UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the Exchange Act of 1934
For the fiscal year ended: December 31, 2001
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission file number 0-6253
SIMMONS FIRST NATIONAL CORPORATION
(Exact name of registrant as specified in its charter)
Arkansas 71-0407808
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification No.)
501 Main Street, Pine Bluff, Arkansas 71601
(Address of principal executive offices) (Zip Code)
(870) 541-1000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
- --------------------------------------------------------------------------------
None None
Securities registered pursuant to Section12(g) of the Act:
Class A Common Stock, $1.00 par value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
-- --
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge in definitive proxy or in information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of common stock, par value $1.00 per share, held by
non-affiliates on March 20, 2002, was approximately $197,039,262.
The number of shares outstanding of the Registrant's Common Stock as of March
20, 2002 was 7,090,600.
Part III is incorporated by reference from the Registrant's Proxy Statement
relating to the Annual Meeting of Shareholders to be held on April 23, 2002.
FORM 10-K INDEX
Part I
- ------
Item 1 Business.............................................................1
Item 2 Properties...........................................................6
Item 3 Legal Proceedings....................................................6
Item 4 Submission of Matters to a Vote of Security-Holders..................6
Part II
- -------
Item 5 Market for Registrant's Common Equity and Related Stockholder
Matters..............................................................7
Item 6 Selected Consolidated Financial Data.................................8
Item 7 Management's Discussion and Analysis of Financial Condition and
Results of Operations...............................................10
Item 8 Consolidated Financial Statements and Supplementary Data............31
Item 9 Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure................................................58
Part III
- --------
Item 10 Directors and Executive Officers of the Company.....................58
Item 11 Executive Compensation..............................................58
Item 12 Security Ownership of Certain Beneficial Owners and Management......58
Item 13 Certain Relationships and Related Transactions......................58
Part IV
- ------
Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K.....58
Signatures..........................................................59
PART I
ITEM 1. BUSINESS
THE COMPANY AND THE BANKS
Simmons First National Corporation (the "Company") is a bank holding
company registered under the Bank Holding Company Act of 1956. The
Gramm-Leach-Bliley-Act ("GLB Act") adopted by Congress and signed by the
President on November 11, 1999 has substantially increased the financial
activities that certain banks, bank holding companies, insurance companies and
securities brokerage companies are permitted to undertake. Under the GLB Act,
expanded activities in insurance underwriting, insurance sales, securities
brokerage and securities underwriting not previously allowed for banks and bank
holding companies are now permitted upon satisfaction of certain guidelines
concerning management, capitalization and satisfaction of the applicable
Community Reinvestment Act guidelines for the banks. Generally these new
activities are permitted for bank holding companies whose banking subsidiaries
are well managed, well capitalized and have at least a satisfactory rating under
the Community Reinvestment Act. A bank holding company must apply to become a
financial holding company and the Board of Governors of the Federal Reserve
System must approve its application.
The Company's application to become a financial holding company was
approved by the Board of Governors on March 13, 2000. The Company is reviewing
the new activities permitted under the Act but at this time has no definite
plans to commence any of the new activities.
The Company was the largest publicly traded bank holding company
headquartered in Arkansas with consolidated total assets of $2.0 billion,
consolidated loans of $1.3 billion, consolidated deposits of $1.7 billion and
total equity capital of $182 million as of December 31, 2001. The Company owns
seven community banks in Arkansas. The Company's banking subsidiaries conduct
their operations through 65 offices located in 33 communities in Arkansas.
Simmons First National Bank (the "Bank") is the Company's lead bank. The
Bank is a national bank, which has been in operation since 1903. The Bank's
primary market area, with the exception of its nationally provided credit card
is central and western Arkansas. At December 31, 2001, the Bank had total assets
of $1.1 billion, total loans of $617 million and total deposits of $885 million.
Simmons First Trust Company, a wholly owned subsidiary of the Bank, preforms the
Bank's trust and fiduciary business operations.
Simmons First Bank of Jonesboro ("Simmons/Jonesboro") is a state bank,
which was acquired in 1984. Simmons/Jonesboro's primary market area is northeast
Arkansas. At December 31, 2001, Simmons/Jonesboro had total assets of $183
million, total loans of $149 million and total deposits of $163 million.
Simmons First Bank of South Arkansas ("Simmons/South") is a state bank,
which was acquired in 1984. Simmons/South's primary market area is southeast
Arkansas. During the second quarter of 2001, the Company made a strategic
decision to consolidate the charters of its two smallest banking subsidiaries.
The Company consolidated Simmons First Bank of Dumas into Simmons/South on
December 7, 2001. At December 31, 2001, Simmons/South had total assets of $103
million, total loans of $55 million and total deposits of $92 million.
Simmons First Bank of Northwest Arkansas ("Simmons/Northwest") is a state
bank, which was acquired in 1995. Simmons/Northwest's primary market area is
northwest Arkansas. At December 31, 2001, Simmons/Northwest had total assets of
$211 million, total loans of $148 million and total deposits of $186 million.
Simmons First Bank of Russellville ("Simmons/Russellville") is a state
bank, which was acquired in 1997. Simmons/Russellville's primary market area is
Russellville, Arkansas. At December 31, 2001, Simmons/Russellville had total
assets of $210 million, total loans of $125 million and total deposits of $160
million.
Simmons First Bank of Searcy ("Simmons/Searcy") is a state bank, which was
acquired in 1997. Simmons/Searcy's primary market area is Searcy, Arkansas. At
December 31, 2001, Simmons/Searcy had total assets of $127 million, total loans
of $80 million and total deposits of $102 million.
Simmons First Bank of El Dorado, N.A. ("Simmons/El Dorado") is a national
bank, which was acquired in 1999. Simmons/El Dorado's primary market area is
south central Arkansas. At December 31, 2001, Simmons/El Dorado had total assets
of $173 million, total loans of $84 million and total deposits of $148 million.
The Company's subsidiaries provide complete banking services to individuals
and businesses throughout the market areas they serve. Services include consumer
(credit card, student and other consumer), real estate (construction, single
family residential and other commercial) and commercial (commercial, agriculture
and financial institutions) loans, checking, savings and time deposits, trust
and investment management services, and securities and investment services.
LOAN RISK ASSESSMENT
As a part of the ongoing risk assessment, the Bank has a Loan Loss Reserve
Committee that meets monthly to review the adequacy of the allowance for loan
losses. The Committee reviews the status of past due, non-performing and other
impaired loans on a loan-by-loan basis, including historical loan loss
information. However, for credit card and other consumer loans consideration is
given to more recent loss experience and current economic conditions. The
allowance for loan losses is determined based upon the aforementioned factors
and allocated to the individual loan categories. Also, an unallocated reserve is
established to compensate for the uncertainty in estimating loan losses,
including the possibility of improper risk ratings and specific reserve
allocations. The Committee reviews their analysis with management and the Bank's
Board of Directors on a monthly basis.
The Company has an independent loan review department. For the Bank, this
department reviews the allowance for loan loss on a monthly basis, performs an
independent loan analysis and prepares a detailed report on their analysis of
the adequacy of the allowance for loan losses on a quarterly basis. This
quarterly report is presented to the Company's Audit and Security Committee.
The Board of Directors of the other subsidiary banks review the adequacy of
their allowance for loan losses on a monthly basis giving consideration to past
due loans, non-performing loans, other impaired loans and current economic
conditions. Quarterly, the other subsidiary banks supply loan information to the
Company's loan review department for their review. The loan review department
prepares a detailed report of their analysis of the allowance for loan losses
for each bank. This report is presented to the Company's Audit and Security
Committee on a quarterly basis. On an annual basis, the loan review department
performs an on-site detailed review of the loan files to verify the accuracy of
information being supplied on a quarterly basis. The larger subsidiary banks
receive this review on a semi-annual basis.
GROWTH STRATEGY
The Company's growth strategy is to expand in its primary market areas by
capitalizing on opportunities presented within the State of Arkansas and, as
opportunities arise, expand through further banking acquisitions. Presently, the
most significant opportunities for growth will come internally. The Company is
planning to continue investing in technology and in branch infrastructure and,
although these investments can be dilutive to earnings in the short-term, the
Company believes they will reward shareholders in the intermediate and
long-term. For example, the Company is planning additional branch locations in
the Little Rock metropolitan area during 2002.
With an increased presence in Arkansas, ongoing investments in technology,
and enhanced products and services, the Company is positioned to meet the
customer demands of the State of Arkansas.
COMPETITION
The activities engaged in by the Company and its subsidiaries are highly
competitive. In all aspects of its business, the Company encounters intense
competition from other banks, lending institutions, credit unions, savings and
loan associations, brokerage firms, mortgage companies, industrial loan
associations, finance companies, and several other financial and financial
service institutions. The amount of competition among commercial banks and other
financial institutions has increased significantly over the past few years since
the deregulation of the banking industry. The Company's subsidiary banks
actively compete with other banks and financial institutions in their efforts to
obtain deposits and make loans, in the scope and type of services offered, in
interest rates paid on time deposits and charged on loans and in other aspects
of commercial banking.
The Company's banking subsidiaries are also in competition with major
national and international retail banking establishments, brokerage firms and
other financial institutions within and outside Arkansas. Competition with these
financial institutions is expected to increase, especially with the increase in
interstate banking.
EMPLOYEES
As of December 31, 2001, the Company and its subsidiaries had 959 full time
equivalent employees. None of the employees are represented by any union or
similar groups, and the Company has not experienced any labor disputes or
strikes arising from any such organized labor groups. The Company considers its
relationship with its employees to be good.
EXECUTIVE OFFICERS OF THE COMPANY
The following is a list of all executive officers of the Company. The Board
of Directors elects executive officers annually.
NAME AGE POSITION YEARS SERVED
- ----------------------------------------------------------------------------------------------------
J. Thomas May 55 Chairman, President and Chief Executive Officer 15
Barry L. Crow 59 Executive Vice President and 30
Chief Financial Officer
James P. Powell 61 Senior Vice President and Auditor 27
Tommie K. Jones 54 Senior Vice President and Human 27
Resources Director
Robert A. Fehlman 37 Senior Vice President and Controller 13
John L. Rush 67 Secretary 34
SUPERVISION AND REGULATION
THE COMPANY
The Company, as a bank holding company, is subject to both federal and
state regulation. Under federal law, a bank holding company must generally
obtain approval from the Board of Governors of the Federal Reserve System
("FRB") before acquiring ownership or control of the assets or stock of a bank
or a bank holding company. Prior to approval of any proposed acquisition, the
FRB will review the effect on competition of the proposed acquisition, as well
as other regulatory issues.
The federal law generally prohibits a bank holding company from directly or
indirectly engaging in non-banking activities. This prohibition does not include
loan servicing, liquidating activities or other activities so closely related to
banking as to be a proper incident thereto. Those bank holding companies,
including the Company, which have elected to qualify as financial holding
companies are also authorized to engage in financial activities. Financial
activities include any activity that is financial in nature or any activity that
is incidental or complimentary to a financial activity.
As a bank holding company, the Company is required to file with the FRB an
annual report and such additional information as may be required by law. From
time to time, the FRB examines the financial condition of the Company and its
subsidiaries. The FRB, through civil and criminal sanctions, is authorized to
exercise enforcement powers over bank holding companies (including financial
holding companies) and non-banking subsidiaries, to limit activities that
represent unsafe or unsound practices or constitute violations of law.
The Company is subject to certain laws and regulations of the State of
Arkansas applicable to bank holding companies, including examination and
supervision by the Arkansas Bank Commissioner. Under Arkansas law, a bank
holding company is prohibited from owning more than one subsidiary bank, if any
subsidiary bank owned by the holding company has been chartered for less than 5
years and, further, requires the approval of the Arkansas Bank Commissioner for
any acquisition of more than 25% of the capital stock of any other bank located
in Arkansas. No bank acquisition may be approved if, after such acquisition, the
holding company would control, directly or indirectly, banks having 25% of the
total bank deposits in the State of Arkansas, excluding deposits of other banks
and public funds.
Legislation enacted in 1994, allows bank holding companies from any state
to acquire banks located in any state without regard to state law, provided that
the bank holding company (1) is adequately capitalized, (2) is adequately
managed, (3) would not control more than 10% of the insured deposits in the
United States or more than 30% of the insured deposits in such state, and (4)
such bank has been in existence at least five years if so required by the
applicable state law.
SUBSIDIARY BANKS
Simmons First National Bank and Simmons/El Dorado, as national banking
associations, are subject to regulation and supervision, of which regular bank
examinations are a part, by the Office of the Comptroller of the Currency of the
United States ("OCC"). Simmons/Jonesboro, Simmons/South and Simmons/Northwest,
as state chartered banks, are subject to the supervision and regulation, of
which regular bank examinations are a part, by the Federal Deposit Insurance
Corporation ("FDIC") and the Arkansas State Bank Department.
Simmons/Russellville and Simmons/Searcy, as state chartered member banks, are
subject to the supervision and regulation, of which regular bank examinations
are a part, by the Federal Reserve Board and the Arkansas State Bank Department.
The lending powers of each of the subsidiary banks are generally subject to
certain restrictions, including the amount, which may be lent to a single
borrower.
The subsidiary banks, with numerous exceptions, are subject to the
application of the laws of the State of Arkansas, which until the year ended
2001, included the limitation of the maximum permissible interest rate on loans.
The Arkansas limitation for general loans was 5% over the Federal Reserve
Discount Rate, with an additional maximum limitation of 17% per annum for
consumer loans and credit sales. Certain loans secured by first liens on
residential real estate and certain loans controlled by federal law (e.g.,
guaranteed student loans, SBA loans, etc.) were exempt from this limitation;
however, a very substantial portion of the loans made by the subsidiary banks,
including all credit card loans, have historically been subject to this
limitation. The GLB Act included a provision which would set the maximum
interest rate on loans made in Arkansas, by banks with Arkansas as their Home
State, at the greater of the rate authorized by Arkansas law or the highest rate
permitted by any of the out-of-state banks which maintain branches in Arkansas.
An action was brought in the Western District of Arkansas, attacking the
validity of the statute in 2000. Subsequently, the District Court issued a
decision upholding the statute. Furthermore, during October 2001, the Eighth
Circuit Court of Appeals upheld that statute.
All of the Company's subsidiary banks are members of the FDIC, which
currently insures the deposits of each member bank to a maximum of $100,000 per
deposit relationship. For this protection, each bank pays a statutory assessment
to the FDIC each year.
Federal law substantially restricts transactions between banks and their
affiliates. As a result, the Company's subsidiary banks are limited in making
extensions of credit to the Company, investing in the stock or other securities
of the Company and engaging in other financial transactions with the Company.
Those transactions, which are permitted, must generally be undertaken on terms
at least as favorable to the bank, as those prevailing in comparable
transactions with independent third parties.
POTENTIAL ENFORCEMENT ACTION FOR BANK HOLDING COMPANIES AND BANKS
Enforcement proceedings seeking civil or criminal sanctions may be
instituted against any bank, any director, officer, employee or agent of the
bank, that is believed by the federal banking agencies to be violating any
administrative pronouncement or engaged in unsafe and unsound practices. In
addition, the FDIC may terminate the insurance of accounts, upon determination
that the insured institution has engaged in certain wrongful conduct, or is in
an unsound condition to continue operations.
RISK-WEIGHTED CAPITAL REQUIREMENTS FOR THE COMPANY AND THE BANKS
Since 1993, banking organizations (including bank holding companies and
banks) were required to meet a minimum ratio of Total Capital to Total
Risk-Weighted Assets of 8%, of which at least 4% must be in the form of Tier 1
Capital. A well-capitalized institution is one that has at least a 10% "total
risk-based capital" ratio. For a tabular summary of the Company's risk-weighted
capital ratios, see "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Capital" and Note 18 of the Notes to Consolidated
Financial Statements.
A banking organization's qualifying total capital consists of two
components: Tier 1 Capital (core capital) and Tier 2 Capital (supplementary
capital). Tier 1 Capital is an amount equal to the sum of common shareholders'
equity, certain preferred stock and the minority interest in the equity accounts
of consolidated subsidiaries. For bank holding companies, goodwill may not be
included in Tier 1 Capital. Identifiable intangible assets may be included in
Tier 1 Capital for banks and bank holding companies, in accordance with certain
further requirements. At least 50% of the banking organization's total
regulatory capital must consist of Tier 1 Capital.
Tier 2 Capital is an amount equal to the sum of the qualifying portion of
the allowance for loan losses, certain preferred stock not included in Tier 1,
hybrid capital instruments (instruments with characteristics of debt and
equity), certain long-term debt securities and eligible term subordinated debt,
in an amount up to 50% of Tier 1 Capital. The eligibility of these items for
inclusion as Tier 2 Capital is subject to certain additional requirements and
limitations of the federal banking agencies.
Under the risk-based capital guidelines, balance sheet assets and certain
off-balance sheet items, such as standby letters of credit, are assigned to one
of four-risk weight categories (0%, 20%, 50%, or 100%), according to the nature
of the asset, its collateral or the identity of the obligor or guarantor. The
aggregate amount in each risk category is adjusted by the risk weight assigned
to that category, to determine weighted values, which are then added to
determine the total risk-weighted assets for the banking organization. For
example, an asset, such as a commercial loan, assigned to a 100% risk category,
is included in risk-weighted assets at its nominal face value, but a loan
secured by a one-to-four family residence is included at only 50% of its nominal
face value. The applicable ratios reflect capital, as so determined, divided by
risk-weighted assets, as so determined.
FEDERAL DEPOSIT INSURANCE CORPORATION IMPROVEMENT ACT
The Federal Deposit Insurance Corporation Improvement Act ("FDICIA"),
enacted in 1991, requires the FDIC to increase assessment rates for insured
banks and authorizes one or more "special assessments", as necessary for the
repayment of funds borrowed by the FDIC or any other necessary purpose. As
directed in FDICIA, the FDIC has adopted a transitional risk-based assessment
system, under which the assessment rate for insured banks will vary, according
to the level of risk incurred in the bank's activities. The risk category and
risk-based assessment for a bank is determined from its classification, pursuant
to the regulation, as well capitalized, adequately capitalized or
undercapitalized.
FDICIA substantially revised the bank regulatory provisions of the Federal
Deposit Insurance Act and other federal banking statutes, requiring federal
banking agencies to establish capital measures and classifications. Pursuant to
the regulations issued under FDICIA, a depository institution will be deemed to
be well capitalized if it significantly exceeds the minimum level required for
each relevant capital measure; adequately capitalized if it meets each such
measure; undercapitalized if it fails to meet any such measure; significantly
undercapitalized if it is significantly below any such measure; and critically
undercapitalized if it fails to meet any critical capital level set forth in
regulations. The federal banking agencies must promptly mandate corrective
actions by banks that fail to meet the capital and related requirements, in
order to minimize losses to the FDIC. The FDIC and OCC advised the Company that
the subsidiary banks have been classified as well capitalized under these
regulations.
The federal banking agencies are required by FDICIA to prescribe standards
for banks and bank holding companies, relating to operations and management,
asset quality, earnings, stock valuation and compensation. A bank or bank
holding company that fails to comply with such standards will be required to
submit a plan designed to achieve compliance. If no plan is submitted or the
plan is not implemented, the bank or holding company would become subject to
additional regulatory action or enforcement proceedings.
A variety of other provisions included in FDICIA may affect the operations
of the Company and the subsidiary banks, including new reporting requirements,
revised regulatory standards for real estate lending, "truth in savings"
provisions, and the requirement that a depository institution give 90 days prior
notice to customers and regulatory authorities before closing any branch.
ITEM 2. PROPERTIES
The principal offices of the Company and the Bank consist of an
eleven-story office building and adjacent office space, located in the central
business district of the city of Pine Bluff, Arkansas. The building and adjacent
office space is comprised of approximately 166,000 square feet of floor space,
approximately 7,500 square feet of which is leased to a tenant as office space.
The Company and its subsidiaries own or lease additional offices throughout
the State of Arkansas. As of December 31, 2001, the company's seven banks are
conducting financial operations from 65 offices in 33 communities throughout
Arkansas.
ITEM 3. LEGAL PROCEEDINGS
The Company and/or its subsidiary banks have various unrelated legal
proceedings, most of which involve loan foreclosure activity pending, which, in
the aggregate, are not expected to have a material adverse effect on the
financial position of the Company and its subsidiaries.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
No matters were submitted to a vote of security-holders, through the
solicitation of proxies or otherwise, during the fourth quarter of the fiscal
year covered by this report.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's common stock trades on The Nasdaq Stock Market(R) under the
symbol "SFNCA". The following table sets forth, for all the periods indicated,
cash dividends paid, and the high and low closing bid prices for the Company's
common stock.
Quarterly
Price Per Dividends
Common Share Per Common
High Low Share
- -------------------------------------------------------------------------------------------------------------------
2001
1st quarter $ 24.31 $ 22.25 $ 0.21
2nd quarter 34.30 22.88 0.22
3rd quarter 37.80 31.70 0.22
4th quarter 34.40 31.60 0.23
2000
1st quarter $ 27.50 $ 21.00 $ 0.19
2nd quarter 25.00 18.13 0.20
3rd quarter 22.50 20.06 0.20
4th quarter 22.75 19.00 0.21
At December 31, 2001, the Common Stock was held of record by approximately
1,421 stockholders. On March 20, 2002, the last sale price for the Common Stock
as reported by The Nasdaq Stock Market(R) was $32.75 per share.
The Company's policy is to declare regular quarterly dividends based upon
the Company's earnings, financial position, capital requirements and such other
factors deemed relevant by the Board of Directors. This dividend policy is
subject to change, however, and the payment of dividends by the Company is
necessarily dependent upon the availability of earnings and the Company's
financial condition in the future. The payment of dividends on the Common Stock
is also subject to regulatory capital requirements.
The Company's principal source of funds for dividend payments to its
stockholders is dividends received from its subsidiary banks. Under applicable
banking laws, the declaration of dividends by the Bank and Simmons/El Dorado in
any year, in excess of its net profits, as defined, for that year, combined with
its retained net profits of the preceding two, must be approved by the Office of
the Comptroller of the Currency. Further, as to Simmons/Jonesboro,
Simmons/Northwest, Simmons/South, Simmons/Russellville and Simmons/Searcy
regulators have specified that the maximum dividends state banks may pay to the
parent company without prior approval is 75% of the current year earnings plus
75% of the retained net earnings of the preceding year. At December 31, 2001,
approximately $12 million was available for the payment of dividends by the
subsidiary banks without regulatory approval. For further discussion of
restrictions on the payment of dividends, see "Management's Discussion and
Analysis of Financial Condition-Liquidity and Market Risk Management," and Note
18 of Notes to Consolidated Financial Statements.
RECENT SALES OF UNREGISTERED SECURITIES
The following transactions are sales of unregistered shares of Class A
Common Stock of the registrant, which were issued to executive and senior
management officers upon the exercise of rights granted under one of the
Company's stock option plans. No underwriters were involved and no underwriter's
discount or commissions were involved. Exemption from registration is claimed
under Section 4(2) of the Securities Act of 1933 as private placements. The
Company received cash and/or exchanged shares of the Company's Class A Common
Stock as the consideration for the transactions.
Number
Identity Date of Sale of Shares Price(1) Type of Transaction
- ------------------------------------------------------------------------------------------------------------------------------------
1 Officer October, 2001 3,000 $19.3330 Incentive Stock Option
1 Officer November, 2001 1,500 12.3330 Incentive Stock Option
1 Officer November, 2001 300 15.5833 Incentive Stock Option
1 Officer November, 2001 300 20.5000 Incentive Stock Option
8 Officers November, 2001 3,729 25.6667 Incentive Stock Option
4 Officers December, 2001 1,350 20.5000 Incentive Stock Option
1 Officer December, 2001 1,200 25.6667 Incentive Stock Option
<FN>
Notes:
1. The per share price paid for incentive stock options represents the fair
market value of the stock as determined under the terms of the Plan on the
date the incentive stock option was granted to the officer. The price paid
and number of shares issued have been adjusted to reflect the effect of the
50% stock dividend paid on December 6, 1996.
</FN>
FORWARD LOOKING STATEMENTS
Statements in this 10-K that are not historical facts should be considered
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Forward-looking statements are the Company's
current estimates or expectations of future events or future results. As such
forward-looking statements are subject to risks and uncertainties that could
cause actual results to differ materially from projected results discussed in
this Report. These include variations in management projections or market
forecasts and the actions that management could take in response to these
changes.
The Company or its executive officers and directors on behalf of the
Company, may from time to time make forward-looking statements. When used in
this report, any press release or oral statements, the words "estimate",
"project", "anticipate", "expect", "intend", "believe", "plan", "goal", and
words of like import are intended to identify forward-looking statements in
addition to statements specifically identified as forward-looking statements.
These statements, projections or future plans, could be affected by a number of
factors that the Company is necessarily unable to predict with accuracy,
including future changes in interest rates, general credit quality, economic
activity, consumer behavior, government monetary policy, legislation and
regulation, competition, credit, market and operating risk, and loan demand. In
addition, the Company's future results of operations, discussions of future
plans and other forward-looking statements contained in Management's Discussion
and Analysis and elsewhere in this Form 10-K involve a number of risks and
uncertainties, including risks relating to the uncertainties created by the
enactment of the Gramm-Leach-Bliley Financial Modernization Act of 1999. As a
result of variations in such factors, actual results may differ materially from
any forward-looking statements.
Forward-looking statements speak only as of the date they are made. The
Company will not update forward-looking statements to reflect factual
assumptions, circumstances or events which have changed after a forward-looking
statement was made.
ITEM 6: SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated financial data
concerning the Company and is qualified in its entirety by the detailed
information and consolidated financial statements, including notes thereto,
included elsewhere in this Annual Report. The income statement, balance sheet
and per common share data as of and for the years ended December 31, 2001, 2000,
1999, 1998, and 1997 were derived from consolidated financial statements of the
Company, which were audited by BKD, LLP (formerly Baird, Kurtz & Dobson). The
selected consolidated financial data set forth below should be read in
conjunction with the financial statements of the Company and related notes
thereto and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere in this Annual Report.
- -------------------------------------------------------------------------------------------------------------------
SELECTED CONSOLIDATED FINANCIAL DATA
Years Ended December 31 (1)
------------------------------------------------------------------
(In thousands,
except per share data) 2001 2000 1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------
Income statement data:
Net interest income $ 67,405 $ 67,061 $ 64,731 $ 60,466 $ 51,836
Provision for loan losses 9,958 7,531 6,551 8,309 5,215
Net interest income after provision
for loan losses 57,447 59,530 58,180 52,157 46,621
Non-interest income 33,569 30,355 28,277 33,635 30,201
Non-interest expense 68,130 62,556 61,929 62,639 55,261
Provision for income taxes 6,358 8,460 7,360 6,666 6,591
Net income 16,528 18,869 17,168 16,487 14,970
Per share data:
Basic earnings 2.33 2.59 2.35 2.28 2.08
Diluted earnings 2.31 2.58 2.33 2.24 2.05
Diluted cash operating earnings (2) 2.59 2.83 2.74 2.52 2.15
Book value 25.73 24.14 21.78 20.77 19.13
Dividends 0.88 0.80 0.72 0.64 0.56
Balance sheet data at period end:
Assets 2,016,918 1,912,493 1,697,430 1,687,010 1,625,492
Loans 1,258,784 1,294,710 1,113,635 1,034,462 965,865
Allowance for loan losses 20,496 21,157 17,085 16,812 15,215
Deposits 1,686,404 1,605,586 1,410,633 1,381,003 1,363,344
Long-term debt 42,150 41,681 46,219 49,899 53,558
Stockholders' equity 182,363 173,343 159,371 150,384 138,128
Capital ratios at period end:
Stockholders' equity to
total assets 9.04% 9.06% 9.39% 8.91% 8.50%
Leverage (3) 8.27% 8.41% 9.10% 8.39% 7.77%
Tier 1 12.77% 11.97% 13.67% 12.81% 12.19%
Total risk-based 14.05% 13.26% 14.96% 14.06% 13.49%
Selected ratios:
Return on average assets 0.84% 1.05% 1.02% 1.00% 1.10%
Return on average equity 9.23% 11.33% 10.92% 11.31% 11.21%
Net interest margin (4) 3.92% 4.24% 4.41% 4.17% 4.35%
Cash operating efficiency ratio (5) 62.51% 59.55% 60.05% 64.12% 64.20%
Allowance/nonperforming loans 137.12% 192.97% 167.37% 167.30% 155.03%
Allowance for loan losses as a
percentage of period-end loans 1.63% 1.63% 1.53% 1.63% 1.58%
Nonperforming loans as a percentage
of period-end loans 1.19% 0.85% 0.92% 0.97% 1.02%
Net charge-offs as a percentage
of average total assets 0.54% 0.34% 0.37% 0.41% 0.33%
Dividend payout 37.76% 30.85% 31.26% 29.83% 29.16%
- -------------------------------------------------------------------------------------------------------------------
<FN>
(1) The selected consolidated financial data set forth above should be read in
conjunction with the financial statements of the Company and related
Management's Discussion and Analysis of Financial Condition and Results of
Operations, included elsewhere in this Annual Report.
(2) Cash operating earnings are net income excluding amortization of intangible
assets and merger-related expenses. (3) Leverage ratio is Tier 1 capital to
quarterly average total assets less intangible assets and gross unrealized
gains/losses on available-for-sale investments.
(4) Fully taxable equivalent (assuming an effective income tax rate of 37.5%
for 2001 through 1999 and 36.25% for 1998 through 1997).
(5) Cash operatingefficiency ratio is non-interest expense excluding
amortization of intangible assets and merger-related expenses divided by
the total of fully taxable equivalent net interest income and non-interest
income excluding the gain on sale of mortgage servicing.
</FN>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
2001 OVERVIEW
- --------------------------------------------------------------------------------
Simmons First National Corporation recorded earnings of $16,528,000, or
$2.31 diluted earnings per share for the twelve-month period ended December 31,
2001. These earnings reflect a decrease of $2,341,000, or $0.27 per share from
the December 31, 2000 earnings of $18,869,000, or $2.58 diluted earnings per
share. The decrease in earnings was predominantly influenced by the Federal
Reserve's 475 basis point drop in the discount rate during 2001, which resulted
in a 32 basis point decline in the net interest margin from 2000 to 2001 and the
Company's increased provision for loan losses. The Company's return on average
assets and return on average stockholders' equity for the year ended December
31, 2001, was 0.84% and 9.23%, compared to 1.05% and 11.33%, respectively, for
the year ended 2000.
Because of the Company's previous cash acquisitions, cash earnings (net
income excluding amortization of intangible assets) are an integral component of
earnings. Diluted cash earnings, on a per share basis, were $2.59 in 2001
compared to $2.83 in 2000. Cash return on average assets was 0.96% and cash
return on average stockholders' equity was 10.41% for 2001, compared with 1.18%
and 12.56%, respectively, for 2000.
Total assets for the Company at December 31, 2001, were $2.0 billion, an
increase of $105 million, or 5.5%, over the same figure at December 31, 2000.
Stockholders' equity at December 31, 2001, was $182.4 million, a $9.0 million,
or 5.2%, increase from December 31, 2000.
The allowance for loan losses as a percent of total loans equaled 1.63% at
December 31, 2001, which was unchanged from December 31, 2000. As of December
31, 2001, non-performing loans equaled 1.19% of total loans compared to 0.85% as
of year-end 2000. At year-end 2001, the allowance for loan losses equaled 137%
of non-performing loans compared to 193% at year-end 2000.
Simmons First National Corporation is an Arkansas-based, Arkansas-committed
financial holding company, with community banks in Pine Bluff, Jonesboro, Lake
Village, Rogers, Russellville, Searcy and El Dorado, Arkansas. The Company's
seven banks conduct financial operations from 65 offices in 33 communities
throughout Arkansas.
ACQUISITIONS
- --------------------------------------------------------------------------------
On January 15, 1999, the Company and Lincoln Bankshares, Inc. ("LBI")
merged. This merger was accounted for as a pooling-of-interests, except for the
acquisition of the minority shares (17.9%) of the Bank of Lincoln, which were
accounted for on a purchase accounting basis. Stockholders of LBI received
301,823 shares of Simmons First National Corporation stock in exchange for LBI
shares in the transaction. LBI owned the Bank of Lincoln ("BOL"), Lincoln,
Arkansas with assets, as of January 15, 1999, of $75 million. The Company merged
BOL into Simmons First Bank of Northwest Arkansas during the second quarter of
1999.
On July 9, 1999, the Company and NBC Bank Corp. ("NBC") merged in a
pooling-of-interests transaction. Stockholders of NBC received 784,887 shares of
Simmons First National Corporation stock in exchange for NBC shares in the
transaction. NBC owned National Bank of Commerce, El Dorado, Arkansas with
assets, as of July 9, 1999, of $155 million. The Company changed the name of
National Bank of Commerce to Simmons First Bank of El Dorado, N.A. The Company
continues to operate Simmons First Bank of El Dorado, N.A. as a separate
community bank with the same board of directors and management.
On July 17, 2000, the Company expanded its coverage of Central and
Northwest Arkansas with a $7.6 million cash purchase of two Conway and six
Northwest Arkansas locations from First Financial Banc Corporation. Simmons
First National Bank acquired the two offices in Conway and Simmons First Bank of
Northwest Arkansas acquired the six offices in Northwest Arkansas. As of July
14, 2000, the eight locations combined had total loans of $71.8 million, total
deposits of $71.0 million and net assets of $8.5 million. The total acquisition
cost exceeded the fair value of tangible assets and liabilities acquired by
$10.8 million. The intangible assets are being amortized using the straight-line
method over 15 years.
CONSOLIDATION OF SUBSIDIARIES
- --------------------------------------------------------------------------------
During the second quarter of 2001, the Company made a strategic decision to
consolidate the charters of its two smallest banking subsidiaries. The Company
consolidated Simmons First Bank of Dumas into Simmons First Bank of South
Arkansas on December 7, 2001. After the consolidation, Simmons First Bank of
South Arkansas has four banking locations in Southeast Arkansas, with assets
totaling approximately $100 million. The Company remains committed to a
community banking philosophy. This consolidation will not have a material impact
on current or future earnings of the Company.
CHANGE IN CONTROL AGREEMENTS
- --------------------------------------------------------------------------------
During the second quarter of 2001, the Company entered into Executive
Severance Agreements with 21 of its key officers. These agreements are intended
to give executives additional assurances concerning their continued employment
in the event the Company were to engage in discussions concerning or consummate
a transaction which involved a change in control of the Company. A change in
control transaction includes a merger, share exchange, tender offer or cash
purchase of at least 25% of the shares of the Company, if within two years after
such transaction; there occurs a change in more than a majority of the board of
directors. Management believes that it is in the best interests of the
stockholders to provide certain assurances regarding continued employment of
selected key officers to better assure that the Company will be able to properly
evaluate any proposed transaction and to continue the Company's operations
during any transition period. The agreements, which are only effective for a
period of up to two years after a change in control occurs, provide for
severance benefits ranging from an amount equal to one year's annual salary to
an amount equal to twice the executive's annual salary plus bonus but only if
the executive separates from service under certain circumstances within the two
year period. Management believes that any potential adverse effect that the
existence of these agreements may have on a proposed change in control
transaction is outweighed by the benefit to the Company of providing additional
employment security to the key officers so that the Company may retain the
services of its experienced officers in evaluating such an offer and continuing
its operations either in its present form or following the consummation of such
a change in control transaction.
STOCK REPURCHASE
- --------------------------------------------------------------------------------
On January 23, 2001, the Company announced the expansion of the stock
repurchase program. This expansion authorized the repurchase of an additional
200,000 common shares. The expanded program now has authorized the repurchase of
up to 400,000 common shares.
Under the repurchase program, there is no time limit for the stock
repurchases, nor is there a minimum number of shares the Company intends to
repurchase. The Company may discontinue purchases at any time that management
determines additional purchases are not warranted. The shares are to be
purchased from time to time at prevailing market prices, through open market or
unsolicited negotiated transactions, depending upon market conditions. The
Company intends to use the repurchased shares to satisfy stock option exercises,
payment of future stock dividends and general corporate purposes.
During the twelve-month period ended December 31, 2001, the Company
repurchased 143,955 common shares of stock with a weighted average repurchase
price of $25.24 per share. As of December 31, 2001, the Company has repurchased
a total of 300,782 common shares of stock with a weighted average repurchase
price of $22.81 per share. The repurchase program had a positive impact on
earnings per share of approximately $0.07 for 2001.
NET INTEREST INCOME
- --------------------------------------------------------------------------------
Net interest income, the Company's principal source of earnings, is the
difference between the interest income generated by earning assets and the total
interest cost of the deposits and borrowings obtained to fund those assets.
Factors that determine the level of net interest income include the volume of
earning assets and interest bearing liabilities, yields earned and rates paid,
the level of non-performing loans and the amount of non-interest bearing
liabilities supporting earning assets. Net interest income is analyzed in the
discussion and tables below on a fully taxable equivalent basis. The adjustment
to convert certain income to a fully taxable equivalent basis consists of
dividing tax-exempt income by one minus the combined federal and state income
tax rate (37.50% for 2001, 2000 and 1999, respectively).
For the year ended December 31, 2001, net interest income on a fully
taxable equivalent basis was $70.6 million, an increase of approximately
$618,000, or 0.88%, from 2000 net interest income. The increase in 2001 in net
interest income was the result of a $448,000 decrease in fully taxable
equivalent interest income and a $1,066,000 decrease in interest expense.
Interest income decreased from 2000 to 2001 as a result of a lower yield earned
on earning assets, which was offset from the increase in the average balance of
earning assets. The decrease in interest expense from 2000 to 2001 was the
result of a lower cost of funds, which was offset by the increase in the average
balance of interest bearing liabilities. Yield on earning assets and interest
bearing liabilities were lower in 2001 as the result of lower average interest
rates during 2001. The net interest margin was 3.92% in 2001, compared to 4.24%
in 2000.
The 32 basis point decrease in net interest margin for 2001 is the direct
result of the interest rate decreases during the year ended December 31, 2001.
The Federal Reserve decreased the discount rate by 475 basis points during 2001
in an effort to stimulate a stagnant and declining economy. The Federal
Reserve's actions to decrease interest rates have negatively affected the net
interest margin of the Company, as interest rates on earning assets have
declined more rapidly than rates paid on interest bearing liabilities. More
specifically, the negative impact on net interest margin was due in part to
Arkansas' restrictive usury law. The usury law limited the interest rate the
Company could charge on the loan portfolio to a maximum of five percentage
points over the Federal Reserve discount rate. The most significant impact to
net interest margin was in the credit card portfolio, which had to be repriced
immediately after each reduction in the discount rate.
On November 11, 1999, the Gramm-Leach-Bliley Act was adopted by Congress
and signed by the President. This Act included a provision which would set the
maximum interest rate on loans made in Arkansas, by banks with Arkansas as their
home state, at the greater of the rate authorized by Arkansas law or the highest
rate permitted by any of the out-of-state banks which maintain branches in
Arkansas. An action was brought in the Western District of Arkansas, attacking
the validity of the statute in 2000. Subsequently, the District Court issued a
decision upholding the statute. Furthermore, during October 2001, the Eighth
Circuit Court of Appeals upheld that statute.
Now that the usury cap issue has been settled, the Company anticipates it
will be able to manage interest rate risk more effectively going forward.
Presently, the Company is in the process of implementing new lending guidelines
based on the new statute. While this change did not have a material impact in
2001, the Company does expect it to have a positive impact in 2002. As a result,
if the new statue had been in effect for all of 2001, the Company estimates the
impact, at a minimum, to net income from the credit card portfolio alone would
have been $1.6 million, or $0.22 a share.
For the year ended December 31, 2000, net interest income on a fully
taxable equivalent basis was $70.0 million, an increase of approximately $2.3
million, or 3.4%, from 1999 net interest income. The increase in 2000 in net
interest income was the result of a $15.2 million increase in interest income
and a $12.9 million increase in interest expense. Interest income increased from
1999 to 2000 as a result of a higher yield earned on earning assets and from
growth in the loan portfolio and an improvement in fees on loans. The increase
in interest expense from 1999 to 2000 was the result of a higher cost of funds
and from deposit growth. Yield on earning assets and cost of funds were higher
in 2000 as the result of higher average interest rates during 2000. As a result
of the interest rate volatility, the net interest margin was 4.24% in 2000,
compared to 4.41% in 1999.
Table 1 and 2 reflect an analysis of net interest income on a fully taxable
equivalent basis for the years ended December 31, 2001, 2000 and 1999,
respectively, as well as changes in fully taxable equivalent net interest margin
for the years 2001 versus 2000 and 2000 versus 1999.
TABLE 1: ANALYSIS OF NET INTEREST INCOME
(FTE =Fully Taxable Equivalent)
Years Ended December 31
--------------------------------------------------
(In thousands) 2001 2000 1999
- -------------------------------------------------------------------------------------------------------------------
Interest income $ 135,868 $ 136,590 $ 121,490
FTE adjustment 3,183 2,909 2,944
---------- ---------- ----------
Interest income - FTE 139,051 139,499 124,434
Interest expense 68,463 69,529 56,759
---------- ---------- ----------
Net interest income - FTE $ 70,588 $ 69,970 $ 67,675
========= ========= =========
Yield on earning assets - FTE 7.72% 8.46% 8.10%
Cost of interest bearing liabilities 4.41% 4.89% 4.29%
Net interest spread - FTE 3.31% 3.57% 3.81%
Net interest margin - FTE 3.92% 4.24% 4.41%
TABLE 2: CHANGES IN FULLY TAXABLE EQUIVALENT NET INTEREST MARGIN
(In thousands) 2001 vs. 2000 2000 vs.1999
- ---------------------------------------------------------------------------------------------------------------------
Increase due to change in earning assets $ 10,723 $ 11,482
(Decrease) increase due to change in earning asset yields (11,171) 3,583
Increase (decrease) due to change in interest rates paid on
interest bearing liabilities 7,333 (7,494)
Decrease due to change in interest bearing liabilities (6,267) (5,276)
----------- -----------
Increase in net interest income $ 618 $ 2,295
========== ==========
Table 3 shows, for each major category of earning assets and interest
bearing liabilities, the average (computed on a daily basis) amount outstanding,
the interest earned or expensed on such amount and the average rate earned or
expensed for each of the years in the three-year period ended December 31, 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
Years Ended December 31
----------------------------------------------------------------------------------
2001 2000 1999
--------------------------- ------------------------- --------------------------
Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
(In thousands) Balance Expense Rate(%) Balance Expense Rate(%) Balance Expense Rate(%)
- ---------------------------------------------------------------------------------------------------------------------------
ASSETS
- ------
Earning Assets
Interest bearing balances
due from banks $ 44,238 $ 1,472 3.33 $ 14,495 $ 890 6.14 $ 11,071 $ 535 4.83
Federal funds sold 52,742 1,877 3.56 22,170 1,366 6.16 39,815 1,759 4.42
Investment securities - taxable 271,864 15,053 5.54 290,942 18,164 6.24 305,773 18,287 5.98
Investment securities - non-taxable 121,068 8,591 7.10 113,047 8,062 7.13 114,762 8,428 7.34
Mortgage loans held for sale 18,486 1,143 6.18 7,285 542 7.44 9,969 712 7.14
Assets held in trading accounts 786 38 4.83 1,507 95 6.30 1,309 72 5.50
Loans 1,291,808 110,877 8.58 1,199,288 110,380 9.20 1,052,619 94,641 8.99
---------- -------- ---------- -------- ---------- --------
Total interest earning assets 1,800,992 139,051 7.72 1,648,734 139,499 8.46 1,535,318 124,434 8.10
-------- -------- --------
Non-earning assets 158,956 145,280 140,310
---------- ---------- ----------
Total assets $1,959,948 $1,794,014 $1,675,628
========= ========= =========
LIABILITIES AND
- ---------------
STOCKHOLDERS' EQUITY
- --------------------
Liabilities
Interest bearing liabilities
Interest bearing transaction
and savings deposits $ 470,708 $ 10,008 2.13 $ 444,879 $ 12,816 2.88 $ 448,327 $12,125 2.70
Time deposits 948,172 51,948 5.48 860,269 49,055 5.70 755,238 37,752 5.00
---------- -------- ---------- -------- ---------- -------
Total interest bearing deposits 1,418,880 61,956 4.37 1,305,148 61,871 4.74 1,203,565 49,877 4.14
Federal funds purchased and
securities sold under agreement
to repurchase 82,371 2,874 3.49 64,304 3,669 5.71 67,359 2,913 4.32
Other borrowed funds
Short-term debt 7,413 333 4.49 9,371 516 5.51 3,418 165 4.83
Long-term debt 42,275 3,300 7.81 43,255 3,473 8.03 48,694 3,804 7.81
---------- -------- ---------- -------- ---------- -------
Total interest bearing liabilities 1,550,939 68,463 4.41 1,422,078 69,529 4.89 1,323,036 56,759 4.29
-------- -------- -------
Non-interest bearing liabilities
Non-interest bearing deposits 211,052 188,220 178,103
Other liabilities 18,848 17,199 17,285
---------- ---------- ----------
Total liabilities 1,780,839 1,627,497 1,518,424
Stockholders' equity 179,109 166,517 157,204
---------- ---------- ----------
Total liabilities and
stockholders' equity $1,959,948 $1,794,014 $1,675,628
========= ========= =========
Net interest spread 3.31 3.57 3.81
Net interest margin $ 70,588 3.92 $ 69,970 4.24 $ 67,675 4.41
======= ======= =======
Table 4 shows changes in interest income and interest expense, resulting
from changes in volume and changes in interest rates for each of the years ended
December 31, 2001 and 2000 as compared to prior years. The changes in interest
rate and volume have been allocated to changes in average volume and changes in
average rates, in proportion to the relationship of absolute dollar amounts of
the changes in rates and volume.
TABLE 4: VOLUME/RATE ANALYSIS
Years Ended December 31
-------------------------------------------------------------------
2001 over 2000 2000 over 1999
-------------------------------- ---------------------------------
(In thousands, on a fully Yield/ Yield/
taxable equivalent basis) Volume Rate Total Volume Rate Total
- -----------------------------------------------------------------------------------------------------------
Increase (decrease) in
Interest income
Interest bearing balances
due from banks $ 1,143 $ (561) $ 582 $ 189 $ 166 $ 355
Federal funds sold 1,275 (764) 511 (942) 549 (393)
Investment securities - taxable (1,141) (1,970) (3,111) (907) 784 (123)
Investment securities - non-taxable 569 (40) 529 (125) (241) (366)
Mortgage loans held for sale 707 (106) 601 (199) 29 (170)
Assets held in trading accounts (39) (18) (57) 12 11 23
Loans 8,209 (7,712) 497 13,454 2,285 15,739
-------- ------- -------- -------- -------- --------
Total 10,723 (11,171) (448) 11,482 3,583 15,065
-------- ------- -------- -------- -------- --------
Interest expense
Interest bearing transaction and
savings deposits 709 (3,517) (2,808) (94) 785 691
Time deposits 4,870 (1,977) 2,893 5,617 5,686 11,303
Federal funds purchased
and securities sold under
agreements to repurchase 863 (1,658) (795) (137) 893 756
Other borrowed funds
Short-term debt (97) (86) (183) 325 26 351
Long-term debt (78) (95) (173) (435) 104 (331)
-------- ------- -------- -------- -------- --------
Total 6,267 (7,333) (1,066) 5,276 7,494 12,770
-------- ------- -------- -------- -------- --------
Increase (decrease) in
net interest income $ 4,456 $ (3,838) $ 618 $ 6,206 $ (3,911) $ 2,295
======= ======= ======= ======= ======= =======
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 2001, 2000 and 1999 was $10.0, $7.5 and $6.6 million,
respectively. The increase in the provision for loan losses during 2001 was
primarily related to an increase in the classified assets at one
community-banking subsidiary of the Company. More specifically, the increase in
classified assets at that subsidiary was related to a single officer's
portfolio, who is no longer with the Company. The primary reason for the
increase in the 2000 provision is the growth in the loan portfolio from 1999 to
2000. The provision for loan losses as a percentage of average loans for 2001,
2000 and 1999 was 0.77%, 0.63% and 0.62%, respectively.
NON-INTEREST INCOME
- --------------------------------------------------------------------------------
Total non-interest income was $33.6 million in 2001, compared to $30.4
million in 2000 and $28.3 million in 1999. Non-interest income is principally
derived from recurring fee income, which includes service charges, trust fees
and credit card fees. Non-interest income also includes income on the sale of
mortgage loans and investment banking profits.
Table 5 shows non-interest income for the years ended December 31, 2001,
2000 and 1999, respectively, as well as changes in 2001 from 2000 and in 2000
from 1999.
TABLE 5: NON-INTEREST INCOME
Years Ended December 31 2001 2000
----------------------- Change from Change from
(In thousands) 2001 2000 1999 2000 1999
- ----------------------------------------------------------------------------------------------------------
Trust income $ 5,409 $ 5,282 $ 4,666 $ 127 2.40% $ 616 13.20%
Service charges on deposit accounts 8,951 7,998 7,007 953 11.92 991 14.14
Other service charges and fees 1,753 1,804 1,759 (51) -2.83 45 2.56
Income on sale of mortgage loans,
net of commissions 3,148 1,727 2,021 1,421 82.28 (294) -14.55
Income on investment banking,
net of commissions 792 259 266 533 205.79 (7) -2.63
Credit card fees 10,485 10,522 10,214 (37) -0.35 308 3.02
Other income 3,020 2,763 2,344 257 9.30 419 17.88
Gain on sale of securities, net 11 -- -- 11 -- -- --
-------- --------- -------- ------ ---------
Total non-interest income $ 33,569 $ 30,355 $ 28,277 $ 3,214 10.59% $ 2,078 7.35%
======= ======== ======= ====== ========
Recurring fee income for 2001was $26.6 million, an increase of $1.0
million, or 3.9%, when compared with 2000 figures. This increase was primarily
attributable to the growth in service charges on deposit accounts. The increase
in service charges on deposit accounts for 2001 is the result of internal
deposit growth, an improved fee structure and the acquisition completed during
July 2000.
During the year ended December 31, 2001, income on the sale of mortgage
loans and income on investment banking increased $1.4 million and $533,000,
respectively, from the same period during 2000. These increases were the result
of a higher volume for those products during 2001 compared to 2000. The volume
increases were primarily the result of the decline in interest rates during
2001.
Recurring fee income for 2000 was $25.6 million, an increase of $2.0
million, or 8.3%, when compared with 1999 figures. In 2000, trust fees increased
$616,000, service charges on deposit accounts increased $991,000 and credit card
fees increased $308,000 from the 1999 level. The increase in trust fees for 2000
is primarily the result of growth in the number of trust relationships and an
improved fee structure. The increase in credit card fees for 2000 is the result
of growth in the credit card portfolio. The increase in service charges on
deposit accounts for 2000 is the result of internal deposit growth, an improved
fee structure and the acquisition completed during July 2000.
NON-INTEREST EXPENSE
- --------------------------------------------------------------------------------
Non-interest expense consists of salaries and employee benefits, occupancy,
equipment, foreclosure losses, merger-related costs 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 2001 was $68.1 million, an increase of $5.6 or
8.9%, from 2000. Non-interest expense for 2000 was $62.6 million, an increase of
$2.5 million (excluding merger-related expenses), or 4.1%, from 1999. These
increases reflect the Company's commitment to investment in technology and
branch infrastructure, the normal increased cost of doing business and the
acquisition completed during July 2000. Also, the Company opened its third and
fourth banking centers in the Little Rock metropolitan area during 2001.
Table 6 below shows non-interest expense for the years ended December 31,
2001, 2000 and 1999, respectively, as well as changes in 2001 from 2000 and in
2000 from 1999.
TABLE 6: NON-INTEREST EXPENSE
Years Ended December 31 2001 2000
----------------------- Change from Change from
(In thousands) 2001 2000 1999 2000 1999
- ----------------------------------------------------------------------------------------------------------
Salaries and employee benefits $ 36,218 $ 33,544 $ 32,395 $2,674 7.97% $ 1,149 3.55%
Occupancy expense, net 4,610 3,873 3,578 737 19.03 295 8.24
Furniture and equipment expense 5,251 5,246 5,003 5 0.10 243 4.86
Loss on foreclosed assets 366 254 364 112 44.09 (110) -30.22
Merger-related -- -- 1,843 -- -- (1,843) -100.00
Other operating expenses
Professional services 1,759 1,532 1,444 227 14.82 88 6.09
Postage 2,016 2,057 1,895 (41) -1.99 162 8.55
Telephone 1,530 1,417 1,419 113 7.97 (2) -0.14
Credit card expenses 1,808 1,704 1,624 104 6.10 80 4.93
Operating supplies 1,632 1,501 1,524 131 8.73 (23) 1.51
FDIC insurance 306 299 232 7 2.34 67 28.88
Amortization of intangibles 3,024 2,811 2,469 213 7.58 342 13.85
Other expense 9,610 8,318 8,139 1,292 15.53 179 2.20
-------- --------- -------- ------ --------
Total non-interest expense $ 68,130 $ 62,556 $ 61,929 $5,574 8.91% $ 627 1.01%
======= ======== ======= ===== =======
INCOME TAXES
- --------------------------------------------------------------------------------
The provision for income taxes for 2001 was $6.4 million, compared to $8.5
million in 2000 and $7.4 million in 1999. The effective income tax rates for the
years ended 2001, 2000 and 1999 were 27.8%, 31.0% and 30.0%, respectively.
EARNINGS/RATIOS EXCLUDING INTANGIBLES
- --------------------------------------------------------------------------------
Table 7 reconciles reported earnings to net income excluding intangible
amortization (cash) for the years ended December 31, 2001 and 2000. Table 8
presents the calculation of the cash return on assets and cash return on equity
for the years ended December 31, 2001 and 2000. The Company specifically
formulated these calculations and the results may not be comparable to similarly
titled measures reported by other companies. Also, cash earnings are not
entirely available for use by management. See the Consolidated Statements of
Cash Flows and Notes to the Financial Statements for other information regarding
funds available for use by management.
TABLE 7: EARNINGS EXCLUDING INTANGIBLE AMORTIZATION
Reported Intangible "Cash"
(In thousands) Earnings Amortization Earnings
- --------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 2001
- ----------------------------
Income before income taxes $ 22,886 $ 3,024 $ 25,910
Provision for income taxes 6,358 1,034 7,392
--------- --------- ---------
Net Income $ 16,528 $ 1,990 $ 18,518
======== ======== ========
Basic earnings per common share $ 2.33 $ 0.28 $ 2.61
======== ======== ========
Diluted earnings per common share $ 2.31 $ 0.28 $ 2.59
======== ======== ========
YEAR ENDED DECEMBER 31, 2000
- ----------------------------
Income before income taxes $ 27,329 $ 2,811 $ 30,140
Provision for income taxes 8,460 939 9,399
--------- --------- ---------
Net Income $ 18,869 $ 1,872 $ 20,741
======== ======== =========
Basic earnings per common share $ 2.59 $ 0.25 $ 2.84
======== ======== ========
Diluted earnings per common share $ 2.58 $ 0.25 $ 2.83
======== ======== ========
TABLE 8: RATIOS EXCLUDING INTANGIBLES
Years Ended December 31,
------------------------
(In thousands) 2001 2000
- ----------------------------------------------------------------------------------------------------------
Cash ROA: A/(B-D) 0.96% 1.18%
Cash ROE: A/(C-E) 10.41% 12.56%
Cash earnings $ 18,518 $ 20,741 (A)
Average total assets 1,959,948 1,794,014 (B)
Average stockholders' equity 179,109 166,517 (C)
Average total intangible assets 33,691 30,813 (D)
Average intangible assets remaining in
stockholders' equity 1,278 1,391 (E)
In 2001, the Financial Accounting Standards Board issued SFAS No. 142,
Goodwill and Other Intangible Assets. This statement addresses financial
accounting and reporting for goodwill subsequent to acquisition and other
intangible assets acquired in an acquisition. The Company will be required to
adopt the new rules effective January 1, 2002. The new rule will eliminate the
amortization of goodwill and require that it be tested for impairment at a level
of reporting referred to as a reporting unit. The elimination of amortization of
goodwill is expected to increase 2002 net earnings by approximately $1.8
million, or $0.24 per diluted share. The Company will analyze and assess the
impairment provisions of the Statement, but has not yet determined the impact,
if any, of the adoption of those provisions.
LOAN PORTFOLIO
- --------------------------------------------------------------------------------
The Company's loan portfolio averaged $1.292 billion during 2001 and $1.199
billion during 2000. As of December 31, 2001, total loans were $1.259 billion,
compared to $1.295 billion on December 31, 2000. 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 $450.7 million at December 31, 2001, or
35.8% of total loans, compared to $457.3 million, or 35.3% of total loans at
December 31, 2000. The consumer loan decrease from 2000 to 2001 is the result of
a decline in indirect lending, which was off set by an increase in student
loans. 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 $571.3 million at December
31, 2001, or 45.4% of total loans, compared to $600.7 million, or 46.4% of total
loans at December 31, 2000. The real estate loan decrease from 2000 to 2001 is
primarily the result of several large commercial real estate transactions that
paid out in the fourth quarter of 2001 and historically low mortgage interest
rates during 2001. Because of the declining mortgage rates during 2001, the
Company experienced a $20 million decrease in single-family residential loans,
which were refinanced into the secondary market.
Commercial loans consist of commercial loans, agricultural loans and
financial institution loans. Commercial loans were $220.3 million at December
31, 2001, or 17.5% of total loans, which is comparable to the $220.6 million, or
17.0% of total loans at December 31, 2000.
The amounts of loans outstanding at the indicated dates are reflected in
table 9, according to type of loan.
TABLE 9: LOAN PORTFOLIO
Years Ended December 31
----------------------------------------------------------------
(In thousands) 2001 2000 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------
Consumer
Credit cards $ 196,710 $ 197,567 $ 187,242 $ 165,622 $ 179,828
Student loans 74,860 67,145 66,739 66,134 63,291
Other consumer 179,138 192,595 181,380 155,767 139,282
Real Estate
Construction 83,628 69,169 53,925 63,037 52,976
Single family residential 224,122 244,377 202,886 194,174 184,539
Other commercial 263,539 287,170 240,259 223,368 178,517
Commercial
Commercial 153,617 161,134 137,827 112,800 115,684
Agricultural 60,794 57,164 35,337 40,706 38,169
Financial institutions 5,861 2,339 3,165 5,656 6,073
Other 16,515 16,050 4,875 7,198 7,506
---------- ----------- ----------- ----------- -----------
Total loans $1,258,784 $ 1,294,710 $ 1,113,635 $ 1,034,462 $ 965,865
========= ========== ========== ========== ==========
Table 10 reflects the remaining maturities and interest rate sensitivity of
loans at December 31, 2001.
TABLE 10: MATURITY AND INTEREST RATE SENSITIVITY OF LOANS
Over 1
year
1 year through Over
(In thousands) or less 5 years 5 years Total
- -------------------------------------------------------------------------------------------------
Consumer $ 370,252 $ 80,030 $ 426 $ 450,708
Real estate 334,595 230,668 6,026 571,289
Commercial 184,335 33,400 2,537 220,272
Other 7,639 4,827 4,049 16,515
---------- ---------- --------- -----------
Total $ 896,821 $ 348,925 $ 13,038 $ 1,258,784
========== ========= ======== ==========
Predetermined rate $ 613,925 $ 313,604 $ 13,038 $ 940,567
Floating rate 282,896 35,321 -- 318,217
----------- ---------- --------- -----------
Total $ 896,821 $ 348,925 $ 13,038 $ 1,258,784
========== ========= ======== ==========
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 uncollectable, the portion of the loan determined to be
uncollectable is then charged to the allowance for loan losses. Credit card
loans are classified as impaired when payment of interest or principal is 90
days past due. Litigation accounts are placed on nonaccrual until such time as
deemed uncollectable. Credit card loans are generally charged off when payment
of interest or principal exceeds 180 days past due, but are turned over to the
credit card recovery department, to be pursued until such time as they are
determined, on a case-by-case basis, to be uncollectable.
At December 31, 2001, impaired loans were $21.0 million compared to $18.1
million in 2000. The increase in impaired loans from December 31, 2000,
primarily relates to the $4.0 million increase in non-performing loans, which is
a result of an increase in the classified assets at one community-banking
subsidiary of the Company combined with the general slowdown and uncertainty in
the economy. Management has evaluated the underlying collateral on each loan and
has allocated specific reserves in order to absorb any potential loss if the
collateral were ultimately foreclosed.
Table 11 presents information concerning non-performing assets, including
nonaccrual and restructured loans and other real estate owned.
TABLE 11: NON-PERFORMING ASSETS
Years Ended December 31
--------------------------------------------------------------
(In thousands) 2001 2000 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------
Nonaccrual loans $ 11,956 $ 8,212 $ 7,666 $ 6,959 $ 7,054
Loans past due 90 days or more
(principal or interest payments) 2,991 2,752 2,542 2,972 2,417
Restructured -- -- -- 118 343
--------- -------- --------- -------- --------
Total non-performing loans 14,947 10,964 10,208 10,049 9,814
--------- -------- --------- --------- --------
Other non-performing assets
Foreclosed assets held for sale 1,084 1,104 747 2,156 2,095
Other non-performing assets 631 196 56 29 --
--------- -------- --------- --------- --------
Total other non-performing assets 1,715 1,300 803 2,185 2,095
--------- -------- --------- --------- --------
Total non-performing assets $ 16,662 $ 12,264 $ 11,011 $ 12,234 $ 11,909
======== ======= ======== ======== ========
Allowance for loan losses to
non-performing loans 137.12% 192.97% 167.37% 167.30% 155.03%
Non-performing loans to total loans 1.19% 0.85% 0.92% 0.97% 1.02%
Non-performing assets to total assets 0.83% 0.64% 0.65% 0.73% 0.73%
Approximately $1,026,000, $756,000 and $689,000 of interest income would
have been recorded for the periods ended December 31, 2001, 2000 and 1999,
respectively, if the nonaccrual loans had been accruing interest in accordance
with their original terms. There was no interest income on the nonaccrual loans
recorded for the years ended December 31, 2001, 2000 and 1999.
ALLOWANCE FOR LOAN LOSSES
- --------------------------------------------------------------------------------
An analysis of the allowance for loan losses for the last five years is
shown in table 12.
Table 12: ALLOWANCE FOR LOAN LOSSES
(In thousands) 2001 2000 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------
Balance, beginning of year $ 21,157 $ 17,085 $ 16,812 $ 15,215 $ 10,506
------- -------- -------- -------- --------
Loans charged off
Credit card 4,431 3,384 3,156 3,734 3,283
Other consumer 3,063 2,349 2,419 1,398 919
Real estate 1,378 606 621 1,272 465
Commercial 3,476 1,410 1,498 1,367 731
-------- --------- --------- -------- --------
Total loans charged off 12,348 7,749 7,694 7,771 5,398
-------- --------- --------- --------- --------
Recoveries of loans previously charged off
Credit card 515 468 444 398 365
Other consumer 668 800 588 291 192
Real estate 146 92 231 121 144
Commercial 400 325 153 249 163
-------- --------- --------- --------- --------
Total recoveries 1,729 1,685 1,416 1,059 864
-------- --------- --------- --------- --------
Net loans charged off 10,619 6,064 6,278 6,712 4,534
Allowance for loan losses of
acquired institutions -- 2,605 -- -- 4,028
Provision for loan losses 9,958 7,531 6,551 8,309 5,215
-------- --------- --------- --------- --------
Balance, end of year $ 20,496 $ 21,157 $ 17,085 $ 16,812 $ 15,215
======= ======== ======== ======== ========
Net charge-offs to average loans 0.82% 0.51% 0.60% 0.67% 0.56%
Allowance for loan losses to period-end loans 1.63% 1.63% 1.53% 1.63% 1.58%
Allowance for loan losses to net charge-offs 193.0% 348.9% 272.1% 250.5% 335.6%
The amount of provision to the allowance during the year 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.
The Company allocates the allowance for loan losses according to the amount
deemed to be reasonably necessary to provide for losses incurred within the
categories of loans set forth in table 13.
TABLE 13: ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
December 31
-------------------------------------------------------------------------------------------
2001 2000 1999 1998 1997
---------------- ----------------- ---------------- ----------------- ---------------------
Allowance % of Allowance % of Allowance % of Allowance % of Allowance % of
(In thousands) Amount loans* Amount loans* Amount loans* Amount loans* Amount loans*
- -------------------------------------------------------------------------------------------------------------------
Credit cards $ 4,156 15.6% $ 3,947 15.3% $ 3,300 16.8% $ 3,552 16.0% $ 3,339 18.6%
Consumer 2,042 20.2% 2,167 20.1% 1,918 22.3% 1,959 21.5% 1,731 21.0%
Real Estate 8,029 45.4% 7,602 46.4% 7,155 44.7% 6,367 46.4% 5,307 43.0%
Commercial 3,485 17.5% 3,603 17.0% 3,244 15.8% 2,637 15.4% 2,641 16.6%
Other -- 1.3% -- 1.2% -- 0.4% 12 0.7% 10 0.8%
Unallocated 2,784 3,838 1,468 2,285 2,187
------ ------- ------ ------ -----
Total $20,496 100.0% $21,157 100.0% $17,085 100.0% $16,812 100.0% $15,215 100.0%
====== ====== ====== ====== ======
<FN>
*Percentage of loans in each category to total loans.
</FN>
The unallocated reserve generally serves to compensate for the uncertainty
in estimating loan losses, including the possibility of improper risk ratings
and specific reserve allocations. The unallocated reserve is a result of
potential risk factors that cannot be quantified for a particular year-end,
which could include the risks associated with increased lending, consumer
bankruptcies, unfavorable weather conditions or market prices in the agriculture
industry, acquisitions and fluctuations in the economy.
INVESTMENTS AND SECURITIES
- --------------------------------------------------------------------------------
The Company's securities portfolio is the second largest component of
earning assets and provides a significant source of revenue. Securities within
the portfolio are classified as either held-to-maturity, available-for-sale or
trading.
Held-to-maturity securities, which include any security for which
management has the positive intent and ability to hold until maturity, are
carried at historical cost, adjusted for amortization of premiums and accretion
of discounts. Premiums and discounts are amortized and accreted, respectively,
to interest income using the constant yield method over the period to maturity.
Interest and dividends on investments in debt and equity securities are included
in income when earned.
Available-for-sale securities, which include any security for which
management has no immediate plans to sell, but which may be sold in the future,
are carried at fair value. Realized gains and losses, based on amortized cost of
the specific security, are included in other income. Unrealized gains and losses
are recorded, net of related income tax effects, in stockholders' equity.
Premiums and discounts are amortized and accreted, respectively, to interest
income, using the constant yield method over the period to maturity. Interest
and dividends on investments in debt and equity securities are included in
income when earned.
The Company's philosophy regarding investments is conservative, based on
investment type and maturity. Investments in the portfolio primarily include
U.S. Treasury securities, U.S. Government agencies, mortgage-backed securities
and municipal securities. The Company's general policy is not to invest in
derivative type investments or high-risk securities, except for collateralized
mortgage-backed securities for which collection of principal and interest is not
subordinated to significant superior rights held by others.
Held-to-maturity and available-for-sale investment securities were $191.1
million and $256.2 million, respectively, at December 31, 2001, compared to the
held-to-maturity amount of $184.4 million and available-for-sale amount of
$214.0 million at December 31, 2000.
As of December 31, 2001, $64.5 million, or 33.8%, of the held-to-maturity
securities were invested in U.S. Treasury securities and obligations of U.S.
government agencies, 98.5% of which will mature in less than five years. In the
available-for-sale securities, $233.9 million, or 91.3% were in U.S. Treasury
and U.S. government agency securities, 99.1% of which will mature in less than
five years.
In order to reduce the Company's income tax burden, an additional $119.8
million, or 62.7%, of the held-to-maturity securities portfolio, as of December
31, 2001, was invested in tax-exempt obligations of state and political
subdivisions. In the available-for-sale securities, $5.4 million, or 2.1% were
invested in tax-exempt obligations of state and political subdivisions. Most of
the state and political subdivision debt obligations are non-rated bonds and
represent relatively small, Arkansas issues, which are evaluated on an ongoing
basis. There are no securities of any one state and political subdivision issuer
exceeding ten percent of the Company's stockholders' equity at December 31,
2001.
The Company has approximately $6.7 million, or 3.5%, in mortgaged-backed
securities in the held-to-maturity portfolio at December 31, 2001. In the
available-for-sale securities, $7.0 million, or 2.7% were invested in
mortgaged-backed securities.
As of December 31, 2001, the held-to-maturity investment portfolio had
gross unrealized gains of $3.6 million and gross unrealized losses of $260,000.
Net realized gains from called or sold available-for-sale securities for 2001
were $11,000, compared to net realized gains of zero in 2000 and 1999.
Trading securities, which include any security held primarily for near-term
sale, are carried at fair value. Gains and losses on trading securities are
included in other income. The Company's trading account is established and
maintained for the benefit of investment banking. The trading account is
typically used to provide inventory for resale and is not used to take advantage
of short-term price movements.
Table 14 presents the carrying value and fair value of investment
securities for each of the years indicated.
TABLE 14: INVESTMENT SECURITIES
Years Ended December 31
---------------------------------------------------------------------------------------
2001 2000
-------------------------------------------- -----------------------------------------
Gross Gross Estimated Gross Gross Estimated
Amortized Unrealized Unrealized Fair Amortized Unrealized Unrealized Fair
(In thousands) Cost Gains (Losses) Value Cost Gains (Losses) Value
- ---------------------------------------------------------------------------------------------------------------
Held-to-Maturity
U.S. Treasury $ 27,528 $ 826 $ -- $ 28,354 $ 21,923 $ 246 $ (8) $ 22,161
U.S. Government
agencies 36,992 451 (108) 37,335 40,965 229 (145) 41,049
Mortgage-backed
securities 6,681 105 -- 6,786 11,065 46 (117) 10,994
State and political
subdivisions 119,824 2,255 (152) 121,927 110,380 1,593 (594) 111,379
Other securities 100 -- -- 100 80 -- -- 80
--------- ------- -------- ---------- ---------- ------- ------- ----------
Total HTM $ 191,125 $ 3,637 $ (260) $ 194,502 $ 184,413 $ 2,114 $ (864) $ 185,663
========= ====== ======= ========= ========= ====== ====== =========
Available-for-Sale
U.S. Treasury $ 18,071 $ 349 $ (12) $ 18,408 $ 23,889 $ 160 $ (12) $ 24,037
U.S. Government
agencies 214,190 1,792 (492) 215,490 157,434 167 (1,165) 156,436
Mortgage-backed
securities 6,975 69 (40) 7,004 15,266 55 (140) 15,181
State and political
subdivisions 5,194 205 -- 5,399 6,621 217 (17) 6,821
Other securities 9,056 823 -- 9,879 10,541 1,054 -- 11,595
---------- ------- -------- ---------- ---------- ------- ------- ----------
Total AFS $ 253,486 $ 3,238 $ (544) $ 256,180 $ 213,751 $ 1,653 $(1,334) $ 214,070
========= ====== ======= ========= ========= ====== ====== =========
Total Investments $ 444,611 $ 6,875 $ (804) $ 450,682 $ 398,164 $ 3,767 $(2,198) $ 399,733
========= ====== ======= ========= ========= ====== ====== =========
Table 15 reflects the amortized cost and estimated fair value of debt
securities at December 31, 2001, by contractual maturity and the weighted
average yields (for tax-exempt obligations on a fully taxable equivalent basis,
assuming a 37.5% tax rate) of such securities. Expected maturities will differ
from contractual maturities, because borrowers may have the right to call or
prepay obligations, with or without call or prepayment penalties.
TABLE 15: MATURITY DISTRIBUTION OF INVESTMENT SECURITIES
December 31, 2001
------------------------------------------------------------------------------------
Over Over
1 year 5 years
1 year through through Over No fixed Par Fair
(In thousands) or less 5 years 10 years 10 years maturity Total Value Value
- -------------------------------------------------------------------------------------------------------------
Held-to-Maturity
U.S. Treasury $ 12,074 $ 15,454 $ -- $ -- $ -- $ 27,528 $ 27,519 $ 28,354
U.S. Government
agencies 635 35,357 1,000 -- -- 36,992 36,960 37,335
Mortgage-backed
securities 6 88 39 6,548 -- 6,681 6,588 6,786
State and political
subdivisions 14,545 62,990 38,772 3,517 -- 119,824 119,988 121,927
Other securities -- -- -- -- 100 100 100 100
-------- ------- ------- -------- -------- --------- -------- --------
Total $ 27,260 $113,889 $ 39,811 $ 10,065 $ 100 $ 191,125 $ 191,155 $ 194,502
======== ======= ======== ======= ======== ======== ======== ========
Percentage of total 14.3% 59.5% 20.8% 5.3% 0.1% 100.0%
======== ======= ======== ======= ======== ========
Weighted average yield 4.7% 4.5% 5.2% 5.6% 3.8% 4.7%
======== ======= ======== ======= ======== ========
Available-for-Sale
U.S. Treasury $ 11,348 $ 6,723 $ -- $ -- $ -- $ 18,071$ 18,100 $ 18,408
U.S. Government
agencies 52,967 159,223 2,000 -- -- 214,190 214,035 215,490
Mortgage-backed
securities -- 832 1,355 4,788 -- 6,975 6,822 7,004
State and political
subdivisions 315 1,695 2,884 300 -- 5,194 5,200 5,399
Other securities -- -- -- -- 9,056 9,056 9,056 9,879
-------- ------- -------- ------- -------- -------- -------- --------
Total $ 64,630 $168,473 $ 6,239 $ 5,088 $ 9,056 $ 253,486 $ 253,213 $ 256,180
======== ======= ======== ======= ======== ========= ========= =========
Percentage of total 25.5% 66.4% 2.5% 2.0% 3.6% 100.0%
======== ======= ======== ======= ======== =========
Weighted average yield 3.1% 4.7% 5.8% 5.0% 5.2% 4.4%
======== ======= ======== ======= ======== =========
DEPOSITS
- --------------------------------------------------------------------------------
Deposits are the Company's primary source of funding for earning assets.
The Company offers a variety of products designed to attract and retain
customers, with the primary focus on core deposits.
Total average deposits for 2001 were $1.630 billion, compared to $1.493
billion in 2000. As of December 31, 2001, total deposits were $1.686 billion,
compared to $1.606 billion on December 31, 2000. The year-end balances of time
deposits over $100,000 were $341.1 million in 2001, compared to $325.0 million
in 2000. The increase in average deposits from 2000 to 2001 is primarily
attributable to the Company's focus on internal growth and the acquisition of
eight branches in July 2000.
Table 16 reflects the classification of the average deposits and the
average rate paid on each deposit category, which are in excess of 10 percent of
average total deposits for the three years ended December 31, 2001.
TABLE 16: AVERAGE DEPOSITS BALANCES AND RATES
December 31
-----------------------------------------------------------------------
2001 2000 1999
---------------------- ----------------------- ------------------------
Average Average Average Average Average Average
(In thousands) Amount Rate Paid Amount Rate Paid Amount Rate Paid
- ------------------------------------------------------------------------------------------------------------
Non-interest bearing transaction
accounts $ 211,052 -- $ 188,220 -- $ 178,103 --
Interest bearing transaction and
savings deposits 470,708 2.13% 444,879 2.88% 448,327 2.70%
Time deposits
$100,000 or more 356,017 5.51% 273,129 5.80% 211,929 5.03%
Other time deposits 592,155 5.46% 587,140 5.66% 543,309 4.99%
---------- ----------- ----------
Total $1,629,932 3.80% $ 1,493,368 4.14% $1,381,668 3.61%
========= ========== =========
The Company's maturities of large denomination time deposits at December
31, 2001 and 2000 are presented in table 17.
TABLE 17: MATURITIES OF LARGE DENOMINATION TIME DEPOSITS
Time Certificates of Deposit
($100,000 or more)
December 31
--------------------------------------------------------
2001 2000
--------------------------- ---------------------------
(In thousands) Balance Percent Balance Percent
- ----------------------------------------------------------------------------------------------------
Maturing
Three months or less $ 138,238 40.53% $ 115,772 35.63%
Over 3 months to 6 months 90,877 26.64% 86,649 26.66%
Over 6 months to 12 months 81,854 24.00% 87,134 26.81%
Over 12 months 30,116 8.83% 35,414 10.90%
---------- -----------
Total $ 341,085 100.00% $ 324,969 100.00%
========== ==========
SHORT-TERM DEBT
- --------------------------------------------------------------------------------
Federal funds purchased and securities sold under agreements to repurchase
were $86.6 million at December 31, 2001, as compared to $67.3 million at
December 31, 2000. Other short-term borrowings, consisting of U.S. Treasury
Notes and short-term FHLB borrowings, were $3.8 million at December 31, 2001, as
compared to $4.1 million at December 31, 2000.
The Company has historically funded its growth in earning assets through
the use of core deposits, large certificates of deposits from local markets,
FHLB short-term borrowings and federal funds purchased. Management anticipates
that these sources will provide necessary funding in the foreseeable future. The
Company's general policy is to avoid the use of brokered deposits.
LONG-TERM DEBT
- --------------------------------------------------------------------------------
The Company's long-term debt was $42.2 million and $41.7 million at
December 31, 2001 and 2000, respectively. The outstanding balance for December
31, 2001 includes $12 million in long-term debt and $17.3 million of trust
preferred securities. Such securities qualify as Tier 1 capital for regulatory
purposes. This debt was incurred to fund a portion of the purchase price of the
acquisitions completed in a previous year. The Company also has FHLB long-term
advances. The outstanding balance for FHLB long-term advances was $12.9 million
as of December 31, 2001.
CAPITAL
- --------------------------------------------------------------------------------
At December 31, 2001, total capital reached $182.4 million, another record
in the Company's history. Capital represents shareholder ownership in the
Company -- the book value of assets in excess of liabilities. At year-end 2001,
the Company's equity to asset ratio was 9.04% compared to 9.06% at year-end
2000.
The Federal Reserve Board's risk-based guidelines established a
risk-adjusted ratio, relating capital to different categories of assets and
off-balance sheet exposures, such as loan commitments and standby letters of
credit. These guidelines place a strong emphasis on tangible stockholders'
equity as the core element of the capital base, with appropriate recognition of
other components of capital. At December 31, 2001, the leverage ratio and the
Tier 1 capital ratio was 8.3% and 12.8%, respectively, while the Company's total
risk-based capital ratio was 14.1%, all of which exceed the capital minimums
established in the risk-based capital requirements.
The Company's risk-based capital ratios at December 31, 2001 and 2000 are
presented in table 18.
TABLE 18: RISK-BASED CAPITAL
December 31
------------------------------
(In thousands) 2001 2000
- --------------------------------------------------------------------------------------------------------
Tier 1 capital
Stockholders' equity $ 182,363 $ 173,343
Trust preferred securities 17,250 17,250
Intangible assets (32,186) (35,241)
Unrealized (gain) loss on available-
for-sale securities (1,479) 34
Other (881) (916)
----------- ----------
Total Tier 1 capital 165,067 154,470
----------- ----------
Tier 2 capital
Qualifying unrealized gain on
available-for-sale equity securities 370 475
Qualifying allowance for loan losses 16,209 16,193
----------- ----------
Total Tier 2 capital 16,579 16,668
----------- ----------
Total risk-based capital $ 181,646 $ 171,138
========== =========
Risk weighted assets $ 1,292,798 $1,290,494
========== =========
Ratios at end of year
Leverage ratio 8.27% 8.41%
Tier 1 capital 12.77% 11.97%
Total risk-based capital 14.05% 13.26%
Minimum guidelines
Leverage ratio 4.00% 4.00%
Tier 1 capital 4.00% 4.00%
Total risk-based capital 8.00% 8.00%
LIQUIDITY AND MARKET RISK MANAGEMENT
- --------------------------------------------------------------------------------
PARENT COMPANY
The Company has leveraged its investment in subsidiary banks and depends
upon the dividends paid to it, as the sole shareholder of the subsidiary banks,
as a principal source of funds for debt service requirements. At December 31,
2001, undivided profits of the Company's subsidiaries were approximately $100
million, of which approximately $12 million was available for the payment of
dividends to the Company without regulatory approval. In addition to dividends,
other sources of liquidity for the Company are the sale of equity securities and
the borrowing of funds.
BANKING SUBSIDIARIES
Generally speaking, the Company's banking subsidiaries rely upon net
inflows of cash from financing activities, supplemented by net inflows of cash
from operating activities, to provide cash used in investing activities. Typical
of most banking companies, significant financing activities include: deposit
gathering; use of short-term borrowing facilities, such as federal funds
purchased and repurchase agreements; and the issuance of long-term debt. The
banks' primary investing activities include loan originations and purchases of
investment securities, offset by loan payoffs and investment maturities.
Liquidity represents an institution's ability to provide funds to satisfy
demands from depositors and borrowers, by either converting assets into cash or
accessing new or existing sources of incremental funds. A major responsibility
of management is to maximize net interest income within prudent liquidity
constraints. Internal corporate guidelines have been established to constantly
measure liquid assets, as well as relevant ratios concerning earning asset
levels and purchased funds. The management and board of directors of each bank
subsidiary monitor these same indicators and makes adjustments as needed. At
year-end, each subsidiary bank was within established guidelines and total
corporate liquidity remains strong. At December 31, 2001, cash and cash
equivalents, trading and available-for-sale securities and mortgage loans held
for sale were 23.6% of total assets, as compared to 17.5% at December 31, 2000.
MARKET RISK MANAGEMENT
Market risk arises from changes in interest rates. The Company has risk
management policies to monitor and limit exposure to market risk. In asset and
liability management activities, policies are in place that are designed to
minimize structural interest rate risk. The measurement of market risk
associated with financial instruments is meaningful only when all related and
offsetting on- and off-balance-sheet transactions are aggregated, and the
resulting net positions are identified. Disclosures about fair value of
financial instruments, which reflect changes in market prices and rates, can be
found in Note 13 of Notes to Consolidated Financial Statements.
INTEREST RATE SENSITIVITY
Interest rate risk represents the potential impact of interest rate changes
on net income and capital resulting from mismatches in repricing opportunities
of assets and liabilities over a period of time. A number of tools are used to
monitor and manage interest rate risk, including simulation models and interest
sensitivity (Gap) analysis. Management uses simulation models to estimate the
effects of changing interest rates and various balance sheet strategies on the
level of the Company's net income and capital. As a means of limiting interest
rate risk to an acceptable level, management may alter the mix of floating and
fixed-rate assets and liabilities, change pricing schedules and manage
investment maturities during future security purchases.
The simulation models incorporate management's assumptions regarding the
level of interest rates or balance changes for indeterminate maturity deposits
for a given level of market rate changes. These assumptions have been developed
through anticipated pricing behavior. Key assumptions in the simulation models
include the relative timing of prepayments, cash flows and maturities. In
addition, the impact of planned growth and anticipated new business is factored
into the simulation models. These assumptions are inherently uncertain and, as a
result, the models cannot precisely estimate net interest income or precisely
predict the impact of a change in interest rates on net income or capital.
Actual results will differ from simulated results due to the timing, magnitude
and frequency of interest rate changes and changes in market conditions and
management strategies, among other factors.
Table 19 presents the Company's interest rate sensitivity position at
December 31, 2001. This Gap analysis is based on a point in time and may not be
meaningful because assets and liabilities are categorized according to
contractual maturities (investment securities are according to call dates) and
repricing periods rather than estimating more realistic behaviors, as is done in
the simulation models. Also, the Gap analysis does not consider subsequent
changes in interest rate level or spreads between asset and liability
categories.
TABLE 19: INTEREST RATE SENSITIVITY
Interest Rate Sensitivity Period
---------------------------------------------------------------------------------------
0-30 31-90 91-180 181-365 1-2 2-5 Over 5
(In thousands, except ratios) Days Days Days Days Years Years Years Total
- -----------------------------------------------------------------------------------------------------------------------
Earning assets
Short-term investments $ 113,056 $ -- $ -- $ -- $ -- $ -- $ -- $ 113,056
Assets held in trading
accounts 896 -- -- -- -- -- -- 896
Investment securities 54,880 15,512 20,945 24,291 75,449 192,698 63,530 447,305
Mortgage loans held for sale 24,971 -- -- -- -- -- -- 24,971
Loans 142,022 342,398 143,921 268,480 198,156 150,769 13,038 1,258,784
--------- --------- --------- --------- --------- --------- --------- ---------
Total earning assets 335,825 357,910 164,866 292,771 273,605 343,467 76,568 1,845,012
--------- --------- --------- --------- --------- --------- --------- ---------
Interest bearing liabilities
Interest bearing transaction
and savings deposits 265,570 -- -- -- 50,457 151,372 50,457 517,856
Time deposits 138,276 192,994 220,420 237,803 108,020 23,789 11 921,313
Short-term debt 87,936 -- 2,500 -- -- -- -- 90,436
Long-term debt 74 148 2,222 3,444 2,828 8,515 24,919 42,150
--------- --------- --------- --------- --------- --------- --------- ---------
Total interest bearing
liabilities 491,856 193,142 225,142 241,247 161,305 183,676 75,387 1,571,755
--------- --------- --------- --------- --------- --------- --------- ---------
Interest rate sensitivity Gap $ (156,031) $ 164,768 $ (60,276) $ 51,524 $ 112,300 $ 159,791 $ 1,181 $ 273,257
========= ======== ======== ======== ======== ======== ======== ========
Cumulative interest rate
sensitivity Gap $(156,031) $ 8,737 $ (51,539) $ (15) $ 112,285 $ 272,076 $ 273,257
Cumulative rate sensitive assets
to rate sensitive liabilities 68.3% 101.3% 94.3% 100.0% 108.6% 118.2% 117.4%
Cumulative Gap as a % of
earning assets -8.5% 0.5% -2.8% 0.0% 6.1% 14.7% 14.8%
QUARTERLY RESULTS
- --------------------------------------------------------------------------------
Selected unaudited quarterly financial information for the last eight
quarters is shown in table 20.
TABLE 20: QUARTERLY RESULTS
Quarter
------------------------------------------------------------------
(In thousands, except per share data) First Second Third Fourth Total
- ----------------------------------------------------------------------------------------------------------
2001
Net interest income $ 16,956 $ 16,866 $ 16,547 $ 17,036 $ 67,405
Provision for loan losses 1,853 1,967 3,429 2,709 9,958
Non-interest income 8,093 8,311 8,726 8,439 33,569
Non-interest expense 16,817 16,846 17,154 17,313 68,130
Gains on sale of securities, net -- -- -- 11 11
Net income 4,554 4,487 3,536 3,951 16,528
Diluted earnings per share 0.55 0.49 0.63 0.64 2.31
2000
Net interest income $ 16,246 $ 16,302 $ 16,986 $ 17,527 $ 67,061
Provision for loan losses 1,720 1,925 1,892 1,994 7,531
Non-interest income 6,960 7,513 8,127 7,755 30,355
Non-interest expense 15,280 15,250 15,975 16,051 62,556
Gains on sale of securities, net -- -- -- -- --
Net income 4,328 4,609 4,965 4,967 18,869
Diluted earnings per share 0.59 0.63 0.67 0.69 2.58
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX
Independent Accountants' Report......................................32
Consolidated Balance Sheets, December 31, 2001 and 2000..............33
Consolidated Statements of Income, Years Ended
December 31, 2001, 2000 and 1999...................................34
Consolidated Statements of Cash Flows, Years Ended
December 31, 2001, 2000 and 1999...................................35
Consolidated Statements of Stockholders' Equity, Years Ended
December 31, 2001, 2000 and 1999...................................36
Notes to Consolidated Financial Statements,
December 31, 2001, 2000 and 1999.................................37
Note: Supplementary Data may be found in Item 7 "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Quarterly
Results" on page 30 hereof.
INDEPENDENT ACCOUNTANTS' REPORT
Board of Directors
Simmons First National Corporation
Pine Bluff, Arkansas
We have audited the accompanying consolidated balance sheets of SIMMONS
FIRST NATIONAL CORPORATION as of December 31, 2001 and 2000, and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the three years in the period ended December 31, 2001. These financial
statements are the responsibility of the Corporation's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of SIMMONS
FIRST NATIONAL CORPORATION as of December 31, 2001 and 2000, and the results of
its operations and its cash flows for each of the three years in the period
ended December 31, 2001, in conformity with accounting principles generally
accepted in the United States of America.
/s/ BKD, LLP
BKD, LLP
Pine Bluff, Arkansas
February 8, 2002
- ----------------------------------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2001 and 2000
(In thousands, except share data) 2001 2000
- ----------------------------------------------------------------------------------------------------------
ASSETS
Cash and non-interest bearing balances due from banks $ 81,785 $ 77,495
Interest bearing balances due from banks 55,356 12,990
Federal funds sold and securities purchased
under agreements to resell 57,700 20,650
------------ ------------
Cash and cash equivalents 194,841 111,135
Investment securities 447,305 398,483
Mortgage loans held for sale 24,971 8,934
Assets held in trading accounts 896 1,127
Loans 1,258,784 1,294,710
Allowance for loan losses (20,496) (21,157)
------------ -----------
Net loans 1,238,288 1,273,553
Premises and equipment 45,537 46,597
Foreclosed assets held for sale, net 1,084 1,104
Interest receivable 15,764 18,878
Intangible assets, net 32,186 35,241
Other assets 16,046 17,441
------------ ------------
TOTAL ASSETS $ 2,016,918 $ 1,912,493
=========== ===========
LIABILITIES
Non-interest bearing transaction accounts $ 247,235 $ 213,312
Interest bearing transaction accounts and savings deposits 517,856 471,609
Time deposits 921,313 920,665
------------ ------------
Total deposits 1,686,404 1,605,586
Federal funds purchased and securities sold
under agreements to repurchase 86,635 67,250
Short-term debt 3,801 4,070
Long-term debt 42,150 41,681
Accrued interest and other liabilities 15,565 20,563
------------ ------------
Total liabilities 1,834,555 1,739,150
------------ ------------
STOCKHOLDERS' EQUITY
Capital stock
Class A, common, par value $1 a share, authorized
30,000,000 shares, 7,087,185 issued and outstanding
at 2001 and 7,180,966 at 2000 7,087 7,181
Surplus 45,278 47,964
Undivided profits 128,519 118,232
Accumulated other comprehensive income
Unrealized appreciation (depreciation) on available-for-sale
securities, net of income taxes of $887 at 2001 and
income tax credits of $20 at 2000 1,479 (34)
------------ ------------
Total stockholders' equity 182,363 173,343
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,016,918 $ 1,912,493
=========== ===========
See Notes to Consolidated Financial Statements.
- -------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 2001, 2000 and 1999
(In thousands, except per share data) 2001 2000 1999
- -------------------------------------------------------------------------------------------------------------------
INTEREST INCOME
Loans $ 110,552 $ 110,112 $ 94,576
Federal funds sold and securities purchased
under agreements to resell 1,877 1,366 1,759
Investment securities 20,786 23,585 23,836
Mortgage loans held for sale 1,143 542 712
Assets held in trading accounts 38 95 72
Interest bearing balances due from banks 1,472 890 535
---------- ---------- ----------
TOTAL INTEREST INCOME 135,868 136,590 121,490
---------- ---------- ----------
INTEREST EXPENSE
Deposits 61,956 61,871 49,877
Federal funds purchased and securities sold
under agreements to repurchase 2,874 3,669 2,913
Short-term debt 333 516 165
Long-term debt 3,300 3,473 3,804
---------- ---------- ----------
TOTAL INTEREST EXPENSE 68,463 69,529 56,759
---------- ---------- ----------
NET INTEREST INCOME 67,405 67,061 64,731
Provision for loan losses 9,958 7,531 6,551
---------- --------- ----------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 57,447 59,530 58,180
--------- ---------- ----------
NON-INTEREST INCOME
Trust income 5,409 5,282 4,666
Service charges on deposit accounts 8,951 7,998 7,007
Other service charges and fees 1,753 1,804 1,759
Income on sale of mortgage loans, net of commissions 3,148 1,727 2,021
Income on investment banking, net of commissions 792 259 266
Credit card fees 10,485 10,522 10,214
Other income 3,020 2,763 2,344
Gain on sale of securities, net 11 -- --
---------- ---------- ----------
TOTAL NON-INTEREST INCOME 33,569 30,355 28,277
---------- ---------- ----------
NON-INTEREST EXPENSE
Salaries and employee benefits 36,218 33,544 32,395
Occupancy expense, net 4,610 3,873 3,578
Furniture and equipment expense 5,251 5,246 5,003
Loss on foreclosed assets 366 254 364
Merger-related -- -- 1,843
Other operating expenses 21,685 19,639 18,746
---------- ---------- ----------
TOTAL NON-INTEREST EXPENSE 68,130 62,556 61,929
---------- ---------- ----------
INCOME BEFORE INCOME TAXES 22,886 27,329 24,528
Provision for income taxes 6,358 8,460 7,360
---------- ---------- ----------
NET INCOME $ 16,528 $ 18,869 $ 17,168
========= ========= =========
BASIC EARNINGS PER SHARE $ 2.33 $ 2.59 $ 2.35
========= ========= =========
DILUTED EARNINGS PER SHARE $ 2.31 $ 2.58 $ 2.33
========= ========= =========
See Notes to Consolidated Financial Statements.
- -------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2001, 2000 and 1999
(In thousands) 2001 2000 1999
- -------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 16,528 $ 18,869 $ 17,168
Items not requiring (providing) cash
Depreciation and amortization 7,680 6,999 6,334
Provision for loan losses 9,958 7,531 6,551
Net accretion (amortization) of investment securities (751) 214 (123)
Deferred income taxes 1,382 (1,359) (326)
Provision for foreclosed assets 172 213 214
Gain on sale of securities, net (11) -- --
Changes in
Interest receivable 3,114 (2,777) (200)
Mortgage loans held for sale (16,037) (2,120) 5,827
Assets held in trading accounts 231 261 (1,310)
Other assets 1,395 783 (1,191)
Accrued interest and other liabilities (4,486) 3,124 (8,363)
Income taxes payable (1,894) 1,313 (272)
---------- ---------- ----------
Net cash provided by operating activities 17,281 33,051 24,309
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Net repayment (originations) of loans 23,412 (115,721) (85,902)
Purchase of branch locations, net funds paid -- (14,398) --
Purchases of premises and equipment, net (3,565) (4,890) (6,414)
Proceeds from sale of foreclosed assets 1,743 1,017 1,646
Proceeds from sale of available-for-sale securities 4,305 -- --
Proceeds from maturities of available-for-sale securities 339,535 120,279 137,564
Purchases of available-for-sale securities (384,084) (95,499) (144,068)
Proceeds from maturities of held-to-maturity securities 126,232 27,818 53,356
Purchases of held-to-maturity securities (132,535) (38,150) (44,991)
---------- ---------- ----------
Net cash used in investing activities (24,957) (119,544) (88,809)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 80,818 123,944 29,630
Net (repayments) advances of short-term debt (269) (974) 3,420
Dividends paid (6,241) (5,822) (5,366)
Proceeds from issuance of long-term debt 4,170 -- 1,300
Repayment of long-term debt (3,701) (4,538) (4,980)
Net increase (decrease) in federal funds purchased and
securities sold under agreements to repurchase 19,385 6,754 (17,871)
(Repurchase) issuance of common stock, net (2,780) (2,941) 289
---------- ---------- ----------
Net cash provided by financing activities 91,382 116,423 6,422
---------- ---------- ----------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 83,706 29,930 (58,078)
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR 111,135 81,205 139,283
---------- ---------- ----------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 194,841 $ 111,135 $ 81,205
========= ========= =========
See Notes to Consolidated Financial Statements.
- -------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 2001, 2000 and 1999
Accumulated
Other
Common Comprehensive Undivided
(In thousands, except share data) Stock Surplus Income Profits Total
- -------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 $ 7,239 $ 48,271 $ 1,491 $ 93,383 $ 150,384
Comprehensive income
Net income -- -- -- 17,168 17,168
Change in unrealized appreciation on
available-for-sale securities, net of
income tax credit of $3,188 -- -- (5,391) -- (5,391)
-----------
Comprehensive income 11,777
Exercise of stock options -- 19,900 shares 20 280 -- -- 300
Securities exchanged under
employee option plan -- (11) -- -- (11)
Common stock issued in connection with the
purchase of the minority shares of the Bank
of Lincoln - 56,997 shares 57 2,230 -- -- 2,287
Cash dividends declared
Common stock ($0.72 per share) -- -- -- (4,990) (4,990)
Pooled institution prior to pooling -- -- -- (376) (376)
--------- ---------- ----------- ----------- -----------
Balance, December 31, 1999 7,316 50,770 (3,900) 105,185 159,371
Comprehensive income
Net income -- -- -- 18,869 18,869
Change in unrealized depreciation on
available-for-sale securities, net of
income taxes of $2,320 -- -- 3,866 -- 3,866
-----------
Comprehensive income 22,735
Exercise of stock options -- 25,800 shares 26 344 -- -- 370
Securities exchanged under
employee option plan (4) (79) -- -- (83)
Repurchase of common stock
-- 156,827 shares (157) (3,071) -- -- (3,228)
Cash dividends declared ($0.80 per share) -- -- -- (5,822) (5,822)
--------- ---------- ----------- ----------- -----------
Balance, December 31, 2000 7,181 47,964 (34) 118,232 173,343
Comprehensive income
Net income -- -- -- 16,528 16,528
Change in unrealized depreciation on
available-for-sale securities, net of
income taxes of $908 -- -- 1,513 -- 1,513
-----------
Comprehensive income 18,041
Exercise of stock options -- 62,700 shares 63 1,195 -- -- 1,258
Securities exchanged under
employee option plan (13) (391) -- -- (404)
Repurchase of common stock
--143,955 shares (144) (3,490) -- -- (3,634)
Cash dividends declared ($0.88 per share) -- -- -- (6,241) (6,241)
--------- ---------- ----------- ----------- -----------
Balance, December 31, 2001 $ 7,087 $ 45,278 $ 1,479 $ 128,519 $ 182,363
======== ========= ========== ========== ==========
See Notes to Consolidated Financial Statements.
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
NATURE OF OPERATIONS
Simmons First National Corporation is primarily engaged in providing a full
range of banking services to individual and corporate customers through its
subsidiaries and their branch banks in Arkansas. The Company is subject to
competition from other financial institutions. The Company also is subject to
the regulation of certain federal and state agencies and undergoes periodic
examinations by those regulatory authorities.
OPERATING SEGMENTS
The Company is organized on a subsidiary bank-by-bank basis upon which
management makes decisions regarding how to allocate resources and assess
performance. Each of the subsidiary banks provides a group of similar community
banking services, including such products and services as loans; time deposits,
checking and savings accounts; personal and corporate trust services; credit
cards; investment management; and securities and investment services. The
individual bank segments have similar operating and economic characteristics and
have been reported as one aggregated operating segment.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Material estimates that are particularly susceptible to significant change
relate to the determination of the allowance for loan losses, the valuation of
foreclosed assets and the allowance for foreclosure expenses. In connection with
the determination of the allowance for loan losses and the valuation of
foreclosed assets, management obtains independent appraisals for significant
properties.
PRINCIPLES OF CONSOLIDATION
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.
RECLASSIFICATIONS
Various items within the accompanying financial statements for previous
years have been reclassified to provide more comparative information. These
reclassifications had no effect on net earnings.
CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers due from
banks, federal funds sold and securities purchased under agreements to resell as
cash equivalents.
INVESTMENT SECURITIES
Held-to-maturity securities, which include any security for which the
banking subsidiaries have the positive intent and ability to hold until
maturity, are carried at historical cost adjusted for amortization of premiums
and accretion of discounts. Premiums and discounts are amortized and accreted,
respectively, to interest income using the constant yield method over the period
to maturity.
Available-for-sale securities, which include any security for which the
banking subsidiaries have no immediate plan to sell but which may be sold in the
future, are carried at fair value. Realized gains and losses, based on
specifically identified amortized cost of the individual security, are included
in other income. Unrealized gains and losses are recorded, net of related income
tax effects, in stockholders' equity. Premiums and discounts are amortized and
accreted, respectively, to interest income using the constant yield method over
the period to maturity.
Trading securities, which include any security held primarily for near-term
sale, are carried at fair value. Gains and losses on trading securities are
included in other income.
Interest and dividends on investments in debt and equity securities are
included in income when earned.
MORTGAGE LOANS HELD FOR SALE
Mortgage loans held for sale are carried at the lower of cost or fair
value, determined using an aggregate basis. Write-downs to fair value are
recognized as a charge to earnings at the time the decline in value occurs.
Forward commitments to sell mortgage loans are acquired to reduce market risk on
mortgage loans in the process of origination and mortgage loans held for sale.
Gains and losses resulting from sales of mortgage loans are recognized when the
respective loans are sold to investors. Gains and losses are determined by the
difference between the selling price and the carrying amount of the loans sold,
net of discounts collected or paid. Fees received from borrowers to guarantee
the funding of mortgage loans held for sale are recognized as income or expense
when the loans are sold or when it becomes evident that the commitment will not
be used.
LOANS
Loans that management has the intent and ability to hold for the
foreseeable future or until maturity or pay-offs are reported at their
outstanding principal adjusted for any loans charged off and any deferred fees
or costs on originated loans and unamortized premiums or discounts on purchased
loans.
Discounts and premiums on purchased residential real estate loans are
amortized to income using the interest method over the remaining period to
contractual maturity, adjusted for anticipated prepayments. Discounts and
premiums on purchased consumer loans are recognized over the expected lives of
the loans using methods that approximate the interest method.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is increased by provisions charged to expense
and reduced by loans charged off, net of recoveries. The allowance is maintained
at a level considered adequate to provide for potential loan losses related to
specifically identified loans as well as probable credit losses inherent in the
remainder of the loan portfolio that have been incurred as of December 31, 2001
and 2000. This estimate is based on management's evaluation of the loan
portfolio, as well as on prevailing and anticipated economic conditions and
historical losses by loan category. General reserves have been established,
based upon the aforementioned factors and allocated to the individual loan
categories. Allowances are accrued on specific loans evaluated for impairment
for which the basis of each loan, including accrued interest, exceeds the
discounted amount of expected future collections of interest and principal or,
alternatively, the fair value of loan collateral. The unallocated reserve
generally serves to compensate for the uncertainty in estimating loan losses,
including the possibility of changes in risk ratings and specific reserve
allocations in the loan portfolio as a result of the Company's ongoing risk
management system.
A loan is considered impaired when it is probable that the Company will not
receive all amounts due according to the contractual terms of the loan. This
includes loans that are delinquent 90 days or more (nonaccrual loans) and
certain other loans identified by management. Accrual of interest is
discontinued and interest accrued and unpaid is removed at the time such amounts
are delinquent 90 days. Interest is recognized for nonaccrual loans only upon
receipt and only after all principal amounts are current according to the terms
of the contract.
PREMISES AND EQUIPMENT
Depreciable assets are stated at cost, less accumulated depreciation.
Depreciation is charged to expense, using the straight-line method over the
estimated useful lives of the assets. Leasehold improvements are capitalized and
amortized by the straight-line method over the terms of the respective leases or
the estimated useful lives of the improvements whichever is shorter.
FORECLOSED ASSETS HELD FOR SALE
Assets acquired by foreclosure or in settlement of debt and held for sale
are valued at estimated fair value, as of the date of foreclosure and a related
valuation allowance is provided for estimated costs to sell the assets.
Management evaluates the value of foreclosed assets held for sale periodically
and increases the valuation allowance for any subsequent declines in fair value.
Changes in the valuation allowance are charged or credited to other expense.
INTANGIBLE ASSETS
Intangible assets consist of "Goodwill" and "Core deposit premiums".
"Goodwill" represents the excess of cost over the fair value of net assets of
acquired subsidiaries and branches. "Core deposit premiums" represents the
amount allocated to the future earnings potential of acquired deposits. The
unamortized intangible assets are being amortized using the straight-line method
over periods ranging from 10 to 20 years.
FEE INCOME
Periodic bankcard fees, net of direct origination costs, are recognized as
revenue on a straight-line basis over the period the fee entitles the cardholder
to use the card. Origination fees and costs for other loans are being amortized
over the estimated life of the loan.
INCOME TAXES
Deferred tax liabilities and assets are recognized for the tax effects of
differences between the financial statement and tax bases of assets and
liabilities. A valuation allowance is established to reduce deferred tax assets
if it is more likely than not that a deferred tax asset will not be realized.
EARNINGS PER SHARE
Basic earnings per share are computed based on the weighted average number
of shares outstanding during each year. Diluted earnings per share are computed
using the weighted average common shares and all potential dilutive common
shares outstanding during the period.
The computation of per share earnings is as follows:
(In thousands, except per share data) 2001 2000 1999
- -------------------------------------------------------------------------------------------------------------------
Net Income $ 16,528 $ 18,869 $ 17,168
-------- -------- -------
Average common shares outstanding 7,098 7,299 7,307
Average common share stock options outstanding 64 20 67
--------- --------- --------
Average diluted common shares 7,162 7,319 7,374
--------- --------- --------
Basic earnings per share $ 2.33 $ 2.59 $ 2.35
======== ======== =======
Diluted earnings per share $ 2.31 $ 2.58 $ 2.33
======== ======== =======
NOTE 2: ACQUISITIONS
- --------------------------------------------------------------------------------
On January 15, 1999, the Company and Lincoln Bankshares, Inc. ("LBI")
merged. This merger was accounted for as a pooling-of-interests, except for the
acquisition of the minority shares (17.9%) of the Bank of Lincoln, which were
accounted for on a purchase accounting basis. Stockholders of LBI received
301,823 shares of Simmons First National Corporation stock in exchange for LBI
shares in the transaction. LBI owned the Bank of Lincoln ("BOL"), Lincoln,
Arkansas with assets, as of January 15, 1999, of $75 million. LBI's net interest
income and net income for the period ended January 15, 1999, were immaterial.
The Company merged BOL into Simmons First Bank of Northwest Arkansas during the
second quarter of 1999.
On July 9, 1999, the Company and NBC Bank Corp. ("NBC") merged in a
pooling-of-interests transaction. Stockholders of NBC received 784,887 shares of
Simmons First National Corporation stock in exchange for NBC shares in the
transaction. NBC owned National Bank of Commerce, El Dorado, Arkansas with
assets, as of July 9, 1999, of $155 million. NBC's net interest income and net
income for the period ended June 30, 1999, were $2,463,000 and $919,000,
respectively. The Company changed the name of National Bank of Commerce to
Simmons First Bank of El Dorado, N.A. The Company operates Simmons First Bank of
El Dorado, N.A. as a separate community bank with the same board of directors
and management.
On July 17, 2000, the Company expanded its coverage of Central and
Northwest Arkansas with a $7.6 million cash purchase of two Conway and six
Northwest Arkansas locations from First Financial Banc Corporation. Simmons
First National Bank acquired the two offices in Conway and Simmons First Bank of
Northwest Arkansas acquired the six offices in Northwest Arkansas. As of July
14, 2000, the eight locations combined had total loans of $71.8 million, total
deposits of $71.0 million and net assets of $8.5 million. The total acquisition
cost exceeded the fair value of tangible assets and liabilities acquired by
$10.8 million. The intangible assets are being amortized using the straight-line
method over 15 years.
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:
Years Ended December 31
---------------------------------------------------------------------------------------
2001 2000
--------------------------------------------- -----------------------------------------
Gross Gross Estimated Gross Gross Estimated
Amortized Unrealized Unrealized Fair Amortized Unrealized Unrealized Fair
(In thousands) Cost Gains (Losses) Value Cost Gains (Losses) Value
- ---------------------------------------------------------------------------------------------------------------
Held-to-Maturity
U.S. Treasury $ 27,528 $ 826 $ -- $ 28,354 $ 21,923 $ 246 $ (8) $ 22,161
U.S. Government
agencies 36,992 451 (108) 37,335 40,965 229 (145) 41,049
Mortgage-backed
securities 6,681 105 -- 6,786 11,065 46 (117) 10,994
State and political
subdivisions 119,824 2,255 (152) 121,927 110,380 1,593 (594) 111,379
Other securities 100 -- -- 100 80 -- -- 80
---------- ------- ------ ---------- -------- ------- ------- ----------
Total HTM $ 191,125 $ 3,637 $ (260) $ 194,502 $ 184,413 $ 2,114 $ (864) $ 185,663
========= ====== ===== ========= ======== ====== ======= =========
Available-for-Sale
U.S. Treasury $ 18,071 $ 349 $ (12) $ 18,408 $ 23,889 $ 160 $ (12) $ 24,037
U.S. Government
agencies 214,190 1,792 (492) 215,490 157,434 167 (1,165) 156,436
Mortgage-backed
securities 6,975 69 (40) 7,004 15,266 55 (140) 15,181
State and political
subdivisions 5,194 205 -- 5,399 6,621 217 (17) 6,821
Other securities 9,056 823 -- 9,879 10,541 1,054 -- 11,595
---------- ------- ------ --------- ---------- ------- ------- ----------
Total AFS $ 253,486 $ 3,238 $ (544) $ 256,180 $ 213,751 $ 1,653 $ (1,334) $ 214,070
========= ====== ===== ======== ======== ====== ======= =========
Income earned on the above securities for the years ended December 31,
2001, 2000 and 1999 is as follows:
(In thousands) 2001 2000 1999
- -------------------------------------------------------------------------------------------------------------------
Taxable
Held-to-maturity $ 4,992 $ 4,401 $ 4,377
Available-for-sale 10,061 13,763 13,910
Non-taxable
Held-to-maturity 5,400 5,066 5,296
Available-for-sale 333 355 253
--------- --------- --------
Total $ 20,786 $ 23,585 $ 23,836
======== ======== =======
The Statement of Stockholders' Equity includes other comprehensive income.
Other comprehensive income for the Company includes the change in the unrealized
appreciation (depreciation) on available-for-sale securities. The changes in the
unrealized appreciation (depreciation) on available-for-sale securities for the
years ended December 31, 2001, 2000 and 1999 are as follows:
(In thousands) 2001 2000 1999
- -------------------------------------------------------------------------------------------------------------------
Unrealized holding gains (losses)
arising during the period $ 1,524 $ 3,866 $ (5,391)
Gains realized in net income 11 -- --
--------- --------- --------
Net change in unrealized appreciation (depreciation)
on available-for-sale securities $ 1,513 $ 3,866 $ (5,391)
======== ======== =======
The amortized cost and estimated fair value by maturity of securities are
shown in the following table. Securities are classified according to their
contractual maturities without consideration of principal amortization,
potential prepayments or call options. Accordingly, actual maturities may differ
from contractual maturities.
Held-to-Maturity Available-for-Sale
--------------------------- ------------------------
Amortized Fair Amortized Fair
(In thousands) Cost Value Cost Value
- -------------------------------------------------------------------------------------------------
One year or less $ 27,260 $ 27,638 $ 64,630 $ 66,817
After one through five years 113,889 115,616 168,473 167,847
After five through ten years 39,811 40,873 6,239 6,504
After ten years 10,065 10,275 5,088 5,133
Other securities 100 100 9,056 9,879
----------- ----------- ----------- ----------
Total $ 191,125 $ 194,502 $ 253,486 $ 256,180
========== ========== ========== =========
The carrying value, which approximates the fair value, of securities
pledged as collateral, to secure public deposits and for other purposes,
amounted to $290,915,000 at December 31, 2001 and $279,586,000 at December 31,
2000.
The book value of securities sold under agreements to repurchase amounted
to $35,990,000 and $34,235,000 for December 31, 2001 and 2000, respectively.
Gross realized gains of $46,000, $0 and $0 resulting from sales and/or
calls of available-for-sale securities were realized for the years ended
December 31, 2001, 2000 and 1999, respectively. Gross realized losses of
$35,000, $0 and $0 resulting from sales and/or calls of available-for-sale
securities were realized for the years ended December 31, 2001, 2000 and 1999,
respectively.
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 of loans are summarized as follows:
(In thousands) 2001 2000
- ----------------------------------------------------------------------------------------------------------
Consumer
Credit cards $ 196,710 $ 197,567
Student loans 74,860 67,145
Other consumer 179,138 192,595
Real estate
Construction 83,628 69,169
Single family residential 224,122 244,377
Other commercial 263,539 287,170
Commercial
Commercial 153,617 161,134
Agricultural 60,794 57,164
Financial institutions 5,861 2,339
Other 16,515 16,050
----------- ----------
Total loans before allowance for loan losses $ 1,258,784 $1,294,710
========== =========
At December 31, 2001 and 2000, impaired loans totaled $21,012,000 and
$18,099,000, respectively. All impaired loans had designated reserves for
possible loan losses. Reserves relative to impaired loans at December 31, 2001,
were $4,093,000 and $3,070,000 at December 31, 2000. Approximately, $893,000 and
$539,000 of interest income were recognized on average impaired loans of
$21,138,000 and $13,331,000 for 2001 and 2000, respectively. Interest recognized
on impaired loans on a cash basis during 2001 or 2000 was immaterial.
As of December 31, 2001, credit card loans, which are unsecured, were
$196,710,000 or 15.6%, of total loans versus $197,567,000 or 15.3% of total
loans at December 31, 2000. The credit card loans are diversified by geographic
region to reduce credit risk and minimize any adverse impact on the portfolio.
Credit card loans are regularly reviewed to facilitate the identification and
monitoring of creditworthiness.
Transactions in the allowance for loan losses are as follows:
(In thousands) 2001 2000 1999
- -------------------------------------------------------------------------------------------------------------------
Balance, beginning of year $ 21,157 $ 17,085 $ 16,812
Additions
Provision for loan losses 9,958 7,531 6,551
Allowance for loan losses of acquired branches -- 2,605 --
--------- --------- -------
31,115 27,221 23,363
Deductions
Losses charged to allowance, net of recoveries
of $1,729 for 2001, $1,685 for 2000 and $1,416 for 1999 10,619 6,064 6,278
--------- --------- --------
Balance, end of year $ 20,496 $ 21,157 $ 17,085
======== ======== =======
NOTE 5: TIME DEPOSITS
- --------------------------------------------------------------------------------
Time deposits included approximately $341,085,000 and $324,969,000 of
certificates of deposit of $100,000 or more, at December 31, 2001 and 2000,
respectively. At December 31, 2001, time deposits with a remaining maturity of
one year or more amounted to $131,820,000. Maturities of all time deposits are
as follows: 2002 - $789,493,000; 2003 - $108,020,000; 2004 - $22,400,000; 2005 -
$1,181,000; 2006 - $208,000 and thereafter $11,000.
Deposits are the Company's primary funding source for loans and investment
securities. The mix and repricing alternatives can significantly affect the cost
of this source of funds and, therefore, impact the margin.
NOTE 6: INCOME TAXES
- --------------------------------------------------------------------------------
The provision for income taxes is comprised of the following components:
(In thousands) 2001 2000 1999
- -------------------------------------------------------------------------------------------------------------------
Income taxes currently payable $ 4,976 $ 9,819 $ 7,686
Deferred income taxes 1,382 (1,359) (326)
-------- --------- --------
Provision for income taxes $ 6,358 $ 8,460 $ 7,360
======== ======== =======
The tax effects of temporary differences related to deferred taxes shown on
the balance sheet were:
(In thousands) 2001 2000
- ----------------------------------------------------------------------------------------------------------
Deferred tax assets
Allowance for loan losses $ 6,611 $ 7,696
Valuation of foreclosed assets 113 231
Deferred compensation payable 631 708
Deferred loan fee income 277 414
Vacation compensation 496 453
Mortgage servicing reserve 365 384
Loan interest 139 126
Available-for-sale securities -- 20
Other 189 127
-------- --------
8,821 10,159
-------- --------
Deferred tax liabilities
Accumulated depreciation (1,534) (1,577)
Available-for-sale securities (887) --
FHLB stock dividends (697) (590)
Other (202) (202)
--------- --------
(3,320) (2,369)
--------- --------
Net deferred tax assets included in other assets
on balance sheets $ 5,501 $ 7,790
======== =======
A reconciliation of income tax expense at the statutory rate to the
Company's actual income tax expense is shown below.
(In thousands) 2001 2000 1999
- -------------------------------------------------------------------------------------------------------------------
Computed at the statutory rate (35%) $ 8,010 $ 9,565 $ 8,585
Increase (decrease) resulting from
Tax exempt income (2,242) (2,075) (1,982)
Non-deductible interest 386 377 264
Amortization of intangible assets 93 107 105
State income taxes 161 287 207
Other non-deductible expenses 120 109 331
Other differences, net (170) 90 (150)
------- ------- -------
Actual tax provision $ 6,358 $ 8,460 $ 7,360
====== ======= ======
NOTE 7: LONG-TERM DEBT
- --------------------------------------------------------------------------------
Long-term debt at December 31, 2001 and 2000 consisted of the following
components.
(In thousands) 2001 2000
- ----------------------------------------------------------------------------------------------------------
7.32% note due 2007, unsecured $ 12,000 $ 14,000
9.75% note due 2008, secured by land and building -- 857
4.33% to 8.41% FHLB advances due 2000 to 2021,
secured by residential real estate loans 12,900 9,574
Trust Preferred Securities 17,250 17,250
---------- ---------
Total long-term debt $ 42,150 $ 41,681
========= ========
The Company owns a wholly owned grantor trust subsidiary (the Trust) to
issue preferred securities representing undivided beneficial interests in the
assets of the Trust and to invest the gross proceeds of such Preferred
Securities into notes of the Corporation. The sole assets of the Trust are $17.8
million aggregate principal amount of the Corporation's 9.12% Subordinated
Debenture Notes due 2027 which are redeemable beginning in 2002. Such securities
qualify as Tier 1 Capital for regulatory purposes.
Aggregate annual maturities of long-term debt at December 31, 2001 are:
Annual
(In thousands) Year Maturities
- ------------------------------------------------------------------------------------------------------------
2002 $ 5,888
2003 2,828
2004 2,828
2005 2,834
2006 2,853
Thereafter 24,919
----------
Total $ 42,150
=========
NOTE 8: CAPITAL STOCK
- --------------------------------------------------------------------------------
In addition to the common stock outstanding, the following classes of stock
have been authorized.
Class B common stock of $1.00 par value per share, authorized 300 shares:
none issued.
Class A preferred stock of $100.00 par value per share, authorized 50,000
shares: none issued.
Class B preferred stock of $100.00 par value per share, authorized 50,000
shares: none issued.
On January 23, 2001, the Company expanded the stock repurchase program.
This expansion authorized the repurchase of an additional 200,000 common shares.
The expanded program now has authorized the repurchase of 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. During the twelve-month period ended December 31, 2001, the Company
repurchased 143,955 common shares of stock with a weighted average repurchase
price of $25.24 per share. As of December 31, 2001, the Company has repurchased
a total of 300,782 common shares of stock with a weighted average repurchase
price of $22.81 per share.
NOTE 9: TRANSACTIONS WITH RELATED PARTIES
- --------------------------------------------------------------------------------
At December 31, 2001 and 2000, the subsidiary banks had extensions of
credit to executive officers, directors and to companies in which the banks'
executive officers or directors were principal owners, in the amount of $21.6
million in 2001 and $25.9 million in 2000.
(In thousands) 2001 2000
- ----------------------------------------------------------------------------------------------------------
Balance, beginning of year $ 25,883 $ 28,584
New extensions of credit 13,801 18,942
Repayments (18,079) (21,643)
--------- -------
Balance, end of year $ 21,605 $ 25,883
======== ========
In management's opinion, such loans and other extensions of credit and
deposits were made in the ordinary course of business and were made on
substantially the same terms (including interest rates and collateral) as those
prevailing at the time for comparable transactions with other persons. Further,
in management's opinion, these extensions of credit did not involve more than
the normal risk of collectability or present other unfavorable features.
NOTE 10: EMPLOYEE BENEFIT PLANS
- --------------------------------------------------------------------------------
The Company's 401(k) retirement plan covers substantially all employees.
Contribution expense totaled $282,000, $258,000 and $205,000, in 2001, 2000 and
1999, respectively.
The Company has a discretionary profit sharing and employee stock ownership
plan covering substantially all employees. Contribution expense totaled
$1,614,000 for 2001, $1,523,000 for 2000 and $1,353,000 for 1999.
The Board of Directors has adopted incentive and nonqualified stock option
plans. Pursuant to the plans, shares are reserved for future issuance by the
Company, upon exercise of stock options granted to officers and other key
employees. Also, 24,700, 3,000 and 3,000 additional shares of common stock of
the Company were granted and issued to executive officers of the Company as
bonus shares of restricted stock, during each of the years ended December 31,
2001, 2000 and 1999, respectively.
The Company applies APB Opinion 25 and related Interpretations in
accounting for the plans and no compensation cost has been recognized. If the
Company had elected to recognize compensation cost based on the fair value of
the options granted, net income and earnings per share would have been reduced
as indicated below:
(In thousands except per share data) 2001 2000 1999
- -------------------------------------------------------------------------------------------------------------------
Net income - as reported $ 16,528 $ 18,869 $ 17,168
Net income - pro forma 15,917 18,818 17,062
Diluted earnings per share - as reported 2.31 2.58 2.33
Diluted earnings per share - pro forma 2.22 2.57 2.31
The above pro forma amounts include only the effect of 2001, 2000 and 1999
option grants and therefore may not be representative of the pro forma impact in
future years.
The weighted average fair values of options granted during 2001, 2000 and
1999 were $4.58, $3.92 and $6.28 per share, respectively. The fair value of each
option grant is estimated on the date of grant using the Black-Scholes
option-pricing model with the following assumptions:
2001 2000 1999
------- ------ ------
Expected dividend yield 3.62% 3.81% 2.70%
Expected stock price volatility 16.00% 16.00% 16.00%
Risk-free interest rate 5.28% 6.12% 6.37%
Expected life of options 10 years 7 years 7 years
The table below summarizes the transactions under the Company's stock
option plans at December 31, 2001, 2000 and 1999 and changes during the years
then ended:
2001 2000 1999
----------------------- ----------------------- ----------------------
Weighted Weighted Weighted
Average Average Average
Shares Exercisable Shares Exercisable Shares Exercisable
(000) Price (000) Price (000) Price
- -------------------------------------------------------------------------------------------------------------------
Outstanding, beginning of year 235 $ 25.54 242 $ 24.64 233 $ 23.61
Granted 238 21.79 24 18.61 30 24.07
Forfeited/Expired (9) 27.90 (5) 19.69 (1) 39.54
Exercised (63) 10.05 (26) 11.68 (20) 10.06
------- ------- -------
Outstanding, end of year 401 25.68 235 25.54 242 24.64
======= ======= =======
Exercisable, end of year 206 $ 26.55 182 $ 24.57 174 $ 22.07
======= ======= =======
The following table summarizes information about stock options under the
plan outstanding at December 31, 2001:
Options Outstanding Options Exercisable
-------------------------------------------------- ----------------------------------
Weighted
Average Weighted Weighted
Number Remaining Average Number Average
Range of Outstanding Contractual Exercise Exercisable Exercise
Exercise Prices (000) Life Price (000) Price
- -------------------------------------------------------------------------------------------------------------------
$15.58 to $21.13 56 3 Years $19.49 43 $19.02
$24.25 to $24.25 205 10 Years $24.25 40 $24.25
$24.44 to $27.00 98 5 Years $26.05 91 $26.18
$30.70 to $45.25 42 4 Years $40.21 32 $40.61
Also, the Company has deferred compensation agreements with certain active
and retired officers. The agreements provide monthly payments which, together
with payments from the deferred annuities issued pursuant to the terminated
pension plan, equal 50 percent of average compensation prior to retirement or
death. The charges to income for the plans were $205,000 for 2001, $194,000 for
2000 and $211,000 for 1999. Such charges reflect the straight-line accrual over
the employment period of the present value of benefits due each participant, as
of their full eligibility date, using an 8 percent discount factor.
NOTE 11: ADDITIONAL CASH FLOW INFORMATION
- --------------------------------------------------------------------------------
In connection with cash acquisitions accounted for using the purchase
method, the Company acquired assets and assumed liabilities as follows:
(In thousands) 2001 2000 1999
- -------------------------------------------------------------------------------------------------------------------
Fair value of assets acquired $ -- $ 88,920 $ --
Liabilities assumed -- 72,827 --
--------- ---------- ----------
Cash paid -- 16,093 --
Funds acquired -- 1,695 --
--------- ---------- ----------
Net funds paid $ -- $ 14,398 $ --
======== ========= =========
Additional cash payment information
Interest paid $ 70,146 $ 68,428 $ 57,604
Income taxes paid 6,870 8,506 7,958
Approximately, $9,000,000 of investment securities previously classified as
held-to-maturity was reclassified as available-for-sale during the second
quarter of 1999. This was the result of the Company merging the Bank of Lincoln
into Simmons First Bank of Northwest Arkansas during the second quarter of 1999.
NOTE 12: OTHER EXPENSE
- --------------------------------------------------------------------------------
Other operating expenses consist of the following:
(In thousands) 2001 2000 1999
- -------------------------------------------------------------------------------------------------------------------
Professional services $ 1,759 $ 1,532 $ 1,444
Postage 2,016 2,057 1,895
Telephone 1,530 1,417 1,419
Credit card expense 1,808 1,704 1,624
Operating supplies 1,632 1,501 1,524
FDIC insurance 306 299 232
Amortization of intangible assets 3,024 2,811 2,469
Other expense 9,610 8,318 8,139
-------- --------- --------
Total $ 21,685 $ 19,639 $ 18,746
======== ======== =======
The Company had aggregate annual equipment rental expense of approximately
$727,000 in 2001, $1,027,000 in 2000 and $1,084,000 in 1999. The Company had
aggregate annual occupancy rental expense of approximately $834,000 in 2001,
$634,000 in 2000 and $556,000 in 1999.
NOTE 13: DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
- --------------------------------------------------------------------------------
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments:
CASH AND CASH EQUIVALENTS
The carrying amount for cash and cash equivalents approximates fair value.
INVESTMENT SECURITIES
Fair values for investment securities equal quoted market prices, if
available. If quoted market prices are not available, fair values are estimated
based on quoted market prices of similar securities.
MORTGAGE LOANS HELD FOR SALE
For homogeneous categories of loans, such as mortgage loans held for sale,
fair value is estimated using the quoted market prices for securities backed by
similar loans, adjusted for differences in loan characteristics.
LOANS
The fair value of loans is estimated by discounting the future cash flows,
using the current rates at which similar loans would be made to borrowers with
similar credit ratings and for the same remaining maturities. Loans with similar
characteristics were aggregated for purposes of the calculations. The carrying
amount of accrued interest approximates its fair value.
DEPOSITS
The fair value of demand deposits, savings accounts and money market
deposits is the amount payable on demand at the reporting date (i.e., their
carrying amount). The fair value of fixed-maturity time deposits is estimated
using a discounted cash flow calculation that applies the rates currently
offered for deposits of similar remaining maturities. The carrying amount of
accrued interest payable approximates its fair value.
FEDERAL FUNDS PURCHASED, SECURITIES SOLD UNDER AGREEMENT TO REPURCHASE AND
SHORT-TERM DEBT
The carrying amount for federal funds purchased, securities sold under
agreement to repurchase and short-term debt are a reasonable estimate of fair
value.
LONG-TERM DEBT
Rates currently available to the Company for debt with similar terms and
remaining maturities are used to estimate the fair value of existing debt.
COMMITMENTS TO EXTEND CREDIT, LETTERS OF CREDIT AND LINES OF CREDIT
The fair value of commitments is estimated using the fees currently charged
to enter into similar agreements, taking into account the remaining terms of the
agreements and the present creditworthiness of the counterparties. For fixed
rate loan commitments, fair value also considers the difference between current
levels of interest rates and the committed rates. The fair values of letters of
credit and lines of credit are based on fees currently charged for similar
agreements or on the estimated cost to terminate or otherwise settle the
obligations with the counterparties at the reporting date.
The following table represents estimated fair values of the Company's
financial instruments. The fair values of certain of these instruments were
calculated by discounting expected cash flows. This method involves significant
judgments by management considering the uncertainties of economic conditions and
other factors inherent in the risk management of financial instruments. Fair
value is the estimated amount at which financial assets or liabilities could be
exchanged in a current transaction between willing parties, other than in a
forced or liquidation sale. Because no market exists for certain of these
financial instruments and because management does not intend to sell these
financial instruments, the Company does not know whether the fair values shown
below represent values at which the respective financial instruments could be
sold individually or in the aggregate.
December 31, 2001 December 31, 2000
------------------------- ------------------------
Carrying Fair Carrying Fair
(In thousands) Amount Value Amount Value
- -------------------------------------------------------------------------------------------------
Financial assets
Cash and cash equivalents $ 194,841 $ 194,841 $ 111,135 $ 111,135
Held-to-maturity securities 191,125 194,502 184,413 185,663
Available-for-sale securities 256,180 256,180 214,070 214,070
Assets held in trading accounts 896 896 1,127 1,127
Mortgage loans held for sale 24,971 24,971 8,934 8,934
Interest receivable 15,764 15,764 18,878 18,878
Loans, net 1,238,288 1,251,255 1,273,553 1,282,287
Financial liabilities
Non-interest bearing transaction accounts 247,235 247,235 213,312 213,312
Interest bearing transaction accounts and
savings deposits 517,856 519,134 471,609 477,939
Time deposits 921,313 931,225 920,665 928,349
Federal funds purchased and securities
sold under agreements to repurchase 86,635 86,635 67,250 67,250
Short-term debt 3,801 3,801 4,070 4,070
Long-term debt 42,150 48,554 41,681 43,671
Interest payable 5,488 5,488 7,171 7,171
The fair value of commitments to extend credit and letters of credit is not
presented since management believes the fair value to be insignificant.
NOTE 14: SIGNIFICANT ESTIMATES AND CONCENTRATIONS
- --------------------------------------------------------------------------------
Generally accepted accounting principles require disclosure of certain
significant estimates and current vulnerabilities due to certain concentrations.
Estimates related to the allowance for loan losses and certain concentrations of
credit risk are reflected in Note 4.
NOTE 15: COMMITMENTS AND CREDIT RISK
- --------------------------------------------------------------------------------
The Company grants agri-business, credit card, commercial and residential
loans to customers throughout Arkansas. 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 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. At December 31, 2000, the
Company had outstanding commitments to extend credit aggregating approximately
$246,550,000 and $157,859,000 for credit card commitments and other loan
commitments, respectively.
Letters of credit are conditional commitments issued by 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 $4,218,000 and $3,400,000 at December 31, 2001 and 2000,
respectively, with terms ranging from 90 days to one year.
At December 31, 2001, the Company did not have concentrations of 5% or more
of the investment portfolio in bonds issued by a single municipality.
NOTE 16: FUTURE CHANGES IN ACCOUNTING PRINCIPLE
- --------------------------------------------------------------------------------
In 2001, the Financial Accounting Standards Board issued SFAS No. 142,
Goodwill and Other Intangible Assets. This statement addresses financial
accounting and reporting for goodwill subsequent to acquisition and other
intangible assets acquired in an acquisition. The Company will be required to
adopt the new rules effective January 1, 2002. The new rule will eliminate the
amortization of goodwill and require that it be tested for impairment at a level
of reporting referred to as a reporting unit. The elimination of amortization of
goodwill is expected to increase 2002 net earnings by approximately $1.8
million, or $0.24 per diluted share. The Company will analyze and assess the
impairment provisions of the Statement, but has not yet determined the impact,
if any, of the adoption of those provisions.
NOTE 17: CONTINGENT LIABILITIES
- --------------------------------------------------------------------------------
The Company and/or its subsidiary banks have various unrelated legal
proceedings, most of which involve loan foreclosure activity pending, which, in
the aggregate, are not expected to have a material adverse effect on the
financial position of the Company and its subsidiaries.
NOTE 18: STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------
The Company's subsidiaries are subject to a legal limitation on dividends
that can be paid to the parent company without prior approval of the applicable
regulatory agencies. The approval of the Office of the Comptroller of the
Currency is required, if the total of all the 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 the current
year earnings plus 75% of the retained net earnings of the preceding year. At
December 31, 2001, the Company subsidiaries had approximately $12 million in
undivided profits available for payment of dividends to the Company, without
prior approval of the regulatory agencies.
The Company's subsidiaries are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory and possibly
additional discretionary actions by regulators that, if undertaken, could have a
direct material effect on the Company's financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
the Company must meet specific capital guidelines that involve quantitative
measures of the Company's assets, liabilities and certain off-balance-sheet
items as calculated under regulatory accounting practices. The Company's capital
amounts and classifications are also subject to qualitative judgments by the
regulators about components, risk weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Company to maintain minimum amounts and ratios (set forth in the
table below) of total and Tier 1 capital (as defined in the regulations) to
risk-weighted assets (as defined) and of Tier 1 capital (as defined) to average
assets (as defined). Management believes that, as of December 31, 2001, the
Company meets all capital adequacy requirements to which it is subject.
As of the most recent notification from regulatory agencies, the
subsidiaries were well capitalized under the regulatory framework for prompt
corrective action. To be categorized as well capitalized, the Company and
subsidiaries must maintain minimum total risk-based, Tier 1 risk-based and Tier
1 leverage ratios as set forth in the table. There are no conditions or events
since that notification that management believes have changed the institutions'
categories.
The Company's actual capital amounts and ratios along with the Company's
most significant subsidiaries are presented in the following table.
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provision
-------------------- --------------------- ----------------------
(In thousands) Amount Ratio-% Amount Ratio-% Amount Ratio-%
- -------------------------------------------------------------------------------------------------------------------
As of December 31, 2001
Total Risk-Based Capital Ratio
Simmons First National Corporation $ 181,646 14.1 $ 103,062 8.0 $ N/A
Simmons First National Bank 82,121 12.2 53,850 8.0 67,312 10.0
Simmons First Bank of Russellville 30,063 23.4 10,278 8.0 12,847 10.0
Simmons First Bank of Northwest Arkansas 16,007 11.0 11,641 8.0 14,552 10.0
Tier 1 Capital Ratio
Simmons First National Corporation 165,067 12.8 51,583 4.0 N/A
Simmons First National Bank 73,317 10.9 26,905 4.0 40,358 6.0
Simmons First Bank of Russellville 28,452 22.1 5,150 4.0 7,725 6.0
Simmons First Bank of Northwest Arkansas 14,188 9.8 5,791 4.0 8,687 6.0
Leverage Ratio
Simmons First National Corporation 165,067 8.3 79,550 4.0 N/A
Simmons First National Bank 73,317 6.9 42,503 4.0 53,128 5.0
Simmons First Bank of Russellville 28,452 14.4 7,903 4.0 9,879 5.0
Simmons First Bank of Northwest Arkansas 14,188 6.9 8,225 4.0 10,281 5.0
As of December 31, 2000
Total Risk-Based Capital Ratio
Simmons First National Corporation $ 171,138 13.3 $ 103,240 8.0 $ N/A
Simmons First National Bank 78,304 11.8 53,088 8.0 66,359 10.0
Simmons First Bank of Russellville 28,413 20.5 11,088 8.0 13,860 10.0
Simmons First Bank of Northwest Arkansas 15,052 10.4 11,578 8.0 14,473 10.0
Tier 1 Capital Ratio
Simmons First National Corporation 154,470 12.0 51,620 4.0 N/A
Simmons First National Bank 69,515 10.5 26,482 4.0 39,723 6.0
Simmons First Bank of Russellville 26,668 19.2 5,556 4.0 8,334 6.0
Simmons First Bank of Northwest Arkansas 13,235 9.2 5,754 4.0 8,632 6.0
Leverage Ratio
Simmons First National Corporation 154,470 8.4 73,470 4.0 N/A
Simmons First National Bank 69,515 7.7 36,112 4.0 45,140 5.0
Simmons First Bank of Russellville 26,668 12.7 8,399 4.0 10,499 5.0
Simmons First Bank of Northwest Arkansas 13,235 6.7 7,901 4.0 9,877 5.0
NOTE 19: CONDENSED FINANCIAL INFORMATION (PARENT COMPANY ONLY)
- --------------------------------------------------------------------------------
CONDENSED BALANCE SHEETS
DECEMBER 31, 2001 and 2000
(In thousands) 2001 2000
- ----------------------------------------------------------------------------------------------------------
ASSETS
Cash and cash equivalents $ 7,762 $ 7,493
Investments in wholly-owned subsidiaries 199,480 190,159
Intangible assets, net 27 116
Investment securities -- 1,721
Premises and equipment 2,380 4,500
Other assets 4,110 4,731
---------- ---------
TOTAL ASSETS $ 213,759 $ 208,720
========= ========
LIABILITIES
Long-term debt $ 29,783 $ 32,641
Other liabilities 1,613 2,736
---------- ---------
Total liabilities 31,396 35,377
---------- ---------
STOCKHOLDERS' EQUITY
Common stock 7,087 7,181
Surplus 45,278 47,964
Undivided profits 128,519 118,232
Accumulated other comprehensive income
Unrealized appreciation (depreciation) on available-for-sale
securities, net of income taxes of $887 at 2001
and income tax credits of $20 at 2000 1,479 (34)
---------- ---------
Total stockholders' equity 182,363 173,343
---------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 213,759 $ 208,720
========= ========
CONDENSED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 2001, 2000 and 1999
(In thousands) 2001 2000 1999
- -------------------------------------------------------------------------------------------------------------------
INCOME
Dividends from subsidiaries $ 12,722 $ 13,238 $ 14,614
Other income 4,046 4,536 3,611
-------- --------- --------
16,768 17,774 18,225
EXPENSE 7,113 7,144 8,212
--------- --------- --------
Income before income taxes and equity in
undistributed net income of subsidiaries 9,655 10,630 10,013
Provision for income taxes (1,062) (788) (1,363)
-------- --------- --------
Income before equity in undistributed net
income of subsidiaries 10,717 11,418 11,376
Equity in undistributed net income of subsidiaries 5,811 7,451 5,792
-------- --------- --------
NET INCOME $ 16,528 $ 18,869 $ 17,168
======== ======== =======
CONDENSED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2001, 2000 and 1999
(In thousands) 2001 2000 1999
- -------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 16,528 $ 18,869 $ 17,168
Items not requiring (providing) cash
Depreciation and amortization 319 381 386
Deferred income taxes (46) 12 (37)
Equity in undistributed income of bank subsidiaries (5,811) (7,451) (5,792)
Changes in
Other assets 621 (77) 309
Other liabilities (1,074) 981 (511)
---------- ---------- -----------
Net cash provided by operating activities 10,537 12,715 11,523
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of premises and equipment (142) (256) (264)
Sale of premises and equipment to subsidiary 2,032 -- 287
Capital contribution to subsidiary (2,000) (5,000) --
Proceeds from maturities of available-for-sale securities 1,721 66,030 58,759
Purchases of available-for-sale securities -- (59,153) (65,721)
---------- ---------- -----------
Net cash provided by (used in) investing activities 1,611 1,621 (6,939)
---------- ---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal reduction on long-term debt (2,858) (2,060) (2,055)
Dividends paid (6,241) (5,822) (5,366)
(Repurchase) issuance of common stock, net (2,780) (2,941) 289
--------- ---------- -----------
Net cash used in financing activities (11,879) (10,823) (7,132)
--------- ---------- -----------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 269 3,513 (2,548)
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR 7,493 3,980 6,528
---------- ---------- -----------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 7,762 $ 7,493 $ 3,980
========= ========= ==========
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
No items are reportable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
Incorporated herein by reference from the Company's definitive proxy
statement for the Annual Meeting of Stockholders to be held April 23, 2002,
filed pursuant to Regulation 14A on March 20, 2002.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated herein by reference from the Company's definitive proxy
statement for the Annual Meeting of Stockholders to be held April 23, 2002 filed
pursuant to Regulation 14A on March 20, 2002.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated herein by reference from the Company's definitive proxy
statement for the Annual Meeting of Stockholders to be held April 23, 2002,
filed pursuant to Regulation 14A on March 20, 2002.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated herein by reference from the Company's definitive proxy
statement for the Annual Meeting of Stockholders to be held April 23, 2002,
filed pursuant to Regulation 14A on March 20, 2002.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1 and 2. Financial Statements and any Financial Statement Schedules
The financial statements and financial statement schedules listed in the
accompanying index to the consolidated financial statements and financial
statement schedules are filed as part of this Annual Report.
(b) Reports on Form 8-K
The registrant filed Form 8-K on October 18, 2001. The report contained the
text of a press release issued by the registrant concerning the announcement of
third quarter earnings.
The registrant filed Form 8-K on November 28, 2001. The report contained
the text of a press release issued by the registrant concerning the declaration
of a quarterly dividend.
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) 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.
/s/ John L. Rush March 25, 2002
---------------------------------------
John L. Rush, Secretary
Pursuant to the requirements of the Securities and Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the registrant and in the capacities indicated on March 25, 2002.
Signature Title
/s/ J. Thomas May
- ------------------------ President, Chairman, Chief Executive Officer
J. Thomas May and Director
/s/ Barry L. Crow
- ------------------------ Executive Vice President and Chief Financial
Barry L. Crow Officer (Principal Financial and Accounting Officer)
/s/ William E. Clark
- ------------------------ Director
William E. Clark
/s/ Lara F. Hutt, III
- ------------------------ Director
Lara F. Hutt, III
/s/ George Makris, Jr.
- ------------------------ Director
George Makris, Jr.
/s/ David R. Perdue
- ------------------------ Director
David R. Perdue
/s/ Harry L. Ryburn
- ------------------------ Director
Harry L. Ryburn
/s/ Henry F. Trotter
- ------------------------ Director
Henry F. Trotter, Jr.
- ------------------------ Director
Jerry W. Watkins