UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
(Mark
One)
|
T
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Annual
Report Pursuant to Section 13 or 15(d) of the Exchange Act of 1934
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|
For
the fiscal year ended: December 31, 2006
|
|
|
|
or
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£
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Transition
Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of
1934
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Commission
file number 0-6253
SIMMONS
FIRST NATIONAL CORPORATION
(Exact
name of registrant as specified in its charter)
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Arkansas
|
71-0407808
|
|
(State
or other jurisdiction of
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(I.R.S.
employer
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|
incorporation
or organization)
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identification
No.)
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501
Main Street, Pine Bluff, Arkansas
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71601
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(Address
of principal executive offices)
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(Zip
Code)
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(870)
541-1000
(Registrant's
telephone number, including area code)
Securities
registered pursuant to Section 12(b) of the Act:
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Common
Stock, $0.01 par value
|
The
Nasdaq Stock
Market®
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|
(Title
of each class)
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(Name
of each exchange on which
registered)
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Securities
registered pursuant to Section 12(g) of the Act: None
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined
in
Rule 405 of the Securities Act.
£
Yes
S
No
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. £ Yes
S
No
Indicate
by check mark whether the registrant (1) has filed all reports required to
be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements
for
the past 90 days. S
Yes
£
No
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant's knowledge in definitive proxy or in information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this
Form 10-K. £
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
one):
|
£
Large accelerated filer
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S
Accelerated filer
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£
Non-accelerated filer
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act.). £
Yes
S
No
The
aggregate market value of the Registrant’s Common Stock, par value $0.01 per
share, held by non-affiliates on June 30, 2006, was $369,711,360 based
upon the last trade price as reported on the Nasdaq Global Select
Market®
of
$29.01.
The
number
of shares outstanding of the Registrant's Common Stock as of February 8, 2007
was 14,192,201.
Part
III
is incorporated by reference from the Registrant's Proxy Statement relating
to
the Annual Meeting of Shareholders to be held on April 10, 2007.
Introduction
The
Company has chosen to combine our Annual Report to Shareholders with our
Form
10-K, which is a document that U.S. public companies file with the Securities
and Exchange Commission every year. Many readers are familiar with “Part II” of
the Form 10-K, as it contains the business information and financial statements
that were included in the financial sections of our past Annual Reports.
These
portions include information about our business that the Company believes
will
be of interest to investors. The Company hopes investors will find it useful
to
have all of this information available in a single document.
The
Securities and Exchange Commission allows the Company to report information
in
the Form 10-K by “incorporated by reference” from another part of the Form 10-K,
or from the proxy statement. You will see that information is “incorporated by
reference” in various parts of our Form 10-K.
A
more
detailed table of contents for the entire Form 10-K follows:
FORM
10-K INDEX
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BUSINESS
|
The
Company and the Banks
Simmons
First National Corporation (the “Company”) is a financial holding company
registered under the Bank Holding Company Act of 1956. The
Gramm-Leach-Bliley-Act ("GLB Act") has substantially increased the financial
activities that certain banks, bank holding companies, insurance companies
and
securities brokerage companies are permitted to undertake. Under the GLB
Act,
expanded activities in insurance underwriting, insurance sales, securities
brokerage and securities underwriting not previously allowed for banks and
bank
holding companies are now permitted upon satisfaction of certain guidelines
concerning management, capitalization and satisfaction of the applicable
Community Reinvestment Act guidelines for the banks. Generally these new
activities are permitted for bank holding companies whose banking subsidiaries
are well managed, well capitalized and have at least a satisfactory rating
under
the Community Reinvestment Act. A bank holding company must apply to become
a
financial holding company and the Board of Governors of the Federal Reserve
System must approve its application.
The
Company's application to become a financial holding company was approved
by the
Board of Governors on March 13, 2000. The Company has reviewed the new
activities permitted under the Act. If the appropriate opportunity presents
itself, the Company is interested in expanding into other financial
services.
The
Company was the largest publicly traded financial holding company headquartered
in Arkansas with consolidated total assets of $2.7 billion, consolidated
loans
of $1.8 billion, consolidated deposits of $2.2 billion and total equity capital
of $259 million as of December 31, 2006. The Company owns eight community
banks
in Arkansas. The Company's banking subsidiaries conduct their operations
through
86 offices, of which 82 are financial centers, located in 48 communities
in
Arkansas.
Simmons
First National Bank (the “Bank”) is the Company’s lead bank. The Bank is a
national bank, which has been in operation since 1903. The Bank's primary
market
area, with the exception of its nationally provided credit card product,
is
Central and Western Arkansas. At December 31, 2006 the Bank had total assets
of
$1.3 billion, total loans of $868 million and total deposits of $1.0
billion. Simmons First Trust Company N.A., a wholly owned subsidiary of the
Bank, performs the trust and fiduciary business operations for the Bank as
well
as the Company. Simmons First Investment Group, Inc. (“SFIG”), a wholly owned
subsidiary of the Bank, which is a broker-dealer registered with the Securities
and Exchange Commission (“SEC”) and a member of the National Association of
Securities Dealers (“NASD”), performs the broker-dealer operations of the Bank.
Simmons
First Bank of Jonesboro (“Simmons/Jonesboro”) is a state bank, which was
acquired in 1984. Simmons/Jonesboro’s primary market area is Northeast Arkansas.
At December 31, 2006, Simmons/Jonesboro had total assets of $265 million,
total
loans of $215 million and total deposits of $237 million.
Simmons
First Bank of South Arkansas (“Simmons/South”) is a state bank, which was
acquired in 1984. Simmons/South’s primary market area is Southeast Arkansas. At
December 31, 2006, Simmons/South had total assets of $142 million, total
loans
of $74 million and total deposits of $124 million.
Simmons
First Bank of Northwest Arkansas (“Simmons/Northwest”) is a state bank, which
was acquired in 1995. Simmons/Northwest’s primary market area is Northwest
Arkansas. At December 31, 2006, Simmons/Northwest had total assets of $279
million, total loans of $211 million and total deposits of $238
million.
Simmons
First Bank of Russellville (“Simmons/Russellville”) is a state bank, which was
acquired in 1997. Simmons/Russellville’s primary market area is Russellville,
Arkansas. At December 31, 2006, Simmons/Russellville had total assets of
$201
million, total loans of $122 million and total deposits of $155
million.
Simmons
First Bank of Searcy (“Simmons/Searcy”) is a state bank, which was acquired in
1997. Simmons/Searcy’s primary market area is Searcy, Arkansas. At December 31,
2006, Simmons/Searcy had total assets of $139 million, total loans of $97
million and total deposits of $107 million.
Simmons
First Bank of El Dorado, N.A. (“Simmons/El Dorado”) is a national bank, which
was acquired in 1999. Simmons/El Dorado’s primary market area is South Central
Arkansas. At December 31, 2006, Simmons/El Dorado had total assets of $216
million, total loans of $118 million and total deposits of $186
million.
1
Simmons
First Bank of Hot Springs (“Simmons/Hot Springs”) is a state bank, which was
acquired in 2004. Simmons/Hot Springs’ primary market area is Hot Springs,
Arkansas. At December 31, 2006, Simmons/Hot Springs had total assets of $158
million, total loans of $80 million and total deposits of $119
million.
The
Company's subsidiaries provide complete banking services to individuals and
businesses throughout the market areas they serve. Services include consumer
(credit card, student and other consumer), real estate (construction, single
family residential and other commercial) and commercial (commercial, agriculture
and financial institutions) loans, checking, savings and time deposits, trust
and investment management services, and securities and investment services.
Loan
Risk Assessment
As
part of
the ongoing risk assessment, the Company has an Asset Quality Review Committee
of management that meets quarterly to review the adequacy of the allowance
for
loan losses. The Committee reviews the status of past due, non-performing
and
other impaired loans, reserve ratios, and additional performance indicators
for
all of its subsidiary banks. The allowance for loan losses is determined
based
upon the aforementioned performance factors, and adjustments are made
accordingly. Also, an unallocated reserve is established to compensate for
the
uncertainty in estimating loan losses, including the possibility of improper
risk ratings and specific reserve allocations.
The
Board
of Directors of each of the Company's subsidiary banks reviews the adequacy
of
its allowance for loan losses on a monthly basis giving consideration to
past
due loans, non-performing loans, other impaired loans, and current economic
conditions. The Company's loan review department monitors each of its subsidiary
bank's loan information monthly. In addition, the loan review department
prepares an analysis of the allowance for loan losses for each subsidiary
bank
twice a year, and reports the results to the Company's Audit and Security
Committee. In order to verify the accuracy of the monthly analysis of the
allowance for loan losses, the loan review department performs an on-site
detailed review of each subsidiary bank's loan files on a semi-annual basis.
Growth
Strategy
The
Company's growth strategy is to primarily focus on the state of Arkansas.
More
specifically, the Company is interested in expansion by opening new financial
centers or by acquisitions of financial centers in growth or strategic markets,
preferably with assets totaling $200 million or more. The Company added new
financial centers in Little Rock and El Dorado during 2006. In 2005 the Company
added three branch locations in the Little Rock/Conway metropolitan area,
one in
the Fayetteville/Springdale/Rogers metropolitan area and one in the Fort
Smith
metropolitan area. For 2007, the Company plans to add financial centers in
Little Rock, North Little Rock, Beebe and Paragould, as well as a new
headquarters facility for Simmons/Northwest in Rogers. While new financial
centers can be dilutive to earnings in the short-term, the Company believes
they
will reward shareholders in the intermediate and long-term. As the Company
nears
completion of its desired footprint within the state of Arkansas, it is
beginning to evaluate opportunities to expand into contiguous
states.
With
an
expanded presence in Arkansas, ongoing investments in technology, and enhanced
products and services, the Company is in position to meet the demands of
customers in the markets it serves.
Competition
The
activities engaged in by the Company and its subsidiaries are highly
competitive. In all aspects of its business, the Company encounters intense
competition from other banks, lending institutions, credit unions, savings
and
loan associations, brokerage firms, mortgage companies, industrial loan
associations, finance companies, and several other financial and financial
service institutions. The amount of competition among commercial banks and
other
financial institutions has increased significantly over the past few years
since
the deregulation of the banking industry. The Company's subsidiary banks
actively compete with other banks and financial institutions in their efforts
to
obtain deposits and make loans, in the scope and type of services offered,
in
interest rates paid on time deposits and charged on loans and in other aspects
of commercial banking.
The
Company's banking subsidiaries are also in competition with major national
and
international retail banking establishments, brokerage firms and other financial
institutions within and outside Arkansas. Competition with these financial
institutions is expected to increase, especially with the increase in interstate
banking.
2
Employees
As
of
February 8, 2007, the Company and its subsidiaries had approximately 1,134
full
time equivalent employees. None of the employees is represented by any union
or
similar groups, and the Company has not experienced any labor disputes or
strikes arising from any such organized labor groups. The Company considers
its
relationship with its employees to be good.
Executive
Officers of the Company
The
following is a list of all executive officers of the Company. The Board of
Directors elects executive officers annually.
|
NAME
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AGE
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POSITION
|
YEARS
SERVED
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|
J.
Thomas May
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60
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Chairman
and Chief Executive Officer
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20
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David
L. Bartlett
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55
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President
and Chief Operating Officer
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10
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Robert
A. Fehlman
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42
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Executive
Vice President and Chief Financial Officer
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18
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Marty
D. Casteel
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55
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Executive
Vice President
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18
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Tommie
K. Jones
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59
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Senior
Vice President and Human Resources Director
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32
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|
L.
Ann Gill
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59
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Senior
Vice President and Auditor
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41
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Kevin
J. Archer
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43
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Senior
Vice President/Credit Policy and Risk Assessment
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11
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David
W. Garner
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37
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Senior
Vice President and Controller
|
9
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|
John
L. Rush
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72
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Secretary
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39
|
Board
of Directors of the Company
The
following is a list of the Board of Directors of the Company as of December
31,
2006, along with their principal occupation.
|
NAME
|
PRINCIPAL
OCCUPATION
|
|
William
E. Clark
|
Chairman
and Chief Executive Officer
|
|
CDI
Contractors, LLC
|
|
|
Steven
A. Cosse¢
|
Executive
Vice President and General Counsel
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Murphy
Oil Corporation
|
|
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George
A. Makris, Jr.
|
President
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|
M.K.
Distributors, Inc.
|
|
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J.
Thomas May
|
Chairman
and Chief Executive Officer
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|
Simmons
First National Corporation
|
|
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W.
Scott McGeorge
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President
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|
Pine
Bluff Sand and Gravel Company
|
|
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Stanley
E. Reed
(1)
|
President
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|
Farm
Bureau Mutual Insurance of Arkansas
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|
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Harry
L. Ryburn, D.D.S.
|
Orthodontist
(retired)
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|
Robert
L. Shoptaw
|
Chief
Executive Officer
|
|
Arkansas
Blue Cross and Blue Shield
|
|
|
Henry
F. Trotter, Jr.
|
President
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|
Trotter
Ford, Inc.; Trotter Auto, Inc.
|
|
(1)
Mr.
Reed was elected to the Board of Directors of the Company on December 11,
2006,
effective January 1, 2007.
3
SUPERVISION
AND REGULATION
The
Company
The
Company, as a bank holding company, is subject to both federal and state
regulation. Under federal law, a bank holding company generally must obtain
approval from the Board of Governors of the Federal Reserve System ("FRB")
before acquiring ownership or control of the assets or stock of a bank
or a bank
holding company. Prior to approval of any proposed acquisition, the FRB
will
review the effect on competition of the proposed acquisition, as well as
other
regulatory issues.
The
federal law generally prohibits a bank holding company from directly or
indirectly engaging in non-banking activities. This prohibition does not
include
loan servicing, liquidating activities or other activities so closely related
to
banking as to be a proper incident thereto.
Bank
holding companies, including the Company, which have elected to qualify
as
financial holding companies, are authorized to engage in financial activities.
Financial activities include any activity that is financial in nature or
any
activity that is incidental or complimentary to a financial activity.
As
a
financial holding company, the Company is required to file with the FRB
an
annual report and such additional information as may be required by law.
From
time to time, the FRB examines the financial condition of the Company and
its
subsidiaries. The FRB, through civil and criminal sanctions, is authorized
to
exercise enforcement powers over bank holding companies (including financial
holding companies) and non-banking subsidiaries, to limit activities that
represent unsafe or unsound practices or constitute violations of
law.
The
Company is subject to certain laws and regulations of the state of Arkansas
applicable to financial and bank holding companies, including examination
and
supervision by the Arkansas Bank Commissioner. Under Arkansas law, a financial
or bank holding company is prohibited from owning more than one subsidiary
bank,
if any subsidiary bank owned by the holding company has been chartered
for less
than 5 years and, further, requires the approval of the Arkansas Bank
Commissioner for any acquisition of more than 25% of the capital stock
of any
other bank located in Arkansas. No bank acquisition may be approved if,
after
such acquisition, the holding company would control, directly or indirectly,
banks having 25% of the total bank deposits in the state of Arkansas, excluding
deposits of other banks and public funds.
Legislation
enacted in 1994, allows bank holding companies (including financial holding
companies) from any state to acquire banks located in any state without
regard
to state law, provided that the holding company (1) is adequately capitalized,
(2) is adequately managed, (3) would not control more than 10% of the insured
deposits in the United States or more than 30% of the insured deposits
in such
state, and (4) such bank has been in existence at least five years if so
required by the applicable state law.
Subsidiary
Banks
Simmons
First National Bank, Simmons/El Dorado and Simmons First Trust Company
N.A., as
national banking associations, are subject to regulation and supervision,
of
which regular bank examinations are a part, by the Office of the Comptroller
of
the Currency of the United States ("OCC"). Simmons/Jonesboro, Simmons/South,
Simmons/Northwest and Simmons/Hot Springs, as state chartered banks, are
subject
to the supervision and regulation, of which regular bank examinations are
a
part, by the Federal Deposit Insurance Corporation ("FDIC") and the Arkansas
State Bank Department. Simmons/Russellville and Simmons/Searcy, as state
chartered member banks, are subject to the supervision and regulation,
of which
regular bank examinations are a part, by the Federal Reserve Board and
the
Arkansas State Bank Department. The lending powers of each of the subsidiary
banks are generally subject to certain restrictions, including the amount,
which
may be lent to a single borrower.
Prior
to
passage of the GLB Act in 1999, the subsidiary banks, with numerous exceptions,
were subject to the application of the laws of the state of Arkansas, regarding
the limitation of the maximum permissible interest rate on loans. The Arkansas
limitation for general loans was 5% over the Federal Reserve Discount Rate,
with
an additional maximum limitation of 17% per annum for consumer loans and
credit
sales. Certain loans secured by first liens on residential real estate
and
certain loans controlled by federal law (e.g., guaranteed student loans,
SBA
loans, etc.) were exempt from this limitation; however, a substantial portion
of
the loans made by the subsidiary banks, including all credit card loans,
have
historically been subject to this limitation. The
GLB
Act included a provision which sets the maximum interest rate on loans
made in
Arkansas, by banks with Arkansas as their home state, at the greater of
the rate
authorized by Arkansas law or the highest rate permitted by any of the
out-of-state banks which maintain branches in Arkansas. An action was brought
in
the Western District of Arkansas, attacking the validity of the statute
in 2000.
Subsequently, the District Court issued a decision upholding the statute,
and
during October 2001, the Eighth Circuit Court of Appeals upheld the statute
on appeal. Thus, in the fourth quarter of 2001, the Company began to implement
the changes permitted by the GLB Act.
4
All
of the
Company's subsidiary banks are members of the FDIC, which provides insurance
on
deposits of each member bank up to applicable limits by the Deposit Insurance
Fund. For this protection, each bank pays a statutory assessment to the
FDIC
each year.
Federal
law substantially restricts transactions between banks and their affiliates.
As
a result, the Company's subsidiary banks are limited in making extensions
of
credit to the Company, investing in the stock or other securities of the
Company
and engaging in other financial transactions with the Company. Those
transactions, which are permitted, must generally be undertaken on terms
at
least as favorable to the bank, as those prevailing in comparable transactions
with independent third parties.
Potential
Enforcement Action for Bank Holding Companies and Banks
Enforcement
proceedings seeking civil or criminal sanctions may be instituted against
any
bank, any financial or bank holding company, any director, officer, employee
or
agent of the bank or holding company, which is believed by the federal
banking
agencies to be violating any administrative pronouncement or engaged in
unsafe
and unsound practices. In addition, the FDIC may terminate the insurance
of
accounts, upon determination that the insured institution has engaged in
certain
wrongful conduct, or is in an unsound condition to continue operations.
Risk-Weighted
Capital Requirements for the Company and the Banks
Since
1993, banking organizations (including financial holding companies, bank
holding
companies and banks) were required to meet a minimum ratio of Total Capital
to
Total Risk-Weighted Assets of 8%, of which at least 4% must be in the form
of
Tier 1 Capital. A well-capitalized institution is one that has at least
a 10%
"total risk-based capital" ratio. For a tabular summary of the Company’s
risk-weighted capital ratios, see "Management's Discussion and Analysis
of
Financial Condition and Results of Operations - Capital" and Note 19,
Stockholders’ Equity, of the Notes to Consolidated Financial
Statements.
A
banking
organization's qualifying total capital consists of two components: Tier
1
Capital and Tier 2 Capital. Tier 1 Capital is an amount equal to the
sum of common shareholders' equity, hybrid capital instruments (instruments
with
characteristics of debt and equity) in an amount up to 25% of Tier 1 Capital,
certain preferred stock and the minority interest in the equity accounts
of
consolidated subsidiaries. For bank holding companies and financial holding
companies, goodwill may not be included in Tier 1 Capital. Identifiable
intangible assets may be included in Tier 1 Capital for banking
organizations, in accordance with certain further requirements. At least
50% of
the banking organization's total regulatory capital must consist of Tier
1
Capital.
Tier
2
Capital is an amount equal to the sum of the qualifying portion of the
allowance
for loan losses, certain preferred stock not included in Tier 1, hybrid
capital
instruments (instruments with characteristics of debt and equity), certain
long-term debt securities and eligible term subordinated debt, in an amount
up
to 50% of Tier 1 Capital. The eligibility of these items for inclusion
as Tier 2
Capital is subject to certain additional requirements and limitations of
the
federal banking agencies.
Under
the
risk-based capital guidelines, balance sheet assets and certain off-balance
sheet items, such as standby letters of credit, are assigned to one of
four-risk
weight categories (0%, 20%, 50%, or 100%), according to the nature of the
asset,
its collateral or the identity of the obligor or guarantor. The aggregate
amount
in each risk category is adjusted by the risk weight assigned to that category,
to determine weighted values, which are then added to determine the total
risk-weighted assets for the banking organization. For example, an asset,
such
as a commercial loan, assigned to a 100% risk category, is included in
risk-weighted assets at its nominal face value, but a loan secured by a
one-to-four family residence is included at only 50% of its nominal face
value.
The applicable ratios reflect capital, as so determined, divided by
risk-weighted assets, as so determined.
5
Federal
Deposit Insurance Corporation Improvement Act
The
Federal Deposit Insurance Corporation Improvement Act ("FDICIA"), enacted
in
1991, requires the FDIC to increase assessment rates for insured banks and
authorizes one or more "special assessments," as necessary for the repayment
of
funds borrowed by the FDIC or any other necessary purpose. As directed in
FDICIA, the FDIC has adopted a transitional risk-based assessment system,
under
which the assessment rate for insured banks will vary, according to the level
of
risk incurred in the bank's activities. The risk category and risk-based
assessment for a bank is determined from its classification, pursuant to
the
regulation, as well capitalized, adequately capitalized or
undercapitalized.
FDICIA
substantially revised the bank regulatory provisions of the Federal Deposit
Insurance Act and other federal banking statutes, requiring federal banking
agencies to establish capital measures and classifications. Pursuant to the
regulations issued under FDICIA, a depository institution will be deemed
to be
well capitalized if it significantly exceeds the minimum level required for
each
relevant capital measure; adequately capitalized if it meets each such measure;
undercapitalized if it fails to meet any such measure; significantly
undercapitalized if it is significantly below any such measure; and critically
undercapitalized if it fails to meet any critical capital level set forth
in
regulations. The federal banking agencies must promptly mandate corrective
actions by banks that fail to meet the capital and related requirements,
in
order to minimize losses to the FDIC. The FDIC and OCC advised the Company
that
the subsidiary banks have been classified as well capitalized under these
regulations.
The
federal banking agencies are required by FDICIA to prescribe standards for
banks
and bank holding companies (including financial holding companies), relating
to
operations and management, asset quality, earnings, stock valuation and
compensation. A bank or bank holding company that fails to comply with such
standards will be required to submit a plan designed to achieve compliance.
If
no plan is submitted or the plan is not implemented, the bank or holding
company
would become subject to additional regulatory action or enforcement proceedings.
A
variety
of other provisions included in FDICIA may affect the operations of the Company
and the subsidiary banks, including new reporting requirements, revised
regulatory standards for real estate lending, "truth in savings" provisions,
and
the requirement that a depository institution give 90 days prior notice to
customers and regulatory authorities before closing any branch.
Available
Information
The
Company maintains an Internet website at www.simmonsfirst.com. On this website
under the section, investor relations - documents, the Company makes its
filings
with the Securities and Exchange Commission available free of charge.
Additionally, the Company has adopted and posted on its website a Code of
Ethics
that applies to its principal executive officer, principal financial officer
and
principal accounting officer.
|
RISK
FACTORS
|
Investments
in the Company’s common stock involve risk. The market price of the Company’s
common stock may fluctuate significantly in response to a number of factors,
including:
|
•
|
changes
in securities analysts’ estimates of financial performance
|
|
|
•
|
volatility
of stock market prices and volumes
|
|
|
•
|
rumors
or erroneous information
|
|
|
•
|
changes
in market valuations of similar companies
|
|
|
•
|
changes
in interest rates
|
|
|
•
|
new
developments in the banking industry
|
|
|
•
|
variations
in quarterly or annual operating results
|
|
|
•
|
new
litigation or changes in existing litigation
|
|
|
•
|
regulatory
actions
|
|
|
•
|
changes
in accounting policies or procedures as may be required by the
Financial
Accounting Standards Board or other regulatory
agencies
|
If
the
Company does not adjust to changes in the financial services industry, its
financial performance may suffer. The Company’s ability to maintain its history
of strong financial performance and return on investment to shareholders
will
depend in part on its ability to expand its scope of available financial
services to its customers. In addition to other banks, competitors include
securities dealers, brokers, mortgage bankers, investment advisors, and finance
and insurance companies. The increasingly competitive environment is, in
part, a
result of changes in regulation, changes in technology and product delivery
systems, and the accelerating pace of consolidation among financial service
providers.
6
Future
governmental regulation and legislation could limit growth. The Company and
its
subsidiaries are subject to extensive state and federal regulation, supervision
and legislation that govern nearly every aspect of its operations. Changes
to
these laws could affect the Company’s ability to deliver or expand its services
and diminish the value of its business.
Changes
in
interest rates could reduce income and cash flow. The Company’s income and cash
flow depends to a great extent on the difference between the interest earned
on
loans and investment securities, and the interest paid on deposits and other
borrowings. Interest rates are beyond the Company’s control, and they fluctuate
in response to general economic conditions and the policies of various
governmental and regulatory agencies, in particular, the Federal Reserve
Board.
Changes in monetary policy, including changes in interest rates, will influence
the origination of loans, the purchase of investments, the generation of
deposits and the rates received on loans and investment securities and paid
on
deposits.
Additional
risks and uncertainties could have a negative effect on the financial
performance of the Company and the Company’s common stock. Some of these factors
are general economic and financial market conditions, competition, continuing
consolidation in the financial services industry, new litigation or changes
in
existing litigation, regulatory actions, and losses.
|
UNRESOLVED
STAFF COMMENTS
|
There
are
currently no unresolved Commission staff comments.
|
PROPERTIES
|
The
principal offices of the Company and the Bank consist of an eleven-story
office
building and adjacent office space, located in the central business district
of
the city of Pine Bluff, Arkansas. Additionally, the Company has corporate
offices located in Little Rock, Arkansas.
The
Company and its subsidiaries own or lease additional offices throughout the
state of Arkansas. The Company’s eight banks are conducting financial operations
from 86 offices,
of which
82 are financial centers,
in
48 communities throughout Arkansas.
|
LEGAL
PROCEEDINGS
|
The
Company and/or its subsidiaries have various unrelated legal proceedings,
most
of which involve loan foreclosure activity pending, which, in the aggregate,
are
not expected to have a material adverse effect on the financial position
of the
Company and its subsidiaries. The Company or its subsidiaries remain the
subject
of two (2) lawsuits 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 plaintiffs are seeking
$2,000,000 in compensatory damages and $10,000,000 in punitive damages. The
Company has filed a Motion to Dismiss. The plaintiffs have been granted
additional time to discover any evidence for litigation. At this time, no
basis
for any material liability has been identified. The Company and the banks
continue to vigorously defend the claims asserted in the suit.
On
April
3, 2006, an action in Johnson County Circuit Court was filed by Tria Xiong
and
Mai Lee Xiong against Simmons First Bank of Russellville and certain individuals
alleging wrongful conduct by the bank in the underwriting and origination
of
certain loans. The plaintiffs are seeking an unspecified sum in compensatory
damages and $1,000,000.00 in punitive damages. Discovery is in process, and
the
suit is pending, with no court date set. At this time, no basis for any material
liability has been identified. The Company and the bank plan to vigorously
defend the claims asserted in the suit.
7
|
SUBMISSION
OF MATTERS TO A VOTE OF
SECURITY-HOLDERS
|
No
matters
were submitted to a vote of security-holders, through the solicitation
of
proxies or otherwise, during the fourth quarter of the fiscal year covered
by
this report.
|
MARKET
FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
|
|
|
|
Quarterly
|
||||||||
|
Price
Per
|
Dividends
|
|||||||||
|
|
Common
Share
|
Per
Common
|
||||||||
|
|
High
|
Low
|
Share
|
|||||||
|
2006
|
||||||||||
|
1st
quarter
|
$
|
29.76
|
$
|
27.50
|
$
|
0.16
|
||||
|
2nd
quarter
|
30.36
|
25.00
|
0.17
|
|||||||
|
3rd
quarter
|
30.26
|
26.31
|
0.17
|
|||||||
|
4th
quarter
|
32.97
|
28.01
|
0.18
|
|||||||
|
|
||||||||||
|
2005
|
||||||||||
|
1st
quarter
|
$
|
29.57
|
$
|
22.72
|
$
|
0.15
|
||||
|
2nd
quarter
|
27.42
|
21.40
|
0.15
|
|||||||
|
3rd
quarter
|
28.75
|
25.59
|
0.15
|
|||||||
|
4th
quarter
|
29.96
|
26.08
|
0.16
|
|||||||
As
of
February 8, 2007, there were 1,433 shareholders of record of the Company’s
Common Stock.
The
Company's policy is to declare regular quarterly dividends based upon the
Company's earnings, financial position, capital requirements and such other
factors deemed relevant by the Board of Directors. This dividend policy
is
subject to change, however, and the payment of dividends by the Company
is
necessarily dependent upon the availability of earnings and the Company's
financial condition in the future. The payment of dividends on the Common
Stock
is also subject to regulatory capital requirements.
The
Company's principal source of funds for dividend payments to its stockholders
is
dividends received from its subsidiary banks. Under applicable banking
laws, the
declaration of dividends by the Bank and Simmons/El Dorado in any year,
in
excess of
its net
profits, as defined, for that year, combined with its retained net profits
of
the preceding two years,
must be
approved by the Office of the Comptroller of the Currency. Further, as
to
Simmons/Jonesboro, Simmons/Northwest, Simmons/South, Simmons/Hot Springs,
Simmons/Russellville and Simmons/Searcy regulators have specified that
the
maximum dividends state banks may pay to the parent company without prior
approval is 75% of the current year earnings plus 75% of the retained net
earnings of the preceding year. At December 31, 2006, approximately $12.7
million was available for the payment of dividends by the subsidiary banks
without regulatory approval. For further discussion of restrictions on
the
payment of dividends, see "Quantitative and Qualitative Disclosures About
Market
Risk - Liquidity and Market Risk Management," and Note 19, Stockholders’ Equity,
of Notes to Consolidated Financial Statements.
8
Stock
Repurchase
The
Company made the following purchases of its common stock during the three
months
ended December 31, 2006:
|
|
|
Total
Number
|
Maximum
|
||||||||||
|
|
|
|
of
Shares
|
Number
of
|
|||||||||
|
|
Total
Number
|
Average
|
Purchased
as
|
Shares
that May
|
|||||||||
|
|
of
Shares
|
Price
Paid
|
Part
of Publicly
|
Yet
be Purchased
|
|||||||||
|
Period
|
Purchased
|
Per
Share
|
Announced
Plans
|
Under
the Plans
|
|||||||||
|
October
1 - October 31
|
1,500
|
28.94
|
1,500
|
353,667
|
|||||||||
|
November
1 - November 30
|
5,000
|
30.91
|
5,000
|
348,667
|
|||||||||
|
December
1 - December 31
|
7,700
|
31.74
|
7,700
|
340,967
|
|||||||||
| Total |
14,200
|
$ |
31.15
|
14,200
|
|||||||||
On
May 25,
2004, the Company announced the adoption by the Board of Directors of a stock
repurchase program. The program authorizes the repurchase of up to 5% of
the
outstanding Common Stock, or 733,485 shares. Under the repurchase program,
there
is no time limit for the stock repurchases, nor is there a minimum number
of
shares the Company intends to repurchase. The Company may discontinue purchases
at any time that management determines additional purchases are not warranted.
The shares are to be purchased from time to time at prevailing market prices,
through open market or unsolicited negotiated transactions, depending upon
market conditions. The Company intends to use the repurchased shares to satisfy
stock option exercise, payment of future stock dividends and general corporate
purposes.
Performance
Graph
The
performance graph below compares the cumulative total shareholder return
on the
Company’s Common Stock with the cumulative total return on the equity securities
of companies included in the NASDAQ Bank Stock Index, the NASDAQ Composite
Stock
Index and the S&P 500 Stock Index. The graph assumes an investment of $100
on December 31, 2001 and reinvestment of dividends on the date of payment
without commissions. The performance graph represents past performance and
should not be considered to be an indication of future performance.
|
|
Period
Ending
|
|||||
|
Index
|
12/31/01
|
12/31/02
|
12/31/03
|
12/31/04
|
12/31/05
|
12/31/06
|
|
Simmons
First National Corporation
|
100.00
|
117.13
|
180.42
|
193.60
|
189.60
|
219.99
|
|
NASDAQ
Bank Index
|
100.00
|
106.95
|
142.29
|
161.73
|
158.61
|
180.53
|
|
NASDAQ
Composite Index
|
100.00
|
68.76
|
103.67
|
113.16
|
115.57
|
127.58
|
|
S&P
500 Index
|
100.00
|
77.90
|
100.24
|
111.14
|
116.59
|
135.00
|
9
Forward
Looking Statements
Certain
statements contained in this Annual Report may not be based on historical
facts
and are “forward-looking statements” within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. These forward-looking statements may be identified
by
reference to a future period(s) or by the use of forward-looking terminology,
such as “anticipate,” “estimate,” “expect,” “foresee,” “may,” “might,” “will,”
“would,” “could” or “intend,” future or conditional verb tenses, and variations
or negatives of such terms. These forward-looking statements include, without
limitation, those relating to the Company’s future growth, revenue, assets,
asset quality, profitability and customer service, critical accounting policies,
net interest margin, non-interest revenue, market conditions related to the
Company’s stock repurchase program, allowance for loan losses, the effect of
certain new accounting standards on the Company’s financial statements, income
tax deductions, credit quality, the level of credit losses from lending
commitments, net interest revenue, interest rate sensitivity, loan loss
experience, liquidity, capital resources, market risk, earnings, effect of
pending litigation, acquisition strategy, legal and regulatory limitations
and
compliance and competition.
We
caution
the reader not to place undue reliance on the forward-looking statements
contained in this Report in that actual results could differ materially from
those indicated in such forward-looking statements, due to a variety of factors.
These factors include, but are not limited to, changes in the Company’s
operating or expansion strategy, availability of and costs associated with
obtaining adequate and timely sources of liquidity, the ability to maintain
credit quality, possible adverse rulings, judgments, settlements and other
outcomes of pending litigation, 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.
|
SELECTED
CONSOLIDATED FINANCIAL
DATA
|
The
following table sets forth selected consolidated financial data concerning
the
Company and is qualified in its entirety by the detailed information and
consolidated financial statements, including notes thereto, included
elsewhere in this report. The income statement, balance sheet and per
common share data as of and for the years ended December 31, 2006, 2005,
2004,
2003, and 2002 were derived from consolidated financial statements of the
Company, which were audited by BKD, LLP. Earnings
per common share and dividends per common share presented in the financial
statements have been restated retroactively to reflect the effects of the
May 1,
2003, two for one stock split for
shareholders of record as of April 18, 2003. The selected consolidated financial
data set forth below should be read in conjunction with the financial statements
of the Company and related notes thereto and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere
in
this report.
10
|
SELECTED
CONSOLIDATED FINANCIAL DATA
|
||||||||||||||||
|
Years
Ended December 31 (1)
|
||||||||||||||||
|
(In
thousands,
|
||||||||||||||||
|
except
per share data)
|
2006
|
2005
|
2004
|
2003
|
2002
|
|||||||||||
|
Income
statement data:
|
||||||||||||||||
|
Net
interest income
|
$
|
88,804
|
$
|
90,257
|
$
|
85,636
|
$
|
77,870
|
$
|
75,708
|
||||||
|
Provision
for loan losses
|
3,762
|
7,526
|
8,027
|
8,786
|
10,223
|
|||||||||||
|
Net
interest income after provision for
loan losses
|
85,042
|
82,731
|
77,609
|
69,084
|
65,485
|
|||||||||||
|
Non-interest
income
|
43,947
|
42,318
|
40,705
|
38,717
|
35,303
|
|||||||||||
|
Non-interest
expense
|
89,068
|
85,584
|
82,385
|
73,117
|
69,013
|
|||||||||||
|
Provision
for income taxes
|
12,440
|
12,503
|
11,483
|
10,894
|
9,697
|
|||||||||||
|
Net
income
|
27,481
|
26,962
|
24,446
|
23,790
|
22,078
|
|||||||||||
|
Per
share data:
|
||||||||||||||||
|
Basic
earnings
|
1.93
|
1.88
|
1.68
|
1.69
|
1.56
|
|||||||||||
|
Diluted
earnings
|
1.90
|
1.84
|
1.65
|
1.65
|
1.54
|
|||||||||||
|
Diluted
operating earnings (2)
|
1.90
|
1.84
|
1.68
|
1.62
|
1.54
|
|||||||||||
|
Book
value
|
18.24
|
17.04
|
16.29
|
14.89
|
13.97
|
|||||||||||
|
Dividends
|
0.68
|
0.61
|
0.57
|
0.53
|
0.48
|
|||||||||||
|
Balance
sheet data at period end:
|
||||||||||||||||
|
Assets
|
2,651,413
|
2,523,768
|
2,413,944
|
2,235,778
|
1,977,579
|
|||||||||||
|
Loans
|
1,783,495
|
1,718,107
|
1,571,376
|
1,418,314
|
1,257,305
|
|||||||||||
|
Allowance
for loan losses
|
25,385
|
26,923
|
26,508
|
25,347
|
21,948
|
|||||||||||
|
Deposits
|
2,175,531
|
2,059,958
|
1,959,195
|
1,803,468
|
1,619,196
|
|||||||||||
|
Long-term
debt
|
83,311
|
87,020
|
94,663
|
100,916
|
54,282
|
|||||||||||
|
Stockholders’
equity
|
259,016
|
244,085
|
238,222
|
209,995
|
197,605
|
|||||||||||
|
Capital
ratios at period end:
|
||||||||||||||||
|
Stockholders’
equity to total
assets
|
9.75
|
%
|
9.67
|
%
|
9.87
|
%
|
9.39
|
%
|
9.99
|
%
|
||||||
|
Leverage
(3)
|
8.83
|
%
|
8.62
|
%
|
8.46
|
%
|
9.89
|
%
|
9.29
|
%
|
||||||
|
Tier
1
|
12.38
|
%
|
12.26
|
%
|
12.72
|
%
|
14.12
|
%
|
14.02
|
%
|
||||||
|
Total
risk-based
|
13.64
|
%
|
13.54
|
%
|
14.00
|
%
|
15.40
|
%
|
15.30
|
%
|
||||||
|
Selected
ratios:
|
||||||||||||||||
|
Return
on average assets
|
1.07
|
%
|
1.08
|
%
|
1.03
|
%
|
1.18
|
%
|
1.12
|
%
|
||||||
|
Return
on average equity
|
10.93
|
%
|
11.24
|
%
|
10.64
|
%
|
11.57
|
%
|
11.56
|
%
|
||||||
|
Return
on average tangible equity (4)
|
15.03
|
%
|
15.79
|
%
|
14.94
|
%
|
14.03
|
%
|
13.99
|
%
|
||||||
|
Net
interest margin (5)
|
3.96
|
%
|
4.13
|
%
|
4.08
|
%
|
4.34
|
%
|
4.37
|
%
|
||||||
|
Allowance/nonperforming
loans
|
234.05
|
%
|
319.48
|
%
|
220.84
|
%
|
219.13
|
%
|
179.07
|
%
|
||||||
|
Allowance
for loan losses as a percentage
of period-end loans
|
1.42
|
%
|
1.57
|
%
|
1.69
|
%
|
1.79
|
%
|
1.75
|
%
|
||||||
|
Nonperforming
loans as a percentage of
period-end
loans
|
0.56
|
%
|
0.49
|
%
|
0.76
|
%
|
0.82
|
%
|
0.97
|
%
|
||||||
|
Net
charge-offs as a percentage of
average
total assets
|
0.15
|
%
|
0.28
|
%
|
0.34
|
%
|
0.41
|
%
|
0.46
|
%
|
||||||
|
Dividend
payout
|
35.79
|
%
|
33.15
|
%
|
38.80
|
%
|
31.14
|
%
|
30.75
|
%
|
||||||
(1)
The
selected consolidated financial data set forth above should be read in
conjunction with the financial statements of the Company and related
Management’s Discussion and Analysis of Financial Condition and Results of
Operations, included elsewhere in this report.
(2)
Diluted operating earnings exclude the following nonrecurring items. In
2004,
the Company recorded a $0.03 reduction in EPS from the write off of deferred
debt issuance cost associated with the redemption of trust preferred securities.
In 2003, the Company recorded a $0.03 addition to EPS resulting from the
sale of
its mortgage servicing portfolio.
(3)
Leverage ratio is Tier 1 capital to quarterly average total assets less
intangible assets and gross unrealized gains/losses on available-for-sale
investments.
(4)
Tangible calculations eliminate the effect of goodwill and acquisition
related
intangible assets and the corresponding amortization expense on a tax-effected
basis where applicable.
(5)
Fully
taxable equivalent (assuming an income tax rate of 37.5%).
11
|
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF
OPERATIONS
|
|
2006
Overview
|
Simmons
First National Corporation recorded net income of
$27,481,000 for the year ended December 31, 2006, a 1.9% increase from
net
income of $26,962,000 in 2005. Net income in 2004 was $24,446,000. Diluted
earnings per share increased $0.06, or 3.3%, to $1.90 in 2006 compared
to $1.84
in 2005. Diluted earnings per share in 2004 were $1.65. The Company’s return on
average assets and return on average stockholders’ equity for the year ended
December 31, 2006, were 1.07% and 10.93%, when compared to 1.08% and 11.24%,
respectively, for the year ended 2005.
At
December 31, 2006, the Company’s loan portfolio totaled $1.783 billion, which is
a $65.4 million, or a 3.8%, increase from the same period last year. This
increase is due primarily to a $94 million, or 9% increase in real estate
loans.
Loan growth was somewhat mitigated by a $15 million payoff of a bank stock
loan,
a $12 million reduction in a single commercial line of credit, a $5 million
reduction in student loans due to early sales in order to avoid consolidation
lenders, and a larger than normal seasonal drop in agricultural loans.
Asset
quality remained strong with the allowance for loan losses at 1.42% of
total
loans and 252% of non-performing loans at December 31, 2006. The internal
rating
of several large commercial loan customers was upgraded due to financial
improvement of the borrowers and two significant impaired credit relationships
paid off. Net credit card charge-offs were down $2.6 million in 2006 from
2005,
primarily due to the changes in bankruptcy laws effective in October 2005.
These
improvements resulted in a $3.7 million reduction in provision for loan
losses
in 2006 compared to 2005.
Total
assets for the Company at December 31, 2006, were $2.651 billion, an increase
of
$128 million, or 5.1%, over the period ended December 31, 2005. Stockholders’
equity as of December 31, 2006 was $259 million, an increase of $14.9 million,
or approximately 6.1%, from December 31, 2005.
Simmons
First National Corporation is an Arkansas based, Arkansas committed financial
holding company with $2.7 billion in assets and eight community banks in
Pine Bluff, Lake Village, Jonesboro, Rogers, Searcy, Russellville, El Dorado
and
Hot Springs, Arkansas. The Company’s eight banks conduct financial operations
from 86 offices, of which 82 are financial centers, in 48
communities.
|
Critical
Accounting
Policies
|
Overview
Management
has reviewed its various accounting policies. Based on this review, management
believes the policies most critical to the Company are the policies associated
with its lending practices including the accounting for the allowance for
loan
losses, treatment of goodwill, recognition of fee income, estimates of
income
taxes, and employee benefit plan as it relates to stock options.
Loans
Loans
the
Company has the intent and ability to hold for the foreseeable future or
until
maturity or pay-offs are reported at their outstanding principal adjusted
for
any loans charged off and any deferred fees or costs on originated loans
and
unamortized premiums or discounts on purchased loans. Interest income is
reported on the interest method and includes amortization of net deferred
loan
fees and costs over the estimated life of the loan. Generally, loans are
placed
on nonaccrual status at ninety days past due and interest is considered
a loss,
unless the loan is well secured and in the process of collection.
Discounts
and premiums on purchased residential real estate loans are amortized to
income
using the interest method over the remaining period to contractual maturity,
adjusted for anticipated prepayments. Discounts and premiums on purchased
consumer loans are recognized over the expected lives of the loans using
methods
that approximate the interest method.
12
Allowance
for Loan Losses
The
allowance for loan losses is established as losses are estimated to have
occurred through a provision for loan losses charged to income. Loan losses
are
charged against the allowance when management believes the uncollectability
of a
loan balance is confirmed. Subsequent recoveries, if any, are credited to
the
allowance.
The
allowance is maintained at a level considered adequate to provide for potential
loan losses related to specifically identified loans as well as probable
credit
losses inherent in the remainder of the loan portfolio that have been incurred
as of period end. This estimate is based on management's evaluation of the
loan
portfolio, as well as on prevailing and anticipated economic conditions and
historical losses by loan category. General reserves have been established,
based upon the aforementioned factors and allocated to the individual loan
categories. Allowances are accrued on specific loans evaluated for impairment
for which the basis of each loan, including accrued interest, exceeds the
discounted amount of expected future collections of interest and principal
or,
alternatively, the fair value of loan collateral. The unallocated reserve
generally serves to compensate for the uncertainty in estimating loan losses,
including the possibility of changes in risk ratings and specific reserve
allocations in the loan portfolio as a result of the Company’s ongoing risk
management system.
A
loan is
considered impaired when it is probable that the Company will not receive
all
amounts due according to the contractual terms of the loan. This includes
loans
that are delinquent 90 days or more, nonaccrual loans and certain other loans
identified by management. Certain other loans identified by management consist
of performing loans with specific allocations of the allowance for loan losses.
Specific allocations are applied when quantifiable factors are present requiring
a greater allocation than that established using the classified asset approach,
as defined by the Office of the Comptroller of the Currency. Accrual of interest
is discontinued and interest accrued and unpaid is removed at the time such
amounts are delinquent 90 days, unless management is aware of circumstances
which warrant continuing the interest accrual. Interest is recognized for
nonaccrual loans only upon receipt and only after all principal amounts are
current according to the terms of the contract.
Goodwill
Goodwill
represents the excess of cost over the fair value of net assets of acquired
subsidiaries and branches. Financial Accounting Standards Board Statement
No.
142 and No. 147 eliminated the amortization for these assets as of January
1,
2002. While goodwill is not amortized, impairment testing of goodwill is
performed annually, or more frequently if certain conditions occur.
Core
Deposit Premiums
Core
deposit premiums are being amortized using both straight-line and accelerated
methods over periods ranging from 8 to 11 years. Such assets are periodically
evaluated as to the recoverability of their carrying value.
Fee
Income
Periodic
bankcard fees, net of direct origination costs, are recognized as revenue
on a
straight-line basis over the period the fee entitles the cardholder to use
the
card. Origination fees and costs for other loans are being amortized over
the
estimated life of the loan.
Income
Taxes
Deferred
tax assets and liabilities are recognized for the tax effects of differences
between the financial statement and tax bases of assets and liabilities.
A
valuation allowance is established to reduce deferred tax assets if it is
more
likely than not that a deferred tax asset will not be realized.
13
Employee
Benefit Plans
The
Company has a stock-based employee compensation plan. In December 2004, FASB
issued SFAS No. 123, Share-Based Payment (Revised 2004), which requires all
companies to measure compensation cost for all share-based payments (including
employee stock options) at fair value. As discussed in Note 11, Employee
Benefit
Plans, in the accompanying
Notes to
Consolidated Financial Statements
included
elsewhere in this report, the standard requires companies to expense the
fair
value of all stock options that have future vesting provisions, are modified,
or
are newly granted beginning on the grant date of such options. SFAS 123R
became
effective and was adopted by the Company on January 1, 2006.
|
Acquisitions
|
On
November 1, 2005, the Company completed a branch purchase in which Bank of
Little Rock sold its Southwest Little Rock, Arkansas location at 8500 Geyer
Springs Road to Simmons First National Bank, a subsidiary of the Company.
The
acquisition included approximately $3.5 million in total deposits in addition
to
the fixed assets used in the branch operation. No loans were involved in
the
transaction. As a result of this transaction, the Company recorded additional
goodwill and core deposit premiums of $151,000 and $31,000,
respectively.
On
June
25, 2004, the Company completed a branch purchase in which Cross County Bank
sold its Weiner, Arkansas location to Simmons First Bank of Jonesboro, a
subsidiary of the Company. The acquisition included approximately $6 million
in
total deposits and the fixed assets used in the branch operation. No loans
were
involved in the transaction. As a result of this transaction, the Company
recorded additional goodwill and core deposit premiums of $344,000 and $117,000,
respectively.
On
March
19, 2004, the Company merged with Alliance Bancorporation, Inc. (“ABI”). ABI
owned Alliance Bank of Hot Springs, Hot Springs, Arkansas with consolidated
assets (including goodwill and core deposits), loans and deposits of
approximately $155 million, $70 million and $110 million, respectively.
During the second quarter of 2004, Alliance Bank changed its name to Simmons
First Bank of Hot Springs and continues to operate as a separate community
bank
with virtually the same board of directors, management and staff. As a result
of
this transaction, the Company recorded additional goodwill and core deposit
premiums of $14,690,000 and $1,245,000, respectively.
The
system
integration for the 2005 acquisition was completed on the acquisition date.
The
system integration for the 2004 mergers and acquisitions were completed during
the second quarter of 2004.
|
Net
Interest Income
|
Net
interest income, the Company's principal source of earnings, is the difference
between the interest income generated by earning assets and the total interest
cost of the deposits and borrowings obtained to fund those assets. Factors
that
determine the level of net interest income include the volume of earning
assets
and interest bearing liabilities, yields earned and rates paid, the level
of
non-performing loans and the amount of non-interest bearing liabilities
supporting earning assets. Net interest income is analyzed in the discussion
and
tables below on a fully taxable equivalent basis. The adjustment to convert
certain income to a fully taxable equivalent basis consists of dividing
tax-exempt income by one minus the combined federal and state income tax
rate of
37.50%.
The
Federal Reserve Board sets various benchmark rates, including the Federal
Funds
rate, and thereby influences the general market rates of interest, including
the
deposit and loan rates offered by financial institutions. The Federal Funds
rate, which is the cost to banks of immediately available overnight funds,
began
2004 at 1.00%. During 2004, the
Federal Funds rate increased 125 basis points to end the year at
2.25%.
During
2005, the Federal Funds rate increased 50 basis points in each of the four
quarters to end the year at 4.25%. After seventeen consecutive quarters of
increases, the Federal Funds rate has remained at 5.25% since June 29,
2006.
The
Company’s practice is to limit exposure to interest rate movements by
maintaining a significant portion of earning assets and interest bearing
liabilities in short-term repricing. Historically, approximately 70% of the
Company’s loan portfolio and approximately 80% of the Company’s time deposits
have repriced in one year or less. These historical percentages are consistent
with the Company’s current interest rate sensitivity.
14
For
the
year ended December 31, 2006, net interest income on a fully taxable equivalent
basis was $92.0 million, a decrease of $1.5 million, or 1.6%, from the same
period in 2005. The decrease in net interest income was the result of a $20.2
million increase in interest income offset by a $21.7 million increase in
interest expense. As a result, the net interest margin decreased 17 basis
points
to 3.96% for the year ended December 31, 2006, when compared to 4.13%
for 2005. The Company expects to see continued pressure on the margin driven
primarily by the increase in cost of funds resulting from competitive deposit
repricing. However, since approximate $111 million of the investment
portfolio will mature or reprice during 2007, with reinvestment at a higher
yield, management anticipates a flat to slightly improving margin in
2007.
The
$20.2
million increase in interest income for 2006 is primarily the result of a
72
basis point increase in the yield on earning assets associated with the
repricing to a higher interest rate environment, along with a growth in loans.
The growth in average loans accounted for an increase of $6.2 million in
interest income. The higher interest rates resulted in a $15.2 million increase
in interest income. More specifically, $11.8 million of the increase due
to
higher rates is associated with the repricing of the Company’s loan portfolio
that resulted from loans that matured during the period or were tied to a
rate
that fluctuated with changes in market rates. As a result, the average rate
earned on the loan portfolio increased 68 basis points from
6.82% to 7.50%.
The
$21.7
million increase in interest expense for 2006 is primarily the result of
a 103
basis point increase in the cost of funds due to competitive repricing during
a
higher interest rate environment, coupled with a $57 million increase in
average
interest bearing liabilities generated through internal growth. The higher
interest rates accounted for a $19.8 million increase in interest expense.
The
most significant component of this increase was the $13.1 million increase
associated with the repricing of the Company’s time deposits that resulted from
time deposits that matured during the period or were tied to a rate that
fluctuated with changes in market rates. As a result of this repricing, the
average rate paid on time deposits increased 127 basis points from 2.78%
to
4.05%. The higher level of average interest bearing liabilities resulted
in a
$1.9 million increase in interest expense. More specifically, the higher
level
of average interest bearing liabilities was the result of increases of
approximately $76.7 million from internal deposit growth, offset by a
$12.8 million reduction in average Fed Funds purchased and short-term debt
and a $7.1 million reduction in average long-term debt.
For
the
year ended December 31, 2005, net interest income on a fully taxable equivalent
basis was $93.5 million, an increase of $4.7 million, or 5.3%, from the
same period in 2004. The increase in net interest income was the result of
a $17
million increase in interest income and a $12.4 million increase in interest
expense. As a result, the net interest margin increased 5 basis points to
4.13%
for the year ended December 31, 2005, when compared to 4.08% for
2004.
15
Tables
1
and 2 reflect an analysis of net interest income on a fully taxable equivalent
basis for the years ended December 31, 2006, 2005 and 2004, respectively,
as
well as changes in fully taxable equivalent net interest margin for the years
2006 versus 2005 and 2005 versus 2004.
|
Table
1:
|
Analysis
of Net Interest Income
|
|
(FTE
=Fully Taxable Equivalent)
|
|
|
Years
Ended December 31
|
||||||||||
|
(In
thousands)
|
2006
|
2005
|
2004
|
|||||||
|
Interest
income
|
$
|
153,362
|
$
|
133,071
|
$
|
116,064
|
||||
|
FTE
adjustment
|
3,185
|
3,234
|
3,173
|
|||||||
|
Interest
income - FTE
|
156,547
|
136,305
|
119,237
|
|||||||
|
Interest
expense
|
64,558
|
42,814
|
30,428
|
|||||||
|
Net
interest income - FTE
|
$
|
91,989
|
$
|
93,491
|
$
|
88,809
|
||||
|
Yield
on earning assets - FTE
|
6.74
|
%
|
6.02
|
%
|
5.48
|
%
|
||||
|
Cost
of interest bearing liabilities
|
3.24
|
%
|
2.21
|
%
|
1.65
|
%
|
||||
|
Net
interest spread - FTE
|
3.50
|
%
|
3.81
|
%
|
3.83
|
%
|
||||
|
Net
interest margin - FTE
|
3.96
|
%
|
4.13
|
%
|
4.08
|
%
|
||||
|
Table
2:
|
Changes
in Fully Taxable Equivalent Net Interest
Margin
|
|
(In
thousands)
|
2006
vs. 2005
|
2005
vs. 2004
|
|||||
|
Increase
due to change in earning assets
|
$
|
5,056
|
$
|
7,570
|
|||
|
Increase
due to change in earning asset yields
|
15,186
|
9,498
|
|||||
|
Decrease
due to change in interest rates paid on interest
bearing liabilities
|
(19,813
|
)
|
(11,300
|
)
|
|||
|
Decrease
due to change in interest bearing liabilities
|
(1,931
|
)
|
(1,086
|
)
|
|||
|
(Decrease)
increase in net interest income
|
$
|
(1,502
|
)
|
$
|
4,682
|
||
16
Table
3
shows, for each major category of earning assets and interest bearing
liabilities, the average (computed on a daily basis) amount outstanding,
the
interest earned or expensed on such amount and the average rate earned or
expensed for each of the years in the three-year period ended December 31,
2006.
The table also shows the average rate earned on all earning assets, the average
rate expensed on all interest bearing liabilities, the net interest spread
and
the net interest margin for the same periods. The analysis is presented on
a
fully taxable equivalent basis. Nonaccrual loans were included in average
loans
for the purpose of calculating the rate earned on total loans.
|
Table
3:
|
Average
Balance Sheets and Net Interest Income
Analysis
|
|
|
Years
Ended December 31
|
|||||||||||||||||||||||||||
|
2006
|
2005
|
2004
|
||||||||||||||||||||||||||
|
|
Average
|
Income/
|
Yield/
|
Average
|
Income/
|
Yield/
|
Average
|
Income/
|
Yield/
|
|||||||||||||||||||
|
(In
thousands)
|
Balance
|
Expense
|
Rate(%)
|
|
Balance
|
Expense
|
Rate(%)
|
|
Balance
|
Expense
|
Rate(%)
|
|
||||||||||||||||
|
ASSETS
|
||||||||||||||||||||||||||||
|
Earning
Assets
|
||||||||||||||||||||||||||||
|
Interest
bearing balances
due
from banks
|
$
|
22,746
|
$
|
1,072
|
4.71
|
$
|
20,837
|
$
|
580
|
2.78
|
$
|
36,587
|
$
|
400
|
1.09
|
|||||||||||||
|
Federal
funds sold
|
20,223
|
1,057
|
5.23
|
30,598
|
925
|
3.02
|
56,423
|
748
|
1.33
|
|||||||||||||||||||
|
Investment
securities - taxable
|
410,445
|
15,705
|
3.83
|
425,030
|
13,898
|
3.27
|
411,467
|
12,416
|
3.02
|
|||||||||||||||||||
|
Investment
securities - non-taxable
|
117,931
|
7,573
|
6.42
|
122,047
|
7,670
|
6.28
|
126,349
|
7,843
|
6.21
|
|||||||||||||||||||
|
Mortgage
loans held for sale
|
7,666
|
476
|
6.21
|
9,356
|
552
|
5.90
|
10,087
|
575
|
5.70
|
|||||||||||||||||||
|
Assets
held in trading accounts
|
4,590
|
71
|
1.55
|
4,584
|
99
|
2.16
|
4,980
|
41
|
0.82
|
|||||||||||||||||||
|
Loans
|
1,740,477
|
130,593
|
7.50
|
1,651,950
|
112,581
|
6.82
|
1,528,447
|
97,214
|
6.36
|
|||||||||||||||||||
|
Total
interest earning assets
|
2,324,078
|
156,547
|
6.74
|
2,264,402
|
136,305
|
6.02
|
2,174,340
|
119,237
|
5.48
|
|||||||||||||||||||
|
Non-earning
assets
|
251,261
|
|
|
233,132
|
203,440
|
|||||||||||||||||||||||
|
Total
assets
|
$
|
2,575,339
|
|
|
|
|
$ |
2,497,534
|
$ |
2,377,780
|
||||||||||||||||||
|
|
||||||||||||||||||||||||||||
|
LIABILITIES
AND
STOCKHOLDERS’
EQUITY
|
||||||||||||||||||||||||||||
|
Liabilities
|
||||||||||||||||||||||||||||
|
Interest
bearing liabilities
|
||||||||||||||||||||||||||||
|
Interest
bearing transaction
and
savings deposits
|
$
|
737,328
|
$
|
11,658
|
1.58
|
$
|
762,558
|
$
|
7,777
|
1.02
|
$
|
729,842
|
$
|
4,965
|
0.68
|
|||||||||||||
|
Time
deposits
|
1,052,705
|
42,592
|
4.05
|
950,820
|
26,431
|
2.78
|
892,360
|
18,198
|
2.04
|
|||||||||||||||||||
|
Total
interest bearing deposits
|
1,790,033
|
54,250
|
3.03
|
1,713,378
|
34,208
|
2.00
|
1,622,202
|
23,163
|
1.43
|
|||||||||||||||||||
|
|
||||||||||||||||||||||||||||
|
Federal
funds purchased and
securities
sold under agreement
to
repurchase
|
100,280
|
4,615
|
4.60
|
102,041
|
3,104
|
3.04
|
94,465
|
1,227
|
1.30
|
|||||||||||||||||||
|
Other
borrowed funds
|
||||||||||||||||||||||||||||
|
Short-term
debt
|
21,065
|
1,227
|
5.82
|
32,076
|
1,101
|
3.43
|
11,252
|
175
|
1.56
|
|||||||||||||||||||
|
Long-term
debt
|
82,525
|
4,466
|
5.41
|
89,590
|
4,401
|
4.91
|
110,946
|
5,863
|
5.28
|
|||||||||||||||||||
|
Total
interest bearing liabilities
|
1,993,903
|
64,558
|
3.24
|
1,937,085
|
42,814
|
2.21
|
1,838,865
|
30,428
|
1.65
|
|||||||||||||||||||
|
Non-interest
bearing liabilities
|
||||||||||||||||||||||||||||
|
Non-interest
bearing deposits
|
308,804
|
|
|
303,974
|
293,060
|
|||||||||||||||||||||||
|
Other
liabilities
|
21,114
|
|
16,499
|
16,136
|
||||||||||||||||||||||||
|
Total
liabilities
|
2,323,821
|
|
|
2,257,558
|
2,148,061
|
|||||||||||||||||||||||
|
Stockholders’
equity
|
251,518
|
|
|
239,976
|
229,719 | |||||||||||||||||||||||
|
Total
liabilities and stockholders’
equity
|
$
|
2,575,339
|
|
|
|
|
$ |
2,497,534
|
$ |
2,377,780
|
||||||||||||||||||
|
Net
interest spread
|
|
|
3.50
|
|
3.81
|
|
3.83
|
|||||||||||||||||||||
|
Net
interest margin
|
|
|
$
|
91,989
|
|
3.96
|
|
$
|
93,491
|
4.13
|
$ |
88,809
|
4.08
|
|||||||||||||||
17
Table
4
shows changes in interest income and interest expense, resulting from changes
in
volume and changes in interest rates for each of the years ended December
31,
2006 and 2005, as compared to prior years. The changes in interest rate and
volume have been allocated to changes in average volume and changes in average
rates, in proportion to the relationship of absolute dollar amounts of the
changes in rates and volume.
|
Table
4:
|
Volume/Rate
Analysis
|
|
|
|
Years
Ended December 31
|
||||||||||||||||||
|
|
2006
over 2005
|
2005
over 2004
|
|||||||||||||||||
|
(In
thousands, on a fully
|
Yield/
|
Yield/
|
|||||||||||||||||
|
taxable
equivalent basis)
|
Volume
|
Rate
|
Total
|
Volume
|
Rate
|
Total
|
|||||||||||||
|
Increase
(decrease) in
|
|||||||||||||||||||
|
Interest
income
|
|||||||||||||||||||
|
Interest
bearing balances due
from banks
|
$
|
57
|
$
|
435
|
$
|
492
|
$
|
(230
|
)
|
$
|
410
|
$
|
180
|
||||||
|
Federal
funds sold
|
(387
|
)
|
518
|
131
|
(457
|
)
|
634
|
177
|
|||||||||||
|
Investment
securities - taxable
|
(491
|
)
|
2,299
|
1,808
|
419
|
1,063
|
1,482
|
||||||||||||
|
Investment
securities - non-taxable
|
(263
|
)
|
166
|
(97
|
)
|
(269
|
)
|
96
|
(173
|
)
|
|||||||||
|
Mortgage
loans held for sale
|
(104
|
)
|
28
|
(76
|
)
|
(43
|
)
|
20
|
(23
|
)
|
|||||||||
|
Assets
held in trading accounts
|
--
|
(28
|
)
|
(28
|
)
|
(3
|
)
|
61
|
58
|
||||||||||
|
Loans
|
6,244
|
11,768
|
18,012
|
8,153
|
7,214
|
15,367
|
|||||||||||||
|
Total
|
5,056
|
15,186
|
20,242
|
7,570
|
9,498
|
17,068
|
|||||||||||||
|
Interest
expense
|
|||||||||||||||||||
|
Interest
bearing transaction and savings
deposits
|
(265
|
)
|
4,145
|
3,880
|
232
|
2,580
|
2,812
|
||||||||||||
|
Time
deposits
|
3,078
|
13,083
|
16,161
|
1,258
|
6,975
|
8,233
|
|||||||||||||
|
Federal
funds purchased and
securities sold under
agreements
to repurchase
|
(55
|
)
|
1,566
|
1,511
|
105
|
1,772
|
1,877
|
||||||||||||
|
Other
borrowed funds
|
|||||||||||||||||||
|
Short-term
debt
|
(465
|
)
|
591
|
126
|
561
|
365
|
926
|
||||||||||||
|
Long-term
debt
|
(362
|
)
|
428
|
66
|
(1,070
|
)
|
(392
|
)
|
(1,462
|
)
|
|||||||||
|
Total
|
1,931
|
19,813
|
21,744
|
1,086
|
11,300
|
12,386
|
|||||||||||||
|
Increase
(decrease) in net
interest income
|
$
|
3,125
|
$
|
(4,627
|
)
|
$
|
(1,502
|
)
|
$
|
6,484
|
$
|
(1,802
|
)
|
$
|
4,682
|
||||
|
Provision
for Loan Losses
|
The
provision for loan losses represents management's determination of the amount
necessary to be charged against the current period's earnings, in order to
maintain the allowance for loan losses at a level, which is considered adequate,
in relation to the estimated risk inherent in the loan portfolio. The level
of
provision to the allowance is based on management's judgment, with consideration
given to the composition, maturity and other qualitative characteristics
of the
portfolio, historical loan loss experience, assessment of current economic
conditions, past due and non-performing loans and net loan loss experience.
It
is management's practice to review the allowance on at least a quarterly
basis,
but generally on a monthly basis, to determine the level of provision made
to
the allowance after considering the factors noted above.
The
provision for loan losses for 2006, 2005 and 2004 was $3.8 million, $7.5
million
and $8.0 million, respectively. The provision reduction from 2005 to 2006
was
primarily driven by two factors.
18
First,
credit card net charge-offs were down $2.6 million, from $4.0 million in
2005 to
$1.4 million in 2006. The Company recorded credit card net charge-offs of
1.06%
of credit card balances for 2006 compared to 2.85% for 2005. Second, there
was
improvement in the credit quality of the loan portfolio, particularly due
to the
payoff of two large credit relationships in 2006. One was upgraded two levels
from substandard to watch, based on improved financial condition of the
borrower, and was ultimately paid off. The other impaired relationship, graded
substandard, was refinanced with another financial institution. A specific
reserve was applied to both of these credit relationships. Additional loans
were
classified in 2006 as non-performing based upon various criteria; however,
there
were no specific reserve allocations required for these loans. The provision
for
loan losses was reduced due to the continued significant reduction in credit
card charge-offs and the improvement in credit quality of loans with specific
reserves.
The
decrease in the provision for loans losses from 2004 to 2005 was due to the
overall improvement in the Company’s asset quality.
|
Non-Interest
Income
|
Total
non-interest income was $43.9 million in 2006, compared to $42.3 million
in 2005
and $40.7 million in 2004. Non-interest income is principally derived from
recurring fee income, which includes service charges, trust fees and credit
card
fees. Non-interest income also includes income on the sale of mortgage loans,
investment banking income, premiums on sale of student loans, income from
the
increase in cash surrender values of bank owned life insurance, and gains
(losses) from sales of securities.
Table
5
shows non-interest income for the years ended December 31, 2006, 2005 and
2004,
respectively, as well as changes in 2006 from 2005 and in 2005 from
2004.
|
Table
5:
|
Non-Interest
Income
|
|
|
|
2006
|
2005
|
|||||||||||||||||||
|
|
Years
Ended December 31
|
Change
from
|
Change
from
|
|||||||||||||||||||
|
(In
thousands)
|
2006
|
2005
|
2004
|
2005
|
2004
|
|||||||||||||||||
|
Trust
income
|
$
|
5,612
|
$
|
5,589
|
$
|
5,421
|
$
|
23
|
0.41
|
%
|
$
|
168
|
3.10
|
%
|
||||||||
|
Service
charges on deposit accounts
|
15,795
|
15,818
|
14,564
|
(23
|
)
|
(0.15
|
)
|
1,254
|
8.61
|
|||||||||||||
|
Other
service charges and fees
|
2,561
|
2,017
|
2,016
|
544
|
26.97
|
1
|
0.05
|
|||||||||||||||
|
Income
on sale of mortgage loans, net
of commissions
|
2,849
|
2,919
|
3,391
|
(70
|
)
|
(2.40
|
)
|
(472
|
)
|
(13.92
|
)
|
|||||||||||
|
Income
on investment banking, net
of commissions
|
341
|
416
|
645
|
(75
|
)
|
(18.03
|
)
|
(229
|
)
|
(35.50
|
)
|
|||||||||||
|
Credit
card fees
|
10,742
|
10,252
|
10,001
|
490
|
4.78
|
251
|
2.51
|
|||||||||||||||
|
Premiums
on sale of student loans
|
2,071
|
1,822
|
2,114
|
249
|
13.67
|
(292
|
)
|
(13.81
|
)
|
|||||||||||||
|
Bank
owned life insurance income
|
1,523
|
953
|
261
|
570
|
59.81
|
692
|
265.13
|
|||||||||||||||
|
Other
income
|
2,453
|
2,700
|
2,292
|
(247
|
)
|
(9.15
|
)
|
408
|
17.80
|
|||||||||||||
|
Loss
on sale of securities, net
|
--
|
(168
|
)
|
--
|
168
|
100.00
|
(168
|
)
|
(100.00
|
)
|
||||||||||||
|
Total
non-interest income
|
$
|
43,947
|
$
|
42,318
|
$
|
40,705
|
$
|
1,629
|
3.85
|
%
|
$
|
1,613
|
3.96
|
%
|
||||||||
Recurring
fee income for 2006 was $34.7 million, an increase of $1.0 million, or 3.0%,
when compared with the 2005 amounts. This increase was principally the result
of
growth in ATM income due to increased volume and an improvement in the fee
structure. The increase in credit card fees was primarily the result of a
pricing change related to interchange fees.
Recurring
fee income for 2005 was $33.7 million, an increase of $1.7 million, or 5.2%,
when compared with the 2004 amounts. The increase in service charges on deposit
accounts for 2005 can be primarily attributed to normal growth in transaction
accounts and improvement in the fee structure associated with the Company’s
deposit accounts.
During
the
years ended December 31, 2006 and 2005, combined income on the sale of mortgage
loans and income on investment banking decreased $145,000 and $701,000,
respectively, from the years ended in 2005 and 2004. The decrease was primarily
the result of a reduced demand for those products due to the rising interest
rate environment.
19
Premiums
on sale of student loans increased by $249,000, or 13.7%, in 2006 over 2005.
The
increase was primarily due to accelerating the sale of student loans during
2006. Normally, as student loans reach payout status, the Company generally
sells student loans into the secondary market. Because of changes in the
industry relative to loan consolidations, and in order to protect the premium
on
these loans, the Company made the decision to sell student loans prior to the
payout period. This resulted in recognition of premium in 2006 on loans that
normally would have been sold in 2007. Premiums on sale of student loans
decreased by $292,000, or 13.8%, in 2005 over 2004 due to similar accelerated
sales during 2004.
On
April
29, 2005, the Company invested an additional $25 million in Bank Owned Life
Insurance (“BOLI”). BOLI income increased by $570,000 in 2006 over 2005,
primarily due to an improved earnings credit on the investment. The remainder
of
the increase can be attributed to the timing of the investment, with
approximately eight months of earnings in 2005 compared to a full year in 2006.
BOLI income increased by $692,000 in 2005 over 2004, with the increase almost
entirely attributable to this purchase.
There
were
no gains or losses on sale of securities during 2006. During the second quarter
of 2005, the Company sold certain available-for-sale investment securities
obtained in a prior acquisition that did not fit its current investment
portfolio strategy. As a result of this liquidation, the Company recognized
an
after-tax loss on sale of securities of $168,000. There were no gains or losses
on sale of securities during 2004.
|
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 2006 was $89.1 million, an increase of $3.5 million or 4.1%, from
2005. The increase in non-interest expense during 2006 compared to 2005 is
primarily attributed to normal on-going operating expenses and the incremental
expenses of approximately $1.1 million associated with the operation of new
financial centers opened during 2005 and 2006. When normalized for the
additional expenses from the expansion, non-interest expense for 2006 increased
by 2.8% over 2005.
Non-interest
expense for 2005 was $85.6 million, an increase of $3.2 million or 3.9%, from
2004. The increase in non-interest expense during 2005 compared to 2004 is
primarily attributed to normal on-going operating expenses and the additional
expenses of approximately $748,000 associated with the operation of new
financial centers opened during 2005. During 2004, the Company recorded a
nonrecurring expense of $771,000 related to the write off of deferred debt
issuance cost associated with the redemption of its 9.12% trust preferred
securities. When normalized for both the prepayment of the trust preferred
securities and the additional expenses from the expansion, non-interest expense
for 2005 increased by the same 3.9% over 2004.
The
increase in credit card expense over the past two years was primarily
attributable to the Company’s travel rewards program. Accumulated travel rewards
expire after 36 months. The
Company has introduced several new initiatives to make its product more
competitive. One of the key initiatives introduced in 2005 was to move as many
qualifying accounts as possible from a standard VISA product to a Platinum
VISA
Rewards product. As a result of this conversion process, travel rewards expense
increased in 2005 and in 2006.
Core
deposit premium amortization expense recorded for the years ended December
31,
2006, 2005 and 2004, was $830,000, $830,000 and $791,000, respectively. The
Company’s estimated amortization expense for each of the following five years
is: 2007 - $818,000; 2008 - $807,000; 2009 - $802,000; 2010 - $698,000; and
2011 -$451,000. The estimated amortization expense decreases as core
deposit premiums fully amortize in future years.
20
Table
6
below shows non-interest expense for the years ended December 31, 2006, 2005
and
2004, respectively, as well as changes in 2006 from 2005 and in 2005 from
2004.
|
Table
6:
|
Non-Interest
Expense
|
|
|
|
2006
|
2005
|
||||||||||||||||||||
|
|
Years
Ended December 31
|
Change
from
|
Change
from
|
||||||||||||||||||||
|
(In
thousands)
|
2006
|
2005
|
2004
|
2005
|
2004
|
||||||||||||||||||
|
Salaries
and employee benefits
|
$
|
53,442
|
$
|
51,270
|
$
|
48,533
|
$
|
2,172
|
4.24
|
%
|
$
|
2,737
|
5.64
|
%
|
|||||||||
|
Occupancy
expense, net
|
6,385
|
5,840
|
5,500
|
545
|
9.33
|
340
|
6.18
|
||||||||||||||||
|
Furniture
and equipment expense
|
5,718
|
5,758
|
5,646
|
(40
|
)
|
(0.69
|
)
|
112
|
1.98
|
||||||||||||||
|
Loss
on foreclosed assets
|
136
|
191
|
346
|
(55
|
)
|
(28.80
|
)
|
(155
|
)
|
(44.80
|
)
|
||||||||||||
|
Deposit
insurance
|
270
|
279
|
284
|
(9
|
)
|
(3.23
|
)
|
(5
|
)
|
(1.76
|
)
|
||||||||||||
|
Other
operating expenses
|
|||||||||||||||||||||||
|
Professional
services
|
2,490
|
2,201
|
2,029
|
289
|
13.13
|
172
|
8.48
|
||||||||||||||||
|
Postage
|
2,278
|
2,281
|
2,256
|
(3
|
)
|
(0.13
|
)
|
25
|
1.11
|
||||||||||||||
|
Telephone
|
1,961
|
1,847
|
1,784
|
114
|
6.17
|
63
|
3.53
|
||||||||||||||||
|
Credit
card expense
|
3,235
|
2,693
|
2,374
|
542
|
20.13
|
319
|
13.44
|
||||||||||||||||
|
Operating
supplies
|
1,611
|
1,555
|
1,528
|
56
|
3.60
|
27
|
1.77
|
||||||||||||||||
|
Amortization
of core deposits
|
830
|
830
|
791
|
--
|
0.00
|
39
|
4.93
|
||||||||||||||||
|
Write
off of deferred debt issuance cost
|
--
|
--
|
771
|
--
|
--
|
(771
|
)
|
(100.00
|
)
|
||||||||||||||
|
Other
expense
|
10,712
|
10,839
|
10,543
|
(127
|
)
|
(1.17
|
)
|
296
|
2.81
|
||||||||||||||
|
Total
non-interest expense
|
$
|
89,068
|
$
|
85,584
|
$
|
82,385
|
$
|
3,484
|
4.07
|
%
|
$
|
3,199
|
3.88
|
%
|
|||||||||
|
Income
Taxes
|
The
provision for income taxes for 2006 was $12.4 million, compared to $12.5
million
in 2005 and $11.5 million in 2004. The effective income tax rates for the
years
ended 2006, 2005 and 2004 were 31.2%, 31.7% and 32.0%,
respectively.
|
Loan
Portfolio
|
The
Company's loan portfolio averaged $1.740 billion during 2006 and $1.652 billion
during 2005. As of December 31, 2006, total loans were $1.783 billion, compared
to $1.718 billion on December 31, 2005. The most significant components of
the
loan portfolio were loans to businesses (commercial loans, commercial real
estate loans and agricultural loans) and individuals (consumer loans, credit
card loans and single-family residential real estate loans).
The
Company seeks to manage its credit risk by diversifying its loan portfolio,
determining that borrowers have adequate sources of cash flow for loan repayment
without liquidation of collateral, obtaining and monitoring collateral,
providing an adequate allowance for loan losses and regularly reviewing loans
through the internal loan review process. The loan portfolio is diversified
by
borrower, purpose and industry and, in the case of credit card loans, which
are
unsecured, by geographic region. The Company seeks to use diversification
within
the loan portfolio to reduce credit risk, thereby minimizing the adverse
impact
on the portfolio, if weaknesses develop in either the economy or a particular
segment of borrowers. Collateral requirements are based on credit assessments
of
borrowers and may be used to recover the debt in case of default. The Company
uses the allowance for loan losses as a method to value the loan portfolio
at
its estimated collectable amount. Loans are regularly reviewed to facilitate
the
identification and monitoring of deteriorating credits.
Consumer
loans consist of credit card loans, student loans and other consumer loans.
Consumer loans were $370.8 million at December 31, 2006, or 20.8% of total
loans, compared to $370.9 million, or 21.6% of total loans at December 31,
2005.
The $141,000 consumer loan decrease from 2005 to 2006 is the result of an
increase in indirect lending, offset by a decline in student loans. The increase
in the indirect consumer loan portfolio was primarily the result of more
aggressive marketing efforts by the Company, along with less attractive finance
incentives offered by car manufacturers. As student loans reach payout status,
the Company generally sells these loans into the secondary market. Because
of
changes in the industry relative to loan consolidations, and in order to
protect
the premium, the Company made the decision to sell some student loans prior
to
the payout period in 2006. These early sales created a decline in the portfolio
balances at December 31, 2006.
21
The
Company continues to experience significant competitive pressure from the credit
card industry. Over the previous three years, the credit card portfolio has
decreased by approximately $10 million to $14 million each year, primarily
due
to closed accounts. However, the Company experienced a slow-down in this trend
in 2006, with the credit card portfolio balance increasing by approximately
$300
thousand from December 31, 2005 to December 31, 2006.
Management
believes the increase in outstanding balances is the result of the introduction
of several initiatives over the past two years to make the Company’s credit card
products more competitive, and therefore slow down the number of closed
accounts. In 2005, as part of its retention strategy, the Company converted
over
15,000 accounts to a new Platinum VISA Rewards product, carrying a low fixed
interest rate of 8.95%, and offering customers competitive rewards based on
their purchases. The accounts were converted from the Company’s standard VISA
product, the card that has been primarily impacted by the competitive teaser
rates. As a continuation of efforts to stabilize the credit card portfolio,
the
Company introduced another new initiative in July 2006, a 7.25% fixed rate
card
with no fees and no rewards. Over the previous five years, 2001 - 2005, the
Company had a net cumulative decrease of 14,500 accounts in its credit card
portfolio. In 2006, there was an addition of 1,650 net new accounts, with the
most significant growth coming since the introduction of the 7.25% fixed rate
card in July. While these results are positive, management cannot be assured
that a sustained growth trend has yet been established.
Real
estate loans consist of construction loans, single family residential loans
and
commercial loans. Real estate loans were $1.2 billion at December 31, 2006,
or
64.7% of total loans, compared to $1.1 billion, or 61.7% of total loans at
December 31, 2005. Construction loans accounted for $38.5 million of the
increase in real estate loans, single-family residential loans increased by
$23.6 million and commercial real estate loans increased $32.7 million
during 2006. These increases are primarily due to increased loan demand in
various growth areas of Arkansas.
Commercial
loans consist of commercial loans, agricultural loans and financial institution
loans. Commercial loans were $245.1 million at December 31, 2006, or 13.7%
of
total loans, compared to the $274.2 million, or 16.0% of total loans at
December 31, 2005. This $29.1 million reduction in commercial loans resulted
from unexpected decreases in each commercial loan category. Other commercial
loans decreased $6.9 million, primarily due to a reduction of one significant
commercial line of credit. The $6.5 million dollar decrease in agricultural
loans resulted from early payoffs of loans due to a successful year for farmers.
The payoff of one bank stock loan was the primary reason for the $15.7 million
decrease in loans to financial institutions.
The
amounts of loans outstanding at the indicated dates are reflected in table
7,
according to type of loan.
|
Table
7:
|
Loan
Portfolio
|
|
|
Years
Ended December 31
|
|||||||||||||||
|
(In
thousands)
|
2006
|
2005
|
2004
|
2003
|
2002
|
|||||||||||
|
Consumer
|
||||||||||||||||
|
Credit
cards
|
$
|
143,359
|
$
|
143,058
|
$
|
155,326
|
$
|
165,919
|
$
|
180,439
|
||||||
|
Student
loans
|
84,831
|
89,818
|
83,283
|
86,301
|
83,890
|
|||||||||||
|
Other
consumer
|
142,596
|
138,051
|
128,552
|
142,995
|
153,103
|
|||||||||||
|
Real
Estate
|
||||||||||||||||
|
Construction
|
277,411
|
238,898
|
169,001
|
111,567
|
90,736
|
|||||||||||
|
Single
family residential
|
364,450
|
340,839
|
318,488
|
261,936
|
233,193
|
|||||||||||
|
Other
commercial
|
512,404
|
479,684
|
481,728
|
408,452
|
290,469
|
|||||||||||
|
Commercial
|
||||||||||||||||
|
Commercial
|
178,028
|
184,920
|
158,613
|
162,122
|
144,678
|
|||||||||||
|
Agricultural
|
62,293
|
68,761
|
62,340
|
57,393
|
58,585
|
|||||||||||
|
Financial
institutions
|
4,766
|
20,499
|
1,079
|
6,370
|
6,504
|
|||||||||||
|
Other
|
13,357
|
13,579
|
12,966
|
15,259
|
15,708
|
|||||||||||
|
Total
loans
|
$
|
1,783,495
|
$
|
1,718,107
|
$
|
1,571,376
|
$
|
1,418,314
|
$
|
1,257,305
|
||||||
22
Table
8
reflects the remaining maturities and interest rate sensitivity of loans
at
December 31, 2006.
|
Table
8:
|
Maturity
and Interest Rate Sensitivity of
Loans
|
|
|
Over
1
|
||||||||||||
|
year
|
|||||||||||||
|
|
1
year
|
through
|
Over
|
||||||||||
|
(In
thousands)
|
or
less
|
5
years
|
5
years
|
Total
|
|||||||||
|
Consumer
|
$
|
270,979
|
$
|
99,759
|
$
|
48
|
$
|
370,786
|
|||||
|
Real
estate
|
784,719
|
358,926
|
10,620
|
1,154,265
|
|||||||||
|
Commercial
|
190,979
|
53,714
|
394
|
245,087
|
|||||||||
|
Other
|
7,660
|
5,381
|
316
|
13,357
|
|||||||||
|
Total
|
$
|
1,254,337
|
$
|
517,780
|
$
|
11,378
|
$
|
1,783,495
|
|||||
|
Predetermined
rate
|
$
|
847,266
|
$
|
467,100
|
$
|
11,060
|
$
|
1,325,426
|
|||||
|
Floating
rate
|
407,071
|
50,680
|
318
|
458,069
|
|||||||||
|
Total
|
$
|
1,254,337
|
$
|
517,780
|
$
|
11,378
|
$
|
1,783,495
|
|
Asset
Quality
|
A
loan is
considered impaired when it is probable that the Company will not receive
all
amounts due according to the contracted terms of the loans. Impaired loans
include non-performing loans (loans past due 90 days or more and nonaccrual
loans) and certain other loans identified by management that are still
performing.
Non-performing
loans are comprised of (a) nonaccrual loans, (b) loans that are contractually
past due 90 days and (c) other loans for which terms have been restructured
to provide a reduction or deferral of interest or principal, because of
deterioration in the financial position of the borrower. The subsidiary banks
recognize income principally on the accrual basis of accounting. When loans
are
classified as nonaccrual, generally, the accrued interest is charged off
and no
further interest is accrued. Loans, excluding credit card loans, are placed
on a
nonaccrual basis either: (1) when there are serious doubts regarding the
collectability of principal or interest, or (2) when payment of interest
or
principal is 90 days or more past due and either (i) not fully secured or
(ii)
not in the process of collection. If a loan is determined by management to
be
uncollectable, the portion of the loan determined to be uncollectable is
then
charged to the allowance for loan losses.
Credit
card loans are classified as impaired when payment of interest or principal
is
90 days past due. Litigation accounts are placed on nonaccrual until such
time
as deemed uncollectable. Credit card loans are generally charged off when
payment of interest or principal exceeds 180 days past due, but are turned
over
to the credit card recovery department, to be pursued until such time as
they
are determined, on a case-by-case basis, to be uncollectable.
23
Table
9
presents information concerning non-performing assets, including nonaccrual
and
restructured loans and other real estate owned.
|
Table
9:
|
Non-performing
Assets
|
|
|
Years
Ended December 31
|
|||||||||||||||
|
(In
thousands)
|
2006
|
2005
|
2004
|
2003
|
2002
|
|||||||||||
|
Nonaccrual
loans
|
$
|
8,958
|
$
|
7,296
|
$
|
10,918
|
$
|
10,049
|
$
|
10,443
|
||||||
|
Loans
past due 90 days or more
(principal
or interest payments)
|
1,097
|
1,131
|
1,085
|
1,518
|
1,814
|
|||||||||||
|
Restructured
|
--
|
--
|
--
|
--
|
--
|
|||||||||||
|
Total
non-performing loans
|
10,055
|
8,427
|
12,003
|
11,567
|
12,257
|
|||||||||||
|
Other
non-performing assets
|
||||||||||||||||
|
Foreclosed
assets held for sale
|
1,940
|
1,540
|
1,839
|
2,979
|
2,705
|
|||||||||||
|
Other
non-performing assets
|
52
|
16
|
83
|
393
|
426
|
|||||||||||
|
Total
other non-performing assets
|
1,992
|
1,556
|
1,922
|
3,372
|
3,131
|
|||||||||||
|
Total
non-performing assets
|
$
|
12,047
|
$
|
9,983
|
$
|
13,925
|
$
|
14,939
|
$
|
15,388
|
||||||
|
Allowance
for loan losses to non-performing
loans
|
252.46
|
%
|
319.48
|
%
|
220.84
|
%
|
219.13
|
%
|
179.07
|
%
|
||||||
|
Non-performing
loans to total loans
|
0.56
|
%
|
0.49
|
%
|
0.76
|
%
|
0.82
|
%
|
0.97
|
%
|
||||||
|
Non-performing
assets to total assets
|
0.45
|
%
|
0.40
|
%
|
0.58
|
%
|
0.67
|
%
|
0.78
|
%
|
||||||
There
was
no interest income on the nonaccrual loans recorded for the years ended
December 31, 2006, 2005 and 2004.
At
December 31, 2006, impaired loans were $12.8 million compared to $14.8 million
in 2005. The decrease in impaired loans from December 31, 2005, primarily
relates to the decrease of borrowers that are still performing, but for which
management has internally identified as impaired. This decrease is mainly
due to
the general improvement of the Company’s smaller commercial loan relationships,
as well as the payoff of one significant impaired credit, and is indicative
of
the overall improvement in the asset quality of the Company. In addition,
workout efforts were completed in 2006 on one large loan relationship. 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 nonaccruals, 6) lending policies and
procedures including those for loan losses, collections and recoveries,
7) national and local economic trends and conditions, 8) concentrations of
credit that might affect loss experience across one or more components of
the
loan portfolio, 9) the experience, ability and depth of lending management
and
staff and 10) other factors and trends, which will affect specific loans
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.
24
Specific
Allocations
Specific
allocations are made when factors are present requiring a greater reserve
than
would be required when using the assigned risk rating allocation. As a general
rule, if a specific allocation is warranted, it is the result of an analysis
of
a previously classified credit or relationship. The evaluation process in
specific allocations for the Company includes a review of appraisals or other
collateral analysis. These values are compared to the remaining outstanding
principal balance. If a loss is determined to be reasonably possible, the
possible loss is identified as a specific allocation. If the loan is not
collateral dependent, the measurement of loss is based on the expected future
cash flows of the loan.
Allocations
for Classified Assets with No Specific Allocation
The
Company establishes allocations for loans rated “watch” through “doubtful” in
accordance with the guidelines established by the regulatory agencies. A
percentage rate is applied to each category of these loan categories to
determine the level of dollar allocation.
General
Allocations
The
Company establishes general allocations for each major loan category. This
section also includes allocations to loans which are collectively evaluated
for
loss such as credit cards, one-to-four family owner occupied residential
real
estate loans and other consumer loans. The allocations in this section are
based
on a historical review of loan loss experience and past due accounts. The
Company gives consideration to trends, changes in loan mix, delinquencies,
prior
losses, and other related information.
Unallocated
Portion
Allowance
allocations other than specific, classified and general for the Company are
included in unallocated.
Reserve
for Unfunded Commitments
Historically,
the Company has included reserves for unfunded commitments in the allowance
for
loan losses. On March 31, 2006, the reserve for unfunded commitments was
reclassified from the allowance for loan losses to other liabilities. This
reserve will be maintained at a level sufficient to absorb losses arising
from
unfunded loan commitments. The adequacy of the reserve for unfunded commitments
is determined monthly based on methodology similar to the Company’s methodology
for determining the allowance for loan losses. Future net adjustments to
the
reserve for unfunded commitments will be included in other non-interest
expense.
25
An
analysis of the allowance for loan losses for the last five years is shown
in
table 10.
|
Table
10:
|
Allowance
for Loan Losses
|
|
(In
thousands)
|
2006
|
2005
|
2004
|
2003
|
2002
|
|||||||||||
|
Balance,
beginning of year
|
$
|
26,923
|
$
|
26,508
|
$
|
25,347
|
$
|
21,948
|
$
|
20,496
|
||||||
|
Loans
charged off
|
||||||||||||||||
|
Credit
card
|
2,454
|
4,950
|
4,589
|
4,705
|
4,703
|
|||||||||||
|
Other
consumer
|
1,242
|
1,240
|
2,144
|
1,987
|
2,320
|
|||||||||||
|
Real
estate
|
1,868
|
1,048
|
1,263
|
1,504
|
1,813
|
|||||||||||
|
Commercial
|
1,317
|
3,688
|
2,409
|
2,674
|
2,310
|
|||||||||||
|
Total
loans charged off
|
6,881
|
10,926
|
10,405
|
10,870
|
11,146
|
|||||||||||
|
Recoveries
of loans previously charged off
|
||||||||||||||||
|
Credit
card
|
1,040
|
832
|
720
|
670
|
640
|
|||||||||||
|
Other
consumer
|
629
|
636
|
683
|
644
|
677
|
|||||||||||
|
Real
estate
|
901
|
251
|
277
|
218
|
253
|
|||||||||||
|
Commercial
|
536
|
2,096
|
751
|
987
|
558
|
|||||||||||
|
Total
recoveries
|
3,106
|
3,815
|
2,431
|
2,519
|
2,128
|
|||||||||||
|
Net
loans charged off
|
3,775
|
7,111
|
7,974
|
8,351
|
9,018
|
|||||||||||
|
Allowance
for loan losses of acquired institutions
|
--
|
--
|
1,108
|
2,964
|
247
|
|||||||||||
|
Reclass
to reserve for unfunded commitments (1)
|
(1,525
|
)
|
--
|
--
|
--
|
--
|
||||||||||
|
Provision
for loan losses
|
3,762
|
7,526
|
8,027
|
8,786
|
10,223
|
|||||||||||
|
Balance,
end of year
|
$
|
25,385
|
$
|
26,923
|
$
|
26,508
|
$
|
25,347
|
$
|
21,948
|
||||||
|
Net
charge-offs to average loans
|
0.22
|
%
|
0.43
|
%
|
0.52
|
%
|
0.64
|
%
|
0.72
|
%
|
||||||
|
Allowance
for loan losses to period-end loans
|
1.42
|
%
|
1.57
|
%
|
1.69
|
%
|
1.79
|
%
|
1.75
|
%
|
||||||
|
Allowance
for loan losses to net charge-offs
|
672.45
|
%
|
378.6
|
%
|
332.4
|
%
|
303.5
|
%
|
243.4
|
%
|
||||||
|
(1)
On March 31, 2006, the reserve for unfunded commitments was reclassified
from the allowance for loan losses to
other liabilities.
|
||||||||||||||||
Provision
for Loan Losses
The
amount
of provision to the allowance each year was based on management's judgment,
with
consideration given to the composition of the portfolio, historical loan
loss
experience, assessment of current economic conditions, past due and
non-performing loans and net loss experience. It is management's practice
to
review the allowance on at least a quarterly basis, but generally on a monthly
basis, to determine the level of provision made to the allowance after
considering the factors noted above.
Allocated
Allowance for Loan Losses
The
Company utilizes a consistent methodology in the calculation and application
of
its allowance for loan losses. Because there are portions of the portfolio
that
have not matured to the degree necessary to obtain reliable loss statistics
from
which to calculate estimated losses, the unallocated portion of the allowance
is
an integral component of the total allowance. Although unassigned to a
particular credit relationship or product segment, this portion of the allowance
is vital to safeguard against the imprecision inherent when estimating credit
losses.
Several
factors in the national economy, including seventeen successive interest-rate
increases by the Federal Reserve from June 2004 through June 2006, the effect
of
fuel prices on the commercial and consumer market, and certain loan sectors
which may be exhibiting weaknesses, further justifies the need for unallocated
reserves.
26
As
of
December 31, 2006, the allowance for loan losses reflects a decrease of
approximately $1.5 million from December 31, 2005, due to the reclassification
to establish a reserve for unfunded commitments. As a general rule, the
allocation in each category within the allowance reflects the overall changes
in
loan portfolio mix.
The
Company’s unallocated portion of the allowance increased approximately $1.4
million from December 31, 2005 to 2006, offset by a $3.0 million
decrease to the allocation for commercial loans. The increase in unallocated
is
primarily due to the credit quality upgrade of several significant commercial
loan customers, and the overall improvement in the credit quality of the
loan
portfolio. The unallocated portion of the allowance as a percent of total
loans
was 0.43% and 0.36% for the years ended December 31, 2006, and 2005,
respectively.
The
Company still has some concerns over the uncertainty of the economy and the
impact of pricing in the poultry and timber industries in Arkansas. The Company
is also cautious regarding the softening of the real estate market in Arkansas.
Based
on
its analysis of loans within these business sectors,
the
Company believes the allowance for loan losses is adequate for the year ended
December 31, 2006. Management actively monitors the status of these industries
as they relate to the Company’s loan portfolio and makes changes to the
allowance for loan losses as necessary.
The
Company allocates the allowance for loan losses according to the amount deemed
to be reasonably necessary to provide for losses incurred within the categories
of loans set forth in table 11.
|
Table
11:
|
Allocation
of Allowance for Loan
Losses
|
|
December
31
|
|||||||||||||||||||||||||||||||
|
2006
|
2005
|
2004
|
2003
|
2002
|
|||||||||||||||||||||||||||
|
(In
thousands)
|
Allowance
Amount
|
%
of
loans(1)
|
|
Allowance
Amount
|
%
of
loans(1)
|
|
Allowance
Amount
|
%
of
loans(1)
|
|
Allowance
Amount
|
loans(1)
|
|
Allowance
Amount
|
%
of
loans(1)
|
|
||||||||||||||||
|
Credit
cards
|
$
|
3,702
|
8.0%
|
|
$
|
3,887
|
8.3%
|
|
$
|
4,217
|
9.9%
|
|
$
|
3,913
|
11.7%
|
|
$
|
4,270
|
14.4%
|
|
|||||||||||
|
Other
consumer
|
1,402
|
12.8%
|
|
1,158
|
13.3%
|
|
1,097
|
13.5%
|
|
1,597
|
16.2%
|
|
1,745
|
18.8%
|
|
||||||||||||||||
|
Real
estate
|
9,835
|
64.7%
|
|
9,870
|
61.7%
|
|
9,357
|
61.7%
|
|
8,723
|
55.1%
|
|
7,393
|
48.9%
|
|
||||||||||||||||
|
Commercial
|
2,856
|
13.7%
|
|
5,857
|
15.9%
|
|
4,820
|
14.1%
|
|
5,113
|
15.9%
|
|
4,398
|
16.7%
|
|
||||||||||||||||
|
Other
|
--
|
0.8%
|
|
--
|
0.8%
|
|
--
|
0.8%
|
|
4
|
1.1%
|
|
--
|
1.2%
|
|
||||||||||||||||
|
Unallocated
|
7,590
|
|
6,151
|
|
7,017
|
5,997
|
4,142
|
|
|||||||||||||||||||||||
|
Total
|
$
|
25,385
|
100.0%
|
|
$
|
26,923
|
100.0%
|
|
$
|
26,508
|
100.0%
|
|
$
|
25,347
|
100.0%
|
|
$
|
21,948
|
100.0%
|
|
|||||||||||
| (1) Percentage of loans in each category to total loans | |||||||||||||||||||||||||||||||
|
Investments
and Securities
|
The
Company's securities portfolio is the second largest component of earning
assets
and provides a significant source of revenue. Securities within the portfolio
are classified as either held-to-maturity, available-for-sale or
trading.
Held-to-maturity
securities, which include any security for which management has the positive
intent and ability to hold until maturity, are carried at historical cost,
adjusted for amortization of premiums and accretion of discounts. Premiums
and
discounts are amortized and accreted, respectively, to interest income using
the
constant yield method over the period to maturity. Interest and dividends
on
investments in debt and equity securities are included in income when
earned.
Available-for-sale
securities, which include any security for which management has no immediate
plans to sell, but which may be sold in the future, are carried at fair value.
Realized gains and losses, based on amortized cost of the specific security,
are
included in other income. Unrealized gains and losses are recorded, net of
related income tax effects, in stockholders' equity. Premiums and discounts
are
amortized and accreted, respectively, to interest income, using the constant
yield method over the period to maturity. Interest and dividends on investments
in debt and equity securities are included in income when earned.
The
Company's philosophy regarding investments is conservative, based on investment
type and maturity. Investments in the portfolio primarily include U.S. Treasury
securities, U.S. Government agencies, mortgage-backed securities and municipal
securities. The Company's general policy is not to invest in derivative type
investments or high-risk securities, except for collateralized mortgage-backed
securities for which collection of principal and interest is not subordinated
to
significant superior rights held by others.
27
Held-to-maturity
and available-for-sale investment securities were $179.9 million and $347.2
million, respectively, at December 31, 2006, compared to the held-to-maturity
amount of $150.3 million and available-for-sale amount of $371.5 million
at
December 31, 2005.
As
of
December 31, 2006, $55.0 million, or 30.6%, of the held-to-maturity securities
were invested in U.S. Treasury securities and obligations of U.S. government
agencies, 49.1% of which will mature in less than five years.
In
the available-for-sale securities, $333.3 million, or 95.0%, were in U.S.
Treasury and U.S. government agency securities, 66.6% of which will mature
in
less than five years.
In
order
to reduce the Company's income tax burden, an additional $122.5 million,
or
68.1%, of the held-to-maturity securities portfolio, as of December 31, 2006,
was invested in tax-exempt obligations of state and political subdivisions.
In
the available-for-sale securities, $1.4 million, or 3.9% were invested in
tax-exempt obligations of state and political subdivisions. Most of the state
and political subdivision debt obligations are non-rated bonds and represent
relatively small, Arkansas issues, which are evaluated on an ongoing basis.
There are no securities of any one state and political subdivision issuer
exceeding ten percent of the Company's stockholders' equity at December 31,
2006.
The
Company has approximately $155,000, or 0.1%, in mortgaged-backed securities
in
the held-to-maturity portfolio at December 31, 2006. In the available-for-sale
securities, $3.0 million, or 0.9% were invested in mortgaged-backed
securities.
As
of
December 31, 2006, the held-to-maturity investment portfolio had gross
unrealized gains of $1.037 million and gross unrealized losses of $1.165
million.
The
Company had no gross realized gains during the years ended December 31, 2006,
2005 and 2004, resulting from the sales and/or calls of securities. Gross
realized losses of $0, $275,000 and $0 resulting from sales and/or calls
of
securities were realized for the years ended December 31, 2006, 2005 and
2004,
respectively.
Trading
securities, which include any security held primarily for near-term sale,
are
carried at fair value. Gains and losses on trading securities are included
in
other income. The Company's trading account is established and maintained
for
the benefit of investment banking. The trading account is typically used
to
provide inventory for resale and is not used to take advantage of short-term
price movements.
28
Table
12
presents the carrying value and fair value of investment securities for each
of
the years indicated.
|
Table
12:
|
Investment
Securities
|
|
Years
Ended December 31
|
|||||||||||||||||||||||||
|
2006
|
2005
|
||||||||||||||||||||||||
|
|
|
Gross
|
|
Gross
|
|
Estimated
|
|
|
|
Gross
|
|
Gross
|
|
Estimated
|
|
||||||||||
|
|
|
Amortized
|
|
Unrealized
|
|
Unrealized
|
|
Fair
|
|
Amortized
|
|
Unrealized
|
|
Unrealized
|
|
Fair
|
|
||||||||
|
(In
thousands)
|
|
Cost
|
|
Gains
|
|
(Losses)
|
|
Value
|
|
Cost
|
|
Gains
|
|
(Losses)
|
|
Value
|
|||||||||
|
Held-to-Maturity
|
|||||||||||||||||||||||||
|
U.S.
Treasury
|
$
|
--
|
$
|
--
|
$
|
--
|
$
|
--
|
$
|
1,004
|
$
|
--
|
$
|
(20
|
)
|
$
|
984
|
||||||||
|
U.S.
Government agencies
|
54,998
|
367
|
(272
|
)
|
55,093
|
28,000
|
--
|
(473
|
)
|
27,527
|
|||||||||||||||
|
Mortgage-backed
securities
|
155
|
3
|
(1
|
)
|
157
|
187
|
3
|
--
|
190
|
||||||||||||||||
|
State
and political subdivisions
|
122,472
|
667
|
(892
|
)
|
122,247
|
117,148
|
662
|
(1,298
|
)
|
116,512
|
|||||||||||||||
|
Other
securities
|
2,319
|
--
|
--
|
2,319
|
3,960
|
--
|
--
|
3,960
|
|||||||||||||||||
|
Total
|
$
|
179,944
|
$
|
1,037
|
$
|
(1,165
|
)
|
$
|
179,816
|
$
|
150,299
|
$
|
665
|
$
|
(1,791
|
)
|
$
|
149,173
|
|||||||
|
Available-for-Sale
|
|||||||||||||||||||||||||
|
U.S.
Treasury
|
$
|
6,970
|
$
|
--
|
$
|
(30
|
)
|
$
|
6,940
|
$
|
10,989
|
$
|
--
|
$
|
(102
|
)
|
$
|
10,887
|
|||||||
|
U.S.
Government agencies
|
326,301
|
287
|
(4,177
|
)
|
322,411
|
348,570
|
35
|
(7,615
|
)
|
340,990
|
|||||||||||||||
|
Mortgage-backed
securities
|
3,032
|
--
|
(76
|
)
|
2,956
|
3,392
|
9
|
(92
|
)
|
3,309
|
|||||||||||||||
|
State
and political subdivisions
|
1,360
|
10
|
--
|
1,370
|
3,014
|
39
|
--
|
3,053
|
|||||||||||||||||
|
Other
securities
|
13,035
|
470
|
--
|
13,505
|
12,561
|
690
|
--
|
13,251
|
|||||||||||||||||
|
Total
|
$
|
350,698
|
$
|
767
|
$
|
(4,283
|
)
|
$
|
347,182
|
$
|
378,526
|
$
|
773
|
$
|
(7,809
|
)
|
$
|
371,490
|
|||||||
29
Table
13
reflects the amortized cost and estimated fair value of securities at December
31, 2006, by contractual maturity and the weighted average yields (for
tax-exempt obligations on a fully taxable equivalent basis, assuming a 37.5%
tax
rate) of such securities. Expected maturities will differ from contractual
maturities, because borrowers may have the right to call or prepay obligations,
with or without call or prepayment penalties.
|
Table
13:
|
Maturity
Distribution of Investment
Securities
|
|
December
31, 2006
|
|||||||||||||||||||||||||
|
|
|
|
|
Over
|
|
|
Over
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
1
year
|
|
|
5
years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
year
|
|
|
through
|
|
|
through
|
|
|
Over
|
|
|
No
fixed
|
|
|
|
|
|
Par
|
|
|
Fair
|
|
|
(In
thousands)
|
|
|
or
less
|
|
|
5
years
|
|
|
10
years
|
|
|
10
years
|
|
|
maturity
|
|
|
Total
|
|
|
Value
|
|
|
Value
|
|
|
Held-to-Maturity
|
|||||||||||||||||||||||||
|
U.S.
Treasury
|
$
|
--
|
$
|
--
|
$
|
--
|
$
|
--
|
$
|
--
|
$
|
--
|
$
|
--
|
$
|
--
|
|||||||||
|
U.S.
Government agencies
|
10,998
|
16,000
|
28,000
|
--
|
--
|
54,998
|
55,000
|
55,093
|
|||||||||||||||||
|
Mortgage-backed
securities
|
--
|
4
|
15
|
136
|
--
|
155
|
155
|
157
|
|||||||||||||||||
|
State
and political subdivisions
|
9,551
|
41,395
|
56,033
|
15,493
|
--
|
122,472
|
122,540
|
122,247
|
|||||||||||||||||
|
Other
securities
|
--
|
--
|
--
|
930
|
1,389
|
2,319
|
2,319
|
2,319
|
|||||||||||||||||
|
Total
|
$
|
20,549
|
$
|
57,399
|
$
|
84,048
|
$
|
16,559
|
$
|
1,389
|
$
|
179,944
|
$
|
180,014
|
$
|
179,816
|
|||||||||
|
Percentage
of total
|
11.4
|
%
|
31.9
|
%
|
46.7
|
%
|
9.2
|
%
|
0.8
|
%
|
100.0
|
%
|
|||||||||||||
|
Weighted
average yield
|
4.3
|
%
|
4.5
|
%
|
4.6
|
%
|
4.3
|
%
|
4.3
|
%
|
4.5
|
%
|
|||||||||||||
|
Available-for-Sale
|
|||||||||||||||||||||||||
|
U.S.
Treasury
|
$
|
6,970
|
$
|
--
|
$
|
--
|
$
|
--
|
$
|
--
|
$
|
6,970
|
$
|
7,000
|
$
|
6,940
|
|||||||||
|
U.S.
Government agencies
|
85,562
|
129,356
|
111,382
|
--
|
--
|
326,300
|
326,325
|
322,411
|
|||||||||||||||||
|
Mortgage-backed
securities
|
10
|
48
|
855
|
2,119
|
--
|
3,032
|
3,077
|
2,956
|
|||||||||||||||||
|
State
and political subdivisions
|
505
|
856
|
--
|
--
|
--
|
1,361
|
1,360
|
1,370
|
|||||||||||||||||
|
Other
securities
|
--
|
--
|
--
|
--
|
13,035
|
13,035
|
13,505
|
13,505
|
|||||||||||||||||
|
Total
|
$
|
93,047
|
$
|
130,260
|
$
|
112,237
|
$
|
2,119
|
$
|
13,035
|
$
|
350,698
|
$
|
351,267
|
$
|
347,182
|
|||||||||
|
Percentage
of total
|
26.5
|
%
|
37.2
|
%
|
32.0
|
%
|
0.6
|
%
|
3.7
|
%
|
100.0
|
%
|
|||||||||||||
|
Weighted
average yield
|
3.3
|
%
|
4.1
|
%
|
5.8
|
%
|
5.2
|
%
|
6.7
|
%
|
4.5
|
%
|
|||||||||||||
|
Deposits
|
Deposits
are the Company’s primary source of funding for earning assets and are primarily
developed through the Company’s network of 82 financial centers. The Company
offers a variety of products designed to attract and retain customers with
a
continuing focus on developing core deposits. The Company’s core deposits
consist of all deposits excluding time deposits of $100,000 or more and brokered
deposits. As of December 31, 2006, core deposits comprised 77.3% of the
Company’s total deposits.
The
Company continually monitors the funding requirements at each affiliate bank,
along with competitive interest rates in the markets it serves. Because of
the
Company’s community banking philosophy, affiliate executives in the local
markets establish the interest rates offered on both core and non-core deposits.
This approach ensures that the interest rates being paid are competitively
priced for each particular deposit product and structured to meet the funding
requirements. The Company believes it is paying a competitive rate, when
compared with pricing in those markets.
30
The
Company manages its interest expense through deposit pricing and does not
anticipate a significant change in total deposits. The Company believes that
additional funds can be attracted and deposit growth can be accelerated through
deposit pricing if it experiences increased loan demand or other liquidity
needs. The Company began to utilize brokered deposits during 2005 as an
additional source of funding to meet liquidity needs.
The
Company’s total deposits as of December 31, 2006 were $2.175 billion, an
increase of $115 million, or 5.58%, from $2.060 billion at December 31, 2005.
The Company had $50 million and $51 million of brokered deposits at December
31,
2006 and 2005, respectively.
Table
14
reflects the classification of the average deposits and the average rate
paid on
each deposit category, which are in excess of 10 percent of average total
deposits for the three years ended December 31, 2006.
|
Table
14:
|
Average
Deposit Balances and Rates
|
|
December
31
|
|||||||||||||||||||||
|
2006
|
2005
|
2004
|
|||||||||||||||||||
|
|
|
Average
|
|
Average
|
|
Average
|
|
Average
|
Average
|
Average
|
|||||||||||
|
(In
thousands)
|
Amount
|
Rate
Paid
|
Amount
|
Rate
Paid
|
Amount
|
Rate
Paid
|
|||||||||||||||
|
Non-interest
bearing transaction accounts
|
$
|
308,804
|
--
|
$
|
303,974
|
--
|
$
|
293,060
|
--
|
||||||||||||
|
Interest
bearing transaction and savings
deposits
|
737,328
|
1.58%
|
|
762,558
|
1.02%
|
|
729,842
|
0.68%
|
|
||||||||||||
| Time deposits |
|
|
|||||||||||||||||||
|
$100,000
or more
|
407,778
|
4.08%
|
|
371,871
|
2.83%
|
|
349,224
|
2.00%
|
|
||||||||||||
|
Other
time deposits
|
644,927
|
3.92%
|
|
578,949
|
2.74%
|
|
543,136
|
2.06%
|
|
||||||||||||
|
Total
|
$
|
2,098,837
|
2.59%
|
|
$
|
2,017,352
|
1.79%
|
|
$
|
1,915,262
|
1.21%
|
|
|||||||||
The
Company's maturities of large denomination time deposits at December 31,
2006
and 2005 are presented in table 15.
|
Table
15:
|
Maturities
of Large Denomination Time
Deposits
|
|
Time
Certificates of Deposit
|
||||||||||||||
|
|
($100,000
or more)
|
|||||||||||||
|
|
December
31
|
|||||||||||||
|
2006
|
2005
|
|||||||||||||
|
(In
thousands)
|
Balance
|
Percent
|
Balance
|
Percent
|
||||||||||
|
Maturing
|
||||||||||||||
|
Three
months or less
|
$
|
123,214
|
27.4%
|
|
$
|
97,676
|
26.8%
|
|
||||||
|
Over
3 months to 6 months
|
108,716
|
24.1%
|
|
80,763
|
22.2%
|
|
||||||||
|
Over
6 months to 12 months
|
145,716
|
32.4%
|
|
113,968
|
31.3%
|
|
||||||||
|
Over
12 months
|
72,664
|
16.1%
|
|
71,770
|
19.7%
|
|
||||||||
|
Total
|
$
|
450,310
|
100.00%
|
|
$
|
364,177
|
100.00%
|
|
||||||
31
|
Short-Term
Debt
|
Federal
funds purchased and securities sold under agreements to repurchase were $105.0
million at December 31, 2006, as compared to $107.2 million at
December 31, 2005. Other short-term borrowings, consisting of U.S. TT&L
Notes and short-term FHLB borrowings, were $6.1 million at December 31, 2006,
as
compared to $8.0 million at December 31, 2005.
The
Company has historically funded its growth in earning assets through the
use of
core deposits, large certificates of deposits from local markets, FHLB
borrowings and Federal funds purchased. Management anticipates that these
sources will provide necessary funding in the foreseeable future.
|
Long-Term
Debt
|
The
Company’s long-term debt was $83.3 million and $87.0 million at December 31,
2006 and 2005, respectively. The outstanding balance for December 31, 2006
includes $2.0 million in long-term debt, $50.4 million in FHLB
long-term advances and $30.9 million of trust preferred securities. The
outstanding balance for December 31, 2005, includes $4.0 million in
long-term debt, $52.1 million in FHLB long-term advances and $30.9 million
of trust preferred securities.
During
the
year ended December 31, 2006, the Company decreased long-term debt by
$3.7 million,
or 4.3%
from December 31, 2005. This decrease is attributable to the Company’s annual
$2.0 million payment on its note payable along with scheduled principal pay
downs on FHLB long-term advances.
On
December 31, 2004, the Company redeemed the entire issue of Simmons First
Capital Trust 9.12% Trust Preferred Securities, due June 30, 2027, with an
aggregate face amount of $17,250,000.
Aggregate
annual maturities of long-term debt at December 31, 2006 are presented in
table
16.
Table
16: Maturities
of Long-Term Debt
|
(In
thousands)
|
Year
|
Annual
Maturities
|
|
|
2007
|
$
|
10,383
|
|
|
2008
|
12,987
|
||
|
2009
|
5,842
|
||
|
2010
|
5,087
|
||
|
2011
|
3,881
|
||
|
Thereafter
|
45,131
|
||
|
Total
|
$
|
83,311
|
|
Capital
|
Overview
At
December 31, 2006, total capital reached $259.0 million. Capital represents
shareholder ownership in the Company -- the book value of assets in excess
of
liabilities. At December 31, 2006, the Company’s equity to asset ratio was 9.77%
compared to 9.67% at year-end 2005.
Capital
Stock
At
the
Company’s annual shareholder meeting held on March 30, 2004, the shareholders
approved an amendment to the Articles of Incorporation reducing the par value
of
the Class A Common Stock from $1.00 to $0.01 and eliminating the authority
of
the Company to issue Class B Common Stock, Class A Preferred Stock and Class
B
Preferred Stock.
32
Stock
Repurchase
On
May 25,
2004, the Company announced the adoption by the Board of Directors of a
repurchase program. The program authorizes the repurchase of up to 5% of
the
outstanding Common Stock, or 733,485 shares. Under the repurchase program,
there
is no time limit for the stock repurchases, nor is there a minimum number
of
shares the Company intends to repurchase. The Company may discontinue purchases
at any time that management determines additional purchases are not warranted.
The shares are to be purchased from time to time at prevailing market prices,
through open market or unsolicited negotiated transactions, depending upon
market conditions. The Company intends to use the repurchased shares to satisfy
stock option exercise, payment of future stock dividends and general corporate
purposes.
During
the
year ended December 31, 2006, the Company repurchased a total of 203,100
shares
of stock with a weighted average repurchase price of $27.80 per share. Under
the
current stock repurchase plan, the Company can repurchase an additional 340,967
shares.
Cash
Dividends
The
Company declared cash dividends on its Common Stock of $0.68 per share for
the
twelve months ended 2006 compared to $0.61 per share for the twelve months
ended
2005. In recent years, the Company increased dividends no less than annually
and
presently plans to continue with this practice.
Parent
Company Liquidity
The
primary liquidity needs of the Parent Company are the payment of dividends
to
shareholders, the funding of debt obligations and the share repurchase plan.
The
primary sources for meeting these liquidity needs are the current cash on
hand
at the parent company and the future dividends received from the eight affiliate
banks. Payment of dividends by the eight affiliate banks is subject to various
regulatory limitations. Reference is made to Item 7A, Liquidity and Qualitative
Disclosures About Market Risk discussion for additional information regarding
the parent company’s liquidity.
Risk-Based
Capital
The
Company’s subsidiaries are subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory and possibly additional
discretionary actions by regulators that, if undertaken, could have a direct
material effect on the Company’s financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the
Company must meet specific capital guidelines that involve quantitative measures
of the Company’s assets, liabilities and certain off-balance-sheet items as
calculated under regulatory accounting practices. The Company’s capital amounts
and classifications are also subject to qualitative judgments by the regulators
about components, risk weightings and other factors.
Quantitative
measures established by regulation to ensure capital adequacy require the
Company to maintain minimum amounts and ratios (set forth in the table below)
of
total and Tier 1 capital (as defined in the regulations) to risk-weighted
assets
(as defined) and of Tier 1 capital (as defined) to average assets (as defined).
Management believes that, as of December 31, 2006, the Company meets all
capital
adequacy requirements to which it is subject.
As
of the
most recent notification from regulatory agencies, the subsidiaries were
well
capitalized under the regulatory framework for prompt corrective action.
To be
categorized as well capitalized, the Company and subsidiaries must maintain
minimum total risk-based, Tier 1 risk-based and Tier 1 leverage ratios as
set
forth in the table. There are no conditions or events since that notification
that management believes have changed the institutions’ categories.
33
The
Company's risk-based capital ratios at December 31, 2006 and 2005 are presented
in table 17.
Table
17: Risk-Based
Capital
|
December
31
|
|||||||
|
(In
thousands)
|
2006
|
2005
|
|||||
|
Tier
1 capital
|
|||||||
|
Stockholders’
equity
|
$
|
259,016
|
$
|
244,085
|
|||
|
Trust
preferred securities
|
30,000
|
30,000
|
|||||
|
Goodwill
and core deposits
|
(64,334
|
)
|
(65,278
|
)
|
|||
|
Unrealized
loss on available-for-sale securities
|
2,198
|
4,360
|
|||||
|
Other
|
--
|
--
|
|||||
|
Total
Tier 1 capital
|
226,880
|
213,167
|
|||||
|
Tier
2 capital
|
|||||||
|
Qualifying
unrealized gain on available-for-sale equity
securities
|
167
|
338
|
|||||
|
Qualifying
allowance for loan losses
|
22,953
|
21,811
|
|||||
|
Total
Tier 2 capital
|
23,120
|
22,149
|
|||||
|
Total
risk-based capital
|
$
|
250,000
|
$
|
235,316
|
|||
|
Risk
weighted assets
|
$
|
1,831,063
|
$
|
1,739,771
|
|||
|
Ratios
at end of year
|
|||||||
|
Leverage
ratio
|
8.83
|
%
|
8.61
|
%
|
|||
|
Tier
1 capital
|
12.39
|
%
|
12.25
|
%
|
|||
|
Total
risk-based capital
|
13.65
|
%
|
13.53
|
%
|
|||
|
Minimum
guidelines
|
|||||||
|
Leverage
ratio
|
4.00
|
%
|
4.00
|
%
|
|||
|
Tier
1 capital
|
4.00
|
%
|
4.00
|
%
|
|||
|
Total
risk-based capital
|
8.00
|
%
|
8.00
|
%
|
|||
|
Off-Balance
Sheet Arrangements and Aggregate Contractual
Obligations
|
In
the
normal course of business, the Company enters into a number of financial
commitments. Examples of these commitments include but are not limited
to
long-term debt financing, operating lease obligations, unfunded loan commitments
and letters of credit.
The
Company’s long-term debt at December 31, 2006, includes notes payable, FHLB
long-term advances and trust preferred securities, all of which the Company
is
contractually obligated to repay in future periods.
Operating
lease obligations entered into by the Company are generally associated
with the
operation of a few of the Company’s financial centers located throughout the
state of Arkansas. The financial obligation by the Company on these locations
is
considered immaterial due to the limited number of financial centers, which
operate under an agreement of this type.
Commitments
to extend credit and letters of credit are legally binding, conditional
agreements generally having fixed expiration or termination dates. These
commitments generally require customers to maintain certain credit standards
and
are established based on management’s credit assessment of the customer. The
commitments may expire without being drawn upon. Therefore, the total commitment
does not necessarily represent future requirements.
34
The
funding requirements of the Company's most significant financial commitments,
at
December 31, 2006 are shown in table 18.
Table
18: Funding
Requirements of Financial Commitments
|
Payments
due by period
|
||||||||||||||||
|
Less
than
|
1-3
|
3-5
|
Greater
than
|
|||||||||||||
|
(In
thousands)
|
1
Year
|
Years
|
Years
|
5
Years
|
Total
|
|||||||||||
|
Long-term
debt
|
$
|
10,383
|
$
|
18,829
|
$
|
8,968
|
$
|
45,131
|
$
|
83,311
|
||||||
|
Credit
card loan commitments
|
202,047
|
--
|
--
|
--
|
202,047
|
|||||||||||
|
Other
loan commitments
|
529,697
|
--
|
--
|
--
|
529,697
|
|||||||||||
|
Letters
of credit
|
5,477
|
--
|
--
|
--
|
5,477
|
|||||||||||
The
Company has $64.8 million and $65.6 million total goodwill and core deposit
premiums for the periods ended December 31, 2006 and December 31, 2005,
respectively. Because of the Company’s high level of these two intangible
assets, management believes a useful calculation is tangible return on
equity.
This calculation for the twelve months ended December 31, 2006, 2005, 2004,
2003
and 2002, which is similar to the GAAP calculation of return on average
stockholders’ equity, is presented in table 19.
Table
19: Return
on Tangible Equity
|
(In
thousands)
|
2006
|
2005
|
2004
|
2003
|
2002
|
||||||||||||||
|
Twelve
months ended
|
|||||||||||||||||||
|
Return
on average stockholders equity: (A/C)
|
10.93
|
%
|
11.24
|
%
|
10.64
|
%
|
11.57
|
%
|
11.56
|
%
|
|||||||||
|
Return
on tangible equity: (A+B)/(C-D)
|
15.03
|
%
|
15.79
|
%
|
14.94
|
%
|
14.03
|
%
|
13.99
|
%
|
|||||||||
|
Net
income
|
$
|
27,481
|
$
|
26,962
|
$
|
24,446
|
$
|
23,790
|
$
|
22,078
|
(A
|
)
|
|||||||
|
Amortization
of intangibles, net of taxes
|
519
|
522
|
494
|
108
|
49
|
(B
|
)
|
||||||||||||
|
Average
stockholders' equity
|
251,518
|
239,976
|
229,719
|
205,683
|
190,947
|
(C
|
)
|
||||||||||||
|
Average
goodwill and core deposits, net
|
65,233
|
65,913
|
62,836
|
35,335
|
32,808
|
(D
|
)
|
||||||||||||
35
On
December 31, 2004, the Company recorded a nonrecurring $470,000 after tax
charge, or a $0.03 reduction in diluted earnings per share, related to the
write off of deferred debt issuance cost associated with the redemption
of its
9.12% trust preferred securities. During the second quarter 2003, the Company
recorded a nonrecurring $0.03 addition to earnings per share, resulting
from the sale of its mortgage servicing portfolio. In light of these events,
Management believes operating earnings (earnings excluding nonrecurring
items)
is a useful calculation in reflection the Company’s performance. This
calculation for the twelve months ended December 31, 2006, 2005, 2004,
2003 and 2002 is presented in table 20.
Table
20: Operating
Earnings
|
(In
thousands, except share data)
|
2006
|
2005
|
2004
|
2003
|
2002
|
|||||||||||
|
Twelve
months ended
|
||||||||||||||||
|
Net
Income
|
$
|
27,481
|
$
|
26,962
|
$
|
24,446
|
$
|
23,790
|
$
|
22,078
|
||||||
|
Nonrecurring
items
|
||||||||||||||||
|
Gain
on sale of mortgage servicing
|
--
|
--
|
--
|
(771
|
)
|
--
|
||||||||||
|
Write
off of deferred debt issuance cost
|
--
|
--
|
771
|
--
|
--
|
|||||||||||
|
Tax
effect
|
--
|
--
|
(301
|
)
|
301
|
--
|
||||||||||
|
Net
nonrecurring items
|
--
|
--
|
470
|
(470
|
)
|
--
|
||||||||||
|
Operating
Income
|
$
|
27,481
|
$
|
26,962
|
$
|
24,916
|
$
|
23,320
|
$
|
22,078
|
||||||
|
Diluted
earnings per share
|
$
|
1.90
|
$
|
1.84
|
$
|
1.65
|
$
|
1.65
|
$
|
1.54
|
||||||
|
Nonrecurring
items
|
||||||||||||||||
|
Gain
on sale of mortgage servicing
|
--
|
--
|
--
|
(0.05
|
)
|
--
|
||||||||||
|
Write
off of deferred debt issuance cost
|
--
|
--
|
0.05
|
--
|
--
|
|||||||||||
|
Tax
effect
|
--
|
--
|
(0.02
|
)
|
0.02
|
--
|
||||||||||
|
Net
nonrecurring items
|
--
|
--
|
0.03
|
(0.03
|
)
|
--
|
||||||||||
|
Diluted
operating earnings per share
|
$
|
1.90
|
$
|
1.84
|
$
|
1.68
|
$
|
1.62
|
$
|
1.54
|
||||||
|
Quarterly
Results
|
Selected
unaudited quarterly financial information for the last eight quarters
is shown
in table 21.
Table
21: Quarterly
Results
|
Quarter
|
||||||||||||||||
|
(In
thousands, except per share data)
|
First
|
Second
|
Third
|
Fourth
|
Total
|
|||||||||||
|
2006
|
||||||||||||||||
|
Net
interest income
|
$
|
21,952
|
$
|
22,192
|
$
|
22,377
|
$
|
22,283
|
$
|
88,804
|
||||||
|
Provision
for loan losses
|
1,708
|
789
|
602
|
663
|
3,762
|
|||||||||||
|
Non-interest
income
|
10,612
|
11,516
|
11,026
|
10,793
|
43,947
|
|||||||||||
|
Non-interest
expense
|
22,125
|
22,301
|
22,135
|
22,507
|
89,068
|
|||||||||||
|
Loss
on sale of securities, net
|
--
|
--
|
--
|
--
|
--
|
|||||||||||
|
Net
income
|
5,988
|
7,296
|
7,447
|
6,750
|
27,481
|
|||||||||||
|
Basic
earnings per share
|
0.42
|
0.51
|
0.53
|
0.47
|
1.93
|
|||||||||||
|
Diluted
earnings per share
|
0.41
|
0.51
|
0.51
|
0.47
|
1.90
|
|||||||||||
|
2005
|
||||||||||||||||
|
Net
interest income
|
$
|
22,093
|
$
|
22,477
|
$
|
22,872
|
$
|
22,815
|
$
|
90,257
|
||||||
|
Provision
for loan losses
|
2,221
|
1,939
|
1,736
|
1,630
|
7,526
|
|||||||||||
|
Non-interest
income
|
10,071
|
10,997
|
10,740
|
10,678
|
42,486
|
|||||||||||
|
Non-interest
expense
|
21,415
|
20,964
|
21,226
|
21,979
|
85,584
|
|||||||||||
|
Loss
on sale of securities, net
|
--
|
(168
|
)
|
--
|
--
|
(168
|
)
|
|||||||||
|
Net
income
|
5,860
|
6,943
|
7,334
|
6,825
|
26,962
|
|||||||||||
|
Basic
earnings per share
|
0.41
|
0.48
|
0.51
|
0.48
|
1.88
|
|||||||||||
|
Diluted
earnings per share
|
0.40
|
0.47
|
0.50
|
0.47
|
1.84
|
|||||||||||
36
| ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
|
Liquidity
and Market Risk Management
|
Parent
Company
The
Company has leveraged its investment in subsidiary banks and depends upon
the
dividends paid to it, as the sole shareholder of the subsidiary banks, as
a
principal source of funds for dividends to shareholders, stock repurchases
and
debt service requirements. At December 31, 2006, undivided profits of the
Company's subsidiaries were approximately $142 million, of which approximately
$13 million was available for the payment of dividends to the Company without
regulatory approval. In addition to dividends, other sources of liquidity
for
the Company are the sale of equity securities and the borrowing of
funds.
Banking
Subsidiaries
Generally
speaking, the Company's banking subsidiaries rely upon net inflows of cash
from
financing activities, supplemented by net inflows of cash from operating
activities, to provide cash used in investing activities. Typical of most
banking companies, significant financing activities include: deposit gathering;
use of short-term borrowing facilities, such as Federal funds purchased and
repurchase agreements; and the issuance of long-term debt. The banks' primary
investing activities include loan originations and purchases of investment
securities, offset by loan payoffs and investment maturities.
Liquidity
represents an institution's ability to provide funds to satisfy demands from
depositors and borrowers, by either converting assets into cash or accessing
new
or existing sources of incremental funds. A major responsibility of management
is to maximize net interest income within prudent liquidity constraints.
Internal corporate guidelines have been established to constantly measure
liquid
assets, as well as relevant ratios concerning earning asset levels and purchased
funds. The management and board of directors of each bank subsidiary monitor
these same indicators and make adjustments as needed. At December 31, 2006,
each
subsidiary bank was within established guidelines and total corporate liquidity
remains strong. At December 31, 2006, cash and cash equivalents,
trading and available-for-sale securities and mortgage loans held for sale
were
19.4% of total assets, as compared to 19.2% at December 31, 2005.
Liquidity
Management
The
objective of the Company’s liquidity management is to access adequate sources of
funding to ensure that cash flow requirements of depositors and borrowers
are
met in an orderly and timely manner. Sources of liquidity are managed so
that
reliance on any one funding source is kept to a minimum. The Company’s liquidity
sources are prioritized for both availability and time to
activation.
The
Company’s liquidity is a primary consideration in determining funding needs and
is an integral part of asset/liability management. Pricing of the liability
side
is a major component of interest margin and spread management. Adequate
liquidity is a necessity in addressing this critical task. There are six
primary
and secondary sources of liquidity available to the Company. The particular
liquidity need and timeframe determine the use of these sources.
The
first
source of liquidity available to the Company is Federal funds. Federal funds,
primarily from downstream correspondent banks, are available on a daily basis
and are used to meet the normal fluctuations of a dynamic balance sheet.
In
addition, the Company and its affiliates have approximately $106 million
in
Federal funds lines of credit from upstream correspondent banks that can
be
accessed, when needed. In order to ensure availability of these upstream
funds,
the Company has a plan for rotating the usage of the funds among the upstream
correspondent banks, thereby providing approximately $40 million in funds
on a
given day. Historical monitoring of these funds has made it possible for
the
Company to project seasonal fluctuations and structure its funding requirements
on a month-to-month basis.
A
second
source of liquidity is the retail deposits available through the Company’s
network of affiliate banks throughout Arkansas. Although this method can
be a
somewhat more expensive alternative to supplying liquidity, this source can
be
used to meet intermediate term liquidity needs.
37
Third,
the
Company’s affiliate banks have lines of credits available with the Federal Home
Loan Bank. While the Company uses portions of those lines to match off
longer-term mortgage loans, the Company also uses those lines to meet liquidity
needs. Approximately $409 million of these lines of credit are currently
available, if needed.
Fourth,
the Company uses a laddered investment portfolio that ensures there is a
steady
source of intermediate term liquidity. These funds can be used to meet seasonal
loan patterns and other intermediate term balance sheet fluctuations.
Approximately 66% of the investment portfolio is classified as
available-for-sale. The Company also uses securities held in the securities
portfolio to pledge when obtaining public funds.
The
fifth
source of liquidity is the ability to access large deposits from both the
public
and private sector to fund short-term liquidity needs.
Finally,
the Company has established a $5 million unsecured line of credit with a
major
commercial bank that could be used to meet unexpected liquidity needs at
both
the parent company level as well as at any affiliate bank.
The
Company believes the various sources available are ample liquidity for
short-term, intermediate-term and long-term liquidity.
Market
Risk Management
Market
risk arises from changes in interest rates. The Company has risk management
policies to monitor and limit exposure to market risk. In asset and liability
management activities, policies designed to minimize structural interest
rate
risk are in place. The measurement of market risk associated with financial
instruments is meaningful only when all related and offsetting on- and
off-balance-sheet transactions are aggregated, and the resulting net positions
are identified.
Interest
Rate Sensitivity
Interest
rate risk represents the potential impact of interest rate changes on net
income
and capital resulting from mismatches in repricing opportunities of assets
and
liabilities over a period of time. A number of tools are used to monitor
and
manage interest rate risk, including simulation models and interest sensitivity
gap analysis. Management uses simulation models to estimate the effects of
changing interest rates and various balance sheet strategies on the level
of the
Company’s net income and capital. As a means of limiting interest rate risk to
an acceptable level, management may alter the mix of floating and fixed-rate
assets and liabilities, change pricing schedules and manage investment
maturities during future security purchases.
The
simulation model incorporates management’s assumptions regarding the level of
interest rates or balance changes for indeterminate maturity deposits for
a
given level of market rate changes. These assumptions have been developed
through anticipated pricing behavior. Key assumptions in the simulation models
include the relative timing of prepayments, cash flows and maturities. These
assumptions are inherently uncertain and, as a result, the model cannot
precisely estimate net interest income or precisely predict the impact of
a
change in interest rates on net income or capital. Actual results will differ
from simulated results due to the timing, magnitude and frequency of interest
rate changes and changes in market conditions and management strategies,
among
other factors.
38
The
table
below presents the Company’s interest rate sensitivity position at December 31,
2006. This analysis is based on a point in time and may not be meaningful
because assets and liabilities are categorized according to contractual
maturities, repricing periods and expected cash flows rather than estimating
more realistic behaviors, as is done in the simulation models. Also, this
analysis does not consider subsequent changes in interest rate level or spreads
between asset and liability categories.
Table: 22 Interest
Rate Sensitivity
|
Interest
Rate Sensitivity Period
|
|||||||||||||||||||||||||
|
0-30
|
31-90
|
91-180
|
181-365
|
1-2
|
2-5
|
Over
5
|
|||||||||||||||||||
|
(In
thousands, except ratios)
|
Days
|
Days
|
Days
|
Days
|
Years
|
Years
|
Years
|
Total
|
|||||||||||||||||
|
Earning
assets
|
|||||||||||||||||||||||||
|
Short-term
investments
|
$
|
67,699
|
$
|
--
|
$
|
--
|
$
|
--
|
$
|
--
|
$
|
--
|
$
|
--
|
$
|
67,699
|
|||||||||
|
Assets
held in trading accounts
|
4,487
|
--
|
--
|
--
|
--
|
--
|
--
|
4,487
|
|||||||||||||||||
|
Investment
securities
|
8,469
|
27,905
|
31,012
|
44,459
|
88,565
|
89,687
|
237,029
|
527,126
|
|||||||||||||||||
|
Mortgage
loans held for sale
|
7,091
|
--
|
--
|
--
|
--
|
--
|
--
|
7,091
|
|||||||||||||||||
|
Loans
|
585,505
|
152,157
|
183,546
|
333,129
|
293,000
|
224,783
|
11,375
|
1,783,495
|
|||||||||||||||||
|
Total
earning assets
|
673,251
|
180,062
|
214,558
|
377,588
|
381,565
|
314,470
|
248,404
|
2,389,898
|
|||||||||||||||||
|
Interest
bearing liabilities
|
|||||||||||||||||||||||||
|
Interest
bearing transaction and
savings deposits
|
416,081
|
--
|
--
|
--
|
64,536
|
193,609
|
64,537
|
738,763
|
|||||||||||||||||
|
Time
deposits
|
106,816
|
185,399
|
245,220
|
374,118
|
194,426
|
25,462
|
--
|
1,131,441
|
|||||||||||||||||
|
Short-term
debt
|
111,700
|
--
|
--
|
--
|
--
|
--
|
--
|
111,700
|
|||||||||||||||||
|
Long-term
debt
|
14,950
|
1,415
|
2,112
|
6,424
|
12,319
|
15,129
|
30,962
|
83,311
|
|||||||||||||||||
|
Total
interest bearing liabilities
|
649,547
|
186,814
|
247,332
|
380,542
|
271,281
|
234,200
|
95,499
|
2,065,215
|
|||||||||||||||||
|
Interest
rate sensitivity Gap
|
$
|
23,704
|
$
|
(6,752
|
)
|
$
|
(32,774
|
)
|
$
|
(2,954
|
)
|
$
|
110,284
|
$
|
80,270
|
$
|
152,905
|
$
|
324,683
|
||||||
|
Cumulative
interest rate sensitivity Gap
|
$
|
23,704
|
$
|
16,952
|
$
|
(15,822
|
)
|
$
|
(18,776
|
)
|
$
|
91,508
|
$
|
171,778
|
$
|
324,683
|
|||||||||
|
Cumulative
rate sensitive assets to
rate sensitive liabilities
|
103.6
|
%
|
102.0
|
%
|
98.5
|
%
|
98.7
|
%
|
105.3
|
%
|
108.7
|
%
|
115.7
|
%
|
|||||||||||
|
Cumulative
Gap as a % of earning
assets
|
1.0
|
%
|
0.7
|
%
|
-0.7
|
%
|
-0.8
|
%
|
3.8
|
%
|
7.2
|
%
|
13.6
|
%
|
|||||||||||
39
| ITEM 8. | CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
INDEX
|
Management’s
Report on Internal Control Over Financial Reporting
|
41
|
|
|
Report
of Independent Registered Public Accounting Firm
|
||
|
Report
on Internal Control Over Financial Reporting
|
42
|
|
|
Report
on Consolidated Financial Statements
|
43
|
|
|
Consolidated
Balance Sheets, December 31, 2006 and 2005
|
44
|
|
|
Consolidated
Statements of Income, Years Ended
|
||
|
December
31, 2006, 2005 and 2004
|
45
|
|
|
Consolidated
Statements of Cash Flows, Years Ended
|
||
|
December
31, 2006, 2005 and 2004
|
46
|
|
|
Consolidated
Statements of Stockholders’ Equity, Years Ended
|
||
|
December
31, 2006, 2005 and 2004
|
47
|
|
|
Notes
to Consolidated Financial Statements,
|
||
|
December
31, 2006, 2005 and 2004
|
48
|
Note: Supplementary
Data may be found in Item 7 “Management’s Discussion and Analysis of Financial
Condition and Results of Operations - Quarterly Results” on page 36
hereof.
40
Management’s
Report on Internal Control Over Financial Reporting
The
management of Simmons First National Corporation (the “Company”) is responsible
for establishing and maintaining adequate internal control over financial
reporting. The Company’s internal control over financial reporting is a process
designed under the supervision of the Company’s Chief Executive Officer and
Chief Financial Officer to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of the Company’s
financial statements for external purposes in accordance with generally accepted
accounting principles.
As
of
December 31, 2006, management assessed the effectiveness of the Company’s
internal control over financial reporting based on the criteria for effective
internal control over financial reporting established in “Internal Control —
Integrated Framework,” issued by the Committee of Sponsoring Organizations
(COSO) of the Treadway Commission. Based on the assessment, management
determined that the Company maintained effective internal control over financial
reporting as of December 31, 2006, based on those criteria.
BKD,
LLP,
the independent registered public accounting firm that audited the consolidated
financial statements of the Company included in this Annual Report on Form
10-K,
has issued an attestation report on management’s assessment of the effectiveness
of the Company’s internal control over financial reporting as of December 31,
2006. The report, which expresses unqualified opinions on management’s
assessment and on the effectiveness of the Company’s internal control over
financial reporting as of December 31, 2006, immediately follows.
41
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Audit
Committee, Board of Directors and Stockholders
Simmons
First National Corporation
Pine
Bluff, Arkansas
We
have
audited management’s assessment, included in the accompanying Management’s
Report on Internal Control over Financial Reporting, that SIMMONS FIRST NATIONAL
CORPORATION maintained effective internal control over financial reporting
as of
December 31, 2006, based on criteria established in Internal
Control - Integrated Framework
issued by
the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
The
Company’s management is responsible for maintaining effective internal control
over financial reporting and for its assessment of the effectiveness of internal
control over financial reporting. Our responsibility is to express an opinion
on
management’s assessment and an opinion on the effectiveness of the Company’s
internal control over financial reporting based on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that
we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. An audit includes obtaining an understanding of internal control
over
financial reporting, evaluating management’s assessment, testing and evaluating
the design and operating effectiveness of internal control and performing
such
other procedures as we consider necessary in the circumstances. We believe
that
our audit provides a reasonable basis for our opinion.
A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain
to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary
to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company
are
being made only in accordance with authorizations of management and directors
of
the company; and (3) provide reasonable assurance regarding prevention or
timely
detection of unauthorized acquisition, use or disposition of the company’s
assets that could have a material effect on the financial
statements.
Because
of
its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may
become
inadequate because of changes in conditions or that the degree of compliance
with the policies or procedures may deteriorate.
In
our
opinion, management’s assessment that SIMMONS FIRST NATIONAL CORPORATION
maintained effective internal control over financial reporting as of December
31, 2006, is fairly stated, in all material respects, based on criteria
established in Internal
Control - Integrated Framework
issued by
the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
Also in our opinion, SIMMONS FIRST NATIONAL CORPORATION maintained, in all
material respects, effective internal control over financial reporting as
of
December 31, 2006, based on criteria established in Internal
Control - Integrated Framework
issued by
the Committee of Sponsoring Organizations of the Treadway Commission
(COSO).
We
have
also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated financial statements of
SIMMONS FIRST NATIONAL CORPORATION and our report dated February 19, 2007
expressed an unqualified opinion thereon.
/s/
BKD,
LLP
BKD,
LLP
Pine
Bluff, Arkansas
February
19, 2007
42
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Audit
Committee, Board of Directors and Stockholders
Simmons
First National Corporation
Pine
Bluff, Arkansas
We
have
audited the accompanying consolidated balance sheets of SIMMONS FIRST NATIONAL
CORPORATION as of December 31, 2006 and 2005, and the related consolidated
statements of income, cash flows and stockholders' equity for each of the
three
years in the period ended December 31, 2006. These financial statements are
the
responsibility of the Company’s management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that
we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining,
on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In
our
opinion, the consolidated financial statements referred to above present
fairly,
in all material respects, the financial position of SIMMONS FIRST NATIONAL
CORPORATION as of December 31, 2006 and 2005, and the results of its operations
and its cash flows for each of the three years in the period ended
December 31, 2006, in conformity with accounting principles generally
accepted in the United States of America.
We
have
also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the effectiveness of Simmons First National
Corporation’s internal control over financial reporting as of December 31, 2006,
based on criteria established in
Internal Control - Integrated Framework
issued by
the Committee of Sponsoring Organizations of the Treadway Commission (COSO)
and
our report dated February 19, 2007 expressed unqualified opinions on
management’s assessment and the effectiveness of the Company’s internal control
over financial reporting.
/s/
BKD,
LLP
BKD,
LLP
Pine
Bluff, Arkansas
February
19, 2007
43
|
CONSOLIDATED
BALANCE SHEETS
|
|||||||
|
DECEMBER
31, 2006 and 2005
|
|||||||
|
(In
thousands, except share data)
|
2006
|
2005
|
|||||
|
ASSETS
|
|||||||
|
Cash
and non-interest bearing balances due from banks
|
$
|
83,452
|
$
|
75,461
|
|||
|
Interest
bearing balances due from banks
|
45,829
|
14,397
|
|||||
|
Federal
funds sold
|
21,870
|
11,715
|
|||||
|
Cash
and cash equivalents
|
151,151
|
101,573
|
|||||
|
Investment
securities
|
527,126
|
521,789
|
|||||
|
Mortgage
loans held for sale
|
7,091
|
7,857
|
|||||
|
Assets
held in trading accounts
|
4,487
|
4,631
|
|||||
|
Loans
|
1,783,495
|
1,718,107
|
|||||
|
Allowance
for loan losses
|
(25,385
|
)
|
(26,923
|
)
|
|||
|
Net
loans
|
1,758,110
|
1,691,184
|
|||||
|
Premises
and equipment
|
67,926
|
63,360
|
|||||
|
Foreclosed
assets held for sale, net
|
1,940
|
1,540
|
|||||
|
Interest
receivable
|
21,974
|
18,754
|
|||||
|
Bank
owned life insurance
|
36,133
|
33,269
|
|||||
|
Goodwill
|
60,605
|
60,605
|
|||||
|
Core
deposit premiums
|
4,199
|
5,029
|
|||||
|
Other
assets
|
10,671
|
14,177
|
|||||
|
TOTAL
ASSETS
|
$
|
2,651,413
|
$
|
2,523,768
|
|||
|
LIABILITIES
|
|||||||
|
Non-interest
bearing transaction accounts
|
$
|
305,327
|
$
|
331,113
|
|||
|
Interest
bearing transaction accounts and savings deposits
|
738,763
|
749,925
|
|||||
| Time deposits |
1,131,441
|
978,920
|
|||||
|
Total
deposits
|
2,175,531
|
2,059,958
|
|||||
|
Federal
funds purchased and securities sold
|
|||||||
|
under
agreements to repurchase
|
105,036
|
107,223
|
|||||
|
Short-term
debt
|
6,114
|
8,031
|
|||||
|
Long-term
debt
|
83,311
|
87,020
|
|||||
|
Accrued
interest and other liabilities
|
22,405
|
17,451
|
|||||
|
Total
liabilities
|
2,392,397
|
2,279,683
|
|||||
|
STOCKHOLDERS’
EQUITY
|
|||||||
|
Capital
stock
|
|||||||
|
Class
A, common, par value $0.01 a share,
|
|||||||
|
authorized
30,000,000 shares, 14,196,855
|
|||||||
|
issued
and outstanding at 2006 and 14,326,923 at 2005
|
142
|
143
|
|||||
|
Surplus
|
48,678
|
53,723
|
|||||
|
Undivided
profits
|
212,394
|
194,579
|
|||||
|
Accumulated
other comprehensive income (loss)
|
|||||||
|
Unrealized
depreciation on available-for-sale
|
|||||||
|
securities,
net of income tax credits of $1,319 at 2006
|
|||||||
|
and
$2,615 at 2005
|
(2,198
|
)
|
(4,360
|
)
|
|||
|
Total
stockholders’ equity
|
259,016
|
244,085
|
|||||
|
TOTAL
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
$
|
2,651,413
|
$
|
2,523,768
|
|||
See
Notes
to Consolidated Financial Statements.
44
|
CONSOLIDATED
STATEMENTS OF INCOME
|
||||||||||
|
YEARS
ENDED DECEMBER 31, 2006, 2005 and 2004
|
||||||||||
|
(In
thousands, except per share data)
|
2006
|
2005
|
2004
|
|||||||
|
INTEREST
INCOME
|
||||||||||
|
Loans
|
$
|
130,248
|
$
|
112,238
|
$
|
96,853
|
||||
|
Federal
funds sold
|
1,057
|
925
|
748
|
|||||||
|
Investment
securities
|
20,438
|
18,677
|
17,447
|
|||||||
|
Mortgage
loans held for sale
|
476
|
552
|
575
|
|||||||
|
Assets
held in trading accounts
|
71
|
99
|
41
|
|||||||
|
Interest
bearing balances due from banks
|
1,072
|
580
|
400
|
|||||||
|
TOTAL
INTEREST INCOME
|
153,362
|
133,071
|
116,064
|
|||||||
|
INTEREST
EXPENSE
|
||||||||||
|
Deposits
|
54,250
|
34,208
|
23,163
|
|||||||
|
Federal
funds purchased and securities sold
|
||||||||||
|
under
agreements to repurchase
|
4,615
|
3,104
|
1,227
|
|||||||
|
Short-term
debt
|
1,227
|
1,101
|
175
|
|||||||
|
Long-term
debt
|
4,466
|
4,401
|
5,863
|
|||||||
|
TOTAL
INTEREST EXPENSE
|
64,558
|
42,814
|
30,428
|
|||||||
|
NET
INTEREST INCOME
|
88,804
|
90,257
|
85,636
|
|||||||
|
Provision
for loan losses
|
3,762
|
7,526
|
8,027
|
|||||||
|
NET
INTEREST INCOME AFTER PROVISION
|
||||||||||
|
FOR
LOAN LOSSES
|
85,042
|
82,731
|
77,609
|
|||||||
|
NON-INTEREST
INCOME
|
||||||||||
|
Trust
income
|
5,612
|
5,589
|
5,421
|
|||||||
|
Service
charges on deposit accounts
|
15,795
|
15,818
|
14,564
|
|||||||
|
Other
service charges and fees
|
2,561
|
2,017
|
2,016
|
|||||||
|
Income
on sale of mortgage loans, net of commissions
|
2,849
|
2,919
|
3,391
|
|||||||
|
Income
on investment banking, net of commissions
|
341
|
416
|
645
|
|||||||
|
Credit
card fees
|
10,742
|
10,252
|
10,001
|
|||||||
|
Premiums
on sale of student loans
|
2,071
|
1,822
|
2,114
|
|||||||
|
Bank
owned life insurance income
|
1,523
|
953
|
261
|
|||||||
|
Other
income
|
2,453
|
2,700
|
2,292
|
|||||||
|
Loss
on sale of securities, net of taxes
|
--
|
(168
|
)
|
--
|
||||||
|
TOTAL
NON-INTEREST INCOME
|
43,947
|
42,318
|
40,705
|
|||||||
|
NON-INTEREST
EXPENSE
|
||||||||||
|
Salaries
and employee benefits
|
53,442
|
51,270
|
48,533
|
|||||||
|
Occupancy
expense, net
|
6,385
|
5,840
|
5,500
|
|||||||
|
Furniture
and equipment expense
|
5,718
|
5,758
|
5,646
|
|||||||
|
Loss
on foreclosed assets
|
136
|
191
|
346
|
|||||||
|
Deposit
insurance
|
270
|
279
|
284
|
|||||||
|
Other
operating expenses
|
23,117
|
22,246
|
22,076
|
|||||||
|
TOTAL
NON-INTEREST EXPENSE
|
89,068
|
85,584
|
82,385
|
|||||||
|
INCOME
BEFORE INCOME TAXES
|
39,921
|
39,465
|
35,929
|
|||||||
|
Provision
for income taxes
|
12,440
|
12,503
|
11,483
|
|||||||
|
NET
INCOME
|
$
|
27,481
|
$
|
26,962
|
$
|
24,446
|
||||
|
BASIC
EARNINGS PER SHARE
|
$
|
1.93
|
$
|
1.88
|
$
|
1.68
|
||||
|
DILUTED
EARNINGS PER SHARE
|
$
|
1.90
|
$
|
1.84
|
$
|
1.65
|
||||
See
Notes
to Consolidated Financial Statements.
45
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
||||||||||
|
YEARS
ENDED DECEMBER 31, 2006, 2005 and 2004
|
||||||||||
|
(In
thousands)
|
2006
|
2005
|
2004
|
|||||||
|
CASH
FLOWS FROM OPERATING ACTIVITIES
|
||||||||||
|
Net
income
|
$
|
27,481
|
$
|
26,962
|
$
|
24,446
|
||||
|
Items
not requiring (providing) cash
|
||||||||||
|
Depreciation
and amortization
|
5,501
|
4,861
|
5,385
|
|||||||
|
Provision
for loan losses
|
3,762
|
7,526
|
8,027
|
|||||||
|
Net
amortization of investment securities
|
188
|
370
|
686
|
|||||||
|
Deferred
income taxes
|
2,221
|
1,342
|
2,946
|
|||||||
|
Provision
for losses on foreclosed assets
|
--
|
--
|
89
|
|||||||
|
Loss
on sale of securities, net of taxes
|
--
|
168
|
--
|
|||||||
|
Bank
owned life insurance income
|
(1,523
|
)
|
(953
|
)
|
(261
|
)
|
||||
|
Changes
in
|
||||||||||
|
Interest
receivable
|
(3,220
|
)
|
(4,506
|
)
|
(775
|
)
|
||||
|
Mortgage
loans held for sale
|
766
|
1,389
|
2,965
|
|||||||
|
Assets
held in trading accounts
|
143
|
285
|
(4,826
|
)
|
||||||
|
Other
assets
|
3,508
|
(1,949
|
)
|
4,733
|
||||||
|
Accrued
interest and other liabilities
|
3,596
|
1,366
|
(3,027
|
)
|
||||||
|
Income
taxes payable
|
(863
|
)
|
142
|
(1,317
|
)
|
|||||
|
Net
cash provided by operating activities
|
41,560
|
37,003
|
39,071
|
|||||||
|
CASH
FLOWS FROM INVESTING ACTIVITIES
|
||||||||||
|
Net
originations of loans
|
(72,137
|
)
|
(156,243
|
)
|
(93,105
|
)
|
||||
|
Purchase
of bank and branch locations, net funds
|
||||||||||
|
received
(disbursed)
|
--
|
1,945
|
(2,943
|
)
|
||||||
|
Purchases
of premises and equipment, net
|
(9,238
|
)
|
(10,150
|
)
|
(10,212
|
)
|
||||
|
Proceeds
from sale of foreclosed assets
|
1,049
|
2,700
|
3,229
|
|||||||
|
Proceeds
from sale of securities
|
2,161
|
1,225
|
17,958
|
|||||||
|
Proceeds
from maturities of available-for-sale securities
|
130,345
|
88,382
|
134,106
|
|||||||
|
Purchases
of available-for-sale securities
|
(106,088
|
)
|
(73,921
|
)
|
(161,857
|
)
|
||||
|
Proceeds
from maturities of held-to-maturity securities
|
29,431
|
32,921
|
46,496
|
|||||||
|
Purchases
of held-to-maturity securities
|
(59,213
|
)
|
(32,220
|
)
|
(22,165
|
)
|
||||
|
Purchases
of bank owned life insurance
|
(1,341
|
)
|
(25,000
|
)
|
--
|
|||||
|
Net
cash used in investing activities
|
(85,031
|
)
|
(170,361
|
)
|
(88,493
|
)
|
||||
|
CASH
FLOWS FROM FINANCING ACTIVITIES
|
||||||||||
|
Net
change in deposits
|
115,573
|
98,609
|
38,813
|
|||||||
|
Net
change in short-term debt
|
(1,917
|
)
|
5,658
|
(4,460
|
)
|
|||||
|
Dividends
paid
|
(9,666
|
)
|
(8,757
|
)
|
(8,263
|
)
|
||||
|
Proceeds
from issuance of long-term debt
|
7,275
|
1,821
|
9,900
|
|||||||
|
Repayment
of long-term debt
|
(10,984
|
)
|
(9,464
|
)
|
(28,934
|
)
|
||||
|
Net
change in Federal funds purchased and
|
||||||||||
|
securities
sold under agreements to repurchase
|
(2,187
|
)
|
2,438
|
(4,123
|
)
|
|||||
|
Repurchase
of common stock, net
|
(5,045
|
)
|
(9,105
|
)
|
(1,395
|
)
|
||||
|
Net
cash provided by financing activities
|
93,049
|
81,200
|
1,538
|
|||||||
|
INCREASE
(DECREASE) IN CASH AND
|
||||||||||
|
CASH
EQUIVALENTS
|
49,578
|
(52,158
|
)
|
(47,884
|
)
|
|||||
|
CASH
AND CASH EQUIVALENTS,
|
||||||||||
|
BEGINNING
OF YEAR
|
101,573
|
153,731
|
201,615
|
|||||||
|
CASH
AND CASH EQUIVALENTS, END OF YEAR
|
$
|
151,151
|
$
|
101,573
|
$
|
153,731
|
||||
See
Notes
to Consolidated Financial Statements.
46
|
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY
|
||||||||||||||||
|
YEARS
ENDED DECEMBER 31, 2006, 2005 and 2004
|
||||||||||||||||
|
Accumulated
|
||||||||||||||||
|
Other
|
||||||||||||||||
|
Common
|
Comprehensive
|
Undivided
|
||||||||||||||
|
(In
thousands, except share data)
|
Stock
|
Surplus
|
Income
(Loss)
|
Profits
|
Total
|
|||||||||||
|
Balance,
December 31, 2003
|
$
|
14,102
|
$
|
35,988
|
$
|
(286
|
)
|
$
|
160,191
|
$
|
209,995
|
|||||
|
Comprehensive
income
|
||||||||||||||||
|
Net
income
|
--
|
--
|
--
|
24,446
|
24,446
|
|||||||||||
|
Change
in unrealized depreciation on
|
||||||||||||||||
|
available-for-sale
securities, net of
|
||||||||||||||||
|
income
tax credits of $503
|
--
|
--
|
(838
|
)
|
--
|
(838
|
)
|
|||||||||
|
Comprehensive
income
|
23,608
|
|||||||||||||||
|
Stock
issued as bonus shares - 2,000 shares
|
2
|
50
|
--
|
--
|
52
|
|||||||||||
|
Change
in the par value of common stock
|
(14,523
|
)
|
14,523
|
--
|
--
|
--
|
||||||||||
|
Stock
issued in connection with the merger
|
||||||||||||||||
|
of
Alliance Bancorporation, Inc.
|
545
|
13,732
|
--
|
--
|
14,277
|
|||||||||||
|
Exercise
of stock options - 68,997 shares
|
43
|
922
|
--
|
--
|
965
|
|||||||||||
|
Securities
exchanged under
|
||||||||||||||||
|
employee
option plan
|
(22
|
)
|
(606
|
)
|
--
|
--
|
(628
|
)
|
||||||||
|
Repurchase
of common stock
|
||||||||||||||||
|
-
73,465 shares
|
(1
|
)
|
(1,783
|
)
|
--
|
--
|
(1,784
|
)
|
||||||||
|
Cash
dividends declared ($0.57 per share)
|
--
|
--
|
--
|
(8,263
|
)
|
(8,263
|
)
|
|||||||||
|
Balance,
December 31, 2004
|
146
|
62,826
|
(1,124
|
)
|
176,374
|
238,222
|
||||||||||
|
Comprehensive
income
|
||||||||||||||||
|
Net
income
|
--
|
--
|
--
|
26,962
|
26,962
|
|||||||||||
|
Change
in unrealized depreciation on
|
||||||||||||||||
|
available-for-sale
securities, net of
|
||||||||||||||||
|
income
tax credits of $1,942
|
--
|
--
|
(3,236
|
)
|
--
|
(3,236
|
)
|
|||||||||
|
Comprehensive
income
|
23,726
|
|||||||||||||||
|
Stock
issued as bonus shares - 5,620 shares
|
--
|
138
|
--
|
--
|
138
|
|||||||||||
|
Exercise
of stock options - 106,420 shares
|
1
|
1,432
|
--
|
--
|
1,433
|
|||||||||||
|
Securities
exchanged under
|
||||||||||||||||
|
employee
option plan
|
--
|
(988
|
)
|
--
|
--
|
(988
|
)
|
|||||||||
|
Repurchase
of common stock
|
||||||||||||||||
|
-
371,453 shares
|
(4
|
)
|
(9,685
|
)
|
--
|
--
|
(9,689
|
)
|
||||||||
|
Cash
dividends declared ($0.61 per share)
|
--
|
--
|
--
|
(8,757
|
)
|
(8,757
|
)
|
|||||||||
|
Balance,
December 31, 2005
|
143
|
53,723
|
(4,360
|
)
|
194,579
|
244,085
|
||||||||||
|
Comprehensive
income
|
||||||||||||||||
|
Net
income
|
--
|
--
|
--
|
27,481
|
27,481
|
|||||||||||
|
Change
in unrealized depreciation on
|
||||||||||||||||
|
available-for-sale
securities, net of
|
||||||||||||||||
|
income
taxes of $1,296
|
--
|
--
|
2,162
|
--
|
2,162
|
|||||||||||
|
Comprehensive
income
|
29,643
|
|||||||||||||||
|
Stock
issued as bonus shares - 10,200 shares
|
--
|
275
|
--
|
--
|
275
|
|||||||||||
|
Exercise
of stock options - 106,880 shares
|
1
|
1,516
|
--
|
--
|
1,517
|
|||||||||||
|
Securities
exchanged under
|
||||||||||||||||
|
employee
option plan
|
--
|
(1,291
|
)
|
--
|
--
|
(1,291
|
)
|
|||||||||
|
Repurchase
of common stock
|
||||||||||||||||
|
-
203,100 shares
|
(2
|
)
|
(5,545
|
)
|
--
|
--
|
(5,547
|
)
|
||||||||
|
Cash
dividends declared ($0.68 per share)
|
-
|
--
|
--
|
(9,666
|
)
|
(9,666
|
)
|
|||||||||
|
Balance,
December 31, 2006
|
$
|
142
|
$
|
48,678
|
$
|
(2,198
|
)
|
$
|
212,394
|
$
|
259,016
|
|||||
See
Notes
to Consolidated Financial Statements.
47
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
NOTE
1:
|
NATURE
OF OPERATIONS AND SUMMARY OF SIGNIFICANT
ACCOUNTING
POLICIES
|
Nature
of Operations
Simmons
First National Corporation is primarily engaged in providing a full range of
banking services to individual and corporate customers through its subsidiaries
and their branch banks in Arkansas. The Company is subject to competition from
other financial institutions. The Company also is subject to the regulation
of
certain federal and state agencies and undergoes periodic examinations by those
regulatory authorities.
Operating
Segments
The
Company is organized on a subsidiary bank-by-bank basis upon which management
makes decisions regarding how to allocate resources and assess performance.
Each
of the subsidiary banks provides a group of similar community banking services,
including such products and services as loans; time deposits, checking and
savings accounts; personal and corporate trust services; credit cards;
investment management; and securities and investment services. The individual
bank segments have similar operating and economic characteristics and have
been
reported as one aggregated operating segment.
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Material
estimates that are particularly susceptible to significant change relate to
the
determination of the allowance for loan losses, the valuation of foreclosed
assets and the allowance for foreclosure expenses. In connection with the
determination of the allowance for loan losses and the valuation of foreclosed
assets, management obtains independent appraisals for significant
properties.
Principles
of Consolidation
The
consolidated financial statements include the accounts of Simmons First National
Corporation and its subsidiaries. Significant intercompany accounts and
transactions have been eliminated in consolidation.
Reclassifications
Various
items within the accompanying financial statements for previous years have
been
reclassified to provide more comparative information. These reclassifications
had no effect on net earnings.
Cash
Equivalents
For
purposes of the statement of cash flows, the Company considers due from banks,
Federal funds sold and securities purchased under agreements to resell as cash
equivalents.
48
Investment
Securities
Held-to-maturity
securities, which include any security for which the Company has the positive
intent and ability to hold until maturity, are carried at historical cost
adjusted for amortization of premiums and accretion of discounts. Premiums
and
discounts are amortized and accreted, respectively, to interest income using
the
constant yield method over the period to maturity.
Available-for-sale
securities, which include any security for which the Company has no immediate
plan to sell but which may be sold in the future, are carried at fair value.
Realized gains and losses, based on specifically identified amortized cost
of
the individual security, are included in other income. Unrealized gains and
losses are recorded, net of related income tax effects, in stockholders' equity.
Premiums and discounts are amortized and accreted, respectively, to interest
income using the constant yield method over the period to maturity.
Trading
securities, which include any security held primarily for near-term sale, are
carried at fair value. Gains and losses on trading securities are included
in other income.
Interest
and dividends on investments in debt and equity securities are included in
income when earned.
Mortgage
Loans Held For Sale
Mortgage
loans held for sale are carried at the lower of cost or fair value, determined
using an aggregate basis. Write-downs to fair value are recognized as a charge
to earnings at the time the decline in value occurs. Forward commitments to
sell
mortgage loans are acquired to reduce market risk on mortgage loans in the
process of origination and mortgage loans held for sale. The forward commitments
acquired by the Company for mortgage loans in process of origination are not
mandatory forward commitments. These commitments are structured on a best
efforts basis; therefore the Company is not required to substitute another
loan
or to buyback the commitment if the original loan does not fund. Gains and
losses resulting from sales of mortgage loans are recognized when the respective
loans are sold to investors. Gains and losses are determined by the difference
between the selling price and the carrying amount of the loans sold, net of
discounts collected or paid. Fees received from borrowers to guarantee the
funding of mortgage loans held for sale are recognized as income or expense
when
the loans are sold or when it becomes evident that the commitment will not
be
used.
Loans
Loans
that
management has the intent and ability to hold for the foreseeable future or
until maturity or pay-offs are reported at their outstanding principal adjusted
for any loans charged off and any deferred fees or costs on originated loans
and
unamortized premiums or discounts on purchased loans. Interest income is
reported on the interest method and includes amortization of net deferred loan
fees and costs over the estimated life of the loan. Generally, loans are placed
on nonaccrual status at ninety days past due and interest is considered a loss,
unless the loan is well secured and in the process of collection.
Discounts
and premiums on purchased residential real estate loans are amortized to income
using the interest method over the remaining period to contractual maturity,
adjusted for anticipated prepayments. Discounts and premiums on purchased
consumer loans are recognized over the expected lives of the loans using methods
that approximate the interest method.
Derivative
Financial Instruments
The
Company may enter into derivative contracts for the purposes of managing
exposure to interest rate risk to meet the financing needs of its customers.
The
Company records all derivatives on the balance sheet at fair value.
Historically, the Company’s policy has been not to invest in derivative type
investments but in an effort to meet the financing needs of its customers,
the
Company entered into its first fair value hedge during the second quarter of
2003. Fair value hedges include interest rate swap agreements on fixed rate
loans. For derivatives designated as hedging the exposure to changes in the
fair
value of the hedged item, the gain or loss is recognized in earnings in the
period of change together with the offsetting loss or gain of the hedging
instrument. The fair value hedge is considered to be highly effective and any
hedge ineffectiveness was deemed not material. The notional amount of the loan
being hedged was $1.9 million at December 31, 2006 and $2.0 million at
December 31, 2005.
49
Allowance
for Loan Losses
The
allowance for loan losses is established as losses are estimated to have
occurred through a provision for loan losses charged to income. Loan losses
are
charged against the allowance when management believes the uncollectability
of a
loan balance is confirmed. Subsequent recoveries, if any, are credited to the
allowance.
The
allowance is maintained at a level considered adequate to provide for potential
loan losses related to specifically identified loans as well as probable credit
losses inherent in the remainder of the loan portfolio that have been incurred
as of period end. This estimate is based on management's evaluation of the
loan
portfolio, as well as on prevailing and anticipated economic conditions and
historical losses by loan category. General reserves have been established,
based upon the aforementioned factors and allocated to the individual loan
categories. Allowances are accrued on specific loans evaluated for impairment
for which the basis of each loan, including accrued interest, exceeds the
discounted amount of expected future collections of interest and principal
or,
alternatively, the fair value of loan collateral. The unallocated reserve
generally serves to compensate for the uncertainty in estimating loan losses,
including the possibility of changes in risk ratings and specific reserve
allocations in the loan portfolio as a result of the Company’s ongoing risk
management system.
A
loan is
considered impaired when it is probable that the Company will not receive all
amounts due according to the contractual terms of the loan. This includes loans
that are delinquent 90 days or more, nonaccrual loans and certain other loans
identified by management. Certain other loans identified by management consist
of performing loans with specific allocations of the allowance for loan losses.
Specific allocations are applied when quantifiable factors are present requiring
a greater allocation than that established using the classified asset approach,
as defined by the Office of the Comptroller of the Currency. Accrual of interest
is discontinued and interest accrued and unpaid is removed at the time such
amounts are delinquent 90 days, unless management is aware of circumstances
which warrant continuing the interest accrual. Interest is recognized for
nonaccrual loans only upon receipt and only after all principal amounts are
current according to the terms of the contract.
Premises
and Equipment
Depreciable
assets are stated at cost, less accumulated depreciation. Depreciation is
charged to expense using the straight-line method over the estimated useful
lives of the assets. Leasehold improvements are capitalized and amortized by
the
straight-line method over the terms of the respective leases or the estimated
useful lives of the improvements whichever is shorter.
Foreclosed
Assets Held For Sale
Assets
acquired by foreclosure or in settlement of debt and held for sale are valued
at
estimated fair value as of the date of foreclosure and a related valuation
allowance is provided for estimated costs to sell the assets. Management
evaluates the value of foreclosed assets held for sale periodically and
increases the valuation allowance for any subsequent declines in fair value.
Changes in the valuation allowance are charged or credited to other
expense.
Goodwill
Goodwill
represents the excess of cost over the fair value of net assets of acquired
subsidiaries and branches. Financial Accounting Standards Board Statement No’s.
142 and No. 147 eliminated the amortization for these assets as of January
1,
2002. While goodwill is not amortized, impairment testing of goodwill is
performed annually, or more frequently if certain conditions occur.
50
Core
Deposit Premiums
Core
deposit premiums represent the amount allocated to the future earnings potential
of acquired deposits. The unamortized core deposit premiums are being amortized
using both straight-line and accelerated methods over periods ranging from
8 to
11 years. Unamortized core deposit premiums are tested for impairment annually,
or more frequently if certain conditions occur.
Fee
Income
Periodic
bankcard fees, net of direct origination costs, are recognized as revenue on
a
straight-line basis over the period the fee entitles the cardholder to use
the
card. Origination fees and costs for other loans are being amortized over the
estimated life of the loan.
Income
Taxes
Deferred
tax liabilities and assets are recognized for the tax effects of differences
between the financial statement and tax bases of assets and liabilities. A
valuation allowance is established to reduce deferred tax assets if it is more
likely than not that a deferred tax asset will not be realized.
Earnings
Per Share
Basic
earnings per share are computed based on the weighted average number of shares
outstanding during each year. Diluted earnings per share are computed using
the
weighted average common shares and all potential dilutive common shares
outstanding during the period.
The
computation of per share earnings is as follows:
|
(In
thousands, except per share data)
|
2006
|
2005
|
2004
|
|||||||
|
Net
Income
|
$
|
27,481
|
$
|
26,962
|
$
|
24,446
|
||||
|
Average
common shares outstanding
|
14,226
|
14,375
|
14,515
|
|||||||
|
Average
common share stock options outstanding
|
248
|
312
|
333
|
|||||||
|
Average
diluted common shares
|
14,474
|
14,687
|
14,848
|
|||||||
|
Basic
earnings per share
|
$
|
1.93
|
$
|
1.88
|
$
|
1.68
|
||||
|
Diluted
earnings per share
|
$
|
1.90
|
$
|
1.84
|
$
|
1.65
|
||||
51
Stock-Based
Compensation
On
January
1, 2006, the Company began recognizing compensation expense for stock options
with the adoption of Statement of Financial Accounting Standards (SFAS) No.
123,
Share-Based Payment (Revised 2004). See Note 11, Employee Benefit Plans, for
additional information.
SFAS
No.
123R requires pro forma disclosures of net income and earnings per share for
all
periods prior to the adoption of the fair value accounting method for
stock-based employee compensation. The pro forma disclosures presented in Note
11, Employee Benefit Plans, use the fair value method of SFAS 123 to measure
compensation expense for stock-based compensation plans for years prior to
2006.
|
NOTE
2:
|
ACQUISITIONS
|
On
November 1, 2005, the Company completed a branch purchase in which Bank of
Little Rock sold its Southwest Little Rock, Arkansas location at 8500 Geyer
Springs Road to Simmons First National Bank, a subsidiary of the Company. The
acquisition included approximately $3.5 million in total deposits in addition
to
the fixed assets used in the branch operation. No loans were involved in the
transaction. As a result of this transaction, the Company recorded additional
goodwill and core deposit premiums of $151,000 and $31,000,
respectively.
On
June
25, 2004, the Company completed a branch purchase in which Cross County Bank
sold its Weiner, Arkansas location to Simmons First Bank of Jonesboro, a
subsidiary of the Company. The acquisition included approximately $6 million
in
total deposits and the fixed assets used in the branch operation. No loans
were
involved in the transaction. As a result of this transaction, the Company
recorded additional goodwill and core deposit premiums of $344,000 and $117,000,
respectively.
On
March
19, 2004, the Company merged with Alliance Bancorporation, Inc. (“ABI”). ABI
owned Alliance Bank of Hot Springs, Hot Springs, Arkansas with consolidated
assets (including goodwill and core deposits), loans and deposits of
approximately $155 million, $70 million and $110 million, respectively. During
the second quarter of 2004, Alliance Bank changed its name to Simmons First
Bank
of Hot Springs and continues to operate as a separate community bank with
virtually the same board of directors, management and staff. As a result of
this
transaction, the Company recorded additional goodwill and core deposit premiums
of $14,690,000 and $1,245,000, respectively.
The
system
integration for the 2005 acquisition was completed on the acquisition date.
The
system integration for the 2004 mergers and acquisitions were completed during
the second quarter of 2004.
52
|
NOTE
3:
|
INVESTMENT
SECURITIES
|
The
amortized cost and fair value of investment securities that are classified
as
held-to-maturity and available-for-sale are as follows:
|
Years
Ended December 31
|
|||||||||||||||||||||||||
|
2006
|
2005
|
||||||||||||||||||||||||
|
Gross
|
Gross
|
Estimated
|
Gross
|
Gross
|
Estimated
|
||||||||||||||||||||
|
Amortized
|
Unrealized
|
Unrealized
|
Fair
|
Amortized
|
Unrealized
|
Unrealized
|
Fair
|
||||||||||||||||||
|
(In
thousands)
|
Cost
|
Gains
|
(Losses)
|
Value
|
Cost
|
Gains
|
(Losses)
|
Value
|
|||||||||||||||||
|
Held-to-Maturity
|
|||||||||||||||||||||||||
|
U.S.
Treasury
|
$
|
--
|
$
|
--
|
$
|
--
|
$
|
--
|
$
|
1,004
|
$
|
--
|
$
|
(20
|
)
|
$
|
984
|
||||||||
|
U.S.
Government
|
|||||||||||||||||||||||||
|
agencies
|
54,998
|
367
|
(272
|
)
|
55,093
|
28,000
|
--
|
(473
|
)
|
27,527
|
|||||||||||||||
|
Mortgage-backed
|
|||||||||||||||||||||||||
|
securities
|
155
|
3
|
(1
|
)
|
157
|
187
|
3
|
--
|
190
|
||||||||||||||||
|
State
and political
|
|||||||||||||||||||||||||
|
subdivisions
|
122,472
|
667
|
(892
|
)
|
122,247
|
117,148
|
662
|
(1,298
|
)
|
116,512
|
|||||||||||||||
|
Other
securities
|
2,319
|
--
|
--
|
2,319
|
3,960
|
--
|
--
|
3,960
|
|||||||||||||||||
|
Total
|
$
|
179,944
|
$
|
1,037
|
$
|
(1,165
|
)
|
$
|
179,816
|
$
|
150,299
|
$
|
665
|
$
|
(1,791
|
)
|
$
|
149,173
|
|||||||
|
Available-for-Sale
|
|||||||||||||||||||||||||
|
U.S.
Treasury
|
$
|
6,970
|
$
|
--
|
$
|
(30
|
)
|
$
|
6,940
|
$
|
10,989
|
$
|
--
|
$
|
(102
|
)
|
$
|
10,887
|
|||||||
|
U.S.
Government
|
|||||||||||||||||||||||||
|
agencies
|
326,301
|
287
|
(4,177
|
)
|
322,411
|
348,570
|
35
|
(7,615
|
)
|
340,990
|
|||||||||||||||
|
Mortgage-backed
|
|||||||||||||||||||||||||
|
securities
|
3,032
|
--
|
(76
|
)
|
2,956
|
3,392
|
9
|
(92
|
)
|
3,309
|
|||||||||||||||
|
State
and political
|
|||||||||||||||||||||||||
|
subdivisions
|
1,360
|
10
|
--
|
1,370
|
3,014
|
39
|
--
|
3,053
|
|||||||||||||||||
|
Other
securities
|
13,035
|
470
|
--
|
13,505
|
12,561
|
690
|
--
|
13,251
|
|||||||||||||||||
|
Total
|
$
|
350,698
|
$
|
767
|
$
|
(4,283
|
)
|
$
|
347,182
|
$
|
378,526
|
$
|
773
|
$
|
(7,809
|
)
|
$
|
371,490
|
|||||||
Certain
investment securities are valued less than their historical cost. Total fair
value of these investments at December 31, 2006, was $404.5 million, which
is approximately 76.8% of the Company’s available-for-sale and held-to-maturity
investment portfolio. These declines primarily resulted from recent increases
in
market interest rates.
Based
on
evaluation of available evidence, management believes the declines in fair
value
for these securities are temporary. It is management’s intent to hold these
securities to maturity.
Should
the
impairment of any of these securities become other than temporary, the cost
basis of the investment will be reduced and the resulting loss recognized in
net
income in the period the other-than-temporary impairment is
identified.
53
The
following table shows the Company’s investments’ estimated fair value and gross
unrealized losses, aggregated by investment category and length of time that
individual securities have been in a continuous unrealized loss position at
December 31, 2006:
|
Less
Than 12 Months
|
12
Months or More
|
Total
|
|||||||||||||||||
|
Estimated
|
Gross
|
Estimated
|
Gross
|
Estimated
|
Gross
|
||||||||||||||
|
Fair
|
Unrealized
|
Fair
|
Unrealized
|
Fair
|
Unrealized
|
||||||||||||||
|
(In
thousands)
|
Value
|
Losses
|
Value
|
Losses
|
Value
|
Losses
|
|||||||||||||
|
Held-to-Maturity
|
|||||||||||||||||||
|
U.S.
Treasury
|
$
|
--
|
$
|
--
|
$
|
--
|
$
|
--
|
$
|
--
|
$
|
--
|
|||||||
|
U.S.
Government Agencies
|
9,990
|
8
|
22,736
|
264
|
32,726
|
272
|
|||||||||||||
|
Mortgage-backed
securities
|
--
|
--
|
86
|
1
|
86
|
1
|
|||||||||||||
|
State
and political subdivisions
|
17,290
|
139
|
49,328
|
753
|
66,618
|
892
|
|||||||||||||
|
Total
|
$
|
27,280
|
$
|
147
|
$
|
72,150
|
$
|
1,018
|
$
|
99,430
|
$
|
1,165
|
|||||||
|
Available-for-Sale
|
|||||||||||||||||||
|
U.S.
Treasury
|
$
|
2,471
|
$
|
2
|
$
|
4,469
|
$
|
28
|
$
|
6,940
|
$
|
30
|
|||||||
|
U.S.
Government Agencies
|
42,455
|
287
|
252,679
|
3,890
|
295,134
|
4,177
|
|||||||||||||
|
Mortgage-backed
securities
|
788
|
23
|
2,167
|
53
|
2,955
|
76
|
|||||||||||||
|
State
and political subdivisions
|
--
|
--
|
--
|
--
|
--
|
--
|
|||||||||||||
|
Total
|
$
|
45,714
|
$
|
312
|
$
|
259,315
|
$
|
3,971
|
$
|
305,029
|
$
|
4,283
|
|||||||
The
following table shows the Company’s investments’ estimated fair value and gross
unrealized losses, aggregated by investment category and length of time that
individual securities have been in a continuous unrealized loss position
at
December 31, 2005:
|
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.
Treasury
|
$
|
--
|
$
|
--
|
$
|
984
|
$
|
20
|
$
|
984
|
$
|
20
|
|||||||
|
U.S.
Government Agencies
|
10,901
|
99
|
16,627
|
374
|
27,528
|
473
|
|||||||||||||
|
Mortgage-backed
securities
|
49
|
--
|
45
|
--
|
94
|
--
|
|||||||||||||
|
State
and political subdivisions
|
45,410
|
515
|
33,308
|
783
|
78,718
|
1,298
|
|||||||||||||
|
Total
|
$
|
56,360
|
$
|
614
|
$
|
50,964
|
$
|
1,177
|
$
|
107,324
|
$
|
1,791
|
|||||||
|
Available-for-Sale
|
|||||||||||||||||||
|
U.S.
Treasury
|
$
|
2,980
|
$
|
16
|
$
|
7,907
|
$
|
86
|
$
|
10,887
|
$
|
102
|
|||||||
|
U.S.
Government Agencies
|
57,869
|
678
|
284,175
|
6,937
|
342,044
|
7,615
|
|||||||||||||
|
Mortgage-backed
securities
|
774
|
9
|
1,706
|
83
|
2,480
|
92
|
|||||||||||||
|
State
and political subdivisions
|
--
|
-
|
--
|
-
|
-
|
--
|
|||||||||||||
|
Total
|
$
|
61,623
|
$
|
703
|
$
|
293,788
|
$
|
7,106
|
$
|
355,411
|
$
|
7,809
|
|||||||
54
Income
earned on the above securities for the years ended December 31, 2006, 2005
and
2004 is as follows:
|
(In
thousands)
|
2006
|
2005
|
2004
|
|||||||
|
Taxable
|
||||||||||
|
Held-to-maturity
|
$
|
2,007
|
$
|
1,056
|
$
|
1,436
|
||||
|
Available-for-sale
|
13,698
|
12,842
|
10,980
|
|||||||
|
Non-taxable
|
||||||||||
|
Held-to-maturity
|
4,635
|
4,588
|
4,794
|
|||||||
|
Available-for-sale
|
98
|
191
|
237
|
|||||||
|
Total
|
$
|
20,438
|
$
|
18,677
|
$
|
17,447
|
||||
The
Statement of Stockholders’ Equity includes other comprehensive income (loss).
Other comprehensive income (loss) for the Company includes the change in the
unrealized depreciation on available-for-sale securities. The changes in the
unrealized depreciation on available-for-sale securities for the years ended
December 31, 2006, 2005 and 2004 are as follows:
|
(In
thousands)
|
2006
|
2005
|
2004
|
|||||||
|
Unrealized
holding gains (losses) arising during the period
|
$
|
2,162
|
$
|
(3,511
|
)
|
$
|
(838
|
)
|
||
|
Losses
realized in net income
|
--
|
275
|
--
|
|||||||
|
Net
change in unrealized depreciation
|
||||||||||
|
on
available-for-sale securities
|
$
|
2,162
|
$
|
(3,236
|
)
|
$
|
(838
|
)
|
||
The
amortized cost and estimated fair value by maturity of securities are shown
in
the following table. Securities are classified according to their contractual
maturities without consideration of principal amortization, potential
prepayments or call options. Accordingly, actual maturities may differ from
contractual maturities.
|
Held-to-Maturity
|
Available-for-Sale
|
||||||||||||
|
Amortized
|
Fair
|
Amortized
|
Fair
|
||||||||||
|
(In
thousands)
|
Cost
|
Value
|
Cost
|
Value
|
|||||||||
|
One
year or less
|
$
|
20,549
|
$
|
20,501
|
$
|
93,047
|
$
|
92,284
|
|||||
|
After
one through five years
|
57,399
|
57,224
|
130,260
|
127,957
|
|||||||||
|
After
five through ten years
|
84,048
|
84,083
|
112,237
|
111,369
|
|||||||||
|
After
ten years
|
16,559
|
16,619
|
2,119
|
2,067
|
|||||||||
|
Other
securities
|
1,389
|
1,389
|
13,035
|
13,505
|
|||||||||
|
Total
|
$
|
179,944
|
$
|
179,816
|
$
|
350,698
|
$
|
347,182
|
|||||
The
carrying value, which approximates the fair value, of securities pledged
as
collateral, to secure public deposits and for other purposes, amounted to
$400,668,000 at December 31, 2006 and $411,580,000 at
December 31, 2005.
The
book
value of securities sold under agreements to repurchase amounted to $80,566,000
and $67,778,000 for December 31, 2006 and 2005, respectively.
55
The
Company had no gross realized gains during the years ended December 31, 2006,
2005 and 2004, resulting from the sales and/or calls of securities. Gross
realized losses of $0, $275,000 and $0 resulting from sales and/or calls
of
securities were realized for the years ended December 31, 2006, 2005 and
2004,
respectively.
Most
of
the state and political subdivision debt obligations are non-rated bonds
and
represent small Arkansas issues, which are evaluated on an ongoing
basis.
|
NOTE
4:
|
LOANS
AND ALLOWANCE FOR LOAN
LOSSES
|
The
various categories of loans are summarized as follows:
|
(In
thousands)
|
2006
|
2005
|
|||||
|
Consumer
|
|||||||
|
Credit
cards
|
$
|
143,359
|
$
|
143,058
|
|||
|
Student
loans
|
84,831
|
89,818
|
|||||
|
Other
consumer
|
142,596
|
138,051
|
|||||
|
Real
estate
|
|||||||
|
Construction
|
277,411
|
238,898
|
|||||
|
Single
family residential
|
364,450
|
340,839
|
|||||
|
Other
commercial
|
512,404
|
479,684
|
|||||
|
Commercial
|
|||||||
|
Commercial
|
178,028
|
184,920
|
|||||
|
Agricultural
|
62,293
|
68,761
|
|||||
|
Financial
institutions
|
4,766
|
20,499
|
|||||
|
Other
|
13,357
|
13,579
|
|||||
|
Total
loans before allowance for loan losses
|
$
|
1,783,495
|
$
|
1,718,107
|
|||
At
December 31, 2006 and 2005, impaired loans totaled $12,829,000 and $14,804,000,
respectively. All impaired loans had either specific or general allocations
within the allowance for loan losses. Allocations of the allowance for loan
losses relative to impaired loans at December 31, 2006 and 2005 were $3,418,000
and $3,868,000, respectively. Approximately, $350,000, $452,000 and $477,000
of
interest income was recognized on average impaired loans of $13,072,000,
$15,748,000 and $18,937,000 for 2006, 2005 and 2004, respectively. Interest
recognized on impaired loans on a cash basis during 2006, 2005 and 2004 was
immaterial.
At
December 31, 2006 and 2005, accruing loans delinquent 90 days or more totaled
$1,097,000 and $1,131,000, respectively. Non-accruing loans at December 31,
2006
and 2005 were $8,958,000 and $7,296,000, respectively.
As
of
December 31, 2006, credit card loans, which are unsecured, were $143,359,000
or
8.0%, of total loans versus $143,058,000 or 8.3%, of total loans at December
31,
2005. 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.
56
Transactions
in the allowance for loan losses are as follows:
|
(In
thousands)
|
2006
|
2005
|
2004
|
|||||||
|
Balance,
beginning of year
|
$
|
26,923
|
$
|
26,508
|
$
|
25,347
|
||||
|
Additions
|
||||||||||
|
Provision
for loan losses
|
3,762
|
7,526
|
8,027
|
|||||||
|
Allowance
for loan losses of acquired banks and branches
|
--
|
--
|
1,108
|
|||||||
|
30,685
|
34,034
|
34,482
|
||||||||
|
Deductions
|
||||||||||
|
Losses
charged to allowance, net of recoveries
|
||||||||||
|
of
$3,106 for 2006, $3,815 for 2005 and $2,431 for 2004
|
3,775
|
7,111
|
7,974
|
|||||||
|
Reclassification
of reserve for unfunded commitments (1)
|
1,525
|
--
|
--
|
|||||||
|
Balance,
end of year
|
$
|
25,385
|
$
|
26,923
|
$
|
26,508
|
||||
(1)
On
March 31, 2006, the reserve for unfunded commitments was reclassified from
the
allowance for loan losses
to other
liabilities.
|
NOTE
5:
|
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. Goodwill totaled $60.6 million
at December 31, 2006, unchanged from December 31, 2005, as the Company made
no
acquisitions during the year ended December 31, 2006.
The
carrying basis and accumulated amortization of core deposit premiums (net of
core deposit premiums that were fully amortized) at December 31, 2006 and 2005
were:
|
December
31, 2006
|
December
31, 2005
|
||||||||||||||||||
|
Gross
|
Gross
|
||||||||||||||||||
|
Carrying
|
Accumulated
|
Carrying
|
Accumulated
|
||||||||||||||||
|
(In
thousands)
|
Amount
|
Amortization
|
Net
|
Amount
|
Amortization
|
Net
|
|||||||||||||
|
Core
deposit premiums
|
$
|
7,246
|
$
|
3,047
|
$
|
4,199
|
$
|
7,246
|
$
|
2,217
|
$
|
5,029
|
|||||||
Core
deposit premium amortization expense recorded for the years ended December
31,
2006, 2005 and 2004, was $830,000, $830,000 and $791,000, respectively. The
Company’s estimated amortization expense for each of the following five years
is: 2007 - $818,000; 2008 - $807,000; 2009 - $802,000; 2010 - $699,000; and
2011 -
$451,000.
|
NOTE
6:
|
TIME
DEPOSITS
|
Time
deposits included approximately $450,310,000 and $364,177,000 of certificates
of
deposit of $100,000 or more, at December 31, 2006 and 2005, respectively.
Brokered deposits were $42,522,000 and $50,725,000 at December 31, 2006 and
2005, respectively. At December 31, 2006, time deposits with a remaining
maturity of one year or more amounted to $219,888,000. Maturities of all time
deposits are as follows: 2007
-
$911,553,000; 2008 - $194,426,000; 2009 - $24,950,000; 2010 - $265,000; 2011
-
$247,000 and none thereafter.
Deposits
are the Company's primary funding source for loans and investment securities.
The mix and repricing alternatives can significantly affect the cost of this
source of funds and, therefore, impact the margin.
57
|
NOTE
7:
|
INCOME
TAXES
|
The
provision for income taxes is comprised of the following
components:
|
(In
thousands)
|
2006
|
2005
|
2004
|
|||||||
|
Income
taxes currently payable
|
$
|
10,219
|
$
|
11,161
|
$
|
8,537
|
||||
|
Deferred
income taxes
|
2,221
|
1,342
|
2,946
|
|||||||
|
Provision
for income taxes
|
$
|
12,440
|
$
|
12,503
|
$
|
11,483
|
||||
The
tax
effects of temporary differences related to deferred taxes shown on the balance
sheet were:
|
(In
thousands)
|
2006
|
2005
|
|||||
|
Deferred
tax assets
|
|||||||
|
Allowance
for loan losses
|
$
|
8,543
|
$
|
8,329
|
|||
|
Valuation
of foreclosed assets
|
63
|
74
|
|||||
|
Deferred
compensation payable
|
1,275
|
1,109
|
|||||
|
FHLB
advances
|
58
|
97
|
|||||
|
Vacation
compensation
|
740
|
727
|
|||||
|
Loan
interest
|
140
|
241
|
|||||
|
Available-for-sale
securities
|
1,319
|
2,615
|
|||||
|
Other
|
174
|
363
|
|||||
|
12,312
|
13,555
|
||||||
|
Deferred
tax liabilities
|
|||||||
|
Accumulated
depreciation
|
(852
|
)
|
(1,128
|
)
|
|||
|
Deferred
loan fee income and expenses, net
|
(787
|
)
|
(657
|
)
|
|||
|
FHLB
stock dividends
|
(887
|
)
|
(740
|
)
|
|||
|
Goodwill
and core deposit premium amortization
|
(6,051
|
)
|
(3,852
|
)
|
|||
|
Other
|
(880
|
)
|
(807
|
)
|
|||
|
(9,457
|
)
|
(7,184
|
)
|
||||
|
Net
deferred tax assets included in other assets
|
|||||||
|
on
balance sheets
|
$
|
2,855
|
$
|
6,371
|
|||
A
reconciliation of income tax expense at the statutory rate to the Company's
actual income tax expense is shown below.
|
(In
thousands)
|
2006
|
2005
|
2004
|
|||||||
|
Computed
at the statutory rate (35%)
|
$
|
13,972
|
$
|
13,813
|
$
|
12,575
|
||||
|
Increase
(decrease) resulting from
|
||||||||||
|
Tax
exempt income
|
(1,858
|
)
|
(1,882
|
)
|
(1,988
|
)
|
||||
|
Non-deductible
interest
|
276
|
187
|
137
|
|||||||
|
State
income taxes
|
792
|
862
|
822
|
|||||||
|
Other
non-deductible expenses
|
97
|
86
|
112
|
|||||||
|
Other
differences, net
|
(839
|
)
|
(563
|
)
|
(175
|
)
|
||||
|
Actual
tax provision
|
$
|
12,440
|
$
|
12,503
|
$
|
11,483
|
||||
58
|
NOTE
8:
|
SHORT-TERM
AND LONG-TERM DEBT
|
Long-term
debt at December 31, 2006, and 2005 consisted of the following
components.
|
(In
thousands)
|
2006
|
2005
|
|||||
|
Note
Payable, due 2007,
at
a floating rate of
|
|||||||
|
0.90%
above the one-month LIBOR rate, reset
|
|||||||
|
monthly,
unsecured
|
$
|
2,000
|
$
|
4,000
|
|||
|
FHLB
advances, due 2006 to 2024, 2.58% to 8.41%,
|
|||||||
|
secured
by residential real estate loans
|
50,381
|
52,090
|
|||||
|
Trust
preferred securities, due 2033, fixed at 8.25%,
|
|||||||
|
callable
in 2008 without penalty
|
10,310
|
10,310
|
|||||
|
Trust
preferred securities,
due
2033, floating rate
|
|||||||
|
of
2.80% above the three-month LIBOR rate,
|
|||||||
|
reset
quarterly, callable in 2008 without penalty
|
10,310
|
10,310
|
|||||
|
Trust
preferred securities, due 2033,
fixed rate of 6.97%
|
|||||||
|
through
2010, thereafter, at a floating rate of
|
|||||||
|
2.80%
above the three-month LIBOR rate, reset
|
|||||||
|
quarterly,
callable in 2010 without penalty
|
10,310
|
10,310
|
|||||
|
Total
long-term debt
|
$
|
83,311
|
$
|
87,020
|
|||
At
December 31, 2006 the Company had Federal Home Loan Bank (“FHLB”) advances with
original maturities of one year or less of $5.0 million with a weighted average
rate of 5.26% which are not included in the above table.
The
trust
preferred securities are tax-advantaged issues that qualify for Tier 1 capital
treatment. Distributions on these securities are included in interest expense
on
long-term debt. Each of the trusts is a statutory business trust organized
for
the sole purpose of issuing trust securities and investing the proceeds thereof
in junior subordinated debentures of the Corporation, the sole asset of each
trust. The preferred trust securities of each trust represent preferred
beneficial interests in the assets of the respective trusts and are subject
to
mandatory redemption upon payment of the junior subordinated debentures held
by
the trust. The common securities of each trust are wholly-owned by the
Corporation. Each trust’s ability to pay amounts due on the trust preferred
securities is solely dependent upon the Corporation making payment on the
related junior subordinated debentures. The Corporation’s obligations under the
junior subordinated securities and other relevant trust agreements, in
aggregate, constitute a full and unconditional guarantee by the Corporation
of
each respective trust’s obligations under the trust securities issued by each
respective trust.
Aggregate
annual maturities of long-term debt at December 31, 2006 are:
|
|
Annual
|
||||||
|
(In
thousands)
|
Year
|
Maturities
|
|||||
|
2007
|
$
|
10,383
|
|||||
|
2008
|
12,987
|
||||||
|
2009
|
5,842
|
||||||
|
2010
|
5,087
|
||||||
|
2011
|
3,881
|
||||||
|
Thereafter
|
45,131
|
||||||
|
Total
|
$
|
83,311
|
|||||
59
|
NOTE
9:
|
CAPITAL
STOCK
|
On
May 25,
2004, the Company announced the adoption by the Board of Directors of a
repurchase program. The program authorizes the repurchase of up to 5% of the
outstanding Common Stock, or 733,485 shares. Under the repurchase program,
there
is no time limit for the stock repurchases, nor is there a minimum number of
shares the Company intends to repurchase. The Company may discontinue purchases
at any time that management determines additional purchases are not warranted.
The shares are to be purchased from time to time at prevailing market prices,
through open market or unsolicited negotiated transactions, depending upon
market conditions. The Company intends to use the repurchased shares to satisfy
stock option exercise, payment of future stock dividends and general corporate
purposes.
During
the
year ended December 31, 2006, the Company repurchased a total of 203,100 shares
of stock with a weighted average repurchase price of $27.80 per share. Under
the
current stock repurchase plan, the Company can repurchase an additional 340,967
shares.
|
NOTE
10:
|
TRANSACTIONS
WITH RELATED
PARTIES
|
At
December 31, 2006 and 2005, the subsidiary banks had extensions of credit to
executive officers, directors and to companies in which the banks' executive
officers or directors were principal owners, in the amount of $51.4 million
in
2006 and $61.5 million in 2005.
|
(In
thousands)
|
2006
|
2005
|
|||||
|
Balance,
beginning of year
|
$
|
61,544
|
$
|
55,293
|
|||
|
New
extensions of credit
|
26,734
|
26,328
|
|||||
|
Repayments
|
(36,836
|
)
|
(20,077
|
)
|
|||
|
Balance,
end of year
|
$
|
51,442
|
$
|
61,544
|
|||
In
management's opinion, such loans and other extensions of credit and deposits
(which were not material) were made in the ordinary course of business and
were
made on substantially the same terms (including interest rates and collateral)
as those prevailing at the time for comparable transactions with other persons.
Further, in management's opinion, these extensions of credit did not involve
more than the normal risk of collectability or present other unfavorable
features.
|
NOTE
11:
|
EMPLOYEE
BENEFIT
PLANS
|
Retirement
Plans
The
Company’s 401(k) retirement plan covers substantially all employees.
Contribution expense totaled $525,000, $505,000 and $408,000, in 2006, 2005
and
2004, respectively.
The
Company has a discretionary profit sharing and employee stock ownership plan
covering substantially all employees. Contribution expense totaled $2,370,000
for 2006, $2,258,000 for 2005 and $2,153,000 for 2004.
The
Company also provides deferred compensation agreements with certain active
and
retired officers. The agreements provide monthly payments which, together with
payments from the deferred annuities issued pursuant to the terminated pension
plan, equal 50 percent of average compensation prior to retirement or death.
The
charges to income for the plans were $481,000 for 2006, $306,000 for 2005 and
$130,000 for 2004. Such charges reflect the straight-line accrual over the
employment period of the present value of benefits due each participant, as
of
their full eligibility date, using an 8 percent discount factor.
60
Stock-Based
Compensation Plans
Prior
to
January 1, 2006, employee compensation expense under stock option plans was
reported only if options were granted below market price at grant date in
accordance with the intrinsic value method of Accounting Principles Board
Opinion (APB) No.25, "Accounting for Stock Issued to Employees," and related
interpretations. Because the exercise price of the Company's employee stock
options always equaled the market price of the underlying stock on the date
of
grant, no compensation expense was recognized on options granted. As stated
in
Note 1, Significant Accounting Policies, the Company adopted the provisions
of
SFAS 123R on January 1, 2006. SFAS 123R eliminates the ability to account
for stock-based compensation using APB 25 and requires
that such transactions be recognized as compensation cost in the income
statement based on their fair values on the measurement date, which is generally
the date of the grant. The Company transitioned to fair-value based accounting
for stock-based compensation using a modified version of prospective application
("modified prospective application"). Under modified prospective application,
as
it is applicable to the Company, SFAS 123R applies to new awards and to awards
modified, repurchased, or cancelled after January 1, 2006. Additionally,
compensation cost for the portion of awards for which the requisite service
has
not been rendered (generally referring to non-vested awards) that were
outstanding as of January 1, 2006, will be recognized as the remaining requisite
service is rendered during the period of and/or the periods after the adoption
of SFAS 123R. The attribution of compensation cost for those earlier awards
is
based on the same method and on the same grant date fair values previously
determined for the pro forma disclosures required for companies that did not
previously adopt the fair value accounting method for stock-based employee
compensation.
Stock-based
compensation expense for all stock-based compensation awards granted after
January 1, 2006, is based on the grant date fair value. For all awards except
stock option awards, the grant date fair value is the market value per share
as
of the grant date. For stock option awards, the fair value is estimated at
the
date of grant using the Black-Scholes option-pricing model. This model requires
the input of highly subjective assumptions, changes to which can materially
affect the fair value estimate. Additionally, there may be other factors that
would otherwise have a significant effect on the value of employee stock options
granted but are not considered by the model. Accordingly, while management
believes that the Black-Scholes option-pricing model provides a reasonable
estimate of fair value, the model does not necessarily provide the best single
measure of fair value for the Company's employee stock options.
The
Company’s Board of Directors has adopted various stock compensation plans. The
plans provide for the grant of incentive stock options, nonqualified stock
options, stock appreciation rights, and bonus stock awards. Pursuant to the
plans, shares are reserved for future issuance by the Company, upon exercise
of
stock options or awarding of bonus shares granted to officers and other key
employees.
The
fair
value of each option award is estimated on the date of grant using the
Black-Scholes option-pricing model that uses various assumptions. Expected
volatility is based on historical volatility of the Company’s stock and other
factors. The Company uses historical data to estimate option exercise and
employee termination within the valuation model. The expected term of options
granted is derived from the output of the option valuation model and represents
the period of time that options granted are expected to be outstanding. The
risk-free rate for periods within the contractual life of the option is based
on
the U.S. Treasury yield curve in effect at the time of grant. Forfeitures are
estimated at the time of grant, and are based partially on historical
experience.
61
The
table
below summarizes the transactions under the Company's stock option plans at
December 31, 2006, 2005 and 2004 and changes during the years then
ended:
|
2006
|
2005
|
2004
|
|||||||||||||||||
|
Weighted
|
Weighted
|
Weighted
|
|||||||||||||||||
|
Average
|
Average
|
Average
|
|||||||||||||||||
|
Shares
|
Exercisable
|
Shares
|
Exercisable
|
Shares
|
Exercisable
|
||||||||||||||
|
(000)
|
Price
|
(000)
|
Price
|
(000)
|
Price
|
||||||||||||||
|
Outstanding,
beginning of year
|
609
|
$
|
14.77
|
676
|
$
|
14.00
|
698
|
$
|
13.00
|
||||||||||
|
Granted
|
60
|
26.19
|
40
|
24.53
|
68
|
23.85
|
|||||||||||||
|
Forfeited/Expired
|
(45
|
)
|
13.50
|
(1
|
)
|
22.63
|
(21
|
)
|
12.89
|
||||||||||
|
Exercised
|
(107
|
)
|
14.19
|
(106
|
)
|
13.46
|
(69
|
)
|
14.05
|
||||||||||
|
Outstanding,
end of year
|
517
|
16.32
|
609
|
14.77
|
676
|
14.00
|
|||||||||||||
|
Exercisable,
end of year
|
452
|
$
|
14.97
|
595
|
$
|
14.55
|
535
|
$
|
13.25
|
||||||||||
The
following table summarizes information about stock options under the plans
outstanding at December 31, 2006:
|
Options
Outstanding
|
Options
Exercisable
|
|||||||||||||||
|
Weighted
|
||||||||||||||||
|
Average
|
Weighted
|
Weighted
|
||||||||||||||
|
Number
|
Remaining
|
Average
|
Number
|
Average
|
||||||||||||
|
Range
of
|
Outstanding
|
Contractual
|
Exercise
|
Exercisable
|
Exercise
|
|||||||||||
|
Exercise
Prices
|
(000)
|
Life
|
Price
|
(000)
|
Price
|
|||||||||||
|
$10.56
to $12.22
|
333
|
1.9
Years
|
$
|
12.06
|
333
|
$
|
12.06
|
|||||||||
|
$15.35
to $16.32
|
16
|
1.8
Years
|
$
|
15.84
|
16
|
$
|
15.84
|
|||||||||
|
$22.63
to $23.78
|
66
|
4.2
Years
|
$
|
23.69
|
59
|
$
|
23.68
|
|||||||||
|
$24.50
to $24.50
|
40
|
5.4
Years
|
$
|
24.50
|
35
|
$
|
24.50
|
|||||||||
|
$26.19
to $27.67
|
62
|
6.3
Years
|
$
|
26.20
|
9
|
$
|
26.21
|
|||||||||
The
total
intrinsic value of outstanding stock options and outstanding exercisable stock
options was $6.4 million and $6.2 million at December 31, 2006. The total
intrinsic value of stock options exercised was $1.6 million in 2006, $1.4
million in 2005 and $872 thousand in 2004.
As
a
result of applying the provisions of SFAS 123R during 2006, the Company
recognized additional stock-based compensation expense related to stock options
of $89 thousand. The increase in stock-based compensation expense related to
stock options during 2006 resulted in no change in basic or diluted earnings
per
share.
Stock-based
compensation expense totaled $233 thousand in 2006, $117 thousand in 2005 and
$118 thousand in 2004. 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 $287 thousand
at December 31, 2006. At such date, the weighted-average period over which
this
unrecognized expense is expected to be recognized was 2.00 years. Unrecognized
stock-based compensation expense related to non-vested stock awards was $437
thousand at December 31, 2006. At such date, the weighted-average period over
which this unrecognized expense is expected to be recognized was 2.24
years.
As
of
December 31, 2006, there was $724 thousand of total unrecognized compensation
cost related to nonvested share-based compensation arrangements. That cost
is
expected to be recognized over a weighted-average period of 2.15
years.
62
The
fair
value of the Company’s employee stock options granted is estimated on the date
of grant using the Black-Scholes option-pricing model. The weighted-average
fair
value of stock options granted was $5.01 for 2006, $5.11 for 2005 and $5.56
for
2004. The Company estimated expected market price volatility and expected
term
of the options based on historical data and other factors. The weighted-average
assumptions used to determine the fair value of options granted are detailed
in
the table below:
|
|
2006
|
2005
|
2004
|
|||||||
|
Expected
dividend yield
|
2.67%
|
|
2.61%
|
|
2.54%
|
|
||||
|
Expected
stock price volatility
|
17.74%
|
|
16.00%
|
|
16.00
|
|||||
|
Risk-free
interest rate
|
4.84%
|
|
5.17%
|
|
5.17%
|
|
||||
|
Expected
life of options
|
5
- 10 Years
|
7
Years
|
10
Years
|
|||||||
The
following pro forma information presents net income and earnings per share
for
2005 and 2004 as if the fair value method of SFAS 123R had been applied to
measure compensation cost for stock-based compensation plans.
|
(In
thousands, except per share data)
|
2005
|
2004
|
|||||
|
Net
income, as reported
|
$
|
26,962
|
$
|
24,446
|
|||
|
Add:
Stock-based employee compensation included
|
|||||||
|
in
reported net income, net of related tax effects
|
73
|
73
|
|||||
|
Less:
Total stock-based employee compensation
|
|||||||
|
expense
determined under fair value based method
|
|||||||
|
for
all awards, net of related tax effects
|
(544
|
)
|
(283
|
)
|
|||
|
Pro
forma net income
|
$
|
26,491
|
$
|
24,236
|
|||
|
Earnings
per share:
|
|||||||
|
Basic
- as reported
|
$
|
1.88
|
$
|
1.68
|
|||
|
Basic
- pro forma
|
$
|
1.84
|
$
|
1.67
|
|||
|
Diluted
- as reported
|
$
|
1.84
|
$
|
1.65
|
|||
|
Diluted
- pro forma
|
$
|
1.80
|
$
|
1.63
|
|||
|
NOTE
12:
|
ADDITIONAL
CASH FLOW
INFORMATION
|
In
connection with cash acquisitions accounted for using the purchase method,
the
Company acquired assets and assumed liabilities as follows:
|
(In
thousands)
|
2006
|
2005
|
2004
|
|||||||
|
Liabilities
assumed
|
$
|
--
|
$
|
2,156
|
$
|
152,955
|
||||
|
Fair
value of assets acquired
|
--
|
311
|
159,637
|
|||||||
|
Cash
received (disbursed)
|
--
|
1,845
|
(6,682
|
)
|
||||||
|
Funds
acquired
|
--
|
100
|
3,739
|
|||||||
|
Net
funds received (disbursed)
|
$
|
--
|
$
|
1,945
|
$
|
(2,943
|
)
|
|||
|
Additional
cash payment information
|
||||||||||
|
Interest
paid
|
$
|
65,108
|
$
|
41,007
|
$
|
30,245
|
||||
|
Income
taxes paid
|
7,926
|
11,232
|
10,090
|
|||||||
63
|
NOTE
13:
|
OTHER
OPERATING EXPENSES
|
Other
operating expenses consist of the following:
|
(In
thousands)
|
2006
|
2005
|
2004
|
|||||||
|
Professional
services
|
$
|
2,490
|
$
|
2,201
|
$
|
2,029
|
||||
|
Postage
|
2,278
|
2,281
|
2,256
|
|||||||
|
Telephone
|
1,961
|
1,847
|
1,784
|
|||||||
|
Credit
card expense
|
3,235
|
2,693
|
2,374
|
|||||||
|
Operating
supplies
|
1,611
|
1,555
|
1,528
|
|||||||
|
Amortization
of core deposit premiums
|
830
|
830
|
791
|
|||||||
|
Write
off of deferred debt issuance cost
|
--
|
--
|
771
|
|||||||
|
Other
expense
|
10,712
|
10,839
|
10,543
|
|||||||
|
Total
|
$
|
23,117
|
$
|
22,246
|
$
|
22,076
|
||||
The
Company had aggregate annual equipment rental expense of approximately $534,000
in 2006, $481,000 in 2005 and $406,000 in 2004. The Company had aggregate annual
occupancy rental expense of approximately $1,106,000 in 2006, $1,111,000 in
2005
and $1,079,000 in 2004.
|
NOTE
14:
|
DISCLOSURES
ABOUT FAIR VALUE OF FINANCIAL
INSTRUMENTS
|
The
following methods and assumptions were used to estimate the fair value of each
class of financial instruments:
Cash
and Cash Equivalents
The
carrying amount for cash and cash equivalents approximates fair
value.
Investment
Securities
Fair
values for investment securities equal quoted market prices, if available.
If
quoted market prices are not available, fair values are estimated based on
quoted market prices of similar securities.
Loans
The
fair
value of loans is estimated by discounting the future cash flows, using the
current rates at which similar loans would be made to borrowers with similar
credit ratings and for the same remaining maturities. Loans with similar
characteristics were aggregated for purposes of the calculations. The carrying
amount of accrued interest approximates its fair value.
Deposits
The
fair
value of demand deposits, savings accounts and money market deposits is the
amount payable on demand at the reporting date (i.e., their carrying amount).
The fair value of fixed-maturity time deposits is estimated using a discounted
cash flow calculation that applies the rates currently offered for deposits
of
similar remaining maturities. The carrying amount of accrued interest payable
approximates its fair value.
Federal
Funds Purchased, Securities Sold Under Agreement to
Repurchase
and
Short-Term Debt
The
carrying amount for Federal funds purchased, securities sold under agreement
to
repurchase and short-term debt are a reasonable estimate of fair
value.
64
Long-Term
Debt
Rates
currently available to the Company for debt with similar terms and remaining
maturities are used to estimate the fair value of existing debt.
Commitments
to Extend Credit, Letters of Credit and Lines of Credit
The
fair
value of commitments is estimated using the fees currently charged to enter
into
similar agreements, taking into account the remaining terms of the agreements
and the present creditworthiness of the counterparties. For fixed rate loan
commitments, fair value also considers the difference between current levels
of
interest rates and the committed rates. The fair values of letters of credit
and
lines of credit are based on fees currently charged for similar agreements
or on
the estimated cost to terminate or otherwise settle the obligations with the
counterparties at the reporting date.
The
following table represents estimated fair values of the Company's financial
instruments. The fair values of certain of these instruments were calculated
by
discounting expected cash flows. This method involves significant judgments
by
management considering the uncertainties of economic conditions and other
factors inherent in the risk management of financial instruments. Fair value
is
the estimated amount at which financial assets or liabilities could be exchanged
in a current transaction between willing parties, other than in a forced or
liquidation sale. Because no market exists for certain of these financial
instruments and because management does not intend to sell these financial
instruments, the Company does not know whether the fair values shown below
represent values at which the respective financial instruments could be sold
individually or in the aggregate.
|
December
31, 2006
|
December
31, 2005
|
||||||||||||
|
Carrying
|
Fair
|
Carrying
|
Fair
|
||||||||||
|
(In
thousands)
|
Amount
|
Value
|
Amount
|
Value
|
|||||||||
|
Financial
assets
|
|||||||||||||
|
Cash
and cash equivalents
|
$
|
151,151
|
$
|
151,151
|
$
|
101,573
|
$
|
101,573
|
|||||
|
Held-to-maturity
securities
|
179,944
|
179,816
|
150,299
|
149,173
|
|||||||||
|
Available-for-sale
securities
|
347,182
|
347,182
|
371,490
|
371,490
|
|||||||||
|
Assets
held in trading accounts
|
4,487
|
4,487
|
4,631
|
4,631
|
|||||||||
|
Mortgage
loans held for sale
|
7,091
|
7,091
|
7,857
|
7,857
|
|||||||||
|
Interest
receivable
|
21,974
|
21,974
|
18,754
|
18,754
|
|||||||||
|
Loans,
net
|
1,758,110
|
1,777,257
|
1,691,184
|
1,702,119
|
|||||||||
|
Financial
liabilities
|
|||||||||||||
|
Non-interest
bearing transaction accounts
|
305,327
|
305,327
|
331,113
|
331,113
|
|||||||||
|
Interest
bearing transaction accounts and
|
|||||||||||||
|
savings
deposits
|
738,763
|
738,763
|
749,925
|
749,925
|
|||||||||
|
Time
deposits
|
1,131,441
|
1,150,274
|
978,920
|
992,789
|
|||||||||
|
Federal
funds purchased and securities
|
|||||||||||||
|
sold
under agreements to repurchase
|
105,036
|
105,036
|
107,223
|
107,223
|
|||||||||
|
Short-term
debt
|
6,114
|
6,114
|
8,031
|
8,031
|
|||||||||
|
Long-term
debt
|
83,311
|
85,125
|
87,020
|
87,930
|
|||||||||
|
Interest
payable
|
7,296
|
7,296
|
4,846
|
4,846
|
|||||||||
The
fair
value of commitments to extend credit and letters of credit is not presented
since management believes the fair value to be insignificant.
65
|
NOTE
15:
|
SIGNIFICANT
ESTIMATES AND
CONCENTRATIONS
|
Accounting
principles generally accepted in the United Sates of America require disclosure
of certain significant estimates and current vulnerabilities due to certain
concentrations. Estimates related to the allowance for loan losses and certain
concentrations of credit risk are reflected in Note 4, Loans and Allowance
for
Loan Losses.
|
NOTE
16:
|
COMMITMENTS
AND CREDIT RISK
|
The
Company grants agri-business, credit card, commercial and residential loans
to
customers throughout Arkansas. Commitments to extend credit are agreements
to
lend to a customer, as long as there is no violation of any condition
established in the contract. Commitments generally have fixed expiration dates
or other termination clauses and may require payment of a fee. Since a portion
of the commitments may expire without being drawn upon, the total commitment
amounts do not necessarily represent future cash requirements. Each customer's
creditworthiness is evaluated on a case-by-case basis. The amount of collateral
obtained, if deemed necessary, is based on management's credit evaluation of
the
counterparty. Collateral held varies, but may include accounts receivable,
inventory, property, plant and equipment, commercial real estate and residential
real estate.
At
December 31, 2006, the Company had outstanding commitments to extend credit
aggregating approximately $202,047,000 and $529,697,000 for credit card
commitments and other loan commitments, respectively. At December 31, 2005,
the
Company had outstanding commitments to extend credit aggregating approximately
$194,614,000 and $429,442,000 for credit card commitments and other loan
commitments, respectively.
Letters
of
credit are conditional commitments issued by the Company to guarantee the
performance of a customer to a third party. Those guarantees are primarily
issued to support public and private borrowing arrangements, including
commercial paper, bond financing and similar transactions. The credit risk
involved in issuing letters of credit is essentially the same as that involved
in extending loans to customers. The Company had total outstanding letters
of
credit amounting to $5,477,000 and $4,573,000 at December 31, 2006 and 2005,
respectively, with terms ranging from 90 days to three years. The Company’s
deferred revenue under standby letter of credit agreements was approximately
$35,000 and $43,000 at December 31, 2006 and 2005, respectively.
At
December 31, 2006, the Company did not have concentrations of 5% or more of
the
investment portfolio in bonds issued by a single municipality.
|
NOTE
17:
|
NEW
ACCOUNTING
STANDARDS
|
SFAS
No.
123, Share-Based Payment (Revised 2004), establishes standards for the
accounting for transactions in which an entity (i) exchanges its equity
instruments for goods or services, or (ii) incurs liabilities in exchange for
goods or services that are based on the fair value of the entity’s equity
instruments or that may be settled by the issuance of the equity instruments.
SFAS 123R eliminates the ability to account for stock-based compensation using
APB 25 and requires that such transactions be recognized as compensation cost
in
the income statement based on their fair values on the measurement date, which
is generally the date of the grant. The Company adopted the provisions of SFAS
123R on January 1, 2006. Details related to the adoption of SFAS 123R and the
impact to the Company’s financial statements are more fully discussed in Note
11, Employee Benefit Plans.
FASB
Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an
interpretation of FASB Statement
109, 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. Interpretation 48 is effective for the Company on January 1, 2007
and
is not expected to have a significant impact on the Company’s financial
statements.
66
Presently, the Company is not aware of any other changes from the Financial Accounting Standards Board that will have a material impact on the Company’s present or future financial statements.
|
NOTE
18:
|
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 two (2) lawsuits 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 plaintiffs are seeking
$2,000,000 in compensatory damages and $10,000,000 in punitive damages. The
Company has filed a Motion to Dismiss. The plaintiffs have been granted
additional time to discover any evidence for litigation. At this time, no basis
for any material liability has been identified. The Company and the banks
continue to vigorously defend the claims asserted in the suit.
On
April
3, 2006, an action in Johnson County Circuit Court was filed by Tria Xiong
and
Mai Lee Xiong against Simmons First Bank of Russellville and certain individuals
alleging wrongful conduct by the bank in the underwriting and origination of
certain loans. The plaintiffs are seeking an unspecified sum in compensatory
damages and $1,000,000.00 in punitive damages. Discovery is in process, and
the
suit is pending, with no court date set. At this time, no basis for any material
liability has been identified. The Company and the bank plan to vigorously
defend the claims asserted in the suit.
|
NOTE
19:
|
STOCKHOLDERS’
EQUITY
|
The
Company’s subsidiaries are subject to a legal limitation on dividends that can
be paid to the parent company without prior approval of the applicable
regulatory agencies. The approval of the Office of the Comptroller of the
Currency is required, if the total of all the dividends declared by a national
bank in any calendar year exceeds the total of its net profits, as defined,
for
that year, combined with its retained net profits of the preceding two years.
Arkansas bank regulators have specified that the maximum dividend limit state
banks may pay to the parent company without prior approval is 75% of the current
year earnings plus 75% of the retained net earnings of the preceding year.
At
December 31, 2006, the Company subsidiaries had approximately $12.7 million
in
undivided profits available for payment of dividends to the Company, without
prior approval of the regulatory agencies.
The
Company’s subsidiaries are subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory and possibly additional
discretionary actions by regulators that, if undertaken, could have a direct
material effect on the Company’s financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the
Company must meet specific capital guidelines that involve quantitative measures
of the Company’s assets, liabilities and certain off-balance-sheet items as
calculated under regulatory accounting practices. The Company’s capital amounts
and classifications are also subject to qualitative judgments by the regulators
about components, risk weightings and other factors.
Quantitative
measures established by regulation to ensure capital adequacy require the
Company to maintain minimum amounts and ratios (set forth in the table below)
of
total and Tier 1 capital (as defined in the regulations) to risk-weighted assets
(as defined) and of Tier 1 capital (as defined) to average assets (as defined).
Management believes that, as of December 31, 2006, the Company meets all capital
adequacy requirements to which it is subject.
67
As
of the
most recent notification from regulatory agencies, the subsidiaries were well
capitalized under the regulatory framework for prompt corrective action. To
be
categorized as well capitalized, the Company and subsidiaries must maintain
minimum total risk-based, Tier 1 risk-based and Tier 1 leverage ratios as set
forth in the table. There are no conditions or events since that notification
that management believes have changed the institutions’ categories.
68
The
Company’s actual capital amounts and ratios along with the Company’s most
significant subsidiaries are presented in the following table.
|
To
Be Well
|
|||||||||||||||||||
|
Minimum
|
Capitalized
Under
|
||||||||||||||||||
|
For
Capital
|
Prompt
Corrective
|
||||||||||||||||||
|
Actual
|
Adequacy
Purposes
|
Action
Provision
|
|||||||||||||||||
|
(In
thousands)
|
Amount
|
Ratio-%
|
Amount
|
Ratio-%
|
Amount
|
Ratio-%
|
|||||||||||||
|
As
of December 31, 2006
|
|||||||||||||||||||
|
Total
Risk-Based Capital Ratio
|
|||||||||||||||||||
|
Simmons
First National Corporation
|
$
|
250,000
|
13.6
|
$
|
147,059
|
8.0
|
$
|
N/A
|
|||||||||||
|
Simmons
First National Bank
|
100,895
|
11.3
|
71,430
|
8.0
|
89,288
|
10.0
|
|||||||||||||
|
Simmons
First Bank of Jonesboro
|
23,743
|
11.8
|
16,097
|
8.0
|
20,121
|
10.0
|
|||||||||||||
|
Simmons
First Bank of Russellville
|
19,789
|
15.4
|
10,280
|
8.0
|
12,850
|
10.0
|
|||||||||||||
|
Simmons
First Bank of Northwest Arkansas
|
22,699
|
10.6
|
17,131
|
8.0
|
21,414
|
10.0
|
|||||||||||||
|
Simmons
First Bank of El Dorado
|
18,728
|
14.0
|
10,702
|
8.0
|
13,377
|
10.0
|
|||||||||||||
|
Tier
1 Capital Ratio
|
|
|
|||||||||||||||||
|
Simmons
First National Corporation
|
226,880
|
12.4
|
73,187
|
4.0
|
N/A
|
||||||||||||||
|
Simmons
First National Bank
|
91,859
|
10.3
|
35,673
|
4.0
|
53,510
|
6.0
|
|||||||||||||
|
Simmons
First Bank of Jonesboro
|
21,217
|
10.5
|
8,083
|
4.0
|
12,124
|
6.0
|
|||||||||||||
|
Simmons
First Bank of Russellville
|
18,176
|
14.1
|
5,156
|
4.0
|
7,734
|
6.0
|
|||||||||||||
|
Simmons
First Bank of Northwest Arkansas
|
20,133
|
9.4
|
8,567
|
4.0
|
12,851
|
6.0
|
|||||||||||||
|
Simmons
First Bank of El Dorado
|
17,278
|
12.9
|
5,358
|
4.0
|
8,036
|
6.0
|
|||||||||||||
|
Leverage
Ratio
|
|||||||||||||||||||
|
Simmons
First National Corporation
|
226,880
|
8.8
|
103,127
|
4.0
|
N/A
|
||||||||||||||
|
Simmons
First National Bank
|
91,859
|
7.4
|
50,334
|
4.0
|
62,917
|
5.0
|
|||||||||||||
|
Simmons
First Bank of Jonesboro
|
21,217
|
8.0
|
10,609
|
4.0
|
13,261
|
5.0
|
|||||||||||||
|
Simmons
First Bank of Russellville
|
18,176
|
9.8
|
7,419
|
4.0
|
9,273
|
5.0
|
|||||||||||||
|
Simmons
First Bank of Northwest Arkansas
|
20,133
|
7.4
|
11,032
|
4.0
|
13,790
|
5.0
|
|||||||||||||
|
Simmons
First Bank of El Dorado
|
17,278
|
7.9
|
8,748
|
4.0
|
10,935
|
5.0
|
|||||||||||||
|
As
of December 31, 2005
|
|||||||||||||||||||
|
Total
Risk-Based Capital Ratio
|
|||||||||||||||||||
|
Simmons
First National Corporation
|
$
|
235,316
|
13.5
|
$
|
139,447
|
8.0
|
$
|
N/A
|
|||||||||||
|
Simmons
First National Bank
|
95,633
|
11.5
|
66,527
|
8.0
|
83,159
|
10.0
|
|||||||||||||
|
Simmons
First Bank of Jonesboro
|
21,806
|
10.9
|
16,004
|
8.0
|
20,006
|
10.0
|
|||||||||||||
|
Simmons
First Bank of Russellville
|
22,096
|
16.7
|
10,585
|
8.0
|
13,231
|
10.0
|
|||||||||||||
|
Simmons
First Bank of Northwest Arkansas
|
21,393
|
10.8
|
15,847
|
8.0
|
19,808
|
10.0
|
|||||||||||||
|
Simmons
First Bank of El Dorado
|
18,158
|
14.6
|
9,950
|
8.0
|
12,437
|
10.0
|
|||||||||||||
|
Tier
1 Capital Ratio
|
|||||||||||||||||||
|
Simmons
First National Corporation
|
213,167
|
12.3
|
69,323
|
4.0
|
N/A
|
||||||||||||||
|
Simmons
First National Bank
|
87,353
|
10.5
|
33,277
|
4.0
|
49,916
|
6.0
|
|||||||||||||
|
Simmons
First Bank of Jonesboro
|
19,294
|
9.6
|
8,039
|
4.0
|
12,059
|
6.0
|
|||||||||||||
|
Simmons
First Bank of Russellville
|
20,444
|
15.5
|
5,276
|
4.0
|
7,914
|
6.0
|
|||||||||||||
|
Simmons
First Bank of Northwest Arkansas
|
18,917
|
9.6
|
7,882
|
4.0
|
11,823
|
6.0
|
|||||||||||||
|
Simmons
First Bank of El Dorado
|
16,628
|
13.4
|
4,964
|
4.0
|
7,445
|
6.0
|
|||||||||||||
|
Leverage
Ratio
|
|||||||||||||||||||
|
Simmons
First National Corporation
|
213,167
|
8.6
|
99,147
|
4.0
|
N/A
|
||||||||||||||
|
Simmons
First National Bank
|
87,353
|
7.4
|
47,218
|
4.0
|
59,022
|
5.0
|
|||||||||||||
|
Simmons
First Bank of Jonesboro
|
19,294
|
7.4
|
10,429
|
4.0
|
13,036
|
5.0
|
|||||||||||||
|
Simmons
First Bank of Russellville
|
20,444
|
11.2
|
7,301
|
4.0
|
9,127
|
5.0
|
|||||||||||||
|
Simmons
First Bank of Northwest Arkansas
|
18,917
|
7.3
|
10,365
|
4.0
|
12,957
|
5.0
|
|||||||||||||
|
Simmons
First Bank of El Dorado
|
16,628
|
7.9
|
8,419
|
4.0
|
10,524
|
5.0
|
|||||||||||||
69
|
NOTE
20:
|
CONDENSED
FINANCIAL INFORMATION (PARENT COMPANY
ONLY)
|
|
CONDENSED
BALANCE SHEETS
|
|||||||
|
DECEMBER
31, 2006 and 2005
|
|||||||
|
(In
thousands)
|
2006
|
2005
|
|||||
|
ASSETS
|
|||||||
|
Cash
and cash equivalents
|
$
|
6,858
|
$
|
4,853
|
|||
|
Investment
securities
|
2,490
|
3,030
|
|||||
|
Investments
in wholly-owned subsidiaries
|
275,872
|
265,714
|
|||||
|
Intangible
assets, net
|
134
|
134
|
|||||
|
Premises
and equipment
|
2,664
|
2,248
|
|||||
|
Other
assets
|
7,006
|
6,173
|
|||||
|
TOTAL
ASSETS
|
$
|
295,024
|
$
|
282,152
|
|||
|
LIABILITIES
|
|||||||
|
Long-term
debt
|
$
|
32,930
|
$
|
34,930
|
|||
|
Other
liabilities
|
3,078
|
3,137
|
|||||
|
Total
liabilities
|
36,008
|
38,067
|
|||||
|
STOCKHOLDERS’
EQUITY
|
|||||||
|
Common
stock
|
142
|
143
|
|||||
|
Surplus
|
48,678
|
53,723
|
|||||
|
Undivided
profits
|
212,394
|
194,579
|
|||||
|
Accumulated
other comprehensive income (loss)
|
|||||||
|
Unrealized
depreciation on available-for-sale
|
|||||||
|
securities,
net of income tax credits of $1,319 at 2006
|
|||||||
|
and
$2,615 at 2005
|
(2,198
|
)
|
(4,360
|
)
|
|||
|
Total
stockholders’ equity
|
259,016
|
244,085
|
|||||
|
TOTAL
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
$
|
295,024
|
$
|
282,152
|
|||
|
CONDENSED
STATEMENTS OF INCOME
|
||||||||||
|
YEARS
ENDED DECEMBER 31, 2006, 2005 and 2004
|
||||||||||
|
(In
thousands)
|
2006
|
2005
|
2004
|
|||||||
|
INCOME
|
||||||||||
|
Dividends
from subsidiaries
|
$
|
20,472
|
$
|
18,394
|
$
|
15,650
|
||||
|
Other
income
|
5,809
|
5,473
|
4,486
|
|||||||
|
26,281
|
23,867
|
20,136
|
||||||||
|
EXPENSE
|
10,111
|
9,346
|
10,349
|
|||||||
|
Income
before income taxes and equity in
|
||||||||||
|
undistributed
net income of subsidiaries
|
16,170
|
14,521
|
9,787
|
|||||||
|
Provision
for income taxes
|
(1,546
|
)
|
(1,342
|
)
|
(2,098
|
)
|
||||
|
Income
before equity in undistributed net
|
||||||||||
|
income
of subsidiaries
|
17,716
|
15,863
|
11,885
|
|||||||
|
Equity
in undistributed net income of subsidiaries
|
9,765
|
11,099
|
12,561
|
|||||||
|
NET
INCOME
|
$
|
27,481
|
$
|
26,962
|
$
|
24,446
|
||||
70
|
CONDENSED
STATEMENTS OF CASH FLOWS
|
||||||||||
|
YEARS
ENDED DECEMBER 31, 2006, 2005 and 2004
|
||||||||||
|
(In
thousands)
|
2006
|
2005
|
2004
|
|||||||
|
CASH
FLOWS FROM OPERATING ACTIVITIES
|
||||||||||
|
Net
income
|
$
|
27,481
|
$
|
26,962
|
$
|
24,446
|
||||
|
Items
not requiring (providing) cash
|
||||||||||
|
Depreciation
and amortization
|
213
|
178
|
164
|
|||||||
|
Deferred
income taxes
|
226
|
(134
|
)
|
149
|
||||||
|
Equity
in undistributed income of bank subsidiaries
|
(9,765
|
)
|
(11,099
|
)
|
(12,561
|
)
|
||||
|
Changes
in
|
||||||||||
|
Other
assets
|
(996
|
)
|
1,066
|
(646
|
)
|
|||||
|
Other
liabilities
|
(58
|
)
|
936
|
(848
|
)
|
|||||
|
Net
cash provided by operating activities
|
17,101
|
17,909
|
10,704
|
|||||||
|
CASH
FLOWS FROM INVESTING ACTIVITIES
|
||||||||||
|
Purchases
of premises and equipment
|
(629
|
)
|
(232
|
)
|
(113
|
)
|
||||
|
Purchase
of subsidiary
|
--
|
--
|
(10,225
|
)
|
||||||
|
Return
of capital from subsidiary
|
1,706
|
--
|
--
|
|||||||
|
Purchase
of held-to-maturity securities
|
(4,100
|
)
|
(1,530
|
)
|
--
|
|||||
|
Proceeds
from sale of investment securities
|
4,640
|
550
|
17,958
|
|||||||
|
Net
cash (used in) provided by investing activities
|
1,617
|
(1,212
|
)
|
7,620
|
||||||
|
CASH
FLOWS FROM FINANCING ACTIVITIES
|
||||||||||
|
Principal
reduction on long-term debt
|
(2,000
|
)
|
(2,000
|
)
|
(19,783
|
)
|
||||
|
Dividends
paid
|
(9,666
|
)
|
(8,757
|
)
|
(8,263
|
)
|
||||
|
Repurchase
of common stock, net
|
(5,047
|
)
|
(9,105
|
)
|
(1,395
|
)
|
||||
|
Net
cash used in financing activities
|
(16,713
|
)
|
(19,862
|
)
|
(29,441
|
)
|
||||
|
INCREASE
(DECREASE) IN CASH AND
|
||||||||||
|
CASH
EQUIVALENTS
|
2,005
|
(3,165
|
)
|
(11,117
|
)
|
|||||
|
CASH
AND CASH EQUIVALENTS,
|
||||||||||
|
BEGINNING
OF YEAR
|
4,853
|
8,018
|
19,135
|
|||||||
|
CASH
AND CASH EQUIVALENTS, END OF YEAR
|
$
|
6,858
|
$
|
4,853
|
$
|
8,018
|
||||
71
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
|
No
items
are reportable.
|
CONTROLS
AND PROCEDURES
|
(a)
Evaluation of disclosure controls and procedures. The Company's Chief Executive
Officer and Chief Financial Officer have reviewed and evaluated the
effectiveness of the Company's disclosure controls and procedures (as defined
in
15 C. F. R. 240.13a-14(c) and 15 C. F. R. 240.15-14(c)) as of the end of the
period covered by this report. Based upon that evaluation, the Chief Executive
Officer and Chief Financial Officer have concluded that the Company's current
disclosure controls and procedures are effective.
(b)
Changes in Internal Controls. There were no significant changes in the Company's
internal controls or in other factors that could significantly affect those
controls subsequent to the date of evaluation.
|
OTHER
INFORMATION
|
No
items
are reportable.
Incorporated
herein by reference from the Company's definitive proxy statement for the Annual
Meeting of Stockholders to be held April 10, 2007, to be filed pursuant to
Regulation 14A on or about March 9, 2007.
|
EXECUTIVE
COMPENSATION
|
Incorporated
herein by reference from the Company's definitive proxy statement for the
Annual
Meeting of Stockholders to be held April 10, 2007, to be filed pursuant to
Regulation 14A on or about March 9, 2007.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
|
Incorporated
herein by reference from the Company's definitive proxy statement for the Annual
Meeting of Stockholders to be held April 10, 2007, to be filed pursuant to
Regulation 14A on or about March 9, 2007.
|
CERTAIN
RELATIONSHIPS AND RELATED
TRANSACTIONS
|
Incorporated
herein by reference from the Company's definitive proxy statement for the Annual
Meeting of Stockholders to be held April 10, 2007, to be filed pursuant to
Regulation 14A on or about March 9, 2007.
|
PRINCIPAL
ACCOUNTING FEES AND
SERVICES
|
Incorporated
herein by reference from the Company's definitive proxy statement for the Annual
Meeting of Stockholders to be held April 10, 2007, to be filed pursuant to
Regulation 14A on or about March 9, 2007.
72
|
EXHIBITS
AND FINANCIAL STATEMENT
SCHEDULES
|
(a)
1 and
2. Financial Statements and any Financial Statement Schedules
The
financial statements and financial statement schedules listed in the
accompanying index to the consolidated financial statements and financial
statement schedules are filed as part of this report.
(b)
Listing of Exhibits
|
Exhibit
No.
|
Description
|
|
|
3.1
|
Restated
Articles of Incorporation of Simmons First National Corporation
(incorporated by reference to Exhibit 4 to Simmons First National
Corporation’s Quarterly Report on Form 10-Q for the Quarter ended March
31, 2004 (File No. 6253)).
|
|
|
3.2
|
Amended
By-Laws of Simmons First National Corporation (incorporated by
reference
to Exhibit 3 (ii) to Simmons First National Corporation’s Quarterly Report
on Form 10-Q for the Quarter ended June 30, 1994 (File No.
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 Bob Fehlman
as
administrative trustees, with respect to Simmons First Capital
Trust II
(incorporated by reference to Exhibit 10.1 to Simmons First National
Corporation’s Annual Report on Form 10-K for the Year ended December 31,
2003 (File No. 6253)).
|
|
|
10.2
|
Guarantee
Agreement, dated as of December 16, 2003, between the Company and
Deutsche
Bank Trust Company Americas, as guarantee trustee, with respect
to Simmons
First Capital Trust II (incorporated by reference to Exhibit 10.2
to
Simmons First National Corporation’s Annual Report on Form 10-K for the
Year ended December 31, 2003 (File No. 6253)).
|
|
|
10.3
|
Junior
Subordinated Indenture, dated as of December 16, 2003, among the
Company
and Deutsche Bank Trust Company Americas, as trustee, with respect
to the
junior subordinated note held by Simmons First Capital Trust II
(incorporated by reference to Exhibit 10.3 to Simmons First National
Corporation’s Annual Report on Form 10-K for the Year ended December 31,
2003 (File No. 6253)).
|
|
|
10.4
|
Amended
and Restated Trust Agreement, dated as of December 16, 2003, among
the
Company, Deutsche Bank Trust Company Americas, Deutsche Bank Trust
Company
Delaware and each of J. Thomas May, Barry L. Crow and Bob Fehlman
as
administrative trustees, with respect to Simmons First Capital
Trust III
(incorporated by reference to Exhibit 10.4 to Simmons First National
Corporation’s Annual Report on Form 10-K for the Year ended December 31,
2003 (File No. 6253)).
|
|
|
10.5
|
Guarantee
Agreement, dated as of December 16, 2003, between the Company and
Deutsche
Bank Trust Company Americas, as guarantee trustee, with respect
to Simmons
First Capital Trust III (incorporated by reference to Exhibit 10.5
to
Simmons First National Corporation’s Annual Report on Form 10-K for the
Year ended December 31, 2003 (File No.
6253)).
|
73
|
10.6
|
Junior
Subordinated Indenture, dated as of December 16, 2003, among the
Company
and Deutsche Bank Trust Company Americas, as trustee, with respect
to the
junior subordinated note held by Simmons First Capital Trust III
(incorporated by reference to Exhibit 10.6 to Simmons First National
Corporation’s Annual Report on Form 10-K for the Year ended December 31,
2003 (File No. 6253)).
|
|
|
10.7
|
Amended
and Restated Trust Agreement, dated as of December 16, 2003, among
the
Company, Deutsche Bank Trust Company Americas, Deutsche Bank Trust
Company
Delaware and each of J. Thomas May, Barry L. Crow and Bob Fehlman
as
administrative trustees, with respect to Simmons First Capital Trust
IV
(incorporated by reference to Exhibit 10.7 to Simmons First National
Corporation’s Annual Report on Form 10-K for the Year ended December 31,
2003 (File No. 6253)).
|
|
|
10.8
|
Guarantee
Agreement, dated as of December 16, 2003, between the Company and
Deutsche
Bank Trust Company Americas, as guarantee trustee, with respect to
Simmons
First Capital Trust IV (incorporated by reference to Exhibit 10.8
to
Simmons First National Corporation’s Annual Report on Form 10-K for the
Year ended December 31, 2003 (File No. 6253)).
|
|
|
10.9
|
Junior
Subordinated Indenture, dated as of December 16, 2003, among the
Company
and Deutsche Bank Trust Company Americas, as trustee, with respect
to the
junior subordinated note held by Simmons First Capital Trust IV
(incorporated by reference to Exhibit 10.9 to Simmons First National
Corporation’s Annual Report on Form 10-K for the Year ended December 31,
2003 (File No. 6253)).
|
|
|
10.10
|
Long-Term
Executive Incentive Agreement, dated as of January 1, 2005, by and
between
the Company and J. Thomas May (incorporated by reference to Exhibit
10.10
to Simmons First National Corporation’s Annual Report on Form 10-K for the
Year ended December 31, 2005 (File No. 0-6253)).
|
|
|
14
|
Code
of Ethics, dated December 2003, for CEO, CFO, controller and other
accounting officers (incorporated by reference to Exhibit 14 to Simmons
First National Corporation’s Annual Report on Form 10-K for the Year ended
December 31, 2003 (File No. 6253)).
|
|
|
31.1
|
Rule
13a-14(a)/15d-14(a) Certification - J. Thomas May, Chairman and Chief
Executive Officer.*
|
|
|
|
||
|
31.2
|
Rule
13a-14(a)/15d-14(a) Certification - Robert A. Fehlman, Executive
Vice
President and Chief Financial Officer.*
|
|
|
32.1
|
Certification
Pursuant to 18 U.S.C. Sections 1350, as Adopted Pursuant to Section
906 of
the Sarbanes-Oxley Act of 2002 - J. Thomas May, Chairman and Chief
Executive Officer.*
|
|
|
32.2
|
Certification
Pursuant to 18 U.S.C. Sections 1350, as Adopted Pursuant to Section
906 of
the Sarbanes-Oxley Act of 2002 - Robert A. Fehlman, Executive Vice
President and Chief Financial Officer.*
|
|
|
*
Filed herewith.
|
74
Pursuant
to the requirements of Section 13 or 15 (d) of the Securities Exchange Act
of
1934, the Registrant has duly caused this report to be signed on its behalf
by
the undersigned, thereunto duly authorized.
|
/s/
John L. Rush
|
February
26, 2007
|
|
|
John
L. Rush, Secretary
|
Pursuant
to the requirements of the Securities and Exchange Act of 1934, this report
has
been signed below by the following persons on behalf of the registrant and
in
the capacities indicated on or about February 26, 2007.
|
Signature
|
Title
|
|
|
/s/
J. Thomas May
|
Chairman
and Chief Executive Officer
|
|
|
J.
Thomas May
|
and
Director
|
|
|
/s/
Robert A. Fehlman
|
Executive
Vice President and Chief Financial Officer
|
|
|
Robert
A. Fehlman
|
(Principal
Financial and Accounting Officer)
|
|
|
/s/
William E. Clark
|
Director
|
|
|
William
E. Clark
|
||
|
/s/
Steven A. Cosse¢
|
Director
|
|
|
Steven
A. Cosse¢
|
||
|
/s/
George A. Makris, Jr.
|
Director
|
|
|
George
A. Makris, Jr.
|
||
|
/s/
W. Scott McGeorge
|
Director
|
|
|
W.
Scott McGeorge
|
||
|
/s/
Stanley E. Reed
|
Director
|
|
|
Stanley
E. Reed
|
||
|
/s/
Harry L. Ryburn
|
Director
|
|
|
Harry
L. Ryburn
|
||
|
/s/
Robert L. Shoptaw
|
Director
|
|
|
Robert
L. Shoptaw
|
||
|
/s/
Henry F. Trotter, Jr.
|
Director
|
|
|
Henry
F. Trotter, Jr.
|
75