SIMMONS FIRST NATIONAL CORPORATION Financial Statements (Form 10-Q) June 30, 1996 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, 1996 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 501-541-1350 ----------------- 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 securities. Class A, Common 3,809,639 Class B, Common None SIMMONS FIRST NATIONAL CORPORATION INDEX Page No. Part I: Summarized Financial Information Consolidated Balance Sheets -- June 30, 1996 and December 31, 1995 3-4 Consolidated Statements of Income -- Three months and six months ended June 30, 1996 and 1995 5 Consolidated Statements of Cash Flows -- Six months ended June 30, 1996 and 1995 6 Consolidated Statement of Changes in Stockholders' Equity -- Six months ended June 30, 1996 and 1995 7 Notes to Consolidated Financial Statements 8-16 Management's Discussion and Analysis of Financial Condition and Results of Operations 17-18 Review by Independent Certified Public Accountants 19 Part II: Other Information 20 Part I A. Summarized Financial Information <TABLE> SIMMONS FIRST NATIONAL CORPORATION CONSOLIDATED BALANCE SHEETS JUNE 30, 1996 AND DECEMBER 31, 1995 ASSETS <CAPTION> June 30, December 31, (In thousands) 1996 1995 - ---------------------------------------------------------------------------------------- (Unaudited) <S> <C> <C> Cash and noninterest-bearing balances due from banks ......... $ 35,444 $ 36,179 Interest-bearing balances due from banks ..................... 4,387 2,398 Federal funds sold and securities purchased under agreements to resell ................................. 8,530 34,845 ------- ------- Cash and Cash Equivalents ................................ 48,361 73,422 Investment securities Held-to-maturity .......................................... 125,816 134,433 Available-for-sale ........................................ 94,951 90,367 Mortgage loans held for sale, net of unrealized gains (losses) 16,504 26,159 Assets held in trading accounts .............................. 966 548 Loans ........................................................ 483,453 471,956 Allowance for possible loan losses ........................ (8,364) (8,418) ------- ------- Net loans ............................................... 475,089 463,538 Premises and equipment ....................................... 19,234 16,201 Foreclosed assets held for sale .............................. 879 1,017 Interest receivable .......................................... 8,495 7,953 Cost of loan servicing rights acquired ....................... 8,001 4,867 Excess of cost over fair value of net assets acquired, at amortized cost .......................................... 3,374 3,677 Other assets ................................................. 14,495 17,702 ------- ------- Total Assets ........... $816,165 $839,884 ======= ======= </TABLE> The December 31, 1995 Consolidated Balance Sheet is as reported in the Corporation's 1995 Annual Report. See Notes to Consolidated Financial Statements. <TABLE> SIMMONS FIRST NATIONAL CORPORATION CONSOLIDATED BALANCE SHEETS JUNE 30, 1996 AND DECEMBER 31, 1995 LIABILITIES AND STOCKHOLDERS' EQUITY <CAPTION> June 30, December 31, (In thousands) 1996 1995 - ---------------------------------------------------------------------------------------- (Unaudited) <S> <C> <C> Noninterest-bearing transaction accounts ........................ $105,492 $108,779 Interest-bearing transaction accounts and savings deposits ...... 245,912 251,065 Time deposits ................................................... 337,466 344,924 ------- ------- Total Deposits .......................................... 688,870 704,768 Federal funds purchased and securities sold under agreements to repurchase ........................... 14,985 20,861 Short-term debt ................................................. 2,862 1,405 Long-term debt .................................................. 1,087 4,757 Accrued interest and other liabilities .......................... 9,518 11,296 ------- ------- Total Liabilities ....................................... 717,322 743,087 ------- ------- STOCKHOLDERS' EQUITY Capital stock Class A, common, par value $5 a share, authorized 10,000,000 shares, issued and outstanding 3,809,639 and 3,816,612 at 1996 and 1995, respectively ............... 19,048 19,083 Surplus ....................................................... 22,231 22,651 Undivided profits ............................................. 56,645 53,038 Unrealized appreciation on available-for-sale securities, net of income taxes of $522 and $1,152 at 1996 and 1995, respectively ................................................ 919 2,025 ------- ------- Total Stockholders' Equity .............................. 98,843 96,797 ------- ------- Total Liabilities and Stockholders' Equity $816,165 $839,884 ======= ======= </TABLE> The December 31, 1995 Consolidated Balance Sheet is as reported in the Corporation's 1995 Annual Report. See Notes to Consolidated Financial Statements. <TABLE> SIMMONS FIRST NATIONAL CORPORATION CONSOLIDATED STATEMENTS OF INCOME THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1996 AND 1995 <CAPTION> Three Months Ended Six Months Ended June 30, June 30, (In thousands, except per share data) 1996 1995 1996 1995 - ---------------------------------------------------------------------------------------------------------- (Unaudited) <S> <C> <C> <C> <C> INTEREST INCOME Loans ..................................................... $10,716 $ 9,729 $21,202 $18,545 Federal funds sold and securities purchased under agreements to resell .............................. 382 548 929 918 Investment securities-taxable ............................. 2,626 2,506 5,293 4,816 Investment securities-non-taxable ......................... 789 743 1,559 1,430 Mortgage loans held for sale, net of unrealized gains ..... 388 190 788 333 Assets held in trading accounts ........................... 30 14 40 23 Interest-bearing balances due from banks .................. 77 28 106 55 ------ ------ ------ ------ TOTAL INTEREST INCOME ............................. 15,008 13,758 29,917 26,120 ------ ------ ------ ------ INTEREST EXPENSE Interest bearing transaction accounts and savings deposits 1,710 1,506 3,344 2,855 Time deposits ............................................. 4,627 3,860 9,415 6,847 Federal funds purchased and securities sold under agreements to repurchase ..................... 276 335 667 683 Short-term debt ........................................... 14 16 28 41 Long-term debt ............................................ 102 271 206 528 ------ ------ ------ ------ TOTAL INTEREST EXPENSE ............................ 6,729 5,988 13,660 10,954 ------ ------ ------ ------ NET INTEREST INCOME ........................................... 8,279 7,770 16,257 15,166 Provision for possible loan losses ........................ 502 452 1,003 901 ------ ------ ------ ------ NET INTEREST AFTER PROVISION FOR LOAN LOSSES .................. 7,777 7,318 15,254 14,265 ------ ------ ------ ------ NON-INTEREST INCOME Trust department income ................................... 476 376 1,029 794 Service charges on deposit accounts ....................... 746 697 1,485 1,297 Other service charges and fees ............................ 363 201 592 402 Income (loss) on sale of mortgage loans, net of commissions (58) 54 48 146 Income on investment banking, net of commissions .......... 39 196 339 319 Net realized gains on securities .......................... 118 -- 269 -- Credit card fees .......................................... 2,433 2,571 4,690 4,970 Loan servicing fees ....................................... 1,620 1,450 3,223 2,836 Other operating income .................................... 216 287 357 1,031 ------ ------ ------ ------ TOTAL NON-INTEREST INCOME ......................... 5,953 5,832 12,032 11,795 ------ ------ ------ ------ NON-INTEREST EXPENSE Salaries and employee benefits ............................ 5,420 5,310 11,050 10,533 Occupancy expense, net .................................... 569 591 1,148 1,123 Furniture and equipment expense ........................... 558 522 1,119 1,031 Loss on foreclosed assets ................................. 282 339 563 692 Other operating expenses .................................. 3,133 3,087 6,532 6,162 ------ ------ ------ ------ TOTAL NON-INTEREST EXPENSE ........................ 9,962 9,849 20,412 19,541 ------ ------ ------ ------ INCOME BEFORE INCOME TAXES .................................... 3,768 3,301 6,874 6,519 Provision for income taxes ................................ 1,107 908 1,971 1,873 ------ ------ ------ ------ NET INCOME .................................................... $ 2,661 $ 2,393 $ 4,903 $ 4,646 ====== ====== ====== ====== EARNINGS PER AVERAGE COMMON SHARE ............................. $ 0.70 $ 0.63 $ 1.29 $ 1.24 ====== ====== ====== ====== DIVIDENDS PER COMMON SHARE .................................... $ 0.18 $ 0.15 $ 0.34 $ 0.28 ====== ====== ====== ====== </TABLE> See Notes to Consolidated Financial Statements. <TABLE> SIMMONS FIRST NATIONAL CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS SIX MONTHS ENDED JUNE 30, 1996 AND 1995 <CAPTION> Six Months Ended June 30, June 30, (In thousands) 1996 1995 - ----------------------------------------------------------------------------------------- (unaudited) <S> <C> <c CASH FLOWS FROM OPERATING ACTIVITIES Net income .................................................. $ 4,903 $ 4,646 Items not requiring (providing) cash Depreciation and amortization ............................. 1,472 443 Provision for possible loan losses ........................ 1,003 901 Amortization of premiums and accretion of discounts on investment securities and mortgage-backed certificates 139 (50) Provision for foreclosed assets ........................... 108 156 Net realized losses on securities ........................ (269) -- Losses on sale of premises and equipment .................. (13) -- Deferred income taxes ..................................... 84 (123) Changes in: Interest receivable ....................................... (542) (1,164) Mortgage loans held for sale .............................. 9,655 (10,115) Other assets .............................................. (1,718) (6,122) Accrued interest and other liabilities .................... (274) 2,148 Income taxes payable ...................................... 25 (597) Trading accounts .......................................... (418) 2,253 ------- ------- Net cash provided by (used in) operating activities 14,155 (7,624) ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES Net originations of loans ................................... (12,608) (26,323) Purchase of premises and equipment .......................... (3,627) (5,173) Proceeds from sale of fixed assets .......................... 246 2,154 Proceeds from the sale of foreclosed assets ................. 83 256 Proceeds from sale of available-for-sale securities ......... 265 -- Proceeds from maturities of available-for-sale securities ... 51,716 4,850 Purchases of available-for-sale securities .................. (59,054) (16,985) Proceeds from maturities of held-to-maturity securities ..... 43,003 7,747 Purchases of held-to-maturity securities .................... (33,502) (28,720) ------- ------- Net cash used in investing activities ............... (13,478) (62,194) ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES Net decrease in transaction accounts and savings deposits ...................................... (8,440) (388) Net issuance of time deposits ............................... (7,458) 59,172 Repayments of other borrowings .............................. (55,691) (89,049) Proceeds from other borrowings .............................. 53,478 90,479 Dividends paid .............................................. (1,296) (1,051) Net decrease in federal funds purchased and securities sold under agreements to repurchase ........ (5,876) (344) Issuance (repurchase) of common stock ....................... (455) 3,520 ------- ------- Net cash used in financing activities ............... (25,738) 62,339 ------- ------- DECREASE IN CASH AND CASH EQUIVALENTS ........................ (25,061) (7,479) CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR .................. 73,422 74,002 ------- ------- CASH AND CASH EQUIVALENTS, END OF PERIOD ...................... $ 48,361 $ 66,523 ======= ======= </TABLE> See Notes to Consolidated Financial Statements. <TABLE> SIMMONS FIRST NATIONAL CORPORATION CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY SIX MONTHS ENDED JUNE 30, 1996 AND 1995 <CAPTION> NET UNREALIZED COMMON GAIN ON AFS UNDIVIDED (In thousands) STOCK SURPLUS SECURITIES PROFITS TOTAL - ------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> BALANCE, DECEMBER 31, 1994 ............. $ 18,387 $ 19,827 $ 233 $ 45,253 $ 83,700 EXERCISE OF STOCK OPTIONS--2,000 SHARES 10 10 20 COMMON STOCK ISSUED IN CONNECTION WITH PURCHASE OF DUMAS BANCSHARES, INC . (137,234 SHARES @$25.50 PER SHARE) ..... 686 2,814 3,500 NET INCOME ............................. 4,646 4,646 CASH DIVIDENDS DECLARED ($.28 PER SHARE) ..................... (1,051) (1,051) CHANGE IN UNREALIZED APPRECIATION ON AVAILABLE-FOR-SALE SECURITIES, NET OF INCOME TAXES OF $290 .......... 489 489 ------- ------- ------- ------- ------- BALANCE, JUNE 30, 1995 ................. 19,083 22,651 722 48,848 91,304 NET INCOME ............................. 5,373 5,373 CASH DIVIDENDS DECLARED ($.31 PER SHARE) ....................... (1,183) (1,183) CHANGE IN UNREALIZED APPRECIATION ON AVAILABLE-FOR-SALE SECURITIES, NET OF INCOME TAXES OF $742 .......... 1,303 1,303 ------- ------- ------- ------- ------- BALANCE, DECEMBER 31, 1995 ............. 19,083 22,651 2,025 53,038 96,797 EXERCISE OF STOCK OPTIONS--10,000 SHARES 50 62 112 REPURCHASE OF COMMON STOCK ............. (85) (482) (567) NET INCOME ............................. 4,903 4,903 CASH DIVIDENDS DECLARED ($.34 PER SHARE) ..................... (1,296) (1,296) CHANGE IN UNREALIZED DEPRECIATION ON AVAILABLE-FOR-SALE SECURITIES, NET OF INCOME TAX CREDIT OF $630 ..... (1,106) (1,106) ------- ------- ------- ------- ------- BALANCE, JUNE 30, 1996 ................ $ 19,048 $ 22,231 $ 919 $ 56,645 $ 98,843 ======= ======= ======= ======= ======= </TABLE> See Notes to Consolidated Financial Statements. SIMMONS FIRST NATIONAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 1: ACCOUNTING POLICIES 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. All adjustments made to the unaudited financial statements were of a normal recurring nature. In the opinion of management, all adjustments necessary for a fair presentation of the results of interim periods have been made. Certain prior year amounts are reclassified to conform to current year classification. The accounting policies followed in the presentation of interim financial results are presented on pages 26-29 of the 1995 Annual Report to shareholders. NOTE 2: INVESTMENT SECURITIES The amortized cost and fair value of investments in debt securities that are Held-to-Maturity and Available-For-Sale are as follows: <TABLE> <CAPTION> June 30, 1996 December 31, 1995 ---------------------------------------------------------------------------------------------------------- Gross Gross Gross Gross 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 .... $ 25,862 $ 157 $ (332) $ 25,687 $ 45,920 $ 400 $ (46) $ 46,274 U.S. Government agencies ........ 32,122 158 (703) 31,577 23,569 692 (18) 24,243 Mortgage-backed securities ...... 5,867 18 (141) 5,744 6,344 37 (55) 6,326 State and political subdivisions .... 61,476 960 (717) 61,719 58,154 1,536 (356) 59,334 Other securities .. 489 2 (8) 483 446 11 -- 457 -------- -------- -------- -------- -------- -------- -------- -------- $ 125,816 $ 1,295 $ (1,901) $ 125,210 $ 134,433 $ 2,676 $ (475) $ 136,634 ======== ======== ======== ======== ======== ======== ======== ======== Available For Sale U.S. Treasury .... $ 67,603 $ 952 $ (164) $ 68,391 $ 72,258 $ 2,102 $ (3) $ 74,357 U.S. Government agencies ........ 22,769 129 (151) 22,747 11,905 264 (35) 12,134 State and political subdivisions .... 50 -- -- 50 51 -- -- 51 Other securities .. 3,088 675 -- 3,763 2,976 851 (2) 3,825 -------- -------- -------- -------- -------- -------- -------- -------- $ 93,510 $ 1,756 $ (315) $ 94,951 $ 87,190 $ 3,217 $ (40) $ 90,367 ======== ======== ======== ======== ======== ======== ======== ======== </TABLE> Maturities of investment securities at June 30, 1996 <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 ................. $ 8,683 $ 8,723 $ 47,853 $ 47,956 After one through five years ..... 55,310 55,195 42,569 43,232 After five through ten years ..... 50,146 49,267 -- -- After ten years .................. 5,321 5,798 -- -- Mortgage-backed securities not due on a single maturity date ...... 5,867 5,744 -- -- Other securities ................. 489 483 3,088 3,763 ------- ------- ------- ------- $125,816 $125,210 $ 93,510 $ 94,951 ======= ======= ======= ======= </TABLE> The book value of securities pledged as collateral, to secure public deposits and for other purposes, amounted to $90,044,000 at June 30, 1996, and $107,133,000 at December 31, 1995. The approximate fair value of pledged securities amounted to $90,308,000 at June 30, 1996 and $110,319,000 at December 31, 1995. The book value of securities sold under agreements to repurchase amounted to $165,000 and $1,417,000 for June 30, 1996 and December 31, 1995, respectively. The table below shows gross realized gains and losses during the first six months of 1996 and 1995. <TABLE> <CAPTION> June 30, June 30, (In thousands) 1996 1995 - -------------------------------------------------- <S> <C> <C> Proceeds from sales ..... $ 265 $ -- ------- ------- Gross gains ............. 269 -- Gross losses ............ -- -- ------- ------- Securities gains (losses) $ 269 $ -- ======= ======= </TABLE> As of December 15, 1995, the Corporation redesignated held-to-maturity securities with an aggregate amortized cost of $40,193,000 and net unrealized gains of $1,905,000 to the available-for-sale portfolio. The redesignation was prompted by the announcement by the Financial Accounting Standards Board to allow a one-time redesignation and reflects management's revised expectations of liquidity needs. Approximately 12 percent of the state and political subdivision securities are rated A or above. Of the remaining securities, most are non-rated bonds and represent small, Arkansas issues, which are evaluated on an ongoing basis. NOTE 3: LOANS AND ALLOWANCE FOR POSSIBLE LOAN LOSSES The various categories are summarized as follows: <TABLE> <CAPTION> June 30, December 31, (In thousands) 1996 1995 - ------------------------------------------------------------------------ <S> <C> <C> Loans Consumer Credit card ............................ $ 144,705 $ 154,808 Student loan ........................... 66,105 63,492 Other consumer ......................... 61,647 57,166 Real estate Construction ........................... 17,080 15,177 Single family residential .............. 56,131 54,341 Other commercial ....................... 59,682 59,012 Commercial Commercial ............................. 36,653 36,553 Agricultural ........................... 28,761 20,588 Financial institutions ................. 9,898 9,058 Other ..................................... 3,510 2,546 -------- -------- Total loans before unearned discount and allowances for possible loan losses .. 484,172 472,741 Unearned discount ......................... (719) (785) Allowance for possible loan losses ........ (8,364) (8,418) -------- -------- Net Loans ........................... $ 475,089 $ 463,538 ======== ======== </TABLE> During the first six months of 1996, foreclosed assets held for sale decreased to $879,000 and are carried at the lower of cost or fair market value. Other non-performing assets, non-accrual loans and other non-performing loans for the Corporation at June 30, 1996, were $6,000, $1,571,000 and $1,741,000, respectively, bringing the total of non-performing assets to $4,197,000. <TABLE> <CAPTION> June 30, December 31, (In thousands) 1996 1995 - --------------------------------------------------------------------------- <S> <C> <C> Allowance for Possible Loan Losses Balance, beginning of year ................ $ 8,418 $ 7,790 Additions Provision charged to expense ........... 1,003 901 Allowance for loan losses of acquired institutions ............ 314 --------- --------- 9,421 9,005 Deductions Losses charged to allowance, net of recoveries of $221 and $213 for the first six months of 1996 and 1995, respectively ......................... 1,057 751 --------- --------- Balance, June 30 .......................... $ 8,364 $ 8,254 ========= Additions Provision charged to expense ........... 1,191 Allowance for loan losses of acquired institutions ............ 47 --------- 9,492 Deductions Losses charged to allowance, net of recoveries of $266 for the last six months of 1995 1,074 --------- Balance, end of year ......................... $ 8,418 ========= </TABLE> At June 30, 1996 and December 31, 1995, impaired loans totaled $4,558,000 and $4,564,000, respectively, all of which had reserves allocated. An allowance of $857,000 and $832,000 for possible losses related to those loans at June 30, 1996 and December 31, 1995, respectively. Interest of $130,000 and $88,000 was recognized on average impaired loans of $4,523,000 and $3,548,000 as of June 30, 1996 and 1995, respectively. Interest recognized on impaired loans on a cash basis during the first six months of 1996 and 1995 was immaterial. NOTE 4: ACQUISITIONS On April 1, 1995, and August 1, 1995, Simmons First National Corporation acquired all outstanding stock of Dumas Bancshares, Inc. (DBI), and Dermott State Bank Bancshares, Inc. (DSBB), respectively, in exchange for 137,234 shares of common stock valued at $25.50 per share and cash of $3,900,000. DBI and DSBB were liquidated into the Corporation leaving Dumas State Bank, First State Bank, and Dermott State Bank as subsidiaries of the Corporation. First State Bank was then merged into Simmons First National Bank and the names of the other two banks were changed to Simmons First Bank of Dumas and Simmons First Bank of Dermott. The acquisitions were accounted for as purchases, and the results of operations from the dates of acquisition are included in the December 31, 1995 consolidated financial statements. The total acquisition cost of $7,400,000 exceeded the fair value of net assets acquired by $1,599,000. In February, 1996, the flagship bank, Simmons First National, located in Pine Bluff, opened an additional branch in Little Rock, Arkansas, bringing its total branches to twenty-four. NOTE 5: CERTAIN TRANSACTIONS From time to time the Corporation and its subsidiaries have made loans and other extensions of credit to directors, officers, their associates and members of their immediate families, and from time to time directors, officers and their associates and members of their immediate families have placed deposits with Simmons First National Bank, Simmons First Bank of Lake Village, Simmons First Bank of Jonesboro, Simmons First Bank of Dumas and Simmons First Bank of Dermott. 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 6: STOCK OPTIONS As of June 30, 1996, 107,500 shares of common stock of the Corporation had been granted through an employee stock option incentive plan. There were 58,300 exercisable options at the end of the second quarter of 1996. Twelve thousand shares have been issued upon exercise of options. NOTE 7: ADDITIONAL CASH FLOW INFORMATION <TABLE> <CAPTION> Six Months Ended June 30, (In thousands) 1996 1995 - ----------------------------------------- <S> <C> <C> Interest paid $ 13,827 $ 10,256 Income taxes paid ..... $ 1,813 $ 1,582 </TABLE> NOTE 8: INCOME TAXES The provision for income taxes is comprised of the following components: <TABLE> <CAPTION> June 30, June 30, (In thousands) 1996 1995 - --------------------------------------------------- <S> <C> <C> Income taxes currently payable $ 1,887 $ 1,996 Deferred income taxes ........ 84 (123) ------ ------ Provision for income taxes ... $ 1,971 $ 1,873 ====== ====== </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) 1996 1995 - ---------------------------------------------------------------------- <S> <C> <C> Deferred tax assets Allowance for possible loan losses ...... $ 2,923 $ 2,940 Valuation adjustment of foreclosed assets held for sale ......................... 251 250 Deferred compensation payable ........... 430 444 Deferred loan fee income ................ 701 707 Other ................................... 828 847 ------ ------ Total deferred tax assets .............. 5,133 5,188 ------ ------ Deferred tax liabilities Accumulated depreciation ................ (755) (718) Available-for-sale securities .......... (522) (1,151) Other ................................... (330) (338) ------ ------ Total deferred tax liabilities ....... (1,607) (2,207) ------ ------ Net deferred tax assets included in other assets on balance sheets ............. $ 3,526 $ 2,981 ====== ====== </TABLE> A reconciliation of income tax expense at the statutory rate to the Corporation's actual income tax expense is shown below: <TABLE> <CAPTION> June 30, June 30, (In thousands) 1996 1995 - ----------------------------------------------------------- <S> <C> <C> Computed at the statutory rate (34%) $ 2,337 $ 2,345 Increase (decrease) resulting from: Tax exempt income ............... (525) (488) Other difference, net ........... 159 16 ------ ------ Actual tax provision ............... $ 1,971 $ 1,873 ====== ====== </TABLE> NOTE 9: TIME DEPOSITS Time deposits include approximately $93,211,000 and $104,906,000 of certificates of deposit of $100,000 or more at June 30, 1996, and December 31, 1995, respectively. NOTE 10: COMMITMENTS AND CREDIT RISK The five affiliate banks of the Corporation grant agribusiness, commercial, consumer, and residential loans to their customers. Included in the Corporation's diversified loan portfolio is unsecured debt in the form of credit card receivables that comprised approximately 29.9% and 32.8% of the portfolio, as of June 30, 1996 and December 31, 1995, 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, 1996 and December 31, 1995, the Corporation had outstanding commitments to originate loans aggregating approximately $88,811,000 and $67,853,000, respectively. The commitments extended over varying periods of time, with the majority being disbursed within a one year period. Loan commitments at fixed rates of interest amounted to $40,373,000 and $26,744,000 at June 30, 1996 and December 31, 1995, respectively, with the remainder at floating market rates. Letters of credit are conditional commitments issued by the bank subsidiaries of the Corporation, 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 Corporation had total outstanding letters of credit amounting to $2,410,000 and $1,954,000 at June 30, 1996 and December 31, 1995, respectively, with terms ranging from 90 days to one year. Lines of credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Lines of credit generally have fixed expiration dates. Since a portion of the line may expire without being drawn upon, the total unused lines 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, upon extension of credit, 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. Management uses the same credit policies in granting lines of credit as it does for on balance sheet instruments. At June 30, 1996, the Corporation had granted unused lines of credit to borrowers aggregating approximately $16,642,000 and $161,213,000 for commercial lines and open-end consumer lines, respectively. At December 31, 1995, unused lines of credit to borrowers aggregated approximately $3,365,000 for commercial lines and $157,068,000 for open-end consumer lines, respectively. Mortgage loans serviced for others totaled $1,410,858,000 and $1,224,467,000 at June 30, 1996 and December 31, 1995, respectively, of which mortgage-backed securities serviced totaled $1,343,266,000 and $1,166,906,000 at June 30, 1996 and December 31, 1995, respectively. Simmons First National Bank serviced VA loans subject to certain recourse provisions totaling approximately $137,599,000 and $145,185,000, at June 30, 1996 and December 31, 1995, respectively. A reserve was established for potential loss obligations, based on management's evaluation of a number of variables, including the amount of delinquent loans serviced for other investors, length of delinquency, and amounts previously advanced on behalf of the borrower that the Corporation does not expect to recover. This reserve is netted against foreclosure receivables included in other assets. As of June 30, 1996 and December 31, 1995, this reserve balance was $600,000 and $573,000, respectively. NOTE 11: CONTINGENT LIABILITIES A number of legal proceedings exist in which the Corporation 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 Corporation and its subsidiaries. NOTE 12: UNDIVIDED PROFITS The subsidiary banks are subject to a legal limitation on dividends that can be paid to the parent corporation 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 50% of current year earnings. At June 30, 1996, the bank subsidiaries had approximately $13.9 million available for payment of dividends to the Corporation without prior approval of the regulatory agencies. The Federal Reserve Board's risk-based capital guidelines require a minimum risk-adjusted ratio for total capital of 8% at the end of 1992. The Federal Reserve Board has further refined its guidelines to 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, 1996, each of the five subsidiary banks met the capital standards for a well-capitalized institution. The Corporation's total capital to total risk-weighted assets ratio was 20.7% at June 30, 1996, well above the minimum required. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Net income for the quarter ended June 30, 1996, was $2,661,000, an increase of $268,000, or 11.2%, over the same period of 1995. Earnings per share for the three-month periods ended June 30, 1996 and 1995, were $.70 and $.63, respectively. Earnings for the six-month period ended June 30, 1996, were $4,903,000, or $257,000 over the June 30, 1995 earnings of $4,646,000. Year-to-date earnings on a per share basis as of June 30, 1996 were $1.29, compared to $1.24 at June 30, 1995. This denotes a 4.0% increase. The Corporation's annualized return on average assets (ROA) for the three-month periods ended June 30, 1996 and 1995, were 1.28% and 1.26%, respectively. Annualized return on equity (ROE) for the same three-month periods were 10.85% and 10.34 %, respectively. Net interest income, the difference between interest income and interest expense, for the three-month period ended June 30, 1996, increased $509,000, or 6.6%, when compared to the same period in 1995, due to the increase in earning assets and yield. During the second quarter, interest income increased $1,250,000, or 9.1%, while interest expense increased $741,000, or 12.4%, when compared to the same period in 1995. For the six-months ended June 30, 1996 and 1995, net interest income was $16,257,000 and $15,166,000, respectively. This represents an increase of $1,091,000, or 7.2%. Interest income for the six-month periods ended June 30, 1996 and 1995, was up $3,797,000, to $29,917,000, over the $26,120,000 reported as of June 30, 1995, which signifies a 14.5% increase. Year-to-date interest expense at June 30, 1996 and 1995, was $13,660,000 and $10,954,000, respectively, which equates to a 24.7% increase in the cost of funding the growth in the balance sheet in 1996 when compared to 1995. The provision for possible loan losses for the second quarter of 1996 was $502,000, compared to $452,000 for the same period of 1995, resulting in a $50,000, or 11.0%, increase. For the six months ended June 30, 1996 and 1995, the provision was $1,003,000 and $901,000, respectively, also resulting in an 11% increase. Non-interest income, exclusive of net gains on securities sold, for the second quarter ended June 30, 1996, was $5,835,000, a slight increase over the $5,832,000 reported form the same period in 1995. For the six-months ended June 30, 1996 and 1995, non-interest income was $12,032,000 and $11,795,000, respectively. This $237,000, or 2.0% increase becomes even more significant when you consider that the 1995 figures contain $398,000 in tax adjusted non-recurring income. Total fee income for both the three-month and six-month periods ended June 30, 1996 and 1995 was up 7%. During the three months ended June 30, 1996, non-interest expense increased $113,000, or 1.1%, over the same period in 1995. This increase reflects the normal increase in the cost of doing business. Year-to-date non-interest expense was $20,412,000 at June 30, 1996, compared to $19,541,000, for the same period ended June 30, 1995, reflecting the Corporation's expansion into the Little Rock and Springdale markets and the write-off of mortgage servicing rights associated with the prepayment of mortgage loans during the first quarter of 1996. On June 30, 1996, the Corporation pre-paid the remaining $3.6 million of its initial $11.0 million in capital notes, twelve months prior to their original due date. In 1995, the Corporation pre-paid $7.4 million of the capital notes. At June 30, 1996, total assets for the Corporation were $816,165,000, a decrease of $23,719,000, or 2.8%, from the same figure at December 31, 1995. Deposits at June 30, 1996, totaled $688,870,000, a decrease of $15,898,000, or 2.3%, from the same figure at December 31, 1995. The allowance for possible loan losses as a percentage of total loans was 1.73% at June 30, 1996. The coverage ratio (allowance for possible loan losses as a percentage of non-performing loans) was 252.5% and foreclosed assets furthered declined from the $1,017,000 at December 31, 1995, to $879,000 at June 30, 1996. Stockholders' equity at the end of the second quarter was $98,843,000, an increase of $2,046,000, or 2.1%, from the December 31, 1995 figure. FINANCIAL CONDITION Generally speaking, the Corporation's banking subsidiaries rely upon net inflows of cash from financing activities, supplemented by net inflows of cash from operating activities, to provide cash used in their investing activities. As is typical of most banking companies, significant financing activities include: deposit gathering; use of short-term borrowing facilities, such as federal funds purchased and repurchase agreements; and the issuance of long-term debt. The banks' primary investing activities include loan originations and purchases of investment securities, offset by loan payoffs and investment maturities. Liquidity represents an institution's ability to provide funds to satisfy demands from depositors and borrowers, by either converting assets into cash or accessing new or existing sources of incremental funds. It is a major responsibility of management to maximize net interest income within prudent liquidity constraints. Internal corporate guidelines have been established to constantly measure liquid assets as well as relevant ratios concerning earning asset levels and purchased funds. Each bank subsidiary is also required to monitor these same indicators and report regularly to its own senior management and board of directors. At June 30, 1996, each bank was within established guidelines and total corporate liquidity was strong. At June 30, 1996, cash and due from banks, securities available for sale, federal funds sold and securities purchased under agreements for resale, and mortgage loans held for sale were 19.7% of total assets. REVIEW BY INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS BAIRD, KURTZ & DOBSON Certified Public Accountants 200 East Eleventh Pine Bluff, Arkansas Board of Directors Simmons First National Bank Pine Bluff, Arkansas We have made a review of the accompanying consolidated condensed financial statements, appearing on pages 3 to 7 of the accompanying Form 10-Q, of SIMMONS FIRST NATIONAL CORPORATION and consolidated subsidiaries as of June 30, 1996 and for the three-month and six-month periods ended June 30, 1996 and 1995, in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of obtaining an understanding of the system for the preparation of interim financial information, applying analytical review procedures to financial data, and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an examination in accordance with generally accepted auditing standards, the objective 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 review, we are not aware of any material modifications that should be made to the condensed financial statements referred to above for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet as of December 31, 1995, 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 2, 1996, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 1995, is fairly stated in all material respects in relation to the consolidated balance sheet from which it has been derived. BAIRD, KURTZ & DOBSON Pine Bluff, Arkansas August 7, 1996 Part II Other Information Item 4. Submission of Matters to a Vote of Security Holders. (a) The annual shareholders meeting of the Company was held on April 23,1996. The matters submitted to the security holders for approval included setting the number of directors at nine (9) and the election of directors. (b) At the annual meeting, all nine (9) nominees for director were elected by the voting of proxies solicited pursuant to Section 14 of the Security Exchange Act of 1934, without any solicitation in opposition thereto. (c) The following table shows the required analysis of the voting by security holders at the annual meeting: <TABLE> <CAPTION> Voting Shares Action For Against Abstain <S> <C> <C> <C> Set Number of Directors at Nine (9) ........... 3,300,097 4,413 18,591 Director Election: W. E. Ayres ......... 3,296,849 0 25,057 Ben Floriani ........ 3,296,849 0 25,057 C. Ramon Greenwood .. 3,295,191 0 26,716 Lara F. Hutt, III ... 3,290,849 0 31,057 J. Thomas May ....... 3,296,849 0 25,057 David R. Perdue ..... 3,295,029 0 26,878 Harry L. Ryburn ..... 3,295,749 0 26,157 Donald W. Stone ..... 3,295,204 0 26,703 Henry F. Trotter, Jr 3,294,228 0 27,679 </TABLE> 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: ---------------------- --------------------------------------- J. Thomas May Chairman and Chief Executive Officer Date: ---------------------- --------------------------------------- Barry L. Crow, Executive Vice President and Chief Financial Officer