As filed with the Securities and Exchange Commission on
March 14, 2006
Registration
No.
333-
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
HOME BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
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Arkansas
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6022
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71-0682831
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(State or other jurisdiction of
incorporation or organization)
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(Primary Standard Industrial
Classification Number)
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(IRS Employer
Identification Number)
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719 Harkrider
Conway, Arkansas 72032
(501) 328-4757
(Address, including zip code, and telephone number, including
area code, of registrant’s principal executive offices)
John W. Allison
Chairman and Chief Executive Officer
Home BancShares, Inc.
719 Harkrider
Conway, Arkansas 72032
(501) 329-9330
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies of Communications to:
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John S. Selig, Esq.
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Chet A. Fenimore, Esq.
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Mitchell, Williams, Selig, Gates &
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Jenkens & Gilchrist, P.C.
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Woodyard, P.L.L.C.
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and
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401 Congress Avenue, Suite 2500
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425 West Capitol Avenue, Suite 1800
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Austin, Texas 78701
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Little Rock, Arkansas 72201
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Telephone: (512) 499-3800
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Telephone: (501) 688-8804
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Facsimile: (512) 499-3810
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Facsimile: (501) 918-7804
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Approximate date of commencement of proposed sale to the
public:
As soon as practicable after the effective date of
this Registration Statement.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to
Rule 415 under the Securities Act of 1933, check the
following
box.
o
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act,
check the following box and list the Securities Act registration
statement number of the earlier effective registration statement
for the same
offering.
o
If this Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering.
o
If this Form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering.
o
CALCULATION OF REGISTRATION FEE
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Proposed Maximum
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Title of Each Class of
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Aggregate Offering
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Amount of
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Securities to be Registered
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Price(1)(2)
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Registration Fee
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Common Stock, par value $0.01
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$51,750,000
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$5,537
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(1)
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Includes shares of common stock that may be purchased by the
underwriters to cover over-allotments, if any.
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(2)
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Estimated solely for the purpose of calculating the registration
fee in accordance with Rule 457(o) under the Securities Act
of 1933, as amended.
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The Registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its effective
date until the Registrant shall file a further amendment which
specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a)
of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the Commission,
acting pursuant to said Section 8(a), may determine.
The
information in this preliminary prospectus is not complete and
may be changed. We may not sell these securities until the
registration statement filed with the Securities and Exchange
Commission is effective. This preliminary prospectus is not an
offer to sell these securities and is not soliciting an offer to
buy these securities in any state where the offer or sale is not
permitted.
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SUBJECT TO COMPLETION,
DATED ,
2006
PRELIMINARY PROSPECTUS
Shares
Common Stock
We are a bank holding company located in Conway, Arkansas, with
banking operations in central and north central Arkansas, the
Florida Keys and southwestern Florida. We are
offering shares
of our common stock.
Prior to this offering there has been no public market for our
common stock. It is currently estimated that the public offering
price will be between
$ and
$ per
share. See “Underwriting” for a discussion of the
factors considered in determining the public offering price. The
market price of the shares after the offering may be higher or
lower than the public offering price.
We have applied to have our common stock listed on The Nasdaq
National Market under the symbol “HOMB.”
Investing in our common stock involves risks. Please refer to
the section titled “Risk Factors” beginning on page
9.
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Per Share
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Total
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Public offering price
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$
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$
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Underwriting discount
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$
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$
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Proceeds to us, before expenses
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$
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$
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We have granted the underwriters an option to purchase up
to additional
shares of our common stock on the same terms as set forth above
to cover over-allotments, if any. The underwriters may exercise
this option at any time within 30 days after the offering.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or determined if this prospectus is truthful or
complete. Any representation to the contrary is a criminal
offense.
These securities are not savings accounts, deposits or other
obligations of any bank and are not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other governmental
agency and may lose value.
The underwriters expect to deliver the shares to purchasers on
or
about ,
2006, subject to customary closing conditions.
Stephens Inc.
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Piper Jaffray
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Sandler O’Neill + Partners
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The date of this prospectus
is ,
2006.
TABLE OF CONTENTS
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Summary
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1
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Risk Factors
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9
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Cautionary Note Regarding Forward-Looking Statements
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16
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Use of Proceeds
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16
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Price Range of Our Common Stock and Dividends
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17
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Capitalization
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18
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Dilution
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19
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Unaudited Pro Forma Condensed Combined Financial Information
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20
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Management’s Discussion and Analysis of Financial Condition
and Results of Operations
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22
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Business
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56
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Management
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67
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Principal Shareholders
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78
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Supervision and Regulation
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80
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Description of Capital Stock
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92
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Shares Eligible for Future Sale
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95
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Underwriting
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98
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Legal Matters
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99
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Experts
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100
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Change in Independent Registered Public Accounting Firms
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100
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Where You Can Find More Information
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101
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Index To Financial Statements
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F-1
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You should rely only on the information contained in this
prospectus. We have not, and the underwriters have not,
authorized any other person to provide you with different
information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not,
and the underwriters are not, making an offer to sell these
securities in any jurisdiction where the offer or sale is not
permitted. You should assume that the information appearing in
this prospectus is accurate only as of the date on the cover
page of this prospectus. Our business, financial condition,
results of operations and prospects may have changed since that
date.
In this prospectus we rely on and refer to information and
statistics regarding the banking industry in the Arkansas and
Florida markets. We obtained the market data from independent
publications or other publicly available information. Although
we believe these sources are reliable, we have not independently
verified and do not guarantee the accuracy and completeness of
this information.
No action is being taken in any jurisdiction outside the
United States to permit a public offering of the common stock or
possession or distribution of this prospectus in that
jurisdiction. Persons who come into possession of this
prospectus in jurisdictions outside the United States are
required to inform themselves about and to observe any
restrictions as to this offering and the distribution of this
prospectus applicable to those jurisdictions.
SUMMARY
This summary highlights selected information contained
elsewhere in this prospectus, including a description of the
material terms of the offering, and may not contain all of the
information that you should consider before investing in our
common stock. To understand this offering fully, you should
carefully read the entire prospectus, including the sections
entitled “Risk Factors,” and “Management’s
Discussion and Analysis of Financial Condition and Results of
Operations,” together with our consolidated financial
statements and the related notes, before making an investment
decision. Unless the context indicates otherwise, all
information in this prospectus (i) assumes that the
underwriters will not exercise their option to purchase
additional shares to cover over-allotments; and
(ii) reflects the effect of a three-for-one stock split
effected as a stock dividend on May 31, 2005.
Home BancShares
We are a bank holding company headquartered in Conway, Arkansas.
Our five wholly owned community bank subsidiaries provide a
broad range of commercial and retail banking and related
financial services to businesses, real estate developers and
investors, individuals, and municipalities. Three of our bank
subsidiaries are located in the central Arkansas market area, a
fourth serves Stone County in north central Arkansas, and a
fifth serves the Florida Keys and southwestern Florida.
We have achieved significant growth through acquisitions,
organic growth and
de novo
branching. Specifically, as of
and for the year ended December 31, 2001, to
December 31, 2005, we have:
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increased our total assets from $322.0 million to
$1.9 billion;
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increased our loans receivable from $235.7 million to
$1.2 billion;
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increased our total deposits from $237.3 million to
$1.4 billion;
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increased our earnings per diluted share from $0.29 for the year
ended December 31, 2001, to $0.82 for the same period in
2005; and
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expanded our branch network from eight to 45.
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Our History and Management Team
We were established in 1998 when an investor group led by John
W. Allison, our Chairman and Chief Executive Officer, and Robert
H. Adcock, Jr., our former Vice Chairman and the current
Arkansas State Bank Commissioner, formed Home BancShares, Inc.
to acquire a bank charter and establish First State Bank in
Conway, Arkansas. We or members of our management team have also
been involved in the formation of two of our other bank
subsidiaries — Twin City Bank and Marine
Bank — both of which we acquired in 2005. We have also
acquired and integrated our two other bank
subsidiaries — Community Bank and Bank of Mountain
View — in 2003 and 2005, respectively.
We acquire, organize and invest in community banks that serve
attractive markets, and build our community banks around
experienced bankers with strong local relationships. The
historical growth of our two largest bank subsidiaries compares
favorably with the fastest growing
de novo
banks in the
United States: First State Bank would rank 20th compared
with the 140 commercial banks established in 1998 (based on
total asset growth from December 31, 1998, to
December 31, 2005), and Twin City Bank would rank seventh
compared with the 173 commercial banks established in 2000
(based on total asset growth from December 31, 2000, to
December 31, 2005).
Our management team is led by our founder, Chairman and Chief
Executive Officer, John W. Allison; our President and Chief
Operating Officer, Ron W. Strother; and our Chief Financial
Officer, Randy E. Mayor. Mr. Allison has more than
23 years of banking experience, including his service on
the board of directors of First Commercial Corporation from 1984
to 1998. Prior to its sale in 1998, First Commercial Corporation
was a publicly traded company and the largest bank holding
company headquartered in Arkansas, with approximately
$7.3 billion in assets. While on the board of First
Commercial Corporation, Mr. Allison served as the Chairman
of the Executive Committee from 1996 to 1998, and also served as
Chairman of the Asset Quality Committee for several years.
Mr. Strother joined Home BancShares in 2004 and has more
than 33 years of banking experience, which includes serving
as Chairman and Chief Executive Officer of Central
Bank & Trust Company (Little Rock), and President and
Chief Operating Officer of First Commercial Bank (Little Rock).
Mr. Mayor joined Home Bancshares in 1998 as Executive Vice
President and Finance Officer,
1
and became our first Chief Financial Officer in 2004. From 1988
until 1998, Mr. Mayor held various positions at First
National Bank of Conway, a subsidiary of First Commercial
Corporation, including Senior Vice President and Finance Officer
from 1992 to 1998.
Our senior management team — the three senior
executives of Home BancShares and our five bank
presidents — has, on average, more than 27 years
of banking experience. Our executive officers and directors
beneficially owned approximately 45.1% of our outstanding common
stock, as of December 31, 2005.
Since our inception in 1998, we have grown total assets through
a combination of organic growth and acquisitions. The table
below lists our bank subsidiaries and the dates of the
acquisitions of their respective parent companies:
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Bank Subsidiary
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Location
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Effective Date of Acquisition
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First State Bank
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Conway, Arkansas
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October 26, 1998
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Community Bank
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Cabot, Arkansas
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December 1, 2003
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Twin City Bank
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North Little Rock, Arkansas
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January 1, 2005(1)
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Marine Bank
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Marathon, Florida
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June 1, 2005(2)
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Bank of Mountain View
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Mountain View, Arkansas
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September 1, 2005
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(1)
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Prior to the date of the acquisition, we owned approximately 32%
of the shares of TCBancorp, the parent company of Twin City Bank.
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(2)
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In 1995, Mr. Allison, our Chairman and Chief Executive
Officer, was a founding board member of Marine Bancorp, the
parent company of Marine Bank. He owned approximately 22% of
Marine Bancorp’s shares at the time of our acquisition.
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In May 2005, we invested $9.1 million to acquire 20% of the
common stock of White River Bancshares, Inc., the holding
company for Signature Bank in Fayetteville, Arkansas. In January
2006, we invested an additional $3.0 million to maintain
this 20% ownership position.
Our Growth Strategy
Our goals are to achieve growth in earnings per share and to
create and build shareholder value. Our growth strategy entails
the following:
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Organic growth
— We believe that our current
branch network provides us with the capacity to grow
significantly within our existing market areas. Twenty-one of
our 45 branches (including the branches of the banks we have
acquired) have been opened since the beginning of 2001. As these
newer branches continue to mature, we expect to see additional
organic loan and deposit growth and increased profitability.
Furthermore, we plan to broaden the product lines within each of
our bank subsidiaries by cross-selling products such as
insurance and trust services.
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De novo branching
— We intend to continue to
open
de novo
branches in our current markets and in other
attractive market areas if opportunities arise. In 2006, we plan
to add seven to ten new branches, including four or five in
Arkansas, one or two in the Florida Keys and two or three along
the southwestern coast of Florida.
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Strategic acquisitions
— We will continue to
consider strategic acquisitions, with a primary focus on
Arkansas and southwestern Florida. When considering a potential
acquisition, we assess a combination of factors, but concentrate
on the strength of existing executive officers, the growth
potential of the bank and the market, the profitability of the
bank, and the valuation of the bank. We believe that potential
sellers consider us an acquirer of choice, largely due to our
community banking philosophy. With each acquisition we seek to
maintain continuity of executive officers and the board of
directors, consolidate back office operations, add product
lines, and implement our credit policy.
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2
Our Community Banking Philosophy and Operating Strategy
Community Banking Philosophy
— Our community
banking philosophy consists of four basic principles:
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operate largely autonomous community banks managed by
experienced bankers and a local board of directors, who are
empowered to make customer-related decisions quickly;
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provide exceptional service and develop strong customer
relationships;
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pursue the business relationships of our boards of directors,
executive officers, shareholders, and customers to actively
promote our community banks; and
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maintain our commitment to the communities we serve by
supporting their civic and nonprofit organizations.
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We believe that these principles are a competitive advantage
when serving our customers, particularly as we compete with
larger banks headquartered outside of our markets. Through our
bank subsidiaries and their boards of directors and employees,
we plan to continue building a high-performing banking
organization with exceptional customer service.
Operating Strategy
— Our operating strategies
focus on credit quality, improving profitability, finding
experienced bankers, and leveraging our infrastructure:
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Emphasis on credit quality
— Credit quality is
our first priority in the management of our bank subsidiaries.
We employ a set of credit standards across our bank subsidiaries
that are designed to ensure the proper management of credit
risk. Our management team plays an active role in monitoring
compliance with these credit standards at each of our bank
subsidiaries. We have a centralized loan review process and
regularly monitor each of our bank subsidiaries’ loan
portfolios, which we believe enables us to take prompt action on
potential problem loans. Non-performing assets as a percentage
of total assets decreased from 1.18% as of December 31,
2004, to 0.47% as of December 31, 2005.
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Continue to improve profitability
— We intend
to improve our profitability as we leverage the available
capacity of our newer branches and employees. We believe our
investments in our branch network and centralized technology
infrastructure are sufficient to support a larger organization,
and therefore believe increases in our expenses should be lower
than the corresponding increases in our revenues. We also plan
to increase our fee-based revenue by offering all our products
and services, including insurance and trust services, through
each of our bank subsidiaries.
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Attract and motivate experienced bankers
— We
believe a major factor in our success has been our ability to
attract and retain bankers that have experience in and knowledge
of their local communities. For example, in January 2006, we
hired eight experienced bankers in the Searcy, Arkansas, market
(located approximately 50 miles northeast of Little Rock),
where we subsequently opened a new branch. Hiring and retaining
experienced relationship bankers has been integral to our
ability to grow quickly when entering new markets. We will
continue to recruit experienced relationship bankers as our
banking franchise expands.
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Leveraging our infrastructure
— The support
services we provide to our bank subsidiaries are generally
centralized in Conway, Arkansas. These services include finance
and accounting, internal audit, compliance, loan review, human
resources, training, and data processing. We believe the
centralization of our support services enhances efficiencies,
maintains consistency in policies and procedures, and enables
our employees to focus on developing and strengthening customer
relationships.
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3
Our Market Areas
As of December 31, 2005, we conducted business principally
through 38 branches in five counties in Arkansas and seven
branches in the Florida Keys. We plan to add seven to ten new
branches in 2006. Our branch footprint includes markets in which
we are the deposit market share leader, as well as markets where
we believe we have significant opportunities for deposit market
share growth.
We are currently the deposit market share leader in Conway,
Cabot, North Little Rock, and Mountain View, Arkansas. In these
markets, we plan to continue our organic growth while improving
profitability. Furthermore, we plan to open an additional three
to four branches in certain growing communities surrounding
Cabot, Conway, and North Little Rock in 2006, including the
branch in Searcy, Arkansas, opened in February 2006.
Conway
— First State Bank opened its first
branch in Conway in 1999 and, as of June 30, 2005, had a
27.1% deposit market share. Conway is located on Interstate 40,
approximately 30 miles northwest of Little Rock.
Conway’s population is projected to increase by 11.6% from
2005 to 2010.
Cabot
— We entered the Cabot market in 2003
through the acquisition of Community Financial Group and, as of
June 30, 2005, had a 45.8% deposit market share. Cabot is
located approximately 25 miles north of Little Rock.
Cabot’s population is projected to increase by 16.9% from
2005 to 2010.
North Little Rock
— Twin City Bank entered the
North Little Rock market in 2000 and, as of June 30, 2005,
had a 27.6% deposit market share.
Mountain View
— We entered the Mountain View
market through the acquisition of Mountain View Bancshares in
September 2005 and, as of June 30, 2005, the Bank of
Mountain View had an 84.9% deposit market share. Mountain View
is located approximately 75 miles north of Conway and is
the seat of Stone County.
Little Rock
— Twin City Bank began branching
into Little Rock in May 2003 and, as of June 30, 2005, had
a 2.8% deposit market share. Little Rock is the state capital of
Arkansas and is the state’s largest city. Little Rock had
an estimated population of 189,364 in 2005, and its per capita
income is projected to increase 29.0% between 2005 and 2010.
Little Rock should continue to benefit economically from the
growing communities on the outer edges of the greater Little
Rock metropolitan statistical area, including Conway and Cabot.
Florida Keys (Monroe County)
— We entered the
Florida Keys in 2005 through the acquisition of Marine Bank. As
of June 30, 2005, Marine Bank had a 9.5% deposit market
share in Monroe County. The Florida Keys encompass a
100-mile
string of
islands located in Monroe County on the southern tip of Florida,
and are a popular tourist and retirement destination. We believe
that we have growth opportunities both within the Keys and in
nearby markets in southwestern Florida.
Southwestern Florida
— We plan to open a branch
in Port Charlotte (Punta Gorda MSA) and Marco Island
(Naples-Marco Island MSA) during 2006. As of June 30, 2005,
there were more than $12.6 billion deposits and
approximately 500,000 residents in these two combined MSAs. The
expected population growth between 2005 and 2010 in the Punta
Gorda MSA and the Naples-Marco-Island MSA is 11.6% and 22.5%,
respectively.
2005 Fourth Quarter Overview
The fourth quarter of 2005 represented the first full quarter in
which all of our 2005 acquisitions were consolidated. For the
three months ended December 31, 2005, we recorded net
income of $3.6 million, or $0.25 diluted earnings per
share. For the quarter, our return on average equity was 8.53%,
our return on average assets was 0.74%, our net interest margin
was 3.48%, and our efficiency ratio was 63.46%.
4
Recent Developments
Stock Split.
On May 31, 2005, we effected a
three-for-one stock split by means of a stock dividend. Each
holder of shares of our common stock at the time of the stock
dividend was issued two additional shares of common stock for
each share then held. The information contained in this
prospectus has been adjusted to give effect to the stock split,
unless otherwise indicated.
Proposed Conversion of Preferred Stock.
As of
December 31, 2005, we had 2,076,195 shares of
Class A preferred stock and 169,079 shares of
Class B preferred stock outstanding. We will have,
following this offering, the option to convert all of those
shares into shares of our common stock, and it is our intent to
cause those conversions as soon as practicable after the
offering is completed. The applicable conversion rates are
0.789474 share of common stock for each share of
Class A preferred stock, and three shares of common stock
for each share of Class B preferred stock. Thus, upon
conversion of all outstanding shares of Class A preferred
stock and Class B preferred stock, approximately 2,146,338
additional shares of our common stock will be issued. If we do
not convert the shares of preferred stock, the holders of those
shares may, at their option, require us to convert their shares
into common stock, using the same conversion rates.
Registration of Our Common Stock.
On ,
2006, our Form 10 registration statement to register our
class of common stock became effective, making us subject to the
periodic and other reporting requirements of the Securities
Exchange Act of 1934. This filing was required because, as of
December 31, 2005, we had more than 500 holders of our
outstanding shares of common stock. The first of our periodic
filings under that Act is expected to be a
Form
10-Q
for the
quarter ending on June 30, 2006.
Corporate Information
Our headquarters are located at 719 Harkrider, Conway, Arkansas
72032, and our telephone number is (501)328-4757. We maintain a
website at
www.homebancshares.com.
Information on our
website is not incorporated by reference and is not a part of
this prospectus.
5
The Offering
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Common stock offered
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shares(1)
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Common stock to be outstanding after this offering
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shares(2)
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Use of proceeds
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We estimate the net proceeds of this offering will be
$ ,
based on the midpoint of the price range on the cover page of
this prospectus. We will use the net proceeds of this offering
for general corporate purposes, which may include, among other
things, our working capital needs and providing investments in
our bank subsidiaries. We may also use a portion of the net
proceeds to finance bank acquisitions, though we have no present
plans in that regard. See “Use of Proceeds.”
|
|
|
|
Risk factors
|
|
See “Risk Factors” beginning on
page and other information
included in this prospectus for a discussion of factors you
should consider carefully before deciding to invest in our
common stock.
|
|
|
|
Dividend policy
|
|
We have paid quarterly cash dividends on our common stock
beginning with the second quarter of 2003. We anticipate
continuing to pay cash dividends on the common stock in the
foreseeable future, subject to the prior payment of dividends on
our outstanding shares of preferred stock and interest on our
subordinated debentures. However, any future determination
relating to dividends will be made at the discretion of our
board of directors and will depend on a number of factors,
including our future earnings, capital requirements, financial
condition, future prospects, regulatory restrictions and other
factors that our board of directors may deem relevant. See
“Price Range of Our Common Stock and Dividends.”
|
|
|
|
Proposed Nasdaq National Market symbol
|
|
We have applied to have our common stock listed on The Nasdaq
National Market under the symbol “HOMB.”
|
|
|
|
|
(1)
|
The number of shares offered assumes that the underwriters do
not exercise their over-allotment option. If the underwriters do
exercise their over-allotment option, we will issue and sell up
to an
additional shares.
|
|
|
|
(2)
|
The number of shares outstanding after this offering is based on
the number of shares outstanding as of March 13, 2006, and
excludes the following: (i) 1,048,964 shares of common
stock issuable upon the exercise of stock options outstanding as
of March 13, 2006 (assuming conversion of preferred stock
issued on option exercises); (ii) 151,036 shares of
common stock as of March 13, 2006, reserved for issuance
pursuant to future grants under our 2006 Stock Option and
Performance Incentive Plan; (iii) 2,160,464 shares of
common stock issuable upon conversion of the shares of our
Class A preferred stock and Class B preferred stock
that were outstanding as of March 13, 2006; and (iv)
up
to shares
of common stock that may be issued upon the exercise of the
underwriters’ over-allotment option.
|
6
SUMMARY CONSOLIDATED FINANCIAL DATA
We derived our summary historical consolidated financial data
as of December 31, 2005 and 2004, and for each of the three
years ended December 31, 2005, 2004, and 2003, from our
audited financial statements and related notes included in this
prospectus. The summary historical consolidated financial data
as of December 31, 2003, 2002, and 2001, and for each of
the two years ended December 31, 2002 and 2001, have been
derived from our audited financial statements, which are not
included in this prospectus. The per share financial data
presented below has been adjusted to give effect to the
three-for-one stock split in the form of a stock dividend
effected on May 31, 2005. You should read the information
below in conjunction with the audited financial statements and
related notes, along with “Management’s Discussion and
Analysis of Financial Condition and Results of Operations”
included elsewhere in this prospectus.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of and For the Years Ended December 31,
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
2002
|
|
|
2001
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars and shares in thousands, except per share data)
|
|
|
Income statement data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
$
|
85,458
|
|
|
$
|
36,681
|
|
|
$
|
21,538
|
|
|
$
|
20,361
|
|
|
$
|
18,216
|
|
|
|
Total interest expense
|
|
|
36,002
|
|
|
|
11,580
|
|
|
|
8,240
|
|
|
|
7,490
|
|
|
|
8,872
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
49,456
|
|
|
|
25,101
|
|
|
|
13,298
|
|
|
|
12,871
|
|
|
|
9,344
|
|
|
|
Provision for loan losses
|
|
|
3,827
|
|
|
|
2,290
|
|
|
|
807
|
|
|
|
2,220
|
|
|
|
1,708
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for loan losses
|
|
|
45,629
|
|
|
|
22,811
|
|
|
|
12,491
|
|
|
|
10,651
|
|
|
|
7,636
|
|
|
|
Non-interest income
|
|
|
15,222
|
|
|
|
13,681
|
|
|
|
6,739
|
|
|
|
5,354
|
|
|
|
2,895
|
|
|
|
Gain on sale of equity investment
|
|
|
465
|
|
|
|
4,410
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
Non-interest expense
|
|
|
44,935
|
|
|
|
26,131
|
|
|
|
13,070
|
|
|
|
10,052
|
|
|
|
8,364
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes and minority interest
|
|
|
16,381
|
|
|
|
14,771
|
|
|
|
6,160
|
|
|
|
5,953
|
|
|
|
2,167
|
|
|
|
Provision for income taxes
|
|
|
4,935
|
|
|
|
5,030
|
|
|
|
2,343
|
|
|
|
2,076
|
|
|
|
811
|
|
|
|
Minority interest
|
|
|
—
|
|
|
|
582
|
|
|
|
48
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
11,446
|
|
|
$
|
9,159
|
|
|
$
|
3,769
|
|
|
$
|
3,877
|
|
|
$
|
1,356
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per share data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings
|
|
$
|
0.92
|
|
|
$
|
1.08
|
|
|
$
|
0.66
|
|
|
$
|
0.78
|
|
|
$
|
0.30
|
|
|
|
Diluted earnings
|
|
|
0.82
|
|
|
|
0.94
|
|
|
|
0.63
|
|
|
|
0.77
|
|
|
|
0.29
|
|
|
|
Diluted cash earnings(1)
|
|
|
0.89
|
|
|
|
0.99
|
|
|
|
0.64
|
|
|
|
0.77
|
|
|
|
0.29
|
|
|
|
Book value per common share
|
|
|
11.45
|
|
|
|
10.75
|
|
|
|
9.79
|
|
|
|
8.36
|
|
|
|
7.28
|
|
|
|
Book value per share with preferred converted to common(2)
|
|
|
11.63
|
|
|
|
11.07
|
|
|
|
10.29
|
|
|
|
8.36
|
|
|
|
7.28
|
|
|
|
Tangible book value per common share(3)
|
|
|
7.43
|
|
|
|
7.89
|
|
|
|
6.63
|
|
|
|
8.36
|
|
|
|
7.28
|
|
|
|
Tangible book value per share with preferred converted to
common(2)(3)
|
|
|
8.21
|
|
|
|
8.70
|
|
|
|
7.68
|
|
|
|
8.36
|
|
|
|
7.28
|
|
|
|
Dividends — common
|
|
|
0.07
|
|
|
|
0.04
|
|
|
|
0.01
|
|
|
|
—
|
|
|
|
—
|
|
|
|
Average common shares outstanding
|
|
|
11,862
|
|
|
|
7,986
|
|
|
|
5,721
|
|
|
|
4,956
|
|
|
|
4,557
|
|
|
|
Average diluted shares outstanding
|
|
|
13,889
|
|
|
|
9,783
|
|
|
|
5,964
|
|
|
|
5,019
|
|
|
|
4,605
|
|
|
Performance ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on average assets
|
|
|
0.69
|
%
|
|
|
1.17
|
%
|
|
|
0.85
|
%
|
|
|
1.14
|
%
|
|
|
0.52
|
%
|
|
|
Return on average equity
|
|
|
7.27
|
|
|
|
8.61
|
|
|
|
8.88
|
|
|
|
9.87
|
|
|
|
4.27
|
|
|
|
Return on average tangible equity(3)
|
|
|
10.16
|
|
|
|
11.54
|
|
|
|
9.44
|
|
|
|
9.87
|
|
|
|
4.27
|
|
|
|
Net interest margin(4)
|
|
|
3.37
|
|
|
|
3.75
|
|
|
|
3.35
|
|
|
|
4.12
|
|
|
|
3.92
|
|
|
|
Efficiency ratio(5)
|
|
|
64.95
|
|
|
|
57.65
|
|
|
|
64.61
|
|
|
|
55.08
|
|
|
|
68.18
|
|
|
Asset quality:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonperforming assets as a percentage of total assets
|
|
|
0.47
|
%
|
|
|
1.18
|
%
|
|
|
1.24
|
%
|
|
|
0.54
|
%
|
|
|
0.44
|
%
|
|
|
Nonperforming loans as a percentage of total loans
|
|
|
0.69
|
|
|
|
1.73
|
|
|
|
1.73
|
|
|
|
0.64
|
|
|
|
0.57
|
|
|
|
Allowance for loan losses to nonperforming loans
|
|
|
291.62
|
|
|
|
182.40
|
|
|
|
170.10
|
|
|
|
314.73
|
|
|
|
286.66
|
|
|
|
Allowance for loan losses to total loans
|
|
|
2.01
|
|
|
|
3.16
|
|
|
|
2.94
|
|
|
|
2.00
|
|
|
|
1.63
|
|
|
|
Net charge-offs as a percentage of average total loans
|
|
|
0.38
|
|
|
|
0.13
|
|
|
|
0.16
|
|
|
|
0.14
|
|
|
|
0.14
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of and For the Years Ended December 31,
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
2002
|
|
|
2001
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars and shares in thousands, except per share data)
|
|
|
Balance sheet data (period end):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,911,491
|
|
|
$
|
805,186
|
|
|
$
|
803,103
|
|
|
$
|
368,983
|
|
|
$
|
322,036
|
|
|
|
Investment securities
|
|
|
530,302
|
|
|
|
190,466
|
|
|
|
161,951
|
|
|
|
44,317
|
|
|
|
55,285
|
|
|
|
Loans receivable
|
|
|
1,204,589
|
|
|
|
516,655
|
|
|
|
500,055
|
|
|
|
284,764
|
|
|
|
235,699
|
|
|
|
Allowance for loan losses
|
|
|
24,175
|
|
|
|
16,345
|
|
|
|
14,717
|
|
|
|
5,706
|
|
|
|
3,847
|
|
|
|
Intangible assets
|
|
|
48,727
|
|
|
|
22,816
|
|
|
|
25,252
|
|
|
|
—
|
|
|
|
—
|
|
|
|
Non-interest-bearing deposits
|
|
|
209,974
|
|
|
|
86,186
|
|
|
|
76,508
|
|
|
|
31,027
|
|
|
|
29,202
|
|
|
|
Total deposits
|
|
|
1,427,108
|
|
|
|
552,878
|
|
|
|
572,218
|
|
|
|
279,228
|
|
|
|
237,343
|
|
|
|
Subordinated debentures (trust preferred securities)
|
|
|
44,755
|
|
|
|
24,219
|
|
|
|
24,238
|
|
|
|
—
|
|
|
|
—
|
|
|
|
Shareholders’ equity
|
|
|
165,857
|
|
|
|
106,610
|
|
|
|
99,472
|
|
|
|
46,753
|
|
|
|
35,977
|
|
|
Capital ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity to assets
|
|
|
8.68
|
%
|
|
|
13.24
|
%
|
|
|
12.39
|
%
|
|
|
12.67
|
%
|
|
|
11.17
|
%
|
|
|
Tangible equity to tangible assets(3)
|
|
|
6.29
|
|
|
|
10.71
|
|
|
|
9.54
|
|
|
|
12.67
|
|
|
|
11.17
|
|
|
|
Tier 1 leverage ratio(6)
|
|
|
9.22
|
|
|
|
13.47
|
|
|
|
13.15
|
|
|
|
13.42
|
|
|
|
11.98
|
|
|
|
Tier 1 risk-based capital ratio
|
|
|
12.25
|
|
|
|
17.39
|
|
|
|
16.41
|
|
|
|
14.17
|
|
|
|
13.34
|
|
|
|
Total risk-based capital ratio
|
|
|
13.51
|
|
|
|
17.39
|
|
|
|
16.41
|
|
|
|
15.42
|
|
|
|
14.77
|
|
|
|
Dividend payout — common
|
|
|
7.30
|
|
|
|
3.71
|
|
|
|
2.46
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
(1)
|
Diluted cash earnings per share reflect diluted earnings per
share plus per share intangible amortization expense, net of the
corresponding tax effect. See “Management’s Discussion
and Analysis of Financial Condition and Results of
Operations — Table 20.”
|
|
|
|
(2)
|
Amounts for December 31, 2005, are adjusted to reflect the
conversion of 2,076,195 shares of Class A preferred
stock outstanding and 169,079 shares of Class B
preferred stock outstanding on such date into
2,146,338 shares of common stock, assuming conversion of
the preferred stock.
|
|
|
|
|
Amounts for December 31, 2004, are adjusted to reflect the
conversion of 2,077,118 shares of Class A preferred
stock outstanding on such date into 1,639,830 shares of
common stock, assuming conversion of the preferred stock.
|
|
|
|
|
Amounts for December 31, 2003, are adjusted to reflect the
conversion of 2,129,637 shares of Class A preferred
stock outstanding on such date into 1,681,292 shares of
common stock, assuming conversion of the preferred stock.
|
|
|
|
(3)
|
Tangible calculations eliminate the effect of goodwill and
acquisition-related intangible assets and the corresponding
amortization expense on a tax-effected basis.
|
|
|
|
(4)
|
Fully taxable equivalent (tax-exempt interest earnings are
adjusted as if interest earnings are taxable).
|
|
|
|
(5)
|
The efficiency ratio 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.
|
|
|
|
(6)
|
Leverage ratio is Tier 1 capital to quarterly average total
assets less intangible assets and gross unrealized gains/losses
on available-for-sale investment securities.
|
8
RISK FACTORS
An investment in our common stock involves risks. Before
making an investment decision, you should carefully consider the
risks described below, together with our consolidated financial
statements and the related notes and the other information
included in this prospectus. The discussion below presents
material risks associated with an investment in our common
stock. If any of the following risks actually occur, our
business, financial condition and results of operations could be
harmed. In such a case, the trading price of our common stock
could decline, and you may lose all or part of your investment.
The risks discussed below also include forward-looking
statements, and our actual results may differ substantially from
those discussed in these forward-looking statements. See
“Cautionary Note Regarding Forward-Looking
Statements.”
Risks Related to Our Business
Our
decisions regarding credit risk could be inaccurate and our
allowance for loan losses may be inadequate, which would
materially and adversely affect our business, financial
condition, results of operations and future prospects.
Management makes various assumptions and judgments about the
collectibility of our loan portfolio, including the
creditworthiness of our borrowers and the value of the real
estate and other assets serving as collateral for the repayment
of our secured loans. We maintain an allowance for loan losses
that we consider adequate to absorb future losses which may
occur in our loan portfolio. In determining the size of the
allowance, we analyze our loan portfolio based on our historical
loss experience, volume and classification of loans, volume and
trends in delinquencies and non-accruals, national and local
economic conditions, and other pertinent information. As of
December 31, 2005, our allowance for loan losses was
approximately $24.2 million, or 2.01% of our total loans
receivable.
If our assumptions are incorrect, our current allowance may be
insufficient to cover future loan losses, and increased loan
loss reserves may be needed to respond to different economic
conditions or adverse developments in our loan portfolio. In
addition, federal and state regulators periodically review our
allowance for loan losses and may require us to increase our
allowance for loan losses or recognize further loan charge-offs
based on judgments different than those of our management. Any
increase in our allowance for loan losses or loan charge-offs
could have a negative effect on our operating results.
Because
we have a high concentration of loans secured by real estate, a
downturn in the real estate market could result in losses and
materially and adversely affect business, financial condition,
results of operations and future prospects.
A significant portion of our loan portfolio is dependent on real
estate. As of December 31, 2005, approximately 80.7% of our
loans had real estate as a primary or secondary component of
collateral. The real estate collateral in each case provides an
alternate source of repayment in the event of default by the
borrower and may deteriorate in value during the time the credit
is extended. An adverse change in the economy affecting values
of real estate generally or in our primary markets specifically
could significantly impair the value of our collateral and our
ability to sell the collateral upon foreclosure. Furthermore, it
is likely that we would be required to increase our provision
for loan losses. If we are required to liquidate the collateral
securing a loan to satisfy the debt during a period of reduced
real estate values or to increase our allowance for loan losses,
our profitability and financial condition could be adversely
impacted.
Because
we have a concentration of exposure to a number of individual
borrowers, a significant loss on any of those loans could
materially and adversely affect our business, financial
condition, results of operations, and future prospects.
We have a concentration of exposure to a number of individual
borrowers. Under applicable law, each of our bank subsidiaries
is generally permitted to make loans to one borrowing
relationship up to 20% of their respective capital in the case
of our Arkansas bank subsidiaries, and 15% of capital (25% on
secured loans) in the case of our Florida bank subsidiary.
Historically, when our bank subsidiaries have lending
relationships that exceed their individual loan to one borrower
limitation, the overline, or amount in excess of the subsidiary
bank’s legal lending limit, is participated to our other
bank subsidiaries. As a result, on a consolidated basis we may
have aggregate exposure to individual or related borrowers in
excess of each individual bank subsidiary’s legal lending
limit. As of December 31, 2005, the aggregate legal lending
limit of our bank subsidiaries for secured loans was
approximately $37.3 million. Currently, our board of
directors has established an in-house
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consolidated lending limit of $16.0 million to any one
borrowing relationship without obtaining the approval of our
Chairman and our Vice Chairman.
As of December 31, 2005, we had ten borrowing relationships
where we had a commitment to loan in excess of
$10.0 million, with the aggregate amount of those
commitments totaling approximately $134.5 million. The
largest of those commitments to one borrowing relationship was
$27.3 million, which is 16.5% of our consolidated
shareholders’ equity. Given the size of these loan
relationships relative to our capital levels and earnings, a
significant loss on any one of these loans could materially and
adversely affect our business, financial condition, results of
operations, and future prospects.
The
unexpected loss of key officers may materially and adversely
affect our business, financial condition, results of operations
and future prospects.
Our success depends significantly on our executive officers,
especially John W. Allison, Ron W. Strother, Randy E. Mayor, and
on the presidents of our bank subsidiaries. Our bank
subsidiaries, in particular, rely heavily on their management
team’s relationships in their local communities to generate
business. Because we do not have employment agreements or
non-compete agreements with our employees, our executive
officers and bank presidents are free to resign at any time and
accept an employment offer from another company, including a
competitor. The loss of services from a member of our current
management team may materially and adversely affect our
business, financial condition, results of operations and future
prospects.
Our
growth and expansion strategy may not be successful and our
market value and profitability may suffer.
Growth through the acquisition of banks,
de novo
branching, and the organization of new banks represents an
important component of our business strategy. Although we have
no present plans to acquire any financial institution or
financial services provider, any future acquisitions we might
make will be accompanied by the risks commonly encountered in
acquisitions. These risks include, among other things:
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credit risk associated with the acquired bank’s loans and
investments;
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difficulty of integrating operations and personnel; and
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potential disruption of our ongoing business.
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We expect that competition for suitable acquisition candidates
may be significant. We may compete with other banks or financial
service companies with similar acquisition strategies, many of
which are larger and have greater financial and other resources.
We cannot assure you that we will be able to successfully
identify and acquire suitable acquisition targets on acceptable
terms and conditions.
In addition to the acquisition of existing financial
institutions, we plan to continue
de novo
branching, and
we may consider the organization of new banks in new market
areas. We do not, however, have any current plans to organize a
new bank.
De novo
branching and any acquisition or
organization of a new bank carries with it numerous risks,
including the following:
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the inability to obtain all required regulatory approvals;
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significant costs and anticipated operating losses associated
with establishing a
de novo
branch or a new bank;
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the inability to secure the services of qualified senior
management;
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the local market may not accept the services of a new bank owned
and managed by a bank holding company headquartered outside of
the market area of the new bank;
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the inability to obtain attractive locations within a new market
at a reasonable cost; and
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the additional strain on management resources and internal
systems and controls.
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We cannot assure that we will be successful in overcoming these
risks or any other problems encountered in connection with
acquisitions,
de novo
branching and the organization of
new banks. Our inability to overcome these risks could have an
adverse effect on our ability to achieve our business strategy
and maintain our market value and profitability.
We expect to continue to grow our assets and deposits, the
products and services we offer, and the scale of our operations,
generally, both internally and through acquisitions. If we
continue to grow rapidly, we may not be able to control costs
and maintain our asset quality. Our ability to manage our growth
successfully will
10
depend on our ability to maintain cost controls and asset
quality while attracting additional loans and deposits on
favorable terms. If we grow too quickly and are not able to
control costs and maintain asset quality, this rapid growth
could materially and adversely affect our financial performance.
There
may be undiscovered risks or losses associated with our
acquisitions of bank subsidiaries which would have a negative
impact upon our future income.
Our growth strategy includes strategic acquisitions of bank
subsidiaries. We acquired three bank subsidiaries in 2005, and
will continue to consider strategic acquisitions, with a primary
focus on Arkansas and southwestern Florida. In most cases, our
acquisition of a bank includes the acquisition of all of the
target bank’s assets and liabilities, including its loan
portfolio. There may be instances when we, under our normal
operating procedures, may find after the acquisition, that there
may be additional losses or undisclosed liabilities with respect
to the assets and liabilities of the target bank, and, with
respect to its loan portfolio, that the ability of a borrower to
repay a loan may have become impaired, the quality of the value
of the collateral securing a loan may fall below our standards,
or the allowance for loan losses may not be adequate. One or
more of these factors might cause us to have additional losses
or liabilities, additional loan charge-offs, or increases in
allowances for loan losses, which would have a negative impact
upon our future income.
An
economic downturn, natural disaster or act of terrorism,
especially one affecting our market areas, could adversely
affect our business, financial condition, results of operations
and future prospects.
Our business is affected by prevailing economic conditions in
the United States, including inflation and unemployment rates,
but is particularly subject to the local economies in Arkansas,
the Florida Keys and southwestern Florida. Our relatively small
size and our geographic concentration expose us to greater risk
of unfavorable local economic conditions than the larger
national or regional banks in our market areas. Adverse changes
in local economic factors, such as population growth trends,
income levels, deposits and housing starts, may adversely affect
our operations.
We are at risk of natural disaster or acts of terrorism, even if
our market areas are not primarily affected. Our Florida market,
in particular, is subject to risks from hurricanes, which may
damage or dislocate our facilities, damage or destroy
collateral, adversely affect the livelihood of borrowers or
otherwise cause significant economic dislocation in areas we
serve.
If and when economic conditions deteriorate, either in our local
market areas or nationwide, we may experience a reduction in the
demand for our products and services and deterioration in the
quality of our loan portfolio and consequently have a material
and adverse effect on our business, financial condition, results
of operations and future prospects.
Competition
from other financial institutions may adversely affect our
profitability.
The banking business is highly competitive. We experience strong
competition, not only from commercial banks, savings and loan
associations, and credit unions, but also from mortgage banking
firms, consumer finance companies, securities brokerage firms,
insurance companies, money market funds, and other financial
institutions operating in or near our market areas. We compete
with these institutions both in attracting deposits and in
making loans.
Many of our competitors are much larger national and regional
financial institutions. We may face a competitive disadvantage
against them as a result of our smaller size and resources and
our lack of geographic diversification.
We also compete against community banks that have strong local
ties. These smaller institutions are likely to cater to the same
small and mid-sized businesses that we target and to use a
relationship-based approach similar to ours. In addition, our
competitors may seek to gain market share by pricing below the
current market rates for loans and paying higher rates for
deposits. Competitive pressures can adversely affect our
profitability.
Our
recent results do not indicate our future results, and may not
provide guidance to assess the risk of an investment in our
common stock.
We are unlikely to sustain our historical rate of growth, and
may not even be able to expand our business at all. Further, our
recent growth may distort some of our historical financial
ratios and statistics. In the future, we may not have the
benefit of several recently favorable factors, such as a strong
residential housing market
11
or the ability to find suitable expansion opportunities. Various
factors, such as economic conditions, regulatory and legislative
considerations and competition, may also impede or prohibit our
ability to expand our market presence. If we are not able to
successfully grow our business, our financial condition and
results of operations could be adversely affected.
We
may not be able to raise the additional capital we need to grow
and, as a result, our ability to expand our operations could be
materially impaired.
Federal and state regulatory authorities require us and our bank
subsidiaries to maintain adequate levels of capital to support
our operations. While we believe that our capital will be
sufficient to support our current operations and anticipated
expansion, factors such as faster than anticipated growth,
reduced earning levels, operating losses, changes in economic
conditions, revisions in regulatory requirements, or additional
acquisition opportunities may lead us to seek additional capital.
Our ability to raise additional capital, if needed, will depend
on our financial performance and on conditions in the capital
markets at that time, which are outside our control. If we need
additional capital but cannot raise it on terms acceptable to
us, our ability to expand our operations could be materially
impaired.
We
are considered by the Federal Reserve Board to be a source of
“financial strength” for White River Bancshares and
may be required to support its capital.
We hold a 20% ownership interest in White River Bancshares,
Inc., a bank holding company headquartered in Fayetteville,
Arkansas. Our minority ownership means that we lack effective
power to control the operations of the holding company. We are,
nevertheless, considered by the Federal Reserve Board to be a
source of financial strength for that holding company. As a
result, we may be required to contribute sufficient funds for
White River Bancshares to meet regulatory capital requirements
if it is unable to raise funds from other sources. An obligation
to support White River Bancshares may be required at times when,
in the absence of this Federal Reserve Board policy, we might
not be inclined to provide it. As of and for the year ended
December 31, 2005, White River Bancshares had total assets
of $184.7 million, total shareholders’ equity of
$51.2 million, and a net operating loss of
$2.7 million.
We
may be unable to, or choose not to, pay dividends on our common
stock.
Although we have paid a quarterly dividend on our common stock
since the second quarter of 2003 and expect to continue this
practice, we cannot assure you of our ability to continue. Our
ability to pay dividends depends on the following factors, among
others:
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We may not have sufficient earnings since our primary source of
income, the payment of dividends to us by our bank subsidiaries,
is subject to federal and state laws that limit the ability of
these banks to pay dividends.
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Federal Reserve Board policy requires bank holding companies to
pay cash dividends on common stock only out of net income
available over the past year and only if prospective earnings
retention is consistent with the organization’s expected
future needs and financial condition.
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Before dividends may be paid on our common stock in any year,
dividends of $0.25 per share must first be paid on our
Class A preferred stock and $0.57 per share on our
Class B preferred stock.
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Before dividends may be paid on our common stock in any year,
payments must be made on our subordinated debentures.
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Our board of directors may determine that, even though funds are
available for dividend payments, retaining the funds for
internal uses, such as expansion of our operations, is a better
strategy.
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If we fail to pay dividends, capital appreciation, if any, of
our common stock may be your sole opportunity for gains on your
investment.
Our
directors and executive officers own a significant portion of
our common stock and can exert significant control over our
business and corporate affairs.
Our directors and executive officers, as a group, will
beneficially own approximately %
of our common stock immediately following this offering.
Consequently, if they vote their shares in concert, they can
significantly influence the outcome of all matters submitted to
our shareholders for approval, including the
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election of directors. The interests of our officers and
directors may conflict with the interests of other holders of
our common stock, and they may take actions affecting our
company with which you disagree.
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The holders of our subordinated debentures have rights
that are senior to those of our shareholders.
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We have $44.8 million of subordinated debentures issued in
connection with trust preferred securities. Payments of the
principal and interest on the trust preferred securities are
unconditionally guaranteed by us. The subordinated debentures
are senior to our shares of common stock. As a result, we must
make payments on the subordinated debentures (and the related
trust preferred securities) before any dividends can be paid on
our common stock and, in the event of our bankruptcy,
dissolution or liquidation, the holders of the debentures must
be satisfied before any distributions can be made to the holders
of our common stock. We have the right to defer distributions on
the subordinated debentures (and the related trust preferred
securities) for up to five years, during which time no dividends
may be paid to holders of our common stock.
Risks Related to Our Industry
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Our profitability is vulnerable to interest rate
fluctuations and monetary policy.
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Most of our assets and liabilities are monetary in nature, and
thus subject us to significant risks from changes in interest
rates. Consequently, our results of operations can be
significantly affected by changes in interest rates and our
ability to manage interest rate risk. Changes in market interest
rates, or changes in the relationships between short-term and
long-term market interest rates, or changes in the relationship
between different interest rate indices can affect the interest
rates charged on interest-earning assets differently than the
interest paid on interest-bearing liabilities. This difference
could result in an increase in interest expense relative to
interest income or a decrease in interest rate spread. In
addition to affecting our profitability, changes in interest
rates can impact the valuation of our assets and liabilities.
Our results of operations are also affected by the monetary
policies of the Federal Reserve Board. Actions by the Federal
Reserve Board involving monetary policies could have an adverse
effect on our deposit levels, loan demand or business and
earnings.
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We are subject to extensive regulation that could limit or
restrict our activities and impose financial requirements or
limitations on the conduct of our business, which limitations or
restrictions could adversely affect our profitability.
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We are a registered bank holding company primarily regulated by
the Federal Reserve Board. Our bank subsidiaries are also
primarily regulated by the Federal Reserve Board, the Federal
Deposit Insurance Corporation, and the Arkansas State Bank
Department or Florida Office of Financial Regulation.
Complying with banking industry regulations is costly and may
limit our growth and restrict certain of our activities,
including payment of dividends, mergers and acquisitions,
investments, loans and interest rates charged, interest rates
paid on deposits and locations of offices. We are also subject
to capital requirements by our regulators. Violations of various
laws, even if unintentional, may result in significant fines or
other penalties, including restrictions on branching or bank
acquisitions. Recently, banks generally have faced increased
regulatory sanctions and scrutiny, particularly under the USA
Patriot Act and statutes that promote customer privacy or seek
to prevent money laundering. As regulation of the banking
industry continues to evolve, we expect the costs of compliance
to continue to increase and, thus, to affect our ability to
operate profitably.
Upon completion of this offering, we will become subject to the
many requirements of the Securities Exchange Act of 1934, the
Sarbanes-Oxley Act of 2002, and the related rules and
regulations promulgated by the Securities and Exchange
Commission and Nasdaq. These laws and regulations will increase
the scope, complexity and cost of our corporate governance,
reporting and disclosure practices. Although we are accustomed
to conducting business in a highly regulated environment, these
laws and regulations have different requirements for compliance
than we have previously experienced. Our expenses for
accounting, legal and consulting services will increase because
of the new obligations we will face as a public company. In
addition, the sudden application of these requirements to our
business will result in some cultural adjustments and may strain
our management resources.
To date, we have not conducted a comprehensive review and
confirmation of the adequacy of our existing systems and
controls as will be required under Section 404 of the
Sarbanes-Oxley Act, and will not do so until
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after the completion of this offering. We may discover
deficiencies in existing systems and controls. If that is the
case, we intend to take the necessary steps to correct any
deficiencies. These steps may be costly and strain our
resources. A decline in the market price for our common stock
may result if we are unable to comply with the Sarbanes-Oxley
Act.
Risks Related to This Offering
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We have broad discretion in the use of the net proceeds
from this offering, and our use of those proceeds may not yield
a favorable return on your investment.
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We will use the net proceeds of this offering for general
corporate purposes, which may include, among other things, our
working capital needs and providing investments in our bank
subsidiaries. We may also use the net proceeds to finance bank
acquisitions, though we have no present plans in that regard.
Thus, our management has broad discretion over how these
proceeds are used and could spend the proceeds in ways with
which you may not agree. We may not invest the proceeds of this
offering effectively or in a manner that yields a favorable (or
any) return on our common stock, and consequently, this could
result in financial losses that could have a material adverse
effect on our business or cause the price of our common stock to
decline.
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There has been no prior active trading market for our
common stock. We cannot assure you that an active public trading
market will develop after the offering and, even if it does, our
stock price may trade below the public offering price.
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There has been no public market for our common stock prior to
this offering. An active trading market for our common stock may
never develop or be sustained, which could affect your ability
to sell your shares.
Even if a market develops for our common stock after the
offering, the market price of our common stock may experience
significant volatility. Factors that may affect the price of our
common stock include the depth and liquidity of the market for
our common stock, investor perception of our financial strength,
conditions in the banking industry such as credit quality and
monetary policies, and general economic and market conditions.
Our quarterly operating results, changes in analysts’
earnings estimates, changes in general conditions in the economy
or financial markets or other developments affecting us could
cause the market price of our common stock to fluctuate
substantially. In addition, the initial public offering price
has been determined through negotiations between us and the
underwriters, and may bear no relationship to the price at which
the common stock will trade upon completion of the offering.
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Investors in this offering will experience immediate and
substantial dilution.
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Purchasers in this offering will experience immediate dilution
in the net tangible book value of our common stock from the
offering price of
$ per
share. To the extent we raise additional capital by issuing
equity securities in the future, our shareholders may experience
additional dilution. Our board of directors may determine, from
time to time, a need to obtain additional capital through the
issuance of additional shares of common stock or other
securities. We may issue additional securities at prices or on
terms less favorable than or equal to the public offering price
and terms of this offering. Additional dilution may also occur
upon the exercise of options granted by us under our 2006 Stock
Option and Performance Incentive Plan or the conversion of our
outstanding shares of Class A preferred stock or
Class B preferred stock to common stock.
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The ability of our insiders or the holders of our
Class A and Class B preferred stock to sell
substantial amounts of common stock after this offering may
depress the market price of our common stock or cause it to
decline.
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There are three potentially significant sources of shares of our
common stock that may come on the market after this offering:
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Our directors and executive officers will beneficially own
approximately % of our common
stock immediately after this offering. Although they are subject
to “lock-up” agreements with our underwriters, which
generally prevent them from selling their shares within
180 days after the offering, the underwriters may release
them from those obligations. In any event, after the
lock-up
agreements
expire, approximately 5.9 million additional shares of our
common stock could become tradable by our directors and
executive officers.
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We intend to require that all of the outstanding shares of our
Class A preferred stock be converted to common stock as
soon as practicable after June 6, 2006, the first date on
which we can require
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conversion of those shares. We also intend, as soon as
practicable after this offering, to require that our
Class B preferred stock be converted to common stock.
Conversion of our Class A preferred stock and Class B
preferred stock will result in as many as 2,241,184 shares
of our common stock being issued, including shares issuable upon
exercise of preferred stock options. Most of the holders of the
newly issued shares of common stock will be eligible immediately
to sell their shares.
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We intend to register all common stock that we may issue upon
exercise of outstanding options under our 2006 Stock Option and
Performance Incentive Plan. Once we register these shares, they
can be sold in the public market upon issuance, subject to
restrictions under the securities laws and, if applicable, the
lock-up
agreements
described above. As of March 13, 2006, stock options to
purchase 968,244 shares of our common stock had been
granted under this plan, of which 481,224 are presently
exercisable.
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Sales of a significant number of shares of our common stock
after this offering, or the expectation that these sales may
occur, could depress the market price of our common stock.
15
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of our statements contained in this prospectus, including
matters discussed under the caption “Management’s
Discussion and Analysis of Financial Condition and Results of
Operation,” are “forward-looking statements.”
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
or a 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.
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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 “Risk Factors”
beginning on page 9.
USE OF PROCEEDS
Our net proceeds from the sale
of shares
of our common stock in this offering (based on the mid-point of
the price range on the cover page of this prospectus) will be
approximately
$ million,
after deducting underwriting discounts and commissions and
estimated offering expenses payable by us. If the
underwriters’ over-allotment option is exercised in full,
we estimate that our net proceeds will be approximately
$ million.
We will use the net proceeds of this offering for general
corporate purposes. Those purposes may include, among other
things, meeting our working capital needs and providing
investments in our bank subsidiaries to support our growth,
including development of additional banking offices.
Additionally, we may use the net proceeds to finance bank
acquisitions, though we have no present plans in that regard.
We have not specifically allocated the amount of the net
proceeds that will be used for these purposes; however, we
believe that we will be able to deploy the net proceeds of this
offering in a manner that will maximize the return to our
investors. We are effecting this offering at this time because
we believe that based on our current financial position and
considering our historical growth and development and our
prospects for the future, we have reached a stage where we are
ready to be a public company with access to the public markets.
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The precise amounts and timing of our use of the net proceeds
will depend upon market conditions and the availability of other
funds, among other factors. From time to time, we may engage in
additional capital financings as we determine to be appropriate
based upon our needs and prevailing market conditions. These
additional capital financings may include the sale of securities
other than, or in addition to, common stock.
PRICE RANGE OF OUR COMMON STOCK AND DIVIDENDS
Prior to this offering, our common stock has not been traded on
an established public trading market and quotations for our
common stock were not reported on any market. As a result, there
has been no regular market for our common stock. Although our
shares have been infrequently traded in private transactions,
those transactions have usually been between related parties and
at sales prices that did not necessarily reflect the price that
would be paid for our common stock in an active market.
We have applied to have our common stock listed on The Nasdaq
National Market under the symbol “HOMB.” We believe,
but cannot be certain, that a Nasdaq listing will substantially
enhance the trading market for our common stock. See “Risk
Factors — Risks Related to This Offering,”
beginning on page 14. As of December 31, 2005, there
were 12,113,865 shares of our common stock outstanding,
held by approximately 1,100 holders of record.
Dividends are paid at the discretion of our board of directors.
We have paid regular quarterly cash dividends on our common
stock beginning with the second quarter of 2003, and our board
of directors presently intends to continue the payment of these
regular cash dividends. We paid total dividends in the amount of
$0.07 per common share in 2005, $0.04 per common share
in 2004 and $0.01 per common share in 2003. However, the
amount and frequency of cash dividends, if any, will be
determined by our board of directors after consideration of our
earnings, capital requirements, our financial condition and our
ability to service any equity or debt obligations senior to our
common stock, and will depend on cash dividends paid to us by
our bank subsidiaries. As a result, our ability to pay future
dividends will depend on the earnings of our bank subsidiaries,
their financial condition and their need for funds.
There are a number of restrictions on our ability to pay cash
dividends. It is the policy of the Federal Reserve Board that
bank holding companies should pay cash dividends on common stock
only out of net income available over the past year and only if
prospective earnings retention is consistent with the
organization’s expected future needs and financial
condition. The policy provides that bank holding companies
should not maintain a level of cash dividends that undermines
the bank holding company’s ability to serve as a source of
strength to its banking subsidiaries. For a foreseeable period
of time, our principal source of cash will be dividends paid by
our bank subsidiaries with respect to their capital stock. There
are certain restrictions on the payment of these dividends
imposed by federal banking laws, regulations and authorities.
See “Supervision and Regulation — Payment of
Dividends.”
Additionally, before any dividend may be paid on our common
stock in any year, dividends of $0.25 per share must first
be paid on our Class A preferred stock and $0.57 per
share paid on our Class B preferred stock. We are also
restricted from paying dividends on our common stock if we have
deferred payments of interest, or if a default has occurred, on
our subordinated debentures.
As of December 31, 2005, no significant funds were
available for payment of dividends by our bank subsidiaries to
us under applicable regulatory restrictions, without regulatory
approval. Regulatory authorities could impose administratively
stricter limitations on the ability of our bank subsidiaries to
pay dividends to us if such limits were deemed appropriate to
preserve certain capital adequacy requirements. See
“Management’s Discussion and Analysis of Financial
Condition and Results of Operations.”
17
CAPITALIZATION
The following table shows our consolidated capitalization as of
December 31, 2005. Our capitalization is presented on an
actual basis and on an as adjusted basis to give effect to the
sale
of shares
of common stock offered in this offering, less the underwriting
discount, commissions and estimated expenses, at an assumed
offering price of
$ per
share (the mid-point of the price range set forth on the cover
page of this prospectus). This table should be read in
conjunction with “Management’s Discussion and Analysis
of Financial Condition and Results of Operations” and the
consolidated financial statements and the related notes included
in this prospectus.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2005
|
|
|
|
|
|
|
|
|
|
Actual
|
|
|
As adjusted(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands, except
|
|
|
|
|
per share data)
|
|
|
Long-term indebtedness:
(2)
|
|
|
|
|
|
|
|
|
|
Subordinated debentures, due 2030
|
|
$
|
3,516
|
|
|
$
|
3,516
|
|
|
Subordinated debentures, due 2033
|
|
|
20,619
|
|
|
|
20,619
|
|
|
Subordinated debentures, due 2033, floating rate
|
|
|
5,155
|
|
|
|
5,155
|
|
|
Subordinated debentures, due 2035
|
|
|
15,465
|
|
|
|
15,465
|
|
|
Advance on line of credit(3)
|
|
|
14,000
|
|
|
|
14,000
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term indebtedness
|
|
|
58,755
|
|
|
|
58,755
|
|
|
|
|
|
|
|
|
|
|
Shareholders’ equity:
|
|
|
|
|
|
|
|
|
|
Class A preferred stock, $0.01 par value;
2,500,000 shares authorized; 2,076,195 shares issued
and outstanding, actual and as adjusted
|
|
|
21
|
|
|
|
21
|
|
|
Class B preferred stock, $0.01 par value;
3,000,000 shares authorized; 169,079 shares issued and
outstanding, actual and as adjusted
|
|
|
2
|
|
|
|
2
|
|
|
Common stock, $0.01 par value; 25,000,000 shares
authorized; 12,113,865 shares issues and
outstanding; shares
issued and outstanding as adjusted
|
|
|
121
|
|
|
|
|
|
|
Capital surplus
|
|
|
146,285
|
|
|
|
|
|
|
Retained earnings
|
|
|
27,331
|
|
|
|
27,331
|
|
|
Accumulated other comprehensive loss
|
|
|
(7,903
|
)
|
|
|
(7,903
|
)
|
|
|
|
|
|
|
|
|
|
|
Total shareholders’ equity
|
|
|
165,857
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capitalization
(4)
|
|
$
|
224,612
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Book value per share with preferred converted to common
|
|
$
|
11.63
|
|
|
|
|
|
|
Capital ratios:
|
|
|
|
|
|
|
|
|
|
|
Equity to assets
|
|
|
8.68
|
%
|
|
|
|
|
|
|
Tangible equity to tangible assets(5)
|
|
|
6.29
|
|
|
|
|
|
|
|
Tier 1 leverage ratio(6)
|
|
|
9.22
|
|
|
|
|
|
|
|
Tier 1 risk-based capital ratio
|
|
|
12.25
|
|
|
|
|
|
|
|
Total risk-based capital ratio
|
|
|
13.51
|
|
|
|
|
|
|
|
|
|
(1)
|
As adjusted to give effect to the assumed issuance
of shares
of common stock.
|
|
|
|
(2)
|
Excludes FHLB advances, which were approximately
$99.1 million as of December 31, 2005.
|
|
|
|
(3)
|
The advance on the line of credit was fully repaid in January
2006.
|
|
|
|
(4)
|
Consists of long-term debt and total shareholders’ equity.
|
|
|
|
(5)
|
Tangible calculations eliminate the effect of goodwill and
acquisition-related intangible assets and the corresponding
amortization expense on a tax-effected basis.
|
|
|
|
(6)
|
Leverage ratio is Tier 1 capital to quarterly average total
assets less intangible assets and gross unrealized gains/losses
on available-for-sale investment securities.
|
18
DILUTION
If you invest in our common stock in this offering, your
ownership interest in Home BancShares will be diluted to the
extent of the difference between the initial public offering
price per share and the pro forma net tangible book value per
share after this offering. Net tangible book value per share is
determined by dividing our tangible net worth (net tangible
assets less total liabilities) by the number of shares
outstanding. Our net tangible book value as of December 31,
2005, was $117.1 million, or $8.21 per share, based on
the number of shares of common stock outstanding plus the
conversion of preferred stock to common stock as of
December 31, 2005.
After giving effect to our sale of shares in this offering at an
assumed initial public offering price of
$ per
share (the midpoint of the range set forth on the cover page of
this prospectus), assuming the underwriters’ over-allotment
option is not exercised, and after deducting estimated
underwriting discounts and commissions and estimated offering
expenses payable by us, our common stock net tangible book value
as of December 31, 2005 would have been
$ million,
or
$ per
share. This represents an immediate increase in net tangible
book value to present common shareholders of
$ per
share and an immediate dilution in net tangible book value of
$ per
share to new investors purchasing shares in this offering at the
assumed initial public offering price. Dilution is determined by
subtracting pro forma net tangible book value per common share
after this offering from the assumed initial offering price of
$ per
common share.
The following table illustrates the dilution on a
per-common-share basis (with preferred stock converted to common
stock) as of December 31, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
Assumed initial public offering price
|
|
|
|
|
|
$
|
|
|
|
|
Net tangible book value prior to offering
|
|
$
|
8.21
|
|
|
|
|
|
|
|
Increase in net tangible book value attributable to new investors
|
|
|
|
|
|
|
|
|
|
|
Pro forma net tangible book value after offering
|
|
|
|
|
|
|
|
|
|
Dilution to new investors(1)
|
|
|
|
|
|
$
|
|
|
|
|
|
|
(1)
|
To the extent any outstanding stock options are exercised, you
will experience further dilution.
|
The following table summarizes the total number of shares, the
total consideration paid to us and the average price paid per
share by existing shareholders and new investors purchasing
common stock in this offering. This information is presented on
a pro forma basis as of December 31, 2005, after giving
effect to the sale of
the shares
of common stock in this offering at an assumed initial public
offering price of
$ per
share (the midpoint of the range set forth on the cover page of
this prospectus).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares Purchased
|
|
|
Total Consideration
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Price
|
|
|
|
|
Number
|
|
|
Percent
|
|
|
Amount(1)
|
|
|
Percent(1)
|
|
|
Per Share(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands, except per share amounts)
|
|
|
Shares previously issued
|
|
|
|
|
|
|
%
|
|
|
$
|
|
|
|
|
%
|
|
|
$
|
|
|
|
Shares issued in this offering
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
%
|
|
|
$
|
|
|
|
|
%
|
|
|
$
|
|
|
|
|
|
|
(1)
|
Before deducting estimated underwriting discounts and
commissions of
$ and
estimated offering expenses of approximately
$ .
In addition, this table does not reflect the exercise of any
outstanding stock options. As of March 13, 2006, there were
options outstanding under our stock option plan to purchase a
total of 968,244 shares of common stock with a weighted
average exercise price of $11.22 per share; options
outstanding to purchase a total of 11,703 shares of
Class A preferred stock with a weighted average exercise
price of $6.84 per share (which can convert into
9,239 shares of common stock with a weighted average price
of $8.66 per share); and options outstanding to purchase a
total of 23,827 shares of Class B preferred stock with
a weighted average exercise price of $19.09 per share
(which can convert into 71,481 shares of common stock with
a weighted average price of $6.36 per share).
|
19
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL
INFORMATION
The following unaudited pro forma condensed combined statement
of income for the year ended December 31, 2005, combines
the historical income statements of Home BancShares with Marine
Bancorp, Inc. and Mountain View Bancshares, Inc. after giving
effect to our acquisitions of Marine Bancorp on June 1,
2005, and Mountain View Bancshares on September 1, 2005.
The pro forma adjustments to the statement of income are
computed as if the transactions occurred on January 1,
2005. This unaudited pro forma statement was prepared giving
effect to the purchase accounting adjustments and other
assumptions described in the accompanying notes. Pro forma
balance sheet data is not provided, as our audited consolidated
balance sheet as of December 31, 2005, included elsewhere
in this prospectus, gives full effect to the Marine Bancorp and
Mountain View Bancshares acquisitions.
The unaudited pro forma condensed combined statement of income
reflects pro forma adjustments that are described in the
accompanying notes and are based on available information and
certain assumptions we believe are reasonable but are subject to
change. We have made, in our opinion, all adjustments that are
necessary to present fairly the pro forma information. The
unaudited condensed combined statement of income does not
purport to represent what our actual results of operations or
financial position would have been if our acquisitions of Marine
Bancorp and Mountain View Bancshares had occurred on
January 1, 2005, or to project our results of operations or
financial position for any future period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mountain
|
|
|
|
|
|
|
|
|
Home
|
|
|
Marine
|
|
|
View
|
|
|
|
|
Pro forma
|
|
|
|
|
BancShares
|
|
|
Bancorp
|
|
|
Bancshares
|
|
|
|
|
2005 with
|
|
|
|
|
As
|
|
|
Jan. 1-
|
|
|
Jan. 1-
|
|
|
|
|
Marine and
|
|
|
|
|
Reported
|
|
|
May 31,
|
|
|
Aug. 31,
|
|
|
|
|
Mountain
|
|
|
|
|
2005
|
|
|
2005
|
|
|
2005
|
|
|
Adjustments
|
|
|
View
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars and shares in thousands, except per share data)
|
|
|
Interest income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable
|
|
$
|
65,244
|
|
|
$
|
5,637
|
|
|
$
|
3,421
|
|
|
$
|
—
|
|
|
$
|
74,302
|
|
|
|
Investment securities
|
|
|
19,829
|
|
|
|
325
|
|
|
|
3,206
|
|
|
|
(792
|
)(1)
|
|
|
22,568
|
|
|
|
Deposits — other banks
|
|
|
101
|
|
|
|
5
|
|
|
|
—
|
|
|
|
—
|
|
|
|
106
|
|
|
|
Federal funds sold
|
|
|
284
|
|
|
|
—
|
|
|
|
117
|
|
|
|
—
|
|
|
|
401
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
|
85,458
|
|
|
|
5,967
|
|
|
|
6,744
|
|
|
|
(792
|
)
|
|
|
97,377
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on deposits
|
|
|
26,883
|
|
|
|
1,532
|
|
|
|
2,410
|
|
|
|
—
|
|
|
|
30,825
|
|
|
|
Federal funds purchased
|
|
|
399
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
399
|
|
|
|
FHLB and other borrowings
|
|
|
4,046
|
|
|
|
413
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,459
|
|
|
|
Securities sold under agreements to repurchase
|
|
|
2,657
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,657
|
|
|
|
Subordinated debentures
|
|
|
2,017
|
|
|
|
155
|
|
|
|
—
|
|
|
|
681
|
(2)
|
|
|
2,853
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
|
36,002
|
|
|
|
2,100
|
|
|
|
2,410
|
|
|
|
681
|
|
|
|
41,193
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
49,456
|
|
|
|
3,867
|
|
|
|
4,334
|
|
|
|
(1,473
|
)
|
|
|
56,184
|
|
|
|
Provision for loan losses
|
|
|
3,827
|
|
|
|
258
|
|
|
|
360
|
|
|
|
—
|
|
|
|
4,445
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for loan losses
|
|
|
45,629
|
|
|
|
3,609
|
|
|
|
3,974
|
|
|
|
(1,473
|
)
|
|
|
51,739
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mountain
|
|
|
|
|
|
|
|
|
Home
|
|
|
Marine
|
|
|
View
|
|
|
|
|
Pro forma
|
|
|
|
|
BancShares
|
|
|
Bancorp
|
|
|
Bancshares
|
|
|
|
|
2005 with
|
|
|
|
|
As
|
|
|
Jan. 1-
|
|
|
Jan. 1-
|
|
|
|
|
Marine and
|
|
|
|
|
Reported
|
|
|
May 31,
|
|
|
Aug. 31,
|
|
|
|
|
Mountain
|
|
|
|
|
2005
|
|
|
2005
|
|
|
2005
|
|
|
Adjustments
|
|
|
View
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars and shares in thousands, except per share data)
|
|
|
Non-interest income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service charges on deposits
|
|
|
8,319
|
|
|
|
275
|
|
|
|
228
|
|
|
|
—
|
|
|
|
8,822
|
|
|
|
Other service charges and fees
|
|
|
2,099
|
|
|
|
171
|
|
|
|
64
|
|
|
|
—
|
|
|
|
2,334
|
|
|
|
Mortgage banking income
|
|
|
1,651
|
|
|
|
206
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,857
|
|
|
|
Other income
|
|
|
3,618
|
|
|
|
15
|
|
|
|
305
|
|
|
|
—
|
|
|
|
3,938
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest income
|
|
|
15,687
|
|
|
|
667
|
|
|
|
597
|
|
|
|
—
|
|
|
|
16,951
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits
|
|
|
23,901
|
|
|
|
1,690
|
|
|
|
1,052
|
|
|
|
—
|
|
|
|
26,643
|
|
|
|
Occupancy and equipment
|
|
|
6,869
|
|
|
|
450
|
|
|
|
351
|
|
|
|
—
|
|
|
|
7,670
|
|
|
|
Data processing expense
|
|
|
1,991
|
|
|
|
298
|
|
|
|
33
|
|
|
|
—
|
|
|
|
2,322
|
|
|
|
Advertising
|
|
|
2,067
|
|
|
|
58
|
|
|
|
30
|
|
|
|
—
|
|
|
|
2,155
|
|
|
|
Amortization of intangibles
|
|
|
1,466
|
|
|
|
—
|
|
|
|
—
|
|
|
|
330
|
(3)
|
|
|
1,796
|
|
|
|
Other operating expense
|
|
|
8,641
|
|
|
|
667
|
|
|
|
385
|
|
|
|
—
|
|
|
|
9,693
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest expense
|
|
|
44,935
|
|
|
|
3,163
|
|
|
|
1,851
|
|
|
|
330
|
|
|
|
50,279
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before taxes
|
|
|
16,381
|
|
|
|
1,113
|
|
|
|
2,720
|
|
|
|
(1,803
|
)
|
|
|
18,411
|
|
|
|
Income taxes — pro forma adjustment
|
|
|
4,935
|
|
|
|
442
|
|
|
|
—
|
|
|
|
(707
|
)(4)
|
|
|
4,670
|
|
|
|
Income taxes — Mountain View adjustment
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
450
|
(5)
|
|
|
450
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
11,446
|
|
|
$
|
671
|
|
|
$
|
2,720
|
|
|
$
|
(1,546
|
)
|
|
$
|
13,291
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
0.92
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1.05
|
|
|
Diluted earnings per share
|
|
|
0.82
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
0.93
|
|
|
Preferred stock dividends
|
|
$
|
574
|
|
|
$
|
41
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
615
|
|
|
Basic — weighted average shares outstanding
|
|
|
11,862
|
|
|
|
—
|
|
|
|
224
|
|
|
|
—
|
|
|
|
12,086
|
|
|
Diluted — weighted average shares outstanding
|
|
|
13,889
|
|
|
|
203
|
|
|
|
224
|
|
|
|
—
|
|
|
|
14,316
|
|
|
|
|
|
(1)
|
This adjustment reflects the reduction in interest income that
would result from the sale of $34.2 million of securities
to fund our purchase of Marine Bancorp and Mountain View
Bancshares for the five and eight months, respectively, prior to
their acquisition by us. An average rate of 3.87% was used based
on the yield of the securities sold.
|
|
|
|
(2)
|
This adjustment reflects additional interest expense on
subordinated debentures for the eight months prior to the
acquisition of Mountain View Bancshares. An average rate of
6.81% was used based on the additional $15.0 million of
subordinated debenture issued during 2005.
|
|
|
|
(3)
|
This adjustment reflects the amortization expense for Marine
Bancorp and Mountain View Bancshares core deposit intangible
assets for the five and eight months, respectively, prior to
their acquisitions by us.
|
|
|
|
(4)
|
This adjustment reflects the estimated tax effect of the pro
forma adjustments using a marginal 39.23% tax rate.
|
|
|
|
(5)
|
This adjustment reflects the estimated tax effect of the
conversion of Mountain View Bancshares from an
S corporation to a C corporation tax filer using an
estimated effective tax rate of 16.56%. The estimated effective
tax rate is low due to the relatively high level of investments
in municipal securities owned by Bank of Mountain View.
|
21
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis presents our
consolidated financial condition and results of operations for
the years ended December 31, 2005, 2004 and 2003. This
discussion should be read together with the “Summary
Consolidated Financial Data,” our financial statements and
the notes thereto, and other financial data included in this
prospectus. In addition to the historical information provided
below, we have made certain estimates and forward-looking
statements that involve risks and uncertainties. Our actual
results could differ significantly from those anticipated in
these estimates and in the forward-looking statements as a
result of certain factors, including those discussed in the
section of this prospectus captioned “Risk Factors,”
beginning on page 9, and elsewhere in this prospectus.
General
We are a bank holding company headquartered in Conway, Arkansas,
offering a broad array of financial services through our five
wholly owned bank subsidiaries. As of December 31, 2005, we
had, on a consolidated basis, total assets of $1.9 billion,
loans receivable of $1.2 billion, total deposits of
$1.4 billion, and shareholders’ equity of
$165.9 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 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.
Key Financial Measures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of or for the Years Ended December 31,
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands, except per share data)
|
|
|
Total assets
|
|
$
|
1,911,491
|
|
|
$
|
805,186
|
|
|
$
|
803,103
|
|
|
Loans receivable
|
|
|
1,204,589
|
|
|
|
516,665
|
|
|
|
500,055
|
|
|
Total deposits
|
|
|
1,427,108
|
|
|
|
552,878
|
|
|
|
572,218
|
|
|
Net income
|
|
|
11,446
|
|
|
|
9,159
|
|
|
|
3,769
|
|
|
Basic earnings per share
|
|
$
|
0.92
|
|
|
$
|
1.08
|
|
|
$
|
0.66
|
|
|
Diluted earnings per share
|
|
|
0.82
|
|
|
|
0.94
|
|
|
|
0.63
|
|
|
Diluted cash earnings per share(1)
|
|
|
0.89
|
|
|
|
0.99
|
|
|
|
0.64
|
|
|
Net interest margin
|
|
|
3.37
|
%
|
|
|
3.75
|
%
|
|
|
3.35
|
%
|
|
Efficiency ratio
|
|
|
64.95
|
|
|
|
57.65
|
|
|
|
64.61
|
|
|
Return on average assets
|
|
|
0.69
|
|
|
|
1.17
|
|
|
|
0.85
|
|
|
Return on average equity
|
|
|
7.27
|
|
|
|
8.61
|
|
|
|
8.88
|
|
|
|
|
|
(1)
|
See Table 20 “Diluted Cash Earnings Per Share” for a
reconciliation to GAAP for diluted cash earnings per share.
|
2005 Overview
Our net income increased $2.3 million, or 25.0%, to
$11.4 million for the year ended December 31, 2005,
from $9.2 million for the same period in 2004. The increase
in earnings is primarily associated with our acquisitions during
2005, combined with organic growth of our bank
subsidiaries’ earnings. In 2004, our net income included a
gain on the sale of our equity investment in Russellville
Bancshares. Excluding this after-tax gain of $2.7 million,
net income for 2005 would have increased by $5.0 million,
or 75.4%, over 2004. Diluted earnings per share decreased $0.12,
or 12.8%, to $0.82 for the year ended December 31, 2005,
from
22
$0.94 for 2004. This decrease was primarily the result of the
gain of $0.27 per diluted share during 2004, and a 42.0%
increase in the average diluted shares outstanding for the year
ended December 31, 2005, versus the same period in 2004,
resulting from the shares issued in connection with our 2005
acquisitions. Excluding the gain, diluted earnings per share
would have increased $0.15, or 22.4%, to $0.82 per diluted
share for the year ended December 31, 2005, from
$0.67 per diluted share for 2004.
Our return on average equity was 7.27% for the year ended
December 31, 2005, compared to 8.61% for 2004. The decrease
was primarily due to: (i) the $59.2 million, or 55.6%,
increase in shareholders’ equity to $165.9 million as
of December 31, 2005, compared to $106.6 million as of
December 31, 2004; and (ii) a gain of
$2.7 million in 2004. Return on average equity for 2004
would have been 6.07%, excluding this gain. The increase in
shareholders’ equity was primarily due to the acquisitions
of TCBancorp and Marine Bancorp.
Our return on average assets was 0.69% for the year ended
December 31, 2005, compared to 1.17% for 2004. The decrease
was primarily due to: (i) the $1.1 billion, or 137.4%,
increase in total assets to $1.9 billion as of
December 31, 2005, compared to $805.2 million as of
December 31, 2004; and (ii) a gain of
$2.7 million in 2004. Return on average assets would have
been 0.83% excluding this gain. The increase in total assets was
primarily due to the acquisitions of TCBancorp, Marine Bancorp,
and Mountain View Bancshares.
Our net interest margin was 3.37% for the year ended
December 31, 2005, compared to 3.75% for 2004. The decrease
was primarily due to the relatively lower net interest margin of
2.77% for Twin City Bank for the year ended December 31,
2005.
Our efficiency ratio (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) was 64.95% for the year ended
December 31, 2005, compared to 57.65% for 2004. The
efficiency ratio for 2004 would have been 64.06% excluding our
gain of $2.7 million.
Our total assets increased $1.1 billion, or 137.4%, to
$1.9 billion as of December 31, 2005, compared to
$805.2 million as of December 31, 2004. Our loan
portfolio increased $687.9 million, or 133.2%, to
$1.2 billion as of December 31, 2005, from
$516.7 million as of December 31, 2004.
Shareholders’ equity increased $59.2 million, or
55.6%, to $165.9 million as of December 31, 2005, from
$106.6 million as of December 31, 2004. All of these
increases were primarily associated with our acquisitions during
2005.
As of December 31, 2005, our asset quality improved as
non-performing loans declined to $8.3 million, or 0.69%, of
total loans from $9.0 million, or 1.73%, of total loans as
of the prior year end. The allowance for loan losses as a
percent of non-performing loans improved to 291.6% as of
December 31, 2005, compared to 182.4% from the prior year
end. These ratios reflect the continuing commitment of our
management to maintain sound asset quality.
2005 Fourth Quarter Operating Performance
The fourth quarter of 2005 represented the first full quarter in
which all of our 2005 acquisitions were consolidated. For the
three months ended December 31, 2005, we recorded net
income of $3.6 million, or $0.25 diluted earnings per
share. For the quarter, our return on average equity was 8.53%,
our return on average assets was 0.74%, our net interest margin
was 3.48%, and our efficiency ratio was 63.46%.
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 included as part of this
prospectus.
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
23
that the accounting policies most critical to us are those
associated with our lending practices, including the accounting
for the allowance for loan losses, intangible assets and income
taxes.
Investments.
Securities available for sale are reported
at fair value with unrealized holding gains and losses reported
as a separate component of shareholders’ 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 management’s intent to hold them for the foreseeable
future or until maturity or payoff. 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 management’s 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 management’s analysis and
evaluation of the loan portfolio for identification of problem
credits, internal and external factors that may affect
collectibility, 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. All non-accrual loans
and all loans that have been restructured from their original
contractual terms are considered impaired loans. 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 management’s
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.
Loans are placed on non-accrual status when management believes
that the borrower’s 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 collectibility 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
as required by SFAS No. 142, Goodwill and Other
Intangible Assets, in the fourth quarter. No impairment of our
goodwill has resulted from these annual impairment tests.
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
24
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.
We and our subsidiaries file consolidated tax returns. Our
subsidiaries provide for income taxes on a separate return
basis, and remit to us amounts determined to be currently
payable.
Stock Options.
We have elected to follow Accounting
Principles Board Opinion No. 25,
Accounting for Stock
Issued to Employees
(APB 25), and related
interpretations in accounting for employee stock options using
the fair value method. Under APB 25, because the exercise
price of the options equals the estimated market price of the
stock on the issuance date, no compensation expense is recorded.
Acquisitions and Equity Investments
On September 1, 2005, we acquired Mountain View Bancshares,
Inc., an Arkansas bank holding company. Mountain View Bancshares
owned The Bank of Mountain View, located in Mountain View,
Arkansas which had total assets of $186.4 million, loans of
$68.8 million and total deposits of $158.0 million on
the date of the acquisition. The consideration for the merger
was $44.1 million, which was paid approximately 90%, or
$39.8 million, in cash and 10%, or $4.3 million, in
shares of our common stock. As a result of this transaction, we
recorded goodwill of $13.2 million and a core deposit
intangible of $3.0 million.
On June 1, 2005, we acquired Marine Bancorp, Inc., a
Florida bank holding company. Marine Bancorp owned Marine Bank
of the Florida Keys (subsequently renamed Marine Bank), located
in Marathon, Florida, which had total assets of $251.5, loans of
$215.2 million and total deposits of $200.7 million on
the date of the acquisition. The consideration for the merger
was $15.6 million comprised of approximately 60.5%, or
$9.4 million, in cash and 39.5%, or $6.2 million, in
shares of our Class B preferred stock. As a result of this
transaction, we recorded goodwill of $4.6 million and a
core deposit intangible of $2.0 million.
On January 3, 2005, we purchased 20% of the common stock of
White River Bancshares, Inc. of Fayetteville, Arkansas for
$9.1 million. White River Bancshares is a newly formed
corporation, which owns all of the stock of Signature Bank of
Arkansas, with branch locations in northwest Arkansas. As of
December 31, 2005, White River Bancshares had total assets
of $184.7 million, loans of $131.3 million, and total
deposits of $130.3 million. In January 2006, White River
Bancshares issued an additional $15.0 million of common
stock. To maintain our 20% ownership, we invested an additional
$3.0 million in White River Bancshares at that time.
Effective January 1, 2005, we purchased the remaining 67.8%
of TCBancorp that we did not previously own. TCBancorp owned
Twin City Bank, with branch locations in the Little Rock/ North
Little Rock metropolitan area. The purchase brought our
ownership of TCBancorp to 100%. TCBancorp had total assets of
$630.3 million, loans of $261.9 million and total
deposits of $500.1 million at the effective date of the
acquisition. The purchase price for the TCBancorp acquisition
was $43.9 million, which consisted of approximately
$110,000 of cash and the issuance of 3,750,813 shares
(split adjusted) of our common stock. As a result of this
transaction, we recorded goodwill of $1.1 million and a
core deposit intangible of $3.3 million. This transaction
also increased our ownership of CB Bancorp and FirsTrust
Financial Services to 100%, both of which we had previously
co-owned with TCBancorp.
On December 1, 2003, we used CB Bancorp (an acquisition
subsidiary that we formed and co-owned, on an 80/20 basis, with
TCBancorp) to purchase Community Financial Group, Inc. and its
bank subsidiary, Community Bank. Community Bank had total assets
of $326.2 million, loans of $199.5 million and total
deposits of $279.6 million at the date of the acquisition.
The purchase price for the Community Financial Group acquisition
was $43.0 million and consisted of cash of
$12.6 million from Home BancShares and $8.6 million
from TCBancorp, and 2,123,453 shares of our Class A
preferred stock at a value of $10 per share. In February
2005, CB Bancorp merged into Home BancShares, and Community Bank
then became our wholly owned subsidiary. As a result of this
transaction, we recorded goodwill of $18.6 million and a
core deposit intangible of $5.0 million.
25
Sale of Equity Investment in Russellville Bancshares
On September 7, 2004, Russellville Bancshares repurchased
the 21.7% equity interest that we had originally acquired in
2001. As a result of this sale, we recorded a pre-tax gain of
$4.4 million or an after-tax gain of $2.7 million.
This gain increased diluted earnings per share by $0.27 for the
year ended December 31, 2004.
Excluding the gain associated with the sale of our interest in
Russellville Bancshares, our net income for the year ended
December 31, 2004, was $6.5 million, or $0.67 per
diluted earnings per share.
Results of Operations as of and for the Years Ended
December 31, 2005, 2004 and 2003
Performance Summary.
Our net income increased
$2.3 million, or 25.0%, to $11.4 million for the year
ended December 31, 2005, from $9.2 million for 2004.
Our net income increased $5.4 million, or 143.0%, to
$9.2 million for the year ended December 31, 2004,
from $3.8 million for 2003. The increase in earnings is
primarily associated with our acquisitions during 2005, combined
with organic growth of our bank subsidiaries. In 2004, our net
income included a gain on the sale of our equity investment in
Russellville Bancshares. Excluding this after-tax gain of
$2.7 million, net income for 2005 would have increased
$5.0 million, or 75.4%. The increase in our net income for
2004 as compared to 2003 resulted from: (i) our acquisition
of Community Financial Group in December 2003; (ii) a gain
of $2.7 million in 2004; and (iii) the organic growth
of our bank subsidiaries’ earnings.
On a diluted earnings per share basis, our net earnings were
$0.82 for 2005, as compared to $0.94 for 2004 and $0.63 for
2003. The decrease in diluted earnings per share for 2005 is
primarily due to the effect of a after-tax gain of
$0.27 per diluted share from the sale of our equity
ownership in Russellville Banchares during the third quarter of
2004, and a 42.0% increase in the average diluted shares
outstanding for the year ended December 31, 2005, versus
the same period in 2004. This increase in average diluted shares
was the result of the shares issued in connections with our
acquisitions in 2005.
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.
Net interest income on a fully taxable equivalent basis
increased $25.3 million, or 97.3%, to $51.2 million
for the year ended December 31, 2005, from
$26.0 million for 2004. This increase in net interest
income was the result of a $49.7 million increase in
interest income offset by $24.4 million increase in
interest expense. The $49.7 million increase in interest
income for the year ended December 31, 2005, is primarily
the result of a $788.5 million increase in average earning
assets associated with our acquisitions during 2005, combined
with higher short-term interest rates as a result of the rising
rate environment. The higher level of earning assets resulted in
an improvement in interest income of $46.3 million. The
rising rate environment resulted in a $3.4 million increase
in interest income during 2005. The $24.4 million increase
in interest expense for the year ended December 31, 2005,
is primarily the result of a $686.5 million increase in
average interest-bearing liabilities associated with our
acquisitions during 2005, combined with higher interest rates
during 2005 as a result of the rising rate environment. The
higher level of interest-bearing liabilities resulted in
additional interest expense of $17.3 million. The rising
rate environment resulted in a $7.1 million increase in
interest expense during 2005.
Net interest income on a fully taxable equivalent basis
increased $12.6 million, or 93.9%, to $26.0 million
for the year ended December 31, 2004, from
$13.4 million for 2003. This increase in net interest
income was the result of a $15.9 million increase in
interest income and a $3.3 million increase in interest
expense. The $15.9 million increase in interest income for
the year ended December 31, 2004, is primarily the result
of a
26
$293.8 million increase of average earning assets due to
the December 2003 acquisition of Community Financial Group,
combined with our internal growth. The higher level of earning
assets resulted in an improvement in interest income of
$15.5 million. The $3.3 million increase in interest
expense for the year ended December 31, 2004, is primarily
the result of a $228.9 million increase in average
interest-bearing liabilities associated with the acquisition of
Community Financial Group, combined with our internal growth.
The higher level of interest-bearing liabilities resulted in
additional interest expense of $4.2 million.
Tables 1 and 2 reflect an analysis of net interest income on a
fully taxable equivalent basis for the years ended
December 31, 2005, 2004 and 2003, as well as changes in
fully taxable equivalent net interest margin for the years 2005
compared to 2004 and 2004 compared to 2003.
Table 1: Analysis of Net Interest Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
Interest income
|
|
$
|
85,458
|
|
|
$
|
36,681
|
|
|
$
|
21,538
|
|
|
Fully taxable equivalent adjustment
|
|
|
1,790
|
|
|
|
874
|
|
|
|
95
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income — fully taxable equivalent
|
|
|
87,248
|
|
|
|
37,555
|
|
|
|
21,633
|
|
|
Interest expense
|
|
|
36,002
|
|
|
|
11,580
|
|
|
|
8,240
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income — fully taxable equivalent
|
|
$
|
51,246
|
|
|
$
|
25,975
|
|
|
$
|
13,393
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Yield on earning assets — fully taxable equivalent
|
|
|
5.74
|
%
|
|
|
5.42
|
%
|
|
|
5.42
|
%
|
|
Cost of interest-bearing liabilities
|
|
|
2.75
|
|
|
|
2.00
|
|
|
|
2.36
|
|
|
Net interest spread — fully taxable equivalent
|
|
|
2.99
|
|
|
|
3.42
|
|
|
|
3.06
|
|
|
Net interest margin — fully taxable equivalent
|
|
|
3.37
|
|
|
|
3.75
|
|
|
|
3.35
|
|
Table 2: Changes in Fully Taxable Equivalent Net Interest
Margin
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 vs. 2004
|
|
|
2004 vs. 2003
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
Increase in interest income due to change in earning assets
|
|
$
|
46,333
|
|
|
$
|
15,453
|
|
|
Increase in interest income due to change in earning asset yields
|
|
|
3,360
|
|
|
|
469
|
|
|
Increase in interest expense due to change in interest-bearing
liabilities
|
|
|
17,339
|
|
|
|
4,166
|
|
|
Increase (decrease) in interest expense due to change in
interest rates paid on interest-bearing liabilities
|
|
|
7,083
|
|
|
|
(826
|
)
|
|
|
|
|
|
|
|
|
|
Increase in net interest income
|
|
$
|
25,271
|
|
|
$
|
12,582
|
|
|
|
|
|
|
|
|
|
27
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 years ended December 31,
2005, 2004 and 2003. 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Income/
|
|
|
Yield/
|
|
|
Average
|
|
|
Income/
|
|
|
Yield/
|
|
|
Average
|
|
|
Income/
|
|
|
Yield/
|
|
|
|
|
Balance
|
|
|
Expenses
|
|
|
Rate
|
|
|
Balance
|
|
|
Expenses
|
|
|
Rate
|
|
|
Balance
|
|
|
Expenses
|
|
|
Rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earning assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing balances due from banks
|
|
$
|
3,159
|
|
|
$
|
101
|
|
|
|
3.20
|
%
|
|
$
|
2,788
|
|
|
$
|
38
|
|
|
|
1.36
|
%
|
|
$
|
625
|
|
|
$
|
8
|
|
|
|
1.28
|
%
|
|
Federal funds sold
|
|
|
8,048
|
|
|
|
284
|
|
|
|
3.53
|
|
|
|
16,902
|
|
|
|
158
|
|
|
|
0.93
|
|
|
|
13,637
|
|
|
|
159
|
|
|
|
1.17
|
|
|
Investment securities — taxable
|
|
|
442,168
|
|
|
|
17,103
|
|
|
|
3.87
|
|
|
|
144,446
|
|
|
|
5,764
|
|
|
|
3.99
|
|
|
|
61,763
|
|
|
|
1,584
|
|
|
|
2.56
|
|
|
Investment securities — non-taxable
|
|
|
66,960
|
|
|
|
4,301
|
|
|
|
6.42
|
|
|
|
34,945
|
|
|
|
2,331
|
|
|
|
6.67
|
|
|
|
4,277
|
|
|
|
276
|
|
|
|
6.45
|
|
|
Loans receivable
|
|
|
1,000,906
|
|
|
|
65,459
|
|
|
|
6.54
|
|
|
|
493,969
|
|
|
|
29,264
|
|
|
|
5.92
|
|
|
|
318,975
|
|
|
|
19,606
|
|
|
|
6.15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets
|
|
|
1,521,241
|
|
|
|
87,248
|
|
|
|
5.74
|
|
|
|
693,050
|
|
|
|
37,555
|
|
|
|
5.42
|
|
|
|
399,277
|
|
|
|
21,633
|
|
|
|
5.42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-earning assets
|
|
|
137,601
|
|
|
|
|
|
|
|
|
|
|
|
89,355
|
|
|
|
|
|
|
|
|
|
|
|
41,888
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,658,842
|
|
|
|
|
|
|
|
|
|
|
$
|
782,405
|
|
|
|
|
|
|
|
|
|
|
$
|
441,165
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing transaction and savings deposits
|
|
$
|
447,433
|
|
|
$
|
8,267
|
|
|
|
1.85
|
%
|
|
$
|
192,426
|
|
|
$
|
1,435
|
|
|
|
0.75
|
%
|
|
$
|
89,250
|
|
|
$
|
781
|
|
|
|
0.88
|
%
|
|
Time deposits
|
|
|
624,692
|
|
|
|
18,616
|
|
|
|
2.98
|
|
|
|
281,391
|
|
|
|
6,171
|
|
|
|
2.19
|
|
|
|
187,734
|
|
|
|
4,919
|
|
|
|
2.62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing deposits
|
|
|
1,072,125
|
|
|
|
26,883
|
|
|
|
2.51
|
|
|
|
473,817
|
|
|
|
7,606
|
|
|
|
1.61
|
|
|
|
276,984
|
|
|
|
5,700
|
|
|
|
2.06
|
|
|
Federal funds purchased
|
|
|
13,996
|
|
|
|
399
|
|
|
|
2.85
|
|
|
|
10,773
|
|
|
|
159
|
|
|
|
1.48
|
|
|
|
1,307
|
|
|
|
29
|
|
|
|
2.22
|
|
|
Securities sold under agreement to repurchase
|
|
|
85,876
|
|
|
|
2,657
|
|
|
|
3.09
|
|
|
|
23,068
|
|
|
|
407
|
|
|
|
1.76
|
|
|
|
22,859
|
|
|
|
256
|
|
|
|
1.12
|
|
|
FHLB and other borrowed funds
|
|
|
109,323
|
|
|
|
4,046
|
|
|
|
3.70
|
|
|
|
46,837
|
|
|
|
1,840
|
|
|
|
3.93
|
|
|
|
32,596
|
|
|
|
1,220
|
|
|
|
3.74
|
|
|
Subordinated debentures
|
|
|
29,408
|
|
|
|
2,017
|
|
|
|
6.86
|
|
|
|
24,219
|
|
|
|
1,568
|
|
|
|
6.47
|
|
|
|
16,075
|
|
|
|
1,035
|
|
|
|
6.43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities
|
|
|
1,310,728
|
|
|
|
36,002
|
|
|
|
2.75
|
|
|
|
578,714
|
|
|
|
11,580
|
|
|
|
2.00
|
|
|
|
349,821
|
|
|
|
8,240
|
|
|
|
2.36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest-bearing liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest-bearing deposits
|
|
|
177,511
|
|
|
|
|
|
|
|
|
|
|
|
79,907
|
|
|
|
|
|
|
|
|
|
|
|
37,038
|
|
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
13,125
|
|
|
|
|
|
|
|
|
|
|
|
17,368
|
|
|
|
|
|
|
|
|
|
|
|
11,875
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
1,501,364
|
|
|
|
|
|
|
|
|
|
|
|
675,989
|
|
|
|
|
|
|
|
|
|
|
|
398,734
|
|
|
|
|
|
|
|
|
|
|
Shareholders’ equity
|
|
|
157,478
|
|
|
|
|
|
|
|
|
|
|
|
106,416
|
|
|
|
|
|
|
|
|
|
|
|
42,431
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders’ equity
|
|
$
|
1,658,842
|
|
|
|
|
|
|
|
|
|
|
$
|
782,405
|
|
|
|
|
|
|
|
|
|
|
$
|
441,165
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest spread
|
|
|
|
|
|
|
|
|
|
|
2.99
|
%
|
|
|
|
|
|
|
|
|
|
|
3.42
|
%
|
|
|
|
|
|
|
|
|
|
|
3.06
|
%
|
|
Net interest income and margin
|
|
|
|
|
|
$
|
51,246
|
|
|
|
3.37
|
|
|
|
|
|
|
$
|
25,975
|
|
|
|
3.75
|
|
|
|
|
|
|
$
|
13,393
|
|
|
|
3.35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28
Table 4 shows changes in interest income and interest expense
resulting from changes in volume and changes in interest rates
for the year ended December 31, 2005, compared to 2004, and
2004 compared to 2003, 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
|
|
|
|
|
|
2005 over 2004
|
|
|
2004 over 2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Yield/
|
|
|
|
|
|
|
Yield/
|
|
|
|
|
|
|
Volume
|
|
|
Rate
|
|
|
Total
|
|
|
Volume
|
|
|
Rate
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
Increase (decrease) in:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing balances due from banks
|
|
$
|
6
|
|
|
$
|
57
|
|
|
$
|
63
|
|
|
$
|
29
|
|
|
$
|
1
|
|
|
$
|
30
|
|
|
|
Federal funds sold
|
|
|
(120
|
)
|
|
|
246
|
|
|
|
126
|
|
|
|
34
|
|
|
|
(35
|
)
|
|
|
(1
|
)
|
|
|
Investment securities — taxable
|
|
|
11,521
|
|
|
|
(182
|
)
|
|
|
11,339
|
|
|
|
2,953
|
|
|
|
1,227
|
|
|
|
4,180
|
|
|
|
Investment securities — non-taxable
|
|
|
2,059
|
|
|
|
(89
|
)
|
|
|
1,970
|
|
|
|
2,046
|
|
|
|
9
|
|
|
|
2,055
|
|
|
|
Loans receivable
|
|
|
32,867
|
|
|
|
3,328
|
|
|
|
36,195
|
|
|
|
10,391
|
|
|
|
(733
|
)
|
|
|
9,658
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
|
46,333
|
|
|
|
3,360
|
|
|
|
49,693
|
|
|
|
15,453
|
|
|
|
469
|
|
|
|
15,922
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing transaction and savings deposits
|
|
|
3,231
|
|
|
|
3,601
|
|
|
|
6,832
|
|
|
|
785
|
|
|
|
(131
|
)
|
|
|
654
|
|
|
|
Time deposits
|
|
|
9,616
|
|
|
|
2,829
|
|
|
|
12,445
|
|
|
|
2,153
|
|
|
|
(901
|
)
|
|
|
1,252
|
|
|
|
Federal funds purchased
|
|
|
59
|
|
|
|
181
|
|
|
|
240
|
|
|
|
143
|
|
|
|
(13
|
)
|
|
|
130
|
|
|
|
Securities sold under agreement to repurchase
|
|
|
1,762
|
|
|
|
488
|
|
|
|
2,250
|
|
|
|
2
|
|
|
|
149
|
|
|
|
151
|
|
|
|
FHLB and other borrowed funds
|
|
|
2,319
|
|
|
|
(113
|
)
|
|
|
2,206
|
|
|
|
556
|
|
|
|
64
|
|
|
|
620
|
|
|
|
Subordinated debentures
|
|
|
352
|
|
|
|
97
|
|
|
|
449
|
|
|
|
527
|
|
|
|
6
|
|
|
|
533
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
|
17,339
|
|
|
|
7,083
|
|
|
|
24,422
|
|
|
|
4,166
|
|
|
|
(826
|
)
|
|
|
3,340
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in net interest income
|
|
$
|
28,994
|
|
|
$
|
(3,723
|
)
|
|
$
|
25,271
|
|
|
$
|
11,287
|
|
|
$
|
1,295
|
|
|
$
|
12,582
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
management’s 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 borrower’s credit analysis can
result in an
29
increase or decrease in the loan’s assigned risk grade.
Aggregate dollar volume by risk grade is monitored on an ongoing
basis.
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.
The provision for loan losses represents management’s
determination of the amount necessary to be charged against the
current period’s 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. The
provision was $3.8 million for the year ended
December 31, 2005, $2.3 million for 2004, and $807,000
for 2003.
Our provision for loan losses increased $1.5 million, or
67.1%, to $3.8 million for the year ended December 31,
2005, from $2.3 million for 2004. The increase in the
provision is primarily associated with our acquisitions during
2005 as a result of their continued loan growth, combined with a
charge of $450,000 to the provision expense due to Hurricane
Wilma that affected the Florida Keys during the fourth quarter
of 2005. This expense was established based on management’s
best estimate of the hurricane’s impact on the loan
portfolio using currently available information. It is too early
to determine with certainty the full extent of the impact,
therefore the estimate is based on judgment and subject to
change. Management will continue to carefully assess and review
the exposure of the loan portfolio to hurricane-related factors.
Our provision increased $1.5 million, or 183.8%, to
$2.3 million for the year ended December 31, 2004,
from $807,000 in 2003. The increase in the provision is
primarily associated with the acquisition of Community Financial
Group during the fourth quarter of 2003, combined with losses
related to a former loan officer’s portfolio.
Non-Interest Income.
Total non-interest income was
$15.7 million in 2005, compared to $18.1 million in
2004 and $6.7 million in 2003. Our non-interest income
includes service charges on deposit accounts, other service
charges and fees, trust fees, data processing fees, mortgage
banking income, insurance commissions, income from title
services, equity in income of unconsolidated affiliates and
other income.
30
Table 5 measures the various components of our non-interest
income for the years ended December 31, 2005, 2004, and
2003, respectively, as well as changes for the years 2005
compared to 2004 and 2004 compared to 2003.
Table 5: Non-Interest Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
|
Change from
|
|
|
Change from
|
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
2004
|
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
Service charges on deposit accounts
|
|
$
|
8,319
|
|
|
$
|
5,914
|
|
|
$
|
2,254
|
|
|
$
|
2,405
|
|
|
|
40.7
|
%
|
|
$
|
3,660
|
|
|
|
162.4
|
%
|
|
Other service charges and fees
|
|
|
2,099
|
|
|
|
959
|
|
|
|
474
|
|
|
|
1,140
|
|
|
|
118.9
|
|
|
|
485
|
|
|
|
102.3
|
|
|
Trust fees
|
|
|
458
|
|
|
|
158
|
|
|
|
14
|
|
|
|
300
|
|
|
|
189.9
|
|
|
|
144
|
|
|
|
1,028.6
|
|
|
Data processing fees
|
|
|
668
|
|
|
|
1,564
|
|
|
|
1,378
|
|
|
|
(896
|
)
|
|
|
(57.3
|
)
|
|
|
186
|
|
|
|
13.5
|
|
|
Mortgage banking income
|
|
|
1,651
|
|
|
|
1,188
|
|
|
|
1,220
|
|
|
|
463
|
|
|
|
39.0
|
|
|
|
(32
|
)
|
|
|
(2.6
|
)
|
|
Insurance commissions
|
|
|
674
|
|
|
|
631
|
|
|
|
22
|
|
|
|
43
|
|
|
|
6.8
|
|
|
|
609
|
|
|
|
2,768.2
|
|
|
Income from title services
|
|
|
823
|
|
|
|
1,110
|
|
|
|
81
|
|
|
|
(287
|
)
|
|
|
(25.9
|
)
|
|
|
1,029
|
|
|
|
1,270.4
|
|
|
Increase in cash value of life insurance
|
|
|
256
|
|
|
|
244
|
|
|
|
13
|
|
|
|
12
|
|
|
|
4.9
|
|
|
|
231
|
|
|
|
1,776.9
|
|
|
Equity in income of unconsolidated affiliates
|
|
|
(592
|
)
|
|
|
1,560
|
|
|
|
937
|
|
|
|
(2,152
|
)
|
|
|
(138.0
|
)
|
|
|
623
|
|
|
|
66.5
|
|
|
Gain on sale of equity investment
|
|
|
465
|
|
|
|
4,410
|
|
|
|
—
|
|
|
|
(3,945
|
)
|
|
|
(89.5
|
)
|
|
|
4,410
|
|
|
|
—
|
|
|
(Loss) gain on securities and loans, net
|
|
|
(10
|
)
|
|
|
(223
|
)
|
|
|
135
|
|
|
|
213
|
|
|
|
(95.5
|
)
|
|
|
(358
|
)
|
|
|
(265.2
|
)
|
|
Other income
|
|
|
876
|
|
|
|
576
|
|
|
|
211
|
|
|
|
300
|
|
|
|
52.1
|
|
|
|
365
|
|
|
|
173.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest income
|
|
$
|
15,687
|
|
|
$
|
18,091
|
|
|
$
|
6,739
|
|
|
$
|
(2,404
|
)
|
|
|
(13.3
|
)%
|
|
$
|
11,352
|
|
|
|
168.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest income decreased $2.4 million, or 13.3%, to
$15.7 million for the year ended December 31, 2005
from $18.1 million in 2004. The primary factors that
resulted in the decrease from 2004 to 2005 include:
|
|
|
|
|
|
•
|
The $3.8 million aggregate increase in service charges on
deposit accounts, other service charges and fees, and trust fees
was primarily a result of our acquisitions during 2005, combined
with organic growth of our bank subsidiaries’ earnings.
|
|
|
|
|
•
|
The $896,000 decrease in data processing fees was primarily
associated with the acquisition of TCBancorp. Prior to acquiring
complete ownership of TCBancorp, we performed its data
processing functions and received fees for this service. We
continue to receive data processing fees from White River
Bancshares and certain other non-affiliated banks.
|
|
|
|
|
•
|
The rising interest rate environment during 2005 resulted in
decreased mortgage production volumes for the mortgage industry
as compared to 2004. While we experienced an increase of
$463,000 in this revenue source, the increase primarily resulted
from the additional $757,000 mortgage banking revenues
associated with the acquisitions of TCBancorp and Marine Bancorp
during 2005.
|
|
|
|
|
•
|
The $287,000 decrease in title fees is primarily associated with
lower demand for title fees as a result of the decrease in
mortgage production volume associated with the rising interest
rate environment in 2005.
|
|
|
|
|
•
|
The $2.2 million decrease in equity in income of
unconsolidated affiliates is the result of acquiring 100%
ownership in TCBancorp effective as of January 1, 2005,
combined with the $592,000 loss associated with the 20% interest
in White River Bancshares that we purchased during 2005.
|
31
|
|
|
|
|
|
•
|
The $3.9 million decrease in gain on sale of equity
investment for 2005 is primarily associated with a
$4.4 million pre-tax gain recorded in the third quarter of
2004 from the sale of our equity ownership in Russellville
Bancshares. During the third quarter of 2005, we recognized a
$465,000 gain on sale of an equity investment. This gain was
deferred as a result of our financing the purchase price for
this transaction. The gain became recognizable during 2005 as a
result of the financing being paid off.
|
|
|
|
|
•
|
The difference in the loss on securities and loans between 2004
and 2005 is primarily associated with specific transactions for
each year. During 2004, a loss of $223,000 was recorded for
write-down for other-than-temporary losses in our investment
portfolio. In 2005, we made a strategic decision to sell
lower-yielding investment securities, resulting in a loss of
approximately $539,000. This loss was largely offset by
approximately $529,000 in gains resulting from the sale of our
SBA loan product.
|
|
|
|
|
•
|
The $300,000 increase in other income is primarily associated
with a $324,000 gain from proceeds associated with fire damage
at one of our branch banking locations during 2005.
|
Non-interest income increased $11.4 million, or 168.5%, to
$18.1 million for the year ended December 31, 2004,
from $6.7 million in 2003. The increase is primarily
associated with a $4.4 million pre-tax gain from selling
our equity ownership of Russellville Bancshares during the third
quarter of 2004, combined with the Community Financial Group
acquisition and our internal growth. The Community Financial
Group acquisition also included two non-banking subsidiaries,
Community Insurance and Community Title Service, which
provided new sources of non-interest income during 2004.
Non-Interest Expense.
Non-interest expense consists of
salary and employee benefits, occupancy, equipment, data
processing, and other expenses such as advertising, core deposit
amortization, legal and accounting fees, other professional
fees, operating supplies and postage.
32
Table 6 below sets forth a summary of non-interest expense for
the years ended December 31, 2005, 2004, and 2003,
respectively, as well as changes for the years ended 2005
compared to 2004 and 2004 compared to 2003.
Table 6: Non-Interest Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
|
Change from
|
|
|
Change from
|
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
2004
|
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
Salaries and employee benefits
|
|
$
|
23,901
|
|
|
$
|
14,123
|
|
|
$
|
7,139
|
|
|
$
|
9,778
|
|
|
|
69.2
|
%
|
|
$
|
6,984
|
|
|
|
97.8
|
%
|
|
Occupancy and equipment
|
|
|
6,869
|
|
|
|
3,750
|
|
|
|
1,659
|
|
|
|
3,119
|
|
|
|
83.2
|
|
|
|
2,091
|
|
|
|
126.0
|
|
|
Data processing expense
|
|
|
1,991
|
|
|
|
1,170
|
|
|
|
893
|
|
|
|
821
|
|
|
|
70.2
|
|
|
|
277
|
|
|
|
31.0
|
|
|
Other operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advertising
|
|
|
2,067
|
|
|
|
900
|
|
|
|
774
|
|
|
|
1,167
|
|
|
|
129.7
|
|
|
|
126
|
|
|
|
16.3
|
|
|
|
Amortization of intangibles
|
|
|
1,466
|
|
|
|
728
|
|
|
|
63
|
|
|
|
738
|
|
|
|
101.4
|
|
|
|
665
|
|
|
|
1,055.6
|
|
|
|
ATM expense
|
|
|
427
|
|
|
|
372
|
|
|
|
237
|
|
|
|
55
|
|
|
|
14.8
|
|
|
|
135
|
|
|
|
57.0
|
|
|
|
Directors’ fees
|
|
|
505
|
|
|
|
210
|
|
|
|
73
|
|
|
|
295
|
|
|
|
140.5
|
|
|
|
137
|
|
|
|
187.7
|
|
|
|
Due from bank service charges
|
|
|
284
|
|
|
|
197
|
|
|
|
108
|
|
|
|
87
|
|
|
|
44.2
|
|
|
|
89
|
|
|
|
82.4
|
|
|
|
FDIC and state assessment
|
|
|
503
|
|
|
|
301
|
|
|
|
155
|
|
|
|
202
|
|
|
|
67.1
|
|
|
|
146
|
|
|
|
94.2
|
|
|
|
Insurance
|
|
|
504
|
|
|
|
344
|
|
|
|
193
|
|
|
|
160
|
|
|
|
46.5
|
|
|
|
151
|
|
|
|
78.2
|
|
|
|
Legal and accounting
|
|
|
941
|
|
|
|
452
|
|
|
|
204
|
|
|
|
489
|
|
|
|
108.2
|
|
|
|
248
|
|
|
|
121.6
|
|
|
|
Other professional fees
|
|
|
534
|
|
|
|
493
|
|
|
|
315
|
|
|
|
41
|
|
|
|
8.3
|
|
|
|
178
|
|
|
|
56.5
|
|
|
|
Operating supplies
|
|
|
745
|
|
|
|
530
|
|
|
|
336
|
|
|
|
215
|
|
|
|
40.6
|
|
|
|
194
|
|
|
|
57.7
|
|
|
|
Postage
|
|
|
580
|
|
|
|
404
|
|
|
|
183
|
|
|
|
176
|
|
|
|
43.6
|
|
|
|
221
|
|
|
|
120.8
|
|
|
|
Telephone
|
|
|
669
|
|
|
|
377
|
|
|
|
153
|
|
|
|
292
|
|
|
|
77.5
|
|
|
|
224
|
|
|
|
146.4
|
|
|
|
Other expense
|
|
|
2,949
|
|
|
|
1,780
|
|
|
|
585
|
|
|
|
1,169
|
|
|
|
65.7
|
|
|
|
1,195
|
|
|
|
204.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest expense
|
|
$
|
44,935
|
|
|
$
|
26,131
|
|
|
$
|
13,070
|
|
|
$
|
18,804
|
|
|
|
72.0
|
%
|
|
$
|
13,061
|
|
|
|
99.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest expense increased $18.8 million, or 72.0%, to
$44.9 million for the year ended December 31, 2005,
from $26.1 million in 2004. The increase is related to our
acquisitions of TCBancorp, Marine Bancorp and Mountain View
Bancshares combined with a modest increase in staffing,
particularly at the holding company level.
Non-interest expense increased $13.1 million, or 99.9%, to
$26.1 million for the year ended December 31, 2004,
from $13.1 million in 2003. The increase was primarily the
result of our acquisition of Community Financial Group in
December 2003.
Amortization of intangibles expense was $1.5 million for
the year ended December 31, 2005, $728,000 for 2004, and
$63,000 for 2003. The increase was caused by our increase in
core deposit intangibles created when we completed each of our
acquisitions. Including all of the mergers completed, our
estimated amortization of intangibles expense for each of the
following five years is $1.8 million.
Income Taxes.
The provision for income taxes decreased
$95,000, or 1.9%, to $4.9 million for the year ended
December 31, 2005, from $5.0 million in 2004. The
provision for income taxes increased $2.6 million, or
114.7%, to $4.9 million for the year ended
December 31, 2004, from $2.3 million for 2003. The
effective income tax rates for the years ended December 31,
2005, 2004, and 2003 were 30.1%, 34.1%, and 38.0%, respectively.
The declining effective income tax rates are primarily
associated with the lower effective income tax rates associated
with the acquisitions of Community Financial Group, TCBancorp,
and Mountain View Bancshares.
33
Financial Conditions as of and for the Years Ended
December 31, 2005 and 2004
Our total assets increased $1.1 billion, or 137.4%, to
$1.9 billion as of December 31, 2005, from $805,000 as
of December 31, 2004. Our loan portfolio increased
$687.9 million, or 133.2%, to $1.2 billion as of
December 31, 2005, from $516.7 million as of
December 31, 2004. Shareholders’ equity increased
$59.2 million, or 55.6%, to $165.9 million as of
December 31, 2005, compared to $106.6 as of
December 31, 2004. All of these increases are primarily
associated with our acquisitions during 2005, combined with
organic growth of our bank subsidiaries.
Our loan portfolio averaged $1.0 billion during 2005 and
$494.0 million in 2004. Net loans were $1.2 billion as
of December 31, 2005, compared to $500.3 million as of
December 31, 2004. The most significant components of the
loan portfolio were commercial and residential real estate, real
estate construction, consumer, and commercial and industrial
loans. These loans are primarily originated within our market
areas of central Arkansas, north central Arkansas and the
Florida Keys and are generally secured by residential or
commercial real estate or business or personal property within
our market areas.
Table 7 presents our loan balances by category as of the dates
indicated.
Table 7: Loan Portfolio
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
2002
|
|
|
2001
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
Real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-farm/non-residential
|
|
$
|
411,839
|
|
|
$
|
181,995
|
|
|
$
|
173,743
|
|
|
$
|
91,352
|
|
|
$
|
69,876
|
|
|
|
|
Construction/land development
|
|
|
291,515
|
|
|
|
116,935
|
|
|
|
74,138
|
|
|
|
37,969
|
|
|
|
22,834
|
|
|
|
|
Agricultural
|
|
|
13,112
|
|
|
|
12,912
|
|
|
|
5,065
|
|
|
|
5,024
|
|
|
|
3,651
|
|
|
|
Residential real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential 1-4 family
|
|
|
221,831
|
|
|
|
86,497
|
|
|
|
79,246
|
|
|
|
58,899
|
|
|
|
49,548
|
|
|
|
|
Multifamily residential
|
|
|
34,939
|
|
|
|
17,708
|
|
|
|
16,654
|
|
|
|
6,255
|
|
|
|
5,778
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate
|
|
|
973,236
|
|
|
|
416,047
|
|
|
|
348,846
|
|
|
|
199,499
|
|
|
|
151,687
|
|
|
Consumer
|
|
|
39,447
|
|
|
|
24,624
|
|
|
|
31,546
|
|
|
|
22,632
|
|
|
|
25,733
|
|
|
Commercial and industrial
|
|
|
175,396
|
|
|
|
69,345
|
|
|
|
102,350
|
|
|
|
46,555
|
|
|
|
47,733
|
|
|
Agricultural
|
|
|
8,466
|
|
|
|
6,275
|
|
|
|
14,409
|
|
|
|
16,078
|
|
|
|
10,546
|
|
|
Other
|
|
|
8,044
|
|
|
|
364
|
|
|
|
2,904
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans receivable
|
|
|
1,204,589
|
|
|
|
516,655
|
|
|
|
500,055
|
|
|
|
284,764
|
|
|
|
235,699
|
|
|
Less: Allowance for loan losses
|
|
|
24,175
|
|
|
|
16,345
|
|
|
|
14,717
|
|
|
|
5,706
|
|
|
|
3,847
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans receivable, net
|
|
$
|
1,180,414
|
|
|
$
|
500,310
|
|
|
$
|
485,338
|
|
|
$
|
279,058
|
|
|
$
|
231,852
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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. As of December 31, 2005, less than 5% of our
construction and land development loans were loans made on raw
land. 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
borrower’s liquidity and leverage, management experience,
ownership structure,
34
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 December 31, 2005, commercial real estate loans
totaled $716.5 million, or 59.5% of our loan portfolio,
compared to $311.8 million, or 60.4% of our loan portfolio,
for the year ended December 31, 2004. This increase is
primarily the result of our acquisitions during 2005, combined
with organic growth of our loan portfolio.
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 borrower’s ability to pay, stability of employment
or source of income,
debt-to
-income ratio,
credit history and
loan-to
-value ratio.
As of December 31, 2005, we had $256.8 million, or
21.3% of our loan portfolio, in residential real estate loans
compared to $104.2 million, or 20.2% of our loan portfolio,
for the year ended December 31, 2004. This increase is
primarily the result of our acquisitions during 2005, combined
with organic growth of our loan portfolio.
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 December 31, 2005, our installment consumer loan
portfolio totaled $39.4 million, or 3.3% of our total loan
portfolio, compared to $24.6 million, or 4.8% of our loan
portfolio, for the year ended December 31, 2004. This
increase is primarily the result of our acquisitions during
2005, offset by a decrease associated with a strategic decision
made by management not to pursue growth in consumer loans due to
our risk/reward experience for this type of loan.
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 borrower’s
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
90 days past due. Inventory financing will range between
50% and 80% depending on the borrower and nature of inventory.
We require a first lien position for those loans.
As of December 31, 2005, commercial and industrial loans
outstanding totaled $175.4 million, or 14.6% of our loan
portfolio, compared to $69.3 million, or 13.4% of our loan
portfolio, for the year ended December 31, 2004. This
increase is primarily the result of our acquisitions during
2005, combined with organic growth in our loan portfolio.
35
Table 8 presents the distribution of the maturity of our
loans as of December 31, 2005. The table also presents the
portion of our loans that have fixed interest rates versus
interest rates that fluctuate over the life of the loans based
on changes in the interest rate environment.
Table 8: Maturity of Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Over One
|
|
|
|
|
|
|
|
|
|
|
Year
|
|
|
|
|
|
|
|
|
One Year
|
|
|
Through
|
|
|
Over Five
|
|
|
|
|
|
|
or Less
|
|
|
Five Years
|
|
|
Years
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
Real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-farm/non-residential
|
|
$
|
94,259
|
|
|
$
|
234,048
|
|
|
$
|
83,532
|
|
|
$
|
411,839
|
|
|
|
|
|
Construction/land development
|
|
|
182,747
|
|
|
|
93,716
|
|
|
|
15,052
|
|
|
|
291,515
|
|
|
|
|
|
Agricultural
|
|
|
7,126
|
|
|
|
4,093
|
|
|
|
1,893
|
|
|
|
13,112
|
|
|
|
Residential real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential 1-4 family
|
|
|
72,868
|
|
|
|
70,955
|
|
|
|
78,008
|
|
|
|
221,831
|
|
|
|
|
|
Multifamily residential
|
|
|
10,607
|
|
|
|
20,419
|
|
|
|
3,913
|
|
|
|
34,939
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate
|
|
|
367,607
|
|
|
|
423,231
|
|
|
|
182,398
|
|
|
|
973,236
|
|
|
Consumer
|
|
|
16,603
|
|
|
|
22,107
|
|
|
|
737
|
|
|
|
39,447
|
|
|
Commercial and industrial
|
|
|
90,885
|
|
|
|
69,640
|
|
|
|
14,871
|
|
|
|
175,396
|
|
|
Agricultural
|
|
|
6,409
|
|
|
|
2,057
|
|
|
|
—
|
|
|
|
8,466
|
|
|
Other
|
|
|
698
|
|
|
|
4,412
|
|
|
|
2,934
|
|
|
|
8,044
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans receivable
|
|
$
|
482,202
|
|
|
$
|
521,447
|
|
|
$
|
200,940
|
|
|
$
|
1,204,589
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With fixed interest rates
|
|
$
|
294,071
|
|
|
$
|
398,663
|
|
|
$
|
49,477
|
|
|
$
|
742,211
|
|
|
With floating interest rates
|
|
|
188,131
|
|
|
|
122,784
|
|
|
|
151,463
|
|
|
|
462,378
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
482,202
|
|
|
$
|
521,447
|
|
|
$
|
200,940
|
|
|
$
|
1,204,589
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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. All 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.
36
Table 9 sets forth information with respect to our
non-performing assets as of December 31, 2005, 2004, 2003,
2002, and 2001. As of these dates, we did not have any
restructured loans within the meaning of Statement of Financial
Accounting Standards No. 15.
Table 9: Non-performing Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
2002
|
|
|
2001
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
Non-accrual loans
|
|
$
|
7,864
|
|
|
$
|
8,959
|
|
|
$
|
8,600
|
|
|
$
|
1,671
|
|
|
$
|
1,175
|
|
|
Loans past due 90 days or more (principal or interest
payments)
|
|
|
426
|
|
|
|
2
|
|
|
|
52
|
|
|
|
142
|
|
|
|
167
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-performing loans
|
|
|
8,290
|
|
|
|
8,961
|
|
|
|
8,652
|
|
|
|
1,813
|
|
|
|
1,342
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other non-performing assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreclosed assets held for sale
|
|
|
758
|
|
|
|
458
|
|
|
|
1,274
|
|
|
|
—
|
|
|
|
—
|
|
|
|
Other non-performing assets
|
|
|
11
|
|
|
|
53
|
|
|
|
62
|
|
|
|
169
|
|
|
|
90
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other non-performing assets
|
|
|
769
|
|
|
|
511
|
|
|
|
1,336
|
|
|
|
169
|
|
|
|
90
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-performing assets
|
|
$
|
9,059
|
|
|
$
|
9,472
|
|
|
$
|
9,988
|
|
|
$
|
1,982
|
|
|
$
|
1,432
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses to non-performing loans
|
|
|
291.62
|
%
|
|
|
182.40
|
%
|
|
|
170.10
|
%
|
|
|
314.73
|
%
|
|
|
286.66
|
%
|
|
Non-performing loans to total loans
|
|
|
0.69
|
|
|
|
1.73
|
|
|
|
1.73
|
|
|
|
0.64
|
|
|
|
0.57
|
|
|
Non-performing assets to total assets
|
|
|
0.47
|
|
|
|
1.18
|
|
|
|
1.24
|
|
|
|
0.54
|
|
|
|
0.44
|
|
Our non-performing loans are comprised of non-accrual loans and
loans that are contractually past due 90 days. Our bank
subsidiaries recognize 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.
Total non-performing loans were $8.3 million as of
December 31, 2005, compared to $9.0 million as of
December 31, 2004. The acquisitions completed in 2005 had a
minimal impact on non-performing loans as a result of their
favorable asset quality.
During 2003, non-performing loans increased $6.8 million
from the previous year. This increase in the level of
non-performing loans was due to the increase in the volume of
non-performing loans associated with the acquisition of
Community Financial Group during the fourth quarter of 2003.
If the non-accrual loans had been accruing interest in
accordance with the original terms of their respective
agreements, interest income of approximately $550,000 for the
year ended December 31, 2005, $520,000 in 2004, and
$138,000 in 2003 would have been recorded. Interest income
recognized on the non-accrual loans for the years ended
December 31, 2005, 2004, and 2003 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 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 December 31, 2005, average impaired loans were
$8.5 million, compared to $9.6 million in 2004. The
acquisitions completed in 2005 had a minimal impact on
non-performing loans as a result of their favorable asset
quality. The $1.1 million decrease in impaired loans from
December 31, 2004, primarily relates to improvement of the
asset quality associated with the loans acquired in the
Community Financial Group transaction.
37
|
|
|
|
|
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.
Specific allocations are made when
factors are present requiring a greater reserve than would be
required when using the assigned risk rating allocation. As a
general rule, if a specific allocation is warranted, it is the
result of an analysis of a previously classified credit or
relationship. 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.
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 increased
$2.4 million, or 111.4%, to $4.6 million for the year
ended December 31, 2005, from $2.2 million in 2004.
The increase in charge-offs is due to our conservative stance
associated with asset quality and does not reflect a downward
trend in the asset quality of our overall loan portfolio. The
acquisitions completed in 2005 had a minimal impact on the
increase in net charge-offs.
Total charge-offs increased $1.5 million, or 222.6%, to
$2.2 million for the year ended December 31, 2004,
from $676,000 in 2003. The increase in the level of charge-offs
during 2004 was primarily related to a former loan
officer’s portfolio, combined with the increase in the
volume of non-performing loans associated with the acquisition
of Community Financial Group during the fourth quarter of 2003.
The increased level of recoveries for 2004 was primarily related
to one borrower, combined with the increase in recoveries
resulting from the acquisition of Community Financial Group in
2003.
38
Table 10 shows the allowance for loan losses, charge-offs and
recoveries as of and for the years ended December 31, 2005,
2004, 2003, 2002, and 2001.
Table 10: Analysis of Allowance for Loan Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
2002
|
|
|
2001
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
Balance, beginning of year
|
|
$
|
16,345
|
|
|
$
|
14,717
|
|
|
$
|
5,706
|
|
|
$
|
3,847
|
|
|
$
|
2,414
|
|
|
Loans charged off
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-farm/non-residential
|
|
|
2,448
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
Construction/land development
|
|
|
405
|
|
|
|
5
|
|
|
|
23
|
|
|
|
32
|
|
|
|
—
|
|
|
|
|
Agricultural
|
|
|
15
|
|
|
|
—
|
|
|
|
17
|
|
|
|
—
|
|
|
|
—
|
|
|
|
Residential real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential 1-4 family
|
|
|
515
|
|
|
|
404
|
|
|
|
138
|
|
|
|
19
|
|
|
|
—
|
|
|
|
|
Multifamily residential
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate
|
|
|
3,383
|
|
|
|
409
|
|
|
|
178
|
|
|
|
51
|
|
|
|
—
|
|
|
Consumer
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Commercial and industrial
|
|
|
758
|
|
|
|
499
|
|
|
|
114
|
|
|
|
173
|
|
|
|
75
|
|
|
Agricultural
|
|
|
30
|
|
|
|
786
|
|
|
|
80
|
|
|
|
—
|
|
|
|
—
|
|
|
Other
|
|
|
440
|
|
|
|
487
|
|
|
|
304
|
|
|
|
277
|
|
|
|
239
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans charged off
|
|
|
4,611
|
|
|
|
2,181
|
|
|
|
676
|
|
|
|
501
|
|
|
|
314
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recoveries of loans previously charged off
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-farm/non-residential
|
|
|
294
|
|
|
|
1,057
|
|
|
|
1
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
Construction/land development
|
|
|
15
|
|
|
|
13
|
|
|
|
19
|
|
|
|
17
|
|
|
|
—
|
|
|
|
|
Agricultural
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
Residential real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential 1-4 family
|
|
|
115
|
|
|
|
47
|
|
|
|
31
|
|
|
|
—
|
|
|
|
8
|
|
|
|
|
Multifamily residential
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
31
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate
|
|
|
424
|
|
|
|
1,117
|
|
|
|
51
|
|
|
|
48
|
|
|
|
11
|
|
|
Consumer
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Commercial and industrial
|
|
|
102
|
|
|
|
254
|
|
|
|
10
|
|
|
|
10
|
|
|
|
—
|
|
|
Agricultural
|
|
|
—
|
|
|
|
17
|
|
|
|
45
|
|
|
|
—
|
|
|
|
—
|
|
|
Other
|
|
|
324
|
|
|
|
131
|
|
|
|
44
|
|
|
|
82
|
|
|
|
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recoveries
|
|
|
850
|
|
|
|
1,519
|
|
|
|
150
|
|
|
|
140
|
|
|
|
39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loans charged off
|
|
|
3,761
|
|
|
|
662
|
|
|
|
526
|
|
|
|
361
|
|
|
|
275
|
|
|
Allowance for loan losses of acquired institutions
|
|
|
7,764
|
|
|
|
—
|
|
|
|
8,730
|
|
|
|
—
|
|
|
|
—
|
|
|
Provision for loan losses
|
|
|
3,827
|
|
|
|
2,290
|
|
|
|
807
|
|
|
|
2,220
|
|
|
|
1,708
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of year
|
|
$
|
24,175
|
|
|
$
|
16,345
|
|
|
$
|
14,717
|
|
|
$
|
5,706
|
|
|
$
|
3,847
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs to average loans
|
|
|
0.38
|
%
|
|
|
0.13
|
%
|
|
|
0.16
|
%
|
|
|
0.14
|
%
|
|
|
0.14
|
%
|
|
Allowance for loan losses to period-end loans
|
|
|
2.01
|
|
|
|
3.16
|
|
|
|
2.94
|
|
|
|
2.00
|
|
|
|
1.63
|
|
|
Allowance for loan losses to net charge-offs
|
|
|
642
|
|
|
|
2,469
|
|
|
|
2,798
|
|
|
|
1,581
|
|
|
|
1,399
|
|
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
39
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 during 2005 in the allocation of the allowance for
loan losses for the individual types of loans for the most part
are consistent with the changes in the outstanding loan
portfolio for those products from December 31, 2004. In the
opinion of management, any allocation changes not consistent
with the changes in the loan portfolio product would be
considered normal operating changes, not downgrading or
upgrading of any one particular type of loans in the loan
portfolio.
Table 11 presents the allocation of allowance for loan losses as
of the dates indicated.
Table 11: Allocation of Allowance for Loan Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
2002
|
|
|
2001
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
|
|
|
% of
|
|
|
Allowance
|
|
|
% of
|
|
|
Allowance
|
|
|
% of
|
|
|
Allowance
|
|
|
% of
|
|
|
Allowance
|
|
|
% of
|
|
|
|
|
Amount
|
|
|
Loans(1)
|
|
|
Amount
|
|
|
Loans(1)
|
|
|
Amount
|
|
|
Loans(1)
|
|
|
Amount
|
|
|
Loans(1)
|
|
|
Amount
|
|
|
Loans(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
Real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-farm/non-residential
|
|
$
|
7,202
|
|
|
|
34.1
|
%
|
|
$
|
6,212
|
|
|
|
35.3
|
%
|
|
$
|
5,505
|
|
|
|
34.8
|
%
|
|
$
|
1,786
|
|
|
|
32.1
|
%
|
|
$
|
1,119
|
|
|
|
29.6
|
%
|
|
|
|
Construction/land development
|
|
|
5,544
|
|
|
|
24.2
|
|
|
|
1,690
|
|
|
|
22.6
|
|
|
|
1,407
|
|
|
|
14.8
|
|
|
|
862
|
|
|
|
13.3
|
|
|
|
449
|
|
|
|
9.7
|
|
|
|
|
Agricultural
|
|
|
407
|
|
|
|
1.1
|
|
|
|
493
|
|
|
|
2.5
|
|
|
|
491
|
|
|
|
1.0
|
|
|
|
123
|
|
|
|
1.8
|
|
|
|
77
|
|
|
|
1.5
|
|
|
|
Residential real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential 1-4 family
|
|
|
3,317
|
|
|
|
18.4
|
|
|
|
2,185
|
|
|
|
16.7
|
|
|
|
2,710
|
|
|
|
15.8
|
|
|
|
1,005
|
|
|
|
20.7
|
|
|
|
673
|
|
|
|
21.0
|
|
|
|
|
Multifamily residential
|
|
|
423
|
|
|
|
2.9
|
|
|
|
156
|
|
|
|
3.4
|
|
|
|
85
|
|
|
|
3.3
|
|
|
|
107
|
|
|
|
2.2
|
|
|
|
78
|
|
|
|
2.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate
|
|
|
16,893
|
|
|
|
80.7
|
|
|
|
10,736
|
|
|
|
80.5
|
|
|
|
10,198
|
|
|
|
69.7
|
|
|
|
3,883
|
|
|
|
70.1
|
|
|
|
2,396
|
|
|
|
64.3
|
|
|
Consumer
|
|
|
682
|
|
|
|
3.3
|
|
|
|
526
|
|
|
|
4.8
|
|
|
|
724
|
|
|
|
6.3
|
|
|
|
440
|
|
|
|
7.9
|
|
|
|
410
|
|
|
|
10.9
|
|
|
Commercial and industrial
|
|
|
4,059
|
|
|
|
14.6
|
|
|
|
2,025
|
|
|
|
13.4
|
|
|
|
2,241
|
|
|
|
20.5
|
|
|
|
908
|
|
|
|
16.4
|
|
|
|
766
|
|
|
|
20.3
|
|
|
Agricultural
|
|
|
505
|
|
|
|
0.7
|
|
|
|
316
|
|
|
|
1.2
|
|
|
|
572
|
|
|
|
2.9
|
|
|
|
475
|
|
|
|
5.6
|
|
|
|
275
|
|
|
|
4.5
|
|
|
Other
|
|
|
—
|
|
|
|
0.7
|
|
|
|
—
|
|
|
|
0.1
|
|
|
|
—
|
|
|
|
0.6
|
|
|
|
—
|
|
|
|
0.0
|
|
|
|
—
|
|
|
|
0.0
|
|
|
Unallocated
|
|
|
2,036
|
|
|
|
|
|
|
|
2,742
|
|
|
|
|
|
|
|
982
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
24,175
|
|
|
|
100.0
|
%
|
|
$
|
16,345
|
|
|
|
100.0
|
%
|
|
$
|
14,717
|
|
|
|
100.0
|
%
|
|
$
|
5,706
|
|
|
|
100.0
|
%
|
|
$
|
3,847
|
|
|
|
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 December 31, 2005, we had no
held-to
-maturity or
trading securities.
40
Securities available-for-sale are reported at fair value with
unrealized holding gains and losses reported as a separate
component of shareholders’ 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 $530.3 million as of
December 31, 2005, compared to the available-for-sale
amount of $190.4 million as of December 31, 2004.
Securities
held-to
-maturity are
reported at amortized historical cost. Securities that
management has the intent and ability to hold until maturity or
on a long-term basis are classified as
held-to
-maturity.
Held-to
-maturity
investment securities were zero and $100,000 as of
December 31, 2005, and 2004, respectively.
As of December 31, 2005, $256.5 million, or 48.4%, of
the available-for-sale securities were invested in
mortgaged-backed securities, compared to $126.7 million, or
66.5%, of the available-for-sale securities in the prior year.
To reduce our income tax burden, an additional
$103.5 million, or 19.5%, of the available-for-sale
securities portfolio, as of December 31, 2005, was invested
in tax-exempt obligations of state and political subdivisions,
compared to $40.1 million, or 21.1%, of the
available-for-sale securities as of December 31, 2004.
Also, we had approximately $157.5 million, or 29.7%, in
obligations of U.S. government agencies in the
available-for-sale securities portfolio as of December 31,
2005, compared to $15.6 million, or 8.2%, of the
available-for-sale securities in the prior year. The increases
in investment securities from 2004 to 2005 are primarily related
to the acquisitions of TCBancorp, Marine Bancorp and Mountain
View Bancshares.
Certain investment securities are valued at less than their
historical cost. These declines primarily resulted from recent
increases in market interest 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 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.
Table 12 presents the carrying value and fair value of
investment securities for each of the years indicated.
Table 12: Investment Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Estimated
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Estimated
|
|
|
|
|
Cost
|
|
|
Gains
|
|
|
(Losses)
|
|
|
Fair Value
|
|
|
Cost
|
|
|
Gains
|
|
|
(Losses)
|
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
Held-to-Maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and political subdivisions
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
100
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
100
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-Sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government agencies
|
|
$
|
162,165
|
|
|
$
|
27
|
|
|
$
|
(4,723
|
)
|
|
$
|
157,469
|
|
|
$
|
15,646
|
|
|
$
|
18
|
|
|
$
|
(86
|
)
|
|
$
|
15,578
|
|
|
Mortgage-backed securities
|
|
|
264,666
|
|
|
|
16
|
|
|
|
(8,209
|
)
|
|
|
256,473
|
|
|
|
127,316
|
|
|
|
249
|
|
|
|
(898
|
)
|
|
|
126,667
|
|
|
State and political subdivisions
|
|
|
102,928
|
|
|
|
1,279
|
|
|
|
(746
|
)
|
|
|
103,461
|
|
|
|
39,564
|
|
|
|
717
|
|
|
|
(147
|
)
|
|
|
40,134
|
|
|
Other securities
|
|
|
13,571
|
|
|
|
—
|
|
|
|
(672
|
)
|
|
|
12,899
|
|
|
|
8,010
|
|
|
|
15
|
|
|
|
(38
|
)
|
|
|
7,987
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
543,330
|
|
|
$
|
1,322
|
|
|
$
|
(14,350
|
)
|
|
$
|
530,302
|
|
|
$
|
190,536
|
|
|
$
|
999
|
|
|
$
|
(1,169
|
)
|
|
$
|
190,366
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2003
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Estimated
|
|
|
|
|
Cost
|
|
|
Gains
|
|
|
(Losses)
|
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
Held-to-Maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and political subdivisions
|
|
$
|
100
|
|
|
$
|
3
|
|
|
$
|
—
|
|
|
$
|
103
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
100
|
|
|
$
|
3
|
|
|
$
|
—
|
|
|
$
|
103
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-Sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government agencies
|
|
|
22,019
|
|
|
|
31
|
|
|
|
(104
|
)
|
|
|
21,946
|
|
|
Mortgage-backed securities
|
|
|
103,677
|
|
|
|
282
|
|
|
|
(203
|
)
|
|
|
103,756
|
|
|
State and political subdivisions
|
|
|
30,684
|
|
|
|
49
|
|
|
|
(15
|
)
|
|
|
30,718
|
|
|
Other securities
|
|
|
5,362
|
|
|
|
126
|
|
|
|
(57
|
)
|
|
|
5,431
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
161,742
|
|
|
$
|
488
|
|
|
$
|
(379
|
)
|
|
$
|
161,851
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table 13 reflects the amortized cost and estimated fair value of
debt securities as of December 31, 2005, by contractual
maturity and the weighted average yields (for tax-exempt
obligations on a fully taxable equivalent basis) of those
securities. Expected maturities will differ from contractual
maturities because borrowers may have the right to call or
prepay obligations, with or without call or prepayment penalties.
Table 13: Maturity Distribution of Investment Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
1 Year
|
|
|
5 Years
|
|
|
|
|
Total
|
|
|
|
|
|
|
1 Year
|
|
|
Through
|
|
|
Through
|
|
|
Over
|
|
|
Amortized
|
|
|
Total Fair
|
|
|
|
|
or Less
|
|
|
5 Years
|
|
|
10 Years
|
|
|
10 Years
|
|
|
Cost
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
Available-for-Sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government agencies
|
|
$
|
104,496
|
|
|
$
|
36,648
|
|
|
$
|
8,594
|
|
|
$
|
12,427
|
|
|
$
|
162,165
|
|
|
$
|
157,469
|
|
|
Mortgage-backed securities
|
|
|
47,740
|
|
|
|
122,717
|
|
|
|
45,164
|
|
|
|
49,045
|
|
|
|
264,666
|
|
|
|
256,473
|
|
|
State and political subdivisions
|
|
|
27,224
|
|
|
|
58,836
|
|
|
|
13,575
|
|
|
|
3,293
|
|
|
|
102,928
|
|
|
|
103,461
|
|
|
Other securities
|
|
|
276
|
|
|
|
11,153
|
|
|
|
2,142
|
|
|
|
—
|
|
|
|
13,571
|
|
|
|
12,899
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
179,736
|
|
|
$
|
229,354
|
|
|
$
|
69,475
|
|
|
$
|
64,765
|
|
|
$
|
543,330
|
|
|
$
|
530,302
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of total
|
|
|
33.1
|
%
|
|
|
42.2
|
%
|
|
|
12.8
|
%
|
|
|
11.9
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average yield
|
|
|
4.51
|
%
|
|
|
4.54
|
%
|
|
|
5.05
|
%
|
|
|
4.75
|
%
|
|
|
4.62
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our deposits averaged $1.2 billion for the year ended
December 31, 2005, and $553.7 million for 2004. Total
deposits increased $874.2 million, or 158.1%, to
$1.4 billion as of December 31, 2005, from
$552.9 million as of December 31, 2004. 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.
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
42
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 increase in interest
rates paid from 2004 to 2005 is reflective of the Federal
Reserve increasing the Federal Funds rate beginning in 2004 and
the associated repricing of deposits during those years combined
with the acquisition of Marine Bancorp. The acquisition of
Marine Bancorp increased our average rate as a result of the
higher interest rate environment in the Florida Keys. The
decrease in interest rates paid from 2003 to 2004 is reflective
of the Federal Reserve decreasing the Federal Funds rate during
2002 and 2003 and the associated repricing of deposits during
those years.
Table 14 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
years ended December 31, 2005, 2004, and 2003.
Table 14: Average Deposit Balances and Rates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Average
|
|
|
Average
|
|
|
Average
|
|
|
Average
|
|
|
Average
|
|
|
|
|
Amount
|
|
|
Rate Paid
|
|
|
Amount
|
|
|
Rate Paid
|
|
|
Amount
|
|
|
Rate Paid
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
Non-interest-bearing transaction accounts
|
|
$
|
177,511
|
|
|
|
—
|
%
|
|
$
|
79,907
|
|
|
|
—
|
%
|
|
$
|
37,038
|
|
|
|
—
|
%
|
|
Interest-bearing transaction accounts
|
|
|
389,291
|
|
|
|
1.94
|
|
|
|
164,538
|
|
|
|
0.81
|
|
|
|
76,647
|
|
|
|
0.95
|
|
|
Savings deposits
|
|
|
58,142
|
|
|
|
1.24
|
|
|
|
27,888
|
|
|
|
0.37
|
|
|
|
12,603
|
|
|
|
0.44
|
|
|
Time deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$100,000 or more
|
|
|
357,464
|
|
|
|
3.16
|
|
|
|
135,902
|
|
|
|
2.11
|
|
|
|
98,425
|
|
|
|
2.55
|
|
|
|
Other time deposits
|
|
|
267,228
|
|
|
|
2.74
|
|
|
|
145,489
|
|
|
|
2.27
|
|
|
|
89,309
|
|
|
|
2.70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,249,636
|
|
|
|
2.15
|
%
|
|
$
|
553,724
|
|
|
|
1.37
|
%
|
|
$
|
314,022
|
|
|
|
1.82
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table 15 presents our maturities of large denomination time
deposits as of December 31, 2005, and 2004.
Table 15: Maturities of Large Denomination Time Deposits
($100,000 or more)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
|
|
|
Percent
|
|
|
Balance
|
|
|
Percent
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
Maturing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months or less
|
|
$
|
164,233
|
|
|
|
40.8
|
%
|
|
$
|
44,143
|
|
|
|
33.9
|
%
|
|
|
Over three months to six months
|
|
|
76,664
|
|
|
|
19.0
|
|
|
|
35,544
|
|
|
|
27.3
|
|
|
|
Over six months to 12 months
|
|
|
87,792
|
|
|
|
21.8
|
|
|
|
27,252
|
|
|
|
21.0
|
|
|
|
Over 12 months through two years
|
|
|
37,949
|
|
|
|
9.4
|
|
|
|
20,644
|
|
|
|
15.9
|
|
|
|
Over two years
|
|
|
36,392
|
|
|
|
9.0
|
|
|
|
2,408
|
|
|
|
1.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
403,030
|
|
|
|
100.0
|
%
|
|
$
|
129,991
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FHLB and Other Borrowings
|
Our FHLB and other borrowings were $117.1 million as of
December 31, 2005, and $74.9 million as of
December 31, 2004. The outstanding balance for
December 31, 2005, includes $4.0 million of short-term
advances and $113.1 million of long-term advances. The
outstanding balance for December 31, 2004, includes
$31.0 million of short-term advances and $43.9 million
of long-term advances. Short-term borrowings consist primarily
of short-term FHLB borrowings. Long-term borrowings consist of
long-term FHLB borrowings and
43
a line of credit with another financial institution. Our
remaining FHLB borrowing capacity was $222.3 million as of
December 31, 2005, and $166.9 million as of
December 31, 2004.
We increased our long-term borrowings $69.2 million, or
157.9%, to $113.1 million as of December 31, 2005,
from $43.9 million as of December 31, 2004. This
increase is primarily a result of the acquisition of TCBancorp
and Marine Bancorp during 2005, combined with a modest increase
in FHLB borrowings in our other bank subsidiaries and an advance
on our line of credit. The FHLB borrowings increase in our other
bank subsidiaries is associated with a strategic decision to
better manage interest rate risk on specific new loan fundings
and commitments made during 2005. The advance on our line of
credit is the result of using this line for approximately
$14.0 million of the purchase price of Mountain View
Bancshares.
Subordinated debentures, which consist of guaranteed payments on
trust preferred securities, were $44.8 million and
$24.2 million as of December 31, 2005, and 2004,
respectively. The $20.6 million increase in subordinated
debentures is primarily associated with a $15.4 million
private placement during 2005, combined with $5.2 million
acquired in the acquisition of Marine Bancorp.
On November 10, 2005, we completed the private placement of
trust preferred securities in an aggregate net principal amount
of $15.0 million. We used the $15.0 million of net
proceeds from the offering to retire interim financing received
in connection with the third quarter acquisition of Mountain
View Bancshares.
Table 16 reflects subordinated debentures as of
December 31, 2005, and 2004, which consisted of guaranteed
payments on trust preferred securities with the following
components:
Table 16: Subordinated Debentures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
Subordinated debentures, due 2030, fixed at 10.60%, callable
beginning in 2010 with a prepayment penalty declining from 5.30%
to 0.53% depending on the year of prepayment, callable in 2020
without penalty
|
|
$
|
3,516
|
|
|
$
|
3,600
|
|
|
Subordinated debentures, 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, callable in
2008 without penalty
|
|
|
20,619
|
|
|
|
20,619
|
|
|
Subordinated debentures, due 2033, floating rate of 3.15% above
the three-month LIBOR rate, reset quarterly, callable in 2008
without penalty
|
|
|
5,155
|
|
|
|
—
|
|
|
Subordinated debentures, 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
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
44,755
|
|
|
$
|
24,219
|
|
|
|
|
|
|
|
|
|
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
trust’s 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 trust’s obligations under the trust
securities issued by each respective trust.
Presently, the funds raised from the trust preferred offerings
will qualify as Tier 1 capital for regulatory purposes,
subject to the applicable limit, with the balance qualifying as
Tier 2 capital.
44
Overview.
As of December 31, 2005, our
shareholders’ equity totaled $165.9 million, and our
equity to asset ratio was 8.7%, compared to 13.2% as of
December 31, 2004. This decrease is primarily the result of
leveraging our balance sheet with the acquisitions completed
during 2005.
Stock Split.
On May 31, 2005, we completed a
three-for-one stock split effected in the form of a stock
dividend. This resulted in issuing two additional shares of
stock to the common shareholders for each share previously held.
As a result of the stock split, the accompanying consolidated
financial statements reflect an increase in the number of
outstanding shares of common stock and the $78,000 transfer of
the par value of these additional shares from capital surplus.
All share and per share amounts have been restated to reflect
the retroactive effect of the stock split, except for our
capitalization.
Cash Dividends.
We declared cash dividends on our common
stock, Class A preferred stock, and Class B preferred
stock of $0.070, $0.250 and $0.330 per share, respectively,
for the year ended December 31, 2005, and $0.043, $0.250
and $0.000 per share, respectively, for 2004. No dividends
were paid on our Class B preferred stock during 2004 since
the Class B preferred stock was not issued until June 2005
in connection with the acquisition of Marine Bancorp. The common
per share amounts are reflective of the three-for-one stock
split during 2005. Our fourth quarter 2005 cash dividend on
common stock was $0.02 per share.
Liquidity and Capital Adequacy Requirements
Parent Company Liquidity.
The primary sources for payment
of our operating expenses and dividends are current cash on hand
($5.0 million as of December 31, 2005), dividends
received from our bank subsidiaries, and a $30.0 million
line of credit with another financial institution
($14.0 million borrowed as of December 31, 2005).
Dividend payments by our bank subsidiaries are subject to
various regulatory limitations. As the result of special
dividends paid by our bank subsidiaries during 2005 (primarily
to provide cash for the Marine Bancorp and Mountain View
Bancshares acquisitions), as of December 31, 2005, our bank
subsidiaries did not have any significant undivided profits
available for payment of dividends to us, without prior approval
of the regulatory agencies. However, two of our bank
subsidiaries had excess capital as of December 31, 2005. In
January 2006 we received special approval from the regulatory
agencies for those bank subsidiaries to collectively pay
$19.0 million in additional dividends to us, and we used
those dividends to repay the $14.0 million advance on our
line of credit and to fund our additional investment of
$3.0 million in White River Bancshares.
During 2006, our Arkansas bank subsidiaries may pay dividends to
us up to 75% of their current earnings. Due to Marine
Bank’s anticipated organic growth, we do not expect to take
dividends from Marine Bank during 2006. See “Supervision
and Regulation — Payment of Dividends.”
Risk-Based Capital.
We as well as our bank subsidiaries
are subject to various regulatory capital requirements
administered by the federal banking agencies. Furthermore, we
are deemed by federal regulators to be a source of financial
strength for White River Bancshares, despite owning only 20% of
its equity. 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
December 31, 2005, we meet all regulatory capital adequacy
requirements to which we are subject.
45
Table 17 presents our risk-based capital ratios as of
December 31, 2005 and 2004.
Table 17: Risk-Based Capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
Tier 1 capital
|
|
|
|
|
|
|
|
|
|
|
Shareholders’ equity
|
|
$
|
165,857
|
|
|
$
|
106,610
|
|
|
|
Qualifying trust preferred securities
|
|
|
43,000
|
|
|
|
23,000
|
|
|
|
Goodwill and core deposit intangibles, net
|
|
|
(44,516
|
)
|
|
|
(22,816
|
)
|
|
|
Qualifying minority interest
|
|
|
—
|
|
|
|
9,238
|
|
|
|
Unrealized loss on available-for-sale securities
|
|
|
7,903
|
|
|
|
858
|
|
|
|
Other
|
|
|
—
|
|
|
|
(11,856
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Tier 1 capital
|
|
|
172,244
|
|
|
|
105,034
|
|
|
|
|
|
|
|
|
|
|
Tier 2 capital
|
|
|
|
|
|
|
|
|
|
|
Qualifying allowance for loan losses
|
|
|
17,658
|
|
|
|
7,658
|
|
|
|
Other
|
|
|
—
|
|
|
|
(7,658
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Tier 2 capital
|
|
|
17,658
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total risk-based capital
|
|
$
|
189,902
|
|
|
$
|
105,034
|
|
|
|
|
|
|
|
|
|
|
Average total assets for leverage ratio
|
|
$
|
1,868,143
|
|
|
$
|
779,768
|
|
|
|
|
|
|
|
|
|
|
Risk weighted assets
|
|
$
|
1,406,131
|
|
|
$
|
604,046
|
|
|
|
|
|
|
|
|
|
|
Ratios at end of year
|
|
|
|
|
|
|
|
|
|
|
|
Leverage ratio
|
|
|
9.22
|
%
|
|
|
13.47
|
%
|
|
|
|
Tier 1 risk-based capital
|
|
|
12.25
|
|
|
|
17.39
|
|
|
|
|
Total risk-based capital
|
|
|
13.51
|
|
|
|
17.39
|
|
|
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 subsidiaries were well capitalized under the regulatory
framework for prompt corrective action. To be categorized as
well capitalized, we and our bank subsidiaries 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 subsidiaries’ categories.
46
Table 18 presents actual capital amounts and ratios as of
December 31, 2005, and 2004, for us and our bank
subsidiaries.
Table 18: Capital and Ratios
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
To Be Well
|
|
|
|
|
|
|
|
|
For Capital
|
|
|
Capitalized Under
|
|
|
|
|
|
|
Adequacy
|
|
|
Prompt Corrective
|
|
|
|
|
Actual
|
|
|
Purposes
|
|
|
Action Provision
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
As of December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leverage ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home BancShares
|
|
$
|
172,244
|
|
|
|
9.22
|
%
|
|
$
|
74,726
|
|
|
|
4.00
|
%
|
|
$
|
N/A
|
|
|
|
N/A
|
%
|
|
|
|
First State Bank
|
|
|
38,572
|
|
|
|
8.44
|
|
|
|
18,281
|
|
|
|
4.00
|
|
|
|
22,851
|
|
|
|
5.00
|
|
|
|
|
Community Bank
|
|
|
23,129
|
|
|
|
7.59
|
|
|
|
12,189
|
|
|
|
4.00
|
|
|
|
15,236
|
|
|
|
5.00
|
|
|
|
|
Twin City Bank
|
|
|
51,679
|
|
|
|
8.07
|
|
|
|
25,615
|
|
|
|
4.00
|
|
|
|
32,019
|
|
|
|
5.00
|
|
|
|
|
Marine Bank
|
|
|
20,050
|
|
|
|
7.28
|
|
|
|
11,016
|
|
|
|
4.00
|
|
|
|
13,771
|
|
|
|
5.00
|
|
|
|
|
Bank of Mountain View
|
|
|
29,468
|
|
|
|
16.35
|
|
|
|
7,209
|
|
|
|
4.00
|
|
|
|
9,012
|
|
|
|
5.00
|
|
|
|
Tier 1 capital ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home BancShares
|
|
$
|
172,244
|
|
|
|
12.25
|
%
|
|
$
|
56,243
|
|
|
|
4.00
|
%
|
|
$
|
N/A
|
|
|
|
N/A
|
%
|
|
|
|
First State Bank
|
|
|
38,572
|
|
|
|
10.01
|
|
|
|
15,413
|
|
|
|
4.00
|
|
|
|
23,120
|
|
|
|
6.00
|
|
|
|
|
Community Bank
|
|
|
23,129
|
|
|
|
10.25
|
|
|
|
9,026
|
|
|
|
4.00
|
|
|
|
13,539
|
|
|
|
6.00
|
|
|
|
|
Twin City Bank
|
|
|
51,679
|
|
|
|
11.53
|
|
|
|
17,929
|
|
|
|
4.00
|
|
|
|
26,893
|
|
|
|
6.00
|
|
|
|
|
Marine Bank
|
|
|
20,050
|
|
|
|
9.08
|
|
|
|
8,833
|
|
|
|
4.00
|
|
|
|
13,249
|
|
|
|
6.00
|
|
|
|
|
Bank of Mountain View
|
|
|
29,468
|
|
|
|
29.75
|
|
|
|
3,962
|
|
|
|
4.00
|
|
|
|
5,943
|
|
|
|
6.00
|
|
|
|
Total risk-based capital ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home BancShares
|
|
$
|
189,902
|
|
|
|
13.51
|
%
|
|
$
|
112,451
|
|
|
|
8.00
|
%
|
|
$
|
N/A
|
|
|
|
N/A
|
%
|
|
|
|
First State Bank
|
|
|
43,362
|
|
|
|
11.26
|
|
|
|
30,808
|
|
|
|
8.00
|
|
|
|
38,510
|
|
|
|
10.00
|
|
|
|
|
Community Bank
|
|
|
26,010
|
|
|
|
11.53
|
|
|
|
18,047
|
|
|
|
8.00
|
|
|
|
22,559
|
|
|
|
10.00
|
|
|
|
|
Twin City Bank
|
|
|
57,248
|
|
|
|
12.77
|
|
|
|
35,864
|
|
|
|
8.00
|
|
|
|
44,830
|
|
|
|
10.00
|
|
|
|
|
Marine Bank
|
|
|
22,815
|
|
|
|
10.33
|
|
|
|
17,669
|
|
|
|
8.00
|
|
|
|
22,086
|
|
|
|
10.00
|
|
|
|
|
Bank of Mountain View
|
|
|
30,094
|
|
|
|
30.38
|
|
|
|
7,925
|
|
|
|
8.00
|
|
|
|
9,906
|
|
|
|
10.00
|
|
|
|
|
As of December 31, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leverage ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home BancShares
|
|
$
|
105,139
|
|
|
|
13.47
|
%
|
|
$
|
31,222
|
|
|
|
4.00
|
%
|
|
$
|
N/A
|
|
|
|
N/A
|
%
|
|
|
|
First State Bank
|
|
|
60,701
|
|
|
|
13.43
|
|
|
|
18,079
|
|
|
|
4.00
|
|
|
|
22,599
|
|
|
|
5.00
|
|
|
|
|
Community Bank
|
|
|
22,513
|
|
|
|
7.44
|
|
|
|
12,104
|
|
|
|
4.00
|
|
|
|
15,130
|
|
|
|
5.00
|
|
|
|
Tier 1 capital ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home BancShares
|
|
$
|
105,139
|
|
|
|
17.39
|
%
|
|
$
|
24,184
|
|
|
|
4.00
|
%
|
|
$
|
N/A
|
|
|
|
N/A
|
%
|
|
|
|
First State Bank
|
|
|
60,701
|
|
|
|
15.53
|
|
|
|
15,635
|
|
|
|
4.00
|
|
|
|
23,452
|
|
|
|
6.00
|
|
|
|
|
Community Bank
|
|
|
22,513
|
|
|
|
11.97
|
|
|
|
7,523
|
|
|
|
4.00
|
|
|
|
11,285
|
|
|
|
6.00
|
|
|
|
Total risk-based capital ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home BancShares
|
|
$
|
105,139
|
|
|
|
17.39
|
%
|
|
$
|
48,368
|
|
|
|
8.00
|
%
|
|
$
|
N/A
|
|
|
|
N/A
|
%
|
|
|
|
First State Bank
|
|
|
65,604
|
|
|
|
16.78
|
|
|
|
31,277
|
|
|
|
8.00
|
|
|
|
39,097
|
|
|
|
10.00
|
|
|
|
|
Community Bank
|
|
|
24,955
|
|
|
|
13.27
|
|
|
|
15,044
|
|
|
|
8.00
|
|
|
|
18,806
|
|
|
|
10.00
|
|
|
|
|
|
|
Off-Balance Sheet Arrangements and Contractual
Obligations
|
In the normal course of business, we enter into a number of
financial commitments. Examples of these commitments include but
are not limited to operating lease obligations, FHLB advances,
lines of credit, subordinated debentures, unfunded loan
commitments and letters of credit.
47
Commitments to extend credit and letters of credit are legally
binding, conditional agreements generally having certain
expiration or termination dates. These commitments generally
require customers to maintain certain credit standards and are
established based on management’s credit assessment of the
customer. The commitments may expire without being drawn upon.
Therefore, the total commitment does not necessarily represent
future requirements.
Table 19 presents the funding requirements of our most
significant financial commitments, excluding interest, as of
December 31, 2005.
Table 19: Funding Requirements of Financial Commitments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
|
|
|
|
|
|
|
|
One-
|
|
|
Three-
|
|
|
Greater
|
|
|
|
|
|
|
Less than
|
|
|
Three
|
|
|
Five
|
|
|
than Five
|
|
|
|
|
|
|
One Year
|
|
|
Years
|
|
|
Years
|
|
|
Years
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
Operating lease obligations
|
|
$
|
980
|
|
|
$
|
1,892
|
|
|
$
|
1,816
|
|
|
$
|
5,384
|
|
|
$
|
10,072
|
|
|
FHLB advances
|
|
|
44,356
|
|
|
|
37,859
|
|
|
|
12,777
|
|
|
|
7,926
|
|
|
|
102,918
|
|
|
Other borrowed funds
|
|
|
136
|
|
|
|
—
|
|
|
|
14,000
|
|
|
|
—
|
|
|
|
14,136
|
|
|
Subordinated debentures
|
|
|
—
|
|
|
|
—
|
|
|
|
25,774
|
|
|
|
18,981
|
|
|
|
44,755
|
|
|
Loan commitments
|
|
|
151,422
|
|
|
|
78,322
|
|
|
|
5,610
|
|
|
|
31,121
|
|
|
|
266,475
|
|
|
Letters of credit
|
|
|
12,627
|
|
|
|
3,748
|
|
|
|
113
|
|
|
|
4,493
|
|
|
|
20,981
|
|
|
|
|
|
|
Non-GAAP Financial Measurements
|
We had $48.7 million, $22.8 million, and
$25.3 million total goodwill, core deposit intangibles and
other intangible assets as of December 31, 2005, 2004 and
2003, respectively. Because of our level of intangible assets
and related amortization expenses, management believes diluted
cash earnings per share and return on average tangible equity
are useful in evaluating our operating performance. These
calculations, which are similar to the GAAP calculation of
diluted earnings per share and return on average
shareholders’ equity, are presented in Tables 20
and 21, respectively.
Table 20: Diluted Cash Earnings Per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands, except per share data)
|
|
|
GAAP net income
|
|
$
|
11,446
|
|
|
$
|
9,159
|
|
|
$
|
3,769
|
|
|
Intangible amortization after-tax
|
|
|
891
|
|
|
|
442
|
|
|
|
38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash earnings
|
|
$
|
12,337
|
|
|
$
|
9,061
|
|
|
$
|
3,807
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP diluted earnings per share
|
|
$
|
0.82
|
|
|
$
|
0.94
|
|
|
$
|
0.63
|
|
|
Intangible amortization after-tax
|
|
|
0.07
|
|
|
|
0.05
|
|
|
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted cash earnings per share
|
|
$
|
0.89
|
|
|
$
|
0.99
|
|
|
$
|
0.64
|
|
|
|
|
|
|
|
|
|
|
|
|
48
Table 21: Return on Average Tangible Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
Return on average shareholders’ equity: A/C
|
|
|
7.27
|
%
|
|
|
8.61
|
%
|
|
|
8.88
|
%
|
|
Return on average tangible equity: B/(C-D)
|
|
|
10.16
|
|
|
|
11.54
|
|
|
|
9.44
|
|
|
|
(A) Net income
|
|
$
|
11,446
|
|
|
$
|
9,159
|
|
|
$
|
3,769
|
|
|
|
(B) Cash earnings
|
|
|
12,337
|
|
|
|
9,601
|
|
|
|
3,807
|
|
|
|
(C) Average shareholders’ equity
|
|
|
157,478
|
|
|
|
106,416
|
|
|
|
42,431
|
|
|
|
(D) Average goodwill, core deposits and other intangible
assets
|
|
|
36,035
|
|
|
|
23,247
|
|
|
|
2,104
|
|
Quarterly Results
Table 22 presents selected unaudited quarterly financial
information for 2005 and 2004.
Table 22: Quarterly Results
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 Quarter
|
|
|
|
|
|
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands, except per share data)
|
|
|
Income statement data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
$
|
16,361
|
|
|
$
|
18,824
|
|
|
$
|
23,605
|
|
|
$
|
26,668
|
|
|
$
|
85,458
|
|
|
|
Total interest expense
|
|
|
6,355
|
|
|
|
7,628
|
|
|
|
10,139
|
|
|
|
11,880
|
|
|
|
36,002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
10,006
|
|
|
|
11,196
|
|
|
|
13,466
|
|
|
|
14,788
|
|
|
|
49,456
|
|
|
|
Provision for loan losses
|
|
|
1,051
|
|
|
|
863
|
|
|
|
934
|
|
|
|
979
|
|
|
|
3,827
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for loan losses
|
|
|
8,955
|
|
|
|
10,333
|
|
|
|
12,532
|
|
|
|
13,809
|
|
|
|
45,629
|
|
|
|
Non-interest income
|
|
|
3,813
|
|
|
|
3,342
|
|
|
|
4,031
|
|
|
|
4,036
|
|
|
|
15,222
|
|
|
|
Gain on sale of equity investment
|
|
|
—
|
|
|
|
—
|
|
|
|
465
|
|
|
|
—
|
|
|
|
465
|
|
|
|
Non-interest expense
|
|
|
9,636
|
|
|
|
10,374
|
|
|
|
12,186
|
|
|
|
12,739
|
|
|
|
44,935
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
3,132
|
|
|
|
3,301
|
|
|
|
4,842
|
|
|
|
5,106
|
|
|
|
16,381
|
|
|
|
|
Provision for income taxes
|
|
|
943
|
|
|
|
929
|
|
|
|
1,512
|
|
|
|
1,551
|
|
|
|
4,935
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
2,189
|
|
|
$
|
2,372
|
|
|
$
|
3,330
|
|
|
$
|
3,555
|
|
|
$
|
11,446
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per share data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings
|
|
$
|
0.18
|
|
|
$
|
0.19
|
|
|
$
|
0.27
|
|
|
$
|
0.28
|
|
|
$
|
0.92
|
|
|
|
Diluted earnings
|
|
|
0.16
|
|
|
|
0.17
|
|
|
|
0.24
|
|
|
|
0.25
|
|
|
|
0.82
|
|
|
|
Diluted cash earnings
|
|
|
0.18
|
|
|
|
0.18
|
|
|
|
0.26
|
|
|
|
0.27
|
|
|
|
0.89
|
|
49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 Quarter
|
|
|
|
|
|
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands, except per share data)
|
|
|
Income statement data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
$
|
8,831
|
|
|
$
|
9,110
|
|
|
$
|
9,198
|
|
|
$
|
9,542
|
|
|
$
|
36,681
|
|
|
|
Total interest expense
|
|
|
2,816
|
|
|
|
2,783
|
|
|
|
2,918
|
|
|
|
3,063
|
|
|
|
11,580
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
6,015
|
|
|
|
6,327
|
|
|
|
6,280
|
|
|
|
6,479
|
|
|
|
25,101
|
|
|
|
Provision for loan losses
|
|
|
441
|
|
|
|
380
|
|
|
|
588
|
|
|
|
881
|
|
|
|
2,290
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for loan losses
|
|
|
5,574
|
|
|
|
5,947
|
|
|
|
5,692
|
|
|
|
5,598
|
|
|
|
22,811
|
|
|
|
Non-interest income
|
|
|
3,604
|
|
|
|
3,475
|
|
|
|
3,492
|
|
|
|
3,110
|
|
|
|
13,681
|
|
|
|
Gain on sale of equity investment
|
|
|
—
|
|
|
|
—
|
|
|
|
4,410
|
|
|
|
—
|
|
|
|
4,410
|
|
|
|
Non-interest expense
|
|
|
6,485
|
|
|
|
6,611
|
|
|
|
6,310
|
|
|
|
6,725
|
|
|
|
26,131
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes and minority interest
|
|
|
2,693
|
|
|
|
2,811
|
|
|
|
7,284
|
|
|
|
1,983
|
|
|
|
14,771
|
|
|
|
Provision for income taxes
|
|
|
855
|
|
|
|
979
|
|
|
|
2,147
|
|
|
|
1,049
|
|
|
|
5,030
|
|
|
|
Minority interest
|
|
|
235
|
|
|
|
48
|
|
|
|
172
|
|
|
|
127
|
|
|
|
582
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
1,603
|
|
|
$
|
1,784
|
|
|
$
|
4,965
|
|
|
$
|
807
|
|
|
$
|
9,159
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per share data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings
|
|
$
|
0.19
|
|
|
$
|
0.20
|
|
|
$
|
0.61
|
|
|
$
|
0.08
|
|
|
$
|
1.08
|
|
|
|
Diluted earnings
|
|
|
0.17
|
|
|
|
0.18
|
|
|
|
0.51
|
|
|
|
0.08
|
|
|
|
0.94
|
|
|
|
Diluted cash earnings
|
|
|
0.18
|
|
|
|
0.19
|
|
|
|
0.53
|
|
|
|
0.09
|
|
|
|
0.99
|
|
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
subsidiaries. Applicable statutes and regulations impose
restrictions on the amount of dividends that may be declared by
our bank subsidiaries. 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.
Each of our bank subsidiaries have 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, maturities of investment
securities and scheduled repayments and maturities of loans. We
maintain adequate levels of cash and equivalents to meet our
day-to
-day needs. As of
December 31, 2005, 2004, and 2003, our cash and due from
bank balances were $39.2 million, or 2.1% of total assets,
$19.4 million, or 2.4% of total assets, and
$17.1 million, or 2.1% of total assets, respectively. Our
investment securities, interest-earning time deposits, and Fed
funds sold were $542.8 million as of December 31,
2005, $193.1 million as of December 31, 2004, and
$204.7 million as of December 31, 2003.
50
As of December 31, 2005, $132.0 million, or 48.2%, of
our securities portfolio, excluding mortgage-backed securities,
matured within one year, and $106.6 million, or 38.9%,
excluding mortgage-backed securities, matured after one year but
within five years.
Our commercial and real estate lending activities are
concentrated in loans with maturities of less than five years
with both fixed and adjustable rates. As of December 31,
2005, approximately $756.4 million, or 62.7%, of our loans
matured within one year and/or had adjustable interest rates. As
of December 31, 2005, $276.1 million of securities
were pledged as collateral for various public fund deposits and
securities sold under agreements to repurchase. Additionally, we
maintain loan participation agreements with other financial
institutions in which we could participate out loans for
additional liquidity should the need arise.
On the liability side, our principal sources of liquidity are
deposits, borrowed funds, and access to capital markets.
Customer deposits are our largest sources of funds. As of
December 31, 2005, 2004, and 2003, our total deposits were
$1.4 billion, or 74.7% of total assets,
$552.9 million, or 68.7% of total assets, and
$572.2 million, or 71.3% of total assets, respectively. We
attract our deposits primarily from individuals, business, and
municipalities located in our market areas.
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 $46.5 million on an
unsecured basis as of December 31, 2005. These lines may be
terminated by the respective lending institutions at any time.
We also maintain lines of credit with the Federal Home
Loan Bank. Our FHLB borrowings were $102.9 million as
of December 31, 2005, $74.9 million as of
December 31, 2004, and $38.5 million as of
December 31, 2003. The outstanding balance for
December 31, 2005, included $3.8 million of short-term
advances and $99.1 million of long-term advances. The
outstanding balance as of December 31, 2004, included
$31.0 million of short-term advances and $43.9 million
of long-term advances. The outstanding balance as of
December 31, 2003, included $11.0 million of
short-term advances and $27.5 million of long-term
borrowings. Our FHLB borrowing capacity was $222.3 million
as of December 31, 2005.
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.
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 subsidiaries 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 simulation estimates the impact of various changes in the
overall level of interest rates over selected time horizons on
net interest income. The results help us develop strategies for
managing exposure to interest rate risk.
Like any forecasting technique, interest rate simulation
modeling is based on a number of assumptions. In this model
case, the assumptions relate primarily to loan and deposit
growth, asset and liability prepayments, interest rates and
balance sheet management strategies. Our management believes
that both individually and in the aggregate the assumptions are
reasonable. Nevertheless, the simulation modeling process
produces only an estimate, not a precise calculation of our
exposure.
We also use an economic value of equity model to complement our
short-term interest rate risk analysis. The benefit of this
model is that it measures exposure to interest rate changes over
time.
51
Economic value analysis has several limitations. For example,
the economic values of asset and liability balance sheet
positions do not represent the true fair values of the
positions, since economic values reflect an analysis at one
particular point in time and do not consider the value of our
franchise. In addition, an estimate of cash flow for assets and
liabilities with indeterminate maturities is required. The
analysis requires assumptions about events, which span several
time periods. Given these limitations, the economic value of
equity model is another tool for evaluating the effect of
possible interest rate movements.
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 management’s 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 December 31, 2005, our gap position was
relatively neutral with a one-year cumulative repricing gap of
0.6%. During these periods, the amount of change our asset base
realizes in relation to the total change in market interest
rates is approximately that of the liability base. As a result,
our net interest income should not have a material positive or
negative affect in the current environment of rising rates.
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.
52
Table 23 presents a summary of the repricing schedule of our
interest-earning assets and interest-bearing liabilities
(gap) at year-end 2005.
Table 23: 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
|
|
$
|
5,431
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
5,431
|
|
|
|
Federal funds sold
|
|
|
7,055
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
7,055
|
|
|
|
Investment securities
|
|
|
21,675
|
|
|
|
15,332
|
|
|
|
47,070
|
|
|
|
39,756
|
|
|
|
100,325
|
|
|
|
186,163
|
|
|
|
119,981
|
|
|
|
530,302
|
|
|
|
|
Loans receivable
|
|
|
476,075
|
|
|
|
61,427
|
|
|
|
102,019
|
|
|
|
172,774
|
|
|
|
154,489
|
|
|
|
210,648
|
|
|
|
27,157
|
|
|
|
1,204,589
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total earning assets
|
|
|
510,236
|
|
|
|
76,759
|
|
|
|
149,089
|
|
|
|
212,530
|
|
|
|
254,814
|
|
|
|
396,811
|
|
|
|
147,138
|
|
|
|
1,747,377
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing transaction and savings deposits
|
|
|
207,043
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
24,129
|
|
|
|
98,915
|
|
|
|
182,097
|
|
|
|
512,184
|
|
|
|
Time deposits
|
|
|
82,210
|
|
|
|
150,177
|
|
|
|
129,609
|
|
|
|
185,018
|
|
|
|
92,821
|
|
|
|
64,103
|
|
|
|
1,012
|
|
|
|
704,950
|
|
|
|
Federal funds purchased
|
|
|
44,495
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
44,495
|
|
|
|
Securities sold under repurchase agreements
|
|
|
76,942
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,823
|
|
|
|
11,469
|
|
|
|
11,484
|
|
|
|
103,718
|
|
|
|
FHLB and other borrowed funds
|
|
|
18,322
|
|
|
|
15,084
|
|
|
|
10,234
|
|
|
|
14,320
|
|
|
|
28,563
|
|
|
|
21,961
|
|
|
|
8,570
|
|
|
|
117,054
|
|
|
|
Subordinated debentures
|
|
|
—
|
|
|
|
5,155
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
20,619
|
|
|
|
18,981
|
|
|
|
44,755
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities
|
|
|
429,012
|
|
|
|
170,416
|
|
|
|
139,843
|
|
|
|
199,338
|
|
|
|
149,336
|
|
|
|
217,067
|
|
|
|
222,144
|
|
|
|
1,527,156
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate sensitivity gap
|
|
$
|
81,224
|
|
|
$
|
(93,657
|
)
|
|
$
|
9,246
|
|
|
$
|
13,192
|
|
|
$
|
105,478
|
|
|
$
|
179,744
|
|
|
$
|
(75,006
|
)
|
|
$
|
220,221
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative interest rate sensitivity gap
|
|
$
|
81,224
|
|
|
$
|
(12,433
|
)
|
|
$
|
(3,187
|
)
|
|
$
|
10,005
|
|
|
$
|
115,483
|
|
|
$
|
295,227
|
|
|
$
|
220,221
|
|
|
|
|
|
|
Cumulative rate sensitive assets to rate sensitive liabilities
|
|
|
118.9
|
%
|
|
|
97.9
|
%
|
|
|
99.6
|
%
|
|
|
101.1
|
%
|
|
|
110.6
|
%
|
|
|
122.6
|
%
|
|
|
114.4
|
%
|
|
|
|
|
|
Cumulative gap as a % of total earning assets
|
|
|
4.6
|
%
|
|
|
(0.7
|
)%
|
|
|
(0.2
|
)%
|
|
|
0.6
|
%
|
|
|
6.6
|
%
|
|
|
16.9
|
%
|
|
|
12.6
|
%
|
|
|
|
|
Recent Accounting Pronouncements
Statement of Position No. 03-3,
Accounting for Certain
Loans or Debt Securities Acquired in a Transfer
(SOP 03-3)
addresses accounting for differences between the contractual
cash flows of certain loans and debt securities and the cash
flows expected to be collected when loans or debt securities are
acquired in a transfer and those cash flow differences are
attributable, at least in part, to credit quality. As such, SOP
03-3 applies to loans and debt securities acquired individually,
in pools or as part of a business combination and does not apply
to originated loans. The application of SOP 03-3 limits the
interest income, including accretion of purchase price
discounts, which may be recognized for certain loans and debt
securities. Additionally, SOP 03-3 does not allow the excess of
contractual cash flows over cash flows expected to be collected
to be recognized as an adjustment of yield, loss accrual or
valuation allowance, such as the allowance for possible loan
losses. SOP 03-3 requires that increases in expected cash flows
subsequent to the initial investment be recognized prospectively
through adjustment of the yield on the loan or debt security
over its remaining life. Decreases in
53
expected cash flows should be recognized as impairment. In the
case of loans acquired in a business combination where the loans
show signs of credit deterioration, SOP 03-3 represents a
significant change from current purchase accounting practice
whereby the acquiree’s allowance for loan losses is
typically added to the acquirer’s allowance for loan
losses. SOP 03-3 was effective for loans and debt securities we
acquired beginning January 1, 2005. The adoption of SOP
03-3 did not have a material impact on our acquisitions of
TCBancorp or Marine Bancshares. However, during the acquisition
of Mountain View Bancshares, we did recognize impairment charges
on loans that were deemed to have probable losses. These
impairment charges resulted in reducing the acquired allowance
for loan losses and gross loan receivable by $506,000.
SFAS No. 123,
Share-Based Payment
(Revised
2004), establishes standards for the accounting for transactions
in which an entity (i) exchanges its equity instruments for
goods or services, or (ii) incurs liabilities in exchange
for goods or services that are based on the fair value of the
entity’s equity instruments or that may be settled by the
issuance of the equity instruments. SFAS 123R eliminates
the ability to account for stock-based compensation using
APB 25 and requires that such transactions be recognized as
compensation cost in the income statement based on their fair
values on the measurement date, which is generally the date of
the grant. SFAS 123R was to be effective for us on
July 1, 2005; however, the required implementation date was
delayed until January 1, 2006. We will transition to
fair-value based accounting for stock-based compensation using a
modified version of prospective application (“modified
prospective application”). Under modified prospective
application, as it is applicable to us, SFAS 123R applies
to new awards and to awards modified, repurchased, or cancelled
after January 1, 2006. Additionally, compensation cost for
the portion of awards for which the requisite service has not
been rendered (generally referring to non-vested awards) that
are outstanding as of January 1, 2006, must be recognized
as the remaining requisite service is rendered during the period
of and/or the periods after the adoption of SFAS 123R. The
attribution of compensation cost for those earlier awards will
be based on the same method and on the same grant-date fair
values previously determined under SFAS 123R for the pro
forma disclosures required for companies that did not adopt the
fair value accounting method for stock-based employee
compensation.
Based on the stock-based compensation awards outstanding as of
December 31, 2005, for which the requisite service is not
expected to be fully rendered prior to January 1, 2006, we
expect to recognize total compensation cost of approximately
$460,000 for stock options during 2006, in accordance with the
accounting requirements of SFAS 123R. Future levels of
compensation cost recognized related to stock-based compensation
awards (including the aforementioned expected costs during the
period of adoption) may be impacted by new awards and/or
modifications, repurchases and cancellations of existing awards
after the adoption of SFAS 123R.
SFAS No. 154,
Accounting Changes and Error
Corrections, A Replacement of APB Opinion No. 20 and FASB
Statement No. 3
, establishes unless impracticable,
retrospective application as the required method for reporting a
change in accounting principle in the absence of explicit
transition requirements specific to a newly adopted accounting
principle. Previously, most changes in accounting principle were
recognized by including the cumulative effect of changing to the
new accounting principle in net income of the period of the
change. Under SFAS 154, retrospective application requires
(i) the cumulative effect of the change to the new
accounting principle on periods prior to those presented to be
reflected in the carrying amounts of assets and liabilities as
of the beginning of the first period presented, (ii) an
offsetting adjustment, if any, to be made to the opening balance
of retained earnings (or other appropriate components of equity)
for that period, and (iii) financial statements for each
individual prior period presented to be adjusted to reflect the
direct period-specific effects of applying the new accounting
principle. Special retroactive application rules apply in
situations where it is impracticable to determine either the
period-specific effects or the cumulative effect of the change.
Indirect effects of a change in accounting principle are
required to be reported in the period in which the accounting
change is made. SFAS 154 carries forward the guidance in
APB Opinion 20,
Accounting Changes,
requiring
justification of a change in accounting principle on the basis
of preferability. SFAS 154 also carries forward without
change the guidance contained in APB Opinion 20, for
reporting the correction of an error in previously issued
financial statements and for a change in an accounting estimate.
SFAS 154 is effective for accounting changes and
corrections of errors made in fiscal years beginning after
December 15,
54
2005. We do not expect SFAS 154 will significantly impact
our financial statements upon its adoption on January 1,
2006.
FASB Staff Position (FSP) No, 115-1,
The Meaning of
Other-Than-Temporary Impairment and Its Application to Certain
Investments,
provides guidance for determining when an
investment is considered impaired, whether impairment is
other-than-temporary, and measurement of an impairment loss. An
investment is considered impaired if the fair value of the
investment is less than its cost. If, after consideration of all
available evidence to evaluate the realizable value of its
investment, impairment is determined to be other-than-temporary,
then an impairment loss should be recognized equal to the
difference between the investment’s cost and its fair
value. FSP 115-1 nullifies certain provisions of Emerging Issues
Task Force (EITF) Issue
No.
03-1,
The
Meaning of Other-Than-Temporary Impairment and Its Application
to Certain Investments,
while retaining the disclosure
requirements of
EITF
03-1
which
were adopted in 2003. FSP 115-1 is effective for reporting
periods beginning after December 15, 2005. We do not expect
ESP 115-1 will significantly impact our financial statements
upon its adoption on January 1, 2006.
Presently, we are not aware of any other changes from the
Financial Accounting Standards Board that will have a material
impact on our present or future financial statements.
55
BUSINESS
Home BancShares
We are a bank holding company headquartered in Conway, Arkansas.
Our five wholly owned community bank subsidiaries provide a
broad range of commercial and retail banking and related
financial services to businesses, real estate developers and
investors, individuals, and municipalities. Three of our bank
subsidiaries are located in the central Arkansas market area, a
fourth serves Stone County in north central Arkansas, and a
fifth serves the Florida Keys and southwestern Florida.
We have achieved significant growth through acquisitions,
organic growth and
de novo
branching. Specifically, as of
and for the year ended December 31, 2001, to
December 31, 2005, we have:
|
|
|
|
|
|
•
|
increased our total assets from $322.0 million to
$1.9 billion;
|
|
|
|
|
•
|
increased our loans receivable from $235.7 million to
$1.2 billion;
|
|
|
|
|
•
|
increased our total deposits from $237.3 million to
$1.4 billion;
|
|
|
|
|
•
|
increased our earnings per diluted share from $0.29 for the year
ended December 31, 2001, to $0.82 for the same period in
2005; and
|
|
|
|
|
•
|
expanded our branch network from eight to 45.
|
We were established in 1998 when an investor group led by John
W. Allison, our Chairman and Chief Executive Officer, and Robert
H. Adcock, Jr., our former Vice Chairman and the current
Arkansas State Bank Commissioner, formed Home BancShares, Inc.
to acquire a bank charter and establish First State Bank in
Conway, Arkansas. We or members of our management team have also
been involved in the formation of two of our other bank
subsidiaries — Twin City Bank and Marine
Bank — both of which we acquired in 2005. We have also
acquired and integrated our two other bank
subsidiaries — Community Bank and Bank of Mountain
View — in 2003 and 2005, respectively. Between Home
BancShares and TCBancorp (a bank holding company in which we
were the largest investor, and which we subsequently acquired in
2005), we have raised $131.8 million in cash through
intrastate offerings of common stock since 1999.
We acquire, organize and invest in community banks that serve
attractive markets, and build our community banks around
experienced bankers with strong local relationships. The
historical growth of our two largest bank subsidiaries compares
favorably with the fastest growing
de novo
banks in the
United States: First State Bank would rank 20th compared
with the 140 commercial banks established in 1998 (based on
total asset growth from December 31, 1998, to
December 31, 2005), and Twin City Bank would rank seventh
compared with the 173 commercial banks established in 2000
(based on total asset growth from December 31, 2000, to
December 31, 2005).
Our Bank Subsidiaries and Investments
We believe that many individuals and businesses prefer banking
with a locally managed community bank capable of providing
flexibility and quick decisions. The execution of our community
banking strategy has allowed us to rapidly build our network of
bank subsidiaries.
First State Bank
— In October 1998, we acquired
Holly Grove Bancshares, Inc. for the purpose of obtaining a bank
charter. Following the purchase, we changed the name of the bank
subsidiary to First State Bank and relocated the charter to
Conway, Arkansas, to serve the central Arkansas market. Since
December 31, 1998, First State Bank’s assets have
grown from $28.9 million to $450.8 million as of
December 31, 2005.
Twin City Bank
— In May 2000, we were the
largest investor in a group that formed a holding company
(subsequently renamed TCBancorp), acquired an existing bank
charter, and relocated the charter to North Little Rock,
Arkansas. The holding company named its subsidiary “Twin
City Bank,” which had been used by North Little Rock’s
largest bank until its sale in 1994, and hired Robert F.
Birch, Jr., who had been president of the former Twin City
Bank. Twin City Bank grew quickly in North Little Rock and, in
2003, expanded into
56
the adjacent Little Rock market. In January 2005, we acquired
through merger the 68% of TCBancorp’s common stock we did
not already own. Since December 31, 2000, Twin City
Bank’s total assets have grown from $59.9 million to
$628.3 million as of December 31, 2005.
Community Bank
— In December 2003, we acquired
Community Financial Group, Inc., the holding company for
Community Bank of Cabot. Prior to this acquisition, we had
established a branch in Cabot, Arkansas, and had planned to
branch further into this market. These plans were changed when
the opportunity to acquire Community Bank of Cabot arose. At the
time of the acquisition, Community Bank of Cabot was operating
under a supervisory action primarily due to asset quality
concerns. After we acquired the bank, the supervisory action was
removed and management has worked diligently to improve asset
quality. Community Bank’s non-performing loans have
decreased from $6.7 million as of September 30, 2003,
to $4.3 million as of December 31, 2005. Community
Bank had total assets of $331.5 million as of
December 31, 2005, and had a deposit market share in Cabot
of 46% as of June 30, 2005.
Marine Bank
— In June 2005, we acquired Marine
Bancorp, Inc., and its subsidiary, Marine Bank, in Marathon,
Florida. Marine Bank was established in 1995. Our Chairman and
Chief Executive Officer, John W. Allison, was a founding board
member and the largest shareholder of Marine Bancorp, owning
approximately 22% of its stock at the time of our acquisition.
In 2002, to better position itself for growth, Marine Bank hired
a new president and added other experienced bankers to its
management team. Since December 31, 2002, Marine
Bank’s total assets have grown from $114.7 million to
$286.5 million as of December 31, 2005.
Bank of Mountain View
— In September 2005, we
acquired Mountain View Bancshares, Inc., and its subsidiary,
Bank of Mountain View. We were attracted to the Bank of Mountain
View because of its strong profitability and 85% deposit market
share in Mountain View as of June 30, 2005. Bank of
Mountain View had $195.6 million total assets as of
December 31, 2005.
Investment in White River Bancshares
— In May
2005, we invested $9.0 million to acquire 20% of the common
stock of White River Bancshares, Inc., the holding company for
Signature Bank in Fayetteville, Arkansas. In January 2006, we
invested an additional $3.0 million to maintain this 20%
ownership position. Signature Bank serves the growing northwest
Arkansas market and is led by an experienced community banker
with local relationships. Ron W. Strother, our President and
Chief Operating Officer, serves on the boards of White River
Bancshares and Signature Bank. Since opening in May 2005,
Signature Bank has grown to $174.5 million in total assets
as of December 31, 2005.
Our Management Team
We have an experienced management team that shares a commitment
to community banking, exceptional service and strong credit
quality. Our senior management team — the three senior
executives of Home BancShares and our five bank
presidents — has, on average, more than 27 years
of banking experience. See “Management.” As of
December 31, 2005, our executive officers and directors
beneficially owned approximately 45.1% of our common stock, and
will continue to beneficially own
approximately % after this
offering.
We provide our community bank presidents significant autonomy to
operate their banks, but we maintain overall guidance in
critical areas such as credit standards. We capitalize on the
strengths of our bank presidents, and the products and services
that our bank subsidiaries tailor to their markets, by sharing
the best practices of each institution. Our chief operating
officer and chief financial officer meet weekly with our bank
presidents to discuss business issues and opportunities to
expand products and services within our network of banks. In
addition, our senior management meets monthly with our bank
presidents to review financial performance and discuss strategy
and opportunities.
Compensation for our management team is designed to promote
performance, and includes both cash bonuses and stock
appreciation rights. Cash bonus compensation for the bank
presidents is tied to several financial performance metrics,
including asset quality, profitability and growth. We believe
these incentive plans encourage the performance and continuity
of our management team.
57
Our Growth Strategy
Our goals are to achieve growth in earnings per share and to
create and build shareholder value. Our growth strategy entails
the following:
|
|
|
|
|
|
•
|
Organic growth
— We believe that our current
branch network provides us with the capacity to grow
significantly within our existing market areas. Twenty-one of
our 45 branches (including branches of banks we have
acquired) have been opened since the beginning of 2001. As these
newer branches continue to mature, we expect to see additional
organic loan and deposit growth and increased profitability.
Furthermore, we plan to broaden the product lines within each of
our bank subsidiaries by cross-selling products such as
insurance and trust services.
|
|
|
|
|
•
|
De novo branching
— We intend to continue to
open
de novo
branches in our current markets and in other
attractive market areas if opportunities arise. In 2006, we plan
to add seven to ten new branches, including four or five in
Arkansas, one or two in the Florida Keys and two or three along
the southwestern coast of Florida.
|
|
|
|
|
•
|
Strategic acquisitions
— We will continue to
consider strategic acquisitions, with a primary focus on
Arkansas and southwestern Florida. When considering a potential
acquisition, we assess a combination of factors, but concentrate
on the strength of existing management, the growth potential of
the bank and the market, the profitability of the bank, and the
valuation of the bank. We believe that potential sellers
consider us an acquirer of choice, largely due to our community
banking philosophy. With each acquisition we seek to maintain
continuity of management and the board of directors, consolidate
back office operations, add product lines, and implement our
credit policy.
|
Community Banking Philosophy
Our community banking philosophy consists of four basic
principles:
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|
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•
|
operate largely autonomous community banks managed by
experienced bankers and a local board of directors, who are
empowered to make customer-related decisions quickly;
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|
|
•
|
provide exceptional service and develop strong customer
relationships;
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|
|
|
|
•
|
pursue the business relationships of our boards of directors,
management, shareholders, and customers to actively promote our
community banks; and
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|
|
•
|
maintain our commitment to the communities we serve by
supporting their civic and nonprofit organizations.
|
We believe that these principles are a competitive advantage
when serving our customers, particularly as we compete with
larger banks headquartered outside of our markets. Through our
bank subsidiaries and their boards of directors and employees,
we plan to continue building a high-performing banking
organization with exceptional customer service.
Operating Strategy
Our operating strategies focus on improving credit quality,
increasing profitability, finding experienced bankers, and
leveraging our infrastructure:
|
|
|
|
|
|
•
|
Emphasis on credit quality
— Credit quality is
our first priority in the management of our bank subsidiaries.
We employ a set of credit standards across our bank subsidiaries
that are designed to ensure the proper management of credit
risk. Our management team plays an active role in monitoring
compliance with these credit standards at each of our bank
subsidiaries. We have a centralized loan review process and
regularly monitor each of our bank subsidiaries’ loan
portfolios, which we believe enables us to take prompt action on
potential problem loans. Non-performing assets as a percentage
of total assets decreased from 1.18% as of December 31,
2004, to 0.47% as of December 31, 2005.
|
58
|
|
|
|
|
|
•
|
Continue to improve profitability
— We intend
to improve our profitability as we leverage the available
capacity of our newer branches and employees. We believe our
investments in our branch network and centralized technology
infrastructure are sufficient to support a larger organization,
and therefore believe increases in our expenses should be lower
than the corresponding increases in our revenues. We also plan
to increase our fee-based revenue by offering all our products
and services, including insurance and trust services, through
each of our bank subsidiaries.
|
|
|
|
|
•
|
Attract and motivate experienced bankers
— We
believe a major factor in our success has been our ability to
attract and retain bankers who have experience in and knowledge
of their local communities. For example, in January 2006, we
hired eight experienced bankers in the Searcy, Arkansas, market
(located approximately 50 miles northeast of Little Rock),
where we subsequently opened a new branch. Hiring and retaining
experienced relationship bankers has been integral to our
ability to grow quickly when entering new markets. We will
continue to recruit experienced relationship bankers as our
banking franchise expands.
|
|
|
|
|
•
|
Leveraging our infrastructure
— The support
services we provide to our bank subsidiaries are generally
centralized in Conway, Arkansas. These services include finance
and accounting, internal audit, compliance, loan review, human
resources, training, and data processing. We believe the
centralization of our support services enhances efficiencies,
maintains consistency in policies and procedures, and enables
our employees to focus on developing and strengthening customer
relationships.
|
Our Market Areas
As of December 31, 2005, we conducted business principally
through 38 branches in five counties in Arkansas and seven
branches in the Florida Keys. We plan to add seven to ten new
branches in 2006. Our branch footprint includes markets in which
we are the deposit market share leader as well as markets where
we believe we have significant opportunities for deposit market
share growth.
The chart below details our deposits and market share ranking
for the largest deposit markets of our bank subsidiaries, based
on FDIC data as of June 30, 2005, and provides related
demographic data from ESRI, a leading provider of demographic
data, for each of our largest deposit markets and for us in
total.
|
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Projected
|
|
|
Projected
|
|
|
|
|
Home
|
|
|
|
|
Deposit
|
|
|
Population
|
|
|
Growth in Per
|
|
|
|
|
BancShares
|
|
|
Total Deposits
|
|
|
Market Share
|
|
|
Growth
|
|
|
Capita Income
|
|
|
Selected Markets
|
|
Deposits
|
|
|
in Market
|
|
|
Rank
|
|
|
2005-2010
|
|
|
2005-2010
|
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|
|
|
|
|
|
|
|
|
|
|
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|
|
|
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|
|
|
|
(Dollars in millions)
|
|
|
North Little Rock, AR
|
|
$
|
299
|
|
|
$
|
1,084
|
|
|
|
1
|
|
|
|
4.0
|
%
|
|
|
27.6
|
%
|
|
Conway, AR
|
|
|
282
|
|
|
|
1,041
|
|
|
|
1
|
|
|
|
11.6
|
|
|
|
26.4
|
|
|
Key West-Marathon, FL MSA
|
|
|
214
|
|
|
|
2,258
|
|
|
|
4
|
|
|
|
2.2
|
|
|
|
21.7
|
|
|
Mountain View, AR
|
|
|
158
|
|
|
|
187
|
|
|
|
1
|
|
|
|
0.2
|
|
|
|
32.7
|
|
|
Little Rock, AR
|
|
|
152
|
|
|
|
5,356
|
|
|
|
9
|
|
|
|
4.7
|
|
|
|
29.0
|
|
|
Cabot, AR
|
|
|
145
|
|
|
|
318
|
|
|
|
1
|
|
|
|
16.9
|
|
|
|
22.9
|
|
|
Total for Home BancShares
|
|
|
1,445
|
|
|
|
11,030
|
|
|
|
N/A
|
|
|
|
6.6
|
(1)
|
|
|
26.4
|
(1)
|
|
United States Average
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
6.3
|
|
|
|
22.8
|
|
|
|
|
|
(1)
|
Weighted average based on total deposits by city as of
June 30, 2005.
|
We are currently the deposit market share leader in Conway,
Cabot, North Little Rock, and Mountain View, Arkansas. In these
markets, we plan to continue our organic growth while improving
profitability. Furthermore, we plan to open an additional three
to four branches in the growing communities surrounding Cabot,
Conway, and North Little Rock in 2006.
59
Conway
— First State Bank opened its first
branch in Conway in 1999 and, as of June 30, 2005, had a
27.1% deposit market share. Conway is located on Interstate 40,
approximately 30 miles northwest of Little Rock. The city
of Conway has grown significantly in recent years as a result of
the westward expansion of Little Rock businesses and residents.
Major employers in Conway include Acxiom Corporation (a large
information technology company), two of the state’s leading
four-year colleges (University of Central Arkansas and Hendrix
College), several large manufacturers, and local healthcare
providers. Conway’s estimated population of 49,376 in 2005
is projected to increase by 11.6% between 2005 and 2010. Conway
should also benefit from the recent initiation of natural gas
exploration and development in the “Fayetteville
Shale.” See below, “Recent Developments in Arkansas
Market Area.” Southwestern Energy Company has opened a
regional office in Conway and has announced plans to employ
approximately 150 employees in 2006. Schlumberger Ltd. is also
building a regional office and warehouse in Conway expected to
open by mid-2006, which reportedly will employ more than 100
people.
Cabot
— We entered the Cabot market in 2003
through the acquisition of Community Financial Group and, as of
June 30, 2005, had a 45.8% deposit market share. Cabot is
located approximately 25 miles north of Little Rock.
Cabot’s economy has historically been driven by the
education, healthcare, manufacturing, and retail trade
industries. Cabot’s estimated population of 18,599 is
projected to increase by 16.9% between 2005 and 2010.
North Little Rock
— Twin City Bank entered the
North Little Rock market in 2000 and, as of June 30, 2005,
had a 27.6% deposit market share. The major industries in North
Little Rock include education, healthcare, retail trade and
manufacturing. In recent years, downtown North Little Rock has
experienced an economic revival due in part to the opening of
ALLTEL Arena, a large general entertainment venue, and the
commencement of construction of a minor league baseball stadium
scheduled to open in 2007. North Little Rock’s estimated
population of 61,889 in 2005 is projected to increase by 4.0%
between 2005 and 2010.
Mountain View
— We entered the Mountain View
market through the acquisition of Mountain View Bancshares in
September 2005 and, as of June 30, 2005, had an 84.9%
deposit market share. Mountain View, which is located
approximately 75 miles north of Conway, is the seat of
Stone County and is a popular tourism and retirement
destination. Mountain View’s per capita income is projected
to increase 32.7% between 2005 and 2010.
Little Rock
— Twin City Bank began branching
into Little Rock in May 2003 and, as of June 30, 2005, had
a 2.8% deposit market share. Little Rock is Arkansas’s
capital and its largest city. It is the home of the University
of Arkansas for Medical Sciences (the largest non-governmental
employer in the city), the University of Arkansas at Little
Rock, and several smaller community colleges. Fortune
500 companies ALLTEL Corporation and Dillard’s, Inc.,
as well as Acxiom Corporation, are headquartered in Little Rock.
Professional services, healthcare, retail trade, and
manufacturing are other large sources of employment in Little
Rock. The opening of the William Jefferson Clinton Presidential
Library in 2004 and ongoing real estate development projects
have contributed to the revitalization of downtown Little Rock,
while west Little Rock continues to develop new residential
communities and business centers. Little Rock had an estimated
population of 189,364 in 2005, and its per capita income is
projected to increase 29.0% between 2005 and 2010. Little Rock
should continue to benefit economically from the growing
communities on the outer edges of the greater Little Rock
metropolitan statistical area, including Conway and Cabot. We
believe we have a significant opportunity for market share
growth in Little Rock, as over 48% of the deposits are held by
larger regional and national banks headquartered outside of
Arkansas.
Recent Developments in Arkansas Market Area
—
Our Arkansas market areas, especially Conway, are expected to
benefit from the discovery and exploration of natural gas in the
“Fayetteville Shale.” The Fayetteville Shale has been
described as a geologic formation stretching from north central
Arkansas east to the Mississippi River. Southwestern Energy has
announced that it made $154.5 million in Fayetteville
Shale-related investments in 2005, and that it expects to invest
more than $300 million in 2006. Other companies,
including Chesapeake Energy Corporation, Maverick Oil &
Gas, Inc., and Royal Dutch Shell PLC, are reportedly leasing
properties in the Fayetteville Shale area.
60
Florida Keys (Monroe County)
— We entered the
Florida Keys in 2005 through the acquisition of Marine Bank. As
of June 30, 2005, Marine Bank had a 9.5% deposit market
share in Monroe County. The Florida Keys encompass a
100-mile
string of
islands located in Monroe County on the southern tip of Florida.
There are five incorporated cities in the Florida Keys: Key
West, Key Colony Beach, Layton, Islamorada and Marathon. We
believe that Key West, the largest city in the Florida Keys,
provides us with an opportunity for growth. We currently have
one branch and a 4.5% deposit market share in Key West, and are
planning to open an additional branch in the Old Town section of
Key West in 2006. We also plan to open our first branch in Key
Largo in 2006. The Florida Keys economy is driven by tourism and
real estate development. The area has experienced above-average
commercial and residential property price appreciation due to
limited property and construction permits and high demand for
the property in the area. Real estate development is expected to
continue to drive the economy as existing properties are being
renovated and improved. Monroe County’s estimated
population of 81,227 in 2005 is projected to increase by 2.2%
between 2005 and 2010.
Southwestern Florida
— We plan to open a branch
in Port Charlotte (Punta Gorda MSA) and Marco Island
(Naples-Marco Island MSA) during 2006. As of June 30, 2005,
there were a combined $12.6 billion deposits and
approximately 500,000 residents in these two MSAs. The
Southwestern Florida economy is driven by the tourism industry
and is a popular retirement destination. The expected population
growth for 2005 to 2010 in the Punta Gorda MSA and the
Naples-Marco-Island MSA is 11.6% and 25.5%, respectively.
Lending Activities
We originate loans primarily secured by single and multi-family
real estate, residential construction and commercial buildings.
In addition, we make loans to small and medium-sized commercial
businesses, as well as to consumers for a variety of purposes.
Our loan portfolio as of December 31, 2005, was comprised
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount
|
|
|
Percentage of portfolio
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
Real estate:
|
|
|
|
|
|
|
|
|
|
Commercial real estate loans:
|
|
|
|
|
|
|
|
|
|
|
Non-farm/non-residential
|
|
$
|
411,839
|
|
|
|
34.1
|
%
|
|
|
Construction/land development
|
|
|
291,515
|
|
|
|
24.2
|
|
|
|
Agricultural
|
|
|
13,112
|
|
|
|
1.1
|
|
|
Residential real estate loans:
|
|
|
|
|
|
|
|
|
|
|
Residential 1-4 family
|
|
|
221,831
|
|
|
|
18.4
|
|
|
|
Multifamily residential
|
|
|
34,939
|
|
|
|
2.9
|
|
|
|
|
|
|
|
|
|
|
Total real estate
|
|
|
973,236
|
|
|
|
80.7
|
|
|
Consumer
|
|
|
39,447
|
|
|
|
3.3
|
|
|
Commercial and industrial
|
|
|
175,396
|
|
|
|
14.6
|
|
|
Agricultural
|
|
|
8,466
|
|
|
|
0.7
|
|
|
Other
|
|
|
8,044
|
|
|
|
0.7
|
|
|
|
|
|
|
|
|
|
|
|
Total loans receivable
|
|
$
|
1,204,589
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
In addition, we have entered into contractual obligations, via
lines of credit and standby letters of credit, to extend
approximately $21.0 million in credit as of
December 31, 2005. We use the same credit policies in
making these commitments as we do for our other loans.
Real Estate — Non-farm/ Non-residential.
Non-farm/non-residential loans consist primarily of loans
secured by real estate mortgages on income-producing properties.
We make commercial mortgage loans to finance the purchase of
real property as well as loans to smaller business ventures,
credit lines for working
61
capital and inventory financing, including letters of credit,
that are also secured by real estate. Commercial mortgage
lending typically involves higher loan principal amounts, and
the repayment of loans is dependent, in large part, on
sufficient income from the properties collateralizing the loans
to cover operating expenses and debt service.
Real Estate — Construction/ Land Development.
We also make construction and development loans to residential
and commercial contractors and developers located primarily
within our market areas. Construction loans generally are
secured by first liens on real estate. As of December 31,
2005, less than 5% of our construction and development loans
were made on raw land.
Real Estate — Residential Mortgage.
Our
residential mortgage loan program primarily originates loans to
individuals for the purchase of residential property. We
generally do not retain long-term, fixed-rate residential real
estate loans in our portfolio due to interest rate and
collateral risks and low levels of profitability. Residential
loans to individuals retained in our loan portfolio primarily
consist of shorter-term first liens on 1-4 family residential
mortgages, home equity loans and lines of credit.
Consumer.
While our focus is on service to small and
medium-sized businesses, we also make a variety of loans to
individuals for personal, family and household purposes,
including secured and unsecured installment and term loans.
Commercial and Industrial.
Our commercial loan portfolio
includes loans to smaller business ventures, credit lines for
working capital and short-term inventory financing, as well as
letters of credit that are generally secured by collateral other
than real estate. Commercial borrowers typically secure their
loans with assets of the business, personal guaranties of their
principals and often mortgages on the principals’ personal
residences.
Credit Risks.
The principal economic risk associated with
each category of the loans that we make is the creditworthiness
of the borrower and the ability of the borrower to repay the
loan. General economic conditions and the strength of the
services and retail market segments affect borrower
creditworthiness. General factors affecting a commercial
borrower’s ability to repay include interest rates,
inflation and the demand for the commercial borrower’s
products and services, as well as other factors affecting a
borrower’s customers, suppliers and employees.
Risks associated with real estate loans also include
fluctuations in the value of real estate, new job creation
trends, tenant vacancy rates and, in the case of commercial
borrowers, the quality of the borrower’s management.
Consumer loan repayments depend upon the borrower’s
financial stability and are more likely to be adversely affected
by divorce, job loss, illness and other personal hardships.
Lending Policies.
We have established common
documentation and policies, based on the type of loan, for all
of our bank subsidiaries. The board of directors of each bank
subsidiary supplements our standard policies to meet local needs
and establishes loan approval procedures for that bank. Each
bank’s board periodically reviews their lending policies
and procedures. There are legal restrictions on the dollar
amount of loans available for each lending relationship. The
Arkansas Banking Code provides that no loan relationship may
exceed 20% of a bank’s capital. The Florida Banking Code
provides that no loan relationship may exceed 15% of a
bank’s capital, or 25% on a fully secured basis. As of
December 31, 2005, our legal lending limit for secured
loans was approximately $9.1 million for First State Bank,
$6.1 million for Community Bank, $11.5 million for
Twin City Bank, $5.8 million for Bank of Mountain View, and
$4.8 million for Marine Bank of the Florida Keys.
Our bank subsidiaries are able to leverage their relationships
with one another to participate collectively in loans that they
otherwise would not be able to extend individually. As of
December 31, 2005, the aggregate legal lending limit of our
bank subsidiaries for secured loans was approximately
$37.3 million, and as of December 31, 2005, we had
established an in-house lending limit of $16.0 million to
any one borrower, without obtaining the approval of our Chairman
and our Vice Chairman.
62
As of December 31, 2005, our four largest aggregate loan
commitments to any one borrower were as follows:
|
|
|
|
|
|
•
|
$27.3 million consisting of loans to a developer of
apartments;
|
|
|
|
|
•
|
$21.6 million consisting of loans to a healthcare provider;
|
|
|
|
|
•
|
$18.1 million consisting of loans to a healthcare
provider; and
|
|
|
|
|
•
|
$15.3 million consisting of loans to a real estate
developer and investor.
|
Including the commitments described above, as of
December 31, 2005, we had ten commitments outstanding under
which any one borrower could borrow in excess of
$10.0 million; those commitments in aggregate totaled
approximately $134.5 million.
Loan Approval Procedures.
Our bank subsidiaries have
supplemented our common loan policies to establish their own
loan approval procedures as follows:
|
|
|
|
|
|
•
|
Individual Authorities.
The board of directors of each
bank establishes the authorization levels for individual loan
officers on a case-by-case basis. Generally, the more
experienced a loan officer, the higher the authorization level.
The approval authority for individual loan officers range from
$20,000 to $500,000 for secured loans and from $1,000 to $50,000
for unsecured loans.
|
|
|
|
|
•
|
Officer Loan Committees.
Most of our bank
subsidiaries also give their Officer Loan Committees loan
approval authority. In those banks, credits in excess of
individual loan limits are submitted to the appropriate
bank’s Officer Loan Committee. The Officer
Loan Committees consist of members of the senior management
team of that bank and are chaired by that bank’s chief
lending officer. The Officer Loan Committees have approval
authority up to $750,000 at First State Bank, $750,000 at
Community Bank, and $1.0 million at Twin City Bank. At
Marine Bank, certain officers are allowed to combine limits on
secured loans up to $1.0 million for certain grades of
credits.
|
|
|
|
|
•
|
Directors Loan Committee.
Each of our bank
subsidiaries has a Directors Loan Committee consisting of
outside directors, senior lenders of the bank, and our Chief
Operating Officer. Generally, each bank requires a majority of
outside directors be present to establish a quorum. Generally,
this committee is chaired either by the chief lending officer or
the chief executive officer of the bank. Each bank’s board
of directors establishes the approval authority for this
committee, which may be up to that bank’s legal lending
limit.
|
Deposits and Other Sources of Funds
Our principal source of funds for loans and investing in
securities is core deposits. We offer a wide range of deposit
services, including checking, savings, money market accounts and
certificates of deposit. We obtain most of our deposits from
individuals and small businesses, and municipalities in our
market areas. We believe that the rates we offer for core
deposits are competitive with those offered by other financial
institutions in our market areas. Secondary sources of funding
include advances from the Federal Home Loan Banks of Dallas
and Atlanta and other borrowings. These secondary sources enable
us to borrow funds at rates and terms, which, at times, are more
beneficial to us.
Other Banking Services
Given customer demand for increased convenience and account
access, we offer a range of products and services, including
24-hour
Internet
banking and voice response information, cash management,
overdraft protection, direct deposit, traveler’s checks,
safe deposit boxes, United States savings bonds and automatic
account transfers. We earn fees for most of these services. We
also receive ATM transaction fees from transactions performed by
our customers participating in a shared network of automated
teller machines and a debit card system that our customers can
use throughout the United States, as well as in other countries.
63
Insurance
Community Insurance Agency, Inc. is an independent insurance
agency, originally founded in 1959 and purchased July 1,
2000, by Community Bank. Community Insurance Agency writes
policies for commercial and personal lines of business, with
approximately 50% of the business coming from each. It is
subject to regulation by the Arkansas Insurance Department. The
offices of Community Insurance Agency are located in
Jacksonville, Cabot, and Conway, Arkansas.
Trust Services
FirsTrust Financial Services, Inc. provides trust services,
focusing primarily on personal trusts, corporate trusts and
employee benefit trusts. FirsTrust Financial Services has
offices in Conway, Little Rock, Cabot, and El Dorado, Arkansas.
FirsTrust Financial Services is subject to regulation by the
Federal Reserve Board and the Arkansas State Bank Department.
Assets under management as of December 31, 2005 were
$320.4 million.
Properties
As of December 31, 2005, our bank subsidiaries operated a
total of 38 branches in Arkansas and seven branches in Florida,
and were in various stages of opening an additional six
branches, as shown in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owned or
|
|
|
Date
|
|
|
Square
|
|
|
Office Address
|
|
City
|
|
|
Leased
|
|
|
Constructed
|
|
|
Feet
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First State Bank
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
620 Chestnut
|
|
|
Conway, AR
|
|
|
|
Owned
|
|
|
|
1999
|
|
|
|
9,000
|
|
|
|
2500 Dave Ward Drive
|
|
|
Conway, AR
|
|
|
|
Owned
|
|
|
|
2002
|
|
|
|
2,640
|
|
|
|
1815 East Oak Street
|
|
|
Conway, AR
|
|
|
|
Owned
|
|
|
|
2001
|
|
|
|
2,640
|
|
|
|
2690 Donaghey
|
|
|
Conway, AR
|
|
|
|
Leased
|
|
|
|
2001
|
|
|
|
2,600
|
|
|
|
1445 Hogan Lane
|
|
|
Conway, AR
|
|
|
|
Leased
|
|
|
|
2004
|
|
|
|
3,200
|
|
|
|
945 Salem Road
|
|
|
Conway, AR
|
|
|
|
Owned
|
|
|
|
1999
|
|
|
|
4,200
|
|
|
|
1208 Oak
|
|
|
Conway, AR
|
|
|
|
Owned
|
|
|
|
1999
|
|
|
|
2,500
|
|
|
|
582 Highway 365 South
|
|
|
Mayflower, AR
|
|
|
|
Leased
|
|
|
|
2000
|
|
|
|
800
|
|
|
|
1044 Main Street
|
|
|
Vilonia, AR
|
|
|
|
Owned
|
|
|
|
1999
|
|
|
|
2,640
|
|
|
|
#8 Business Park Drive
|
|
|
Greenbrier, AR
|
|
|
|
Owned
|
|
|
|
2002
|
|
|
|
2,640
|
|
|
|
1300 West Beebe-Capps Expwy
|
|
|
Searcy, AR
|
|
|
|
Owned
|
|
|
|
Pending
|
|
|
|
5,000
|
(1)
|
|
|
|
Community Bank
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
218 West Main
|
|
|
Cabot, AR
|
|
|
|
Owned
|
|
|
|
1977
|
|
|
|
1,200
|
|
|
|
2171 West Main
|
|
|
Cabot, AR
|
|
|
|
Owned
|
|
|
|
1999
|
|
|
|
20,500
|
|
|
|
3111 Bill Foster Memorial Hwy
|
|
|
Cabot, AR
|
|
|
|
Leased
|
(2)
|
|
|
2004
|
|
|
|
3,500
|
|
|
|
One City Plaza
|
|
|
Cabot, AR
|
|
|
|
Owned
|
|
|
|
1978
|
|
|
|
22,150
|
|
|
|
1204 S. Pine Street
|
|
|
Cabot, AR
|
|
|
|
Owned
|
|
|
|
1990
|
|
|
|
3,300
|
|
|
|
707 Dewitt Henry Drive
|
|
|
Beebe, AR
|
|
|
|
Owned
|
|
|
|
1998
|
|
|
|
2,924
|
|
|
|
10 Crestview Plaza
|
|
|
Jacksonville, AR
|
|
|
|
Leased
|
|
|
|
1997
|
|
|
|
2,600
|
|
|
|
1900 John Hardin Drive
|
|
|
Jacksonville, AR
|
|
|
|
Owned
|
|
|
|
2000
|
|
|
|
3,807
|
|
|
|
1816 West Main
|
|
|
Jacksonville, AR
|
|
|
|
Owned
|
|
|
|
2005
|
|
|
|
5,000
|
|
|
|
902 North Street
|
|
|
Ward, AR
|
|
|
|
Owned
|
|
|
|
1973
|
|
|
|
2,400
|
|
|
|
30 Hwy 64 West
|
|
|
Beebe, AR
|
|
|
|
Owned
|
|
|
|
Pending
|
|
|
|
3,425
|
(1)
|
64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owned or
|
|
|
Date
|
|
|
Square
|
|
|
Office Address
|
|
City
|
|
|
Leased
|
|
|
Constructed
|
|
|
Feet
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twin City Bank
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2716 Lakewood Village Place
|
|
|
North Little Rock, AR
|
|
|
|
Leased
|
|
|
|
2000
|
|
|
|
3,579
|
|
|
|
650 Main
|
|
|
North Little Rock, AR
|
|
|
|
Leased
|
|
|
|
2000
|
|
|
|
1,344
|
|
|
|
4308 Broadway
|
|
|
North Little Rock, AR
|
|
|
|
Owned
|
|
|
|
2001
|
|
|
|
2,060
|
|
|
|
3811 MacArthur Drive
|
|
|
North Little Rock, AR
|
|
|
|
Leased
|
|
|
|
2000
|
|
|
|
1,300
|
|
|
|
4515 Camp Robinson Road
|
|
|
North Little Rock, AR
|
|
|
|
Owned
|
|
|
|
2004
|
|
|
|
3,700
|
|
|
|
9501 Maumelle Boulevard
|
|
|
Maumelle, AR
|
|
|
|
Owned
|
|
|
|
2005
|
|
|
|
4,000
|
|
|
|
7213 Hwy. 107
|
|
|
Sherwood, AR
|
|
|
|
Owned
|
|
|
|
2002
|
|
|
|
3,700
|
|
|
|
301 East Kiehl
|
|
|
Sherwood, AR
|
|
|
|
Owned
|
|
|
|
1998
|
|
|
|
2,898
|
|
|
|
2922 South University
|
|
|
Little Rock, AR
|
|
|
|
Leased
|
|
|
|
2003
|
|
|
|
3,511
|
|
|
|
10315 Interstate 30
|
|
|
Little Rock, AR
|
|
|
|
Owned
|
|
|
|
2003
|
|
|
|
3,700
|
|
|
|
718 Broadway
|
|
|
Little Rock, AR
|
|
|
|
Owned
|
|
|
|
2005
|
|
|
|
2,500
|
|
|
|
520 Bowman
|
|
|
Little Rock, AR
|
|
|
|
Leased
|
|
|
|
2003
|
|
|
|
4,664
|
|
|
|
5100 Kavanaugh Avenue
|
|
|
Little Rock, AR
|
|
|
|
Leased
|
|
|
|
2003
|
|
|
|
893
|
|
|
|
2610 Cantrell Road
|
|
|
Little Rock, AR
|
|
|
|
Leased
|
|
|
|
2003
|
|
|
|
5,000
|
|
|
|
13910 Cantrell Road
|
|
|
Little Rock, AR
|
|
|
|
Owned
|
|
|
|
2003
|
|
|
|
3,700
|
|
|
|
9712 Rodney Parham
|
|
|
Little Rock, AR
|
|
|
|
Owned
|
|
|
|
2003
|
|
|
|
3,700
|
|
|
|
|
Bank of Mountain View
|
|
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121 East Main Street
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Mountain View, AR
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Owned
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1968
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1,354
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Oak and Main Street
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Mountain View, AR
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Owned
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1992
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1,958
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Marine Bank
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11290 Overseas Highway
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Marathon, FL
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Owned
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1995
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7,414
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25000 Overseas Highway
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Summerland Key, FL
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Leased
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1998
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296
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82787 Overseas Highway
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Islamorada, FL
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Owned
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1988
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705
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101 Wilder Road
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Marathon, FL
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Owned
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1998
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3,456
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4594 Overseas Highway
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Marathon, FL
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Owned
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2000
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1,450
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2514 N. Roosevelt Blvd.
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Key West, FL
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Leased
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(2)
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2001
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3,756
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789 Duck Key Lane
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Marathon, FL
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Leased
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2001
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850
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22627 Bayshore Road
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Charlotte Harbor, FL
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Leased
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Pending
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3,384
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(1)
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100290 Overseas Highway
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Key Largo, FL
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Leased
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Pending
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4,500
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(1)
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615 Elkham Circle
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Marco Island, FL
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Leased
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Pending
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5,000
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(1)
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1229 Simonton Street
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Key West, FL
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Leased
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Pending
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3,440
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(1)
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(1)
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Sizes of pending offices are estimated.
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(2)
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Office is located on land that we lease.
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65
In addition to the branches listed above, we and our non-bank
subsidiaries had offices as shown in the following table:
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Owned or
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Date
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Square
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Office Address
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City
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Leased
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Constructed
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Feet
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719 Harkrider Street
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Conway, AR
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Owned
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1984
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|
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33,000
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203 Dakota Drive, Suites A and C
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Cabot, AR
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Leased
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|
|
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2000
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|
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2,000
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1515 N. Center, Suite 9
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Lonoke, AR
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Leased
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2000
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|
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600
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#3 Crestview Plaza
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Jacksonville, AR
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Leased
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2000
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|
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1,600
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715 Chestnut
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Conway, AR
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Leased
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1999
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2,100
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81011 Overseas Highway
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Islamorada, FL
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Leased
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2002
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2,500
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1638 Overseas Highway
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Marathon, FL
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Owned
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2003
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1,960
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We believe that our banking and other offices are in good
condition and are suitable to our needs.
Competition
As of December 31, 2005, we conducted business through 45
branches in our primary market areas of Pulaski, Faulkner,
Lonoke, Stone, and White Counties in Arkansas and Monroe County
in Florida. Many other commercial banks, savings institutions
and credit unions have offices in our primary market areas.
These institutions include many of the largest banks operating
in Arkansas and Florida, including some of the largest banks in
the country. Many of our competitors serve the same counties we
do. Our competitors often have greater resources, have broader
geographic markets, have higher lending limits, offer various
services that we may not currently offer and may better afford
and make broader use of media advertising, support services and
electronic technology than we do. To offset these competitive
disadvantages, we depend on our reputation as having greater
personal service, consistency, and flexibility and the ability
to make credit and other business decisions quickly.
Employees
On December 31, 2005, we had 544 full-time equivalent
employees. We expect that our staff will increase as a result of
our increased branching activities anticipated in 2006. We
consider our employee relations to be good, and we have no
collective bargaining agreements with any employees.
Legal Proceedings
While we and our bank subsidiaries and other affiliates are from
time to time parties to various legal proceedings arising in the
ordinary course of their business, management believes, after
consultation with legal counsel, that there are no proceedings
threatened or pending against us or our bank subsidiaries or
other affiliates that will, individually or in the aggregate,
have a material adverse affect on our business or consolidated
financial condition.
66
MANAGEMENT
Directors and Executive Officers
The following table sets forth, as of January 31, 2006,
information concerning the individuals who are our directors and
executive officers:
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Positions Held
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Name
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Age
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Positions Held
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with Bank Subsidiaries
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John W. Allison
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59
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Chairman of the Board and Chief Executive Officer
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Chairman of the Board, First State Bank; Director, Community
Bank, Twin City Bank, Bank of Mountain View, and Marine Bank
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Ron W. Strother
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57
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President, Chief Operating Officer, and Director
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Director, First State Bank, Community Bank, Twin City Bank, and
Bank of Mountain View
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Randy E. Mayor
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|
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41
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Chief Financial Officer and Treasurer
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|
Director, First State Bank
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|
C. Randall Sims
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|
|
51
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Director and Secretary
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President, Chief Executive Officer, and Director, First State
Bank; Director, Community Bank
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|
Richard H. Ashley
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|
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50
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|
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Vice Chairman of the Board
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|
Director, Twin City Bank and Community Bank
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Dale A. Bruns
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|
|
62
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|
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Director
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Director, First State Bank and Twin City Bank
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|
Richard A. Buckheim
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|
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62
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|
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Director
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|
Chairman of the Board, Marine Bank
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|
Jack E. Engelkes
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|
|
56
|
|
|
Director
|
|
Director, First State Bank
|
|
Frank D. Hickingbotham
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|
|
69
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|
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Director
|
|
|
|
Herren C. Hickingbotham
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|
|
47
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|
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Director
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|
Director, Twin City Bank
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|
James G. Hinkle
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|
|
57
|
|
|
Director
|
|
Chairman of the Board, Bank of Mountain View
|
|
Alex R. Lieblong
|
|
|
55
|
|
|
Director
|
|
|
|
Robert Hunter Padgett
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|
|
47
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|
|
—
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President, Chief Executive Officer, and Director, Marine Bank
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|
William G. Thompson
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|
|
58
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|
|
Director
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|
Director, Community Bank
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|
Robert F. Birch, Jr.
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|
|
55
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|
|
—
|
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President, Chief Executive Officer, and Director, Twin City Bank
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|
Tracy M. French
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|
|
44
|
|
|
—
|
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President, Chief Executive Officer, and Director, Community Bank
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James Ronnie Sims
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|
|
59
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|
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—
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President, Chief Executive Officer, and Director, Bank of
Mountain View
|
67
John W. Allison
is the founder and has been Chairman of
the Board of Home BancShares since 1998. He also serves on the
Executive Committee and the Asset/ Liability Committee of Home
BancShares. Mr. Allison has more than 23 years of
banking experience, including service as Chairman of First
National Bank of Conway from 1983 until 1998, and as a director
of First Commercial Corporation from 1985 (when First Commercial
acquired First National Bank of Conway) until 1998. At various
times during his tenure on First Commercial’s board,
Mr. Allison served as the Chairman of that company’s
Executive Committee and as Chairman of its Asset Quality
Committee. Prior to its sale to Regions Financial Corporation in
1998, First Commercial was a publicly traded company and the
largest bank holding company headquartered in Arkansas, with
approximately $7.3 billion in assets.
Ron W. Strother
has been President, Chief Operating
Officer, and a director of Home BancShares since 2004. He has
more than 33 years of banking experience, which includes
serving as Regional Chief Executive Officer over central
Arkansas for Arvest Bank Group (Bentonville) from 2000 to 2004,
Chairman and Chief Executive Officer of Central Bank &
Trust Company (Little Rock) from 1996 to 2000, President and
Chief Operating Officer of First Commercial Bank (Little Rock)
from 1991 to 1994, President of First Commercial Mortgage
Company from 1984 to 1987, and President of Commercial National
Mortgage Company from 1981 to 1984. Mr. Strother began his
career in 1973 with Commercial National Bank (Little Rock),
which became First Commercial Bank in 1983.
Randy E. Mayor
joined Home Bancshares in 1998 as
Executive Vice President and Finance Officer and became our
first Chief Financial Officer in 2004. He has more than
19 years of banking experience. From 1988 to 1998,
Mr. Mayor held various positions at First National Bank of
Conway, a subsidiary of First Commercial, including Senior Vice
President and Finance Officer from 1992 to 1998.
C. Randall Sims
has been President and Chief
Executive Officer of First State Bank and a director of Home
BancShares since 1998. Prior to joining First State Bank,
Mr. Sims was an executive vice president with First
National Bank of Conway. He holds a Juris Doctor degree from the
University of Arkansas at Little Rock School of Law and a
Bachelor of Arts degree in accounting and business
administration from Ouachita Baptist University in Arkadelphia,
Arkansas. He attended the Graduate School of Banking at the
University of Wisconsin and is an honor graduate of the American
Bankers Association National Lending School held at the
University of Oklahoma.
Richard H. Ashley
has been a director of Home BancShares
since 2004 and has served as Vice Chairman of Home BancShares
since 2006. He has served on the Executive Committee and the
Asset/ Liability Committee of Home BancShares since 2005.
Mr. Ashley was one of the original stockholders and
organizers of Twin City Bank in 2000. He has served as a
director of the bank since 2000 and as Chairman since 2002.
Mr. Ashley is President and owner of the Ashley Company, a
privately held company involved in land development and
investment in seven states throughout the United States since
1978.
Dale A. Bruns
has been a director of Home BancShares
since 2004 and a director of First State Bank since 1998.
Mr. Bruns has also served as a director of Twin City Bank
since 2000 and FirsTrust Financial Services since 2004.
Mr. Bruns is the chairman of the compensation committees
for Home BancShares, First State Bank, and Twin City Bank. Prior
to his service with First State Bank, he served as a director of
the First National Bank of Conway from 1985 to 1998.
Mr. Bruns has owned and operated several McDonald’s
restaurants located in central Arkansas. He is also the owner of
Central Arkansas Sign Company, Inc. He currently serves on the
impact committee for the McDonald’s Great Southern Region
and the purchasing committee of the Central Arkansas
McDonald’s Cooperative, and is a past member of the
McDonald’s National Operator advisory board of directors.
Mr. Bruns attended the University of Northern Iowa and the
Harvard Business School Program for Management Development.
Richard A. Buckheim
has been a director of Home
BancShares since 2005. Mr. Buckheim was one of the original
organizers of Marine Bank in 1996 and has been active in its
management since the bank opened. Since 2000, he has been
Chairman of the Board of the bank and has served on the
bank’s compensation committee. Mr. Buckheim formerly
owned two restaurants in Key West, Florida. Prior to moving to
Key West, he founded and served as President of Buckheim and
Rowland, Inc., a Michigan-based advertising and marketing
company with offices in Ann Arbor, Detroit, New York City and
Melbourne, Florida.
68
Jack E. Engelkes
has been a director of Home BancShares
since 2004 and a director of First State Bank since 1998. From
1995 to 1998, he served as a director of First National Bank of
Conway. Since 1990, Mr. Engelkes has served as managing
partner in the accounting firm of Engelkes, Conner and Davis,
Ltd. He became President of the Board of Conway Regional Health
Foundation in 2006. He has also been a director of the Conway
Regional Medical Center since 2005 and the Conway Development
Corporation since 2000. Mr. Engelkes holds a
bachelor’s degree in Business and Economics from Hendrix
College in Conway.
Frank D. Hickingbotham
has been a director of Home
BancShares and a member of its Executive Committee since 2004.
In 1989, Mr. Hickingbotham founded FDH Bancshares, which
was acquired by First Commercial Corporation in 1995.
Mr. Hickingbotham also founded TCBY Enterprises, Inc., a
publicly traded worldwide manufacturer, franchiser and
distributor of frozen yogurt, in 1981, and served as the
company’s Chairman and Chief Executive Officer until the
company was sold in 2000. Since 2000, he has been the Chairman
and Chief Executive Officer of Hickingbotham Investments, Inc.,
a privately held diversified company with interests in banking,
real estate, automobile and motorcycle dealerships, and food
service equipment sales and distribution. Mr. Hickingbotham
is the father of Home BancShares director Herren C.
Hickingbotham.
Herren C. Hickingbotham
has been a director of Home
BancShares since 2004 and a director of Twin City Bank since
2002. From 1986 to 2000, Mr. Hickingbotham served as
President and COO of TCBY Enterprises, Inc., a publicly traded
worldwide manufacturer, franchiser and distributor of frozen
yogurt. He served on the board of directors of TCBY from 1983 to
2000. Since 2000, Mr. Hickingbotham has been a principal in
Hickingbotham Investments, Inc., a privately held diversified
company with interests in banking, real estate, automobile and
motorcycle dealerships, and food service equipment sales and
distribution. Mr. Hickingbotham is the son of Home
BancShares director Frank D. Hickingbotham.
James G. Hinkle
has been a director of Home BancShares
since 2005. Mr. Hinkle currently serves as Chairman of the
Bank of Mountain View. He has over 25 years of banking
experience. From 1995 to 2005, he served as President of
Mountain View Bancshares, Inc., until the company’s merger
into Home BancShares. He served as President of the Bank of
Mountain View from 1981 to 2005. Mr. Hinkle is co-owner of
Mountain View Telephone Company, a privately held corporation
founded by his family in 1936.
Alex R. Lieblong
has been a director of Home BancShares
since 2003. He served as a director of First State Bank from
1998 to 2002 and has served as an advisory director of First
State Bank since 2002. Mr. Lieblong has been a director of
Deltic Timber, a publicly traded natural resources management
company, since 1996 and became a director of Lodgian, Inc., a
publicly traded owner and operator of hotels, in 2006. He also
currently serves on the board of directors of Ballard Petroleum,
a privately held energy company. Since 1997, Mr. Lieblong
has been an owner and general principal in the brokerage firm of
Lieblong & Associates, Inc. Prior to
Lieblong & Associates, Inc., he held management
positions with Paine Webber, Merrill Lynch, and E.F. Hutton.
Mr. Lieblong was a founder and has been managing partner of
Key Colony Fund, L.P., a hedge fund, since 1998.
Robert Hunter Padgett
joined Marine Bank as President and
Chief Executive Officer in 2002. Mr. Padgett has over
25 years of banking experience. From 1995 to 2002, he
served as Executive Vice President of TIB Bank (Florida Keys).
Mr. Padgett began his career with First National Bank of
South Carolina. He later worked for First Union Corporation
(currently Wachovia) and SunTrust Banks prior to joining TIB
Bank. He is a graduate of Clemson University and the Graduate
School of Banking of the South at Louisiana State University.
William G. Thompson
has been a director of Home
BancShares since 2004 and a director for Community Bank since
1988. He has served on the Audit Committee of Home BancShares
since 2004. Mr. Thompson has over 25 years of banking
experience. From 2002 to 2004, he served as Chairman of the
Board of Community Bank. Mr. Thompson owns several
privately held businesses located in Cabot, Arkansas, including
Transloading Service, Inc., Thompson Service, Inc., and Thompson
Sales, Inc.
Robert F. Birch, Jr.
has been the President and
Chief Executive Officer and a director of Twin City Bank since
he helped found the bank in 2000. Mr. Birch has over
35 years of banking experience. He began his
69
banking career in 1970 with the original Twin City Bank, which
was eventually sold to an
out-of
-state
institution. He is a graduate of the University of Arkansas at
Little Rock and the University of Colorado School of Bank
Marketing in Boulder.
Tracy M. French
has been the President and Chief
Executive Officer and a director of Community Bank since 2002.
Mr. French has over 20 years of banking experience.
Prior to joining Community Bank, he served as Executive Vice
President and director of First State Bank of Lonoke, Arkansas
(no affiliation to Home BancShares), from 1991 to 2002. He is a
graduate of the University of Arkansas at Fayetteville and the
Southwestern Graduate School of Banking at Southern Methodist
University.
James Ronnie Sims
has been the President and Chief
Executive Officer and a director of the Bank of Mountain View
since 2005. Mr. Sims has 32 years of banking
experience. He joined the Bank of Mountain View in 1988. He has
attended the Mid South School of Banking in Memphis, Tennessee.
Board Composition
We are governed by a board of directors and various committees
of the board that meet throughout the year. We have
12 directors, each of whom serves for a one-year term,
subject to resignation or removal. Directors discharge their
responsibilities throughout the year at board and committee
meetings and also through telephone contact and other
communications with the Chairman and Chief Executive Officer and
other officers.
Director Independence
Nasdaq rules require that a majority of the directors of
Nasdaq-listed companies be “independent.” An
“independent director” generally means a person other
than an officer or employee of the listed company or its
subsidiaries, or any other individual having a relationship
which, in the opinion of the listed company’s board of
directors, would interfere with the exercise of independent
judgment in carrying out the responsibilities of a director.
Certain categories of persons are deemed not to be independent
under the Nasdaq rules, such as persons employed by the listed
company within the last three years, and persons who have
received (or whose immediate family members have received)
payments exceeding a specified amount from the listed company
within the last three years, excluding payments that are not of
a disqualifying nature (such as compensation for board service,
payments arising solely from investments in the listed
company’s securities, and benefits under a tax-qualified
retirement plan). Nasdaq rules impose somewhat more stringent
independence requirements on persons who serve as members of the
audit committee of a listed company.
Of the 12 persons who will serve on our board of directors
immediately after the completion of this offering, the board has
determined that nine are “independent” as defined
under the Nasdaq National Market listing standards.
Messrs. Allison, Strother, and Sims are not considered
independent because they are officers of Home BancShares.
Committees of the Board
Our board of directors has four standing committees: the Audit
Committee, the Compensation Committee, the Nominating Committee,
and the Asset/ Liability Committee.
Audit Committee.
Our Audit Committee is comprised of Jack
E. Engelkes, Herren C. Hickingbotham, William G. Thompson, and
Alex R. Lieblong, all of whom are “independent
directors” as defined under the Nasdaq National Market
listing standards. We believe that Mr. Engelkes,
Chairman of the Audit Committee, qualifies as an “audit
committee financial expert” as that term is defined in
Securities and Exchange Commission regulations. Our board
believes that all of the Audit Committee members have the
financial knowledge, business experience and independent
judgment necessary for service on the Audit Committee. The Audit
Committee has the responsibility of reviewing financial
statements, evaluating internal accounting
70
controls, reviewing reports of regulatory authorities and
determining that all audits and examinations required by law are
properly and timely conducted. To carry out its duties, our
Audit Committee has the power to:
|
|
|
|
|
|
•
|
appoint, approve compensation and oversee the work of the
independent auditor;
|
|
|
|
|
•
|
resolve disagreements between management and the auditors
regarding financial reporting;
|
|
|
|
|
•
|
pre-approve all auditing and appropriate non-auditing services
performed by the independent auditor;
|
|
|
|
|
•
|
retain independent counsel and accountants to assist the
committee;
|
|
|
|
|
•
|
seek information it requires from employees or external
parties; and
|
|
|
|
|
•
|
meet with our officers, independent auditors or outside counsel
as necessary.
|
Compensation Committee.
Our Board of Directors has
adopted a written charter for our Compensation Committee. The
Compensation Committee is composed of three directors: Dale A.
Bruns, Richard H. Ashley, and Jack E. Engelkes. The Board has
determined that each of the Compensation Committee members is
independent under applicable rules and regulations of the Nasdaq
National Market listing standards and applicable standards of
independence prescribed for purposes of any federal securities,
tax and other laws relating to the committee’s duties and
responsibilities, including Section 162(m) of the Internal
Revenue Code. Mr. Bruns serves as the Compensation
Committee’s Chairman.
Nominating Committee.
Our Nominating Committee is
comprised of Alex R. Lieblong, Dale A. Bruns, William G.
Thompson, and Frank D. Hickingbotham, all of whom are
“independent directors” as defined under the Nasdaq
National Market listing standards. Mr. Lieblong is the
Chairman of the Nominating Committee. The Nominating Committee
has not adopted a formal policy or process for identifying or
evaluating director nominees, but informally solicits and
considers recommendations from a variety of sources, including
other directors, members of the community, our customers and
shareholders and professionals in the financial services and
other industries. Similarly, the Nominating Committee does not
prescribe any specific qualifications or skills that a nominee
must possess, although it considers the potential nominee’s
business experience, knowledge of us and the financial services
industry, experience in serving as one of our directors or as a
director of another financial institution or public company
generally, wisdom, integrity and analytical ability, familiarity
with and participation in the communities served by us,
commitment to and availability for service as a director, and
any other factors the Nominating Committee deems relevant.
Asset/ Liability Committee.
Our Asset/ Liability
Committee consists of John W. Allison, Richard H. Ashley, James
G. Hinkle, and Ron W. Strother. Mr. Strother serves as
Chairman of the Asset/ Liability Committee. The Asset/ Liability
Committee is primarily responsible for:
|
|
|
|
|
|
•
|
development and control over the implementation of liquidity
risk and market risk management policies;
|
|
|
|
|
•
|
review of interest rate movements, forecasts, and the
development of Home BancShares strategy under specific market
conditions; and
|
|
|
|
|
•
|
continued monitoring of the overall asset/liability structure of
our bank subsidiaries to minimize interest rate sensitivity and
liquidity risk.
|
Code of Ethics
We have adopted a Code of Ethics that applies to all of our
directors, officers, and employees. We believe our Code of
Ethics is reasonably designed to deter wrongdoing and to promote
honest and ethical conduct, including the ethical handling of
conflicts of interest, full, fair and accurate disclosure in
filings and other public communications made by us, compliance
with applicable laws, prompt internal reporting of ethics
violations, and accountability for adherence to the Code of
Ethics.
71
Compensation Committee Interlocks and Insider
Participation
During 2005, Messrs. Bruns, Ashley, Engelkes and Allison
served as members of the Compensation Committee, together with
James M. Park, a former director. Mr. Allison, our Chairman
and Chief Executive Officer, resigned from the Compensation
Committee on December 31, 2005. None of the other members
of the committee served as an officer or employee of Home
BancShares or any of our bank subsidiaries. During 2005, none of
our executive officers served as a director or member of the
Compensation Committee (or group performing equivalent
functions) of any other entity for which any of our independent
directors served as an executive officer. See “Certain
Transactions and Business Relationships” for information
concerning transactions during 2005 involving
Messrs. Allison and Ashley.
Director Compensation
During 2005, our non-employee directors received $300 ($600 for
the chairman) for each meeting of the board or a board committee
attended. For 2006, directors will receive $1,000 ($2,000 for
the chairman) for each board meeting attended, directors serving
on the Audit or Compensation Committees will receive $400 ($800
for the chairman) for each meeting attended of those committees,
and directors serving on other board committees will receive
$250 ($500 for the chairman) for each meeting attended of those
other committees.
Executive Compensation and Other Benefits
The following table sets forth various elements of compensation
awarded to or paid by us for services rendered in all capacities
by our Chief Executive Officer and our four most
highly-compensated executive officers, our “named executive
officers,” during the fiscal year ended December 31,
2005:
Summary Compensation Table
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Long Term
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Annual Compensation
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Compensation
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Securities
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Other Annual
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Underlying
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All Other
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Name and Principal Positions
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Salary
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Bonus
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Compensation
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Options/SARS
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Compensation
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John W. Allison
Chairman and Chief Executive Officer
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$
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—
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$
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—
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$
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23,820
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135,000
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$
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—
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Ron W. Strother
President and Chief Operating Officer
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250,000
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50,000
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—
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—
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11,500
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(1)
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C. Randall Sims
President of First State Bank
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190,000
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80,750
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—
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36,000
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9,761
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(1)
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Tracy M. French
President of Community Bank
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197,836
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71,500
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—
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30,000
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6,597
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(2)
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Robert F. Birch, Jr.
President of Twin City Bank
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190,000
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66,500
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—
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30,000
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5,700
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(1)
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(1)
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Includes our annual contribution to the 401(k) plan.
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(2)
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Includes our annual contribution to the 401(k) plan ($5,717) and
life insurance premiums ($881).
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72
Stock Option/SAR Grants in Fiscal Year 2005
The following table contains information about option and SARS
awards made to each named executive officer during the fiscal
year ended December 31, 2005:
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Number
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of Total
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% of Total
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Options/
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Options/
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Potential Realizable Value at
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SARS
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SARS
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Assumed Annual Rates of
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Granted
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Granted
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Exercise
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Stock Price Appreciation for
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to
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to
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Price
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Option Term
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Employee
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Employee
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per
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Expiration
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Name
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in 2005
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in 2005
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Share
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Date
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5%
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10%
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John W. Allison (Options)
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75,000
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18.03
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%
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$
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12.67
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7/27/2015
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$
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1,547,857
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$
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2,464,704
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John W. Allison (SARS)
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60,000
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14.42
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12.67
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1/1/2010
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970,229
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1,224,310
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Ron W. Strother
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—
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—
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—
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—
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—
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—
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C. Randall Sims (SARS)
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36,000
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8.65
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12.67
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1/1/2010
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582,138
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734,586
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Tracy M. French (SARS)
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30,000
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7.21
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12.67
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1/1/2010
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485,115
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612,155
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Robert F. Birch, Jr. (SARS)
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30,000
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7.21
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12.67
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1/1/2010
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485,115
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612,155
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Aggregated Option/ SAR Exercises in 2005 and Year-End Option/
SAR Values
The following table shows the number of shares of our common
stock covered by exercisable options and SARS held by the named
executive officers as of December 31, 2005. Also reported
are the values for
“in-the
-money”
options, which represent the positive spread between the
exercise price of any such existing options and the year-end
price ($12.67 per share) of our common stock. There were no
“in-the
-money”
SARS as of December 31, 2005.
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Number of Securities
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Underlying Unexercised
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Value of Unexercised
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Shares
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Options/SARS as of
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in-the-Money Options/SARS
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Acquired
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December 31, 2005
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as of December 31, 2005
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on
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Value
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Name
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Exercise
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Realized
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Exercisable
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Unexercisable
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Exercisable
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Unexercisable
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John W. Allison
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—
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—
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96,828
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(1)
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63,000
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$
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75,426
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$
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3,504
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Ron W. Strother
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24,000
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$
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12.67
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—
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96,000
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—
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—
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C. Randall Sims
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—
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—
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61,365
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36,000
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327,689
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—
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Tracy M. French
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—
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—
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—
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30,000
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—
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—
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Robert F. Birch, Jr.
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—
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—
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50,910
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30,000
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120,148
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—
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(1)
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Includes 948 shares of Class B preferred stock
convertible into 2,844 shares of common stock.
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Equity and Benefit Plans
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Supplemental Executive Retirement Plan
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Community Bank has purchased a life insurance policy on its
President and Chief Executive Officer, Tracy M. French. The
policy was designed to provide an annual retirement benefit that
grows on a tax-deferred basis. A portion of the benefit is
determined by an indexed formula. The balance of the benefit is
determined by crediting interest. The index used to calculate
the amount of the retirement benefit is the earnings on
specified life insurance policies. Community Bank retains the
opportunity costs on the premiums paid. Prior to
Mr. French’s retirement, any earnings in excess of the
opportunity costs are accrued to a liability reserve account for
his benefit. In addition, that liability account is credited
with interest at a rate of 8.0%. At
73
retirement, this liability reserve account is amortized with
interest and paid out over a period of 15 years. Subsequent
to the liability account being paid out in full, Mr. French
will begin receiving an “index retirement benefit”
payable for life. If Mr. French dies while there is a
balance in his account, this balance will be paid in a lump sum
to Mr. French’s beneficiaries.
Community Bank has all ownership rights in the death benefits
and surrender values of the insurance policy on Mr. French.
Its obligations under the retirement benefit portion of this
policy are unfunded; however, the bank has purchased life
insurance policies on Mr. French that are actuarially
designed to offset the annual expenses associated with the
benefit portion of the policy and will, given reasonable
actuarial assumptions, offset all of the cost during
Mr. French’s lifetime and provide a complete recovery
of costs at death.
All our full- and part-time employees over the age of 21 are
eligible to participate in our 401(k) Plan immediately. We
contribute a matching contribution equal to 50% of the
participants’ first 6% of deferred compensation
contribution. In addition, we may make a discretionary
contribution of up to 3% of total compensation.
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Health and Insurance Benefits
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Our full-time officers and employees are provided
hospitalization and major medical insurance. We pay a
substantial part of the premiums for these coverages. All
insurance coverage under these plans is provided under group
plans on generally the same basis to all of our full-time
employees. Also, we provide other basic insurance coverage
including dental, life, and long-term disability insurance.
In 2004, First State Bank adopted an endorsement split dollar
life insurance plan which provides for the purchase of life
insurance policies insuring the life of Mr. Allison. Both
the bank and Mr. Allison will have an interest in each of
the policies, and therefore, this is classified as an
endorsement
split-dollar
plan.
Should Mr. Allison die anytime after six months from the
time the bank completes a public offering,
Mr. Allison’s beneficiaries will be entitled to an
amount equal to 50% of the
net-at-risk
insurance
portion of the total proceeds. The
net-at-risk
portion is
the total proceeds less the cash value of the policy.
Mr. Allison recognizes the economic value of this death
benefit each year on his individual income tax return. The
beneficiaries of the policies are named by Mr. Allison and
the bank will receive the remainder of the death benefit. The
bank has all ownership rights in the death benefits and
surrender values of the policies. The premium paid on
June 4, 2004, for the policies was $4.8 million. Six
months after this offering, the death benefits payable under
these policies will split between us and Mr. Allison’s
beneficiaries. If the death benefit were paid in 2006,
approximately $7.7 million would be paid to us and
approximately $2.4 million would be paid to
Mr. Allison’s beneficiaries.
In connection with the acquisition of Bank of Mountain View and
Community Bank, we assumed two defined benefit pension plans.
The Community Bank plan was frozen in 2000 and Bank of Mountain
View was frozen at the time of the acquisition, as a result
there have been no new participants in the plans and no
additional benefits earned. We made employer contributions to
the plans of $767,000 in 2005. The minimum contribution for 2006
is estimated to be approximately $200,000. Some of our executive
officers and board members are participants in these frozen
plans. The two plans have combined assets of $3.5 million
as of December 31, 2005.
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2006 Stock Option and Performance Incentive Plan
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On March 13, 2006, our board of directors adopted the 2006
Stock Option and Performance Incentive Plan. The Plan has been
submitted to our shareholders for approval at the 2006 annual
meeting of shareholders. 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.
74
The Plan amends and restates various prior plans that were
either adopted by us or companies that we acquired. Awards made
under any of the prior plans will be subject to the terms and
conditions of the Plan, which is designed not to impair the
rights of award holders under the prior plans. The Plan goes
beyond the prior plans by including new types of awards (such as
unrestricted stock, performance shares, and performance and
annual incentive awards) in addition to the stock options
(incentive and non-qualified), stock appreciation rights, and
restricted stock that could have been awarded under one or more
of the prior plans.
As of March 13, 2006, options for a total of
613,604 shares of common stock outstanding under the prior
plans became subject to the Plan. Also, on that date, our board
of directors replaced 341,000 outstanding stock appreciation
rights with 354,640 options, each with an exercise price of
$13.18. The options issued in replacement of the SARS are
subject to achievement of the same financial goals by us and our
bank subsidiaries over the five-year period ending
January 1, 2010. In addition, our outstanding preferred
stock options (which, upon exercise and conversion, will result
in the issuance of 80,720 shares of common stock) are also
subject to the Plan. As of March 13, 2006 the number of
shares remaining available for issuance under Plan was 151,036.
Administration.
The Plan is administered by our
Compensation Committee. Subject to the terms of the Plan, the
Compensation Committee may select participants to receive
awards; determine the types of awards, terms, and conditions of
awards; and interpret provisions of the Plan.
Source of Shares.
The common stock issued or to be issued
under the Plan consists of authorized but unissued shares and
treasury shares. If any shares covered by an award are not
purchased or are forfeited, or if an award otherwise terminates
without delivery of any common stock, then the number of shares
of common stock counted against the aggregate number of shares
available under the Plan with respect to the award will, to the
extent of any such forfeiture or termination, again be available
for making awards.
If the option price, a withholding obligation or any other
payment is satisfied by tendering shares or by withholding
shares, only the number of shares issued net of the shares
tendered or withheld will be deemed delivered for the purpose of
determining the maximum number of shares available for delivery
under the Plan.
Eligibility.
Awards may be made under the Plan to
employees, officers, directors, consultants, and other key
persons. In determining to whom awards will be granted, the
committee will take into account the nature of the services,
potential contributions, and other relevant factors.
Amendment or Termination of the Plan.
While our board of
directors may suspend, terminate or amend the Plan at any time,
no amendment may adversely impair the rights of grantees with
respect to outstanding awards. In addition, an amendment will be
contingent on approval of our shareholders to the extent
required by law. Unless terminated earlier, the Plan will
automatically terminate ten years after its adoption by our
board of directors.
Options.
The Plan permits the granting of options to
purchase shares of common stock intended to qualify as incentive
stock options under the Internal Revenue Code (incentive stock
options) and stock options that do not qualify as incentive
stock options (non-qualified stock options). The exercise price
of each stock option may not be less than 100% of the fair
market value of our common stock on the date of grant. If we
were to grant incentive stock options to any 10% shareholder,
the exercise price may not be less than 110% of the fair market
value of our common stock on the date of grant. We may grant
options in substitution for options held by employees of
companies that we may acquire.
The term of each stock option will be fixed by the Compensation
Committee and may not exceed ten years from the date of grant.
The committee determines at what time or times each option may
be exercised and the period of time, if any, after retirement,
death, disability or termination of employment during which
options may be exercised. The exercisability of options may be
accelerated by the Compensation Committee. In general, an
optionee may pay the exercise price of an option by cash or cash
equivalent, or, if permitted by
75
the committee, by tendering shares of our common stock (which if
acquired from us have been held by the optionee for at least six
months).
Stock options granted under the Plan may not be sold,
transferred, pledged, or assigned other than by will or under
applicable laws of descent and distribution or pursuant to a
domestic relations order.
Other Awards.
The Compensation Committee may also award
under the Plan:
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restricted shares of common stock, which are shares of our
common stock subject to restrictions;
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•
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stock units, which are common stock units subject to
restrictions;
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•
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unrestricted shares of common stock, which are shares of our
common stock issued at no cost or for a purchase price
determined by the Compensation Committee and which are free from
any restrictions under the Plan;
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•
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tax offset payments, which are common stock or cash used to pay
income taxes incurred as a result of participation in the Plan;
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•
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stock appreciation rights, tandem or non-tandem, which are a
right to receive a number of shares or, in the discretion of the
committee, an amount in cash or a combination of shares and
cash, based on the increase in the fair market value of the
shares underlying the right during a stated period specified by
the Compensation Committee; and
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•
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performance and annual incentive awards, ultimately payable in
our common stock or cash, as determined by the Compensation
Committee. The Compensation Committee may grant multi-year and
annual incentive awards subject to achievement of specified
goals tied to business criteria (described below). The
Compensation Committee may modify, amend or adjust the terms of
each award and performance goal.
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Section 162(m) of the Internal Revenue Code limits publicly
held companies to an annual deduction for federal income tax
purposes of $1.0 million for compensation paid to their
chief executive officer and the four highest compensated
executive officers (other than the chief executive officer)
determined at the end of each year (referred to as covered
employees). However, performance-based compensation is excluded
from this limitation. Although the Plan will not be subject to
Section 162(m) because Section 162(m) provides for a
grace period for awards following an initial public offering,
the Plan is designed to permit the Compensation Committee to
grant awards that qualify as performance-based compensation for
purposes of satisfying the conditions of Section 162(m) at
such time as the Plan becomes subject to Section 162(m).
Business Criteria.
The Compensation Committee will use
one or more of the following business criteria, on a
consolidated basis, and/or with respect to specified
subsidiaries (except with respect to the total shareholder
return and earnings per share criteria), in establishing
performance goals for awards intended to comply with
Section 162(m) of the Internal Revenue Code granted to
covered employees:
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shareholder return;
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return on assets;
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growth in assets;
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return on equity;
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•
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gross margin;
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•
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earnings per share;
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•
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net income;
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•
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operating income; and
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•
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free cash flow.
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76
Adjustments for Stock Dividends and Similar Events.
The
Compensation Committee will make appropriate adjustments in
outstanding awards and the number of shares available for
issuance under the Plan, including the individual limitations on
awards, to reflect common stock dividends, stock splits,
spin-offs and other similar events.
Employment Agreements
We do not have any employment, salary continuation or severance
agreements currently in effect with any of our executive
officers.
Certain Transactions and Business Relationships
Banking Transactions.
Most of our directors and officers,
as well as the firms and businesses with which they or members
of their immediate families are associated, are customers of our
bank subsidiaries. Our bank subsidiaries have engaged in a
variety of loan transactions in the ordinary course of business
with these individuals and their families and businesses. As of
December 31, 2005, our fourth largest loan commitment,
totaling $15.3 million, was to a real estate developer and
investor who serves as a director of one of our bank
subsidiaries. It is anticipated that such transactions will
occur in the future. In the case of all such related party
transactions, each transaction was approved by either our board
of directors or the bank subsidiary’s board of directors.
In addition, these loans were made on the same terms, including
interest rates and collateral requirements, as those prevailing
at the time for comparable transactions of others. In the
opinion of our management, those loan transactions do not
involve more than a normal risk of collectibility or present
other unfavorable features.
Real Estate Transactions.
We lease certain of our
properties from persons who are affiliated with us. None of our
directors, executive officers or 5% shareholders directly or
indirectly received in excess of $60,000 of the amounts we paid
during 2005 for these leases.
We believe the terms of each of the agreements described above
are no less favorable to us than we could have obtained from an
unaffiliated third party. We expect we will continue to engage
in similar banking and business transactions in the ordinary
course of business with our directors, executive officers,
principal shareholders and their associates. In the future, all
related party transactions will be reported to the Audit
Committee of our board of directors.
77
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information as of
December 31, 2005, concerning the number and percentage of
shares of our common stock beneficially owned by our directors,
our named executive officers, and all of our directors and
executive officers as a group, and by each person known to us
who beneficially owned more than 5% of the outstanding shares of
our common stock.
Information in this table is based upon “beneficial
ownership” concepts described in the rules issued under the
Securities Exchange Act of 1934. Under these rules, a person is
deemed to be a beneficial owner of any shares of our common
stock if that person has or shares “voting power,”
which includes the power to vote or direct the voting of the
shares, or “investment power,” which includes the
right to dispose or direct the disposition of the shares. Thus,
under the rules, more than one person may be deemed to be a
beneficial owner of the same shares. A person is also deemed to
be a beneficial owner of any shares as to which that person has
the right to acquire beneficial ownership within 60 days
from December 31, 2005.
Except as otherwise indicated, all shares are owned directly,
and the named person possesses sole voting and investment power
with respect to his shares. The address for each of our
directors and named executive officers is c/o Home
BancShares, Inc., 719 Harkrider, Suite 300, Conway,
Arkansas 72032.
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Amount and Nature
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Percent of Shares
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Percent of Shares
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of Beneficial
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Beneficially Owned
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Beneficially Owned
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Name of Beneficial Owner
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Ownership
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Before Offering(1)
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After Offering(1)
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5% or greater holders:
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Robert H. Adcock(2)(3)
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861,363
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7.1
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%
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%
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Directors and executive officers:
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John W. Allison(3)(4)
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2,490,792
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20.4
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%
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%
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Richard H. Ashley(3)(5)
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1,020,339
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8.4
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Robert F. Birch, Jr.(3)(6)
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99,129
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*
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*
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Dale A. Bruns(3)(7)
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102,675
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*
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*
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Richard A. Buckheim
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—
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—
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—
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Jack E. Engelkes(3)(8)
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52,842
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*
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*
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Tracy M. French
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—
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—
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—
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Frank D. Hickingbotham(3)(9)
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617,937
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5.1
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Herren C. Hickingbotham(3)
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222,813
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1.8
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James G. Hinkle(10)
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167,763
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1.4
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Alex R. Lieblong(3)(11)
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545,226
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4.5
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C. Randall Sims(3)(12)
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134,562
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1.1
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Ron W. Strother(3)
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24,000
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*
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*
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William G. Thompson
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—
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—
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—
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All directors and executive officers as a group
(16 persons)(3)
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5,596,446
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45.1
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%
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%
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(1)
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The percentage of our common stock beneficially owned
“before offering” was calculated based on
12,113,865 shares of our common stock outstanding as of
December 31, 2005. The percentage of our common stock
beneficially owned “after offering” was calculated
based on 12,113,865 shares of our common stock outstanding
as of December 31, 2005, and assumes the issuance
of shares
of common stock in connection with this offering but no exercise
of the underwriters’ over-allotment option. In each case,
the percentage assumes that the person or group shown in each
row has exercised all options, and converted to common stock all
shares of our preferred stock, that are exercisable or
convertible by that person or group within 60 days of
December 31, 2005. The table does not reflect any shares
that may be acquired by the named person in this offering.
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78
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(2)
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All of the shares beneficially owned by Mr. Adcock are held
through blind trusts established for his benefit. The
trustee’s address is 1225 Front Street, Conway,
Arkansas 72032.
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(3)
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Includes shares that may be issued upon the exercise of options,
as follows: Mr. Adcock, 11,160 shares;
Mr. Allison, 93,984 shares; Mr. Ashley,
1,212 shares; Mr. Birch, 50,910 shares;
Mr. Bruns, 12,204 shares; Mr. Engelkes,
1,500 shares; Mr. Frank D. Hickingbotham,
1,212 shares; Mr. Herren C. Hickingbotham,
2,424 shares; Mr. Lieblong, 6,750 shares;
Mr. Sims, 61,365 shares; and all directors and
executive officers as a group, 292,926 shares.
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(4)
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Includes 360,000 shares owned by Mr. Allison’s
spouse, either individually or as custodian for their children.
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(5)
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Includes 354,390 shares owned by Conservative Development
Company, a corporation of which Mr. Ashley is president.
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(6)
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Includes 9,210 shares owned by Mr. Birch’s 401(k)
plan.
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(7)
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Includes 90,471 shares that are owned jointly by
Mr. Bruns and his spouse.
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(8)
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Includes 36,000 shares owned by Mr. Engelkes’
spouse, and 9,000 shares for which Mr. Engelkes is
custodian for his children.
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(9)
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Includes 616,725 shares owned by FDH Enterprises, Inc., a
corporation controlled by Mr. Frank D. Hickingbotham.
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(10)
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All shares are owned by the James G. Hinkle Revocable Trust.
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(11)
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Includes 158,550 shares that are owned jointly by
Mr. Lieblong and his spouse, and 342,900 shares that
are owned by Key Colony Fund L.P., a hedge fund of which
Mr. Lieblong is the managing partner.
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(12)
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Includes 48,999 shares that are owned jointly by
Mr. Sims and his spouse, or with his spouse and his
children, and 24,198 shares owned by Mr. Sims’
401(k) plan.
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79
SUPERVISION AND REGULATION
The following is a summary description of the relevant laws,
rules and regulations governing banks and bank holding
companies. The descriptions of, and references to, the statutes
and regulations below are brief summaries and do not purport to
be complete. The descriptions are qualified in their entirety by
reference to the specific statutes and regulations discussed.
General
We and our subsidiary banks are subject to extensive state and
federal banking regulations that impose restrictions on and
provide for general regulatory oversight of our company and its
operations. These laws generally are intended to protect
depositors, the deposit insurance fund of the FDIC and the
banking system as a whole, and not shareholders. The following
discussion describes the material elements of the regulatory
framework that applies to us.
Home BancShares
We are a bank holding company registered under the federal Bank
Holding Company Act of 1956 (the “Bank Holding Company
Act”) and are subject to supervision, regulation and
examination by the Federal Reserve Board. We have elected under
the Gramm-Leach-Bliley Act to become a financial holding
company. The Bank Holding Company Act and other federal laws
subject bank holding companies to particular restrictions on the
types of activities in which they may engage, and to a range of
supervisory requirements and activities, including regulatory
enforcement actions for violations of laws and regulations.
Acquisitions of Banks.
The Bank Holding Company Act
requires every bank holding company to obtain the Federal
Reserve Board’s prior approval before:
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•
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acquiring direct or indirect ownership or control of any voting
shares of any bank if, after the acquisition, the bank holding
company will directly or indirectly own or control more than 5%
of the bank’s voting shares;
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•
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acquiring all or substantially all of the assets of any
bank; or
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•
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merging or consolidating with any other bank holding company.
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Additionally, the Bank Holding Company Act provides that the
Federal Reserve Board may not approve any of these transactions
if it would result in or tend to create a monopoly,
substantially lessen competition or otherwise function as a
restraint of trade, unless the anti-competitive effects of the
proposed transaction are clearly outweighed by the public
interest in meeting the convenience and needs of the community
to be served. The Federal Reserve Board is also required to
consider the financial and managerial resources and future
prospects of the bank holding companies and banks concerned and
the convenience and needs of the community to be served. The
Federal Reserve Board’s consideration of financial
resources generally focuses on capital adequacy, which is
discussed below.
Under the Bank Holding Company Act, if adequately capitalized
and adequately managed, we, as well as other banks located
within Arkansas or Florida, may purchase a bank located outside
of Arkansas or Florida. Conversely, an adequately capitalized
and adequately managed bank holding company located outside of
Arkansas or Florida may purchase a bank located inside Arkansas
or Florida. In each case, however, restrictions may be placed on
the acquisition of a bank that has only been in existence for a
limited amount of time or will result in specified
concentrations of deposits. For example, Florida law prohibits a
bank holding company from acquiring control of a Florida
financial institution until the target institution has been
incorporated for three years.
Change in Bank Control.
Subject to various exceptions,
the Bank Holding Company Act and the Change in Bank Control Act,
together with related regulations, require Federal Reserve Board
approval prior to any person or company acquiring
“control” of a bank holding company. Control is
conclusively presumed to exist if an individual or company
acquires 25% or more of any class of voting securities of the
bank holding
80
company. Control is rebuttably presumed to exist if a person or
company acquires 10% or more, but less than 25%, of any class of
voting securities and either:
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•
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the bank holding company has registered securities under
Section 12 of the Securities Act of 1934; or
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•
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no other person owns a greater percentage of that class of
voting securities immediately after the transaction.
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Upon completion of this offering, our common stock will be
registered under the Securities Exchange Act of 1934, as
amended. The regulations provide a procedure for challenging any
rebuttable presumption of control.
Permitted Activities.
A bank holding company is generally
permitted under the Bank Holding Company Act to engage in or
acquire direct or indirect control of more than 5% of the voting
shares of any company engaged in the following activities:
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•
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banking or managing or controlling banks; and
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•
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any activity that the Federal Reserve Board determines to be so
closely related to banking as to be a proper incident to the
business of banking.
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Activities that the Federal Reserve Board has found to be so
closely related to banking as to be a proper incident to the
business of banking include:
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•
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factoring accounts receivable;
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•
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making, acquiring, brokering or servicing loans and usual
related activities;
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•
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leasing personal or real property;
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•
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operating a non-bank depository institution, such as a savings
association;
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•
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trust company functions;
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•
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financial and investment advisory activities;
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•
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conducting discount securities brokerage activities;
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•
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underwriting and dealing in government obligations and money
market instruments;
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•
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providing specified management consulting and counseling
activities;
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•
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performing selected data processing services and support
services;
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•
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acting as agent or broker in selling credit life insurance and
other types of insurance in connection with credit transactions;
and
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•
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performing selected insurance underwriting activities.
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Despite prior approval, the Federal Reserve Board may order a
bank holding company or its subsidiaries to terminate any of
these activities or to terminate its ownership or control of any
subsidiary when it has reasonable cause to believe that the bank
holding company’s continued ownership, activity or control
constitutes a serious risk to the financial safety, soundness or
stability of it or any of its bank subsidiaries.
Gramm-Leach-Bliley Act; Financial Holding Companies.
The
Gramm-Leach-Bliley Financial Modernization Act of 1999 revised
and expanded the provisions of the Bank Holding Company Act by
including a new section that permits a bank holding company to
elect to become a financial holding company to engage in a full
range of activities that are “financial in nature.”
The qualification requirements and the process for a bank
holding company that elects to be treated as a financial holding
company require that all of the subsidiary banks controlled by
the bank holding company at the time of election to become a
financial holding company must be and remain at all times
“well-capitalized” and “well managed.” Home
BancShares made an election to become a financial holding
company on May 15, 2003.
81
The Gramm-Leach-Bliley Act further requires that, in the event
that the bank holding company elects to become a financial
holding company, the election must be made by filing a written
declaration with the appropriate Federal Reserve Bank that:
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•
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states that the bank holding company elects to become a
financial holding company;
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•
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provides the name and head office address of the bank holding
company and each depository institution controlled by the bank
holding company;
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•
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certifies that each depository institution controlled by the
bank holding company is “well-capitalized” as of the
date the bank holding company submits its declaration;
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•
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provides the capital ratios for all relevant capital measures as
of the close of the previous quarter for each depository
institution controlled by the bank holding company; and
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•
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certifies that each depository institution controlled by the
bank holding company is “well managed” as of the date
the bank holding company submits its declaration.
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The bank holding company must have also achieved at least a
rating of “satisfactory record of meeting community credit
needs” under the Community Reinvestment Act during the
institution’s most recent examination.
Financial holding companies may engage, directly or indirectly,
in any activity that is determined to be:
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•
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financial in nature;
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•
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incidental to such financial activity; or
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•
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complementary to a financial activity provided it “does not
pose a substantial risk to the safety and soundness of
depository institutions or the financial system generally.”
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The Gramm-Leach-Bliley Act specifically provides that the
following activities have been determined to be “financial
in nature”: lending, trust and other banking activities;
insurance activities; financial or economic advisory services;
securitization of assets; securities underwriting and dealing;
existing bank holding company domestic activities; existing bank
holding company foreign activities, and merchant banking
activities. In addition, the Gramm-Leach-Bliley Act specifically
gives the Federal Reserve Board the authority, by regulation or
order, to expand the list of “financial” or
“incidental” activities, but requires consultation
with the United States Treasury Department, and gives the
Federal Reserve Board authority to allow a financial holding
company to engage in any activity that is
“complementary” to a financial activity and does not
“pose a substantial risk to the safety and soundness of
depository institutions or the financial system generally.”
Support of Subsidiary Institutions.
Under Federal Reserve
Board policy, we are expected to act as a source of financial
strength for our subsidiary banks and are required to commit
resources to support them. Our obligation to act as a source of
financial strength extends to White River Bancshares, Inc.,
despite the fact that we are a minority owner of that company
and thus have no ability to control its operations. Moreover, an
obligation to support our bank subsidiaries and White River
Bancshares may be required at times when, without this Federal
Reserve Board policy, we might not be inclined to provide it. In
addition, any capital loans made by us to our subsidiary banks
will be repaid only after their deposits and various other
obligations are repaid in full. In the unlikely event of our
bankruptcy, any commitment by us to a federal bank regulatory
agency to maintain the capital of our subsidiary banks and White
River Bancshares will be assumed by the bankruptcy trustee and
entitled to a priority of payment.
Safe and Sound Banking Practices.
Bank holding companies
are not permitted to engage in unsafe and unsound banking
practices. The Federal Reserve Board’s Regulation Y,
for example, generally requires a holding company to give the
Federal Reserve Board prior notice of any redemption or
repurchase of its own equity securities, if the consideration to
be paid, together with the consideration paid for any
repurchases or redemptions in the preceding year, is equal to
10% or more of the company’s consolidated net worth. The
Federal Reserve Board may oppose the transaction if it believes
that the transaction would constitute an unsafe or unsound
practice or would violate any law or regulation. Depending upon
the circumstances, the
82
Federal Reserve Board could take the position that paying a
dividend would constitute an unsafe or unsound banking practice.
The Federal Reserve Board has broad authority to prohibit
activities of bank holding companies and their non-banking
subsidiaries which represent unsafe and unsound banking
practices or which constitute violations of laws or regulations,
and can assess civil money penalties for certain activities
conducted on a knowing and reckless basis, if those activities
caused a substantial loss to a depository institution. The
penalties can be as high as $1 million for each day the
activity continues.
Annual Reporting; Examinations.
We are required to file
annual reports with the Federal Reserve Board, and such
additional information as the Federal Reserve Board may require
pursuant to the Bank Holding Company Act. The Federal Reserve
Board may examine a bank holding company or any of its
subsidiaries, and charge the company for the cost of such
examination.
Capital Adequacy Requirements.
The Federal Reserve Board
has adopted a system using risk-based capital guidelines to
evaluate the capital adequacy of bank holding companies having
$150 million or more in assets on a consolidated basis. We
currently have consolidated assets in excess of
$150 million, and are therefore subject to the Federal
Reserve Board’s capital adequacy guidelines.
Under the guidelines, specific categories of assets are assigned
different risk weights, based generally on the perceived credit
risk of the asset. These risk weights are multiplied by
corresponding asset balances to determine a
“risk-weighted” asset base. The guidelines require a
minimum total risk-based capital ratio of 8.0% (of which at
least 4.0% is required to consist of Tier 1 capital
elements). Total capital is the sum of Tier 1 and
Tier 2 capital. To be considered
“well-capitalized,” a bank holding company must
maintain, on a consolidated basis, (i) a Tier 1
risk-based capital ratio of at least 6.0%, and (ii) a total
risk-based capital ratio of 10.0% or greater. As of
December 31, 2005, our Tier 1 risk-based capital ratio
was 12.25% and our total risk-based capital ratio was 13.51%.
Thus, we are considered “well-capitalized” for
regulatory purposes.
In addition to the risk-based capital guidelines, the Federal
Reserve Board uses a leverage ratio as an additional tool to
evaluate the capital adequacy of bank holding companies. The
leverage ratio is a company’s Tier 1 capital divided
by its average total consolidated assets. Certain highly-rated
bank holding companies may maintain a minimum leverage ratio of
3.0%, but other bank holding companies are required to maintain
a leverage ratio of at least 4.0%. As of December 31, 2005,
our leverage ratio was 9.22%.
The federal banking agencies’ risk-based and leverage
ratios are minimum supervisory ratios generally applicable to
banking organizations that meet certain specified criteria. The
federal bank regulatory agencies may set capital requirements
for a particular banking organization that are higher than the
minimum ratios when circumstances warrant. Federal Reserve Board
guidelines also provide that banking organizations experiencing
internal growth or making acquisitions will be expected to
maintain strong capital positions, substantially above the
minimum supervisory levels, without significant reliance on
intangible assets.
Cross-guarantees.
Under the Federal Deposit Insurance
Act, or FDIA, a depository institution (which definition
includes both banks and savings associations), the deposits of
which are insured by the FDIC, can be held liable for any loss
incurred by, or reasonably expected to be incurred by, the FDIC
in connection with (1) the default of a commonly controlled
FDIC-insured depository institution or (2) any assistance
provided by the FDIC to any commonly controlled FDIC-insured
depository institution “in danger of default.”
“Default” is defined generally as the appointment of a
conservator or a receiver and “in danger of default”
is defined generally as the existence of certain conditions
indicating that default is likely to occur in the absence of
regulatory assistance. In some circumstances (depending upon the
amount of the loss or anticipated loss suffered by the FDIC),
cross-guarantee liability may result in the ultimate failure or
insolvency of one or more insured depository institutions in a
holding company structure. Any obligation or liability owed by a
subsidiary bank to its parent company is subordinated to the
subsidiary bank’s cross-guarantee liability with respect to
commonly controlled insured depository institutions.
Because we are a legal entity separate and distinct from our
subsidiary banks, our right to participate in the distribution
of assets of any subsidiary upon the subsidiary’s
liquidation or reorganization will be subject to the prior
claims of the subsidiary’s creditors. In the event of a
liquidation or other resolution of any of our
83
subsidiary banks, the claims of depositors and other general or
subordinated creditors of such bank would be entitled to a
priority of payment over the claims of holders of any obligation
of such bank to its shareholders, including any depository
institution holding company (such as Home BancShares) or any
shareholder or creditor of such holding company.
Subsidiary Banks
General.
Twin City Bank is chartered as an Arkansas state
bank and is a member of the Federal Reserve System, making it
primarily subject to regulation and supervision by both the
Federal Reserve Board and the Arkansas State Bank Department.
First State Bank, Community Bank, and Bank of Mountain View are
each chartered as an Arkansas state bank, and are primarily
subject to regulation and supervision by both the FDIC and the
Arkansas State Bank Department. Marine Bank, which is chartered
as a Florida state bank, is primarily subject to regulation and
supervision by both the FDIC and the Florida Office of Financial
Regulation. First State Bank, Community Bank, Bank of Mountain
View, and Marine Bank have applied or are in the process of
applying to become members of the Federal Reserve System and
will, upon obtaining membership, become primarily subject to
regulation at the federal level by the Federal Reserve Board. In
addition, our subsidiary banks are subject to various
requirements and restrictions under federal and state law,
including requirements to maintain reserves against deposits,
restrictions on the types and amounts of loans that may be
granted and the interest that they may charge, and limitations
on the types of investments they may make and on the types of
services they may offer. Various consumer laws and regulations
also affect the operations of our subsidiary banks.
Prompt Corrective Action.
The Federal Deposit Insurance
Corporation Improvement Act of 1991 establishes a system of
prompt corrective action to resolve the problems of
undercapitalized financial institutions. Under this system, the
federal banking regulators have established five capital
categories (well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized and critically
undercapitalized) in which all institutions are placed. Federal
banking regulators are required to take various mandatory
supervisory actions and are authorized to take other
discretionary actions with respect to institutions in the three
undercapitalized categories. The severity of the action depends
upon the capital category in which the institution is placed.
Generally, subject to a narrow exception, the banking regulator
must appoint a receiver or conservator for an institution that
is critically undercapitalized. The federal banking agencies
have specified by regulation the relevant capital level for each
category.
An institution that is categorized as undercapitalized,
significantly undercapitalized or critically undercapitalized is
required to submit an acceptable capital restoration plan to its
appropriate federal banking agency. A bank holding company must
guarantee that a subsidiary depository institution meets its
capital restoration plan, subject to various limitations. The
controlling holding company’s obligation to fund a capital
restoration plan is limited to the lesser of 5% of an
undercapitalized subsidiary’s assets at the time it became
undercapitalized or the amount required to meet regulatory
capital requirements. An undercapitalized institution is also
generally prohibited from increasing its average total assets,
making acquisitions, establishing any branches or engaging in
any new line of business, except under an accepted capital
restoration plan or with FDIC approval. The regulations also
establish procedures for downgrading an institution to a lower
capital category based on supervisory factors other than capital.
FDIC Insurance Assessments.
The FDIC has adopted a
risk-based assessment system for insured depository institutions
that takes into account the risks attributable to different
categories and concentrations of assets and liabilities. The
system assigns an institution to one of three capital
categories: (1) well capitalized; (2) adequately
capitalized; and (3) undercapitalized. These three
categories are substantially similar to the prompt corrective
action categories described above, with the
“undercapitalized” category including institutions
that are undercapitalized, significantly undercapitalized and
critically undercapitalized for prompt corrective action
purposes. The FDIC also assigns an institution to one of three
supervisory subgroups based on a supervisory evaluation that the
institution’s primary federal regulator provides to the
FDIC and information that the FDIC determines to be relevant to
the institution’s financial condition and the risk posed to
the deposit insurance funds. Assessments range from 0 to 27
cents per $100 of deposits, depending on the institution’s
capital group and supervisory subgroup. In recent years, the
assessment has
84
been set at zero for well-capitalized banks in the top
supervisory subgroup, but there is expected to be an assessment
in 2006 for all banks. The overall level of assessments depends
primarily upon claims against the deposit insurance fund. If
bank failures were to increase, assessments could rise
significantly. In addition, the FDIC imposes assessments to help
pay off the $780 million in annual interest payments on the
$8 billion Financing Corporation bonds issued in the late
1980s as part of the government rescue of the thrift industry.
This assessment rate is adjusted quarterly and is set at 1.34
cents per $100 of deposits for the fourth quarter of 2005. The
FDIC may terminate its insurance of deposits if it finds that
the institution has engaged in unsafe and unsound practices, is
in an unsafe or unsound condition to continue operations, or has
violated any applicable law, regulation, rule, order or
condition imposed by the FDIC.
Legislative reforms to modernize the Federal Deposit Insurance
System, including merging the Bank Insurance Fund (BIF) and the
Savings Association Insurance Fund (SAIF) into a new Deposit
Insurance Fund, were approved by Congress as part of a
$39 billion budget bill and was signed by President Bush on
February 15, 2006. In addition to merging the insurance
funds, the legislation will:
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raise the deposit insurance limit on certain retirement accounts
to $250,000 and index that limit for inflation;
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require the FDIC and National Credit Union Administration
boards, starting in 2010 and every succeeding five years, to
consider raising the standard maximum deposit insurance; and
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eliminate the current fixed 1.25 percent Designated Reserve
Ratio and provide the FDIC with the discretion to set the DRR
within a range of 1.15 to 1.50 percent for any given year.
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Community Reinvestment Act.
The Community Reinvestment
Act requires, in connection with examinations of financial
institutions, that federal banking regulators evaluate the
record of each financial institution in meeting the credit needs
of its local community, including low and moderate-income
neighborhoods. These facts are also considered in evaluating
mergers, acquisitions and applications to open a branch or
facility. Failure to adequately meet these criteria could impose
additional requirements and limitations on our subsidiary banks.
Additionally, we must publicly disclose the terms of various
Community Reinvestment Act-related agreements. Each of our
subsidiary banks received “satisfactory” CRA ratings
from their applicable federal banking regulatory at their last
examinations.
Other Regulations.
Interest and other charges collected
or contracted for by our subsidiary banks are subject to state
usury laws and federal laws concerning interest rates.
Federal Laws Applicable to Credit Transactions.
The loan
operations of our subsidiary banks are also subject to federal
laws applicable to credit transactions, such as the:
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Truth-In-Lending Act, governing disclosures of credit terms to
consumer borrowers;
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Home Mortgage Disclosure Act of 1975, requiring financial
institutions to provide information to enable the public and
public officials to determine whether a financial institution is
fulfilling its obligation to help meet the housing needs of the
community it serves;
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Equal Credit Opportunity Act, prohibiting discrimination on the
basis of race, creed or other prohibited factors in extending
credit;
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Fair Credit Reporting Act of 1978, governing the use and
provision of information to credit reporting agencies;
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Fair Debt Collection Act, governing the manner in which consumer
debts may be collected by collection agencies;
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Servicemembers Civil Relief Act, which amended the
Soldiers’ and Sailors’ Civil Relief Act of 1940,
governing the repayment terms of, and property rights
underlying, secured obligations of persons in military
service; and
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the rules and regulations of the various federal agencies
charged with the responsibility of implementing these federal
laws.
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Federal Laws Applicable to Deposit Operations.
The
deposit operations of our subsidiary banks are subject to:
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the Right to Financial Privacy Act, which imposes a duty to
maintain confidentiality of consumer financial records and
prescribes procedures for complying with administrative
subpoenas of financial records; and
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the Electronic Funds Transfer Act and Regulation E issued
by the Federal Reserve Board to implement that act, which govern
automatic deposits to and withdrawals from deposit accounts and
customers’ rights and liabilities arising from the use of
automated teller machines and other electronic banking services.
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Loans to Insiders.
Sections 22(g) and (h) of
the Federal Reserve Act and its implementing regulation,
Regulation O, place restrictions on loans by a bank to
executive officers, directors, and principal shareholders. Under
Section 22(h), loans to a director, an executive officer
and to a greater than 10% shareholder of a bank and certain of
their related interests, or insiders, and insiders of
affiliates, may not exceed, together with all other outstanding
loans to such person and related interests, the bank’s
loans-to
-one-borrower
limit (generally equal to 15% of the institution’s
unimpaired capital and surplus). Section 22(h) also
requires that loans to insiders and to insiders of affiliates be
made on terms substantially the same as offered in comparable
transactions to other persons, unless the loans are made
pursuant to a benefit or compensation program that (i) is
widely available to employees of the bank and (ii) does not
give preference to insiders over other employees of the bank.
Section 22(h) also requires prior Board of Directors
approval for certain loans, and the aggregate amount of
extensions of credit by a bank to all insiders cannot exceed the
institution’s unimpaired capital and surplus. Furthermore,
Section 22(g) places additional restrictions on loans to
executive officers.
Capital Requirements.
Our subsidiary banks are also
subject to certain restrictions on the payment of dividends as a
result of the requirement that it maintain adequate levels of
capital in accordance with guidelines promulgated from time to
time by applicable regulators.
The Federal Reserve Bank, with respect to our bank subsidiaries
that are members of the Federal Reserve System, or the FDIC,
with respect to our bank subsidiaries that are not members of
the Federal Reserve System, monitor the capital adequacy of our
subsidiary banks by using a combination of risk-based guidelines
and leverage ratios. The agencies consider each of the
bank’s capital levels when taking action on various types
of applications and when conducting supervisory activities
related to the safety and soundness of individual banks and the
banking system.
Under the risk-based capital guidelines, a risk weight factor of
0% to 100% is assigned to each category of assets based
generally on the perceived credit risk of the asset class. The
risk weights are then multiplied by the corresponding asset
balances to determine a “risk-weighted” asset base. At
least half of the risk-based capital must consist of core
(Tier 1) capital, which is comprised of:
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common shareholders’ equity (includes common stock and any
related surplus, undivided profits, disclosed capital reserves
that represent a segregation of undivided profits, and foreign
currency translation adjustments; less net unrealized losses on
marketable equity securities);
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certain noncumulative perpetual preferred stock and related
surplus; and
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minority interests in the equity capital accounts of
consolidated subsidiaries, and excludes goodwill and various
intangible assets.
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The remainder, supplementary (Tier 2) capital, may consist
of:
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allowance for loan losses, up to a maximum of 1.25% of
risk-weighted assets;
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certain perpetual preferred stock and related surplus;
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hybrid capital instruments;
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perpetual debt;
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mandatory convertible debt securities;
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term subordinated debt;
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intermediate-term preferred stock; and
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certain unrealized holding gains on equity securities.
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“Total risk-based capital” is determined by combining
core capital and supplementary capital.
Under the regulatory capital guidelines, our subsidiary banks
must maintain a total risk-based capital to risk-weighted assets
ratio of at least 8.0%, a Tier 1 capital to risk-weighted
assets ratio of at least 4.0%, and a Tier 1 capital to
adjusted total assets ratio of at least 4.0% (3.0% for banks
receiving the highest examination rating) to be considered
adequately capitalized. See discussion in the section below
entitled
“The FDIC Improvement Act.”
FIRREA.
The Financial Institutions Reform, Recovery and
Enforcement Act of 1989, or FIRREA, includes various provisions
that affect or may affect our subsidiary banks. Among other
matters, FIRREA generally permits bank holding companies to
acquire healthy thrifts as well as failed or failing thrifts.
FIRREA removed certain cross-marketing prohibitions previously
applicable to thrift and bank subsidiaries of a common holding
company. Furthermore, a multi-bank holding company may now be
required to indemnify the federal deposit insurance fund against
losses it incurs with respect to such company’s affiliated
banks, which in effect makes a bank holding company’s
equity investments in healthy bank subsidiaries available to the
FDIC to assist such company’s failing or failed bank
subsidiaries.
In addition, pursuant to FIRREA, any depository institution that
has been chartered less than two years, is not in compliance
with the minimum capital requirements of its primary federal
banking regulator, or is otherwise in a troubled condition must
notify its primary federal banking regulator of the proposed
addition of any person to the Board of Directors or the
employment of any person as a senior executive officer of the
institution at least 30 days before such addition or
employment becomes effective. During such
30-day
period, the
applicable federal banking regulatory agency may disapprove of
the addition of employment of such director or officer. Our
subsidiary banks are not subject to any such requirements.
FIRREA also expanded and increased civil and criminal penalties
available for use by the appropriate regulatory agency against
certain “institution-affiliated parties” primarily
including (i) management, employees and agents of a
financial institution, as well as (ii) independent
contractors such as attorneys and accountants and others who
participate in the conduct of the financial institution’s
affairs and who caused or are likely to cause more than minimum
financial loss to or a significant adverse affect on the
institution, who knowingly or recklessly violate a law or
regulation, breach a fiduciary duty or engage in unsafe or
unsound practices. Such practices can include the failure of an
institution to timely file required reports or the submission of
inaccurate reports. Furthermore, FIRREA authorizes the
appropriate banking agency to issue cease and desist orders that
may, among other things, require affirmative action to correct
any harm resulting from a violation or practice, including
restitution, reimbursement, indemnifications or guarantees
against loss. A financial institution may also be ordered to
restrict its growth, dispose of certain assets or take other
action as determined by the ordering agency to be appropriate.
The FDIC Improvement Act.
The Federal Deposit Insurance
Corporation Improvement Act of 1991, or FDICIA, made a number of
reforms addressing the safety and soundness of the deposit
insurance system, supervision of domestic and foreign depository
institutions, and improvement of accounting standards. This
statute also limited deposit insurance coverage, implemented
changes in consumer protection laws and provided for least-cost
resolution and prompt regulatory action with regard to troubled
institutions.
FDICIA requires every bank with total assets in excess of
$500 million to have an annual independent audit made of
the bank’s financial statements by a certified public
accountant to verify that the financial statements of the bank
are presented in accordance with generally accepted accounting
principles and comply with such other disclosure requirements as
prescribed by the FDIC.
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FDICIA also places certain restrictions on activities of banks
depending on their level of capital. FDICIA divides banks into
five different categories, depending on their level of capital.
Under regulations adopted by the FDIC, a bank is deemed to be
“well-capitalized” if it has a total Risk-Based
Capital Ratio of 10.00% or more, a Tier 1 Capital Ratio of
6.00% or more and a Leverage Ratio of 5.00% or more, and the
bank is not subject to an order or capital directive to meet and
maintain a certain capital level. Under such regulations, a bank
is deemed to be “adequately capitalized” if it has a
total Risk-Based Capital Ratio of 8.00% or more, a Tier 1
Capital Ratio of 4.00% or more and a Leverage Ratio of 4.00% or
more (unless it receives the highest composite rating at its
most recent examination and is not experiencing or anticipating
significant growth, in which instance it must maintain a
Leverage Ratio of 3.00% or more). Under such regulations, a bank
is deemed to be “undercapitalized” if it has a total
Risk-Based Capital Ratio of less than 8.00%, a Tier 1
Capital Ratio of less than 4.00% or a Leverage Ratio of less
than 4.00%. Under such regulations, a bank is deemed to be
“significantly undercapitalized” if it has a
Risk-Based Capital Ratio of less than 6.00%, a Tier 1
Capital Ratio of less than 3.00% and a Leverage Ratio of less
than 3.00%. Under such regulations, a bank is deemed to be
“critically undercapitalized” if it has a Leverage
Ratio of less than or equal to 2.00%. In addition, the FDIC has
the ability to downgrade a bank’s classification (but not
to “critically undercapitalized”) based on other
considerations even if the bank meets the capital guidelines.
According to these guidelines, each of our subsidiary banks were
classified as “well-capitalized” as of
December 31, 2005.
In addition, if a bank is classified as undercapitalized, the
bank is required to submit a capital restoration plan to the
federal banking regulators. Pursuant to FDICIA, an
undercapitalized bank is prohibited from increasing its assets,
engaging in a new line of business, acquiring any interest in
any company or insured depository institution, or opening or
acquiring a new branch office, except under certain
circumstances, including the acceptance by the federal banking
regulators of a capital restoration plan for the bank.
Furthermore, if a bank is classified as undercapitalized, the
federal banking regulators may take certain actions to correct
the capital position of the bank; if a bank is classified as
significantly undercapitalized or critically undercapitalized,
the federal banking regulators would be required to take one or
more prompt corrective actions. These actions would include,
among other things, requiring: sales of new securities to
bolster capital, improvements in management, limits on interest
rates paid, prohibitions on transactions with affiliates,
termination of certain risky activities and restrictions on
compensation paid to executive officers. If a bank is classified
as critically undercapitalized, FDICIA requires the bank to be
placed into conservatorship or receivership within 90 days,
unless the federal banking regulators determines that other
action would better achieve the purposes of FDICIA regarding
prompt corrective action with respect to undercapitalized banks.
The capital classification of a bank affects the frequency of
examinations of the bank and impacts the ability of the bank to
engage in certain activities and affects the deposit insurance
premiums paid by such bank. Under FDICIA, the federal banking
regulators are required to conduct a full-scope,
on-site
examination of
every bank at least once every 12 months. An exception to
this rule is made, however, that provides that banks
(i) with assets of less than $100 million,
(ii) are categorized as “well-capitalized,”
(iii) were found to be well managed and its composite
rating was outstanding and (iv) has not been subject to a
change in control during the last 12 months, need only be
examined once every 18 months.
Brokered Deposits.
Under FDICIA, banks may be restricted
in their ability to accept brokered deposits, depending on their
capital classification. “Well-capitalized” banks are
permitted to accept brokered deposits, but all banks that are
not well-capitalized are not permitted to accept such deposits.
The FDIC may, on a case-by-case basis, permit banks that are
adequately capitalized to accept brokered deposits if the FDIC
determines that acceptance of such deposits would not constitute
an unsafe or unsound banking practice with respect to the bank.
As of December 31, 2005, we had an insignificant amount of
brokered deposits. As previously mentioned, each of our
subsidiary banks is currently well-capitalized and therefore is
not subject to any limitations with respect to their brokered
deposits.
Federal Limitations on Activities and Investments.
The
equity investments and activities as a principal of FDIC-insured
state-chartered banks are generally limited to those that are
permissible for national banks. Under regulations dealing with
equity investments, an insured state bank generally may not
directly or
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indirectly acquire or retain any equity investment of a type, or
in an amount, that is not permissible for a national bank.
Check Clearing for the 21st Century Act.
On
October 28, 2003, President Bush signed into law the Check
Clearing for the 21st Century Act, also known as Check 21.
The new law, which is not effective until October 28, 2004,
gives “substitute checks,” such as a digital image of
a check and copies made from that image, the same legal standing
as the original paper check. Some of the major provisions
include:
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allowing check truncation without making it mandatory;
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demanding that every financial institution communicate to
accountholders in writing a description of its substitute check
processing program and their rights under the law;
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legalizing substitutions for and replacements of paper checks
without agreement from consumers;
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retaining in place the previously mandated electronic collection
and return of checks between financial institutions only when
individual agreements are in place;
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requiring that when accountholders request verification,
financial institutions produce the original check (or a copy
that accurately represents the original) and demonstrate that
the account debit was accurate and valid; and
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requiring recrediting of funds to an individual’s account
on the next business day after a consumer proves that the
financial institution has erred.
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This new legislation will likely affect bank capital spending as
many financial institutions assess whether technological or
operational changes are necessary to stay competitive and take
advantage of the new opportunities presented by Check 21.
Interstate Branching.
Effective June 1, 1997, the
Riegle-Neal Interstate Banking and Branching Efficiency Act of
1994 amended the FDIA and certain other statutes to permit state
and national banks with different home states to merge across
state lines, with approval of the appropriate federal banking
agency, unless the home state of a participating bank had passed
legislation prior to May 31, 1997 expressly prohibiting
interstate mergers. Under the Riegle-Neal Act amendments, once a
state or national bank has established branches in a state, that
bank may establish and acquire additional branches at any
location in the state at which any bank involved in the
interstate merger transaction could have established or acquired
branches under applicable federal or state law. If a state opts
out of interstate branching within the specified time period, no
bank in any other state may establish a branch in the state
which has opted out, whether through an acquisition or
de
novo.
Federal Home Loan Bank System.
The Federal Home
Loan Bank system, of which each of our subsidiary banks is
a member, consists of 12 regional FHLBs governed and regulated
by the Federal Housing Finance Board, or FHFB. The FHLBs serve
as reserve or credit facilities for member institutions within
their assigned regions. They are funded primarily from proceeds
derived from the sale of consolidated obligations of the FHLB
system. They make loans (
i.e.
, advances) to members in
accordance with policies and procedures established by the FHLB
and the Boards of directors of each regional FHLB.
As a system member, our subsidiary banks are entitled to borrow
from the FHLB of their respective region and is required to own
a certain amount of capital stock in the FHLB. Each of our
subsidiary banks is in compliance with the stock ownership rules
described above with respect to such advances, commitments and
letters of credit and home mortgage loans and similar
obligations. All loans, advances and other extensions of credit
made by the FHLB to our subsidiary banks are secured by a
portion of the their respective mortgage loan portfolio, certain
other investments and the capital stock of the FHLB held by such
bank.
Mortgage Banking Operations.
Each of our subsidiary banks
is subject to the rules and regulations of FHA, VA, FNMA, FHLMC
and GNMA with respect to originating, processing, selling and
servicing mortgage loans and the issuance and sale of
mortgage-backed securities. Those rules and regulations, among
other things, prohibit discrimination and establish underwriting
guidelines which include provisions for inspections and
appraisals, require credit reports on prospective borrowers and
fix maximum loan amounts,
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and, with respect to VA loans, fix maximum interest rates.
Mortgage origination activities are subject to, among others,
the Equal Credit Opportunity Act, Federal
Truth-in
-Lending Act
and the Real Estate Settlement Procedures Act and the
regulations promulgated thereunder which, among other things,
prohibit discrimination and require the disclosure of certain
basic information to mortgagors concerning credit terms and
settlement costs. Our subsidiary banks are also subject to
regulation by the Arkansas State Bank Department or the Florida
Department of Financial Regulation, as applicable, with respect
to, among other things, the establishment of maximum origination
fees on certain types of mortgage loan products.
Payment of Dividends
We are a legal entity separate and distinct from our subsidiary
banks and other affiliated entities. The principal sources of
our cash flow, including cash flow to pay dividends to our
shareholders, are dividends that our subsidiary banks pay to us
as their sole shareholder. Statutory and regulatory limitations
apply to the dividends that our subsidiary banks can pay to us,
as well as to the dividends we can pay to our shareholders.
The policy of the Federal Reserve Board that a bank holding
company should serve as a source of strength to its subsidiary
banks also results in the position of the Federal Reserve Board
that a bank holding company should not maintain a level of cash
dividends to its shareholders that places undue pressure on the
capital of its bank subsidiaries or that can be funded only
through additional borrowings or other arrangements that may
undermine the bank holding company’s ability to serve as
such a source of strength. Our ability to pay dividends is also
subject to the provisions of Arkansas law. See “Description
of Capital Stock — Common Stock — Dividend
Rights.”
There are certain state-law limitations on the payment of
dividends by our bank subsidiaries. First State Bank, Community
Bank, Twin City Bank and Bank of Mountain View, which are
subject to Arkansas banking laws, may not declare or pay a
dividend of 75% or more of the net profits of such bank after
all taxes for the current year plus 75% of the retained net
profits for the immediately preceding year without the prior
approval of the Arkansas State Bank Commissioner. Marine Bank,
which is subject to Florida banking laws, may not declare or pay
a dividend in excess of 100% of current year earnings and 100%
of retained earnings for the prior two years. All of our bank
subsidiaries that are members of the Federal Reserve System must
also comply with the dividend restrictions with which a national
bank would be required to comply. Among other things, these
restrictions require that if losses have at any time been
sustained by a bank equal to or exceeding its undivided profits
then on hand, no dividend may be paid. Although we have
regularly paid dividends on our common stock beginning with the
second quarter of 2003, there can be no assurances that we will
be able to pay dividends in the future under the applicable
regulatory limitations.
The payment of dividends by us, or by our subsidiary banks, may
also be affected by other factors, such as the requirement to
maintain adequate capital above regulatory guidelines. The
federal banking agencies have indicated that paying dividends
that deplete a depository institution’s capital base to an
inadequate level would be an unsafe and unsound banking
practice. Under the Federal Deposit Insurance Corporation
Improvement Act of 1991, a depository institution may not pay
any dividend if payment would result in the depository
institution being undercapitalized.
Restrictions on Transactions with Affiliates
We and our subsidiary banks are subject to the provisions of
Section 23A of the Federal Reserve Act. Section 23A
places limits on the amount of:
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a bank’s loans or extensions of credit to affiliates;
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a bank’s investment in affiliates;
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assets a bank may purchase from affiliates, except for real and
personal property exempted by the Federal Reserve Board;
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loans or extensions of credit to third parties collateralized by
the securities or obligations of affiliates; and
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a bank’s guarantee, acceptance or letter of credit issued
on behalf of an affiliate.
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The total amount of the above transactions is limited in amount,
as to any one affiliate, to 10% of a bank’s capital and
surplus and, as to all affiliates combined, to 20% of a
bank’s capital and surplus. In addition to the limitation
on the amount of these transactions, each of the above
transactions must also meet specified collateral requirements.
Our subsidiary banks must also comply with other provisions
designed to avoid the taking of low-quality assets. We and our
subsidiary banks are also subject to the provisions of
Section 23B of the Federal Reserve Act which, among other
things, prohibit an institution from engaging in the above
transactions with affiliates unless the transactions are on
terms substantially the same, or at least as favorable to the
institution or its subsidiaries, as those prevailing at the time
for comparable transactions with nonaffiliated companies.
Our subsidiary banks are also subject to restrictions on
extensions of credit to their executive officers, directors,
principal shareholders and their related interests. These
extensions of credit (1) must be made on substantially the
same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with third
parties, and (2) must not involve more than the normal risk
of repayment or present other unfavorable features.
Privacy
Under the Gramm-Leach-Bliley Act, financial institutions are
required to disclose their policies for collecting and
protecting confidential information. Customers generally may
prevent financial institutions from sharing nonpublic personal
financial information with nonaffiliated third parties except
under narrow circumstances, such as the processing of
transactions requested by the consumer or when the financial
institution is jointly sponsoring a product or service with a
nonaffiliated third party. Additionally, financial institutions
generally may not disclose consumer account numbers to any
nonaffiliated third party for use in telemarketing, direct mail
marketing or other marketing to consumers. We and all of our
subsidiaries have established policies and procedures to assure
our compliance with all privacy provisions of the
Gramm-Leach-Bliley Act.
Consumer Credit Reporting
On December 4, 2003, President Bush signed the Fair and
Accurate Credit Transactions Act amending the federal Fair
Credit Reporting Act. These amendments to the Fair Credit
Reporting Act (the “FCRA Amendments”) became effective
in 2004. The FCRA Amendments include, among other things:
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requirements for financial institutions to develop policies and
procedures to identify potential identity theft and, upon the
request of a consumer, place a fraud alert in the
consumer’s credit file stating that the consumer may be the
victim of identity theft or other fraud;
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consumer notice requirements for lenders that use consumer
report information in connection with risk-based credit pricing
programs;
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for entities that furnish information to consumer reporting
agencies (which would include our subsidiary banks),
requirements to implement procedures and policies regarding the
accuracy and integrity of the furnished information and
regarding the correction of previously furnished information
that is later determined to be inaccurate; and
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a requirement for mortgage lenders to disclose credit scores to
consumers.
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The FCRA Amendments also prohibit a business that receives
consumer information from an affiliate from using that
information for marketing purposes unless the consumer is first
provided a notice and an opportunity to direct the business not
to use the information for such marketing purposes (the
“opt-out”), subject to certain exceptions. We do not
share consumer information among our affiliated companies for
marketing purposes, except as allowed under exceptions to the
notice and opt-out requirements. Because no affiliate of Home
BancShares is currently sharing consumer information with any
other affiliate of Home BancShares for marketing purposes, the
limitations on sharing of information for marketing purposes do
not have a significant impact on us.
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Anti-Terrorism and Money Laundering Legislation
Our subsidiary banks are subject to the Uniting and
Strengthening America by Providing Appropriate Tools Required to
Intercept and Obstruct Terrorism of 2001 (the “USA PATRIOT
Act”), the Bank Secrecy Act and rules and regulations of
the Office of Foreign Assets Control (the “OFAC”).
These statutes and related rules and regulations impose
requirements and limitations on specific financial transactions
and account relationships intended to guard against money
laundering and terrorism financing. Our subsidiary banks have
established a customer identification program pursuant to
Section 326 of the USA PATRIOT Act and the Bank Secrecy
Act, and otherwise have implemented policies and procedures
intended to comply with the foregoing rules.
Proposed Legislation and Regulatory Action
New regulations and statutes are regularly proposed that contain
wide-ranging proposals for altering the structures, regulations
and competitive relationships of financial institutions
operating and doing business in the United States. We cannot
predict whether or in what form any proposed regulation or
statute will be adopted or the extent to which our business may
be affected by any new regulation or statute.
Effect of Governmental Monetary Polices
Our earnings are affected by domestic economic conditions and
the monetary and fiscal policies of the United States government
and its agencies. The Federal Reserve Board’s monetary
policies have had, and are likely to continue to have, an
important impact on the operating results of commercial banks
through its power to implement national monetary policy in
order, among other things, to curb inflation or combat a
recession. The monetary policies of the Federal Reserve Board
affect the levels of bank loans, investments and deposits
through its control over the issuance of United States
government securities, its regulation of the discount rate
applicable to banks and its influence over reserve requirements
to which banks are subject. We cannot predict the nature or
impact of future changes in monetary and fiscal policies.
DESCRIPTION OF CAPITAL STOCK
The following information concerning our capital stock
summarizes certain provisions of our Articles of Incorporation
and Bylaws, as well as certain statutes regulating the rights of
holders of our common stock. The information does not purport to
be a complete description of such matters and is qualified in
all respects by the provisions of the Articles of Incorporation,
the Bylaws and the Arkansas Business Corporation Act.
Common Stock
General.
Our Articles of Incorporation authorize our
board of directors to issue a maximum of 25,000,000 shares
of common stock, $0.01 par value. As of March 13,
2006, a total of 12,129,355 shares of common stock were
issued and outstanding. In addition, as of March 13, 2006,
a total of approximately 1,048,964 shares of common stock
were subject to outstanding stock options (including, on an
as-converted
basis,
preferred stock options), 151,036 shares of common stock
were reserved for future issuance under our 2006 Stock Option
and Performance Incentive Plan, and an additional
2,160,464 shares of common stock were issuable upon
conversion of our Class A preferred stock and Class B
preferred stock.
Voting Rights.
The holders of common stock are entitled
to one vote per share, unless otherwise provided by law, and are
not entitled to cumulative voting rights in the election of
directors. As a result, the holders of a plurality of the shares
of our common stock voting in the election of directors present
at the meeting for that purpose may elect all of the directors
then standing for election. Directors may not be removed except
for cause.
Dividend Rights.
Subject to the requirement to pay
dividends on all preferred shares then outstanding before paying
any dividends on common stock, each share of our common stock is
entitled to participate equally in dividends as and when
declared by the board of directors out of funds legally
available therefor. The payment of dividends is further subject
to certain regulatory restrictions which prohibit us from paying
any
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dividends except from retained earnings. We are also restricted
from paying dividends on our common stock if we have deferred
payments of interest, or if a default has occurred, on our
subordinated debentures. See “Supervision and
Regulation — Payment of Dividends.” As of
December 31, 2005, we had retained earnings of
approximately $27.3 million.
No Preemptive Rights.
No holder of our common stock has a
right pursuant to the Arkansas Business Corporation Act or our
Articles of Incorporation or Bylaws to purchase shares of common
stock in a subsequent offering. Thus, in the discretion of our
board of directors, additional shares may be issued without
affording existing shareholders any right to purchase such
shares. If such shares are issued to third parties, the voting
rights and/or book value per share of existing shareholders
could be diluted.
Assessment and Redemption.
The shares of common stock
presently outstanding are, and the shares that will be issued in
connection with this offering will be, fully paid and
non-assessable. The board of directors is authorized to
repurchase or redeem shares of our common stock from earned
surplus or capital surplus other than revaluation surplus. This
authorization does not permit the board of directors to redeem
common stock without the consent of its holder unless the common
stock was issued with a right of repurchase or redemption
reserved to us.
Liquidation Rights.
In the event of liquidation,
dissolution or winding up of Home BancShares, whether
voluntarily or involuntarily, the holders of our common stock
will be entitled to share ratably in any of the net assets or
funds which are available for distribution to shareholders,
after the satisfaction of all liabilities and payment to the
holders of our preferred stock of the liquidation value of their
stock, plus any declared and unpaid dividends.
Modification of Rights.
Rights of the holders of our
common stock may not be modified by less than a majority vote of
the common stock outstanding. Additionally, under the Arkansas
Business Corporation Act of 1987, a majority vote is required
for the approval of a merger or consolidation with another
corporation, and for the sale of all or substantially all of our
assets and liquidation or dissolution of Home BancShares.
Preferred Stock
General.
Our Articles of Incorporation currently
authorize the board of directors to issue up to
5,500,000 shares of preferred stock with a par value of
$0.01 per share. As of December 31, 2005,
2,500,000 shares of Class A preferred stock were
authorized and 2,076,195 were issued and outstanding, and
3,000,000 shares of Class B preferred stock were
authorized, and 169,079 were issued and outstanding.
Class A Preferred Stock.
The Class A preferred
stock is non-voting, non-cumulative, callable and redeemable,
convertible preferred stock with a par value of $0.01 per
share, and a value for issuance, conversion to our common stock,
liquidation, and other purposes of $10.00 per share. The
Class A preferred stock yields an annual non-cumulative
dividend of $0.25, to be paid quarterly, if and when authorized
and declared by our board of directors. Any such dividend must
be paid first to the holders of Class A preferred stock
before dividends are paid on any other class of our stock
(including the Class B preferred stock). Upon a
liquidation, dissolution, or winding up of the affairs of Home
BancShares, the holders of Class A preferred stock will
receive any declared and unpaid dividend then due (in priority
over any other class of our stock, including the Class B
preferred stock), and will receive $10.00 per share in
parity with the Class B preferred stock.
Each share of the Class A preferred stock may be converted
at the holder’s option into 0.789474 shares of our
common stock upon the earlier of June 6, 2006, or
180 days after the date of this offering. Fractional shares
are to be converted for cash at the rate of $12.67 times the
fraction of shares held.
We may, at our option, redeem all of the Class A preferred
stock for 0.789474 shares of our common stock (with
fractional shares to be redeemed for cash at the rate of $12.67
times the fraction of shares held) at any time after
June 6, 2006, or, if earlier, the completion of this
offering if (a) the last reported trade is at least
$12.67 per share for 20 consecutive trading days or
(b) the trades are quoted on a “bid and ask”
price basis and the mean between the bid and ask price is at
least $12.67 per share for 20 consecutive trading days.
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If prior to conversion or redemption of Class A preferred
stock the number of outstanding shares of our common stock are
increased or decreased or are changed into a different number of
shares or a different class due to a merger, reclassification,
stock split, or similar transaction, or if a stock dividend
share is paid, appropriate proportionate adjustments will be
made to the ratio by which shares of common stock is to be
issued for the conversion or redemption of Class A
preferred stock.
Class B Preferred Stock.
Our shares of Class B
preferred stock are non-voting, non-cumulative, callable and
redeemable, convertible preferred stock with a par value of
$0.01 per share, and a value for issuance, conversion to
our common stock, liquidation, and other purposes of
$38.00 per share.
The Class B preferred stock yields an annual non-cumulative
dividend of $0.57 per share, to be paid quarterly, if and
when authorized and declared by our board of directors, and has
priority in the payment of dividends over our common stock and
any class of capital stock created after March 9, 2005,
provided that dividends have first been paid on the Class A
preferred stock.
In the event of our dissolution, liquidation or winding up, the
Class B preferred stock will have priority over our common
stock, and over any class of capital stock created after
March 9, 2005. Provided that all declared and unpaid
dividends are first paid to the holders of the Class A
preferred stock, the Class B preferred stock is entitled to
receive payment for all declared and unpaid dividends on the
Class B preferred stock, and $12.67 per share in
parity with the payment of $10.00 per share to holders of
Class A preferred stock.
The Class B preferred stock is redeemable by us at any time
on the basis of three shares of our common stock for each share
of Class B preferred stock. Holders of the Class B
preferred stock may convert their shares of Class B
preferred stock into shares of our common stock (one share of
common stock for each share of Class B preferred stock),
upon the occurrence of the earlier of July 6, 2006, or
210 days after the date of this offering.
If a conversion or redemption occurs prior to the end of a
quarter in which our board of directors declares a dividend, and
subject to the priority in payment of dividends to the
Class A preferred stock, a holder of Class B preferred
stock is entitled to receive an amount of such dividend,
prorated for the number of days in the quarter prior to the date
of the notice of conversion or redemption.
If prior to a conversion or redemption of the Class B
preferred stock, our outstanding common stock is changed in
number of shares or in class by reason of a merger,
reclassification, stock split, or similar transaction, or if a
stock dividend is paid, an appropriate and proportionate
adjustment will be made to the ratio by which a share of our
common stock is to be issued in exchange for a share of
Class B preferred stock. If we are merged in a cash
transaction and we are not the surviving corporation, the
holders of Class B preferred stock will have the right to
convert their shares of Class B preferred stock for shares
of our common stock immediately prior to the conversion on a
three-for
-one ratio. If
at the time of such conversion, however, the Class A
preferred stock has not been converted into our common stock,
dividends on the shares of our common stock held by former
holders of Class B preferred stock may not be paid until
dividends are paid on the Class A preferred stock.
Subordinated Debentures; Trust Preferred Securities
We have raised additional capital through the issuance of
floating rate junior subordinated debentures in connection with
trust preferred securities issuances by various statutory trust
subsidiaries. The interest payments on the trust preferred
securities and related junior subordinated debentures are
currently expected to be funded by dividends paid to us by our
subsidiary banks. Our principal and interest payments on the
junior subordinated debentures are in a superior position to the
liquidation rights of holders of our common stock. See
“Management’s Discussion and Analysis of Financial
Condition and Results of Operations — Subordinated
Debentures” for additional information.
94
Director and Officer Indemnification
Our Articles of Incorporation and Bylaws authorize us to
indemnify its directors, officers, employees and agents to the
full extent permitted by law. Section 4-27-850 of the
Arkansas Business Corporation Act of 1987 contains detailed and
comprehensive provisions providing for indemnification of
directors and officers of Arkansas corporations against
expenses, judgments, fines and settlements in connection with
litigation. Under Arkansas law, other than an action brought by
or in the right of Home BancShares, such indemnification is
available if it is determined that the proposed indemnitee acted
in good faith and in a manner he or she reasonably believed to
be in or not opposed to the best interest of Home BancShares
and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. In actions
brought by or in the right of Home BancShares, such
indemnification is limited to expenses (including
attorneys’ fees) actually and reasonably incurred in the
defense or settlement of such action if the indemnitee acted in
good faith and in a manner he or she reasonably believed to be
in or not opposed to the best interest of Home BancShares and
except that no indemnification shall be made in respect of any
claim, issues or matters as to which such person has been
adjudged to be liable to us unless and only to the extent that a
court having jurisdiction in the matter determines upon
application that in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for
such expenses as the court deems proper.
To the extent that the proposed indemnitee has been successful
on the merits or otherwise in defense of any action, suit or
proceeding (or any claim, issue or matter therein), he or she
must be indemnified against expenses (including attorneys’
fees) actually and reasonably incurred by him or her in
connection therewith.
Our Articles of Incorporation provide that no director shall be
liable to us or our shareholders for monetary damages for breach
of fiduciary duty as a director to the fullest extent permitted
by the Arkansas Business Corporation Act. Our Bylaws require us
to indemnify our directors and officers to the fullest extent
permitted by Arkansas law.
Transfer Agent and Registrar
Computershare, 2 LaSalle Street, Third Floor, Chicago,
Illinois 60602, telephone: (312)588-4990, is our transfer agent
and registrar.
Listing
We have applied to have our common stock listed on The Nasdaq
National Market under the symbol “HOMB.”
SHARES ELIGIBLE FOR FUTURE SALE
If our shareholders sell, or there is a perception they may
sell, substantial amounts of our common stock, including shares
issued upon the exercise of outstanding options, in the public
market following the offering, the market price of our common
stock could decline. These sales may also make it more difficult
for us to sell equity or equity-related securities in the future
at a time and price that we deem appropriate.
Upon completion of this offering, we will have outstanding an
aggregate
of shares
of our common stock (plus any shares issued upon exercise of the
underwriters’ over-allotment option) and
1,048,964 shares of common stock issuable upon the exercise
of outstanding options. Of these shares, all of the shares sold
in the offering (plus any shares issued upon exercise of the
underwriter’s over-allotment option) will be freely
tradable without restriction or further registration under the
Securities Act, unless the shares are purchased by
“affiliates,” (as that term is defined in
Rule 144 under the Securities Act), which generally include
officers, directors or 10% shareholders, which shares will be
subject to the resale limitations of Rule 144 and to a
180-day
lock-up
period. Shares
of common stock issued upon the exercise of stock options and
shares held by “affiliates” may be sold in the public
market only if registered, or if they qualify for an exemption
from registration under Rules 144, 144(k) or 701
promulgated under the Securities Act, which are summarized
below. The remaining outstanding shares of common stock are
freely tradable without restriction
95
or further registration under the Securities Act as those
shares were issued in intrastate offerings which were completed
more than nine months before this offering.
Taking into account the
lock-up
agreements
described below, and assuming Stephens Inc. does not release any
parties from these agreements, the following shares will be
eligible for sale in the public market at the following times:
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beginning on the effective date of this offering, only
the shares
of common stock sold in this offering and
the shares
of common stock not subject to
lock-up
agreements and
eligible for resale under Rule 144(k) will be immediately
available for sale in the public market; and
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beginning 180 days after the date of this prospectus, the
expiration date for the
lock-up
agreements,
approximately shares
of common stock held by affiliates will be eligible for sale
pursuant to Rule 144, including the volume restrictions
described below, and Rule 701.
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Lock-Up Agreements
We, our directors, officers and certain of our existing
shareholders beneficially owning
approximately % of our outstanding
common stock immediately prior to the offering have entered into
lock-up
agreements
generally providing, subject to limited exceptions, that they
will not, without the prior written consent of Stephens Inc.,
directly or indirectly, during the period ending 180 days
after the date of this prospectus:
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offer, sell, contract to sell, pledge, grant any option to
purchase, make any short sale or otherwise dispose of, any
shares of common stock of Home Bancshares, or any securities
convertible into, exchangeable for or that represent the right
to receive shares of common stock of Home Bancshares, whether
now owned or hereafter acquired, owned directly (including
holding as a custodian) or with respect to which such
shareholder has beneficial ownership within the rules and
regulations of the SEC, or file or cause to be filed any
registration statement under the Securities Act with respect to
the foregoing; or
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engage in any hedging or other transaction that is designed to
or that reasonably could be expected to lead to or result in a
sale or disposition of any shares of common stock of Home
Bancshares, such prohibited hedging or other transactions to
include any short sale or grant of any right (including without
limitation any put or call option) with respect to any shares of
common stock of Home Bancshares or with respect to any security
that includes, relates to, or derives any significant part of
its value from such shares.
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The
180-day
restricted
period described above is subject to extension under limited
circumstances. In the event that either (1) during the
period that begins on the date that is 15 calendar days plus
3 business days before the last day of the
180-day
restricted
period and ends on the last day of the
180-day
restricted
period, we issue an earnings release or material news or a
material event relating to us occurs; or (2) prior to the
expiration of the
180-day
restricted
period, we announce that we will release earnings results during
the
16-day
period
beginning on the last day of the
180-day
restricted
period, then the restricted period will continue to apply until
the expiration of the date that is 15 calendar days plus
three business days after the date on which the earnings
release is issued or the material news or material event
relating to us occurs.
As a result of these contractual restrictions, notwithstanding
possible earlier eligibility for sale under the provisions of
Rule 144, 144(k) or 701, shares subject to
lock-up
agreements will
not be eligible for sale until these agreements expire or are
waived by Stephens Inc. on behalf of the underwriters.
Rule 144
In general, under Rule 144, as currently in effect, and
beginning 90 days after the date of this prospectus, a
person (or persons whose shares are aggregated) who has
beneficially owned restricted securities for at least
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one year or any affiliate is entitled to sell within any
three-month period, a number of shares that does not exceed the
greater of:
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one percent of the total number of our then outstanding shares
of common stock
(approximately shares
immediately after this offering), as shown by our most recent
published report or statement at that time; or
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the average weekly trading volume of our common stock on The
Nasdaq National Market during the four calendar weeks preceding
the date on which notice of the sale on Form 144 is filed
with the Securities and Exchange Commission.
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Sales under Rule 144 also are subject to manner of sale
provisions, notice requirements and the availability of current
public information about us. To the extent that shares were
acquired from one of our affiliates, such acquiring
person’s holding period for purposes of effecting a sale
under Rule 144 commences on the date of transfer from the
affiliate.
Rule 144(k)
Under Rule 144(k), a person who is not deemed to have been
one of our “affiliates” at any time during the three
months preceding a sale, and who has beneficially owned the
shares proposed to be sold for at least two years, is entitled
to sell such shares without complying with the manner of sale,
public information, volume limitation, or notice provisions of
Rule 144.
Rule 701
In general, under Rule 701 of the Securities Act as
currently in effect, any of our employees, consultants or
advisors who purchased shares of our common stock from us in
connection with a compensatory stock or option plan or other
written agreement is eligible to resell those shares (subject to
the terms of any applicable
lock-up
agreements)
90 days after the date of this prospectus in reliance on
Rule 144, but without compliance with some of the
restrictions, including the holding period, contained in
Rule 144.
The Securities and Exchange Commission has approved that
Rule 701 will apply to typical stock options granted by an
issuer before it becomes subject to the reporting requirements
of the Securities Exchange Act of 1934, as amended, along with
the shares acquired upon exercise of those options, including
exercises after the date of this prospectus. Securities issued
in reliance on Rule 701 are restricted securities and,
subject to the contractual restrictions described above,
beginning 90 days after the date of this prospectus, may be
sold by persons other than “affiliates,” as defined in
Rule 144, subject only to the manner of sale provisions of
Rule 144. Securities issued in reliance on Rule 701
may be sold by “affiliates” under Rule 144
without compliance with its one year minimum holding period
requirement.
Stock Options
As of March 13, 2006, options to purchase a total of
968,244 shares of common stock were outstanding, of which
481,224 were vested, and preferred options were outstanding
that, upon exercise and conversion, would result in the issuance
of an additional 80,720 shares of common stock. As soon as
practicable after the completion of this offering, we intend to
file a registration statement on
Form
S-8
under the
Securities Act to register all shares of common stock issuable
under our 2006 Stock Option and Performance Incentive Plan.
Accordingly, shares of common stock underlying these options
will be freely tradable and eligible for sale in the public
markets, subject to vesting provisions, terms of the
lock-up
agreements and,
in the case of affiliates only, the restrictions of
Rule 144 other than the holding period requirement.
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UNDERWRITING
Subject to the terms and conditions of the underwriting
agreement among us, our bank subsidiaries and Stephens Inc.,
Piper Jaffray & Co., and Sandler
O’Neill & Partners, L.P., as representatives (the
“Representatives”), on behalf of the underwriters, the
underwriters named below have severally agreed to purchase from
us, and we have agreed to sell to the underwriters, severally,
the following respective numbers of shares of common stock at
the initial public offering price less the underwriting
discounts and commissions set forth on the cover page of this
prospectus.
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Underwriters
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Number of Shares
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Stephens Inc.
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Piper Jaffray & Co.
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Sandler O’Neill & Partners, L.P.
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Total
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Under the terms and conditions of the underwriting agreement,
the underwriters are committed to accept and pay for all of the
shares offered by this prospectus, if any are taken. If an
underwriter defaults, the underwriting agreement provides that
the purchase commitments of the non-defaulting underwriters may
be increased or, in certain cases, the underwriting agreement
may be terminated. The underwriting agreement provides that the
underwriters’ obligations are subject to approval of
certain legal matters by their counsel, including, without
limitation, the authorization and the validity of the shares,
and to various other conditions customary in a firm commitment
underwritten public offering, such as receipt by the
underwriters of officers’ certificates, legal opinions and
comfort letters.
The underwriters propose to offer our common stock directly to
the public at the public offering price set forth on the cover
page of this prospectus and to selected securities dealers (who
may include the underwriters) at that price less a concession
not in excess of
$ per
share. The underwriters may allow, and the selected dealers may
re-allow, a concession not in excess of
$ per
share to certain brokers and dealers. After the initial public
offering, the offering price and other selling terms may be
changed from time to time by the Representatives of the
underwriters. The underwriters expect to deliver the shares of
common stock on or
about ,
2006.
We have granted the underwriters an option, exercisable within
30 days after the date of this prospectus, to purchase up
to additional shares solely to cover over-allotments, if
any, at the same price per share to be paid by the underwriters
for the other shares in this offering. If the underwriters
purchase any additional shares under this option, each
underwriter will be committed to purchase the additional shares
in approximately the same proportion allocated to them in the
table above.
The following table shows the per share and total underwriting
discounts to be paid by us to the underwriters in connection
with this offering. These amounts are shown assuming both no
exercise and full exercise of the over-allotment option.
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Without
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With
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Allotment
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Allotment
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Per share
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Total
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We estimate that the total expenses of the offering payable by
us, excluding underwriting discounts and commissions, will be
approximately
$ .
Prior to this offering, there has been no public market for our
common stock. We have applied for quotation of our common stock
on the Nasdaq National Market under the symbol “HOMB.”
The initial public offering price for the common stock has been
determined by negotiations between the Representatives
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of the underwriters and us. The principal factors that will be
considered in determining the initial public offering price
included the following:
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prevailing market and general economic conditions;
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the market capitalizations, trading histories and stages of
development of other publicly traded companies that the
underwriters believe to be comparable to us;
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our results of operations in recent periods;
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our current financial position;
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estimates of our business potential and prospects;
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an assessment of our management;
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the present state of our development; and
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the availability for sale in the market of a significant number
of shares of our common stock.
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In connection with the offering, the underwriters may engage in
transactions that are intended to stabilize, maintain or
otherwise affect the market price of our common stock during and
after the offering, such as the following:
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the underwriters may over-allot or otherwise create a short
position in the common stock for their own account by selling
more shares of common stock than have been sold to them;
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the underwriters may elect to cover any such short position by
purchasing shares of common stock in the open market or by
exercising the over-allotment option;
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the underwriters may stabilize or maintain the price of the
common stock by bidding; and
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the underwriters may impose penalty bids, under which selling
concessions allowed to syndicate members or other broker-dealers
participating in the offering are reclaimed if shares of common
stock previously distributed in the offering are repurchased in
connection with stabilization transactions or otherwise.
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The effect of these transactions may be to stabilize or maintain
the market price of our common stock at a level above that which
might otherwise prevail in the open market. The imposition of a
penalty bid may also affect the price of our common stock to the
extent that it discourages resales of the common stock. The
magnitude or effect of any stabilization or other transactions
is uncertain. These transactions may be effected on The Nasdaq
National Market or otherwise and, if commenced, may be
discontinued at any time.
We and our bank subsidiaries have agreed to indemnify the
underwriters and their controlling persons against certain
liabilities, including liabilities under the Securities Act, or
to contribute to payments that the underwriters may be required
to make in connection with those liabilities.
Certain of the underwriters have performed and expect to
continue to perform financial advisory and investment banking
services for us in the ordinary course of their business, and
may have received, and may continue to receive, compensation for
such services.
LEGAL MATTERS
Certain legal matters in connection with this offering will be
passed upon for us by Mitchell, Williams, Selig,
Gates & Woodyard, P.L.L.C., 425 Capitol Avenue,
Suite 1800, Little Rock, Arkansas 72201. As of
December 31, 2005, the partners and associates of Mitchell,
Williams, Selig, Gates & Woodyard, P.L.L.C.
beneficially owned approximately 3,876 shares of our
outstanding common stock. Certain legal matters in connection
with this offering will be passed upon for the underwriters by
Jenkens & Gilchrist, P.C., 401 Congress Avenue,
Suite 2500, Austin, Texas 78701.
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EXPERTS
The consolidated financial statements of Home BancShares as of
and for the year ended December 31, 2005, appearing in this
prospectus and registration statement have been audited by BKD,
LLP, independent registered public accounting firm, as set forth
in their report thereon appearing elsewhere herein, and are
included in reliance upon such report given on the authority of
such firm as experts in accounting and auditing.
The consolidated financial statements of Home BancShares at
December 31, 2004, and for each of the two years in the
period ended December 31, 2004, appearing in this
prospectus and registration statement have been audited by
Ernst & Young LLP, independent registered public
accounting firm, as set forth in their report thereon appearing
elsewhere herein, and are included in reliance upon such report
given on the authority of such firm as experts in accounting and
auditing.
The consolidated financial statements of TCBancorp, Inc. at
December 31, 2004, and 2003, and for the years then ended,
appearing in this prospectus and registration statement have
been audited by Ernst & Young LLP, independent
registered public accounting firm, as set forth in their report
thereon appearing elsewhere herein, and are included in reliance
upon such report given on the authority of such firm as experts
in accounting and auditing.
The consolidated financial statements of Marine Bancorp, Inc. at
December 31, 2004, and 2003, and for the years then ended,
appearing in this prospectus and registration statement have
been audited by Hacker, Johnson & Smith, P.A.,
independent registered public accounting firm, as set forth in
their report thereon appearing elsewhere herein, and are
included in reliance upon such report given on the authority of
such firm as experts in accounting and auditing.
The consolidated financial statements of Mountain View
Bancshares, Inc. as of and for the year ended December 31,
2004, appearing in this prospectus and registration statement
have been audited by BKD, LLP, independent registered public
accounting firm, as set forth in their report thereon appearing
elsewhere herein, and are included in reliance upon such report
given on the authority of such firm as experts in accounting and
auditing.
CHANGE IN INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMS
Our consolidated financial statements as of and for the fiscal
years ended December 31, 2003, and 2004, were audited by
Ernst & Young LLP, an independent registered public
accounting firm. On October 21, 2005, following the closing
of the Ernst & Young LLP Little Rock, Arkansas office,
we dismissed Ernst & Young LLP and appointed BKD, LLP
to audit our financial statements for the year ended
December 31, 2005. Our board of directors and audit
committee approved the dismissal of Ernst & Young LLP
and appointment of BKD, LLP as our independent registered public
accounting firm.
The reports of Ernst & Young LLP on our financial
statements as of and for the years ended December 31, 2003,
and 2004, contained no adverse opinion or disclaimer of opinion
and were not qualified or modified as to uncertainty, audit
scope or accounting principles. During the years ended
December 31, 2003, and 2004, and through October 21,
2005, there were no disagreements with Ernst & Young
LLP on any matter of accounting principles or practices,
financial statement disclosure or auditing scope or procedures
which disagreements, if not resolved to the satisfaction of
Ernst & Young LLP, would have caused them to make
reference thereto in their report on the financial statements
for such years. During the years ended December 31, 2003,
and 2004, and through October 21, 2005, there have been no
reportable events as defined in
Regulation
S-K
Item 304(a)(1)(v).
On October 21, 2005, we engaged BKD, LLP as our new
independent auditor. Our Audit Committee and board of directors
approved this action. During the years ended December 31,
2003, and 2004, respectively, and through October 21, 2005,
neither we nor any person on our behalf has consulted with BKD,
LLP regarding the application of accounting principles to a
specific completed or contemplated transaction, or the type of
audit opinion that might be rendered on our financial
statements, and we were not provided with a written report or
oral advice by BKD, LLP that was an important factor that we
considered in reaching a
100
decision as to an accounting, auditing or financial reporting
issue. We have delivered a copy of this disclosure to BKD, LLP,
and BKD, LLP has not indicated that it disagrees with any of the
statements made in this section.
We delivered a copy of this disclosure to Ernst & Young
LLP on March 10, 2006, and requested that Ernst &
Young LLP furnish us with a letter addressed to the SEC stating
whether or not it agrees with the above statements regarding
Ernst & Young LLP. Attached as Exhibit 16.1 to the
registration statement of which this prospectus forms a part, is
a copy of the letter of Ernst & Young LLP to the SEC
dated March 13, 2006, stating that it agrees with the
statements made in this section.
WHERE YOU CAN FIND MORE INFORMATION
You can review our electronically filed registration statement
and exhibits on the SEC’s Internet site at
http://www.sec.gov. We have filed with the SEC,
Washington, D.C. 20549, a registration statement on
Form
S-1
under the
Securities Act of 1933, as amended, with respect to our common
stock offered hereby. This prospectus does not contain all of
the information set forth in the registration statement and the
exhibits and schedules to the registration statement. Certain
items are omitted in accordance with the rules and regulations
of the SEC. For further information with respect to our company
and our common stock, reference is made to the registration
statement and the exhibits and any schedules filed with the
registration statement. Statements contained in this prospectus
as to the contents of any contract or other document referred to
are not necessarily complete and in each instance, if such
contract or document is filed as an exhibit, reference is made
to the copy of such contract or other documents filed as an
exhibit to the registration statement, each statement being
qualified in all respects by such reference. You can obtain a
copy of the full registration statement, including the exhibits
and schedules thereto, from the SEC’s Public Reference Room
at 100 F Street, N.E., Washington, D.C. 20549.
Please call the SEC at (202) 942-8090 for further
information on the Public Reference Room.
We became subject to the information and periodic reporting
requirements of the Securities Exchange Act of 1934, as amended,
on ,
2006, and after that date are required to file annual, quarterly
and current reports, proxy statements and other information with
the SEC. We intend to furnish our shareholders written annual
reports containing financial statements audited by our
independent auditors, and make available to our shareholders
quarterly reports for the first three quarters of each year
containing unaudited interim financial statements.
101
INDEX TO FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
Audited Financial Statements of Home BancShares, Inc. and
Subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
F-2
|
|
|
|
|
|
|
F-3
|
|
|
|
|
|
|
F-4
|
|
|
|
|
|
|
F-5
|
|
|
|
|
|
|
F-6
|
|
|
|
|
|
|
F-9
|
|
|
|
|
|
|
F-11
|
|
|
|
|
Audited Financial Statements of TCBancorp, Inc. and Subsidiary
|
|
|
|
|
|
|
|
|
|
|
|
F-44
|
|
|
|
|
|
|
F-45
|
|
|
|
|
|
|
F-46
|
|
|
|
|
|
|
F-47
|
|
|
|
|
|
|
F-48
|
|
|
|
|
|
|
F-49
|
|
|
|
|
Audited Financial Statements of Marine Bancorp, Inc. and
Subsidiary
|
|
|
|
|
|
|
|
|
|
|
|
F-67
|
|
|
|
|
|
|
F-68
|
|
|
|
|
|
|
F-69
|
|
|
|
|
|
|
F-70
|
|
|
|
|
|
|
F-71
|
|
|
|
|
|
|
F-72
|
|
|
|
|
Audited Financial Statements of Mountain View Bancshares, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
F-90
|
|
|
|
|
|
|
F-91
|
|
|
|
|
|
|
F-92
|
|
|
|
|
|
|
F-93
|
|
|
|
|
|
|
F-94
|
|
|
|
|
|
|
F-95
|
|
F-1
Report of Independent Registered Public Accounting Firm
Audit Committee, Board of Directors and Stockholders
Home BancShares, Inc.
Conway, Arkansas
We have audited the accompanying consolidated balance sheet of
Home BancShares, Inc. as of December 31, 2005 and the
related consolidated statements of income, stockholders’
equity and cash flows for the year then ended. These financial
statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the 2005 consolidated financial statements
referred to above present fairly, in all material respects, the
financial position of Home BancShares, Inc. as of
December 31, 2005, and the results of its operations and
its cash flows for the year then ended in conformity with
accounting principles generally accepted in the United States of
America.
Little Rock, Arkansas
February 20, 2006
F-2
Report of Independent Registered Public Accounting Firm
The Board of Directors and
Stockholders of Home BancShares, Inc.
We have audited the accompanying consolidated balance sheet of
Home BancShares, Inc. and subsidiaries as of December 31,
2004, and the related consolidated statements of income,
stockholders’ equity, and cash flows for each of the two
years in the period ended December 31, 2004. These
financial statements are the responsibility of the
Company’s management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. We were not engaged to perform an
audit of the Company’s internal control over financial
reporting. Our audits included consideration of internal control
over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of
the Company’s internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Home BancShares, Inc. and subsidiaries at
December 31, 2004, and the consolidated results of their
operations and their cash flows for each of the two years in the
period ended December 31, 2004, in conformity with
U.S. generally accepted accounting principles.
March 11, 2005
F-3
Home BancShares, Inc. and Subsidiaries
Consolidated Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands, except
|
|
|
|
|
share data)
|
|
|
Assets
|
|
Cash and due from banks
|
|
$
|
39,248
|
|
|
$
|
19,444
|
|
|
Interest-bearing deposits with other banks
|
|
|
5,431
|
|
|
|
369
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
44,679
|
|
|
|
19,813
|
|
|
Federal funds sold
|
|
|
7,055
|
|
|
|
2,220
|
|
|
Investment securities — available for sale
|
|
|
530,302
|
|
|
|
190,366
|
|
|
Investment securities — held to maturity
|
|
|
—
|
|
|
|
100
|
|
|
Loans receivable
|
|
|
1,204,589
|
|
|
|
516,655
|
|
|
Allowance for loan losses
|
|
|
(24,175
|
)
|
|
|
(16,345
|
)
|
|
|
|
|
|
|
|
|
|
|
Loans receivable, net
|
|
|
1,180,414
|
|
|
|
500,310
|
|
|
Bank premises and equipment, net
|
|
|
51,762
|
|
|
|
26,066
|
|
|
Foreclosed assets held for sale
|
|
|
758
|
|
|
|
458
|
|
|
Cash value of life insurance
|
|
|
6,850
|
|
|
|
6,380
|
|
|
Investments in unconsolidated affiliates
|
|
|
9,813
|
|
|
|
20,122
|
|
|
Accrued interest receivable
|
|
|
11,158
|
|
|
|
4,215
|
|
|
Deferred tax asset, net
|
|
|
8,821
|
|
|
|
3,687
|
|
|
Goodwill
|
|
|
37,527
|
|
|
|
18,555
|
|
|
Core deposit and other intangibles
|
|
|
11,200
|
|
|
|
4,261
|
|
|
Other assets
|
|
|
11,152
|
|
|
|
8,633
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,911,491
|
|
|
$
|
805,186
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders’ Equity
|
|
Deposits:
|
|
|
|
|
|
|
|
|
|
|
Demand and non-interest-bearing
|
|
$
|
209,974
|
|
|
$
|
86,186
|
|
|
|
Savings and interest-bearing transaction accounts
|
|
|
512,184
|
|
|
|
196,304
|
|
|
|
Time deposits
|
|
|
704,950
|
|
|
|
270,388
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
|
1,427,108
|
|
|
|
552,878
|
|
|
Federal funds purchased
|
|
|
44,495
|
|
|
|
7,950
|
|
|
Securities sold under agreements to repurchase
|
|
|
103,718
|
|
|
|
21,259
|
|
|
FHLB and other borrowed funds
|
|
|
117,054
|
|
|
|
74,869
|
|
|
Accrued interest payable and other liabilities
|
|
|
8,504
|
|
|
|
8,163
|
|
|
Subordinated debentures
|
|
|
44,755
|
|
|
|
24,219
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
1,745,634
|
|
|
|
689,338
|
|
|
Minority interest
|
|
|
—
|
|
|
|
9,238
|
|
|
Stockholders’ equity:
|
|
|
|
|
|
|
|
|
|
|
Preferred stock A, par value $0.01 in 2005 and 2004;
2,500,000 shares authorized in 2005 and 2004; 2,076,195 and
2,134,068 shares issued in 2005 and 2004, respectively; and
2,076,195 and 2,077,118 shares outstanding in 2005 and
2004, respectively
|
|
|
21
|
|
|
|
21
|
|
|
|
Preferred stock B, par value $0.01 in 2005;
3,000,000 shares authorized in 2005; 169,079 shares
issued and outstanding in 2005
|
|
|
2
|
|
|
|
—
|
|
|
|
Common stock, par value $0.01 in 2005 and $0.10 in 2004; shares
authorized 25,000,000 in 2005 and 5,000,000 in 2004: shares
issued and outstanding 12,113,865 in 2005 and 7,987,485 (split
adjusted) in 2004
|
|
|
121
|
|
|
|
266
|
|
|
|
Capital surplus
|
|
|
146,285
|
|
|
|
90,455
|
|
|
|
Retained earnings
|
|
|
27,331
|
|
|
|
17,295
|
|
|
|
Accumulated other comprehensive loss
|
|
|
(7,903
|
)
|
|
|
(858
|
)
|
|
|
Treasury stock at cost
|
|
|
—
|
|
|
|
(569
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders’ equity
|
|
|
165,857
|
|
|
|
106,610
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders’ equity
|
|
$
|
1,911,491
|
|
|
$
|
805,186
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
F-4
Home BancShares, Inc. and Subsidiaries
Consolidated Statements of Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands, except per share
|
|
|
|
|
data)
|
|
|
Interest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$
|
65,244
|
|
|
$
|
29,264
|
|
|
$
|
19,605
|
|
|
|
Investment securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable
|
|
|
17,103
|
|
|
|
5,764
|
|
|
|
1,584
|
|
|
|
|
Tax-exempt
|
|
|
2,726
|
|
|
|
1,457
|
|
|
|
182
|
|
|
|
Deposits — other banks
|
|
|
101
|
|
|
|
38
|
|
|
|
8
|
|
|
|
Federal funds sold
|
|
|
284
|
|
|
|
158
|
|
|
|
159
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
|
85,458
|
|
|
|
36,681
|
|
|
|
21,538
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on deposits
|
|
|
26,883
|
|
|
|
7,606
|
|
|
|
5,700
|
|
|
|
Federal funds purchased
|
|
|
399
|
|
|
|
159
|
|
|
|
29
|
|
|
|
FHLB and other borrowed funds
|
|
|
4,046
|
|
|
|
1,840
|
|
|
|
1,220
|
|
|
|
Securities sold under agreements to repurchase
|
|
|
2,657
|
|
|
|
407
|
|
|
|
256
|
|
|
|
Subordinated debentures
|
|
|
2,017
|
|
|
|
1,568
|
|
|
|
1,035
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
|
36,002
|
|
|
|
11,580
|
|
|
|
8,240
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
49,456
|
|
|
|
25,101
|
|
|
|
13,298
|
|
|
Provision for loan losses
|
|
|
3,827
|
|
|
|
2,290
|
|
|
|
807
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for loan losses
|
|
|
45,629
|
|
|
|
22,811
|
|
|
|
12,491
|
|
|
Non-interest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service charges on deposit accounts
|
|
|
8,319
|
|
|
|
5,914
|
|
|
|
2,254
|
|
|
|
Other services charges and fees
|
|
|
2,099
|
|
|
|
959
|
|
|
|
474
|
|
|
|
Trust fees
|
|
|
458
|
|
|
|
158
|
|
|
|
14
|
|
|
|
Data processing fees
|
|
|
668
|
|
|
|
1,564
|
|
|
|
1,378
|
|
|
|
Mortgage banking income
|
|
|
1,651
|
|
|
|
1,188
|
|
|
|
1,220
|
|
|
|
Insurance commissions
|
|
|
674
|
|
|
|
631
|
|
|
|
22
|
|
|
|
Income from title services
|
|
|
823
|
|
|
|
1,110
|
|
|
|
81
|
|
|
|
Increase in cash value of life insurance
|
|
|
256
|
|
|
|
244
|
|
|
|
13
|
|
|
|
Equity in (loss) income of unconsolidated affiliates
|
|
|
(592
|
)
|
|
|
1,560
|
|
|
|
937
|
|
|
|
Gain on sale of equity investment
|
|
|
465
|
|
|
|
4,410
|
|
|
|
—
|
|
|
|
(Loss) gain on securities and loans, net
|
|
|
(10
|
)
|
|
|
(223
|
)
|
|
|
135
|
|
|
|
Other income
|
|
|
876
|
|
|
|
576
|
|
|
|
211
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest income
|
|
|
15,687
|
|
|
|
18,091
|
|
|
|
6,739
|
|
|
Non-interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits
|
|
|
23,901
|
|
|
|
14,123
|
|
|
|
7,139
|
|
|
|
Occupancy and equipment
|
|
|
6,869
|
|
|
|
3,750
|
|
|
|
1,659
|
|
|
|
Data processing expense
|
|
|
1,991
|
|
|
|
1,170
|
|
|
|
893
|
|
|
|
Other operating expenses
|
|
|
12,174
|
|
|
|
7,088
|
|
|
|
3,379
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest expense
|
|
|
44,935
|
|
|
|
26,131
|
|
|
|
13,070
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes and minority interest
|
|
|
16,381
|
|
|
|
14,771
|
|
|
|
6,160
|
|
|
Income tax expense
|
|
|
4,935
|
|
|
|
5,030
|
|
|
|
2,343
|
|
|
Minority interest in earnings of subsidiaries, net
|
|
|
—
|
|
|
|
582
|
|
|
|
48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
11,446
|
|
|
$
|
9,159
|
|
|
$
|
3,769
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
0.92
|
|
|
$
|
1.08
|
|
|
$
|
0.66
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
$
|
0.82
|
|
|
$
|
0.94
|
|
|
$
|
0.63
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
F-5
Home BancShares, Inc. and Subsidiaries
Consolidated Statements of Stockholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
|
|
|
|
|
|
|
|
|
Preferred
|
|
|
Preferred
|
|
Common
|
|
|
Capital
|
|
|
Retained
|
|
|
Income
|
|
|
Treasury
|
|
|
|
|
|
|
Stock A
|
|
|
Stock B
|
|
Stock
|
|
|
Surplus
|
|
|
Earnings
|
|
|
(Loss)
|
|
|
Stock
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands, except share data (1))
|
|
|
Balances at January 1, 2003
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,864
|
|
|
$
|
39,189
|
|
|
$
|
5,329
|
|
|
$
|
371
|
|
|
$
|
—
|
|
|
$
|
46,753
|
|
|
|
Comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,769
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,769
|
|
|
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on investment securities available for sale, net
of $51 tax effect
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(99
|
)
|
|
|
—
|
|
|
|
(99
|
)
|
|
|
|
|
|
Reclassification adjustment for gains included in income, net of
$32 tax effect
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(61
|
)
|
|
|
—
|
|
|
|
(61
|
)
|
|
|
|
|
|
Net change in equity in unconsolidated affiliates accumulated
other comprehensive income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(442
|
)
|
|
|
—
|
|
|
|
(442
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,167
|
|
|
|
Sale of stock offerings, net of issuance costs of
$37 — 2,374,143 shares
|
|
|
—
|
|
|
|
—
|
|
|
|
79
|
|
|
|
27,619
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
27,698
|
|
|
|
Issuance of stock — employee stock bonus
plan — 17,646 shares
|
|
|
—
|
|
|
|
—
|
|
|
|
1
|
|
|
|
205
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
206
|
|
|
|
Issuance of 2,123,453 shares pursuant to acquisition of
CFG, Inc.
|
|
|
21
|
|
|
|
—
|
|
|
|
—
|
|
|
|
21,705
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
21,726
|
|
|
|
Issuance of 8,197 shares of convertible preferred stock at
$0.17 per share
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1
|
|
|
|
Purchase of 2,013 shares of convertible preferred stock at
$10.00 per share
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(20
|
)
|
|
|
(20
|
)
|
|
|
Reclassification for change in par value from $1.00 to
$0.10 per share
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,678
|
)
|
|
|
1,678
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
Issuance of 4,500 shares of common stock from exercise of
stock options
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
34
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
34
|
|
|
|
Cash dividends, $0.01 per share
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(93
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(93
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2003
|
|
|
21
|
|
|
|
—
|
|
|
|
266
|
|
|
|
90,431
|
|
|
|
9,005
|
|
|
|
(231
|
)
|
|
|
(20
|
)
|
|
|
99,472
|
|
|
|
Comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
9,159
|
|
|
|
—
|
|
|
|
—
|
|
|
|
9,159
|
|
|
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on investment securities available for sale, net
of $109 tax effect
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(153
|
)
|
|
|
—
|
|
|
|
(153
|
)
|
|
|
|
|
Reclassification adjustment for gains included in income, net of
$27 tax effect
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(40
|
)
|
|
|
—
|
|
|
|
(40
|
)
|
|
|
|
|
Net change in equity in unconsolidated affiliates accumulated
other comprehensive income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(434
|
)
|
|
|
—
|
|
|
|
(434
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,532
|
|
F-6
Home BancShares, Inc. and Subsidiaries
Consolidated Statements of Stockholders’
Equity — (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
|
|
|
|
|
|
|
|
|
Preferred
|
|
|
Preferred
|
|
|
Common
|
|
|
Capital
|
|
|
Retained
|
|
|
Income
|
|
|
Treasury
|
|
|
|
|
|
|
Stock A
|
|
|
Stock B
|
|
|
Stock
|
|
|
Surplus
|
|
|
Earnings
|
|
|
(Loss)
|
|
|
Stock
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands, except share data (1))
|
|
|
|
Issuance of 2,418 shares of convertible preferred stock at
$10 per share
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
24
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
24
|
|
|
|
Purchase of 54,937 shares of convertible preferred stock at
$10 per share
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(549
|
)
|
|
|
(549
|
)
|
|
|
Cash dividends — Preferred Stock, $0.250 per share
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(529
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(529
|
)
|
|
|
Cash dividends — Common Stock, $0.043 per share
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(340
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(340
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2004
|
|
|
21
|
|
|
|
—
|
|
|
|
266
|
|
|
|
90,455
|
|
|
|
17,295
|
|
|
|
(858
|
)
|
|
|
(569
|
)
|
|
|
106,610
|
|
|
|
Comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
11,446
|
|
|
|
—
|
|
|
|
—
|
|
|
|
11,446
|
|
|
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on investment securities available for sale, net
of $5,327 tax effect
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(8,303
|
)
|
|
|
—
|
|
|
|
(8,303
|
)
|
|
|
|
|
Reclassification adjustment for gains included in income, net of
$346 tax effect
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
539
|
|
|
|
—
|
|
|
|
539
|
|
|
|
|
|
Net change in equity in unconsolidated affiliates accumulated
other comprehensive income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
719
|
|
|
|
—
|
|
|
|
719
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,401
|
|
|
|
Three for one stock split
|
|
|
—
|
|
|
|
—
|
|
|
|
78
|
|
|
|
(78
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
Reclassification for change in par value from $0.10 to
$0.01 per share
|
|
|
—
|
|
|
|
—
|
|
|
|
(352
|
)
|
|
|
352
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
Net issuance of 40,041 shares of common stock from exercise
of stock options
|
|
|
—
|
|
|
|
—
|
|
|
|
1
|
|
|
|
456
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
457
|
|
|
|
Issuance of 15,366 shares of preferred stock A from
exercise of stock options
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2
|
|
|
|
Issuance of 7,040 shares of preferred stock B from exercise
of stock options
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
130
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
130
|
|
|
|
Purchase of 16,289 shares of preferred stock A
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(163
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(163
|
)
|
|
|
Issuance of 3,750,813 common shares pursuant to acquisition of
TCBC
|
|
|
—
|
|
|
|
—
|
|
|
|
125
|
|
|
|
45,186
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
45,311
|
|
|
|
Issuance of 162,039 Preferred B shares pursuant to acquisition
of MBI
|
|
|
—
|
|
|
|
2
|
|
|
|
—
|
|
|
|
6,267
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
6,269
|
|
|
|
Issuance of 335,526 common shares pursuant to acquisition of MVBI
|
|
|
—
|
|
|
|
—
|
|
|
|
3
|
|
|
|
4,247
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,250
|
|
F-7
Home BancShares, Inc. and Subsidiaries
Consolidated Statements of Stockholders’
Equity — (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
|
|
|
|
|
|
|
|
|
Preferred
|
|
|
Preferred
|
|
|
Common
|
|
|
Capital
|
|
|
Retained
|
|
|
Income
|
|
|
Treasury
|
|
|
|
|
|
|
Stock A
|
|
|
Stock B
|
|
|
Stock
|
|
|
Surplus
|
|
|
Earnings
|
|
|
(Loss)
|
|
|
Stock
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands, except share data (1))
|
|
|
|
Retirement of treasury stock
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(569
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
569
|
|
|
|
—
|
|
|
|
Cash dividends — Preferred Stock A, $0.25 per
share
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(520
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(520
|
)
|
|
|
Cash dividends — Preferred Stock B, $0.33 per
share
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(54
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(54
|
)
|
|
|
Cash dividends — Common Stock, $0.07 per share
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(836
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(836
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2005
|
|
$
|
21
|
|
|
$
|
2
|
|
|
$
|
121
|
|
|
$
|
146,285
|
|
|
$
|
27,331
|
|
|
$
|
(7,903
|
)
|
|
$
|
—
|
|
|
$
|
165,857
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
All share and per share amounts have been restated to reflect
the effect of the 2005 three for one stock split.
|
See accompanying notes.
F-8
Home BancShares, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
Operating Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
11,446
|
|
|
$
|
9,159
|
|
|
$
|
3,769
|
|
|
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
3,624
|
|
|
|
2,323
|
|
|
|
964
|
|
|
|
Amortization/ Accretion
|
|
|
2,582
|
|
|
|
1,715
|
|
|
|
91
|
|
|
|
Gain on sale of assets
|
|
|
(605
|
)
|
|
|
(86
|
)
|
|
|
(98
|
)
|
|
|
Gain on sale of equity investment
|
|
|
(465
|
)
|
|
|
(4,410
|
)
|
|
|
—
|
|
|
|
Minority interest
|
|
|
—
|
|
|
|
582
|
|
|
|
48
|
|
|
|
Stock bonus compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
206
|
|
|
|
Provision for loan losses
|
|
|
3,827
|
|
|
|
2,290
|
|
|
|
807
|
|
|
|
Deferred income tax (benefit) expense
|
|
|
(128
|
)
|
|
|
(1,562
|
)
|
|
|
250
|
|
|
|
Equity in loss (income) of unconsolidated affiliates
|
|
|
592
|
|
|
|
(1,560
|
)
|
|
|
(937
|
)
|
|
|
Increase in cash value of life insurance
|
|
|
(254
|
)
|
|
|
(244
|
)
|
|
|
(13
|
)
|
|
|
Originations of mortgage loans held for sale
|
|
|
(89,638
|
)
|
|
|
(50,431
|
)
|
|
|
(106,947
|
)
|
|
|
Proceeds from sales of mortgage loans held for sale
|
|
|
88,939
|
|
|
|
50,473
|
|
|
|
107,305
|
|
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued interest receivable
|
|
|
(741
|
)
|
|
|
222
|
|
|
|
241
|
|
|
|
|
Other assets
|
|
|
4,788
|
|
|
|
3,562
|
|
|
|
(5,044
|
)
|
|
|
|
Accrued interest payable and other liabilities
|
|
|
(3,549
|
)
|
|
|
(18,973
|
)
|
|
|
18,501
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
20,418
|
|
|
|
(6,940
|
)
|
|
|
19,143
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in federal funds sold
|
|
|
3,556
|
|
|
|
39,660
|
|
|
|
(40,055
|
)
|
|
Net increase in loans
|
|
|
(152,155
|
)
|
|
|
(28,720
|
)
|
|
|
(16,557
|
)
|
|
Purchases of investment securities available for sale
|
|
|
(157,440
|
)
|
|
|
(84,299
|
)
|
|
|
(121,709
|
)
|
|
Proceeds from maturities of investment securities available for
sale
|
|
|
201,472
|
|
|
|
51,209
|
|
|
|
95,442
|
|
|
Proceeds from sales of investment securities available for sale
|
|
|
58,945
|
|
|
|
2,936
|
|
|
|
12,957
|
|
|
Proceeds from maturities of investment securities held to
maturity
|
|
|
100
|
|
|
|
—
|
|
|
|
185
|
|
|
Proceeds from sale of loans
|
|
|
6,042
|
|
|
|
4,238
|
|
|
|
1,435
|
|
|
Proceeds from foreclosed assets held for sale
|
|
|
1,077
|
|
|
|
2,436
|
|
|
|
—
|
|
|
Proceeds from sale of fixed assets
|
|
|
—
|
|
|
|
694
|
|
|
|
107
|
|
|
Proceeds from sale of investment in RBI
|
|
|
—
|
|
|
|
13,546
|
|
|
|
—
|
|
|
Purchases of premises and equipment, net
|
|
|
(5,973
|
)
|
|
|
(7,846
|
)
|
|
|
(2,287
|
)
|
|
Paid on sale of branch, net of cash paid
|
|
|
—
|
|
|
|
(9,333
|
)
|
|
|
(1,646
|
)
|
|
Purchase of bank owned life insurance
|
|
|
—
|
|
|
|
(4,800
|
)
|
|
|
—
|
|
|
Acquisition of financial institutions, net funds disbursed
|
|
|
(31,349
|
)
|
|
|
—
|
|
|
|
—
|
|
|
Investments in unconsolidated affiliates
|
|
|
(9,091
|
)
|
|
|
(180
|
)
|
|
|
(8,592
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(84,816
|
)
|
|
|
(20,459
|
)
|
|
|
(80,720
|
)
|
|
|
|
|
|
|
|
|
|
|
|
F-9
Home BancShares, Inc. and Subsidiaries
Consolidated Statements of Cash Flows —
(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in deposits
|
|
|
15,332
|
|
|
|
(2,257
|
)
|
|
|
12,551
|
|
|
Net increase (decrease) in securities sold under agreements to
repurchase
|
|
|
36,705
|
|
|
|
(2,187
|
)
|
|
|
11,240
|
|
|
Net increase (decrease) in federal funds purchased
|
|
|
36,545
|
|
|
|
(1,285
|
)
|
|
|
2,155
|
|
|
Net increase (decrease) in FHLB and other borrowed funds
|
|
|
(27,333
|
)
|
|
|
36,346
|
|
|
|
(4,745
|
)
|
|
Net borrowing of line of credit
|
|
|
14,000
|
|
|
|
—
|
|
|
|
—
|
|
|
Net proceeds from common stock issuance
|
|
|
—
|
|
|
|
—
|
|
|
|
27,700
|
|
|
Net proceeds from preferred stock issuance
|
|
|
—
|
|
|
|
24
|
|
|
|
—
|
|
|
Proceeds from issuance of subordinated debentures
|
|
|
15,000
|
|
|
|
—
|
|
|
|
20,090
|
|
|
Proceeds from exercise of stock options
|
|
|
588
|
|
|
|
—
|
|
|
|
34
|
|
|
Repurchase of stock
|
|
|
(163
|
)
|
|
|
(549
|
)
|
|
|
(20
|
)
|
|
Dividends paid
|
|
|
(1,410
|
)
|
|
|
(869
|
)
|
|
|
(93
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
89,264
|
|
|
|
29,223
|
|
|
|
68,912
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and due from banks
|
|
|
24,866
|
|
|
|
1,824
|
|
|
|
7,335
|
|
|
Cash and cash equivalents — beginning of year
|
|
|
19,813
|
|
|
|
17,989
|
|
|
|
10,654
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents — end of year
|
|
$
|
44,679
|
|
|
$
|
19,813
|
|
|
$
|
17,989
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
F-10
Home BancShares, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
|
|
|
|
1.
|
Summary of Significant Accounting Policies
|
Home BancShares, Inc. (the Company or HBI) is a financial
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
subsidiaries and their branch banks in Arkansas and the Florida
Keys. 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.
The Company is organized on a subsidiary bank-by-bank basis upon
which management makes decisions regarding how to allocate
resources and assess performance. Each of the subsidiary banks
provides a group of similar community banking services,
including such products and services as loans, time deposits,
checking and savings accounts. The individual bank segments have
similar operating and economic characteristics and have been
reported as one aggregated operating segment.
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.
Various items within the accompanying financial statements for
previous years have been reclassified to provide more
comparative information. These reclassifications had no effect
on net earnings or stockholders’ equity.
Cash and due from banks consists of cash on hand and demand
deposits with banks. For purposes of the statement of cash
flows, the Company considers due from banks as cash equivalents.
Interest on investment securities is recorded as income as
earned. Gains or losses on the sale of securities are determined
using the specific identification method.
F-11
Home BancShares, Inc. and Subsidiaries
Notes to Consolidated Financial
Statements — (Continued)
Management determines the classification of securities as
available for sale, held to maturity, or trading at the time of
purchase 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. The Company has
no trading securities.
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 HBI’s 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.
Securities held to maturity are reported at amortized historical
cost. Securities that management has the intent and ability to
hold until maturity or on a long-term basis are classified as
held to maturity.
|
|
|
|
|
Loans Receivable and Allowance for Loan Losses
|
Loans receivable that management has the intent and ability to
hold for the foreseeable future or until maturity or payoff are
reported at their outstanding principal balance adjusted for any
charge-offs, deferred fees or costs on originated loans.
Interest income on loans is accrued over the term of the loans
based on the principal balance outstanding. Loan origination
fees and direct origination costs are capitalized and recognized
as adjustments to yield on the related loans.
The allowance for loan losses is established through a provision
for loan losses charged against income. The allowance represents
an amount that, in management’s judgment, will be adequate
to absorb probable credit losses on existing loans that may
become uncollectible and probable credit losses inherent in the
remainder of the loan portfolio. The amounts of provisions to
the allowance for loan losses are based on management’s
analysis and evaluation of the loan portfolio for identification
of problem credits, internal and external factors that may
affect collectibility, relevant credit exposure, particular
risks inherent in difference kinds of lending, current
collateral values and other relevant factors.
Loans considered impaired, under SFAS No. 114,
Accounting by Creditors for Impairment of a Loan
, as
amended by SFAS No. 118,
Accounting by Creditors
for Impairment of a Loan-Income Recognition and Disclosures
,
are loans for which, based on current information and events, it
is probable that the Company will be unable to collect all
amounts due according to the contractual terms of the loan
agreement. The Company applies this policy even if delays or
shortfalls in payment are expected to be insignificant. All
non-accrual loans and all loans that have been restructured from
their original contractual terms are considered impaired loans.
The aggregate amount of impairment of loans is utilized 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 such losses will be
realized. The accrual of interest on impaired loans is
discontinued when, in management’s 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.
Loans are placed on non-accrual status when management believes
that the borrower’s 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 collectibility 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, but payments received are usually applied to
principal. Non-accrual loans are generally returned to accrual
status when
F-12
Home BancShares, Inc. and Subsidiaries
Notes to Consolidated Financial
Statements — (Continued)
principal and interest payments are less than 90 days past
due, the customer has made required payments for at least three
months, and the Company reasonably expects to collect all
principal and interest.
|
|
|
|
|
Foreclosed Assets Held for Sale
|
Real estate and personal properties acquired through or in lieu
of loan foreclosure are to be sold and are initially recorded at
fair value at the date of foreclosure, establishing a new cost
basis.
Valuations are periodically performed by management, and the
real estate is carried at the lower of book value or fair value
less cost to sell. Gains and losses from the sale of other real
estate are recorded in non-interest income, and expenses used to
maintain the properties are included in non-interest expenses.
|
|
|
|
|
Bank Premises and Equipment
|
Bank premises and equipment are carried at cost or fair market
value at the date of acquisition less accumulated depreciation.
Depreciation expense is computed using the straight-line method
over the estimated useful lives of the assets. Accelerated
depreciation methods are used for tax purposes. Leasehold
improvements are capitalized and amortized by the straight-line
method over the terms of the respective leases or the estimated
useful lives of the improvements whichever is shorter. The
assets’ estimated useful lives for book purposes are as
follows:
|
|
|
|
|
|
|
Bank premises
|
|
|
15-40 years
|
|
|
Furniture, fixtures, and equipment
|
|
|
3-15 years
|
|
|
|
|
|
|
Investments in Unconsolidated Affiliates
|
The Company has a 20.0% investment in White River Bancshares,
Inc. (WRBI), which at December 31, 2005 totaled
$8.5 million. The investment in WRBI is accounted for on
the equity method. The Company’s share of WRBI operating
loss included in non-interest income in 2005 totaled $592,000.
The Company’s share of WRBI accumulated other comprehensive
loss at December 31, 2005 amounted to $18,000. See the
“Acquisitions” footnote related to the Company’s
acquisition of WRBI during 2005.
The Company had a 32.2% investment in TCBancorp, Inc. (TCB),
which at December 31, 2004 totaled $19.4 million. The
investment in TCBC was accounted for on the equity method. The
Company’s share of earnings of TCB is included in
non-interest income, and in 2004 and 2003 totaled $815,000 and
$102,000, respectively. The Company’s share of TCB’s
accumulated other comprehensive loss at December 31, 2004
and 2003 amounted to $737,000 and $341,000, respectively. See
the “Acquisitions” footnote related to the
Company’s acquisition of the remaining 67.8% of TCB common
stock on January 1, 2005.
The Company had a 50.0% investment in FirsTrust Financial
Services, Inc. (FirsTrust), which at December 31, 2004
totaled $2,000. The investment in FirsTrust was accounted for on
the equity method. The Company’s share of FirsTrust
operating loss is included in non-interest income, and in 2004
and 2003 totaled $186,000 and $149,000, respectively. See the
“Acquisitions” footnote related to the Company’s
acquisition of the remaining 50.0% of FirsTrust common stock on
January 1, 2005.
On September 3, 2004, the Company sold its 21.68%
investment in Russellville BancShares, Inc. (RBI), resulting in
a gain of $4,410,000. At the date of the sale, the
Company’s investment in RBI was $9,175,000. The
Company’s share in earnings of RBI included in non-interest
income for 2004 (through the sale date) and 2003, totaled
$931,000 and $984,000, respectively.
The Company has invested funds representing 100% ownership in
four statutory trusts which issue trust preferred securities.
The Company’s investment in these trusts was
$1.3 million and $712,000 at December 31, 2005 and
2004. Under generally accepted accounting principles, these
trusts are not consolidated.
F-13
Home BancShares, Inc. and Subsidiaries
Notes to Consolidated Financial
Statements — (Continued)
The summarized financial information below represents an
aggregation of the Company’s unconsolidated affiliates as
of December 31, 2005 and 2004, and for the years then ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
Assets
|
|
$
|
229,072
|
|
|
$
|
654,112
|
|
|
$
|
882,263
|
|
|
Liabilities
|
|
|
176,511
|
|
|
|
591,761
|
|
|
|
780,751
|
|
|
Equity
|
|
|
52,561
|
|
|
|
62,351
|
|
|
|
101,512
|
|
|
Net (loss) income
|
|
|
(2,658
|
)
|
|
|
2,158
|
|
|
|
4,932
|
|
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.
Core deposit intangibles represent the estimated value related
to customer deposit relationships in Company’s
acquisitions. 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. The Company performed its annual impairment
test of goodwill at December 31, 2005 and 2004, as required
by SFAS No. 142,
Goodwill and Other Intangible
Assets.
The tests indicated no impairment of the
Company’s goodwill.
|
|
|
|
|
Securities Sold Under Agreements to Repurchase
|
The Company sells securities under agreements to repurchase to
meet customer needs for sweep accounts. At the point funds
deposited by customers become investable, those funds are used
to purchase securities owned by the Company and held in its
general account with the designation of Customers’
Securities. A third party maintains control over the securities
underlying overnight repurchase agreements. The securities
involved in these transactions are generally U.S. Treasury
or Federal Agency issues. Securities sold under agreements to
repurchase generally mature on the banking day following that on
which the investment was initially purchased and are treated as
collateralized financing transactions which are recorded at the
amounts at which the securities were sold plus accrued interest.
Interest rates and maturity dates of the securities involved
vary and are not intended to be matched with funds from
customers.
|
|
|
|
|
Derivative Financial Instruments
|
The Company may enter into derivative contracts for the purposes
of managing exposure to interest rate risk. The Company records
all derivatives on the balance sheet at fair value. Historically
the Company’s policy has been not to invest in derivative
type investments but as a result of the acquisition in June
2005, the Company acquired a derivative financial instrument.
The fair value hedge acquired was an interest rate swap
agreement for one the Company’s subordinated debentures.
For derivatives designated as hedging, the exposure to changes
in the fair value of the hedged item, the gain or loss is
recognized in earnings in the period of change together with the
offsetting loss or gain of the hedging instrument. The fair
value hedge is considered to be highly effective and any hedge
ineffectiveness was deemed not material. The notional amount of
the subordinated debenture being hedged was $5.0 million at
December 31, 2005.
The Company utilizes 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. A valuation
F-14
Home BancShares, Inc. and Subsidiaries
Notes to Consolidated Financial
Statements — (Continued)
allowance is established to reduce deferred tax assets if it is
more likely than not that a deferred tax asset will not be
realized.
The Company and its subsidiaries file consolidated tax returns.
Its subsidiaries provide for income taxes on a separate return
basis, and remit to the Company amounts determined to be
currently payable.
Basic earnings per share are computed based on the weighted
average number of shares outstanding during each year. Diluted
earnings per share are computed using the weighted average
common shares and all potential dilutive common shares
outstanding during the period. The following table sets forth
the computation of basic and diluted earnings per share
(EPS) for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
Net income available to all shareholders
|
|
$
|
11,446
|
|
|
$
|
9,159
|
|
|
$
|
3,769
|
|
|
Less: Preferred stock dividends
|
|
|
(574
|
)
|
|
|
(529
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income available to common shareholders
|
|
$
|
10,872
|
|
|
$
|
8,630
|
|
|
$
|
3,769
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average shares outstanding
|
|
$
|
11,862
|
|
|
$
|
7,986
|
|
|
$
|
5,721
|
|
|
Effect of common stock options
|
|
|
78
|
|
|
|
114
|
|
|
|
99
|
|
|
Effect of preferred stock options
|
|
|
22
|
|
|
|
27
|
|
|
|
—
|
|
|
Effect of preferred stock conversions
|
|
|
1,927
|
|
|
|
1,656
|
|
|
|
144
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted shares outstanding
|
|
$
|
13,889
|
|
|
$
|
9,783
|
|
|
$
|
5,964
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
0.92
|
|
|
$
|
1.08
|
|
|
$
|
0.66
|
|
|
Diluted earnings per share
|
|
$
|
0.82
|
|
|
$
|
0.94
|
|
|
$
|
0.63
|
|
As the result of the acquisition during December 2003 and
September 2005, the Company has two noncontributory defined
benefit plans covering certain employees from those
acquisitions. The Company’s policy is to accrue pension
costs in accordance with Statement of Financial Accounting
Standards No. 87,
Employer’s Accounting for
Pensions,
and to fund such pension costs in accordance with
contribution guidelines established by the Employee Retirement
Income Security Act of 1974, as amended. The Company uses a
measurement date of January 1.
F-15
Home BancShares, Inc. and Subsidiaries
Notes to Consolidated Financial
Statements — (Continued)
For purposes of pro forma disclosures as required by
SFAS Nos. 123 and 148, the estimated fair value of stock
options is amortized over the options’ vesting period. The
following table represents the required pro forma disclosures
related to net income for the years ended December 31 for
options granted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands except
|
|
|
|
|
per share data)
|
|
|
Net income — as reported
|
|
$
|
11,446
|
|
|
$
|
9,159
|
|
|
$
|
3,769
|
|
|
Less: Total stock-based employee compensation cost determined
under the fair value based method, net of income taxes
|
|
|
(114
|
)
|
|
|
(43
|
)
|
|
|
(45
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income — pro forma
|
|
$
|
11,332
|
|
|
$
|
9,116
|
|
|
$
|
3,724
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share — as reported
|
|
$
|
0.92
|
|
|
$
|
1.08
|
|
|
$
|
0.66
|
|
|
Basic earnings per share — pro forma
|
|
|
0.91
|
|
|
|
1.08
|
|
|
|
0.65
|
|
|
Diluted earnings per share — as reported
|
|
|
0.82
|
|
|
|
0.94
|
|
|
|
0.63
|
|
|
Diluted earnings per share — pro forma
|
|
|
0.82
|
|
|
|
0.93
|
|
|
|
0.62
|
|
The above pro forma amounts include only the current year
vesting, during 2005, 2004 and 2003 on outstanding options and
therefore may not be representative of the pro forma impact in
future years.
|
|
|
|
|
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 due from banks and federal funds
sold
— For these short-term instruments, the
carrying amount is a reasonable estimate of fair value.
Investment securities
— Fair values for
investment securities are based on quoted market values.
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 and other
liabilities
— The carrying amount of accrued
interest payable and other liabilities approximates its fair
value.
FHLB and other borrowings
— 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.
F-16
Home BancShares, Inc. and Subsidiaries
Notes to Consolidated Financial
Statements — (Continued)
Subordinated debentures
— The fair value of
subordinated debentures is estimated using the rates that would
be charged for subordinated debentures of similar remaining
maturities.
On September 1, 2005, HBI acquired Mountain View
Bancshares, Inc., an Arkansas bank holding company. Mountain
View Bancshares owned The Bank of Mountain View, located in
Mountain View, Arkansas which had assets, loans and deposits of
approximately $186.4 million, $68.8 million and
$158.0 million, respectively, as of the acquisition date.
The consideration for the merger was $44.1 million, which
was paid approximately 90% in cash and 10% in shares of our
common stock. As a result of this transaction, the Company
recorded goodwill and a core deposit intangible of
$13.2 million and $3.0 million, respectively.
On June 1, 2005, HBI acquired Marine Bancorp, Inc., a
Florida bank holding company. Marine Bancorp owned Marine Bank
of the Florida Keys (subsequently renamed Marine Bank), located
in Marathon, Florida, which had consolidated assets, loans and
deposits of approximately $251.5 million,
$215.2 million and $200.7 million, respectively, as of
the acquisition date. The consideration for the merger was
$15.6 million, which was paid approximately 60.5% in cash
and 39.5% in shares of our Class B preferred stock. As a
result of this transaction, the Company recorded goodwill and a
core deposit intangible of $4.6 million and
$2.0 million, respectively.
On January 3, 2005, HBI purchased 20% of the common stock
of White River Bancshares, Inc. of Fayetteville, Arkansas for
$9.1 million. White River Bancshares is a newly formed
corporation, which owns all of the stock of Signature Bank of
Arkansas, with branch locations in the northwest Arkansas area.
At December 31, 2005, White River Bancshares had
approximately $184.7 million in total assets,
$131.3 million in total loans and $130.3 million in
total deposits. In January 2006, White River Bancshares issued
an additional $15.0 million of their common stock. To
maintain our 20% ownership, the Company made an additional
investment in White River Bancshares of $3.0 million in
January 2006.
Effective January 1, 2005, HBI purchased the remaining
67.8% of TCBancorp and its subsidiary Twin City Bank with branch
locations in the Little Rock/ North Little Rock metropolitan
area. The purchase brought our ownership of TCBancorp to 100%.
HBI acquired, as of the effective date of this transaction,
approximately $630.3 million in total assets,
$261.9 million in loans and approximately
$500.1 million in deposits. The purchase price for the
TCBancorp acquisition was $43.9 million, which consisted of
the issuance of 3,750,000 shares (split adjusted) of our
common stock and cash of approximately $110,000. As a result of
this transaction, the Company recorded goodwill and a core
deposit intangible of $1.1 million and $3.3 million,
respectively. This transaction also increased to 100% our
ownership of CB Bancorp and FirsTrust, both of which the
Company had previously co-owned with TCBancorp.
On December 1, 2003, HBI used CB Bancorp (an
acquisition subsidiary that the Company formed and co-owned, on
an 80/20 basis, with TCBancorp) to purchase Community Financial
Group, Inc. and its bank subsidiary, Community Bank. The Company
acquired approximately $326.2 million in total assets,
$199.5 million in loans and approximately
$279.6 million in deposits in this transaction. The
purchase price for the Community Financial Group acquisition was
$43.0 million and consisted of cash of $12.6 million
from Home BancShares and $8.6 million from TCBancorp, and
2,176,291 shares of our convertible Class A preferred
stock at a value of $10 per share. In February 2005,
CB Bancorp merged into Home BancShares, and Community Bank
thus became our wholly owned subsidiary. As a result of this
transaction, the Company recorded goodwill and a core deposit
intangible of $18.6 million and $5.0 million,
respectively.
F-17
Home BancShares, Inc. and Subsidiaries
Notes to Consolidated Financial
Statements — (Continued)
The following table presents condensed pro forma consolidated
results of operations as if the acquisitions of TCBancorp,
Marine Bancorp, Inc and Mountain View Bancshares, Inc had
occurred at the beginning of each year. This information
combines the historical results of operations of the Company,
TCBancorp, Marine Bancorp, Inc and Mountain View Bancshares
after the effect of purchase accounting adjustments. The
unaudited pro forma information does not purport to be
indicative of the results that would have been obtained if the
operations had actually been combined during the period
presented and is not necessarily indicative of operating results
to be expected in future periods.
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands, except
|
|
|
|
|
per share data)
|
|
|
Net interest income
|
|
$
|
56,184
|
|
|
$
|
50,347
|
|
|
Non-interest income
|
|
|
16,951
|
|
|
|
22,029
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
73,135
|
|
|
$
|
72,376
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
1.05
|
|
|
$
|
1.09
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
$
|
0.93
|
|
|
$
|
0.96
|
|
|
|
|
|
|
|
|
|
The amortized cost and estimated market value of investment
securities were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2005
|
|
|
|
|
|
|
|
|
|
Available for Sale
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Estimated
|
|
|
|
|
Cost
|
|
|
Gains
|
|
|
(Losses)
|
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
U.S. Government Agencies
|
|
$
|
162,165
|
|
|
$
|
27
|
|
|
$
|
(4,723
|
)
|
|
$
|
157,469
|
|
|
Mortgage-backed securities
|
|
|
264,666
|
|
|
|
16
|
|
|
|
(8,209
|
)
|
|
|
256,473
|
|
|
State and political subdivisions
|
|
|
102,928
|
|
|
|
1,279
|
|
|
|
(746
|
)
|
|
|
103,461
|
|
|
Other Securities
|
|
|
13,571
|
|
|
|
—
|
|
|
|
(672
|
)
|
|
|
12,899
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
543,330
|
|
|
$
|
1,322
|
|
|
$
|
(14,350
|
)
|
|
$
|
530,302
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2004
|
|
|
|
|
|
|
|
|
|
Available for Sale
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Estimated
|
|
|
|
|
Cost
|
|
|
Gains
|
|
|
(Losses)
|
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
U.S. Government Agencies
|
|
$
|
15,646
|
|
|
$
|
18
|
|
|
$
|
(86
|
)
|
|
$
|
15,578
|
|
|
Mortgage-backed securities
|
|
|
127,316
|
|
|
|
249
|
|
|
|
(898
|
)
|
|
|
126,667
|
|
|
State and political subdivisions
|
|
|
39,564
|
|
|
|
717
|
|
|
|
(147
|
)
|
|
|
40,134
|
|
|
Other Securities
|
|
|
8,010
|
|
|
|
15
|
|
|
|
(38
|
)
|
|
|
7,987
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
190,536
|
|
|
$
|
999
|
|
|
$
|
(1,169
|
)
|
|
$
|
190,366
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets, principally investment securities, having a carrying
value of approximately $276.1 million and
$84.5 million at December 31, 2005 and 2004,
respectively, were pledged to secure public deposits and for
other purposes required or permitted by law. Also, investment
securities pledged as collateral for repurchase
F-18
Home BancShares, Inc. and Subsidiaries
Notes to Consolidated Financial
Statements — (Continued)
agreements totaled approximately $110.5 million and
$22.5 million at December 31, 2005 and 2004,
respectively.
The amortized cost and estimated market value of securities at
December 31, 2005, 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
|
|
$
|
179,736
|
|
|
$
|
175,239
|
|
|
Due after one year through five years
|
|
|
229,354
|
|
|
|
224,570
|
|
|
Due after five years through ten years
|
|
|
69,475
|
|
|
|
67,765
|
|
|
Due after ten years
|
|
|
64,765
|
|
|
|
62,728
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
543,330
|
|
|
$
|
530,302
|
|
|
|
|
|
|
|
|
|
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 amortized cost and estimated market value of the
Company’s securities classified as held to maturity was
$100,000 at December 31, 2004, which consisted of states
and political subdivision securities. All balances were due in
one year or less. There were no securities classified as held to
maturity at December 31, 2005.
During the years ended December 31, 2005 and 2004,
investment securities available for sale with a fair value at
the date of sale of approximately $58.9 million and
$2.9 million, respectively, were sold. The gross realized
gains on such sales totaled $54,000 and $64,000 for the years
ended December 31, 2005 and 2004, respectively. The gross
realized loss on such sales totaled $593,000 and zero for the
years ended December 31, 2005 and 2004, respectively. The
income tax expense related to net security gains was $21,000 and
$19,000 for the years ended December 31, 2005 and 2004,
respectively. The income tax benefit related to net security
losses was $228,000 and zero for the years ended
December 31, 2005 and 2004, respectively.
Certain investment securities are valued less than their
historical cost. These declines primarily resulted from recent
increases in market interest rates. Based on evaluation of
available evidence, management believes the declines in fair
value for these securities are temporary. It is
management’s intent to hold these securities to maturity.
Should the impairment of any of these securities become other
than temporary, the cost basis of the investment will be reduced
and the resulting loss recognized in net income in the period
the other-than-temporary, impairment is identified.
During the year ended December 31, 2004, in evaluating the
Company’s unrealized loss position for other-than-temporary
impairment, management determined that a few securities were
deemed to have other-than-temporary impairments. Management
decided to write down these securities based on the credit
quality of the issuers, the nature of the investment and the
negative market outlook. The total amount of the impairment
write-down was $313,000, which is included in gain (loss) on
sales of securities and loans. No securities were deemed to have
other-than-temporary impairments for the year ended
December 31, 2005.
F-19
Home BancShares, Inc. and Subsidiaries
Notes to Consolidated Financial
Statements — (Continued)
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 December 31, 2005 and 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2005
|
|
|
|
|
|
|
|
|
|
Less Than 12 Months
|
|
|
12 Months or More
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
Unrealized
|
|
|
|
|
Unrealized
|
|
|
|
|
Fair Value
|
|
|
Losses
|
|
|
Fair Value
|
|
|
Losses
|
|
|
Fair Value
|
|
|
Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
U.S. Government agencies
|
|
$
|
29,083
|
|
|
$
|
497
|
|
|
$
|
118,209
|
|
|
$
|
4,226
|
|
|
$
|
147,292
|
|
|
$
|
4,723
|
|
|
State and political subdivisions
|
|
|
13,231
|
|
|
|
159
|
|
|
|
25,172
|
|
|
|
587
|
|
|
|
38,403
|
|
|
|
746
|
|
|
Mortgage-backed securities
|
|
|
59,722
|
|
|
|
1,216
|
|
|
|
191,328
|
|
|
|
6,993
|
|
|
|
251,050
|
|
|
|
8,209
|
|
|
Other securities
|
|
|
1,860
|
|
|
|
172
|
|
|
|
5,945
|
|
|
|
500
|
|
|
|
7,805
|
|
|
|
672
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
103,896
|
|
|
$
|
2,044
|
|
|
$
|
340,654
|
|
|
$
|
12,306
|
|
|
$
|
444,550
|
|
|
$
|
14,350
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2004
|
|
|
|
|
|
|
|
|
|
Less Than 12 Months
|
|
|
12 Months or More
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
|
|
Unrealized
|
|
|
|
|
Fair Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
Fair Value
|
|
|
Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
U.S. Government agencies
|
|
$
|
11,757
|
|
|
$
|
86
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
11,757
|
|
|
$
|
86
|
|
|
State and political subdivisions
|
|
|
13,305
|
|
|
|
129
|
|
|
|
2,998
|
|
|
|
18
|
|
|
|
16,303
|
|
|
|
147
|
|
|
Mortgage-backed securities
|
|
|
80,824
|
|
|
|
785
|
|
|
|
4,647
|
|
|
|
113
|
|
|
|
85,471
|
|
|
|
898
|
|
|
Other securities
|
|
|
5,133
|
|
|
|
38
|
|
|
|
789
|
|
|
|
—
|
|
|
|
5,922
|
|
|
|
38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
111,019
|
|
|
$
|
1,038
|
|
|
$
|
8,434
|
|
|
$
|
131
|
|
|
$
|
119,453
|
|
|
$
|
1,169
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-20
Home BancShares, Inc. and Subsidiaries
Notes to Consolidated Financial
Statements — (Continued)
|
|
|
|
4.
|
Loans Receivable and Allowance for Loan Losses
|
The various categories of loans are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
Real estate:
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate loans
|
|
|
|
|
|
|
|
|
|
|
|
Non-farm/non-residential
|
|
$
|
411,839
|
|
|
$
|
181,995
|
|
|
|
|
Construction/land development
|
|
|
291,515
|
|
|
|
116,935
|
|
|
|
|
Agricultural
|
|
|
13,112
|
|
|
|
12,912
|
|
|
|
Residential real estate loans
|
|
|
|
|
|
|
|
|
|
|
|
Residential 1-4 family
|
|
|
221,831
|
|
|
|
86,497
|
|
|
|
|
Multifamily residential
|
|
|
34,939
|
|
|
|
17,708
|
|
|
|
|
|
|
|
|
|
|
Total real estate
|
|
|
973,236
|
|
|
|
416,047
|
|
|
Consumer
|
|
|
39,447
|
|
|
|
24,624
|
|
|
Commercial and industrial
|
|
|
175,396
|
|
|
|
69,345
|
|
|
Agricultural
|
|
|
8,466
|
|
|
|
6,275
|
|
|
Other
|
|
|
8,044
|
|
|
|
364
|
|
|
|
|
|
|
|
|
|
|
|
Total loans receivable before allowance for loan losses
|
|
|
1,204,589
|
|
|
|
516,655
|
|
|
Allowance for loan losses
|
|
|
24,175
|
|
|
|
16,345
|
|
|
|
|
|
|
|
|
|
|
Total loans receivable, net
|
|
$
|
1,180,414
|
|
|
$
|
500,310
|
|
|
|
|
|
|
|
|
|
The following is a summary of activity within the allowance for
loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
Balance, beginning of year
|
|
$
|
16,345
|
|
|
$
|
14,717
|
|
|
$
|
5,706
|
|
|
Loans charged off
|
|
|
(4,611
|
)
|
|
|
(2,181
|
)
|
|
|
(676
|
)
|
|
Recoveries on loans previously charged off
|
|
|
850
|
|
|
|
1,519
|
|
|
|
150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs
|
|
|
(3,761
|
)
|
|
|
(662
|
)
|
|
|
(526
|
)
|
|
Provision charged to operating expense
|
|
|
3,827
|
|
|
|
2,290
|
|
|
|
807
|
|
|
Allowance for loan losses of acquired institutions
|
|
|
7,764
|
|
|
|
—
|
|
|
|
8,730
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of year
|
|
$
|
24,175
|
|
|
$
|
16,345
|
|
|
$
|
14,717
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2005 and 2004, accruing loans delinquent
90 days or more totaled $426,000 and $2,000, respectively.
Non-accruing loans at December 31, 2005 and 2004 were
$7.9 million and $9.0 million, respectively.
Real estate securing loans having a carrying value of
$1.1 million and $1.3 million were transferred to
foreclosed assets held for sale in 2005 and 2004, respectively.
The Company is not committed to lend additional funds to
customers whose loans have been modified, restructured, or
foreclosed upon. During 2005, the Company sold foreclosed real
estate with a carrying value of $767,000 and $2.1 million
during 2005 and 2004, respectively, which resulted in gains
(losses) of $310,000, $319,000 and ($11,000) during 2005, 2004
and 2003, respectively, which are included in other non-interest
income.
F-21
Home BancShares, Inc. and Subsidiaries
Notes to Consolidated Financial
Statements — (Continued)
During 2005 and 2004, the Company sold $5.5 million and
$4.2 million, respectively, of the guaranteed portion of
certain SBA loans, which resulted in gains of $529,000 and
$26,000 during 2005 and 2004, respectively.
Mortgage loans held for resale of approximately
$3.0 million and $1.0 million at December 31,
2005 and 2004, respectively, are included in residential
1–4 family loans. The carrying value of these loans
approximates their fair value. Mortgage banking revenue is
recognized when funds are received from the third party
purchaser of the loan.
At December 31, 2005 and 2004, impaired loans totaled
$5.1 million and $9.0 million, respectively. As of
December 31, 2005, average impaired loans were
$8.5 million, compared to $9.6 million in 2004. All
impaired loans had designated reserves for possible loan losses.
Reserves relative to impaired loans at December 31, 2005,
were $1.8 million and $1.3 million at
December 31, 2004. Interest recognized on impaired loans
during 2005 or 2004 was immaterial.
|
|
|
|
5.
|
Goodwill and Core Deposit Intangibles
|
Changes in the carrying amount of the Company’s goodwill
and core deposit intangibles for the years ended
December 31, 2005 and 2004 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
Goodwill
|
|
|
|
|
|
|
|
|
|
Balance, beginning of year
|
|
$
|
18,555
|
|
|
$
|
20,002
|
|
|
|
Acquisitions of financial institutions
|
|
|
18,972
|
|
|
|
(413
|
)
|
|
|
Branch sale
|
|
|
—
|
|
|
|
(1,034
|
)
|
|
|
|
|
|
|
|
|
|
Balance, end of year
|
|
$
|
37,527
|
|
|
$
|
18,555
|
|
|
|
|
|
|
|
|
|
|
Core Deposit Intangibles
|
|
|
|
|
|
|
|
|
|
Balance, beginning of year
|
|
$
|
4,261
|
|
|
$
|
5,250
|
|
|
|
Acquisitions of financial institutions
|
|
|
8,405
|
|
|
|
—
|
|
|
|
Amortization expense
|
|
|
(1,466
|
)
|
|
|
(728
|
)
|
|
|
Branch sale
|
|
|
—
|
|
|
|
(261
|
)
|
|
|
|
|
|
|
|
|
|
Balance, end of year
|
|
$
|
11,200
|
|
|
$
|
4,261
|
|
|
|
|
|
|
|
|
|
The increases in goodwill and core deposit intangibles are the
result of the acquisition of TCB, MBI, MVBI and CBB as discussed
in Note 2.
The carrying basis and accumulated amortization of core deposit
intangibles at December 31, 2005 and 2004, were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
Gross carrying amount
|
|
$
|
13,457
|
|
|
$
|
5,052
|
|
|
|
Accumulated amortization
|
|
|
2,257
|
|
|
|
791
|
|
|
|
|
|
|
|
|
|
|
Net carrying amount
|
|
$
|
11,200
|
|
|
$
|
4,261
|
|
|
|
|
|
|
|
|
|
F-22
Home BancShares, Inc. and Subsidiaries
Notes to Consolidated Financial
Statements — (Continued)
Core deposit intangible amortization for the years ended
December 31, 2005, 2004 and 2003 was approximately
$1.5 million, $728,000 and $63,000 respectively. Including
all of the mergers completed, HBI’s estimated amortization
expense of core deposit for each of the following five years is
$1.8 million.
During 2004, the Company sold a branch operation acquired in its
acquisition of CBB to its unconsolidated affiliate TCB. The sale
resulted in an adjustment of $1.3 million, which was
recorded as a reduction of goodwill and core deposit intangible
assets due to the sale being within one year of the acquisition
date.
The aggregate amount of time deposits with a minimum
denomination of $100,000 was $403.0 million and
$130.0 million at December 31, 2005 and 2004,
respectively. Interest expense applicable to certificates in
excess of $100,000 totaled $11.3 million and
$2.9 million in 2005 and 2004, respectively.
The following is a summary of the scheduled maturities of all
time deposits at December 31, 2005 (in thousands):
|
|
|
|
|
|
|
One month or less
|
|
$
|
82,210
|
|
|
Over 1 month to 3 months
|
|
|
150,177
|
|
|
Over 3 months to 6 months
|
|
|
129,609
|
|
|
Over 6 months to 12 months
|
|
|
185,018
|
|
|
Over 12 months to 2 years
|
|
|
92,821
|
|
|
Over 2 years to 3 years
|
|
|
36,829
|
|
|
Over 3 years to 5 years
|
|
|
27,274
|
|
|
Over 5 years
|
|
|
1,012
|
|
|
|
|
|
|
|
Total time certificates of deposit
|
|
$
|
704,950
|
|
|
|
|
|
|
Deposits totaling approximately $236.1 million and
$43.6 million at December 31, 2005 and 2004,
respectively, were public funds obtained primarily from state
and political subdivisions in the United States.
|
|
|
|
7.
|
FHLB and Other Borrowed Funds
|
The Company’s FHLB and other borrowed funds were
$117.1 million and $74.9 million at December 31,
2005 and 2004, respectively. The outstanding balance for
December 31, 2005 includes $4.0 million of short-term
advances and $113.1 million of long-term advances. The
outstanding balance for December 31, 2004 includes
$31.0 million of short-term advances and $43.9 million
of long-term advances. Short-term borrowings consist of
U.S. TT&L notes and short-term FHLB borrowings.
Long-term borrowings consist of long-term FHLB borrowings and a
line of credit with another financial institution.
Additionally, the Company has $46.5 million and
$13.0 million at December 31, 2005 and 2004,
respectively, in letters of credit under a FHLB blanket
borrowing line of credit, which are used to collateralize public
deposits at December 31, 2005 and 2004, respectively.
F-23
Home BancShares, Inc. and Subsidiaries
Notes to Consolidated Financial
Statements — (Continued)
Long-term borrowings at December 31, 2005 and 2004
consisted of the following components.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
Line of Credit, due 2009, at a floating rate of 0.75% below
Prime, secured by bank stock
|
|
$
|
14,000
|
|
|
$
|
—
|
|
|
FHLB advances, due 2005 to 2020, 1.58% to 5.96% secured by
residential real estate loans
|
|
|
99,118
|
|
|
|
43,869
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term borrowings
|
|
$
|
113,118
|
|
|
$
|
43,869
|
|
|
|
|
|
|
|
|
|
Maturities of borrowings with original maturities exceeding one
year at December 31, 2005, are as follows (in thousands):
|
|
|
|
|
|
|
2006
|
|
$
|
40,556
|
|
|
2007
|
|
|
28,939
|
|
|
2008
|
|
|
8,920
|
|
|
2009
|
|
|
14,512
|
|
|
2010
|
|
|
12,265
|
|
|
Thereafter
|
|
|
7,926
|
|
|
|
|
|
|
|
|
|
$
|
113,118
|
|
|
|
|
|
|
|
|
|
|
8.
|
Subordinated Debentures
|
Subordinated Debentures at December 31, 2005 and 2004
consisted of guaranteed payments on trust preferred securities
with the following components.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
Subordinated debentures, 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, callable in
2008 without penalty
|
|
$
|
20,619
|
|
|
$
|
20,619
|
|
|
Subordinated debentures, 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
|
|
|
3,516
|
|
|
|
3,600
|
|
|
Subordinated debentures, due 2033, floating rate of 3.15% above
the three-month LIBOR rate, reset quarterly, callable in 2008
without penalty
|
|
|
5,155
|
|
|
|
—
|
|
|
Subordinated debentures, 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
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Total subordinated debt
|
|
$
|
44,755
|
|
|
$
|
24,219
|
|
|
|
|
|
|
|
|
|
As a result of the acquisition of MBI, the Company has an
interest rate swap agreement that effectively converts the
floating rate on the $5.2 million trust preferred security
noted above into a fixed interest rate of 7.29%, thus reducing
the impact of interest rate changes on future interest expense
until 2009.
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
F-24
Home BancShares, Inc. and Subsidiaries
Notes to Consolidated Financial
Statements — (Continued)
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 trust’s
ability to pay amounts due on the trust preferred securities is
solely dependent upon the Company making payment on the related
junior subordinated debentures. The Company’s obligations
under the junior subordinated securities and other relevant
trust agreements, in aggregate, constitute a full and
unconditional guarantee by the Company of each respective
trust’s obligations under the trust securities issued by
each respective trust.
The following is a summary of the components of the provision
for income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
4,224
|
|
|
$
|
5,622
|
|
|
$
|
1,716
|
|
|
|
State
|
|
|
839
|
|
|
|
970
|
|
|
|
377
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current
|
|
|
5,063
|
|
|
|
6,592
|
|
|
|
2,093
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(107
|
)
|
|
|
(1,304
|
)
|
|
|
250
|
|
|
|
State
|
|
|
(21
|
)
|
|
|
(258
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred
|
|
|
(128
|
)
|
|
|
(1,562
|
)
|
|
|
250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
$
|
4,935
|
|
|
$
|
5,030
|
|
|
$
|
2,343
|
|
|
|
|
|
|
|
|
|
|
|
|
The reconciliation between the statutory federal income tax rate
and effective income tax rate is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statutory federal income tax rate
|
|
|
35.00
|
%
|
|
|
35.00
|
%
|
|
|
34.00
|
%
|
|
Effect of nontaxable interest income
|
|
|
(5.93
|
)
|
|
|
(3.53
|
)
|
|
|
(0.92
|
)
|
|
Cash surrender value of life insurance
|
|
|
(0.54
|
)
|
|
|
(0.58
|
)
|
|
|
(0.08
|
)
|
|
State taxes
|
|
|
2.17
|
|
|
|
3.63
|
|
|
|
3.29
|
|
|
Change in effective rate for deferred tax assets
|
|
|
—
|
|
|
|
(0.33
|
)
|
|
|
—
|
|
|
Other
|
|
|
(0.57
|
)
|
|
|
(0.13
|
)
|
|
|
1.75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective income tax rate
|
|
|
30.13
|
%
|
|
|
34.06
|
%
|
|
|
38.04
|
%
|
|
|
|
|
|
|
|
|
|
|
|
F-25
Home BancShares, Inc. and Subsidiaries
Notes to Consolidated Financial
Statements — (Continued)
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses
|
|
$
|
9,229
|
|
|
$
|
5,792
|
|
|
|
Deferred compensation
|
|
|
249
|
|
|
|
139
|
|
|
|
Defined benefit pension plan
|
|
|
109
|
|
|
|
350
|
|
|
|
Non-accrual interest income
|
|
|
466
|
|
|
|
163
|
|
|
|
Investment in unconsolidated subsidiary
|
|
|
336
|
|
|
|
89
|
|
|
|
Unrealized loss on securities
|
|
|
5,105
|
|
|
|
99
|
|
|
|
Gain on sale of branch
|
|
|
—
|
|
|
|
405
|
|
|
|
Other
|
|
|
349
|
|
|
|
243
|
|
|
|
|
|
|
|
|
|
|
Gross deferred tax assets
|
|
|
15,843
|
|
|
|
7,280
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
|
|
Accelerated depreciation on premises and equipment
|
|
|
2,237
|
|
|
|
1,442
|
|
|
|
Core deposit intangibles
|
|
|
4,211
|
|
|
|
1,671
|
|
|
|
Market value of cash flow hedge
|
|
|
25
|
|
|
|
—
|
|
|
|
FHLB dividends
|
|
|
393
|
|
|
|
281
|
|
|
|
Other
|
|
|
156
|
|
|
|
199
|
|
|
|
|
|
|
|
|
|
|
Gross deferred tax liabilities
|
|
|
7,022
|
|
|
|
3,593
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets included in other assets
|
|
$
|
8,821
|
|
|
$
|
3,687
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.
|
Common Stock and Stock Compensation Plans
|
The Company has a nonqualified stock option plan for employees,
officers, and directors of the Company. This plan provides for
the granting of incentive nonqualified options to purchase up to
840,000 shares of common stock in the Company. The Company
has elected to follow Accounting Principles Board Opinion
No. 25,
Accounting for Stock Issued to Employees
(APB 25), and related interpretations in accounting for
its employee stock options using the fair value method. Under
APB 25, because the exercise price of the options equals
the estimated market price of the stock on the issuance date, no
compensation expense is recorded. The fair market value was
determined based on the per share price of the Company’s
most recent private placement equity issue. The Company has
adopted the disclosure-only provisions of
SFAS No. 123,
Accounting for Stock-Based
Compensation,
as amended by SFAS No. 148.
F-26
Home BancShares, Inc. and Subsidiaries
Notes to Consolidated Financial
Statements — (Continued)
The table below summarizes the transactions under the
Company’s stock option plans (split adjusted) at
December 31, 2005, 2004 and 2003 and changes during the
years then ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
Weighted
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
Average
|
|
|
|
|
Average
|
|
|
|
|
Shares
|
|
|
Exercisable
|
|
|
Shares
|
|
|
Exercisable
|
|
|
Shares
|
|
|
Exercisable
|
|
|
|
|
(000)
|
|
|
Price
|
|
|
(000)
|
|
|
Price
|
|
|
(000)
|
|
|
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, beginning of year
|
|
|
453
|
|
|
$
|
9.46
|
|
|
|
324
|
|
|
$
|
8.11
|
|
|
|
315
|
|
|
$
|
7.99
|
|
|
Granted
|
|
|
75
|
|
|
|
12.67
|
|
|
|
135
|
|
|
|
12.67
|
|
|
|
24
|
|
|
|
11.15
|
|
|
Options of acquired institution
|
|
|
168
|
|
|
|
10.80
|
|
|
|
—
|
|
|
|
n/a
|
|
|
|
—
|
|
|
|
n/a
|
|
|
Forfeited
|
|
|
(23
|
)
|
|
|
8.78
|
|
|
|
(6
|
)
|
|
|
9.72
|
|
|
|
(12
|
)
|
|
|
9.60
|
|
|
Exercised
|
|
|
(43
|
)
|
|
|
11.48
|
|
|
|
—
|
|
|
|
n/a
|
|
|
|
(3
|
)
|
|
|
7.61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, end of year
|
|
|
630
|
|
|
|
10.07
|
|
|
|
453
|
|
|
|
9.46
|
|
|
|
324
|
|
|
|
8.11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable, end of year
|
|
|
497
|
|
|
$
|
9.50
|
|
|
|
243
|
|
|
$
|
7.81
|
|
|
|
231
|
|
|
$
|
7.53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted-average fair value of options granted during 2005,
2004 and 2003 was $4.64, $2.73 and $2.10 per share (split
adjusted), respectively. 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected dividend yield
|
|
|
0.63
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
Expected stock price volatility
|
|
|
10.00
|
%
|
|
|
0.01
|
%
|
|
|
0.01
|
%
|
|
Risk-free interest rate
|
|
|
4.39
|
%
|
|
|
3.73
|
%
|
|
|
3.05
|
%
|
|
Expected life of options
|
|
|
13.0 years
|
|
|
|
6.5 years
|
|
|
|
6.5 years
|
|
The following is a summary of currently outstanding and
exercisable options at December 31, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
Options
|
|
|
Average
|
|
|
Weighted-
|
|
|
Options
|
|
|
Weighted-
|
|
|
|
|
Outstanding
|
|
|
Remaining
|
|
|
Average
|
|
|
Exercisable
|
|
|
Average
|
|
|
|
|
Shares
|
|
|
Contractual Life
|
|
|
Exercise
|
|
|
Shares
|
|
|
Exercise
|
|
|
Exercise Prices
|
|
|
(000s)
|
|
|
(in years)
|
|
|
Price
|
|
|
(000s)
|
|
|
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7.33 to $ 8.33
|
|
|
|
230
|
|
|
|
6.5
|
|
|
$
|
7.46
|
|
|
|
229
|
|
|
$
|
7.46
|
|
|
$
|
9.33 to $10.31
|
|
|
|
128
|
|
|
|
8.1
|
|
|
|
10.13
|
|
|
|
113
|
|
|
|
10.17
|
|
|
$
|
11.67 to $11.34
|
|
|
|
87
|
|
|
|
10.9
|
|
|
|
11.40
|
|
|
|
77
|
|
|
|
11.36
|
|
|
$
|
12.67 to $12.67
|
|
|
|
185
|
|
|
|
12.4
|
|
|
|
12.67
|
|
|
|
78
|
|
|
|
12.67
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
630
|
|
|
|
|
|
|
|
|
|
|
|
497
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company has a stock bonus plan for certain key employees and
officers of the Company. This plan provided for the granting of
94,134 shares of Company stock as bonuses ratably over a
five-year period. As of December 31, 2005, 2004 and 2003,
91,776 shares have been granted. As of December 31,
2005, 2,358 shares were cancelled. During 2003,
17,646 shares of stock were granted as bonuses. The fair
market value of the shares granted in 2003 was determined to be
$11.67 per share, based on the issuance price of the
Company’s private placement equity offers during 2003.
Compensation expense was $206,000 on the 17,646 shares
granted in the year ended December 31, 2003. No additional
shares of the Company’s stock were granted as bonus shares
during the years ended December 31, 2005 and 2004. This
share information is reflective of the three-for-one stock split
during 2005.
F-27
Home BancShares, Inc. and Subsidiaries
Notes to Consolidated Financial
Statements — (Continued)
During 2005, the Company completed a three for one stock split.
This resulted in issuing two additional shares of stock to the
common shareholders. As a result of the stock split, the
accompanying consolidated financial statements reflect an
increase in the number of outstanding shares of common stock and
the $78,000 transfer of the par value of these additional shares
from surplus. All share and per share amounts have been restated
to reflect the retroactive effect of the stock split, except for
the capitalization of the Company.
During 2005, the board of directors of the Company passed a
resolution amending the articles of incorporation to lower the
par value from $0.10 to $0.01. This resulted in $352,000
reclassified from common stock to capital surplus in
stockholders’ equity.
During 2003, the Company issued 2,374,143 (split adjusted)
shares of common stock for an offering price of $11.67 per
share, pursuant to an exemption provided by the Arkansas
Securities Act, the Securities Act of 1933, and Rule 147 of
the Securities and Exchange Commission. The proceeds of
$27.7 million were recorded to stockholders’ equity,
net of issuance costs of $37,000. For a period of two years
after the issuance of the shares, the holder of the shares may
not sell the shares without the written consent of HBI. In the
absence of such consent, the holder may not sell the shares
without giving HBI at least forty-five days to purchase the
shares on the same terms as offered by a third party in a bona
fide offer.
During 2003, the board of directors of the Company passed a
resolution amending the articles of incorporation to lower the
par value from $1.00 to $0.10. This resulted in $1,678,000
reclassified from common stock to capital surplus in
stockholders’ equity.
|
|
|
|
11.
|
Preferred Stock A and Preferred Stock A Options
|
During 2003, the Company issued preferred stock A as a result of
the CBB acquisition. The preferred stock A is non-voting,
non-cumulative, callable and redeemable, and convertible to the
Company’s common stock. The preferred stock A will yield an
annual non-cumulative dividend of $0.25 to be paid quarterly if
and when authorized and declared by the Company’s board of
directors. Dividends must be paid on preferred stock A before
any other class of the Company’s stock.
The Preferred Stock A may be converted at the holder’s
option or redeemed by the Company at its option under the
following terms and conditions (common stock split adjusted):
The Preferred Stock A may be converted at the holder’s
option, into HBI common stock upon the earlier of the expiration
of thirty months after the effective date of the merger or
180 days after the date any of the HBI common stock is
registered pursuant to the Securities Act of 1933 with the
Securities and Exchange Commission in connection with an initial
public offering of HBI common stock. Each share of Preferred
Stock A to be converted and properly surrendered to the Company
pursuant to the Company’s instructions for such surrender,
shall be converted into 0.789474 shares of HBI Common
Stock, with fractional shares of the Preferred Stock A to be
converted into cash at the rate of $12.67 times the fraction of
shares held.
The Company may, at its option, redeem all of the Preferred
Stock A at any time after the expiration of thirty months from
the effective date of the merger or earlier if the HBI common
stock becomes publicly traded and (a) the last reported
trade is at least $12.67 per share for 20 consecutive
trading days or (b) if the trades are quoted on a “bid
and ask” price basis and the mean between the bid and ask
price is at least $12.67 per share for 20 consecutive
trading days.
At December 31, 2005, 2004 and 2003, the Company had
26,000, 41,000 and 49,000 preferred stock A options
outstanding, respectively. The preferred stock A options became
100% exercisable at the date of the CBB acquisition and are
convertible to common stock under the same terms as the
outstanding preferred stock A.
F-28
Home BancShares, Inc. and Subsidiaries
Notes to Consolidated Financial
Statements — (Continued)
The table below summarizes the transactions under the
Company’s preferred stock A option plan at
December 31, 2005, 2004 and 2003 and changes during the
years then ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
Weighted
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
Average
|
|
|
|
|
Average
|
|
|
|
|
Shares
|
|
|
Exercisable
|
|
|
Shares
|
|
|
Exercisable
|
|
|
Shares
|
|
|
Exercisable
|
|
|
|
|
(000)
|
|
|
Price
|
|
|
(000)
|
|
|
Price
|
|
|
(000)
|
|
|
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, beginning of year
|
|
|
41
|
|
|
$
|
2.04
|
|
|
|
49
|
|
|
$
|
1.73
|
|
|
|
—
|
|
|
$
|
—
|
|
|
Acquired during acquisition
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
49
|
|
|
|
1.73
|
|
|
Exercised
|
|
|
(15
|
)
|
|
|
0.17
|
|
|
|
(8
|
)
|
|
|
0.17
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, end of year
|
|
|
26
|
|
|
|
3.14
|
|
|
|
41
|
|
|
|
2.04
|
|
|
|
49
|
|
|
|
1.73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable, end of year
|
|
|
26
|
|
|
$
|
3.14
|
|
|
|
41
|
|
|
$
|
2.04
|
|
|
|
49
|
|
|
$
|
1.73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes information about preferred stock
A options under the plan outstanding at December 31, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Weighted
|
|
|
|
|
Weighted
|
|
|
|
|
Number
|
|
|
Remaining
|
|
|
Average
|
|
|
Number
|
|
|
Average
|
|
|
Range of
|
|
Outstanding
|
|
|
Contractual
|
|
|
Exercise
|
|
|
Exercisable
|
|
|
Exercise
|
|
|
Exercise Prices
|
|
(000)
|
|
|
Life
|
|
|
Price
|
|
|
(000)
|
|
|
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$0.17
|
|
|
15
|
|
|
|
4 Years
|
|
|
$
|
0.17
|
|
|
|
15
|
|
|
$
|
0.17
|
|
|
$6.84
|
|
|
11
|
|
|
|
3 Years
|
|
|
$
|
6.84
|
|
|
|
11
|
|
|
$
|
6.84
|
|
|
|
|
|
12.
|
Preferred Stock B and Preferred Stock B Options
|
During 2005, the Company issued preferred stock B as a result of
the MBI acquisition. The Class B Preferred Stock will be
non-voting, non-cumulative, callable and redeemable, convertible
preferred stock The Class B Preferred Stock will yield an
annual non-cumulative dividend of $0.57 to be paid quarterly if
and when authorized and declared by HBI’s board of
directors, and has priority in the payment of dividends over the
HBI Common Stock and any class of capital stock created after
the effective date of the merger, provided that dividends have
first been paid on the Class A Preferred Stock.
The Class B Preferred Stock is redeemable by HBI at any
time on the basis of three shares of HBI Common Stock for each
share of Class B Preferred Stock. Holders of the
Class B Preferred Stock may convert their shares of
Class B Preferred Stock into shares of HBI Common Stock
(three shares of HBI Common Stock for each share of Class B
Preferred Stock), upon the occurrence of the earlier of
July 6, 2006, or two hundred ten (210) days after the
date an underwritten initial public offering of the HBI Common
Stock is completed.
At December 31, 2005 the Company had 25,000 preferred stock
B options outstanding, respectively. The preferred stock B
options became 100% exercisable at the date of the MBI
acquisition and are convertible to common stock under the same
terms as the outstanding preferred stock B.
F-29
Home BancShares, Inc. and Subsidiaries
Notes to Consolidated Financial
Statements — (Continued)
The table below summarizes the transactions under the
Company’s preferred stock B option plan at
December 31, 2005 and changes during the year then ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
Shares
|
|
|
Exercisable
|
|
|
|
|
(000)
|
|
|
Price
|
|
|
|
|
|
|
|
|
|
|
Outstanding, beginning of year
|
|
|
—
|
|
|
$
|
n/a
|
|
|
Acquired during acquisition
|
|
|
32
|
|
|
|
18.92
|
|
|
Exercised
|
|
|
(7
|
)
|
|
|
18.41
|
|
|
Outstanding, end of year
|
|
|
25
|
|
|
|
19.06
|
|
|
Exercisable, end of year
|
|
|
25
|
|
|
$
|
19.06
|
|
The following table summarizes information about preferred stock
B options under the plan outstanding at December 31, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Weighted
|
|
|
|
|
Weighted
|
|
|
|
|
Number
|
|
|
Remaining
|
|
|
Average
|
|
|
Number
|
|
|
Average
|
|
|
Range of
|
|
Outstanding
|
|
|
Contractual
|
|
|
Exercise
|
|
|
Exercisable
|
|
|
Exercise
|
|
|
Exercise Prices
|
|
(000)
|
|
|
Life
|
|
|
Price
|
|
|
(000)
|
|
|
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$18.41
|
|
|
9
|
|
|
|
5 Years
|
|
|
$
|
18.41
|
|
|
|
9
|
|
|
$
|
18.41
|
|
|
$19.09
|
|
|
10
|
|
|
|
8 Years
|
|
|
$
|
19.09
|
|
|
|
10
|
|
|
$
|
19.09
|
|
|
$20.05
|
|
|
6
|
|
|
|
9 Years
|
|
|
$
|
20.05
|
|
|
|
6
|
|
|
$
|
20.05
|
|
F-30
Home BancShares, Inc. and Subsidiaries
Notes to Consolidated Financial
Statements — (Continued)
The table below shows the components of non-interest expense for
the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
Salaries and employee benefits
|
|
$
|
23,901
|
|
|
$
|
14,123
|
|
|
$
|
7,139
|
|
|
Occupancy and equipment
|
|
|
6,869
|
|
|
|
3,750
|
|
|
|
1,659
|
|
|
Data processing expense
|
|
|
1,991
|
|
|
|
1,170
|
|
|
|
893
|
|
|
Other operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advertising
|
|
|
2,067
|
|
|
|
900
|
|
|
|
774
|
|
|
|
Amortization of intangibles
|
|
|
1,466
|
|
|
|
728
|
|
|
|
63
|
|
|
|
ATM expense
|
|
|
427
|
|
|
|
372
|
|
|
|
237
|
|
|
|
Directors’ fees
|
|
|
505
|
|
|
|
210
|
|
|
|
73
|
|
|
|
Due from bank service charges
|
|
|
284
|
|
|
|
197
|
|
|
|
108
|
|
|
|
FDIC and state assessment
|
|
|
503
|
|
|
|
301
|
|
|
|
155
|
|
|
|
Insurance
|
|
|
504
|
|
|
|
344
|
|
|
|
193
|
|
|
|
Legal and accounting
|
|
|
941
|
|
|
|
452
|
|
|
|
204
|
|
|
|
Other professional fees
|
|
|
534
|
|
|
|
493
|
|
|
|
315
|
|
|
|
Operating supplies
|
|
|
745
|
|
|
|
530
|
|
|
|
336
|
|
|
|
Postage
|
|
|
580
|
|
|
|
404
|
|
|
|
183
|
|
|
|
Telephone
|
|
|
669
|
|
|
|
377
|
|
|
|
153
|
|
|
|
Other expense
|
|
|
2,949
|
|
|
|
1,780
|
|
|
|
585
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other operating expenses
|
|
|
12,174
|
|
|
|
7,088
|
|
|
|
3,379
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest expense
|
|
$
|
44,935
|
|
|
$
|
26,131
|
|
|
$
|
13,070
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14.
|
Employee Benefit Plans
|
The Company has a retirement savings 401(k) plan in which
substantially all employees may participate. The Company matches
employees’ contributions based on a percentage of salary
contributed by participants. The plan also allows for
discretionary employer contributions. The Company’s expense
for the plan was $476,000, $195,000 and $227,000 in 2005, 2004
and 2003, respectively, which is included in salaries and
employee benefits expense.
|
|
|
|
|
Stock Appreciation Rights
|
During 2005, the Company issued 341,000 stock appreciation
rights at $12.67 for certain executive employees throughout the
Company. The appreciation rights are on a five-year
cliff-vesting schedule with all appreciation rights vesting on
December 31, 2009. The vesting is also subject to various
financial performance goals of the Company and the subsidiary
banks over the five-year period ending December 31, 2009.
At that time, any appreciation on the vested rights can either
be paid to the employee with cash or stock of the Company at the
option of the employee.
F-31
Home BancShares, Inc. and Subsidiaries
Notes to Consolidated Financial
Statements — (Continued)
The following table sets forth the status of the Company’s
defined benefit pension plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
Benefit obligation
|
|
$
|
3,494
|
|
|
$
|
1,840
|
|
|
$
|
1,896
|
|
|
Fair value of plan assets
|
|
|
2,693
|
|
|
|
1,025
|
|
|
|
1,165
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status
|
|
$
|
(801
|
)
|
|
$
|
(815
|
)
|
|
$
|
(731
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued benefit cost
|
|
$
|
(552
|
)
|
|
$
|
(949
|
)
|
|
$
|
(990
|
)
|
|
Unrecognized net (gain) or loss
|
|
|
(146
|
)
|
|
|
(212
|
)
|
|
|
(251
|
)
|
|
Unrecognized prior service cost
|
|
|
117
|
|
|
|
—
|
|
|
|
—
|
|
|
Unrecognized net obligation
|
|
|
70
|
|
|
|
—
|
|
|
|
—
|
|
|
Weighted-average assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
6.8
|
%
|
|
|
6.5
|
%
|
|
|
6.5
|
%
|
|
|
Actual return on plan assets
|
|
|
9.8
|
|
|
|
6.7
|
|
|
|
-2.2
|
|
|
|
Expected return on plan assets
|
|
|
6.8
|
|
|
|
6.5
|
|
|
|
6.5
|
|
|
|
Rate of compensation increase
|
|
|
4.0
|
|
|
|
—
|
|
|
|
—
|
|
|
Benefit cost
|
|
$
|
196
|
|
|
$
|
41
|
|
|
$
|
98
|
|
|
Interest cost
|
|
|
268
|
|
|
|
117
|
|
|
|
128
|
|
|
Employer contributions
|
|
|
767
|
|
|
|
166
|
|
|
|
165
|
|
|
Employee contributions
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Benefits paid
|
|
|
1,095
|
|
|
|
296
|
|
|
|
287
|
|
The assets of the plans consist primarily of equity securities
and mutual funds. The measurement date for the plans is
January 1. The plans have been frozen, and there have been
no new participants in the plan and no additional benefits
earned. Contributions are made based upon at least the minimum
amounts required to be funded under provisions of the Employee
Retirement Income Security Act of 1974, with the maximum
contribution not to exceed the maximum amount deductible under
the Internal Revenue Code. The minimum contribution for the year
ending December 31, 2006, will be approximately $170,000.
The long-term rate of return on assets is determined by
considering the historical returns for the current mix of
investments in the Company’s pension plan. In addition,
consideration is given to the range of expected returns for the
pension plan investment mix provided by the plan’s
investment advisors. The Company uses the historical information
to determine if there has been a significant change in the
pension plan’s investment return history.
The discount rate was determined by projecting cash
distributions from the plan and matching them with the
appropriate corporate bond yields in a yield curve regression
analysis.
Benefit payments for the next ten years are estimated as follows
(in thousands):
|
|
|
|
|
|
|
2006
|
|
$
|
170
|
|
|
2007
|
|
|
172
|
|
|
2008
|
|
|
176
|
|
|
2009
|
|
|
174
|
|
|
2010
|
|
|
146
|
|
|
2010-2015
|
|
|
2,564
|
|
F-32
Home BancShares, Inc. and Subsidiaries
Notes to Consolidated Financial
Statements — (Continued)
|
|
|
|
15.
|
Related Party Transactions
|
In the ordinary course of business, loans may be made to
officers and directors and their affiliated companies at
substantially the same terms as comparable transactions with
other borrowers. At December 31, 2005 and 2004, related
party loans were approximately $55.8 million and
$38.8 million, respectively. New loans and advances on
prior commitments made to the related parties were
$19.1 million and $31.4 million for the years ended
December 31, 2005 and 2004, respectively. Repayments of
loans made by the related parties were $14.5 million and
$2.9 million for the years ended December 31, 2005 and
2004, respectively. As a result of acquisitions completed during
2005, the Company acquired $12.4 million of related party
loans.
At December 31, 2005 and 2004, directors, officers, and
other related interest parties had demand, non-interest-bearing
deposits of $37.4 million and $10.1 million,
respectively, savings and interest-bearing transaction accounts
of $1.3 million and $31,000, respectively, and time
certificates of deposit of $13.6 million and
$3.9 million, respectively.
During 2005 and 2004, rent expense totaling $181,000 and
$414,000, respectively, was paid to related parties. During
2004, a director of the Company sold a building to a subsidiary
of the Company for $3.1 million. This subsidiary was
leasing space in the building for its operations department.
When the building was sold, the subsidiary had paid ten months
of rent to the director.
The Company also received various fees from its investments in
unconsolidated affiliates primarily for data processing and
professional fees. During 2005 and 2004, these fees total
$267,000 and $1.4 million, respectively. These fees are
recorded in non-interest income.
At December 31, 2005, the minimum rental commitments under
noncancelable operating leases are as follows (in thousands):
|
|
|
|
|
|
|
2006
|
|
$
|
980
|
|
|
2007
|
|
|
976
|
|
|
2008
|
|
|
916
|
|
|
2009
|
|
|
909
|
|
|
2010
|
|
|
907
|
|
|
Thereafter
|
|
|
5,384
|
|
|
|
|
|
|
|
|
|
$
|
10,072
|
|
|
|
|
|
|
Rent expense under operating leases was $800,000, $521,000 and
$240,000 in 2005, 2004 and 2003, respectively.
|
|
|
|
17.
|
Concentration of Credit Risks
|
The Company’s primary market area is in central Arkansas
and the Florida Keys (Monroe County). The Company primarily
grants loan to customers located within these geographical areas
unless the borrower has an established relationship with the
Company.
The diversity of the Company’s economic base tends to
provide a stable lending environment. The Company maintains a
diversified loan portfolio and does not have a concentration of
credit risk in any particular industry or economic sector.
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.
F-33
Home BancShares, Inc. and Subsidiaries
Notes to Consolidated Financial
Statements — (Continued)
|
|
|
|
18.
|
Significant Estimates and Concentrations
|
Accounting principles generally accepted in the United Sates of
America require disclosure of certain significant estimates and
current vulnerabilities due to certain concentrations. Estimates
related to the allowance for loan losses and certain
concentrations of credit risk are reflected in Note 4,
while deposit concentrations are reflected in Note 6.
|
|
|
|
19.
|
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 December 31, 2005 and 2004, commitments to extend credit
of $266.5 million and $105.5 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 December 31, 2005 and 2004, is
$21.0 million and $10.4 million, respectively.
The Company and/or its subsidiary banks have various unrelated
legal proceedings, most of which involve loan foreclosure
activity pending, which, in the aggregate, are not expected to
have a material adverse effect on the financial position of the
Company and its subsidiaries.
|
|
|
|
20.
|
Financial Instruments
|
The following table presents the estimated fair values of the
Company’s 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2005
|
|
|
|
|
|
|
|
|
|
Carrying
|
|
|
|
|
|
|
Amount
|
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks and bank deposits
|
|
$
|
44,679
|
|
|
$
|
44,679
|
|
|
|
Federal funds sold
|
|
|
7,055
|
|
|
|
7,055
|
|
|
|
Investment securities — available for sale
|
|
|
530,302
|
|
|
|
530,302
|
|
|
|
Net loans receivable
|
|
|
1,180,414
|
|
|
|
1,173,873
|
|
|
|
Accrued interest receivable
|
|
|
11,158
|
|
|
|
11,158
|
|
F-34
Home BancShares, Inc. and Subsidiaries
Notes to Consolidated Financial
Statements — (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2005
|
|
|
|
|
|
|
|
|
|
Carrying
|
|
|
|
|
|
|
Amount
|
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
|
|
|
Demand and non-interest-bearing
|
|
$
|
209,974
|
|
|
$
|
209,974
|
|
|
|
|
Savings and interest-bearing transaction accounts
|
|
|
512,184
|
|
|
|
512,184
|
|
|
|
|
Time deposits
|
|
|
704,950
|
|
|
|
706,982
|
|
|
|
Federal funds purchased
|
|
|
44,495
|
|
|
|
44,495
|
|
|
|
Securities sold under agreements to repurchase
|
|
|
103,718
|
|
|
|
103,718
|
|
|
|
FHLB and other borrowings
|
|
|
117,054
|
|
|
|
115,612
|
|
|
|
Accrued interest payable and other liabilities
|
|
|
8,504
|
|
|
|
8,504
|
|
|
|
Subordinated debentures
|
|
|
44,755
|
|
|
|
46,433
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2004
|
|
|
|
|
|
|
|
|
|
Carrying
|
|
|
|
|
|
|
Amount
|
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks and bank deposits
|
|
$
|
19,813
|
|
|
$
|
19,813
|
|
|
|
Federal funds sold
|
|
|
2,220
|
|
|
|
2,220
|
|
|
|
Investment securities — available for sale
|
|
|
190,366
|
|
|
|
190,366
|
|
|
|
Investment securities — held to maturity
|
|
|
100
|
|
|
|
100
|
|
|
|
Net loans receivable
|
|
|
500,310
|
|
|
|
496,570
|
|
|
|
Accrued interest receivable
|
|
|
4,215
|
|
|
|
4,215
|
|
|
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
|
|
|
Demand and non-interest-bearing
|
|
|
86,186
|
|
|
|
86,186
|
|
|
|
|
Savings and interest-bearing transaction accounts
|
|
|
196,304
|
|
|
|
196,304
|
|
|
|
|
Time deposits
|
|
|
270,388
|
|
|
|
271,184
|
|
|
|
Federal funds purchased
|
|
|
7,950
|
|
|
|
7,950
|
|
|
|
Securities sold under agreements to repurchase
|
|
|
21,259
|
|
|
|
21,259
|
|
|
|
FHLB and other borrowings
|
|
|
74,869
|
|
|
|
74,923
|
|
|
|
Accrued interest payable and other liabilities
|
|
|
8,163
|
|
|
|
8,163
|
|
|
|
Subordinated debentures
|
|
|
24,219
|
|
|
|
24,868
|
|
The Company’s subsidiaries are subject to a legal
limitation on dividends that can be paid to the parent company
without prior approval of the applicable regulatory agencies.
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. Under Florida
state banking law, regulatory approval will be required if the
total of all dividends declared in any calendar year by the Bank
exceeds the Bank’s net profits to date for that year
combined with its retained net profits for the preceding two
years. As the result of special dividends paid by the
Company’s subsidiary banks during to 2005
F-35
Home BancShares, Inc. and Subsidiaries
Notes to Consolidated Financial
Statements — (Continued)
to help provide cash for the MBI and MVBI acquisitions, the
Company’s subsidiary banks did not have any significant
undivided profits available for payment of dividends to the
Company, without prior approval of the regulatory agencies at
December 31, 2005.
The Company’s subsidiaries are subject to various
regulatory capital requirements administered by the federal
banking agencies. Failure to meet minimum capital requirements
can initiate certain mandatory and possibly additional
discretionary actions by regulators that, if undertaken, could
have a direct material effect on the Company’s financial
statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Company must meet
specific capital guidelines that involve quantitative measures
of the Company’s assets, liabilities and certain
off-balance-sheet items as calculated under regulatory
accounting practices. The Company’s capital amounts and
classifications are also subject to qualitative judgments by the
regulators about components, risk weightings and other factors.
Quantitative measures established by regulation to ensure
capital adequacy require the Company to maintain minimum amounts
and ratios (set forth in the table below) of total and
Tier 1 capital (as defined in the regulations) to
risk-weighted assets (as defined) and of Tier 1 capital (as
defined) to average assets (as defined). Management believes
that, as of December 31, 2005, the Company meets all
capital adequacy requirements to which it is subject.
As of the most recent notification from regulatory agencies, the
subsidiaries were well capitalized under the regulatory
framework for prompt corrective action. To be categorized as
well capitalized, the Company and subsidiaries must maintain
minimum total risk-based, Tier 1 risk-based and Tier 1
leverage ratios as set forth in the table. There are no
conditions or events since that notification that management
believes have changed the institutions’ categories.
The Company’s actual capital amounts and ratios along with
the Company’s subsidiary banks are presented in the
following table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
To Be Well
|
|
|
|
|
|
|
|
|
|
|
Capitalized Under
|
|
|
|
|
|
|
For Capital
|
|
|
Prompt Corrective
|
|
|
|
|
Actual
|
|
|
Adequacy Purposes
|
|
|
Action Provision
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount
|
|
|
Ratio-%
|
|
|
Amount
|
|
|
Ratio-%
|
|
|
Amount
|
|
|
Ratio-%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
As of December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leverage Ratio
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home BancShares, Inc.
|
|
$
|
172,244
|
|
|
|
9.22
|
|
|
$
|
74,726
|
|
|
|
4.00
|
|
|
$
|
N/A
|
|
|
|
|
|
|
|
|
First State Bank
|
|
|
38,572
|
|
|
|
8.44
|
|
|
|
18,281
|
|
|
|
4.00
|
|
|
|
22,851
|
|
|
|
5.00
|
|
|
|
|
Community Bank
|
|
|
23,129
|
|
|
|
7.59
|
|
|
|
12,189
|
|
|
|
4.00
|
|
|
|
15,236
|
|
|
|
5.00
|
|
|
|
|
Twin City Bank
|
|
|
51,679
|
|
|
|
8.07
|
|
|
|
25,615
|
|
|
|
4.00
|
|
|
|
32,019
|
|
|
|
5.00
|
|
|
|
|
Marine Bank
|
|
|
20,050
|
|
|
|
7.28
|
|
|
|
11,016
|
|
|
|
4.00
|
|
|
|
13,771
|
|
|
|
5.00
|
|
|
|
|
Bank of Mountain View
|
|
|
29,468
|
|
|
|
16.35
|
|
|
|
7,209
|
|
|
|
4.00
|
|
|
|
9,012
|
|
|
|
5.00
|
|
|
|
Tier 1 Capital Ratio
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home BancShares, Inc.
|
|
|
172,244
|
|
|
|
12.25
|
|
|
|
56,243
|
|
|
|
4.00
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
First State Bank
|
|
|
38,572
|
|
|
|
10.01
|
|
|
|
15,413
|
|
|
|
4.00
|
|
|
|
23,120
|
|
|
|
6.00
|
|
|
|
|
Community Bank
|
|
|
23,129
|
|
|
|
10.25
|
|
|
|
9,026
|
|
|
|
4.00
|
|
|
|
13,539
|
|
|
|
6.00
|
|
|
|
|
Twin City Bank
|
|
|
51,679
|
|
|
|
11.53
|
|
|
|
17,929
|
|
|
|
4.00
|
|
|
|
26,893
|
|
|
|
6.00
|
|
|
|
|
Marine Bank
|
|
|
20,050
|
|
|
|
9.08
|
|
|
|
8,833
|
|
|
|
4.00
|
|
|
|
13,249
|
|
|
|
6.00
|
|
|
|
|
Bank of Mountain View
|
|
|
29,468
|
|
|
|
29.75
|
|
|
|
3,962
|
|
|
|
4.00
|
|
|
|
5,943
|
|
|
|
6.00
|
|
F-36
Home BancShares, Inc. and Subsidiaries
Notes to Consolidated Financial
Statements — (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
To Be Well
|
|
|
|
|
|
|
|
|
|
|
Capitalized Under
|
|
|
|
|
|
|
For Capital
|
|
|
Prompt Corrective
|
|
|
|
|
Actual
|
|
|
Adequacy Purposes
|
|
|
Action Provision
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount
|
|
|
Ratio-%
|
|
|
Amount
|
|
|
Ratio-%
|
|
|
Amount
|
|
|
Ratio-%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
Total Risk-Based Capital Ratio
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home BancShares, Inc.
|
|
|
189,902
|
|
|
|
13.51
|
|
|
|
112,451
|
|
|
|
8.00
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
First State Bank
|
|
|
43,362
|
|
|
|
11.26
|
|
|
|
30,808
|
|
|
|
8.00
|
|
|
|
38,510
|
|
|
|
10.00
|
|
|
|
|
Community Bank
|
|
|
26,010
|
|
|
|
11.53
|
|
|
|
18,047
|
|
|
|
8.00
|
|
|
|
22,559
|
|
|
|
10.00
|
|
|
|
|
Twin City Bank
|
|
|
57,248
|
|
|
|
12.77
|
|
|
|
35,864
|
|
|
|
8.00
|
|
|
|
44,830
|
|
|
|
10.00
|
|
|
|
|
Marine Bank
|
|
|
22,815
|
|
|
|
10.33
|
|
|
|
17,669
|
|
|
|
8.00
|
|
|
|
22,086
|
|
|
|
10.00
|
|
|
|
|
Bank of Mountain View
|
|
|
30,094
|
|
|
|
30.38
|
|
|
|
7,925
|
|
|
|
8.00
|
|
|
|
9,906
|
|
|
|
10.00
|
|
|
As of December 31, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leverage Ratio
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home BancShares, Inc.
|
|
$
|
105,139
|
|
|
|
13.47
|
|
|
$
|
31,222
|
|
|
|
4.00
|
|
|
$
|
N/A
|
|
|
|
|
|
|
|
|
First State Bank
|
|
|
60,701
|
|
|
|
13.43
|
|
|
|
18,079
|
|
|
|
4.00
|
|
|
|
22,599
|
|
|
|
5.00
|
|
|
|
|
Community Bank
|
|
|
22,513
|
|
|
|
7.44
|
|
|
|
12,104
|
|
|
|
4.00
|
|
|
|
15,130
|
|
|
|
5.00
|
|
|
|
Tier 1 Capital Ratio
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home BancShares, Inc.
|
|
|
105,139
|
|
|
|
17.39
|
|
|
|
24,184
|
|
|
|
4.00
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
First State Bank
|
|
|
60,701
|
|
|
|
15.53
|
|
|
|
15,635
|
|
|
|
4.00
|
|
|
|
23,452
|
|
|
|
6.00
|
|
|
|
|
Community Bank
|
|
|
22,513
|
|
|
|
11.97
|
|
|
|
7,523
|
|
|
|
4.00
|
|
|
|
11,285
|
|
|
|
6.00
|
|
|
|
Total Risk-Based Capital Ratio
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home BancShares, Inc.
|
|
|
105,139
|
|
|
|
17.39
|
|
|
|
48,368
|
|
|
|
8.00
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
First State Bank
|
|
|
65,604
|
|
|
|
16.78
|
|
|
|
31,277
|
|
|
|
8.00
|
|
|
|
39,097
|
|
|
|
10.00
|
|
|
|
|
Community Bank
|
|
|
24,955
|
|
|
|
13.27
|
|
|
|
15,044
|
|
|
|
8.00
|
|
|
|
18,806
|
|
|
|
10.00
|
|
|
|
|
|
22.
|
Additional Cash Flow Information
|
In connection with 2005 acquisitions accounted for using the
purchase method, the Company acquired approximately
$1.0 billion in assets, assumed $960 million in
liabilities, issued $56 million of equity and paid cash net
of funds received of $31 million. The company paid interest
and taxes during the years ended as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
Interest paid
|
|
$
|
34,282
|
|
|
$
|
11,584
|
|
|
$
|
8,563
|
|
|
Income taxes paid
|
|
|
6,000
|
|
|
|
3,015
|
|
|
|
4,990
|
|
|
|
|
|
23.
|
Recent Accounting Pronouncements
|
Statement of Position No. 03-3,
Accounting for Certain
Loans or Debt Securities Acquired in a Transfer
(SOP
03-3).
SOP
03-3
addresses
accounting for differences between the contractual cash flows of
certain loans and debt securities and the cash flows expected to
be collected when loans or debt securities are acquired in a
transfer and those cash flow differences are attributable, at
least in part, to credit quality. As such,
SOP
03-3
applies
to loans and debt securities acquired individually, in pools or
as part of a business combination and does not apply to
originated loans. The application of
SOP
03-3
limits
the interest income,
F-37
Home BancShares, Inc. and Subsidiaries
Notes to Consolidated Financial
Statements — (Continued)
including accretion of purchase price discounts, which may be
recognized for certain loans and debt securities. Additionally,
SOP
03-3
does not
allow the excess of contractual cash flows over cash flows
expected to be collected to be recognized as an adjustment of
yield, loss accrual or valuation allowance, such as the
allowance for possible loan losses.
SOP
03-3
requires
that increases in expected cash flows subsequent to the initial
investment be recognized prospectively through adjustment of the
yield on the loan or debt security over its remaining life.
Decreases in expected cash flows should be recognized as
impairment. In the case of loans acquired in a business
combination where the loans show signs of credit deterioration,
SOP
03-3
represents a significant change from current purchase accounting
practice whereby the acquiree’s allowance for loan losses
is typically added to the acquirer’s allowance for loan
losses. SOP
03-3
was effective for loans and debt securities the Company acquired
beginning January 1, 2005. The adoption of
SOP
03-3
did not
have a material impact on the Company’s acquisitions of TCB
or MBI. However, during the acquisition of MVBI, the Company did
recognize impairment charges on loans which were deemed the have
probable losses. These impairment charges resulted in reducing
the acquired provision for loan losses and gross loan receivable
by $506,000.
SFAS No. 123,
Share-Based Payment
(Revised
2004), establishes standards for the accounting for transactions
in which an entity (i) exchanges its equity instruments for
goods or services, or (ii) incurs liabilities in exchange
for goods or services that are based on the fair value of the
entity’s equity instruments or that may be settled by the
issuance of the equity instruments. SFAS 123R eliminates
the ability to account for stock-based compensation using
APB 25 and requires that such transactions be recognized as
compensation cost in the income statement based on their fair
values on the measurement date, which is generally the date of
the grant. SFAS 123R was to be effective for the Company on
July 1, 2005; however, the required implementation date was
delayed until January 1, 2006. The Company will transition
to fair-value based accounting for stock-based compensation
using a modified version of prospective application
(“modified prospective application”). Under modified
prospective application, as it is applicable to the Company,
SFAS 123R applies to new awards and to awards modified,
repurchased, or cancelled after January 1, 2006.
Additionally, compensation cost for the portion of awards for
which the requisite service has not been rendered (generally
referring to non-vested awards) that are outstanding as of
January 1, 2006 must be recognized as the remaining
requisite service is rendered during the period of and/or the
periods after the adoption of SFAS 123R. The attribution of
compensation cost for those earlier awards will be based on the
same method and on the same grant-date fair values previously
determined for the pro forma disclosures required for companies
that did not adopt the fair value accounting method for
stock-based employee compensation.
Based on the stock-based compensation awards outstanding as of
December 31, 2005 for which the requisite service is not
expected to be fully rendered prior to January 1, 2006, the
Company expects to recognize total compensation cost of
approximately $460,000 during 2006, in accordance with the
accounting requirements of SFAS 123R. Future levels of
compensation cost recognized related to stock-based compensation
awards (including the aforementioned expected costs during the
period of adoption) may be impacted by new awards and/or
modifications, repurchases and cancellations of existing awards
after the adoption of SFAS 123R.
SFAS No. 154,
Accounting Changes and Error
Corrections, A Replacement of APB Opinion No. 20 and FASB
Statement No. 3
, establishes unless impracticable,
retrospective application as the required method for reporting a
change in accounting principle in the absence of explicit
transition requirements specific to a newly adopted accounting
principle. Previously, most changes in accounting principle were
recognized by including the cumulative effect of changing to the
new accounting principle in net income of the period of the
change. Under FAS 154, retrospective application requires
(i) the cumulative effect of the change to the new
accounting principle on periods prior to those presented to be
reflected in the carrying amounts of assets and liabilities as
of the beginning of the first period presented, (ii) an
offsetting adjustment, if any, to be made to the opening balance
of retained earnings (or other appropriate components of equity)
for that period, and (iii) financial statements for each
individual prior period presented to be adjusted to reflect the
direct period-
F-38
Home BancShares, Inc. and Subsidiaries
Notes to Consolidated Financial
Statements — (Continued)
specific effects of applying the new accounting principle.
Special retroactive application rules apply in situations where
it is impracticable to determine either the period-specific
effects or the cumulative effect of the change. Indirect effects
of a change in accounting principle are required to be reported
in the period in which the accounting change is made.
SFAS 154 carries forward the guidance in APB Opinion 20
“Accounting Changes,” requiring justification of a
change in accounting principle on the basis of preferability.
SFAS 154 also carries forward without change the guidance
contained in APB Opinion 20, for reporting the correction
of an error in previously issued financial statements and for a
change in an accounting estimate. SFAS 154 is effective for
accounting changes and corrections of errors made in fiscal
years beginning after December 15, 2005. The Company does
not expect SFAS 154 will significantly impact its financial
statements upon its adoption on January 1, 2006.
FASB Staff Position (FSP) No, 115-1,
The Meaning of
Other-Than-Temporary Impairment and Its Application to Certain
Investments
, provides guidance for determining when an
investment is considered impaired, whether impairment is
other-than-temporary, and measurement of an impairment loss. An
investment is considered impaired if the fair value of the
investment is less than its cost. If, after consideration of all
available evidence to evaluate the realizable value of its
investment, impairment is determined to be other-than-temporary,
then an impairment loss should be recognized equal to the
difference between the investment’s cost and its fair
value. FSP 115-1 nullifies certain provisions of Emerging Issues
Task Force (EITF) Issue
No.
03-1,
The
Meaning of Other-Than-Temporary Impairment and Its Application
to Certain Investments
, while retaining the disclosure
requirements of
EITF
03-1
which
were adopted in 2003. FSP 115- 1 is effective for reporting
periods beginning after December 15, 2005. The Company does
not expect ESP 115-1 will significantly impact its
financial statements upon its adoption on January 1, 2006.
Presently, the Company is not aware of any other changes from
the Financial Accounting Standards Board that will have a
material impact on the Company’s present or future
financial statements.
|
|
|
|
24.
|
Subsequent Events — Unaudited
|
In January 2006, WRBI issued an additional $15 million of
their common stock. To maintain its 20% ownership, HBI made an
additional investment in WRBI of $3.0 million in January
2006.
F-39
Home BancShares, Inc. and Subsidiaries
Notes to Consolidated Financial
Statements — (Continued)
|
|
|
|
25.
|
Condensed Financial Information (Parent Company Only)
|
Condensed Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
ASSETS
|
|
Cash and cash equivalents
|
|
$
|
5,046
|
|
|
$
|
10,659
|
|
|
Investment securities
|
|
|
5,000
|
|
|
|
—
|
|
|
Investments in wholly-owned subsidiaries
|
|
|
198,929
|
|
|
|
97,113
|
|
|
Investments in unconsolidated subsidiaries
|
|
|
9,813
|
|
|
|
20,122
|
|
|
Premises and equipment
|
|
|
3,917
|
|
|
|
45
|
|
|
Other assets
|
|
|
3,001
|
|
|
|
591
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
225,706
|
|
|
$
|
128,530
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
Long-term borrowings
|
|
$
|
14,000
|
|
|
$
|
—
|
|
|
Subordinated debentures
|
|
|
44,755
|
|
|
|
20,619
|
|
|
Other liabilities
|
|
|
1,094
|
|
|
|
1,301
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
59,849
|
|
|
|
21,920
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ Equity
|
|
|
|
|
|
|
|
|
|
Preferred stock — A
|
|
|
21
|
|
|
|
21
|
|
|
Preferred stock — B
|
|
|
2
|
|
|
|
—
|
|
|
Common stock
|
|
|
121
|
|
|
|
266
|
|
|
Capital surplus
|
|
|
146,285
|
|
|
|
90,455
|
|
|
Retained earnings
|
|
|
27,331
|
|
|
|
17,295
|
|
|
Accumulated other comprehensive loss
|
|
|
(7,903
|
)
|
|
|
(858
|
)
|
|
Treasury stock at cost
|
|
|
—
|
|
|
|
(569
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders’ equity
|
|
|
165,857
|
|
|
|
106,610
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders’ equity
|
|
$
|
225,706
|
|
|
$
|
128,530
|
|
|
|
|
|
|
|
|
|
F-40
Home BancShares, Inc. and Subsidiaries
Notes to Consolidated Financial
Statements — (Continued)
Condensed Statements of Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends from subsidiaries
|
|
$
|
10,664
|
|
|
$
|
1,010
|
|
|
$
|
8,944
|
|
|
|
Other income
|
|
|
926
|
|
|
|
6,333
|
|
|
|
283
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income
|
|
|
11,590
|
|
|
|
7,343
|
|
|
|
9,227
|
|
|
Expense
|
|
|
4,988
|
|
|
|
2,489
|
|
|
|
371
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes and equity in undistributed net
income of subsidiaries
|
|
|
6,602
|
|
|
|
4,854
|
|
|
|
8,856
|
|
|
|
Provision for income taxes
|
|
|
(1,603
|
)
|
|
|
1,553
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before equity in undistributed net income of subsidiaries
|
|
|
8,205
|
|
|
|
3,301
|
|
|
|
8,856
|
|
|
Equity in undistributed net income (loss) of subsidiaries
|
|
|
3,241
|
|
|
|
5,858
|
|
|
|
(5,087
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
11,446
|
|
|
$
|
9,159
|
|
|
$
|
3,769
|
|
|
|
|
|
|
|
|
|
|
|
|
F-41
Home BancShares, Inc. and Subsidiaries
Notes to Consolidated Financial
Statements — (Continued)
Condensed Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
11,446
|
|
|
$
|
9,159
|
|
|
$
|
3,769
|
|
|
|
Items not requiring (providing) cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
138
|
|
|
|
4
|
|
|
|
—
|
|
|
|
|
Gain on sale of equity investment
|
|
|
(465
|
)
|
|
|
(4,410
|
)
|
|
|
—
|
|
|
|
|
Equity in undistributed income of subsidiaries
|
|
|
(3,241
|
)
|
|
|
(5,858
|
)
|
|
|
5,087
|
|
|
|
|
Equity in loss (income) of unconsolidated affiliates
|
|
|
592
|
|
|
|
(1,560
|
)
|
|
|
(937
|
)
|
|
|
Changes in other assets
|
|
|
(1,669
|
)
|
|
|
15
|
|
|
|
(340
|
)
|
|
|
|
Other liabilities
|
|
|
(320
|
)
|
|
|
639
|
|
|
|
198
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
6,481
|
|
|
|
(2,011
|
)
|
|
|
7,777
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of premises and equipment
|
|
|
(276
|
)
|
|
|
(49
|
)
|
|
|
—
|
|
|
|
Investment in unconsolidated subsidiaries
|
|
|
(9,091
|
)
|
|
|
(180
|
)
|
|
|
(8,592
|
)
|
|
|
Capital contribution to subsidiaries
|
|
|
(4,000
|
)
|
|
|
—
|
|
|
|
(35,097
|
)
|
|
|
Return of capital from subsidiaries
|
|
|
27,246
|
|
|
|
—
|
|
|
|
—
|
|
|
|
Purchase of subsidies
|
|
|
(48,988
|
)
|
|
|
—
|
|
|
|
(12,576
|
)
|
|
|
Proceeds from sale of investment in RBI
|
|
|
—
|
|
|
|
13,546
|
|
|
|
—
|
|
|
|
Purchase of investment securities
|
|
|
(5,000
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by investing activities
|
|
|
(40,109
|
)
|
|
|
13,317
|
|
|
|
(56,265
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net proceeds from stock issuance
|
|
|
425
|
|
|
|
24
|
|
|
|
27,734
|
|
|
|
Purchase of treasury stock
|
|
|
—
|
|
|
|
(549
|
)
|
|
|
(20
|
)
|
|
|
Issuance of subordinated debentures
|
|
|
15,000
|
|
|
|
—
|
|
|
|
20,090
|
|
|
|
Issuance of long-term borrowings
|
|
|
14,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
Dividends paid
|
|
|
(1,410
|
)
|
|
|
(869
|
)
|
|
|
(93
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
28,015
|
|
|
|
(1,394
|
)
|
|
|
47,711
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Decrease) increase decrease in cash and cash equivalents
|
|
|
(5,613
|
)
|
|
|
9,912
|
|
|
|
(777
|
)
|
|
|
Cash and cash equivalents, beginning of year
|
|
|
10,659
|
|
|
|
747
|
|
|
|
1,524
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year
|
|
$
|
5,046
|
|
|
$
|
10,659
|
|
|
$
|
747
|
|
|
|
|
|
|
|
|
|
|
|
|
F-42
Home BancShares, Inc. and Subsidiaries
Notes to Consolidated Financial
Statements — (Continued)
Consolidated Financial Statements
TCBancorp, Inc. and Subsidiary
Years ended December 31, 2004 and 2003
F-43
TCBancorp, Inc. and Subsidiary
Consolidated Financial Statements
Years ended December 31, 2004 and 2003
Contents
|
|
|
|
|
|
|
|
|
|
F-44
|
|
|
Audited Consolidated Financial Statements
|
|
|
|
|
|
|
|
|
F-45
|
|
|
|
|
|
F-46
|
|
|
|
|
|
F-47
|
|
|
|
|
|
F-48
|
|
|
|
|
|
F-49
|
|
Report of Independent Registered Public Accounting Firm
The Board of Directors and
Stockholders of TCBancorp, Inc.
We have audited the accompanying consolidated balance sheet of
TCBancorp, Inc. and subsidiary as of December 31, 2004 and
2003, and the related consolidated statements of income,
stockholders’ equity, and cash flows for the years then
ended. These financial statements are the responsibility of the
Company’s management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. We were not engaged to perform an
audit of the Company’s internal control over financial
reporting. Our audits included consideration of internal control
over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of
the Company’s internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of TCBancorp, Inc. and subsidiary at
December 31, 2004 and 2003, and the consolidated results of
their operations and their cash flows for the years then ended,
in conformity with U.S. generally accepted accounting
principles.
March 11, 2005
F-44
TCBancorp, Inc. and Subsidiary
Consolidated Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
|
|
|
|
|
|
2004
|
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
Cash and due from banks
|
|
$
|
9,038,802
|
|
|
$
|
9,221,345
|
|
|
Federal funds sold
|
|
|
3,660,000
|
|
|
|
—
|
|
|
Investment securities — available for sale
|
|
|
327,189,427
|
|
|
|
194,278,868
|
|
|
Loans receivable
|
|
|
261,926,661
|
|
|
|
204,884,112
|
|
|
Allowance for loan losses
|
|
|
(4,740,649
|
)
|
|
|
(3,483,498
|
)
|
|
|
|
|
|
|
|
|
|
|
Loans receivable, net
|
|
|
257,186,012
|
|
|
|
201,400,614
|
|
|
Bank premises and equipment, net
|
|
|
14,590,106
|
|
|
|
11,099,596
|
|
|
Investments in unconsolidated affiliates
|
|
|
9,243,360
|
|
|
|
8,659,251
|
|
|
Accrued interest receivable
|
|
|
2,658,800
|
|
|
|
1,605,161
|
|
|
Goodwill
|
|
|
1,132,109
|
|
|
|
98,389
|
|
|
Core deposit intangible, net
|
|
|
288,503
|
|
|
|
—
|
|
|
Other real estate owned
|
|
|
—
|
|
|
|
1,712,700
|
|
|
Income tax receivable
|
|
|
138,536
|
|
|
|
534,571
|
|
|
Other assets
|
|
|
5,223,518
|
|
|
|
1,996,500
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
630,349,173
|
|
|
$
|
430,606,995
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders’ Equity
|
|
Deposits:
|
|
|
|
|
|
|
|
|
|
|
Demand, non-interest-bearing
|
|
$
|
56,183,562
|
|
|
$
|
39,438,879
|
|
|
|
Savings and interest-bearing transaction accounts
|
|
|
165,244,655
|
|
|
|
107,226,763
|
|
|
|
Time certificates of deposit
|
|
|
278,715,558
|
|
|
|
177,820,899
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
|
500,143,775
|
|
|
|
324,486,541
|
|
|
Federal funds purchased
|
|
|
—
|
|
|
|
9,630,000
|
|
|
Securities sold under agreements to repurchase
|
|
|
45,754,078
|
|
|
|
35,551,396
|
|
|
Federal Home Loan Bank borrowings
|
|
|
20,883,900
|
|
|
|
—
|
|
|
Accrued interest and other liabilities
|
|
|
1,928,152
|
|
|
|
696,475
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
568,709,905
|
|
|
|
370,364,412
|
|
|
Stockholders’ equity:
|
|
|
|
|
|
|
|
|
|
|
Common stock, par value $0.01; 3,000,000 shares authorized;
2,286,515 and 2,283,075 shares issued and outstanding in 2004
and 2003, respectively
|
|
|
22,865
|
|
|
|
22,831
|
|
|
|
Capital surplus
|
|
|
61,217,100
|
|
|
|
61,122,534
|
|
|
|
Retained earnings
|
|
|
2,688,362
|
|
|
|
157,331
|
|
|
|
Accumulated other comprehensive loss
|
|
|
(2,289,059
|
)
|
|
|
(1,060,113
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders’ equity
|
|
|
61,639,268
|
|
|
|
60,242,583
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders’ equity
|
|
$
|
630,349,173
|
|
|
$
|
430,606,995
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
F-45
TCBancorp, Inc. and Subsidiary
Consolidated Statements of Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31
|
|
|
|
|
|
|
|
|
|
2004
|
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
Interest income:
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$
|
12,297,715
|
|
|
$
|
8,830,893
|
|
|
|
Investment securities:
|
|
|
|
|
|
|
|
|
|
|
|
Taxable
|
|
|
7,948,791
|
|
|
|
4,365,984
|
|
|
|
|
Tax-exempt
|
|
|
522,771
|
|
|
|
129,280
|
|
|
|
Federal funds sold
|
|
|
68,020
|
|
|
|
54,793
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
|
20,837,297
|
|
|
|
13,380,950
|
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
|
|
Interest on deposits
|
|
|
6,804,296
|
|
|
|
4,089,339
|
|
|
|
Federal funds purchased
|
|
|
60,556
|
|
|
|
22,040
|
|
|
|
Federal Home Loan Bank borrowings
|
|
|
390,081
|
|
|
|
—
|
|
|
|
Securities sold under agreements to repurchase
|
|
|
150,778
|
|
|
|
449,495
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
|
7,405,711
|
|
|
|
4,560,874
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
13,431,586
|
|
|
|
8,820,076
|
|
|
Provision for loan losses
|
|
|
1,260,000
|
|
|
|
1,667,000
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for loan losses
|
|
|
12,171,586
|
|
|
|
7,153,076
|
|
|
Non-interest income:
|
|
|
|
|
|
|
|
|
|
|
Service charges on deposit accounts
|
|
|
1,756,345
|
|
|
|
917,933
|
|
|
|
Other income, charges, and fees
|
|
|
733,415
|
|
|
|
744,306
|
|
|
|
Equity in income (loss) of unconsolidated affiliates
|
|
|
396,471
|
|
|
|
(97,589
|
)
|
|
|
Gain on sale of securities
|
|
|
115,534
|
|
|
|
257,842
|
|
|
|
|
|
|
|
|
|
|
Total non-interest income
|
|
|
3,001,765
|
|
|
|
1,822,492
|
|
|
Non-interest expense:
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits
|
|
|
5,233,085
|
|
|
|
3,831,782
|
|
|
|
Occupancy and equipment
|
|
|
2,399,576
|
|
|
|
1,488,441
|
|
|
|
Other operating expenses
|
|
|
3,886,137
|
|
|
|
3,075,920
|
|
|
|
|
|
|
|
|
|
|
Total non-interest expense
|
|
|
11,518,798
|
|
|
|
8,396,143
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
3,654,553
|
|
|
|
579,425
|
|
|
Income tax expense
|
|
|
1,123,522
|
|
|
|
138,404
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
2,531,031
|
|
|
$
|
441,021
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
F-46
TCBancorp, Inc. and Subsidiary
Consolidated Statements of Stockholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
|
|
|
|
Common
|
|
|
Capital
|
|
|
(Deficit)
|
|
|
Income
|
|
|
|
|
|
|
Stock
|
|
|
Surplus
|
|
|
Earnings
|
|
|
(Loss)
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at January 1, 2003
|
|
$
|
14,069
|
|
|
$
|
37,073,816
|
|
|
$
|
(283,690
|
)
|
|
$
|
203,295
|
|
|
$
|
37,007,490
|
|
|
|
Comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
—
|
|
|
|
—
|
|
|
|
441,021
|
|
|
|
—
|
|
|
|
441,021
|
|
|
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized losses on investment securities available for sale,
net of $738,513 tax effect
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,433,584
|
)
|
|
|
(1,433,584
|
)
|
|
|
|
|
Reclassification adjustment for gains included in income, net of
$87,666 tax effect
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
170,176
|
|
|
|
170,176
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(822,387
|
)
|
|
|
Issuance of stock awards — 3,440 shares
|
|
|
35
|
|
|
|
94,565
|
|
|
|
—
|
|
|
|
—
|
|
|
|
94,600
|
|
|
|
Sale of stock offerings, net of offering costs of
$37,140 — 872,728 shares
|
|
|
8,727
|
|
|
|
23,954,153
|
|
|
|
—
|
|
|
|
—
|
|
|
|
23,962,880
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2003
|
|
|
22,831
|
|
|
|
61,122,534
|
|
|
|
157,331
|
|
|
|
(1,060,113
|
)
|
|
|
60,242,583
|
|
|
|
Comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
—
|
|
|
|
—
|
|
|
|
2,531,031
|
|
|
|
—
|
|
|
|
2,531,031
|
|
|
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized losses on investment securities available for sale,
net of $923,354 tax effect
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,300,242
|
)
|
|
|
(1,300,242
|
)
|
|
|
|
|
Reclassification adjustment for gains included in income, net of
$44,238 tax effect
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
71,296
|
|
|
|
71,296
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive gain, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,302,085
|
|
|
|
Issuance of stock awards — 3,440 shares
|
|
|
34
|
|
|
|
94,566
|
|
|
|
—
|
|
|
|
—
|
|
|
|
94,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2004
|
|
$
|
22,865
|
|
|
$
|
61,217,100
|
|
|
$
|
2,688,362
|
|
|
$
|
(2,289,059
|
)
|
|
$
|
61,639,268
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
F-47
TCBancorp, Inc. and Subsidiary
Consolidated Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31
|
|
|
|
|
|
|
|
|
|
2004
|
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
Operating Activities
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
2,531,031
|
|
|
$
|
441,021
|
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
865,901
|
|
|
|
470,441
|
|
|
|
Amortization
|
|
|
687,127
|
|
|
|
30,672
|
|
|
|
Loss on sale of assets
|
|
|
1,584
|
|
|
|
—
|
|
|
|
Gain on sale of securities available for sale
|
|
|
(115,534
|
)
|
|
|
(257,842
|
)
|
|
|
Stock bonus compensation
|
|
|
94,600
|
|
|
|
94,600
|
|
|
|
Provision for loan losses
|
|
|
1,260,000
|
|
|
|
1,667,000
|
|
|
|
Deferred income taxes
|
|
|
(197,514
|
)
|
|
|
(38,901
|
)
|
|
|
Equity in (income) loss of unconsolidated affiliates
|
|
|
(396,471
|
)
|
|
|
97,589
|
|
|
|
Originations of mortgage loans held for sale
|
|
|
(14,238,978
|
)
|
|
|
(34,668,915
|
)
|
|
|
Proceeds from sale of mortgage loans held for sale
|
|
|
14,526,628
|
|
|
|
34,583,265
|
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Accrued interest receivable
|
|
|
(1,026,639
|
)
|
|
|
(603,971
|
)
|
|
|
|
Other assets
|
|
|
222,991
|
|
|
|
(145,981
|
)
|
|
|
|
Accrued interest and other liabilities
|
|
|
1,570,712
|
|
|
|
(558,747
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
5,785,438
|
|
|
|
1,110,231
|
|
|
Investing Activities
|
|
|
|
|
|
|
|
|
|
Purchases of investment securities
|
|
|
(262,677,805
|
)
|
|
|
(251,189,651
|
)
|
|
Purchase of FHLB stock
|
|
|
(2,373,100
|
)
|
|
|
—
|
|
|
Proceeds from maturities of investment securities
|
|
|
69,246,288
|
|
|
|
109,795,286
|
|
|
Proceeds from sales of investment securities
|
|
|
57,909,309
|
|
|
|
40,958,645
|
|
|
Net increase in loans
|
|
|
(51,422,048
|
)
|
|
|
(74,978,741
|
)
|
|
Net (increase) decrease in federal funds sold
|
|
|
(3,660,000
|
)
|
|
|
4,000,000
|
|
|
Purchases of bank premises and equipment, net
|
|
|
(3,762,582
|
)
|
|
|
(6,802,533
|
)
|
|
Proceeds on sale of other real estate owned
|
|
|
1,718,351
|
|
|
|
—
|
|
|
Cash acquired in branch acquisition
|
|
|
9,332,790
|
|
|
|
—
|
|
|
Investments in unconsolidated affiliates
|
|
|
(180,000
|
)
|
|
|
(8,718,500
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(185,868,797
|
)
|
|
|
(186,935,494
|
)
|
|
Financing Activities
|
|
|
|
|
|
|
|
|
|
Net proceeds from common stock issuance
|
|
|
—
|
|
|
|
23,962,880
|
|
|
Net increase in deposits
|
|
|
158,574,234
|
|
|
|
139,899,045
|
|
|
Net increase in securities sold under agreements to repurchase
|
|
|
10,072,682
|
|
|
|
14,181,793
|
|
|
Net increase in FHLB borrowings
|
|
|
20,883,900
|
|
|
|
—
|
|
|
Increase (decrease) in federal funds purchased
|
|
|
(9,630,000
|
)
|
|
|
9,630,000
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
179,900,816
|
|
|
|
187,673,718
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and due from banks
|
|
|
(182,543
|
)
|
|
|
1,848,455
|
|
|
Cash and due from banks at beginning of year
|
|
|
9,221,345
|
|
|
|
7,372,890
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks at end of year
|
|
$
|
9,038,802
|
|
|
$
|
9,221,345
|
|
|
|
|
|
|
|
|
|
|
Cash paid for:
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
6,825,407
|
|
|
$
|
4,598,276
|
|
|
|
Income taxes
|
|
|
925,000
|
|
|
|
1,355,000
|
|
See accompanying notes.
F-48
TCBancorp, Inc. and Subsidiary
Notes to Consolidated Financial Statements
December 31, 2004
|
|
|
|
1.
|
Summary of Significant Accounting Policies
|
TCBancorp, Inc. (the Company) is a bank holding company
headquartered in North Little Rock, Arkansas, which began
operations during 2000 after purchasing an existing bank
charter. The Company operates under the rules and regulations of
the Board of Governors of the Federal Reserve System and owns a
state-chartered bank named Twin City Bank (the Bank). The
Company and the Bank are subject to the regulation of certain
federal and state agencies and undergo periodic examinations by
those regulatory authorities. The Bank has branch locations in
central Arkansas.
|
|
|
|
|
Principles of Consolidation
|
The consolidated financial statements include the accounts of
the Company and its wholly owned subsidiary, Twin City Bank.
Significant intercompany transactions and amounts have been
eliminated in consolidation.
In preparing financial statements in conformity with accounting
principles generally accepted in the United States, management
is required to make estimates and assumptions that affect the
reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and
expenses during the year then ended. Actual results could differ
from those estimates.
Interest on investment securities is recorded as income as it is
earned. Gains or losses on the sale of securities are determined
using the specific identification method. Management determines
the classification of securities as available for sale, held to
maturity, or trading. 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.
Securities available for sale are reported at fair value with
unrealized gains and losses reported as a separate component of
stockholders’ equity and other comprehensive income (loss).
These securities are held for indefinite periods of time and are
used as a part of the Company’s asset/liability management
strategy and may be sold in response to interest rate changes,
changes in prepayment risk, the need to increase regulatory
capital, and other similar factors.
Securities held to maturity are reported at amortized historical
cost. Securities that management has the intent and ability to
hold until maturity are classified as held to maturity. There
were no securities classified as held to maturity or trading at
December 31, 2004 or 2003.
Loans receivable that management has the intent and ability to
hold for the foreseeable future or until maturity or payoff are
reported at their outstanding principal balance adjusted for any
charge-offs. Interest on loans is calculated by using the simple
interest method on the daily balances of the principal amount
outstanding.
The allowance for loan losses is established through a provision
for loan losses charged against income. The allowance represents
an amount that, in management’s judgment, will be adequate
to absorb probable losses on existing loans that may become
uncollectible. The amounts of provisions to the allowance for
loan losses are based on management’s judgment and
evaluation of the loan portfolio utilizing objective and
subjective criteria. The objective criteria utilized by the
Company to assess the adequacy of its allowance for
F-49
TCBancorp, Inc. and Subsidiary
Notes to Consolidated Financial
Statements — (Continued)
loan losses and required additions to the reserve are
(1) an internal grading system and (2) a peer group
analysis. In addition to these objective criteria, the Company
subjectively assesses the adequacy of the allowance for loan
losses and the need for additions thereto, with consideration
given to the nature and volume of the portfolio, overall
portfolio quality, review of specific problem loans, national,
regional and local business and economic conditions that may
affect the borrowers’ ability to pay or the value of
collateral securing the loans, and other relevant factors.
Loans considered impaired, under SFAS No. 114,
Accounting by Creditors for Impairment of a Loan,
as
amended by SFAS No. 118,
Accounting by Creditors for
Impairment of a Loan — Income Recognition and
Disclosures,
are loans for which, based on current
information and events, it is probable that the Company will be
unable to collect all amounts due according to the contractual
terms of the loan agreement. The Company applies this policy
even if delays or shortfalls in payment are expected to be
insignificant. All non-accrual loans and all loans that have
been restructured from their original contractual terms are
considered impaired loans. The aggregate amount of impairment of
loans is utilized 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 such
losses will be realized. The accrual of interest on impaired
loans is discontinued when, in management’s 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.
Loans are placed on non-accrual status when management believes
that the borrower’s 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 collectibility 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, but 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 three months, and the Company reasonably expects to
collect all principal and interest.
|
|
|
|
|
Foreclosed Assets Held for Sale
|
Real estate and personal properties acquired through or in lieu
of loan foreclosure are held for sale and are initially recorded
at estimated fair value at the date of foreclosure, establishing
a new book value.
Valuations are periodically performed by management, and the
real estate is carried at the lower of book value or fair value
less cost to sell. Gains and losses from the sale of other real
estate are recorded in other income, and expenses used to
maintain the properties are included in other operating expenses.
At December 31, 2004 and 2003, real estate acquired in
settlement of loans was approximately $0 and $1.71 million,
respectively. The amount at December 31, 2003, included a
property valued at approximately $1.70 million which was
subsequently sold on January 31, 2004, for
$1.72 million in net proceeds.
|
|
|
|
|
Bank Premises and Equipment
|
Bank premises and equipment are carried at cost less accumulated
depreciation. Depreciation expense is computed using the
straight-line method over the estimated useful lives of the
assets. Accelerated depreciation methods are used for tax
purposes. The assets’ estimated useful lives for book
purposes are as follows:
|
|
|
|
|
|
|
Bank premises
|
|
|
15-40 years
|
|
|
Furniture, fixtures, and equipment
|
|
|
3-15 years
|
|
F-50
TCBancorp, Inc. and Subsidiary
Notes to Consolidated Financial
Statements — (Continued)
Intangible assets consist of goodwill and core deposit
intangible. Goodwill of $110,000 arose from the purchase of an
existing charter during 2000 and, prior to 2003, was being
amortized using the straight-line method over 15 years.
During 2002, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 142,
Goodwill and
Other Intangible Assets
. Under the new rules, goodwill is no
longer amortized but subjected to annual impairment tests in
accordance with SFAS No. 142. The Company performed its
annual impairment test of goodwill as of December 31, 2004,
as required by SFAS No. 142. This test indicated no
impairment of the Company’s goodwill. At December 31,
2004 and 2003, goodwill totaled $1,132,109 and $98,389,
respectively.
|
|
|
|
|
Investments in Unconsolidated Affiliates
|
During 2003, the Company invested $8.6 million, which
represents a 20% ownership in CB Bancorp, Inc. (CBB). The
remaining 80% is owned by Home Bancshares, Inc. The investment
in CBB is accounted for on the equity method. The Company’s
share of earnings of CBB is included in non-interest income. The
Company’s share of CBB’s earnings in 2004 and 2003
amounted to $582,583 and $51,241, respectively.
On March 1, 2004, the Bank purchased a bank branch
operation, which provides a stronger market presence to the
Company, from Community Bank, Inc. (CBI), a wholly owned
subsidiary of CBB, which is an affiliate of the Company. The
Company acquired approximately $5.9 million in loans and
approximately $17.1 million in deposits in this
transaction. The Company received approximately
$9.1 million in cash from CBI as a result of the net
settlement of assets acquired and liabilities assumed. This
acquisition resulted in recording approximately
$1.0 million of goodwill and $327,000 of core deposit
intangibles. The recorded goodwill is deductible for tax
purposes. The core deposit intangibles are being amortized on a
straight-line basis over seven years. Amortization expense
related to the core deposit intangibles will be $47,000 for 2005
through 2010 and $7,000 in 2011. The Company has a 20% ownership
interest in CBI’s parent company, CB Bancorp, Inc.
Operations of the branch are included in the Company’s
income statement from March 1, 2004.
During 2001, the Company invested $140,000, which represents a
50% ownership in Firstrust, Inc. (Firstrust). During 2004 and
2003, the Company contributed additional equity in Firstrust of
$180,000 and $118,500, respectively. The investment in Firstrust
is accounted for on the equity method. The Company’s share
of earnings and losses of Firstrust is included in non-interest
income. The Company’s share of Firstrust’s operating
loss in 2004 and 2003 amounted to $186,112 and $148,830,
respectively.
The summarized financial information below represents an
aggregation of the Company’s unconsolidated affiliates as
of December 31, 2004 and 2003, and for the years then ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
2004
|
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
$
|
325,941,080
|
|
|
$
|
371,857,655
|
|
|
Liabilities
|
|
|
279,745,658
|
|
|
|
328,521,425
|
|
|
Equity
|
|
|
46,195,422
|
|
|
|
43,336,230
|
|
|
Net income
|
|
|
2,540,134
|
|
|
|
57,979
|
|
|
|
|
|
|
Securities Sold Under Agreements to Repurchase
|
The Company sells securities under agreements to repurchase to
meet customer needs for sweep accounts. At the point funds
deposited by customers become investable, those funds are
automatically swept to a companion investment account and are
used to purchase securities owned by the Company and held in its
general account with the designation of Customers’
Securities. A third party maintains control over the securities
underlying overnight repurchase agreements. The securities
involved in these transactions are generally U.S. Treasury or
Federal Agency issues. Securities sold under agreements to
repurchase generally
F-51
TCBancorp, Inc. and Subsidiary
Notes to Consolidated Financial
Statements — (Continued)
mature on the banking day following that on which the investment
was initially purchased and are treated as collateralized
financing transactions which are recorded at the amounts at
which the securities were sold plus accrued interest. Interest
rates and maturity dates of the securities involved vary and are
not intended to be matched with funds from customers.
The Company utilizes 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 bases 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.
The Company and its subsidiary file consolidated tax returns.
Its subsidiary provides for income taxes on a separate return
basis, and remits to the Company amounts determined to be
currently payable.
|
|
|
|
|
Advertising and Public Relations
|
Advertising and public relations costs are expensed as incurred
and totaled $797,272 and $684,787 for the years ended
December 31, 2004 and 2003, respectively.
The Company has a retirement savings 401(k) plan in which
substantially all employees may participate. The Company matches
employees’ contributions based on a percentage of salary
contributed by participants. The plan also allows for
discretionary employer contributions. The Company’s expense
for the plan was $203,888 and $157,252 in 2004 and 2003,
respectively, which is included in salaries and employee
benefits.
The Bank is required to meet Federal Reserve System average
reserve requirements by maintaining certain minimum balances of
cash or non-interest-bearing deposits. At December 31, 2004
and 2003, the required minimum balance was $978,000 and
$627,000, respectively.
The Company considers all cash, amounts due from depository
institutions, and interest-bearing deposits in other banks to be
cash and due from banks for balance sheet and statement of cash
flow purposes.
|
|
|
|
|
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 (see Note 15):
Cash and due from banks
— For these short-term
instruments, the carrying amount is a reasonable estimate of
fair value.
Federal funds sold
— The carrying amount of
federal funds sold approximates its fair value.
Investment securities — available for
sale
— Fair values for investment securities
available for sale are based on quoted market values.
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
F-52
TCBancorp, Inc. and Subsidiary
Notes to Consolidated Financial
Statements — (Continued)
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
— The fair values of demand and
savings deposits 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.
Accrued interest payable
— The carrying amount
of accrued interest payable approximates its fair value.
Federal funds purchased and securities sold under agreements
to repurchase
— For federal funds purchased and
securities sold under agreements to repurchase, the carrying
amount is a reasonable estimate of fair value given the
short-term nature of these financial instruments.
Federal Home Loan Bank borrowings
— 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.
|
|
|
|
|
Recent Accounting Pronouncements
|
AICPA Statement of Position 03-3,
Accounting for Certain
Loans or Debt Securities Acquired in a Transfer
(SOP 03-3),
addresses the accounting for differences between contractual
cash flows and cash flows expected to be collected from the
initial investment in loans acquired in a transfer if those
differences are attributable, at least in part, to credit
quality. It includes such loans acquired in purchase business
combinations and does not apply to loans originated by the
entity. The SOP prohibits carrying over or creation of valuation
allowances in the initial accounting for impaired loans acquired
in a transfer. It is effective for loans acquired in fiscal
years beginning after December 15, 2004. The effects of
this new guidance on the Company’s consolidated financial
statements will depend on future acquisition activity.
On December 16, 2004, the Financial Accounting Standards
Board (FASB) issued FASB Statement No. 123 (revised 2004),
Share-Based Payment,
which is a revision of FASB
Statement No. 123,
Accounting for Stock-Based
Compensation
. Statement 123(R) supersedes APB Opinion
No. 25,
Accounting for Stock Issued to Employees,
and
amends FASB Statement No. 95,
Statement of Cash
Flows
. Generally the approach in Statement 123(R) is similar
to the approach described in Statement 123. However,
Statement 123(R) requires all share-based payments to
employees, including grants of employee stock options, to be
recognized in the income statement based on their fair values.
Pro forma disclosure is no longer an alternative.
Statement 123(R) must be adopted as of the beginning of the
first annual reporting period that begins after
December 15, 2005 (calendar year 2006). The Company expects
to adopt Statement 123(R) as of January 1, 2006.
Statement 123(R) permits companies to adopt its requirements
using one of two methods: (1) a “modified prospective
method in which compensation cost is recognized beginning with
the effective date (a) based on the requirements of
Statement 123(R) for all share-based payments granted after
the effective date and (b) based on the requirements of
Statement 123 for all awards granted to employees prior to
the effective date of Statement 123(R) that remain unvested
on the effective date or (2) a “modified
retrospective” method which includes the requirements of
the modified prospective method described above, but also
permits entities to restate, based on the amounts previously
recognized under Statement 123 for purposes of pro forma
disclosures, either (a) all prior periods presented or
(b) prior interim periods of the year of adoption. The
Company is currently evaluating the impact that this
F-53
TCBancorp, Inc. and Subsidiary
Notes to Consolidated Financial
Statements — (Continued)
statement will have on its financial statements, and the Company
will adopt Statement 123(R) on the effective date.
In March 2004, the Securities and Exchange Commission
(SEC) issued Staff Accounting Bulletin
(SAB) No. 105,
Application of Accounting Principles
to Loan Commitments
. SAB No. 105 summarized the SEC
staff views regarding the application of accounting principles
generally accepted in the United States to loan commitments
accounted for as derivative instruments. Under the provisions of
SAB No. 105, interest rate lock commitments for mortgage
loans to be sold should be accounted for as derivative
instruments and should be measured at fair value without
consideration of any expected future cash flows associated with
servicing of the underlying loan. SAB No. 105 was effective
for loan commitments accounted for as derivatives entered into
after March 31, 2004, and did not have a material impact on
the Company’s statement of position, results of operations,
or cash flows.
The amortized cost and estimated market value of
available-for-sale investment securities were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2004
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
Estimated
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Market
|
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of U.S. Government agencies and corporations
|
|
$
|
117,770,213
|
|
|
$
|
811
|
|
|
$
|
(1,174,033
|
)
|
|
$
|
116,596,991
|
|
|
Obligations of states and political subdivisions
|
|
|
22,076,141
|
|
|
|
72,932
|
|
|
|
(123,459
|
)
|
|
|
22,025,614
|
|
|
Mortgage-backed securities
|
|
|
188,654,661
|
|
|
|
90,237
|
|
|
|
(2,577,410
|
)
|
|
|
186,167,488
|
|
|
Other securities
|
|
|
2,410,623
|
|
|
|
—
|
|
|
|
(11,289
|
)
|
|
|
2,399,334
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
330,911,638
|
|
|
$
|
163,980
|
|
|
$
|
(3,886,191
|
)
|
|
$
|
327,189,427
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2003
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
Estimated
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Market
|
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of U.S. Government agencies and corporations
|
|
$
|
79,538,193
|
|
|
$
|
112,001
|
|
|
$
|
(872,536
|
)
|
|
$
|
78,777,658
|
|
|
Obligations of states and political subdivisions
|
|
|
9,792,402
|
|
|
|
96,709
|
|
|
|
(63,497
|
)
|
|
|
9,825,614
|
|
|
Mortgage-backed securities
|
|
|
49,183,030
|
|
|
|
224,659
|
|
|
|
(239,702
|
)
|
|
|
49,167,987
|
|
|
CMO agency
|
|
|
57,071,475
|
|
|
|
92,711
|
|
|
|
(956,577
|
)
|
|
|
56,207,609
|
|
|
Corporate bonds
|
|
|
300,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
300,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
195,885,100
|
|
|
$
|
526,080
|
|
|
$
|
(2,132,312
|
)
|
|
$
|
194,278,868
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets, principally investment securities, having a carrying
value of approximately $271,264,000 and $137,765,000 at
December 31, 2004 and 2003, 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 were approximately
$45,754,000 and $40,225,000 at December 31, 2004 and 2003,
respectively.
The amortized cost and estimated market value of
available-for-sale securities at December 31, 2004, by
contractual maturity, are shown below. 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.
F-54
TCBancorp, Inc. and Subsidiary
Notes to Consolidated Financial
Statements — (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2004
|
|
|
|
|
|
|
|
|
|
Amortized
|
|
|
Estimated
|
|
|
|
|
Cost
|
|
|
Market Value
|
|
|
|
|
|
|
|
|
|
|
Due in one year or less
|
|
$
|
53,281,065
|
|
|
$
|
52,783,421
|
|
|
Due after one year through five years
|
|
|
194,429,616
|
|
|
|
192,167,811
|
|
|
Due after five years through ten years
|
|
|
43,881,720
|
|
|
|
43,385,718
|
|
|
Due after ten years
|
|
|
39,319,237
|
|
|
|
38,852,477
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
330,911,638
|
|
|
$
|
327,189,427
|
|
|
|
|
|
|
|
|
|
For purposes of the maturity table, 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.
During the years ended December 31, 2004 and 2003,
investment securities available for sale with a fair value at
the date of sale of approximately $57,909,000 and $40,959,000,
respectively, were sold. The gross realized gains on such sales
totaled $199,407 and $257,842 for the years ended
December 31, 2004 and 2003, respectively. The gross
realized losses totaled $83,873 and $0 for the years ended
December 31, 2004 and 2003, respectively. The income tax
expense related to net security gains was $44,238 and $87,666
for the years ended December 31, 2004 and 2003,
respectively.
The following shows investment securities’ gross unrealized
losses and fair value, aggregated by investment category and
length of time that individual securities have been in a
continuous unrealized loss position:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2004
|
|
|
|
|
|
|
|
|
|
Less Than 12 Months
|
|
|
12 Months or More
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
|
|
Value
|
|
|
Loss
|
|
|
Value
|
|
|
Loss
|
|
|
Value
|
|
|
Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of U.S. Government agencies and corporations
|
|
$
|
81,882,213
|
|
|
$
|
579,689
|
|
|
$
|
28,405,656
|
|
|
$
|
594,345
|
|
|
$
|
110,287,869
|
|
|
$
|
1,174,034
|
|
|
Obligations of states and political subdivisions
|
|
|
9,302,704
|
|
|
|
91,838
|
|
|
|
947,212
|
|
|
|
31,621
|
|
|
|
10,249,916
|
|
|
|
123,459
|
|
|
Mortgage-backed securities
|
|
|
98,414,968
|
|
|
|
1,383,684
|
|
|
|
6,885,771
|
|
|
|
117,578
|
|
|
|
105,300,739
|
|
|
|
1,501,262
|
|
|
CMO agency
|
|
|
28,104,053
|
|
|
|
344,960
|
|
|
|
17,527,979
|
|
|
|
715,921
|
|
|
|
45,632,032
|
|
|
|
1,060,881
|
|
|
Other securities
|
|
|
2,039,031
|
|
|
|
26,555
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,039,031
|
|
|
|
26,555
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
219,742,969
|
|
|
$
|
2,426,726
|
|
|
$
|
53,766,618
|
|
|
$
|
1,459,465
|
|
|
$
|
273,509,587
|
|
|
$
|
3,886,191
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-55
TCBancorp, Inc. and Subsidiary
Notes to Consolidated Financial
Statements — (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2003
|
|
|
|
|
|
|
|
|
|
|
|
12 Months or
|
|
|
|
|
|
Less Than 12 Months
|
|
|
More
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
Unrealized
|
|
Fair
|
|
|
Unrealized
|
|
|
|
|
Value
|
|
|
Loss
|
|
|
Value
|
|
Loss
|
|
Value
|
|
|
Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of U.S. Government agencies and corporations
|
|
$
|
59,745,460
|
|
|
$
|
872,536
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
59,745,460
|
|
|
$
|
872,536
|
|
|
Obligations of states and political subdivisions
|
|
|
2,899,641
|
|
|
|
63,496
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,899,641
|
|
|
|
63,496
|
|
|
Mortgage-backed securities
|
|
|
17,917,233
|
|
|
|
239,703
|
|
|
|
—
|
|
|
|
—
|
|
|
|
17,917,233
|
|
|
|
239,703
|
|
|
CMO agency
|
|
|
43,496,657
|
|
|
|
956,577
|
|
|
|
—
|
|
|
|
—
|
|
|
|
43,496,657
|
|
|
|
956,577
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
124,058,991
|
|
|
$
|
2,132,312
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
124,058,991
|
|
|
$
|
2,132,312
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2004, the Company had thirty securities
with an unrealized loss for more than 12 months. In
evaluating the Company’s unrealized loss positions for
other-than-temporary impairment, management considers the credit
quality of the issuer, the nature and cause of the unrealized
loss, and the severity and duration of the impairments. At
December 31, 2004, management determined that substantially
all of its unrealized losses were the result of fluctuations in
interest rates and did not reflect deteriorations of the credit
quality of the investments. Accordingly, management has
determined that all of its unrealized losses on investment
securities are temporary in nature, and the Company has both the
ability and intent to hold these investments until maturity or
until fair value recovers above cost.
|
|
|
|
1.
|
Loans Receivable and Allowance for Loan Losses
|
The following is a summary of loans by type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
|
|
|
|
|
|
2004
|
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
Real estate:
|
|
|
|
|
|
|
|
|
|
|
Residential 1–4 family
|
|
$
|
25,128,672
|
|
|
$
|
17,153,581
|
|
|
|
Nonfarm/nonresidential
|
|
|
98,814,335
|
|
|
|
75,094,703
|
|
|
|
Agricultural
|
|
|
806,059
|
|
|
|
860,940
|
|
|
|
Construction/land development
|
|
|
52,488,020
|
|
|
|
42,876,017
|
|
|
|
Multifamily residential
|
|
|
2,324,423
|
|
|
|
2,375,833
|
|
|
|
|
|
|
|
|
|
|
Total real estate
|
|
|
179,561,509
|
|
|
|
138,361,074
|
|
|
Consumer
|
|
|
9,439,963
|
|
|
|
8,615,990
|
|
|
Commercial and industrial
|
|
|
72,738,948
|
|
|
|
57,766,364
|
|
|
Agricultural (non-real estate)
|
|
|
186,241
|
|
|
|
140,684
|
|
|
|
|
|
|
|
|
|
|
|
|
|
261,926,661
|
|
|
|
204,884,112
|
|
|
Allowance for loan losses
|
|
|
(4,740,649
|
)
|
|
|
(3,483,498
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
257,186,012
|
|
|
$
|
201,400,614
|
|
|
|
|
|
|
|
|
|
Loans of $443,000 and $74,000 were on non-accrual status as of
December 31, 2004 and 2003, respectively. The total
allowance for loan losses related to these loans totaled
$104,000 and $11,000 at December 31, 2004 and 2003,
respectively. Interest income recorded during 2004 and 2003 on
non-accrual loans was considered immaterial. The average
recorded balance of non-accrual loans was $183,000 and
$1,982,000 at December 31, 2004 and 2003, respectively.
Under the original terms, these loans would have
F-56
TCBancorp, Inc. and Subsidiary
Notes to Consolidated Financial
Statements — (Continued)
reported approximately $16,000 and $154,000 of interest income
during 2004 and 2003, respectively. All of the Company’s
non-accrual loans are considered impaired in conformity with
SFAS No. 114, as amended by SFAS No. 118.
Mortgage loans held for resale of approximately $1,258,000 and
$288,000 at December 31, 2004 and 2003, respectively, are
included in residential one-to-four family loans. The carrying
value of these loans approximates their fair value. Mortgage
banking revenue is recognized when the loan is sold to a
third-party investor.
The following is a summary of activity within the allowance for
loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31
|
|
|
|
|
|
|
|
|
|
2004
|
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
Balance — beginning of year
|
|
$
|
3,483,498
|
|
|
$
|
2,277,920
|
|
|
Loans charged-off
|
|
|
(128,764
|
)
|
|
|
(478,314
|
)
|
|
Recoveries on loans previously charged-off
|
|
|
125,915
|
|
|
|
16,892
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs
|
|
|
(2,849
|
)
|
|
|
(461,422
|
)
|
|
Provision charged to operating expense
|
|
|
1,260,000
|
|
|
|
1,667,000
|
|
|
|
|
|
|
|
|
|
|
Balance — end of year
|
|
$
|
4,740,649
|
|
|
$
|
3,483,498
|
|
|
|
|
|
|
|
|
|
The aggregate amount of demand deposit overdrafts that have been
reclassified as loans at December 31, 2004 and 2003,
totaled $134,000 and $205,000, respectively.
|
|
|
|
4.
|
Concentration of Credit Risks
|
The Company’s primary market area is central Arkansas, and
it grants loans to customers located primarily within this
geographical area. Although the Company has a diversified loan
portfolio, a substantial portion of its debtors’ ability to
honor their contracts is dependent upon the economic stability
of the geographical area. The diversity of the region’s
economic base tends to provide a stable lending environment.
|
|
|
|
5.
|
Bank Premises and Equipment
|
Bank premises and equipment are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
|
|
|
|
|
|
2004
|
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
Land
|
|
$
|
4,253,095
|
|
|
$
|
2,438,336
|
|
|
Buildings
|
|
|
7,920,133
|
|
|
|
6,005,498
|
|
|
Leasehold improvements
|
|
|
263,320
|
|
|
|
270,960
|
|
|
Furniture, fixtures, and equipment
|
|
|
4,058,307
|
|
|
|
3,408,757
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,494,855
|
|
|
|
12,123,551
|
|
|
Accumulated depreciation
|
|
|
(1,904,749
|
)
|
|
|
(1,023,955
|
)
|
|
|
|
|
|
|
|
|
|
Bank premises and equipment, net
|
|
$
|
14,590,106
|
|
|
$
|
11,099,596
|
|
|
|
|
|
|
|
|
|
F-57
TCBancorp, Inc. and Subsidiary
Notes to Consolidated Financial
Statements — (Continued)
The following is a summary of the components of the provision
(benefit) for income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
|
|
|
|
|
|
2004
|
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
1,234,140
|
|
|
$
|
166,075
|
|
|
|
State
|
|
|
86,896
|
|
|
|
11,230
|
|
|
|
|
|
|
|
|
|
|
Total current
|
|
|
1,321,036
|
|
|
|
177,305
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(163,985
|
)
|
|
|
(38,901
|
)
|
|
|
State
|
|
|
(33,529
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Total deferred
|
|
|
(197,514
|
)
|
|
|
(38,901
|
)
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
$
|
1,123,522
|
|
|
$
|
138,404
|
|
|
|
|
|
|
|
|
|
The reconciliation between the statutory federal income tax rate
and effective income tax rate is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
|
|
|
|
|
|
2004
|
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
Statutory federal income tax rate
|
|
|
34.00
|
%
|
|
|
34.00
|
%
|
|
Effect of nontaxable interest income
|
|
|
(4.85
|
)
|
|
|
(7.58
|
)
|
|
Other
|
|
|
1.59
|
|
|
|
(2.53
|
)
|
|
|
|
|
|
|
|
|
|
Effective income tax rate
|
|
|
30.74
|
%
|
|
|
23.89
|
%
|
|
|
|
|
|
|
|
|
The types of temporary differences between the tax bases 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
|
|
|
|
|
|
2004
|
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses
|
|
$
|
1,815,195
|
|
|
$
|
1,184,389
|
|
|
|
Investment in unconsolidated subsidiary
|
|
|
30,932
|
|
|
|
132,755
|
|
|
|
Unrealized loss on securities available for sale
|
|
|
1,425,235
|
|
|
|
546,119
|
|
|
|
Other
|
|
|
8,907
|
|
|
|
87,992
|
|
|
|
|
|
|
|
|
|
|
Gross deferred tax assets
|
|
|
3,280,269
|
|
|
|
1,951,255
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
|
|
Accelerated depreciation on premises and equipment
|
|
|
794,136
|
|
|
|
560,392
|
|
|
|
Other
|
|
|
24,036
|
|
|
|
5,396
|
|
|
|
|
|
|
|
|
|
|
Gross deferred tax liabilities
|
|
|
818,172
|
|
|
|
565,788
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets included in other assets
|
|
$
|
2,462,097
|
|
|
$
|
1,385,467
|
|
|
|
|
|
|
|
|
|
F-58
TCBancorp, Inc. and Subsidiary
Notes to Consolidated Financial
Statements — (Continued)
|
|
|
|
7.
|
Related Party Transactions
|
In the ordinary course of business, loans may be made to
officers and directors and their affiliated companies at
substantially the same terms as comparable transactions with
other borrowers. At December 31, 2004 and 2003, related
party loans were $10,342,401 and $13,670,542, respectively. New
loans and advances on prior commitments made to such related
parties were $3,898,000 and $12,235,378 for the years ended
December 31, 2004 and 2003, respectively. Repayments of
loans made by such related parties were $7,226,341 and
$5,302,020 for the years ended December 31, 2004 and 2003,
respectively.
At December 31, 2004 and 2003, the Bank had deposits from
related parties of approximately $16,228,000 and $7,991,000,
respectively.
During 2004 and 2003, the Company incurred data processing fees
of $320,256 and $207,846, respectively, to an affiliate, First
Data Solutions, Inc., which performs all data processing
functions for the Company.
During 2004 and 2003, the Company also incurred various fees to
another affiliate, First State Bank, for the following:
$1,097,157 and $829,103, respectively, of professional fees for
bank operations which include backroom, item processing, human
resources, finance, and compliance; and $8,900 and $8,700,
respectively, for building rent.
The Company leases land for a branch premise from a corporation
controlled, through common ownership, by one of the
Company’s directors. The Company incurred $64,390 and
$62,322 of rental expense in 2004 and 2003, respectively,
related to this lease agreement.
The Company leases office space for bank operations from another
affiliate, First State Bank. The Company incurred $9,000 of
rental expense in both 2004 and 2003 related to the lease
agreement.
In the ordinary course of business, payments totaling
approximately $49,000 and $66,000 were made during 2004 and
2003, respectively, to vendors of the Bank who are companies
affiliated with members of the Bank’s board of directors.
On February 3, 2004, the Company purchased land from a
corporation controlled through common ownership by three of the
Company’s directors for a purchase price of approximately
$500,000. The land is located on Camp Robinson Road in North
Little Rock and was purchased for a bank branch location.
F-59
TCBancorp, Inc. and Subsidiary
Notes to Consolidated Financial
Statements — (Continued)
The table below shows the components of non-interest expense for
the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004
|
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits
|
|
$
|
5,233,085
|
|
|
$
|
3,831,782
|
|
|
Occupancy and equipment
|
|
|
2,399,576
|
|
|
|
1,488,441
|
|
|
Other operating expenses:
|
|
|
|
|
|
|
|
|
|
|
Advertising
|
|
|
797,272
|
|
|
|
684,787
|
|
|
|
ATM expense
|
|
|
115,956
|
|
|
|
72,502
|
|
|
|
Directors’ fees
|
|
|
97,200
|
|
|
|
102,487
|
|
|
|
Due from bank service charges
|
|
|
90,404
|
|
|
|
80,998
|
|
|
|
FDIC and state assessment
|
|
|
180,478
|
|
|
|
106,528
|
|
|
|
Insurance
|
|
|
169,060
|
|
|
|
124,720
|
|
|
|
Legal and accounting
|
|
|
141,187
|
|
|
|
207,004
|
|
|
|
Other professional fees
|
|
|
1,576,541
|
|
|
|
1,084,320
|
|
|
|
Operating supplies
|
|
|
245,335
|
|
|
|
244,180
|
|
|
|
Postage
|
|
|
117,378
|
|
|
|
87,121
|
|
|
|
Telephone
|
|
|
112,837
|
|
|
|
80,941
|
|
|
|
Amortization
|
|
|
38,987
|
|
|
|
—
|
|
|
|
Other
|
|
|
203,502
|
|
|
|
200,332
|
|
|
|
|
|
|
|
|
|
|
Total non-interest expense
|
|
$
|
11,518,798
|
|
|
$
|
8,396,143
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9.
|
Commitments and Contingencies
|
|
|
|
|
|
Commitments to Extend Credit
|
In the ordinary course of business, the Bank makes various
commitments and incurs certain contingent liabilities to fulfill
the financing needs of its customers. These commitments and
contingent liabilities include lines of credit and commitments
to extend credit and issue standby letters of credit.
At December 31, 2004 and 2003, commitments to extend credit
of $87,667,277 and $45,392,096, respectively, net of
participations sold, were outstanding. Since some of these
commitments are expected to expire without being drawn upon, the
total commitment amount does not necessarily represent future
cash requirements. The Bank applies the same credit policies and
standards as it does in the lending process when making these
commitments. The collateral obtained is based on the assessed
creditworthiness of the borrower.
Outstanding standby letters of credit are contingent commitments
issued by the Bank, generally to guarantee the performance of a
customer in third-party borrowing arrangements. The term of the
guarantee generally is for a period of one year. The maximum
amount of future payments the Bank could be required to make
under these guarantees at December 31, 2004 and 2003, is
$6,759,813 and $474,711, respectively. The Bank holds collateral
to support guarantees when deemed necessary. At
December 31, 2004 and 2003, the Bank had no collateralized
commitments.
The Bank is principally engaged in providing short-term and
medium-term commercial and consumer loans with interest rates
that are fixed or fluctuate with the prime lending rate. These
assets are primarily funded through short-term demand deposits
and long-term certificates of deposit with variable and fixed
rates.
F-60
TCBancorp, Inc. and Subsidiary
Notes to Consolidated Financial
Statements — (Continued)
Accordingly, the Bank is exposed to interest rate risk because
in changing interest rate environments, interest rate
adjustments on assets and liabilities may not occur at the same
time or in the same amount. The Bank manages the overall rate
sensitivity and mix of its asset and liability portfolio and
attempts to minimize the effects that interest rate fluctuations
will have on its net interest margin.
At December 31, 2004, the minimum rental commitments under
noncancelable operating leases are as follows:
|
|
|
|
|
|
|
2005
|
|
$
|
342,000
|
|
|
2006
|
|
|
337,500
|
|
|
2007
|
|
|
326,000
|
|
|
2008
|
|
|
326,000
|
|
|
2009
|
|
|
328,000
|
|
|
Thereafter
|
|
|
1,494,000
|
|
|
|
|
|
|
|
|
|
$
|
3,153,500
|
|
|
|
|
|
|
Rent expense under operating leases was $349,200 and $267,816 in
2004 and 2003, respectively.
|
|
|
|
11.
|
Time Certificates of Deposit
|
The aggregate amount of time deposits with a minimum
denomination of $100,000 was $200,260,336 and $123,888,404 at
December 31, 2004 and 2003, respectively.
The following is a summary of the scheduled maturities of all
time deposits at December 31, 2004:
|
|
|
|
|
|
|
2005
|
|
$
|
244,603,673
|
|
|
2006
|
|
|
24,763,517
|
|
|
2007
|
|
|
4,218,772
|
|
|
2008
|
|
|
2,864,502
|
|
|
2009
|
|
|
2,265,094
|
|
|
|
|
|
|
|
Total time deposits
|
|
$
|
278,715,558
|
|
|
|
|
|
|
Interest expense applicable to certificates in excess of
$100,000 totaled $2,863,968 and $2,139,717 in 2004 and 2003,
respectively.
At December 31, 2004 and 2003, brokered deposits totaled
approximately $10,316,000 and $10,019,000, respectively, and are
included in certificates of deposit.
During September 2003, the Company issued 872,728 shares of
common stock for an offering price of $27.50 per share,
pursuant to an exemption under
Section
23-42-503(a)(3)
of the Arkansas Securities Act, Section 3(a)(11) of the
Securities Act of 1933, and Rule 147 of the Securities and
Exchange Commission. Total proceeds from the sale of stock
offerings were $23,962,880, net of offering costs of $37,140.
|
|
|
|
13.
|
Stock-Based Compensation
|
The Company has elected to follow Accounting Principles Board
Opinion No. 25,
Accounting for Stock Issued to Employees
(APB 25), and related interpretations in accounting for
its employee stock options.
F-61
TCBancorp, Inc. and Subsidiary
Notes to Consolidated Financial
Statements — (Continued)
Under APB 25, because the exercise price of the options
equals the market price of the stock on the issuance date, no
compensation expense is recorded. The market price was
determined based on the per share price of the most recent
private placement equity issue. The Company has adopted the
disclosure-only provisions of SFAS No. 123,
Accounting for Stock-Based Compensation,
as amended by
SFAS No. 148.
The Company has a nonqualified stock option plan for certain key
employees and non-employee directors of the Company. This plan
provides for the granting of incentive nonqualified options to
purchase up to 64,400 shares of common stock in the
Company. As of December 31, 2004, 60,850 options have been
issued at option prices ranging from $25.00 to $27.50. These
options vest ratably over a five-year period and expire ten
years after the vesting date. The options were issued at fair
market value, which was determined by the per share price of the
Company’s most recent private placement equity issue, when
the options were issued.
The following summarizes stock option activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004
|
|
|
|
|
|
|
|
|
|
Employees
|
|
|
Directors
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding — beginning of the year
|
|
|
38,350
|
|
|
|
23,000
|
|
|
|
61,350
|
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Cancelled
|
|
|
—
|
|
|
|
(500
|
)
|
|
|
(500
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding — end of the year
|
|
|
38,350
|
|
|
|
22,500
|
|
|
|
60,850
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at end of the year
|
|
|
34,950
|
|
|
|
7,500
|
|
|
|
42,450
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003
|
|
|
|
|
|
|
|
|
|
Employees
|
|
|
Directors
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding — beginning of the year
|
|
|
37,600
|
|
|
|
15,000
|
|
|
|
52,600
|
|
|
Granted
|
|
|
1,000
|
|
|
|
8,000
|
|
|
|
9,000
|
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Cancelled
|
|
|
(250
|
)
|
|
|
—
|
|
|
|
(250
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding — end of the year
|
|
|
38,350
|
|
|
|
23,000
|
|
|
|
61,350
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at end of the year
|
|
|
27,280
|
|
|
|
3,000
|
|
|
|
30,280
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted-average fair value of options granted during 2003
was $4.95. There were no options granted during 2004. The
weighted-average remaining contractual life of the options
issued in 2003 was 11.34 years.
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:
|
|
|
|
|
|
|
|
|
2003
|
|
|
|
|
|
|
|
Risk-free interest rate
|
|
|
3.05%
|
|
|
Dividend yield
|
|
|
0.00
|
|
|
Expected dividend yield increase
|
|
|
0.00
|
|
|
Expected stock volatility
|
|
|
0.01
|
|
|
Weighted-average expected life
|
|
|
6.50 years
|
|
F-62
TCBancorp, Inc. and Subsidiary
Notes to Consolidated Financial
Statements — (Continued)
The following is a summary of currently outstanding and
exercisable options at December 31, 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding Options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
Options Exercisable
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Remaining
|
|
|
Weighted-
|
|
|
|
|
Weighted-
|
|
|
Exercise
|
|
|
Options
|
|
|
Contractual
|
|
|
Average
|
|
|
Options
|
|
|
Average
|
|
|
Prices
|
|
|
Outstanding
|
|
|
Life (in Years)
|
|
|
Exercise Price
|
|
|
Exercisable
|
|
|
Exercise Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
25.00
|
|
|
|
36,350
|
|
|
|
10.24
|
|
|
$
|
25.00
|
|
|
|
34,350
|
|
|
$
|
25.00
|
|
|
|
27.50
|
|
|
|
24,500
|
|
|
|
13.35
|
|
|
|
27.50
|
|
|
|
8,100
|
|
|
|
27.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60,850
|
|
|
|
|
|
|
|
|
|
|
|
42,450
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For purposes of pro forma disclosures as required by
SFAS Nos. 123 and 148, the estimated fair value of the
options is amortized over the options’ vesting period. The
following table represents the required pro forma disclosures
related to net income for the years ended December 31 for
options granted:
|
|
|
|
|
|
|
|
|
|
|
|
|
2004
|
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
Net income, as reported
|
|
$
|
2,531,031
|
|
|
$
|
441,021
|
|
|
Add: Stock-based employee compensation expense included in
reported net income, net of related tax effects
|
|
|
65,823
|
|
|
|
72,000
|
|
|
Deduct: Total stock-based compensation expense determined under
fair value-based method for all awards, net of related tax
effects
|
|
|
(118,226
|
)
|
|
|
(116,153
|
)
|
|
|
|
|
|
|
|
|
|
Net income, as adjusted
|
|
$
|
2,478,628
|
|
|
$
|
396,868
|
|
|
|
|
|
|
|
|
|
The Company has a stock bonus plan for certain key employees and
officers of the Company. This plan provides for the granting of
Company stock as bonuses. During 2000, 17,200 shares of
stock were designated to be granted as bonuses over a five-year
period. These shares are restricted and are vested when issued
over the five-year period.
In 2004 and 2003, the fair market value of the 3,440 shares
issued was determined to be $27.50 per share, based on the
issuance price of the Company’s private equity placements
during 2004 and 2003, respectively. Compensation expense is
recorded when the restricted stock is issued and was $94,600 in
each of the years ended December 31, 2004 and 2003.
The Company has a Federal Home Loan Bank
(FHLB) borrowing line of credit available. At
December 31, 2004, the Company had remaining $113,691,000
of unused FHLB borrowing availability. The FHLB maintains as
collateral a blanket lien on a portion of the Company’s
real estate, commercial, and agricultural loans.
Borrowings consist of the following at December 31, 2004:
|
|
|
|
|
|
|
|
|
|
|
Description
|
|
Maturities
|
|
|
Amount
|
|
|
|
|
|
|
|
|
|
|
1.93% Federal Home Loan Bank borrowings with interest due
monthly
|
|
|
January 2005
|
|
|
$
|
10,444,000
|
|
|
1.596% to 1.601% Federal Home Loan Bank borrowings with
interest due monthly
|
|
|
September 2005
|
|
|
|
10,439,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
20,883,900
|
|
|
|
|
|
|
|
|
|
F-63
TCBancorp, Inc. and Subsidiary
Notes to Consolidated Financial
Statements — (Continued)
|
|
|
|
15.
|
Financial Instruments
|
The following table presents the estimated fair values of the
Company’s financial instruments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2004
|
|
|
December 31, 2003
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying
|
|
|
|
|
Carrying
|
|
|
|
|
|
|
Amount
|
|
|
Fair Value
|
|
|
Amount
|
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
9,038,802
|
|
|
$
|
9,038,802
|
|
|
$
|
9,221,345
|
|
|
$
|
9,221,345
|
|
|
|
Federal funds sold
|
|
|
3,660,000
|
|
|
|
3,660,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
Investment securities — available for sale
|
|
|
327,189,247
|
|
|
|
327,189,247
|
|
|
|
194,278,868
|
|
|
|
194,278,868
|
|
|
|
Loans receivable, net
|
|
|
257,186,012
|
|
|
|
255,962,000
|
|
|
|
201,400,614
|
|
|
|
202,009,446
|
|
|
|
Accrued interest receivable
|
|
|
2,658,800
|
|
|
|
2,658,800
|
|
|
|
1,605,161
|
|
|
|
1,605,161
|
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand, non-interest-bearing
|
|
$
|
56,183,562
|
|
|
$
|
56,183,562
|
|
|
$
|
39,438,879
|
|
|
$
|
39,438,879
|
|
|
|
|
Savings and interest-bearing transaction accounts
|
|
|
165,244,655
|
|
|
|
165,244,655
|
|
|
|
107,226,763
|
|
|
|
107,226,763
|
|
|
|
|
Time certificates of deposit
|
|
|
278,715,558
|
|
|
|
279,924,000
|
|
|
|
177,820,899
|
|
|
|
178,665,765
|
|
|
|
Accrued interest and other liabilities
|
|
|
1,928,152
|
|
|
|
1,928,152
|
|
|
|
696,475
|
|
|
|
696,475
|
|
|
|
Federal funds purchased
|
|
|
—
|
|
|
|
—
|
|
|
|
9,630,000
|
|
|
|
9,630,000
|
|
|
|
Securities sold under agreements to repurchase
|
|
|
45,754,078
|
|
|
|
45,754,078
|
|
|
|
35,551,396
|
|
|
|
35,551,396
|
|
|
|
Federal Home Loan Bank borrowings
|
|
|
20,883,900
|
|
|
|
20,883,900
|
|
|
|
—
|
|
|
|
—
|
|
The Company and the Bank are subject to minimum capital
requirements, which are administered by various federal and
state regulatory authorities. These capital requirements, as
defined by federal guidelines, involve quantitative and
qualitative measures of assets, liabilities, and certain
off-balance sheet instruments. Failure to meet minimum capital
requirements can initiate certain mandatory, and possibly
additional discretionary, actions by regulators that, if
undertaken, could have a direct material effect on the
consolidated financial statements.
Management believes, as of December 31, 2004 and 2003, that
the Company and Bank meet all capital adequacy requirements to
which they are subject. To be categorized as well capitalized,
the Company and
F-64
TCBancorp, Inc. and Subsidiary
Notes to Consolidated Financial
Statements — (Continued)
Bank must maintain total risk-based, Tier I risk-based, and
Tier I leverage ratios (as defined in applicable
regulations) as set forth in the following table.
The regulatory capital amounts and ratios at December 31,
2004, are presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For Capital
|
|
|
|
|
Actual
|
|
|
Adequacy Purposes
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount
|
|
|
Ratio
|
|
|
Ratio
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TCBancorp, Inc. (consolidated):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total risk-based capital
|
|
$
|
67,245,000
|
|
|
|
17.01
|
%
|
|
|
8.00
|
%
|
|
|
Tier I risk-based capital
|
|
|
62,504,000
|
|
|
|
15.81
|
|
|
|
4.00
|
|
|
|
Leverage ratio
|
|
|
62,504,000
|
|
|
|
10.56
|
|
|
|
3.00
|
|
|
Twin City Bank:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total risk-based capital
|
|
$
|
57,847,186
|
|
|
|
14.97
|
%
|
|
|
8.00
|
%
|
|
|
Tier I risk-based capital
|
|
|
53,106,537
|
|
|
|
13.74
|
|
|
|
4.00
|
|
|
|
Leverage ratio
|
|
|
53,106,537
|
|
|
|
8.98
|
|
|
|
3.00
|
|
The regulatory capital amounts and ratios at December 31,
2003, are presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For Capital
|
|
|
|
|
Actual
|
|
|
Adequacy Purposes
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount
|
|
|
Ratio
|
|
|
Ratio
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TCBancorp, Inc. (consolidated):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total risk-based capital
|
|
$
|
64,687,805
|
|
|
|
22.65
|
%
|
|
|
8.00
|
%
|
|
|
Tier I risk-based capital
|
|
|
61,204,307
|
|
|
|
21.43
|
|
|
|
4.00
|
|
|
|
Leverage ratio
|
|
|
61,204,307
|
|
|
|
18.48
|
|
|
|
3.00
|
|
|
Twin City Bank:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total risk-based capital
|
|
$
|
55,721,058
|
|
|
|
20.14
|
%
|
|
|
8.00
|
%
|
|
|
Tier I risk-based capital
|
|
|
52,262,520
|
|
|
|
18.89
|
|
|
|
4.00
|
|
|
|
Leverage ratio
|
|
|
52,262,520
|
|
|
|
15.81
|
|
|
|
3.00
|
|
Regulations of the FDIC and the Arkansas State Bank Department
limit the ability of the bank subsidiary to pay dividends to the
Company without the prior approval of such agencies. FDIC
regulations prevent insured state banks from paying any
dividends from capital and allow the payment of dividends only
from net profits on hand after deductions for losses and bad
debts. The Arkansas State Bank Department currently limits the
amount of dividends that the bank subsidiaries can pay the
Company to 75% of the bank’s net profits after taxes for
the current year plus 75% of its retained net profits after
taxes for the immediately preceding year. The Bank expects to
request regulatory approval to pay needed dividends.
On January 1, 2005, the remaining 67.8% of the
Company’s common stock was purchased by Home BancShares,
Inc. (HBI) of Conway, AR. The purchase price of the
transaction was $43,900,000, which consisted of the issuance of
1,250,000 shares of HBI’s common stock and $110,000 in
cash.
F-65
MARINE BANCORP, INC.
Marathon, Florida
Audited Consolidated Financial Statements
At December 31, 2004 and 2003 and
For the Years then Ended
(Together with Independent Auditors’ Report)
F-66
Independent Auditors’ Report
Marine Bancorp, Inc.
Marathon, Florida:
We have audited the accompanying consolidated balance sheets of
Marine Bancorp, Inc. and Subsidiary (the “Company”) at
December 31, 2004 and 2003 and the related consolidated
statements of earnings, changes in stockholders’ equity and
cash flows for the years then ended. These financial statements
are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards as established by the Auditing Standards
Board (United States) and in accordance with the auditing
standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. The
Company is not required to have, nor were we engaged to perform,
an audit of its internal control over financial reporting. Our
audits included consideration of internal control over financial
reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company’s
internal control over financial reporting. Accordingly, we
express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of the Company at December 31, 2004 and 2003, and
the results of its operations and its cash flows for the years
then ended in conformity with accounting principles generally
accepted in the United States of America.
As discussed in Note 9 to the accompanying consolidated
financial statements, in 2004, the Company adopted Financial
Accounting Standards Board Interpretation No. 46
“Consolidation of Variable Interest Entities”
as revised in December, 2003. In accordance with this
Interpretation, MBI Statutory Trust is not consolidated in the
financial statements of the Company. The Company has also
elected to adopt this Interpretation on a retroactive basis and
therefore, has restated its 2003 consolidated financial
statements.
|
|
|
|
|
/s/
Hacker, Johnson &
Smith PA
|
HACKER, JOHNSON & SMITH PA
Tampa, Florida
April 8, 2005
F-67
MARINE BANCORP, INC. AND SUBSIDIARY
Consolidated Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
2004
|
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in thousands,
|
|
|
|
|
except per share
|
|
|
|
|
amounts)
|
|
|
Assets
|
|
Cash and due from banks
|
|
$
|
5,031
|
|
|
|
4,248
|
|
|
Federal funds sold
|
|
|
3,426
|
|
|
|
2,106
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
8,457
|
|
|
|
6,354
|
|
|
Securities available for sale
|
|
|
19,009
|
|
|
|
10,266
|
|
|
Loans, net of allowance for loan losses of $2,105 in 2004 and
$1,364 in 2003
|
|
|
190,790
|
|
|
|
134,993
|
|
|
Premises and equipment, net
|
|
|
5,187
|
|
|
|
5,010
|
|
|
Federal Home Loan Bank stock, at cost
|
|
|
1,802
|
|
|
|
802
|
|
|
Accrued interest receivable
|
|
|
875
|
|
|
|
610
|
|
|
Deferred income tax asset
|
|
|
958
|
|
|
|
551
|
|
|
Other assets
|
|
|
768
|
|
|
|
688
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
227,846
|
|
|
|
159,274
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders’ Equity
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing demand deposits
|
|
|
32,197
|
|
|
|
22,780
|
|
|
|
Savings, NOW and money-market deposits
|
|
|
72,004
|
|
|
|
48,753
|
|
|
|
Time deposits
|
|
|
73,481
|
|
|
|
55,619
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
|
177,682
|
|
|
|
127,152
|
|
|
|
Federal Home Loan Bank advances
|
|
|
27,423
|
|
|
|
16,035
|
|
|
|
Federal funds purchased
|
|
|
5,565
|
|
|
|
—
|
|
|
|
Other borrowings
|
|
|
851
|
|
|
|
1,046
|
|
|
|
Junior subordinated debentures
|
|
|
5,155
|
|
|
|
5,155
|
|
|
|
Official checks
|
|
|
1,048
|
|
|
|
1,104
|
|
|
|
Accrued interest payable
|
|
|
257
|
|
|
|
167
|
|
|
|
Other liabilities
|
|
|
1,061
|
|
|
|
681
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
219,042
|
|
|
|
151,340
|
|
|
|
|
|
|
|
|
|
|
Commitments (Notes 4, 10 and 17)
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity:
|
|
|
|
|
|
|
|
|
|
|
Common stock, $0.10 par value; 5,000,000 shares authorized;
635,208 and 631,008 shares issued and outstanding in 2004 and
2003
|
|
|
64
|
|
|
|
63
|
|
|
|
Additional paid-in capital
|
|
|
5,892
|
|
|
|
5,843
|
|
|
|
Retained earnings
|
|
|
2,951
|
|
|
|
1,983
|
|
|
|
Accumulated other comprehensive income (loss)
|
|
|
(103
|
)
|
|
|
45
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders’ equity
|
|
|
8,804
|
|
|
|
7,934
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
227,846
|
|
|
|
159,274
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to Consolidated Financial Statements.
F-68
MARINE BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
2004
|
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
Interest income:
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$
|
9,705
|
|
|
|
7,663
|
|
|
|
Securities
|
|
|
659
|
|
|
|
409
|
|
|
|
Other interest-earning assets
|
|
|
94
|
|
|
|
62
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
|
10,458
|
|
|
|
8,134
|
|
|
|
|
|
|
|
|
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
2,438
|
|
|
|
1,871
|
|
|
|
Junior subordinated debentures
|
|
|
297
|
|
|
|
167
|
|
|
|
Other borrowings
|
|
|
558
|
|
|
|
313
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
|
3,293
|
|
|
|
2,351
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
7,165
|
|
|
|
5,783
|
|
|
Provision for loan losses
|
|
|
821
|
|
|
|
451
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for loan losses
|
|
|
6,344
|
|
|
|
5,332
|
|
|
|
|
|
|
|
|
|
|
Noninterest income:
|
|
|
|
|
|
|
|
|
|
|
Deposit account fees
|
|
|
707
|
|
|
|
509
|
|
|
|
Other fees and service charges
|
|
|
251
|
|
|
|
197
|
|
|
|
Gain on sale of loans held for sale
|
|
|
155
|
|
|
|
—
|
|
|
|
Mortgage brokerage fees
|
|
|
500
|
|
|
|
631
|
|
|
|
Loss on sale of securities available for sale
|
|
|
—
|
|
|
|
(3
|
)
|
|
|
Other
|
|
|
113
|
|
|
|
86
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest income
|
|
|
1,726
|
|
|
|
1,420
|
|
|
|
|
|
|
|
|
|
|
Noninterest expenses:
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits
|
|
|
3,893
|
|
|
|
3,703
|
|
|
|
Occupancy
|
|
|
957
|
|
|
|
880
|
|
|
|
Data processing
|
|
|
614
|
|
|
|
475
|
|
|
|
Professional fees
|
|
|
82
|
|
|
|
81
|
|
|
|
Advertising and promotion
|
|
|
135
|
|
|
|
125
|
|
|
|
Stationery and supplies
|
|
|
140
|
|
|
|
108
|
|
|
|
Telephone
|
|
|
140
|
|
|
|
137
|
|
|
|
Other
|
|
|
584
|
|
|
|
515
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expenses
|
|
|
6,545
|
|
|
|
6,024
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes
|
|
|
1,525
|
|
|
|
728
|
|
|
Income taxes
|
|
|
557
|
|
|
|
264
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$
|
968
|
|
|
|
464
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to Consolidated Financial Statements.
F-69
MARINE BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Changes in Stockholders’
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Common Stock
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
Comprehensive
|
|
|
Total
|
|
|
|
|
Number of
|
|
|
|
|
Paid-In
|
|
|
Retained
|
|
|
Income
|
|
|
Stockholders’
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Earnings
|
|
|
(Loss)
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in thousands)
|
|
|
Balance at December 31, 2002
|
|
|
630,000
|
|
|
$
|
63
|
|
|
|
5,829
|
|
|
|
1,519
|
|
|
|
187
|
|
|
|
7,598
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
464
|
|
|
|
—
|
|
|
|
464
|
|
|
|
|
Net change in unrealized gain on securities available for sale,
net of tax
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(142
|
)
|
|
|
(142
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
322
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options exercised, including tax benefit of $2
|
|
|
1,008
|
|
|
|
—
|
|
|
|
14
|
|
|
|
—
|
|
|
|
—
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2003
|
|
|
631,008
|
|
|
|
63
|
|
|
|
5,843
|
|
|
|
1,983
|
|
|
|
45
|
|
|
|
7,934
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
968
|
|
|
|
—
|
|
|
|
968
|
|
|
|
|
Net change in unrealized gain on securities available for sale,
net of tax
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(107
|
)
|
|
|
(107
|
)
|
|
|
Change in unrealized loss on derivative instrument, net of tax
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(41
|
)
|
|
|
(41
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
820
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options exercised
|
|
|
4,200
|
|
|
|
1
|
|
|
|
49
|
|
|
|
—
|
|
|
|
—
|
|
|
|
50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2004
|
|
|
635,208
|
|
|
$
|
64
|
|
|
|
5,892
|
|
|
|
2,951
|
|
|
|
(103
|
)
|
|
|
8,804
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to Consolidated Financial Statements.
F-70
MARINE BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
2004
|
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$
|
968
|
|
|
|
464
|
|
|
|
Adjustments to reconcile net earnings to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
456
|
|
|
|
335
|
|
|
|
|
Credit for deferred income taxes
|
|
|
(307
|
)
|
|
|
(228
|
)
|
|
|
|
Provision for loan losses
|
|
|
821
|
|
|
|
451
|
|
|
|
|
Loss on sale of securities available for sale
|
|
|
—
|
|
|
|
3
|
|
|
|
|
Increase in accrued interest receivable
|
|
|
(265
|
)
|
|
|
(76
|
)
|
|
|
|
Increase in accrued interest payable
|
|
|
90
|
|
|
|
50
|
|
|
|
|
Increase in other assets
|
|
|
(80
|
)
|
|
|
(305
|
)
|
|
|
|
Decrease official checks
|
|
|
(56
|
)
|
|
|
(319
|
)
|
|
|
|
Increase in other liabilities
|
|
|
311
|
|
|
|
451
|
|
|
|
|
Gain on sale of loans held for sale
|
|
|
(155
|
)
|
|
|
—
|
|
|
|
|
Proceeds from sale of loans held for sale
|
|
|
24,469
|
|
|
|
—
|
|
|
|
|
Origination of loans held for sale
|
|
|
(25,880
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
372
|
|
|
|
826
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
Net purchase of securities available for sale
|
|
|
(15,922
|
)
|
|
|
(8,381
|
)
|
|
|
Proceeds from sale of securities available for sale
|
|
|
—
|
|
|
|
1,001
|
|
|
|
Maturities and calls of securities available for sale
|
|
|
3,000
|
|
|
|
3,000
|
|
|
|
Principle repayments on securities available for sale
|
|
|
4,000
|
|
|
|
3,320
|
|
|
|
Net increase in loans
|
|
|
(55,113
|
)
|
|
|
(43,871
|
)
|
|
|
Net purchase of premises and equipment, net
|
|
|
(572
|
)
|
|
|
(735
|
)
|
|
|
Purchase of Federal Home Loan Bank stock
|
|
|
(1,000
|
)
|
|
|
(375
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(65,607
|
)
|
|
|
(46,041
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
Net increase in deposits
|
|
|
50,530
|
|
|
|
28,754
|
|
|
|
Increase in Federal Home Loan Bank advances
|
|
|
11,388
|
|
|
|
10,532
|
|
|
|
Decrease in other borrowings
|
|
|
(195
|
)
|
|
|
(621
|
)
|
|
|
Increase in federal funds purchased
|
|
|
5,565
|
|
|
|
—
|
|
|
|
Proceeds from sale of junior subordinated debentures
|
|
|
—
|
|
|
|
5,155
|
|
|
|
Proceeds from stock options exercised
|
|
|
50
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
67,338
|
|
|
|
43,832
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
2,103
|
|
|
|
(1,383
|
)
|
|
Cash and cash equivalents at beginning of year
|
|
|
6,354
|
|
|
|
7,737
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
8,457
|
|
|
|
6,354
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the year for:
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
3,203
|
|
|
|
2,301
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
$
|
774
|
|
|
|
266
|
|
|
|
|
|
|
|
|
|
|
|
Noncash transactions:
|
|
|
|
|
|
|
|
|
|
|
|
Change in other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in unrealized gain on securities available for sale, net
of tax
|
|
$
|
(107
|
)
|
|
|
(142
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in unrealized loss on derivative investment, net of tax
|
|
$
|
(41
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax benefit associated with stock options exercised
|
|
$
|
—
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to Consolidated Financial Statements.
F-71
Marine Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
At December 31, 2004 and 2003 and For the Years Then
Ended
|
|
|
|
(1)
|
Description of Business and Summary of Significant Accounting
Policies
|
Marine Bancorp, Inc., a Florida corporation, is a bank holding
company (the “Holding Company”). The Holding Company
has no significant operations other than those of its
wholly-owned subsidiary, Marine Bank of the Florida Keys (the
“Bank”) (collectively the “Company”). The
Bank is a state-chartered commercial bank and its deposits are
insured by the Federal Deposit Insurance Corporation. The Bank
provides a variety of banking and trust services to individuals
and businesses through its seven full-service offices located in
Monroe County, Florida. In 2004, the Bank established a trust
department which had minimal activity and held no assets at
December 31, 2004.
The accounting and reporting policies of the Company conform to
accounting principles generally accepted in the United States of
America and to general practices within the banking industry.
The following summarizes the more significant of these policies
and practices:
Principles of
Consolidation.
The consolidated
financial statements include the accounts of the Holding Company
and the Bank. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Use of Estimates.
In
preparing consolidated financial statements in conformity with
accounting principles generally accepted in the United States of
America, management is required to make estimates and
assumptions that affect the reported amounts of assets and
liabilities as of the date of the consolidated balance sheet and
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 in the near term relate to the determination
of the allowance for loan losses and the deferred income tax
asset.
Cash and Cash
Equivalents.
For purposes of
the consolidated statements of cash flows, cash and cash
equivalents include cash and balances due from banks and federal
funds sold, all of which mature within ninety days.
The Bank is required by law or regulation to maintain cash
reserves. The reserve balance at December 31, 2004 and 2003
was approximately $498,000 and $120,000, respectively.
Securities.
The Company may
classify its securities as either trading, held to maturity or
available for sale. Trading securities are held principally for
resale and recorded at their fair values. Unrealized gains and
losses on trading securities are included immediately in
earnings. Held-to-maturity securities are those which the
Company has the positive intent and ability to hold to maturity
and are reported at amortized cost. Available-for-sale
securities consist of securities not classified as trading
securities nor as held-to-maturity securities. Unrealized
holding gains and losses, net of tax, on available-for-sale
securities are excluded from earnings and reported in other
comprehensive income. Gains and losses on the sale of
available-for-sale securities are recorded on the trade date and
are determined using the specific-identification method.
Premiums and discounts on securities available for sale are
recognized in interest income using the interest method over the
period to maturity.
Loans.
Loans that management
has the intent and ability to hold for the foreseeable future or
until maturity or pay-off are reported at their outstanding
principal adjusted for any charge-offs, the allowance for loan
losses and any deferred fees or costs on originated loans. Loan
origination fees and certain direct origination costs are
capitalized and recognized as an adjustment of the yield of the
related loan.
The accrual of interest on loans is discontinued at the time the
loan is 90 days delinquent unless the loan is well-secured
and in process of collection. In all cases, loans are placed on
nonaccrual or charged-off at an earlier date if collection of
principal or interest is considered doubtful.
F-72
Marine Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial
Statements — (Continued)
All interest accrued but not collected for loans that are placed
on nonaccrual or charged-off is reversed against interest
income. The interest on these loans is accounted for on the
cash-basis or cost-recovery method, until qualifying for return
to accrual. Loans are returned to accrual status when all the
principal and interest amounts contractually due are brought
current and future payments are reasonably assured.
Loans Held for Sale.
Loans
originated that are intended to be sold in the secondary market
are carried at the lower of cost or estimated fair value in the
aggregate. Net unrealized losses are recognized through a
valuation allowance by charges to earnings. The Company had
approximately $1,566,000 of loans held for sale at
December 31, 2004, which are included in loans on the
accompanying consolidated balance sheets and the fair value of
these loans exceeded book value in the aggregate. The Company
had no loans held for sale at December 31, 2003.
Loan origination fees are deferred and direct loan origination
costs are capitalized until the related loan is sold, at which
time the net fees are included in the gain on the sale of loans
in the consolidated statements of earnings.
Allowance for Loan
Losses.
The allowance for loan
losses is established as losses are estimated to have occurred
through a provision for loan losses charged to earnings. Loan
losses are charged against the allowance when management
believes the uncollectibility of a loan balance is confirmed.
Subsequent recoveries, if any, are credited to the allowance.
The allowance for loan losses is evaluated on a regular basis by
management and is based upon management’s periodic review
of the collectibility of the loans in light of historical
experience, the nature and volume of the loan portfolio, adverse
situations that may affect the borrower’s ability to repay,
estimated value of any underlying collateral and prevailing
economic conditions. This evaluation is inherently subjective as
it requires estimates that are susceptible to significant
revision as more information becomes available.
The allowance consists of specific and general components. The
specific component relates to loans that are classified as
either loss, doubtful, substandard or special mention. For such
loans that are also classified as impaired, an allowance is
established when the discounted cash flows (or collateral value
or observable market price) of the impaired loan is lower than
the carrying value of that loan. The general component covers
nonclassified loans and is based on historical industry loss
experience adjusted for qualitative factors.
A loan is considered impaired when, based on current information
and events, it is probable that the Company will be unable to
collect the scheduled payments of principal or interest when due
according to the contractual terms of the loan agreement.
Factors considered by management in determining impairment
include payment status, collateral value, and the probability of
collecting scheduled principal and interest payments when due.
Loans that experience insignificant payment delays and payment
shortfalls generally are not classified as impaired. Management
determines the significance of payment delays and payment
shortfalls on a case-by-case basis, taking into consideration
all of the circumstances surrounding the loan and the borrower,
including the length of the delay, the reasons for the delay,
the borrower’s prior payment record, and the amount of the
shortfall in relation to the principal and interest owed.
Impairment is measured on a loan by loan basis for commercial
and commercial real estate loans by either the present value of
expected future cash flows discounted at the loan’s
effective interest rate, the loan’s obtainable market
price, or the fair value of the collateral if the loan is
collateral dependent.
Large groups of smaller balance homogeneous loans are
collectively evaluated for impairment. Accordingly, the Company
does not separately identify individual residential or consumer
loans for impairment disclosures.
Foreclosed Assets.
Assets
acquired through, or in lieu of, foreclosure, is initially
recorded at the lower of fair value or the loan balance plus
acquisition costs at the date of foreclosure. After foreclosure,
valuations are periodically performed by management and the real
estate is carried at the lower of carrying amount or fair
F-73
Marine Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial
Statements — (Continued)
value less cost to sell. Revenue and expenses from operations
and changes in the valuation allowance are included in earnings.
Premises and Equipment.
Land
is stated at cost. Buildings and furniture and equipment are
stated at cost less accumulated depreciation and amortization.
Depreciation and amortization expense are computed using the
straight-line method over the estimated useful lives of the
assets or lease term, if shorter. The lease term includes
renewal options if management expects to exercise the lease
options.
Transfer of Financial
Assets.
Transfers of financial
assets are accounted for as sales, when control over the assets
has been surrendered. Control over transferred assets is deemed
to be surrendered when (1) the assets have been isolated
from the Company, (2) the transferee obtains the right
(free of conditions that constrain it from taking advantage of
that right) to pledge or exchange the transferred assets, and
(3) the Company does not maintain effective control over
the transferred assets through an agreement to repurchase them
before their maturity.
Income Taxes.
Deferred tax
assets and liabilities are determined using the liability (or
balance sheet) method. Under this method, the net deferred tax
asset or liability is determined based on the tax effects of the
temporary differences between the book and tax bases of the
various balance sheet assets and liabilities and gives current
recognition to changes in tax rates and laws.
The Holding Company and the Bank file consolidated income tax
returns. Income taxes are allocated between the Holding Company
and the Bank as though separate income tax returns were filed.
Stock Compensation
Plan.
Statement of Financial
Accounting Standards (SFAS) No. 123,
Accounting for
Stock-Based Compensation,
as amended by SFAS No. 148,
Accounting for Stock-Based Compensation Transition and
Disclosure
(collectively “SFAS No. 123”)
encourages all entities to adopt a fair value based method of
accounting for employee stock compensation plans, whereby
compensation cost is measured at the grant date based on the
value of the award and is recognized over the service period,
which is usually the vesting period. However, it also allows an
entity to continue to measure compensation cost for those plans
using the intrinsic value based method of accounting prescribed
by Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees
(“APB
No. 25”), whereby compensation cost is the excess, if
any, of the quoted market price of the stock at the grant date
(or other measurement date) over the amount an employee must pay
to acquire the stock.
The Company accounts for their stock option plan under the
recognition and measurement principles of APB No. 25. No
stock-based employee compensation cost is reflected in net
earnings, as all options granted under this plan had an exercise
price equal to the market value of the underlying common stock
on the date of grant. The following table illustrates the effect
on net earnings if the Company had applied the fair value
recognition provisions of SFAS No. 123 to stock-based
employee compensation ($ in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
2004
|
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
Net earnings, as reported
|
|
$
|
968
|
|
|
|
464
|
|
|
Deduct: Total stock-based employee compensation determined under
the minimum value method for all awards, net of related tax
effect
|
|
|
(43
|
)
|
|
|
(22
|
)
|
|
|
|
|
|
|
|
|
|
Proforma net earnings
|
|
$
|
925
|
|
|
|
442
|
|
|
|
|
|
|
|
|
|
F-74
Marine Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial
Statements — (Continued)
The fair value of each option granted is estimated on the date
of grant using the minimum value method with the following
assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
2004
|
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
Risk-free interest rate
|
|
|
4.77
|
%
|
|
|
4.45
|
%
|
|
Dividend yield
|
|
|
—
|
%
|
|
|
—
|
%
|
|
Expected volatility
|
|
|
—
|
%
|
|
|
—
|
%
|
|
Expected life in years
|
|
|
10
|
|
|
|
10
|
|
|
Per share fair value of options at grant date
|
|
$
|
5.07
|
|
|
|
4.27
|
|
|
|
|
|
|
|
|
|
Derivative Financial
Instrument.
The Company has one
derivative instrument which is used to hedge its interest-rate
exposure by modifying the characteristics of the related balance
sheet instrument. This derivative instrument qualifies as a cash
flow hedge under the provisions of Statement of Financial
Accounting Standards No. 133
“Accounting for
Derivative Instruments and Hedging Activities”
(“SFAS 133”). Changes in the fair value of a
derivative that is highly effective, and that is designated and
qualifies as a cash flow hedge, are recorded in other
comprehensive income, net of tax.
Off-Balance-Sheet Financial
Instruments.
In the ordinary
course of business the Company has entered into
off-balance-sheet financial instruments consisting of unfunded
loan commitments, unused lines of credit and standby letters of
credit. Such financial instruments are recorded in the
consolidated financial statements when they are funded.
Comprehensive
Income.
Generally accepted
accounting principles require that recognized revenue, expenses,
gains and losses be included in net earnings. Although certain
changes in assets and liabilities, such as unrealized gains and
losses on available-for-sale securities, are reported as a
separate component of the equity section of the consolidated
balance sheet, such items, along with net earnings, are
components of comprehensive income. The components of other
comprehensive income and related tax effects are as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Before
|
|
|
Tax
|
|
|
After
|
|
|
|
|
Tax
|
|
|
Effect
|
|
|
Tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Holding losses
|
|
$
|
(179
|
)
|
|
|
72
|
|
|
|
(107
|
)
|
|
|
Holding losses on derivative instrument
|
|
|
(69
|
)
|
|
|
28
|
|
|
|
(41
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized holding loss
|
|
$
|
(248
|
)
|
|
|
100
|
|
|
|
(148
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2003:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Holding losses
|
|
|
(238
|
)
|
|
|
94
|
|
|
|
(144
|
)
|
|
|
Losses included in net earnings
|
|
|
3
|
|
|
|
(1
|
)
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized holding loss
|
|
$
|
(235
|
)
|
|
|
93
|
|
|
|
(142
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Advertising.
The Company
expenses all media advertising as incurred.
Fair Values of Financial
Instruments.
The fair value of
a financial instrument is the current amount that would be
exchanged between willing parties, other than in a forced
liquidation. Fair value is best determined based upon quoted
market prices. However, in many instances, there are no quoted
market prices for the Company’s various financial
instruments. In cases where quoted market prices are not
available, fair values are based on estimates using present
value or other valuation techniques. Those techniques are
significantly affected by the assumptions used, including the
discount rate and estimates of future cash flows.
F-75
Marine Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial
Statements — (Continued)
Accordingly, the fair value estimates may not be realized in an
immediate settlement of the instrument or may not necessarily
represent the underlying fair value of the Company. The
following methods and assumptions were used by the Company in
estimating fair values of financial instruments disclosed herein:
|
|
|
|
|
Cash and Cash
Equivalents.
The carrying
amounts of cash and cash equivalents approximate their fair
value.
|
|
|
|
|
Securities.
Fair values for
securities available for sale are based on quoted market prices,
where available. If quoted market prices are not available, fair
values are based on quoted market prices of comparable
instruments.
|
|
|
|
|
Loans.
For variable-rate
loans that reprice frequently and have no significant change in
credit risk, fair values are based on carrying values. Fair
values for certain fixed-rate loans are estimated using
discounted cash flow analyses, using interest rates currently
being offered for loans with similar terms to borrowers of
similar credit quality.
|
|
|
|
|
Federal Home Loan Bank
Stock.
Fair value of the
Company’s investment in Federal Home Loan Bank stock is
based on its redemption value.
|
|
|
|
|
Deposit Liabilities.
The
fair values disclosed for demand, NOW, money-market and savings
deposits are, by definition, equal to the amount payable on
demand at the reporting date (that is, their carrying amounts).
Fair values for fixed-rate time deposits are estimated using a
discounted cash flow calculation that applies interest rates
currently being offered on certificates to a schedule of
aggregated expected monthly maturities of time deposits.
|
|
|
|
|
Other Borrowings and Federal Funds
Purchased.
The carrying amounts
of other borrowings and federal funds purchased approximate fair
value.
|
|
|
|
|
Federal Home Loan Bank Advances and Junior Subordinated
Debentures.
Fair values for
these borrowings are estimated using discounted cash flow
analysis based on the Company’s current incremental
borrowing rates for similar types of borrowings.
|
|
|
|
|
Derivative Instrument.
Fair
value for the derivative instrument (interest-rate swap) is
based on current settlement value.
|
|
|
|
|
Accrued Interest.
The
carrying amounts of accrued interest approximate their fair
values.
|
|
|
|
|
Off-Balance-Sheet Financial
Instruments.
Fair values for
off-balance-sheet lending commitments are based on rates
currently charged to enter into similar agreements, taking into
account the remaining terms of the agreements and the
counterparties’ credit standing.
|
Recent Pronouncements.
In
December 2003, the American Institute of Certified Public
Accountants issued Statement of Position 03-3,
“Accounting for Certain Loans and Debt Securities
Acquired in a Transfer”
(SOP 03-3). SOP 03-3 addresses
accounting for differences between contractual cash flows
expected to be collected and an investor’s initial
investment in loans or debt securities acquired in a transfer if
those differences are attributable, at least in part, to credit
quality. SOP 03-3 also prohibits “carrying over” or
creation of valuation allowances in the initial accounting of
all loans acquired in a transfer that are within the scope of
SOP 03-3. The prohibition of the valuation allowance carryover
applies to the purchase of an individual loan, a pool of loans,
a group of loans, and loans acquired in a purchase business
combination. SOP 03-3 is effective for loans acquired in fiscal
years beginning after December 15, 2004. The Company does
not anticipate that the adoption of SOP 03-3 will have a
material impact on its consolidated financial condition or
results of operations.
In March 2004, the Emerging Issues Task Force reached a
consensus on Issue 03-1,
“Meaning of Other Than
Temporary Impairment”
(Issue 03-1). The Task Force
reached a consensus on an other-than-
F-76
Marine Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial
Statements — (Continued)
temporary impairment model for debt and equity securities
accounted for under Statement of Financial Accounting Standards
No. 115,
“Accounting for Certain Investments in
Debt and Equity Securities”
and cost method
investments, and required certain additional financial statement
disclosures. The implementation of the
“Other-Than-Temporary Impairment”
component of
this consensus has been postponed. Management cannot determine
the effect of the adoption of this guidance on the
Company’s consolidated financial condition or results of
operations.
In December 2004, the Financial Accounting Standards Board
(“FASB”) issued SFAS No. 123 (revised 2004),
“Share Based Payment.”
This Statement requires
a nonpublic entity to measure the cost of employee services
received in exchange for an award of equity instruments, which
includes stock options, based on the grant-date fair value of
the award. That cost will be recognized over the period during
which an employee is required to provide service in exchange for
the award. Nonpublic entities, such as the Company, that used
the minimum value method shall apply this Statement
prospectively to new awards and to awards modified, repurchased
or cancelled beginning the first interim or annual period after
December 15, 2005. Management has not determined the effect
this Statement will have on the Company’s consolidated
financial statements.
In December 2004, the FASB issued SFAS No. 153,
“Exchanges of Nonmonetary Assets-an Amendment to APB
opinion No. 29.”
This Statement addresses the
measurement of exchanges of nonmonetary assets. The Statement is
effective for fiscal periods beginning after June 15, 2005.
Management believes this Statement will not have a material
effect on the Company’s consolidated financial statements.
Reclassifications.
Certain
amounts in the 2003 consolidated financial statements have been
reclassified to conform with the 2004 presentation.
|
|
|
|
(2)
|
Securities Available for Sale
|
Securities available for sale have been classified according to
management’s intent. The carrying amount of securities
available for sale and their fair values are summarized as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Approximate
|
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government agencies and corporations
|
|
$
|
2,000
|
|
|
|
1
|
|
|
|
(14
|
)
|
|
|
1,987
|
|
|
|
Collateralized mortgage obligations
|
|
|
7,380
|
|
|
|
28
|
|
|
|
(50
|
)
|
|
|
7,358
|
|
|
|
Mortgage-backed securities
|
|
|
9,732
|
|
|
|
20
|
|
|
|
(88
|
)
|
|
|
9,664
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
19,112
|
|
|
|
49
|
|
|
|
(152
|
)
|
|
|
19,009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2003:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government agencies and corporations
|
|
$
|
3,498
|
|
|
|
56
|
|
|
|
(6
|
)
|
|
|
3,548
|
|
|
|
Collateralized mortgage obligations
|
|
|
2,789
|
|
|
|
16
|
|
|
|
(12
|
)
|
|
|
2,793
|
|
|
|
Mortgage-backed securities
|
|
|
3,404
|
|
|
|
22
|
|
|
|
(17
|
)
|
|
|
3,409
|
|
|
|
Corporate debt
|
|
|
499
|
|
|
|
17
|
|
|
|
—
|
|
|
|
516
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
10,190
|
|
|
|
111
|
|
|
|
(35
|
)
|
|
|
10,266
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-77
Marine Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial
Statements — (Continued)
The scheduled maturities of securities available for sale at
December 31, 2004 are summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
|
|
|
Fair
|
|
|
|
|
Cost
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
Due in one year or less
|
|
$
|
500
|
|
|
|
501
|
|
|
Due after one year through five years
|
|
|
1,500
|
|
|
|
1,486
|
|
|
Collateralized mortgage obligations
|
|
|
7,380
|
|
|
|
7,358
|
|
|
Mortgage-backed securities
|
|
|
9,732
|
|
|
|
9,664
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
19,112
|
|
|
|
19,009
|
|
|
|
|
|
|
|
|
|
There were no securities sold in 2004. Sales of securities
available for sale during 2003 are summarized as follows (in
thousands):
|
|
|
|
|
|
|
Gross proceeds
|
|
$
|
1,001
|
|
|
|
|
|
|
|
Gross realized losses
|
|
$
|
(3
|
)
|
|
|
|
|
|
Securities with a carrying value of approximately
$17.6 million and $9.8 million at December 31,
2004 and 2003, respectively, were pledged for repurchase
agreements and for other purposes required or permitted by law.
Securities with gross unrealized losses at December 31,
2004, aggregated by investment category and length of time that
individual securities have been in a continuous loss position,
is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Than
|
|
|
Over
|
|
|
|
|
Twelve Months
|
|
|
Twelve Months
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
|
|
Gross
|
|
|
|
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government agencies and corporations
|
|
$
|
(14
|
)
|
|
|
1,485
|
|
|
|
—
|
|
|
|
—
|
|
|
Collateralized mortgage obligations
|
|
|
(33
|
)
|
|
|
4,230
|
|
|
|
(17
|
)
|
|
|
719
|
|
|
Mortgage-backed securities
|
|
|
(72
|
)
|
|
|
6,337
|
|
|
|
(16
|
)
|
|
|
1,396
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities available for sale
|
|
$
|
(119
|
)
|
|
|
12,052
|
|
|
|
(33
|
)
|
|
|
2,115
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management evaluates securities for other-than-temporary
impairment at least on a quarterly basis, and more frequently
when economic or market concerns warrant such evaluation.
Consideration is given to (1) the length of time and the
extent to which the fair value has been less than cost,
(2) the financial condition and near-term prospects of the
issuer, and (3) the intent and ability of the Company to
retain its investment in the issuer for a period of time
sufficient to allow for any anticipated recovery in fair value.
The unrealized losses on investment securities available for
sale were caused by interest rate changes. It is expected that
the securities would not be settled at a price less than the par
value of the investments. Because the decline in fair value is
attributable to changes in interest rates and not credit
quality, and because the Company has the ability and intent to
hold these investments until a market price recovery or
maturity, these investments are not considered
other-than-temporarily impaired.
F-78
Marine Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial
Statements — (Continued)
The components of loans were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31,
|
|
|
|
|
|
|
|
|
|
2004
|
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
$
|
95,296
|
|
|
|
70,201
|
|
|
Commercial
|
|
|
12,953
|
|
|
|
9,919
|
|
|
Residential real estate
|
|
|
82,559
|
|
|
|
54,735
|
|
|
Consumer
|
|
|
2,628
|
|
|
|
1,955
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
|
193,436
|
|
|
|
136,810
|
|
|
Deduct:
|
|
|
|
|
|
|
|
|
|
|
Deferred loan fees, net
|
|
|
(541
|
)
|
|
|
(453
|
)
|
|
|
Allowance for loan losses
|
|
|
(2,105
|
)
|
|
|
(1,364
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Loans, net
|
|
$
|
190,790
|
|
|
|
134,993
|
|
|
|
|
|
|
|
|
|
An analysis of the changes in the allowance for loan losses is
summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
2004
|
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
$
|
1,364
|
|
|
|
922
|
|
|
|
Provision for loan losses
|
|
|
821
|
|
|
|
451
|
|
|
|
Recoveries
|
|
|
15
|
|
|
|
17
|
|
|
|
Charge-offs
|
|
|
(95
|
)
|
|
|
(26
|
)
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
2,105
|
|
|
|
1,364
|
|
|
|
|
|
|
|
|
|
There were no impaired loans during the years ended
December 31, 2004 or 2003. Also, there were no nonaccrual
loans or loans over ninety days past due still accruing interest
at December 31, 2004 or 2003.
(4) Premises and Equipment,
Net
A summary of premises and equipment, net follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31,
|
|
|
|
|
|
|
|
|
|
2004
|
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
Land
|
|
$
|
1,582
|
|
|
|
1,582
|
|
|
Buildings
|
|
|
3,520
|
|
|
|
3,287
|
|
|
Furniture and equipment
|
|
|
1,442
|
|
|
|
1,110
|
|
|
Leasehold improvements
|
|
|
70
|
|
|
|
63
|
|
|
Vehicles
|
|
|
68
|
|
|
|
68
|
|
|
|
|
|
|
|
|
|
|
|
Total, at cost
|
|
|
6,682
|
|
|
|
6,110
|
|
|
Less accumulated depreciation and amortization
|
|
|
(1,495
|
)
|
|
|
(1,100
|
)
|
|
|
|
|
|
|
|
|
|
|
Premises and equipment, net
|
|
$
|
5,187
|
|
|
|
5,010
|
|
|
|
|
|
|
|
|
|
The Company leases premises under various operating leases.
During 2004, the Company entered into a lease for a branch in
Key Largo. The lease is for ten years and includes four options
to renew for five years. The lease for the Summerland branch
expires November 15, 2006 and includes an option to renew
for five
F-79
Marine Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial
Statements — (Continued)
years. The lease for the Duck Key branch expires
September 30, 2005 and also includes an option to renew for
five years. The ground lease for the Key West branch including
six three year renewal options expires July 1, 2021 and
includes provisions for the escalation of rent every three years
based on changes in the consumer price index. The Company also
leases an administrative office which expires in December, 2007
and includes an option to renew for five years. Lease expense
for the years ended December 31, 2004, and 2003 was
approximately $148,000 and $130,000, respectively. The estimated
future minimum rental commitments are approximately as follows
(in thousands):
|
|
|
|
|
|
|
Year Ending December 31,
|
|
Amount
|
|
|
|
|
|
|
|
2005
|
|
$
|
196
|
|
|
2006
|
|
|
160
|
|
|
2007
|
|
|
99
|
|
|
2008
|
|
|
71
|
|
|
2009
|
|
|
73
|
|
|
Thereafter
|
|
|
373
|
|
|
|
|
|
|
|
|
|
$
|
972
|
|
|
|
|
|
|
(5) Deposits
The aggregate amount of short-term jumbo time deposits, each
with a minimum denomination of $100,000 was approximately
$40.8 million and $31.6 million at December 31,
2004 and 2003, respectively.
At December 31, 2004, the scheduled maturities of time
deposits are as follows (in thousands):
|
|
|
|
|
|
|
Year Ending December 31,
|
|
Amount
|
|
|
|
|
|
|
|
2005
|
|
$
|
43,901
|
|
|
2006
|
|
|
10,146
|
|
|
2007
|
|
|
3,106
|
|
|
2008
|
|
|
11,837
|
|
|
2009
|
|
|
4,491
|
|
|
|
|
|
|
|
|
|
$
|
73,481
|
|
|
|
|
|
|
Included in deposits are deposits from three public entities.
The deposits and collateral are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
2004
|
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
Public funds on deposit
|
|
$
|
37,959
|
|
|
|
27,987
|
|
|
|
|
|
|
|
|
|
|
Collateral:
|
|
|
|
|
|
|
|
|
|
|
Securities at fair value
|
|
$
|
16,092
|
|
|
|
5,618
|
|
|
|
|
|
|
|
|
|
|
|
Letter of credit(1)
|
|
$
|
12,000
|
|
|
|
9,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
The letter of credit was issued by the Federal Home Loan Bank.
|
(6) Benefit Agreement
In 2003, the Company entered into a Salary Continuation
Agreement (the “Agreement”) with the President of the
Holding Company which requires the Company to provide salary
continuation benefits to him
F-80
Marine Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial
Statements — (Continued)
upon retirement. The Agreement requires the Company to pay
monthly benefits, as calculated in the Agreement, for ten years
beginning in January 2005. The Company accrued the present value
of the future benefits over two years and expensed approximately
$167,000 and $156,000 in 2004 and 2003, respectively.
(7) Federal Home Loan Bank
Advances
The maturities and interest rates on the advances from the
Federal Home Loan Bank (“FHLB”) were as follows ($ in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate
|
|
|
At December 31,
|
|
|
|
|
|
|
|
|
|
|
Year Ending December 31,
|
|
2004
|
|
|
2003
|
|
|
2004
|
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004
|
|
|
—
|
%
|
|
|
1.99
|
%
|
|
$
|
—
|
|
|
|
4,500
|
|
|
2005
|
|
|
2.11
|
%
|
|
|
2.18
|
%
|
|
|
14,050
|
|
|
|
6,202
|
|
|
2006
|
|
|
2.65
|
%
|
|
|
2.75
|
%
|
|
|
8,000
|
|
|
|
2,000
|
|
|
2007
|
|
|
3.26
|
%
|
|
|
3.26
|
%
|
|
|
600
|
|
|
|
800
|
|
|
2008
|
|
|
5.34
|
%
|
|
|
5.96
|
%
|
|
|
1,523
|
|
|
|
991
|
|
|
2009
|
|
|
2.96
|
%
|
|
|
5.05
|
%
|
|
|
2,250
|
|
|
|
542
|
|
|
2011(1)
|
|
|
4.53
|
%
|
|
|
4.53
|
%
|
|
|
1,000
|
|
|
|
1,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
$
|
27,423
|
|
|
|
16,035
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
The FHLB has a one time call option on December 5, 2006.
|
At December 31, 2004 and 2003, the FHLB advances and
letters of credit outstanding to the FHLB of $12 million
and $9.0 million, respectively are collateralized by a
blanket floating lien on all one-to-four family, commercial real
estate, multifamily and home equity loans.
(8) Other Borrowings
The Company enters into repurchase agreements with customers.
These agreements require the Company to pledge securities as
collateral for the balance in the accounts. At December 31,
2004 and 2003, the balance totaled approximately $851,000 and
$1,046,000, respectively, and at December 31, 2004 and 2003
the Company pledged securities as collateral for these
agreements with a carrying value of approximately $982,000 and
$1,460,000, respectively.
(9) Junior Subordinated
Debentures
MBI Statutory Trust (the “Trust”) was formed for the
sole purpose of issuing $5,000,000 of Trust Preferred Securities.
On March 26, 2003, the Trust sold adjustable-rate Trust
Preferred Securities due March 26, 2033 in the aggregate
principal amount of $5,000,000 (the “Capital
Securities”) in a pooled trust preferred securities
offering. The interest rate on the Capital Securities adjusts
quarterly, to a rate equal to the then current three-month
London Interchange Bank Offering Rate (“LIBOR”), plus
315 basis points. In addition, the Holding Company contributed
capital of $155,000 to the Trust for the purchase of the common
securities of the Trust. The proceeds from these sales were paid
to the Holding Company in exchange for $5,155,000 of its
adjustable-rate Junior Subordinated Debentures (the
“Debentures”) due March 26, 2033. The Debentures
have the same terms as the Capital Securities. The sole asset of
the Trust, the obligor on the Capital Securities, is the
Debentures.
The Holding Company has guaranteed the Trust’s payment of
distributions on, payments on any redemptions of, and any
liquidation distribution with respect to, the Capital
Securities. Cash distributions on
F-81
Marine Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial
Statements — (Continued)
both the Capital Securities and the Debentures are payable
quarterly in arrears on March 26, June 26,
September 26 and December 26 of each year. Issuance
costs of approximately $50,000 associated with the Capital
Securities have been capitalized by the Holding Company and are
being amortized over the expected life of the securities.
The Capital Securities are subject to mandatory redemption
(i) in whole, but not in part, upon repayment of the
Debentures at stated maturity or, at the option of the Holding
Company, their earlier redemption in whole upon the occurrence
of certain changes in the tax treatment or capital treatment of
the Capital Securities, or a change in the law such that the
Trust would be considered an Investment Company and (ii) in
whole or in part at any time on or after March 26, 2008
contemporaneously with the optional redemption by the Holding
Company of the Debentures in whole or in part. The Debentures
are redeemable prior to maturity at the option of the Holding
Company (i) on or after March 26, 2008, in whole at
any time or in part from time to time, or (ii) in whole,
but not in part, at any time within 90 days following the
occurrence and continuation of certain changes in the tax
treatment or capital treatment of the Capital Securities, or a
change in law such that the Trust would be considered an
Investment Company, required to be registered under the
Investment Company Act of 1940.
In 2003, the FASB issued Interpretation No. 46,
“Consolidation of Variable Interest Entities”
(“FIN 46”), as revised in December, 2003. The
Company adopted this Interpretation as of December 31,
2004. In accordance with this Interpretation, the Trust is not
consolidated in the financial statements of the Company, but
rather accounted for under the equity method of accounting. The
Company also elected to apply FIN 46 on a retroactive basis
and restated its 2003 consolidated financial statements. The
effect to the 2003 consolidated balance sheet was to record
junior subordinated debentures of $5,155,000, eliminate the
guaranteed beneficial interest in junior subordinated debentures
of $5,000,000 and record the Company’s investment in the
Trust of $155,000 in other assets. This Interpretation had no
effect on the 2003 consolidated statement of earnings.
During 2004 the Company entered into a five year interest rate
swap agreement that effectively converted the floating interest
rate of these junior subordinated debentures into a fixed
interest rate of 7.29%, thus reducing the impact of interest
rate changes on future interest expense for the five year
period. In accordance with SFAS 133, this interest rate swap
qualifies as a cash flow hedge. The fair value of this interest
rate swap is recorded as an asset or liability on the
consolidated balance sheet with an offsetting entry recorded in
other comprehensive income (loss), net of the income tax effect.
At December 31, 2004, the unrealized loss on the derivative
instrument was $69,000 ($41,000 net of tax).
(10) Financial Instruments
The Company is a party to financial instruments with
off-balance-sheet risk in the normal course of business to meet
the financing needs of its customers. These financial
instruments are unfunded loan commitments, unused lines of
credit and standby letters of credit and may involve, to varying
degrees, elements of credit and interest-rate risk in excess of
the amount recognized in the consolidated balance sheet. The
contract amounts of these instruments reflect the extent of
involvement the Company has in these financial instruments.
The Company’s exposure to credit loss in the event of
nonperformance by the other party to the financial instrument
for unfunded loan commitments, unused lines of credit and
standby letters of credit is represented by the contractual
amount of those instruments. The Company uses the same credit
policies in making commitments as it does for on-balance-sheet
instruments.
Commitments to extend credit are agreements to lend to a
customer as long as there is no violation of any condition
established in the contract. Commitments generally have
fixed-expiration dates or other termination clauses and may
require payment of a fee. Since some of the commitments are
expected to expire without
F-82
Marine Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial
Statements — (Continued)
being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. The Company
evaluates each customer’s credit worthiness on a
case-by-case basis. The amount of collateral obtained if deemed
necessary by the Company upon extension of credit is based on
management’s credit evaluation of the counterparty.
Standby letters-of-credit are conditional lending commitments
issued by the Company to guarantee the performance of a customer
to a third party and to support private borrowings arrangements.
Essentially all letters of credit issued have expiration dates
within one year. The credit risk involved in issuing
letters-of-credit is essentially the same as that involved in
extending credit. The Company may hold collateral supporting
those commitments.
The estimated fair values of the Company’s financial
instruments were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2004
|
|
|
At December 31, 2003
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying
|
|
|
Fair
|
|
|
Carrying
|
|
|
Fair
|
|
|
|
|
Amount
|
|
|
Value
|
|
|
Amount
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
8,457
|
|
|
|
8,457
|
|
|
|
6,354
|
|
|
|
6,354
|
|
|
|
Securities available for sale
|
|
|
19,009
|
|
|
|
19,009
|
|
|
|
10,266
|
|
|
|
10,266
|
|
|
|
Loans, net
|
|
|
190,790
|
|
|
|
194,778
|
|
|
|
134,993
|
|
|
|
140,817
|
|
|
|
Accrued interest receivable
|
|
|
875
|
|
|
|
875
|
|
|
|
610
|
|
|
|
610
|
|
|
|
Federal Home Loan Bank stock
|
|
|
1,802
|
|
|
|
1,802
|
|
|
|
802
|
|
|
|
802
|
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
177,682
|
|
|
|
178,041
|
|
|
|
127,152
|
|
|
|
127,689
|
|
|
|
Federal Home Loan Bank advances
|
|
|
27,423
|
|
|
|
27,300
|
|
|
|
16,035
|
|
|
|
16,124
|
|
|
|
Other borrowings
|
|
|
851
|
|
|
|
851
|
|
|
|
1,046
|
|
|
|
1,046
|
|
|
|
Federal funds purchased
|
|
|
5,565
|
|
|
|
5,565
|
|
|
|
—
|
|
|
|
—
|
|
|
|
Junior subordinated debentures
|
|
|
5,155
|
|
|
|
5,155
|
|
|
|
5,155
|
|
|
|
5,155
|
|
|
Derivative:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap (loss position)
|
|
|
(69
|
)
|
|
|
(69
|
)
|
|
|
—
|
|
|
|
—
|
|
A summary of the amounts of the Company’s financial
instruments, which approximate fair value, with
off-balance-sheet risk at December 31, 2004, follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
|
|
|
|
|
Contract
|
|
|
Carrying
|
|
|
Fair
|
|
|
|
|
Amount
|
|
|
Amount
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unused loan commitments
|
|
$
|
12,206
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unused lines of credit
|
|
$
|
9,624
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Standby letters of credit
|
|
$
|
329
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Letters of credit outstanding to FHLB
|
|
$
|
12,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
(11) Credit Risk
The Company grants loans to borrowers throughout the State of
Florida with a majority of the loans in the Florida Keys.
Although the Company has a diversified loan portfolio, a
significant portion of its borrowers’ ability to honor
their contracts is dependent upon the economy of the Florida
Keys.
F-83
Marine Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial
Statements — (Continued)
(12) Income Taxes
Allocation of Federal and state income taxes between current and
deferred portions is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
2004
|
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
731
|
|
|
|
417
|
|
|
|
State
|
|
|
133
|
|
|
|
75
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current
|
|
|
864
|
|
|
|
492
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(262
|
)
|
|
|
(194
|
)
|
|
|
State
|
|
|
(45
|
)
|
|
|
(34
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred
|
|
|
(307
|
)
|
|
|
(228
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
557
|
|
|
|
264
|
|
|
|
|
|
|
|
|
|
The reasons for the differences between the statutory Federal
income tax rate and the effective tax rate are summarized as
follows ($ in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
|
|
|
2004
|
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of Pretax
|
|
|
|
|
% of Pretax
|
|
|
|
|
Amount
|
|
|
Earnings
|
|
|
Amount
|
|
|
Earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes at statutory Federal rate
|
|
$
|
519
|
|
|
|
34.0
|
%
|
|
$
|
248
|
|
|
|
34.0
|
%
|
|
Increase (decrease) resulting from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State taxes, net of Federal tax benefit
|
|
|
57
|
|
|
|
3.7
|
|
|
|
27
|
|
|
|
3.7
|
|
|
|
Tax-exempt income
|
|
|
(37
|
)
|
|
|
(2.4
|
)
|
|
|
(24
|
)
|
|
|
(3.3
|
)
|
|
|
Other
|
|
|
18
|
|
|
|
1.2
|
|
|
|
13
|
|
|
|
1.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
557
|
|
|
|
36.5
|
%
|
|
$
|
264
|
|
|
|
36.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-84
Marine Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial
Statements — (Continued)
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and deferred tax
liabilities are presented below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31,
|
|
|
|
|
|
|
|
|
|
2004
|
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses
|
|
$
|
778
|
|
|
|
500
|
|
|
|
Deferred compensation
|
|
|
122
|
|
|
|
59
|
|
|
|
Accumulated depreciation
|
|
|
12
|
|
|
|
23
|
|
|
|
Unrealized loss on securities available for sale
|
|
|
41
|
|
|
|
—
|
|
|
|
Unrealized loss on derivative instrument
|
|
|
28
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
981
|
|
|
|
582
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
|
|
Deferred loan costs
|
|
|
(23
|
)
|
|
|
—
|
|
|
|
Unrealized gain on securities available for sale
|
|
|
—
|
|
|
|
(31
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
(23
|
)
|
|
|
(31
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset
|
|
$
|
958
|
|
|
|
551
|
|
|
|
|
|
|
|
|
|
(13) Related Parties
In the ordinary course of business, the Company has made loans
at terms and rates prevailing at the time to officers and
directors of the Company and to entities in which they hold a
financial interest. The aggregate dollar amount of these loans
totaled approximately $1,805,000 and $1,713,000 at
December 31, 2004 and 2003, respectively. During the year
ended December 31, 2004, new loans totaled approximately
$184,000 and total principal payments were approximately
$92,000. Deposits in the Company from these related parties
totaled approximately $2,204,000 and $2,980,000 at
December 31, 2004 and 2003, respectively.
(14) Compensation Program
The Company offers a 401(k) Retirement Plan (the
“Retirement Plan”) covering all employees of the
Company. The Retirement Plan provides that, at the discretion of
the Board of Directors, contributions may be made and/or
employee contributions to the Retirement Plan may be matched.
Company contributions to the Retirement Plan for the years ended
December 31, 2004 and 2003 were approximately $52,000 and
$48,000, respectively.
(15) Stock Option Plan
The Company has a stock option plan (the “Plan”) for
directors, officers and employees. A total of 63,000 shares
(amended) have been reserved under this Plan. Under the
Plan, the option price is not to be less than 100% of the fair
market value of the common stock at the date of grant. Options
granted under the Plan vest over a five year period and have a
term of up to ten years. At December 31, 2004, no options
remain available for grant.
F-85
Marine Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial
Statements — (Continued)
A summary of the Company’s Plan as of December 31,
2004 and 2003 is presented below (dollars in thousands except
per share information):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
|
|
|
Range of Per
|
|
|
Weighted-
|
|
|
Aggregate
|
|
|
|
|
of
|
|
|
Share Option
|
|
|
Average Per
|
|
|
Option
|
|
|
|
|
Shares
|
|
|
Price
|
|
|
Share Price
|
|
|
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2002
|
|
|
40,975
|
|
|
$
|
11.87-12.31
|
|
|
|
11.91
|
|
|
|
488
|
|
|
Options granted
|
|
|
5,000
|
|
|
|
12.31
|
|
|
|
12.31
|
|
|
|
62
|
|
|
Options exercised
|
|
|
(1,008
|
)
|
|
|
(11.87
|
)
|
|
|
(11.87
|
)
|
|
|
(12
|
)
|
|
Options forfeited
|
|
|
(210
|
)
|
|
|
(11.87
|
)
|
|
|
(11.87
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2003
|
|
|
44,757
|
|
|
|
11.87-12.50
|
|
|
|
11.97
|
|
|
|
536
|
|
|
Options granted
|
|
|
9,000
|
|
|
|
12.93
|
|
|
|
12.93
|
|
|
|
116
|
|
|
Options exercised
|
|
|
(4,200
|
)
|
|
|
(11.87
|
)
|
|
|
(11.87
|
)
|
|
|
(50
|
)
|
|
Options forfeited
|
|
|
(210
|
)
|
|
|
(11.87
|
)
|
|
|
(11.87
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2004
|
|
|
49,347
|
|
|
$
|
11.87-12.93
|
|
|
|
12.16
|
|
|
|
600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted remaining contractual life of the outstanding stock
options at December 31, 2004 and 2003 was 6.1 years
and 6.3 years, respectively.
These options are exercisable as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Weighted-Average
|
|
|
Year Ending
|
|
Shares
|
|
|
Exercise Price
|
|
|
|
|
|
|
|
|
|
|
Currently
|
|
|
34,897
|
|
|
$
|
12.03
|
|
|
2005
|
|
|
5,800
|
|
|
|
12.54
|
|
|
2006
|
|
|
5,800
|
|
|
|
12.53
|
|
|
2007
|
|
|
2,050
|
|
|
|
12.93
|
|
|
2008
|
|
|
800
|
|
|
|
12.93
|
|
|
|
|
|
|
|
|
|
|
|
|
|
49,347
|
|
|
$
|
12.16
|
|
|
|
|
|
|
|
|
|
(16) Regulatory Matters
Banking regulations place certain restrictions on dividends paid
and loans or advances made by the Bank to the Holding Company.
The Company (on a consolidated basis) and the Bank are subject
to various regulatory capital requirements administered by the
regulatory banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory and possibly
additional discretionary actions by regulators that, if
undertaken, could have a direct material effect on the
Company’s and the Bank’s financial statements. Under
capital adequacy guidelines and the regulatory framework for
prompt corrective action, the Company and the Bank must meet
specific capital guidelines that involve quantitative measures
of their assets, liabilities, and certain off-balance-sheet
items as calculated under regulatory accounting practices. The
Bank’s capital amounts and classification are also subject
to qualitative judgements by the regulators about components,
risk weightings, and other factors. Prompt corrective action
provisions are not applicable to bank holding companies.
Quantitative measures established by regulation to ensure
capital adequacy require the Company and the Bank to maintain
minimum amounts and percentages (set forth in the following
table) of total and Tier 1 capital (as defined in the
regulations) to risk-weighted assets (as defined) and of Tier 1
capital (as defined) to average assets (as defined). Management
believes, as of December 31, 2004, that the Company and the
Bank met all capital adequacy requirements to which they were
subject.
F-86
Marine Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial
Statements — (Continued)
As of December 31, 2004, the most recent notification from
the regulatory authorities categorized the Bank as adequately
capitalized under the regulatory framework for prompt corrective
action. To be categorized as well capitalized, an institution
must maintain minimum total risk-based, Tier I risk-based, and
Tier I leverage percentages as set forth in the following
tables. There are no conditions or events since that
notification that management believes have changed the
Bank’s category. The Company’s and the Bank’s
actual capital amounts and percentages as of December 31,
2004 and 2003 are also presented in the table (dollars in
thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum To Be Well
|
|
|
|
|
|
|
|
|
For Capital
|
|
|
Capitalized Under
|
|
|
|
|
|
|
Adequacy
|
|
|
Prompt Corrective
|
|
|
|
|
Actual
|
|
|
Purposes
|
|
|
Action Provisions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount
|
|
|
%
|
|
|
Amount
|
|
|
%
|
|
|
Amount
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital to Risk-Weighted assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank
|
|
$
|
15,588
|
|
|
|
8.65
|
%
|
|
$
|
14,422
|
|
|
|
8.00
|
%
|
|
$
|
18,028
|
|
|
|
10.00
|
%
|
|
|
|
Consolidated
|
|
|
16,012
|
|
|
|
8.97
|
|
|
|
14,287
|
|
|
|
8.00
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
Tier 1 Capital to Risk-Weighted Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank
|
|
|
13,483
|
|
|
|
7.48
|
|
|
|
7,211
|
|
|
|
4.00
|
|
|
|
10,817
|
|
|
|
6.00
|
|
|
|
|
Consolidated
|
|
|
11,134
|
|
|
|
6.23
|
|
|
|
7,144
|
|
|
|
4.00
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
Tier 1 Capital to Average Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank
|
|
|
13,483
|
|
|
|
6.38
|
|
|
|
8,447
|
|
|
|
4.00
|
|
|
|
10,559
|
|
|
|
5.00
|
|
|
|
|
Consolidated
|
|
|
11,134
|
|
|
|
5.27
|
|
|
|
8,447
|
|
|
|
4.00
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
As of December 31, 2003:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital to Risk-Weighted assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank
|
|
$
|
13,761
|
|
|
|
12.17
|
%
|
|
$
|
9,045
|
|
|
|
8.00
|
%
|
|
$
|
11,307
|
|
|
|
10.00
|
%
|
|
|
|
Consolidated
|
|
|
14,252
|
|
|
|
12.57
|
|
|
|
9,071
|
|
|
|
8.00
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
Tier 1 Capital to Risk-Weighted Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank
|
|
|
12,522
|
|
|
|
11.07
|
|
|
|
4,523
|
|
|
|
4.00
|
|
|
|
6,784
|
|
|
|
6.00
|
|
|
|
|
Consolidated
|
|
|
9,861
|
|
|
|
8.70
|
|
|
|
4,536
|
|
|
|
4.00
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
Tier 1 Capital to Average Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank
|
|
|
12,522
|
|
|
|
8.12
|
|
|
|
6,165
|
|
|
|
4.00
|
|
|
|
7,707
|
|
|
|
5.00
|
|
|
|
|
Consolidated
|
|
|
9,861
|
|
|
|
6.39
|
|
|
|
6,171
|
|
|
|
4.00
|
|
|
|
N/A
|
|
|
|
N/A
|
|
(17) Acquisition
On June 1, 2005, the Company was acquired by Home
BancShares, Inc. (“Home”). The total acquisition price
was approximately $15.6 million of which approximately
$9.4 million was paid in cash and $6.2 million was
paid in Class B preferred stock of Home.
F-87
Mountain View Bancshares, Inc.
Accountants’ Report and Consolidated Financial Statements
December 31, 2004
F-88
Mountain View Bancshares, Inc.
December 31, 2004
Contents
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|
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|
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F-90
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Consolidated Financial Statements
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|
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F-91
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F-92
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F-93
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F-94
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F-95
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|
F-89
Report of Independent Registered Public Accounting Firm
Audit Committee, Board of Directors and Stockholders
Mountain View Bancshares, Inc.
Mountain View, Arkansas
We have audited the consolidated balance sheet of Mountain View
Bancshares, Inc. (a wholly-owned subsidiary of Home Bancshares,
Inc., effective September 1, 2005), as of December 31,
2004, and the related consolidated statements of income,
stockholders’ equity and cash flows for the year ended
December 31, 2004. These financial statements are the
responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of Mountain View Bancshares, Inc. as of
December 31, 2004, and the results of its operations and
its cash flows for the year ended December 31, 2004, in
conformity with accounting principles generally accepted in the
United States of America.
Little Rock, Arkansas
February 17, 2006
F-90
Mountain View Bancshares, Inc.
Consolidated Balance Sheet
December 31, 2004
|
|
|
|
|
|
|
|
|
|
Assets
|
|
Cash and due from banks
|
|
$
|
2,478,507
|
|
|
Federal funds sold
|
|
|
2,105,000
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
4,583,507
|
|
|
Available-for-sale securities
|
|
|
97,044,267
|
|
|
Loans, net of allowance for loan losses of $913,938 at
December 31, 2004
|
|
|
71,218,048
|
|
|
Premises and equipment
|
|
|
2,513,795
|
|
|
Foreclosed assets held for sale, net
|
|
|
77,767
|
|
|
Interest receivable
|
|
|
1,889,320
|
|
|
Core deposit intangible
|
|
|
99,417
|
|
|
Other
|
|
|
42,900
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
177,469,021
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders’ Equity
|
|
Liabilities
|
|
|
|
|
|
|
Deposits
|
|
|
|
|
|
|
|
Demand
|
|
$
|
16,918,117
|
|
|
|
|
Savings, NOW and money market
|
|
|
44,844,318
|
|
|
|
|
Time
|
|
|
83,713,439
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
|
145,475,874
|
|
|
|
|
Interest payable and other liabilities
|
|
|
341,144
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
145,817,018
|
|
|
|
|
|
|
|
Stockholders’ equity
|
|
|
|
|
|
|
Common stock, $10 par value; authorized 10,000 shares; issued
and outstanding 2004 — 7,982 shares
|
|
|
79,820
|
|
|
|
Additional paid-in capital
|
|
|
12,922,675
|
|
|
|
Retained earnings
|
|
|
18,312,953
|
|
|
|
Accumulated other comprehensive income
|
|
|
336,555
|
|
|
|
|
|
|
|
Total stockholders’ equity
|
|
|
31,652,003
|
|
|
|
|
|
|
|
Total liabilities and stockholders’ equity
|
|
$
|
177,469,021
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements
F-91
Mountain View Bancshares, Inc.
Consolidated Statement of Income
Year Ended December 31, 2004
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
|
|
|
|
Loans
|
|
$
|
5,098,960
|
|
|
|
Securities
|
|
|
|
|
|
|
|
Taxable
|
|
|
56,272
|
|
|
|
|
Tax-exempt
|
|
|
4,596,036
|
|
|
|
Federal funds
|
|
|
52,355
|
|
|
|
|
|
|
|
Total interest income
|
|
|
9,803,623
|
|
|
Interest expense
|
|
|
|
|
|
|
Deposits
|
|
|
2,887,312
|
|
|
|
|
|
|
|
Net interest income
|
|
|
6,916,311
|
|
|
Provision for loan losses
|
|
|
100,000
|
|
|
|
|
|
|
|
Net interest income after provision for loan losses
|
|
|
6,816,311
|
|
|
|
|
|
|
|
Noninterest income
|
|
|
|
|
|
|
Customer service fees
|
|
|
355,146
|
|
|
|
Other service charges and fees
|
|
|
115,086
|
|
|
|
Net realized gains on sales of held-to-maturity securities
|
|
|
11,275
|
|
|
|
Other
|
|
|
20,895
|
|
|
|
|
|
|
|
Total noninterest income
|
|
|
502,402
|
|
|
|
|
|
|
|
Noninterest expense
|
|
|
|
|
|
|
Salaries and employee benefits
|
|
|
1,726,560
|
|
|
|
Net occupancy expense
|
|
|
93,354
|
|
|
|
Equipment expense
|
|
|
541,353
|
|
|
|
Professional fees
|
|
|
44,532
|
|
|
|
Marketing expense
|
|
|
51,476
|
|
|
|
Printing and office supplies
|
|
|
72,849
|
|
|
|
Loss on foreclosed assets, net
|
|
|
45,132
|
|
|
|
Other
|
|
|
480,202
|
|
|
|
|
|
|
|
Total noninterest expense
|
|
|
3,055,458
|
|
|
|
|
|
|
|
Net income
|
|
$
|
4,263,255
|
|
|
|
|
|
|
|
Earnings per share
|
|
$
|
534.11
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements
F-92
Mountain View Bancshares, Inc.
Consolidated Statement of Stockholders’ Equity
Year Ended December 31, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Common Stock
|
|
|
Additional
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
Paid-in
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Earnings
|
|
|
Income
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 1, 2003
|
|
|
7,982
|
|
|
$
|
79,820
|
|
|
$
|
12,922,675
|
|
|
$
|
14,640,366
|
|
|
$
|
—
|
|
|
$
|
27,642,861
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,263,255
|
|
|
|
—
|
|
|
|
4,263,255
|
|
|
|
|
Change in unrealized appreciation on available-for-sale
securities
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
336,555
|
|
|
|
336,555
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,599,810
|
|
|
|
Dividends on common stock, $74 per share
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(590,668
|
)
|
|
|
—
|
|
|
|
(590,668
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2004
|
|
|
7,982
|
|
|
$
|
79,820
|
|
|
$
|
12,922,675
|
|
|
$
|
18,312,953
|
|
|
$
|
336,555
|
|
|
$
|
31,652,003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements
F-93
Mountain View Bancshares, Inc.
Consolidated Statement of Cash Flows
Year Ended December 31, 2004
|
|
|
|
|
|
|
|
|
|
Operating Activities
|
|
|
|
|
|
|
Net income
|
|
$
|
4,263,255
|
|
|
|
Items not requiring (providing) cash
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
403,928
|
|
|
|
|
Provision for loan losses
|
|
|
100,000
|
|
|
|
|
Provision for losses on foreclosed assets
|
|
|
36,690
|
|
|
|
|
Amortization of premiums and discounts on securities
|
|
|
(174,363
|
)
|
|
|
|
Net realized gains on held-to-maturity securities
|
|
|
(11,275
|
)
|
|
|
|
Gain on sale of premises and equipment
|
|
|
(1,632
|
)
|
|
|
Changes in
|
|
|
|
|
|
|
|
Interest receivable
|
|
|
(165,121
|
)
|
|
|
|
Other assets
|
|
|
(59
|
)
|
|
|
|
Interest payable and other liabilities
|
|
|
33,170
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
4,484,593
|
|
|
|
|
|
|
|
Investing Activities
|
|
|
|
|
|
|
Purchases of securities
|
|
|
(21,392,074
|
)
|
|
|
Proceeds from maturities of securities
|
|
|
11,432,549
|
|
|
|
Proceeds from the sales of held-to-maturity securities
|
|
|
3,211,275
|
|
|
|
Net change in loans
|
|
|
(1,829,603
|
)
|
|
|
Purchase of premises and equipment
|
|
|
(370,587
|
)
|
|
|
Proceeds from sales of premises and equipment
|
|
|
15,269
|
|
|
|
Proceeds from the sale of foreclosed assets
|
|
|
9,000
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(8,924,171
|
)
|
|
|
|
|
|
|
Financing Activities
|
|
|
|
|
|
|
Net increase in demand deposits, money market, NOW and savings
accounts
|
|
|
1,277,741
|
|
|
|
Net increase in time deposits
|
|
|
3,932,671
|
|
|
|
Dividends paid
|
|
|
(590,668
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
4,619,744
|
|
|
|
|
|
|
|
Increase in Cash and Cash Equivalents
|
|
|
180,166
|
|
|
Cash and Cash Equivalents, Beginning of Year
|
|
|
4,403,341
|
|
|
|
|
|
|
|
Cash and Cash Equivalents, End of Year
|
|
$
|
4,583,507
|
|
|
|
|
|
|
|
Supplemental Cash Flows Information
|
|
|
|
|
|
|
Interest paid
|
|
$
|
2,549,358
|
|
|
|
Sale and financing of foreclosed assets
|
|
$
|
9,000
|
|
|
|
Real estate acquired in settlement of loans
|
|
$
|
91,456
|
|
See Notes to Consolidated Financial Statements
F-94
Mountain View Bancshares, Inc.
Notes to Consolidated Financial Statements
|
|
|
|
Note 1:
|
Nature of Operations and Summary of Significant Accounting
Policies
|
Mountain View Bancshares, Inc. (the “Company”) is a
holding company whose principal activity is the ownership and
management of its wholly-owned subsidiary, Bank of Mountain View
(the “Bank”). The Bank is primarily engaged in
providing a full range of banking and financial services to
individual and corporate customers in Mountain View, Arkansas.
The Bank is subject to competition from other financial
institutions. The Bank is subject to the regulation of certain
federal and state agencies and undergoes periodic examinations
by those regulatory authorities.
|
|
|
|
|
Principles of Consolidation
|
The consolidated financial statements include the accounts of
the Company and the Bank. All significant intercompany accounts
and transactions have been eliminated in consolidation.
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 real estate acquired in
connection with foreclosures or in satisfaction of loans. In
connection with the determination of the allowance for loan
losses and the valuation of foreclosed assets held for sale,
management obtains independent appraisals for significant
properties.
The Company considers all liquid investments with original
maturities of three months or less to be cash equivalents.
Available-for-sale securities, which include any security for
which the Company has no immediate plan to sell but which may be
sold in the future, are carried at fair value. Unrealized gains
and losses are recorded in other comprehensive income.
Held-to
-maturity
securities, which include any security for which the Company has
the positive intent and ability to hold until maturity, are
carried at historical cost adjusted for amortization of premiums
and accretion of discounts.
Amortization of premiums and accretion of discounts are recorded
as interest income from securities. Realized gains and losses
are recorded as net security gains (losses). Gains and losses on
sales of securities are determined on the
specific-identification method.
Loans that management has the intent and ability to hold for the
foreseeable future or until maturity or payoffs are reported at
their outstanding principal balances adjusted for any
charge-offs, the allowance for loan losses, any deferred fees or
costs on originated loans and unamortized premiums or discounts
on purchased loans. Interest income is reported on the interest
method and includes amortization of net deferred loan fees
F-95
Mountain View Bancshares, Inc.
Notes to Consolidated Financial
Statements — (Continued)
and costs over the loan term. Generally, loans are placed on
non-accrual status at ninety days past due and interest is
considered a loss, unless the loan is well-secured and in the
process of collection.
|
|
|
|
|
Allowance for Loan Losses
|
The allowance for loan losses is established as losses are
estimated to have occurred through a provision for loan losses
charged to income. Loan losses are charged against the allowance
when management believes the uncollectibility of a loan balance
is confirmed. Subsequent recoveries, if any, are credited to the
allowance.
The allowance for loan losses is evaluated on a regular basis by
management and is based upon management’s periodic review
of the collectibility of the loans in light of historical
experience, the nature and volume of the loan portfolio, adverse
situations that may affect the borrower’s ability to repay,
estimated value of any underlying collateral and prevailing
economic conditions. This evaluation is inherently subjective as
it requires estimates that are susceptible to significant
revision as more information becomes available.
A loan is considered impaired when, based on current information
and events, it is probable that the Company will be unable to
collect the scheduled payments of principal or interest when due
according to the contractual terms of the loan agreement.
Factors considered by management in determining impairment
include payment status, collateral value and the probability of
collecting scheduled principal and interest payments when due.
Loans that experience insignificant payment delays and payment
shortfalls generally are not classified as impaired. Management
determines the significance of payment delays and payment
shortfalls on a case-by-case basis, taking into consideration
all of the circumstances surrounding the loan and the borrower,
including the length of the delay, the reasons for the delay,
the borrower’s prior payment record and the amount of the
shortfall in relation to the principal and interest owed.
Impairment is measured on a loan-by-loan basis by either the
present value of expected future cash flows discounted at the
loan’s effective interest rate, the loan’s obtainable
market price or the fair value of the collateral if the loan is
collateral dependent.
Depreciable assets are stated at cost less accumulated
depreciation. Depreciation is charged to expense using the
straight-line method for buildings and the declining balance
method for furniture, fixtures and equipment over the estimated
useful life of the assets.
|
|
|
|
|
Foreclosed Assets Held for Sale
|
Assets acquired through, or in lieu of, loan foreclosure are
held for sale and are initially recorded at fair value at the
date of foreclosure, establishing a new cost basis. Subsequent
to foreclosure, valuations are periodically performed by
management and the assets are carried at the lower of carrying
amount or fair value less cost to sell. Revenue and expenses
from operations and changes in the valuation allowance are
included in net income or expense from foreclosed assets.
The core deposit intangible is being amortized on the
straight-line basis over a period of 15 years. The asset is
periodically evaluated as to the recoverability of its carrying
value.
The Company’s stockholders have elected to have the
Company’s income taxed as an “S” Corporation
under provisions of the Internal Revenue Code and a similar
section of the Arkansas income tax law. Therefore, taxable
income or loss is reported to the individual stockholders for
inclusion in their respective tax returns and no provision for
federal and state income taxes is included in this statement.
F-96
Mountain View Bancshares, Inc.
Notes to Consolidated Financial
Statements — (Continued)
Earnings per share have been computed based upon the
weighted-average common shares outstanding during the year.
There were no dilutive or potentially dilutive shares during
2004.
The amortized cost and approximate fair values of securities are
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2004
|
|
|
|
|
|
|
|
|
|
Available-for-sale Securities
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Approximate
|
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government agencies
|
|
$
|
53,097,158
|
|
|
$
|
133,892
|
|
|
$
|
(813,110
|
)
|
|
$
|
52,417,940
|
|
|
Mortgage-backed securities
|
|
|
263,339
|
|
|
|
3,513
|
|
|
|
(80
|
)
|
|
|
226,772
|
|
|
State and political subdivisions
|
|
|
43,347,215
|
|
|
|
1,058,557
|
|
|
|
(46,217
|
)
|
|
|
44,359,555
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
96,707,712
|
|
|
$
|
1,195,962
|
|
|
$
|
(859,407
|
)
|
|
$
|
97,044,267
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The amortized cost and fair value of available-for-sale
securities at December 31, 2004, by contractual maturity,
are shown below. Expected maturities will differ from
contractual maturities because issuers may have the right to
call or prepay obligations with or without call or prepayment
penalties.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
|
|
|
|
|
|
|
|
|
|
Amortized
|
|
|
|
|
|
|
Cost
|
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
|
Within one year
|
|
$
|
655,353
|
|
|
$
|
660,544
|
|
|
One to five years
|
|
|
3,334,972
|
|
|
|
3,371,885
|
|
|
Five to ten years
|
|
|
23,171,507
|
|
|
|
23,547,919
|
|
|
After ten years
|
|
|
69,282,541
|
|
|
|
69,197,147
|
|
|
|
|
|
|
|
|
|
|
|
|
|
96,444,373
|
|
|
|
96,777,495
|
|
|
Mortgage-backed securities
|
|
|
263,339
|
|
|
|
266,772
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
96,707,712
|
|
|
$
|
97,044,267
|
|
|
|
|
|
|
|
|
|
The carrying value of securities pledged as collateral, to
secure public deposits and for other purposes, was $20,367,605
at December 31, 2004.
Certain investments in debt securities are reported in the
financial statements at an amount less than their historical
cost. Total fair value of these investments at December 31,
2004, was $42,064,041, which is approximately 43.3%, of the
Company’s available-for-sale investment portfolio. These
declines primarily resulted from recent increases in market
interest rates.
Based on evaluation of available evidence, including recent
changes in market interest rates, credit rating information and
information obtained from regulatory filings, management
believes the declines in fair value for these securities are
temporary.
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.
F-97
Mountain View Bancshares, Inc.
Notes to Consolidated Financial
Statements — (Continued)
The following table shows our investments’ gross unrealized
losses and fair value, aggregated by investment category and
length of time that individual securities have been in a
continuous unrealized loss position at December 31, 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 Months
|
|
|
12 Months or More
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Description of Securities
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government agencies
|
|
$
|
14,920,685
|
|
|
$
|
(240,542
|
)
|
|
$
|
23,540,597
|
|
|
$
|
(572,568
|
)
|
|
$
|
38,461,282
|
|
|
$
|
(813,110
|
)
|
|
Mortgage-backed securities
|
|
|
69,047
|
|
|
|
(80
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
69,047
|
|
|
|
(80
|
)
|
|
State and political subdivisions
|
|
|
2,643,949
|
|
|
|
(22,485
|
)
|
|
|
889,763
|
|
|
|
(23,732
|
)
|
|
|
3,533,712
|
|
|
|
(46,217
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total temporarily impaired securities
|
|
$
|
17,633,681
|
|
|
$
|
(263,107
|
)
|
|
$
|
24,430,360
|
|
|
$
|
(596,300
|
)
|
|
$
|
42,064,041
|
|
|
$
|
(859,407
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During 2004 the Company sold eight
held-to
-maturity
securities, with total proceeds of $3,211,275 and a realized
gain of $11,275. In accordance with FAS 115, these sales
required all of the Company’s securities to be classified
as available-for-sale securities. The amount of securities
transferred from
held-to
-maturity at
December 31, 2004, was $85,155,517, which included
unrealized gains of $355,420 that is reflected in accumulated
other comprehensive income.
|
|
|
|
Note 3:
|
Loans and Allowance for Loan Losses
|
Categories of loans at December 31, include:
|
|
|
|
|
|
|
|
Commercial and agricultural
|
|
$
|
17,428,204
|
|
|
Financial institutions
|
|
|
159,124
|
|
|
Real estate construction
|
|
|
3,327,893
|
|
|
Commercial real estate
|
|
|
16,841,271
|
|
|
Residential real estate
|
|
|
27,409,108
|
|
|
Consumer
|
|
|
6,849,804
|
|
|
Other
|
|
|
116,582
|
|
|
|
|
|
|
|
|
Total loans
|
|
|
72,131,986
|
|
|
Less allowance for loan losses
|
|
|
913,938
|
|
|
|
|
|
|
|
|
Net loans
|
|
$
|
71,218,048
|
|
|
|
|
|
|
Activity in the allowance for loan losses was as follows:
|
|
|
|
|
|
|
Balance, beginning of year
|
|
$
|
836,595
|
|
|
Provision charged to expense
|
|
|
100,000
|
|
|
Losses charged off, net of recoveries of $9,631
|
|
|
(22,657
|
)
|
|
|
|
|
|
|
Balance, end of year
|
|
$
|
913,938
|
|
|
|
|
|
|
Impaired loans totaled $337,453 at December 31, 2004. At
December 31, 2004, impaired loans of $337,453 had no
related allowance for loan losses.
There was no interest recognized on average impaired loans of
$434,140 for 2004. There was no interest recognized on impaired
loans on a cash basis during 2004.
F-98
Mountain View Bancshares, Inc.
Notes to Consolidated Financial
Statements — (Continued)
At December 31, 2004, there were no accruing loans
delinquent 90 days or more. Non-accruing loans at
December 31, 2004 were $337,453.
|
|
|
|
Note 4:
|
Premises and Equipment
|
Major classifications of premises and equipment, stated at cost,
are as follows:
|
|
|
|
|
|
|
|
Land
|
|
$
|
400,517
|
|
|
Buildings and improvements
|
|
|
2,293,528
|
|
|
Equipment
|
|
|
2,170,826
|
|
|
|
|
|
|
|
|
|
|
4,864,871
|
|
|
Less accumulated depreciation
|
|
|
2,351,076
|
|
|
|
|
|
|
|
|
Net premises and equipment
|
|
$
|
2,513,795
|
|
|
|
|
|
|
|
|
|
|
Note 5:
|
Core Deposit Intangible
|
The carrying basis and accumulated amortization of recognized
intangible assets at December 31, 2004, was:
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Carrying
|
|
|
Accumulated
|
|
|
|
|
Amount
|
|
|
Amortization
|
|
|
|
|
|
|
|
|
|
|
Core deposit intangible
|
|
$
|
662,783
|
|
|
$
|
563,366
|
|
|
|
|
|
|
|
|
|
Amortization expense for the year ended December 31, 2004,
was $44,186. Estimated amortization expense for the remaining
three years is:
|
|
|
|
|
|
|
2005
|
|
$
|
44,186
|
|
|
2006
|
|
|
44,186
|
|
|
2007
|
|
|
11,045
|
|
|
|
|
|
|
|
|
|
$
|
99,417
|
|
|
|
|
|
|
|
|
|
|
Note 6:
|
Interest-bearing Deposits
|
Interest-bearing deposits in denominations of $100,000 or more
were $37,788,789 on December 31, 2004.
At December 31, 2004, the scheduled maturities of time
deposits are as follows:
|
|
|
|
|
|
|
2005
|
|
$
|
58,073,413
|
|
|
2006
|
|
|
8,373,227
|
|
|
2007
|
|
|
5,557,562
|
|
|
2008
|
|
|
8,198,130
|
|
|
2009
|
|
|
3,472,696
|
|
|
Thereafter
|
|
|
38,411
|
|
|
|
|
|
|
|
|
|
$
|
83,713,439
|
|
|
|
|
|
|
|
|
|
|
Note 7:
|
Regulatory Matters
|
The Company and the subsidiary bank are subject to various
regulatory capital requirements administered by the federal
banking agencies. Failure to meet minimum capital requirements
can initiate certain mandatory and possibly additional
discretionary actions by regulators that, if undertaken, could
have a direct
F-99
Mountain View Bancshares, Inc.
Notes to Consolidated Financial
Statements — (Continued)
material effect on the Company’s financial statements.
Under capital adequacy guidelines and the regulatory framework
for prompt corrective action, the Company and the subsidiary
banks must meet specific capital guidelines that involve
quantitative measures of assets, liabilities and certain
off-balance-sheet items as calculated under regulatory
accounting practices. The capital amounts and classification are
also subject to qualitative judgments by the regulators about
components, risk weightings and other factors.
Quantitative measures established by regulation to ensure
capital adequacy require the Company and the subsidiary bank to
maintain minimum amounts and ratios (set forth in the table
below) of total and Tier I capital (as defined in the
regulations) to risk-weighted assets (as defined), and of
Tier I capital (as defined) to average assets (as defined).
Management believes, as of December 31, 2004, that the
Company and the subsidiary bank meet all capital adequacy
requirements to which they are subject.
As of December 31, 2004, the most recent notification from
the Federal Deposit Insurance Corporation categorized the Bank
as well capitalized under the regulatory framework for prompt
corrective action. To be categorized as well-capitalized, the
Bank must maintain capital ratios as set forth in the table.
There are no conditions or events since that notification that
management believes have changed the Bank’s category.
The Company and Bank’s actual capital amounts and ratios
are also presented in the following table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
To Be Well
|
|
|
|
|
|
|
|
|
|
|
Capitalized Under
|
|
|
|
|
|
|
For Capital Adequacy
|
|
|
Prompt Corrective
|
|
|
|
|
Actual
|
|
|
Purposes
|
|
|
Action Provisions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Capital (to risk-weighted assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
32,090,000
|
|
|
|
35.9
|
%
|
|
$
|
7,142,000
|
|
|
|
8.0
|
%
|
|
$
|
8,928,000
|
|
|
|
N/A
|
|
|
|
|
Subsidiary Bank
|
|
|
26,513,000
|
|
|
|
29.7
|
|
|
|
7,133,000
|
|
|
|
8.0
|
|
|
|
8,916,000
|
|
|
|
10.0
|
%
|
|
|
Tier 1 Capital (to risk-weighted assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
31,176,000
|
|
|
|
34.9
|
|
|
|
3,571,000
|
|
|
|
4.0
|
|
|
|
5,357,000
|
|
|
|
N/A
|
|
|
|
|
Subsidiary Bank
|
|
|
25,599,000
|
|
|
|
28.7
|
|
|
|
3,567,000
|
|
|
|
4.0
|
|
|
|
5,350,000
|
|
|
|
6.0
|
|
|
|
Tier 1 Capital (to average assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
31,176,000
|
|
|
|
17.7
|
|
|
|
7,067,000
|
|
|
|
4.0
|
|
|
|
8,833,000
|
|
|
|
N/A
|
|
|
|
|
Subsidiary Bank
|
|
|
25,599,000
|
|
|
|
14.5
|
|
|
|
7,067,000
|
|
|
|
4.0
|
|
|
|
8,833,000
|
|
|
|
5.0
|
|
The Bank is subject to certain restrictions on the amount of
dividends that it may declare without prior regulatory approval.
At December 31, 2004, approximately $642,000 of retained
earnings were available for dividend declaration without prior
regulatory approval.
|
|
|
|
Note 8:
|
Related Party Transactions
|
At December 31, 2004, the Company had loans outstanding to
executive officers, directors, significant shareholders and
their affiliates (related parties), in the amount of $376,005.
In management’s opinion, such loans and other extensions of
credit and deposits were made in the ordinary course of business
and were made on substantially the same terms (including
interest rates and collateral) as those prevailing at the time
for comparable transactions with other persons. Further, in
management’s opinion, these loans did not involve more than
normal risk of collectibility or present other unfavorable
features.
F-100
Mountain View Bancshares, Inc.
Notes to Consolidated Financial
Statements — (Continued)
Deposits from related parties held by the Company at
December 31, 2004, totaled $645,367.
|
|
|
|
Note 9:
|
Pension Benefit Plan
|
Pension benefits for substantially all employees are provided
through participation in a multi-employer defined benefit
pension plan.
The Company makes monthly contributions to the pension plan
except in periods when a moratorium on contributions is in
effect due to the plan reaching full funding limitations. The
Company paid $183,568 in contributions to the plan during 2004.
Effective September 1, 2005, the plan was frozen, and there
have been no new participants in the plan and no additional
benefits earned.
|
|
|
|
Note 10:
|
Earnings Per Share
|
Earnings per share (EPS) were computed as follows:
|
|
|
|
|
|
|
|
|
2004
|
|
|
|
|
|
|
|
Net income available to shareholders
|
|
$
|
4,263,255
|
|
|
Average shares outstanding
|
|
|
7,982
|
|
|
Earnings per share
|
|
$
|
534.11
|
|
|
|
|
|
Note 11:
|
Disclosures about Fair Value of Financial Instruments
|
The following table presents estimated fair values of the
Company’s 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2004
|
|
|
|
|
|
|
|
|
|
Carrying
|
|
|
Fair
|
|
|
|
|
Amount
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
Financial assets
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
4,583,507
|
|
|
$
|
4,583,507
|
|
|
|
Available-for-sale securities
|
|
|
97,044,267
|
|
|
|
97,044,267
|
|
|
|
Loans, net of allowance for loan losses
|
|
|
71,218,048
|
|
|
|
69,875,479
|
|
|
|
Interest receivable
|
|
|
1,889,320
|
|
|
|
1,889,320
|
|
|
Financial liabilities
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
145,475,874
|
|
|
|
145,423,576
|
|
|
|
Interest payable
|
|
|
317,734
|
|
|
|
317,734
|
|
The following methods and assumptions were used to estimate the
fair value of each class of financial instruments.
F-101
Mountain View Bancshares, Inc.
Notes to Consolidated Financial
Statements — (Continued)
|
|
|
|
|
Cash and Cash Equivalents and Internet Receivable
|
The carrying amount approximates fair value.
Fair values equal quoted market prices, if available. If quoted
market prices are not available, fair value is estimated based
on quoted market prices of similar securities.
The fair value of loans is estimated by discounting the future
cash flows using the current rates at which similar loans would
be made to borrowers with similar credit ratings and for the
same remaining maturities. Loans with similar characteristics
were aggregated for purposes of the calculations.
Deposits include demand deposits, savings accounts, NOW accounts
and certain money market deposits. The carrying amount
approximates fair value. The fair value of fixed-maturity time
deposits is estimated using a discounted cash flow calculation
that applies the rates currently offered for deposits of similar
remaining maturities.
The carrying amount approximates fair value.
|
|
|
|
Note 12:
|
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 are reflected in the
footnote regarding loans. Current vulnerabilities due to certain
concentrations of credit risk are discussed in the footnote on
commitments and credit risk. Also, one depositor’s deposits
exceeded 5% of total deposits at December 31, 2004.
|
|
|
|
Note 13:
|
Commitments and Credit Risk
|
The Company grants agribusiness, commercial and residential
loans to customers throughout the state of Arkansas.
|
|
|
|
|
Standby Letters of Credit
|
Standby letters of credit are irrevocable conditional
commitments issued by the Company to guarantee the performance
of a customer to a third party. Financial standby letters of
credit are primarily issued to support public and private
borrowing arrangements, including commercial paper, bond
financing and similar transactions. Performance standby letters
of credit are issued to guarantee performance of certain
customers under non-financial contractual obligations. The
credit risk involved in issuing standby letters of credit is
essentially the same as that involved in extending loans to
customers.
The Company had total outstanding standby letters of credit
amounting to $417,757 at December 31, 2004, with terms
ranging from 1 year to 3 years.
F-102
Mountain View Bancshares, Inc.
Notes to Consolidated Financial
Statements — (Continued)
Lines of credit are agreements to lend to a customer as long as
there is no violation of any condition established in the
contract. Lines of credit generally have fixed expiration dates.
Since a portion of the line may expire without being drawn upon,
the total unused lines do not necessarily represent future cash
requirements. Each customer’s creditworthiness is evaluated
on a case-by-case basis. The amount of collateral obtained, if
deemed necessary, is based on management’s credit
evaluation of the counterparty. Collateral held varies but may
include accounts receivable, inventory, property, plant and
equipment, commercial real estate and residential real estate.
Management uses the same credit policies in granting lines of
credit as it does for on-balance-sheet instruments.
At December 31, 2004, the Company had granted unused lines
of credit to borrowers aggregating approximately $10,757,314.
On September 1, 2005, the Company was acquired by Home
Bancshares, Inc., an Arkansas bank holding company. The
consideration for the merger was $44,100,000, which was paid
approximately 90% in cash and 10% in shares of Home Bancshares,
Inc., stock.
|
|
|
|
Note 15:
|
Condensed Financial Information (Parent Company Only)
|
Presented below is condensed financial information as to
financial position, results of operations and cash flows of the
Company:
Condensed Balance Sheet
|
|
|
|
|
|
|
|
|
|
December 31, 2004
|
|
|
|
|
|
|
|
ASSETS
|
|
Cash and due from banks
|
|
$
|
3,541,997
|
|
|
Investment in common stock of subsidiary
|
|
|
26,034,685
|
|
|
Dividends receivable from subsidiary
|
|
|
2,075,321
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
31,652,003
|
|
|
|
|
|
|
|
Stockholders’ Equity
|
|
$
|
31,652,003
|
|
|
|
|
|
|
|
Total liabilities and stockholders’ equity
|
|
$
|
31,652,003
|
|
|
|
|
|
|
F-103
Mountain View Bancshares, Inc.
Notes to Consolidated Financial
Statements — (Continued)
Condensed Statement of Income
|
|
|
|
|
|
|
|
|
|
|
Year Ending
|
|
|
|
|
December 31, 2004
|
|
|
|
|
|
|
|
Income
|
|
|
|
|
|
|
Dividend income from subsidiary
|
|
$
|
4,172,162
|
|
|
|
|
|
|
|
|
|
Total income
|
|
|
4,172,162
|
|
|
Expenses
|
|
|
|
|
|
|
Other expenses
|
|
|
50
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
50
|
|
|
|
|
|
|
|
Income before equity in undistributed income of
subsidiaries
|
|
|
4,172,112
|
|
|
Equity in undistributed income of subsidiaries
|
|
|
91,143
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
4,263,255
|
|
|
|
|
|
|
Condensed Statement of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
|
December 31, 2004
|
|
|
|
|
|
|
|
Operating activities
|
|
|
|
|
|
|
Net income
|
|
$
|
4,263,255
|
|
|
|
Equity in undistributed earnings of subsidiary
|
|
|
(91,143
|
)
|
|
|
Net change in dividends receivable from subsidiary
|
|
|
(75,241
|
)
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
4,096,871
|
|
|
|
|
|
|
|
Financing Activities
|
|
|
|
|
|
|
Dividends paid
|
|
|
(590,668
|
)
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(590,668
|
)
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
|
3,506,203
|
|
|
Cash and cash equivalents at beginning of year
|
|
|
35,794
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
3,541,997
|
|
|
|
|
|
|
F-104
Shares
Common Stock
PROSPECTUS
Stephens Inc.
|
|
|
|
Piper Jaffray
|
Sandler O’Neill + Partners
|
The date of this prospectus
is ,
2006
Until ,
2006 (25 days after the date of this prospectus), all
dealers that buy, sell or trade our common stock, whether or not
participating in this offering, may be required to deliver a
prospectus. This requirement is in addition to the dealers’
obligation to deliver a prospectus when acting as underwriters
and with respect to their unsold allotments or subscriptions.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
|
|
|
|
Item 13.
|
Other Expenses of Issuance and Distribution.
|
The following table sets forth the costs and expenses, other
than underwriting discounts and commissions, to be paid in
connection with the sale of shares of our common stock being
registered, all of which will be paid by us. All amounts are
estimates except the registration fee and the NASD filing fee.
|
|
|
|
|
|
|
Securities and Exchange Commission registration fee
|
|
$
|
5,537
|
|
|
NASD filing fee
|
|
|
|
|
|
Nasdaq listing fee
|
|
|
|
|
|
Accounting fees and expenses
|
|
|
|
|
|
Legal fees and expenses
|
|
|
|
|
|
Transfer agent and registrar fees
|
|
|
|
|
|
Printing and engraving expenses
|
|
|
|
|
|
Miscellaneous
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Item 14.
|
Indemnification of Directors and Officers.
|
Our Articles of Incorporation and Bylaws authorize and require
us to indemnify our directors, officers, employees and agents to
the full extent permitted by law. Section 4-27-850 of the
Arkansas Business Corporation Act of 1987 contains detailed and
comprehensive provisions providing for indemnification of
directors and officers of Arkansas corporations against
expenses, judgments, fines and settlements in connection with
litigation. Under Arkansas law, other than an action brought by
or in the right of Home BancShares, such indemnification is
available if it is determined that the proposed indemnitee acted
in good faith and in a manner he or she reasonably believed to
be in or not opposed to the best interests of Home BancShares
and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful.
In actions brought by or in the right of Home BancShares, the
Arkansas statute limits such indemnification to expenses
(including attorneys’ fees) actually and reasonably
incurred in the defense or settlement of such action if the
indemnitee acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best
interests of Home BancShares. However, no indemnification is
allowed in actions brought by or in the right of Home BancShares
with respect to any claim, issue or matter as to which such
person has been adjudged to be liable to us, unless and only to
the extent that the court determines upon application that, in
view of all the circumstances of the case, such person is fairly
and reasonably entitled to indemnity for such expenses as the
court deems proper.
To the extent that the proposed indemnitee has been successful
on the merits or otherwise in defense of any action, suit or
proceeding (or any claim, issue or matter therein), under
Arkansas law we must indemnify him or her against expenses
(including attorneys’ fees) that he or she actually and
reasonably incurred in connection with such defense.
Our Articles of Incorporation also provide that no director
shall be liable to us or our shareholders for monetary damages
for breach of fiduciary duty as a director to the fullest extent
permitted by the Arkansas Business Corporation Act.
|
|
|
|
Item 15.
|
Recent Sales of Unregistered Securities.
|
Set forth below are all of the Registrant’s sales of its
securities within the past three years that were not registered
under the Securities Act of 1933. None of these transactions
involved any underwriters or any public offerings and we believe
that each of these transactions was exempt from registration
requirements
II-1
pursuant to Sections 3(a)(11) or 4(2) of the Securities Act
of 1933, as amended, or Rule 701 of the Securities Act of
1933.
|
|
|
|
|
|
|
|
|
Date of Offering
|
|
Description of Offering
|
|
Basis of Exemption
|
|
|
|
|
|
|
|
|
|
December 1, 2003
|
|
2,123,453 shares of class A preferred stock issued in the
acquisition of 80% of the outstanding capital stock Community
Financial Group
|
|
|
Rule 147
|
|
|
December 3, 2003
|
|
2,374,143 (split adjusted) shares of common stock issued in a
cash offering at $35 per share
|
|
|
Rule 147
|
|
|
During 2003
|
|
4,500 (split adjusted) shares of common stock issued upon
exercise of stock options at exercise prices ranging from $7.33
to $9.33 per share and 17,461 (split adjusted) shares of common
stock issued pursuant to an employee stock bonus plan
|
|
|
Rule 701
|
|
|
During 2003
|
|
8,197 shares of class A preferred stock issued upon exercise of
stock options, at a converted exercise price of $0.17 per share
|
|
|
Rule 701
|
|
|
During 2004
|
|
2,418 shares of class A preferred stock issued upon the exercise
of stock options, at a converted exercise price of $0.17 per
share
|
|
|
Rule 701
|
|
|
January 1, 2005
|
|
3,750,813 (split adjusted) shares of common stock issued in the
acquisition of 67.8% of the outstanding capital stock of
TCBancorp
|
|
|
Rule 147
|
|
|
June 1, 2005
|
|
162,039 shares of class B preferred stock issued in the
acquisition of 100% of the outstanding capital stock of Marine
Bancorp
|
|
|
Rule 506
|
|
|
September 1, 2005
|
|
335,526 (split adjusted) shares of common stock issued in the
acquisition of 100% of the outstanding capital stock of Mountain
View Bancshares
|
|
|
Rule 147
|
|
|
During 2005
|
|
40,041 (split adjusted) shares of common stock issued upon
exercise of stock options, at exercise prices ranging from $7.33
to $12.67 per share
|
|
|
Rule 701
|
|
|
During 2005
|
|
15,366 shares of class A preferred stock issued upon exercise of
stock options, at a converted exercise price of $0.17 per share
|
|
|
Rule 701
|
|
|
During 2005
|
|
7,040 shares of class B preferred stock issued upon exercise of
stock options, at a converted exercise price of $18.41 per share
|
|
|
Rule 701
|
|
|
From January 1, 2006 through February 28, 2006
|
|
16,174 (split adjusted) shares of common stock issued upon
exercise of stock options, at exercise prices ranging from $7.33
to $12.67 per share
|
|
|
Rule 701
|
|
II-2
|
|
|
|
|
|
|
|
|
Date of Offering
|
|
Description of Offering
|
|
Basis of Exemption
|
|
|
|
|
|
|
|
|
|
From January 1, 2006 through February 28, 2006
|
|
14,617 shares of class A preferred shares issued upon exercise
of stock options, at a converted exercise price of $0.17 per
share
|
|
|
Rule 701
|
|
|
From January 1, 2006 through February 28, 2006
|
|
950 shares of class B preferred stock issued upon exercise of
options, at a converted exercise price of $18.41 per share
|
|
|
Rule 701
|
|
|
|
|
|
Item 16.
|
Exhibits and Financial Statement Schedules.
|
The following exhibits are filed as part of this registration
statement:
|
|
|
|
|
|
|
|
|
Exhibit
|
|
|
|
|
|
Number
|
|
|
|
Description
|
|
|
|
|
|
|
|
|
1
|
|
|
—
|
|
Form of Underwriting Agreement*
|
|
|
2
|
.1
|
|
—
|
|
Agreement and Plan of Merger, dated as of July 30, 2003,
between CB Bancorp, Inc. and Home BancShares, Inc. and Community
Financial Group, Inc.
|
|
|
2
|
.2
|
|
—
|
|
Agreement and Plan of Merger, dated as of December 3, 2004,
between Home BancShares, Inc. and TCBancorp, Inc.
|
|
|
2
|
.3
|
|
—
|
|
Agreement and Plan of Merger, dated as of January 25, 2005,
between Home BancShares, Inc. and Marine Bancorp, Inc.
|
|
|
2
|
.4
|
|
—
|
|
Stock Purchase Agreement, dated as of April 20, 2005, among
Home BancShares, Inc. and the Shareholders of Mountain View
Bancshares, Inc. and Mountain View Bancshares, Inc.
|
|
|
3
|
.1
|
|
—
|
|
Restated Articles of Incorporation of Home BancShares, Inc., as
amended.
|
|
|
3
|
.2
|
|
—
|
|
Amendment to the Restated Articles of Incorporation of Home
BancShares, Inc.
|
|
|
3
|
.3
|
|
—
|
|
Second Amendment to the Restated Articles of Incorporation of
Home BancShares, Inc.
|
|
|
3
|
.4
|
|
—
|
|
Third Amendment to the Restated Articles of Incorporation of
Home BancShares, Inc.
|
|
|
3
|
.5
|
|
—
|
|
Restated Bylaws of Home BancShares, Inc.
|
|
|
4
|
.1
|
|
—
|
|
Restated Articles of Incorporation of Home BancShares, Inc.
(included in Exhibit 3.1)
|
|
|
4
|
.2
|
|
—
|
|
Amendment to the Restated Articles of Incorporation of Home
BancShares, Inc. (included in Exhibit 3.2)
|
|
|
4
|
.3
|
|
—
|
|
Second Amendment to the Restated Articles of Incorporation of
Home BancShares, Inc. (included in Exhibit 3.3)
|
|
|
4
|
.4
|
|
—
|
|
Third Amendment to the Restated Articles of Incorporation of
Home BancShares, Inc. (included in Exhibit 3.4)
|
|
|
4
|
.5
|
|
—
|
|
Restated Bylaws of Home BancShares, Inc. (included in
Exhibit 3.5)
|
|
|
4
|
.6
|
|
—
|
|
Specimen Stock Certificate representing Home BancShares, Inc.
Common Stock*
|
|
|
4
|
.7
|
|
—
|
|
Indenture, dated as of September 7, 2000, between Community
Financial Group, Inc. and U.S. Bank National Association
(f/k/a State Street Bank and Trust Company of Connecticut,
National Association)
|
|
|
4
|
.8
|
|
—
|
|
Amended and Restated Declaration of Trust, dated as of
September 7, 2000, by and among Community Financial Group,
Inc. and U.S. Bank National Association (f/k/a State Street
Bank and Trust Company of Connecticut, National Association) and
Joseph Park and David Pickney, as Administrators
|
|
|
4
|
.9
|
|
—
|
|
Guarantee Agreement, dated as of September 7, 2000, between
Community Financial Group, Inc. and U.S. Bank National
Association (f/k/a State Street Bank and Trust Company of
Connecticut, National Association)
|
|
|
4
|
.10
|
|
—
|
|
Indenture, dated as of March 26, 2003, between Home
BancShares, Inc. and U.S. Bank National Association
|
II-3
|
|
|
|
|
|
|
|
|
Exhibit
|
|
|
|
|
|
Number
|
|
|
|
Description
|
|
|
|
|
|
|
|
|
4
|
.11
|
|
—
|
|
Amended and Restated Declaration of Trust, dated as of
March 26, 2003, by and among Home BancShares, Inc. and
U.S. Bank National Association and John W. Allison, C.
Randall Sims and Randy Mayor, as Administrators
|
|
|
4
|
.12
|
|
—
|
|
Guarantee Agreement, dated as of March 26, 2003, between
Home BancShares, Inc. and U.S. Bank National Association
|
|
|
4
|
.13
|
|
—
|
|
Indenture, dated as of March 26, 2003, between Marine
Bancorp, Inc. and U.S. Bank National Association
|
|
|
4
|
.14
|
|
—
|
|
Amended and Restated Declaration of Trust, dated as of
March 26, 2003, by and among Marine Bancorp, Inc. and
U.S. Bank National Association and William S. Daniels and
Hunter Padgett, as Administrators
|
|
|
4
|
.15
|
|
—
|
|
Guarantee Agreement, dated as of March 26, 2003, between
Marine Bancorp, Inc. and U.S. Bank National Association
|
|
|
4
|
.16
|
|
—
|
|
Indenture, dated as of November 10, 2005, between Home
BancShares, Inc. and U.S. Bank National Association
|
|
|
4
|
.17
|
|
—
|
|
Amended and Restated Declaration of Trust, dated as of
November 10, 2005, by and among Home BancShares, Inc. and
U.S. Bank National Association and Randy Mayor and Ron
Strother, as Administrators
|
|
|
4
|
.18
|
|
—
|
|
Guarantee Agreement, dated as of November 10, 2005, between
Home BancShares, Inc. and U.S. Bank National Association
|
|
|
5
|
|
|
—
|
|
Opinion of Mitchell, Williams, Selig, Gates & Woodyard,
P.L.L.C. as to the validity of the shares of common stock being
offered*
|
|
|
10
|
.1
|
|
—
|
|
2006 Stock Option and Performance Incentive Plan of Home
BancShares, Inc.
|
|
|
10
|
.2
|
|
—
|
|
Director and Executive Officer Compensation Summary
|
|
|
10
|
.3
|
|
—
|
|
401(k) Plan of Home BancShares, Inc.
|
|
|
10
|
.4
|
|
—
|
|
Retirement Plan of Bank of Cabot, as amended and restated
effective January 1, 2001
|
|
|
10
|
.5
|
|
—
|
|
Retirement Plan and Trust for Employees of Bank of Mountain
View, as amended and restated effective September 1, 2005
|
|
|
10
|
.6
|
|
—
|
|
Lease Agreement, dated as of January 2000, between First State
Bank of Conway and Trinity Development Company, Inc.
|
|
|
10
|
.7
|
|
—
|
|
Lease Agreement, dated as of February 1, 2001, between Twin
City Bank and Lakewood Village Shopping Park
|
|
|
10
|
.8
|
|
—
|
|
Lease Agreement, dated as of April 2003, between First State
Bank and Allison, Adcock, Rankin, LLC
|
|
|
10
|
.9
|
|
—
|
|
Lease Agreement, dated as of September 1, 2004, between
First State Bank and Robert H. “Bunny”
Adcock, Jr. Blind Trust Agreement dtd 6/4/03
|
|
|
10
|
.10
|
|
—
|
|
Lease Extension, dated December 2, 2004, between First
State Bank and Trinity Development Company, Inc.
|
|
|
10
|
.11
|
|
—
|
|
Lease Agreement, dated August 31, 2005, between Home
BancShares, Inc. and Allison, Adcock, Rankin, LLC
|
|
|
10
|
.12
|
|
—
|
|
Promissory Note, dated as of September 1, 2005, by Home
BancShares, Inc. in favor of First Tennessee Bank National
Association
|
|
|
10
|
.13
|
|
—
|
|
Commercial Pledge Agreement, dated as of September 1, 2005,
between Home BancShares, Inc. and First Tennessee Bank National
Association
|
|
|
10
|
.14
|
|
—
|
|
Business Loan Agreement, dated as of September 1, 2005,
between Home BancShares, Inc. and First Tennessee Bank National
Association
|
|
|
16
|
.1
|
|
—
|
|
Letter from Ernst & Young, LLP re change in certifying
accountant
|
|
|
21
|
|
|
—
|
|
Subsidiaries of Home BancShares
|
|
|
23
|
.1
|
|
—
|
|
Consent of BKD, LLP
|
II-4
|
|
|
|
|
|
|
|
|
Exhibit
|
|
|
|
|
|
Number
|
|
|
|
Description
|
|
|
|
|
|
|
|
|
23
|
.2
|
|
—
|
|
Consent of Ernst & Young, LLP
|
|
|
23
|
.3
|
|
—
|
|
Consent of Hacker, Johnson & Smith, P.A
|
|
|
23
|
.4
|
|
—
|
|
Consent of BKD, LLP
|
|
|
23
|
.5
|
|
—
|
|
Consent of Mitchell, Williams, Selig, Gates & Woodyard,
P.L.L.C. (included in Exhibit 5)*
|
|
|
24
|
|
|
—
|
|
Power of Attorney (on signature page)
|
|
|
|
|
*
|
To be filed by subsequent amendment.
|
(a) The undersigned registrant hereby undertakes to provide
to the underwriter at the closing specified in the underwriting
agreements, certificates in such denominations and registered in
such names as required by the underwriter to permit prompt
delivery to each purchaser.
(b) Insofar as indemnification for liabilities arising
under the Securities Act of 1933 may be permitted to our
directors, officers and controlling persons pursuant to the
provisions referenced in Item 14, or otherwise, we have
been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities
(other than the payment by us of expenses incurred or paid by a
director, officer or controlling person of our company in the
successful defense of any action, suit or proceeding) is
asserted by that director, officer or controlling person in
connection with the securities being registered, we will, unless
in the opinion of our counsel the matter has been settled by
controlling precedent, submit to a court of appropriate
jurisdiction the question whether this indemnification by us is
against public policy as expressed in such Act and will be
governed by the final adjudication of such issue.
(c) The undersigned registrant hereby undertakes that:
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(1) For purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of
prospectus filed as part of this registration statement in
reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities
Act shall be deemed to be part of this registration statement as
of the time it was declared effective.
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(2) For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that
contains a form of prospectus shall be deemed to be a new
registration statement relating to the securities offered
therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
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II-5
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Conway, State of Arkansas, on
March 14, 2006.
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HOME BANCSHARES, INC.
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By: /s/
John W.
Allison
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John W. Allison
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Chief Executive Officer and
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Chairman of the Board of Directors
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POWER OF ATTORNEY
KNOW BY ALL PERSONS BY THESE PRESENTS, that each person whose
signature appears below constitutes and appoints John W. Allison
and Randy E. Mayor, and each of them, his true and lawful
attorneys-in
-fact and
agents, with full power of substitution, for him and in his name
place and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this
registration statement, and to sign any registration statement
for the same offering covered by this registration statement
that is to be effective upon filing pursuant to Rule 462(b)
promulgated under the Securities Act of 1933, and all
post-effective amendments thereto, and to file the same, with
all exhibits thereto and all documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorneys-in
-fact and
agents full power and authority to do and perform each and every
act and thing requisite and necessary to be done in and about
the premises, as fully to all intents and proposes as he might
or could do in person, hereby ratifying and confirming all that
each said
attorneys-in
-fact and
agents, or his or their substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act, this
registration statement has been signed by the following persons
in the capacities and on the dates indicated.
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Signature
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Title
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Date
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/s/
John W. Allison
John W. Allison
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Chief Executive Officer and Chairman of the Board of Directors
(Principal Executive Officer)
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March 14, 2006
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/s/
Ron W. Strother
Ron W. Strother
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President, Chief Operating Officer and Director
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March 14, 2006
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/s/
Randy E. Mayor
Randy E. Mayor
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Chief Financial Officer and Treasurer (Principal Financial
Officer and Principal Accounting Officer)
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March 14, 2006
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/s/
Richard H. Ashley
Richard H. Ashley
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Vice Chairman of the Board and Director
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March 14, 2006
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/s/
Dale A. Bruns
Dale A. Bruns
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Director
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March 14, 2006
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II-6
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Signature
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Title
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Date
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/s/
Richard A. Buckheim
Richard A. Buckheim
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Director
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March 14, 2006
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/s/
Jack E. Engelkes
Jack E. Engelkes
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Director
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March 14, 2006
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/s/
Frank D.
Hickingbotham
Frank D. Hickingbotham
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Director
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March 14, 2006
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/s/
Herren C.
Hickingbotham
Herren C. Hickingbotham
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Director
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March 14, 2006
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/s/
James G. Hinkle
James G. Hinkle
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Director
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March 14, 2006
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/s/
Alex R. Lieblong
Alex R. Lieblong
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Director
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March 14, 2006
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/s/
C. Randall Sims
C. Randall Sims
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Secretary and Director
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March 14, 2006
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/s/
William G. Thompson
William G. Thompson
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Director
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March 14, 2006
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II-7
EXHIBIT LIST
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Exhibit
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Number
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Description
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1
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—
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Form of Underwriting Agreement*
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2
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.1
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—
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Agreement and Plan of Merger, dated as of July 30, 2003,
between CB Bancorp, Inc. and Home BancShares, Inc. and Community
Financial Group, Inc.
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2
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.2
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—
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Agreement and Plan of Merger, dated as of December 3, 2004,
between Home BancShares, Inc. and TCBancorp, Inc.
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2
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.3
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—
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Agreement and Plan of Merger, dated as of January 25, 2005,
between Home BancShares, Inc. and Marine Bancorp, Inc.
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2
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.4
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—
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Stock Purchase Agreement, dated as of April 20, 2005, among
Home BancShares, Inc. and the Shareholders of Mountain View
Bancshares, Inc. and Mountain View Bancshares, Inc.
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3
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.1
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—
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Restated Articles of Incorporation of Home BancShares, Inc., as
amended.
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3
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.2
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—
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Amendment to the Restated Articles of Incorporation of Home
BancShares, Inc.
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3
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.3
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—
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Second Amendment to the Restated Articles of Incorporation of
Home BancShares, Inc.
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3
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.4
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—
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Third Amendment to the Restated Articles of Incorporation of
Home BancShares, Inc.
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3
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.5
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—
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Restated Bylaws of Home BancShares, Inc.
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4
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.1
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—
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Restated Articles of Incorporation of Home BancShares, Inc.
(included in Exhibit 3.1)
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4
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.2
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—
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Amendment to the Restated Articles of Incorporation of Home
BancShares, Inc. (included in Exhibit 3.2)
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4
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.3
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—
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Second Amendment to the Restated Articles of Incorporation of
Home BancShares, Inc. (included in Exhibit 3.3)
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4
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.4
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—
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Third Amendment to the Restated Articles of Incorporation of
Home BancShares, Inc. (included in Exhibit 3.4)
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4
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.5
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—
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Restated Bylaws of Home BancShares, Inc. (included in
Exhibit 3.5)
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4
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.6
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—
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Specimen Stock Certificate representing Home BancShares, Inc.
Common Stock*
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4
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.7
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—
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Indenture, dated as of September 7, 2000, between Community
Financial Group, Inc. and U.S. Bank National Association
(f/k/a State Street Bank and Trust Company of Connecticut,
National Association)
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4
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.8
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—
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Amended and Restated Declaration of Trust, dated as of
September 7, 2000, by and among Community Financial Group,
Inc. and U.S. Bank National Association (f/k/a State Street
Bank and Trust Company of Connecticut, National Association) and
Joseph Park and David Pickney, as Administrators
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4
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.9
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—
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Guarantee Agreement, dated as of September 7, 2000, between
Community Financial Group, Inc. and U.S. Bank National
Association (f/k/a State Street Bank and Trust Company of
Connecticut, National Association)
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4
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.10
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—
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Indenture, dated as of March 26, 2003, between Home
BancShares, Inc. and U.S. Bank National Association
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4
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.11
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—
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Amended and Restated Declaration of Trust, dated as of
March 26, 2003, by and among Home BancShares, Inc. and
U.S. Bank National Association and John W. Allison, C.
Randall Sims and Randy Mayor, as Administrators
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4
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.12
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—
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Guarantee Agreement, dated as of March 26, 2003, between
Home BancShares, Inc. and U.S. Bank National Association
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4
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.13
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—
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Indenture, dated as of March 26, 2003, between Marine
Bancorp, Inc. and U.S. Bank National Association
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4
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.14
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—
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Amended and Restated Declaration of Trust, dated as of
March 26, 2003, by and among Marine Bancorp, Inc. and
U.S. Bank National Association and William S. Daniels and
Hunter Padgett, as Administrators
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4
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.15
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—
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Guarantee Agreement, dated as of March 26, 2003, between
Marine Bancorp, Inc. and U.S. Bank National Association
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4
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.16
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—
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Indenture, dated as of November 10, 2005, between Home
BancShares, Inc. and U.S. Bank National Association
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Exhibit
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Number
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Description
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4
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.17
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—
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Amended and Restated Declaration of Trust, dated as of
November 10, 2005, by and among Home BancShares, Inc. and
U.S. Bank National Association and Randy Mayor and Ron
Strother, as Administrators
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4
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.18
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—
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Guarantee Agreement, dated as of November 10, 2005, between
Home BancShares, Inc. and U.S. Bank National Association
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5
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—
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Opinion of Mitchell, Williams, Selig, Gates & Woodyard,
P.L.L.C. as to the validity of the shares of common stock being
offered*
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10
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.1
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—
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2006 Stock Option and Performance Incentive Plan of Home
BancShares, Inc.
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10
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.2
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—
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Director and Executive Officer Compensation Summary
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10
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.3
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—
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401(k) Plan of Home BancShares, Inc.
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10
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.4
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—
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Retirement Plan of Bank of Cabot, as amended and restated
effective January 1, 2001
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10
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.5
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—
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Retirement Plan and Trust for Employees of Bank of Mountain
View, as amended and restated effective September 1, 2005
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10
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.6
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—
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Lease Agreement, dated as of January 2000, between First State
Bank of Conway and Trinity Development Company, Inc.
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10
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.7
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—
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Lease Agreement, dated as of February 1, 2001, between Twin
City Bank and Lakewood Village Shopping Park
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10
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.8
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—
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Lease Agreement, dated as of April 2003, between First State
Bank and Allison, Adcock, Rankin, LLC
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10
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.9
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—
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Lease Agreement, dated as of September 1, 2004, between
First State Bank and Robert H. “Bunny”
Adcock, Jr. Blind Trust Agreement dtd 6/4/03
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10
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.10
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—
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Lease Extension, dated December 2, 2004, between First
State Bank and Trinity Development Company, Inc.
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10
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.11
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—
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Lease Agreement, dated August 31, 2005, between Home
BancShares, Inc. and Allison, Adcock, Rankin, LLC
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10
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.12
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—
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Promissory Note, dated as of September 1, 2005, by Home
BancShares, Inc. in favor of First Tennessee Bank National
Association
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10
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.13
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—
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Commercial Pledge Agreement, dated as of September 1, 2005,
between Home BancShares, Inc. and First Tennessee Bank National
Association
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10
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.14
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—
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Business Loan Agreement, dated as of September 1, 2005,
between Home BancShares, Inc. and First Tennessee Bank National
Association
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16
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.1
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—
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Letter from Ernst & Young, LLP re change in certifying
accountant
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21
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—
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Subsidiaries of Home BancShares
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23
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.1
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—
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Consent of BKD, LLP
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23
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.2
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—
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Consent of Ernst & Young, LLP
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23
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.3
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—
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Consent of Hacker, Johnson & Smith, P.A
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23
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.4
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—
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Consent of BKD, LLP
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23
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.5
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—
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Consent of Mitchell, Williams, Selig, Gates & Woodyard,
P.L.L.C. (included in Exhibit 5)*
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24
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—
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Power of Attorney (on signature page)
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*
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To be filed by subsequent amendment.
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