a5957325.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 March 31,
2009
|
Commission
File Number 0-6253
|
SIMMONS
FIRST NATIONAL CORPORATION
(Exact
name of registrant as specified in its charter)
Arkansas
|
71-0407808
|
(State
or other jurisdiction of
|
(I.R.S.
Employer
|
incorporation
or organization)
|
Identification
No.)
|
|
|
501
Main Street, Pine Bluff, Arkansas
|
71601
|
(Address
of principal executive offices)
|
(Zip
Code)
|
870-541-1000
(Registrant's
telephone number, including area code)
Not Applicable
|
Former
name, former address and former fiscal year, if changed since last
report
|
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. S
Yes £
No
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of
“accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange
Act. (Check one):
£ Large
accelerated
filer S Accelerated
filer £
Non-accelerated filer
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act.). £
Yes S
No
The number
of shares outstanding of the Registrant’s Common Stock as of April 23, 2009, was
14,015,081.
Simmons
First National Corporation
Quarterly
Report on Form 10-Q
March
31, 2009
Table
of Contents
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Page
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3-4 |
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5 |
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6 |
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7 |
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8-22 |
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23 |
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24-49 |
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50-52 |
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53 |
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53 |
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53 |
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54 |
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54-56 |
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Signatures
|
|
|
57
|
|
Consolidated
Balance Sheets
March
31, 2009 and December 31, 2008
ASSETS
|
|
|
March
31,
|
|
|
|
December
31,
|
|
(In thousands, except share
data)
|
|
|
2009
|
|
|
|
2008
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
Cash
and non-interest bearing balances due from banks
|
|
$ |
53,707 |
|
|
$ |
71,801 |
|
Interest
bearing balances due from banks
|
|
|
43,219 |
|
|
|
61,085 |
|
Federal
funds sold
|
|
|
1,000 |
|
|
|
6,650 |
|
Cash
and cash equivalents
|
|
|
97,926 |
|
|
|
139,536 |
|
|
|
|
|
|
|
|
|
|
Investment
securities
|
|
|
722,792 |
|
|
|
646,134 |
|
Mortgage
loans held for sale
|
|
|
9,695 |
|
|
|
10,336 |
|
Assets
held in trading accounts
|
|
|
7,510 |
|
|
|
5,754 |
|
Loans
|
|
|
1,917,332 |
|
|
|
1,933,074 |
|
Allowance
for loan losses
|
|
|
(24,508 |
) |
|
|
(25,841 |
) |
Net
loans
|
|
|
1,892,824 |
|
|
|
1,907,233 |
|
|
|
|
|
|
|
|
|
|
Premises
and equipment
|
|
|
78,632 |
|
|
|
78,904 |
|
Foreclosed
assets held for sale, net
|
|
|
3,704 |
|
|
|
2,995 |
|
Interest
receivable
|
|
|
19,071 |
|
|
|
20,930 |
|
Bank
owned life insurance
|
|
|
39,995 |
|
|
|
39,617 |
|
Goodwill
|
|
|
60,605 |
|
|
|
60,605 |
|
Core
deposit premiums
|
|
|
2,373 |
|
|
|
2,575 |
|
Other
assets
|
|
|
8,452 |
|
|
|
8,490 |
|
|
|
|
|
|
|
|
|
|
TOTAL
ASSETS
|
|
$ |
2,943,579 |
|
|
$ |
2,923,109 |
|
|
|
|
|
|
|
|
|
|
See
Condensed Notes to Consolidated Financial Statements.
Simmons
First National Corporation
Consolidated
Balance Sheets
March
31, 2009 and December 31, 2008
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
March
31,
|
|
|
December
31,
|
|
(In
thousands, except share data)
|
|
2009
|
|
|
|
2008
|
|
|
|
(Unaudited)
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
Non-interest
bearing transaction accounts
|
|
$ |
330,656 |
|
|
$ |
334,998 |
|
Interest
bearing transaction accounts and savings deposits
|
|
|
1,078,324 |
|
|
|
1,026,824 |
|
Time
deposits
|
|
|
960,522 |
|
|
|
974,511 |
|
Total
deposits
|
|
|
2,369,502 |
|
|
|
2,336,333 |
|
Federal
funds purchased and securities sold under agreements to
repurchase
|
|
|
98,680 |
|
|
|
115,449 |
|
Short-term
debt
|
|
|
1,456 |
|
|
|
1,112 |
|
Long-term
debt
|
|
|
160,423 |
|
|
|
158,671 |
|
Accrued
interest and other liabilities
|
|
|
21,348 |
|
|
|
22,752 |
|
Total
liabilities
|
|
|
2,651,409 |
|
|
|
2,634,317 |
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS'
EQUITY
|
|
|
|
|
|
|
|
|
Preferred
stock, $0.01 par value; 40,040,000 shares authorized and unissued at 2009;
no shares authorized at 2008
|
|
|
-- |
|
|
|
-- |
|
Common stock, Class
A, $0.01 par value; 60,000,000 shares authorized;
14,013,839 and
13,960,680 shares issued and outstanding
at
March 31, 2009, and December 31, 2008, respectively
|
|
|
140 |
|
|
|
140 |
|
Surplus
|
|
|
41,901 |
|
|
|
40,807 |
|
Undivided
profits
|
|
|
247,228 |
|
|
|
244,655 |
|
Accumulated
other comprehensive income
|
|
|
|
|
|
|
|
|
Unrealized
appreciation on available-for-sale securities, net of income taxes
of $1,740 at 2009 and $1,913 at 2008
|
|
|
2,901 |
|
|
|
3,190 |
|
Total
stockholders' equity
|
|
|
292,170 |
|
|
|
288,792 |
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
$ |
2,943,579 |
|
|
$ |
2,923,109 |
|
|
|
|
|
|
|
|
|
|
See Condensed Notes to
Consolidated Financial Statements.
Consolidated
Statements of Income
Three
Months Ended March 31, 2009 and 2008
|
|
Three
Months Ended
|
|
|
|
March
31,
|
|
(In thousands, except per share
data) |
|
|
2009
|
|
|
|
2008
|
|
|
|
|
(Unaudited)
|
|
INTEREST
INCOME
|
|
|
|
|
|
|
|
|
Loans
|
|
$ |
28,234 |
|
|
$ |
33,106 |
|
Federal
funds sold
|
|
|
1 |
|
|
|
256 |
|
Investment
securities
|
|
|
6,417 |
|
|
|
6,569 |
|
Mortgage
loans held for sale
|
|
|
158 |
|
|
|
112 |
|
Assets
held in trading accounts
|
|
|
5 |
|
|
|
1 |
|
Interest
bearing balances due from banks
|
|
|
78 |
|
|
|
388 |
|
TOTAL
INTEREST INCOME
|
|
|
34,893 |
|
|
|
40,432 |
|
|
|
|
|
|
|
|
|
|
INTEREST
EXPENSE
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
9,503 |
|
|
|
15,188 |
|
Federal
funds purchased and securities sold under agreements to
repurchase
|
|
|
243 |
|
|
|
921 |
|
Short-term
debt
|
|
|
6 |
|
|
|
20 |
|
Long-term
debt
|
|
|
1,748 |
|
|
|
1,511 |
|
TOTAL
INTEREST EXPENSE
|
|
|
11,500 |
|
|
|
17,640 |
|
|
|
|
|
|
|
|
|
|
NET
INTEREST INCOME
|
|
|
23,393 |
|
|
|
22,792 |
|
Provision
for loan losses
|
|
|
2,138 |
|
|
|
1,467 |
|
|
|
|
|
|
|
|
|
|
NET
INTEREST INCOME AFTER PROVISION
|
|
|
|
|
|
|
|
|
FOR
LOAN LOSSES
|
|
|
21,255 |
|
|
|
21,325 |
|
|
|
|
|
|
|
|
|
|
NON-INTEREST
INCOME
|
|
|
|
|
|
|
|
|
Trust
income
|
|
|
1,326 |
|
|
|
1,648 |
|
Service
charges on deposit accounts
|
|
|
3,727 |
|
|
|
3,434 |
|
Other
service charges and fees
|
|
|
746 |
|
|
|
753 |
|
Income
on sale of mortgage loans, net of commissions
|
|
|
1,039 |
|
|
|
721 |
|
Income
on investment banking, net of commissions
|
|
|
411 |
|
|
|
449 |
|
Credit
card fees
|
|
|
3,153 |
|
|
|
3,173 |
|
Premiums
on sale of student loans
|
|
|
-- |
|
|
|
624 |
|
Bank
owned life insurance income
|
|
|
378 |
|
|
|
361 |
|
Gain
on mandatory partial redemption of Visa shares
|
|
|
-- |
|
|
|
2,973 |
|
Other
income
|
|
|
679 |
|
|
|
856 |
|
TOTAL
NON-INTEREST INCOME
|
|
|
11,459 |
|
|
|
14,992 |
|
|
|
|
|
|
|
|
|
|
NON-INTEREST
EXPENSE
|
|
|
|
|
|
|
|
|
Salaries
and employee benefits
|
|
|
14,583 |
|
|
|
14,208 |
|
Occupancy
expense, net
|
|
|
1,889 |
|
|
|
1,810 |
|
Furniture
and equipment expense
|
|
|
1,543 |
|
|
|
1,490 |
|
Loss
on foreclosed assets
|
|
|
70 |
|
|
|
42 |
|
Deposit
insurance
|
|
|
533 |
|
|
|
88 |
|
Other
operating expenses
|
|
|
7,040 |
|
|
|
5,492 |
|
TOTAL
NON-INTEREST EXPENSE
|
|
|
25,658 |
|
|
|
23,130 |
|
|
|
|
|
|
|
|
|
|
INCOME
BEFORE INCOME TAXES
|
|
|
7,056 |
|
|
|
13,187 |
|
Provision
for income taxes
|
|
|
1,820 |
|
|
|
4,371 |
|
|
|
|
|
|
|
|
|
|
NET
INCOME
|
|
$ |
5,236 |
|
|
$ |
8,816 |
|
BASIC
EARNINGS PER SHARE
|
|
$ |
0.37 |
|
|
$ |
0.63 |
|
DILUTED
EARNINGS PER SHARE
|
|
$ |
0.37 |
|
|
$ |
0.63 |
|
See Condensed Notes to Consolidated
Financial Statements.
Consolidated
Statements of Cash Flows
Three
Months Ended March 31, 2009 and 2008
|
|
|
|
|
|
March
31,
|
|
(In thousands)
|
|
|
|
2008
|
|
|
|
|
(Unaudited)
|
|
OPERATING
ACTIVITIES
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
5,236 |
|
|
$ |
8,816 |
|
|
Items
not requiring (providing) cash
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
1,471 |
|
|
|
1,384 |
|
|
Provision
for loan losses
|
|
|
2,138 |
|
|
|
1,467 |
|
|
Gain
on mandatory partial redemption of Visa shares
|
|
|
-- |
|
|
|
(2,973 |
) |
|
Net
accretion of investment securities
|
|
|
(165 |
) |
|
|
(150 |
) |
|
Stock-based
compensation expense
|
|
|
104 |
|
|
|
60 |
|
|
Deferred
income taxes
|
|
|
774 |
|
|
|
189 |
|
|
Bank
owned life insurance income
|
|
|
(378 |
) |
|
|
(361 |
) |
|
Changes
in
|
|
|
|
|
|
|
|
|
|
Interest
receivable
|
|
|
1,859 |
|
|
|
1,649 |
|
|
Mortgage
loans held for sale
|
|
|
641 |
|
|
|
3,362 |
|
|
Assets
held in trading accounts
|
|
|
(1,756 |
) |
|
|
(148 |
) |
|
Other
assets
|
|
|
(20 |
) |
|
|
(1,464 |
) |
|
Accrued
interest and other liabilities
|
|
|
(3,255 |
) |
|
|
37 |
|
|
Income
taxes payable
|
|
|
1,077 |
|
|
|
4,182 |
|
|
Net
cash provided by operating activities
|
|
|
7,726 |
|
|
|
16,050 |
|
|
|
|
|
|
|
|
|
|
|
INVESTING
ACTIVITIES
|
|
|
|
|
|
|
|
|
|
Net
collections of loans
|
|
|
10,456 |
|
|
|
5,431 |
|
|
Purchases
of premises and equipment, net
|
|
|
(997 |
) |
|
|
(2,990 |
) |
|
Proceeds
from sale of foreclosed assets
|
|
|
1,106 |
|
|
|
580 |
|
|
Proceeds
from mandatory partial redemption of Visa shares
|
|
|
-- |
|
|
|
2,973 |
|
|
Proceeds
from maturities of available-for-sale securities
|
|
|
1,271,709 |
|
|
|
164,335 |
|
|
Purchases
of available-for-sale securities
|
|
|
(1,318,334 |
) |
|
|
(208,994 |
) |
|
Proceeds
from maturities of held-to-maturity securities
|
|
|
38,993 |
|
|
|
15,023 |
|
|
Purchases
of held-to-maturity securities
|
|
|
(69,150 |
) |
|
|
(6,940 |
) |
|
Net
cash used in investing activities
|
|
|
(66,217 |
) |
|
|
(30,582 |
) |
|
|
|
|
|
|
|
|
|
|
FINANCING
ACTIVITIES
|
|
|
|
|
|
|
|
|
|
Net
increase in deposits
|
|
|
33,169 |
|
|
|
113,994 |
|
|
Net
change in short-term debt
|
|
|
344 |
|
|
|
(1,187 |
) |
|
Dividends
paid
|
|
|
(2,663 |
) |
|
|
(2,647 |
) |
|
Proceeds
from issuance of long-term debt
|
|
|
3,300 |
|
|
|
63,662 |
|
|
Repayment
of long-term debt
|
|
|
(1,548 |
) |
|
|
(6,208 |
) |
|
Net
change in federal funds purchased and
securities
sold under agreements to repurchase
|
|
|
(16,769 |
) |
|
|
(14,915 |
) |
|
Shares
issued (exchanged) under stock compensation plans, net
|
|
|
1,048 |
|
|
|
225 |
|
|
Repurchase
of common stock
|
|
|
-- |
|
|
|
(624 |
) |
|
Net
cash provided by financing activities
|
|
|
16,881 |
|
|
|
152,300 |
|
|
|
|
|
|
|
|
|
|
|
(DECREASE)
INCREASE IN CASH AND CASH EQUIVALENTS
|
|
|
(41,610 |
) |
|
|
137,768 |
|
CASH
AND CASH EQUIVALENTS, BEGINNING OF PERIOD
|
|
|
139,536 |
|
|
|
110,230 |
|
|
|
|
|
|
|
|
|
|
|
CASH
AND CASH EQUIVALENTS, END OF PERIOD
|
|
$ |
97,926 |
|
|
$ |
247,998 |
|
See Condensed Notes to
Consolidated Financial Statements.
Consolidated
Statements of Stockholders’ Equity
Three
Months Ended March 31, 2009 and 2008
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
Common
|
|
|
|
|
|
Comprehensive
|
|
|
Undivided
|
|
|
|
|
(In
thousands, except share data)
|
|
Stock
|
|
|
Surplus
|
|
|
Income
(loss)
|
|
|
Profits
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
12)
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
(1,174 |
) |
|
|
(1,174 |
) |
Comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
8,816 |
|
|
|
8,816 |
|
Change
in unrealized appreciation on
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
available-for-sale
securities, net of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
income
taxes of $2,251
|
|
|
-- |
|
|
|
-- |
|
|
|
3,752 |
|
|
|
-- |
|
|
|
3,752 |
|
Comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,568 |
|
Stock
issued for employee stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
purchase
plan
5,359 shares
|
|
|
-- |
|
|
|
135 |
|
|
|
-- |
|
|
|
-- |
|
|
|
135 |
|
Exercise
of stock options – 66,830 shares
|
|
|
1 |
|
|
|
827 |
|
|
|
-- |
|
|
|
-- |
|
|
|
828 |
|
Stock
granted under
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
stock-based
compensation plans
|
|
|
-- |
|
|
|
35 |
|
|
|
-- |
|
|
|
-- |
|
|
|
35 |
|
Securities
exchanged under stock option plan
|
|
|
(1 |
) |
|
|
(737 |
) |
|
|
-- |
|
|
|
-- |
|
|
|
(738 |
) |
Repurchase
of common stock – 23,480 shares
|
|
|
-- |
|
|
|
(624 |
) |
|
|
-- |
|
|
|
-- |
|
|
|
(624 |
) |
Dividends
paid – $0.19 per share
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
(2,647 |
) |
|
|
(2,647 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
March 31, 2008 (Unaudited)
|
|
|
139 |
|
|
|
40,655 |
|
|
|
5,480 |
|
|
|
234,515 |
|
|
|
280,789 |
|
Comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
18,094 |
|
|
|
18,094 |
|
Change
in unrealized appreciation on
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
available-for-sale
securities, net of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
income
tax credits of $1,374
|
|
|
-- |
|
|
|
-- |
|
|
|
(2,290 |
) |
|
|
-- |
|
|
|
(2,290 |
) |
Comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,804 |
|
Stock
issued as bonus shares – 17,490 shares
|
|
|
-- |
|
|
|
530 |
|
|
|
-- |
|
|
|
-- |
|
|
|
530 |
|
Exercise
of stock options – 30,667 shares
|
|
|
-- |
|
|
|
380 |
|
|
|
-- |
|
|
|
-- |
|
|
|
380 |
|
Stock
granted under
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
stock-based
compensation plans
|
|
|
-- |
|
|
|
134 |
|
|
|
-- |
|
|
|
-- |
|
|
|
134 |
|
Securities
exchanged under stock option plan
|
|
|
1 |
|
|
|
(236 |
) |
|
|
-- |
|
|
|
-- |
|
|
|
(235 |
) |
Repurchase
of common stock – 21,700 shares
|
|
|
-- |
|
|
|
(656 |
) |
|
|
-- |
|
|
|
-- |
|
|
|
(656 |
) |
Dividends
paid – $0.57 per share
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
(7,954 |
) |
|
|
(7,954 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2008
|
|
|
140 |
|
|
|
40,807 |
|
|
|
3,190 |
|
|
|
244,655 |
|
|
|
288,792 |
|
Comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
5,236 |
|
|
|
5,236 |
|
Change
in unrealized appreciation on
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
available-for-sale
securities, net of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
income
tax credits of $173
|
|
|
-- |
|
|
|
-- |
|
|
|
(289 |
) |
|
|
-- |
|
|
|
(289 |
) |
Comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,947 |
|
Stock
issued as bonus shares – 25,065 shares
|
|
|
-- |
|
|
|
633 |
|
|
|
-- |
|
|
|
-- |
|
|
|
633 |
|
Stock
issued for employee stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
purchase
plan – 5,823 shares
|
|
|
-- |
|
|
|
141 |
|
|
|
-- |
|
|
|
-- |
|
|
|
141 |
|
Exercise
of stock options – 22,300 shares
|
|
|
-- |
|
|
|
274 |
|
|
|
-- |
|
|
|
-- |
|
|
|
274 |
|
Stock
granted under
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
stock-based
compensation plans
|
|
|
-- |
|
|
|
46 |
|
|
|
-- |
|
|
|
-- |
|
|
|
46 |
|
Dividends
paid – $0.19 per share
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
(2,663 |
) |
|
|
(2,663 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
March 31, 2009 (Unaudited)
|
|
$ |
140 |
|
|
$ |
41,901 |
|
|
$ |
2,901 |
|
|
$ |
247,228 |
|
|
$ |
292,170 |
|
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, 2008, 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 2008 filed with the
Securities and Exchange Commission.
Recently
Issued Accounting Pronouncements
In
December 2007, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards (“SFAS”) No. 160, Noncontrolling Interest in
Consolidated Financial Statements, an amendment of ARB Statement No.
5. SFAS 160 amends Accounting Research Bulletin (“ARB”) No.
51, Consolidated Financial
Statements, to establish accounting and reporting standards for the
non-controlling interest in a subsidiary and for the deconsolidation of a
subsidiary. SFAS 160 clarifies that a non-controlling interest in a
subsidiary, which is sometimes referred to as minority interest, is an ownership
interest in the consolidated entity that should be reported as a component of
equity in the consolidated financial statements. Among other
requirements, SFAS 160 requires consolidated net income to be reported at
amounts that include the amounts attributable to both the parent and the
non-controlling interest. It also requires disclosure, on the face of
the consolidated income statement, of the amounts of consolidated net income
attributable to the parent and to the non-controlling interest. SFAS
160 was effective on January 1, 2009, and is not expected to have a material
impact on the Company’s ongoing financial position or results of
operations.
In March
2008, FASB issued SFAS No. 161, Disclosures About Derivative
Instruments and Hedging Activities, an Amendment of FASB Statement No.
133. SFAS 161 amends SFAS 133, Accounting for Derivative
Instruments and Hedging Activities, to amend and enhance the disclosure
requirements of SFAS 133 to provide greater transparency about (i) how and why
an entity uses derivative instruments, (ii) how derivative instruments and
related hedge items are accounted for under SFAS 133 and its related
interpretations and (iii) how derivative instruments and related hedged items
affect an entity’s financial position, results of operations and cash
flows. To meet those objectives, SFAS 161 requires qualitative
disclosures about objectives and strategies for using derivative instruments,
quantitative disclosures about fair values of derivative instruments and their
gains and losses and disclosures about credit-risk-related contingent features
of the derivative instruments and their potential impact on an entity’s
liquidity. SFAS 161 was effective on January 1, 2009, and is not
expected to have a material impact on the Company’s ongoing financial position
or results of operations.
In April
2009, the FASB finalized four FASB Staff Positions (“FSPs”) regarding the
accounting treatment for investments, including mortgage-backed
securities. These FSPs changed the method for determining if an
Other-than-temporary impairment (“OTTI”) exists and the amount of OTTI to be
recorded through an entity’s income statement. The changes brought
about by the FSPs are intended to provide greater clarity and reflect a more
accurate representation of the credit and noncredit components of an OTTI
event. The four FSPs are as follows:
·
|
FSP
SFAS 157-3 Determining
the Fair Value of a Financial Asset When the Market for That Asset Is Not
Active clarifies the application of SFAS 157, Fair Value
Measurements, in a market that is not active and provides an
example to illustrate key considerations in determining the fair value of
a financial asset when the market for that financial asset is not
active.
|
·
|
FSP
SFAS 157-4 Determining
Fair Value When the Volume and Level of Activity for the Assets or
Liability Have Significantly Decreased and Identifying Transactions That
Are Not Orderly provides guidelines for making fair value
measurements more consistent with the principles presented in SFAS
157.
|
·
|
FSP
SFAS 115-2 and SFAS 124-2, Recognition and Presentation
of Other-than-temporary impairments, provides additional guidance
designed to create greater clarity and consistency in accounting for and
presenting impairment losses on
securities.
|
·
|
FSP
SFAS 107-1 and APB 28-1, Interim Disclosures about Fair
Value of Financial Instruments, enhances consistency in financial
reporting by increasing the frequency of fair value
disclosures.
|
These
staff positions are effective for financial statements issued for periods ending
after June 15, 2009, with early application possible for the first quarter of
2009. The Company elected not to adopt any of the above positions
early. The Company does not expect these FSPs to have a material
impact on the Company’s ongoing financial position or results of
operations.
There have
been no other significant changes to the Company’s accounting policies from the
2008 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 months ended March 31,
2009 and 2008:
(In thousands, except per share
data)
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
Net
Income
|
|
$ |
5,236 |
|
|
$ |
8,816 |
|
|
|
|
|
|
|
|
|
|
Average
common shares outstanding
|
|
|
13,992 |
|
|
|
13,930 |
|
Average
potential dilutive common shares
|
|
|
98 |
|
|
|
139 |
|
Average
diluted common shares
|
|
|
14,090 |
|
|
|
14,069 |
|
|
|
|
|
|
|
|
|
|
Basic
earnings per share
|
|
$ |
0.37 |
|
|
$ |
0.63 |
|
Diluted
earnings per share
|
|
$ |
0.37 |
|
|
$ |
0.63 |
|
Stock
options to purchase 161,990 and 57,000 shares for the three months ended March
31, 2009 and 2008, respectively, were not included in the earnings per share
calculation because the exercise price exceeded the average market
price.
NOTE
2: INVESTMENT
SECURITIES
The
amortized cost and fair value of investment securities that are classified as
held-to-maturity and available-for-sale are as follows:
|
|
|
March
31, 2009
|
|
|
December
31, 2008
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
|
|
|
Estimated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-to-Maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
33,000 |
|
|
$ |
482 |
|
|
$ |
(47 |
) |
|
$ |
33,435 |
|
|
$ |
18,000 |
|
|
$ |
629 |
|
|
$ |
-- |
|
|
$ |
18,629 |
|
Mortgage-backed
securities
|
|
|
105 |
|
|
|
3 |
|
|
|
-- |
|
|
|
108 |
|
|
|
109 |
|
|
|
2 |
|
|
|
-- |
|
|
|
111 |
|
State
and political subdivisions
|
|
|
183,408 |
|
|
|
2,053 |
|
|
|
(1,222 |
) |
|
|
184,239 |
|
|
|
168,262 |
|
|
|
1,264 |
|
|
|
(1,876 |
) |
|
|
167,650 |
|
Other
securities
|
|
|
930 |
|
|
|
1 |
|
|
|
(1 |
) |
|
|
930 |
|
|
|
930 |
|
|
|
-- |
|
|
|
-- |
|
|
|
930 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
217,443 |
|
|
$ |
2,539 |
|
|
$ |
(1,270 |
) |
|
$ |
218,712 |
|
|
$ |
187,301 |
|
|
$ |
1,895 |
|
|
$ |
(1,876 |
) |
|
$ |
187,320 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-Sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Treasury
|
|
$ |
7,483 |
|
|
$ |
80 |
|
|
$ |
-- |
|
|
$ |
7,563 |
|
|
$ |
5,976 |
|
|
$ |
113 |
|
|
$ |
-- |
|
|
$ |
6,089 |
|
|
|
|
297,740 |
|
|
|
4,130 |
|
|
|
(85 |
) |
|
|
301,785 |
|
|
|
346,585 |
|
|
|
5,444 |
|
|
|
(868 |
) |
|
|
351,161 |
|
Mortgage-backed
securities
|
|
|
2,906 |
|
|
|
106 |
|
|
|
(4 |
) |
|
|
3,008 |
|
|
|
2,909 |
|
|
|
37 |
|
|
|
(67 |
) |
|
|
2,879 |
|
State
and political subdivisions
|
|
|
485 |
|
|
|
1 |
|
|
|
-- |
|
|
|
486 |
|
|
|
635 |
|
|
|
2 |
|
|
|
-- |
|
|
|
637 |
|
Other
securities
|
|
|
192,094 |
|
|
|
448 |
|
|
|
(35 |
) |
|
|
192,507 |
|
|
|
97,625 |
|
|
|
448 |
|
|
|
(6 |
) |
|
|
98,067 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
500,708 |
|
|
$ |
4,765 |
|
|
$ |
(124 |
) |
|
$ |
505,349 |
|
|
$ |
453,730 |
|
|
$ |
6,044 |
|
|
$ |
(941 |
) |
|
$ |
458,833 |
|
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 or until recovery of the fair
value. Should the impairment of any of these securities become other
than temporary, the cost basis of the investment will be reduced and the
resulting loss recognized in net income in the period the other-than-temporary
impairment is identified.
The
carrying value, which approximates the fair value, of securities pledged as
collateral, to secure public deposits and for other purposes, amounted to
$431,977,000 at March 31, 2009, and $435,120,000 at December 31,
2008.
The book
value of securities sold under agreements to repurchase amounted to $78,590,000
and $87,514,000 for March 31, 2009, and December 31, 2008,
respectively.
Income
earned on securities for the three months ended March 31, 2009 and 2008, is as
follows:
|
|
|
|
|
|
|
(In thousands)
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Taxable
|
|
|
|
|
|
|
Held-to-maturity
|
|
$ |
281 |
|
|
$ |
436 |
|
Available-for-sale
|
|
|
4,381 |
|
|
|
4,607 |
|
|
|
|
|
|
|
|
|
|
Non-taxable
|
|
|
|
|
|
|
|
|
Held-to-maturity
|
|
|
1,747 |
|
|
|
1,516 |
|
Available-for-sale
|
|
|
8 |
|
|
|
10 |
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
6,417 |
|
|
$ |
6,569 |
|
Maturities
of investment securities at March 31, 2009, are as follows:
|
|
Held-to-Maturity
|
|
|
Available-for-Sale
|
|
|
|
Amortized
|
|
|
Fair
|
|
|
Amortized
|
|
|
Fair
|
|
(In thousands)
|
|
Cost
|
|
|
Value
|
|
|
Cost
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One
year or less
|
|
$ |
7,327 |
|
|
$ |
7,350 |
|
|
$ |
26,085 |
|
|
$ |
26,122 |
|
After
one through five years
|
|
|
72,283 |
|
|
|
73,067 |
|
|
|
71,854 |
|
|
|
72,126 |
|
After
five through ten years
|
|
|
81,854 |
|
|
|
82,633 |
|
|
|
210,666 |
|
|
|
214,584 |
|
After
ten years
|
|
|
55,979 |
|
|
|
55,662 |
|
|
|
9 |
|
|
|
10 |
|
Other
securities
|
|
|
-- |
|
|
|
-- |
|
|
|
192,094 |
|
|
|
192,507 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
217,443 |
|
|
$ |
218,712 |
|
|
$ |
500,708 |
|
|
$ |
505,349 |
|
There were
no realized gains or losses on investment securities for the three-months ended
March 31, 2009 or 2008.
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:
|
|
March
31,
|
|
|
December
31,
|
|
(In thousands)
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
|
|
|
|
Credit
cards
|
|
$ |
158,503 |
|
|
$ |
169,615 |
|
Student
loans
|
|
|
143,130 |
|
|
|
111,584 |
|
Other
consumer
|
|
|
139,502 |
|
|
|
138,145 |
|
Real
Estate
|
|
|
|
|
|
|
|
|
Construction
|
|
|
208,664 |
|
|
|
224,924 |
|
Single
family residential
|
|
|
410,315 |
|
|
|
409,540 |
|
Other
commercial
|
|
|
588,216 |
|
|
|
584,843 |
|
Commercial
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
187,645 |
|
|
|
192,496 |
|
Agricultural
|
|
|
68,731 |
|
|
|
88,233 |
|
Financial
institutions
|
|
|
3,471 |
|
|
|
3,471 |
|
Other
|
|
|
9,155 |
|
|
|
10,223 |
|
|
|
|
|
|
|
|
|
|
Total
loans before allowance for loan losses
|
|
$ |
1,917,332 |
|
|
$ |
1,933,074 |
|
As of
March 31, 2009, credit card loans, which are unsecured, were $158,503,000 or
8.3% of total loans, versus $169,615,000, or 8.8% of total loans at December 31,
2008. The credit card loans are diversified by geographic region to
reduce credit risk and minimize any adverse impact on the
portfolio. Credit card loans are regularly reviewed to facilitate the
identification and monitoring of creditworthiness.
At March
31, 2009, and December 31, 2008, impaired loans totaled $23,806,000 and
$17,230,000, 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 $3,521,000 at
March 31, 2009, and $4,238,000 at December 31,
2008. Approximately $64,000 and $198,000 of interest income was
recognized on average impaired loans of $20,518,000 and $15,315,000 as of March
31, 2009 and 2008, respectively. Interest recognized on impaired
loans on a cash basis during the first three months of 2009 and 2008 was
immaterial.
Transactions
in the allowance for loan losses are as follows:
(In thousands)
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Balance,
beginning of year
|
|
$ |
25,841 |
|
|
$ |
25,303 |
|
Additions
|
|
|
|
|
|
|
|
|
Provision
charged to expense
|
|
|
2,138 |
|
|
|
1,467 |
|
|
|
|
27,979 |
|
|
|
26,770 |
|
Deductions
|
|
|
|
|
|
|
|
|
Losses
charged to allowance, net of recoveries
of
$468 and $437 for the first three months of
2009
and 2008, respectively
|
|
|
3,471 |
|
|
|
1,378 |
|
|
|
|
|
|
|
|
|
|
Balance,
March 31
|
|
$ |
24,508 |
|
|
|
25,392 |
|
|
|
|
|
|
|
|
|
|
Additions
|
|
|
|
|
|
|
|
|
Provision
charged to expense
|
|
|
|
|
|
|
7,179 |
|
|
|
|
|
|
|
|
|
|
Deductions
|
|
|
|
|
|
|
|
|
Losses
charged to allowance, net of recoveries
of
$1,701 for the last nine months of 2008
|
|
|
|
|
|
|
6,730 |
|
|
|
|
|
|
|
|
|
|
Balance,
end of year
|
|
|
|
|
|
$ |
25,841 |
|
NOTE
4: GOODWILL AND CORE DEPOSIT
PREMIUMS
Goodwill
is tested annually for impairment. If the implied fair value of
goodwill is lower than its carrying amount, goodwill impairment is indicated and
goodwill is written down to its implied fair value. Subsequent
increases in goodwill value are not recognized in the financial
statements.
Core
deposit premiums are periodically evaluated as to the recoverability of their
carrying value.
The
carrying basis and accumulated amortization of core deposit premiums (net of
core deposit premiums that were fully amortized) at March 31, 2009, and December
31, 2008, were as follows:
|
|
March
31,
|
|
|
December
31,
|
|
(In thousands)
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Gross
carrying amount
|
|
$ |
6,822 |
|
|
$ |
6,822 |
|
Accumulated
amortization
|
|
|
(4,449 |
) |
|
|
(4,247 |
) |
|
|
|
|
|
|
|
|
|
Net
core deposit premiums
|
|
$ |
2,373 |
|
|
$ |
2,575 |
|
Core
deposit premium amortization expense recorded for the three months ended March
31, 2009 and 2008, was $202,000 and $202,000, respectively. The
Company’s estimated amortization expense for the remainder of 2009 is $600,000,
and for each of the following four years is:
2010 –
$699,000; 2011 – $451,000; 2012 – $321,000; and 2013 – $268,000.
NOTE
5: TIME DEPOSITS
Time
deposits include approximately $409,846,000 and $418,394,000 of certificates of
deposit of $100,000 or more at March 31, 2009, and December 31, 2008,
respectively.
NOTE
6: INCOME TAXES
The
provision for income taxes is comprised of the following
components:
|
|
March
31,
|
|
|
March
31,
|
|
(In thousands)
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Income
taxes currently payable
|
|
$ |
1,046 |
|
|
$ |
4,182 |
|
Deferred
income taxes
|
|
|
774 |
|
|
|
189 |
|
|
|
|
|
|
|
|
|
|
Provision
for income taxes
|
|
$ |
1,820 |
|
|
$ |
4,371 |
|
The tax
effects of temporary differences related to deferred taxes shown on the balance
sheets were:
|
|
March
31,
|
|
|
December
31,
|
|
(In thousands)
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Deferred
tax assets
|
|
|
|
|
|
|
Allowance
for loan losses
|
|
$ |
8,594 |
|
|
$ |
9,057 |
|
Valuation
of foreclosed assets
|
|
|
63 |
|
|
|
63 |
|
Deferred
compensation payable
|
|
|
1,471 |
|
|
|
1,451 |
|
FHLB
advances
|
|
|
12 |
|
|
|
14 |
|
Vacation
compensation
|
|
|
874 |
|
|
|
866 |
|
Loan
interest
|
|
|
88 |
|
|
|
88 |
|
Other
|
|
|
300 |
|
|
|
276 |
|
Total
deferred tax assets
|
|
|
11,402 |
|
|
|
11,815 |
|
|
|
|
|
|
|
|
|
|
Deferred
tax liabilities
|
|
|
|
|
|
|
|
|
Accumulated
depreciation
|
|
|
(377 |
) |
|
|
(406 |
) |
Deferred
loan fee income and expenses, net
|
|
|
(1,315 |
) |
|
|
(1,229 |
) |
FHLB
stock dividends
|
|
|
(590 |
) |
|
|
(586 |
) |
Goodwill
and core deposit premium amortization
|
|
|
(8,943 |
) |
|
|
(8,643 |
) |
Available-for-sale
securities
|
|
|
(1,740 |
) |
|
|
(1,913 |
) |
Other
|
|
|
(1,019 |
) |
|
|
(1,019 |
) |
Total
deferred tax liabilities
|
|
|
(13,984 |
) |
|
|
(13,796 |
) |
|
|
|
|
|
|
|
|
|
Net
deferred tax liabilities included in other liabilities on balance
sheets
|
|
$ |
(2,582 |
) |
|
$ |
(1,981 |
) |
A
reconciliation of income tax expense at the statutory rate to the Company's
actual income tax expense is shown below:
|
|
March
31,
|
|
|
March
31,
|
|
(In thousands)
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Computed
at the statutory rate (35%)
|
|
$ |
2,469 |
|
|
$ |
4,615 |
|
|
|
|
|
|
|
|
|
|
Increase
(decrease) in taxes resulting from:
|
|
|
|
|
|
|
|
|
State
income taxes, net of federal tax benefit
|
|
|
27 |
|
|
|
284 |
|
Tax
exempt interest income
|
|
|
(647 |
) |
|
|
(570 |
) |
Tax
exempt earnings on BOLI
|
|
|
(132 |
) |
|
|
(126 |
) |
Other
differences, net
|
|
|
103 |
|
|
|
168 |
|
|
|
|
|
|
|
|
|
|
Actual
tax provision
|
|
$ |
1,820 |
|
|
$ |
4,371 |
|
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 2005 tax year and forward. The
Company’s various state income tax returns are generally open from the 2005 and
later tax return years based on individual state statute of
limitations.
NOTE
7: SHORT-TERM AND LONG-TERM
DEBT
Long-term
debt at March 31, 2009, and December 31, 2008, consisted of the following
components:
|
|
March
31,
|
|
|
December
31,
|
|
(In thousands)
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
FHLB
advances, due 2009 to 2033, 2.02% to 8.41%
secured by
residential real estate loans
|
|
$ |
129,493 |
|
|
$ |
127,741 |
|
Trust
preferred securities, due 12/30/2033,
fixed at 8.25%,
callable without penalty
|
|
|
10,310 |
|
|
|
10,310 |
|
Trust
preferred securities, due 12/30/2033,
floating rate of
2.80% above the three-month LIBOR rate,
reset quarterly,
callable without penalty
|
|
|
10,310 |
|
|
|
10,310 |
|
Trust
preferred securities, due 12/30/2033,
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 |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
160,423 |
|
|
$ |
158,671 |
|
At March
31, 2009, 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 March 31, 2009, are:
|
|
|
Annual
|
|
(In thousands)
|
Year
|
|
Maturities
|
|
|
|
|
|
|
|
2009
|
|
$ |
5,759 |
|
|
2010
|
|
|
28,767 |
|
|
2011
|
|
|
42,508 |
|
|
2012
|
|
|
6,072 |
|
|
2013
|
|
|
11,422 |
|
|
Thereafter
|
|
|
65,895 |
|
|
|
|
|
|
|
|
Total
|
|
$ |
160,423 |
|
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 the following 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. A pretrial was conducted on July 24,
2008. Several dispositive motions previously filed were heard on
April 9, 2009. Jury trial is set for two weeks beginning on November
2, 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
At a
special shareholders’ meeting held on February 27, 2009, the Company’s
shareholders approved an amendment to the Articles of Incorporation to establish
40,040,000 authorized shares of Preferred Stock, $0.01 par value, of the
Company. The shareholders also approved the issuance of common stock
warrants for the purchase of up to 500,000 shares of the Company’s Class A
common stock with the exercise price and number of shares subject to final
computation in accordance with the rules of the U.S. Department of the Treasury
(“Treasury”) Troubled Asset Relief Program – Capital Purchase Program
(“CPP”).
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.
Effective
July 1, 2008, the Company made a strategic decision to temporarily suspend stock
repurchases. This decision was made to preserve capital at the parent
company due to the lack of liquidity in the credit markets and the uncertainties
in the overall economy. If the Company participates in the CPP by
issuing preferred stock to the Treasury, stock repurchases may be restricted and
will require the Treasury’s consent for three years. For further
discussion on the CPP, see “Management’s Discussion and Analysis of Financial
Condition and Results of Operation – Overview – U.S. Treasury’s Capital Purchase
Program” included elsewhere in this report.
NOTE
10: UNDIVIDED PROFITS
The
Company’s subsidiary banks are subject to a legal limitation on dividends that
can be paid to the parent company without prior approval of the applicable
regulatory agencies. The approval of the Comptroller of the Currency
is required, if the total of all dividends declared by a national bank in any
calendar year exceeds the total of its net profits, as defined, for that year
combined with its retained net profits of the preceding two
years. Arkansas bank regulators have specified that the maximum
dividend limit state banks may pay to the parent company without prior approval
is 75% of current year earnings plus 75% of the retained net earnings of
the preceding year. At March 31, 2009, the bank subsidiaries had
approximately $9.3 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 March 31, 2009, each of the eight subsidiary banks met
the capital standards for a well-capitalized institution. The
Company's “total risk-based capital” ratio was 14.86% at March 31,
2009.
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 the 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 three months ended March 31, 2009:
|
|
Stock
Options
Outstanding
|
|
|
Non-Vested
Stock
Awards Outstanding
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
Number
|
|
|
Average
|
|
|
Number
|
|
|
Average
|
|
|
|
of
|
|
|
Exercise
|
|
|
of
|
|
|
Grant-Date
|
|
|
|
Shares
|
|
|
Price
|
|
|
Shares
|
|
|
Fair-Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
January 1, 2009
|
|
|
451,673 |
|
|
$ |
20.46 |
|
|
|
36,925 |
|
|
$ |
28.28 |
|
Granted
|
|
|
-- |
|
|
|
-- |
|
|
|
25,065 |
|
|
|
25.28 |
|
Stock
Options Exercised
|
|
|
(22,300 |
) |
|
|
12.27 |
|
|
|
-- |
|
|
|
-- |
|
Stock
Awards Vested
|
|
|
-- |
|
|
|
-- |
|
|
|
(900 |
) |
|
|
27.67 |
|
Forfeited/Expired
|
|
|
(400 |
) |
|
|
26.20 |
|
|
|
-- |
|
|
|
-- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
March 31, 2009
|
|
|
428,973 |
|
|
$ |
20.88 |
|
|
|
61,090 |
|
|
$ |
27.06 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable,
March 31, 2009
|
|
|
309,853 |
|
|
$ |
17.87 |
|
|
|
|
|
|
|
|
|
The
following table summarizes information about stock options under the plans
outstanding at March 31, 2009:
|
|
|
Options Outstanding
|
|
Options Exercisable
|
|
|
Range
of
Exercise Prices
|
|
Options
Outstanding
|
|
Weighted
Average
Remaining
Contractual
Life
|
|
Weighted
Average
Exercise
Price
|
|
Options
Exercisable
|
|
Weighted
Average
Exercise
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$10.56
to $12.13
|
|
164,880
|
|
2.1
years
|
|
$12.09
|
|
164,880
|
|
$12.09
|
|
|
$15.35
to $16.32
|
|
7,553
|
|
2.6
years
|
|
$15.97
|
|
7,553
|
|
$15.97
|
|
|
$23.78
to $24.50
|
|
94,550
|
|
5.6
years
|
|
$24.05
|
|
92,500 |
|
$24.04 |
|
|
$26.19
to $27.67
|
|
58,200
|
|
7.0
years
|
|
$26.20
|
|
27,040
|
|
$26.21
|
|
|
$28.42
to $28.42
|
|
54,600
|
|
8.2
years
|
|
$28.42
|
|
17,880
|
|
$28.42
|
|
|
$30.31
to $30.31
|
|
49,190
|
|
9.2
years
|
|
$30.31
|
|
--
|
|
--
|
|
Stock-based
compensation expense totaled $103,739 and $59,766 during the three months ended
March 31, 2009 and 2008, 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 $555,230 at
March 31, 2009. At such date, the weighted-average period over which
this unrecognized expense is expected to be recognized was 1.74
years. Unrecognized stock-based compensation expense related to
non-vested stock awards was $1,568,448 at March 31, 2009. At such
date, the weighted-average period over which this unrecognized expense is
expected to be recognized was 2.68 years.
Aggregate
intrinsic values of outstanding stock options and exercisable stock options at
March 31, 2009, were $1.8 million and $2.3 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 $25.19 as of March 31, 2009, and the exercise price multiplied by the
number of options outstanding. The total intrinsic values of stock
options exercised during the three months ended March 31, 2009 and 2008, were
$288,141 and $1.2 million, respectively.
NOTE
12: ADDITIONAL CASH FLOW
INFORMATION
|
|
Three
Months Ended
|
|
|
|
March
31,
|
|
(In thousands)
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Interest
paid
|
|
$ |
12,123 |
|
|
$ |
18,117 |
|
Income
taxes paid
|
|
|
-- |
|
|
|
-- |
|
Transfers
of loans to other real estate
|
|
|
1,815 |
|
|
|
1,507 |
|
Post-retirement
benefit liability established upon adoption of EITF 06-4
|
|
|
-- |
|
|
|
1,174 |
|
NOTE
13: OTHER OPERATING EXPENSES
Other
operating expenses consist of the following:
|
|
Three
Months Ended
|
|
|
|
March
31,
|
|
(In thousands)
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Professional
services
|
|
$ |
938 |
|
|
$ |
759 |
|
Postage
|
|
|
623 |
|
|
|
600 |
|
Telephone
|
|
|
528 |
|
|
|
450 |
|
Credit
card expense
|
|
|
1,273 |
|
|
|
1,195 |
|
Operating
supplies
|
|
|
396 |
|
|
|
460 |
|
Amortization
of core deposit premiums
|
|
|
202 |
|
|
|
202 |
|
Visa
litigation liability reversal
|
|
|
-- |
|
|
|
(1,220 |
) |
Other
expense
|
|
|
3,080 |
|
|
|
3,046 |
|
|
|
|
|
|
|
|
|
|
Total
other operating expenses
|
|
$ |
7,040 |
|
|
$ |
5,492 |
|
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 March
31, 2009, the Company had outstanding commitments to extend credit aggregating
approximately $205,905,000 and $431,567,000 for credit card commitments and
other loan commitments, respectively. At December 31, 2008, the
Company had outstanding commitments to extend credit aggregating approximately
$247,969,000 and $422,127,000 for credit card commitments and other loan
commitments, respectively.
Standby
letters of credit are conditional commitments issued by the Company, to
guarantee the performance of a customer to a third party. Those
guarantees are primarily issued to support public and private borrowing
arrangements, including commercial paper, bond financing, and similar
transactions. The credit risk involved in issuing letters of credit
is essentially the same as that involved in extending loans to
customers. The Company had total outstanding letters of credit
amounting to $6,917,000 and $10,186,000 at March 31, 2009, and December 31,
2008, respectively, with terms ranging from 90 days to three
years. At March 31, 2009, and December 31, 2008, the Company’s
deferred revenue under standby letter of credit agreements is approximately
$21,000 and $52,000, 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
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 that 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.
|
Available-for-sale securities
– 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. The Company’s investment in a Government money market
mutual fund (the “AIM Fund”) is reported at fair value utilizing Level 1
inputs. The remainder of the Company's available-for-sale securities
are reported at fair value utilizing Level 2 inputs.
Assets held in trading accounts
– The Company’s trading account investment in the AIM Fund is reported at
fair value utilizing Level 1 inputs. The remainder of the Company's
assets held in trading accounts are reported at fair value utilizing Level 2
inputs.
The
following table sets forth the Company’s financial assets and liabilities by
level within the fair value hierarchy that were measured at fair value on a
recurring basis as of March 31, 2009.
|
|
|
|
|
Fair Value Measurements
Using
|
|
(In thousands)
|
|
Fair Value
|
|
|
Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
securities
|
|
$ |
505,349 |
|
|
$ |
179,986 |
|
|
$ |
325,363 |
|
|
$ |
-- |
|
Assets
held in trading accounts
|
|
|
7,510 |
|
|
|
5,100 |
|
|
|
2,410 |
|
|
|
-- |
|
Certain
financial assets and financial liabilities are measured at fair value on a
nonrecurring basis; that is, the instruments are not measured at fair value on
an ongoing basis but are subject to fair value adjustments in certain
circumstances (for example, when there is evidence of
impairment). Financial assets and liabilities measured at fair value
on a nonrecurring basis including the following:
Impaired loans – 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 $20,285,000 as of March 31,
2009. This valuation would be considered Level 3, consisting of
appraisals of underlying collateral and discounted cash flow
analysis.
Mortgage loans held for sale
– Mortgage loans held for sale are reported at fair value if, on an aggregate
basis, the fair value of the loans is less than cost. In determining
whether the fair value of loans held for sale is less than cost when quoted
market prices are not available, the Company may consider outstanding investor
commitments, discounted cash flow analyses with market assumptions or the fair
value of the collateral if the loan is collateral dependent. Such
loans are classified within either Level 2 or Level 3 of the fair value
hierarchy. Where assumptions are made using significant unobservable
inputs, such loans held for sale are classified as Level 3. At March
31, 2009, the aggregate fair value of mortgage loans held for sale exceeded
their cost. Accordingly, no mortgage loans held for sale were marked
down and reported at fair value.
The
following table sets forth the Company’s financial assets and liabilities by
level within the fair value hierarchy that were measured at fair value on a
non-recurring basis as of March 31, 2009.
|
|
|
|
|
Fair Value Measurements
Using
|
|
(In thousands)
|
|
Fair Value
|
|
|
Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired
loans
|
|
$ |
20,285 |
|
|
$ |
-- |
|
|
$ |
-- |
|
|
$ |
20,285 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 March 31, 2009, and the related condensed consolidated
statements of income, stockholders’ equity and cash flows for the three-month
periods ended March 31, 2009 and 2008. 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, 2008, 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 23, 2009, 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, 2008, is fairly stated, in all material respects, in
relation to the consolidated balance sheet from which it has been
derived.
Pine
Bluff, Arkansas
May 5,
2009
Item
2. Management’s
Discussion and Analysis of Financial Condition and
Results of Operations
OVERVIEW
Simmons
First National Corporation recorded net income of $5,236,000 for the
three-months ended March 31, 2009, a $3,580,000 decrease from the same period in
2008. Diluted earnings per share decreased $0.26, or 41.27%, to $0.37
for the three-months ended March 31, 2009. The decrease in earnings
is primarily attributable to nonrecurring after-tax income of $2.6 million in
the first quarter of 2008 related to Visa (see below), an increase in the
provision for loan losses, an increase in FDIC insurance and a decrease in the
premiums from the sale of student loans.
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 three-months ended March 31, 2009 and 2008, were $5,236,000
and $6,258,000, respectively. Diluted operating earnings per share
for these same periods were $0.37 and $0.45, respectively, a decrease of $0.08
per share, or 17.78%.
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.
The
allowance for loan losses as a percent of total loans was 1.28% as of March 31,
2009. Non-performing loans equaled 1.03% of total loans.
Non-performing assets were 0.80% of total assets, up 16 basis points from year
end. The allowance for loan losses was 124% of non-performing
loans. The Company’s annualized net charge-offs to total loans for
the first quarter of 2009 was 0.73%. Excluding credit cards, the
annualized net charge-offs to total loans for the first quarter was
0.56%. Annualized net credit card charge-offs to total credit card
loans for the first quarter were 2.64%, an increase of 62 basis points from the
previous quarter, yet more than 600 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 March 31, 2009, were $2.944 billion, an increase of
$20.5 million, or 0.7%, from December 31, 2008. Stockholders’
equity as of March 31, 2008 was $292.2 million, an increase of $3.4 million, or
approximately 1.2%, from December 31, 2008.
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 47 communities.
U.S.
Treasury’s Capital Purchase Program
On October
29, 2008, the U.S. Department of the Treasury (“Treasury”) gave the Company
approval to participate in the Troubled Asset Relief Program – Capital Purchase
Program (“CPP”), designed to provide additional capital to healthy financial
institutions, thereby increasing confidence in our banking industry and
encouraging increased lending. On January 6, 2009, the Treasury
amended its approval to allow the Company to participate in the CPP at a level
up to $59.7 million. At a Special Meeting of Shareholders held on
February 27, 2009, our shareholders voted to amend the Articles of Incorporation
to authorize the issuance of preferred shares and common stock warrants required
for participation in the CPP.
The
Company’s original plans were to issue the shares under the CPP on March 27,
2009. However, due to the continued ambiguity resulting from changes
being proposed by Congress, the Company requested an extension of 60
days. While the extension for a specific number of days was not
approved, the Treasury has acknowledged that the request had merit because of
the ambiguity and uncertainty regarding the ability to repay the funds at the
time of our choosing. It is the ability to exit the program that
gives the Company the protection it needs in case future changes are not in the
best interest of our shareholders. We have been told that procedures
are being drafted which would clarify the early payout process by participants,
and we expect some clarity in the near future. However, it is
possible that we will request further extensions for the Company.
Should the
Company continue with the original plans to participate in the CPP at the
approved level, the Company will pay the Treasury a 5% dividend, or $3 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 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.
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, and more than annually if circumstances warrant, 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. However, due to the
extremely low interest rate environment, approximately 88% of the Company’s time
deposits as of March 31, 2009, are scheduled to reprice within one
year.
Net
Interest Income
For the
three-month period ended March 31, 2009, net interest income on a fully taxable
equivalent basis was $24.5 million, an increase of $750,000, or 3.2%, over the
same period in 2008. The increase in net interest income was the result of a
$6.1 million decrease in interest expense offset by a $5.4 million decrease in
interest income.
The $6.1
million decrease in interest expense is the result of a 127 basis point decrease
in cost of funds due to competitive repricing during a falling interest rate
environment, coupled with a $153.4 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
since early 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 $6.1 million
decrease in interest expense. The most significant component of this decrease
was the $3.7 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 147 basis points from 4.36% to 2.89%. Lower
rates on federal funds purchased and other debt resulted in an additional
$831,000 decrease in interest expense, with the average rate paid on debt
decreasing by 105 basis points from 3.92% to 2.87%. Although the
level of average interest bearing liabilities increased by $153.4 million,
primarily due to $122.6 million of internal deposit growth, interest expense due
to volume decreased as a result of a change in deposit mix (higher costing time
deposits declined while lower costing transaction accounts
increased).
The $5.4
million decrease in interest income primarily is the result of a 122 basis point
decrease in yield on earning assets associated with the repricing to a lower
interest rate environment, offset by a $186 million increase in average
interest earning assets due to internal growth. The lower interest
rates accounted for an $8.2 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 126 basis points from 7.24% to 5.98%. The growth in
average interest earning assets resulted in a $2.8 million improvement in
interest income. The growth in average loans accounted for
$1.3 million of this increase, while the growth in investment securities
resulted in $1.3 million of the increase.
Net
Interest Margin
The
Company’s net interest margin decreased 12 basis points to 3.68% for the
three-month period ended March 31, 2009, when compared to 3.80% for the same
period in 2008. This decrease in the net interest margin was
primarily due to significant repricing of earning assets due to declining
interest rates during the first half of 2008, along with the Company’s
concentrated effort to grow core deposits. Based on its current
pricing model, considering investment portfolio call projections, the Company
anticipates flat to slight margin compression for the remainder of
2009.
Net
Interest Income Tables
Table 1
and 2 reflect an analysis of net interest income on a fully taxable equivalent
basis for the three-month periods ended March 31, 2009 and 2008, respectively,
as well as changes in fully taxable equivalent net interest margin for the
three-month periods ended March 31, 2009, versus March 31, 2008.
Table
1: Analysis of Net Interest Income
(FTE
=Fully Taxable Equivalent)
|
|
Period Ended March 31,
|
|
($ in thousands)
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Interest
income
|
|
$ |
34,893 |
|
|
$ |
40,432 |
|
FTE
adjustment
|
|
|
1,126 |
|
|
|
977 |
|
Interest
income – FTE
|
|
|
36,019 |
|
|
|
41,409 |
|
Interest
expense
|
|
|
11,500 |
|
|
|
17,640 |
|
|
|
|
|
|
|
|
|
|
Net
interest income – FTE
|
|
$ |
24,519 |
|
|
$ |
23,769 |
|
|
|
|
|
|
|
|
|
|
Yield
on earning assets – FTE
|
|
|
5.41 |
% |
|
|
6.63 |
% |
Cost
of interest bearing liabilities
|
|
|
2.02 |
% |
|
|
3.29 |
% |
Net
interest spread – FTE
|
|
|
3.39 |
% |
|
|
3.34 |
% |
Net
interest margin – FTE
|
|
|
3.68 |
% |
|
|
3.80 |
% |
Table
2: Changes in Fully Taxable Equivalent Net Interest
Margin
|
|
March
31,
|
|
(In thousands)
|
|
2009 vs. 2008
|
|
|
|
|
|
Increase
due to change in earning assets
|
|
$ |
2,838 |
|
Decrease
due to change in earning asset yields
|
|
|
(8,228 |
) |
Increase
due to change in interest bearing liabilities
|
|
|
42 |
|
Increase
due to change in interest rates paid on interest bearing
liabilities
|
|
|
6,098 |
|
|
|
|
|
|
Increase
in net interest income
|
|
$ |
750 |
|
Table 3
shows, for each major category of earning assets and interest bearing
liabilities, the average (computed on a daily basis) amount outstanding, the
interest earned or expensed on such amount and the average rate earned or
expensed for the three-month periods ended March 31, 2009 and
2008. The table also shows the average rate earned on all earning
assets, the average rate expensed on all interest bearing liabilities, the net
interest spread and the net interest margin for the same periods. The analysis
is presented on a fully taxable equivalent basis. Non-accrual loans
were included in average loans for the purpose of calculating the rate earned on
total loans.
Table
3: Average Balance Sheets and Net Interest Income
Analysis
|
|
Three Months Ended March
31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
Average
|
|
|
Income/
|
|
|
Yield/
|
|
|
Average
|
|
|
Income/
|
|
|
Yield/
|
|
($ in thousands)
|
|
Balance
|
|
|
Expense
|
|
|
Rate(%)
|
|
|
Balance
|
|
|
Expense
|
|
|
Rate(%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earning
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
bearing balances due from banks
|
|
$ |
54,057 |
|
|
$ |
78 |
|
|
|
0.59 |
|
|
$ |
56,384 |
|
|
$ |
388 |
|
|
|
2.77 |
|
Federal
funds sold
|
|
|
486 |
|
|
|
1 |
|
|
|
0.83 |
|
|
|
35,460 |
|
|
|
256 |
|
|
|
2.90 |
|
Investment
securities - taxable
|
|
|
537,030 |
|
|
|
4,662 |
|
|
|
3.52 |
|
|
|
415,505 |
|
|
|
5,053 |
|
|
|
4.89 |
|
Investment
securities - non-taxable
|
|
|
172,718 |
|
|
|
2,824 |
|
|
|
6.63 |
|
|
|
151,496 |
|
|
|
2,432 |
|
|
|
6.46 |
|
Mortgage
loans held for sale
|
|
|
13,731 |
|
|
|
158 |
|
|
|
4.67 |
|
|
|
7,474 |
|
|
|
112 |
|
|
|
6.03 |
|
Assets
held in trading accounts
|
|
|
4,213 |
|
|
|
5 |
|
|
|
0.48 |
|
|
|
5,731 |
|
|
|
1 |
|
|
|
0.07 |
|
Loans
|
|
|
1,917,251 |
|
|
|
28,291 |
|
|
|
5.98 |
|
|
|
1,841,762 |
|
|
|
33,167 |
|
|
|
7.24 |
|
Total
interest earning assets
|
|
|
2,699,486 |
|
|
|
36,019 |
|
|
|
5.41 |
|
|
|
2,513,812 |
|
|
|
41,409 |
|
|
|
6.63 |
|
Non-earning
assets
|
|
|
249,877 |
|
|
|
|
|
|
|
|
|
|
|
254,129 |
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$ |
2,949,363 |
|
|
|
|
|
|
|
|
|
|
$ |
2,767,941 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’
EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
bearing liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
bearing transaction and savings accounts
|
|
$ |
1,052,635 |
|
|
$ |
2,569 |
|
|
|
0.99 |
|
|
$ |
803,439 |
|
|
$ |
3,266 |
|
|
|
1.63 |
|
Time
deposits
|
|
|
973,387 |
|
|
|
6,934 |
|
|
|
2.89 |
|
|
|
1,100,022 |
|
|
|
11,922 |
|
|
|
4.36 |
|
Total
interest bearing deposits
|
|
|
2,026,022 |
|
|
|
9,503 |
|
|
|
1.90 |
|
|
|
1,903,461 |
|
|
|
15,188 |
|
|
|
3.21 |
|
|
|
|
|
|
|
|
|
|
|
Federal
funds purchased and securities
sold
under
agreement to
repurchase
|
|
|
119,846 |
|
|
|
243 |
|
|
|
0.82 |
|
|
|
126,459 |
|
|
|
921 |
|
|
|
2.93 |
|
Other
borrowed funds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term
debt
|
|
|
1,695 |
|
|
|
6 |
|
|
|
1.44 |
|
|
|
1,715 |
|
|
|
20 |
|
|
|
4.69 |
|
Long-term
debt
|
|
|
160,692 |
|
|
|
1,748 |
|
|
|
4.41 |
|
|
|
123,221 |
|
|
|
1,511 |
|
|
|
4.93 |
|
Total
interest bearing liabilities
|
|
|
2,308,255 |
|
|
|
11,500 |
|
|
|
2.02 |
|
|
|
2,154,856 |
|
|
|
17,640 |
|
|
|
3.29 |
|
Non-interest
bearing liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest
bearing deposits
|
|
|
327,250 |
|
|
|
|
|
|
|
|
|
|
|
308,715 |
|
|
|
|
|
|
|
|
|
Other
liabilities
|
|
|
21,000 |
|
|
|
|
|
|
|
|
|
|
|
26,484 |
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
2,656,505 |
|
|
|
|
|
|
|
|
|
|
|
2,490,055 |
|
|
|
|
|
|
|
|
|
Stockholders’
equity
|
|
|
292,758 |
|
|
|
|
|
|
|
|
|
|
|
277,886 |
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders’ equity
|
|
$ |
2,949,263 |
|
|
|
|
|
|
|
|
|
|
$ |
2,767,941 |
|
|
|
|
|
|
|
|
|
Net
interest spread
|
|
|
|
|
|
|
|
|
|
|
3.39 |
|
|
|
|
|
|
|
|
|
|
|
3.34 |
|
Net
interest margin
|
|
|
|
|
|
$ |
24,519 |
|
|
|
3.68 |
|
|
|
|
|
|
$ |
23,769 |
|
|
|
3.80 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table 4
shows changes in interest income and interest expense resulting from changes in
volume and changes in interest rates for the three-month period ended March 31,
2009, as compared to the same period of the prior year. The changes
in interest rate and volume have been allocated to changes in average volume and
changes in average rates in proportion to the relationship of absolute dollar
amounts of the changes in rates and volume.
Table
4: Volume/Rate Analysis
|
|
Period
Ended March 31
|
|
|
|
2009 over 2008
|
|
(In
thousands, on a fully
|
|
|
|
|
Yield/
|
|
|
|
|
taxable
equivalent basis)
|
|
Volume
|
|
|
Rate
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Increase
(decrease) in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
bearing balances due from banks
|
|
$ |
(15 |
) |
|
$ |
(295 |
) |
|
$ |
(310 |
) |
Federal
funds sold
|
|
|
(148 |
) |
|
|
(107 |
) |
|
|
(255 |
) |
Investment
securities - taxable
|
|
|
1,264 |
|
|
|
(1,655 |
) |
|
|
(391 |
) |
Investment
securities - non-taxable
|
|
|
346 |
|
|
|
46 |
|
|
|
392 |
|
Mortgage
loans held for sale
|
|
|
77 |
|
|
|
(31 |
) |
|
|
46 |
|
Assets
held in trading accounts
|
|
|
-- |
|
|
|
4 |
|
|
|
4 |
|
Loans
|
|
|
1,314 |
|
|
|
(6,190 |
) |
|
|
(4,876 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2,838 |
|
|
|
(8,228 |
) |
|
|
(5,390 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
bearing transaction and savings accounts
|
|
|
836 |
|
|
|
(1,533 |
) |
|
|
(697 |
) |
Time
deposits
|
|
|
(1,254 |
) |
|
|
(3,734 |
) |
|
|
(4,988 |
) |
Federal
funds purchased and securities sold under agreements to
repurchase
|
|
|
(46 |
) |
|
|
(632 |
) |
|
|
(678 |
) |
Other
borrowed funds
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term
debt
|
|
|
-- |
|
|
|
(14 |
) |
|
|
(14 |
) |
Long-term
debt
|
|
|
422 |
|
|
|
(185 |
) |
|
|
237 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
(42 |
) |
|
|
(6,098 |
) |
|
|
(6,140 |
) |
Increase
(decrease) in net interest income
|
|
$ |
2,880 |
|
|
$ |
(2,130 |
) |
|
$ |
750 |
|
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 March 31, 2009, was
$2.1 million, compared to $1.5 million for the three-month period ended March
31, 2008, an increase of $600,000. The provision increase was primarily due to
an increase in net loan charge-offs, an increase in non-performing loans and a
continued 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 $11.5 million for the three-month period ended March 31,
2009, a decrease of $3.5 million, or 23.6%, compared to $15.0 million for the
same period in 2008. The decrease in non-interest income was
primarily due to the nonrecurring $3.0 million gain in the first quarter of 2008
from cash proceeds received on the mandatory partial redemption of the Company’s
equity interest in Visa. Excluding the gain on Visa shares,
non-interest income decreased $560,000, or 4.7%, in the first quarter of 2009
from the comparable period in 2008.
Non-interest
income is principally derived from recurring fee income, which includes service
charges, trust fees and credit card fees. Non-interest income also
includes income on the sale of mortgage loans, investment banking income,
premiums on sale of student loans, income from the increase in cash surrender
values of bank owned life insurance and gains (losses) from sales of
securities.
Table 5
shows non-interest income for the three-month period ended March 31, 2009 and
2008, respectively, as well as changes in 2009 from 2008.
Table
5: Non-Interest Income
|
|
|
|
|
|
|
|
2009
|
|
|
|
Period Ended March 31
|
|
|
Change
from
|
|
(In thousands)
|
|
2009
|
|
|
2008
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trust
income
|
|
$ |
1,326 |
|
|
$ |
1,648 |
|
|
$ |
(322 |
) |
|
|
-19.54 |
% |
Service
charges on deposit accounts
|
|
|
3,727 |
|
|
|
3,434 |
|
|
|
293 |
|
|
|
8.53 |
|
Other
service charges and fees
|
|
|
746 |
|
|
|
753 |
|
|
|
(7 |
) |
|
|
-0.93 |
|
Income
on sale of mortgage loans, net of commissions
|
|
|
1,039 |
|
|
|
721 |
|
|
|
318 |
|
|
|
44.11 |
|
Income
on investment banking, net of
commissions
|
|
|
411 |
|
|
|
449 |
|
|
|
(38 |
) |
|
|
-8.46 |
|
Credit
card fees
|
|
|
3,153 |
|
|
|
3,173 |
|
|
|
(20 |
) |
|
|
-0.63 |
|
Premiums
on sale of student loans
|
|
|
-- |
|
|
|
624 |
|
|
|
(624 |
) |
|
|
-100.00 |
|
Bank
owned life insurance income
|
|
|
378 |
|
|
|
361 |
|
|
|
17 |
|
|
|
4.71 |
|
Gain
on mandatory partial redemption of Visa shares
|
|
|
-- |
|
|
|
2,973 |
|
|
|
(2,973 |
) |
|
|
-100.00 |
|
Other
income
|
|
|
679 |
|
|
|
856 |
|
|
|
(177 |
) |
|
|
-20.68 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
non-interest income
|
|
$ |
11,459 |
|
|
$ |
14,992 |
|
|
$ |
(3,533 |
) |
|
|
-23.57 |
% |
Recurring
fee income for the three-month period ended March 31, 2009, was $9.0 million,
unchanged from the three-month period ended March 31, 2008. Trust
income decreased by $322,000, or 19.5%, due primarily to depressed market values
and declines in the overall stock market, since trust fees are generally based
on the market value of customer accounts. Service charges on deposit
accounts increased by $293,000, or 8.5%, due primarily to improvements in fee
structure and core deposit growth.
Income on
sale of mortgage loans increased by $318,000, or 44.1%, for the three months
ended March 31, 2009, compared to the same period in 2008. This
improvement was primarily due to lower mortgage rates leading to higher
refinancing volume.
Premiums
on sale of student loans decreased by $624,000 for the three-months ended March
31, 2009, compared to the same period in 2008. The decrease was due
to a lack of sales of student loans during the first quarter of
2009. 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 normally would be sold 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 record its entire annual
premium on sale of student loans, now estimated at $2.0 million, during the
third quarter of 2009 when the loans are sold.
There were
no gains or losses on sale of securities during the three months ended March 31,
2009 or 2008.
NON-INTEREST
EXPENSE
Non-interest
expense consists of salaries and employee benefits, occupancy, equipment,
foreclosure losses and other expenses necessary for the operation of the
Company. Management remains committed to controlling the level of
non-interest expense, through the continued use of expense control measures that
have been installed. The Company utilizes an extensive profit
planning and reporting system involving all affiliates. Based on a
needs assessment of the business plan for the upcoming year, monthly and annual
profit plans are developed, including manpower and capital expenditure
budgets. These profit plans are subject to extensive initial reviews
and monitored by management on a monthly basis. Variances from the
plan are reviewed monthly and, when required, management takes corrective action
intended to ensure financial goals are met. Management also regularly
monitors staffing levels at each affiliate, to ensure productivity and overhead
are in line with existing workload requirements.
Non-interest
expense for the three-month period ended March 31, 2009, was $25.7 million,
an increase of $2.5 million, or 10.9% from the same period in
2008. Included in non-interest expense for the first quarter of 2008
was a $1.2 million nonrecurring item related to the reversal of the Company’s
portion of Visa’s contingent litigation liabilities that was originally recorded
in 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. Also included in non-interest expense for the three-months
ended March 31, 2009, are the incremental expenses of approximately $140,000
associated with the operation of the two new financial centers opened in the
first quarter of 2008. When normalized for both the nonrecurring Visa
litigation liability reversal and the additional expenses from the expansion,
non-interest expense for the three-month period ended March 31, 2009, increased
by 4.8% over the same period in 2008.
Deposit
insurance expense increased by $445,000 in the first quarter of 2009, or five
times the amount in the first quarter of 2008. 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. The majority of the credits were exhausted by the
third quarter of 2008, resulting in FDIC insurance expense
increases. Based on current FDIC insurance assessment rates, we now
estimate the Company’s annual deposit insurance expense to increase by
approximately $2.1 million in 2009 over 2008. Additionally, the
FDIC has announced a one-time special assessment for June 30, 2009, expected to
range between 6 and 20 basis points. We estimate the non-interest
expense impact from the special assessment alone will range from $1.4 million to
$4.7 million, depending on the final special assessment rate.
In January
2009, the Company received notice from Visa and MasterCard of a large nationwide
breach in security at Heartland Payment Systems, a major payment transaction
processing center, in which approximately 57,000 of our debit and credit cards
were potentially compromised. Included in other non-interest expense
is approximately $125,000 of fraud losses resulting from the compromised
cards. In an abundance of caution, we initiated significant card
replacements at an additional cost of approximately $100,000. Some
recovery from insurance is anticipated for the card replacements.
Table 6
below shows non-interest expense for the three-month period ended March 31, 2009
and 2008, respectively, as well as changes in 2009 from 2008.
Table
6: Non-Interest Expense
|
|
|
|
|
|
|
|
2009
|
|
|
|
Period Ended March 31
|
|
|
Change
from
|
|
(In thousands)
|
|
2009
|
|
|
2008
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries
and employee benefits
|
|
$ |
14,583 |
|
|
$ |
14,208 |
|
|
$ |
375 |
|
|
|
2.64 |
% |
Occupancy
expense, net
|
|
|
1,889 |
|
|
|
1,810 |
|
|
|
79 |
|
|
|
4.36 |
|
Furniture
and equipment expense
|
|
|
1,543 |
|
|
|
1,490 |
|
|
|
53 |
|
|
|
3.56 |
|
Loss
on foreclosed assets
|
|
|
70 |
|
|
|
42 |
|
|
|
28 |
|
|
|
66.67 |
|
Deposit
insurance
|
|
|
533 |
|
|
|
88 |
|
|
|
445 |
|
|
|
505.68 |
|
Other
operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Professional
services
|
|
|
938 |
|
|
|
759 |
|
|
|
179 |
|
|
|
23.58 |
|
Postage
|
|
|
623 |
|
|
|
600 |
|
|
|
23 |
|
|
|
3.83 |
|
Telephone
|
|
|
528 |
|
|
|
450 |
|
|
|
78 |
|
|
|
17.33 |
|
Credit
card expenses
|
|
|
1,273 |
|
|
|
1,195 |
|
|
|
78 |
|
|
|
6.53 |
|
Operating
supplies
|
|
|
396 |
|
|
|
460 |
|
|
|
(64 |
) |
|
|
-13.91 |
|
Amortization
of core deposits
|
|
|
202 |
|
|
|
202 |
|
|
|
-- |
|
|
|
0.00 |
|
Visa
litigation liability reversal
|
|
|
-- |
|
|
|
(1,220 |
) |
|
|
1,220 |
|
|
|
-100.00 |
|
Other
expense
|
|
|
3,080 |
|
|
|
3,046 |
|
|
|
34 |
|
|
|
1.12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
non-interest expense
|
|
$ |
25,658 |
|
|
$ |
23,130 |
|
|
$ |
2,528 |
|
|
|
10.93 |
% |
LOAN
PORTFOLIO
The
Company's loan portfolio averaged $1.917 billion and $1.842 billion during the
first three months of 2009 and 2008, respectively. As of March 31,
2009, total loans were $1.917 billion, a decrease of $15.7 million from December
31, 2008. 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 $441.1 million at March 31, 2009, or 23.0%
of total loans, compared to $419.3 million, or 21.7% of total loans at
December 31, 2008. The consumer loan increase from December 31, 2008,
to March 31, 2009, is primarily due to the increase in the loans held in the
student loan portfolio resulting from the current lack of a secondary market,
offset somewhat by the seasonal decline in the Company’s credit card
portfolio.
The
student loan portfolio balance at March 31, 2009, was $143.1 million, compared
to $111.6 million at December 31, 2008, an increase of $31.5 million, or 28.3%,
from December 31, 2008. The Company expects a continuing increase in
student loan balances until the third quarter of 2009, at which time student
loans made during the 2008-2009 school year are sold to the government. 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 $1.207 billion
at March 31, 2009, or 63.0% of total loans, compared to the $1.219 billion, or
63.1% of total loans at December 31, 2008. Commercial real estate
loans increased by $3.4 million, less than 1%, from December 31, 2008, to March
31, 2009, primarily due to a softening loan demand throughout
Arkansas. Construction and development loans decreased by $16.3
million, or 7.2%, primarily due to the permanent financing of completed projects
previously included in the construction loan category. Construction
and development loans represent only 10.9% of the total loan
portfolio.
Commercial
loans consist of commercial loans, agricultural loans and loans to financial
institutions. Commercial loans were $259.8 million at March 31, 2009,
or 13.6% of total loans, compared to $284.2 million, or 14.7% of total loans at
December 31, 2008. The commercial loan decrease is primarily due to
seasonality in the agricultural loan portfolio.
The
balances of loans outstanding at the indicated dates are reflected in Table 7,
according to type of loan.
Table
7: Loan Portfolio
|
|
March
31,
|
|
|
December
31,
|
|
(In thousands)
|
|
2009
|
|
|
2008
|
|
Consumer
|
|
|
|
|
|
|
Credit
cards
|
|
$ |
158,503 |
|
|
$ |
169,615 |
|
Student
loans
|
|
|
143,130 |
|
|
|
111,584 |
|
Other
consumer
|
|
|
139,502 |
|
|
|
138,145 |
|
Real
Estate
|
|
|
|
|
|
|
|
|
Construction
|
|
|
208,664 |
|
|
|
224,924 |
|
Single
family residential
|
|
|
410,315 |
|
|
|
409,540 |
|
Other
commercial
|
|
|
588,216 |
|
|
|
584,843 |
|
Commercial
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
187,645 |
|
|
|
192,496 |
|
Agricultural
|
|
|
68,731 |
|
|
|
88,233 |
|
Financial
institutions
|
|
|
3,471 |
|
|
|
3,471 |
|
Other
|
|
|
9,155 |
|
|
|
10,223 |
|
|
|
|
|
|
|
|
|
|
Total
loans before allowance for loan losses
|
|
$ |
1,917,332 |
|
|
$ |
1,933,074 |
|
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.
Historically,
the Company has sold its student loans into the secondary market before they
reached payout status, thus requiring no servicing by the
Company. Currently, with the banking industry no longer able to
access the secondary market, and because the Government program only purchases
current year production, we are required to service loans that have converted to
a payout basis. Student loans are classified as impaired when payment
of interest of principal is 90 days past due. Approximately $2.7
million of Government guaranteed student loans became over 90 days past due
during the quarter ending March 31, 2009. Under existing rules, when
these loans exceed 270 days past due, the Department of Education will purchase
them at 97% of principal and accrued interest. Although these student loans
remain Government guaranteed, because they are over 90 days past due they will
impact the Company’s non-performing asset ratios.
Table 8
presents information concerning non-performing assets, including nonaccrual and
other real estate owned.
Table
8: Non-performing Assets
|
|
March
31,
|
|
|
December
31,
|
|
($ in thousands)
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Nonaccrual
loans
|
|
$ |
15,602 |
|
|
$ |
14,358 |
|
Loans
past due 90 days or more (principal
or interest payments):
|
|
|
|
|
|
|
|
|
Government
guaranteed student loans (1)
|
|
|
2,739 |
|
|
|
-- |
|
Other
loans
|
|
|
1,482 |
|
|
|
1,292 |
|
Total
loans past due 90 days or more
|
|
|
4,221 |
|
|
|
1,292 |
|
Total
non-performing loans
|
|
|
19,823 |
|
|
|
15,650 |
|
|
|
|
|
|
|
|
|
|
Other
non-performing assets:
|
|
|
|
|
|
|
|
|
Foreclosed
assets held for sale
|
|
|
3,704 |
|
|
|
2,995 |
|
Other
non-performing assets
|
|
|
12 |
|
|
|
12 |
|
Total
other non-performing assets
|
|
|
3,716 |
|
|
|
3,007 |
|
|
|
|
|
|
|
|
|
|
Total
non-performing assets
|
|
$ |
23,539 |
|
|
$ |
18,657
|
|
|
|
|
|
|
|
|
|
|
Allowance
for loan losses to non-performing loans
|
|
|
123.63 |
% |
|
|
165.12 |
% |
Non-performing
loans to total loans
|
|
|
1.03 |
% |
|
|
0.81 |
% |
Non-performing
loans to total loans (excluding Government guaranteed student
loans) (1)
|
|
|
0.89 |
% |
|
|
0.81 |
% |
Non-performing
assets to total assets
|
|
|
0.80 |
% |
|
|
0.64 |
% |
Non-performing
assets to total assets (excluding Government guaranteed student
loans) (1)
|
|
|
0.71 |
% |
|
|
0.64 |
% |
(1)
|
Student
loans past due 90 days or more are included in non-performing
loans. Student loans are Government guaranteed and will be
purchased at 97% of principal and accrued interest when they exceed 270
days past due; therefore, non-performing ratios have been calculated
excluding these loans.
|
There was
no interest income on the nonaccrual loans recorded for the three-month periods
ended March 31, 2009 and 2008.
At March
31, 2009, impaired loans were $23.8 million compared to $17.2 million at
December 31, 2008. Impaired loans at March 31, 2009, include
$2.7 million of Government guaranteed student loans. On an ongoing
basis, management evaluates the underlying collateral on all impaired loans and
allocates specific reserves, where appropriate, in order to absorb potential
losses if the collateral were ultimately foreclosed.
ALLOWANCE FOR LOAN
LOSSES
Overview
The
Company maintains an allowance for loan losses. This allowance is
created through charges to income and maintained at a sufficient level to absorb
expected losses in the Company’s loan portfolio. The allowance for
loan losses is determined monthly based on management’s assessment of several
factors such as 1) historical loss experience based on volumes and types, 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. While allocations are made for loans based
upon historical loss analysis, the unallocated portion is designed to cover the
uncertainty of how current economic conditions and other uncertainties may
impact the existing loan portfolio. Factors to consider include
national and state economic conditions such as increases in unemployment, the
recent real estate lending crisis, the volatility in the stock market and the
unknown impact of the Economic Stimulus package.
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)
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Balance,
beginning of year
|
|
$ |
25,841 |
|
|
$ |
25,303 |
|
|
|
|
|
|
|
|
|
|
Loans
charged off
|
|
|
|
|
|
|
|
|
Credit
card
|
|
|
1,270 |
|
|
|
779 |
|
Other
consumer
|
|
|
530 |
|
|
|
357 |
|
Real
estate
|
|
|
1,697 |
|
|
|
477 |
|
Commercial
|
|
|
442 |
|
|
|
202 |
|
Total
loans charged off
|
|
|
3,939 |
|
|
|
1,815 |
|
|
|
|
|
|
|
|
|
|
Recoveries
of loans previously charged off
|
|
|
|
|
|
|
|
|
Credit
card
|
|
|
214 |
|
|
|
192 |
|
Other
consumer
|
|
|
190 |
|
|
|
153 |
|
Real
estate
|
|
|
4 |
|
|
|
79 |
|
Commercial
|
|
|
60 |
|
|
|
13 |
|
Total
recoveries
|
|
|
468 |
|
|
|
437 |
|
Net
loans charged off
|
|
|
3,471 |
|
|
|
1,378 |
|
Provision
for loan losses
|
|
|
2,138 |
|
|
|
1,467 |
|
|
|
|
|
|
|
|
|
|
Balance,
March 31
|
|
$ |
24,508 |
|
|
$ |
25,392 |
|
|
|
|
|
|
|
|
|
|
Loans
charged off
|
|
|
|
|
|
|
|
|
Credit
card
|
|
|
|
|
|
|
2,981 |
|
Other
consumer
|
|
|
|
|
|
|
1,748 |
|
Real
estate
|
|
|
|
|
|
|
2,510 |
|
Commercial
|
|
|
|
|
|
|
1,192 |
|
Total
loans charged off
|
|
|
|
|
|
|
8,431 |
|
|
|
|
|
|
|
|
|
|
Recoveries
of loans previously charged off
|
|
|
|
|
|
|
|
|
Credit
card
|
|
|
|
|
|
|
691 |
|
Other
consumer
|
|
|
|
|
|
|
366 |
|
Real
estate
|
|
|
|
|
|
|
128 |
|
Commercial
|
|
|
|
|
|
|
516 |
|
Total
recoveries
|
|
|
|
|
|
|
1,701 |
|
Net
loans charged off
|
|
|
|
|
|
|
6,730 |
|
Provision
for loan losses
|
|
|
|
|
|
|
7,179 |
|
|
|
|
|
|
|
|
|
|
Balance,
end of year
|
|
|
|
|
|
$ |
25,841 |
|
Provision
for Loan Losses
The amount
of provision to the allowance during the three-month periods ended March 31,
2009 and 2008, and for the year ended December 31, 2008, was based on
management's judgment, with consideration given to the composition of the
portfolio, historical loan loss experience, assessment of current economic
conditions, past due and non-performing loans and net loan loss
experience. It is management's practice to review the allowance on at
least a quarterly basis, but generally on a monthly basis, to determine the
level of provision made to the allowance after considering the factors noted
above.
Allocated
Allowance for Loan Losses
The
Company utilizes a consistent methodology in the calculation and application of
its allowance for loan losses. Because there are portions of the
portfolio that have not matured to the degree necessary to obtain reliable loss
statistics from which to calculate estimated losses, the unallocated portion of
the allowance is an integral component of the total
allowance. Although unassigned to a particular credit relationship or
product segment, this portion of the allowance is vital to safeguard against the
uncertainty and imprecision inherent when estimating credit losses, especially
when trying to determine the impact the current and unprecedented economic
crisis will have on the existing loan portfolios.
Several
factors in the national economy, including the increase of unemployment rates,
the continuing credit crisis, the mortgage crisis, the uncertainty in the
residential housing market and other loan sectors which may be exhibiting
weaknesses and the unknown impact of the Economic Stimulus package further
justify the need for unallocated reserves.
As of
March 31, 2009, the allowance for loan losses reflects a decrease of
approximately $1.3 million from December 31, 2008. This decrease
in the allowance is primarily related to decreases in specific allocations for
loans secured by assets located in the Northwest Arkansas region, which is also
reflected by the decrease in the allocation to real estate loans. 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. The Company continued to monitor the Northwest Arkansas
economy and, beginning in the third quarter of 2007, specific credit
relationships deteriorated to a level requiring increased general and specific
reserves. These credit relationships continued to deteriorate, and
others were identified, prompting special loan loss provisions each quarter,
beginning with the second quarter of 2008, consequently increasing the allowance
allocation to real estate loans through December 31, 2008. During the
first quarter of 2009, several of these non-performing loans with large specific
allocations were charged off, resulting in the decrease in specific allocations
to real estate loans as of March 31, 2009.
As of
March 31, 2009, the allocation of the allowance for loan losses to credit card
loans increased by approximately $543,000 from December 31, 2008, although
credit card loan balances decreased by approximately $11.1 million during the
period. Annualized net credit card charge-offs to credit card loans
increased from 2.02% at December 31, 2008, to 2.64% at March 31,
2009. Due to this increase in charge-offs, along with an increase in
past due levels, the Company increased the allocation to credit
cards.
The
unallocated allowance for loan losses is based on the Company’s concerns over
the uncertainty of the national economy and the economy in
Arkansas. The impact of market pricing in the poultry, timber and
catfish industries in Arkansas remains uncertain. The Company is also
cautious regarding the continued softening of the real estate market in
Arkansas, specifically in the Northwest Arkansas region. Although
Arkansas’s unemployment rate is lagging behind the national average, it has
continued to rise. Management actively monitors the status of these
industries and economic factors as they relate to the Company’s loan portfolio
and makes changes to the allowance for loan losses as
necessary. Based on its analysis of loans and external uncertainties,
the Company believes the allowance for loan losses is adequate for the period
ended March 31, 2009.
The
Company allocates the allowance for loan losses according to the amount deemed
to be reasonably necessary to provide for losses incurred within the categories
of loans set forth in Table 10.
Table
10: Allocation of Allowance for Loan Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2009
|
|
|
December 31, 2008
|
|
|
|
Allowance
|
|
|
%
of
|
|
|
Allowance
|
|
|
%
of
|
|
($ in thousands)
|
|
Amount
|
|
|
loans (1)
|
|
|
Amount
|
|
|
loans (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit
cards
|
|
$ |
4,500 |
|
|
|
8.3% |
|
|
$ |
3,957 |
|
|
|
8.8% |
|
Other
consumer
|
|
|
1,461 |
|
|
|
14.7%
|
|
|
|
1,325 |
|
|
|
12.9% |
|
Real
estate
|
|
|
10,321 |
|
|
|
63.0% |
|
|
|
11,695 |
|
|
|
63.1% |
|
Commercial
|
|
|
1,997 |
|
|
|
13.5% |
|
|
|
2,255 |
|
|
|
14.7% |
|
Other
|
|
|
201 |
|
|
|
0.5% |
|
|
|
209 |
|
|
|
0.5% |
|
Unallocated
|
|
|
6,028 |
|
|
|
|
|
|
|
6,400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
24,508 |
|
|
|
100.0% |
|
|
$ |
25,841 |
|
|
|
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 March 31,
2009. The Company offers a variety of products designed to attract
and retain customers with a continuing focus on developing core
deposits. The Company’s core deposits consist of all deposits
excluding time deposits of $100,000 or more and brokered deposits. As
of March 31, 2009, 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. Since
its inception, the new account has generated approximately $156 million in new
core deposits. Total internal deposit growth for the three-month
period ending March 31, 2009, was $33.2 million, or 1.4%. More
specifically, total deposits as of March 31, 2009, were $2.370 billion versus
$2.336 billion on December 31, 2008.
Non-interest
bearing transaction accounts decreased $4.3 million to $330.7 million at
March 31, 2009, compared to $335 million at December 31,
2008. Interest bearing transaction and savings accounts were
$1.078 billion at March 31, 2009, a $51.5 million increase
compared to $1.027 billion on December 31, 2008. Total time deposits
decreased approximately $14 million to $961 million at March 31, 2009, from
$975 million at December 31, 2008. The Company had
$31.6 million and $33.2 million of brokered deposits at March 31, 2009, and
December 31, 2008, respectively.
LONG-TERM
DEBT
The
Company’s long-term debt was $160.4 million and $158.7 million at March 31,
2009, and December 31, 2008, respectively. The outstanding
balance for March 31, 2009, includes $129.5 million in FHLB long-term
advances and $30.9 million of trust preferred securities.
CAPITAL
Overview
At March
31, 2009, total capital reached $292.2 million. Capital represents
shareholder ownership in the Company – the book value of assets in excess of
liabilities. At March 31, 2009, the Company’s equity to asset ratio
was 9.93% compared to 9.89% at year-end 2008.
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.
At a
special shareholders’ meeting held on February 27, 2009, the Company’s
shareholders approved an amendment to the Articles of Incorporation to establish
40,040,000 authorized shares of Preferred Stock, $0.01 par value, of the
Company. The shareholders also approved the issuance of common stock
warrants for the purchase of up to 500,000 shares of the Company’s Class A
common stock with the exercise price and number of shares subject to final
computation in accordance with the rules of the Treasury’s CPP.
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.
Effective
July 1, 2008, the Company made a strategic decision to temporarily suspend stock
repurchases. This decision was made to preserve capital at the parent
company due to the lack of liquidity in the credit markets and the uncertainties
in the overall economy. If the Company participates in the CPP by
issuing preferred stock to the Treasury, stock repurchases may be restricted and
will require the Treasury’s consent.
Cash
Dividends
The
Company declared cash dividends on its common stock of $0.19 per share for the
first three months of 2009 compared to $0.19 per share for the first three
months of 2008. In recent years the Company has increased dividends
no less than annually, but was required to temporarily suspend dividend
increases upon Treasury approval to participate in the CPP. If the
Company participates in the CPP by issuing preferred stock to the Treasury,
dividend increases may be restricted and will require the Treasury’s
consent.
Parent
Company Liquidity
The
primary sources for payment of dividends by the Company to its shareholders and
the share repurchase plan are the current cash on hand at the parent company
plus the future dividends received from the eight affiliate
banks. Payment of dividends by the eight affiliate banks is subject
to various regulatory limitations. Reference is made to the Liquidity
and Market Risk Management discussions of Item 3 – Quantitative and Qualitative
Disclosure About Market Risk for additional information regarding the parent
company’s liquidity.
Risk
Based Capital
The
Company’s subsidiaries are subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory and possibly additional
discretionary actions by regulators that, if undertaken, could have a direct
material effect on the Company’s financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
the Company must meet specific capital guidelines that involve quantitative
measures of the Company’s assets, liabilities and certain off-balance-sheet
items as calculated under regulatory accounting practices. The
Company’s capital amounts and classifications are also subject to qualitative
judgments by the regulators about components, risk weightings and other
factors.
Quantitative
measures established by regulation to ensure capital adequacy require the
Company to maintain minimum amounts and ratios (set forth in the table below) of
total and Tier 1 capital (as defined in the regulations) to risk-weighted assets
(as defined) and of Tier 1 capital (as defined) to average assets (as
defined). As of March 31, 2009, 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 March 31, 2009, and December 31, 2008,
are presented in table 11.
Table
11: Risk-Based Capital
|
|
March
31,
|
|
|
December
31,
|
|
($ in thousands)
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Tier
1 capital
|
|
|
|
|
|
|
Stockholders’
equity
|
|
$ |
292,170 |
|
|
$ |
288,792 |
|
Trust
preferred securities
|
|
|
30,000 |
|
|
|
30,000 |
|
Intangible
assets
|
|
|
(52,459 |
) |
|
|
(53,034 |
) |
Unrealized
gain on available-for-sale securities, net of taxes
|
|
|
(2,901 |
) |
|
|
(3,190 |
) |
|
|
|
|
|
|
|
|
|
Total
Tier 1 capital
|
|
|
266,810 |
|
|
|
262,568 |
|
|
|
|
|
|
|
|
|
|
Tier
2 capital
|
|
|
|
|
|
|
|
|
Qualifying
unrealized gain on available-for-sale equity securities
|
|
|
186 |
|
|
|
198 |
|
Qualifying
allowance for loan losses
|
|
|
24,537 |
|
|
|
24,828 |
|
|
|
|
|
|
|
|
|
|
Total
Tier 2 capital
|
|
|
24,723 |
|
|
|
25,026 |
|
|
|
|
|
|
|
|
|
|
Total
risk-based capital
|
|
$ |
291,533 |
|
|
$ |
287,594 |
|
|
|
|
|
|
|
|
|
|
Risk
weighted assets
|
|
$ |
1,961,482 |
|
|
$ |
1,983,654 |
|
|
|
|
|
|
|
|
|
|
Assets
for leverage ratio
|
|
$ |
2,893,210 |
|
|
$ |
2,870,882 |
|
|
|
|
|
|
|
|
|
|
Ratios
at end of period
|
|
|
|
|
|
|
|
|
Tier
1 leverage ratio
|
|
|
9.22 |
% |
|
|
9.15 |
% |
Tier
1 risk-based capital ratio
|
|
|
13.60 |
% |
|
|
13.24 |
% |
Total
risk-based capital ratio
|
|
|
14.86 |
% |
|
|
14.50 |
% |
|
|
|
|
|
|
|
|
|
Minimum
guidelines
|
|
|
|
|
|
|
|
|
Tier
1 leverage ratio
|
|
|
4.00 |
% |
|
|
4.00 |
% |
Tier
1 risk-based capital ratio
|
|
|
4.00 |
% |
|
|
4.00 |
% |
Total
risk-based capital ratio
|
|
|
8.00 |
% |
|
|
8.00 |
% |
RECENTLY ISSUED ACCOUNTING
PRONOUNCEMENTS
See the
section titled Recently Issued
Accounting Pronouncements in Note 1, Basis of Presentation, in the
accompanying Condensed Notes to Consolidated Financial Statements included
elsewhere in this report for details of recently issued accounting
pronouncements and their expected impact on the Company’s ongoing financial
position and results of operation.
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)
|
|
March
31,
|
|
|
March
31,
|
|
($ in thousands)
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income
|
|
$ |
5,236 |
|
|
$ |
8,816 |
|
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)
|
|
$ |
5,236 |
|
|
$ |
6,258 |
|
|
|
|
|
|
|
|
|
|
Diluted
earnings per share
|
|
$ |
0.37 |
|
|
$ |
0.63 |
|
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)
|
|
$ |
0.37 |
|
|
$ |
0.45 |
|
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 March 31, 2009, undivided profits of
the Company's subsidiaries were approximately $157.5 million, of which
approximately $9.3 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 March 31, 2009, each subsidiary bank was
within established guidelines and total corporate liquidity remains
strong. At March 31, 2009, cash and cash equivalents, trading and
available-for-sale securities and mortgage loans held for sale were 21.1% of
total assets, as compared to 21.0% at December 31, 2008.
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 a month-to-month
basis.
A second
source of liquidity is the retail deposits available through the Company’s
network of affiliate banks throughout Arkansas. Although this method
can be a 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 $445 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 March 31,
2009. 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
|
|
$ |
44,219 |
|
|
$ |
-- |
|
|
$ |
-- |
|
|
$ |
-- |
|
|
$ |
-- |
|
|
$ |
-- |
|
|
$ |
-- |
|
|
$ |
44,219 |
|
Assets
held in trading accounts
|
|
|
7,510 |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
7,510 |
|
Investment
securities
|
|
|
299,731 |
|
|
|
52,675 |
|
|
|
44,116 |
|
|
|
136,709 |
|
|
|
54,294 |
|
|
|
76,133 |
|
|
|
59,134 |
|
|
|
722,792 |
|
Mortgage
loans held for sale
|
|
|
9,695 |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
9,695 |
|
Loans
|
|
|
597,342 |
|
|
|
260,536 |
|
|
|
155,259 |
|
|
|
321,548 |
|
|
|
252,470 |
|
|
|
287,787 |
|
|
|
42,390 |
|
|
|
1,917,332 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
earning assets
|
|
|
958,497 |
|
|
|
313,211 |
|
|
|
199,375 |
|
|
|
458,257 |
|
|
|
306,764 |
|
|
|
363,920 |
|
|
|
101,524 |
|
|
|
2,701,548 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
bearing liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
bearing transaction and savings deposits
|
|
|
714,127 |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
72,839 |
|
|
|
218,518 |
|
|
|
72,840 |
|
|
|
1,078,324 |
|
Time
deposits
|
|
|
118,330 |
|
|
|
168,978 |
|
|
|
223,216 |
|
|
|
333,627 |
|
|
|
96,230 |
|
|
|
20,130 |
|
|
|
11 |
|
|
|
960,522 |
|
Short-term
debt
|
|
|
100,136 |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
100,136 |
|
Long-term
debt
|
|
|
562 |
|
|
|
11,445 |
|
|
|
1,715 |
|
|
|
24,546 |
|
|
|
53,206 |
|
|
|
29,767 |
|
|
|
39,182 |
|
|
|
160,423 |
|
Total
interest bearing liabilities
|
|
|
933,155 |
|
|
|
180,423 |
|
|
|
224,931 |
|
|
|
358,173 |
|
|
|
222,275 |
|
|
|
268,415 |
|
|
|
112,033 |
|
|
|
2,299,405 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
rate sensitivity Gap
|
|
$ |
25,342 |
|
|
$ |
132,788 |
|
|
$ |
(25,556 |
) |
|
$ |
100,084 |
|
|
$ |
84,489 |
|
|
$ |
95,505 |
|
|
$ |
(10,509 |
) |
|
$ |
402,143 |
|
Cumulative
interest rate sensitivity Gap
|
|
$ |
25,342 |
|
|
$ |
158,130 |
|
|
$ |
132,574 |
|
|
$ |
232,658 |
|
|
$ |
317,147 |
|
|
$ |
412,652 |
|
|
$ |
402,143 |
|
|
|
|
|
Cumulative
rate sensitive asset to rate sensitive liabilities
|
|
|
102.7 |
% |
|
|
114.2 |
% |
|
|
109.9 |
% |
|
|
113.7 |
% |
|
|
116.5 |
% |
|
|
118.9 |
% |
|
|
117.5 |
% |
|
|
|
|
Cumulative
Gap as a % of earning assets
|
|
|
0.9 |
% |
|
|
5.9 |
% |
|
|
4.9 |
% |
|
|
8.6 |
% |
|
|
11.7 |
% |
|
|
15.3 |
% |
|
|
14.9 |
% |
|
|
|
|
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 2008 Form 10-K for the fiscal year ended December 31,
2008.
(c) Issuer
Purchases of Equity Securities. The Company made no purchases of its
common stock during the three months ended March 31, 2009.
(a) A
special shareholders’ meeting of the Company was held on February 27,
2009. The matters submitted to the security holders for approval
included (1) amending the Articles of Incorporation to establish 40,040,000
authorized shares of preferred stock, $0.01 par value, of the Company and (2)
approving the issuance of common stock warrants for the purchase of up to
500,000 shares of SFNC Class A common stock with the exercise price and number
of shares subject to final computation in accordance with the rules of the U.S.
Department of the Treasury Troubled Asset Relief Program – Capital Purchase
Program.
The
following table summarizes the required analysis of the voting by security
holders at the special meeting of shareholders held on February 27,
2009:
Voting
of Shares
|
|
|
|
|
|
|
|
|
|
|
Broker
|
|
Action
|
|
For
|
|
|
Against
|
|
|
Abstain
|
|
|
Non-Votes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amend
the Articles of Incorporation
to
authorize 40,040,000 shares
of
Preferred Stock
|
|
|
7,958,526 |
|
|
|
1,306,324 |
|
|
|
154,363 |
|
|
|
4,540,073 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Approve
the issuance of stock
warrants
for the purchase of up to
500,000
shares of Class A Common
Stock
for the U.S. Treasury
TARP –
Capital
Purchase Program
|
|
|
8,497,043 |
|
|
|
748,750 |
|
|
|
173,420 |
|
|
|
4,540,073 |
|
Exhibit
No. Description
|
3.1
|
Restated
Articles of Incorporation of Simmons First National
Corporation.*
|
|
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)).
|
|
10.10.1
|
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)).
|
|
10.10.2
|
Termination
of Simmons First National Corporation Long Term Incentive Plan, adopted
March 24, 2008, terminated and cancelled February 25, 2009, and
Termination of Grant Under 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 February 25, 2009 (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.
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
SIMMONS FIRST NATIONAL
CORPORATION
(Registrant)
|
|
|
|
|
|
Date: |
May
5, 2009
|
|
|
/s/
J. Thomas May
|
|
|
|
|
|
J.
Thomas May
|
|
|
|
|
|
Chairman and Chief
Executive Officer
|
|
|
|
|
|
|
|
Date: |
May
5, 2009
|
|
|
/s/
Robert
A. Fehlman
|
|
|
|
|
|
Robert
A. Fehlman
|
|
|
|
|
|
Executive
Vice President and Chief
Financial Officer
|
|