SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) June 6, 1997
SIMMONS FIRST NATIONAL CORPORATION
(Exact name of registrant as specified in its charter)
Arkansas 0-6253 71-0407808
(State or other jurisdiction of (Commission (I.R.S. employer
incorporation or organization) file number) identification No.)
501 Main Street, Pine Bluff, Arkansas 71601
(Address of principal executive offices) (Zip Code)
(870) 541-1000
(Registrant's telephone number, including area code)
ITEM 5. OTHER EVENTS
On March 21, 1997, Simmons First National Corporation ("Company") entered
into a definitive agreement pursuant to which the Registrant agreed to acquire
all of the issued and outstanding stock of First Bank of Arkansas Russellville
(FBAR) and First Bank of Arkansas Searcy (FBAS). The following financial
information is provided for inclusion in the integrated reporting system.
FINANCIAL INFORMATION
The following unaudited Pro Forma Consolidated Balance Sheet as of March
31, 1997 and Unaudited Pro Forma Consolidated Income Statements for the three
months ended March 31, 1997 and the year ended December 31, 1996, illustrate the
effect of the proposed acquisition.
These Pro Forma Consolidated Financial Statements should be read in
conjunction with the historical financial statements of the Company which are
incorporated by reference herein and of FBAR/FBAS which are included herein on a
combined basis.
The Pro Forma Consolidated Financial Statements are not intended to be
indicative of actual results had the transactions occurred as of the dates
indicated above nor do they purport to indicate future results.
PRO FORMA CONDENSED COMBINING BALANCE SHEET
March 31, 1997
(Dollars in thousands - unaudited)
FBAR/ Combined Pro Forma Pro Forma
Company FBAS Entity Adjustments Consolidated
- -----------------------------------------------------------------------------------------------------------------
ASSETS
Cash and non-interest bearing balances
due from banks $ 33,519 $ 8,564 $ 42,083 $ $ 42,083
Interest bearing balances due from banks 6,434 15 6,449 6,449
Federal funds sold and securities purchased
under agreements to resell 41,470 11,875 53,345 (24,883)(1b)(1d) 28,462
------- ------- -------- -------- ---------
Cash and cash equivalents 81,423 20,454 101,877 (24,883) 76,994
Investment securities 238,156 81,976 320,132 (6,773)(1b) 313,359
Mortgage loans held for sale,
net of unrealized gains (losses) 5,911 -- 5,911 5,911
Assets held in trading accounts 236 -- 236 236
Loans 515,746 252,083 767,829 (32,030)(1d) 735,799
Allowance for loan losses (8,297) (3,982) (12,279) 188 (1d) (12,091)
------- ------- --------- -------- ---------
Net loans 507,449 248,101 755,550 (31,842) 723,708
Premises and equipment 20,873 8,382 29,255 (661)(1d) 28,594
Foreclosed assets held for sale 975 -- 975 975
Interest receivable 8,121 3,043 11,164 11,164
Cost of loan servicing rights acquired 8,374 -- 8,374 8,374
Excess of cost over fair value of net
assets acquired, at amortized cost 3,099 1,932 5,031 28,580 (1b) 33,611
Other assets 16,646 4,517 21,163 850 (1c) 22,013
------- ------- --------- -------- ---------
TOTAL ASSETS $891,263 $368,405 $1,259,668 $ (34,729) $1,224,939
======= ======= ========= ======== =========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Non-interest bearing transaction accounts $116,440 $ 22,399 $ 138,839 $ (2)(1d) $ 138,837
Interest bearing transaction accounts
and savings deposits 270,515 57,942 328,457 328,457
Time deposits 357,477 242,835 600,312 (42,608)(1d) 557,704
------- ------- --------- -------- ---------
Total deposits 744,432 323,176 1,067,608 (42,610) 1,024,998
Federal funds purchased and securities sold
under agreements to repurchase 28,288 1,657 29,945 29,945
Short-term debt 2,328 -- 2,328 2,328
Long-term debt 1,056 13,055 14,111 35,000 (1c) 49,111
Accrued interest and other liabilities 11,149 3,398 14,547 14,547
------- ------- --------- -------- ---------
Total liabilities 787,253 341,286 1,128,539 (7,610) 1,120,929
------- ------- --------- -------- ---------
STOCKHOLDERS' EQUITY
Capital stock
Class A, common, par value $5 a share,
authorized 10,000,000 shares, 5,715,194
issued and outstanding 28,576 200 28,776 (200)(1b) 28,576
Surplus 22,073 17,280 39,353 (17,280)(1b) 22,073
Undivided profits 52,951 9,696 62,647 (9,696)(1b) 52,951
Unrealized appreciation on
available-for-sale securities,
net of income taxes of $235 410 (57) 353 57 (1b) 410
------- ------- --------- -------- ---------
Total stockholders' equity 104,010 27,119 131,129 (27,119) 104,010
------- ------- --------- -------- ---------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $891,263 $368,405 $1,259,668 $ (34,729) $1,224,939
======= ======= ========= ======== =========
PRO FORMA CONDENSED COMBINING STATEMENT OF INCOME
Three Months Ended March 31, 1997
(Dollars in thousands, except per share data)
FBAR/ Combined Pro Forma Pro Forma
Company FBAS Entity Adjustments Consolidated
- --------------------------------------------------------------------------------------------------------------------
INTEREST INCOME
Loans $ 11,521 $ 5,862 $ 17,383 $ (725)(2c) $ 16,658
Federal funds sold and securities purchased
under agreements to resell 538 170 708 (326)(2b)(2c) 382
Investment securities 3,672 1,121 4,793 (63)(2b) 4,730
Mortgage loans held for sale,
net of unrealized gains (losses) 117 -- 117 117
Assets held in trading accounts 16 -- 16 16
Interest bearing balances due from banks 77 -- 77 77
------- ------- ------- ------- --------
TOTAL INTEREST INCOME 15,941 7,153 23,094 (1,114) 21,980
INTEREST EXPENSE
Interest bearing transaction accounts
and savings deposits 1,884 431 2,315 2,315
Time deposits 4,653 3,335 7,988 (476)(2c) 7,512
Federal funds purchased and securities sold
under agreements to repurchase 463 25 488 488
Short-term debt 29 -- 29 29
Long-term debt 26 217 243 751 (2c) 994
------- ------- ------- ------- -------
TOTAL INTEREST EXPENSE 7,055 4,008 11,063 275 11,338
------- ------- ------- ------- -------
NET INTEREST INCOME 8,886 3,145 12,031 (1,389) 10,642
Provision for loan losses 764 192 956 956
------- ------- ------- ------- -------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 8,122 2,953 11,075 (1,389) 9,686
------- ------- ------- ------- -------
NON-INTEREST INCOME
Trust department income 604 33 637 637
Service charges on deposit accounts 745 406 1,151 (55)(2c) 1,096
Other service charges and fees 309 122 431 431
Income on sale of mortgage loans,
net of commissions 121 -- 121 121
Income on investment banking,
net of commissions 275 -- 275 275
Credit card fees 2,194 -- 2,194 2,194
Loan servicing fees 1,706 -- 1,706 1,706
Other income 272 9 281 281
Investment securities gains (losses), net -- (2) (2) (2)
------- ------- ------- ------- -------
TOTAL NON-INTEREST INCOME 6,226 568 6,794 (55) 6,739
------- ------- ------- ------- -------
NON-INTEREST EXPENSE
Salaries and employee benefits 5,636 907 6,543 (88)(2c) 6,455
Occupancy expense, net 621 327 948 (18)(2c) 930
Furniture and equipment expense 743 -- 743 743
Loss on foreclosed assets 252 -- 252 252
Other expense 3,480 558 4,038 431 (2b) 4,469
------- ------- ------- ------- -------
TOTAL NON-INTEREST EXPENSE 10,732 1,792 12,524 325 12,849
------- ------- ------- ------- -------
INCOME BEFORE INCOME TAXES 3,616 1,729 5,345 (1,769) 3,576
Provision for income taxes 1,028 573 1,601 (563)(2b)(2c) 1,038
------- ------- ------- ------- -------
NET INCOME $ 2,588 $ 1,156 $ 3,744 $ (1,206) $ 2,538
======= ======= ======= ======= =======
EARNINGS PER AVERAGE
COMMON SHARE $ 0.45 $ 0.44
======= =======
DIVIDENDS PER COMMON SHARE $ 0.13 $ 0.13
======= =======
PRO FORMA CONDENSED COMBINING STATEMENT OF INCOME
Year Ended December 31, 1996
(Dollars in thousands, except per share data)
FBAR/ Combined Pro Forma Pro Forma
Company FBAS Entity Adjustments Consolidated
- -------------------------------------------------------------------------------------------------------------------------
INTEREST INCOME
Loans $ 44,333 $ 22,640 $ 66,973 $ (2,847)(2c) $ 64,126
Federal funds sold and securities purchased
under agreements to resell 1,680 351 2,031 (1,309)(2b)(2c) 722
Investment securities 13,664 3,594 17,258 (250)(2b) 17,008
Mortgage loans held for sale,
net of unrealized gains (losses) 1,333 -- 1,333 1,333
Assets held in trading accounts 66 -- 66 66
Interest bearing balances due from banks 291 -- 291 291
-------- ------- -------- -------- ---------
TOTAL INTEREST INCOME 61,367 26,585 87,952 (4,406) 83,546
-------- -------- -------- -------- ---------
INTEREST EXPENSE
Interest bearing transaction accounts
and savings deposits 7,106 1,443 8,549 8,549
Time deposits 18,663 12,505 31,168 (1,876)(2c) 29,292
Federal funds purchased and securities sold
under agreements to repurchase 1,406 94 1,500 1,500
Short-term debt 129 -- 129 129
Long-term debt 258 856 1,114 3,003 (2b) 4,117
-------- ------- -------- -------- ---------
TOTAL INTEREST EXPENSE 27,562 14,898 42,460 1,127 43,587
-------- ------- -------- -------- ---------
NET INTEREST INCOME 33,805 11,687 45,492 (5,533) 39,959
Provision for loan losses 2,341 2,369 4,710 4,710
-------- ------- -------- -------- ---------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 31,464 9,318 40,782 (5,533) 35,249
-------- ------- -------- -------- ---------
NON-INTEREST INCOME
Trust department income 2,166 94 2,260 2,260
Service charges on deposit accounts 3,222 1,683 4,905 (220)(2c) 4,685
Other service charges and fees 1,069 352 1,421 1,421
Income on sale of mortgage loans,
net of commissions 287 -- 287 287
Income on investment banking,
net of commissions 758 -- 758 758
Credit card fees 9,601 -- 9,601 9,601
Loan servicing fees 7,095 -- 7,095 7,095
Other income 648 15 663 663
Investment securities gains (losses), net 270 (6) 264 264
-------- ------- -------- -------- ---------
TOTAL NON-INTEREST INCOME 25,116 2,138 27,254 (220) 27,034
-------- ------- -------- -------- ---------
NON-INTEREST EXPENSE
Salaries and employee benefits 21,774 3,470 25,244 (414)(2c) 24,830
Occupancy expense, net 2,310 1,135 3,445 (77)(2c) 3,368
Furniture and equipment expense 2,416 -- 2,416 2,416
Loss on foreclosed assets 1,135 -- 1,135 1,135
Other expense 14,321 2,094 16,415 1,724 (2b) 18,139
-------- ------- -------- -------- ---------
TOTAL NON-INTEREST EXPENSE 41,956 6,699 48,655 1,233 49,888
-------- ------- -------- -------- ---------
INCOME BEFORE INCOME TAXES 14,624 4,757 19,381 (6,986) 12,395
Provision for income taxes 4,323 1,558 5,881 (2,226)(2b 3,655
-------- ------- -------- -------- ---------
NET INCOME $ 10,301 $ 3,199 $ 13,500 $ (4,760) $ 8,740
======== ======= ======== ======== =========
EARNINGS PER AVERAGE
COMMON SHARE $ 1.81 $ 1.53
======== =========
DIVIDENDS PER COMMON SHARE $ 0.48 $ 0.48
======== =========
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
On March 21, 1997, the Company entered into two separate definitive
agreements pursuant to which the Company agreed to acquire all of the issued and
outstanding stock of FBAR and FBAS. Two branches and certain loan participations
of FBAR will not be acquired by the Company. The acquisitions will be
consummated through the payment of $53,000,000 in cash. The transaction will be
financed with $35,000,000 in long-term debt, available cash and liquidation of
investments and federal funds sold.
1. The pro forma consolidated balance sheet of the Company and FBAR/FBAS
as of March 31, 1997 has been prepared in accordance with the following
assumptions:
a. The pending acquisitions occur on March 31, 1997.
b. The pending acquisitions are accounted for utilizing the
purchase method of accounting and, accordingly, the net assets
of FBAR/FBAS are adjusted to their fair values. The components
of the transaction assumed in the consolidated balance sheet
are outlined as follows:
($ in thousands)
- ----------------------------------------------------------------------------------------
Cash $ 53,000
Transaction costs 1,000
Less: Historical book value of FBAR/FBAS $ 27,119
Adjustment to reflect fair value of FBAR/FBAS assets:
Acquiree intangibles written off (1,932)
Reduction of investments to fair value (1,019)
Compensation liability due to change
in control (680) (23,488)
------- -------
Excess of cost over fair value of
net assets acquired $ 30,512
=======
c. The Company will incur $35,000,000 in long-term debt with
interest rates ranging from 7.75% to 9.50% per annum. The
debt issue costs are estimated to be $850,000.
Except for items specifically adjusted above, Company
management believes that historical book value of the net
assets of FBAR/FBAS approximates fair value.
d. Adjustments to reduce FBAR assets and liabilities for branch
operations and loan participations not acquired by the Company
are as follows:
Decrease in federal funds sold $(10,107)
Decrease in loans (32,030)
Decrease in allowance for loan losses 188
Decrease in premises and equipment (661)
Decrease in deposits
Non-interest bearing 2
Interest bearing 42,608
-------
$ --
=======
2. The pro forma consolidated income statements have been prepared in
accordance with the following assumptions:
a. The pending acquisitions occur at January 1, 1996 and is accounted
for utilizing the purchase method of accounting. Accordingly, the
operations of FBAR/FBAS are included in the pro forma results of
operations from January 1,1996 forward.
b. Adjustments to reflect amortization of the purchase accounting
adjustments and the decrease in interest income on $20,530,000 in
cash, investment securities and federal funds sold utilized in
the acquisition and interest expense on $35,000,000 in long-term
debt and the related income tax effects in the pro forma condensed
income statements are as follows:
Three Months
Ended Year Ended
March 31, December 31,
1997 1996
-----------------------------------------------------------------------------------------
Decrease in interest income for
decrease in federal funds sold $ (203) $ (813)
Decrease in interest income for
decrease in cash and securities (75) (298)
Increase in interest income for
accretion of decrease in debt
securities to fair value 12 48
Increase in interest on borrowed funds (744) (2,975)
Amortization of debt issue costs (7) (28)
Increase in other expenses for
amortization of excess of cost over
fair value of net assets acquired (431) (1,724)
Decrease in applicable income taxes 465 1,861
---------- ----------
Reduction in net income $ (983) $ (3,929)
========== ==========
The assumed interest rate on cash and securities is 5.25%
The decrease in the investment in debt securities is amortized
using a method that approximates the interest method over the
estimated life of the portfolio of six years.
The assumed interest rate on the long-term debt is 7.75% on
$20,000,000 and 9.50% on $15,000,000 and the estimated
issuance costs of $850,000 is amortized over the term of the
related debt.
The excess of cost over fair value of net assets acquired is
amortized using the straight-line method over fifteen years.
As a part of the definitive agreements for the pending
acquisitions, an election will be made under Internal Revenue
Code Section 338 (h)(10). As a result, the amortization
will be deductible for income tax purposes.
Income taxes are calculated using a combined incremental tax
rate of 38%.
c. Adjustments to reduce FBAR results of operations for branch
operations and loan participations not acquired by the Company
are as follows:
Three Months
Ended Year Ended
March 31, December 31,
1997 1996
------------------------------------------------------------------------------------------
Interest - loans $ (725) $ (2,847)
Interest - fed funds purchased (123) (496)
Service charge income (55) (220)
Interest expense - deposits 476 1,876
Salaries and employee benefits 88 414
Occupancy expenses 18 77
Applicable income taxes 98 365
---------- ----------
Impact on earnings $ (223) $ (831)
========== ==========
FBAR/FBAS
STATISTICAL DISCLOSURES
LOAN PORTFOLIO
FBAR/FBAS's net loan portfolio totaled $248.1 million at March 31,
1997, compared to $253.0 million and $207.6 million at December 31, 1996 and
1995, respectively. The growth in loans in 1996 compared to 1995 reflects the
growth in the respective markets served by FBAR/FBAS as well as their overall
marketing strategy. Real estate loans, including construction, single family and
commercial, totaled $158.0 million at March 31, 1997, or 62.9 percent of total
loans. Commercial and agricultural loans totaled $63.4 million at March 31,
1997, or 25.1 percent of total loans. Consumer loans amounted to $27.1 million
at March 31, 1997, or 10.8 percent of total loans.
FBAR/FBAS seeks to manage its credit risk by diversifying its loan
portfolio, determining that borrowers have adequate sources for loan repayment
including liquidation of collateral, obtaining and monitoring collateral,
providing an adequate allowance for loan losses, and regularly reviewing the
loan portfolio. FBAR/FBAS 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. FBAR/FBAS uses the
allowance for loan losses as a method to value the loan portfolio at its
estimated collectible amount. Loans are reviewed regularly to facilitate the
identification and monitoring of deteriorating credits.
The following tables include loan participations and loans of two
branches not being acquired by the Company. As of March 31, 1997, such loans not
being acquired totaled approximately $32.0 million. Management of the Company is
of the opinion that the relationships presented would not change significantly
if the adjustments were made for assets not purchased.
TABLE 1 - COMPOSITION OF THE LOAN PORTFOLIO
The following table details the various categories for the loan
portfolio as of March 31, 1997 and the five previous years:
FBA -Russellville and Searcy - Combined
Composition of the Loan Portfolio
Three Months Ended March 31, 1997
Years Ended December 31, 1996, 1995, 1994, 1993 and 1992
March 31, December 31,
(In thousands) 1997 1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------
Consumer:
Individuals - other $ 27,139 $ 27,657 $ 22,688 $ 15,793 $ 13,372 $ 13,889
--------- --------- --------- --------- --------- ---------
Total Consumer 27,139 27,657 22,688 15,793 13,372 13,889
Real Estate:
Real estate construction 22,454 22,802 21,581 10,457 7,637 5,803
Single family residential 65,343 66,265 55,893 36,924 23,358
20,516
Other commercial 70,679 73,183 55,362 59,488 46,212 20,853
--------- --------- --------- --------- --------- ---------
Total Real Estate 158,476 162,250 132,836 106,869 77,207 47,172
Commercial
Commercial 59,213 57,205 45,247 32,054 14,122 7,865
Agriculture 4,142 4,134 4,476 1,615 937 1,080
Financial institutions -- 200 -- -- -- --
--------- --------- --------- --------- --------- ---------
Total Commercial 63,355 61,539 49,723 33,669 15,059 8,945
Other 3,114 5,376 4,062 44 264 150
--------- --------- --------- --------- --------- ---------
252,084 256,822 209,309 156,375 105,902 70,156
Unearned discount (1) (2) (26) (135) (390) (762)
--------- --------- --------- --------- --------- ---------
Total loans 252,083 256,820 209,283 156,240 105,512 69,394
Less: allowance for
possible loan losses (3,982) (3,829) (1,644) (1,317) (913) (772)
--------- --------- --------- --------- --------- ---------
Net loans $ 248,101 $ 252,991 $ 207,639 $ 154,923 $ 104,599 $ 68,622
========= ========= ========= ========= ========= =========
TABLE 2 - LOAN MATURITIES AND SENSITIVITY TO CHANGES IN INTEREST RATES
The following table details the loan maturities and
sensitivity to changes in interest rates as of March 31, 1997 and December 31,
1996:
FBA - Russellville and Searcy - Combined
Loan Maturities and Sensitivity to Changes in Interest
Three Months Ended March 31, 1997 and
Year Ended December 31, 1996
March 31, December 31,
(In thousands) 1997 1996
- -------------------------------------------------------------------------
Fixed rate loans with a remaining maturity of:
Within one year or less $131,491 $138,255
Over one year through five years 77,062 74,931
Over five years 13,665 14,175
Floating rate loans with a repricing frequency of:
Within one year 29,647 29,372
Over one year through five years 218 87
-------- --------
$252,083 $256,820
======== ========
ASSET QUALITY
A loan is considered impaired when it is probable that FBAR/FBAS will
not receive all amounts due according to the contractual terms of the loans.
This includes nonaccrual loans and certain loans identified by management.
Non-performing 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.
FBAR/FBAS recognizes 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 are placed on 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.
At March 31, 1997, total non-performing assets totaled $2.1 million
compared to $2.1 million and $.3 million at December 31, 1996 and 1995,
respectively. This increase in non-performing assets from 1995 to 1996 is
primarily attributable to a single loan totaling $1.7 million, which will be
acquired by the Company.
The additions to the allowance during the first quarter of 1997 and the
year 1996 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 loans charged off during the last five years. It is
management's practice to review the allowance on a regular basis to determine
whether additional provisions should be made to the allowance after considering
the factors noted above. The allowance for loan losses was increased during 1996
to reflect a decision by management to increase that estimate to a targeted
1.50% of total loans based on its current evaluation of overall portfolio risk.
TABLE 3 - NON-PERFORMING ASSETS AND PAST DUE LOANS
The table below reflects FBAR/FBAS's non-performing assets and past due
loans at March 31, 1997 and each of the five previous fiscal years (in
thousands):
FBA - Russellville and Searcy - Combined
Non-Performing Assets and Past Due Loans
Three Months Ended March 31, 1997
Years Ended December 31, 1996, 1995, 1994, 1993 and 1992
March 31, December 31,
(In thousands) 1997 1996 1995 1994 1993 1992
- ---------------------------------------------------------------------------------
Non-accrual loans $1,899 $2,060 $ 8 $ 438 $ 27 $ 27
Loan past due 90 days
or more (principal or
interest payments) 178 28 4 50 -- --
Restructured -- -- -- -- -- --
------ ------ ------ ------ ------ ------
Total non-performing
loans 2,077 2,088 12 488 27 27
Other non-performing
assets
Total foreclosed assets
held for sale -- -- 248 -- -- --
Other non-performing
assets -- -- -- -- -- --
------ ------ ------ ------ ------ ------
Total other non-
performing assets -- -- 248 -- -- --
------ ------ ------ ------ ------ ------
Total non-performing
assets $2,077 $2,088 $ 260 $ 488 $ 27 $ 27
====== ====== ====== ====== ====== ======
Approximately $151,000 of interest income would have been recorded for
the period ended December 31, 1996, if the nonaccrual loans had been accruing
interest in accordance with their original terms.
TABLE 4 - ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES
The table below summarizes loan loss experience for the three months
ended March 31, 1997 and 1996, and for each of the last five fiscal years for
FBAR/FBAS:
FBAR - Russellville and Searcy - Combined
Analysis of the Allowance for Loan Losses
Three Months Ended March 31, 1997 and 1996
Years Ended December 31, 1996, 1995, 1994, 1993 and 1992
March 31, December 31,
(In thousands) 1997 1996 1996 1995 1994 1993 1992
- -------------------------------------------------------------------------------------------------------
Balance, beginning of period $3,829 $1,644 $1,644 $1,317 $ 913 $ 772 $ 642
Loans charged off:
Consumer loans 35 12 87 24 32 21 42
Real estate loans -- -- 9 14 -- -- 4
Commercial loans 6 -- 105 -- 26 12 5
------ ------ ------ ------ ------ ------ ------
Total loans charged off 41 12 201 38 58 33 51
------ ------ ------ ------ ------ ------ ------
Recoveries:
Consumer loans 2 4 17 7 11 13 6
Real estate loans -- -- -- -- -- 18 6
Commercial loans -- -- -- 7 4 11 13
------ ------ ------ ------ ------ ------ ------
Total recoveries 2 4 17 14 15 42 25
------ ------ ------ ------ ------ ------ ------
Net loans charged off 39 8 184 24 43 (9) 26
Provision charged to operating expense 192 122 2,369 351 371 132 156
Changes incident to mergers and
absorptions, net -- -- -- -- 76 -- --
------ ------ ------ ------ ------ ------ ------
Balance, end of period $3,982 $1,758 $3,829 $1,644 $1,317 $ 913 $ 772
====== ====== ====== ====== ====== ====== ======
TABLE 5 - ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
The following table is a summary by allocation category of FBAR/FBAS'a
allowance for loan losses:
FBA - Russellville and Searcy - Combined
Allocation of the Allowance for Loan Losses
Three Months Ended March 31, 1997
Years Ended December 31, 1996, 1995 and 1994
March 31, December 31,
% of % of % of % of % of % of
(In thousands) 1997 Loans* 1996 Loans* 1995 Loans* 1994 Loans* 1993 Loans* 1992 Loans*
- -----------------------------------------------------------------------------------------------------------------------------------
Consumer:
Individual - other $ 386 10.77% $ 371 10.77% $ 160 10.84% $ 120 10.10% $ 104 12.63% $ 138 9.80%
Real Estate:
Real estate construction 319 8.91% 306 8.88% 153 10.31% 79 6.69% 59 7.21% 57 8.27%
Single family residential 929 25.92% 889 25.80% 395 26.70% 280 23.61% 181 22.06% 203 29.24%
Other commercial 1,005 28.04% 982 28.50% 391 26.45% 451 38.04% 359 43.64% 207 29.72%
Commercial
Commercial 842 23.49% 768 22.27% 320 21.62% 243 20.50% 110 13.33% 78 11.21%
Agriculture 59 1.64% 55 1.61% 32 2.14% 12 1.03% 7 0.88% 11 1.54%
Financial institutions -- 0.00% 3 0.08% -- 0.00% -- 0.00% -- 0.00% -- 0.00%
Other 44 1.23% 72 2.09% 29 1.94% 0 0.03% 2 0.25% 1 0.22%
Unallocated 398 383 164 132 91 77
----- ------- ----- ------- ----- ------- ----- ------- ----- ------- ----- -------
$3,982 100.00% $3,829 100.00% $1,644 100.00% $1,317 100.00% $ 913 100.00% $ 772 100.00%
===== ======= ===== ======= ===== ======= ===== ======= ===== ======= ===== =======
<FN>
* Percentage of loans in each category to total loans
</FN>
INDEX TO FBAR/FBAS COMBINED FINANCIAL STATEMENTS
Independent Accountants' Report...............................................
Combined Balance Sheets
March 31, 1997 (Unaudited) and December 31, 1996...........................
Combined Statements of Income
Three months ended March 31, 1997 and 1996 (Unaudited)
and Year ended December 31, 1996.........................................
Combined Statements of Cash Flows
Three months ended March 31, 1997 and 1996 (Unaudited)
and Year ended December 31, 1996........................................
Combined Statements of Changes in Stockholder's Equity
Three months ended March 31, 1997 and 1996 (Unaudited)
and Year ended December 31, 1996.........................................
Notes to Combined Financial Statements........................................
Independent Accountants' Report
Board of Directors
First Bank of Arkansas - Russellville
Russellville, Arkansas
Board of Directors
First Bank of Arkansas - Searcy
Searcy, Arkansas
We have audited the accompanying combined balance sheet of First Bank
of Arkansas - Russellville/Searcy (wholly-owned subsidiaries of Southwest
Bancshares, Inc.) as of December 31, 1996, and the related combined statements
of income, changes in stockholders' equity, and cash flows for the year then
ended. These financial statements are the responsibility of the Banks'
managements. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above
present fairly, in all material respects, the financial position of First Bank
of Arkansas - Russellville/Searcy as of December 31, 1996, and the results of
its operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.
/s/ Baird, Kurtz and Dobson
Pine Bluff, Arkansas
May 30, 1997
FIRST BANK OF ARKANSAS - RUSSELLVILLE/SEARCY
COMBINED BALANCE SHEETS
March 31, 1997 and December 31, 1996
(In thousands)
March 31, December 31,
1997 1996
------------ -------------
(unaudited)
ASSETS
Cash and non-interest bearing balances due from banks $ 8,564 $ 9,139
Interest bearing balances due from banks 15 1
Federal funds sold 11,875 11,475
--------- ---------
Cash and cash equivalents 20,454 20,615
Investment securities 81,976 65,075
Loans 252,083 256,820
Allowance for loan losses (3,982) (3,829)
--------- ---------
Net loans 248,101 252,991
Premises and equipment 8,382 8,307
Interest receivable 3,043 2,904
Excess of cost over fair value of net assets acquired, at amortized cost 1,932 1,975
Other assets 4,517 4,485
--------- ---------
TOTAL ASSETS $ 368,405 $ 356,352
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
Non-interest bearing transaction accounts $ 22,399 $ 21,982
Interest bearing transaction accounts and savings deposits 57,942 56,323
Time deposits 242,835 232,562
--------- ---------
Total deposits 323,176 310,867
Securities sold under agreements to repurchase 1,657 1,657
Other borrowings 13,055 14,394
Accrued interest and other liabilities 3,398 3,410
--------- ---------
Total liabilities 341,286 330,328
--------- ---------
STOCKHOLDER'S EQUITY
Capital stock
Class A, common, par value $10 a share, authorized,
issued and outstanding , 20,000 shares at 1997 and 1996 200 200
Surplus 17,280 17,280
Undivided profits 9,696 8,540
Unrealized appreciation (depreciation) on available-for-sale securities,
net of income taxes of $35 in 1997 (unaudited) and $2 in 1996,
respectively (57) 4
--------- ---------
Total stockholder's equity 27,119 26,024
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 368,405 $ 356,352
========= =========
See Notes to Combined Financial Statements.
FIRST BANK OF ARKANSAS - RUSSELLVILLE/SEARCY
COMBINED STATEMENTS OF INCOME
Three Months Ended March 31, 1997 and 1996
Year Ended December 31, 1996
(In thousands, except per share data)
March 31, December 31,
1997 1996 1996
--------- --------- --------
(unaudited)
INTEREST INCOME
Loans $ 5,862 $ 5,164 $ 22,640
Federal funds sold 170 87 351
Investment securities 1,121 853 3,594
-------- -------- --------
TOTAL INTEREST INCOME 7,153 6,104 26,585
-------- -------- --------
INTEREST EXPENSE
Interest bearing transaction accounts and savings deposits 431 340 1,443
Time deposits 3,335 2,962 12,505
Federal funds purchased and securities sold
under agreements to repurchase 25 18 94
Other borrowings 217 181 856
-------- -------- --------
TOTAL INTEREST EXPENSE 4,008 3,501 14,898
-------- -------- --------
NET INTEREST INCOME 3,145 2,603 11,687
Provision for loan losses 192 122 2,369
-------- -------- --------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 2,953 2,481 9,318
-------- -------- --------
NON-INTEREST INCOME
Trust department income 33 20 94
Service charges on deposit accounts 406 411 1,683
Other service charges and fees 122 75 352
Other income 9 1 15
Investment securities gains (losses), net (2) 4 (6)
-------- -------- --------
TOTAL NON-INTEREST INCOME 568 511 2,138
-------- -------- --------
NON-INTEREST EXPENSE
Salaries and employee benefits 907 839 3,470
Occupancy expense, net 327 257 1,135
Other expense 558 478 2,094
-------- -------- --------
TOTAL NON-INTEREST EXPENSE 1,792 1,574 6,699
-------- -------- --------
INCOME BEFORE INCOME TAXES 1,729 1,418 4,757
Provision for income taxes 573 460 1,558
-------- -------- --------
NET INCOME $ 1,156 $ 958 $ 3,199
======== ======== ========
EARNINGS PER COMMON SHARE $ 57.80 $ 47.90 $ 159.95
======== ======== ========
DIVIDENDS PER COMMON SHARE $ -- $ -- $ 70.00
======== ======== ========
See Notes to Combined Financial Statements.
FIRST BANK OF ARKANSAS - RUSSELLVILLE/SEARCY
COMBINED STATEMENTS OF CASH FLOWS
Three Months Ended March 31, 1997 and 1996
Year Ended December 31, 1996
(In thousands)
March 31, December 31,
1997 1996 1996
---------- ----------- -----------
(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,156 $ 958 $ 3,199
Items not requiring (providing) cash
Depreciation and amortization 192 156 691
Provision for loan losses 192 122 2,369
Amortization of premiums and accretion of discounts on
investment securities (26) (16) (12)
Deferred income taxes (4) (15) (781)
Provision for foreclosed assets -- 7 29
Investment securities (gains) losses, net 2 (4) 6
Loss on sale of premises and equipment -- -- 3
Changes in
Interest receivable (139) (314) (226)
Other assets 5 (107) (320)
Accounts payable and accrued expenses (313) 196 715
Income taxes payable 303 372 183
-------- -------- --------
Net cash provided by operating activities 1,368 1,355 5,856
-------- -------- --------
CASH FLOW FROM INVESTING ACTIVITIES
Net collections (originations) of loans 4,698 (13,854) (47,610)
Purchase of premises and equipment (223) (901) (2,224)
Proceeds from sale of premises and equipment -- -- 24
Proceeds from sale of foreclosed assets -- -- 106
Proceeds from sales and calls of available-for-sale securities -- 966 966
Proceeds from maturities of available-for-sale securities 12,445 -- 1,750
Purchases of available-for-sale securities (760) (2,006) (5,380)
Proceeds from maturities of held-to-maturity securities 1,500 2,699 14,868
Purchases of held-to-maturity securities (30,159) (7,901) (24,593)
-------- -------- --------
Net cash used in investing activities (12,499) (20,997) (62,093)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in transaction accounts and
savings deposits 2,036 (4,359) 9,999
Net increase in time deposits 10,273 18,150 46,662
Net borrowings (repayments) of other borrowings (1,339) 729 2,827
Dividends paid -- -- (1,400)
Capital contribution -- -- 750
Net increase in federal funds purchased
and securities sold under agreements to repurchase -- 500 566
-------- -------- --------
Net cash provided by financing activities 10,970 15,020 59,404
-------- -------- --------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (161) (4,622) 3,167
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR 20,615 17,448 17,448
-------- -------- --------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 20,454 $ 12,826 $ 20,615
======== ======== ========
See Notes to Combined Financial Statements.
FIRST BANK OF ARKANSAS - RUSSELLVILLE/SEARCY
COMBINED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
Three Months Ended March 31, 1997 (Unaudited) and
Year Ended December 31, 1996
(In thousands, except per share data)
Unrealized
Appreciation
(Depreciation)
On Available-
Common Undivided For-Sale
Stock Surplus Profits Securities, Net Total
- ---------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995 $ 200 $ 16,530 $ 6,741 $ (25) $ 23,446
Capital contribution 750 750
Net income 3,199 3,199
Cash dividends declared ($70.00 per share) (1,400) (1,400)
Change in unrealized appreciation
(depreciation) on available-for-sale
securities, net of income taxes of $18 29 29
-------- -------- ---------- -------- -----------
Balance, December 31, 1996 200 17,280 8,540 4 26,024
Net income 1,156 1,156
Change in unrealized appreciation
(depreciation) on available-for-sale
securities, net of income tax credit of $37 (61) (61)
-------- -------- ---------- -------- -----------
Balance, March 31, 1997 (unaudited) $ 200 $ 17,280 $ 9,696 $ (57) $ 27,119
======== ======== ========== ======== ===========
See Notes to Combined Financial Statements.
FIRST BANK OF ARKANSAS - RUSSELLVILLE/SEARCY
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
First Bank of Arkansas - Russellville and First Bank of Arkansas -
Searcy (the "Banks") are wholly-owned subsidiaries of Southwest Bancshares, Inc.
and are primarily engaged in providing a full range of banking services to
individual and corporate customers through locations in northern Arkansas. The
Banks are subject to competition from other financial institutions. The Banks
also are subject to the regulation of certain federal and state agencies and
undergo periodic examinations by those regulatory authorities. The combined
financial statements as of March 31, 1997 and for the three months ended March
31, 1997 and 1996 are unaudited, but in the opinion of management reflect all
adjustments, consisting of only normal recurring items, necessary for fair
presentation. These notes to combined financial statements do not reflect
unaudited March 31, 1997 and 1996 data except as disclosed in Notes 3 and 8.
Interim results are not necessarily indicative of annual results.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant
change relate to the determination of the allowance for loan losses. In
connection with the determination of the allowance for loan losses, management
obtains independent appraisals for significant properties.
Management believes that the allowance for loan losses is adequate.
While management uses available information to recognize losses on loans,
changes in economic conditions, particularly in Arkansas, may necessitate
revision of these estimates in future years. In addition, various regulatory
agencies, as an integral part of their examination process, periodically review
the Banks' allowance for loan losses. Such agencies may require the Banks to
recognize additional losses, based on their judgment of information available to
them at the time of their examination.
Principles of Combination
The combined financial statements include the accounts of First Bank of
Arkansas - Russellville and First Bank of Arkansas - Searcy. There were no
significant interbank balances or transactions.
Cash Equivalents
The Banks consider all amounts due from banks and federal funds sold as
cash equivalents. The Banks 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 year ended December 31, 1996 was
$1,679,000. The Federal Reserve requirement on transaction account reserves was
10 percent during 1996. Generally, federal funds are purchased and sold for
varying periods up to thirty days. These obligations are purchased from other
financial institutions and are held in the name of the Banks at the Federal
Reserve Bank until maturity of the agreement.
Investments in Debt and Equity Securities
Held-to-maturity securities, which include any security for which the
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.
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 amortized
cost of the individual security, are included in other income. Unrealized gains
and losses are recorded, net of related income tax effects, in stockholders'
equity. Premiums and discounts are amortized and accreted, respectively, to
interest income using the constant yield method over the period to maturity.
Interest and dividends on investments in debt and equity securities are
included in income when earned.
Loans
Loans that management has the intent and ability to hold for the
foreseeable future or until maturity or pay-off are reported at their
outstanding principal adjusted for any loans charged off and any deferred fees
or costs on originated loans.
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. Allowances are accrued on
specific loans evaluated for impairment for which the basis of each loan,
including accrued interest, exceeds the discounted amount of expected future
collections of interest and principal or, alternatively, the fair value of loan
collateral.
A loan is considered impaired when it is probable that the Bank will
not receive all amounts due according to the contractual terms of the loan. This
includes loans that are delinquent 90 days or more (nonaccrual loans) and
certain other loans identified by management. Loans which are part of a large
group of smaller balance homogeneous loans, such as residential mortgage and
consumer loans, are not individually evaluated for impairment. Such loans are
collectively evaluated.
Accrual of interest is discontinued, and interest accrued and unpaid is
removed at the time such amounts are delinquent 90 days. Interest is recognized
for nonaccrual loans only upon receipt, and only after all principal amounts are
current according to the terms of the contract.
The allowance for loan losses was increased during 1996 to reflect a
decision by management to increase that estimate to a targeted 1.5% of total
loans based on its current evaluation of overall portfolio risk.
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.
Excess of Cost Over Fair Value of Net Assets Acquired
Unamortized costs in excess of the estimated fair value of underlying
net assets acquired in connection with the purchase of the Banks by Southwest
Bancshares, Inc., aggregated $1,975,000 (originally $2,694,000) at December 31,
1996, and are being amortized over a 15-year period, using the straight-line
method.
Amortization expense related to these acquisitions for the periods
ended December 31, 1996 was $180,000.
Fee Income
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 Share
Earnings per share are based on the weighted average number of shares
outstanding during each year. Weighted average shares outstanding were 20,000
for 1996.
NOTE 2: INVESTMENT SECURITIES
The amortized cost and fair value of investment securities that are
classified as held-to-maturity and available-for-sale are as follows:
Year Ended December 31,
1996
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
(In thousands) Cost Gains (Losses) Value
- ----------------------------------------------------------------------------------------------------------
Held-to-Maturity
U.S. Government
agencies $ 40,105 $ 22 $ (383) $ 39,744
Mortgage-backed
securities 975 15 - 990
State and political
subdivisions 10,559 142 (313) 10,388
------------ ------------ ------------ -------------
$ 51,639 $ 179 $ (696) $ 51,122
============ ============ ============ =============
Available-for-Sale
U.S. Treasury $ 601 $ - $ (6) $ 595
U.S. Government
agencies 8,690 75 (46) 8,719
State and political
subdivisions 3,139 26 (44) 3,121
Corporate debt
securities 1,000 1 1,001
------------ ------------ ------------ -------------
$ 13,430 $ 102 $ (96) $ 13,436
============ ============ ============ =============
Maturities of investment securities at December 31, 1996, are as
follows:
Held-to-Maturity Available-for-Sale
Amortized Fair Amortized Fair
(In thousands) Cost Value Cost Value
- --------------------------------------------------------------------------------------------------
One year or less $ 4,304 $ 4,301 $ 1,000 $ 1,001
After one through five years 28,642 28,500 7,541 7,575
After five through ten years 11,987 11,823 1,250 1,253
After ten years 5,731 5,508 3,639 3,607
Mortgage-backed securities not due
on a single date 975 990 -- --
--------- --------- --------- --------
Total $ 51,639 $ 51,122 $ 13,430 $ 13,436
========== ========== ========== =========
Income recognized for the year ended December 31, 1996 was $2,857,000
and $737,000 for taxable securities and non-taxable securities, respectively.
The book value of securities pledged as collateral, to secure public
deposits and for other purposes, amounted to $55,567,000 at December 31, 1996.
The approximate fair value of pledged securities amounted to $55,070,000 at
December 31, 1996.
The book value of securities sold under agreements to repurchase
amounted to $1,657,000 for December 31, 1996. (See Note 3)
Gross realized gains of $8,000 and gross realized losses of $19,000
resulted from sales of available-for-sale securities in 1996. Gross realized
gains of $18,000 and gross realized losses of $13,000 were a result of called
bonds. Proceeds from those sales were $519,000.
Approximately 6 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: SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
Securities sold under agreements to repurchase at December 31, 1996
consist of Federal Home Loan Bank and Student Loan Marketing Association bonds
with an estimated fair value of $1,739,000.
The Banks enter into sales of securities under agreements to repurchase.
The amounts received under these agreements are reflected as liabilities on the
balance sheet. The securities underlying the agreements are book-entry
securities. At December 31, 1996, these agreements matured within 26 months. The
agreements relating to the securities were agreements to repurchase
substantially identical securities. At December 31, 1996, no material amount of
agreements to repurchase securities sold was outstanding with any individual
dealer. Securities sold under agreement to repurchase averaged $1,514,000 during
1996, and the maximum amount outstanding at any month-end during 1996 was
$1,657,000.
NOTE 4: LOANS AND ALLOWANCE FOR LOAN LOSSES
The various categories of loans are summarized as follows:
March 31, December 31,
(In thousands) 1997 1996
- ---------------------------------------------------------------------------------------------------------
(unaudited)
Consumer
Credit cards $ 2,426 $ 2,511
Other consumer 24,713 25,146
Real estate
Construction 22,454 22,802
Single family residential 65,343 66,265
Other commercial 70,679 73,183
Commercial
Commercial 59,213 57,205
Agricultural 4,142 4,134
Financial institutions -- 200
Other 3,113 5,374
----------- -----------
Total loans before allowance for loan losses $ 252,083 $ 256,820
=========== ===========
Impaired loans totaled $2,619,000 at December 31, 1996. An allowance
for loan losses of $251,000 relates to impaired loans of $2,512,000 at December
31, 1996. Impaired loans of $107,000 had no related allowance for loan losses.
Interest of $48,000 was recognized on average impaired loans of
$533,000 for 1996. Interest recognized on impaired loans on a cash basis for
1996 was immaterial.
Transactions in the allowance for loan losses are as follows:
March 31, December 31,
(In thousands) 1997 1996
- -------------------------------------------------------------------------------------------------------------------
(unaudited)
Balance, beginning of year $ 3,829 $ 1,644
Additions
Provision charged to expense 192 2,369
--------- ---------
4,021 4,013
Deductions
Losses charged to allowance, net of recoveries
of $1 for 1997 (unaudited) and $17 for 1996 39 184
--------- ----------
Balance, end of year $ 3,982 $ 3,829
========== ==========
NOTE 5: PREMISES AND EQUIPMENT
Major classifications of premises and equipment, stated at cost, are as
follows:
Estimated
(In thousands) 1996 Useful lives
- -----------------------------------------------------------------------------------------------------------------
Vehicles $ 28 3-10 years
Land/buildings and improvements 7,165 10-50 years
Leasehold improvements 284 5-20 years
Equipment 3,565 3-10 years
-------------
11,042
Less accumulated depreciation 2,735
-------------
Net premises and equipment $ 8,307
============
NOTE 6: TIME DEPOSITS
Time deposits included approximately $87,409,000 of certificates of
deposit of $100,000 or more, at December 31, 1996.
Deposits are the Banks' 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 7: INCOME TAXES
The Banks file a consolidated income tax return with Southwest
Bancshares, Inc. Income taxes are computed based on a separate tax return basis.
The provision for income taxes is comprised of the following
components:
(In thousands) 1996
- ------------------------------------------------------------------------------------------------
Income taxes currently payable $ 2,339
Deferred income taxes (781)
---------
Provision for income taxes $ 1,558
=========
Deferred income taxes related to the change in unrealized appreciation
on available-for-sale securities, shown in stockholder's equity, were $18,000
for 1996.
The tax effects of temporary differences related to deferred taxes
shown on the balance sheet were:
(In thousands) 1996
- --------------------------------------------------------------------------------------------------------
Deferred tax assets
Allowance for loan losses $ 1,391
Deferred compensation liability 145
--------
1,536
Deferred tax liabilities --------
Basis difference on investment securities (54)
Accumulated depreciation (177)
Unrealized gains on available-for-sale securities (2)
Other (44)
--------
(277)
--------
Net deferred tax assets $ 1,259
=========
A reconciliation of income tax expense at the statutory rate to the
Bank's actual income tax expense is shown below.
(In thousands) 1996
- ---------------------------------------------------------------------------------------------------
Computed at the statutory rate (34%) $ 1,617
Increase (decrease) resulting from
Tax exempt income (255)
Amortization of excess of cost over fair value of net assets acquired 61
State income taxes - net of federal tax benefit 88
Non-deductible expenses 47
---------
Actual tax provision $ 1,558
=========
NOTE 8: OTHER BORROWINGS
Other borrowings consist of advances payable to the Federal Home Loan
Bank, secured by 1-4 unit residential mortgages, including interest at
approximately 6.62% (weighted average rate) per annum. Final payment is due
November, 2015.
Aggregate annual maturities of other borrowings at December 31, 1996
are:
Annual
(In thousands) Year Maturities
- --------------------------------------------------------------------------------------------------------------
1997 $ 2,384
1998 2,354
1999 1,268
2000 1,253
2001 1,148
Thereafter 5,987
----------
Total $ 14,394
==========
NOTE 9: TRANSACTIONS WITH RELATED PARTIES
At March 31, 1997 and December 31, 1996, the 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
$6,655,000 (unaudited) and $9,000,000, respectively.
March 31, December 31,
(In thousands) 1997 1996
- --------------------------------------------------------------------------------------------
(unaudited)
Balance, beginning of year $ 9,000 $ 6,040
New loans 1,061 5,022
Advances to loans made in prior years -- 728
Repayments (3,406) (2,790)
------------ ------------
Balance, end of period $ 6,655 $ 9,000
============ ============
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 10: EMPLOYEE BENEFIT PLANS
The Banks have defined contribution pension plans covering
substantially all employees. Employees may contribute up to 10% of their
compensation, with the Banks matching 75% of the employee's contribution on the
first 4% of the employee's compensation. The charge to income for this
contribution in 1996 was $62,000.
Also, the Banks have a deferred compensation agreement with a retired
consultant. The agreement provides for annual payments of $81,000. The present
value of all benefits due has been accrued and the remaining liability at
December 31, 1996 is $379,000.
NOTE 11: ADDITIONAL CASH FLOW INFORMATION FOR 1996
(In thousands) 1996
- ----------------------------------------------------------------------------------------------------------------
Non-cash investing and financing activities
Sale and financing of foreclosed assets $ 336
Real estate acquired in settlement of loans 225
Additional cash payment information
Interest paid $ 14,408
Income taxes paid 2,056
NOTE 12: OTHER EXPENSE
Other expense consists of the following:
(In thousands) 1996
- -----------------------------------------------------------------------------------------------------------------
Data processing $ 104
Business development 321
Insurance 99
Amortization 181
Office supplies and expense 486
Others less than 1% 903
---------
Total $ 2,094
==========
NOTE 13: DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments:
Cash and Cash Equivalents
The carrying amount for cash and cash equivalents approximates fair
value.
Investment Securities
Fair value for investment securities equals quoted market prices, if
available. If quoted market prices are not available, fair values are estimated
based on quoted market prices of similar securities.
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 transaction accounts and savings 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 and Securities Sold Under Agreement to Repurchase
The carrying amount for federal funds purchased and securities sold
under agreement to repurchase is a reasonable estimate of fair value.
Other Borrowings
Rates currently available to the Banks 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 counterparties.
For fixed rate loan commitments, fair value also considers the difference
between current levels of interest rates and the committed rates. The fair
values of letters of credit and lines of credit are based on fees currently
charged for similar agreements or on the estimated cost to terminate or
otherwise settle the obligations with the counterparties at the reporting date.
The following table represents estimated fair values of the Banks'
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 Banks do 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, 1996
Carrying Fair
(In thousands) Amount Value
- ---------------------------------------------------------------------
Financial assets
Cash and cash equivalents $ 20,615 $ 20,615
Held-to-maturity securities 51,639 51,122
Available-for-sale securities 13,436 13,436
Interest receivable 2,904 2,904
Loans, net 252,991 252,636
Financial liabilities
Non-interest bearing transaction accounts 21,982 21,982
Interest bearing transaction accounts and
savings deposits 56,323 56,323
Time deposits 232,562 232,670
Federal funds purchased and securities
sold under agreements to repurchase 1,657 1,657
Other borrowings 14,394 14,412
Interest payable 2,340 2,340
Unrecognized financial instruments (net
of contract amount)
Commitments to extend credit -- --
Letters of credit -- --
Lines of credit -- --
NOTE 14: SIGNIFICANT ESTIMATES AND CONCENTRATIONS
Generally accepted accounting principles require disclosure of certain
significant estimates and current vulnerabilities due to certain concentrations.
Estimates related to the allowance for loan losses are reflected in the footnote
regarding loans. Certain vulnerabilities due to certain concentrations of credit
risk are discussed in the footnote on commitments and credit risk.
NOTE 15: COMMITMENTS AND CREDIT RISK
The Banks grant consumer, real estate and commercial loans to customers
throughout northern Arkansas. Although, the Banks have a diversified loan
portfolio, commercial real estate comprises $73,183,000 or 29% of the portfolio.
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, 1996, the Banks had outstanding commitments to
originate loans aggregating approximately $14,729,000. The commitments extended
over varying periods of time, with the majority being disbursed within a one
year period. All loan commitments were at fixed rates of interest at December
31, 1996.
Letters of credit are conditional commitments issued by the Bank 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 Banks had total outstanding letters of credit amounting to $258,000
at December 31, 1996, with terms ranging from 6 months 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, 1996, the Banks had granted unused lines of credit to
borrowers, aggregating approximately $11,944,000.
At December 31, 1996, the Banks did not have concentrations of 5% or
more of the investment portfolio in any bonds issued by a single municipality.
NOTE 16: FUTURE CHANGES IN ACCOUNTING PRINCIPLE
The Financial Accounting Standards Board recently adopted Statement No.
125, (FAS 125), "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities". FAS 125, which originally was to become
effective for transactions that occur after December 31, 1996, imposes new rules
for determining when transfers of financial assets are accounted for as sales
versus when transfers are accounted for as borrowings. Management believes that
FAS 125 should have no significant impact on the Banks' combined financial
statements.
NOTE 17: CONTINGENT LIABILITIES
The 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 their combined financial position.
NOTE 18: STOCKHOLDER'S EQUITY
The Banks are subject to a legal limitation on dividends that can be
paid to the parent without prior approval of the applicable regulatory agencies.
Arkansas bank regulators have specified that the maximum dividend limit state
banks may pay to the parent bank without prior approval is 50% of the current
year earnings. At December 31, 1996, the Banks had approximately $200,000 in
undivided profits available for payment of dividends to the parent, without
prior approval of the regulatory agency.
The Banks are subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory and possibly additional
discretionary actions by regulators that, if undertaken, could have a direct
material effect on the Banks financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the Banks
must meet specific capital guidelines that involve quantitative measures of the
Banks assets, liabilities, and certain off-balance-sheet items as calculated
under regulatory accounting practices. The Banks capital amounts and
classifications are also subject to qualitative judgments by the regulators
about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital
adequacy requires the Banks to maintain minimum amounts and ratios (set forth in
the table below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital (as defined) to average
assets (as defined). Management believes that, as of December 31, 1996, the
Banks meet all capital adequacy requirements to which they are subject.
As of the most recent notification from regulatory agencies, the Banks
were well capitalized under the regulatory framework for prompt corrective
action. To be categorized as well capitalized, the Banks must maintain minimum
total risk-based, Tier I risk-based, and Tier I leverage ratios as set forth in
the table. There are no conditions or events since that notification that
management believes have changed the institutions' categories.
The Banks' actual capital amounts and ratios are also presented in the
table.
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provision
(In thousands) Amount Ratio-% Amount Ratio-% Amount Ratio-%
- -----------------------------------------------------------------------------------------------------------------
As of December 31, 1996
Total Capital (to Risk Weighted Assets)
Combined $ 27,242 10.8 $ N/A $ N/A
First Bank of Arkansas - Russellville 20,851 10.9 15,279 8.0 19,098 10.0
First Bank of Arkansas - Searcy 6,391 10.3 4,947 8.0 6,183 10.0
Tier 1 Capital (to Risk Weighted Assets)
Combined 24,044 9.5 N/A N/A
First Bank of Arkansas - Russellville 18,428 9.6 7,639 4.0 11,459 6.0
First Bank of Arkansas - Searcy 5,616 9.1 2,473 4.0 3,710 6.0
Tier 1 Capital (to Average Assets)
Combined 24,044 6.9 N/A N/A
First Bank of Arkansas - Russellville 18,428 6.9 10,630 4.0 13,287 5.0
First Bank of Arkansas - Searcy 5,616 6.8 3,298 4.0 4,123 5.0
NOTE 19: SUBSEQUENT EVENT
On March 21, 1997, First Commercial Corporation, successor by merger to
Southwest Bancshares, Inc., entered into definitive agreements to sell all
of the issued and outstanding stock of the Banks to Simmons First National
Corporation for $53,000,000 in cash. The proposed transaction is pending
subject to regulatory approval.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
SIMMONS FIRST NATIONAL CORPORATION
Date: 5/6/97 By: /s/ J. Thomas May
-------------- --------------------------------
J. Thomas May, President &
Chief Executive Officer