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, 2002
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission file number 0-6253
SIMMONS FIRST NATIONAL CORPORATION
(Exact name of registrant as specified in its charter)
Arkansas 71-0407808
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification No.)
501 Main Street, Pine Bluff, Arkansas 71601
(Address of principal executive offices) (Zip Code)
(870) 541-1000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
- --------------------------------------------------------------------------------
None None
Securities registered pursuant to Section 12(g) of the Act:
Class A Common Stock, $1.00 par value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge in definitive proxy or in information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of common stock, par value $1.00 per share, held by
non-affiliates on, February 04, 2003, was approximately $208,579,000.
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).
Yes X No
----- -----
The number of shares outstanding of the Registrant's Common Stock as of February
04, 2003 was 7,073,885.
Part III is incorporated by reference from the Registrant's Proxy Statement
relating to the Annual Meeting of Shareholders to be held on March 25, 2003.
FORM 10-K INDEX
Part I
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Item 1 Business..............................................................1
Item 2 Properties............................................................6
Item 3 Legal Proceedings.....................................................6
Item 4 Submission of Matters to a Vote of Security-Holders...................6
Part II
- -------
Item 5 Market for Registrant's Common Equity and Related Stockholder Matters.7
Item 6 Selected Consolidated Financial Data..................................8
Item 7 Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................10
Item 7A Quantitative and Qualitative Disclosures About Market Risk...........28
Item 8 Consolidated Financial Statements and Supplementary Data.............30
Item 9 Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.................................................58
Part III
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Item 10 Directors and Executive Officers of the Company......................58
Item 11 Executive Compensation...............................................58
Item 12 Security Ownership of Certain Beneficial Owners and Management.......58
Item 13 Certain Relationships and Related Transactions.......................58
Part IV
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Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K......58
Signatures...........................................................59
Certifications.......................................................60
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. The
Gramm-Leach-Bliley-Act ("GLB Act") has substantially increased the financial
activities that certain banks, bank holding companies, insurance companies and
securities brokerage companies are permitted to undertake. Under the GLB Act,
expanded activities in insurance underwriting, insurance sales, securities
brokerage and securities underwriting not previously allowed for banks and bank
holding companies are now permitted upon satisfaction of certain guidelines
concerning management, capitalization and satisfaction of the applicable
Community Reinvestment Act guidelines for the banks. Generally these new
activities are permitted for bank holding companies whose banking subsidiaries
are well managed, well capitalized and have at least a satisfactory rating under
the Community Reinvestment Act. A bank holding company must apply to become a
financial holding company and the Board of Governors of the Federal Reserve
System must approve its application.
The Company's application to become a financial holding company was
approved by the Board of Governors on March 13, 2000. The Company has reviewed
the new activities permitted under the Act. If the appropriate opportunity
presents itself, the Company is interested in expanding into other financial
services. However, at this time the Company has no definite plans to commence
any of the new activities.
The Company was the largest publicly traded bank holding company
headquartered in Arkansas with consolidated total assets of $2.0 billion,
consolidated loans of $1.3 billion, consolidated deposits of $1.6 billion and
total equity capital of $198 million as of December 31, 2002. The Company owns
seven community banks in Arkansas. The Company's banking subsidiaries conduct
their operations through 65 offices located in 34 communities in Arkansas.
Simmons First National Bank (the "Bank") is the Company's lead bank.
The Bank is a national bank, which has been in operation since 1903. The Bank's
primary market area, with the exception of its nationally provided credit card
product, is Central and Western Arkansas. At December 31, 2002, the Bank had
total assets of $1.0 billion, total loans of $619 million and total deposits of
$829 million. Simmons First Trust Company N.A., a wholly owned subsidiary of the
Bank, performs the Company's trust and fiduciary business operations.
Simmons First Bank of Jonesboro ("Simmons/Jonesboro") is a state
bank, which was acquired in 1984. Simmons/Jonesboro's primary market area is
Northeast Arkansas. At December 31, 2002, Simmons/Jonesboro had total assets of
$200 million, total loans of $155 million and total deposits of $182 million.
Simmons First Bank of South Arkansas ("Simmons/South") is a state
bank, which was acquired in 1984. Simmons/South's primary market area is
Southeast Arkansas. During the second quarter of 2001, the Company made a
strategic decision to consolidate the charters of its two smallest banking
subsidiaries. The Company consolidated Simmons First Bank of Dumas into
Simmons/South on December 7, 2001. At December 31, 2002, Simmons/South had total
assets of $112 million, total loans of $67 million and total deposits of $100
million.
Simmons First Bank of Northwest Arkansas ("Simmons/Northwest") is a
state bank, which was acquired in 1995. Simmons/Northwest's primary market area
is Northwest Arkansas. At December 31, 2002, Simmons/Northwest had total assets
of $198 million, total loans of $139 million and total deposits of $172 million.
Simmons First Bank of Russellville ("Simmons/Russellville") is a
state bank, which was acquired in 1997. Simmons/Russellville's primary market
area is Russellville, Arkansas. At December 31, 2002, Simmons/Russellville had
total assets of $207 million, total loans of $120 million and total deposits of
$153 million.
Simmons First Bank of Searcy ("Simmons/Searcy") is a state bank,
which was acquired in 1997. Simmons/Searcy's primary market area is Searcy,
Arkansas. At December 31, 2002, Simmons/Searcy had total assets of $113 million,
total loans of $72 million and total deposits of $86 million.
1
Simmons First Bank of El Dorado, N.A. ("Simmons/El Dorado") is a
national bank, which was acquired in 1999. Simmons/El Dorado's primary market
area is South Central Arkansas. At December 31, 2002, Simmons/El Dorado had
total assets of $170 million, total loans of $86 million and total deposits of
$144 million.
The Company's subsidiaries provide complete banking services to
individuals and businesses throughout the market areas they serve. Services
include consumer (credit card, student and other consumer), real estate
(construction, single family residential and other commercial) and commercial
(commercial, agriculture and financial institutions) loans, checking, savings
and time deposits, trust and investment management services, and securities and
investment services.
Loan Risk Assessment
As a part of the ongoing risk assessment, the Bank has a Loan Loss
Reserve Committee that meets monthly to review the adequacy of the allowance for
loan losses. The Committee reviews the status of past due, non-performing and
other impaired loans on a loan-by-loan basis, including historical loan loss
information. However, for credit card and other consumer loans consideration is
given to more recent loss experience and current economic conditions. The
allowance for loan losses is determined based upon the aforementioned factors
and allocated to the individual loan categories. Also, an unallocated reserve is
established to compensate for the uncertainty in estimating loan losses,
including the possibility of improper risk ratings and specific reserve
allocations. The Committee reviews their analysis with management and the Bank's
Board of Directors on a monthly basis.
The Company has an independent loan review department. For the Bank,
this department reviews the allowance for loan loss on a monthly basis, performs
an independent loan analysis and prepares a detailed report on their analysis of
the adequacy of the allowance for loan losses on a quarterly basis. This
quarterly report is presented to the Bank's Board of Directors and the Company's
Audit and Security Committee.
The Board of Directors of the other subsidiary banks review the
adequacy of their allowance for loan losses on a monthly basis giving
consideration to past due loans, non-performing loans, other impaired loans and
current economic conditions. Quarterly, the other subsidiary banks supply loan
information to the Company's loan review department for their review. The loan
review department prepares a detailed report of their analysis of the allowance
for loan losses for each bank. This report is presented to the Company's Audit
and Security Committee on a quarterly basis. On an annual basis, the loan review
department performs an on-site detailed review of the loan files to verify the
accuracy of information being supplied on a quarterly basis. All subsidiary
banks, except for Simmons/South, receive this review on a semi-annual basis.
Growth Strategy
The Company's growth strategy is to focus on the State of Arkansas
with an emphasis on providing statewide coverage of financial services combined
with continued investments in technology. More specifically, the Company is
interested in strategic expansions by opening new financial centers or by
acquisitions of banks in growth markets or in markets where we have an existing
presence. For example, the Company is planning additional branch locations in
the Little Rock metropolitan area during 2003. While these investments can be
dilutive to earnings in the short-term, the Company believes they will reward
shareholders in the intermediate and long-term.
With an increased presence in Arkansas, ongoing investments in
technology, and enhanced products and services, the Company is better positioned
to meet the customer demands of the State of Arkansas.
Competition
The activities engaged in by the Company and its subsidiaries are
highly competitive. In all aspects of its business, the Company encounters
intense competition from other banks, lending institutions, credit unions,
savings and loan associations, brokerage firms, mortgage companies, industrial
loan associations, finance companies, and several other financial and financial
service institutions. The amount of competition among commercial banks and other
financial institutions has increased significantly over the past few years since
the deregulation of the banking industry. The Company's subsidiary banks
actively compete with other banks and financial institutions in their efforts to
obtain deposits and make loans, in the scope and type of services offered, in
interest rates paid on time deposits and charged on loans and in other aspects
of commercial banking.
2
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, 2002, the Company and its subsidiaries had 977
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. The
Board of Directors elects executive officers annually.
NAME AGE POSITION YEARS SERVED
- -------------------------------------------------------------------------------------------------------------------
J. Thomas May 56 Chairman, President and Chief Executive Officer 16
Barry L. Crow 59 Executive Vice President and 31
Chief Financial Officer
James P. Powell 62 Senior Vice President and Auditor (retired 12-31-02) 28
Tommie K. Jones 55 Senior Vice President and Human 28
Resources Director
Robert A. Fehlman 38 Senior Vice President and Controller 14
John L. Rush 68 Secretary 35
Board of Directors of the Company
The following is a list of the Board of Directors of the Company,
along with their principal occupation.
NAME PRINCIPAL OCCUPATION
- --------------------------------------------------------------------------------
William E. Clark Chairman and Chief Executive Officer
CDI Contractors, LLC
Lara F. Hutt, III President
Hutt Building Material Company, Inc.
George A. Makris, Jr. President
M.K. Distributors, Inc.
J. Thomas May Chairman, President and
Chief Executive Officer Simmons First
National Corporation
David R. Perdue Vice President
JDR, Inc.
Harry L. Ryburn, D.D.S. Orthodontist
Henry F. Trotter, Jr. President
Trotter Ford, Lincoln, Mercury,
Toyota, KIA
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 generally must
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.
3
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. Those bank
holding companies, including the Company, which have elected to qualify as
financial holding companies are also authorized to engage in financial
activities. Financial activities include any activity that is financial in
nature or any activity that is incidental or complimentary to a financial
activity.
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 (including financial
holding companies) and non-banking subsidiaries, to limit activities that
represent unsafe or unsound practices or constitute violations of law.
The Company is subject to certain laws and regulations of the State
of Arkansas applicable to bank holding companies, including examination and
supervision by the Arkansas Bank Commissioner. Under Arkansas law, a bank
holding company is prohibited from owning more than one subsidiary bank, if any
subsidiary bank owned by the holding company has been chartered for less than 5
years and, further, requires the approval of the Arkansas Bank Commissioner for
any acquisition of more than 25% of the capital stock of any other bank located
in Arkansas. No bank acquisition may be approved if, after such acquisition, the
holding company would control, directly or indirectly, banks having 25% of the
total bank deposits in the State of Arkansas, excluding deposits of other banks
and public funds.
Legislation enacted in 1994, allows bank holding companies from any
state to acquire banks located in any state without regard to state law,
provided that the bank holding company (1) is adequately capitalized, (2) is
adequately managed, (3) would not control more than 10% of the insured deposits
in the United States or more than 30% of the insured deposits in such state, and
(4) such bank has been in existence at least five years if so required by the
applicable state law.
Subsidiary Banks
Simmons First National Bank, Simmons/El Dorado and Simmons First
Trust Company N.A., as national banking associations, are subject to regulation
and supervision, of which regular bank examinations are a part, by the Office of
the Comptroller of the Currency of the United States ("OCC"). Simmons/Jonesboro,
Simmons/South and Simmons/Northwest, as state chartered banks, are subject to
the supervision and regulation, of which regular bank examinations are a part,
by the Federal Deposit Insurance Corporation ("FDIC") and the Arkansas State
Bank Department. Simmons/Russellville and Simmons/Searcy, as state chartered
member banks, are subject to the supervision and regulation, of which regular
bank examinations are a part, by the Federal Reserve Board and the Arkansas
State Bank Department. The lending powers of each of the subsidiary banks are
generally subject to certain restrictions, including the amount, which may be
lent to a single borrower.
Prior to passage of the GLB Act in 1999, the subsidiary banks, with
numerous exceptions, were subject to the application of the laws of the State of
Arkansas, which included the limitation of the maximum permissible interest rate
on loans. The Arkansas limitation for general loans was 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.) were exempt from this limitation;
however, a very substantial portion of the loans made by the subsidiary banks,
including all credit card loans, have historically been subject to this
limitation. The GLB Act included a provision which would set the maximum
interest rate on loans made in Arkansas, by banks with Arkansas as their Home
State, at the greater of the rate authorized by Arkansas law or the highest rate
permitted by any of the out-of-state banks which maintain branches in Arkansas.
An action was brought in the Western District of Arkansas, attacking the
validity of the statute in 2000. Subsequently, the District Court issued a
decision upholding the statute. Furthermore, during October 2001, the Eighth
Circuit Court of Appeals upheld that statute. Thus, in the fourth quarter of
2001, the Company began to implement the changes permitted by the GLB Act.
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.
4
Federal law substantially restricts transactions between banks and
their affiliates. As a result, the Company's subsidiary banks are limited in
making extensions of credit to the Company, investing in the stock or other
securities of the Company and engaging in other financial transactions with the
Company. Those transactions, which are permitted, must generally be undertaken
on terms at least as favorable to the bank, as those prevailing in comparable
transactions with independent third parties.
Potential Enforcement Action for Bank Holding Companies and Banks
Enforcement proceedings seeking civil or criminal sanctions may be
instituted against any bank, any director, officer, employee or agent of the
bank, that is believed by the federal banking agencies to be violating any
administrative pronouncement or engaged in unsafe and unsound practices. In
addition, the FDIC may terminate the insurance of accounts, upon determination
that the insured institution has engaged in certain wrongful conduct, or is in
an unsound condition to continue operations.
Risk-Weighted Capital Requirements for the Company and the Banks
Since 1993, banking organizations (including bank holding companies
and banks) were required to meet a minimum ratio of Total Capital to Total
Risk-Weighted Assets of 8%, of which at least 4% must be in the form of Tier 1
Capital. A well-capitalized institution is one that has at least a 10% "total
risk-based capital" ratio. For a tabular summary of the Company's risk-weighted
capital ratios, see "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Capital" and Note 19 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.
5
Federal Deposit Insurance Corporation Improvement Act
The Federal Deposit Insurance Corporation Improvement Act ("FDICIA"),
enacted in 1991, requires the FDIC to increase assessment rates for insured
banks and authorizes one or more "special assessments", as necessary for the
repayment of funds borrowed by the FDIC or any other necessary purpose. As
directed in FDICIA, the FDIC has adopted a transitional risk-based assessment
system, under which the assessment rate for insured banks will vary, according
to the level of risk incurred in the bank's activities. The risk category and
risk-based assessment for a bank is determined from its classification, pursuant
to the regulation, as well capitalized, adequately capitalized or
undercapitalized.
FDICIA substantially revised the bank regulatory provisions of the
Federal Deposit Insurance Act and other federal banking statutes, requiring
federal banking agencies to establish capital measures and classifications.
Pursuant to the regulations issued under FDICIA, a depository institution will
be deemed to be well capitalized if it significantly exceeds the minimum level
required for each relevant capital measure; adequately capitalized if it meets
each such measure; undercapitalized if it fails to meet any such measure;
significantly undercapitalized if it is significantly below any such measure;
and critically undercapitalized if it fails to meet any critical capital level
set forth in regulations. The federal banking agencies must promptly mandate
corrective actions by banks that fail to meet the capital and related
requirements, in order to minimize losses to the FDIC. The FDIC and OCC advised
the Company that the subsidiary banks have been classified as well capitalized
under these regulations.
The federal banking agencies are required by FDICIA to prescribe
standards for banks and bank holding companies, relating to operations and
management, asset quality, earnings, stock valuation and compensation. A bank or
bank holding company that fails to comply with such standards will be required
to submit a plan designed to achieve compliance. If no plan is submitted or the
plan is not implemented, the bank or holding company would become subject to
additional regulatory action or enforcement proceedings.
A variety of other provisions included in FDICIA may affect the
operations of the Company and the subsidiary banks, including new reporting
requirements, revised regulatory standards for real estate lending, "truth in
savings" provisions, and the requirement that a depository institution give 90
days prior notice to customers and regulatory authorities before closing any
branch.
ITEM 2. PROPERTIES
The principal offices of the Company and the Bank consist of an
eleven-story office building and adjacent office space, located in the central
business district of the city of Pine Bluff, Arkansas. The building and adjacent
office space is comprised of approximately 119,000 square feet of usable floor
space, approximately 7,000 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, 2002, the Company's seven
banks are conducting financial operations from 65 offices in 34 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.
6
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's common stock trades on The Nasdaq Stock Market(R) under
the symbol "SFNCA". The following table sets forth, for all the periods
indicated, cash dividends paid, and the high and low closing bid prices for the
Company's common stock.
Quarterly
Price Per Dividends
Common Share Per Common
High Low Share
- ----------------------------------------------------------------------------------------------------------------------------
2002
1st quarter $ 33.06 $ 31.28 $ 0.23
2nd quarter 42.59 32.50 0.24
3rd quarter 41.13 33.90 0.24
4th quarter 38.44 34.40 0.25
2001
1st quarter $ 24.31 $ 22.25 $ 0.21
2nd quarter 34.30 22.88 0.22
3rd quarter 37.80 31.70 0.22
4th quarter 34.40 31.60 0.23
At December 31, 2002, the Common Stock was held of record by
approximately 1,381 stockholders. On February 04, 2003, the last sale price for
the Common Stock as reported by The Nasdaq Stock Market(R) was $34.85 per share.
The Company's policy is to declare regular quarterly dividends based
upon the Company's earnings, financial position, capital requirements and such
other factors deemed relevant by the Board of Directors. This dividend policy is
subject to change, however, and the payment of dividends by the Company is
necessarily dependent upon the availability of earnings and the Company's
financial condition in the future. The payment of dividends on the Common Stock
is also subject to regulatory capital requirements.
The Company's principal source of funds for dividend payments to its
stockholders is dividends received from its subsidiary banks. Under applicable
banking laws, the declaration of dividends by the Bank and Simmons/El Dorado in
any year, in excess of its net profits, as defined, for that year, combined with
its retained net profits of the preceding two, must be approved by the Office of
the Comptroller of the Currency. Further, as to Simmons/Jonesboro,
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, 2002,
approximately $14 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
19 of Notes to Consolidated Financial Statements.
Recent Sales of Unregistered Securities
The following transactions are sales of unregistered shares of Class
A Common Stock of the registrant, which were issued to executive and senior
management officers upon the exercise of rights granted under one of the
Company's stock option plans. No underwriters were involved and no underwriter's
discount or commissions were involved. Exemption from registration is claimed
under Section 4(2) of the Securities Act of 1933 as private placements. The
Company received cash and/or exchanged shares of the Company's Class A Common
Stock as the consideration for the transactions.
7
Number
Identity Date of Sale of Shares Price(1) Type of Transaction
- ------------------------------------------------------------------------------------------------------------------------------------
1 Officer October, 2002 600 $20.5000 Incentive Stock Option
1 Officer October, 2002 600 25.6667 Incentive Stock Option
1 Officer November, 2002 300 15.5833 Incentive Stock Option
1 Officer November, 2002 3,000 19.3330 Incentive Stock Option
5 Officers November, 2002 1,650 20.5000 Incentive Stock Option
13 Officers November, 2002 5,850 25.6667 Incentive Stock Option
3 Officers December, 2002 1,500 20.5000 Incentive Stock Option
1 Officer December, 2002 1,200 25.6667 Incentive Stock Option
________
Notes:
1. The per share price paid for incentive stock options represents the fair
market value of the stock as determined under the terms of the Plan on the
date the incentive stock option was granted to the officer. The price paid
and number of shares issued have been adjusted to reflect the effect of
the 50% stock dividend paid on December 6, 1996.
Forward Looking Statements
Statements in this 10-K that are not historical facts should be
considered forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. Forward-looking statements are the
Company's current estimates or expectations of future events or future results.
As such, forward-looking statements are subject to risks and uncertainties that
could cause actual results to differ materially from projected results discussed
in this Report. These include variations in management projections or market
forecasts and the actions that management could take in response to these
changes.
The Company or its executive officers and directors on behalf of the
Company, may from time to time make forward-looking statements. When used in
this report, any press release or oral statements, the words "estimate",
"project", "anticipate", "expect", "intend", "believe", "plan", "goal", and
words of like import are intended to identify forward-looking statements in
addition to statements specifically identified as forward-looking statements.
These statements, projections or future plans, could be affected by a number of
factors that the Company is necessarily unable to predict with accuracy,
including future changes in interest rates, general credit quality, economic
activity, consumer behavior, government monetary policy, legislation and
regulation, competition, credit, market and operating risk, and loan demand. In
addition, the Company's future results of operations, discussions of future
plans and other forward-looking statements contained in Management's Discussion
and Analysis and elsewhere in this Form 10-K involve a number of risks and
uncertainties, including risks relating to the uncertainties created by the
enactment of the Gramm-Leach-Bliley Financial Modernization Act of 1999. As a
result of variations in such factors, actual results may differ materially from
any forward-looking statements.
Forward-looking statements speak only as of the date they are made.
The Company will not update forward-looking statements to reflect factual
assumptions, circumstances or events, which have changed after a forward-looking
statement was made.
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, 2002, 2001,
2000, 1999, and 1998 were derived from consolidated financial statements of the
Company, which were audited by BKD, LLP. 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.
8
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SELECTED CONSOLIDATED FINANCIAL DATA
Years Ended December 31 (1)
(In thousands, --------------------------------------------------------------------------
except per share data) 2002 2001 2000 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Income statement data:
Net interest income $ 75,708 $ 67,405 $ 67,061 $ 64,731 $ 60,466
Provision for loan losses 10,223 9,958 7,531 6,551 8,309
Net interest income after provision
for loan losses 65,485 57,447 59,530 58,180 52,157
Non-interest income 35,303 33,569 30,355 28,277 33,635
Non-interest expense 69,013 68,130 62,556 61,929 62,639
Provision for income taxes 9,697 6,358 8,460 7,360 6,666
Net income 22,078 16,528 18,869 17,168 16,487
Per share data:
Basic earnings 3.12 2.33 2.59 2.35 2.28
Diluted earnings 3.07 2.31 2.58 2.33 2.24
Book value 27.95 25.73 24.14 21.78 20.77
Dividends 0.96 0.88 0.80 0.72 0.64
Balance sheet data at period end:
Assets 1,977,579 2,016,918 1,912,493 1,697,430 1,687,010
Loans 1,257,305 1,258,784 1,294,710 1,113,635 1,034,462
Allowance for loan losses 21,948 20,496 21,157 17,085 16,812
Deposits 1,619,196 1,686,404 1,605,586 1,410,633 1,381,003
Long-term debt 54,282 42,150 41,681 46,219 49,899
Stockholders' equity 197,605 182,363 173,343 159,371 150,384
Capital ratios at period end:
Stockholders' equity to
total assets 9.99% 9.04% 9.06% 9.39% 8.91%
Leverage (2) 9.29% 8.26% 8.41% 9.10% 8.39%
Tier 1 14.02% 12.76% 11.97% 13.67% 12.81%
Total risk-based 15.30% 14.04% 13.26% 14.96% 14.06%
Selected ratios:
Return on average assets 1.12% 0.84% 1.05% 1.02% 1.00%
Return on average equity 11.56% 9.23% 11.33% 10.92% 11.31%
Net interest margin (3) 4.37% 3.92% 4.24% 4.41% 4.17%
Allowance/nonperforming loans 179.07% 137.12% 192.97% 167.37% 167.30%
Allowance for loan losses as a
percentage of period-end loans 1.75% 1.63% 1.63% 1.53% 1.63%
Nonperforming loans as a percentage
of period-end loans 0.97% 1.19% 0.85% 0.92% 0.97%
Net charge-offs as a percentage
of average total assets 0.46% 0.54% 0.34% 0.37% 0.41%
Dividend payout 30.75% 37.76% 30.85% 31.26% 29.83%
____________________________________________________________________________________________________________________________________
(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 (assuming an effective income tax rate
of 37.5% for 2002 through 1999 and 36.25% for 1998).
9
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
2002 Overview
- --------------------------------------------------------------------------------
Simmons First National Corporation recorded record earnings of
$22,078,000, or $3.07 diluted earnings per share for the twelve-month period
ended December 31, 2002. These earnings reflect an increase of $5,550,000, or
$0.76 per share from the December 31, 2001 earnings of $16,528,000, or $2.31
diluted earnings per share. The increase in earnings over last year is primarily
attributable to a significant improvement in the Company's net interest margin
and the elimination of the amortization of goodwill required by the Financial
Accounting Standards Board. The Company's return on average assets and return on
average stockholders' equity for the year ended December 31, 2002, was 1.12% and
11.56%, compared to 0.84% and 9.23%, respectively, for the year ended 2001.
Total assets for the Company at December 31, 2002, were $2.0 billion,
a decrease of $39 million, or 2.0%, over the same figure at December 31, 2001.
Stockholders' equity at December 31, 2002, was $197.6 million, a $15.2 million,
or 8.4%, increase from December 31, 2001.
Asset quality improved during the year ended 2002. The allowance for
loan losses as a percent of total loans equaled 1.75% at December 31, 2002,
compared to 1.63% at December 31, 2001. As of December 31, 2002, non-performing
loans equaled 0.97% of total loans compared to 1.19% as of year-end 2001. At
year-end 2002, the allowance for loan losses equaled 179% of non-performing
loans compared to 137% at year-end 2001.
Simmons First National Corporation is an Arkansas-based,
Arkansas-committed financial holding company, with community banks in Pine
Bluff, Jonesboro, Lake Village, Rogers, Russellville, Searcy and El Dorado,
Arkansas. The Company's seven banks conduct financial operations from 65 offices
in 34 communities throughout Arkansas.
Acquisitions
- --------------------------------------------------------------------------------
On July 19, 2002, the Company expanded its coverage in South Arkansas
with the purchase of the Monticello location from HEARTLAND Community Bank.
Simmons First Bank of South Arkansas, a wholly owned subsidiary of the Company,
acquired the Monticello office. As of July 19, 2002, the new location had total
loans of $8 million and total deposits of $13 million. As a result of this
transaction, the Company recorded additional goodwill and core deposits of
$1,058,000 and $217,000, respectively.
On July 17, 2000, the Company expanded its coverage of Central and
Northwest Arkansas with a $7.6 million cash purchase of two Conway and six
Northwest Arkansas locations from First Financial Banc Corporation. Simmons
First National Bank acquired the two offices in Conway and Simmons First Bank of
Northwest Arkansas acquired the six offices in Northwest Arkansas. As of July
14, 2000, the eight locations combined had total loans of $71.8 million, total
deposits of $71.0 million and net assets of $8.5 million. The total acquisition
cost exceeded the fair value of tangible assets and liabilities acquired by
$10.8 million.
Sale of Mortgage Servicing
- --------------------------------------------------------------------------------
On June 30, 1998, the Company sold its $1.2 billion residential
mortgage-servicing portfolio. As a result of this sale, the Company established
a $1.0 million reserve for potential liabilities under certain representations
and warranties on the sale date. The balance for this reserve was $907,000 as of
December 31, 2002. The potential liability for the representations and
warranties for the mortgage-servicing sale will expire on June 30, 2003 and
until that time the buyer has the ability to make claims on the entire balance.
As such, management believes it is necessary to maintain the reserve until the
term expires. If there is a remaining balance in the representations and
warranties reserve, it will be reflected as an additional gain on sale of
mortgage servicing on the expiration date.
10
Stock Repurchase
- --------------------------------------------------------------------------------
The Company has a stock repurchase program, which is authorized to
repurchase up to 400,000 common shares. Under the repurchase program, there is
no time limit for the stock repurchases, nor is there a minimum number of shares
the Company intends to repurchase. The Company may discontinue purchases at any
time that management determines additional purchases are not warranted. The
shares are to be purchased from time to time at prevailing market prices,
through open market or unsolicited negotiated transactions, depending upon
market conditions. The Company intends to use the repurchased shares to satisfy
stock option exercises, payment of future stock dividends and general corporate
purposes.
During the twelve-month period ended December 31, 2002, the Company
repurchased 30,000 common shares of stock with a weighted average repurchase
price of $32.65 per share. As of December 31, 2002, the Company has repurchased
a total of 331,000 common shares of stock under its current program, with a
weighted average repurchase price of $23.71 per share. Upon completion of the
current plan, the Company expects to renew the repurchase program.
Net Interest Income
- --------------------------------------------------------------------------------
Net interest income, the Company's principal source of earnings, is
the difference between the interest income generated by earning assets and the
total interest cost of the deposits and borrowings obtained to fund those
assets. Factors that determine the level of net interest income include the
volume of earning assets and interest bearing liabilities, yields earned and
rates paid, the level of non-performing loans and the amount of non-interest
bearing liabilities supporting earning assets. Net interest income is analyzed
in the discussion and tables below on a fully taxable equivalent basis. The
adjustment to convert certain income to a fully taxable equivalent basis
consists of dividing tax-exempt income by one minus the combined federal and
state income tax rate (37.50% for 2002, 2001 and 2000, respectively).
The year ended 2002 represents the first full year that the Company
was able to fully utilize the changes in the Arkansas usury law made possible
through the Gramm-Leach-Bliley Act, which was confirmed by the Eighth Circuit
Court of Appeals in October 2001. This ability to reprice the loan portfolio,
coupled with the ongoing repricing of the deposit base that was driven by the
Federal Reserve's lowering of interest rates, has enabled the Company to achieve
considerable improvement in both net interest income and net interest margin.
For the year ended December 31, 2002, net interest income on a fully
taxable equivalent basis was $79.0 million, an increase of $8.4 million, or
12.0%, from the same period in 2001. The increase in net interest income was the
result of a $19.6 million decrease in fully taxable equivalent interest income
and a $28.0 million decrease in interest expense. The decrease in interest
income was the result of a lower yield earned on earning assets. The decrease in
interest expense was the result of a lower cost of funds. The net interest
margin improved 45 basis points to 4.37% for the year ended December 31, 2002,
when compared to 3.92% for the same period in 2001.
For the year ended December 31, 2001, net interest income on a fully
taxable equivalent basis was $70.6 million, an increase of approximately
$618,000, or 0.88%, from 2000 net interest income. The increase in 2001 in net
interest income was the result of a $448,000 decrease in fully taxable
equivalent interest income and a $1,066,000 decrease in interest expense.
Interest income decreased from 2000 to 2001 as a result of a lower yield earned
on earning assets, which was offset from the increase in the average balance of
earning assets. The decrease in interest expense from 2000 to 2001 was the
result of a lower cost of funds, which was offset by the increase in the average
balance of interest bearing liabilities. Yield on earning assets and interest
bearing liabilities were lower in 2001 as the result of lower average interest
rates during 2001. The net interest margin was 3.92% in 2001, compared to 4.24%
in 2000.
11
Table 1 and 2 reflect an analysis of net interest income on a fully
taxable equivalent basis for the years ended December 31, 2002, 2001 and 2000,
respectively, as well as changes in fully taxable equivalent net interest margin
for the years 2002 versus 2001 and 2001 versus 2000.
Table 1: Analysis of Net Interest Income
(FTE =Fully Taxable Equivalent)
Years Ended December 31
------------------------------------------------------
(In thousands) 2002 2001 2000
- ------------------------------------------------------------------------------------------------------------------------------------
Interest income $ 116,142 $ 135,868 $ 136,590
FTE adjustment 3,325 3,183 2,909
----------- ------------ -----------
Interest income - FTE 119,467 139,051 139,499
Interest expense 40,434 68,463 69,529
----------- ------------ -----------
Net interest income - FTE $ 79,033 $ 70,588 $ 69,970
========== =========== ==========
Yield on earning assets - FTE 6.61% 7.72% 8.46%
Cost of interest bearing liabilities 2.64% 4.41% 4.89%
Net interest spread - FTE 3.97% 3.31% 3.57%
Net interest margin - FTE 4.37% 3.92% 4.24%
Table 2: Changes in Fully Taxable Equivalent Net Interest Margin
(In thousands) 2002 vs. 2001 2001 vs.2000
- ------------------------------------------------------------------------------------------------------------------------------------
(Decrease) increase due to change in earning assets $ (1,325) $ 10,723
Decrease due to change in earning asset yields (18,259) (11,171)
Increase due to change in interest rates paid on
interest bearing liabilities 25,010 7,333
Increase (decrease) due to change in interest bearing liabilities 3,019 (6,267)
------------- -------------
Increase in net interest income $ 8,445 $ 618
============ ============
Table 3 shows, for each major category of earning assets and interest
bearing liabilities, the average (computed on a daily basis) amount outstanding,
the interest earned or expensed on such amount and the average rate earned or
expensed for each of the years in the three-year period ended December 31, 2002.
The table also shows the average rate earned on all earning assets, the average
rate expensed on all interest bearing liabilities, the net interest spread and
the net interest margin for the same periods. The analysis is presented on a
fully taxable equivalent basis. Non-accrual loans were included in average loans
for the purpose of calculating the rate earned on total loans.
12
Table 3: Average Balance Sheets and Net Interest Income Analysis
Years Ended December 31
-----------------------------------------------------------------------------------------------
2002 2001 2000
------------------------------- ------------------------------ -----------------------------
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 $ 41,314 $ 650 1.57 $ 44,238 $ 1,472 3.33 $ 14,495 $ 890 6.14
Federal funds sold 65,199 996 1.53 52,742 1,877 3.56 22,170 1,366 6.16
Investment securities - taxable 311,476 13,094 4.20 271,864 15,053 5.54 290,942 18,164 6.24
Investment securities - non-taxable 119,388 8,310 6.96 121,068 8,591 7.10 113,047 8,062 7.13
Mortgage loans held for sale 16,560 1,007 6.08 18,486 1,143 6.18 7,285 542 7.44
Assets held in trading accounts 1,784 88 4.93 786 38 4.83 1,507 95 6.30
Loans 1,251,072 95,322 7.62 1,291,808 110,877 8.58 1,199,288 110,380 9.20
----------- --------- ----------- --------- ------------ ---------
Total interest earning assets 1,806,793 119,467 6.61 1,800,992 139,051 7.72 1,648,734 139,499 8.46
--------- --------- ---------
Non-earning assets 156,551 158,956 145,280
----------- ----------- ------------
Total assets $ 1,963,344 $ 1,959,948 $ 1,794,014
========== ========== ===========
LIABILITIES AND
- ---------------
STOCKHOLDERS' EQUITY
- --------------------
Liabilities
Interest bearing liabilities
Interest bearing transaction
and savings deposits $ 540,454 $ 6,304 1.17 $ 470,708 $ 10,008 2.13 $ 444,879 $ 12,816 2.88
Time deposits 859,542 29,503 3.43 948,172 51,948 5.48 860,269 49,055 5.70
----------- --------- ----------- --------- ------------ ---------
Total interest bearing deposits 1,399,996 35,807 2.56 1,418,880 61,956 4.37 1,305,148 61,871 4.74
Federal funds purchased and
securities sold under agreement
to repurchase 78,518 1,198 1.53 82,371 2,874 3.49 64,304 3,669 5.71
Other borrowed funds
Short-term debt 5,435 110 2.02 7,413 333 4.49 9,371 516 5.51
Long-term debt 47,117 3,319 7.04 42,275 3,300 7.81 43,255 3,473 8.03
----------- --------- ----------- --------- ------------ ---------
Total interest bearing
liabilities 1,531,066 40,434 2.64 1,550,939 68,463 4.41 1,422,078 69,529 4.89
--------- --------- ---------
Non-interest bearing liabilities
Non-interest bearing deposits 226,128 211,052 188,220
Other liabilities 15,203 18,848 17,199
----------- ----------- ------------
Total liabilities 1,772,397 1,780,839 1,627,497
Stockholders' equity 190,947 179,109 166,517
----------- ----------- ------------
Total liabilities and
stockholders' equity $ 1,963,344 $ 1,959,948 $ 1,794,014
========== ========== ===========
Net interest spread 3.97 3.31 3.57
Net interest margin $ 79,033 4.37 $ 70,588 3.92 $ 69,970 4.24
======== ======== ========
Table 4 shows changes in interest income and interest expense,
resulting from changes in volume and changes in interest rates for each of the
years ended December 31, 2002 and 2001, 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.
13
Table 4: Volume/Rate Analysis
Years Ended December 31
------------------------------------------------------------------------------
2002 over 2001 2001 over 2000
------------------------------------- --------------------------------------
(In thousands, on a fully Yield/ Yield/
taxable equivalent basis) Volume Rate Total Volume Rate Total
- -----------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in
Interest income
Interest bearing balances
due from banks $ (91) $ (731) $ (822) $ 1,143 $ (561) $ 582
Federal funds sold 369 (1,250) (881) 1,275 (764) 511
Investment securities - taxable 1,994 (3,953) (1,959) (1,141) (1,970) (3,111)
Investment securities - non-taxable (118) (163) (281) 569 (40) 529
Mortgage loans held for sale (117) (19) (136) 707 (106) 601
Assets held in trading accounts 49 1 50 (39) (18) (57)
Loans (3,411) (12,144) (15,555) 8,209 (7,712) 497
--------- --------- --------- --------- --------- ---------
Total (1,325) (18,259) (19,584) 10,723 (11,171) (448)
--------- --------- ------- ---------- ----------- --------
Interest expense
Interest bearing transaction and
savings deposits 1,318 (5,022) (3,704) 709 (3,517) (2,808)
Time deposits (4,493) (17,952) (22,445) 4,870 (1,977) 2,893
Federal funds purchased
and securities sold under
agreements to repurchase (129) (1,547) (1,676) 863 (1,658) (795)
Other borrowed funds
Short-term debt (73) (150) (223) (97) (86) (183)
Long-term debt 358 (339) 19 (78) (95) (173)
--------- ------- --------- --------- --------- ---------
Total (3,019) (25,010) (28,029) 6,267 (7,333) (1,066)
--------- --------- --------- --------- --------- ---------
Increase (decrease) in
net interest income $ 1,694 $ 6,751 $ 8,445 $ 4,456 $ (3,838) $ 618
======== ========= ======== ======== ======== ========
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 2002, 2001 and 2000 was $10.2, $10.0 and $7.5 million,
respectively. During the reporting year ended 2001, the Company experienced an
increase in classified assets at one community bank subsidiary. Thus, the
Company increased the provision for loan losses at that subsidiary during the
year ended 2001. While the Company's asset quality improved during 2002, there
continued to be significant uncertainties in the United States economy and
concerns over the downturn in the catfish industry that affects one of the
Company's community banks. For that reason, management continued with an
increased level of provision during 2002.
Non-Interest Income
- --------------------------------------------------------------------------------
Total non-interest income was $35.3 million in 2002, compared to
$33.6 million in 2001 and $30.4 million in 2000. Non-interest income is
principally derived from recurring fee income, which includes service charges,
trust fees and credit card fees. Non-interest income also includes income on the
sale of mortgage loans and investment banking profits.
Table 5 shows non-interest income for the years ended December 31,
2002, 2001 and 2000, respectively, as well as changes in 2002 from 2001 and in
2001 from 2000.
14
Table 5: Non-Interest Income
Years Ended December 31 2002 2001
----------------------- Change from Change from
(In thousands) 2002 2001 2000 2001 2000
- ----------------------------------------------------------------------------------------------------------------------------
Trust income $ 5,258 $ 5,409 $ 5,282 $ (151) -2.79% $ 127 2.40%
Service charges on deposit accounts 10,084 8,951 7,998 1,133 12.66 953 11.92
Other service charges and fees 1,450 1,588 1,610 (138) -8.69 (22) -1.37
Income on sale of mortgage loans,
net of commissions 3,792 3,148 1,727 644 20.46 1,421 82.28
Income on investment banking,
net of commissions 1,087 957 453 130 13.58 504 111.26
Credit card fees 10,161 10,485 10,522 (324) -3.09 (37) -0.35
Other income 3,481 3,020 2,763 461 15.26 257 9.30
(Loss) gain on sale of securities, net (10) 11 -- (21) -190.91 11 --
---------- ----------- ----------- -------- -----------
Total non-interest income $ 35,303 $ 33,569 $ 30,355 $ 1,734 5.17% $ 3,214 10.59%
========= ========== ========== ======== ==========
Recurring fee income for 2002 was $27.0 million, an increase of
$520,000, or 2.0%, when compared with the 2001 figures. This increase was
attributable to the growth in service charges on deposit accounts offset by the
decease in trust fees and credit card fees. The increase in service charges on
deposit accounts for 2002 is the result of an improved fee structure. The
decrease in trust fees was primarily the result of lower market valuations in
the managed assets of the Trust Company, which was driven by the downturn in the
market conditions of the United States. While the decrease in credit card fees
is the result of increased competitive pressures for that product, which has
resulted in a decline of the Company's credit card portfolio.
Recurring fee income for 2001 was $26.4 million, an increase of $1.0
million, or 4.0%, when compared with the 2000 figures. This increase was
primarily attributable to the growth in service charges on deposit accounts. The
increase in service charges on deposit accounts for 2001 is the result of
internal deposit growth, an improved fee structure and the acquisition completed
during July 2000.
During the years ended December 31, 2002 and 2001, income on the sale
of mortgage loans and income on investment banking increased $774,000 and
$1,925,000, respectively, from the years ended in 2001 and 2000. These increases
were the result of a higher volume for those products during 2002 and 2001. The
lower interest rate environment during 2002 and 2001 primarily drove the volume
increases.
During the year ended December 31, 2002, the Company recorded several
items in other income that are of a non recurring nature. These items included a
gain on the sale one of the Company's branch facilities in the Northwest
Arkansas area and higher than normal interest recoveries from interest charged
off in prior years.
Non-Interest Expense
- --------------------------------------------------------------------------------
Non-interest expense consists of salaries and employee benefits,
occupancy, equipment, foreclosure losses and other expenses necessary for the
operation of the Company. Management remains committed to controlling the level
of non-interest expense, through the continued use of expense control measures
that have been installed. The Company utilizes an extensive profit planning and
reporting system involving all affiliates. Based on a needs assessment of the
business plan for the upcoming year, monthly and annual profit plans are
developed, including manpower and capital expenditure budgets. These profit
plans are subject to extensive initial reviews and monitored by management on a
monthly basis. Variances from the plan are reviewed monthly and, when required,
management takes corrective action intended to ensure financial goals are met.
Management also regularly monitors staffing levels at each affiliate, to ensure
productivity and overhead are in line with existing workload requirements.
15
Non-interest expense for 2002 was $69.0 million, an increase of
$883,000 or 1.3%, from 2001. The relatively flat non-interest expense is
primarily due to the increase in salary and employee benefits offset by the
decrease in the amortization of goodwill and other intangibles. The salary and
employee benefits increase is associated with normal salary adjustments,
increased cost of health insurance, the opening of a new downtown financial
center in Little Rock, during 2001, and a change in the Company's vacation
policy. The vacation policy change created a special non-cash expense of
$189,000 during the first quarter of 2002. The decrease in the amortization of
intangibles was due to the Company adopting the Financial Accounting Standards
Board SFAS No. 142, Goodwill and Other Intangible Assets effective January 1,
2002. The new rule eliminated most of the Company's amortization.
Non-interest expense for 2001 was $68.1 million, an increase of $5.6
million or 8.9%, from 2000. This increase reflects the Company's commitment to
investment in technology and branch infrastructure, the normal increased cost of
doing business and the acquisition completed during July 2000.
Table 6 below shows non-interest expense for the years ended December
31, 2002, 2001 and 2000, respectively, as well as changes in 2002 from 2001 and
in 2001 from 2000.
Table 6: Non-Interest Expense
Years Ended December 31 2002 2001
----------------------- Change from Change from
(In thousands) 2002 2001 2000 2001 2000
- ----------------------------------------------------------------------------------------------------------------------------
Salaries and employee benefits $ 40,039 $ 36,218 $ 33,544 $ 3,821 10.55% $ 2,674 7.97%
Occupancy expense, net 4,747 4,610 3,873 137 2.97 737 19.03
Furniture and equipment expense 5,434 5,251 5,246 183 3.49 5 0.10
Loss on foreclosed assets 177 366 254 (189) -51.64 112 44.09
Other operating expenses
Professional services 1,877 1,759 1,532 118 6.71 227 14.82
Postage 1,881 2,016 2,057 (135) -6.70 (41) -1.99
Telephone 1,542 1,530 1,417 12 0.78 113 7.97
Credit card expenses 1,933 1,808 1,704 125 6.91 104 6.10
Operating supplies 1,385 1,632 1,501 (247) -15.13 131 8.73
FDIC insurance 296 306 299 (10) -3.27 7 2.34
Amortization of goodwill, core
deposits and other intangibles 78 3,024 2,811 (2,946) -97.42 213 7.58
Other expense 9,624 9,610 8,318 14 0.15 1,292 15.53
---------- ---------- ----------- -------- ---------
Total non-interest expense $ 69,013 $ 68,130 $ 62,556 $ 883 1.30% $ 5,574 8.91%
========= ========= ========== ======= ========
Income Taxes
- --------------------------------------------------------------------------------
The provision for income taxes for 2002 was $9.7 million, compared to
$6.4 million in 2001 and $8.5 million in 2000. The effective income tax rates
for the years ended 2002, 2001 and 2000 were 30.5%, 27.8% and 31.0%,
respectively.
Loan Portfolio
- --------------------------------------------------------------------------------
The Company's loan portfolio averaged $1.251 billion during 2002 and
$1.292 billion during 2001. As of December 31, 2002, total loans were $1.257
billion, compared to $1.259 billion on December 31, 2001. The most significant
components of the loan portfolio were loans to businesses (commercial loans and
commercial real estate loans) and individuals (consumer loans, credit card loans
and single-family residential real estate loans).
16
The Company seeks to manage its credit risk by diversifying its loan
portfolio, determining that borrowers have adequate sources of cash flow for
loan repayment without liquidation of collateral, obtaining and monitoring
collateral, providing an adequate allowance for loan losses and regularly
reviewing loans through the internal loan review process. The loan portfolio is
diversified by borrower, purpose and industry and, in the case of credit card
loans, which are unsecured, by geographic region. The Company seeks to use
diversification within the loan portfolio to reduce credit risk, thereby
minimizing the adverse impact on the portfolio, if weaknesses develop in either
the economy or a particular segment of borrowers. Collateral requirements are
based on credit assessments of borrowers and may be used to recover the debt in
case of default. The Company uses the allowance for loan losses as a method to
value the loan portfolio at its estimated collectible amount. Loans are
regularly reviewed to facilitate the identification and monitoring of
deteriorating credits.
Consumer loans consist of credit card loans, student loans and other
consumer loans. Consumer loans were $417.4 million at December 31, 2002, or
33.2% of total loans, compared to $450.7 million, or 35.8% of total loans at
December 31, 2001. The consumer loan decrease from 2001 to 2002 is the result of
a decline in credit cards and indirect lending, which was offset by an increase
in student loans. The credit card portfolio decrease was primarily the result of
a decline in the number of cardholder accounts, due to competitive pressure in
the credit card industry. The decline in indirect consumer loans was the result
of special finance incentives from car manufacturers and a planned reduction by
the Company of that product based on the risk-reward relationship. The increase
in student loans was a result of greater demand for that product.
Real estate loans consist of construction loans, single family
residential loans and commercial loans. Real estate loans were $614.4 million at
December 31, 2002, or 48.9% of total loans, compared to $571.3 million, or 45.4%
of total loans at December 31, 2001. The real estate loan increase is the result
of the acquisition of the Monticello branch location during the third quarter of
2002 combined with an improved demand for real estate loans.
Commercial loans consist of commercial loans, agricultural loans and
financial institution loans. Commercial loans were $209.8 million at December
31, 2002, or 16.7% of total loans, which is comparable to the $220.3 million, or
17.5% of total loans at December 31, 2001.
The amounts of loans outstanding at the indicated dates are reflected
in table 7, according to type of loan.
Table 7: Loan Portfolio
Years Ended December 31
---------------------------------------------------------------------------
(In thousands) 2002 2001 2000 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------
Consumer
Credit cards $ 180,439 $ 196,710 $ 197,567 $ 187,242 $ 165,622
Student loans 83,890 74,860 67,145 66,739 66,134
Other consumer 153,103 179,138 192,595 181,380 155,767
Real Estate
Construction 90,736 83,628 69,169 53,925 63,037
Single family residential 233,193 224,122 244,377 202,886 194,174
Other commercial 290,469 263,539 287,170 240,259 223,368
Commercial
Commercial 144,678 153,617 161,134 137,827 112,800
Agricultural 58,585 60,794 57,164 35,337 40,706
Financial institutions 6,504 5,861 2,339 3,165 5,656
Other 15,708 16,515 16,050 4,875 7,198
------------ -------------- ------------- ------------ ------------
Total loans $ 1,257,305 $ 1,258,784 $ 1,294,710 $ 1,113,635 $ 1,034,462
=========== ============= ============ =========== ============
17
Table 8 reflects the remaining maturities and interest rate
sensitivity of loans at December 31, 2002.
Table 8: Maturity and Interest Rate Sensitivity of Loans
Over 1
year
1 year through Over
(In thousands) or less 5 years 5 years Total
- ------------------------------------------------------------------------------------------------------------------
Consumer $ 342,817 $ 74,177 $ 438 $ 417,432
Real estate 255,464 334,433 24,501 614,398
Commercial 166,231 40,508 3,028 209,767
Other 7,703 5,304 2,701 15,708
----------- ------------ ---------- -------------
Total $ 772,215 $ 454,422 $ 30,668 $ 1,257,305
=========== =========== ========= ============
Predetermined rate $ 462,270 $ 399,166 $ 17,031 $ 878,467
Floating rate 309,945 55,256 13,637 378,838
------------ ------------ ---------- -------------
Total $ 772,215 $ 454,422 $ 30,668 $ 1,257,305
=========== =========== ========= ============
Asset Quality
- --------------------------------------------------------------------------------
Non-performing loans are comprised of (a) nonaccrual loans, (b) loans
that are contractually past due 90 days and (c) other loans for which terms have
been restructured to provide a reduction or deferral of interest or principal,
because of deterioration in the financial position of the borrower. The
subsidiary banks recognize income principally on the accrual basis of
accounting. When loans are classified as nonaccrual, the accrued interest is
charged off and no further interest is accrued. Loans, excluding credit card
loans, are placed on a nonaccrual basis either: (1) when there are serious
doubts regarding the collectability of principal or interest, or (2) when
payment of interest or principal is 90 days or more past due and either (i) not
fully secured or (ii) not in the process of collection. If a loan is determined
by management to be uncollectable, the portion of the loan determined to be
uncollectable is then charged to the allowance for loan losses. Credit card
loans are classified as impaired when payment of interest or principal is 90
days past due. Litigation accounts are placed on nonaccrual until such time as
deemed uncollectable. Credit card loans are generally charged off when payment
of interest or principal exceeds 180 days past due, but are turned over to the
credit card recovery department, to be pursued until such time as they are
determined, on a case-by-case basis, to be uncollectable.
18
Table 9 presents information concerning non-performing assets,
including nonaccrual and restructured loans and other real estate owned.
Table 9: Non-performing Assets
Years Ended December 31
------------------------------------------------------------------------
(In thousands) 2002 2001 2000 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------
Nonaccrual loans $ 10,443 $ 11,956 $ 8,212 $ 7,666 $ 6,959
Loans past due 90 days or more
(principal or interest payments) 1,814 2,991 2,752 2,542 2,972
Restructured -- -- -- -- 118
---------- ----------- ---------- ---------- ---------
Total non-performing loans 12,257 14,947 10,964 10,208 10,049
---------- ----------- ---------- ---------- ----------
Other non-performing assets
Foreclosed assets held for sale 2,705 1,084 1,104 747 2,156
Other non-performing assets 426 631 196 56 29
---------- ----------- ---------- ---------- ----------
Total other non-performing assets 3,131 1,715 1,300 803 2,185
---------- ----------- ---------- ---------- ----------
Total non-performing assets $ 15,388 $ 16,662 $ 12,264 $ 11,011 $ 12,234
========= ========== ========= ========= =========
Allowance for loan losses to
non-performing loans 179.07% 137.12% 192.97% 167.37% 167.30%
Non-performing loans to total loans 0.97% 1.19% 0.85% 0.92% 0.97%
Non-performing assets to total assets 0.78% 0.83% 0.64% 0.65% 0.73%
Approximately $796,000, $1,026,000 and $756,000 of interest income
would have been recorded for the periods ended December 31, 2002, 2001and 2000,
respectively, if the nonaccrual loans had been accruing interest in accordance
with their original terms. There was no interest income on the nonaccrual loans
recorded for the years ended December 31, 2002, 2001 and 2000.
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.
Impaired loans include non-performing loans (loans past due 90 days or more and
nonaccrual loans) and certain loans identified by management.
At December 31, 2002, impaired loans were $14.6 million compared to
$21.0 million in 2001. The decrease in impaired loans from December 31, 2001,
primarily relates to the $2.7 million decrease in non-performing loans and a
$3.7 million decrease of borrowers that are still performing, but for which
management has internally identified as impaired. Management has evaluated the
underlying collateral on these loans and has allocated specific reserves in
order to absorb potential losses if the collateral were ultimately foreclosed
19
Allowance for Loan Losses
- --------------------------------------------------------------------------------
An analysis of the allowance for loan losses for the last five years
is shown in table 10.
Table 10: Allowance for Loan Losses
(In thousands) 2002 2001 2000 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------
Balance, beginning of year $ 20,496 $ 21,157 $ 17,085 $ 16,812 $ 15,215
---------- --------- ---------- --------- ---------
Loans charged off
Credit card 4,703 4,431 3,384 3,156 3,734
Other consumer 2,320 3,063 2,349 2,419 1,398
Real estate 1,813 1,378 606 621 1,272
Commercial 2,310 3,476 1,410 1,498 1,367
----------- ---------- ----------- ---------- ---------
Total loans charged off 11,146 12,348 7,749 7,694 7,771
----------- ---------- ----------- ---------- ----------
Recoveries of loans previously charged off
Credit card 640 515 468 444 398
Other consumer 677 668 800 588 291
Real estate 253 146 92 231 121
Commercial 558 400 325 153 249
----------- ---------- ----------- ---------- ----------
Total recoveries 2,128 1,729 1,685 1,416 1,059
----------- ---------- ----------- ---------- ----------
Net loans charged off 9,018 10,619 6,064 6,278 6,712
Allowance for loan losses of
acquired institutions 247 -- 2,605 -- --
Provision for loan losses 10,223 9,958 7,531 6,551 8,309
----------- ---------- ----------- ---------- ----------
Balance, end of year $ 21,948 $ 20,496 $ 21,157 $ 17,085 $ 16,812
========== ========= ========== ========= =========
Net charge-offs to average loans 0.72% 0.82% 0.51% 0.60% 0.67%
Allowance for loan losses to period-end loans 1.75% 1.63% 1.63% 1.53% 1.63%
Allowance for loan losses to net charge-offs 243.4% 193.0% 348.9% 272.1% 250.5%
The amount of provision to the allowance during the year 2002 was
based on management's judgment, with consideration given to the composition of
the portfolio, historical loan loss experience, assessment of current economic
conditions, past due loans and net losses from loans charged off for the last
five years. It is management's practice to review the allowance on a monthly
basis to determine whether additional provisions should be made to the allowance
after considering the factors noted above.
20
The Company allocates the allowance for loan losses according to the
amount deemed to be reasonably necessary to provide for losses incurred within
the categories of loans set forth in table 11.
Table 11: Allocation of Allowance for Loan Losses
December 31
---------------------------------------------------------------------------------------------------------
2002 2001 2000 1999 1998
------------------ ------------------- ------------------- ------------------- ------------------------
Allowance % of Allowance % of Allowance % of Allowance % of Allowance % of
(In thousands) Amount loans* Amount loans* Amount loans* Amount loans* Amount loans*
- ------------------------------------------------------------------------------------------------------------------------------------
Credit cards $ 4,270 14.4% $ 4,156 15.6% $ 3,947 15.3% $ 3,300 16.8% $ 3,552 16.0%
Other consumer 1,745 18.8% 2,042 20.2% 2,167 20.1% 1,918 22.3% 1,959 21.5%
Real Estate 7,393 48.9% 8,029 45.4% 7,602 46.4% 7,155 44.7% 6,367 46.4%
Commercial 4,398 16.7% 3,485 17.5% 3,603 17.0% 3,244 15.8% 2,637 15.4%
Other -- 1.2% -- 1.3% -- 1.2% -- 0.4% 12 0.7%
Unallocated 4,142 2,784 3,838 1,468 2,285
------- -------- -------- -------- -------
Total $21,948 100.0% $ 20,496 100.0% $ 21,157 100.0% $ 17,085 100.0% $ 16,812 100.0%
====== ======= ======= ======= =======
*Percentage of loans in each category to total loans.
The unallocated reserve generally serves to compensate for the
uncertainty in estimating loan losses, including the inherent lack of precision
of risk ratings and specific reserve allocations. The unallocated reserve is a
result of potential risk factors that cannot be quantified for a particular
year-end, which could include the risks associated with increased lending,
consumer bankruptcies, unfavorable weather conditions or market prices in the
agriculture industry, acquisitions and uncertainties in the economy.
Investments and Securities
- --------------------------------------------------------------------------------
The Company's securities portfolio is the second largest component of
earning assets and provides a significant source of revenue. Securities within
the portfolio are classified as either held-to-maturity, available-for-sale or
trading.
Held-to-maturity securities, which include any security for which
management has the positive intent and ability to hold until maturity, are
carried at historical cost, adjusted for amortization of premiums and accretion
of discounts. Premiums and discounts are amortized and accreted, respectively,
to interest income using the constant yield method over the period to maturity.
Interest and dividends on investments in debt and equity securities are included
in income when earned.
Available-for-sale securities, which include any security for which
management has no immediate plans to sell, but which may be sold in the future,
are carried at fair value. Realized gains and losses, based on amortized cost of
the specific security, are included in other income. Unrealized gains and losses
are recorded, net of related income tax effects, in stockholders' equity.
Premiums and discounts are amortized and accreted, respectively, to interest
income, using the constant yield method over the period to maturity. Interest
and dividends on investments in debt and equity securities are included in
income when earned.
The Company's philosophy regarding investments is conservative, based
on investment type and maturity. Investments in the portfolio primarily include
U.S. Treasury securities, U.S. Government agencies, mortgage-backed securities
and municipal securities. The Company's general policy is not to invest in
derivative type investments or high-risk securities, except for collateralized
mortgage-backed securities for which collection of principal and interest is not
subordinated to significant superior rights held by others.
Held-to-maturity and available-for-sale investment securities were
$207.3 million and $196.7 million, respectively, at December 31, 2002, compared
to the held-to-maturity amount of $191.1 million and available-for-sale amount
of $256.2 million at December 31, 2001.
As of December 31, 2002, $85.5 million, or 41.2%, of the
held-to-maturity securities were invested in U.S. Treasury securities and
obligations of U.S. government agencies, 90.6% of which will mature in less than
five years. In the available-for-sale securities, $178.4 million, or 90.7% were
in U.S. Treasury and U.S. government agency securities, 92.6% of which will
mature in less than five years.
21
In order to reduce the Company's income tax burden, an additional
$120.2 million, or 58.0%, of the held-to-maturity securities portfolio, as of
December 31, 2002, was invested in tax-exempt obligations of state and political
subdivisions. In the available-for-sale securities, $5.3 million, or 2.7% were
invested in tax-exempt obligations of state and political subdivisions. Most of
the state and political subdivision debt obligations are non-rated bonds and
represent relatively small, Arkansas issues, which are evaluated on an ongoing
basis. There are no securities of any one state and political subdivision issuer
exceeding ten percent of the Company's stockholders' equity at December 31,
2002.
The Company has approximately $1.5 million, or 0.7%, in
mortgaged-backed securities in the held-to-maturity portfolio at December 31,
2002. In the available-for-sale securities, $3.0 million, or 1.5% were invested
in mortgaged-backed securities.
As of December 31, 2002, the held-to-maturity investment portfolio
had gross unrealized gains of $5.1 million and gross unrealized losses of
$10,000. Net realized losses from called and/or sold securities for 2002 were
$10,000, compared to net realized gains of $11,000 and zero in 2001 and 2000,
respectively.
Trading securities, which include any security held primarily for
near-term sale, are carried at fair value. Gains and losses on trading
securities are included in other income. The Company's trading account is
established and maintained for the benefit of investment banking. The trading
account is typically used to provide inventory for resale and is not used to
take advantage of short-term price movements.
Table 12 presents the carrying value and fair value of investment
securities for each of the years indicated.
Table 12: Investment Securities
Years Ended December 31
-------------------------------------------------------------------------------------------------------
2002 2001
---------------------------------------------------- -------------------------------------------------
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 $ 26,153 $ 618 $ -- $ 26,771 $ 27,528 $ 826 $ -- $ 28,354
U.S. Government
agencies 59,324 622 (1) 59,945 36,992 451 (108) 37,335
Mortgage-backed
securities 1,510 41 -- 1,551 6,681 105 -- 6,786
State and political
subdivisions 120,230 3,827 (9) 124,048 119,824 2,255 (152) 121,927
Other securities 100 -- -- 100 100 -- -- 100
------------- --------- --------- ------------ ---------- --------- -------- ------------
Total HTM $ 207,317 $ 5,108 $ (10) $ 212,415 $ 191,125 $ 3,637 $ (260) $ 194,502
============ ======== ======== =========== ========== ======== ======= ===========
Available-for-Sale
U.S. Treasury $ 14,591 $ 287 $ -- $ 14,878 $ 18,071 $ 349 $ (12) $ 18,408
U.S. Government
agencies 161,042 2,442 -- 163,484 214,190 1,792 (492) 215,490
Mortgage-backed
securities 3,017 17 (19) 3,015 6,975 69 (40) 7,004
State and political
subdivisions 4,979 324 -- 5,303 5,194 205 -- 5,399
Other securities 9,244 807 -- 10,051 9,056 823 -- 9,879
------------- --------- --------- ------------ ----------- --------- -------- ------------
Total AFS $ 192,873 $ 3,877 $ (19) $ 196,731 $ 253,486 $ 3,238 $ (544) $ 256,180
============ ======== ======== =========== ========== ======== ======= ===========
Total Investments $ 400,190 $ 8,985 $ (29) $ 409,146 $ 444,611 $ 6,875 $ (804) $ 450,682
============ ======== ======== =========== ========== ======== ======= ===========
22
Table 13 reflects the amortized cost and estimated fair value of debt
securities at December 31, 2002, by contractual maturity and the weighted
average yields (for tax-exempt obligations on a fully taxable equivalent basis,
assuming a 37.5% tax rate) of such securities. Expected maturities will differ
from contractual maturities, because borrowers may have the right to call or
prepay obligations, with or without call or prepayment penalties.
Table 13: Maturity Distribution of Investment Securities
December 31, 2002
---------------------------------------------------------------------------------------------------
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 $ 16,483 $ 9,670 $ -- $ -- $ -- $ 26,153 $ 26,000 $ 26,771
U.S. Government
agencies 10,280 41,044 8,000 -- -- 59,324 59,275 59,945
Mortgage-backed
securities 11 4 26 1,469 -- 1,510 1,496 1,551
State and political
subdivisions 20,801 58,590 37,809 3,030 -- 120,230 120,510 124,048
Other securities -- -- -- -- 100 100 100 100
---------- --------- --------- ---------- --------- ---------- ---------- ---------
Total $ 47,575 $ 109,308 $ 45,835 $ 4,499 $ 100 $ 207,317 $ 207,381 $ 212,415
========== ========= ========= ========== ========= ========= ========== =========
Percentage of total 22.9% 52.7% 22.1% 2.2% 0.1 % 100.0%
========== ========= ========= ========== ========= =========
Weighted average yield 4.0 % 4.1% 4.7% 5.1% 3.8% 4.2%
========== ========= ========= ========== ========= =========
Available-for-Sale
U.S. Treasury $ 9,079 $ 5,512 $ -- $ -- $ -- $ 14,591 $ 14,550 $ 14,878
U.S. Government
agencies 40,935 107,112 12,995 -- -- 161,042 160,940 163,484
Mortgage-backed
securities -- 592 746 1,679 -- 3,017 2,945 3,015
State and political
subdivisions 305 1,991 2,533 150 -- 4,979 4,985 5,303
Other securities -- -- -- -- 9,244 9,244 9,244 10,051
---------- --------- --------- ---------- --------- --------- ---------- ---------
Total $ 50,319 $ 115,207 $ 16,274 $ 1,829 $ 9,244 $ 192,873 $ 192,664 $ 196,731
========== ========= ========= ========== ========= ========== =========== ==========
Percentage of total 26.1% 59.8% 8.4% 0.9% 4.8% 100.0%
========== ========= ========= ========== ========= =========
Weighted average yield 3.0% 4.1% 5.0% 3.4% 2.9% 3.8%
========== ========= ========= ========== ========= =========
23
Deposits
- --------------------------------------------------------------------------------
Deposits are the Company's primary source of funding for earning
assets. The Company offers a variety of products designed to attract and retain
customers, with the primary focus on core deposits.
Total average deposits for 2002 were $1.626 billion, compared to
$1.630 billion in 2001. As of December 31, 2002, total deposits were $1.619
billion, compared to $1.686 billion on December 31, 2001. The decrease in
deposits was the result of a 2002 strategic decision made by the Company, which
allowed deposits to decrease in the same relationship as the decrease in earning
assets.
Table 14 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, 2002.
Table 14: Average Deposit Balances and Rates
December 31
-----------------------------------------------------------------------------------
2002 2001 2000
-------------------------- --------------------------- ----------------------------
Average Average Average Average Average Average
(In thousands) Amount Rate Paid Amount Rate Paid Amount Rate Paid
- ------------------------------------------------------------------------------------------------------------------------------
Non-interest bearing transaction
accounts $ 226,128 -- $ 211,052 -- $ 188,220 --
Interest bearing transaction and
savings deposits 540,454 1.17% 470,708 2.13% 444,879 2.88%
Time deposits
$100,000 or more 326,735 3.32% 356,017 5.51% 273,129 5.80%
Other time deposits 532,807 3.50% 592,155 5.46% 587,140 5.66%
------------- ------------- -------------
Total $ 1,626,124 2.20% $ 1,629,932 3.80% $ 1,493,368 4.14%
============= ============= =============
The Company's maturities of large denomination time deposits at
December 31, 2002 and 2001 are presented in table 15.
Table 15: Maturities of Large Denomination Time Deposits
Time Certificates of Deposit
($100,000 or more)
December 31
-----------------------------------------------------------------
2002 2001
------------------------------- --------------------------------
(In thousands) Balance Percent Balance Percent
- ---------------------------------------------------------------------------------------------------------------------
Maturing
Three months or less $ 128,021 41.22% $ 138,238 40.53%
Over 3 months to 6 months 72,911 23.48% 90,877 26.64%
Over 6 months to 12 months 76,651 24.68% 81,854 24.00%
Over 12 months 32,998 10.62% 30,116 8.83%
------------ ------------
Total $ 310,581 100.00% $ 341,085 100.00%
============ ===========
24
Short-Term Debt
- --------------------------------------------------------------------------------
Federal funds purchased and securities sold under agreements to
repurchase were $86.7 million at December 31, 2002, as compared to $86.6 million
at December 31, 2001. Other short-term borrowings, consisting of U.S. TT&L Notes
and short-term FHLB borrowings, were $3.6 million at December 31, 2002, as
compared to $3.8 million at December 31, 2001.
The C