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 June 30, 1997 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 870-541-1350 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 common stock. Class A, Common 5,722,612 Class B, Common None SIMMONS FIRST NATIONAL CORPORATION INDEX Part I: Summarized Financial Information Consolidated Balance Sheets -- June 30, 1997 and December 31, 1996 3-4 Consolidated Statements of Income -- Three months and six months ended June 30, 1997 and 1996 5 Consolidated Statements of Cash Flows -- Six months ended June 30, 1997 and 1996 6 Consolidated Statements of Changes in Stockholders' Equity -- Six months ended June 30, 1997 and 1996 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 Information 20-21 Part I: Summarized Financial Information <TABLE> Simmons First National Corporation Consolidated Balance Sheets June 30, 1997 and December 31, 1996 ASSETS <CAPTION> June 30, December 31, (In thousands) 1997 1996 - ---------------------------------------------------------------------------------------------------- (Unaudited) <S> <C> <C> Cash and non-interest bearing balances due from banks $ 30,962 $ 41,989 Interest bearing balances due from banks 5,253 8,312 Federal funds sold and securities purchased under agreements to resell 38,805 18,980 --------- --------- Cash and cash equivalents 75,020 69,281 Investment securities 258,431 237,662 Mortgage loans held for sale, net of unrealized gains (losses) 3,953 10,101 Assets held in trading accounts 1,023 182 Loans 546,091 510,813 Allowance for loan losses (8,358) (8,366) --------- --------- Net loans 537,733 502,447 Premises and equipment 21,104 20,764 Foreclosed assets held for sale 1,248 903 Interest receivable 8,705 9,675 Cost of loan servicing rights acquired 7,900 8,906 Excess of cost over fair value of net assets acquired, at amortized cost 2,977 3,164 Other assets 12,658 18,247 --------- --------- TOTAL ASSETS $ 930,752 $ 881,332 ========= ========= The December 31, 1996 Consolidated Balance Sheet is as reported in the Corporation's 1996 Annual Report to the Stockholders. See Notes to Consolidated Financial Statements. </TABLE> <TABLE> Simmons First National Corporation Consolidated Balance Sheets June 30, 1997 and December 31, 1996 LIABILITIES AND STOCKHOLDERS' EQUITY <CAPTION> June 30, December 31, (In thousands) 1997 1996 - ------------------------------------------------------------------------------------------------------- (Unaudited) LIABILITIES <S> <C> <C> Non-interest bearing transaction accounts $117,360 $126,568 Interest bearing transaction accounts and savings deposits 269,066 264,554 Time deposits 367,457 345,245 -------- -------- Total deposits 753,883 736,367 Federal funds purchased and securities sold under agreements to repurchase 35,447 29,079 Short-term debt 5,451 1,484 Long-term debt 18,294 1,067 Accrued interest and other liabilities 10,981 10,510 -------- -------- Total liabilities 824,056 778,507 -------- -------- STOCKHOLDERS' EQUITY Capital stock Class A, common, par value $1 a share (par value $5 a share in 1996),authorized 10,000,000 shares, 5,722,612 issued and outstanding at 1997 and 5,705,415 at 1996 5,723 28,527 Surplus 44,939 22,040 Undivided profits 54,964 51,106 Unrealized appreciation on available-for-sale securities, net of income taxes of $608 at 1997 and $655 at 1996 1,070 1,152 -------- -------- Total stockholders' equity 106,696 102,825 -------- -------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $930,752 $881,332 ======== ======== The December 31, 1996 Consolidated Balance Sheet is as reported in the Corporation's 1996 Annual Report to the Stockholders. See Notes to the Consolidated Financial Statements </TABLE> <TABLE> Simmons First National Corporation Consolidated Statements of Income Three Months and Six Months Ended June 30, 1997 and 1996 <CAPTION> Three Months Ended Six Months Ended June 30, June 30, (In thousands, except per share data) 1997 1996 1997 1996 - ------------------------------------------------------------------------------------------------------------- (Unaudited) INTEREST INCOME <S> <C> <C> <C> <C> Loans $ 12,158 $ 10,716 $ 23,679 $ 21,202 Federal funds sold and securities purchased under agreements to resell 572 382 1,110 929 Investment securities 3,745 3,415 7,417 6,852 Mortgage loans held for sale, net of unrealized gains 79 388 196 788 Assets held in trading accounts 32 30 48 40 Interest bearing balances due from banks 61 77 138 106 -------- -------- -------- -------- TOTAL INTEREST INCOME 16,647 15,008 32,588 29,917 -------- -------- -------- -------- INTEREST EXPENSE Interest bearing transaction accounts and savings deposits 1,972 1,710 3,856 3,344 Time deposits 4,887 4,627 9,540 9,415 Federal funds purchased and securities sold under agreements to repurchase 485 276 948 667 Short-term debt 35 14 64 28 Long-term debt 56 102 82 206 -------- -------- -------- -------- TOTAL INTEREST EXPENSE 7,435 6,729 14,490 13,660 -------- -------- -------- -------- NET INTEREST INCOME 9,212 8,279 18,098 16,257 Provision for loan losses 881 502 1,645 1,003 -------- -------- -------- -------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 8,331 7,777 16,453 15,254 -------- -------- -------- -------- NON-INTEREST INCOME Trust department income 523 476 1,127 1,029 Service charges on deposit accounts 859 746 1,604 1,485 Other service charges and fees 390 363 699 592 Income (loss) on sale of mortgage loans, net of commissions 102 (58) 223 48 Income on investment banking, net of commissions 127 39 402 339 Credit card fees 2,293 2,433 4,487 4,690 Loan servicing fees 1,968 1,620 3,674 3,223 Other income 42 216 314 357 Investment securities gains, net -- 118 -- 269 -------- -------- -------- -------- TOTAL NON-INTEREST INCOME 6,304 5,953 12,530 12,032 -------- -------- -------- -------- NON-INTEREST EXPENSE Salaries and employee benefits 5,513 5,420 11,149 11,050 Occupancy expense, net 597 569 1,218 1,148 Furniture and equipment expense 726 558 1,469 1,119 Loss on foreclosed assets 327 282 579 563 Other expense 3,501 3,133 6,981 6,532 -------- -------- -------- -------- TOTAL NON-INTEREST EXPENSE 10,664 9,962 21,396 20,412 -------- -------- -------- -------- INCOME BEFORE INCOME TAXES 3,971 3,768 7,587 6,874 Provision for income taxes 1,157 1,107 2,185 1,971 -------- -------- -------- -------- NET INCOME $ 2,814 $ 2,661 $ 5,402 $ 4,903 ======== ======== ======== ======== EARNINGS PER AVERAGE COMMON SHARE $ 0.49 $ 0.47 $ 0.94 $ 0.86 ======== ======== ======== ======== DIVIDENDS PER COMMON SHARE $ 0.14 $ 0.12 $ 0.27 $ 0.23 ======== ======== ======== ======== See Notes to Consolidated Financial Statements. </TABLE> <TABLE> Simmons First National Corporation Consolidated Statements of Cash Flows Six Months Ended June 30, 1997 and 1996 <CAPTION> June 30, June 30, (In thousands, except per share data) 1997 1996 - ------------------------------------------------------------------------------------------- (Unaudited) <S> <C> <C> CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 5,402 $ 4,903 Items not requiring (providing) cash Depreciation and amortization 2,397 1,472 Provision for loan losses 1,645 1,003 Amortization of premiums and accretion of discounts on investment securities 184 139 Deferred income taxes 15 84 Provision for foreclosed assets 23 108 Investment securities gains (losses), net -- (269) Gain on sale of premises and equipment (2) (13) Changes in Interest receivable 970 (542) Mortgage loans held for sale, net of unrealized gains (losses) 6,148 9,655 Assets held in trading accounts (841) (418) Other assets 5,314 (1,718) Accounts payable and accrued expenses (377) (274) Income taxes payable 751 25 -------- -------- Net cash provided by operating activities 21,629 14,155 -------- -------- CASH FLOW FROM INVESTING ACTIVITIES Net origination's of loans (37,299) (12,608) Purchase of premises and equipment (1,872) (3,627) Proceeds from sale of premises and equipment 605 246 Proceeds from sale of foreclosed assets -- 83 Proceeds from sale of available-for-sale securities -- 265 Proceeds from maturities of available-for-sale securities 69,384 51,716 Purchases of available-for-sale securities (92,811) (59,054) Proceeds from maturities of held-to-maturity securities 12,509 43,003 Purchases of held-to-maturity securities (10,035) (33,502) -------- -------- Net cash used in investing activities (59,519) (13,478) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Net decrease in transaction accounts and savings deposits (4,696) (8,440) Net increase (decrease) in time deposits 22,212 (7,458) Net increase in other borrowings 3,967 1,457 Dividends paid (1,544) (1,296) Proceeds from issuance of long-term debt 17,250 -- Repayments of long-term debt (23) (3,670) Net increase (decrease) in federal funds purchased and securities sold under agreements to repurchase 6,368 (5,876) Issuance (repurchase) of common stock 95 (455) -------- -------- Net cash provided by (used in) financing activities 43,629 (25,738) -------- -------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 5,739 (25,061) CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 69,281 73,422 -------- -------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 75,020 $ 48,361 ======== ======== See Notes to Consolidated Financial Statements. </TABLE> <TABLE> Simmons First National Corporation Consolidated Statements of Changes in Stockholders' Equity Six Months Ended June 30, 1997 and 1996 <CAPTION> Unrealized Appreciation On Available- Common For-Sale Undivided (In thousands) Stock Surplus Securities, Net Profits Total - -------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> Balance, December 31, 1995 $ 19,083 $ 22,651 $ 2,025 $ 53,038 $ 96,797 Exercise of stock options--15,000 shares 50 62 112 Repurchase of common stock (85) (482) (567) Net income 4,903 4,903 Cash dividends declared ($0.23 per share) (1,296) (1,296) Change in unrealized appreciation on available-for-sale securities, net of income tax credit of $630 (1,106) (1,106) -------- -------- ---------- -------- --------- Balance, June 30, 1996 19,048 22,231 919 56,645 98,843 Exercise of stock options--1,500 shares 5 8 13 Repurchase of common stock (35) (199) (234) Common stock dividend -1,901,776 9,509 (9,509) Net income 5,398 5,398 Cash dividends declared ($0.25 per share) (1,428) (1,428) Change in unrealized appreciation on available-for-sale securities, net of income taxes of $134 233 233 -------- -------- ---------- -------- --------- Balance, December 31, 1996 28,527 22,040 1,152 51,106 102,825 Common stock par value change (22,822) 22,822 Exercise of stock options--19,500 shares 20 138 158 Repurchase of common stock (2) (61) (63) Net income 5,402 5,402 Cash dividends declared ($0.27 per share) (1,544) (1,544) Change in unrealized appreciation on available-for-sale securities, net of income tax credit of $47 (82) (82) -------- -------- ---------- -------- --------- Balance, June 30, 1997 $ 5,723 $ 44,939 $ 1,070 $ 54,964 $ 106,696 ======== ======== ========== ======== ========= See Notes to Consolidated Financial Statements. </TABLE> 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 25-28 of the 1996 Annual Report to shareholders. Mortgage Loans Held for Sale Mortgage loans held for sale are carried at the lower of cost or fair value, determined using an aggregate basis. Write-downs to fair value are recognized as a charge to earnings at the time the decline in value occurs. Forward commitments to sell mortgage loans are acquired to reduce market risk on mortgage loans in the process of origination and mortgage loans held for sale. Amounts paid to investors to obtain forward commitments are deferred until such time as the related loans are sold. The fair values of the forward commitments are not recognized into the financial statements. Gains and losses resulting from sales of mortgage loans are recognized when the respective loans are sold to investors. Gains and losses are determined by the difference between the selling price and the carrying amount of the loans sold, net of discounts collected or paid, commitment fees paid and considering a normal servicing rate. Fees received from borrowers to guarantee the funding of mortgage loans held for sale are recognized as income or expense when the loans are sold or when it becomes evident that the commitment will not be used. 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> June 30, December 31, 1997 1996 Gross Gross Estimated Gross Gross Estimated Amortized Unrealized Unrealized Fair Amortized Unrealized Unrealized Fair (In thousands) Cost Gains (Losses) Value Cost Gains (Losses) Value - ---------------------------------------------------------------------------------------------------------------- Held-to-Maturity <S> <C> <C> <C> <C> <C> <C> <C> <C> U.S. Treasury $ 24,942 $ 116 $ (101) $ 24,957 $ 24,700 $ 179 $ (122) $ 24,757 U.S. Government agencies 32,041 473 (108) 32,406 35,286 527 (167) 35,646 Mortgage-backed securities 3,791 9 (67) 3,733 4,243 13 (69) 4,187 State and political subdivisions 64,513 1,275 (277) 65,511 63,586 1,116 (327) 64,375 Other securities 298 1 -- 299 332 2 (4) 330 --------- ------ ----- --------- --------- ------ ------- --------- $ 125,585 $ 1,874 $ (553) $ 126,906 $ 128,147 $ 1,837 $ (689) $ 129,295 ========= ====== ===== ========= ========= ====== ====== ========= Available-for-Sale U.S. Treasury $ 68,562 $ 662 $ (65) $ 69,159 $ 63,248 $ 1,006 $ (55) $ 64,199 U.S. Government agencies 59,377 158 (94) 59,441 41,358 186 (135) 41,409 Other securities 3,229 1,017 -- 4,246 3,102 805 -- 3,907 --------- ------ ----- --------- --------- ------ ------ --------- $ 131,168 $ 1,837 $ (159) $ 132,846 $ 107,708 $ 1,997 $ (190) $ 109,515 ========= ====== ===== ========= ========= ====== ====== ========= </TABLE> The book value of securities pledged as collateral, to secure public deposits and for other purposes, amounted to $106,777,000 at June 30, 1997 and $86,360,000 at December 31, 1996. The approximate fair value of pledged securities amounted to $107,229,000 at June 30, 1997 and $87,399,000 at December 31, 1996. The book value of securities sold under agreements to repurchase amounted to $5,157,000 and $169,000 for June 30, 1997 and December 31, 1996, respectively. Income earned on the above securities for the six months ended June 30, 1997 and 1996 is as follows: <TABLE> <CAPTION> (In thousands) 1997 1996 - ----------------------------------------- <S> <C> <C> Taxable Held-to-maturity $2,032 $2,234 Available-for-sale 3,743 3,059 Non-taxable Held-to-maturity 1,642 1,559 Available-for-sale -- -- ------ ------ Total $7,417 $6,852 ====== ====== </TABLE> Maturities of investment securities at June 30, 1997 <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 $ 19,434 $ 19,460 $ 57,731 $ 57,857 After one through five years 52,443 52,829 52,875 54,304 After five through ten years 45,447 45,802 17,333 16,439 After ten years 4,172 4,783 -- -- Mortgage-backed securities not due on a single date 3,791 3,733 -- -- Other securities 298 299 3,225 4,246 ---------- ---------- ---------- --------- Total $ 125,585 $ 126,906 $ 131,164 $ 132,846 ========== ========== ========== ========= </TABLE> The table below shows gross realized gains and losses during the first six months of 1997 and 1996. <TABLE> <CAPTION> June 30, (In thousands) 1997 1996 - -------------------------------------------------------------------------------- <S> <C> <C> Proceeds from sales $ -- $ 265 ---------- ---------- Gross gains -- 269 Gross losses -- -- ---------- ---------- Securities gains (losses) $ -- $ 269 ========== ========== </TABLE> Approximately 10 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> June 30, December 31, (In thousands) 1997 1996 - --------------------------------------------------------------------- <S> <C> <C> Consumer Credit cards $168,911 $166,346 Student loans 63,852 64,193 Other consumer 71,350 65,384 Real estate Construction 26,914 20,325 Single family residential 60,592 57,251 Other commercial 64,975 60,439 Commercial Commercial 47,872 41,375 Agricultural 29,573 21,003 Financial institutions 7,792 8,469 Other 4,260 6,028 -------- -------- Total loans before allowance for loan losses $546,091 $510,813 ======== ======== </TABLE> During the first six months of 1997, foreclosed assets held for sale increased to $1,248,000 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 June 30, 1997, were $5,000, $2,123,000 and $1,710,000, respectively, bringing the total of non-performing assets to $5,086,000. Transactions in the allowance for loan losses are as follows: <TABLE> <CAPTION> June 30, December 31, (In thousands) 1997 1996 - ------------------------------------------------------------------------ <S> <C> <C> Balance, beginning of year $ 8,366 $ 8,418 Additions Provision charged to expense 1,645 1,003 ------- ------- 10,011 9,421 Deductions Losses charged to allowance, net of recoveries of $303 and $221 for the first six months of 1997 and 1996, respectively 1,653 1,057 ------- ------- Balance, June 30 $ 8,358 $ 8,364 ======= ------- Additions Provision charged to expense 1,338 ------- 9,702 Deductions Losses charged to allowance, net of recoveries of $270 for the last six months of 1996 1,336 ------- Balance, end of year $ 8,366 ======= </TABLE> At June 30, 1997 and December 31, 1996, impaired loans totaled $4,503,000 and $4,912,000, respectively, all of which had reserves allocated. An allowance of $832,000 and $831,000 for possible losses related to those loans at June 30, 1997 and December 31, 1996, respectively. Interest of $125,000 and $130,000 was recognized on average impaired loans of $4,707,000 and $4,523,000 as of June 30, 1997 and 1996, respectively. Interest recognized on impaired loans on a cash basis during the first six months of 1997 and 1996 was immaterial. NOTE 4: ACQUISITIONS In August, 1996, the Simmons First Bank of Dermott charter was moved to Rogers, Arkansas. The three branches of Simmons First National Bank 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. The banking facility remaining at Dermott, along with its assets and liabilities, was 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. 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. On March 21, 1997, an announcement was made jointly by the Chief Executive Officers of both the Corporation and First Commercial Corporation of Little Rock, Arkansas regarding a definitive agreement to acquire all the outstanding capital stock of First Bank of Arkansas, Searcy, Arkansas and First Bank of Arkansas, Russellville, Arkansas, in a cash purchase transaction valued at $53 million. The banks to be acquired had consolidated assets, as adjusted of approximately $310 million, as of December 31, 1996. 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 AND RESTRICTED STOCK As of June 30, 1997, 252,300 shares of common stock of the Corporation had been granted through an employee stock option incentive plan. There were 104,250 exercisable options at the end of the second quarter of 1997. Thirty-Six thousand shares have been issued upon exercise of options. As of June 30, 1997, 3000 shares of common stock of the corporation had been granted and issued as Bonus Shares of restricted stock. NOTE 7: ADDITIONAL CASH FLOW INFORMATION <TABLE> <CAPTION> Six Months Ended June 30, (In thousands) 1997 1996 - ----------------------------------- <S> <C> <C> Interest paid $ 7,153 $13,127 Income taxes paid $ 1,490 $ 1,813 </TABLE> NOTE 8: INCOME TAXES The provision for income taxes is comprised of the following components: <TABLE> <CAPTION> June 30, June 30, (In thousands) 1997 1996 - ------------------------------------------------- <S> <C> <C> Income taxes currently payable $2,170 $1,887 Deferred income taxes 15 84 ------ ------ Provision for income taxes $2,185 $1,971 ====== ====== </TABLE> The tax effects of temporary differences related to deferred taxes shown on the balance sheet are shown below: <TABLE> <CAPTION> June 30, December 31, (In thousands) 1997 1996 - ----------------------------------------------------------------- <S> <C> <C> Deferred tax assets Allowance for loan losses $ 2,960 $ 2,952 Valuation of foreclosed assets held for sale 309 299 Deferred compensation payable 430 445 Deferred loan fee income 678 642 Other 759 706 ------- ------- Total deferred tax assets 5,136 5,044 ------- ------- Deferred tax liabilities Accumulated depreciation (762) (776) Available-for-sale securities (608) (655) Other (409) (288) ------- ------- Total deferred tax liabilities (1,779) (1,719) ------- ------- Net deferred tax assets included in other assets on balance sheets $ 3,357 $ 3,325 ======= ======= </TABLE> A reconciliation of income tax expense at the statutory rate to the Corporation's actual income tax expense is shown below: <TABLE> <CAPTION> June 30, June 30, (In thousands) 1997 1996 - ------------------------------------------------------------ <S> <C> <C> Computed at the statutory rate (34%) $ 2,579 $ 2,337 Increase (decrease) resulting from: Tax exempt income (614) (525) Other differences, net 220 159 ------- ------- Actual tax provision $ 2,185 $ 1,971 ======= ======= </TABLE> NOTE 9: TIME DEPOSITS Time deposits include approximately $107,062,000 and $88,731,000 of certificates of deposit of $100,000 or more at June 30, 1997, and December 31, 1996, 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 30.9% and 32.6% of the portfolio, as of June 30, 1997 and December 31, 1996, 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 June 30, 1997 and December 31, 1996, the Corporation had outstanding commitments to originate loans aggregating approximately $55,763,000 and $79,710,000, 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 $35,385,000 and $64,616,000 at June 30, 1997 and December 31, 1996, 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 $2,418,000 and $2,113,000 at June 30, 1997 and December 31, 1996, 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 June 30, 1997, the Corporation had granted unused lines of credit to borrowers aggregating approximately $43,540,000 and $163,850,000 for commercial lines and open-end consumer lines, respectively. At December 31, 1996, unused lines of credit to borrowers aggregated approximately $12,677,000 for commercial lines and $160,938,000 for open-end consumer lines, respectively. Mortgage loans serviced for others totaled $1,404,305,000 and $1,477,945,000 at June 30, 1997 and December 31, 1996, respectively. A reserve has been 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 June 30, 1997 and December 31, 1996, this reserve balance was $659,000 and $566,000, 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 June 30, 1997, the bank subsidiaries had approximately $14 million available for payment of dividends to the Corporation without prior approval of the regulatory agencies. Subsequent to June 30, 1997, the bank subsidiaries paid approximately $ 14 million in dividends to the corporation. 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 June 30, 1997, 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 22.3% at June 30, 1997, well above the minimum required. NOTE 13: CAPITAL STOCK At the April 22, 1997 annual meeting of shareholders, an amendment to the Articles of Incorporation was approved reducing the par value of the class A common stock of the Company from $5.00 to $1.00. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Net income for the quarter ended June 30, 1997, was $2,814,000, an increase of $153,000, or 5.7%, over the same period in 1996. Earnings per share for the three-month periods ended June 30, 1997 and 1996, were $.49 and $.47, respectively, when adjusted for the fifty percent stock dividend paid in the fourth quarter of 1996. The Corporation's annualized return on average assets (ROA) for the three-month periods ended June 30, 1997 and 1996, were 1.25% and 1.28%, respectively. Annualized return on equity (ROE) for the same three-month periods were 10.46% and 10.85%, respectively. Growth in earning assets, a continued strong interest margin, and increase in non-interest income contributed to the Corporation's earnings performance in the second quarter. Net interest income, the difference between interest income and interest expense, for the three-month period ended June 30, 1997, increased $933,000, or 11.3%, when compared to the same period in 1996, due to the increase in earning assets and a strong interest margin. During the second quarter, interest income increased $1,639,000, or 10.9%, while interest expense increased $706,000, or 10.4%, when compared to the same period in 1996. For the six-months ended June 30, 1997 and 1996, net interest income was $18,098,000 was $16,257,000, respectively. This represents an increase of $1,841,000, or 11.3%. Interest income for the six-month periods ended June 30, 1997 and 1996 was up $2,671,000, to $32,588,000, over the $29,917,000 reported as for June 30, 1996, which signifies a 8.9% increase. Year-to-date interest expense at June 30, 1997 and 1996, was $14,490,000 and $13,660,000, respectively, which equates to a 6.1% increase in the cost of funding the growth in the balance sheet in 1997 when compared to 1996. The provision for loan losses for the second quarter of 1997 was $881,000, compared to $502,000 for the same period of 1996, resulting in a $379,000, or 75.5%, increase. For the six months ended June 30, 1997 and 1996, the provision was $1,645,000 and $1,003,000, respectively, also resulting in a 64% increase. Non-interest income, exclusive of net gains on securities sold, for the second quarter ended June 30, 1997, was $6,304,000, a 8.0% increase over the $5,835,000 reported for the same period in 1996. For the six-months ended June 30, 1996 and 1995, non-interest income, exclusive of net gains on securities sold, was $12,530,000 and $11,763,000, respectively. Total fee income for both the three-month and six-month periods ended June 30, 1997 was up 7.0% and 5.2%, respectively. During the three months ended June 30, 1997, non-interest expense increased $702,000, or 7.0%, over the same period in 1996. This increase reflects the normal increase in the cost of doing business. Year-to-date non-interest expense was $21,396,000 at June 30, 1997, compared to $20,412,000, for the same period ended June 30, 1996. At June 30, 1997, total assets for the Corporation were $930,752,000, a increase of $49,420,000, or 5.6%, from the same figure at December 31, 1996. Deposits at June 30, 1997, totaled $753,883,000, a increase of $17,516,000, or 2.4%, from the same figure at December 31, 1996. The allowance for loan losses as a percentage of total loans was 1.53% at June 30, 1997. The coverage ratio (allowance for loan losses as a percentage of non-performing loans) was 218%. Stockholders' equity at the end of the second quarter was $106,696,000, an increase of $3,871,000, or 3.8%, from the December 31, 1996 figure. In June 1997 the Corporation completed its trust preferred securities offering which raised $17.25 million, to be used for pending acquisitions. On August 1, 1997, the Corporation completed its acquisition of First Bank of Arkansas, Russellville, Arkansas and First Bank of Arkansas, Searcy, Arkansas. With the completion of these acquisitions, the Corporation will have total assets approximating $1.3 billion. 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 origination's 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 June 30, 1997, each bank was within established guidelines and total corporate liquidity was strong. At June 30, 1997, 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 22.9% 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 16 of the accompanying Form 10-Q, of SIMMONS FIRST NATIONAL CORPORATION and consolidated subsidiaries as of June 30, 1997 and for the six-months ended June 30, 1997 and 1996, 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, 1996, 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 29, 1997, 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, 1996, 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 July 31, 1997 Part II 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 registrant 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. Unless noted otherwise, the registrant received cash as the consideration for the transaction. <TABLE> <CAPTION> Number Identity(1) Date of Sale of Shares Price(2) Type of Transaction - -------- ------------ --------- ------ ---------------------- <S> <C> <C> <C> <C> 9 Officers April, 1997 10,500 9.625 (3) Incentive Stock Option 1 Officer May, 1997 1,500 6.667 Incentive Stock Option 1 Officer June, 1997 300 1.000 Grant of Bonus Shares - ---------------- <FN> Notes: 1. The transactions are grouped to show sales of stock based upon exercises of rights by officers of the registrant or its subsidiaries under the stock plans which occurred at the same price during a calendar month. 2. The per share price paid for incentive stock options represents the fair market value of the stock as determined under the terms of the Plan on the date the incentive stock option was granted to the officer. Additionally, the price paid has been adjusted to reflect the effect of the 50% stock dividend paid on December 6, 1996. The per share price paid for the Bonus shares is the par value of the Class A Common Stock. 3. Two Officers exercised their privilege under the Plan to exchange existing shares of SFNC in exercise of the incentive stock options. One such Officer exchanged 421 shares valued at $27.375 on the date of the transaction plus $25.12 in cash for the acquisition of 1,200 shares. A second Officer exchanged 300 shares at $27.375 on the date of the transaction plus $450 in cash for the acquisition of 900 shares. </FN> </TABLE> Item 4. Submission of Matters to a Vote of Security Holders. (a) The annual shareholders meeting of the Company was held on April 22, 1997. The matters submitted to the security holders for approval included setting the number of directors at ten (10), the election of directors, an amendment to the Articles of Incorporation to reduce the par value of the registrant's Class A Common Stock from $5.00 to $1.00 and the ratification of the adoption of the Simmons First National Corporation Executive Stock Incentive Plan. (b) At the annual meeting, all ten (10) nominees for director were elected by the voting of proxies solicited pursuant to Section 14 of the Security Exchange Act of 1934, without any solicitation in opposition thereto. (c)(i) The following table shows the required analysis of the voting by security holders to set the number of directors at ten (10): <TABLE> <CAPTION> Voting of Shares For Against Abstain <S> <C> <C> <C> Set Number of Directors at Ten (10) 4,648,917 2,671 12,255 </TABLE> (ii) The following table shows the required analysis of the voting by security holders for the election of directors: <TABLE> <CAPTION> Voting of Shares For Against Abstain <S> <C> <C> <C> W. E. Ayres 4,607,752 3,315 46,799 Ben Floriani 4,607,752 3,315 46,799 C. Ramon Greenwood 4,605,952 3,315 48,599 Lara F. Hutt, III 4,601,441 3,315 46,699 George A. Makris, Jr. 4,605,436 3,315 46,799 J. Thomas May 4,607,752 3,315 46,799 David R. Perdue 4,605,741 3,315 46,799 Harry L. Ryburn 4,606,852 3,315 47,699 Donald W. Stone 4,607,752 3,315 46,799 Henry F. Trotter, Jr. 4,606,140 3,315 48,099 </TABLE> (iii) The following table shows the required analysis of the voting by security holders for the adoption of the proposed amendment to the Articles of Incorproation to reduce the par value of the registrant's Class A Common Stock from $5.00 to $1.00: <TABLE> <CAPTION> Voting of Shares For Against Abstain <S> <C> <C> <C> Amendment to Articles of Incorporation to reduce par value 4,481,195 60,923 116,131 </TABLE> (iv) The following table shows the required analysis of the voting by security holders for the ratification of the adoption of the Simmons First National Corporation Executive Stock Incentive Plan: <TABLE> <CAPTION> Voting of Shares For Against Abstain <S> <C> <C> <C> Ratification of SFNC Executive Stock Incentive Plan 4,236,798 287,779 124,114 </TABLE> Item 6. Exhibits and Reports on Form 8-K (a) Exhibits. Exhibit ------- 4 Restated Articles of Incorporation 10 Simmons First National Corporation Executive Stock Incentive Plan (b) Reports on Form 8-K The registrant filed 1 Form 8-K during the quarter on June 6, 1997. The report contained disclosures under Item 5 concerning the acquisition of First Bank of Arkansas, Russellville and First Bank of Arkansas, Searcy and contained the combined financial statements of First Bank of Arkansas, Russellville and First Bank of Arkansas, Searcy, as of December 31, 1996 (audited) and March 31, 1997 (unaudited) and for the periods then ended, the statements of income and cash flows for the three (3) months ended March 31, 1996 (unaudited) and the pro forma condensed combining financial information of SFNC, First Bank of Arkansas, Russellville and First Bank of Arkansas, Searcy, for the year ended December 31, 1996 and as of and for the quarter ended March 31, 1997. 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: 8/13/97 /s/ J. Thomas May ----------------- ---------------------------------------- J. Thomas May, Chairman, President and Chief Executive Officer Date: 8/13/97 /s/ Barry L. Crow ----------------- ----------------------------------------- Barry L. Crow, Executive Vice President and Chief Financial Officer