10-Q 1 0001.txt 10-Q FILING FOR SEPTEMBER 30,2000 SIMMONS FIRST NATIONAL CORPORATION Financial Statements (Form 10-Q) September 30, 2000 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, 2000 Commission File Number 06253 ------------------ ----- SIMMONS FIRST NATIONAL CORPORATION (Exact name of registrant as specified in its charter) Arkansas 71-0407808 ------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 501 Main Street Pine Bluff, Arkansas 71601 ------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code 870-541-1000 ---------------------- 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 7,271,692 Class B, Common None SIMMONS FIRST NATIONAL CORPORATION INDEX Page No. Part I: Summarized Financial Information Consolidated Balance Sheets -- September 30, 2000 and December 31, 1999 3-4 Consolidated Statements of Income -- Three months and nine months ended September 30, 2000 and 1999 5 Consolidated Statements of Cash Flows -- Nine months ended September 30, 2000 and 1999 6 Consolidated Statements of Changes in Stockholders' Equity Nine months ended September 30, 2000 and 1999 7 Condensed Notes to Consolidated Financial Statements 8-17 Management's Discussion and Analysis of Financial Condition and Results of Operations 18-20 Review by Independent Certified Public Accountants 21 Part II: Other Information 22-23 Part I: Summarized Financial Information
Simmons First National Corporation Consolidated Balance Sheets September 30, 2000 and December 31, 1999 ASSETS September 30, December 31, (In thousands, except share data) 2000 1999 ---------------------------------------------------------------------------------------------------------------------------- (Unaudited) Cash and non-interest bearing balances due from banks $ 56,705 $ 60,324 Interest bearing balances due from banks 19,218 15,381 Federal funds sold and securities purchased under agreements to resell 5,650 5,500 ----------- ----------- Cash and cash equivalents 81,573 81,205 Investment securities 401,735 409,279 Mortgage loans held for sale 12,177 6,814 Assets held in trading accounts 734 1,388 Loans 1,268,931 1,113,635 Allowance for loan losses (20,691) (17,085) ---------- ----------- Net loans 1,248,240 1,096,550 Premises and equipment 46,370 40,383 Foreclosed assets held for sale, net 1,226 747 Interest receivable 18,961 15,681 Intangible assets, net 35,664 27,226 Other assets 18,528 18,157 ----------- ----------- TOTAL ASSETS $ 1,865,208 $ 1,697,430 =========== ===========
See Condensed Notes to Consolidated Financial Statements.
Simmons First National Corporation Consolidated Balance Sheets September 30, 2000 and December 31, 1999 LIABILITIES AND STOCKHOLDERS' EQUITY September 30, December 31, (In thousands, except share data) 2000 1999 ---------------------------------------------------------------------------------------------------------------------------- (Unaudited) LIABILITIES Non-interest bearing transaction accounts $ 195,678 $ 170,571 Interest bearing transaction accounts and savings deposits 445,513 463,354 Time deposits 897,227 776,708 ----------- ------------ Total deposits 1,538,418 1,410,633 Federal funds purchased and securities sold under agreements to repurchase 87,767 60,496 Short-term debt 9,524 5,044 Long-term debt 41,907 46,219 Accrued interest and other liabilities 18,046 15,667 ----------- ------------ Total liabilities 1,695,662 1,538,059 ----------- ------------ STOCKHOLDERS' EQUITY Capital stock Class A, common, par value $1 a share, authorized 30,000,000 shares 7,271,692 issued and outstanding at 2000 and 7,315,575 at 1999 7,272 7,316 Surplus 49,713 50,770 Undivided profits 114,772 105,185 Accumulated other comprehensive income Unrealized depreciation on available-for-sale securities, net of income tax credit of $1,327 at 2000 and $2,340 at 1999 (2,211) (3,900) ----------- ----------- Total stockholders' equity 169,546 159,371 ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,865,208 $ 1,697,430 =========== ============
See Condensed Notes to Consolidated Financial Statements.
Simmons First National Corporation Consolidated Statements of Income Three Months and Nine Months Ended September 30, 2000 and 1999 Three Months Ended Nine Months Ended September 30, September 30, (In thousands, except per share data) 2000 1999 2000 1999 ------------------------------------------------------------------------------------------------------------------- (Unaudited) (Unaudited) INTEREST INCOME Loans $ 28,952 $ 23,992 $ 79,697 $ 69,818 Federal funds sold and securities purchased under agreements to resell 332 150 1,249 1,542 Investment securities 5,864 5,958 17,737 17,818 Mortgage loans held for sale, net of unrealized gains (losses) 143 182 382 559 Assets held in trading accounts 5 15 88 48 Interest bearing balances due from banks 234 106 614 450 ---------- --------- --------- -------- TOTAL INTEREST INCOME 35,530 30,403 99,767 90,235 ---------- --------- --------- -------- INTEREST EXPENSE Deposits 16,250 12,250 44,582 37,029 Federal funds purchased and securities sold under agreements to repurchase 1,276 739 2,610 2,112 Short-term debt 163 74 411 116 Long-term debt 855 943 2,630 2,872 ---------- --------- --------- -------- TOTAL INTEREST EXPENSE 18,544 14,006 50,233 42,129 ---------- --------- --------- -------- NET INTEREST INCOME 16,986 16,397 49,534 48,106 Provision for loan losses 1,892 1,619 5,537 4,962 ---------- --------- --------- -------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 15,094 14,778 43,997 43,144 ---------- --------- --------- -------- NON-INTEREST INCOME Trust income 1,496 1,239 4,000 3,491 Service charges on deposit accounts 2,176 1,749 5,808 5,208 Other service charges and fees 392 407 1,406 1,383 Income on sale of mortgage loans, net of commissions 521 533 1,277 1,591 Income on investment banking, net of commissions 13 34 188 274 Credit card fees 2,712 2,704 7,671 7,402 Other income 817 790 2,250 1,759 Gain on sale of securities, net 0 0 0 0 ---------- --------- --------- -------- TOTAL NON-INTEREST INCOME 8,127 7,456 22,600 21,108 ---------- --------- --------- -------- NON-INTEREST EXPENSE Salaries and employee benefits 8,591 8,177 25,282 24,369 Occupancy expense, net 1,035 946 2,830 2,683 Furniture and equipment expense 1,336 1,294 3,891 3,712 Loss on foreclosed assets 66 117 194 297 Merger-related 0 1,448 0 1,843 Other operating expenses 4,947 4,839 14,308 14,127 ---------- --------- --------- -------- TOTAL NON-INTEREST EXPENSE 15,975 16,821 46,505 47,031 ---------- --------- --------- -------- INCOME BEFORE INCOME TAXES 7,246 5,413 20,092 17,221 Provision for income taxes 2,281 1,600 6,190 5,131 ---------- --------- --------- -------- NET INCOME $ 4,965 $ 3,813 $ 13,902 $ 12,090 ========== ========= ========= ======== BASIC EARNINGS PER SHARE $ 0.68 $ 0.53 $ 1.90 $ 1.66 ========== ========= ========= ======== DILUTED EARNINGS PER SHARE $ 0.67 $ 0.52 $ 1.89 $ 1.64 ========== ========= ========= ========
See Condensed Notes to Consolidated Financial Statements.
Simmons First National Corporation Consolidated Statements of Cash Flows Nine Months Ended September 30, 2000 and 1999 September 30, September 30, (In thousands) 2000 1999 ------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES (Unaudited) Net income $ 13,902 $ 12,090 Items not requiring (providing) cash Depreciation and amortization 5,062 4,705 Provision for loan losses 5,537 4,962 Net amortization (accretion) of investment securities 403 (96) Deferred income taxes (1,042) (707) Provision for foreclosed assets 159 163 Changes in Interest receivable (2,860) (1,060) Mortgage loans held for sale (5,363) 2,672 Assets held in trading accounts 654 (1,167) Other assets (304) (532) Accrued interest and other liabilities 1,142 (6,377) Income taxes payable 526 (906) ---------- ----------- Net cash provided by operating activities 17,816 13,747 ---------- ----------- CASH FLOW FROM INVESTING ACTIVITIES Net originations of loans (87,814) (66,868) Purchase of branch locations, net funds paid (14,398) -- Purchase of premises and equipment, net (3,664) (5,029) Proceeds from sale of foreclosed assets 799 1,248 Proceeds from maturities of available-for-sale securities 97,800 109,941 Purchases of available-for-sale securities (81,011) (119,854) Proceeds from maturities of held-to-maturity securities 17,681 40,639 Purchases of held-to-maturity securities (25,640) (41,806) ---------- ----------- Net cash used in investing activities (96,247) (81,729) ---------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Net increase (decrease) in deposits 56,776 (15,085) Net proceeds of short-term debt 4,480 6,826 Dividends paid (4,315) (3,976) Proceeds from issuance of long-term debt -- 1,300 Repayments of long-term debt (4,312) (3,783) Net increase in federal funds purchased and securities sold under agreements to repurchase 27,271 10,872 (Repurchase) issuance of common stock, net (1,101) 265 ---------- ----------- Net cash provided by (used in) financing activities 78,799 (3,581) ---------- ----------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 368 (71,563) CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 81,205 139,283 ---------- ----------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 81,573 $ 67,720 ========== ===========
See Condensed Notes to Consolidated Financial Statements.
Simmons First National Corporation Consolidated Statements of Changes in Stockholders' Equity Nine Months Ended September 30, 2000 and 1999 Accumulated Other Common Comprehensive Undivided (In thousands, except per share data) Stock Surplus Income Profits Total -------------------------------------------------------------------------------------------------------------- Balance, December 31, 1998 $ 7,239 $ 48,271 $ 1,491 $ 93,383 $ 150,384 Comprehensive income Net income -- -- -- 12,090 12,090 Change in unrealized appreciation on available-for-sale securities, net of income tax credit of $2,135 -- -- (3,558) -- (3,558) ---------- Comprehensive income 8,532 Exercise of stock options - 18,100 shares 18 258 -- -- 276 Securities exchanged under stock option plan -- (11) -- -- (11) Common stock issued in connection with the purchase of the minority shares of the Bank of Lincoln - 56,997 shares 57 2,230 -- -- 2,287 Cash dividends declared Common stock - $0.53 per share -- -- -- (3,600) (3,600) Pooled institutions prior to pooling -- -- -- (376) (376) -------- --------- ----------- --------- ---------- Balance, September 30, 1999 7,314 50,748 (2,067) 101,497 157,492 Comprehensive income Net income -- -- -- 5,078 5,078 Change in unrealized depreciation on available-for-sale securities, net of income tax credit of $1,053 -- -- (1,833) -- (1,833) ---------- Comprehensive income 3,245 Exercise of stock options -1,800 shares 2 22 -- -- 24 Cash dividends declared - $0.19 per share -- -- -- (1,390) (1,390) -------- --------- ----------- ---------- ---------- Balance, December 31, 1999 7,316 50,770 (3,900) 105,185 159,371 Comprehensive income Net income -- -- -- 13,902 13,902 Change in unrealized depreciation on available-for-sale securities, net of income taxes of $1,013 -- -- 1,689 -- 1,689 ---------- Comprehensive income 15,591 Exercise of stock options - 20,400 shares 20 253 -- -- 273 Securities exchanged under stock option plan (1) (16) -- -- (17) Repurchase of common stock - 63,627 shares (63) (1,294) -- -- (1,357) Cash dividends declared - $0.59 per share -- -- -- (4,315) (4,315) -------- --------- ----------- --------- ---------- Balance, September 30, 2000 $ 7,272 $ 49,713 $ (2,211) $ 114,772 $ 169,546 ======== ========= =========== ========= ==========
See Condensed Notes to Consolidated Financial Statements. SIMMONS FIRST NATIONAL CORPORATION CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 1: ACCOUNTING POLICIES The consolidated financial statements include the accounts of Simmons First National Corporation and its subsidiaries. Significant intercompany accounts and transactions have been eliminated in consolidation. All adjustments made to the unaudited financial statements were of a normal recurring nature. In the opinion of management, all adjustments necessary for a fair presentation of the results of interim periods have been made. Certain prior year amounts are reclassified to conform to current year classification. The 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 generally accepted accounting principles 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 1999 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 is computed using the weighted average common shares and all potential dilutive common shares outstanding during the period. The computation of per share earnings for the nine months ended September 30, 2000 and 1999 is as follows:
(In thousands, except per share data) 2000 1999 ------------------------------------------------------------------------------------------------------------------- Net Income $ 13,902 $ 12,090 --------- -------- Average common shares outstanding 7,320 7,304 Average common share stock options outstanding 21 72 --------- -------- Average diluted common shares 7,341 7,376 --------- -------- Basic earnings per share $ 1.90 $ 1.66 ========= ======== Diluted earnings per share $ 1.89 $ 1.64 ========= ========
NOTE 2: ACQUISITIONS On January 15, 1999, the Company and Lincoln Bankshares, Inc. ("LBI") merged. This merger was accounted for as a pooling-of-interests, except for the acquisition of the minority shares (17.9%) of the Bank of Lincoln, which were accounted for on a purchase accounting basis. Stockholders of LBI received 301,823 shares of Simmons First National Corporation stock in exchange for LBI shares in the transaction. LBI owned the Bank of Lincoln, Lincoln, Arkansas with assets, as of January 15, 1999, of $75 million. The Company merged the Bank of Lincoln into Simmons First Bank of Northwest Arkansas during the second quarter of 1999. On July 9, 1999, the Company and NBC Bank Corp. ("NBC") merged in a pooling-of-interests transaction. Stockholders of NBC received 784,887 shares of Simmons First National Corporation stock in exchange for NBC shares in the transaction. NBC owned National Bank of Commerce, El Dorado, Arkansas with assets, as of July 9, 1999, of $155 million. The Company changed the name of National Bank of Commerce to Simmons First Bank of El Dorado, N.A. The Company is operating Simmons First Bank of El Dorado, N.A. as a separate community bank with the same board of directors and management. On July 17, 2000, the Company expanded its coverage of Central and Northwest Arkansas with a $7.6 million cash purchase of two Conway and six Northwest Arkansas locations from First Financial Banc Corporation. Simmons First National Bank acquired the two offices in Conway and Simmons First Bank of Northwest Arkansas acquired the six offices in Northwest Arkansas. As of July 14, 2000, the eight locations combined had total loans of $72 million and total deposits of $71 million. NOTE 3: INVESTMENT SECURITIES The amortized cost and fair value of investment securities that are classified as held-to-maturity and available-for-sale are as follows:
September 30, December 31, 2000 1999 --------------------------------------------- ----------------------------------------- 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 $ 19,516 $ 74 $ (62) $ 19,528 $ 13,576 $ 10 $ (115) $ 13,471 U.S. Government agencies 40,950 63 (631) 40,382 36,654 57 (1,169) 35,542 Mortgage-backed securities 14,296 60 (226) 14,130 16,920 84 (258) 16,746 State and political subdivisions 107,147 1,160 (1,072) 107,235 107,157 662 (2,107) 105,712 Other securities 82 -- - 82 85 -- (2) 83 ---------- ------- -------- ---------- ---------- ------- ------- ---------- $ 181,991 $ 1,357 $(1,991) $ 181,357 $ 174,392 $ 813 $(3,651) $ 171,554 ========== ======= ======== ========== ========== ======= ======= ========== Available-for-Sale U.S. Treasury $ 27,152 $ 55 $ (61) $ 27,146 $ 41,492 $ 83 (133) $ 41,442 U.S. Government agencies 164,760 30 (3,759) 161,031 166,143 -- (6,287) 159,856 Mortgage-backed securities 14,065 37 (192) 13,910 16,954 26 (234) 16,746 State and political subdivisions 6,621 146 (47) 6,720 6,432 88 (88) 6,432 Other securities 10,300 637 -- 10,937 9,859 552 -- 10,411 ---------- ------- ------- ---------- ---------- ------- ------- ---------- $ 222,898 $ 905 $(4,059) $ 219,744 $ 240,880 $ 749 $(6,742) $ 234,887 ========== ======= ======= ========== ========== ======= ======= ==========
The carrying value, which approximates the market value, of securities pledged as collateral, to secure public deposits and for other purposes, amounted to $262,289,000 at September 30, 2000 and $277,789,000 at December 31, 1999. The book value of securities sold under agreements to repurchase amounted to $35,947,000 and $39,956,000 for September 30, 2000 and December 31, 1999, respectively. Income earned on securities for the nine months ended September 30, 2000 and 1999 is as follows:
(In thousands) 2000 1999 ------------------------------------------------------------------------------------------------------------------- Taxable Held-to-maturity $ 3,188 $ 3,273 Available-for-sale 10,514 10,389 Non-taxable Held-to-maturity 3,771 3,989 Available-for-sale 264 167 --------- -------- Total $ 17,737 $ 17,818 ========= ========
Maturities of investment securities at September 30, 2000 are as follows:
Held-to-Maturity Available-for-Sale -------------------------- ------------------------- Amortized Fair Amortized Fair (In thousands) Cost Value Cost Value ------------------------------------------------------------------------------------------------- One year or less $ 24,211 $ 24,216 $ 38,222 $ 38,095 After one through five years 82,936 82,507 120,473 118,234 After five through ten years 54,233 53,861 43,203 41,886 After ten years 20,529 20,691 10,700 10,592 Other securities 82 82 10,300 10,937 ----------- ----------- ----------- ---------- Total $ 181,991 $ 181,357 $ 222,898 $ 219,744 =========== =========== =========== ==========
There were no gross realized gains or losses as of September 30, 2000 and 1999. Most of the state and political subdivision debt obligations are non-rated bonds and represent small, Arkansas issues, which are evaluated on an ongoing basis. NOTE 4: LOANS AND ALLOWANCE FOR LOAN LOSSES The various categories are summarized as follows:
September 30, December 31, (In thousands) 2000 1999 ---------------------------------------------------------------------------------------------------------- Consumer Credit cards $ 186,342 $ 187,242 Student loans 66,071 66,739 Other consumer 194,421 181,380 Real estate Construction 71,383 53,925 Single family residential 243,791 202,886 Other commercial 275,091 240,259 Commercial Commercial 146,156 137,827 Agricultural 70,064 35,337 Financial institutions 2,379 3,165 Other 13,233 4,875 ------------- ------------ Total loans before allowance for loan losses $ 1,268,931 $ 1,113,635 ============= ============
During the first nine months of 2000, foreclosed assets held for sale increased $479,000 to $1,226,000 and are carried at the lower of cost or fair market value. Other non-performing assets, non-accrual loans and other non-performing loans for the Company at September 30, 2000, were $100,000, $9,622,000 and $2,643,000, respectively, bringing the total of non-performing assets to $13,591,000. Transactions in the allowance for loan losses are as follows:
September 30, December 31, (In thousands) 2000 1999 ------------------------------------------------------------------------------------------------------------------- Balance, beginning of year $ 17,085 $ 16,812 Additions Allowance for loan losses of acquired branches 2,155 -- Provision charged to expense 5,537 4,962 --------- -------- 24,777 21,774 Deductions Losses charged to allowance, net of recoveries of $1,386 and $1,030 for the first nine months of 2000 and 1999, respectively 4,086 4,194 --------- -------- Balance, September 30 $ 20,691 $ 17,580 ========= -------- Additions Provision charged to expense 1,589 -------- 19,169 Deductions Losses charged to allowance, net of recoveries of $386 for the last three months of 1999 2,084 -------- Balance, end of year $ 17,085 ========
At September 30, 2000 and December 31, 1999, impaired loans totaled $14,153,000 and $12,102,000, respectively. All impaired loans had designated reserves for possible loan losses. Reserves relative to impaired loans at September 30, 2000, were $2,400,000 and $2,803,000 at December 31, 1999. Interest of $359,000 and $419,000 was recognized on average impaired loans of $12,140,000 and $13,518,000 as of September 30, 2000 and 1999, respectively. Interest recognized on impaired loans on a cash basis during the first nine months of 2000 and 1999 was immaterial. NOTE 5: TIME DEPOSITS Time deposits include approximately $291,399,000 and $225,290,000 of certificates of deposit of $100,000 or more at September 30, 2000 and December 31, 1999, respectively. NOTE 6: INCOME TAXES The provision for income taxes is comprised of the following components:
September 30, September 30, (In thousands) 2000 1999 ------------------------------------------------------------------------------------------------------- Income taxes currently payable $ 7,232 $ 5,838 Deferred income taxes (1,042) (707) ---------------- ---------------- Provision for income taxes $ 6,190 $ 5,131 ================ ================
The tax effects of temporary differences related to deferred taxes shown on the balance sheet are shown below:
September 30, December 31, (In thousands) 2000 1999 ------------------------------------------------------------------------------------------------------- Deferred tax assets Allowance for loan losses $ 7,548 $ 5,906 Valuation of foreclosed assets 223 201 Deferred compensation payable 668 659 Deferred loan fee income 420 564 Vacation compensation 440 439 Mortgage servicing reserve 384 457 Loan interest 98 160 Available-for-sale securities 1,327 2,340 Other 119 144 ---------------- ---------------- Total deferred tax assets 11,227 10,870 ---------------- ---------------- Deferred tax liabilities Accumulated depreciation (1,561) (1,473) FHLB stock dividends (554) (432) Other (332) (214) ---------------- ---------------- Total deferred tax liabilities (2,447) (2,119) ---------------- ---------------- Net deferred tax assets included in other assets on balance sheets $ 8,780 $ 8,751 ================ ================
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) 2000 1999 ------------------------------------------------------------------------------------------------------- Computed at the statutory rate (35%) $ 7,032 $ 6,027 Increase (decrease) resulting from: Tax exempt income (1,530) (1,485) Other differences, net 688 589 ---------------- ---------------- Actual tax provision $ 6,190 $ 5,131 ================ ================
NOTE 7: LONG-TERM DEBT Long-term debt at September 30, 2000 and December 31, 1999, consisted of the following components,
September 30, December 31, (In thousands) 2000 1999 ------------------------------------------------------------------------------------------------------- 7.32% note due 2007, unsecured $ 14,000 $ 16,000 9.75% note due 2008, secured by land and building 873 917 5.36% to 8.41% FHLB advances due 2000 to 2018, secured by residential real estate loans 9,784 12,052 Trust preferred securities 17,250 17,250 ---------------- ---------------- $ 41,907 $ 46,219 ================ ================
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 redeemable beginning in 2002. Such securities qualify as Tier 1 Capital for regulatory purposes. Aggregate annual maturities of long-term debt at September 30, 2000 are:
Annual (In thousands) Year Maturities ------------------------------------------------------------------------------------------------------- 2000 $ 227 2001 2,893 2002 2,925 2003 2,871 2004 2,876 Thereafter 30,115 ---------------- Total $ 41,907 ================
NOTE 8: CONTINGENT LIABILITIES A number of legal proceedings exist in which the Company and/or its subsidiaries are either plaintiffs or defendants or both. Most of the lawsuits involve loan foreclosure activities. The various unrelated legal proceedings pending against the subsidiary banks in the aggregate are not expected to have a material adverse effect on the financial position of the Company and its subsidiaries. NOTE 9: UNDIVIDED PROFITS The subsidiary banks are subject to a legal limitation on dividends that can be paid to the parent company without prior approval of the applicable regulatory agencies. The approval of the Comptroller of the Currency is required, if the total of all dividends declared by a national bank in any calendar year exceeds the total of its net profits, as defined, for that year combined with its retained net profits of the preceding two years. Arkansas bank regulators have specified that the maximum dividend limit state banks may pay to the parent company without prior approval is 75% of current year earnings plus 75% of the retained net earnings of the preceding year. At September 30, 2000, the bank subsidiaries had approximately $11 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, 2000, each of the eight subsidiary banks met the capital standards for a well-capitalized institution. The Company's "total risk-based capital" ratio was 13.3% at September 30, 2000. NOTE 10: STOCK OPTIONS AND RESTRICTED STOCK At September 30, 2000, the Company had stock options outstanding of 245,200 shares and stock options exercisable of 178,280 shares. During the first nine months of 2000, there were 17,400 shares issued upon exercise of stock options and 21,000 additional stock options of the Company were granted. Three thousand additional shares of common stock of the Company were granted and issued as bonus shares of restricted stock, during the first nine months of 2000. NOTE 11: ADDITIONAL CASH FLOW INFORMATION
Nine Months Ended September 30, (In thousands) 2000 1999 ---------------------------------------------------------------------------------------- Interest paid $ 49,749 $ 43,484 Income taxes paid $ 6,706 $ 6,774
Approximately, $9,000,000 of investment securities previously classified as held-to-maturity was reclassified as available-for-sale during the second quarter of 1999. This was the result the Company merging the Bank of Lincoln into Simmons First Bank of Northwest Arkansas during the second quarter of 1999. NOTE 12: CERTAIN TRANSACTIONS From time to time the Company and its subsidiaries have made loans and other extensions of credit to directors, officers, their associates and members of their immediate families. From time to time directors, officers and their associates and members of their immediate families have placed deposits with the Company's subsidiary banks. Such loans, other extensions of credit and deposits were made in the ordinary course of business, on substantially the same terms (including interest rates and collateral) as those prevailing at the time for comparable transactions with other persons and did not involve more than normal risk of collectibility or present other unfavorable features. NOTE 13: COMMITMENTS AND CREDIT RISK The eight affiliate banks of the Company grant agribusiness, commercial, consumer, and residential loans to their customers. Included in the Company's diversified loan portfolio is unsecured debt in the form of credit card receivables that comprised approximately 14.7% and 16.8% of the portfolio, as of September 30, 2000 and December 31, 1999, 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, 2000, the Company had outstanding commitments to extend credit aggregating approximately $253,318,000 and $179,967,000 for credit card commitments and other loan commitments, respectively. At December 31, 1999, the Company had outstanding commitments to extend credit aggregating approximately $227,358,000 and $105,145,000 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 $3,811,000 and $3,035,000 at September 30, 2000 and December 31, 1999, respectively, with terms ranging from 90 days to one year. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Operating earnings (net income excluding merger-related expenses) for the quarter ended September 30, 2000, was $4,965,000, or $0.67 per diluted share. This compares with last year's third quarter operating earnings of $4,800,000, or $0.65 per diluted share. The Company's operating return on average assets and operating return on average stockholders' equity for the three-month period ended September 30, 2000 was 1.08% and 11.77%, compared to 1.15% and 12.06%, respectively, for the same period in 1999. In connection with the merger of NBC Bank Corp. ("NBC"), during the third quarter of 1999, after tax merger-related expenses totaled $987,000, or $0.13 per share. After merger-related expenses, Simmons First's third quarter 1999 earnings were $3,813,000 or $0.52 diluted earnings per share Operating earnings for the nine-month period ended September 30, 2000, were $13,902,000, or an increase of $430,000 over the September 30, 1999 earnings of $13,472,000. Diluted operating earnings per share increased $0.06 to $1.89 for the nine-month period ended September 30, 2000 from $1.83 in the same period of 1999. Operating return on average assets and operating return on average stockholders' equity for the nine-month period ended September 30, 2000, was 1.05% and 11.25%, compared to 1.08% and 11.51%, respectively, for the same period in 1999. In connection with the mergers of Lincoln Bankshares, Inc. ("LBI") and NBC, during the nine-month period ended September 30, 1999 after tax merger-related expenses totaled $1,382,000, or $0.19 per share. After merger-related expenses, Simmons First's nine-month period ended September 30, 1999 earnings were $12,090,000 or $1.64 diluted earnings per share. Diluted cash operating earnings (net income excluding amortization of intangibles and merger-related expenses) for the third quarter of 2000 were $0.75 per share compared with $0.71 for the third quarter of 1999, reflecting a $0.04 increase. Year-to-date diluted cash operating earnings, on a per share basis as of September 30, 2000 were $2.08 compared to $1.99 at September 30, 1999, reflecting a $0.09 increase. Cash operating return on average assets was 1.17% and cash operating return on average stockholders' equity was 12.44% for the nine-month period ended September 30, 2000, compared with 1.20% and 12.71%, respectively, for the same period in 1999. Net interest margin (fully taxable equivalent) for the Company's third quarter 2000 and nine-month period ended September 30, 2000 were 4.18% and 4.25%, respectively. These rates compared to 4.46% and 4.40% for the same periods during 1999. These declines resulted from a rising interest-rate environment that has placed downward pressure on the net interest margin of the Company. In spite of the decline in interest margin the Company grew net interest income for the third quarter of 2000. This growth was made possible as a result of the 15.7% increase in the loan portfolio over the same period last year, with the purchase of eight additional locations on July 17, 2000 contributing to this growth. Net interest income for the three-month period ended September 30, 2000, increased $589,000, or 3.6%, when compared to the same period in 1999. While the nine-month ended September 30, 2000, net interest income increased $1,428,000, or 3.0% from the same period in 1999. The provision for loan losses for the third quarter of 2000 was $1,892,000, compared to $1,619,000 for the same period of 1999, resulting in a $273,000 or 16.9% increase. For the nine-months ended September 30, 2000 and 1999, the provision was $5,537,000 and $4,962,000, respectively, resulting in a 11.6% increase. The primary reason for the increase in the 2000 provision is the growth in the loan portfolio from September 30, 1999 to September 30, 2000. Non-interest income for the third quarter ended September 30, 2000, was $8,127,000, a $671,000, or 9.0% increase over the $7,456,000 reported for the same period in 1999. For the nine-months ended September 30, 2000, non-interest income was $22,600,000, a $1,492,000, or 7.1% increase from the $21,108,000 reported for the same period in 1999. These increases were primarily the result of successful internal growth of the Company, combined with the additional non-interest income, which was the result of purchasing eight additional locations on July 17, 2000. During the three-months ended September 30, 2000, non-interest expense (excluding merger-related expenses) increased $602,000, or 3.9%, over the same period in 1999. Year-to-date non-interest expense (excluding merger-related expenses) was $46,505,000 at September 30, 2000, compared to $45,188,000 for the same period ended September 30, 1999, an increase of $1,317,000 or 2.9%. These increases reflect the normal increase in the cost of doing business and the additional non-interest expense, which was the result of purchasing eight additional locations on July 17, 2000. FINANCIAL CONDITION Total assets for the Company at September 30, 2000, were $1.865 billion, an increase of $168 million, or 9.9%, over the same figure at December 31, 1999. Loans at September 30, 2000 totaled $1.269 billion, an increase of $155 million, or 13.9% from the same figure at December 31, 1999. Deposits at September 30, 2000 totaled $1.538 billion, an increase of $128 million, or 9.1% from the same figure at December 31, 1999. Stockholders' equity at the end of the third quarter was $169.5 million, an increase of $10.1 million or 6.3%, from the December 31, 1999 figure. Asset quality remains strong with the allowance for loan losses as a percent of total loans at 1.63% as of September 30, 2000, compared to 1.53% at December 31, 1999. As of September 30, 2000, non-performing loans equaled 0.97% of total loans, while the allowance for loan losses equaled 168.69% of non-performing loans. Generally speaking, the Company's banking subsidiaries rely upon net inflows of cash from financing activities, supplemented by net inflows of cash from operating activities, to provide cash used in their investing activities. As is typical of most banking companies, significant financing activities include: deposit gathering; use of short-term borrowing facilities, such as federal funds purchased and repurchase agreements; and the issuance of long-term debt. The banks' primary investing activities include loan originations and purchases of investment securities, offset by loan payoffs and investment maturities. Liquidity represents an institution's ability to provide funds to satisfy demands from depositors and borrowers, by either converting assets into cash or accessing new or existing sources of incremental funds. It is a major responsibility of management to maximize net interest income within prudent liquidity constraints. Internal corporate guidelines have been established to measure liquid assets as well as relevant ratios concerning earning asset levels and purchased funds. Each bank subsidiary is also required to monitor these same indicators and report regularly to its own senior management and board of directors. At September 30, 2000, each bank was within established guidelines and total corporate liquidity was strong. At September 30, 2000, cash and due from banks, securities available for sale and held in trading accounts, federal funds sold and securities purchased under agreements for resell, and mortgage loans held for sale were 16.8% of total assets. ACQUISITIONS On January 15, 1999, the Company and LBI merged in a pooling-of-interests transaction, except for the acquisition of the minority shares (17.9%) of the Bank of Lincoln, which were accounted for on a purchase accounting basis. Stockholders of LBI received 301,823 shares of Simmons First National Corporation stock in exchange for LBI shares in the transaction. LBI owned the Bank of Lincoln, Lincoln, Arkansas with assets, as of January 15, 1999, of $75 million. The Company merged the Bank of Lincoln into Simmons First Bank of Northwest Arkansas during the second quarter of 1999. On July 9, 1999, the Company acquired all the common stock of NBC in exchange for 784,887 shares of the Company's common stock. NBC owned National Bank of Commerce, El Dorado, Arkansas with assets of $155 million, as of July 9, 1999. The Company changed the name of National Bank of Commerce to Simmons First Bank of El Dorado, N.A. The Company will continue to operate Simmons First Bank of El Dorado, N.A. as a separate community bank with the same board of directors, management and staff. This acquisition was accounted for as a pooling-of-interests. On July 17, 2000, the Company expanded its coverage of Central and Northwest Arkansas with a $7.6 million cash purchase of two Conway and six Northwest Arkansas locations from First Financial Banc Corporation. Simmons First National Bank acquired the two offices in Conway and Simmons First Bank of Northwest Arkansas acquired the six offices in Northwest Arkansas. As of July 14, 2000, the eight locations combined had total loans of $72 million and total deposits of $71 million. STOCK REPURCHASE On June 12, 2000, the Company announced a stock repurchase program. This program authorizes the repurchase of up to 200,000 common shares, or approximately 2.7 percent of the outstanding common shares. Under the repurchase program, there is no time limit for the sock repurchases, nor are there a minimum number of shares the Company intends to repurchase. As of September 30, 2000, the Company repurchased 63,627 shares of stock with a weighted average repurchase price of $21.35 per share. REVIEW BY INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS BAIRD, KURTZ & DOBSON Certified Public Accountants 200 East Eleventh Pine Bluff, Arkansas Board of Directors Simmons First National Corporation Pine Bluff, Arkansas We have reviewed the accompanying condensed consolidated balance sheet of SIMMONS FIRST NATIONAL CORPORATION as of September 30, 2000, and the related condensed consolidated statements of income for the three-month and nine-month periods ended September 30, 2000 and 1999 and cash flows for the nine-month periods ended September 30, 2000 and 1999. These financial statements are the responsibility of the company's management. We conducted our review 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 generally accepted auditing standards, 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 review, 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 generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet as of December 31, 1999, 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 4, 2000, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 1999, is fairly stated in all material respects in relation to the consolidated balance sheet from which it has been derived. /s/ Baird, Kurtz & Dobson BAIRD, KURTZ & DOBSON Pine Bluff, Arkansas November 3, 2000 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 either the Simmons First National Corporation Incentive and Non-qualified Stock Option Plan or the Simmons First National Corporation Executive Stock Incentive Plan. No underwriters were involved and no underwriter's discount or commissions were involved. Exemption from registration is claimed under Section 4(2) of the Securities Act of 1933 as private placements. The Company received cash or exchanged shares of the Company's Class A Common Stock as the consideration for the transactions.
Number Identity Date of Sale of Shares Price(1) Type of Transaction ------------------------------------------------------------------------------------------------------------------- 1 Officer September, 2000 1,800 8.2917 Incentive Stock Option 1 Officer September, 2000 300 15.8333 Incentive Stock Option ------------- Notes: 1. The per share price paid for incentive stock options represents the fair market value of the stock as determined under the terms of the Plan on the date the incentive stock option was granted to the officer.
Item 6. Reports on Form 8-K The registrant filed Form 8-K on July 17, 2000. The report contained the text of a press release issued by the registrant concerning the purchase of eight First Financial Banc Corporation banking offices. 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 6, 2000 /s/ J. Thomas May -------------------- --------------------------------------- J. Thomas May, Chairman, President and Chief Executive Officer Date: November 6, 2000 /s/ Barry L. Crow -------------------- --------------------------------------- Barry L. Crow, Executive Vice President and Chief Financial Officer