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 June 30, 2002 Commission File Number 06253
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SIMMONS FIRST NATIONAL CORPORATION
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(Exact name of registrant as specified in its charter)
Arkansas 71-0407808
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
501 Main Street Pine Bluff, Arkansas 71601
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 870-541-1000
----------------
Not Applicable
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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 7,062,120
Class B, Common None
SIMMONS FIRST NATIONAL CORPORATION
INDEX
Page No.
Part I: Summarized Financial Information
Consolidated Balance Sheets --
June 30, 2002 and December 31, 2001 3-4
Consolidated Statements of Income --
Three months and six months ended
June 30, 2002 and 2001 5
Consolidated Statements of Cash Flows --
Six months ended June 30, 2002 and 2001 6
Consolidated Statements of Changes in Stockholders' Equity
Six months ended June 30, 2002 and 2001 7
Condensed Notes to Consolidated Financial Statements 8-18
Management's Discussion and Analysis of Financial
Condition and Results of Operations 19-32
Review by Independent Certified Public Accountants 33
Part II: Other Information 34-36
Part I: Summarized Financial Information
Simmons First National Corporation
Consolidated Balance Sheets
June 30, 2002 and December 31, 2001
ASSETS
June 30, December 31,
(In thousands, except share data) 2002 2001
- ---------------------------------------------------------------------------------------------------------------------------
(Unaudited)
Cash and non-interest bearing balances due from banks $ 63,416 $ 81,785
Interest bearing balances due from banks 31,557 55,356
Federal funds sold and securities purchased
under agreements to resell 67,880 57,700
----------- -----------
Cash and cash equivalents 162,853 194,841
Investment securities 419,700 447,305
Mortgage loans held for sale 10,440 24,971
Assets held in trading accounts 14,140 896
Loans 1,247,625 1,258,784
Allowance for loan losses (20,608) (20,496)
----------- -----------
Net loans 1,227,017 1,238,288
Premises and equipment 45,192 45,537
Foreclosed assets held for sale, net 2,394 1,084
Interest receivable 14,528 15,764
Goodwill 31,739 31,739
Core deposits and other intangible assets, net 499 554
Other assets 16,159 15,939
----------- -----------
TOTAL ASSETS $ 1,944,661 $ 2,016,918
========== ==========
See Condensed Notes to Consolidated Financial Statements.
Simmons First National Corporation
Consolidated Balance Sheets
June 30, 2002 and December 31, 2001
LIABILITIES AND STOCKHOLDERS' EQUITY
June 30, December 31,
(In thousands, except share data) 2002 2001
- ---------------------------------------------------------------------------------------------------------------------------
(Unaudited)
LIABILITIES
Non-interest bearing transaction accounts $ 229,091 $ 247,235
Interest bearing transaction accounts and savings deposits 535,680 517,856
Time deposits 852,052 921,313
----------- -----------
Total deposits 1,616,823 1,686,404
Federal funds purchased and securities sold
under agreements to repurchase 68,947 86,635
Short-term debt 5,003 3,801
Long-term debt 49,570 42,150
Accrued interest and other liabilities 15,395 15,565
----------- -----------
Total liabilities 1,755,738 1,834,555
----------- -----------
STOCKHOLDERS' EQUITY
Capital stock
Class A, common, par value $1 a share, authorized 30,000,000 shares,
7,062,120 issued and outstanding at 2002 and 7,087,185 at 2001 7,062 7,087
Surplus 44,384 45,278
Undivided profits 135,838 128,519
Accumulated other comprehensive income
Unrealized appreciation on available-for-sale securities,
net of income taxes of $1,098 in 2002 and $887 in 2001 1,639 1,479
----------- -----------
Total stockholders' equity 188,923 182,363
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,944,661 $ 2,016,918
========== ==========
See Condensed Notes to Consolidated Financial Statements.
Simmons First National Corporation
Consolidated Statements of Income
Three Months and Six Months Ended June 30, 2002 and 2001
Three Months Ended Six Months Ended
June 30, June 30,
(In thousands, except per share data) 2002 2001 2002 2001
- -----------------------------------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited)
INTEREST INCOME
Loans $ 23,668 $ 28,368 $ 47,774 $ 57,529
Federal funds sold and securities purchased
under agreements to resell 264 504 592 1,143
Investment securities 4,858 5,261 9,781 10,961
Mortgage loans held for sale, net of unrealized gains (losses) 185 267 418 439
Assets held in trading accounts 18 2 20 9
Interest bearing balances due from banks 150 354 431 689
--------- --------- --------- --------
TOTAL INTEREST INCOME 29,143 34,756 59,016 70,770
--------- --------- --------- --------
INTEREST EXPENSE
Deposits 8,946 16,284 19,514 33,362
Federal funds purchased and securities sold
under agreements to repurchase 316 690 713 1,747
Short-term debt 12 76 53 180
Long-term debt 818 840 1,624 1,659
--------- --------- --------- --------
TOTAL INTEREST EXPENSE 10,092 17,890 21,904 36,948
--------- --------- --------- --------
NET INTEREST INCOME 19,051 16,866 37,112 33,822
Provision for loan losses 2,436 1,967 4,797 3,820
--------- --------- --------- --------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 16,615 14,899 32,315 30,002
--------- --------- --------- --------
NON-INTEREST INCOME
Trust income 1,205 1,249 2,595 2,656
Service charges on deposit accounts 2,543 2,307 4,781 4,408
Other service charges and fees 365 396 776 864
Income on sale of mortgage loans, net of commissions 738 813 1,549 1,437
Income on investment banking, net of commissions 248 220 514 442
Credit card fees 2,550 2,666 4,888 5,122
Other income 886 660 1,804 1,475
Gain on sale of securities, net -- -- -- --
--------- --------- --------- --------
TOTAL NON-INTEREST INCOME 8,535 8,311 16,907 16,404
--------- --------- --------- --------
NON-INTEREST EXPENSE
Salaries and employee benefits 9,840 8,902 19,790 17,905
Occupancy expense, net 1,155 1,094 2,281 2,260
Furniture and equipment expense 1,310 1,338 2,602 2,674
Loss on foreclosed assets 40 87 83 162
Other operating expenses 4,504 5,425 9,122 10,662
--------- --------- --------- --------
TOTAL NON-INTEREST EXPENSE 16,849 16,846 33,878 33,663
--------- --------- --------- --------
INCOME BEFORE INCOME TAXES 8,301 6,364 15,344 12,743
Provision for income taxes 2,596 1,877 4,698 3,702
--------- --------- --------- --------
NET INCOME $ 5,705 $ 4,487 $ 10,646 $ 9,041
======== ======== ======== =======
BASIC EARNINGS PER SHARE $ 0.80 $ 0.63 $ 1.50 $ 1.27
======== ======== ======== =======
DILUTED EARNINGS PER SHARE $ 0.79 $ 0.63 $ 1.48 $ 1.27
======== ======== ======== =======
See Condensed Notes to Consolidated Financial Statements.
Simmons First National Corporation
Consolidated Statements of Cash Flows
Six Months Ended June 30, 2002 and 2001
June 30, June 30,
(In thousands) 2002 2001
- -------------------------------------------------------------------------------------------------------------------
(Unaudited)
OPERATING ACTIVITIES
Net income $ 10,646 $ 9,041
Items not requiring (providing) cash
Depreciation and amortization 2,338 3,825
Provision for loan losses 4,797 3,820
Net accretion of investment securities (218) (659)
Deferred income taxes (522) (203)
Provision for foreclosed assets 25 130
Changes in
Interest receivable 1,236 1,630
Mortgage loans held for sale 14,531 (12,523)
Assets held in trading accounts (13,244) 965
Other assets (113) 517
Accrued interest and other liabilities 336 (666)
Income taxes payable 16 (455)
---------- -----------
Net cash provided by operating activities 19,828 5,422
---------- -----------
INVESTING ACTIVITIES
Net repayment (originations) of loans 4,480 (8,086)
Purchase of premises and equipment, net (2,045) (1,516)
Proceeds from sale of foreclosed assets 659 550
Proceeds from maturities of available-for-sale securities 252,670 139,985
Purchases of available-for-sale securities (188,940) (94,125)
Proceeds from maturities of held-to-maturity securities 62,125 58,896
Purchases of held-to-maturity securities (97,872) (86,504)
---------- -----------
Net cash provided by investing activities 31,077 9,200
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FINANCING ACTIVITIES
Net (decrease) increase in deposits (69,581) 25,472
Net proceeds of short-term debt 1,202 6,134
Dividends paid (3,327) (3,049)
Proceeds from issuance of long-term debt 7,860 4,085
Repayments of long-term debt (440) (1,275)
Net (decrease) increase in federal funds purchased and securities
sold under agreements to repurchase (17,688) 27,740
Repurchase of common stock, net (919) (2,126)
---------- -----------
Net cash (used in) provided by financing activities (82,893) 56,981
---------- -----------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (31,988) 71,603
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR 194,841 111,135
---------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 162,853 $ 182,738
========= ==========
See Condensed Notes to Consolidated Financial Statements.
Simmons First National Corporation
Consolidated Statements of Changes in Stockholders' Equity
Six Months Ended June 30, 2002 and 2001
Accumulated
Other
Common Comprehensive Undivided
(In thousands, except share data) Stock Surplus Income Profits Total
- ------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2000 $ 7,181 $ 47,964 $ (34) $ 118,232 $ 173,343
Comprehensive income
Net income -- -- -- 9,041 9,041
Change in unrealized depreciation on
available-for-sale securities, net of
income taxes of $812 -- -- 1,354 -- 1,354
----------
Comprehensive income 10,395
Exercise of stock options - 45,900 shares 46 844 -- -- 890
Securities exchanged under stock option plan (5) (137) -- -- (142)
Repurchase of common stock - 120,955 shares (121) (2,753) -- -- (2,874)
Cash dividends declared - $0.43 per share -- -- -- (3,049) (3,049)
--------- --------- ----------- --------- ----------
Balance, June 30, 2001 7,101 45,918 1,320 124,224 178,563
Comprehensive income
Net income -- -- -- 7,487 7,487
Change in unrealized appreciation on
available-for-sale securities, net of
income taxes of $96 -- -- 159 -- 159
----------
Comprehensive income 7,646
Exercise of stock options - 16,800 shares 17 351 -- -- 368
Securities exchanged under stock option plan (8) (254) -- -- (262)
Repurchase of common stock - 23,000 shares (23) (737) -- -- (760)
Cash dividends declared - $0.45 per share -- -- -- (3,192) (3,192)
--------- ---------- ----------- ---------- -----------
Balance, December 31, 2001 7,087 45,278 1,479 128,519 182,363
Comprehensive income
Net income -- -- -- 10,646 10,646
Change in unrealized appreciation on
available-for-sale securities, net of
income taxes of $211 -- -- 160 -- 160
-----------
Comprehensive income 10,806
Exercise of stock options - 7,200 shares 7 130 -- -- 137
Securities exchanged under stock option plan (2) (74) -- -- (76)
Repurchase of common stock - 30,000 shares (30) (950) -- -- (980)
Cash dividends declared - $0.47 per share -- -- -- (3,327) (3,327)
--------- ---------- ----------- ---------- -----------
Balance, June 30, 2002 $ 7,062 $ 44,384 $ 1,639 $ 135,838 $ 188,923
======== ========= ========== ======== ==========
See Condensed Notes to Consolidated Financial Statements.
SIMMONS FIRST NATIONAL CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1: BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Simmons First
National Corporation and its subsidiaries. Significant intercompany accounts and
transactions have been eliminated in consolidation.
The accompanying unaudited consolidated financial statements reflect all
adjustments that are in the opinion of the Company's management, necessary to
fairly present the financial position, results of operations and cash flows of
the Company. Those adjustments consist only of normal recurring adjustments.
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 2001 filed with the Securities and
Exchange Commission.
Earnings Per Share
Basic earnings per share is 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 potentially dilutive
common shares outstanding during the period.
The computation of per share earnings for the six months ended June 30,
2002 and 2001 is as follows:
(In thousands, except per share data) 2002 2001
- -------------------------------------------------------------------------------------------------------------------
Net Income $ 10,646 $ 9,041
--------- --------
Average common shares outstanding 7,077 7,104
Average common share stock options outstanding 111 29
--------- --------
Average diluted common shares 7,188 7,133
--------- --------
Basic earnings per share $ 1.50 $ 1.27
======== =======
Diluted earnings per share $ 1.48 $ 1.27
======== =======
NOTE 2: ACQUISITIONS
On July 19, 2002, the Company expanded its coverage of South Arkansas with
the purchase of the Monticello location from HEARTLAND Community Bank. Simmons
First Bank of South Arkansas, a wholly owned subsidiary of the Company, acquired
the Monticello office. As of July 19, 2002, the new location had total loans of
$8 million and total deposits of $13 million.
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:
June 30, December 31,
2002 2001
--------------------------------------------- -----------------------------------------
Gross Gross Estimated Gross Gross Estimated
Amortized Unrealized Unrealized Fair Amortized Unrealized Unrealized Fair
(In thousands) Cost Gains (Losses) Value Cost Gains (Losses) Value
- ---------------------------------------------------------------------------------------------------------------
Held-to-Maturity
- ----------------
U.S. Treasury $ 29,483 $ 1,187 $ (412) $ 30,258 $ 27,528 $ 826 $ -- $ 28,354
U.S. Government
agencies 70,479 730 (77) 71,132 36,992 451 (108) 37,335
Mortgage-backed
securities 5,355 98 -- 5,453 6,681 105 -- 6,786
State and political
subdivisions 121,719 3,356 (27) 125,048 119,824 2,255 (152) 121,927
Other securities 100 -- -- 100 100 -- -- 100
---------- ------- ------ ---------- ---------- ------- ------- ----------
$ 227,136 $ 5,371 $ (516) $ 231,991 $ 191,125 $ 3,637 $ (260) $ 194,502
========= ====== ===== ========= ========= ====== ====== =========
Available-for-Sale
- ------------------
U.S. Treasury $ 12,822 $ 362 $ (81) $ 13,103 $ 18,071 $ 349 $ (12) $ 18,408
U.S. Government
agencies 153,648 1,662 (176) 155,134 214,190 1,792 (492) 215,490
Mortgage-backed
securities 5,696 55 (27) 5,724 6,975 69 (40) 7,004
State and political
subdivisions 4,979 291 -- 5,270 5,194 205 -- 5,399
Other securities 12,491 842 -- 13,333 9,056 823 -- 9,879
---------- ------- ------ ---------- ---------- ------- ------- ----------
$ 189,636 $ 3,212 $ (284) $ 192,564 $ 253,486 $ 3,238 $ (544) $ 256,180
========= ====== ===== ========= ========= ====== ====== =========
The carrying value, which approximates the market value, of securities
pledged as collateral, to secure public deposits and for other purposes,
amounted to $281,867,000 at June 30, 2002 and $290,915,000 at December 31, 2001.
The book value of securities sold under agreements to repurchase amounted
to $35,792,000 and $35,990,000 for June 30, 2002 and December 31, 2001,
respectively.
Income earned on securities for the six months ended June 30, 2002 and
2001, is as follows:
(In thousands) 2002 2001
- -------------------------------------------------------------------------------------------------------------------
Taxable
Held-to-maturity $ 2,112 $ 2,768
Available-for-sale 4,899 5,367
Non-taxable
Held-to-maturity 2,633 2,646
Available-for-sale 137 180
--------- --------
Total $ 9,781 $ 10,961
======== =======
Maturities of investment securities at June 30, 2002 are as follows:
Held-to-Maturity Available-for-Sale
-------------------------- -------------------------
Amortized Fair Amortized Fair
(In thousands) Cost Value Cost Value
- -------------------------------------------------------------------------------------------------
One year or less $ 41,254 $ 42,146 $ 42,006 $ 42,282
After one through five years 135,211 137,331 127,072 128,662
After five through ten years 42,242 43,824 4,092 4,282
After ten years 8,329 8,590 3,975 4,005
Other securities 100 100 12,491 13,333
----------- ----------- ----------- ----------
Total $ 227,136 $ 231,991 $ 189,636 $ 192,564
========== ========== ========== =========
There were no gross realized gains or losses as of June 30, 2002 and 2001.
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.
NOTE 4: LOANS AND ALLOWANCE FOR LOAN LOSSES
The various categories are summarized as follows:
June 30, December 31,
(In thousands) 2002 2001
- --------------------------------------------------------------------------------------------------------------
Consumer
Credit cards $ 179,682 $ 196,710
Student loans 79,883 74,860
Other consumer 162,554 179,138
Real estate
Construction 74,968 83,628
Single family residential 226,900 224,122
Other commercial 266,995 263,539
Commercial
Commercial 158,167 153,617
Agricultural 75,441 60,794
Financial institutions 7,692 5,861
Other 15,343 16,515
------------- ------------
Total loans before allowance for loan losses $ 1,247,625 $ 1,258,784
============ ===========
During the first six months of 2002, foreclosed assets held for sale
increased $1,310,000 to $2,394,000 and are carried at the lower of cost or fair
market value. Other non-performing assets, non-accrual loans and other
non-performing loans of the Company at June 30, 2002, were $484,000, $11,858,000
and $1,944,000, respectively, bringing the total of non-performing assets to
$16,680,000.
Transactions in the allowance for loan losses are as follows:
June 30, December 31,
(In thousands) 2002 2001
- -------------------------------------------------------------------------------------------------------------------
Balance, beginning of year $ 20,496 $ 21,157
Additions
Provision charged to expense 4,797 3,820
-------- --------
25,293 24,977
Deductions
Losses charged to allowance, net of recoveries
of $1,208 and $866 for the first six months of
2002 and 2001, respectively 4,685 3,756
-------- --------
Balance, June 30 $ 20,608 $ 21,221
======= --------
Additions
Provision charged to expense 6,138
--------
27,359
Deductions
Losses charged to allowance, net of recoveries
of $863 for the last six months of 2001 6,863
--------
Balance, end of year $ 20,496
=======
At June 30, 2002 and December 31, 2001, impaired loans totaled $17,219,000
and $21,012,000, respectively. All impaired loans had designated reserves for
possible loan losses. Reserves relative to impaired loans at June 30, 2002, were
$3,308,000 and $4,093,000 at December 31, 2001.
Approximately $283,000 and $476,000 of interest income was recognized on
average impaired loans of $19,610,000 and $21,030,000 as of June 30, 2002 and
2001, respectively. Interest recognized on impaired loans on a cash basis during
the first six months of 2002 and 2001 was immaterial.
NOTE 5: GOODWILL AND OTHER INTANGIBLES
Financial Accounting Standards Board Statement No. 142, Goodwill and Other
Intangibles, requires transitional disclosures regarding the change in
amortization and other treatment of goodwill and intangible assets for the three
and six month periods ended June 30, 2001, as follows:
June 30, 2001
------------------------------------------
Three Six
Months Months
Ended Ended
------------------------------------------
Reported net income $ 4,487 $ 9,041
Add back: Goodwill amortization 701 1,458
Subtract: Income taxes (247) (509)
--------- --------
Adjusted net income $ 4,941 $ 9,990
======== =======
Goodwill is annually tested 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.
The carrying basis and accumulated amortization of recognized intangible
assets at June 30, 2002 and December 31, 2001, were:
June 30, 2002 December 31, 2001
---------------------------------------- ------------------------------------------
Gross Gross
Carrying Accumulated Carrying Accumulated
(In thousands) Amount Amortization Net Amount Amortization Net
- ---------------------------------------------------------------------------------------------------------------------
Core deposits $ 820 $ 374 $ 446 $ 820 $ 346 $ 474
Other intangible assets 938 885 53 938 858 80
-------- --------- --------- -------- ------- -------
Total $ 1,758 $ 1,259 $ 499 $ 1,758 $ 1,204 $ 554
======= ======== ======== ======= ====== ======
Amortization expense for the six-month periods ended June 30, 2002 and 2001
was $55,000. Excluding the acquisition completed on July 19, 2002, estimated
amortization expense for each of the following five years is: 2002 - $113,000;
2003 - $69,000; 2004 - $64,000; 2005 - $64,000 and 2006 - $57,000.
NOTE 6: TIME DEPOSITS
Time deposits include approximately $328,698,000 and $341,085,000 of
certificates of deposit of $100,000 or more at June 30, 2002 and December 31,
2001, respectively.
NOTE 7: INCOME TAXES
The provision for income taxes is comprised of the following components:
June 30, June 30,
(In thousands) 2002 2001
- -------------------------------------------------------------------------------------------------------
Income taxes currently payable $ 5,220 $ 3,905
Deferred income taxes (522) (203)
-------------- --------------
Provision for income taxes $ 4,698 $ 3,702
============= =============
The tax effects of temporary differences related to deferred taxes shown on
the balance sheet are shown below:
June 30, December 31,
(In thousands) 2002 2001
- -------------------------------------------------------------------------------------------------------
Deferred tax assets
Allowance for loan losses $ 6,916 $ 6,611
Valuation of foreclosed assets 112 113
Deferred compensation payable 587 631
Deferred loan fee income 277 277
Vacation compensation 563 496
Mortgage servicing reserve 363 365
Loan interest 139 139
Other 227 189
---------------- ----------------
Total deferred tax assets 9,184 8,821
---------------- ----------------
Deferred tax liabilities
Accumulated depreciation (1,349) (1,534)
Available-for-sale securities (1,098) (887)
FHLB stock dividends (723) (697)
Other (202) (202)
---------------- ----------------
Total deferred tax liabilities (3,372) (3,320)
---------------- ----------------
Net deferred tax assets included in other
assets on balance sheets $ 5,812 $ 5,501
=============== ===============
A reconciliation of income tax expense at the statutory rate to the
Company's actual income tax expense is shown below:
June 30, June 30,
(In thousands) 2002 2001
- -------------------------------------------------------------------------------------------------------
Computed at the statutory rate (35%) $ 5,370 $ 4,460
Increase (decrease) resulting from:
Tax exempt income (1,113) (1,104)
Other differences, net 441 346
---------------- ----------------
Actual tax provision $ 4,698 $ 3,702
=============== ===============
NOTE 8: LONG-TERM DEBT
Long-term debt at June 30, 2002 and December 31, 2001, consisted of the
following components,
June 30, December 31,
(In thousands) 2002 2001
- -------------------------------------------------------------------------------------------------------
7.32% note due 2007, unsecured $ 12,000 $ 12,000
1.02% to 8.41% FHLB advances due 2002 to 2021,
secured by residential real estate loans 20,320 12,900
Trust preferred securities 17,250 17,250
---------------- ----------------
$ 49,570 $ 42,150
=============== ===============
The Company owns 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 currently redeemable. Trust preferred
securities qualify as Tier 1 Capital for regulatory purposes.
Aggregate annual maturities of long-term debt at June 30, 2002 are:
Annual
(In thousands) Year Maturities
- -------------------------------------------------------------------------------------------------------
2002 5,490
2003 3,529
2004 4,214
2005 4,267
2006 4,901
Thereafter 27,169
---------------
Total $ 49,570
===============
NOTE 9: 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 10: NDIVIDED PROFITS
The subsidiary banks are subject to a regulatory 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 June 30, 2002, the
bank subsidiaries had approximately $12 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 June 30, 2002, each of the seven subsidiary banks met the
capital standards for a well-capitalized institution. The Company's "total
risk-based capital" ratio was 14.90% at June 30, 2002.
NOTE 11: STOCK OPTIONS AND RESTRICTED STOCK
At June 30, 2002, the Company had stock options outstanding of 400,250
shares and stock options exercisable of 246,380 shares. During the first six
months of 2002, there were 7,200 shares issued upon exercise of stock options
and 6,500 additional stock options of the Company were granted. No additional
shares of common stock of the Company were granted or issued as bonus shares of
restricted stock, during the first six months of 2002.
NOTE 12: ADDITIONAL CASH FLOW INFORMATION
Six Months Ended
June 30,
(In thousands) 2002 2001
- ----------------------------------------------------------------------------------------
Interest paid $ 23,638 $ 37,420
Income taxes paid $ 5,204 $ 4,360
NOTE 13: 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. 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.
NOTE 14: 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 comprises approximately 14.4% and 15.6% of the portfolio, as of
June 30, 2002 and December 31, 2001, 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 June 30, 2002, the Company had outstanding commitments to extend credit
aggregating approximately $232,019,000 and $272,254,000 for credit card
commitments and other loan commitments, respectively. At December 31, 2001, the
Company had outstanding commitments to extend credit aggregating approximately
$230,783,000 and $203,808,000 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 $2,152,000 and
$4,218,000 at June 30, 2002 and December 31, 2001, respectively, with terms
ranging from 90 days to one year.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
- --------
Simmons First National Corporation recorded net income of $5,705,000, or
$0.79 per diluted share for the quarter ended June 30, 2002. These earnings
reflect an increase of $1,218,000 or $0.16 per share, when compared to last
year's second quarter earnings of $4,487,000, or $0.63 per diluted share. The
Company's annualized return on average assets and annualized return on average
stockholders' equity for the three-month period ended June 30, 2002, was 1.18%
and 12.17%, compared to 0.93% and 10.16%, respectively, for the same period in
2001.
Earnings for the six-month period ended June 30, 2002 were $10,646,000, or
$1.48 per diluted share. These earnings reflect an increase of $1,605,000, or
$0.21 per share, when compared to the six-month period ended June 30, 2001
earnings of $9,041,000, or $1.27 per diluted share. Annualized return on average
assets and annualized return on average stockholders' equity for the six-month
period ended June 20, 2002, was 1.09% and 11.49%, compared to 0.95% and 10.36%,
respectively, for the same period in 2001.
Total assets for the Company at June 30, 2002, were $1.945 billion, a
decrease of $72 million over the same figure at December 31, 2001. Stockholders'
equity at the end of the second quarter of 2002 was $188.9 million, a $6.6
million, or 3.6%, increase from December 31, 2001. During the first six months
of 2002 the Company repurchased 30,000 common shares of stock. This stock
repurchase decreased stockholders' equity by $979,500.
The allowance for loan losses as a percent of total loans equaled 1.65% at
June 30, 2002, which is slightly improved from the 1.63% at June 30, 2001. As of
June 30, 2002, non-performing loans equaled 1.11% of total loans compared to
1.19% as of year-end 2001. At June 30, 2002, the allowance for loan losses
equaled 149% of non-performing loans compared to 137% at year-end 2001.
Simmons First National Corporation is an Arkansas based, Arkansas
committed, financial holding company, with community banks in Pine Bluff,
Jonesboro, Lake Village, Rogers, Russellville, Searcy and El Dorado, Arkansas.
As of June 30, 2002, the Company's seven banks conducted financial operations
from 64 offices in 33 communities throughout Arkansas.
ACQUISITIONS
- ------------
On July 19, 2002, the Company expanded its coverage of South Arkansas with
the purchase of the Monticello location from HEARTLAND Community Bank. Simmons
First Bank of South Arkansas, a wholly owned subsidiary of the Company, acquired
the Monticello office. As of July 19, 2002, the new location had total loans of
$8 million and total deposits of $13 million.
STOCK REPURCHASE
- ----------------
The Company has a stock repurchase program, which is authorized to
repurchase up to 400,000 common shares. Under the repurchase program, there is
no time limit for the stock repurchases, nor is there a minimum number of shares
the Company intends to repurchase. The Company may discontinue purchases at any
time that management determines additional purchases are not warranted. The
shares are to be purchased from time to time at prevailing market prices,
through open market or unsolicited negotiated transactions, depending upon
market conditions. The Company intends to use the repurchased shares to satisfy
stock option exercises, for payment of future stock dividends and for general
corporate purposes.
During the six-month period ended June 30, 2002, the Company repurchased
30,000 common shares of stock with a weighted average repurchase price of $32.65
per share. As of June 30, 2002, the Company has repurchased a total of 331,000
common shares of stock with a weighted average repurchase price of $23.71 per
share.
NET INTEREST INCOME
- -------------------
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 interest income to a fully taxable equivalent basis consists
of dividing tax-exempt interest income by one minus the combined federal and
state income tax rate (37.50% for June 30, 2002 and 2001).
The second quarter of 2002 represents the second full quarter that the
Company was able to fully utilize the changes in the Arkansas usury law made
possible through the Gramm-Leach-Bliley Act, which was confirmed by the Eighth
Circuit Court of Appeals in October 2001. This ability to reprice the loan
portfolio, coupled with the ongoing repricing of the deposit base, has enabled
the Company to achieve considerable improvement in both net interest income and
net interest margin.
For the three-month period ended June 30, 2002, net interest income on a
fully taxable equivalent basis was $19.9 million, an increase of $2.2 million,
or 12.7%, from the same period in 2001. The increase in net interest income was
the result of a $5.6 million decrease in interest income and a $7.8 million
decrease in interest expense. The decrease in interest income was the result of
a lower yield earned on earning assets. The decrease in interest expense was the
result of a lower cost of funds. The net interest margin improved 45 basis
points to 4.45% for the three-month period ended June 30, 2002, when compared to
4.00% for the same period in 2001.
For the six-month period ended June 30, 2002, net interest income on a
fully taxable equivalent basis was $38.8 million, an increase of $3.4 million,
or 9.7%, from the same period in 2001. The increase in net interest income was
the result of an $11.6 million decrease in interest income and a $15.0 million
decrease in interest expense. The decrease in interest income was the result of
a lower yield earned on earning assets. The decrease in interest expense was the
result of a lower cost of funds. The net interest margin improved 25 basis
points to 4.29% for the six-month period ended June 30, 2002, when compared to
4.04% for the same period in 2001.
Table 1 and 2 reflect an analysis of net interest income on a fully taxable
equivalent basis for the three-month and six-month periods ended June 30, 2002
and 2001, respectively, as well as changes in fully taxable equivalent net
interest margin for the three-month and six-month periods ended June 30, 2002
versus June 30, 2001.
Table 1: Analysis of Net Interest Income
(FTE =Fully Taxable Equivalent)
Three Months Ended Six Months Ended
June 30, June 30,
(In thousands) 2002 2001 2002 2001
- ------------------------------------------------------------------------------------------------------------
Interest income $ 29,143 $ 34,756 $ 59,016 $ 70,770
FTE adjustment 838 787 1,692 1,537
----------- ----------- ----------- -----------
Interest income - FTE 29,981 35,543 60,708 72,307
Interest expense 10,092 17,890 21,904 36,948
----------- ----------- ----------- -----------
Net interest income - FTE $ 19,889 $ 17,653 $ 38,804 $ 35,359
========== ========== ========== ==========
Yield on earning assets - FTE 6.71% 8.06% 6.72% 8.26%
Cost of interest bearing liabilities 2.67% 4.72% 2.85% 4.90%
Net interest spread - FTE 4.04% 3.34% 3.87% 3.36%
Net interest margin - FTE 4.45% 4.00% 4.29% 4.04%
Table 2: Changes in Fully Taxable Equivalent Net Interest Margin
Three Months Ended Six Months Ended
June 30, June 30,
(In thousands) 2002 vs. 2001 2002 vs. 2001
- -------------------------------------------------------------------------------------------------------------------
(Decrease) increase due to change in earning assets $ (297) $ 188
Decrease due to change in earning asset yields (5,265) (11,787)
Increase due to change in interest bearing liabilities 641 435
Increase due to change in interest rates
paid on interest bearing liabilities 7,157 14,609
------------- ------------
Increase in net interest income $ 2,236 $ 3,445
============ ===========
Table 3 shows, for each major category of earning assets and interest
bearing liabilities, the average amount outstanding, the interest earned or
expensed on such amount and the average rate earned or expensed for the
three-month and six-month periods ended June 30, 2002 and 2001. The table also
shows the average rate earned on all earning assets, the average rate expensed
on all interest bearing liabilities, the net interest spread and the net
interest margin for the same periods. The analysis is presented on a fully
taxable equivalent basis. Non-accrual loans were included in average loans for
the purpose of calculating the rate earned on total loans.
Table 3: Average Balance Sheets and Net Interest Income Analysis
Three Months Ended June 30,
----------------------------------------------------------------------
2002 2001
--------------------------------- -----------------------------------
Average Income/ Yield/ Average Income/ Yield/
(In thousands) Balance Expense Rate(%) Balance Expense Rate(%)
- --------------------------------------------------------------------------------------------------------------------
ASSETS
- ------
Earning Assets
Interest bearing balances
due from banks $ 35,893 $ 150 1.68 $ 33,943 $ 354 4.18
Federal funds sold 62,789 264 1.69 47,674 504 4.24
Investment securities - taxable 328,509 3,491 4.26 260,941 3,825 5.88
Investment securities - non-taxable 119,691 2,094 7.02 118,943 2,223 7.50
Mortgage loans held for sale 10,591 185 7.01 17,913 267 5.98
Assets held in trading accounts 1,379 18 5.24 246 2 3.26
Loans 1,232,458 23,779 7.74 1,289,129 28,368 8.83
----------- --------- ----------- ---------
Total interest earning assets 1,791,310 29,981 6.71 1,768,789 35,543 8.06
--------- ---------
Non-earning assets 152,741 156,764
----------- -----------
Total assets $ 1,944,051 $ 1,925,553
========== ==========
LIABILITIES AND
- ---------------
STOCKHOLDERS' EQUITY
- --------------------
Liabilities
Interest bearing liabilities
Interest bearing transaction
and savings accounts $ 534,628 $ 1,590 1.19 $ 462,431 $ 2,683 2.33
Time deposits 857,446 7,356 3.44 938,592 13,601 5.81
----------- --------- ----------- ---------
Total interest bearing deposits 1,392,074 8,946 2.58 1,401,023 16,284 4.66
Federal funds purchased and
securities sold under agreement
to repurchase 77,834 316 1.63 69,294 690 3.99
Other borrowed funds
Short-term debt 2,259 12 2.13 6,885 76 4.43
Long-term debt 44,451 818 7.38 42,323 840 7.96
----------- --------- ----------- ---------
Total interest bearing liabilities 1,516,618 10,092 2.67 1,519,525 17,890 4.72
--------- ---------
Non-interest bearing liabilities
Non-interest bearing deposits 225,170 208,812
Other liabilities 14,256 20,058
----------- -----------
Total liabilities 1,756,044 1,748,395
Stockholders' equity 188,007 177,158
----------- -----------
Total liabilities and
stockholders' equity $ 1,944,051 $ 1,925,553
========== ==========
Net interest spread 4.04 3.34
Net interest margin $ 19,889 4.45 $ 17,653 4.00
======== ========
Six Months Ended June 30,
----------------------------------------------------------------------
2002 2001
--------------------------------- -----------------------------------
Average Income/ Yield/ Average Income/ Yield/
(In thousands) Balance Expense Rate(%) Balance Expense Rate(%)
- --------------------------------------------------------------------------------------------------------------------
ASSETS
- ------
Earning Assets
Interest bearing balances
due from banks $ 52,691 $ 431 1.65 $ 29,597 $ 689 4.69
Federal funds sold 71,355 592 1.67 46,943 1,143 4.91
Investment securities - taxable 327,994 7,011 4.31 267,030 8,135 6.14
Investment securities - non-taxable 120,733 4,244 7.09 117,353 4,363 7.50
Mortgage loans held for sale 12,171 418 6.93 14,607 439 6.06
Assets held in trading accounts 835 20 4.83 468 9 3.88
Loans 1,236,354 47,992 7.83 1,288,384 57,529 9.00
----------- --------- ----------- ---------
Total interest earning assets 1,822,133 60,708 6.72 1,764,382 72,307 8.26
--------- ---------
Non-earning assets 155,070 158,061
----------- -----------
Total assets $ 1,977,203 $ 1,922,443
========== ==========
LIABILITIES AND
- ---------------
STOCKHOLDERS' EQUITY
- --------------------
Liabilities
Interest bearing liabilities
Interest bearing transaction
and savings accounts $ 531,909 $ 3,190 1.21 $ 462,224 $ 5,864 2.56
Time deposits 881,871 16,324 3.73 934,789 27,498 5.93
----------- --------- ----------- ---------
Total interest bearing deposits 1,413,780 19,514 2.78 1,397,013 33,362 4.82
Federal funds purchased and
securities sold under agreement
to repurchase 88,144 713 1.63 75,349 1,747 4.68
Other borrowed funds
Short-term debt 4,044 53 2.64 6,523 180 5.56
Long-term debt 43,564 1,624 7.52 41,932 1,659 7.98
----------- --------- ----------- ---------
Total interest bearing liabilities 1,549,532 21,904 2.85 1,520,817 36,948 4.90
--------- ---------
Non-interest bearing liabilities
Non-interest bearing deposits 225,997 205,767
Other liabilities 14,799 19,829
----------- -----------
Total liabilities 1,790,328 1,746,413
Stockholders' equity 186,875 176,030
----------- -----------
Total liabilities and
stockholders' equity $ 1,977,203 $ 1,922,443
========== ==========
Net interest spread 3.87 3.36
Net interest margin $ 38,804 4.29 $ 35,359 4.04
======== ========
Table 4 shows changes in interest income and interest expense, resulting
from changes in volume and changes in interest rates for the three-month and
six-month month periods ended June 30, 2002, as compared to the prior period.
The changes in interest rate and volume have been allocated to changes in
average volume and changes in average rates, in proportion to the relationship
of absolute dollar amounts of the changes in rates and volume.
Table 4: Volume/Rate Analysis
Three Months Ended June 30, Six Months Ended June 30,
2002 over 2001 2002 over 2001
----------------------------------------- -----------------------------------------
(In thousands, on a fully Yield/ Yield/
taxable equivalent basis) Volume Rate Total Volume Rate Total
- ---------------------------------------------------------------------------------------------------------------------
Increase (decrease) in
Interest income
Interest bearing balances
due from banks $ 19 $ (223) $ (204) $ 347 $ (605) $ (258)
Federal funds sold 127 (367) (240) 422 (973) (551)
Investment securities - taxable 858 (1,192) (334) 1,617 (2,741) (1,124)
Investment securities - non-taxable 14 (143) (129) 124 (243) (119)
Mortgage loans held for sale (122) 40 (82) (79) 58 (21)
Assets held in trading accounts 14 2 16 9 2 11
Loans (1,207) (3,382) (4,589) (2,252) (7,285) (9,537)
-------- -------- -------- ------- --------- --------
Total (297) (5,265) (5,562) 188 (11,787) (11,599)
-------- -------- -------- ------- --------- --------
Interest expense
Interest bearing transaction and
savings accounts 370 (1,463) (1,093) 780 (3,454) (2,674)
Time deposits (1,092) (5,153) (6,245) (1,481) (9,693) (11,174)
Federal funds purchased
and securities sold under
agreements to repurchase 76 (450) (374) 256 (1,290) (1,034)
Other borrowed funds
Short-term debt (36) (28) (64) (53) (74) (127)
Long-term debt 41 (63) (22) 63 (98) (35)
-------- -------- -------- ------- --------- --------
Total (641) (7,157) (7,798) (435) (14,609) (15,044)
-------- -------- -------- ------- --------- --------
Increase in net
interest income $ 344 $ 1,892 $ 2,236 $ 623 $ 2,822 $ 3,445
======= ======== ======= ====== ======== =======
PROVISION 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, in order
to maintain the allowance for loan losses at a level, which is considered
adequate, in relation to the estimated risk inherent in the loan portfolio. The
provision for the three-month period ended June 30, 2002 and 2001 was $2.4
million and $2.0 million, respectively. The provision for the six-month period
ended June 30, 2002 and 2001 was $4.8 million and $3.8 million, respectively.
The increase in the provision for 2002 is the result of an increased level of
loans charged off, when compared to the six months ended June 30, 2001 and
continued uncertainty in the economy.
NON-INTEREST INCOME
- -------------------
Non-interest income is principally derived from recurring fee income, which
includes service charges, trust fees and credit card fees. Non-interest income
also includes income on the sale of mortgage loans and investment banking
profits.
Total non-interest income was $8.5 million for the three-month period ended
June 30, 2002, compared to $8.3 million for the same period in 2001. For the
six-months ended June 30, 2002, non-interest income was $16.9 million compared
to the $16.4 million reported for the same period ended June 30, 2001. These
increases can be primarily attributed to an increase in service charges on
deposit accounts, a recovery of interest on a loan previously charged-off in a
prior period and additional income from student loan production. However, these
increases were partially offset by the decrease in the credit card portfolio.
Table 5 shows non-interest income for the three-month and six-month periods
ended June 30, 2002 and 2001, respectively, as well as changes in 2002 from
2001.
Table 5: Non-Interest Income
Three Months Six Months
Ended June 30, 2002 Ended June 30, 2002
------------------- Change from -------------------- Change from
(In thousands) 2002 2001 2001 2002 2001 2001
- ----------------------------------------------------------------------------------------------------------------------
Trust income $ 1,205 $ 1,249 $ (44) -3.52% $ 2,595 $ 2,656 $ (61) -2.30%
Service charges on
deposit accounts 2,543 2,307 236 10.23 4,781 4,408 373 8.46
Other service charges and fees 365 396 (31) -7.83 776 864 (88) -10.19
Income on sale of mortgage loans,
net of commissions 738 813 (75) -9.23 1,549 1,437 112 7.79
Income on investment banking,
net of commissions 248 220 28 12.73 514 442 72 16.29
Credit card fees 2,550 2,666 (116) -4.35 4,888 5,122 (234) -4.57
Other income 886 660 226 34.24 1,804 1,475 329 22.31
-------- -------- ------- --------- --------- --------
Total non-interest income $ 8,535 $ 8,311 $ 224 2.70% $ 16,907 $ 16,404 $ 503 3.07%
======= ======= ====== ======== ======== =======
NON-INTEREST EXPENSE
- --------------------
Non-interest expense consists of salaries and employee benefits, occupancy,
equipment, foreclosure losses and other expenses necessary for the operation of
the Company. Management remains committed to controlling the level of
non-interest expense, through the continued use of expense control measures that
have been installed. The Company utilizes an extensive profit planning and
reporting system involving all affiliates. Based on a needs assessment of the
business plan for the upcoming year, monthly and annual profit plans are
developed, including manpower and capital expenditure budgets. These profit
plans are subject to extensive initial reviews and monitored by management on a
monthly basis. Variances from the plan are reviewed monthly and, when required,
management takes corrective action intended to ensure financial goals are met.
Management also regularly monitors staffing levels at each affiliate, to ensure
productivity and overhead are in line with existing workload requirements.
Non-interest expense for the three-month and six-month periods ended June
30, 2002, were $16.8 million and $33.9 million, virtually unchanged from the
same periods in 2001. The relatively flat non-interest expense is primarily
derived from the increase in salary and employee benefits offset by the decrease
in the amortization of intangibles. The salary and employee benefits increase is
associated with normal salary adjustments, increased cost of health insurance
and the addition of two new financial centers in Little Rock. The decrease in
the amortization of intangibles was due to the Company adopting the Financial
Accounting Standards Board SFAS No. 142, Goodwill and Other Intangible Assets
effective January 1, 2002. The new rule eliminated most of the Company's
amortization
Table 6 below shows non-interest expense for the three-month and six-month
periods ended June30, 2002 and 2001, respectively, as well as changes in 2002
from 2001.
Table 6: Non-Interest Expense
Three Months Six Months
Ended June 30 2002 Ended June 30 2002
-------------------- Change from --------------------- Change from
(In thousands) 2002 2001 2001 2002 2001 2001
- --------------------------------------------------------------------------------------------------------------------------
Salaries and employee benefits $ 9,840 $ 8,902 $ 938 10.54% $ 19,790 $ 17,905 $ 1,885 10.53%
Occupancy expense, net 1,155 1,094 61 5.58 2,281 2,260 21 0.93
Furniture and equipment expense 1,310 1,338 (28) -2.09 2,602 2,674 (72) -2.69
Loss on foreclosed assets 40 87 (47) -54.02 83 162 (79) -48.77
Other operating expenses
Professional services 438 399 39 9.77 918 822 96 11.68
Postage 475 541 (66) -12.20 979 1,051 (72) -6.85
Telephone 426 386 40 10.36 803 766 37 4.83
Credit card expenses 516 447 69 15.44 938 871 67 7.69
Operating supplies 311 406 (95) -23.40 709 809 (100) -12.36
FDIC insurance 76 77 (1) -1.30 154 153 1 0.65
Amortization of intangibles 27 728 (701) -96.29 55 1,513 (1,458) -96.36
Other expense 2,235 2,441 (206) -8.44 4,566 4,677 (111) -2.37
-------- --------- -------- --------- --------- --------
Total non-interest expense $ 16,849 $ 16,846 $ 3 0.02% $ 33,878 $ 33,663 $ 215 0.64%
======= ======== ======= ======== ======== =======
LOAN PORTFOLIO
- --------------
The Company's loan portfolio averaged $1.236 billion and $1.288 billion
during the first six months of 2002 and 2001, respectively. As of June 30, 2002,
total loans were $1.248 billion, compared to $1.259 billion on December 31,
2001. The most significant components of the loan portfolio were loans to
businesses (commercial loans and commercial real estate loans) and individuals
(consumer loans, credit card loans and single-family residential real estate
loans).
The Company seeks to manage its credit risk by diversifying its loan
portfolio, determining that borrowers have adequate sources of cash flow for
loan repayment without liquidation of collateral, obtaining and monitoring
collateral, providing an adequate allowance for loan losses and regularly
reviewing loans through the internal loan review process. The loan portfolio is
diversified by borrower, purpose and industry and, in the case of credit card
loans, which are unsecured, by geographic region. The Company seeks to use
diversification within the loan portfolio to reduce credit risk, thereby
minimizing the adverse impact on the portfolio, if weaknesses develop in either
the economy or a particular segment of borrowers. Collateral requirements are
based on credit assessments of borrowers and may be used to recover the debt in
case of default. The Company uses the allowance for loan losses as a method to
value the loan portfolio at its estimated collectible amount. Loans are
regularly reviewed to facilitate the identification and monitoring of
deteriorating credits.
Consumer loans consist of credit card loans, student loans and other
consumer loans. Consumer loans were $422.1 million at June 30, 2002, or 33.8% of
total loans, compared to $450.7 million, or 35.8% of total loans at December 31,
2001. The consumer loan decrease from December 31, 2001 to June 30, 2002, is the
result of the Company's lower credit card portfolio and indirect lending
activities, which was partially offset by an increase in student loans. The
credit card portfolio decrease was primarily the result of seasonality in the
Company's portfolio for that product combined with a decline in the number of
cardholder accounts. The decline in indirect consumer loans was the result of
zero percent car manufacturer incentives and a planned reduction by the Company
of that product based on the risk-reward relationship. The increase in student
loans was a result of greater demand for that product.
Real estate loans consist of construction loans, single-family residential
loans and commercial loans. Real estate loans were $568.9 million at June 30,
2002, or 45.6% of total loans, which is comparable to the $571.3 million, or
45.4% of total loans at December 31, 2001.
Commercial loans consist of commercial loans, agricultural loans and
financial institution loans. Commercial loans were $241.3 million at June 30,
2002, or 19.3% of total loans, compared to $220.3 million, or 17.5% of total
loans at December 31, 2001. The commercial loan increase from December 31, 2001
to June 30, 2002, is the result of seasonality in the Company's agricultural
loan portfolio.
The amounts of loans outstanding at the indicated dates are reflected in
Table 7, according to type of loan.
Table 7: Loan Portfolio
June 30, December 31,
(In thousands) 2002 2001
- ----------------------------------------------------------------------------------------------
Consumer
Credit cards $ 179,682 $ 196,710
Student loans 79,883 74,860
Other consumer 162,554 179,138
Real Estate
Construction 74,968 83,628
Single family residential 226,900 224,122
Other commercial 266,995 263,539
Commercial
Commercial 158,167 153,617
Agricultural 75,441 60,794
Financial institutions 7,692 5,861
Other 15,343 16,515
------------- -------------
Total loans $ 1,247,625 $ 1,258,784
============ ============
ASSET QUALITY
- -------------
A loan is considered impaired when it is probable that the Company will not
receive all amounts due according to the contracted terms of the loans. This
includes loans past due 90 days or more, nonaccrual loans and certain loans
identified by management.
Non-performing loans are comprised of (a) nonaccrual loans, (b) loans that
are contractually past due 90 days and (c) other loans for which terms have been
restructured to provide a reduction or deferral of interest or principal,
because of deterioration in the financial position of the borrower. The
subsidiary banks recognize income principally on the accrual basis of
accounting. When loans are classified as nonaccrual, the accrued interest is
charged off and no further interest is accrued. Loans, excluding credit card
loans, are placed on a nonaccrual basis either: (1) when there are serious
doubts regarding the collectability of principal or interest, or (2) when
payment of interest or principal is 90 days or more past due and either (i) not
fully secured or (ii) not in the process of collection. 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. Credit card
loans are classified as impaired when payment of interest or principal is 90
days past due. Litigation accounts are placed on nonaccrual until such time as
deemed uncollectible. Credit card loans are generally charged off when payment
of interest or principal exceeds 180 days past due, but are turned over to the
credit card recovery department, to be pursued until such time as they are
determined, on a case-by-case basis, to be uncollectible.
At June 30, 2002, impaired loans were $17.2 million compared to $21.0
million at December 31, 2001. The decrease in impaired loans from December 31,
2001, primarily relates to the $1.1 million decrease in non-performing loans and
a $2.7 million decrease of borrowers that are still performing, but for which
management has internally identified as impaired. Management has evaluated the
underlying collateral on these loans and has allocated specific reserves in
order to absorb potential losses if the collateral were ultimately foreclosed.
Table 8 presents information concerning non-performing assets, including
nonaccrual and other real estate owned.
Table 8: Non-performing Assets
June 30, December 31,
(In thousands) 2002 2001
- ---------------------------------------------------------------------------------------------
Nonaccrual loans $ 11,858 $ 11,956
Loans past due 90 days or more
(principal or interest payments) 1,944 2,991
------------- -------------
Total non-performing loans 13,802 14,947
------------- -------------
Other non-performing assets
Foreclosed assets held for sale 2,394 1,084
Other non-performing assets 484 631
------------- ------------
Total other non-performing assets 2,878 1,715
------------- ------------
Total non-performing assets $ 16,680 $ 16,662
============ ============
Allowance for loan losses to
non-performing loans 149.31% 137.12%
Non-performing loans to total loans 1.11% 1.19%
Non-performing assets to total assets 0.86% 0.83%
Approximately $455,000 and $557,000 of interest income would have been
recorded for the six-month periods ended June 30, 2002 and 2001, respectively,
if the nonaccrual loans had been accruing interest in accordance with their
original terms. There was no interest income on the nonaccrual loans recorded
for the six-month periods ended June 30, 2002 and 2001.
ALLOWANCE FOR LOAN LOSSES
- -------------------------
An analysis of the allowance for loan losses is shown in Table 9.
Table 9: Allowance for Loan Losses
(In thousands) 2002 2001
- -----------------------------------------------------------------------------------------------
Balance, beginning of year $ 20,496 $ 21,157
---------------- ---------------
Loans charged off
Credit card 2,321 2,157
Other consumer 1,190 1,198
Real estate 839 634
Commercial 1,543 633
---------------- ---------------
Total loans charged off 5,893 4,622
---------------- ---------------
Recoveries of loans previously charged off
Credit card 292 260
Other consumer 407 388
Real estate 172 107
Commercial 337 111
---------------- ---------------
Total recoveries 1,208 866
---------------- ---------------
Net loans charged off 4,685 3,756
Provision for loan losses 4,797 3,820
---------------- ---------------
Balance, June 30 $ 20,608 $ 21,221
=============== --------------
Loans charged off
Credit card 2,274
Other consumer 1,865
Real estate 744
Commercial 2,843
---------------
Total loans charged off 7,726
---------------
Recoveries of loans previously charged off
Credit card 255
Other consumer 280
Real estate 39
Commercial 289
---------------
Total recoveries 863
---------------
Net loans charged off 6,863
Provision for loan losses 6,138
---------------
Balance, end of year $ 20,496
==============
The amount of provision to the allowance during the six-month periods ended
June 30, 2002 and 2001, and for the year ended 2001, was based on management's
judgment, with consideration given to the composition of the portfolio,
historical loan loss experience, assessment of current economic conditions, past
due loans and net losses from loans charged off for the last five years. It is
management's practice to review the allowance on a monthly basis to determine
whether additional provisions should be made to the allowance after considering
the factors noted above.
DEPOSITS
- --------
Deposits are the Company's primary source of funding for earning assets.
The Company offers a variety of products designed to attract and retain
customers, with the primary focus on core deposits.
Total deposits as of June 30, 2002, were $1.617 billion, compared to $1.686
billion on December 31, 2001. The decrease in deposits from December 31, 2001 to
June 30, 2002, is primarily attributable to a decrease in certificates of
deposit. As of June 30, 2002, time deposits were $852.1 million, a decrease of
$69.2 million over the $921.3 million reported as of December 31, 2001. The
decrease in certificates of deposits was the result of a 2002 strategic decision
made by the Company, which allowed those deposits to decrease in the same
relationship as the decrease in earning assets.
CAPITAL
- -------
At June 30, 2002, total capital reached $188.9 million. Capital represents
shareholder ownership in the Company -- the book value of assets in excess of
liabilities. At June 30, 2002, the Company's equity to asset ratio was 9.7%
compared to 9.0% at year-end 2001.
The Federal Reserve Board's risk-based guidelines established a
risk-adjusted ratio, relating capital to different categories of assets and
off-balance sheet exposures, such as loan commitments and standby letters of
credit. These guidelines place a strong emphasis on tangible stockholders'
equity as the core element of the capital base, with appropriate recognition of
other components of capital. At June 30, 2002, the leverage ratio and the Tier 1
capital ratio was 9.0% and 13.6%, respectively, while the Company's total
risk-based capital ratio was 14.9%, all of which exceed the capital minimums
established in the risk-based capital requirements.
The Company's risk-based capital ratios at June 30, 2002 and December 31,
2001, are presented in Table 10.
Table 10: Risk-Based Capital
June 30, December 31,
(In thousands) 2002 2001
- ----------------------------------------------------------------------------------------------------------
Tier 1 capital
Stockholders' equity $ 188,923 $ 182,363
Trust preferred securities 17,250 17,250
Intangible assets (32,238) (32,186)
Unrealized (gain) loss on available-
for-sale securities (1,639) (1,479)
Other (863) (881)
-------------- --------------
Total Tier 1 capital 171,433 165,067
-------------- --------------
Tier 2 capital
Qualifying unrealized gain on
available-for-sale equity securities 392 370
Qualifying allowance for loan losses 15,806 16,209
-------------- --------------
Total Tier 2 capital 16,198 16,579
-------------- --------------
Total risk-based capital $ 187,631 $ 181,646
============= =============
Risk weighted assets $ 1,259,642 $ 1,292,798
============= =============
Assets for leverage ratio $ 1,908,788 $ 1,996,383
============= =============
Ratios at end of year
Leverage ratio 8.98% 8.27%
Tier 1 capital 13.61% 12.77%
Total risk-based capital 14.90% 14.05%
Minimum guidelines
Leverage ratio 4.00% 4.00%
Tier 1 capital 4.00% 4.00%
Total risk-based capital 8.00% 8.00%
FORWARD-LOOKING STATEMENTS
- --------------------------
Statements in this report that are not historical facts should be
considered forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. Forward-looking statements of this
type speak only as of the date of this report. By nature, forward-looking
statements involve inherent risk and uncertainties. Various factors, including,
but not limited to, economic conditions, credit quality, interest rates, loan
demand and changes in the assumptions used in making the forward-looking
statements, could cause actual results to differ materially from those
contemplated by the forward-looking statements. Additional information on
factors that might affect the Company's financial results is included in its
annual report for 2001 (Form 10-K) filed with the Securities and Exchange
Commission.
REVIEW BY INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
BKD, LLP
Certified Public Accountants
200 East Eleventh
Pine Bluff, Arkansas
Board of Directors
Simmons First National Corporation
Pine Bluff, Arkansas
We have reviewed the accompanying consolidated balance sheet of SIMMONS
FIRST NATIONAL CORPORATION as of June 30, 2002, and the related consolidated
statements of income for the three-month and six-month periods ended June 30,
2002 and 2001 and cash flows and changes in stockholders' equity for the
six-month periods ended June 30, 2002 and 2001. These financial statements are
the responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. 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 auditing standards generally accepted in the United States of
America, the objective of which is the expression of an opinion regarding the
financial statements taken as a whole. Accordingly, we do not express such an
opinion.
Based on our reviews, we are not aware of any material modifications that
should be made to the condensed consolidated financial statements referred to
above for them to be in conformity with accounting principles generally accepted
in the United States of America.
We have previously audited, in accordance with auditing standards generally
accepted in the United States of America, the consolidated balance sheet as of
December 31, 2001, 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 February 8, 2002, 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, 2001, is fairly stated, in all material respects, in relation to
the consolidated balance sheet from which it has been derived.
/s/ BKD, LLP
BKD, LLP
Pine Bluff, Arkansas
August 6, 2002
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 Company which were
issued to executive and senior management officers upon the exercise of rights
granted under (i) the Simmons First National Corporation Incentive and
Non-qualified Stock Option Plan (ii) the Simmons First National Corporation
Executive Stock Incentive Plan or (iii) the Simmons First National Corporation
Executive Stock Incentive Plan - 2001. 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. The Company received cash and/or exchanged shares of the Company's
Class A Common Stock as the consideration for the transactions.
Number
Identity(1) Date of Sale of Shares Price(2) Type of Transaction
- --------------------------------------------------------------------------------------------------------------------
2 Officers May, 2002 600 20.5000 Incentive Stock Option
2 Officers May, 2002 900 25.6667 Incentive Stock Option
1 Officer June, 2002 400 21.1250 Incentive Stock Option
- ------------
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 4. Submission of Matters to a Vote of Security Holders.
(a) The annual shareholders meeting of the Company was held on April 23,
2002. The matters submitted to the security holders for approval included
setting the number of directors at seven (7) and the election of directors.
(b) At the annual meeting, all seven (7) incumbent directors were
re-elected by proxies solicited pursuant to Section 14 of the Securities
Exchange Act of 1934, without any solicitation in opposition thereto.
The following table shows the required analysis of the voting by security
holders at the annual meeting of shareholders held on April 23, 2002:
Voting of Shares
Broker
Action For Against Abstain Non-Votes
- ----------------------------------------------------------------------------------------------------------
Set Number of 4,656,656 21,712 7,315 1,166,448
Directors
at seven (7)
Withhold Broker
Election of Directors: For Authority Non-Votes
- -------------------------------------------------------------------------------------------
William E. Clark 4,657,999 27,235 1,157,381
Lara F. Hutt, III 4,675,196 10,037 1,157,381
George A. Makris, Jr. 4,674,399 9,622 1,158,594
J. Thomas May 4,653,122 9,435 1,157,381
David R. Perdue 4,675,799 30,811 1,158,681
Harry L. Ryburn 4,675,343 9,890 1,157,381
Henry F. Trotter 4,673,929 10,666 1,158,019
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
Exhibit 99.1 - Certification Pursuant to 18 U.S.C. Sections 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 - J. Thomas May, Chairman, President and Chief
Executive Officer
Exhibit 99.2 - Certification Pursuant to 18 U.S.C. Sections 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 - Barry L. Crow, Chief Financial Officer
b) Reports on Form 8-K
The registrant filed Form 8-K on April 18, 2002. The report contained the
text of a press release issued by the registrant concerning the announcement of
second quarter earnings.
The registrant filed Form 8-K on June 2, 2002. The report contained the
text of a press release issued by the registrant concerning the declaration of a
quarterly cash dividend.
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: August 7, 2002 /s/ J. Thomas May
------------------ -----------------------------------------
J. Thomas May, Chairman,
President and Chief Executive Officer
Date: August 7, 2002 /s/ Barry L. Crow
------------------ -----------------------------------------
Barry L. Crow, Executive Vice President
and Chief Financial Officer
Form 10-Q Index to Exhibits
-----------------
Exhibit Description
- ------- -----------
Exhibit 99.1 Certification Pursuant to 18 U.S.C. Sections 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 - J. Thomas May, Chairman, President and Chief
Executive Officer
Exhibit 99.2 Certification Pursuant to 18 U.S.C. Sections 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 - Barry L. Crow, Chief Financial Officer
Exhibit 99.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Simmons First National
Corporation (the "Company"), on Form 10-Q for the period ending June 30, 2002 as
filed with the Securities and Exchange Commission on the date hereof (the
"Report"), and pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, J. Thomas May, Chairman,
President and Chief Executive Officer of the Company, hereby certifies that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
/s/ J. Thomas May
- -----------------
J. Thomas May
Chairman, President and
Chief Executive Officer
August 7, 2002
Exhibit 99.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TOSECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Simmons First National
Corporation (the "Company"), on Form 10-Q for the period ending June 30, 2002 as
filed with the Securities and Exchange Commission on the date hereof (the
"Report"), and pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, Barry L. Crow, Chief Financial
Officer of the Company, hereby certifies that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
/s/ Barry L. Crow
- -----------------
Barry L. Crow
Chief Financial Officer
August 7, 2002