UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 Form 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For Quarter Ended June 30, 2002 Commission File Number 06253 ------------- ----- SIMMONS FIRST NATIONAL CORPORATION - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Arkansas 71-0407808 - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 501 Main Street Pine Bluff, Arkansas 71601 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code 870-541-1000 ---------------- Not Applicable - -------------------------------------------------------------------------------- Former name, former address and former fiscal year, if changed since last report Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period) and (2) has been subject to such filing requirements for the past 90 days. YES X NO ----- ----- Indicate the number of shares outstanding of each of issuer's classes of common stock. Class A, Common 7,062,120 Class B, Common None
SIMMONS FIRST NATIONAL CORPORATION INDEX Page No. Part I: Summarized Financial Information Consolidated Balance Sheets -- June 30, 2002 and December 31, 2001 3-4 Consolidated Statements of Income -- Three months and six months ended June 30, 2002 and 2001 5 Consolidated Statements of Cash Flows -- Six months ended June 30, 2002 and 2001 6 Consolidated Statements of Changes in Stockholders' Equity Six months ended June 30, 2002 and 2001 7 Condensed Notes to Consolidated Financial Statements 8-18 Management's Discussion and Analysis of Financial Condition and Results of Operations 19-32 Review by Independent Certified Public Accountants 33 Part II: Other Information 34-36
Part I: Summarized Financial Information <TABLE> <CAPTION> Simmons First National Corporation Consolidated Balance Sheets June 30, 2002 and December 31, 2001 ASSETS June 30, December 31, (In thousands, except share data) 2002 2001 - --------------------------------------------------------------------------------------------------------------------------- (Unaudited) <S> <C> <C> Cash and non-interest bearing balances due from banks $ 63,416 $ 81,785 Interest bearing balances due from banks 31,557 55,356 Federal funds sold and securities purchased under agreements to resell 67,880 57,700 ----------- ----------- Cash and cash equivalents 162,853 194,841 Investment securities 419,700 447,305 Mortgage loans held for sale 10,440 24,971 Assets held in trading accounts 14,140 896 Loans 1,247,625 1,258,784 Allowance for loan losses (20,608) (20,496) ----------- ----------- Net loans 1,227,017 1,238,288 Premises and equipment 45,192 45,537 Foreclosed assets held for sale, net 2,394 1,084 Interest receivable 14,528 15,764 Goodwill 31,739 31,739 Core deposits and other intangible assets, net 499 554 Other assets 16,159 15,939 ----------- ----------- TOTAL ASSETS $ 1,944,661 $ 2,016,918 ========== ========== </TABLE> See Condensed Notes to Consolidated Financial Statements.
<TABLE> <CAPTION> Simmons First National Corporation Consolidated Balance Sheets June 30, 2002 and December 31, 2001 LIABILITIES AND STOCKHOLDERS' EQUITY June 30, December 31, (In thousands, except share data) 2002 2001 - --------------------------------------------------------------------------------------------------------------------------- (Unaudited) <S> <C> <C> LIABILITIES Non-interest bearing transaction accounts $ 229,091 $ 247,235 Interest bearing transaction accounts and savings deposits 535,680 517,856 Time deposits 852,052 921,313 ----------- ----------- Total deposits 1,616,823 1,686,404 Federal funds purchased and securities sold under agreements to repurchase 68,947 86,635 Short-term debt 5,003 3,801 Long-term debt 49,570 42,150 Accrued interest and other liabilities 15,395 15,565 ----------- ----------- Total liabilities 1,755,738 1,834,555 ----------- ----------- STOCKHOLDERS' EQUITY Capital stock Class A, common, par value $1 a share, authorized 30,000,000 shares, 7,062,120 issued and outstanding at 2002 and 7,087,185 at 2001 7,062 7,087 Surplus 44,384 45,278 Undivided profits 135,838 128,519 Accumulated other comprehensive income Unrealized appreciation on available-for-sale securities, net of income taxes of $1,098 in 2002 and $887 in 2001 1,639 1,479 ----------- ----------- Total stockholders' equity 188,923 182,363 ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,944,661 $ 2,016,918 ========== ========== </TABLE> See Condensed Notes to Consolidated Financial Statements.
<TABLE> <CAPTION> Simmons First National Corporation Consolidated Statements of Income Three Months and Six Months Ended June 30, 2002 and 2001 Three Months Ended Six Months Ended June 30, June 30, (In thousands, except per share data) 2002 2001 2002 2001 - ----------------------------------------------------------------------------------------------------------------------------- (Unaudited) (Unaudited) <S> <C> <C> <C> <C> INTEREST INCOME Loans $ 23,668 $ 28,368 $ 47,774 $ 57,529 Federal funds sold and securities purchased under agreements to resell 264 504 592 1,143 Investment securities 4,858 5,261 9,781 10,961 Mortgage loans held for sale, net of unrealized gains (losses) 185 267 418 439 Assets held in trading accounts 18 2 20 9 Interest bearing balances due from banks 150 354 431 689 --------- --------- --------- -------- TOTAL INTEREST INCOME 29,143 34,756 59,016 70,770 --------- --------- --------- -------- INTEREST EXPENSE Deposits 8,946 16,284 19,514 33,362 Federal funds purchased and securities sold under agreements to repurchase 316 690 713 1,747 Short-term debt 12 76 53 180 Long-term debt 818 840 1,624 1,659 --------- --------- --------- -------- TOTAL INTEREST EXPENSE 10,092 17,890 21,904 36,948 --------- --------- --------- -------- NET INTEREST INCOME 19,051 16,866 37,112 33,822 Provision for loan losses 2,436 1,967 4,797 3,820 --------- --------- --------- -------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 16,615 14,899 32,315 30,002 --------- --------- --------- -------- NON-INTEREST INCOME Trust income 1,205 1,249 2,595 2,656 Service charges on deposit accounts 2,543 2,307 4,781 4,408 Other service charges and fees 365 396 776 864 Income on sale of mortgage loans, net of commissions 738 813 1,549 1,437 Income on investment banking, net of commissions 248 220 514 442 Credit card fees 2,550 2,666 4,888 5,122 Other income 886 660 1,804 1,475 Gain on sale of securities, net -- -- -- -- --------- --------- --------- -------- TOTAL NON-INTEREST INCOME 8,535 8,311 16,907 16,404 --------- --------- --------- -------- NON-INTEREST EXPENSE Salaries and employee benefits 9,840 8,902 19,790 17,905 Occupancy expense, net 1,155 1,094 2,281 2,260 Furniture and equipment expense 1,310 1,338 2,602 2,674 Loss on foreclosed assets 40 87 83 162 Other operating expenses 4,504 5,425 9,122 10,662 --------- --------- --------- -------- TOTAL NON-INTEREST EXPENSE 16,849 16,846 33,878 33,663 --------- --------- --------- -------- INCOME BEFORE INCOME TAXES 8,301 6,364 15,344 12,743 Provision for income taxes 2,596 1,877 4,698 3,702 --------- --------- --------- -------- NET INCOME $ 5,705 $ 4,487 $ 10,646 $ 9,041 ======== ======== ======== ======= BASIC EARNINGS PER SHARE $ 0.80 $ 0.63 $ 1.50 $ 1.27 ======== ======== ======== ======= DILUTED EARNINGS PER SHARE $ 0.79 $ 0.63 $ 1.48 $ 1.27 ======== ======== ======== ======= </TABLE> See Condensed Notes to Consolidated Financial Statements.
<TABLE> <CAPTION> Simmons First National Corporation Consolidated Statements of Cash Flows Six Months Ended June 30, 2002 and 2001 June 30, June 30, (In thousands) 2002 2001 - ------------------------------------------------------------------------------------------------------------------- (Unaudited) <S> <C> <C> OPERATING ACTIVITIES Net income $ 10,646 $ 9,041 Items not requiring (providing) cash Depreciation and amortization 2,338 3,825 Provision for loan losses 4,797 3,820 Net accretion of investment securities (218) (659) Deferred income taxes (522) (203) Provision for foreclosed assets 25 130 Changes in Interest receivable 1,236 1,630 Mortgage loans held for sale 14,531 (12,523) Assets held in trading accounts (13,244) 965 Other assets (113) 517 Accrued interest and other liabilities 336 (666) Income taxes payable 16 (455) ---------- ----------- Net cash provided by operating activities 19,828 5,422 ---------- ----------- INVESTING ACTIVITIES Net repayment (originations) of loans 4,480 (8,086) Purchase of premises and equipment, net (2,045) (1,516) Proceeds from sale of foreclosed assets 659 550 Proceeds from maturities of available-for-sale securities 252,670 139,985 Purchases of available-for-sale securities (188,940) (94,125) Proceeds from maturities of held-to-maturity securities 62,125 58,896 Purchases of held-to-maturity securities (97,872) (86,504) ---------- ----------- Net cash provided by investing activities 31,077 9,200 ---------- ----------- FINANCING ACTIVITIES Net (decrease) increase in deposits (69,581) 25,472 Net proceeds of short-term debt 1,202 6,134 Dividends paid (3,327) (3,049) Proceeds from issuance of long-term debt 7,860 4,085 Repayments of long-term debt (440) (1,275) Net (decrease) increase in federal funds purchased and securities sold under agreements to repurchase (17,688) 27,740 Repurchase of common stock, net (919) (2,126) ---------- ----------- Net cash (used in) provided by financing activities (82,893) 56,981 ---------- ----------- (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (31,988) 71,603 CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 194,841 111,135 ---------- ----------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 162,853 $ 182,738 ========= ========== </TABLE> See Condensed Notes to Consolidated Financial Statements.
<TABLE> <CAPTION> Simmons First National Corporation Consolidated Statements of Changes in Stockholders' Equity Six Months Ended June 30, 2002 and 2001 Accumulated Other Common Comprehensive Undivided (In thousands, except share data) Stock Surplus Income Profits Total - ------------------------------------------------------------------------------------------------------------------------ <S> <C> <C> <C> <C> <C> Balance, December 31, 2000 $ 7,181 $ 47,964 $ (34) $ 118,232 $ 173,343 Comprehensive income Net income -- -- -- 9,041 9,041 Change in unrealized depreciation on available-for-sale securities, net of income taxes of $812 -- -- 1,354 -- 1,354 ---------- Comprehensive income 10,395 Exercise of stock options - 45,900 shares 46 844 -- -- 890 Securities exchanged under stock option plan (5) (137) -- -- (142) Repurchase of common stock - 120,955 shares (121) (2,753) -- -- (2,874) Cash dividends declared - $0.43 per share -- -- -- (3,049) (3,049) --------- --------- ----------- --------- ---------- Balance, June 30, 2001 7,101 45,918 1,320 124,224 178,563 Comprehensive income Net income -- -- -- 7,487 7,487 Change in unrealized appreciation on available-for-sale securities, net of income taxes of $96 -- -- 159 -- 159 ---------- Comprehensive income 7,646 Exercise of stock options - 16,800 shares 17 351 -- -- 368 Securities exchanged under stock option plan (8) (254) -- -- (262) Repurchase of common stock - 23,000 shares (23) (737) -- -- (760) Cash dividends declared - $0.45 per share -- -- -- (3,192) (3,192) --------- ---------- ----------- ---------- ----------- Balance, December 31, 2001 7,087 45,278 1,479 128,519 182,363 Comprehensive income Net income -- -- -- 10,646 10,646 Change in unrealized appreciation on available-for-sale securities, net of income taxes of $211 -- -- 160 -- 160 ----------- Comprehensive income 10,806 Exercise of stock options - 7,200 shares 7 130 -- -- 137 Securities exchanged under stock option plan (2) (74) -- -- (76) Repurchase of common stock - 30,000 shares (30) (950) -- -- (980) Cash dividends declared - $0.47 per share -- -- -- (3,327) (3,327) --------- ---------- ----------- ---------- ----------- Balance, June 30, 2002 $ 7,062 $ 44,384 $ 1,639 $ 135,838 $ 188,923 ======== ========= ========== ======== ========== </TABLE> See Condensed Notes to Consolidated Financial Statements.
SIMMONS FIRST NATIONAL CORPORATION CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 1: BASIS OF PRESENTATION The consolidated financial statements include the accounts of Simmons First National Corporation and its subsidiaries. Significant intercompany accounts and transactions have been eliminated in consolidation. The accompanying unaudited consolidated financial statements reflect all adjustments that are in the opinion of the Company's management, necessary to fairly present the financial position, results of operations and cash flows of the Company. Those adjustments consist only of normal recurring adjustments. Certain prior year amounts are reclassified to conform to current year classification. The results of operations for the period are not necessarily indicative of the results to be expected for the full year. Certain information and note disclosures normally included in the Company's annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Form 10-K annual report for 2001 filed with the Securities and Exchange Commission. Earnings Per Share Basic earnings per share is computed based on the weighted average number of common shares outstanding during each year. Diluted earnings per share are computed using the weighted average common shares and all potentially dilutive common shares outstanding during the period. The computation of per share earnings for the six months ended June 30, 2002 and 2001 is as follows: <TABLE> <CAPTION> (In thousands, except per share data) 2002 2001 - ------------------------------------------------------------------------------------------------------------------- <S> <C> <C> Net Income $ 10,646 $ 9,041 --------- -------- Average common shares outstanding 7,077 7,104 Average common share stock options outstanding 111 29 --------- -------- Average diluted common shares 7,188 7,133 --------- -------- Basic earnings per share $ 1.50 $ 1.27 ======== ======= Diluted earnings per share $ 1.48 $ 1.27 ======== ======= </TABLE>
NOTE 2: ACQUISITIONS On July 19, 2002, the Company expanded its coverage of 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. NOTE 3: INVESTMENT SECURITIES The amortized cost and fair value of investment securities that are classified as held-to-maturity and available-for-sale are as follows: <TABLE> <CAPTION> June 30, 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 - --------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> <C> Held-to-Maturity - ---------------- U.S. Treasury $ 29,483 $ 1,187 $ (412) $ 30,258 $ 27,528 $ 826 $ -- $ 28,354 U.S. Government agencies 70,479 730 (77) 71,132 36,992 451 (108) 37,335 Mortgage-backed securities 5,355 98 -- 5,453 6,681 105 -- 6,786 State and political subdivisions 121,719 3,356 (27) 125,048 119,824 2,255 (152) 121,927 Other securities 100 -- -- 100 100 -- -- 100 ---------- ------- ------ ---------- ---------- ------- ------- ---------- $ 227,136 $ 5,371 $ (516) $ 231,991 $ 191,125 $ 3,637 $ (260) $ 194,502 ========= ====== ===== ========= ========= ====== ====== ========= Available-for-Sale - ------------------ U.S. Treasury $ 12,822 $ 362 $ (81) $ 13,103 $ 18,071 $ 349 $ (12) $ 18,408 U.S. Government agencies 153,648 1,662 (176) 155,134 214,190 1,792 (492) 215,490 Mortgage-backed securities 5,696 55 (27) 5,724 6,975 69 (40) 7,004 State and political subdivisions 4,979 291 -- 5,270 5,194 205 -- 5,399 Other securities 12,491 842 -- 13,333 9,056 823 -- 9,879 ---------- ------- ------ ---------- ---------- ------- ------- ---------- $ 189,636 $ 3,212 $ (284) $ 192,564 $ 253,486 $ 3,238 $ (544) $ 256,180 ========= ====== ===== ========= ========= ====== ====== ========= </TABLE>
The carrying value, which approximates the market value, of securities pledged as collateral, to secure public deposits and for other purposes, amounted to $281,867,000 at June 30, 2002 and $290,915,000 at December 31, 2001. The book value of securities sold under agreements to repurchase amounted to $35,792,000 and $35,990,000 for June 30, 2002 and December 31, 2001, respectively. Income earned on securities for the six months ended June 30, 2002 and 2001, is as follows: <TABLE> <CAPTION> (In thousands) 2002 2001 - ------------------------------------------------------------------------------------------------------------------- <S> <C> <C> Taxable Held-to-maturity $ 2,112 $ 2,768 Available-for-sale 4,899 5,367 Non-taxable Held-to-maturity 2,633 2,646 Available-for-sale 137 180 --------- -------- Total $ 9,781 $ 10,961 ======== ======= </TABLE> Maturities of investment securities at June 30, 2002 are as follows: <TABLE> <CAPTION> Held-to-Maturity Available-for-Sale -------------------------- ------------------------- Amortized Fair Amortized Fair (In thousands) Cost Value Cost Value - ------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> One year or less $ 41,254 $ 42,146 $ 42,006 $ 42,282 After one through five years 135,211 137,331 127,072 128,662 After five through ten years 42,242 43,824 4,092 4,282 After ten years 8,329 8,590 3,975 4,005 Other securities 100 100 12,491 13,333 ----------- ----------- ----------- ---------- Total $ 227,136 $ 231,991 $ 189,636 $ 192,564 ========== ========== ========== ========= </TABLE> There were no gross realized gains or losses as of June 30, 2002 and 2001. Most of the state and political subdivision debt obligations are non-rated bonds and represent small, Arkansas issues, which are evaluated on an ongoing basis.
NOTE 4: LOANS AND ALLOWANCE FOR LOAN LOSSES The various categories are summarized as follows: <TABLE> <CAPTION> June 30, December 31, (In thousands) 2002 2001 - -------------------------------------------------------------------------------------------------------------- <S> <C> <C> Consumer Credit cards $ 179,682 $ 196,710 Student loans 79,883 74,860 Other consumer 162,554 179,138 Real estate Construction 74,968 83,628 Single family residential 226,900 224,122 Other commercial 266,995 263,539 Commercial Commercial 158,167 153,617 Agricultural 75,441 60,794 Financial institutions 7,692 5,861 Other 15,343 16,515 ------------- ------------ Total loans before allowance for loan losses $ 1,247,625 $ 1,258,784 ============ =========== </TABLE> During the first six months of 2002, foreclosed assets held for sale increased $1,310,000 to $2,394,000 and are carried at the lower of cost or fair market value. Other non-performing assets, non-accrual loans and other non-performing loans of the Company at June 30, 2002, were $484,000, $11,858,000 and $1,944,000, respectively, bringing the total of non-performing assets to $16,680,000.
Transactions in the allowance for loan losses are as follows: <TABLE> <CAPTION> June 30, December 31, (In thousands) 2002 2001 - ------------------------------------------------------------------------------------------------------------------- <S> <C> <C> Balance, beginning of year $ 20,496 $ 21,157 Additions Provision charged to expense 4,797 3,820 -------- -------- 25,293 24,977 Deductions Losses charged to allowance, net of recoveries of $1,208 and $866 for the first six months of 2002 and 2001, respectively 4,685 3,756 -------- -------- Balance, June 30 $ 20,608 $ 21,221 ======= -------- Additions Provision charged to expense 6,138 -------- 27,359 Deductions Losses charged to allowance, net of recoveries of $863 for the last six months of 2001 6,863 -------- Balance, end of year $ 20,496 ======= </TABLE> At June 30, 2002 and December 31, 2001, impaired loans totaled $17,219,000 and $21,012,000, respectively. All impaired loans had designated reserves for possible loan losses. Reserves relative to impaired loans at June 30, 2002, were $3,308,000 and $4,093,000 at December 31, 2001. Approximately $283,000 and $476,000 of interest income was recognized on average impaired loans of $19,610,000 and $21,030,000 as of June 30, 2002 and 2001, respectively. Interest recognized on impaired loans on a cash basis during the first six months of 2002 and 2001 was immaterial.
NOTE 5: GOODWILL AND OTHER INTANGIBLES Financial Accounting Standards Board Statement No. 142, Goodwill and Other Intangibles, requires transitional disclosures regarding the change in amortization and other treatment of goodwill and intangible assets for the three and six month periods ended June 30, 2001, as follows: <TABLE> <CAPTION> June 30, 2001 ------------------------------------------ Three Six Months Months Ended Ended ------------------------------------------ <S> <C> <C> Reported net income $ 4,487 $ 9,041 Add back: Goodwill amortization 701 1,458 Subtract: Income taxes (247) (509) --------- -------- Adjusted net income $ 4,941 $ 9,990 ======== ======= </TABLE> Goodwill is annually tested for impairment. If the implied fair value of goodwill is lower than its carrying amount, goodwill impairment is indicated and goodwill is written down to its implied fair value. Subsequent increases in goodwill value are not recognized in the financial statements. The carrying basis and accumulated amortization of recognized intangible assets at June 30, 2002 and December 31, 2001, were: <TABLE> <CAPTION> June 30, 2002 December 31, 2001 ---------------------------------------- ------------------------------------------ Gross Gross Carrying Accumulated Carrying Accumulated (In thousands) Amount Amortization Net Amount Amortization Net - --------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> Core deposits $ 820 $ 374 $ 446 $ 820 $ 346 $ 474 Other intangible assets 938 885 53 938 858 80 -------- --------- --------- -------- ------- ------- Total $ 1,758 $ 1,259 $ 499 $ 1,758 $ 1,204 $ 554 ======= ======== ======== ======= ====== ====== </TABLE> Amortization expense for the six-month periods ended June 30, 2002 and 2001 was $55,000. Excluding the acquisition completed on July 19, 2002, estimated amortization expense for each of the following five years is: 2002 - $113,000; 2003 - $69,000; 2004 - $64,000; 2005 - $64,000 and 2006 - $57,000.
NOTE 6: TIME DEPOSITS Time deposits include approximately $328,698,000 and $341,085,000 of certificates of deposit of $100,000 or more at June 30, 2002 and December 31, 2001, respectively. NOTE 7: INCOME TAXES The provision for income taxes is comprised of the following components: <TABLE> <CAPTION> June 30, June 30, (In thousands) 2002 2001 - ------------------------------------------------------------------------------------------------------- <S> <C> <C> Income taxes currently payable $ 5,220 $ 3,905 Deferred income taxes (522) (203) -------------- -------------- Provision for income taxes $ 4,698 $ 3,702 ============= ============= </TABLE> The tax effects of temporary differences related to deferred taxes shown on the balance sheet are shown below: <TABLE> <CAPTION> June 30, December 31, (In thousands) 2002 2001 - ------------------------------------------------------------------------------------------------------- <S> <C> <C> Deferred tax assets Allowance for loan losses $ 6,916 $ 6,611 Valuation of foreclosed assets 112 113 Deferred compensation payable 587 631 Deferred loan fee income 277 277 Vacation compensation 563 496 Mortgage servicing reserve 363 365 Loan interest 139 139 Other 227 189 ---------------- ---------------- Total deferred tax assets 9,184 8,821 ---------------- ---------------- Deferred tax liabilities Accumulated depreciation (1,349) (1,534) Available-for-sale securities (1,098) (887) FHLB stock dividends (723) (697) Other (202) (202) ---------------- ---------------- Total deferred tax liabilities (3,372) (3,320) ---------------- ---------------- Net deferred tax assets included in other assets on balance sheets $ 5,812 $ 5,501 =============== =============== </TABLE>
A reconciliation of income tax expense at the statutory rate to the Company's actual income tax expense is shown below: <TABLE> <CAPTION> June 30, June 30, (In thousands) 2002 2001 - ------------------------------------------------------------------------------------------------------- <S> <C> <C> Computed at the statutory rate (35%) $ 5,370 $ 4,460 Increase (decrease) resulting from: Tax exempt income (1,113) (1,104) Other differences, net 441 346 ---------------- ---------------- Actual tax provision $ 4,698 $ 3,702 =============== =============== </TABLE> NOTE 8: LONG-TERM DEBT Long-term debt at June 30, 2002 and December 31, 2001, consisted of the following components, <TABLE> <CAPTION> June 30, December 31, (In thousands) 2002 2001 - ------------------------------------------------------------------------------------------------------- <S> <C> <C> 7.32% note due 2007, unsecured $ 12,000 $ 12,000 1.02% to 8.41% FHLB advances due 2002 to 2021, secured by residential real estate loans 20,320 12,900 Trust preferred securities 17,250 17,250 ---------------- ---------------- $ 49,570 $ 42,150 =============== =============== </TABLE> The Company owns a wholly owned grantor trust subsidiary (the Trust) to issue preferred securities representing undivided beneficial interests in the assets of the respective Trust and to invest the gross proceeds of such preferred securities into notes of the Company. The sole assets of the Trust are $17.8 million aggregate principal amount of the Company's 9.12% Subordinated Debenture Notes due 2027 which are currently redeemable. Trust preferred securities qualify as Tier 1 Capital for regulatory purposes.
Aggregate annual maturities of long-term debt at June 30, 2002 are: <TABLE> <CAPTION> Annual (In thousands) Year Maturities - ------------------------------------------------------------------------------------------------------- <S> <C> 2002 5,490 2003 3,529 2004 4,214 2005 4,267 2006 4,901 Thereafter 27,169 --------------- Total $ 49,570 =============== </TABLE> NOTE 9: CONTINGENT LIABILITIES A number of legal proceedings exist in which the Company and/or its subsidiaries are either plaintiffs or defendants or both. Most of the lawsuits involve loan foreclosure activities. The various unrelated legal proceedings pending against the subsidiary banks in the aggregate are not expected to have a material adverse effect on the financial position of the Company and its subsidiaries. NOTE 10: NDIVIDED PROFITS The subsidiary banks are subject to a regulatory limitation on dividends that can be paid to the parent company without prior approval of the applicable regulatory agencies. The approval of the Comptroller of the Currency is required, if the total of all dividends declared by a national bank in any calendar year exceeds the total of its net profits, as defined, for that year combined with its retained net profits of the preceding two years. Arkansas bank regulators have specified that the maximum dividend limit state banks may pay to the parent company without prior approval is 75% of current year earnings plus 75% of the retained net earnings of the preceding year. At June 30, 2002, the bank subsidiaries had approximately $12 million available for payment of dividends to the Company without prior approval of the regulatory agencies. The Federal Reserve Board's risk-based capital guidelines include the definitions for (1) a well-capitalized institution, (2) an adequately-capitalized institution and (3) an undercapitalized institution. The criteria for a well-capitalized institution are: a 5% "Tier l leverage capital" ratio, a 6% "Tier 1 risk-based capital" ratio and a 10% "total risk-based capital" ratio. As of June 30, 2002, each of the seven subsidiary banks met the capital standards for a well-capitalized institution. The Company's "total risk-based capital" ratio was 14.90% at June 30, 2002.
NOTE 11: STOCK OPTIONS AND RESTRICTED STOCK At June 30, 2002, the Company had stock options outstanding of 400,250 shares and stock options exercisable of 246,380 shares. During the first six months of 2002, there were 7,200 shares issued upon exercise of stock options and 6,500 additional stock options of the Company were granted. No additional shares of common stock of the Company were granted or issued as bonus shares of restricted stock, during the first six months of 2002. NOTE 12: ADDITIONAL CASH FLOW INFORMATION <TABLE> <CAPTION> Six Months Ended June 30, (In thousands) 2002 2001 - ---------------------------------------------------------------------------------------- <S> <C> <C> Interest paid $ 23,638 $ 37,420 Income taxes paid $ 5,204 $ 4,360 </TABLE> NOTE 13: CERTAIN TRANSACTIONS From time to time the Company and its subsidiaries have made loans and other extensions of credit to directors, officers, their associates and members of their immediate families. From time to time directors, officers and their associates and members of their immediate families have placed deposits with the Company's subsidiary banks. Such loans, other extensions of credit and deposits were made in the ordinary course of business, on substantially the same terms (including interest rates and collateral) as those prevailing at the time for comparable transactions with other persons and did not involve more than normal risk of collectibility or present other unfavorable features.
NOTE 14: COMMITMENTS AND CREDIT RISK The seven affiliate banks of the Company grant agribusiness, commercial, consumer, and residential loans to their customers. Included in the Company's diversified loan portfolio is unsecured debt in the form of credit card receivables that comprises approximately 14.4% and 15.6% of the portfolio, as of June 30, 2002 and December 31, 2001, respectively. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since a portion of the commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Each customer's creditworthiness is evaluated on a case-by-case basis. The amount of collateral obtained, if deemed necessary, is based on management's credit evaluation of the counterparty. Collateral held varies, but may include accounts receivable, inventory, property, plant and equipment, commercial real estate, and residential real estate. At June 30, 2002, the Company had outstanding commitments to extend credit aggregating approximately $232,019,000 and $272,254,000 for credit card commitments and other loan commitments, respectively. At December 31, 2001, the Company had outstanding commitments to extend credit aggregating approximately $230,783,000 and $203,808,000 for credit card commitments and other loan commitments, respectively. Letters of credit are conditional commitments issued by the bank subsidiaries of the Company, to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements, including commercial paper, bond financing, and similar transactions. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers. The Company had total outstanding letters of credit amounting to $2,152,000 and $4,218,000 at June 30, 2002 and December 31, 2001, respectively, with terms ranging from 90 days to one year.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW - -------- Simmons First National Corporation recorded net income of $5,705,000, or $0.79 per diluted share for the quarter ended June 30, 2002. These earnings reflect an increase of $1,218,000 or $0.16 per share, when compared to last year's second quarter earnings of $4,487,000, or $0.63 per diluted share. The Company's annualized return on average assets and annualized return on average stockholders' equity for the three-month period ended June 30, 2002, was 1.18% and 12.17%, compared to 0.93% and 10.16%, respectively, for the same period in 2001. Earnings for the six-month period ended June 30, 2002 were $10,646,000, or $1.48 per diluted share. These earnings reflect an increase of $1,605,000, or $0.21 per share, when compared to the six-month period ended June 30, 2001 earnings of $9,041,000, or $1.27 per diluted share. Annualized return on average assets and annualized return on average stockholders' equity for the six-month period ended June 20, 2002, was 1.09% and 11.49%, compared to 0.95% and 10.36%, respectively, for the same period in 2001. Total assets for the Company at June 30, 2002, were $1.945 billion, a decrease of $72 million over the same figure at December 31, 2001. Stockholders' equity at the end of the second quarter of 2002 was $188.9 million, a $6.6 million, or 3.6%, increase from December 31, 2001. During the first six months of 2002 the Company repurchased 30,000 common shares of stock. This stock repurchase decreased stockholders' equity by $979,500. The allowance for loan losses as a percent of total loans equaled 1.65% at June 30, 2002, which is slightly improved from the 1.63% at June 30, 2001. As of June 30, 2002, non-performing loans equaled 1.11% of total loans compared to 1.19% as of year-end 2001. At June 30, 2002, the allowance for loan losses equaled 149% 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. As of June 30, 2002, the Company's seven banks conducted financial operations from 64 offices in 33 communities throughout Arkansas. ACQUISITIONS - ------------ On July 19, 2002, the Company expanded its coverage of 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.
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, for payment of future stock dividends and for general corporate purposes. During the six-month period ended June 30, 2002, the Company repurchased 30,000 common shares of stock with a weighted average repurchase price of $32.65 per share. As of June 30, 2002, the Company has repurchased a total of 331,000 common shares of stock with a weighted average repurchase price of $23.71 per share. 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 interest income to a fully taxable equivalent basis consists of dividing tax-exempt interest income by one minus the combined federal and state income tax rate (37.50% for June 30, 2002 and 2001). The second quarter of 2002 represents the second full quarter 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, has enabled the Company to achieve considerable improvement in both net interest income and net interest margin. For the three-month period ended June 30, 2002, net interest income on a fully taxable equivalent basis was $19.9 million, an increase of $2.2 million, or 12.7%, from the same period in 2001. The increase in net interest income was the result of a $5.6 million decrease in interest income and a $7.8 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 4.45% for the three-month period ended June 30, 2002, when compared to 4.00% for the same period in 2001. For the six-month period ended June 30, 2002, net interest income on a fully taxable equivalent basis was $38.8 million, an increase of $3.4 million, or 9.7%, from the same period in 2001. The increase in net interest income was the result of an $11.6 million decrease in interest income and a $15.0 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 25 basis points to 4.29% for the six-month period ended June 30, 2002, when compared to 4.04% for the same period in 2001.
Table 1 and 2 reflect an analysis of net interest income on a fully taxable equivalent basis for the three-month and six-month periods ended June 30, 2002 and 2001, respectively, as well as changes in fully taxable equivalent net interest margin for the three-month and six-month periods ended June 30, 2002 versus June 30, 2001. Table 1: Analysis of Net Interest Income (FTE =Fully Taxable Equivalent) <TABLE> <CAPTION> Three Months Ended Six Months Ended June 30, June 30, (In thousands) 2002 2001 2002 2001 - ------------------------------------------------------------------------------------------------------------ <S> <C> <C> <C> <C> Interest income $ 29,143 $ 34,756 $ 59,016 $ 70,770 FTE adjustment 838 787 1,692 1,537 ----------- ----------- ----------- ----------- Interest income - FTE 29,981 35,543 60,708 72,307 Interest expense 10,092 17,890 21,904 36,948 ----------- ----------- ----------- ----------- Net interest income - FTE $ 19,889 $ 17,653 $ 38,804 $ 35,359 ========== ========== ========== ========== Yield on earning assets - FTE 6.71% 8.06% 6.72% 8.26% Cost of interest bearing liabilities 2.67% 4.72% 2.85% 4.90% Net interest spread - FTE 4.04% 3.34% 3.87% 3.36% Net interest margin - FTE 4.45% 4.00% 4.29% 4.04% </TABLE> Table 2: Changes in Fully Taxable Equivalent Net Interest Margin <TABLE> <CAPTION> Three Months Ended Six Months Ended June 30, June 30, (In thousands) 2002 vs. 2001 2002 vs. 2001 - ------------------------------------------------------------------------------------------------------------------- <S> <C> <C> (Decrease) increase due to change in earning assets $ (297) $ 188 Decrease due to change in earning asset yields (5,265) (11,787) Increase due to change in interest bearing liabilities 641 435 Increase due to change in interest rates paid on interest bearing liabilities 7,157 14,609 ------------- ------------ Increase in net interest income $ 2,236 $ 3,445 ============ =========== </TABLE> Table 3 shows, for each major category of earning assets and interest bearing liabilities, the average amount outstanding, the interest earned or expensed on such amount and the average rate earned or expensed for the three-month and six-month periods ended June 30, 2002 and 2001. The table also shows the average rate earned on all earning assets, the average rate expensed on all interest bearing liabilities, the net interest spread and the net interest margin for the same periods. The analysis is presented on a fully taxable equivalent basis. Non-accrual loans were included in average loans for the purpose of calculating the rate earned on total loans.
Table 3: Average Balance Sheets and Net Interest Income Analysis <TABLE> <CAPTION> Three Months Ended June 30, ---------------------------------------------------------------------- 2002 2001 --------------------------------- ----------------------------------- Average Income/ Yield/ Average Income/ Yield/ (In thousands) Balance Expense Rate(%) Balance Expense Rate(%) - -------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> ASSETS - ------ Earning Assets Interest bearing balances due from banks $ 35,893 $ 150 1.68 $ 33,943 $ 354 4.18 Federal funds sold 62,789 264 1.69 47,674 504 4.24 Investment securities - taxable 328,509 3,491 4.26 260,941 3,825 5.88 Investment securities - non-taxable 119,691 2,094 7.02 118,943 2,223 7.50 Mortgage loans held for sale 10,591 185 7.01 17,913 267 5.98 Assets held in trading accounts 1,379 18 5.24 246 2 3.26 Loans 1,232,458 23,779 7.74 1,289,129 28,368 8.83 ----------- --------- ----------- --------- Total interest earning assets 1,791,310 29,981 6.71 1,768,789 35,543 8.06 --------- --------- Non-earning assets 152,741 156,764 ----------- ----------- Total assets $ 1,944,051 $ 1,925,553 ========== ========== LIABILITIES AND - --------------- STOCKHOLDERS' EQUITY - -------------------- Liabilities Interest bearing liabilities Interest bearing transaction and savings accounts $ 534,628 $ 1,590 1.19 $ 462,431 $ 2,683 2.33 Time deposits 857,446 7,356 3.44 938,592 13,601 5.81 ----------- --------- ----------- --------- Total interest bearing deposits 1,392,074 8,946 2.58 1,401,023 16,284 4.66 Federal funds purchased and securities sold under agreement to repurchase 77,834 316 1.63 69,294 690 3.99 Other borrowed funds Short-term debt 2,259 12 2.13 6,885 76 4.43 Long-term debt 44,451 818 7.38 42,323 840 7.96 ----------- --------- ----------- --------- Total interest bearing liabilities 1,516,618 10,092 2.67 1,519,525 17,890 4.72 --------- --------- Non-interest bearing liabilities Non-interest bearing deposits 225,170 208,812 Other liabilities 14,256 20,058 ----------- ----------- Total liabilities 1,756,044 1,748,395 Stockholders' equity 188,007 177,158 ----------- ----------- Total liabilities and stockholders' equity $ 1,944,051 $ 1,925,553 ========== ========== Net interest spread 4.04 3.34 Net interest margin $ 19,889 4.45 $ 17,653 4.00 ======== ======== </TABLE>
<TABLE> <CAPTION> Six Months Ended June 30, ---------------------------------------------------------------------- 2002 2001 --------------------------------- ----------------------------------- Average Income/ Yield/ Average Income/ Yield/ (In thousands) Balance Expense Rate(%) Balance Expense Rate(%) - -------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> ASSETS - ------ Earning Assets Interest bearing balances due from banks $ 52,691 $ 431 1.65 $ 29,597 $ 689 4.69 Federal funds sold 71,355 592 1.67 46,943 1,143 4.91 Investment securities - taxable 327,994 7,011 4.31 267,030 8,135 6.14 Investment securities - non-taxable 120,733 4,244 7.09 117,353 4,363 7.50 Mortgage loans held for sale 12,171 418 6.93 14,607 439 6.06 Assets held in trading accounts 835 20 4.83 468 9 3.88 Loans 1,236,354 47,992 7.83 1,288,384 57,529 9.00 ----------- --------- ----------- --------- Total interest earning assets 1,822,133 60,708 6.72 1,764,382 72,307 8.26 --------- --------- Non-earning assets 155,070 158,061 ----------- ----------- Total assets $ 1,977,203 $ 1,922,443 ========== ========== LIABILITIES AND - --------------- STOCKHOLDERS' EQUITY - -------------------- Liabilities Interest bearing liabilities Interest bearing transaction and savings accounts $ 531,909 $ 3,190 1.21 $ 462,224 $ 5,864 2.56 Time deposits 881,871 16,324 3.73 934,789 27,498 5.93 ----------- --------- ----------- --------- Total interest bearing deposits 1,413,780 19,514 2.78 1,397,013 33,362 4.82 Federal funds purchased and securities sold under agreement to repurchase 88,144 713 1.63 75,349 1,747 4.68 Other borrowed funds Short-term debt 4,044 53 2.64 6,523 180 5.56 Long-term debt 43,564 1,624 7.52 41,932 1,659 7.98 ----------- --------- ----------- --------- Total interest bearing liabilities 1,549,532 21,904 2.85 1,520,817 36,948 4.90 --------- --------- Non-interest bearing liabilities Non-interest bearing deposits 225,997 205,767 Other liabilities 14,799 19,829 ----------- ----------- Total liabilities 1,790,328 1,746,413 Stockholders' equity 186,875 176,030 ----------- ----------- Total liabilities and stockholders' equity $ 1,977,203 $ 1,922,443 ========== ========== Net interest spread 3.87 3.36 Net interest margin $ 38,804 4.29 $ 35,359 4.04 ======== ======== </TABLE>
Table 4 shows changes in interest income and interest expense, resulting from changes in volume and changes in interest rates for the three-month and six-month month periods ended June 30, 2002, as compared to the prior period. The changes in interest rate and volume have been allocated to changes in average volume and changes in average rates, in proportion to the relationship of absolute dollar amounts of the changes in rates and volume. Table 4: Volume/Rate Analysis <TABLE> <CAPTION> Three Months Ended June 30, Six Months Ended June 30, 2002 over 2001 2002 over 2001 ----------------------------------------- ----------------------------------------- (In thousands, on a fully Yield/ Yield/ taxable equivalent basis) Volume Rate Total Volume Rate Total - --------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> Increase (decrease) in Interest income Interest bearing balances due from banks $ 19 $ (223) $ (204) $ 347 $ (605) $ (258) Federal funds sold 127 (367) (240) 422 (973) (551) Investment securities - taxable 858 (1,192) (334) 1,617 (2,741) (1,124) Investment securities - non-taxable 14 (143) (129) 124 (243) (119) Mortgage loans held for sale (122) 40 (82) (79) 58 (21) Assets held in trading accounts 14 2 16 9 2 11 Loans (1,207) (3,382) (4,589) (2,252) (7,285) (9,537) -------- -------- -------- ------- --------- -------- Total (297) (5,265) (5,562) 188 (11,787) (11,599) -------- -------- -------- ------- --------- -------- Interest expense Interest bearing transaction and savings accounts 370 (1,463) (1,093) 780 (3,454) (2,674) Time deposits (1,092) (5,153) (6,245) (1,481) (9,693) (11,174) Federal funds purchased and securities sold under agreements to repurchase 76 (450) (374) 256 (1,290) (1,034) Other borrowed funds Short-term debt (36) (28) (64) (53) (74) (127) Long-term debt 41 (63) (22) 63 (98) (35) -------- -------- -------- ------- --------- -------- Total (641) (7,157) (7,798) (435) (14,609) (15,044) -------- -------- -------- ------- --------- -------- Increase in net interest income $ 344 $ 1,892 $ 2,236 $ 623 $ 2,822 $ 3,445 ======= ======== ======= ====== ======== ======= </TABLE>
PROVISION FOR LOAN LOSSES - ------------------------- The provision for loan losses represents management's determination of the amount necessary to be charged against the current period's earnings, in order to maintain the allowance for loan losses at a level, which is considered adequate, in relation to the estimated risk inherent in the loan portfolio. The provision for the three-month period ended June 30, 2002 and 2001 was $2.4 million and $2.0 million, respectively. The provision for the six-month period ended June 30, 2002 and 2001 was $4.8 million and $3.8 million, respectively. The increase in the provision for 2002 is the result of an increased level of loans charged off, when compared to the six months ended June 30, 2001 and continued uncertainty in the economy. NON-INTEREST INCOME - ------------------- 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. Total non-interest income was $8.5 million for the three-month period ended June 30, 2002, compared to $8.3 million for the same period in 2001. For the six-months ended June 30, 2002, non-interest income was $16.9 million compared to the $16.4 million reported for the same period ended June 30, 2001. These increases can be primarily attributed to an increase in service charges on deposit accounts, a recovery of interest on a loan previously charged-off in a prior period and additional income from student loan production. However, these increases were partially offset by the decrease in the credit card portfolio. Table 5 shows non-interest income for the three-month and six-month periods ended June 30, 2002 and 2001, respectively, as well as changes in 2002 from 2001. Table 5: Non-Interest Income <TABLE> <CAPTION> Three Months Six Months Ended June 30, 2002 Ended June 30, 2002 ------------------- Change from -------------------- Change from (In thousands) 2002 2001 2001 2002 2001 2001 - ---------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> <C> Trust income $ 1,205 $ 1,249 $ (44) -3.52% $ 2,595 $ 2,656 $ (61) -2.30% Service charges on deposit accounts 2,543 2,307 236 10.23 4,781 4,408 373 8.46 Other service charges and fees 365 396 (31) -7.83 776 864 (88) -10.19 Income on sale of mortgage loans, net of commissions 738 813 (75) -9.23 1,549 1,437 112 7.79 Income on investment banking, net of commissions 248 220 28 12.73 514 442 72 16.29 Credit card fees 2,550 2,666 (116) -4.35 4,888 5,122 (234) -4.57 Other income 886 660 226 34.24 1,804 1,475 329 22.31 -------- -------- ------- --------- --------- -------- Total non-interest income $ 8,535 $ 8,311 $ 224 2.70% $ 16,907 $ 16,404 $ 503 3.07% ======= ======= ====== ======== ======== ======= </TABLE>
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. Non-interest expense for the three-month and six-month periods ended June 30, 2002, were $16.8 million and $33.9 million, virtually unchanged from the same periods in 2001. The relatively flat non-interest expense is primarily derived from the increase in salary and employee benefits offset by the decrease in the amortization of intangibles. The salary and employee benefits increase is associated with normal salary adjustments, increased cost of health insurance and the addition of two new financial centers in Little Rock. 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 Table 6 below shows non-interest expense for the three-month and six-month periods ended June30, 2002 and 2001, respectively, as well as changes in 2002 from 2001. Table 6: Non-Interest Expense <TABLE> <CAPTION> Three Months Six Months Ended June 30 2002 Ended June 30 2002 -------------------- Change from --------------------- Change from (In thousands) 2002 2001 2001 2002 2001 2001 - -------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> <C> Salaries and employee benefits $ 9,840 $ 8,902 $ 938 10.54% $ 19,790 $ 17,905 $ 1,885 10.53% Occupancy expense, net 1,155 1,094 61 5.58 2,281 2,260 21 0.93 Furniture and equipment expense 1,310 1,338 (28) -2.09 2,602 2,674 (72) -2.69 Loss on foreclosed assets 40 87 (47) -54.02 83 162 (79) -48.77 Other operating expenses Professional services 438 399 39 9.77 918 822 96 11.68 Postage 475 541 (66) -12.20 979 1,051 (72) -6.85 Telephone 426 386 40 10.36 803 766 37 4.83 Credit card expenses 516 447 69 15.44 938 871 67 7.69 Operating supplies 311 406 (95) -23.40 709 809 (100) -12.36 FDIC insurance 76 77 (1) -1.30 154 153 1 0.65 Amortization of intangibles 27 728 (701) -96.29 55 1,513 (1,458) -96.36 Other expense 2,235 2,441 (206) -8.44 4,566 4,677 (111) -2.37 -------- --------- -------- --------- --------- -------- Total non-interest expense $ 16,849 $ 16,846 $ 3 0.02% $ 33,878 $ 33,663 $ 215 0.64% ======= ======== ======= ======== ======== ======= </TABLE>
LOAN PORTFOLIO - -------------- The Company's loan portfolio averaged $1.236 billion and $1.288 billion during the first six months of 2002 and 2001, respectively. As of June 30, 2002, total loans were $1.248 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). 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 $422.1 million at June 30, 2002, or 33.8% of total loans, compared to $450.7 million, or 35.8% of total loans at December 31, 2001. The consumer loan decrease from December 31, 2001 to June 30, 2002, is the result of the Company's lower credit card portfolio and indirect lending activities, which was partially offset by an increase in student loans. The credit card portfolio decrease was primarily the result of seasonality in the Company's portfolio for that product combined with a decline in the number of cardholder accounts. The decline in indirect consumer loans was the result of zero percent car manufacturer incentives 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 $568.9 million at June 30, 2002, or 45.6% of total loans, which is comparable to the $571.3 million, or 45.4% of total loans at December 31, 2001. Commercial loans consist of commercial loans, agricultural loans and financial institution loans. Commercial loans were $241.3 million at June 30, 2002, or 19.3% of total loans, compared to $220.3 million, or 17.5% of total loans at December 31, 2001. The commercial loan increase from December 31, 2001 to June 30, 2002, is the result of seasonality in the Company's agricultural loan portfolio. The amounts of loans outstanding at the indicated dates are reflected in Table 7, according to type of loan.
Table 7: Loan Portfolio <TABLE> <CAPTION> June 30, December 31, (In thousands) 2002 2001 - ---------------------------------------------------------------------------------------------- <S> <C> <C> Consumer Credit cards $ 179,682 $ 196,710 Student loans 79,883 74,860 Other consumer 162,554 179,138 Real Estate Construction 74,968 83,628 Single family residential 226,900 224,122 Other commercial 266,995 263,539 Commercial Commercial 158,167 153,617 Agricultural 75,441 60,794 Financial institutions 7,692 5,861 Other 15,343 16,515 ------------- ------------- Total loans $ 1,247,625 $ 1,258,784 ============ ============ </TABLE> ASSET QUALITY - ------------- A loan is considered impaired when it is probable that the Company will not receive all amounts due according to the contracted terms of the loans. This includes loans past due 90 days or more, nonaccrual loans and certain loans identified by management. Non-performing loans are comprised of (a) nonaccrual loans, (b) loans that are contractually past due 90 days and (c) other loans for which terms have been restructured to provide a reduction or deferral of interest or principal, because of deterioration in the financial position of the borrower. The subsidiary banks recognize income principally on the accrual basis of accounting. When loans are classified as nonaccrual, the accrued interest is charged off and no further interest is accrued. Loans, excluding credit card loans, are placed on a nonaccrual basis either: (1) when there are serious doubts regarding the collectability of principal or interest, or (2) when payment of interest or principal is 90 days or more past due and either (i) not fully secured or (ii) not in the process of collection. If a loan is determined by management to be 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 impaired when payment of interest or principal is 90 days past due. Litigation accounts are placed on nonaccrual until such time as deemed uncollectible. Credit card loans are generally charged off when payment of interest or principal exceeds 180 days past due, but are turned over to the credit card recovery department, to be pursued until such time as they are determined, on a case-by-case basis, to be uncollectible. At June 30, 2002, impaired loans were $17.2 million compared to $21.0 million at December 31, 2001. The decrease in impaired loans from December 31, 2001, primarily relates to the $1.1 million decrease in non-performing loans and a $2.7 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.
Table 8 presents information concerning non-performing assets, including nonaccrual and other real estate owned. Table 8: Non-performing Assets <TABLE> <CAPTION> June 30, December 31, (In thousands) 2002 2001 - --------------------------------------------------------------------------------------------- <S> <C> <C> Nonaccrual loans $ 11,858 $ 11,956 Loans past due 90 days or more (principal or interest payments) 1,944 2,991 ------------- ------------- Total non-performing loans 13,802 14,947 ------------- ------------- Other non-performing assets Foreclosed assets held for sale 2,394 1,084 Other non-performing assets 484 631 ------------- ------------ Total other non-performing assets 2,878 1,715 ------------- ------------ Total non-performing assets $ 16,680 $ 16,662 ============ ============ Allowance for loan losses to non-performing loans 149.31% 137.12% Non-performing loans to total loans 1.11% 1.19% Non-performing assets to total assets 0.86% 0.83% </TABLE> Approximately $455,000 and $557,000 of interest income would have been recorded for the six-month periods ended June 30, 2002 and 2001, respectively, if the nonaccrual loans had been accruing interest in accordance with their original terms. There was no interest income on the nonaccrual loans recorded for the six-month periods ended June 30, 2002 and 2001.
ALLOWANCE FOR LOAN LOSSES - ------------------------- An analysis of the allowance for loan losses is shown in Table 9. Table 9: Allowance for Loan Losses <TABLE> <CAPTION> (In thousands) 2002 2001 - ----------------------------------------------------------------------------------------------- <S> <C> <C> Balance, beginning of year $ 20,496 $ 21,157 ---------------- --------------- Loans charged off Credit card 2,321 2,157 Other consumer 1,190 1,198 Real estate 839 634 Commercial 1,543 633 ---------------- --------------- Total loans charged off 5,893 4,622 ---------------- --------------- Recoveries of loans previously charged off Credit card 292 260 Other consumer 407 388 Real estate 172 107 Commercial 337 111 ---------------- --------------- Total recoveries 1,208 866 ---------------- --------------- Net loans charged off 4,685 3,756 Provision for loan losses 4,797 3,820 ---------------- --------------- Balance, June 30 $ 20,608 $ 21,221 =============== -------------- Loans charged off Credit card 2,274 Other consumer 1,865 Real estate 744 Commercial 2,843 --------------- Total loans charged off 7,726 --------------- Recoveries of loans previously charged off Credit card 255 Other consumer 280 Real estate 39 Commercial 289 --------------- Total recoveries 863 --------------- Net loans charged off 6,863 Provision for loan losses 6,138 --------------- Balance, end of year $ 20,496 ============== </TABLE>
The amount of provision to the allowance during the six-month periods ended June 30, 2002 and 2001, and for the year ended 2001, 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. 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 deposits as of June 30, 2002, were $1.617 billion, compared to $1.686 billion on December 31, 2001. The decrease in deposits from December 31, 2001 to June 30, 2002, is primarily attributable to a decrease in certificates of deposit. As of June 30, 2002, time deposits were $852.1 million, a decrease of $69.2 million over the $921.3 million reported as of December 31, 2001. The decrease in certificates of deposits was the result of a 2002 strategic decision made by the Company, which allowed those deposits to decrease in the same relationship as the decrease in earning assets. CAPITAL - ------- At June 30, 2002, total capital reached $188.9 million. Capital represents shareholder ownership in the Company -- the book value of assets in excess of liabilities. At June 30, 2002, the Company's equity to asset ratio was 9.7% compared to 9.0% at year-end 2001. 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 June 30, 2002, the leverage ratio and the Tier 1 capital ratio was 9.0% and 13.6%, respectively, while the Company's total risk-based capital ratio was 14.9%, all of which exceed the capital minimums established in the risk-based capital requirements. The Company's risk-based capital ratios at June 30, 2002 and December 31, 2001, are presented in Table 10.
Table 10: Risk-Based Capital <TABLE> <CAPTION> June 30, December 31, (In thousands) 2002 2001 - ---------------------------------------------------------------------------------------------------------- <S> <C> <C> Tier 1 capital Stockholders' equity $ 188,923 $ 182,363 Trust preferred securities 17,250 17,250 Intangible assets (32,238) (32,186) Unrealized (gain) loss on available- for-sale securities (1,639) (1,479) Other (863) (881) -------------- -------------- Total Tier 1 capital 171,433 165,067 -------------- -------------- Tier 2 capital Qualifying unrealized gain on available-for-sale equity securities 392 370 Qualifying allowance for loan losses 15,806 16,209 -------------- -------------- Total Tier 2 capital 16,198 16,579 -------------- -------------- Total risk-based capital $ 187,631 $ 181,646 ============= ============= Risk weighted assets $ 1,259,642 $ 1,292,798 ============= ============= Assets for leverage ratio $ 1,908,788 $ 1,996,383 ============= ============= Ratios at end of year Leverage ratio 8.98% 8.27% Tier 1 capital 13.61% 12.77% Total risk-based capital 14.90% 14.05% Minimum guidelines Leverage ratio 4.00% 4.00% Tier 1 capital 4.00% 4.00% Total risk-based capital 8.00% 8.00% </TABLE> FORWARD-LOOKING STATEMENTS - -------------------------- Statements in this report that are not historical facts should be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements of this type speak only as of the date of this report. By nature, forward-looking statements involve inherent risk and uncertainties. Various factors, including, but not limited to, economic conditions, credit quality, interest rates, loan demand and changes in the assumptions used in making the forward-looking statements, could cause actual results to differ materially from those contemplated by the forward-looking statements. Additional information on factors that might affect the Company's financial results is included in its annual report for 2001 (Form 10-K) filed with the Securities and Exchange Commission.
REVIEW BY INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS BKD, LLP Certified Public Accountants 200 East Eleventh Pine Bluff, Arkansas Board of Directors Simmons First National Corporation Pine Bluff, Arkansas We have reviewed the accompanying consolidated balance sheet of SIMMONS FIRST NATIONAL CORPORATION as of June 30, 2002, and the related consolidated statements of income for the three-month and six-month periods ended June 30, 2002 and 2001 and cash flows and changes in stockholders' equity for the six-month periods ended June 30, 2002 and 2001. These financial statements are the responsibility of the Company's management. We conducted our reviews in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the United States of America, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our reviews, we are not aware of any material modifications that should be made to the condensed consolidated financial statements referred to above for them to be in conformity with accounting principles generally accepted in the United States of America. We have previously audited, in accordance with auditing standards generally accepted in the United States of America, the consolidated balance sheet as of December 31, 2001, and the related consolidated statements of income, cash flows and changes in stockholders' equity for the year then ended (not presented herein), and in our report dated February 8, 2002, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 2001, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. /s/ BKD, LLP BKD, LLP Pine Bluff, Arkansas August 6, 2002
Part II: Other Information Item 2. Changes in Securities. Recent Sales of Unregistered Securities. The following transactions are sales of unregistered shares of Class A Common Stock of the Company which were issued to executive and senior management officers upon the exercise of rights granted under (i) the Simmons First National Corporation Incentive and Non-qualified Stock Option Plan (ii) the Simmons First National Corporation Executive Stock Incentive Plan or (iii) the Simmons First National Corporation Executive Stock Incentive Plan - 2001. No underwriters were involved and no underwriter's discount or commissions were involved. Exemption from registration is claimed under Section 4(2) of the Securities Act of 1933 as private placements. The Company received cash and/or exchanged shares of the Company's Class A Common Stock as the consideration for the transactions. <TABLE> <CAPTION> Number Identity(1) Date of Sale of Shares Price(2) Type of Transaction - -------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> 2 Officers May, 2002 600 20.5000 Incentive Stock Option 2 Officers May, 2002 900 25.6667 Incentive Stock Option 1 Officer June, 2002 400 21.1250 Incentive Stock Option <FN> - ------------ Notes: 1. The transactions are grouped to show sales of stock based upon exercises of rights by officers of the registrant or its subsidiaries under the stock plans, which occurred at the same price during a calendar month. 2. The per share price paid for incentive stock options represents the fair market value of the stock as determined under the terms of the Plan on the date the incentive stock option was granted to the officer. </FN> </TABLE> Item 4. Submission of Matters to a Vote of Security Holders. (a) The annual shareholders meeting of the Company was held on April 23, 2002. The matters submitted to the security holders for approval included setting the number of directors at seven (7) and the election of directors. (b) At the annual meeting, all seven (7) incumbent directors were re-elected by proxies solicited pursuant to Section 14 of the Securities Exchange Act of 1934, without any solicitation in opposition thereto.
The following table shows the required analysis of the voting by security holders at the annual meeting of shareholders held on April 23, 2002: <TABLE> <CAPTION> Voting of Shares Broker Action For Against Abstain Non-Votes - ---------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> Set Number of 4,656,656 21,712 7,315 1,166,448 Directors at seven (7) </TABLE> <TABLE> <CAPTION> Withhold Broker Election of Directors: For Authority Non-Votes - ------------------------------------------------------------------------------------------- <S> <C> <C> <C> William E. Clark 4,657,999 27,235 1,157,381 Lara F. Hutt, III 4,675,196 10,037 1,157,381 George A. Makris, Jr. 4,674,399 9,622 1,158,594 J. Thomas May 4,653,122 9,435 1,157,381 David R. Perdue 4,675,799 30,811 1,158,681 Harry L. Ryburn 4,675,343 9,890 1,157,381 Henry F. Trotter 4,673,929 10,666 1,158,019 </TABLE> Item 6. Exhibits and Reports on Form 8-K a) Exhibits Exhibit 99.1 - Certification Pursuant to 18 U.S.C. Sections 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 - J. Thomas May, Chairman, President and Chief Executive Officer Exhibit 99.2 - Certification Pursuant to 18 U.S.C. Sections 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 - Barry L. Crow, Chief Financial Officer b) Reports on Form 8-K The registrant filed Form 8-K on April 18, 2002. The report contained the text of a press release issued by the registrant concerning the announcement of second quarter earnings. The registrant filed Form 8-K on June 2, 2002. The report contained the text of a press release issued by the registrant concerning the declaration of a quarterly cash dividend.
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SIMMONS FIRST NATIONAL CORPORATION ---------------------------------- (Registrant) Date: August 7, 2002 /s/ J. Thomas May ------------------ ----------------------------------------- J. Thomas May, Chairman, President and Chief Executive Officer Date: August 7, 2002 /s/ Barry L. Crow ------------------ ----------------------------------------- Barry L. Crow, Executive Vice President and Chief Financial Officer
Form 10-Q Index to Exhibits ----------------- Exhibit Description - ------- ----------- Exhibit 99.1 Certification Pursuant to 18 U.S.C. Sections 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 - J. Thomas May, Chairman, President and Chief Executive Officer Exhibit 99.2 Certification Pursuant to 18 U.S.C. Sections 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 - Barry L. Crow, Chief Financial Officer
Exhibit 99.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Simmons First National Corporation (the "Company"), on Form 10-Q for the period ending June 30, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), and pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, J. Thomas May, Chairman, President and Chief Executive Officer of the Company, hereby certifies that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ J. Thomas May - ----------------- J. Thomas May Chairman, President and Chief Executive Officer August 7, 2002
Exhibit 99.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Simmons First National Corporation (the "Company"), on Form 10-Q for the period ending June 30, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), and pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, Barry L. Crow, Chief Financial Officer of the Company, hereby certifies that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Barry L. Crow - ----------------- Barry L. Crow Chief Financial Officer August 7, 2002