SIMMONS FIRST NATIONAL CORPORATION Financial Statements (Form 10-Q) September 30, 1996 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, 1996 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 3,805,639 Class B, Common None SIMMONS FIRST NATIONAL CORPORATION INDEX Part I: Summarized Financial Information Consolidated Balance Sheets -- September 30, 1996 and December 31, 1995 Consolidated Statements of Income -- Three months and nine months ended September 30, 1996 and 1995 Consolidated Statements of Cash Flows -- Nine months ended September 30, 1996 and 1995 Consolidated Statement of Changes in Stockholders' Equity -- Nine months ended September 30, 1996 and 1995 Notes to Consolidated Financial Statements Management's Discussion and Analysis of Financial Condition and Results of Operations Review by Independent Certified Public Accountants Part II: Other Information PART I A. Summarized Financial Information <TABLE> SIMMONS FIRST NATIONAL CORPORATION CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, 1996 AND DECEMBER 31, 1995 ASSETS <CAPTION> September 30, December 31, (In thousands) 1996 1995 - -------------------------------------------------------------------------------- (Unaudited) <S> <C> <C> Cash and noninterest-bearing balances due from banks . $ 32,970 $ 36,179 Interest-bearing balances due from banks ............. 6,744 2,398 Federal funds sold and securities purchased under agreements to resell ......................... 21,705 34,845 --------- --------- Cash and Cash Equivalents ........................ 61,419 73,422 Investment securities Held-to-maturity ................................... 124,223 134,433 Available-for-sale ................................. 93,472 90,367 Mortgage loans held for sale, net of unrealized gains 16,655 26,159 Assets held in trading accounts ...................... 380 548 Loans ................................................ 506,734 471,956 Allowance for possible loan losses ................ (8,300) (8,418) --------- --------- Net loans ....................................... 498,434 463,538 Premises and equipment ............................... 20,086 16,201 Foreclosed assets held for sale ...................... 975 1,017 Interest receivable .................................. 8,843 7,953 Cost of loan-servicing rights acquired ............... 9,183 4,867 Excess of cost over fair value of net assets acquired, at amortized cost .................................. 3,251 3,677 Other assets ......................................... 20,343 17,702 --------- --------- TOTAL ASSETS ................. $ 857,264 $ 839,884 ========= ========= </TABLE> The December 31, 1995 Consolidated Balance Sheet is as reported in the Corporation's 1995 Annual Report to the Stockholders. See Notes to Consolidated Financial Statements. <TABLE> SIMMONS FIRST NATIONAL CORPORATION CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, 1996 AND DECEMBER 31, 1995 LIABILITIES AND STOCKHOLDERS' EQUITY <CAPTION> September 30, December 31, (In thousands) 1996 1995 - --------------------------------------------------------------------------------------- (Unaudited) <S> <C> <C> Noninterest-bearing transaction accounts ....................... $103,142 $108,779 Interest-bearing transaction accounts and savings deposits ..... 263,796 251,065 Time deposits .................................................. 343,458 344,924 -------- -------- Total Deposits ......................................... 710,396 704,768 Federal funds purchased and securities sold under agreements to repurchase .......................... 20,992 20,861 Short-term debt ................................................ 12,188 1,405 Long-term debt ................................................. 1,077 4,757 Accrued interest and other liabilities ......................... 11,927 11,296 -------- -------- TOTAL LIABILITIES .............................................. 756,580 743,087 -------- -------- STOCKHOLDERS' EQUITY Capital stock Class A, common, par value $5 a share, authorized 10,000,000 shares, 3,805,639 issued and outstanding at 1996 and 3,816,612 at 1995 ......................................... 19,028 19,083 Surplus ...................................................... 22,099 22,651 Undivided profits ............................................ 58,507 53,038 Unrealized appreciation on available-for-sale securities, net of income taxes of $597 at 1996 and $1,151 at 1995 ............................................. 1,050 2,025 -------- -------- TOTAL STOCKHOLDERS' EQUITY ..................................... 100,684 96,797 -------- -------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ............ $857,264 $839,884 ======== ======== </TABLE> The December 31, 1995 Consolidated Balance Sheet is as reported in the Corporation's 1995 Annual Report to the Stockholders. See Notes to Consolidated Financial Statements. <TABLE> SIMMONS FIRST NATIONAL CORPORATION CONSOLIDATED STATEMENTS OF INCOME THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 <CAPTION> THREE MONTHS NINE MONTHS ENDED ENDED September 30, September 30, (In thousands, except per share data) 1996 1995 1996 1995 - --------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> INTEREST INCOME Loans ...................................................... $11,509 $10,683 $32,711 $29,228 Federal funds sold and securities purchased under agreements to resell ............................... 156 253 1,086 1,171 Investment securities Held-to-maturity ......................................... 2,541 2,569 7,833 7,388 Available-for-sale ....................................... 795 734 2,354 2,160 Mortgage loans held for sale, net of unrealized gains ...... 312 477 1,101 810 Assets held in trading accounts ............................ 17 19 57 43 Interest-bearing balances due from banks ................... 72 21 178 76 ------- ------- ------- ------- TOTAL INTEREST INCOME ......................... 15,402 14,756 45,320 40,876 INTEREST EXPENSE Interest-bearing transaction accounts and savings depos1,804 1,532 5,148 4,388 Time deposits .............................................. 4,584 4,443 13,999 11,290 Federal funds purchased and securities sold under agreements to repurchase ...................... 290 271 957 954 Short-term debt ............................................ 21 39 50 80 Long-term debt ............................................. 27 165 232 693 ------- ------- ------- ------- TOTAL INTEREST EXPENSE .................... 6,726 6,450 20,386 17,405 ------- ------- ------- ------- NET INTEREST INCOME ............................................ 8,676 8,306 24,934 23,471 Provision for possible loan losses ......................... 503 506 1,506 1,407 ------- ------- ------- ------- NET INTEREST AFTER PROVISION FOR POSSIBLE LOAN LOSSES ........................................... 8,173 7,800 23,428 22,064 ------- ------- ------- ------- NON-INTEREST INCOME Trust department income .................................... 562 474 1,592 1,268 Service charges on deposit accounts ........................ 847 705 2,332 2,001 Other service charges & fees ............................... 251 188 843 582 Income on sale of mortgage loans, net of commissions ....... 94 164 142 343 Income on investment banking, net of commissions ........... 157 231 496 550 Net realized gains on securities ........................... -- 35 270 35 Credit card fees ........................................... 2,415 2,549 7,105 7,526 Loan servicing fees ........................................ 1,936 1,579 5,159 4,517 Other operating income ..................................... 113 189 468 1,223 ------- ------- ------- ------- TOTAL NON-INTEREST INCOME ................... 6,375 6,114 18,407 18,045 ------- ------- ------- ------- NON-INTEREST EXPENSE Salaries and employee benefits ............................. 5,353 5,307 16,404 15,840 Occupancy expense, net ..................................... 650 609 1,798 1,732 Furniture & equipment expense .............................. 532 582 1,652 1,613 Loss on foreclosed assets .................................. 271 354 831 1,047 Other operating expenses ................................... 4,040 3,182 10,574 9,477 ------- ------- ------- ------- TOTAL NON-INTEREST EXPENSE .................. 10,846 10,034 31,259 29,709 ------- ------- ------- ------- INCOME BEFORE INCOME TAXES ..................................... 3,702 3,880 10,576 10,400 Provision for income taxes ................................. 1,154 1,210 3,125 3,084 ------- ------- ------- ------- NET INCOME ..................................................... $ 2,548 $ 2,670 $ 7,451 $ 7,316 ======= ======= ======= ======= EARNINGS PER AVERAGE COMMON SHARE .............................. $ 0.67 $ 0.70 $ 1.96 $ 1.94 ======= ======= ======= ======= DIVIDENDS PER COMMON SHARE ..................................... $ 0.18 $ 0.15 $ 0.52 $ 0.43 ======= ======= ======= ======= </TABLE> See Notes to Consolidated Financial Statements. <TABLE> SIMMONS FIRST NATIONAL CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 <CAPTION> NINE MONTHS ENDED September 30, (In thousands) 1996 1995 - --------------------------------------------------------------------------------------- <S> <C> <C> CASH FLOWS FROM OPERATING ACTIVITIES Net income ................................................ $ 7,451 $ 7,316 Items not requiring (providing) cash Depreciation and amortization ........................... 2,979 748 Provision for possible loan losses ...................... 3,125 1,407 Amortization of premiums and accretion of discounts on investment securities and mortgage-backed certificates 183 (69) Provision for foreclosed assets ......................... 135 125 Net realized gains (losses) on securities .............. (270) 35 Losses on sale of premises and equipment ................ (28) (11) Deferred income taxes ................................... 119 (51) Changes in Interest receivable ..................................... (890) (2,334) Mortgage loans held for sale ............................ 9,504 (15,435) Other assets ............................................ (8,466) (6,580) Accrued interest and other liabilities .................. 1,480 2,663 Income taxes payable .................................... (294) 53 Trading accounts ........................................ 168 1,903 -------- -------- Net cash provided by (used in) operating activites . 15,196 (10,230) -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Net originations of loans ................................ (38,206) (54,483) Purchase of premises and equipment ........................ (5,266) (5,093) Proceeds from sale of fixed assets ........................ 246 101 Proceeds from sale of foreclosed assets ................... 92 830 Proceeds from sale of available-for sale securities ....... 265 -- Proceeds from maturities of available-for sale securities . 80,992 12,650 Purchases of available-for-sale securities ................ (84,706) (24,335) Proceeds from maturies of held-to-maturity securities ..... 47,712 23,549 Purchases of held-to-maturity securities .................. (38,601) (56,644) -------- -------- Net cash used in investing activites ........ (37,472) (103,425) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Net decrease in transaction accounts and savings deposits . 7,094 10,596 Net issuance of time deposits ............................ (1,466) 91,373 Repayments of other borrowings ............................ (576,492) (112,721) Proceeds from other borrowings ............................ 583,595 106,391 Dividends paid ............................................ (1,982) (1,623) Net increase (decrease) in federal funds purchased and securities sold under agreements to repurchase ...... 131 (7,927) Acquisition of subsidiary ................................. (2,438) Issuance (repurchase) of common stock ..................... (607) 3,520 -------- -------- Net cash provided by financing activities ...... $ 10,273 $ 87,171 -------- -------- DECREASE IN CASH AND CASH EQUIVALENTS ......................... $(12,003) $(26,484) CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR .................. 73,422 74,002 -------- -------- CASH AND CASH EQUIVALENTS, END OF PERIOD ...................... $ 61,419 $ 47,518 ======== ======== </TABLE> See Notes to Consolidated Financial Statements. <TABLE> SIMMONS FIRST NATIONAL CORPORATION CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 <CAPTION> NET UNREALIZED GAIN (LOSS) COMMON ON AFS UNDIVIDED (In thousands) STOCK SURPLUS SECURITIES PROFITS TOTAL - ---------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> 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 @$25.50 per share) ...... 686 2,814 3,500 Net income .............................. 7,316 7,316 Cash dividends declared ($.34 per share) ...................... (1,623) (1,623) Change in unrealized appreciation 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 Net income .............................. 2,703 2,703 Cash dividends declared ($0.25 per share) (611) (611) Change in unrealized appreciation on available-for-sale securities, net of income taxes of $765 1,359 1,359 -------- -------- -------- -------- -------- Balance, December 31, 1995 .............. 19,083 22,651 2,025 53,038 96,797 Exercise of stock options--11,000 shares 55 70 125 Repurchase of common stock .............. (110) (622) (732) Net income .............................. 7,451 7,451 Cash Dividends declared ($0.52 per share) (1,982) (1,982) Change in unrealized depreciation on available-for-sale securities, net of income tax credit of $555 ............................... (975) (975) -------- -------- -------- -------- -------- Balance, September 30, 1996 ............ $ 19,028 $ 22,099 $ 1,050 $ 58,507 $100,684 ======== ======== ======== ======== ======== </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 26-29 of the 1995 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, 1996 December 31, 1995 ------------------------------------------------------------------------------------------------- Gross Gross Amortized Unrealized Fair Amortized 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 .......... $ 25,753 $ 165 $ (208) $ 25,710 $ 45,920 $ 400 $ (46) $ 46,274 U.S.Gov't agencies .... 31,505 208 (334) 31,379 23,569 692 (18) 24,243 Mortgage-backed securities .......... 4,444 10 (104) 4,350 6,344 37 (55) 6,326 State and political subdivisions ........ 62,206 1,095 (429) 62,872 58,154 1,536 (356) 59,334 Other securities ...... 315 1 (5) 311 446 11 -- 457 --------- --------- --------- --------- --------- --------- --------- --------- $ 124,223 $ 1,479 $ (1,080) $ 124,622 $ 134,433 $ 2,676 $ (475) $ 136,634 ========= ========= ========= ========= ========= ========= ========= ========= Available-for-Sale U.S.Treasury .......... $ 65,407 $ 963 $ (98) $ 66,272 $ 72,258 $ 2,102 $ (3) $ 74,357 U.S.Gov't agencies .... 23,318 133 (105) 23,346 11,905 264 (35) 12,134 State and political subdivisions ........ -- -- -- -- 51 -- -- 51 Other securities ...... 3,100 754 (0) 3,854 2,976 851 (2) 3,825 --------- --------- --------- --------- --------- --------- --------- --------- $ 91,825 $ 1,850 $ (203) $ 93,472 $ 87,190 $ 3,217 $ (40) $ 90,367 ========= ========= ========= ========= ========= ========= ========= ========= </TABLE> The book value of securities pledged as collateral, to secure public deposits and for other purposes, amounted to $89,269,000 at September 30, 1996, and $107,133,000 at December 31, 1995. The approximate fair value of pledged securities amounted to $89,864,000 at September 30, 1996 and $110,319,000 at December 31, 1995. The book value of securities sold under agreements to repurchase amounted to $165,000 and $1,417,000 for September 30, 1996 and December 31, 1995, respectively. Maturities of investment securities at September 30, 1996 <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 ............................ $ 15,493 $ 15,496 $ 46,317 $ 46,507 After one through five years ................ 48,993 49,298 42,408 43,111 After five through ten years ................ 49,505 49,159 -- -- After ten years ............................. 5,473 6,008 -- -- Mortgage-backed securities not due on a single date .......................... 4,444 4,350 -- -- Other securities ............................ 315 311 3,100 3,854 -------- -------- -------- -------- $124,223 $124,622 $ 91,825 $ 93,472 ======== ======== ======== ======== </TABLE> The table below shows gross realized gains and losses during the first nine months of 1996 and 1995. The gains recorded at September 30, 1995 related to called bonds rather than sales. <TABLE> <CAPTION> (In thousands) 1996 1995 - -------------------------------------------- September 30, <S> <C> <C> Proceeds from sales ..... $ 265 $ -- ----- ----- Gross gains ............. 270 35 Gross losses ............ -- -- ----- ----- Securities gains (losses) $ 270 $ 35 ===== ===== </TABLE> As of December 15, 1995, the Corporation redesignated held-to-maturity securities with an aggregate amortized cost of $40,193,000 and net unrealized gains of $1,905,000 to the available-for-sale portfolio. The redesignation was prompted by the announcement by the Financial Accounting Standards Board to allow a one-time redesignation and reflects management's revised expectations of liquidity needs. 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 POSSIBLE LOAN LOSSES The various categories are summarized as follows: <TABLE> <CAPTION> September 30, December 31, (In thousands) 1996 1995 - ---------------------------------------------------------------------- <S> <C> <C> Loans Consumer Credit card ............................ $ 152,153 $ 154,808 Student loans .......................... 65,999 63,492 Individuals - other .................... 61,525 57,166 Real estate Construction ........................... 22,080 15,177 Single family residential .............. 57,804 54,341 Other commercial ....................... 59,690 59,012 Commercial Commercial ............................. 38,721 36,553 Agri ................................... 34,803 20,588 Financial institutions ................. 9,358 9,058 Other .................................... 5,271 2,546 --------- --------- Total loans before unearned discount and allowances for possible loan lossess . 507,404 472,741 Unearned discount ........................ (670) (785) Allowance for possible loan lossess ...... (8,300) (8,418) --------- --------- Net loans ............................ $ 498,434 $ 463,538 ========= ========= </TABLE> During the first nine months of 1996, foreclosed assets held for sale decreased to $975,000 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 Corporation at September 30, 1996, were $6,000, $1,505,000 and $2,011,000, respectively, bringing the total of non-performing assets to $4,497,000. <TABLE> <CAPTION> September 30, December 31, (In thousands) 1996 1995 - -------------------------------------------------------------------- <S> <C> <C> Allowance for Possible Loan Losses Balance, beginning of year ........... $ 8,418 $ 7,790 Additions Provision charged to expense ...... 1,506 1,407 Allowance for loan losses of acquired institutions ........ -- 350 ------- ------- 9,924 9,547 Deductions Losses charged to allowance, net of recoveries of $324 and $373 for the first nine months of 1996 and 1995, respectively ....... 1,624 1,209 ------- ------- Balance,September 30 ................. $ 8,300 8,338 ======= ======= Additions Provision charged to expense ...... 685 Allowance for loan losses of acquired institutions ........ 11 ------- 9,034 Deductions Losses charged to allowance, net of recoveries of $106 for the last three months of 1995.. 616 ------- Balance, end of year ................. $ 8,418 ======= </TABLE> At September 30, 1996 and December 31, 1995, impaired loans totaled $4,263,000 and $4,564,000, respectively, all of which had reserves allocated. An allowance of $802,000 and $832,000 for possible losses related to those loans at September 30, 1996 and December 31, 1995, respectively. Interest of $197,000 and $88,000 was recognized on average impaired loans of $4,162,000 and $3,495,000 as of September 30, 1996 and 1995, respectively. Interest recognized on impaired loans on a cash basis during the first nine months of 1996 and 1995 was immaterial. NOTE 4: ACQUISITIONS On April 1, 1995, and August 1, 1995, Simmons First National Corporation acquired all outstanding stock of Dumas Bancshares, Inc. (DBI), and Dermott State Bank Bancshares, Inc. (DSBB), respectively, in exchange for 137,234 shares of common stock valued at $25.50 per share and cash of $3,900,000. DBI and DSBB were liquidated into the Corporation leaving Dumas State Bank, First State Bank, and Dermott State Bank as subsidiaries of the Corporation. First State Bank was then merged into Simmons First National Bank and the names of the other two banks were changed to Simmons First Bank of Dumas and Simmons First Bank of Dermott. The acquisitions were accounted for as purchases, and the results of operations from the dates of acquisition are included in the December 31, 1995 consolidated financial statements. The total acquisition cost of $7,400,000 exceeded the fair value of net assets acquired by $1,599,000. In February, 1996, the flagship bank, Simmons First National, located in Pine Bluff, opened an additional branch in Little Rock, Arkansas, bringing its total branches to twenty-four. In August, 1996, the Simmons First Bank of Dermott charter was moved to Rogers, Arkansas. The three branches of Simmons First National Bank of Pine Bluff located in Rogers, Springdale, and Bella Vista, Arkansas were then sold to the relocated bank and the bank name was changed to Simmons First Bank of Northwest Arkansas, whose headquarters is now the Rogers office. The banking facility remaining at Dermott, along with its assets and liabilities, were then transferred to Simmons First Bank of Lake Village, Arkansas and is now a branch of that bank. The name of Simmons First Bank of Lake Village was subsequently changed to Simmons First Bank of South Arkansas. 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 South Arkansas, Simmons First Bank of Jonesboro, Simmons First Bank of Dumas and Simmons First Bank of Northwest Arkansas. 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, 1996, 107,500 shares of common stock of the Corporation had been granted through an employee stock option incentive plan. There were 61,300 exercisable options at the end of the third quarter of 1996. Thirteen thousand shares have been issued upon exercise of options. NOTE 7: ADDITIONAL CASH FLOW INFORMATION <TABLE> <CAPTION> Nine Months Ended September 30, (In thousands) 1996 1995 - --------------------------------------- <S> <C> <C> Interest paid $20,280 $16,365 Income taxes paid ..... $ 3,206 $ 3,031 </TABLE> NOTE 8: INCOME TAXES The provision for income taxes is comprised of the following components: <TABLE> <CAPTION> September 30, September 30, (In thousands) 1996 1995 - -------------------------------------------------------------- <S> <C> <C> Income taxes currently payable $ 3,006 $ 3,135 Deferred income taxes ........ 119 (51) ------- ------- Provision for income taxes ... $ 3,125 $ 3,084 ======= ======= </TABLE> The tax effects of temporary differences related to deferred taxes shown on the balance sheet are shown below: <TABLE> <CAPTION> September 30, December 31, (In thousands) 1996 1995 - ----------------------------------------------------------------------- <S> <C> <C> Deferred tax assets Allowance for possible loan losses ...... $ 2,915 $ 2,940 Valuation adjustment of foreclosed assets held for sale ......................... 303 250 Deferred compensation payable ........... 436 444 Deferred loan fee income ................ 690 707 Other ................................... 733 847 ------- ------- Total deferred tax assets .............. 5,077 5,188 ------- ------- Deferred tax liabilities Accumulated depreciation ................ (728) (718) Available-for-sale securities .......... (597) (1,151) Other ................................... (336) (338) ------- ------- Total deferred tax liabilities ....... (1,661) (2,207) ------- ------- Net deferred tax assets included in other assets on balance sheets ............. $ 3,416 $ 2,981 ======= ======= </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, (In thousands) 1996 1995 - ------------------------------------------------------------- <S> <C> <C> Computed at the statutory rate (34%) $ 3,596 $ 3,770 Increase (decrease) resulting from: Tax exempt income ............... (855) (736) Other differences, net .......... 384 50 ------- ------- Actual tax provision ............... $ 3,125 $ 3,084 ======= ======= </TABLE> NOTE 9: TIME DEPOSITS Time deposits include approximately $93,912,000 and $104,906,000 of certificates of deposit of $100,000 or more at September 30, 1996, and December 31, 1995, 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 30.0% and 32.8% of the portfolio, as of September 30, 1996 and December 31, 1995, 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, 1996 and December 31, 1995, the Corporation had outstanding commitments to originate loans aggregating approximately $75,074,000 and $67,853,000, 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 $42,525,000 and $26,744,000 at September 30, 1996 and December 31, 1995, 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 $2,170,000 and $1,954,000 at September 30, 1996 and December 31, 1995, 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, 1996, the Corporation had granted unused lines of credit to borrowers aggregating approximately $6,381,000 and $154,425,000 for commercial lines and open-end consumer lines, respectively. At December 31, 1995, unused lines of credit to borrowers aggregated approximately $3,365,000 for commercial lines and $157,068,000 for open-end consumer lines, respectively. Mortgage loans serviced for others totaled $1,495,133,000 and $1,224,467,000 at September 30, 1996 and December 31, 1995, respectively, of which mortgage-backed securities serviced totaled $1,430,611,000 and $1,166,906,000 at September 30, 1996 and December 31, 1995, respectively. Simmons First National Bank serviced VA loans subject to certain recourse provisions totaling approximately $135,076,000 and $145,185,000, at September 30, 1996 and December 31, 1995, respectively. A reserve was established for potential loss obligations, based on management's evaluation of a number of variables, including the amount of delinquent loans serviced for other investors, length of delinquency, and amounts previously advanced on behalf of the borrower that the Corporation does not expect to recover. This reserve is netted against foreclosure receivables included in other assets. As of September 30, 1996 and December 31, 1995, this reserve balance was $617,000 and $573,000, respectively. 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, 1996, the bank subsidiaries had approximately $15.4 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, 1996, each of the five 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, 1996, well above the minimum required. NOTE 13: SUBSEQUENT EVENTS On October 29, 1996, the board of directors of the Corporation declared a 50% stock dividend. An additional share of stock will be distributed to shareholders for each two shares owned on the record date of November 20, 1996. The stock dividend will be paid on December 6, 1996.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Net income for the quarter ended September 30, 1996, was $2,548,000, a decrease of $122,000, or 4.6%, over the same period of 1995, after the impact of a one-time pretax charge of $687,000 to re-capitalize the Savings Association Insurance Fund (SAIF). As part of the omnibus spending bill passed by Congress in September, banks which have acquired thrift deposits must contribute to the re-capitalization plan. Earnings for the third quarter before the impact of the charge was $3,001,000. Earnings per share for the three-month periods ended September 30, 1996 and 1995, were $.67 and $.70, respectively. Earnings for the nine-month period ended September 30, 1996, were $7,451,000, or $135,000 over the September 30, 1995 earnings of $7,316,000. Year-to-date earnings on a per share basis as of September 30, 1996 were $1.96, compared to $1.94 at September 30, 1995. The Corporation's annualized return on average assets (ROA) for the three-month periods ended September 30, 1996 and 1995, were 1.21% and 1.35%, respectively. Annualized return on equity (ROE) for the same three-month periods were 10.10% and 11.42 %, respectively. Net interest income, the difference between interest income and interest expense, for the three-month period ended September 30, 1996, increased $370,000, or 4.5%, when compared to the same period in 1995, due to the increase in earning assets and yield. During the third quarter, interest income increased $646,000, or 4.4%, while interest expense increased $276,000, or 4.3%, when compared to the same period in 1995. For the nine-months ended September 30, 1996 and 1995, net interest income was $24,934,000 and $23,471,000, respectively. This represents an increase of $1,463,000, or 6.2% in the 1996 figures over 1995. Interest income for the nine-month periods ended September 30, 1996 and 1995, was up $4,444,000, to $45,320,000, over the $40,876,000 reported as of September 30, 1995, which signifies a 10.8% increase. Year-to-date interest expense at September 30, 1996 and 1995, was $20,386,000 and $17,405,000, respectively, which equates to a 17.1% increase in the cost of funding the growth in the balance sheet in 1996 when compared to 1995. The provision for possible loan losses for the third quarter of 1996 was $503,000, compared to $506,000 for the same period of 1995. For the nine months ended September 30, 1996 and 1995, the provision was $1,506,000 and $1,407,000, respectively, resulting in an 7% increase. Non-interest income, exclusive of net gains on securities sold, for the third quarter ended September 30, 1996, was $6,375,000, a 4.9% increase over the $6,079,000 reported for the same period in 1995. For the nine-months ended September 30, 1996 and 1995, non-interest income was $18,407,000 and $18,045,000, respectively. Total fee income for the three-month and nine-month periods ended September 30, 1996 was up 9% and 7%, respectively, over the comparable periods ended September 30, 1995. During the three months ended September 30, 1996, non-interest expense increased $812,000, or 8.1%, over the same period in 1995. This increase reflects the normal increase in the cost of doing business. Year-to-date non-interest expense was $31,259,000 at September 30, 1996, compared to $29,709,000, for the same period ended September 30, 1995, reflecting the Corporation's entry into the Little Rock market, an expansion of the Corporation's Springdale facility, and the write-off of mortgage servicing rights associated with the prepayment of mortgage loans during the first quarter of 1996. On June 30, 1996, the Corporation pre-paid the remaining $3.6 million of its initial $11.0 million in capital notes, twelve months prior to their original due date. In 1995, the Corporation pre-paid $7.4 million of the capital notes. At September 30, 1996, total assets for the Corporation were $857,264,000, a increase of $17,380,000, or 2.1%, from the same figure at December 31, 1995. Deposits at September 30, 1996, totaled $710,396,000, a increase of $5,628,000, or .8%, from the same figure at December 31, 1995. The allowance for possible loan losses as a percentage of total loans was 1.64% at September 30, 1996. The coverage ratio (allowance for possible loan losses as a percentage of non-performing loans) was 236.1% and foreclosed assets furthered declined from the $1,017,000 at December 31, 1995, to $975,000 at September 30, 1996. Stockholders' equity at the end of the third quarter was $100,684,000, an increase of $3,887,000, or 4%, from the December 31, 1995 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, 1996, each bank was within established guidelines and total corporate liquidity was strong. At September 30, 1996, cash and due from banks, securities available for sale and held in trading accounts, federal funds sold and securities purchased under agreements for resale, and mortgage loans held for sale were 20.1% 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 17 of the accompanying Form 10-Q, of SIMMONS FIRST NATIONAL CORPORATION and consolidated subsidiaries as of September 30, 1996 and for the three-month and nine-month periods ended September 30, 1996 and 1995, 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, 1995, 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, 1996, 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, 1995, 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 6, 1996 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: 11/13/96 /s/ J. Thomas May ------------ --------------------------------------- J. Thomas May Chairman and Chief Executive Officer Date: 11/13/96 /s/ Barry L. Crow ------------ --------------------------------------- Barry L. Crow, Executive Vice President and Chief Financial Officer