a6025298.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 June 30,
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)
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 July 23, 2009, was
14,039,211.
Simmons
First National Corporation
Quarterly
Report on Form 10-Q
June
30, 2009
Table
of Contents
|
|
Page
|
|
|
|
|
|
|
|
|
|
|
|
3-4
|
|
|
5
|
|
|
6
|
|
|
7
|
|
|
8-26
|
|
|
27
|
|
|
|
|
|
28-55
|
|
|
56-58
|
|
|
59
|
|
|
|
|
|
|
|
|
59
|
|
|
59
|
|
|
60
|
|
|
61-63
|
|
|
|
|
|
64
|
Simmons
First National Corporation
June
30, 2009 and December 31, 2008
ASSETS
|
|
June
30,
|
|
|
December
31,
|
|
(In thousands, except share
data)
|
|
2009
|
|
|
2008
|
|
|
|
(Unaudited)
|
|
|
|
|
Cash
and non-interest bearing balances due from banks
|
|
$ |
53,956 |
|
|
$ |
71,801 |
|
Interest
bearing balances due from banks
|
|
|
52,321 |
|
|
|
61,085 |
|
Federal
funds sold
|
|
|
8,300 |
|
|
|
6,650 |
|
Cash
and cash equivalents
|
|
|
114,577 |
|
|
|
139,536 |
|
|
|
|
|
|
|
|
|
|
Investment
securities
|
|
|
630,869 |
|
|
|
646,134 |
|
Mortgage
loans held for sale
|
|
|
14,868 |
|
|
|
10,336 |
|
Assets
held in trading accounts
|
|
|
6,051 |
|
|
|
5,754 |
|
Loans
|
|
|
1,943,460 |
|
|
|
1,933,074 |
|
Allowance
for loan losses
|
|
|
(25,032 |
) |
|
|
(25,841 |
) |
Net
loans
|
|
|
1,918,428 |
|
|
|
1,907,233 |
|
|
|
|
|
|
|
|
|
|
Premises
and equipment
|
|
|
78,649 |
|
|
|
78,904 |
|
Foreclosed
assets held for sale, net
|
|
|
5,147 |
|
|
|
2,995 |
|
Interest
receivable
|
|
|
18,131 |
|
|
|
20,930 |
|
Bank
owned life insurance
|
|
|
40,319 |
|
|
|
39,617 |
|
Goodwill
|
|
|
60,605 |
|
|
|
60,605 |
|
Core
deposit premiums
|
|
|
2,172 |
|
|
|
2,575 |
|
Other
assets
|
|
|
8,015 |
|
|
|
8,490 |
|
|
|
|
|
|
|
|
|
|
TOTAL
ASSETS
|
|
$ |
2,897,831 |
|
|
$ |
2,923,109 |
|
See
Condensed Notes to Consolidated Financial Statements.
Simmons
First National Corporation
Consolidated
Balance Sheets
June
30, 2009 and December 31, 2008
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
June
30,
|
|
|
December
31,
|
|
(In thousands, except share
data)
|
|
2009
|
|
|
2008
|
|
|
|
(Unaudited)
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
Non-interest
bearing transaction accounts
|
|
$ |
324,686 |
|
|
$ |
334,998 |
|
Interest
bearing transaction accounts and savings deposits
|
|
|
1,065,646 |
|
|
|
1,026,824 |
|
Time
deposits
|
|
|
928,812 |
|
|
|
974,511 |
|
Total
deposits
|
|
|
2,319,144 |
|
|
|
2,336,333 |
|
Federal
funds purchased and securities sold
|
|
|
|
|
|
|
|
|
under
agreements to repurchase
|
|
|
98,146 |
|
|
|
115,449 |
|
Short-term
debt
|
|
|
2,647 |
|
|
|
1,112 |
|
Long-term
debt
|
|
|
162,726 |
|
|
|
158,671 |
|
Accrued
interest and other liabilities
|
|
|
22,953 |
|
|
|
22,752 |
|
Total
liabilities
|
|
|
2,605,616 |
|
|
|
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;
|
|
|
|
|
|
|
|
|
14,036,274
and 13,960,680 shares issued and outstanding
|
|
|
|
|
|
|
|
|
at
June 30, 2009, and December 31, 2008, respectively
|
|
|
140 |
|
|
|
140 |
|
Surplus
|
|
|
40,824 |
|
|
|
40,807 |
|
Undivided
profits
|
|
|
250,070 |
|
|
|
244,655 |
|
Accumulated
other comprehensive income
|
|
|
|
|
|
|
|
|
Unrealized
appreciation on available-for-sale securities,
|
|
|
|
|
|
|
|
|
net
of income taxes of $709 at 2009 and $1,913 at 2008
|
|
|
1,181 |
|
|
|
3,190 |
|
Total
stockholders’ equity
|
|
|
292,215 |
|
|
|
288,792 |
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
$ |
2,897,831 |
|
|
$ |
2,923,109 |
|
See
Condensed Notes to Consolidated Financial Statements.
Simmons
First National Corporation
Three
and Six Months Ended June 30, 2009 and 2008
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
June
30,
|
|
|
June
30,
|
|
(In thousands, except per share
data)
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
INTEREST
INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$ |
28,017 |
|
|
$ |
31,159 |
|
|
$ |
56,251 |
|
|
$ |
64,264 |
|
Federal
funds sold
|
|
|
14 |
|
|
|
285 |
|
|
|
15 |
|
|
|
540 |
|
Investment
securities
|
|
|
5,256 |
|
|
|
7,055 |
|
|
|
11,673 |
|
|
|
13,624 |
|
Mortgage
loans held for sale
|
|
|
195 |
|
|
|
113 |
|
|
|
353 |
|
|
|
226 |
|
Assets
held in trading accounts
|
|
|
5 |
|
|
|
41 |
|
|
|
10 |
|
|
|
42 |
|
Interest
bearing balances due from banks
|
|
|
70 |
|
|
|
487 |
|
|
|
148 |
|
|
|
875 |
|
TOTAL
INTEREST INCOME
|
|
|
33,557 |
|
|
|
39,140 |
|
|
|
68,450 |
|
|
|
79,571 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INTEREST
EXPENSE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
7,901 |
|
|
|
13,905 |
|
|
|
17,404 |
|
|
|
29,092 |
|
Federal
funds purchased and securities sold
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
under
agreements to repurchase
|
|
|
182 |
|
|
|
463 |
|
|
|
425 |
|
|
|
1,385 |
|
Short-term
debt
|
|
|
6 |
|
|
|
19 |
|
|
|
12 |
|
|
|
38 |
|
Long-term
debt
|
|
|
1,748 |
|
|
|
1,655 |
|
|
|
3,496 |
|
|
|
3,166 |
|
TOTAL
INTEREST EXPENSE
|
|
|
9,837 |
|
|
|
16,042 |
|
|
|
21,337 |
|
|
|
33,681 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
INTEREST INCOME
|
|
|
23,720 |
|
|
|
23,098 |
|
|
|
47,113 |
|
|
|
45,890 |
|
Provision
for loan losses
|
|
|
2,622 |
|
|
|
2,214 |
|
|
|
4,760 |
|
|
|
3,681 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
INTEREST INCOME AFTER PROVISION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FOR
LOAN LOSSES
|
|
|
21,098 |
|
|
|
20,884 |
|
|
|
42,353 |
|
|
|
42,209 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NON-INTEREST
INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trust
income
|
|
|
1,223 |
|
|
|
1,450 |
|
|
|
2,549 |
|
|
|
3,098 |
|
Service
charges on deposit accounts
|
|
|
4,571 |
|
|
|
3,691 |
|
|
|
8,298 |
|
|
|
7,125 |
|
Other
service charges and fees
|
|
|
646 |
|
|
|
621 |
|
|
|
1,392 |
|
|
|
1,374 |
|
Income
on sale of mortgage loans, net of commissions
|
|
|
1,361 |
|
|
|
760 |
|
|
|
2,400 |
|
|
|
1,482 |
|
Income
on investment banking, net of commissions
|
|
|
675 |
|
|
|
199 |
|
|
|
1,086 |
|
|
|
648 |
|
Credit
card fees
|
|
|
3,597 |
|
|
|
3,480 |
|
|
|
6,750 |
|
|
|
6,653 |
|
Premiums
on sale of student loans
|
|
|
286 |
|
|
|
507 |
|
|
|
286 |
|
|
|
1,132 |
|
Bank
owned life insurance income
|
|
|
299 |
|
|
|
425 |
|
|
|
677 |
|
|
|
787 |
|
Gain
on mandatory partial redemption of Visa shares
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
2,973 |
|
Other
income
|
|
|
556 |
|
|
|
587 |
|
|
|
1,235 |
|
|
|
1,440 |
|
Gain
on sale of securities, net of taxes
|
|
|
90 |
|
|
|
-- |
|
|
|
90 |
|
|
|
-- |
|
TOTAL
NON-INTEREST INCOME
|
|
|
13,304 |
|
|
|
11,720 |
|
|
|
24,763 |
|
|
|
26,712 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NON-INTEREST
EXPENSE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries
and employee benefits
|
|
|
14,674 |
|
|
|
14,433 |
|
|
|
29,257 |
|
|
|
28,641 |
|
Occupancy
expense, net
|
|
|
1,824 |
|
|
|
1,804 |
|
|
|
3,713 |
|
|
|
3,615 |
|
Furniture
and equipment expense
|
|
|
1,527 |
|
|
|
1,472 |
|
|
|
3,070 |
|
|
|
2,962 |
|
Other
real estate and foreclosure expense
|
|
|
90 |
|
|
|
87 |
|
|
|
160 |
|
|
|
129 |
|
Deposit
insurance
|
|
|
2,557 |
|
|
|
113 |
|
|
|
3,090 |
|
|
|
201 |
|
Other
operating expenses
|
|
|
6,279 |
|
|
|
6,300 |
|
|
|
13,319 |
|
|
|
11,791 |
|
TOTAL
NON-INTEREST EXPENSE
|
|
|
26,951 |
|
|
|
24,209 |
|
|
|
52,609 |
|
|
|
47,339 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME
BEFORE INCOME TAXES
|
|
|
7,451 |
|
|
|
8,395 |
|
|
|
14,507 |
|
|
|
21,582 |
|
Provision
for income taxes
|
|
|
1,942 |
|
|
|
2,401 |
|
|
|
3,762 |
|
|
|
6,772 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
INCOME
|
|
$ |
5,509 |
|
|
$ |
5,994 |
|
|
$ |
10,745 |
|
|
$ |
14,810 |
|
BASIC
EARNINGS PER SHARE
|
|
$ |
0.40 |
|
|
$ |
0.43 |
|
|
$ |
0.77 |
|
|
$ |
1.06 |
|
DILUTED
EARNINGS PER SHARE
|
|
$ |
0.39 |
|
|
$ |
0.42 |
|
|
$ |
0.76 |
|
|
$ |
1.05 |
|
See
Condensed Notes to Consolidated Financial Statements.
Simmons
First National Corporation
Six
Months Ended June 30, 2009 and 2008
|
|
June
30,
|
|
|
June
30,
|
|
(In thousands)
|
|
2009
|
|
|
2008
|
|
|
|
(Unaudited)
|
|
OPERATING
ACTIVITIES
|
|
|
|
|
|
|
Net
income
|
|
$ |
10,745 |
|
|
$ |
14,810 |
|
Items
not requiring (providing) cash
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
2,943 |
|
|
|
2,810 |
|
Provision
for loan losses
|
|
|
4,760 |
|
|
|
3,681 |
|
Gain
on mandatory partial redemption of Visa shares
|
|
|
-- |
|
|
|
(2,973 |
) |
Gain
on sale of investment securities
|
|
|
(144 |
) |
|
|
-- |
|
Net
(amortization) accretion of investment securities
|
|
|
(101 |
) |
|
|
141 |
|
Stock-based
compensation expense
|
|
|
344 |
|
|
|
382 |
|
Deferred
income taxes
|
|
|
861 |
|
|
|
233 |
|
Bank
owned life insurance income
|
|
|
(677 |
) |
|
|
(787 |
) |
Changes
in
|
|
|
|
|
|
|
|
|
Interest
receivable
|
|
|
2,799 |
|
|
|
482 |
|
Mortgage
loans held for sale
|
|
|
(4,532 |
) |
|
|
(484 |
) |
Assets
held in trading accounts
|
|
|
(297 |
) |
|
|
4,654 |
|
Other
assets
|
|
|
(1,151 |
) |
|
|
(1,280 |
) |
Accrued
interest and other liabilities
|
|
|
(1,424 |
) |
|
|
(3,104 |
) |
Income
taxes payable
|
|
|
764 |
|
|
|
683 |
|
Net
cash provided by operating activities
|
|
|
14,890 |
|
|
|
19,248 |
|
|
|
|
|
|
|
|
|
|
INVESTING
ACTIVITIES
|
|
|
|
|
|
|
|
|
Net
collections of loans
|
|
|
(20,437 |
) |
|
|
(65,586 |
) |
Purchases
of premises and equipment, net
|
|
|
(2,285 |
) |
|
|
(5,232 |
) |
Proceeds
from sale of foreclosed assets
|
|
|
2,330 |
|
|
|
3,669 |
|
Proceeds
from mandatory partial redemption of Visa shares
|
|
|
-- |
|
|
|
2,973 |
|
Sales
(purchases) of short-term investment securities
|
|
|
23,879 |
|
|
|
(48,525 |
) |
Proceeds
from sale of available-for-sale securities
|
|
|
194 |
|
|
|
-- |
|
Proceeds
from maturities of available-for-sale securities
|
|
|
537,302 |
|
|
|
209,200 |
|
Purchases
of available-for-sale securities
|
|
|
(382,136 |
) |
|
|
(262,017 |
) |
Proceeds
from maturities of held-to-maturity securities
|
|
|
72,994 |
|
|
|
24,325 |
|
Purchases
of held-to-maturity securities
|
|
|
(238,732 |
) |
|
|
(20,468 |
) |
Purchases
of bank owned life insurance
|
|
|
(25 |
) |
|
|
(25 |
) |
Net
cash used in investing activities
|
|
|
(6,916 |
) |
|
|
(161,686 |
) |
|
|
|
|
|
|
|
|
|
FINANCING
ACTIVITIES
|
|
|
|
|
|
|
|
|
Net
(decrease) increase in deposits
|
|
|
(17,189 |
) |
|
|
180,126 |
|
Net
change in short-term debt
|
|
|
1,535 |
|
|
|
2,772 |
|
Dividends
paid
|
|
|
(5,330 |
) |
|
|
(5,297 |
) |
Proceeds
from issuance of long-term debt
|
|
|
7,266 |
|
|
|
78,047 |
|
Repayment
of long-term debt
|
|
|
(3,211 |
) |
|
|
(9,429 |
) |
Net
change in federal funds purchased and
|
|
|
|
|
|
|
|
|
securities
sold under agreements to repurchase
|
|
|
(17,303 |
) |
|
|
(13,252 |
) |
Shares
issued (exchanged) under stock compensation plans, net
|
|
|
1,299 |
|
|
|
773 |
|
Repurchase
of common stock
|
|
|
-- |
|
|
|
(1,280 |
) |
Net
cash (used in) provided by financing activities
|
|
|
(32,933 |
) |
|
|
232,460 |
|
|
|
|
|
|
|
|
|
|
(DECREASE)
INCREASE IN CASH AND CASH EQUIVALENTS
|
|
|
(24,959 |
) |
|
|
90,022 |
|
CASH
AND CASH EQUIVALENTS, BEGINNING OF PERIOD
|
|
|
139,536 |
|
|
|
110,230 |
|
|
|
|
|
|
|
|
|
|
CASH
AND CASH EQUIVALENTS, END OF PERIOD
|
|
$ |
114,577 |
|
|
$ |
200,252 |
|
See
Condensed Notes to Consolidated Financial Statements.
Simmons
First National Corporation
Six
Months Ended June 30, 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
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
14,810 |
|
|
|
14,810 |
|
Change
in unrealized appreciation on
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
available-for-sale
securities, net of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
income
tax credits of $1,349
|
|
|
-- |
|
|
|
-- |
|
|
|
(2,249 |
) |
|
|
-- |
|
|
|
(2,249 |
) |
Comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,561 |
|
Stock
issued as bonus shares – 14,640 shares
|
|
|
-- |
|
|
|
444 |
|
|
|
-- |
|
|
|
-- |
|
|
|
444 |
|
Stock
issued for employee stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
purchase
plan – 5,359 shares
|
|
|
-- |
|
|
|
135 |
|
|
|
-- |
|
|
|
-- |
|
|
|
135 |
|
Exercise
of stock options – 80,577 shares
|
|
|
1 |
|
|
|
1,005 |
|
|
|
-- |
|
|
|
-- |
|
|
|
1,006 |
|
Stock
granted under
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
stock-based
compensation plans
|
|
|
-- |
|
|
|
162 |
|
|
|
-- |
|
|
|
-- |
|
|
|
162 |
|
Securities
exchanged under stock option plan
|
|
|
(1 |
) |
|
|
(811 |
) |
|
|
-- |
|
|
|
-- |
|
|
|
(812 |
) |
Repurchase
of common stock – 45,180 shares
|
|
|
-- |
|
|
|
(1,280 |
) |
|
|
-- |
|
|
|
-- |
|
|
|
(1,280 |
) |
Cash
dividends declared – $0.38 per share
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
(5,297 |
) |
|
|
(5,297 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
June 30, 2008 (Unaudited)
|
|
|
139 |
|
|
|
40,674 |
|
|
|
(521 |
) |
|
|
237,859 |
|
|
|
278,151 |
|
Comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
12,100 |
|
|
|
12,100 |
|
Change
in unrealized appreciation on
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
available-for-sale
securities, net of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
income
taxes of $2,226
|
|
|
-- |
|
|
|
-- |
|
|
|
3,711 |
|
|
|
-- |
|
|
|
3,711 |
|
Comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,811 |
|
Stock
issued as bonus shares – 2,850 shares
|
|
|
-- |
|
|
|
86 |
|
|
|
-- |
|
|
|
-- |
|
|
|
86 |
|
Exercise
of stock options – 16,920 shares
|
|
|
-- |
|
|
|
202 |
|
|
|
-- |
|
|
|
-- |
|
|
|
202 |
|
Stock
granted under
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
stock-based
compensation plans
|
|
|
-- |
|
|
|
7 |
|
|
|
-- |
|
|
|
-- |
|
|
|
7 |
|
Securities
exchanged under stock option plan
|
|
|
1 |
|
|
|
(162 |
) |
|
|
-- |
|
|
|
-- |
|
|
|
(161 |
) |
Cash
dividends declared – $0.38 per share
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
(5,304 |
) |
|
|
(5,304 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2008
|
|
|
140 |
|
|
|
40,807 |
|
|
|
3,190 |
|
|
|
244,655 |
|
|
|
288,792 |
|
Comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
10,745 |
|
|
|
10,745 |
|
Change
in unrealized appreciation on
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
available-for-sale
securities, net of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
income
tax credits of $1,205
|
|
|
-- |
|
|
|
-- |
|
|
|
(2,009 |
) |
|
|
-- |
|
|
|
(2,009 |
) |
Comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,736 |
|
Stock
issued as bonus shares – 27,915 shares
|
|
|
-- |
|
|
|
702 |
|
|
|
-- |
|
|
|
-- |
|
|
|
702 |
|
Non-vested
bonus shares
|
|
|
-- |
|
|
|
(1,374 |
) |
|
|
-- |
|
|
|
-- |
|
|
|
(1,374 |
) |
Stock
issued for employee stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
purchase
plan – 5,823 shares
|
|
|
-- |
|
|
|
141 |
|
|
|
-- |
|
|
|
-- |
|
|
|
141 |
|
Exercise
of stock options – 45,200 shares
|
|
|
-- |
|
|
|
551 |
|
|
|
-- |
|
|
|
-- |
|
|
|
551 |
|
Stock
granted under
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
stock-based
compensation plans
|
|
|
-- |
|
|
|
92 |
|
|
|
-- |
|
|
|
-- |
|
|
|
92 |
|
Securities
exchanged under stock option plan
|
|
|
-- |
|
|
|
(95 |
) |
|
|
-- |
|
|
|
-- |
|
|
|
(95 |
) |
Cash
dividends declared – $0.38 per share
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
(5,330 |
) |
|
|
(5,330 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
June 30, 2009 (Unaudited)
|
|
$ |
140 |
|
|
$ |
40,824 |
|
|
$ |
1,181 |
|
|
$ |
250,070 |
|
|
$ |
292,215 |
|
See
Condensed Notes to Consolidated Financial Statements.
SIMMONS
FIRST NATIONAL CORPORATION
(Unaudited)
NOTE
1: BASIS
OF PRESENTATION
The
consolidated financial statements include the accounts of Simmons First National
Corporation and its subsidiaries. Significant intercompany accounts
and transactions have been eliminated in consolidation.
All
adjustments made to the unaudited financial statements were of a normal
recurring nature. In the opinion of management, all adjustments
necessary for a fair presentation of the results of interim periods have been
made. Certain prior year amounts are reclassified to conform to current year
classification. The consolidated balance sheet of the Company as of
December 31, 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.
Subsequent
events have been evaluated through August 10, 2009, which is the date the
financial statements were issued.
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 did not 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 did not
have a material impact on the Company’s ongoing financial position or results of
operations.
In May
2009, FASB issued SFAS No. 165, Subsequent
Events. SFAS 165 establishes general standards of accounting
for and disclosure of events that occur after the balance sheet date but before
financial statements are issued or available to be issued. SFAS 165
defines (i) the period after the balance sheet date during which a reporting
entity’s management should evaluate events or transactions that may occur for
potential recognition or disclosure in the financial statements (ii) the
circumstances under which an entity should recognize events or transactions
occurring after the balance sheet date in its financial statements, and (iii)
the disclosures an entity should make about events or transactions that occurred
after the balance sheet date. SFAS 165 became effective for the
Company’s financial statements for periods ending after June 15, 2009, and did
not have a significant 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 were effective for financial statements issued for periods
ending after June 15, 2009, and did not 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 and six months ended June
30, 2009 and 2008.
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
June
30,
|
|
|
June
30,
|
|
(In thousands, except per share
data)
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Net
income
|
|
$ |
5,509 |
|
|
$ |
5,994 |
|
|
$ |
10,745 |
|
|
$ |
14,810 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
common shares outstanding
|
|
|
14,022 |
|
|
|
13,940 |
|
|
|
14,007 |
|
|
|
13,935 |
|
Average
potential dilutive common shares
|
|
|
86 |
|
|
$ |
153 |
|
|
|
86 |
|
|
|
153 |
|
Average
diluted common shares
|
|
|
14,108 |
|
|
|
14,093 |
|
|
|
14,093 |
|
|
|
14,088 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per share
|
|
$ |
0.40 |
|
|
$ |
0.43 |
|
|
$ |
0.77 |
|
|
$ |
1.06 |
|
Diluted
earnings per share
|
|
$ |
0.39 |
|
|
$ |
0.42 |
|
|
$ |
0.76 |
|
|
$ |
1.05 |
|
Stock
options to purchase 158,150 and 49,190 shares for the three and six months ended
June 30, 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:
|
|
June
30,
|
|
|
December
31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
Estimated
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
Estimated
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
(In thousands)
|
|
Cost
|
|
|
Gains
|
|
|
(Losses)
|
|
|
Value
|
|
|
Cost
|
|
|
Gains
|
|
|
(Losses)
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-to-Maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Government
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
agencies
|
|
$ |
149,698 |
|
|
$ |
367 |
|
|
$ |
(549 |
) |
|
$ |
149,516 |
|
|
$ |
18,000 |
|
|
$ |
629 |
|
|
$ |
-- |
|
|
$ |
18,629 |
|
Mortgage-backed
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
securities
|
|
|
98 |
|
|
|
2 |
|
|
|
-- |
|
|
|
100 |
|
|
|
109 |
|
|
|
2 |
|
|
|
-- |
|
|
|
111 |
|
State
and political
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
subdivisions
|
|
|
202,195 |
|
|
|
1,778 |
|
|
|
(1,498 |
) |
|
|
202,475 |
|
|
|
168,262 |
|
|
|
1,264 |
|
|
|
(1,876 |
) |
|
|
167,650 |
|
Other
securities
|
|
|
930 |
|
|
|
1 |
|
|
|
(1 |
) |
|
|
930 |
|
|
|
930 |
|
|
|
-- |
|
|
|
-- |
|
|
|
930 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
352,921 |
|
|
$ |
2,148 |
|
|
$ |
(2,048 |
) |
|
$ |
353,021 |
|
|
$ |
187,301 |
|
|
$ |
1,895 |
|
|
$ |
(1,876 |
) |
|
$ |
187,320 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-Sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Treasury
|
|
$ |
4,992 |
|
|
$ |
66 |
|
|
$ |
-- |
|
|
$ |
5,058 |
|
|
$ |
5,976 |
|
|
$ |
113 |
|
|
$ |
-- |
|
|
$ |
6,089 |
|
U.S.
Government
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
agencies
|
|
|
193,806 |
|
|
|
1,718 |
|
|
|
(288 |
) |
|
|
195,236 |
|
|
|
346,585 |
|
|
|
5,444 |
|
|
|
(868 |
) |
|
|
351,161 |
|
Mortgage-backed
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
securities
|
|
|
2,903 |
|
|
|
43 |
|
|
|
(10 |
) |
|
|
2,936 |
|
|
|
2,909 |
|
|
|
37 |
|
|
|
(67 |
) |
|
|
2,879 |
|
State
and political
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
subdivisions
|
|
|
485 |
|
|
|
1 |
|
|
|
-- |
|
|
|
486 |
|
|
|
635 |
|
|
|
2 |
|
|
|
-- |
|
|
|
637 |
|
Other
securities
|
|
|
73,872 |
|
|
|
363 |
|
|
|
(3 |
) |
|
|
74,232 |
|
|
|
97,625 |
|
|
|
448 |
|
|
|
(6 |
) |
|
|
98,067 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
276,058 |
|
|
$ |
2,191 |
|
|
$ |
(301 |
) |
|
$ |
277,948 |
|
|
$ |
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. Management does not have the
intent to sell these securities and management believes it is more likely than
not the Company will not have to sell these securities before recovery of their
amortized cost basis less any current period credit losses. 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.
As of June
30, 2009, securities with unrealized losses, segregated by length of impairment,
were as follows:
|
|
Less Than 12 Months
|
|
|
12 Months or More
|
|
|
Total
|
|
|
|
Estimated
|
|
|
Gross
|
|
|
Estimated
|
|
|
Gross
|
|
|
Estimated
|
|
|
Gross
|
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
(In thousands)
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-to-Maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Government agencies
|
|
$ |
125,149 |
|
|
$ |
549 |
|
|
$ |
-- |
|
|
$ |
-- |
|
|
$ |
125,149 |
|
|
$ |
549 |
|
State
and political subdivisions
|
|
|
54,825 |
|
|
|
1,150 |
|
|
|
5,829 |
|
|
|
349 |
|
|
|
60,654 |
|
|
|
1,499 |
|
Total
|
|
$ |
179,974 |
|
|
$ |
1,699 |
|
|
$ |
5,829 |
|
|
$ |
349 |
|
|
$ |
185,803 |
|
|
$ |
2,048 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-Sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Government agencies
|
|
$ |
46,249 |
|
|
$ |
288 |
|
|
$ |
-- |
|
|
$ |
-- |
|
|
$ |
46,249 |
|
|
$ |
288 |
|
Mortgage-backed
securities
|
|
|
74 |
|
|
|
1 |
|
|
|
500 |
|
|
|
9 |
|
|
|
574 |
|
|
|
10 |
|
Other
securities
|
|
|
-- |
|
|
|
-- |
|
|
|
2 |
|
|
|
3 |
|
|
|
2 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
46,323 |
|
|
$ |
289 |
|
|
$ |
502 |
|
|
$ |
12 |
|
|
$ |
46,825 |
|
|
$ |
301 |
|
Declines
in the fair value of held-to-maturity and available-for-sale securities below
their cost that are deemed to be other than temporary are reflected in earnings
as realized losses. In estimating other-than-temporary impairment
losses, management considers, among other things, (i) the length of time and the
extent to which the fair value has been less than cost, (ii) the financial
condition and near-term prospects of the issuer, and (iii) the intent and
ability of the Company to retain its investment in the issuer for a period of
time sufficient to allow for any anticipated recovery in fair
value.
Management
has the ability and intent to hold the securities classified as held to maturity
until they mature, at which time the Company expects to receive full value for
the securities. Furthermore, as of June 30, 2009, management also had
the ability and intent to hold the securities classified as available-for-sale
for a period of time sufficient for a recovery of cost. The
unrealized losses are largely due to increases in market interest rates over the
yields available at the time the underlying securities were
purchased. The fair value is expected to recover as the bonds
approach their maturity date or repricing date or if market yields for such
investments decline. Management does not believe any of the
securities are impaired due to reasons of credit
quality. Accordingly, as of June 30, 2009, management believes the
impairments detailed in the table above are temporary.
The
carrying value, which approximates the fair value, of securities pledged as
collateral, to secure public deposits and for other purposes, amounted to
$429,843,000 at June 30, 2009, and $435,120,000 at December 31,
2008.
The book
value of securities sold under agreements to repurchase amounted to $78,816,000
and $87,514,000 for June 30, 2009, and December 31, 2008,
respectively.
Income
earned on securities for the three months ended June 30, 2009 and 2008, is as
follows:
(In thousands)
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Taxable
|
|
|
|
|
|
|
Held-to-maturity
|
|
$ |
828 |
|
|
$ |
813 |
|
Available-for-sale
|
|
|
7,148 |
|
|
|
9,698 |
|
|
|
|
|
|
|
|
|
|
Non-taxable
|
|
|
|
|
|
|
|
|
Held-to-maturity
|
|
|
3,683 |
|
|
|
3,094 |
|
Available-for-sale
|
|
|
14 |
|
|
|
19 |
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
11,673 |
|
|
$ |
13,624 |
|
Maturities
of investment securities at June 30, 2009, are as follows:
|
|
Held-to-Maturity
|
|
|
Available-for-Sale
|
|
|
|
Amortized
|
|
|
Fair
|
|
|
Amortized
|
|
|
Fair
|
|
(In thousands)
|
|
Cost
|
|
|
Value
|
|
|
Cost
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One
year or less
|
|
$ |
6,667 |
|
|
$ |
6,687 |
|
|
$ |
7,602 |
|
|
$ |
7,671 |
|
After
one through five years
|
|
|
182,018 |
|
|
|
182,569 |
|
|
|
39,093 |
|
|
|
39,301 |
|
After
five through ten years
|
|
|
90,762 |
|
|
|
90,893 |
|
|
|
154,696 |
|
|
|
155,927 |
|
After
ten years
|
|
|
73,474 |
|
|
|
72,872 |
|
|
|
795 |
|
|
|
818 |
|
Other
securities
|
|
|
-- |
|
|
|
-- |
|
|
|
73,872 |
|
|
|
74,231 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
352,921 |
|
|
$ |
353,021 |
|
|
$ |
276,058 |
|
|
$ |
277,948 |
|
Gross
realized gains of $144,000 were recognized from the sale of securities for the
six-month period ended June 30, 2009, with no realized gains for the six-month
period ended June 30, 2008. There were no realized losses over the
same periods.
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:
|
|
June
30,
|
|
|
December
31,
|
|
(In thousands)
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
|
|
|
|
Credit
cards
|
|
$ |
168,897 |
|
|
$ |
169,615 |
|
Student
loans
|
|
|
139,928 |
|
|
|
111,584 |
|
Other
consumer
|
|
|
142,040 |
|
|
|
138,145 |
|
Total
consumer
|
|
|
450,865 |
|
|
|
419,344 |
|
Real
Estate
|
|
|
|
|
|
|
|
|
Construction
|
|
|
197,336 |
|
|
|
224,924 |
|
Single
family residential
|
|
|
401,447 |
|
|
|
409,540 |
|
Other
commercial
|
|
|
601,217 |
|
|
|
584,843 |
|
Total
real estate
|
|
|
1,200,000 |
|
|
|
1,219,307 |
|
Commercial
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
182,064 |
|
|
|
192,496 |
|
Agricultural
|
|
|
96,526 |
|
|
|
88,233 |
|
Financial
institutions
|
|
|
3,598 |
|
|
|
3,471 |
|
Total
commercial
|
|
|
282,188 |
|
|
|
284,200 |
|
Other
|
|
|
10,407 |
|
|
|
10,223 |
|
|
|
|
|
|
|
|
|
|
Total
loans before allowance for loan losses
|
|
$ |
1,943,460 |
|
|
$ |
1,933,074 |
|
As of June
30, 2009, credit card loans, which are unsecured, were $168,897,000 or 8.7% 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 June
30, 2009, and December 31, 2008, impaired loans, net of Government guarantees,
totaled $36,100,000 and $15,689,000, respectively. Allocations of the
allowance for loan losses relative to impaired loans were $5,685,000 at June 30,
2009, and $4,238,000 at December 31, 2008. During the second
quarter of 2009, the Company made adjustments to its methodology in the
evaluation of the collectability of loans, which added quantitative factors to
the internal and external influences used in determining the credit quality of
loans and the allocation of the allowance. This adjustment in
methodology resulted in an addition to impaired loans from classified loans and
a redistribution of allocated and unallocated reserves. Approximately
$242,000 and $60,000 of interest income was recognized on average impaired loans
of $27,203,000 and $14,264,000 as of June 30, 2009 and 2008,
respectively. Interest recognized on impaired loans on a cash basis
during the first six 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
|
|
|
4,760 |
|
|
|
3,681 |
|
|
|
|
30,601 |
|
|
|
28,984 |
|
Deductions
|
|
|
|
|
|
|
|
|
Losses
charged to allowance, net of recoveries
|
|
|
|
|
|
|
|
|
of
$2,104 and $923 for the first six months of
|
|
|
|
|
|
|
|
|
2009
and 2008, respectively
|
|
|
5,569 |
|
|
|
3,232 |
|
|
|
|
|
|
|
|
|
|
Balance,
June 30
|
|
$ |
25,032 |
|
|
|
25,752 |
|
|
|
|
|
|
|
|
|
|
Additions
|
|
|
|
|
|
|
|
|
Provision
charged to expense
|
|
|
|
|
|
|
4,965 |
|
|
|
|
|
|
|
|
30,717 |
|
Deductions
|
|
|
|
|
|
|
|
|
Losses
charged to allowance, net of recoveries
|
|
|
|
|
|
|
|
|
of
$1,215 for the last six months of 2008
|
|
|
|
|
|
|
4,876 |
|
|
|
|
|
|
|
|
|
|
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 June 30, 2009, and December
31, 2008, were as follows:
|
|
June
30,
|
|
|
December
31,
|
|
(In thousands)
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Gross
carrying amount
|
|
$ |
6,822 |
|
|
$ |
6,822 |
|
Accumulated
amortization
|
|
|
(4,650 |
) |
|
|
(4,247 |
) |
|
|
|
|
|
|
|
|
|
Net
core deposit premiums
|
|
$ |
2,172 |
|
|
$ |
2,575 |
|
Core
deposit premium amortization expense recorded for the six months ended June 30,
2009 and 2008, was $403,000 and $404,000, respectively. The Company’s
estimated amortization expense for the remainder of 2009 is $399,000, and for
each of the following four years is: 2010 – $702,000; 2011 –
$451,000; 2012 – $321,000; and 2013 – $268,000.
NOTE
5: TIME
DEPOSITS
Time
deposits include approximately $396,612,000 and $418,394,000 of certificates of
deposit of $100,000 or more at June 30, 2009, and December 31, 2008,
respectively.
NOTE
6: INCOME
TAXES
The
provision for income taxes is comprised of the following
components:
|
|
June
30,
|
|
|
June
30,
|
|
(In thousands)
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Income
taxes currently payable
|
|
$ |
2,901 |
|
|
$ |
6,539 |
|
Deferred
income taxes
|
|
|
861 |
|
|
|
233 |
|
|
|
|
|
|
|
|
|
|
Provision
for income taxes
|
|
$ |
3,762 |
|
|
$ |
6,772 |
|
The tax
effects of temporary differences related to deferred taxes shown on the balance
sheets were:
|
|
June
30,
|
|
|
December
31,
|
|
(In thousands)
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Deferred
tax assets
|
|
|
|
|
|
|
Allowance
for loan losses
|
|
$ |
8,826 |
|
|
$ |
9,057 |
|
Valuation
of foreclosed assets
|
|
|
63 |
|
|
|
63 |
|
Deferred
compensation payable
|
|
|
1,497 |
|
|
|
1,451 |
|
FHLB
advances
|
|
|
10 |
|
|
|
14 |
|
Vacation
compensation
|
|
|
877 |
|
|
|
866 |
|
Loan
interest
|
|
|
88 |
|
|
|
88 |
|
Other
|
|
|
328 |
|
|
|
276 |
|
Total
deferred tax assets
|
|
|
11,689 |
|
|
|
11,815 |
|
Deferred
tax liabilities
|
|
|
|
|
|
|
|
|
Accumulated
depreciation
|
|
|
(359 |
) |
|
|
(406 |
) |
Deferred
loan fee income and expenses, net
|
|
|
(1,406 |
) |
|
|
(1,229 |
) |
FHLB
stock dividends
|
|
|
(591 |
) |
|
|
(586 |
) |
Goodwill
and core deposit premium amortization
|
|
|
(9,243 |
) |
|
|
(8,643 |
) |
Available-for-sale
securities
|
|
|
(709 |
) |
|
|
(1,913 |
) |
Other
|
|
|
(1,019 |
) |
|
|
(1,019 |
) |
Total
deferred tax liabilities
|
|
|
(13,327 |
) |
|
|
(13,796 |
) |
|
|
|
|
|
|
|
|
|
Net
deferred tax liabilities included in other
|
|
|
|
|
|
|
|
|
liabilities
on balance sheets
|
|
$ |
(1,638 |
) |
|
$ |
(1,981 |
) |
A
reconciliation of income tax expense at the statutory rate to the Company's
actual income tax expense is shown below:
|
|
June
30,
|
|
|
June
30,
|
|
(In thousands)
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Computed
at the statutory rate (35%)
|
|
$ |
5,046 |
|
|
$ |
7,554 |
|
(less
gain on sale of securities, net of taxes)
|
|
|
|
|
|
|
|
|
Increase
(decrease) in taxes resulting from:
|
|
|
|
|
|
|
|
|
State
income taxes, net of federal tax benefit
|
|
|
116 |
|
|
|
339 |
|
Tax
exempt interest income
|
|
|
(1,359 |
) |
|
|
(1,158 |
) |
Tax
exempt earnings on BOLI
|
|
|
(232 |
) |
|
|
(276 |
) |
Other
differences, net
|
|
|
191 |
|
|
|
313 |
|
Actual
tax provision
|
|
$ |
3,762 |
|
|
$ |
6,772 |
|
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 June 30, 2009, and December 31, 2008, consisted of the following
components:
|
|
June
30,
|
|
|
December
31,
|
|
(In thousands)
|
|
2009
|
|
|
2008
|
|
FHLB
advances, due 2009 to 2033, 2.02% to 8.41%
|
|
|
|
|
|
|
secured
by residential real estate loans
|
|
$ |
131,796 |
|
|
$ |
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
|
|
|
|
|
|
|
|
|
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 |
|
|
|
$ |
162,726 |
|
|
$ |
158,671 |
|
At June
30, 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 June 30, 2009, are:
|
|
|
Annual
|
|
(In thousands)
|
Year
|
|
Maturities
|
|
|
|
|
|
|
|
2009
|
|
$ |
4,310 |
|
|
2010
|
|
|
28,908 |
|
|
2011
|
|
|
43,653 |
|
|
2012
|
|
|
6,220 |
|
|
2013
|
|
|
11,575 |
|
|
Thereafter
|
|
|
68,060 |
|
|
|
|
|
|
|
|
Total
|
|
$ |
162,726 |
|
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, and arguments
were presented on June 22, 2009. On July 10, 2009, the Court issued
its Order dismissing five claims, leaving only a single claim for further
pursuit in this matter. 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”).
The
Company notified the Treasury on July 7, 2009, that it will not participate in
the CPP; therefore, the Company will not issue preferred stock or common stock
warrants to the Treasury. 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.
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.
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 June 30, 2009, the bank subsidiaries had
approximately $10.7 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 June 30, 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 14.84% at June 30,
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 six months ended June, 2009:
|
|
Stock
Options
|
|
|
Non-Vested
Stock
|
|
|
|
Outstanding
|
|
|
Awards Outstanding
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
Number
|
|
|
Average
|
|
|
Number
|
|
|
Average
|
|
|
|
of
|
|
|
Exercise
|
|
|
of
|
|
|
Grant-Date
|
|
|
|
Shares
|
|
|
Price
|
|
|
Shares
|
|
|
Fair-Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
January 1, 2009
|
|
|
451,673 |
|
|
$ |
20.46 |
|
|
|
36,925 |
|
|
$ |
28.28 |
|
Granted
|
|
|
-- |
|
|
|
-- |
|
|
|
27,915 |
|
|
|
25.15 |
|
Stock
Options Exercised
|
|
|
(45,200 |
) |
|
|
12.20 |
|
|
|
-- |
|
|
|
-- |
|
Stock
Awards Vested
|
|
|
-- |
|
|
|
-- |
|
|
|
(11,952 |
) |
|
|
26.97 |
|
Forfeited/Expired
|
|
|
(15,190 |
) |
|
|
17.06 |
|
|
|
-- |
|
|
|
-- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
June 30, 2009
|
|
|
391,283 |
|
|
$ |
21.54 |
|
|
|
52,888 |
|
|
$ |
26.92 |
|
Exercisable,
June 30, 2009
|
|
|
305,811 |
|
|
$ |
19.44 |
|
|
|
|
|
|
|
|
|
The
following table summarizes information about stock options under the plans
outstanding at June 30, 2009:
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Remaining
|
|
Average
|
|
|
|
|
|
Average
|
|
Range
of
|
|
Options
|
|
Contractual
|
|
Exercise
|
|
|
Options
|
|
|
Exercise
|
|
Exercise Prices
|
|
Outstanding
|
|
Life
|
|
Price
|
|
|
Exercisable
|
|
|
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$10.56
to $12.13
|
|
|
132,080 |
|
1.8
years
|
|
$ |
12.10 |
|
|
|
132,080 |
|
|
$ |
12.10 |
|
$15.35
to $16.32
|
|
|
7,153 |
|
2.4
years
|
|
$ |
15.99 |
|
|
|
7,153 |
|
|
$ |
15.99 |
|
$23.78
to $24.50
|
|
|
93,900 |
|
5.4
years
|
|
$ |
24.05 |
|
|
|
93,900 |
|
|
$ |
24.05 |
|
$26.19
to $27.67
|
|
|
56,940 |
|
6.8
years
|
|
$ |
26.20 |
|
|
|
36,140 |
|
|
$ |
26.21 |
|
$28.42
to $28.42
|
|
|
53,060 |
|
7.9
years
|
|
$ |
28.42 |
|
|
|
26,780 |
|
|
$ |
28.42 |
|
$30.31
to $30.31
|
|
|
48,150 |
|
8.9
years
|
|
$ |
30.31 |
|
|
|
9,758 |
|
|
$ |
30.31 |
|
Stock-based
compensation expense totaled $343,909 and $381,708 during the six months ended
June 30, 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 $509,143 at June 30, 2009. At such
date, the weighted-average period over which this unrecognized expense is
expected to be recognized was 1.63 years. Unrecognized stock-based
compensation expense related to non-vested stock awards was $1,374,365 at June
30, 2009. At such date, the weighted-average period over which this
unrecognized expense is expected to be recognized was 2.80 years.
Aggregate
intrinsic values of outstanding stock options and exercisable stock options at
June 30, 2009, were $2.0 million and $2.2 million,
respectively. Aggregate intrinsic value represents the difference
between the Company’s closing stock price on the last trading day of the period,
which was $26.72 as of June 30, 2009, and the exercise price multiplied by the
number of options outstanding. The total intrinsic values of stock
options exercised during the six months ended June 30, 2009 and 2008, were
$656,000 and $1.2 million, respectively.
NOTE
12: ADDITIONAL CASH FLOW
INFORMATION
|
|
Six
Months Ended
|
|
|
|
June
30,
|
|
(In thousands)
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Interest
paid
|
|
$ |
22,411 |
|
|
$ |
34,734 |
|
Income
taxes paid
|
|
|
2,191 |
|
|
|
6,526 |
|
Transfers
of loans to other real estate
|
|
|
4,482 |
|
|
|
4,480 |
|
Post-retirement
benefit liability established
|
|
|
|
|
|
|
|
|
upon
adoption of EITF 06-4
|
|
|
-- |
|
|
|
1,174 |
|
NOTE
13: OTHER OPERATING
EXPENSE
Other
operating expenses consist of the following:
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
June
30,
|
|
|
June
30,
|
|
(In thousands)
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Professional
services
|
|
$ |
598 |
|
|
$ |
570 |
|
|
$ |
1,535 |
|
|
$ |
1,329 |
|
Postage
|
|
|
556 |
|
|
|
581 |
|
|
|
1,179 |
|
|
|
1,181 |
|
Telephone
|
|
|
522 |
|
|
|
412 |
|
|
|
1,051 |
|
|
|
892 |
|
Credit
card expense
|
|
|
1,225 |
|
|
|
1,143 |
|
|
|
2,498 |
|
|
|
2,282 |
|
Operating
supplies
|
|
|
351 |
|
|
|
415 |
|
|
|
747 |
|
|
|
875 |
|
Amortization
of core deposit premiums
|
|
|
202 |
|
|
|
202 |
|
|
|
403 |
|
|
|
404 |
|
Visa
litigation liability reversal
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
(1,220 |
) |
Other
expense
|
|
|
2,825 |
|
|
|
2,977 |
|
|
|
5,906 |
|
|
|
6,048 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
other operating expenses
|
|
$ |
6,279 |
|
|
$ |
6,300 |
|
|
$ |
13,319 |
|
|
$ |
11,791 |
|
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 June
30, 2009, the Company had outstanding commitments to extend credit aggregating
approximately $313,311,000 and $438,814,000 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 $10,081,000 and $10,186,000 at June 30, 2009, and December 31,
2008, respectively, with terms ranging from 90 days to three
years. At June 30, 2009, the Company had no deferred revenue under
standby letter of credit agreements. At December 31, 2008, the
Company’s deferred revenue under standby letter of credit agreements was
approximately $52,000.
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.
|
Following
is a description of the inputs and valuation methodologies used for assets and
liabilities measured at fair value on a recurring basis and recognized in the
accompanying balance sheets, as well as the general classification of such
assets and liabilities pursuant to the valuation hierarchy.
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 June 30, 2009 and December 31, 2008.
|
|
Fair
Value Measurements Using
|
|
|
|
|
|
|
Quoted
Prices in
|
|
|
|
|
|
|
|
|
|
|
|
|
Active
Markets for
|
|
|
Significant
Other
|
|
|
Significant
|
|
|
|
|
|
|
Identical
Assets
|
|
|
Observable
Inputs
|
|
|
Unobservable
Inputs
|
|
(In thousands)
|
|
Fair Value
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
securities
|
|
$ |
277,948 |
|
|
$ |
61,657 |
|
|
$ |
216,291 |
|
|
$ |
-- |
|
Assets
held in trading accounts
|
|
|
6,051 |
|
|
|
5,115 |
|
|
|
936 |
|
|
|
-- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
securities
|
|
|
458,833 |
|
|
|
85,536 |
|
|
|
373,297 |
|
|
|
-- |
|
Assets
held in trading accounts
|
|
|
5,754 |
|
|
|
4,850 |
|
|
|
904 |
|
|
|
-- |
|
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 include 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 Government guarantees and specific allowance, were $30,415,000 as of June
30, 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 June
30, 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 June 30, 2009 and December 31, 2008.
|
|
Fair Value Measurements
Using
|
|
|
|
|
|
|
Quoted
Prices in
|
|
|
|
|
|
|
|
|
|
|
|
|
Active
Markets for
|
|
|
Significant
Other
|
|
|
Significant
|
|
|
|
|
|
|
Identical
Assets
|
|
|
Observable
Inputs
|
|
|
Unobservable
Inputs
|
|
(In thousands)
|
|
Fair Value
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired
loans
|
|
$ |
30,415 |
|
|
$ |
-- |
|
|
$ |
-- |
|
|
$ |
30,415 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired
loans
|
|
|
11,451 |
|
|
|
-- |
|
|
|
-- |
|
|
|
11,451 |
|
SFAS No.
107, Disclosures about Fair
Value of Financial Instruments, requires disclosure in annual financial
statements of the fair value of financial assets and financial liabilities,
including those financial assets and financial liabilities that are not measured
and reported at fair value on a recurring basis or nonrecurring
basis. FASB Staff Position (“FSP”) No. FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value
of Financial Instruments, posted April 9, 2009, amends SFAS 107 to
require disclosures about fair value of financial instruments for interim
reporting periods. The FSP also amends APB Opinion No. 28, Interim Financial Reporting,
to require those disclosures in summarized financial information at interim
reporting periods. The following methods and assumptions were used to
estimate the fair value of each class of financial instruments.
Cash and cash equivalents –
The carrying amount for cash and cash equivalents approximates fair
value.
Held-to-maturity securities –
Fair values for held-to-maturity securities equal quoted market prices, if
available. If quoted market prices are not available, fair values are
estimated based on quoted market prices of similar securities.
Loans – The fair value of
loans is estimated by discounting the future cash flows, using the current rates
at which similar loans would be made to borrowers with similar credit ratings
and for the same remaining maturities. Loans with similar
characteristics were aggregated for purposes of the calculations. The
carrying amount of accrued interest approximates its fair value.
Deposits – The fair value of
demand deposits, savings accounts and money market deposits is the amount
payable on demand at the reporting date (i.e., their carrying
amount). The fair value of fixed-maturity time deposits is estimated
using a discounted cash flow calculation that applies the rates currently
offered for deposits of similar remaining maturities. The carrying
amount of accrued interest payable approximates its fair value.
Federal
Funds purchased, securities sold under agreement to repurchase
and short-term debt – The
carrying amount for Federal funds purchased, securities sold under agreement to
repurchase and short-term debt are a reasonable estimate of fair
value.
Long-term debt – Rates
currently available to the Company for debt with similar terms and remaining
maturities are used to estimate the fair value of existing debt.
Commitments to Extend Credit,
Letters of Credit and Lines of Credit – The fair value of commitments is
estimated using the fees currently charged to enter into similar agreements,
taking into account the remaining terms of the agreements and the present
creditworthiness of the counterparties. For fixed rate loan
commitments, fair value also considers the difference between current levels of
interest rates and the committed rates. The fair values of letters of
credit and lines of credit are based on fees currently charged for similar
agreements or on the estimated cost to terminate or otherwise settle the
obligations with the counterparties at the reporting date.
The
following table represents estimated fair values of the Company's financial
instruments. The fair values of certain of these instruments were
calculated by discounting expected cash flows. This method involves significant
judgments by management considering the uncertainties of economic conditions and
other factors inherent in the risk management of financial
instruments. Fair value is the estimated amount at which financial
assets or liabilities could be exchanged in a current transaction between
willing parties, other than in a forced or liquidation sale. Because
no market exists for certain of these financial instruments and because
management does not intend to sell these financial instruments, the Company does
not know whether the fair values shown below represent values at which the
respective financial instruments could be sold individually or in the
aggregate.
|
|
30-Jun-09
|
|
|
31-Dec-08
|
|
|
|
Carrying
|
|
|
Fair
|
|
|
Carrying
|
|
|
Fair
|
|
(In thousands)
|
|
Amount
|
|
|
Value
|
|
|
Amount
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
114,577 |
|
|
$ |
114,577 |
|
|
$ |
139,536 |
|
|
$ |
139,356 |
|
Held-to-maturity
securities
|
|
|
352,921 |
|
|
|
353,021 |
|
|
|
187,301 |
|
|
|
187,320 |
|
Mortgage
loans held for sale
|
|
|
14,868 |
|
|
|
14,868 |
|
|
|
10,336 |
|
|
|
10,336 |
|
Interest
receivable
|
|
|
18,131 |
|
|
|
18,131 |
|
|
|
20,930 |
|
|
|
20,930 |
|
Loans,
net
|
|
|
1,918,428 |
|
|
|
1,914,080 |
|
|
|
1,907,233 |
|
|
|
1,904,421 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest
bearing transaction accounts
|
|
|
324,686 |
|
|
|
324,686 |
|
|
|
334,998 |
|
|
|
334,998 |
|
Interest
bearing transaction accounts and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
savings
deposits
|
|
|
1,065,646 |
|
|
|
1,065,646 |
|
|
|
1,026,824 |
|
|
|
1,026,824 |
|
Time
deposits
|
|
|
928,812 |
|
|
|
932,650 |
|
|
|
974,511 |
|
|
|
977,789 |
|
Federal
funds purchased and securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
sold
under agreements to repurchase
|
|
|
98,146 |
|
|
|
98,146 |
|
|
|
115,449 |
|
|
|
115,449 |
|
Short-term
debt
|
|
|
2,647 |
|
|
|
2,647 |
|
|
|
1,112 |
|
|
|
1,112 |
|
Long-term
debt
|
|
|
162,726 |
|
|
|
176,983 |
|
|
|
158,671 |
|
|
|
173,046 |
|
Interest
payable
|
|
|
3,505 |
|
|
|
3,505 |
|
|
|
4,579 |
|
|
|
4,579 |
|
The fair
value of commitments to extend credit and letters of credit is not presented
since management believes the fair value to be insignificant.
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 June 30, 2009, and the related condensed consolidated
statements of income for the three-month and six-month periods ended June 30,
2009 and 2008 and statements of stockholders’ equity and cash flows for the
six-month periods ended June 30, 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
August 10,
2009
OVERVIEW
Simmons
First National Corporation recorded net income of $5,509,000 for the
three-months ended June 30, 2009, a $485,000 decrease from the same period in
2008. Diluted earnings per share decreased $0.03, or 7.1%, to $0.39
for the three-months ended June 30, 2009. The decrease in earnings is
primarily attributable to $2.4 million increase in deposit insurance as a result
of the FDIC’s industry-wide special assessment and increases in its general
assessment. The after-tax impact to quarterly earnings from the
deposit insurance increases was $1.5 million, or $0.11 diluted earnings per
share. See Non-Interest Expense section for additional information on deposit
insurance.
Net income
for the six-month period ended June 30, 2009, was $10,745,000, or $0.76 diluted
earnings per share, compared to $14,810,000, or $1.05 per share for the same
period in 2008. 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 six-months ended June 30,
2009 and 2008, were $10,745,000 and $12,252,000,
respectively. Diluted core earnings per share for these same periods
were $0.76 and $0.87, respectively, a decrease of $0.11 per share, or
12.64%.
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 1.29% as of June 30,
2009. Non-performing loans equaled 1.02% of total
loans. Non-performing assets were 0.86% of total assets, up 22 basis
points from year end. The allowance for loan losses was 126% of
non-performing loans. The Company’s annualized net charge-offs to total loans
for the second quarter of 2009 was 0.44%. Excluding credit cards, the
annualized net charge-offs to total loans for the second quarter was
0.22%. Annualized net credit card charge-offs to total credit card
loans for the second quarter were 2.83%, an increase of 19 basis points from the
previous quarter, yet more than 750 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 June 30, 2009, were $2.898 billion, a decrease of
$25.3 million, or 0.9%, from December 31, 2008. Stockholders’
equity as of June 30, 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, the Company’s 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.
Approximately
600 banks nationwide have participated in the CPP. The Company was
the thirty-second bank in the country to be approved. 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 and was granted an extension
by the Treasury due to the ambiguity and uncertainty regarding the ability to
repay the funds at the time of its choosing.
On July 7,
2009, management notified the Treasury that the Company would not participate in
the CPP. After careful consideration and analysis, the Company
believes there has been considerable improvement in the economic indicators
since October 2008. The Arkansas economy is doing well relative to
many other geographic regions of the country, and the Company continues to have
strong asset quality, liquidity and capital. Accordingly, the Company
does not believe its participation in the CPP is necessary nor in the best
interest of the Company’s shareholders. While the Company has chosen
not to participate, the Company believes the CPP has served the original purpose
of the Treasury.
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 by the Company based on its analysis of historical losses for each
loan category. 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 89% of the Company’s time
deposits as of June 30, 2009, are scheduled to reprice within one
year.
Net
Interest Income Quarter-to-Date Analysis
For the
three-month period ended June 30, 2009, net interest income on a fully taxable
equivalent basis was $24.9 million, an increase of $816,000, or 3.4%, over the
same period in 2008. The increase in net interest income was the
result of a $6.2 million decrease in interest expense offset by a $5.4 million
decrease in interest income.
The $6.2
million decrease in interest expense is the result of a 112 basis point decrease
in cost of funds due to competitive repricing during a falling interest rate
environment, coupled with a shift in the Company’s mix of interest bearing
deposits. The lower interest rates accounted for a $5.9 million
decrease in interest expense. The most significant component of this
decrease was the $3.2 million decrease associated with the repricing of the
Company’s time deposits that resulted from time deposits that matured during the
period or were tied to a rate that fluctuated with changes in market
rates. Historically, approximately 80% of the Company’s time deposits
reprice in one year or less. As a result, the average rate paid on
time deposits decreased 134 basis points from 3.88% to 2.54%. Lower
rates on interest bearing transaction and savings accounts resulted in an
additional $2.4 million decrease in interest expense, with the average rate
decreasing by 90 basis points from 1.61% to 0.71%. Although the level
of average interest bearing liabilities increased by slightly by $21.5 million
due to internal 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 93 basis point
decrease in yield on earning assets associated with the repricing to a lower
interest rate environment, offset by a $52 million increase in average
interest earning assets due to internal growth. The lower interest
rates accounted for a $7.1 million decrease in interest
income. The most significant component of this decrease was the $4.0
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 87 basis points from 6.72% to 5.85%. The growth in
average interest earning assets resulted in a $1.7 million improvement in
interest income. The growth in average loans accounted for
$887,000 of this increase, while the growth in investment securities
resulted in $1.0 million of the increase.
Net
Interest Income Year-to-Date Analysis
For the
six-month period ended June 30, 2009, net interest income on a fully taxable
equivalent basis was $49.4 million, an increase of $1.6 million, or 3.3%, over
the same period in 2008. The increase in net interest income was the
result of a $12.3 million decrease in interest expense offset by a
$10.8 million decrease in interest income.
The $12.3
million decrease in interest expense is the result of a 119 basis point decrease
in cost of funds due to competitive repricing during a falling interest rate
environment, coupled with a shift in the Company’s mix of interest bearing
deposits. The lower interest rates accounted for a $12.0 million
decrease in interest expense. The most significant component of this decrease
was the $6.9 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 141 basis points from 4.13% to 2.72%. Lower
rates on interest bearing transaction and savings accounts resulted in an
additional $3.9 million decrease in interest expense, with the average rate
decreasing by 77 basis points from 1.62% to 0.85%. Lower rates on
federal funds purchased and other debt resulted in an additional $1.1 million
decrease in interest expense, with the average rate paid on debt decreasing by
72 basis points from 3.60% to 2.88%. Although the level of average
interest bearing liabilities increased by $87.4 million, primarily due to $68.2
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 $10.8
million decrease in interest income primarily is the result of a 107 basis point
decrease in yield on earning assets associated with the repricing to a lower
interest rate environment, offset by a $118.9 million increase in average
interest earning assets due to internal growth. The lower interest
rates accounted for a $15.3 million decrease in interest income. The
most significant component of this decrease was the $10.2 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 106 basis points
from 6.98% to 5.92%. The growth in average interest earning assets
resulted in a $4.5 million improvement in interest income. The growth
in average loans accounted for $2.2 million of this increase, the growth in
investment securities resulted in $2.6 million of the increase, offset slightly
by a decline in short-term investments.
Net
Interest Margin
The
Company’s net interest margin increased 4 basis points to 3.71% for the
three-month period ended June 30, 2009, when compared to 3.67% for the same
period in 2008. For the six-month period ended June 30, 2009, net
interest margin decreased 4 basis points to 3.70%, when compared to 3.74% for
the same period in 2008. Based on its current pricing model,
considering investment portfolio maturities and call projections, the Company
continues to anticipate 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 and six-month periods ended June 30, 2009 and 2008,
respectively, as well as changes in fully taxable equivalent net interest margin
for the three-month and six-month periods ended June 30, 2009 versus June
30, 2008.
Table
1: Analysis of Net Interest Margin
(FTE
=Fully Taxable Equivalent)
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
June
30,
|
|
|
June
30,
|
(In thousands)
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
$ |
33,557 |
|
|
$ |
39,140 |
|
|
$ |
68,450 |
|
|
$ |
79,571 |
|
FTE
adjustment
|
|
|
1,203 |
|
|
|
1,009 |
|
|
|
2,329 |
|
|
|
1,986 |
|
Interest
income – FTE
|
|
|
34,760 |
|
|
|
40,149 |
|
|
|
70,779 |
|
|
|
81,557 |
|
Interest
expense
|
|
|
9,837 |
|
|
|
16,042 |
|
|
|
21,337 |
|
|
|
33,681 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income – FTE
|
|
$ |
24,923 |
|
|
$ |
24,107 |
|
|
$ |
49,442 |
|
|
$ |
47,876 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Yield
on earning assets – FTE
|
|
|
5.18 |
% |
|
|
6.11 |
% |
|
|
5.29 |
% |
|
|
6.36 |
% |
Cost
of interest bearing liabilities
|
|
|
1.72 |
% |
|
|
2.84 |
% |
|
|
1.87 |
% |
|
|
2.98 |
% |
Net
interest spread – FTE
|
|
|
3.46 |
% |
|
|
3.27 |
% |
|
|
3.42 |
% |
|
|
3.38 |
% |
Net
interest margin – FTE
|
|
|
3.71 |
% |
|
|
3.67 |
% |
|
|
3.70 |
% |
|
|
3.74 |
% |
Table
2: Changes in Fully Taxable Equivalent Net Interest
Income
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
June
30,
|
|
|
June
30,
|
|
(In thousands)
|
|
2009 vs. 2008
|
|
|
2009 vs. 2008
|
|
|
|
|
|
|
|
|
Increase
due to change in earning assets
|
|
$ |
1,693 |
|
|
$ |
4,494 |
|
Decrease
due to change in earning asset yields
|
|
|
(7,082 |
) |
|
|
(15,272 |
) |
Increase
due to change in interest
|
|
|
|
|
|
|
|
|
bearing
liabilities
|
|
|
334 |
|
|
|
362 |
|
Increase
due to change in interest rates
|
|
|
|
|
|
|
|
|
paid
on interest bearing liabilities
|
|
|
5,871 |
|
|
|
11,982 |
|
|
|
|
|
|
|
|
|
|
Increase
in net interest income
|
|
$ |
816 |
|
|
$ |
1,566 |
|
Table 3
shows, for each major category of earning assets and interest bearing
liabilities, the average (computed on a daily basis) amount outstanding, the
interest earned or expensed on such amount and the average rate earned or
expensed for the three-month and six-month periods ended June 30, 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 June 30
|
|
|
|
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
|
|
$ |
44,946 |
|
|
$ |
70 |
|
|
|
0.62
|
|
|
$ |
85,578 |
|
|
$ |
487 |
|
|
|
2.29
|
|
Federal
funds sold
|
|
|
9,355 |
|
|
|
14 |
|
|
|
0.60
|
|
|
|
55,543 |
|
|
|
285 |
|
|
|
2.06
|
|
Investment
securities - taxable
|
|
|
499,475 |
|
|
|
3,313 |
|
|
|
2.66
|
|
|
|
458,555 |
|
|
|
5,469 |
|
|
|
4.80
|
|
Investment
securities - non-taxable
|
|
|
193,725 |
|
|
|
3,093 |
|
|
|
6.40
|
|
|
|
157,917 |
|
|
|
2,538 |
|
|
|
6.46
|
|
Mortgage
loans held for sale
|
|
|
16,316 |
|
|
|
195 |
|
|
|
4.79
|
|
|
|
8,740 |
|
|
|
113 |
|
|
|
5.20
|
|
Assets
held in trading accounts
|
|
|
5,981 |
|
|
|
5 |
|
|
|
0.34
|
|
|
|
5,747 |
|
|
|
41 |
|
|
|
2.87
|
|
Loans
|
|
|
1,923,787 |
|
|
|
28,070 |
|
|
|
5.85
|
|
|
|
1,869,369 |
|
|
|
31,216 |
|
|
|
6.72
|
|
Total
interest earning assets
|
|
|
2,693,585 |
|
|
|
34,760 |
|
|
|
5.18
|
|
|
|
2,641,449 |
|
|
|
40,149 |
|
|
|
6.11
|
|
Non-earning
assets
|
|
|
244,960 |
|
|
|
|
|
|
|
|
|
|
|
253,724 |
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$ |
2,938,545 |
|
|
|
|
|
|
|
|
|
|
$ |
2,895,173 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
bearing liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
bearing transaction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
savings accounts
|
|
$ |
1,081,416 |
|
|
$ |
1,926 |
|
|
|
0.71
|
|
|
$ |
972,687 |
|
|
$ |
3,899 |
|
|
|
1.61
|
|
Time
deposits
|
|
|
942,104 |
|
|
|
5,975 |
|
|
|
2.54
|
|
|
|
1,037,151 |
|
|
|
10,006 |
|
|
|
3.88
|
|
Total
interest bearing deposits
|
|
|
2,023,520 |
|
|
|
7,901 |
|
|
|
1.57
|
|
|
|
2,009,838 |
|
|
|
13,905 |
|
|
|
2.78
|
|
Federal
funds purchased and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
securities
sold under agreement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
to
repurchase
|
|
|
106,288 |
|
|
|
182 |
|
|
|
0.69
|
|
|
|
110,646 |
|
|
|
463 |
|
|
|
1.68
|
|
Other
borrowed funds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term
debt
|
|
|
1,802 |
|
|
|
6 |
|
|
|
1.34
|
|
|
|
2,791 |
|
|
|
19 |
|
|
|
2.74
|
|
Long-term
debt
|
|
|
161,065 |
|
|
|
1,748 |
|
|
|
4.35
|
|
|
|
147,948 |
|
|
|
1,655 |
|
|
|
4.50
|
|
Total
interest bearing liabilities
|
|
|
2,292,675 |
|
|
|
9,837 |
|
|
|
1.72
|
|
|
|
2,271,223 |
|
|
|
16,042 |
|
|
|
2.84
|
|
Non-interest
bearing liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest
bearing deposits
|
|
|
328,036 |
|
|
|
|
|
|
|
|
|
|
|
318,978 |
|
|
|
|
|
|
|
|
|
Other
liabilities
|
|
|
22,566 |
|
|
|
|
|
|
|
|
|
|
|
21,935 |
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
2,643,277 |
|
|
|
|
|
|
|
|
|
|
|
2,612,136 |
|
|
|
|
|
|
|
|
|
Stockholders’
equity
|
|
|
295,268 |
|
|
|
|
|
|
|
|
|
|
|
283,037 |
|
|
|
|
|
|
|
|
|
Total
liabilities and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
stockholders’
equity
|
|
$ |
2,938,545 |
|
|
|
|
|
|
|
|
|
|
$ |
2,895,173 |
|
|
|
|
|
|
|
|
|
Net
interest spread
|
|
|
|
|
|
|
|
|
|
|
3.46
|
|
|
|
|
|
|
|
|
|
|
|
3.27
|
|
Net
interest margin
|
|
|
|
|
|
$ |
24,923 |
|
|
|
3.71
|
|
|
|
|
|
|
$ |
24,107 |
|
|
|
3.67
|
|
|
|
Six Months Ended June 30
|
|
|
|
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
|
|
$ |
49,502 |
|
|
$ |
148 |
|
|
|
0.60
|
|
|
$ |
70,981 |
|
|
$ |
875 |
|
|
|
2.48
|
|
Federal
funds sold
|
|
|
4,920 |
|
|
|
15 |
|
|
|
0.61
|
|
|
|
45,502 |
|
|
|
540 |
|
|
|
2.39
|
|
Investment
securities - taxable
|
|
|
518,195 |
|
|
|
7,975 |
|
|
|
3.10
|
|
|
|
437,030 |
|
|
|
10,512 |
|
|
|
4.84
|
|
Investment
securities - non-taxable
|
|
|
183,279 |
|
|
|
5,917 |
|
|
|
6.51
|
|
|
|
154,707 |
|
|
|
4,980 |
|
|
|
6.47
|
|
Mortgage
loans held for sale
|
|
|
15,023 |
|
|
|
353 |
|
|
|
4.74
|
|
|
|
8,107 |
|
|
|
226 |
|
|
|
5.61
|
|
Assets
held in trading accounts
|
|
|
5,097 |
|
|
|
10 |
|
|
|
0.40
|
|
|
|
5,739 |
|
|
|
42 |
|
|
|
1.47
|
|
Loans
|
|
|
1,920,519 |
|
|
|
56,361 |
|
|
|
5.92
|
|
|
|
1,855,566 |
|
|
|
64,382 |
|
|
|
6.98
|
|
Total
interest earning assets
|
|
|
2,696,535 |
|
|
|
70,779 |
|
|
|
5.29
|
|
|
|
2,577,632 |
|
|
|
81,557 |
|
|
|
6.36
|
|
Non-earning
assets
|
|
|
247,420 |
|
|
|
|
|
|
|
|
|
|
|
253,113 |
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$ |
2,943,955 |
|
|
|
|
|
|
|
|
|
|
$ |
2,830,745 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
bearing liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
bearing transaction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
savings accounts
|
|
$ |
1,067,025 |
|
|
$ |
4,495 |
|
|
|
0.85
|
|
|
$ |
888,064 |
|
|
$ |
7,163 |
|
|
|
1.62
|
|
Time
deposits
|
|
|
957,745 |
|
|
|
12,909 |
|
|
|
2.72
|
|
|
|
1,068,586 |
|
|
|
21,929 |
|
|
|
4.13
|
|
Total
interest bearing deposits
|
|
|
2,024,770 |
|
|
|
17,404 |
|
|
|
1.73
|
|
|
|
1,956,650 |
|
|
|
29,092 |
|
|
|
2.99
|
|
Federal
funds purchased and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
securities
sold under agreement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
to
repurchase
|
|
|
113,067 |
|
|
|
425 |
|
|
|
0.76
|
|
|
|
118,552 |
|
|
|
1,385 |
|
|
|
2.35
|
|
Other
borrowed funds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term
debt
|
|
|
1,748 |
|
|
|
12 |
|
|
|
1.38
|
|
|
|
2,253 |
|
|
|
38 |
|
|
|
3.39
|
|
Long-term
debt
|
|
|
160,879 |
|
|
|
3,496 |
|
|
|
4.38
|
|
|
|
135,584 |
|
|
|
3,166 |
|
|
|
4.70
|
|
Total
interest bearing liabilities
|
|
|
2,300,464 |
|
|
|
21,337 |
|
|
|
1.87
|
|
|
|
2,213,039 |
|
|
|
33,681 |
|
|
|
3.06
|
|
Non-interest
bearing liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest
bearing deposits
|
|
|
327,643 |
|
|
|
|
|
|
|
|
|
|
|
314,193 |
|
|
|
|
|
|
|
|
|
Other
liabilities
|
|
|
21,835 |
|
|
|
|
|
|
|
|
|
|
|
23,052 |
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
2,649,942 |
|
|
|
|
|
|
|
|
|
|
|
2,550,284 |
|
|
|
|
|
|
|
|
|
Stockholders’
equity
|
|
|
294,013 |
|
|
|
|
|
|
|
|
|
|
|
280,461 |
|
|
|
|
|
|
|
|
|
Total
liabilities and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
stockholders’
equity
|
|
$ |
2,943,955 |
|
|
|
|
|
|
|
|
|
|
$ |
2,830,745 |
|
|
|
|
|
|
|
|
|
Net
interest spread
|
|
|
|
|
|
|
|
|
|
|
3.42
|
|
|
|
|
|
|
|
|
|
|
|
3.30
|
|
Net
interest margin
|
|
|
|
|
|
$ |
49,442 |
|
|
|
3.70
|
|
|
|
|
|
|
$ |
47,876 |
|
|
|
3.74
|
|
Table 4
shows changes in interest income and interest expense, resulting from changes in
volume and changes in interest rates for the three-month and six-month period
ended June 30, 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
|
|
Three
Months Ended June 30,
|
|
|
Six
Months Ended June 30,
|
|
|
|
2009 over 2008
|
|
|
2009 over 2008
|
|
|
|
|
|
|
Yield/
|
|
|
|
|
|
|
|
|
Yield/
|
|
|
|
|
(In
thousands, on a fully taxable equivalent
basis)
|
|
Volume
|
|
|
Rate
|
|
|
Total
|
|
|
Volume
|
|
|
Rate
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
(decrease) in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
bearing balances
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
due
from banks
|
|
$ |
(165 |
) |
|
$ |
(252 |
) |
|
$ |
(417 |
) |
|
$ |
(208 |
) |
|
$ |
(519 |
) |
|
$ |
(727 |
) |
Federal
funds sold
|
|
|
(146 |
) |
|
|
(125 |
) |
|
|
(271 |
) |
|
|
(287 |
) |
|
|
(238 |
) |
|
|
(525 |
) |
Investment
securities - taxable
|
|
|
452 |
|
|
|
(2,608 |
) |
|
|
(2,156 |
) |
|
|
1,713 |
|
|
|
(4,250 |
) |
|
|
(2,537 |
) |
Investment
securities - non-taxable
|
|
|
571 |
|
|
|
(16 |
) |
|
|
555 |
|
|
|
922 |
|
|
|
15 |
|
|
|
937 |
|
Mortgage
loans held for sale
|
|
|
92 |
|
|
|
(10 |
) |
|
|
82 |
|
|
|
168 |
|
|
|
(41 |
) |
|
|
127 |
|
Assets
held in trading accounts
|
|
|
2 |
|
|
|
(38 |
) |
|
|
(36 |
) |
|
|
(4 |
) |
|
|
(28 |
) |
|
|
(32 |
) |
Loans
|
|
|
887 |
|
|
|
(4,033 |
) |
|
|
(3,146 |
) |
|
|
2,190 |
|
|
|
(10,211 |
) |
|
|
(8,021 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,693 |
|
|
|
(7,082 |
) |
|
|
(5,389 |
) |
|
|
4,494 |
|
|
|
(15,272 |
) |
|
|
(10,778 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
bearing transaction and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
savings
accounts
|
|
|
395 |
|
|
|
(2,368 |
) |
|
|
(1,973 |
) |
|
|
1,239 |
|
|
|
(3,907 |
) |
|
|
(2,668 |
) |
Time
deposits
|
|
|
(851 |
) |
|
|
(3,180 |
) |
|
|
(4,031 |
) |
|
|
(2,094 |
) |
|
|
(6,926 |
) |
|
|
(9,020 |
) |
Federal
funds purchased
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
securities sold under
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
agreements
to repurchase
|
|
|
(17 |
) |
|
|
(264 |
) |
|
|
(281 |
) |
|
|
(61 |
) |
|
|
(899 |
) |
|
|
(960 |
) |
Other
borrowed funds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term
debt
|
|
|
(6 |
) |
|
|
(7 |
) |
|
|
(13 |
) |
|
|
(7 |
) |
|
|
(19 |
) |
|
|
(26 |
) |
Long-term
debt
|
|
|
145 |
|
|
|
(52 |
) |
|
|
93 |
|
|
|
561 |
|
|
|
(231 |
) |
|
|
330 |
|
Total
|
|
|
(334 |
) |
|
|
(5,871 |
) |
|
|
(6,205 |
) |
|
|
(362 |
) |
|
|
(11,982 |
) |
|
|
(12,344 |
) |
Increase
(decrease) in net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
interest
income
|
|
$ |
2,027 |
|
|
$ |
(1,211 |
) |
|
$ |
(816 |
) |
|
$ |
4,856 |
|
|
$ |
(3,290 |
) |
|
$ |
1,566 |
|
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 June 30, 2009, was
$2.6 million, compared to $2.2 million for the three-month period ended June 30,
2008, an increase of $408,000. The provision for loan losses for the six-month
period ended June 30, 2009, was $4.8 million, compared to $3.7 million for the
six-month period ended June 30, 2008, an increase of $1.1 million. 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 $13.3 million for the three-month period ended June 30,
2009, an increase of $1.6 million, or 13.5%, compared to $11.7 million for the
same period in 2008. For the six-months ended June 30, 2009,
non-interest income was $24.8 million compared to $26.7 million reported for the
same period ended June 30, 2008. The decrease in non-interest income
for the six-months ended June 30 was 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
increased $1.0 million, or 4.3%, in the first six-months 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 and six-month periods ended June
30, 2009 and 2008, respectively, as well as changes in 2009 from
2008.
Table
5: Non-Interest Income
|
|
Three Months Ended June
30
|
|
|
2009 Change
from
|
|
|
Six Months Ended June 30
|
|
|
2009 Change
from
|
|
(In thousands)
|
|
2009
|
|
|
2008
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2008
|
|
Trust
income
|
|
$ |
1,223 |
|
|
$ |
1,450 |
|
|
$ |
(227 |
) |
|
|
-15.66 |
% |
|
$ |
2,549 |
|
|
$ |
3,098 |
|
|
$ |
(549 |
) |
|
|
-17.72 |
% |
Service
charges on
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
deposit
accounts
|
|
|
4,571 |
|
|
|
3,691 |
|
|
|
880 |
|
|
|
23.84 |
|
|
|
8,298 |
|
|
|
7,125 |
|
|
|
1,173 |
|
|
|
16.46 |
|
Other
service charges and fees
|
|
|
646 |
|
|
|
621 |
|
|
|
25 |
|
|
|
4.03 |
|
|
|
1,392 |
|
|
|
1,374 |
|
|
|
18 |
|
|
|
1.31 |
|
Income
on sale of mortgage loans,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net
of commissions
|
|
|
1,361 |
|
|
|
760 |
|
|
|
601 |
|
|
|
79.08 |
|
|
|
2,400 |
|
|
|
1,482 |
|
|
|
918 |
|
|
|
61.94 |
|
Income
on investment banking,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net
of commissions
|
|
|
675 |
|
|
|
199 |
|
|
|
476 |
|
|
|
239.2 |
|
|
|
1,086 |
|
|
|
648 |
|
|
|
438 |
|
|
|
67.59 |
|
Credit
card fees
|
|
|
3,597 |
|
|
|
3,480 |
|
|
|
117 |
|
|
|
3.36 |
|
|
|
6,750 |
|
|
|
6,653 |
|
|
|
97 |
|
|
|
1.46 |
|
Premiums
on sale of student loans
|
|
|
286 |
|
|
|
507 |
|
|
|
(221 |
) |
|
|
-43.59 |
|
|
|
286 |
|
|
|
1,132 |
|
|
|
(846 |
) |
|
|
-74.73 |
|
Bank
owned life insurance income
|
|
|
299 |
|
|
|
425 |
|
|
|
(126 |
) |
|
|
-29.65 |
|
|
|
677 |
|
|
|
787 |
|
|
|
(110 |
) |
|
|
-13.98 |
|
Gain
on mandatory partial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
redemption
of Visa shares
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
2,973 |
|
|
|
(2,973 |
) |
|
|
-100 |
|
Other
income
|
|
|
556 |
|
|
|
587 |
|
|
|
(31 |
) |
|
|
-5.28 |
|
|
|
1,235 |
|
|
|
1,440 |
|
|
|
(205 |
) |
|
|
-14.24 |
|
Gain
on sale of securities, net
|
|
|
90 |
|
|
|
-- |
|
|
|
90 |
|
|
|
-- |
|
|
|
90 |
|
|
|
-- |
|
|
|
90 |
|
|
|
-- |
|
Total
non-interest income
|
|
$ |
13,304 |
|
|
$ |
11,720 |
|
|
$ |
1,584 |
|
|
|
13.52 |
% |
|
$ |
24,763 |
|
|
$ |
26,712 |
|
|
$ |
(1,949 |
) |
|
|
-7.30 |
% |
Recurring
fee income for the three-month period ended June 30, 2009, was $10.0 million, an
increase of $795,000 from the three-month period ended June 30,
2008. Recurring fee income for the six-month period ended June 30,
2009, was $19.0 million, an increase of $739,000 from the six-month period ended
June 30, 2008. The improvement in recurring fee income primarily
resulted from increases in service charges on deposit accounts, partially offset
by decreases in trust income. Trust income decreased by
$227,000 and $549,000, respectively, for the three-months and six-months ended
June 30, 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
$880,000 and $1.2 million, respectively, for the three-months and six-months
ended June 30, due primarily to improvements in fee structure and core deposit
growth.
Income on
sale of mortgage loans increased by $601,000 and $918,000, respectively, for the
three and six-months ended June 30, 2009, compared to the same periods in
2008. This improvement was primarily due to lower mortgage rates
leading to a significant increase in residential refinancing
volume.
Premiums
on sale of student loans decreased by $221,000 and $846,000, respectively, for
the three and six-months ended June 30, 2009, compared to the same periods in
2008. The decrease was due to a lack of sales of student loans during
the first six-months 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. The Company sold one package of student loans
into the Government program during the second quarter of 2009, generating
$286,000 of non-interest income. During the third quarter of 2009,
the Company expects to sell into the Government program all remaining student
loans originated and fully funded during the 2008-2009 school
year. Under the terms of the Government program, the loans are sold
at par plus reimbursement of the 1% lender fee and a premium of $75 per
loan. The Company expects to record approximately $1.8 million in
premiums on sale of student loans during the third quarter of 2009 when the
loans are sold.
The
Company realized gross gains of $144,000 on the sale of securities during the
three and six-months ended June 30, 2009, with no realized gains for the three
and six-month periods ended June 30, 2008. There were no
realized losses over the same periods.
NON-INTEREST
EXPENSE
Non-interest
expense consists of salaries and employee benefits, occupancy, equipment,
foreclosure losses and other expenses necessary for the operation of the
Company. Management remains committed to controlling the level of
non-interest expense, through the continued use of expense control measures that
have been installed. The Company utilizes an extensive profit
planning and reporting system involving all affiliates. Based on a
needs assessment of the business plan for the upcoming year, monthly and annual
profit plans are developed, including manpower and capital expenditure
budgets. These profit plans are subject to extensive initial reviews
and monitored by management on a monthly basis. Variances from the
plan are reviewed monthly and, when required, management takes corrective action
intended to ensure financial goals are met. Management also regularly
monitors staffing levels at each affiliate, to ensure productivity and overhead
are in line with existing workload requirements.
Non-interest
expense for the three-month and six-month periods ended June 30, 2009, was
$27.0 million and $52.6 million, an increase of $2.7 million, or 11.3%, and
$5.3 million, or 11.1%, from the same periods 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.
Deposit
insurance expense for the three-month and six-month periods ended June 30, 2009,
increased by $2.4 million and $2.9 million, respectively, from the same periods
in 2008. Deposit insurance expense during the second quarter of 2009 increased
$2.0 million compared to the first quarter of 2009. The increases in
deposit insurance expense were due to increases in the fee assessment rates
during 2009 and a special assessment applied to all insured institutions as of
June 30, 2009. The increase in deposit insurance expense during
the six-months ended June 30, 2009, compared to the same period a year ago was
also partly related to the Company’s utilization of available credits to offset
assessments during the first six months of 2008.
In May
2009, the FDIC issued a final rule which levied a special assessment applicable
to all insured depository institutions totaling 5 basis points of each
institution’s total assets less Tier 1 capital as of June 30, 2009, not to
exceed 10 basis points of domestic deposits. The special assessment
is part of the FDIC’s efforts to rebuild the Deposit Insurance Fund
(“DIF”). Deposit insurance expense during the three and six-months
ended June 30, 2009, included a $1.4 million accrual related to the special
assessment. The final rule also allows the FDIC to impose additional
special assessments of 5 basis points for the third and fourth quarters of 2009,
if the FDIC estimates that the DIF reserve ratio will fall to a level that would
adversely affect public confidence in federal deposit insurance or to a level
that would be close to or below zero. Any additional special
assessment would also be capped at 10 basis points of domestic deposits.
The Company cannot provide any assurance as to the ultimate amount or timing of
any such special assessments, should such special assessments occur, as such
special assessments depend upon a variety of factors which are beyond the
Company’s control.
When
normalized for both the nonrecurring Visa litigation liability reversal and the
increase in deposit insurance expense, non-interest expense for the six-month
period ended June 30, 2009, increased by 2.4% over the same period in
2008.
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 and six-month periods ended
June 30, 2009 and 2008, respectively, as well as changes in 2009 from
2008.
Table
6: Non-Interest Expense
|
|
Three
Months
|
|
|
2009
|
|
|
Six
Months
|
|
|
2009
|
|
|
|
Ended June 30
|
|
|
Change
from
|
|
|
Ended June 30
|
|
|
Change
from
|
|
(In thousands)
|
|
2009
|
|
|
2008
|
|
|
2008
|
|
|
|
|
|
|
|
|
2008
|
|
Salaries
and employee benefits
|
|
$ |
14,674 |
|
|
$ |
14,433 |
|
|
$ |
241 |
|
|
|
1.67 |
% |
|
$ |
29,257 |
|
|
$ |
28,641 |
|
|
$ |
616 |
|
|
|
2.15 |
% |
Occupancy
expense, net
|
|
|
1,824 |
|
|
|
1,804 |
|
|
|
20 |
|
|
|
1.11 |
|
|
|
3,713 |
|
|
|
3,615 |
|
|
|
98 |
|
|
|
2.71 |
|
Furniture
and equipment expense
|
|
|
1,527 |
|
|
|
1,472 |
|
|
|
55 |
|
|
|
3.74 |
|
|
|
3,070 |
|
|
|
2,962 |
|
|
|
108 |
|
|
|
3.65 |
|
Other
real estate and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
foreclosure
expense
|
|
|
90 |
|
|
|
87 |
|
|
|
3 |
|
|
|
3.45 |
|
|
|
160 |
|
|
|
129 |
|
|
|
31 |
|
|
|
24.03 |
|
Deposit
insurance
|
|
|
2,557 |
|
|
|
113 |
|
|
|
2,444 |
|
|
|
2162.83 |
|
|
|
3,090 |
|
|
|
201 |
|
|
|
2,889 |
|
|
|
1437.31 |
|
Other
operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Professional
services
|
|
|
598 |
|
|
|
570 |
|
|
|
28 |
|
|
|
4.91 |
|
|
|
1,535 |
|
|
|
1,329 |
|
|
|
206 |
|
|
|
15.5 |
|
Postage
|
|
|
556 |
|
|
|
581 |
|
|
|
(25 |
) |
|
|
-4.3 |
|
|
|
1,179 |
|
|
|
1,181 |
|
|
|
(2 |
) |
|
|
-0.17 |
|
Telephone
|
|
|
522 |
|
|
|
412 |
|
|
|
110 |
|
|
|
26.7 |
|
|
|
1,051 |
|
|
|
892 |
|
|
|
159 |
|
|
|
17.83 |
|
Credit
card expenses
|
|
|
1,225 |
|
|
|
1,143 |
|
|
|
82 |
|
|
|
7.17 |
|
|
|
2,498 |
|
|
|
2,282 |
|
|
|
216 |
|
|
|
9.47 |
|
Operating
supplies
|
|
|
351 |
|
|
|
415 |
|
|
|
(64 |
) |
|
|
-15.42 |
|
|
|
747 |
|
|
|
875 |
|
|
|
(128 |
) |
|
|
-14.63 |
|
Amortization
of intangibles
|
|
|
202 |
|
|
|
202 |
|
|
|
-- |
|
|
|
-- |
|
|
|
403 |
|
|
|
404 |
|
|
|
(1 |
) |
|
|
-0.25 |
|
Visa
litigation liability reversal
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
(1,220 |
) |
|
|
1,220 |
|
|
|
-100 |
|
Other
expense
|
|
|
2,825 |
|
|
|
2,977 |
|
|
|
(152 |
) |
|
|
-5.11 |
|
|
|
5,906 |
|
|
|
6,048 |
|
|
|
(142 |
) |
|
|
-2.35 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
non-interest expense
|
|
$ |
26,951 |
|
|
$ |
24,209 |
|
|
$ |
2,742 |
|
|
|
11.33 |
% |
|
$ |
52,609 |
|
|
$ |
47,339 |
|
|
$ |
5,270 |
|
|
|
11.13 |
% |
LOAN
PORTFOLIO
The
Company's loan portfolio averaged $1.924 billion and $1.869 billion during the
first six months of 2009 and 2008, respectively. As of June 30, 2009,
total loans were $1.943 billion, an increase of $10.4 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 $450.9 million at June 30, 2009, or 23.2%
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 June 30, 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.
The
student loan portfolio balance at June 30, 2009, was $139.9 million, compared to
$111.6 million at December 31, 2008, an increase of $28.3 million, or 25.4%,
from December 31, 2008. The Company expects to sell approximately $60
million of student loans to the Government during the third quarter of 2009 (the
remainder of the student loans made during the 2008-2009 school year). See
Non-Interest Income section for additional information. The Company
also expects to fund an additional $30 million through our normal student loan
funding process during the third quarter of 2009.
Real
estate loans consist of construction loans, single-family residential loans and
commercial real estate loans. Real estate loans were $1.200 billion
at June 30, 2009, or 61.8% 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 $16.4 million, or 2.7%, from December 31, 2008, to June 30,
2009, primarily due to the permanent financing of completed projects previously
included in the construction and development loan
category. Construction and development loans decreased by $27.6
million, or 12.2%, from December 31, 2008 to June 30,
2009. Construction and development loans represent only 10.1% of the
total loan portfolio.
Commercial
loans consist of commercial loans, agricultural loans and loans to financial
institutions. Commercial loans were $282.2 million at June 30, 2009,
or 14.5% 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
softening commercial loan demand, offset by an increase in agricultural loans
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
|
|
June
30,
|
|
|
December
31,
|
|
(In thousands)
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
|
|
|
|
Credit
cards
|
|
$ |
168,897 |
|
|
$ |
169,615 |
|
Student
loans
|
|
|
139,928 |
|
|
|
111,584 |
|
Other
consumer
|
|
|
142,040 |
|
|
|
138,145 |
|
Total
consumer
|
|
|
450,865 |
|
|
|
419,344 |
|
Real
Estate
|
|
|
|
|
|
|
|
|
Construction
|
|
|
197,336 |
|
|
|
224,924 |
|
Single
family residential
|
|
|
401,447 |
|
|
|
409,540 |
|
Other
commercial
|
|
|
601,217 |
|
|
|
584,843 |
|
Total
real estate
|
|
|
1,200,000 |
|
|
|
1,219,307 |
|
Commercial
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
182,064 |
|
|
|
192,496 |
|
Agricultural
|
|
|
96,526 |
|
|
|
88,233 |
|
Financial
institutions
|
|
|
3,598 |
|
|
|
3,471 |
|
Total
commercial
|
|
|
282,188 |
|
|
|
284,200 |
|
Other
|
|
|
10,407 |
|
|
|
10,223 |
|
|
|
|
|
|
|
|
|
|
Total
loans before allowance for loan losses
|
|
$ |
1,943,460 |
|
|
$ |
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 $2.4
million of Government guaranteed student loans became over 90 days past due
during the quarter ending June 30, 2009. Under existing rules, when
these loans exceed 270 days past due, the Department of Education will purchase
them at 97% of principal and accrued interest. Although these student loans
remain Government guaranteed, because they are over 90 days past due they will
impact the Company’s non-performing asset ratios.
Table 8
presents information concerning non-performing assets, including nonaccrual and
other real estate owned.
Table
8: Non-performing Assets
|
|
|
June
30,
|
|
|
December
31,
|
|
($ in thousands)
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
Nonaccrual
loans
|
|
$ |
16,345 |
|
|
$ |
14,358 |
|
Loans
past due 90 days or more
|
|
|
|
|
|
|
|
|
|
(principal
or interest payments):
|
|
|
|
|
|
|
|
|
|
Government
guaranteed student loans (1)
|
|
|
2,371 |
|
|
|
-- |
|
|
Other
loans
|
|
|
1,147 |
|
|
|
1,292 |
|
|
Total
loans past due 90 days or more
|
|
|
3,518 |
|
|
|
1,292 |
|
|
Total
non-performing loans
|
|
|
19,863 |
|
|
|
15,650 |
|
|
|
|
|
|
|
|
|
|
|
Other
non-performing assets:
|
|
|
|
|
|
|
|
|
|
Foreclosed
assets held for sale
|
|
|
5,147 |
|
|
|
2,995 |
|
|
Other
non-performing assets
|
|
|
17 |
|
|
|
12 |
|
|
Total
other non-performing assets
|
|
|
5,164 |
|
|
|
3,007 |
|
|
|
|
|
|
|
|
|
|
|
|
Total
non-performing assets
|
|
$ |
25,027 |
|
|
$ |
18,657 |
|
|
|
|
|
|
|
|
|
|
|
Allowance
for loan losses to
|
|
|
|
|
|
|
|
|
|
non-performing
loans
|
|
|
126.02 |
% |
|
|
165.12 |
% |
Non-performing
loans to total loans
|
|
|
1.02 |
% |
|
|
0.81 |
% |
Non-performing
loans to total loans
|
|
|
|
|
|
|
|
|
|
(excluding
Government guaranteed student loans) (1)
|
|
|
0.90 |
% |
|
|
0.81 |
% |
Non-performing
assets to total assets
|
|
|
0.86 |
% |
|
|
0.64 |
% |
Non-performing
assets to total assets
|
|
|
|
|
|
|
|
|
|
(excluding
Government guaranteed student loans) (1)
|
|
|
0.78 |
% |
|
|
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 six-month periods
ended June 30, 2009 and 2008.
At June
30, 2009, impaired loans, net of Government guarantees, were $36.1 million
compared to $15.7 million at December 31, 2008. Impaired loans
at June 30, 2009, include $2.4 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 of these loan categories to determine the level of
dollar allocation. During the second quarter of 2009, the Company
made adjustments to its methodology in the evaluation of the collectability of
loans, which added quantitative factors to the internal and external influences
used in determining the credit quality of loans and the allocation of the
allowance. This adjustment in methodology resulted in an addition to
impaired loans from classified loans and a redistribution of allocated and
unallocated reserves.
It is
likely that the methodology will continue to evolve over
time. Allocated reserves are presented in Table 10 below detailing
the components of the allowance for loan losses.
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. The unallocated
reserve addresses inherent probable losses not included elsewhere in the
allowance for loan losses. The decrease in the unallocated portion of
the reserve was due to allocations for higher historical losses and a higher
percentage allocated to qualitative factors for internal and external
influences. While calculating allocated reserve, the unallocated
reserve supports uncertainties within the loan portfolio.
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
|
|
|
2,620 |
|
|
|
1,756 |
|
|
Other
consumer
|
|
|
1,058 |
|
|
|
949 |
|
|
Real
estate
|
|
|
3,086 |
|
|
|
1,196 |
|
|
Commercial
|
|
|
909 |
|
|
|
254 |
|
|
Total
loans charged off
|
|
|
7,673 |
|
|
|
4,155 |
|
|
|
|
|
|
|
|
|
|
|
Recoveries
of loans previously charged off
|
|
|
|
|
|
|
|
|
|
Credit
card
|
|
|
415 |
|
|
|
444 |
|
|
Other
consumer
|
|
|
404 |
|
|
|
285 |
|
|
Real
estate
|
|
|
845 |
|
|
|
99 |
|
|
Commercial
|
|
|
440 |
|
|
|
95 |
|
|
Total
recoveries
|
|
|
2,104 |
|
|
|
923 |
|
|
Net
loans charged off
|
|
|
5,569 |
|
|
|
3,232 |
|
Provision
for loan losses
|
|
|
4,760 |
|
|
|
3,681 |
|
|
|
|
|
|
|
|
|
|
|
Balance,
June 30
|
|
$ |
25,032 |
|
|
$ |
25,752 |
|
|
|
|
|
|
|
|
|
|
|
Loans
charged off
|
|
|
|
|
|
|
|
|
|
Credit
card
|
|
|
|
|
|
|
2,004 |
|
|
Other
consumer
|
|
|
|
|
|
|
1,156 |
|
|
Real
estate
|
|
|
|
|
|
|
1,791 |
|
|
Commercial
|
|
|
|
|
|
|
1,140 |
|
|
Total
loans charged off
|
|
|
|
|
|
|
6,091 |
|
|
|
|
|
|
|
|
|
|
|
Recoveries
of loans previously charged off
|
|
|
|
|
|
|
|
|
|
Credit
card
|
|
|
|
|
|
|
439 |
|
|
Other
consumer
|
|
|
|
|
|
|
234 |
|
|
Real
estate
|
|
|
|
|
|
|
108 |
|
|
Commercial
|
|
|
|
|
|
|
434 |
|
|
Total
recoveries
|
|
|
|
|
|
|
1,215 |
|
|
Net
loans charged off
|
|
|
|
|
|
|
4,876 |
|
Provision
for loan losses
|
|
|
|
|
|
|
4,965 |
|
|
|
|
|
|
|
|
|
|
|
Balance,
end of year
|
|
|
|
|
|
$ |
25,841 |
|
Provision
for Loan Losses
The amount
of provision to the allowance during the three and six-month periods ended June
30, 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 June
30, 2009, the allowance for loan losses reflects a decrease of approximately
$809,000 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 continues 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 June 30, 2009.
As of June
30, 2009, the allocation of the allowance for loan losses to credit card loans
increased by approximately $1.1 million from December 31, 2008, although credit
card loan balances decreased by approximately $718,000 during the
period. Annualized net credit card charge-offs to credit card loans
increased from 2.02% at December 31, 2008, to 2.83% at June 30,
2009. Due to this increase in charge-offs, along with an increase in
past due levels, the Company increased the allocation to credit
cards.
The
unallocated allowance for loan losses is based on the Company’s concerns over
the uncertainty of the national economy and the economy in
Arkansas. The impact of market pricing in the poultry, timber and
catfish industries in Arkansas remains uncertain. The Company is also
cautious regarding the continued softening of the real estate market in
Arkansas, specifically in the Northwest Arkansas region. Although
Arkansas’s unemployment rate is lagging behind the national average, it has
continued to rise. Management actively monitors the status of these
industries and economic factors as they relate to the Company’s loan portfolio
and makes changes to the allowance for loan losses as
necessary. Based on its analysis of loans and external uncertainties,
the Company believes the allowance for loan losses is adequate for the period
ended June 30, 2009.
The
Company allocates the allowance for loan losses according to the amount deemed
to be reasonably necessary to provide for losses incurred within the categories
of loans set forth in Table 10.
Table
10: Allocation of Allowance for Loan Losses
|
|
June 30, 2009
|
|
December 31, 2008
|
|
|
Allowance
|
|
|
%
of
|
|
Allowance
|
|
|
%
of
|
($ in thousands)
|
|
Amount
|
|
|
loans (1)
|
|
Amount
|
|
|
loans (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit
cards
|
|
$ |
5,011 |
|
|
|
8.7 |
% |
|
$ |
3,957 |
|
|
|
8.8 |
% |
Other
consumer
|
|
|
1,643 |
|
|
|
14.5 |
% |
|
|
1,325 |
|
|
|
12.9 |
% |
Real
estate
|
|
|
9,866 |
|
|
|
61.8 |
% |
|
|
11,695 |
|
|
|
63.1 |
% |
Commercial
|
|
|
2,610 |
|
|
|
14.5 |
% |
|
|
2,255 |
|
|
|
14.7 |
% |
Other
|
|
|
273 |
|
|
|
0.5 |
% |
|
|
209 |
|
|
|
0.5 |
% |
Unallocated
|
|
|
5,629 |
|
|
|
|
|
|
|
6,400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
25,032 |
|
|
|
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 June 30,
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 June 30, 2009, core deposits comprised 82.9% 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’s total deposits as of June 30, 2009, were $2.319 billion, a decrease of
$17 million from December 31, 2008. Non-interest bearing transaction
accounts decreased $10.3 million to $324.7 million at June 30, 2009,
compared to $335 million at December 31, 2008.
The
Company introduced a new high yield investment deposit account during the first
quarter of 2008 as part of its strategy to enhance liquidity. While
attracting new customers, the account has also resulted in existing customers
moving more volatile, expensive time deposits to the high yield investment
account. Interest bearing transaction and savings accounts were
$1.066 billion at June 30, 2009, a $38.8 million increase
compared to $1.027 billion on December 31, 2008. Total time deposits
decreased approximately $46 million to $929 million at June 30, 2009, from
$975 million at December 31, 2008.
The
Company had $27.3 million and $33.2 million of brokered deposits at June
30, 2009, and December 31, 2008, respectively.
LONG-TERM
DEBT
The
Company’s long-term debt was $162.7 million and $158.7 million at June 30, 2009,
and December 31, 2008, respectively. The outstanding balance
for June 30, 2009, includes $131.8 million in FHLB long-term advances and
$30.9 million of trust preferred securities.
CAPITAL
Overview
At June
30, 2009, total capital reached $292.2 million. Capital represents
shareholder ownership in the Company – the book value of assets in excess of
liabilities. At June 30, 2009, the Company’s equity to asset ratio
was 10.1% 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.
The
Company notified the Treasury on July 7, 2009, that it will not participate in
the CPP; therefore, the Company will not issue preferred stock or common stock
warrants to the Treasury. For further discussion on the CPP, see
Overview – U.S. Treasury’s Capital Purchase Program.
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.
Cash
Dividends
The
Company declared cash dividends on its common stock of $0.38 per share for the
first six months of 2009 compared to $0.38 per share for the first six 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 in order to participate in the CPP. Since the
Company has decided not to participate in the CPP, any future decisions to
reinstate dividend increases will not 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 June 30, 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 June 30, 2009, and December 31, 2008, are
presented in table 11.
Table
11: Risk-Based Capital
|
|
|
June
30,
|
|
|
December
31,
|
|
($ in thousands)
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
Tier
1 capital
|
|
|
|
|
|
|
|
Stockholders’
equity
|
|
$ |
292,215 |
|
|
$ |
288,792 |
|
|
Trust
preferred securities
|
|
|
30,000 |
|
|
|
30,000 |
|
|
Intangible
assets
|
|
|
(51,958 |
) |
|
|
(53,034 |
) |
|
Unrealized
gain on available-
|
|
|
|
|
|
|
|
|
|
for-sale
securities, net of taxes
|
|
|
(1,181 |
) |
|
|
(3,190 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total
Tier 1 capital
|
|
|
269,076 |
|
|
|
262,568 |
|
|
|
|
|
|
|
|
|
|
|
Tier
2 capital
|
|
|
|
|
|
|
|
|
|
Qualifying
unrealized gain on
|
|
|
|
|
|
|
|
|
|
available-for-sale
equity securities
|
|
|
162 |
|
|
|
198 |
|
|
Qualifying
allowance for loan losses
|
|
|
24,796 |
|
|
|
24,828 |
|
|
|
|
|
|
|
|
|
|
|
|
Total
Tier 2 capital
|
|
|
24,958 |
|
|
|
25,026 |
|
|
|
|
|
|
|
|
|
|
|
|
Total
risk-based capital
|
|
$ |
294,034 |
|
|
$ |
287,594 |
|
|
|
|
|
|
|
|
|
|
|
Risk
weighted assets
|
|
$ |
1,981,955 |
|
|
$ |
1,983,654 |
|
|
|
|
|
|
|
|
|
|
|
Assets
for leverage ratio
|
|
$ |
2,883,021 |
|
|
$ |
2,870,882 |
|
|
|
|
|
|
|
|
|
|
|
Ratios
at end of period
|
|
|
|
|
|
|
|
|
|
Tier
1 leverage ratio
|
|
|
9.33 |
% |
|
|
9.15 |
% |
|
Tier
1 risk-based capital ratio
|
|
|
13.58 |
% |
|
|
13.24 |
% |
|
Total
risk-based capital ratio
|
|
|
14.84 |
% |
|
|
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)
|
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
|
June
30,
|
|
|
June
30,
|
|
($ in thousands)
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income
|
|
$ |
5,509 |
|
|
$ |
5,994 |
|
|
$ |
10,745 |
|
|
$ |
14,810 |
|
|
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)
|
|
$ |
5,509 |
|
|
$ |
5,994 |
|
|
$ |
10,745 |
|
|
$ |
12,252 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
earnings per share
|
|
$ |
0.39 |
|
|
$ |
0.42 |
|
|
$ |
0.76 |
|
|
$ |
1.05 |
|
|
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)
|
|
$ |
0.39 |
|
|
$ |
0.42 |
|
|
$ |
0.76 |
|
|
$ |
0.87 |
|
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 June 30, 2009, undivided profits of the
Company's subsidiaries were approximately $159.3 million, of which approximately
$10.7 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 June 30, 2009, each subsidiary bank was
within established guidelines and total corporate liquidity remains
strong. At June 30, 2009, cash and cash equivalents, trading and
available-for-sale securities and mortgage loans held for sale were 14.2% 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 $439 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 44% 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 June 30,
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
|
|
$ |
60,621 |
|
|
$ |
-- |
|
|
$ |
-- |
|
|
$ |
-- |
|
|
$ |
-- |
|
|
$ |
-- |
|
|
$ |
-- |
|
|
$ |
60,621 |
|
Assets
held in trading
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
accounts
|
|
|
6,051 |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
6,051 |
|
Investment
securities
|
|
|
167,197 |
|
|
|
67,239 |
|
|
|
75,702 |
|
|
|
85,743 |
|
|
|
87,791 |
|
|
|
79,585 |
|
|
|
67,612 |
|
|
|
630,869 |
|
Mortgage
loans held for sale
|
|
|
14,868 |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
14,868 |
|
Loans
|
|
|
582,175 |
|
|
|
246,490 |
|
|
|
157,963 |
|
|
|
377,450 |
|
|
|
245,613 |
|
|
|
292,045 |
|
|
|
41,724 |
|
|
|
1,943,460 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
earning assets
|
|
|
830,912 |
|
|
|
313,729 |
|
|
|
233,665 |
|
|
|
463,193 |
|
|
|
333,404 |
|
|
|
371,630 |
|
|
|
109,336 |
|
|
|
2,655,869 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
bearing liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
bearing transaction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
savings deposits
|
|
|
706,207 |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
71,888 |
|
|
|
215,663 |
|
|
|
71,888 |
|
|
|
1,065,646 |
|
Time
deposits
|
|
|
111,000 |
|
|
|
153,159 |
|
|
|
259,388 |
|
|
|
302,083 |
|
|
|
81,181 |
|
|
|
21,991 |
|
|
|
10 |
|
|
|
928,812 |
|
Short-term
debt
|
|
|
100,793 |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
100,793 |
|
Long-term
debt
|
|
|
624 |
|
|
|
11,569 |
|
|
|
2,886 |
|
|
|
24,087 |
|
|
|
54,029 |
|
|
|
29,640 |
|
|
|
39,891 |
|
|
|
162,726 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
interest bearing liabilities
|
|
|
918,624 |
|
|
|
164,728 |
|
|
|
262,274 |
|
|
|
326,170 |
|
|
|
207,098 |
|
|
|
267,294 |
|
|
|
111,789 |
|
|
|
2,257,977 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
rate sensitivity Gap
|
|
$ |
(87,712 |
) |
|
$ |
149,001 |
|
|
$ |
(28,609 |
) |
|
$ |
137,023 |
|
|
$ |
126,306 |
|
|
$ |
104,336 |
|
|
$ |
(2,453 |
) |
|
$ |
397,892 |
|
Cumulative
interest rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
sensitivity
Gap
|
|
$ |
(87,712 |
) |
|
$ |
61,289 |
|
|
$ |
32,680 |
|
|
$ |
169,703 |
|
|
$ |
296,009 |
|
|
$ |
400,345 |
|
|
$ |
397,892 |
|
|
|
|
|
Cumulative
rate sensitive asset
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
to
rate sensitive liabilities
|
|
|
90.5 |
% |
|
|
105.7 |
% |
|
|
102.4 |
% |
|
|
110.2 |
% |
|
|
115.8 |
% |
|
|
118.7 |
% |
|
|
117.6 |
% |
|
|
|
|
Cumulative
Gap as a % of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
earning
assets
|
|
|
-3.3 |
% |
|
|
2.3 |
% |
|
|
1.2 |
% |
|
|
6.4 |
% |
|
|
11.1 |
% |
|
|
15.1 |
% |
|
|
15.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Evaluation
of Disclosure Controls and Procedures
The
Company’s Chief Executive Officer and Chief Financial Officer have reviewed and
evaluated the effectiveness of the Company’s disclosure controls and procedures
(as defined in 15 C.F.R. 240.13a-15(e) or 15 C.F.R. 240.15d-15(e)) as of the end
of the period covered by this report. Based upon that evaluation, the
Chief Executive Officer and Chief Financial Officer have concluded that the
Company’s current disclosure controls and procedures are effective.
Changes
in Internal Control over Financial Reporting
There were
no significant changes in the Company’s internal controls or in other factors
that could significantly affect those controls subsequent to the date of
evaluation.
There has
been no material change in the risk factors disclosure from that contained in
the Company’s 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 June 30, 2009.
(a) The
annual shareholders meeting of the Company was held on April 21,
2009. The matters submitted to the security holders for approval
included (1) setting the number of directors at nine (9), (2) the election of
nine (9) directors, (3) providing advisory approval of the Company’s executive
compensation program and (4) ratification of the Audit and Security Committee’s
selection of the accounting firm of BKD, LLP as independent auditors of the
Company and its subsidiaries for the year ending December 31, 2009.
(b) At the
annual meeting, all nine (9) directors were elected by proxies solicited
pursuant to Section 14 of the Securities Exchange Act of 1934, without any
solicitation in opposition thereto.
The
following table summarizes the required analysis of the voting by security
holders at the annual meeting of shareholders held on April 21,
2009:
Voting
of Shares
|
|
|
|
|
|
|
|
|
|
|
Broker
|
|
Action
|
For
|
|
|
Against
|
|
|
Abstain
|
|
|
Non-Votes
|
|
Set
number of directors
|
|
|
|
|
|
|
|
|
|
|
|
|
at
nine (9)
|
|
|
8,937,766 |
|
|
|
5,808 |
|
|
|
6,207 |
|
|
|
1,688,174 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Withhold
|
|
|
Broker
|
|
Election of Directors:
|
|
For
|
|
|
Against
|
|
|
Authority
|
|
|
Non-Votes
|
|
William
E. Clark II
|
|
|
7,822,431 |
|
|
|
-- |
|
|
|
1,127,350 |
|
|
|
1,688,174 |
|
Steven
A. Cossé
|
|
|
8,859,948 |
|
|
|
-- |
|
|
|
89,833 |
|
|
|
1,688,174 |
|
Edward
Drilling
|
|
|
8,859,948 |
|
|
|
-- |
|
|
|
89,833 |
|
|
|
1,688,174 |
|
George
A. Makris, Jr.
|
|
|
8,760,528 |
|
|
|
-- |
|
|
|
189,252 |
|
|
|
1,688,275 |
|
J.
Thomas May
|
|
|
8,914,801 |
|
|
|
-- |
|
|
|
34,980 |
|
|
|
1,688,174 |
|
W.
Scott McGeorge
|
|
|
8,859,791 |
|
|
|
-- |
|
|
|
89,990 |
|
|
|
1,688,174 |
|
Stanley
E. Reed
|
|
|
8,859,948 |
|
|
|
-- |
|
|
|
89,833 |
|
|
|
1,688,174 |
|
Harry
L. Ryburn
|
|
|
8,859,948 |
|
|
|
-- |
|
|
|
89,833 |
|
|
|
1,688,174 |
|
Robert
L. Shoptaw
|
|
|
8,914,328 |
|
|
|
-- |
|
|
|
35,453 |
|
|
|
1,688,174 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Broker
|
|
Action
|
|
For
|
|
|
Against
|
|
|
Abstain
|
|
|
Non-Votes
|
|
Provide
advisory approval of the
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company’s
executive
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
compensation
program
|
|
|
6,686,080 |
|
|
|
2,152,735 |
|
|
|
110,965 |
|
|
|
1,688,175 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratify
the Audit & Security
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Committee’s
selection of the
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
accounting
firm of BKD, LLP as
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
independent
auditors for the year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ending
December 31, 2009
|
|
|
8,824,761 |
|
|
|
116,556 |
|
|
|
8,463 |
|
|
|
1,688,175 |
|
|
Exhibit
No. |
Description
|
|
|
|
|
3.1
|
Restated
Articles of Incorporation of Simmons First National Corporation
(incorporated by reference to Exhibit 3.1 to Simmons First National
Corporation’s Quarterly Report on Form 10-Q for the Quarter ended
March 31, 2009 (File No.
0-6253)).
|
|
3.2
|
Amended
By-Laws of Simmons First National Corporation (incorporated by reference
to Exhibit 3.2 to Simmons First National Corporation’s Annual Report on
Form 10-K for the Year ended December 31, 2007 (File No.
0-6253)).
|
|
10.1
|
Amended
and Restated Trust Agreement, dated as of December 16, 2003, among the
Company, Deutsche Bank Trust Company Americas, Deutsche Bank Trust Company
Delaware and each of J. Thomas May, Barry L. Crow and Robert A. Fehlman as
administrative trustees, with respect to Simmons First Capital Trust II
(incorporated by reference to Exhibit 10.1 to Simmons First National
Corporation’s Annual Report on Form 10-K for the Year ended December 31,
2003 (File No. 0-6253)).
|
|
10.2
|
Guarantee
Agreement, dated as of December 16, 2003, between the Company and Deutsche
Bank Trust Company Americas, as guarantee trustee, with respect to Simmons
First Capital Trust II (incorporated by reference to Exhibit 10.2 to
Simmons First National Corporation’s Annual Report on Form 10-K for the
Year ended December 31, 2003 (File No.
0-6253)).
|
|
10.3
|
Junior
Subordinated Indenture, dated as of December 16, 2003, among the Company
and Deutsche Bank Trust Company Americas, as trustee, with respect to the
junior subordinated note held by Simmons First Capital Trust II
(incorporated by reference to Exhibit 10.3 to Simmons First National
Corporation’s Annual Report on Form 10-K for the Year ended
December 31, 2003 (File No.
0-6253)).
|
|
10.4
|
Amended
and Restated Trust Agreement, dated as of December 16, 2003, among the
Company, Deutsche Bank Trust Company Americas, Deutsche Bank Trust Company
Delaware and each of J. Thomas May, Barry L. Crow and Robert A. Fehlman as
administrative trustees, with respect to Simmons First Capital Trust III
(incorporated by reference to Exhibit 10.4 to Simmons First National
Corporation’s Annual Report on Form 10-K for the Year ended December 31,
2003 (File No. 0-6253)).
|
|
10.5
|
Guarantee
Agreement, dated as of December 16, 2003, between the Company and Deutsche
Bank Trust Company Americas, as guarantee trustee, with respect to Simmons
First Capital Trust III (incorporated by reference to Exhibit 10.5 to
Simmons First National Corporation’s Annual Report on Form 10-K for the
Year ended December 31, 2003 (File
No. 0-6253)).
|
|
10.6
|
Junior
Subordinated Indenture, dated as of December 16, 2003, among the Company
and Deutsche Bank Trust Company Americas, as trustee, with respect to the
junior subordinated note held by Simmons First Capital Trust III
(incorporated by reference to Exhibit 10.6 to Simmons First National
Corporation’s Annual Report on Form 10-K for the Year ended
December 31, 2003 (File No.
0-6253)).
|
|
10.7
|
Amended
and Restated Trust Agreement, dated as of December 16, 2003, among the
Company, Deutsche Bank Trust Company Americas, Deutsche Bank Trust Company
Delaware and each of J. Thomas May, Barry L. Crow and Robert A. Fehlman as
administrative trustees, with respect to Simmons First Capital Trust IV
(incorporated by reference to Exhibit 10.7 to Simmons First National
Corporation’s Annual Report on Form 10-K for the Year ended December 31,
2003 (File No. 0-6253)).
|
|
10.8
|
Guarantee
Agreement, dated as of December 16, 2003, between the Company and Deutsche
Bank Trust Company Americas, as guarantee trustee, with respect to Simmons
First Capital Trust IV (incorporated by reference to Exhibit 10.8 to
Simmons First National Corporation’s Annual Report on Form 10-K for the
Year ended December 31, 2003 (File
No. 0-6253)).
|
|
10.9
|
Junior
Subordinated Indenture, dated as of December 16, 2003, among the Company
and Deutsche Bank Trust Company Americas, as trustee, with respect to the
junior subordinated note held by Simmons First Capital Trust IV
(incorporated by reference to Exhibit 10.9 to Simmons First National
Corporation’s Annual Report on Form 10-K for the Year ended
December 31, 2003 (File No.
0-6253)).
|
|
10.10.1
|
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.
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:
|
August 10, 2009
|
|
/s/ J. Thomas May |
|
|
|
|
J.
Thomas May
|
|
|
|
|
Chairman
and
|
|
|
|
|
Chief
Executive Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Date:
|
August 10, 2009
|
|
/s/ Robert A. Fehlman |
|
|
|
|
Robert
A. Fehlman
|
|
|
|
|
Executive
Vice President and
|
|
|
|
|
Chief
Financial
Officer
|
64