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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the Exchange Act of 1934
For the fiscal year ended: December 31, 1999
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission file number 0-6253
SIMMONS FIRST NATIONAL CORPORATION
(Exact name of registrant as specified in its charter)
Arkansas 71-0407808
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification No.)
501 Main Street, Pine Bluff, Arkansas 71601
(Address of principal executive offices) (Zip Code)
(870) 541-1000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
- -------------------------------------------------------------------------------
None None
Securities registered pursuant to Section 12(g) of the Act:
Class A Common Stock, $1.00 par value
(Title of Class)
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 that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge in definitive proxy or in information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of common stock, par value $1.00 per share, held by
non-affiliates on March 17, 2000, was approximately $170,741,863.
The number of shares outstanding of the Registrant's Common Stock as of March
17, 2000 was 7,329,975.
Part III is incorporated by reference from the Registrant's Proxy Statement
relating to the Annual Meeting of Shareholders to be held on April 25, 2000.
FORM 10-K INDEX
Part I
Item 1 Business................................................................1
Item 2 Properties..............................................................6
Item 3 Legal Proceedings.......................................................6
Item 4 Submission of Matters to a Vote of Security-Holders.....................7
Part II
Item 5 Market for Registrant's Common Equity and Related Stockholder Matters...7
Item 6 Selected Consolidated Financial Data....................................8
Item 7 Management's Discussion and Analysis of Financial Condition and
Results of Operations..................................................10
Item 8 Consolidated Financial Statements and Supplementary Data...............31
Item 9 Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure...................................................58
Part III
Item 10 Directors and Executive Officers of the Company.......................58
Item 11 Executive Compensation................................................58
Item 12 Security Ownership of Certain Beneficial Owners and Managment.........58
Item 13 Certain Relationships and Related Transactions........................58
Part IV
Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K.......58
Signatures............................................................59
PART I
ITEM 1. BUSINESS
The Company and the Banks
Simmons First National Corporation (the "Company") is a bank holding
company registered under the Bank Holding Company Act of 1956. At December 31,
1999, the Company was the third largest bank holding company headquartered in
Arkansas with consolidated total assets of $1.7 billion, consolidated loans of
$1.1 billion, consolidated deposits of $1.4 billion and total equity capital of
$159 million. The Company owns eight community banks in Arkansas. The Company's
banking subsidiaries conduct their operations through 54 offices located in 30
communities in Arkansas.
Simmons First National Bank (the "Bank") is the Company's lead bank. The
Bank is a national bank, which has been in operation since 1903. The Bank's
primary market area, with the exception of its nationally provided credit card
is central and western Arkansas. During 1999, the Company merged American State
Bank into the Bank. At December 31, 1999, the Bank had total assets of $814
million, total loans of $554 million and total deposits of $669 million. During
late 1999, the bank formed Simmons First Trust Company ("SFTC"), a wholly owned
subsidiary of the Bank. On January 1, 2000, all of the Bank's trust and
fiduciary business operations were transferred from the Bank's Trust and
Investment Management Division to SFTC.
Simmons First Bank of Jonesboro ("Simmons/Jonesboro") is a state bank,
which was acquired in 1984. Simmons/Jonesboro's primary market area is northeast
Arkansas. At December 31, 1999, Simmons/Jonesboro had total assets of $152
million, total loans of $120 million and total deposits of $134 million.
Simmons First Bank of South Arkansas ("Simmons/South") is a state bank,
which was acquired in 1984. Simmons/South's primary market area is southeast
Arkansas. At December 31, 1999, Simmons/South had total assets of $62 million,
total loans of $33 million and total deposits of $56 million.
Simmons First Bank of Dumas ("Simmons/Dumas") is a state bank, which was
acquired in 1995. Simmons/Dumas's primary market area is Dumas, Arkansas. At
December 31, 1999, Simmons/Dumas had total assets of $33 million, total loans of
$19 million and total deposits of $29 million.
Simmons First Bank of Northwest Arkansas ("Simmons/Northwest") is a state
bank, which was acquired in 1995. Simmons/Northwest's primary market area is
northwest Arkansas. During 1999, the Company acquired and merged the Bank of
Lincoln into Simmons/Northwest. At December 31, 1999, Simmons/Northwest had
total assets of $159 million, total loans of $109 million and total deposits of
$142 million.
Simmons First Bank of Russellville ("Simmons/Russellville") is a state
bank, which was acquired in 1997. Simmons/Russellville's primary market area is
Russellville, Arkansas. At December 31, 1999, Simmons/Russellville had total
assets of $223 million, total loans of $134 million and total deposits of $168
million.
Simmons First Bank of Searcy ("Simmons/Searcy") is a state bank, which was
acquired in 1997. Simmons/Searcy's primary market area is Searcy, Arkansas. At
December 31, 1999, Simmons/Searcy had total assets of $118 million, total loans
of $80 million and total deposits of $101 million.
Simmons First Bank of El Dorado, N.A. ("Simmons/El Dorado") is a national
bank, which was acquired in 1999. Simmons/El Dorado's primary market area is
south central Arkansas. At December 31, 1999, Simmons/El Dorado had total assets
of $156 million, total loans of $72 million and total deposits of $133 million.
The Company's subsidiaries provide complete banking services to individuals
and businesses throughout the market areas, which they serve. Services include
consumer (credit card, student and other consumer), real estate (construction,
single family residential and other commercial) and commercial (commercial,
agriculture and financial institutions) loans, checking, savings and time
deposits, trust and investment management services, and securities and
investment services.
Loan Risk Assessment
As a part of the ongoing risk assessment, the Bank has a Loan Loss Reserve
Committee that meets monthly to review the adequacy of the allowance for loan
losses. The Committee reviews the status of past due, non-performing and other
impaired loans on a loan by loan basis, including historical loan loss
information. However, for credit card and other consumer loans consideration is
given to more recent loss experience and current economic conditions. The
allowance for loan losses is determined based upon the aforementioned factors
and allocated to the individual loan categories. Also, an unallocated reserve is
established to compensate for the uncertainty in estimating loan losses,
including the possibility of improper risk ratings and specific reserve
allocations. The Committee reviews their analysis with management and the Bank's
Board of Directors on a monthly basis.
The Company has an independent loan review department. For the Bank, this
department reviews the allowance for loan loss on a monthly basis, performs an
independent loan analysis and prepares a detailed report on their analysis of
the adequacy of the allowance for loan losses on a quarterly basis. This
quarterly report is presented to the Company's Audit Committee.
The Board of Directors of the other subsidiary banks review the adequacy of
their allowance for loan losses on a monthly basis giving consideration to past
due loans, non-performing loans, other impaired loans and current economic
conditions. Quarterly, the other subsidiary banks supply loan information to the
Company's loan review department for their review. The loan review department
prepares a detailed report of their analysis of the allowance for loan losses
for each bank. This report is presented to the Company's Audit Committee on a
quarterly basis. On an annual basis, the loan review department performs an
on-site detailed review of the loan files to verify the accuracy of information
being supplied on a quarterly basis. The larger subsidiary banks receive this
review on a semi-annual basis.
Growth Strategy
The Company's growth strategy is to expand in its primary market areas by
capitalizing on opportunities presented within the State of Arkansas and
expanding through further banking acquisitions. The most significant
opportunities for internal growth will come from the community banks of
Simmons/Northwest, Simmons/Searcy and Simmons/Jonesboro, which are located in
some of the fastest growing areas in the state, and the Company's continued
expansion into the Little Rock market. With an increased presence in Arkansas,
ongoing investments in technology, and enhanced products and services, the
Company is positioned to meet the customer demands of the State of Arkansas.
Competition
The activities engaged in by the Company and its subsidiaries are highly
competitive. In all aspects of its business, the Company encounters intense
competition from other banks, lending institutions, credit unions, savings and
loan associations, brokerage firms, mortgage companies, industrial loan
associations, finance companies, and several other financial and financial
service institutions. The amount of competition among commercial banks and other
financial institutions has increased significantly over the past few years since
the deregulation of the banking industry. The Company's subsidiary banks
actively compete with other banks and financial institutions in their efforts to
obtain deposits and make loans, in the scope and type of services offered, in
interest rates paid on time deposits and charged on loans and in other aspects
of commercial banking.
The Company's banking subsidiaries are also in competition with major
national and international retail banking establishments, brokerage firms and
other financial institutions within and outside Arkansas. Competition with these
financial institutions is expected to increase, especially with the increase in
interstate banking.
Employees
As of December 31, 1999, the Company and its subsidiaries had 890 full time
equivalent employees. None of the employees are represented by any union or
similar groups, and the Company has not experienced any labor disputes or
strikes arising from any such organized labor groups. The Company considers its
relationship with its employees to be good.
Executive Officers of the Company
The following is a list of all executive officers of the Company. Executive
officers are elected annually by the Board of Directors.
NAME AGE POSITION YEARS SERVED
- ----------------------------------------------------------------------------------------------------
J. Thomas May 53 Chairman, President and Chief Executive Officer 13
Barry L. Crow 57 Executive Vice President and 28
Chief Financial Officer
John L. Rush 65 Secretary 32
SUPERVISION AND REGULATION
The Company
The Company, as a bank holding company, is subject to both federal and
state regulation. Under federal law, a bank holding company must generally
obtain approval from the Board of Governors of the Federal Reserve System
("FRB") before acquiring ownership or control of the assets or stock of a bank
or a bank holding company. Prior to approval of any proposed acquisition, the
FRB will review the effect on competition of the proposed acquisition, as well
as other regulatory issues.
The federal law generally prohibits a bank holding company from directly or
indirectly engaging in non-banking activities. This prohibition does not include
loan servicing, liquidating activities or other activities so closely related to
banking as to be a proper incident thereto.
As a bank holding company, the Company is required to file with the FRB an
annual report and such additional information as may be required by law. From
time to time, the FRB examines the financial condition of the Company and its
subsidiaries. The FRB, through civil and criminal sanctions, is authorized to
exercise enforcement powers over bank holding companies and non-banking
subsidiaries, to limit activities that represent unsafe or unsound practices or
constitute violations of law.
The Company is subject to certain laws and regulations of the State of
Arkansas applicable to bank holding companies, including examination and
supervision by the Arkansas Bank Commissioner. Under Arkansas law, a bank
holding company is prohibited from owning more than one subsidiary bank, if any
subsidiary bank owned by the holding company has been chartered for less than 5
years and, further, requires the approval of the Arkansas Bank Commissioner for
any acquisition of more than 25% of the capital stock of any other bank located
in Arkansas. No bank acquisition may be approved if, after such acquisition, the
holding company would control, directly or indirectly, banks having 25% of the
total bank deposits in the State of Arkansas, excluding deposits of other banks
and public funds.
Legislation enacted in 1994, allows bank holding companies from any state
to acquire banks located in any state without regard to state law, provided that
the bank holding company (1) is adequately capitalized, (2) is adequately
managed, (3) would not control more than 10% of the insured deposits in the
United States or more than 30% of the insured deposits in such state, and (4)
such bank has been in existence at least five years if so required by the
applicable state law.
The Gramm-Leach-Bliley-Act ("GLB Act") adopted by Congress and signed by
the President on November 11, 1999 has substantially increased the financial
activities that certain banks, bank holding companies, insurance companies and
securities brokerage companies are permitted to undertake. Under the GLB Act,
expanded activities in insurance underwriting, insurance sales, securities
brokerage and securities underwriting not previously allowed for banks and bank
holding companies are now permitted upon satisfaction of certain guidelines
concerning management, capitalization and satisfaction of the applicable
Community Reinvestment Act guidelines for the banks. Generally these new
activities are permitted for bank holding companies that are well managed, well
capitalized and whose banks have at least a satisfactory rating under the
Community Reinvestment Act. A bank holding company must apply to become a
financial holding company and its application must be approved by the Board of
Governors of the Federal Reserve System.
The Company's application to become a financial holding company was
approved by the Board of Governors on March 13, 2000. The Company is reviewing
the new activities permitted under the Act but at this time has no definite
plans to commence any of the new activities.
Subsidiary Banks
Simmons First National Bank and Simmons/El Dorado, as national banking
associations, are subject to regulation and supervision, of which regular bank
examinations are a part, by the Office of the Comptroller of the Currency of the
United States ("OCC"). Simmons/Jonesboro, Simmons/South, Simmons/Dumas and
Simmons/Northwest, as state chartered banks, are subject to the supervision and
regulation, of which regular bank examinations are a part, by the Federal
Deposit Insurance Corporation ("FDIC") and the Arkansas State Bank Department.
Simmons/Russellville and Simmons/Searcy, as state chartered member banks, are
subject to the supervision and regulation, of which regular bank examinations
are a part, by the Federal Reserve Board and the Arkansas State Bank Department.
The lending powers of each of the subsidiary banks are generally subject to
certain restrictions, including the amount, which may be lent to a single
borrower.
The subsidiary banks, with numerous exceptions, are subject to the
application of the laws of the State of Arkansas, including the limitation of
the maximum permissible interest rate on loans. The Arkansas limitation for
general loans is 5% over the Federal Reserve Discount Rate, with an additional
maximum limitation of 17% per annum for consumer loans and credit sales. Certain
loans secured by first liens on residential real estate and certain loans
controlled by federal law (e.g., guaranteed student loans, SBA loans, etc.) are
exempt from this limitation; however, a very substantial portion of the loans
made by the subsidiary banks, including all credit card loans, have historically
been subject to this limitation. One of the provisions of the GLB Act authorizes
insured banks with their principal office in the State of Arkansas to charge
interest at not more than the rate that any interstate bank with branches in the
State of Arkansas is permitted to charge. This provision may partially remove
the competitive disadvantage concerning the low interest rate ceiling that
Arkansas based banks have incurred over the recent years. The Company is
currently studying the new law and has not yet implemented the increased
interest rate ceilings into its ordinary lending activities.
All of the Company's subsidiary banks are members of the FDIC, which
currently insures the deposits of each member bank to a maximum of $100,000 per
deposit relationship. For this protection, each bank pays a statutory assessment
to the FDIC each year.
Federal law substantially restricts transactions between banks and their
affiliates. As a result, the Company's subsidiary banks are limited in making
extensions of credit to the Company, investing in the stock or other securities
of the Company and engaging in other financial transactions with the Company.
Those transactions, which are permitted, must generally be undertaken on terms
at least as favorable to the bank, as those prevailing in comparable
transactions with independent third parties.
Potential Enforcement Action for Bank Holding Companies and Banks
Enforcement proceedings seeking civil or criminal sanctions may be
instituted against any bank, any director, officer, employee or agent of the
bank, that is believed by the federal banking agencies to be violating any
administrative pronouncement or engaged in unsafe and unsound practices. In
addition, the FDIC may terminate the insurance of accounts, upon determination
that the insured institution has engaged in certain wrongful conduct, or is in
an unsound condition to continue operations.
Risk-Weighted Capital Requirements for the Company and the Banks
Since 1993, banking organizations (including bank holding companies and
banks) were required to meet a minimum ratio of Total Capital to Total
Risk-Weighted Assets of 8%, of which at least 4% must be in the form of Tier 1
Capital. A well-capitalized institution is one that has at least a 10% "total
risk-based capital" ratio. For a tabular summary of the Company's risk-weighted
capital ratios, see "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Capital" and Note 18 of the Notes to Consolidated
Financial Statements.
A banking organization's qualifying total capital consists of two
components: Tier 1 Capital (core capital) and Tier 2 Capital (supplementary
capital). Tier 1 Capital is an amount equal to the sum of common shareholders'
equity, certain preferred stock and the minority interest in the equity accounts
of consolidated subsidiaries. For bank holding companies, goodwill may not be
included in Tier 1 Capital. Identifiable intangible assets may be included in
Tier 1 Capital for banks and bank holding companies, in accordance with certain
further requirements. At least 50% of the banking organization's total
regulatory capital must consist of Tier 1 Capital.
Tier 2 Capital is an amount equal to the sum of the qualifying portion of
the allowance for loan losses, certain preferred stock not included in Tier 1,
hybrid capital instruments (instruments with characteristics of debt and
equity), certain long-term debt securities and eligible term subordinated debt,
in an amount up to 50% of Tier 1 Capital. The eligibility of these items for
inclusion as Tier 2 Capital is subject to certain additional requirements and
limitations of the federal banking agencies.
Under the risk-based capital guidelines, balance sheet assets and certain
off-balance sheet items, such as standby letters of credit, are assigned to one
of four risk weight categories (0%, 20%, 50%, or 100%), according to the nature
of the asset, its collateral or the identity of the obligor or guarantor. The
aggregate amount in each risk category is adjusted by the risk weight assigned
to that category, to determine weighted values, which are then added to
determine the total risk-weighted assets for the banking organization. For
example, an asset, such as a commercial loan, assigned to a 100% risk category,
is included in risk-weighted assets at its nominal face value, but a loan
secured by a one-to-four family residence is included at only 50% of its nominal
face value. The applicable ratios reflect capital, as so determined, divided by
risk-weighted assets, as so determined.
Federal Deposit Insurance Corporation Improvement Act
The Federal Deposit Insurance Corporation Improvement Act ("FDICIA"),
enacted in 1991, requires the FDIC to increase assessment rates for insured
banks and authorizes one or more "special assessments", as necessary for the
repayment of funds borrowed by the FDIC or any other necessary purpose. As
directed in FDICIA, the FDIC has adopted a transitional risk-based assessment
system, under which the assessment rate for insured banks will vary, according
to the level of risk incurred in the bank's activities. The risk category and
risk-based assessment for a bank is determined from its classification, pursuant
to the regulation, as well capitalized, adequately capitalized or
undercapitalized.
FDICIA substantially revised the bank regulatory provisions of the Federal
Deposit Insurance Act and other federal banking statutes, requiring federal
banking agencies to establish capital measures and classifications. Pursuant to
the regulations issued under FDICIA, a depository institution will be deemed to
be well capitalized if it significantly exceeds the minimum level required for
each relevant capital measure; adequately capitalized if it meets each such
measure; undercapitalized if it fails to meet any such measure; significantly
undercapitalized if it is significantly below any such measure; and critically
undercapitalized if it fails to meet any critical capital level set forth in
regulations. The federal banking agencies must promptly mandate corrective
actions by banks that fail to meet the capital and related requirements, in
order to minimize losses to the FDIC. The Company was advised by the FDIC and
OCC that the subsidiary banks had been classified as well capitalized under
these regulations.
The federal banking agencies are required by FDICIA to prescribe standards
for banks and bank holding companies, relating to operations and management,
asset quality, earnings, stock valuation and compensation. A bank or bank
holding company that fails to comply with such standards will be required to
submit a plan designed to achieve compliance. If no plan is submitted or the
plan is not implemented, the bank or holding company would become subject to
additional regulatory action or enforcement proceedings.
A variety of other provisions included in FDICIA may affect the operations
of the Company and the subsidiary banks, including new reporting requirements,
revised regulatory standards for real estate lending, "truth in savings"
provisions, and the requirement that a depository institution give 90 days prior
notice to customers and regulatory authorities before closing any branch.
ITEM 2. PROPERTIES
The principal offices of the Company and the Bank consist of an
eleven-story office building and adjacent office space, located in the central
business district of the city of Pine Bluff, Arkansas. The building and adjacent
office space is comprised of approximately 166,000 square feet of floor space,
approximately 7,500 square feet of which is leased to a tenant as office space.
The Company and its subsidiaries own or lease additional offices throughout
the State of Arkansas. As of December 31, 1999, the company's eight banks are
conducting financial operations from 54 offices in 30 communities throughout
Arkansas.
ITEM 3. LEGAL PROCEEDINGS
The Company and/or its subsidiary banks have various unrelated legal
proceedings, most of which involve loan foreclosure activity pending, which, in
the aggregate, are not expected to have a material adverse effect on the
financial position of the Company and its subsidiaries.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
No matters were submitted to a vote of security-holders, through the
solicitation of proxies or otherwise, during the fourth quarter of the fiscal
year covered by this report.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's common stock trades on The Nasdaq Stock Market(R)under the
symbol "SFNCA". The following table sets forth, for all the periods indicated,
cash dividends paid, and the high and low bid prices for the Company's common
stock.
Quarterly
Price Per Dividends
Common Share Per Common
High Low Share(1)
- ----------------------------------------------------------------------------------------------------
1999
1st quarter $ 40.50 $ 31.80 $ 0.17
2nd quarter 38.50 31.38 0.18
3rd quarter 34.00 29.00 0.18
4th quarter 30.50 23.00 0.19
1998
1st quarter $ 53.25 $ 42.00 $ 0.15
2nd quarter 50.75 43.25 0.16
3rd quarter 49.50 33.75 0.16
4th quarter 44.88 33.63 0.17
(1) Dividends per common share are historical amounts.
At December 31, 1999, the Common Stock was held of record by approximately
1,506 stockholders. On March 17, 2000, the last sale price for the Common Stock
as reported by The Nasdaq Stock Market(R) was $27.50 per share.
The Company's policy is to declare regular quarterly dividends based upon
the Company's earnings, financial position, capital requirements and such other
factors deemed relevant by the Board of Directors. This dividend policy is
subject to change, however, and the payment of dividends by the Company is
necessarily dependent upon the availability of earnings and the Company's
financial condition in the future. The payment of dividends on the Common Stock
is also subject to regulatory capital requirements.
The Company's principal source of funds for dividend payments to its
stockholders is dividends received from its subsidiary banks. Under applicable
banking laws, the declaration of dividends by the Bank and Simmons/El Dorado in
any year, in excess of the sum of net income of such bank for that year and
retained earnings for the preceding two years, must be approved by the Office of
the Comptroller of the Currency. Further, as to Simmons/Jonesboro,
Simmons/Dumas, Simmons/Northwest, Simmons/South, Simmons/Russellville and
Simmons/Searcy regulators have specified that the maximum dividends state banks
may pay to the parent company without prior approval is 75% of the current year
earnings plus 75% of the retained net earnings of the preceding year. At
December 31, 1999, approximately $10 million was available for the payment of
dividends by the subsidiary banks without regulatory approval. For further
discussion of restrictions on the payment of dividends, see "Management's
Discussion and Analysis of Financial Condition-Liquidity and Market Risk
Management," and Note 18 of Notes to Consolidated Financial Statements.
Recent Sales of Unregistered Securities
The following transactions are sales of unregistered shares of Class A
Common Stock of the registrant which were issued to executive and senior
management officers upon the exercise of rights granted under either the Simmons
First National Corporation Incentive and Non-qualified Stock Option Plan or the
Simmons First National Corporation Executive Stock Incentive Plan. No
underwriters were involved and no underwriter's discount or commissions were
involved. Exemption from registration is claimed under Section 4(2) of the
Securities Act of 1933 as private placements. Unless noted otherwise, the
registrant received cash as the consideration for the transaction.
Number
Identity Date of Sale of Shares Price(1) Type of Transaction
- -----------------------------------------------------------------------------------
1 Officer November, 1999 1,500 12.333 Incentive Stock Option
1 Officer November, 1999 300 15.583 Incentive Stock Option
- ----------
Notes:
1. The per share price paid for incentive stock options represents the fair
market value of the sock as determined under the terms of the Plan on the
date incentive stock option was granted to the officer. The price paid has
been adjusted to reflect the effect of the 50% stock dividend paid on
December 6, 1996.
Forward Looking Statements
When used in this Form 10-K or future filings by the Company with the
Securities and Exchange Commission, in the Company's press releases or other
public or shareholder communications, or in oral statements made with the
approval of an authorized executive officer, the words or phrases "would be",
"will allow", "intends to", "will likely result", "are expected to ", "will
continue", "is anticipated", "estimate", "project", or similar expressions are
intended to identify "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995.
The Company wishes to caution readers not to place undue reliance on any
such forward-looking statements, which speak only as of the date made, and to
advise readers that various factors, including regional and national economic
conditions, substantial changes in levels of market interest rates, credit and
other risks of lending and investment activities and competitive, and regulatory
factors, could affect the Company's financial performance and could cause the
Company's actual results for future periods to differ materially from those
anticipated or projected.
The Company does not undertake, and specifically disclaims any obligation,
to update any forward-looking statements to reflect occurrences or unanticipated
events or circumstances after the date of such statements.
ITEM 6: SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated financial data
concerning the Company and is qualified in its entirety by the detailed
information and consolidated financial statements, including notes thereto,
included elsewhere in this annual report. The income statement, balance sheet
and per common share data as of and for the years ended December 31, 1999, 1998,
1997, 1996, and 1995 were derived from consolidated financial statements of the
Company, which were audited by Baird, Kurtz & Dobson. Earnings per common share
and dividends per common share presented in the financial statements have been
restated retroactively to reflect the effects of the October 29, 1996 50% stock
dividend on a consistent basis. The selected consolidated financial data set
forth below should be read in conjunction with the financial statements of the
Company and related notes thereto and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in this annual
report.
- ----------------------------------------------------------------------------------------------------------------
SELECTED CONSOLIDATED FINANCIAL DATA
Years Ended December 31(1)
---------------------------------------------------------
(In thousands,
except per share data) 1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------
Income statement data:
Net interest income $ 64,731 $ 60,466 $ 51,836 $ 44,180 $ 41,162
Provision for loan losses 6,551 8,309 5,215 2,564 2,580
Net interest income after provision
for loan losses 58,180 52,157 46,621 41,616 38,582
Non-interest income 28,277 33,635 30,201 27,679 26,586
Non-interest expense 61,929 62,639 55,261 50,286 47,879
Provision for income taxes 7,360 6,666 6,591 5,671 5,250
Net income 17,168 16,487 14,970 13,338 12,039
Per share data:
Basic earnings 2.35 2.28 2.08 1.85 1.68
Diluted earnings 2.33 2.24 2.05 1.83 1.67
Diluted cash operating earnings(2) 2.74 2.52 2.15 1.87 1.71
Book value 21.78 20.77 19.13 17.63 16.44
Dividends(3) 0.72 0.64 0.56 0.48 0.40
Balance sheet data at period end:
Assets 1,697,430 1,687,010 1,625,492 1,165,556 1,115,288
Loans 1,113,635 1,034,462 965,865 669,575 615,528
Allowance for loan losses 17,085 16,812 15,215 10,506 10,303
Deposits 1,410,633 1,381,003 1,363,344 984,914 950,060
Long-term debt 46,219 49,899 53,558 1,067 4,757
Stockholders' equity 159,371 150,384 138,128 126,907 118,718
Capital ratios at period end:
Stockholders' equity to
total assets 9.39% 8.91% 8.50% 10.89% 10.64%
Leverage (4) 9.10% 8.39% 7.77% 10.95% 10.19%
Tier 1 13.67% 12.81% 12.19% 17.84% 17.51%
Total risk-based 14.96% 14.06% 13.49% 19.11% 18.86%
Selected ratios:
Return on average assets 1.02% 1.00% 1.10% 1.18% 1.15%
Return on average equity 10.92% 11.31% 11.21% 10.78% 10.67%
Net interest margin (5) 4.41% 4.17% 4.35% 4.50% 4.53%
Allowance/nonperforming loans 167.37% 167.30% 155.03% 167.05% 223.35%
Allowance for loan losses as a
percentage of average loans 1.62% 1.69% 1.89% 1.64% 1.77%
Nonperforming loans as a percentage
of period-end loans 0.92% 0.97% 1.02% 0.98% 0.75%
Net charge-offs as a percentage
of average total assets 0.37% 0.41% 0.33% 0.21% 0.22%
Dividend payout 31.26% 29.83% 29.16% 24.85% 20.91%
- --------------------------------------------------------------------------------
(1) The selected consolidated financial data set forth above should be read in
conjunction with the financial statements of the Company and related
Management's Discussion and Analysis of Financial Condition and Results of
Operations, included elsewhere in this Annual Report. All financial information
has been restated for mergers accounted for as pooling-of-interests. (2) Cash
operating earnings are net income excluding amortization of intangible assets
and merger-related expenses.
(3) Dividends per common share are historical amounts.
(4) Leverage ratio is Tier 1 capital to quarterly average total assets less
intangible assets and gross unrealized gains/losses on available-for-sale
investments.
(5) Fully taxable equivalent (assuming an effective income tax rate of 37.5% for
1999 and 36.25% for 1998 through 1995).
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview
- -------------------------------------------------------------------------------
Simmons First National Corporation (SFNC) achieved record operating
earnings (net income excluding merger-related expenses) in 1999. Operating
earnings for the year ended December 31, 1999, were $18,550,000 or an increase
of $1,643,000 over the December 31, 1998 operating earnings of $16,907,000.
Diluted operating earnings per share for the year ended 1999 were $2.52, an
increase of 9.6% from $2.30 in 1998. Operating return on average assets and
operating return on average stockholders' equity for the year ended December 31,
1999 was 1.11% and 11.80% compared to 1.02% and 11.59%, respectively, for the
same period in 1998. The record operating earnings for 1999 were predominantly
influenced from quality growth in the loan portfolio and an improvement in fees
on loans. All financial information has been restated for the mergers accounted
for as a pooling-of-interests.
In connection with mergers during the year ended December 31, 1999 and
1998, after tax merger-related expenses totaled $1,382,000, or $0.19 per share
and $420,000, or $0.06 per share, respectively. After the merger-related
expenses, the Company's year ended December 31, 1999 and 1998, earnings were
$17,168,000 or $2.33 diluted earnings per share and $16,487,000 or $2.24 diluted
earnings per share, respectively.
Because of the Company's previous cash acquisitions, cash operating
earnings (net income excluding amortization of intangible assets and
merger-related expenses) are an integral component of earnings. Diluted cash
operating earnings, on a per share basis, were $2.74 in 1999 compared to $2.52
in 1998 reflecting an 8.7% increase. Cash operating return on average assets was
1.23% and cash operating return on average stockholders' equity was 12.98% for
1999, compared with 1.14% and 12.72%, respectively, for 1998.
Total assets for the Company at December 31, 1999 and 1998, were $1.7
billion. Stockholders' equity at the end of 1999 was $159.4 million, a $9.0
million, or 6.0%, increase from the year ended December 31, 1998.
Asset quality remains strong with the allowance for loan losses as a
percent of total loans at 1.53% as of December 31, 1999. As of December 31,
1999, non-performing loans equaled 0.92% of total loans, while the allowance for
loan losses equaled 167% of non-performing loans.
Simmons First National Corporation is an Arkansas based, Arkansas
committed, multi-bank holding company. The Company has eight community banks in
Pine Bluff, Jonesboro, Lake Village, Dumas, Rogers, Russellville, Searcy and El
Dorado, Arkansas. The Company's banks conduct financial operations from 54
offices in 30 communities throughout Arkansas.
Acquisitions
- -------------------------------------------------------------------------------
On August 1, 1997, Simmons First National Corporation acquired all the
outstanding capital stock of First Bank of Arkansas, Searcy, Arkansas and First
Bank of Arkansas, Russellville, Arkansas, in a cash purchase transaction of $53
million and changed the respective names of the banks to Simmons First Bank of
Searcy and Simmons First Bank of Russellville. The banks acquired had
consolidated assets of $362 million, as of August 1, 1997.
On December 8, 1998, the Company and American Bancshares of Arkansas, Inc.
("ABA") merged in a pooling-of-interests transaction. Stockholders of ABA
received 464,885 shares of Simmons First National Corporation stock in exchange
for ABA shares in the transaction. ABA owned American State Bank ("ASB"),
Charleston, Arkansas with assets, as of December 8, 1998, of $90 million. The
Company merged ASB into Simmons First National Bank during the first quarter of
1999.
On January 15, 1999, the Company and Lincoln Bankshares, Inc. ("LBI")
merged. This merger was accounted for as a pooling-of-interests, except for the
acquisition of the minority shares (17.9%) of the Bank of Lincoln, which were
accounted for on a purchase accounting basis. Stockholders of LBI received
301,823 shares of Simmons First National Corporation stock in exchange for LBI
shares in the transaction. LBI owned the Bank of Lincoln ("BOL"), Lincoln,
Arkansas with assets, as of January 15, 1999, of $75 million. The Company merged
BOL into Simmons First Bank of Northwest Arkansas during the second quarter of
1999.
On July 9, 1999, the Company and NBC Bank Corp. ("NBC") merged in a
pooling-of-interests transaction. Stockholders of NBC received 784,887 shares of
Simmons First National Corporation stock in exchange for NBC shares in the
transaction. NBC owned National Bank of Commerce, El Dorado, Arkansas with
assets, as of July 9, 1999, of $155 million. The Company changed the name of
National Bank of Commerce to Simmons First Bank of El Dorado, N.A. The Company
will continue to operate Simmons First Bank of El Dorado, N.A. as a separate
community bank with the same board of directors and management.
On March 27, 2000, an announcement was made jointly by the Chief Executive
Officers of both the Company and First Financial Banc Corporation regarding the
execution of a definitive agreement under the terms of which First Financial
will sell eight of its Arkansas locations to the Company. Simmons First National
Bank will acquire two Conway branches. Simmons First Bank of Northwest Arkansas
will acquire two Fayetteville locations, two Spingdale facilities and one branch
each in Rogers and Siloam Springs. The eight locations have approximately $68
million in loans and $70 million in total deposits. The transaction is expected
to close during the third quarter of 2000.
Sale of Mortgage Servicing
- --------------------------------------------------------------------------------
On June 30, 1998, the Company sold its residential mortgage-servicing
portfolio resulting in a $3.3 million gain. The portfolio consisted of
approximately $1.2 billion in residential mortgage loans.
Net Interest Income
- --------------------------------------------------------------------------------
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%, 36.25% and 36.25% for 1999, 1998 and 1997, respectively).
For the year ended December 31, 1999, net interest income on a fully
taxable equivalent basis was $67.7 million, an increase of approximately $4.8
million, or 7.6%, from 1998 net interest income. The increase in 1999 in net
interest income was the result of stable interest income and declining interest
expense. Interest income remained stable from 1998 to 1999 as a result of a
lower yield earned on earning assets offset by growth in the loan portfolio and
an improvement in fees on loans. The decline in interest expense from 1998 to
1999 was the result of a lower cost of funds. Yield on earning assets and cost
of funds was lower in 1999 as the result of lower average interest rates during
1999. The net interest margin was 4.41% in 1999, compared to 4.17% in 1998 and
4.35% in 1997. For the year ended December 31, 1998, net interest income on a
fully taxable equivalent basis was $62.9 million, an increase of approximately
$9.0 million, or 16.7%, from comparable figures in 1997. The increase in 1998
net interest income resulted primarily from the growth due to purchase
acquisitions during 1997 and other growth in the loan portfolio. The growth
offset a decrease in net interest margin resulting from a higher cost of funds.
The higher cost of funds is the result of the long-term debt issued during 1997
for purchase acquisitions. Table 1 and 2 reflect an analysis of net interest
income on a fully taxable equivalent basis for the years ended December 31,
1999, 1998 and 1997, respectively, as well as changes in fully taxable
equivalent net interest margin for the years 1999 versus 1998 and 1998 versus
1997.
Table 1: Analysis of Net Interest Income
(FTE =Fully Taxable Equivalent)
Years Ended December 31
-------------------------------------------------
(In thousands) 1999 1998 1997
- --------------------------------------------------------------------------------------------------------------------
Interest income $ 121,490 $ 122,040 $100,640
FTE adjustment 2,944 2,409 2,064
--------- --------- --------
Interest income - FTE 124,434 124,449 102,704
Interest expense 56,759 61,574 48,804
--------- --------- --------
Net interest income - FTE $ 67,675 $ 62,875 $ 53,900
========= ========= ========
Yield on earning assets - FTE 8.10% 8.26% 8.29%
Cost of interest bearing liabilities 4.29% 4.71% 4.62%
Net interest spread - FTE 3.81% 3.55% 3.67%
Net interest margin - FTE 4.41% 4.17% 4.35%
Table 2: Changes in Fully Taxable Equivalent Net Interest Margin
(In thousands) 1999 vs. 1998 1998 vs.1997
- -----------------------------------------------------------------------------------------------------------------
Increase due to change in earning assets $ 4,188 $ 22,403
Decrease due to change in earning asset yields (4,203) (658)
Increase (decrease) due to change in interest rates paid on
interest bearing liabilities 4,921 (60)
Decrease due to change in interest bearing liabilities (106) (12,710)
--------- --------
Increase in net interest income $ 4,800 $ 8,975
========= ========
Table 3 shows, for each major category of earning assets and interest
bearing liabilities, the average amount outstanding, the interest earned or
expensed on such amount and the average rate earned or expensed for each of the
years in the three-year period ended December 31, 1999. 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
Years Ended December 31
------------------------------------------------------------------------------
1999 1998 1997
----------------------- ------------------------ -----------------------
Average Income/Yield/ Average Income/ Yield/ Average Income/Yield/
(In thousands) Balance ExpenseRate(%) Balance Expense Rate(%) Balance ExpenseRate(%)
- ------------------------------------------------------------------------------------------------------------------
ASSETS
Earning Assets
Interest bearing balances
due from banks $ 11,071 $ 535 4.83 $ 9,262 $ 517 5.58 $ 7,370 $ 384 5.21
Federal funds sold 39,815 1,759 4.42 75,840 3,850 5.08 52,315 2,923 5.59
Investment securities-taxable 305,773 18,287 5.98 314,154 19,548 6.22 281,829 18,082 6.42
Investment securities-non-taxable 114,762 8,428 7.34 101,862 7,500 7.36 83,211 6,266 7.53
Mortgage loans held for sale 9,969 712 7.14 8,135 581 7.14 5,567 407 7.31
Assets held in trading accounts 1,309 72 5.50 1,996 97 4.86 3,118 209 6.70
Loans 1,052,619 94,641 8.99 995,316 92,356 9.28 805,984 74,433 9.24
---------- -------- ---------- -------- --------- --------
Total interest earning assets 1,535,318 124,434 8.10 1,506,565 124,449 8.26 1,239,394 102,704 8.29
Non-earning assets 140,310 -------- 145,235 -------- 118,768 --------
---------- ---------- ----------
Total assets $1,675,628 $1,651,800 $1,358,162
========== ========== ==========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Liabilities
Interest bearing liabilities
Interest bearing transaction
and savings accounts $ 448,327 $ 12,125 2.70 $ 421,042 $ 12,213 2.90 $ 363,875 $ 10,502 2.89
Time deposits 755,238 37,752 5.00 765,308 42,029 5.49 618,450 33,645 5.44
---------- -------- ---------- -------- ---------- --------
Total interest bearing
deposits 1,203,565 49,877 4.14 1,186,350 54,242 4.57 982,325 44,147 4.49
Federal funds purchased and
securities sold under agreement
to repurchase 67,359 2,913 4.32 64,270 3,009 4.68 44,859 2,339 5.21
Other borrowed funds
Short-term debt 3,418 165 4.83 3,740 226 6.04 5,091 263 5.17
Long-term debt 48,694 3,804 7.81 51,685 4,097 7.93 24,763 2,055 8.30
---------- -------- ---------- -------- --------- -------
Total interest bearing
liabilities 1,323,036 56,759 4.29 1,306,045 61,574 4.71 1,057,038 48,804 4.62
-------- -------- -------
Non-interest bearing liabilities
Non-interest bearing deposits 178,103 180,519 152,248
Other liabilities 17,285 19,421 15,395
---------- ---------- ---------
Total liabilities 1,518,424 1,505,985 1,224,681
Stockholders' equity 157,204 145,815 133,481
---------- ---------- ---------
Total liabilities and
stockholders' equity $1,675,628 $1,651,800 $1,358,162
========== ========== ==========
Net interest margin $ 67,675 4.41 $ 62,875 4.17 $ 53,900 4.35
======== ======== ========
Table 4 shows changes in interest income and interest expense, resulting
from changes in volume and changes in interest rates for each of the years ended
December 31, 1999 and 1998 as compared to prior years. 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
Years Ended December 31 (1)
------------------------------------------------------------
1999 over 1998 1998 over 1997
---------------------------- ---------------------------
(In thousands, on a fully Yield/ Yield/
taxable equivalent basis) Volume Rate Total Volume Rate Total
- --------------------------------------------------------------------------------------------------------
Increase (decrease) in
Interest income
Interest bearing balances
due from banks $ 93 $ (75) $ 18 $ 104 $ 29 $ 133
Federal funds sold (1,643) (448) (2,091) 1,214 (287) 927
Investment securities - taxable (513) (748) (1,261) 2,024 (558) 1,466
Investment securities - non-taxable 947 (19) 928 1,376 (142) 1,234
Mortgage loans held for sale 131 -- 131 183 (9) 174
Assets held in trading accounts (37) 12 (25) (64) (48) (112)
Loans 5,210 (2,925) 2,285 17,566 357 17,923
-------- -------- -------- -------- -------- --------
Total 4,188 (4,203) (15) 22,403 (658) 21,745
-------- -------- -------- -------- -------- --------
Interest expense
Interest bearing transaction and
savings accounts 766 (854) (88) 1,658 53 1,711
Time deposits (547) (3,730) (4,277) 8,062 322 8,384
Federal funds purchased
and securities sold under
agreements to repurchase 141 (237) (96) 929 (259) 670
Other borrowed funds
Short-term debt (19) (42) (61) (77) 40 (37)
Long-term debt (235) (58) (293) 2,138 (96) 2,042
-------- -------- -------- -------- -------- --------
Total 106 (4,921) (4,815) 12,710 60 12,770
-------- -------- -------- -------- -------- --------
Increase (decrease) in
net interest income $ 4,082 $ 718 $ 4,800 $ 9,693 $ (718) $ 8,975
======== ======== ======== ======== ======== ========
(1) Change due to mix (both volume and rate) has been allocated to volume and
rate changes in proportion to the relationship of the absolute dollar amounts to
the changes in each.
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 1999, 1998 and 1997 was $6.6, $8.3 and $5.2 million, respectively.
The decrease from 1998 to 1999 and the increase from 1997 to 1998 were
attributable to an increased provision during 1998. The provision in 1998 was
increased $3.1 million from 1997 to 1998 as a result of an $2.2 million increase
in net charge-offs and an increase in impaired loans of $2.1 million for the
same period. Other factors increasing the 1998 provision included growth in
loans, increased indirect lending, unfavorable weather and market conditions in
the agriculture industry and an increased level of consumer bankruptcies. The
provision for loan losses as a percentage of average loans for 1999, 1998 and
1997 was 0.62%, 0.83% and 0.65%, respectively.
Non-Interest Income
- --------------------------------------------------------------------------------
Total non-interest income was $28.3 million in 1999, compared to $33.6
million in 1998 and $30.2 million in 1997. Non-interest income for 1999 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.
During the second quarter of 1998 the Company sold its $1.2 billion
residential mortgage-servicing portfolio. The sale of the mortgage-servicing
portfolio resulted in a $3.3 million gain on sale and the elimination of
mortgage servicing fees.
Table 5 shows non-interest income for the years ended December 31, 1999,
1998 and 1997, respectively, as well as changes in 1999 from 1998 and in 1998
from 1997.
Table 5: Non-Interest Income
Years Ended December 31 1999 1998
------------------------- Change from Change from
(In thousands) 1999 1998 1997 1998 1997
- ----------------------------------------------------------------------------------------------------------
Trust income $ 4,666 $ 4,037 $ 3,186 $ 629 15.58% $ 851 26.71%
Service charges on deposit accounts 7,007 6,820 5,378 187 2.74 1,442 26.81
Other service charges and fees 1,759 1,626 1,675 133 8.18 (49) -2.93
Income on sale of mortgage loans,
net of commissions 2,021 2,247 1,426 (226) -10.06 821 57.57
Income on investment banking,
net of commissions 266 1,044 1,061 (778) -74.52 (17) -1.60
Credit card fees 10,214 9,484 9,433 730 7.70 51 0.54
Mortgage servicing fees -- 3,030 5,599 (3,030) -100.00 (2,569) -45.88
Other income 2,344 2,074 2,443 270 13.02 (369) -15.10
Gain on sale of mortgage servicing -- 3,273 -- (3,273) -100.00 3,273 --
-------- --------- -------- ------- -------
Total non-interest income $ 28,277 $ 33,635 $ 30,201 $(5,358) -15.93% $ 3,434 11.37%
======== ========= ======== ======= =======
Recurring fee income for 1999 was $23.6 million, an increase of $1.6
million, or 7.6%, when compared with 1998 figures. Recurring fee income for 1998
was $22.0 million, an increase of $2.3 million, or 11.7%, when compared with
1997 figures. In 1999, trust fees increased $629,000 from the 1998 level, while
credit card fees increased $730,000. In 1998, trust fees increased $851,000 from
the 1997 level, while service charges on deposit accounts increased $1.4
million. The increase in trust fees for 1999 and 1998 is primarily the result of
growth in the number of trust relationships. The increase in credit card fees
for 1999 is the result of growth in the credit card portfolio. The increase in
service charges on deposit accounts for 1998 is the result of purchase
acquisitions during 1997.
Non-Interest Expense
- --------------------------------------------------------------------------------
Non-interest expense consists of salaries and employee benefits, occupancy,
equipment, foreclosure losses, merger-related costs, gain or loss on sold or
called securities 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. Monthly and annual profit plans are developed, including
manpower and capital expenditure budgets, based on a needs assessment of the
business plan for the upcoming year. 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 1999 was $61.9 million, a decrease of $710,000, or
1.1%, from 1998. The decrease in non-interest expense in 1999, compared to 1998
primarily reflects the sale of Company's $1.2 billion residential
mortgage-servicing portfolio and no additional Year 2000 expenses for 1999.
However, $1.4 million in additional merger-related expenses and the normal
increased cost of doing business offset these expense reductions. Non-interest
expense for 1998 was $62.6 million, an increase of $7.4 million, or 13.4%, from
1997. The increase in non-interest expense in 1998, compared to 1997 primarily
reflects the Company's purchase acquisitions on August 1, 1997, merger-related
expenses and Year 2000 expenses. These increases were offset by expense
reduction associated with the sale of the Company's residential
mortgage-servicing portfolio.
Table 6 below shows non-interest expense for the years ended December 31,
1999, 1998 and 1997, respectively, as well as changes to 1999 from 1998 and 1998
from 1997, respectively.
Table 6: Non-Interest Expense
Years Ended December 31 1999 1998
------------------------- Change from Change from
(In thousands) 1999 1998 1997 1998 1997
- ----------------------------------------------------------------------------------------------------------
Salaries and employee benefits $ 32,395 $ 31,833 $ 28,226 $ 562 1.77% $ 3,607 12.78%
Occupancy expense, net 3,578 3,858 3,535 (280) -7.26 323 9.14
Furniture and equipment expense 5,003 4,448 3,863 555 12.48 585 15.14
Loss on foreclosed assets 364 738 1,197 (374) -50.68 (459) -38.35
Merger-related 1,843 466 -- 1,377 295.49 466 --
Loss on sale of securities, net -- 165 108 (165) -100.00 57 52.78
Other operating expenses
Professional services 1,444 1,920 1,883 (476) -24.79 37 1.96
Postage 1,895 1,836 1,434 59 3.21 402 28.03
Telephone 1,419 1,279 1,082 140 10.95 197 18.21
Credit card expenses 1,624 1,495 1,413 129 8.63 82 5.80
Operating supplies 1,524 1,517 1,389 7 0.46 128 9.22
FDIC insurance 232 248 312 (16) -6.45 (64) -20.51
Year 2000 -- 500 -- (500) -100.00 500 --
Amortization of MSR's -- 1,223 2,578 (1,223) -100.00 (1,355) -52.56
Amortization of intangibles 2,469 2,385 1,264 84 3.52 1,121 88.69
Other expenses 8,139 8,728 6,977 (589) -6.75 1,751 25.10
-------- --------- -------- ------- --------
Total non-interest expense $ 61,929 $ 62,639 $ 55,261 $ (710) -1.13% $ 7,378 13.35%
======== ========= ======== ======= ========
Income Taxes
- --------------------------------------------------------------------------------
The provision for income taxes for 1999 was $7.4 million, compared to $6.7
million in 1998 and $6.6 million in 1997. The effective income tax rates for the
years ended 1999, 1998 and 1997 were 30.0%, 28.8% and 30.6%, respectively.
Earnings/Ratios Excluding Intangibles and Merger-Related Expenses
- --------------------------------------------------------------------------------
Table 7 reconciles reported earnings to net income excluding intangible
amortization and merger-related expenses (cash operating) for the year ended
December 31, 1999. Table 8 presents the calculation of the cash operating return
on assets and cash operating return on equity for the year ended December 31,
1999. The Company specifically formulated these calculations and the results may
not be comparable to similarly titled measures reported by other companies.
Also, cash operating earnings are not entirely available for use by management.
See the Consolidated Statements of Cash Flows and Notes to the Financial
Statements for other information regarding funds available for use by
management.
Table 7: Earnings Excluding Intangibles and Merger-Related Expenses
Year ended December 31, 1999
----------------------------------------------------------------
Reported Intangible Merger-Related "Cash Operating"
(In thousands) Earnings Amortization Expenses Earnings
- -------------------------------------------------------------------------------------------------------------
Income before income taxes $ 24,528 $ 2,469 $ 1,843 $ 28,840
Provision for income taxes 7,360 813 461 8,634
--------- --------- --------- ---------
Net Income $ 17,168 $ 1,656 $ 1,382 $ 20,206
========= ========= ========= =========
Basic earnings per common share $ 2.35 $ 0.23 $ 0.19 $ 2.77
========= ========= ========= =========
Diluted earnings per common share $ 2.33 $ 0.22 $ 0.19 $ 2.74
========= ========= ========= =========
Table 8: Ratios Excluding Intangibles and Merger-Related Expenses
(In thousands) Year ended December 31, 1999
- ------------------------------------------------------------------------------------------------------------
Cash Operating ROA: A/(B-D) 1.23%
Cash Operating ROE: A/(C-E) 12.98%
Cash operating earnings $ 20,206 (A)
Average total assets 1,675,628 (B)
Average stockholders' equity 157,204 (C)
Average total intangible assets 28,449 (D)
Average intangible assets remaining in
stockholders' equity 1,503 (E)
Loan Portfolio
- --------------------------------------------------------------------------------
The Company's loan portfolio averaged $1.053 billion during 1999 and $995
million during 1998. As of December 31, 1999, total loans were $1.114 billion,
compared to $1.034 billion on December 31, 1998. The most significant components
of the loan portfolio were commercial real estate loans, loans to individuals in
the form of credit card loans, student 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, 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 $435.4 million at December 31, 1999, or
39.1% of total loans, compared to $387.5 million, or 37.5% of total loans at
December 31, 1998. The consumer loan increase from 1998 to 1999 is the result of
the Company's higher credit card volume and increased indirect lending (loans
originated by third parties, which are underwritten and purchased by the
Company). These increases were the result of an expanded marketing effort of
those products.
Real estate loans consist of construction loans, single family residential
loans and commercial loans. Real estate loans were $497.1 million at December
31, 1999, or 44.7% of total loans, compared to $480.6 million, or 46.4% of total
loans at December 31, 1998. The real estate loan increase from 1998 to 1999 is
the result of lower average interest rates.
Commercial loans consist of commercial loans, agricultural loans and
financial institution loans. Commercial loans were $176.3 million at December
31, 1999, or 15.8% of total loans, compared to $159.2 million, or 15.4% of total
loans at December 31, 1998. The commercial loan increase from 1998 to 1999 is
the result of favorable economic conditions.
The amounts of loans outstanding at the indicated dates are reflected in
table 9, according to type of loan.
Table 9: Loan Portfolio
Years Ended December 31
------------------------------------------------------------
(In thousands) 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------
Consumer
Credit cards $ 187,242 $ 165,622 $ 179,828 $ 166,346 $ 154,808
Student loans 66,739 66,134 63,291 64,193 63,492
Other consumer 181,380 155,767 139,282 88,543 79,037
Real Estate
Construction 53,925 63,037 52,976 28,703 24,310
Single family residential 202,886 194,174 184,539 114,261 107,740
Other commercial 240,259 223,368 178,517 98,591 90,590
Commercial
Commercial 137,827 112,800 115,684 65,989 55,794
Agricultural 35,337 40,706 38,169 27,950 27,582
Financial institutions 3,165 5,656 6,073 8,469 9,058
Other 4,875 7,198 7,506 6,530 3,117
---------- ---------- ----------- ---------- ----------
Total loans $1,113,635 $1,034,462 $ 965,865 $ 669,575 $ 615,528
========== ========== =========== ========== ==========
Table 10 reflects the remaining maturities and interest rate sensitivity of
loans at December 31, 1999.
Table 10: Maturity and Interest Rate Sensitivity of Loans
Over 1
year
1 year through Over
(In thousands) or less 5 years 5 years Total
- -------------------------------------------------------------------------------------------------
Consumer $ 359,774 $ 75,431 $ 156 $ 435,361
Real estate 259,608 227,512 9,950 497,070
Commercial 130,603 43,556 2,170 176,329
Other 4,244 591 40 4,875
----------- ---------- --------- -----------
Total $ 754,229 $ 347,090 $ 12,316 $ 1,113,635
=========== ========== ========= ===========
Predetermined rate $ 528,003 $ 347,090 $ 12,316 $ 887,409
Floating rate 226,226 -- -- 226,226
----------- ---------- --------- -----------
Total $ 754,229 $ 347,090 $ 12,316 $ 1,113,635
=========== ========== ========= ===========
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 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 December 31, 1999, impaired loans were $12.1 million compared to $13.3
million and $11.2 million in 1998 and 1997, respectively. At December 31, 1999,
non-performing loans were $10.2 million compared to $10.0 million and $9.8
million in 1998 and 1997, respectively
Table 11 presents information concerning non-performing assets, including
nonaccrual and restructured loans and other real estate owned.
Table 11: Non-performing Assets
Years Ended December 31
-----------------------------------------------------------
(In thousands) 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------
Nonaccrual loans $ 7,666 $ 6,959 $ 7,054 $ 3,729 $ 2,515
Loans past due 90 days or more
(principal or interest payments) 2,542 2,972 2,417 2,560 1,817
Restructured -- 118 343 -- 281
--------- -------- --------- --------- --------
Total non-performing loans 10,208 10,049 9,814 6,289 4,613
--------- -------- --------- --------- --------
Other non-performing assets
Foreclosed assets held for sale 747 2,156 2,095 1,368 1,485
Other non-performing assets 56 29 -- 6 7
--------- -------- --------- --------- --------
Total other non-performing assets 803 2,185 2,095 1,374 1,492
--------- -------- --------- --------- --------
Total non-performing assets $ 11,011 $ 12,234 $ 11,909 $ 7,663 $ 6,105
========= ======== ========= ========= ========
Allowance for loan losses to
non-performing loans 167.37% 167.30% 155.03% 167.05% 223.35%
Non-performing loans to total loans 0.92% 0.97% 1.02% 0.94% 0.75%
Non-performing assets to total assets 0.65% 0.73% 0.73% 0.66% 0.55%
Approximately $689,000, $646,000 and $652,000 of interest income would have
been recorded for the periods ended December 31, 1999, 1998 and 1997,
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 years ended December 31, 1999, 1998 and 1997.
Allowance for Loan Losses
- --------------------------------------------------------------------------------
An analysis of the allowance for loan losses for the last five years is
shown in table 12.
Table 12: Allowance for Loan Losses
(In thousands) 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------
alance, beginning of year $ 16,812 $ 15,215 $ 10,506 $ 10,303 $ 9,660
--------- --------- -------- --------- ---------
Loans charged off
Credit card 3,156 3,734 3,283 2,392 1,851
Other consumer 2,419 1,398 919 615 635
Real estate 621 1,272 465 76 176
Commercial 1,498 1,367 731 151 265
--------- --------- -------- --------- ---------
Total loans charged off 7,694 7,771 5,398 3,234 2,927
--------- --------- -------- --------- ---------
Recoveries of loans previously charged off
Credit card 444 398 365 309 143
Other consumer 588 291 192 245 323
Real estate 231 121 144 69 73
Commercial 153 249 163 250 90
--------- --------- -------- --------- ---------
Total recoveries 1,416 1,059 864 873 629
--------- --------- -------- --------- ---------
Net loans charged off 6,278 6,712 4,534 2,361 2,298
Allowance for loan losses of
acquired institutions -- -- 4,028 -- 361
Provision for loan losses 6,551 8,309 5,215 2,564 2,580
--------- --------- -------- --------- ---------
Balance, end of year $ 17,085 $16,812 $ 15,215 $ 10,506 $ 10,303
========= ========= ======== ========= =========
Net charge-offs to average loans 0.60% 0.67% 0.56% 0.37% 0.39%
Allowance for loan losses to total loans 1.53% 1.63% 1.58% 1.57% 1.67%
Allowance for loan losses to net charge-offs 272.1% 250.5% 335.6% 445.0% 448.3%
The amount of provisions to the allowance during the year 1999 were 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.
The Company allocates the allowance for loan losses according to the amount
deemed to be reasonably necessary to provide for losses incurred within the
categories of loans set forth in table 13.
Table 13: Allocation of Allowance for Loan Losses
December 31
---------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
----------------- ---------------- ---------------- --------------- ----------------
Allowance % of Allowance % of Allowance % of Allowance % of Allowance % of
(In thousands) Amount loans* Amount loans* Amount loans* Amount loans* Amount loans*
- --------------------------------------------------------------------------------------------------------------
Credit cards $3,300 16.8% $ 3,552 16.0% $3,339 18.6% $ 2,626 24.8% $ 2,658 25.2%
Consumer 1,918 22.3% 1,959 21.5% 1,731 21.0% 543 22.8% 503 23.2%
Real Estate 7,155 44.7% 6,367 46.4% 5,307 43.0% 3,687 36.1% 3,544 36.1%
Commercial 3,244 15.8% 2,637 15.4% 2,641 16.6% 1,214 15.3% 1,251 15.0%
Other -- 0.4% 12 0.7% 10 0.8% 4 1.0% 5 0.5%
Unallocated 1,468 2,285 2,187 2,432 2,342
------- ------- ------- ------- -------
Total $17,085 100.0% $16,812 100.0% $15,215 100.0% $10,506 100.0% $10,303 100.0%
======= ======= ======= ======= =======
*Percentage of loans in each category to total loans.
The unallocated reserve generally serves to compensate for the uncertainty
in estimating loan losses, including the possibility of improper risk ratings
and specific reserve allocations. The unallocated reserve is a result of
potential risk factors that cannot be quantified at December 31, 1999, including
the impact of increased indirect lending and consumer bankruptcies inherent in
the present portfolio.
Investments and Securities
- --------------------------------------------------------------------------------
The Company's securities portfolio is the second largest component of
earning assets and provides a significant source of revenue. Securities within
the portfolio are classified as either held-to-maturity, available-for-sale or
trading.
Held-to-maturity securities, which include any security for which
management has the positive intent and ability to hold until maturity, are
carried at historical cost, adjusted for amortization of premiums and accretion
of discounts. Premiums and discounts are amortized and accreted, respectively,
to interest income using the constant yield method over the period to maturity.
Interest and dividends on investments in debt and equity securities are included
in income when earned.
Available-for-sale securities, which include any security for which
management has no immediate plans to sell, but which may be sold in the future,
are carried at fair value. Realized gains and losses, based on amortized cost of
the specific security, are included in other income. Unrealized gains and losses
are recorded, net of related income tax effects, in stockholders' equity.
Premiums and discounts are amortized and accreted, respectively, to interest
income, using the constant yield method over the period to maturity. Interest
and dividends on investments in debt and equity securities are included in
income when earned.
The Company's philosophy regarding investments is conservative, based on
investment type and maturity. Investments in the portfolio primarily include
U.S. Treasury securities, U.S. government agencies, mortgage-backed securities
and municipal securities. The Company's general policy is not to invest in
derivative type investments, except for collateralized mortgage-backed
securities for which collection of principal and interest is not subordinated to
significant superior rights held by others.
Held-to-maturity and available-for-sale investment securities were $174.4
million and $234.9 million, respectively, at December 31, 1999, compared to the
held-to-maturity amount of $191.7 million and available-for-sale amount of
$224.7 million at December 31, 1998.
As of December 31, 1999, $50.2 million, or 28.8%, of the held-to-maturity
securities were invested in U.S. Treasury securities and obligations of U.S.
government agencies, 76.0% of which will mature in less than five years. In the
available-for-sale securities, $201.3 million, or 85.7% were in U.S. Treasury
and U.S. government agency securities, 77.6% of which will mature in less than
five years.
In order to reduce the Company's income tax burden, an additional $107.2
million, or 61.5%, of the held-to-maturity securities portfolio, as of December
31, 1999, was invested in tax-exempt obligations of state and political
subdivisions. In the available-for-sale securities, $6.4 million, or 2.7% were
invested in tax-exempt obligations of state and political subdivisions. There
are no securities of any one state and political subdivision issuer exceeding
ten percent of the Company's stockholders' equity at December 31, 1999.
The Company has approximately $16.9 million, or 9.7%, in mortgaged-backed
securities in the held-to-maturity portfolio at December 31, 1999. In the
available-for-sale securities, $16.7 million, or 7.1% were invested in
mortgaged-backed securities.
As of December 31, 1999, the held-to-maturity investment portfolio had
gross unrealized gains of $813,000 and gross unrealized losses of $3.7 million.
Net realized losses from called or sold available-for-sale securities for 1999
were zero, compared to net realized losses of $165,000 in 1998 and $108,000 in
1997.
Trading securities, which include any security held primarily for near-term
sale, are carried at fair value. Gains and losses on trading securities are
included in other income. The Company's trading account is established and
maintained for the benefit of investment banking. The trading account is
typically used to provide inventory for resale and is not used to take advantage
of short-term price movements.
Table 14 presents the carrying value and fair value of investment
securities for each of the years indicated.
Table 14: Investment Securities
Years Ended December 31
--------------------------------------------------------------------------------------
1999 1998
------------------------------------------- -----------------------------------------
Gross Gross Estimated Gross Gross Estimated
Amortized Unrealized Unrealized Fair Amortized Unrealized Unrealized Fair
(In thousands) Cost Gains (Losses) Value Cost Gains (Losses) Value
- ---------------------------------------------------------------------------------------------------------------
Held-to-Maturity
U.S. Treasury $ 13,576 $ 10 $ (115) $ 13,471 $ 25,116 $ 424 $ (1) $ 25,539
U.S. Government
agencies 36,654 57 (1,169) 35,542 35,770 474 (48) 36,196
Mortgage-backed
securities 16,920 84 (258) 16,746 19,756 113 (170) 19,699
State and political
subdivisions 107,157 662 (2,107) 105,712 110,997 2,766 (100) 113,663
Other securities 85 -- (2) 83 92 3 -- 95
---------- ------- -------- ---------- ---------- ------- ------- ----------
$ 174,392 $ 813 $ (3,651) $ 171,554 $ 191,731 $ 3,780 $ (319) $ 195,192
========== ======= ======== ========== ========== ======= ======= ==========
Available-for-Sale
U.S. Treasury $ 41,492 $ 83 $ (133) $ 41,442 $ 51,796 $ 1,081 $ -- $ 52,877
U.S. Government
agencies 166,143 -- (6,287) 159,856 131,996 486 (147) 132,335
Mortgage-backed
securities 16,954 26 (234) 16,746 25,256 58 (230) 25,084
State and political
subdivisions 6,432 88 (88) 6,432 4,816 57 (9) 4,864
Other securities 9,859 552 -- 10,411 8,246 1,523 (252) 9,517
---------- ------- -------- ---------- ---------- ------- ------- ----------
$ 240,880 $ 749 $ (6,742) $ 234,887 $ 222,110 $ 3,205 $ (638) $ 224,677
========== ======= ======== ========== ========== ======= ======= ==========
Total Investments $ 415,272 $ 1,562 $(10,393) $ 406,441 $ 413,841 $ 6,985 $ (957) $ 419,869
========== ======= ======== ========== ========== ======= ======= ==========
Table 15 reflects the amortized cost and estimated fair value of debt
securities at December 31, 1999, by contractual maturity, the weighted average
yields (for tax-exempt obligations on a fully taxable basis, assuming a 37.5%
tax rate) of such securities and the taxable equivalent adjustment used in
calculating yields. Expected maturities will differ from contractual maturities,
because borrowers may have the right to call or prepay obligations, with or
without call or prepayment penalties.
Table 15: Maturity Distribution of Investment Securities
December 31, 1999
--------------------------------------------------------------------------------
Over Over
1 year 5 years
1 year through through Over No fixed Par Fair
(In thousands) or less 5 years 10 years 10 years maturity Total Value Value
- -----------------------------------------------------------------------------------------------------------
Held-to-Maturity
U.S. Treasury $ 3,304 $ 10,272 $ -- $ -- $ -- $ 13,576 $ 13,550 $ 13,471
U.S. Government
agencies 3,004 21,608 12,042 -- -- 36,654 36,685 35,542
Mortgage-backed
securities 459 987 741 14,733 -- 16,920 16,756 16,746
State and political
subdivisions 10,712 44,884 42,630 8,931 -- 107,157 107,357 105,712
Other securities -- -- -- -- 85 85 83 83
--------- -------- --------- -------- --------- --------- --------- ---------
Total $ 17,479 $ 77,751 $ 55,413 $ 23,664 $ 85 $ 174,392 $ 174,431 $ 171,554
========= ======== ========= ======== ========= ========= ========= =========
Percentage of total 10.0% 44.6% 31.8% 13.5% 0.1% 100.0%
========= ======== ========= ======== ========= =========
Weighted average yield 7.0% 6.7% 7.1% 7.3% 6.8% 7.0%
========= ======== ========= ======== ========= =========
Available-for-Sale
U.S. Treasury $ 26,537 $ 14,955 $ -- $ -- $ -- $ 41,492 $ 41,550 $ 41,442
U.S. Government
agencies 23,886 90,870 51,387 -- -- 166,143 166,200 159,856
Mortgage-backed
securities -- 1,691 2,394 12,869 -- 16,954 16,573 16,746
State and political
subdivisions 430 1,224 4,432 346 -- 6,432 6,435 6,432
Other securities -- -- -- -- 9,859 9,859 9,859 10,411
--------- -------- --------- -------- --------- --------- --------- ---------
Total $ 50,853 $108,740 $ 58,213 $ 13,215 $ 9,859 $ 240,880 $ 240,617 $ 234,887
========= ======== ========= ======== ========= ========= ========= =========
Percentage of total 21.1% 45.1% 24.2% 5.5% 4.1% 100.0%
========= ======== ========= ======== ========= =========
Weighted average yield 5.8% 5.9% 6.5% 5.9% 5.4% 6.0%
========= ======== ========= ======== ========= =========
Deposits
- --------------------------------------------------------------------------------
Total average deposits for 1999 were $1.382 billion, compared to $1.367
billion in 1998. As of December 31, 1999, total deposits were $1.411 billion,
compared to $1.381 billion on December 31, 1998. The year-end balances of time
deposits over $100,000 were $225.3 million in 1999, compared to $218.1 million
in 1998.
Table 16 reflects the classification of the average deposits and the
average rate paid on each deposit category which are in excess of 10 percent of
average total deposits for the three years ended December 31, 1999.
Table 16: Average Deposits Balances and Rates
December 31
---------------------------------------------------------------------
1999 1998 1997
------------------- ------------------- ---------------------
Average Average Average Average Average Average
(In thousands) Amount Rate Paid Amount Rate Paid Amount Rate Paid
- ------------------------------------------------------------------------------------------------------------
Non-interest bearing demand
deposits $ 178,103 -- $ 180,519 -- $ 152,248 --
Interest bearing transaction and
savings deposits 448,327 2.70% 421,042 2.90% 363,875 2.89%
Time deposits
$100,000 or more 211,929 5.03% 223,434 5.48% 179,756 5.35%
Other time deposits 543,309 4.99% 541,874 5.50% 438,694 5.48%
----------- ----------- -----------
Total $ 1,381,668 $ 1,366,869 $ 1,134,573
=========== =========== ===========
The Company's maturities of large denomination time deposits at December
31, 1999 and 1998 are presented in table 17.
Table 17: Maturities of Large Denomination Time Deposits
Time Certificates of Deposit
($100,000 or more)
December 31
--------------------------------------------------------
1999 1998
-------------------------- ----------------------------
(In thousands) Balance Percent Balance Percent
- ----------------------------------------------------------------------------------------------------
Maturing
Three months or less $ 69,592 30.89% $ 84,114 38.56%
Over 3 months to 6 months 66,978 29.73% 72,798 33.37%
Over 6 months to 12 months 58,846 26.12% 41,652 19.10%
Over 12 months 29,874 13.26% 19,561 8.97%
----------- -----------
Total $ 225,290 100.00% $ 218,125 100.00%
=========== ===========
Short-Term Borrowings
- --------------------------------------------------------------------------------
Federal funds purchased and securities sold under agreements to repurchase
were $60.5 million at December 31, 1999, as compared to $78.4 million at
December 31, 1998. Other short-term borrowings, consisting of U.S. Treasury
Notes, were $5.0 million at December 31, 1999, as compared to $1.6 million at
December 31, 1998.
The Company has historically funded its growth in earning assets through
the use of core deposits, large certificates of deposits from local markets and
federal funds purchased. Management anticipates that these sources will provide
necessary funding in the foreseeable future. The Company's general policy is to
avoid the use of brokered deposits.
Long-Term Debt
- --------------------------------------------------------------------------------
The Company's long-term debt was $46.2 million and $49.9 million at
December 31, 1999 and 1998, respectively. The outstanding balance for December
31, 1999 includes $16.0 million in long-term debt and $17.3 million of trust
preferred securities. This debt was incurred to fund a portion of the purchase
price of the acquisitions completed in 1997. The Company also has assumed FHLB
long-term advances during acquisitions. The outstanding balance for FHLB
long-term advances was $12.1 million as of December 31, 1999.
Capital
- --------------------------------------------------------------------------------
At December 31, 1999, the total capital reached $159.4 million, another
milestone in the Company's history. Capital represents shareholder ownership in
the Company -- the book value of assets in excess of liabilities. At year-end
1999, the Company's equity to asset ratio was 9.39% compared to 8.91% at
year-end 1998.
The Federal Reserve Board's risk-based guidelines established a
risk-adjusted ratio, relating capital to different categories of assets and
off-balance sheet exposures, such as loan commitments and standby letters of
credit. These guidelines place a strong emphasis on tangible stockholders'
equity as the core element of the capital base, with appropriate recognition of
other components of capital. At December 31, 1999, the Tier 1 capital ratio was
13.67%, while the Company's total risk-based capital ratio was 14.96%, both of
which exceed the capital minimums established in the risk-based capital
requirements.
The Company's risk-based capital ratios at December 31, 1999 and 1998 are
presented in table 18.
Table 18: Risk-Based Capital
December 31
----------------------------
(In thousands) 1999 1998
- ------------------------------------------------------------------------------------------------------
Tier 1 capital
Stockholders' equity $ 159,371 $ 150,384
Trust preferred securities 17,250 17,250
Intangible assets (27,226) (28,513)
Unrealized loss (gain) on
available-for-sale securities 3,900 (1,491)
Other (951) (986)
----------- ----------
Total Tier 1 capital 152,344 136,644
----------- ----------
Tier 2 capital
Qualifying unrealized gain on
available-for-sale equity securities 400 --
Qualifying allowance for loan losses 13,967 13,325
----------- ----------
Total Tier 2 capital 14,367 13,325
----------- ----------
Total risk-based capital $ 166,711 $ 149,969
=========== ==========
Risk weighted assets $ 1,114,226 $1,066,395
=========== ==========
Ratios at end of year
Leverage ratio 9.10% 8.39%
Tier 1 capital 13.67% 12.81%
Total risk-based capital 14.96% 14.06%
Minimum guidelines
Leverage ratio 4.00% 4.00%
Tier 1 capital 4.00% 4.00%
Total risk-based capital 8.00% 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 debt service requirements. At December 31,
1999, undivided profits of the Company's subsidiaries were approximately $85
million, of which approximately $10 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 monitors these same indicators and makes adjustments as needed. At
year end, each subsidiary bank was within established guidelines and total
corporate liquidity remains strong. At December 31, 1999, cash and cash
equivalents, trading and available-for-sale securities and mortgage loans held
for sale were 19.1% of total assets, as compared to 22.3% at December 31, 1998.
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. Disclosures about fair value of
financial instruments, which reflect changes in market prices and rates, can be
found in Note 13 of Notes to Consolidated Financial Statements.
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 s