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 (Fee Required) For the fiscal year ended: December 31, 1994
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (No Fee Required)
Commission file number 0-6253
SIMMONS FIRST NATIONAL CORPORATION
(Exact name of registrant as specified in its charter)
Arkansas 71-0407808
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification No.)
501 Main Street, Pine Bluff, Arkansas 71601
(Address of principal executive offices) (Zip Code)
(501) 541-1000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
-----------------------------------------------------------------------------
None None
Securities registered pursuant to Section 12(g) of the Act:
Class A Common Stock, $5.00 par value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge in definitive proxy or in information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [X]
The aggregate market value of common stock, par value $5.00 per share, held by
non-affiliates on March 16, 1995, was approximately $74,653,000.
The number of shares outstanding of the Registrant's Common Stock as of March
31, 1995 was 3,677,378.
Part III is incorporated by reference from the Registrant's Proxy Statement
relating to the Annual Meeting of Shareholders to be held on April 25, 1995.
FORM 10-K INDEX
Part I
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Item 1 Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
The Company and the Banks . . . . . . . . . . . . . . . . . . . . 1
Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Executive Officers of the Company . . . . . . . . . . . . . . . . 3
Supervision and Regulation. . . . . . . . . . . . . . . . . . . . 4
Item 2 Properties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Item 3 Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . 8
Item 4 Submission of Matters to a Vote of Security-Holders . . . . . . . . 8
Part II
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Item 5 Market for Registrant's Common Equity and Related Stockholder
Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Item 6 Selected Financial Data . . . . . . . . . . . . . . . . . . . . . .10
Item 7 Management's Discussion and Analysis of Financial Condition and
Results of Operations . . . . . . . . . . . . . . . . . . . . . . .11
Item 8 Consolidated Financial Statements and Supplementary Data. . . . . .32
Item 9 Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure. . . . . . . . . . . . . . . . . . . . . . . .60
Part III
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Item 10 Directors and Executive Officers of the Company . . . . . . . . . .60
Item 11 Executive Compensation. . . . . . . . . . . . . . . . . . . . . . .60
Item 12 Security Ownership of Certain Beneficial Owners and Management. . .60
Item 13 Certain Relationships and Related Transactions. . . . . . . . . . .60
Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K . .60
PART I
ITEM 1. BUSINESS.
THE COMPANY AND THE BANKS
The Simmons First National Corporation (the "Company") is a bank
holding company registered under the Bank Holding Company Act of 1956. At
December 31, 1994, the Company had consolidated total assets of $713.3
million, consolidated net loans of $410.6 million and total equity capital of
$83.7 million. The Company owns three subsidiary banks in Arkansas. Its
lead bank, Simmons First National Bank (the "Bank"), is a national bank which
has been in operation since 1903. The Bank's primary market
area, with the exception of its nationally-provided credit card and mortgage
banking services, is the State of Arkansas. The Company also owns two
community banks, Simmons First Bank of Jonesboro ("Simmons/Jonesboro"), and
Simmons First Bank of Lake Village ("Simmons/Lake Village"), both acquired in
1984. The Company's banking subsidiaries conduct their operations through 21
branches located in 10 communities in Arkansas.
Through its banking subsidiaries, the Company emphasizes retail
banking services, and it considers the Bank to be a national leader in
providing credit card services. The Bank has offered credit card services
since 1967, and at December 31, 1994, the Bank had approximately 184,000
active Visa and MasterCard accounts in all 50 states, the District of Columbia
and certain U.S. territories, with outstanding balances totalling $164.5
million, or approximately 40% of total consolidated loans. Approximately 58%
of the Bank's cardholders, representing approximately 68% of the aggregate
outstanding balances in the credit card portfolio, reside outside the State of
Arkansas. The Bank has consistently employed stringent, subjectively-based
credit standards in making credit decisions concerning card applicants, rather
than using a credit scoring, or statistical profile system typically employed
by other credit card issuers. Management believes this individualized
approach to decision-making, emphasizing credit histories and individual
borrower profiles, has been a significant positive factor in producing a high
quality credit card loan portfolio. At December 31, 1994, the Bank's credit
card delinquency and net loss ratios were 0.43% and 0.88%, respectively,
compared to the national averages of such ratios for all Visa card issuers of
3.10% and 3.43%, respectively. The Bank's credit card delinquency and net
loss ratios for 1994 are believed by management to be among the lowest such
ratios for all credit card providers in the United States.
The Bank is a leading provider of guaranteed student loans in
Arkansas. The Bank originated approximately $28 million in student loans to
over 9,500 borrowers during 1994. On December 31, 1994, the Bank owned and
serviced approximately 15,000 outstanding student loans totalling
approximately $63 million, or approximately 15% of the Company's total
consolidated loans.
The Company provides mortgage banking services through the Bank's
production, sale and servicing of residential real estate mortgages on
properties located primarily in the South, Midwest and Southwest United
States. At December 31, 1994, the Bank serviced, primarily for others,
approximately 28,000 mortgages with an aggregate principal balance of
approximately $1.2 billion.
The Company's banks also provide commercial banking services to
individuals and businesses, including a wide range of commercial and
agricultural loans, deposit, checking and savings accounts, personal and
corporate trust services and investment management, and securities and
investment services through selected banking locations in the State of
Arkansas.
Growth Strategy
The Company's growth strategy is to expand in its primary market
area of the State of Arkansas, by capitalizing on its recent entry into
Northwest Arkansas, one of the fastest growing areas in the state, and
emphasizing commercial and agricultural lending in that area, and by
expanding through further banking acquisitions where the Company believes the
acquired assets can be redeployed into higher yielding credit card loans and
other retail banking services.
COMPETITION
The activities engaged in by the Company and its subsidiaries are
highly competitive. In all aspects of its business, the Company encounters
intense competition from other banks, lending institutions, credit unions,
savings and loan associations, brokerage firms, mortgage companies,
industrial loan associations, finance companies, and several other financial
and financial service institutions. The amount of competition among
commercial banks and other financial institutions has increased significantly
over the past few years since the deregulation of the banking industry. The
Company's subsidiary banks actively compete with other banks and financial
institutions in their efforts to obtain deposits and make loans, in the scope
and type of services offered, in interest rates paid on time deposits and
charged on loans and in other aspects of commercial banking.
Management believes that the single most important competitive factor
in the credit card business is price, in the form of interest rates and
membership fees charged to cardholders, discount fees charged to participating
merchants, and the level of fees and credits shared with members of the agent
bank network for their participation in the Bank's network. Maintenance of
the Bank's agent bank network is a key element in maintaining the Bank's
dominant position in the credit card business in Arkansas.
Management believes that the Bank's principal competitive strength in
both the Arkansas and national markets for new cardholder business has been
its low interest rate charged to cardholders and resulting favorable national
recognition. In 1993, a large bank holding company in Arkansas, which has
substantially greater financial resources than those of the Company,
recommenced active marketing as a card issuer for Visa and MasterCard
inside and outside Arkansas, after having discontinued such activities several
years ago, and has advertised interest rates on its credit cards competitive
with the rates charged by the Bank. Another large, Arkansas-based bank holding
company, recently acquired by Boatman's of St. Louis, also has increased its
market share as a credit card issuer. Management cannot predict the effect on
its credit card business of these and other new entrants into the market, but
believes the Bank's continuous participation and experience in this market
since 1967 provides it with unique marketing and other strengths in competing
for new cardholder business.
As more credit card issuers have entered the market for merchant
customers in Arkansas during the past three years, competition has intensified
for merchant customers and their related business, primarily on the basis
of price and quality of service. While the Bank's merchant purchase volume
has remained flat during the past three years, management believes that most
established card issuers in the Arkansas market have experienced declines
in their merchant purchase volume as a result of the increased competition.
Management expects that the Bank's merchant purchase volume will remain flat
or decline in the future as a result of continuing competitive conditions.
The Company's banking subsidiaries are also in competition with major
national and international retail banking establishments, brokerage firms and
other financial institutions within and outside Arkansas. Competition with
these financial institutions is expected to increase, especially with the
passage of legislation authorizing interstate banking.
According to information obtained from the Arkansas Association of
Bank Holding Companies, during 1994 there were approximately 30 multi-bank
holding companies doing business in Arkansas and approximately 102 additional
single bank holding companies. As of December 31, 1994, the Company was the
sixth largest multi-bank holding company doing business in Arkansas, based
upon total assets and total deposits.
EMPLOYEES
As of March 15, 1995, the Company and its subsidiaries had 611
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.
All of said officers are elected annually by the Board of Directors.
NAME AGE POSITION YEARS SERVED
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W. E. Ayres 64 Chairman 36
J. Thomas May 48 President and Chief Executive Officer 8
Donald W. Stone 64 Chairman, Simmons First Bank of Jonesboro 36
Barry L. Crow 52 Executive Vice President and 23
Chief Financial Officer
John L. Rush 60 Secretary 27
SUPERVISION AND REGULATION
THE COMPANY
The Company, as a bank holding company, is subject to both federal
and state regulation. Under federal law, a bank holding company must
generally obtain approval from the Board of Governors of the Federal Reserve
System ("FRB") before acquiring ownership or control of the assets or stock of
a bank or a bank holding company. Prior to approval of any proposed
acquisition, the FRB will review the effect on competition of the proposed
acquisition, as well as other regulatory issues.
The federal law generally prohibits a bank holding company from
directly or indirectly engaging in non-banking activities. This prohibition
does not include loan servicing, liquidating activities or other activities
so closely related to banking as to be a proper incident thereto.
As a bank holding company, the Company is required to file with the
FRB an annual report and such additional information as may be required by
law. From time to time, the FRB examines the financial condition of the
Company and its subsidiaries. The FRB, through civil and criminal sanctions,
is authorized to exercise enforcement powers over bank holding companies and
non-banking subsidiaries, to limit activities that represent unsafe or
unsound practices or constitute violations of law.
The Company is subject to certain laws and regulations of the
State of Arkansas applicable to bank holding companies, including examination
and supervision by the Arkansas Bank Commissioner. Under Arkansas law, a bank
holding company is prohibited from owning more than one subsidiary bank, if
any subsidiary bank owned by the holding company has been chartered for less
than 10 years and, further, requires the approval of the Arkansas Bank
Commissioner for any acquisition of more than 10% 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.
Bank holding companies located in Arkansas are authorized to
acquire banks and bank holding companies located in any of 17 states generally
located in the Southern and Midwestern United States. Further, bank holding
companies located in any of those states may acquire banks and bank holding
companies located in Arkansas, if such state permits bank holding companies
located in Arkansas to acquire banks and bank holding companies located in
that state on a non-discriminatory basis. In 1994, legislation was enacted,
effective September 29, 1995, which will allow 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 adeuately capitalized,
(2) is adequately managed, (3) would not control more than 10% of the insured
deposits in the United States or more than 30% of the insured deposits in such
state, and (4) such bank has been in existence at least five years if so
required by the applicable state law.
SUBSIDIARY BANKS
Simmons First National Bank, a national banking association, is
subject to regulation and supervision, of which regular bank examinations are
a part, by the Office of the Comptroller of the Currency of the United States
("OCC"). Simmons/Jonesboro and Simmons/Lake Village, as state chartered
banks, are subject to the supervision and regulation, of which regular bank
examinations are a part, by the Federal Deposit Insurance Corporation ("FDIC")
and the Arkansas State Bank Department. The lending powers of each of the
subsidiary banks are generally subject to certain restrictions, including the
amount which may be lent to a single borrower.
The subsidiary banks, with numerous exceptions, are subject to the
application of the laws of the State of Arkansas, including the limitation of
the maximum permissible interest rate on loans. This limitation for general
loans is 5% over the Federal Reserve Discount Rate, with an additional maximum
limitation of 17% per annum for consumer loans and credit sales. Certain
loans secured by first liens on residential real estate and certain loans
controlled by federal law (e.g., guaranteed student loans, SBA loans, etc.)
are exempt from this limitation; however, a very substantial portion of the
loans made by the subsidiary banks, including all credit card loans, are
subject to this limitation.
All of the Company's subsidiary banks are members of the FDIC,
which currently insures the deposits of each member bank to a maximum of
$100,000 per deposit relationship. For this protection, each bank pays a
statutory assessment to the FDIC each year.
Federal law substantially restricts transactions between banks and
their affiliates. As a result, the Company's subsidiary banks are limited in
making extensions of credit to the Company, investing in the stock or other
securities of the Company and engaging in other financial transactions with
the Company. Those transactions which are permitted must generally be
undertaken on terms at least as favorable to the bank, as those prevailing in
comparable transactions with independent third parties.
POTENTIAL ENFORCEMENT ACTION FOR BANK HOLDING COMPANIES AND BANKS
Enforcement proceedings seeking civil or criminal sanctions may be
instituted against any bank, any director, officer, employee or agent of the
bank, that is believed by the federal banking agencies to be violating any
administrative pronouncement or engaged in unsafe and unsound practices. In
addition, the FDIC may terminate the insurance of accounts, upon
determination that the insured institution has engaged in certain wrongful
conduct, or is in an unsound condition to continue operations. Recent
legislation has significantly expanded the enforcement powers of the federal
banking agencies and increased the penalties for violations of the law and
regulations.
RISK-WEIGHTED CAPITAL REQUIREMENTS FOR THE COMPANY AND THE BANKS
After December 31, 1992, 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 and the subsidiary banks' risk-weighted capital ratios, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Capital."
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 after December 31, 1992.
Identifiable intangible assets may be included in Tier 1 Capital for banks and
bank holding companies, in accordance with certain further requirements. At
least 50% of the banking organization's total regulatory capital must consist
of Tier 1 Capital.
Tier 2 Capital is an amount equal to the sum of the qualifying
portion of the allowance for loan losses, certain preferred stock not included
in Tier 1, hybrid capital instruments (instruments with characteristics of
debt and equity), certain long term debt securities and eligible term
subordinated debt, in an amount up to 50% of Tier 1 Capital. The eligibility
of these items for inclusion as Tier 2 Capital is subject to certain
additional requirements and limitations of the federal banking agencies.
Under the risk-based capital guidelines, balance sheet assets and
certain off-balance sheet items, such as standby letters of credit, are
assigned to one of four risk weight categories (0%, 20%, 50%, or 100%),
according to the nature of the asset, its collateral or the identity of the
obligor or guarantor. The aggregate amount in each risk category is adjusted
by the risk weight assigned to that category, to determine weighted values,
which are then added to determine the total risk-weighted assets for the
banking organization. For example, an asset, such as a commercial loan,
assigned to a 100% risk category, is included in risk-weighted assets at its
nominal face value, but a loan secured by a one-to-four family residence is
included at only 50% of its nominal face value. The applicable ratios reflect
capital, as so determined, divided by risk-weighted assets, as so determined.
RECENT LEGISLATION FOR BANK HOLDING COMPANIES AND BANKS
The Federal Deposit Insurance Corporation Improvement Act
("FDICIA"), enacted in 1991, requires the FDIC to increase assessment rates
for insured banks and authorizes one or more "special assessments", as
necessary for the repayment of funds borrowed by the FDIC or any other
necessary purpose. As directed in FDICIA, the FDIC has adopted a transitional
risk-based assessment system, under which the assessment rate for insured
banks will vary, according to the level of risk incurred in the bank's
activities. The risk category and risk-based assessment for a bank is
determined from its classification, pursuant to the regulation, as well
capitalized, adequately capitalized or undercapitalized.
FDICIA substantially revised the bank regulatory provisions of the
Federal Deposit Insurance Act and other federal banking statutes, requiring
federal banking agencies to establish capital measures and classifications.
Pursuant to the regulations issued under FDICIA, a depository institution will
be deemed to be well capitalized if it significantly exceeds the minimum level
required for each relevant capital measure; adequately capitalized if it meets
each such measure; undercapitalized if it fails to meet any such measure;
significantly undercapitalized if it is significantly below any such measure;
and critically undercapitalized if it fails to meet any critical capital
level set forth in regulations. The federal banking agencies must promptly
mandate corrective actions by banks that fail to meet the capital and related
requirements, in order to minimize losses to the FDIC. The Company was
advised by the FDIC and OCC that the subsidiary banks had been classified as
well capitalized under these regulations.
The federal banking agencies are required by FDICIA to prescribe
standards for banks and bank holding companies, relating to operations and
management, asset quality, earnings, and stock valuation and compensation. A
bank or bank holding company that fails to comply with such standards will be
required to submit a plan designed to achieve compliance. If no plan is
submitted or the plan is not implemented, the bank or holding company would
become subject to additional regulatory action or enforcement proceedings.
A variety of other provisions included in FDICIA may affect the
operations of the Company and the subsidiary banks, including new reporting
requirements, revised regulatory standards for real estate lending, "truth
in savings" provisions, and the requirement that a depository institution
give 90 days prior notice to customers and regulatory authorities before
closing any branch.
ITEM 2. PROPERTIES.
The principal properties of the Company and the Bank consist of an
eleven-story office building, located in the central business district of the
City of Pine Bluff, Arkansas. Originally constructed in 1929, the entire
building has since been completely renovated and modernized. The building is
comprised of approximately 107,000 square feet of floor space, approximately
7,474 square feet of which is leased to a tenant as office space. The office
building is situated on approximately one-fourth of a city block, the
remainder of which, together with approximately one additional city block
of adjacent property, is presently being used as a parking complex for
customers of the Company and its subsidiaries, tenants of the Company and its
subsidiaries and their customers, and the public. Additional office space was
made available in 1980, with the renovation of a storage facility to provide
a 9,601 square foot office complex, now housing the Company and its subsidiary
real estate and investment departments. In 1992, additional office space was
made available for the Bank's activities, when the Bank purchased a three-
story concrete office building, containing approximately 38,000 square feet
of space, across the street from its main bank building in Pine Bluff,
Arkansas. The Bank leased a portion of the building prior to purchasing the
building. In 1993, an additional 6,000 square feet were made available when
the Company leased a three-story brick building adjoining the one purchased
in 1992. This building was later purchased also. This added another 5,000
square feet of storage in addition to the office space for a total of
approximately 11,000 square feet. This facility houses the Company's student
loan operation. In late 1994, the Company completed renovation of the
building purchased in 1992 and occupancy of the space commenced at that time.
The Company and the Bank also operate eight drive-in banking facilities,
located throughout the city of Pine Bluff, Arkansas, and banking facilities
at Watson Chapel, White Hall and Sherrill, Arkansas, as well as the newly
acquired offices at Fort Smith, Rogers, Springdale, and Bella Vista, Arkansas.
The largest banking facility comprises approximately 4,200 square feet of
floor space, and the smallest comprises approximately 300 square feet.
The principal property of Simmons/Lake Village consists of a one-
story building located in the central business area of the City of Lake
Village, comprising approximately 6,000 square feet of floor space.
The principal property of Simmons/Jonesboro consists of a three-
story building, located in the central business district of the City of
Jonesboro, Arkansas, comprising approximately 47,108 square feet of floor
space, 14,252 feet of which is available for lease. In addition, Simmons/
Jonesboro operates two drive-in banking facilities located in that city.
All of the above properties are owned in fee simple and
unencumbered, except (a) approximately one-fourth city block in Pine Bluff,
which is leased from various persons for terms expiring in 2007 with options
to extend for an additional 50 years, which leased parcels comprise a portion
of the parking complex and lie partially under a small portion of a one-floor
extension of the office building, (b) the lands upon which four of the drive-
in banking facilities in Pine Bluff are situated, two of which parcels are
leased for a term expiring in 1995, one in 1997, another in 2010,
and the other of which parcels is leased for a term expiring in 2035, and (c)
the building and land described in a preceding paragraph for the banking
facility in Jonesboro, which has a first mortgage lien to an insurance
company with monthly payments of $12,243 including interest at 9.75%. The
newest Pine Bluff Office and the Rogers, Springdale, and Fort Smith Stonewood
facilities were purchased during 1991. Lease agreements were signed during
1991 for the Bella Vista office, as well as the other two Fort Smith
facilities. Terms of the Bella Vista and Fort Smith South lease expire in
1995 and 1997, respectively, and the Fort Smith Central Mall lease expires in
1995. The offices of the mortgage marketing and dealer bank divisions,
located in Little Rock, Arkansas, comprise approximately 20,000 square feet
of all floors of the three-story leased building, with approximately 36,000
total square feet available for lease. The lease expires in 1996.
The Company and its subsidiaries also own or lease various small
parcels of land, on some of which are located improvements, the aggregate of
which would comprise an insignificant portion of the properties of registrant
and its subsidiaries.
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. PRICE RANGE OF COMMON STOCK AND DIVIDEND INFORMATION
The Common Stock is traded and quoted on the over-the-counter NASDAQ
National Market System under the symbol "SFNCA." Prior to October 26, 1992,
the Common Stock was traded on the NASDAQ over-the-counter market. The
following table sets forth, for all the periods indicated, cash dividends
paid, and the high and low bid prices for the Common Stock as reported by
NASDAQ. Prior to 1993, historically, the Common Stock had not been actively
traded. All price quotations and dividend information have been restated to
reflect the 100% stock dividend on the Common Stock effected June 5, 1992.
Price Per Quarterly
Common Share Dividends
---------------------- Per Common
High Low Share
-------- --------- ----------
1994
1st Quarter $ 27.75 $ 22.50 $ .10
2nd Quarter 25.75 22.50 .12
3rd Quarter 29.00 25.00 .12
4th Quarter 28.50 22.00 .13
1993
1st Quarter $ 25.00 $ 21.00 $ .10
2nd Quarter 24.50 21.75 .10
3rd Quarter 25.00 22.00 .10
4th Quarter 27.50 25.00 .10
At December 31, 1994, the Common Stock was held of record by
approximately 1,218 stockholders. On March 16, 1995, the last sale price for
the Common Stock as reported by NASDAQ was $24.25 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 in any year,
in excess of the sum of net income for that year and retained earnings for the
preceding two years, must be approved by the Office of the Comptroller of the
Currency. Further, as to Simmons/Jonesboro and Simmons/Lake Village, Arkansas
bank regulators have specified that the maximum dividends state banks may pay
to the parent company without prior approval is 50% of the current year
earnings. At December 31, 1994, approximately $13.0 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
Interest Rate Sensitivity," and Note 21 of Notes to Consolidated Financial
Statements.
ITEM 6: SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated financial data
concerning the Company and is qualified in its entirety by the detailed
information and consolidated financial statements, including notes thereto,
included elsewhere in this annual report. The income statement, balance sheet
and per common share data as of and for the years ended December 31, 1994,
1993, 1992, 1991, and 1990 were derived from consolidated financial
statements of the Company, which were audited by 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,(f1)
(Dollars in Thousands, --------------------------------------------------------------------------
except per common share data) 1994 1993 1992 1991 1990
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Income statement data:
Net interest income $ 29,259 $ 28,450 $ 26,525 $ 22,536 $ 21,278
Provision for loan losses 2,050 3,006 3,741 3,552 2,681
Net interest income after
provision for loan losses 27,209 25,444 22,784 18,984 18,597
Non-interest income 24,847 26,129 25,578 23,114 19,786
Non-interest expense 38,415 38,711 37,978 34,869 32,197
Income tax expense 3,781 3,466 2,907 1,929 1,823
Net income 9,860 9,396 7,477 5,300 4,363
Per common share data:
Earnings 2.68 2.78 2.60 1.89 1.56
Book value 22.76 20.49 18.03 15.83 14.02
Dividends .47 .40 .40 .37 .34
Balance sheet data at period-end:
Total assets 713,262 738,760 705,903 673,377 647,783
Total loans, net of unearned discount 418,392 394,426 367,655 331,062 329,951
Credit card loans 164,501 168,673 162,251 123,593 105,016
Allowance for loan losses 7,790 7,430 5,748 5,302 4,507
Total deposits 583,538 610,355 590,409 563,114 528,302
Long-term debt and other
notes payable 12,144 12,178 12,208 12,236 12,261
Total stockholders' equity 83,700 75,335 51,219 45,460 40,259
Capital ratios at period end:
Leverage(f2) 11.47 % 10.21 % 6.90 % 6.24 % 5.68 %
Tier one risk-based 19.25 % 17.19 % 12.27 % 10.39 % 9.11 %
Total risk-based 21.56 % 20.01 % 15.76 % 14.45 % 13.11 %
Selected ratios:
Return on average assets 1.39 % 1.33 % 1.09 % .84 % .82 %
Return on average common
equity 12.28 % 14.31 % 15.43 % 12.50 % 11.33 %
Net interest margin(f3) 4.80 % 4.75 % 4.56 % 4.19 % 4.77 %
Allowance/nonperforming loans 248.73 % 177.92 % 94.84 % 173.78 % 75.13 %
Allowance for loan losses
as a percentage of
average loans 1.99 % 1.88 % 1.60 % 1.54 % 1.36 %
Nonperforming loans as a
percentage of period-end
loans .75 % 1.06 % 1.65 % .92 % 1.81 %
Net charge-offs as a percentage
of average total assets .24 % .19 % .48 % .44 % .38 %
Average stockholders' equity to
average total assets 11.31 % 9.33 % 7.09 % 6.75 % 7.22 %
Dividend payout 17.54 % 14.39 % 15.38 % 19.58 % 21.79 %
-----------------
<FN>
(1)The selected consolidated financial data set forth above 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.
(2) Leverage ratio is Tier 1 Capital to average total assets less intangible
assets.
(3) Fully taxable equivalent on a 34% federal tax rate basis for all periods
presented.
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
The Company is a multi-bank holding company, comprised of three
commercial bank subsidiaries, with $713.3 million in assets, as of December
31, 1994.
The Company achieved record earnings performance in 1994. For the
year ended December 31, 1994, net income totaled $9.9 million, a $.5 million,
or 4.9%, increase over 1993 net income of $9.4 million. Return on average
assets was 1.39% in 1994, compared to 1.33% in 1993, and 1.09% in 1992.
Return on average equity was 12.28% in 1994, compared to 14.31% in 1993, and
15.43% in 1992. On a per share basis, net income for 1994 was $2.68,
compared to $2.78 in 1993 and $2.60 in 1992. Dividends for 1994 were $.47,
compared to dividends of $.40 in 1993 and 1992.
Stockholders' equity at December 31, 1994, was $83.7 million, an
increase of 11.1% over the 1993 amount. The Company issued 805,000 shares of
common stock during the second quarter of 1993. Earnings per common share
presented in the financial statements have been computed to reflect the
effects of the additional shares of stock.
ACQUISITIONS
On November 15, 1994, the Company entered into a definitive
agreement with Dumas Bancshares, Inc. of Dumas Arkansas, under the terms of
which Dumas Bancshares, Inc., will be merged into the Company during the
first half of 1995.
INCOME STATEMENT REVIEW FOR THE YEARS 1994, 1993 AND 1992
In 1994, the Company reported record net earnings of $9.9
million, and earnings per share of $2.68. This compares to then-record net
earnings of $9.4 million, and record earnings per share of $2.78, reported in
1993. The earnings increase in 1994 was the result of an increase in net
interest margin, a $9.9 million increase in average earning assets, a decrease
in non-interest expense and a reduction in the provision for loan losses.
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 federal income
tax rate (34% for 1994, 1993 and 1992).
For the year ended December 31, 1994, net interest income on a
fully taxable equivalent basis was $30.6 million, an increase of approximately
$.7 million, or 2.5%, from 1993 net interest income. The increase in net
interest income resulted primarily from a $9.9 million increase in average
earning assets, coupled with an increase in net interest margin. For the
year ended December 31, 1993, net interest income on a fully taxable equivalent
basis increased approximately $2.2 million, or 7.8%, from comparable figures in
1992. This increase in net interest income resulted primarily from a more
precipitous drop in rates on interest-bearing liabilities than the related
decline in yield on earning assets. The tables below reflect an analysis of
net interest income on a fully taxable equivalent basis for the years ended
December 31, 1994, 1993 and 1992, respectively, as well as changes in fully
taxable equivalent net interest income for the years 1994 vs. 1993 and 1993
vs. 1992.
ANALYSIS OF NET INTEREST INCOME
(FTE = FULLY TAXABLE EQUIVALENT)
Years Ended December 31,
--------------------------------------------------
(Dollars in Thousands) 1994 1993 1992
----------------------------------------------------------------------------------------------
Interest income $ 45,727 $ 44,394 $ 46,042
FTE adjustment 1,373 1,434 1,201
--------- --------- ---------
Interest income - FTE 47,100 45,828 47,243
Interest expense 16,468 15,944 19,517
--------- --------- ---------
Net interest income - FTE $ 30,632 $ 29,884 $ 27,726
========= ========= =========
Yield on earning assets - FTE 7.38 % 7.29 % 7.77 %
Cost of interest-bearing liabilities 3.20 % 3.11 % 3.71 %
Net interest spread - FTE 4.18 % 4.18 % 4.06 %
Net interest margin - FTE 4.80 % 4.75 % 4.56 %
CHANGES IN FULLY TAXABLE EQUIVALENT NET INTEREST INCOME
(Dollars in Thousands) 1994 vs. 1993 1993 vs. 1992
-----------------------------------------------------------------------------------------
Increase (decrease) due to change in
earning assets $ 1,407 $ 284
Increase (decrease) due to change in
earning asset yields (135) (1,699)
Increase due to change in
interest rates paid on interest-
bearing liabilities (1,040) 3,330
Increase (decrease) due to change in
interest-bearing
liabilities 516 243
-------- --------
Increase in net interest income $ 748 $ 2,158
======== ========
The following table shows, for each major category of earning
assets and interest bearing liabilities, the average amount outstanding, the
interest earned or expensed on such amount, and the average rate earned or
expensed for each of the years in the three-year period ending December 31,
1994. The table also shows the average rate earned on all earning assets,
the average rate expensed on all interest-bearing liabilities, the net
interest spread and the net interest margin for the same periods. The
analysis is presented on a fully taxable equivalent basis. Nonaccrual loans
were included in average loans for the purpose of calculating the rate earned
on total loans. Under Financial Accounting Standard Board Statement No. 91
(FAS 91), loan fees and related costs are deferred and amortized as part of
interest income.
AVERAGE CONSOLIDATED BALANCE SHEETS AND NET INTEREST ANALYSIS
Years Ended December 31,
-----------------------------------------------------------------------------------------------------
1994 1993 1992
-----------------------------------------------------------------------------------------------------
(Dollars in Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
Thousands) balance expense rate balance expense rate balance expense rate
---------------------------------------------------------------------------------------------------------------------------------
ASSETS
------
Earning assets:
Interest-bearing
balances due from
banks $ 1,408 $ 55 3.88 % $ 856 $ 27 3.15 % $ 1,447 $ 47 3.25 %
Federal funds sold 27,812 1,218 4.38 % 23,345 738 3.16 % 45,582 1,625 3.57 %
Investment securities -
taxable:
Held-to-maturity 91,858 5,696 6.20 % 161,281 10,234 6.32 % 164,421 12,102 7.36 %
Available-for-sale 46,601 2,803 6.02 %
Investment securities -
non-taxable:
Held-to-maturity 50,605 4,027 7.96 % 45,681 3,945 8.64 % 33,886 3,200 9.44 %
Mortgage loans held for
sale, net of unrealized
gains (losses) 27,957 2,081 7.44 % 31,634 2,236 7.07 % 17,918 1,469 8.20 %
Assets held in trading
accounts 1,687 103 6.11 % 2,350 166 7.06 % 2,832 221 7.80 %
Loans - non-taxable 2,174 242 11.12 % 2,483 273 10.98 % 3,035 342 11.27 %
Loans - taxable 388,327 30,875 7.95 % 360,922 28,209 7.82 % 339,233 28,237 8.32 %
-------- -------- -------- -------- -------- --------
Total interest
earning assets 638,429 $ 47,100 7.38 % 628,552 $ 45,828 7.29 % 608,354 $ 47,243 7.77 %
======== ======== ========
Non-earning assets 71,377 75,592 75,415
-------- -------- --------
Total assets $ 709,806 $ 704,144 $ 683,769
======== ======== ========
LIABILITIES AND
---------------
STOCKHOLDERS'
-------------
EQUITY
------
Liabilities
Interest-bearing
liabilities:
Deposits:
Interest-bearing
transaction &
savings accts $ 232,351 $ 5,248 2.26 % $ 200,122 $ 5,232 2.61 % $ 216,591 $ 5,922 2.73 %
Time deposits 241,786 9,223 3.81 % 268,739 9,019 3.36 % 263,074 11,590 4.41 %
-------- -------- -------- -------- -------- --------
Total interest-
bearing deposits 474,137 14,471 3.05 % 468,861 14,251 3.04 % 479,665 17,512 3.65 %
Federal funds purchased
and securites sold
under agreements to
repurchase 24,021 962 4.00 % 28,517 841 2.95 % 31,863 1,094 3.43 %
Other borrowed funds:
Short-term debt 4,001 163 4.07 % 2,764 79 2.86 % 2,235 90 4.03 %
Long-term debt 1,161 122 10.49 % 1,192 113 9.48 % 1,221 119 9.75 %
Capital notes 11,000 750 6.82 % 11,000 660 6.00 % 11,000 702 6.38 %
-------- -------- -------- -------- --------
Total interest-
bearing
liabilities 514,320 16,468 3.20 % 512,334 15,944 3.11 % 525,984 19,517 3.71 %
-------- -------- --------
Non-interest liabilities:
Non-interest-
bearing deposits 105,856 116,744 98,482
Other non-interest-
liabilities 9,323 9,383 10,855
-------- -------- --------
Total
liabilities 629,499 638,461 635,321
-------- -------- --------
Stockholders' equity 80,307 65,683 48,448
-------- -------- --------
Total Liabilities
and Stockholders'
Equity $ 709,806 $ 704,144 $ 683,769
======== ======== ========
Net interest
margin $ 30,632 4.80 % $ 29,884 4.75 % $ 27,726 4.56 %
======== ======== ========
The following table shows changes in interest income and interest
expense, resulting from changes in volume and changes in interest rates for
each of the years ended December 31, 1994 and 1993, 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 change in rate and volume.
VOLUME/RATE ANALYSIS
Years Ended December 31,
1994 over 1993 1993 over 1992
------------------------------------- -------------------------------------------
Yield/ Yield/
(Dollars in Thousands) Volume rate Total Volume rate Total
--------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in:
Interest income:
Interest-earning time deposits $ 21 $ 7 $ 28 $ (19) $ (1) $ (20)
Federal funds sold 159 321 480 (719) (168) (887)
Investment securities - taxable:
Held-to-maturity (4,305) (233) (4,538) (226) (1,642) (1,868)
Available-for-sale 3,406 (603) 2,803 -- -- --
Investment securities - non-taxable:
Held-to-maturity 303 (221) 82 986 (241) 745
Mortgage loans held for delivery
against commitments (282) 127 (155) 935 (168) 767
Trading account securities (43) (20) (63) (35) (20) (55)
Loans - non-taxable (35) 4 (31) (60) (9) (69)
Loans, net of unearned discount 2,183 483 2,666 (578) 550 (28)
--------- --------- --------- --------- --------- ----------
Total $ 1,407 $ (135) $ 1,272 $ 284 $ (1,699) $ (1,415)
--------- --------- --------- --------- --------- ----------
Interest expense:
Interest-bearing transaction &
savings accounts $ 101 $ (85) $ 16 $ (437) $ (253) $ (690)
Time deposits (561) 765 204 257 (2,828) (2,571)
Federal funds purchased
and securities sold under
agreements to repurchase (96) 217 121 (109) (144) (253)
Other borrowed funds:
Short-term debt 43 41 84 49 (60) (11)
Long-term debt (3) 12 9 (3) (3) (6)
Capital notes -- 90 90 -- (42) (42)
--------- --------- --------- --------- ---------- ----------
Total $ (516) $ 1,040 $ 524 $ (243) $ (3,330) $ (3,573)
--------- --------- --------- --------- ---------- ----------
Increase (decrease) in
net interest income $ 1,923 $ (1,175) $ 748 $ 527 $ 1,631 $ 2,158
========= ========= ========= ========= ========== ==========
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 1994 was $2.1 million, a decrease of
$1.0 million, or 31.8%, when compared to the provision in 1993, reflecting a
continuing improvement in asset quality. The provision for 1993 was $3.0
million, a decrease of $.7 million, or 19.7%, from 1992. The decreases in
the provision for 1994 and 1993 relate primarily to the increase in coverage
ratio (90 day past-due and nonaccrual loans) for nonperforming loans to
248.73% at December 31, 1994, compared to 177.92% at December 31, 1993.
Nonperforming loans were reduced to a level of $3.1 million at December 31,
1994, compared to $4.2 million at December 31, 1993.
Non-Interest Income
Total non-interest income was $24.8 million in 1994, compared to
$26.1 million in 1993 and $25.6 million in 1992. Non-interest income is
principally derived from three sources: fee income, which includes service
charges on deposit accounts, trust fees, credit card fees, and loan servicing
fees; income on the sale of mortgage loans and dealer bank profits; and any
gain or loss on sold or called securities.
The table below shows non-interest income for the years ended
December 31, 1994, 1993 and 1992, respectively, as well as changes in 1994
from 1993 and in 1993 from 1992.
NON-INTEREST INCOME
Years Ended December 31, 1994 1993
----------------------------------- Change from Change from
(Dollars in Thousands) 1994 1993 1992 1993 1992
---------------------------------------------------------------------------------------------------------------------------------
Trust department income $ 1,763 $ 1,807 $ 1,750 $ (44) -2.43 % $ 57 3.26 %
Service charges on deposit accounts 2,263 2,296 2,124 (33) -1.44 % 172 8.10 %
Other service charges and fees 853 879 784 (26) -2.96 % 95 12.12 %
Income on sale of mortgage loans,
net of commissions (758) 767 553 (1,525) -198.83 % 214 38.70 %
Income on investment banking,
net of commissions 1,247 1,618 2,182 (371) -22.93 % (564) -25.85 %
Credit card fees 10,636 10,867 9,575 (231) -2.13 % 1,292 13.49 %
Loan service fees 6,817 7,322 7,941 (505) -6.90 % (619) -7.79 %
Other income 1,896 433 610 1,463 337.88 % (177) -29.02 %
Net realized gains on sold or
called securities 130 140 59 (10) -7.14 % 81 137.29 %
-------- -------- -------- -------- ---------
Total non-interest income $ 24,847 $ 26,129 $ 25,578 $ (1,282) -4.91 % $ 551 2.15 %
======== ======== ======== ======== =========
Fee income for 1994 was $22.3 million, a decrease of $.8 million,
or 3.6%, when compared with 1993 figures. Fee income for 1993 was $23.2
million, up $1.0 million, or 4.5%, when compared with 1992 figures. The
decrease for 1994 is primarily due to a slight decrease in the volume of
credit card fees, as a result of the national competition. In 1994, credit
card fees decreased $.2 million from the 1993 level of $10.9 million. In
1993, credit card fees increased $1.3 million from 1992, due to increased
volume that resulted primarily from the Company's capitalizing on national
media coverage of the Bank's having one of the lowest credit card rates in
the United States. Loan service fees decreased $.5 million in 1994 and $.6
million in 1993, primarily due to a lower volume of refinanced mortgage loans
and an increase in mortgage servicing amortization expense.
On the consolidated statements of income, income from the sale of
mortgage loans and dealer bank profits is presented net of commissions. The
income recorded in these accounts results from the Company's dealer bank
operation, as well as fee income associated with the purchase of single family
residential loans, the securitization of those loans, and subsequent sale and
delivery of those securities against prior commitments. For 1994, income
from these areas totaled $.5 million, compared to $2.4 million in 1993 and
$2.7 million in 1992. This reduction in 1994, as compared to 1993, is
primarily attributable to a mortgage marketing loss of $1.0 million and
reduced profits in the dealer bank operation. The resulting reduced level
of operating income for these two operations for 1994 can be directly
attributed to the negative impact of rising interest rates on the nation's
mortgage and securities markets. The overall reduction in mortgage income
for 1994 was partially offset by a third quarter sale of a portion of the
Bank's servicing rights, which resulted in other income of $.7 million.
Non-Interest Expense
Non-interest expense consists of salaries and employee benefits,
occupancy, equipment and other expenses necessary for the operation of the
Company. Management remains committed to controlling the level of non-
interest expense, through the continued use of expense control measures that
have been installed over the past six years. The Company utilizes an
extensive profit planning and reporting system that involves all affiliates
and their respective functional responsibility centers. Affiliate banks and
associated responsibility centers develop detailed monthly and annual profit
plans, including manpower and capital expenditure budgets, based on a needs
assessment of the business plan for the upcoming year. These profit plans are
subject to extensive initial reviews and then are monitored by the Company and
bank management on a monthly basis. Variances from the plan are reviewed in
detail monthly and, when required, management takes corrective action intended
to ensure that financial goals are met. Company management also regularly
monitors staffing levels at each affiliate, to ensure that productivity and
overhead are in line with existing workload requirements.
Non-interest expense for 1994 was $38.4 million, a decrease of $.3
million, or 0.8%, from 1993. Non-interest expense for 1993 was $38.7 million,
an increase of $.7 million, or 1.9%, from 1992. The slight decrease in 1994,
compared to 1993, reflects the effects of continued emphasis on expense
control measures.
The table below shows non-interest expense for the years ended
December 31, 1994, 1993 and 1992, respectively, as well as changes from 1994
to 1993 and 1993 to 1992, respectively.
NON-INTEREST EXPENSE
Years Ended December 31, 1994 1993
------------------------------------ Change from Change from
(Dollars in Thousands) 1994 1993 1992 1993 1992
------------------------------------------------------------------------------------------------------------------------------
Salaries and employee
benefits $ 20,104 $ 19,609 $ 18,677 $ 495 2.52 % $ 932 4.99 %
Occupancy expense, net 2,043 1,937 1,836 106 5.47 % 101 5.50 %
Furniture & equipment expense 1,964 1,969 2,003 (5) -0.25 % (34) -1.70 %
Loss on foreclosed assets 1,641 2,336 2,471 (695) -29.75 % (135) -5.46 %
Other operating expense:
Professional services 1,634 1,530 1,542 104 6.80 % (12) -0.78 %
Postage 1,234 1,267 1,365 (33) -2.60 % (98) -7.18 %
Telephone 771 783 798 (12) -1.53 % (15) -1.88 %
Credit card expense 1,458 1,163 1,083 295 25.37 % 80 7.39 %
Operating supplies 695 954 1,810 (259) -27.15 % (856) -47.29 %
FDIC insurance 1,307 1,293 1,066 14 1.08 % 227 21.29 %
Miscellaneous expenses 5,564 5,870 5,327 (306) -5.21 % 543 10.19 %
-------- -------- -------- -------- --------
Total non-interest expense $ 38,415 $ 38,711 $ 37,978 $ (296) -.76 % $ 733 1.93 %
======== ======== ======== ======== ========
Income Taxes
The provision for income taxes for 1994 was $3.8 million, compared
to $3.5 million in 1993 and $2.9 million in 1992. The effective income tax
rates for the years ended 1994, 1993 and 1992 were 27.8%, 27.0% and 28.0%,
respectively.
BALANCE SHEET REVIEW FOR THE YEARS 1994 AND 1993
Loan Portfolio
The Company's loan portfolio averaged $391.2 million during 1994
and $364.1 million during 1993. As of December 31, 1994, total loans were
$418.4 million, compared to $394.4 million on December 31, 1993. The most
significant components of the loan portfolio were loans to individuals, in
the form of credit card loans, student loans, and single family residential
real estate loans.
The Company seeks to manage its credit risk by diversifying its
loan portfolio, determining that borrowers have adequate sources of cash flow
for loan repayment without liquidation of collateral, obtaining and monitoring
collateral, providing an adequate allowance for loan losses, and regularly
reviewing loans through the internal loan review process. The loan portfolio
is diversified by borrower, purpose, industry and, in the case of credit card
loans, which are unsecured loans, 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 $268.1 million at December 31,
1994, or 64.1% of total loans, compared to $270.8 million, or 68.7% of total
loans at December 31, 1993. At year end, 1994, credit card loans were $164.5
million, or 39.3% of total loans, versus $168.7 million, or 42.8% of total
loans at December 31, 1993. The decrease relates, in part, to increased
competition from national credit card companies offering short-term incentive
rates to new customers.
The lead Bank has provided diversivied credit card services since
1967, when it became the first Arkansas Bank to issue internationally accepted
credit cards. The Bank is a member of both the Visa and Mastercard
associations, and is currently ranked 71st among all U.S. banks, based on the
number of cardholders in such banks.
The Bank generated income from its credit card operation primarily
from interest charged on daily balances and from annual membership and other
fees paid by cardholders, from discounts paid by merchants on purchases made
with the Bank's cards, and from interchange fees paid by depository and agent
banks for whom the Bank processes credit card transactions.
Since 1985, when it began receiving national recognition about the
low interest rates charged on cards issued by the Bank, the Bank has provided
these services to selected customers located throughout the United States.
Credit card customers reside in all 50 states, the District of Columbia and
certain U.S. territories. Approximately 58% of these customers reside
outside the State of Arkansas, representing approximately 68% of aggregate
outstanding credit card balances.
At the end of 1994, commercial, agricultural and financial
institution loans were $51.8 million, or 12.4% of total loans, a 32.1%
increase from 1993 year end's $39.2 million. Real estate construction and
land development loans at December 31, 1994, were $6.2 million, or 1.5% of
total loans, compared to $6.3 million, or 1.6% of total loans at the end of
1993. Single family real estate loans at December 31, 1994, were $43.6
million, or 10.4% of total loans, compared to $36.7 million, or 9.3% of total
loans at December 31, 1993.
The Financial Accounting Standards Board recently adopted Financial
Accounting Standards Board Statement No. 114, (FAS 114), "Accounting by
Creditors for Impairment of a Loan", which requires that impaired loans be
measured, based on the present value of expected cash flows discounted at the
loan's effective interest rate or, as a practical expedient, at the loan's
observable market price or the fair value of the collateral, if the loan is
collateral dependent. This Statement applies to financial statements for
fiscal year 1995. The adoption of FAS 114 is not expected to have a
significant impact on the Company's consolidated financial statements.
The amount of loans outstanding at the indicated dates are
reflected in the following table, according to type of loan.
LOAN PORTFOLIO
Years Ended December 31,
-----------------------------------------------------------------------------
(Dollars in Thousands) 1994 1993 1992 1991 1990
----------------------------------------------------------------------------------------------------------
Consumer:
Credit card $ 164,501 $ 168,673 $ 162,251 $ 123,593 $ 105,016
Student loan 62,836 65,379 58,727 54,957 55,101
Individuals - other 40,739 36,763 31,878 32,706 36,054
Real estate:
Construction 6,232 6,281 4,708 2,784 3,695
Single family
residential 43,629 36,651 42,177 50,866 55,243
Other commercial 44,141 37,853 27,991 24,509 29,414
Commercial:
Commercial 29,047 20,007 20,833 21,787 27,222
Agricultural 16,048 16,088 12,917 13,282 14,294
Financial
institutions 6,681 3,087 3,142 3,155 2,711
Other 5,122 3,998 3,475 3,931 1,864
---------- ---------- ---------- ---------- ----------
Total loans 418,976 394,780 368,099 331,570 330,614
Unearned discount (584) (354) (444) (508) (663)
---------- ---------- ---------- ---------- ----------
Total loans, net of
unearned
discount $ 418,392 $ 394,426 $ 367,655 $ 331,062 $ 329,951
========== ========== ========== ========== ==========
The following table reflects the remaining maturities of loans at
December 31, 1994.
LOAN MATURITIES
Over 1
year
1 year through Over
(Dollars in Thousands) or less 5 years 5 years Total
-----------------------------------------------------------------------------------------------------------------------------
Commercial, financial & agricultural $ 33,037 $ 17,461 $ 1,278 $ 51,776
Real estate - construction 4,910 1,322 -- 6,232
Other 228,194 98,192 33,998 360,384
----------- ----------- ----------- -----------
$ 266,141 $ 116,975 $ 35,276 $ 418,392
=========== =========== =========== ===========
The following table reflects maturities for the above loans,
segregated by interest rate type.
LOAN REPRICING
Over 1
year
1 year through Over
(Dollars in Thousands) or less 5 years 5 years Total
-----------------------------------------------------------------------------------------------------------------------
Predetermined rate $ 43,247 $ 89,970 $ 25,197 $ 158,414
Floating rate 222,894 27,005 10,079 259,978
----------- ---------- ----------- ------------
$ 266,141 $ 116,975 $ 35,276 $ 418,392
=========== ========== =========== ============
Asset Quality
Nonperforming loans are comprised of (a) nonaccrual loans, (b) loans
which 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 a 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 collectibility of principal
or interest, or (2) when payment of interest or principal is 90 days or more
past due and either (i) not fully secured or (ii) not in the process of
collection. If a loan is determined by management to be uncollectible, the
portion of the loan determined to be uncollectible is then charged to the
Allowance for Loan Losses. Credit card loans are classified as sub-standard
when payment of interest or principal is 90 days past due. Litigation
accounts are placed on nonaccrual until such time as deemed uncollectible.
Credit card loans are charged off when payment of interest or principal
exceeds 180 days past due, but are turned over to the credit card recovery
department, to be pursued until such time as they are determined, on a
case-by-case basis, to be uncollectible.
The following tables present information concerning nonperforming
assets, including nonaccrual and restructured loans and other real estate
owned.
NONPERFORMING ASSETS
Years Ended December 31,
---------------------------------------------------------------------------------------
(Dollars in Thousands) 1994 1993 1992 1991 1990
---------------------------------------------------------------------------------------------------------------------------------
Nonaccrual loans $ 2,052 $ 2,813 $ 4,374 $ 1,260 $ 1,325
Loans past due 90 days or more
(principal or interest payments) 965 1,019 1,337 1,791 4,674
Restructured 115 344 350 -- --
--------- --------- --------- ---------- ---------
Total nonperforming loans 3,132 4,176 6,061 3,051 5,999
--------- --------- --------- ---------- ---------
Other nonperforming assets:
Other real estate owned (f1) 1,649 2,514 2,834 5,139 4,733
In-substance foreclosure 81 363 1,225 -- 1,955
Other nonperforming assets 776 992 212 -- --
--------- --------- --------- ---------- ---------
Total other
nonperforming assets 2,506 3,869 4,271 5,139 6,688
--------- --------- --------- ---------- ---------
Total nonperforming assets $ 5,638 $ 8,045 $ 10,332 $ 8,190 $ 12,687
========= ========= ========= ========== =========
Net charge-offs to average loans 0.43% 0.36% 0.91% 0.80% 0.62%
Allowance for loan losses to total loans 1.86% 1.88% 1.56% 1.60% 1.36%
Allowance for loan losses
to nonperforming loans 248.73% 177.92% 94.84% 173.78% 75.13%
Nonperforming loans to total loans 0.75% 1.06% 1.65% 0.92% 1.81%
Nonperforming assets to total assets 0.79% 1.09% 1.46% 1.22% 1.96%
<FN>
(1) Assets constituting other real estate owned are generally marked down to
appraised value less estimated selling expense at the time of transfer from
the loan portfolio, and are appraised annually thereafter, with the value then
adjusted to then-market value, if lower, until disposition.
Approximately $269,000 and $347,000 of interest income would have
been recorded for the periods ended December 31, 1994 and 1993, 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 period ended December 31, 1994.
Allowance for Loan Losses
An analysis of the Allowance for Loan Losses for the last five
fiscal years is shown in the table below:
Years Ended December 31,
--------------------------------------------------------------------
(Dollars in Thousands) 1994 1993 1992 1991 1990
--------------------------------------------------------------------------------------------------------------------
Balance of allowance for loan losses
at beginning of period $ 7,430 $ 5,748 $ 5,302 $ 4,507 $ 3,878
-------- -------- -------- -------- --------
Loans charged off:
Consumer:
Credit cards 1,690 1,761 1,944 1,681 1,461
Other consumer 152 171 127 159 191
Student loans 2 2 11 23 141
-------- -------- -------- -------- --------
Total consumer 1,844 1,934 2,082 1,863 1,793
-------- -------- -------- -------- --------
Real estate:
Construction -- 40 5 289 --
Single family residential 213 31 44 57 17
Other commercial -- 6 168 628 546
-------- -------- -------- -------- --------
Total real estate 213 77 217 974 563
-------- -------- -------- -------- --------
Commercial:
Commercial -- 40 1,297 88 53
Agricultural 53 -- 74 159 --
-------- -------- -------- -------- --------
Total commercial 53 40 1,371 247 53
-------- -------- -------- -------- --------
Total loans charged off 2,110 2,051 3,670 3,084 2,409
-------- -------- -------- -------- --------
Recoveries of loans previously charged off:
Consumer:
Credit cards 306 211 196 173 185
Other consumer 70 77 44 64 59
Student loans 2 1 18 8 6
-------- -------- -------- -------- --------
Total consumer 378 289 258 245 250
-------- -------- -------- -------- --------
Real estate:
Single family residential 7 5 24 13 24
Other commercial 16 3 81 48 55
-------- -------- -------- -------- --------
Total real estate 23 8 105 61 79
-------- -------- -------- -------- --------
Commercial:
Commercial 18 345 12 17 28
Agricultural 1 85 -- 4 --
-------- -------- -------- -------- --------
Total commercial 19 430 12 21 28
-------- -------- -------- -------- --------
Total recoveries 420 727 375 327 357
-------- -------- -------- -------- --------
Net loans charged off 1,690 1,324 3,295 2,757 2,052
Additions to reserve charged
to operating expense 2,050 3,006 3,741 3,552 2,681
-------- -------- -------- -------- --------
Balance, end of period $ 7,790 $ 7,430 $ 5,748 $ 5,302 $ 4,507
======== ======== ======== ======== ========
The amounts of additions to the allowance during the year 1994 were
based on management's judgment, with consideration given to the composition of
the portfolio, historical loan loss experience, assessment of current economic
conditions, past due loans, loans which could be future problems and net
losses from loan charge-offs for the past 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 Bank's senior loan committee, comprised of outside directors,
has oversight responsibility for approving commercial and individual loans in
excess of $100,000 unsecured, and $200,000 secured, and monitoring loan
delinquencies, the status of non-performing assets and the evaluation of
allowance for loan losses. In addition, the committee ratifies and/or
approves loans made by other banking subsidiaries in excess of 13.5% of any
such bank's equity capital. The Bank's agricultural committee, composed of
outside directors whose occupations are closely tied to the farming industry,
have oversight responsibility for the agricultural loan portfolio. The
responsibilities and approval authorities of this committee are the same as
the senior loan committee, as they pertain to agricultural loans.
The Company's special services group is responsible for serving all
subsidiaries of the Company in the audit, loan review, and compliance areas.
In the area of loan review, periodic audits of each subsidiary are scheduled
for the purpose of evaluating asset quality, adequacy of loan losses, and
effectiveness of loan administration. The special services group prepares
loan review reports, which identify deficiencies, establish recommendations
for improvement, and outline management's proposed action plan for curing the
deficiencies. This report is provided to a corporate audit committee, which
includes outside members of the Company's Board of Directors and selected
senior affiliate directors. The audit committee monitors the reported items
until the exceptions are cleared.
Based on the above-noted procedures, management is of the opinion
that the allowance at December 31, 1994, of $7.8 million is adequate. While
management believes the current allowance is adequate, changing economic
conditions and other conditions may require future additions to the allowance.
Moreover, the allowance is subject to regulatory examination and determination
as to adequacy. Although not presently anticipated, adjustments to the
allowance may result from regulatory examinations.
The Company allocates the Allowance for Loan Losses according to
the amount deemed to be reasonably necessary to provide for the possibility
of losses being incurred within the categories of loans set forth in the
tables below.
ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
December 31,
------------------------------------------------------------------------------------------------------
1994 1993 1992 1991 1990
------------------ ------------------ ------------------ ------------------ ------------------
Allowance Percent Allowance Percent Allowance Percent Allowance Percent Allowance Percent
(Dollars in Thousands) Amount of loans* Amount of loans* Amount of loans* Amount of loans* Amount of loans*
-----------------------------------------------------------------------------------------------------------------------------------
Consumer:
Credit card $ 2,625 39.3 % $ 2,430 42.8 % $ 2,232 44.0 % $ 1,922 37.2 % $ 1,510 31.8 %
Student loans 100 15.0 % 100 16.6 % 100 16.0 % 100 16.6 % 201 16.7 %
Other 324 9.8 % 299 9.3 % 483 8.7 % 458 9.9 % 312 11.0 %
Real estate:
Real estate construction -- 1.5 % 13 1.6 % 74 1.3 % 69 .8 % 65 1.1 %
Single family residential 343 10.3 % 1,009 9.2 % 310 11.5 % 385 15.3 % 345 16.6 %
Other commercial 1,510 10.6 % 701 9.6 % 1,261 7.6 % 1,525 7.4 % 950 8.9 %
Commercial:
Commercial 362 6.9 % 339 5.1 % 295 5.7 % 577 6.6 % 453 8.2 %
Agricultural 32 3.8 % -- 4.1 % 188 3.5 % 207 4.0 % 154 4.3 %
Financial institutions 145 1.6 % 161 .8 % -- .8 % -- 1.0 % -- .8 %
Other -- 1.2 % -- .9 % 3 .9 % 2 1.2 % -- .6 %
Unallocated 2,349 -- % 2,378 -- % 802 -- % 57 -- % 517 -- %
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Total $ 7,790 100.0 % $ 7,430 100.0 % $ 5,748 100.0 % $ 5,302 100.0 % $ 4,507 100.0 %
====== ===== ====== ===== ====== ===== ====== ===== ====== =====
<FN>
* Percentage of loans in each category to total loans
Investments and Securities
The Company's securities portfolio is the second largest component
of earning assets and provides a significant source of revenue. Securities
are classified as either trading, available-for-sale, or held-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, both realized and unrealized, are included in other income.
Available-for-sale securities, which include any security for
which the subsidiary banks 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 specific security, are
included in other income. Unrealized gains and losses are recorded, net of
related income tax effects, in stockholders' equity. Premiums and discounts
are amortized and accreted, respectively, to interest income, using the
constant-yield method over the period to maturity.
Held-to-maturity securities, which include any security for which
the subsidiary banks 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.
Interest and dividends on investments in debt and equity securities
are included in income when earned.
Held-to-maturity and available-for-sale investment securities were
$142.4 million and $29.6 million, respectively, at December 31, 1994, compared
to the combined amount of $198.6 million at December 31, 1993. The Company's
philosophy regarding investments is conservative, based on investment type
and maturity. Investments in the held-to-maturity portfolio include U.S.
Treasury securities, U.S. government agencies, mortgage-backed securities,
and municipal securities. As of December 31, 1994, $87.9 million, or 61.8%,
of the held-to-maturity securities were invested in U.S. Treasury securities
and obligations of U.S. government agencies, of which $21.9 million, or 15.4%,
was invested in securities with maturities of one year or less, and $61.8
million, or 43.4%, was invested in securities with maturities of one to five
years. In the available-for-sale securities, $26.6 million, or 89.8% of the
securities were in U.S. Treasuries and obligations of U.S. government
agencies, all of which will mature in less than five years. In order to
reduce the Company's income tax burden, an additional $50.9 million, or 35.8%,
of the held-to-maturity securities portfolio, was invested in tax-exempt
obligations of state and political subdivisions. There are no tax-exempt
securities in the available-for-sale portfolio. There are no securities of
any one issuer exceeding ten percent of the Company's stockholders' equity
at December 31, 1994. The Company has approximately $3.5 million, or 2.5%,
in GNMA and other mortgaged-backed securities in its held-to-maturity
portfolio. It is the Company's general policy not to invest in derivative
type investments, except for collateralized mortgage-backed securities for
which collection of principal and interest is not subordinated to significant
superior rights held by others.
As of December 31, 1994, the held-to-maturity investment portfolio
has gross unrealized gains of $1.0 million and gross unrealized losses of
$4.0 million. Net realized gains from called securities for 1994 were
$130,000, down from net realized gains of $140,000 in 1993, and up from net
realized gains of $59,000 in 1992.
The table below presents the carrying value and the fair value of
investment securities for each of the years indicated.
INVESTMENT SECURITIES
Years Ended December 31,
-----------------------------------------------------------------------------------------------------------------
1994 1993 1992
------------------------------------- ------------------------------------ ------------------------------------
Fair Fair Fair
(Dollars in Amortized Gross unrealized value Amortized Gross unrealized value Amortized Gross unrealized value
Thousands) cost Gain (Loss) (1) cost Gain (Loss) (1) cost Gain (Loss) (1)
-----------------------------------------------------------------------------------------------------------------------------------
Held to Maturity
U.S. Treasury $ 74,544 $ 349 $ (1,479) $ 73,414 $132,778 $ 5,599 $ (33) $138,344 $122,171 $ 5,603 $ -- $127,774
U.S.
Government
agencies 13,375 32 (289) 13,118 13,215 546 (28) 13,733 38,922 1,005 (11) 39,916
Mortgage-backed
securities(2) 3,551 6 (244) 3,313 1,008 24 (10) 1,022 1,310 24 (22) 1,312
State and
political
subdivisions 50,904 577 (1,962) 49,519 49,438 2,680 (52) 52,066 40,130 1,529 (303) 41,356
Other
securities -- -- -- -- 2,187 365 (1) 2,551 461 513 (1) 973
------- ----- ------- ------- ------- ------ ------- ------- ------- ------ ----- -------
$142,374 $ 964 $ (3,974) $139,364 $198,626 $ 9,214 $ (124) $207,716 $202,994 $ 8,674 $ (337) $211,331
======= ===== ======= ======= ======= ====== ======= ======= ======= ====== ===== =======
Available for Sale
U.S. Treasury $ 25,701 $ 96 $ (202) $ 25,595
U.S.
Government
agencies 1,002 3 -- 1,005
Other
securities 2,554 457 (1) 3,010
------- ----- ------- -------
$ 29,257 $ 556 $ (203) $ 29,610
======= ===== ======= =======
<FN>
(1) The fair value of the Company's financial instruments is determined
pursuant to Statement of Financial Accounting Standards No. 107. Because no
market exists for a significant portion of the Company's financial
instruments, fair value estimates are based on judgments concerning future
expected loss experience, current economic conditions, risk characteristics
of various financial instruments and other factors. See Note 15 of Notes to
Consolidated Financial Statements.
(2) Consist of securities issed by GNMA, FNMA, and FHLMC.
The following table reflects the amortized cost and estimated
market value of debt securities at December 31, 1994, by contractual maturity,
the weighted average yields (for tax-exempt obligations on a fully taxable
basis, assuming a 34% tax rate) of such securities and the taxable equilvalent
adjustment used in calculating the yields. Expected maturities will differ
from contractual maturities, because borrowers may have the right to call or
prepay obligations, with or without call or prepayment penalties.
MATURITY DISTRIBUTION OF INVESTMENT SECURITIES
December 31, 1994
------------------------------------------------------------------------------------------------
Over Over
1 year 5 years Over
1 year thru thru 10 10 No fixed Par Market
(Dollars in Thousands) or less 5 years years years maturity Total value Value
------------------------------------------------------------------------------------------------------------------------
Held to Maturity
U.S. Treasury $ 21,921 $ 48,688 $ 3,935 $ -- $ -- $ 74,544 $ 74,380 $ 73,414
U.S. government
agencies -- 13,071 304 -- -- 13,375 13,300 13,118
Mortgage-backed
securities 3,551 3,551 3,427 3,313
States and political
subdivisions 1,838 10,926 32,992 5,148 -- 50,904 51,144 49,519
-------- -------- -------- -------- -------- -------- -------- --------
$ 23,759 $ 72,685 $ 37,231 $ 5,148 $ 3,551 $ 142,374 $ 142,251 $ 139,364
======== ======== ======== ======== ======== ======== ======== ========
Percentage of total 16.69% 51.05% 26.15% 3.62% 2.49% 100.00%
====== ====== ====== ===== ===== =======
Weighted average (1) 4.95% 7.05% 7.72% 10.07% 6.62% 6.99%
===== ===== ===== ====== ===== =====
Available for Sale
U.S. Treasury $ 6,501 $ 19,200 $ -- $ -- $ -- $ 25,701 $ 25,500 $ 25,595
U.S. government
agencies -- 1,002 -- -- -- 1,002 1,000 1,005
Other securities -- -- -- -- 2,554 2,554 -- 3,010
-------- -------- -------- -------- -------- -------- -------- --------
$ 6,501 $ 20,202 $ -- $ -- $ 2,554 $ 29,257 $ 26,500 $ 29,610
======== ======== ======== ======== ======== ======== ======== ========
Percentage of total 22.22% 69.05% 0.00% 0.00% 8.73% 100.00%
====== ====== ===== ===== ===== =======
Weighted average (1) 9.26% 7.09% 7.70%
===== ===== =====
<FN>
(1) The weighted average yields are based on book value and effective
yields, weighted for the scheduled maturity of each security. Yields
on tax-exempt obligations have been computed on a fully taxable equivalent
basis.
As of January 1, 1994, the Company adopted Financial Accounting
Standard Board Statement (FAS) No. 115, "Accounting for Certain Investments
in Debt and Equity Securities," which requires the classification of
securities into one of three categories: Trading, Available-for-Sale or
Held-to-Maturity.
Trading account securities are used to provide inventory for resale.
These securities will be carried at market value and will be included in
short-term investments. Gains and losses, both realized and unrealized, are
reflected in earnings.
Debt securities are classified as Held-to-Maturity when the Company
has the positive intent and ability to hold the securities to maturity. Held-
to-Maturity securities will be stated at amortized cost.
Securities not classified as Trading or Held-to-Maturity will be
classified as Available-for-Sale. Available-for-Sale securities will be
stated at fair value, with unrealized gains and losses, net of tax, reported
in a separate component of shareholders' equity. The Company may sell these
securities prior to maturity in response to liquidity demands. They also may
be used as a means of adjusting the interest rate sensitivity of the Company's
balance sheet, through sale and reinvestment. As of December 31, 1994, the
adoption of FAS No. 115 resulted in a net increase in stockholders' equity of
approximately $233,000. This increase in stockholders' equity will adjust in
future periods, as changes in market conditions occur.
Trading Portfolio
The Company's trading account is established and maintained for the
benefit of the dealer bank division. All activities in the account are
performed by dealer bank personnel solely for operations in that division.
The trading account is typically used to provide inventory for resale and is
not used to take advantage of short-term price movements.
Deposits and Short-Term Borrowings
Total average deposits for 1994 were $580.0 million, compared to $585.6
million in 1993. The year-end balances of time deposits over $100,000 were
$55.2 million in 1994, compared to $61.4 million in 1993.
The following table reflects the classification of the average deposits
and the average rate paid on each deposit category which are in excess of 10
percent of average total deposits for the three years ended December 31, 1994.
AVERAGE DEPOSIT BALANCES AND RATES
December 31,
--------------------------------------------------------------------------------------------
1994 1993 1992
------------------------------ --------------------------- --------------------------
Average Average Average Average Average Average
(Dollars in Thousands) amount rate paid amount rate paid amount rate paid
----------------------------------------------------------------------------------------------------------------------------------
Non-interest-bearing
demand deposits $ 105,856 -- $ 116,744 -- $ 98,482 --
Interest-bearing transaction
and savings deposits 232,351 2.26% 200,122 2.61% 216,591 2.73%
Time deposits
$100,000 or more 53,479 3.61% 56,759 3.32% 61,057 4.65%
Other time deposits 188,307 3.87% 211,980 3.37% 202,017 4.33%
--------- --------- ---------
Total $ 579,993 $ 585,605 $ 578,147
========= ========= =========
The following table sets forth by time remaining to maturity,
deposits (exclusive of regular savings) in amounts of $100,000 or more at
December 31, 1994 and 1993, respectively.
MATURITIES OF LARGE DENOMINATION TIME DEPOSITS
Time Certificates of Deposit
($100,000 or more)
-------------------------------------------------------------
December 31,
-------------------------------------------------------------
1994 1993
----------------------------- -----------------------------
(Dollars in Thousands) Balance Percent Balance Percent
----------------------------------------------------------------------------------------
Maturing:
Three months or less $ 24,444 44.27 % $ 25,898 42.21 %
Over 3 months
to 6 months 16,286 29.49 % 20,799 33.90 %
Over 6 months
to 12 months 8,866 16.05 % 11,010 17.95 %
Over 12 months 5,626 10.19 % 3,646 5.94 %
--------- ------- --------- -------
Total $ 55,222 100.00 % $ 61,353 100.00 %
========= ======= ========= =======
Federal funds purchased and securities sold under agreements to
repurchase were $23.9 million at December 31, 1994, as compared to $26.3
million at December 31, 1993. Other short-term borrowings, consisting of U.S.
Treasury Note borrowings, decreased at December 31, 1994, to $1.6 million,
as compared to $5.0 million at December 31, 1993.
The Company has historically funded its growth in earning assets
through the use of core deposits, large certificates of deposits from local
markets, and federal funds purchased. On May 12, 1993, the Company issued
and sold 700,000 shares of Class A Common Stock. And on June 10, 1993, the
Company issued and sold an additional 105,000 shares. The net proceeds to
the Company stockholders' equity after expenses was $16.1 million.
Management anticipates that these sources will provide necessary funding in
the foreseeable future. It is the Company's general policy to avoid the use
of brokered deposits.
Long Term Debt
The Companys' long-term debt was $12.1 million and $12.2 million
at December 31, 1994 and 1993, respectively. The Company's Capital Notes,
due June 30, 1997, of which $11.0 million were outstanding at December 31,
1994 and 1993, respectively, are the major component of the Company's long-
term debt. Interest on the Capital Notes is payable quarterly, and the
interest rate is adjusted quarterly to the then prime rate offered by Chase
Manhattan in New York. At December 31, 1994, the Chase Manhattan Bank, N.A.,
prime rate was 7.75%.
Capital
Appropriate capital management is essential to finance future
growth and maintain the confidence of deposit customers, investors, and
banking regulatory agencies. The Federal Reserve Board has approved new
risk-based guidelines which establish 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. With respect to capital,
the guidelines place a strong emphasis on tangible common stockholders' equity
as the core element of the capital base, with appropriate recognition of other
components of capital. The guidelines set a minimum risk-adjusted ratio for
total capital of 8.0% by the end of 1992. At December 31, 1994, the Tier 1
Capital ratio was 19.25%, while the Company's risk-adjusted ratio for total
capital, as of December 31, 1994, was 21.56%, both of which exceed the capital
minimums established in the new risk-based capital requirements.
The Company's risk-based capital ratios at December 31, 1994 and
1993 are presented below, followed by the capital ratios of each of the three
bank subsidiaries, as of December 31, 1994.
CONSOLIDATED RISK-BASED CAPITAL
December 31,
----------------------------------
(Dollars in Thousands) 1994 1993
----------------------------------------------------------------------------------------
Tier 1 capital:
Stockholders' equity $ 83,700 $ 75,335
Less goodwill 2,392 2,713
Less unrealized gain (loss) on AFS securities 233 --
---------- ----------
Total tier 1 capital 81,075 72,622
Tier 2 capital:
Qualifying allowance for loan losses 5,331 5,307
Qualifying long-term debt 4,400 6,600
---------- ----------
Total capital $ 90,806 $ 84,529
========== ==========
Risk-weighted assets $ 421,115 $ 422,437
========== ==========
Ratios at end of year:
Leverage ratio 11.47 % 10.21 %
Risk-based capital
Tier 1 capital 19.25 % 17.19 %
Total capital 21.56 % 20.01 %
Minimum guidelines
Leverage ratio 3.00 % 3.00 %
Tier 1 capital 4.00 % 4.00 %
Total capital 8.00 % 8.00 %
CAPITAL ADEQUACY MEASURES BY SUBSIDIARY BANKS
Year Ended December 31, 1994
-------------------------------------------------------
Simmons First Simmons First Simmons First
National Bank Bank Bank
(Dollars in Thousands) Pine Bluff Jonesboro Lake Village
-----------------------------------------------------------------------------------------------
Stockholders' equity $ 53,271 $ 6,046 $ 3,352
Leverage ratio 8.63 % 8.13 % 9.45 %
Risk-Based capital
Tier 1 Capital 14.10 % 13.70 % 22.01 %
Total capital 15.36 % 14.96 % 23.28 %
LIQUIDITY AND INTEREST RATE SENSITIVITY
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 require-
ments. At December 31, 1994, retained earnings of the Company's subsidiaries
were approximately $62.7 million, of which approximately $13.0 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 their investing
activities. As is typical of most banking companies, significant financing
activities include: deposit gathering; use of short-term borrowing facilities,
such as federal funds purchased and repurchase agreements; and the issuance of
long-term debt. The banks' primary investing activities include loan
originations and purchases of investment securities, offset by loan payoffs
and investment maturities.
Liquidity represents an institution's ability to provide funds to
satisfy demands from depositors and borrowers, by either converting assets
into cash or accessing new or existing sources of incremental funds. It is a
major responsibility of management to maximize net interest income within
prudent liquidity constraints. Internal corporate guidelines have been
established to constantly measure liquid assets, as well as relevant ratios
concerning earning asset levels and purchased funds. Each bank subsidiary is
also required to monitor these same indicators and report regularly to its own
senior management and board of directors. At year end, each bank was within
established guidelines, and total corporate liquidity was strong. At December
31, 1994, cash and cash equivalents, trading and available-for-sale
securities, and mortgage loans held for sale were 16.13% of total assets, as
compared to 13.62% at December 31, 1993.
Interest Rate Sensitivity
Management continuously reviews the Company's exposure to changes
in interest rates. Among the factors considered during its evaluations are
changes in the mix of earning assets, growth of earning assets, interest rate
spreads and repricing periods. Management forecasts and models the impact
various interest rate fluctuations would have on net interest income. One
such model measures the interest rate sensitivity gap, which presents, at a
particular point in time, the matching of interest rate sensitive assets with
interest rate sensitive liabilities.
As shown in the schedule below, the cumulative rate sensitive
assets to rate sensitive liabilities at six months and one year, respectively,
was 97.78% and 111.60%. A financial institution is considered to be liability
sensitive, or as having a negative GAP, when the amount of its interest-
bearing liabilities maturing or repricing within a given time period exceeds
the amount of its interest-earning assets also maturing or repricing within
that time period. Conversely, an institution is considered to be asset
sensitive, or as having a positive GAP, when the amount of its interest-
bearing liabilities maturing and repricing is less than the amount of its
interest-earning assets also maturing or repricing during the same period.
Generally, in a falling interest rate environment, a negative GAP should
result in an increase in net interest income, and in a rising interest rate
environment this negative GAP should adversely affect net interest income.
The converse would be true for a positive GAP: the long-term effect of rising
interest rates would tend to increase net interest income because of the
positive GAP ratio. However, the negative GAP for the short-term would cause
a decrease in net interest income, as a result of rising rates for
approximately six months. Since conditions change on a daily basis, these
theoretical conclusions may not be indicative of actual future results.
RATE SENSITIVE ASSETS AND LIABILITIES
Year Ended December 31, 1994
----------------------------------------------------------------------------
Cumulative
RSA(1)
(Dollars in Thousands, Cumulative to
except ratios) Assets Liabilities Gap Gap RSL(2)
---------------------------------------------------------------------------------------------------------------
Floating rate $ 75,784 $ 37,046 $ 38,738 $ 38,738 204.57%
Fixed rate maturing in:
1 month 32,621 155,539 (122,918) (84,180) 56.29%
2 months 12,490 22,301 (9,811) (93,991) 56.26%
3 months 156,953 20,886 136,067 42,076 117.85%
4 months 6,632 30,887 (24,255) 17,821 106.68%
5 months 6,868 18,502 (11,634) 6,187 102.17%
6 months 4,379 17,286 (12,907) (6,720) 97.78%
6 months - 1 year 80,575 34,732 45,843 39,123 111.60%
1 - 2 years 89,981 55,082 34,899 74,022 118.87%
2 - 3 years 56,337 33,140 23,197 97,219 122.85%
3 - 4 years 23,614 18,988 4,626 101,845 122.92%
4 - 5 years 33,834 28,991 4,843 106,688 122.54%
Over 5 years 59,444 38,289 21,155 127,843 124.99%
--------- --------- ---------
Total $ 639,512 $ 511,669 $ 127,843
========= ========= =========
<FN>
(1) Rate Sensitive Assets
(2) Rate Sensitive Liabilities
QUARTERLY RESULTS
Selected unaudited quarterly financial information for the latest eight
quarters is shown in the table below.
Quarter
(Dollars in Thousands, -----------------------------------------------------------------------------
except per share data) First Second Third Fourth Total
------------------------------------------------------------------------------------------------------------------------
1994
----
Net interest income $ 7,133 $ 7,336 $ 7,422 $ 7,368 $ 29,259
Provision for possible loan losses 525 525 525 475 2,050
Non-interest income 6,966 6,070 6,161 5,650 24,847
Non-interest expense 9,938 9,618 9,353 9,506 38,415
Net realized gains on securities 29 27 74 -- 130
Net income 2,627 2,352 2,653 2,228 9,860
Earnings per common share 0.71 0.64 0.73 0.60 2.68
1993
----
Net interest income $ 6,938 $ 7,021 $ 7,190 $ 7,301 $ 28,450
Provision for possible loan losses 864 714 714 714 3,006
Non-interest income 6,345 6,279 6,646 6,859 26,129
Non-interest expense 9,464 9,429 9,616 10,202 38,711
Net realized gains on securities 21 -- 70 49 140
Net income 2,138 2,318 2,507 2,433 9,396
Earnings per common share 0.74 0.71 0.68 0.65 2.78
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX Page
----
Independent Accountants' Report. . . . . . . . . . . . . . . . . . . . . 33
Consolidated Balance Sheets December 31, 1994 and 1993 . . . . . . . . . 34
Consolidated Statements of Income Years Ended
December 31, 1994, 1993, and 1992 . . . . . . . . . . . . . . . . . . . 35
Consolidated Statements of Cash Flows Years Ended
December 31, 1994, 1993, and 1992 . . . . . . . . . . . . . . . . . . . 36
Consolidated Statements of Changes in Stockholders'
Equity Years Ended December 31, 1994, 1993, and 1992. . . . . . . . . . 37
Notes to Consolidated Financial Statements December 31,
1994, 1993 and 1992 . . . . . . . . . . . . . . . . . . . . . . . . . . 38
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 11 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, 1994 and 1993, and the
related consolidated statements of income, changes in stockholders' equity,
and cash flows for each of the three years in the period ended December 31,
1994. These financial statements are the responsibility of the Corporation's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial position of
SIMMONS FIRST NATIONAL CORPORATION as of December 31, 1994 and 1993, and the
results of its operations and cash flows for each of the three years in the
period ended December 31, 1994, in conformity with generally accepted
accounting principles.
As discussed in Note 18 to the financial statements, the Company
changed its method of accounting for investment securities in 1994.
/s/ Baird. Kurtz & Dobson
BAIRD, KURTZ & DOBSON
Pine Bluff, Arkansas
January 27, 1995
SIMMONS FIRST NATIONAL CORPORATION
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1994 and 1993
(Dollars in Thousands) 1994 1993
-------------------------------------------------------------------------------------------------
ASSETS
------
Cash and non-interest bearing balances due from banks $ 33,476 $ 34,995
Interest-bearing balances due from banks 101 25
Federal funds sold 40,425 14,070
--------- ---------
Cash and cash equivalents 74,002 49,090
Investment securities - taxable (Note 2)
Held-to-maturity 91,470 149,188
Available-for-sale 29,610 --
Investment securities - non-taxable (Note 2)
Held-to-maturity 50,904 49,438
Mortgage loans held for sale, net of unrealized
gains (losses) 8,720 47,775
Trading securities (Note 2) 2,734 3,759
Loans - non-taxable (Note 4) 2,021 2,470
Loans - taxable (Note 4) 416,371 391,956
Allowance for loan losses (Note 4) (7,790) (7,430)
--------- ---------
Net loans 410,602 386,996
Premises and equipment (Note 6) 12,115 10,220
Foreclosed assets held for sale, net (Note 5) 1,730 2,877
Interest receivable 6,289 5,829
Cost of loan servicing rights acquired 3,825 4,184
Excess cost over fair value of net assets acquired, at amortized cost 2,392 2,713
Other assets 18,869 26,691
--------- ---------
TOTAL ASSETS $ 713,262 $ 738,760
================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Non-interest-bearing transaction accounts $ 109,564 $ 135,468
Interest-bearing transaction accounts and savings deposits 228,649 224,730
Time deposits (Note 7) 245,325 250,157
--------- ---------
Total deposits 583,538 610,355
Federal funds purchased and securities sold
under agreements to repurchase 23,931 26,347
Other borrowed funds:
Short-term debt 1,621 5,013
Long-term debt (Note 9) 1,144 1,178
Capital notes (Note 9) 11,000 11,000
Accrued interest and other liabilities 8,328 9,532
--------- ---------
Total liabilities 629,562 663,425
--------- ---------
STOCKHOLDERS' EQUITY
--------------------
Capital stock (Note 10)
Class A common, par value $5 a share,
authorized 10,000,000 shares, issued and outstanding
3,677,378 at 1994 and 1993 18,387 18,387
Surplus 19,827 19,827
Undivided profits (Note 21) 45,253 37,121
Unrealized appreciation on available-for-sale
securities, net of income taxes of $120 233 --
--------- ---------
Total Stockholders' Equity $ 83,700 $ 75,335
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 713,262 $ 738,760
========= =========
See Notes to Consolidated Financial Statments
SIMMONS FIRST NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1994, 1993, and 1992
(Dollars in Thousands, except per share data) 1994 1993 1992
----------------------------------------------------------------------------------------------------------------------------
INTEREST INCOME
Loans - non-taxable $ 160 $ 180 $ 226
Loans - taxable 30,875 28,209 28,237
Federal funds sold 1,218 738 1,625
Investment securities - taxable
Held-to-maturity 5,696 10,234 12,108
Available-for-sale 2,803 -- --
Investment securities - non-taxable
Held-to-maturity 2,738 2,604 2,112
Mortgage loans held for sale, net of unrealized
gains 2,081 2,236 1,469
Assets held in trading account 101 166 218
Interest-bearing balances due from banks 55 27 47
----------- ------------ ------------
TOTAL INTEREST INCOME 45,727 44,394 46,042
----------- ------------ ------------
INTEREST EXPENSE
Deposits:
Interest-bearing transaction accounts and savings deposits 5,248 5,232 5,887
Time deposits 9,223 9,019 11,625
Federal funds purchased and securities
sold under agreements to repurchase 962 841 1,094
Other borrowed funds:
Short-term debt 163 79 90
Long-term debt 122 113 119
Capital notes 750 660 702
----------- ------------ ------------
TOTAL INTEREST EXPENSE 16,468 15,944 19,517
----------- ------------ ------------
NET INTEREST INCOME 29,259 28,450 26,525
Provision for possible loan losses (Note 4) 2,050 3,006 3,741
----------- ------------ ------------
NET INTEREST INCOME AFTER PROVISION
FOR POSSIBLE LOAN LOSSES 27,209 25,444 22,784
----------- ------------ ------------
NON-INTEREST INCOME
Trust department income 1,763 1,807 1,750
Service charges on deposit accounts 2,263 2,296 2,124
Other service charges and fees 853 879 784
Income (loss) on sale of mortgage loans, net of commissions (758) 767 553
Income on investment banking, net of commissions 1,247 1,618 2,182
Net realized gains on securities 130 140 59
Credit card fees 10,636 10,867 9,575
Loan service fees 6,817 7,322 7,941
Other operating income 1,896 433 610
----------- ------------ ------------
TOTAL NON-INTEREST INCOME 24,847 26,129 25,578
----------- ------------ ------------
NON-INTEREST EXPENSE
Salaries and employee benefits 20,104 19,609 18,677
Occupancy expense, net 2,043 1,937 1,836
Furniture & equipment expense 1,964 1,969 2,003
Loss on foreclosed assets 1,641 2,336 2,471
Other operating expense (Note 14) 12,663 12,860 12,991
----------- ------------ ------------
TOTAL NON-INTEREST EXPENSE 38,415 38,711 37,978
----------- ------------ ------------
INCOME BEFORE INCOME TAXES 13,641 12,862 10,384
Provision for income taxes (Note 8) 3,781 3,466 2,907
----------- ------------ ------------
NET INCOME $ 9,860 $ 9,396 $ 7,477
=========== ============ ============
EARNINGS PER COMMON SHARE $ 2.68 $ 2.78 $ 2.60
=========== ============ ============
See Notes to Consolidated Financial Statements
SIMMONS FIRST NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1994, 1993, and 1992
(Dollars in Thousands) 1994 1993 1992
----------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 9,860 $ 9,396 $ 7,477
Items not requiring (providing) cash:
Depreciation and amortization 1,341 1,758 2,349
Provision for loan losses 2,050 3,006 3,741
Amortization of premiums and discounts on investment
securities and mortgage-backed certificates 50 517 1,032
Deferred income taxes 63 (780) (488)
Provision for foreclosed assets 151 71 1,062
Net realized gains on securities (130) (140) (59)
Loss on sale of premises and equipment (25) (5) (43)
Changes in:
Accrued interest receivable (460) 821 283
Mortgage loans held for sale 39,055 (23,414) (9,626)
Trading accounts 1,025 (3,170) 5,181
Other assets 8,181 (2,716) (4,464)
Accounts payable and accrued expenses (1,606) 321 (31)
Income taxes payable 219 874 37
----------- ------------ ------------
Net cash provided by (used in) operating activities 59,774 (13,461) 6,451
----------- ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Net originations of loans (25,939) (28,167) (41,684)
Purchase of premises and equipment (3,634) (2,172) (1,992)
Proceeds from sale of fixed assets 745 25 58
Proceeds from the sale of foreclosed assets 1,279 989 1,814
Proceeds from maturities of available-for-sale securities 98,209 -- --
Purchases of available-for-sale securities (103,709) -- --
Proceeds from maturities of held-to-maturity securities 78,890 88,927 39,379
Proceeds from the sale of investment securities -- -- 3,770
Purchases of held-to-maturity securities (46,316) (84,936) (78,536)
----------- ------------ ------------
Net cash used in investing activities (475) (25,334) (77,191)
----------- ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sale of additional stock -- 16,110 --
Net increase (decrease) in transaction accounts
and savings deposits (21,985) 29,869 77,629
Net decrease in certificates of deposit (4,832) (9,923) (50,334)
Repayments of other borrowings (3,426) (93,944) (108,507)
Proceeds from other borrowings -- 95,980 107,733
Dividends paid (1,728) (1,390) (1,150)
Net increase (decrease) in federal funds purchased
and securities sold under agreements to repurchase (2,416) (12,876) 728
----------- ------------ ------------
Net cash provided by (used in) financing activities (34,387) 23,826 26,099
----------- ------------ ------------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 24,912 (14,969) (44,641)
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR 49,090 64,059 108,700
----------- ------------ ------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 74,002 $ 49,090 $ 64,059
=========== ============ ============
See Notes to Consolidated Financial Statements
SIMMONS FIRST NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1994, 1993, and 1992
Unrealized
Appreciation
on Available-
Common Undivided For-Sale
(Dollars in Thousands) Stock Surplus Profits Securities, Net Total
----------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1991 $ 7,181 $ 7,742 $ 29,969 $ $ 44,892
ADDITIONAL COMMON STOCK ISSUED 100%
STOCK DIVIDEND (1,436,189 SHARES) 7,181 (7,181)
NET INCOME 7,477 7,477
CASH DIVIDENDS DECLARED
($.40 PER SHARE) (1,150) (1,150)
--------- --------- --------- --------- ---------
BALANCE, DECEMBER 31, 1992 14,362 7,742 29,115 -- 51,219
SALE OF ADDITIONAL STOCK
(805,000 shares at $22 per share) 4,025 12,085 16,110
NET INCOME 9,396 9,396
CASH DIVIDENDS DECLARED
($.40 PER SHARE) (1,390) (1,390)
--------- --------- --------- --------- ---------
BALANCE, DECEMBER 31, 1993 18,387 19,827 37,121 -- 75,335
ADOPTION OF FAS 115, NET OF
INCOME TAXES OF $487 (Note 18) 946 946
NET INCOME 9,860 9,860
CASH DIVIDENDS DECLARED
($0.47 per share) (1,728) (1,728)
CHANGE IN UNREALIZED APPRECIATION
ON AVAILABLE-FOR-SALE SECURITIES,
NET OF INCOME TAX CREDIT OF $367 (713) (713)
--------- --------- --------- --------- ---------
BALANCE, DECEMBER 31, 1994 $ 18,387 $ 19,827 $ 45,253 $ 233 $ 83,700
========= ========= ========= ========= =========
See Notes to Consolidated Financial Statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
Simmons First National Corporation provides a full range of banking
and mortgage services to individual and corporate customers through its
subsidiaries and 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.
BASIS OF FINANCIAL STATEMENT PRESENTATION
The financial statements have been prepared in accordance with
generally accepted accounting principles. In preparing the financial
statements, management is required to make estimates and assumptions that
affect the reported amounts of assets and liabilities, as of the date of the
balance sheet, and revenues and expenses for the period. Actual results
could differ significantly from those estimates.
Material estimates that are particularly susceptible to significant
change relate to the determination of the Allowance for Loan Losses and the
valuation of foreclosed assets. In connection with the determination of the
Allowance for Loan Losses and the valuation of foreclosed assets, management
obtains independent appraisals for significant properties.
Management believes that the Allowance for Loan Losses and the
valuation of foreclosed assets are adequate. While management uses available
information to recognize losses on loans and the valuation of foreclosed
assets, future losses may be accruable, based on changes in economic
conditions, particularly in Arkansas. In addition, various regulatory
agencies, as an integral part of their examination process, periodically
review the Banks' Allowance for Loan Losses and valuation of foreclosed
assets. Such agencies may require the Bank to recognize additional losses,
based on their judgment of information available to them at the time of their
examination.
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
The Company considers all amounts due from banks and federal funds
sold as cash equivalents. The banking subsidiaries are required to maintain
average reserve balances with the Federal Reserve Bank, based on a percentage
of deposits. The average amounts of those reserve balances for the years
ended December 31, 1994 and 1993, were $4,402,000 and $6,312,000, respective-
ly. The Federal Reserve requirement on transaction account reserves was ten
percent during 1994. Generally, federal funds are purchased and sold for
varying periods up to thirty days. These securities are purchased from other
financial institutions and are held in the name of Simmons First National Bank
at the Federal Reserve Bank until maturity of the agreement.
INVESTMENTS IN DEBT AND EQUITY SECURITIES
Trading securities, which include any security held primarily for
near-term sale, are carried at fair value. Gains and losses on trading
securities, both realized and unrealized, are included in other income.
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 level-
yield method over the period to maturity.
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 level-yield method over the period
to maturity.
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 individual loan 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 and considering
a normal servicing rate. Fees received from borrowers to guarantee the
funding of mortgage loans held for sale and fees paid to investors to ensure
the ultimate sale of such mortgage loans are recognized as income or expense
when the loans are sold or when it becomes evident that the commitment will
not be used.
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, 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.
Accrual of interest is discontinued on a loan when management believes, after
considering economic and business conditions and collection efforts, that the
borrower's financial condition is such that collection of interest is
doubtful.
ALLOWANCE FOR LOSSES ON RESIDENTIAL MORTGAGE LOANS SERVICED FOR OTHERS
A recourse loss allowance on loans serviced for others, including
Veterans Administration loans included in Government National Mortgage
Association and Federal National Mortgage Association pools, is provided,
based on management's evaluation of historical losses, as well as prevailing
and anticipated economic conditions.
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.
Assets acquired by foreclosure also include loans upon which the
foreclosure process is imminent or has been initiated but not completed and
considered in-substance foreclosed. Such assets are carried at estimated
fair value, and a related valuation allowance is provided for estimated costs
to sell the assets.
EXCESS COSTS OVER FAIR VALUE OF NET ASSETS ACQUIRED
Unamortized costs of purchased subsidiaries, in excess of the
estimated fair value of underlying net tangible assets acquired, aggregated
$940,000 (originally $2,646,000) at December 31, 1994, and are being amortized
over a 20-year period, using the straight-line method. Unamortized costs
allocated to the future earnings potential of acquired deposits were $36,000
(originally $730,000) at December 31, 1994, and are being amortized over ten
years, using the straight-line method. Amortization expense was $156,000 for
1994, and $192,000 for 1993 and 1992.
The amount paid in 1990 to the Resolution Trust Corporation of
$1,994,000, to purchase four of the branch operations of First American
Savings Bank of Fort Smith, Arkansas, has been allocated, in part, to the
future earnings potential of acquired deposits (originally $1,360,000), which
will be amortized over ten years, using the straight-line method.
Unamortized costs at December 31, 1994, were $807,000. The remaining
intangible (originally $634,000) will be amortized over fifteen years,
using the straight-line method. Unamortized costs at December 31, 1994, were
$347,000. Amortization for the periods ended December 31, 1994, 1993 and
1992, was $199,000, $205,000 and $210,000, respectively.
The amount paid to the Resolution Trust Corporation of $684,000, to
purchase three of the branch operations of First Savings Bank of Arkansas and
one branch of Home Federal Savings Association, has been allocated, in part,
to the future earnings potential of acquired deposits (approximately
$336,000), which will be amortized over ten years, using the straight-line
method. The remaining intangible asset (originally $348,000) will be
amortized over fifteen years, using the straight-line method. Amortization
for the periods ended December 31, 1994, 1993 and 1992, was $73,000, $71,000
and $76,000, respectively.
FEE INCOME
Periodic bank card 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. Other loan fees, net of direct
origination costs, are recognized as revenue on a yield basis over the term
of the loans.
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 COMMON SHARE
Earnings per common share are based on the weighted average number
of common shares outstanding during each year. Common share equivalents, in
the form of employee stock options, were not dilutive. On April 13, 1992,
the Board of Directors of the Company declared a 100% stock dividend.
Earnings per common share and dividends per common share presented in the
financial statements have been restated retroactively, to reflect the effects
of the stock dividend on a consistent basis. Weighted average shares
outstanding were 3,677,378, 3,378,200 and 2,872,378 for 1994, 1993 and 1992,
respectively.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial Accounting Standards Board Statement No. 107, "Disclosures
about Fair Value of Financial Instruments" (FAS 107), requires that the
Company disclose estimated fair values for its financial instruments. Fair
value estimates, methods, and assumptions are set forth in Note 15 to the
consolidated financial statements. Fair value estimates are made at a
specific point in time, based on relevant market information and information
about the financial instrument. These estimates do not reflect any premium
or discount that could result from offering for sale at one time the Company's
entire holdings of a particular instrument. Because no market exists for a
significant portion of the Company's financial instruments, fair value
estimates are based on judgments regarding future expected loss experience,
current economic conditions, risk characteristics of various financial
instruments, and other factors. These estimates are subjective in nature
and involve uncertainties and matters of significant judgment and, therefore,
cannot be determined with precision. Changes in assumptions could
significantly affect the estimates.
Fair value estimates are based on existing on and off balance sheet
financial instruments, without attempting to estimate the value of anticipated
future business and the value of assets and liabilities that are not
considered financial instruments. Also, the tax ramifications related to the
realization of the unrealized gains and losses can have a significant effect
on fair value estimates and have not been considered in the fair value.
NOTE 2: INVESTMENT SECURITIES
The amortized cost and fair value of investments in debt
securities that are classified as Held-to-Maturity and Available-for-Sale are
as follows:
December 31, 1994 December 30, 1993
--------------------------------------------------- ---------------------------------------------------
Gross Gross Estimated Gross Gross Estimated
(Dollars in Amortized unrealized unrealized Fair Amortized unrealized unrealized Fair
Thousands) cost gains (losses) value cost gains (losses) value
----------------------------------------------------------------------------------------------------------------------------------
Held-to-Maturity
U.S. Treasury $ 74,544 $ 349 $ (1,479) $ 73,414 $ 132,778 $ 5,599 $ (33) $ 138,344
U.S. Government
agencies 13,375 32 (289) 13,118 13,215 546 (28) 13,733
Mortgage-backed
securities 3,551 6 (244) 3,313 1,008 24 (10) 1,022
State and political
subdivisions 50,904 577 (1,962) 49,519 49,438 2,680 (52) 52,066
Other securities -- -- -- -- 2,187 365 (1) 2,551
--------- -------- -------- --------- -------- -------- -------- ---------
$ 142,374 $ 964 $ (3,974) $ 139,364 $ 198,626 $ 9,214 $ (124) $ 207,716
========= ======== ======== ========= ======== ======== ======== =========
Available-for-Sale
U.S. Treasury $ 25,701 $ 96 $ (202) $ 25,595
U.S. Government
agencies 1,002 3 -- 1,005
Other securities 2,554 457 (1) 3,010
--------- -------- -------- ---------
$ 29,257 $ 556 $ (203) $ 29,610
========= ======== ======== =========
Maturities of investment securities at December 31, 1994, are as
follows:
Held-to-Maturity Available-for-Sale
Amortized Fair Amortized Fair
(Dollars in Thousands) Cost Value Cost Value
------------------------------------------------------------------------------------------------------------
One year or less $ 23,759 $ 23,516 $ 6,501 $ 6,568
After one through five years 72,685 71,401 20,202 20,032
After five through ten years 37,231 35,693 -- --
After ten years 5,148 5,441 -- --
Mortgage-backed and other securities
not due on a single maturity date 3,551 3,313 2,554 3,010
--------- --------- --------- --------
$ 142,374 $ 139,364 $ 29,257 $ 29,610
========= ========= ========= ========
The book value of securities pledged as collateral, to secure
public deposits and for other purposes, amounted to $70,981,000 at December
31, 1994, and $74,492,000 at December 31, 1993. The approximate fair value of
pledged securities amounted to $70,217,000 at December 31, 1994, and
$79,588,000 at December 31, 1993.
The book value of securities sold under agreement to repurchase
amounted to $196,000 and $152,000 for December 31, 1994 and December 31, 1993,
respectively.
The net change in unrealized loss on trading securities was $4,000
for 1994.
During 1994 and 1993, there were no securities sold. The gross
realized gains of $143,000 and $134,000, and gross realized losses of $3,000
and $4,000, respectively, shown in the table below were the result of called
bonds.
December 31, December 31,
(Dollars in Thousands) 1994 1993
--------------------------------------------------------------------------
Proceeds from sales $ -- $ --
----------- -----------
Gross gains 134 $ 143
Gross losses 4 3
----------- -----------
Securities gains (losses) $ 130 $ 140
=========== ===========
Approximately 14 percent of the state and political subdivision
debt obligations are rated A or above. Of the remaining securities, most are
nonrated bonds and represent small, Arkansas issues, which are evaluated on
an ongoing basis.
NOTE 3: ACQUISITIONS
On November 15, 1994, the Company entered into a definitive
agreement to merge Dumas Bancshares, Inc. (DBI) of Dumas, Arkansas, into
Simmons First National Corporation (SFNC) in a transaction valued at
$5,000,000. Stockholders of DBI will be given certain limited options to
choose between SFNC stock and cash as consideration in the transaction. The
transaction is expected to close during the first half of 1995.
DBI owns Dumas State Bank, Dumas, Arkansas, and First State Bank,
Gould, Arkansas, with consolidated assets at September 30, 1994, of
approximately $43 million. First State Bank, which has branches in Grady and
Star City, Arkansas, in addition to its primary location in Gould, Arkansas,
will be merged into Simmons First National Bank, the Company's lead bank, and
Dumas State Bank will continue its operations as a subsidiary of the Company.
NOTE 4: LOANS AND ALLOWANCE FOR LOAN LOSSES
The various categories are summarized as follows:
(Dollars in Thousands) 1994 1993
------------------------------------------------------------------------------------
Loans:
Consumer:
Credit card $ 164,501 $ 168,673
Student loan 62,836 65,379
Other consumer 40,739 36,763
Real estate:
Construction 6,232 6,281
Single family residential 43,629 36,651
Other commercial 44,141 37,853
Commercial:
Commercial 29,047 20,007
Agricultural 16,048 16,088
Financial institutions 6,681 3,087
Other 5,122 3,998
--------- ---------
Total loans before unearned discount
and allowances for loan losses 418,976 394,780
Unearned discount (584) (354)
Allowance for Loan Losses (7,790) (7,430)
--------- ---------
Net loans $ 410,602 $ 386,996
========= =========
(Dollars in Thousands) 1994 1993 1992
------------------------------------------------------------------------------------------------------
Allowance for Loan Losses:
Balance, beginning of year $ 7,430 $ 5,748 $ 5,302
Additions:
Provision charged to expense 2,050 3,006 3,741
--------- -------- ---------
9,480 8,754 9,043
Deductions:
Losses charged to reserve, net of recoveries of
$420,000 for 1994, $727,000 for 1993,
and $375,000 for 1992 1,690 1,324 3,295
--------- -------- ---------
Balance, end of year $ 7,790 $ 7,430 $ 5,748
========= ======== =========
Loans on which the accrual of interest has been discontinued aggregated
$2,052,000 and $2,813,000, at December 31, 1994 and 1993, respectively. If
interest on those loans had been accrued, such income would have approximated
$269,000 and $347,000 for 1994 and 1993, respectively.
NOTE 5: FORECLOSED ASSETS HELD FOR SALE
At December 31, 1994 and 1993, foreclosed assets held for sale included
$81,000 and $363,000, respectively, in loans which were considered
in-substance foreclosed.
Transactions in the allowance for losses on foreclosed assets were as
follows:
(Dollars in Thousands) 1994 1993
--------------------------------------------------------------------------------
Balance, beginning of year $ 166 $ 175
Provisions charged to expense 151 71
Selling expenses incurred on foreclosed
assets sold (220) (80)
---------- -----------
Balance, end of year $ 97 $ 166
========== ===========
NOTE 6: PREMISES AND EQUIPMENT
Major classifications of premises and equipment, stated at cost,
are as follows:
Estimated
(Dollars in Thousands) 1994 1993 Useful Lives
--------------------------------------------------------------------------------------------------------
Land $ 2,023 $ 1,976
Buildings and improvements 12,694 10,872 10-50 years
Leasehold improvements 1,545 1,519 5-20 years
Equipment 12,357 11,657 3-10 years
---------- ----------
28,619 26,024
Accumulated depreciation 16,504 15,804
---------- ----------
Net premises and equipment $ 12,115 $ 10,220
========== ==========
NOTE 7: TIME DEPOSITS
Time deposits included approximately $55,222,000 and $61,353,000 of
certificates of deposit of $100,000 or more, at December 31, 1994 and 1993,
respectively.
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 8: INCOME TAXES
The provision for income taxes is comprised of the following
components:
(Dollars in Thousands) 1994 1993 1992
------------------------------------------------------------------------------------------
Income taxes currently payable $ 3,718 $ 4,246 $ 3,395
Deferred income taxes 63 (780) (488)
---------- ---------- ----------
Provision for income taxes $ 3,781 $ 3,466 $ 2,907
========== ========== ==========
Deferred income taxes related to the change in unrealized
appreciation on available-for-sale securities, shown in stockholders' equity,
was $120,000 for 1994.
The tax effects of temporary differences related to deferred taxes
shown on the balance sheet were:
(Dollars in Thousands) 1994 1993
-----------------------------------------------------------------------
Deferred tax assets:
Allowance for loan losses $ 2,744 $ 2,929
Valuation of foreclosed
assets 281 470
Deferred compensation payable 373 342
Deferred loan fee income 773 980
Other 645 706
--------- ---------
4,816 5,427
--------- ---------
Deferred tax liabilities:
Accumulated depreciation (405) (389)
Available-for-sale securities (120) --
--------- ---------
(525) (389)
--------- ---------
Net deferred tax asset before
valuation allowance 4,291 5,038
--------- ---------
Valuation allowance:
Beginning balance (564) (466)
Change during period 564 (98)
--------- ---------
Ending balance -- (564)
--------- ---------
Net deferred tax assets included in
other assets on balance sheets $ 4,291 $ 4,474
========= =========
The valuation allowance relates to the benefits of state income tax
carry-forwards included in deferred tax assets.
A reconciliation of income tax expense at the statutory rate to the
Company's actual income tax expense is shown below:
(Dollars in Thousands) 1994 1993 1992
-------------------------------------------------------------------------------------------
Computed at the statutory rate (34%) $ 4,637 $ 4,373 $ 3,530
Increase (decrease) resulting from:
Tax exempt income (985) (913) (745)
Amortization of intangible assets 82 94 97
Other differences, net 47 (88) 25
--------- --------- ---------
Actual tax provision $ 3,781 $ 3,466 $ 2,907
========= ========= =========
NOTE 9: LONG-TERM DEBT AND CAPITAL NOTES
Long-term debt and capital notes at December 31, 1994 and 1993, consisted
of the following components:
(Dollars in Thousands) 1994 1993
--------------------------------------------------------------------
Capital notes $ 11,000 $ 11,000
Other debt 1,144 1,178
--------- ---------
Total long-term debt $ 12,144 $ 12,178
========= =========
Capital notes of Simmons First National Corporation are due June 30,
1997, with interest payable quarterly and rates adjusted quarterly to the then
prime rate offered by Chase Manhattan in New York, which was adjusted at
December 31, 1994, to 7.75%.
Other debt consists of a mortgage note payable to Mutual Benefit
Life Insurance Corporation, secured by land and building with a book value of
$2,021,000, payable in equal monthly installments of $12,000, including
interest at approximately 9.75% per annum. Final payment is due August, 2008.
Aggregate annual maturities of long-term debt at December 31, 1994
are:
(Dollars in
Year Thousands)
------------------------------------
1995 $ 37
1996 41
1997 11,045
1998 49
1999 55
Thereafter 917
-----------
$ 12,144
===========
NOTE 10: CAPITAL STOCK
In addition to the common stock from which stock has been issued,
as shown on the balance sheet, 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 April 13, 1992, the board of directors of the Company declared
a 100% stock dividend to shareholders of record on May 15, 1992, payable on
June 5, 1992. Earnings per common share and dividends per common share
presented in the financial statements have been restated retroactively, to
reflect the effects of the stock dividend on a consistent basis.
On May 12, 1993, the Company issued and sold 700,000 shares of
Class A Common Stock. And on June 10, 1993, the Company issued and sold an
additional 105,000 shares. The net proceeds to the Company stockholders'
equity after expenses was $16.1 million.
NOTE 11: TRANSACTIONS WITH RELATED PARTIES
At December 31, 1994 and 1993, the subsidiary banks had loans
outstanding to executive officers, directors, and to companies in which the
banks' executive officers or directors were principal owners, in the amount
of $3,643,000 in 1994, and $4,687,000 in 1993.
(Dollars in Thousands)
------------------------------------------------------
Balance - December 31, 1993 $ 4,687
New loans 1,832
Repayments (2,876)
-------------
Balance - December 31, 1994 $ 3,643
=============
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 loans did not involve more than the
normal risk of collectibility or present other unfavorable features.
NOTE 12: EMPLOYEE BENEFIT PLANS
In October, 1990, the Board of Directors approved the adoption of a
401(k) retirement plan, effective January 1, 1991, covering substantially all
employees. Employees may contribute up to 12% of their compensation, with the
Company and its subsidiaries matching 25% of the employees' contribution on
the first 5% of the employee's compensation. The charges to income for this
contribution in 1994, 1993 and 1992 were $125,000, $106,000 and $94,000,
respectively.
The Company and its subsidiaries have a discretionary profit
sharing and employee stock ownership plan covering all employees. The
charges to income for the plan were $600,000 for 1994, $550,000 for 1993,
and $485,000 for 1992.
On May 14, 1990, the Board of Directors adopted an incentive and
nonqualified stock option plan. Pursuant to the plan, an aggregate of 140,000
shares were reserved for future issuance by the Company, upon exercise of stock
options to be granted to officers and other key employees.
The table below summarizes the transactions under the Company's stock
option plan:
-----Shares-----
Under
Available Option
-------------------------------------------------------------------------------
Balance, December 31, 1992 77,000 63,000
Options granted in 1993 -- --
---------- -----------
Balance, December 31, 1993 77,000 63,000
Options granted November 28, 1994
($23.3750 per share) (6,000) 6,000
---------- -----------
Balance, December 31, 1994 71,000 69,000
========== ===========
Options exercisable at December 31, 1994 42,600
===========
Also, Simmons First National Bank and Simmons First Bank Jonesboro
have 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 $128,000 for 1994, $187,000
for 1993 and $120,000 for 1992. 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% discount factor.
NOTE 13: ADDITIONAL CASH FLOW INFORMATION FOR 1994, 1993 AND 1992
(Dollars in Thousands) 1994 1993 1992
------------------------------------------------------------------------------------------------------
Non-Cash Investing Activities:
Sale and financing of foreclosed assets
held for sale $ 148 $ 292 $ 1,990
Real estate acquired in settlement of debt 80 1,230 1,353
Additional Cash Payment Information:
Interest paid 16,191 16,319 20,452
Income taxes paid 4,530 3,968 3,145
NOTE 14: OTHER OPERATING EXPENSE
Other non-interest expense consists of the following:
(Dollars in Thousands) 1994 1993 1992
---------------------------------------------------------------------------------
Professional services $ 1,634 $ 1,530 $ 1,542
Postage 1,234 1,267 1,365
Telephone 771 783 798
Credit card expense 1,458 1,163 1,083
Operating supplies 695 954 1,810
FDIC insurance 1,307 1,293 1,066
Miscellaneous expenses 5,564 5,870 5,327
-------- -------- --------
$ 12,663 $ 12,860 $ 12,991
======== ======== ========
NOTE 15: 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.
INVESTMENTS
For securities held as investments and in trading accounts, fair value
equals quoted market price, if available. If a quoted market price is not
available, fair value is estimated, using quoted market prices for similar
securities. The carrying amount for available-for-sale and trading
securities approximates fair value. The carrying amount of accrued interest
receivable approximates its fair value.
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, NOW accounts, and
certain 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
OTHER BORROWINGS
The carrying amount for federal funds purchased, securities sold under
agreement to repurchase, and other borrowings is a reasonable estimate of
fair value.
LONG-TERM DEBT AND CAPITAL NOTES PAYABLE
Rates currently available to the Company for debt with similar terms and
remaining maturities are used to estimate 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 counter-
parties. For fixed rate loan commitments, fair value also considers the
difference between current levels of interest rates and the committed rates.
The fair value of letters of credit and lines of credit is 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, 1994 December 31, 1993
Carrying Fair Carrying Fair
(Dollars in Thousands) Amount Value Amount Value
-------------------------------------------------------------------------------------------------------------------
Financial assets:
Cash and cash equivalents $ 74,002 $ 74,002 $ 49,090 $ 49,090
Held-to-maturity securities 142,374 139,364 198,626 207,716
Available-for-sale securities 29,610 29,610 -- --
Trading account securities 2,734 2,734 3,759 3,759
Mortgage loans held for sale 8,720 8,720 47,775 47,903
Interest receivable 6,289 6,289 5,829 5,829
Loans, net of unearned discounts and
allowance for loan losses 410,602 411,582 386,996 389,915
Financial liabilities:
Non-interest-bearing transaction accounts 109,564 109,564 135,468 135,468
Interest-bearing transaction accounts and
savings deposits 228,649 228,649 224,730 224,730
Time deposits 245,325 238,571 250,157 252,738
Federal funds purchased and securities
sold under agreement to repurchase 23,931 23,931 26,347 26,347
Short-term debt 1,621 1,621 5,013 5,013
Capital notes 11,000 11,000 11,000 11,000
Long-term debt 1,144 1,244 1,178 1,490
Interest payable 1,718 1,718 9,532 9,532
Unrecognized financial instruments:
Letters of credit -- -- -- --
Lines of credit -- -- -- --
The fair value of commitments to extend credit and forward commitments
to sell mortgage loans do not differ materially from the notional or
principal amounts.
NOTE 16: COMMITMENTS AND CREDIT RISK
The three subsidiary banks grant agri-business, credit card, commercial,
and residential loans to customers throughout the state. Although the banks
have a diversified loan portfolio, unsecured debt in the form of credit card
receivables comprised approximately 39.3% and 42.8% of the portfolio, as of
December 31, 1994 and 1993, respectively.
Commitments to extend credit are agreements to lend to a customer, as
long as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since a portion of the commitments may
expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. Each customer's
creditworthiness is evaluated on a case-by-case basis. The amount of
collateral obtained, if deemed necessary, is based on management's credit
evaluation of the counterparty. Collateral held varies, but may include
accounts receivable, inventory, property, plant and equipment, commercial
real estate, and residential real estate.
At December 31, 1994 and 1993, the Company had outstanding commitments
to originate loans aggregating approximately $47,733,000 and $48,238,000,
respectively. The commitments extended over varying periods of time, with
the majority being disbursed within a one year period. Loan commitments at
fixed rates of interest amounted to $16,519,000 and $12,025,000 at December
31, 1994 and 1993, respectively, with the remainder at floating interest
rates.
Letters of credit are conditional commitments issued by the bank
subsidiaries of the Company, to guarantee the performance of a customer to a
third party. Those guarantees are primarily issued to support public and
private borrowing arrangements, including commercial paper, bond financing,
and similar transactions. The credit risk involved in issuing letters of
credit is essentially the same as that involved in extending loans to
customers.
The Company had total outstanding letters of credit amounting to
$918,000 and $820,000 at December 31, 1994 and 1993, respectively, with terms
ranging from 95 days to one year.
Lines of credit are agreements to lend to a customer, as long as there is
no violation of any condition established in the contract. Lines of credit
generally have fixed expiration dates. Since a portion of the line may
expire without being drawn upon, the total unused lines do not necessarily
represent future cash requirements. Each customer's creditworthiness is
evaluated on a case-by-case basis. The amount of collateral obtained, if
deemed necessary, upon extension of credit, is based on management's credit
evaluation of the borrower. Collateral held varies but may include accounts
receivable, inventory, property, plant and equipment, commercial real estate,
and residential real estate. Management uses the same credit policies in
granting lines of credit as it does for balance sheet instruments.
At December 31, 1994, the Company had granted unused lines of credit to
borrowers, aggregating approximately $4,568,000 and $143,563,000 for
commercial lines and open-end consumer lines. At December 31, 1993, unused
lines of credit aggregated approximately $3,615,000 for commercial lines and
$132,140,000 for open-end consumer lines.
Mortgage loans in the process of origination represent amounts which the
subsidiary bank plans to fund within a normal period of 60 to 90 days and
which are intended for sale to investors in the secondary market. Forward
commitments to sell mortgage loans are obligations to deliver loans at a
specified price on or before a specific future date. The subsidiary bank
acquires such commitments to reduce market risk on mortgage loans in the
process of origination and mortgage loans held for sale.
At December 31, 1994 and 1993, mortgage loans in process amounted to
$11,748,000 and $54,733,000 and mortgage loans held for sale amounted to
$8,720,000 and $47,775,000, respectively. Related forward commitments to
sell mortgage loans during the same time frame amounted to $19,582,000 and
$88,815,000, respectively.
Mortgage loans serviced for others totaled $1,228,311,000 and
$1,395,424,000 at December 31, 1994 and 1993, respectively, of which mortgage-
backed securities serviced totaled $1,027,855,000 and $1,123,747,000 at
December 31, 1994 and 1993, respectively. At December 31, 1994, Simmons
First National Bank serviced approximately $156,650,000 in Veterans
Administration loans, subject to certain recourse provisions. A reserve of
$210,000 has been established for potential loss obligations, based on
management's evaluation of historical losses, as well as prevailing and
anticipated economic conditions, giving consideration for specific reserves.
Such reserve is included in other liabilities.
Below are the transactions in that reserve:
(Dollars in Thousands) 1994 1993 1992
-----------------------------------------------------------------------------------
Balance, beginning of year $ 310 $ 556 $ 695
Additions:
Provision charged to expense -- -- 105
Deductions:
Losses charged to reserve (100) (246) (244)
--------- --------- ---------
Balance, end of year $ 210 $ 310 $ 556
========= ========= =========
NOTE 17: LEASES
At December 31, 1994, 1993, and 1992, there were obligations under a
number of long-term land and office operating leases, which required minimum
annual rentals, aggregating approximately $553,000 for 1994, $589,000 for
1993, and $580,000 for 1992. The leases extend for varying periods, up to
the year 2057.
Minimum annual rentals under these non-cancelable leases at December 31,
1994, are as follows:
Year
-----------------------------------------------------------
1995-1999 (each year) $ 510,185
2000-2004 (five year aggregate) 1,063,100
2005-2009 (five year aggregate) 759,157
2010-2014 (five year aggregate) 696,757
2015 and thereafter (aggregate) $ 3,321,319
The corporate subsidiaries are obligated under equipment leases on
a month-to-month basis, which are expected to be renewed and had aggregate
annual rentals of approximately $150,000 in 1994, $166,000 in 1993, and
$242,000 in 1992. The subsidiaries are also obligated on one-year leases for
office and storage space, having aggregate annual rentals of approximately
$240,000 in 1994, $63,000 in 1993, and $113,000 in 1992.
NOTE 18: CHANGE IN ACCOUNTING PRINCIPLE
As of January 1, 1994, the Company adopted Financial Accounting
Standards Board Statement No. 115 (FAS 115), "Accounting for Certain
Investments in Debt and Equity Securities." FAS No. 115 requires the
classification of securities into one of three categories: Trading,
Available-for-sale, or Held-to-maturity. The adoption of FAS No. 115
resulted in a net increase in stockholders' equity of approximately $946,000.
NOTE 19: FUTURE CHANGES IN ACCOUNTING PRINCIPLE
The Financial Accounting Standards Board recently adopted Financial
Accounting Standards Board Statement No. 114 (FAS 114), "Accounting by
Creditors for Impairment of a Loan", which requires that impaired loans be
measured, based on the present value of expected cash flows discounted at
the loan's effective interest rate or, as a practical expedient, at the
loan's observable market price or the fair value of the collateral, if the
loan is collateral dependent. This Statement applies to financial statements
for fiscal year 1995. The adoption of FAS 114 is not expected to have a
significant impact on the Company's consolidated financial statements.
NOTE 20: 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 21: UNDIVIDED PROFITS
The subsidiary banks 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 50% of the current year earnings. At December 31,
1994, the bank subsidiaries had approximately $13,000,000 in undivided profits
available for payment of dividends to the Company, without prior approval of
the regulatory agencies. The most restrictive regulatory capital
requirements at December 31, 1994 and 1993, were $35,322,000 and $35,392,000,
respectively.
The risk-based capital guidelines of the Federal Reserve Board
required a minimum risk-adjusted ratio for total capital of 8% by the end of
1992. The Federal Reserve Board has further refined its guidelines to
include the definitions for (1) a well-capitalized institution, (2) an
adequately capitalized institution, and (3) an undercapitalized institution.
The criteria for a well-capitalized institution is one that has at least a
10% "total risk-based capital" ratio, a 6% "Tier 1 risk-based capital" ratio,
and a 5% "Tier 1 leverage capital" ratio. At December 31, 1994, each of the
three subsidiary banks met the capital standards for a well-capitalized
institution. The Company's risk-based capital ratio at December 31, 1994,
was 21.56%.
NOTE 22: CONDENSED FINANCIAL INFORMATION (PARENT COMPANY ONLY)
CONDENSED BALANCE SHEETS
DECEMBER 31, 1994 and 1993
(Dollars in Thousands) 1994 1993
------------------------------------------------------------------------------------
ASSETS
Cash and cash equivalents $ 28,053 $ 2,344
Investment in wholly-owned subsidiaries 63,134 56,579
Excess cost over fair value of
net assets acquired 940 1,041
Investment securities -- 24,501
Fixed assets 2,774 2,948
Other assets 1,068 1,607
--------- -----------
Total Assets $ 95,969 $ 89,020
========= ===========
LIABILITIES
Borrowed funds $ 12,144 $ 12,178
Other liabilities 125 1,507
--------- -----------
Total Liabilities $ 12,269 $ 13,685
--------- -----------
STOCKHOLDERS' EQUITY
Common stock stated value 18,387 18,387
Capital surplus 19,827 19,827
Unrealized appreciation on available for
sale securities, net of income taxes
of $120,000 233 --
Retained earnings 45,253 37,121
--------- -----------
Total Stockholders' Equity 83,700 75,335
--------- -----------
Total Liabilities and
Stockholders' Equity $ 95,969 $ 89,020
========= ===========
CONDENSED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1994, 1993, and 1992
(Dollars in Thousands) 1994 1993 1992
--------------------------------------------------------------------------------------------------
INCOME
Dividends from subsidiaries $ 3,659 $ 5,101 $ 4,044
Other income 1,702 3,269 729
--------- ---------- ----------
5,361 8,370 4,773
EXPENSES 1,943 3,885 1,578
--------- ---------- ----------
INCOME BEFORE INCOME TAX AND EQUITY IN
UNDISTRIBUTED NET INCOME OF SUBSIDIARIES 3,418 4,485 3,195
APPLICABLE INCOME TAX CREDIT (162) (167) (230)
--------- ---------- ----------
INCOME BEFORE EQUITY IN UNDISTRIBUTED
NET INCOME OF SUBSIDIARIES 3,580 4,652 3,425
EQUITY IN UNDISTRIBUTED NET INCOME
OF SUBSIDIARIES 6,280 4,744 4,052
--------- ---------- ----------
NET INCOME $ 9,860 $ 9,396 $ 7,477
========= ========== ==========
CONDENSED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1994, 1993, and 1992
(Dollars in Thousands, except per share data) 1994 1993 1992
----------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 9,860 $ 9,396 $ 7,477
Items not requiring (providing) cash:
Depreciation and amortization 280 588 290
Accretion (346) (306) (1)
Deferred income taxes 73 (105) (78)
Equity in undistributed net income of bank subsidiaries (6,280) (4,744) (4,052)
Gain on sale of premises and equipment 9
Changes in:
Accounts receivable 539 327 (778)
Accounts payable and accrued expenses (2,611) (400) 389
Income taxes payable 1,155 (3) 65
--------- ---------- ----------
Net cash provided by operating activities 2,679 4,753 3,312
--------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Net (originations) collections of loans -- 3,750 (1,500)
Purchase of premises and equipment (182) (268) (31)
Gain from sale of fixed assets 168 (296) --
Proceeds from maturities of investment securities 24,806 781 --
Purchase of investment securities -- (24,605) --
--------- ---------- ----------
Net cash provided by (used in) investing activities 24,792 (20,638) (1,531)
--------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal reduction on long-term debt (34) (30) (27)
Dividends paid (1,728) (1,390) (1,150)
Proceeds from sale of additional stock -- 16,110
--------- ---------- ----------
Net cash provided by (used in) financing activities (1,762) 14,690 (1,177)
--------- ---------- ----------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 25,709 (1,195) 604
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 2,344 3,539 2,935
--------- ---------- ----------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 28,053 $ 2,344 $ 3,539
========= ========== ==========
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
No items are reportable hereunder.
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 25, 1995,
to be filed pursuant to Regulation 14A.
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 25, 1995,
to be filed pursuant to Regulation 14A.
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 25, 1995,
to be filed pursuant to Regulation 14A.
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 25, 1995,
to be filed pursuant to Regulation 14A.
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 consolidated financial statements and financial
statement schedules are filed as part of this annual report.
3. Exhibits
The exhibits listed in the accompanying index to exhibits are filed as
part of this annual report.
(b) Reports on Form 8-K
A Form 8-K, dated November 15, 1994, pertaining to the merger agreement
between the Company and Dumas Bancshares, Inc., Dumas, Arkansas, was filed
during the fourth quarter of 1994.
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 27, 1995
----------------------------------------
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 27, 1995.
Signature Title
---------- -----
/s/ W. E. Ayres Chairman and Director
------------------------
W. E. Ayres
/s/ J. Thomas May President, Chief Executive
------------------------ Officer and Director
J. Thomas May
/s/ Barry L. Crow Executive Vice President and Chief Financial
------------------------ Officer (Principal Financial and Accounting Officer)
Barry L. Crow
/s/ Ben V. Floriani Director
------------------------
Ben V. Floriani
/s/ C. Ramon Greenwood Director
-------------------------
C. Ramon Greenwood
/s/ Paul M. Henson Director
-------------------------
Paul M. Henson
/s/ David R. Perdue Director
-------------------------
David R. Perdue
/s/ Adam B. Robinson Director
------------------------
Adam B. Robinson
/s/ Harry L. Ryburn Director
------------------------
Harry L. Ryburn
/s/ Donald W. Stone Director
-------------------------
Donald W. Stone