UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 30, 2002 Commission File Number 06253
SIMMONS FIRST NATIONAL CORPORATION
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Arkansas 71-0407808
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
501 Main Street Pine Bluff, Arkansas 71601
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 870-541-1000
------------
Not Applicable
- -------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last report
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period) and (2) has been
subject to such filing requirements for the past 90 days.
YES X NO
--- ---
Indicate the number of shares outstanding of each of issuer's classes of common
stock.
Class A, Common 7,062,795
Class B, Common None
SIMMONS FIRST NATIONAL CORPORATION
INDEX
Page No.
Part I: Summarized Financial Information
Consolidated Balance Sheets --
September 30, 2002 and December 31, 2001 3-4
Consolidated Statements of Income --
Three months and nine months ended
September 30, 2002 and 2001 5
Consolidated Statements of Cash Flows --
Nine months ended September 30, 2002 and 2001 6
Consolidated Statements of Changes in Stockholders' Equity
Nine months ended September 30, 2002 and 2001 7
Condensed Notes to Consolidated Financial Statements 8-18
Management's Discussion and Analysis of Financial
Condition and Results of Operations 19-34
Controls and Procedures 34
Review by Independent Certified Public Accountants 35
Part II: Other Information 36-38
Part I: Summarized Financial Information
Simmons First National Corporation
Consolidated Balance Sheets
September 30, 2002 and December 31, 2001
ASSETS
September 30, December 31,
(In thousands, except share data) 2002 2001
- -------------------------------------------------------------------------------------------------------------
(Unaudited)
Cash and non-interest bearing balances due from banks $ 71,814 $ 81,785
Interest bearing balances due from banks 22,564 55,356
Federal funds sold and securities purchased
under agreements to resell 26,150 57,700
--------- ---------
Cash and cash equivalents 120,528 194,841
Investment securities 421,384 447,305
Mortgage loans held for sale 25,096 24,971
Assets held in trading accounts 1,013 896
Loans 1,281,634 1,258,784
Allowance for loan losses (21,688) (20,496)
--------- ---------
Net loans 1,259,946 1,238,288
Premises and equipment 47,551 45,537
Foreclosed assets held for sale, net 2,263 1,084
Interest receivable 15,074 15,764
Goodwill 32,797 31,739
Core deposits and other intangible assets, net 673 554
Other assets 17,030 15,939
--------- ---------
TOTAL ASSETS $ 1,943,355 $ 2,016,918
========= =========
See Condensed Notes to Consolidated Financial Statements.
3
Simmons First National Corporation
Consolidated Balance Sheets
September 30, 2002 and December 31, 2001
LIABILITIES AND STOCKHOLDERS' EQUITY
September 30, December 31,
(In thousands, except share data) 2002 2001
- -------------------------------------------------------------------------------------------------------------
(Unaudited)
LIABILITIES
Non-interest bearing transaction accounts $ 232,455 $ 247,235
Interest bearing transaction accounts and savings deposits 542,237 517,856
Time deposits 839,346 921,313
--------- ---------
Total deposits 1,614,038 1,686,404
Federal funds purchased and securities sold
under agreements to repurchase 57,759 86,635
Short-term debt 11,450 3,801
Long-term debt 50,456 42,150
Accrued interest and other liabilities 16,002 15,565
--------- ---------
Total liabilities 1,749,705 1,834,555
--------- ---------
STOCKHOLDERS' EQUITY
Capital stock
Class A, common, par value $1 a share, authorized
30,000,000 shares, 7,062,795 issued and outstanding
at 2002 and 7,087,185 at 2001 7,063 7,087
Surplus 44,392 45,278
Undivided profits 139,912 128,519
Accumulated other comprehensive income
Unrealized appreciation on available-for-sale securities,
net of income taxes of $1,481 in 2002 and $887 in 2001 2,283 1,479
--------- ---------
Total stockholders' equity 193,650 182,363
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,943,355 $ 2,016,918
========= =========
See Condensed Notes to Consolidated Financial Statements.
4
Simmons First National Corporation
Consolidated Statements of Income
Three Months and Nine Months Ended September 30, 2002 and 2001
Three Months Ended Nine Months Ended
September 30, September 30,
(In thousands, except per share data) 2002 2001 2002 2001
- ---------------------------------------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited)
INTEREST INCOME
Loans $ 23,853 $ 27,298 $ 71,627 $ 84,827
Federal funds sold and securities purchased
under agreements to resell 207 347 799 1,490
Investment securities 4,636 5,042 14,417 16,003
Mortgage loans held for sale, net of unrealized gains (losses) 206 303 624 742
Assets held in trading accounts 30 1 50 10
Interest bearing balances due from banks 104 400 535 1,089
------- ------- ------- -------
TOTAL INTEREST INCOME 29,036 33,391 88,052 104,161
------- ------- ------- -------
INTEREST EXPENSE
Deposits 8,512 15,322 28,026 48,684
Federal funds purchased and securities sold
under agreements to repurchase 236 592 949 2,339
Short-term debt 30 100 83 280
Long-term debt 841 830 2,465 2,489
------- ------- ------- -------
TOTAL INTEREST EXPENSE 9,619 16,844 31,523 53,792
------- ------- ------- -------
NET INTEREST INCOME 19,417 16,547 56,529 50,369
Provision for loan losses 2,864 3,429 7,661 7,249
------- ------- ------- -------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 16,553 13,118 48,868 43,120
------- ------- ------- -------
NON-INTEREST INCOME
Trust income 1,406 1,443 4,001 4,099
Service charges on deposit accounts 2,648 2,226 7,429 6,634
Other service charges and fees 321 382 1,097 1,246
Income on sale of mortgage loans, net of commissions 962 781 2,511 2,218
Income on investment banking, net of commissions 250 324 764 766
Credit card fees 2,598 2,669 7,486 7,791
Other income 960 901 2,764 2,376
Gain on sale of securities, net -- -- -- --
------- ------- ------- -------
TOTAL NON-INTEREST INCOME 9,145 8,726 26,052 25,130
------- ------- ------- -------
NON-INTEREST EXPENSE
Salaries and employee benefits 10,029 9,058 29,819 26,963
Occupancy expense, net 1,201 1,183 3,482 3,443
Furniture and equipment expense 1,439 1,250 4,041 3,924
Loss on foreclosed assets 69 165 152 327
Other operating expenses 4,782 5,498 13,904 16,160
------- ------- ------- -------
TOTAL NON-INTEREST EXPENSE 17,520 17,154 51,398 50,817
------- ------- ------- -------
INCOME BEFORE INCOME TAXES 8,178 4,690 23,522 17,433
Provision for income taxes 2,409 1,154 7,107 4,856
------- ------- ------- -------
NET INCOME $ 5,769 $ 3,536 $ 16,415 $ 12,577
======= ======= ======= =======
BASIC EARNINGS PER SHARE $ 0.82 $ 0.50 $ 2.32 $ 1.77
======= ======= ======= =======
DILUTED EARNINGS PER SHARE $ 0.80 $ 0.49 $ 2.28 $ 1.76
======= ======= ======= =======
See Condensed Notes to Consolidated Financial Statements.
5
Simmons First National Corporation
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 2002 and 2001
September 30, September 30,
(In thousands) 2002 2001
- -----------------------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES (Unaudited)
Net income $ 16,415 $ 12,577
Items not requiring (providing) cash
Depreciation and amortization 3,776 5,727
Provision for loan losses 7,661 7,249
Net accretion of investment securities (452) (772)
Deferred income taxes (1,097) 1,074
Provision for foreclosed assets 33 154
Changes in
Interest receivable 737 1,910
Mortgage loans held for sale (125) (13,406)
Assets held in trading accounts (117) 842
Other assets (1,087) 2,047
Accrued interest and other liabilities 881 (2,467)
Income taxes payable 505 (689)
-------- --------
Net cash provided by operating activities 27,130 14,246
-------- --------
INVESTING ACTIVITIES
Net repayment of loans (23,877) (12,217)
Purchase of branch location, net funds received 2,477 --
Purchase of premises and equipment, net (4,137) (2,702)
Proceeds from sale of foreclosed assets 1,336 1,208
Proceeds from maturities of available-for-sale securities 326,390 197,140
Purchases of available-for-sale securities (261,980) (173,909)
Proceeds from maturities of held-to-maturity securities 115,002 102,300
Purchases of held-to-maturity securities (152,235) (115,492)
-------- --------
Net cash provided by (used in) investing activities 2,976 (3,672)
-------- --------
FINANCING ACTIVITIES
Net (decrease) increase in deposits (85,566) 70,218
Net proceeds of short-term debt 7,649 8,795
Dividends paid (5,022) (4,611)
Proceeds from issuance of long-term debt 10,970 4,085
Repayments of long-term debt (2,664) (3,488)
Net (decrease) increase in federal funds purchased and securities
sold under agreements to repurchase (28,876) 34,082
Repurchase of common stock, net (910) (2,558)
-------- --------
Net cash (used in) provided by financing activities (104,419) 106,523
-------- --------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (74,313) 117,097
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR 194,841 111,135
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 120,528 $ 228,232
======== ========
See Condensed Notes to Consolidated Financial Statements.
6
Simmons First National Corporation
Consolidated Statements of Changes in Stockholders' Equity
Nine Months Ended September 30, 2002 and 2001
Accumulated
Other
Common Comprehensive Undivided
(In thousands, except share data) Stock Surplus Income Profits Total
- -------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2000 $ 7,181 $ 47,964 $ (34) $ 118,232 $ 173,343
Comprehensive income
Net income -- -- -- 12,577 12,577
Change in unrealized depreciation on
available-for-sale securities, net of
income taxes of $1,440 -- -- 2,401 -- 2,401
--------
Comprehensive income 14,978
Exercise of stock options - 51,321 shares 51 965 -- -- 1,016
Securities exchanged under stock option plan (8) (252) -- -- (260)
Repurchase of common stock - 133,955 shares (134) (3,180) -- -- (3,314)
Cash dividends declared - $0.65 per share -- -- -- (4,611) (4,611)
-------- -------- -------- -------- --------
Balance, September 30, 2001 7,090 45,497 2,367 126,198 181,152
Comprehensive income
Net income -- -- -- 3,951 3,951
Change in unrealized appreciation on
available-for-sale securities, net of
income tax credit of $532 -- -- (888) -- (888)
--------
Comprehensive income 3,063
Exercise of stock options - 11,379 shares 12 230 -- -- 242
Securities exchanged under stock option plan (5) (139) -- -- (144)
Repurchase of common stock - 10,000 shares (10) (310) -- -- (320)
Cash dividends declared - $0.23 per share -- -- -- (1,630) (1,630)
-------- -------- -------- -------- --------
Balance, December 31, 2001 7,087 45,278 1,479 128,519 182,363
Comprehensive income
Net income -- -- -- 16,415 16,415
Change in unrealized appreciation on
available-for-sale securities, net of
income taxes of $594 -- -- 804 -- 804
--------
Comprehensive income 17,219
Exercise of stock options - 8,200 shares 8 152 -- -- 160
Securities exchanged under stock option plan (2) (88) -- -- (90)
Repurchase of common stock - 30,000 shares (30) (950) -- -- (980)
Cash dividends declared - $0.71 per share -- -- -- (5,022) (5,022)
-------- -------- -------- -------- --------
Balance, September 30, 2002 $ 7,063 $ 44,392 $ 2,283 $ 139,912 $ 193,650
======== ======== ======== ======== ========
See Condensed Notes to Consolidated Financial Statements.
7
SIMMONS FIRST NATIONAL CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1: BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Simmons First
National Corporation and its subsidiaries. Significant intercompany accounts and
transactions have been eliminated in consolidation.
The accompanying unaudited consolidated financial statements reflect all
adjustments that are, in the opinion of the Company's management, necessary to
fairly present the financial position, results of operations and cash flows of
the Company. Those adjustments consist only of normal recurring adjustments.
Certain prior year amounts are reclassified to conform to current year
classification. The results of operations for the period are not necessarily
indicative of the results to be expected for the full year.
Certain information and note disclosures normally included in the Company's
annual financial statements prepared in accordance with accounting principles
generally accepted in the United States of America have been condensed or
omitted. These consolidated financial statements should be read in conjunction
with the consolidated financial statements and notes thereto included in the
Company's Form 10-K annual report for 2001 filed with the Securities and
Exchange Commission.
Earnings Per Share
Basic earnings per share is computed based on the weighted average number
of common shares outstanding during each year. Diluted earnings per share are
computed using the weighted average common shares and all potentially dilutive
common shares outstanding during the period.
The computation of per share earnings for the nine months ended September
30, 2002 and 2001 is as follows:
(In thousands, except per share data) 2002 2001
- -------------------------------------------------------------------------------------------------------
Net Income $ 16,415 $ 12,577
---------- ---------
Average common shares outstanding 7,072 7,103
Average common share stock options outstanding 117 56
---------- ---------
Average diluted common shares 7,189 7,159
---------- ---------
Basic earnings per share $ 2.32 $ 1.77
========== =========
Diluted earnings per share $ 2.28 $ 1.76
========== =========
8
NOTE 2: ACQUISITIONS
On July 19, 2002, the Company expanded its coverage in South Arkansas with
the purchase of the Monticello location from HEARTLAND Community Bank. Simmons
First Bank of South Arkansas, a wholly owned subsidiary of the Company, acquired
the Monticello office. As of July 19, 2002, the new location had total loans of
$8 million and total deposits of $13 million. As a result of this transaction,
the Company recorded additional goodwill and core deposits of $1,058,000 and
$213,000, respectively.
NOTE 3: INVESTMENT SECURITIES
The amortized cost and fair value of investment securities that are
classified as held-to-maturity and available-for-sale are as follows:
September 30, December 31,
2002 2001
---------------------------------------------------- ------------------------------------------------
Gross Gross Estimated Gross Gross Estimated
Amortized Unrealized Unrealized Fair Amortized Unrealized Unrealized Fair
(In thousands) Cost Gains (Losses) Value Cost Gains (Losses) Value
- ----------------------------------------------------------------------------------------------------------------------------------
Held-to-Maturity
- -------------------
U.S. Treasury $ 27,170 $ 699 $ -- $ 27,869 $ 27,528 $ 826 $ -- $ 28,354
U.S. Government
agencies 75,280 675 (41) 75,914 36,992 451 (108) 37,335
Mortgage-backed
securities 4,752 77 (1) 4,828 6,681 105 -- 6,786
State and political
subdivisions 121,254 4,294 (6) 125,542 119,824 2,255 (152) 121,927
Other securities 100 -- -- 100 100 -- -- 100
------- ------ ----- ------- ------- ------- ------ -------
$ 228,556 $ 5,745 $ (48) $ 234,253 $ 191,125 $ 3,637 $ (260) $ 194,502
======= ====== ===== ======= ======= ======= ====== =======
Available-for-Sale
- -------------------
U.S. Treasury $ 14,598 $ 304 $ -- $ 14,902 $ 18,071 $ 349 $ (12) $ 18,408
U.S. Government
agencies 155,438 2,521 (53) 157,906 214,190 1,792 (492) 215,490
Mortgage-backed
securities 5,146 44 (25) 5,165 6,975 69 (40) 7,004
State and political
subdivisions 4,979 402 (5) 5,376 5,194 205 -- 5,399
Other securities 8,718 761 -- 9,479 9,056 823 -- 9,879
------- ------ ------ ------- ------- ------- ------ -------
$ 188,879 $ 4,032 $ (83) $ 192,828 $ 253,486 $ 3,238 $ (544) $ 256,180
======= ====== ====== ======= ======= ======= ====== =======
9
The carrying value, which approximates the market value, of securities
pledged as collateral, to secure public deposits and for other purposes,
amounted to $316,517,000 at September 30, 2002 and $290,915,000 at December 31,
2001.
The book value of securities sold under agreements to repurchase amounted
to $57,759,000 and $35,990,000 for September 30, 2002 and December 31, 2001,
respectively.
Income earned on securities for the nine months ended September 30, 2002
and 2001, is as follows:
(In thousands) 2002 2001
- ----------------------------------------------------------------------------------------------------------------
Taxable
Held-to-maturity $ 3,507 $ 4,017
Available-for-sale 6,809 7,695
Non-taxable
Held-to-maturity 3,897 4,032
Available-for-sale 204 259
---------- ---------
Total $ 14,417 $ 16,003
========== =========
Maturities of investment securities at September 30, 2002, are as follows:
Held-to-Maturity Available-for-Sale
------------------------- ---------------------------
Amortized Fair Amortized Fair
(In thousands) Cost Value Cost Value
- ------------------------------------------------------------------------------------------------------------------
One year or less $ 54,652 $ 55,052 $ 47,710 $ 47,940
After one through five years 112,124 114,916 120,731 123,448
After five through ten years 54,185 56,377 8,295 8,512
After ten years 7,495 7,808 3,425 3,449
Other securities 100 100 8,718 9,479
------- ------- ------- -------
Total $ 228,556 $ 234,253 $ 188,879 $ 192,828
======= ======= ======= =======
There were no gross realized gains or losses as of September 30, 2002 and
2001.
Most of the state and political subdivision debt obligations are non-rated
bonds and represent small, Arkansas issues, which are evaluated on an ongoing
basis.
10
NOTE 4: LOANS AND ALLOWANCE FOR LOAN LOSSES
The various categories are summarized as follows:
September 30, December 31,
(In thousands) 2002 2001
- -----------------------------------------------------------------------------------------------------------------------------
Consumer
Credit cards $ 178,125 $ 196,710
Student loans 83,028 74,860
Other consumer 159,264 179,138
Real estate
Construction 78,376 83,628
Single family residential 236,909 224,122
Other commercial 286,363 263,539
Commercial
Commercial 149,622 153,617
Agricultural 85,974 60,794
Financial institutions 7,376 5,861
Other 16,597 16,515
--------- ---------
Total loans before allowance for loan losses $ 1,281,634 $ 1,258,784
========= =========
During the first nine months of 2002, foreclosed assets held for sale
increased $1,179,000 to $2,263,000 and are carried at the lower of cost or fair
market value. Other non-performing assets, non-accrual loans and other
non-performing loans of the Company at September 30, 2002, were $406,000,
$11,099,000 and $1,291,000, respectively, bringing the total of non-performing
assets to $15,059,000.
11
Transactions in the allowance for loan losses are as follows:
Sept 30, December 31,
(In thousands) 2002 2001
- -----------------------------------------------------------------------------------------------------------------
Balance, beginning of year $ 20,496 $ 21,157
Additions
Allowance for loan losses of acquired branch 247 --
Provision charged to expense 7,661 7,249
---------- ---------
28,404 28,406
Deductions
Losses charged to allowance, net of recoveries
of $1,695 and $1,250 for the first nine months of
2002 and 2001, respectively 6,716 7,045
---------- ---------
Balance, September 30 $ 21,688 21,361
==========
Additions
Provision charged to expense 2,709
---------
24,070
Deductions
Losses charged to allowance, net of recoveries
of $479 for the last three months of 2001 3,574
---------
Balance, end of year $ 20,496
=========
At September 30, 2002 and December 31, 2001, impaired loans totaled
$13,643,000 and $21,012,000, respectively. All impaired loans had designated
reserves for possible loan losses. Reserves relative to impaired loans at
September 30, 2002, were $2,349,000 and $4,093,000 at December 31, 2001.
Approximately $319,000 and $736,000 of interest income was recognized on
average impaired loans of $18,118,000 and $21,170,000 as of September 30, 2002
and 2001, respectively. Interest recognized on impaired loans on a cash basis
during the first nine months of 2002 and 2001 was immaterial.
12
NOTE 5: GOODWILL AND OTHER INTANGIBLES
Financial Accounting Standards Board Statement No. 142, Goodwill and Other
Intangibles, requires transitional disclosures regarding the change in
amortization and other treatment of goodwill and intangible assets for the three
and nine month periods ended September 30, 2001, as follows:
September 30, 2001
-----------------------------------------
Three Nine
Months Months
(In thousands) Ended Ended
- -------------------------------------------------------------------------------------------------------
Reported net income $ 3,536 $ 12,577
Add back: Goodwill amortization 733 2,191
Subtract: Income taxes (255) (764)
--------- ---------
Adjusted net income $ 4,014 $ 14,004
========= =========
Goodwill is tested annually for impairment. If the implied fair value of
goodwill is lower than its carrying amount, goodwill impairment is indicated and
goodwill is written down to its implied fair value. Subsequent increases in
goodwill value are not recognized in the financial statements.
The carrying basis and accumulated amortization of recognized intangible
assets at September 30, 2002 and December 31, 2001, were:
September 30, 2002 December 31, 2001
------------------------------------------- ------------------------------------------
Gross Gross
Carrying Accumulated Carrying Accumulated
(In thousands) Amount Amortization Net Amount Amortization Net
- ------------------------------------------------------------------------------------------------------------------------------
Core deposits $ 1,033 $ 398 $ 635 $ 820 $ 346 $ 474
Other intangible assets 938 900 38 938 858 80
--------- --------- --------- -------- -------- --------
Total $ 1,971 $ 1,298 $ 673 $ 1,758 $ 1,204 $ 554
========= ========= ========= ======== ======== ========
On October 1, 2002, Financial Accounting Standards Board issued SFAS No.
147, Acquisitions of Certain Financial Institutions. This statement concludes
that the excess of the fair value of liabilities assumed over the fair value of
tangible and identifiable intangible assets acquired in all business
combinations represents goodwill that should be accounted for under FASB
Statement No. 142. Thus, the specialized accounting guidance in paragraph 5 of
FASB Statement No. 72, Accounting for Certain Acquisition of Banking or Thrift
Institutions, will not apply to transactions considered business combinations
after September 30, 2002. The Company will adopt the new rules effective October
1, 2002. The elimination of amortization under FASB No. 72 will have a positive
impact to the Company's 2002 earnings of $42,000.
Core deposit and other intangible assets amortization expense recorded for
the nine-month periods ended September 30, 2002 and 2001, was $94,000 and
$82,000, respectively. After adjusting for SFAS No. 147, the Company's estimated
amortization expense for each of the following five years is: 2002 - $84,000;
2003 - $104,000; 2004 - $95,000; 2005 - $93,000 and 2006 - $86,000.
13
NOTE 6: TIME DEPOSITS
Time deposits include approximately $316,946,000 and $341,085,000 of
certificates of deposit of $100,000 or more at September 30, 2002 and December
31, 2001, respectively.
NOTE 7: INCOME TAXES
The provision for income taxes is comprised of the following components:
September 30, September 30,
(In thousands) 2002 2001
- -------------------------------------------------------------------------------------------------------------------------
Income taxes currently payable $ 8,204 $ 3,782
Deferred income taxes (1,097) 1,074
-------------- -------------
Provision for income taxes $ 7,107 $ 4,856
============== =============
The tax effects of temporary differences related to deferred taxes shown on
the balance sheet are shown below:
September 30, December 31,
(In thousands) 2002 2001
- ------------------------------------------------------------------------------------------------------------------------
Deferred tax assets
Allowance for loan losses $ 7,238 $ 6,611
Valuation of foreclosedassets 135 113
Deferred compensation payable 589 631
Deferred loan fee income 129 277
Vacation compensation 574 496
Mortgage servicing reserve 388 365
Loan interest 183 139
Other 161 189
------------ -------------
Total deferred tax assets 9,397 8,821
------------ -------------
Deferred tax liabilities
Accumulated depreciation (1,232) (1,534)
Available-for-sale securities (1,481) (887)
FHLB stock dividends (478) (697)
Other (202) (202)
------------ -------------
Total deferred tax liabilities (3,393) (3,320)
------------ -------------
Net deferred tax assets included in other
assets on balance sheets $ 6,004 $ 5,501
============ =============
14
A reconciliation of income tax expense at the statutory rate to the
Company's actual income tax expense is shown below:
September 30, September 30,
(In thousands) 2002 2001
- ------------------------------------------------------------------------------------------------------------------------
Computed at the statutory rate (35%) $ 8,233 $ 6,102
Increase (decrease) resulting from:
Tax exempt income (1,649) (1,503)
Other differences, net 523 257
------------- -------------
Actual tax provision $ 7,107 $ 4,856
============= =============
NOTE 8: LONG-TERM DEBT
Long-term debt at September 30, 2002 and December 31, 2001, consisted of
the following components,
September 30, December 31,
(In thousands) 2002 2001
- ------------------------------------------------------------------------------------------------------------------------
7.32% note due 2007, unsecured $ 10,000 $ 12,000
1.02% to 8.41% FHLB advances due 2002 to 2021,
secured by residential real estate loans 23,206 12,900
Trust preferred securities 17,250 17,250
------------- ----------------
$ 50,456 $ 42,150
============= ================
The Company owns a wholly owned grantor trust subsidiary (the Trust) to
issue preferred securities representing undivided beneficial interests in the
assets of the respective Trust and to invest the gross proceeds of such
preferred securities into notes of the Company. The sole assets of the Trust are
$17.8 million aggregate principal amount of the Company's 9.12% Subordinated
Debenture Notes due 2027 which are currently redeemable. Trust preferred
securities qualify as Tier 1 Capital for regulatory purposes.
15
Aggregate annual maturities of long-term debt at September 30, 2002 are:
Annual
(In thousands) Year Maturities
- ------------------------------------------------------------------------------------------------------------------------
2002 3,292
2003 3,669
2004 4,359
2005 4,420
2006 5,062
Thereafter 29,654
------------
Total $ 50,456
============
NOTE 9: CONTINGENT LIABILITIES
A number of legal proceedings exist in which the Company and/or its
subsidiaries are either plaintiffs or defendants or both. Most of the lawsuits
involve loan foreclosure activities. The various unrelated legal proceedings
pending against the subsidiary banks in the aggregate are not expected to have a
material adverse effect on the financial position of the Company and its
subsidiaries.
NOTE 10: UNDIVIDED PROFITS
The subsidiary banks are subject to a regulatory limitation on dividends
that can be paid to the parent company without prior approval of the applicable
regulatory agencies. The approval of the Comptroller of the Currency is
required, if the total of all dividends declared by a national bank in any
calendar year exceeds the total of its net profits, as defined, for that year
combined with its retained net profits of the preceding two years. Arkansas bank
regulators have specified that the maximum dividend limit state banks may pay to
the parent company without prior approval is 75% of current year earnings plus
75% of the retained net earnings of the preceding year. At September 30, 2002,
the bank subsidiaries had approximately $13 million available for payment of
dividends to the Company without prior approval of the regulatory agencies.
The Federal Reserve Board's risk-based capital guidelines include the
definitions for (1) a well-capitalized institution, (2) an
adequately-capitalized institution and (3) an undercapitalized institution. The
criteria for a well-capitalized institution are: a 5% "Tier l leverage capital"
ratio, a 6% "Tier 1 risk-based capital" ratio and a 10% "total risk-based
capital" ratio. As of September 30, 2002, each of the seven subsidiary banks met
the capital standards for a well-capitalized institution. The Company's "total
risk-based capital" ratio was 14.86% at September 30, 2002.
16
NOTE 11: STOCK OPTIONS AND RESTRICTED STOCK
At September 30, 2002, the Company had stock options outstanding of 397,850
shares and stock options exercisable of 248,180 shares. During the first nine
months of 2002, there were 8,200 shares issued upon exercise of stock options,
1,400 options were forfeited and 6,500 additional stock options of the Company
were granted. No additional shares of common stock of the Company were granted
or issued as bonus shares of restricted stock, during the first nine months of
2002.
NOTE 12: ADDITIONAL CASH FLOW INFORMATION
Nine Months Ended
September 30,
(In thousands) 2002 2001
- -----------------------------------------------------------------------------------------------------
Interest paid $ 33,667 $ 54,577
Income taxes paid $ 7,699 $ 4,471
NOTE 13: CERTAIN TRANSACTIONS
From time to time, the Company and its subsidiaries have made loans and
other extensions of credit to directors, officers, their associates and members
of their immediate families. From time to time, directors, officers and their
associates and members of their immediate families have placed deposits with the
Company's subsidiary banks. Such loans, other extensions of credit and deposits
were made in the ordinary course of business, on substantially the same terms
(including interest rates and collateral) as those prevailing at the time for
comparable transactions with other persons and did not involve more than normal
risk of collectibility or present other unfavorable features.
17
NOTE 14: COMMITMENTS AND CREDIT RISK
The seven affiliate banks of the Company grant agribusiness, commercial,
consumer and residential loans to their customers. Included in the Company's
diversified loan portfolio is unsecured debt in the form of credit card
receivables that comprises approximately 13.9% and 15.6% of the portfolio, as of
September 30, 2002 and December 31, 2001, respectively.
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since a portion of the commitments may expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. Each customer's creditworthiness is
evaluated on a case-by-case basis. The amount of collateral obtained, if deemed
necessary, is based on management's credit evaluation of the counterparty.
Collateral held varies, but may include accounts receivable, inventory,
property, plant and equipment, commercial real estate and residential real
estate.
At September 30, 2002, the Company had outstanding commitments to extend
credit aggregating approximately $231,045,000 and $294,809,000 for credit card
commitments and other loan commitments, respectively. At December 31, 2001, the
Company had outstanding commitments to extend credit aggregating approximately
$230,783,000 and $203,808,000 for credit card commitments and other loan
commitments, respectively.
Letters of credit are conditional commitments issued by the bank
subsidiaries of the Company, to guarantee the performance of a customer to a
third party. Those guarantees are primarily issued to support public and private
borrowing arrangements, including commercial paper, bond financing and similar
transactions. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loans to customers. The
Company had total outstanding letters of credit amounting to $2,539,000 and
$4,218,000 at September 30, 2002 and December 31, 2001, respectively, with terms
ranging from 90 days to one year.
18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
- --------
Simmons First National Corporation recorded net income of $5,769,000, or
$0.80 per diluted share for the quarter ended September 30, 2002. These earnings
reflect an increase of $2,233,000 or $0.31 per share, when compared to last
year's third quarter earnings of $3,536,000, or $0.49 per diluted share. The
Company's annualized return on average assets and annualized return on average
stockholders' equity for the three-month period ended September 30, 2002, was
1.18% and 11.87%, compared to 0.71% and 7.75%, respectively, for the same period
in 2001.
Earnings for the nine-month period ended September 30, 2002, were
$16,415,000, or $2.28 per diluted share. These earnings reflect an increase of
$3,838,000, or $0.52 per share, when compared to the nine-month period ended
September 30, 2001, earnings of $12,577,000, or $1.76 per diluted share.
Annualized return on average assets and annualized return on average
stockholders' equity for the nine-month period ended September 20, 2002, was
1.12% and 11.62%, compared to 0.87% and 9.46%, respectively, for the same period
in 2001.
Total assets for the Company at September 30, 2002, were $1.943 billion, a
decrease of $74 million over the same figure at December 31, 2001. Stockholders'
equity at the end of the third quarter of 2002 was $193.7 million, an $11.3
million, or 6.2%, increase from December 31, 2001. During the first nine months
of 2002 the Company repurchased 30,000 common shares of stock. This stock
repurchase decreased stockholders' equity by $979,500.
The allowance for loan losses as a percent of total loans equaled 1.69% at
September 30, 2002, which is improved from 1.63% at December 31, 2001. During
2002, non-performing loans decreased $2.6 million from the end of last year.
Correspondingly, non-performing loans to total loans improved to 0.97% from
1.19%, as of December 31, 2001. In addition, the allowance for loan losses to
non-performing loans increased to 175% for the third quarter of 2002 from 137%
at year-end 2001.
Simmons First National Corporation is an Arkansas based, Arkansas
committed, financial holding company, with community banks in Pine Bluff,
Jonesboro, Lake Village, Rogers, Russellville, Searcy and El Dorado, Arkansas.
The Company's seven banks are conducting financial operations from 65 offices in
34 communities throughout Arkansas.
19
ACQUISITIONS
- ------------
On July 19, 2002, the Company expanded its coverage in South Arkansas with
the purchase of the Monticello location from HEARTLAND Community Bank. Simmons
First Bank of South Arkansas, a wholly owned subsidiary of the Company, acquired
the Monticello office. As of July 19, 2002, the new location had total loans of
$8 million and total deposits of $13 million. As a result of this transaction,
the Company recorded additional goodwill and core deposits of $1,058,000 and
$213,000, respectively.
STOCK REPURCHASE
- ----------------
The Company has a stock repurchase program, which is authorized to
repurchase up to 400,000 common shares. Under the repurchase program, there is
no time limit for the stock repurchases, nor is there a minimum number of shares
the Company intends to repurchase. The Company may discontinue purchases at any
time that management determines additional purchases are not warranted. The
shares are to be purchased from time to time at prevailing market prices,
through open market or unsolicited negotiated transactions, depending upon
market conditions. The Company intends to use the repurchased shares to satisfy
stock option exercises, for payment of future stock dividends and for general
corporate purposes.
During the nine-month period ended September 30, 2002, the Company
repurchased 30,000 common shares of stock with a weighted average repurchase
price of $32.65 per share. As of September 30, 2002, the Company has repurchased
a total of 331,000 common shares of stock with a weighted average repurchase
price of $23.71 per share.
NET INTEREST INCOME
- -------------------
Net interest income, the Company's principal source of earnings, is the
difference between the interest income generated by earning assets and the total
interest cost of the deposits and borrowings obtained to fund those assets.
Factors that determine the level of net interest income include the volume of
earning assets and interest bearing liabilities, yields earned and rates paid,
the level of non-performing loans and the amount of non-interest bearing
liabilities supporting earning assets. Net interest income is analyzed in the
discussion and tables below on a fully taxable equivalent basis. The adjustment
to convert certain interest income to a fully taxable equivalent basis consists
of dividing tax-exempt interest income by one minus the combined federal and
state income tax rate (37.50% for September 30, 2002 and 2001).
20
The third quarter of 2002 represents the third full quarter that the
Company was able to fully utilize the changes in the Arkansas usury law made
possible through the Gramm-Leach-Bliley Act, which was confirmed by the Eighth
Circuit Court of Appeals in October 2001. This ability to reprice the loan
portfolio, coupled with the ongoing repricing of the deposit base that was
driven by the Federal Reserve's lowering of interest rates, has enabled the
Company to achieve considerable improvement in both net interest income and net
interest margin.
For the three-month period ended September 30, 2002, net interest income on
a fully taxable equivalent basis was $20.2 million, an increase of $2.9 million,
or 16.6%, from the same period in 2001. The increase in net interest income was
the result of a $4.3 million decrease in interest income and a $7.2 million
decrease in interest expense. The decrease in interest income was the result of
a lower yield earned on earning assets. The decrease in interest expense was the
result of a lower cost of funds. The net interest margin improved 69 basis
points to 4.50% for the three-month period ended September 30, 2002, when
compared to 3.81% for the same period in 2001.
For the nine-month period ended September 30, 2002, net interest income on
a fully taxable equivalent basis was $59.0 million, an increase of $6.3 million,
or 12.0%, from the same period in 2001. The increase in net interest income was
the result of an $16.0 million decrease in interest income and a $22.3 million
decrease in interest expense. The decrease in interest income was the result of
a lower yield earned on earning assets. The decrease in interest expense was the
result of a lower cost of funds. The net interest margin improved 40 basis
points to 4.36% for the nine-month period ended September 30, 2002, when
compared to 3.96% for the same period in 2001.
Table 1 and 2 reflect an analysis of net interest income on a fully taxable
equivalent basis for the three-month and nine-month periods ended September 30,
2002 and 2001, respectively, as well as changes in fully taxable equivalent net
interest margin for the three-month and nine-month periods ended September 30,
2002 versus September 30, 2001.
21
Table 1: Analysis of Net Interest Income
(FTE =Fully Taxable Equivalent)
Three Months Ended Nine Months Ended
September 30, September 30,
(In thousands) 2002 2001 2002 2001
- ------------------------------------------------------------------------------------------------------------------------------
Interest income $ 29,036 $ 33,391 $ 88,052 $ 104,161
FTE adjustment 821 814 2,513 2,351
------------ ------------ ------------ -----------
Interest income - FTE 29,857 34,205 90,565 106,512
Interest expense 9,619 16,844 31,523 53,792
------------ ------------ ------------ -----------
Net interest income - FTE $ 20,238 $ 17,361 $ 59,042 $ 52,720
============ ============ ============ ===========
Yield on earning assets - FTE 6.63% 7.51% 6.69% 8.01%
Cost of interest bearing liabilities 2.53% 4.30% 2.74% 4.69%
Net interest spread - FTE 4.10% 3.21% 3.95% 3.32%
Net interest margin - FTE 4.50% 3.81% 4.36% 3.96%
Table 2: Changes in Fully Taxable Equivalent Net Interest Margin
Three Months Ended Nine Months Ended
September 30, September 30,
(In thousands) 2002 vs. 2001 2002 vs. 2001
- ---------------------------------------------------------------------------------------------------------------------------------
Decrease due to change in earning assets $ (546) $ (370)
Decrease due to change in earning asset yields (3,802) (15,577)
Increase due to change in interest bearing liabilities 1,046 1,559
Increase due to change in interest rates
paid on interest bearing liabilities 6,179 20,710
-------------- -------------
Increase in net interest income $ 2,877 $ 6,322
============== =============
Table 3 shows, for each major category of earning assets and interest
bearing liabilities, the average amount outstanding, the interest earned or
expensed on such amount and the average rate earned or expensed for the
three-month and nine-month periods ended September 30, 2002 and 2001. The table
also shows the average rate earned on all earning assets, the average rate
expensed on all interest bearing liabilities, the net interest spread and the
net interest margin for the same periods. The analysis is presented on a fully
taxable equivalent basis. Non-accrual loans were included in average loans for
the purpose of calculating the rate earned on total loans.
22
Table 3: Average Balance Sheets and Net Interest Income Analysis
Three Months Ended September 30,
------------------------------------------------------------------------------
2002 2001
------------------------------------- -------------------------------------
Average Income/ Yield/ Average Income/ Yield/
(In thousands) Balance Expense Rate(%) Balance Expense Rate(%)
- -----------------------------------------------------------------------------------------------------------------------------
ASSETS
- ------
Earning Assets
Interest bearing balances
due from banks $ 26,468 $ 104 1.56 $ 49,291 $ 400 3.22
Federal funds sold 51,672 207 1.59 42,577 347 3.23
Investment securities - taxable 303,040 3,305 4.33 262,928 3,577 5.40
Investment securities - non-taxable 117,963 2,045 6.88 125,283 2,279 7.22
Mortgage loans held for sale 14,918 206 5.48 19,557 303 6.15
Assets held in trading accounts 2,470 30 4.82 260 1 1.53
Loans 1,268,801 23,960 7.49 1,307,639 27,298 8.28
--------- -------- --------- --------
Total interest earning assets 1,785,332 29,857 6.63 1,807,535 34,205 7.51
Non-earning assets 156,602 -------- 158,804 --------
--------- ---------
Total assets $ 1,941,934 $ 1,966,339
========= =========
LIABILITIES AND
- ---------------
STOCKHOLDERS' EQUITY
- --------------------
Liabilities
Interest bearing liabilities
Interest bearing transaction
and savings accounts $ 543,706 $ 1,608 1.17 $ 468,937 $ 2,350 1.99
Time deposits 849,132 6,904 3.23 960,627 12,972 5.36
--------- -------- --------- ---------
Total interest bearing deposits 1,392,838 8,512 2.42 1,429,564 15,322 4.25
Federal funds purchased and
securities sold under agreement
to repurchase 59,765 236 1.57 72,759 592 3.23
Other borrowed funds
Short-term debt 7,223 30 1.65 10,519 100 3.77
Long-term debt 49,094 841 6.80 43,007 830 7.66
--------- -------- --------- ---------
Total interest bearing liabilities 1,508,920 9,619 2.53 1,555,849 16,844 4.30
-------- ---------
Non-interest bearing liabilities
Non-interest bearing deposits 225,054 210,246
Other liabilities 15,186 19,199
--------- ---------
Total liabilities 1,749,160 1,785,294
Stockholders' equity 192,774 181,045
--------- ---------
Total liabilities and
stockholders' equity $ 1,941,934 $1,966,339
========= =========
Net interest spread 4.10 3.21
Net interest margin $ 20,238 4.50 $ 17,361 3.81
======== =========
23
Nine Months Ended September 30,
------------------------------------------------------------------------------
2002 2001
------------------------------------- -------------------------------------
Average Income/ Yield/ Average Income/ Yield/
(In thousands) Balance Expense Rate(%) Balance Expense Rate(%)
- -----------------------------------------------------------------------------------------------------------------------------
ASSETS
- ------
Earning Assets
Interest bearing balances
due from banks $ 43,854 $ 535 1.63 $ 36,234 $ 1,089 4.02
Federal funds sold 64,722 799 1.65 44,765 1,490 4.45
Investment securities - taxable 319,584 10,316 4.32 265,648 11,712 5.89
Investment securities - non-taxable 119,800 6,289 7.02 120,025 6,642 7.40
Mortgage loans held for sale 13,097 624 6.37 16,275 742 6.10
Assets held in trading accounts 1,386 50 4.82 398 10 3.36
Loans 1,247,289 71,952 7.71 1,294,873 84,827 8.76
--------- --------- --------- ---------
Total interest earning assets 1,809,732 90,565 6.69 1,778,218 106,512 8.01
Non-earning assets 155,586 --------- 158,311 ---------
--------- ---------
Total assets $ 1,965,318 $ 1,936,529
========= =========
LIABILITIES AND
- ---------------
STOCKHOLDERS' EQUITY
- --------------------
Liabilities
Interest bearing liabilities
Interest bearing transaction
and savings accounts $ 535,884 $ 4,798 1.20 $ 464,487 $ 8,214 2.36
Time deposits 870,839 23,228 3.57 943,495 40,470 5.73
--------- --------- --------- ---------
Total interest bearing deposits 1,406,723 28,026 2.66 1,407,982 48,684 4.62
Federal funds purchased and
securities sold under agreement
to repurchase 78,580 949 1.61 73,770 2,339 4.24
Other borrowed funds
Short-term debt 5,116 83 2.17 7,869 280 4.76
Long-term debt 45,428 2,465 7.25 42,296 2,489 7.87
--------- --------- --------- ---------
Total interest bearing liabilities 1,535,847 31,523 2.74 1,531,917 53,792 4.69
--------- ---------
Non-interest bearing liabilities
Non-interest bearing deposits 225,680 207,277
Other liabilities 14,928 19,615
--------- ---------
Total liabilities 1,776,455 1,758,809
Stockholders' equity 188,863 177,720
--------- ---------
Total liabilities and
stockholders' equity $ 1,965,318 $ 1,936,529
========= =========
Net interest spread 3.95 3.32
Net interest margin $ 59,042 4.36 $ 52,720 3.96
========= =========
24
Table 4 shows changes in interest income and interest expense, resulting
from changes in volume and changes in interest rates for the three-month and
nine-month periods ended September 30, 2002, as compared to the prior period.
The changes in interest rate and volume have been allocated to changes in
average volume and changes in average rates, in proportion to the relationship
of absolute dollar amounts of the changes in rates and volume.
Table 4: Volume/Rate Analysis
Three Months Ended September 30, Nine Months Ended September 30,
2002 over 2001 2002 over 2001
------------------------------------ -----------------------------------------
(In thousands, on a fully Yield/ Yield/
taxable equivalent basis) Volume Rate Total Volume Rate Total
- -----------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in
Interest income
Interest bearing balances
due from banks $ (141) $ (155) $ (296) $ 193 $ (747) $ (554)
Federal funds sold 63 (203) (140) 491 (1,182) (691)
Investment securities - taxable 498 (770) (272) 2,103 (3,499) (1,396)
Investment securities - non-taxable (130) (104) (234) (12) (341) (353)
Mortgage loans held for sale (67) (30) (97) (150) 32 (118)
Assets held in trading accounts 24 5 29 34 6 40
Loans (793) (2,545) (3,338) (3,029) (9,846) (12,875)
-------- --------- --------- -------- --------- ---------
Total (546) (3,802) (4,348) (370) (15,577) (15,947)
-------- --------- --------- -------- --------- ---------
Interest expense
Interest bearing transaction and
savings accounts 332 (1,074) (742) 1,115 (4,531) (3,416)
Time deposits (1,371) (4,697) (6,068) (2,917) (14,325) (17,242)
Federal funds purchased
and securities sold under
agreements to repurchase (92) (264) (356) 143 (1,533) (1,390)
Other borrowed funds
Short-term debt (25) (45) (70) (77) (120) (197)
Long-term debt 110 (99) 11 177 (201) (24)
-------- -------- --------- -------- --------- ---------
Total (1,046) (6,179) (7,225) (1,559) (20,710) (22,269)
-------- -------- --------- -------- --------- ---------
Increase in net
interest income $ 500 $ 2,377 $ 2,877 $ 1,189 $ 5,133 $ 6,322
======== ======== ========= ======== ========= =========
25
PROVISION FOR LOAN LOSSES
- -------------------------
The provision for loan losses represents management's determination of the
amount necessary to be charged against the current period's earnings, in order
to maintain the allowance for loan losses at a level, which is considered
adequate, in relation to the estimated risk inherent in the loan portfolio. The
provision for the three-month period ended September 30, 2002 and 2001 was $2.9
million and $3.4 million, respectively. The provision for the nine-month period
ended September 30, 2002 and 2001 was $7.7 million and $7.2 million,
respectively. During the reporting period for September 30, 2001, the Company
experienced an increase in classified assets at one community bank subsidiary.
Thus, the Company increased the provision for loan losses at that subsidiary
during the third and fourth quarters of 2001. Today, while management believes
the trend in the Company's asset quality is improving, there continues to be
significant uncertainties in the economy and concerns over the downturn in the
catfish industry that affects one of the Company's community banks. For that
reason, management has continued with an increased level of provision during
2002.
NON-INTEREST INCOME
- -------------------
Non-interest income is principally derived from recurring fee income, which
includes service charges, trust fees and credit card fees. Non-interest income
also includes income on the sale of mortgage loans and investment banking
profits.
Total non-interest income was $9.1 million for the three-month period ended
September 30, 2002, compared to $8.7 million for the same period in 2001. For
the nine-months ended September 30, 2002, non-interest income was $26.1 million
compared to the $25.1 million reported for the same period ended September 30,
2001. These increases can be primarily attributed to the improvement in the
mortgage loan production units, which were driven by the lower mortgage interest
rates, an increase in service charges on deposit accounts and additional income
from student loan production. However, these increases were partially offset by
the decrease in credit card fees, which is the result of decline in the number
of credit card relationships.
Table 5 shows non-interest income for the three-month and nine-month
periods ended September 30, 2002 and 2001, respectively, as well as changes in
2002 from 2001.
Table 5: Non-Interest Income
Three Months Nine Months
Ended Sept 30, 2002 Ended Sept 30, 2002
---------------------- Change from ----------------------- Change from
(In thousands) 2002 2001 2001 2002 2001 2001
- ---------------------------------------------------------------------------------------------------------------------------------
Trust income $ 1,406 $ 1,443 $ (37) -2.56% $ 4,001 $ 4,099 $ (98) -2.39%
Service charges on
deposit accounts 2,648 2,226 422 18.96 7,429 6,634 795 11.98
Other service charges and fees 321 382 (61) -15.97 1,097 1,246 (149) -11.96
Income on sale of mortgage loans,
net of commissions 962 781 181 23.18 2,511 2,218 293 13.21
Income on investment banking,
net of commissions 250 324 (74) -22.84 764 766 (2) -0.26
Credit card fees 2,598 2,669 (71) -2.66 7,486 7,791 (305) -3.91
Other income 960 901 59 6.55 2,764 2,376 388 16.33
---------- --------- -------- ---------- ---------- --------
Total non-interest income $ 9,145 $ 8,726 $ 419 4.80% $ 26,052 $ 25,130 $ 922 3.67%
========== ========= ======== ========== ========== ========
26
NON-INTEREST EXPENSE
- --------------------
Non-interest expense consists of salaries and employee benefits, occupancy,
equipment, foreclosure losses and other expenses necessary for the operation of
the Company. Management remains committed to controlling the level of
non-interest expense, through the continued use of expense control measures that
have been installed. The Company utilizes an extensive profit planning and
reporting system involving all affiliates. Based on a needs assessment of the
business plan for the upcoming year, monthly and annual profit plans are
developed, including manpower and capital expenditure budgets. These profit
plans are subject to extensive initial reviews and monitored by management on a
monthly basis. Variances from the plan are reviewed monthly and, when required,
management takes corrective action intended to ensure financial goals are met.
Management also regularly monitors staffing levels at each affiliate, to ensure
productivity and overhead are in line with existing workload requirements.
Non-interest expense for the three-month and nine-month periods ended
September 30, 2002, were $17.5 million and $51.4 million, which is comparable to
the $17.2 million and $50.8 million for the same periods in the previous year,
respectively. The relatively flat non-interest expense is primarily derived from
the increase in salary and employee benefits offset by the decrease in the
amortization of intangibles. The salary and employee benefits increase is
associated with normal salary adjustments, increased cost of health insurance
and the addition of a new downtown financial center in Little Rock. The decrease
in the amortization of intangibles was due to the Company adopting the Financial
Accounting Standards Board SFAS No. 142, Goodwill and Other Intangible Assets
effective January 1, 2002. The new rule eliminated most of the Company's
amortization.
Table 6 below shows non-interest expense for the three-month and nine-month
periods ended September 30, 2002 and 2001, respectively, as well as changes in
2002 from 2001.
Table 6: Non-Interest Expense
Three Months Nine Months
Ended Sept 30 2002 Ended Sept 30 2002
---------------------- Change from ----------------------- Change from
(In thousands) 2002 2001 2001 2002 2001 2001
- ---------------------------------------------------------------------------------------------------------------------------------
Salaries and employee benefits $ 10,029 $ 9,058 $ 971 10.72% $ 29,819 $ 26,963 $ 2,856 10.59%
Occupancy expense, net 1,201 1,183 18 1.52 3,482 3,443 39 1.13
Furniture and equipment expense 1,439 1,250 189 15.12 4,041 3,924 117 2.98
Loss on foreclosed assets 69 165 (96) -58.18 152 327 (175) -53.52
Other operating expenses
Professional services 445 468 (23) -4.91 1,363 1,290 73 5.66
Postage 513 489 24 4.91 1,492 1,540 (48) -3.12
Telephone 396 385 11 2.86 1,199 1,151 48 4.17
Credit card expenses 508 475 33 6.95 1,446 1,346 100 7.43
Operating supplies 315 398 (83) -20.85 1,024 1,207 (183) -15.16
FDIC insurance 72 76 (4) -5.26 226 229 (3) -1.31
Amortization of intangibles 34 760 (726) -95.53 89 2,273 (2,184) -96.08
Other expense 2,499 2,447 52 2.13 7,065 7,124 (59) -0.83
---------- --------- -------- ---------- ---------- --------
Total non-interest expense $ 17,520 $ 17,154 $ 366 2.13% $ 51,398 $ 50,817 $ 581 1.14%
========== ========= ======== ========== ========== ========
27
LOAN PORTFOLIO
- --------------
The Company's loan portfolio averaged $1.247 billion and $1.295 billion
during the first nine months of 2002 and 2001, respectively. As of September 30,
2002, total loans were $1.282 billion, compared to $1.259 billion on December
31, 2001. The most significant components of the loan portfolio were loans to
businesses (commercial loans and commercial real estate loans) and individuals
(consumer loans, credit card loans and single-family residential real estate
loans).
The Company seeks to manage its credit risk by diversifying its loan
portfolio, determining that borrowers have adequate sources of cash flow for
loan repayment without liquidation of collateral, obtaining and monitoring
collateral, providing an adequate allowance for loan losses and regularly
reviewing loans through the internal loan review process. The loan portfolio is
diversified by borrower, purpose and industry and, in the case of credit card
loans, which are unsecured, by geographic region. The Company seeks to use
diversification within the loan portfolio to reduce credit risk, thereby
minimizing the adverse impact on the portfolio, if weaknesses develop in either
the economy or a particular segment of borrowers. Collateral requirements are
based on credit assessments of borrowers and may be used to recover the debt in
case of default. The Company uses the allowance for loan losses as a method to
value the loan portfolio at its estimated collectable 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 $420.4 million at September 30, 2002, or
32.8% of total loans, compared to $450.7 million, or 35.8% of total loans at
December 31, 2001. The consumer loan decrease from December 31, 2001 to
September 30, 2002, is the result of the Company's lower credit card portfolio
and indirect lending activities, which was partially offset by an increase in
student loans. The credit card portfolio decrease was primarily the result of a
decline in the number of cardholder accounts, due to competitive pressure in the
credit card industry combined with the seasonality for that product. The decline
in indirect consumer loans was the result of zero percent car manufacturer
incentives and a planned reduction by the Company of that product based on the
risk-reward relationship. The increase in student loans was a result of greater
demand for that product.
Real estate loans consist of construction loans, single-family residential
loans and commercial loans. Real estate loans were $601.6 million at September
30, 2002, or 46.9% of total loans, compared to $571.3 million, or 45.4% of total
loans at December 31, 2001. The real estate loan increase is the result of the
acquisition of the Monticello branch location during the third quarter of 2002
combined with an improved demand for real estate loans.
Commercial loans consist of commercial loans, agricultural loans and
financial institution loans. Commercial loans were $243.0 million at September
30, 2002, or 19.0% of total loans, compared to $220.3 million, or 17.5% of total
loans at December 31, 2001. The commercial loan increase from December 31, 2001
to September 30, 2002, is the result of seasonality in the Company's
agricultural loan portfolio.
The amounts of loans outstanding at the indicated dates are reflected in
Table 7, according to type of loan.
28
Table 7: Loan Portfolio
September 30, December 31,
(In thousands) 2002 2001
- ------------------------------------------------------------------------------------------------------------
Consumer
Credit cards $ 178,125 $ 196,710
Student loans 83,028 74,860
Other consumer 159,264 179,138
Real Estate
Construction 78,376 83,628
Single family residential 236,909 224,122
Other commercial 286,363 263,539
Commercial
Commercial 149,622 153,617
Agricultural 85,974 60,794
Financial institutions 7,376 5,861
Other 16,597 16,515
---------------- ----------------
Total loans $ 1,281,634 $ 1,258,784
================ ================
ASSET QUALITY
A loan is considered impaired when it is probable that the Company will not
receive all amounts due according to the contracted terms of the loans. This
includes loans past due 90 days or more, nonaccrual loans and certain loans
identified by management.
Non-performing loans are comprised of (a) nonaccrual loans, (b) loans that
are contractually past due 90 days and (c) other loans for which terms have been
restructured to provide a reduction or deferral of interest or principal,
because of deterioration in the financial position of the borrower. The
subsidiary banks recognize income principally on the accrual basis of
accounting. When loans are classified as nonaccrual, the accrued interest is
charged off and no further interest is accrued. Loans, excluding credit card
loans, are placed on a nonaccrual basis either: (1) when there are serious
doubts regarding the collectability of principal or interest, or (2) when
payment of interest or principal is 90 days or more past due and either (i) not
fully secured or (ii) not in the process of collection. If a loan is determined
by management to be uncollectable, the portion of the loan determined to be
uncollectable is then charged to the allowance for loan losses. Credit card
loans are classified as impaired when payment of interest or principal is 90
days past due. Litigation accounts are placed on nonaccrual until such time as
deemed uncollectable. Credit card loans are generally charged off when payment
of interest or principal exceeds 180 days past due, but are turned over to the
credit card recovery department, to be pursued until such time as they are
determined, on a case-by-case basis, to be uncollectable.
At September 30, 2002, impaired loans were $13.6 million compared to $21.0
million at December 31, 2001. The decrease in impaired loans from December 31,
2001, primarily relates to the $2.6 million decrease in non-performing loans and
a $4.8 million decrease of borrowers that are still performing, but for which
management has internally identified as impaired. Management has evaluated the
underlying collateral on these loans and has allocated specific reserves in
order to absorb potential losses if the collateral were ultimately foreclosed.
29
Table 8 presents information concerning non-performing assets, including
nonaccrual loans and other real estate owned.
Table 8: Non-performing Assets
September 30, December 31,
(In thousands) 2002 2001
- ------------------------------------------------------------------------------------------------------------
Nonaccrual loans $ 11,099 $ 11,956
Loans past due 90 days or more
(principal or interest payments) 1,291 2,991
---------------- ----------------
Total non-performing loans 12,390 14,947
---------------- ----------------
Other non-performing assets
Foreclosed assets held for sale 2,263 1,084
Other non-performing assets 406 631
---------------- ----------------
Total other non-performing assets 2,669 1,715
---------------- ----------------
Total non-performing assets $ 15,059 $ 16,662
================ ================
Allowance for loan losses to
non-performing loans 175.04% 137.12%
Non-performing loans to total loans 0.97% 1.19%
Non-performing assets to total assets 0.77% 0.83%
Approximately $640,000 and $836,000 of interest income would have been
recorded for the nine-month periods ended September 30, 2002 and 2001,
respectively, if the nonaccrual loans had been accruing interest in accordance
with their original terms. There was no interest income on the nonaccrual loans
recorded for the nine-month periods ended September 30, 2002 and 2001.
30
ALLOWANCE FOR LOAN LOSSES
An analysis of the allowance for loan losses is shown in Table 9.
Table 9: Allowance for Loan Losses
(In thousands) 2002 2001
- -----------------------------------------------------------------------------------------------------------------
Balance, beginning of year $ 20,496 $ 21,157
Loans charged off
Credit card 3,541 3,258
Other consumer 1,729 2,156
Real estate 1,203 1,088
Commercial 1,938 1,793
---------------- ---------------
Total loans charged off 8,411 8,295
---------------- ---------------
Recoveries of loans previously charged off
Credit card 481 387
Other consumer 576 583
Real estate 224 131
Commercial 414 149
---------------- ---------------
Total recoveries 1,695 1,250
---------------- ---------------
Net loans charged off 6,716 7,045
Allowance for loan losses of acquired branch 247 --
Provision for loan losses 7,661 7,249
---------------- ---------------
Balance, September 30 $ 21,688 $ 21,361
================ ===============
Loans charged off
Credit card 1,173
Other consumer 907
Real estate 290
Commercial 1,683
Total loans charged off 4,053
Recoveries of loans previously charged off
Credit card 128
Other consumer 85
Real estate 15
Commercial 251
---------------
Total recoveries 479
---------------
Net loans charged off 3,574
Provision for loan losses 2,709
---------------
Balance, end of year $ 20,496
===============
31
The amount of provision recorded to the allowance during the nine-month
periods ended September 30, 2002 and 2001, and for the year ended 2001, was
based on management's judgment, with consideration given to the composition of
the portfolio, historical loan loss experience, assessment of current economic
conditions, past due loans and net losses from loans charged off for the last
five years. It is management's practice to review the allowance on a monthly
basis to determine whether additional provisions should be made to the allowance
after considering the factors noted above.
DEPOSITS
Deposits are the Company's primary source of funding for earning assets.
The Company offers a variety of products designed to attract and retain
customers, with the primary focus on core deposits.
Total deposits as of September 30, 2002, were $1.614 billion, compared to
$1.686 billion on December 31, 2001. The decrease in deposits from December 31,
2001 to September 30, 2002, is primarily attributable to a decrease in
certificates of deposit. As of September 30, 2002, time deposits were $839.3
million, a decrease of $82.0 million over the $921.3 million reported as of
December 31, 2001. The decrease in certificates of deposits was the result of a
2002 strategic decision made by the Company, which allowed those deposits to
decrease in the same relationship as the decrease in earning assets.
CAPITAL
At September 30, 2002, total capital reached $193.7 million. Capital
represents shareholder ownership in the Company -- the book value of assets in
excess of liabilities. At September 30, 2002, the Company's equity to asset
ratio was 10.0% compared to 9.0% at year-end 2001.
The Federal Reserve Board's risk-based capital 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 September 30, 2002, the leverage ratio and the
Tier 1 capital ratio were 9.2% and 13.6%, respectively, while the Company's
total risk-based capital ratio was 14.9%, all of which exceed the capital
minimums established in the risk-based capital requirements.
The Company's risk-based capital ratios at September 30, 2002 and December
31, 2001, are presented in Table 10.
32
Table 10: Risk-Based Capital
September 30, December 31,
(In thousands) 2002 2001
- --------------------------------------------------------------------------------------------------------------------------
Tier 1 capital
Stockholders' equity $ 193,650 $ 182,363
Trust preferred securities 17,250 17,250
Goodwill and Intangible assets (33,470) (32,293)
Unrealized (gain) loss on available-
for-sale securities (2,283) (1,479)
Other (854) (881)
------------- -------------
Total Tier 1 capital 174,293 164,960
------------- -------------
Tier 2 capital
Qualifying unrealized gain on
available-for-sale equity securities 342 370
Qualifying allowance for loan losses 16,115 16,209
------------- -------------
Total Tier 2 capital 16,457 16,579
------------- -------------
Total risk-based capital $ 190,750 $ 181,539
============= =============
Risk weighted assets $ 1,283,588 $ 1,292,798
============= =============
Assets for leverage ratio $ 1,904,053 $ 1,996,383
============= =============
Ratios at end of year
Leverage ratio 9.15% 8.26%
Tier 1 capital 13.58% 12.76%
Total risk-based capital 14.86% 14.04%
Minimum guidelines
Leverage ratio 4.00% 4.00%
Tier 1 capital 4.00% 4.00%
Total risk-based capital 8.00% 8.00%
33
LIQUIDITY AND MARKET RISK MANAGEMENT
During the nine months ended September 30, 2002, there were no material
changes to the liquidity and market risk management disclosures presented in the
Company's Annual Report on Form 10-K for the year ended December 31, 2001.
FORWARD-LOOKING STATEMENTS
Statements in this report that are not historical facts should be
considered forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. Forward-looking statements of this
type speak only as of the date of this report. By nature, forward-looking
statements involve inherent risk and uncertainties. Various factors, including,
but not limited to, economic conditions, credit quality, interest rates, loan
demand and changes in the assumptions used in making the forward-looking
statements, could cause actual results to differ materially from those
contemplated by the forward-looking statements. Additional information on
factors that might affect the Company's financial results is included in its
annual report for 2001 (Form 10-K) filed with the Securities and Exchange
Commission.
CONTROLS AND PROCEDURES.
(a) Evaluation of disclosure controls and procedures. The Company's Chief
Executive Officer and Chief Financial Officer have reviewed and evaluated the
effectiveness of the Company's disclosure controls and procedures (as defined in
15 C. F. R. ' 240.13a-14(c) and 15 C. F. R. '240.15-14(c)) as of a date within
ninety days prior to the filing of this quarterly report. Based upon that
evaluation, the Chief Executive Officer and Chief Financial Officer have
concluded that the Company's current disclosure controls and procedures are
effective.
(b) Changes in Internal Controls. There were no significant changes in the
Company's internal controls or in other factors that could significantly affect
those controls subsequent to the date of evaluation.
34
REVIEW BY INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
BKD, LLP
Certified Public Accountants
200 East Eleventh
Pine Bluff, Arkansas
Board of Directors
Simmons First National Corporation
Pine Bluff, Arkansas
We have reviewed the accompanying consolidated balance sheet of SIMMONS
FIRST NATIONAL CORPORATION as of September 30, 2002, and the related
consolidated statements of income for the three-month and nine-month periods
ended September 30, 2002 and 2001 and cash flows and changes in stockholders'
equity for the nine-month periods ended September 30, 2002 and 2001. These
financial statements are the responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with auditing standards generally accepted in the United States of
America, the objective of which is the expression of an opinion regarding the
financial statements taken as a whole. Accordingly, we do not express such an
opinion.
Based on our reviews, we are not aware of any material modifications that
should be made to the condensed consolidated financial statements referred to
above for them to be in conformity with accounting principles generally accepted
in the United States of America.
We have previously audited, in accordance with auditing standards generally
accepted in the United States of America, the consolidated balance sheet as of
December 31, 2001, and the related consolidated statements of income, cash flows
and changes in stockholders' equity for the year then ended (not presented
herein), and in our report dated February 8, 2002, we expressed an unqualified
opinion on those consolidated financial statements. In our opinion, the
information set forth in the accompanying consolidated balance sheet as of
December 31, 2001, is fairly stated, in all material respects, in relation to
the consolidated balance sheet from which it has been derived.
/s/ BKD, LLP
BKD, LLP
Pine Bluff, Arkansas
November 1, 2002
35
Part II: Other Information
Item 2. Changes in Securities.
Recent Sales of Unregistered Securities. The following transactions are
sales of unregistered shares of Class A Common Stock of the Company which were
issued to executive and senior management officers upon the exercise of rights
granted under (i) the Simmons First National Corporation Incentive and
Non-qualified Stock Option Plan (ii) the Simmons First National Corporation
Executive Stock Incentive Plan or (iii) the Simmons First National Corporation
Executive Stock Incentive Plan - 2001. No underwriters were involved and no
underwriter's discount or commissions were involved. Exemption from registration
is claimed under Section 4(2) of the Securities Act of 1933 as private
placements. The Company received cash and/or exchanged shares of the Company's
Class A Common Stock as the consideration for the transactions.
Number
Identity(1) Date of Sale of Shares Price(2) Type of Transaction
- -----------------------------------------------------------------------------------------------------------------------------------
1 Officer July, 2002 300 20.5000 Incentive Stock Option
1 Officer July, 2002 300 25.6667 Incentive Stock Option
1 Officer August, 2002 100 24.4375 Incentive Stock Option
1 Officer September, 2002 300 20.5000 Incentive Stock Option
Notes:
1. The transactions are grouped to show sales of stock based upon exercises of
rights by officers of the registrant or its subsidiaries under the stock
plans, which occurred at the same price during a calendar month.
2. The per share price paid for incentive stock options represents the fair
market value of the stock as determined under the terms of the Plan on the
date the incentive stock option was granted to the officer.
36
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
Exhibit 99.1 - Certification - J. Thomas May, Chairman, President
and Chief Executive Officer
Exhibit 99.2 - Certification - Barry L. Crow, Chief Financial
Officer
b) Reports on Form 8-K
The registrant filed Form 8-K on July 18, 2002. The report contained the
text of a press release issued by the registrant concerning the announcement of
third quarter earnings.
The registrant filed Form 8-K on July 22, 2002. The report contained the
text of a press release issued by the registrant concerning the purchase of the
Monticello location from HEARTLAND Community Bank.
The registrant filed Form 8-K on August 30, 2002. The report contained the
text of a press release issued by the registrant concerning the declaration of a
quarterly cash dividend.
37
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SIMMONS FIRST NATIONAL CORPORATION
----------------------------------
(Registrant)
Date: November 1, 2002 /s/ J. Thomas May
------------------------------------------
J. Thomas May, Chairman,
President and Chief Executive Officer
Date: November 1, 2002 /s/ Barry L. Crow
------------------------------------------
Barry L. Crow, Executive Vice President
and Chief Financial Officer
38
Form 10-Q Index to Exhibits
Exhibit Description
Exhibit 99.1 Certification - J. Thomas May, Chairman, President and
Chief Executive Officer
Exhibit 99.2 Certification - Barry L. Crow, Chief Financial Officer
39
Exhibit 99.1
CERTIFICATION
I, J. Thomas May certify that:
1. I have reviewed this quarterly report on Form 10-Q of Simmons First
National Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 1, 2002 /s/ J. Thomas May
------------------ ---------------------------------------
J. Thomas May, Chairman, President
and Chief Executive Officer
40
Exhibit 99.2
CERTIFICATION
I, Barry L. Crow, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Simmons First
National Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 1, 2002 /s/ Barry L. Crow
------------------ --------------------------------------
Barry L. Crow, Chief Financial Officer
41