UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 Form 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For Quarter Ended September 30, 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 5,724,412 Class B, Common None SIMMONS FIRST NATIONAL CORPORATION INDEX Page No. Part I: Summarized Financial Information Consolidated Balance Sheets -- September 30, 1997 and December 31, 1996 3-4 Consolidated Statements of Income -- Three months and Nine months ended September 30, 1997 and 1996 5 Consolidated Statements of Cash Flows -- Nine months ended September 30, 1997 and 1996 6 Consolidated Statements of Changes in Stockholders' Equity -- Nine months ended September 30, 1997 and 1996 7 Notes to Consolidated Financial Statements 8-17 Management's Discussion and Analysis of Financial Condition and Results of Operations 18-19 Review by Independent Certified Public Accountants 20 Part II: Other Information 21-22 Part I: Summarized Financial Information <TABLE> Simmons First National Corporation Consolidated Balance Sheets September 30, 1997 and December 31, 1996 <CAPTION> ASSETS September 30, December 31, (In thousands) 1997 1996 - ------------------------------------------------------------------------------------------------------- (Unaudited) <S> <C> <C> Cash and non-interest bearing balances due from banks $ 52,531 $ 41,989 Interest bearing balances due from banks 3,713 8,312 Federal funds sold and securities purchased under agreements to resell 42,795 18,980 ----------- ----------- Cash and cash equivalents 99,039 69,281 Investment securities 295,805 237,662 Mortgage loans held for sale, net of unrealized gains (losses) 4,977 10,101 Assets held in trading accounts 90 182 Loans 796,164 510,813 Allowance for loan losses (12,626) (8,366) ----------- ----------- Net loans 783,538 502,447 Premises and equipment 28,712 20,764 Foreclosed assets held for sale 1,230 903 Interest receivable 11,956 9,675 Cost of loan servicing rights acquired 7,327 8,906 Excess of cost over fair value of net assets acquired, at amortized cost 31,360 3,164 Other assets 12,004 18,247 ----------- ----------- TOTAL ASSETS $ 1,276,038 $ 881,332 =========== =========== </TABLE> 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> Simmons First National Corporation Consolidated Balance Sheets September 30, 1997 and December 31, 1996 <CAPTION> LIABILITIES AND STOCKHOLDERS' EQUITY September 30, December 31, (In thousands) 1997 1996 - ---------------------------------------------------------------------------------------------------------- (Unaudited) <S> <C> <C> Non-interest bearing transaction accounts $ 141,682 $ 126,568 Interest bearing transaction accounts and savings deposits 326,744 264,554 Time deposits 590,795 345,245 ---------- ---------- Total deposits 1,059,221 736,367 Federal funds purchased and securities sold under agreements to repurchase 25,893 29,079 Short-term debt 15,679 1,484 Long-term debt 50,633 1,067 Accrued interest and other liabilities 15,085 10,510 ---------- ---------- Total liabilities 1,166,511 778,507 ---------- ---------- STOCKHOLDERS' EQUITY Capital stock Class A, common, par value $1 a share (par value $5 a share in 1996), authorized 10,000,000 shares, 5,724,412 issued and outstanding at 1997 and 5,705,415 at 1996 5,724 28,527 Surplus 44,957 22,040 Undivided profits 57,549 51,106 Unrealized appreciation on available-for-sale securities, net of income taxes of $738 at 1997 and $655 at 1996 1,297 1,152 ---------- ---------- Total stockholders' equity 109,527 102,825 ---------- ---------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,276,038 $ 881,332 ========== ========== </TABLE> 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> Simmons First National Corporation Consolidated Statements of Income Three Months and Nine Months Ended September 30, 1997 and 1996 <CAPTION> Three Months Ended Nine Months Ended September 30, September 30, (In thousands, except per share data) 1997 1996 1997 1996 - ------------------------------------------------------------------------------------------------------------------ (Unaudited) <S> <C> <C> <C> <C> INTEREST INCOME Loans $ 16,593 $ 11,509 $ 40,272 $ 32,711 Federal funds sold and securities purchased under agreements to resell 321 156 1,431 1,086 Investment securities 4,374 3,336 11,791 10,187 Mortgage loans held for sale, net of unrealized gains (losses) 81 312 277 1,101 Assets held in trading accounts 76 17 124 57 Interest bearing balances due from banks 46 72 184 178 -------- -------- -------- -------- TOTAL INTEREST INCOME 21,491 15,402 54,079 45,320 -------- -------- -------- -------- INTEREST EXPENSE Interest bearing transaction accounts and savings deposits 2,251 1,804 6,107 5,148 Time deposits 7,146 4,584 16,686 13,999 Federal funds purchased and securities sold under agreements to repurchase 367 290 1,315 957 Short-term debt 228 21 292 50 Long-term debt 663 27 745 232 -------- -------- -------- -------- TOTAL INTEREST EXPENSE 10,655 6,726 25,145 20,386 -------- -------- -------- -------- NET INTEREST INCOME 10,836 8,676 28,934 24,934 Provision for loan losses 1,111 503 2,756 1,506 -------- -------- -------- -------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 9,725 8,173 26,178 23,428 -------- -------- -------- -------- NON-INTEREST INCOME Trust department income 706 562 1,833 1,592 Service charges on deposit accounts 1,159 847 2,763 2,332 Other service charges and fees 277 251 976 843 Income on sale of mortgage loans, net of commissions 119 94 342 142 Income on investment banking, net of commissions 344 157 746 496 Credit card fees 2,406 2,415 6,893 7,105 Loan servicing fees 2,088 1,936 5,762 5,159 Other income 115 113 429 468 Investment securities gains, net (1) -- (1) 270 -------- -------- -------- -------- TOTAL NON-INTEREST INCOME 7,213 6,375 19,743 18,407 -------- -------- -------- -------- NON-INTEREST EXPENSE Salaries and employee benefits 6,083 5,353 17,232 16,404 Occupancy expense, net 751 650 1,969 1,798 Furniture and equipment expense 864 532 2,333 1,652 Loss on foreclosed assets 156 271 735 831 Other expense 4,278 4,040 11,259 10,574 -------- -------- -------- -------- TOTAL NON-INTEREST EXPENSE 12,132 10,846 33,528 31,259 -------- -------- -------- -------- INCOME BEFORE INCOME TAXES 4,806 3,702 12,393 10,576 Provision for income taxes 1,420 1,154 3,605 3,125 -------- -------- -------- -------- NET INCOME $ 3,386 $ 2,548 $ 8,788 $ 7,451 ======== ======== ======== ======== EARNINGS PER AVERAGE COMMON SHARE $ 0.59 $ 0.45 $ 1.53 $ 1.31 ======== ======== ======== ======== DIVIDENDS PER COMMON SHARE $ 0.14 $ 0.12 $ 0.41 $ 0.35 ======== ======== ======== ======== </TABLE> See Notes to Consolidated Financial Statements. <TABLE> Simmons First National Corporation Consolidated Statements of Cash Flows Nine Months Ended September 30, 1997 and 1996 <CAPTION> September 30, September 30, (In thousands, except per share data) 1997 1996 - ------------------------------------------------------------------------------------------------- (Unaudited) <S> <C> <C> CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 8,788 $ 7,451 Items not requiring (providing) cash Depreciation and amortization 4,090 2,979 Provision for loan losses 2,756 3,125 Amortization of premiums and accretion of discounts on investment securities 104 183 Deferred income taxes (280) 119 Provision for foreclosed assets 97 135 Investment securities losses (gains), net 1 (270) Gain on sale of premises and equipment (1) (28) Changes in Interest receivable 622 (890) Mortgage loans held for sale, net of unrealized gains (losses) 5,124 9,504 Assets held in trading accounts 92 168 Other assets 6,595 (8,466) Accounts payable and accrued expenses 891 1,480 Income taxes payable 562 (294) --------- --------- Net cash provided by operating activities 29,441 15,196 --------- --------- CASH FLOW FROM INVESTING ACTIVITIES Net origination's of loans (74,495) (38,206) Purchases of institutions, net of funds acquired (16,040) -- Purchase of premises and equipment (2,392) (5,266) Proceeds from sale of premises and equipment 859 246 Proceeds from sale of foreclosed assets 147 92 Proceeds from sale of available-for-sale securities 849 265 Proceeds from maturities of available-for-sale securities 182,597 80,992 Purchases of available-for-sale securities (179,642) (84,706) Proceeds from maturities of held-to-maturity securities 23,091 47,712 Purchases of held-to-maturity securities (10,540) (38,601) --------- --------- Net cash used in investing activities (75,566) (37,472) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Net decrease in transaction accounts and savings deposits 8,940 7,094 Net increase (decrease) in time deposits 22,835 (1,466) Net increase in other borrowings 14,195 7,103 Dividends paid (2,345) (1,982) Proceeds from issuance of long-term debt 37,250 -- Repayments of long-term debt (263) -- Net increase (decrease) in federal funds purchased and securities sold under agreements to repurchase (4,843) 131 Issuance (repurchase) of common stock 114 (607) --------- --------- Net cash provided by financing activities 75,883 10,273 --------- --------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 29,758 (12,003) CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 69,281 73,422 --------- --------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 99,039 $ 61,419 ========= ========= </TABLE> See Notes to Consolidated Financial Statements. <TABLE> Simmons First National Corporation Consolidated Statements of Changes in Stockholders' Equity Nine Months Ended September 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--16,500 shares 55 70 125 Repurchase of common stock (95) (535) (630) Securities exchanged under employee employee option plan (15) (87) (102) Net income 7,451 7,451 Cash dividends declared ($0.35 per share) (1,982) (1,982) Change in unrealized appreciation 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 Repurchase of common stock (10) (59) (69) Common stock dividend -1,901,776 shares 9,509 (9,509) Net income 2,850 2,850 Cash dividends declared ($0.13 per share) (742) (742) Change in unrealized appreciation on available-for-sale securities, net of income taxes of $58 102 102 -------- -------- ---------- -------- --------- 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--21,300 shares 21 156 177 Securities exchanged under employee employee option plan (2) (61) (63) Net income 8,788 8,788 Cash dividends declared ($0.41 per share) (2,345) (2,345) Change in unrealized appreciation on available-for-sale securities, net of income taxes of $82 145 145 -------- -------- ---------- -------- --------- Balance, September 30, 1997 $ 5,724 $ 44,957 $ 1,297 $ 57,549 $ 109,527 ======== ======== ========== ======== ========= </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 25-28 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> September 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 - ---------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> <C> Held-to-Maturity U.S. Treasury $ 21,566 $ 139 $ (57) $ 21,648 $ 24,700 $ 179 $ (122) $ 24,757 U.S. Government agencies 61,296 387 (83) 61,600 35,286 527 (167) 35,646 Mortgage-backed securities 3,571 13 (44) 3,540 4,243 13 (69) 4,187 State and political subdivisions 75,046 1,464 (196) 76,314 63,586 1,116 (327) 64,375 Other securities 214 1 -- 215 332 2 (4) 330 --------- ------ ----- --------- --------- ------ ------- --------- $ 161,693 $ 2,004) $ (380) $ 163,317 $ 128,147 $ 1,837 $ (689) $ 129,295 ========= ======= ====== ========= ========= ====== ====== ========= Available-for-Sale U.S. Treasury $ 70,001 $ 710 $ (37) $ 70,674 $ 63,248 $ 1,006 $ (55) $ 64,199 U.S. Government agencies 54,688 250 (68) 54,870 41,358 186 (135) 41,409 Mortgage-backed securities 409 1 -- 410 -- -- -- -- State and political subdivisions 454 -- -- 454 -- -- -- -- Other securities 6,525 1,179 -- 7,704 3,102 805 -- 3,907 --------- ------ ----- --------- --------- ------ ------ --------- $ 132,077 $ 2,140 $ (105) $ 134,112 $ 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 $170,055,000 at September 30, 1997 and $86,360,000 at December 31, 1996. The approximate fair value of pledged securities amounted to $170,741,000 at September 30, 1997 and $87,399,000 at December 31, 1996. The book value of securities sold under agreements to repurchase amounted to $6,893,000 and $169,000 for September 30, 1997 and December 31, 1996, respectively. Income earned on securities for the nine months ended September 30, 1997 and 1996 is as follows: <TABLE> <CAPTION> (In thousands) 1997 1996 - ------------------------------------------ <S> <C> <C> Taxable Held-to-maturity $ 3,310 $ 3,244 Available-for-sale 5,929 4,589 Non-taxable Held-to-maturity 2,549 2,354 Available-for-sale 3 -- ------- ------- Total $11,791 $10,187 ======= ======= </TABLE> Maturities of investment securities at September 30, 1997 are shown below: <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 $ 16,240 $ 16,267 $ 33,739 $ 33,852 After one through five years 80,142 81,127 73,620 74,194 After five through ten years 51,220 51,796 16,286 16,480 After ten years 10,306 10,372 1,498 1,472 Mortgage-backed securities not due on a single date 3,571 3,540 409 410 Other securities 214 215 6,525 7,704 ---------- ---------- ---------- --------- Total $ 161,693 $ 163,317 $ 132,077 $ 134,112 ========== ========== ========== ========= </TABLE> The table below shows gross realized gains and losses during the first nine months of 1997 and 1996. <TABLE> <CAPTION> September 30, (In thousands) 1997 1996 - -------------------------------------------------------------------------------- <S> <C> <C> Proceeds from sales $ 849 $ 265 ========== ========== (Does not include called bonds) Gross gains 2 270 Gross losses 3 -- ---------- ---------- Securities gains (losses) $ (1) $ 270 =========== ========== </TABLE> Approximately 9.3 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, (In thousands) 1997 1996 - ----------------------------------------------------------------------- <S> <C> <C> Consumer Credit cards $172,850 $166,346 Student loans 63,640 64,193 Other consumer 114,928 65,384 Real estate Construction 31,140 20,325 Single family residential 132,627 57,251 Other commercial 90,571 60,439 Commercial Commercial 135,324 41,375 Agricultural 43,239 21,003 Financial institutions 7,038 8,469 Other 4,807 6,028 -------- -------- Total loans before allowance for loan losses $796,164 $510,813 ======== ======== </TABLE> During the first nine months of 1997, foreclosed assets held for sale increased $327,000 to $1,230,000 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, 1997, $5,181,000 and $2,756,000, respectively, bringing the total of non-performing assets to $9,167,000. <TABLE> Transactions in the allowance for loan losses are as follows: <CAPTION> September 30, December 31, (In thousands) 1997 1996 - ------------------------------------------------------------------------------ <S> <C> <C> Balance, beginning of year $ 8,366 $ 8,418 Additions Allowance for loan losses of acquired institutions 4,028 -- Provision charged to expense 2,756 1,506 ------- ------- 15,150 9,924 Deductions Losses charged to allowance, net of recoveries of $442 and $324 for the first nine months of 1997 and 1996, respectively 2,524 1,624 ------- ------- Balance, September 30 $12,626 $ 8,300 ======= ------- Additions Provision charged to expense 835 Deductions Losses charged to allowance, net of recoveries of $167 for the last three months of 1996 769 ------- Balance, end of year $ 8,366 ======= </TABLE> At September 30, 1997 and December 31, 1996, impaired loans totaled $9,788,000 and $4,912,000, respectively, all of which had reserves allocated. An allowance of $1,680,000 and $831,000 for possible losses related to those loans at September 30, 1997 and December 31, 1996, respectively. Interest of $215,000 and $197,000 was recognized on average impaired loans of $5,776,000 and $4,162,000 as of September 30, 1997 and 1996, respectively. Interest recognized on impaired loans on a cash basis during the first nine 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 August 1, 1997, Simmons First National Corporation acquired all the outstanding capital stock of First Bank of Arkansas, Searcy, Arkansas and First Bank of Arkansas, Russellville, Arkansas, in a cash purchase transaction of $53 million and changed the respective names of the banks to Simmons First Bank of Searcy and Simmons First Bank of Russellville. The banks acquired had consolidated assets, as adjusted of $362 million, as of August 1, 1997, 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, Simmons First Bank of Northwest Arkansas, Simmons First Bank of Russellville, and Simmons First Bank of Searcy. 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 September 30, 1997, options to acquire 260,800 shares of common stock of the Corporation had been granted through employee stock option incentive plans. There were 105,650 exercisable options at the end of the third quarter of 1997. Thirty-seven thousand eight hundred shares have been issued upon exercise of options. As of September 30, 1997, three thousand 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> Nine Months Ended September 30, (In thousands) 1997 1996 - ------------------------------------------------ <S> <C> <C> Interest paid $24,846 $20,280 Income taxes paid $ 3,313 $ 3,206 </TABLE> NOTE 8: INCOME TAXES The provision for income taxes is comprised of the following components: <TABLE> <CAPTION> September 30, September 30, (In thousands) 1997 1996 - ----------------------------------------------------------- <S> <C> <C> Income taxes currently payable $ 3,885 $ 3,006 Deferred income taxes (280) 119 ------- ------- Provision for income taxes $ 3,605 $ 3,125 ======= ======= </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) 1997 1996 - -------------------------------------------------------------------- <S> <C> <C> Deferred tax assets Allowance for loan losses $ 3,049 $ 2,952 Valuation of foreclosed assets held for sale 314 299 Deferred compensation payable 559 445 Deferred loan fee income 680 642 Other 864 706 ------- ------- Total deferred tax assets 5,466 5,044 ------- ------- Deferred tax liabilities Accumulated depreciation (801) (776) Available-for-sale securities (738) (655) Other (405) (288) ------- ------- Total deferred tax liabilities (1,944) (1,719) ------- ------- Net deferred tax assets included in other assets on balance sheets $ 3,522 $ 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> September 30, September 30, (In thousands) 1997 1996 - ---------------------------------------------------------------- <S> <C> <C> Computed at the statutory rate (34%) $ 4,214 $ 3,596 Increase (decrease) resulting from: Tax exempt income (926) (855) Other differences, net 317 384 ------- ------- Actual tax provision $ 3,605 $ 3,125 ======= ======= </TABLE> NOTE 9: TIME DEPOSITS Time deposits include approximately $188,528,000 and $88,731,000 of certificates of deposit of $100,000 or more at September 30, 1997, and December 31, 1996, respectively. NOTE 10: COMMITMENTS AND CREDIT RISK The seven 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 21.7% and 32.6% of the portfolio, as of September 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. The commitments extended over varying periods of time, with the majority being disbursed within a one year period at fixed rates of interest. 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, 1997, the Corporation had outstanding commitments to extend credit aggregating approximately $164,424,000 and $110,957,000 for credit card commitments and other loan commitments, respectively. At December 31, 1996, the Corporation had outstanding commitments to extend credit aggregating approximately $160,938,000 and $102,574,000 for credit card commitments and other loan commitments, respectively. 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 $6,503,000 and $2,113,000 at September 30, 1997 and December 31, 1996, respectively, with terms ranging from 90 days to one year. Mortgage loans serviced for others totaled $1,353,688,000 and $1,477,945,000 at September 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 September 30, 1997 and December 31, 1996, this reserve balance was $729,000 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: LONG-TERM DEBT Long-term debt at September 30, 1997 and December 31, 1996, consisted of the following components: <TABLE> <CAPTION> September 30, December 31, (In thousands) 1997 1996 - ------------------------------------------------------------------------------------------------- <S> <C> <C> 7.32% note due 2007, secured by bank stock $ 20,000 $ -- 9.75% note due 2008, secured by land and building 1,051 1,067 5.62% to 8.41% FHLB advances due 1998 to 2015, secured by residental real estate loans 12,332 -- Trust preferred securities 17,250 -- -------- -------- $ 50,633 $ 1,067 ======== ======== </TABLE> During the second quarter of 1997, the Corporation formed a wholly owned grantor trust subsidiary (the Trust) to issue preferred securities (Preferred Securities) representing undivided beneficial interests in the assets of the respective Trust and to invest the gross proceeds of such Preferred Securities into notes of the Corporation. The sole assets of the Trust is $17.8 million aggregate principal amount of the Corporation's 9.12% Subordinated Debenture Notes due 2027 which are redeemable beginning in 2002. Such securities qualify as Tier 1 Capital for regulatory purposes. Aggregate annual maturities of long-term debt at September 30, 1997 are: <TABLE> <CAPTION> Annual (In thousands) Year Maturities - --------------------------------------------------------------------- <S> <C> <C> 1997 $ 236 1998 3,980 1999 2,968 2000 3,010 2001 3,234 Thereafter 37,205 --------- Total $ 50,633 ========= </TABLE> NOTE 13: 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 75% of current year earnings plus 75% of the retained net earnings of the preceding year. At September 30, 1997, the bank subsidiaries had approximately $3 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 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, 1997, each of the seven subsidiary banks met the capital standards for a well-capitalized institution. The Corporation's "total risk-based capital" ratio was 12.8% at September 30, 1997. NOTE 14: 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 September 30, 1997, was $3,386,000, an increase of $838,000, or 32.9%, over the same period in 1996. Earnings per share for the three-month periods ended September 30, 1997 and 1996, were $.59 and $.45, respectively, when adjusted for the fifty percent stock dividend paid in the fourth quarter of 1996. Net income for the third quarter of 1996 includes a one-time, pretax charge of $687,000 to recapitalize the Savings Association Insurance Fund (SAIF). The negative impact of this charge in 1996 to both the quarterly and year-to-date earnings was $.08 per share. If the earnings for the third quarter of 1996 were adjusted for the SAIF assessment, earnings for that period would have been $.53 per share. Earnings for the nine-month period ended September 30, 1997, were $8,788,000, or an increase of $1,337,000 over the September 30, 1996 earnings of $7,451,000. Year-to-date earnings on a per share basis as of September 30, 1997 were $1.53 compared to $1.31 at September 30, 1996, reflecting a 16.8% increase. Return on average assets and return on average stockholder's equity for the nine-month period ended September 30, 1997 was 1.19% and 11.00%, compared to 1.20% and 10.06%, respectively, for the same period in 1996. Cash earnings (net income excluding amortization of intangibles) for the third quarter of 1997 were $.64 per share compared with $.46 for the third quarter of 1996, reflecting a 39.1% increase. Year-to-date cash earnings on a per share basis as of September 30, 1997 were $1.61 compared to $1.34 at September 30, 1996, reflecting a 20.2% increase. Cash return on average assets was 1.26% and cash return on average stockholders' equity was 11.53% for the nine-month period ended September 30, 1997, compared with 1.24% and 10.34%, respectively, for the same period in 1996. Growth in earning assets, coupled with an increase in non-interest income, contributed to the Company's earnings performance in the third quarter 1997, compared to the same period in 1996. As of August 1, 1997, the Corporation completed the acquisition of First Bank of Arkansas, Russellville, Arkansas and First Bank of Arkansas, Searcy, Arkansas in a cash purchase transaction of $53 million. This transaction was partially financed with the proceeds of the issuance of long-term debt, $20,000,000 and the proceeds of the prior issuance of Simmons First Capital Trust Preferred Securities, $17,250,000. The banks acquired had consolidated assets, as adjusted, of $362 million, as of August 1, 1997. Net interest income, the difference between interest income and interest expense, for the three-month period ended September 30, 1997, increased $2,160,000, or 24.9%, when compared to the same period in 1996, due to the increase in earning assets and a strong interest margin. During the third quarter, interest income increased $6,089,000, or 39.5%, while interest expense increased $3,929,000, or 58.4%, when compared to the same period in 1996. For the nine-months ended September 30, 1997 and 1996, net interest income was $28,934,000 and $24,934,000, respectively. This represents an increase of $4,000,000, or 16.0%. Interest income for the nine-month periods ended September 30, 1997 and 1996 was up $8,759,000, to $54,079,000, over the $45,320,000 reported as for September 30, 1996, which signifies a 19.3% increase. Year-to-date interest expense at September 30, 1997 and 1996, was $25,145,000 and $20,386,000, respectively, which equates to a 23.3% 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 third quarter of 1997 was $1,111,000, compared to $503,000 for the same period of 1996, resulting in a $608,000, or 121%, increase. For the nine months ended September 30, 1997 and 1996, the provision was $2,756,000 and $1,506,000, respectively, also resulting in a 83% increase. Non-interest income, exclusive of net gains on securities sold, for the third quarter ended September 30, 1997, was $7,214,000, a 13.2% increase over the $6,375,000 reported for the same period in 1996. For the nine-months ended September 30, 1996 and 1995, non-interest income, exclusive of net gains on securities sold, was $19,744,000 and $18,407,000, respectively. Total fee income for both the three-month and nine-month periods ended September 30, 1997 was up 10.4% and 7.0%, respectively. During the three months ended September 30, 1997, non-interest expense increased $1,286,000, or 11.9%, over the same period in 1996. This increase reflects the normal increase in the cost of doing business, coupled with acquisition's. Year-to-date non-interest expense was $33,528,000 at September 30, 1997, compared to $31,259,000, for the same period ended September 30, 1996. Total assets for the Corporation at September 30, 1997, were $1.276 billion, an increase of $394.7 million, or 44.8%, over the same figure at December 31, 1996. Deposits at September 30, 1997, totaled $1.059 billion, a increase of $323 million, or 43.8%, from the same figure at December 31, 1996. Stockholders' equity at the end of the third quarter was $109,527,000, an increase of $6,702,000, or 6.5%, from the December 31, 1996 figure. Asset quality remains strong with the allowance for loan losses as a percent of total loans at 1.59% as of September 30, 1997, compared to 1.64% for the same date in 1996. As of September 30, 1997, non-performing loans equaled 1.0% of total loans, while the allowance for loan losses equaled 159% of non-performing loans. 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 September 30, 1997, each bank was within established guidelines and total corporate liquidity was strong. At September 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 18.7% 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 16 of the accompanying Form 10-Q, of SIMMONS FIRST NATIONAL CORPORATION and consolidated subsidiaries as of September 30, 1997 and for the nine-months ended September 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 October 30, 1997 Part II: Other Information Item 2. Changes in Securities and Use of Proceeds 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 Type of Identity(1) Date of Sale of Shares Price(2) Transaction - ------------------------------------------------------------------------------- <S> <C> <C> <C> <C> 1 Officer August, 1997 300 $25.6667 Incentive Stock Option 1 Officer September, 1997 1,500 $ 8.2917 Incentive Stock Option _______________ <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. The price paid and number of shares issued has been adjusted to reflect the effect of the stock dividends paid by the Company since the option was granted. </FN> </TABLE> Item 6. Exhibits and Reports on Form 8-K Reports on Form 8-K The registrant filed 1 Form 8-K during the quarter on August 11, 1997. The report contained disclosures under Item 2 concerning the acquisition of First Bank of Arkansas, Russellville and First Bank of Arkansas, Searcy and incorporated by reference to Form 8-K, filed on June 6, 1997, 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: 10/30/97 /s/ J. Thomas May --------------- -------------------------------------------- J. Thomas May, Chairman, President and Chief Executive Officer Date: 10/30/97 /s/ Barry L. Crow --------------- -------------------------------------------- Barry L. Crow, Executive Vice President and Chief Financial Officer