|
|
1,763 |
|
|
|
1,173 |
|
|
|
4,929 |
|
|
|
3,568 |
|
TOTAL
INTEREST EXPENSE
|
|
|
14,861 |
|
|
|
19,731 |
|
|
|
48,543 |
|
|
|
57,561 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
INTEREST INCOME
|
|
|
24,347 |
|
|
|
23,570 |
|
|
|
70,236 |
|
|
|
68,594 |
|
Provision
for loan losses
|
|
|
2,214 |
|
|
|
850 |
|
|
|
5,895 |
|
|
|
2,432 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
INTEREST INCOME AFTER PROVISION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FOR
LOAN LOSSES
|
|
|
22,133 |
|
|
|
22,720 |
|
|
|
64,341 |
|
|
|
66,162 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NON-INTEREST
INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trust
income
|
|
|
1,608 |
|
|
|
1,528 |
|
|
|
4,707 |
|
|
|
4,639 |
|
Service
charges on deposit accounts
|
|
|
4,009 |
|
|
|
3,759 |
|
|
|
11,134 |
|
|
|
10,912 |
|
Other
service charges and fees
|
|
|
648 |
|
|
|
698 |
|
|
|
2,021 |
|
|
|
2,198 |
|
Income
on sale of mortgage loans, net of commissions
|
|
|
595 |
|
|
|
715 |
|
|
|
2,077 |
|
|
|
2,121 |
|
Income
on investment banking, net of commissions
|
|
|
131 |
|
|
|
90 |
|
|
|
779 |
|
|
|
393 |
|
Credit
card fees
|
|
|
3,491 |
|
|
|
3,115 |
|
|
|
10,144 |
|
|
|
8,789 |
|
Premiums
on sale of student loans
|
|
|
3 |
|
|
|
419 |
|
|
|
1,135 |
|
|
|
2,042 |
|
Bank
owned life insurance income
|
|
|
370 |
|
|
|
367 |
|
|
|
1,157 |
|
|
|
1,090 |
|
Gain
on mandatory partial redemption of Visa shares
|
|
|
-- |
|
|
|
-- |
|
|
|
2,973 |
|
|
|
-- |
|
Other
income
|
|
|
433 |
|
|
|
682 |
|
|
|
1,870 |
|
|
|
1,980 |
|
TOTAL
NON-INTEREST INCOME
|
|
|
11,288 |
|
|
|
11,373 |
|
|
|
37,997 |
|
|
|
34,164 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NON-INTEREST
EXPENSE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries
and employee benefits
|
|
|
14,056 |
|
|
|
13,778 |
|
|
|
42,697 |
|
|
|
41,406 |
|
Occupancy
expense, net
|
|
|
1,912 |
|
|
|
1,671 |
|
|
|
5,526 |
|
|
|
4,945 |
|
Furniture
and equipment expense
|
|
|
1,543 |
|
|
|
1,455 |
|
|
|
4,505 |
|
|
|
4,428 |
|
Other
real estate and foreclosure expense
|
|
|
57 |
|
|
|
77 |
|
|
|
185 |
|
|
|
137 |
|
Deposit
insurance
|
|
|
267 |
|
|
|
85 |
|
|
|
468 |
|
|
|
220 |
|
Other
operating expenses
|
|
|
6,606 |
|
|
|
6,157 |
|
|
|
18,395 |
|
|
|
18,312 |
|
TOTAL
NON-INTEREST EXPENSE
|
|
|
24,441 |
|
|
|
23,223 |
|
|
|
71,776 |
|
|
|
69,448 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME
BEFORE INCOME TAXES
|
|
|
8,980 |
|
|
|
10,870 |
|
|
|
30,562 |
|
|
|
30,878 |
|
Provision
for income taxes
|
|
|
2,506 |
|
|
|
3,370 |
|
|
|
9,278 |
|
|
|
9,710 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
INCOME
|
|
$ |
6,474 |
|
|
$ |
7,500 |
|
|
$ |
21,284 |
|
|
$ |
21,168 |
|
BASIC
EARNINGS PER SHARE
|
|
$ |
0.47 |
|
|
$ |
0.53 |
|
|
$ |
1.53 |
|
|
$ |
1.50 |
|
DILUTED
EARNINGS PER SHARE
|
|
$ |
0.46 |
|
|
$ |
0.53 |
|
|
$ |
1.51 |
|
|
$ |
1.48 |
|
See Condensed
Notes to Consolidated Financial Statements.
Consolidated
Statements of Cash Flows
Nine
Months Ended September 30, 2008 and 2007
|
|
September
30,
|
|
|
September
30,
|
|
(In thousands)
|
|
2008
|
|
|
2007
|
|
|
|
(Unaudited)
|
|
OPERATING
ACTIVITIES
|
|
|
|
|
|
|
Net
income
|
|
$ |
21,284 |
|
|
$ |
21,168 |
|
Items
not requiring (providing) cash
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
4,268 |
|
|
|
4,161 |
|
Provision
for loan losses
|
|
|
5,895 |
|
|
|
2,432 |
|
Gain
on mandatory partial redemption of Visa shares
|
|
|
(2,973 |
) |
|
|
-- |
|
Net
amortization of investment securities
|
|
|
205 |
|
|
|
119 |
|
Stock-based
compensation expense
|
|
|
466 |
|
|
|
307 |
|
Deferred
income taxes
|
|
|
563 |
|
|
|
725 |
|
Bank
owned life insurance income
|
|
|
(1,157 |
) |
|
|
(1,090 |
) |
Changes
in
|
|
|
|
|
|
|
|
|
Interest
receivable
|
|
|
(1,977 |
) |
|
|
(3,725 |
) |
Mortgage
loans held for sale
|
|
|
6,720 |
|
|
|
(1,153 |
) |
Assets
held in trading accounts
|
|
|
4,768 |
|
|
|
(995 |
) |
Other
assets
|
|
|
(2,444 |
) |
|
|
1,974 |
|
Accrued
interest and other liabilities
|
|
|
(2,429 |
) |
|
|
3,278 |
|
Income
taxes payable
|
|
|
(1,142 |
) |
|
|
123 |
|
Net
cash provided by operating activities
|
|
|
32,047 |
|
|
|
27,324 |
|
|
|
|
|
|
|
|
|
|
INVESTING
ACTIVITIES
|
|
|
|
|
|
|
|
|
Net
originations of loans
|
|
|
(96,871 |
) |
|
|
(96,521 |
) |
Purchases
of premises and equipment, net
|
|
|
(6,547 |
) |
|
|
(8,706 |
) |
Proceeds
from sale of foreclosed assets
|
|
|
3,981 |
|
|
|
2,382 |
|
Proceeds
from mandatory partial redemption of Visa shares
|
|
|
2,973 |
|
|
|
-- |
|
Proceeds
from maturities of available-for-sale securities
|
|
|
268,209 |
|
|
|
72,601 |
|
Purchases
of available-for-sale securities
|
|
|
(325,485 |
) |
|
|
(72,614 |
) |
Proceeds
from maturities of held-to-maturity securities
|
|
|
34,276 |
|
|
|
20,224 |
|
Purchases
of held-to-maturity securities
|
|
|
(25,823 |
) |
|
|
(20,512 |
) |
Purchases
of bank owned life insurance
|
|
|
(25 |
) |
|
|
(405 |
) |
Net
cash used in investing activities
|
|
|
(145,312 |
) |
|
|
(103,551 |
) |
|
|
|
|
|
|
|
|
|
FINANCING
ACTIVITIES
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in deposits
|
|
|
111,535 |
|
|
|
(2,174 |
) |
Net
(repayments) issuance of short-term debt
|
|
|
(297 |
) |
|
|
61,481 |
|
Dividends
paid
|
|
|
(7,948 |
) |
|
|
(7,590 |
) |
Proceeds
from issuance of long-term debt
|
|
|
86,025 |
|
|
|
6,135 |
|
Repayment
of long-term debt
|
|
|
(11,291 |
) |
|
|
(9,791 |
) |
Net
(decrease) increase in federal funds purchased and
|
|
|
|
|
|
|
|
|
securities
sold under agreements to repurchase
|
|
|
(24,804 |
) |
|
|
1,948 |
|
Repurchase
of common stock, net
|
|
|
(398 |
) |
|
|
(7,351 |
) |
Net
cash provided by financing activities
|
|
|
152,822 |
|
|
|
42,658 |
|
|
|
|
|
|
|
|
|
|
INCREASE
(DECREASE) IN CASH AND CASH EQUIVALENTS
|
|
|
39,557 |
|
|
|
(33,569 |
) |
CASH
AND CASH EQUIVALENTS, BEGINNING OF PERIOD
|
|
|
110,230 |
|
|
|
151,151 |
|
|
|
|
|
|
|
|
|
|
CASH
AND CASH EQUIVALENTS, END OF PERIOD
|
|
$ |
149,787 |
|
|
$ |
117,582 |
|
See Condensed
Notes to Consolidated Financial Statements.
Consolidated
Statements of Stockholders’ Equity
Nine
Months Ended September 30, 2008 and 2007
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
Common
|
|
|
|
|
|
Comprehensive
|
|
|
Undivided
|
|
|
|
|
(In thousands, except share
data)
|
|
Stock
|
|
|
Surplus
|
|
|
Income (loss)
|
|
|
Profits
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2006
|
|
$ |
142 |
|
|
$ |
48,678 |
|
|
$ |
(2,198 |
) |
|
$ |
212,394 |
|
|
$ |
259,016 |
|
Comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
21,168 |
|
|
|
21,168 |
|
Change
in unrealized depreciation on
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
available-for-sale
securities, net of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
income
tax credits of $1,331
|
|
|
-- |
|
|
|
-- |
|
|
|
2,218 |
|
|
|
-- |
|
|
|
2,218 |
|
Comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,386 |
|
Stock
issued as bonus shares – 8,800 shares
|
|
|
-- |
|
|
|
250 |
|
|
|
-- |
|
|
|
-- |
|
|
|
250 |
|
Exercise
of stock options – 30,200 shares
|
|
|
-- |
|
|
|
466 |
|
|
|
-- |
|
|
|
-- |
|
|
|
466 |
|
Stock
granted under
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
stock-based
compensation plans
|
|
|
-- |
|
|
|
143 |
|
|
|
-- |
|
|
|
-- |
|
|
|
143 |
|
Securities
exchanged under stock option plan
|
|
|
-- |
|
|
|
(187 |
) |
|
|
-- |
|
|
|
-- |
|
|
|
(187 |
) |
Repurchase
of common stock – 294,831 shares
|
|
|
(3 |
) |
|
|
(7,880 |
) |
|
|
-- |
|
|
|
-- |
|
|
|
(7,883 |
) |
Dividends
paid – $0.54 per share
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
(7,590 |
) |
|
|
(7,590 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
September 30, 2007 (Unaudited)
|
|
|
139 |
|
|
|
41,470 |
|
|
|
20 |
|
|
|
225,972 |
|
|
|
267,601 |
|
Comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
6,192 |
|
|
|
6,192 |
|
Change
in unrealized depreciation on
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
available-for-sale
securities, net of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
income
taxes of $1,025
|
|
|
-- |
|
|
|
-- |
|
|
|
1,708 |
|
|
|
-- |
|
|
|
1,708 |
|
Comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,900 |
|
Stock
issued as bonus shares – 6,346 shares
|
|
|
-- |
|
|
|
169 |
|
|
|
-- |
|
|
|
-- |
|
|
|
169 |
|
Exercise
of stock options – 3,520 shares
|
|
|
-- |
|
|
|
43 |
|
|
|
-- |
|
|
|
-- |
|
|
|
43 |
|
Stock
granted under
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
stock-based
compensation plans
|
|
|
-- |
|
|
|
35 |
|
|
|
-- |
|
|
|
-- |
|
|
|
35 |
|
Securities
exchanged under stock option plan
|
|
|
-- |
|
|
|
(16 |
) |
|
|
-- |
|
|
|
-- |
|
|
|
(16 |
) |
Repurchase
of common stock – 25,895 shares
|
|
|
-- |
|
|
|
(682 |
) |
|
|
-- |
|
|
|
-- |
|
|
|
(682 |
) |
Dividends
paid – $0.19 per share
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
(2,644 |
) |
|
|
(2,644 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2007
|
|
|
139 |
|
|
|
41,019 |
|
|
|
1,728 |
|
|
|
229,520 |
|
|
|
272,406 |
|
Cumulative
effect of adoption of a new accounting
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
principle
on January 1, 2008 (Note 1)
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
(1,174 |
) |
|
|
(1,174 |
) |
Comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
21,284 |
|
|
|
21,284 |
|
Change
in unrealized appreciation on
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
available-for-sale
securities, net of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
income
tax credits of $2,086
|
|
|
-- |
|
|
|
-- |
|
|
|
(3,477 |
) |
|
|
-- |
|
|
|
(3,477 |
) |
Comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,807 |
|
Stock
issued as bonus shares – 17,490 shares
|
|
|
-- |
|
|
|
530 |
|
|
|
-- |
|
|
|
-- |
|
|
|
530 |
|
Stock
issued for employee stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
purchase
plan – 5,359 shares
|
|
|
-- |
|
|
|
135 |
|
|
|
-- |
|
|
|
-- |
|
|
|
135 |
|
Exercise
of stock options – 95,497shares
|
|
|
1 |
|
|
|
1,182 |
|
|
|
-- |
|
|
|
-- |
|
|
|
1,183 |
|
Stock
granted under
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
stock-based
compensation plans
|
|
|
-- |
|
|
|
123 |
|
|
|
-- |
|
|
|
-- |
|
|
|
123 |
|
Securities
exchanged under stock option plan
|
|
|
-- |
|
|
|
(965 |
) |
|
|
-- |
|
|
|
-- |
|
|
|
(965 |
) |
Repurchase
of common stock – 45,180 shares
|
|
|
-- |
|
|
|
(1,280 |
) |
|
|
-- |
|
|
|
-- |
|
|
|
(1,280 |
) |
Dividends
paid – $0.57 per share
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
(7,948 |
) |
|
|
(7,948 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
September 30, 2008 (Unaudited)
|
|
$ |
140 |
|
|
$ |
40,744 |
|
|
$ |
(1,749 |
) |
|
$ |
241,682 |
|
|
$ |
280,817 |
|
See Condensed
Notes to Consolidated Financial Statements.
CONDENSED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
1: BASIS OF PRESENTATION
The
consolidated financial statements include the accounts of Simmons First National
Corporation and its subsidiaries. Significant intercompany accounts
and transactions have been eliminated in consolidation.
All
adjustments made to the unaudited financial statements were of a normal
recurring nature. In the opinion of management, all adjustments
necessary for a fair presentation of the results of interim periods have been
made. Certain prior year amounts are reclassified to conform to current year
classification. The consolidated balance sheet of the Company as of
December 31, 2007 has been derived from the audited consolidated balance sheet
of the Company as of that date. The results of operations for the
period are not necessarily indicative of the results to be expected for the full
year.
Certain
information and note disclosures normally included in the Company’s annual
financial statements prepared in accordance with accounting principles generally
accepted in the United States of America have been condensed or
omitted. These consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
included in the Company’s Form 10-K annual report for 2007 filed with the
Securities and Exchange Commission.
Recently
Issued Accounting Pronouncements
Emerging
Issues Task Force (“EITF”) Issue No. 06-4, Accounting for the Deferred
Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life
Insurance Arrangements, requires the recognition of a liability and
related compensation expense for endorsement split-dollar life insurance
policies that provide a benefit to an employee that extends to post-retirement
periods. Under EITF 06-4, life insurance policies purchased for the
purpose of providing such benefits do not effectively settle an entity's
obligation to the employee. Accordingly, the entity must recognize a
liability and related compensation expense during the employee's active service
period based on the future cost of insurance to be incurred during the
employee's retirement. If the entity has agreed to provide the
employee with a death benefit, then the liability for the future death benefit
should be recognized by following the guidance in Statement of Financial
Accounting Standards (“SFAS”) No. 106, Employer's Accounting for
Postretirement Benefits Other Than Pensions. The Company
adopted EITF 06-4 on January 1, 2008 as a change in accounting principle through
a cumulative-effect adjustment to retained earnings totaling
$1,174,000. 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.
On January
1, 2008, the Company adopted SFAS No. 157, Fair Value
Measurements. SFAS 157 defines fair value, establishes a
framework for measuring fair value in generally accepted accounting principles,
and expands disclosures about fair value measurements. For additional
information, see Note 16 – Fair Value Measurements.
In
February 2007, the Financial Accounting Standards Board ("FASB") issued SFAS No.
159, The Fair Value Option for
Financial Assets and Financial Liabilities – Including an amendment of FASB
Statement No. 115. SFAS 159 permits entities to choose to
measure eligible items at fair value at specified election
dates. Unrealized gains and losses on items for which the fair value
option has been elected are reported in earnings at each subsequent reporting
date. The fair value option (i) may be applied instrument by
instrument, with certain exceptions, (ii) is irrevocable (unless a new election
date occurs) and (iii) is applied only to entire instruments and not to portions
of instruments. While SFAS 159 is effective for the Company beginning January 1,
2008, the Company has not elected the fair value option that is offered by this
statement.
In
December, 2007, FASB issued SFAS 160, Noncontrolling Interests in
Consolidated Financial Statements and SFAS 141R, Business
Combinations. Both are effective for annual periods beginning
after December 15, 2008. The Company is currently evaluating the
impact of these Statements, but does not expect either to have a material effect
on the Company’s financial position or results of operations.
There have
been no other significant changes to the Company’s accounting policies from the
2007 Form 10-K.
Earnings
Per Share
Basic
earnings per share are computed based on the weighted average number of common
shares outstanding during each year. Diluted earnings per share are
computed using the weighted average common shares and all potential dilutive
common shares outstanding during the period.
Following
is the computation of per share earnings for the three and nine months ended
September 30, 2008 and 2007.
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
|
|
September
30,
|
|
|
September
30,
|
|
(In thousands, except per share
data)
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
6,474 |
|
|
$ |
7,500 |
|
|
$ |
21,284 |
|
|
$ |
21,168 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
common shares outstanding
|
|
|
13,951 |
|
|
|
13,977 |
|
|
|
13,941 |
|
|
|
14,084 |
|
Average
potential dilutive common shares
|
|
|
168 |
|
|
|
200 |
|
|
|
168 |
|
|
|
200 |
|
Average
diluted common shares
|
|
|
14,119 |
|
|
|
14,177 |
|
|
|
14,109 |
|
|
|
14,284 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per share
|
|
$ |
0.47 |
|
|
$ |
0.53 |
|
|
$ |
1.53 |
|
|
$ |
1.50 |
|
Diluted
earnings per share
|
|
$ |
0.46 |
|
|
$ |
0.53 |
|
|
$ |
1.51 |
|
|
$ |
1.48 |
|
NOTE
2: INVESTMENT SECURITIES
The
amortized cost and fair value of investment securities that are classified as
held-to-maturity and available-for-sale are as follows:
|
|
September
30,
|
|
|
December
31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
Estimated
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
Estimated
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
(In thousands)
|
|
Cost
|
|
|
Gains
|
|
|
(Losses)
|
|
|
Value
|
|
|
Cost
|
|
|
Gains
|
|
|
(Losses)
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-to-Maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Treasury
|
|
$ |
-- |
|
|
$ |
-- |
|
|
$ |
-- |
|
|
$ |
-- |
|
|
$ |
1,500 |
|
|
$ |
14 |
|
|
$ |
-- |
|
|
$ |
1,514 |
|
U.S.
Government
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
agencies
|
|
|
19,000 |
|
|
|
395 |
|
|
|
-- |
|
|
|
19,395 |
|
|
|
37,000 |
|
|
|
722 |
|
|
|
(19 |
) |
|
|
37,703 |
|
Mortgage-backed
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
securities
|
|
|
112 |
|
|
|
3 |
|
|
|
-- |
|
|
|
115 |
|
|
|
129 |
|
|
|
2 |
|
|
|
-- |
|
|
|
131 |
|
State
and political
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
subdivisions
|
|
|
161,763 |
|
|
|
715 |
|
|
|
(2,399 |
) |
|
|
160,079 |
|
|
|
149,262 |
|
|
|
1,089 |
|
|
|
(354 |
) |
|
|
149,997 |
|
Other
securities
|
|
|
930 |
|
|
|
-- |
|
|
|
-- |
|
|
|
930 |
|
|
|
2,393 |
|
|
|
-- |
|
|
|
-- |
|
|
|
2,393 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
181,805 |
|
|
$ |
1,113 |
|
|
$ |
(2,399 |
) |
|
$ |
180,519 |
|
|
$ |
190,284 |
|
|
$ |
1,827 |
|
|
$ |
(373 |
) |
|
$ |
191,738 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-Sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Treasury
|
|
$ |
6,962 |
|
|
$ |
28 |
|
|
$ |
-- |
|
|
$ |
6,990 |
|
|
$ |
5,498 |
|
|
$ |
26 |
|
|
$ |
-- |
|
|
$ |
5,524 |
|
U.S.
Government
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
agencies
|
|
|
367,759 |
|
|
|
1,165 |
|
|
|
(3,929 |
) |
|
|
364,995 |
|
|
|
317,998 |
|
|
|
3,090 |
|
|
|
(299 |
) |
|
|
320,789 |
|
Mortgage-backed
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
securities
|
|
|
2,913 |
|
|
|
2 |
|
|
|
(117 |
) |
|
|
2,798 |
|
|
|
2,923 |
|
|
|
-- |
|
|
|
(165 |
) |
|
|
2,758 |
|
State
and political
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
subdivisions
|
|
|
635 |
|
|
|
2 |
|
|
|
-- |
|
|
|
637 |
|
|
|
855 |
|
|
|
3 |
|
|
|
-- |
|
|
|
858 |
|
Other
securities
|
|
|
18,841 |
|
|
|
6 |
|
|
|
-- |
|
|
|
18,847 |
|
|
|
10,608 |
|
|
|
109 |
|
|
|
-- |
|
|
|
10,717 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
397,110 |
|
|
$ |
1,203 |
|
|
$ |
(4,046 |
) |
|
$ |
394,267 |
|
|
$ |
337,882 |
|
|
$ |
3,228 |
|
|
$ |
(464 |
) |
|
$ |
340,646 |
|
Certain
investment securities are valued at less than their historical
cost. These declines primarily resulted from the rate for these
investments yielding less than current market rates. Based on
evaluation of available evidence, management believes the declines in fair value
for these securities are temporary. 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.
During the
third quarter of 2008, the Company determined that its investment in FNMA common
stock, held in the AFS-Other securities category, had become
other-than-temporarily impaired. As a result of this impairment the
security was written-down by $75,000. The Company had accumulated
this stock over several years in the form of stock dividends from
FNMA. The remaining balance of this investment is approximately
$6,000. The Company has no investment in FNMA or FHLMC preferred
stock.
The
carrying value, which approximates the fair value, of securities pledged as
collateral, to secure public deposits and for other purposes, amounted to
$436,130,000 at September 30, 2008 and $410,645,000 at December 31,
2007.
The book
value of securities sold under agreements to repurchase amounted to $79,926,000
and $91,466,000 for September 30, 2008 and December 31, 2007,
respectively.
Income
earned on securities for the nine months ended September 30, 2008 and 2007 is as
follows:
(In thousands)
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Taxable
|
|
|
|
|
|
|
Held-to-maturity
|
|
$ |
1,169 |
|
|
$ |
1,991 |
|
Available-for-sale
|
|
|
14,793 |
|
|
|
11,785 |
|
|
|
|
|
|
|
|
|
|
Non-taxable
|
|
|
|
|
|
|
|
|
Held-to-maturity
|
|
|
4,698 |
|
|
|
3,837 |
|
Available-for-sale
|
|
|
27 |
|
|
|
43 |
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
20,687 |
|
|
$ |
17,656 |
|
Maturities
of investment securities at September 30, 2008 are as
follows:
|
|
Held-to-Maturity
|
|
|
Available-for-Sale
|
|
|
|
Amortized
|
|
|
Fair
|
|
|
Amortized
|
|
|
Fair
|
|
(In thousands)
|
|
Cost
|
|
|
Value
|
|
|
Cost
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One
year or less
|
|
$ |
16,747 |
|
|
$ |
16,724 |
|
|
$ |
15,455 |
|
|
$ |
15,478 |
|
After
one through five years
|
|
|
47,168 |
|
|
|
47,524 |
|
|
|
21,174 |
|
|
|
21,214 |
|
After
five through ten years
|
|
|
79,506 |
|
|
|
79,582 |
|
|
|
339,652 |
|
|
|
336,830 |
|
After
ten years
|
|
|
38,384 |
|
|
|
36,689 |
|
|
|
1,988 |
|
|
|
1,898 |
|
Other
securities
|
|
|
-- |
|
|
|
-- |
|
|
|
18,841 |
|
|
|
18,847 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
181,805 |
|
|
$ |
180,519 |
|
|
$ |
397,110 |
|
|
$ |
394,267 |
|
There were
no realized gains or losses on investment securities for the nine-months ended
September 30, 2008 or 2007.
The state
and political subdivision debt obligations are primarily non-rated bonds and
represent small, Arkansas issues, which are evaluated on an ongoing
basis.
NOTE
3: LOANS AND ALLOWANCE FOR LOAN LOSSES
The
various categories of loans are summarized as follows:
|
|
September
30,
|
|
|
December
31,
|
|
(In thousands)
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
|
|
|
|
Credit
cards
|
|
$ |
162,862 |
|
|
$ |
166,044 |
|
Student
loans
|
|
|
102,346 |
|
|
|
76,277 |
|
Other
consumer
|
|
|
137,763 |
|
|
|
137,624 |
|
Real
Estate
|
|
|
|
|
|
|
|
|
Construction
|
|
|
227,071 |
|
|
|
260,924 |
|
Single
family residential
|
|
|
400,845 |
|
|
|
382,676 |
|
Other
commercial
|
|
|
576,958 |
|
|
|
542,184 |
|
Commercial
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
184,690 |
|
|
|
193,091 |
|
Agricultural
|
|
|
130,988 |
|
|
|
73,470 |
|
Financial
institutions
|
|
|
2,581 |
|
|
|
7,440 |
|
Other
|
|
|
10,175 |
|
|
|
10,724 |
|
|
|
|
|
|
|
|
|
|
Total
loans before allowance for loan losses
|
|
$ |
1,936,279 |
|
|
$ |
1,850,454 |
|
As of
September 30, 2008, credit card loans, which are unsecured, were $162,862,000 or
8.4% of total loans, versus $166,044,000, or 9.0% of total loans at December 31,
2007. The credit card loans are diversified by geographic region to
reduce credit risk and minimize any adverse impact on the
portfolio. Credit card loans are regularly reviewed to facilitate the
identification and monitoring of creditworthiness.
At
September 30, 2008 and December 31, 2007, impaired loans totaled $16,551,000 and
$12,519,000, respectively. All impaired loans had either specific or
general allocations within the allowance for loan losses. Allocations
of the allowance for loan losses relative to impaired loans were $3,990,000 at
September 30, 2008 and $2,851,000 at December 31,
2007. Approximately $198,000 and $161,000 of interest income was
recognized on average impaired loans of $14,839,000 and $11,525,000 as of
September 30, 2008 and 2007, respectively. Interest recognized on
impaired loans on a cash basis during the first nine months of 2008 and 2007 was
immaterial.
Transactions
in the allowance for loan losses are as follows:
(In thousands)
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Balance,
beginning of year
|
|
$ |
25,303 |
|
|
$ |
25,385 |
|
Additions
|
|
|
|
|
|
|
|
|
Provision
charged to expense
|
|
|
5,895 |
|
|
|
2,432 |
|
|
|
|
31,198 |
|
|
|
27,817 |
|
Deductions
|
|
|
|
|
|
|
|
|
Losses
charged to allowance, net of recoveries
|
|
|
|
|
|
|
|
|
of
$1,588 and $2,160 for the first nine months of
|
|
|
|
|
|
|
|
|
2008
and 2007, respectively
|
|
|
5,650 |
|
|
|
2,710 |
|
|
|
|
|
|
|
|
|
|
Balance,
September 30
|
|
$ |
25,548 |
|
|
|
25,107 |
|
|
|
|
|
|
|
|
|
|
Additions
|
|
|
|
|
|
|
|
|
Provision
charged to expense
|
|
|
|
|
|
|
1,749 |
|
|
|
|
|
|
|
|
|
|
Deductions
|
|
|
|
|
|
|
|
|
Losses
charged to allowance, net of recoveries
|
|
|
|
|
|
|
|
|
of
$409 for the last three months of 2007
|
|
|
|
|
|
|
1,553 |
|
|
|
|
|
|
|
|
|
|
Balance,
end of year
|
|
|
|
|
|
$ |
25,303 |
|
NOTE
4: GOODWILL AND CORE DEPOSIT PREMIUMS
Goodwill
is tested annually for impairment. If the implied fair value of
goodwill is lower than its carrying amount, goodwill impairment is indicated and
goodwill is written down to its implied fair value. Subsequent
increases in goodwill value are not recognized in the financial
statements.
Core
deposit premiums are periodically evaluated as to the recoverability of their
carrying value.
The
carrying basis and accumulated amortization of core deposit premiums (net of
core deposit premiums that were fully amortized) at September 30, 2008 and
December 31, 2007, were as follows:
|
|
September
30,
|
|
|
December
31,
|
|
(In thousands)
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Gross
carrying amount
|
|
$ |
6,822 |
|
|
$ |
6,822 |
|
Accumulated
amortization
|
|
|
(4,045 |
) |
|
|
(3,440 |
) |
|
|
|
|
|
|
|
|
|
Net
core deposit premiums
|
|
$ |
2,777 |
|
|
$ |
3,382 |
|
Core
deposit premium amortization expense recorded for the nine months ended
September 30, 2008 and 2007, was $605,000 and $616,000,
respectively. The Company’s estimated amortization expense for the
remainder of 2008 is $203,000, and for each of the following four years is:
2009 –
$802,000; 2010 – $699,000; 2011 – $451,000; and 2012 – $321,000.
NOTE
5: TIME DEPOSITS
Time
deposits include approximately $395,040,000 and $452,262,000 of certificates of
deposit of $100,000 or more at September 30, 2008 and December 31, 2007
respectively.
NOTE
6: INCOME TAXES
The
provision for income taxes is comprised of the following
components:
|
|
September
30,
|
|
|
September
30,
|
|
(In thousands)
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Income
taxes currently payable
|
|
$ |
8,715 |
|
|
$ |
8,985 |
|
Deferred
income taxes
|
|
|
563 |
|
|
|
725 |
|
|
|
|
|
|
|
|
|
|
Provision
for income taxes
|
|
$ |
9,278 |
|
|
$ |
9,710 |
|
|
|
|
|
|
|
|
|
|
The
tax effects of temporary differences related to deferred taxes shown on
the balance sheets were:
|
|
|
|
|
|
|
|
|
|
|
|
|
September
30,
|
|
|
December
31,
|
|
(In thousands)
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
Deferred
tax assets
|
|
|
|
|
|
|
|
|
Allowance
for loan losses
|
|
$ |
8,911 |
|
|
$ |
8,705 |
|
Valuation
of foreclosed assets
|
|
|
63 |
|
|
|
63 |
|
Deferred
compensation payable
|
|
|
1,440 |
|
|
|
1,432 |
|
FHLB
advances
|
|
|
17 |
|
|
|
29 |
|
Vacation
compensation
|
|
|
856 |
|
|
|
820 |
|
Loan
interest
|
|
|
88 |
|
|
|
88 |
|
Available-for-sale
securities
|
|
|
1,094 |
|
|
|
-- |
|
Other
|
|
|
253 |
|
|
|
234 |
|
|
|
|
|
|
|
|
|
|
Total
deferred tax assets
|
|
|
12,722 |
|
|
|
11,371 |
|
|
|
|
|
|
|
|
|
|
Deferred
tax liabilities
|
|
|
|
|
|
|
|
|
Accumulated
depreciation
|
|
|
(411 |
) |
|
|
(558 |
) |
Deferred
loan fee income and expenses, net
|
|
|
(1,172 |
) |
|
|
(954 |
) |
FHLB
stock dividends
|
|
|
(574 |
) |
|
|
(717 |
) |
Goodwill
and core deposit premium amortization
|
|
|
(8,344 |
) |
|
|
(7,341 |
) |
Available-for-sale
securities
|
|
|
-- |
|
|
|
(1,037 |
) |
Other
|
|
|
(1,019 |
) |
|
|
(1,130 |
) |
|
|
|
|
|
|
|
|
|
Total
deferred tax liabilities
|
|
|
(11,520 |
) |
|
|
(11,737 |
) |
|
|
|
|
|
|
|
|
|
Net
deferred tax assets (liabilities) included in
|
|
|
|
|
|
|
|
|
other
assets (liabilities) on balance sheets
|
|
$ |
1,202 |
|
|
$ |
(366 |
) |
A
reconciliation of income tax expense at the statutory rate to the Company's
actual income tax expense is shown below:
|
|
September
30,
|
|
|
September
30,
|
|
(In thousands)
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Computed
at the statutory rate (35%)
|
|
$ |
10,697 |
|
|
$ |
10,807 |
|
|
|
|
|
|
|
|
|
|
Increase
(decrease) resulting from:
|
|
|
|
|
|
|
|
|
Tax
exempt income
|
|
|
(1,760 |
) |
|
|
(1,490 |
) |
Other
differences, net
|
|
|
341 |
|
|
|
393 |
|
|
|
|
|
|
|
|
|
|
Actual
tax provision
|
|
$ |
9,278 |
|
|
$ |
9,710 |
|
The
Company adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income
Taxes, an interpretation of FASB Statement 109, effective January 1,
2007. Interpretation 48 prescribes a recognition threshold and a
measurement attribute for the financial statement recognition and measurement of
a tax position taken or expected to be taken in a tax
return. Benefits from tax positions should be recognized in the
financial statements only when it is more likely than not that the tax position
will be sustained upon examination by the appropriate taxing authority that
would have full knowledge of all relevant information. A tax position
that meets the more-likely-than-not recognition threshold is measured at the
largest amount of benefit that is greater than fifty percent likely of being
realized upon ultimate settlement. Tax positions that previously
failed to meet the more-likely-than-not recognition threshold should be
recognized in the first subsequent financial reporting period in which that
threshold is met. Previously recognized tax positions that no longer
meet the more-likely-than-not recognition threshold should be derecognized in
the first subsequent financial reporting period in which that threshold is no
longer met. Interpretation 48 also provides guidance on the
accounting for and disclosure of unrecognized tax benefits, interest and
penalties. Adoption of Interpretation 48 did not have a significant
impact on the Company’s financial position, operations or cash
flows.
The amount
of unrecognized tax benefits may increase or decrease in the future for various
reasons including adding amounts for current tax year positions, expiration of
open income tax returns due to the statutes of limitation, changes in
management’s judgment about the level of uncertainty, status of examinations,
litigation and legislative activity and the addition or elimination of uncertain
tax positions.
The
Company files income tax returns in the U.S. federal
jurisdiction. The Company’s U.S. federal income tax returns are open
and subject to examinations from the 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
7: SHORT-TERM AND LONG-TERM DEBT
Long-term
debt at September 30, 2008 and December 31, 2007, consisted of the following
components:
|
|
September
30,
|
|
|
December
31,
|
|
(In thousands)
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
FHLB
advances, due 2008 to 2033, 2.40% to 8.41%
|
|
|
|
|
|
|
secured
by real estate loans
|
|
$ |
126,089 |
|
|
$ |
51,355 |
|
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
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
157,019 |
|
|
$ |
82,285 |
|
At
September 30, 2008, the Company had no Federal Home Loan Bank (“FHLB”) advances
with original maturities of one year or less.
The trust
preferred securities are tax-advantaged issues that qualify for Tier 1 capital
treatment. Distributions on these securities are included in interest expense on
long-term debt. Each of the trusts is a statutory business trust
organized for the sole purpose of issuing trust securities and investing the
proceeds thereof in junior subordinated debentures of the Company, the sole
asset of each trust. The preferred securities of each trust represent
preferred beneficial interests in the assets of the respective trusts and are
subject to mandatory redemption upon payment of the junior subordinated
debentures held by the trust. The common securities of each trust are
wholly-owned by the Company. Each trust’s ability to pay amounts due
on the trust preferred securities is solely dependent upon the Company making
payment on the related junior subordinated debentures. The Company’s
obligations under the junior subordinated securities and other relevant trust
agreements, in aggregate, constitute a full and unconditional guarantee by the
Company of each respective trust’s obligations under the trust securities issued
by each respective trust.
Aggregate
annual maturities of long-term debt at September 30, 2008 are:
|
|
|
Annual
|
|
(In thousands)
|
Year
|
|
Maturities
|
|
|
|
|
|
|
|
2008
|
|
$ |
3,347 |
|
|
2009
|
|
|
7,230 |
|
|
2010
|
|
|
26,204 |
|
|
2011
|
|
|
37,418 |
|
|
2012
|
|
|
5,467 |
|
|
Thereafter
|
|
|
77,353 |
|
|
|
|
|
|
|
|
Total
|
|
$ |
157,019 |
|
NOTE
8: CONTINGENT LIABILITIES
The
Company and/or its subsidiaries have various unrelated legal proceedings, most
of which involve loan foreclosure activity pending, which, in the aggregate, are
not expected to have a material adverse effect on the financial position of the
Company and its subsidiaries. The Company or its subsidiaries remain
the subject of one (1) lawsuit asserting claims against the Company or its
subsidiaries.
On October
1, 2003, an action in Pulaski County Circuit Court was filed by Thomas F.
Carter, Tena P. Carter and certain related entities against Simmons First Bank
of South Arkansas and Simmons First National Bank alleging wrongful conduct by
the banks in the collection of certain loans. The Company was later
added as a party defendant. The plaintiffs are seeking $2,000,000 in
compensatory damages and $10,000,000 in punitive damages. The Company
and the banks have filed Motions to Dismiss. The plaintiffs were
granted additional time to discover any evidence for litigation, and have
submitted such findings. At the hearing on the Motions for Summary
Judgment, the Court dismissed Simmons First National Bank due to lack of
venue. Venue has been changed to Jefferson County for the Company and
Simmons First Bank of South Arkansas. Non-binding mediation failed on
June 24, 2008. Jury trial is set for the week of June 22,
2009. At this time, no basis for any material liability has been
identified. The Company and the bank continue to vigorously defend
the claims asserted in the suit.
NOTE
9: CAPITAL STOCK
On
November 28, 2007, the Company announced the adoption by the Board of Directors
of a stock repurchase program. The program authorizes the repurchase
of up to 700,000 shares of Class A common stock, or approximately 5% of the
outstanding common stock. Under the repurchase program, there is no
time limit for the stock repurchases, nor is there a minimum number of shares
the Company intends to repurchase. The Company may discontinue
purchases at any time that management determines additional purchases are not
warranted. The shares are to be purchased from time to time at
prevailing market prices, through open market or unsolicited negotiated
transactions, depending upon market conditions. The Company intends
to use the repurchased shares to satisfy stock option exercises, payment of
future stock dividends and general corporate purposes.
During the
nine-month period ended September 30, 2008, the Company repurchased 45,180
shares of stock under the repurchase plan with a weighted average repurchase
price of $28.38 per share. Under the current stock repurchase plan,
the Company can repurchase an additional 645,672 shares.
Effective
July 1, 2008, the Company made a strategic decision to temporarily suspend stock
repurchases. This decision was made to preserve capital and cash at
the parent company, both of which may be needed in potential future
acquisitions.
NOTE
10: UNDIVIDED PROFITS
The
Company’s subsidiary banks are subject to a legal limitation on dividends that
can be paid to the parent company without prior approval of the applicable
regulatory agencies. The approval of the Comptroller of the Currency
is required, if the total of all dividends declared by a national bank in any
calendar year exceeds the total of its net profits, as defined, for that year
combined with its retained net profits of the preceding two
years. Arkansas bank regulators have specified that the maximum
dividend limit state banks may pay to the parent company without prior approval
is 75% of current year earnings plus 75% of the retained net earnings of
the preceding year. At September 30, 2008, the bank subsidiaries
had approximately $16.3 million available for payment of dividends to the
Company, without prior approval of the regulatory agencies.
The
Federal Reserve Board's risk-based capital guidelines include the definitions
for (1) a well-capitalized institution, (2) an adequately-capitalized
institution, and (3) an undercapitalized institution. The criteria
for a well-capitalized institution are: a 5% "Tier l leverage capital" ratio, a
6% "Tier 1 risk-based capital" ratio, and a 10% "total risk-based capital"
ratio. As of September 30, 2008, each of the eight subsidiary banks
met the capital standards for a well-capitalized institution. The
Company's “total risk-based capital” ratio was 13.79% at September 30,
2008.
NOTE
11: STOCK BASED COMPENSATION
The
Company’s Board of Directors has adopted various stock compensation
plans. The plans provide for the grant of incentive stock options,
nonqualified stock options, stock appreciation rights, and bonus stock
awards. Pursuant to the plans, shares are reserved for future
issuance by the Company, upon exercise of stock options or awarding of bonus
shares granted to directors, officers and other key employees.
The table
below summarizes the transactions under the Company's active stock compensation
plans for the nine months ended September 30, 2008:
|
|
Stock
Options
|
|
|
Non-Vested
Stock
|
|
|
|
Outstanding
|
|
|
Awards Outstanding
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
Number
|
|
|
Average
|
|
|
Number
|
|
|
Average
|
|
|
|
of
|
|
|
Exercise
|
|
|
of
|
|
|
Grant-Date
|
|
|
|
Shares
|
|
|
Price
|
|
|
Shares
|
|
|
Fair-Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
January 1, 2008
|
|
|
535,450 |
|
|
$ |
17.71 |
|
|
|
31,478 |
|
|
$ |
26.72 |
|
Granted
|
|
|
49,190 |
|
|
|
30.31 |
|
|
|
17,490 |
|
|
|
30.31 |
|
Stock
Options Exercised
|
|
|
(95,497 |
) |
|
|
12.39 |
|
|
|
-- |
|
|
|
-- |
|
Stock
Awards Vested
|
|
|
-- |
|
|
|
-- |
|
|
|
(11,524 |
) |
|
|
27.18 |
|
Forfeited/Expired
|
|
|
(35,170 |
) |
|
|
14.79 |
|
|
|
-- |
|
|
|
-- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
September 30, 2008
|
|
|
453,973 |
|
|
$ |
20.42 |
|
|
|
37,444 |
|
|
$ |
28.26 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable,
September 30, 2008
|
|
|
334,753 |
|
|
$ |
17.52 |
|
|
|
|
|
|
|
|
|
The
following table summarizes information about stock options under the plans
outstanding at September 30, 2008:
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Remaining
|
|
Average
|
|
|
|
|
|
Average
|
|
Range
of
|
|
Options
|
Contractual
|
|
Exercise
|
|
|
Options
|
|
Exercise
|
|
Exercise Prices
|
|
Outstanding
|
Life
|
|
Price
|
|
|
Exercisable
|
|
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$10.56
to
$12.22
|
|
|
188,280 |
|
1.4
Years
|
|
|
$12.09
|
|
|
|
188,280 |
|
|
|
$12.09
|
|
$15.35 to
$16.32
|
|
|
8,753 |
|
1.7
Years
|
|
|
$15.90
|
|
|
|
8,753 |
|
|
|
$15.90
|
|
$23.78
to
$24.50
|
|
|
94,550 |
|
3.9
Years
|
|
|
$24.05
|
|
|
|
92,500 |
|
|
|
$24.04
|
|
$26.19
to
$27.67
|
|
|
58,600 |
|
5.3
Years
|
|
|
$26.20
|
|
|
|
27,340 |
|
|
|
$26.21
|
|
$28.42
to
$28.42
|
|
|
54,600 |
|
6.4
Years
|
|
|
$28.42
|
|
|
|
17,880 |
|
|
|
$28.42
|
|
$30.31
to
$30.31
|
|
|
49,190 |
|
7.4
Years
|
|
|
$30.31
|
|
|
|
-- |
|
|
|
--
|
|
Stock-based
compensation expense totaled $465,706 and $306,611 during the nine months ended
September 30, 2008 and 2007, respectively. Stock-based
compensation expense is recognized ratably over the requisite service period for
all stock-based awards. Unrecognized stock-based compensation expense
related to stock options totaled $647,404 at September 30, 2008. At
such date, the weighted-average period over which this unrecognized expense is
expected to be recognized was 1.96 years. Unrecognized stock-based
compensation expense related to non-vested stock awards was $1,028,485 at
September 30, 2008. At such date, the weighted-average period over
which this unrecognized expense is expected to be recognized was 2.19
years.
Aggregate
intrinsic values of outstanding stock options and exercisable stock options at
September 30, 2008 were $6.9 million and $6.1 million,
respectively. Aggregate intrinsic value represents the difference
between the Company’s closing stock price on the last trading day of the period,
which was $35.60 as of September 30, 2008, and the exercise price multiplied by
the number of options outstanding. The total intrinsic values of
stock options exercised during the nine months ended September 30, 2008 and
2007, were $2.2 million and $330,000, respectively.
NOTE
12: ADDITIONAL CASH FLOW INFORMATION
|
|
Nine
Months Ended
|
|
|
|
September
30,
|
|
(In thousands)
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Interest
paid
|
|
$ |
50,471 |
|
|
$ |
57,557 |
|
Income
taxes paid
|
|
$ |
9,857 |
|
|
$ |
8,447 |
|
NOTE
13: OTHER OPERATING EXPENSES
Other
operating expenses consist of the following:
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
|
|
September
30,
|
|
|
September
30,
|
|
(In thousands)
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Professional
services
|
|
$ |
661 |
|
|
$ |
741 |
|
|
$ |
1,990 |
|
|
$ |
2,032 |
|
Postage
|
|
|
407 |
|
|
|
597 |
|
|
|
1,319 |
|
|
|
1,780 |
|
Telephone
|
|
|
468 |
|
|
|
462 |
|
|
|
1,300 |
|
|
|
1,331 |
|
Credit
card expense
|
|
|
1,215 |
|
|
|
1,064 |
|
|
|
3,497 |
|
|
|
2,974 |
|
Operating
supplies
|
|
|
373 |
|
|
|
374 |
|
|
|
1,248 |
|
|
|
1,264 |
|
Amortization
of core deposit premiums
|
|
|
201 |
|
|
|
203 |
|
|
|
605 |
|
|
|
616 |
|
Visa
litigation liability reversal
|
|
|
-- |
|
|
|
-- |
|
|
|
(1,220 |
) |
|
|
-- |
|
Other
expense
|
|
|
3,281 |
|
|
|
2,716 |
|
|
|
9,656 |
|
|
|
8,315 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
other operating expenses
|
|
$ |
6,606 |
|
|
$ |
6,157 |
|
|
$ |
18,395 |
|
|
$ |
18,312 |
|
NOTE
14: CERTAIN TRANSACTIONS
From time
to time the Company and its subsidiaries have made loans and other extensions of
credit to directors, officers, their associates and members of their immediate
families. From time to time directors, officers and their associates and members
of their immediate families have placed deposits with the Company’s subsidiary
banks. Such loans, other extensions of credit and deposits were made
in the ordinary course of business, on substantially the same terms (including
interest rates and collateral) as those prevailing at the time for comparable
transactions with other persons and did not involve more than normal risk of
collectibility or present other unfavorable features.
NOTE
15: COMMITMENTS AND CREDIT RISK
The
Company grants agri-business, commercial and residential loans to customers
throughout Arkansas, along with credit card loans to customers throughout the
United States. Commitments to extend credit are agreements to lend to
a customer as long as there is no violation of any condition established in the
contract. Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. Since a portion
of the commitments may expire without being drawn upon, the total commitment
amounts do not necessarily represent future cash requirements. Each
customer's creditworthiness is evaluated on a case-by-case basis. The
amount of collateral obtained, if deemed necessary, is based on management's
credit evaluation of the counterparty. Collateral held varies, but
may include accounts receivable, inventory, property, plant and equipment,
commercial real estate and residential real estate.
At
September 30, 2008, the Company had outstanding commitments to extend credit
aggregating approximately $251,353,000 and $436,198,000 for credit card
commitments and other loan commitments, respectively. 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.
Letters of
credit are conditional commitments issued by the Company, to guarantee the
performance of a customer to a third party. Those guarantees are
primarily issued to support public and private borrowing arrangements, including
commercial paper, bond financing and similar transactions. The credit
risk involved in issuing letters of credit is essentially the same as that
involved in extending loans to customers. The Company had total
outstanding letters of credit amounting to $10,368,000 and $9,906,000 at
September 30, 2008 and December 31, 2007, respectively, with terms ranging from
90 days to three years. At September 30, 2008 and December 31,
2007 the Company’s deferred revenue under standby letter of credit agreements is
approximately $83,000 and $42,000, respectively.
NOTE
16: FAIR VALUE MEASUREMENTS
Effective
January 1, 2008, the Company adopted SFAS No. 157, Fair Value
Measurements. SFAS 157 defines fair value, establishes a
framework for measuring fair value and expands disclosures about fair value
measurements. SFAS 157 has been applied prospectively as of the
beginning of the year.
SFAS 157
defines fair value as the price that would be received to sell an asset or paid
to transfer a liability in an orderly transaction between market participants at
the measurement date. SFAS 157 also establishes a fair value
hierarchy which requires the use of observable inputs and minimizes the use of
unobservable inputs when measuring fair value. The standard describes
three levels of inputs that may be used to measure fair value:
|
·
|
Level 1 Inputs – Quoted
prices in active markets for identical assets or
liabilities
|
|
·
|
Level 2 Inputs –
Observable inputs other than Level 1 prices, such as quoted prices for
similar assets or liabilities in active markets; quoted prices for similar
assets or liabilities in markets that are not active; or other inputs that
are observable or can be corroborated by observable market data for
substantially the full term of the assets or
liabilities
|
|
·
|
Level 3 Inputs –
Unobservable inputs that are supported by little or no market activity and
that are significant to the fair value of the assets or
liabilities
|
The
following table sets forth the Company’s financial assets by level within the
fair value hierarchy that were measured at fair value on a recurring basis
during the third quarter of 2008.
|
|
Fair Value Measurements
Using
|
|
|
Quoted
Prices in
|
|
|
|
|
Active
Markets for
|
Significant
Other
|
Significant
|
|
|
Identical
Assets
|
Observable
Inputs
|
Unobservable
Inputs
|
(In thousands)
|
Fair Value
|
(Level 1)
|
(Level 2)
|
(Level 3)
|
|
|
|
|
|
Available-for-Sale
Securities
|
$394,267
|
$ --
|
$394,267
|
$ --
|
Available-for-sale
securities are the only material instruments valued on a recurring basis which
are held by the Company at fair value. Where quoted market prices are
available in an active market, securities are classified within Level 1 of the
valuation hierarchy. Level 1 securities would include highly liquid
government bonds, mortgage products and exchange traded equities. If
quoted market prices are not available, then fair values are estimated by using
pricing models, quoted prices of securities with similar characteristics or
discounted cash flows. Level 2 securities include U.S. agency
securities, mortgage-backed agency securities, obligations of states and
political subdivisions and certain corporate, asset backed and other
securities. In certain cases where Level 1 or Level 2 inputs are not
available, securities are classified within Level 3 of the
hierarchy. Currently, all of the Company's securities are considered
to be Level 2 securities.
The
following table sets forth the Company’s financial assets by level within the
fair value hierarchy that were measured at fair value on a non-recurring basis
during the three and nine months ended September 30, 2008.
|
|
Fair Value Measurements
Using
|
|
|
Quoted
Prices in
|
|
|
|
|
Active
Markets for
|
Significant
Other
|
Significant
|
|
|
Identical
Assets
|
Observable
Inputs
|
Unobservable
Inputs
|
(In thousands)
|
Fair Value
|
(Level 1)
|
(Level 2)
|
(Level 3)
|
|
|
|
|
|
Impaired
Loans
|
$12,561
|
$ --
|
$ --
|
$12,561
|
Impaired
loans are the only material instruments valued on a nonrecurring basis which are
held by the Company at fair value. Loan impairment is reported when
full payment under the loan terms is not expected. Impaired loans are
carried at the present value of estimated future cash flows using the loan's
existing rate, or the fair value of collateral if the loan is collateral
dependent. A portion of the allowance for loan losses is allocated to
impaired loans if the value of such loans is deemed to be less than the unpaid
balance. If these allocations cause the allowance for loan losses to
require increase, such increase is reported as a component of the provision for
loan losses. Loan losses are charged against the allowance when
Management believes the uncollectability of a loan is
confirmed. Impaired loans, net of specific allowance, were
$13,801,000 as of September 30, 2008. This valuation would be
considered Level 3, consisting of appraisals of underlying collateral and
discounted cash flow analysis.
NOTE
17: SUBSEQUENT EVENTS
On October
30, 2008, the Company received preliminary approval from the U.S. Treasury
Department, subject to standard closing conditions, for the investment of $40
million in Simmons First preferred stock. The investment is part of
the U. S. Treasury’s Capital Purchase Program, designed to provide additional
capital to healthy financial institutions, thereby increasing confidence in our
banking industry and encouraging increased lending. The Company will
pay the Treasury a 5% dividend, or $2 million annually, for each of the first
five years of the investment, and 9% thereafter unless the Company redeems the
shares. The Treasury will also receive 10-year warrants for common
stock. The Company has begun the corporate procedures to authorize
and issue the preferred stock and warrants. The issuance of the
preferred stock and warrants is not expected to impact the regular dividend paid
by the Company, on its common stock, and will have a minimal dilutive impact on
earnings per share. The issuance of the preferred stock, if approved
by the shareholders, is expected to be complete in the first quarter of
2009.
On October
27, 2008, Visa, Inc. (“Visa”) and MasterCard, Inc. announced they had reached an
agreement in principal to settle antitrust litigation with Discover Financial
Services for approximately $2.8 billion. The Company’s management has estimated
its additional obligation for this settlement under Visa's retrospective
responsibility plan to be approximately $500,000. Management expects
this obligation to be satisfied in future periods as Visa issues additional
Class A shares to provide funds for its litigation escrow account.
Audit
Committee, Board of Directors and Stockholders
Simmons
First National Corporation
Pine
Bluff, Arkansas
We have
reviewed the accompanying condensed consolidated balance sheet of SIMMONS FIRST NATIONAL
CORPORATION as of September 30, 2008 and the related condensed
consolidated statements of income for the three-month and nine-month periods
ended September 30, 2008 and 2007 and statements of stockholders’ equity and
cash flows for the nine-month periods ended September 30, 2008 and
2007. These interim financial statements are the responsibility of
the Company’s management.
We
conducted our reviews in accordance with the standards of the Public Company
Accounting Oversight Board (United States). A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit
conducted in accordance with the standards of the Public Company Accounting
Oversight Board, the objective of which is the expression of an opinion
regarding the financial statements taken as a whole. Accordingly, we
do not express such an opinion.
Based on
our reviews, we are not aware of any material modifications that should be made
to the condensed consolidated financial statements referred to above for them to
be in conformity with accounting principles generally accepted in the United
States of America.
We have
previously audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the consolidated balance sheet as of
December 31, 2007, and the related consolidated statements of income,
stockholders' equity and cash flows for the year then ended (not presented
herein); and in our report dated February 21, 2008, we expressed an unqualified
opinion on those consolidated financial statements. In our opinion,
the information set forth in the accompanying condensed consolidated balance
sheet as of December 31, 2007, is fairly stated, in all material respects, in
relation to the consolidated balance sheet from which it has been
derived.
Pine
Bluff, Arkansas
November
7, 2008
Item
2. Management’s Discussion and
Analysis of Financial Condition and
Results of Operations
OVERVIEW
Simmons
First National Corporation recorded net income of $6,474,000 for the
three-months ended September 30, 2008, a $1,026,000 decrease from the same
period in 2007. Diluted earnings per share decreased $0.07 or 13.21%,
to $0.46 for the three-months ended September 30, 2008. The
Company’s annualized return on average assets and return on average
stockholders’ equity for the three-month period ended September 30, 2008, were
0.89% and 9.11%, compared to 1.11% and 11.16%, respectively, for the same period
in 2007. The decrease in earnings was primarily attributable to an
increase in the provision for loan losses and a decrease in the premiums from
the sale of student loans.
Net income
for the nine-month period ended September 30, 2008 was $21,284,000, an increase
of $116,000 from the same period in 2007. Diluted earnings per share
increased $0.03, or 2.03%, to $1.51 for the nine-months ended September 30,
2008. Annualized return on average assets and return on average
stockholders’ equity for the nine-month period ended September 30, 2008 were
1.00% and 10.11%, compared to 1.06% and 11.16%, respectively, for the same
period in 2007.
During the
first quarter of 2008, the Company recorded a nonrecurring $0.05 increase in
diluted earnings per share related to the reversal of a $1.2 million pre-tax
contingent liability established during the fourth quarter of
2007. That contingent liability represented the Company’s pro-rata
portion of Visa, Inc.’s, and its related subsidiary Visa U.S.A.’s (collectively
“Visa”), litigation liabilities, which was satisfied in conjunction with Visa’s
initial public offering (“IPO”). Also as a result of Visa’s IPO, the
Company received cash proceeds from the mandatory partial redemption of its
equity interest in Visa, resulting in a nonrecurring $3.0 million pre-tax
gain in the first quarter 2008, or $0.13 per diluted common share.
Core
earnings (non-GAAP) (net income excluding nonrecurring items {Visa litigation
expense reversal and gain from the cash proceeds on mandatory Visa stock
redemption}) for the nine-months ended September 30, 2008 and 2007, were
$18,726,000 and $21,168,000, respectively. Diluted core earnings per
share (non-GAAP) for these same periods were $1.33 and $1.48, respectively, a
decrease of $0.15 per share, or 10.14%.
The
allowance for loan losses as a percent of total loans was 1.32% as of September
30, 2008. Non-performing loans equaled 0.72% of total loans, up 12
basis points from year end. Non-performing assets were 0.63% of total
assets, up 12 basis points from year end. The allowance for loan
losses was 182% of non-performing loans. The Company’s annualized net
charge-offs for the third quarter of 2008 were 0.50% of total
loans. Excluding credit cards, annualized net charge-offs for the
third quarter were 0.38% of total loans. Annualized net credit card
charge-offs for the third quarter were 1.80%, more than 400 basis points below
the most recently published credit card charge-off industry
average. The Company does not own any securities backed by subprime
mortgage assets, and has no mortgage loan products that target subprime
borrowers.
Total
assets for the Company at September 30, 2008, were $2.860 billion, an increase
of $167.7 million, or 6.2 %, from December 31,
2007. Stockholders’ equity as of September 30, 2008 was $280.8
million, an increase of $8.4 million, or approximately 3.1%, from December 31,
2007.
Simmons
First National Corporation is an Arkansas based financial holding company with
eight community banks in Pine Bluff, Lake Village, Jonesboro, Rogers, Searcy,
Russellville, El Dorado and Hot Springs, Arkansas. The Company's eight banks
conduct financial operations from 88 offices, of which 84 are financial centers,
located in 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 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 of Financial Accounting Standards (“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 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 SFAS 123R, Share-Based Payment (Revised
2004), the fair value of each option award is estimated on the date of
grant using the Black-Scholes option-pricing model that uses various
assumptions. This model requires the input of highly subjective
assumptions, changes to which can materially affect the fair value
estimate. For additional information, see Note 11, Stock-Based
Compensation, in the accompanying Condensed Notes to Consolidated Financial
Statements included elsewhere in this report.
Income
Taxes
The
Company is subject to the federal income tax laws of the United States, and the
tax laws of the states and other jurisdictions where it conducts
business. Due to the complexity of these laws, taxpayers and the
taxing authorities may subject these laws to different
interpretations. Management must make conclusions and estimates about
the application of these innately intricate laws, related regulations and case
law. When preparing the Company’s tax returns, management attempts to
make reasonable interpretations of the tax laws. Taxing authorities
have the ability to challenge management’s analysis of the tax law or any
reinterpretation management makes in its ongoing assessment of facts and the
developing case law. Management assesses the reasonableness of its
effective tax rate quarterly based on its current estimate of net income and the
applicable taxes expected for the full year. On a quarterly basis,
management also reviews circumstances and developments in tax law affecting the
reasonableness of deferred tax assets and liabilities and reserves for
contingent tax liabilities.
NET INTEREST
INCOME
Overview
Net
interest income, the Company's principal source of earnings, is the difference
between the interest income generated by earning assets and the total interest
cost of the deposits and borrowings obtained to fund those
assets. Factors that determine the level of net interest income
include the volume of earning assets and interest bearing liabilities, yields
earned and rates paid, the level of non-performing loans and the amount of
non-interest bearing liabilities supporting earning assets. Net
interest income is analyzed in the discussion and tables below on a fully
taxable equivalent basis. The adjustment to convert certain income to
a fully taxable equivalent basis consists of dividing tax-exempt income by one
minus the combined federal and state income tax rate of 37.50%.
The
Company’s practice is to limit exposure to interest rate movements by
maintaining a significant portion of earning assets and interest bearing
liabilities in short-term repricing. Historically, approximately 70%
of the Company’s loan portfolio and approximately 80% of the Company’s time
deposits have repriced in one year or less. These historical
percentages are consistent with the Company’s current interest rate
sensitivity.
Net
Interest Income Quarter-to-Date Analysis
For the
three-month period ended September 30, 2008, net interest income on a fully
taxable equivalent basis was $25.4 million, an increase of $937,000 or 3.8%,
over the same period in 2007. The increase in net interest income was
the result of a $4.9 million decrease in interest expense offset by a $3.9
million decrease in interest income.
The $4.9
million decrease in interest expense is the result of a 115 basis point decrease
in cost of funds due to competitive repricing during a falling interest rate
environment, partially offset by a $182.5 million increase in average
interest bearing liabilities. The growth in average interest bearing
liabilities was primarily due to the Company’s initiatives to enhance liquidity
during 2008 through (1) the introduction of a new high yield investment
deposit account and (2) securing additional long-term FHLB
advances. The lower interest rates accounted for a $5.0 million
decrease in interest expense. The most significant component of this
decrease was the $3.2 million decrease associated with the repricing of the
Company’s time deposits that resulted from time deposits that matured during the
period or were tied to a rate that fluctuated with changes in market
rates. Historically, approximately 80% of the Company’s time deposits
reprice in one year or less. As a result, the average rate paid on
time deposits decreased 123 basis points from 4.70% to 3.47%. Lower
rates on federal funds purchased and other debt resulted in an additional $1.4
million decrease in interest expense, with the average rate paid on debt
decreasing by 194 basis points from 5.30% to 3.36%. The higher level
of average interest bearing liabilities resulted in a $130,000 increase in
interest expense. More specifically, the higher level of average
interest bearing liabilities was the result of increases of approximately
$147.3 million from internal deposit growth and $35.2 million in
federal funds purchased and other debt.
The $3.9
million decrease in interest income primarily is the result of a 115 basis point
decrease in yield on earning assets associated with the repricing to a lower
interest rate environment, offset by a $207.2 million increase in average
interest earning assets due to internal growth. The lower interest
rates accounted for a $6.4 million decrease in interest
income. The most significant component of this decrease was the $6.2
million decrease associated with the repricing of the Company’s loan portfolio
that resulted from loans that matured during the period or were tied to a rate
that fluctuated with changes in market rates. Historically,
approximately 70% of the Company’s loan portfolio reprices in one year or
less. As a result, the average rate earned on the loan portfolio
decreased 127 basis points from 7.87% to 6.60%. The growth in
average interest earning assets resulted in a $2.5 million improvement in
interest income. The growth in average loans accounted for
$1.1 million of this increase, while the growth in investment securities
resulted in $1.0 million of the increase.
Net
Interest Income Year-to-Date Analysis
For the
nine-month period ended September 30, 2008, net interest income on a fully
taxable equivalent basis was $73.3 million, an increase of $2.1 million, or
3.0%, over the same period in 2007. The increase in net interest
income was the result of a $9.0 million decrease in interest expense offset by a
$6.9 million decrease in interest income.
The $9.0
million decrease in interest expense is the result of a 81 basis point decrease
in cost of funds due to competitive repricing during a falling interest rate
environment, partially offset by a $162.0 million increase in average
interest bearing liabilities. The growth in average interest bearing
liabilities was primarily due to the Company’s initiatives to enhance liquidity
during 2008 through (1) the introduction of a new high yield investment
deposit account and (2) securing additional long-term FHLB
advances. The lower interest rates accounted for a $10.5 million
decrease in interest expense. The most significant component of this decrease
was the $6.0 million decrease associated with the repricing of the Company’s
time deposits that resulted from time deposits that matured during the period or
were tied to a rate that fluctuated with changes in market
rates. Historically, approximately 80% of the Company’s time deposits
reprice in one year or less. As a result, the average rate paid on
time deposits decreased 76 basis points from 4.68% to 3.92%. Lower
rates on federal funds purchased and other debt resulted in an additional $3.4
million decrease in interest expense, with the average rate paid on debt
decreasing by 182 basis points from 5.33% to 3.52%. The higher level
of average interest bearing liabilities resulted in a $1.5 million increase in
interest expense. More specifically, the higher level of average
interest bearing liabilities was the result of increases of approximately
$109.1 million from internal deposit growth and $52.9 million in
federal funds purchased and other debt.
The $6.9
million decrease in interest income primarily is the result of an 87 basis point
decrease in yield on earning assets associated with the repricing to a lower
interest rate environment, offset by a $184.9 million increase in average
interest earning assets due to internal growth. The lower interest
rates accounted for a $14.5 million decrease in interest
income. The most significant component of this decrease was the $13.5
million decrease associated with the repricing of the Company’s loan portfolio
that resulted from loans that matured during the period or were tied to a rate
that fluctuated with changes in market rates. Historically,
approximately 70% of the Company’s loan portfolio reprices in one year or
less. As a result, the average rate earned on the loan portfolio
decreased 97 basis points from 7.82% to 6.85%. The growth in
average interest earning assets resulted in a $7.6 million improvement in
interest income. The growth in average loans accounted for
$3.5 million of this increase, while the growth in investment securities
resulted in $2.9 million of the increase.
Net
Interest Margin
The
Company’s net interest margin decreased 17 basis points to 3.84% for the
three-month period ended September 30, 2008, when compared to 4.01% for the same
period in 2007. This decrease in the net interest margin was
primarily due to significant repricing of earning assets due to declining
interest rates during the first half of 2008, along with the Company’s
concentrated effort to grow core deposits. Based on its current
pricing model, and considering recent rate reductions, the Company anticipates
additional margin compression into 2009.
Net
Interest Income Tables
Table 1
and 2 reflect an analysis of net interest income on a fully taxable equivalent
basis for the three-month and nine-month periods ended September 30, 2008 and
2007, respectively, as well as changes in fully taxable equivalent net interest
margin for the three-month and nine-month periods ended September 30, 2008
versus September 30, 2007.
Table
1: Analysis of Net Interest Margin
(FTE
=Fully Taxable Equivalent)
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
|
|
September
30,
|
|
|
September
30,
|
|
(In thousands)
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
$ |
39,208 |
|
|
$ |
43,301 |
|
|
$ |
118,779 |
|
|
$ |
126,155 |
|
FTE
adjustment
|
|
|
1,031 |
|
|
|
871 |
|
|
|
3,017 |
|
|
|
2,554 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income – FTE
|
|
|
40,239 |
|
|
|
44,172 |
|
|
|
121,796 |
|
|
|
128,709 |
|
Interest
expense
|
|
|
14,861 |
|
|
|
19,731 |
|
|
|
48,543 |
|
|
|
57,561 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income – FTE
|
|
$ |
25,378 |
|
|
$ |
24,441 |
|
|
$ |
73,253 |
|
|
$ |
71,148 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Yield
on earning assets – FTE
|
|
|
6.09 |
% |
|
|
7.24 |
% |
|
|
6.27 |
% |
|
|
7.14 |
% |
Cost
of interest bearing liabilities
|
|
|
2.61 |
% |
|
|
3.76 |
% |
|
|
2.91 |
% |
|
|
3.72 |
% |
Net
interest spread – FTE
|
|
|
3.48 |
% |
|
|
3.48 |
% |
|
|
3.36 |
% |
|
|
3.42 |
% |
Net
interest margin – FTE
|
|
|
3.84 |
% |
|
|
4.01 |
% |
|
|
3.77 |
% |
|
|
3.95 |
% |
Table
2: Changes in Fully Taxable Equivalent Net Interest
Income
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
|
|
September
30,
|
|
|
September
30,
|
|
(In thousands)
|
|
2008 vs. 2007
|
|
|
2008 vs. 2007
|
|
|
|
|
|
|
|
|
Increase
due to change in earning assets
|
|
$ |
2,480 |
|
|
$ |
7,607 |
|
Decrease
due to change in earning asset yields
|
|
|
(6,413 |
) |
|
|
(14,521 |
) |
Decrease
due to change in interest
|
|
|
|
|
|
|
|
|
bearing
liabilities
|
|
|
(130 |
) |
|
|
(1,483 |
) |
Increase
due to change in interest rates
|
|
|
|
|
|
|
|
|
paid
on interest bearing liabilities
|
|
|
5,000 |
|
|
|
10,502 |
|
|
|
|
|
|
|
|
|
|
Increase
in net interest income
|
|
$ |
937 |
|
|
$ |
2,105 |
|
Table 3
shows, for each major category of earning assets and interest bearing
liabilities, the average (computed on a daily basis) amount outstanding, the
interest earned or expensed on such amount and the average rate earned or
expensed for the three-month and nine-month periods ended September 30,
2008 and 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. Non-accrual loans were included in average loans for the
purpose of calculating the rate earned on total loans.
Table
3: Average Balance Sheets and Net Interest Income
Analysis
|
|
Three Months Ended September
30,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
Average
|
|
|
Income/
|
|
|
Yield/
|
|
|
Average
|
|
|
Income/
|
|
|
Yield/
|
|
($ in thousands)
|
|
Balance
|
|
|
Expense
|
|
|
Rate(%)
|
|
|
Balance
|
|
|
Expense
|
|
|
Rate(%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earning
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
bearing balances
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
due
from banks
|
|
$ |
65,819 |
|
|
$ |
309 |
|
|
|
1.87 |
|
|
$ |
9,382 |
|
|
$ |
131 |
|
|
|
5.54 |
|
Federal
funds sold
|
|
|
32,910 |
|
|
|
176 |
|
|
|
2.13 |
|
|
|
21,083 |
|
|
|
302 |
|
|
|
5.68 |
|
Investment
securities - taxable
|
|
|
482,495 |
|
|
|
5,451 |
|
|
|
4.49 |
|
|
|
395,038 |
|
|
|
4,709 |
|
|
|
4.73 |
|
Investment
securities - non-taxable
|
|
|
133,454 |
|
|
|
2,579 |
|
|
|
7.69 |
|
|
|
132,663 |
|
|
|
2,139 |
|
|
|
6.40 |
|
Mortgage
loans held for sale
|
|
|
6,759 |
|
|
|
112 |
|
|
|
6.59 |
|
|
|
8,747 |
|
|
|
147 |
|
|
|
6.67 |
|
Assets
held in trading accounts
|
|
|
727 |
|
|
|
-- |
|
|
|
0.00 |
|
|
|
4,930 |
|
|
|
71 |
|
|
|
5.71 |
|
Loans
|
|
|
1,905,979 |
|
|
|
31,612 |
|
|
|
6.60 |
|
|
|
1,849,091 |
|
|
|
36,673 |
|
|
|
7.87 |
|
Total
interest earning assets
|
|
|
2,628,143 |
|
|
|
40,239 |
|
|
|
6.09 |
|
|
|
2,420,934 |
|
|
|
44,172 |
|
|
|
7.24 |
|
Non-earning
assets
|
|
|
259,800 |
|
|
|
|
|
|
|
|
|
|
|
255,655 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$ |
2,887,943 |
|
|
|
|
|
|
|
|
|
|
$ |
2,676,589 |
|
|
|
|
|
|
|
|
|
LIABILITIES
AND
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’
EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
bearing liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
bearing transaction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
savings accounts
|
|
$ |
1,021,519 |
|
|
$ |
4,116 |
|
|
|
1.60 |
|
|
$ |
724,782 |
|
|
$ |
3,328 |
|
|
|
1.82 |
|
Time
deposits
|
|
|
974,553 |
|
|
|
8,491 |
|
|
|
3.47 |
|
|
|
1,123,967 |
|
|
|
13,307 |
|
|
|
4.70 |
|
Total
interest bearing deposits
|
|
|
1,996,072 |
|
|
|
12,607 |
|
|
|
2.51 |
|
|
|
1,848,749 |
|
|
|
16,635 |
|
|
|
3.57 |
|
Federal
funds purchased and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
securities
sold under agreement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
to
repurchase
|
|
|
102,704 |
|
|
|
429 |
|
|
|
1.66 |
|
|
|
113,060 |
|
|
|
1,404 |
|
|
|
4.93 |
|
Other
borrowed funds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term
debt
|
|
|
9,668 |
|
|
|
62 |
|
|
|
2.55 |
|
|
|
38,710 |
|
|
|
519 |
|
|
|
5.32 |
|
Long-term
debt
|
|
|
154,676 |
|
|
|
1,763 |
|
|
|
4.53 |
|
|
|
80,123 |
|
|
|
1,173 |
|
|
|
5.81 |
|
Total
interest bearing liabilities
|
|
|
2,263,120 |
|
|
|
14,861 |
|
|
|
2.61 |
|
|
|
2,080,642 |
|
|
|
19,731 |
|
|
|
3.76 |
|
Non-interest
bearing liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest
bearing deposits
|
|
|
320,160 |
|
|
|
|
|
|
|
|
|
|
|
305,453 |
|
|
|
|
|
|
|
|
|
Other
liabilities
|
|
|
21,948 |
|
|
|
|
|
|
|
|
|
|
|
23,943 |
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
2,605,228 |
|
|
|
|
|
|
|
|
|
|
|
2,410,038 |
|
|
|
|
|
|
|
|
|
Stockholders’
equity
|
|
|
282,715 |
|
|
|
|
|
|
|
|
|
|
|
266,551 |
|
|
|
|
|
|
|
|
|
Total
liabilities and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
stockholders’
equity
|
|
$ |
2,887,943 |
|
|
|
|
|
|
|
|
|
|
$ |
2,676,589 |
|
|
|
|
|
|
|
|
|
Net
interest spread
|
|
|
|
|
|
|
|
|
|
|
3.48 |
|
|
|
|
|
|
|
|
|
|
|
3.48 |
|
Net
interest margin
|
|
|
|
|
|
$ |
25,378 |
|
|
|
3.84 |
|
|
|
|
|
|
$ |
24,441 |
|
|
|
4.01 |
|
|
|
Nine Months Ended September
30
|
|
|
|
2008
|
|
|
2007
|
|
|
|
Average
|
|
|
Income/
|
|
|
Yield/
|
|
|
Average
|
|
|
Income/
|
|
|
Yield/
|
|
(In thousands)
|
|
Balance
|
|
|
Expense
|
|
|
Rate(%)
|
|
|
Balance
|
|
|
Expense
|
|
|
Rate(%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earning
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
bearing balances
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
due
from banks
|
|
$ |
69,248 |
|
|
$ |
1,184 |
|
|
|
2.28 |
|
|
$ |
23,325 |
|
|
$ |
938 |
|
|
|
5.38 |
|
Federal
funds sold
|
|
|
41,304 |
|
|
|
716 |
|
|
|
2.32 |
|
|
|
32,576 |
|
|
|
1,303 |
|
|
|
5.35 |
|
Investment
securities - taxable
|
|
|
443,403 |
|
|
|
15,962 |
|
|
|
4.81 |
|
|
|
401,105 |
|
|
|
13,776 |
|
|
|
4.59 |
|
Investment
securities - non-taxable
|
|
|
156,405 |
|
|
|
7,560 |
|
|
|
6.46 |
|
|
|
128,268 |
|
|
|
6,208 |
|
|
|
6.47 |
|
Mortgage
loans held for sale
|
|
|
7,658 |
|
|
|
338 |
|
|
|
5.90 |
|
|
|
8,116 |
|
|
|
383 |
|
|
|
6.31 |
|
Assets
held in trading accounts
|
|
|
4,068 |
|
|
|
42 |
|
|
|
1.38 |
|
|
|
4,748 |
|
|
|
124 |
|
|
|
3.49 |
|
Loans
|
|
|
1,872,370 |
|
|
|
95,994 |
|
|
|
6.85 |
|
|
|
1,811,378 |
|
|
|
105,977 |
|
|
|
7.82 |
|
Total
interest earning assets
|
|
|
2,594,456 |
|
|
|
121,796 |
|
|
|
6.27 |
|
|
|
2,409,516 |
|
|
|
128,709 |
|
|
|
7.14 |
|
Non-earning
assets
|
|
|
255,356 |
|
|
|
|
|
|
|
|
|
|
|
252,766 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$ |
2,849,812 |
|
|
|
|
|
|
|
|
|
|
$ |
2,662,282 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’
EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
bearing liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
bearing transaction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
savings accounts
|
|
$ |
932,549 |
|
|
$ |
11,280 |
|
|
|
1.62 |
|
|
$ |
731,989 |
|
|
$ |
9,832 |
|
|
|
1.80 |
|
Time
deposits
|
|
|
1,037,242 |
|
|
|
30,420 |
|
|
|
3.92 |
|
|
|
1,128,660 |
|
|
|
39,467 |
|
|
|
4.68 |
|
Total
interest bearing deposits
|
|
|
1,969,791 |
|
|
|
41,700 |
|
|
|
2.83 |
|
|
|
1,860,649 |
|
|
|
49,299 |
|
|
|
3.54 |
|
Federal
funds purchased and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
securities
sold under agreement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
to
repurchase
|
|
|
113,269 |
|
|
|
1,813 |
|
|
|
2.14 |
|
|
|
110,293 |
|
|
|
4,057 |
|
|
|
4.92 |
|
Other
borrowed funds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term
debt
|
|
|
4,725 |
|
|
|
101 |
|
|
|
2.86 |
|
|
|
15,276 |
|
|
|
637 |
|
|
|
5.58 |
|
Long-term
debt
|
|
|
141,948 |
|
|
|
4,929 |
|
|
|
4.64 |
|
|
|
81,495 |
|
|
|
3,568 |
|
|
|
5.85 |
|
Total
interest bearing liabilities
|
|
|
2,229,733 |
|
|
|
48,543 |
|
|
|
2.91 |
|
|
|
2,067,713 |
|
|
|
57,561 |
|
|
|
3.72 |
|
Non-interest
bearing liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest
bearing deposits
|
|
|
316,182 |
|
|
|
|
|
|
|
|
|
|
|
307,075 |
|
|
|
|
|
|
|
|
|
Other
liabilities
|
|
|
22,684 |
|
|
|
|
|
|
|
|
|
|
|
22,804 |
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
2,568,599 |
|
|
|
|
|
|
|
|
|
|
|
2,397,592 |
|
|
|
|
|
|
|
|
|
Stockholders’
equity
|
|
|
281,213 |
|
|
|
|
|
|
|
|
|
|
|
264,690 |
|
|
|
|
|
|
|
|
|
Total
liabilities and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
stockholders’
equity
|
|
$ |
2,849,812 |
|
|
|
|
|
|
|
|
|
|
$ |
2,662,282 |
|
|
|
|
|
|
|
|
|
Net
interest spread
|
|
|
|
|
|
|
|
|
|
|
3.36 |
|
|
|
|
|
|
|
|
|
|
|
3.42 |
|
Net
interest margin
|
|
|
|
|
|
$ |
73,253 |
|
|
|
3.77 |
|
|
|
|
|
|
$ |
71,148 |
|
|
|
3.95 |
|
Table 4
shows changes in interest income and interest expense, resulting from changes in
volume and changes in interest rates for the three-month and nine-month periods
ended September 30, 2008, as compared to the same period of the prior
year. The changes in interest rate and volume have been allocated to
changes in average volume and changes in average rates, in proportion to the
relationship of absolute dollar amounts of the changes in rates and
volume.
Table
4: Volume/Rate Analysis
|
|
Three
Months Ended September 30,
|
|
|
Nine
Months Ended September 30,
|
|
|
|
2008 over 2007
|
|
|
2008 over 2007
|
|
(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
|
|
$ |
317 |
|
|
$ |
(139 |
) |
|
$ |
178 |
|
|
$ |
1,025 |
|
|
$ |
(779 |
) |
|
$ |
246 |
|
Federal
funds sold
|
|
|
119 |
|
|
|
(245 |
) |
|
|
(126 |
) |
|
|
285 |
|
|
|
(872 |
) |
|
|
(587 |
) |
Investment
securities - taxable
|
|
|
998 |
|
|
|
(256 |
) |
|
|
742 |
|
|
|
1,501 |
|
|
|
685 |
|
|
|
2,186 |
|
Investment
securities - non-taxable
|
|
|
13 |
|
|
|
427 |
|
|
|
440 |
|
|
|
1,360 |
|
|
|
(8 |
) |
|
|
1,352 |
|
Mortgage
loans held for sale
|
|
|
(33 |
) |
|
|
(2 |
) |
|
|
(35 |
) |
|
|
(22 |
) |
|
|
(24 |
) |
|
|
(46 |
) |
Assets
held in trading accounts
|
|
|
(33 |
) |
|
|
(38 |
) |
|
|
(71 |
) |
|
|
(16 |
) |
|
|
(66 |
) |
|
|
(82 |
) |
Loans
|
|
|
1,099 |
|
|
|
(6,160 |
) |
|
|
(5,061 |
) |
|
|
3,474 |
|
|
|
(13,457 |
) |
|
|
(9,983 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2,480 |
|
|
|
(6,413 |
) |
|
|
(3,933 |
) |
|
|
7,607 |
|
|
|
(14,521 |
) |
|
|
(6,914 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
bearing transaction and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
savings
accounts
|
|
|
1,234 |
|
|
|
(446 |
) |
|
|
788 |
|
|
|
2,497 |
|
|
|
(1,049 |
) |
|
|
1,448 |
|
Time
deposits
|
|
|
(1,613 |
) |
|
|
(3,203 |
) |
|
|
(4,816 |
) |
|
|
(3,024 |
) |
|
|
(6,023 |
) |
|
|
(9,047 |
) |
Federal
funds purchased
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
securities sold under
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
agreements
to repurchase
|
|
|
(119 |
) |
|
|
(856 |
) |
|
|
(975 |
) |
|
|
106 |
|
|
|
(2,351 |
) |
|
|
(2,245 |
) |
Other
borrowed funds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term
debt
|
|
|
(269 |
) |
|
|
(188 |
) |
|
|
(457 |
) |
|
|
(314 |
) |
|
|
(222 |
) |
|
|
(536 |
) |
Long-term
debt
|
|
|
897 |
|
|
|
(307 |
) |
|
|
590 |
|
|
|
2,218 |
|
|
|
(857 |
) |
|
|
1,361 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
130 |
|
|
|
(5,000 |
) |
|
|
(4,870 |
) |
|
|
1,483 |
|
|
|
(10,502 |
) |
|
|
(9,019 |
) |
Increase
(decrease) in net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
interest
income
|
|
$ |
2,350 |
|
|
$ |
(1,413 |
) |
|
$ |
937 |
|
|
$ |
6,124 |
|
|
$ |
(4,019 |
) |
|
$ |
2,105 |
|
PROVISION FOR LOAN
LOSSES
The
provision for loan losses represents management's determination of the amount
necessary to be charged against the current period's earnings in order to
maintain the allowance for loan losses at a level considered adequate in
relation to the estimated risk inherent in the loan portfolio. The
level of provision to the allowance is based on management's judgment, with
consideration given to the composition, maturity and other qualitative
characteristics of the portfolio, historical loan loss experience, assessment of
current economic conditions, past due and non-performing loans and net loan loss
experience. It is management's practice to review the allowance on at
least a quarterly basis, but generally on a monthly basis, and after considering
the factors previously noted, to determine the level of provision made to the
allowance.
The
provision for loan losses for the three-month period ended September 30, 2008,
was $2.2 million, compared to $850,000 for the three-month period ended
September 30, 2007, an increase of $1.4 million. The provision
for loan losses for the nine-month period ended September 30, 2008, was
$5.9 million, compared to $2.4 million for the nine-month period ended
September 30, 2007, an increase of $3.5 million. The provision
increase was primarily due to an increase in net loan charge-offs, an increase
in non-performing loans and deterioration in the real estate market in the
Northwest Arkansas region. See Allowance for Loan Losses section for
additional information.
NON-INTEREST
INCOME
Total
non-interest income was $11.3 million for the three-month period ended September
30, 2008, compared to $11.4 million for the same period in 2007. For
the nine-months ended September 30, 2008, non-interest income was $38.0 million
compared to the $34.2 million reported for the same period ended September 30,
2007. The increase in non-interest income for the nine-months ended
September 30 was primarily due to the nonrecurring $3.0 million gain from cash
proceeds received on the mandatory partial redemption of its equity interest in
Visa. Excluding the gain on Visa shares, non-interest income
increased $860,000, or 2.5%, in the first nine-months of 2008 over the
comparable period in 2007.
Non-interest
income is principally derived from recurring fee income, which includes service
charges, trust fees and credit card fees. Non-interest income also
includes income on the sale of mortgage loans, investment banking income,
premiums on sale of student loans, income from the increase in cash surrender
values of bank owned life insurance and gains (losses) from sales of
securities.
Table 5
shows non-interest income for the three-month and nine-month periods ended
September 30, 2008 and 2007, respectively, as well as changes in 2008 from
2007.
Table
5: Non-Interest Income
|
|
Three
Months
|
|
|
2008
|
|
|
Nine
Months
|
|
|
2008
|
|
|
|
Ended September 30
|
|
|
Change
from
|
|
|
Ended September 30
|
|
|
Change
from
|
|
(In thousands)
|
|
2008
|
|
|
2007
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trust
income
|
|
$ |
1,608 |
|
|
$ |
1,528 |
|
|
$ |
80 |
|
|
|
5.24 |
% |
|
$ |
4,707 |
|
|
$ |
4,639 |
|
|
$ |
68 |
|
|
|
1.47 |
% |
Service
charges on
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
deposit
accounts
|
|
|
4,009 |
|
|
|
3,759 |
|
|
|
250 |
|
|
|
6.65 |
|
|
|
11,134 |
|
|
|
10,912 |
|
|
|
222 |
|
|
|
2.03 |
|
Other
service charges and fees
|
|
|
648 |
|
|
|
698 |
|
|
|
(50 |
) |
|
|
-7.16 |
|
|
|
2,021 |
|
|
|
2,198 |
|
|
|
(177 |
) |
|
|
-8.05 |
|
Income
on sale of mortgage loans,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net
of commissions
|
|
|
595 |
|
|
|
715 |
|
|
|
(120 |
) |
|
|
-16.78 |
|
|
|
2,077 |
|
|
|
2,121 |
|
|
|
(44 |
) |
|
|
-2.07 |
|
Income
on investment banking,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net
of commissions
|
|
|
131 |
|
|
|
90 |
|
|
|
41 |
|
|
|
45.56 |
|
|
|
779 |
|
|
|
393 |
|
|
|
386 |
|
|
|
98.22 |
|
Credit
card fees
|
|
|
3,491 |
|
|
|
3,115 |
|
|
|
376 |
|
|
|
12.07 |
|
|
|
10,144 |
|
|
|
8,789 |
|
|
|
1,355 |
|
|
|
15.42 |
|
Premiums
on sale of student loans
|
|
|
3 |
|
|
|
419 |
|
|
|
(416 |
) |
|
|
-99.28 |
|
|
|
1,135 |
|
|
|
2,042 |
|
|
|
(907 |
) |
|
|
-44.42 |
|
Bank
owned life insurance income
|
|
|
370 |
|
|
|
367 |
|
|
|
3 |
|
|
|
0.82 |
|
|
|
1,157 |
|
|
|
1,090 |
|
|
|
67 |
|
|
|
6.15 |
|
Gain
on mandatory partial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
redemption
of Visa shares
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
2,973 |
|
|
|
-- |
|
|
|
2,973 |
|
|
|
-- |
|
Other
income
|
|
|
433 |
|
|
|
682 |
|
|
|
(249 |
) |
|
|
-36.51 |
|
|
|
1,870 |
|
|
|
1,980 |
|
|
|
(110 |
) |
|
|
-5.56 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
non-interest income
|
|
$ |
11,288 |
|
|
$ |
11,373 |
|
|
$ |
(85 |
) |
|
|
-0.75 |
% |
|
$ |
37,997 |
|
|
$ |
34,164 |
|
|
$ |
3,833 |
|
|
|
11.22 |
% |
Recurring
fee income for the three-month period ended September 30, 2008, was $9.8
million, an increase of $656,000, or 7.2% from the three-month period ended
September 30, 2007. Recurring fee income for the nine-month period
ended September 30, 2008, was $28.0 million, an increase of $1,468,000, or 5.5%
from the same period in 2007. The improvement in recurring fee income
primarily resulted from increases in credit card fees of $376,000 and
$1,355,000, respectively, for the three-months and nine-months ended
September 30. The increase in credit card fees is primarily due
to a higher volume of credit and debit card transactions, with the credit card
volume increase a direct result of the addition of new credit card accounts in
2007 and 2008. See Loan Portfolio section for additional information
regarding credit card accounts.
Service
charges on deposit accounts increased $250,000, or 6.7%, for the three-months
ended September 30, 2008, compared to the same period in 2007, due to an
improvement in fee structure and core deposit growth.
Income on
investment banking increased by $386,000, or 98.2%, for the nine-months ended
September 30, 2008, compared to the same period in 2007. This
improvement was due to additional sales volume driven by the interest rate
environment, called securities and customer liquidity.
Premiums
on sale of student loans decreased by $416,000 and $907,000, respectively, for
the three and nine-months ended September 30, 2008, compared to the same periods
in 2007. The decrease was primarily due to a reduction in sales of
student loans during 2008. The student loan industry is going through
major challenges related to secondary market liquidity. The current
liquidity of the secondary market has effectively disappeared; therefore, the
Company is currently unable to sell student loans at a premium. For
the immediate future, it is the Company’s intention, and we have the liquidity,
to continue to fund new loans and hold those loans that we normally would sell
into the secondary market through the 2008-2009 school year. In July
2008, the United States Department of Education announced a one-year program to
create temporary stability and liquidity in the student loan
market. During the third quarter of 2009, the Company expects to sell
into the government program all student loans originated and fully funded during
the 2008-2009 school year. Under the terms of the government program,
the loans will be sold at par, plus reimbursement of the 1% lender fee and a
premium of $75 per loan. The Company expects to increase the student
loan portfolio by approximately $50 million during the carrying period; however,
we have the option of creating liquidity by selling participation loans into the
government program.
Since the
Company is not likely to sell loans in the secondary market during the fourth
quarter of 2008, we estimate a reduction of $300,000 in premiums on sale of
student loans compared to the same period of 2007. That reduction
will be partially offset by an estimated $120,000 increase in net interest
income, resulting from the expected increase in outstanding student loan
balances.
For 2009,
we anticipate the entire premium on sale of student loans, currently estimated
at $1.6 million, to be recorded in the third quarter of 2009, when the
loans are sold. We will continue to evaluate the profitability and
viability of this strategic business unit going forward.
During the
first quarter of 2008, the Company recorded a nonrecurring $3.0 million gain
from the cash proceeds received on the mandatory partial redemption of the
Company’s equity interest in Visa, which was the result of Visa’s IPO completed
in March, 2008.
There were
no gains or losses on sale of securities during the three-months or nine-months
ended September 30, 2008 or 2007.
NON-INTEREST
EXPENSE
Non-interest
expense consists of salaries and employee benefits, occupancy, equipment,
foreclosure losses and other expenses necessary for the operation of the
Company. Management remains committed to controlling the level of
non-interest expense, through the continued use of expense control measures that
have been installed. The Company utilizes an extensive profit
planning and reporting system involving all affiliates. Based on a
needs assessment of the business plan for the upcoming year, monthly and annual
profit plans are developed, including manpower and capital expenditure
budgets. These profit plans are subject to extensive initial reviews
and monitored by management on a monthly basis. Variances from the
plan are reviewed monthly and, when required, management takes corrective action
intended to ensure financial goals are met. Management also regularly
monitors staffing levels at each affiliate to ensure productivity and overhead
are in line with existing workload requirements.
Non-interest
expense for the three-month and nine-month periods ended September 30, 2008, was
$24.4 million and $71.8 million, an increase of $1.2 million, or 5.2%, and
$2.3 million, or 3.4%, respectively, from the same period in
2007. Included in non-interest expense for the three and nine-months
ended September 30, 2008 are the incremental expenses associated with the
operation of the five new financial centers opened in 2007 and
2008.
Also
included in non-interest expense for the nine-months ended September 30, 2008 is
the $1.2 million nonrecurring item related to the reversal of the Company’s
portion of Visa’s contingent litigation liabilities that was established during
the fourth quarter of 2007. This liability represented the Company’s
share of legal judgments and settlements related to Visa’s litigation, which was
satisfied by the $3 billion escrow account funded by the proceeds from Visa’s
IPO, which was completed during the quarter ended March 31, 2008.
Credit
card expense increased for the three-month and nine-month periods ended
September 30, 2008, over the same periods in 2007 by $151,000, or 14.2%, and
$523,000, or 17.6%, respectively. These increases were primarily due to the
increased card usage, interchange fees and other related expenses resulting from
initiatives the Company has taken to grow its credit card
portfolio. See Loan Portfolio section for additional
information.
FDIC
deposit insurance expense increased by $182,000, or 214%, and $248,000, or 113%,
respectively, for the three-month and nine-month periods ended September 30,
2008, over the same periods in 2007. During 2007, the FDIC issued
credits based on historical deposit levels to be used in offsetting deposit
insurance assessments; the Company received approximately $1.8 million of these
credits. As these credits are used up, FDIC insurance expense
increases. Because the majority of the credits were exhausted during
the third quarter of 2008, we estimate the Company’s FDIC insurance to increase
by approximately $350,000 in the fourth quarter of 2008 over the same period of
2007. Based on the recent FDIC insurance assessment projections, we
estimate the Company’s annual deposit insurance expense to increase by
approximately $1.8 million in 2009 over 2008 projections.
Table 6
below shows non-interest expense for the three-month and nine-month periods
ended September 30, 2008 and 2007, respectively, as well as changes in 2008 from
2007.
Table
6: Non-Interest Expense
|
|
Three
Months
|
|
|
2008
|
|
|
Nine
Months
|
|
|
2008
|
|
|
|
Ended September 30
|
|
|
Change
from
|
|
|
Ended September 30
|
|
|
Change
from
|
|
(In thousands)
|
|
2008
|
|
|
2007
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries
and employee benefits
|
|
$ |
14,056 |
|
|
$ |
13,778 |
|
|
$ |
278 |
|
|
|
2.02 |
% |
|
$ |
42,697 |
|
|
$ |
41,406 |
|
|
$ |
1,291 |
|
|
|
3.12 |
% |
Occupancy
expense, net
|
|
|
1,912 |
|
|
|
1,671 |
|
|
|
241 |
|
|
|
14.42 |
|
|
|
5,526 |
|
|
|
4,945 |
|
|
|
581 |
|
|
|
11.75 |
|
Furniture
and equipment expense
|
|
|
1,543 |
|
|
|
1,455 |
|
|
|
88 |
|
|
|
6.05 |
|
|
|
4,505 |
|
|
|
4,428 |
|
|
|
77 |
|
|
|
1.74 |
|
Loss
on foreclosed assets
|
|
|
57 |
|
|
|
77 |
|
|
|
(20 |
)
|
|
|
-25.97 |
|
|
|
185 |
|
|
|
137 |
|
|
|
48 |
|
|
|
35.04 |
|
Other
operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Professional
services
|
|
|
661 |
|
|
|
741 |
|
|
|
(80 |
) |
|
|
-10.80 |
|
|
|
1,990 |
|
|
|
2,032 |
|
|
|
(42 |
) |
|
|
-2.07 |
|
Postage
|
|
|
407 |
|
|
|
597 |
|
|
|
(190 |
) |
|
|
-31.83 |
|
|
|
1,319 |
|
|
|
1,780 |
|
|
|
(461 |
) |
|
|
-25.90 |
|
Telephone
|
|
|
468 |
|
|
|
462 |
|
|
|
6 |
|
|
|
1.30 |
|
|
|
1,300 |
|
|
|
1,331 |
|
|
|
(31 |
) |
|
|
-2.33 |
|
Credit
card expenses
|
|
|
1,215 |
|
|
|
1,064 |
|
|
|
151 |
|
|
|
14.19 |
|
|
|
3,497 |
|
|
|
2,974 |
|
|
|
523 |
|
|
|
17.59 |
|
Operating
supplies
|
|
|
373 |
|
|
|
374 |
|
|
|
(1 |
) |
|
|
-0.27 |
|
|
|
1,248 |
|
|
|
1,264 |
|
|
|
(16 |
) |
|
|
-1.27 |
|
FDIC
insurance
|
|
|
267 |
|
|
|
85 |
|
|
|
182 |
|
|
|
214.12 |
|
|
|
468 |
|
|
|
220 |
|
|
|
248 |
|
|
|
112.73 |
|
Amortization
of intangibles
|
|
|
201 |
|
|
|
203 |
|
|
|
(2 |
) |
|
|
-0.99 |
|
|
|
605 |
|
|
|
616 |
|
|
|
(11 |
) |
|
|
-1.79 |
|
Visa
litigation liability reversal
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
(1,220 |
) |
|
|
-- |
|
|
|
(1,220 |
) |
|
|
-- |
|
Other
expense
|
|
|
3,281 |
|
|
|
2,716 |
|
|
|
565 |
|
|
|
20.80 |
|
|
|
9,656 |
|
|
|
8,315 |
|
|
|
1,341 |
|
|
|
16.13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
non-interest expense
|
|
$ |
24,441 |
|
|
$ |
23,223 |
|
|
$ |
1,218 |
|
|
|
5.24 |
% |
|
$ |
71,776 |
|
|
$ |
69,448 |
|
|
$ |
2,328 |
|
|
|
3.35 |
% |
The
Company's loan portfolio averaged $1.872 billion and $1.811 billion during the
first nine months of 2008 and 2007, respectively. As of September 30,
2008, total loans were $1.936 billion, an increase of $85.8 million from
December 31, 2007. The most significant components of the loan
portfolio were loans to businesses (commercial loans, commercial real estate
loans and agricultural loans) and individuals (consumer loans, credit card loans
and single-family residential real estate loans).
The
Company seeks to manage its credit risk by diversifying its loan portfolio,
determining that borrowers have adequate sources of cash flow for loan repayment
without liquidation of collateral, obtaining and monitoring collateral,
providing an adequate allowance for loan losses and regularly reviewing loans
through the internal loan review process. The loan portfolio is
diversified by borrower, purpose and industry and, in the case of credit card
loans, which are unsecured, by geographic region. The Company seeks
to use diversification within the loan portfolio to reduce credit risk, thereby
minimizing the adverse impact on the portfolio, if weaknesses develop in either
the economy or a particular segment of borrowers. Collateral
requirements are based on credit assessments of borrowers and may be used to
recover the debt in case of default. The Company uses the allowance
for loan losses as a method to value the loan portfolio at its estimated
collectible amount. Loans are regularly reviewed to facilitate the
identification and monitoring of deteriorating credits.
Consumer
loans consist of credit card loans, student loans and other consumer
loans. Consumer loans were $403.0 million at September 30, 2008, or
20.8% of total loans, compared to $379.9 million, or 20.5% of total loans
at December 31, 2007. The consumer loan increase from December 31,
2007 to September 30, 2008 is primarily due to the increase in the loans held in
the student loan portfolio resulting from the current lack of a secondary
market. See Non-Interest Income section for additional
information.
As a
general rule, the Company’s credit card portfolio experiences seasonal
fluctuations, reaching its highest level during the fourth quarter and dropping
off with paydowns to its lowest level during the first
quarter. Therefore, management believes it is useful to compare
credit card balances with the balances from the same period of the prior
year. The credit card portfolio balance at September 30, 2008
increased by $13.7 million, or 9.2%, when compared to the same period in
2007.
The growth
in outstanding credit card balances is primarily the result of an increase in
net new accounts. Management believes the increase in outstanding
balances and the addition of new accounts are the result of the introduction of
several initiatives over the past two years to make the Company’s credit card
products more competitive. The Company added approximately 15,000 net
new accounts in 2007. Although the account growth is slowing, the
positive trend has continued with the addition of nearly 4,000 net new accounts
during the nine-months ended September 30, 2008.
The
student loan portfolio balance at September 30, 2008 was $102.3 million, an
increase of $26.1 million, or 34.2%, from December 31,
2007. Management expects a significant increase in student loan
balances until the third quarter of 2009 due to the departure of competitors
from the market, the Company’s decision to hold loans normally sold in the
secondary market, and other issues and challenges facing the student loan
industry. See Non-Interest Income section for additional
information.
Real
estate loans consist of construction loans, single-family residential loans and
commercial real estate loans. Real estate loans were $1.205 billion
at September 30, 2008, or 62.2% of total loans, compared to the $1.186 billion,
or 64.1% of total loans at December 31, 2007. Commercial real estate
loans increased by $34.8 million from December 31, 2007 to September 30, 2008,
primarily due to the permanent financing of completed projects previously
included in the construction loan category. Construction and
development loans represent only 11.7% of the total loan portfolio.
Commercial
loans consist of commercial loans, agricultural loans and loans to financial
institutions. Commercial loans were $318.3 million at September 30,
2008, or 16.5% of total loans, compared to $274.0 million, or 14.8% of total
loans at December 31, 2007. The commercial loan increase is primarily
due to a seasonal increase in agricultural loans.
The
balances of loans outstanding at the indicated dates are reflected in Table 7,
according to type of loan.
Table
7: Loan Portfolio
|
|
September
30,
|
|
|
December
31,
|
|
(In thousands)
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
|
|
|
|
Credit
cards
|
|
$ |
162,862 |
|
|
$ |
166,044 |
|
Student
loans
|
|
|
102,346 |
|
|
|
76,277 |
|
Other
consumer
|
|
|
137,763 |
|
|
|
137,624 |
|
Real
Estate
|
|
|
|
|
|
|
|
|
Construction
|
|
|
227,071 |
|
|
|
260,924 |
|
Single
family residential
|
|
|
400,845 |
|
|
|
382,676 |
|
Other
commercial
|
|
|
576,958 |
|
|
|
542,184 |
|
Commercial
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
184,690 |
|
|
|
193,091 |
|
Agricultural
|
|
|
130,988 |
|
|
|
73,470 |
|
Financial
institutions
|
|
|
2,581 |
|
|
|
7,440 |
|
Other
|
|
|
10,175 |
|
|
|
10,724 |
|
|
|
|
|
|
|
|
|
|
Total
loans before allowance for loan losses
|
|
$ |
1,936,279 |
|
|
$ |
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 contractual terms of the loans. Impaired
loans include non-performing loans (loans past due 90 days or more and
nonaccrual loans) and certain other loans identified by management that are
still performing.
Non-performing
loans are comprised of (a) nonaccrual loans, (b) loans that are contractually
past due 90 days and (c) other loans for which terms have been restructured to
provide a reduction or deferral of interest or principal, because of
deterioration in the financial position of the borrower. The
subsidiary banks recognize income principally on the accrual basis of
accounting. When loans are classified as nonaccrual, generally, the
accrued interest is charged off and no further interest is
accrued. Loans, excluding credit card loans, are placed on a
nonaccrual basis either: (1) when there are serious doubts regarding the
collectability of principal or interest, or (2) when payment of interest or
principal is 90 days or more past due and either (i) not fully secured or (ii)
not in the process of collection. If a loan is determined by
management to be uncollectible, the portion of the loan determined to be
uncollectible is then charged to the allowance for loan losses.
Credit
card loans are classified as impaired when payment of interest or principal is
90 days past due. Litigation accounts are placed on nonaccrual until such time
as deemed uncollectible. Credit card loans are generally charged off
when payment of interest or principal exceeds 180 days past due, but are turned
over to the credit card recovery department, to be pursued until such time as
they are determined, on a case-by-case basis, to be uncollectible.
At
September 30, 2008, impaired loans were $16.6 million compared to $12.5 million
at December 31, 2007.
Table 8
presents information concerning non-performing assets, including nonaccrual and
other real estate owned.
Table
8: Non-performing Assets
|
|
September
30,
|
|
|
December
31,
|
|
($ in thousands)
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Nonaccrual
loans
|
|
$ |
12,446 |
|
|
$ |
9,909 |
|
Loans
past due 90 days or more
|
|
|
|
|
|
|
|
|
(principal
or interest payments)
|
|
|
1,572 |
|
|
|
1,282 |
|
Total
non-performing loans
|
|
|
14,018 |
|
|
|
11,191 |
|
|
|
|
|
|
|
|
|
|
Other
non-performing assets
|
|
|
|
|
|
|
|
|
Foreclosed
assets held for sale
|
|
|
4,044 |
|
|
|
2,629 |
|
Other
non-performing assets
|
|
|
-- |
|
|
|
17 |
|
Total
other non-performing assets
|
|
|
4,044 |
|
|
|
2,646 |
|
|
|
|
|
|
|
|
|
|
Total
non-performing assets
|
|
$ |
18,062 |
|
|
$ |
13,837 |
|
|
|
|
|
|
|
|
|
|
Allowance
for loan losses to
|
|
|
|
|
|
|
|
|
non-performing
loans
|
|
|
182.25 |
% |
|
|
226.10 |
% |
Non-performing
loans to total loans
|
|
|
0.72 |
% |
|
|
0.60 |
% |
Non-performing
assets to total assets
|
|
|
0.63 |
% |
|
|
0.51 |
% |
There was
no interest income on the nonaccrual loans recorded for the nine-month periods
ended September 30, 2008 and 2007.
ALLOWANCE FOR LOAN
LOSSES
Overview
The
Company maintains an allowance for loan losses. This allowance is
created through charges to income and maintained at a sufficient level to absorb
expected losses in the Company’s loan portfolio. The allowance for
loan losses is determined monthly based on management’s assessment of several
factors such as 1) historical loss experience based on volumes and types, 2)
reviews or evaluations of the loan portfolio and allowance for loan losses, 3)
trends in volume, maturity and composition, 4) off balance sheet credit risk, 5)
volume and trends in delinquencies and non-accruals, 6) lending policies and
procedures including those for loan losses, collections and recoveries, 7)
national, state and local economic trends and conditions, 8) concentrations of
credit that might affect loss experience across one or more components of the
loan portfolio, 9) the experience, ability and depth of lending management and
staff and 10) other factors and trends, which will affect specific loans and
categories of loans.
As the
Company evaluates the allowance for loan losses, it is categorized as
follows: 1) specific allocations, 2) allocations for classified
assets with no specific allocation, 3) general allocations for each major loan
category and 4) unallocated portion.
Specific
Allocations
Specific
allocations are made when factors are present requiring a greater reserve than
would be required when using the assigned risk rating allocation. As
a general rule, if a specific allocation is warranted, it is the result of an
analysis of a previously classified credit or relationship. The
evaluation process in specific allocations for the Company includes a review of
appraisals or other collateral analysis. These values are compared to
the remaining outstanding principal balance. If a loss is determined
to be reasonably possible, the possible loss is identified as a specific
allocation. If the loan is not collateral dependent, the measurement
of loss is based on the expected future cash flows of the loan.
Allocations
for Classified Assets with no Specific Allocation
The
Company establishes allocations for loans rated “watch” through “doubtful” based
upon analysis of historical loss experience by category. A percentage
rate is applied to each 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
In
addition to the allowance for loan losses, the Company has established a reserve
for unfunded commitments, classified in other liabilities. This
reserve is maintained at a level sufficient to absorb losses arising from
unfunded loan commitments. The adequacy of the reserve for unfunded
commitments is determined monthly based on methodology similar to the Company’s
methodology for determining the allowance for loan losses. Net
adjustments to the reserve for unfunded commitments are included in other
non-interest expense.
An
analysis of the allowance for loan losses is shown in Table 9.
Table
9: Allowance for Loan Losses
(In thousands)
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Balance,
beginning of year
|
|
$ |
25,303 |
|
|
$ |
25,385 |
|
|
|
|
|
|
|
|
|
|
Loans
charged off
|
|
|
|
|
|
|
|
|
Credit
card
|
|
|
2,727 |
|
|
|
1,993 |
|
Other
consumer
|
|
|
1,408 |
|
|
|
1,126 |
|
Real
estate
|
|
|
2,470 |
|
|
|
1,247 |
|
Commercial
|
|
|
633 |
|
|
|
504 |
|
Total
loans charged off
|
|
|
7,238 |
|
|
|
4,870 |
|
|
|
|
|
|
|
|
|
|
Recoveries
of loans previously charged off
|
|
|
|
|
|
|
|
|
Credit
card
|
|
|
681 |
|
|
|
793 |
|
Other
consumer
|
|
|
422 |
|
|
|
379 |
|
Real
estate
|
|
|
172 |
|
|
|
610 |
|
Commercial
|
|
|
313 |
|
|
|
378 |
|
Total
recoveries
|
|
|
1,588 |
|
|
|
2,160 |
|
Net
loans charged off
|
|
|
5,650 |
|
|
|
2,710 |
|
Provision
for loan losses
|
|
|
5,895 |
|
|
|
2,432 |
|
|
|
|
|
|
|
|
|
|
Balance,
September 30
|
|
$ |
25,548 |
|
|
$ |
25,107 |
|
|
|
|
|
|
|
|
|
|
Loans
charged off
|
|
|
|
|
|
|
|
|
Credit
card
|
|
|
|
|
|
|
670 |
|
Other
consumer
|
|
|
|
|
|
|
412 |
|
Real
estate
|
|
|
|
|
|
|
669 |
|
Commercial
|
|
|
|
|
|
|
211 |
|
Total
loans charged off
|
|
|
|
|
|
|
1,962 |
|
|
|
|
|
|
|
|
|
|
Recoveries
of loans previously charged off
|
|
|
|
|
|
|
|
|
Credit
card
|
|
|
|
|
|
|
231 |
|
Other
consumer
|
|
|
|
|
|
|
104 |
|
Real
estate
|
|
|
|
|
|
|
38 |
|
Commercial
|
|
|
|
|
|
|
36 |
|
Total
recoveries
|
|
|
|
|
|
|
409 |
|
Net
loans charged off
|
|
|
|
|
|
|
1,553 |
|
Provision
for loan losses
|
|
|
|
|
|
|
1,749 |
|
|
|
|
|
|
|
|
|
|
Balance,
end of year
|
|
|
|
|
|
$ |
25,303 |
|
Provision
for Loan Losses
The amount
of provision to the allowance during the nine-month periods ended September 30,
2008 and 2007, and for the year ended December 31, 2007, was based on
management's judgment, with consideration given to the composition of the
portfolio, historical loan loss experience, assessment of current economic
conditions, past due and non-performing loans and net loan loss
experience. It is management's practice to review the allowance on at
least a quarterly basis, but generally on a monthly basis, and after considering
the factors previously noted, to determine the level of provision made to the
allowance.
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 interest rate adjustments, the effect of fuel prices on
the commercial and consumer markets, and uncertainty in the residential housing
market and other loan sectors which may be exhibiting weaknesses, further
justify the need for unallocated reserves.
As of
September 30, 2008, the allowance for loan losses reflects an increase of
approximately $245,000 from December 31, 2007. The Company’s
allocation of the allowance for loans losses at September 30, 2008 remained
relatively consistent with the allocation at December 31, 2007. The
unallocated portion of the allowance decreased approximately $1.2 million during
the nine-months ended September 30, 2008. This decrease in the
unallocated portion of the allowance is primarily related to increases in
general and specific allocations for loans secured by assets located in the
Northwest Arkansas region. In late 2006 the economy in Northwest Arkansas,
particularly in the residential real estate market, started showing signs of
deterioration, which caused concerns over the full recoverability of this
portion of the Company’s loan portfolio. Management began assessing
the impact of these economic conditions on this portion of the loan portfolio;
however, the economic downturn had not yet negatively impacted specific credit
relationships by December 31, 2006. Therefore, given this
uncertainty, management deemed it necessary to provide a higher level of
unallocated allowance. As the Company continued to monitor the
Northwest Arkansas economy, beginning in the third quarter of 2007, specific
credit relationships deteriorated to a level requiring increased general and
specific reserves. The identification of these specific credit
relationships and the increase in general and specific allocations allowed
management to reduce the unallocated portion of the allowance related to the
Company’s Northwest Arkansas region at December 31, 2007, and again at September
30, 2008.
The
remaining unallocated allowance for loan losses is based on the Company’s
continuing concerns over the uncertainty of the economy and the impact of market
pricing in the poultry, timber and catfish industries in
Arkansas. The Company is also cautious regarding the continued
softening of the real estate market in Arkansas, specifically in the Northwest
Arkansas region. 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. Based on its analysis of
loans within these business sectors, the Company believes the allowance for loan
losses is adequate for the period ended September 30, 2008.
The
Company allocates the allowance for loan losses according to the amount deemed
to be reasonably necessary to provide for losses incurred within the categories
of loans set forth in Table 10.
Table
10: Allocation of Allowance for Loan Losses
|
|
September 30, 2008
|
|
|
December 31, 2007
|
|
|
|
Allowance
|
|
|
%
of
|
|
|
Allowance
|
|
|
%
of
|
|
($ in thousands)
|
|
Amount
|
|
|
loans(1)
|
|
|
Amount
|
|
|
loans(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit
cards
|
|
$ |
3,957 |
|
|
|
8.4 |
% |
|
$ |
3,841 |
|
|
|
9.0 |
% |
Other
consumer
|
|
|
1,309 |
|
|
|
12.4 |
% |
|
|
1,501 |
|
|
|
11.5 |
% |
Real
estate
|
|
|
10,878 |
|
|
|
62.2 |
% |
|
|
10,157 |
|
|
|
64.1 |
% |
Commercial
|
|
|
3,280 |
|
|
|
16.5 |
% |
|
|
2,528 |
|
|
|
14.8 |
% |
Other
|
|
|
216 |
|
|
|
0.5 |
% |
|
|
187 |
|
|
|
0.6 |
% |
Unallocated
|
|
|
5,908 |
|
|
|
|
|
|
|
7,089 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
25,548 |
|
|
|
100 |
% |
|
$ |
25,303 |
|
|
|
100.0 |
% |
|
|
(1)
Percentage of loans in each category to total loans
|
|
DEPOSITS
Deposits
are the Company’s primary source of funding for earning assets and are primarily
developed through the Company’s network of 84 financial centers as of September
30, 2008. The Company offers a variety of products designed to
attract and retain customers with a continuing focus on developing core
deposits. The Company’s core deposits consist of all deposits
excluding time deposits of $100,000 or more and brokered deposits. As
of September 30, 2008, core deposits comprised 81.4% of the Company’s total
deposits.
The
Company continually monitors the funding requirements at each affiliate bank
along with competitive interest rates in the markets it
serves. Because the Company has a community banking philosophy,
managers in the local markets establish the interest rates being offered on both
core and non-core deposits. This approach ensures that the interest
rates being paid are competitively priced for each particular deposit product
and structured to meet each affiliate bank’s respective funding
requirements. The Company believes it is paying a competitive rate,
when compared with pricing in those markets.
The
Company manages its interest expense through deposit pricing and does not
anticipate a significant change in total deposits. The Company
believes that additional funds can be attracted and deposit growth can be
accelerated through promotion and deposit pricing if it experiences accelerated
loan demand or other liquidity needs beyond its current
projections. The Company also utilizes brokered deposits as an
additional source of funding to meet liquidity needs.
The
Company introduced a new high yield investment deposit account during the first
quarter of 2008 as part of its strategy to enhance liquidity. Through
September 30, 2008, the new account generated approximately $130 million in new
core deposits. Total internal deposit growth for the nine-month
period was $112 million, or 5.1%. More specifically, total deposits
as of September 30, 2008 were $2.294 billion versus $2.183 billion on December
31, 2007.
Total time
deposits decreased approximately $160 million to $951.6 million at September 30,
2008, from $1.111 billion at December 31, 2007. Non-interest
bearing transaction accounts increased $8.5 million to $318.7 million at
September 30, 2008, compared to $310.2 million at December 31,
2007. Interest bearing transaction and savings accounts were
$1.024 billion at September 30, 2008, a $262.9 million increase
compared to $761.2 million on December 31, 2007. The Company had
$32.0 million and $39.2 million of brokered deposits at September 30, 2008
and December 31, 2007, respectively.
LONG-TERM
DEBT
During the
nine-month period ended September 30, 2008, the Company increased long-term debt
by $74.7 million, or 90.8% from December 31, 2007. This increase
resulted from the strategic decision to secure additional long-term funding from
FHLB advances in order to enhance the liquidity of the Company.
CAPITAL
Overview
At
September 30, 2008, total capital reached $280.8 million. Capital
represents shareholder ownership in the Company – the book value of assets in
excess of liabilities. At September 30, 2008, the Company’s equity to
asset ratio was 9.82% compared to 10.12% at year-end 2007.
Capital
Stock
At the
Company’s annual shareholder meeting held on April 10, 2007, the shareholders
approved an amendment to the Articles of Incorporation increasing the number of
authorized shares of Class A, $0.01 par value, Common Stock from 30,000,000
to 60,000,000. Class A Common Stock is the Company’s only outstanding
class of stock.
Stock
Repurchase
On
November 28, 2007, the Company announced the adoption by the Board of Directors
of a stock repurchase program. The program authorizes the repurchase
of up to 700,000 shares of Class A common stock, or approximately 5% of the
outstanding common stock. Under the repurchase program, there is no
time limit for the stock repurchases, nor is there a minimum number of shares
the Company intends to repurchase. The Company may discontinue
purchases at any time that management determines additional purchases are not
warranted. The shares are to be purchased from time to time at
prevailing market prices, through open market or unsolicited negotiated
transactions, depending upon market conditions. The Company intends
to use the repurchased shares to satisfy stock option exercises, payment of
future stock dividends and general corporate purposes.
During the
nine-month period ended September 30, 2008, the Company repurchased 45,180
shares of stock under the repurchase plan with a weighted average repurchase
price of $28.38 per share. Under the current stock repurchase plan,
the Company can repurchase an additional 645,672 shares.
Effective
July 1, 2008, the Company made a strategic decision to temporarily suspend stock
repurchases. This decision was made to preserve capital and cash at
the parent company, both of which may be needed in potential future
acquisitions.
Cash
Dividends
The
Company declared cash dividends on its common stock of $0.57 per share for the
first nine months of 2008 compared to $0.54 per share for the first nine months
of 2007. In recent years, the Company increased dividends no less
than annually and presently plans to continue with this practice.
Parent
Company Liquidity
The
primary sources for payment of dividends by the Company to its shareholders and
the share repurchase plan are the current cash on hand at the parent company
plus the future dividends received from the eight affiliate
banks. Payment of dividends by the eight affiliate banks is subject
to various regulatory limitations. Reference is made to the Liquidity
and Market Risk Management discussions of Item 3 – Quantitative and Qualitative
Disclosure About Market Risk for additional information regarding the parent
company’s liquidity.
Risk
Based Capital
The
Company’s subsidiaries are subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory and possibly additional
discretionary actions by regulators that, if undertaken, could have a direct
material effect on the Company’s financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
the Company must meet specific capital guidelines that involve quantitative
measures of the Company’s assets, liabilities and certain off-balance-sheet
items as calculated under regulatory accounting practices. The
Company’s capital amounts and classifications are also subject to qualitative
judgments by the regulators about components, risk weightings and other
factors.
Quantitative
measures established by regulation to ensure capital adequacy require the
Company to maintain minimum amounts and ratios (set forth in the table below) of
total and Tier 1 capital (as defined in the regulations) to risk-weighted assets
(as defined) and of Tier 1 capital (as defined) to average assets (as
defined). As of September 30, 2008, the Company meets all capital
adequacy requirements to which it is subject.
To be
categorized as well capitalized, the Company’s subsidiaries must maintain
minimum total risk-based, Tier 1 risk-based and Tier 1 leverage
ratios. As of the most recent notification from regulatory agencies,
the subsidiaries were well capitalized under the regulatory framework for prompt
corrective action. There are no conditions or events since that
notification that management believes have changed the institutions’
categories.
The
Company's risk-based capital ratios at September 30, 2008 and December 31, 2007,
are presented in table 11.
Table
11: Risk-Based Capital
|
|
September
30,
|
|
|
December
31,
|
|
($ in thousands)
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Tier
1 capital
|
|
|
|
|
|
|
Stockholders’
equity
|
|
$ |
280,817 |
|
|
$ |
272,406 |
|
Trust
preferred securities
|
|
|
30,000 |
|
|
|
30,000 |
|
Intangible
assets
|
|
|
(63,125 |
) |
|
|
(63,706 |
) |
Unrealized
loss (gain) on available-
|
|
|
|
|
|
|
|
|
for-sale
securities, net of taxes
|
|
|
1,749 |
|
|
|
(1,728 |
) |
|
|
|
|
|
|
|
|
|
Total
Tier 1 capital
|
|
|
249,441 |
|
|
|
236,972 |
|
|
|
|
|
|
|
|
|
|
Tier
2 capital
|
|
|
|
|
|
|
|
|
Qualifying
unrealized gain on
|
|
|
|
|
|
|
|
|
available-for-sale
equity securities
|
|
|
3 |
|
|
|
52 |
|
Qualifying
allowance for loan losses
|
|
|
24,888 |
|
|
|
23,866 |
|
|
|
|
|
|
|
|
|
|
Total
Tier 2 capital
|
|
|
24,891 |
|
|
|
23,918 |
|
|
|
|
|
|
|
|
|
|
Total
risk-based capital
|
|
$ |
274,332 |
|
|
$ |
260,890 |
|
|
|
|
|
|
|
|
|
|
Risk
weighted assets
|
|
$ |
1,988,879 |
|
|
$ |
1,906,321 |
|
|
|
|
|
|
|
|
|
|
Assets
for leverage ratio
|
|
$ |
2,825,844 |
|
|
$ |
2,615,915 |
|
|
|
|
|
|
|
|
|
|
Ratios
at end of period
|
|
|
|
|
|
|
|
|
Leverage
ratio
|
|
|
8.83 |
% |
|
|
9.06 |
% |
Tier
1 capital
|
|
|
12.54 |
% |
|
|
12.43 |
% |
Total
risk-based capital
|
|
|
13.79 |
% |
|
|
13.69 |
% |
|
|
|
|
|
|
|
|
|
Minimum
guidelines
|
|
|
|
|
|
|
|
|
Leverage
ratio
|
|
|
4.00 |
% |
|
|
4.00 |
% |
Tier
1 capital
|
|
|
4.00 |
% |
|
|
4.00 |
% |
Total
risk-based capital
|
|
|
8.00 |
% |
|
|
8.00 |
% |
RECENTLY ISSUED ACCOUNTING
PRONOUNCEMENTS
Emerging
Issues Task Force (“EITF”) Issue No. 06-4, Accounting for the Deferred
Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life
Insurance Arrangements, requires the recognition of a liability and
related compensation expense for endorsement split-dollar life insurance
policies that provide a benefit to an employee that extends to post-retirement
periods. Under EITF 06-4, life insurance policies purchased for the
purpose of providing such benefits do not effectively settle an entity's
obligation to the employee. Accordingly, the entity must recognize a
liability and related compensation expense during the employee's active service
period based on the future cost of insurance to be incurred during the
employee's retirement. If the entity has agreed to provide the
employee with a death benefit, then the liability for the future death benefit
should be recognized by following the guidance in Statement of Financial
Accounting Standards (“SFAS”) No. 106, Employer's Accounting for
Postretirement Benefits Other Than Pensions. The Company
adopted EITF 06-4 on January 1, 2008 as a change in accounting principle through
a cumulative-effect adjustment to retained earnings totaling
$1,174,000. 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.
On January
1, 2008, the Company adopted SFAS No. 157, Fair Value
Measurements. SFAS 157 defines fair value, establishes a
framework for measuring fair value in generally accepted accounting principles,
and expands disclosures about fair value measurements. For additional
information, see Note 16 – Fair Value Measurements, in the accompanying
Condensed Notes to Consolidated Financial Statements included elsewhere in this
report.
In
February 2007, the Financial Accounting Standards Board ("FASB") issued SFAS No.
159, The Fair Value Option for
Financial Assets and Financial Liabilities – Including an amendment of FASB
Statement No. 115. SFAS 159 permits entities to choose to
measure eligible items at fair value at specified election
dates. Unrealized gains and losses on items for which the fair value
option has been elected are reported in earnings at each subsequent reporting
date. The fair value option (i) may be applied instrument by
instrument, with certain exceptions, (ii) is irrevocable (unless a new election
date occurs) and (iii) is applied only to entire instruments and not to portions
of instruments. While SFAS 159 is effective for the Company beginning January 1,
2008, the Company has not elected the fair value option that is offered by this
statement.
In
December, 2007, FASB issued SFAS 160, Noncontrolling Interests in
Consolidated Financial Statements and SFAS 141R, Business
Combinations. Both are effective for annual periods beginning
after December 15, 2008. The Company is currently evaluating the
impact of these Statements, but does not expect either to have a material effect
on the Company’s financial position or results of operations.
FORWARD-LOOKING
STATEMENTS
Certain
statements contained in this quarterly report may not be based on historical
facts and are “forward-looking statements” within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. These forward-looking statements
may be identified by reference to a future period(s) or by the use of
forward-looking terminology, such as “anticipate,” “estimate,” “expect,”
“foresee,” “may,” “might,” “will,” “would,” “could” or “intend,” future or
conditional verb tenses, and variations or negatives of such
terms. These forward-looking statements include, without limitation,
those relating to the Company’s future growth, revenue, assets, asset quality,
profitability and customer service, critical accounting policies, net interest
margin, non-interest revenue, market conditions related to the Company’s stock
repurchase program, allowance for loan losses, the effect of certain new
accounting standards on the Company’s financial position, operations, cash
flows, income tax deductions, credit quality, the level of credit losses from
lending commitments, net interest revenue, interest rate sensitivity, loan loss
experience, liquidity, capital resources, market risk, earnings, effect of
pending litigation, acquisition strategy, legal and regulatory limitations and
compliance and competition.
We caution
the reader not to place undue reliance on the forward-looking statements
contained in this report in that actual results could differ materially from
those indicated in such forward-looking statements, due to a variety of
factors. These factors include, but are not limited to, changes in
the Company’s operating or expansion strategy, availability of and costs
associated with obtaining adequate and timely sources of liquidity, the ability
to maintain credit quality, possible adverse rulings, judgments, settlements and
other outcomes of pending litigation, the ability of the Company to collect
amounts due under loan agreements, changes in consumer preferences,
effectiveness of the Company’s interest rate risk management strategies, laws
and regulations affecting financial institutions in general or relating to
taxes, the effect of pending or future legislation, the ability of the Company
to repurchase its common stock on favorable terms and other risk
factors. Other relevant risk factors may be detailed from time to
time in the Company’s press releases and filings with the Securities and
Exchange Commission. We undertake no obligation to update these
forward-looking statements to reflect events or circumstances that occur after
the date of this report.
RECONCILIATION OF NON-GAAP
MEASURES
The table
below presents computations of core earnings (net income excluding nonrecurring
items {Visa litigation expense reversal and gain from the cash proceeds on
mandatory Visa stock redemption}) and diluted core earnings per share
(non-GAAP). Nonrecurring items are included in financial results
presented in accordance with generally accepted accounting principles
(GAAP).
The
Company believes the exclusion of these nonrecurring items in expressing
earnings and certain other financial measures, including “core earnings”,
provides a meaningful base for period-to-period and company-to-company
comparisons, which management believes will assist investors and analysts in
analyzing the core financial measures of the Company and predicting future
performance. This non-GAAP financial measure is also used by management to
assess the performance of the Company’s business, because management does not
consider these nonrecurring items to be relevant to ongoing financial
performance. Management and the Board of Directors utilize “core
earnings” (non-GAAP) for the following purposes:
• Preparation
of the Company’s operating budgets
• Monthly
financial performance reporting
• Monthly
“flash” reporting of consolidated results (management only)
• Investor
presentations of Company performance
The
Company believes the presentation of “core earnings” on a diluted per share
basis, “diluted core earnings per share” (non-GAAP), provides a meaningful base
for period-to-period and company-to-company comparisons, which management
believes will assist investors and analysts in analyzing the core financial
measures of the Company and predicting future performance. This
non-GAAP financial measure is also used by management to assess the performance
of the Company’s business, because management does not consider these
nonrecurring items to be relevant to ongoing financial performance on a per
share basis. Management and the Board of Directors utilize “diluted
core earnings per share” (non-GAAP) for the following purposes:
• Calculation
of annual performance-based incentives for certain executives
• Calculation
of long-term performance-based incentives for certain executives
• Investor
presentations of Company performance
The
Company believes that presenting these non-GAAP financial measures will permit
investors and analysts to assess the performance of the Company on the same
basis as that applied by management and the Board of Directors.
“Core
earnings” and “diluted core earnings per share” (non-GAAP) have inherent
limitations, are not required to be uniformly applied and are not
audited. To mitigate these limitations, the Company has procedures in
place to identify and approve each item that qualifies as nonrecurring to ensure
that the Company’s “core” results are properly reflected for period-to-period
comparisons. Although these non-GAAP financial measures are
frequently used by stakeholders in the evaluation of a Company, they have
limitations as analytical tools, and should not be considered in isolation, or
as a substitute for analyses of results as reported under GAAP. In
particular, a measure of earnings that excludes nonrecurring items does not
represent the amount that effectively accrues directly to stockholders (i.e.,
nonrecurring items are included in earnings and stockholders’
equity).
See Table
12 below for the reconciliation of non-GAAP financial measures, which exclude
nonrecurring items for the periods presented.
Table
12: Reconciliation of Core Earnings (non-GAAP)
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
|
|
|
|
|
September
30,
|
|
($ in thousands)
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income
|
|
$ |
6,474 |
|
|
$ |
7,500 |
|
|
$ |
21,284 |
|
|
$ |
21,168 |
|
Nonrecurring
items
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mandatory
stock redemption gain (Visa)
|
|
|
-- |
|
|
|
-- |
|
|
|
(2,973 |
) |
|
|
-- |
|
Litigation
liability reversal (Visa)
|
|
|
-- |
|
|
|
-- |
|
|
|
(1,220 |
) |
|
|
-- |
|
Tax
effect (39%)
|
|
|
-- |
|
|
|
-- |
|
|
|
1,635 |
|
|
|
-- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
nonrecurring items
|
|
|
-- |
|
|
|
-- |
|
|
|
(2,558 |
) |
|
|
-- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core
earnings (non-GAAP)
|
|
$ |
6,474 |
|
|
$ |
7,500 |
|
|
$ |
18,726 |
|
|
$ |
21,168 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
earnings per share
|
|
$ |
0.46 |
|
|
$ |
0.53 |
|
|
$ |
1.51 |
|
|
$ |
1.48 |
|
Nonrecurring
items
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mandatory
stock redemption gain (Visa)
|
|
|
-- |
|
|
|
-- |
|
|
|
(0.21 |
) |
|
|
-- |
|
Litigation
liability reversal (Visa)
|
|
|
-- |
|
|
|
-- |
|
|
|
(0.09 |
) |
|
|
-- |
|
Tax
effect (39%)
|
|
|
-- |
|
|
|
-- |
|
|
|
0.12 |
|
|
|
-- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
nonrecurring items
|
|
|
-- |
|
|
|
-- |
|
|
|
(0.18 |
) |
|
|
-- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
core earnings per share (non-GAAP)
|
|
$ |
0.46 |
|
|
$ |
0.53 |
|
|
$ |
1.33 |
|
|
$ |
1.48 |
|
Item
3. Quantitative and Qualitative
Disclosure About Market Risk
Parent
Company
The
Company has leveraged its investment in subsidiary banks and depends upon the
dividends paid to it, as the sole shareholder of the subsidiary banks, as a
principal source of funds for dividends to shareholders, stock repurchase and
debt service requirements. At September 30, 2008, undivided profits
of the Company's subsidiaries were approximately $157.1 million, of which
approximately $16.3 million was available for the payment of dividends to
the Company without regulatory approval. In addition to dividends, other sources
of liquidity for the Company are the sale of equity securities and the borrowing
of funds.
Banking
Subsidiaries
Generally
speaking, the Company's banking subsidiaries rely upon net inflows of cash from
financing activities, supplemented by net inflows of cash from operating
activities, to provide cash used in investing activities. Typical of
most banking companies, significant financing activities include: deposit
gathering; use of short-term borrowing facilities, such as federal funds
purchased and repurchase agreements; and the issuance of long-term
debt. The banks' primary investing activities include loan
originations and purchases of investment securities, offset by loan payoffs and
investment maturities.
Liquidity
represents an institution's ability to provide funds to satisfy demands from
depositors and borrowers, by either converting assets into cash or accessing new
or existing sources of incremental funds. A major responsibility of
management is to maximize net interest income within prudent liquidity
constraints. Internal corporate guidelines have been established to
constantly measure liquid assets, as well as relevant ratios concerning earning
asset levels and purchased funds. The management and board of
directors of each bank subsidiary monitor these same indicators and make
adjustments as needed. At September 30, 2008, each subsidiary bank
was within established guidelines and total corporate liquidity remains
strong. At September 30, 2008, cash and cash equivalents, trading and
available-for-sale securities and mortgage loans held for sale were 19.2% of
total assets, as compared to 17.4% at December 31, 2007.
Liquidity
Management
The
objective of the Company’s liquidity management is to access adequate sources of
funding to ensure that cash flow requirements of depositors and borrowers are
met in an orderly and timely manner. Sources of liquidity are managed
so that reliance on any one funding source is kept to a minimum. The
Company’s liquidity sources are prioritized for both availability and time to
activation.
The
Company’s liquidity is a primary consideration in determining funding needs and
is an integral part of asset/liability management. Pricing of the
liability side is a major component of interest margin and spread
management. Adequate liquidity is a necessity in addressing this
critical task. There are five primary and secondary sources of
liquidity available to the Company. The particular liquidity need and
timeframe determine the use of these sources.
The first
source of liquidity available to the Company is Federal
funds. Federal funds, primarily from downstream correspondent banks,
are available on a daily basis and are used to meet the normal fluctuations of a
dynamic balance sheet. In addition, the Company and its affiliates
have approximately $104 million in Federal funds lines of credit from upstream
correspondent banks that can be accessed, when needed. In order to
ensure availability of these upstream funds, the Company has a plan for rotating
the usage of the funds among the upstream correspondent banks, thereby providing
approximately $40 million in funds on a given day. Historical
monitoring of these funds has made it possible for the Company to project
seasonal fluctuations and structure its funding requirements on month-to-month
basis.
A second
source of liquidity is the retail deposits available through the Company’s
network of affiliate banks throughout Arkansas. Although this method
can be somewhat of a more expensive alternative to supplying liquidity, this
source can be used to meet intermediate term liquidity needs.
Third, the
Company’s affiliate banks have lines of credits available with the
FHLB. While the Company uses portions of those lines to match off
longer-term mortgage loans, the Company also uses those lines to meet liquidity
needs. Approximately $433 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 70% of the investment portfolio is
classified as available-for-sale. The Company also uses securities held in the
securities portfolio to pledge when obtaining public funds.
Finally,
the Company has the ability to access large deposits from both the public and
private sector to fund short-term liquidity needs.
The
Company believes the various sources available are ample liquidity for
short-term, intermediate-term and long-term liquidity.
Market
Risk Management
Market
risk arises from changes in interest rates. The Company has risk
management policies to monitor and limit exposure to market risk. In
asset and liability management activities, policies are in place designed to
minimize structural interest rate risk. The measurement of market
risk associated with financial instruments is meaningful only when all related
and offsetting on- and off-balance-sheet transactions are aggregated, and the
resulting net positions are identified.
Interest
Rate Sensitivity
Interest
rate risk represents the potential impact of interest rate changes on net income
and capital resulting from mismatches in repricing opportunities of assets and
liabilities over a period of time. A number of tools are used to
monitor and manage interest rate risk, including simulation models and interest
sensitivity gap analysis. Management uses simulation models to
estimate the effects of changing interest rates and various balance sheet
strategies on the level of the Company’s net income and capital. As a
means of limiting interest rate risk to an acceptable level, management may
alter the mix of floating and fixed-rate assets and liabilities, change pricing
schedules and manage investment maturities during future security
purchases.
The
simulation models incorporate management’s assumptions regarding the level of
interest rates or balance changes for indeterminate maturity deposits for a
given level of market rate changes. These assumptions have been
developed through anticipated pricing behavior. Key assumptions in
the simulation models include the relative timing of prepayments, cash flows and
maturities. In addition, the impact of planned growth and anticipated
new business is factored into the simulation models. These
assumptions are inherently uncertain and, as a result, the models cannot
precisely estimate net interest income or precisely predict the impact of a
change in interest rates on net income or capital. Actual results
will differ from simulated results due to the timing, magnitude and frequency of
interest rate changes and changes in market conditions and management
strategies, among other factors.
Table A
below presents the Company’s interest rate sensitivity position at September 30,
2008. This analysis is based on a point in time and may not be
meaningful because assets and liabilities are categorized according to
contractual maturities, repricing periods and expected cash flows rather than
estimating more realistic behaviors, as is done in the simulation
models. Also, this analysis does not consider subsequent changes in
interest rate level or spreads between asset and liability
categories.
Table
A: Interest Rate Sensitivity
|
|
Interest Rate Sensitivity
Period
|
|
|
|
0-30
|
|
|
31-90
|
|
|
91-180
|
|
|
181-365
|
|
|
1-2
|
|
|
2-5
|
|
|
Over
5
|
|
|
|
|
(In thousands, except
ratios)
|
|
Days
|
|
|
Days
|
|
|
Days
|
|
|
Days
|
|
|
Years
|
|
|
Years
|
|
|
Years
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earning
assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term
investments
|
|
$ |
79,147 |
|
|
$ |
-- |
|
|
$ |
-- |
|
|
$ |
-- |
|
|
$ |
-- |
|
|
$ |
-- |
|
|
$ |
-- |
|
|
$ |
79,147 |
|
Assets
held in trading
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
accounts
|
|
|
890 |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
890 |
|
Investment
securities
|
|
|
102,623 |
|
|
|
23,044 |
|
|
|
78,016 |
|
|
|
108,078 |
|
|
|
115,990 |
|
|
|
104,371 |
|
|
|
43,951 |
|
|
|
576,073 |
|
Mortgage
loans held for sale
|
|
|
4,377 |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
4,377 |
|
Loans
|
|
|
645,068 |
|
|
|
213,707 |
|
|
|
155,135 |
|
|
|
346,094 |
|
|
|
239,436 |
|
|
|
294,433 |
|
|
|
42,406 |
|
|
|
1,936,279 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
earning assets
|
|
|
832,105 |
|
|
|
236,751 |
|
|
|
233,151 |
|
|
|
454,172 |
|
|
|
355,426 |
|
|
|
398,804 |
|
|
|
86,357 |
|
|
|
2,596,766 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
bearing liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
bearing transaction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
savings deposits
|
|
|
693,016 |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
66,232 |
|
|
|
198,696 |
|
|
|
66,232 |
|
|
|
1,024,176 |
|
Time
deposits
|
|
|
103,584 |
|
|
|
183,836 |
|
|
|
265,939 |
|
|
|
270,495 |
|
|
|
103,641 |
|
|
|
24,051 |
|
|
|
10 |
|
|
|
951,556 |
|
Short-term
debt
|
|
|
105,482 |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
105,482 |
|
Long-term
debt
|
|
|
499 |
|
|
|
13,306 |
|
|
|
1,586 |
|
|
|
2,999 |
|
|
|
27,535 |
|
|
|
72,121 |
|
|
|
38,973 |
|
|
|
157,019 |
|
Total
interest bearing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
liabilities
|
|
|
902,581 |
|
|
|
197,142 |
|
|
|
267,525 |
|
|
|
273,494 |
|
|
|
197,408 |
|
|
|
294,868 |
|
|
|
105,215 |
|
|
|
2,238,233 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
rate sensitivity Gap
|
|
$ |
(70,476 |
) |
|
$ |
39,609 |
|
|
$ |
(34,374 |
) |
|
$ |
180,678 |
|
|
$ |
158,018 |
|
|
$ |
103,936 |
|
|
$ |
(18,858 |
) |
|
$ |
358,533 |
|
Cumulative
interest rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
sensitivity
Gap
|
|
$ |
(70,476 |
) |
|
$ |
(30,867 |
) |
|
$ |
(65,241 |
) |
|
$ |
115,437 |
|
|
$ |
273,455 |
|
|
$ |
377,391 |
|
|
$ |
358,533 |
|
|
|
|
|
Cumulative
rate sensitive asset
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
to
rate sensitive liabilities
|
|
|
92.2 |
% |
|
|
97.2 |
% |
|
|
95.2 |
% |
|
|
107.0 |
% |
|
|
114.9 |
% |
|
|
117.7 |
% |
|
|
116.0 |
% |
|
|
|
|
Cumulative
Gap as a % of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
earning
assets
|
|
|
-2.8 |
% |
|
|
-1.2 |
% |
|
|
-2.5 |
% |
|
|
4.4 |
% |
|
|
10.5 |
% |
|
|
14.5 |
% |
|
|
13.8 |
% |
|
|
|
|
Evaluation
of Disclosure Controls and Procedures
The
Company’s Chief Executive Officer and Chief Financial Officer have reviewed and
evaluated the effectiveness of the Company’s disclosure controls and procedures
(as defined in 15 C.F.R. 240.13a-15(e) or 15 C.F.R. 240.15d-15(e)) as of the end
of the period covered by this report. Based upon that evaluation, the
Chief Executive Officer and Chief Financial Officer have concluded that the
Company’s current disclosure controls and procedures are effective.
Changes
in Internal Control over Financial Reporting
There were
no significant changes in the Company’s internal controls or in other factors
that could significantly affect those controls subsequent to the date of
evaluation.
There has
been no material change in the risk factors disclosure from that contained in
the Company’s 2007 Form 10-K for the fiscal year ended December 31,
2007.
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
(c) Issuer
Purchases of Equity Securities. The Company made no purchases of its
common stock during the three months ended September 30, 2008.
|
Exhibit
No.
|
Description
|
|
|
|
|
3.1
|
Restated
Articles of Incorporation of Simmons First National Corporation
(incorporated by reference to Exhibit 3.1 to Simmons First National
Corporation’s Quarterly Report on Form 10-Q for the Quarter ended
June 30, 2007 (File No. 0-6253)).
|
|
|
|
|
3.2
|
Amended
By-Laws of Simmons First National Corporation (incorporated by reference
to Exhibit 3.2 to Simmons First National Corporation’s Annual Report on
Form 10-K for the Year ended December 31, 2007 (File No.
0-6253)).
|
|
|
|
|
10.1
|
Amended
and Restated Trust Agreement, dated as of December 16, 2003, among the
Company, Deutsche Bank Trust Company Americas, Deutsche Bank Trust Company
Delaware and each of J. Thomas May, Barry L. Crow and Robert A. Fehlman as
administrative trustees, with respect to Simmons First Capital Trust II
(incorporated by reference to Exhibit 10.1 to Simmons First National
Corporation’s Annual Report on Form 10-K for the Year ended December 31,
2003 (File No. 0-6253)).
|
|
10.2
|
Guarantee
Agreement, dated as of December 16, 2003, between the Company and Deutsche
Bank Trust Company Americas, as guarantee trustee, with respect to Simmons
First Capital Trust II (incorporated by reference to Exhibit 10.2 to
Simmons First National Corporation’s Annual Report on Form 10-K for the
Year ended December 31, 2003 (File No. 0-6253)).
|
|
|
|
|
10.3
|
Junior
Subordinated Indenture, dated as of December 16, 2003, among the Company
and Deutsche Bank Trust Company Americas, as trustee, with respect to the
junior subordinated note held by Simmons First Capital Trust II
(incorporated by reference to Exhibit 10.3 to Simmons First National
Corporation’s Annual Report on Form 10-K for the Year ended
December 31, 2003 (File No. 0-6253)).
|
|
|
|
|
10.4
|
Amended
and Restated Trust Agreement, dated as of December 16, 2003, among the
Company, Deutsche Bank Trust Company Americas, Deutsche Bank Trust Company
Delaware and each of J. Thomas May, Barry L. Crow and Robert A. Fehlman as
administrative trustees, with respect to Simmons First Capital Trust III
(incorporated by reference to Exhibit 10.4 to Simmons First National
Corporation’s Annual Report on Form 10-K for the Year ended December 31,
2003 (File No. 0-6253)).
|
|
|
|
|
10.5
|
Guarantee
Agreement, dated as of December 16, 2003, between the Company and Deutsche
Bank Trust Company Americas, as guarantee trustee, with respect to Simmons
First Capital Trust III (incorporated by reference to Exhibit 10.5 to
Simmons First National Corporation’s Annual Report on Form 10-K for the
Year ended December 31, 2003 (File No. 0-6253)).
|
|
|
|
|
10.6
|
Junior
Subordinated Indenture, dated as of December 16, 2003, among the Company
and Deutsche Bank Trust Company Americas, as trustee, with respect to the
junior subordinated note held by Simmons First Capital Trust III
(incorporated by reference to Exhibit 10.6 to Simmons First National
Corporation’s Annual Report on Form 10-K for the Year ended
December 31, 2003 (File No. 0-6253)).
|
|
|
|
|
10.7
|
Amended
and Restated Trust Agreement, dated as of December 16, 2003, among the
Company, Deutsche Bank Trust Company Americas, Deutsche Bank Trust Company
Delaware and each of J. Thomas May, Barry L. Crow and Robert A. Fehlman as
administrative trustees, with respect to Simmons First Capital Trust IV
(incorporated by reference to Exhibit 10.7 to Simmons First National
Corporation’s Annual Report on Form 10-K for the Year ended December 31,
2003 (File No. 0-6253)).
|
|
|
|
|
10.8
|
Guarantee
Agreement, dated as of December 16, 2003, between the Company and Deutsche
Bank Trust Company Americas, as guarantee trustee, with respect to Simmons
First Capital Trust IV (incorporated by reference to Exhibit 10.8 to
Simmons First National Corporation’s Annual Report on Form 10-K for the
Year ended December 31, 2003 (File
No. 0-6253)).
|
|
10.9
|
Junior
Subordinated Indenture, dated as of December 16, 2003, among the Company
and Deutsche Bank Trust Company Americas, as trustee, with respect to the
junior subordinated note held by Simmons First Capital Trust IV
(incorporated by reference to Exhibit 10.9 to Simmons First National
Corporation’s Annual Report on Form 10-K for the Year ended
December 31, 2003 (File No. 0-6253)).
|
|
|
|
|
10.10
|
Simmons
First National Corporation Long Term Incentive Plan, adopted March 24,
2008, and Notice of Grant of Long Term Incentive Award to J. Thomas May,
David L. Bartlett, Marty Casteel, and Robert A. Fehlman (incorporated by
reference to Exhibits 10.1 through 10.5 to Simmons First National
Corporation’s Current Report on Form 8-K for March 24, 2008 (File No.
0-6253)).
|
|
|
|
|
14
|
Code
of Ethics, dated December 2003, for CEO, CFO, controller and other
accounting officers (incorporated by reference to Exhibit 14 to Simmons
First National Corporation’s Annual Report on Form 10-K for the Year ended
December 31, 2003 (File No. 0-6253)).
|
|
|
|
|
31.1
|
Rule
13a-14(a)/15d-14(a) Certification – J. Thomas May, Chairman and Chief
Executive Officer.*
|
|
|
|
|
31.2
|
Rule
13a-14(a)/15d-14(a) Certification – Robert A. Fehlman, Chief Financial
Officer.*
|
|
|
|
|
32.1
|
Certification
Pursuant to 18 U.S.C. Sections 1350, as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002 – J. Thomas May, Chairman and Chief
Executive Officer.*
|
|
|
|
|
32.2
|
Certification
Pursuant to 18 U.S.C. Sections 1350, as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002 – Robert A. Fehlman, Chief Financial
Officer.*
|
|
|
|
*
Filed herewith.
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
SIMMONS FIRST NATIONAL
CORPORATION
(Registrant)
Date:
November 7,
2008
|
|
/s/ J. Thomas May
|
|
|
|
J.
Thomas May
|
|
|
|
Chairman
and
|
|
|
|
Chief
Executive Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
Date:
November 7,
2008
|
|
/s/ Robert A. Fehlman
|
|
|
|
Robert
A. Fehlman
|
|
|
|
Executive
Vice President and
|
|
|
|
Chief
Financial Officer
|
56