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 March 31, 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 7,329,778 Class B, Common None
SIMMONS FIRST NATIONAL CORPORATION INDEX Page No. Part I: Summarized Financial Information Consolidated Balance Sheets -- March 31, 2000 and December 31, 1999 3-4 Consolidated Statements of Income -- Three months ended March 31, 2000 and 1999 5 Consolidated Statements of Cash Flows -- Three months ended March 31, 2000 and 1999 6 Consolidated Statements of Changes in Stockholders' Equity Three months ended March 31, 2000 and 1999 7 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 <TABLE> <CAPTION> Simmons First National Corporation Consolidated Balance Sheets March 31, 2000 and December 31, 1999 ASSETS March 31, December 31, (In thousands, except share data) 2000 1999 - ----------------------------------------------------------------------------------------------------------------------- (Unaudited) <S> <C> <C> Cash and non-interest bearing balances due from banks $ 51,081 $ 60,324 Interest bearing balances due from banks 18,848 15,381 Federal funds sold and securities purchased under agreements to resell 52,645 5,500 ---------- --------- Cash and cash equivalents 122,574 81,205 Investment securities 407,072 409,279 Mortgage loans held for sale 7,144 6,814 Assets held in trading accounts 814 1,388 Loans 1,136,678 1,113,635 Allowance for loan losses (17,719) (17,085) --------- --------- Net loans 1,118,959 1,096,550 Premises and equipment 40,379 40,383 Foreclosed assets held for sale, net 1,632 747 Interest receivable 15,312 15,681 Intangible assets, net 26,609 27,226 Other assets 17,540 18,157 ---------- --------- TOTAL ASSETS $ 1,758,035 $ 1,697,430 ========== ========== </TABLE> See Notes to Consolidated Financial Statements.
<TABLE> <CAPTION> Simmons First National Corporation Consolidated Balance Sheets March 31, 2000 and December 31, 1999 LIABILITIES AND STOCKHOLDERS' EQUITY March 31, December 31, (In thousands, except share data) 2000 1999 - ----------------------------------------------------------------------------------------------------------------------- (Unaudited) <S> <C> <C> LIABILITIES Non-interest bearing transaction accounts $ 196,418 $ 170,571 Interest bearing transaction accounts and savings deposits 437,743 463,354 Time deposits 845,954 776,708 ---------- ---------- Total deposits 1,480,115 1,410,633 Federal funds purchased and securities sold under agreements to repurchase 44,171 60,496 Short-term debt 8,981 5,044 Long-term debt 44,361 46,219 Accrued interest and other liabilities 17,614 15,667 ---------- ---------- Total liabilities 1,595,242 1,538,059 ---------- ---------- STOCKHOLDERS' EQUITY Capital stock Class A, common, par value $1 a share, authorized 30,000,000 shares 7,329,778 issued and outstanding at 2000 and 7,315,575 at 1999 7,330 7,316 Surplus 50,925 50,770 Undivided profits 108,121 105,185 Accumulated other comprehensive income Unrealized depreciation on available-for-sale securities, net of income tax credit of $2,150 at 2000 and $2,340 at 1999 (3,583) (3,900) ---------- ---------- Total stockholders' equity 162,793 159,371 ---------- ---------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,758,035 $ 1,697,430 ========== =========== </TABLE> See Notes to Consolidated Financial Statements.
<TABLE> <CAPTION> Simmons First National Corporation Consolidated Statements of Income Three Months Ended March 31, 2000 and 1999 Three Months Ended March 31, (In thousands, except per share data) 2000 1999 - --------------------------------------------------------------------------------------------------------------- (Unaudited) <S> <C> <C> INTEREST INCOME Loans $ 24,726 $ 22,720 Federal funds sold and securities purchased under agreements to resell 352 931 Investment securities 5,907 5,902 Mortgage loans held for sale, net of unrealized gains (losses) 118 197 Assets held in trading accounts 18 17 Interest bearing balances due from banks 142 186 -------- -------- TOTAL INTEREST INCOME 31,263 29,953 -------- -------- INTEREST EXPENSE Deposits 13,304 12,605 Federal funds purchased and securities sold under agreements to repurchase 710 852 Short-term debt 117 27 Long-term debt 886 961 -------- -------- TOTAL INTEREST EXPENSE 15,017 14,445 -------- -------- NET INTEREST INCOME 16,246 15,508 Provision for loan losses 1,720 1,652 -------- -------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 14,526 13,856 -------- -------- NON-INTEREST INCOME Trust income 1,214 1,190 Service charges on deposit accounts 1,727 1,664 Other service charges and fees 539 585 Income on sale of mortgage loans, net of commissions 365 611 Income on investment banking, net of commissions 88 134 Credit card fees 2,335 2,238 Other income 692 327 Gain on sale of securities, net -- -- -------- -------- TOTAL NON-INTEREST INCOME 6,960 6,749 -------- -------- NON-INTEREST EXPENSE Salaries and employee benefits 8,387 8,151 Occupancy expense, net 872 865 Furniture and equipment expense 1,281 1,225 Loss on foreclosed assets 51 138 Merger-related -- 395 Other operating expenses 4,689 4,471 -------- -------- TOTAL NON-INTEREST EXPENSE 15,280 15,245 -------- -------- INCOME BEFORE INCOME TAXES 6,206 5,360 Provision for income taxes 1,878 1,652 -------- -------- NET INCOME $ 4,328 $ 3,708 ======== ======== BASIC EARNINGS PER SHARE $ 0.59 $ 0.51 ======== ======== DILUTED EARNINGS PER SHARE $ 0.59 $ 0.50 ======== ======== </TABLE> See Notes to Consolidated Financial Statements.
<TABLE> <CAPTION> Simmons First National Corporation Consolidated Statements of Cash Flows Three Months Ended March 31, 2000 and 1999 March 31, March 31, (In thousands) 2000 1999 - ---------------------------------------------------------------------------------------------------------------- (Unaudited) <S> <C> <C> CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 4,328 $ 3,708 Items not requiring (providing) cash Depreciation and amortization 1,632 1,509 Provision for loan losses 1,720 1,652 Net amortization (accretion) of investment securities 11 (169) Deferred income taxes (152) 350 Provision for foreclosed assets 32 56 Changes in Interest receivable 369 458 Mortgage loans held for sale (330) 843 Assets held in trading accounts 574 (2,979) Other assets 617 (523) Accrued interest and other liabilities 1,109 (7,700) Income taxes payable 990 665 --------- --------- Net cash provided by (used in) operating activities 10,900 (2,130) --------- --------- CASH FLOW FROM INVESTING ACTIVITIES Net originations of loans (25,284) 19,602 Purchase of premises and equipment, net (1,011) (2,255) Proceeds from sale of foreclosed assets 238 107 Proceeds from maturities of available-for-sale securities 31,105 48,639 Purchases of available-for-sale securities (32,237) (57,148) Proceeds from maturities of held-to-maturity securities 6,630 28,220 Purchases of held-to-maturity securities (2,985) (16,879) --------- --------- Net cash (used in) provided by investing activities (23,544) 20,286 --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Net increase in deposits 69,482 9,791 Net proceeds (repayments) of short-term debt 3,937 (406) Dividends paid (1,392) (1,108) Repayments of long-term debt (1,858) (373) Net decrease in federal funds purchased and securities sold under agreements to repurchase (16,325) (18,080) Issuance of common stock, net 169 101 --------- --------- Net cash provided by (used in) financing activities 54,013 (10,075) --------- --------- INCREASE IN CASH AND CASH EQUIVALENTS 41,369 8,081 CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 81,205 139,283 --------- --------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 122,574 $ 147,364 ========= ========= </TABLE> See Notes to Consolidated Financial Statements.
<TABLE> <CAPTION> Simmons First National Corporation Consolidated Statements of Changes in Stockholders' Equity Three Months Ended March 31, 2000 and 1999 Accumulated Other Common Comprehensive Undivided (In thousands, except per share data) Stock Surplus Income Profits Total - ------------------------------------------------------------------------------------------------------------ <S> <C> <C> <C> <C> <C> Balance, December 31, 1998 7,239 48,271 1,491 93,383 150,384 Comprehensive income Net income -- -- -- 3,708 3,708 Change in unrealized appreciation on available-for-sale securities, net of income tax credit of $514 -- -- (869) -- (869) ------- Comprehensive income 2,839 Exercise of stock options--10,300 shares 10 102 -- -- 112 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 ($0.17 per share) -- -- -- (1,108) (1,108) Pooled institutions prior to pooling -- -- -- -- -- ----- ------ ------ ------- ------- Balance, March 31, 1999 7,306 50,592 622 95,983 154,503 Comprehensive income Net income -- -- -- 13,460 13,460 Change in unrealized appreciation on available-for-sale securities, net of income tax credit of $2,674 -- -- (4,522) -- (4,522) ------- Comprehensive income 8,938 Exercise of stock options--9,600 shares 10 178 -- -- 188 Cash dividends declared Common stock ($0.55 per share) -- -- -- (3,882) (3,882) Pooled institutions prior to pooling -- -- -- (376) (376) ----- ------ ------ ------- ------- Balance, December 31, 1999 7,316 50,770 (3,900) 105,185 159,371 Comprehensive income Net income -- -- -- 4,328 4,328 Change in unrealized depreciation on available-for-sale securities, net of income taxes of $190 -- -- 317 -- 317 ------- Comprehensive income 4,645 Exercise of stock options--14,400 shares 14 160 -- -- 174 Securities exchanged under stock option plan -- (5) -- -- (5) Cash dividends declared ($0.19 per share) -- -- -- (1,392) (1,392) ----- ------ ------ ------- ------- Balance, March 31, 2000 $7,330 $50,925 $(3,583) $108,121 $162,793 ===== ====== ====== ======= ======= </TABLE> See Notes to Consolidated Financial Statements.
SIMMONS FIRST NATIONAL CORPORATION 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 financial information has been restated for the mergers, which were accounted for as poolings-of-interests. 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 accounting policies followed in the presentation of interim financial results are presented on pages 27-29 of the 1999 Annual Report to shareholders. 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 three months ended March 31, 2000 and 1999 is as follows: <TABLE> <CAPTION> (In thousands, except per share data) 2000 1999 - --------------------------------------------------------------------------------------------------------------- <S> <C> <C> Net Income $ 4,328 $ 3,708 -------- ------- Average common shares outstanding 7,322 7,291 Average common share stock options outstanding 26 81 --------- ------- Average diluted common shares 7,348 7,372 --------- ------- Basic earnings per share $ 0.59 $ 0.51 ======== ======= Diluted earnings per share $ 0.59 $ 0.50 ======== ======= </TABLE>
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 will continue to operate Simmons First Bank of El Dorado, N.A. as a separate community bank with the same board of directors and management. On March 27, 2000, an announcement was made jointly by the Chief Executive Officers of both the Company and First Financial Banc Corporation regarding the execution of a definitive agreement under the terms of which First Financial will sell eight of its locations to the Company. The eight locations have approximately $68 million in loans and $70 million in total deposits. The transaction is expected to close during the third quarter of 2000. 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: <TABLE> <CAPTION> March 31, 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 - --------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> <C> Held-to-Maturity - ---------------- U.S. Treasury $ 12,323 $ -- $ (137) $ 12,186 $ 13,576 $ 10 $ (115) $ 13,471 U.S. Government agencies 36,655 37 (974) 35,718 36,654 57 (1,169) 35,542 Mortgage-backed securities 16,113 57 (299) 15,871 16,920 84 (258) 16,746 State and political subdivisions 105,565 638 (2,331) 103,872 107,157 662 (2,107) 105,712 Other securities 83 -- (1) 82 85 -- (2) 83 --------- ------ ----- --------- --------- ------ ------ --------- $ 170,739 $ 732 $(3,742)$ 167,729 $ 174,392 $ 813 $(3,651) $ 171,554 ========= ====== ====== ========= ========= ====== ====== ========= Available-for-Sale - ------------------ U.S. Treasury $ 40,182 $ 35 $ (163) $ 40,054 $ 41,492 $ 83 $ (133) $ 41,442 U.S. Government agencies 169,229 4 (5,577) 163,656 166,143 -- (6,287) 159,856 Mortgage-backed securities 16,097 25 (223) 15,899 16,954 26 (234) 16,746 State and political subdivisions 6,255 98 (71) 6,282 6,432 88 (88) 6,432 Other securities 10,048 394 -- 10,442 9,859 552 -- 10,411 --------- ------ ----- --------- --------- ------ ------ --------- $ 241,811 $ 556 $(6,034) $ 236,333 $ 240,880 $ 749 $(6,742) $ 234,887 ========= ====== ====== ========= ========= ====== ====== ========= </TABLE>
The carrying value, which approximates the market value, of securities pledged as collateral, to secure public deposits and for other purposes, amounted to $242,606,000 at March 31, 2000 and $277,789,000 at December 31, 1999. The book value of securities sold under agreements to repurchase amounted to $25,606,000 and $39,956,000 for March 31, 2000 and December 31, 1999, respectively. Income earned on securities for the three months ended March 31, 2000 and 1999 is as follows: <TABLE> <CAPTION> (In thousands) 2000 1999 - --------------------------------------------------------------------------------------------------------------- <S> <C> <C> Taxable Held-to-maturity $ 1,024 $ 1,183 Available-for-sale 3,547 3,330 Non-taxable Held-to-maturity 1,251 1,335 Available-for-sale 85 54 -------- ------- Total $ 5,907 $ 5,902 ======== ======= </TABLE> Maturities of investment securities at March 31, 2000 are as follows: <TABLE> <CAPTION> Held-to-Maturity Available-for-Sale -------------------------- ------------------------ Amortized Fair Amortized Fair (In thousands) Cost Value Cost Value - ------------------------------------------------------------------------------------------------ <S> <C> <C> <C> <C> One year or less $ 19,076 $ 19,029 $ 53,298 $ 53,064 After one through five years 77,232 76,032 112,125 108,886 After five through ten years 51,752 50,112 54,288 52,005 After ten years 22,596 22,474 12,052 11,936 Other securities 83 82 10,048 10,442 ---------- ---------- ---------- --------- Total $ 170,739 $ 167,729 $ 241,811 $ 236,333 ========== ========== ========== ========= </TABLE> There were no gross realized gains or losses as of March 31, 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: <TABLE> <CAPTION> March 31, December 31, (In thousands) 2000 1999 - --------------------------------------------------------------------------------------------------------- <S> <C> <C> Consumer Credit cards $ 177,762 $ 187,242 Student loans 71,048 66,739 Other consumer 185,063 181,380 Real estate Construction 54,719 53,925 Single family residential 209,211 202,886 Other commercial 243,857 240,259 Commercial Commercial 140,897 137,827 Agricultural 39,917 35,337 Financial institutions 2,856 3,165 Other 11,348 4,875 ------------ ----------- Total loans before allowance for loan losses $ 1,136,678 $ 1,113,635 ============ =========== </TABLE> During the first three months of 2000, foreclosed assets held for sale increased $885,000 to $1,632,000 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 March 31, 2000, were $40,000, $7,622,000 and $2,154,000, respectively, bringing the total of non-performing assets to $11,448,000.
Transactions in the allowance for loan losses are as follows: <TABLE> <CAPTION> March 31, December 31, (In thousands) 2000 1999 - ----------------------------------------------------------------------------------------------------------------- <S> <C> <C> Balance, beginning of year $ 17,085 $ 16,812 Additions Provision charged to expense 1,720 1,652 --------- -------- 18,805 18,464 Deductions Losses charged to allowance, net of recoveries of $595 and $238 for the first three months of 2000 and 1999, respectively 1,086 1,869 -------- ------- Balance, March 31 $ 17,719 $ 16,595 ========= ------- Additions Provision charged to expense 4,899 -------- 21,494 Deductions Losses charged to allowance, net of recoveries of $1,178 for the last nine months of 1999 4,409 ------- Balance, end of year $ 17,085 ======= </TABLE> At March 31, 2000 and December 31, 1999, impaired loans totaled $11,457,000 and $12,102,000, respectively. All impaired loans had designated reserves for possible loan losses. Reserves relative to impaired loans at March 31, 2000, were $2,452,000 and $2,803,000 at December 31, 1999. Interest of $120,000 and $149,000 was recognized on average impaired loans of $11,780,000 and $14,176,000 as of March 31, 2000 and 1999, respectively. Interest recognized on impaired loans on a cash basis during the first three months of 2000 and 1999 was immaterial.
NOTE 5: TIME DEPOSITS Time deposits include approximately $249,807,000 and $225,290,000 of certificates of deposit of $100,000 or more at March 31, 2000 and December 31, 1999, respectively. NOTE 6: INCOME TAXES The provision for income taxes is comprised of the following components: <TABLE> <CAPTION> March 31, March 31, (In thousands) 2000 1999 - ------------------------------------------------------------------------------------------------------- <S> <C> <C> Income taxes currently payable $ 2,030 $ 1,302 Deferred income taxes (152) 350 --------------- --------------- Provision for income taxes $ 1,878 $ 1,652 =============== =============== </TABLE> The tax effects of temporary differences related to deferred taxes shown on the balance sheet are shown below: <TABLE> <CAPTION> March 31, December 31, (In thousands) 2000 1999 - ------------------------------------------------------------------------------------------------------- <S> <C> <C> Deferred tax assets Allowance for loan losses $ 6,159 $ 5,906 Valuation of foreclosed assets 201 201 Deferred compensation payable 658 659 Deferred loan fee income 568 564 Vacation compensation 449 439 Mortgage servicing reserve 407 457 Loan interest 160 160 Available-for-sale securities 2,150 2,340 Other 119 144 --------------- --------------- Total deferred tax assets 10,871 10,870 --------------- --------------- Deferred tax liabilities Accumulated depreciation (1,481) (1,473) FHLB stock dividends (463) (432) Other (214) (214) --------------- --------------- Total deferred tax liabilities (2,158) (2,119) --------------- --------------- Net deferred tax assets included in other assets on balance sheets $ 8,713 $ 8,751 ================ =============== </TABLE>
A reconciliation of income tax expense at the statutory rate to the Company's actual income tax expense is shown below: <TABLE> <CAPTION> March 31, March 31, (In thousands) 2000 1999 - ------------------------------------------------------------------------------------------------------- <S> <C> <C> Computed at the statutory rate (35%) $ 2,172 $ 1,876 Increase (decrease) resulting from: Tax exempt income (480) (489) Other differences, net 186 265 --------------- --------------- Actual tax provision $ 1,878 $ 1,652 =============== =============== </TABLE> NOTE 7: LONG-TERM DEBT Long-term debt at March 31, 2000 and December 31, 1999, consisted of the following components, <TABLE> <CAPTION> March 31, December 31, (In thousands) 2000 1999 - ------------------------------------------------------------------------------------------------------- <S> <C> <C> 7.32% note due 2007, unsecured $ 16,000 $ 16,000 9.75% note due 2008, secured by land and building 903 917 5.36% to 8.41% FHLB advances due 2000 to 2018, secured by residential real estate loans 10,208 12,052 Trust preferred securities 17,250 17,250 --------------- --------------- $ 44,361 $ 46,219 =============== =============== </TABLE> 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 March 31, 2000 are: <TABLE> <CAPTION> Annual (In thousands) Year Maturities - ------------------------------------------------------------------------------------------------------- <S> <C> 2000 $ 2,681 2001 2,893 2002 2,925 2003 2,871 2004 2,876 Thereafter 30,115 --------------- Total $ 44,361 =============== </TABLE> 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 March 31, 2000, the bank subsidiaries had approximately $8 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 March 31, 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 15.0% at March 31, 2000.
NOTE 10: STOCK OPTIONS AND RESTRICTED STOCK At March 31, 2000, the Company had stock options outstanding of 227,200 shares and stock options exercisable of 166,880 shares. During the first three months of 2000, there were 14,400 shares issued upon exercise of stock options and no additional stock options of the Company were granted. No additional shares of common stock of the Company were granted or issued as bonus shares of restricted stock, during the first three months of 2000. NOTE 11: ADDITIONAL CASH FLOW INFORMATION <TABLE> <CAPTION> Three Months Ended March 31, (In thousands) 2000 1999 - ---------------------------------------------------------------------------------------- <S> <C> <C> Interest paid $ 15,025 $ 15,031 Income taxes paid $ 1,040 $ 643 </TABLE> 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, and 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 15.6% and 16.8% of the portfolio, as of March 31, 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 March 31, 2000, the Company had outstanding commitments to extend credit aggregating approximately $251,550,000 and $174,802,000 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 $4,004,000 and $3,035,000 at March 31, 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 March 31, 2000, were $4,328,000, compared to earnings of $4,103,000 for the same period in 1999. This represents a $225,000, or 5.5% increase in the 2000 earnings over 1999. Diluted operating earnings per share increased $0.03 to $0.59 in the first quarter of 2000 from $0.56 in the same period of 1999. The Company's operating return on average assets and operating return on average stockholder's equity for the three-month period ended March 31, 2000 was 1.02% and 10.66%, compared to 0.99% and 10.77%, respectively, for the same period in 1999. In connection with the merger of Lincoln Bankshares, Inc. ("LBI"), during the first quarter of 1999, after tax merger-related expenses totaled $395,000, or $0.06 per share. After merger-related expenses, Simmons First's first quarter 1999 earnings were $3,708,000 or $0.50 diluted earnings per share. All financial information has been restated for the mergers with LBI and NBC Bank Corp. ("NBC"), which were accounted for as poolings-of-interests. Diluted cash operating earnings (net income excluding amortization of intangibles and merger-related expenses) for the first quarter of 2000 were $0.65 per share compared with $0.61 for the first quarter of 1999, reflecting a 6.6% increase. Cash operating return on average assets was 1.13% and cash operating return on average stockholders' equity was 11.79% for the three-month period ended March 31, 2000, compared with 1.10% and 11.96%, respectively, for the same period in 1999. Net interest income, the difference between interest income and interest expense, for the three-month period ended March 31, 2000, increased $738,000, or 4.8%, when compared to the same period in 1999. During the first quarter, interest income increased $1,310,000, or 4.4%, while interest expense increased $572,000 or 4.0%, when compared to the same period in 1999. These increases reflect the growth the Company experienced in the loan portfolio and interest-bearing deposits from 1999 to 2000. The provision for loan losses for the first quarter of 2000 was $1,720,000, compared to $1,652,000 for the same period of 1999, resulting in a $68,000 or 4.1% increase. The provision in the first quarter of 2000 was increased as a result of growth in the loan portfolio. Non-interest income for the first quarter ended March 31, 2000, was $6,960,000, a 3.1% increase over the $6,749,000 reported for the same period in 1999. This increase is primarily due to internal growth of the Company. During the three months ended March 31, 2000, non-interest expense (excluding merger-related expenses of $395,000 during 1999) increased $430,000, or 2.9%, over the same period in 1999. This increase is attributable to the normal increase in the cost of doing business.
FINANCIAL CONDITION - ------------------- Total assets for the Company at March 31, 2000, were $1.758 billion, an increase of $61 million, or 3.6%, over the same figure at December 31, 1999. As a result of strong loan demand, the Company's loan portfolio increased $23 million, or 2.1% from $1.114 billion at December 31, 1999 to $1.137 billion at March 31, 2000. Deposits at March 31, 2000 totaled $1.480 billion, an increase of $69 million, or 4.9% from the same figure at December 31, 1999. Stockholders' equity at the end of the first quarter was $162,793,000, an increase of $3,422,000, or 2.1%, from the December 31, 1999 figure. Asset quality remains strong with the allowance for loan losses as a percent of total loans at 1.56% as of March 31, 2000, compared to 1.53% at December 31, 1999. As of March 31, 2000, non-performing loans equaled 0.86% of total loans, while the allowance for loan losses equaled 181% 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 March 31, 2000, each bank was within established guidelines and total corporate liquidity was strong. At March 31, 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 20.9% 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 March 27, 2000, an announcement was made jointly by the Chief Executive Officers of both the Company and First Financial Banc Corporation regarding the execution of a definitive agreement under the terms of which First Financial will sell eight of its locations to the Company. The eight locations have approximately $68 million in loans and $70 million in total deposits. The transaction is expected to close during the third quarter of 2000.
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 made a review of the accompanying consolidated condensed financial statements, appearing on pages 3 to 17 of the accompanying Form 10-Q, of SIMMONS FIRST NATIONAL CORPORATION and consolidated subsidiaries as of March 31, 2000 and for the three-months ended March 31, 2000 and 1999, in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of obtaining an understanding of the system for the preparation of interim financial information, applying analytical review procedures to financial data, and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an examination in accordance with generally accepted auditing standards, the objective 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 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 May 2, 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. <TABLE> <CAPTION> Number Identity(1) Date of Sale of Shares Price(2) Type of Transaction - ------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> 1 Officer January, 2000 2,400 9.625 Incentive Stock Option 1 Officer January, 2000 1,500 15.833 Incentive Stock Option 9 Officers February, 2000 3,000 15.833 Incentive Stock Option 7 Officers March, 2000 6,900 9.625 Incentive Stock Option 1 Officer March, 2000 600 22.167 Incentive Stock Option <FN> - -------------- Notes: 1. The transactions are grouped to show sales of stock based upon exercises of rights by officers of the Company 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. </FN> </TABLE> Item 6. Reports on Form 8-K The registrant filed Form 8-K on March 28, 2000. The report contained the text of a press release issued by the registrant concerning the acquisition of eight locations from First Financial Banc Corporation.
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: May 4, 2000 /s/ J. Thomas May --------------------- --------------------------------------- J. Thomas May, Chairman, President and Chief Executive Officer Date: May 4, 2000 /s/ Barry L. Crow --------------------- --------------------------------------- Barry L. Crow, Executive Vice President and Chief Financial Officer