10-Q 1 q10-0901.txt SEPTEMBER 30, 2001 10Q 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, 2001 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 7,090,075 Class B, Common None SIMMONS FIRST NATIONAL CORPORATION INDEX Page No. Part I: Summarized Financial Information Consolidated Balance Sheets -- September 30, 2001 and December 31, 2000 3-4 Consolidated Statements of Income -- Three months and nine months ended September 30, 2001 and 2000 5 Consolidated Statements of Cash Flows -- Nine months ended September 30, 2001 and 2000 6 Consolidated Statements of Changes in Stockholders' Equity Nine months ended September 30, 2001 and 2000 7 Condensed Notes to Consolidated Financial Statements 8-17 Management's Discussion and Analysis of Financial Condition and Results of Operations 18-35 Review by Independent Certified Public Accountants 36 Part II: Other Information 37-38 Part I: Summarized Financial Information
Simmons First National Corporation Consolidated Balance Sheets September 30, 2001 and December 31, 2000 ASSETS September 30, December 31, (In thousands, except share data) 2001 2000 ------------------------------------------------------------------------------------------------------------------------ (Unaudited) Cash and non-interest bearing balances due from banks $ 66,429 $ 77,495 Interest bearing balances due from banks 84,153 12,990 Federal funds sold and securities purchased under agreements to resell 77,650 20,650 ----------- ----------- Cash and cash equivalents 228,232 111,135 Investment securities 391,617 398,483 Mortgage loans held for sale 22,340 8,934 Assets held in trading accounts 285 1,127 Loans 1,298,543 1,294,710 Allowance for loan losses (21,361) (21,157) ----------- ----------- Net loans 1,277,182 1,273,553 Premises and equipment 45,874 46,597 Foreclosed assets held for sale, net 1,081 1,104 Interest receivable 16,968 18,878 Intangible assets, net 32,939 35,241 Other assets 15,394 17,441 ----------- ----------- TOTAL ASSETS $ 2,031,912 $ 1,912,493 ========== ==========
See Condensed Notes to Consolidated Financial Statements.
Simmons First National Corporation Consolidated Balance Sheets September 30, 2001 and December 31, 2000 LIABILITIES AND STOCKHOLDERS' EQUITY September 30, December 31, (In thousands, except share data) 2001 2000 ------------------------------------------------------------------------------------------------------------------------ (Unaudited) LIABILITIES Non-interest bearing transaction accounts $ 219,602 $ 213,312 Interest bearing transaction accounts and savings deposits 471,093 471,609 Time deposits 985,109 920,665 ----------- ----------- Total deposits 1,675,804 1,605,586 Federal funds purchased and securities sold under agreements to repurchase 101,332 67,250 Short-term debt 12,865 4,070 Long-term debt 42,278 41,681 Accrued interest and other liabilities 18,481 20,563 ----------- ----------- Total liabilities 1,850,760 1,739,150 ----------- ----------- STOCKHOLDERS' EQUITY Capital stock Class A, common, par value $1 a share, authorized 30,000,000 shares, 7,090,075 issued and outstanding at 2001 and 7,180,966 at 2000 7,090 7,181 Surplus 45,497 47,964 Undivided profits 126,198 118,232 Accumulated other comprehensive income Unrealized appreciation (depreciation) on available-for-sale securities, net of income taxes of $1,420 at 2001 and income tax credit of $20 at 2000 2,367 (34) ----------- ----------- Total stockholders' equity 181,152 173,343 ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,031,912 $ 1,912,493 ========== ==========
See Condensed Notes to Consolidated Financial Statements.
Simmons First National Corporation Consolidated Statements of Income Three Months and Nine Months Ended September 30, 2001 and 2000 Three Months Ended Nine Months Ended September 30, September 30, (In thousands, except per share data) 2001 2000 2001 2000 --------------------------------------------------------------------------------------------------------------------- (Unaudited) (Unaudited) INTEREST INCOME Loans $ 27,298 $ 28,952 $ 84,827 $ 79,697 Federal funds sold and securities purchased under agreements to resell 347 212 1,490 1,129 Investment securities 5,042 5,864 16,003 17,737 Mortgage loans held for sale, net of unrealized gains (losses) 303 143 742 382 Assets held in trading accounts 1 5 10 88 Interest bearing balances due from banks 400 234 1,089 614 --------- --------- --------- -------- TOTAL INTEREST INCOME 33,391 35,410 104,161 99,647 --------- --------- --------- -------- INTEREST EXPENSE Deposits 15,322 16,250 48,684 44,582 Federal funds purchased and securities sold under agreements to repurchase 592 1,156 2,339 2,490 Short-term debt 100 163 280 411 Long-term debt 830 855 2,489 2,630 --------- --------- --------- -------- TOTAL INTEREST EXPENSE 16,844 18,424 53,792 50,113 --------- --------- --------- -------- NET INTEREST INCOME 16,547 16,986 50,369 49,534 Provision for loan losses 3,429 1,892 7,249 5,537 --------- --------- --------- -------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 13,118 15,094 43,120 43,997 --------- --------- --------- -------- NON-INTEREST INCOME Trust income 1,443 1,496 4,099 4,000 Service charges on deposit accounts 2,226 2,176 6,634 5,808 Other service charges and fees 408 392 1,374 1,406 Income on sale of mortgage loans, net of commissions 781 521 2,218 1,277 Income on investment banking, net of commissions 298 13 638 188 Credit card fees 2,669 2,712 7,791 7,671 Other income 901 817 2,376 2,250 Gain on sale of securities, net 0 0 0 0 --------- --------- --------- -------- TOTAL NON-INTEREST INCOME 8,726 8,127 25,130 22,600 --------- --------- --------- -------- NON-INTEREST EXPENSE Salaries and employee benefits 9,058 8,591 26,963 25,282 Occupancy expense, net 1,183 1,035 3,443 2,830 Furniture and equipment expense 1,250 1,336 3,924 3,891 Loss on foreclosed assets 165 66 327 194 Other operating expenses 5,498 4,947 16,160 14,308 --------- --------- --------- -------- TOTAL NON-INTEREST EXPENSE 17,154 15,975 50,817 46,505 --------- --------- --------- -------- INCOME BEFORE INCOME TAXES 4,690 7,246 17,433 20,092 Provision for income taxes 1,154 2,281 4,856 6,190 --------- --------- --------- -------- NET INCOME $ 3,536 $ 4,965 $ 12,577 $ 13,902 ======== ======== ======== ======= BASIC EARNINGS PER SHARE $ 0.50 $ 0.68 $ 1.77 $ 1.90 ======== ======== ======== ======= DILUTED EARNINGS PER SHARE $ 0.49 $ 0.67 $ 1.76 $ 1.89 ======== ======== ======== =======
See Condensed Notes to Consolidated Financial Statements.
Simmons First National Corporation Consolidated Statements of Cash Flows Nine Months Ended September 30, 2001 and 2000 September 30, September 30, (In thousands) 2001 2000 ----------------------------------------------------------------------------------------------------------------- (Unaudited) CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 12,577 $ 13,902 Items not requiring (providing) cash Depreciation and amortization 5,727 5,062 Provision for loan losses 7,249 5,537 Net (accretion) amortization of investment securities (772) 403 Deferred income taxes 1,074 (1,042) Provision for foreclosed assets 154 159 Changes in Interest receivable 1,910 (2,860) Mortgage loans held for sale (13,406) (5,363) Assets held in trading accounts 842 654 Other assets 2,047 (304) Accrued interest and other liabilities (2,467) 1,142 Income taxes payable (689) 526 ---------- ---------- Net cash provided by operating activities 14,246 17,816 ---------- ---------- CASH FLOW FROM INVESTING ACTIVITIES Net originations of loans (12,217) (87,814) Purchase of branch locations, net funds paid -- (14,398) Purchase of premises and equipment, net (2,702) (3,664) Proceeds from sale of foreclosed assets 1,208 799 Proceeds from maturities of available-for-sale securities 197,140 97,800 Purchases of available-for-sale securities (173,909) (81,011) Proceeds from maturities of held-to-maturity securities 102,300 17,681 Purchases of held-to-maturity securities (115,492) (25,640) ---------- ----------- Net cash used in investing activities (3,672) (96,247) ---------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Net increase in deposits 70,218 56,776 Net proceeds of short-term debt 8,795 4,480 Dividends paid (4,611) (4,315) Proceeds from issuance of long-term debt 4,085 -- Repayments of long-term debt (3,488) (4,312) Net increase in federal funds purchased and securities sold under agreements to repurchase 34,082 27,271 Repurchase of common stock, net (2,558) (1,101) ---------- ---------- Net cash provided by financing activities 106,523 78,799 ---------- ---------- INCREASE IN CASH AND CASH EQUIVALENTS 117,097 368 CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 111,135 81,205 ---------- ---------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 228,232 $ 81,573 ========= =========
See Condensed Notes to Consolidated Financial Statements.
Simmons First National Corporation Consolidated Statements of Changes in Stockholders' Equity Nine Months Ended September 30, 2001 and 2000 Accumulated Other Common Comprehensive Undivided (In thousands, except share data) Stock Surplus Income Profits Total --------------------------------------------------------------------------------------------------------------------- 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 Comprehensive income Net income -- -- -- 4,967 4,967 Change in unrealized depreciation on available-for-sale securities, net of income taxes of $1,307 -- -- 2,177 -- 2,177 --------- Comprehensive income 7,144 Exercise of stock options - 5,400 shares 6 91 -- -- 97 Securities exchanged under stock option plan (3) (63) -- -- (66) Repurchase of common stock - 93,200 shares (94) (1,777) -- -- (1,871) Cash dividends declared - $0.21 per share -- -- -- (1,507) (1,507) --------- --------- --------- --------- --------- 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 ======== ======== ======== ======== ========
See Condensed Notes to Consolidated Financial Statements. SIMMONS FIRST NATIONAL CORPORATION CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 1: BASIS OF PRESENTATION The consolidated financial statements include the accounts of Simmons First National Corporation and its subsidiaries. Significant intercompany accounts and transactions have been eliminated in consolidation. The accompanying unaudited consolidated financial statements reflect all adjustments that are in the opinion of the Company's management, necessary to fairly present the financial position, results of operations and cash flows of the Company. Those adjustments consist only of normal recurring adjustments. Certain prior year amounts are reclassified to conform to current year classification. The results of operations for the period are not necessarily indicative of the results to be expected for the full year. Certain information and note disclosures normally included in the Company's annual financial statements prepared in accordance with 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 2000 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, 2001 and 2000 is as follows:
(In thousands, except per share data) 2001 2000 --------------------------------------------------------------------------------------------------------------- Net Income $ 12,577 $ 13,902 -------- ------- Average common shares outstanding 7,103 7,320 Average common share stock options outstanding 56 21 --------- ------- Average diluted common shares 7,159 7,341 --------- ------- Basic earnings per share $ 1.77 $ 1.90 ======== ======= Diluted earnings per share $ 1.76 $ 1.89 ======== =======
NOTE 2: ACQUISITIONS 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 $71.8 million, total deposits of $71.0 million and net assets of $8.5 million. The total acquisition cost exceeded the fair value of tangible assets and liabilities acquired by $10.8 million. The intangible assets are being amortized using the straight-line method over 15 years. 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, 2001 2000 --------------------------------------------- ----------------------------------------- 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 $ 31,310 $ 922 $ -- $ 32,232 $ 21,923 $ 246 $ (8) $ 22,161 U.S. Government agencies 40,024 630 -- 40,654 40,965 229 (145) 41,049 Mortgage-backed securities 8,094 135 (1) 8,228 11,065 46 (117) 10,994 State and political subdivisions 118,504 3,293 (46) 121,751 110,380 1,593 (594) 111,379 Other securities 100 -- -- 100 80 -- -- 80 --------- ------ ------- --------- --------- ------ ------ --------- $ 198,032 $ 4,980 $ (47) $ 202,965 $ 184,413 $ 2,114 $ (864) $ 185,663 ========= ====== ======= ========= ========= ====== ====== ========= Available-for-Sale ------------------ U.S. Treasury $ 20,063 $ 468 $ -- $ 20,531 $ 23,889 $ 160 $ (12) $ 24,037 U.S. Government agencies 142,693 2,375 -- 145,068 157,434 167 (1,165) 156,436 Mortgage-backed securities 12,289 138 (60) 12,367 15,266 55 (140) 15,181 State and political subdivisions 5,419 301 -- 5,720 6,621 217 (17) 6,821 Other securities 8,996 903 -- 9,899 10,541 1,054 -- 11,595 --------- ------ ------- --------- --------- ------ ------ --------- $ 189,460 $ 4,185 $ (60) $ 193,585 $ 213,751 $ 1,653 $(1,334) $ 214,070 ========= ====== ======= ========= ========= ====== ====== =========
The carrying value, which approximates the market value, of securities pledged as collateral, to secure public deposits and for other purposes, amounted to $308,356,000 at September 30, 2001 and $279,286,000 at December 31, 2000. The book value of securities sold under agreements to repurchase amounted to $45,847,000 and $34,235,000 for September 30, 2001 and December 31, 2000 respectively. Income earned on securities for the nine months ended September 30, 2001 and 2000 is as follows:
(In thousands) 2001 2000 ---------------------------------------------------------------------------------------------------------------- Taxable Held-to-maturity $ 4,017 $ 3,188 Available-for-sale 7,695 10,514 Non-taxable Held-to-maturity 4,032 3,771 Available-for-sale 259 264 -------- -------- Total $ 16,003 $ 17,737 ======== ========
Maturities of investment securities at September 30, 2001 are as follows:
Held-to-Maturity Available-for-Sale -------------------------- ------------------------- Amortized Fair Amortized Fair (In thousands) Cost Value Cost Value ------------------------------------------------------------------------------------------------- One year or less $ 32,739 $ 33,117 $ 28,440 $ 28,723 After one through five years 111,192 113,649 134,940 137,411 After five through ten years 41,394 43,109 7,731 8,097 After ten years 12,607 12,990 9,353 9,455 Other securities 100 100 8,996 9,899 ---------- ---------- ---------- --------- Total $ 198,032 $ 202,965 $ 189,460 $ 193,585 ========== ========== ========== =========
There were no gross realized gains or losses as of September 30, 2001 and 2000. 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) 2001 2000 ----------------------------------------------------------------------------------------------------------- Consumer Credit cards $ 187,738 $ 197,567 Student loans 73,467 67,145 Other consumer 187,199 192,595 Real estate Construction 80,070 69,169 Single family residential 232,122 244,377 Other commercial 279,464 287,170 Commercial Commercial 161,245 161,134 Agricultural 76,066 57,164 Financial institutions 7,099 2,339 Other 14,073 16,050 ------------ ----------- Total loans before allowance for loan losses $ 1,298,543 $ 1,294,710 ============ ===========
During the first nine months of 2001, foreclosed assets held for sale decreased $23,000 to $1,081,000 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, 2001, were $187,000, $12,765,000 and $3,035,000, respectively, bringing the total of non-performing assets to $17,068,000. Transactions in the allowance for loan losses are as follows:
September 30, December 31, (In thousands) 2001 2000 ------------------------------------------------------------------------------------------------------------------- Balance, beginning of year $ 21,157 $ 17,085 Additions Allowance for loan losses of acquired branches -- 2,155 Provision charged to expense 7,249 5,537 --------- --------- 28,406 24,777 Deductions Losses charged to allowance, net of recoveries of $1,250 and $1,386 for the first nine months of 2001 and 2000, respectively 7,045 4,086 --------- --------- Balance, September 30 $ 21,361 $ 20,691 ========= --------- Additions Allowance for loan losses of acquired branches 450 Provision charged to expense 1,994 --------- 23,135 Deductions Losses charged to allowance, net of recoveries of $299 for the last three months of 2000 1,978 --------- Balance, end of year $ 21,157 ========
At September 30, 2001 and December 31, 2000, impaired loans totaled $21,590,000 and $18,099,000, respectively. All impaired loans had designated reserves for possible loan losses. Reserves relative to impaired loans at September 30, 2001, were $5,069,000 and $3,070,000 at December 31, 2000. Approximately $736,000 and $359,000 of interest income was recognized on average impaired loans of $21,170,000 and $12,140,000 as of September 30, 2001 and 2000, respectively. Interest recognized on impaired loans on a cash basis during the first nine months of 2001 and 2000 was immaterial. NOTE 5: TIME DEPOSITS Time deposits include approximately $385,913,000 and $324,969,000 of certificates of deposit of $100,000 or more at September 30, 2001 and December 31, 2000, respectively. NOTE 6: INCOME TAXES The provision for income taxes is comprised of the following components:
September 30, September 30, (In thousands) 2001 2000 ------------------------------------------------------------------------------------------------------ Income taxes currently payable $ 3,782 $ 7,232 Deferred income taxes 1,074 (1,042) ------------ ------------ Provision for income taxes $ 4,856 $ 6,190 =========== ===========
The tax effects of temporary differences related to deferred taxes shown on the balance sheet are shown below:
September 30, December 31, (In thousands) 2001 2000 ---------------------------------------------------------------------------------------------------- Deferred tax assets Allowance for loan losses $ 7,008 $ 7,696 Valuation of foreclosed assets 105 231 Deferred compensation payable 629 708 Deferred loan fee income 198 414 Vacation compensation 482 453 Mortgage servicing reserve 368 384 Loan interest 139 126 Available-for-sale securities -- 20 Other 134 127 ------------ ------------ Total deferred tax assets 9,063 10,159 ------------ ------------ Deferred tax liabilities Accumulated depreciation (1,485) (1,577) Available-for-sale securities (1,420) -- FHLB stock dividends (680) (590) Other (202) (202) ------------ ------------ Total deferred tax liabilities (3,787) (2,369) ------------ ------------ Net deferred tax assets included in other assets on balance sheets $ 5,276 $ 7,790 =========== ===========
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) 2001 2000 ---------------------------------------------------------------------------------------------------- Computed at the statutory rate (35%) $ 6,102 $ 7,032 Increase (decrease) resulting from: Tax exempt income (1,503) (1,530) Other differences, net 257 688 ------------- ------------- Actual tax provision $ 4,856 $ 6,190 ============= =============
NOTE 7: LONG-TERM DEBT Long-term debt at September 30, 2001 and December 31, 2000, consisted of the following components,
September 30, December 31, (In thousands) 2001 2000 ----------------------------------------------------------------------------------------------------- 7.32% note due 2007, unsecured $ 12,000 $ 14,000 9.75% note due 2008, secured by land and building -- 857 4.33% to 8.41% FHLB advances due 2001 to 2021, secured by residential real estate loans 13,028 9,574 Trust preferred securities 17,250 17,250 ------------- ------------- $ 42,278 $ 41,681 ============= =============
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, 2001 are:
Annual (In thousands) Year Maturities -------------------------------------------------------------------------------------------------------- 2001 $ 215 2002 5,884 2003 2,824 2004 2,824 2005 2,893 Thereafter 27,638 --------------- Total $ 42,278 ===============
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, 2001, the bank subsidiaries had approximately $10 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, 2001, each of the eight subsidiary banks met the capital standards for a well-capitalized institution. The Company's "total risk-based capital" ratio was 13.6% at September 30, 2001. NOTE 10: STOCK OPTIONS AND RESTRICTED STOCK At September 30, 2001, the Company had stock options outstanding of 412,329 shares and stock options exercisable of 213,599 shares. During the first nine months of 2001, 26,621 shares were issued upon exercise of stock options, 9,800 shares were forfeited and 213,300 additional stock options of the Company were granted. Also, 24,700 additional shares of common stock of the Company were granted and issued to executive officers of the Company as restricted stock, during the first nine months of 2001. NOTE 11: ADDITIONAL CASH FLOW INFORMATION
Nine Months Ended September 30, (In thousands) 2001 2000 -------------------------------------------------------------------------------- Interest paid $ 54,577 $ 49,749 Income taxes paid $ 4,471 $ 6,706
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 comprises approximately 14.5% and 15.3% of the portfolio, as of September 30, 2001 and December 31, 2000, 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, 2001, the Company had outstanding commitments to extend credit aggregating approximately $218,577,000 and $237,182,000 for credit card commitments and other loan commitments, respectively. At December 31, 2000, the Company had outstanding commitments to extend credit aggregating approximately $246,550,000 and $157,859,000 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 $5,341,000 and $3,400,000 at September 30, 2001 and December 31, 2000, respectively, with terms ranging from 90 days to one year. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW -------- Simmons First National Corporation recorded net income of $3,536,000, or $0.49 per diluted share for the quarter ended September 30, 2001. These earnings reflect a decrease of $1,429,000, or $0.18 per share, when compared to last year's third quarter earnings of $4,965,000, or $0.67 per diluted share. The Company's annualized return on average assets and annualized return on average stockholder's equity for the three-month period ended September 30, 2001, was 0.71% and 7.75%, compared to 1.08% and 11.77%, respectively, for the same period in 2000. Earnings for the nine-month period ended September 30, 2001 were $12,577,000, or $1.76 per diluted share. These earnings reflect a decrease of $1,325,000, or $0.13 per share, when compared to the nine-month period ended September 30, 2000 earnings of $13,902,000, or $1.89 per diluted share. Annualized return on average assets and annualized return on average stockholders' equity for the nine-month period ended September 30, 2001, was 0.87% and 9.46%, compared to 1.05% and 11.25%, respectively, for the same period in 2000. Because of the Company's previous cash acquisitions, cash earnings (net income excluding amortization of intangible assets) are an integral component of earnings. Diluted cash earnings for the third quarter of 2001 were $0.56 compared with $0.75 for the third quarter of 2000, reflecting a $0.19 decrease. Year-to-date diluted cash earnings, on a per share basis, as of September 30, 2001, were $1.97, a decrease of $0.11, or 5.3% when compared to $2.08 as of September 30, 2000. Annualized cash return on average assets was 0.83% and annualized cash return on average stockholders' equity was 8.91% for the third quarter of 2001, compared with 1.21% and 13.08%, respectively, for the same period in 2000. Annualized cash return on average assets was 0.99% and annualized cash return on average stockholders' equity was 10.66% for the nine-month period ended September 30, 2001, compared with 1.17% and 12.44%, respectively, for the same period in 2000. Total assets for the Company at September 30, 2001, were $2.032 billion, an increase of $119 million over the same figure at December 31, 2000. Stockholders' equity at the end of the third quarter of 2001 was $181.2 million, a $7.9 million, or 4.6%, increase from December 31, 2000. During the first nine months of 2001 the Company repurchased 133,955 common shares of stock. This stock repurchase decreased stockholders' equity by $3.3 million. Simmons First National Corporation is an Arkansas based, Arkansas committed, financial holding company, with community banks in Pine Bluff, Jonesboro, Lake Village, Dumas, Rogers, Russellville, Searcy and El Dorado, Arkansas. The Company's eight banks conduct financial operations from 65 offices in 33 communities throughout Arkansas. ACQUISITIONS ------------ 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 $71.8 million, total deposits of $71.0 million and net assets of $8.5 million. The total acquisition cost exceeded the fair value of tangible assets and liabilities acquired by $10.8 million. The intangible assets are being amortized using the straight-line method over 15 years. CONSOLIDATION OF SUBSIDIARIES ----------------------------- During the second quarter of 2001, the Company made a strategic decision to consolidate the charters of its two smallest banking subsidiaries. The Company is planning to consolidate Simmons First Bank of Dumas into Simmons First Bank of South Arkansas on December 7, 2001. After the consolidation, Simmons First Bank of South Arkansas will have four banking locations in Southeast Arkansas, with assets totaling approximately $100 million. The Company remains committed to a community banking philosophy. This consolidation will not have a material impact on current or future earnings of the Company. CHANGE IN CONTROL AGREEMENTS ---------------------------- During the second quarter, the Company entered into Executive Severance Agreements with 21 of its key officers. These agreements are intended to give executives additional assurances concerning their continued employment in the event the Company were to engage in discussions concerning or consummate a transaction which involved a change in control of the Company. A change in control transaction includes a merger, share exchange, tender offer or cash purchase of at least 25% of the shares of the Company, if within two years after such transaction; there occurs a change in more than a majority of the board of directors. Management believes that it is in the best interests of the stockholders to provide certain assurances regarding continued employment of selected key officers to better assure that the Company will be able to properly evaluate any proposed transaction and to continue the Company's operations during any transition period. The agreements, which are only effective for a period of up to two years after a change in control occurs, provide for severance benefits ranging from an amount equal to one year's annual salary to an amount equal to twice the executive's annual salary plus bonus but only if the executive separates from service under certain circumstances within the two year period. Management believes that any potential adverse effect that the existence of these agreements may have on a proposed change in control transaction is outweighed by the benefit to the Company of providing additional employment security to the key officers so that the Company may retain the services of its experienced officers in evaluating such an offer and continuing its operations either in its present from or following the consummation of such a change in control transaction. STOCK REPURCHASE ---------------- On January 23, 2001, the Company announced the expansion of the stock repurchase program. This expansion authorized the repurchase of an additional 200,000 common shares. The expanded program now has authorized the repurchase of 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 exercise, payment of future stock dividends and general corporate purposes. During the nine-month period ended September 30, 2001, the Company repurchased 133,955 common shares of stock with a weighted average repurchase price of $24.74 per share. As of September 30, 2001, the Company has repurchased a total of 290,782 common shares of stock with a weighted average repurchase price of $22.50 per share. The Company anticipates the repurchase program will have a positive impact on earnings per share of approximately $0.07 for 2001 year-to-date earnings. 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, 2001 and 2000). For the three-month period ended September 30, 2001, net interest income on a fully taxable equivalent basis was $17.4 million, a decrease of $354,000, or 2.0%, from the same period in 2000. The decrease in net interest income was the result of a $1.9 million decrease in interest income and a $1.6 million decrease in interest expense. The decrease in interest income was the result of a lower yield earned on earning assets, which was partially offset by growth in the loan portfolio. The decrease in interest expense was the result of a lower cost of funds, which was offset by deposit growth. The net interest margin declined 37 basis points to 3.81% for the three-month period ended September 30, 2001, when compared to 4.18% for the same period in 2000. For the nine-month period ended September 30, 2001, net interest income on a fully taxable equivalent basis was $52.7 million, an increase of $1.0 million, or 2.0%, from the same period in 2000. The increase in net interest income was the result of a $4.7 million increase in interest income and a $3.7 million increase in interest expense. The increase in interest income was the result of growth in the loan portfolio, which was offset by a lower yield on earning assets. The increase in interest expense was the result of deposit growth. The net interest margin declined 29 basis points to 3.96% for the nine-month period ended September 30, 2001, when compared to 4.25% for the same period in 2000. The decrease in net interest margins is the direct result of the interest rate volatility during the reporting periods. The Federal Reserve has decreased the discount rate by 350 basis points during the first nine months of the current year in an effort to stimulate a stagnant and declining economy. The Federal Reserve's actions to decrease interest rates have negatively affected the net interest margin of Simmons First, as interest rates on earning assets have declined more rapidly than rates paid on interest bearing liabilities. More specifically, the negative impact on net interest margin was due in part to Arkansas's restrictive usury law. The usury law limited the interest rate the Company can charge on the loan portfolio to a maximum of five percentage points over the Federal Reserve discount rate. The most significant impact to net interest margin was in the credit card portfolio, which had to be repriced immediately after all reductions in the discount rate. On November 11, 1999, the Gramm Leach Bliley Act was adopted by Congress and signed by the President. This Act included a provision which would set the maximum interest rate on loans made in Arkansas, by banks with Arkansas as their Home State, at the greater of the rate authorized by Arkansas law or the highest rate permitted by any of the out-of-state banks which maintain branches in Arkansas. An action was brought in the Western District of Arkansas, attacking the validity of the statute in 2000. Subsequently, the District Court issued a decision upholding the statute. Furthermore, during October 2001, the Eighth Circuit Court of Appeals upheld that statute. Now that the usury cap issue has been settled, the Company anticipates it will be able to manage interest rate risk more effectively going forward. Presently, the Company is in the process of implementing new lending guidelines based on the new statute. The Company does not expect those changes to have a material impact for the remainder of 2001. However, the Company does expect those changes to have a positive impact for 2002. 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, 2001 and 2000, respectively, as well as changes in fully taxable equivalent net interest margin for the three-month and nine-month periods ended September 30, 2001 versus September 30, 2000. Table 1: Analysis of Net Interest Income (FTE =Fully Taxable Equivalent)
Three Months Ended Nine Months Ended September 30, September 30, (In thousands) 2001 2000 2001 2000 ------------------------------------------------------------------------------------------------------------ Interest income $ 33,391 $ 35,410 $ 104,161 $ 99,647 FTE adjustment 814 729 2,351 2,167 ----------- ----------- ----------- ----------- Interest income - FTE 34,205 36,139 106,512 101,814 Interest expense 16,844 18,424 53,792 50,113 ----------- ----------- ----------- ----------- Net interest income - FTE $ 17,361 $ 17,715 $ 52,720 $ 51,701 ========== ========== ========== ========== Yield on earning assets - FTE 7.51% 8.54% 8.01% 8.36% Cost of interest bearing liabilities 4.30% 5.02% 4.69% 4.78% Net interest spread - FTE 3.21% 3.52% 3.32% 3.58% Net interest margin - FTE 3.81% 4.18% 3.96% 4.25%
Table 2: Changes in Fully Taxable Equivalent Net Interest Margin
Three Months Ended Nine Months Ended September 30, September 30, (In thousands) 2001 vs. 2000 2001 vs. 2000 -------------------------------------------------------------------------------------------------------------- Increase due to change in earning assets $ 1,977 $ 9,041 Decrease due to change in earning asset yields (3,911) (4,343) Decrease due to change in interest bearing liabilities (1,173) (5,011) Increase due to change in interest rates paid on interest bearing liabilities 2,753 1,332 ------------- ------------ Increase in net interest income $ (354) $ 1,019 ============ ===========
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, 2001 and 2000. The table also shows the average rate earned on all earning assets, the average rate expensed on all interest bearing liabilities, the net interest spread and the net interest margin for the same periods. The analysis is presented on a fully taxable equivalent basis. Non-accrual loans were included in average loans for the purpose of calculating the rate earned on total loans. Table 3: Average Balance Sheets and Net Interest Income Analysis
Three Months Ended September 30, ---------------------------------------------------------------------- 2001 2000 --------------------------------- ----------------------------------- Average Income/ Yield/ Average Income/ Yield/ (In thousands) Balance Expense Rate(%) Balance Expense Rate(%) -------------------------------------------------------------------------------------------------------------- ASSETS ------ Earning Assets Interest bearing balances due from banks $ 49,291 $ 400 3.22 $ 15,246 $ 234 6.11 Federal funds sold 42,577 347 3.23 13,522 212 6.24 Investment securities - taxable 262,928 3,577 5.40 284,901 4,508 6.29 Investment securities - non-taxable 125,283 2,279 7.22 113,173 2,085 7.33 Mortgage loans held for sale 19,557 303 6.15 7,563 143 7.52 Assets held in trading accounts 260 1 1.53 528 5 3.77 Loans 1,307,639 27,298 8.28 1,249,524 28,952 9.22 ----------- --------- ----------- --------- Total interest earning assets 1,807,535 34,205 7.51 1,684,457 36,139 8.54 --------- --------- Non-earning assets 158,804 151,441 ----------- ----------- Total assets $ 1,966,339 $ 1,835,898 ========== ========== LIABILITIES AND --------------- STOCKHOLDERS' EQUITY -------------------- Liabilities Interest bearing liabilities Interest bearing transaction and savings accounts $ 468,937 $ 2,350 1.99 $ 445,093 $ 3,271 2.92 Time deposits 960,627 12,972 5.36 885,038 12,979 5.83 ----------- --------- ----------- --------- Total interest bearing deposits 1,429,564 15,322 4.25 1,330,131 16,250 4.86 Federal funds purchased and securities sold under agreement to repurchase 72,759 592 3.23 77,505 1,156 5.93 Other borrowed funds Short-term debt 10,519 100 3.77 10,305 163 6.29 Long-term debt 43,007 830 7.66 42,647 855 7.98 ----------- --------- ----------- --------- Total interest bearing liabilities 1,555,849 16,844 4.30 1,460,588 18,424 5.02 --------- --------- Non-interest bearing liabilities Non-interest bearing deposits 210,246 189,827 Other liabilities 19,199 17,632 ----------- ----------- Total liabilities 1,785,294 1,668,047 Stockholders' equity 181,045 167,851 ----------- ----------- Total liabilities and stockholders' equity $ 1,966,339 $ 1,835,898 ========== ========== Net interest spread 3.21 3.52 Net interest margin $ 17,361 3.81 $ 17,715 4.18 ======== ========
Nine Months Ended September 30, ---------------------------------------------------------------------- 2001 2000 --------------------------------- ----------------------------------- Average Income/ Yield/ Average Income/ Yield/ (In thousands) Balance Expense Rate(%) Balance Expense Rate(%) -------------------------------------------------------------------------------------------------------------- ASSETS ------ Earning Assets Interest bearing balances due from banks $ 36,234 $ 1,089 4.02 $ 13,393 $ 614 6.12 Federal funds sold 44,765 1,490 4.45 24,791 1,129 6.08 Investment securities - taxable 265,648 11,712 5.89 292,569 13,702 6.26 Investment securities - non-taxable 120,025 6,642 7.40 112,400 6,202 7.37 Mortgage loans held for sale 16,275 742 6.10 6,737 382 7.57 Assets held in trading accounts 398 10 3.36 1,738 88 6.76 Loans 1,294,873 84,827 8.76 1,174,437 79,697 9.06 ----------- --------- ----------- --------- Total interest earning assets 1,778,218 106,512 8.01 1,626,065 101,814 8.36 --------- --------- Non-earning assets 158,311 141,491 ----------- ----------- Total assets $ 1,936,529 $ 1,767,556 ========== ========== LIABILITIES AND --------------- STOCKHOLDERS' EQUITY -------------------- Liabilities Interest bearing liabilities Interest bearing transaction and savings accounts $ 464,487 $ 8,214 2.36 $ 441,525 $ 9,345 2.83 Time deposits 943,495 40,470 5.73 844,523 35,237 5.57 ----------- --------- ----------- --------- Total interest bearing deposits 1,407,982 48,684 4.62 1,286,048 44,582 4.63 Federal funds purchased and securities sold under agreement to repurchase 73,770 2,339 4.24 60,022 2,490 5.54 Other borrowed funds Short-term debt 7,869 280 4.76 9,863 411 5.57 Long-term debt 42,296 2,489 7.87 44,118 2,630 7.96 ----------- --------- ----------- --------- Total interest bearing liabilities 1,531,917 53,792 4.69 1,400,051 50,113 4.78 --------- --------- Non-interest bearing liabilities Non-interest bearing deposits 207,277 185,746 Other liabilities 19,615 16,740 ----------- ----------- Total liabilities 1,758,809 1,602,537 Stockholders' equity 177,720 165,019 ----------- ----------- Total liabilities and stockholders' equity $ 1,936,529 $ 1,767,556 ========== ========== Net interest spread 3.32 3.58 Net interest margin $ 52,720 3.96 $ 51,701 4.25 ======== ========
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 month periods ended September 30, 2001 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, 2001 over 2000 2001 over 2000 --------------------------------------- ----------------------------------------- (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 $ 319 $ (153) $ 166 $ 747 $ (272) $ 475 Federal funds sold 277 (142) 135 726 (365) 361 Investment securities - taxable (331) (600) (931) (1,216) (774) (1,990) Investment securities - non-taxable 220 (26) 194 422 18 440 Mortgage loans held for sale 190 (30) 160 448 (88) 360 Assets held in trading accounts (2) (2) (4) (47) (31) (78) Loans 1,304 (2,958) (1,654) 7,961 (2,831) 5,130 -------- -------- --------- ------- -------- --------- Total 1,977 (3,911) (1,934) 9,041 (4,343) 4,698 -------- -------- --------- ------- -------- --------- Interest expense Interest bearing transaction and savings accounts 167 (1,088) (921) 467 (1,598) (1,131) Time deposits 1,063 (1,070) (7) 4,223 1,010 5,233 Federal funds purchased and securities sold under agreements to repurchase (67) (497) (564) 504 (655) (151) Other borrowed funds Short-term debt 3 (66) (63) (76) (55) (131) Long-term debt 7 (32) (25) (107) (34) (141) -------- -------- --------- ------- -------- --------- Total 1,173 (2,753) (1,580) 5,011 (1,332) 3,679 -------- -------- --------- ------- -------- --------- Increase (decrease) in net interest income $ 804 $ (1,158) $ (354) $ 4,030 $ (3,011) $ 1,019 ======= ======= ======== ====== ======= ========
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, 2001 and 2000 was $3.4 million and $1.9 million, respectively. The provision for the nine-month period ended September 30, 2001 and 2000 was $7.2 million and $5.5 million, respectively. The increase in the provision in the 3rd quarter was primarily related to an increase in the classified assets at one community bank subsidiary of the Company. More specifically, the increase in classified assets was related to a single officer's portfolio, who is no longer with the Company. NON-INTEREST INCOME ------------------- Total non-interest income was $8.7 million for the three-month period ended September 30, 2001, compared to $8.1 million for the same period in 2000. For the nine-months ended September 30, 2001, non-interest income was $25.1 million, an 11.2% increase from the $22.6 million reported for the same period ended September 30, 2000. 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. Table 5 shows non-interest income for the three-month and nine-month periods ended September 30, 2001 and 2000, respectively, as well as changes in 2001 from 2000. Table 5: Non-Interest Income
Three Months Nine Months Ended Sept 30, 2001 Ended Sept 30, 2001 -------------------- Change from ---------------------- Change from (In thousands) 2001 2000 2000 2001 2000 2000 --------------------------------------------------------------------------------------------------------------------- Trust income $ 1,443 $ 1,496 $ (53) -3.54% $ 4,099 $ 4,000 $ 99 2.48% Service charges on deposit accounts 2,226 2,176 50 2.30 6,634 5,808 826 14.22 Other service charges and fees 408 392 16 4.08 1,374 1,406 (32) -2.28 Income on sale of mortgage loans, net of commissions 781 521 260 49.90 2,218 1,277 941 73.69 Income on investment banking, net of commissions 298 13 285 2,192.31 638 188 450 239.36 Credit card fees 2,669 2,712 (43) -1.59 7,791 7,671 120 1.56 Other income 901 817 84 10.28 2,376 2,250 126 5.60 -------- --------- ------ --------- --------- ------ Total non-interest income $ 8,726 $ 8,127 $ 599 7.37% $ 25,130 $ 22,600 $2,530 11.19% ======= ======== ===== ======== ======== =====
Recurring fee income for the three-month period ended September 30, 2001 was $6.7 million, a decrease of approximately $30,000 when compared with the same period for 2000. This decrease is primarily the result of the events of September 11th, which created significant uncertainties among consumers and a slowdown in consumer spending. As a result, credit card fees were negatively impacted by the decrease in merchant and interchange fees that are an important component of the credit card income. Also, much of the trust fees are based on asset valuations. Thus, fee income from the Company's trust activities decreased due to the decline in the stock markets. Recurring fee income for the nine-month period ended September 30, 2001 was $19.9 million, an increase of approximately $1.0 million, or 5.36% when compared with the same period for 2000. These increases are primarily attributable to the growth in service charges on deposit accounts. The increase in service charges on deposit accounts for 2001 is the result of internal deposit growth, an improved fee structure and the acquisition completed during July 2000. During the three-month and nine-month periods ended September 30, 2001, income on the sale of mortgage loans increased $260,000 and $941,000 from the same periods during 2000. These increases were the result of a higher mortgage origination volume for 2001 compared to 2000. This increase in volume was primarily the result of the decline in mortgage interest rates during the first nine months of 2001. During the three-month and nine-month periods ended September 30, 2001, income on investment banking increased $285,000 and $450,000 from the same periods during 2000. These increases were primarily the result of the decline in interest rates during the first nine months of 2001. 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, 2001, were $17.2 million and $50.8 million, an increase of $1.2 million or 7.4% and $4.3 million or 9.3%, respectively, from the same periods in 2000. These increases reflect the Company's commitment to investment in technology and branch infrastructure combined with the normal increased cost of doing business. The Company opened its third and fourth banking centers in the Little Rock metropolitan area during the second and third quarters of 2001, respectively. Also, the nine-month increase reflects the acquisition completed during July 2000. Table 6 below shows non-interest expense for the three-month and nine-month periods ended September 2001 and 2000, respectively, as well as changes in 2001 from 2000. Table 6: Non-Interest Expense
Three Months Nine Months Ended Sept 30 2001 Ended Sept 30 2001 -------------------- Change from --------------------- Change from (In thousands) 2001 2000 2000 2001 2000 2000 ----------------------------------------------------------------------------------------------------------------------- Salaries and employee benefits $ 9,058 $ 8,591 $ 467 5.44% $ 26,963 $ 25,282 $ 1,681 6.65% Occupancy expense, net 1,183 1,035 148 14.30 3,443 2,830 613 21.66 Furniture and equipment expense 1,250 1,336 (86) -6.44 3,924 3,891 33 0.85 Loss on foreclosed assets 165 66 99 150.00 327 194 133 68.56 Other operating expenses Professional services 468 348 120 34.48 1,290 1,099 191 17.38 Postage 489 485 4 0.82 1,540 1,554 (14) -0.90 Telephone 385 358 27 7.54 1,151 1,036 115 11.10 Credit card expenses 475 436 39 8.94 1,346 1,262 84 6.66 Operating supplies 398 379 19 5.01 1,207 1,118 89 7.96 FDIC insurance 76 87 (11) -12.64 229 256 (27) -10.55 Amortization of intangibles 760 767 (7) -0.91 2,273 2,003 270 13.48 Other expense 2,447 2,087 360 17.25 7,124 5,980 1,144 19.13 -------- -------- -------- --------- --------- -------- Total non-interest expense $ 17,154 $ 15,975 $ 1,179 7.38% $ 50,817 $ 46,505 $ 4,312 9.27% ======= ======= ======= ======== ======== =======
EARNINGS/RATIOS EXCLUDING INTANGIBLES ------------------------------------- Table 7 reconciles reported earnings to net income excluding intangible amortization (cash earnings) for the three-month and nine-month periods ended September 30, 2001 and 2000. Table 8 presents the calculation of the cash return on assets and cash return on equity for the three-month and nine-month periods ended September 30, 2001 and 2000. The Company specifically formulated these calculations and the results may not be comparable to similarly titled measures reported by other companies. Also, cash earnings are not entirely available for use by management. See the Consolidated Statements of Cash Flows and Condensed Notes to the Financial Statements for other information regarding funds available for use by management. Table 7: Earnings Excluding Intangible Amortization
For the Three Months For the Nine Months ---------------------------------- ---------------------------------- Reported Intangible "Cash" Reported Intangible "Cash" (In thousands) Earnings Amortization Earnings Earnings Amortization Earnings --------------------------------------------------------------------------------------------------------------- Ended September 30, 2001 ------------------------ Income before income taxes $ 4,690 $ 760 $ 5,450 $ 17,433 $ 2,273 $ 19,706 Provision for income taxes 1,154 260 1,414 4,856 779 5,635 ---------- --------- --------- ---------- --------- --------- Net Income $ 3,536 $ 500 $ 4,036 $ 12,577 $ 1,494 $ 14,071 ========= ======== ======== ========= ======== ======== Basic earnings per common share $ 0.50 $ 0.07 $ 0.57 $ 1.77 $ 0.21 $ 1.98 ========= ======== ======== ========= ======== ======== Diluted earnings per common share $ 0.49 $ 0.07 $ 0.56 $ 1.76 $ 0.21 $ 1.97 ========= ======== ======== ========= ======== ======== Ended September 30, 2000 ------------------------ Income before income taxes $ 7,246 $ 767 $ 8,013 $ 20,092 $ 2,003 $ 22,095 Provision for income taxes 2,281 259 2,540 6,190 665 6,855 ---------- --------- --------- ---------- --------- --------- Net Income $ 4,965 $ 508 $ 5,473 $ 13,902 $ 1,338 $ 15,240 ========= ======== ======== ========= ======== ======== Basic earnings per common share $ 0.68 $ 0.08 $ 0.76 $ 1.90 $ 0.19 $ 2.09 ========= ======== ======== ========= ======== ======== Diluted earnings per common share $ 0.67 $ 0.08 $ 0.75 $ 1.89 $ 0.19 $ 2.08 ========= ======== ======== ========= ======== ========
Table 8: Ratios Excluding Intangibles
Three Months Nine Months Ended September 30, Ended September 30, (In thousands) 2001 2000 2001 2000 ----------------------------------------------------------------------------------------------------- Cash ROA: A/(B-D)*(G/F) 0.83% 1.21% 0.99% 1.17% Cash ROE: A/(C-E) *(G/F) 8.91% 13.08% 10.66% 12.44% (A) Cash Earnings $ 4,036 $ 5,473 $ 14,071 $ 15,240 (B) Average total assets 1,966,339 1,835,898 1,936,529 1,767,556 (C) Average stockholders' equity 181,045 167,851 177,720 165,019 (D) Average total intangible assets 33,310 34,568 34,073 29,278 (E) Average intangible assets remaining in stockholders' equity 1,284 1,367 1,292 1,405 (F) Total days during the period 92 92 273 274 (G) Total days during the year 365 366 365 366
In 2001, the Financial Accounting Standards Board issued SFAS No. 142, Goodwill and Other Intangible Assets. This statement addresses financial accounting and reporting for goodwill and other intangible assets acquired in a business combination at acquisition. The Company will be required to adopt the new rules effective January 1, 2002. The new rule will eliminate the amortization of goodwill and require that it be tested for impairment at a level of reporting referred to as a reporting unit. The elimination of amortization of goodwill is expected to increase 2002 net earnings by approximately $1.8 million, or $0.24 per diluted share. The Company will analyze and assess the impairment provisions of the Statement, but has not yet determined the impact, if any, of the adoption of those provisions. LOAN PORTFOLIO -------------- The Company's loan portfolio averaged $1.295 billion and $1.174 billion during the first nine months of 2001 and 2000, respectively. As of September 30, 2001, total loans were $1.299 billion, compared to $1.295 billion on December 31, 2000. The most significant components of the loan portfolio were loans to businesses (commercial loans and commercial real estate loans) and individuals (consumer loans, credit card loans and single-family residential real estate loans). The Company seeks to manage its credit risk by diversifying its loan portfolio, determining that borrowers have adequate sources of cash flow for loan repayment without liquidation of collateral, obtaining and monitoring collateral, providing an adequate allowance for loan losses and regularly reviewing loans through the internal loan review process. The loan portfolio is diversified by borrower, purpose and industry and, in the case of credit card loans, which are unsecured, by geographic region. The Company seeks to use diversification within the loan portfolio to reduce credit risk, thereby minimizing the adverse impact on the portfolio, if weaknesses develop in either the economy or a particular segment of borrowers. Collateral requirements are based on credit assessments of borrowers and may be used to recover the debt in case of default. The Company uses the allowance for loan losses as a method to value the loan portfolio at its estimated collectible amount. Loans are regularly reviewed to facilitate the identification and monitoring of deteriorating credits. Consumer loans consist of credit card loans, student loans and other consumer loans. Consumer loans were $448.4 million at September 30, 2001, or 34.5% of total loans, compared to $457.3 million, or 35.3% of total loans at December 31, 2000. The consumer loan decrease from December 31, 2000 to September 30, 2001 is the result of the Company's lower credit card portfolio and other consumer loans. However, those lower levels were offset by an increase in student loans. The credit card portfolio decrease was the result of seasonality in the Company's portfolio for that particular product. The decrease in other consumer loans is the result of a decline in the Company's indirect lending. Real estate loans consist of construction loans, single-family residential loans and commercial loans. Real estate loans were $591.7 million at September 30, 2001, or 45.6% of total loans, which is comparable to the $600.7 million, or 46.4% of total loans at December 31, 2000. Commercial loans consist of commercial loans, agricultural loans and financial institution loans. Commercial loans were $244.4 million at September 30, 2001, or 18.8% of total loans, compared to $220.6 million, or 17.0% of total loans at December 31, 2000. The commercial loan increase from December 31, 2000 to September 30, 2001 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 9, according to type of loan. Table 9: Loan Portfolio
September 30, December 31, (In thousands) 2001 2000 -------------------------------------------------------------------------------------------- Consumer Credit cards $ 187,738 $ 197,567 Student loans 73,467 67,145 Other consumer 187,199 192,595 Real Estate Construction 80,070 69,169 Single family residential 232,122 244,377 Other commercial 279,464 287,170 Commercial Commercial 161,245 161,134 Agricultural 76,066 57,164 Financial institutions 7,099 2,339 Other 14,073 16,050 ------------- ------------- Total loans $ 1,298,543 $ 1,294,710 ============ ============
ASSET QUALITY ------------- A loan is considered impaired when it is probable that the Company will not receive all amounts due according to the contracted terms of the loans. This includes loans past due 90 days or more, nonaccrual loans and certain loans identified by management. Non-performing loans are comprised of (a) nonaccrual loans, (b) loans that are contractually past due 90 days and (c) other loans for which terms have been restructured to provide a reduction or deferral of interest or principal, because of deterioration in the financial position of the borrower. The subsidiary banks recognize income principally on the accrual basis of accounting. When loans are classified as nonaccrual, the accrued interest is charged off and no further interest is accrued. Loans, excluding credit card loans, are placed on a nonaccrual basis either: (1) when there are serious doubts regarding the collectability of principal or interest, or (2) when payment of interest or principal is 90 days or more past due and either (i) not fully secured or (ii) not in the process of collection. If a loan is determined by management to be uncollectible, the portion of the loan determined to be uncollectible is then charged to the allowance for loan losses. Credit card loans are classified as impaired when payment of interest or principal is 90 days past due. Litigation accounts are placed on nonaccrual until such time as deemed uncollectible. Credit card loans are generally charged off when payment of interest or principal exceeds 180 days past due, but are turned over to the credit card recovery department, to be pursued until such time as they are determined, on a case-by-case basis, to be uncollectible. At September 30, 2001, impaired loans were $21.6 million compared to $18.1 million at December 31, 2000. The increase in impaired loans from December 31, 2000, primarily relates to the $4.8 million increase in non-performing loans, which is a result of the general slowdown and uncertainty in the economy. However, this was offset by a $1.3 million decrease of borrowers that are still performing, but for which management has internally identified as impaired. Management has evaluated the underlying collateral on these loans and has allocated specific reserves in order to absorb potential losses if the collateral were ultimately foreclosed. Table 10 presents information concerning non-performing assets, including nonaccrual and other real estate owned. Table 10: Non-performing Assets
September 30, December 31, (In thousands) 2001 2000 ---------------------------------------------------------------------------------------- Nonaccrual loans $ 12,765 $ 8,212 Loans past due 90 days or more (principal or interest payments) 3,035 2,752 ------------- ------------- Total non-performing loans 15,800 10,964 ------------- ------------- Other non-performing assets Foreclosed assets held for sale 1,081 1,104 Other non-performing assets 187 196 ------------- ------------ Total other non-performing assets 1,268 1,300 ------------- ------------ Total non-performing assets $ 17,068 $ 12,264 ============ ============ Allowance for loan losses to period-end loans 1.64% 1.63% Allowance for loan losses to non-performing loans 135.20% 192.97% Non-performing loans to total loans 1.22% 0.85% Non-performing assets to total assets 0.84% 0.64%
Approximately $836,000 and $557,000 of interest income would have been recorded for the nine-month periods ended September 30, 2001 and 2000, 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, 2001 and 2000. ALLOWANCE FOR LOAN LOSSES ------------------------- An analysis of the allowance for loan losses is shown in Table 11. Table 11: Allowance for Loan Losses
(In thousands) 2001 2000 ----------------------------------------------------------------------------------------------- Balance, beginning of year $ 21,157 $ 17,085 --------------- -------------- Loans charged off Credit card 3,258 2,422 Other consumer 2,156 1,719 Real estate 1,088 395 Commercial 1,793 936 ---------------- --------------- Total loans charged off 8,295 5,472 ---------------- --------------- Recoveries of loans previously charged off Credit card 387 347 Other consumer 583 651 Real estate 131 90 Commercial 149 298 ---------------- --------------- Total recoveries 1,250 1,386 ---------------- --------------- Net loans charged off 7,045 4,086 Allowance for loan losses of acquired branches -- 2,155 Provision for loan losses 7,249 5,537 ---------------- --------------- Balance, September 30 $ 21,361 $ 20,691 =============== -------------- Loans charged off Credit card 962 Other consumer 630 Real estate 211 Commercial 474 --------------- Total loans charged off 2,277 --------------- Recoveries of loans previously charged off Credit card 121 Other consumer 149 Real estate 2 Commercial 27 --------------- Total recoveries 299 --------------- Net loans charged off 1,978 Allowance for loan losses of acquired institutions 450 Provision for loan losses 1,994 --------------- Balance, end of year $ 21,157 ==============
The amount of provision to the allowance during the nine-month periods ended September 30, 2001 and 2000, and for the year ended 2000, 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, 2001, were $1.676 billion, compared to $1.606 billion on December 31, 2000. The increase in deposits from December 31, 2000 to September 30, 2001, is primarily attributable to an increase in large certificates of deposit from local markets. As of September 30, 2001, time deposits over $100,000 were $385.9 million, an increase of $60.9 million over the $325.0 million reported as of December 31, 2000. CAPITAL ------- At September 30, 2001, total capital reached $181.2 million. Capital represents shareholder ownership in the Company -- the book value of assets in excess of liabilities. At September 30, 2001, the Company's equity to asset ratio was 8.9% compared to 9.06% at year-end 2000. This decrease in the equity to asset ratio was primarily attributable to the Company's stock repurchase program. The Federal Reserve Board's risk-based guidelines established a risk-adjusted ratio, relating capital to different categories of assets and off-balance sheet exposures, such as loan commitments and standby letters of credit. These guidelines place a strong emphasis on tangible stockholders' equity as the core element of the capital base, with appropriate recognition of other components of capital. At September 30, 2001, the leverage ratio and the Tier 1 capital ratio was 8.39% and 12.27%, respectively, while the Company's total risk-based capital ratio was 13.55%, all of which exceed the capital minimums established in the risk-based capital requirements. The Company's risk-based capital ratios at September 30, 2001 and December 31, 2000, are presented in Table 12. Table 12: Risk-Based Capital
September 30, December 31, (In thousands) 2001 2000 ---------------------------------------------------------------------------------------------------------- Tier 1 capital Stockholders' equity $ 181,152 $ 173,343 Trust preferred securities 17,250 17,250 Intangible assets (32,939) (35,241) Unrealized (gain) loss on available- for-sale securities (2,367) 34 Other (889) (916) -------------- -------------- Total Tier 1 capital 162,207 154,470 -------------- -------------- Tier 2 capital Qualifying unrealized gain on available-for-sale equity securities 406 475 Qualifying allowance for loan losses 16,570 16,193 -------------- -------------- Total Tier 2 capital 16,976 16,668 -------------- -------------- Total risk-based capital $ 179,183 $ 171,138 ============= ============= Risk weighted assets $ 1,322,196 $ 1,290,494 ============= ============= Assets for leverage ratio $ 1,932,511 $ 1,837,163 ============= ============= Ratios at end of year Leverage ratio 8.39% 8.41% Tier 1 capital 12.27% 11.97% Total risk-based capital 13.55% 13.26% Minimum guidelines Leverage ratio 4.00% 4.00% Tier 1 capital 4.00% 4.00% Total risk-based capital 8.00% 8.00%
FORWARD-LOOKING STATEMENTS -------------------------- Statements in this report that are not historical facts should be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements of this type speak only as of the date of this report. By nature, forward-looking statements involve inherent risk and uncertainties. Various factors, including, but not limited to, economic conditions, credit quality, interest rates, loan demand and changes in the assumptions used in making the forward-looking statements, could cause actual results to differ materially from those contemplated by the forward-looking statements. Additional information on factors that might affect the Company's financial results is included in its annual report for 2000 (Form 10-K) filed with the Securities and Exchange Commission. REVIEW BY INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS BKD, LLP Certified Public Accountants 200 East Eleventh Pine Bluff, Arkansas Board of Directors Simmons First National Corporation Pine Bluff, Arkansas We have reviewed the accompanying condensed consolidated balance sheet of SIMMONS FIRST NATIONAL CORPORATION as of September 30, 2001, and the related condensed consolidated statements of income for the three-month and nine-month periods ended September 30, 2001 and 2000 and cash flows and changes in stockholders' equity for the nine-month periods ended September 30, 2001 and 2000. 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 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 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 generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards in the United States of America, the consolidated balance sheet as of December 31, 2000, 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 2, 2001, 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, 2000, 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 7, 2001 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 or exchanged shares of the Company's Class A Common Stock as the consideration for the transactions.
Number Identity(1) Date of Sale of Shares Price(2) Type of Transaction ---------------------------------------------------------------------------------------------------------------- 2 Officers July, 2001 1,200 20.5000 Incentive Stock Option 2 Officers July, 2001 900 25.6667 Incentive Stock Option 3 Officers August, 2001 1,200 20.5000 Incentive Stock Option 3 Officers August, 2001 1,821 25.6667 Incentive Stock Option 1 Officer September, 2001 300 25.6667 Incentive Stock Option ------------ Notes: 1. The transactions are grouped to show sales of stock based upon exercises of rights by officers of the registrant or its subsidiaries under the stock plans, which occurred at the same price during a calendar month. 2. The per share price paid for incentive stock options represents the fair market value of the stock as determined under the terms of the Plan on the date the incentive stock option was granted to the officer.
Item 6. Reports on Form 8-K The registrant filed Form 8-K on July 19, 2001. The report contained the text of a press release issued by the registrant concerning the announcement of second quarter earnings. The registrant filed Form 8-K on August 28, 2001. The report contained the text of a press release issued by the registrant concerning the declaration of a quarterly cash dividend. The registrant filed Form 8-K on September 4, 2001. The report contained the text of a press release issued by the registrant concerning William E. Clark joining the Company's board of directors. 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 7, 2001 /s/ J. Thomas May -------------------- ------------------------------------------- J. Thomas May, Chairman, President and Chief Executive Officer Date: November 7, 2001 /s/ Barry L. Crow -------------------- ------------------------------------------- Barry L. Crow, Executive Vice President and Chief Financial Officer