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 June 30, 1999 Commission File Number 06253 ------------- ----- SIMMONS FIRST NATIONAL CORPORATION (Exact name of registrant as specified in its charter) Arkansas 71-0407808 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 501 Main Street Pine Bluff, Arkansas 71601 - ------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code 870-541-1000 ------------ Not Applicable - ------------------------------------------------------------------------------- Former name,former address and former fiscal year, if changed since last report Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period) and (2) has been subject to such filing requirements for the past 90 days. YES X NO --- Indicate the number of shares outstanding of each of issuer's classes of common stock. Class A, Common 6,527,388 Class B, Common None
SIMMONS FIRST NATIONAL CORPORATION INDEX Page No. Part I: Summarized Financial Information Consolidated Balance Sheets -- June 30, 1999 and December 31, 1998 3-4 Consolidated Statements of Income -- Three months and six months ended June 30, 1999 and 1998 5 Consolidated Statements of Cash Flows -- Six months ended June 30, 1999 and 1998 6 Consolidated Statements of Changes in Stockholders' Equity Six months ended June 30, 1999 and 1998 7 Notes to Consolidated Financial Statements 8-17 Management's Discussion and Analysis of Financial Condition and Results of Operations 18-22 Review by Independent Certified Public Accountants 23 Part II: Other Information 24-26
Part I: Summarized Financial Information <TABLE> <CAPTION> Simmons First National Corporation Consolidated Balance Sheets June 30, 1999 and December 31, 1998 ASSETS June 30, December 31, (In thousands) 1999 1998 - ---------------------------------------------------------------------------------------------------------------------------------- (Unaudited) <S> <C> <C> Cash and non-interest bearing balances due from banks $ 49,715 $ 50,139 Interest bearing balances due from banks 6,982 28,461 Federal funds sold and securities purchased under agreements to resell 11,150 51,240 ----------- ----------- Cash and cash equivalents 67,847 129,840 Investment securities 354,305 351,594 Mortgage loans held for sale 9,062 12,641 Assets held in trading accounts 10,529 78 Loans 973,618 968,410 Allowance for loan losses (16,337) (15,918) ---------- ----------- Net loans 957,281 952,492 Premises and equipment 37,367 35,271 Foreclosed assets held for sale, net 1,616 1,610 Interest receivable 13,704 14,346 Intangible assets, net 28,471 28,513 Other assets 15,591 14,087 ----------- ----------- TOTAL ASSETS $ 1,495,773 $ 1,540,472 ============ =========== </TABLE> See Notes to Consolidated Financial Statements.
<TABLE> <CAPTION> Simmons First National Corporation Consolidated Balance Sheets June 30, 1999 and December 31, 1998 LIABILITIES AND STOCKHOLDERS' EQUITY June 30, December 31, (In thousands) 1999 1998 - ---------------------------------------------------------------------------------------------------------------------------------- LIABILITIES (Unaudited) <S> <C> <C> Non-interest bearing transaction accounts $ 158,788 $ 161,488 Interest bearing transaction accounts and savings deposits 401,718 402,784 Time deposits 666,891 692,482 ----------- ----------- Total deposits 1,227,397 1,256,754 Federal funds purchased and securities sold under agreements to repurchase 55,259 71,432 Short-term debt 5,714 1,444 Long-term debt 49,783 49,899 Accrued interest and other liabilities 15,677 23,909 ----------- ----------- Total liabilities 1,353,830 1,403,438 ----------- ----------- STOCKHOLDERS' EQUITY Capital stock Class A, common, par value $1 a share, authorized 30,000,000 shares 6,527,388 issued and outstanding at 1999 and 6,454,135 at 1998 6,527 6,454 Surplus 48,257 45,791 Undivided profits 88,336 83,261 Accumulated other comprehensive income Unrealized (depreciation) appreciation on available-for-sale securities, net of income tax credit of $671 at 1999 and income taxes of $869 at 1998 (1,177) 1,528 ----------- ---------- Total stockholders' equity 141,943 137,034 ----------- ---------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,495,773 $ 1,540,472 ============ =========== </TABLE> See Notes to Consolidated Financial Statements.
<TABLE> <CAPTION> Simmons First National Corporation Consolidated Statements of Income Three Months and Six Months Ended June 30, 1999 and 1998 Three Months Ended Six Months Ended June 30, June 30, (In thousands, except per share data) 1999 1998 1999 1998 (Unaudited) (Unaudited) - --------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> INTEREST INCOME Loans $ 21,783 $ 20,998 $ 43,068 $ 41,498 Federal funds sold and securities purchased under agreements to resell 490 926 1,392 2,098 Investment securities 4,941 5,477 9,972 10,883 Mortgage loans held for sale, net of unrealized gains (losses) 180 117 377 233 Assets held in trading accounts 16 38 33 60 Interest bearing balances due from banks 158 88 344 231 ---------- --------- --------- ------- TOTAL INTEREST INCOME 27,568 27,644 55,186 55,003 ---------- --------- --------- ------- INTEREST EXPENSE Deposits 11,082 12,383 22,638 24,750 Federal funds purchased and securities sold under agreements to repurchase 536 688 1,331 1,369 Short-term debt 18 53 42 96 Long-term debt 968 1,046 1,929 2,089 ---------- --------- --------- -------- TOTAL INTEREST EXPENSE 12,604 14,170 25,940 28,304 ---------- --------- --------- ------- NET INTEREST INCOME 14,964 13,474 29,246 26,699 Provision for loan losses 1,691 3,843 3,293 5,111 ---------- --------- --------- ------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 13,273 9,631 25,953 21,588 ---------- --------- --------- ------- NON-INTEREST INCOME Trust income 879 749 1,887 1,561 Service charges on deposit accounts 1,666 1,561 3,206 3,019 Other service charges and fees 341 388 859 809 Income on sale of mortgage loans, net of commissions 417 402 1,028 1,033 Income on investment banking, net of commissions 106 547 240 817 Credit card fees 2,460 2,369 4,698 4,518 Mortgage servicing fees -- 1,232 -- 2,610 Other income 579 659 899 873 Gain on sale of mortgage servicing -- 3,273 -- 3,273 Gains on sale of securities, net -- 15 -- 49 ---------- --------- --------- ------- TOTAL NON-INTEREST INCOME 6,448 11,195 12,817 18,562 ---------- --------- --------- ------- NON-INTEREST EXPENSE Salaries and employee benefits 7,486 7,628 15,091 15,164 Occupancy expense, net 815 930 1,613 1,832 Furniture and equipment expense 1,094 1,027 2,243 2,028 Loss on foreclosed assets 33 327 153 527 Merger-related -- -- 395 -- Other operating expenses 4,512 5,488 8,722 10,578 --------- --------- --------- ------- TOTAL NON-INTEREST EXPENSE 13,940 15,400 28,217 30,129 --------- --------- --------- ------- INCOME BEFORE INCOME TAXES 5,781 5,426 10,553 10,021 Provision for income taxes 1,700 1,604 3,195 2,957 ---------- --------- --------- ------- NET INCOME $ 4,081 $ 3,822 $ 7,358 $ 7,064 ========= ======== ======== ======= BASIC EARNINGS PER SHARE $ 0.63 $ 0.60 $ 1.13 $ 1.10 ========= ======== ======== ======= DILUTED EARNINGS PER SHARE $ 0.62 $ 0.59 $ 1.12 $ 1.08 ========= ======== ======== ======= </TABLE> See Notes to Consolidated Financial Statements.
<TABLE> <CAPTION> Simmons First National Corporation Consolidated Statements of Cash Flows Six Months Ended June 30, 1999 and 1998 June 30, June 30, (In thousands) 1999 1998 - ------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES (Unaudited) <S> <C> <C> Net income $ 7,358 $ 7,064 Items not requiring (providing) cash Depreciation and amortization 2,924 3,647 Provision for loan losses 3,293 5,111 Net accretion of investment securities (181) (254) Deferred income taxes (313) (2,379) Provision for foreclosed assets 110 136 Gain on sale of mortgage servicing -- (3,273) Gains on sale of securities, net -- (49) Changes in Interest receivable 642 (99) Mortgage loans held for sale 3,579 1,502 Assets held in trading accounts (10,451) 407 Other assets (1,504) (176) Accrued interest and other liabilities (6,341) 4,797 Income taxes payable (473) 2,658 -------- --------- Net cash (used in) provided by operating activities (1,357) 19,092 -------- --------- CASH FLOW FROM INVESTING ACTIVITIES Net originations of loans (8,543) (46,830) Sale of mortgage servicing -- 6,311 Purchase of premises and equipment, net (3,796) (2,833) Proceeds from sale of foreclosed assets 345 672 Proceeds from sale of available-for-sale securities -- 1,500 Proceeds from maturities of available-for-sale securities 70,608 107,166 Purchases of available-for-sale securities (79,512) (114,618) Proceeds from maturities of held-to-maturity securities 31,822 33,360 Purchases of held-to-maturity securities (28,153) (27,860) -------- --------- Net cash used in investing activities (17,229) (43,132) -------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Net (decrease) increase in deposits (29,357) 2,399 Net proceeds (repayments) of short-term debt 4,270 (697) Dividends paid (2,283) (1,778) Proceeds from issuance of long-term debt 1,300 305 Repayments of long-term debt (1,416) (760) Net (decrease) increase in federal funds purchased and securities sold under agreements to repurchase (16,173) 2,309 Issuance of common stock, net 252 243 -------- --------- Net cash (used in) provided by financing activities (43,407) 2,021 -------- --------- DECREASE IN CASH AND CASH EQUIVALENTS (61,993) (22,019) CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 129,840 137,762 -------- ---------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 67,847 $ 115,743 ======== ========= </TABLE> See Notes to Consolidated Financial Statements.
<TABLE> <CAPTION> Simmons First National Corporation Consolidated Statements of Changes in Stockholders' Equity Six Months Ended June 30, 1999 and 1998 Accumulated Other Common Comprehensive Undivided (In thousands, except per share data) Stock Surplus Income Profits Total - -------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> Balance, December 31, 1997, $ 6,191 $ 46,015 $ 1,216 $ 67,590 $ 121,012 as previously reported Adjustment for pooling-of-interest 245 (485) -- 4,619 4,379 -------- -------- --------- -------- -------- Balance, December 31, 1997, as restated 6,436 45,530 1,216 72,209 125,391 Comprehensive income Net income -- -- -- 7,064 7,064 Change in unrealized appreciation on available-for-sale securities, net of income taxes of $3 -- -- 6 -- 6 -------- Comprehensive income 7,070 Exercise of stock options--14,900 shares 15 251 -- -- 266 Other stock transaction of pooled institution prior to pooling -- (17) -- -- (17) Securities exchanged under stock option plan -- (23) -- -- (23) Cash dividends declared Common stock ($0.31 per share) -- -- -- (1,778) (1,778) Pooled institutions prior to pooling -- -- -- -- -- -------- -------- --------- -------- -------- Balance, June 30, 1998 6,451 45,741 1,222 77,495 130,909 Comprehensive income Net income -- -- -- 7,775 7,775 Change in unrealized appreciation on available-for-sale securities, net of income taxes of $174 -- -- 306 -- 306 -------- Comprehensive income 8,081 Exercise of stock options--3,800 shares 3 50 -- -- 53 Cash dividends declared Common stock ($0.33 per share) -- -- -- (1,976) (1,976) Pooled institutions prior to pooling -- -- -- (33) (33) -------- -------- --------- -------- -------- Balance, December 31, 1998 6,454 45,791 1,528 83,261 137,034 Comprehensive income Net income -- -- -- 7,358 7,358 Change in unrealized appreciation on available-for-sale securities, net of income tax credit of $1,542 -- -- (2,705) -- (2,705) -------- Comprehensive income 4,653 Exercise of stock options--16,600 shares 16 247 -- -- 263 Securities exchanged under stock option plan -- (11) -- -- (11) Common stock issued in connection with the purchase of the minority shares of the Bank of Lincoln - 56,997 shares 57 2,230 -- -- 2,287 Cash dividends declared ($0.35 per share) -- -- -- (2,283) (2,283) -------- -------- --------- -------- -------- Balance, June 30, 1999 $ 6,527 $ 48,257 $ (1,177) $ 88,336 $ 141,943 ======== ======== ========= ======== ======= </TABLE> See Notes to Consolidated Financial Statements.
SIMMONS FIRST NATIONAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 1: ACCOUNTING POLICIES The consolidated financial statements include the accounts of Simmons First National Corporation and its subsidiaries. Significant intercompany accounts and transactions have been eliminated in consolidation. All financial information has been restated for the mergers with American Bancshares of Arkansas, Inc. ("ABA") and Lincoln Bankshares, Inc. ("LBI") which were accounted for as poolings-of-interests. All adjustments made to the unaudited financial statements were of a normal recurring nature. In the opinion of management, all adjustments necessary for a fair presentation of the results of interim periods have been made. Certain prior year amounts are reclassified to conform to current year classification. The accounting policies followed in the presentation of interim financial results are presented on pages 28-30 of the 1998 Annual Report to shareholders. Earnings Per Share Basic earnings per share is computed based on the weighted average number of common shares outstanding during each year. Diluted earnings per share is computed using the weighted average common shares and all potential dilutive common shares outstanding during the period. The computation of per share earnings for the six months ended June 30, 1999 and 1998 is as follows: <TABLE> <CAPTION> (In thousands, except per share data) 1999 1998 - ------------------------------------------------------------------------------------------------------------------- <S> <C> <C> Net Income $ 7,358 $ 7,064 -------- ------- Average common shares outstanding 6,515 6,443 Average common share stock options outstanding 77 124 --------- ------- Average diluted common shares 6,592 6,567 --------- ------- Basic earnings per share $ 1.13 $ 1.10 ======== ======= Diluted earnings per share $ 1.12 $ 1.08 ======== ======= </TABLE>
NOTE 2: ACQUISITIONS On December 8, 1998, the Company and ABA merged in a pooling-of-interests transaction. Shareholders of ABA received 464,885 shares of Simmons First National Corporation stock in exchange for ABA shares in the transaction. ABA owned American State Bank, Charleston, Arkansas with assets, as of December 8, 1998 of $89 million. The Company merged American State Bank into Simmons First National Bank during the first quarter of 1999. On January 15, 1999, the Company acquired all the common stock of LBI. Stockholders of LBI received 301,823 shares of Simmons First National Corporation stock in exchange for LBI shares in the transaction. LBI owned the Bank of Lincoln, Lincoln, Arkansas with assets, as of January 15, 1999, of $75 million. This acquisition was accounted for as a pooling-of-interests, except for the acquisition of the minority shares (17.9%) of the Bank of Lincoln, which were accounted for on a purchase accounting basis. The Company merged the Bank of Lincoln into Simmons First Bank of Northwest Arkansas during the second quarter of 1999. NOTE 3: INVESTMENT SECURITIES The amortized cost and fair value of investment securities that are classified as held-to-maturity and available-for-sale are as follows: <TABLE> <CAPTION> June 30, December 31, 1999 1998 ------------------------------------------- ----------------------------------------- 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 $ 17,341 $ 67 $ (59) $ 17,349 $ 25,116 $ 424 $ (1) $ 25,539 U.S. Government agencies 32,149 136 (550) 31,735 35,770 474 (48) 36,196 Mortgage-backed securities 1,770 2 (4) 1,768 2,348 18 (13) 2,353 State and political subdivisions 98,987 1,144 (637) 99,494 99,385 2,343 (74) 101,654 Other securities 88 -- -- 88 92 3 -- 95 --------- ------ ----- --------- --------- ------ ------ --------- $ 150,335 $ 1,349 $ (1,250)$ 150,434 $ 162,711 $ 3,262 $ (136) $ 165,837 ========= ====== ====== ========= ========= ====== ====== ========= Available-for-Sale U.S. Treasury $ 53,057 $ 364 $ (56) $ 53,365 $ 51,047 $ 1,078 $ -- $ 52,125 U.S. Government agencies 143,042 24 (3,309) 139,757 125,527 417 (142) 125,802 Mortgage-backed securities 415 3 (4) 414 996 -- (1) 995 State and political subdivisions 434 2 -- 436 440 4 -- 444 Other securities 8,868 1,427 (297) 9,998 8,246 1,523 (252) 9,517 --------- ------ ----- --------- --------- ------ ------ --------- $ 205,816 $ 1,820 $(3,666) $ 203,970 $ 186,256 $ 3,022 $ (395) $ 188,883 ========= ====== ====== ========= ========= ====== ====== ======== </TABLE>
The carrying value, which approximates the market value, of securities pledged as collateral, to secure public deposits and for other purposes, amounted to $208,107,000 at June 30, 1999 and $217,606,000 at December 31, 1998. The book value of securities sold under agreements to repurchase amounted to $30,464,000 and $24,742,000 for June 30, 1999 and December 31, 1998, respectively. Income earned on securities for the six months ended June 30, 1999 and 1998 is as follows: <TABLE> <CAPTION> (In thousands) 1999 1998 - ------------------------------------------------------------------------------------------------------------------- <S> <C> <C> Taxable Held-to-maturity $ 1,641 $ 2,848 Available-for-sale 5,924 5,778 Non-taxable Held-to-maturity 2,398 2,248 Available-for-sale 9 9 -------- ------- Total $ 9,972 $ 10,883 ======== ======= </TABLE> Maturities of investment securities at June 30, 1999 are as follows: <TABLE> <CAPTION> Held-to-Maturity Available-for-Sale ------------------- -------------------- Amortized Fair Amortized Fair (In thousands) Cost Value Cost Value - ------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> One year or less $ 18,328 $ 18,395 $ 39,767 $ 39,882 After one through five years 70,540 70,602 105,901 104,489 After five through ten years 53,499 52,977 51,192 49,516 After ten years 7,880 8,372 88 85 Other securities 88 88 8,868 9,998 ---------- ---------- ---------- --------- Total $ 150,335 $ 150,434 $ 205,816 $ 203,970 ========== ========== ========== ========= </TABLE> The gross realized gains of $0 and $49,000 and gross realized losses of $0 and $0 at June 30, 1999 and 1998, respectively, were the result of sales and/or calls of available-for-sale securities in 1998. Proceeds from sales of available-for-sale securities in 1998 were $1,500,000. Most of the state and political subdivision debt obligations are non-rated bonds and represent small, Arkansas issues, which are evaluated on an ongoing basis.
NOTE 4: LOANS AND ALLOWANCE FOR LOAN LOSSES The various categories are summarized as follows: <TABLE> <CAPTION> June 30, December 31, (In thousands) 1999 1998 - ---------------------------------------------------------------------------------------------------------- <S> <C> <C> Consumer Credit cards $ 150,965 $ 165,622 Student loans 66,079 66,134 Other consumer 155,064 146,411 Real estate Construction 50,590 60,487 Single family residential 174,270 173,769 Other commercial 214,692 203,479 Commercial Commercial 110,142 98,948 Agricultural 43,537 40,706 Financial institutions 4,369 5,656 Other 3,910 7,198 ------------ ----------- Total loans before allowance for loan losses $ 973,618 $ 968,410 ============ =========== </TABLE> During the first six months of 1999, foreclosed assets held for sale increased $6,000 to $1,616,000 and are carried at the lower of cost or fair market value. Other non-performing assets, non-accrual loans and other non-performing loans for the Company at June 30, 1999, were $10,000, $6,376,000 and $3,176,000, respectively, bringing the total of non-performing assets to $11,178,000.
Transactions in the allowance for loan losses are as follows: <TABLE> <CAPTION> June 30, December 31, (In thousands) 1999 1998 - ------------------------------------------------------------------------------------------------------------------- <S> <C> <C> Balance, beginning of year $ 15,918 $ 14,179 Additions Provision charged to expense 3,293 5,111 --------- -------- 19,211 19,290 Deductions Losses charged to allowance, net of recoveries of $521 and $364 for the first six months of 1999 and 1998, respectively 2,874 2,807 -------- ------- Balance, June 30 $ 16,337 $ 16,483 ========= ------- Additions Provision charged to expense 3,118 19,601 Deductions Losses charged to allowance, net of recoveries of $431 for the last six months of 1998 3,683 ------- Balance, end of year $ 15,918 ======= </TABLE> At June 30, 1999 and December 31, 1998, impaired loans totaled $11,711,000 and $12,471,000, respectively, all of which had reserves allocated. An allowance of $2,448,000 and $2,768,000 for possible losses related to those loans at June 30, 1999 and December 31, 1998, respectively. Interest of $281,000 and $254,000 was recognized on average impaired loans of $12,830,000 and $11,253,000 as of June 30, 1999 and 1998, respectively. Interest recognized on impaired loans on a cash basis during the first six months of 1999 and 1998 was immaterial.
NOTE 5: TIME DEPOSITS Time deposits include approximately $180,539,000 and $196,202,000 of certificates of deposit of $100,000 or more at June 30, 1999, and December 31, 1998, respectively. NOTE 6: INCOME TAXES The provision for income taxes is comprised of the following components: <TABLE> <CAPTION> June 30, June 30, (In thousands) 1999 1998 - ------------------------------------------------------------------------------------------------------- <S> <C> <C> Income taxes currently payable $ 3,508 $ 5,336 Deferred income taxes (313) (2,379) --------------- --------------- Provision for income taxes $ 3,195 $ 2,957 =============== =============== </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) 1999 1998 - ------------------------------------------------------------------------------------------------------- <S> <C> <C> Deferred tax assets Allowance for loan losses $ 5,818 $ 5,278 Valuation of foreclosed assets held for sale 160 202 Deferred compensation payable 456 467 Deferred loan fee income 635 591 Mortgage servicing reserve 435 477 Available-for-sale securities 671 -- Other 716 683 ----------- --------- Total deferred tax assets 8,891 7,698 ----------- --------- Deferred tax liabilities Accumulated depreciation (1,032) (930) Available-for-sale securities -- (869) Other (555) (448) ------------ --------- Total deferred tax liabilities (1,587) (2,247) ------------ --------- Net deferred tax assets included in other assets on balance sheets $ 7,304 $ 5,451 ============ ========= </TABLE>
A reconciliation of income tax expense at the statutory rate to the Company's actual income tax expense is shown below: <TABLE> <CAPTION> June 30, June 30, (In thousands) 1999 1998 - ------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> Computed at the statutory rate (34%) $ 3,588 $ 3,407 Increase (decrease) resulting from: Tax exempt income (838) (796) Other differences, net 445 346 --------------- --------------- Actual tax provision $ 3,195 $ 2,957 =============== =============== </TABLE> NOTE 7: LONG-TERM DEBT Long-term debt at June 30, 1999 and December 31, 1998, consisted of the following components, <TABLE> <CAPTION> June 30, December 31, (In thousands) 1999 1998 - ------------------------------------------------------------------------------------------------------- <S> <C> <C> 7.32% note due 2007, unsecured $ 18,000 $ 18,000 9.75% note due 2008, secured by land and building 945 972 5.36% to 8.41% FHLB advances due 1999 to 2018, secured by residential real estate loans 13,588 13,677 Trust preferred securities 17,250 17,250 --------------- --------------- $ 49,783 $ 49,899 =============== =============== </TABLE> The Company owns a wholly owned grantor trust subsidiary (the Trust) to issue preferred securities representing undivided beneficial interests in the assets of the respective Trust and to invest the gross proceeds of such preferred securities into notes of the Company. The sole assets of the Trust are $17.8 million aggregate principal amount of the Company's 9.12% Subordinated Debenture Notes due 2027 which are redeemable beginning in 2002. Such securities qualify as Tier 1 Capital for regulatory purposes.
Aggregate annual maturities of long-term debt at June 30, 1999 are: <TABLE> <CAPTION> Annual (In thousands) Year Maturities - ------------------------------------------------------------------------------------------------------- <S> <C> <C> 1999 $ 2,745 2000 3,490 2001 3,404 2002 3,316 2003 3,277 Thereafter 33,551 -------------- Total $ 49,783 -------------- </TABLE> NOTE 8: CONTINGENT LIABILITIES A number of legal proceedings exist in which the Company and/or its subsidiaries are either plaintiffs or defendants or both. Most of the lawsuits involve loan foreclosure activities. The various unrelated legal proceedings pending against the subsidiary banks in the aggregate are not expected to have a material adverse effect on the financial position of the Company and its subsidiaries. NOTE 9: UNDIVIDED PROFITS The subsidiary banks are subject to a legal limitation on dividends that can be paid to the parent company without prior approval of the applicable regulatory agencies. The approval of the Comptroller of the Currency is required, if the total of all dividends declared by a national bank in any calendar year exceeds the total of its net profits, as defined, for that year combined with its retained net profits of the preceding two years. Arkansas bank regulators have specified that the maximum dividend limit state banks may pay to the parent company without prior approval is 75% of current year earnings plus 75% of the retained net earnings of the preceding year. At June 30, 1999, the bank subsidiaries had approximately $7 million available for payment of dividends to the Company without prior approval of the regulatory agencies. The Federal Reserve Board's risk-based capital guidelines include the definitions for (1) a well-capitalized institution, (2) an adequately-capitalized institution, and (3) an undercapitalized institution. The criteria for a well-capitalized institution are: a 5% "Tier l leverage capital" ratio, a 6% "Tier 1 risk-based capital" ratio, and a 10% "total risk-based capital" ratio. As of June 30, 1999, each of the seven subsidiary banks met the capital standards for a well-capitalized institution. The Company's "total risk-based capital" ratio was 14.63% at June 30, 1999.
NOTE 10: STOCK OPTIONS AND RESTRICTED STOCK As of June 30, 1999, 295,600 shares of common stock of the Company had been granted through an employee stock option incentive plan. There were 152,120 exercisable options at the end of the second quarter of 1999. Sixty-eight thousand nine hundred shares have been issued upon exercise of options. As of June 30, 1999, nine thousand shares of common stock of the Company had been granted and issued as Bonus Shares of restricted stock. NOTE 11: ADDITIONAL CASH FLOW INFORMATION <TABLE> <CAPTION> Six Months Ended June 30, (In thousands) 1999 1998 - ---------------------------------------------------------------------------------------- <S> <C> <C> Interest paid $ 27,206 $ 28,273 Income taxes paid $ 3,981 $ 3,329 </TABLE> Approximately, $9,000,000 of investment securities previously classified as held-to-maturity was reclassified as available-for-sale during the second quarter of 1999. This was the result the Company merging the Bank of Lincoln into Simmons First Bank of Northwest Arkansas during the second quarter of 1999. NOTE 12: CERTAIN TRANSACTIONS From time to time the Company and its subsidiaries have made loans and other extensions of credit to directors, officers, their associates and members of their immediate families, and from time to time directors, officers and their associates and members of their immediate families have placed deposits with the Company's subsidiary banks. Such loans, other extensions of credit and deposits were made in the ordinary course of business, on substantially the same terms (including interest rates and collateral) as those prevailing at the time for comparable transactions with other persons and did not involve more than normal risk of collectibility or present other unfavorable features.
NOTE 13: COMMITMENTS AND CREDIT RISK The seven affiliate banks of the Company grant agribusiness, commercial, consumer, and residential loans to their customers. Included in the Company's diversified loan portfolio is unsecured debt in the form of credit card receivables that comprised approximately 15.5% and 17.1% of the portfolio, as of June 30, 1999 and December 31, 1998, 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, 1999, the Company had outstanding commitments to extend credit aggregating approximately $162,972,000 and $100,100,000 for credit card commitments and other loan commitments, respectively. At December 31, 1998, the Company had outstanding commitments to extend credit aggregating approximately $152,946,000 and $100,397,000 for credit card commitments and other loan commitments, respectively. Letters of credit are conditional commitments issued by the bank subsidiaries of the Company, to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements, including commercial paper, bond financing, and similar transactions. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers. The Company had total outstanding letters of credit amounting to $6,212,000 and $5,953,000 at June 30, 1999 and December 31, 1998, respectively, with terms ranging from 90 days to one year. NOTE 14: SUBSEQUENT EVENT On July 9, 1999, the Company acquired all the common stock of NBC Bank Corp. in exchange for 784,887 shares of the Company's common stock. NBC Bank Corp. owned National Bank of Commerce, El Dorado, Arkansas with assets of $155 million, as of July 9, 1999. The Company changed the name of National Bank of Commerce to Simmons First Bank of El Dorado, N.A. The Company will operate Simmons First Bank of El Dorado, N.A. as a separate community bank with the same board of directors, management and staff. This acquisition will be accounted for as a pooling-of-interests.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Net income for the quarter ended June 30, 1999, was $4,081,000, compared to net income of $3,822,000 for the same period in 1998. This represents a $259,000, or 6.8% increase in the 1999 earnings over 1998. Diluted earnings per share increased 5.1% to $0.62 in the second quarter of 1999 from $0.59 in the same period of 1998. The Company's return on average assets and return on average stockholder's equity for the three-month period ended June 30, 1999 was 1.08% and 11.48%, compared to 1.02% and 11.80%, respectively, for the same period in 1998. All financial information has been restated for the mergers with American Bancshares of Arkansas, Inc. ("ABA") and Lincoln Bankshares, Inc. ("LBI"). Operating earnings (net income excluding merger-related expenses) for the six-month period ended June 30, 1999, were $7,753,000, or an increase of $689,000 over the June 30, 1998 earnings of $7,064,000. Diluted operating earnings per share increased 9.3% to $1.18 for the six-month period ended June 30, 1999 from $1.08 in the same period of 1998. Operating return on average assets and operating return on average stockholders' equity for the six-month period ended June 30, 1999, was 1.02% and 10.99%, compared to 0.95% and 11.06%, respectively, for the same period in 1998. In connection with the merger of Lincoln Bankshares, Inc, during the first quarter 1999 merger-related expenses totaled $395,000, or $0.06 per share after tax. Diluted cash operating earnings (net income excluding amortization of intangibles and merger-related expenses) for the second quarter of 1999 were $0.68 per share compared with $0.64 for the second quarter of 1998, reflecting a 6.3% increase. Year-to-date diluted cash operating earnings on a per share basis as of June 30, 1999 were $1.30 compared to $1.20 at June 30, 1998, reflecting a 8.3% increase. Cash operating return on average assets was 1.15% and cash operating return on average stockholders' equity was 12.30% for the six-month period ended June 30, 1999, compared with 1.08% and 12.35%, respectively, for the same period in 1998. Net interest income, the difference between interest income and interest expense, for the three-month period ended June 30, 1999, increased $1,490,000, or 11.1%, when compared to the same period in 1998. During the second quarter, interest income decreased $76,000, or 0.3%, while interest expense decreased $1,566,000, or 11.1%, when compared to the same period in 1998. For the six-months ended June 30, 1999 and 1998, net interest income was $29,246,000 and $26,699,000, respectively. This represents an increase of $2,547,000, or 9.5%. Year-to-date interest income for the six-month periods ended June 30, 1999 and 1998 was up $183,000, to $55,186,000, over the $55,003,000 reported as for June 30, 1998, which signifies a 0.3% increase. Year-to-date interest expense at June 30, 1999 and 1998, was $25,940,000 and $28,304,000, respectively, which equates to a 8.4% decrease. These figures reflect growth in the loan portfolio (June 30, 1998 to June 30, 1999) and an increase in fees on loans offset by a decline in interest rates from 1998 to 1999.
The provision for loan losses for the second quarter of 1999 was $1,691,000, compared to $3,843,000 for the same period of 1998, resulting in a $2,152,000 or 56.0%, decrease. For the six months ended June 30, 1999 and 1998, the provision was $3,293,000 and $5,111,000, respectively, resulting in a 35.6% decrease. The decrease from 1998 to 1999 is attributable to an abnormally high provision during the second quarter of 1998. The provision in the second quarter of 1998 was increased as a result of growth in loans, increased indirect lending, unfavorable weather conditions during the crop production period, general market conditions in the agriculture industry and an increased level of consumer bankruptcies. Non-interest income for the second quarter ended June 30, 1999, was $6,448,000, a 42.4% decrease over the $11,195,000 reported for the same period in 1998. For the six-months ended June 30, 1999, non-interest income was $12,817,000, a 31.0% decrease from the $18,562,000 reported for the same period in 1998. These decreases are primarily due to the sale of the Company's mortgage servicing portfolio on June 30, 1998. Total recurring non-interest income for the six-month period ended June 30, 1999 was up 1.5% when compared with the same period in 1998. During the three months ended June 30, 1999, non-interest expense decreased $1,460,000, or 9.5%, over the same period in 1998. Year-to-date non-interest expense was $28,217,000 at June 30, 1999, compared to $30,129,000, for the same period ended June 30, 1998. These decreases reflect the sale of the Company's mortgage servicing portfolio and $500,000 of Year 2000 expenses during 1998 offset by the normal increase in the cost of doing business and merger-related expenses during 1999. On June 30, 1998, Simmons First National Bank sold its residential mortgage-servicing portfolio resulting in a $3.3 million gain. The portfolio consisted of approximately $1.2 billion in residential mortgage loans. The portfolio sale will not have a material impact on future earnings of the Company. FINANCIAL CONDITION Total assets for the Company at June 30, 1999, were $1.496 billion, a decrease of $44 million, or 2.9%, over the same figure at December 31, 1998. Deposits at June 30, 1999, totaled $1.227 billion, a decrease of $30 million, or 2.4% from the same figure at December 31, 1998. Stockholders' equity at the end of the second quarter was $141,943,000, an increase of $4,909,000, or 3.6%, from the December 31, 1998 figure. Asset quality remains strong with the allowance for loan losses as a percent of total loans at 1.68% as of June 30, 1999, compared to 1.64% at December 31, 1998. As of June 30, 1999, non-performing loans equaled 0.98% of total loans, while the allowance for loan losses equaled 171.03% of non-performing loans. Generally speaking, the Company's banking subsidiaries rely upon net inflows of cash from financing activities, supplemented by net inflows of cash from operating activities, to provide cash used in their investing activities. As is typical of most banking companies, significant financing activities include: deposit gathering; use of short-term borrowing facilities, such as federal funds purchased and repurchase agreements; and the issuance of long-term debt. The banks' primary investing activities include loan originations and purchases of investment securities, offset by loan payoffs and investment maturities.
Liquidity represents an institution's ability to provide funds to satisfy demands from depositors and borrowers, by either converting assets into cash or accessing new or existing sources of incremental funds. It is a major responsibility of management to maximize net interest income within prudent liquidity constraints. Internal corporate guidelines have been established to measure liquid assets as well as relevant ratios concerning earning asset levels and purchased funds. Each bank subsidiary is also required to monitor these same indicators and report regularly to its own senior management and board of directors. At June 30, 1999, each bank was within established guidelines and total corporate liquidity was strong. At June 30, 1999, 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 19.5% of total assets. ACQUISITIONS In December 1998, the Company and ABA merged in a pooling-of-interests transaction. Stockholders of ABA received 464,885 shares of Simmons First National Corporation stock in exchange for ABA shares in the transaction. ABA owned American State Bank ("ASB"), Charleston, Arkansas with assets, as of December 31, 1998, of $90 million. The Company merged ASB into Simmons First National Bank during the first quarter of 1999. On January 15, 1999, the Company and LBI merged in a pooling-of-interests transaction, except for the acquisition of the minority shares (17.9%) of the Bank of Lincoln, which were accounted for on a purchase accounting basis. Stockholders of LBI received 301,823 shares of Simmons First National Corporation stock in exchange for LBI shares in the transaction. LBI owned the Bank of Lincoln ("BOL"), Lincoln, Arkansas with assets, as of January 15, 1999, of $75 million. The Company merged BOL into Simmons First Bank of Northwest Arkansas during the second quarter of 1999. On July 9, 1999, the Company acquired all the common stock of NBC Bank Corp. in exchange for 784,887 shares of the Company's common stock. NBC Bank Corp. owned National Bank of Commerce, El Dorado, Arkansas with assets of $155 million, as of July 9, 1999. The Company changed the name of National Bank of Commerce to Simmons First Bank of El Dorado, N.A. The Company will operate Simmons First Bank of El Dorado, N.A. as a separate community bank with the same board of directors, management and staff. This acquisition will be accounted for as a pooling-of-interests.
IMPACT OF THE YEAR 2000 ISSUE General The Year 2000 issue is the result of computer programs being written using two digits rather than four to define the applicable year. Many computer systems, software, and embedded computer chips may be unable to distinguish between 1900 and 2000. If not corrected, this problem could create system errors and failure resulting in the disruption of normal business operations. In 1996, as part of its strategic plan to provide quality customer service, introduce new products, and improve operating efficiencies, the Company began converting all of its core banking related software and hardware systems to state-of-the-art technology. These conversions were completed in 1998. As a byproduct of this effort, the Year 2000 issue was addressed. State of Readiness The Company has identified the following key phases for addressing the Year 2000 issues: analysis, testing, remediation and implementation. The Company completed the Year 2000 analysis by identification of mission critical systems, vendors, large borrowers and large depositors requiring assessment and testing. The Company utilized both internal and external resources to test its software systems for Year 2000 compliance. At March 31, 1999, the Company's internal missions critical testing was complete. The testing with vendors, payment system providers and third party suppliers was substantially complete by June 30, 1999. The replacement of non-compliant systems is complete. During the remainder of 1999, the Company will ensure that new systems or subsequent changes to certified systems are compliant with Year 2000 requirements. The Company has substantially completed all phases, in accordance with guidelines established by the Federal Financial Institutions Examination Council (FFIEC). Costs During the six-month period ended June 30, 1999, the Company had no significant expenses related to the Year 2000 issue. The Company is utilizing internal personnel to complete all work associated with the Year 2000 project. Therefore, management believes completion of the Year 2000 modifications and subsequent testing will not have a material effect on the Company's future consolidated results of operations or financial position.
Risks Although the Company's Year 2000 readiness is directed at reducing its exposure, there can be no assurance that these efforts will fully mitigate the effect of Year 2000 issues. In the event the Company fails to identify or correct a material Year 2000 problem, there could be disruptions in normal business operations, which could have a material adverse effect on the Company's results of operations, liquidity or financial condition. Additionally, the Company is subject to credit risk to the extent borrowers fail to adequately address Year 2000 issues and to liquidity risk to the extent of deposit withdrawals and to the extent its lenders are unable to provide the Company with funds due to Year 2000 issues. Although it is not possible to quantify the potential impact of these risks at this time, in future years, there may be increases in problem loans, credit losses, and liquidity problems, as well as the risk of litigation and potential losses from litigation related to the foregoing. Contingency Plans The Company has existing disaster recovery plans that address its response to disruptions to business due to natural disasters, civil unrest, utility outages or other occurrences. The Company has modified the disaster recovery plans to specifically address Year 2000 issues. The Company completed these contingency plans during the second quarter of 1999. As of June 30, 1999, the contingency plans have been tested and validated.
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 June 30, 1999 and for the three-months and six-months ended June 30, 1999 and 1998, 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, 1998, 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, 1999, 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, 1998, is fairly stated in all material respects in relation to the consolidated balance sheet from which it has been derived. /s/ Baird, Kurtz & Dobson BAIRD, KURTZ & DOBSON Pine Bluff, Arkansas August 5, 1999
Part II: Other Information Item 2. Changes in Securities. Recent Sales of Unregistered Securities. The following transactions are sales of unregistered shares of Class A Common Stock of the 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> 1 Officer May, 1999 3,000 1.0000 Bonus Stock Plan 1 Officer May, 1999 1,500 6.6667 Incentive Stock Option 1 Officer May, 1999 600 25.6667 Incentive Stock Option 1 Officer June, 1999 1,200 20.5000 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 shares issued under the Bonus Stock under the Simmons First National Corporation Executive Stock Incentive Plan is set in the plan to be the par value of the Class A common stock, $1.00. The per share price paid for incentive stock options represents the fair market value of the stock as determined under the terms of the Plan on the date the incentive stock option was granted to the officer. </FN> </TABLE> Item 4. Submission of Matters to a Vote of Security Holders. (a) The annual shareholders meeting of the Company was held on April 27, 1999. The matters submitted to the security holders for approval included setting the number of directors at nine (9) and the election of directors. (b) At the annual meeting, all nine (9) incumbent directors were re-elected by proxies solicited pursuant to Section 14 of the Securities Exchange Act of 1934, without any solicitation in opposition thereto.
The following table shows the required analysis of the voting by security holders at the annual meeting: <TABLE> <CAPTION> Voting of Shares Broker Action For Against Abstain Non-Votes <S> <C> <C> <C> <C> Set Number of Directors at Nine (9) 5,172,683 2,235 8,513 384,007 Director Election: Ayres 5,179,873 3,298 384,007 Floriani 5,179,873 3,298 384,007 Hutt 5,179,873 3,298 384,007 Makris 5,179,873 3,298 384,007 May 5,179,873 3,298 384,007 Perdue 5,179,314 3,298 384,007 Ryburn 5,179,873 3,298 384,007 Stone 5,179,873 3,298 384,007 Trotter 5,176,544 3,298 384,007 </TABLE> Item 6. Reports on Form 8-K The registrant filed Form 8-K on May 21, 1999. The report contained exhibits for the corrected financial data schedule for the period ended March 31, 1999 and restated financial data schedules for December 31, 1998, September 30, 1998, June 30, 1998, March 31, 1998, December 31, 1997, September 30, 1997, June 30, 1997, March 31, 1997 and December 31, 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: August 5, 1999 /s/ J. Thomas May -------------------- --------------------------------------- J. Thomas May, Chairman, President and Chief Executive Officer Date: August 5, 1999 /s/ Barry L. Crow -------------------- ---------------------------------------- Barry L. Crow, Executive Vice President and Chief Financial Officer