a6088495.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549


FORM 10-Q

QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For Quarter Ended September 30, 2009
Commission File Number 0-6253

SIMMONS FIRST NATIONAL CORPORATION
(Exact name of registrant as specified in its charter)

Arkansas
71-0407808
(State or other jurisdiction of
(I.R.S. Employer
incorporation or organization)
Identification No.)
   
501 Main Street, Pine Bluff, Arkansas
71601
(Address of principal executive offices)
(Zip Code)

870-541-1000
(Registrant's telephone number, including area code)
 
Not Applicable
Former name, former address and former fiscal year, if changed since last report


Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   S Yes   £ No


Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.  See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
 
£ Large accelerated filer
S Accelerated filer
£ Non-accelerated filer

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act.).   £ Yes  S No


The number of shares outstanding of the Registrant’s Common Stock as of October 21, 2009, was 14,045,631.

 
Simmons First National Corporation
Quarterly Report on Form 10-Q
September 30, 2009
 
Table of Contents
 
      Page  
         
     
     
    3  
    4  
    5  
    6  
    7-26  
    27  
 
28-57
  
  58-60  
  61  
         
     
  61-66  
  67  
  67  
         
    70  

 
 
Part I:               Financial Information
Item 1.              Financial Statements
 
Simmons First National Corporation
Consolidated Balance Sheets
September 30, 2009 and December 31, 2008
 
   
September 30,
    
December 31,
  
(In thousands, except share data)
  
2009
    
2008
  
   
(Unaudited)
        
ASSETS
            
Cash and non-interest bearing balances due from banks
   $ 54,176     $ 71,801  
Interest bearing balances due from banks
     142,714       61,085  
Federal funds sold
     12,500       6,650  
Cash and cash equivalents
     209,390       139,536  
Investment securities
     571,615       646,134  
Mortgage loans held for sale
     13,355       10,336  
Assets held in trading accounts
     6,839       5,754  
Loans
     1,925,101       1,933,074  
Allowance for loan losses
     (25,830 )     (25,841 )
Net loans
     1,899,271       1,907,233  
Premises and equipment
     78,674       78,904  
Foreclosed assets held for sale, net
     6,019       2,995  
Interest receivable
     19,618       20,930  
Bank owned life insurance
     40,612       39,617  
Goodwill
     60,605       60,605  
Core deposit premiums
     1,970       2,575  
Other assets
     7,469       8,490  
Total assets
   $ 2,915,437     $ 2,923,109  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY
                
Deposits:
                
Non-interest bearing transaction accounts
   $ 325,594     $ 334,998  
Interest bearing transaction accounts and savings deposits
     1,090,842       1,026,824  
Time deposits
     914,833       974,511  
Total deposits
     2,331,269       2,336,333  
Federal funds purchased and securities sold under agreements to repurchase
     96,666       115,449  
Short-term debt
     3,493       1,112  
Long-term debt
     161,560       158,671  
Accrued interest and other liabilities
     24,626       22,752  
Total liabilities
     2,617,614       2,634,317  
                 
Stockholders’ equity:
                
Preferred stock, $0.01 par value; 40,040,000 shares authorized
                
and unissued at September 30, 2009; no shares authorized at December 31, 2008
     --       --  
Common stock, Class A, $0.01 par value; 60,000,000 shares authorized;
                
14,045,631 and 13,960,680 shares issued and outstanding
                
at September 30, 2009, and December 31, 2008, respectively
     140       140  
Surplus
     41,048       40,807  
Undivided profits
     255,062       244,655  
Accumulated other comprehensive income
                
Unrealized appreciation on available-for-sale securities,
                
net of income taxes of $944 at 2009 and $1,913 at 2008
     1,573       3,190  
Total stockholders’ equity
     297,823       288,792  
Total liabilities and stockholders’ equity
   $ 2,915,437     $ 2,923,109  
 
 
See Condensed Notes to Consolidated Financial Statements.
3

Simmons First National Corporation
Consolidated Statements of Income
Three and Nine Months Ended September 30, 2009 and 2008
 
    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
(In thousands, except share data)   2009     2008     2009     2008  
    (Unaudited)     (Unaudited)  
INTEREST INCOME
                        
Loans
   $ 29,122     $ 31,548     $ 85,373     $ 95,812  
Federal funds sold
     10       176       25       716  
Investment securities
     5,089       7,063       16,762       20,687  
Mortgage loans held for sale
     136       112       489       338  
Assets held in trading accounts
     3       --       13       42  
Interest bearing balances due from banks
     87       309       235       1,184  
TOTAL INTEREST INCOME
     34,447       39,208       102,897       118,779  
                                 
INTEREST EXPENSE
                                
Deposits
     7,133       12,607       24,537       41,700  
Federal funds purchased and securities sold
                                
under agreements to repurchase
     172       429       597       1,813  
Short-term debt
     6       62       18       101  
Long-term debt
     1,743       1,763       5,239       4,929  
TOTAL INTEREST EXPENSE
     9,054       14,861       30,391       48,543  
                                 
NET INTEREST INCOME
     25,393       24,347       72,506       70,236  
Provision for loan losses
     2,789       2,214       7,549       5,895  
NET INTEREST INCOME AFTER PROVISION
                                
FOR LOAN LOSSES
     22,604       22,133       64,957       64,341  
                                 
NON-INTEREST INCOME
                                
Trust income
     1,361       1,608       3,910       4,707  
Service charges on deposit accounts
     4,763       4,009       13,061       11,134  
Other service charges and fees
     642       648       2,034       2,021  
Income on sale of mortgage loans, net of commissions
     798       595       3,198       2,077  
Income on investment banking, net of commissions
     598       131       1,684       779  
Credit card fees
     3,745       3,491       10,495       10,144  
Premiums on sale of student loans
     2,047       3       2,333       1,135  
Bank owned life insurance income
     293       370       970       1,157  
Gain on mandatory partial redemption of Visa shares
     --       --       --       2,973  
Other income
     716       433       1,951       1,870  
Gain on sale of securities
     --       --       144       --  
TOTAL NON-INTEREST INCOME
     14,963       11,288       39,780       37,997  
                                 
NON-INTEREST EXPENSE
                                
Salaries and employee benefits
     14,441       14,056       43,698       42,697  
Occupancy expense, net
     1,846       1,912       5,559       5,526  
Furniture and equipment expense
     1,553       1,543       4,623       4,505  
Other real estate and foreclosure expense
     132       57       292       185  
Deposit insurance
     865       267       3,955       468  
Other operating expenses
     7,470       6,606       20,789       18,395  
TOTAL NON-INTEREST EXPENSE
     26,307       24,441       78,916       71,776  
                                 
INCOME BEFORE INCOME TAXES
     11,260       8,980       25,821       30,562  
Provision for income taxes
     3,600       2,506       7,416       9,278  
                                 
NET INCOME
   $ 7,660     $ 6,474     $ 18,405     $ 21,284  
BASIC EARNINGS PER SHARE
   $ 0.54     $ 0.47     $ 1.31     $ 1.53  
DILUTED EARNINGS PER SHARE
   $ 0.54     $ 0.46     $ 1.30     $ 1.51  
 

See Condensed Notes to Consolidated Financial Statements.
4
 
Simmons First National Corporation
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 2009 and 2008

 
   September 30,    
September 30,
  
(In thousands)
  
2009
    
2008
  
 
   (Unaudited)  
OPERATING ACTIVITIES
            
Net income
   $ 18,405     $ 21,284  
Items not requiring (providing) cash
                
Depreciation and amortization
     4,396       4,268  
Provision for loan losses
     7,549       5,895  
Gain on mandatory partial redemption of Visa shares
     --       (2,973 )
Gain on sale of investment securities
     (144 )     --  
Net (amortization) accretion of investment securities
     (92 )     205  
Stock-based compensation expense
     448       466  
Deferred income taxes
     1,237       563  
Bank owned life insurance income
     (970 )     (1,157 )
Changes in
                
Interest receivable
     1,312       (1,977 )
Mortgage loans held for sale
     (3,019 )     6,720  
Assets held in trading accounts
     (1,085 )     4,768  
Other assets
     (665 )     (2,444 )
Accrued interest and other liabilities
     (1,283 )     (2,429 )
Income taxes payable
     1,920       (1,142 )
Net cash provided by operating activities
     28,009       32,047  
                 
INVESTING ACTIVITIES
                
Net originations of loans
     (5,672 )     (96,871 )
Purchases of premises and equipment, net
     (3,561 )     (6,547 )
Proceeds from sale of foreclosed assets
     3,061       3,981  
Proceeds from mandatory partial redemption of Visa shares
     --       2,973  
Sales (purchases) of short-term investment securities
     84,033       (6,294 )
Proceeds from sale of available-for-sale securities
     194       --  
Proceeds from maturities of available-for-sale securities
     570,997       274,503  
Purchases of available-for-sale securities
     (382,136 )     (325,485 )
Proceeds from maturities of held-to-maturity securities
     170,944       34,276  
Purchases of held-to-maturity securities
     (370,894 )     (25,823 )
Purchases of bank owned life insurance
     (25 )     (25 )
Net cash provided by (used in) investing activities
     66,941       (145,312 )
                 
FINANCING ACTIVITIES
                
Net (decrease) increase in deposits
     (5,064 )     111,535  
Net change in short-term debt
     2,381       (297 )
Dividends paid
     (7,998 )     (7,948 )
Proceeds from issuance of long-term debt
     7,666       86,025  
Repayment of long-term debt
     (4,777 )     (11,291 )
Net change in federal funds purchased and
                
securities sold under agreements to repurchase
     (18,783 )     (24,804 )
Shares issued (exchanged) under stock compensation plans, net
     1,479       882  
Repurchase of common stock
     --       (1,280 )
Net cash (used in) provided by financing activities
     (25,096 )     152,822  
                 
INCREASE IN CASH AND CASH EQUIVALENTS
     69,854       39,557  
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
     139,536       110,230  
                 
CASH AND CASH EQUIVALENTS, END OF PERIOD
   $ 209,390     $ 149,787  
 
 
See Condensed Notes to Consolidated Financial Statements.
5
 
Simmons First National Corporation
Consolidated Statements of Stockholders’ Equity
Nine Months Ended September 30, 2009 and 2008
 
                      Accumulated                  
                      Other                  
      Common              
Comprehensive
      
Undivided
          
(In thousands, except share data)    
Stock
      
Surplus
      
Income (loss)
      
Profits
      
Total
  
                                         
Balance, December 31, 2007
   $ 139     $ 41,019     $ 1,728     $ 229,520     $ 272,406  
Cumulative effect of adoption of a new accounting
                                        
principle on January 1, 2008 (Note 1)
     —       —       —       (1,174 )     (1,174 ) 
Comprehensive income
                                        
Net income
     —       —       —       21,284       21,284  
Change in unrealized appreciation on
                                        
available-for-sale securities, net of
                                        
income tax credits of $2,086
     —       —       (3,477 )     —       (3,477 )
Comprehensive income
                                     17,807  
Stock issued as bonus shares - 17,490 shares
     —       530       —       —       530  
Stock issued for employee stock
                                        
purchase plan - 5,359 shares
     —       135       —       —       135  
Exercise of stock options - 95,497shares
     1       1,182       —       —       1,183  
Stock granted under
                                        
stock-based compensation plans
     —       123       —       —       123  
Securities exchanged under stock option plan
     —       (965 )     —       —       (965 )
Repurchase of common stock - 45,180 shares
     —       (1,280 )     —       —       (1,280 )
Dividends paid - $0.57 per share
     —       —       —       (7,948 )     (7,948 )
                                         
Balance, September 30, 2008 (Unaudited)
     140       40,744       (1,749 )     241,682       280,817  
Comprehensive income
                                        
Net income
     —       —       —       5,626       5,626  
Change in unrealized appreciation on
                                        
available-for-sale securities, net of
                                        
income taxes of $(1,209)
     —       —       4,939       —       4,939  
Comprehensive income
                                     10,565  
Exercise of stock options - 2,000 shares
     —       25       —       —       25  
Stock granted under
                                        
stock-based compensation plans
     —       46       —       —       46  
Securities exchanged under stock option plan
     —       (8 )     —       —        (8 ) 
Cash dividends declared - $0.19 per share
     —       —       —       (2,653 )     (2,653 )
                                         
Balance, December 31, 2008
     140       40,807       3,190       244,655       288,792  
Comprehensive income
                                        
Net income
     —       —       —       18,405       18,405  
Change in unrealized appreciation on
                                        
available-for-sale securities, net of
                                        
        income tax credits of $907
     —       —       (1,617 )     —       (1,617 )
Comprehensive income
                                     16,788  
Stock issued as bonus shares - 27,915 shares
     —       702       —       —       702  
Cancelled bonus shares - 1,113 shares
     —       29       —       —       29  
Non-vested bonus shares
     —       (1,343 )     —       —       (1,343 )
Stock issued for employee stock
                                        
purchase plan - 5,823 shares
     —       141       —       —       141  
Exercise of stock options - 55,900 shares
     —       678       —       —       678  
Stock granted under
                                        
stock-based compensation plans
     —       136       —       —       136  
Securities exchanged under stock option plan
     —       (102 )     —       —       (102 )
                                         
Cash dividends declared - $0.57 per share
     —       —       —       (7,998 )     (7,998 )
                                         
Balance, September 30, 2009 (Unaudited)
   $ 140     $ 41,048     $ 1,573     $ 255,062     $ 297,823  
 
See Condensed Notes to Consolidated Financial Statements.
6
 
SIMMONS FIRST NATIONAL CORPORATION

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1:    BASIS OF PRESENTATION

The consolidated financial statements include the accounts of Simmons First National Corporation and its subsidiaries.  Significant intercompany accounts and transactions have been eliminated in consolidation.

All adjustments made to the unaudited financial statements were of a normal recurring nature.  In the opinion of management, all adjustments necessary for a fair presentation of the results of interim periods have been made. Certain prior year amounts are reclassified to conform to current year classification.  The consolidated balance sheet of the Company as of December 31, 2008, has been derived from the audited consolidated balance sheet of the Company as of that date.  The results of operations for the period are not necessarily indicative of the results to be expected for the full year.

Certain information and note disclosures normally included in the Company’s annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted.  These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Form 10-K annual report for 2008 filed with the U.S. Securities and Exchange Commission (the “SEC”).

Subsequent events have been evaluated through November 2, 2009, which is the date the financial statements were issued.

Recently Issued Accounting Pronouncements

In June 2009, the Financial Accounting Standards Board (“FASB”) issued an accounting standard which established the Accounting Standards Codification (“Codification” or “ASC”) to become the single source of authoritative U.S. generally accepted accounting principles (“GAAP”) recognized by the FASB to be applied by nongovernmental entities, with the exception of guidance issued by the SEC and its staff.  All guidance contained in the Codification carries an equal level of authority.  The Codification is not intended to change GAAP, but rather is expected to simplify accounting research by reorganizing current GAAP into approximately 90 accounting topics.  The switch to the ASC affects the away companies refer to GAAP in financial statements and accounting policies.  Citing particular content in the ASC involves specifying the unique numeric path to the content through the Topic, Subtopic, Section and Paragraph structure.  The Company adopted this accounting standard in preparing the Consolidated Financial Statements for the period ended September 30, 2009.  The adoption of this accounting standard, which was subsequently codified into ASC Topic 105, Generally Accepted Accounting Principles, had no impact on the Company’s ongoing financial position or results of operations.

New authoritative accounting guidance under ASC Topic 810, Consolidation, amends prior guidance to establish accounting and reporting standards for the non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary.  ASC Topic 810 clarifies that a non-controlling interest in a subsidiary, which is sometimes referred to as minority interest, is an ownership interest in the consolidated entity that should be reported as a component of equity in the consolidated financial statements.  Among other requirements, ASC Topic 810 requires consolidated net income to be reported at amounts that include the amounts attributable to both the parent and the non-controlling interest.  It also requires disclosure, on the face of the consolidated income statement, of the amounts of consolidated net income attributable to the parent and to the non-controlling interest.  ASC Topic 810 was effective on January 1, 2009, and did not have a significant impact on the Company’s ongoing financial position or results of operations.

7
 
New authoritative accounting guidance under ASC Topic 815, Derivatives and Hedging, amends prior guidance to amend and enhance the disclosure requirements for derivatives and hedging to provide greater transparency about (i) how and why an entity uses derivative instruments, (ii) how derivative instruments and related hedge items are accounted for under ASC Topic 815, and (iii) how derivative instruments and related hedged items affect an entity’s financial position, results of operations and cash flows.  To meet those objectives, ASC Topic 815 requires qualitative disclosures about objectives and strategies for using derivative instruments, quantitative disclosures about fair values of derivative instruments and their gains and losses and disclosures about credit-risk-related contingent features of the derivative instruments and their potential impact on an entity’s liquidity.  ASC Topic 815 was effective on January 1, 2009, and did not have a significant impact on the Company’s ongoing financial position or results of operations.

New authoritative accounting guidance under ASC Topic 855, Subsequent Events, establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or available to be issued.  ASC Topic 855 defines (i) the period after the balance sheet date during which a reporting entity’s management should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, (ii) the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements, and (iii) the disclosures an entity should make about events or transactions that occurred after the balance sheet date.  ASC Topic 855 became effective for the Company’s financial statements for periods ending after June 15, 2009, and did not have a significant impact on the Company’s ongoing financial position or results of operations.

New authoritative accounting guidance under ASC Topic 820, Fair Value Measurements and Disclosures, affirms that the objective of fair value when the market for an asset is not active is the price that would be received to sell the asset in an orderly transaction, and clarifies and includes additional factors for determining whether there has been a significant decrease in market activity for an asset when the market for that asset is not active.  ASC Topic 820 requires an entity to base its conclusion about whether a transaction was not orderly on the weight of the evidence.  The new accounting guidance amended prior guidance to expand certain disclosure requirements.  The Company adopted the new authoritative accounting guidance under ASC Topic 820 during the first quarter of 2009.  Adoption of the new guidance did not have a significant impact on the Company’s ongoing financial position or results of operations.

Further new authoritative accounting guidance (Accounting Standards Update No. 2009-5) under ASC Topic 820 provides guidance for measuring the fair value of a liability in circumstances in which a quoted price in an active market for the identical liability is not available.  In such instances, a reporting entity is required to measure fair value utilizing a valuation technique that uses (i) the quoted price of the identical liability when traded as an asset, (ii) quoted prices for similar liabilities or similar liabilities when traded as assets, or (iii) another valuation technique that is consistent with the existing principles of ASC Topic 820, such as an income approach or market approach.  The new authoritative accounting guidance also clarifies that when estimating the fair value of a liability, a reporting entity is not required to include a separate input or adjustment to other inputs relating to the existence of a restriction that prevents the transfer of the liability.  The foregoing new authoritative accounting guidance under ASC Topic 820 will be effective for the Company’s financial statements beginning October 1, 2009, and is not expected to have a significant impact on the Company’s ongoing financial position or results of operations.

8
 
New authoritative accounting guidance under ASC Topic 825, Financial Instruments, requires an entity to provide disclosures about the fair value of financial instruments in interim financial information and amends prior guidance to require those disclosures in summarized financial information at interim reporting periods.  The Company adopted this accounting standard in preparing its financial statements for the period ended June 30, 2009.  As ASC Topic 825 amended only the disclosure requirements about the fair value of financial instruments in interim periods, the adoption had no impact on the Company’s ongoing financial position or results of operations. The new interim disclosures required under ASC Topic 825 are included in Note 16, Fair Value Measurements.

New authoritative accounting guidance under ASC Topic 320, Investments – Debt and Equity Securities, amended other-than-temporary impairment (“OTTI”) guidance in GAAP for debt securities by requiring a write-down when fair value is below amortized cost in circumstances where: (1) an entity has the intent to sell a security; (2) it is more likely than not that an entity will be required to sell the security before recovery of its amortized cost basis; or (3) an entity does not expect to recover the entire amortized cost basis of the security.  If an entity intends to sell a security or if it is more likely than not that the entity will be required to sell the security before recovery, an OTTI write-down is recognized in earnings equal to the entire difference between the security’s amortized cost basis and its fair value.  If an entity does not intend to sell the security or it is not more likely than not that it will be required to sell the security before recovery, the OTTI write-down is separated into an amount representing credit loss, which is recognized in earnings, and an amount related to all other factors, which is recognized in other comprehensive income.  This accounting standard does not amend existing recognition and measurement guidance related to OTTI write-downs of equity securities.  This accounting standard also extends disclosure requirements related to debt and equity securities to interim reporting periods.  ASC Topic 320 became effective for the Company’s financial statements for periods ending after June 15, 2009, and did not have a significant impact on the Company’s ongoing financial position or results of operations.

On January 1, 2009, new authoritative accounting guidance under ASC Topic 805, Business Combinations, became applicable to the Company’s accounting for business combinations closing on or after January 1, 2009.  ASC Topic 805 applies to all transactions and other events in which one entity obtains control over one or more other businesses.  ASC Topic 805 requires an acquirer, upon initially obtaining control of another entity, to recognize the assets, liabilities and any non-controlling interest in the acquiree at fair value as of the acquisition date.  Contingent consideration is required to be recognized and measured at fair value on the date of acquisition rather than at a later date when the amount of that consideration may be determinable beyond a reasonable doubt.  This fair value approach replaces the cost-allocation process required under previous accounting guidance whereby the cost of an acquisition was allocated to the individual assets acquired and liabilities assumed based on their estimated fair value.  ASC Topic 805 requires acquirers to expense acquisition-related costs as incurred rather than allocating such costs to the assets acquired and liabilities assumed, as was previously the case under prior accounting guidance.  Assets acquired and liabilities assumed in a business combination that arise from contingencies are to be recognized at fair value if fair value can be reasonably estimated.  If fair value of such an asset or liability cannot be reasonably estimated, the asset or liability would generally be recognized in accordance with ASC Topic 450, Contingencies.  Under ASC Topic 805, the requirements of ASC Topic 420, Exit or Disposal Cost Obligations, would have to be met in order to accrue for a restructuring plan in purchase accounting.  Pre-acquisition contingencies are to be recognized at fair value, unless it is a non-contractual contingency that is not likely to materialize, in which case, nothing should be recognized in purchase accounting and, instead, that contingency would be subject to the probable and estimable recognition criteria of ASC Topic 450, Contingencies. Although the Company has not entered into any business combinations since adopting ASC Topic 805 on January 1, 2009, the new accounting guidance is expected to have a significant impact on the Company’s accounting for future business combinations.

9
 
There have been no other significant changes to the Company’s accounting policies from the 2008 Form 10-K.

Earnings Per Share

Basic earnings per share are computed based on the weighted average number of common shares outstanding during each year.  Diluted earnings per share are computed using the weighted average common shares and all potential dilutive common shares outstanding during the period.

Following is the computation of per share earnings for the three and nine-months ended September 30, 2009 and 2008.
 
      Three Months Ended        Nine Months Ended   
     
September 30,
       September 30,  
     
2009
      
2008
      
2009
      
2008
  
                                 
Net income
   $ 7,660     $ 6,474     $ 18,405     $ 21,284  
                                 
Average common shares outstanding
     14,043       13,951       14,019       13,941  
Average potential dilutive common shares
     90       168       90       168  
Average diluted common shares
     14,133       14,119       14,109       14,109  
                                 
Basic earnings per share
   $ 0.54     $ 0.47     $ 1.31     $ 1.53  
Diluted earnings per share
   $ 0.54     $ 0.46     $ 1.30     $ 1.51  

Stock options to purchase 100,290 shares for the three and nine-months ended September 30, 2009, were not included in the earnings per share calculation because the exercise price exceeded the average market price.  All stock options were included in the earnings per share calculation for the three and nine-months ended September 30, 2008.

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NOTE 2:    INVESTMENT SECURITIES

The amortized cost and fair value of investment securities that are classified as held-to-maturity and available-for-sale are as follows:
 
    September 30,
2009		     December 31,
2008		  
 (In thousands)    Amortized
Cost		     Gross
Unrealized 
Gains		     Gross
Unrealized 
(Losses)		     Estimated
Fair
Value		     Amortized
Cost 		     Gross
Unrealized
Gains 		     Gross
Unrealized
(Losses)		     Estimated
Fair
Value 		  
                                                 
Held-to-Maturity
                                                
U.S. Government
                                                
agencies
   $ 176,340     $ 834     $ (95 )   $ 177,079     $ 18,000     $ 629     $ —     $ 18,629  
Mortgage-backed
                                                                
securities
     95       3       —       98       109       2       —       111  
State and political
                                                                
subdivisions
     209,757       4,803       (217 )     214,343       168,262       1,264       (1,876 )     167,650  
Other securities
     930       —       —       930       930       —       —       930  
                                                                 
    $ 387,122     $ 5,640     $ (312 )   $ 392,450     $ 187,301     $ 1,895     $ (1,876 )   $ 187,320  
Available-for-Sale
                                                                
U.S. Treasury
   $ 4,294     $ 51     $ —     $ 4,345     $ 5,976     $ 113     $ —     $ 6,089  
U.S. Government
                                                                
agencies
     160,754       2,007       (1 )     162,760       346,585       5,444       (868 )     351,161  
Mortgage-backed
                                                                
securities
     2,899       102       (3 )     2,998       2,909       37       (67 )     2,879  
State and political
                                                                
subdivisions
     365       1       —       366       635       2       —       637  
Other securities
     13,664       363       (3 )     14,024       97,625       448       (6 )     98,067  
                                                                 
    $ 181,976     $ 2,524     $ (7 )   $ 184,493     $ 453,730     $ 6,044     $ (941 )   $ 458,833  
 

Certain investment securities are valued at less than their historical cost.  These declines primarily resulted from the rate for these investments yielding less than current market rates.  Based on evaluation of available evidence, management believes the declines in fair value for these securities are temporary.  Management does not have the intent to sell these securities and management believes it is more likely than not the Company will not have to sell these securities before recovery of their amortized cost basis less any current period credit losses.  Should the impairment of any of these securities become other than temporary, the cost basis of the investment will be reduced and the resulting loss recognized in net income in the period the other-than-temporary impairment is identified.
 
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As of September 30, 2009, securities with unrealized losses, segregated by length of impairment, were as follows:
 
    Less Than 12 Months     12 Months or More     Total  
(In thousands)    Estimated
Fair
Value		     Gross
Unrealized
Losses		     Estimated
Fair
Value		     Gross
Unrealized
Losses		     Estimated
Fair
Value		     Gross
Unrealized
Losses 		  
Held-to-Maturity
                                    
                                                 
U.S. Government agencies
   $ 29,905     $ 95     $ —     $ —     $ 29,905     $ 95  
State and political subdivisions
     1,033       14       4,446       203       5,479       217  
                                                 
Total
   $ 30,938     $ 109     $ 4,446     $ 203     $ 35,384     $ 312  
                                                 
Available-for-Sale
                                                
                                                 
U.S. Government agencies
   $ 1,034     $ 1     $ —     $ —     $ 1,034     $ 1  
Mortgage-backed securities
     72       1       61       2       133       3  
Other securities
     —       —       2       3       2       3  
                                                 
Total
   $ 1,106     $ 2     $ 63     $ 5     $ 1,169     $ 7  
 

Declines in the fair value of held-to-maturity and available-for-sale securities below their cost that are deemed to be other than temporary are reflected in earnings as realized losses.  In estimating other-than-temporary impairment losses, management considers, among other things, (i) the length of time and the extent to which the fair value has been less than cost, (ii) the financial condition and near-term prospects of the issuer, and (iii) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.

Management has the ability and intent to hold the securities classified as held to maturity until they mature, at which time the Company expects to receive full value for the securities.  Furthermore, as of September 30, 2009, management also had the ability and intent to hold the securities classified as available-for-sale for a period of time sufficient for a recovery of cost.  The unrealized losses are largely due to increases in market interest rates over the yields available at the time the underlying securities were purchased.  The fair value is expected to recover as the bonds approach their maturity date or repricing date or if market yields for such investments decline.  Management does not believe any of the securities are impaired due to reasons of credit quality.  Accordingly, as of September 30, 2009, management believes the impairments detailed in the table above are temporary.

The carrying value, which approximates the fair value, of securities pledged as collateral, to secure public deposits and for other purposes, amounted to $444,976,000 at September 30, 2009, and $435,120,000 at December 31, 2008.
 
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The book value of securities sold under agreements to repurchase amounted to $78,476,000 and $87,514,000 for September 30, 2009, and December 31, 2008, respectively.

Income earned on securities for the nine-months ended September 30, 2009 and 2008, is as follows:
 
(In thousands)
  
2009
    
2008
  
             
Taxable
            
Held-to-maturity
   $ 1,741     $ 1,169  
Available-for-sale
     9,234       14,793  
                 
Non-taxable
                
Held-to-maturity
     5,768       4,698  
Available-for-sale
     19       27  
                 
Total
   $ 16,762     $ 20,687  

Maturities of investment securities at September 30, 2009, are as follows:
 
   
Held-to-Maturity
    
Available-for-Sale
  
   
Amortized
    
Fair
    
Amortized
    
Fair
  
(In thousands)
  
Cost
    
Value
    
Cost
    
Value
  
                         
One year or less
   $ 6,933     $ 6,983     $ 4,659     $ 4,711  
After one through five years
     113,898       115,198       33,357       33,532  
After five through ten years
     185,833       187,843       130,288       132,218  
After ten years
     80,458       82,426       8       8  
Other securities
     --       --       13,664       14,024  
                                 
Total
   $ 387,122     $ 392,450     $ 181,976     $ 184,493  

During the three-month periods ended September 30, 2009 and 2008, respectively, no available for sale securities were sold.  Gross realized gains of $144,000 were recognized from the sale of securities for the nine-month period ended September 30, 2009, with no realized gains for the nine-month period ended September 30, 2008.  There were no realized losses over the same periods. The income tax expense related to security gains was 39.225% of the gross amounts.

The state and political subdivision debt obligations are primarily non-rated bonds and represent small, Arkansas issues, which are evaluated on an ongoing basis.
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NOTE 3:    LOANS AND ALLOWANCE FOR LOAN LOSSES

The various categories of loans are summarized as follows:
 
   
September 30,
    
December 31,
  
(In thousands)
  
2009
    
2008
  
             
Consumer
            
Credit cards
   $ 175,493     $ 169,615  
Student loans
     106,080       111,584  
Other consumer
     144,155       138,145  
Total consumer
     425,728       419,344  
Real Estate
                
Construction
     192,051       224,924  
Single family residential
     403,035       409,540  
Other commercial
     600,436       584,843  
Total real estate
     1,195,522       1,219,307  
Commercial
                
Commercial
     165,747       192,496  
Agricultural
     125,566       88,233  
Financial institutions
     4,087       3,471  
Total commercial
     295,400       284,200  
Other
     8,451       10,223  
                 
Total loans before allowance for loan losses
   $ 1,925,101     $ 1,933,074  

As of September 30, 2009, credit card loans, which are unsecured, were $175,493,000 or 9.1% of total loans, versus $169,615,000, or 8.8% of total loans at December 31, 2008.  The credit card loans are diversified by geographic region to reduce credit risk and minimize any adverse impact on the portfolio.  Credit card loans are regularly reviewed to facilitate the identification and monitoring of creditworthiness.

At September 30, 2009, and December 31, 2008, impaired loans, net of Government guarantees, totaled $47,688,000 and $15,689,000, respectively.  Allocations of the allowance for loan losses relative to impaired loans were $6,414,000 at September 30, 2009, and $4,238,000 at December 31, 2008.  During the second quarter of 2009, the Company made adjustments to its methodology in the evaluation of the collectability of loans, which added quantitative factors to the internal and external influences used in determining the credit quality of loans and the allocation of the allowance.  This adjustment in methodology resulted in an addition to impaired loans from classified loans and a redistribution of allocated and unallocated reserves.  Approximately $651,000 and $198,000 of interest income was recognized on average impaired loans of $33,367,000 and $14,839,000 as of September 30, 2009 and 2008, respectively.  Interest recognized on impaired loans on a cash basis during the first nine months of 2009 and 2008 was immaterial.
 
14
 
Transactions in the allowance for loan losses are as follows:

(In thousands)
  
2009
    
2008
  
             
Balance, beginning of year
   $ 25,841     $ 25,303  
Additions
                
Provision charged to expense
     7,549       5,895  
                 
Deductions
                
Losses charged to allowance, net of recoveries
                
of $2,989 and $1,588 for the first nine months of
                
2009 and 2008, respectively
     7,560       5,650  
                 
Balance, September 30
   $ 25,830     $ 25,548  
                 
Additions
                
Provision charged to expense
             2,751  
                 
Deductions
                
Losses charged to allowance, net of recoveries
                
of $550 for the last three months of 2008
             2,458  
                 
Balance, end of year
           $ 25,841  

NOTE 4:    GOODWILL AND CORE DEPOSIT PREMIUMS

Goodwill is tested annually for impairment.  If the implied fair value of goodwill is lower than its carrying amount, goodwill impairment is indicated and goodwill is written down to its implied fair value.  Subsequent increases in goodwill value are not recognized in the financial statements.

Core deposit premiums are periodically evaluated as to the recoverability of their carrying value.

The carrying basis and accumulated amortization of core deposit premiums (net of core deposit premiums that were fully amortized) at September 30, 2009, and December 31, 2008, were as follows:
 
   
September 30,
    
December 31,
  
(In thousands)
  
2009
    
2008
  
             
Gross carrying amount
   $ 6,822     $ 6,822  
Accumulated amortization
     (4,852 )     (4,247 )
                 
Net core deposit premiums
   $ 1,970     $ 2,575  

Core deposit premium amortization expense recorded for the nine-months ended September 30, 2009 and 2008, was $604,000 and $605,000, respectively.  The Company’s estimated amortization expense for the remainder of 2009 is $198,000, and for each of the following four years is:  2010 – $702,000; 2011 – $451,000; 2012 – $321,000; and 2013 – $268,000.
15

NOTE 5:    TIME DEPOSITS

Time deposits include approximately $401,137,000 and $418,394,000 of certificates of deposit of $100,000 or more at September 30, 2009, and December 31, 2008, respectively.

NOTE 6:            INCOME TAXES

The provision for income taxes is comprised of the following components:

   
September 30,
    
September 30,
  
(In thousands)
  
2009
    
2008
  
             
Income taxes currently payable
   $ 6,179     $ 8,715  
Deferred income taxes
     1,237       563  
                 
Provision for income taxes
   $ 7,416     $ 9,278  

The tax effects of temporary differences related to deferred taxes shown on the balance sheets were:

   
September 30,
    
December 31,
  
(In thousands)
  
2009
    
2008
  
             
Deferred tax assets
            
Allowance for loan losses
   $ 9,128     $ 9,057  
Valuation of foreclosed assets
     94       63  
Deferred compensation payable
     1,519       1,451  
FHLB advances
     8       14  
Vacation compensation
     881       866  
Loan interest
     58       88  
Other
     369       276  
Total deferred tax assets
     12,057       11,815  
                 
Deferred tax liabilities
         &