Simmons First National - 10-Q quarterly report FY

 

 

(Exact name of registrant as specified in its charter)

870-541-1000  

(Registrant's telephone number, including area code)

Not Applicable  

    Former name, former address and former fiscal year, if changed since last report

 

 

 

See Condensed Notes to Consolidated Financial Statements. 

 

 

See Condensed Notes to Consolidated Financial Statements.

 

 

 

See Condensed Notes to Consolidated Financial Statements.

 

 

 

(Unaudited)

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

All adjustments made to the unaudited financial statements were of a normal recurring nature. In the opinion of management, all adjustments necessary for a fair presentation of the results of interim periods have been made. Certain prior year amounts are reclassified to conform to current year classification. The results of operations for the period are not necessarily indicative of the results to be expected for the full year.

Certain information and note disclosures normally included in the Company’s annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Form 10-K annual report for 2004 filed with the Securities and Exchange Commission.

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

 

Following is the computation of per share earnings for the three and nine months ended September 30, 2005 and 2004.

 

 

On June 25, 2004, the Company completed the branch purchase in which Cross County Bank sold its Weiner, Arkansas location to Simmons First Bank of Jonesboro, a subsidiary of the Company. The acquisition included approximately $6 million in total deposits and the fixed assets used in the branch operation. No loans were involved in the transaction. As a result of this transaction, the Company recorded additional goodwill and core deposit premiums of $344,000 and $117,000, respectively.

On March 19, 2004, the Company merged with Alliance Bancorporation, Inc. (“ABI”). ABI owned Alliance Bank of Hot Springs, Hot Springs, Arkansas with consolidated assets (including goodwill and core deposit premiums), loans and deposits of approximately $155 million, $70 million and $110 million, respectively. During the second quarter of 2004, Alliance Bank changed its name to Simmons First Bank of Hot Springs and continues to operate as a separate community bank with virtually the same board of directors, management and staff. As a result of this transaction, the Company recorded additional goodwill and core deposit premiums of $14,690,000 and $1,245,000, respectively.

The amortized cost and fair value of investment securities that are classified as held-to-maturity and available-for-sale are as follows:

 

 

The carrying value, which approximates the fair value, of securities pledged as collateral, to secure public deposits and for other purposes, amounted to $395,049,000 at September 30, 2005 and $397,311,000 at December 31, 2004.

 

The book value of securities sold under agreements to repurchase amounted to $73,581,000 and $68,515,000 for September 30, 2005 and December 31, 2004, respectively.

 

Income earned on securities for the nine months ended September 30, 2005 and 2004, is as follows:

Maturities of investment securities at September 30, 2005 are as follows:

Gross realized losses of $275,000 and $0 were recognized for the nine-month periods ended September 30, 2005 and 2004, respectively. There were no realized gains over the same periods.

Most of the state and political subdivision debt obligations are non-rated bonds and represent small, Arkansas issues, which are evaluated on an ongoing basis.

The various categories are summarized as follows:

As of September 30, 2005, credit card loans, which are unsecured, were $138,077,000 or 8.1% of total loans versus $155,326,000 or 9.9% of total loans at December 31, 2004. The credit card loans are diversified by geographic region to reduce credit risk and minimize any adverse impact on the portfolio. Credit card loans are regularly reviewed to facilitate the identification and monitoring of creditworthiness.

At September 30, 2005 and December 31, 2004, impaired loans totaled $16,869,000 and $16,606,000, respectively. All impaired loans had either specific or general allocations within the allowance for loan losses. Allocations of the allowance for loan losses relative to impaired loans at September 30, 2005, were $4,060,000 and $4,125,000 at December 31, 2004. Approximately $313,000 and $268,000 of interest income were recognized on average impaired loans of $15,984,000 and $19,520,000 as of September 30, 2005 and 2004, respectively. Interest recognized on impaired loans on a cash basis during the first nine months of 2005 and 2004 was immaterial.

 

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

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

The carrying basis and accumulated amortization of core deposit premiums (net of core deposit premiums that were fully amortized) at September 30, 2005 and December 31, 2004, were as follows:

 

Core deposit premium amortization expense recorded for the nine months ended September 30, 2005 and 2004, was $622,000 and $584,000, respectively. The Company’s estimated amortization expense for the remainder of 2005 is $208,000, and for each of the following four years is: 2006 - $827,000; 2007 - $815,000; 2008 - $804,000 and 2009 - $799,000.

Time deposits include approximately $415,302,000 and $356,926,000 of certificates of deposit of $100,000 or more at September 30, 2005 and December 31, 2004 respectively.

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

A reconciliation of income tax expense at the statutory rate to the Company's actual income tax expense is shown below:

At September 30, 2005 the Company had Federal Home Loan Bank (“FHLB”) advances with original maturities of one year or less of $91.3 million with a weighted average rate of 3.66% which are not included in the above table.

 

Aggregate annual maturities of long-term debt at September 30, 2005, are:

 

The Company and/or its subsidiaries have various unrelated legal proceedings, most of which involve loan foreclosure activity pending, which, in the aggregate, are not expected to have a material adverse effect on the financial position of the Company and its subsidiaries. However, on October 1, 2003, an action in Pulaski County Circuit Court was filed by Thomas F. Carter, Tena P. Carter and certain related entities against Simmons First Bank of South Arkansas and Simmons First National Bank alleging wrongful conduct by the banks in the collection of certain loans. The plaintiffs are seeking $2,000,000 in compensatory damages and $10,000,000 in punitive damages. The Company has filed a Motion to Dismiss. At this time, no basis for any material liability has been identified. The Banks plan to vigorously defend the claims asserted in the suit.

 

The Company’s subsidiary banks are subject to a legal limitation on dividends that can be paid to the parent company without prior approval of the applicable regulatory agencies. The approval of the Comptroller of the Currency is required, if the total of all dividends declared by a national bank in any calendar year exceeds the total of its net profits, as defined, for that year combined with its retained net profits of the preceding two years. Arkansas bank regulators have specified that the maximum dividend limit state banks may pay to the parent company without prior approval is 75% of current year earnings plus 75% of the retained net earnings of the preceding year. At September 30, 2005, the bank subsidiaries had approximately $14 million available for payment of dividends to the Company, without prior approval of the regulatory agencies.

The Federal Reserve Board's risk-based capital guidelines include the definitions for (1) a well-capitalized institution, (2) an adequately-capitalized institution, and (3) an undercapitalized institution. The criteria for a well-capitalized institution are: a 5% "Tier l leverage capital" ratio, a 6% "Tier 1 risk-based capital" ratio, and a 10% "total risk-based capital" ratio. As of September 30, 2005, each of the eight subsidiary banks met the capital standards for a well-capitalized institution. The Company's “total risk-based capital” ratio was 13.23% at September 30, 2005.

At September 30, 2005, the Company had stock options outstanding of 634,310 shares and stock options exercisable of 568,173 shares. During the first nine months of 2005, there were 80,460 shares issued upon exercise of stock options, options for 900 shares were forfeited or expired and 39,770 additional stock options of the Company were granted. Also, 5,620 additional shares of common stock of the Company were granted and issued as bonus shares of restricted stock, during the first nine months of 2005.

From time to time the Company and its subsidiaries have made loans and other extensions of credit to directors, officers, their associates and members of their immediate families. From time to time directors, officers and their associates and members of their immediate families have placed deposits with the Company’s subsidiary banks. Such loans, other extensions of credit and deposits were made in the ordinary course of business, on substantially the same terms (including interest rates and collateral) as those prevailing at the time for comparable transactions with other persons and did not involve more than normal risk of collectibility or present other unfavorable features.

The Company grants agri-business, commercial and residential loans to customers throughout Arkansas, along with credit card loans to customers throughout the United States. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since a portion of the commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Each customer's creditworthiness is evaluated on a case-by-case basis. The amount of collateral obtained, if deemed necessary, is based on management's credit evaluation of the counterparty. Collateral held varies, but may include accounts receivable, inventory, property, plant and equipment, commercial real estate and residential real estate.

At September 30, 2005, the Company had outstanding commitments to extend credit aggregating approximately $202,281,000 and $447,188,000 for credit card commitments and other loan commitments, respectively. At December 31, 2004, the Company had outstanding commitments to extend credit aggregating approximately $188,399,000 and $339,866,000 for credit card commitments and other loan commitments, respectively.

Letters of credit are conditional commitments issued by the Company, to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements, including commercial paper, bond financing, and similar transactions. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers. The Company had total outstanding letters of credit amounting to $14,926,000 and $16,684,000 at September 30, 2005 and December 31, 2004, respectively, with terms ranging from 90 days to three years. At September 30, 2005 and December 31, 2004 the Company’s deferred revenue under standby letter of credit agreements is approximately $139,000 and $85,000, respectively.

On November 1, 2005, the Company completed the branch purchase in which Bank of Little Rock sold its Southwest Little Rock, Arkansas location at 8500 Geyer Springs Road to Simmons First National Bank, a subsidiary of the Company. The acquisition included approximately $2.4 million in total deposits in addition to the fixed assets used in the branch operation. No loans were involved in the transaction. As a result of this transaction, the Company recorded additional core deposit premiums of approximately $30,000.

Audit Committee, Board of Directors and Stockholders

Simmons First National Corporation

Pine Bluff, Arkansas

We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our reviews, we are not aware of any material modifications that should be made to the consolidated financial statements referred to above for them to be in conformity with accounting principles generally accepted in the United States of America.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet as of December 31, 2004, and the related consolidated statements of income, stockholders' equity and cash flows for the year then ended (not presented herein), and in our report dated February 9, 2005, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 2004, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

 

 

Earnings for the nine-month period ended September 30, 2005, were $20,137,000, or $1.37 per diluted share. These earnings reflect an increase of $1.5 million, or $0.11 per share, when compared to the nine-month period ended September 30, 2004, earnings of $18,606,000, or $1.26 per diluted share. Annualized return on average assets and annualized return on average stockholders’ equity for the nine-month period ended September 30, 2005, were 1.08% and 11.29%, compared to 1.06% and 10.98%, respectively, for the same period in 2004.

Asset quality strengthened through September 30, 2005, continuing the trend of the past several quarters. Non-performing assets decreased by $2.2 million from December 31, 2004, a 16.2% decrease. The non-performing assets ratio fell to 68 basis points at September 30, 2005, from 89 basis points at December 31, 2004, a 21 basis point improvement. Non-performing loans to total loans improved to 55 basis points at the end of the quarter, compared to 76 basis points at December 31, 2004. The allowance for loan losses improved to 289% of non-performing loans as of September 30, 2005, compared to 221% as of December 31, 2004. At September 30, 2005, the allowance for loan losses equaled 1.60% of total loans, compared to 1.69% at December 31, 2004.

The annualized net charge-off ratio for the third quarter of 2005 was 33 basis points. Excluding credit cards, the annualized net charge-off ratio was 13 basis points. The credit card annualized net charge-offs as a percent of the credit card portfolio was 2.65% for the quarter ended September 30, 2005, approximately 300 basis points below the most recently reported industry average of 5.87%.

Total assets for the Company at September 30, 2005, were $2.577 billion, an increase of $163.1 million from the same figure at December 31, 2004. Stockholders’ equity at the end of the third quarter of 2005 was $241.2 million, a $2.9 million, or 1.2%, increase from December 31, 2004.

 

Simmons First National Corporation is an Arkansas based financial holding company with eight community banks in Pine Bluff, Lake Village, Jonesboro, Rogers, Searcy, Russellville, El Dorado and Hot Springs, Arkansas. The Company's eight banks conduct financial operations from 79 offices, of which 77 are financial centers, located in 44 communities.

Management has reviewed its various accounting policies. Based on this review management believes the policies most critical to the Company are the policies associated with its lending practices including the accounting for the allowance for loan losses, treatment of goodwill, recognition of fee income, estimates of income taxes and employee benefit plans as it relates to stock options.

Loans which the Company has the intent and ability to hold for the foreseeable future or until maturity or pay-off are reported at their outstanding principal balance adjusted for any loans charged-off, any deferred fees or costs on originated loans and unamortized premiums or discounts on purchased loans. Interest income is reported on the interest method and includes amortization of net deferred loan fees and costs over the estimated life of the loan. Generally, loans are placed on 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.

Discounts and premiums on purchased residential real estate loans are amortized to income using the interest method over the remaining period to contractual maturity, adjusted for anticipated prepayments. Discounts and premiums on purchased consumer loans are recognized over the expected lives of the loans using methods that approximate the interest method.

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 is maintained at a level considered adequate to provide for potential loan losses related to specifically identified loans as well as probable credit losses inherent in the remainder of the loan portfolio that have been incurred as of period end. This estimate is based on management's evaluation of the loan portfolio, as well as on prevailing and anticipated economic conditions and historical losses by loan category. General reserves have been established, based upon the aforementioned factors and allocated to the individual loan categories. Allowances are accrued on specific loans evaluated for impairment for which the basis of each loan, including accrued interest, exceeds the discounted amount of expected future collections of interest and principal or, alternatively, the fair value of loan collateral. The unallocated reserve generally serves to compensate for the uncertainty in estimating loan losses, including the possibility of changes in risk ratings and specific reserve allocations in the loan portfolio as a result of the Company’s ongoing risk management system.

A loan is considered impaired when it is probable that the Company will not receive all amounts due according to the contractual terms of the loan. This includes loans that are delinquent 90 days or more, nonaccrual loans and certain other loans identified by management. Certain other loans identified by management consist of performing loans with specific allocations of the allowance for loan losses. Specific allocations are applied when quantifiable factors are present requiring a greater allocation than that established using the classified asset approach, as defined by the Office of the Comptroller of the Currency. Accrual of interest is discontinued and interest accrued and unpaid is removed at the time such amounts are delinquent 90 days, unless management is aware of circumstances which warrant continuing the interest accrual. Interest is recognized for nonaccrual loans only upon receipt and only after all principal amounts are collected.

 

 

Goodwill represents the excess of cost over the fair value of net assets of acquired subsidiaries and branches. Financial Accounting Standards Board Statement No. 142 and No. 147 eliminated the amortization for these assets as of January 1, 2002. While goodwill is not amortized, impairment testing of goodwill is performed annually, or more frequently if certain conditions occur. The Company did not record impairment of goodwill in 2005 or 2004.

Core deposit premiums are being amortized using both straight-line and accelerated methods over periods ranging from 8 to 15 years. Such assets are periodically evaluated as to the recoverability of their carrying value.

Periodic credit card fees, net of direct origination costs, are recognized as revenue on a straight-line basis over the period the fee entitles the cardholder to use the card. Origination fees and costs for other loans are being amortized over the estimated life of the loan.

Deferred tax assets and liabilities are recognized for the tax effects of differences between the financial statement and tax bases of assets and liabilities. A valuation allowance is established to reduce deferred tax assets if it is more likely than not that a deferred tax asset will not be realized.

The Company has a stock-based employee compensation plan. Presently, the Company accounts for this plan under recognition and measurement principles of APB Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations. No stock-based employee compensation cost is reflected in net income, as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the grant date.

In December 2004, FASB issued SFAS No. 123R, Share-Based Payment, which requires all companies to measure compensation cost for all share-based payments (including employee stock options) at fair value. SFAS 123R becomes effective for public companies at the beginning of their next fiscal year that begins after June 15, 2005. The standard would require companies to expense the fair value of all stock options that have future vesting provisions, are modified, or are newly granted beginning on the grant date of such options. The Company is currently evaluating the impact that this statement will have on its financial statements and the Company will adopt SFAS 123R on the effective date of the statement.

On November 1, 2005, the Company completed the branch purchase in which Bank of Little Rock sold its Southwest Little Rock, Arkansas location at 8500 Geyer Springs Road to Simmons First National Bank, a subsidiary of the Company. The acquisition included approximately $2.4 million in total deposits in addition to the fixed assets used in the branch operation. No loans were involved in the transaction. As a result of this transaction, the Company recorded additional core deposit premiums of approximately $30,000.

On June 25, 2004, the Company completed the branch purchase in which Cross County Bank sold its Weiner, Arkansas location to Simmons First Bank of Jonesboro, a subsidiary of the Company. The acquisition included approximately $6 million in total deposits and the fixed assets used in the branch operation. No loans were involved in the transaction. As a result of this transaction, the Company recorded additional goodwill and core deposit premiums of $344,000 and $117,000, respectively.

On March 19, 2004, the Company merged with ABI. ABI owned Alliance Bank of Hot Springs, Hot Springs, Arkansas with consolidated assets (including goodwill and core deposit premiums), loans and deposits of approximately $155 million, $70 million and $110 million, respectively. During the second quarter of 2004, Alliance Bank changed its name to Simmons First Bank of Hot Springs and continues to operate as a separate community bank with virtually the same board of directors, management and staff. As a result of this transaction, the Company recorded additional goodwill and core deposit premiums of $14,690,000 and $1,245,000, respectively.

The systems integration for the 2004 mergers and acquisitions were completed during the second quarter of 2004.

Net interest income, the Company's principal source of earnings, is the difference between the interest income generated by earning assets and the total interest cost of the deposits and borrowings obtained to fund those assets. Factors that determine the level of net interest income include the volume of earning assets and interest bearing liabilities, yields earned and rates paid, the level of non-performing loans and the amount of non-interest bearing liabilities supporting earning assets. Net interest income is analyzed in the discussion and tables below on a fully taxable equivalent basis. The adjustment to convert certain income to a fully taxable equivalent basis consists of dividing tax-exempt income by one minus the combined federal and state income tax rate (37.5% for September 30, 2005 and 2004).

For the three-month period ended September 30, 2005, net interest income on a fully taxable equivalent basis was $23.7 million, an increase of $738,000, or 3.2%, from the same period in 2004. The increase in net interest income was the result of a $4.7 million increase in interest income offset by a $4.0 million increase in interest expense.

 

The $4.0 million increase in interest expense is the result of a $109.9 million increase in average interest bearing liabilities generated through internal growth, coupled with a 70 basis point increase in cost of funds due to competitive repricing during a higher interest rate environment. The higher level of average interest bearing liabilities resulted in a $501,000 increase in interest expense. More specifically, the higher level of average interest bearing liabilities was the result of increases of approximately $69.7 million from internal deposit growth and $63.0 million from fed funds sold and short-term debt, offset by a $22.8 million reduction in average long-term debt due primarily to the payoff of $17.3 million of trust preferred securities in December of 2004. The higher interest rates accounted for a $3.5 million increase in interest expense. The most significant component of this increase was the $2.2 million increase associated with the repricing of the Company’s time deposits that resulted from time deposits that matured during the period or were tied to a rate that fluctuated with changes in market rates. Historically, approximately 85% of the Company’s time deposits reprice in one year or less. As a result of this repricing, the average rate paid on time deposits increased 90 basis points from 2.02% to 2.92%.

For the nine-month period ended September 30, 2005, net interest income on a fully taxable equivalent basis was $69.9 million, an increase of $4.1 million, or 6.2%, from the same period in 2004. The increase in net interest income was the result of a $12.0 million increase in interest income offset by a $7.9 million increase in interest expense.

The $12.0 million increase in interest income primarily is the result of a $106.0 million increase in average interest earning assets due to internal growth, as well as a 44 basis point increase in yield on earning assets associated with the higher interest rate environment. The growth in average interest earning assets resulted in a $5.8 million improvement in interest income. The growth in average loans accounted for $5.7 million of this increase. The higher interest rates accounted for a $6.2 million increase in interest income. The most significant component of this increase was the $4.6 million increase associated with the repricing of the Company’s loan portfolio that resulted from loans that matured during the period or were tied to a rate that fluctuated with changes in market rates. Historically, approximately 75% of the Company’s loan portfolio reprices in one year or less. As a result of this repricing, the average rate paid on the loan portfolio increased 37 basis points from 6.33% to 6.70%.

The $7.9 million increase in interest expense is the result a $111.3 million increase in average interest bearing liabilities generated through internal growth, coupled with a 45 basis point increase in cost of funds due to competitive repricing during a higher interest rate environment. The higher level of average interest bearing liabilities resulted in an $832,000 increase in interest expense. More specifically, the higher level of average interest bearing liabilities was the result of increases of approximately $100.1 million from internal deposit growth and $30.5 million from fed funds purchased and short-term debt, offset by a $19.3 million reduction in average long-term debt due primarily to the payoff of $17.3 million of trust preferred securities in December of 2004. The higher interest rates accounted for a $7.1 million increase in interest expense. The most significant component of this increase was the $4.1 million increase associated with the repricing of the Company’s time deposits that resulted from time deposits that matured during the period or were tied to a rate that fluctuated with changes in market rates. Historically, approximately 85% of the Company’s time deposits reprice in one year or less. As a result of this repricing, the average rate paid on time deposits increased 59 basis points from 2.02% to 2.61%.

 

 

The Company’s net interest margin decreased 6 basis points to 4.10% for the three-month period ended September 30, 2005, when compared to 4.16% for the same period in 2004. The slight compression in margin was primarily driven by an increase in cost of funds resulting from competitive pressures in deposit repricing. This increase in the cost of funds was mitigated somewhat by growth in the loan portfolio and a reduction in interest expense associated with the December 31, 2004 prepayment of $17.3 million of trust preferred securities.

The Company believes that several factors have contributed to the decline in net interest margin, including the increase in the Fed Funds target rate, increasing competitive pressures, and the flattening of the yield curve.

The Company’s net interest margin increased 6 basis points to 4.14% for the nine-month period ended September 30, 2005, when compared to 4.08% for the same period in 2004. The increase in net interest margin can be primarily attributed to the continued growth in the commercial and real estate loan portfolios, combined with the reduction in interest expense resulting from the December 31, 2004 prepayment of $17.3 million of trust preferred securities.

Although, on a year to date basis, the Company’s net interest margin increased from last year, there were primarily two factors that had a negative impact on the margin. First, one of the higher yielding products, credit card loans, decreased approximately $14.1 million from September 30, 2004 to September 30, 2005, resulting in margin compression. Second, the Company experienced an increase in the cost of funds resulting from competitive pressures in deposit repricing.

Table 1 and 2 reflect an analysis of net interest income on a fully taxable equivalent basis for the three-month and nine-month periods ended September 30, 2005 and 2004, respectively, as well as changes in fully taxable equivalent net interest margin for the three-month and nine-month periods ended September 30, 2005 versus September 30, 2004.

(FTE =Fully Taxable Equivalent)

 

 

 

 

Table 3 shows, for each major category of earning assets and interest bearing liabilities, the average (computed on a daily basis) amount outstanding, the interest earned or expensed on such amount and the average rate earned or expensed for the three-month and nine-month periods ended September 30, 2005 and 2004. 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.