SIMMONS FIRST NATIONAL CORPORATION
Financial Statements
(Form 10-Q)
September 30, 1998
<PAGE>
See Notes to Consolidated Financial Statements.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 30, 1998 Commission File Number 06253
------------------ -----
SIMMONS FIRST NATIONAL CORPORATION
(Exact name of registrant as specified in its charter)
Arkansas 71-0407808
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
501 Main Street, Pine Bluff, Arkansas 71601
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 870-541-1350
Not Applicable
Former name, former address and former fiscal year, if changed since last report
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period) and (2) has been
subject to such filing requirements for the past 90 days.
YES X NO
Indicate the number of shares outstanding of each of issuer's classes of common
stock.
Class A, Common 5,742,924
Class B, Common None
<PAGE>
SIMMONS FIRST NATIONAL CORPORATION
INDEX
Page No.
Part I: Summarized Financial Information
Consolidated Balance Sheets --
September 30, 1998 and December 31, 1997 3-4
Consolidated Statements of Income --
Three months and nine months ended
September 30, 1998 and 1997 5
Consolidated Statements of Cash Flows --
Nine months ended September 30, 1998 and 1997 6
Consolidated Statements of Changes in Stockholders' Equity
Nine months ended September 30, 1998 and 1997 7
Notes to Consolidated Financial Statements 8-18
Management's Discussion and Analysis of Financial
Condition and Results of Operations 19-22
Review by Independent Certified Public Accountants 23
Part II: Other Information 24-25
<PAGE>
Part I: Summarized Financial Information
<TABLE>
Simmons First National Corporation
Consolidated Balance Sheets
September 30, 1998 and December 31, 1997
ASSETS
<CAPTION>
September 30, December 31,
(In thousands) 1998 1997
- -------------------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
Cash and non-interest bearing balances due from banks $ 33,153 $ 58,327
Interest bearing balances due from banks 3,777 4,106
Federal funds sold and securities purchased
under agreements to resell 33,300 64,565
----------- ----------
Cash and cash equivalents 70,230 126,998
Investment securities 306,728 316,365
Mortgage loans held for sale 9,203 8,758
Assets held in trading accounts 10,361 449
Loans 851,762 794,183
Allowance for loan losses (14,922) (12,628)
----------- ------------
Net loans 836,840 781,555
Premises and equipment 31,140 28,621
Foreclosed assets held for sale, net 820 1,099
Interest receivable 12,670 12,047
Mortgage servicing rights, net -- 6,703
Intangible assets, net 29,186 30,834
Other assets 11,387 12,716
----------- ----------
TOTAL ASSETS $ 1,318,565 $ 1,326,145
========== ==========
</TABLE>
The December 31, 1997 Consolidated Balance Sheet is as reported in the Company's
1997 Annual Report to the Stockholders.
<PAGE>
<TABLE>
Simmons First National Corporation
Consolidated Balance Sheets
September 30, 1998 and December 31, 1997
LIABILITIES AND STOCKHOLDERS' EQUITY
<CAPTION>
September 30, December 31,
(In thousands) 1998 1997
- -------------------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
LIABILITIES
Non-interest bearing transaction accounts $ 141,204 $ 154,544
Interest bearing transaction accounts and savings deposits 339,811 337,133
Time deposits 609,609 612,824
----------- -----------
Total deposits 1,090,624 1,104,501
Federal funds purchased and securities sold
under agreements to repurchase 43,302 40,733
Short-term debt 1,669 4,589
Long-term debt 46,214 50,281
Accrued interest and other liabilities 16,491 13,959
----------- -----------
Total liabilities 1,198,300 1,214,063
----------- -----------
STOCKHOLDERS' EQUITY
Capital stock
Class A, common, par value $1 a share, authorized 30,000,000 shares
(authorized 10,000,000 shares in 1997), 5,742,924 issued and outstanding
at 1998 and 5,726,212 at 1997 5,743 5,726
Surplus 45,320 45,059
Undivided profits 67,222 59,891
Unrealized appreciation on available-for-sale securities,
net of income taxes of $1,126 at 1998 and $799 at 1997 1,980 1,406
----------- ---------
Total stockholders' equity 120,265 112,082
----------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,318,565 $ 1,326,145
========== ===========
</TABLE>
The December 31, 1997 Consolidated Balance Sheetis as reported in the Company's
1997 Annual Report to the Stockholders.
<PAGE>
<TABLE>
Simmons First National Corporation
Consolidated Statements of Income
Three Months and Nine Months Ended September 30, 1998 and 1997
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
(In thousands, except per share data) 1998 1997 1998 1997
- -------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans $ 19,979 $ 16,593 $ 56,474 $ 40,272
Federal funds sold and securities purchased
under agreements to resell 499 321 2,351 1,431
Investment securities 4,702 4,374 14,530 11,791
Mortgage loans held for sale, net of unrealized gains (losses) 148 81 381 277
Assets held in trading accounts 11 76 71 124
Interest bearing balances due from banks 79 46 283 184
---------- --------- --------- --------
TOTAL INTEREST INCOME 25,418 21,491 74,090 54,079
---------- --------- --------- --------
INTEREST EXPENSE
Deposits 11,015 9,397 32,774 22,793
Federal funds purchased and securities sold
under agreements to repurchase 598 367 1,908 1,315
Short-term debt 27 228 74 292
Long-term debt 978 663 2,949 745
---------- --------- --------- --------
TOTAL INTEREST EXPENSE 12,618 10,655 37,705 25,145
---------- --------- --------- --------
NET INTEREST INCOME 12,800 10,836 36,385 28,934
Provision for loan losses 1,249 1,111 6,098 2,756
---------- --------- --------- --------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 11,551 9,725 30,287 26,178
---------- --------- --------- --------
NON-INTEREST INCOME
Trust income 851 706 2,412 1,833
Service charges on deposit accounts 1,412 1,159 4,087 2,763
Other service charges and fees 415 277 1,114 976
Income on sale of mortgage loans, net of commissions 147 119 351 342
Income on investment banking, net of commissions (38) 344 779 746
Credit card fees 2,463 2,406 6,981 6,893
Mortgage servicing and mortgage-related fees 932 1,779 4,599 5,243
Other income 477 424 1,018 948
Gain on sale of mortgage servicing -- -- 3,273 --
Gains on sale of securities, net -- (1) 4 (1)
---------- --------- --------- --------
TOTAL NON-INTEREST INCOME 6,659 7,213 24,618 19,743
---------- --------- --------- --------
NON-INTEREST EXPENSE
Salaries and employee benefits 6,813 6,083 20,792 17,232
Occupancy expense, net 850 751 2,509 1,969
Furniture and equipment expense 927 864 2,757 2,333
Loss on foreclosed assets 131 156 563 735
Other operating expenses 4,226 4,278 14,164 11,259
---------- --------- --------- --------
TOTAL NON-INTEREST EXPENSE 12,947 12,132 40,785 33,528
---------- -------- --------- --------
INCOME BEFORE INCOME TAXES 5,263 4,806 14,120 12,393
Provision for income taxes 1,506 1,420 4,093 3,605
---------- -------- --------- --------
NET INCOME $ 3,757 $ 3,386 $ 10,027 $ 8,788
========= ======== ======== =======
BASIC EARNINGS PER SHARE $ 0.65 $ 0.59 $ 1.74 $ 1.53
========= ======== ======== =======
DILUTED EARNINGS PER SHARE $ 0.64 $ 0.58 $ 1.71 $ 1.51
========= ======== ======== =======
</TABLE>
<PAGE>
<TABLE>
Simmons First National Corporation
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 1998 and 1997
<CAPTION>
September 30, September 30,
(In thousands) 1998 1997
- -----------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 10,027 $ 8,788
Items not requiring (providing) cash
Depreciation and amortization 4,845 4,090
Provision for loan losses 6,098 2,756
Net (accretion) amortization of investment securities (372) 104
Deferred income taxes (1,455) (280)
Provision for foreclosed assets 239 97
Gain on sale of mortgage servicing (3,273) --
(Gains) losses on sale of securities, net (4) 1
Gains on sale of premises and equipment -- (1)
Changes in
Interest receivable (623) 622
Mortgage loans held for sale (445) 5,124
Assets held in trading accounts (9,912) 92
Other assets (325) 6,595
Accrued interest and other liabilities 2,896 891
Income taxes payable (179) 562
--------- ---------
Net cash provided by operating activities 7,517 29,441
--------- ---------
CASH FLOW FROM INVESTING ACTIVITIES
Net originations of loans (61,792) (74,495)
Sale of mortgage servicing 11,677 --
Purchase of institutions, net of funds acquired -- (16,040)
Purchase of premises and equipment (4,578) (2,392)
Proceeds from sale of premises and equipment 85 859
Proceeds from sale of foreclosed assets 449 147
Proceeds from sale of available-for-sale securities -- 849
Proceeds from maturities of available-for-sale securities 144,079 182,597
Purchases of available-for-sale securities (140,221) (179,642)
Proceeds from maturities of held-to-maturity securities 45,048 23,091
Purchases of held-to-maturity securities (38,319) (10,540)
---------- -----------
Net cash used in investing activities (43,572) (75,566)
---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net (decrease) increase in deposits (13,877) 31,775
Net (repayments) advances of short-term debt (2,920) 14,195
Dividends paid (2,696) (2,345)
Proceeds from issuance of long-term debt -- 37,250
Repayments of long-term debt (4,067) (263)
Net increase in federal funds purchased
and securities sold under agreements to repurchase 2,569 (4,843)
Issuance of common stock, net 278 114
--------- ----------
Net cash (used in) provided by financing activities (20,713) 75,883
--------- ----------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (56,768) 29,758
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR 126,998 69,281
--------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 70,230 $ 99,039
========= ==========
</TABLE>
<PAGE>
<TABLE>
Simmons First National Corporation
Consolidated Statements of Changes in Stockholders' Equity
Nine Months Ended September 30, 1998 and 1997
<CAPTION>
Unrealized
Appreciation
On Available-
Common For-Sale Undivided
(In thousands) Stock Surplus Securities, Net Profits Total
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996 $ 28,527 $ 22,040 $ 1,152 $ 51,106 $ 102,825
Comprehensive income
Net income 8,788 8,788
Change in unrealized appreciation on
available-for-sale securities, net of
income taxes of $82 145 145
----------
Comprehensive income 8,933
Common stock par value change (22,822) 22,822
Exercise of stock options--21,300 shares 21 156 177
Securities exchanged under stock option plan (2) (61) (63)
Cash dividends declared ($0.41 per share) (2,345) (2,345)
-------- -------- ---------- -------- ----------
Balance, September 30, 1997 5,724 44,957 1,297 57,549 109,527
Comprehensive income
Net income 3,201 3,201
Change in unrealized appreciation on
available-for-sale securities, net of income
taxes of $62 109 109
----------
Comprehensive income 3,310
Exercise of stock options--1,800 shares 2 102 104
Cash dividends declared ($0.15 per share) (859) (859)
-------- -------- ---------- -------- ---------
Balance, December 31, 1997 5,726 45,059 1,406 59,891 112,082
Comprehensive income
Net income 10,027 10,027
Change in unrealized appreciation on
available-for-sale securities, net of income
taxes of $327 574 574
----------
Comprehensive income 10,601
Exercise of stock options--17,200 shares 17 284 301
Securities exchanged under stock option plan (23) (23)
Cash dividends declared ($0.47 per share) (2,696) (2,696)
-------- -------- ---------- -------- ---------
Balance, September 30, 1998 $ 5,743 $ 45,320 $ 1,980 $ 67,222 $ 120,265
======== ======== ========== ======== =========
</TABLE>
<PAGE>
SIMMONS FIRST NATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1: ACCOUNTING POLICIES
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 accounting policies followed in the presentation of interim
financial results are presented on pages 24-27 of the 1997 Annual Report to
shareholders.
Earnings Per Share
Effective December 15, 1997, the Company adopted the provisions of SFAS
No. 128, Earnings Per Share (EPS), which requires dual presentation of basic and
diluted EPS for all entities with complex capital structures. Basic earnings per
share is computed based on the weighted average number of common shares
outstanding during each year. Diluted earnings per share is computed using the
weighted average common shares and all potential dilutive common shares
outstanding during the period.
The computation of per share earnings for the nine months ended September 30,
1998 and 1997 is as follows:
<TABLE>
<CAPTION>
(In thousands, except per share data) 1998 1997
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net Income $ 10,027 $ 8,788
--------- --------
Average common shares outstanding 5,736 5,717
Average common share stock options outstanding 117 80
--------- -------
Average diluted common shares 5,853 5,797
--------- -------
Basic earnings per share $ 1.74 $ 1.53
======== =======
Diluted earnings per share $ 1.71 $ 1.51
======== =======
</TABLE>
<PAGE>
NOTE 2: ACQUISITIONS
On August 1, 1997, Simmons First National Corporation acquired all the
outstanding capital stock of First Bank of Arkansas, Searcy, Arkansas and First
Bank of Arkansas, Russellville, Arkansas, in a cash purchase transaction of $53
million. The banks acquired had consolidated assets, as adjusted of $362
million, as of August 1, 1997.
On July 24, 1998, an announcement was made jointly by the Chief
Executive Officers of both the Company and American Bancshares of Arkansas, Inc.
("ABA") regarding the execution of a definitive agreement under the terms of
which ABA will be merged into the Company in a transaction valued at
approximately $21,850,000. Stockholders of ABA will receive Simmons First
National Corporation stock in exchange for ABA shares in the transaction. The
transaction is expected to close in late 1998.
ABA owns American State Bank ("ASB"), Charleston, Arkansas with
consolidated assets, as of June 30, 1998, of $87 million. As a part of the
transaction ASB will be merged into Simmons First National Bank during early
1999.
On August 25, 1998, an announcement was made jointly by the Chief
Executive Officers of both the Company and Lincoln Bankshares, Inc. ("LBI")
regarding the execution of a definitive agreement under the terms of which LBI
will be merged into the Company. Stockholders of LBI will receive 301,833 shares
of Simmons First National Corporation stock in exchange for LBI shares in the
transaction. The transaction is expected to close in early 1999.
LBI owns Bank of Lincoln, Lincoln, Arkansas with consolidated assets,
as of June 30, 1998, of $75 million. As a part of the transaction Bank of
Lincoln will be merged into Simmons First Bank of Northwest Arkansas during
early 1999.
<PAGE>
NOTE 3: INVESTMENT SECURITIES
The amortized cost and fair value of investment securities that are
classified as held-to-maturity and available-for-sale are as follows:
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
Gross Gross Estimated Gross Gross Estimated
Amortized Unrealized Unrealized Fair Amortized Unrealized Unrealized Fair
(In thousands) Cost Gains (Losses) Value Cost Gains (Losses) Value
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Held-to-Maturity
U.S. Treasury $ 14,950 $ 295 $ -- $ 15,245 $ 17,610 $ 158 $ (37) $ 17,731
U.S. Government
agencies 44,745 594 (3) 45,336 55,662 462 (61) 56,063
Mortgage-backed
securities 2,562 34 (3) 2,593 3,350 14 (30) 3,334
State and political
subdivisions 87,001 2,275 (131) 89,145 79,039 1,638 (284) 80,393
Other securities 94 3 -- 97 229 2 -- 231
--------- ------ ----- --------- --------- ------ ------ ---------
$ 149,352 $ 3,201 $ (137) $ 152,416 $ 155,890 $ 2,274 $ (412) $ 157,752
========= ====== ====== ========= ========= ====== ======= =========
Available-for-Sale
U.S. Treasury $ 53,413 $ 1,197 $ -- $ 54,610 $ 70,402 $ 763 $ (24) $ 71,141
U.S. Government
agencies 94,331 563 (6) 94,888 80,812 298 (50) 81,060
State and political
subdivisions 442 4 -- 446 451 -- -- 451
Other securities 6,083 1,349 -- 7,432 6,601 1,222 -- 7,823
--------- ------ ----- --------- --------- ------ ------ ---------
$ 154,269 $ 3,113 $ (6) $ 157,376 $ 158,266 $ 2,283 $ (74) $ 160,475
========= ====== ====== ========= ========= ====== ======= =========
</TABLE>
The carrying value, which approximates the market value, of securities
pledged as collateral, to secure public deposits and for other purposes,
amounted to $192,162,000 at September 30, 1998 and $170,047,000 at December 31,
1997.
The book value of securities sold under agreements to repurchase
amounted to $17,182,000 and $8,413,000 for September 30, 1998 and December 31,
1997, respectively.
<PAGE>
Income earned on securities for the nine months ended September 30,
1998 and 1997 is as follows:
<TABLE>
<CAPTION>
(In thousands) 1998 1997
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Taxable
Held-to-maturity $ 3,592 $ 3,310
Available-for-sale 7,796 5,929
Non-taxable
Held-to-maturity 3,128 2,549
Available-for-sale 14 3
-------- -----
Total $ 14,530 $ 11,791
======== =======
</TABLE>
Maturities of investment securities at September 30, 1998 are as follows:
<TABLE>
<CAPTION>
Held-to-Maturity Available-for-Sale
Amortized Fair Amortized Fair
(In thousands) Cost Value Cost Value
<S> <C> <C> <C> <C>
One year or less $ 19,531 $ 19,600 $ 41,904 $ 42,169
After one through five years 71,750 72,935 79,364 80,377
After five through ten years 48,121 49,135 26,918 27,398
After ten years 7,294 8,056 -- --
Mortgage-backed securities not due
on a single date 2,562 2,593 -- --
Other securities 94 97 6,083 7,432
---------- ---------- ---------- ---------
Total $ 149,352 $ 152,416 $ 154,269 $ 157,376
========== ========== ========== =========
</TABLE>
The gross realized gains of $4,000 and $2,000 and gross realized losses
of $0 and $3,000 at September 30, 1998 and 1997, respectively, were the result
of called bonds in 1998 and sold available-for-sale securities in 1997. Proceeds
from sales of available-for-sale securities in 1997 were $849,000.
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.
<PAGE>
NOTE 4: LOANS AND ALLOWANCE FOR LOAN LOSSES
The various categories are summarized as follows:
<TABLE>
<CAPTION>
September 30, December 31,
(In thousands) 1998 1997
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Consumer
Credit cards $ 161,152 $ 179,828
Student loans 62,726 63,291
Other consumer 127,806 112,754
Real estate
Construction 52,394 43,212
Single family residential 132,633 122,581
Other commercial 140,750 118,112
Commercial
Commercial 108,930 110,480
Agricultural 50,885 31,161
Financial institutions 6,323 6,073
Other 8,163 6,691
------------ -----------
Total loans before allowance for loan losses $ 851,762 $ 794,183
============ ===========
</TABLE>
During the first nine months of 1998, foreclosed assets held for sale
decreased $279,000 to $820,000 and are carried at the lower of cost or fair
market value. Non-performing assets, non-accrual loans and other non-performing
loans for the Company at September 30, 1998, were $61,000, $4,215,000 and
$2,450,000, respectively, bringing the total of non-performing assets to
$7,546,000.
<PAGE>
Transactions in the allowance for loan losses are as follows:
<TABLE>
<CAPTION>
September 30, December 31,
(In thousands) 1998 1997
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Balance, beginning of year $ 12,628 $ 8,366
Additions
Allowance for loan losses of acquired institutions -- 4,028
Provision charged to expense 6,098 2,756
--------- --------
18,726 15,150
Deductions
Losses charged to allowance, net of recoveries
of $478 and $442 for the first nine months of
1998 and 1997, respectively 3,804 2,524
-------- -------
Balance, September 30 $ 14,922 $ 12,626
========= -------
Additions
Provision charged to expense 1,257
Deductions
Losses charged to allowance, net of recoveries
of $138 for the last nine months of
1997 1,255
-------
Balance, end of year $ 12,628
=======
</TABLE>
At September 30, 1998 and December 31, 1997, impaired loans totaled
$8,381,000 and $7,972,000, respectively, all of which had reserves allocated. An
allowance of $2,453,000 and $2,033,000 for possible losses related to those
loans at September 30, 1998 and December 31, 1997, respectively.
Interest of $261,000 and $215,000 was recognized on average impaired
loans of $8,586,000 and $5,776,000 as of September 30, 1998 and 1997,
respectively. Interest recognized on impaired loans on a cash basis during the
first nine months of 1998 and 1997 was immaterial.
<PAGE>
NOTE 5: TIME DEPOSITS
Time deposits include approximately $186,356,000 and $188,522,000 of
certificates of deposit of $100,000 or more at September 30, 1998, and December
31, 1997, respectively.
NOTE 6: INCOME TAXES
The provision for income taxes is comprised of the following
components:
<TABLE>
<CAPTION>
September 30, September 30,
(In thousands) 1998 1997
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Income taxes currently payable $ 5,548 $ 3,885
Deferred income taxes (1,455) (280)
--------------- ---------------
Provision for income taxes $ 4,093 $ 3,605
=============== ===============
</TABLE>
The tax effects of temporary differences related to deferred taxes
shown on the balance sheet are shown below:
<TABLE>
<CAPTION>
September 30, December 31,
(In thousands) 1998 1997
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets
Allowance for loan losses $ 4,677 $ 3,432
Valuation of foreclosed assets
held for sale 182 286
Deferred compensation payable 468 436
Deferred loan fee income 502 622
Mortgage servicing reserves 460 --
Other 745 812
--------------- ---------------
Total deferred tax assets 7,034 5,588
--------------- ---------------
Deferred tax liabilities
Accumulated depreciation (868) (868)
Available-for-sale securities (1,126) (799)
Other (472) (481)
--------------- ---------------
Total deferred tax liabilities (2,466) (2,148)
--------------- ---------------
Net deferred tax assets included in other
assets on balance sheets $ 4,568 $ 3,440
=============== ===============
</TABLE>
<PAGE>
A reconciliation of income tax expense at the statutory rate to the
Company's actual income tax expense is shown below:
<TABLE>
<CAPTION>
September 30, September 30,
(In thousands) 1998 1997
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Computed at the statutory rate (34%) $ 4,801 $ 4,214
Increase (decrease) resulting from:
Tax exempt income (1,068) (926)
Other differences, net 360 317
--------------- ---------------
Actual tax provision $ 4,093 $ 3,605
=============== ===============
</TABLE>
NOTE 7: LONG-TERM DEBT
Long-term debt at September 30, 1998 and December 31, 1997, consisted
of the following components,
<TABLE>
<CAPTION>
September 30, December 31,
(In thousands) 1998 1997
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
7.32% note due 2007, unsecured $ 18,000 $ 20,000
9.75% note due 2008, secured by land and building 985 1,021
5.62% to 8.41% FHLB advances due 1998 to 2015,
secured by residential real estate loans 9,979 12,010
Trust preferred securities 17,250 17,250
--------------- ---------------
$ 46,214 $ 50,281
=============== ===============
</TABLE>
During the second quarter of 1997, the Company formed a wholly owned
grantor trust subsidiary (the Trust) to issue preferred securities representing
undivided beneficial interests in the assets of the respective Trust and to
invest the gross proceeds of such preferred securities into notes of the
Company. The sole assets of the Trust are $17.8 million aggregate principal
amount of the Company's 9.12% Subordinated Debenture Notes due 2027 which are
redeemable beginning in 2002. Such securities qualify as Tier 1 Capital for
regulatory purposes.
<PAGE>
Aggregate annual maturities of long-term debt at September 30, 1998
are:
<TABLE>
<CAPTION>
Annual
(In thousands) Year Maturities
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
1998 $ 258
1999 3,259
2000 3,257
2001 3,170
2002 3,088
Thereafter 33,182
Total $ 46,214
</TABLE>
NOTE 8: CONTINGENT LIABILITIES
A number of legal proceedings exist in which the Company and/or its
subsidiaries are either plaintiffs or defendants or both. Most of the lawsuits
involve loan foreclosure activities. The various unrelated legal proceedings
pending against the subsidiary banks in the aggregate are not expected to have a
material adverse effect on the financial position of the Company and its
subsidiaries.
NOTE 9: UNDIVIDED PROFITS
The 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, 1998,
the bank subsidiaries had approximately $5 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, 1998, each of the seven subsidiary banks met
the capital standards for a well-capitalized institution. The Company's "total
risk-based capital" ratio was 13.27% at September 30, 1998.
<PAGE>
NOTE 10: STOCK OPTIONS AND RESTRICTED STOCK
As of September 30, 1998, 288,050 shares of common stock of the Company
had been granted through an employee stock option incentive plan. There were
120,500 exercisable options at the end of the third quarter of 1998. Fifty-three
thousand eight hundred shares have been issued upon exercise of options. As of
September 30, 1998, six thousand shares of common stock of the Company had been
granted and issued as Bonus Shares of restricted stock.
NOTE 11: ADDITIONAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
(In thousands) 1998 1997
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Interest paid $ 37,921 $ 24,846
Income taxes
paid $ 6,637 $ 3,313
</TABLE>
NOTE 12: CERTAIN TRANSACTIONS
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, and from time to time directors, officers and their
associates and members of their immediate families have placed deposits with
Simmons First National Bank, Simmons First Bank of South Arkansas, Simmons First
Bank of Jonesboro, Simmons First Bank of Dumas, Simmons First Bank of Northwest
Arkansas, Simmons First Bank of Russellville, and Simmons First Bank of Searcy.
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.
<PAGE>
NOTE 13: COMMITMENTS AND CREDIT RISK
The seven affiliate banks of the Company grant agribusiness,
commercial, consumer, and residential loans to their customers. Included in the
Company's diversified loan portfolio is unsecured debt in the form of credit
card receivables that comprised approximately 18.9% and 22.6% of the portfolio,
as of September 30, 1998 and December 31, 1997, respectively.
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, 1998, the Company had outstanding commitments to
extend credit aggregating approximately $190,769,000 and $106,472,000 for credit
card commitments and other loan commitments, respectively. At December 31, 1997,
the Company had outstanding commitments to extend credit aggregating
approximately $154,759,000 and $90,164,000 for credit card commitments and other
loan commitments, respectively.
Letters of credit are conditional commitments issued by the bank
subsidiaries of 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 $9,171,000 and
$6,775,000 at September 30, 1998 and December 31, 1997, respectively, with terms
ranging from 90 days to one year.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net income for the quarter ended September 30, 1998, was $3,757,000, an
increase of $371,000, or 11.0%, over the same period in 1997. Basic earnings per
share for the three-month periods ended September 30, 1998 and 1997, were $0.65
and $0.59, respectively. Diluted earnings per share for the three-month periods
ended September 30, 1998 and 1997, were $0.64 and $0.58, respectively. Earnings
for the nine-month period ended September 30, 1998, were $10,027,000 or an
increase of $1,239,000 over the September 30, 1997 earnings of $8,788,000.
Year-to-date basic earnings on a per share basis as of September 30, 1998 were
$1.74 compared to $1.53 at September 30, 1997, reflecting a 13.7% increase.
Year-to-date diluted earnings on a per share basis as of September 30, 1998 were
$1.71 compared to $1.51 at September 30, 1997, reflecting a 13.2% increase.
Year-to-date net income for 1998 includes several non-recurring items.
A gain of $3.3 million, or $0.36 per share after tax, was recognized from the
sale of its $1.2 billion residential mortgage-servicing portfolio. Also, the
Company increased its allowance for loan losses by $2.5 million, or $0.28 per
share after tax. This was the result of continued cautions to the financial
services industry from regulators regarding reserve levels and rising consumer
bankruptcies effecting the credit card industry. Additionally, the Company
expensed $500,000 or $0.05 per share after tax for software testing and hardware
replacement related to the Year 2000 issue. If year-to-date earnings for 1998
were adjusted for the non-recurring items, earnings would have been $1.71 per
share.
The Company's return on average assets and return on average
stockholder's equity for the three-month period ended September 30, 1998 was
1.11% and 12.50%, compared to 1.17% and 12.51%, respectively, for the same
period in 1997. The Company's return on average assets and return on average
stockholder's equity for the nine-month period ended September 30, 1998 was
1.00% and 11.52%, compared to 1.19% and 11.00%, respectively, for the same
period in 1997.
Basic cash earnings (net income excluding amortization of intangibles)
for the third quarter of 1998 were $0.72 per share compared with $0.64 for the
third quarter of 1997, reflecting a 12.5% increase. Year-to-date basic cash
earnings on a per share basis as of September 30, 1998 were $1.95 compared to
$1.61 at September 30, 1997, reflecting a 21.1% increase. Cash return on average
assets was 1.14% and cash return on average stockholders' equity was 12.83% for
the nine-month period ended September 30, 1998, compared with 1.26% and 11.53%,
respectively, for the same period in 1997.
On August 1, 1997, the Company completed the acquisition of First Bank
of Arkansas (FBAR), Russellville, Arkansas and First Bank of Arkansas (FBAS),
Searcy, Arkansas in a cash purchase transaction of $53 million. This transaction
was partially financed through the issuance of $20 million in long-term debt and
$17 million in trust preferred securities. On August 1, 1997, the banks acquired
had consolidated assets, as adjusted, of $362 million.
Net interest income, the difference between interest income and
interest expense, for the three-month period ended September 30, 1998, increased
$1,964,000, or 18.1%, when compared to the same period in 1997. During the third
quarter, interest income increased $3,927,000, or 18.3%, while interest expense
increased $1,963,000, or 18.4%, when compared to the same period in 1997. For
the nine-months ended September 30, 1998 and 1997, net interest income was
$36,385,000 and $28,934,000, respectively. This represents an increase of
$7,451,000, or 25.8%. Year-to-date interest income for the nine-month periods
ended September 30, 1998 and 1997 was up $20,011,000, to $74,090,000, over the
$54,079,000 reported as for September 30, 1997, which signifies a 37.0%
increase. Year-to-date interest expense at September 30, 1998 and 1997, was
$37,705,000 and $25,145,000, respectively, which equates to a 49.9% increase.
These figures reflect an increase in fees on loans and the acquisition of FBAR
and FBAS and the long-term debt associated with these acquisitions.
The provision for loan losses for the third quarter of 1998 was
$1,249,000, compared to $1,111,000 for the same period of 1997, resulting in a
$138,000, or 12.4%, increase. For the nine months ended September 30, 1998 and
1997, the provision (excluding the $2,530,000 non-recurring provision) was
$3,568,000 and $2,756,000, respectively, resulting in a 29.5% increase. The
increase from 1997 to 1998 is attributable to acquisitions, growth in loans and
bankruptcies in the bankcard portfolio.
Non-interest income for the third quarter ended September 30, 1998, was
$6,659,000, a 7.7% decrease over the $7,213,000 reported for the same period in
1997. This decrease is primarily due to the sale of the Company's mortgage
servicing portfolio and a loss in the investment banking division. For the
nine-months ended September 30, 1997 and 1996, non-interest income (excluding
the gain on sale of mortgage servicing and gain on securities sold) was
$21,341,000, a 8.1% increase over the $19,744,000 reported for the same period
in 1997. Total fee income for the nine-month period ended September 30, 1998 was
up 8.4%.
During the three months ended September 30, 1998, non-interest expense
increased $815,000, or 6.7%, over the same period in 1997. This increase
reflects the normal increase in the cost of doing business, coupled with
acquisitions. Year-to-date non-interest expense (excluding the non-recurring
Year 2000 expenses) was $40,285,000 at September 30, 1998, compared to
$33,528,000, for the same period ended September 30, 1997. The increase reflects
the acquisitions and the normal increase in the cost of doing business.
On June 30, 1998 Simmons First National Bank sold its residential
mortgage-servicing portfolio to First Commercial Mortgage Company resulting in a
$3.3 million gain. The portfolio consists of approximately $1.2 billion in
residential mortgage loans. The portfolio sale will not have a material impact
on future earnings of the Company.
FINANCIAL CONDITION
Total assets for the Company at September 30, 1998, were $1.319
billion, a decrease of $8 million, or 0.67%, over the same figure at December
31, 1997. Deposits at September 30, 1998, totaled $1.091 billion, a decrease of
$14 million, or 1.3% from the same figure at December 31, 1997. Stockholders'
equity at the end of the third quarter was $120,265,000, an increase of
$8,183,000, or 7.3%, from the December 31, 1997 figure.
Asset quality remains strong with the allowance for loan losses as a
percent of total loans at 1.75% as of September 30, 1998, compared to 1.59% at
December 31, 1997. As of September 30, 1998, the allowance for loan losses as a
percent of total loans excluding government-guaranteed student loans was 1.89%.
As of September 30, 1998, non-performing loans equaled 0.78% of total loans,
while the allowance for loan losses equaled 223.9% of non-performing loans.
Generally speaking, the Company's banking subsidiaries rely upon net
inflows of cash from financing activities, supplemented by net inflows of cash
from operating activities, to provide cash used in their investing activities.
As is typical of most banking companies, significant financing activities
include: deposit gathering; use of short-term borrowing facilities, such as
federal funds purchased and repurchase agreements; and the issuance of long-term
debt. The banks' primary investing activities include loan originations and
purchases of investment securities, offset by loan payoffs and investment
maturities.
Liquidity represents an institution's ability to provide funds to
satisfy demands from depositors and borrowers, by either converting assets into
cash or accessing new or existing sources of incremental funds. It is a major
responsibility of management to maximize net interest income within prudent
liquidity constraints. Internal corporate guidelines have been established to
constantly measure liquid assets as well as relevant ratios concerning earning
asset levels and purchased funds. Each bank subsidiary is also required to
monitor these same indicators and report regularly to its own senior management
and board of directors. At September 30, 1998, each bank was within established
guidelines and total corporate liquidity was strong. At September 30, 1998, cash
and due from banks, securities available for sale and held in trading accounts,
federal funds sold and securities purchased under agreements for resell, and
mortgage loans held for sale were 18.7% of total assets.
ACQUISITION ANNOUNCEMENTS
On July 24, 1998, an announcement was made jointly by the Chief
Executive Officers of both the Company and American Bancshares of Arkansas, Inc.
("ABA') regarding the execution of a definitive agreement under the terms of
which ABA will be merged into the Company in a transaction valued at
approximately $21,850,000. Stockholders of ABA will receive Simmons First
National Corporation stock in exchange for ABA shares in the transaction. The
transaction is expected to close in late 1998.
ABA owns American State Bank ("ASB"), Charleston, Arkansas with
consolidated assets, as of June 30, 1998, of $87 million. As a part of the
transaction ASB will be merged into Simmons First National Bank during early
1999.
On August 25, 1998, an announcement was made jointly by the Chief
Executive Officers of both the Company and Lincoln Bankshares, Inc. ("LBI")
regarding the execution of a definitive agreement under the terms of which LBI
will be merged into the Company. Stockholders of LBI will receive 301,833 shares
of Simmons First National Corporation stock in exchange for LBI shares in the
transaction. The transaction is expected to close in early 1999.
LBI owns Bank of Lincoln, Lincoln, Arkansas with consolidated assets,
as of June 30, 1998, of $75 million. As a part of the transaction Bank of
Lincoln will be merged into Simmons First Bank of Northwest Arkansas during
early 1999.
<PAGE>
IMPACT OF THE YEAR 2000 ISSUE
The Year 2000 issue is the result of computer programs being written
using two digits rather than four to define the applicable year. In 1996, as
part of its strategic plan to provide quality customer service, introduce new
products and improve operating efficiencies, the Company began converting all of
its software and hardware systems to state-of-the-art technology. As a byproduct
of this effort, the Year 2000 issue has been addressed. The Company has now
completed the Year 2000 identification of mission critical systems, vendors,
large borrowers and large depositors requiring assessment and testing. During
the nine-month period ended September 30, 1998 the Company expensed $500,000 for
software testing and hardware replacement related to the Year 2000 issue.
The Company expects to have all of its internal mission critical systems, except
for one such system, tested for Year 2000 compliance by December 31, 1998. The
outside testing consultants will not complete the testing of the Company's
remaining internal mission critical system until March 31, 1999. Based upon
independent testing of substantially similar systems by other financial
institutions and testing consultants, Management believes that the completion of
internal mission critical testing by March 31, 1999 will provide the Company
with ample time to correct any system deficiencies identified through testing.
The testing with vendors, large borrowers and large depositors will be completed
by June 30, 1999. The replacement of non-compliant systems is presently
underway and will be completed in 1999.
The Company is in the process of converting the two banks acquired on
August 1, 1997 to the Company's systems and these conversions are scheduled for
the fourth quarter of 1998. During the third quarter of 1998 the acquisition
announcements of ABA and LBI were made. These transactions are expected to close
in late 1998 and early 1999. The ABA and LBI acquisitions will be converted to
the Company's systems during early 1999. As part of the Company's due diligence
process associated with a potential acquisition, the prospect's Year 2000
compliance and readiness is thoroughly evaluated. The Company has contingency
plans if the above conversions are not completed before December 31, 1999.
Management believes completion of the Year 2000 modifications will not
have a material effect on the Company's future consolidated results of
operations or financial position.
<PAGE>
REVIEW BY INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
BAIRD, KURTZ & DOBSON
Certified Public Accountants
200 East Eleventh
Pine Bluff, Arkansas
Board of Directors
Simmons First National Bank
Pine Bluff, Arkansas
We have made a review of the accompanying consolidated condensed
financial statements, appearing on pages 3 to 18 of the accompanying Form 10-Q,
of SIMMONS FIRST NATIONAL CORPORATION and consolidated subsidiaries as of
September 30, 1998 and for the three-months and nine-months ended September 30,
1998 and 1997, in accordance with standards established by the American
Institute of Certified Public Accountants.
A review of interim financial information consists principally of
obtaining an understanding of the system for the preparation of interim
financial information, applying analytical review procedures to financial data,
and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an examination in accordance
with generally accepted auditing standards, the objective 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 review, we are not aware of any material modifications
that should be made to the condensed financial statements referred to above for
them to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted
auditing standards, the consolidated balance sheet as of December 31, 1997, and
the related consolidated statements of income, cash flows and changes in
stockholders' equity for the year then ended (not presented herein), and in our
report dated January 30, 1998, we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the information set forth in
the accompanying condensed consolidated balance sheet as of December 31, 1997,
is fairly stated in all material respects in relation to the consolidated
balance sheet from which it has been derived.
/s/ Baird, Kurtz & Dobson
BAIRD, KURTZ & DOBSON
Pine Bluff, Arkansas
October 30, 1998
<PAGE>
Part II: Other Information
Item 2. Changes in Securities.
Recent Sales of Unregistered Securities. The following transactions are
sales of unregistered shares of Class A Common Stock of the registrant which
were issued to executive and senior management officers upon the exercise of
rights granted under either the Simmons First National Corporation Incentive and
Non-qualified Stock Option Plan or the Simmons First National Corporation
Executive Stock Incentive Plan. No underwriters were involved and no
underwriter's discount or commissions were involved. Exemption from registration
is claimed under Section 4(2) of the Securities Act of 1933 as private
placements. Unless noted otherwise, the registrant received cash as the
consideration for the transaction.
<TABLE>
<CAPTION>
Number
Identity(1) Date of Sale of Shares Price(2) Type of Transaction
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 Officer July, 1998 300 22.1667 Incentive Stock Option
1 Officer July, 1998 300 25.6667 Incentive Stock Option
1 Officer July, 1998 200 45.2500 Incentive Stock Option
1 Officer August, 1998 1,500 8.2917 Incentive Stock Option
</TABLE>
Notes:
1. The transactions are grouped to show sales of stock based upon exercises of
rights by officers of the registrant or its subsidiaries under the stock
plans which occurred at the same price during a calendar month.
2. The per share price paid for incentive stock options represents the fair
market value of the stock as determined under the terms of the Plan on the
date the incentive stock option was granted to the officer.
Item 6. Reports on Form 8-K
The registrant filed Form 8-K on July 1, 1998. The report contained the
text of a press release issued by the registrant concerning the sale of the
Company's residential mortgage-servicing portfolio to First Commercial Mortgage
Company.
The registrant filed Form 8-K on July 29, 1998. The report contained
the text of a press release issued by the registrant concerning the acquisition
of American Bancshares of Arkansas, Inc.
The registrant filed Form 8-K on August 26, 1998. The report contained
the text of a press release issued by the registrant concerning the acquisition
of Lincoln Bancshares, Inc.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SIMMONS FIRST NATIONAL CORPORATION
(Registrant)
Date: November 2, 1998 /s/ J. Thomas May
--------------------- --------------------------------------
J. Thomas May, Chairman,
President and Chief Executive Officer
Date: November 2, 1998 /s/ Barry L. Crow
--------------------- --------------------------------------
Barry L. Crow, Executive Vice President
and Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 33,153
<INT-BEARING-DEPOSITS> 3,777
<FED-FUNDS-SOLD> 33,300
<TRADING-ASSETS> 10,361
<INVESTMENTS-HELD-FOR-SALE> 157,376
<INVESTMENTS-CARRYING> 149,352
<INVESTMENTS-MARKET> 152,416
<LOANS> 851,762
<ALLOWANCE> 14,922
<TOTAL-ASSETS> 1,318,565
<DEPOSITS> 1,090,624
<SHORT-TERM> 1,669
<LIABILITIES-OTHER> 16,491
<LONG-TERM> 46,214
0
0
<COMMON> 5,743
<OTHER-SE> 114,522
<TOTAL-LIABILITIES-AND-EQUITY> 1,318,565
<INTEREST-LOAN> 56,474
<INTEREST-INVEST> 14,530
<INTEREST-OTHER> 3,086
<INTEREST-TOTAL> 74,090
<INTEREST-DEPOSIT> 32,774
<INTEREST-EXPENSE> 37,705
<INTEREST-INCOME-NET> 36,385
<LOAN-LOSSES> 6,098
<SECURITIES-GAINS> 4
<EXPENSE-OTHER> 40,785
<INCOME-PRETAX> 14,120
<INCOME-PRE-EXTRAORDINARY> 10,027
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,027
<EPS-PRIMARY> 1.74
<EPS-DILUTED> 1.71
<YIELD-ACTUAL> 4.18
<LOANS-NON> 4,215
<LOANS-PAST> 2,450
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<ALLOWANCE-OPEN> 12,628
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<ALLOWANCE-DOMESTIC> 14,922
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
