SIMMONS FIRST NATIONAL CORPORATION ---------------------------------- Financial Statements -------------------- (Form 10-Q) ---------- September 30, 1995 ------------------ 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, 1995 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 501-541-1350 ------------ 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 securities. Class A, Common 3,816,612 Class B, Common None SIMMONS FIRST NATIONAL CORPORATION INDEX Page No. Part I: Summarized Financial Information Consolidated Balance Sheets -- September 30, 1995 and December 31, 1994 3-4 Consolidated Statements of Income -- Three months and nine months ended September 30, 1995 and 1994 5 Consolidated Statements of Cash Flows -- Nine months ended September 30, 1995 and 1994 6 Consolidated Statement of Changes in Stockholders' Equity -- Nine months ended September 30, 1995 and 1994 7 Notes to Consolidated Financial Statements 8-16 Management's Discussion and Analysis of Financial Condition and Results of Operations 17-18 Review by Independent Certified Public Accountants 19 Part II: Other 20 Part I ------ A. Summarized Financial Information <TABLE> SIMMONS FIRST NATIONAL CORPORATION CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, 1995 AND DECEMBER 31, 1994 ASSETS ------ <CAPTION> September 30, December 31, (Dollars in Thousands) 1995 1994 - ----------------------------------------------------------------------------------- (Unaudited) <S> <C> <C> Cash and due from banks $ 30,040 $ 33,476 Interest-bearing balances due from banks 653 101 Federal funds sold and securities purchased under agreements to resell 16,825 40,425 --------- --------- Cash and cash equivalents 47,518 74,002 Investment securities (Note 2) Securities held to maturity 164,984 142,374 Securities available for sale 44,453 29,610 Mortgage loans held for sale 24,155 8,720 Assets held in trading accounts 831 2,734 Loans 466,983 418,392 Allowance for loan losses (Note 3) (8,338) (7,790) --------- --------- Net loans (Note 3) 458,645 410,602 Premises and equipment 15,400 12,115 Foreclosed assets held for sale, net 1,047 1,730 Interest receivable 8,450 6,289 Cost of loan-servicing rights acquired 4,427 3,825 Excess of cost over fair value of net assets acquired, at amortized cost 3,849 2,392 Other assets 23,616 18,869 --------- --------- Total Assets $ 797,375 $ 713,262 ========= ========= </TABLE> The December 31, 1994 Consolidated Balance Sheet is as reported in the Corporation's 1994 Annual Report. See Notes to Consolidated Financial Statements. <TABLE> LIABILITIES AND STOCKHOLDERS' EQUITY <CAPTION> September 30, December 31, (Dollars in Thousands) 1995 1994 - ----------------------------------------------------------------------------------- (Unaudited) <S> <C> <C> Non-interest-bearing transaction accounts $ 101,591 $ 109,564 Interest-bearing transaction and savings deposits 239,467 228,649 Time deposits (Note 9) 328,539 245,325 ---------- ---------- Total Deposits 669,597 583,538 Federal funds purchased and securities sold under agreements to repurchase 16,004 23,931 Borrowed funds 7,355 13,765 Other liabilities 11,073 8,328 ---------- ---------- Total Liabilities 704,029 629,562 ---------- ---------- STOCKHOLDERS' EQUITY Capital stock Class A, common, par value $5 a share, authorized 10,000,000 shares; issued and outstanding 3,816,612 and 3,677,378 at 1995 and 1994, respectively 19,083 18,387 Surplus 22,651 19,827 Unrealized appreciation on available-for-sale securities, net of income taxes of $387 and $120 at 1995 and 1994, respectively 666 233 Undivided profits (Note 12) 50,946 45,253 ---------- ---------- Total Stockholders' Equity $ 93,346 $ 83,700 ---------- ---------- Total Liabilities and Stockholders' Equity $ 797,375 $ 713,262 ========== ========== </TABLE> The December 31, 1994 Consolidated Balance Sheet is as reported in the Corporation's 1994 Annual Report. See Notes to Consolidated Financial Statements. <TABLE> SIMMONS FIRST NATIONAL CORPORATION CONSOLIDATED STATEMENTS OF INCOME THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994 <CAPTION> Three Months Ended Nine Months Ended September 30, September 30, (Dollars in thousands, except per share figures) 1995 1994 1995 1994 - ----------------------------------------------------------------------------------------------------------- (Unaudited) <S> <C> <C> <C> <C> INTEREST INCOME Loans $ 10,683 $ 8,093 $ 29,228 $ 22,595 Federal funds sold and securities purchased under agreements to resell 253 183 1,171 588 Investment securities - taxable Held to maturity 1,824 1,419 5,226 4,342 Available for sale 745 678 2,159 2,261 Investment securities - non-taxable Held to maturity 733 673 2,162 2,066 Available for sale 1 -- 1 -- Mortgage loans held for sale 477 506 810 1,753 Assets held in trading account 19 19 43 76 Interest-bearing balances due from banks 21 6 76 26 --------- -------- --------- --------- TOTAL INTEREST INCOME 14,756 11,577 40,876 33,707 --------- -------- --------- --------- INTEREST EXPENSE Deposits: Interest-bearing transaction accounts and savings deposits 1,532 1,360 4,388 3,863 Time deposits 4,443 2,292 11,290 6,619 Federal funds purchased and securities sold under agreements to repurchase 271 211 954 613 Borrowed funds 204 292 773 722 --------- -------- --------- --------- TOTAL INTEREST EXPENSE 6,450 4,155 17,405 11,817 --------- -------- --------- --------- NET INTEREST INCOME 8,306 7,422 23,471 21,890 Provision for loan losses 506 525 1,407 1,575 --------- -------- --------- --------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 7,800 6,897 22,064 20,315 --------- -------- --------- --------- NON-INTEREST INCOME Trust income 474 437 1,268 1,288 Service charges on deposit accounts 705 550 2,001 1,657 Other service charges and fees 188 210 582 655 Income on sale of mortgage loans, net of commissions 164 (630) 343 (433) Income on investment banking, net of commissions 231 188 550 1,085 Net realized gains (losses) on sales of available-for-sale securities 35 74 35 130 Credit card fees 2,549 2,771 7,526 7,963 Loan servicing fees 1,579 1,746 4,517 5,323 Other operating income 189 815 1,223 1,529 --------- -------- --------- --------- TOTAL NON-INTEREST INCOME 6,114 6,161 18,045 19,197 --------- -------- --------- --------- NON-INTEREST EXPENSE Salaries and employee benefits 5,307 4,885 15,840 15,255 Net occupancy expense 609 530 1,732 1,549 Equipment expense 582 499 1,613 1,483 Loss (income) on foreclosed assets 354 355 1,047 1,179 Other operating expense 3,182 3,083 9,477 9,443 --------- -------- --------- --------- TOTAL NON-INTEREST EXPENSE 10,034 9,352 29,709 28,909 --------- -------- --------- --------- NET INCOME BEFORE INCOME TAXES 3,880 3,706 10,400 10,603 Provision for income taxes (Note 8) 1,210 1,053 3,084 2,972 --------- -------- --------- --------- NET INCOME $ 2,670 $ 2,653 $ 7,316 $ 7,631 ========= ======== ========= ========= EARNINGS PER COMMON SHARE AVG $ 0.70 $ 0.73 $ 1.94 $ 2.08 ========= ========= ========= ========= DIVIDENDS PER COMMON SHARE $ 0.15 $ 0.12 $ 0.43 $ 0.34 ========= ========= ========= ========= </TABLE> See Notes to Consolidated Financial Statements. <TABLE> SIMMONS FIRST NATIONAL CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994 <CAPTION> Nine Months Ended September 30, September 30, (Dollars in Thousands) 1995 1994 - ---------------------------------------------------------------------------------------------------- (Unaudited) <S> <C> <C> CASH FLOWS FROM OPERATING ACTIVITIES (Note 7) Net Income $ 7,316 $ 7,631 Items not requiring/(providing) cash Depreciation and amortization 748 1,260 Provision for loan losses 1,407 1,575 Amortization of premiums and accretion of discounts on investment securities and mortgage- backed certificates (69) (124) Provision for real estate owned losses 125 127 (Gain)/loss on sale of investments 35 (130) (Gain)/loss on sale of premises and equipment (11) (20) Deferred income taxes (51) (107) Changes in: Accrued interest receivable (2,334) (378) Mortgage loans held for sale (15,435) 23,555 Other assets (6,580) 6,950 Accounts payable and accrued expenses 2,663 (1,572) Income taxes payable 53 1,263 Trading accounts 1,903 2,763 -------- -------- Net cash provided by/(used in) operating activities (10,230) 42,793 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Net originations of loans (54,483) (14,032) Purchase of premises and equipment (5,093) (2,446) Proceeds from sale of fixed assets 101 498 Proceeds from the sale of foreclosed assets held for sale 830 918 Proceeds from maturing a-f-s securities 12,650 38,782 Purchases of a-f-s securities (24,335) (22,312) Proceeds from maturing h-t-m securities 23,549 31,731 Purchases of h-t-m securities (56,644) (18,255) -------- -------- Net cash provided by/(used in) investing securities (103,425) 14,884 -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Net increase/(decrease) in demand deposits, money market, all-in-one and savings accounts 10,596 (32,553) Proceeds from sale/(repayment of) certificates of deposit 91,373 (10,661) Repayments of other borrowings (112,721) (88,640) Proceeds from other borrowings 106,391 90,971 Dividends paid (1,623) (1,250) Net decrease in federal funds purchased and securities sold under agreements to repurchase (7,927) (11,988) Acquisition of subsidiary (2,438) Issuance of additional common stock 3,520 -------- -------- Net cash provided by/(used in) financing activities $ 87,171 $ (54,121) -------- -------- INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS $ (26,484) $ 3,556 CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 74,002 49,090 -------- -------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 47,518 $ 52,646 ======== ======== </TABLE> See Notes to Consolidated Financial Statements. <TABLE> SIMMONS FIRST NATIONAL CORPORATION CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994 <CAPTION> NET UNREALIZED GAIN/(LOSS) COMMON SECURITIES UNDIVIDED (Dollars in Thousands) STOCK SURPLUS AFS PROFITS TOTAL - ---------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> Balance, December 31, 1993 $ 18,387 $ 19,827 $ $ 37,121 $ 75,335 Adoption of SFAS 115, "Accounting for Certain Investments in Debt and Equity Securities", January 1, 1994, net of income taxes of $487 946 946 Net income 7,631 7,631 Cash dividend declared ($0.34 per share) (1,250) (1,250) Change in unrealized appreciation/ (depreciation) on available-for-sale securities, net of income tax credit of $201 (392) (392) --------- --------- --------- --------- --------- Balance, September 30, 1994 18,387 19,827 554 43,502 82,270 Net income 2,229 2,229 Cash dividends declared ($0.13 per share) (478) (478) Change in unrealized appreciation/ (depreciation) on available-for-sale securities, net of income tax credit of $166 (321) (321) --------- --------- --------- --------- --------- Balance, December 31, 1994 18,387 19,827 233 45,253 83,700 Exercise of stock options--2,000 shares 10 10 20 Common Stock issued in connection with purchase of Dumas Bancshares, Inc. (137,234 shares @$25.50 per share) 686 2,814 3,500 Net income 7,316 7,316 Cash dividends declared ($0.43 per share) (1,623) (1,623) Change in unrealized appreciation/ (depreciation) on available-for-sale securities, net of income taxes of $267 433 433 --------- --------- --------- --------- --------- Balance, September 30, 1995 $ 19,083 $ 22,651 $ 666 $ 50,946 $ 93,346 ========= ========= ========= ========= ========= </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 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 25-27 of the 1994 Annual Report to shareholders. NOTE 2: INVESTMENT SECURITIES The amortized cost and fair value of investments in debt securities that are Held to Maturity and Available For Sale are as follows: <TABLE> <CAPTION> September 30, 1995 December 31, 1994 ---------------------------------------------------------------------------------------------- Gross Gross Gross Gross (Dollars in Amortized Unrealized Unrealized Fair Amortized Unrealized Unrealized Fair Thousands) Cost Gains (Losses) Value Cost Gains (Losses) Value - ------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> <C> Held to Maturity U.S. Treasury $ 71,372 $ 1,651 $ (263) $ 72,760 $ 74,544 $ 349 $ (1,479) $ 73,414 U.S. Government agencies 31,268 600 (57) 31,811 13,375 32 (289) 13,118 Mortgage-backed securities 6,579 31 (104) 6,506 3,551 6 (244) 3,313 State and political subdivisions 55,329 1,317 (366) 56,280 50,904 577 (1,962) 49,519 Other securities 436 3 -- 439 --------- --------- -------- --------- --------- --------- -------- --------- $ 164,984 $ 3,602 $ (790) $ 167,796 $ 142,374 $ 964 $ (3,974) $ 139,364 ========= ========= ======== ========= ========= ========= ======== ========= Available For Sale U.S. Treasury $ 38,790 $ 359 $ (14) $ 39,135 $ 25,701 $ 96 $ (202) $ 25,595 U.S. Government agencies 1,600 14 (5) 1,609 1,002 3 -- 1,005 State and political subdivisions 101 -- -- 101 -- -- -- -- Other securities 2,909 701 (2) 3,608 2,554 457 (1) 3,010 --------- --------- -------- --------- --------- --------- -------- --------- $ 43,400 $ 1,074 $ (21) $ 44,453 $ 29,257 $ 556 $ (203) $ 29,610 ========= ======== ======== ========= ========= ========= ======= ========= </TABLE> Maturities of investment securities at September 30, 1995 <TABLE> <CAPTION> Held to Maturity Available for Sale Amortized Fair Amortized Fair (Dollars in Thousands) Cost Value Cost Value - ---------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> One year or less $ 31,766 $ 31,850 $ 26,608 $ 26,682 After one through five years 77,527 79,417 13,883 14,163 After five through ten years 42,330 42,663 -- -- After ten years 6,346 6,921 -- -- Mortgage-backed securities not due on a single maturity date 6,579 6,506 -- -- Other securities 436 439 2,909 3,608 --------- --------- --------- --------- $ 164,984 $ 167,796 $ 43,400 $ 44,453 ========= ========= ========= ========= </TABLE> The book value of securities pledged as collateral, to secure public deposits and for other purposes, amounted to $96,322,000 at September 30, 1995, and $70,981,000 at December 31, 1994. The approximate fair value of pledged securities amounted to $98,249,000 at September 30, 1995 and $70,217,000 at December 31, 1994. The book value of securities sold under agreements to repurchase amounted to $1,159,000 and $196,000 for September 30, 1995 and December 31, 1994, respectively. As of January 1, 1994, the Corporation adopted Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity Securities." SFAS No. 115 requires the classification of securities into one of three categories: Trading, Available-for-Sale, or Held-to-Maturity. Management will determine the appropriate classification of debt securities at the time of purchase and re-evaluate the classifications periodically. Trading account securities are used to provide inventory for resale. Debt securities are classified as held to maturity when the Corporation has the positive intent and ability to hold the securities to maturity. Securities not classified as held to maturity or trading are classified as available for sale. During the third quarter of 1995, there were no unrealized gains or losses on trading securities. During the first nine months of 1995 and 1994, there were no securities sold. The gross realized gains and losses shown in the table below were the result of called bonds. <TABLE> <CAPTION> September 30, September 30, (Dollars in Thousands) 1995 1994 - ----------------------------------------------------------------- <S> <C> <C> Proceeds from sales $ -- $ -- ---------- ---------- Gross gains 35 134 Gross losses -- 4 ---------- ---------- Securities gains (losses) $ 35 $ 130 ========== ========== </TABLE> Approximately 13 percent of the state and political subdivision securities are rated A or above. Of the remaining securities, most are non- rated bonds and represent small, Arkansas issues, which are evaluated on an ongoing basis. NOTE 3: LOANS AND ALLOWANCE FOR LOAN LOSSES The various categories are summarized as follows: <TABLE> <CAPTION> September 30, December 31, (Dollars in Thousands) 1995 1994 - --------------------------------------------------------------------------------- <S> <C> <C> Loans: Consumer: Credit card $ 146,780 $ 164,501 Student loan 58,654 62,836 Other consumer 54,515 40,739 Real estate: Construction 13,029 6,232 Single family residential 53,051 43,629 Other commercial 58,771 44,141 Commercial: Commercial 33,168 29,047 Agricultural 36,886 16,048 Financial institutions 10,662 6,681 Other 2,278 5,122 --------- --------- Total loans before unearned discount and allowances for loan losses 467,794 418,976 Unearned discount (811) (584) Allowance for loan losses (8,338) (7,790) --------- --------- Net Loans $ 458,645 $ 410,602 ========= ========= </TABLE> During the third quarter of 1995, foreclosed assets held for sale decreased to $1,047,000 and are carried at the lower of cost or fair market value. Non-accrual loans and other non-performing loans for the Corporation at September 30, 1995, were $1,491,000 and $848,000, respectively, bringing the total of non-performing assets to $3,386,000. <TABLE> <CAPTION> September 30, December 31, (Dollars in Thousands) 1995 1994 - -------------------------------------------------------------------------------- <S> <C> <C> Allowance for Loan Losses: Balance, beginning of year $ 7,790 $ 7,430 Additions Provision charged to expense 1,407 1,575 Allowance for loan losses of acquired institutions 350 -------- -------- 9,547 9,005 Deductions Losses charged to allowance, net of recoveries of $373,000 and $300,000 for the first nine months of 1995 and 1994, respectively 1,209 1,294 -------- -------- Balance, September 30 $ 8,338 $ 7,711 ======== -------- Additions Provision charged to expense 475 -------- 8,186 Deductions Losses charged to allowance, net of recoveries of $120,000 for the last three months of 1994 396 -------- Balance, end of year $ 7,790 ======== </TABLE> As of January 1, 1995, the Corporation adopted Statement of Financial Accounting Standards (SFAS) No. 114, Accounting by Creditors for Impairment of a Loan. SFAS 114 requires discounting expected future cash flows to measure impairment of certain loans, or, as a practical expedient, impairment measurements based on the loan's observable market price or the fair value of collateral if the loan is collateral dependent. The adoption of SFAS 114 did not increase the 1995 loan loss provision. Total impaired loans at December 31, 1994, were $3,766,000. At that time, $587,000 of the allowance for loan losses related to those loans. All impaired loans had designated reserves for possible loan losses. At September 30, 1995, impaired loans totaled $3,415,000, all of which had reserves allocated. An allowance of $649,000 for possible losses related to those loans. Interest of $88,000 was recognized on average impaired loans of $3,495,000 as of September 30, 1995. No interest was recognized on impaired loans on a cash basis during the first nine months of 1995. NOTE 4: ACQUISITIONS On April 1, 1995, the acquisition of Dumas Bancshares, Inc. (DBI) was completed and DBI was merged into Simmons First National Corporation (SFNC) in a transaction valued at $5 million. DBI owned Dumas State Bank, Dumas, Arkansas, and First State Bank, Gould, Arkansas, with consolidated assets at March 31, 1995, of approximately $42 million. First State Bank, which has branches in Grady and Star City, Arkansas, in addition to its primary location in Gould, Arkansas, was merged into Simmons First National Bank, SFNC's lead bank, and Dumas State Bank became Simmons First Bank of Dumas and will continue to operate as a subsidiary bank of the Corporation. On August 1, 1995, the acquisition of Dermott State Bank Bancshares, Inc. (DSBB), located in Dermott, Arkansas, was completed by Simmons First National Corporation in a cash transaction valued at approximately $2.4 million. DSBB, the single-bank holding company for Dermott State Bank, had at the time of acquisition approximately $20 million in consolidated assets. Dermott State Bank became Simmons First Bank of Dermott and has continued to operate as a subsidiary bank of the Corporation. NOTE 5: CERTAIN TRANSACTIONS From time to time the Corporation 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 Simmons First National Bank, Simmons First Bank of Lake Village, Simmons First Bank of Jonesboro, Simmons First Bank of Dumas and Simmons First Bank of Dermott. 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 6: STOCK OPTIONS As of September 30, 1995, 80,000 shares of common stock of the Corporation had been granted through an employee stock option incentive plan. There were 51,600 exercisable options at the end of the third quarter and 2,000 shares had been issued upon exercise of options. NOTE 7: ADDITIONAL CASH FLOW INFORMATION <TABLE> <CAPTION> Nine Months Ended September 30, (Dollars in Thousands) 1995 1994 - ------------------------------------------------------- <S> <C> <C> Interest paid $ 16,365 $ 11,790 Income taxes paid $ 3,031 $ 3,209 </TABLE> NOTE 8: INCOME TAXES The provision for income taxes is comprised of the following components: <TABLE> <CAPTION> September 30, September 30, (Dollars in Thousands) 1995 1994 - -------------------------------------------------------------------------- <S> <C> <C> Income taxes currently payable $ 3,135 $ 3,079 Increase in future income tax benefits (51) (107) -------- -------- Provision for income taxes $ 3,084 $ 2,972 ======== ======== </TABLE> The tax effects of temporary differences related to deferred taxes shown on the balance sheet are: <TABLE> <CAPTION> September 30, December 31, (Dollars in Thousands) 1995 1994 - ----------------------------------------------------------------------------- <S> <C> <C> Deferred tax assets: Allowance for loan losses $ 3,012 $ 2,744 Valuation adjustment of foreclosed assets held for sale 222 281 Deferred compensation payable 370 373 Deferred loan fee income 765 773 Other 631 645 -------- -------- Total deferred tax assets 5,000 4,816 -------- -------- Deferred tax liabilities: Accumulated depreciation (595) (405) Available-for-sale securities (324) (120) -------- -------- Total deferred tax liabilities (919) (525) -------- -------- Net Deferred tax assets before valuation allowance $ 4,081 $ 4,291 -------- -------- Valuation allowance: Beginning balance -- (564) Change during period -- 564 -------- -------- Ending balance -- -- -------- -------- Net deferred tax asset $ 4,081 $ 4,291 ======== ======== </TABLE> A reconciliation of income tax expense at the statutory rate to the Corporation's actual income tax expense is shown below: <TABLE> <CAPTION> September 30, September 30, (Dollars in Thousands) 1995 1994 - ---------------------------------------------------------------------------------- <S> <C> <C> Computed at the statutory rate (34%) $ 3,770 $ 3,039 Increase (decrease) resulting from: Tax exempt income (736) (614) Liquidation of foreclosed assets held for sale 457 Other difference, net 50 90 -------- -------- Actual tax provision $ 3,084 $ 2,972 ======== ======== </TABLE> NOTE 9: TIME DEPOSITS Time deposits include approximately $93,145,000 and $55,222,000 of certificates of deposit of $100,000 or more at September 30, 1995, and December 31, 1994, respectively. NOTE 10: COMMITMENTS AND CREDIT RISK The five affiliate banks of the Corporation grant agribusiness, commercial, consumer, and residential loans to their customers. Included in the Corporation's diversified loan portfolio is unsecured debt in the form of credit card receivables that comprised approximately 31.4% and 39.3% of the portfolio, as of September 30, 1995 and December 31, 1994, 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, 1995 and December 31, 1994, the Corporation had outstanding commitments to originate loans aggregating approximately $74,802,000 and $47,733,000, respectively. The commitments extended over varying periods of time, with the majority being disbursed within a one year period. Loan commitments at fixed rates of interest amounted to $45,974,000 and $16,519,000 at September 30, 1995 and December 31, 1994, respectively, with the remainder at floating market rates. Letters of credit are conditional commitments issued by the bank subsidiaries of the Corporation, 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 Corporation had total outstanding letters of credit amounting to $1,343,000 and $918,000 at September 30, 1995 and December 31, 1994, respectively, with terms ranging from 90 days to one year. Lines of credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Lines of credit generally have fixed expiration dates. Since a portion of the line may expire without being drawn upon, the total unused lines do not necessarily represent future cash requirements. Each customer's creditworthiness is evaluated on a case-by-case basis. The amount of collateral obtained, if deemed necessary, upon extension of credit, is based on management's credit evaluation of the counterparty. Collateral held varies, but may include accounts receivable, inventory, property, plant and equipment, commercial real estate, and residential real estate. Management uses the same credit policies in granting lines of credit as it does for on balance sheet instruments. At September 30, 1995, the Corporation had granted unused lines of credit to borrowers aggregating approximately $4,542,000 and $162,812,000 for commercial lines and open-end consumer lines, respectively. At December 31, 1994, unused lines of credit to borrowers aggregated approximately $4,568,000 for commercial lines and $143,563,000 for open-end consumer lines, respectively. Mortgage loans serviced for others totaled $1,206,339,000 and $1,228,311,000 at September 30, 1995 and December 31, 1994, respectively, of which mortgage-backed securities serviced totaled $1,136,790,000 and $1,027,855,000 at September 30, 1995 and December 31, 1994, respectively. Simmons First National Bank serviced VA loans subject to certain recourse provisions totaling approximately $145,185,000 and $156,650,000, at September 30, 1995 and December 31, 1994, respectively. A reserve was established for potential loss obligations, based on management's evaluation of historical losses, as well as prevailing and anticipated economic conditions, giving consideration for specific reserves. As of September 30, 1995 and December 31, 1994, this reserve balance was $41,000 and $210,000, respectively, and is included in other liabilities. NOTE 11: CONTINGENT LIABILITIES A number of legal proceedings exist in which the Corporation 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 Corporation and its subsidiaries. NOTE 12: UNDIVIDED PROFITS The subsidiary banks are subject to a legal limitation on dividends that can be paid to the parent corporation 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 50% of current year earnings. At September 30, 1995, the bank subsidiaries had approximately $14.1 million available for payment of dividends to the Corporation without prior approval of the regulatory agencies. The Federal Reserve Board's risk-based capital guidelines require a minimum risk-adjusted ratio for total capital of 8% at the end of 1992. The Federal Reserve Board has further refined its guidelines to include the definitions for (1) a well-capitalized institution, (2) an adequately- capitalized institution, and (3) an undercapitalized institution. The criteria for a well-capitalized institution 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, 1995, each of the four subsidiary banks met the capital standards for a well-capitalized institution. The Corporation's total capital to total risk-weighted assets ratio was 19.7% at September 30, 1995, well above the minimum required. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS - --------------------- Net income for the quarter ended September 30, 1995, was $2,670,000, an increase of $17,000, or .64%, over the same period of 1994. Earnings per share for the three-month periods ended September 30, 1995 and September 30, 1994, were $.70 and $.73, respectively. Year-to-date earnings for 1995 were $7,316,000, a decrease of $315,000, or 4.1%, over earnings of the first nine months of 1994. Per share earnings for the nine-month periods ended September 30, 1995 and 1994, were $1.94 and $2.08, respectively. The Corporation's annualized return on average assets (ROA) for the three- month periods ended September 30, 1995 and 1994, were 1.35% and 1.51%, respectively. For the nine-month periods ended September 30, 1995 and 1994, annualized ROA were 1.31 and 1.44%, respectively. Annualized return on equity (ROE) for the same nine-month periods were 10.83% and 12.86%, respectively. Net interest income, the difference between interest income and interest expense, for the three-month period ended September 30, 1995, increased $884,000, or 11.9%, when compared to the same period in 1994. During the third quarter, interest income increased $3,179,000, or 24.5%, and interest expense increased $2,295,000, or 55.2%, when compared to the same period in 1994. Total interest income figures for the nine months ended September 30, 1995 and 1994, were $40,876,000 and $33,707,000, respectively. Total interest expense for this same period in 1995 increased $5,588,000 to $17,405,000, resulting in a net interest income of $23,471,000, a 7.2% increase during the nine-month period in 1995, when compared to the same period figures of 1994. These increases in net interest income can be attributed to an increase in the Corporation's interest margin. Continued improvement in asset quality resulted in a reduction in the provision for loan losses for the third quarter of 1995, to $506,000, compared to $525,000 for the same period of 1994, resulting in a $19,000, or 3.6%, decrease. The year-to-date provision for loan losses decreased $168,000, to $1,407,000 from $1,575,000 at September 30, 1994, a 10.7% reduction. Non-interest income for the third quarter ending at September 30, 1995 was $6,114,000, a reduction of $47,000, or .8%, from the same period in 1994. For the nine-month periods ended September 30, 1995 and 1994, non-interest income was down 6.0% to 18,045,000 from $19,197,000. This is primarily attributable to reduced profits in the mortgage, dealer bank, and bank card operations as a result of the unstable interest rate environment that has existed. During the three months ended September 30, 1995, non-interest expense increased $682,000, or 7.3%, over the same period in 1994. For the first nine months of 1995 and 1994, non-interest expense was $29,709,000 and $28,909,000, respectively. This $800,000 increase is related to the acquisitions completed in 1995. At September 30, 1995, total assets for the Corporation were $797,375,000, an increase of $84,113,000, or 11.8%, from the same figure at December 31, 1994. Deposits at September 30, 1995, totaled $669,597,000, an increase of $86,059,000, or 14.7%, from the same figure at December 31, 1994. Stockholders' equity at the end of the quarter was $93,346,000, an increase of $9,646,000, or 11.5%, from the December 31, 1994 figure. FINANCIAL CONDITION - ------------------- Generally speaking, the Corporation'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 constantly measure liquid assets as well as relevant ratios concerning earning asset levels and purchased funds. Each bank subsidiary is also required to monitor these same indicators and report regularly to its own senior management and board of directors. At September 30, 1995, each bank was within established guidelines and total corporate liquidity was strong. At September 30, 1995, cash and due from banks, securities available for sale, federal funds sold and securities purchased under agreements for resale, and mortgage loans held for sale were 14.7% of total assets. REVIEW BY INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS BAIRD, KURTZ & DOBSON Certified Public Accountants 200 East Eleventh Pine Bluff, Arkansas Board of Directors Simmons First National Bank Pine Bluff, Arkansas We have made a review of the accompanying consolidated condensed financial statements, appearing on pages 3 to 7 of the accompanying Form 10-Q, of SIMMONS FIRST NATIONAL CORPORATION and consolidated subsidiaries as of September 30, 1995 and for the three-month and nine-month periods ended September 30, 1995 and 1994, 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, 1994, 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 January 27, 1995, 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, 1994, is fairly stated in all material respects in relation to the consolidated balance sheet from which it has been derived. BAIRD, KURTZ & DOBSON Pine Bluff, Arkansas November 3, 1995 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: 11/6/95 /s/ J. Thomas May ----------------- ------------------------------------ J. Thomas May President and Chief Executive Officer Date: 11/6/95 /s/ Barry L. Crow ----------------- -------------------------------------- Barry L. Crow, Executive Vice President and Chief Financial Officer