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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 (Fee Required)
For the fiscal year ended: December 31, 1993
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (No Fee Required)
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)
(501) 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, $5.00 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. [X]
The aggregate market value of common stock, par value $5.00 per share, held
by non-affiliates on March 22, 1994, was approximately $73,876,679.
The number of shares outstanding of the Registrant's Common Stock as of March
30, 1993 was 3,677,378.
Part III is incorporated by reference from the Registrant's Proxy Statement
relating to the Annual Meeting of Shareholders to be held on May 10, 1994.
FORM 10-K INDEX
Part I
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Item 1 Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The Company and the Banks. . . . . . . . . . . . . . . . .
Competition. . . . . . . . . . . . . . . . . . . . . . . .
Employees. . . . . . . . . . . . . . . . . . . . . . . . .
Executive Officers of the Company. . . . . . . . . . . . .
Supervision and Regulation . . . . . . . . . . . . . . . .
Item 2 Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 3 Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . .
Item 4 Submission of Matters to a Vote of Security-Holders. . . . . . . . .
Part II
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Item 5 Market for Registrant's Common Equity and Related Stockholder Matters
Item 6 Selected Financial Data. . . . . . . . . . . . . . . . . . . . . . . .
Item 7 Management's Discussion and Analysis of Financial Condition and
Results of Operations. . . . . . . . . . . . . . . . . . . . . . . .
Item 8 Consolidated Financial Statements and Supplementary Data . . . . . . .
Item 9 Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure . . . . . . . . . . . . . . . . . . . . . . . .
Part III
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Item 10 Directors and Executive Officers of the Company. . . . . . . . . . . . .
Item 11 Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . .
Item 12 Security Ownership of Certain Beneficial Owners and Management . . . . .
Item 13 Certain Relationships and Related Transactions . . . . . . . . . . . . .
Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K. . . . .
PART I
ITEM 1. BUSINESS.
THE COMPANY AND THE BANKS
The Simmons First National Corporation (the "Company") is a bank holding
company registered under the Bank Holding Company Act of 1956. At December
31, 1993, the Company had consolidated total assets of $738.8 million,
consolidated net loans of $387.0 million and total equity capital of $75.3
million. The Company owns three subsidiary banks in Arkansas. Its lead
bank, Simmons First National Bank (the "Bank"), is a national bank which has
been in operation since 1903. In the past two years the Bank has received
substantial favorable national media coverage for offering one of the lowest
credit card interest rates in the United States. The Bank's primary market
area, with the exception of its nationally-provided credit card and mortgage
banking services, is the State of Arkansas. The Company also owns two
community banks, Simmons First Bank of Jonesboro ("Simmons/Jonesboro"), and
Simmons First Bank of Lake Village ("Simmons/Lake Village"), both acquired in
1984. The Company's banking subsidiaries conduct their operations through 23
branches located in 10 communities in Arkansas.
Through its banking subsidiaries, the Company emphasizes retail banking
services, and it considers the Bank to be a national leader in providing
credit card services. The Bank has offered credit card services since 1967,
and at December 31, 1993, the Bank had approximately 194,000 active Visa and
MasterCard accounts in all 50 states, the District of Columbia and certain
U.S. territories, with outstanding balances totalling $168.7 million, or
approximately 43% of total consolidated loans. Approximately 70% of the
Bank's cardholders, representing approximately 70% of the aggregate
outstanding balances in the credit card portfolio, reside outside the State
of Arkansas. The Bank has consistently employed stringent, subjectively-
based credit standards in making credit decisions concerning card applicants,
rather than using a credit scoring, or statistical profile system typically
employed by other credit card issuers. Management believes this
individualized approach to decision-making, emphasizing credit histories and
individual borrower profiles, has been a significant positive factor in
producing a high quality credit card loan portfolio. At December 31, 1993,
the Bank's credit card delinquency and net loss ratios were 0.34% and .098%,
respectively, compared to the national averages of such ratios for all Visa
card issuers of 3.50% and 3.86%, respectively. The Bank's credit card
delinquency and net loss ratios for 1993 are believed by management to be
among the lowest such ratios for all credit card providers in the United
States.
The Bank is the largest provider of guaranteed student loans in
Arkansas, based on lender originations, and in 1993 originated approximately
$29.1 million in student loans to approximately 10,500 borrowers. At
December 31, 1993, the Bank owned and serviced approximately 17,600
outstanding student loans totalling approximately $65.4 million, or
approximately 17% of the Company's total consolidated loans.
The Company provides mortgage banking services through the Bank's
production, sale and servicing of residential real estate mortgages on
properties located primarily in the South, Midwest and Southwest United
States. At December 31, 1993, the Bank serviced, primarily for others,
approximately 32,000 mortgages with an aggregate principal balance of
approximately $1.4 billion.
The Company's banks also provide commercial banking services to
individuals and businesses, including a wide range of commercial and
agricultural loans, deposit, checking and savings accounts, personal and
corporate trust services and investment management, and securities and
investment services through selected banking locations in the State of
Arkansas.
Growth Strategy
The Company's growth strategy is to expand in its primary market area of
the State of Arkansas, by capitalizing on its recent entry into Northwest
Arkansas, one of the fastest growing areas in the state, and emphasizing
commercial and agricultural lending in that area, and by expanding through
further banking acquisitions where the Company believes the acquired assets
can be redeployed into higher yielding credit card loans and other retail
banking services.
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.
Management believes that the single most important competitive factor in
the credit card business is price, in the form of interest rates and
membership fees charged to cardholders, discount fees charged to
participating merchants, and the level of fees and credits shared with
members of the agent bank network for their participation in the Bank's
network. Maintenance of the Bank's agent bank network is a key element in
maintaining the Bank's dominant position in the credit card business in
Arkansas.
Management believes that the Bank's principal competitive strength in
both the Arkansas and national markets for new cardholder business has been
its low interest rate charged to cardholders and resulting favorable national
recognition. The largest bank holding company in Arkansas, which has
substantially greater financial resources than those of the Company, has
recently recommenced active marketing as a card issuer for Visa and
MasterCard inside and outside Arkansas, after having discontinued such
activities several years ago, and has advertised interest rates on its credit
cards competitive with the rates charged by the Bank. Management cannot
predict the effect on its credit card business of this and other new entrants
into the market, but believes the Bank's continuous participation and
experience in this market since 1967 provides it with unique marketing and
other strengths in competing for new cardholder business.
As more credit card issuers have entered the market for merchant
customers in Arkansas during the past three years, competition has
intensified for merchant customers and their related business, primarily on
the basis of price and quality of service. While the Bank's merchant
purchase volume has remained flat during the past three years, management
believes that most established card issuers in the Arkansas market have
experienced declines in their merchant purchase volume as a result of the
increased competition. Management expects that the Bank's merchant purchase
volume will remain flat or decline in the future as a result of continuing
competitive conditions.
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
passage of legislation authorizing interstate banking.
According to information obtained from the Arkansas Association of Bank
Holding Companies, during 1993 there were approximately 35 multi-bank holding
companies in Arkansas and an approximately 102 additional single bank holding
companies. As of December 31, 1993, the Company was the sixth largest multi-
bank holding company in Arkansas, based upon total assets and total deposits.
EMPLOYEES
As of March 15, 1994, the Company and its subsidiaries had 642 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. All
of said officers are elected annually by the Board of Directors.
NAME AGE POSITION YEARS SERVED
- ---------------------------------------------------------------------------------------
W. E. Ayres 63 Chairman and Chief Executive Officer 35
J. Thomas May 47 President 7
Donald W. Stone 63 Executive Vice President 35
Barry L. Crow 51 Executive Vice President and 22
Chief Financial Officer
John L. Rush 59 Secretary 26
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 10 years and, further, requires the approval of the Arkansas Bank
Commissioner for any acquisition of more than 10% 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.
Bank holding companies located in Arkansas are authorized to acquire banks
and bank holding companies located in any of 17 states generally located in
the Southern and Midwestern United States. Further, bank holding companies
located in any of those states may acquire banks and bank holding companies
located in Arkansas, if such state permits bank holding companies located in
Arkansas to acquire banks and bank holding companies located in that state on
a non-discriminatory basis.
SUBSIDIARY BANKS
Simmons First National Bank, a national banking association, is 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 and Simmons/Lake Village, 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. 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. This 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, are
subject to this limitation.
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. Recent
legislation has significantly expanded the enforcement powers of the federal
banking agencies and increased the penalties for violations of the law and
regulations.
RISK-WEIGHTED CAPITAL REQUIREMENTS FOR THE COMPANY AND THE BANKS
After December 31, 1992, 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
and the subsidiary banks' risk-weighted capital ratios, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Capital."
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 after December 31,
1992. 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.
RECENT LEGISLATION FOR BANK HOLDING COMPANIES AND BANKS
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. On
December 1, 1992, 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, and 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 properties of the Company and the Bank consist of an
eleven-story office building, located in the central business district of the
City of Pine Bluff, Arkansas. Originally constructed in 1929, the entire
building has since been completely renovated and modernized. The building is
comprised of approximately 107,000 square feet of floor space, approximately
7,474 square feet of which is leased to various tenants as office space. The
office building is situated on approximately one-fourth of a city block, the
remainder of which, together with approximately one additional city block of
adjacent property, is presently being used as a parking complex for customers
of the Company and its subsidiaries, tenants of the Company and its
subsidiaries and their customers, and the public. Additional office space
was made available in 1980, with the renovation of a storage facility to
provide a 9,601 square foot office complex, now housing the Company and its
subsidiary real estate and investment departments. In 1992, additional
office space was made available for the Bank's activities, when the Bank
purchased a three-story concrete office building, containing approximately
27,000 square feet of space, across the street from its main bank building in
Pine Bluff, Arkansas. The Bank leased a portion of the building prior to
purchasing the building. In 1993, an additional 6,000 square feet were made
available when the Company leased a three-story brick building adjoining the
one purchased in 1992. This building was later purchased also. This added
another 5,000 square feet of storage in addition to the office space for a
total of approximately 11,000 square feet. This facility houses the
Company's student loan operation. The Company is in the process of
renovating the building purchased in 1992 and plans are to move into that
space in late 1994. The Company and the Bank also operate eight drive-in
banking facilities, located throughout the city of Pine Bluff, Arkansas, and
banking facilities at Watson Chapel, White Hall and Sherrill, Arkansas, as
well as the newly acquired offices at Fort Smith, Rogers, Springdale, and
Bella Vista, Arkansas. The largest banking facility comprises approximately
4,200 square feet of floor space, and the smallest comprises approximately
300 square feet.
The principal property of Simmons/Lake Village consists of a one-story
building located in the central business area of the City of Lake Village,
comprising approximately 6,000 square feet of floor space.
The principal property of Simmons/Jonesboro consists of a three-story
building, located in the central business district of the City of Jonesboro,
Arkansas, comprising approximately 47,108 square feet of floor space, 14,252
feet of which is available for lease. In addition, Simmons/Jonesboro
operates two drive-in banking facilities located in that city.
All of the above properties are owned in fee simple and unencumbered,
except (a) approximately one-fourth city block in Pine Bluff, which is leased
from various persons for terms expiring in 2007 with options to extend for an
additional 50 years, which leased parcels comprise a portion of the parking
complex and lie partially under a small portion of a one-floor extension of
the office building, (b) the lands upon which five of the drive-in banking
facilities in Pine Bluff are situated, one of which parcels is leased for a
term expiring in 1994, one in 1995, one in 1997, another in 2010, and the
other of which parcels is leased for a term expiring in 2035, and (c) the
building and land described in a preceding paragraph for the banking facility
in Jonesboro, which has a first mortgage lien to an insurance company with
monthly payments of $12,243 including interest at 9.75%. The newest Pine
Bluff Office and the Rogers, Springdale, and Fort Smith Stonewood facilities
were purchased during 1991. Lease agreements were signed during 1991 for the
Bella Vista office, as well as the other two Fort Smith facilities. Terms of
the Bella Vista and Fort Smith South lease expire in 1994, and the Fort Smith
Central Mall lease expires in 1995. The offices of Simmons First Mortgage
Company and the dealer bank division comprise approximately 20,000 square feet
of all floors of the three-story leased building, with approximately 36,000
total square feet available for lease. The leasing terms expire in 1997.
The Company and its subsidiaries also own or lease various small parcels
of land, on some of which are located improvements, the aggregate of which
would comprise an insignificant portion of the properties of registrant and
its subsidiaries.
ITEM 3. LEGAL PROCEEDINGS
In late 1990, the Bank agreed to sell a substantial portion of its
mortgage servicing rights. During 1991, the Bank received $1,250,000 in
settlement of a lawsuit for failure of the defendant to complete the purchase.
In July, 1992, the defendant in the previous suit, brought action against the
Bank alleging misrepresentations in the settlement agreement and other causes.
The complaint seeks $1,000,000 in compensatory damages and $500,000 in
punitive damages, plus attorney's fees. Management has determined, through
the investigation of facts and relevant laws, that the plaintiff's suit is
without merit and the likelihood of an unfavorable outcome to the Bank is
remote.
A number of legal proceedings exist in which the Company and/or its
subsidiaries are either plaintiffs or defendants or both. Most of the
lawsuits involve loan foreclosure activities. The various unrelated legal
proceedings pending against the subsidiary banks in the aggregate are not
expected to have a material adverse effect on the financial position of the
Company and its subsidiaries.
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. PRICE RANGE OF SOMMON STOCK AND DIVIDEND INFORMATION
The Common Stock is traded and quoted on the over-the-counter NASDAQ
National Market System under the symbol "SFNCA." Prior to October 26, 1992,
the Common Stock was traded on the NASDAQ over-the-counter market. The
following table sets forth, for all the periods indicated, cash dividends
paid, and the high and low bid prices for the Common Stock as reported by
NASDAQ for periods prior to October 26 1992. Price information for periods
prior to that date are inter-dealer prices, without retail mark-up, mark-down
or commissions paid, and may not necessarily reflect actual transactions.
Price information for periods on and after October 26, 1992 reflect the last
sale price as reported by NASDAQ. Prior to 1993, historically, the Common
Stock had not been actively traded. All price quotations and dividend
information have been restated to reflect the 100% stock dividend on the
Common Stock effected June 5, 1992.
PRICE PER QUARTERLY
COMMON SHARE DIVIDENDS
---------------- PER COMMON
HIGH LOW SHARE
--------- --------- ----------------
1993
1st Quarter $ 25 $ 21 $ .10
2nd Quarter 24 1/2 21 3/4 .10
3rd Quarter 25 22 .10
4th Quarter 27 1/2 25 .10
1992
1st Quarter $ 14 1/8 $ 12 7/8 $ .10
2nd Quarter 17 1/2 14 1/8 .10
3rd Quarter 17 1/2 17 1/2 .10
4th Quarter 24 17 1/2 .10
At December 31, 1993, the Common Stock was held of record by
approximately 1,232 stockholders. On March 22, 1994, the last sale price for
the Common Stock as reported by NASDAQ was $23.75 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 in any
year, in excess of the sum of net income 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 and
Simmons/Lake Village, Arkansas bank regulators have specified that the
maximum dividends state banks may pay to the parent company without prior
approval is 50% of the current year earnings. At December 31, 1993,
approximately $11.9 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 Interest Rate Sensitivity," and
Note 10 of Notes to Consolidated Financial 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 the 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, 1993, 1992, 1991, 1990, and 1989 were derived from consolidated
financial statements of the Company, which were audited by Baird, Kurtz &
Dobson. 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.
(Dollars in Thousands, Years Ended December 31,
except per common share data) 1993 1992 1991 1990 1989
- --------------------------------------------------------------------------------------------------------
Income statement data:
Net interest income $ 28,450 $ 26,525 $ 22,536 $ 21,278 $ 18,944
Provision for loan losses $ 3,006 $ 3,741 $ 3,552 $ 2,681 $ 4,279
Net interest income after
provision for loan losses $ 25,444 $ 22,784 $ 18,984 $ 18,597 $ 14,665
Non-interest income $ 26,129 $ 25,578 $ 23,114 $ 19,786 $ 18,044
Non-interest expense $ 38,711 $ 37,978 $ 34,869 $ 32,197 $ 29,129
Income tax expense $ 3,466 $ 2,907 $ 1,929 $ 1,823 $ 491
Net income $ 9,396 $ 7,477 $ 5,300 $ 4,363 $ 3,089
Per common share data:
Earnings $ 2.78 $ 2.60 $ 1.89 $ 1.56 $ 1.08
Book value $ 20.49 $ 18.03 $ 15.83 $ 14.02 $ 12.83
Dividends $ .40 $ .40 $ .37 $ .34 $ .30
Balance sheet data at period-end:
Total assets $ 738,760 $ 705,903 $ 673,377 $ 647,783 $ 528,225
Total loans, net of unearned discount $ 394,426 $ 367,655 $ 331,062 $ 329,951 $ 322,737
Credit card loans $ 168,673 $ 162,251 $ 123,593 $ 105,016 $ 103,420
Allowance for loan losses $ 7,430 $ 5,748 $ 5,302 $ 4,507 $ 3,878
Total deposits $ 610,355 $ 590,409 $ 563,114 $ 528,302 $ 429,533
Long-term debt and other
notes payable $ 12,178 $ 12,208 $ 12,236 $ 12,261 $ 12,284
Total stockholders' equity $ 75,335 $ 51,219 $ 45,460 $ 40,259 $ 36,848
Capital ratios at period end:
Leverage 10.21 % 6.90 % 6.24 % 5.68 % NA
Tier one risk-based 17.19 % 12.27 % 10.39 % 9.11 % NA
Total risk-based 20.01 % 15.76 % 14.45 % 13.11 % NA
Selected ratios:
Return on average assets 1.33 % 1.09 % .84 % .82 % .61 %
Return on average common
equity 14.31 % 15.43 % 12.50 % 11.33 % 8.66 %
Net interest margin 4.73 % 4.54 % 4.19 % 4.77 % 4.48 %
Allowance/nonperforming loans 177.92 % 94.84 % 173.78 % 75.13 % 79.29 %
Allowance for loan losses
as a percentage of
average loans 1.88 % 1.60 % 1.54 % 1.36 % 1.18 %
Nonperforming loans as a
percentage of period-end
loans 1.06 % 1.65 % .92 % 1.81 % 1.51 %
Net charge-offs as a percentage
of average total assets .19 % .48 % .44 % .38 % .85 %
Average stockholders' equity to
average total assets 9.33 % 7.09 % 6.75 % 7.22 % 7.04 %
Dividend payout 14.39 % 15.38 % 19.58 % 21.79 % 27.78 %
- -------------------------
(1)The selected consolidated financial data set forth above 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.
(2) Leverage ratio is Tier 1 Capital to average total assets less intangible
assets.
(3) Fully taxable equivalent on a 34% federal tax rate basis for all periods
presented.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
The Company is a bank holding company, comprised of three commercial bank
subsidiaries, with $738.8 million in assets, as of December 31, 1993.
The Company achieved record earnings performance in 1993. For the year
ended December 31, 1993, net income totaled $9.4 million, a $1.9 million, or
25.7%, increase over 1992 net income of $7.5 million. Return on average assets
was 1.33% in 1993, compared to 1.09% in 1992, and .84% in 1991. Return on
average equity was 14.03% in 1993, compared to 15.43% in 1992, and 12.50% in
1991. On a per share basis, net income for 1993 was $2.78, compared to $2.60
in 1992 and $1.89 in 1991. Dividends for 1993 and 1992 were $.40, compared to
dividends of $.37 in 1991.
Stockholders' equity at December 31, 1993, was $75.3 million, an increase
of 24.1% over the 1992 amount. On December 24, 1991, an additional 72,378
shares as (adjusted to reflect the 100% stock dividend in June 1992) of common
stock were issued to the Company's employee stock ownership plan for cash in
the amount of $923,000. The growth in capital is attributable to the Company's
record earnings and, to a larger extent, the issuance of 805,000 shares of the
Company's common stock at $22.00 per share during the second quarter of 1993.
Earnings per common share and dividends per common share presented in the
financial statements have been restated retroactively, to reflect the effects
of the stock dividend on a consistent basis.
ACQUISITIONS
In December 1990, Simmons First National Bank, the lead bank of the
Company, entered into an agreement with the Resolution Trust Corporation
("RTC") to acquire selected assets and deposits of four offices of a closed
savings and loan association located in Northwest Arkansas. The Bank assumed
approximately $77.5 million in deposits through acquired offices located in
Fort Smith, Bella Vista, Rogers, and Springdale, Arkansas. These offices
became full service branches of the Bank and created an opportunity for the
Bank to provide banking services in one of the fastest growing areas in
Arkansas.
In July 1991, Bank entered into an agreement with the RTC to acquire
selected assets and deposits of three offices of a savings and loan association,
of which two offices were located in Fort Smith and one was located in Pine
Bluff, Arkansas. The deposits in the Pine Bluff office were consolidated into
the existing operations, while the two Fort Smith offices became full service
branches of the Bank. In September 1991, the Bank entered into an agreement
with the RTC to acquire selected assets and deposits of an office of a savings
and loan association located in Pine Bluff, Arkansas. In March 1992, another
agreement was reached between the Bank and the RTC for the acquisition of
selected assets and deposits of an office of another savings and loan
association in Pine Bluff. These offices became full service branches of the
Bank. The Bank assumed approximately $83.0 million in deposits through these
acquisitions in 1991 and 1992, and further expanded its operations in Northwest
Arkansas.
INCOME STATEMENT REVIEW FOR THE YEARS 1993, 1992 AND 1991
In 1993, the Company reported record net earnings of $9.4 million, and
record earnings per share of $2.78. This compares to then-record net earnings
of $7.5 million, and then-record earnings per share of $2.60, reported in 1992.
The earnings increase in 1993 was a result of an increase in net interest
income and non-interest income, which again was partially offset by an increase
in non-interest expense.
Net Interest Income
Net interest income, the Company's principal source of earnings, is the
difference between the 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 tax equivalent basis. The adjustment to convert
certain income to a fully taxable equivalent basis consists of dividing tax
exempt income by one minus the federal income tax rate (34% for 1993, 1992 and
1991).
For the year ended December 31, 1993, net interest income on a fully tax
equivalent basis was $29.8 million, an increase of approximately $2.2 million,
or 7.9%, from 1992 net interest income. The increase in net interest income
resulted primarily from a more precipitous drop in rates paid on interest
bearing liabilities than the related decline in yields on earning assets. For
the year ended December 31, 1992, net interest income on a fully tax equivalent
basis increased approximately $4.2 million, or 18.0%, from comparable figures
in 1991. This increase in net interest income is primarily attributable to an
increase in earning assets related to the deposit acquisitions in late 1990,
1991 and 1992. The tables below reflect an analysis of net interest income on
a fully taxable equivalent basis for the years ended December 31, 1993, 1992
and 1991, respectively, as well as changes in fully taxable equivalent net
interest income for the years 1993 vs. 1992 and 1992 vs. 1991.
ANALYSIS OF NET INTEREST INCOME
(FTE = FULLY TAXABLE EQUIVALENT)
Years Ended December 31,
(Dollars in Thousands) 1993 1992 1991
- -----------------------------------------------------------------------------
Interest income $44,394 $46,042 $49,674
FTE adjustment 1,341 1,087 864
------ ------ ------
Interest income - FTE 45,735 47,129 50,538
Interest expense 15,944 19,517 27,138
------ ------ ------
Net interest income - FTE $29,791 $27,612 $23,400
======= ======= =======
Yield on earning assets - FTE 7.27 % 7.74 % 9.05 %
Cost of interest bearing liabilities 3.11 % 3.71 % 5.63 %
Net interest spread - FTE 4.16 % 4.03 % 3.42 %
Net interest margin - FTE 4.73 % 4.54 % 4.19 %
CHANGES IN FULLY TAXABLE EQUIVALENT NET INTEREST INCOME
(Dollars in Thousands) 1993 vs. 1992 1992 vs. 1991
- --------------------------------------------------------------------------------
Increase (decrease) due to change in
earning assets $ (2,708) $ 4,371
Increase (decrease) due to change in
earning asset yields 1,314 (7,780)
Increase due to change in
interest rates paid on interest
bearing liabilities 3,342 10,798
Increase (decrease) due to change in
interest bearing
liabilities 231 (3,177)
--------- ---------
Increase in net interest income $ 2,179 $ 4,212
========= =========
The following table 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 ending December 31, 1993. 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. Nonaccrual loans were included in average loans for
the purpose of calculating the rate earned on total loans.
AVERAGE CONSOLIDATED BALANCE SHEETS AND NET INTEREST ANALYSIS
Years Ended December 31,
--------------------------------------------------------------------------------------
1993 1992 1991
- -------------------------------------------------------------------------------------------------------------------------
(Dollars in Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
Thousands) balance expense rate balance expense rate balance expense rate
- -------------------------------------------------------------------------------------------------------------------------
ASSETS
------
Earning assets:
Interest-earning
time deposits $ 856 $ 27 3.15 % $ 1,447 $ 47 3.25 % $ 2,236 $ 115 5.14 %
Federal funds sold
and securities
purchased under
agreements
to resell 23,345 738 3.16 % 45,582 1,625 3.57 % 56,680 3,127 5.52 %
Investment securities:
Taxable 163,631 10,400 6.36 % 167,253 12,320 7.37 % 130,892 10,928 8.35 %
Tax-exempt 45,681 3,945 8.64 % 33,886 3,205 9.46 % 23,847 2,541 10.66 %
Loans (net of
unearned income) 395,689 30,625 7.74 % 360,355 29,932 8.31 % 344,869 33,827 9.81 %
Total earning ------- ------- ------- ------- -------- -------
assets 629,202 $ 45,735 7.27 % 608,523 $ 47,129 7.74 % 558,524 $ 50,538 9.05 %
======= ======= =======
Non-earning assets 74,942 75,246 70,403
------- ------- -------
Total assets $704,144 $683,769 $628,927
======= ======= =======
LIABILITIES AND
---------------
STOCKHOLDERS'
-------------
EQUITY
------
Liabilities
Interest-bearing liabilities:
Deposits
Interest bearing
transaction &
savings accts $200,122 $ 5,232 2.61 % $216,591 $ 5,922 2.73 % $189,824 $ 7,870 4.15 %
Certificates of
deposits $100,000
or more 56,759 1,881 3.32 % 61,057 2,840 4.65 % 66,379 4,157 6.26 %
Other time deposits 211,980 7,138 3.37 % 202,017 8,750 4.33 % 174,561 11,860 6.79 %
Total interest- ------- ------- ------- ------- ------- -------
bearing deposits 468,861 14,251 3.04 % 479,665 17,512 3.65 % 430,764 23,887 5.55 %
Short-term
borrowings 31,281 920 2.94 % 34,098 1,184 3.47 % 38,864 2,168 5.58 %
Long-term
borrowings 12,192 773 6.34 % 12,221 821 6.72 % 12,248 1,083 8.84 %
Total interest- ------- ------- ------- ------- ------- -------
bearing
liabilities 512,334 15,944 3.11 % 525,984 19,517 3.71 % 481,876 27,138 5.63 %
------- ------- ------- ------- ------- -------
Non-interest liabilities:
Non-interest
bearing deposits 116,744 98,482 93,702
Other non-interest
liabilities 9,383 10,855 10,947
Total ------- ------- -------
liabilities 638,461 635,321 586,525
------- ------- -------
Stockholders' equity 65,683 48,448 42,402
------ ------- -------
Total Liabilities
and Stockholders'
Equity $704,144 $683,769 $628,927
======= ======= =======
Net interest
margin $ 29,791 4.73 % $ 27,612 4.54% $ 23,400 4.19 %
======= ======= =======
Under Financial Accounting Standard ("SFAS") 91, loan fees and related costs
are deferred and amortized as part of interest income. Non-accrual loans are
included in above totals.
The following table 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, 1993 and 1992, 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 change in rate and volume.
VOLUME/RATE ANALYSIS
Years Ended December 31,
1993 over 1992 1992 over 1991
-------------------------------------------------------------------------
Yield/ Yield/
(Dollars in Thousands) Volume rate Total Volume rate Total
- --------------------------------------------------------------------------------------------------------------
Increase (decrease) in:
Interest income:
Interest-earning time deposits $ (19) $ (1) $ (20) $ (33) $ (35) $ (68)
Federal funds sold and securities
purchased under agreements
to resell (719) (168) (887) (536) (966) (1,502)
Investment securities 760 (1,888) (1,128) 3,235 (1,241) 1,994
Mortgage loans held for delivery
against commitments 935 (168) 767 (701) (339) (1,040)
Trading account securities (35) (17) (52) 85 (23) 62
Loans, net of unearned discount (3,630) 3,556 (74) 2,321 (5,176) (2,855)
------- -------- ------- ------- ------- -------
Total $ (2,708) $ 1,314 $ (1,394) $ 4,371 $ (7,780) $ (3,409)
------- -------- ------- ------- ------- -------
Interest expense:
Interest bearing deposits $ (169) $ (3,092) $ (3,261) $ 3,475 $ (9,850) $ (6,375)
Federal funds purchased
and securities sold under
agreements to repurchase (109) (144) (253) (136) (674) (810)
Borrowed funds 47 (106) (59) (162) (274) (436)
------- -------- ------- ------- ------- -------
Total $ (231) $ (3,342) $ (3,573) $ 3,177 $(10,798) $ (7,621)
Increase (decrease) in ------- -------- ------- ------- ------- -------
net interest income $ (2,477) $ 4,656 $ 2,179 $ 1,194 $ 3,018 $ 4,212
======= ======== ======= ======= ======= =======
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 1993 was $3.0 million, a decrease of $.7 million, or 19.7%,
when compared to the provision in 1992. The provision for 1992 was $3.7
million, an increase of $.2 million, or 5.3%, from 1991. The increase in 1992
from 1991 relates primarily to increases in the provision for real estate
mortgage and construction loans.
Non-Interest Income
Total non-interest income reached $26.1 million in 1993, compared to $25.6
million in 1992 and $23.1 million in 1991. Non-interest income can generally be
broken down into three main sources: fee income, which includes service charges
on deposits, trust fees, credit card fees, and loan servicing fees; income on
the sale of mortgage loans and trading account profits; and any gain or loss on
the sale of securities.
The table below shows non-interest income for the years ended December 31,
1993, 1992 and 1991, respectively, as well as changes in 1993 from 1992 and in
1992 from 1991.
NON-INTEREST INCOME
1993 1992
Years Ended December 31, Change from Change from
(Dollars in Thousands) 1993 1992 1991 1992 1991
- -----------------------------------------------------------------------------------------------------------------------
Trust income $ 1,807 $ 1,750 $ 1,425 $ 57 3.26 % $ 325 22.81 %
Service charges on deposit accounts 2,296 2,124 2,011 172 8.10 % 113 5.62 %
Other service charges and fees 879 784 805 95 12.12 % (21) -2.61 %
Income on sale of mortgage loans
and trading account income,
net of commissions 2,385 2,735 2,134 (350) -12.80 % 601 28.16 %
Securities gains (losses) 140 59 50 81 137.29 % 9 18.00 %
Credit card fees 10,867 9,575 7,522 1,292 13.49 % 2,053 27.29 %
Loan service fees 7,322 7,941 7,290 (619) -7.79 % 112 1.54 %
Other income 433 610 1,877 (177) -29.02 % (1,267) -67.50 %
------- ------- ------- ------- ------
Total non-interest income $ 26,129 $ 25,578 $ 23,114 $ 551 2.15 % $ 1,925 8.31 %
======= ======= ======= ======= =======
Fee income for 1993 was $23.2 million, an increase of $1.0 million, or
4.5%, when compared with 1992 figures. Fee income for 1992 was $22.2 million,
up $3.1 million, or 16.2%, when compared with 1991 figures. The increase for
both years in service charges on deposits is primarily due to the increase in
deposits, related to the deposit acquisitions in Northwest Arkansas and Pine
Bluff, Arkansas. In 1993, credit card fees increased $1.3 million from 1992,
due to increased volume that resulted primarily from the Company's capitalizing
on national media coverage of the Bank's having one of the lowest credit card
rates in the United States. Loan service fees decreased $.6 million in 1993,
primarily due to an increase in mortgage servicing amortization expense.
On the consolidated statements of income, income from the sale of mortgage
loans and trading profits is presented as net of commissions. The income
recorded in this account results from the Company's dealer bank operations, as
well as fee income associated with the purchase of single family residential
loans, the securitization of those loans, and subsequent sale and delivery of
those securities against prior commitments. For 1993, income from these areas
totaled $2.4 million, compared to $2.7 million in 1992 and $2.1 million in 1991.
Non-Interest Expense
Non-interest expense consists of salaries and employee benefits, occupancy,
equipment 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
over the past five years. The Company utilizes an extensive profit planning and
reporting system that involves all affiliates and their respective functional
responsibility centers. Affiliate banks and associated responsibility centers
develop detailed monthly and annual profit plans, 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
then are monitored by the Company and bank management on a monthly basis.
Variances from the plan are reviewed in detail monthly and, when required,
management takes corrective action intended to ensure that financial goals are
met. Company management also regularly monitors staffing levels at each
affiliate, to ensure that productivity and overhead are in line with existing
workload requirements.
Non-interest expense for 1993 was $38.7 million, an increase of $.7
million, or 1.9%, from 1992. Non-interest expense for 1992 was $38.0 million,
an increase of $3.1 million, or 8.9%, from 1991. The increases for 1993 and
1992, respectively, are primarily attributable to increases in salaries and
employee benefits, resulting from increases in staffing associated with the
Northwest Arkansas deposit acquisitions in 1990 and 1991.
The table below shows non-interest expense for the years ended December 31,
1993, 1992 and 1991, respectively, as well as changes from 1993 to 1992 and
1992 to 1991, respectively.
NON-INTEREST EXPENSE
1993 1992
Years Ended December 31, Change from Change from
(Dollars in Thousands) 1993 1992 1991 1992 1991
- -----------------------------------------------------------------------------------------------------------------
Salaries and employee
benefits $ 19,609 $ 18,677 $ 16,630 $ 932 4.99 % $ 2,047 12.31 %
Net occupancy expense 1,937 1,836 1,799 101 5.50 % 37 1.89 %
Equipment expense 1,969 2,003 2,016 (34) -1.70 % (13) -0.64 %
Other real estate and
foreclosure expense 2,336 2,471 2,308 (135) -5.46 % 163 7.06 %
Other operating expense:
Professional services 1,530 1,542 1,189 (12) -0.78 % 353 29.69 %
Postage 1,267 1,365 1,190 (98) -7.18 % 175 14.71 %
Telephone 783 798 738 (15) -1.88 % 60 8.13 %
Credit Card Expense 1,163 1,083 947 80 7.39 % 136 14.36 %
Operating supplies 954 1,810 1,100 (856) -47.29 % 710 64.55 %
FDIC insurance 1,293 1,066 854 227 21.29 % 212 24.82 %
Miscellaneous expenses 5,870 5,327 6,098 543 10.19 % (771) -12.64 %
------- ------- ------- ------ -----
Total non-interest expense $ 38,711 $ 37,978 $ 34,869 $ 733 1.93 % $ 3,109 8.92 %
======= ======= ======= ====== =======
Income Taxes
The provision for income taxes for 1993 was $3.5 million, compared to $2.9
million in 1992 and $1.9 million in 1991. The effective income tax rates for
the years ended 1993, 1992 and 1991 were 27.0%, 28.0% and 26.7%, respectively.
Management adopted SFAS No. 109 retroactively to January 1, 1989, and its
implementation did not have a material impact on net income on stockholders'
equity.
BALANCE SHEET REVIEW FOR THE YEARS 1993 AND 1992
Loan Portfolio
The Company's loan portfolio averaged $395.7 million during 1993 and
$360.4 million during 1992. As of December 31, 1993, total loans were $394.4
million, compared to $367.7 million on December 31, 1992. The most significant
components of the loan portfolio were 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 independent loan review process. The loan portfolio
is diversified by borrower, purpose, industry and, in the case of credit card
loans, which are unsecured loans, 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 identification and monitoring of
deteriorating credits.
Consumer loans consist of credit card loans, student loans and other
consumer loans. Consumer loans were $270.8 million at December 31, 1993, or
68.6% of total loans, compared to $252.9 million, or 68.7% of total loans at
December 31, 1992. At year end, 1993, credit card loans were $168.7 million,
or 42.7% of total loans, versus $162.3 million, or 44.1% of total loans at
December 31, 1992. The increase relates, in part, to the increased demand
resulting from the Company's capitalizing on national media coverage of the
Bank's having one of the lowest credit card rates in the United States.
The lead Bank has provided diversified credit card services since 1967,
when it became the first Arkansas bank to issue internationally accepted credit
cards. The Bank is a member of both the Visa and Mastercard associations, and
at April 30, 1993, was ranked 67th among all U.S. banks, based on the number of
cardholders in such banks.
The Bank generated income from its credit card operation primarily from
interest charged on daily balances and from annual membership and other fees
paid by cardholders, from discounts paid by merchants on purchases made with
the Bank's cards, and from interchange fees paid by depository and agent banks
for whom the Bank processes credit card transactions.
Since 1985, when it began receiving national recognition about the low
interest rates charged on cards issued by the Bank, the Bank has provided these
services to selected customers located throughout the United Sates. Credit card
customers reside in all 50 states, the District of Columbia and certain U.S.
territories. Approximately 70% of these customers reside outside the State of
Arkansas, representing approximately 70% of aggregate outstanding credit card
balances.
The following table reflects the growth of the Bank's credit card business
since 1989:
Years Ended December 31,
----------------------------------------------------------------------------
Dollars in Thousands) 1993 1992 1991 1990 1989
- -------------------------------------------------------------------------------------------------------------------
No. of Cardholders 193,599 196,546 163,743 154,653 157,453
Annual Cardholder
Volume $ 323,646 $ 316,771 $ 241,988 $ 226,413 $ 217,299
Aggregate
Outstanding
Balances $ 168,673 $ 162,251 $ 123,593 $ 105,016 $ 103,420
At the end of 1993, commercial, agricultural and financial institution
loans were $39.2 million, or 9.9% of total loans, a 6.2% increase from 1992 year
end's $36.9 million. Real estate construction and land development loans at
December 31, 1993, were $6.3 million, or 1.6% of total loans, compared to $4.7
million, or 1.3% of total loans at the end of 1992. Single family real estate
loans at December 31, 1993 were $36.7 million, or 9.3% of total loans, compared
to $42.2 million, or 11.46% of total loans at December 31, 1992.
The amount of loans outstanding at the indicated dates are reflected in
the following table, according to type of loan.
LOAN PORTFOLIO
Years Ended December 31,
----------------------------------------------------------------
(Dollars in Thousands) 1993 1992 1991 1990 1989
- ---------------------------------------------------------------------------------------------
Consumer:
Credit card $ 168,673 $ 162,251 $ 123,593 $ 105,016 $ 103,420
Student loan 65,379 58,727 54,957 55,101 49,678
Other consumer 36,763 31,878 32,706 36,054 37,005
Real estate:
Construction 6,281 4,708 2,784 3,695 5,684
Single family
residential (1-4) 36,651 42,177 50,866 55,243 42,132
Other commercial 37,853 27,991 24,509 29,414 29,632
Commercial:
Commercial 20,007 20,833 21,787 27,222 34,880
Agricultural 16,088 12,917 13,282 14,294 16,389
Financial
institutions 3,087 3,142 3,155 2,711 3,545
Other 3,998 3,475 3,931 1,864 681
-------- -------- -------- -------- --------
Total loans 394,780 368,099 331,570 330,614 323,046
Unearned discount (354) (444) (508) (663) (309)
-------- -------- -------- -------- --------
Total loans, net of
unearned
discount $ 394,426 $ 367,655 $ 331,062 $ 329,951 $ 322,737
======== ======== ======== ======== ========
The following table reflects the remaining maturities of loans at December
31, 1993.
LOAN MATURITIES
Over 1
year
1 year through Over
(Dollars in Thousands) or less 5 years 5 years Total
- -----------------------------------------------------------------------------------------------------------------------------------
Commercial, financial & agricultural $ 29,979 $ 9,033 $ 170 $ 39,182
Real estate - construction 5,432 849 6,281
Other 249,547 81,134 18,282 348,963
-------- -------- -------- --------
$ 284,958 $ 91,016 $ 18,452 $ 394,426
======== ======== ======== ========
The following table reflects for the above loans, the amounts which have
predetermined interest rates and the amounts which have floating interest rates
due after one year at December 31, 1993.
LOAN REPRICING
Over 1
year
1 year through Over
(Dollars in Thousands) or less 5 years 5 years Total
- ----------------------------------------------------------------------------------------
Predetermined rate $ 39,434 $ 67,224 $ 18,452 $ 125,110
Floating rate 245,524 23,792 269,316
--------- -------- -------- --------
$ 284,958 $ 91,016 $ 18,452 $ 394,426
========= ======== ======== ========
Asset Quality
Nonperforming loans are comprised of (a) non-accrual loans, (b) loans which
are contractually past due 90 days and (c) other loans whose terms have been
restructured, to provide a reduction or deferral of interest or principal,
because of a 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 collectibility 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 uncollectible, the portion of the loan determined to be
uncollectible is then charged to the allowance for loan losses. Credit card
loans are classified as sub-standard when payment of interest or principal is
90 days past due. Litigation accounts are placed on non-accrual until such
time as deemed uncollectable. Credit card loans are 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 uncollectible.
The following tables present information concerning nonperforming assets,
including nonaccrual and restructured loans and other real estate owned.
NONPERFORMING ASSETS
Years Ended December 31,
--------------------------------------------------------------
(Dollars in Thousands) 1993 1992 1991 1990 1989
- ------------------------------------------------------------------------------------------------------
Nonaccrual loans $ 2,813 $ 4,374 $ 1,260 $ 1,325 $ 3,114
Loans past due 90 days or more
(principal or interest payments) 1,019 1,337 1,791 4,674 1,777
Restructured 344 350 -- -- --
------- ------- ------- ------- -------
Total non-performing loans 4,176 6,061 3,051 5,999 4,891
------- ------- ------- ------- -------
Other non-performing assets:
Other real estate owned 2,514 2,834 5,139 4,733 4,879
In-substance foreclosure 363 1,225 -- 1,955 --
Other non-performing assets 992 212 -- -- --
Total other ------- ------- ------- ------- -------
non-performing assets 3,869 4,271 5,139 6,688 4,879
------- ------- ------- ------- -------
Total non-performing assets $ 8,045 $ 10,332 $ 8,190 $ 12,687 $ 9,770
======= ======= ======= ======= =======
(1) Assets constituting other real estate owned are generally marked down
to appraised value less estimated selling expense at the time of transfer from
the loan portfolio, and are appraised annually thereafter, lower, until
disposition.
Years Ended December 31,
-------------------------------------------------------------
1993 1992 1991 1990 1989
- --------------------------------------------------------------------------------------------------------
Net charge-offs to average loans 0.33 % 0.91 % 0.80 % 0.62 % 1.31 %
Allowance for loan losses to total loans 1.88 % 1.56 % 1.60 % 1.36 % 1.20 %
Allowance for loan losses
to non-performing loans 177.92 % 94.84 % 173.78 % 75.13 % 79.29 %
Non-performing loans to total loans 1.06 % 1.65 % .92 % 1.81 % 1.51 %
Non-performing assets to total assets 1.09 % 1.46 % 1.22 % 1.96 % 1.85 %
Approximately $347,000 and $363,000 of interest income would have been
recorded for the periods ended December 31, 1993 and 1992, 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
period ended December 31, 1993.
Allowance for Loan Losses
An analysis of the allowance for loan losses for the last five fiscal years
is shown in the table below:
Years Ended December 31,
-----------------------------------------------------------------
(Dollars in Thousands) 1993 1992 1991 1990 1989
- ---------------------------------------------------------------------------------------------------------
Balance of reserve for loan losses
at beginning of period $ 5,748 $ 5,302 $ 4,507 $ 3,878 $ 3,914
------- ------- ------- ------- -------
Loans charged off:
Consumer:
Credit cards 1,761 1,944 1,681 1,461 1,708
Other consumer 171 127 159 191 164
Student loans 2 11 23 141 206
------- ------- ------- ------- -------
Total consumer 1,934 2,082 1,863 1,793 2,078
Real estate: ------- ------- ------- ------- -------
Construction 40 5 289 -- --
Single family residential 31 44 57 17 122
Other commercial 6 168 628 546 1,870
------- ------- ------- ------- -------
Total real estate 77 217 974 563 1,992
Commercial: ------- ------- ------- ------- -------
Commercial 40 1,297 88 53 588
Agricultural -- 74 159 -- 1
------- ------- ------- ------- -------
Total commercial 40 1,371 247 53 589
------- ------- ------- ------- -------
Total loans charged off 2,051 3,670 3,084 2,409 4,659
------- ------- ------- ------- -------
Recoveries of loans previously charged off:
Consumer:
Credit cards 211 196 173 185 161
Other consumer 77 44 64 59 118
Student loans 1 18 8 6 10
------- ------- ------- ------- -------
Total consumer 289 258 245 250 289
Real estate: ------- ------- ------- ------- -------
Construction -- -- -- -- --
Single family residential 5 24 13 24 8
Other commercial 3 81 48 55 35
------- ------- ------- ------- -------
Total real estate 8 105 61 79 43
Commercial: ------- ------- ------- ------- -------
Commercial 345 12 17 28 4
Agricultural 85 -- 4 -- 8
------- ------- ------- ------- -------
Total commercial 430 12 21 28 12
------- ------- ------- ------- -------
Total recoveries 727 375 327 357 344
------- ------- ------- ------- -------
Net loans charged off 1,324 3,295 2,757 2,052 4,315
Additions to reserve charged
to operating expense 3,006 3,741 3,552 2,681 4,279
------- ------- ------- ------- -------
Balance, end of period $ 7,430 $ 5,748 $ 5,302 $ 4,507 $ 3,878
======= ======= ======= ======= =======
The amounts of additions to the allowance during the year 1993 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, loans which could be future problems and net losses
from loan charge-offs for the past 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 Bank's senior loan committee, comprised of outside directors, has
oversight responsibility for approving commercial and individual loans in excess
of $100,000 unsecured, and $200,000 secured, and monitoring loan delinquencies,
the status of non-performing assets and the evaluation of allowance for loan
losses. In addition, the committee ratifies and/or approves loans made by other
banking subsidiaries in excess of 13.5% of any such bank's equity capital. The
Bank's agricultural committee, composed of outside directors whose occupations
are closely tied to the farming industry, have oversight responsibility for the
agricultural loan portfolio. The responsibilities and approval authorities of
this committee are the same as the senior loan committee, as they pertain to
agricultural loans.
The Company's special services group is responsible for serving all
subsidiaries of the Company in the audit, loan review, and compliance areas.
In the area of loan review, periodic audits of each subsidiary are scheduled for
the purpose of evaluating asset quality, adequacy of loan losses, and
effectiveness of loan administration. The special services group prepares loan
review reports, which identify deficiencies, establish recommendations for
improvement, and outline management's proposed action plan for curing the
deficiencies. This report is provided to a corporate audit committee, which
includes outside members of the Company's Board of Directors and selected senior
affiliate directors. The audit committee monitors the reported items until the
exceptions are cleared.
Based on the above-noted procedures, management is of the opinion that the
allowance at December 31, 1993, of $7.4 million is adequate. While management
believes the current allowance is adequate, changing economic conditions and
other conditions may require future additions to the allowance. Moreover, the
allowance is subject to regulatory examination and determination as to adequacy.
Although not presently anticipated, adjustments to the allowance may result
from regulatory examinations.
The Company allocates the allowance for possible loan losses according to
the amount deemed to be reasonably necessary to provide for the possibility of
losses being incurred within the categories of loans set forth in the tables
below.
ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
December 31,
-------------------------------------------------------------------------------------------------------
1993 1992 1991 1990 1989
------------------- ------------------- -------------------- ------------------- ------------------
Allowance Percent Allowance Percent Allowance Percent Allowance Percent Allowance Percent
(Dollars in Thousands) Amount of loans* Amount of loans* Amount of loans* Amount of loans* Amount of loans*
- -----------------------------------------------------------------------------------------------------------------------------------
Consumer:
Credit card $ 2,430 42.8 % $ 2,232 44.0 % $ 1,922 37.2 % $ 1,510 31.8 % $ 1,611 32.0 %
Student loans 100 16.6 % 100 16.0 % 100 16.6 % 201 16.7 % 231 15.4 %
Other 299 9.3 % 483 8.7 % 458 9.9 % 312 11.0 % 343 11.5 %
Real estate:
Real estate construction 13 1.6 % 74 1.3 % 69 .8 % 65 1.1 % 45 1.8 %
Single family residential 1,009 9.2 % 310 11.5 % 385 15.3 % 345 16.6 % 295 13.0 %
Other commercial 701 9.6 % 1,261 7.6 % 1,525 7.4 % 950 8.9 % 705 9.2 %
Commercial:
Commercial 339 5.1 % 295 5.7 % 577 6.6 % 453 8.2 % 542 10.8 %
Agricultural -- 4.1 % 188 3.5 % 207 4.0 % 154 4.3 % 106 5.0 %
Financial institutions 161 .8 % -- .8 % -- 1.0 % -- .8 % -- 1.1 %
Other -- .9 % 3 .9 % 2 1.2 % -- .6 % -- .2 %
Unallocated 2,378 802 -- 57 -- 517 -- -- --
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Total $ 7,430 100.0 % $ 5,748 100.0 % $ 5,302 100.0 % $ 4,507 100.0 % $ 3,878 100.0 %
======= ===== ======= ===== ======= ===== ======= ===== ======= =====
* Percentage of loans in each category to total loans
Investments and Securities
The Company's securities portfolio is the second largest component of
earning assets and provides a significant source of revenue. Securities are
classified as investments when the Company has the ability and intent to hold
them to maturity. The portfolio is held for long-term profitability and is
stated at adjusted cost. In considering whether securities can be held until
maturity, management considers whether there are conditions which would impair
its ability to hold such securities until maturity. At present, management is
not aware of any such conditions. Management has reviewed the securities
individually, to determine whether there are permanent declines identified in
net realizable values, and write downs have been recorded, when required.
Investment securities were $198.6 million at December 31, 1993, compared
to $203.0 million at December 31, 1992. The Company's philosophy regarding
investments is conservative, based on investment type and maturity. All
investments are anticipated to be held to maturity and are structured on a ten
year ladder, with a minimum of 30% of the securities maturing in the first two
years. Investments in the portfolio include U.S. Treasury securities, U.S.
government agencies, and municipalities. As of December 31, 1993, $146.0
million, or 73.5%, of the portfolio was invested in U.S. Treasury securities
and obligations of U.S. government agencies, of which $54.4 million, or 37.3%,
was invested in securities with maturities of one year or less, and $80.8
million, or 55.3%, was invested in securities with maturities of one to five
years. To reduce the Company's income tax burden, an additional $49.4 million,
or 24.9%, of the total securities portfolio was invested in tax-exempt
obligations of state and political subdivisions. There were no securities of
any one issuer exceeding ten percent of the Company's stockholders' equity at
December 31, 1993. The Company has approximately $3.2 million, or 1.6%, in GNMA
and other securities. At December 31, 1993, the Company had no collateralized
mortgage obligations in its securities portfolio. It is the Company's general
policy to not invest in derivative type investments.
As of December 31, 1993, the investment portfolio had gross unrealized
gains of $9.2 million and $0.1 million of gross unrealized losses. Net gains
from the sale of securities for 1993 were $140,000, up from net gains of $59,000
and $50,000 in 1992 and 1991, respectively.
The table below presents the carrying value and the fair value of
investment securities for each of the years indicated.
INVESTMENT SECURITIES
Years Ended December 31,
------------------------------------------------------------------------------------------------------------------
1993 1992 1991
------------------------------------ ------------------------------------ -------------------------------------
Gross unrealized Fair Gross unrealized Fair Gross unrealized Fair
(Dollars in Amortized ------------------ value Amortized ------------------ value Amortized ------------------ value
Thousands) cost Gain (Loss) cost Gain (Loss) cost Gain (Loss)
- ---------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury
Securities $132,778 $ 5,599 $ (33) $138,344 $122,171 $ 5,603 $ -- $127,774 $109,463 $ 6,354 $ -- $115,817
U.S. Government
agencies and
corporations 13,215 546 (28) 13,733 38,922 1,005 (11) 39,916 29,770 1,285 (2) 31,053
Mortgage-backed
securities 1,008 24 (10) 1,022 1,310 24 (22) 1,312 1,892 22 (50) 1,864
Obligations of
states and
political
subdivisions 49,438 2,680 (52) 52,066 40,130 1,529 (303) 41,356 26,984 1,374 (791) 27,567
Other
securities 2,187 365 (1) 2,551 461 513 (1) 973 471 63 (3) 531
------- ------ ----- ------- ------- ------ ----- ------- ------- ------- ----- -------
$198,626 $ 9,214 $ (124) $207,716 $202,994 $ 8,674 $ (337) $211,331 $168,580 $ 9,098 $ (846) $176,832
======= ======= ====== ======= ======= ====== ===== ======= ======= ======= ===== =======
(1) The fair value of the Company's financial instruments is determined
pursuant to Statement of Financial Accounting Standards No. 107. Because no
market exists for a significant portion of the Company's finanical
instruments, fair value estimates are based on judgments concerning future
expected loss experience, current economico conditions , risk characteristics
of various financial instruments and other factors. See Note 2 of Notes to
Consolidated Financial Statements.
(2) Consist of securities issued by GNMA.
The following table reflects the amortized cost and estimated market value
of debt securities at December 31, 1993, by contractual maturity, the weighted
average yields (for tax-exempt obligations on a fully taxable basis, assuming a
34% tax rate) of such securities and the taxable equilvalent adjustment used in
calculating the 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.
MATURITY DISTRIBUTION OF INVESTMENT SECURITIES
December 31, 1993
----------------------------------------------------------------------------------------
Over Over
1 year 5 years Over
1 year thru thru 10 10 No fixed Par Market
(Dollars in Thousands) or less 5 years years years maturity Total value Value
- -----------------------------------------------------------------------------------------------------------------
U.S. Treasury
securities and
securities of other
U.S. government
agencies $ 54,388 $ 80,787 $ 10,818 $ -- $ -- $145,993 $145,355 $152,077
Mortgage-backed
securities -- -- -- -- 1,008 1,008 946 1,022
Obligations of states
and political
subdivisions
(domestic) 2,158 6,261 33,939 7,080 -- 49,438 49,946 52,066
Federal Reserve and
corporate stock,
other bonds, notes
and debentures -- -- -- -- 2,187 2,187 2,187 2,551
------- ------- ------- ------- ------- ------- ------- -------
Total $ 56,546 $ 87,048 $ 44,757 $ 7,080 $ 3,195 $198,626 $198,434 $207,716
======= ======= ======= ======= ======= ======= ======= =======
Percentage of total 28.47 % 43.83 % 22.53 % 3.56 % 1.61 % 100.0 %
===== ===== ===== ==== ==== =====
Weighted average 4.94 % 6.80 % 8.04 % 11.09 % 9.24 % 6.72 %
==== ==== ==== ===== ==== ====
(1) The weighted average yields are based on book value and effective yields, weighted for the scheduled maturity
of each security. Yields on tax-exempt obligations have been computed on a
fully taxable equivalent basis.
As of January 1, 1994, the Company adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities," which requires the classification of securities into one of
three categories: Trading, Available for Sale or Held to Maturity. Management
will determine the appropriate classification of debt securities at the time of
purchase and re-evaluate the classifications periodically.
Trading account securities are used to provide inventory for resale. These
securities will be carried at market value and will be included in short-term
investments. Gains and losses, both realized and unrealized, are reflected in
earnings.
Debt securities are classified as Held to Maturity when the Company has the
positive intent and ability to hold the securities to maturity. Held to
Maturity securities will be stated at amortized cost.
Securities not classified as Trading or Held to Maturity will be classified
as Available for Sale. Available for sale securities will be stated at fair
value, with unrealized gains and losses, net of tax, reported in a separate
component of shareholders' equity. The Company may sell these securities prior
to maturity in response to liquidity demands. They also may be used as a means
of adjusting the interest rate sensitivity of the Company's balance sheet,
through sale and reinvestment. As of January 1, 1994, the adoption of FASB No.
115 resulted in a net increase in stockholders' equity of approximately
$946,000. This increase in stockholders' equity will adjust in future periods,
as changes in market conditions occur.
Trading Portfolio
The Company's trading account is established and maintained for the benefit
of the dealer bank division. All activities in the account are performed by
dealer bank personnel solely for operations in that division. The trading
account is typically used to provide inventory for resale and is not used to
take advantage of short-term price movements.
Deposits and Short-Term Borrowings
Total average deposits for 1993 were $585.6 million, compared to $578.1
million in 1992. A significant portion of the average deposit increases for
that period is attributable to the deposit acquisitions in 1990, 1991 and 1992.
The year-end balances of certificates of deposits over $100,000 were $61.4
million in 1993, compared to $61.0 million in 1992.
The following table 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, 1993.
AVERAGE DEPOSIT BALANCES AND RATES
December 31,
------------------------------------------------------------------------
1993 1992 1991
---------------------- ---------------------- ----------------------
Average Average Average Average Average Average
(Dollars in Thousands) amount rate paid amount rate paid amount rate paid
- --------------------------------------------------------------------------------------------------------------
Non-interest bearing
demand deposits $ 116,744 -- $ 98,482 -- $ 93,702 --
Interest bearing transaction
and savings deposits 200,122 2.61 % 216,591 2.73 % 189,824 4.15 %
Certificate of deposits
$100,000 or more 56,759 3.32 % 61,057 4.65 % 66,379 6.26 %
Other time deposits 211,980 3.37 % 202,017 4.33 % 174,561 6.79 %
-------- -------- --------
Total $ 585,605 $ 578,147 $ 524,466
======== ======== ========
The following table sets forth by time remaining to maturity, deposits
(exclusive of regular savings) in amounts of $100,000 or more at December 31,
1993 and 1992, respectively.
MATURITIES OF LARGE DENOMINATION TIME DEPOSITS
Time Certificates of Deposit Time Deposits Other
($100,000 or more) ($100,000 or more)
---------------------------------------------- --------------------------------------------
December 31, December 31,
---------------------------------------------- --------------------------------------------
1993 1992 1993 1992
---------------------- ---------------------- --------------------- ---------------------
(Dollars in Thousands) Balance Percent Balance Percent Balance Percent Balance Percent
- -----------------------------------------------------------------------------------------------------------------------
Maturing:
Three months or less $ 25,898 42.21 % $ 35,618 58.40 % -- -- $ 855 100 %
Over 3 months
to 6 months 20,799 33.90 % 16,131 26.45 % -- -- -- --
Over 6 months
to 12 months 11,010 17.95 % 7,511 12.31 % -- -- -- --
Over 12 months 3,646 5.94 % 1,731 2.84 % -- -- -- --
-------- ----- -------- ----- ------- ----- ------- ----
Total $ 61,353 100 % $ 60,991 100 % -- -- $ 855 100 %
======== ===== ======== ===== ======= ===== ======= ====
Federal funds purchased and securities sold under agreements to repurchase
were $26.3 million at December 31, 1993, as compared to $39.2 million at
December 31, 1992. Other short-term borrowings, consisting of U.S. Treasury
Note borrowings, increased at December 31, 1993, to $5.0 million, as compared
to $2.9 million at December 31, 1992.
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. On May 12, 1993, the Company issued 700,000 shares of
Class A Common Stock. And on June 10, 1993, the Company issued an additional
105,000 shares. The net proceeds to the Company stockholders' equity after
expenses was $16.1 million. Management anticipates that these sources will
provide necessary funding in the foreseeable future. It is the Company's
general policy to avoid the use of brokered deposits.
Long Term Debt
The Company's long-term debt was $12.2 million at December 31, 1993 and
1992, respectively. The Company's Capital Notes due June 30, 1997, of which
$11.0 million were outstanding at December 31, 1993 and 1992, respectively,
are the major component of the Company's long-term debt. Interest on the
Capital Notes is payable quarterly, and the interest rate is adjusted quarterly
to the then prime rate offered by Chase Manhattan in New York. At December
31, 1993, the Chase Manhattan prime rate was 6%.
Capital
Appropriate capital management is essential to finance future growth and
maintain the confidence of deposit customers, investors, and banking regulatory
agencies. The Federal Reserve Board has approved new risk-based guidelines
which establish 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. With respect to capital, the guidelines place a strong
emphasis on tangible common stockholders' equity as the core element of the
capital base, with appropriate recognition of other components of capital. The
guidelines set a minimum risk-adjusted ratio for total capital of 8.0% by the
end of 1993. At December 31, 1993, the Tier 1 Capital ratio was 17.2%, while
the Company's risk-adjusted ratio for total capital, as of December 31, 1993,
was 20.0%, both of which exceed the capital minimums established in the new
risk-based capital requirements. The risk-based capital ratios showed
improvement over December 31, 1992, primarily due to a reduction in
risk-weighted assets, resulting from the sale of approximately $70 million in
off-balance sheet recourse mortgage loan servicing.
The Company's risk-based capital ratios at December 31, 1993 and 1992 are
presented below, followed by the capital ratios of each of the three bank
subsidiaries, as of December 31, 1993.
CONSOLIDATED RISK-BASED CAPITAL
December 31,
-----------------------------
(Dollars in Thousands) 1993 1992
- -----------------------------------------------------------------------
Tier 1 capital:
Stockholders' equity $ 75,335 $ 51,219
Less goodwill 2,713 3,284
-------- --------
Total tier 1 capital 72,622 47,935
Tier 2 capital:
Qualifying allowance for loan losses 5,307 4,993
Qualifying long-term debt 6,600 8,800
-------- --------
Total capital $ 84,529 $ 61,728
======== ========
Risk-weighted assets $ 422,437 $ 395,365
======== ========
Ratios at end of year:
Leverage ratio 10.21 % 6.90 %
Risk-based capital
Tier 1 capital 17.19 % 12.12 %
Total capital 20.01 % 15.61 %
Minimum guidelines
Leverage ratio 3.00 % 3.00 %
Tier 1 capital 4.00 % 4.00 %
Total capital 8.00 % 8.00 %
CAPITAL ADEQUACY MEASURES BY SUBSIDIARY BANKS
Year Ended December 31, 1993
-----------------------------------------------------
Simmons First Simmons First Simmons First
National Bank Bank Bank
(Dollars in Thousands) Pine Bluff Jonesboro Lake Village
- ----------------------------------------------------------------------------------
Stockholders' equity $ 47,340 $ 5,701 $ 3,112
Leverage ratio 7.70 % 8.21 % 10.66 %
Risk-Based capital
Tier 1 Capital 12.42 % 14.53 % 24.20 %
Total capital 13.68 % 15.79 % 25.46 %
LIQUIDITY AND INTEREST RATE SENSITIVITY
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,
1993, retained earnings of the Company's subsidiaries were approximately $52.7
million, of which approximately $11.9 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 their investing activities.
As is typical of most banking companies, significant financing activities
include: deposit gathering; use of short-term borrowing facilities such as
federal funds purchased and repurchase agreements; and the issuance of
long-term debt. The banks' primary investing activities include loan
originations and purchases of investment securities, offset by loan payoffs and
investment maturities.
Liquidity represents an institution's ability to provide funds to satisfy
demands from depositors and borrowers, by either converting assets into cash or
accessing new or existing sources of incremental funds. It is a major
responsibility of management to maximize net interest income within prudent
liquidity constraints. Internal corporate guidelines have been established to
constantly measure liquid assets, as well as relevant ratios concerning earning
asset levels and purchased funds. Each bank subsidiary is also required to
monitor these same indicators and report regularly to its own senior management
and board of directors. At year end, each bank was within established
guidelines, and total corporate liquidity was strong. At December 31, 1993,
cash and due from banks, investment securities, and federal funds sold and
securities purchased under agreements for resale were 33.5% of total assets, as
compared to 37.80% at December 31, 1992.
Interest Rate Sensitivity
Management continuously reviews the Company's exposure to changes in
interest rates. Among the factors considered during its evaluations are changes
in the mix of earning assets, growth of earning assets, interest rate spreads
and repricing periods. Management forecasts and models the impact various
interest rate fluctuations would have on net interest income. One such model
measures the interest rate sensitivity gap, which presents, at a particular
point in time, the matching of interest rate sensitive assets with interest
rate sensitive liabilities.
As shown in the schedule below, the cumulative rate sensitive assets to
rate sensitive liabilities at six months and one year, respectively, was 112.73%
and 113.12%. A financial institution is considered to be liability sensitive,
or as having a negative GAP,when the amount of its interest bearing liabilities
maturing or repricing within a given time period exceeds the amount of its
interest earning assets also maturing or repricing within that time period.
Conversely, an institution is considered to be asset sensitive, or as having a
positive GAP, when the amount of its interest bearing liabilities maturing and
repricing is less than the amount of itsinterest earning assets also maturing
or repricing during the same period. Generally, in a falling interest rate
environment, a negative GAP should result in an increase in net interest income,
and in a rising interest rate environment this negative GAP should adversely
affect net interest income. The converse would be true for a positive GAP.
The long-term effect of rising interest rates would tendto increase net
interest income because of the positive gap ratio. However, the negative gap
for the short-term would cause a decreasein net interest income, as a result of
rising rates for approximately six months. Since conditions change on a daily
basis, these theoretical conclusions may not be indicative of actual future
results.
RATE SENSITIVE ASSETS AND LIABILITIES
Year Ended December 31, 1993
-------------------------------------------------------------------------
Cumulative
RSA
(Dollars in Thousands, Cumulative to
Except Ratios) Assets Liabilities Gap Gap RSL
- ---------------------------------------------------------------------------------------------------------
Floating rate $ 120,599 $ 200,922 $ (80,323) $ (80,323) 60.02 %
Fixed rate maturing in:
1 month 16,846 25,231 (8,385) (88,708) 60.78 %
2 months 163,222 35,129 128,093 39,385 115.07 %
3 months 6,523 34,376 (27,853) 11,532 103.90 %
4 months 22,138 20,819 1,319 12,851 104.06 %
5 months 5,167 19,220 (14,053) (1,202) 99.64 %
6 months 52,941 7,989 44,952 43,750 112.73 %
6 months - 1 year