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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d)of the Exchange Act of 1934
For the fiscal year ended: December 31, 1997
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission file number 0-6253
SIMMONS FIRST NATIONAL CORPORATION
(Exact name of registrant as specified in its charter)
Arkansas 71-0407808
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification No.)
501 Main Street, Pine Bluff, Arkansas 71601
(Address of principal executive offices) (Zip Code)
(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, $1.00 par value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No _____
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge in definitive proxy or in information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of common stock, par value $1.00 per share, held by
non-affiliates on March 17, 1998, was approximately $228,650,000.
The number of shares outstanding of the Registrant's Common Stock as of March
17, 1998 was 5,728,872.
Part III is incorporated by reference from the Registrant's Proxy Statement
relating to the Annual Meeting of Shareholders to be held on April 28, 1998.
FORM 10-K INDEX
Part I
Item 1 Business..........................................................
Item 2 Properties........................................................
Item 3 Legal Proceedings.................................................
Item 4 Submission of Matters to a Vote of Security-Holders...............
Part II
Item 5 Market for Registrant's Common Equity and Related Stockholder Matters
Item 6 Selected Consolidated 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
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....................
Part IV
Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K...
Signatures ..................................................................
PART I
ITEM 1. BUSINESS.
The Company and the Banks
Simmons First National Corporation (the "Company") is a bank holding
company registered under the Bank Holding Company Act of 1956. At December 31,
1997 the Company had consolidated total assets of $1.326 billion, consolidated
net loans of $794.2 million and total equity capital of $112.1 million. The
Company owns seven subsidiary banks in Arkansas. Its lead bank, Simmons First
National Bank (the "Bank"), is a national bank which has been in operation since
1903. The Bank's primary market area, with the exception of its
nationally-provided credit card and mortgage banking services, is the State of
Arkansas. The Company also owns six community banks, Simmons First Bank of
Jonesboro ("Simmons/Jonesboro"), and Simmons First Bank of South Arkansas
("Simmons/South"), both acquired in 1984; Simmons First Bank of Dumas
("Simmons/Dumas"), Simmons First Bank of Northwest Arkansas
("Simmons/Northwest"), both acquired in 1995; Simmons First Bank of Russellville
("Simmons/Russellville") and Simmons First Bank of Searcy ("Simmons/Searcy"),
both acquired in 1997. Simmons/Northwest, formerly Simmons First Bank of
Dermott, changed its name when the charter was moved to Rogers, Arkansas, in
August, 1996. The three branches of the Bank located in Rogers, Springdale, and
Bella Vista, Arkansas, were then sold to the relocated bank. Headquarters for
Simmons/Northwest is now the Rogers office. The banking facility remaining at
Dermott, along with its assets and liabilities, were then transferred to
Simmons/South, formerly known as Simmons First Bank of Lake Village. The Dermott
location is now a branch of Simmons/South. The Company's banking subsidiaries
conduct their operations through 40 offices located in 21 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, 1997, the Bank had approximately $179.8 million in credit card
loans in the loan portfolio, representing approximately 22.6% of total
consolidated loans. 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, which continues to rank far
below the national averages in delinquency and net loss ratios.
The Bank is a leading provider of guaranteed student loans in
Arkansas. On December 31, 1997, the Bank owned and serviced approximately $63.3
million, or approximately 8.0% of the Company's total consolidated loans.
The Company provides mortgage banking services through the Bank's
production and sale of Arkansas residential real estate mortgages and servicing
of residential real estate mortgages on properties located primarily in the
South, Midwest and Southwest United States. At December 31, 1997, the Bank was
servicing, primarily for others, approximately $1.3 billion of residential real
estate mortgages.
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 areas
by capitalizing on opportunities presented by the State of Arkansas and
expanding through further banking acquisitions. The most significant
opportunities for internal growth will come from Simmons/Northwest,
Simmons/Searcy and Simmons/Jonesboro, which are located in some of the fastest
growing areas in the state, and the Company's continued expansion into the
Little Rock market. With an increased presence in Arkansas, ongoing investments
in technology, and enhanced products and services the Company is positioned to
meet the demands of the State of Arkansas.
Competition
The activities engaged in by the Company and its subsidiaries are
highly competitive. In all aspects of its business, the Company encounters
intense competition from other banks, lending institutions, credit unions,
savings and loan associations, brokerage firms, mortgage companies, industrial
loan associations, finance companies, and several other financial and financial
service institutions. The amount of competition among commercial banks and other
financial institutions has increased significantly over the past few years since
the deregulation of the banking industry. The Company's subsidiary banks
actively compete with other banks and financial institutions in their efforts to
obtain deposits and make loans, in the scope and type of services offered, in
interest rates paid on time deposits and charged on loans and in other aspects
of commercial banking.
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 the resulting favorable national
recognition. Within the past few years, more Arkansas banks have commenced or
recommenced active marketing as a Visa and MasterCard issuer inside and outside
the state. Management cannot predict the effect on its credit card business of
these 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 several years, competition has intensified
for merchant customers and their related business, primarily on the basis of
price and quality of service. Independent sales organizations employed by out of
state processors constitute the majority of this increased competition. While
the Bank's merchant volume has shown a modest increase for the past three years,
management believes that most card issuers in the Arkansas market have
experienced declines in their merchant volume and expects the Bank's merchant
volume will experience a period of flat or declined growth in the future due to
these 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 increase in
interstate banking.
Employees
As of December 31, 1997, the Company and its subsidiaries had 721 full
time equivalent employees. None of the employees are represented by any union or
similar groups, and the Company has not experienced any labor disputes or
strikes arising from any such organized labor groups. The Company considers its
relationship with its employees to be good.
Executive Officers of the Company
The following is a list of all executive officers of the Company.
Executive officers are elected annually by the Board of Directors.
NAME AGE POSITION YEARS SERVED
J. Thomas May 51 President and Chief Executive Officer 11
Barry L. Crow 55 Executive Vice President and 26
Chief Financial Officer
John L. Rush 63 Secretary 30
SUPERVISION AND REGULATION
The Company
The Company, as a bank holding company, is subject to both federal and
state regulation. Under federal law, a bank holding company must generally
obtain approval from the Board of Governors of the Federal Reserve System
("FRB") before acquiring ownership or control of the assets or stock of a bank
or a bank holding company. Prior to approval of any proposed acquisition, the
FRB will review the effect on competition of the proposed acquisition, as well
as other regulatory issues.
The federal law generally prohibits a bank holding company from directly
or indirectly engaging in non-banking activities. This prohibition does not
include loan servicing, liquidating activities or other activities so closely
related to banking as to be a proper incident thereto.
As a bank holding company, the Company is required to file with the FRB
an annual report and such additional information as may be required by law. From
time to time, the FRB examines the financial condition of the Company and its
subsidiaries. The FRB, through civil and criminal sanctions, is authorized to
exercise enforcement powers over bank holding companies and non-banking
subsidiaries, to limit activities that represent unsafe or unsound practices or
constitute violations of law.
The Company is subject to certain laws and regulations of the State of
Arkansas applicable to bank holding companies, including examination and
supervision by the Arkansas Bank Commissioner. Under Arkansas law, a bank
holding company is prohibited from owning more than one subsidiary bank, if any
subsidiary bank owned by the holding company has been chartered for less than 5
years and, further, requires the approval of the Arkansas Bank Commissioner for
any acquisition of more than 25% of the capital stock of any other bank located
in Arkansas. No bank acquisition may be approved if, after such acquisition, the
holding company would control, directly or indirectly, banks having 25% of the
total bank deposits in the State of Arkansas, excluding deposits of other banks
and public funds.
Legislation enacted in 1994, which became effective September 29, 1995,
which now allows bank holding companies from any state to acquire banks located
in any state without regard to state law, provided that the bank holding company
(1) is adequately capitalized, (2) is adequately managed, (3) would not control
more than 10% of the insured deposits in the United States or more than 30% of
the insured deposits in such state, and (4) such bank has been in existence at
least five years if so required by the applicable state law.
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, Simmons/South, Simmons/Dumas, Simmons/Northwest,
Simmons/Russellville and Simmons/Searcy, 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
Since 1993, banking organizations (including bank holding companies and
banks) were required to meet a minimum ratio of Total Capital to Total
Risk-Weighted Assets of 8%, of which at least 4% must be in the form of Tier 1
Capital. A well capitalized institution is one that has at least a 10% "total
risk based capital" ratio. For a tabular summary of the Company's risk-weighted
capital ratios, see "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Capital" and Note 18 of the Notes To Consolidated
Financial Statements.
A banking organization's qualifying total capital consists of two
components: Tier 1 Capital (core capital) and Tier 2 Capital (supplementary
capital). Tier 1 Capital is an amount equal to the sum of common shareholders'
equity, certain preferred stock and the minority interest in the equity accounts
of consolidated subsidiaries. For bank holding companies, goodwill may not be
included in Tier 1 Capital. Identifiable intangible assets may be included in
Tier 1 Capital for banks and bank holding companies, in accordance with certain
further requirements. At least 50% of the banking organization's total
regulatory capital must consist of Tier 1 Capital.
Tier 2 Capital is an amount equal to the sum of the qualifying portion
of the allowance for loan losses, certain preferred stock not included in Tier
1, hybrid capital instruments (instruments with characteristics of debt and
equity), certain long-term debt securities and eligible term subordinated debt,
in an amount up to 50% of Tier 1 Capital. The eligibility of these items for
inclusion as Tier 2 Capital is subject to certain additional requirements and
limitations of the federal banking agencies.
Under the risk-based capital guidelines, balance sheet assets and
certain off-balance sheet items, such as standby letters of credit, are assigned
to one of four risk weight categories (0%, 20%, 50%, or 100%), according to the
nature of the asset, its collateral or the identity of the obligor or guarantor.
The aggregate amount in each risk category is adjusted by the risk weight
assigned to that category, to determine weighted values, which are then added to
determine the total risk-weighted assets for the banking organization. For
example, an asset, such as a commercial loan, assigned to a 100% risk category,
is included in risk-weighted assets at its nominal face value, but a loan
secured by a one-to-four family residence is included at only 50% of its nominal
face value. The applicable ratios reflect capital, as so determined, divided by
risk-weighted assets, as so determined.
Recent Legislation for Bank Holding Companies and Banks
As part of the omnibus spending bill passed by Congress in September,
1996, banks which have acquired thrift deposits must contribute to the
re-capitalization of the Savings Association Insurance Fund (SAIF). For the
"Bank" the one-time pretax charge of $687,000 was charged against third quarter,
1996, earnings.
The Federal Deposit Insurance Corporation Improvement Act ("FDICIA"),
enacted in 1991, requires the FDIC to increase assessment rates for insured
banks and authorizes one or more "special assessments", as necessary for the
repayment of funds borrowed by the FDIC or any other necessary purpose. As
directed in FDICIA, the FDIC has adopted a transitional risk-based assessment
system, under which the assessment rate for insured banks will vary, according
to the level of risk incurred in the bank's activities. The risk category and
risk-based assessment for a bank is determined from its classification, pursuant
to the regulation, as well capitalized, adequately capitalized or
undercapitalized.
FDICIA substantially revised the bank regulatory provisions of the
Federal Deposit Insurance Act and other federal banking statutes, requiring
federal banking agencies to establish capital measures and classifications.
Pursuant to the regulations issued under FDICIA, a depository institution will
be deemed to be well capitalized if it significantly exceeds the minimum level
required for each relevant capital measure; adequately capitalized if it meets
each such measure; undercapitalized if it fails to meet any such measure;
significantly undercapitalized if it is significantly below any such measure;
and critically undercapitalized if it fails to meet any critical capital level
set forth in regulations. The federal banking agencies must promptly mandate
corrective actions by banks that fail to meet the capital and related
requirements, in order to minimize losses to the FDIC. The Company was advised
by the FDIC and OCC that the subsidiary banks had been classified as well
capitalized under these regulations.
The federal banking agencies are required by FDICIA to prescribe
standards for banks and bank holding companies, relating to operations and
management, asset quality, earnings, 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 offices of the Company and the Bank consist of an
eleven-story office building and adjacent office space, located in the central
business district of the city of Pine Bluff, Arkansas. The building and adjacent
office space is comprised of approximately 166,000 square feet of floor space,
approximately 7,500 square feet of which is leased to a tenant as office space.
The Company and its subsidiaries own or lease additional offices
throughout the State of Arkansas. As of December 31, 1997, the company's seven
banks are conducting financial operations from 40 offices in 21 communities
throughout Arkansas.
ITEM 3. LEGAL PROCEEDINGS
The Company and/or its subsidiary banks have various unrelated legal
proceedings, most of which involve loan foreclosure activity pending, which, in
the aggregate, are not expected to have a material adverse effect on the
financial position of the Company and its subsidiaries.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
No matters were submitted to a vote of security-holders, through the
solicitation of proxies or otherwise, during the fourth quarter of the fiscal
year covered by this report.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Common Stock is traded and quoted on the over-the-counter NASDAQ
National Market System under the symbol "SFNCA." The following table sets forth,
for all the periods indicated, cash dividends paid, and the high and low bid
prices for the Common Stock as reported by NASDAQ.
Quarterly
Price Per Dividends
Common Share Per Common
High Low Share
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1997
1st quarter $ 28.00 $ 25.50 $ 0.13
2nd quarter 30.00 27.00 0.14
3rd quarter 36.50 29.50 0.14
4th quarter 42.00 35.00 0.15
1996
1st quarter $ 22.67 $ 20.50 $ 0.11
2nd quarter 22.42 22.00 0.12
3rd quarter 23.00 21.83 0.12
4th quarter 27.25 26.00 0.13
At December 31, 1997, the Common Stock was held of record by
approximately 1,225 stockholders. On March 17, 1998, the last sale price for the
Common Stock as reported by NASDAQ was $47.00 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 are 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, Simmons/Dumas, Simmons/Northwest,
Simmons/South, Simmons/Russellville and Simmons/Searcy, regulators have
specified that the maximum dividends state banks may pay to the parent company
without prior approval is 75% of the current year earnings plus 75% of the
retained net earnings of the preceding year. At December 31, 1997, approximately
$5 million was available for the payment of dividends by the subsidiary banks
without regulatory approval. For further discussion of restrictions on the
payment of dividends, see "Management's Discussion and Analysis of Financial
Condition-Liquidity and Market Risk Management," and Note 18 of Notes to
Consolidated Financial Statements.
On October 29, 1996, the Company declared a 50% stock dividend. An
additional share of stock was distributed to shareholders for each two shares
owned on December 6, 1996.
Forward Looking Statements
When used in this Form 10-K or future filings by the Company with the
Securities and Exchange Commission, in the Company's press releases or other
public or shareholder communications, or in oral statements made with the
approval of an authorized executive officer, the words or phrases "would be",
"will allow", "intends to", "will likely result", "are expected to ", "will
continue", "is anticipated", "estimate", "project", or similar expressions are
intended to identify "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995.
The Company wishes to caution readers not to place undue reliance on any
such forward-looking statements, which speak only as of the date made, and to
advise readers that various factors, including regional and national economic
conditions, substantial changes in levels of market interest rates, credit and
other risks of lending and investment activities and competitive, and regulatory
factors, could affect the Company's financial performance and could cause the
Company's actual results for future periods to differ materially from those
anticipated or projected.
The Company does not undertake, and specifically disclaims any
obligation, to update any forward-looking statements to reflect occurrences or
unanticipated events or circumstances after the date of such statements.
ITEM 6: SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated financial data
concerning the Company and is qualified in its entirety by the detailed
information and consolidated financial statements, including notes thereto,
included elsewhere in this annual report. The income statement, balance sheet
and per common share data as of and for the years ended December 31, 1997, 1996,
1995, 1994, and 1993 were derived from consolidated financial statements of the
Company, which were audited by Baird, Kurtz & Dobson. Earnings per common share
and dividends per common share presented in the financial statements have been
restated retroactively to reflect the effects of the stock dividend on a
consisitent basis. The selected consolidated financial data set forth below
should be read in conjunction with the financial statements of the Company and
related notes thereto and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere in this annual report.
SELECTED CONSOLIDATED FINANCIAL DATA
Years Ended December 31 (1)
(In thousands,
except per share data) 1997 1996 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------
Income statement data:
Net interest income $ 40,415 $ 33,805 $ 31,764 $ 29,259 $ 28,450
Provision for loan losses 4,013 2,341 2,092 2,050 3,006
Net interest income after provision
for loan losses 36,402 31,464 29,672 27,209 25,444
Non-interest income 27,545 25,116 24,365 24,847 26,129
Non-interest expense 46,934 41,956 39,820 38,415 38,711
Provision for income taxes 5,024 4,323 4,198 3,781 3,466
Net income 11,989 10,301 10,019 9,860 9,396
Per share data:
Basic earnings 2.10 1.81 1.77 1.79 1.85
Diluted earnings 2.07 1.79 1.75 1.77 1.84
Cash earnings 2.24 1.85 1.82 1.84 1.91
Book value 19.57 18.02 16.91 15.17 13.66
Dividends 0.56 0.48 0.40 0.31 0.27
Balance sheet data at period end:
Assets 1,326,145 881,332 839,884 713,262 738,760
Loans 794,183 510,813 471,956 418,392 394,426
Allowance for loan losses 12,628 8,366 8,418 7,790 7,430
Deposits 1,104,501 736,367 704,768 583,538 610,355
Long-term debt 50,281 1,067 4,757 12,144 12,178
Stockholders' equity 112,082 102,825 96,797 83,700 75,335
Capital ratios at period end:
Stockholders' equity to
total assets 8.45% 11.67% 11.53% 11.73% 10.20%
Leverage (2) 7.52% 11.70% 10.91% 11.47% 10.21%
Tier 1 11.55% 18.66% 18.63% 19.25% 17.19%
Total risk-based 12.81% 19.91% 20.03% 21.56% 20.01%
Selected ratios:
Return on average assets 1.13% 1.22% 1.30% 1.39% 1.33%
Return on average common equity 11.13% 10.31% 10.95% 12.28% 14.31%
Net interest margin(3) 4.37% 4.65% 4.77% 4.80% 4.75%
Allowance/nonperforming loans 156.81% 168.58% 260.46% 248.73% 177.92%
Allowance for loan losses as a
percentage of average loans 1.98% 1.73% 1.91% 1.99% 1.88%
Nonperforming loans as a percentage
of period-end loans 1.01% 0.97% 0.68% 0.75% 1.06%
Net charge-offs as a percentage
of average total assets 0.35% 0.28% 0.24% 0.24% 0.19%
Dividend payout 26.72% 26.47% 22.79% 17.32% 14.59%
(1) The selected consolidated financial data set forth above should be read in
conjunction with the financial statements of the Company and related
Management's Discussion and Analysis of Financial Condition and Results of
Operations, included elsewhere in this Annual Report. (2) Leverage ratio is Tier
1 capital to quarterly average total assets less intangible assets and gross
unrealized gains/losses on available-for-sale investments. (3) Fully taxable
equivalent (36.25% for 1997 through 1995 and 34% for 1994 and 1993)
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview
Simmons First National Corporation (SFNC) achieved record earnings
performance in 1997. Earnings for the period ended December 31, 1997, were
$11,989,000, or an increase of $1,688,000 over the December 31, 1996 earnings of
$10,301,000. Basic earnings per share for the year were $2.10, an increase of
16.0% from $1.81 in 1996. Diluted earnings per share for the year were $2.07, an
increase of 15.6% from $1.79 in 1996. Net income for 1996 includes a one-time,
pretax charge of $687,000 to recapitalize the Savings Association Insurance Fund
(SAIF). The negative impact of this charge in 1996 was $.08 per share. If the
earnings for 1996 were adjusted for the SAIF assessment, basic earnings per
share would have been $1.89. Return on average assets and return on average
stockholder's equity for the period ended December 31, 1997 was 1.13% and
11.13%, compared to 1.22% and 10.31%, respectively, for the same period in 1996.
Because of the Corporation's emphasis on cash acquisitions as both a
growth and a capital management strategy, cash earnings (net income excluding
amortization of intangible assets) are an integral component of earnings. Cash
earnings, on a per share basis as of December 31, 1997, were $2.24 compared to
$1.85 at December 31, 1996, reflecting a 21.1% increase. Cash return on average
assets was 1.22% and cash return on average stockholders' equity was 11.88% for
the period ended December 31, 1997, compared with 1.26% and 10.58%,
respectively, for the same period in 1996.
Total assets for the Corporation at December 31, 1997, were $1.326
billion, an increase of $444.8 million over the same figure at December 31,
1996. Stockholders' equity at the end of 1997 was $112.1 million, a $9.3
million, or 9.0%, increase for the period ended December 31, 1996.
Asset quality remains strong with the allowance for loan losses as a
percent of total loans at 1.59% as of December 31, 1997, compared to 1.64% for
the same date in 1996. As of December 31, 1997, non-performing loans equaled
1.01% of total loans, while the allowance for loan losses equaled 157% of
non-performing loans.
Simmons First National Corporation is a multi-bank holding company,
with banks in Pine Bluff, Jonesboro, Lake Village, Dumas, Rogers, Russellville
and Searcy, Arkansas. The Corporation's seven banks are conducting financial
operations from 40 offices in 21 communities throughout Arkansas.
Acquisitions
On April 1, 1995, the Company completed the acquisition of Dumas
Bancshares, Inc. (DBI) by issuing 205,851 shares of common stock and utilizing
cash of $1.5 million in a transaction valued at $5 million. DBI was merged into
the Company. DBI owned Dumas State Bank, Dumas, Arkansas and First State Bank,
Gould, Arkansas, with consolidated assets at March 31, 1995, of approximately
$42 million. First State Bank, which had branches in Grady and Star City,
Arkansas, in addition to its primary location in Gould, Arkansas, was merged
into Simmons First National Bank, SFNC's lead bank. Dumas State Bank became
Simmons First Bank of Dumas and has continued to operate as a subsidiary bank of
the Company.
On August 1, 1995, the Company completed the acquisition of Dermott
State Bank Bancshares, Inc. (DSBB), located in Dermott, Arkansas, in a cash
transaction valued at approximately $2.4 million, at the time of acquisition.
DSBB, the single-bank holding company for Dermott State Bank, had approximately
$20 million in consolidated assets. DSBB was liquidated into the Company and
Dermott State Bank became Simmons First Bank of Dermott.
In February, 1996, the flagship bank, Simmons First National Bank,
located in Pine Bluff, opened an additional branch in Little Rock, Arkansas.
This branch represents the Company's initial entry into the this key Arkansas
market.
In August, 1996, the Company repositioned its banking operations to
benefit its customers through improved personal service and operating
efficiency. The Simmons First Bank of Dermott charter was moved to Rogers,
Arkansas. The three branches of Simmons First National Bank, located in Rogers,
Springdale and Bella Vista, Arkansas, were acquired by the relocated bank and
the bank name was changed to Simmons First Bank of Northwest Arkansas, whose
headquarters is now the Rogers office. The banking facility remaining at
Dermott, along with its assets and liabilities, was transferred to Simmons First
Bank of Lake Village, Arkansas and is now a branch of that bank. The name of
Simmons First Bank of Lake Village was subsequently changed to Simmons First
Bank of South Arkansas.
On August 1, 1997 Simmons First National Corporation acquired all the
outstanding capital stock of First Bank of Arkansas , Searcy, Arkansas and First
Bank of Arkansas, Russellville, Arkansas, in a cash purchase transaction of $53
million and changed the respective names of the banks to Simmons First Bank of
Searcy and Simmons First Bank of Russellville. The banks acquired had
consolidated assets, as adjusted of $362 million, as of August 1, 1997.
Earnings Review For the Years 1997, 1996 and 1995
In 1997, the Company reported record net earnings of $11,989,000 and
basic earnings per share of $2.10. This compares to net earnings of $10,301,000
and $10,019,000, and basic earnings per share of $1.81 and $1.77, reported in
1996 and 1995, respectively. The earnings increase in 1997 was predominantly the
result of growth in both loans and deposits coupled with an increase in
non-interest income.
Net Interest Income
Net interest income, the Company's principal source of earnings, is the
difference between the interest income generated by earning assets and the total
interest cost of the deposits and borrowings obtained to fund those assets.
Factors that determine the level of net interest income include the volume of
earning assets and interest bearing liabilities, yields earned and rates paid,
the level of non-performing loans and the amount of non-interest bearing
liabilities supporting earning assets. Net interest income is analyzed in the
discussion and tables below on a fully taxable equivalent basis. The adjustment
to convert certain income to a fully taxable equivalent basis consists of
dividing tax exempt income by one minus the combined federal and state income
tax rate (36.25% for 1997 through 1995).
For the year ended December 31, 1997, net interest income on a fully
taxable equivalent basis was $42.3 million, an increase of approximately $6.8
million, or 19.2%, from 1996 net interest income. The increase in 1997 in net
interest income resulted primarily from the growth due to acquisitions and
general growth in earning assets throughout the company. The growth offset a
decrease in net interest margin resulting from a higher cost of funds. The net
interest margin was 4.37% in 1997, compared to 4.65% in 1996 and 4.77% in 1995.
For the year ended December 31, 1996, net interest income on a fully taxable
equivalent basis was $35.5 million, an increase of approximately $2.2 million,
or 6.5%, from comparable figures in 1995. The increase in 1996 in net interest
income resulted primarily from growth in earning assets. The growth offsets a
decrease in net interest margin resulting from a higher cost of funds. The
tables below reflect an analysis of net interest income on a fully taxable
equivalent basis for the years ended December 31, 1997, 1996 and 1995,
respectively, as well as changes in fully taxable equivalent net interest income
for the years 1997 versus 1996 and 1996 versus 1995.
Analysis of Net Interest Income
(FTE =Fully Taxable Equivalent)
Years Ended December 31
(In thousands) 1997 1996 1995
- ----------------------------------------------------------------------
Interest income $78,406 $61,367 $56,229
FTE adjustment 1,880 1,692 1,551
------- ------- -------
Interest income - FTE 80,286 63,059 57,780
Interest expense 37,991 27,562 24,465
------- ------- -------
Net interest income - FTE $42,295 $35,497 $33,315
======= ======= =======
Yield on earning assets - FTE 8.29% 8.26% 8.27%
Cost of interest bearing liabilities 4.61% 4.36% 4.28%
Net interest spread - FTE 3.68% 3.90% 3.99%
Net interest margin - FTE 4.37% 4.65% 4.77%
Changes in Fully Taxable Equivalent Net Interest Margin
(In thousands) 1997 vs. 1996 1996 vs.1995
- --------------------------------------------------------------------------------------
Increase due to change in earning assets $ 17,195 $ 5,713
Increase (decrease) due to change in earning asset yields 32 (434)
Decrease due to change in interest rates paid on
interest bearing liabilities (10,047) (559)
Decrease due to change in interest bearing liabilities (382) (2,538)
-------- --------
Increase in net interest income $ 6,798 $ 2,182
======== ========
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 ended December 31, 1997. 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.
Under Financial Accounting Standard Board Statement No. 91 (SFAS 91), loan
fees and related costs are deferred and amortized as part of interest income.
Average Balance Sheets and Net Interest Income Analysis
Years Ended December 31
-------------------------------------------------------------------------------------
1997 1996 1995
---------------------------- --------------------------- --------------------------
Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
(In thousands) Balance Expense Rate(%) Balance Expense Rate(%) Balance Expense Rate(%)
- -----------------------------------------------------------------------------------------------------------------------------
ASSETS
Earning Assets
Interest bearing balances
due from banks $ 4,678 $ 233 4.98 $ 5,258 $ 291 5.54 $ 2,069 $ 120 5.82
Federal funds sold 46,281 2,593 5.60 32,213 1,680 5.22 33,571 1,858 5.54
Investment securities - taxable 202,576 12,944 6.39 161,537 10,499 6.50 150,871 10,080 6.68
Investment securities - non-taxable 69,005 5,316 7.70 60,951 4,739 7.78 54,164 4,378 8.08
Mortgage loans held for sale,
net of unrealized gains (losses) 5,567 407 7.31 17,768 1,333 7.50 16,383 1,250 7.63
Assets held in trading accounts 2,224 139 6.25 1,110 68 6.13 1,513 88 5.83
Loans 637,754 58,654 9.20 484,578 44,449 9.17 440,109 40,006 9.09
---------- ---------- ---------- --------- -------- ---------
Total interest earning assets 968,085 80,286 8.29 763,415 63,059 8.26 698,680 57,780 8.27
---------- --------- ---------
Non-earning assets 96,541 81,710 74,023
---------- ---------- ---------
Total assets $1,064,626 $ 845,125 $772,703
========== ========== ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Liabilities
Interest bearing liabilities
Interest bearing transaction
and savings accounts $ 295,530 $ 8,573 2.90 $ 254,812 $ 7,106 2.79 $235,411 $ 6,167 2.62
Time deposits 462,785 25,296 5.47 343,906 18,663 5.43 300,530 16,097 5.36
---------- ---------- ---------- --------- -------- ---------
Total interest bearing deposits 758,315 33,869 4.47 598,718 25,769 4.30 535,941 22,264 4.15
Federal funds purchased and
securities sold under agreement
to repurchase 38,481 2,036 5.29 27,681 1,406 5.08 24,862 1,308 5.26
Other borrowed funds
Short-term debt 3,296 114 3.46 2,369 129 5.44 1,511 92 6.06
Long-term debt 23,459 1,972 8.41 2,861 258 9.02 8,977 801 8.92
---------- ---------- ---------- --------- -------- ---------
Total interest bearing liabilities 823,551 37,991 4.61 631,629 27,562 4.36 571,291 24,465 4.28
---------- --------- ---------
Non-interest bearing liabilities
Non-interest bearing deposits 120,823 103,546 99,839
Other liabilities 12,527 10,033 10,067
---------- ---------- --------
Total liabilities 956,901 745,208 681,197
---------- ---------- --------
Stockholders' equity 107,725 99,917 91,506
---------- ---------- --------
Total liabilities and
stockholders' equity $1,064,626 $ 845,125 $772,703
========== ========== ========
Net interest margin $ 42,295 4.37 $ 35,497 4.65 $ 33,315 4.77
========== ========= =========
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, 1997 and 1996, as compared to prior years. The
changes in interest rate and volume have been allocated to changes in average
volume and changes in average rates, in proportion to the relationship of
absolute dollar amounts of the changes in rates and volume.
Volume/Rate Analysis
Years Ended December 31
1997 over 1996 1996 over 1995
Yield/ Yield/
(In thousands) Volume Rate Total Volume Rate Total
- ------------------------------------------------------------------------------------------------------------
Increase (decrease) in
Interest income
Interest earning time deposits $ (32) $ (26) $ (58) $ 176 $ (5) $ 171
Federal funds sold 734 179 913 (73) (105) (178)
Investment securities - taxable 2,667 (222) 2,445 897 (478) 419
Investment securities - non-taxable 627 (50) 577 528 (167) 361
Mortgage loans held for sale, net of
unrealized gains (losses) (915) (11) (926) 104 (21) 83
Assets held in trading accounts 68 3 71 (24) 4 (20)
Loans 14,046 159 14,205 4,105 338 4,443
------- ------- -------- -------- ------- -------
Total 17,195 32 17,227 5,713 (434) 5,279
-------- ------- -------- -------- ------- -------
Interest expense
Interest bearing transaction and
savings accounts 1,136 331 1,467 525 414 939
Time deposits 6,455 178 6,633 2,352 213 2,565
Federal funds purchased
and securities sold under
agreements to repurchase 549 81 630 141 (43) 98
Other borrowed funds
Short-term debt 50 (65) (15) 45 (8) 37
Long-term debt 1,857 (143) 1,714 (525) (17) (542)
-------- -------- -------- -------- -------- --------
Total 10,047 382 10,429 2,538 559 3,097
-------- ------- -------- -------- ------- -------
Increase (decrease) in
net interest income $ 7,148 $ (350) $ 6,798 $ 3,175 $ (993) $ 2,182
======= ======== ======= ======= ======= =======
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 1997, 1996 and 1995 was $4.0, $2.3 and $2.1 million, respectively.
The increase from 1997 to 1996 is attributable to acquisitions, growth in loans
and bankruptcies in the bankcard portfolio.
Non-Interest Income
Total non-interest income was $27.5 million in 1997, compared
to $25.1 million in 1996 and $24.4 million in 1995. Non-interest income is
principally derived from three sources: fee income, which includes service
charges on deposit accounts, trust fees, credit card fees and loan servicing
fees; income on the sale of mortgage loans and investment banking profits; and
any gain or loss on sold or called securities.
The table below shows non-interest income for the years ended
December 31, 1997, 1996 and 1995, respectively, as well as changes in 1997 from
1996 and in 1996 from 1995.
Non-Interest Income
1997 1996
Years Ended December 31 Change from Change from
(In thousands) 1997 1996 1995 1996 1995
- -------------------------------------------------------------------------------------------------------------------
Trust income $ 2,536 $ 2,166 $ 1,790 $ 370 17.08% $ 376 21.01%
Service charges on deposit accounts 4,146 3,222 2,768 924 28.68 454 16.40
Other service charges and fees 1,296 1,069 825 227 21.23 244 29.58
Income on sale of mortgage loans,
net of commissions 415 287 325 128 44.60 (38) -11.69
Income on investment banking,
net of commissions 1,061 758 1,017 303 39.97 (259) -25.47
Credit card fees 9,433 9,601 10,114 (168) -1.75 (513) -5.07
Mortgage servicing & related fees 7,766 7,095 6,092 671 9.46 1,003 16.46
Other income 893 648 1,400 245 37.81 (752) -53.71
Gains (losses) on sale of
securities, net (1) 270 34 (271) -100.3 236 694.12
-------- -------- -------- -------- -------
Total non-interest income $ 27,545 $ 25,116 $ 24,365 $ 2,429 9.67% $ 751 3.08%
======== ======== ======== ======== =======
Fee income for 1997 was $25.2 million, an increase of $2 million, or
8.7%, when compared with 1996 figures. Fee income for 1996 was $23.2 million, an
increase of $1.6 million, or 7.4%, when compared with 1995 figures. In 1997,
credit card fees decreased $168,000 from the 1996 level, while mortgage fees
increased $671,000. In 1996, credit card fees decreased $513,000 from the 1995
level, while mortgage fees increased $1 million.
On the consolidated statements of income, income from the sale of
mortgage loans and dealer bank profits is presented net of commissions. The
income recorded in these accounts results from the Company's investment banking
operation, 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 1997, income from
these areas totaled $1.5 million, compared to $1.0 million in 1996 and $1.3
million in 1995.
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. The Company utilizes an extensive profit planning and reporting
system involving all affiliates. Monthly and annual profit plans are developed,
including manpower and capital expenditure budgets, based on a needs assessment
of the business plan for the upcoming year. These profit plans are subject to
extensive initial reviews and monitored by management on a monthly basis.
Variances from the plan are reviewed monthly and, when required, management
takes corrective action intended to ensure financial goals are met. Management
also regularly monitors staffing levels at each affiliate, to ensure
productivity and overhead are in line with existing workload requirements.
Non-interest expense for 1997 was $46.9 million, an increase of $5.0
million, or 11.9%, from 1996. Non-interest expense for 1996 was $42.0 million,
an increase of $2.1 million, or 5.4%, from 1995. The increase in non-interest
expense in 1997, compared to 1996, primarily reflects the Company's acquisitions
on August 1, 1997. The increase in non-interest expense in 1996, compared to
1995, primarily reflects the Company's entry into the Little Rock market, an
expansion of the Company's Springdale facility and the increased amortization of
mortgage servicing rights associated with the acquisition of approximately $400
million in mortgage loan servicing.
The table below shows non-interest expense for the years ended December
31, 1997, 1996 and 1995, respectively, as well as changes from 1997 to 1996 and
1996 to 1995, respectively.
Non-Interest Expense
1997 1996
Years Ended December 31 Change from Change from
(In thousands) 1997 1996 1995 1996 1995
- -------------------------------------------------------------------------------------------------------------
Salaries and employee benefits $ 23,793 $ 21,774 $ 21,192 $ 2,019 9.27% $ 582 2.75%
Occupancy expense, net 2,857 2,310 2,512 547 23.68 (202) -8.05
Furniture and equipment expense 3,219 2,416 2,167 803 33.24 249 11.50
Loss on foreclosed assets 1,064 1,135 1,401 (71) -6.26 (266) -18.99
Other operating expenses
Professional services 1,584 1,553 1,400 31 2.00 153 10.92
Postage 1,281 1,277 1,319 4 0.31 (42) -3.18
Telephone 965 861 841 104 12.08 20 2.38
Credit card expenses 1,413 1,426 1,445 (13) -0.91 (19) -1.32
Operating supplies 1,147 958 846 189 19.73 112 13.23
FDIC insurance 175 942 830 (767) -81.42 112 13.49
Amortization of MSR's 2,578 2,120 1,371 458 21.60 749 54.63
Amortization of intangibles 1,264 447 438 817 182.77 9 2.05
Miscellaneous expenses 5,594 4,737 4,058 857 18.09 679 16.73
-------- --------- -------- ------- --------
Total non-interest expense $ 46,934 $ 41,956 $ 39,820 $ 4,978 11.86% $ 2,136 5.36%
======== ========= ======== ======= ========
Income Taxes
The provision for income taxes for 1997 was $5.0 million, compared to
$4.3 million in 1996 and $4.2 million in 1995. The effective income tax rates
for the years ended 1997, 1996 and 1995 were 29.5%, 29.6% and 29.5%,
respectively.
Loan Portfolio
The Company's loan portfolio averaged $637.8 million during 1997 and
$484.6 million during 1996. As of December 31, 1997, total loans were $794.2
million, compared to $510.8 million on December 31, 1996. 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 loan figures for 1997 and 1995 include $213.9 million and $28.4
million, respectively, increases in loans as a result of the Company's
acquisitions.
The Company seeks to manage its credit risk by diversifying its loan
portfolio, determining that borrowers have adequate sources of cash flow for
loan repayment without liquidation of collateral, obtaining and monitoring
collateral, providing an adequate allowance for loan losses and regularly
reviewing loans through the internal loan review process. The loan portfolio is
diversified by borrower, purpose, industry and, in the case of credit card
loans, which are unsecured, by geographic region. The Company seeks to use
diversification within the loan portfolio to reduce credit risk, thereby
minimizing the adverse impact on the portfolio, if weaknesses develop in either
the economy or a particular segment of borrowers. Collateral requirements are
based on credit assessments of borrowers and may be used to recover the debt in
case of default. The Company uses the allowance for loan losses as a method to
value the loan portfolio at its estimated collectible amount. Loans are
regularly reviewed to facilitate the identification and monitoring of
deteriorating credits.
Consumer loans consist of credit card loans, student loans and other
consumer loans. Consumer loans were $355.9 million at December 31, 1997, or
44.8% of total loans, compared to $295.9 million, or 57.9% of total loans at
December 31, 1996. At year end, 1997, credit card loans were $179.8 million, or
22.6% of total loans, versus $166.3 million, or 32.6% of total loans at December
31, 1996. This increase in credit card loans relates, in part, to the Company's
efforts to maintain its market share through a variety of programs that
encourage additional volume with minimum credit risk.
At the end of 1997, commercial, agricultural and financial institution
loans were $147.7 million, or 18.6% of total loans, a 108.5% increase from 1996
year end's $70.8 million. Real estate construction loans at December 31, 1997,
were $43.2 million, or 5.4% of total loans, compared to $20.3 million, or 4.0%
of total loans at the end of 1996. Single family real estate loans at December
31, 1997, were $122.6 million, or 15.4% of total loans, compared to $57.3
million, or 11.2% of total loans at December 31, 1996.
The amounts of loans outstanding at the indicated dates are reflected
in the following table, according to type of loan.
Loan Portfolio
Years Ended December 31
(In thousands) 1997 1996 1995 1994 1993
- --------------------------------------------------------------------------------------------------------
Consumer
Credit cards $ 179,828 $ 166,346 $ 154,808 $ 164,501 $ 168,673
Student loans 63,291 64,193 63,492 62,836 65,379
Other consumer 112,754 65,384 57,166 40,739 36,763
Real Estate
Construction 43,212 20,325 15,177 6,232 6,281
Single family residential 122,581 57,251 53,556 43,045 36,297
Other commercial 118,112 60,439 59,012 44,141 37,853
Commercial
Commercial 110,480 41,375 36,553 29,047 20,007
Agricultural 31,161 21,003 20,588 16,048 16,088
Financial institutions 6,073 8,469 9,058 6,681 3,087
Other 6,691 6,028 2,546 5,122 3,998
---------- ---------- ---------- ---------- ---------
Total loans $ 794,183 $ 510,813 $ 471,956 $ 418,392 $ 394,426
========= ========= ========== ========= =========
The following table reflects the remaining maturities and interest rate
sensitivity of loans at December 31, 1997.
Maturity and Interest Rate Sensitivity of Loans
Over 1
year
1 year through Over
(In thousands) or less 5 years 5 years Total
- ------------------------------------------------------------------------------------------------
Commercial, financial and agricultural $ 117,359 $ 27,947 $ 2,408 $ 147,714
Real estate construction 34,691 8,180 341 43,212
Other 434,399 140,107 28,751 603,257
---------- ---------- --------- ----------
Total $ 586,449 $ 176,234 $ 31,500 $ 794,183
========== ========= ======== =========
Predetermined rate $ 403,147 $ 160,048 $ 31,500 $ 594,695
Floating rate 183,302 16,186 -- 199,488
----------- ---------- --------- ----------
Total $ 586,449 $ 176,234 $ 31,500 $ 794,183
========== ========= ======== =========
Asset Quality
A loan is considered impaired when it is probable that the Company will
not receive all amounts due according to the contracted terms of the loans. This
includes nonaccrual loans and certain loans identified by management.
Non-performing loans are comprised of (a) nonaccrual loans, (b) loans
that are contractually past due 90 days and (c) other loans for which terms have
been restructured, to provide a reduction or deferral of interest or principal,
because of deterioration in the financial position of the borrower. The
subsidiary banks recognize income principally on the accrual basis of
accounting. When loans are classified as nonaccrual, the accrued interest is
charged off and no further interest is accrued. Loans, excluding credit card
loans, are placed on a nonaccrual basis either: (1) when there are serious
doubts regarding the collectability of principal or interest, or (2) when
payment of interest or principal is 90 days or more past due and either (i) not
fully secured or (ii) not in the process of collection. If a loan is determined
by management to be 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 nonaccrual until such time as
deemed uncollectible. Credit card loans are generally charged off when payment
of interest or principal exceeds 180 days past due, but are turned over to the
credit card recovery department, to be pursued until such time as they are
determined, on a case-by-case basis, to be uncollectible.
At December 31, 1997, impaired loans were $8.0 million compared to $4.9
million and $4.6 million in 1996 and 1995, respectively. At December 31, 1997,
non-performing loans were $8.1 million compared to $5.0 million and $3.2 million
in 1996 and 1995, respectively. These increases can be attributed to an increase
in credit card loans in bankruptcy and commercial loans that are 90 days or more
past due.
The following tables present information concerning non-performing
assets, including nonaccrual and restructured loans and other real estate owned.
Non-performing Assets
Years Ended December 31
(In thousands) 1997 1996 1995 1994 1993
- -------------------------------------------------------------------------------------------------------
Nonaccrual loans $ 5,826 $ 2,652 $ 1,638 $ 2,052 $ 2,813
Loans past due 90 days or more
(principal or interest payments) 2,227 2,311 1,594 965 1,019
Restructured -- -- -- 115 344
--------- ------- -------- -------- -------
Total non-performing loans 8,053 4,963 3,232 3,132 4,176
--------- -------- -------- -------- -------
Other non-performing assets
Foreclosed assets held for sale 1,099 903 1,017 1,726 2,877
Other non-performing assets -- 6 7 780 992
--------- -------- -------- -------- -------
Total other non-performing assets 1,099 909 1,024 2,506 3,869
--------- -------- -------- -------- -------
Total non-performing assets $ 9,152 $ 5,872 $ 4,256 $ 5,638 $ 8,045
======== ======= ======== ======== =======
Net charge-offs to average loans 0.59% 0.49% 0.41% 0.43% 0.36%
Allowance for loan losses to total loans 1.59% 1.64% 1.78% 1.86% 1.88%
Allowance for loan losses to
non-performing loans 156.81% 168.58% 260.46% 248.73% 177.92%
Non-performing loans to total loans 1.01% 0.97% 0.68% 0.75% 1.06%
Non-performing assets to total assets 0.69% 0.67% 0.51% 0.79% 1.09%
Approximately $320,000 and $184,000 of interest income would have been
recorded for the periods ended December 31, 1997 and 1996, 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
periods ended December 31, 1997 and 1996.
Allowance for Loan Losses
An analysis of the allowance for loan losses for the last five years is
shown in the table below:
(In thousands) 1997 1996 1995 1994 1993
- --------------------------------------------------------------------------------------------------------
Balance, beginning of year $ 8,366 $ 8,418 $ 7,790 $ 7,430 $ 5,748
-------- ------ ------- ------ ------
Loans charged off
Consumer 617 378 423 154 173
Credit card 3,283 2,392 1,851 1,690 1,761
Real estate 103 36 8 213 77
Commercial 356 78 22 53 40
-------- ------ ------- ------ ------
Total loans charged off 4,359 2,884 2,304 2,110 2,051
-------- ------- ------- ------ ------
Recoveries of loans previously charged off
Consumer 132 153 284 72 78
Credit card 365 309 143 306 211
Real estate 12 8 10 23 8
Commercial 71 21 42 19 430
-------- ------- ------- ------ ------
Total recoveries 580 491 479 420 727
-------- ------- ------- ------ ------
Net loans charged off 3,779 2,393 1,825 1,690 1,324
Allowance for loan losses of
acquired institutions 4,028 -- 361 -- --
Additions to reserve charged to
operating expense 4,013 2,341 2,092 2,050 3,006
-------- ------- ------- ------ ------
Balance, end of year $ 12,628 $ 8,366 $ 8,418 $ 7,790 $ 7,430
======== ====== ======= ====== ======
The amounts of additions to the allowance during the year 1997 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 loans charged off for the last five years. It is management's practice to
review the allowance on a monthly basis to determine whether additional
provisions should be made to the allowance after considering the factors noted
above.
The Company allocates the allowance for loan losses according to the
amount deemed to be reasonably necessary to provide for the possibility of
losses being incurred within the categories of loans set forth in the table
below:
Allocation of Allowance for Loan Losses
December 31
--------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
---------------- ---------------- ----------------- ---------------- -----------------
Allowance % of Allowance % of Allowance % of Allowance % of Allowance % of
(In thousands) Amount loans* Amount loans* Amount loans* Amount loans* Amount loans*
- --------------------------------------------------------------------------------------------------------------
Consumer $ 1,317 22.2% $ 223 25.4% $ 262 25.7% $ 424 24.8% $ 399 25.9%
Credit cards 3,339 22.7% 2,626 32.5% 2,658 32.8% 2,625 39.3% 2,430 42.8%
Real Estate 4,038 35.7% 2,585 27.1% 2,704 27.0% 1,853 22.4% 1,723 20.4%
Commercial 2,130 18.6% 638 13.8% 839 14.0% 539 12.3% 500 10.0%
Other -- 0.8% -- 1.2% -- 0.5% -- 1.2% -- 0.9%
Unallocated 1,804 -- 2,294 -- 1,955 -- 2,349 -- 2,378 --
----- ------ ----- ------ -----
Total $12,628 100.0% $ 8,366 100.0% $8,418 100.0% $ 7,790 100.0% $7,430 100.0%
====== ====== ===== ====== =====
*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 within
the portfolio are classified as either held-to-maturity, available-for-sale or
trading.
Held-to-maturity securities, which include any security for which
management has the positive intent and ability to hold until maturity, are
carried at historical cost, adjusted for amortization of premiums and accretion
of discounts. Premiums and discounts are amortized and accreted, respectively,
to interest income using the constant yield method over the period to maturity.
Available-for-sale securities, which include any security for which
management has no immediate plans to sell, but which may be sold in the future,
are carried at fair value. Realized gains and losses, based on specifically
identified amortized cost of the specific security, are included in other
income. Unrealized gains and losses are recorded, net of related income tax
effects, in stockholders' equity. Premiums and discounts are amortized and
accreted, respectively, to interest income, using the constant yield method over
the period to maturity.
Held-to-maturity and available-for-sale investment securities were
$155.9 million and $160.5 million, respectively, at December 31, 1997, compared
to the held-to-maturity amount of $128.1 million and available-for-sale amount
of $109.5 at December 31, 1996. The Company's philosophy regarding investments
is conservative, based on investment type and maturity. Investments in the
held-to-maturity portfolio include U.S. Treasury securities, U.S. government
agencies, mortgage-backed securities and municipal securities. As of December
31, 1997, $73.3 million, or 47.0%, of the held-to-maturity securities were
invested in U.S. Treasury securities and obligations of U.S. government
agencies, of which approximately $8.9 million, or 12.1%, was invested in
securities with maturities of one year or less, and $44.6 million, or 60.8%, was
invested in securities with maturities of one to five years. In the
available-for-sale securities, $152.2 million, or 94.8% were in U.S. Treasury
and U.S. government agency securities, 86.5% of which will mature in less than
five years. In order to reduce the Company's income tax burden, an additional
$79.0 million, or 50.7%, of the held-to-maturity securities portfolio, was
invested in tax-exempt obligations of state and political subdivisions. There
are no securities of any one issuer exceeding ten percent of the Company's
stockholders' equity at December 31, 1997. The Company has approximately $3.4
million, or 2.1%, in mortgaged-backed securities in the held-to-maturity
portfolio. The Company's general policy is not to invest in derivative type
investments, except for collateralized mortgage-backed securities for which
collection of principal and interest is not subordinated to significant superior
rights held by others.
As of December 31, 1997, the held-to-maturity investment portfolio had
gross unrealized gains of $2.3 million and gross unrealized losses of $412,000.
Net realized losses from called or sold available-for-sale securities for 1997
were $1,000, down from net realized gains of $270,000 in 1996 and $34,000 in
1995.
Trading securities, which include any security held primarily for
near-term sale, are carried at fair value. Gains and losses on trading
securities are included in other income.
Interest and dividends on investments in debt and equity securities are
included in income when earned.
The Company's trading account is established and maintained for the
benefit of the investment banking division. All activities in the account are
performed by investment banking 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.
The table below presents the carrying value and fair value of investment
securities for each of the years indicated.
Investment Securities
Years Ended December 31
-----------------------------------------------------------------------------------------
1997 1996
--------------------------------------------- -------------------------------------------
Gross Gross Estimated Gross Gross Estimated
Amortized Unrealized Unrealized Fair Amortized Unrealized Unrealized Fair
(In thousands) Cost Gains (Losses) Value Cost Gains (Losses) Value
- -----------------------------------------------------------------------------------------------------------------
Held-to-Maturity
U.S. Treasury $ 17,610 $ 158 $ (37) $ 17,731 $ 24,700 $ 179 $ (122) $ 24,757
U.S. Government
agencies 55,662 462 (61) 56,063 35,286 527 (167) 35,646
Mortgage-backed
securities 3,350 14 (30) 3,334 4,243 13 (69) 4,187
State and political
subdivisions 79,039 1,638 (284) 80,393 63,586 1,116 (327) 64,375
Other securities 229 2 -- 231 332 2 (4) 330
--------- ------ ----- --------- --------- ------ ------- ---------
$ 155,890 $ 2,274 $ (412) $ 157,752 $ 128,147 $ 1,837 $ (689) $ 129,295
========= ====== ===== ========= ========= ====== ====== =========
Available-for-Sale
U.S. Treasury $ 70,402 $ 763 $ (24) $ 71,141 $ 63,248 $ 1,006 $ (55) $ 64,199
U.S. Government
agencies 80,812 298 (50) 81,060 41,358 186 (135) 41,409
State and political
subdivisions 451 -- -- 451 -- -- -- --
Other securities 6,601 1,222 -- 7,823 3,102 805 -- 3,907
--------- ------ ----- --------- --------- ------ ------ ---------
$ 158,266 $ 2,283 $ (74) $ 160,475 $ 107,708 $ 1,997 $ (190) $ 109,515
========= ====== ===== ========= ========= ====== ====== =========
Years Ended December 31
----------------------------------------------
1995
----------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
(In thousands) Cost Gains (Losses) Value
- ----------------------------------------------------------------------
Held-to-Maturity
U.S. Treasury $ 45,920 $ 400 $ (46) $ 46,274
U.S. Government
agencies 23,569 692 (18) 24,243
Mortgage-backed
securities 6,344 37 (55) 6,326
State and political
subdivisions 58,154 1,536 (356) 59,334
Other securities 446 11 -- 457
--------- ------ ----- ---------
$ 134,433 $ 2,676 $ (475) $ 136,634
========= ====== ===== =========
Available-for-Sale
U.S. Treasury $ 72,258 $ 2,102 $ (3) $ 74,357
U.S. Government
agencies 11,905 264 (35) 12,134
State and political
subdivisions 51 -- -- 51
Other securities 2,976 851 (2) 3,825
--------- ------ ----- ---------
$ 87,190 $ 3,217 $ (40) $ 90,367
========= ====== ===== =========
The following table reflects the amortized cost and estimated fair
value of debt securities at December 31, 1997, by contractual maturity, the
weighted average yields (for tax-exempt obligations on a fully taxable basis,
assuming a 36.25% tax rate) of such securities and the taxable equivalent
adjustment used in calculating yields. Expected maturities will differ from
contractual maturities, because borrowers may have the right to call or prepay
obligations, with or without call or prepayment penalties.
Maturity Distribution of Investment Securities
December 31, 1997
Over Over
1 year 5 years
1 year through through Over No fixed Par Fair
(In thousands) or less 5 years 10 years 10 years maturity Total Value Value
- -----------------------------------------------------------------------------------------------------------
Held-to-Maturity
U.S. Treasury $ 4,197 $ 12,905 $ 508 $ -- $ -- $ 17,610 $ 17,550 $ 17,731
U.S. Government
agencies 4,689 31,706 18,267 1,000 -- 55,662 55,967 56,063
Mortgage-backed
securities -- -- -- -- 3,350 3,350 3,328 3,334
State and political
subdivisions 4,141 29,788 34,940 10,170 -- 79,039 79,290 80,393
Other securities -- -- -- -- 229 229 229 231
-------- ------- -------- ------- -------- -------- -------- --------
Total $ 13,027 $ 74,399 $ 53,715 $ 11,170 $ 3,579 $ 155,890 $ 156,364 $ 157,752
======== ======= ======== ======= ======== ======== ======== ========
Percentage of total 8.35% 47.72% 34.46% 7.17% 2.30% 100.00%
======= ====== ======= ====== ======= =======
Weighted average 6.63% 6.97% 7.36% 8.98% 6.65% 7.21%
======= ====== ======= ====== ======= =======
Available-for-Sale
U.S. Treasury $ 23,605 $ 45,342 $ 1,455 $ -- $ -- $ 70,402 $ 70,520 $ 71,141
U.S. Government
agencies 19,886 42,046 17,382 1,498 -- 80,812 81,110 81,060
State and political
subdivisions -- -- 451 -- -- 451 425 451
Other securities -- -- -- -- 6,601 6,601 6,601 7,823
-------- ------- -------- ------- -------- -------- -------- --------
Total $ 43,491 $ 87,388 $ 19,288 $ 1,498 $ 6,601 $ 158,266 $ 158,656 $ 160,475
======== ======= ======== ======= ======== ======== ======== ========
Percentage of total 27.48% 55.22% 12.19% 0.95% 4.16% 100.00%
======= ====== ======= ====== ======= =======
Weighted average 6.11% 6.27% 6.96% 7.26% 5.97% 6.31%
======= ====== ======= ====== ======= =======
Deposits
Total average deposits for 1997 were $879.1 million, compared to $702.3
million in 1996. The year-end balances of time deposits over $100,000 were
$188.5 million in 1997, compared to $88.7 million in 1996. The increase at year
end 1997 was due to the assumption of deposits through acquisitions.
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, 1997.
Average Deposits Balances and Rates
December 31
1997 1996 1995
---------------------- ----------------------- -------------------------
Average Average Average Average Average Average
(In thousands) Amount rate paid Amount rate paid Amount rate paid
- -------------------------------------------------------------------------------------------------------------
Non-interest bearing demand
deposits $ 120,823 -- $ 103,546 -- $ 99,839 --
Interest bearing transaction and
savings deposits 295,530 2.90% 254,812 2.79% 235,411 2.62%
Time deposits
$100,000 or more 138,874 5.36% 97,376 5.50% 79,486 5.53%
Other time deposits 323,911 5.51% 246,530 5.40% 221,044 5.29%
---------- ----------- ---------
Total $ 879,138 $ 702,264 $ 635,780
========= ========== =========
Maturities of Large Denomination Time Deposits
Time Certificates of Deposit
($100,000 or more)
December 31
-------------------------------------------------------
1997 1996
--------------------------- --------------------------
(In thousands) Balance Percent Balance Percent
- ---------------------------------------------------------------------------------------------------
Maturing
Three months or less $ 63,213 33.53% $ 38,326 43.19%
Over 3 months to 12 months 91,005 48.27% 44,255 49.88%
Over 12 months 34,304 18.20% 6,150 6.93%
---------- ----------
Total $ 188,522 100.00% $ 88,731 100.00%
========== ==========
Short-Term Borrowings
Federal funds purchased and securities sold under agreements to
repurchase were $40.7 million at December 31, 1997, as compared to $29.1 million
at December 31, 1996. Other short-term borrowings, consisting of U.S. Treasury
Notes were $4.6 million at December 31, 1997, as compared to $1.5 million at
December 31, 1996.
The Company has historically funded its growth in earning assets
through the use of core deposits, large certificates of deposits from local
markets and federal funds purchased. Management anticipates that these sources
will provide necessary funding in the foreseeable future. The Company's general
policy is to avoid the use of brokered deposits.
Long-Term Debt
The Company's long-term debt was $50.3 million and $1.1 million at
December 31, 1997 and 1996, respectively. The increase at year end 1997 includes
the issuance of $20 million in long-term debt and the issuance of $17.3 million
of trust preferred securities. These proceeds were used to fund a portion of the
purchase price of the acquisitions completed in 1997. The Company also assumed
$12 million of FHLB long-term advances during acquisitions.
Capital
At December 31, 1997, the total capital reached $112.1 million, another
milestone in the Company's history. Capital represents shareholder ownership in
the Company -- the book value of assets in excess of liabilities. At year-end
1997, the Company's equity to asset ratio was 8.5% compared to 11.7% at year-end
1996. The decline in the equity to asset ratio from 1997 to 1996 is a reflection
of the purchase acquisitions completed during 1997.
The Federal Reserve Board's risk-based guidelines established a
risk-adjusted ratio, relating capital to different categories of assets and
off-balance sheet exposures, such as loan commitments and standby letters of
credit. These guidelines place a strong emphasis on tangible stockholders'
equity as the core element of the capital base, with appropriate recognition of
other components of capital. At December 31, 1997, the Tier 1 capital ratio was
11.6%, while the Company's total risk-based ratio for total capital, as of
December 31, 1997, was 12.8%, both of which exceed the capital minimums
established in the risk-based capital requirements.
The Company's risk-based capital ratios at December 31, 1997 and 1996
are presented below.
Risk-Based Capital
December 31
(In thousands) 1997 1996
- --------------------------------------------------------------------------------------------------------
Tier 1 capital
Stockholders' equity $ 112,082 $ 102,825
Trust preferred securities 17,250 --
Intangible assets (30,834) (3,164)
Unrealized gain on
available-for-sale securities (1,406) (1,152)
Other (1,023) --
----------- ----------
Total Tier 1 capital 96,069 98,509
----------- ----------
Tier 2 capital
Qualifying allowance for loan losses 10,422 6,621
----------- ----------
Total Tier 2 capital 10,422 6,621
----------- ----------
Total risk-based capital $ 106,491 $ 105,130
========== =========
Risk weighted assets $ 831,560 $ 527,931
========== =========
Ratios at end of year
Leverage ratio 7.52% 11.20%
Tier 1 capital 11.55% 18.66%
Total risk-based capital 12.81% 19.91%
Minimum guidelines
Leverage ratio 4.00% 4.00%
Tier 1 capital 4.00% 4.00%
Total risk-based capital 8.00% 8.00%
Liquidity and Market Risk Management
Parent Company
The Company has leveraged its investment in subsidiary banks and
depends upon the dividends paid to it, as the sole shareholder of the subsidiary
banks, as a principal source of funds for debt service requirements. At December
31, 1997, undivided profits of the Company's subsidiaries were approximately $60
million, of which approximately $5 million was available for the payment of
dividends to the Company without regulatory approval. In addition to dividends,
other sources of liquidity for the Company are the sale of equity securities and
the borrowing of funds.
Banking Subsidiaries
Generally speaking, the Company's banking subsidiaries rely upon net
inflows of cash from financing activities, supplemented by net inflows of cash
from operating activities, to provide cash used in investing activities. Typical
of most banking companies, significant financing activities include: deposit
gathering; use of short-term borrowing facilities, such as federal funds
purchased and repurchase agreements; and the issuance of long-term debt. The
banks' primary investing activities include loan originations and purchases of
investment securities, offset by loan payoffs and investment maturities.
Liquidity represents an institution's ability to provide funds to
satisfy demands from depositors and borrowers, by either converting assets into
cash or accessing new or existing sources of incremental funds. A major
responsibility of management is to maximize net interest income within prudent
liquidity constraints. Internal corporate guidelines have been established to
constantly measure liquid assets, as well as relevant ratios concerning earning
asset levels and purchased funds. The management and board of directors of each
bank subsidiary monitors these same indicators and makes adjustments as needed.
At year end, each subsidiary bank was within established guidelines and total
corporate liquidity remains strong. At December 31, 1997, cash and cash
equivalents, trading and available-for-sale securities and mortgage loans held
for sale were 22.4% of total assets, as compared to 21.5% at December 31, 1996.
Market Risk Management
Market risk arises from changes in interest rates. The Company has risk
management policies to monitor and limit exposure to market risk. In asset and
liability management activities, policies are in place that are designed to
minimize structural interest rate risk. The measurement of market risk
associated with financial instruments is meaningful only when all related and
offsetting on- and off-balance-sheet transactions are aggregated, and the
resulting net positions are identified. Disclosures about fair value of
financial instruments, which reflect changes in market prices and rates, can be
found in Note 13 of Notes to Consolidated Financial Statements.
Interest Rate Sensitivity
Management continually 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 of 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. The following schedule presents the ratios of cumulative
rate sensitive assets to rate sensitive liabilities.
Interest Rate Sensitivity
Interest Rate Sensitivity Period
0-30 31-90 91-180 181-365 1 to 2 2-5 Over 5
(In thousands, except ratios) Days Days Days Days Years Years Years Total
- --------------------------------------------------------------------------------------------------------------------------
Earning assets
Short-term investments $ 68,671 $ -- $ -- $ -- $ -- $ -- $ -- $ 68,671
Assets held in trading
accounts 449 -- -- -- -- -- -- 449
Investment securities 13,572 60,385 47,796 41,407 49,053 78,093 26,059 316,365
Mortgage loans held for sale 8,758 -- -- -- -- -- -- 8,758
Loans 119,570 248,303 74,639 143,937 98,452 77,782 31,500 794,183
--------- --------- --------- --------- --------- --------- --------- -----------
Total earning assets 211,020 308,688 122,435 185,344 147,505 155,875 57,559 1,188,426
--------- --------- --------- --------- --------- --------- --------- -----------
Interest bearing liabilities
Interest bearing transaction
and savings accounts 245,628 -- -- -- 15,849 47,547 28,109 337,133
Time deposits 92,133 104,237 152,786 124,404 107,153 13,285 18,826 612,824
Short-term borrowings 45,322 -- -- -- -- -- -- 45,322
Long-term debt 360 721 1,081 2,163 3,259 9,515 33,182 50,281
--------- --------- --------- --------- --------- --------- --------- -----------
Total interest bearing
liabilities 383,443 104,958 153,867 126,567 126,261 70,347 80,117 1,045,560
--------- --------- --------- --------- --------- --------- --------- -----------
Interest rate sensitivity GAP $(172,423) $ 203,730 $ (31,432) $ 58,777 $ 21,244 $ 85,528 $ (22,558) $ 142,866
========= ========= ========= ========= ========= ========= ========== ===========
Cumulative interest rate
sensitivity GAP $(172,423) $ 31,307 $ (125) $ 58,652 $ 79,896 $ 165,424 $ 142,866
Cumulative rate sensitive assets
to rate sensitive liabilities 55.0% 106.4% 100.0% 107.6% 108.9% 117.1% 113.7%
Cumulative GAP as a % of
earning assets -14.5% 2.63% -0.0% 4.9% 6.7% 13.9% 12.0%
Impact of the Year 2000 Issue
The Year 2000 Issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Any of the
Company's computer programs that have date-sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result in
a system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities.
Based on a recent assessment, the Company determined that it will be
required to modify or replace portions of its software so that its computer
systems will properly utilize dates beyond December 31, 1999. The Company
presently believes that with modifications to existing software and conversions
to new software, the Year 2000 Issue will be mitigated. However, if such
modifications and conversions are not made, or are not completed timely, the
Year 2000 Issue could have a material impact on the operations of the Company.
The Company has initiated formal communications with its significant
customers and vendors to determine the extent of which the Company is vulnerable
to those third parties' failure to remediate their own Year 2000 Issue. The
Company's total Year 2000 project includes estimates of the impact of these
third party's Year 2000 Issue, and are based on presently available information.
However, there can be no guarantee that the systems of other companies on which
the Company relies will be timely converted, or that a failure to convert by
another company, would not have a material adverse effect on the Company.
The Company is utilizing both internal and external resources to
reprogram, or replace, and test the software for Year 2000 modifications. In
1996, as part of its strategic plan to provide quality customer service,
introduce new products and improve operating efficiencies, the Company began
converting all of its software and hardware systems to state-of-the-art
technology. As a byproduct of this effort, the Year 2000 Issue has been
addressed. Much of this project is now underway and implementation is expected
to be completed by December 31, 1998. Testing for the year 2000 will be
completed in 1999. Management believes completion of the Year 2000 modifications
will not have a material effect on the Company's future consolidated results of
operations or financial position.
The project and the date on which the Company plans to complete the Year
2000 modifications are based on management's best estimates, which were derived
utilizing numerous assumptions of future events including the continued
availability of certain resources, third party modification plans and other
factors. However, there can be no guarantee that these estimates will be
achieved and actual results could differ materially from those plans. Specific
factors that might cause such material differences include, but are not limited
to, the availability and cost of personnel trained in the area, the ability to
locate and correct all relevant computer codes, and similar uncertainties.
Quarterly Results
Selected unaudited quarterly financial information for the last eight
quarters is shown in the table below.
Quarter
(In thousands, except per share data) First Second Third Fourth Total
- -----------------------------------------------------------------------------------------------------
1997
Net interest income $ 8,886 $ 9,212 $ 10,836 $ 11,481 $ 40,415
Provision for loan losses 764 881 1,111 1,257 4,013
Non-interest income 6,226 6,304 7,213 7,802 27,545
Non-interest expense 10,732 10,664 12,132 13,406 46,934
Losses on sale of securities, net -- -- (1) -- (1)
Net income 2,588 2,814 3,386 3,201 11,989
Basic earnings per common share 0.45 0.49 0.59 0.57 2.10
1996
Net interest income $ 7,979 $ 8,279 $ 8,676 $ 8,871 $ 33,805
Provision for loan losses 502 502 503 834 2,341
Non-interest income 6,079 5,953 6,375 6,709 25,116
Non-interest expense 10,450 9,962 10,846 10,698 41,956
Gains on sale of securities, net 152 118 -- -- 270
Net income 2,242 2,661 2,548 2,850 10,301
Basic earnings per common share (1) 0.39 0.47 0.45 0.50 1.81
- ---------
(1) Adjusted to give retroactive consideration to stock dividend in December, 1996.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX
Independent Accountants' Report.............................................
Consolidated Balance Sheets December 31, 1997 and 1996......................
Consolidated Statements of Income Years Ended
December 31, 1997, 1996 and 1995..........................................
Consolidated Statements of Cash Flow Years Ended
December 31, 1997, 1996 and 1995..........................................
Consolidated Statements of Changes in Stockholders' Equity Years Ended
December 31, 1997, 1996 and 1995..........................................
Notes to Consolidated Financial Statements
December 31, 1997, 1996 and 1995..........................................
Note: Supplementary Data may be found in Item 7 "Management's Discussion
and Analysis of Financial Condition and Results of Operations - Quarterly
Results" on page 29 hereof.
INDEPENDENT ACCOUNTANTS' REPORT
Board of Directors
Simmons First National Corporation
Pine Bluff, Arkansas
We have audited the accompanying consolidated balance sheets of SIMMONS
FIRST NATIONAL CORPORATION as of December 31, 1997 and 1996, and the related
consolidated statements of income, changes in stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1997. These
financial statements are the responsibility of the Corporation's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of SIMMONS
FIRST NATIONAL CORPORATION as of December 31, 1997 and 1996, and the results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
/s/ Baird, Kurtz & Dobson
BAIRD, KURTZ & DOBSON
Pine Bluff, Arkansas
January 30, 1998
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 and 1996
(In thousands) 1997 1996
- -------------------------------------------------------------------------------------------------------
ASSETS