UNITED STATESSECURITIES 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, 2003
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 incorporation or organization)
(I.R.S. Employer 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
14,103,472
Class B, Common
None
INDEX
Page No.
Part I:
Summarized Financial Information
Consolidated Balance Sheets — June 30, 2003 and December 31, 2002
3-4
Consolidated Statements of Income — Three months and six months ended June 30, 2003 and 2002
5
Consolidated Statements of Cash Flows — Six months ended June 30, 2003 and 2002
6
Consolidated Statements of Stockholders’ Equity Six months ended June 30, 2003 and 2002
7
Condensed Notes to Consolidated Financial Statements
8-15
Management’s Discussion and Analysis of Financial Condition and Results of Operations
16-38
Review by Independent Certified Public Accountants
39
Part II:
Other Information
40-43
Part I: Summarized Financial Information
Simmons First National CorporationConsolidated Balance SheetsJune 30, 2003 and December 31, 2002
ASSETS
(In thousands, except share data)
June 30, 2003
December 31, 2002
(Unaudited)
Cash and non-interest bearing balances due from banks
$
71,168
76,452
Interest bearing balances due from banks
43,623
28,473
Federal funds sold and securities purchased under agreements to resell
35,625
86,620
Cash and cash equivalents
150,416
191,545
Investment securities
432,938
404,048
Mortgage loans held for sale
30,700
33,332
Assets held in trading accounts
212
192
Loans
1,286,842
1,257,305
Allowance for loan losses
(22,229
)
(21,948
Net loans
1,264,613
1,235,357
Premises and equipment
45,980
47,047
Foreclosed assets held for sale, net
2,700
2,705
Interest receivable
11,985
13,133
Goodwill
32,877
Core deposits
562
613
Other assets
16,220
16,730
TOTAL ASSETS
1,989,203
1,977,579
See Condensed Notes to Consolidated Financial Statements.
3
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES
Non-interest bearing transaction accounts
257,006
239,545
Interest bearing transaction accounts and savings deposits
568,380
565,041
Time deposits
786,741
814,610
Total deposits
1,612,127
1,619,196
Federal funds purchased and securities sold under agreements to repurchase
80,342
86,705
Short-term debt
1,943
3,619
Long-term debt
75,589
54,282
Accrued interest and other liabilities
14,144
16,172
Total liabilities
1,784,145
1,779,974
STOCKHOLDERS’ EQUITY
Capital stock
Class A, common, par value $1 a share, authorized 30,000,000 shares, 14,103,472 issued and outstanding at 2003 and 14,142,910 (split adjusted) at 2002
14,104
7,071
Surplus
36,545
44,495
Undivided profits
152,066
143,808
Accumulated other comprehensive income
Unrealized appreciation on available-for-sale securities, net of income taxes of $1,409 in 2003 and $1,446 in 2002
2,343
2,231
Total stockholders’ equity
205,058
197,605
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
4
Simmons First National CorporationConsolidated Statements of IncomeThree Months and Six Months Ended June 30, 2003 and 2002
Three Months EndedJune 30,
Six Months EndedJune 30,
(In thousands, except per share data)
2003
2002
INTEREST INCOME
22,526
23,668
44,765
47,774
160
264
374
592
4,005
4,858
7,989
9,781
Mortgage loans held for sale, net of unrealized gains (losses)
352
185
652
418
18
9
20
156
150
291
431
TOTAL INTEREST INCOME
27,206
29,143
54,080
59,016
INTEREST EXPENSE
Deposits
6,384
8,946
13,228
19,514
194
316
417
713
12
53
1,363
818
2,285
1,624
TOTAL INTEREST EXPENSE
7,948
10,092
15,942
21,904
NET INTEREST INCOME
19,258
19,051
38,138
37,112
Provision for loan losses
2,196
2,436
4,393
4,797
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES
17,062
16,615
33,745
32,315
NON-INTEREST INCOME
Trust income
1,166
1,205
2,742
2,595
Service charges on deposit accounts
2,639
2,543
5,093
4,781
Other service charges and fees
317
365
796
776
Income on sale of mortgage loans, net of commissions
1,463
738
2,627
1,549
Income on investment banking, net of commissions
597
248
1,128
514
Credit card fees
2,512
2,550
4,831
4,888
Other income
951
886
1,732
1,804
Gain on sale of mortgage servicing
771
—
Gain on sale of securities, net
TOTAL NON-INTEREST INCOME
10,416
8,535
19,720
16,907
NON-INTEREST EXPENSE
Salaries and employee benefits
10,603
9,840
21,345
19,790
Occupancy expense, net
1,272
1,155
2,603
2,281
Furniture and equipment expense
1,219
1,310
2,601
2,602
Loss on foreclosed assets
127
40
162
83
Other operating expenses
4,716
4,504
9,420
9,122
TOTAL NON-INTEREST EXPENSE
17,937
16,849
36,131
33,878
INCOME BEFORE INCOME TAXES
9,541
8,301
17,334
15,344
Provision for income taxes
3,012
2,596
5,473
4,698
NET INCOME
6,529
5,705
11,861
10,646
BASIC EARNINGS PER SHARE
0.46
0.40
0.84
0.75
DILUTED EARNINGS PER SHARE
0.45
0.82
0.74
Simmons First National CorporationConsolidated Statements of Cash FlowsSix Months Ended June 30, 2003 and 2002
(In thousands)
June 30, 2002
OPERATING ACTIVITIES
Net income
Items not requiring (providing) cash
Depreciation and amortization
2,692
2,338
Net accretion of investment securities
(114
(218
Deferred income taxes
35
(522
Provision for losses on foreclosed assets
103
25
Changes in
1,148
1,236
2,632
14,531
(20
(13,244
510
(113
(2,173
336
Income taxes payable
110
16
Net cash provided by operating activities
21,177
19,828
INVESTING ACTIVITIES
Net (originations) repayment of loans
(34,584
4,480
Purchase of premises and equipment, net
(1,574
(2,045
Proceeds from sale of foreclosed assets
837
659
Proceeds from maturities of available-for-sale securities
180,123
252,670
Purchases of available-for-sale securities
(249,610
(188,940
Proceeds from maturities of held-to-maturity securities
125,839
62,125
Purchases of held-to-maturity securities
(85,016
(97,872
Net cash (used in) provided by investing activities
(63,985
31,077
FINANCING ACTIVITIES
Net decrease in deposits
(7,069
(69,581
Net (repayments) proceeds of short-term debt
(1,676
1,202
Dividends paid
(3,603
(3,327
Proceeds from issuance of long-term debt
24,738
7,860
Repayment of long-term debt
(3,431
(440
Net decrease in federal funds purchased and securities sold under agreements to repurchase
(6,363
(17,688
Repurchase of common stock, net
(917
(919
Net cash provided by (used in) financing activities
1,679
(82,893
DECREASE IN CASH AND CASH EQUIVALENTS
(41,129
(31,988
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR
194,841
CASH AND CASH EQUIVALENTS, END OF PERIOD
162,853
Simmons First National CorporationConsolidated Statements of Stockholders’ EquitySix Months Ended June 30, 2003 and 2002
CommonStock
AccumulatedOtherComprehensiveIncome
UndividedProfits
Total
Balance, December 31, 2001
7,087
45,278
1,479
128,519
182,363
Comprehensive income
Change in unrealized appreciation on available-for-sale securities, net of income taxes of $211
10,806
Exercise of 14,400 split adjusted shares of stock options
130
137
Securities exchanged under stock option plan
(2
(74
(76
Repurchase of 60,000 split adjusted shares of common stock
(30
(950
(980
Dividends paid - $0.235 per split adj. share
Balance, June 30, 2002
7,062
44,384
1,639
135,838
188,923
11,432
Change in unrealized appreciation on available-for-sale securities, net of income taxes of $348
12,024
Exercise of 31,400 split adjusted shares of stock options
343
359
(7
(232
(239
Dividends paid - $0.245 per split adj. share
(3,462
Balance, December 31, 2002
Change in unrealized appreciation on available-for-sale securities, net of income tax credit of $37
112
11,973
Exercise of 14,500 split adjusted shares of stock options
132
141
(73
(75
Repurchase of 50,000 split adjusted shares of common stock
(40
(943
(983
Two for one stock split
7,066
(7,066
Dividends paid - $0.255 per split adj. share
Balance, June 30, 2003
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 results of operations for the period are not necessarily indicative of the results to be expected for the full year.
Certain information and note disclosures normally included in the Company’s annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Form 10-K annual report for 2002 filed with the Securities and Exchange Commission.
Derivative Financial Instruments
The Company may enter into derivative contracts for the purposes of managing exposure to interest rate risk to meet the financing needs of its customers. Effective January 1, 2001, the Company adopted the requirements of SFAS No. 133, “ Accounting for Derivative Instruments and Hedging Activities” as amended by SFAS No. 137, “Accounting for Derivative Instruments and Hedging Activities – Deferral of the Effective Date of FASB Statement No. 133,” and SFAS 138, “Accounting for Certain Derivative Instruments and Certain Hedging Activities.” These statements require all derivatives to be recorded on the balance sheet at fair value.
Historically the Company’s policy has been not to invest in derivative type investments but in an effort to meet the financing needs of its customers, the Company entered into its first fair value hedge during the second quarter of 2003. Fair value hedges include interest rate swap agreements on fixed rate loans. For derivatives designated as hedging, the exposure to changes in the fair value of the hedged item, the gain or loss is recognized in earnings in the period of change together with the offsetting loss or gain of the hedging instrument. The fair value hedge is considered to be highly effective and any hedge ineffectiveness was deemed not material. The notional amount of the loan being hedged was $2.1 million at June 30, 2003.
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 are computed using the weighted average common shares and all potential dilutive common shares outstanding during the period.
The following is the computation of per share earnings for the six months ended June 30, 2003 and 2002. All share and per share data reflect the effect of the Company’s two for one stock split effective May 1, 2003.
Net Income
Average common shares outstanding
14,138
14,153
Average common share stock options outstanding
240
222
Average diluted common shares
14,378
14,375
Basic earnings per share
Diluted earnings per share
8
NOTE 2: STOCK SPLIT
On May 1, 2003, the Company completed a two for one stock split by issuing one additional share to shareholders of record as of April 18, 2003. As a result of the stock split, the accompanying consolidated financial statements reflect an increase in the number of outstanding shares of common stock and the transfer of the par value of these additional shares from surplus. All share and per share amounts have been restated to reflect the retroactive effect of the stock split, except for the capitalization of the Company.
NOTE 3: ACQUISITIONS
On July 19, 2002, the Company expanded its coverage in South Arkansas with the purchase of the Monticello location from HEARTLAND Community Bank. Simmons First Bank of South Arkansas, a wholly owned subsidiary of the Company, acquired the Monticello office. As of July 19, 2002, the new location had total loans of $8 million and total deposits of $13 million. As a result of this transaction, the Company recorded additional goodwill and core deposits of $1,058,000 and $217,000, respectively.
NOTE 4: 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:
AmortizedCost
GrossUnrealized Gains
GrossUnrealized (Losses)
EstimatedFair Value
Held-to-Maturity
U.S. Treasury
12,610
399
13,009
26,153
618
26,771
U.S. Government agencies
41,756
548
42,304
59,324
622
(1
59,945
Mortgage-backed securities
1,174
34
1,208
1,510
41
1,551
State and political subdivisions
111,035
4,016
(10
115,041
120,230
3,827
(9
124,048
Other securities
100
166,675
4,997
171,662
207,317
5,108
212,415
Available-for-Sale
20,529
208
20,737
14,591
287
14,878
225,568
2,267
(5
227,830
161,042
2,442
163,484
2,326
10
(16
2,320
3,017
17
(19
3,015
4,700
370
5,070
4,979
324
5,303
9,383
923
10,306
9,244
807
10,051
262,506
3,778
(21
266,263
192,873
3,877
196,731
The carrying value, which approximates the market value, of securities pledged as collateral, to secure public deposits and for other purposes, amounted to $335,248,000 at June 30, 2003 and $306,082,000 at December 31, 2002.
The book value of securities sold under agreements to repurchase amounted to $55,367,000 and $43,060,000 for June 30, 2003 and December 31, 2002, respectively.
Income earned on securities for the six months ended June 30, 2003 and 2002, is as follows:
Taxable
Held-to-maturity
1,790
2,112
Available-for-sale
3,691
4,899
Non-taxable
2,378
2,633
Maturities of investment securities at June 30, 2003 are as follows:
FairValue
One year or less
35,426
35,758
68,627
69,403
After one through five years
89,057
91,709
95,343
96,958
After five through ten years
36,725
38,530
87,898
88,345
After ten years
5,367
5,565
1,255
1,251
There were no gross realized gains or losses as of June 30, 2003 and 2002.
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 5: LOANS AND ALLOWANCE FOR LOAN LOSSES
The various categories are summarized as follows:
June 30,2003
December 31,2002
Consumer
Credit cards
162,554
180,439
Student loans
86,429
83,890
Other consumer
142,500
153,103
Real Estate
Construction
99,027
90,736
Single family residential
231,496
233,193
Other commercial
334,335
290,469
Commercial
141,160
144,678
Agricultural
66,310
58,585
Financial institutions
7,369
6,504
Other
15,662
15,708
Total loans before allowance for loan losses
During the first six months of 2003, foreclosed assets held for sale decreased $5,000 to $2,700,000 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, 2003, were $405,000, $9,650,000 and $1,994,000, respectively, bringing the total of non-performing assets to $14,749,000.
Transactions in the allowance for loan losses are as follows:
Balance, beginning of year
21,948
20,496
Additions
Provision charged to expense
26,341
25,293
Deductions
Losses charged to allowance, net of recoveries of $939 and $1,208 for the first six months of 2003 and 2002, respectively
4,112
4,685
Balance, June 30
22,229
20,608
5,426
Allowance for loan losses of acquired branch
247
26,281
Losses charged to allowance, net of recoveries of $920 for the last six months of 2002
4,333
Balance, end of year
At June 30, 2003 and December 31, 2002, impaired loans totaled $18,289,000 and $14,646,000, respectively. All impaired loans had designated reserves for possible loan losses. Reserves relative to impaired loans at June 30, 2003, were $4,256,000 and $2,895,000 at December 31, 2002.
Approximately, $252,000 and $283,000 of interest income was recognized on average impaired loans of $17,060,000 and $19,610,000 as of June 30, 2003 and 2002, respectively. Interest recognized on impaired loans on a cash basis during the first six months of 2003 and 2002 was immaterial.
NOTE 6: GOODWILL AND OTHER INTANGIBLES
The carrying basis and accumulated amortization of core deposits (net of core deposits that were fully amortized) at June 30, 2003 and December 31, 2002, were as follows:
Gross carrying amount
1,037
Accumulated amortization
(475
(424
Net
Core deposit amortization expense recorded for the six months ended June 30, 2003 and 2002, was $51,000 and $55,000, respectively. The Company’s estimated amortization expense for each of the following five years is: 2003 - $98,000; 2004 - $94,000; 2005 - $93,000; 2006 - $91,000 and 2007 - $79,000.
11
Goodwill is tested annually for impairment. If the implied fair value of goodwill is lower than its carrying amount, goodwill impairment is indicated and goodwill is written down to its implied fair value. Subsequent increases in goodwill value are not recognized in the financial statements.
NOTE 7: TIME DEPOSITS
Time deposits include approximately $309,906,000 and $310,581,000 of certificates of deposit of $100,000 or more at June 30, 2003 and December 31, 2002, respectively.
NOTE 8: INCOME TAXES
The provision for income taxes is comprised of the following components:
June 30,2002
Income taxes currently payable
5,438
5,220
The tax effects of temporary differences related to deferred taxes shown on the balance sheets are shown below:
Deferred tax assets
7,579
7,411
Valuation of foreclosed assets
131
Deferred compensation payable
595
600
Deferred loan fee income
79
Vacation compensation
621
577
Mortgage servicing reserve
386
Loan interest
183
253
176
Total deferred tax assets
9,441
9,605
Deferred tax liabilities
Accumulated depreciation
(880
(1,161
Available-for-sale securities
(1,409
(1,446
FHLB stock dividends
(664
(512
(202
Total deferred tax liabilities
(3,155
(3,321
Net deferred tax assets included in other assets on balance sheets
6,286
6,284
A reconciliation of income tax expense at the statutory rate to the Company’s actual income tax expense is shown below:
Computed at the statutory rate (35%)
6,067
5,370
Increase (decrease) resulting from:
Tax exempt income
(1,004
(1,113
Other differences, net
410
441
Actual tax provision
NOTE 9: LONG-TERM DEBT
Long-term debt at June 30, 2003 and December 31, 2002, consisted of the following components,
Note due 2007, unsecured
10,000
1.83% to 8.41% FHLB advances due 2003 to 2021, secured by residential real estate loans
48,339
27,032
Trust preferred securities
17,250
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 currently redeemable. Trust preferred securities qualify as Tier 1 Capital for regulatory purposes.
Aggregate annual maturities of long-term debt at June 30, 2003, are:
Year
AnnualMaturities
4,900
2004
7,680
2005
7,832
2006
9,571
2007
8,319
Thereafter
37,287
NOTE 10: 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 11: 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, 2003, the bank subsidiaries had approximately $14 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, 2003, each of the seven subsidiary banks met the capital standards for a well-capitalized institution. The Company’s “total risk-based capital” ratio was 15.53% at June 30, 2003.
13
NOTE 12: STOCK OPTIONS AND RESTRICTED STOCK
At June 30, 2003, the Company had stock options outstanding of 742,100 shares and stock options exercisable of 540,980 shares. During the first six months of 2003, there were 14,500 shares issued upon exercise of stock options, options for 9,700 shares expired and no additional stock options of the Company were granted. Also, no additional shares of common stock of the Company were granted or issued as bonus shares of restricted stock, during the first six months of 2003. This information has been adjusted for the two for one stock split which was distributed to shareholders effective May 1, 2003.
NOTE 13: ADDITIONAL CASH FLOW INFORMATION
Six Months Ended June 30,
Interest paid
16,552
23,638
Income taxes paid
5,328
5,204
NOTE 14: 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. 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 15: 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 12.6% and 14.4% of the portfolio, as of June 30, 2003 and December 31, 2002, 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, 2003, the Company had outstanding commitments to extend credit aggregating approximately $220,610,000 and $329,254,000 for credit card commitments and other loan commitments, respectively. At December 31, 2002, the Company had outstanding commitments to extend credit aggregating approximately $216,167,000 and $289,389,000 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 $14,193,000 and $2,474,000 at June 30, 2003 and December 31, 2002, respectively, with terms ranging from 90 days to three years. At June 30, 2003 the Company’s deferred revenue under standby letter of credit agreements of approximately $200,000. At December 31, 2002 the Company’s deferred revenue under standby letter of credit agreements was not material.
14
NOTE 16: IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS
In May 2003, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. The statement is currently effective for the Company’s interim reporting period of June 30, 2003. SFAS No. 150 requires that an issuer classify a financial instrument that is within its scope as a liability. One instrument that would qualify for this classification would be the Company’s trust preferred securities. Because the Company historically (and presently) classified their trust preferred securities as long term debt, management does not anticipate that the adoption of SFAS No. 150 will have a material impact on the financial condition or operating results of the Company.
15
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONAND RESULTS OF OPERATIONS
OVERVIEW
Simmons First National Corporation achieved record second quarter earnings of $6,529,000, or $0.45 diluted earnings per share for the quarter ended June 30, 2003. These earnings reflect an increase of $824,000, or $0.05 per share over the June 30, 2002, earnings of $5,705,000, or $0.40 diluted earnings per share (stock split adjusted). Annualized return on average assets and annualized return on average stockholders’ equity for the three-month period ended June 30, 2003, was 1.32% and 12.83%, compared to 1.18% and 12.17%, respectively, for the same period in 2002.
Earnings for the six-month period ended June 30, 2003, were $11,861,000, or $0.82 per diluted share. These earnings reflect an increase of $1,215,000, or $0.08 per share, when compared to the six-month period ended June 30, 2002, earnings of $10,646,000, or $0.74 per diluted share. Annualized return on average assets and annualized return on average stockholders’ equity for the six-month period ended June 20, 2003, was 1.21% and 11.81%, compared to 1.09% and 11.49%, respectively, for the same period in 2002.
The increase in earnings is primarily attributable to the increased volume of the Company’s mortgage loan production units and investment banking operation, improved asset quality as reflected in the provision for loan losses and the nonrecurring gain on sale of mortgage servicing. Refer to the Sale of Mortgage Servicing discussion for additional information regarding the Company’s nonrecurring gain.
Total assets for the Company at June 30, 2003, were $1.989 billion, an increase of $11.6 million from the same figure at December 31, 2002. Average quarter to date total assets for the Company during the second quarter of 2003 was $1.977 billion, an increase of $19.5 million over the average for the second quarter of 2002. Stockholders’ equity at the end of the second quarter of 2003 was $205.1 million, a $7.5 million, or 3.8%, increase from December 31, 2002.
The allowance for loan losses as a percent of total loans equaled 1.73% and 1.75% as of June 30, 2003 and December 31, 2002, respectively. As of June 30, 2003, non-performing loans equaled 0.90% of total loans compared to 0.97% as of year-end 2002. As of June 30, 2003, the allowance for loan losses equaled 191% of non-performing loans compared to 179% at year-end 2002.
Simmons First National Corporation is an Arkansas based, Arkansas committed, financial holding company, with community banks in Pine Bluff, Jonesboro, Lake Village, Rogers, Russellville, Searcy and El Dorado, Arkansas. The Company’s seven banks conduct financial operations from 64 offices, of which 62 are financial centers, in 34 communities throughout Arkansas.
CRITICAL ACCOUNTING POLICIES
Overview
Management has reviewed its various accounting policies. After this review management believes the policies most critical to the Company are the policies associated with its lending practices including the accounting for the allowance for loan losses, treatment of goodwill, recognition of fee income, estimates of income taxes and employee benefit plan as it relates to stock options.
Loans the Company has the intent and ability to hold for the foreseeable future or until maturity or pay-offs are reported at their outstanding principal adjusted for any loans charged off and any deferred fees or costs on originated loans and unamortized premiums or discounts on purchased loans. Interest income is reported on the interest method and includes amortization of net deferred loan fees and costs over the estimated life of the loan. Generally, loans are placed on non-accrual status at ninety days past due and interest is considered a loss, unless the loan is well secured and in the process of collection.
Discounts and premiums on purchased residential real estate loans are amortized to income using the interest method over the remaining period to contractual maturity, adjusted for anticipated prepayments. Discounts and premiums on purchased consumer loans are recognized over the expected lives of the loans using methods that approximate the interest method.
Allowance for Loan Losses
The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to income. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.
The allowance is maintained at a level considered adequate to provide for potential loan losses related to specifically identified loans as well as probable credit losses inherent in the remainder of the loan portfolio that have been incurred as of period end. This estimate is based on management’s evaluation of the loan portfolio, as well as on prevailing and anticipated economic conditions and historical losses by loan category. General reserves have been established, based upon the aforementioned factors and allocated to the individual loan categories. Allowances are accrued on specific loans evaluated for impairment for which the basis of each loan, including accrued interest, exceeds the discounted amount of expected future collections of interest and principal or, alternatively, the fair value of loan collateral. The unallocated reserve generally serves to compensate for the uncertainty in estimating loan losses, including the possibility of changes in risk ratings and specific reserve allocations in the loan portfolio as a result of the Company’s ongoing risk management system.
A loan is considered impaired when it is probable that the Company will not receive all amounts due according to the contractual terms of the loan. This includes loans that are delinquent 90 days or more, nonaccrual loans and certain other loans identified by management. Certain other loans identified by management consist of performing loans with specific allocations of the allowance for loan losses. Specific allocations are applied when quantifiable factors are present requiring a greater allocation than that established using the classified asset approach, as defined by the Office of the Comptroller of the Currency. Accrual of interest is discontinued and interest accrued and unpaid is removed at the time such amounts are delinquent 90 days, unless management is aware of circumstances which warrant continuing the interest accrual. Interest is recognized for nonaccrual loans only upon receipt and only after all principal amounts are current according to the terms of the contract.
Goodwill represents the excess of cost over the fair value of net assets of acquired subsidiaries and branches. Financial Accounting Standards Board Statement No. 142 and No. 147 eliminated the amortization for these assets as of January 1, 2002. Although goodwill is not being amortized, it is being tested annually for impairment.
Fee Income
Periodic bankcard fees, net of direct origination costs, are recognized as revenue on a straight-line basis over the period the fee entitles the cardholder to use the card. Origination fees and costs for other loans are being amortized over the estimated life of the loan.
Income Taxes
Deferred tax assets and liabilities are recognized for the tax effects of differences between the financial statement and tax bases of assets and liabilities. A valuation allowance is established to reduce deferred tax assets if it is more likely than not that a deferred tax asset will not be realized.
Employee Benefit Plans
The Company has a stock-based employee compensation plan. The Company accounts for this plan under recognition and measurement principles of APB Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations. No stock-based employee compensation cost is reflected in net income, as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the grant date.
ACQUISITIONS
SALE OF MORTGAGE SERVICING
During the second quarter 2003, the Company recorded a nonrecurring $0.03 addition to earnings per share. On June 30, 1998, the Company sold its $1.2 billion residential mortgage-servicing portfolio. As a result of this sale, the Company established a reserve for potential liabilities due to certain representations and warranties made on the sale date. The time period for making claims under the terms of the mortgage servicing sale’s representations and warranties expired on June 30, 2003. Thus, the Company reversed this remaining reserve in the second quarter of 2003, which is reflected in the $771,000 pre-tax gain on sale of mortgage servicing. Excluding this nonrecurring gain, the Company would have reported $0.42 diluted earnings per share for the second quarter of 2003 or $0.79 diluted earnings per share for the six-months ended June 30, 2003.
Net interest income, the Company’s principal source of earnings, is the difference between the interest income generated by earning assets and the total interest cost of the deposits and borrowings obtained to fund those assets. Factors that determine the level of net interest income include the volume of earning assets and interest bearing liabilities, yields earned and rates paid, the level of non-performing loans and the amount of non-interest bearing liabilities supporting earning assets. Net interest income is analyzed in the discussion and tables below on a fully taxable equivalent basis. The adjustment to convert certain income to a fully taxable equivalent basis consists of dividing tax-exempt income by one minus the combined federal and state income tax rate (37.50% for June 30, 2003 and 2002).
Throughout 2001, the Federal Reserve Bank steadily decreased the Federal Funds rate by a total of 475 basis points to 1.75% in an effort to stimulate economic growth. In 2002, the Federal Reserve continued to decrease the Federal Funds rate from 1.75% at the end of 2001 to 1.25% at the end of 2002. This decline has continued in 2003, with another 25 basis point decrease during the second quarter, bringing the Federal Funds rate to 1.00% for June 30, 2003. This declining rate environment contributed to the decline in interest income. This decline was more than offset by a decline in interest expense, driven by the declining interest rate environment, which resulted in growth in net interest income.
The Company’s practice is to limit exposure to interest rate movements by maintaining a significant portion of earning assets and interest bearing liabilities in short-term repricing. Historically, approximately 70% of the Company’s loan portfolio and approximately 85% of the Company’s time deposits have repriced in one year or less. These historical amounts are consistent with current repricing.
Second Quarter Analysis
For the three-month period ended June 30, 2003, net interest income on a fully taxable equivalent basis was $20.0 million, an increase of $146,000, or 0.7%, from the same period in 2002. The increase in net interest income was the result of a $2.0 million decrease in interest income and a $2.1 million decrease in interest expense. The net interest margin declined slightly by 5 basis points to 4.40% for the three-month period ended June 30, 2003, when compared to 4.45% for the same period in 2002. This decline reflects a change in the Company’s overall mix of earning assets.
The $2.0 million decrease in interest income for the three-month period ended June 30, 2003, primarily is the result of a 56 basis point decrease in the yield earned on earning assets associated with the lower interest rate environment. The lower interest rates resulted in a $2.6 million decrease in interest income. However, this decrease was offset by an increase in earning asset volume, which resulted in a $600,000 increase in interest income. More specifically, $1.8 million of the decrease is associated with the repricing of the Company’s loan portfolio that resulted from loans that matured during the period or were tied to a rate that fluctuated with changes in market rates. As a result, the average rate paid on the loan portfolio decreased 58 basis points from 7.74% to 7.16%.
The $2.1 million decrease in interest expense for the three-month period ended June 30, 2003, primarily is the result of a 57 basis point decrease in cost of funds, due to repricing opportunities during the lower interest rate environment last year. The lower interest rates resulted in $2.3 million decrease in interest expense. More specifically, $1.8 million of the decrease is associated with management’s ability to reprice the Company’s time deposits that resulted from time deposits maturing during the period or were tied to a rate that fluctuated with changes in market rates. As a result, the average rate paid on time deposits decreased 87 basis points from 3.44% to 2.57%.
Year-to-Date Analysis
For the six-month period ended June 20, 2003, net interest income on a fully taxable equivalent basis was $39.7 million, an increase of $904,000, or 2.3%, from the same period in 2002. The increase in net interest income was the result of a $5.1 million decrease in interest income and a $6.0 million decrease in interest expense. As a result, the net interest margin improved 10 basis points to 4.39% for the six-month period ended June 30, 2003, when compared to 4.29% for the same period in 2002.
The $5.1 million decrease in interest income for the six-month period ended June 30, 2003 primarily is the result of a 56 basis point decrease in the yield earned on earning assets associated with the lower interest rates environment. The lower interest rates resulted in a $5.6 million decrease in interest income. More specifically, $4.0 million of the decrease is associated with the repricing of the Company’s loan portfolio that resulted from loans that matured during the period or were tied to a rate that fluctuated with changes in market rates. As a result, the average rate paid on the loan portfolio decreased 64 basis points from 7.83% to 7.19%.
The $6.0 million decrease in interest expense for the six-month period ended June 30, 2003, primarily is the result of a 74 basis point decrease in cost of funds, due to repricing opportunities during the lower interest rate environment. The lower interest rates accounted for $5.6 million or 94.1% of the decrease in interest expense. More specifically, $4.4 million of the decrease is associated with management’s ability to reprice the Company’s time deposits that resulted from time deposits maturing during the period or were tied to a rate that fluctuated with changes in market rates. As a result, the average rate paid on time deposits decreased 106 basis points from 3.73% to 2.67%.
Net Interest Income Tables
Table 1 and 2 reflect an analysis of net interest income on a fully taxable equivalent basis for the three-month and six-month periods ended June 30, 2003 and 2002, respectively, as well as changes in fully taxable equivalent net interest margin for the three-month and six-month periods ended June 30, 2003 versus June 30, 2002.
Table 1: Analysis of Net Interest Income(FTE =Fully Taxable Equivalent)
Three MonthsEnded June 30,
Six MonthsEnded June 30,
Interest income
FTE adjustment
777
838
1,570
1,692
Interest income - FTE
27,983
29,981
55,650
60,708
Interest expense
Net interest income – FTE
20,035
19,889
39,708
38,804
Yield on earning assets – FTE
6.15
%
6.71
6.16
6.72
Cost of interest bearing liabilities
2.10
2.67
2.11
2.85
Net interest spread – FTE
4.05
4.04
3.87
Net interest margin – FTE
4.40
4.45
4.39
4.29
19
Table 2: Changes in Fully Taxable Equivalent Net Interest Margin
Three Months EndedJune 30, 2003 vs. 2002
Six Months EndedJune 30, 2003 vs. 2002
Increase due to change in earning assets
589
Decrease due to change in earning asset yields
(2,587
(5,568
(Decrease) increase due to change in interest bearing liabilities
(172
354
Increase due to change in interest rates paid on interest bearing liabilities
2,316
5,608
Increase in net interest income
146
904
Table 3 shows, for each major category of earning assets and interest bearing liabilities, the average (computed on a daily basis) amount outstanding, the interest earned or expensed on such amount and the average rate earned or expensed for the three-month and six-month periods ended June 30, 2003 and 2002. The table also shows the average rate earned on all earning assets, the average rate expensed on all interest bearing liabilities, the net interest spread and the net interest margin for the same periods. The analysis is presented on a fully taxable equivalent basis. Non-accrual loans were included in average loans for the purpose of calculating the rate earned on total loans.
Table 3: Average Balance Sheets and Net Interest Income Analysis
Three Months Ended June 30,
AverageBalance
Income/Expense
Yield/Rate (%)
Earning Assets
57,314
1.09
35,893
1.68
Federal funds sold
54,825
1.17
62,789
1.69
Investment securities - taxable
302,443
2,765
3.67
328,509
3,491
4.26
Investment securities - non-taxable
114,637
1,904
6.66
119,691
2,094
7.02
27,908
5.06
10,591
7.01
1,091
2.57
1,379
5.24
1,268,044
22,639
7.16
1,232,458
23,779
7.74
Total interest earning assets
1,826,262
1,791,310
Non-earning assets
150,771
152,741
Total assets
1,977,033
1,944,051
Liabilities
Interest bearing liabilities
Interest bearing transaction and savings accounts
574,742
1,263
0.88
534,628
1,590
1.19
800,192
5,121
857,446
7,356
3.44
Total interest bearing deposits
1,374,934
1.86
1,392,074
2.58
Federal funds purchased and securities sold under agreement to repurchase
68,102
1.14
77,834
1.63
Other borrowed funds
963
2.92
2,259
2.13
76,162
7.18
44,451
7.38
Total interest bearing liabilities
1,520,161
1,516,618
Non-interest bearing liabilities
Non-interest bearing deposits
238,537
225,170
Other liabilities
14,173
14,256
1,772,871
1,756,044
Stockholders’ equity
204,162
188,007
Total liabilities and stockholders’ equity
Net interest spread
Net interest margin
21
54,250
1.08
52,691
1.65
69,269
71,355
1.67
294,518
5,481
3.75
327,994
7,011
4.31
117,246
3,867
6.65
120,733
4,244
7.09
24,789
5.30
12,171
6.93
928
1.96
835
4.83
1,261,418
44,976
7.19
1,236,354
47,992
7.83
1,822,418
1,822,133
151,925
155,070
1,974,343
1,977,203
571,050
2,590
0.91
531,909
3,190
1.21
804,815
10,638
881,871
16,324
3.73
1,375,865
1.94
1,413,780
2.78
76,424
1.10
88,144
994
2.43
4,044
2.64
69,816
6.60
43,564
7.52
1,523,099
1,549,532
234,403
225,997
14,292
14,799
1,771,794
1,790,328
202,549
186,875
22
Table 4 shows changes in interest income and interest expense, resulting from changes in volume and changes in interest rates for the three-month and six-month periods ended June 30, 2003, as compared to the same periods of the prior year. The changes in interest rate and volume have been allocated to changes in average volume and changes in average rates, in proportion to the relationship of absolute dollar amounts of the changes in rates and volume.
Table 4: Volume/Rate Analysis
Three Months Ended June 30,2003 over 2002
Six Months Ended June 30,2003 over 2002
(In thousands, on a fullytaxable equivalent basis)
Volume
Yield/Rate
Increase (decrease) in
69
(63
(152
(140
(104
(17
(201
(263
(463
(726
(675
(855
(1,530
(86
(190
(120
(257
(377
230
167
351
(117
234
(3
(8
(11
2
(13
672
(1,812
(1,140
957
(3,973
(3,016
(1,998
(5,058
(439
(327
(822
(600
(465
(1,770
(2,235
(1,332
(4,354
(5,686
(36
(122
(210
(296
(37
(4
(41
569
(24
545
879
661
172
(2,316
(2,144
(354
(5,608
(5,962
Increase (decrease) in net interest income
(271
864
PROVISION FOR LOAN LOSSES
The provision for loan losses represents management’s determination of the amount necessary to be charged against the current period’s earnings, in order to maintain the allowance for loan losses at a level, which is considered adequate, in relation to the estimated risk inherent in the loan portfolio. The provision for the three-month period ended June 30, 2003 and 2002, was $2.2 and $2.4 million, respectively. The provision for the six-month period ended June 30, 2003 and 2002, was $4.4 million and $4.8 million, respectively. The decrease in the provision for loan losses for 2003 reflects the improvement in asset quality from June 30, 2002 to June 30, 2003.
Total non-interest income was $10.4 million for the three-month period ended June 30, 2003, compared to $8.5 million for the same period in 2002. For the six-months ended June 30, 2003, non-interest income was $19.7 million compared to the $16.9 million reported for the same period ended June 30, 2002. Non-interest income is principally derived from recurring fee income, which includes service charges, trust fees and credit card fees. Non-interest income also includes income on the sale of mortgage loans and investment banking profits. Refer to the Sale of Mortgage Servicing discussion for additional information regarding the Company’s nonrecurring gain.
23
Table 5 shows non-interest income for the three-month and six-month periods ended June 30, 2003 and 2002, respectively, as well as changes in 2003 from 2002.
Table 5: Non-Interest Income
2003Change from
(39
-3.24
147
5.66
96
3.78
312
6.53
(48
-13.15
725
98.24
1,078
69.59
349
140.73
614
119.46
(38
-1.49
(57
-1.17
65
7.34
(72
-3.99
Total non-interest income
1,881
22.04
2,813
16.64
Recurring fee income for the three-month period ended June 30, 2003 was $6.6 million, which is relatively flat when compared with the same period last year. While recurring fee income for the six-month period ended June 30, 2003, was $13.5 million, an increase of approximately $422,000, or 3.2%, when compared with the same period for 2002. The increase of $147,000 in trust fees for 2003 is primarily the result of additional work that was performed on an estate that settled during the first quarter of 2003. The increase of $312,000 in service charges on deposit accounts for 2003 is primarily the result of an improved fee structure.
During the three-month period ended June 30, 2003, income on the sale of mortgage loans and income on investment banking increased $725,000 and $349,000, respectively, from the same period during 2002. During the six-month period ended June 30, 2003, income on the sale of mortgage loans and income on investment banking increased $1.1 million and $614,000, respectively, from the same period during 2002. These increases were the result of a higher volume for those products during 2003 compared to 2002. The lower interest rate environment primarily drove both volume increases.
Non-interest expense consists of salaries and employee benefits, occupancy, equipment, foreclosure losses and other expenses necessary for the operation of the Company. Management remains committed to controlling the level of non-interest expense, through the continued use of expense control measures that have been installed. The Company utilizes an extensive profit planning and reporting system involving all affiliates. Based on a needs assessment of the business plan for the upcoming year, monthly and annual profit plans are developed, including manpower and capital expenditure budgets. These profit plans are subject to extensive initial reviews and monitored by management on a monthly basis. Variances from the plan are reviewed monthly and, when required, management takes corrective action intended to ensure financial goals are met. Management also regularly monitors staffing levels at each affiliate, to ensure productivity and overhead are in line with existing workload requirements.
Non-interest expense for the three-month and six-month periods ended June 30, 2003, were $17.9 million and $36.1 million, an increase of $1.1 million or 6.5% and $2.3 million or 6.7%, respectively, from the same periods in 2002. The increase in non-interest expense during 2003, compared to 2002 is primarily derived from the increase in salary and employee benefits and an increase in occupancy expense. The salary and employee benefits increase is associated with normal salary adjustments and the increased cost of health insurance. The increase in occupancy expense was due to accelerated depreciation on two branches that the Company plans to replace in the near future, combined with the increased costs of the new headquarters that opened in one of our community banks in third quarter of 2002.
24
Table 6 below shows non-interest expense for the three-month and six-month periods ended June 30, 2003 and 2002, respectively, as well as changes in 2003 from 2002.
Table 6: Non-Interest Expense
763
7.75
1,555
7.86
117
10.13
322
14.12
(91
-6.95
-0.04
87
217.50
95.18
Professional services
438
72
16.44
982
918
64
6.97
Postage
506
475
31
1,005
979
26
2.66
Telephone
369
426
-13.38
729
803
-9.22
Credit card expenses
624
516
108
20.93
1,047
938
109
11.62
Operating supplies
289
311
(22
-7.07
709
2.26
FDIC insurance
67
76
-11.84
136
154
(18
-11.69
Amortization of intangibles
27
-7.41
51
55
-7.27
Other expense
2,235
91
4.07
4,745
4,566
179
3.92
Total non-interest expense
1,088
6.46
2,253
LOAN PORTFOLIO
The Company’s loan portfolio averaged $1.261 billion and $1.236 billion during the first six months of 2003 and 2002, respectively. As of June 30, 2003, total loans were $1.287 billion, compared to $1.257 billion on December 31, 2002. The most significant components of the loan portfolio were loans to businesses (commercial loans and commercial real estate loans) and individuals (consumer loans, credit card loans and single-family residential real estate loans).
The Company seeks to manage its credit risk by diversifying its loan portfolio, determining that borrowers have adequate sources of cash flow for loan repayment without liquidation of collateral, obtaining and monitoring collateral, providing an adequate allowance for loan losses and regularly reviewing loans through the internal loan review process. The loan portfolio is diversified by borrower, purpose and industry and, in the case of credit card loans, which are unsecured, by geographic region. The Company seeks to use diversification within the loan portfolio to reduce credit risk, thereby minimizing the adverse impact on the portfolio, if weaknesses develop in either the economy or a particular segment of borrowers. Collateral requirements are based on credit assessments of borrowers and may be used to recover the debt in case of default. The Company uses the allowance for loan losses as a method to value the loan portfolio at its estimated collectible amount. Loans are regularly reviewed to facilitate the identification and monitoring of deteriorating credits.
Consumer loans consist of credit card loans, student loans and other consumer loans. Consumer loans were $391.5 million at June 30, 2003, or 30.4% of total loans, compared to $417.4 million, or 33.2% of total loans at December 31, 2002. The consumer loan decrease from December 31, 2002 to June 30, 2003 is the result of the Company’s lower credit card portfolio and indirect lending, which was partially offset by an increase in student loans. The consumer market, particularly credit card and indirect lending, continues to be one of the Company’s greatest challenges. As a result, the credit card portfolio continued its decline as the result of an on-going reduction in the number of cardholder accounts, due to competitive pressure in the credit card industry combined with some seasonality for that product. The decline in the indirect consumer loan portfolio was the result of the on-going special finance incentives from car manufacturers and a planned reduction by the Company of that product based on the risk-reward relationship. The increase in student loans was a result of greater demand for that product.
Real estate loans consist of construction loans, single family residential loans and commercial loans. Real estate loans were $664.9 million at June 30, 2003, or 51.7% of total loans, compared to the $614.4 million, or 48.9% of total loans at December 31, 2002. This improvement is the result of increased activity by the Company’s commercial real estate borrowers.
Commercial loans consist of commercial loans, agricultural loans and loans to financial institutions. Commercial loans were $214.8 million at June 30, 2003, or 16.7% of total loans, compared to $209.8 million, or 16.7% of total loans at December 31, 2002. This small improvement is the result of seasonality in the Company’s agricultural loan portfolio.
The amounts of loans outstanding at the indicated dates are reflected in Table 7, according to type of loan.
Table 7: Loan Portfolio
Total loans
ASSET QUALITY
A loan is considered impaired when it is probable that the Company will not receive all amounts due according to the contracted terms of the loans. This includes loans past due 90 days or more, nonaccrual loans and certain loans identified by management.
Non-performing loans are comprised of (a) nonaccrual loans, (b) loans that are contractually past due 90 days and (c) other loans for which terms have been restructured to provide a reduction or deferral of interest or principal, because of deterioration in the financial position of the borrower. The subsidiary banks recognize income principally on the accrual basis of accounting. When loans are classified as nonaccrual, the accrued interest is charged off and no further interest is accrued. Loans, excluding credit card loans, are placed on a nonaccrual basis either: (1) when there are serious doubts regarding the collectability of principal or interest, or (2) when payment of interest or principal is 90 days or more past due and either (i) not fully secured or (ii) not in the process of collection. If a loan is determined by management to be uncollectable, the portion of the loan determined to be uncollectible is then charged to the allowance for loan losses. Credit card loans are classified as impaired when payment of interest or principal is 90 days past due. Litigation accounts are placed on nonaccrual until such time as deemed uncollectible. Credit card loans are generally charged off when payment of interest or principal exceeds 180 days past due, but are turned over to the credit card recovery department, to be pursued until such time as they are determined, on a case-by-case basis, to be uncollectable.
At June 30, 2003, impaired loans were $18.3 million compared to $14.6 million at December 31, 2002. The increase in impaired loans from December 31, 2002, primarily relates to the $4.3 million increase of borrowers that are still performing, but for which management has internally identified as impaired. More specifically, this increase is the result of a borrower that was internally classified by management as substandard. Furthermore, management has evaluated the underlying collateral on this credit and has allocated specific reserves to cover potential losses. Also, management has evaluated the underlying collateral on the remaining impaired loans and has allocated specific reserves in order to absorb potential losses if the collateral were ultimately foreclosed.
In conclusion, at this time, management does not view the downgrading of one credit as a trend in the Company’s overall portfolio. Thus, while impaired loans did increase from year-end, the Company views asset quality as improved when compared to the same period last year.
Table 8 presents information concerning non-performing assets, including nonaccrual and other real estate owned.
Table 8: Non-performing Assets
Nonaccrual loans
9,650
10,443
Loans past due 90 days or more (principal or interest payments)
1,994
1,814
Total non-performing loans
11,644
12,257
Other non-performing assets
Foreclosed assets held for sale
405
Total other non-performing assets
3,105
3,131
Total non-performing assets
14,749
15,388
Allowance for loan losses to non-performing loans
190.91
179.07
Non-performing loans to total loans
0.90
0.97
Non-performing assets to total assets
0.78
Approximately $347,000 and $455,000 of interest income would have been recorded for the six-month periods ended June 30, 2003 and 2002, respectively, if the nonaccrual loans had been accruing interest in accordance with their original terms. There was no interest income on the nonaccrual loans recorded for the six-month periods ended June 30, 2003 and 2002.
ALLOWANCE FOR LOAN LOSSES
The Company maintains an allowance for loan losses. This allowance is created through charges to income and maintained at a sufficient level to absorb expected losses in the Company’s portfolio. The allowance for loan losses is determined monthly based on management’s assessment of several factors such as 1) historical loss experience based on volumes and types, 2) reviews or evaluations of the loan portfolio and allowance for loan losses, 3) trends in volume, maturity and composition, 4) off balance sheet credit risk, 5) volume and trends in delinquencies and non-accruals, 6) lending policies and procedures including those for loan losses, collections and recoveries 7) national and local economic trends and conditions, 8) concentrations of credit that might affect loss experience across one or more components of the loan portfolio, 9) the experience, ability and depth of lending management and staff and 10) other factors and trends, which will affect specific loans and categories of loans.
As the Company evaluates the allowance for loan losses, it is categorized as follows: 1) specific allocations, 2) allocations for classified assets with no specific allocation, 3) general allocations for each major loan category and 4) miscellaneous allocations.
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Specific Allocations
Specific allocations are made when factors are present requiring a greater reserve than would be required when using the assigned risk rating allocation. As a general rule, if a specific allocation is warranted, it is the result of an analysis of a previously classified credit or relationship. The evaluation process in specific allocations for the Company includes a review of appraisals or other collateral analysis. These values are compared to the remaining outstanding principal balance. If a loss is determined to be reasonably possible, the possible loss is identified as a specific allocation. If the loan is not collateral dependent, the measurement of loss is based on the expected future cash flows of the loan.
Allocations for Classified Assets with no Specific Allocation
The Company establishes allocations for loans rated “watch” through “doubtful” in accordance with the guidelines established by the regulatory agencies. A percentage rate is applied to each category of these loan categories to determine the level of dollar allocation.
General Allocations
The Company establishes general allocations for each major loan category. This section also includes allocations to loans which are collectively evaluated for loss such as credit cards, one-to-four family owner occupied residential real estate loans and other consumer loans. The allocations in this section are based on a historical review of loan loss experience and past due accounts. The Company gives consideration to trends, changes in loan mix, delinquencies, prior losses, and other related information.
Miscellaneous Allocations
Allowance allocations other than specific, classified and general for the Company are included in the miscellaneous section. This primarily consists of unfunded loan commitments.
29
An analysis of the allowance for loan losses is shown in Table 9.
Table 9: Allowance for Loan Losses
Loans charged off
Credit card
2,390
2,321
991
1,190
Real estate
765
839
905
1,543
Total loans charged off
5,051
5,893
Recoveries of loans previously charged off
358
292
407
60
151
337
Total recoveries
939
Net loans charged off
2,382
1,130
974
767
5,253
348
270
81
221
920
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The amount of provision to the allowance during the six-month periods ended June 30, 2003 and 2002, and for the year ended 2002, was based on management’s judgment, with consideration given to the composition of the portfolio, historical loan loss experience, assessment of current economic conditions, past due loans and net losses from loans charged off for the last five years. It is management’s practice to review the allowance on a monthly basis to determine whether additional provisions should be made to the allowance after considering the factors noted above.
Allocated Allowance for Loan Losses
The Company utilizes a consistent methodology in the calculation and application of its allowance for loan losses. Because there are portions of the portfolio that have not matured to the degree necessary to obtain reliable loss statistics from which to calculate estimated losses, the unallocated allowance is an integral component of the total allowance. Although unassigned to a particular credit relationship or product segment, this portion of the allowance is vital to safeguard against the imprecision inherent when estimating credit losses.
During the six months ended June 30, 2003, the Company experienced an increase of $678,000 in the real estate allocation of the allowance for loan losses. This increase is primarily associated with two borrowers in the real estate portfolio. The first borrower is one that is still performing but which has recently been internally classified by management as substandard. Additionally, the Company increased the allowance allocation on a significant real estate borrower that was previously classified as substandard but continues to perform. The change during the first six months of 2003 in the allocation of allowance for loan losses for credit cards, other consumer loans and commercial loans is consistent with the change in the loan portfolio for those products from December 31, 2002. As a result, the unallocated allowance decreased $227,000 during the first six months of 2003.
While the Company still has some concerns over the uncertainty of the economy and the impact of foreign imports on the catfish industry in Arkansas, management believes the allowance for loan losses is adequate for the period ended June 30, 2003.
An analysis of the allocation of allowance for loan losses is presented in Table 10.
Table 10: Allocation of Allowance for Loan Losses
AllowanceAmount
% ofloans*
4,091
12.6
4,270
14.4
1,608
17.8
1,745
18.8
8,071
51.7
7,393
48.9
4,544
16.7
4,398
1.2
Unallocated
3,915
4,142
100.0
*Percentage of loans in each category to total loans.
DEPOSITS
Deposits are the Company’s primary source of funding for earning assets and are primarily developed through the Company’s network of 62 financial centers. The Company offers a variety of products designed to attract and retain customers with a continuing focus on developing core deposits. The Company’s core deposits consist of all deposits excluding time deposits of $100,000 or more. As of June 30, 2003, core deposits comprised 81% of the Company’s total deposits.
The Company continually monitors the funding requirements at each affiliate bank along with competitive interest rates in the markets it serves. Because the Company has a community banking philosophy, it allows managers in the local markets to establish the interest rates being offered on both core and non-core deposits. This approach ensures that the interest rates being paid are competitively priced for each particular deposit product and structured to meet the funding requirements. Although the interest rate environment is at a historical low, the Company believes it is paying a competitive rate, when compared with pricing in those markets. As a result, total deposits as of June 30, 2003, were $1.612 billion, which is relatively unchanged when compared to the $1.619 billion on December 31, 2002.
Although total deposits remained relatively flat, the Company lowered the interest rates on its time deposits and, while there was a decrease in time deposits, there was a corresponding increase in non-interest bearing transaction account balances. As a result of these efforts, time deposits decreased 3.4% or $27.9 million from December 31, 2002. Non-interest bearing transaction accounts increased by 7.3% or $17.5 million, and now represent 15.9% of total deposits compared to 14.8% at December 31, 2002. Interest bearing transaction and savings accounts was $568.4 million, which is relatively unchanged when compared to the $565.0 million on December 31, 2002.
The Company will continue to manage interest expense through deposit pricing and does not anticipate a significant change in total deposits. The Company believes that additional funds can be attracted and deposit growth can be accelerated through deposit pricing if it experiences increased loan demand or other liquidity needs.
LONG-TERM DEBT
During the six month period ended June 30, 2003, the Company increased long-term debt by $21.3 million, or 39.3% from December 31, 2002. The increase is a result of the Company increasing the Federal Home Loan Bank borrowings in its community banking network. The Company made this strategic decision to help manage interest rate risk on specific new loan fundings and commitments made during 2003.
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CAPITAL
At June 30, 2003, total capital reached $205.1 million. Capital represents shareholder ownership in the Company — the book value of assets in excess of liabilities. At June 30, 2003, the Company’s equity to asset ratio was 10.31% compared to 9.99% at year-end 2002.
Stock Split
Stock Repurchase
The Company has a stock repurchase program, which is authorized to repurchase up to 800,000 common shares. Under the repurchase program, there is no time limit for the stock repurchases, nor is there a minimum number of shares the Company intends to repurchase. The Company may discontinue purchases at any time that management determines additional purchases are not warranted. The shares are to be purchased from time to time at prevailing market prices, through open market or unsolicited negotiated transactions, depending upon market conditions. The Company intends to use the repurchased shares to satisfy stock option exercise, payment of future stock dividends and general corporate purposes.
During the six-month period ended June 30, 2003, the Company repurchased 50,000 common shares of stock with a weighted average repurchase price of $19.66 per share. As of June 30, 2003, the Company has repurchased a total of 711,564 common shares of stock with a weighted average repurchase price of $12.40 per share. Upon completion of the current plan, the Company expects to renew the repurchase program. All information on stock repurchase plan has been adjusted for the two for one stock split which was distributed to shareholders effective May 1, 2003.
Cash Dividends
The Company declared cash dividends on its common stock of $0.255 per share (split adjusted) for the first six months of 2003 compared to $0.235 per share (split adjusted) for the first six months of 2002. In recent years, the Company increased dividends no less than annually and presently plans to continue with this practice.
Parent Company Liquidity
The primary sources for payment of dividends by the Company to its shareholders and the share repurchase plan are the current cash on hand at the parent company plus the future dividends received from the seven affiliate banks. Payment of dividends by the seven affiliate banks is subject to various regulatory limitations. Reference is made to the Liquidity and Market Risk Management discussion of the MD&A for additional information regarding the parent company’s liquidity.
Risk Based Capital
The Company’s subsidiaries are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company must meet specific capital guidelines that involve quantitative measures of the Company’s assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The Company’s capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.
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Quantitative measures established by regulation to ensure capital adequacy require the Company to maintain minimum amounts and ratios (set forth in the table below) of total and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined) and of Tier 1 capital (as defined) to average assets (as defined). Management believes that, as of June 30, 2003, the Company meets all capital adequacy requirements to which it is subject.
As of the most recent notification from regulatory agencies, the subsidiaries were well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Company and subsidiaries must maintain minimum total risk-based, Tier 1 risk-based and Tier 1 leverage ratios as set forth in the table. There are no conditions or events since that notification that management believes have changed the institutions’ categories.
The Company’s risk-based capital ratios at June 30, 2003 and December 31, 2002, are presented in Table 11.
Table 11: Risk-Based Capital
Tier 1 capital
Intangible assets
(33,439
(33,490
Unrealized gain on available-for-sale securities
(2,343
(2,231
(825
(845
Total Tier 1 capital
185,701
178,289
Tier 2 capital
Qualifying unrealized gain on available-for-sale equity securities
415
363
Qualifying allowance for loan losses
16,372
15,976
Total Tier 2 capital
16,787
16,339
Total risk-based capital
202,488
194,628
Risk weighted assets
1,303,942
1,272,104
Assets for leverage ratio
1,939,201
1,919,615
Ratios at end of year
Leverage ratio
9.58
9.29
14.24
14.02
15.53
15.30
Minimum guidelines
4.00
8.00
LIQUIDITY AND MARKET RISK MANAGEMENT
Parent Company
The Company has leveraged its investment in subsidiary banks and depends upon the dividends paid to it, as the sole shareholder of the subsidiary banks, as a principal source of funds for dividends to shareholders, stock repurchase and debt service requirements. At June 30, 2003, undivided profits of the Company’s subsidiaries were approximately $113 million, of which approximately $14 million was available for the payment of dividends to the Company without regulatory approval. In addition to dividends, other sources of liquidity for the Company are the sale of equity securities and the borrowing of funds.
Banking Subsidiaries
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 investing activities. 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. A major responsibility of management is 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. The management and board of directors of each bank subsidiary monitor these same indicators and makes adjustments as needed. At June 30, 2003, each subsidiary bank was within established guidelines and total corporate liquidity remains strong. At June 30, 2003, cash and cash equivalents, trading and available-for-sale securities and mortgage loans held for sale were 22.5% of total assets, as compared to 21.3% at December 31, 2002.
Liquidity Management
The objective of the Company’s liquidity management is to access adequate sources of funding to ensure that cash flow requirements of depositors and borrowers are met in an orderly and timely manner. Sources of liquidity are managed so that reliance on any one funding source is kept to a minimum. The Company’s liquidity sources are prioritized for both availability and time to activation.
The Company’s liquidity is at the forefront of not only funding needs, but is an integral part of asset/liability management. Pricing of the liability side is a major component of interest margin and spread management. Adequate liquidity is a necessity in addressing this critical task. There are six primary and secondary sources of liquidity available to the Company. The particular liquidity need and timeframe determine the use of these sources.
The first source of liquidity available to the Company is Federal funds. Federal funds, primarily from downstream correspondent banks, are available on a daily basis and are used to meet the normal fluctuations of a dynamic balance sheet. In addition, the Company and its affiliates have approximately $108 million in Federal funds lines of credit from upstream correspondent banks that can be accessed, when needed. In order to insure availability of these upstream funds, the Company has a plan for rotating the usage of the funds among the upstream correspondent banks, thereby providing approximately $54 million in funds on a given day. Historical monitoring of these funds has made it possible for the Company to project seasonal fluctuations and structure its funding requirements on month to month basis.
Secondly, the Company uses a laddered investment portfolio that insures there is a steady source of intermediate term liquidity. These funds can be used to meet seasonal loan patterns and other intermediate term balance sheet fluctuations. The Company has begun designating a higher percentage of new investment purchases into the available-for-sale securities classification to provide additional flexibility in liquidity management. Approximately 62% of the investment portfolio is classified as available-for-sale. The Company also uses securities held in the securities portfolio to pledge when obtaining public funds.
A third source of liquidity is the retail deposits available through the Company’s network of affiliate banks throughout Arkansas. Although this method can be somewhat of a more expensive alternative to supplying liquidity, this source can be used to meet intermediate term liquidity needs.
Fourth, the Company has established a $5 million unsecured line of credit with a major commercial bank that could be used to meet unexpected liquidity needs at both the parent company level as well as at any affiliate bank.
The fifth source of liquidity is the ability to access brokered deposits. On an on-going basis the Company has chosen not to tap this source of funding. However, for short-term liquidity needs, it remains a viable option.
Finally, the Company’s affiliate banks have lines of credit available with Federal Home Loan Bank. While the Company has used portions of those lines only to match off longer-term mortgage loans, the Company could use those lines to meet liquidity needs. Approximately $265 million under these lines of credit are currently available, if needed.
The Company believes the various sources available are ample liquidity for short-term, intermediate-term, and long-term liquidity.
Market Risk Management
Market risk arises from changes in interest rates. The Company has risk management policies to monitor and limit exposure to market risk. In asset and liability management activities, policies are in place that are designed to minimize structural interest rate risk. The measurement of market risk associated with financial instruments is meaningful only when all related and offsetting on- and off-balance-sheet transactions are aggregated, and the resulting net positions are identified.
Interest Rate Sensitivity
Interest rate risk represents the potential impact of interest rate changes on net income and capital resulting from mismatches in repricing opportunities of assets and liabilities over a period of time. A number of tools are used to monitor and manage interest rate risk, including simulation models and interest sensitivity (Gap) analysis. Management uses simulation models to estimate the effects of changing interest rates and various balance sheet strategies on the level of the Company’s net income and capital. As a means of limiting interest rate risk to an acceptable level, management may alter the mix of floating and fixed-rate assets and liabilities, change pricing schedules and manage investment maturities during future security purchases.
The simulation models incorporate management’s assumptions regarding the level of interest rates or balance changes for indeterminate maturity deposits for a given level of market rate changes. These assumptions have been developed through anticipated pricing behavior. Key assumptions in the simulation models include the relative timing of prepayments, cash flows and maturities. In addition, the impact of planned growth and anticipated new business is factored into the simulation models. These assumptions are inherently uncertain and, as a result, the models cannot precisely estimate net interest income or precisely predict the impact of a change in interest rates on net income or capital. Actual results will differ from simulated results due to the timing, magnitude and frequency of interest rate changes and changes in market conditions and management strategies, among other factors.
Table 12 below presents the Company’s interest rate sensitivity position at June 30, 2003. This Gap analysis is based on a point in time and may not be meaningful because assets and liabilities are categorized according to contractual maturities (investment securities are according to call dates) and repricing periods rather than estimating more realistic behaviors, as is done in the simulation models. Also, the Gap analysis does not consider subsequent changes in interest rate level or spreads between asset and liability categories.
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Table 12: Interest Rate Sensitivity
Interest Rate Sensitivity Period
(In thousands, except ratios)
0-30Days
31-90Days
91-180Days
181-365Days
1-2Years
2-5Years
Over 5Years
Earning assets
Short-term investments
79,248
30,176
8,209
16,570
35,273
37,531
153,228
151,951
126,802
361,407
168,899
248,462
208,274
159,035
13,963
Total earning assets
267,138
369,616
185,469
283,735
245,805
312,263
165,914
1,829,940
Interest bearing transaction and savings deposits
227,576
68,161
204,482
115,657
133,457
201,020
207,101
109,614
19,881
82,285
2,330
664
1,912
7,757
26,242
33,992
427,848
134,121
202,932
209,793
185,532
250,605
102,164
1,512,995
Interest rate sensitivity Gap
(160,710
235,495
(17,463
73,942
60,273
61,658
63,750
316,945
Cumulative interest rate sensitivity Gap
74,785
57,322
131,264
191,537
253,195
Cumulative rate sensitive asset to rate sensitive liabilities
62.4%
113.3%
107.5%
113.5%
116.5%
117.9%
120.9%
Cumulative Gap as a % of earning assets
-8.8%
4.1%
3.1%
7.2%
10.5%
13.8%
17.3%
IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS
In May 2003, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. The statement is currently effective for the Company’s interim reporting period of June 30, 2003. SFAS No. 150 requires that an issuer classify a financial instrument that is within its scope as a liability. The Company’s trust preferred securities qualify as a liability classification under SFAS No. 150. Because the Company currently, as well as historically, classifies its trust preferred securities as long term debt, management does not anticipate that the adoption of SFAS No. 150 will have a material impact on the financial condition or operating results of the Company.
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FORWARD-LOOKING STATEMENTS
Statements in this report that are not historical facts should be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements of this type speak only as of the date of this report. By nature, forward-looking statements involve inherent risk and uncertainties. Various factors, including, but not limited to, economic conditions, credit quality, interest rates, loan demand and changes in the assumptions used in making the forward-looking statements, could cause actual results to differ materially from those contemplated by the forward-looking statements. Additional information on factors that might affect the Company’s financial results is included in its annual report for 2002 (Form 10-K) filed with the Securities and Exchange Commission.
CONTROLS AND PROCEDURES.
(a) Evaluation of disclosure controls and procedures. The Company’s Chief Executive Officer and Chief Financial Officer have reviewed and evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in 15 C. F. R. 240.13a-14(c) and 15 C. F. R. 240.15-14(c)) as of a date within ninety days prior to the filing of this quarterly report. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the Company’s current disclosure controls and procedures are effective.
(b) Changes in Internal Controls. There were no significant changes in the Company’s internal controls or in other factors that could significantly affect those controls subsequent to the date of evaluation.
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REVIEW BY INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
BKD, LLP
Certified Public Accountants200 East EleventhPine Bluff, Arkansas
Board of DirectorsSimmons First National CorporationPine Bluff, Arkansas
We have reviewed the accompanying consolidated balance sheet of SIMMONS FIRST NATIONAL CORPORATION as of June 30, 2003, and the related consolidated statements of income for the three-month and six-month periods ended June 30, 2003 and 2002 and changes in stockholders’ equity and cash flows for the six-month periods ended June 30, 2003 and 2002. These financial statements are the responsibility of the Company’s management.
We conducted our reviews in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the United States of America, the objective of 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 reviews, we are not aware of any material modifications that should be made to the condensed consolidated financial statements referred to above for them to be in conformity with accounting principles generally accepted in the United States of America.
We have previously audited, in accordance with auditing standards generally accepted in the United States of America, the consolidated balance sheet as of December 31, 2002, and the related consolidated statements of income, stockholders’ equity and cash flows for the year then ended (not presented herein), and in our report dated January 31, 2003, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 2002, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.
/s/ BKD, LLP
Pine Bluff, ArkansasAugust 5, 2003
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 Company which were issued to executive and senior management officers upon the exercise of rights granted under (i) the Simmons First National Corporation Incentive and Non-qualified Stock Option Plan (ii) the Simmons First National Corporation Executive Stock Incentive Plan, or (iii) the Simmons First National Corporation Executive Stock Incentive Plan - 2001. 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. The Company received cash or exchanged shares of the Company’s Class A Common Stock as the consideration for the transactions. The share and price information has been adjusted for the two for one stock split, which was distributed to shareholders effective May 1, 2003.
Identity(1)
Date of Sale
Number of Shares
Price(2)
Type of Transaction
1 Officer
April, 2003
200
10.5625
Incentive Stock Option
12.2188
12.8334
June, 2003
1,200
10.2500
800
______________
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.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
Exhibit 99.1 –
Certification Pursuant to 18 U.S.C. Sections 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 – J. Thomas May, Chairman, President and Chief Executive Officer
Exhibit 99.2 –
Certification Pursuant to 18 U.S.C. Sections 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 – Barry L. Crow, Chief Financial Officer
b) Reports on Form 8-K
The registrant filed Form 8-K on April 16, 2003. The report contained the text of a press release issued by the registrant concerning the announcement of first quarter 2003 earnings.
The registrant filed Form 8-K on May 6, 2003. The report contained the text of a press release issued by the registrant announcing an analyst presentation at the Gulf South Bank Conference.
The registrant filed Form 8-K on June 4, 2003. The report contained the text of a press release issued by the registrant concerning the declaration of a quarterly cash dividend.
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 6, 2003
/s/ J. Thomas May
J. Thomas May, Chairman,President and Chief Executive Officer
/s/ Barry L. Crow
Barry L. Crow, Executive Vice President and Chief Financial Officer
CERTIFICATION
I, J. Thomas May certify that:
1. I have reviewed this quarterly report on Form 10-Q of Simmons First National Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and
c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and
6. The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
J. Thomas May, Chairman, President and Chief Executive Officer
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I, Barry L. Crow, certify that:
Barry L. Crow, Chief Financial Officer
43
Index to Exhibits
Exhibit
Description
Exhibit 99.1 -
Certification Pursuant to 18 U.S.C. Sections 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 - J. Thomas May, Chairman, President and Chief Executive Officer
Exhibit 99.2 -
Certification Pursuant to 18 U.S.C. Sections 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 - Barry L. Crow, Chief Financial Officer