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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the Exchange Act of
1934 (Fee Required) For the fiscal year ended: December 31, 1995
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (No Fee Required)
Commission file number 0-6253
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)
(501) 541-1000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
None None
Securities registered pursuant to Section 12(g) of the Act:
Class A Common Stock, $5.00 par value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge in definitive proxy or in information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of common stock, par value $5.00 per share, held
by non-affiliates on March 15, 1996, was approximately $108,243,000.
The number of shares outstanding of the Registrant's Common Stock as of
March 31, 1996 was 3,816,612.
Part III is incorporated by reference from the Registrant's Proxy Statement
relating to the Annual Meeting of Shareholders to be held on April 23, 1996.
FORM 10-K INDEX
Part I
Item 1 Business.............................................................
The Company and the Banks..........................................
Competition........................................................
Employees..........................................................
Executive Officers of the Company..................................
Supervision and Regulation.........................................
Item 2 Properties...........................................................
Item 3 Legal Proceedings....................................................
Item 4 Submission of Matters to a Vote of Security-Holders..................
Part II
Item 5 Market for Registrant's Common Equity and Related Stockholder Matters
Item 6 Selected Financial Data..............................................
Item 7 Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................
Item 8 Consolidated Financial Statements and Supplementary Data.............
Item 9 Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure...............................................
Part III
Item 10 Directors and Executive Officers of the Company......................
Item 11 Executive Compensation...............................................
Item 12 Security Ownership of Certain Beneficial Owners and Management.......
Item 13 Certain Relationships and Related Transactions.......................
Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K......
PART I
ITEM 1. BUSINESS.
The Company and the Banks
The Simmons First National Corporation (the "Company") is a bank holding
company registered under the Bank Holding Company Act of 1956. At December 31,
1995 the Company had consolidated total assets of $839.9 million, consolidated
net loans of $463.5 million and total equity capital of $96.8 million. The
Company owns five subsidiary banks in Arkansas. Its lead bank, Simmons First
National Bank (the "Bank"), is a national bank which has been in operation since
1903. The Bank's primary market area, with the exception of its
nationally-provided credit card and mortgage banking services, is the State of
Arkansas. The Company also owns four community banks, Simmons First Bank of
Jonesboro ("Simmons/Jonesboro"), and Simmons First Bank of Lake Village
("Simmons/Lake Village"), both acquired in 1984; Simmons First Bank of Dumas
("Simmons/Dumas") and Simmons First Bank of Dermott ("Simmons/Dermott"), both
acquired in 1995. The Company's banking subsidiaries conduct their operations
through 29 branches located in 15 communities in Arkansas.
Through its banking subsidiaries, the Company emphasizes retail banking
services, and it considers the Bank to be a national leader in providing credit
card services. The Bank has offered credit card services since 1967, and at
December 31, 1995, the Bank had approximately 169,000 active Visa and MasterCard
accounts in all 50 states, the District of Columbia and certain U.S.
territories, with outstanding balances totaling $154.81 million, or
approximately 33% of total consolidated loans. Approximately 60% of the Bank's
cardholders, representing approximately 65% of the aggregate outstanding
balances in the credit card portfolio, reside outside the State of Arkansas. The
Bank has consistently employed stringent, subjectively-based credit standards in
making credit decisions concerning card applicants, rather than using a credit
scoring, or statistical profile system typically employed by other credit card
issuers. Management believes this individualized approach to decision-making,
emphasizing credit histories and individual borrower profiles, has been a
significant positive factor in producing a high quality credit card loan
portfolio. At December 31, 1995, the Bank's credit card delinquency and net loss
ratios were 0.52% and 1.15%, respectively, compared to the national averages of
such ratios for all Visa card issuers of 3.87% and 4.26%, respectively. The
Bank's credit card delinquency and net loss ratios for 1995 are believed by
management to be among the lowest such ratios for all credit card providers in
the United States.
The Bank is a leading provider of guaranteed student loans in Arkansas. The
Bank originated approximately $23 million in student loans to over 6,500
borrowers during 1995. On December 31, 1995, the Bank owned and serviced
approximately 19,000 outstanding student loans totaling approximately $63
million, or approximately 13% of the Company's total consolidated loans.
The Company provides mortgage banking services through the Bank's
production, sale and servicing of residential real estate mortgages on
properties located primarily in the South, Midwest and Southwest United States.
At December 31, 1995, the Bank serviced, primarily for others, approximately
27,000 mortgages with an aggregate principal balance of approximately $1.2
billion.
The Company's banks also provide commercial banking services to individuals
and businesses, including a wide range of commercial and agricultural loans,
deposit, checking and savings accounts, personal and corporate trust services
and investment management, and securities and investment services through
selected banking locations in the State of Arkansas.
Growth Strategy
The Company's growth strategy is to expand in its primary market area of
the State of Arkansas, by capitalizing on its recent entry into Northwest
Arkansas, one of the fastest growing areas in the state, and emphasizing
commercial and agricultural lending in that area, and by expanding through
further banking acquisitions where the Company believes the acquired assets can
be redeployed into higher yielding credit card loans and other retail banking
services.
Competition
The activities engaged in by the Company and its subsidiaries are highly
competitive. In all aspects of its business, the Company encounters intense
competition from other banks, lending institutions, credit unions, savings and
loan associations, brokerage firms, mortgage companies, industrial loan
associations, finance companies, and several other financial and financial
service institutions. The amount of competition among commercial banks and other
financial institutions has increased significantly over the past few years since
the deregulation of the banking industry. The Company's subsidiary banks
actively compete with other banks and financial institutions in their efforts to
obtain deposits and make loans, in the scope and type of services offered, in
interest rates paid on time deposits and charged on loans and in other aspects
of commercial banking.
Management believes that the single most important competitive factor in
the credit card business is price, in the form of interest rates and membership
fees charged to cardholders, discount fees charged to participating merchants,
and the level of fees and credits shared with members of the agent bank network
for their participation in the Bank's network. Maintenance of the Bank's agent
bank network is a key element in maintaining the Bank's strong position in the
credit card business in Arkansas.
Management believes that the Bank's principal competitive strength in both
the Arkansas and national markets for new cardholder business has been its low
interest rate charged to cardholders which resulted in favorable national
recognition. Within the past few years, more Arkansas banks have commenced or
recommenced active marketing as a Visa and MasterCard issuer inside and outside
the state. Management cannot predict the effect on its credit card business of
these and other new entrants into the market, but believes the Bank's continuous
participation and experience in this market since 1967 provides it with unique
marketing and other strengths in competing for new cardholder business.
As more credit card issuers have entered the market for merchant customers
in Arkansas during the past three years, competition has intensified for
merchant customers and their related business, primarily on the basis of price
and quality of service. Independent sales organizations employed by out of state
processors constitute the majority of this increased competition. While the
Banks merchant purchase volume has shown a modest increase for the past three
years, management believes that most card issuers in the Arkansas market have
experienced declines in their merchant purchase volume and expects the Banks
merchant purchase volume will experience a period of flat or declined growth in
the future due to these continuing competitive conditions.
The Company's banking subsidiaries are also in competition with major
national and international retail banking establishments, brokerage firms and
other financial institutions within and outside Arkansas. Competition with these
financial institutions is expected to increase, especially with the passage of
legislation authorizing interstate banking.
Employees
As of March 15, 1996, the Company and its subsidiaries had 649 full time
equivalent employees. None of the employees are represented by any union or
similar groups, and the Company has not experienced any labor disputes or
strikes arising from any such organized labor groups. The Company considers its
relationship with its employees to be good.
Executive Officers of the Company
The following is a list of all executive officers of the Company.
NAME AGE POSITION YEARS SERVED
- ------------------------------------------------------------------------------------------------
W. E. Ayres 65 Chairman 39
J. Thomas May 49 President and Chief Executive Officer 9
Donald W. Stone 65 Chairman, Simmons First Bank of Jonesboro 37
Barry L. Crow 53 Executive Vice President and 24
Chief Financial Officer
John L. Rush 61 Secretary 28
SUPERVISION AND REGULATION
The Company
The Company, as a bank holding company, is subject to both federal and
state regulation. Under federal law, a bank holding company must generally
obtain approval from the Board of Governors of the Federal Reserve System
("FRB") before acquiring ownership or control of the assets or stock of a bank
or a bank holding company. Prior to approval of any proposed acquisition, the
FRB will review the effect on competition of the proposed acquisition, as well
as other regulatory issues.
The federal law generally prohibits a bank holding company from directly or
indirectly engaging in non-banking activities. This prohibition does not include
loan servicing, liquidating activities or other activities so closely related to
banking as to be a proper incident thereto.
As a bank holding company, the Company is required to file with the FRB an
annual report and such additional information as may be required by law. From
time to time, the FRB examines the financial condition of the Company and its
subsidiaries. The FRB, through civil and criminal sanctions, is authorized to
exercise enforcement powers over bank holding companies and non-banking
subsidiaries, to limit activities that represent unsafe or unsound practices or
constitute violations of law.
The Company is subject to certain laws and regulations of the State of
Arkansas applicable to bank holding companies, including examination and
supervision by the Arkansas Bank Commissioner. Under Arkansas law, a bank
holding company is prohibited from owning more than one subsidiary bank, if any
subsidiary bank owned by the holding company has been chartered for less than 5
years and, further, requires the approval of the Arkansas Bank Commissioner for
any acquisition of more than 10% of the capital stock of any other bank located
in Arkansas. No bank acquisition may be approved if, after such acquisition, the
holding company would control, directly or indirectly, banks having 25% of the
total bank deposits in the State of Arkansas, excluding deposits of other banks
and public funds.
Legislation enacted in 1994, became effective September 29, 1995, which now
allows bank holding companies from any state to acquire banks located in any
state without regard to state law, provided that the bank holding company (1) is
adequately capitalized, (2) is adequately managed, (3) would not control more
than 10% of the insured deposits in the United States or more than 30% of the
insured deposits in such state, and (4) such bank has been in existence at least
five years if so required by the applicable state law.
Subsidiary Banks
Simmons First National Bank, a national banking association, is subject to
regulation and supervision, of which regular bank examinations are a part, by
the Office of the Comptroller of the Currency of the United States ("OCC").
Simmons/Jonesboro, Simmons/Lake Village, Simmons/Dumas and Simmons/Dermott, as
state chartered banks, are subject to the supervision and regulation, of which
regular bank examinations are a part, by the Federal Deposit Insurance
Corporation ("FDIC") and the Arkansas State Bank Department. The lending powers
of each of the subsidiary banks are generally subject to certain restrictions,
including the amount which may be lent to a single borrower.
The subsidiary banks, with numerous exceptions, are subject to the
application of the laws of the State of Arkansas, including the limitation of
the maximum permissible interest rate on loans. This limitation for general
loans is 5% over the Federal Reserve Discount Rate, with an additional maximum
limitation of 17% per annum for consumer loans and credit sales. Certain loans
secured by first liens on residential real estate and certain loans controlled
by federal law (e.g., guaranteed student loans, SBA loans, etc.) are exempt from
this limitation; however, a very substantial portion of the loans made by the
subsidiary banks, including all credit card loans, are subject to this
limitation.
All of the Company's subsidiary banks are members of the FDIC, which
currently insures the deposits of each member bank to a maximum of $100,000 per
deposit relationship. For this protection, each bank pays a statutory assessment
to the FDIC each year.
Federal law substantially restricts transactions between banks and their
affiliates. As a result, the Company's subsidiary banks are limited in making
extensions of credit to the Company, investing in the stock or other securities
of the Company and engaging in other financial transactions with the Company.
Those transactions which are permitted must generally be undertaken on terms at
least as favorable to the bank, as those prevailing in comparable transactions
with independent third parties.
Potential Enforcement Action for Bank Holding Companies and Banks
Enforcement proceedings seeking civil or criminal sanctions may be
instituted against any bank, any director, officer, employee or agent of the
bank, that is believed by the federal banking agencies to be violating any
administrative pronouncement or engaged in unsafe and unsound practices. In
addition, the FDIC may terminate the insurance of accounts, upon determination
that the insured institution has engaged in certain wrongful conduct, or is in
an unsound condition to continue operations. Recent legislation has
significantly expanded the enforcement powers of the federal banking agencies
and increased the penalties for violations of the law and regulations.
Risk-Weighted Capital Requirements for the Company and the Banks
After December 31, 1992, banking organizations (including bank holding
companies and banks) were required to meet a minimum ratio of Total Capital to
Total Risk-Weighted Assets of 8%, of which at least 4% must be in the form of
Tier 1 Capital. A well capitalized institution is one that has at least a 10%
"total risk based capital" ratio. For a tabular summary of the Companys
risk-weighted capital ratios, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Capital."
A banking organization's qualifying total capital consists of two
components: Tier 1 Capital (core capital) and Tier 2 Capital (supplementary
capital). Tier 1 Capital is an amount equal to the sum of common shareholders'
equity, certain preferred stock and the minority interest in the equity accounts
of consolidated subsidiaries. For bank holding companies, goodwill and net
unrealized gains/losses on available-for-sale debt securities may not be
included in Tier 1 Capital. Identifiable intangible assets may be included in
Tier 1 Capital for banks and bank holding companies, in accordance with certain
further requirements. At least 50% of the banking organization's total
regulatory capital must consist of Tier 1 Capital.
Tier 2 Capital is an amount equal to the sum of the qualifying portion of
the allowance for loan losses, certain preferred stock not included in Tier 1,
hybrid capital instruments (instruments with characteristics of debt and
equity), certain long-term debt securities and eligible term subordinated debt,
in an amount up to 50% of Tier 1 Capital. The eligibility of these items for
inclusion as Tier 2 Capital is subject to certain additional requirements and
limitations of the federal banking agencies.
Under the risk-based capital guidelines, balance sheet assets and certain
off-balance sheet items, such as standby letters of credit, are assigned to one
of four risk weight categories (0%, 20%, 50%, or 100%), according to the nature
of the asset, its collateral or the identity of the obligor or guarantor. The
aggregate amount in each risk category is adjusted by the risk weight assigned
to that category, to determine weighted values, which are then added to
determine the total risk-weighted assets for the banking organization. For
example, an asset, such as a commercial loan, assigned to a 100% risk category,
is included in risk-weighted assets at its nominal face value, but a loan
secured by a one-to-four family residence is included at only 50% of its nominal
face value. The applicable ratios reflect capital, as so determined, divided by
risk-weighted assets, as so determined.
ITEM 2. PROPERTIES.
The principal property of the Company and the Bank consist of an
eleven-story office building, located in the central business district of the
city of Pine Bluff, Arkansas. Originally constructed in 1929, the entire
building has since been completely renovated and modernized. The building is
comprised of approximately 107,000 square feet of floor space, approximately
7,500 square feet of which is leased to a tenant as office space. The office
building is situated on approximately one-fourth of a city block, the remainder
of which, together with approximately one additional city block of adjacent
property, is presently being used as a parking complex for customers of the
Company and its subsidiaries, tenants of the Company and its subsidiaries and
their customers, and the public. Additional office space was made available in
1980, with the renovation of a storage facility to provide a 9,600 square foot
office complex, now housing the Company and its subsidiary real estate and
investment departments. In 1992, other office space was made available for the
Bank's activities, when the Bank purchased a three-story concrete office
building, containing approximately 38,000 square feet of space, across the
street from its main bank building in Pine Bluff, Arkansas. The Bank leased a
portion of the building prior to purchasing the building. In 1994, the Company
completed renovation of that building which is occupied by the credit card,
marketing, and human resources divisions. Also in 1994, another 6,000 square
feet of space was made available when the Company purchased a three-story brick
building adjoining the one purchased in 1992. This added 5,000 square feet of
storage in addition to the office space for a total of approximately 11,000
square feet. This facility houses the Company's student loan operation. The
Company and the Bank also operate seven drive-in banking facilities, located
throughout the city of Pine Bluff, and banking facilities at Watson Chapel,
White Hall, Sherrill, Fort Smith, Rogers, Springdale, Bella Vista, as well as
the newly acquired offices in Gould, Grady, Star City, and Little Rock,
Arkansas. The largest banking facility comprises approximately 4,400 square feet
of floor space, and the smallest comprises approximately 300 square feet.
The principal property of Simmons/Lake Village consist of a one-story
building located in the central business area of the city of Lake Village,
comprising approximately 6,000 square feet of floor space.
The principal property of Simmons/Jonesboro, owned by the Company,
consist of a three-story building, located in the central business district
of the city of Jonesboro, Arkansas, comprising approximately 47,000
square feet of floor space, 14,000 feet of which is available for lease. In
addition, Simmons/Jonesboro operates two drive-in banking facilities
located in that city.
The principal property of Simmons/Dumas is a one-story structure, located
on the corner of the busiest intersection of Dumas, Arkansas. The building,
built in 1973, has been recently remodeled and now has approximately 5,800
square feet of space.
The principal property of Simmons/Dermott is a one-story structure,
approximately 9,400 square feet in size, sitting on a one and one quarter acre
plot of land located in the central portion of Dermott, Arkansas. The building,
originally built in 1956, has been updated within the past five years. The bank
is presently leasing 3,800 square feet of the building to professional firms.
All of the above properties are owned in fee simple and unencumbered,
except (a) approximately one-fourth city block in Pine Bluff, which is leased
from various persons for terms expiring in 2007 with options to extend for an
additional 50 years, which leased parcels comprise a portion of the parking
complex and lie partially under a small portion of a one-floor extension of the
main office building, (b) the lands upon which five of the drive-in banking
facilities in Pine Bluff are situated, one of which parcel is leased for a term
expiring in 1997, two in 2000, one in 2010, and one in 2035, the lands on which
one of the Fort Smith and the Bella Vista facility, which are leased for terms
expiring in 1997 and 2000, respectively, the offices of the mortgage marketing
and dealer bank divisions, located in Little Rock, Arkansas, which comprise
approximately 20,000 square feet of a 36,000 square foot, three-story leased
building, the lease terms of which expire in 1996, and (c) the building and land
described in a preceding paragraph for the banking facility in Jonesboro, which
has a first mortgage lien to an insurance company with monthly payments of
approximately $12,000 including interest at 9.75%. In 1995, offices in Gould,
Grady and Star City, Arkansas, were purchased by the Bank as additional
branches.
The Company and its subsidiaries also own or lease various small parcels of
land, on some of which are located improvements, the aggregate of which would
comprise an insignificant portion of the properties of registrant and its
subsidiaries.
ITEM 3. LEGAL PROCEEDINGS
The Company and/or its subsidiary banks have various unrelated legal
proceedings, most of which involve loan foreclosure activity pending, which, in
the aggregate, are not expected to have a material adverse effect on the
financial position of the Company and its subsidiaries.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
No matters were submitted to a vote of security-holders, through the
solicitation of proxies or otherwise, during the fourth quarter of the fiscal
year covered by this report.
PART II
ITEM 5. PRICE RANGE OF COMMON STOCK AND DIVIDEND INFORMATION
The Common Stock is traded and quoted on the over-the-counter NASDAQ
National Market System under the symbol "SFNCA." The following table sets forth,
for all the periods indicated, cash dividends paid, and the high and low bid
prices for the Common Stock as reported by NASDAQ.
Quarterly
Price Per Dividends
Common Share Per Common
High Low Share
------------ ------------ ------------
1995
1st Quarter $ 26.25 $ 22.50 $ 0.13
2nd Quarter 28.00 25.25 0.15
3rd Quarter 28.25 27.00 0.15
4th Quarter 31.00 27.75 0.16
1994
1st Quarter $ 27.75 $ 22.50 $ 0.10
2nd Quarter 25.75 22.50 0.12
3rd Quarter 29.00 25.00 0.12
4th Quarter 28.50 22.00 0.13
At December 31, 1995, the Common Stock was held of record by approximately
1,243 stockholders. On March 15, 1996, the last sale price for the Common Stock
as reported by NASDAQ was $33.75 per share.
The Company's policy is to declare regular quarterly dividends based upon
the Company's earnings, financial position, capital requirements and such other
factors deemed relevant by the Board of Directors. This dividend policy is
subject to change, however, and the payment of dividends by the Company is
necessarily dependent upon the availability of earnings and the Company's
financial condition in the future. The payment of dividends on the Common Stock
is also subject to regulatory capital requirements.
The Company's principal source of funds for dividend payments to its
stockholders is dividends received from its subsidiary banks. Under applicable
banking laws, the declaration of dividends by the Bank in any year, in excess of
the sum of net income for that year and retained earnings for the preceding two
years, must be approved by the Office of the Comptroller of the Currency.
Further, as to Simmons/Jonesboro, Simmons/Lake Village, Simmons/Dumas, and
Simmons/Dermott, Arkansas bank regulators have specified that the maximum
dividends state banks may pay to the parent company without prior approval is
50% of the current year earnings. At December 31, 1995, approximately $16.0
million was available for the payment of dividends by the subsidiary banks
without regulatory approval. For further discussion of restrictions on the
payment of dividends, see "Management's Discussion and Analysis of Financial
Condition-Liquidity and Interest Rate Sensitivity," and Note 21 of Notes to
Consolidated Financial Statements.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated financial data
concerning the Company and is qualified in its entirety by the detailed
information and consolidated financial statements, including notes thereto,
included elsewhere in this annual report. The income statement, balance sheet
and per common share data as of and for the years ended December 31, 1995, 1994,
1993, 1992, and 1991 were derived from consolidated financial statements of the
Company, which were audited by Baird, Kurtz & Dobson. The selected consolidated
financial data set forth below should be read in conjunction with the financial
statements of the Company and related notes thereto and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" included
elsewhere in this annual report.
SELECTED CONSOLIDATED FINANCIAL DATA
Years ended December 31(1)
(In thousands, -------------------------------------------------------------------------
except per share data) 1995 1994 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------------
Income statement data:
Net interest income ................. $ 31,764 $ 29,259 $ 28,450 $ 26,525 $ 22,536
Provision for loan losses ........... 2,092 2,050 3,006 3,741 3,552
Net interest income after provision
for loan losses ................... 29,672 27,209 25,444 22,784 18,984
Non-interest income ................. 24,365 24,847 26,129 25,578 23,114
Non-interest expense ................ 39,820 38,415 38,711 37,978 34,869
Income tax expense .................. 4,198 3,781 3,466 2,907 1,929
Net income .......................... 10,019 9,860 9,396 7,477 5,300
Per share data:
Earnings ............................ 2.65 2.68 2.78 2.60 1.89
Book value .......................... 25.36 22.76 20.49 18.03 15.83
Dividends ........................... 0.59 0.47 0.40 0.40 0.37
Balance sheet data at period end:
Total assets ........................ 839,884 713,262 738,760 705,903 673,377
Total loans, net of unearned discount 471,956 418,392 394,426 367,655 331,062
Allowance for loan losses ........... 8,418 7,790 7,430 5,748 5,302
Total deposits ...................... 704,768 583,538 610,355 590,409 563,114
Long term debt and capital notes .... 4,757 12,144 12,178 12,208 12,236
Total stockholders' equity .......... 96,797 83,700 75,335 51,219 45,460
Capital ratios at period end:
Leverage (2) ........................ 10.91% 11.47% 10.21% 6.90% 6.24%
Tier 1 risk-based .................... 18.63% 19.25% 17.19% 12.27% 10.39%
Total risk-based ..................... 20.03% 21.56% 20.01% 15.76% 14.45%
Selected ratios:
Return on average assets ............ 1.30% 1.39% 1.33% 1.09% 0.84%
Return on average common equity ..... 10.95% 12.28% 14.31% 15.43% 12.50%
Net interest margin (3) ............. 4.77% 4.80% 4.75% 4.56% 4.19%
Allowance/nonperforming loans ....... 260.46% 248.73% 177.92% 94.84% 173.78%
Allowance for loan losses as a
percentage of average loans ....... 1.91% 1.99% 1.88% 1.60% 1.54%
Nonperforming loans as a percentage
of period-end loans ............... 0.68% 0.75% 1.06% 1.65% 0.92%
Net charge-offs as a percentage
of average total assets ........... 0.24% 0.24% 0.19% 0.48% 0.44%
Average stockholders' equity to
average total assets .............. 11.84% 11.31% 9.33% 7.09% 6.75%
Dividend payout ..................... 22.26% 17.54% 14.39% 15.38% 19.58%
- ----------------------
(1)The selected consolidated financial data set forth above should be read in
conjunction with the financial statements of the Company and related notes
and Management's Discussion and Analysis of Financial Condition and Results of
Operations, included elsewhere in this Annual Report
(2) Leverage ratio is Tier 1 capital to average total assets less intangible
assets and gross unrealized gains/losses on available-for-sale investment
securities.
(3) Fully taxable equivalent (36.25% for 1995 and 34% for 1994 through 1991)
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Overview
Simmons First National Corporation (SFNC) is a multi-bank holding company,
comprised of five commercial bank subsidiaries, with $839.9 million in assets,
as of December 31, 1995.
The Company achieved record earnings performance in 1995. For the year
ended December 31, 1995, net income totaled $10.0 million, a $.1 million, or
1.6%, increase over 1994 net income of $9.9 million. Return on average assets
was 1.30% in 1995, compared to 1.39% in 1994, and 1.33% in 1993. Return on
average equity was 10.95% in 1995, compared to 12.28% in 1994, and 14.31% in
1993. On a per share basis, net income for 1995 was $2.65, compared to $2.68 in
1994 and $2.78 in 1993. Dividends per share for 1995 were $.59 compared to $.47
in 1994 and $.40 in 1993.
Stockholders' equity at December 31, 1995, was $96.8 million, an
increase of 15.6% over the 1994 amount. The Company issued 805,000 shares of
common stock during the second quarter of 1993. Earnings per share presented in
the financial statements have been computed to reflect the effects of the
additional shares of stock. In addition, 2,000 shares of stock were issued in
the second quarter of 1995, relative to exercised stock options.
Acquisitions
On April 1, 1995, the Company completed the acquisition of Dumas
Bancshares, Inc. (DBI) by issuing 137,234 shares of common stock and utilizing
cash of $1.5 million in a transaction valued at $5 million. DBI was merged into
the Company. DBI owned Dumas State Bank, Dumas, Arkansas, and First State Bank,
Gould, Arkansas, with consolidated assets at March 31, 1995, of approximately
$42 million. First State Bank, which had branches in Grady and Star City,
Arkansas, in addition to its primary location in Gould, Arkansas, was merged
into Simmons First National Bank, SFNC's lead bank, and Dumas State Bank became
Simmons First Bank of Dumas and has continued to operate as a subsidiary bank of
the Company.
On August 1, 1995, the Company completed the acquisition of Dermott
State Bank Bancshares, Inc. (DSBB), located in Dermott, Arkansas, in a cash
transaction valued at approximately $2.4 million. DSBB, the single-bank holding
company for Dermott State Bank, had at the time of acquisition approximately $20
million in consolidated assets. Dermott State Bank became Simmons First Bank of
Dermott and has continued to operate as a subsidiary bank of the Company. DSBB
was liquidated into the Company.
Income Statement Review For the Years 1995, 1994 and 1993
In 1995, the Company reported net earnings of $10.0 million, and
earnings per share of $2.65. This compares to net earnings of $9.9 million, and
earnings per share of $2.68, reported in 1994. The increase in earnings in 1995
was predominantly the result of an increase in average earning assets of $60.0
million.
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 income to a fully taxable equivalent basis consists of
dividing tax exempt income by one minus the combined federal and state income
tax rate (36.25% for 1995 and 34% for 1994 and 1993).
For the year ended December 31, 1995, net interest income on a fully
taxable equivalent basis was $33.3 million, an increase of approximately $2.7
million, or 8.8%, from 1994 net interest income. The increase in 1995 in net
interest income resulted primarily from a $60.0 million increase in average
earning assets, coupled with a continuing stable net interest margin. For the
year ended December 31, 1994, net interest income on a fully taxable equivalent
basis increased approximately $.7 million, or 2.5%, from comparable figures in
1993. This increase in 1994 in net interest income resulted primarily from a
$9.9 million increase in average earning assets, coupled with an increase in net
interest margin. The tables below reflect an analysis of net interest income on
a fully taxable equivalent basis for the years ended December 31, 1995, 1994 and
1993, respectively, as well as changes in fully taxable equivalent net interest
income for the years 1995 vs. 1994 and 1994 vs. 1993.
Analysis of Net Interest Income
(FTE = Fully Taxable Equivalent)
Years Ended December 31
----------------------------------
(In thousands) 1995 1994 1993
- --------------------------------------------------------------------------------
Interest income ............................ $56,229 $45,727 $44,394
FTE adjustment ............................. 1,551 1,373 1,434
------- ------- -------
Interest income - FTE ...................... 57,780 47,100 45,828
Interest expense ........................... 24,465 16,468 15,944
------- ------- -------
Net interest income - FTE .................. $33,315 $30,632 $29,884
======= ======= =======
Yield on earning assets - FTE .............. 8.27% 7.38% 7.29%
Cost of interest-bearing liabilities ....... 4.28% 3.20% 3.11%
Net interest spread - FTE .................. 3.99% 4.18% 4.18%
Net interest margin - FTE .................. 4.77% 4.80% 4.75%
Changes in Fully Taxable Equivalent Net Interest Income
(In thousands) 1995 vs. 1994 1994 vs. 1993
- -----------------------------------------------------------------------------------
Increase due to change in
earning assets ................................. $ 4,718 $ 1,407
Increase (decrease) due to change in
earning asset yields ........................... 5,962 (135)
Increase due to change in interest
rates paid on interest-bearing
liabilities .................................... (7,569) (1,040)
Increase (decrease) due to change in
interest-bearing liabilities ................... (428) 516
------- -------
Increase in net interest income .................. $ 2,683 $ 748
======= =======
The following table 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
each of the years in the three-year period ending December 31, 1995. 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. Nonaccrual loans were included in average loans for
the purpose of calculating the rate earned on total loans.
UnderFinancial Accounting Standard Board Statement No. 91 (FAS 91), loan
fees and related costs are deferred and amortized as part of interest income.
Average Consolidated Balance Sheets and Net Interest Analysis
(Fully Taxable Equivalent Basis)
Years Ended December 31
---------------------------------------------------------------------------------------------
1995 1994 1993
------------------------------ ---------------------------- ------------------------------
Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
(In thousands) Balance Expense rate Balance Expense rate Balance Expense rate
- ------------------------------------------------------------------------------------------------------------------------
ASSETS
Earning assets
Interest-bearing
balances due from
banks ................ $ 2,069 $ 120 5.82% $ 1,408 $ 55 3.88% $ 856 $ 27 3.15%
Federal funds sold ...... 33,571 1,858 5.54% 27,812 1,218 4.38% 23,345 738 3.16%
Investment securities -
taxable:
Held-to-maturity ...... 105,366 6,949 6.60% 91,858 5,696 6.20% 161,281 10,234 6.32%
Available-for-sale .... 45,505 3,131 6.88% 46,601 2,803 6.02%
Investment securities -
non-taxable:
Held-to-maturity ...... 54,057 4,375 8.09% 50,605 4,027 7.96% 45,681 3,945 8.64%
Available-for-sale ...... 107 3 2.75% -- -- -- --
Mortgage loans held for
sale, net of unrealized
gains (losses) ........ 16,383 1,250 7.63% 27,957 2,081 7.44% 31,634 2,236 7.07%
Assets held in trading
accounts .............. 1,513 88 5.83% 1,687 103 6.11% 2,350 166 7.06%
Loans - non-taxable ..... 2,159 244 11.28% 2,174 242 11.12% 2,483 273 10.98%
Loans - taxable ......... 437,950 39,762 9.08% 388,327 30,875 7.95% 360,922 28,209 7.82%
-------- -------- -------- -------- -------- --------
Total interest
earning assets .... 698,680 $ 57,780 8.27% 638,429 $ 47,100 7.38% 628,552 $ 45,828 7.29%
======== ======== ========
Non-earning assets ...... 74,023 71,377 75,592
-------- -------- --------
Total assets ....... $772,703 $709,806 $704,144
======== ======== ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Liabilities
Interest bearing
liabilities
Interest bearing
transaction and
savings accounts ... $235,411 $ 6,167 2.62% $232,351 $ 5,248 2.26% $200,122 $ 5,232 2.61%
Time deposits ......... 300,530 16,097 5.36% 241,786 9,223 3.81% 268,739 9,019 3.36%
-------- -------- -------- -------- -------- --------
Total interest-
bearing deposits .. 535,941 22,264 4.15% 474,137 14,471 3.05% 468,861 14,251 3.04%
Federal funds purchased
and securities sold
under agreements to
repurchase ............ 24,862 1,308 5.26% 24,021 962 4.00% 28,517 841 2.95%
Other borrowed funds
Short-term debt ....... 1,511 92 6.06% 4,001 163 4.07% 2,764 79 2.86%
Long term debt ........ 1,124 110 9.78% 1,161 122 10.49% 1,192 113 9.48%
Capital notes ........... 7,853 691 8.80% 11,000 750 6.82% 11,000 660 6.00%
-------- -------- -------- -------- -------- --------
Total interest-bearing
liabilities ....... 571,291 24,465 4.28% 514,320 16,468 3.20% 512,334 15,944 3.11%
-------- -------- --------
Non-interest bearing
liabilities
Non-interest bearing
deposits ............. 99,839 105,856 116,744
Other liabilities ....... 10,067 9,323 9,383
-------- -------- --------
Total liabilities .. 681,197 629,499 638,461
-------- -------- --------
Stockholders' equity .... 91,506 80,307 65,683
-------- -------- --------
Total liabilities and
stockholders' equity $772,703 $709,806 $704,144
======== ======== ========
Net interest margin ..... $ 33,315 4.77% $ 30,632 4.80% $ 29,884 4.75%
======== ======== ========
The following table shows changes in interest income and interest expense,
resulting from changes in volume and changes in interest rates for each of the
years ended December 31, 1995 and 1994, as compared to prior years. 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.
Volume/Rate Analysis
Years Ended December 31
1995 over 1994 1994 over 1993
----------------------------------- ----------------------------------
Yield/ Yield/
(In thousands) Volume rate Total Volume rate Total
- --------------------------------------------------------------------------------------------------------------
Increase (decrease) in
Interest income
Interest-earning time deposits .... $ 31 $ 34 $ 65 $ 21 $ 7 $ 28
Federal funds sold ................ 281 359 640 159 321 480
Investment securities - taxable
Held-to-maturity ................ 875 378 1,253 (4,305) (233) (4,538)
Available-for-sale .............. (64) 392 328 3,406 (603) 2,803
Investment securities - non-taxable
Held-to-maturity ................ 278 70 348 303 (221) 82
Available-for-sale .............. 3 -- 3 -- -- --
Mortgage loans held for delivery
against commitments ............ (884) 53 (831) (282) 127 (155)
Trading account securities ........ (10) (5) (15) (43) (20) (63)
Loans - non-taxable ............... (2) 4 2 (35) 4 (31)
Loans, net of unearned discount ... 4,210 4,677 8,887 2,183 483 2,666
-------- -------- -------- -------- -------- --------
Total ............................. 4,718 5,962 10,680 1,407 (135) 1,272
-------- -------- -------- -------- -------- --------
Interest expense
Interest-bearing transaction &
savings accounts ................ 70 849 919 101 (85) 16
Time deposits ..................... 2,595 4,279 6,874 (561) 765 204
Federal funds purchased
and securities sold under
agreements to repurchase ........ 34 312 346 (96) 217 121
Other borrowed funds
Short-term debt ................. (337) 266 (71) 43 41 84
Long-term debt .................. (4) 1 (3) (3) 12 9
Capital notes ................... (1,930) 1,862 (68) -- 90 90
-------- -------- -------- -------- -------- --------
Total ........................... 428 7,569 7,997 (516) 1,040 524
-------- -------- -------- -------- -------- --------
Increase (decrease) in
net interest income ................ $ 4,290 $ (1,607) $ 2,683 $ 1,923 $ (1,175) $ 748
======== ======== ======== ======== ======== ========
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 1995 was $2.1 million , which was a slight increase, when compared
to the provision in 1994, reflecting a continuing improvement in asset quality.
The provision for 1995 and 1994 resulted in an increase in the coverage ratio
(90 day past-due and nonaccrual loans) for nonperforming loans to approximately
260% and 249% at December 31, 1995 and 1994, respectively, compared to 178% at
December 31, 1993. The provision for 1994 was $2.1 million, a decrease of $1.0
million, or 31.8%, from 1993. Nonperforming loans increased slightly to a level
of $3.2 million at December 31, 1995, compared to $3.1 million at December 31,
1994.
Non-Interest Income
Total non-interest income was $24.4 million in 1995, compared to
$24.8 million in 1994 and $26.1 million in 1993. Non-interest income is
principally derived from three sources: fee income, which includes service
charges on deposit accounts, trust fees, credit card fees, and loan servicing
fees; income on the sale of mortgage loans and dealer bank profits; and any gain
or loss on sold or called securities.
The table below shows non-interest income for the years ended December 31,
1995, 1994 and 1993, respectively, as well as changes in 1995 from 1994 and in
1994 from 1993.
Non-Interest Income
Years Ended December 31 1995 1994
--------------------------------- Change from Change from
(In thousands) 1995 1994 1993 1994 1993
- ----------------------------------------------------------------------------------------------------------------
Trust department income ........... $ 1,790 $ 1,763 $ 1,807 $ 27 1.53% $ (44) -2.43%
Service charges on deposit accounts 2,768 2,263 2,296 505 22.32% (33) -1.44%
Other service charges and fees .... 825 853 879 (28) 3.28% (26) -2.96%
Income on sale of mortgage loans,
net of commissions .............. 325 (758) 1,618 1,083 142.88% (2,376) -146.85%
Income on investment banking,
net of commissions .............. 1,017 1,247 767 (230) 18.44% 480 62.58%
Credit card fees .................. 10,114 10,636 10,867 (522) 4.91% (231) -2.13%
Loan service fees ................. 6,092 6,817 7,322 (725) 10.64% (505) -6.90%
Other income ...................... 1,400 1,896 433 (496) 26.16% 1,463 337.88%
Net realized gains on sold or
called securities ............... 34 130 140 (96) 73.85% (10) -7.14%
-------- -------- --------- -------- --------
Total non-interest income .... $ 24,365 $ 24,847 $ 26,129 $ (482) 1.94% $ (1,282) -4.91%
======== ======== ========= ======== ========
Fee income for 1995 was $21.6 million, a decrease of $.7 million, or
3.3%, when compared with 1994 figures. Fee income for 1994 was $22.3 million, a
decrease of $.8 million, or 3.6%, when compared with 1993 figures. The decrease
in fee income for 1995 and 1994 is primarily due to a decrease in the volume of
credit card fees, resulting from the increase in national competition. In 1995,
credit card fees decreased $.5 million from the 1994 level. Loan service fees
decreased $.7 million in 1995 and $.5 million in 1994, primarily due to a lower
volume of mortgage loans and an increase in mortgage servicing amortization
expense.
On the consolidated statements of income, income from the sale of
mortgage loans and dealer bank profits is presented net of commissions. The
income recorded in these accounts results from the Company's dealer bank
operation, as well as fee income associated with the purchase of single family
residential loans, the securitization of those loans, and subsequent sale and
delivery of those securities against prior commitments. For 1995, income from
these areas totaled $1.3 million, compared to $.5 million in 1994 and $2.4
million in 1993. The reduction in 1994, as compared to 1993, is primarily
attributable to a mortgage marketing loss of $1.0 million and reduced profits in
the dealer bank operation. The resulting reduced level of operating income for
these two operations for 1994 can be directly attributed to the negative impact
of rising interest rates on the nation's mortgage and securities markets. The
overall reduction in mortgage income for 1994 was partially offset by a third
quarter sale of a portion of the Bank's servicing rights, which resulted in
other income of $.7 million.
During 1995, the Company adopted Statement of Financial Accounting
Standards Board No. 122 (FAS 122), "Accounting for Mortgage Servicing Rights".
FAS 122 requires that mortgage servicing rights retained for originated mortgage
loans that are sold or securitized be capitalized based on the cost of those
servicing rights. The adoption of FAS 122 did not have a material affect on the
Company's financial position or the results of its operation.
Non-Interest Expense
Non-interest expense consists of salaries and employee benefits,
occupancy, equipment 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 over the past seven years. The Company utilizes an extensive profit
planning and reporting system involving all affiliates and their respective
functional responsibility centers. Affiliate banks and associated responsibility
centers develop detailed monthly and annual profit plans, including manpower and
capital expenditure budgets, based on a needs assessment of the business plan
for the upcoming year. These profit plans are subject to extensive initial
reviews and monitored by the Company and bank management on a monthly basis.
Variances from the plan are reviewed in detail monthly and, when required,
management takes corrective action intended to ensure financial goals are met.
Company 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 1995 was $39.8 million, an increase of $1.4
million, or 3.7%, from 1994. Non-interest expense for 1994 was $38.4 million, a
decrease of $.3 million, or .8%, from 1993. The increase in non-interest expense
in 1995, compared to 1994, primarily reflects the effect of the two acquisitions
completed in 1995.
The table below shows non-interest expense for the years ended December
31, 1995, 1994 and 1993, respectively, as well as changes from 1995 to 1994 and
1994 to 1993, respectively.
Non-Interest Expens
Years Ended December 31 1995 1994
---------------------------- Change from Change from
(In thousands 1995 1994 1993 1994 1993
- ------------------------------------------------------------------------------------------------------
Salaries and employee benefits $21,192 $20,104 $19,609 $ 1,088 5.41% $ 495 2.52%
Occupancy expense, net ....... 2,512 2,043 1,937 469 22.96% 106 5.47%
Furniture & equipment expense 2,167 1,964 1,969 203 10.34% (5) -0.25%
Loss on foreclosed assets .... 1,401 1,641 2,336 (240) -14.63% (695) -29.75%
Other operating expense
Professional services ...... 1,400 1,634 1,530 (234) -14.32% 104 6.80%
Postage .................... 1,319 1,234 1,267 85 6.89% (33) -2.60%
Telephone .................. 841 771 783 70 9.08% (12) -1.53%
Credit card expense ........ 1,445 1,458 1,163 (13) -0.89% 295 25.37%
Operating supplies ......... 846 695 954 151 21.73% (259) -27.15%
FDIC insurance ............. 830 1,307 1,293 (477) -36.50% 14 1.08%
Miscellaneous expenses ..... 5,867 5,564 5,870 303 5.45% (306) -5.21%
------- ------- ------- ------- -------
Total non-interest expense $39,820 $38,415 $38,711 $ 1,405 3.66% $ (296) -0.76%
======= ======= ======= ======= =======
Income Taxes
The provision for income taxes for 1995 was $4.2 million, compared to
$3.8 million in 1994 and $3.5 million in 1993. The effective income tax rates
for the years ended 1995, 1994 and 1993 were 29.5%, 27.8% and 27.0%,
respectively.
Balance Sheet Review For the Years 1995 and 1994
Loan Portfolio
The Company's loan portfolio averaged $440.1 million during 1995 and
$391.2 million during 1994. As of December 31, 1995, total loans were $472.0
million, compared to $418.4 million on December 31, 1994. The most significant
components of the loan portfolio were loans to individuals, in the form of
credit card loans, student loans, and single family residential real estate
loans. The figures for 1995 include $28.4 million in loans as a result of the
Company's two acquisitions.
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, 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 $275.5 million at December 31, 1995, or
58.4% of total loans, compared to $268.1 million, or 64.1% of total loans at
December 31, 1994. At year end, 1995, credit card loans were $154.8 million, or
32.8% of total loans, versus $164.5 million, or 39.3% of total loans at December
31, 1994. The decrease relates, in part, to increased competition from national
credit card companies offering short-term incentive rates to new customers.
At the end of 1995, commercial, agricultural and financial institution
loans were $66.2 million, or 14.0% of total loans, a 27.8% increase from 1994
year end's $51.8 million. Real estate construction and land development loans at
December 31, 1995, were $15.2 million, or 3.2% of total loans, compared to $6.2
million, or 1.5% of total loans at the end of 1994. Single family real estate
loans at December 31, 1995, were $54.3 million, or 11.5% of total loans,
compared to $43.6 million, or 10.4% of total loans at December 31, 1994.
During 1995, the Company adopted Financial Accounting Standards Board
Statement No. 114, (FAS 114), "Accounting by Creditors for Impairment of a
Loan", which requires that impaired loans be measured, based on the present
value of expected cash flows discounted at the loan's effective interest rate
or, as a practical expedient, at the loan's observable market price or the fair
value of the collateral, if the loan is collateral dependent. The adoption of
FAS 114 did not have a material impact on financial results.
The amount of loans outstanding at the indicated dates are reflected in
the following table, according to type of loan.
Loan Portfolio
Years Ended December 31
--------------------------------------------------------------
(In thousands) 1995 1994 1993 1992 1991
- --------------------------------------------------------------------------------------------
Consumer
Credit card ............. $ 154,808 $ 164,501 $ 168,673 $ 162,251 $ 123,593
Student loan ............ 63,492 62,836 65,379 58,727 54,957
Other consumer .......... 57,166 40,739 36,763 31,878 32,706
Real estate
Construction ............ 15,177 6,232 6,281 4,708 2,784
Single family residential 54,341 43,629 36,651 42,177 50,866
Other commercial ........ 59,012 44,141 37,853 27,991 24,509
Commercial
Commercial .............. 36,553 29,047 20,007 20,833 21,787
Agricultural ............ 20,588 16,048 16,088 12,917 13,282
Financial institutions .. 9,058 6,681 3,087 3,142 3,155
Other ..................... 2,546 5,122 3,998 3,475 3,931
--------- --------- --------- --------- ---------
Total loans ............... 472,741 418,976 394,780 368,099 331,570
Unearned discount ......... (785) (584) (354) (444) (508)
--------- --------- --------- --------- ---------
Total loans, net of
unearned discount ... $ 471,956 $ 418,392 $ 394,426 $ 367,655 $ 331,062
========= ========= ========= ========= =========
The following table reflects the remaining maturities of loans at
December 31, 1995.
Loan Maturities
Over 1
year
1 year through Over
(In thousands) or less 5 years 5 years Total
- ------------------------------------------------------------------------------------
Commercial, financial and agricultural $ 46,837 $ 18,692 $ 670 $ 66,199
Real estate - construction ........... 9,359 1,775 4,043 15,177
Other ................................ 272,617 93,158 24,805 390,580
-------- -------- -------- --------
Total ........................... $328,813 $113,625 $ 29,518 $471,956
======== ======== ======== ========
The following table reflects maturities for the above loans, segregated
by interest rate type.
Loan Repricing
Over 1
year
1 year through Over
(In thousands) or less 5 years 5 years Total
- ----------------------------------------------------------------
Predetermined rate $ 76,679 $112,997 $ 29,491 $219,167
Floating rate .... 252,134 628 27 252,789
-------- -------- -------- --------
Total ....... $328,813 $113,625 $ 29,518 $471,956
======== ======== ======== ========
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 nonaccrual loans and certain loans identified by management.
Nonperforming loans are comprised of (a) nonaccrual loans, (b) loans
which 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 a 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 collectibility 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 sub-standard 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 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.
The following tables present information concerning nonperforming
assets, including nonaccrual and restructured loans and other real estate owned.
Nonperforming Assets
Years Ended December 31
------------------------------------------------------
(In thousands) 1995 1994 1993 1992 1991
- ------------------------------------------------------------------------------------------------
Nonaccrual loans ....................... $ 1,638 $ 2,052 $ 2,813 $ 4,374 $ 1,260
Loans past due 90 days or more
(principal or interest payments) ...... 1,594 965 1,019 1,337 1,791
Restructured ........................... -- 115 344 350 --
------- ------- ------- ------- -------
Total nonperforming loans(1) ......... 3,232 3,132 4,176 6,061 3,051
------- ------- ------- ------- -------
Other nonperforming assets
Foreclosed assets held for sale (2) .. 1,017 1,726 2,877 4,059 5,139
Other nonperforming assets ........... 7 780 992 212 --
------- ------- ------- ------- -------
Total other
nonperforming assets ............. 1,024 2,506 3,869 4,271 5,139
------- ------- ------- ------- -------
Total nonperforming assets ........... $ 4,256 $ 5,638 $ 8,045 $10,332 $ 8,190
======= ======= ======= ======= =======
Net charge-offs to average loans ....... 0.41% 0.43% 0.36% 0.91% 0.80%
Allowance for loan losses to total loans 1.78% 1.86% 1.88% 1.56% 1.60%
Allowance for loan losses
to nonperforming loans ............... 260.46% 248.73% 177.92% 94.84% 173.78%
Nonperforming loans to total loans ..... 0.68% 0.75% 1.06% 1.65% 0.92%
Nonperforming assets to total assets ... 0.51% 0.79% 1.09% 1.46% 1.22%
(1) Impaired loans of $4,564 includes all nonperforming loans and certain other
loans identified by management.
(2) Assets constituting foreclosed assets held for sale are generally marked
down to appraised value less estimated selling expense at the time of transfer
from the loan portfolio, and are appraised annually thereafter.
Approximately $172,000 and $269,000 of interest income would have been
recorded for the periods ended December 31, 1995 and 1994, 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
period ended December 31, 1995.
Allowance for Loan Losses
An analysis of the allowance for loan losses for the last five years is
shown in the table below:
Years Ended December 31
----------------------------------------------
(In thousands) 1995 1994 1993 1992 1991
- --------------------------------------------------------------------------------------------------
Balance, beginning of period ..................... $7,790 $7,430 $5,748 $5,302 $4,507
------ ------ ------ ------ ------
Loans charged off
Consumer
Credit cards ................................. 1,851 1,690 1,761 1,944 1,681
Student loans ................................ 9 2 2 11 23
Other consumer ............................... 414 152 171 127 159
------ ------ ------ ------ ------
Total consumer ............................. 2,274 1,844 1,934 2,082 1,863
------ ------ ------ ------ ------
Real estate
Construction ................................. -- -- 40 5 289
Single family residential .................... 7 213 31 44 57
Other commercial ............................. 1 -- 6 168 628
------ ------ ------ ------ ------
Total real estate .......................... 8 213 77 217 974
------ ------ ------ ------ ------
Commercial
Commercial ................................... 22 -- 40 1,297 88
Agricultural ................................. -- 53 -- 74 159
------ ------ ------ ------ ------
Total commercial ........................... 22 53 40 1,371 247
------ ------ ------ ------ ------
Total loans charged off .................... 2,304 2,110 2,051 3,670 3,084
------ ------ ------ ------ ------
Recoveries of loans previously charged off
Consumer
Credit cards ................................. 143 306 211 196 173
Student loans ................................ -- 2 1 18 8
Other consumer ............................... 284 70 77 44 64
------ ------ ------ ------ ------
Total consumer ............................. 427 378 289 258 245
------ ------ ------ ------ ------
Real estate
Single family residential .................... 6 7 5 24 13
Other commercial ............................. 4 16 3 81 48
------ ------ ------ ------ ------
Total real estate .......................... 10 23 8 105 61
------ ------ ------ ------ ------
Commercial
Commercial ................................... 33 18 345 12 17
Agricultural ................................. 9 1 85 -- 4
------ ------ ------ ------ ------
Total commercial ........................... 42 19 430 12 21
------ ------ ------ ------ ------
Total recoveries ........................... 479 420 727 375 327
------ ------ ------ ------ ------
Net loans charged off ............................ 1,825 1,690 1,324 3,295 2,757
Allowance for loan losses of acquired institutions 361 -- -- -- --
Additions to reserve charged
to operating expense ............................ 2,092 2,050 3,006 3,741 3,552
------ ------ ------ ------ ------
Balance, end of period ........................... $8,418 $7,790 $7,430 $5,748 $5,302
====== ====== ====== ====== ======
The amounts of additions to the allowance during the year 1995 were
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, loans which could be future problems and net losses
from loan charge-offs 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.
The Bank's senior loan committee, comprised of outside directors, has
oversight responsibility for approving commercial and individual loans in excess
of $100,000 unsecured, and $200,000 secured, and monitoring loan delinquencies,
the status of non-performing assets and the evaluation of allowance for loan
losses. In addition, the committee ratifies and/or approves loans made by other
banking subsidiaries in excess of 13.5% of any such bank's equity capital. The
Bank's agricultural committee, composed of outside directors whose occupations
are closely tied to the farming industry, have oversight responsibility for the
agricultural loan portfolio. The responsibilities and approval authorities of
this committee are the same as the senior loan committee, as they pertain to
agricultural loans.
The Company's special services group is responsible for serving all
subsidiaries of the Company in the audit, loan review, and compliance areas. In
the area of loan review, periodic audits of each subsidiary are scheduled for
the purpose of evaluating asset quality, adequacy of loans, and effectiveness of
loan administration. The special services group prepares loan review reports,
which identify deficiencies, establish recommendations for improvement, and
outline management's proposed action plan for curing the deficiencies. This
report is provided to a corporate audit committee, which includes outside
members of the Company's Board of Directors and selected senior affiliate
directors. The audit committee monitors the reported items until the exceptions
are cleared.
Based on the above quoted procedures, management is of the opinion that
the allowance at December 31, 1995, of $8.4 million is adequate. While
management believes the current allowance is adequate, changing economic
conditions and other conditions may require future additions to the allowance.
Moreover, the allowance is subject to regulatory examination and determination
as to adequacy. Although not presently anticipated, adjustments to the allowance
may result from regulatory examinations.
The Company allocates the Allowance for Loan Losses according to the
amount deemed to be reasonably necessary to provide for the possibility of
losses being incurred within the categories of loans set forth in the table
below.
Allocation of Allowance for Loan Losses
December 31
--------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
-------------------- ------------------- ------------------- ------------------- -----------------
Allowance Percent Allowance Percent Allowance Percent Allowance Percent Allowance Percent
(In thousands) Amount of loans* Amount of loans* Amount of loans* Amount of loans* Amount of loans*
- -----------------------------------------------------------------------------------------------------------------------------------
Consumer
Credit card ............. $2,658 32.8% $2,625 39.3% $2,430 42.8% $2,232 44.0% $1,922 37.2%
Student loans ........... 100 13.5% 100 15.0% 100 16.6% 100 16.0% 100 16.6%
Other ................... 162 12.2% 324 9.8% 299 9.3% 483 8.7% 458 9.9%
Real Estate
Real estate consstruction -- 3.2% -- 1.5% 13 1.6% 74 1.3% 69 0.8%
Single family residential 822 11.3% 343 10.3% 1,009 9.2% 310 11.5% 385 15.3%
Other commercial ........ 1,882 12.5% 1,510 10.6% 701 9.6% 1,261 7.6% 1,525 7.4%
Commercial
Commercial .............. 452 7.7% 362 6.9% 339 5.1% 295 5.7% 577 6.6%
Agricultural ............ -- 1.9% 32 3.8% -- 4.1% 188 3.5% 207 4.0%
Financial institutions .. 387 4.4% 145 1.6% 161 0.8% -- 0.8% -- 1.0%
Other ..................... -- 0.5% -- 1.2% -- 0.9% 3 0.9% 2 1.2%
Unallocated ............... 1,955 0.0% 2,349 0.0% 2,378 0.0% 802 0.0% 57 0.0%
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Total ..................... $8,418 100.0% $7,790 100.0% $7,430 100.0% $5,748 100.0% $5,302 100.0%
====== ===== ====== ===== ====== ===== ====== ===== ====== ======
* Percentage of loans in each category to total loans
Investments and Securities
The Company's securities portfolio is the second largest component of
earning assets and provides a significant source of revenue. Securities are
classified as either held-to-maturity, available-for-sale, or trading.
Held-to-maturity securities, which include any security for which
management has the positive intent and ability to hold until maturity, are
carried at historical cost, adjusted for amortization of premiums and accretion
of discounts. Premiums and discounts are amortized and accreted, respectively,
to interest income using the constant yield method over the period to maturity.
Available-for-sale securities, which include any security for which
management has no immediate plans to sell but which may be sold in the future,
are carried at fair value. Realized gains and losses, based on specifically
identified amortized cost of the specific security, are included in other
income. Unrealized gains and losses are recorded, net of related income tax
effects, in stockholders' equity. Premiums and discounts are amortized and
accreted, respectively, to interest income, using the constant yield method over
the period to maturity.
Held-to-maturity and available-for-sale investment securities were
$134.4 million and $90.4 million, respectively, at December 31, 1995, compared
to the held-to-maturity amount of $142.4 million and available-for-sale amount
of $29.6 at December 31, 1994. The Company's philosophy regarding investments is
conservative, based on investment type and maturity. Investments in the
held-to-maturity portfolio include U.S. Treasury securities, U.S. government
agencies, mortgage-backed securities, and municipal securities. As of December
31, 1995, $69.5 million, or 51.7%, of the held-to-maturity securities were
invested in U.S. Treasury securities and obligations of U.S. government
agencies, of which $26.9 million, or 20.0%, was invested in securities with
maturities of one year or less, and $25.1 million, or 18.7%, was invested in
securities with maturities of one to five years. In the available-for-sale
securities, $86.5 million, or 95.7% of the securities were in U.S. Treasuries
and obligations of U.S. government agencies, all of which will mature in less
than five years. In order to reduce the Company's income tax burden, an
additional $58.2 million, or 43.3%, of the held-to-maturity securities
portfolio, was invested in tax-exempt obligations of state and political
subdivisions. There are no securities of any one issuer exceeding ten percent of
the Company's stockholders' equity at December 31, 1995. The Company has
approximately $6.3 million, or 4.7%, in GNMA and other mortgaged-backed
securities in the held-to-maturity portfolio. The Company's general policy is
not to invest in derivative type investments, except for collateralized
mortgage-backed securities for which collection of principal and interest is not
subordinated to significant superior rights held by others.
As of December 31, 1995, the held-to-maturity investment portfolio has
gross unrealized gains of $2.7 million and gross unrealized losses of $475,000.
Net realized gains from called securities for 1995 were $34,000, down from net
realized gains of $130,000 in 1994, and $140,000 in 1993.
The table below presents the carrying value and fair value of investment
securities for each of the years indicated.
Investment Securities
Years Ended December 31
-------------------------------------------------------------------------------------------------------------------
1995 1994 1993
--------------------------------------- ------------------------------------- ------------------------------------
Gross Unrealized Gross Unrealized Gross Unrealized
Amortized ---------------- Fair Amortized ---------------- Fair Amortized ---------------- Fair
(In thousands) cost Gain (Loss) value(1) cost Gain (Loss) value(1) cost Gain (Loss) value(1)
- -----------------------------------------------------------------------------------------------------------------------------------
Held-to-Maturity
U.S. Treasury .... $ 45,920 $ 400 $ (46) $ 46,274 $ 74,544 $ 349 $(1,479) $ 73,414 $132,778 $ 5,599 $ (33) $138,344
U.S. Government
agencies ....... 23,569 692 (18) 24,243 13,375 32 (289) 13,118 13,215 546 (28) 13,733
Mortgage-backed
securities(2) .. 6,344 37 (55) 6,326 3,551 6 (244) 3,313 1,008 24 (10) 1,022
State and
political
subdivisions .. 58,154 1,536 (356) 59,334 50,904 577 (1,962) 49,519 49,438 2,680 (52) 52,066
Other securities . 446 11 -- 457 -- -- -- -- 2,187 365 (1) 2,551
-------- ------- ------ -------- -------- ------ ------- -------- -------- ------- ----- --------
$134,433 $ 2,676 $ (475) $136,634 $142,374 $ 964 $(3,974) $139,364 $198,626 $ 9,214 $(124) $207,716
======== ======= ====== ======== ======== ====== ======= ======== ======== ======= ===== ========
Available-for-Sale
U.S. Treasury .... $ 72,258 $ 2,102 $ (3) $ 74,357 $ 25,701 $ 96 $ (202) $ 25,595
U.S. Government
agencies ....... 11,905 264 (35) 12,134 1,002 3 -- 1,005
State and
political
subdivisions .. 51 -- -- 51 -- -- -- --
Other securities . 2,976 851 (2) 3,825 2,554 457 (1) 3,010
-------- ------- ------ -------- -------- ------ ------- --------
$ 87,190 $ 3,217 $ (40) $ 90,367 $ 29,257 $ 556 $ (203) $ 29,610
======== ======= ====== ======== ======== ====== ======= ========
(1) The fair value of the Company's financial instruments is determined pursuant
to Statement of Financial Accounting Standards No. 107. Because no market exists
for a significant portion of the Company's financial instruments, fair value
estimates are based on judgments concerning future expected loss experience,
current economic conditions, risk characteristics of carious financial
instruments and other factors. See Note 15 of Notes to Consolidated Financial
Statements.
(2) Consist of securities issued by GNMA, FNMA, and FHLMC.
The following table reflects the amortized cost and estimated market value
of debt securities at December 31, 1995, by contractual maturity, the weighted
average yields (for tax-exempt obligations on a fully taxable basis, assuming a
36.25% tax rate) of such securities and the taxable equivalent adjustment used
in calculating yields. Expected maturities will differ from contractual
maturities, because borrowers may have the right to call or prepay
obligations, with or without call or prepayment penalties.
Maturity Distribution of Investment Securities
December 31, 1995
----------------------------------------------------------------------------------------
Over Over
1 year 5 years Over
1 year thru thru 10 No fixed Par Market
(In thousands) or less 5 years 10 years years maturity Total value value
- ---------------------------------------------------------------------------------------------------------------
Held-to-Maturity
U.S. Treasury ..... $ 24,007 $ 21,665 $ 248 $ -- $ -- $ 45,920 $ 45,967 $ 46,274
U. S. Government
agencies ........ 2,894 3,406 17,269 -- -- 23,569 23,613 24,243
Mortgage-backed
securities ...... -- -- -- -- 6,344 6,344 6,308 6,326
State and political
subdivisions .... 2,112 19,048 30,847 6,147 -- 58,154 58,295 59,334
Other securities .. -- -- -- -- 446 446 418 457
-------- -------- -------- --------- -------- -------- -------- --------
$ 29,013 $ 44,119 $ 48,364 $ 6,147 $ 6,790 $134,433 $134,601 $136,634
======== ======== ======== ========= ======== ======== ======== ========
Percentage of total 21.58% 32.82% 35.98% 4.57% 5.05% 100.00%
======== ======== ======== ========= ======== ========
Weighted average(1) 5.78% 6.94% 7.41% 10.63% 6.48% 6.99%
======== ======== ======== ========= ======== ========
Available-for-Sale
U.S. Treasury ..... $ 35,429 $ 36,829 $ -- $ -- $ -- $ 72,258
U. S. Government
agencies ........ 4,799 7,106 -- -- -- 11,905
Mortgage-backed
securities ...... -- -- -- -- -- --
State and political
subdivisions .... 51 -- -- -- -- 51
Other securities .. -- -- -- -- 2,976 2,976
-------- -------- -------- -------- -------- --------
$ 40,279 $ 43,935 $ -- $ -- $ 2,976 $ 87,190
======== ======== ======== ======== ======== ========
Percentage of total 46.20% 50.39% 0.00% 0.00% 3.41% 100.00%
Weighted average(1) 6.39% 7.62% 6.91% 7.02%
(1) The weighted average yields are based on book value and effective yields,
weighted for the scheduled maturity of each security. Yields on tax-exempt
obligations have been computed on a fully taxable equivalent basis.
Trading securities, which include any security held primarily for
near-term sale, are carried at fair value. Gains and losses on trading
securities, both realized and unrealized, are included in other income. The
Company's trading account is established and maintained for the benefit of the
dealer bank division. All activities in the account are performed by dealer bank
personnel solely for operations in that division. The trading account is
typically used to provide inventory for resale and is not used to take advantage
of short-term price movements.
Interest and dividends on investments in debt and equity securities are
included in income when earned.
Deposits
Total average deposits for 1995 were $635.8 million, compared to $580.0
million in 1994. The year-end balances of time deposits over $100,000 were
$104.9 million in 1995, compared to $55.2 million in 1994. This increase was the
result of the Company's assumption of deposits through acquisitions and an
increase in public funds due to the availability of those deposits at
competitive prices.
The following table reflects the classification of the average deposits
and the average rate paid on each deposit category which are in excess of 10
percent of average total deposits for the three years ended December 31, 1995.
Average Deposit Balances and Rates
December 31
-----------------------------------------------------------------
1995 1994 1993
-------------------- ---------------------- ---------------------
Average Average Average Average Average Average
(In thousands) amount rate paid amount rate paid amount rate paid
- -------------------------------------------------------------------------------------------------
Non-interest bearing
demand deposits .......... $ 99,839 -- $105,856 -- $116,744 --
Interest-bearing transaction
and savings deposits ..... 235,411 2.62% 232,351 2.26% 200,122 2.73%
Time deposits
$100,000 or more ......... 79,486 5.53% 53,479 3.61% 56,759 4.65%
Other time deposits ........ 221,044 5.29% 188,307 3.87% 211,980 4.33%
-------- -------- --------
Total .................. $635,780 $579,993 $585,605
======== ======== ========
The following table set forth by time remaining to maturity, deposits
(exclusive of regular savings) in amounts of $100,000 or more at December 31,
1995 and 1994, respectively.
Maturities of Large Denomination Time Deposits
Time Certificates of Deposit
($100,000 or more)
-------------------------------------------
December 31
-------------------------------------------
1995 1994
-------------------- ---------------------
(In thousands) Balance Percent Balance Percent
- -----------------------------------------------------------------------
Maturing
Three months or less ... $ 41,434 39.50% $ 24,444 44.27%
Over 3 months to 6 months 37,881 36.11% 16,286 29.49%
Over 6 months to 12 months 19,269 18.37% 8,866 16.05%
Over 12 months ........... 6,322 6.02% 5,626 10.19%
-------- ------ -------- ------
Total .............. $104,906 100.00% $ 55,222 100.00%
======== ====== ======== ======
Short-Term Borrowings
Federal funds purchased and securities sold under agreements to
repurchase were $20.9 million at December 31, 1995, as compared to $23.9 million
at December 31, 1994. Other short-term borrowings, consisting of U.S. Treasury
Note borrowings, decreased at December 31, 1995, to $1.4 million, as compared to
$1.6 million at December 31, 1994.
The Company has historically funded its growth in earning assets through
the use of core deposits, large certificates of deposits from local markets, and
federal funds purchased. Management anticipates that these sources will provide
necessary funding in the foreseeable future. The Company's general policy is to
avoid the use of brokered deposits.
Long Term Debt
The Company's long-term debt was $4.8 million and $12.1 million at
December 31, 1995 and 1994, respectively. In 1995, the Company made a prepayment
of $7.3 million on the outstanding capital notes. The Company's capital notes,
due June 30, 1997, of which $3.7 million were outstanding at December 31, 1995
and $11 million at 1994, are the major component of the Company's long-term
debt. Interest on the capital notes is payable quarterly, and the interest rate
is adjusted quarterly to the then prime rate offered by Chase Manhattan in New
York. At December 31, 1995, the Chase Manhattan Bank, N.A., prime rate was
8.75%, but the rate dropped to 8.5% on January 1, 1996.
Capital
Capital represents shareholder ownership in the Company -- the book
value of assets in excess of liabilities. With an equity to asset ratio of 11.5%
as of December 31, 1995, the Company's strong capital position, relative to
peer, provides flexibility to finance future growth and maintain the confidence
of deposit customers, investors, and banking regulatory agencies.
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 December 31, 1995, the tier 1 capital ratio was
18.6%, while the Company's risk-adjusted ratio for total capital, as of December
31, 1995, was 20.0%, both of which exceed the capital minimums established in
the new risk-based capital requirements.
The Company's risk-based capital ratios at December 31, 1995 and 1994
are presented below.
Consolidated Risk-Based Capital
December 31
----------------------
(In thousands) 1995 1994
- ---------------------------------------------------------------------------------------
Tier 1 capital
Stockholders' equity ....................................... $ 96,797 $ 83,700
Less goodwill .............................................. 3,677 2,392
Less unrealized gain (loss) on available-for-sale securities 2,025 233
-------- --------
Total tier 1 capital ..................................... 91,095 81,075
Tier 2 capital
Qualifying allowance for loan losses ....................... 6,141 5,331
Qualifying long-term debt .................................. 730 4,400
-------- --------
Total capital ............................................ $ 97,966 $ 90,806
======== ========
Risk-weighted assets ......................................... $488,981 $421,115
======== ========
Ratios at end of year
Leverage ratio ............................................. 10.91% 11.47%
Risk-based capital
Tier 1 capital ......................................... 18.63% 19.25%
Total capital .......................................... 20.03% 21.56%
Minimum guidelines
Leverage ratio ......................................... 3.00% 3.00%
Tier 1 capital ......................................... 4.00% 4.00%
Total capital .......................................... 8.00% 8.00%
Liquidity and Interest Rate Sensitivity
Parent Company
The Company has leveraged its investment in subsidiary banks and depends
upon the dividends paid to it, as the sole shareholder of the subsidiary banks,
as a principal source of funds for debt service requirements. At December 31,
1995, retained earnings of the Company's subsidiaries were approximately $79
million, of which approximately $16 million was available for the payment of
dividends to the Company without regulatory approval. In addition to dividends,
other sources of liquidity for the Company are the sale of equity securities and
the borrowing of funds.
Banking Subsidiaries
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 investing activities. 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. A major
responsibility of management is 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. The management and board of directors of each
bank subsidiary monitors these same indicators and makes adjustments as needed.
At year end, each subsidiary bank was within established guidelines, and total
corporate liquidity remains strong. At December 31, 1995, cash and cash
equivalents, trading and available-for-sale securities, and mortgage loans held
for sale were 22.7% of total assets, as compared to 16.13% at December 31, 1994.
Interest Rate Sensitivity
Management continually reviews the Company's exposure to changes in
interest rates. Among the factors considered during its evaluations are changes
in the mix of earning assets, growth of earning assets, interest rate spreads
and repricing periods. Management forecasts and models the impact various
interest rate fluctuations would have on net interest income. One such model
measures the interest rate sensitivity gap, which presents, at a particular
point in time, the matching of interest rate sensitive assets with interest rate
sensitive liabilities.
As shown in the schedule below, the cumulative rate sensitive assets to
rate sensitive liabilities at six months and one year, was approximately 87% and
97%, respectively. A financial institution is considered to be liability
sensitive, or as having a negative GAP, when the amount of its interest-bearing
liabilities maturing or repricing within a given time period exceeds the amount
of its interest-earning assets also maturing or repricing within that time
period. Conversely, an institution is considered to be asset sensitive, or as
having a positive GAP, when the amount of its interest-bearing liabilities
maturing and repricing is less than the amount of its interest-earning assets
also maturing or repricing during the same period. Generally, in a falling
interest rate environment, a negative GAP should result in an increase in net
interest income, and in a rising interest rate environment this negative GAP
should adversely affect net interest income. The converse would be true for a
positive GAP. The long-term effect of rising interest rates would tend to
increase net interest income because of the positive GAP ratio. However, the
negative GAP for the short-term would cause a decrease in net interest income,
as a result of rising rates for approximately six months. Since conditions
change on a daily basis, these theoretical conclusions may not be indicative of
actual future results.
Rate Sensitive Assets and Liabilities
Year Ended December 31, 1995
--------------------------------------------------------
Cumulative
RSA(1)
(In thousands, Cumulative to
except ratios) Assets Liabilities Gap Gap RSL(2)
- ----------------------------------------------------------------------------------
Floating rate ......... $ 72,130 $ 63,868 $ 8,262 $ 8,262 113%
Fixed rate maturing in:
1 month ............. 70,738 168,598 (97,860) (89,598) 61%
2 months ............ 38,202 37,945 257 (89,341) 67%
3 months ............ 151,992 31,782 120,210 30,869 110%
4 months ............ 8,530 49,484 (40,954) (10,085) 97%
5 months ............ 8,276 28,160 (19,884) (29,969) 92%
6 months ............ 7,909 29,234 (21,325) (51,294) 87%
6 months - 1 year ... 94,094 58,410 35,684 (15,610) 97%
1 - 2 years ......... 93,709 50,188 43,521 27,911 105%
2 - 3 years ......... 57,090 31,283 25,807 53,718 110%
3 - 4 years ......... 39,980 19,294 20,686 74,404 113%
4 - 5 years ......... 44,540 22,775 21,765 96,169 116%
Over 5 years ........ 73,430 19,686 53,744 149,913 125%
--------- --------- ---------
Total ............. $ 760,620 $ 610,707 $ 149,913
========= ========= =========
(1) Rate sensitive assets
(2) Rate sensitive liabilities
QUARTERLY RESULTS
Selected unaudited quarterly financial information for the last eight quarters
is shown in the table below.
(In thousands, Quarter
except per share data) First Second Third Fourth Total
- -------------------------------------------------------------------------------------------
1995
Net interest income .............. $ 7,395 $ 7,770 $ 8,306 $ 8,293 $ 31,764
Provision for possible loan losses 449 452 506 685 2,092
Non-interest income .............. 6,099 5,832 6,114 6,320 24,365
Non-interest expense ............. 9,826 9,849 10,034 10,111 39,820
Net realized gains on securities . 1 -- 35 (2) 34
Net income ....................... 2,253 2,393 2,670 2,703 10,019
Earnings per share ............... 0.61 0.63 0.70 0.71 2.65
1994
Net interest income .............. $ 7,133 $ 7,336 $ 7,422 $ 7,368 $ 29,259
Provision for possible loan losses 525 525 525 475 2,050
Non-interest income .............. 6,966 6,070 6,161 5,650 24,847
Non-interest expense ............. 9,938 9,618 9,353 9,506 38,415
Net realized gains on securities . 29 27 74 -- 130
Net income ....................... 2,627 2,352 2,653 2,228 9,860
Earnings per share ............... 0.71 0.64 0.73 0.60 2.68
ITEM 8: CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX
Item 1 Independent Accountants' Report.................................
Consolidated Balance Sheets December 31, 1995 and 1994..........
Consolidated Statements of Income Years Ended
December 31, 1995, 1994, and 1993.............................
Consolidated Statements of Cash Flow Years Ended
December 31, 1995, 1994, and 1993.............................
Consoldiated Statements of Changes in Stockholders'
Equity Years Ended December 31, 1995, 1994, and 1993..........
Notes to Consolidated Financial Statements
December 31, 1995, 1994, and 1993.............................
Note: Supplementary Data may be found in Item 7, "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Quarterly Results"
on page 10 hereof.
INDEPENDENT ACCOUNTANTS' REPORT
Board of Directors
Simmons First National Corporation
Pine Bluff, Arkansas
We have audited the accompanying consolidated balance sheets of SIMMONS
FIRST NATIONAL CORPORATION as of December 31, 1995 and 1994, and the related
consolidated statements of income, changes in stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1995. These
financial statements are the responsibility of the Corporation's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of SIMMONS
FIRST NATIONAL CORPORATION as of December 31, 1995 and 1994, and the results of
its operations and cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.
The Company changed its method of accounting for investment securities in
1994.
/s/ Baird. Kurtz & Dobson
BAIRD, KURTZ & DOBSON
Pine Bluff, Arkansas
February 2, 1996
SIMMONS FIRST NATIONAL CORPORATION
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 and 1994
(In thousands) 1995 1994
- -----------------------------------------------------------------------------------------------
ASSETS
Cash and non-interest bearing balances due from banks ............... $ 36,179 $ 33,476
Interest-bearing balances due from banks ............................ 2,398 101
Federal funds sold .................................................. 34,845 40,425
--------- ---------
Cash and cash equivalents ................................. 73,422 74,002
Investment securities - taxable
Held-to-maturity
(Market value of $136,634 and $139,364 in 1995 and 1994,
respectively .................................................... 134,433 142,374
Available-for-sale ................................................ 90,367 29,610
Mortgage loans held for sale, net of unrealized
gains (losses) .................................................... 26,159 8,720
Trading securities .................................................. 548 2,734
Loans - non-taxable ................................................. 2,384 2,021
Loans - taxable ..................................................... 469,572 416,371
Allowance for loan losses ....................................... (8,418) (7,790)
--------- ---------
Net loans ................................................. 463,538 410,602
Premises and equipment .............................................. 16,201 12,115
Foreclosed assets held for sale ..................................... 1,017 1,730
Interest receivable ................................................. 7,953 6,289
Cost of loan servicing rights acquired .............................. 4,867 3,825
Excess cost over fair value of net assets acquired, at amortized cost 3,677 2,392
Other assets ........................................................ 17,702 18,869
--------- ---------
TOTAL ASSETS .............................................. $ 839,884 $ 713,262
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Non-interest bearing transaction accounts ........................... $ 108,779 $ 109,564
Interest-bearing transaction accounts and savings deposits .......... 251,065 228,649
Time deposits ....................................................... 344,924 245,325
--------- ---------
Total deposits ............................................ 704,768 583,538
Federal funds purchased and securities sold
under agreements to repurchase ..................................... 20,861 23,931
Other borrowed funds:
Short-term debt ................................................... 1,405 1,621
Long-term debt .................................................... 1,107 1,144
Capital notes ..................................................... 3,650 11,000
Accrued interest and other liabilities .............................. 11,296 8,328
--------- ---------
Total liabilities ......................................... 743,087 629,562
--------- ---------
STOCKHOLDERS' EQUITY
Capital stock
Class A common, par value $5 a share,
authorized 10,000,000 shares, issued and outstanding
3,816,612 at 1995 and 3,677,378 at 1994 .......................... 19,083 18,387
Surplus ............................................................. 22,651 19,827
Undivided profits ................................................... 53,038 45,253
Unrealized appreciation on available-for-sale
securities, net of income taxes of $1,151 and $120 at 1995 and
1994, respectively ................................................ 2,025 233
--------- ---------
Total Stockholders' Equity ................................ 96,797 83,700
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ................ $ 839,884 $ 713,262
========= =========
See Notes to Consolidated Financial Statements.
SIMMONS FIRST NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1995, 1994 and 1993
(In thousands, except per share data) 1995 1994 1993
- ------------------------------------------------------------------------------------------------
INTEREST INCOME
Loans - non-taxable ........................................ $ 155 $ 160 $ 180
Loans - taxable ............................................ 39,762 30,875 28,209
Federal funds sold ......................................... 1,858 1,218 738
Investment securities - taxable
Held-to-maturity ......................................... 6,949 5,696 10,234
Available-for-sale ....................................... 3,131 2,803 --
Investment securities - non-taxable
Held-to-maturity ......................................... 2,914 2,738 2,604
Available-for-sale ....................................... 2 -- --
Mortgage loans held for sale, net of unrealized gains ...... 1,250 2,081 2,236
Assets held in trading account ............................. 88 101 166
Interest-bearing balances due from banks ................... 120 55 27
-------- -------- --------
TOTAL INTEREST INCOME ............................. 56,229 45,727 44,394
-------- -------- --------
INTEREST EXPENSE
Deposits
Interest-bearing transaction accounts and savings deposits 6,167 5,248 5,232
Time deposits ............................................ 16,097 9,223 9,019
Federal funds purchased and securities
sold under agreements to repurchase ...................... 1,308 962 841
Other borrowed funds
Short-term debt .......................................... 92 163 79
Long-term debt ........................................... 110 122 113
Capital notes ............................................ 691 750 660
-------- -------- --------
TOTAL INTEREST EXPENSE ............................ 24,465 16,468 15,944
-------- -------- --------
NET INTEREST INCOME ......................................... 31,764 29,259 28,450
Provision for possible loan losses .......................... 2,092 2,050 3,006
-------- -------- --------
NET INTEREST INCOME AFTER PROVISION
FOR POSSIBLE LOAN LOSSES ................................... 29,672 27,209 25,444
-------- -------- --------
NON-INTEREST INCOME
Trust department income .................................... 1,790 1,763 1,807
Service charges on deposit accounts ........................ 2,768 2,263 2,296
Other service charges and fees ............................. 825 853 879
Income (loss) on sale of mortgage loans, net of commissions 325 (758) 1,618
Income on investment banking, net of commissions ........... 1,017 1,247 767
Net realized gains on securities ........................... 34 130 140
Credit card fees ........................................... 10,114 10,636 10,867
Loan service fees .......................................... 6,092 6,817 7,322
Other operating income ..................................... 1,400 1,896 433
-------- -------- --------
TOTAL NON-INTEREST INCOME ......................... 24,365 24,847 26,129
-------- -------- --------
NON-INTEREST EXPENSE
Salaries and employee benefits ............................. 21,192 20,104 19,609
Occupancy expense, net ..................................... 2,512 2,043 1,937
Furniture & equipment expense .............................. 2,167 1,964 1,969
Loss on foreclosed assets .................................. 1,401 1,641 2,336
Other operating expense .................................... 12,548 12,663 12,860
-------- -------- --------
TOTAL NON-INTEREST EXPENSE ........................ 39,820 38,415 38,711
-------- -------- --------
INCOME BEFORE INCOME TAXES .................................. 14,217 13,641 12,862
Provision for income taxes ................................. 4,198 3,781 3,466
-------- -------- --------
NET INCOME .................................................. $ 10,019 $ 9,860 $ 9,396
======== ======== ========
EARNINGS PER SHARE .......................................... $ 2.65 $ 2.68 $ 2.78
======== ======== ========
See Notes to Consolidated Financial Statements.
SIMMONS FIRST NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994 and 1993
(In thousands) 1995 1994 1993
- ----------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ................................................. $ 10,019 $ 9,860 $ 9,396
Items not requiring (providing) cash
Depreciation and amortization ............................ 3,254 1,341 1,758
Provision for loan losses ................................ 2,092 2,050 3,006
Amortization of premiums and discounts on investment
securities and mortgage-backed certificates ............. 1,076 50 517
Deferred income taxes .................................... (134) 63 (780)
Provision for foreclosed assets ......................... 176 151 71
Net realized gains on securities ......................... (34) (130) (140)
Loss on sale of premises and equipment ................... 6 (25) (5)
Changes in
Accrued interest receivable .............................. (1,664) (460) 821
Mortgage loans held for sale ............................. (17,438) 39,055 (23,414)
Trading accounts ......................................... 2,186 1,025 (3,170)
Other assets ............................................. (1,160) 8,181 (2,716)
Accounts payable and accrued expenses .................... 2,507 (1,606) 321
Income taxes payable ..................................... (685) 219 874
--------- --------- ---------
Net cash provided by (used in) operating activities 201 59,774 (13,461)
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Net originations of loans .................................. (25,371) (25,939) (28,167)
Purchase of premises and equipment ......................... (8,301) (3,634) (2,172)
Proceeds from sale of fixed assets ......................... 4,505 745 25
Proceeds from the sale of foreclosed assets ................ 848 1,279 989
Proceeds from maturities of available-for-sale securities .. 18,851 98,209 --
Purchases of available-for-sale securities ................. (73,879) (103,709) --
Proceeds from maturities of held-to-maturity securities .... 84,364 78,890 88,927
Purchases of held-to-maturity securities ................... (59,846) (46,316) (84,936)
--------- --------- ---------
Net cash used in investing activities ............. (58,829) (475) (25,334)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sale of additional stock ..................... -- -- 16,110
Net increase (decrease) in transaction accounts
and savings deposits ...................................... (4,635) (21,985) 29,869
Net increase (decrease) in certificates of deposit ......... 72,722 (4,832) (9,923)
Repayments of other borrowings ............................. (7,603) (3,426) (93,944)
Proceeds from other borrowings ............................. -- -- 95,980
Dividends paid ............................................. (2,234) (1,728) (1,390)
Net increase (decrease) in federal funds purchased
and securities sold under agreements to repurchase ........ (3,070) (2,416) (12,876)
Net cash and cash equivalents received in acquisitions ..... 2,848 -- --
Proceeds from issuance of common stock ..................... 20 -- --
--------- --------- ---------
Net cash provided by (used in) financing activities 58,048 (34,387) 23,826
--------- --------- ---------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS .......................................... (580) 24,912 (14,969)
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR ......................................... 74,002 49,090 64,059
--------- --------- ---------
CASH AND CASH EQUIVALENTS, END OF YEAR ...................... $ 73,422 $ 74,002 $ 49,090
========= ========= =========
See Notes to Consolidated Financial Statements.
SIMMONS FIRST NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1994 and 1993
Unrealized
Appreciation
on Available-
For-Sale
Common Undivided Securities,
(In thousands) Stock Surplus Profits Net Total
- --------------------------------------------------------------------------------------------------
Balance, December 31, 1992 ............ $ 14,362 $ 7,742 $ 29,115 $ -- $ 51,219
Sale of Additional Stock
(805,000 shares at $22 per share) ... 4,025 12,085 16,110
Net Income ............................ 9,396 9,396
Cash dividends declared
($.40 per share) .................... (1,390) (1,390)
-------- -------- -------- -------- --------
Balance, December 31, 1993 ............ 18,387 19,827 37,121 -- 75,335
Adoption of FAS 115, net of income
taxes of $487 ....................... 946 946
Net income ............................ 9,860 9,860
Cash dividends declared
($.47 per share) .................... (1,728) (1,728)
Change in unrealized appreciation
(depreciation) on available-for-sale
securities, net of income tax credit
of $367 ............................. (713) (713)
-------- -------- -------- -------- --------
Balance, December 31, 1994 ............ 18,387 19,827 45,253 233 83,700
Exercise of stock options--2,000 shares 10 10 20
Commom stock issued in connection
with purchase of Dumas Bancshares,
Inc. (137,234 shares) ............... 686 2,814 3,500
Net income ............................ 10,019 10,019
Cash dividends declared
($.59 per share) .................... (2,234) (2,234)
Change in unrealized appreciation
(depreciation) on available-for-sale
securities, net of income taxes
of $1,032 ........................... 1,792 1,792
-------- -------- -------- -------- --------
Balance, December 31, 1995 ............ $ 19,083 $ 22,651 $ 53,038 $ 2,025 $ 96,797
======== ======== ======== ======== ========
See Notes to Consolidated Financial Statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
Simmons First National Corporation is primarily engaged in providing a
full range of banking and mortgage services to individual and corporate
customers through its subsidiaries and branch banks in Arkansas. The Company is
subject to competition from other financial institutions. The Company also is
subject to the regulation of certain federal and state agencies and undergoes
periodic examinations by those regulatory authorities.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant
change relate to the determination of the allowance for loan losses, the
valuation of foreclosed assets and the allowance for foreclosure expenses. In
connection with the determination of the allowance for loan losses and the
valuation of foreclosed assets, management obtains independent appraisals for
significant properties.
Management believes that the allowance for loan losses, the valuation of
foreclosed assets and the allowance for foreclosure expenses are adequate. While
management uses available information to recognize losses on loans, foreclosed
assets held for sale, and foreclosure expenses, changes in economic conditions,
particularly in Arkansas may necessitate revision of these estimates in future
years. In addition, various regulatory agencies, as an integral part of their
examination process, periodically review the Banks' allowance for loan losses,
valuation of foreclosed assets and allowance for foreclosure expenses. Such
agencies may require the Bank to recognize additional losses, based on their
judgment of information available to them at the time of their examination.
Principles of Consolidation
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.
Reclassifications
Various items within the accompanying financial statements for previous
years have been reclassified, to provide more comparative information. These
reclassifications had no effect on net earnings.
Cash Equivalents
The Company considers all amounts due from banks and federal funds sold
as cash equivalents. The banking subsidiaries are required to maintain average
reserve balances with the Federal Reserve Bank, based on a percentage of
deposits. The average amounts of those reserve balances for the years ended
December 31, 1995 and 1994, were $3,888,000 and $4,402,000, respectively. The
Federal Reserve requirement on transaction account reserves was ten percent
during 1995. Generally, federal funds are purchased and sold for varying periods
up to thirty days. These securities are purchased from other financial
institutions and are held in the name of Simmons First National Bank at the
Federal Reserve Bank until maturity of the agreement.
Investments in Debt and Equity Securities
Held-to-maturity securities, which include any security for which the
banking subsidiaries have the positive intent and ability to hold until
maturity, are carried at historical cost adjusted for amortization of premiums
and accretion of discounts. Premiums and discounts are amortized and accreted,
respectively, to interest income using the level-yield method over the period to
maturity.
Available-for-sale securities, which include any security for which the
banking subsidiaries have no immediate plan to sell but which may be sold in the
future, are carried at fair value. Realized gains and losses, based on
specifically identified amortized cost of the individual security, are included
in other income. Unrealized gains and losses are recorded, net of related income
tax effects, in stockholders' equity. Premiums and discounts are amortized and
accreted, respectively, to interest income using the level-yield method over the
period to maturity.
Trading securities, which include any security held primarily for
near-term sale, are carried at fair value. Gains and losses on trading
securities, both realized and unrealized, are included in other income.
Interest and dividends on investments in debt and equity securities are
included in income when earned.
Mortgage Loans Held For Sale
Mortgage loans held for sale are carried at the lower of cost or fair
value, determined using an aggregate loan basis. Write-downs to fair value are
recognized as a charge to earnings at the time the decline in value occurs.
Forward commitments to sell mortgage loans are acquired to reduce market risk on
mortgage loans in the process of origination and mortgage loans held for sale.
Gains and losses resulting from sales of mortgage loans are recognized when the
respective loans are sold to investors. Gains and losses are determined by the
difference between the selling price and the carrying amount of the loans sold,
net of discounts collected or paid and the costs of servicing rights retained.
Fees received from borrowers to guarantee the funding of mortgage loans held for
sale and fees paid to investors to ensure the ultimate sale of such mortgage
loans are recognized as income or expense when the loans are sold or when it
becomes evident that the commitment will not be used.
Loans
Loans that management has the intent and ability to hold for the
foreseeable future or until maturity or pay-offs are reported at their
outstanding principal adjusted for any charge-offs, the allowance for loan
losses, and any deferred fees or costs on originated loans and unamortized
premiums or discounts on purchased loans.
Discounts and premiums on purchased residential real estate loans are
amortized to income using the interest method over the remaining period to
contractual maturity, adjusted for anticipated prepayments. Discounts and
premiums on purchased consumer loans are recognized over the expected lives of
the loans using methods that approximate the interest method.
Allowance for Loan Losses
The allowance for loan losses is increased by provisions charged to
expense and reduced by loans charged off, net of recoveries. The allowance is
maintained at a level considered adequate to provide for potential loan losses,
based on management's evaluation of the loan portfolio, as well as on prevailing
and anticipated economic conditions and historical losses by loan category.
General reserves have been established, based upon the aforementioned factors,
and allocated to the individual loan categories. Allowances are accrued on
specific loans evaluated for impairment for which the basis of each loan,
including accrued interest, exceeds the discounted amount of expected future
collections of interest and principal or, alternatively, the fair value of loan
collateral.
A loan is considered impaired when it is probable that the Company will
not receive all amounts due according to the contractual terms of the loan. This
includes loans that are delinquent 90 days or more (nonaccrual loans) and
certain other loans identified by management. Accrual of interest is
discontinued, and interest accrued and unpaid is removed at the time such
amounts are delinquent 90 days. Interest is recognized for nonaccrual loans only
upon receipt, and only after all principal amounts are current according to the
terms of the contract.
Premises and Equipment
Depreciable assets are stated at cost, less accumulated depreciation.
Depreciation is charged to expense, using the straight-line method over the
estimated useful lives of the assets. Leasehold improvements are capitalized and
amortized by the straight-line method over the terms of the respective leases or
the estimated useful lives of the improvements, whichever is shorter.
Foreclosed Assets Held For Sale
Assets acquired by foreclosure or in settlement of debt and held for sale
are valued at estimated fair value, as of the date of foreclosure, and a related
valuation allowance is provided for estimated costs to sell the assets.
Management evaluates the value of foreclosed assets held for sale periodically
and increases the valuation allowance for any subsequent declines in fair value.
Changes in the valuation allowance are charged or credited to other expense.
Excess Cost Over Fair Value of Net Assets Acquired
Unamortized costs of subsidiaries purchased in 1984, in excess of the
estimated fair value of underlying net assets acquired, aggregated $739,000
(originally $2,646,000) at December 31, 1995, and are being amortized over a
20-year period, using the straight-line method. The $730,000 originally
allocated to the future earnings potential of acquired deposits was fully
amortized in 1994, using the straight-line method over a ten-year period. The
remaining intangible (originally $1,916,000) is being amortized over a
twenty-year period, using the straight-line method.
Unamortized costs in excess of the estimated fair value of eight branch
operations of failed savings and loans located in Arkansas purchased by the
Company between 1990 and 1992, aggregated $1,339,000 (originally $2,678,000 ) at
December 31, 1995. The amount allocated to the future earnings potential of
acquired deposits (originally $1,696,000), is being amortized over ten years,
using the straight-line method. The remaining intangible (originally $982,000)
is being amortized over fifteen years, using the straight-line method.
Unamortized costs of subsidiaries purchased in 1995, in excess of the
estimated fair value of underlying net assets acquired, aggregated $1,542,000
(originally $1,598,000) at December 31, 1995, and are being amortized over a 15
year period, using the straight-line method.
Amortization expense related to these acquisitions for the periods ended
December 31, 1995, 1994, and 1993 was $438,000, $426,000 and $470,000,
respectively.
Fee Income
Periodic bank card fees, net of direct origination costs, are recognized
as revenue on a straight-line basis, over the period the fee entitles the
cardholder to use the card. Other loan fees, net of direct origination costs,
are recognized as revenue on a yield basis over the term of the loans.
Loan Servicing Rights
The cost of loan-servicing rights acquired is amortized in proportion to,
and over the period of, estimated net servicing revenues. When participating
interest in loans sold have an average contractual interest rate, adjusted for
normal servicing fees, that differs from the agreed yield to the purchaser,
gains or losses are recognized equal to the present value of such differential
over the estimated remaining life of such loans. The resulting "excess servicing
fees receivable" is amortized over the estimated life using a method
approximating the level-yield method.
During 1995, the Company adopted Statement of Financial Accounting
Standards Board No. 122 (FAS 122), "Accounting for Mortgage Servicing Rights".
FAS 122 requires that mortgage servicing rights retained for originated mortgage
loans that are sold or securitized be capitalized based on the cost of those
servicing rights. The adoption of FAS 122 did not have a material affect on the
Company's financial position or the results of its operation.
The cost of loan servicing rights acquired, the fair value of capitalized
loan servicing rights from originated mortgage loans, the excess servicing fees
receivable and the amortization thereon is periodically evaluated in relation to
estimated future net servicing revenues, taking into consideration changes in
interest rates, current prepayment rates, and expected future cash flows. The
Company evaluates the carrying value of the servicing portfolio and the need for
a valuation allowance by estimating the future net servicing income of the
portfolio based on management's best estimate of remaining loan lives. At
December 31, 1995, management was of the opinion that a valuation allowance was
not needed.
Allowance for Foreclosure Expenses
The Company charges income for expected costs that are incurred as a
result of the Company's responsibility as servicer of loans for other investors.
The charge to income is determined based on a number of variables, including the
amount of delinquent loans serviced for other investors, length of delinquency,
and amounts previously advanced on behalf of the borrower that the Company does
not expect to recover.
Income Taxes
Deferred tax liabilities and assets are recognized for the tax effects of
differences between the financial statement and tax bases of assets and
liabilities. A valuation allowance is established to reduce deferred tax assets,
if it is more likely than not that a deferred tax asset will not be realized.
Earnings Per Share
Earnings per share are based on the weighted average number of shares
outstanding during each year. Common stock equivalents, in the form of employee
stock options, were not dilutive. Weighted average shares outstanding were
3,779,432, 3,677,378 and 3,378,200 for 1995, 1994 and 1993, respectively.
NOTE 2: INVESTMENT SECURITIES
The amortized cost and fair value of investments in debt securities
that are classified as held-to-maturity and Available-for-Sale are as follows:
December 31, 1995 December 31, 1994
---------------------------------------------- ----------------------------------------------
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 $ 45,920 $ 400 $ (46) $ 46,274 $ 74,544 $ 349 $ (1,479) $ 73,414
U.S. government
agencies 23,569 692 (18) 24,243 13,375 32 (289) 13,118
Mortgage-backed
securities 6,344 37 (55) 6,326 3,551 6 (244) 3,313
State and political
subdivisions 58,154 1,536 (356) 59,334 50,904 577 (1,962) 49,519
Other securities 446 11 -- 457 -- -- -- --
--------- --------- --------- --------- --------- --------- --------- ---------
$ 134,433 $ 2,676 $ (475) $ 136,634 $ 142,374 $ 964 $ (3,974) $ 139,364
========= ========= ========= ========= ========= ========= ========= =========
Available-for-sale
U.S. treasury $ 72,258 $ 2,102 $ (3) $ 74 $ 25,701 $ 96 $ (202) $ 25,595
U.S. government
agencies 11,905 264 (35) 12,134 1,002 3 -- 1,005
State and political
subdivisions 51 -- -- 51 -- -- -- --
Other securities 2,976 851 (2) 3,825 2,554 457 (1) 3,010
--------- --------- --------- --------- --------- --------- --------- ---------
$ 87,190 $ 3,217 $ (40) $ 90,367 $ 29,257 $ 556 $ (203) $ 29,610
========= ========= ========= ========= ========= ========= ========= =========
Maturities of investment securities at December 31, 1995, are as follows:
Held-to-Maturity Available-for-Sale
Amortized Fair Amortized Fair
(In thousands) Cost Value Cost Value
- --------------------------------------------------------------------------------
One year or less ................... $ 29,013 $ 29,060 $40,279 $40,418
After one through five years ....... 44,119 44,926 43,935 46,124
After five through ten years ....... 48,364 49,069 -- --
After ten years .................... 6,147 6,796 -- --
Mortgage-backed and other securities -- --
not due on a single maturity date 6,790 6,783 2,976 3,825
-------- -------- ------- -------
$134,433 $136,634 $87,190 $90,367
======== ======== ======= =======
The book value of securities pledged as collateral, to secure public
deposits and for other purposes, amounted to $107,133,000 at December 31, 1995,
and $70,981,000 at December 31, 1994. The approximate fair value of pledged
securities amounted to $110,319,000 at December 31, 1995, and $70,217,000 at
December 31, 1994.
The book value of securities sold under agreement to repurchase amounted
to $1,417,000 and $196,000 for December 31, 1995 and December 31, 1994,
respectively.
During 1995 and 1994, there were no securities sold. The gross realized
gains of $40,000 and $134,000, and gross realized losses of $6,000 and $4,000,
respectively, were the result of called bonds.
As of December 15, 1995, the Company redesignated held-to-maturity
securities with an aggregate amortized cost of $40,193,000 and net unrealized
gains of $1,905,000 to the available-for-sale portfolio. The redesignation was
prompted by the recent announcement by the Financial Accounting Standards Board
to allow a one-time redesignation and reflects management's revised expectations
of liquidity needs.
Approximately 13 percent of the state and political subdivision debt
obligations are rated A or above. Of the remaining securities, most are nonrated
bonds and represent small, Arkansas issues, which are evaluated on an ongoing
basis.
NOTE 3: LOANS AND ALLOWANCE FOR LOAN LOSSES
The various categories are summarized as follows:
(In thousands) 1995 1994
- -----------------------------------------------------------------
Loans
Consumer
Credit card ........................ $ 154,808 $ 164,501
Student loan ....................... 63,492 62,836
Other consumer ..................... 57,166 40,739
Real estate
Construction ....................... 15,177 6,232
Single family residential .......... 54,341 43,629
Other commercial ................... 59,012 44,141
Commercial
Commercial ......................... 36,553 29,047
Agricultural ....................... 20,588 16,048
Financial institutions ............. 9,058 6,681
Other ................................ 2,546 5,122
--------- ---------
Total loans before unearned discount
and allowances for loan losses ... 472,741 418,976
Unearned discount .................... (785) (584)
Allowance for Loan Losses ........... (8,418) (7,790)
--------- ---------
Net loans .......................... $ 463,538 $ 410,602
========= =========
As of January 1, 1995, the Company adopted Statement of Financial
Accounting Standards No. 114 (FAS 114), "Accounting by Creditors for Impairment
of a Loan". FAS 114 requires discounting expected future cash flows to measure
impairment of certain loans, or, as a practical expedient, impairment
measurements based on the loan's observable market price or the fair value of
collateral if the loan is collateral dependent. The adoption of FAS 114 did not
have a material impact on the financial results.
At December 31, 1995, impaired loans totaled $4,564,000. All impaired
loans had designated reserves for possible loan losses. Reserves relative to
impaired loans at December 31, 1995 were $832,000. Interest of $200,000 was
recognized on average impaired loans of $3,623,000 for 1995. Interest recognized
on impaired loans on a cash basis during 1995 was immaterial
As of December 31, 1995, credit card loans, which are unsecured, were
$154,800,000, or 32.8%, of total loans versus $164,500,000, or 39.3% of total
loans at December 31. 1994. The credit card loans are diversified by geographic
region to reduce credit risk and minimize any adverse impact on the portfolio.
Credit card loans are regularly reviewed to facilitate the identification and
monitoring of deteriorating credit.
(In thousands) 1995 1994 1993
- --------------------------------------------------------------------------------------
Allowance for Loan Losses
Balance, beginning of year ........................... $ 7,790 $ 7,430 $ 5,748
Additions
Provision charged to expense ..................... 2,092 2,050 3,006
Allowance for loan losses of acquired institutions 361 -- --
------- ------- -------
10,243 9,480 8,754
Deductions
Losses charged to reserve, net of recoveries of
$479,000 for 1995, $418,000 for 1994,
and $727,000 for 1993 ........................... 1,825 1,690 1,324
------- ------- -------
Balance, end of year ................................. $ 8,418 $ 7,790 $ 7,430
======= ======= =======
NOTE 4: ACQUISITIONS
On April 1, 1995, and August 1, 1995, the Company acquired all
outstanding stock of Dumas Bancshares, Inc. (DBI), and Dermott State Bank
Bancshares, Inc. (DSBB), respectively, in exchange for 137,234 shares of common
stock valued at $25.50 per share and cash of $3,900,000. DBI and DSBB were
liquidated into the Company leaving Dumas State Bank, First State Bank, and
Dermott State Bank as subsidiaries of the Company. First State Bank was merged
into Simmons First National Bank and the names of the other two banks were
changed to Simmons First Bank of Dumas and Simmons First Bank of Dermott. The
acquisitions were accounted for as purchases, and the results of operations from
the dates of acquisition are included in the consolidated financial statements.
The total acquisition cost of $7,400,000 exceeded the fair value of net assets
acquired by $1,599,000.
Unaudited pro forma consolidated operations assuming the purchases were
made at the beginning of each year are shown below.
(In thousands) 1995 1994
- ---------------------------------------
Total revenue .... $82,213 $75,094
Net income ....... 10,168 10,445
Earnings per share 2.66 2.74
The pro forma results are not necessarily indicative of what would have
occurred had the acquisitions been on these dates, nor are they necessarily
indicative of future operations.
Pro forma data reflect the adjusted depreciation and amortization from
adjusting DBI and DSBB assets to market value. No adjustment was made to reflect
the combined impact of operations on income tax expenses of the separate
companies.
NOTE 5: FORECLOSED ASSETS HELD FOR SALE
Transactions in the allowance for losses on foreclosed assets
were as follows:
In thousands) 1995 1994
- ----------------------------------------------------------
Balance, beginning of year ............. $ 97 $ 166
Provisions charged to expense ......... 8 151
Selling expenses incurred on foreclosed
assets sold .......................... (58) (220)
---- -----
Balance, end of year ................... $ 47 $ 97
==== =====
NOTE 6: PREMISES AND EQUIPMENT
Major classifications of premises and equipment, stated at cost, are as
follows:
(In thousands) 1995 1994 Estimated useful lives
- -----------------------------------------------------------------------
Land and improvements .... $ 2,394 $ 2,023
Buildings and improvements 15,733 12,694 10-50 years
Leasehold improvements ... 1,743 1,545 5-20 years
Equipment ................ 15,689 12,357 3-10 years
------- -------
35,559 28,619
Accumulated depreciation . 19,358 16,504
------- -------
Net premises and equipment $16,201 $12,115
======= =======
NOTE 7: TIME DEPOSITS
Time deposits included approximately $104,906,000 and $55,222,000 of
certificates of deposit of $100,000 or more, at December 31, 1995 and 1994,
respectively.
Deposits are the Company's primary funding source for loans and
investment securities. The mix and repricing alternatives can significantly
affect the cost of this source of funds and, therefore, impact the margin.
NOTE 8: INCOME TAXES
The provision for income taxes is comprised of the following components:
(In thousands) 1995 1994 1992
- -------------------------------------------------------------
Income taxes currently payable $ 4,332 $3,718 $ 4,246
Deferred income taxes ........ (134) 63 (780)
------- ------ -------
Provision for income taxes ... $ 4,198 $3,781 $ 3,466
======= ====== =======
Deferred income taxes related to the change in unrealized appreciation on
available-for-sale securities, shown in stockholders' equity, were $665,000 and
($120,000) for 1995 and 1994, respectively.
The tax effects of temporary differences related to deferred taxes
included on the balance sheet are shown below:
(In thousands) 1995 1994
- ----------------------------------------------------------
Deferred tax assets
Allowance for loan losses ....... $ 2,940 $ 2,744
Valuation of foreclosed assets .. 250 281
Deferred compensation payable ... 444 373
Deferred loan fee income ........ 707 773
Vacation accrual ................ 313 280
Loan servicing reserve .......... 190 136
Interest on nonaccrual loans .... 230 90
Other ........................... 114 139
------- -------
5,188 4,816
------- -------
Deferred tax liabilities
Accumulated depreciation ........ (718) (405)
Available-for-sale securities ... (1,151) (120)
Other ........................... (338) --
------- -------
(2,207) (525)
------- -------
Net deferred tax asset before
valuation allowance ............. 2,981 4,291
------- -------
Valuation allowance
Beginning balance ............... -- (564)
Change during period ............ -- 564
------- -------
Ending balance .................. -- --
------- -------
Net deferred tax assets included in
other assets on balance sheets .. $ 2,981 $ 4,291
======= =======
A reconciliation of income tax expense at the statutory rate to the
Company's actual income tax expense is shown below.
(In thousands) 1995 1994 1993
- ----------------------------------------------------------------------
Computed at the statutory rate (34%) $ 4,834 $ 4,637 $ 4,373
Increase (decrease) resulting from
Tax exempt income ................ (935) (985) (913)
Amortization of intangible assets 71 82 94
State income taxes ............... 111 113 56
Non-deductible expenses .......... 61 54 37
Other differences, net ........... 56 (120) (181)
------- ------- -------
Actual tax provision ............... $ 4,198 $ 3,781 $ 3,466
======= ======= =======
NOTE 9: LONG-TERM DEBT AND CAPITAL NOTES
Long-term debt and capital notes at December 31, 1995 and 1994, consisted
of the following components.
(In thousands) 1995 1994
- ----------------------------------------
Capital notes ...... $3,650 $11,000
Other debt ......... 1,107 1,144
------ -------
Total long-term debt $4,757 $12,144
====== =======
Capital notes of Simmons First National Corporation are due June 30,
1997, with interest payable quarterly and rates adjusted quarterly to the then
prime rate offered by Chase Manhattan in New York, which was adjusted at
December 31, 1995, to 8.75%.
Other debt consists of a mortgage note payable to Mutual Benefit Life
Insurance Corporation, secured by land and building with a book value of
$1,978,000, payable in equal monthly installments of $12,000, including interest
at approximately 9.75% per annum. Final payment is due August, 2008.
Aggregate annual maturities of long-term debt at December 31, 1995 are:
Annual
(In thousands) Year Maturities
- -----------------------------------------------------
1996 $ 41
1997 3,695
1998 49
1999 55
2000 60
Thereafter 857
-------
Total $ 4,757
=======
NOTE 10: CAPITAL STOCK
In addition to the common stock from which stock has been issued, as
shown on the balance sheet, the following classes of stock have been authorized.
Class B common stock of $1.00 par value per share, authorized 300 shares:
none issued.
Class A preferred stock of $100.00 par value per share, authorized 50,000
shares: none issued.
Class B preferred stock of $100.00 par value per share, authorized 50,000
shares: none issued.
On May 12, 1993, the Company issued and sold 700,000 shares of Class A
Common Stock. And on June 10, 1993, the Company issued and sold an additional
105,000 shares. The net proceeds to the Company stockholders' equity after
expenses was $16.1 million. In addition, 2,000 shares, related to exercised
stock options, were issued in the second quarter of 1995.
On April 1, 1995, the Company issued 137,234 shares of common stock
valued at $25.50 per share in exchange for shares in Dumas Bancshares, Inc.
(DBI).
NOTE 11: TRANSACTIONS WITH RELATED PARTIES
At December 31, 1995 and 1994, the subsidiary banks had loans outstanding
to executive officers, directors, and to companies in which the banks' executive
officers or directors were principal owners, in the amount of $7,635,000 in
1995, and $3,643,000 in 1994.
(In thousands)
- --------------------------------------
Balance, December 31, 1994 $ 3,643
New loans ................ 4,616
Repayments ............... (623)
-------
Balance, December 31, 1995 $ 7,636
=======
In management's opinion, such loans and other extensions of credit and
deposits were made in the ordinary course of business and were made on
substantially the same terms (including interest rates and collateral) as those
prevailing at the time for comparable transactions with other persons. Further,
in management's opinion, these loans did not involve more than the normal risk
of collectibility or present other unfavorable features.
NOTE 12: EMPLOYEE BENEFIT PLANS
In 1990, the Board of Directors approved the adoption of a 401(k)
retirement plan, effective January 1, 1991, covering substantially all
employees. Employees may contribute up to 12% of their compensation, with the
Company and its subsidiaries matching 25% of the employees' contribution on the
first 5% of the employee's compensation. The charges to income for this
contribution in 1995, 1994 and 1993 were $129,000, $125,000 and $106,000,
respectively.
The Company and its subsidiaries have a discretionary profit sharing and
employee stock ownership plan covering all employees. The charges to income for
the plan were $640,000 for 1995, $600,000 for 1994, and $550,000 for 1993.
In 1990, the Board of Directors adopted an incentive and nonqualified
stock option plan. Pursuant to the plan, an aggregate of 140,000 shares were
reserved for future issuance by the Company, upon exercise of stock options to
be granted to officers and other key employees.
The table below summarizes the transactions under the Company's stock
option plan:
Under
(Number of shares) Available Option
- --------------------------------------------------------------
Balance, December 31, 1993 77,000 63,000
Options granted November 28, 1994
($23.37 per share) (6,000) 6,000
------- -------
Balance, December 31, 1994 71,000 69,000
------- -------
Options granted
March 1, 1995
($23.75 per share) (11,000) 11,000
November 27, 1995
($29.00 per share) (10,000) 10,000
December 27, 1995
($30.75 per share) (16,500) 16,500
Options exercised
May 14, 1995 (2,000)
------- -------
Balance, December 31, 1995 33,500 104,500
======= =======
Options exercisable at December 31, 1995 58,100
=======
Also, Simmons First National Bank and Simmons First Bank Jonesboro have
deferred compensation agreements with certain active and retired officers. The
agreements provide monthly payments which, together with payments from the
deferred annuities issued pursuant to the terminated pension plan, equal 50
percent of average compensation prior to retirement or death. The charges to
income for the plans were $184,000 for 1995, $128,000 for 1994 and $187,000 for
1993. Such charges reflect the straight-line accrual over the employment period
of the present value of benefits due each participant, as of their full
eligibility date, using an 8% discount factor.
NOTE 13: ADDITIONAL CASH FLOW INFORMATION FOR 1995, 1994 AND 1993
(In thousands) 1995 1994 1993
- ------------------------------------------------------------------------------
Non-Cash Investing Activities
Sale and financing of foreclosed assets
held for sale ........................... $ 674 $ 148 $ 292
Real estate acquired in settlement of debt 169 81 1,230
Common stock issued in connection with
the DBI acquisition ..................... 3,500 -- --
The Company purchased all of the common stock of DBI and DSBB for
$7,400,000. In connection with the acquisition, liabilities were assumed as
follows:
Fair value of assets acquired ............ 61,278
Cash paid for the capital stock .......... (3,900)
Common stock issued ...................... (3,500)
------
Liabilities assumed ................... 53,878
======
Additional Cash Payment Information:
Interest paid .......................... 23,093 16,191 16,319
Income taxes paid ...................... 3,851 4,530 3,968
NOTE 14: OTHER OPERATING EXPENSE
Other non-interest expense consists of the following:
(In thousands) 1995 1994 1993
- ------------------------------------------------------
Professional services $ 1,400 $ 1,634 $ 1,530
Postage .............. 1,319 1,234 1,267
Telephone ............ 841 771 783
Credit card expense .. 1,445 1,458 1,163
Operating supplies ... 846 695 954
FDIC insurance ....... 830 1,307 1,293
Miscellaneous expenses 5,867 5,564 5,870
------- ------- -------
Total ........... $12,548 $12,663 $12,860
======= ======= =======
NOTE 15: DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments:
Cash and Cash Equivalents
The carrying amount for cash and cash equivalents approximates fair value.
Held-To-Maturity Securities
Fair values for investment securities equal quoted market prices, if
available. If quoted market prices are not available, fair values are estimated
based on quoted market prices of similar securities.
Available-For-Sale Securities and Trading Securities
Fair value for trading and available-for-sale and trading securities, which
also are the amounts recognized in the balance sheet, equal quoted market
prices, if available. If quoted market prices are not available, fair values are
estimates based on quoted market prices of similar securities.
Mortgage Loans Held for Sale
For homogeneous categories of loans, such as mortgage loans held for sale,
fair value is estimated, using the quoted market prices for securities backed by
similar loans, adjusted for differences in loan characteristics.
Loans
The fair value of loans is estimated by discounting the future cash flows,
using the current rates at which similar loans would be made to borrowers with
similar credit ratings and for the same remaining maturities. Loans with similar
characteristics were aggregated for purposes of the calculations. The carrying
amount of accrued interest approximates its fair value.
Deposits
The fair value of demand deposits, savings accounts, NOW accounts, and money
market deposits is the amount payable on demand at the reporting date (i.e.,
their carrying amount). The fair value of fixed-maturity time deposits is
estimated, using a discounted cash flow calculation that applies the rates
currently offered for deposits of similar remaining maturities. The carrying
amount of accrued interest payable approximates its fair value.
Federal Funds Purchased, Securities Sold Under Agreement to Repurchase, and
Other Borrowings
The carrying amount for federal funds purchased, securities sold under
agreement to repurchase, and other borrowings is a reasonable estimate of fair
value.
Long-Term Debt and Capital Notes
Rates currently available to the Company for debt with similar terms and
remaining maturities are used to estimate fair value of existing debt. The fair
value of the capital notes approximate the carrying value.
Commitments to Extend Credit, Letters of Credit and Lines of Credit
The fair value of commitments is estimated, using the fees currently
charged to enter into similar agreements, taking into account the remaining
terms of the agreements and the present creditworthiness of the counterparties.
For fixed rate loan commitments, fair value also considers the difference
between current levels of interest rates and the committed rates. The fair value
of letters of credit and lines of credit is based on fees currently charged for
similar agreements or on the estimated cost to terminate or otherwise settle the
obligations with the counterparties at the reporting date.
The following table represents estimated fair values of the Company's
financial instruments. The fair values of certain of these instruments were
calculated by discounting expected cash flows. This method involves significant
judgments by management considering the uncertainties of economic conditions and
other factors inherent in the risk management of financial instruments. Fair
value is the estimated amount at which financial assets or liabilities could be
exchanged in a current transaction between willing parties, other than in a
forced or liquidation sale. Because no market exists for certain of these
financial instruments and because management does not intend to sell these
financial instruments, the Company does not know whether the fair values shown
below represent values at which the respective financial instruments could be
sold individually or in the aggregate.
December 31, 1995 December 31, 1994
------------------- --------------------
Carrying Fair Carrying Fair
(In thousands) Amount Value Amount Value
- ----------------------------------------------------------------------------------------
Financial assets
Cash and cash equivalents ............... $ 73,422 $ 73,422 $ 74,002 $ 74,002
Held-to-maturity securities ............. 134,433 136,634 142,374 139,364
Available-for-sale securities ........... 90,367 90,367 29,610 29,610
Trading account securities .............. 548 548 2,734 2,734
Mortgage loans held for sale ............ 26,159 26,159 8,720 8,720
Interest receivable ..................... 7,953 7,953 6,289 6,289
Loans, net of unearned discounts and
allowance for loan losses ............. 463,538 475,252 410,602 411,582
Financial liabilities
Non-interest-bearing transaction accounts 108,779 108,779 109,564 109,564
Interest-bearing transaction accounts and
savings deposits ...................... 251,065 251,065 228,649 228,649
Time deposits ........................... 344,924 351,163 245,325 238,571
Federal funds purchased and securities
sold under agreement to repurchase .... 20,861 20,861 23,931 23,931
Short-term debt ......................... 1,405 1,405 1,621 1,621
Capital notes ........................... 3,650 3,650 11,000 11,000
Long-term debt .......................... 1,107 1,137 1,144 1,244
Interest payable ........................ 3,090 3,090 1,718 1,718
Unrecognized financial instruments
(net of contract amount)
Letters of credit ..................... -- -- -- --
Lines of credit ....................... -- -- -- --
Forward commitments ................... -- -- -- --
The fair value of commitments to extend credit and forward commitments to
sell mortgage loans do not differ materially from the notional or principal
amounts.
NOTE 16: SIGNIFICANT ESTIMATES AND CONCENTRATIONS
Generally accepted accounting principles require disclosure of certain
significant estimates and current vulnerabilities due to certain concentrations.
Estimates related to the allowance for loan losses and certain concentrations of
credit risk are reflected in Note 3.
NOTE 17: COMMITMENTS AND CREDIT RISK
The five subsidiary banks grant agri-business, credit card, commercial, and
residential loans to customers throughout the state. 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 counterpart. Collateral held varies, but may include
accounts receivable, inventory, property, plant and equipment, commercial real
estate, and residential real estate.
At December 31, 1995 and 1994, the Company had outstanding commitments to
originate portfolio loans aggregating approximately $67,853,000 and $47,733,000,
respectively. The commitments extended over varying periods of time, with the
majority being disbursed within a one year period. Loan commitments at fixed
rates of interest amounted to $26,744,000 and $16,519,000 at December 31, 1995
and 1994, respectively, with the remainder at floating interest rates.
Mortgage loans serviced for others totaled $1,224,467,000 and
$1,228,311,000 at December 31, 1995 and 1994, respectively. A reserve of
$573,000 has been established for potential loss obligations, based on
management's evaluation of a number of variables, including the amount of
delinquent loans serviced for other investors, length of delinquency, and
amounts previously advanced on behalf of the borrower that the Company does not
expect to recover. Such reserve is netted against foreclosure receivables
included in other assets. The transactions included in that reserve are as
follows:
(In thousands) 1995 1994 1993
- -----------------------------------------------------------------
Balance, beginning of year ... $ 210 $ 310 $ 556
Additions
Provision charged to expense 1,349 1,398 1,029
Deductions
Losses charged to reserve .. (986) (1,498) (1,275)
------- ------- -------
Total ........................ $ 573 $ 210 $ 310
======= ======= =======
Mortgage loans in the process of origination represent amounts which the
Company plans to fund within a normal period of 60 to 90 days and which are
intended for sale to investors in the secondary market. Forward commitments to
sell mortgage loans are obligations to deliver loans at a specified price on or
before a specified future date. The Company acquires such commitments to reduce
market risk on mortgage loans in the process of origination and mortgage loans
held for sale.
Total mortgage loans in the process of origination amounted to
$27,691,000 and $11,748,000, mortgage loans held for sale amounted to
$26,159,000 and $8,720,000, at December 31, 1995 and 1994, respectively. Related
forward commitments to sell mortgage loans amounted to approximately $40,677,000
and $19,582,000 at December 31, 1995 and 1994, respectively. Included in
mortgage loans in the process of origination were commitments to originate loans
at fixed rates of interest of $26,127,000 and $11,007,000 at December 31, 1995
and 1994, 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
$1,954,000 and $918,000 at December 31, 1995 and 1994, respectively, with terms
ranging from 95 days to one year.
Lines of credit are agreements to lend to a customer, as long as there is
no violation of any condition established in the contract. Lines of credit
generally have fixed expiration dates. Since a portion of the line may expire
without being drawn upon, the total unused lines do not necessarily represent
future cash requirements. Each customer's creditworthiness is evaluated on a
case-by-case basis. The amount of collateral obtained, if deemed necessary, upon
extension of credit, is based on management's credit evaluation of the borrower.
Collateral held varies but may include accounts receivable, inventory, property,
plant and equipment, commercial real estate, and residential real estate.
Management uses the same credit policies in granting lines of credit as it does
for balance sheet instruments.
At December 31, 1995, the Company had granted unused lines of credit to
borrowers, aggregating approximately $3,365,000 and $157,068,000 for commercial
lines and open-end consumer lines. At December 31, 1994, unused lines of credit
aggregated approximately $4,568,000 for commercial lines and $143,563,000 for
open-end consumer lines.
At December 31, 1995, the Company did not have concentrations of 5% or
more of the investment portfolio in any bonds issued by a single municipality.
NOTE 18: LEASES
At December 31, 1995, 1994, and 1993, there were obligations under a
number of long-term land and office operating leases, which required minimum
annual rentals, aggregating approximately $316,000 for 1995, $553,000 for 1994,
and $589,000 for 1993. The leases extend for varying periods, up to the year
2057.
Minimum annual rentals under these non-cancelable leases at December 31,
1995, are as follows:
Annual
(In thousands) Year Rentals
- ---------------------------------------------------------------------------
1996-2000 (each year) $ 227
2001-2005 (five year aggregate) 866
2006-2010 (five year aggregate) 620
2011-2015 (five year aggregate) 620
2016 and thereafter (aggregate) 4,089
The corporate subsidiaries are obligated under equipment leases on a
month-to-month basis, which are expected to be renewed and had aggregate annual
rentals of approximately $148,000 in 1995, $150,000 in 1994, and $166,000 in
1993. The subsidiaries are also obligated on one-year leases for office and
storage space, having aggregate annual rentals of approximately $516,000 in
1995, $240,000 in 1994, and $63,000 in 1993.
NOTE 19: FUTURE CHANGES IN ACCOUNTING PRINCIPLE
The Financial Accounting Standards Board recently adopted Financial
Accounting Standards No. 123 (FAS 123), "Accounting for Stock-Based
Compensation". This statement establishes a fair value based method of
accounting for stock-based compensation plans. It encourages entities to adopt
that method in place of the provisions of APB No. 25, "Accounting for Stock
Issued to Employees", for all arrangements under which employees receive shares
of stock or other equity instruments of the employer or the employer incurs
liabilities to employees in amounts based on the price of its stock. This
statement applies to financial statements for fiscal year end 1996. Management
expects to continue to account for stock-based compensation in accordance with
the provisions of APB No. 25. Therefore, FAS 123 is not expected to have a
significant impact on the Company's consolidated financial statements.
NOTE 20: CONTINGENT LIABILITIES
The Company and/or its subsidiary banks have various unrelated legal
proceedings, most of which involve loan foreclosure activity pending, which, in
the aggregate, are not expected to have a material adverse effect on the
financial position of the Company and its subsidiaries.
NOTE 21: STOCKHOLDERS' EQUITY
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 Office of the Comptroller of the
Currency is required, if the total of all the 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 50% of the current
year earnings.
At December 31, 1995, the bank subsidiaries had approximately $16,000,000
in undivided profits available for payment of dividends to the Company, without
prior approval of the regulatory agencies. The most restrictive regulatory
capital requirements at December 31, 1995 and 1994, were $36,733,000 and
$35,322,000, respectively.
The Federal Reserve Board has established guidelines to 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 is one that has at least a 10% "total
risk-based capital" ratio, a 6% "Tier 1 risk-based capital" ratio, and a 5%
"Tier 1 leverage capital" ratio. At December 31, 1995, each of the subsidiary
banks met the capital standards for a well-capitalized institution. The
Company's risk-based capital ratio at December 31, 1995, was 20.03%.
NOTE 22: CONDENSED FINANCIAL INFORMATION (PARENT COMPANY ONLY)
CONDENSED BALANCE SHEETS
DECEMBER 31, 1995 and 1994
(In thousands) 1995 1994
- -----------------------------------------------------------------------------
ASSETS
Cash and cash equivalents .......................... $ 898 $28,053
Investment in wholly-owned subsidiaries ............ 79,799 63,134
Excess cost over fair value of net assets acquired 796 940
Investment securities .............................. 16,470 --
Fixed assets ....................................... 2,710 2,774
Other assets ....................................... 1,042 1,068
-------- -------
Total assets .................................. $101,715 $95,969
======== =======
LIABILITIES
Borrowed funds ..................................... $ 4,757 $12,144
Other liabilities .................................. 161 125
-------- -------
Total liabilities ............................. $ 4,918 $12,269
-------- -------
STOCKHOLDERS' EQUITY
Common stock stated value .......................... 19,083 18,387
Capital surplus .................................... 22,651 19,827
Unrealized appreciation on available for
sale securities, net of income taxes
of $1,152 and $120 at 1995 and 1994, respectively 2,025 233
Retained earnings .................................. 53,038 45,253
-------- -------
Total stockholders' equity .................... 96,797 83,700
-------- -------
Total liabilities and
stockholders' equity ...................... $101,715 $95,969
======== =======
CONDENSED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1995, 1994 and 1993
(In thousands) 1995 1994 1993
- ---------------------------------------------------------------------------
Income
Dividends from subsidiaries ........... $ 3,205 $ 3,659 $ 5,101
Other income .......................... 4,256 1,702 3,269
------- ------- -------
7,461 5,361 8,370
Expenses ................................ 3,982 1,943 3,885
------- ------- -------
Income before income taxes and equity in
undistributed net income of subsidiaries 3,479 3,418 4,485
Provision for income taxes .............. 137 (162) (167)
------- ------- -------
Income before equity in undistributed
net income of subsidiaries ............. 3,342 3,580 4,652
Equity in undistributed net income
of subsidiaries ........................ 6,677 6,280 4,744
------- ------- -------
Net income .............................. $10,019 $ 9,860 $ 9,396
======= ======= =======
CONDENSED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994 and 1993
(In thousands, except per share data) 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ......................................................... $ 10,019 $ 9,860 $ 9,396
Items not requiring (providing) cash
Depreciation and amortization .................................... 331 280 588
Accretion ........................................................ (87) (346) (306)
Deferred income taxes ............................................ (280) 73 (105)
Equity in undistributed net income of bank subsidiaries .......... (6,677) (6,280) (4,744)
Gain on sale of premises and equipment ........................... -- 9 --
Changes in
Accounts receivable .............................................. 26 539 327
Accounts payable and accrued expenses ............................ (672) (2,611) (400)
Income taxes payable ............................................. (44) 1,155 (3)
-------- -------- --------
Net cash provided by operating activities .................. 2,616 2,679 4,753
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Net (originations) collections of loans ............................ -- -- 3,750
Purchase of premises and equipment ................................. (398) (182) (268)
Proceeds from sale of fixed assets ................................. 275 168 (296)
Acquisition of DBI and DSBB ........................................ (3,664)
Proceeds from maturities of held-to-maturity investment securities . 24,000 24,806 781
Purchase of held-to-maturity investment securities ................. (30,082) -- (24,605)
Proceeds from maturities of available-for-sale investment securities 1,896 -- --
Purchase of available-for-sale investment securities ............... (12,197) -- --
-------- -------- --------
Net cash provided by (used in) investing activities ........ (20,170) 24,792 (20,638)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal reduction on long-term debt .............................. (7,387) (34) (30)
Dividends paid ..................................................... (2,234) (1,728) (1,390)
Proceeds from sale of additional stock ............................. -- -- 16,110
Issuance of common stock for exercised options ..................... 20 -- --
-------- -------- --------
Net cash provided by (used in) financing activities ........ (9,601) (1,762) 14,690
-------- -------- --------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS ................................................... (27,155) 25,709 (1,195)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR ......................... 28,053 2,344 3,539
-------- -------- --------
CASH AND CASH EQUIVALENTS, END OF YEAR ............................... $ 898 $ 28,053 $ 2,344
======== ======== ========
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
No items are reportable hereunder.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
Incorporated herein by reference from the Company's definitive proxy
statement for the Annual Meeting of Stockholders to be held April 23, 1996, to
be filed pursuant to Regulation 14A.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated herein by reference from the Company's definitive proxy
statement for the Annual Meeting of Stockholders to be held April 23, 1996, to
be filed pursuant to Regulation 14A.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated herein by reference from the Company's definitive proxy
statement for the Annual Meeting of Stockholders to be held April 23, 1996, to
be filed pursuant to Regulation 14A.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated herein by reference from the Company's definitive proxy
statement for the Annual Meeting of Stockholders to be held April 23, 1996, to
be filed pursuant to Regulation 14A.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORK 8-K
(a) 1 and 2. Financial Statements and any Financial Statement Schedules
The financial statements and financial statement schedules listed in the
accompanying index to consolidated financial statements and financial statement
schedules are filed as part of this annual report.
3. Exhibits
The exhibits listed in the accompanying index to exhibits are filed as part
of this annual report.
(b) Reports on Form 8-K
No reports on Form 8-K were filed for the three months ended December 31,
1995.
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) 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.
/s/ John L. Rush
-----------------------------March 25, 1996
John L. Rush, Secretary
Pursuant to the requirements of the Securities and Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on March 25, 1996.
Signature Title
/s/ J. Thomas May
- ---------------------------- President, Chief Executive Officer and Director
J. Thomas May
/s/ Barry L. Crow
- ---------------------------- Executive Vice President and Chief Financial
Barry L. Crow Officer (Principal Financial and Accounting
Officer)
/s/ W. E. Ayres
- ---------------------------- Director
W. E. Ayres
/s/ Ben V. Floriani
- ---------------------------- Director
Ben V. Floriani
/s/ C. Ramon Greenwood
- ---------------------------- Director
C. Ramon Greenwood
/s/ Lara F. Hutt, III
- ---------------------------- Director
Lara F. Hutt, III
/s/ David R. Perdue
- ---------------------------- Director
David R. Perdue
/s/ Harry L. Ryburn
- ---------------------------- Director
Harry L. Ryburn
/s/ Donald W. Stone
- ---------------------------- Director
Donald W. Stone
/s/ Henry F. Trotter, Jr.
- ---------------------------- Director
Henry F. Trotter, Jr.