e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
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þ |
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Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the Quarterly Period Ended June 30, 2009
or
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o |
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Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the Transition period from to
Commission File Number: 000-51904
HOME BANCSHARES, INC.
(Exact Name of Registrant as Specified in Its Charter)
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Arkansas
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71-0682831 |
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(State or other jurisdiction of
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(I.R.S. Employer |
incorporation or organization)
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Identification No.) |
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719 Harkrider, Suite 100, Conway, Arkansas
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72032 |
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(Address of principal executive offices)
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(Zip Code) |
(501) 328-4770
(Registrants 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. Yes þ No o
Indicate by check mark
whether the registrant has submitted electronically and posted on its corporate
Web site, if any, every Interactive Data File required to be submitted and
posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to
submit and post such files). Yes o No o
Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
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Large accelerated filer o |
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Accelerated
filer þ |
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Non-accelerated filer o (Do not check if a smaller reporting company) |
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Smaller Reporting Company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes o No þ
Indicate the number of shares outstanding of each of the registrants classes of common stock, as
of the latest practical date.
Common Stock Issued and Outstanding: 19,939,741 shares as of July 31, 2009.
HOME BANCSHARES, INC.
FORM 10-Q
June 30, 2009
INDEX
Exhibit List
15 Awareness of Independent Registered Public Accounting Firm
31.1 CEO Certification Pursuant to 13a-14(a)/15d-14(a)
31.2 CFO Certification Pursuant to 13a-14(a)/15d-14(a)
32.1 CEO Certification Pursuant to 18 U.S.C. Section 1350
32.2 CFO Certification Pursuant to 18 U.S.C. Section 1350
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of our statements contained in this document, including matters discussed under the
caption Managements Discussion and Analysis of Financial Condition and Results of Operation 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. Forward-looking
statements relate to future events or our future financial performance and include statements about
the competitiveness of the banking industry, potential regulatory obligations, our entrance and
expansion into other markets, our other business strategies and other statements that are not
historical facts. Forward-looking statements are not guarantees of performance or results. When we
use words like may, plan, contemplate, anticipate, believe, intend, continue,
expect, project, predict, estimate, could, should, would, and similar expressions,
you should consider them as identifying forward-looking statements, although we may use other
phrasing. These forward-looking statements involve risks and uncertainties and are based on our
beliefs and assumptions, and on the information available to us at the time that these disclosures
were prepared. These forward-looking statements involve risks and uncertainties and may not be
realized due to a variety of factors, including, but not limited to, the following:
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the effects of future economic conditions, including inflation, deflation or a continued
decrease in residential housing values; |
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governmental monetary and fiscal policies, as well as legislative and regulatory
changes; |
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the risks of changes in interest rates or the level and composition of deposits, loan
demand and the values of loan collateral, securities and interest sensitive assets and
liabilities; |
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the effects of terrorism and efforts to combat it; |
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credit risks; |
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the effects of competition from other commercial banks, thrifts, mortgage banking firms,
consumer finance companies, credit unions, securities brokerage firms, insurance companies,
money market and other mutual funds and other financial institutions operating in our
market area and elsewhere, including institutions operating regionally, nationally and
internationally, together with competitors offering banking products and services by mail,
telephone and the Internet; |
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the effect of any mergers, acquisitions or other transactions to which we or our
subsidiaries may from time to time be a party, including our ability to successfully
integrate any businesses that we acquire; and |
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the failure of assumptions underlying the establishment of our allowance for loan
losses. |
All written or oral forward-looking statements attributable to us are expressly qualified in
their entirety by this Cautionary Note. Our actual results may differ significantly from those we
discuss in these forward-looking statements. For other factors, risks and uncertainties that could
cause our actual results to differ materially from estimates and projections contained in these
forward-looking statements, see the Risk Factors section of our Form 10-K filed with the
Securities and Exchange Commission on March 6, 2009.
PART I: FINANCIAL INFORMATION
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Item 1: |
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Financial Statements |
Home BancShares, Inc.
Consolidated Balance Sheets
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June 30, |
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December 31, |
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(In thousands, except share data) |
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2009 |
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2008 |
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(Unaudited) |
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Assets |
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Cash and due from banks |
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$ |
41,531 |
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$ |
46,765 |
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Interest-bearing deposits with other banks |
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4,553 |
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7,403 |
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Cash and cash equivalents |
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46,084 |
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54,168 |
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Federal funds sold |
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31,805 |
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7,865 |
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Investment securities available for sale |
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309,989 |
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355,244 |
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Loans receivable |
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1,972,704 |
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1,956,232 |
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Allowance for loan losses |
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(41,804 |
) |
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(40,385 |
) |
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Loans receivable, net |
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1,930,900 |
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1,915,847 |
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Bank premises and equipment, net |
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71,914 |
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73,610 |
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Foreclosed assets held for sale |
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17,606 |
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6,763 |
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Cash value of life insurance |
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51,249 |
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50,201 |
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Investments in unconsolidated affiliates |
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1,424 |
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1,424 |
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Accrued interest receivable |
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12,840 |
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13,115 |
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Deferred tax asset, net |
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14,669 |
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16,267 |
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Goodwill |
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53,039 |
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50,038 |
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Core deposit and other intangibles |
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5,622 |
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6,547 |
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Mortgage servicing rights |
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1,526 |
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1,891 |
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Other assets |
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31,259 |
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27,113 |
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Total assets |
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$ |
2,579,926 |
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$ |
2,580,093 |
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Liabilities and Stockholders Equity |
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Deposits: |
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Demand and non-interest-bearing |
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$ |
294,339 |
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$ |
249,349 |
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Savings and interest-bearing transaction accounts |
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661,387 |
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656,758 |
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Time deposits |
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876,339 |
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941,801 |
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Total deposits |
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1,832,065 |
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1,847,908 |
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Federal funds purchased |
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Securities sold under agreements to repurchase |
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65,232 |
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113,389 |
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FHLB borrowed funds |
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277,640 |
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282,975 |
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Accrued interest payable and other liabilities |
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14,105 |
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5,202 |
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Subordinated debentures |
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47,530 |
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47,575 |
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Total liabilities |
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2,236,572 |
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2,297,049 |
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Stockholders equity: |
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Preferred stock; $0.01 par value; 5,500,000 shares
authorized: |
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Series A fixed rate cumulative perpetual;
liquidation preference of $1,000 per share; 50,000
shares issued and outstanding at June 30, 2009; no
shares issued and outstanding at December 31, 2008. |
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49,185 |
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Common stock, par value $0.01; shares authorized
50,000,000; shares issued and outstanding 19,902,713 in
2009 and 19,859,582 in 2008 |
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199 |
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199 |
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Capital surplus |
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255,009 |
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253,581 |
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Retained earnings |
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40,704 |
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32,639 |
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Accumulated other comprehensive loss |
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(1,743 |
) |
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(3,375 |
) |
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Total stockholders equity |
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343,354 |
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283,044 |
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Total liabilities and stockholders equity |
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$ |
2,579,926 |
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$ |
2,580,093 |
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See Condensed Notes to Consolidated Financial Statements.
4
Home BancShares, Inc.
Consolidated Statements of Income
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Three Months Ended |
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Six Months Ended |
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June 30, |
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June 30, |
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(In thousands, except per share data(1)) |
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2009 |
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2008 |
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2009 |
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2008 |
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(Unaudited) |
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Interest income: |
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Loans |
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$ |
29,389 |
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$ |
32,209 |
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$ |
58,527 |
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$ |
65,454 |
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Investment securities |
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Taxable |
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2,252 |
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2,996 |
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4,905 |
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6,758 |
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Tax-exempt |
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1,343 |
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1,199 |
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2,641 |
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2,367 |
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Deposits other banks |
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8 |
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37 |
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20 |
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92 |
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Federal funds sold |
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4 |
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99 |
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11 |
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265 |
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Total interest income |
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32,996 |
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36,540 |
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66,104 |
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74,936 |
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Interest expense: |
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Interest on deposits |
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7,131 |
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11,619 |
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15,249 |
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25,141 |
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Federal funds purchased |
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2 |
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20 |
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4 |
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89 |
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FHLB borrowed funds |
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2,359 |
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2,059 |
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4,749 |
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4,634 |
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Securities sold under agreements to
repurchase |
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124 |
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367 |
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|
235 |
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|
955 |
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Subordinated debentures |
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|
659 |
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|
734 |
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1,335 |
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1,545 |
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Total interest expense |
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10,275 |
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14,799 |
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21,572 |
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32,364 |
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Net interest income |
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22,721 |
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21,741 |
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44,532 |
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42,572 |
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Provision for loan losses |
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2,750 |
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704 |
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3,750 |
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5,513 |
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Net interest income after provision for
loan losses |
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19,971 |
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21,037 |
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40,782 |
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37,059 |
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Non-interest income: |
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Service charges on deposit accounts |
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3,633 |
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3,352 |
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7,007 |
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6,449 |
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Other service charges and fees |
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1,841 |
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1,699 |
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3,625 |
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3,462 |
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Data processing fees |
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134 |
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225 |
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320 |
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|
435 |
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Mortgage lending income |
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815 |
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|
706 |
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1,695 |
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1,338 |
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Mortgage servicing income |
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|
191 |
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217 |
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|
391 |
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|
448 |
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Insurance commissions |
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198 |
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184 |
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|
455 |
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|
456 |
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Income from title services |
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151 |
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189 |
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291 |
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|
357 |
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Increase in cash value of life insurance |
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574 |
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|
513 |
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1,051 |
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|
1,098 |
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Dividends from FHLB, FRB & bankers bank |
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99 |
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227 |
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|
206 |
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|
508 |
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Equity in earnings (loss) of
unconsolidated affiliates |
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|
102 |
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Gain on sale of equity investment |
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6,102 |
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Gain on sale of SBA loans |
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|
101 |
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Gain (loss) on sale of premises and
equipment, net |
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(19 |
) |
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(12 |
) |
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(2 |
) |
Gain (loss) on OREO, net |
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(28 |
) |
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(50 |
) |
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(145 |
) |
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(430 |
) |
Gain (loss) on securities, net |
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(3 |
) |
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(2,067 |
) |
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(3 |
) |
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(2,067 |
) |
Other income |
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|
404 |
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|
472 |
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|
724 |
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|
844 |
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Total non-interest income |
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7,990 |
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|
5,667 |
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|
15,605 |
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|
19,201 |
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Non-interest expense: |
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Salaries and employee benefits |
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8,432 |
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8,931 |
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17,376 |
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|
18,209 |
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Occupancy and equipment |
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2,667 |
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|
2,726 |
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|
5,344 |
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|
5,428 |
|
Data processing expense |
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|
844 |
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|
833 |
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|
1,651 |
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|
1,619 |
|
Other operating expenses |
|
|
8,355 |
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|
6,007 |
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|
15,219 |
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|
11,924 |
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Total non-interest expense |
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|
20,298 |
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|
|
18,497 |
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|
39,590 |
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|
37,180 |
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Income before income taxes |
|
|
7,663 |
|
|
|
8,207 |
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|
|
16,797 |
|
|
|
19,080 |
|
Income tax expense |
|
|
2,222 |
|
|
|
2,553 |
|
|
|
5,111 |
|
|
|
6,148 |
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|
|
|
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|
|
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|
|
|
|
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Net income |
|
|
5,441 |
|
|
|
5,654 |
|
|
|
11,686 |
|
|
|
12,932 |
|
Preferred stock dividends and accretion of
discount on preferred stock |
|
|
670 |
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|
|
|
|
|
|
1,236 |
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|
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Net income available to common stockholders |
|
$ |
4,771 |
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|
$ |
5,654 |
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|
$ |
10,450 |
|
|
$ |
12,932 |
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Basic earnings per share |
|
$ |
0.24 |
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$ |
0.29 |
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|
$ |
0.53 |
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|
$ |
0.66 |
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Diluted earnings per share |
|
$ |
0.24 |
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$ |
0.28 |
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$ |
0.52 |
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$ |
0.64 |
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(1) |
|
Per share data as of June 30, 2008 is
adjusted for the 8% stock dividend from
August 2008 |
See Condensed Notes to Consolidated Financial Statements.
5
Home BancShares, Inc.
Consolidated Statements of Stockholders Equity
Six Months Ended June 30, 2009 and 2008
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Accumulated |
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Other |
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Preferred |
|
Common |
|
Capital |
|
Retained |
|
Comprehensive |
|
|
(In thousands, except share data) |
|
Stock |
|
Stock |
|
Surplus |
|
Earnings |
|
Income (Loss) |
|
Total |
Balance at January 1, 2008 |
|
$ |
|
|
|
$ |
173 |
|
|
$ |
195,649 |
|
|
$ |
59,489 |
|
|
$ |
(2,255 |
) |
|
$ |
253,056 |
|
Cumulative effect of adoption of EITF 06-4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(276 |
) |
|
|
|
|
|
|
(276 |
) |
Comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,932 |
|
|
|
|
|
|
|
12,932 |
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on investment
securities available for sale, net of
tax effect of ($334) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(633 |
) |
|
|
(633 |
) |
Unconsolidated affiliates unrecognized
loss on investment securities
available for sale, net of taxes
recorded by the unconsolidated
affiliate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
92 |
|
|
|
92 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,391 |
|
Issuance of 1,170,506 (stock dividend adjusted)
common shares pursuant to acquisition of
Centennial Bancshares, Inc. |
|
|
|
|
|
|
10 |
|
|
|
24,245 |
|
|
|
|
|
|
|
|
|
|
|
24,255 |
|
Net issuance of 10,096 shares (stock dividend
adjusted) of common stock from exercise of
stock options |
|
|
|
|
|
|
|
|
|
|
68 |
|
|
|
|
|
|
|
|
|
|
|
68 |
|
Tax benefit from stock options exercised |
|
|
|
|
|
|
|
|
|
|
50 |
|
|
|
|
|
|
|
|
|
|
|
50 |
|
Share-based compensation |
|
|
|
|
|
|
|
|
|
|
236 |
|
|
|
|
|
|
|
|
|
|
|
236 |
|
Cash dividends Common Stock, $0.097 per
share (stock dividend adjusted) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,925 |
) |
|
|
|
|
|
|
(1,925 |
) |
|
|
|
Balances at June 30, 2008 (unaudited) |
|
|
|
|
|
|
183 |
|
|
|
220,248 |
|
|
|
70,220 |
|
|
|
(2,796 |
) |
|
|
287,855 |
|
Comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,816 |
) |
|
|
|
|
|
|
(2,816 |
) |
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on investment
securities available for sale, net of
tax effect of $997 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(579 |
) |
|
|
(579 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,395 |
) |
Net issuance of 49,508 shares of common stock
from exercise of stock options |
|
|
|
|
|
|
|
|
|
|
378 |
|
|
|
|
|
|
|
|
|
|
|
378 |
|
Disgorgement of profits |
|
|
|
|
|
|
1 |
|
|
|
89 |
|
|
|
|
|
|
|
|
|
|
|
90 |
|
Tax benefit from stock options exercised |
|
|
|
|
|
|
|
|
|
|
366 |
|
|
|
|
|
|
|
|
|
|
|
366 |
|
Share-based compensation |
|
|
|
|
|
|
|
|
|
|
242 |
|
|
|
|
|
|
|
|
|
|
|
242 |
|
Cash dividends Common Stock, $0.125 per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,479 |
) |
|
|
|
|
|
|
(2,479 |
) |
8% Stock dividend Common Stock |
|
|
|
|
|
|
15 |
|
|
|
32,258 |
|
|
|
(32,286 |
) |
|
|
|
|
|
|
(13 |
) |
|
|
|
Balances at December 31, 2008 |
|
|
|
|
|
|
199 |
|
|
|
253,581 |
|
|
|
32,639 |
|
|
|
(3,375 |
) |
|
|
283,044 |
|
See Condensed Notes to Consolidated Financial Statements.
6
Home BancShares, Inc.
Consolidated Statements of Stockholders Equity Continued
Six Months Ended June 30, 2009 and 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
Preferred |
|
|
Common |
|
|
Capital |
|
|
Retained |
|
|
Comprehensive |
|
|
|
|
(In thousands, except share data) |
|
Stock |
|
|
Stock |
|
|
Surplus |
|
|
Earnings |
|
|
Income (Loss) |
|
|
Total |
|
Comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,686 |
|
|
|
|
|
|
|
11,686 |
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain on investment
securities available for sale, net of
tax effect of $1,053 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,632 |
|
|
|
1,632 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,318 |
|
Issuance of 50,000 shares of preferred stock
and a warrant for 288,129 shares of common
stock |
|
|
49,094 |
|
|
|
|
|
|
|
906 |
|
|
|
|
|
|
|
|
|
|
|
50,000 |
|
Accretion of discount on preferred stock |
|
|
91 |
|
|
|
|
|
|
|
|
|
|
|
(91 |
) |
|
|
|
|
|
|
|
|
Net issuance of 43,131 shares of common stock
from exercise of stock options |
|
|
|
|
|
|
|
|
|
|
301 |
|
|
|
|
|
|
|
|
|
|
|
301 |
|
Tax benefit from stock options exercised |
|
|
|
|
|
|
|
|
|
|
237 |
|
|
|
|
|
|
|
|
|
|
|
237 |
|
Share-based compensation |
|
|
|
|
|
|
|
|
|
|
(16 |
) |
|
|
|
|
|
|
|
|
|
|
(16 |
) |
Cash dividend Preferred Stock - 5% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,145 |
) |
|
|
|
|
|
|
(1,145 |
) |
Cash dividends Common Stock, $0.120 per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,385 |
) |
|
|
|
|
|
|
(2,385 |
) |
|
|
|
Balances at June 30, 2009 (unaudited) |
|
$ |
49,185 |
|
|
$ |
199 |
|
|
$ |
255,009 |
|
|
$ |
40,704 |
|
|
$ |
(1,743 |
) |
|
$ |
343,354 |
|
|
|
|
See Condensed Notes to Consolidated Financial Statements.
7
Home BancShares, Inc.
Consolidated Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
Period Ended June 30, |
|
(In thousands) |
|
2009 |
|
|
2008 |
|
|
|
(Unaudited) |
|
Operating Activities |
|
|
|
|
|
|
|
|
Net income |
|
$ |
11,686 |
|
|
$ |
12,932 |
|
Adjustments to reconcile net income to net cash provided by (used in)
operating activities: |
|
|
|
|
|
|
|
|
Depreciation |
|
|
2,653 |
|
|
|
2,753 |
|
Amortization/accretion |
|
|
1,421 |
|
|
|
1,314 |
|
Share-based compensation |
|
|
(16 |
) |
|
|
236 |
|
Tax benefits from stock options exercised |
|
|
(237 |
) |
|
|
(50 |
) |
Loss on assets |
|
|
160 |
|
|
|
2,398 |
|
Gain on sale of equity investment |
|
|
|
|
|
|
(6,102 |
) |
Provision for loan loss |
|
|
3,750 |
|
|
|
5,513 |
|
Deferred income tax benefit |
|
|
545 |
|
|
|
(1,117 |
) |
Equity in income of unconsolidated affiliates |
|
|
|
|
|
|
(102 |
) |
Increase in cash value of life insurance |
|
|
(1,051 |
) |
|
|
(1,098 |
) |
Originations of mortgage loans held for sale |
|
|
(113,130 |
) |
|
|
(73,730 |
) |
Proceeds from sales of mortgage loans held for sale |
|
|
105,492 |
|
|
|
72,684 |
|
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
Accrued interest receivable |
|
|
275 |
|
|
|
1,524 |
|
Other assets |
|
|
(4,044 |
) |
|
|
(2,082 |
) |
Accrued interest payable and other liabilities |
|
|
9,140 |
|
|
|
(3,990 |
) |
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
16,644 |
|
|
|
11,083 |
|
|
|
|
|
|
|
|
Investing Activities |
|
|
|
|
|
|
|
|
Net (increase) decrease in federal funds sold |
|
|
(23,940 |
) |
|
|
(4,570 |
) |
Net (increase) decrease in loans |
|
|
(23,559 |
) |
|
|
(155,154 |
) |
Purchases of investment securities available for sale |
|
|
(35,765 |
) |
|
|
(55,164 |
) |
Proceeds from maturities of investment securities available for sale |
|
|
60,554 |
|
|
|
124,522 |
|
Proceeds from sale of investment securities available for sale |
|
|
22,972 |
|
|
|
|
|
Proceeds from sale of loans |
|
|
|
|
|
|
1,904 |
|
Proceeds from foreclosed assets held for sale |
|
|
1,406 |
|
|
|
697 |
|
Purchases of premises and equipment, net |
|
|
(969 |
) |
|
|
(2,384 |
) |
Acquisition of Centennial Bancshares, Inc., net funds received |
|
|
(3,100 |
) |
|
|
1,663 |
|
Proceeds from sale of investment in unconsolidated affiliate |
|
|
|
|
|
|
19,862 |
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(2,401 |
) |
|
|
(68,624 |
) |
|
|
|
|
|
|
|
Financing Activities |
|
|
|
|
|
|
|
|
Net increase (decrease) in deposits |
|
|
(15,843 |
) |
|
|
130,460 |
|
Net increase (decrease) in securities sold under agreements to
repurchase |
|
|
(48,157 |
) |
|
|
(3,707 |
) |
Net increase (decrease) in federal funds purchased |
|
|
|
|
|
|
(7,922 |
) |
Net increase (decrease) in FHLB and other borrowed funds |
|
|
(5,335 |
) |
|
|
(48,744 |
) |
Proceeds from exercise of stock options |
|
|
301 |
|
|
|
68 |
|
Proceeds from issuance of preferred stock and common stock warrant |
|
|
50,000 |
|
|
|
|
|
Tax benefits from stock options exercised |
|
|
237 |
|
|
|
50 |
|
Dividends paid preferred stock |
|
|
(1,145 |
) |
|
|
|
|
Dividends paid common stock |
|
|
(2,385 |
) |
|
|
(1,925 |
) |
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities |
|
|
(22,327 |
) |
|
|
68,280 |
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents |
|
|
(8,084 |
) |
|
|
10,739 |
|
Cash and cash equivalents beginning of year |
|
|
54,168 |
|
|
|
55,021 |
|
|
|
|
|
|
|
|
Cash and cash equivalents end of period |
|
$ |
46,084 |
|
|
$ |
65,760 |
|
|
|
|
|
|
|
|
See Condensed Notes to Consolidated Financial Statements.
8
Home BancShares, Inc.
Condensed Notes to Consolidated Financial Statements
(Unaudited)
1. Nature of Operations and Summary of Significant Accounting Policies
Nature of Operations
Home BancShares, Inc. (the Company or HBI) is a bank holding company headquartered in Conway,
Arkansas. The Company is primarily engaged in providing a full range of banking services to
individual and corporate customers through its wholly owned community bank subsidiary Centennial
Bank (the Bank). During 2009, the Company completed the combination of its former bank charters
into a single charter, adopting Centennial Bank as the common name. The Bank has locations in
central Arkansas, north central Arkansas, southern Arkansas, the Florida Keys and southwestern
Florida. 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.
A summary of the significant accounting policies of the Company follows:
Operating Segments
Community banking is the Companys only operating segment. No revenues are derived from
foreign countries and no single external customer comprises more than 10% of the Companys
revenues.
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 and the valuation of foreclosed assets. 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 HBI and its subsidiaries.
Significant intercompany accounts and transactions have been eliminated in consolidation.
Investments in Unconsolidated Affiliates
The Company has invested funds representing 100% ownership in five statutory trusts which
issue trust preferred securities. The Companys investment in these trusts was $1.4 million at
June 30, 2009 and December 31, 2008. Under accounting principles generally accepted in the United
States of America, these trusts are not consolidated.
9
The summarized financial information below represents an aggregation of the Companys
unconsolidated affiliates as of June 30, 2009 and 2008, and for the three-month and six-month
periods then ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
|
2009 |
|
2008 |
|
2009 |
|
2008 |
Assets |
|
$ |
47,424 |
|
|
$ |
47,424 |
|
|
$ |
47,424 |
|
|
$ |
47,424 |
|
Liabilities |
|
|
46,000 |
|
|
|
46,000 |
|
|
|
46,000 |
|
|
|
46,000 |
|
Equity |
|
|
1,424 |
|
|
|
1,424 |
|
|
|
1,424 |
|
|
|
1,424 |
|
Net income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
163 |
|
Interim financial information
The accompanying unaudited consolidated financial statements as of June 30, 2009 and 2008 have
been prepared in condensed format, and therefore do not include all of the information and
footnotes required by accounting principles generally accepted in the United States of America for
complete financial statements.
The information furnished in these interim statements reflects all adjustments, which are, in
the opinion of management, necessary for a fair statement of the results for each respective period
presented. Such adjustments are of a normal recurring nature. The results of operations in the
interim statements are not necessarily indicative of the results that may be expected for any other
quarter or for the full year. The interim financial information should be read in conjunction with
the consolidated financial statements and notes thereto included in the Companys 2008 Form 10-K,
filed with the Securities and Exchange Commission.
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. Prior year
per share amounts have been adjusted for the stock dividend which occurred in August of 2008. The
following table sets forth the computation of basic and diluted earnings per common share (EPS) for
the three-month and six-month periods ended June 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
Net income available to common stockholders |
|
$ |
4,771 |
|
|
$ |
5,654 |
|
|
$ |
10,450 |
|
|
$ |
12,932 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average shares outstanding |
|
|
19,888 |
|
|
|
19,810 |
|
|
|
19,875 |
|
|
|
19,806 |
|
Effect of potential share issuance for
acquisition earn out |
|
|
|
|
|
|
196 |
|
|
|
|
|
|
|
196 |
|
Effect of common stock options |
|
|
234 |
|
|
|
292 |
|
|
|
246 |
|
|
|
298 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted shares outstanding |
|
|
20,122 |
|
|
|
20,298 |
|
|
|
20,121 |
|
|
|
20,300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share |
|
$ |
0.24 |
|
|
$ |
0.29 |
|
|
$ |
0.53 |
|
|
$ |
0.66 |
|
Diluted earnings per common share |
|
$ |
0.24 |
|
|
$ |
0.28 |
|
|
$ |
0.52 |
|
|
$ |
0.64 |
|
10
2. Acquisitions
On January 1, 2008, the Company acquired Centennial Bancshares, Inc., an Arkansas bank holding
company. Centennial Bancshares, Inc. owned Centennial Bank, located in Little Rock, Arkansas which
had total assets of $234.1 million, loans of $192.8 million and total deposits of $178.8 million on
the date of acquisition. The consideration for the merger was $25.4 million, which was paid
approximately 4.6%, or $1.2 million in cash and 95.4%, or $24.3 million, in shares of our common
stock. In connection with the acquisition, $3.0 million of the purchase price, consisting of
$139,000 in cash and 140,456 shares (stock dividend adjusted) of our common stock, was placed in
escrow related to possible losses from identified loans and an IRS examination. In the first
quarter of 2008, the IRS examination was completed which resulted in $1.0 million of the escrow
proceeds being released. In addition to the consideration given at the time of the merger, the
merger agreement provided for additional contingent consideration to Centennials stockholders of
up to a maximum of $4 million, which could be paid in cash or our common stock at the election of
the former Centennial accredited stockholders, based upon the 2008 earnings performance. The final
contingent consideration was computed and agreed upon in the amount of $3.1 million on March 11,
2009. The Company paid this amount to the former Centennial stockholders on a pro rata basis on
March 12, 2009. All of the former Centennial stockholders elected to receive the contingent
consideration in cash. As a result of this transaction, the Company recorded total goodwill of
$15.4 million and a core deposit intangible of $694,000.
3. Investment Securities
The amortized cost and estimated market value of investment securities were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009 |
|
|
|
Available for Sale |
|
|
|
|
|
|
|
Gross |
|
|
Gross |
|
|
|
|
|
|
Amortized |
|
|
Unrealized |
|
|
Unrealized |
|
|
Estimated |
|
|
|
Cost |
|
|
Gains |
|
|
(Losses) |
|
|
Fair Value |
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
U.S. government-sponsored
enterprises |
|
$ |
23,446 |
|
|
$ |
209 |
|
|
$ |
(49 |
) |
|
$ |
23,606 |
|
Mortgage-backed securities |
|
|
143,627 |
|
|
|
2,313 |
|
|
|
(2,494 |
) |
|
|
143,446 |
|
State and political
subdivisions |
|
|
139,889 |
|
|
|
1,540 |
|
|
|
(3,097 |
) |
|
|
138,332 |
|
Other securities |
|
|
5,845 |
|
|
|
|
|
|
|
(1,240 |
) |
|
|
4,605 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
312,807 |
|
|
$ |
4,062 |
|
|
$ |
(6,880 |
) |
|
$ |
309,989 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008 |
|
|
|
Available for Sale |
|
|
|
|
|
|
|
Gross |
|
|
Gross |
|
|
|
|
|
|
Amortized |
|
|
Unrealized |
|
|
Unrealized |
|
|
Estimated |
|
|
|
Cost |
|
|
Gains |
|
|
(Losses) |
|
|
Fair Value |
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
U.S. government-sponsored
enterprises |
|
$ |
49,632 |
|
|
$ |
810 |
|
|
$ |
(7 |
) |
|
$ |
50,435 |
|
Mortgage-backed securities |
|
|
183,808 |
|
|
|
1,673 |
|
|
|
(3,517 |
) |
|
|
181,964 |
|
State and political
subdivisions |
|
|
123,119 |
|
|
|
990 |
|
|
|
(4,279 |
) |
|
|
119,830 |
|
Other securities |
|
|
4,238 |
|
|
|
|
|
|
|
(1,223 |
) |
|
|
3,015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
360,797 |
|
|
$ |
3,473 |
|
|
$ |
(9,026 |
) |
|
$ |
355,244 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets, principally investment securities, having a carrying value of approximately $183.3
million and $187.5 million at June 30, 2009 and December 31, 2008, respectively, were pledged to
secure public deposits and for other purposes required or permitted by law. Also, investment
securities pledged as collateral for repurchase agreements totaled approximately $65.2 million and
$113.4 million at June 30, 2009 and December 31, 2008, respectively.
11
During the three-month and six-month period ended June 30, 2009, $23.0 million in available
for sale securities were sold. The gross realized gains and losses on these sales totaled $890,000
and $893,000, respectively. The income tax expense/benefit related to net security gains and
losses was 39.225% of the gross amounts.
During the three-month and six-month period ended June 30, 2008 no available for sale
securities were sold.
The amortized cost and estimated fair value of securities at June 30, 2009, by contractual
maturity, are shown below. 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.
|
|
|
|
|
|
|
|
|
|
|
Available-for-Sale |
|
|
|
Amortized |
|
|
Estimated |
|
|
|
Cost |
|
|
Fair Value |
|
|
|
(In thousands) |
|
Due in one year or less |
|
$ |
116,247 |
|
|
$ |
115,633 |
|
Due after one year through five years |
|
|
133,319 |
|
|
|
132,947 |
|
Due after five years through ten years |
|
|
41,083 |
|
|
|
39,137 |
|
Due after ten years |
|
|
22,158 |
|
|
|
22,272 |
|
|
|
|
|
|
|
|
Total |
|
$ |
312,807 |
|
|
$ |
309,989 |
|
|
|
|
|
|
|
|
For purposes of the maturity tables, mortgage-backed securities, which are not due at a single
maturity date, have been allocated over maturity groupings based on anticipated maturities. The
mortgage-backed securities may mature earlier than their weighted-average contractual maturities
because of principal prepayments.
The Company evaluates all securities quarterly to determine if any unrealized losses are
deemed to be other than temporary. In completing these evaluations the Company follows the
requirements of paragraph 16 of SFAS No. 115, Staff Accounting Bulletin 59 and FASB Staff Position
No. 115-1. Certain investment securities are valued less than their historical cost. These declines
are primarily the result of 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. The Company does not intend to sell or
believe it will be required to sell these investments before recovery
of their amortized cost bases, which may be 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.
No securities were deemed by management to have other-than-temporary impairment for the six
month periods ended June 30, 2009, besides securities for which impairment was taken in prior
periods. During the second quarter of 2008, the Company became aware that one of its investment
securities in the other securities category had become other than temporarily impaired. As a result
of this impairment, the security was written-down by $2.1 million or $0.06 diluted earnings per
share (stock dividend adjusted) for the second quarter of 2008. In the last half of 2008, it became
known that this security as well as another investment security in the other securities category
had become worthless. The total charge-off on these securities totaled $3.8 million or $0.12
diluted earnings per share for the second half of 2008. These investment securities were a pool of
other financial holding companies subordinated debentures throughout the country. These
investments were deemed worthless as a result of the current banking crisis. Several of the
financial holding companies in these pools defaulted due to their closure by the federal
government. Additionally, several other financial holding companies in these pools began deferring
their quarterly payments as a result of stressed capital levels. These were the only two
securities of this type owned by the Company.
12
For the period ended June 30, 2009, the Company had $5.7 million in unrealized losses, which
have been in continuous loss positions for more than twelve months. Included in the $5.7 million in
unrealized losses are $3.3 million in unrealized losses, which were associated with
government-sponsored securities and government-sponsored mortgage-back securities. Excluding
impairment write downs taken in prior periods, the Companys assessments indicated that the cause
of the market depreciation was primarily the change in interest rates and not the issuers
financial condition, or downgrades by rating agencies. In addition, approximately 79.8% of the
Companys investment portfolio matures in five years or less. As a result, the Company has the
ability and intent to hold such securities until maturity.
The following shows gross unrealized losses and estimated fair value of investment securities
available for sale, aggregated by investment category and length of time that individual investment
securities have been in a continuous loss position as of the periods ended June 30, 2009 and
December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009 |
|
|
|
Less Than 12 Months |
|
|
12 Months or More |
|
|
Total |
|
|
|
Fair |
|
|
Unrealized |
|
|
Fair |
|
|
Unrealized |
|
|
Fair |
|
|
Unrealized |
|
|
|
Value |
|
|
Losses |
|
|
Value |
|
|
Losses |
|
|
Value |
|
|
Losses |
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
|
|
|
|
U.S. Government-sponsored
enterprises |
|
$ |
2,764 |
|
|
$ |
47 |
|
|
$ |
284 |
|
|
$ |
2 |
|
|
$ |
3,048 |
|
|
$ |
49 |
|
Mortgage-backed securities |
|
|
24,602 |
|
|
|
381 |
|
|
|
17,385 |
|
|
|
2,113 |
|
|
|
41,987 |
|
|
|
2,494 |
|
State and political subdivisions |
|
|
31,525 |
|
|
|
742 |
|
|
|
23,514 |
|
|
|
2,355 |
|
|
|
55,039 |
|
|
|
3,097 |
|
Other securities |
|
|
|
|
|
|
|
|
|
|
1,674 |
|
|
|
1,240 |
|
|
|
1,674 |
|
|
|
1,240 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
58,891 |
|
|
$ |
1,170 |
|
|
$ |
42,857 |
|
|
$ |
5,710 |
|
|
$ |
101,748 |
|
|
$ |
6,880 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008 |
|
|
|
Less Than 12 Months |
|
|
12 Months or More |
|
|
Total |
|
|
|
Fair |
|
|
Unrealized |
|
|
Fair |
|
|
Unrealized |
|
|
Fair |
|
|
Unrealized |
|
|
|
Value |
|
|
Losses |
|
|
Value |
|
|
Losses |
|
|
Value |
|
|
Losses |
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
|
|
|
|
U.S. Government-sponsored
enterprises |
|
$ |
2,385 |
|
|
$ |
7 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
2,385 |
|
|
$ |
7 |
|
Mortgage-backed securities |
|
|
32,915 |
|
|
|
906 |
|
|
|
52,000 |
|
|
|
2,611 |
|
|
|
84,915 |
|
|
|
3,517 |
|
State and political subdivisions |
|
|
55,162 |
|
|
|
3,091 |
|
|
|
6,605 |
|
|
|
1,188 |
|
|
|
61,767 |
|
|
|
4,279 |
|
Other securities |
|
|
1,152 |
|
|
|
157 |
|
|
|
1,721 |
|
|
|
1,066 |
|
|
|
2,873 |
|
|
|
1,223 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
91,614 |
|
|
$ |
4,161 |
|
|
$ |
60,326 |
|
|
$ |
4,865 |
|
|
$ |
151,940 |
|
|
$ |
9,026 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13
4: Loans Receivable and Allowance for Loan Losses
The various categories of loans are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(In thousands) |
|
Real estate: |
|
|
|
|
|
|
|
|
Commercial real estate loans |
|
|
|
|
|
|
|
|
Non-farm/non-residential |
|
$ |
794,675 |
|
|
$ |
816,603 |
|
Construction/land development |
|
|
347,028 |
|
|
|
320,398 |
|
Agricultural |
|
|
38,379 |
|
|
|
23,603 |
|
Residential real estate loans |
|
|
|
|
|
|
|
|
Residential 1-4 family |
|
|
407,642 |
|
|
|
391,255 |
|
Multifamily residential |
|
|
72,673 |
|
|
|
56,440 |
|
|
|
|
|
|
|
|
Total real estate |
|
|
1,660,397 |
|
|
|
1,608,299 |
|
Consumer |
|
|
41,814 |
|
|
|
46,615 |
|
Commercial and industrial |
|
|
224,043 |
|
|
|
255,153 |
|
Agricultural |
|
|
21,566 |
|
|
|
23,625 |
|
Other |
|
|
24,884 |
|
|
|
22,540 |
|
|
|
|
|
|
|
|
Total loans receivable before allowance for loan losses |
|
|
1,972,704 |
|
|
|
1,956,232 |
|
Allowance for loan losses |
|
|
41,804 |
|
|
|
40,385 |
|
|
|
|
|
|
|
|
Total loans receivable, net |
|
$ |
1,930,900 |
|
|
$ |
1,915,847 |
|
|
|
|
|
|
|
|
The following is a summary of activity within the allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
|
(In thousands) |
|
Balance, beginning of year |
|
$ |
40,385 |
|
|
$ |
29,406 |
|
Additions |
|
|
|
|
|
|
|
|
Provision charged to expense |
|
|
3,750 |
|
|
|
5,513 |
|
Allowance for loan loss of Centennial Bancshares, Inc. |
|
|
|
|
|
|
3,382 |
|
|
|
|
|
|
|
|
|
|
Net (recoveries) loans charged off |
|
|
|
|
|
|
|
|
Losses charged to allowance, net of recoveries of $1,008 and $1,368 for the first six
months of 2009 and 2008, respectively |
|
|
2,331 |
|
|
|
1,738 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30 |
|
$ |
41,804 |
|
|
|
36,563 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions |
|
|
|
|
|
|
|
|
Provision charged to expense |
|
|
|
|
|
|
21,503 |
|
|
|
|
|
|
|
|
|
|
Net (recoveries) loans charged off |
|
|
|
|
|
|
|
|
Losses charged to allowance, net of recoveries of $133 for the last six months of 2008 |
|
|
|
|
|
|
17,681 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of year |
|
|
|
|
|
$ |
40,385 |
|
|
|
|
|
|
|
|
|
At June 30, 2009 and December 31, 2008, accruing loans delinquent 90 days or more totaled $5.3
million and $1.4 million, respectively. Non-accruing loans at June 30, 2009 and December 31, 2008
were $30.0 million and $28.5 million, respectively.
14
The Company did not sell any of the guaranteed portions of SBA loans during 2009 or the second
quarter of 2008. During the first quarter of 2008, the Company sold $1.8 million of the guaranteed
portion of certain SBA loans, which resulted in a gain of $101,000.
Mortgage loans held for sale of approximately $14.0 million and $6.4 million at June 30, 2009
and December 31, 2008, respectively, are included in residential 1-4 family loans. Mortgage loans
held for sale are carried at the lower of cost or fair value, determined using an aggregate basis.
At June 30, 2009 and December 31, 2008, impaired loans totaled $43.0 million and $31.5
million, respectively. As of June 30, 2009 and 2008, average impaired loans were $38.3 million and
$24.5 million, respectively. All impaired loans had designated reserves for possible loan losses.
Reserves relative to impaired loans were $12.7 million and $10.9 million at June 30, 2009 and
December 31, 2008, respectively. Interest recognized on impaired loans during the six months ended
June 30, 2009 and 2008 was $910,000 and $806,000, respectively.
5: Goodwill and Core Deposits and Other Intangibles
Changes in the carrying amount and accumulated amortization of the Companys goodwill and core
deposits and other intangibles for the six-month period ended June 30, 2009 and for the year ended
December 31, 2008, were as follows:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(In thousands) |
|
Goodwill |
|
|
|
|
|
|
|
|
Balance, beginning of period |
|
$ |
50,038 |
|
|
$ |
37,527 |
|
Acquisition of Centennial Bancshares, Inc. |
|
|
3,100 |
|
|
|
12,322 |
|
Prior Acquisition (deferred taxes) |
|
|
|
|
|
|
189 |
|
Charter consolidation |
|
|
(99 |
) |
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period |
|
$ |
53,039 |
|
|
$ |
50,038 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
|
(In thousands) |
|
Core Deposit and Other Intangibles |
|
|
|
|
|
|
|
|
Balance, beginning of period |
|
$ |
6,547 |
|
|
$ |
7,702 |
|
Acquisition of Centennial Bancshares, Inc. |
|
|
|
|
|
|
694 |
|
Amortization expense |
|
|
(925 |
) |
|
|
(925 |
) |
|
|
|
|
|
|
|
Balance, June 30 |
|
$ |
5,622 |
|
|
|
7,471 |
|
|
|
|
|
|
|
|
|
Amortization expense |
|
|
|
|
|
|
(924 |
) |
|
|
|
|
|
|
|
|
Balance, end of year |
|
|
|
|
|
$ |
6,547 |
|
|
|
|
|
|
|
|
|
The carrying basis and accumulated amortization of core deposits and other intangibles at June
30, 2009 and December 31, 2008 were:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(In thousands) |
|
Gross carrying amount |
|
$ |
14,151 |
|
|
$ |
14,151 |
|
Accumulated amortization |
|
|
8,529 |
|
|
|
7,604 |
|
|
|
|
|
|
|
|
Net carrying amount |
|
$ |
5,622 |
|
|
$ |
6,547 |
|
|
|
|
|
|
|
|
15
Core deposit and other intangible amortization for the six months ended June 30, 2009 and 2008
was approximately $925,000. Including all of the mergers completed, HBIs estimated amortization
expense of core deposits and other intangibles for each of the years 2009 through 2013 is: 2009
$1.8 million; 2010 $1.8 million; 2011 $1.1 million; 2012 $619,000; and 2013 $619,000.
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.
6: Deposits
The aggregate amount of time deposits with a minimum denomination of $100,000 was $506.9
million and $500.7 million at June 30, 2009 and December 31, 2008, respectively. Interest expense
applicable to certificates in excess of $100,000 totaled $3.5 million and $5.0 million for the
three months ended June 30, 2009 and 2008, respectively. Interest expense applicable to
certificates in excess of $100,000 totaled $7.1 million and $10.7 million for the six months ended
June 30, 2009 and 2008, respectively. As of June 30, 2009 and December 31, 2008, brokered deposits
were $77.6 million and $111.0 million, respectively.
Deposits totaling approximately $223.6 million and $278.2 million at June 30, 2009 and
December 31, 2008, respectively, were public funds obtained primarily from state and political
subdivisions in the United States.
7: Securities Sold Under Agreements to Repurchase
From time to time, primarily as a short-term financing arrangement for investment or liquidity
purposes, the Company has entered into repurchase agreements with certain business customers. This
involves the selling of one or more of the securities in the Companys investment portfolio and
by entering into an agreement to repurchase that same security at an agreed upon later date. A
rate of interest is paid by the Company for the subject period of time. At June 30, 2009 and
December 31, 2008, securities sold under agreements to repurchase totaled $65.2 million and $113.4
million, respectively.
8: FHLB Borrowed Funds
The Companys FHLB borrowed funds were $277.6 million and $283.0 million at June 30, 2009 and
December 31, 2008, respectively. These outstanding balances include no short-term advances. The
FHLB advances mature from the current year to 2025 with fixed interest rates ranging from 2.020% to
5.185% and are secured by loans and investments securities. The Company has one floating rate
advance with a rate of 0.789%. Expected maturities will differ from contractual maturities,
because FHLB may have the right to call or prepay certain obligations.
16
9: Subordinated Debentures
Subordinated Debentures at June 30, 2009 and December 31, 2008 consisted of guaranteed
payments on trust preferred securities with the following components:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(In thousands) |
|
Subordinated debentures, issued in 2003, due
2033, fixed at 6.40%, during the first five
years and at a floating rate of 3.15% above the
three-month LIBOR rate, reset quarterly,
thereafter, currently callable without penalty |
|
$ |
20,619 |
|
|
$ |
20,619 |
|
Subordinated debentures, issued in 2000, due
2030, fixed at 10.60%, callable in 2010 with a
penalty ranging from 5.30% to 0.53% depending
on the year of prepayment, callable in 2020
without penalty |
|
|
3,198 |
|
|
|
3,243 |
|
Subordinated debentures, issued in 2003, due
2033, floating rate of 3.15% above the
three-month LIBOR rate, reset quarterly,
currently callable without penalty |
|
|
5,155 |
|
|
|
5,155 |
|
Subordinated debentures, issued in 2005, due
2035, fixed rate of 6.81% during the first ten
years and at a floating rate of 1.38% above the
three-month LIBOR rate, reset quarterly,
thereafter, callable in 2010 without penalty |
|
|
15,465 |
|
|
|
15,465 |
|
Subordinated debentures, issued in 2006, due
2036, fixed rate of 6.75% during the first five
years and at a floating rate of 1.85% above the
three-month LIBOR rate, reset quarterly,
thereafter, callable in 2011 without penalty |
|
|
3,093 |
|
|
|
3,093 |
|
|
|
|
|
|
|
|
Total subordinated debt |
|
$ |
47,530 |
|
|
$ |
47,575 |
|
|
|
|
|
|
|
|
The trust preferred securities are tax-advantaged issues that qualify for Tier 1 capital
treatment subject to certain limitations. Distributions on these securities are included in
interest expense. Each of the trusts is a statutory business trust organized for the sole purpose
of issuing trust securities and investing the proceeds thereof in junior subordinated debentures of
the Company, the sole asset of each trust. The preferred 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 Company wholly
owns the common securities of each trust. Each trusts ability to pay amounts due on the trust
preferred securities is solely dependent upon the Company making payment on the related junior
subordinated debentures. The Companys obligations under the junior subordinated securities and
other relevant trust agreements, in aggregate, constitute a full and unconditional guarantee by the
Company of each respective trusts obligations under the trust securities issued by each respective
trust.
17
10: Income Taxes
The following is a summary of the components of the provision for income taxes for the
three-month and six-month periods ended June 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
Current: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
454 |
|
|
$ |
1,829 |
|
|
$ |
3,876 |
|
|
$ |
6,174 |
|
State |
|
|
42 |
|
|
|
366 |
|
|
|
690 |
|
|
|
1,091 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current |
|
|
496 |
|
|
|
2,195 |
|
|
|
4,566 |
|
|
|
7,265 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
|
1,440 |
|
|
|
315 |
|
|
|
454 |
|
|
|
(930 |
) |
State |
|
|
286 |
|
|
|
43 |
|
|
|
91 |
|
|
|
(187 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred |
|
|
1,726 |
|
|
|
358 |
|
|
|
545 |
|
|
|
(1,117 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes |
|
$ |
2,222 |
|
|
$ |
2,553 |
|
|
$ |
5,111 |
|
|
$ |
6,148 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The reconciliation between the statutory federal income tax rate and effective income tax rate
is as follows for the three-month and six-month periods ended June 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
June 30, |
|
June 30, |
|
|
2009 |
|
2008 |
|
2009 |
|
2008 |
Statutory federal income tax rate |
|
|
35.00 |
% |
|
|
35.00 |
% |
|
|
35.00 |
% |
|
|
35.00 |
% |
Effect of nontaxable interest income |
|
|
(7.57 |
) |
|
|
(4.97 |
) |
|
|
(6.77 |
) |
|
|
(4.17 |
) |
Cash value of life insurance |
|
|
(2.62 |
) |
|
|
(2.18 |
) |
|
|
(2.19 |
) |
|
|
(2.01 |
) |
State income taxes, net of federal benefit |
|
|
2.78 |
|
|
|
3.24 |
|
|
|
3.03 |
|
|
|
3.08 |
|
Other |
|
|
1.41 |
|
|
|
0.02 |
|
|
|
1.36 |
|
|
|
0.32 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective income tax rate |
|
|
29.00 |
% |
|
|
31.11 |
% |
|
|
30.43 |
% |
|
|
32.22 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
The types of temporary differences between the tax basis of assets and liabilities and their
financial reporting amounts that give rise to deferred income tax assets and liabilities, and their
approximate tax effects, are as follows:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(In thousands) |
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
Allowance for loan losses |
|
$ |
16,303 |
|
|
$ |
15,772 |
|
Deferred compensation |
|
|
785 |
|
|
|
640 |
|
Stock options |
|
|
528 |
|
|
|
514 |
|
Non-accrual interest income |
|
|
901 |
|
|
|
358 |
|
Impairment of investment securities |
|
|
39 |
|
|
|
2,364 |
|
Unrealized loss on securities |
|
|
1,125 |
|
|
|
2,178 |
|
Net operating loss carryforward |
|
|
|
|
|
|
119 |
|
Other |
|
|
598 |
|
|
|
514 |
|
|
|
|
|
|
|
|
Gross deferred tax assets |
|
|
20,279 |
|
|
|
22,459 |
|
|
|
|
|
|
|
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
Accelerated depreciation on premises and equipment |
|
|
2,327 |
|
|
|
2,519 |
|
Core deposit intangibles |
|
|
2,140 |
|
|
|
2,486 |
|
FHLB dividends |
|
|
847 |
|
|
|
843 |
|
Other |
|
|
296 |
|
|
|
344 |
|
|
|
|
|
|
|
|
Gross deferred tax liabilities |
|
|
5,610 |
|
|
|
6,192 |
|
|
|
|
|
|
|
|
Net deferred tax assets |
|
$ |
14,669 |
|
|
$ |
16,267 |
|
|
|
|
|
|
|
|
11: Common Stock and Stock Compensation Plans
On July 16, 2008, our Board of Directors declared an 8% stock dividend which was paid August
27, 2008 to stockholders of record as of August 13, 2008. Except for fractional shares, the
holders of our common stock received 8% additional common stock on August 27, 2008. The common
stockholders did not receive fractional shares; instead they received cash at a rate equal to the
closing price of a share on August 28, 2008 times the fraction of a share they otherwise would have
been entitled to.
All share and per share amounts occurring before August 27, 2008 have been restated to reflect
the retroactive effect of the stock dividend. After issuance, this stock dividend lowered our
total capital position by approximately $13,000 as a result of the cash paid in lieu of fractional
shares. Our financial statements reflect an increase in the number of outstanding shares of common
stock, an increase in surplus and reduction of retained earnings.
On January 16, 2009, we issued and sold, and the United States Department of the Treasury
purchased, (1) 50,000 shares of the Companys Fixed Rate Cumulative Perpetual Preferred Stock
Series A, liquidation preference of $1,000 per share, and (2) a ten-year warrant to purchase up to
288,129 shares of the Companys common stock, par value $0.01 per share, at an exercise price of
$26.03 per share, for an aggregate purchase price of $50.0 million in cash. Cumulative dividends on
the Preferred Shares will accrue on the liquidation preference at a rate of 5% per annum for the
first five years, and at a rate of 9% per annum thereafter.
These preferred shares will qualify as Tier 1 capital. The preferred shares will be callable
at par after three years. Prior to the end of three years, the preferred shares may be redeemed
with the proceeds from a qualifying equity offering of any Tier 1 perpetual preferred or common
stock. The Treasury must approve any quarterly cash dividend on our common stock above $0.06 per
share or share repurchases until three years from the date of the investment unless the shares are
paid off in whole or transferred to a third party.
19
The Company has a stock option and performance incentive plan. The purpose of the plan is to
attract and retain highly qualified officers, directors, key employees, and other persons, and to
motivate those persons to improve our business results. This plan provides for the granting of
incentive nonqualified options to purchase up to 1,620,000 (stock dividend adjusted) of common
stock in the Company.
Total unrecognized compensation cost, net of income tax benefit, related to non-vested awards,
which are expected to be recognized over the vesting periods, is approximately $251,000 as of June
30, 2009. The intrinsic value of the stock options outstanding and stock options vested at June 30,
2009 was $7.2 million and $5.1 million, respectively. The intrinsic value of the stock options
exercised during the three-month and six-month periods ended June 30, 2009 was approximately
$542,000 and $607,000, respectively.
The table below summarized the transactions under the Companys stock option plans at June 30,
2009 and December 31, 2008 and changes during the six-month period and year then ended,
respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended |
|
For the Year Ended |
|
|
June 30, 2009 |
|
December 31, 2008 |
|
|
|
|
|
|
Weighted |
|
|
|
|
|
Weighted |
|
|
|
|
|
|
Average |
|
|
|
|
|
Average |
|
|
|
|
|
|
Exercisable |
|
|
|
|
|
Exercisable |
|
|
Shares (000) |
|
Price |
|
Shares (000) |
|
Price |
Outstanding, beginning of
year |
|
|
1,069 |
|
|
$ |
11.72 |
|
|
|
1,096 |
|
|
$ |
11.12 |
|
Granted |
|
|
|
|
|
|
|
|
|
|
51 |
|
|
|
19.47 |
|
Forfeited |
|
|
(39 |
) |
|
|
12.18 |
|
|
|
(16 |
) |
|
|
11.57 |
|
Exercised |
|
|
(43 |
) |
|
|
7.00 |
|
|
|
(60 |
) |
|
|
7.49 |
|
Expired |
|
|
|
|
|
|
|
|
|
|
(2 |
) |
|
|
8.02 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, end of period |
|
|
987 |
|
|
|
11.91 |
|
|
|
1,069 |
|
|
|
11.72 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable, end of period |
|
|
599 |
|
|
$ |
10.59 |
|
|
|
592 |
|
|
$ |
9.88 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense for all stock-based compensation awards granted after January
1, 2006, is based on the grant date fair value. 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 Companys employee stock options. There were no options granted during the
six-months ended June 30, 2009. The weighted-average fair value of options granted during the
year-ended December 31, 2008, was $2.62. The fair value of each option granted is estimated on the
date of grant using the Black-Scholes option-pricing model with the following weighted-average
assumptions:
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended |
|
|
For the Year Ended |
|
|
|
June 30, 2009 |
|
|
December 31, 2008 |
|
Expected dividend yield |
|
Not applicable |
|
|
0.98 |
% |
Expected stock price volatility |
|
Not applicable |
|
|
3.13 |
% |
Risk-free interest rate |
|
Not applicable |
|
|
3.35 |
% |
Expected life of options |
|
Not applicable |
|
6.4 years |
20
The following is a summary of currently outstanding and exercisable options at June 30,
2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding |
|
Options Exercisable |
|
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining |
|
Weighted- |
|
|
|
|
|
Weighted- |
|
|
|
Options |
|
Contractual |
|
Average |
|
Options |
|
Average |
|
|
|
Outstanding |
|
Life (in |
|
Exercise |
|
Exercisable |
|
Exercise |
|
Exercise Prices |
|
Shares (000) |
|
years) |
|
Price |
|
Shares (000) |
|
Price |
$ |
5.69 to $6.19 |
|
|
14 |
|
|
|
2.14 |
|
|
$ |
5.85 |
|
|
|
13 |
|
|
$ |
5.85 |
|
$ |
6.79 to $7.71 |
|
|
174 |
|
|
|
3.24 |
|
|
|
6.85 |
|
|
|
174 |
|
|
|
6.85 |
|
$ |
8.64 to $9.55 |
|
|
100 |
|
|
|
4.05 |
|
|
|
9.43 |
|
|
|
100 |
|
|
|
9.43 |
|
$ |
10.50 to $10.81 |
|
|
52 |
|
|
|
6.04 |
|
|
|
10.59 |
|
|
|
52 |
|
|
|
10.59 |
|
$ |
10.50 to $10.81 |
|
|
199 |
|
|
|
7.47 |
|
|
|
11.73 |
|
|
|
196 |
|
|
|
11.73 |
|
$ |
12.20 to $12.20 |
|
|
298 |
|
|
|
6.71 |
|
|
|
12.20 |
|
|
|
3 |
|
|
|
12.20 |
|
$ |
18.32 to $19.60 |
|
|
102 |
|
|
|
7.76 |
|
|
|
19.26 |
|
|
|
33 |
|
|
|
19.36 |
|
$ |
20.35 to $20.48 |
|
|
21 |
|
|
|
7.82 |
|
|
|
20.43 |
|
|
|
6 |
|
|
|
20.42 |
|
$ |
22.36 to $25.01 |
|
|
27 |
|
|
|
7.89 |
|
|
|
22.86 |
|
|
|
22 |
|
|
|
22.36 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
987 |
|
|
|
|
|
|
|
|
|
|
|
599 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12. Non-Interest Expense
The table below shows the components of non-interest expense for three and six months ended
June 30, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
(In thousands) |
|
Salaries and employee benefits |
|
$ |
8,432 |
|
|
$ |
8,931 |
|
|
$ |
17,376 |
|
|
$ |
18,209 |
|
Occupancy and equipment |
|
|
2,667 |
|
|
|
2,726 |
|
|
|
5,344 |
|
|
|
5,428 |
|
Data processing expense |
|
|
844 |
|
|
|
833 |
|
|
|
1,651 |
|
|
|
1,619 |
|
Other operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advertising |
|
|
856 |
|
|
|
691 |
|
|
|
1,456 |
|
|
|
1,305 |
|
Merger expenses |
|
|
896 |
|
|
|
|
|
|
|
1,638 |
|
|
|
|
|
Amortization of intangibles |
|
|
462 |
|
|
|
463 |
|
|
|
925 |
|
|
|
925 |
|
Amortization of mortgage servicing rights |
|
|
218 |
|
|
|
147 |
|
|
|
365 |
|
|
|
294 |
|
Electronic banking expense |
|
|
889 |
|
|
|
823 |
|
|
|
1,752 |
|
|
|
1,575 |
|
Directors fees |
|
|
237 |
|
|
|
231 |
|
|
|
521 |
|
|
|
462 |
|
Due from bank service charges |
|
|
107 |
|
|
|
82 |
|
|
|
207 |
|
|
|
144 |
|
FDIC and state assessment |
|
|
1,949 |
|
|
|
429 |
|
|
|
2,914 |
|
|
|
801 |
|
Insurance |
|
|
271 |
|
|
|
235 |
|
|
|
568 |
|
|
|
463 |
|
Legal and accounting |
|
|
368 |
|
|
|
316 |
|
|
|
803 |
|
|
|
596 |
|
Mortgage servicing expense |
|
|
78 |
|
|
|
74 |
|
|
|
150 |
|
|
|
161 |
|
Other professional fees |
|
|
250 |
|
|
|
444 |
|
|
|
509 |
|
|
|
1,277 |
|
Operating supplies |
|
|
192 |
|
|
|
245 |
|
|
|
405 |
|
|
|
489 |
|
Postage |
|
|
173 |
|
|
|
188 |
|
|
|
349 |
|
|
|
368 |
|
Telephone |
|
|
181 |
|
|
|
233 |
|
|
|
359 |
|
|
|
464 |
|
Other expense |
|
|
1,228 |
|
|
|
1,406 |
|
|
|
2,298 |
|
|
|
2,600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other operating expenses |
|
|
8,355 |
|
|
|
6,007 |
|
|
|
15,219 |
|
|
|
11,924 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest expense |
|
$ |
20,298 |
|
|
$ |
18,497 |
|
|
$ |
39,590 |
|
|
$ |
37,180 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
13: Concentration of Credit Risks
The Companys primary market area is in central Arkansas, north central Arkansas, northwest
Arkansas, southern Arkansas, southwest Florida and the Florida Keys (Monroe County). The Company
primarily grants loans to customers located within these geographical areas unless the borrower has
an established relationship with the Company.
The diversity of the Companys economic base tends to provide a stable lending environment.
Although the Company has a loan portfolio that is diversified in both industry and geographic area,
a substantial portion of its debtors ability to honor their contracts is dependent upon real
estate values, tourism demand and the economic conditions prevailing in its market areas.
14: Significant Estimates and Concentrations
Accounting principles generally accepted in the United States 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, while deposit concentrations are reflected in Note 6.
The current economic environment presents financial institutions with unprecedented
circumstances and challenges which in some cases have resulted in large declines in the fair values
of investments and other assets, constraints on liquidity and significant credit quality problems,
including severe volatility in the valuation of real estate and other collateral supporting loans.
The financial statements have been prepared using values and information currently available to the
Company.
Given the volatility of current economic conditions, the values of assets and liabilities
recorded in the financial statements could change rapidly, resulting in material future adjustments
in asset values, the allowance for loan losses, capital that could negatively impact the Companys
ability to meet regulatory capital requirements and maintain sufficient liquidity.
15: Commitments and Contingencies
In the ordinary course of business, the Company makes various commitments and incurs certain
contingent liabilities to fulfill the financing needs of their customers. These commitments and
contingent liabilities include lines of credit and commitments to extend credit and issue standby
letters of credit. The Company applies the same credit policies and standards as they do in the
lending process when making these commitments. The collateral obtained is based on the assessed
creditworthiness of the borrower.
At June 30, 2009 and December 31, 2008, commitments to extend credit of $276.6 million and
$351.2 million, respectively, were outstanding. A percentage of these balances are participated out
to other banks; therefore, the Company can call on the participating banks to fund future draws.
Since some of these commitments are expected to expire without being drawn upon, the total
commitment amount does not necessarily represent future cash requirements.
Outstanding standby letters of credit are contingent commitments issued by the Company,
generally to guarantee the performance of a customer in third-party borrowing arrangements. The
term of the guarantee is dependent upon the credit worthiness of the borrower some of which are
long-term. The maximum amount of future payments the Company could be required to make under these
guarantees at June 30, 2009 and December 31, 2008, is $15.7 million and $18.0 million,
respectively.
The Company and/or its subsidiary bank 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.
22
16: Regulatory Matters
The Bank is subject to a legal limitation on dividends that can be paid to the parent company
without prior approval of the applicable regulatory agencies. 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. Since, the Bank is also under supervision of the Federal Reserve, they are further limited if
the total of all dividends declared in any calendar year by the Bank exceeds the Banks net profits
to date for that year combined with its retained net profits for the preceding two years. During
the first six months of 2009, the Company did not request any dividends form its banking
subsidiary. Beginning in the third quarter of 2009, the Company anticipates it will request a
dividend equal to 50% of the current year earnings for the last half of the year.
This anticipated dividend is within the regulatory agencys dividend levels.
The Federal Reserve Boards risk-based capital guidelines include the definitions for (1) a
well-capitalized institution, (2) an adequately-capitalized institution, and (3) and
undercapitalized institution. The criteria for a well-capitalized institution are: a 5% Tier 1
leverage capital ratio, a 6% Tier 1 risk-based capital ratio, and a 10% total risk-based
capital ratio. As of June 30, 2009, the Bank met the capital standards for a well-capitalized
institution. The Companys Tier 1 leverage capital ratio, Tier 1 risk-based capital ratio, and
total risk-based capital ratio was 13.21%, 15.07%, and 16.32%, respectively, as of June 30, 2009.
17: Additional Cash Flow Information
In connection with the Centennial Bancshares, Inc. acquisition accounting for using the
purchase method, the Company acquired approximately $241.5 million in assets, assumed $218.9
million in liabilities, issued $24.3 million of equity and received net funds of $1.7 million
during 2008. On March 11, 2009, the Company settled the contingent consideration for $3.1 million
which was paid to the Centennial stockholders in cash. The following is summary of the Companys
additional cash flow information during the three and six months ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
|
(In thousands) |
Interest paid |
|
$ |
10,513 |
|
|
$ |
14,934 |
|
|
$ |
21,810 |
|
|
$ |
33,374 |
|
Income taxes paid |
|
|
|
|
|
|
10,100 |
|
|
|
|
|
|
|
10,750 |
|
Assets acquired by foreclosure |
|
|
2,969 |
|
|
|
872 |
|
|
|
12,394 |
|
|
|
1,164 |
|
23
18: Financial Instruments
Effective January 1, 2008, the Company adopted Statement of Financial Accounting Standards No.
157, Fair Value Measurements (FAS 157). FAS 157 defines fair value, establishes a framework for
measuring fair value and expands disclosures about fair value measurements. FAS 157 has been
applied prospectively as of the beginning of the period.
FAS 157 defines fair value as the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants at the measurement date.
FAS 157 also establishes a fair value hierarchy which requires an entity to maximize the use of
observable inputs and minimize the use of unobservable inputs when measuring fair value. The
standard describes three levels of inputs that may be used to measure fair value:
|
Level 1 |
|
Quoted prices in active markets for identical assets or liabilities |
|
|
Level 2 |
|
Observable inputs other than Level 1 prices, such as quoted prices for similar
assets or liabilities; quoted prices in active markets that are not active; or other inputs
that are observable or can be corroborated by observable market data for substantially the
full term of the assets or liabilities |
|
|
Level 3 |
|
Unobservable inputs that are supported by little or no market activity and that are
significant to the fair value of the assets or liabilities |
Available for sale securities are the only material instruments valued on a recurring basis
which are held by the Company at fair value. The Company does not have any Level 1 securities.
Primarily all of the Companys securities are considered to be Level 2 securities. These Level 2
securities consist of U.S. government-sponsored enterprises, mortgage-backed securities plus state
and political subdivisions. At the beginning of the year 2008, our Level 3 securities included two
investment securities which became worthless during the year. As a result, we wrote them down by
$5.9 million in 2008 to a value of zero. As of year end 2008 and June 30, 2009, Level 3 securities
were immaterial.
Impaired loans are the only material financial assets valued on a non-recurring basis which
are held by the Company at fair value. Loan impairment is reported when full payment under the loan
terms is not expected. Impaired loans are carried at the present value of estimated future cash
flows using the loans existing rate, or the fair value of collateral if the loan is collateral
dependent. A portion of the allowance for loan losses is allocated to impaired loans if the value
of such loans is deemed to be less than the unpaid balance. If these allocations cause the
allowance for loan losses to require increase, such increase is reported as a component of the
provision for loan losses. Loan losses are charged against the allowance when management believes
the uncollectability of a loan is confirmed. Impaired loans, net of specific allowance, were $30.3
million and $20.6 million as of June 30, 2009 and December 31, 2008, respectively. This valuation
would be considered Level 3, consisting of appraisals of underlying collateral and discounted cash
flow analysis.
Foreclosed assets held for sale are the only material non-financial assets valued on a
non-recurring basis which are held by the Company at fair value, less estimated costs to sell. At
foreclosure, if the fair value, less estimated costs to sell, of the real estate acquired is less
than the Companys recorded investment in the related loan, a write-down is recognized through a
charge to the allowance for loan losses. Additionally, valuations are periodically performed by
management and any subsequent reduction in value is recognized by a charge to income. The fair
value of foreclosed assets held for sale is estimated using Level 2 inputs based on observable
market data. As of June 30, 2009 and December 31, 2008, the fair value of foreclosed assets held
for sale, less estimated costs to sell was $17.6 million and $6.8 million, respectively.
24
Fair Values of Financial Instruments
The following methods and assumptions were used by the Company in estimating fair values of
financial instruments as disclosed in these notes:
Cash and cash equivalents and federal funds sold For these short-term instruments, the
carrying amount is a reasonable estimate of fair value.
Loans receivable, net For variable-rate loans that reprice frequently and with no
significant change in credit risk, fair values are assumed to approximate the carrying amounts. The
fair values for fixed-rate loans are estimated using discounted cash flow analysis, based on
interest rates currently being offered for loans with similar terms to borrowers of similar credit
quality. Loan fair value estimates include judgments regarding future expected loss experience and
risk characteristics.
Accrued interest receivable The carrying amount of accrued interest receivable approximates
its fair value.
Deposits and securities sold under agreements to repurchase The fair values of demand,
savings deposits and securities sold under agreements to repurchase are, by definition, equal to
the amount payable on demand and therefore approximate their carrying amounts. The fair values for
time deposits are estimated using a discounted cash flow calculation that utilizes interest rates
currently being offered on time deposits with similar contractual maturities.
Federal funds purchased The carrying amount of federal funds purchased approximates its fair
value.
Accrued interest payable The carrying amount of accrued interest payable approximates its
fair value.
FHLB and other borrowed funds For short-term instruments, the carrying amount is a
reasonable estimate of fair value. The fair value of long-term debt is estimated based on the
current rates available to the Company for debt with similar terms and remaining maturities.
Subordinated debentures The fair value of subordinated debentures is estimated using the
rates that would be charged for subordinated debentures of similar remaining maturities.
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 presents the estimated fair values of the Companys financial instruments.
The fair values of certain of these instruments were calculated by discounting expected cash flows,
which involves significant judgments by management and uncertainties. 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.
25
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009 |
|
|
Carrying |
|
|
|
|
Amount |
|
Fair Value |
|
|
(In thousands) |
Financial assets: |
|
|
|
|
|
|
|
|
Cash and cash
equivalents |
|
$ |
46,084 |
|
|
$ |
46,084 |
|
Federal funds
sold |
|
|
31,805 |
|
|
|
31,805 |
|
Net loans receivable, net of impaired loans |
|
|
1,900,641 |
|
|
|
1,899,595 |
|
Accrued interest
receivable |
|
|
12,840 |
|
|
|
12,840 |
|
|
|
|
|
|
|
|
|
|
Financial liabilities: |
|
|
|
|
|
|
|
|
Deposits: |
|
|
|
|
|
|
|
|
Demand and non-interest bearing |
|
$ |
294,339 |
|
|
$ |
294,339 |
|
Savings and interest-bearing transaction accounts |
|
|
661,387 |
|
|
|
661,387 |
|
Time
deposits
|
|
|
876,339 |
|
|
|
883,378 |
|
Federal funds
purchased |
|
|
|
|
|
|
|
|
Securities sold under agreements to repurchase |
|
|
65,232 |
|
|
|
65,232 |
|
FHLB and other borrowed funds |
|
|
277,640 |
|
|
|
280,149 |
|
Accrued interest payable
|
|
|
4,577 |
|
|
|
4,577 |
|
Subordinated
debentures |
|
|
47,530 |
|
|
|
61,869 |
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008 |
|
|
Carrying |
|
|
|
|
Amount |
|
Fair Value |
|
|
(In thousands) |
Financial assets: |
|
|
|
|
|
|
|
|
Cash and cash
equivalents |
|
$ |
54,168 |
|
|
$ |
54,168 |
|
Federal funds
sold |
|
|
7,865 |
|
|
|
7,865 |
|
Net loans receivable, net of impaired loans |
|
|
1,895,273 |
|
|
|
1,891,254 |
|
Accrued interest
receivable |
|
|
13,115 |
|
|
|
13,115 |
|
|
|
|
|
|
|
|
|
|
Financial liabilities: |
|
|
|
|
|
|
|
|
Deposits: |
|
|
|
|
|
|
|
|
Demand and non-interest bearing |
|
$ |
249,349 |
|
|
$ |
249,349 |
|
Savings and interest-bearing transaction accounts |
|
|
656,758 |
|
|
|
656,758 |
|
Time
deposits
|
|
|
941,801 |
|
|
|
952,758 |
|
Federal funds
purchased |
|
|
|
|
|
|
|
|
Securities sold under agreements to repurchase |
|
|
113,389 |
|
|
|
113,389 |
|
FHLB and other borrowed funds |
|
|
282,975 |
|
|
|
287,280 |
|
Accrued interest payable
|
|
|
4,888 |
|
|
|
4,888 |
|
Subordinated
debentures |
|
|
47,575 |
|
|
|
59,623 |
|
26
19: Recently Issued Accounting Pronouncements
In December 2007, the Financial Accounting Standards Board (FASB) issued SFAS 141(R),
Business Combinations, which established principles and requirements for how an acquirer
recognizes and measures in its financial statements the identifiable assets acquired, the
liabilities assumed, and any noncontrolling interest in an acquiree, including the recognition and
measurement of goodwill acquired in a business combination. The adoption of this standard did not
have a material effect on the Companys results of operations or financial position.
In March 2008, the FASB issued SFAS 161, Disclosures about Derivative Instruments and Hedging
Activities, an amendment of SFAS No. 133. SFAS 161 amended and expanded the disclosure
requirements of SFAS No. 133 for derivative instruments and hedging activities. SFAS 161 requires
qualitative disclosure about objectives and strategies for using derivative and hedging
instruments, quantitative disclosures about fair value amounts of the instruments and gains and
losses on such instruments, as well as disclosures about credit-risk features in derivative
agreements. The adoption of this standard did not have a material effect on the Companys results
of operations or financial position.
On April 9, 2009, the FASB finalized three FASB Staff Positions (FSPs) regarding the
accounting treatment for investments including mortgage-backed securities. These FSPs changed the
method for determining if an other-than-temporary impairment (OTTI) exists and the amount of OTTI
to be recorded through an entitys income statement. The changes brought about by the FSPs provide
greater clarity and reflect a more accurate representation of the credit and noncredit components
of an OTTI event. The three FSPs are as follows:
|
|
|
FSP SFAS 157-4 Determining Fair Value When the Volume and Level
of Activity for the Assets or Liability Have Significantly
Decreased and Identifying Transactions That Are Not Orderly
provides guidelines for making fair value measurements more
consistent with the principles presented in SFAS 157, Fair Value
Measurements. |
|
|
|
|
FSP SFAS 115-2 and SFAS 124-2, Recognition and Presentation of
Other-than-temporary Impairments provides additional guidance
designed to create greater clarity and consistency in accounting
for and presenting impairment losses on securities. |
|
|
|
|
FSP SFAS 107-1 and APB 28-1, Interim Disclosures about Fair Value
of Financial Instruments enhances consistency in financial
reporting by increasing the frequency of fair value disclosures. |
The adoption of these FSPs did not have a material effect on the Companys results of
operations or financial position.
In May 2009, FASB issued SFAS No. 165 Subsequent Events, with the objective to establish
general standards of accounting for and disclosure of events that occur after the balance sheet
date but before financial statements are issued or are available to be issued. SFAS No. 165 sets
forth: (i) the period after the balance sheet date during which management of a reporting entity
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 that an entity should make about events or transactions that occurred after the balance
sheet date. SFAS No. 165 is effective for interim and annual financial periods ending after
June 15, 2009. The adoption of SFAS No. 165 on June 30, 2009, did not have an impact on the
Companys consolidated financial statements.
27
In June 2009, FASB issued SFAS No. 166 Accounting for Transfers of Financial Assetsan
amendment of FASB Statement No. 140. The objective of SFAS No. 166 is to improve the relevance,
representational faithfulness, and comparability of the information that a reporting entity
provides in its financial statements about a transfer of financial assets; the effects of a
transfer on its financial position, financial performance, and cash flows; and a transferors
continuing involvement in transferred financial assets. SFAS No. 166 shall be effective as of the
beginning of each reporting entitys first annual reporting period that begins after November 15,
2009, for interim periods within that first annual reporting period, and for interim and annual
reporting periods thereafter. The Company is currently evaluating the impact of the adoption of
this standard, but does not expect it have a material effect on the Companys financial position or
results of operation.
In June 2009, FASB issued SFAS No. 167 Amendments to FASB Interpretation No. 46(R). The
objective of SFAS 167 is to amend certain requirements of FASB Interpretation No. 46 (revised
December 2003), Consolidation of Variable Interest Entities, to improve financial reporting by
enterprises involved with variable interest entities and to provide more relevant and reliable
information to users of financial statements. SFAS 167 shall be effective as of the beginning of
each reporting entitys first annual reporting period that begins after November 15, 2009, for
interim periods within that first annual reporting period, and for interim and annual reporting
periods thereafter. Earlier application is prohibited. The Company is currently evaluating the
impact of the adoption of this standard, but does not expect it have a material effect on the
Companys financial position or results of operation.
20. Subsequent Events
Subsequent events have been evaluated through August 5, 2009, which is the date the financial
statements were issued.
28
Report of Independent Registered Public Accounting Firm
Audit Committee, Board of Directors and Stockholders
Home BancShares, Inc.
Conway, Arkansas
We have reviewed the accompanying condensed consolidated balance sheet of Home BancShares, Inc. as
of June 30, 2009 and the related condensed consolidated statements of income for the three-month
and six-month periods ended June 30, 2009 and 2008 and statements of stockholders equity and cash
flows for the six-month periods ended June 30, 2009 and 2008. These interim financial statements
are the responsibility of the Companys management.
We conducted our reviews in accordance with the standards of the Public Company Accounting
Oversight Board (United States). A review of interim financial information consists principally of
applying analytical procedures to financial data and making inquiries of persons responsible for
financial and accounting matters. It is substantially less in scope than an audit conducted in
accordance with the standards of the Public Company Accounting Oversight Board, the objective of
which is the expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should be made to the
condensed consolidated financial statements referred to above for them to be in conformity with
accounting principles generally accepted in the United States of America.
We have previously audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheet as of December 31, 2008 and the
related consolidated statements of income, stockholders equity and cash flows for the year then
ended (not presented herein); and in our report dated March 2, 2009, we expressed an unqualified
opinion on those consolidated financial statements. In our opinion, the information set forth in
the accompanying condensed consolidated balance sheet as of December 31, 2008 is fairly stated, in
all material respects, in relation to the consolidated balance sheet from which it has been
derived.
/s/ BKD, LLP
Little Rock, Arkansas
August 5, 2009
29
|
|
|
Item 2: |
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
The following discussion should be read in conjunction with our Form 10-K, filed with the
Securities and Exchange Commission on March 6, 2009, which includes the audited financial
statements for the year ended December 31, 2008. Unless the context requires otherwise, the terms
Company, us, we, and our refer to Home BancShares, Inc. on a consolidated basis.
General
We are a bank holding company headquartered in Conway, Arkansas, offering a broad array of
financial services through our wholly owned bank subsidiary. As of June 30, 2009, we had, on a
consolidated basis, total assets of $2.58 billion, loans receivable of $1.97 billion, total
deposits of $1.83 billion, and stockholders equity of $343.4 million.
We generate most of our revenue from interest on loans and investments, service charges, and
mortgage banking income. Deposits are our primary source of funding. Our largest expenses are
interest on these deposits and salaries and related employee benefits. We measure our performance
by calculating our return on average common equity, return on average assets, and net interest
margin. We also measure our performance by our efficiency ratio, which is calculated by dividing
non-interest expense less amortization of core deposit intangibles by the sum of net interest
income on a tax equivalent basis and non-interest income. Per share amounts for June 30, 2008 have
been adjusted for the 8% stock dividend which occurred in August of 2008.
Key Financial Measures
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As of or for the Three Months |
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As of or for the Six Months |
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Ended June 30, |
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Ended June 30, |
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2009 |
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2008 |
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2009 |
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2008 |
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|
(Dollars in thousands, except per share data) |
Total assets |
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$ |
2,579,926 |
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$ |
2,611,619 |
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$ |
2,579,926 |
|
|
$ |
2,611,619 |
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Loans receivable |
|
|
1,972,704 |
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|
|
1,951,272 |
|
|
|
1,972,704 |
|
|
|
1,951,272 |
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Total deposits |
|
|
1,832,065 |
|
|
|
1,901,803 |
|
|
|
1,832,065 |
|
|
|
1,901,803 |
|
Net income |
|
|
5,441 |
|
|
|
5,654 |
|
|
|
11,686 |
|
|
|
12,932 |
|
Net income available to common stockholders |
|
|
4,771 |
|
|
|
5,654 |
|
|
|
10,450 |
|
|
|
12,932 |
|
Basic earnings per common share |
|
|
0.24 |
|
|
|
0.29 |
|
|
|
0.53 |
|
|
|
0.66 |
|
Diluted earnings per common share |
|
|
0.24 |
|
|
|
0.28 |
|
|
|
0.52 |
|
|
|
0.64 |
|
Diluted cash earnings per common share (1) |
|
|
0.25 |
|
|
|
0.29 |
|
|
|
0.55 |
|
|
|
0.66 |
|
Annualized net interest margin FTE |
|
|
4.08 |
% |
|
|
3.89 |
% |
|
|
4.01 |
% |
|
|
3.83 |
% |
Efficiency ratio |
|
|
62.70 |
|
|
|
64.04 |
|
|
|
62.44 |
|
|
|
57.33 |
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Annualized return on average assets |
|
|
0.84 |
|
|
|
0.89 |
|
|
|
0.91 |
|
|
|
1.02 |
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Annualized return on average common equity |
|
|
6.53 |
|
|
|
7.91 |
|
|
|
7.26 |
|
|
|
9.12 |
|
|
|
|
(1) |
|
See Table 16 Diluted Cash Earnings Per Share for a reconciliation to GAAP for diluted cash
earnings per common share. |
30
Overview
Results of Operations for Three Months Ended June 30, 2009 and 2008
Our net income decreased 3.8% to $5.4 million for the three-month period ended June 30, 2009,
from $5.7 million for the same period in 2008. On a diluted earnings per share basis, our net
earnings decreased 14.3% to $0.24 for the three-month period ended June 30, 2009, as compared to
$0.28 (stock dividend adjusted) for the same period in 2008.
During the three months ended June 30, 2009, we incurred merger expenses and a special
assessment from the FDIC. Excluding the $1.3 million after tax or $0.06 diluted earnings per share
negative impact of these two non-core items, core net income and core diluted earnings per common
share for the three-month period ended June 30, 2009 were $6.7 million and $0.30, respectively.
During the three months ended June 30, 2008, we conducted an efficiency study and incurred an
investment security impairment. Excluding the $1.4 million after tax or $0.07 diluted earnings per
share negative impact of these two non-core items, core net income and core diluted earnings per
common share for the three-month period ended June 30, 2008 were $7.0 million and $0.35,
respectively.
The $341,000 decrease in core earnings is primarily associated with the higher provision for
loan losses, recurring increase in FDIC and state assessment fees and lower dividend yields offset
by a 19 basis point increase in net interest margin, reduced salaries and employee benefits and
improving fees in non-interest income
Our annualized return on average assets was 0.84% for the three months ended June 30, 2009,
compared to 0.89% the same period in 2008, respectively. Our annualized return on average common
equity was 6.53% for the three months ended June 30, 2009, compared to 7.91% for the same period in
2008, respectively.
Excluding the after tax $1.3 million and the after tax $1.4 million of non-core expenses in
2009 and 2008, respectively, our core return on average assets would have been 1.05% and 1.11% for
the three months ended June 30, 2009 and 2008, respectively. While our core return on average
common equity would have been 8.24% and 9.84% for the three months ended June 30, 2009 and 2008,
respectively. These 2009 lower ratios were primarily due to the previously discussed changes in
core earnings for the three month period ended June 30, 2009, compared to the same period in 2008.
Our annualized net interest margin, on a fully taxable equivalent basis, was 4.08% for the
three months ended June 30, 2009, compared to 3.89% for the same period in 2008, respectively. Our
ability to improve pricing on our deposits and hold down the decline of interest rates on loans
combined with the proceeds from our issuance of $50.0 million of Fixed Rate Cumulative Perpetual
Preferred Stock Series A to the United States Department of Treasury under the Capital Purchase
Program allowed the Company to expand net interest margin.
Our efficiency ratio was 62.70% for the three months ended June 30, 2009, compared to 64.04%
for the same period in 2008. Excluding the after tax $1.3 million and the after tax $1.4 million
of non-core expenses in 2009 and 2008, respectively, our efficiency ratio would have been 56.20%
and 59.00% for the three months ended June 30, 2009 and 2008, respectively. This positive progress
was primarily due to our ability to raise net interest margin and the continued improvement of our
overall operations.
Results of Operations for Six Months Ended June 30, 2009 and 2008
Our net income decreased 9.6% to $11.7 million for the six-month period ended June 30, 2009,
from $12.9 million for the same period in 2008. On a diluted earnings per share basis, our net
earnings decreased 18.8% to $0.52 for the six-month period ended June 30, 2009, as compared to
$0.64 (stock dividend adjusted) for the same period in 2008.
31
During the first six months of 2009, we incurred merger expenses and a special assessment from
the FDIC. Excluding the $1.7 million after tax or $0.08 diluted earnings per share negative impact
of these two non-core items, core net income and core diluted earnings per common share for the
six-month period ended June 30, 2009 were $13.4 million and $0.60, respectively.
During the first six months of 2008, we sold our investment in White River Bancshares,
conducted an efficiency study and incurred an investment security impairment. Excluding the $2.0
million after tax or $0.10 diluted earnings per share positive combined impact of these three
non-core items, core net income and core diluted earnings per common share for the six-month period
ended June 30, 2008 were $10.9 million and $0.54, respectively.
The $2.5 million increase in core earnings is primarily associated with the lower provision
for loan losses, a 18 basis point increase in net interest margin, reduced salaries and employee
benefits and improving fees in non-interest income offset by the recurring increase in FDIC and
state assessment fees and lower dividend yields.
Our annualized return on average assets was 0.91% for the six months ended June 30, 2009,
compared to 1.02% for the same period in 2008, respectively. Our annualized return on average
common equity was 7.26% for the six months ended June 30, 2009, compared to 9.12% for the same
period in 2008, respectively.
Excluding the after tax $1.7 million of non-core expenses in 2009 and the after tax $2.0
million of combined net non-core earnings in 2008, our core return on average assets would have
been 1.04% and 0.86% for the six months ended June 30, 2009 and 2008, respectively. While our core
return on average common equity would have been 8.45% and 7.76% for the six months ended June 30,
2009 and 2008, respectively. The 2009 improvements were primarily due to the previously discussed
changes in core earnings for the six month period ended June 30, 2009, compared to the same period
in 2008.
Our annualized net interest margin, on a fully taxable equivalent basis, was 4.01% for the six
months ended June 30, 2009, compared to 3.83% for the same period in 2008, respectively. Our
ability to improve pricing on our deposits and hold down the decline of interest rates on loans
combined with the proceeds from our issuance of $50.0 million of Fixed Rate Cumulative Perpetual
Preferred Stock Series A to the United States Department of Treasury under the Capital Purchase
Program allowed the Company to expand net interest margin.
Our efficiency ratio was 62.44% for the six months ended June 30, 2009, compared to 57.33% for
the same period in 2008. Excluding the after tax $1.7 million of non-core expenses in 2009 and the
after tax $2.0 million of combined net non-core earnings in 2008, our efficiency ratio would have
been 57.92% and 59.78% for the six months ended June 30, 2009 and 2008, respectively. This
positive progress was primarily due to our ability to raise net interest margin and the continued
improvement of our overall operations.
Financial Condition as of and for the Period Ended June 30, 2009 and December 31, 2008
Our total assets as of June 30, 2009 were effectively unchanged from the $2.58 billion
reported as of December 31, 2008. Our loan portfolio increased slightly by $16.5 million, an
annualized growth of 1.7%, to $1.97 billion as of June 30, 2009, from $1.96 billion as of December
31, 2008. Stockholders equity increased $60.3 million to $343.4 million as of June 30, 2009,
compared to $283.0 million as of December 31, 2008. The increase in stockholders equity is
primarily associated with the issuance of $50.0 million of preferred stock to the United States
Department of Treasury combined with retained earnings for the first six months of 2009. Excluding
the issuance of the $50.0 million of preferred stock the annualized growth in stockholders equity
for the first six months of 2009 was 7.3%
32
As of June 30, 2009, our non-performing loans increased to $35.3 million, or 1.79%, of total
loans from $29.9 million, or 1.53%, of total loans as of December 31, 2008. The allowance for loan
losses as a percent of non-performing loans decreased to 119% as of June 30, 2009, compared to 135%
from December 31, 2008. Unfavorable economic conditions continue in the Florida market.
Non-performing loans in Florida were $24.1 million at June 30, 2009 compared to $17.3 million as of
December 31, 2008.
As of June 30, 2009, our non-performing assets increased to $52.9 million, or 2.05%, of total
assets from $36.7 million, or 1.42%, of total assets as of December 31, 2008. The increase in
non-performing assets is primarily the result of the struggling economy, particularly Florida.
Non-performing assets in Florida were $37.2 million at June 30, 2009 compared to $22.0 million as
of December 31, 2008.
Critical Accounting Policies
Overview. We prepare our consolidated financial statements based on the selection of certain
accounting policies, generally accepted accounting principles and customary practices in the
banking industry. These policies, in certain areas, require us to make significant estimates and
assumptions. Our accounting policies are described in detail in the notes to our consolidated
financial statements in Note 1 of the audited consolidated financial statements included in our
Form 10-K, filed with the Securities and Exchange Commission.
We consider a policy critical if (i) the accounting estimate requires assumptions about
matters that are highly uncertain at the time of the accounting estimate; and (ii) different
estimates that could reasonably have been used in the current period, or changes in the accounting
estimate that are reasonably likely to occur from period to period, would have a material impact on
our financial statements. Using these criteria, we believe that the accounting policies most
critical to us are those associated with our lending practices, including the accounting for the
allowance for loan losses, investments, intangible assets, income taxes and stock options.
Investments. Securities available for sale are reported at fair value with unrealized holding
gains and losses reported as a separate component of stockholders equity and other comprehensive
income (loss). Securities that are held as available for sale are used as a part of our
asset/liability management strategy. Securities that may be sold in response to interest rate
changes, changes in prepayment risk, the need to increase regulatory capital, and other similar
factors are classified as available for sale.
Loans Receivable and Allowance for Loan Losses. Substantially all of our loans receivable are
reported at their outstanding principal balance adjusted for any charge-offs, as it is managements
intent to hold them for the foreseeable future or until maturity or payoff, except for mortgage
loans held for sale. Interest income on loans is accrued over the term of the loans based on the
principal balance outstanding.
The allowance for loan losses is established through a provision for loan losses charged
against income. The allowance represents an amount that, in managements judgment, will be adequate
to absorb probable credit losses on identifiable loans that may become uncollectible and probable
credit losses inherent in the remainder of the loan portfolio. The amounts of provisions for loan
losses are based on managements analysis and evaluation of the loan portfolio for identification
of problem credits, internal and external factors that may affect collectability, relevant credit
exposure, particular risks inherent in different kinds of lending, current collateral values and
other relevant factors.
We consider a loan to be impaired when, based on current information and events, it is
probable that we will be unable to collect all amounts due according to the contractual terms
thereof. We apply this policy even if delays or shortfalls in payments are expected to be
insignificant. The aggregate amount of impaired loans is used in evaluating the adequacy of the
allowance for loan losses and amount of provisions thereto. Losses on impaired loans are charged
against the allowance for loan losses when in the process of collection it appears likely that
losses will be realized. The accrual of interest on impaired loans is discontinued when, in
managements opinion, the borrower may be unable to meet payments as they become due. When accrual
of interest is discontinued, all unpaid accrued interest is reversed.
33
Loans are placed on non-accrual status when management believes that the borrowers financial
condition, after giving consideration to economic and business conditions and collection efforts,
is such that collection of interest is doubtful, or generally when loans are 90 days or more past
due. Loans are charged against the allowance for loan losses when management believes that the
collectability of the principal is unlikely. Accrued interest related to non-accrual loans is
generally charged against the allowance for loan losses when accrued in prior years and reversed
from interest income if accrued in the current year. Interest income on non-accrual loans may be
recognized to the extent cash payments are received, although the majority of payments received are
usually applied to principal. Non-accrual loans are generally returned to accrual status when
principal and interest payments are less than 90 days past due, the customer has made required
payments for at least six months, and we reasonably expect to collect all principal and interest.
Intangible Assets. Intangible assets consist of goodwill and core deposit intangibles.
Goodwill represents the excess purchase price over the fair value of net assets acquired in
business acquisitions. The core deposit intangible represents the excess intangible value of
acquired deposit customer relationships as determined by valuation specialists. The core deposit
intangibles are being amortized over 84 to 114 months on a straight-line basis. Goodwill is not
amortized but rather is evaluated for impairment on at least an annual basis. We perform an annual
impairment test of goodwill and core deposit intangibles as required by SFAS No. 142, Goodwill and
Other Intangible Assets, in the fourth quarter.
Income Taxes. We use the liability method in accounting for income taxes. Under this method,
deferred tax assets and liabilities are determined based upon the difference between the values of
the assets and liabilities as reflected in the financial statements and their related tax basis
using enacted tax rates in effect for the year in which the differences are expected to be
recovered or settled. As changes in tax laws or rates are enacted, deferred tax assets and
liabilities are adjusted through the provision for income taxes. Any estimated tax exposure items
identified would be considered in a tax contingency reserve. Changes in any tax contingency reserve
would be based on specific development, events, or transactions.
Stock Options. In accordance with FASB Statement No. 123, Share-Based Payment (Revised 2004)
(SFAS No. 123R), the fair value of each option award is estimated on the date of grant. The
Company recognizes compensation expense for the grant-date fair value of the option award over the
vesting period of the award.
Acquisitions and Equity Investments
On January 1, 2008, we acquired Centennial Bancshares, Inc., an Arkansas bank holding company.
Centennial Bancshares, Inc. owned Centennial Bank, located in Little Rock, Arkansas which had total
assets of $234.1 million, loans of $192.8 million and total deposits of $178.8 million on the date
of acquisition. The consideration for the merger was $25.4 million, which was paid approximately
4.6%, or $1.2 million in cash and 95.4%, or $24.3 million, in shares of our common stock. In
connection with the acquisition, $3.0 million of the purchase price, consisting of $139,000 in cash
and 140,456 shares (stock dividend adjusted) of our common stock, was placed in escrow related to
possible losses from identified loans and an IRS examination. In the first quarter of 2008, the IRS
examination was completed which resulted in $1.0 million of the escrow proceeds being released. In
addition to the consideration given at the time of the merger, the merger agreement provided for
additional contingent consideration to Centennials stockholders of up to a maximum of $4 million,
which could be paid in cash or our common stock at the election of the former Centennial accredited
stockholders, based upon the 2008 earnings performance. The final contingent consideration was
computed and agreed upon in the amount of $3.1 million on March 11, 2009. We paid this amount to
the former Centennial stockholders on a pro rata basis on March 12, 2009. All of the former
Centennial stockholders elected to receive the contingent consideration in cash. As a result of
this transaction, we recorded total goodwill of $15.4 million and a core deposit intangible of
$694,000.
34
In our continuing evaluation of our growth plans for the Company, we believe properly priced
bank acquisitions can complement our organic growth and de novo branching growth strategies. The
Companys acquisition focus will be to expand in its primary market areas of Arkansas and Florida.
We are continually evaluating potential bank acquisitions to determine what is in the best interest
of our Company. Our goal in making these decisions is to maximize the return to our investors.
Branches
We intend to continue to open new (commonly referred to de novo) branches in our current
markets and in other attractive market areas if opportunities arise. During 2009, we opened a
branch location in the Arkansas community of Heber Springs. Presently, we are evaluating
additional opportunities but have no firm commitments for any additional de novo branch locations.
As a result of the evaluation process for cost saving opportunities under the efficiency
study, three existing Arkansas branches were closed during the second quarter of 2009. The
locations closed were located in New Edinburg, Kingsland and one of our two Heights neighborhood
locations in Little Rock.
Charter Consolidation
In July 2008, management of Home BancShares, Inc. approved the combining of all six of the
Companys individually charted banks into one charter. All of the banks would adopt Centennial Bank
as their common name.
In the fourth quarter of 2008, First State Bank and Marine Bank consolidated and adopted
Centennial Bank as its new name. Community Bank and Bank of Mountain View were completed in the
first quarter of 2009, and Twin City Bank and the original Centennial Bank finished the process in
June of 2009. All of the banks now have the same name, logo and charter allowing for a more
customer-friendly banking experience and seamless transactions across our entire banking network.
We remain committed to our community banking philosophy and will continue to rely on local
management and boards of directors.
Holding Company Status
During the second quarter of 2008, we changed from a financial holding company to a bank
holding company. Since we were not utilizing any of the additional permitted activities allowed to
our financial holding company status, this will not change any of our current business practices.
Results of Operations
For Three Months Ended June 30, 2009 and 2008
Our net income decreased 3.8% to $5.4 million for the three-month period ended June 30, 2009,
from $5.7 million for the same period in 2008. On a diluted earnings per share basis, our net
earnings decreased 14.3% to $0.24 for the three-month period ended June 30, 2009, as compared to
$0.28 (stock dividend adjusted) for the same period in 2008.
During the three months ended June 30, 2009, we incurred merger expenses and a special
assessment from the FDIC. Excluding the $1.3 million after tax or $0.06 diluted earnings per share
negative impact of these two non-core items, core net income and core diluted earnings per common
share for the three-month period ended June 30, 2009 were $6.7 million and $0.30, respectively.
During the three months ended June 30, 2008, we conducted an efficiency study and incurred an
investment security impairment. Excluding the $1.4 million after tax or $0.07 diluted earnings per
share negative impact of these two non-core items, core net income and core diluted earnings per
common share for the three-month period ended June 30, 2008 were $7.0 million and $0.35,
respectively.
35
The $341,000 decrease in core earnings is primarily associated with the higher provision for
loan losses, recurring increase in FDIC and state assessment fees and lower dividend yields offset
by a 19 basis point increase in net interest margin, reduced salaries and employee benefits and
improving fees in non-interest income
For Six Months Ended June 30, 2009 and 2008
Our net income decreased 9.6% to $11.7 million for the six-month period ended June 30, 2009,
from $12.9 million for the same period in 2008. On a diluted earnings per share basis, our net
earnings decreased 18.8% to $0.52 for the six-month period ended June 30, 2009, as compared to
$0.64 (stock dividend adjusted) for the same period in 2008.
During the first six months of 2009, we incurred merger expenses and a special assessment from
the FDIC. Excluding the $1.7 million after tax or $0.08 diluted earnings per share negative impact
of these two non-core items, core net income and core diluted earnings per common share for the
six-month period ended June 30, 2009 were $13.4 million and $0.60, respectively.
During the first six months of 2008, we sold our investment in White River Bancshares,
conducted an efficiency study and incurred an investment security impairment. Excluding the $2.0
million after tax or $0.10 diluted earnings per share positive combined impact of these three
non-core items, core net income and core diluted earnings per common share for the six-month period
ended June 30, 2008 were $10.9 million and $0.54, respectively.
The $2.5 million increase in core earnings is primarily associated with the lower provision
for loan losses, a 18 basis point increase in net interest margin, reduced salaries and employee
benefits and improving fees in non-interest income offset by the recurring increase in FDIC and
state assessment fees and lower dividend yields.
Net Interest Income
Net interest income, our 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 affecting the level of net interest income include the
volume of earning assets and interest-bearing liabilities, yields earned on loans and investments
and rates paid on deposits and other borrowings, 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.
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 in 2008 at 4.25%. During 2008, the rate decreased by
75 basis points on January 22, 2008, 50 basis points on January 30, 2008, 75 basis points on March
18, 2008, 25 basis points on April 30, 2008 and 50 basis points to a rate of 1.50% as of October 8,
2008. The rate continued to fall 50 basis points on October 29, 2008 and 75 to 100 basis points to
a low of 0.25% to 0% on December 16, 2008.
36
Net interest income on a fully taxable equivalent basis increased $1.1 million, or 5.12%, to
$23.6 million for the three-month period ended June 30, 2009, from $22.5 million for the same
period in 2008. This increase in net interest income was the result of a $3.4 million decrease in
interest income combined with a $4.5 million decrease in interest expense. The $3.4 million
decrease in interest income was primarily the result of the repricing of our earning assets in the
declining interest rate environment offset by organic growth of our bank subsidiary. The repricing
of our earning assets in the declining interest rate environment resulted in a $3.8 million
decrease in interest income while the higher level of earning assets resulted in an improvement in
interest income of $474,000, for the three-month period ended June 30, 2009. The $4.5 million
decrease in interest expense for the three-month period ended June 30, 2009, is primarily the
result our interest bearing liabilities repricing in the declining interest rate environment
combined with a reduction in our interest bearing liabilities. Our issuance of $50.0 million of
preferred stock to the United States Department of Treasury allowed us to reduce our interest
bearing liabilities. The repricing of our interest bearing liabilities in the declining interest
rate environment resulted in a $4.2 million decrease in interest expense. The reduction of our
interest bearing liabilities resulted in lower interest expense of $362,000.
Net interest income on a fully taxable equivalent basis increased $2.3 million, or 5.18%, to
$46.3 million for the six-month period ended June 30, 2009, from $44.0 million for the same period
in 2008. This increase in net interest income was the result of a $8.5 million decrease in interest
income combined with a $10.8 million decrease in interest expense. The $8.5 million decrease in
interest income was primarily the result of the repricing of our earning assets in the declining
interest rate environment offset by organic growth of our bank subsidiary. The repricing of our
earning assets in the declining interest rate environment resulted in a $10.3 million decrease in
interest income while the higher level of earning assets resulted in an improvement in interest
income of $1.8 million, for the six-month period ended June 30, 2009. The $10.8 million decrease
in interest expense for the six-month period ended June 30, 2009, is primarily the result our
interest bearing liabilities repricing in the declining interest rate environment combined with a
reduction in our interest bearing liabilities. Our issuance of $50.0 million of preferred stock to
the United States Department of Treasury allowed us to reduce our interest bearing liabilities.
The repricing of our interest bearing liabilities in the declining interest rate environment
resulted in a $10.3 million decrease in interest expense. The reduction of our interest bearing
liabilities resulted in lower interest expense of $493,000.
Net interest margin, on a fully taxable equivalent basis, was 4.08% and 4.01% for the three
and six months ended June 30, 2008 compared to 3.89% and 3.83% for the same periods in 2007,
respectively. Our ability to improve pricing on our deposits and hold the decline of interest rates
on loans to a minimum combined with the proceeds from our issuance of $50.0 million of preferred
stock to the United States Department of Treasury allowed the Company to expand net interest
margin. The issuance of the preferred stock increased net interest margin by approximately 6 basis
points for 2009.
37
Tables 1 and 2 reflect an analysis of net interest income on a fully taxable equivalent basis
for the three-month and six-month periods ended June, 2009 and 2008, as well as changes in fully
taxable equivalent net interest margin for the three-month and six-month periods ended June 30,
2009, compared to the same periods in 2008.
Table 1: Analysis of Net Interest Income
|
|
|
|
|
|
|
|
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|
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|
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|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
(Dollars in thousands) |
|
Interest income |
|
$ |
32,996 |
|
|
$ |
36,540 |
|
|
$ |
66,104 |
|
|
$ |
74,936 |
|
Fully taxable equivalent adjustment |
|
|
923 |
|
|
|
752 |
|
|
|
1,788 |
|
|
|
1,468 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income fully taxable equivalent |
|
|
33,919 |
|
|
|
37,292 |
|
|
|
67,892 |
|
|
|
76,404 |
|
Interest expense |
|
|
10,275 |
|
|
|
14,799 |
|
|
|
21,572 |
|
|
|
32,364 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income fully taxable equivalent |
|
$ |
23,644 |
|
|
$ |
22,493 |
|
|
$ |
46,320 |
|
|
$ |
44,040 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Yield on earning assets fully taxable
equivalent |
|
|
5.85 |
% |
|
|
6.44 |
% |
|
|
5.87 |
% |
|
|
6.65 |
% |
Cost of interest-bearing liabilities |
|
|
2.11 |
|
|
|
2.94 |
|
|
|
2.20 |
|
|
|
3.22 |
|
Net interest spread fully taxable equivalent |
|
|
3.74 |
|
|
|
3.50 |
|
|
|
3.67 |
|
|
|
3.43 |
|
Net interest margin fully taxable equivalent |
|
|
4.08 |
|
|
|
3.89 |
|
|
|
4.01 |
|
|
|
3.83 |
|
Table 2: Changes in Fully Taxable Equivalent Net Interest Margin
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2009 vs. 2008 |
|
|
2009 vs. 2008 |
|
|
|
(In thousands) |
|
Increase in interest income due to change in earning assets |
|
$ |
474 |
|
|
$ |
1,819 |
|
Decrease in interest income due to change in earning asset yields |
|
|
3,847 |
|
|
|
10,331 |
|
Decrease in interest expense due to change in interest-bearing
liabilities |
|
|
362 |
|
|
|
493 |
|
Decrease in interest expense due to change in interest rates paid on
interest-bearing liabilities |
|
|
4,162 |
|
|
|
10,299 |
|
|
|
|
|
|
|
|
Increase in net interest income |
|
$ |
1,151 |
|
|
$ |
2,280 |
|
|
|
|
|
|
|
|
38
Table 3 shows, for each major category of earning assets and interest-bearing liabilities, the
average amount outstanding, the interest income or expense on that amount and the average rate
earned or expensed for the three-month and six-month periods ended June 30, 2009 and 2008. The
table also shows the average rate earned on all earning assets, the average rate expensed on all
interest-bearing liabilities, the net interest spread and the net interest margin for the same
periods. The analysis is presented on a fully taxable equivalent basis. Non-accrual loans were
included in average loans for the purpose of calculating the rate earned on total loans.
Table 3: Average Balance Sheets and Net Interest Income Analysis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
|
Average |
|
|
Income / |
|
|
Yield / |
|
|
Average |
|
|
Income / |
|
|
Yield / |
|
|
|
Balance |
|
|
Expense |
|
|
Rate |
|
|
Balance |
|
|
Expense |
|
|
Rate |
|
|
|
(Dollars in thousands) |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing balances due from
banks |
|
$ |
5,854 |
|
|
$ |
8 |
|
|
|
0.55 |
% |
|
$ |
5,093 |
|
|
$ |
37 |
|
|
|
2.92 |
% |
Federal funds sold |
|
|
11,513 |
|
|
|
4 |
|
|
|
0.14 |
|
|
|
19,138 |
|
|
|
99 |
|
|
|
2.08 |
|
Investment securities taxable |
|
|
209,597 |
|
|
|
2,252 |
|
|
|
4.31 |
|
|
|
276,903 |
|
|
|
2,996 |
|
|
|
4.35 |
|
Investment securities non-taxable |
|
|
120,364 |
|
|
|
2,146 |
|
|
|
7.15 |
|
|
|
111,082 |
|
|
|
1,894 |
|
|
|
6.86 |
|
Loans receivable |
|
|
1,979,837 |
|
|
|
29,509 |
|
|
|
5.98 |
|
|
|
1,915,404 |
|
|
|
32,266 |
|
|
|
6.78 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets |
|
|
2,327,165 |
|
|
|
33,919 |
|
|
|
5.85 |
|
|
|
2,327,620 |
|
|
|
37,292 |
|
|
|
6.44 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-earning assets |
|
|
263,118 |
|
|
|
|
|
|
|
|
|
|
|
241,757 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
2,590,283 |
|
|
|
|
|
|
|
|
|
|
$ |
2,569,377 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings and interest-bearing
transaction accounts |
|
$ |
674,055 |
|
|
$ |
1,176 |
|
|
|
0.70 |
% |
|
$ |
698,084 |
|
|
$ |
2,766 |
|
|
|
1.59 |
% |
Time deposits |
|
|
872,895 |
|
|
|
5,955 |
|
|
|
2.74 |
|
|
|
924,671 |
|
|
|
8,853 |
|
|
|
3.85 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing deposits |
|
|
1,546,950 |
|
|
|
7,131 |
|
|
|
1.85 |
|
|
|
1,622,755 |
|
|
|
11,619 |
|
|
|
2.88 |
|
Federal funds purchased |
|
|
5,103 |
|
|
|
2 |
|
|
|
0.16 |
|
|
|
3,396 |
|
|
|
20 |
|
|
|
2.37 |
|
Securities sold under agreement
to repurchase |
|
|
72,037 |
|
|
|
124 |
|
|
|
0.69 |
|
|
|
108,589 |
|
|
|
367 |
|
|
|
1.36 |
|
FHLB borrowed funds |
|
|
277,702 |
|
|
|
2,359 |
|
|
|
3.41 |
|
|
|
242,809 |
|
|
|
2,059 |
|
|
|
3.41 |
|
Subordinated debentures |
|
|
47,543 |
|
|
|
659 |
|
|
|
5.56 |
|
|
|
47,633 |
|
|
|
734 |
|
|
|
6.20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities |
|
|
1,949,335 |
|
|
|
10,275 |
|
|
|
2.11 |
|
|
|
2,025,182 |
|
|
|
14,799 |
|
|
|
2.94 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest bearing liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest bearing deposits |
|
|
285,637 |
|
|
|
|
|
|
|
|
|
|
|
242,148 |
|
|
|
|
|
|
|
|
|
Other liabilities |
|
|
13,219 |
|
|
|
|
|
|
|
|
|
|
|
14,493 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
2,248,191 |
|
|
|
|
|
|
|
|
|
|
|
2,281,823 |
|
|
|
|
|
|
|
|
|
Stockholders equity |
|
|
342,092 |
|
|
|
|
|
|
|
|
|
|
|
287,554 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
stockholders equity |
|
$ |
2,590,283 |
|
|
|
|
|
|
|
|
|
|
$ |
2,569,377 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest spread |
|
|
|
|
|
|
|
|
|
|
3.74 |
% |
|
|
|
|
|
|
|
|
|
|
3.50 |
% |
Net interest income and margin |
|
|
|
|
|
$ |
23,644 |
|
|
|
4.08 |
% |
|
|
|
|
|
$ |
22,493 |
|
|
|
3.89 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39
Table 3: Average Balance Sheets and Net Interest Income Analysis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
|
Average |
|
|
Income / |
|
|
Yield / |
|
|
Average |
|
|
Income / |
|
|
Yield / |
|
|
|
Balance |
|
|
Expense |
|
|
Rate |
|
|
Balance |
|
|
Expense |
|
|
Rate |
|
|
|
(Dollars in thousands) |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing balances due from
banks |
|
$ |
7,221 |
|
|
$ |
20 |
|
|
|
0.56 |
% |
|
$ |
5,245 |
|
|
$ |
92 |
|
|
|
3.53 |
% |
Federal funds sold |
|
|
12,673 |
|
|
|
11 |
|
|
|
0.18 |
|
|
|
20,919 |
|
|
|
265 |
|
|
|
2.55 |
|
Investment securities taxable |
|
|
220,130 |
|
|
|
4,905 |
|
|
|
4.49 |
|
|
|
300,502 |
|
|
|
6,758 |
|
|
|
4.52 |
|
Investment securities non-taxable |
|
|
118,723 |
|
|
|
4,210 |
|
|
|
7.15 |
|
|
|
110,198 |
|
|
|
3,720 |
|
|
|
6.79 |
|
Loans receivable |
|
|
1,973,420 |
|
|
|
58,746 |
|
|
|
6.00 |
|
|
|
1,873,371 |
|
|
|
65,569 |
|
|
|
7.04 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets |
|
|
2,332,167 |
|
|
|
67,892 |
|
|
|
5.87 |
|
|
|
2,310,235 |
|
|
|
76,404 |
|
|
|
6.65 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-earning assets |
|
|
262,071 |
|
|
|
|
|
|
|
|
|
|
|
249,719 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
2,594,238 |
|
|
|
|
|
|
|
|
|
|
$ |
2,559,954 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings and interest-bearing
transaction accounts |
|
$ |
670,687 |
|
|
$ |
2,461 |
|
|
|
0.74 |
% |
|
$ |
674,159 |
|
|
$ |
6,171 |
|
|
|
1.84 |
% |
Time deposits |
|
|
893,087 |
|
|
|
12,788 |
|
|
|
2.89 |
|
|
|
921,009 |
|
|
|
18,970 |
|
|
|
4.14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing deposits |
|
|
1,563,774 |
|
|
|
15,249 |
|
|
|
1.97 |
|
|
|
1,595,168 |
|
|
|
25,141 |
|
|
|
3.17 |
|
Federal funds purchased |
|
|
4,450 |
|
|
|
4 |
|
|
|
0.18 |
|
|
|
4,987 |
|
|
|
89 |
|
|
|
3.59 |
|
Securities sold under agreement
to repurchase |
|
|
78,348 |
|
|
|
235 |
|
|
|
0.60 |
|
|
|
113,007 |
|
|
|
955 |
|
|
|
1.70 |
|
FHLB borrowed funds |
|
|
279,280 |
|
|
|
4,749 |
|
|
|
3.43 |
|
|
|
259,583 |
|
|
|
4,634 |
|
|
|
3.59 |
|
Subordinated debentures |
|
|
47,554 |
|
|
|
1,335 |
|
|
|
5.66 |
|
|
|
47,645 |
|
|
|
1,545 |
|
|
|
6.52 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities |
|
|
1,973,406 |
|
|
|
21,572 |
|
|
|
2.20 |
|
|
|
2,020,390 |
|
|
|
32,364 |
|
|
|
3.22 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest bearing liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest bearing deposits |
|
|
275,175 |
|
|
|
|
|
|
|
|
|
|
|
239,588 |
|
|
|
|
|
|
|
|
|
Other liabilities |
|
|
10,517 |
|
|
|
|
|
|
|
|
|
|
|
14,825 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
2,259,098 |
|
|
|
|
|
|
|
|
|
|
|
2,274,803 |
|
|
|
|
|
|
|
|
|
Stockholders equity |
|
|
335,140 |
|
|
|
|
|
|
|
|
|
|
|
285,151 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
stockholders equity |
|
$ |
2,594,238 |
|
|
|
|
|
|
|
|
|
|
$ |
2,559,954 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest spread |
|
|
|
|
|
|
|
|
|
|
3.67 |
% |
|
|
|
|
|
|
|
|
|
|
3.43 |
% |
Net interest income and margin |
|
|
|
|
|
$ |
46,320 |
|
|
|
4.01 |
% |
|
|
|
|
|
$ |
44,040 |
|
|
|
3.83 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40
Table 4 shows changes in interest income and interest expense resulting from changes in volume
and changes in interest rates for the three-month and six-month periods ended June 30, 2009
compared to the same periods in 2008, on a fully taxable basis. The changes in interest rate and
volume have been allocated to changes in average volume and changes in average rates, in proportion
to the relationship of absolute dollar amounts of the changes in rates and volume.
Table 4: Volume/Rate Analysis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
|
|
2009 over 2008 |
|
|
2009 over 2008 |
|
|
|
Volume |
|
|
Yield/Rate |
|
|
Total |
|
|
Volume |
|
|
Yield/Rate |
|
|
Total |
|
|
|
(In thousands) |
|
Increase (decrease) in: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing balances due from
banks |
|
$ |
5 |
|
|
$ |
(34 |
) |
|
$ |
(29 |
) |
|
$ |
26 |
|
|
$ |
(98 |
) |
|
$ |
(72 |
) |
Federal funds sold |
|
|
(28 |
) |
|
|
(67 |
) |
|
|
(95 |
) |
|
|
(75 |
) |
|
|
(179 |
) |
|
|
(254 |
) |
Investment securities taxable |
|
|
(723 |
) |
|
|
(21 |
) |
|
|
(744 |
) |
|
|
(1,792 |
) |
|
|
(61 |
) |
|
|
(1,853 |
) |
Investment securities non-taxable |
|
|
163 |
|
|
|
89 |
|
|
|
252 |
|
|
|
296 |
|
|
|
194 |
|
|
|
490 |
|
Loans receivable |
|
|
1,057 |
|
|
|
(3,814 |
) |
|
|
(2,757 |
) |
|
|
3,364 |
|
|
|
(10,187 |
) |
|
|
(6,823 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income |
|
|
474 |
|
|
|
(3,847 |
) |
|
|
(3,373 |
) |
|
|
1,819 |
|
|
|
(10,331 |
) |
|
|
(8,512 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing transaction and
savings deposits |
|
|
(92 |
) |
|
|
(1,498 |
) |
|
|
(1,590 |
) |
|
|
(32 |
) |
|
|
(3,678 |
) |
|
|
(3,710 |
) |
Time deposits |
|
|
(473 |
) |
|
|
(2,425 |
) |
|
|
(2,898 |
) |
|
|
(559 |
) |
|
|
(5,623 |
) |
|
|
(6,182 |
) |
Federal funds purchased |
|
|
7 |
|
|
|
(25 |
) |
|
|
(18 |
) |
|
|
(9 |
) |
|
|
(76 |
) |
|
|
(85 |
) |
Securities sold under agreement to
repurchase |
|
|
(99 |
) |
|
|
(144 |
) |
|
|
(243 |
) |
|
|
(232 |
) |
|
|
(488 |
) |
|
|
(720 |
) |
FHLB borrowed funds |
|
|
296 |
|
|
|
4 |
|
|
|
300 |
|
|
|
342 |
|
|
|
(227 |
) |
|
|
115 |
|
Subordinated debentures |
|
|
(1 |
) |
|
|
(74 |
) |
|
|
(75 |
) |
|
|
(3 |
) |
|
|
(207 |
) |
|
|
(210 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense |
|
|
(362 |
) |
|
|
(4,162 |
) |
|
|
(4,524 |
) |
|
|
(493 |
) |
|
|
(10,299 |
) |
|
|
(10,792 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in net interest income |
|
$ |
836 |
|
|
$ |
315 |
|
|
$ |
1,151 |
|
|
$ |
2,312 |
|
|
$ |
(32 |
) |
|
$ |
2,280 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for Loan Losses
Our management assesses the adequacy of the allowance for loan losses by applying the
provisions of Statement of Financial Accounting Standards No. 5 and No. 114. Specific allocations
are determined for loans considered to be impaired and loss factors are assigned to the remainder
of the loan portfolio to determine an appropriate level in the allowance for loan losses. The
allowance is increased, as necessary, by making a provision for loan losses. The specific
allocations for impaired loans are assigned based on an estimated net realizable value after a
thorough review of the credit relationship. The potential loss factors associated with the
remainder of the loan portfolio are based on an internal net loss experience, as well as
managements review of trends within the portfolio and related industries.
Generally, commercial, commercial real estate, and residential real estate loans are assigned
a level of risk at origination. Thereafter, these loans are reviewed on a regular basis. The
periodic reviews generally include loan payment and collateral status, the borrowers financial
data, and key ratios such as cash flows, operating income, liquidity, and leverage. A material
change in the borrowers credit analysis can result in an increase or decrease in the loans
assigned risk grade. Aggregate dollar volume by risk grade is monitored on an ongoing basis.
41
Our management reviews certain key loan quality indicators on a monthly basis, including
current economic conditions, delinquency trends and ratios, portfolio mix changes, and other
information management deems necessary. This review process provides a degree of objective
measurement that is used in conjunction with periodic internal evaluations. To the extent that this
review process yields differences between estimated and actual observed losses, adjustments are
made to the loss factors used to determine the appropriate level of the allowance for loan losses.
During the first quarter of 2008, we began to experience a decline in our asset quality,
particularly in the Florida market. In 2008, non-performing loans started the year at $3.3 million
but ended the second quarter at $12.2 million and ended the year with a balance of $29.9 million.
As of June 30, 2009, non-performing loans are $35.3 million.
The provision for loan losses represents managements determination of the amount necessary to
be charged against the current periods earnings, to maintain the allowance for loan losses at a
level that is considered adequate in relation to the estimated risk inherent in the loan portfolio.
Our provision for loan losses increased $2.0 million, or 290.6%, to $2.8 million for the
three-month period ended June 30, 2009, from $704,000 for the same period in 2008. Our provision
for loan losses decreased $1.8 million, or 32.0%, to $3.8 million for the six-month period ended
June 30, 2009, from $5.5 million for the same period in 2008. The provision for loan losses in our
Florida market was approximately $2.5 million and $3.0 million for the three and six months ended
June 30, 2009, respectively. The deterioration of the loan portfolio during this time required us
to make these provisions to the allowance for loan loss to provide for charge-offs and problem
credits.
Non-Interest Income
Total non-interest income was $8.0 million for the three-month period ended June 30, 2009
compared to $5.7 million for the same period in 2008. Total non-interest income was $15.6 million
for the six-month period ended June 30, 2009 compared to $19.2 million for the same period in 2008.
Our recurring non-interest income includes service charges on deposit accounts, other service
charges and fees, data processing, mortgage lending, mortgage servicing, insurance, title fees,
increase in cash value of life insurance and dividends.
42
Table 5 measures the various components of our non-interest income for the three-month and six
month periods ended June 30, 2009 and 2008, respectively, as well as changes for the three-month
and six-month periods ended June 30, 2009 compared to the same periods in 2008.
Table 5: Non-Interest Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
|
|
|
June 30, |
|
|
2009 Change |
|
|
June 30, |
|
|
2009 Change |
|
|
|
2009 |
|
|
2008 |
|
|
from 2008 |
|
|
2009 |
|
|
2008 |
|
|
from 2008 |
|
|
|
(Dollars in thousands) |
|
Service charges on deposit accounts |
|
$ |
3,633 |
|
|
$ |
3,352 |
|
|
$ |
281 |
|
|
|
8.4 |
% |
|
$ |
7,007 |
|
|
$ |
6,449 |
|
|
$ |
558 |
|
|
|
8.7 |
% |
Other service charges and fees |
|
|
1,841 |
|
|
|
1,699 |
|
|
|
142 |
|
|
|
8.4 |
|
|
|
3,625 |
|
|
|
3,462 |
|
|
|
222 |
|
|
|
6.5 |
|
Data processing fees |
|
|
134 |
|
|
|
225 |
|
|
|
(91 |
) |
|
|
(40.4 |
) |
|
|
320 |
|
|
|
435 |
|
|
|
(115 |
) |
|
|
(26.4 |
) |
Mortgage lending income |
|
|
815 |
|
|
|
706 |
|
|
|
109 |
|
|
|
15.4 |
|
|
|
1,695 |
|
|
|
1,338 |
|
|
|
248 |
|
|
|
17.1 |
|
Mortgage servicing income |
|
|
191 |
|
|
|
217 |
|
|
|
(26 |
) |
|
|
(12.0 |
) |
|
|
391 |
|
|
|
448 |
|
|
|
(57 |
) |
|
|
(12.7 |
) |
Insurance commissions |
|
|
198 |
|
|
|
184 |
|
|
|
14 |
|
|
|
7.6 |
|
|
|
455 |
|
|
|
456 |
|
|
|
(1 |
) |
|
|
(0.2 |
) |
Income from title services |
|
|
151 |
|
|
|
189 |
|
|
|
(38 |
) |
|
|
(20.1 |
) |
|
|
291 |
|
|
|
357 |
|
|
|
(66 |
) |
|
|
(18.5 |
) |
Increase in cash value of life insurance |
|
|
574 |
|
|
|
513 |
|
|
|
61 |
|
|
|
11.9 |
|
|
|
1,051 |
|
|
|
1,098 |
|
|
|
(47 |
) |
|
|
(4.3 |
) |
Dividends from FHLB, FRB &
bankers bank |
|
|
99 |
|
|
|
227 |
|
|
|
(128 |
) |
|
|
(56.4 |
) |
|
|
206 |
|
|
|
508 |
|
|
|
(302 |
) |
|
|
(59.4 |
) |
Equity in income (loss) of
unconsolidated affiliates |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.0 |
|
|
|
|
|
|
|
102 |
|
|
|
(102 |
) |
|
|
(100.0 |
) |
Gain on sale of equity investment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.0 |
|
|
|
|
|
|
|
6,102 |
|
|
|
(6,102 |
) |
|
|
(100.0 |
) |
Gain on sale of SBA loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.0 |
|
|
|
|
|
|
|
101 |
|
|
|
(101 |
) |
|
|
(100.0 |
) |
Gain (loss) on sale of premises
and equipment, net |
|
|
(19 |
) |
|
|
|
|
|
|
(19 |
) |
|
|
100.0 |
|
|
|
(12 |
) |
|
|
(2 |
) |
|
|
(10 |
) |
|
|
500.0 |
|
Gain (loss) on OREO, net |
|
|
(28 |
) |
|
|
(50 |
) |
|
|
22 |
|
|
|
(44.0 |
) |
|
|
(145 |
) |
|
|
(430 |
) |
|
|
285 |
|
|
|
(66.3 |
) |
Gain (loss) on securities, net |
|
|
(3 |
) |
|
|
(2,067 |
) |
|
|
2,064 |
|
|
|
(99.9 |
) |
|
|
(3 |
) |
|
|
(2,067 |
) |
|
|
2,064 |
|
|
|
(99.9 |
) |
Other income |
|
|
404 |
|
|
|
472 |
|
|
|
(68 |
) |
|
|
(14.4 |
) |
|
|
724 |
|
|
|
844 |
|
|
|
(70 |
) |
|
|
(8.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest income |
|
$ |
7,990 |
|
|
$ |
5,667 |
|
|
$ |
2,323 |
|
|
|
41.0 |
% |
|
$ |
15,605 |
|
|
$ |
19,201 |
|
|
$ |
(3,596 |
) |
|
|
(18.7 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest income increased $2.3 million, or 41.0%, to $8.0 million for the three-month
period ended June 30, 2009 from $5.7 million for the same period in 2008. Excluding the $2.1
million impairment loss on securities during the second quarter of 2008, we experienced an increase
in core non-interest income of 256,000 or 3.3% for the second quarter of 2009.
Non-interest income decreased $3.6 million, or 18.7%, to $15.6 million for the six-month
period ended June 30, 2009 from $19.2 million for the same period in 2008. Excluding the $2.1
million impairment loss on securities and the sale of our investment in White River Bancshares
during 2008, we experienced an increase in core non-interest income of 541,000 or 3.6% for 2009.
The primary factors that resulted in these increases are an improved fee process for service
charges on deposit accounts, increased mortgage lending associated with home owners refinancing in
the current lower interest rate environment and reduced losses on OREO offset by lower dividend
yields.
Non-Interest Expense
Non-interest expense consists of salary and employee benefits, occupancy and equipment, data
processing, and other expenses such as advertising, amortization of intangibles, amortization of
mortgage servicing rights, electronic banking expense, FDIC and state assessment, mortgage
servicing and legal and accounting fees.
43
Table 6 below sets forth a summary of non-interest expense for the three-month and six-month
periods ended June 30, 2009 and 2008, as well as changes for the three-month and six-month periods
ended June 30, 2009 compared to the same periods in 2008.
Table 6: Non-Interest Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
|
|
|
June 30, |
|
|
2009 Change |
|
|
June 30, |
|
|
2009 Change |
|
|
|
2009 |
|
|
2008 |
|
|
from 2008 |
|
|
2009 |
|
|
2008 |
|
|
from 2008 |
|
|
|
(Dollars in thousands) |
|
Salaries and employee benefits |
|
$ |
8,432 |
|
|
$ |
8,931 |
|
|
$ |
(499 |
) |
|
|
(5.6 |
)% |
|
$ |
17,376 |
|
|
$ |
18,209 |
|
|
$ |
(833 |
) |
|
|
(4.6 |
)% |
Occupancy and equipment |
|
|
2,667 |
|
|
|
2,726 |
|
|
|
(59 |
) |
|
|
(2.2 |
) |
|
|
5,344 |
|
|
|
5,428 |
|
|
|
(84 |
) |
|
|
(1.5 |
) |
Data processing expense |
|
|
844 |
|
|
|
833 |
|
|
|
11 |
|
|
|
1.3 |
|
|
|
1,651 |
|
|
|
1,619 |
|
|
|
32 |
|
|
|
2.0 |
|
Other operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advertising |
|
|
856 |
|
|
|
691 |
|
|
|
165 |
|
|
|
23.9 |
|
|
|
1,456 |
|
|
|
1,305 |
|
|
|
151 |
|
|
|
11.6 |
|
Merger expenses |
|
|
896 |
|
|
|
|
|
|
|
896 |
|
|
|
100.0 |
|
|
|
1,638 |
|
|
|
|
|
|
|
1,638 |
|
|
|
100.0 |
|
Amortization of intangibles |
|
|
462 |
|
|
|
463 |
|
|
|
(1 |
) |
|
|
(0.2 |
) |
|
|
925 |
|
|
|
925 |
|
|
|
|
|
|
|
0.0 |
|
Amortization of mortgage
servicing rights |
|
|
218 |
|
|
|
147 |
|
|
|
71 |
|
|
|
48.3 |
|
|
|
365 |
|
|
|
294 |
|
|
|
71 |
|
|
|
24.1 |
|
Electronic banking expense |
|
|
889 |
|
|
|
823 |
|
|
|
66 |
|
|
|
8.0 |
|
|
|
1,752 |
|
|
|
1,575 |
|
|
|
177 |
|
|
|
11.2 |
|
Directors fees |
|
|
237 |
|
|
|
231 |
|
|
|
6 |
|
|
|
2.6 |
|
|
|
521 |
|
|
|
462 |
|
|
|
59 |
|
|
|
12.8 |
|
Due from bank service charges |
|
|
107 |
|
|
|
82 |
|
|
|
25 |
|
|
|
30.5 |
|
|
|
207 |
|
|
|
144 |
|
|
|
63 |
|
|
|
43.8 |
|
FDIC and state assessment |
|
|
1,949 |
|
|
|
429 |
|
|
|
1,520 |
|
|
|
354.3 |
|
|
|
2,914 |
|
|
|
801 |
|
|
|
2,113 |
|
|
|
263.8 |
|
Insurance |
|
|
271 |
|
|
|
235 |
|
|
|
36 |
|
|
|
15.3 |
|
|
|
568 |
|
|
|
463 |
|
|
|
105 |
|
|
|
22.7 |
|
Legal and accounting |
|
|
368 |
|
|
|
316 |
|
|
|
52 |
|
|
|
16.5 |
|
|
|
803 |
|
|
|
596 |
|
|
|
207 |
|
|
|
34.7 |
|
Mortgage servicing expense |
|
|
78 |
|
|
|
74 |
|
|
|
4 |
|
|
|
5.4 |
|
|
|
150 |
|
|
|
161 |
|
|
|
(11 |
) |
|
|
(6.8 |
) |
Other professional fees |
|
|
250 |
|
|
|
444 |
|
|
|
(194 |
) |
|
|
(43.7 |
) |
|
|
509 |
|
|
|
1,277 |
|
|
|
(768 |
) |
|
|
(60.1 |
) |
Operating supplies |
|
|
192 |
|
|
|
245 |
|
|
|
(53 |
) |
|
|
(21.6 |
) |
|
|
405 |
|
|
|
489 |
|
|
|
(84 |
) |
|
|
(17.2 |
) |
Postage |
|
|
173 |
|
|
|
188 |
|
|
|
(15 |
) |
|
|
(8.0 |
) |
|
|
349 |
|
|
|
368 |
|
|
|
(19 |
) |
|
|
(5.2 |
) |
Telephone |
|
|
181 |
|
|
|
233 |
|
|
|
(52 |
) |
|
|
(22.3 |
) |
|
|
359 |
|
|
|
464 |
|
|
|
(105 |
) |
|
|
(22.6 |
) |
Other expense |
|
|
1,228 |
|
|
|
1,406 |
|
|
|
(178 |
) |
|
|
(12.7 |
) |
|
|
2,298 |
|
|
|
2,600 |
|
|
|
(302 |
) |
|
|
(11.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest expense |
|
$ |
20,298 |
|
|
$ |
18,497 |
|
|
$ |
1,801 |
|
|
|
9.7 |
% |
|
$ |
39,590 |
|
|
$ |
37,180 |
|
|
$ |
2,410 |
|
|
|
6.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Board of Directors of the FDIC have increased insured institutions normal recurring
assessment and imposed a special assessment. These increased assessment fees are in response to the
current banking crisis in the United States.
Non-interest expense increased $1.8 million, or 9.7%, to $20.3 million for the three-month
period ended June 30, 2009, from $18.5 million for the same period in 2008. During the three months
ended June 30, 2009, we incurred $896,000 of merger expenses and a $1.2 million for the special
assessment from the FDIC. During the three months ended June 30, 2008, we conducted an efficiency
study for $200,000. Excluding these non-core items, core non-interest expense was $18.2 million
for the three months ended June 30, 2009 compared to $18.3 million for the same period in 2008.
This slight decrease is associated with the partial implementation of the efficiency study,
particularly in $499,000 of reduced personnel costs. However, this progress was offset by the
$432,000 recurring increase in FDIC and state assessment fees and the normal increase in cost of
doing business.
44
Non-interest expense increased $2.4 million, or 6.5%, to $39.6 million for the six-month
period ended June 30, 2009, from $37.2 million for the same period in 2008. During the six months
ended June 30, 2009, we incurred $1.6 million of merger expenses and a $1.2 million for the special
assessment from the FDIC. During the six months ended June 30, 2008, we conducted an efficiency
study for $860,000. Excluding these non-core items, core non-interest expense was $36.8 million
for the six months ended June 30, 2009 compared to $36.3 million for the same period in 2008. This
1.3% increase is the result of the $1.1 million recurring increase in FDIC and state assessment
fees and the normal increase in cost of doing business offset by the partial implementation of the
efficiency study, particularly in $833,000 of reduced personnel costs.
The efficiency study is expected to be fully implemented in the fourth quarter of 2009.
Income Taxes
The provision for income taxes decreased $331,000, or 13.0%, to $2.2 million for the
three-month period ended June 30, 2009, from $2.6 million as of June 30, 2008. The provision for
income taxes decreased $1.0 million, or 16.9%, to $5.1 million for the six-month period ended June
30, 2009, from $6.1 million as of June 30, 2008. The effective income tax rate was 29.0% and 30.4%
for the three-month and six-month periods ended June 30, 2009, compared to 31.1% and 32.2% for the
same periods in 2008, respectively. The primary cause of this decrease is the result of our lower
earnings which is tax-effected at a marginal rate of 39.225%.
Financial Condition as of and for the Period Ended June 30, 2009 and December 31, 2008
Our total assets decreased $167,000, a decrease of 0.01%, to $2.58 billion as of June 30,
2009, from $2.58 billion as of December 31, 2008. Our loan portfolio increased $16.5 million, a
growth of 0.8%, to $1.97 billion as of June 30, 2009, from $1.96 billion as of December 31, 2008.
Stockholders equity increased $60.3 million, a growth of 21.3%, to $343.4 million as of June 30,
2009, compared to $283.0 million as of December 31, 2008. Asset and loan increases are primarily
associated with the organic growth of our bank subsidiary. The increase in stockholders equity is
primarily associated with the issuance of $50.0 million of preferred stock to the United States
Department of Treasury combined with retained earnings for the first quarter of 2009.
Loan Portfolio
Our loan portfolio averaged $1.98 billion and $1.97 billion during the three-month and
six-month periods ended June 30, 2009. Loans were $1.97 billion as of June 30, 2009, compared to
$1.96 billion as of December 31, 2008, a modest annualized increase of 1.7%. The slow down in loan
growth from our historical expansion rates was not unexpected. Our customers have grown more
cautious in this weakening economy.
The most significant components of the loan portfolio were commercial real estate, residential
real estate, consumer, and commercial and industrial loans. These loans are primarily originated
within our market areas of central Arkansas, north central Arkansas, southern Arkansas, southwest
Florida and the Florida Keys and are generally secured by residential or commercial real estate or
business or personal property within our market areas.
Certain credit markets have experienced difficult conditions and volatility during 2008 and
2009, particularly Florida. The Florida market currently is approximately 92.1% secured by real
estate and 16.5% of our total loan portfolio. The markets continue to experience pressure
including the well-publicized sub-prime mortgage market. The Company has not or does not actively
market or originate subprime mortgage loans.
45
Table 7 presents our loan balances by category as of the dates indicated.
Table 7: Loan Portfolio
|
|
|
|
|
|
|
|
|
|
|
As of |
|
|
As of |
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(In thousands) |
|
Real estate: |
|
|
|
|
|
|
|
|
Commercial real estate loans: |
|
|
|
|
|
|
|
|
Non-farm/non-residential |
|
$ |
794,675 |
|
|
$ |
816,603 |
|
Construction/land development |
|
|
347,028 |
|
|
|
320,398 |
|
Agricultural |
|
|
38,379 |
|
|
|
23,603 |
|
Residential real estate loans: |
|
|
|
|
|
|
|
|
Residential 1-4 family |
|
|
407,642 |
|
|
|
391,255 |
|
Multifamily residential |
|
|
72,673 |
|
|
|
56,440 |
|
|
|
|
|
|
|
|
Total real estate |
|
|
1,660,397 |
|
|
|
1,608,299 |
|
Consumer |
|
|
41,814 |
|
|
|
46,615 |
|
Commercial and industrial |
|
|
224,043 |
|
|
|
255,153 |
|
Agricultural |
|
|
21,566 |
|
|
|
23,625 |
|
Other |
|
|
24,884 |
|
|
|
22,540 |
|
|
|
|
|
|
|
|
Total loans receivable before allowance for loan losses |
|
|
1,972,704 |
|
|
|
1,956,232 |
|
Less: Allowance for loan losses |
|
|
41,804 |
|
|
|
40,385 |
|
|
|
|
|
|
|
|
Total loans receivable, net |
|
$ |
1,930,900 |
|
|
$ |
1,915,847 |
|
|
|
|
|
|
|
|
Commercial Real Estate Loans. We originate non-farm and non-residential loans (primarily
secured by commercial real estate), construction/land development loans, and agricultural loans,
which are generally secured by real estate located in our market areas. Our commercial mortgage
loans are generally collateralized by first liens on real estate and amortized over a 10 to 20 year
period with balloon payments due at the end of one to five years. These loans are generally
underwritten by addressing cash flow (debt service coverage), primary and secondary source of
repayment, the financial strength of any guarantor, the strength of the tenant (if any), the
borrowers liquidity and leverage, management experience, ownership structure, economic conditions
and industry specific trends and collateral. Generally, we will loan up to 85% of the value of
improved property, 65% of the value of raw land and 75% of the value of land to be acquired and
developed. A first lien on the property and assignment of lease is required if the collateral is
rental property, with second lien positions considered on a case-by-case basis.
As of June 30, 2009, commercial real estate loans totaled $1.18 billion, or 59.8% of our loan
portfolio, which is comparable to $1.16 billion, or 59.3% of our loan portfolio, as of December 31,
2008.
Residential Real Estate Loans. We originate one to four family, owner occupied residential
mortgage loans generally secured by property located in our primary market area. The majority of
our residential mortgage loans consist of loans secured by owner occupied, single family
residences. Residential real estate loans generally have a loan-to-value ratio of up to 90%. These
loans are underwritten by giving consideration to the borrowers ability to pay, stability of
employment or source of income, debt-to-income ratio, credit history and loan-to-value ratio.
46
As of June 30, 2009, we had $480.3 million, or 24.3% of our loan portfolio, in residential
real estate loans, compared to the $447.7 million, or 22.9% of our loan portfolio, as of December
31, 2008. The changing market conditions have given our community bank the opportunity to retain
more residential real estate loans. These loans normally have maturities of less than five years.
Consumer Loans. Our consumer loan portfolio is composed of secured and unsecured loans
originated by our banks. The performance of consumer loans will be affected by the local and
regional economy as well as the rates of personal bankruptcies, job loss, divorce and other
individual-specific characteristics.
As of June 30, 2009, our installment consumer loan portfolio totaled $41.8 million, or 2.1% of
our total loan portfolio, compared to the $46.6 million, or 2.4% of our loan portfolio as of
December 31, 2008. This decrease is associated with normal payoffs and pay downs combined with
flat loan demand.
Commercial and Industrial Loans. Commercial and industrial loans are made for a variety of
business purposes, including working capital, inventory, equipment and capital expansion. The terms
for commercial loans are generally one to seven years. Commercial loan applications must be
supported by current financial information on the borrower and, where appropriate, by adequate
collateral. Commercial loans are generally underwritten by addressing cash flow (debt service
coverage), primary and secondary sources of repayment, the financial strength of any guarantor, the
borrowers liquidity and leverage, management experience, ownership structure, economic conditions
and industry specific trends and collateral. The loan to value ratio depends on the type of
collateral. Generally speaking, accounts receivable are financed at between 50% to 80% of accounts
receivable less than 60 days past due. Inventory financing will range between 50% and 60% (with no
work in process) depending on the borrower and nature of inventory. We require a first lien
position for those loans.
As of June 30, 2009, commercial and industrial loans outstanding totaled $224.0 million, or
11.4% of our loan portfolio, compared to $255.2 million, or 13.0% of our loan portfolio, as of
December 31, 2008. This decrease is associated with normal payoffs and pay downs combined with
flat loan demand.
Non-Performing Assets
We classify our problem loans into three categories: past due loans, special mention loans and
classified loans (accruing and non-accruing).
When management determines that a loan is no longer performing, and that collection of
interest appears doubtful, the loan is placed on non-accrual status. Loans that are 90 days past
due are placed on non-accrual status unless they are adequately secured and there is reasonable
assurance of full collection of both principal and interest. Our management closely monitors all
loans that are contractually 90 days past due, treated as special mention or otherwise classified
or on non-accrual status. Generally, non-accrual loans that are 120 days past due without assurance
of repayment are charged off against the allowance for loan losses.
47
Table 8 sets forth information with respect to our non-performing assets as of June 30, 2009
and December 31, 2008. As of these dates, all non-performing restructured loans are included in
non-accrual loans.
Table 8: Non-performing Assets
|
|
|
|
|
|
|
|
|
|
|
As of |
|
|
As of |
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(Dollars in thousands) |
|
Non-accrual loans |
|
$ |
29,977 |
|
|
$ |
28,524 |
|
Loans past due 90 days or more (principal or
interest payments) |
|
|
5,291 |
|
|
|
1,374 |
|
|
|
|
|
|
|
|
Total non-performing loans |
|
|
35,268 |
|
|
|
29,898 |
|
|
|
|
|
|
|
|
Other non-performing assets |
|
|
|
|
|
|
|
|
Foreclosed assets held for sale |
|
|
17,606 |
|
|
|
6,763 |
|
Other non-performing assets |
|
|
2 |
|
|
|
16 |
|
|
|
|
|
|
|
|
Total other non-performing assets |
|
|
17,608 |
|
|
|
6,779 |
|
|
|
|
|
|
|
|
Total non-performing assets |
|
$ |
52,876 |
|
|
$ |
36,677 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses to non-performing loans |
|
|
118.53 |
% |
|
|
135.08 |
% |
Non-performing loans to total loans |
|
|
1.79 |
|
|
|
1.53 |
|
Non-performing assets to total assets |
|
|
2.05 |
|
|
|
1.42 |
|
Our non-performing loans are comprised of non-accrual loans and loans that are contractually
past due 90 days. Our bank subsidiary recognizes income principally on the accrual basis of
accounting. When loans are classified as non-accrual, the accrued interest is charged off and no
further interest is accrued, unless the credit characteristics of the loan improves. If a loan is
determined by management to be uncollectible, the portion of the loan determined to be
uncollectible is then charged to the allowance for loan losses.
Since December 31, 2007, the weakening real estate market, particularly in Florida, has and
may continue to increase our level of non-performing loans. While we believe our allowance for
loan losses is adequate at June 30, 2009, as additional facts become known about relevant internal
and external factors that affect loan collectability and our assumptions, it may result in us
making additions to the provision for loan loss during 2009.
As of June 30, 2009, we had $38.1 million of restructured loans that are in compliance with
the modified terms and are not reported as past due or non-accrual in Table 8. Of the $38.1 million
in restructured loans, $3.3 million are also reported as impaired loans. Most of these
credits are where borrowers have continued to pay as agreed but negotiated a lower interest rate
due to general economic pressures rather than credit specific pressure. Our Florida market
contains $30.3 million of these restructured loans.
Total foreclosed assets held for sale were $17.6 million as of June 30, 2009, compared to $6.8
million as of December 31, 2008 for an increase of $10.8 million. The increase is primarily the
result of foreclosure on two Florida housing developments in the Keys. Each of the two housing
developments has vacant lots and one completed model home. The $17.6 million in foreclosed assets
held for sale is comprised of $13.1 million of assets located in Florida with the remaining $4.5
million of assets located in Arkansas. The Florida foreclosed assets includes a substantially
vacant owner occupied commercial rental center in the Keys plus the two Florida housing
developments. The properties are currently listed for sale with a broker.
Total non-performing loans were $35.3 million as of June 30, 2009, compared to $29.9 million
as of December 31, 2008 for an increase of $5.4 million. Non-performing loans are $24.1 million in
the Florida market. The increase in non-performing loans is primarily from our Florida market.
48
If the non-accrual loans had been accruing interest in accordance with the original terms of
their respective agreements, interest income of approximately $403,000 and $201,000 for the
three-month periods ended June 30, 2009 and 2008, respectively, and $870,000 and $258,000 for the
six-month periods ended June 30, 2009 and 2008, respectively, would have been recorded. The
interest income recognized on the non-accrual loans for the three-month period ended June 30, 2009
and 2008 was considered immaterial.
A loan is considered impaired when it is probable that we will not receive all amounts due
according to the contracted terms of the loans. Impaired loans may include non-performing loans
(loans past due 90 days or more and non-accrual loans) and certain other loans identified by
management that are still performing. As of June 30, 2009, average impaired loans were $38.3
million compared to $24.5 million as of June 30, 2008. As of June 30, 2009, impaired loans were
$43.0 million compared to $31.5 million as of December 31, 2008 for an increase of $11.5 million.
The unfavorable economic conditions that are impacting our Florida market accounted for $6.0
million of the increase. Our Florida market accounted for $15.2 million of the impaired loans.
Non-performing loans and impaired loans are defined differently. Some loans may be included
in both categories
Allowance for Loan Losses
Overview. The allowance for loan losses is maintained at a level which our management
believes is adequate to absorb all probable losses on loans in the loan portfolio. The amount of
the allowance is affected by: (i) loan charge-offs, which decrease the allowance; (ii) recoveries
on loans previously charged off, which increase the allowance; and (iii) the provision of possible
loan losses charged to income, which increases the allowance. In determining the provision for
possible loan losses, it is necessary for our management to monitor fluctuations in the allowance
resulting from actual charge-offs and recoveries and to periodically review the size and
composition of the loan portfolio in light of current and anticipated economic conditions. If
actual losses exceed the amount of allowance for loan losses, our earnings could be adversely
affected.
As we evaluate the allowance for loan losses, we categorize it as follows: (i) specific
allocations; (ii) allocations for classified assets with no specific allocation; (iii) general
allocations for each major loan category; and (iv) miscellaneous allocations.
Specific Allocations. As a general rule, if a specific allocation is warranted, it is the
result of an analysis of a previously classified credit or relationship. Our evaluation process in
specific allocations 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. We establish allocations for
loans rated special mention through loss in accordance with the guidelines established by the
regulatory agencies. A percentage rate is applied to each loan category to determine the level of
dollar allocation.
49
General Allocations. We establish general allocations for each major loan category. This
section also includes allocations to loans, which are collectively evaluated for loss such as
residential real estate, commercial real estate, consumer loans and commercial and industrial
loans. The allocations in this section are based on a historical review of loan loss experience and
past due accounts. We give consideration to trends, changes in loan mix, delinquencies, prior
losses, and other related information.
Miscellaneous Allocations. Allowance allocations other than specific, classified, and general
are included in our miscellaneous section.
Charge-offs and Recoveries. Total charge-offs decreased to $2.3 million for the three months
ended June 30, 2009, compared to $2.5 million for the same period in 2008. Total charge-offs
increased to $3.3 million for the six months ended June 30, 2009, compared to $3.1 million for the
same period in 2008. Total recoveries decreased to $556,000 for the three months ended June 30,
2009, compared to $1.3 million for the same period in 2008. Total recoveries decreased to $1.0
million for the six months ended June 30, 2009, compared to $1.4 million for the same period in
2008. The changes in net charge-offs are due to the unfavorable economic conditions in Florida and
our proactive stance on asset quality.
50
Table 9 shows the allowance for loan losses, charge-offs and recoveries as of and for the
three-month and six-month periods ended June 30, 2009 and 2008.
Table 9: Analysis of Allowance for Loan Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
(Dollars in thousands) |
|
Balance, beginning of period |
|
$ |
40,822 |
|
|
$ |
37,075 |
|
|
$ |
40,385 |
|
|
$ |
29,406 |
|
Loans charged off |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-farm/non-residential |
|
|
830 |
|
|
|
|
|
|
|
986 |
|
|
|
16 |
|
Construction/land development |
|
|
605 |
|
|
|
598 |
|
|
|
640 |
|
|
|
642 |
|
Agricultural |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential real estate loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential 1-4 family |
|
|
331 |
|
|
|
1,174 |
|
|
|
675 |
|
|
|
1,531 |
|
Multifamily residential |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate |
|
|
1,766 |
|
|
|
1,772 |
|
|
|
2,301 |
|
|
|
2,189 |
|
Consumer |
|
|
338 |
|
|
|
66 |
|
|
|
740 |
|
|
|
166 |
|
Commercial and industrial |
|
|
220 |
|
|
|
645 |
|
|
|
291 |
|
|
|
751 |
|
Agricultural |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans charged off |
|
|
2,324 |
|
|
|
2,483 |
|
|
|
3,339 |
|
|
|
3,106 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recoveries of loans previously charged off |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-farm/non-residential |
|
|
104 |
|
|
|
1,156 |
|
|
|
107 |
|
|
|
1,160 |
|
Construction/land development |
|
|
8 |
|
|
|
4 |
|
|
|
8 |
|
|
|
6 |
|
Agricultural |
|
|
172 |
|
|
|
|
|
|
|
172 |
|
|
|
|
|
Residential real estate loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential 1-4 family |
|
|
130 |
|
|
|
80 |
|
|
|
423 |
|
|
|
109 |
|
Multifamily residential |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate |
|
|
414 |
|
|
|
1,240 |
|
|
|
710 |
|
|
|
1,275 |
|
Consumer |
|
|
111 |
|
|
|
22 |
|
|
|
258 |
|
|
|
56 |
|
Commercial and industrial |
|
|
15 |
|
|
|
5 |
|
|
|
23 |
|
|
|
36 |
|
Agricultural |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
16 |
|
|
|
|
|
|
|
17 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recoveries |
|
|
556 |
|
|
|
1,267 |
|
|
|
1,008 |
|
|
|
1,368 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (recoveries) loans charged off |
|
|
1,768 |
|
|
|
1,216 |
|
|
|
2,331 |
|
|
|
1,738 |
|
Allowance for loan loss of Centennial Bancshares, Inc. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,382 |
|
Provision for loan losses |
|
|
2,750 |
|
|
|
704 |
|
|
|
3,750 |
|
|
|
5,513 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30 |
|
$ |
41,804 |
|
|
$ |
36,563 |
|
|
$ |
41,804 |
|
|
$ |
36,563 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (recoveries) charge-offs to average loans |
|
|
0.36 |
% |
|
|
0.26 |
% |
|
|
0.34 |
% |
|
|
0.09 |
% |
Allowance for loan losses to period end loans |
|
|
2.12 |
|
|
|
1.87 |
|
|
|
2.12 |
|
|
|
1.87 |
|
Allowance for loan losses to net (recoveries)
charge-offs |
|
|
590 |
|
|
|
748 |
|
|
|
889 |
|
|
|
1,046 |
|
51
Allocated Allowance for Loan Losses. We use a risk rating and specific reserve methodology in
the calculation and allocation of our allowance for loan losses. While the allowance is allocated
to various loan categories in assessing and evaluating the level of the allowance, the allowance is
available to cover charge-offs incurred in all loan categories. Because a portion of our portfolio
has not matured to the degree necessary to obtain reliable loss data from which to calculate
estimated future 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 in estimating
credit losses.
The changes for the period ended June 30, 2009 in the allocation of the allowance for loan
losses for the individual types of loans are primarily associated with the decline in asset
quality, particularly in our Florida market, net charge-offs during 2009 and normal changes in the
outstanding loan portfolio for those products from December 31, 2008.
Table 10 presents the allocation of allowance for loan losses as of June 30, 2009 and December
31, 2008.
Table 10: Allocation of Allowance for Loan Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2009 |
|
|
As of December 31, 2008 |
|
|
|
Allowance |
|
|
% of |
|
|
Allowance |
|
|
% of |
|
|
|
Amount |
|
|
loans(1) |
|
|
Amount |
|
|
loans(1) |
|
|
|
(Dollars in thousands) |
|
Real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-farm/non-residential |
|
$ |
15,723 |
|
|
|
40.3 |
% |
|
$ |
16,010 |
|
|
|
41.7 |
% |
Construction/land development |
|
|
8,647 |
|
|
|
17.6 |
|
|
|
9,369 |
|
|
|
16.4 |
|
Agricultural |
|
|
299 |
|
|
|
1.9 |
|
|
|
255 |
|
|
|
1.2 |
|
Residential real estate loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential 1-4 family |
|
|
10,220 |
|
|
|
20.7 |
|
|
|
6,814 |
|
|
|
20.0 |
|
Multifamily residential |
|
|
707 |
|
|
|
3.7 |
|
|
|
880 |
|
|
|
2.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate |
|
|
35,596 |
|
|
|
84.2 |
|
|
|
33,328 |
|
|
|
82.2 |
|
Consumer |
|
|
630 |
|
|
|
2.1 |
|
|
|
848 |
|
|
|
2.4 |
|
Commercial and industrial |
|
|
4,702 |
|
|
|
11.3 |
|
|
|
4,945 |
|
|
|
13.0 |
|
Agricultural |
|
|
397 |
|
|
|
1.1 |
|
|
|
816 |
|
|
|
1.2 |
|
Other |
|
|
|
|
|
|
1.3 |
|
|
|
|
|
|
|
1.2 |
|
Unallocated |
|
|
479 |
|
|
|
|
|
|
|
448 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
41,804 |
|
|
|
100.0 |
% |
|
$ |
40,385 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Percentage of loans in each
category to loans receivable. |
Investments and Securities
Our securities portfolio is the second largest component of earning assets and provides a
significant source of revenue. Securities within the portfolio are classified as held-to-maturity,
available-for-sale, or trading based on the intent and objective of the investment and the ability
to hold to maturity. Fair values of securities are based on quoted market prices where available.
If quoted market prices are not available, estimated fair values are based on quoted market prices
of comparable securities. As of June 30, 2009, we had no held-to-maturity or trading securities.
52
Securities available-for-sale are reported at fair value with unrealized holding gains and
losses reported as a separate component of stockholders equity as other comprehensive income.
Securities that are held as available-for-sale are used as a part of our asset/liability management
strategy. Securities may be sold in response to interest rate changes, changes in prepayment risk,
the need to increase regulatory capital, and other similar factors are classified as available for
sale. Available-for-sale securities were $310.0 million as of June 30, 2009, compared to $355.2
million as of December 31, 2008. The estimated effective duration of our securities portfolio was
3.2 as of June 30, 2009.
As of June 30, 2009, $143.4 million, or 46.3%, of our available-for-sale securities were
invested in mortgage-backed securities, compared to $182.0 million, or 51.2%, of our
available-for-sale securities as of December 31, 2008. To reduce our income tax burden, $138.3
million, or 44.6%, of our available-for-sale securities portfolio as of June 30, 2009, was
primarily invested in tax-exempt obligations of state and political subdivisions, compared to
$119.8 million, or 33.7%, of our available-for-sale securities as of December 31, 2008. Also, we
had approximately $23.6 million, or 7.6%, invested in obligations of U.S. Government-sponsored
enterprises as of June 30, 2009, compared to $50.4 million, or 14.2%, of our available-for-sale
securities as of December 31, 2008. The Company does not have any preferred securities
issued by the Federal National Mortgage Association or the Federal Home Loan Mortgage Corporation.
Certain investment securities are valued at less than their historical cost. These declines
are primarily the result of the rate for these investments yielding less than current market rates.
Based on evaluation of available evidence, we believe the declines in fair value for these
securities are temporary. It is our intent to hold these securities to recovery. 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
Table 11 presents the carrying value and fair value of investment securities as of June 30,
2009 and December 31, 2008.
Table 11: Investment Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2009 |
|
|
|
|
|
|
|
Gross |
|
|
Gross |
|
|
|
|
|
|
Amortized |
|
|
Unrealized |
|
|
Unrealized |
|
|
Estimated |
|
|
|
Cost |
|
|
Gains |
|
|
(Losses) |
|
|
Fair Value |
|
|
|
(In thousands) |
|
Available-for-Sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government-sponsored
enterprises |
|
$ |
23,446 |
|
|
$ |
209 |
|
|
$ |
(49 |
) |
|
$ |
23,606 |
|
Mortgage-backed securities |
|
|
143,627 |
|
|
|
2,313 |
|
|
|
(2,494 |
) |
|
|
143,446 |
|
State and political
subdivisions |
|
|
139,889 |
|
|
|
1,540 |
|
|
|
(3,097 |
) |
|
|
138,332 |
|
Other securities |
|
|
5,845 |
|
|
|
|
|
|
|
(1,240 |
) |
|
|
4,605 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
312,807 |
|
|
$ |
4,062 |
|
|
$ |
(6,880 |
) |
|
$ |
309,989 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2008 |
|
|
|
|
|
|
|
Gross |
|
|
Gross |
|
|
|
|
|
|
Amortized |
|
|
Unrealized |
|
|
Unrealized |
|
|
Estimated |
|
|
|
Cost |
|
|
Gains |
|
|
(Losses) |
|
|
Fair Value |
|
|
|
(In thousands) |
|
Available-for-Sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government-sponsored
enterprises |
|
$ |
49,632 |
|
|
$ |
810 |
|
|
$ |
(7 |
) |
|
$ |
50,435 |
|
Mortgage-backed securities |
|
|
183,808 |
|
|
|
1,673 |
|
|
|
(3,517 |
) |
|
|
181,964 |
|
State and political
subdivisions |
|
|
123,119 |
|
|
|
990 |
|
|
|
(4,279 |
) |
|
|
119,830 |
|
Other securities |
|
|
4,238 |
|
|
|
|
|
|
|
(1,223 |
) |
|
|
3,015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
360,797 |
|
|
$ |
3,473 |
|
|
$ |
(9,026 |
) |
|
$ |
355,244 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
Our deposits averaged $1.83 billion and $1.84 billion for the three-month and six-month
periods ended June 30, 2009. Total deposits decreased $15.8 million, or a decrease of 0.9%, to
$1.83 billion as of June 30, 2009, from $1.85 billion as of December 31, 2008. Deposits are our
primary source of funds. We offer a variety of products designed to attract and retain deposit
customers. Those products consist of checking accounts, regular savings deposits, NOW accounts,
money market accounts and certificates of deposit. Deposits are gathered from individuals,
partnerships and corporations in our market areas. In addition, we obtain deposits from state and
local entities and, to a lesser extent, U.S. Government and other depository institutions.
Our policy also permits the acceptance of brokered deposits. As of June 30, 2009 and December
31, 2008, brokered deposits were $77.6 million and $111.0 million, respectively. Included in
these brokered deposits are $44.6 million and $39.9 million of Certificate of Deposit Account
Registry Service (CDARS) as of June 30, 2009 and December 31, 2008, respectively. CDARS are
deposits we have swapped our customer with other institutions. This gives our customer the
potential for FDIC insurance of up to $50 million.
54
The interest rates paid are competitively priced for each particular deposit product and
structured to meet our funding requirements. We will continue to manage interest expense through
deposit pricing and do not anticipate a significant change in total deposits unless our liquidity
position changes. We believe that additional funds can be attracted and deposit growth can be
accelerated through deposit pricing if we experience increased loan demand or other liquidity
needs.
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 in 2008 at 4.25%. During 2008, the rate decreased by
75 basis points on January 22, 2008, 50 basis points on January 30, 2008, 75 basis points on March
18, 2008, 25 basis points on April 30, 2008 and 50 basis points to a rate of 1.50% as of October 8,
2008. The rate continued to fall 50 basis points on October 29, 2008 and 75 to 100 basis points to
a low of 0.25% to 0% on December 16, 2008. Due to the rate reductions occurring late in 2007, its
impact for 2007 was minimal. As our earning assets and interest-bearing liabilities began to
reprice during 2008, we experienced a more significant decline to our average rates from the lower
rate environment.
Table 12 reflects the classification of the average deposits and the average rate paid on each
deposit category, which is in excess of 10 percent of average total deposits, for the three-month
and six-month periods ended June 30, 2009 and 2008.
Table 12: Average Deposit Balances and Rates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
|
Average |
|
|
Average |
|
|
Average |
|
|
Average |
|
|
|
Amount |
|
|
Rate Paid |
|
|
Amount |
|
|
Rate Paid |
|
|
|
(Dollars in thousands) |
|
Non-interest-bearing
transaction accounts |
|
$ |
285,637 |
|
|
|
|
% |
|
$ |
242,148 |
|
|
|
|
% |
Interest-bearing transaction accounts |
|
|
609,736 |
|
|
|
0.70 |
|
|
|
642,204 |
|
|
|
1.64 |
|
Savings deposits |
|
|
64,319 |
|
|
|
0.69 |
|
|
|
55,880 |
|
|
|
1.06 |
|
Time deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$100,000 or more |
|
|
508,715 |
|
|
|
2.72 |
|
|
|
531,304 |
|
|
|
3.77 |
|
Other time deposits |
|
|
364,180 |
|
|
|
2.75 |
|
|
|
393,367 |
|
|
|
3.97 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
1,832,587 |
|
|
|
1.56 |
% |
|
$ |
1,864,903 |
|
|
|
2.51 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
|
Average |
|
|
Average |
|
|
Average |
|
|
Average |
|
|
|
Amount |
|
|
Rate Paid |
|
|
Amount |
|
|
Rate Paid |
|
|
|
(Dollars in thousands) |
|
Non-interest-bearing
transaction accounts |
|
$ |
275,175 |
|
|
|
|
% |
|
$ |
239,588 |
|
|
|
|
% |
Interest-bearing transaction accounts |
|
|
608,739 |
|
|
|
0.75 |
|
|
|
619,365 |
|
|
|
1.91 |
|
Savings deposits |
|
|
61,948 |
|
|
|
0.66 |
|
|
|
54,794 |
|
|
|
1.03 |
|
Time deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$100,000 or more |
|
|
502,411 |
|
|
|
2.85 |
|
|
|
528,536 |
|
|
|
4.08 |
|
Other time deposits |
|
|
390,676 |
|
|
|
2.94 |
|
|
|
392,473 |
|
|
|
4.23 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
1,838,949 |
|
|
|
1.67 |
% |
|
$ |
1,834,756 |
|
|
|
2.76 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55
Securities Sold Under Agreements to Repurchase
During 2008, the U.S. regulatory agencies implemented the Transaction Account Guarantee
Program. Under the Transaction Account Guarantee Program through December 31, 2009, all
non-interest bearing transaction accounts are fully guaranteed by the FDIC for the entire amount in
the account. Coverage under the Transaction Account Guarantee Program is in addition to and
separate from the coverage available under the FDICs general deposit insurance rules. Since
business non-interest bearing accounts currently have unlimited deposit insurance coverage, many of
our business customers have chosen to move their money from repurchase agreements to non-interest
bearing demand accounts to take advantage of this unlimited coverage. As a result, securities sold
under agreements to repurchase decreased $48.2 million, or 42.5%, from $113.4 million as of
December 31, 2008 to $65.2 million as of June 30, 2009.
FHLB Borrowed Funds
Our FHLB borrowed funds were $277.6 million and $283.0 million at June 30, 2009 and December
31, 2008, respectively. These outstanding balances include no short-term advances. Our remaining
FHLB borrowing capacity was $192.4 million and $191.5 million as of June 30, 2009 and December 31,
2008, respectively. Expected maturities will differ from contractual maturities, because
FHLB may have the right to call or prepay certain obligations.
Subordinated Debentures
Subordinated debentures, which consist of guaranteed payments on trust preferred securities,
were $47.5 million and $47.6 million as of June 30, 2009 and December 31, 2008, respectively.
Table 13 reflects subordinated debentures as of June 30, 2009 and December 31, 2008, which
consisted of guaranteed payments on trust preferred securities with the following components:
Table 13: Subordinated Debentures
|
|
|
|
|
|
|
|
|
|
|
As of |
|
|
As of |
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(In thousands) |
|
Subordinated debentures, issued in 2003, due 2033, fixed
at 6.40%, during the first five years and at a floating rate
of 3.15% above the three-month LIBOR rate, reset
quarterly, thereafter, currently callable without penalty |
|
$ |
20,619 |
|
|
$ |
20,619 |
|
Subordinated debentures, issued in 2000, due 2030, fixed
at 10.60%, callable in 2010 with a penalty ranging from
5.30% to 0.53% depending on the year of prepayment,
callable in 2020 without penalty |
|
|
3,198 |
|
|
|
3,243 |
|
Subordinated debentures, issued in 2003, due 2033,
floating rate of 3.15% above the three-month LIBOR
rate, reset quarterly, currently callable without penalty |
|
|
5,155 |
|
|
|
5,155 |
|
Subordinated debentures, issued in 2005, due 2035, fixed
rate of 6.81% during the first ten years and at a floating
rate of 1.38% above the three-month LIBOR rate, reset
quarterly, thereafter, callable in 2010 without penalty |
|
|
15,465 |
|
|
|
15,465 |
|
Subordinated debentures, issued in 2006, due 2036, fixed
rate of 6.75% during the first five years and at a floating
rate of 1.85% above the three-month LIBOR rate, reset
quarterly, thereafter, callable in 2011 without penalty |
|
|
3,093 |
|
|
|
3,093 |
|
|
|
|
|
|
|
|
Total |
|
$ |
47,530 |
|
|
$ |
47,575 |
|
|
|
|
|
|
|
|
56
The trust preferred securities are tax-advantaged issues that qualify for Tier 1 capital
treatment subject to certain limitations. Distributions on these securities are included in
interest expense. Each of the trusts is a statutory business trust organized for the sole purpose
of issuing trust securities and investing the proceeds in our subordinated debentures, the sole
asset of each trust. The trust preferred securities of each trust represent preferred beneficial
interests in the assets of the respective trusts and are subject to mandatory redemption upon
payment of the subordinated debentures held by the trust. We wholly own the common securities of
each trust. Each trusts ability to pay amounts due on the trust preferred securities is solely
dependent upon our making payment on the related subordinated debentures. Our obligations under the
subordinated securities and other relevant trust agreements, in aggregate, constitute a full and
unconditional guarantee by us of each respective trusts obligations under the trust securities
issued by each respective trust.
Presently, the funds raised from the trust preferred offerings qualify as Tier 1 capital for
regulatory purposes, subject to the applicable limit, with the balance qualifying as Tier 2
capital.
The Company holds two trust preferred securities which are currently callable without penalty
based on the terms of the specific agreements. The 2009 agreement between the Company and the
Treasury limits our ability to retire any of our qualifying capital. As a result, the notes
previously mentioned are not currently eligible to be paid off.
Stockholders Equity
Stockholders equity was $343.4 million at June 30, 2009 compared to $283.0 million at
December 31, 2008, an increase of 60.3%. As of June 30, 2009 and December 31, 2008 our common
equity to asset ratio was 11.4%. Book value per common share was $14.78 at June 30, 2009 compared
to $14.25 at December 31, 2008, a 3.7% increase.
Troubled Asset Relief Program. On January 16, 2009, we issued and sold, and the United States
Department of the Treasury purchased, (1) 50,000 shares of the Companys Fixed Rate Cumulative
Perpetual Preferred Stock Series A, liquidation preference of $1,000 per share, and (2) a ten-year
warrant to purchase up to 288,129 shares of the Companys common stock, par value $0.01 per share,
at an exercise price of $26.03 per share, for an aggregate purchase price of $50.0 million in cash.
Cumulative dividends on the Preferred Shares will accrue on the liquidation preference at a rate of
5% per annum for the first five years, and at a rate of 9% per annum thereafter.
These preferred shares will qualify as Tier 1 capital. The preferred shares will be callable
at par after three years. Prior to the end of three years, the preferred shares may be redeemed
with the proceeds from a qualifying equity offering of any Tier 1 perpetual preferred or common
stock. The Treasury must approve any quarterly cash dividend on our common stock above $0.06 per
share or share repurchases until three years from the date of the investment unless the shares are
paid off in whole or transferred to a third party.
Cash Dividends. We declared cash dividends on our common stock of $0.060 and $0.051 (stock
dividend adjusted) per share for the three-month periods ended June 30, 2009 and 2008,
respectively, and $0.120 and $0.097 (stock dividend adjusted) per share for the six-month periods
ended June 30, 2009 and 2008, respectively. The common stock dividend payout ratio for the six
months ended June 30, 2009 and 2008 was 20.4% and 14.9%, respectively. The common per share amounts
are reflective of the 8% stock dividend during 2008. The 2009 agreement between the Company and the
Treasury limits the payment of dividends on the Common Stock to a quarterly cash dividend of not
more than $0.06 per share.
Stock Dividends. On July 16, 2008, our Board of Directors declared an 8% stock dividend which
was paid August 27, 2008 to stockholders of record as of August 13, 2008. Except for fractional
shares, the holders of our common stock received 8% additional common stock on August 27, 2008.
The common stockholders did not receive fractional shares; instead they received cash at a rate
equal to the closing price of a share on August 28, 2008 times the fraction of a share they
otherwise would have been entitled to.
57
All common share and common per share amounts have been restated to reflect the retroactive
effect of the stock dividend. After issuance, this stock dividend lowered our total capital
position by approximately $13,000 as a result of the cash paid in lieu of fractional shares. Our
financial statements reflect an increase in the number of outstanding shares of common stock, an
increase in surplus and reduction of retained earnings.
Repurchase Program. On January 18, 2008, we announced the adoption by our Board of Directors
of a stock repurchase program. The program authorizes us to repurchase up to 1,080,000 shares
(stock dividend adjusted) of our common stock. Under the repurchase program, there is no time limit
for the stock repurchases, nor is there a minimum number of shares that we intend to repurchase.
The repurchase program may be suspended or discontinued at any time without prior notices. The
timing and amount of any repurchases will be determined by management, based on its evaluation of
current market conditions and other factors. The stock repurchase program will be funded using our
cash balances, which we believe are adequate to support the stock repurchase program and our normal
operations. As of June 30, 2009, we have not repurchased any shares in the program. The 2009
agreement between the Company and the Treasury limits our ability to repurchase common stock.
Liquidity and Capital Adequacy Requirements
Risk-Based Capital. We as well as our bank subsidiary are subject to various regulatory
capital requirements administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory and other discretionary actions by regulators that, if
enforced, could have a direct material effect on our financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, we must meet specific capital
guidelines that involve quantitative measures of our assets, liabilities and certain
off-balance-sheet items as calculated under regulatory accounting practices. Our capital amounts
and classifications are also subject to qualitative judgments by the regulators as to components,
risk weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy require us to
maintain minimum amounts and ratios (set forth in the table below) of total and Tier 1 capital to
risk-weighted assets, and of Tier 1 capital to average assets. Management believes that, as of June
30, 2009 and December 31, 2008, we met all regulatory capital adequacy requirements to which we
were subject.
58
Table 14 presents our risk-based capital ratios as of June 30, 2009 and December 31, 2008.
Table 14: Risk-Based Capital
|
|
|
|
|
|
|
|
|
|
|
As of |
|
|
As of |
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(Dollars in thousands) |
|
Tier 1 capital |
|
|
|
|
|
|
|
|
Stockholders equity |
|
$ |
343,354 |
|
|
$ |
283,044 |
|
Qualifying trust preferred securities |
|
|
46,000 |
|
|
|
46,000 |
|
Goodwill and core deposit intangibles, net |
|
|
(56,223 |
) |
|
|
(53,803 |
) |
Unrealized loss on available-for-sale securities |
|
|
1,743 |
|
|
|
3,375 |
|
Servicing assets |
|
|
(153 |
) |
|
|
(189 |
) |
|
|
|
|
|
|
|
Total Tier 1 capital |
|
|
334,721 |
|
|
|
278,427 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 2 capital |
|
|
|
|
|
|
|
|
Qualifying allowance for loan losses |
|
|
27,942 |
|
|
|
27,573 |
|
|
|
|
|
|
|
|
Total Tier 2 capital |
|
|
27,942 |
|
|
|
27,573 |
|
|
|
|
|
|
|
|
Total risk-based capital |
|
$ |
362,663 |
|
|
$ |
306,000 |
|
|
|
|
|
|
|
|
Average total assets for leverage ratio |
|
$ |
2,533,907 |
|
|
$ |
2,562,044 |
|
|
|
|
|
|
|
|
Risk weighted assets |
|
$ |
2,221,537 |
|
|
$ |
2,193,001 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratios at end of period |
|
|
|
|
|
|
|
|
Leverage ratio |
|
|
13.21 |
% |
|
|
10.87 |
% |
Tier 1 risk-based capital |
|
|
15.07 |
|
|
|
12.70 |
|
Total risk-based capital |
|
|
16.32 |
|
|
|
13.95 |
|
Minimum guidelines |
|
|
|
|
|
|
|
|
Leverage ratio |
|
|
4.00 |
% |
|
|
4.00 |
% |
Tier 1 risk-based capital |
|
|
4.00 |
|
|
|
4.00 |
|
Total risk-based capital |
|
|
8.00 |
|
|
|
8.00 |
|
As of the most recent notification from regulatory agencies, our bank subsidiary was
well-capitalized under the regulatory framework for prompt corrective action. To be categorized
as well-capitalized, our banking subsidiary and we must maintain minimum leverage, Tier 1
risk-based capital, and total risk-based capital ratios as set forth in the table. There are no
conditions or events since that notification that we believe have changed the bank subsidiarys
category.
59
Table 15 presents actual capital amounts and ratios as of June 30, 2009 and December 31, 2008,
for our bank subsidiary and us.
Table 15: Capital and Ratios
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
To Be Well |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalized Under |
|
|
|
|
|
|
|
|
|
|
For Capital |
|
Prompt Corrective |
|
|
Actual |
|
Adequacy Purposes |
|
Action Provision |
|
|
Amount |
|
Ratio |
|
Amount |
|
Ratio |
|
Amount |
|
Ratio |
|
|
(Dollars in thousands) |
As of June 30, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leverage ratios: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home BancShares |
|
$ |
334,721 |
|
|
|
13.21 |
% |
|
$ |
101,354 |
|
|
|
4.00 |
% |
|
$ |
N/A |
|
|
|
N/A |
% |
Centennial Bank (Formerly FSB) |
|
|
251,001 |
|
|
|
9.92 |
|
|
|
101,210 |
|
|
|
4.00 |
|
|
|
126,513 |
|
|
|
5.00 |
|
Tier 1 capital ratios: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home BancShares |
|
$ |
334,721 |
|
|
|
15.07 |
% |
|
$ |
88,844 |
|
|
|
4.00 |
% |
|
$ |
N/A |
|
|
|
N/A |
% |
Centennial Bank (Formerly FSB) |
|
|
251,001 |
|
|
|
11.36 |
|
|
|
88,381 |
|
|
|
4.00 |
|
|
|
132,571 |
|
|
|
6.00 |
|
Total risk-based capital ratios: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home BancShares |
|
$ |
362,663 |
|
|
|
16.32 |
% |
|
$ |
177,776 |
|
|
|
8.00 |
% |
|
$ |
N/A |
|
|
|
N/A |
% |
Centennial Bank (Formerly FSB) |
|
|
278,806 |
|
|
|
12.61 |
|
|
|
176,879 |
|
|
|
8.00 |
|
|
|
221,099 |
|
|
|
10.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leverage ratios: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home BancShares |
|
$ |
278,427 |
|
|
|
10.87 |
% |
|
$ |
102,457 |
|
|
|
4.00 |
% |
|
$ |
N/A |
|
|
|
N/A |
% |
Centennial Bank (Formerly FSB) |
|
|
89,791 |
|
|
|
8.68 |
|
|
|
41,378 |
|
|
|
4.00 |
|
|
|
51,723 |
|
|
|
5.00 |
|
Community Bank |
|
|
37,957 |
|
|
|
9.33 |
|
|
|
16,273 |
|
|
|
4.00 |
|
|
|
20,341 |
|
|
|
5.00 |
|
Twin City Bank |
|
|
68,810 |
|
|
|
9.53 |
|
|
|
28,881 |
|
|
|
4.00 |
|
|
|
36,102 |
|
|
|
5.00 |
|
Bank of Mountain View |
|
|
16,764 |
|
|
|
9.65 |
|
|
|
6,949 |
|
|
|
4.00 |
|
|
|
8,686 |
|
|
|
5.00 |
|
Centennial Bank |
|
|
23,105 |
|
|
|
8.81 |
|
|
|
10,490 |
|
|
|
4.00 |
|
|
|
13,113 |
|
|
|
5.00 |
|
Tier 1 capital ratios: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home BancShares |
|
$ |
278,427 |
|
|
|
12.70 |
% |
|
$ |
87,694 |
|
|
|
4.00 |
% |
|
$ |
N/A |
|
|
|
N/A |
% |
Centennial Bank (Formerly FSB) |
|
|
89,791 |
|
|
|
10.02 |
|
|
|
35,845 |
|
|
|
4.00 |
|
|
|
53,767 |
|
|
|
6.00 |
|
Community Bank |
|
|
37,957 |
|
|
|
11.14 |
|
|
|
13,629 |
|
|
|
4.00 |
|
|
|
20,444 |
|
|
|
6.00 |
|
Twin City Bank |
|
|
68,810 |
|
|
|
10.73 |
|
|
|
25,651 |
|
|
|
4.00 |
|
|
|
38,477 |
|
|
|
6.00 |
|
Bank of Mountain View |
|
|
16,764 |
|
|
|
14.99 |
|
|
|
4,473 |
|
|
|
4.00 |
|
|
|
6,710 |
|
|
|
6.00 |
|
Centennial Bank |
|
|
23,105 |
|
|
|
11.01 |
|
|
|
8,394 |
|
|
|
4.00 |
|
|
|
12,591 |
|
|
|
6.00 |
|
Total risk-based capital ratios: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home BancShares |
|
$ |
306,000 |
|
|
|
13.95 |
% |
|
$ |
175,484 |
|
|
|
8.00 |
% |
|
$ |
N/A |
|
|
|
N/A |
% |
Centennial Bank (Formerly FSB) |
|
|
101,071 |
|
|
|
11.28 |
|
|
|
71,682 |
|
|
|
8.00 |
|
|
|
89,602 |
|
|
|
10.00 |
|
Community Bank |
|
|
42,260 |
|
|
|
12.40 |
|
|
|
27,265 |
|
|
|
8.00 |
|
|
|
34,081 |
|
|
|
10.00 |
|
Twin City Bank |
|
|
76,823 |
|
|
|
11.98 |
|
|
|
51,301 |
|
|
|
8.00 |
|
|
|
64,126 |
|
|
|
10.00 |
|
Bank of Mountain View |
|
|
18,115 |
|
|
|
16.19 |
|
|
|
8,951 |
|
|
|
8.00 |
|
|
|
11,189 |
|
|
|
10.00 |
|
Centennial Bank |
|
|
25,758 |
|
|
|
12.27 |
|
|
|
16,794 |
|
|
|
8.00 |
|
|
|
20,993 |
|
|
|
10.00 |
|
60
Non-GAAP Financial Measurements
We had $58.7 million, $56.6 million, and $57.3 million total goodwill, core deposit
intangibles and other intangible assets as of June 30, 2009, December 31, 2008 and June 30, 2008,
respectively. Because of our level of intangible assets and related amortization expenses,
management believes diluted cash earnings per share, tangible book value per common share, cash
return on average assets, cash return on average tangible common equity and tangible common equity
to tangible assets are useful in evaluating our company. These calculations, which are similar to
the GAAP calculation of diluted earnings per share, book value, return on average assets, return on
average common equity, and common equity to assets, are presented in Tables 16 through 20,
respectively. Per share amounts for June 30, 2008 have been adjusted for the retroactive effect of
the stock dividend which occurred in August of 2008.
Table 16: Diluted Cash Earnings Per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
(In thousands, except per share data) |
|
GAAP net income available to common stockholders |
|
$ |
4,771 |
|
|
$ |
5,654 |
|
|
$ |
10,450 |
|
|
$ |
12,932 |
|
Intangible amortization after-tax |
|
|
281 |
|
|
|
280 |
|
|
|
562 |
|
|
|
562 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash earnings available to common stockholders |
|
$ |
5,052 |
|
|
$ |
5,934 |
|
|
$ |
11,012 |
|
|
$ |
13,494 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP diluted earnings per share |
|
$ |
0.24 |
|
|
$ |
0.28 |
|
|
$ |
0.52 |
|
|
$ |
0.64 |
|
Intangible amortization after-tax |
|
|
0.01 |
|
|
|
0.01 |
|
|
|
0.03 |
|
|
|
0.02 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted cash earnings per share |
|
$ |
0.25 |
|
|
$ |
0.29 |
|
|
$ |
0.55 |
|
|
$ |
0.66 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table 17: Tangible Book Value Per Share
|
|
|
|
|
|
|
|
|
|
|
As of |
|
As of |
|
|
June 30, |
|
December 31, |
|
|
2009 |
|
2008 |
|
|
(Dollars in thousands, except per share data) |
Book value per common share: A/B |
|
$ |
14.78 |
|
|
$ |
14.25 |
|
Tangible book value per common share: (A-C-D)/B |
|
|
11.83 |
|
|
|
11.40 |
|
|
|
|
|
|
|
|
|
|
(A) Total common equity |
|
$ |
294,169 |
|
|
$ |
283,044 |
|
(B) Common shares outstanding |
|
|
19,903 |
|
|
|
19,860 |
|
(C) Goodwill |
|
|
53,039 |
|
|
|
50,038 |
|
(D) Core deposit and other intangibles |
|
|
5,622 |
|
|
|
6,547 |
|
61
Table 18: Cash Return on Average Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
(Dollars in thousands) |
|
Return on average assets: A/C |
|
|
0.84 |
% |
|
|
0.89 |
% |
|
|
0.91 |
% |
|
|
1.02 |
% |
Cash return on average assets: B/(C-D) |
|
|
0.91 |
|
|
|
0.95 |
|
|
|
0.97 |
|
|
|
1.08 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(A) GAAP net income |
|
$ |
5,441 |
|
|
$ |
5,654 |
|
|
$ |
11,686 |
|
|
$ |
12,932 |
|
Intangible amortization after-tax |
|
|
281 |
|
|
|
280 |
|
|
|
562 |
|
|
|
562 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(B) Cash earnings |
|
$ |
5,722 |
|
|
$ |
5,934 |
|
|
$ |
12,248 |
|
|
$ |
13,494 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(C) Average assets |
|
$ |
2,590,283 |
|
|
$ |
2,569,377 |
|
|
$ |
2,594,238 |
|
|
$ |
2,559,954 |
|
(D) Average goodwill, core deposits and
other intangible assets |
|
|
58,977 |
|
|
|
57,552 |
|
|
|
58,804 |
|
|
|
57,825 |
|
Table 19: Cash Return on Average Tangible Common Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
June 30, |
|
June 30, |
|
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
|
(Dollars in thousands) |
Return on average common equity: A/C |
|
|
6.53 |
% |
|
|
7.91 |
% |
|
|
7.26 |
% |
|
|
9.12 |
% |
Return on average tangible common equity: B/(C-D) |
|
|
8.66 |
|
|
|
10.38 |
|
|
|
9.57 |
|
|
|
11.94 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(A) Net income available to common stockholders |
|
$ |
4,771 |
|
|
$ |
5,654 |
|
|
$ |
10,450 |
|
|
$ |
12,932 |
|
(B) Cash earnings available to common stockholders |
|
|
5,052 |
|
|
|
5,934 |
|
|
|
11,012 |
|
|
|
13,494 |
|
(C) Average common equity |
|
|
292,935 |
|
|
|
287,554 |
|
|
|
290,079 |
|
|
|
285,151 |
|
(D) Average goodwill, core deposits and
other intangible assets |
|
|
58,977 |
|
|
|
57,522 |
|
|
|
58,010 |
|
|
|
57,825 |
|
Table 20: Tangible Common Equity to Tangible Assets
|
|
|
|
|
|
|
|
|
|
|
As of |
|
As of |
|
|
June 30, |
|
December 31, |
|
|
2009 |
|
2008 |
|
|
(Dollars in thousands) |
Equity to assets: B/A |
|
|
13.31 |
% |
|
|
10.97 |
% |
Common equity to assets: C/A |
|
|
11.40 |
|
|
|
10.97 |
|
Tangible common equity to tangible assets: (C-D-E)/(A-D-E) |
|
|
9.34 |
|
|
|
8.97 |
|
|
|
|
|
|
|
|
|
|
(A) Total assets |
|
$ |
2,579,926 |
|
|
$ |
2,580,093 |
|
(B) Total equity |
|
|
343,354 |
|
|
|
283,044 |
|
(C) Total common equity |
|
|
294,169 |
|
|
|
283,044 |
|
(D) Goodwill |
|
|
53,039 |
|
|
|
50,038 |
|
(E) Core deposit and other intangibles |
|
|
5,622 |
|
|
|
6,547 |
|
62
Recently Issued Accounting Pronouncements
In December 2007, the Financial Accounting Standards Board (FASB) issued SFAS 141(R),
Business Combinations, which established principles and requirements for how an acquirer
recognizes and measures in its financial statements the identifiable assets acquired, the
liabilities assumed, and any noncontrolling interest in an acquiree, including the recognition and
measurement of goodwill acquired in a business combination. The adoption of this standard did not
have a material effect on the Companys results of operations or financial position.
In March 2008, the FASB issued SFAS 161, Disclosures about Derivative Instruments and Hedging
Activities, an amendment of SFAS No. 133. SFAS 161 amended and expanded the disclosure
requirements of SFAS No. 133 for derivative instruments and hedging activities. SFAS 161 requires
qualitative disclosure about objectives and strategies for using derivative and hedging
instruments, quantitative disclosures about fair value amounts of the instruments and gains and
losses on such instruments, as well as disclosures about credit-risk features in derivative
agreements. The adoption of this standard did not have a material effect on the Companys results
of operations or financial position.
On April 9, 2009, the FASB finalized three FASB Staff Positions (FSPs) regarding the
accounting treatment for investments including mortgage-backed securities. These FSPs changed the
method for determining if an Other-than-temporary impairment (OTTI) exists and the amount of OTTI
to be recorded through an entitys income statement. The changes brought about by the FSPs provide
greater clarity and reflect a more accurate representation of the credit and noncredit components
of an OTTI event. The three FSPs are as follows:
|
|
|
FSP SFAS 157-4 Determining Fair Value When the Volume and Level
of Activity for the Assets or Liability Have Significantly
Decreased and Identifying Transactions That Are Not Orderly
provides guidelines for making fair value measurements more
consistent with the principles presented in SFAS 157, Fair Value
Measurements. |
|
|
|
|
FSP SFAS 115-2 and SFAS 124-2, Recognition and Presentation of
Other-than-temporary Impairments provides additional guidance
designed to create greater clarity and consistency in accounting
for and presenting impairment losses on securities. |
|
|
|
|
FSP SFAS 107-1 and APB 28-1, Interim Disclosures about Fair Value
of Financial Instruments enhances consistency in financial
reporting by increasing the frequency of fair value disclosures. |
The adoption of these FSPs did not have a material effect on the Companys results of
operations or financial position.
In May 2009, FASB issued SFAS No. 165 Subsequent Events, with the objective to establish
general standards of accounting for and disclosure of events that occur after the balance sheet
date but before financial statements are issued or are available to be issued. SFAS No. 165 sets
forth: (i) the period after the balance sheet date during which management of a reporting entity
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 that an entity should make about events or transactions that occurred after the balance
sheet date. SFAS No. 165 is effective for interim and annual financial periods ending after
June 15, 2009. The adoption of SFAS No. 165 on June 30, 2009, did not have an impact on the
Companys consolidated financial statements.
63
In June 2009, FASB issued SFAS No. 166 Accounting for Transfers of Financial Assetsan
amendment of FASB Statement No. 140. The objective of SFAS No. 166 is to improve the relevance,
representational faithfulness, and comparability of the information that a reporting entity
provides in its financial statements about a transfer of financial assets; the effects of a
transfer on its financial position, financial performance, and cash flows; and a transferors
continuing involvement in transferred financial assets. SFAS No. 166 shall be effective as of the
beginning of each reporting entitys first annual reporting period that begins after November 15,
2009, for interim periods within that first annual reporting period, and for interim and annual
reporting periods thereafter. We are currently evaluating the impact of the adoption of this
standard, but do not expect it have a material effect on the Companys financial position or
results of operation.
In June 2009, FASB issued SFAS No. 167 Amendments to FASB Interpretation No. 46(R). The
objective of SFAS 167 is to amend certain requirements of FASB Interpretation No. 46 (revised
December 2003), Consolidation of Variable Interest Entities, to improve financial reporting by
enterprises involved with variable interest entities and to provide more relevant and reliable
information to users of financial statements. SFAS 167 shall be effective as of the beginning of
each reporting entitys first annual reporting period that begins after November 15, 2009, for
interim periods within that first annual reporting period, and for interim and annual reporting
periods thereafter. Earlier application is prohibited. We are currently evaluating the impact of
the adoption of this standard, but do not expect it have a material effect on the Companys
financial position or results of operation.
64
|
|
|
Item 3: |
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Liquidity and Market Risk Management
Liquidity Management. Liquidity refers to the ability or the financial flexibility to manage
future cash flows to meet the needs of depositors and borrowers and fund operations. Maintaining
appropriate levels of liquidity allows us to have sufficient funds available for reserve
requirements, customer demand for loans, withdrawal of deposit balances and maturities of deposits
and other liabilities. Our primary source of liquidity at our holding company is dividends paid by
our bank subsidiary. Applicable statutes and regulations impose restrictions on the amount of
dividends that may be declared by our bank subsidiary. Further, any dividend payments are subject
to the continuing ability of the bank subsidiary to maintain compliance with minimum federal
regulatory capital requirements and to retain its characterization under federal regulations as a
well-capitalized institution.
Our bank subsidiary has potential obligations resulting from the issuance of standby letters
of credit and commitments to fund future borrowings to our loan customers. Many of these
obligations and commitments to fund future borrowings to our loans customers are expected to expire
without being drawn upon, therefore the total commitment amounts do not necessarily represent
future cash requirements affecting our liquidity position.
Liquidity needs can be met from either assets or liabilities. On the asset side, our primary
sources of liquidity include cash and due from banks, federal funds sold, available-for-sale
investment securities and scheduled repayments and maturities of loans. We maintain adequate levels
of cash and cash equivalents to meet our day-to-day needs. As of June 30, 2009, our cash and cash
equivalents were $46.1 million, or 1.8% of total assets, compared to $54.2 million, or 2.1% of
total assets, as of December 31, 2008. Our investment securities and federal funds sold were $341.8
million, or 13.2% of total assets, as of June 30, 2009 and $363.1 million, or 14.1% of total
assets, as of December 31, 2008.
We may occasionally use our Fed funds lines of credit in order to temporarily satisfy
short-term liquidity needs. We have Fed funds lines with three other financial institutions
pursuant to which we could have borrowed up to $17.5 million and $84.1 million on an unsecured
basis as of June 30, 2009 and December 31, 2008, respectively. These lines may be terminated by the
respective lending institutions at any time. As a result of our recent charter consolidation, there
is limited availability to borrow Fed funds on an unsecured basis.
We also maintain lines of credit with the Federal Home Loan Bank. Our FHLB borrowed funds were
$277.6 million and $283.0 million at June 30, 2009 and December 31, 2008, respectively. These
outstanding balances include no short-term advances. Our FHLB borrowing capacity was $192.4 million
and $191.5 million as of June 30, 2009 and December 31, 2008.
We currently have a borrower in custody arrangement with the Federal Reserve. This
arrangement provides us with the potential to obtain $82.6 million in borrowed funds from the
Federal Reserve Bank. We have no borrowed funds under this agreement as of June 30, 2009.
We believe that we have sufficient liquidity to satisfy our current operations.
Market Risk Management. Our primary component of market risk is interest rate volatility.
Fluctuations in interest rates will ultimately impact both the level of income and expense recorded
on a large portion of our assets and liabilities, and the market value of all interest-earning
assets and interest-bearing liabilities, other than those which possess a short term to maturity.
We do not hold market risk sensitive instruments for trading purposes. The information provided
should be read in connection with our audited consolidated financial statements.
65
Asset/Liability Management. Our management actively measures and manages interest rate risk.
The asset/liability committees of the boards of directors of our holding company and bank
subsidiary are also responsible for approving our asset/liability management policies, overseeing
the formulation and implementation of strategies to improve balance sheet positioning and earnings,
and reviewing our interest rate sensitivity position.
One of the tools that our management uses to measure short-term interest rate risk is a net
interest income simulation model. This analysis calculates the difference between net interest
income forecasted using base market rates and using a rising and a falling interest rate scenario.
The income simulation model includes various assumptions regarding the re-pricing relationships for
each of our products. Many of our assets are floating rate loans, which are assumed to re-price
immediately, and proportional to the change in market rates, depending on their contracted index.
Some loans and investments include the opportunity of prepayment (embedded options), and
accordingly the simulation model uses indexes to estimate these prepayments and reinvest their
proceeds at current yields. Our non-term deposit products re-price more slowly, usually changing
less than the change in market rates and at our discretion.
This analysis indicates the impact of changes in net interest income for the given set of rate
changes and assumptions. It assumes the balance sheet remains static and that its structure does
not change over the course of the year. It does not account for all factors that impact this
analysis, including changes by management to mitigate the impact of interest rate changes or
secondary impacts such as changes to our credit risk profile as interest rates change.
Furthermore, loan prepayment rate estimates and spread relationships change regularly.
Interest rate changes create changes in actual loan prepayment rates that will differ from the
market estimates incorporated in this analysis. Changes that vary significantly from the
assumptions may have significant effects on our net interest income.
Interest Rate Sensitivity. Our primary business is banking and the resulting earnings,
primarily net interest income, are susceptible to changes in market interest rates. It is
managements goal to maximize net interest income within acceptable levels of interest rate and
liquidity risks.
A key element in the financial performance of financial institutions is the level and type of
interest rate risk assumed. The single most significant measure of interest rate risk is the
relationship of the repricing periods of earning assets and interest-bearing liabilities. The more
closely the repricing periods are correlated, the less interest rate risk we assume. We use
repricing gap and simulation modeling as the primary methods in analyzing and managing interest
rate risk.
Gap analysis attempts to capture the amounts and timing of balances exposed to changes in
interest rates at a given point in time. As of June 30, 2009, our gap position was slightly asset
sensitive with a one-year cumulative repricing gap of 7.0%, compared to 4.1% as of December 31,
2008. During these periods, the amount of change our asset base realizes in relation to the total
change in market interest rate exceeds that of the liability base.
We have a portion of our securities portfolio invested in mortgage-backed securities.
Mortgage-backed securities are included based on their final maturity date. Expected maturities may
differ from contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
66
Table 21 presents a summary of the repricing schedule of our interest-earning assets and
interest-bearing liabilities (gap) as of June 30, 2009.
Table 21: Interest Rate Sensitivity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Sensitivity Period |
|
|
0-30 |
|
31-90 |
|
91-180 |
|
181-365 |
|
1-2 |
|
2-5 |
|
Over 5 |
|
|
|
|
Days |
|
Days |
|
Days |
|
Days |
|
Years |
|
Years |
|
Years |
|
Total |
|
|
|
|
|
(Dollars in thousands) |
Earning assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing
deposits due
from banks |
|
$ |
4,553 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
4,553 |
|
Federal funds
sold |
|
|
31,805 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31,805 |
|
Investment
securities |
|
|
22,348 |
|
|
|
18,389 |
|
|
|
28,923 |
|
|
|
41,669 |
|
|
|
32,997 |
|
|
|
64,627 |
|
|
|
101,036 |
|
|
|
309,989 |
|
Loans
receivable |
|
|
651,153 |
|
|
|
121,424 |
|
|
|
148,485 |
|
|
|
346,411 |
|
|
|
407,862 |
|
|
|
294,214 |
|
|
|
3,155 |
|
|
|
1,972,704 |
|
|
|
|
Total earning
assets |
|
|
709,859 |
|
|
|
139,813 |
|
|
|
177,408 |
|
|
|
388,080 |
|
|
|
440,859 |
|
|
|
358,841 |
|
|
|
104,191 |
|
|
|
2,319,051 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing
liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing
transaction and
savings
deposits |
|
|
24,184 |
|
|
|
48,368 |
|
|
|
72,551 |
|
|
|
145,103 |
|
|
|
123,709 |
|
|
|
123,709 |
|
|
|
123,763 |
|
|
|
661,387 |
|
Time deposits |
|
|
155,638 |
|
|
|
175,307 |
|
|
|
213,291 |
|
|
|
238,089 |
|
|
|
62,096 |
|
|
|
31,916 |
|
|
|
2 |
|
|
|
876,339 |
|
Federal funds
purchased |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities sold
under
repurchase
agreements |
|
|
65,233 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
65,233 |
|
FHLB borrowed
funds |
|
|
20,147 |
|
|
|
10,022 |
|
|
|
8,121 |
|
|
|
51,957 |
|
|
|
72,323 |
|
|
|
94,075 |
|
|
|
20,995 |
|
|
|
277,640 |
|
Subordinated
debentures |
|
|
25,782 |
|
|
|
15 |
|
|
|
23 |
|
|
|
45 |
|
|
|
15 |
|
|
|
|
|
|
|
21,650 |
|
|
|
47,530 |
|
|
|
|
Total interest-
bearing
liabilities |
|
|
290,984 |
|
|
|
233,712 |
|
|
|
293,986 |
|
|
|
435,194 |
|
|
|
258,143 |
|
|
|
249,700 |
|
|
|
166,410 |
|
|
|
1,928,129 |
|
|
|
|
Interest rate
sensitivity gap |
|
$ |
418,875 |
|
|
$ |
(93,899 |
) |
|
$ |
(116,578 |
) |
|
$ |
(47,114 |
) |
|
$ |
182,716 |
|
|
$ |
109,141 |
|
|
$ |
(62,219 |
) |
|
$ |
390,922 |
|
|
|
|
Cumulative
interest rate
sensitivity gap |
|
$ |
418,875 |
|
|
$ |
324,976 |
|
|
$ |
208,398 |
|
|
$ |
161,284 |
|
|
$ |
344,000 |
|
|
$ |
453,141 |
|
|
$ |
390,922 |
|
|
|
|
|
Cumulative rate
sensitive assets
to rate sensitive
liabilities |
|
|
244.0 |
% |
|
|
161.9 |
% |
|
|
125.5 |
% |
|
|
112.9 |
% |
|
|
122.8 |
% |
|
|
125.7 |
% |
|
|
120.3 |
% |
|
|
|
|
Cumulative gap
as a % of total
earning assets |
|
|
18.1 |
% |
|
|
14.0 |
% |
|
|
9.0 |
% |
|
|
7.0 |
% |
|
|
14.8 |
% |
|
|
19.5 |
% |
|
|
16.9 |
% |
|
|
|
|
67
|
|
|
Item 4: |
|
CONTROLS AND PROCEDURES |
Article I. Evaluation of Disclosure Controls
Based on their evaluation as of the end of the period covered by this Quarterly Report on Form
10-Q, the Chief Executive Officer and Chief Financial Officer have concluded that the disclosure
controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act
of 1934) are effective to ensure that information required to be disclosed by us in reports that we
file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and
reported within the time periods specified in Securities and Exchange Commission rules and forms.
Additionally, our disclosure controls and procedures were also effective in ensuring that
information required to be disclosed in our Exchange Act report is accumulated and communicated to
our management, including the Chief Executive Officer and Chief Financial Officer to allow timely
decisions regarding required disclosures.
Article II. Changes in Internal Control Over Financial Reporting
There have not been any changes in the Companys internal controls over financial reporting
during the quarter ended June 30, 2009, which have materially affected, or are reasonably likely to
materially affect, the Companys internal control over financial reporting.
68
PART II: OTHER INFORMATION
|
|
|
Item 1. |
|
Legal Proceedings |
There are no material pending legal proceedings, other than ordinary routine litigation
incidental to its business, to which Home BancShares, Inc. or its subsidiaries are a party or of
which any of their property is the subject.
There were no material changes from the risk factors set forth in Part I, Item 1A, Risk
Factors, of our Form 10-K for the year ended December 31, 2008. See the discussion of our risk
factors in the Form 10-K, as filed with the SEC. The risks described are not the only risks facing
the Company. Additional risks and uncertainties not currently known to us or that we currently
deem to be immaterial also may materially adversely affect our business, financial condition and/or
operating results.
|
|
|
Item 2: |
|
Unregistered Sales of Equity Securities and Use of Proceeds |
Not applicable.
|
|
|
Item 3: |
|
Defaults Upon Senior Securities |
Not applicable.
69
|
|
|
Item 4: |
|
Submission of Matters to a Vote of Security Holders |
The 2009 Annual Meeting of Shareholders of the Company was held on April 23, 2009. The
following items of business were presented to stockholders:
|
(1) |
|
S. Gene Cauley did not stand for re-election as a result of his resignation from the
Board of Directors on April 3, 2009. The remaining eleven directors were elected as
proposed in the Proxy Statement dated March 20, 2009, under the caption Election of
Directors with votes cast as follows: |
|
|
|
|
|
|
|
|
|
|
|
Total Vote |
|
Total Vote Withheld |
|
|
For Each Director |
|
For Each Director |
John W. Allison |
|
|
16,296,993 |
|
|
|
250,157 |
|
Ron W. Strother |
|
|
16,372,767 |
|
|
|
174,383 |
|
C. Randall Sims |
|
|
16,382,247 |
|
|
|
164,903 |
|
Robert H. Adcock, Jr. |
|
|
13,788,481 |
|
|
|
2,758,669 |
|
Richard H. Ashley |
|
|
15,771,932 |
|
|
|
775,218 |
|
Dale A. Bruns |
|
|
16,419,960 |
|
|
|
127,190 |
|
Richard A. Buckheim |
|
|
16,367,098 |
|
|
|
180,052 |
|
Jack E. Engelkes |
|
|
16,424,409 |
|
|
|
122,741 |
|
James G. Hinkle |
|
|
16,383,749 |
|
|
|
163,401 |
|
Alex R. Lieblong |
|
|
15,859,469 |
|
|
|
687,681 |
|
William G. Thompson |
|
|
16,294,218 |
|
|
|
252,932 |
|
|
(2) |
|
The Audit Committees selection and appointment of the accounting firm of BKD, LLP as
the Companys independent registered public accounting firm for the year ending December
31, 2009 was ratified with votes cast as follows: 16,518,613 votes for, 19,215 votes
against and 9,322 votes abstaining. |
|
|
(3) |
|
The Companys executive compensation was approved as proposed in the Proxy Statement
dated March 20, 2009, under the caption Advisory (Non-binding) Vote Approving Executive
Compensation with votes cast as follows: 12,992,183 votes for, 175,144 votes against and
3,379,823 votes abstaining. |
|
|
|
Item 5: |
|
Other Information |
Not applicable.
|
15 |
|
Awareness of Independent Registered Public Accounting Firm |
|
|
31.1 |
|
CEO Certification Pursuant Rule 13a-14(a)/15d-14(a) |
|
|
31.2 |
|
CFO Certification Pursuant Rule 13a-14(a)/15d-14(a) |
|
|
32.1 |
|
CEO Certification Pursuant 18 U.S.C. Section 1350, as adopted
pursuant to section 906 of the Sarbanes Oxley Act of 2002 |
|
|
32.2 |
|
CFO Certification Pursuant 18 U.S.C. Section 1350, as adopted
pursuant to section 906 of the Sarbanes Oxley Act of 2002 |
70
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
HOME BANCSHARES, INC.
(Registrant)
|
|
|
|
|
|
|
Date:
|
August 5, 2009
|
|
/s/ C. Randall Sims |
|
|
|
|
|
|
C. Randall Sims, Chief Executive Officer
|
|
|
|
|
|
|
|
|
|
Date:
|
August 5, 2009
|
|
/s/ Randy E. Mayor |
|
|
|
|
|
|
|
|
|
|
|
|
|
Randy E. Mayor, Chief Financial Officer |
|
|
71