Annual Report
Simmons First
National Corporation
For People. For a Lifetime.
L e t t er t o S hareholders
This past year was a good year relative to profi t performance and expansion of our footprint throughout Arkansas. Because
of margin compression, our EPS growth of 3.3% was less than expected and less than our historical average. However, this appears
to be an industry-wide issue due to competitive pressures for deposits and loans, and the inverted yield curve which affects the yield
on our earning assets. During 2006, our assets grew to $2.7 billion; we recorded net income of $27.5 million; we added three
new fi nancial centers bringing our total to 82 throughout Arkansas; and, our asset quality was outstanding. Considering everything,
we had a very good year.
Our strategy of using our community banking philosophy to “out service” the large interstate banks is very important to our
success, yet it is equally important to use our size to “out product” the other good community banks. Finding the right balance is
critical to our ability to reward our shareholders. We allow our eight affi liate banks the autonomy to serve their local markets through
local boards, leadership, and associates. They excel in the delivery of quality customer service. Likewise, we have grown to a level of
a super community bank. We are the largest publicly traded fi nancial institution headquartered in Arkansas, we’re the largest provider
of credit cards and student loans in Arkansas, we have the second largest wealth management operation in Arkansas, and we rank
third in number of locations for all banks in Arkansas. Using both our community focus and our size is our strategy of differentiating
us from our competition, and we believe it works.
Managing growth is a key ingredient to our success. As our company has grown to a level of a super community bank,
we have maintained a lean Corporate management structure. In December 2005, Barry Crow, our chief operating offi cer, retired after
thirty-fi ve years of service. In March 2006, we added two new members to the Corporate management team to join Bob Fehlman,
EVP/CFO, David Garner, Controller, and myself. Those additions were David Bartlett, President and COO, and Marty Casteel, EVP.
This team is working extremely well and will be very important to the future expansion plans of our company.
We closed the year on a sad note. In December, W. E. Ayres, our former Chairman and CEO, passed away after a short
illness. Mr. Ayres served our company in various capacities for over forty years. He was a friend and mentor that taught us all about
our responsibility to all of our stakeholders. He was a visionary, a catalyst for change, and a stabilizing force during periods of
uncertainty. He led by example, he was a tireless volunteer and he set the bar high when it came to ethical standards. Mr. Ayres was
known as a “Southern gentleman” with a commitment to fairness and excellence. He will certainly be missed by all that had
the opportunity to work and serve under his leadership.
Your Board of Directors does an excellent job in serving the interest of our shareholders. We have representation from
most regions of Arkansas, and their understanding of our company, corporate governance, and shareholder value is second to none.
We appreciate them for all they do, and we thank you for your continued support.
J. Thomas May
Chairman and Chief Executive Offi cer
Building Rela t ionships
For more than 100 years, we’ve been committed
to developing a relationship with our customers.
After all, for nearly every stage of life, we offer fi nancial products and
services to help people achieve, aspire, and succeed. Children who opened
their fi rst savings account with us return in the years to come for student
loans, mortgages, investment advice, and retirement planning. Having
a banking relationship with Simmons First is a timeline for generations.
Because we’re more than a bank. We’re a friend, a neighbor, and actively
involved in the communities we serve. We are a refl ection of Arkansas.
P la n ning f or t he F u t ur e
In 2006, Simmons First elevated familiar
Promoting homegrown executive talent
“We are excited about the future of
faces from within, naming David Bartlett
is key to our future. For they are the
Simmons First, and we believe these
as President and Chief Operating Offi cer,
people who understand Arkansas best,
changes enhance the process of making
Bob Fehlman as Executive Vice President
working closely with our customers
our company more visible, more effi cient,
and Chief Financial Offi cer, and Marty
for years. The sentiment was underscored
and better prepared for the future.”
Casteel as Executive Vice President.
by J. Thomas May, who declared,
left to right:
Robert A. Fehlman,
David L. Bartlett,
Marty D. Casteel
From a fi rst CD opened in a child’s name,
to the investment portfolio that
lays the foundation for retirement, we offer the services
that not only enable you to live in the moment, but to
enjoy the lifetime.
Today, Simmons First is the leading full service
student loan lender in Arkansas. In 2006, we issued
$53 million in loans to 17,660 students.
Banking f or t he Nex t Genera tion
Generation after generation come to
Simmons First to enjoy not just a warm
relationship with a bank, but also to take
advantage of resources more commonly
offered by much larger institutions. One
such product has been gaining attention
nationwide. In 2006, Simmons First
introduced the low 7.25% APR fi xed rate
Platinum VISA and continued to receive
national media recognition from Money
Magazine, Consumer Reports, and the
Wall Street Journal as having one of the best
credit card bargains in America.
Featuring a low 7.25% APR, the Simmons First
Platinum VISA was once again declared a great
value by fi nancial analysts.
Gr o w ing w i t h A r k a nsas
It’s our attention to serving our customers’
Arkansans were afforded easier access
needs that keeps us strong. We closed more
to Simmons First in 2006. We’ve made
than $223 million in mortgage loans in 2006.
banking more convenient with Simmons
And we’ve become a major provider of
First Bank Anywhere, our free online
consumer loans across both Arkansas and
banking service, and new locations in
the nation. Simmons First credit cards had
Bentonville, Little Rock, El Dorado,
76,571 account holders this year, with a
and North Little Rock, with several more
sales volume of more than $410 million.
planned for 2007. Today, Simmons First
is located in 48 communities, maintaining
86 offi ces and 82 fi nancial centers and
90 ATM’s in an effort to provide customers
with service wherever they fi nd themselves
in Arkansas.
S er v ice f or a Li f e t ime
In our 100 years of serving Arkansas, we’ve seen
children become grandparents. We’ve witnessed
the growth of a century’s worth of generations.
We’ve observed success born from little more than
imagination and hard work. We’ve turned dreams
of building and owning a home into a reality.
We’ve helped people attend college, start a
business, and plan for the future. Our presence
is ingrained within the Main Street parades
and local pledge drives and charitable works of
so many Arkansas towns.
In 2006, you could fi nd us in the Race for the Cure,
where we were once again named the Largest
Team in the Financial and Investment category.
The people of Simmons First were involved in
working with Habitat for Humanity, United Way,
Red Cross, Salvation Army and many other
worthwhile organizations. Helping the communities
we serve is a part of our history, our culture, and
our philosophy. Our associates are committed to
making a difference, and in 2006, they volunteered
more than 27,000 hours to over 600 organizations.
In 2006, Simmons First closed
more than $223 million in home loans.
We are community.
We are the people for whom we serve. We have grown
with you, succeeded with you, invested hopes
and dreams with you.
And we know that for the next one hundred years,
Arkansas and Simmons First will enter
a new and exciting era hand-in-hand.
W. E . Ay r es
19 3 0 -2 0 0 6
We are saddened by the loss, on December 8, 2006,
of an outstanding Simmons First leader and a trusted
and valued friend.
W.E. Ayres was a part of the Simmons First family
for more than forty years. As a former president,
chairman and chief executive offi cer, he leaves us a
legacy of accomplishments and our company will
forever be infl uenced by his leadership.
He saw what was best in all of us, encouraged us to
reach our possibilities and gave a helping hand along
the way.
W.E. Ayres will truly be missed – but his legacy
will continue.
S immons F irs t Na t ional C orpora t ion
Board o f Direc t ors
top row: William E. Clark, Steven A. Cossé, Lara F. Hutt, III, George A. Makris, Jr., J. Thomas May, W. Scott McGeorge
bottom row: David R. Perdue, Stanley E. Reed, Dr. Harry L. Ryburn, Robert L. Shoptaw, Henry F. Trotter, Jr., Jerry W. Watkins
William E. Clark
Chairman & Chief Executive Offi cer
CDI Contractors, LLC
Steven A. Cossé
Executive Vice President & General Counsel
Murphy Oil Corporation
George A. Makris, Jr.
President
M. K. Distributors, Inc.
Harry L. Ryburn, D. D. S.
Robert L. Shoptaw
Chief Executive Offi cer
Arkansas Blue Cross and Blue Shield
Henry F. Trotter, Jr.
President
Trotter Ford, Lincoln, Mercury, Toyota
Advisory Directors
J. Thomas May
Chairman & Chief Executive Offi cer
Simmons First National Corporation
Lara F. Hutt, III
President
Hutt Building Material Company, Inc.
W. Scott McGeorge
President
Pine Bluff Sand & Gravel
David R. Perdue
Vice President
JDR, Inc.
Stanley E. Reed
President
Farm Bureau Mutual Insurance of Arkansas
Jerry W. Watkins
Retired Executive
Murphy Oil Corporation
S im m o n s F ir s t N a t io n a l C o r p o r a t i o n
Simmons First
National Bank
Board of Directors
Robert E. Dreher, Jr.
Partner
Dreher & Sons
Met L. Jones, II
General Manager
Dickey Machine Works
John Lytle, M.D.
Orthopedic Surgeon
South Arkansas Orthopedic Center
J. Thomas May
Chairman & Chief Executive Offi cer
Simmons First National Bank
Beverly Morrow
Vice President
TLM Management
Charles Nabholz
President
The Nabholz Group
A.W. Nelson, Jr.
President
A.W. Nelson, Jr. Architect, P.A.
Mary Pringos
Executive Vice President
M.K. Distributors, Inc.
H. Glenn Rambin
President
Simmons First National Bank
Clifton Roaf, D.D.S.
Dentist
Clarence Roberts, III
Retired President
Roberts Brothers Tire Service, Inc.
Adam B. Robinson, Jr.
President
Ralph Robinson & Son, Inc.
Harry L. Ryburn, D.D.S.
Mark Shelton, III
President
M.A. Shelton Farming Company, Inc.
Phyllis S. Thomas
CEO & Corporate Secretary/Treasurer
Smithwick, Inc.
Conway Region
Advisory Board of Directors
Steve W. “Bo” Conner
Partner
Engelkes, Conner & Company
Bill Johnson
Community Chairman
Conway Region
Simmons First National Bank
Charles Nabholz
Chairman
The Nabholz Group
Phillip Pascoe
Investments
S. T. “Ros” Smith
Retired Automobile Dealer
Phillip Stone, M. D.
President
Conway Emergency Physicians Group
Ritchie Howell
Community President
Conway Region
Simmons First National Bank
Steven C. Wade
Community President
Little Rock Region
Simmons First National Bank
Western Region
Advisory Board of Directors
Larry Bates
Community Chairman
Simmons First National Bank
Michael F. Flynn
Community President
Simmons First National Bank
Joe S. Hiatt
Retired Banker/Rancher
Margie Hiatt
Retired Banker
Sherman Hiatt
Mayor
City of Charleston
Clay Hiatt
Investments
H. Ford Trotter, III
General Manager
Trotter Ford, Lincoln, Mercury, Toyota
Joe Larkin
Pharmacist/Owner
Medi-Sav Pharmacy
Advisory Director
Lara F. Hutt, III
President
Hutt Building Material Company, Inc.
Simmons First Bank
of El Dorado, N. A.
Board of Directors
Simmons First Bank
of Hot Springs
Board of Directors
Aubra Anthony, Jr.
President & Chief Executive Offi cer
Anthony Forest Products Company
David L. Bartlett
Chairman and Chief Executive Offi cer
Simmons First Bank of Hot Springs
Steven Cossé
Executive Vice President &
General Counsel
Murphy Oil Corporation
Stuart A. Fleischner, D. D. S.
Co-owner
Hot Springs National Park
Dental Group
John F. Dews
Chairman & Chief
Executive Offi cer
Simmons First Bank of El Dorado, N. A.
Louis F. Kleinman
Chairman
Falk Supply Company
Scott M. Fife
President
Simmons First Bank of El Dorado, N. A.
James B. Newman
President
Douglass-Newman Insurance Company
Phil Herring
President
Herring Furniture Company
Sarah P. Kinard
Private Investor
James Hutton Nobles
Independent Oil Producer
Kenneth P. Oliver, Jr.
President
El Dorado Glass & Mirror Company
Floyd M. Thomas, Jr.
Partner
Compton, Prewett, Thomas & Hickey,
P. A., Attorneys
H. Glenn Rambin
President
Simmons First National Bank
Jack Reynolds
President
El Dorado & Wesson Railroad Company
Larkin M. Wilson, III, D. D. S.
Dentist
Advisory Directors
James D. Cook
Retired Chairman
Simmons First Bank of El Dorado, N. A.
Benny Cox
Partner
Evers, Cox & Gober, PLLC
Jerry Watkins
Retired Attorney
Murphy Oil Corporation
Sam P. Stathakis, Jr.
President
Merritt Wholesale Distributors
Sara Stough
CPA, Manager
Stough Dermatology Clinic
Gene Thomason
Retired President
Simmons First Bank of Russellville
Advisory Directors
John D. Selig
Retired
Ronnie Twyford
Executive Vice President
Simmons First Bank of Hot Springs
Simmons First Bank
of Jonesboro
Board of Directors
Dennis Abell
Executive Vice President
Insurance Network
David L. Bartlett
President & Chief Operating Offi cer
Simmons First National Corporation
Barry Ledbetter
President & Chief Executive Offi cer
Simmons First Bank of Jonesboro
Ben Owens, Jr., M.D.
Partner
Clopton Clinic
David Pyle, M.D.
Vice President, Medical Affairs
St. Bernards Regional Healthcare
Jim Scurlock
President
Scurlock Industries of Jonesboro, Inc.
C. Kelly Farmer
Consultant
ARKAT Feeds, Inc.
A.O. French, Jr.
Retired Farmer
French Planting Company
John H. Rogers
Retired Farmer
J & M Rogers Farms
Bill Teeter
Farmer
Bill Teeter Farms
Guy P. Teeter
Farmer
Guy Teeter Farms
Teresa L. Wood
Senior Vice President
Simmons First Bank
of South Arkansas
Berl A. (Skipper) Smith
Attorney
Rainwater & Cox, Inc.
Mark Wimpy
Self Employed Farmer
Simmons First Bank
of Northwest Arkansas
Board of Directors
Craig Hunt
Executive Vice President
Simmons First National Bank
Thomas W. Spillyards
President & Chief Executive Offi cer
Simmons First Bank
of Northwest Arkansas
Dennis H. Ferguson
Executive Vice President
Simmons First Bank
of Northwest Arkansas
Ray Hobbs
President & Chief Executive Offi cer
Daisy Outdoor Products
Eric Pianalto
Chief Administration Offi cer
Mercy Health Systems
of Northwest Arkansas
James L. Tull
Treasurer
Crafton, Tull & Associates
Sonya Jones Yates
Casey Jones Land Company
Clark Irwin
Senior Vice President
Tyson Foods
Simmons First Bank
of Russellville
Board of Directors
Leon Anderson
Nationwide Representative
Nationwide Insurance Company
Terry G. Bowie
Retired
Entergy Corporation
Charles C. Boyce
Charles C. Boyce, D. D. S.
Keith B. Cogswell, III
President
Cogswell Motors, Inc.
Ronald B. Jackson
Chairman & Chief Executive Offi cer
Simmons First Bank of Russellville
Allen Laws, III
Attorney
Laws & Murdoch, P. A.
Edward R. Stingley, III
President
Homestead Tractor & Implement Co., Inc.
Harve J. Taylor
Owner/President
H. J. Taylor & Associates, Inc.
Gene Thomason
Retired President
Simmons First Bank of Russellville
Simmons First Bank
of Searcy
Board of Directors
Richard Cargile
Owner
Cargile Insurance Agency
Simmons First Bank
of South Arkansas
Board of Directors
Robert G. Bridewell
Attorney
Bridewell & Bridewell
Freddie Black
President & Chief Executive Offi cer
Simmons First Bank of South Arkansas
Ben V. Floriani
Chairman
Simmons First Bank of South Arkansas
James Haddock
Attorney
James Haddock, P.A.
Craig Hunt
Executive Vice President
Simmons First National Bank
Lester Pinkus
Retired
Dermott Distribution Company
Beverly Rowe
Secretary/Treasurer
Chicot Irrigation, Inc.
Brooks Davis
President & Chief Executive Offi cer
Simmons First Bank of Searcy
Jerry Selby
Partner
Four Star Partnership Farms
Dennis R. Donovan
Consultant
Al Fowler
Retired Administrator
Searcy Medical Center
Jos Giezeman
Consultant
Chris Rainbolt
Senior Vice President
Simmons First Bank of Searcy
H. Glenn Rambin
President
Simmons First National Bank
Robert Underwood
Owner
Underwood Construction
Joe Dan Yee
Partner
Yee’s Food Land
Advisory Directors
A. O. French
Retired Director
French Planting Company
Fred P. Michael
Retired Chairman of the Board
Simmons First Bank of South Arkansas
Dumas Region
Advisory Board of Directors
Freddie Black
President & Chief Executive Offi cer
Simmons First Bank of South Arkansas
A r kansas’s C ommuni t y Bank
E xecu t i ve Managemen t
Simmons First
National Corporation
J. Thomas May
Chairman & Chief Executive Offi cer
David L. Bartlett
President & Chief Operating Offi cer
Robert A. Fehlman
Executive Vice President
& Chief Financial Offi cer
Marty D. Casteel
Executive Vice President
John L. Rush
Secretary
David W. Garner
Senior Vice President
Finance Group
Tommie K. Jones
Senior Vice President
Human Resources
L. Ann Gill
Senior Vice President
Audit
Kevin J. Archer
Senior Vice President
Special Services
Simmons First
National Bank
J. Thomas May
Chairman & Chief Executive Offi cer
H. Glenn Rambin
President
Marty D. Casteel
Executive Vice President
Consumer Banking Group
Robert C. Dill
Executive Vice President
Marketing Group
N. Craig Hunt
Executive Vice President
Specialty Banking Group
Glenda K. Tolson
Executive Vice President & Cashier
Operations Group
David W. Garner
Senior Vice President
Controller Department
David C. Bush
Senior Vice President
Bank Card
Shirley E. Crow
Senior Vice President
Student Loans
Patrick J. Anderson
Senior Vice President
Correspondent Banking
Ike C. Wood
Senior Vice President
Commercial Loans
Craig S. Atwood
Senior Vice President
Indirect Lending
W. Greg Bell
Senior Vice President
Agriculture Loans
Joel W. Cheatham
Senior Vice President
Real Estate
Joe W. Clement, III
President
Simmons First Trust Company, N. A.
Richard W. Johnson
President
Simmons First Investment Group
Simmons First
National Bank
– Regions
Central Region
Steven C. Wade
Community President
Conway Region
Bill F. Johnson
Community Chairman
Ritchie D. Howell
Community President
North Region
Stephen J. Smith
Community President
William Pace
Community Executive
R. Don Alford
Community Executive
Western Region
Larry L. Bates
Community Chairman
Michael F. Flynn
Community President
Charles J. Brown
Senior Vice President
Simmons First Bank
of El Dorado, N. A.
John F. Dews
Chairman & Chief Executive Offi cer
Scott M. Fife
President
L. S. Brown
Senior Vice President
A. J. Lockwood, Jr.
Senior Vice President
Simmons First Bank
of Hot Springs
David L. Bartlett
Chairman & Chief Executive Offi cer
Steven W. Trusty
President
Ronnie L. Twyford
Executive Vice President
Rick Harris
Senior Vice President
Simmons First Bank
of Jonesboro
Barry K. Ledbetter
President & Chief Executive Offi cer
Wayne F. Bond
Senior Vice President
Kent P. Bridger
Senior Vice President
Tony L. Futrell
Senior Vice President
Simmons First Bank
of Northwest Arkansas
Thomas W. Spillyards
President & Chief Executive Offi cer
Dennis H. Ferguson
Executive Vice President
Gail Jordan
Senior Vice President
Simmons First Bank
of Russellville
Ronald B. Jackson
Chairman & Chief Executive Offi cer
R. Scott Hill
Community President-Russellville
Denton Tumbleson
Community President-Clarksville
Simmons First Bank
of Searcy
J. Brooks Davis
President & Chief Executive Offi cer
Jerry K. Morgan
Executive Vice President
Simmons First Bank
of South Arkansas
Ben V. Floriani
Chairman
Freddie G. Black
President & Chief Executive Offi cer
Tommy R. Jarrett
Executive Vice President
William F. Wisener
Senior Vice President
Teresa L. Wood
Senior Vice President
Linda S. Moreland
Senior Vice President
Shareholders may obtain a copy of the Company’s annual report as fi led with the Securities and Exchange Commission (Form 10-K)
by writing to John L. Rush, Secretary, Simmons First National Corporation, P.O. Box 7009, Pine Bluff, Arkansas 71611-7009, or
on the Company’s website at www.simmonsfi rst.com. Simmons First National Corporation is an Equal Opportunity Employer.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
(cid:55)
Annual Report Pursuant to Section 13 or 15(d) of the Exchange Act of 1934
For the fiscal year ended: December 31, 2006
or
(cid:133)
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Commission file number 0-6253
SIMMONS FIRST NATIONAL CORPORATION
(Exact name of registrant as specified in its charter)
Arkansas
(State or other jurisdiction of
incorporation or organization)
501 Main Street, Pine Bluff, Arkansas
(Address of principal executive offices)
71-0407808
(I.R.S. employer
identification No.)
71601
(Zip Code)
(870) 541-1000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, $0.01 par value
(Title of each class)
The Nasdaq Stock Market®
(Name of each exchange on which registered)
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
(cid:133) Yes (cid:54) No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
(cid:133) Yes (cid:54) No
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. (cid:54) Yes (cid:133) 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. (cid:133)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.
See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
(cid:133) Large accelerated filer
(cid:54) Accelerated filer
(cid:133) Non-accelerated filer
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act.). (cid:133) Yes (cid:54) No
The aggregate market value of the Registrant’s Common Stock, par value $0.01 per share, held by non-affiliates on
June 30, 2006, was $369,711,360 based upon the last trade price as reported on the Nasdaq Global Select Market® of
$29.01.
The number of shares outstanding of the Registrant's Common Stock as of February 8, 2007 was 14,192,201.
Part III is incorporated by reference from the Registrant's Proxy Statement relating to the Annual Meeting of Shareholders
to be held on April 10, 2007.
Introduction
The Company has chosen to combine our Annual Report to Shareholders with our Form 10-K, which is a document that
U.S. public companies file with the Securities and Exchange Commission every year. Many readers are familiar with “Part
II” of the Form 10-K, as it contains the business information and financial statements that were included in the financial
sections of our past Annual Reports. These portions include information about our business that the Company believes will
be of interest to investors. The Company hopes investors will find it useful to have all of this information available in a
single document.
The Securities and Exchange Commission allows the Company to report information in the Form 10-K by “incorporated
by reference” from another part of the Form 10-K, or from the proxy statement. You will see that information is
“incorporated by reference” in various parts of our Form 10-K.
A more detailed table of contents for the entire Form 10-K follows:
FORM 10-K INDEX
Part I
Business ............................................................................................................................................... 1
Item 1
Item 1A Risk Factors ......................................................................................................................................... 6
Item 1B Unresolved Staff Comments ............................................................................................................... 7
Properties ............................................................................................................................................. 7
Item 2
Legal Proceedings................................................................................................................................ 7
Item 3
Submission of Matters to a Vote of Security-Holders ........................................................................ 8
Item 4
Part II
Item 5 Market for Registrant's Common Equity and Related Stockholder Matters ...................................... 8
Item 6
Selected Consolidated Financial Data............................................................................................... 10
Item 7 Management's Discussion and Analysis of Financial Condition and
Results of Operations......................................................................................................................... 12
Item 7A Quantitative and Qualitative Disclosures About Market Risk ......................................................... 37
Consolidated Financial Statements and Supplementary Data .......................................................... 40
Item 8
Changes in and Disagreements with Accountants on Accounting and
Item 9
Financial Disclosure .......................................................................................................................... 72
Item 9A Controls and Procedures.................................................................................................................... 72
Item 9B Other Information .............................................................................................................................. 72
Part III
Item 10 Directors and Executive Officers of the Company ........................................................................... 72
Executive Compensation ................................................................................................................... 72
Item 11
Item 12
Security Ownership of Certain Beneficial Owners and Management.............................................. 72
Item 13 Certain Relationships and Related Transactions............................................................................... 72
Principal Accounting Fees and Services ........................................................................................... 72
Item 14
Part IV
Item 15
Exhibits and Financial Statement Schedules..................................................................................... 73
Signatures........................................................................................................................................... 75
Certifications...................................................................................................................................... 76
PART I
ITEM 1.
BUSINESS
The Company and the Banks
Simmons First National Corporation (the “Company”) is a financial holding company registered under the Bank
Holding Company Act of 1956. The Gramm-Leach-Bliley-Act ("GLB Act") has substantially increased the financial
activities that certain banks, bank holding companies, insurance companies and securities brokerage companies are
permitted to undertake. Under the GLB Act, expanded activities in insurance underwriting, insurance sales, securities
brokerage and securities underwriting not previously allowed for banks and bank holding companies are now permitted
upon satisfaction of certain guidelines concerning management, capitalization and satisfaction of the applicable
Community Reinvestment Act guidelines for the banks. Generally these new activities are permitted for bank holding
companies whose banking subsidiaries are well managed, well capitalized and have at least a satisfactory rating under
the Community Reinvestment Act. A bank holding company must apply to become a financial holding company and
the Board of Governors of the Federal Reserve System must approve its application.
The Company's application to become a financial holding company was approved by the Board of Governors on
March 13, 2000. The Company has reviewed the new activities permitted under the Act. If the appropriate opportunity
presents itself, the Company is interested in expanding into other financial services.
The Company was the largest publicly traded financial holding company headquartered in Arkansas with consolidated
total assets of $2.7 billion, consolidated loans of $1.8 billion, consolidated deposits of $2.2 billion and total equity
capital of $259 million as of December 31, 2006. The Company owns eight community banks in Arkansas. The
Company's banking subsidiaries conduct their operations through 86 offices, of which 82 are financial centers, located
in 48 communities in Arkansas.
Simmons First National Bank (the “Bank”) is the Company’s lead bank. The Bank is a national bank, which has been
in operation since 1903. The Bank's primary market area, with the exception of its nationally provided credit card
product, is Central and Western Arkansas. At December 31, 2006 the Bank had total assets of $1.3 billion, total loans
of $868 million and total deposits of $1.0 billion. Simmons First Trust Company N.A., a wholly owned subsidiary of
the Bank, performs the trust and fiduciary business operations for the Bank as well as the Company. Simmons First
Investment Group, Inc. (“SFIG”), a wholly owned subsidiary of the Bank, which is a broker-dealer registered with the
Securities and Exchange Commission (“SEC”) and a member of the National Association of Securities Dealers
(“NASD”), performs the broker-dealer operations of the Bank.
Simmons First Bank of Jonesboro (“Simmons/Jonesboro”) is a state bank, which was acquired in 1984.
Simmons/Jonesboro’s primary market area is Northeast Arkansas. At December 31, 2006, Simmons/Jonesboro had
total assets of $265 million, total loans of $215 million and total deposits of $237 million.
Simmons First Bank of South Arkansas (“Simmons/South”) is a state bank, which was acquired in 1984.
Simmons/South’s primary market area is Southeast Arkansas. At December 31, 2006, Simmons/South had total assets
of $142 million, total loans of $74 million and total deposits of $124 million.
Simmons First Bank of Northwest Arkansas (“Simmons/Northwest”) is a state bank, which was acquired in 1995.
Simmons/Northwest’s primary market area is Northwest Arkansas. At December 31, 2006, Simmons/Northwest had
total assets of $279 million, total loans of $211 million and total deposits of $238 million.
Simmons First Bank of Russellville (“Simmons/Russellville”) is a state bank, which was acquired in 1997.
Simmons/Russellville’s primary market area is Russellville, Arkansas. At December 31, 2006, Simmons/Russellville
had total assets of $201 million, total loans of $122 million and total deposits of $155 million.
Simmons First Bank of Searcy (“Simmons/Searcy”) is a state bank, which was acquired in 1997. Simmons/Searcy’s
primary market area is Searcy, Arkansas. At December 31, 2006, Simmons/Searcy had total assets of $139 million,
total loans of $97 million and total deposits of $107 million.
Simmons First Bank of El Dorado, N.A. (“Simmons/El Dorado”) is a national bank, which was acquired in 1999.
Simmons/El Dorado’s primary market area is South Central Arkansas. At December 31, 2006, Simmons/El Dorado
had total assets of $216 million, total loans of $118 million and total deposits of $186 million.
1
Simmons First Bank of Hot Springs (“Simmons/Hot Springs”) is a state bank, which was acquired in 2004.
Simmons/Hot Springs’ primary market area is Hot Springs, Arkansas. At December 31, 2006, Simmons/Hot Springs
had total assets of $158 million, total loans of $80 million and total deposits of $119 million.
The Company's subsidiaries provide complete banking services to individuals and businesses throughout the market
areas they serve. Services include consumer (credit card, student and other consumer), real estate (construction,
single family residential and other commercial) and commercial (commercial, agriculture and financial institutions)
loans, checking, savings and time deposits, trust and investment management services, and securities and
investment services.
Loan Risk Assessment
As part of the ongoing risk assessment, the Company has an Asset Quality Review Committee of management that
meets quarterly to review the adequacy of the allowance for loan losses. The Committee reviews the status of past
due, non-performing and other impaired loans, reserve ratios, and additional performance indicators for all of its
subsidiary banks. The allowance for loan losses is determined based upon the aforementioned performance factors,
and adjustments are made accordingly. Also, an unallocated reserve is established to compensate for the uncertainty
in estimating loan losses, including the possibility of improper risk ratings and specific reserve allocations.
The Board of Directors of each of the Company's subsidiary banks reviews the adequacy of its allowance for loan
losses on a monthly basis giving consideration to past due loans, non-performing loans, other impaired loans, and
current economic conditions. The Company's loan review department monitors each of its subsidiary bank's loan
information monthly. In addition, the loan review department prepares an analysis of the allowance for loan losses
for each subsidiary bank twice a year, and reports the results to the Company's Audit and Security Committee. In
order to verify the accuracy of the monthly analysis of the allowance for loan losses, the loan review department
performs an on-site detailed review of each subsidiary bank's loan files on a semi-annual basis.
Growth Strategy
The Company's growth strategy is to primarily focus on the state of Arkansas. More specifically, the Company is
interested in expansion by opening new financial centers or by acquisitions of financial centers in growth or strategic
markets, preferably with assets totaling $200 million or more. The Company added new financial centers in Little Rock
and El Dorado during 2006. In 2005 the Company added three branch locations in the Little Rock/Conway
metropolitan area, one in the Fayetteville/Springdale/Rogers metropolitan area and one in the Fort Smith metropolitan
area. For 2007, the Company plans to add financial centers in Little Rock, North Little Rock, Beebe and Paragould, as
well as a new headquarters facility for Simmons/Northwest in Rogers. While new financial centers can be dilutive to
earnings in the short-term, the Company believes they will reward shareholders in the intermediate and long-term. As
the Company nears completion of its desired footprint within the state of Arkansas, it is beginning to evaluate
opportunities to expand into contiguous states.
With an expanded presence in Arkansas, ongoing investments in technology, and enhanced products and services, the
Company is in position to meet the demands of customers in the markets it serves.
Competition
The activities engaged in by the Company and its subsidiaries are highly competitive. In all aspects of its business,
the Company encounters intense competition from other banks, lending institutions, credit unions, savings and loan
associations, brokerage firms, mortgage companies, industrial loan associations, finance companies, and several
other financial and financial service institutions. The amount of competition among commercial banks and other
financial institutions has increased significantly over the past few years since the deregulation of the banking
industry. The Company's subsidiary banks actively compete with other banks and financial institutions in their
efforts to obtain deposits and make loans, in the scope and type of services offered, in interest rates paid on time
deposits and charged on loans and in other aspects of commercial banking.
The Company's banking subsidiaries are also in competition with major national and international retail banking
establishments, brokerage firms and other financial institutions within and outside Arkansas. Competition with these
financial institutions is expected to increase, especially with the increase in interstate banking.
2
Employees
As of February 8, 2007, the Company and its subsidiaries had approximately 1,134 full time equivalent employees.
None of the employees is represented by any union or similar groups, and the Company has not experienced any labor
disputes or strikes arising from any such organized labor groups. The Company considers its relationship with its
employees to be good.
Executive Officers of the Company
The following is a list of all executive officers of the Company. The Board of Directors elects executive officers
annually.
NAME
AGE
POSITION
YEARS SERVED
J. Thomas May
David L. Bartlett
Robert A. Fehlman
Marty D. Casteel
Tommie K. Jones
L. Ann Gill
Kevin J. Archer
David W. Garner
John L. Rush
60
55
42
55
59
59
43
37
72
Chairman and Chief Executive Officer
President and Chief Operating Officer
Executive Vice President and Chief Financial Officer
Executive Vice President
Senior Vice President and Human Resources Director
Senior Vice President and Auditor
Senior Vice President/Credit Policy and Risk Assessment
Senior Vice President and Controller
Secretary
20
10
18
18
32
41
11
9
39
Board of Directors of the Company
The following is a list of the Board of Directors of the Company as of December 31, 2006, along with their principal
occupation.
NAME
PRINCIPAL OCCUPATION
William E. Clark
Steven A. Cosse′
Chairman and Chief Executive Officer
CDI Contractors, LLC
Executive Vice President and General Counsel
Murphy Oil Corporation
George A. Makris, Jr.
President
M.K. Distributors, Inc.
J. Thomas May
W. Scott McGeorge
Stanley E. Reed (1)
Chairman and Chief Executive Officer
Simmons First National Corporation
President
Pine Bluff Sand and Gravel Company
President
Farm Bureau Mutual Insurance of Arkansas
Harry L. Ryburn, D.D.S.
Orthodontist (retired)
Robert L. Shoptaw
Henry F. Trotter, Jr.
Chief Executive Officer
Arkansas Blue Cross and Blue Shield
President
Trotter Ford, Inc.; Trotter Auto, Inc.
(1) Mr. Reed was elected to the Board of Directors of the Company on December 11, 2006, effective January 1, 2007.
3
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 generally must 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. Bank holding companies, including the Company, which have elected to
qualify as financial holding companies, are authorized to engage in financial activities. Financial activities include
any activity that is financial in nature or any activity that is incidental or complimentary to a financial activity.
As a financial holding company, the Company is required to file with the FRB an annual report and such additional
information as may be required by law. From time to time, the FRB examines the financial condition of the
Company and its subsidiaries. The FRB, through civil and criminal sanctions, is authorized to exercise enforcement
powers over bank holding companies (including financial holding companies) and non-banking subsidiaries, to limit
activities that represent unsafe or unsound practices or constitute violations of law.
The Company is subject to certain laws and regulations of the state of Arkansas applicable to financial and bank
holding companies, including examination and supervision by the Arkansas Bank Commissioner. Under Arkansas law,
a financial or bank holding company is prohibited from owning more than one subsidiary bank, if any subsidiary bank
owned by the holding company has been chartered for less than 5 years and, further, requires the approval of the
Arkansas Bank Commissioner for any acquisition of more than 25% of the capital stock of any other bank located in
Arkansas. No bank acquisition may be approved if, after such acquisition, the holding company would control, directly
or indirectly, banks having 25% of the total bank deposits in the state of Arkansas, excluding deposits of other banks
and public funds.
Legislation enacted in 1994, allows bank holding companies (including financial holding companies) from any state to
acquire banks located in any state without regard to state law, provided that the holding company (1) is adequately
capitalized, (2) is adequately managed, (3) would not control more than 10% of the insured deposits in the United
States or more than 30% of the insured deposits in such state, and (4) such bank has been in existence at least five years
if so required by the applicable state law.
Subsidiary Banks
Simmons First National Bank, Simmons/El Dorado and Simmons First Trust Company N.A., as national banking
associations, are subject to regulation and supervision, of which regular bank examinations are a part, by the Office of
the Comptroller of the Currency of the United States ("OCC"). Simmons/Jonesboro, Simmons/South,
Simmons/Northwest and Simmons/Hot Springs, as state chartered banks, are subject to the supervision and regulation,
of which regular bank examinations are a part, by the Federal Deposit Insurance Corporation ("FDIC") and the
Arkansas State Bank Department. Simmons/Russellville and Simmons/Searcy, as state chartered member banks, are
subject to the supervision and regulation, of which regular bank examinations are a part, by the Federal Reserve Board
and the Arkansas State Bank Department. The lending powers of each of the subsidiary banks are generally subject to
certain restrictions, including the amount, which may be lent to a single borrower.
Prior to passage of the GLB Act in 1999, the subsidiary banks, with numerous exceptions, were subject to the
application of the laws of the state of Arkansas, regarding the limitation of the maximum permissible interest rate on
loans. The Arkansas limitation for general loans was 5% over the Federal Reserve Discount Rate, with an additional
maximum limitation of 17% per annum for consumer loans and credit sales. Certain loans secured by first liens on
residential real estate and certain loans controlled by federal law (e.g., guaranteed student loans, SBA loans, etc.) were
exempt from this limitation; however, a substantial portion of the loans made by the subsidiary banks, including all
credit card loans, have historically been subject to this limitation. The GLB Act included a provision which sets the
maximum interest rate on loans made in Arkansas, by banks with Arkansas as their home state, at the greater of
the rate authorized by Arkansas law or the highest rate permitted by any of the out-of-state banks which maintain
branches in Arkansas. An action was brought in the Western District of Arkansas, attacking the validity of the
4
statute in 2000. Subsequently, the District Court issued a decision upholding the statute, and during
October 2001, the Eighth Circuit Court of Appeals upheld the statute on appeal. Thus, in the fourth quarter of
2001, the Company began to implement the changes permitted by the GLB Act.
All of the Company's subsidiary banks are members of the FDIC, which provides insurance on deposits of each
member bank up to applicable limits by the Deposit Insurance Fund. 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 financial or bank
holding company, any director, officer, employee or agent of the bank or holding company, which is believed by the
federal banking agencies to be violating any administrative pronouncement or engaged in unsafe and unsound
practices. In addition, the FDIC may terminate the insurance of accounts, upon determination that the insured
institution has engaged in certain wrongful conduct, or is in an unsound condition to continue operations.
Risk-Weighted Capital Requirements for the Company and the Banks
Since 1993, banking organizations (including financial holding companies, bank holding companies and banks) were
required to meet a minimum ratio of Total Capital to Total Risk-Weighted Assets of 8%, of which at least 4% must be
in the form of Tier 1 Capital. A well-capitalized institution is one that has at least a 10% "total risk-based capital" ratio.
For a tabular summary of the Company’s risk-weighted capital ratios, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations – Capital" and Note 19, Stockholders’ Equity, of the Notes to
Consolidated Financial Statements.
A banking organization's qualifying total capital consists of two components: Tier 1 Capital and Tier 2 Capital.
Tier 1 Capital is an amount equal to the sum of common shareholders' equity, hybrid capital instruments (instruments
with characteristics of debt and equity) in an amount up to 25% of Tier 1 Capital, certain preferred stock and the
minority interest in the equity accounts of consolidated subsidiaries. For bank holding companies and financial holding
companies, goodwill may not be included in Tier 1 Capital. Identifiable intangible assets may be included in
Tier 1 Capital for banking organizations, 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.
5
Federal Deposit Insurance Corporation Improvement Act
The Federal Deposit Insurance Corporation Improvement Act ("FDICIA"), enacted in 1991, requires the FDIC to
increase assessment rates for insured banks and authorizes one or more "special assessments," as necessary for the
repayment of funds borrowed by the FDIC or any other necessary purpose. As directed in FDICIA, the FDIC has
adopted a transitional risk-based assessment system, under which the assessment rate for insured banks will vary,
according to the level of risk incurred in the bank's activities. The risk category and risk-based assessment for a bank is
determined from its classification, pursuant to the regulation, as well capitalized, adequately capitalized or
undercapitalized.
FDICIA substantially revised the bank regulatory provisions of the Federal Deposit Insurance Act and other federal
banking statutes, requiring federal banking agencies to establish capital measures and classifications. Pursuant to the
regulations issued under FDICIA, a depository institution will be deemed to be well capitalized if it significantly
exceeds the minimum level required for each relevant capital measure; adequately capitalized if it meets each such
measure; undercapitalized if it fails to meet any such measure; significantly undercapitalized if it is significantly below
any such measure; and critically undercapitalized if it fails to meet any critical capital level set forth in regulations. The
federal banking agencies must promptly mandate corrective actions by banks that fail to meet the capital and related
requirements, in order to minimize losses to the FDIC. The FDIC and OCC advised the Company that the subsidiary
banks have been classified as well capitalized under these regulations.
The federal banking agencies are required by FDICIA to prescribe standards for banks and bank holding companies
(including financial holding companies), relating to operations and management, asset quality, earnings, stock valuation
and compensation. A bank or bank holding company that fails to comply with such standards will be required to
submit a plan designed to achieve compliance. If no plan is submitted or the plan is not implemented, the bank or
holding company would become subject to additional regulatory action or enforcement proceedings.
A variety of other provisions included in FDICIA may affect the operations of the Company and the subsidiary banks,
including new reporting requirements, revised regulatory standards for real estate lending, "truth in savings" provisions,
and the requirement that a depository institution give 90 days prior notice to customers and regulatory authorities before
closing any branch.
Available Information
The Company maintains an Internet website at www.simmonsfirst.com. On this website under the section, investor
relations – documents, the Company makes its filings with the Securities and Exchange Commission available free of
charge. Additionally, the Company has adopted and posted on its website a Code of Ethics that applies to its principal
executive officer, principal financial officer and principal accounting officer.
ITEM 1A.
RISK FACTORS
Investments in the Company’s common stock involve risk. The market price of the Company’s common stock may
fluctuate significantly in response to a number of factors, including:
• changes in securities analysts’ estimates of financial performance
• volatility of stock market prices and volumes
• rumors or erroneous information
• changes in market valuations of similar companies
• changes in interest rates
• new developments in the banking industry
• variations in quarterly or annual operating results
• new litigation or changes in existing litigation
• regulatory actions
• changes in accounting policies or procedures as may be required by the Financial Accounting Standards
Board or other regulatory agencies
If the Company does not adjust to changes in the financial services industry, its financial performance may suffer. The
Company’s ability to maintain its history of strong financial performance and return on investment to shareholders will
depend in part on its ability to expand its scope of available financial services to its customers. In addition to other
banks, competitors include securities dealers, brokers, mortgage bankers, investment advisors, and finance and
6
insurance companies. The increasingly competitive environment is, in part, a result of changes in regulation, changes
in technology and product delivery systems, and the accelerating pace of consolidation among financial service
providers.
Future governmental regulation and legislation could limit growth. The Company and its subsidiaries are subject to
extensive state and federal regulation, supervision and legislation that govern nearly every aspect of its operations.
Changes to these laws could affect the Company’s ability to deliver or expand its services and diminish the value of its
business.
Changes in interest rates could reduce income and cash flow. The Company’s income and cash flow depends to a great
extent on the difference between the interest earned on loans and investment securities, and the interest paid on deposits
and other borrowings. Interest rates are beyond the Company’s control, and they fluctuate in response to general
economic conditions and the policies of various governmental and regulatory agencies, in particular, the Federal
Reserve Board. Changes in monetary policy, including changes in interest rates, will influence the origination of loans,
the purchase of investments, the generation of deposits and the rates received on loans and investment securities and
paid on deposits.
Additional risks and uncertainties could have a negative effect on the financial performance of the Company and the
Company’s common stock. Some of these factors are general economic and financial market conditions, competition,
continuing consolidation in the financial services industry, new litigation or changes in existing litigation, regulatory
actions, and losses.
ITEM 1B.
UNRESOLVED STAFF COMMENTS
There are currently no unresolved Commission staff comments.
ITEM 2.
PROPERTIES
The principal offices of the Company and the Bank consist of an eleven-story office building and adjacent office space,
located in the central business district of the city of Pine Bluff, Arkansas. Additionally, the Company has corporate
offices located in Little Rock, Arkansas.
The Company and its subsidiaries own or lease additional offices throughout the state of Arkansas. The Company’s
eight banks are conducting financial operations from 86 offices, of which 82 are financial centers, in 48 communities
throughout Arkansas.
ITEM 3.
LEGAL PROCEEDINGS
The Company and/or its subsidiaries 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. The Company or its subsidiaries remain the subject of two (2) lawsuits asserting
claims against the Company or its subsidiaries.
On October 1, 2003, an action in Pulaski County Circuit Court was filed by Thomas F. Carter, Tena P. Carter and
certain related entities against Simmons First Bank of South Arkansas and Simmons First National Bank alleging
wrongful conduct by the banks in the collection of certain loans. The plaintiffs are seeking $2,000,000 in
compensatory damages and $10,000,000 in punitive damages. The Company has filed a Motion to Dismiss. The
plaintiffs have been granted additional time to discover any evidence for litigation. At this time, no basis for any
material liability has been identified. The Company and the banks continue to vigorously defend the claims asserted in
the suit.
On April 3, 2006, an action in Johnson County Circuit Court was filed by Tria Xiong and Mai Lee Xiong against
Simmons First Bank of Russellville and certain individuals alleging wrongful conduct by the bank in the underwriting
and origination of certain loans. The plaintiffs are seeking an unspecified sum in compensatory damages and
$1,000,000.00 in punitive damages. Discovery is in process, and the suit is pending, with no court date set. At this
time, no basis for any material liability has been identified. The Company and the bank plan to vigorously defend the
claims asserted in the suit.
7
ITEM 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
No matters were submitted to a vote of security-holders, through the solicitation of proxies or otherwise, during the
fourth quarter of the fiscal year covered by this report.
PART II
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company’s Common Stock trades on The Nasdaq Stock Market® in the Global Select Market System under
the symbol “SFNC”. The following table sets forth, for all the periods indicated, cash dividends declared, and the
high and low closing bid prices for the Company’s Common Stock.
2006
1st quarter
2nd quarter
3rd quarter
4th quarter
2005
1st quarter
2nd quarter
3rd quarter
4th quarter
Price Per
Common Share
High
Low
$ 29.76
30.36
30.26
32.97
$ 29.57
27.42
28.75
29.96
$ 27.50
25.00
26.31
28.01
$ 22.72
21.40
25.59
26.08
Quarterly
Dividends
Per Common
Share
$ 0.16
0.17
0.17
0.18
$ 0.15
0.15
0.15
0.16
As of February 8, 2007, there were 1,433 shareholders of record of the Company’s Common Stock.
The Company's policy is to declare regular quarterly dividends based upon the Company's earnings, financial position,
capital requirements and such other factors deemed relevant by the Board of Directors. This dividend policy is subject
to change, however, and the payment of dividends by the Company is necessarily dependent upon the availability of
earnings and the Company's financial condition in the future. The payment of dividends on the Common Stock is also
subject to regulatory capital requirements.
The Company's principal source of funds for dividend payments to its stockholders is dividends received from its
subsidiary banks. Under applicable banking laws, the declaration of dividends by the Bank and Simmons/El Dorado in
any year, in excess of its net profits, as defined, for that year, combined with its retained net profits of the
preceding two years, must be approved by the Office of the Comptroller of the Currency. Further, as to
Simmons/Jonesboro, Simmons/Northwest, Simmons/South, Simmons/Hot Springs, Simmons/Russellville and
Simmons/Searcy regulators have specified that the maximum dividends state banks may pay to the parent company
without prior approval is 75% of the current year earnings plus 75% of the retained net earnings of the preceding year.
At December 31, 2006, approximately $12.7 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 "Quantitative
and Qualitative Disclosures About Market Risk – Liquidity and Market Risk Management," and Note 19, Stockholders’
Equity, of Notes to Consolidated Financial Statements.
8
Stock Repurchase
The Company made the following purchases of its common stock during the three months ended
December 31, 2006:
Period
Total Number
of Shares
Purchased
Average
Price Paid
Per Share
Total Number
of Shares
Purchased as
Part of Publicly
Announced Plans
Maximum
Number of
Shares that May
Yet be Purchased
Under the Plans
October 1 – October 31
November 1 – November 30
December 1 – December 31
Total
1,500
5,000
7,700
14,200
28.94
30.91
31.74
31.15
$
1,500
5,000
7,700
14,200
353,667
348,667
340,967
On May 25, 2004, the Company announced the adoption by the Board of Directors of a stock repurchase
program. The program authorizes the repurchase of up to 5% of the outstanding Common Stock, or 733,485
shares. Under the repurchase program, there is no time limit for the stock repurchases, nor is there a minimum
number of shares the Company intends to repurchase. The Company may discontinue purchases at any time that
management determines additional purchases are not warranted. The shares are to be purchased from time to
time at prevailing market prices, through open market or unsolicited negotiated transactions, depending upon
market conditions. The Company intends to use the repurchased shares to satisfy stock option exercise, payment
of future stock dividends and general corporate purposes.
Performance Graph
The performance graph below compares the cumulative total shareholder return on the Company’s Common
Stock with the cumulative total return on the equity securities of companies included in the NASDAQ Bank
Stock Index, the NASDAQ Composite Stock Index and the S&P 500 Stock Index. The graph assumes an
investment of $100 on December 31, 2001 and reinvestment of dividends on the date of payment without
commissions. The performance graph represents past performance and should not be considered to be an
indication of future performance.
Total Return Performance
Sim m ons Firs t National Corporation
250
NASDAQ Bank Index
NASDAQ Com pos ite Index
S&P 500 Index
200
e
u
l
a
V
x
e
d
n
I
150
100
50
12/31/01
12/31/02
12/31/03
12/31/04
12/31/05
12/31/06
Index
Simmons First National Corporation
NASDAQ Bank Index
NASDAQ Composite Index
S&P 500 Index
12/31/01
100.00
100.00
100.00
100.00
12/31/02
117.13
106.95
68.76
77.90
12/31/03
180.42
142.29
103.67
100.24
12/31/04
193.60
161.73
113.16
111.14
12/31/05
189.60
158.61
115.57
116.59
12/31/06
219.99
180.53
127.58
135.00
Period Ending
9
Forward Looking Statements
Certain statements contained in this Annual Report may not be based on historical facts and are “forward-looking
statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. These forward-looking statements may be identified by reference to
a future period(s) or by the use of forward-looking terminology, such as “anticipate,” “estimate,” “expect,”
“foresee,” “may,” “might,” “will,” “would,” “could” or “intend,” future or conditional verb tenses, and variations or
negatives of such terms. These forward-looking statements include, without limitation, those relating to the
Company’s future growth, revenue, assets, asset quality, profitability and customer service, critical accounting
policies, net interest margin, non-interest revenue, market conditions related to the Company’s stock repurchase
program, allowance for loan losses, the effect of certain new accounting standards on the Company’s financial
statements, income tax deductions, credit quality, the level of credit losses from lending commitments, net interest
revenue, interest rate sensitivity, loan loss experience, liquidity, capital resources, market risk, earnings, effect of
pending litigation, acquisition strategy, legal and regulatory limitations and compliance and competition.
We caution the reader not to place undue reliance on the forward-looking statements contained in this Report in that
actual results could differ materially from those indicated in such forward-looking statements, due to a variety of
factors. These factors include, but are not limited to, changes in the Company’s operating or expansion strategy,
availability of and costs associated with obtaining adequate and timely sources of liquidity, the ability to maintain
credit quality, possible adverse rulings, judgments, settlements and other outcomes of pending litigation, the ability
of the Company to collect amounts due under loan agreements, changes in consumer preferences, effectiveness of
the Company’s interest rate risk management strategies, laws and regulations affecting financial institutions in
general or relating to taxes, the effect of pending or future legislation, the ability of the Company to repurchase its
Common Stock on favorable terms and other risk factors. Other relevant risk factors may be detailed from time to
time in the Company’s press releases and filings with the Securities and Exchange Commission. We undertake no
obligation to update these forward-looking statements to reflect events or circumstances that occur after the date of
this Report.
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 report. The income statement, balance sheet and per common share data as of and for the years ended
December 31, 2006, 2005, 2004, 2003, and 2002 were derived from consolidated financial statements of the Company,
which were audited by BKD, LLP. Earnings per common share and dividends per common share presented in the
financial statements have been restated retroactively to reflect the effects of the May 1, 2003, two for one stock split for
shareholders of record as of April 18, 2003. 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 report.
10
SELECTED CONSOLIDATED FINANCIAL DATA
(In thousands,
except per share data)
Income statement data:
Net interest income
Provision for loan losses
Net interest income after provision
for loan losses
Non-interest income
Non-interest expense
Provision for income taxes
Net income
Per share data:
Basic earnings
Diluted earnings
Diluted operating earnings (2)
Book value
Dividends
Balance sheet data at period end:
Assets
Loans
Allowance for loan losses
Deposits
Long-term debt
Stockholders’ equity
Capital ratios at period end:
Stockholders’ equity to
total assets
Leverage (3)
Tier 1
Total risk-based
Selected ratios:
Return on average assets
Return on average equity
Return on average tangible equity (4)
Net interest margin (5)
Allowance/nonperforming loans
Allowance for loan losses as a
percentage of period-end loans
Nonperforming loans as a percentage
of period-end loans
Net charge-offs as a percentage
of average total assets
Dividend payout
Years Ended December 31 (1)
2006
2005
2004
2003
2002
$ 88,804
3,762
$ 90,257
7,526
$ 85,636
8,027
$ 77,870
8,786
$ 75,708
10,223
85,042
43,947
89,068
12,440
27,481
1.93
1.90
1.90
18.24
0.68
82,731
42,318
85,584
12,503
26,962
1.88
1.84
1.84
17.04
0.61
77,609
40,705
82,385
11,483
24,446
1.68
1.65
1.68
16.29
0.57
69,084
38,717
73,117
10,894
23,790
1.69
1.65
1.62
14.89
0.53
65,485
35,303
69,013
9,697
22,078
1.56
1.54
1.54
13.97
0.48
2,651,413
1,783,495
25,385
2,175,531
83,311
259,016
2,523,768
1,718,107
26,923
2,059,958
87,020
244,085
2,413,944
1,571,376
26,508
1,959,195
94,663
238,222
2,235,778
1,418,314
25,347
1,803,468
100,916
209,995
1,977,579
1,257,305
21,948
1,619,196
54,282
197,605
9.75%
8.83%
12.38%
13.64%
1.07%
10.93%
15.03%
3.96%
234.05%
9.67%
8.62%
12.26%
13.54%
1.08%
11.24%
15.79%
4.13%
319.48%
9.87%
8.46%
12.72%
14.00%
1.03%
10.64%
14.94%
4.08%
220.84%
9.39%
9.89%
14.12%
15.40%
1.18%
11.57%
14.03%
4.34%
219.13%
9.99%
9.29%
14.02%
15.30%
1.12%
11.56%
13.99%
4.37%
179.07%
1.42%
1.57%
1.69%
1.79%
1.75%
0.56%
0.49%
0.76%
0.82%
0.97%
0.15%
35.79%
0.28%
33.15%
0.34%
38.80%
0.41%
31.14%
0.46%
30.75%
(1) The selected consolidated financial data set forth above should be read in conjunction with the financial statements of the
Company and related Management’s Discussion and Analysis of Financial Condition and Results of Operations, included
elsewhere in this report.
(2) Diluted operating earnings exclude the following nonrecurring items. In 2004, the Company recorded a $0.03 reduction
in EPS from the write off of deferred debt issuance cost associated with the redemption of trust preferred securities. In 2003,
the Company recorded a $0.03 addition to EPS resulting from the sale of its mortgage servicing portfolio.
(3) Leverage ratio is Tier 1 capital to quarterly average total assets less intangible assets and gross unrealized gains/losses on
available-for-sale investments.
(4) Tangible calculations eliminate the effect of goodwill and acquisition related intangible assets and the corresponding
amortization expense on a tax-effected basis where applicable.
(5) Fully taxable equivalent (assuming an income tax rate of 37.5%).
11
ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
2006 Overview
Simmons First National Corporation recorded net income of $27,481,000 for the year ended December 31, 2006, a
1.9% increase from net income of $26,962,000 in 2005. Net income in 2004 was $24,446,000. Diluted earnings
per share increased $0.06, or 3.3%, to $1.90 in 2006 compared to $1.84 in 2005. Diluted earnings per share in 2004
were $1.65. The Company’s return on average assets and return on average stockholders’ equity for the year ended
December 31, 2006, were 1.07% and 10.93%, when compared to 1.08% and 11.24%, respectively, for the year
ended 2005.
At December 31, 2006, the Company’s loan portfolio totaled $1.783 billion, which is a $65.4 million, or a 3.8%,
increase from the same period last year. This increase is due primarily to a $94 million, or 9% increase in real estate
loans. Loan growth was somewhat mitigated by a $15 million payoff of a bank stock loan, a $12 million reduction
in a single commercial line of credit, a $5 million reduction in student loans due to early sales in order to avoid
consolidation lenders, and a larger than normal seasonal drop in agricultural loans.
Asset quality remained strong with the allowance for loan losses at 1.42% of total loans and 252% of non-
performing loans at December 31, 2006. The internal rating of several large commercial loan customers was
upgraded due to financial improvement of the borrowers and two significant impaired credit relationships paid off.
Net credit card charge-offs were down $2.6 million in 2006 from 2005, primarily due to the changes in bankruptcy
laws effective in October 2005. These improvements resulted in a $3.7 million reduction in provision for loan
losses in 2006 compared to 2005.
Total assets for the Company at December 31, 2006, were $2.651 billion, an increase of $128 million, or 5.1%, over
the period ended December 31, 2005. Stockholders’ equity as of December 31, 2006 was $259 million, an increase
of $14.9 million, or approximately 6.1%, from December 31, 2005.
Simmons First National Corporation is an Arkansas based, Arkansas committed financial holding company with
$2.7 billion in assets and eight community banks in Pine Bluff, Lake Village, Jonesboro, Rogers, Searcy,
Russellville, El Dorado and Hot Springs, Arkansas. The Company’s eight banks conduct financial operations from
86 offices, of which 82 are financial centers, in 48 communities.
Critical Accounting Policies
Overview
Management has reviewed its various accounting policies. Based on this review, management believes the
policies most critical to the Company are the policies associated with its lending practices including the
accounting for the allowance for loan losses, treatment of goodwill, recognition of fee income, estimates of
income taxes, and employee benefit plan as it relates to stock options.
Loans
Loans the Company has the intent and ability to hold for the foreseeable future or until maturity or pay-offs are
reported at their outstanding principal adjusted for any loans charged off and any deferred fees or costs on
originated loans and unamortized premiums or discounts on purchased loans. Interest income is reported on the
interest method and includes amortization of net deferred loan fees and costs over the estimated life of the loan.
Generally, loans are placed on nonaccrual status at ninety days past due and interest is considered a loss, unless
the loan is well secured and in the process of collection.
Discounts and premiums on purchased residential real estate loans are amortized to income using the interest
method over the remaining period to contractual maturity, adjusted for anticipated prepayments. Discounts and
premiums on purchased consumer loans are recognized over the expected lives of the loans using methods that
approximate the interest method.
12
Allowance for Loan Losses
The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan
losses charged to income. Loan losses are charged against the allowance when management believes the
uncollectability of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.
The allowance is maintained at a level considered adequate to provide for potential loan losses related to
specifically identified loans as well as probable credit losses inherent in the remainder of the loan portfolio that
have been incurred as of period end. This estimate is based on management's evaluation of the loan portfolio, as
well as on prevailing and anticipated economic conditions and historical losses by loan category. General
reserves have been established, based upon the aforementioned factors and allocated to the individual loan
categories. Allowances are accrued on specific loans evaluated for impairment for which the basis of each loan,
including accrued interest, exceeds the discounted amount of expected future collections of interest and principal
or, alternatively, the fair value of loan collateral. The unallocated reserve generally serves to compensate for the
uncertainty in estimating loan losses, including the possibility of changes in risk ratings and specific reserve
allocations in the loan portfolio as a result of the Company’s ongoing risk management system.
A loan is considered impaired when it is probable that the Company will not receive all amounts due according
to the contractual terms of the loan. This includes loans that are delinquent 90 days or more, nonaccrual loans
and certain other loans identified by management. Certain other loans identified by management consist of
performing loans with specific allocations of the allowance for loan losses. Specific allocations are applied
when quantifiable factors are present requiring a greater allocation than that established using the classified asset
approach, as defined by the Office of the Comptroller of the Currency. Accrual of interest is discontinued and
interest accrued and unpaid is removed at the time such amounts are delinquent 90 days, unless management is
aware of circumstances which warrant continuing the interest accrual. Interest is recognized for nonaccrual
loans only upon receipt and only after all principal amounts are current according to the terms of the contract.
Goodwill
Goodwill represents the excess of cost over the fair value of net assets of acquired subsidiaries and branches.
Financial Accounting Standards Board Statement No. 142 and No. 147 eliminated the amortization for these
assets as of January 1, 2002. While goodwill is not amortized, impairment testing of goodwill is performed
annually, or more frequently if certain conditions occur.
Core Deposit Premiums
Core deposit premiums are being amortized using both straight-line and accelerated methods over periods
ranging from 8 to 11 years. Such assets are periodically evaluated as to the recoverability of their carrying
value.
Fee Income
Periodic bankcard fees, net of direct origination costs, are recognized as revenue on a straight-line basis over the
period the fee entitles the cardholder to use the card. Origination fees and costs for other loans are being
amortized over the estimated life of the loan.
Income Taxes
Deferred tax assets and liabilities 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.
13
Employee Benefit Plans
The Company has a stock-based employee compensation plan. In December 2004, FASB issued SFAS No. 123,
Share-Based Payment (Revised 2004), which requires all companies to measure compensation cost for all share-
based payments (including employee stock options) at fair value. As discussed in Note 11, Employee Benefit Plans,
in the accompanying Notes to Consolidated Financial Statements included elsewhere in this report, the standard
requires companies to expense the fair value of all stock options that have future vesting provisions, are
modified, or are newly granted beginning on the grant date of such options. SFAS 123R became effective and
was adopted by the Company on January 1, 2006.
Acquisitions
On November 1, 2005, the Company completed a branch purchase in which Bank of Little Rock sold its Southwest
Little Rock, Arkansas location at 8500 Geyer Springs Road to Simmons First National Bank, a subsidiary of the
Company. The acquisition included approximately $3.5 million in total deposits in addition to the fixed assets used
in the branch operation. No loans were involved in the transaction. As a result of this transaction, the Company
recorded additional goodwill and core deposit premiums of $151,000 and $31,000, respectively.
On June 25, 2004, the Company completed a branch purchase in which Cross County Bank sold its Weiner,
Arkansas location to Simmons First Bank of Jonesboro, a subsidiary of the Company. The acquisition included
approximately $6 million in total deposits and the fixed assets used in the branch operation. No loans were
involved in the transaction. As a result of this transaction, the Company recorded additional goodwill and core
deposit premiums of $344,000 and $117,000, respectively.
On March 19, 2004, the Company merged with Alliance Bancorporation, Inc. (“ABI”). ABI owned Alliance Bank
of Hot Springs, Hot Springs, Arkansas with consolidated assets (including goodwill and core deposits), loans and
deposits of approximately $155 million, $70 million and $110 million, respectively. During the second quarter of
2004, Alliance Bank changed its name to Simmons First Bank of Hot Springs and continues to operate as a separate
community bank with virtually the same board of directors, management and staff. As a result of this transaction,
the Company recorded additional goodwill and core deposit premiums of $14,690,000 and $1,245,000, respectively.
The system integration for the 2005 acquisition was completed on the acquisition date. The system integration for
the 2004 mergers and acquisitions were completed during the second quarter of 2004.
Net Interest Income
Net interest income, the Company's principal source of earnings, is the difference between the interest income
generated by earning assets and the total interest cost of the deposits and borrowings obtained to fund those
assets. Factors that determine the level of net interest income include the volume of earning assets and interest
bearing liabilities, yields earned and rates paid, the level of non-performing loans and the amount of non-interest
bearing liabilities supporting earning assets. Net interest income is analyzed in the discussion and tables below
on a fully taxable equivalent basis. The adjustment to convert certain income to a fully taxable equivalent basis
consists of dividing tax-exempt income by one minus the combined federal and state income tax rate of 37.50%.
The Federal Reserve Board sets various benchmark rates, including the Federal Funds rate, and thereby
influences the general market rates of interest, including the deposit and loan rates offered by financial
institutions. The Federal Funds rate, which is the cost to banks of immediately available overnight funds, began
2004 at 1.00%. During 2004, the Federal Funds rate increased 125 basis points to end the year at 2.25%.
During 2005, the Federal Funds rate increased 50 basis points in each of the four quarters to end the year at
4.25%. After seventeen consecutive quarters of increases, the Federal Funds rate has remained at 5.25% since
June 29, 2006.
The Company’s practice is to limit exposure to interest rate movements by maintaining a significant portion of
earning assets and interest bearing liabilities in short-term repricing. Historically, approximately 70% of the
Company’s loan portfolio and approximately 80% of the Company’s time deposits have repriced in one year or
less. These historical percentages are consistent with the Company’s current interest rate sensitivity.
14
For the year ended December 31, 2006, net interest income on a fully taxable equivalent basis was $92.0 million,
a decrease of $1.5 million, or 1.6%, from the same period in 2005. The decrease in net interest income was the
result of a $20.2 million increase in interest income offset by a $21.7 million increase in interest expense. As a
result, the net interest margin decreased 17 basis points to 3.96% for the year ended December 31, 2006, when
compared to 4.13% for 2005. The Company expects to see continued pressure on the margin driven primarily by
the increase in cost of funds resulting from competitive deposit repricing. However, since approximate
$111 million of the investment portfolio will mature or reprice during 2007, with reinvestment at a higher yield,
management anticipates a flat to slightly improving margin in 2007.
The $20.2 million increase in interest income for 2006 is primarily the result of a 72 basis point increase in the
yield on earning assets associated with the repricing to a higher interest rate environment, along with a growth in
loans. The growth in average loans accounted for an increase of $6.2 million in interest income. The higher
interest rates resulted in a $15.2 million increase in interest income. More specifically, $11.8 million of the
increase due to higher rates is associated with the repricing of the Company’s loan portfolio that resulted from
loans that matured during the period or were tied to a rate that fluctuated with changes in market rates. As a
result, the average rate earned on the loan portfolio increased 68 basis points from 6.82% to 7.50%.
The $21.7 million increase in interest expense for 2006 is primarily the result of a 103 basis point increase in the
cost of funds due to competitive repricing during a higher interest rate environment, coupled with a $57 million
increase in average interest bearing liabilities generated through internal growth. The higher interest rates
accounted for a $19.8 million increase in interest expense. The most significant component of this increase was
the $13.1 million increase associated with the repricing of the Company’s time deposits that resulted from time
deposits that matured during the period or were tied to a rate that fluctuated with changes in market rates. As a
result of this repricing, the average rate paid on time deposits increased 127 basis points from 2.78% to 4.05%.
The higher level of average interest bearing liabilities resulted in a $1.9 million increase in interest expense.
More specifically, the higher level of average interest bearing liabilities was the result of increases of
approximately $76.7 million from internal deposit growth, offset by a $12.8 million reduction in average Fed
Funds purchased and short-term debt and a $7.1 million reduction in average long-term debt.
For the year ended December 31, 2005, net interest income on a fully taxable equivalent basis was $93.5 million,
an increase of $4.7 million, or 5.3%, from the same period in 2004. The increase in net interest income was the
result of a $17 million increase in interest income and a $12.4 million increase in interest expense. As a result,
the net interest margin increased 5 basis points to 4.13% for the year ended December 31, 2005, when compared
to 4.08% for 2004.
15
Tables 1 and 2 reflect an analysis of net interest income on a fully taxable equivalent basis for the years ended
December 31, 2006, 2005 and 2004, respectively, as well as changes in fully taxable equivalent net interest
margin for the years 2006 versus 2005 and 2005 versus 2004.
Table 1:
(FTE =Fully Taxable Equivalent)
Analysis of Net Interest Income
(In thousands)
Interest income
FTE adjustment
Interest income - FTE
Interest expense
Years Ended December 31
2005
2004
2006
$ 153,362
3,185
$ 133,071
3,234
$ 116,064
3,173
156,547
64,558
136,305
42,814
119,237
30,428
Net interest income - FTE
$ 91,989
$ 93,491
$ 88,809
Yield on earning assets - FTE
Cost of interest bearing liabilities
Net interest spread - FTE
Net interest margin - FTE
6.74%
3.24%
3.50%
3.96%
6.02%
2.21%
3.81%
4.13%
5.48%
1.65%
3.83%
4.08%
Table 2:
Changes in Fully Taxable Equivalent Net Interest Margin
(In thousands)
Increase due to change in earning assets
Increase due to change in earning asset yields
Decrease due to change in interest rates paid on
interest bearing liabilities
Decrease due to change in interest bearing liabilities
2006 vs. 2005 2005 vs. 2004
$
5,056
15,186
$
7,570
9,498
(19,813)
(1,931)
(11,300)
(1,086)
(Decrease) increase in net interest income
$
(1,502)
$
4,682
16
Table 3 shows, for each major category of earning assets and interest bearing liabilities, the average (computed
on a daily basis) amount outstanding, the interest earned or expensed on such amount and the average rate
earned or expensed for each of the years in the three-year period ended December 31, 2006. 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.
Table 3:
Average Balance Sheets and Net Interest Income Analysis
2006
Years Ended December 31
2005
Average
Balance
Income/ Yield/
Expense Rate(%)
Average
Balance
Income/ Yield/
Expense Rate(%)
2004
Income/ Yield/
Average
Balance Expense Rate(%)
(In thousands)
ASSETS
Earning Assets
Interest bearing balances
due from banks
Federal funds sold
Investment securities - taxable
Investment securities - non-taxable
Mortgage loans held for sale
Assets held in trading accounts
Loans
Total interest earning assets
Non-earning assets
$
22,746 $ 1,072
1,057
20,223
15,705
410,445
7,573
117,931
476
7,666
71
4,590
130,593
1,740,477
156,547
2,324,078
251,261
20,837 $
4.71 $
30,598
5.23
425,030
3.83
122,047
6.42
9,356
6.21
1.55
4,584
7.50 1,651,950
2,264,402
6.74
233,132
580
925
13,898
7,670
552
99
112,581
136,305
2.78 $
3.02
3.27
6.28
5.90
2.16
6.82
6.02
36,587 $
56,423
411,467
126,349
10,087
4,980
400
748
12,416
7,843
575
41
1,528,447 97,214
2,174,340 119,237
1.09
1.33
3.02
6.21
5.70
0.82
6.36
5.48
203,440
$ 2,377,780
Total assets
$ 2,575,339
$ 2,497,534
LIABILITIES AND
STOCKHOLDERS’ EQUITY
Liabilities
Interest bearing liabilities
Interest bearing transaction
and savings deposits
Time deposits
Total interest bearing deposits
Federal funds purchased and
securities sold under agreement
to repurchase
Other borrowed funds
Short-term debt
Long-term debt
Total interest bearing liabilities
Non-interest bearing liabilities
Non-interest bearing deposits
Other liabilities
Total liabilities
Stockholders’ equity
Total liabilities and
stockholders’ equity
Net interest spread
Net interest margin
$
1,052,705
1,790,033
737,328 $ 11,658
42,592
54,250
1.58 $
4.05
3.03
762,558 $ 7,777
26,431
950,820
34,208
1,713,378
1.02 $
2.78
2.00
729,842 $ 4,965
892,360 18,198
23,163
1,622,202
0.68
2.04
1.43
100,280
4,615
4.60
102,041
3,104
3.04
94,465
1,227
1.30
21,065
82,525
1,993,903
1,227
4,466
64,558
5.82
5.41
3.24
32,076
89,590
1,937,085
1,101
4,401
42,814
3.43
4.91
2.21
11,252
110,946
175
5,863
1,838,865 30,428
1.56
5.28
1.65
308,804
21,114
2,323,821
251,518
303,974
16,499
2,257,558
239,976
293,060
16,136
2,148,061
229,719
$ 2,575,339
$ 2,497,534
$ 2,377,780
$ 91,989
3.50
3.96
$ 93,491
3.81
4.13
$ 88,809
3.83
4.08
17
Table 4 shows changes in interest income and interest expense, resulting from changes in volume and changes in
interest rates for each of the years ended December 31, 2006 and 2005, as compared to prior years. The changes
in interest rate and volume have been allocated to changes in average volume and changes in average rates, in
proportion to the relationship of absolute dollar amounts of the changes in rates and volume.
Table 4:
Volume/Rate Analysis
(In thousands, on a fully
taxable equivalent basis)
Increase (decrease) in
Interest income
Interest bearing balances
due from banks
Federal funds sold
Investment securities - taxable
Investment securities - non-taxable
Mortgage loans held for sale
Assets held in trading accounts
Loans
Years Ended December 31
2006 over 2005
Yield/
Rate
Volume
Total
2005 over 2004
Yield/
Rate
Volume
Total
$
57 $
(387)
(491)
(263)
(104)
--
6,244
435
518
2,299
166
28
(28)
11,768
$ 492
131
1,808
(97)
(76)
(28)
18,012
$ (230) $ 410
634
1,063
96
20
61
7,214
(457)
419
(269)
(43)
(3)
8,153
$ 180
177
1,482
(173)
(23)
58
15,367
Total
5,056
15,186
20,242
7,570
9,498
17,068
Interest expense
Interest bearing transaction and
savings deposits
Time deposits
Federal funds purchased
and securities sold under
agreements to repurchase
Other borrowed funds
Short-term debt
Long-term debt
Total
Increase (decrease) in
net interest income
Provision for Loan Losses
(265)
3,078
4,145
13,083
3,880
16,161
232
1,258
2,580
6,975
2,812
8,233
(55)
1,566
1,511
105
1,772
1,877
(465)
(362)
591
428
126
66
561
(1,070)
365
(392)
926
(1,462)
1,931
19,813
21,744
1,086
11,300
12,386
$ 3,125 $ (4,627) $ (1,502) $ 6,484
$ (1,802) $ 4,682
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 level of provision to the
allowance is based on management's judgment, with consideration given to the composition, maturity and other
qualitative characteristics of the portfolio, historical loan loss experience, assessment of current economic
conditions, past due and non-performing loans and net loan loss experience. It is management's practice to
review the allowance on at least a quarterly basis, but generally on a monthly basis, to determine the level of
provision made to the allowance after considering the factors noted above.
The provision for loan losses for 2006, 2005 and 2004 was $3.8 million, $7.5 million and $8.0 million,
respectively. The provision reduction from 2005 to 2006 was primarily driven by two factors.
18
First, credit card net charge-offs were down $2.6 million, from $4.0 million in 2005 to $1.4 million in 2006.
The Company recorded credit card net charge-offs of 1.06% of credit card balances for 2006 compared to 2.85%
for 2005. Second, there was improvement in the credit quality of the loan portfolio, particularly due to the
payoff of two large credit relationships in 2006. One was upgraded two levels from substandard to watch, based
on improved financial condition of the borrower, and was ultimately paid off. The other impaired relationship,
graded substandard, was refinanced with another financial institution. A specific reserve was applied to both of
these credit relationships. Additional loans were classified in 2006 as non-performing based upon various
criteria; however, there were no specific reserve allocations required for these loans. The provision for loan
losses was reduced due to the continued significant reduction in credit card charge-offs and the improvement in
credit quality of loans with specific reserves.
The decrease in the provision for loans losses from 2004 to 2005 was due to the overall improvement in the
Company’s asset quality.
Non-Interest Income
Total non-interest income was $43.9 million in 2006, compared to $42.3 million in 2005 and $40.7 million in
2004. Non-interest income is principally derived from recurring fee income, which includes service charges,
trust fees and credit card fees. Non-interest income also includes income on the sale of mortgage loans,
investment banking income, premiums on sale of student loans, income from the increase in cash surrender
values of bank owned life insurance, and gains (losses) from sales of securities.
Table 5 shows non-interest income for the years ended December 31, 2006, 2005 and 2004, respectively, as well as
changes in 2006 from 2005 and in 2005 from 2004.
Table 5:
Non-Interest Income
(In thousands)
Years Ended December 31
2004
2005
2006
2006
Change from
2005
2005
Change from
2004
Trust income
Service charges on deposit accounts 15,795
Other service charges and fees
2,561
Income on sale of mortgage loans,
$ 5,612 $ 5,589 $ 5,421
14,564
2,016
15,818
2,017
$
23
(23)
544
0.41% $
(0.15)
26.97
168
1,254
1
3.10%
8.61
0.05
net of commissions
2,849
2,919
3,391
(70)
(2.40)
(472)
(13.92)
Income on investment banking,
net of commissions
Credit card fees
Premiums on sale of student loans
Bank owned life insurance income
Other income
Loss on sale of securities, net
Total non-interest income
341
10,742
2,071
1,523
2,453
645
10,001
2,114
261
2,292
--
$ 43,947 $ 42,318 $ 40,705
416
10,252
1,822
953
2,700
(168)
--
(75) (18.03)
490
4.78
13.67
249
59.81
570
(9.15)
(247)
168 100.00
$ 1,629
(35.50)
(229)
2.51
251
(292)
(13.81)
692 265.13
408
17.80
(168) (100.00)
3.96%
3.85% $ 1,613
Recurring fee income for 2006 was $34.7 million, an increase of $1.0 million, or 3.0%, when compared with the
2005 amounts. This increase was principally the result of growth in ATM income due to increased volume and
an improvement in the fee structure. The increase in credit card fees was primarily the result of a pricing change
related to interchange fees.
Recurring fee income for 2005 was $33.7 million, an increase of $1.7 million, or 5.2%, when compared with the
2004 amounts. The increase in service charges on deposit accounts for 2005 can be primarily attributed to
normal growth in transaction accounts and improvement in the fee structure associated with the Company’s
deposit accounts.
During the years ended December 31, 2006 and 2005, combined income on the sale of mortgage loans and
income on investment banking decreased $145,000 and $701,000, respectively, from the years ended in 2005
and 2004. The decrease was primarily the result of a reduced demand for those products due to the rising
interest rate environment.
19
Premiums on sale of student loans increased by $249,000, or 13.7%, in 2006 over 2005. The increase was
primarily due to accelerating the sale of student loans during 2006. Normally, as student loans reach payout
status, the Company generally sells student loans into the secondary market. Because of changes in the industry
relative to loan consolidations, and in order to protect the premium on these loans, the Company made the
decision to sell student loans prior to the payout period. This resulted in recognition of premium in 2006 on
loans that normally would have been sold in 2007. Premiums on sale of student loans decreased by $292,000, or
13.8%, in 2005 over 2004 due to similar accelerated sales during 2004.
On April 29, 2005, the Company invested an additional $25 million in Bank Owned Life Insurance (“BOLI”).
BOLI income increased by $570,000 in 2006 over 2005, primarily due to an improved earnings credit on the
investment. The remainder of the increase can be attributed to the timing of the investment, with approximately
eight months of earnings in 2005 compared to a full year in 2006. BOLI income increased by $692,000 in 2005
over 2004, with the increase almost entirely attributable to this purchase.
There were no gains or losses on sale of securities during 2006. During the second quarter of 2005, the
Company sold certain available-for-sale investment securities obtained in a prior acquisition that did not fit its
current investment portfolio strategy. As a result of this liquidation, the Company recognized an after-tax loss
on sale of securities of $168,000. There were no gains or losses on sale of securities during 2004.
Non-Interest Expense
Non-interest expense consists of salaries and employee benefits, occupancy, equipment, foreclosure losses and
other expenses necessary for the operation of the Company. Management remains committed to controlling the
level of non-interest expense, through the continued use of expense control measures that have been installed.
The Company utilizes an extensive profit planning and reporting system involving all affiliates. Based on a
needs assessment of the business plan for the upcoming year, monthly and annual profit plans are developed,
including manpower and capital expenditure budgets. These profit plans are subject to extensive initial reviews
and monitored by management on a monthly basis. Variances from the plan are reviewed monthly and, when
required, management takes corrective action intended to ensure financial goals are met. Management also
regularly monitors staffing levels at each affiliate, to ensure productivity and overhead are in line with existing
workload requirements.
Non-interest expense for 2006 was $89.1 million, an increase of $3.5 million or 4.1%, from 2005. The increase in
non-interest expense during 2006 compared to 2005 is primarily attributed to normal on-going operating expenses
and the incremental expenses of approximately $1.1 million associated with the operation of new financial centers
opened during 2005 and 2006. When normalized for the additional expenses from the expansion, non-interest
expense for 2006 increased by 2.8% over 2005.
Non-interest expense for 2005 was $85.6 million, an increase of $3.2 million or 3.9%, from 2004. The increase in
non-interest expense during 2005 compared to 2004 is primarily attributed to normal on-going operating expenses
and the additional expenses of approximately $748,000 associated with the operation of new financial centers
opened during 2005. During 2004, the Company recorded a nonrecurring expense of $771,000 related to the write
off of deferred debt issuance cost associated with the redemption of its 9.12% trust preferred securities. When
normalized for both the prepayment of the trust preferred securities and the additional expenses from the expansion,
non-interest expense for 2005 increased by the same 3.9% over 2004.
The increase in credit card expense over the past two years was primarily attributable to the Company’s travel
rewards program. Accumulated travel rewards expire after 36 months. The Company has introduced several new
initiatives to make its product more competitive. One of the key initiatives introduced in 2005 was to move as
many qualifying accounts as possible from a standard VISA product to a Platinum VISA Rewards product. As a
result of this conversion process, travel rewards expense increased in 2005 and in 2006.
Core deposit premium amortization expense recorded for the years ended December 31, 2006, 2005 and 2004, was
$830,000, $830,000 and $791,000, respectively. The Company’s estimated amortization expense for each of the
following five years is: 2007 – $818,000; 2008 – $807,000; 2009 – $802,000; 2010 – $698,000; and 2011 –
$451,000. The estimated amortization expense decreases as core deposit premiums fully amortize in future years.
20
Table 6 below shows non-interest expense for the years ended December 31, 2006, 2005 and 2004, respectively,
as well as changes in 2006 from 2005 and in 2005 from 2004.
Table 6:
Non-Interest Expense
Years Ended December 31
2004
2005
2006
2006
Change from
2005
2005
Change from
2004
$ 53,442 $ 51,270 $ 48,533
5,500
5,646
346
284
6,385
5,718
136
270
5,840
5,758
191
279
$2,172
545
(40)
(55)
(9)
4.24% $ 2,737
340
9.33
112
(0.69)
(155)
(28.80)
(5)
(3.23)
5.64%
6.18
1.98
(44.80)
(1.76)
2,490
2,278
1,961
3,235
1,611
830
2,201
2,281
1,847
2,693
1,555
830
2,029
2,256
1,784
2,374
1,528
791
289
(3)
114
542
56
--
13.13
(0.13)
6.17
20.13
3.60
0.00
172
25
63
319
27
39
8.48
1.11
3.53
13.44
1.77
4.93
--
771
10,712 10,839 10,543
$ 89,068 $ 85,584 $ 82,385
--
--
(127)
$3,484
(771) (100.00)
--
2.81
296
(1.17)
3.88%
4.07% $ 3,199
(In thousands)
Salaries and employee benefits
Occupancy expense, net
Furniture and equipment expense
Loss on foreclosed assets
Deposit insurance
Other operating expenses
Professional services
Postage
Telephone
Credit card expense
Operating supplies
Amortization of core deposits
Write off of deferred debt
issuance cost
Other expense
Total non-interest expense
Income Taxes
The provision for income taxes for 2006 was $12.4 million, compared to $12.5 million in 2005 and $11.5 million in
2004. The effective income tax rates for the years ended 2006, 2005 and 2004 were 31.2%, 31.7% and 32.0%,
respectively.
Loan Portfolio
The Company's loan portfolio averaged $1.740 billion during 2006 and $1.652 billion during 2005. As of
December 31, 2006, total loans were $1.783 billion, compared to $1.718 billion on December 31, 2005. The
most significant components of the loan portfolio were loans to businesses (commercial loans, commercial real
estate loans and agricultural loans) and individuals (consumer loans, credit card loans and single-family
residential real estate loans).
The Company seeks to manage its credit risk by diversifying its loan portfolio, determining that borrowers have
adequate sources of cash flow for loan repayment without liquidation of collateral, obtaining and monitoring
collateral, providing an adequate allowance for loan losses and regularly reviewing loans through the internal
loan review process. The loan portfolio is diversified by borrower, purpose and industry and, in the case of
credit card loans, which are unsecured, by geographic region. The Company seeks to use diversification within
the loan portfolio to reduce credit risk, thereby minimizing the adverse impact on the portfolio, if weaknesses
develop in either the economy or a particular segment of borrowers. Collateral requirements are based on credit
assessments of borrowers and may be used to recover the debt in case of default. The Company uses the
allowance for loan losses as a method to value the loan portfolio at its estimated collectable 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
$370.8 million at December 31, 2006, or 20.8% of total loans, compared to $370.9 million, or 21.6% of total loans
at December 31, 2005. The $141,000 consumer loan decrease from 2005 to 2006 is the result of an increase in
indirect lending, offset by a decline in student loans. The increase in the indirect consumer loan portfolio was
primarily the result of more aggressive marketing efforts by the Company, along with less attractive finance
incentives offered by car manufacturers. As student loans reach payout status, the Company generally sells these
loans into the secondary market. Because of changes in the industry relative to loan consolidations, and in order to
21
protect the premium, the Company made the decision to sell some student loans prior to the payout period in 2006.
These early sales created a decline in the portfolio balances at December 31, 2006.
The Company continues to experience significant competitive pressure from the credit card industry. Over the
previous three years, the credit card portfolio has decreased by approximately $10 million to $14 million each year,
primarily due to closed accounts. However, the Company experienced a slow-down in this trend in 2006, with the
credit card portfolio balance increasing by approximately $300 thousand from December 31, 2005 to December 31,
2006.
Management believes the increase in outstanding balances is the result of the introduction of several initiatives over
the past two years to make the Company’s credit card products more competitive, and therefore slow down the
number of closed accounts. In 2005, as part of its retention strategy, the Company converted over 15,000 accounts
to a new Platinum VISA Rewards product, carrying a low fixed interest rate of 8.95%, and offering customers
competitive rewards based on their purchases. The accounts were converted from the Company’s standard VISA
product, the card that has been primarily impacted by the competitive teaser rates. As a continuation of efforts to
stabilize the credit card portfolio, the Company introduced another new initiative in July 2006, a 7.25% fixed rate
card with no fees and no rewards. Over the previous five years, 2001 – 2005, the Company had a net cumulative
decrease of 14,500 accounts in its credit card portfolio. In 2006, there was an addition of 1,650 net new accounts,
with the most significant growth coming since the introduction of the 7.25% fixed rate card in July. While these
results are positive, management cannot be assured that a sustained growth trend has yet been established.
Real estate loans consist of construction loans, single family residential loans and commercial loans. Real estate
loans were $1.2 billion at December 31, 2006, or 64.7% of total loans, compared to $1.1 billion, or 61.7% of
total loans at December 31, 2005. Construction loans accounted for $38.5 million of the increase in real estate
loans, single-family residential loans increased by $23.6 million and commercial real estate loans increased
$32.7 million during 2006. These increases are primarily due to increased loan demand in various growth areas
of Arkansas.
Commercial loans consist of commercial loans, agricultural loans and financial institution loans. Commercial
loans were $245.1 million at December 31, 2006, or 13.7% of total loans, compared to the $274.2 million, or
16.0% of total loans at December 31, 2005. This $29.1 million reduction in commercial loans resulted from
unexpected decreases in each commercial loan category. Other commercial loans decreased $6.9 million,
primarily due to a reduction of one significant commercial line of credit. The $6.5 million dollar decrease in
agricultural loans resulted from early payoffs of loans due to a successful year for farmers. The payoff of one
bank stock loan was the primary reason for the $15.7 million decrease in loans to financial institutions.
The amounts of loans outstanding at the indicated dates are reflected in table 7, according to type of loan.
Table 7:
Loan Portfolio
(In thousands)
Consumer
Credit cards
Student loans
Other consumer
Real Estate
Construction
Single family residential
Other commercial
Commercial
Commercial
Agricultural
Financial institutions
Other
2006
Years Ended December 31
2004
2003
2005
2002
$ 143,359 $ 143,058 $ 155,326 $ 165,919 $ 180,439
83,890
153,103
89,818
138,051
83,283
128,552
84,831
142,596
86,301
142,995
277,411
364,450
512,404
178,028
62,293
4,766
13,357
238,898
340,839
479,684
184,920
68,761
20,499
13,579
169,001
318,488
481,728
158,613
62,340
1,079
12,966
111,567
261,936
408,452
162,122
57,393
6,370
15,259
90,736
233,193
290,469
144,678
58,585
6,504
15,708
Total loans
$1,783,495 $ 1,718,107 $ 1,571,376 $ 1,418,314 $ 1,257,305
22
Table 8 reflects the remaining maturities and interest rate sensitivity of loans at December 31, 2006.
Table 8:
Maturity and Interest Rate Sensitivity of Loans
Over 1
year
through
5 years
1 year
or less
Over
5 years
Total
$ 270,979
784,719
190,979
7,660
$ 99,759
358,926
53,714
5,381
$
48
10,620
394
316
$ 370,786
1,154,265
245,087
13,357
$1,254,337
$ 517,780
$ 11,378
$ 1,783,495
$ 847,266
407,071
$ 467,100
50,680
$ 11,060
318
$ 1,325,426
458,069
$1,254,337
$ 517,780
$ 11,378
$ 1,783,495
(In thousands)
Consumer
Real estate
Commercial
Other
Total
Predetermined rate
Floating rate
Total
Asset Quality
A loan is considered impaired when it is probable that the Company will not receive all amounts due according
to the contracted terms of the loans. Impaired loans include non-performing loans (loans past due 90 days or
more and nonaccrual loans) and certain other loans identified by management that are still performing.
Non-performing loans are comprised of (a) nonaccrual loans, (b) loans that are contractually past due 90 days
and (c) other loans for which terms have been restructured to provide a reduction or deferral of interest or
principal, because of deterioration in the financial position of the borrower. The subsidiary banks recognize
income principally on the accrual basis of accounting. When loans are classified as nonaccrual, generally, the
accrued interest is charged off and no further interest is accrued. Loans, excluding credit card loans, are placed
on a nonaccrual basis either: (1) when there are serious doubts regarding the collectability of principal or
interest, or (2) when payment of interest or principal is 90 days or more past due and either (i) not fully secured
or (ii) not in the process of collection. If a loan is determined by management to be uncollectable, the portion of
the loan determined to be uncollectable is then charged to the allowance for loan losses.
Credit card loans are classified as impaired when payment of interest or principal is 90 days past due. Litigation
accounts are placed on nonaccrual until such time as deemed uncollectable. Credit card loans are generally
charged off when payment of interest or principal exceeds 180 days past due, but are turned over to the credit
card recovery department, to be pursued until such time as they are determined, on a case-by-case basis, to be
uncollectable.
23
Table 9 presents information concerning non-performing assets, including nonaccrual and restructured loans and
other real estate owned.
Table 9:
Non-performing Assets
(In thousands)
2006
Years Ended December 31
2004
2003
2005
2002
Nonaccrual loans
Loans past due 90 days or more
(principal or interest payments)
Restructured
Total non-performing loans
Other non-performing assets
Foreclosed assets held for sale
Other non-performing assets
Total other non-performing assets
$ 8,958
$ 7,296
$ 10,918
$ 10,049
$ 10,443
1,097
--
10,055
1,131
--
8,427
1,085
--
12,003
1,518
--
11,567
1,814
--
12,257
1,940
52
1,992
1,540
16
1,556
1,839
83
1,922
2,979
393
3,372
2,705
426
3,131
Total non-performing assets
$ 12,047
$ 9,983
$ 13,925
$ 14,939
$ 15,388
Allowance for loan losses to
non-performing loans
Non-performing loans to total loans
Non-performing assets to total assets
252.46%
0.56%
0.45%
319.48%
0.49%
0.40%
220.84%
0.76%
0.58%
219.13%
0.82%
0.67%
179.07%
0.97%
0.78%
There was no interest income on the nonaccrual loans recorded for the years ended December 31, 2006,
2005 and 2004.
At December 31, 2006, impaired loans were $12.8 million compared to $14.8 million in 2005. The decrease in
impaired loans from December 31, 2005, primarily relates to the decrease of borrowers that are still performing,
but for which management has internally identified as impaired. This decrease is mainly due to the general
improvement of the Company’s smaller commercial loan relationships, as well as the payoff of one significant
impaired credit, and is indicative of the overall improvement in the asset quality of the Company. In addition,
workout efforts were completed in 2006 on one large loan relationship. On an ongoing basis, management
evaluates the underlying collateral on all impaired loans and allocates specific reserves, where appropriate, in
order to absorb potential losses if the collateral were ultimately foreclosed.
Allowance for Loan Losses
Overview
The Company maintains an allowance for loan losses. This allowance is created through charges to income and
maintained at a sufficient level to absorb expected losses in the Company’s loan portfolio. The allowance for loan
losses is determined monthly based on management’s assessment of several factors such as 1) historical loss
experience based on volumes and types, 2) reviews or evaluations of the loan portfolio and allowance for loan
losses, 3) trends in volume, maturity and composition, 4) off balance sheet credit risk, 5) volume and trends in
delinquencies and nonaccruals, 6) lending policies and procedures including those for loan losses, collections and
recoveries, 7) national and local economic trends and conditions, 8) concentrations of credit that might affect loss
experience across one or more components of the loan portfolio, 9) the experience, ability and depth of lending
management and staff and 10) other factors and trends, which will affect specific loans and categories of loans.
As the Company evaluates the allowance for loan losses, it is categorized as follows: 1) specific allocations,
2) allocations for classified assets with no specific allocation, 3) general allocations for each major loan category
and 4) unallocated portion.
24
Specific Allocations
Specific allocations are made when factors are present requiring a greater reserve than would be required when using
the assigned risk rating allocation. As a general rule, if a specific allocation is warranted, it is the result of an analysis
of a previously classified credit or relationship. The evaluation process in specific allocations for the Company
includes a review of appraisals or other collateral analysis. These values are compared to the remaining outstanding
principal balance. If a loss is determined to be reasonably possible, the possible loss is identified as a specific
allocation. If the loan is not collateral dependent, the measurement of loss is based on the expected future cash flows of
the loan.
Allocations for Classified Assets with No Specific Allocation
The Company establishes allocations for loans rated “watch” through “doubtful” in accordance with the guidelines
established by the regulatory agencies. A percentage rate is applied to each category of these loan categories to
determine the level of dollar allocation.
General Allocations
The Company establishes general allocations for each major loan category. This section also includes allocations to
loans which are collectively evaluated for loss such as credit cards, one-to-four family owner occupied residential real
estate loans and other consumer loans. The allocations in this section are based on a historical review of loan loss
experience and past due accounts. The Company gives consideration to trends, changes in loan mix, delinquencies,
prior losses, and other related information.
Unallocated Portion
Allowance allocations other than specific, classified and general for the Company are included in unallocated.
Reserve for Unfunded Commitments
Historically, the Company has included reserves for unfunded commitments in the allowance for loan losses. On
March 31, 2006, the reserve for unfunded commitments was reclassified from the allowance for loan losses to other
liabilities. This reserve will be maintained at a level sufficient to absorb losses arising from unfunded loan
commitments. The adequacy of the reserve for unfunded commitments is determined monthly based on methodology
similar to the Company’s methodology for determining the allowance for loan losses. Future net adjustments to the
reserve for unfunded commitments will be included in other non-interest expense.
25
An analysis of the allowance for loan losses for the last five years is shown in table 10.
Table 10:
Allowance for Loan Losses
(In thousands)
2006
2005
2004
2003
2002
Balance, beginning of year
$ 26,923
$ 26,508
$ 25,347
$ 21,948
$ 20,496
Loans charged off
Credit card
Other consumer
Real estate
Commercial
Total loans charged off
Recoveries of loans previously charged off
Credit card
Other consumer
Real estate
Commercial
Total recoveries
Net loans charged off
Allowance for loan losses of
2,454
1,242
1,868
1,317
6,881
1,040
629
901
536
3,106
3,775
acquired institutions
Reclass to reserve for unfunded commitments (1)
Provision for loan losses
--
(1,525)
3,762
4,950
1,240
1,048
3,688
10,926
4,589
2,144
1,263
2,409
10,405
4,705
1,987
1,504
2,674
10,870
4,703
2,320
1,813
2,310
11,146
832
636
251
2,096
3,815
7,111
--
--
7,526
720
683
277
751
2,431
7,974
1,108
--
8,027
670
644
218
987
2,519
8,351
2,964
--
8,786
640
677
253
558
2,128
9,018
247
--
10,223
Balance, end of year
$ 25,385
$ 26,923
$ 26,508
$ 25,347
$ 21,948
Net charge-offs to average loans
Allowance for loan losses to period-end loans
Allowance for loan losses to net charge-offs
0.22%
1.42%
672.45%
0.43%
1.57%
378.6%
0.52%
1.69%
332.4%
0.64%
1.79%
303.5%
0.72%
1.75%
243.4%
(1) On March 31, 2006, the reserve for unfunded commitments was reclassified from the allowance for loan losses
to other liabilities.
Provision for Loan Losses
The amount of provision to the allowance each year was based on management's judgment, with consideration
given to the composition of the portfolio, historical loan loss experience, assessment of current economic
conditions, past due and non-performing loans and net loss experience. It is management's practice to review the
allowance on at least a quarterly basis, but generally on a monthly basis, to determine the level of provision
made to the allowance after considering the factors noted above.
Allocated Allowance for Loan Losses
The Company utilizes a consistent methodology in the calculation and application of its allowance for loan
losses. Because there are portions of the portfolio that have not matured to the degree necessary to obtain
reliable loss statistics from which to calculate estimated losses, the unallocated portion of the allowance is an
integral component of the total allowance. Although unassigned to a particular credit relationship or product
segment, this portion of the allowance is vital to safeguard against the imprecision inherent when estimating
credit losses.
Several factors in the national economy, including seventeen successive interest-rate increases by the Federal
Reserve from June 2004 through June 2006, the effect of fuel prices on the commercial and consumer market,
and certain loan sectors which may be exhibiting weaknesses, further justifies the need for unallocated reserves.
26
As of December 31, 2006, the allowance for loan losses reflects a decrease of approximately $1.5 million from
December 31, 2005, due to the reclassification to establish a reserve for unfunded commitments. As a general
rule, the allocation in each category within the allowance reflects the overall changes in loan portfolio mix.
The Company’s unallocated portion of the allowance increased approximately $1.4 million from
December 31, 2005 to 2006, offset by a $3.0 million decrease to the allocation for commercial loans. The
increase in unallocated is primarily due to the credit quality upgrade of several significant commercial loan
customers, and the overall improvement in the credit quality of the loan portfolio. The unallocated portion of the
allowance as a percent of total loans was 0.43% and 0.36% for the years ended December 31, 2006, and 2005,
respectively.
The Company still has some concerns over the uncertainty of the economy and the impact of pricing in the
poultry and timber industries in Arkansas. The Company is also cautious regarding the softening of the real
estate market in Arkansas. Based on its analysis of loans within these business sectors, the Company believes the
allowance for loan losses is adequate for the year ended December 31, 2006. Management actively monitors the
status of these industries as they relate to the Company’s loan portfolio and makes changes to the allowance for
loan losses as necessary.
The Company allocates the allowance for loan losses according to the amount deemed to be reasonably necessary to
provide for losses incurred within the categories of loans set forth in table 11.
Table 11:
Allocation of Allowance for Loan Losses
2006
2005
December 31
2004
2003
2002
(In thousands)
Credit cards
Other consumer
Real estate
Commercial
Other
Unallocated
Allowance % of Allowance % of Allowance % of Allowance % of Allowance % of
loans(1)
loans(1) Amount
loans(1) Amount
loans(1) Amount
loans(1) Amount
Amount
$ 3,702
1,402
9,835
2,856
--
7,590
12.8%
64.7%
13.7%
0.8%
8.0% $ 3,887
1,158
9,870
5,857
--
6,151
13.3%
61.7%
15.9%
0.8%
8.3% $ 4,217
1,097
9,357
4,820
--
7,017
13.5%
61.7%
14.1%
0.8%
9.9% $ 3,913
1,597
8,723
5,113
4
5,997
11.7% $ 4,270
1,745
16.2%
7,393
55.1%
4,398
15.9%
--
1.1%
4,142
14.4%
18.8%
48.9%
16.7%
1.2%
Total
$ 25,385
100.0% $ 26,923
100.0% $ 26,508
100.0% $ 25,347
100.0% $ 21,948
100.0%
(1) 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 within the portfolio are classified as either held-to-maturity, available-for-sale or
trading.
Held-to-maturity securities, which include any security for which management has the positive intent and ability
to hold until maturity, are carried at historical cost, adjusted for amortization of premiums and accretion of
discounts. Premiums and discounts are amortized and accreted, respectively, to interest income using the
constant yield method over the period to maturity. Interest and dividends on investments in debt and equity
securities are included in income when earned.
Available-for-sale securities, which include any security for which management has no immediate plans to sell,
but which may be sold in the future, are carried at fair value. Realized gains and losses, based on amortized cost
of the specific security, are included in other income. Unrealized gains and losses are recorded, net of related
income tax effects, in stockholders' equity. Premiums and discounts are amortized and accreted, respectively, to
interest income, using the constant yield method over the period to maturity. Interest and dividends on
investments in debt and equity securities are included in income when earned.
The Company's philosophy regarding investments is conservative, based on investment type and maturity.
Investments in the portfolio primarily include U.S. Treasury securities, U.S. Government agencies, mortgage-
backed securities and municipal securities. The Company's general policy is not to invest in derivative type
investments or high-risk securities, except for collateralized mortgage-backed securities for which collection of
27
principal and interest is not subordinated to significant superior rights held by others.
Held-to-maturity and available-for-sale investment securities were $179.9 million and $347.2 million,
respectively, at December 31, 2006, compared to the held-to-maturity amount of $150.3 million and available-
for-sale amount of $371.5 million at December 31, 2005.
As of December 31, 2006, $55.0 million, or 30.6%, of the held-to-maturity securities were invested in U.S.
Treasury securities and obligations of U.S. government agencies, 49.1% of which will mature in less than five
years. In the available-for-sale securities, $333.3 million, or 95.0%, were in U.S. Treasury and U.S. government
agency securities, 66.6% of which will mature in less than five years.
In order to reduce the Company's income tax burden, an additional $122.5 million, or 68.1%, of the held-to-
maturity securities portfolio, as of December 31, 2006, was invested in tax-exempt obligations of state and
political subdivisions. In the available-for-sale securities, $1.4 million, or 3.9% were invested in tax-exempt
obligations of state and political subdivisions. Most of the state and political subdivision debt obligations are
non-rated bonds and represent relatively small, Arkansas issues, which are evaluated on an ongoing basis. There
are no securities of any one state and political subdivision issuer exceeding ten percent of the Company's
stockholders' equity at December 31, 2006.
The Company has approximately $155,000, or 0.1%, in mortgaged-backed securities in the held-to-maturity
portfolio at December 31, 2006. In the available-for-sale securities, $3.0 million, or 0.9% were invested in
mortgaged-backed securities.
As of December 31, 2006, the held-to-maturity investment portfolio had gross unrealized gains of $1.037 million
and gross unrealized losses of $1.165 million.
The Company had no gross realized gains during the years ended December 31, 2006, 2005 and 2004, resulting
from the sales and/or calls of securities. Gross realized losses of $0, $275,000 and $0 resulting from sales and/or
calls of securities were realized for the years ended December 31, 2006, 2005 and 2004, respectively.
Trading securities, which include any security held primarily for near-term sale, are carried at fair value. Gains
and losses on trading securities are included in other income. The Company's trading account is established and
maintained for the benefit of investment banking. The trading account is typically used to provide inventory for
resale and is not used to take advantage of short-term price movements.
28
Table 12 presents the carrying value and fair value of investment securities for each of the years indicated.
Table 12:
Investment Securities
Years Ended December 31
2006
2005
(In thousands)
Held-to-Maturity
U.S. Treasury
U.S. Government
agencies
Mortgage-backed
securities
State and political
subdivisions
Other securities
Gross
Amortized Unrealized Unrealized
Gains
(Losses)
Gross
Cost
Estimated
Fair
Value
Gross
Amortized Unrealized Unrealized
Gains
Fair
(Losses) Value
Gross Estimated
Cost
$
--
$
-- $
-- $
-- $
1,004
$
-- $
(20) $
984
54,998
367
(272)
55,093
28,000
155
3
(1)
157
187
--
3
(473)
27,527
--
190
122,472
2,319
667
--
(892)
--
122,247
2,319
117,148
3,960
662
--
(1,298)
--
116,512
3,960
Total
$ 179,944
$ 1,037 $ (1,165) $ 179,816 $ 150,299
$
665 $(1,791) $ 149,173
Available-for-Sale
U.S. Treasury
U.S. Government
agencies
Mortgage-backed
securities
State and political
subdivisions
Other securities
$
6,970
$
-- $
(30) $
6,940 $ 10,989
$
-- $ (102) $ 10,887
326,301
287
(4,177)
322,411
348,570
35
(7,615)
340,990
3,032
--
(76)
2,956
3,392
9
(92)
3,309
1,360
13,035
10
470
--
--
1,370
13,505
3,014
12,561
39
690
--
--
3,053
13,251
Total
$ 350,698
$
767 $ (4,283) $ 347,182 $ 378,526
$
773 $(7,809) $ 371,490
29
Table 13 reflects the amortized cost and estimated fair value of securities at December 31, 2006, by contractual
maturity and the weighted average yields (for tax-exempt obligations on a fully taxable equivalent basis, assuming a
37.5% tax rate) of such securities. Expected maturities will differ from contractual maturities, because borrowers
may have the right to call or prepay obligations, with or without call or prepayment penalties.
Table 13: Maturity Distribution of Investment Securities
December 31, 2006
Over
1 year
through
5 years
Over
5 years
through Over No fixed
10 years 10 years maturity
1 year
or less
Total
Par
Value
Fair
Value
$
-- $
-- $
-- $
-- $
-- $
-- $
-- $
--
10,998
16,000
28,000
--
-- 54,998
55,000
55,093
--
4
15
136
--
155
155
157
9,551
--
41,395
--
56,033
--
15,493
930
-- 122,472 122,540 122,247
2,319
2,319 2,319
1,389
(In thousands)
Held-to-Maturity
U.S. Treasury
U.S. Government
agencies
Mortgage-backed
securities
State and political
subdivisions
Other securities
Total
$ 20,549 $ 57,399 $ 84,048 $ 16,559 $ 1,389 $179,944 $180,014 $179,816
Percentage of total
11.4% 31.9%
46.7% 9.2%
0.8% 100.0%
Weighted average yield
4.3% 4.5%
4.6% 4.3%
4.3% 4.5%
Available-for-Sale
U.S. Treasury
U.S. Government
agencies
Mortgage-backed
securities
State and political
subdivisions
Other securities
$ 6,970 $
-- $
-- $
-- $
-- $ 6,970 $ 7,000 $ 6,940
85,562 129,356 111,382
--
-- 326,300 326,325 322,411
10
48
855
2,119
--
3,032
3,077
2,956
505
--
856
--
--
--
1,370
--
-- 13,035 13,035 13,505 13,505
1,360
1,361
--
Total
$ 93,047 $130,260 $112,237 $ 2,119 $ 13,035 $350,698 $ 351,267 $ 347,182
Percentage of total
26.5%
37.2%
32.0% 0.6% 3.7%
100.0%
Weighted average yield 3.3%
4.1%
5.8% 5.2% 6.7%
4.5%
Deposits
Deposits are the Company’s primary source of funding for earning assets and are primarily developed through
the Company’s network of 82 financial centers. The Company offers a variety of products designed to attract
and retain customers with a continuing focus on developing core deposits. The Company’s core deposits consist
of all deposits excluding time deposits of $100,000 or more and brokered deposits. As of December 31, 2006,
core deposits comprised 77.3% of the Company’s total deposits.
The Company continually monitors the funding requirements at each affiliate bank, along with competitive
interest rates in the markets it serves. Because of the Company’s community banking philosophy, affiliate
executives in the local markets establish the interest rates offered on both core and non-core deposits. This
approach ensures that the interest rates being paid are competitively priced for each particular deposit product
and structured to meet the funding requirements. The Company believes it is paying a competitive rate, when
compared with pricing in those markets.
30
The Company manages its interest expense through deposit pricing and does not anticipate a significant change
in total deposits. The Company believes that additional funds can be attracted and deposit growth can be
accelerated through deposit pricing if it experiences increased loan demand or other liquidity needs. The
Company began to utilize brokered deposits during 2005 as an additional source of funding to meet liquidity
needs.
The Company’s total deposits as of December 31, 2006 were $2.175 billion, an increase of $115 million, or
5.58%, from $2.060 billion at December 31, 2005. The Company had $50 million and $51 million of brokered
deposits at December 31, 2006 and 2005, respectively.
Table 14 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, 2006.
Table 14:
Average Deposit Balances and Rates
2006
Average Average
Amount Rate Paid
December 31
2005
Average Average
Amount Rate Paid
2004
Average Average
Amount Rate Paid
(In thousands)
Non-interest bearing transaction
accounts
$ 308,804
--
$ 303,974
--
$ 293,060
--
Interest bearing transaction and
savings deposits
Time deposits
$100,000 or more
Other time deposits
737,328
1.58%
762,558
1.02%
729,842
0.68%
407,778
644,927
4.08%
3.92%
371,871
578,949
2.83%
2.74%
349,224
543,136
2.00%
2.06%
Total
$2,098,837
2.59%
$2,017,352
1.79%
$1,915,262
1.21%
The Company's maturities of large denomination time deposits at December 31, 2006 and 2005 are presented in
table 15.
Table 15: Maturities of Large Denomination Time Deposits
Time Certificates of Deposit
($100,000 or more)
December 31
2006
2005
Balance
Percent
Balance
Percent
(In thousands)
Maturing
Three months or less
Over 3 months to 6 months
Over 6 months to 12 months
Over 12 months
$ 123,214
108,716
145,716
72,664
27.4%
24.1%
32.4%
16.1%
$ 97,676
80,763
113,968
71,770
26.8%
22.2%
31.3%
19.7%
Total
$ 450,310
100.00%
$ 364,177
100.00%
31
Short-Term Debt
Federal funds purchased and securities sold under agreements to repurchase were $105.0 million at
December 31, 2006, as compared to $107.2 million at December 31, 2005. Other short-term borrowings,
consisting of U.S. TT&L Notes and short-term FHLB borrowings, were $6.1 million at December 31, 2006, as
compared to $8.0 million at December 31, 2005.
The Company has historically funded its growth in earning assets through the use of core deposits, large
certificates of deposits from local markets, FHLB borrowings and Federal funds purchased. Management
anticipates that these sources will provide necessary funding in the foreseeable future.
Long-Term Debt
The Company’s long-term debt was $83.3 million and $87.0 million at December 31, 2006 and 2005,
respectively. The outstanding balance for December 31, 2006 includes $2.0 million in long-term debt,
$50.4 million in FHLB long-term advances and $30.9 million of trust preferred securities. The outstanding
balance for December 31, 2005, includes $4.0 million in long-term debt, $52.1 million in FHLB long-term
advances and $30.9 million of trust preferred securities.
During the year ended December 31, 2006, the Company decreased long-term debt by $3.7 million, or 4.3%
from December 31, 2005. This decrease is attributable to the Company’s annual $2.0 million payment on its
note payable along with scheduled principal pay downs on FHLB long-term advances.
On December 31, 2004, the Company redeemed the entire issue of Simmons First Capital Trust 9.12% Trust
Preferred Securities, due June 30, 2027, with an aggregate face amount of $17,250,000.
Aggregate annual maturities of long-term debt at December 31, 2006 are presented in table 16.
Table 16: Maturities of Long-Term Debt
(In thousands)
Year
2007
2008
2009
2010
2011
Thereafter
Annual
Maturities
$ 10,383
12,987
5,842
5,087
3,881
45,131
Total
$ 83,311
Capital
Overview
At December 31, 2006, total capital reached $259.0 million. Capital represents shareholder ownership in the
Company -- the book value of assets in excess of liabilities. At December 31, 2006, the Company’s equity to
asset ratio was 9.77% compared to 9.67% at year-end 2005.
Capital Stock
At the Company’s annual shareholder meeting held on March 30, 2004, the shareholders approved an
amendment to the Articles of Incorporation reducing the par value of the Class A Common Stock from $1.00 to
$0.01 and eliminating the authority of the Company to issue Class B Common Stock, Class A Preferred Stock
and Class B Preferred Stock.
32
Stock Repurchase
On May 25, 2004, the Company announced the adoption by the Board of Directors of a repurchase program.
The program authorizes the repurchase of up to 5% of the outstanding Common Stock, or 733,485 shares.
Under the repurchase program, there is no time limit for the stock repurchases, nor is there a minimum number
of shares the Company intends to repurchase. The Company may discontinue purchases at any time that
management determines additional purchases are not warranted. The shares are to be purchased from time to
time at prevailing market prices, through open market or unsolicited negotiated transactions, depending upon
market conditions. The Company intends to use the repurchased shares to satisfy stock option exercise, payment
of future stock dividends and general corporate purposes.
During the year ended December 31, 2006, the Company repurchased a total of 203,100 shares of stock with a
weighted average repurchase price of $27.80 per share. Under the current stock repurchase plan, the Company
can repurchase an additional 340,967 shares.
Cash Dividends
The Company declared cash dividends on its Common Stock of $0.68 per share for the twelve months ended
2006 compared to $0.61 per share for the twelve months ended 2005. In recent years, the Company increased
dividends no less than annually and presently plans to continue with this practice.
Parent Company Liquidity
The primary liquidity needs of the Parent Company are the payment of dividends to shareholders, the funding of
debt obligations and the share repurchase plan. The primary sources for meeting these liquidity needs are the
current cash on hand at the parent company and the future dividends received from the eight affiliate banks.
Payment of dividends by the eight affiliate banks is subject to various regulatory limitations. Reference is made
to Item 7A, Liquidity and Qualitative Disclosures About Market Risk discussion for additional information
regarding the parent company’s liquidity.
Risk-Based Capital
The Company’s subsidiaries are subject to various regulatory capital requirements administered by the federal
banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly
additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the
Company’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Company must meet specific capital guidelines that involve quantitative measures of the
Company’s assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting
practices. The Company’s capital amounts and classifications are also subject to qualitative judgments by the
regulators about components, risk weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy require the Company to maintain
minimum amounts and ratios (set forth in the table below) of total and Tier 1 capital (as defined in the
regulations) to risk-weighted assets (as defined) and of Tier 1 capital (as defined) to average assets (as defined).
Management believes that, as of December 31, 2006, the Company meets all capital adequacy requirements to
which it is subject.
As of the most recent notification from regulatory agencies, the subsidiaries were well capitalized under the
regulatory framework for prompt corrective action. To be categorized as well capitalized, the Company and
subsidiaries must maintain minimum total risk-based, Tier 1 risk-based and Tier 1 leverage ratios as set forth in
the table. There are no conditions or events since that notification that management believes have changed the
institutions’ categories.
33
The Company's risk-based capital ratios at December 31, 2006 and 2005 are presented in table 17.
Table 17:
Risk-Based Capital
(In thousands)
Tier 1 capital
Stockholders’ equity
Trust preferred securities
Goodwill and core deposits
Unrealized loss on available-
for-sale securities
Other
December 31
2006
2005
$ 259,016
30,000
(64,334)
$ 244,085
30,000
(65,278)
2,198
--
4,360
--
Total Tier 1 capital
226,880
213,167
Tier 2 capital
Qualifying unrealized gain on
available-for-sale equity securities
Qualifying allowance for loan losses
Total Tier 2 capital
Total risk-based capital
Risk weighted assets
Ratios at end of year
Leverage ratio
Tier 1 capital
Total risk-based capital
Minimum guidelines
Leverage ratio
Tier 1 capital
Total risk-based capital
167
22,953
23,120
338
21,811
22,149
$ 250,000
$ 235,316
$1,831,063
$1,739,771
8.83%
12.39%
13.65%
4.00%
4.00%
8.00%
8.61%
12.25%
13.53%
4.00%
4.00%
8.00%
Off-Balance Sheet Arrangements and Aggregate Contractual Obligations
In the normal course of business, the Company enters into a number of financial commitments. Examples of
these commitments include but are not limited to long-term debt financing, operating lease obligations, unfunded
loan commitments and letters of credit.
The Company’s long-term debt at December 31, 2006, includes notes payable, FHLB long-term advances and
trust preferred securities, all of which the Company is contractually obligated to repay in future periods.
Operating lease obligations entered into by the Company are generally associated with the operation of a few of
the Company’s financial centers located throughout the state of Arkansas. The financial obligation by the
Company on these locations is considered immaterial due to the limited number of financial centers, which
operate under an agreement of this type.
Commitments to extend credit and letters of credit are legally binding, conditional agreements generally having
fixed expiration or termination dates. These commitments generally require customers to maintain certain credit
standards and are established based on management’s credit assessment of the customer. The commitments may
expire without being drawn upon. Therefore, the total commitment does not necessarily represent future
requirements.
34
The funding requirements of the Company's most significant financial commitments, at December 31, 2006 are
shown in table 18.
Table 18:
Funding Requirements of Financial Commitments
(In thousands)
Long-term debt
Credit card loan commitments
Other loan commitments
Letters of credit
Payments due by period
Less than
1 Year
1-3
Years
3-5
Years
Greater than
5 Years
Total
$ 10,383
202,047
529,697
5,477
$ 18,829 $ 8,968
--
--
--
--
--
--
$ 45,131 $ 83,311
202,047
529,697
5,477
--
--
--
The Company has $64.8 million and $65.6 million total goodwill and core deposit premiums for the periods
ended December 31, 2006 and December 31, 2005, respectively. Because of the Company’s high level of these
two intangible assets, management believes a useful calculation is tangible return on equity. This calculation for
the twelve months ended December 31, 2006, 2005, 2004, 2003 and 2002, which is similar to the GAAP
calculation of return on average stockholders’ equity, is presented in table 19.
Table 19:
Return on Tangible Equity
(In thousands)
Twelve months ended
2006
2005
2004
2003
2002
Return on average stockholders equity: (A/C)
Return on tangible equity: (A+B)/(C-D)
10.93%
15.03%
11.24%
15.79%
10.64%
14.94%
11.57% 11.56%
13.99%
14.03%
Net income
Amortization of intangibles, net of taxes
Average stockholders' equity
Average goodwill and core deposits, net
$ 27,481 $ 26,962 $ 24,446 $ 23,790 $ 22,078 (A)
49 (B)
494
190,947 (C)
229,719
32,808 (D)
62,836
519
251,518
65,233
522
239,976
65,913
108
205,683
35,335
35
On December 31, 2004, the Company recorded a nonrecurring $470,000 after tax charge, or a $0.03 reduction in
diluted earnings per share, related to the write off of deferred debt issuance cost associated with the redemption of
its 9.12% trust preferred securities. During the second quarter 2003, the Company recorded a nonrecurring
$0.03 addition to earnings per share, resulting from the sale of its mortgage servicing portfolio. In light of these
events, Management believes operating earnings (earnings excluding nonrecurring items) is a useful calculation in
reflection the Company’s performance. This calculation for the twelve months ended December 31, 2006, 2005,
2004, 2003 and 2002 is presented in table 20.
Table 20:
Operating Earnings
(In thousands, except share data)
2006
2005
2004
2003
2002
Twelve months ended
Net Income
Nonrecurring items
Gain on sale of mortgage servicing
Write off of deferred debt issuance cost
Tax effect
Net nonrecurring items
Operating Income
Diluted earnings per share
Nonrecurring items
$ 27,481 $ 26,962 $ 24,446 $ 23,790 $ 22,078
--
--
--
--
--
771
--
--
--
--
$ 27,481 $ 26,962 $ 24,916 $ 23,320 $ 22,078
(771)
--
301
(470)
(301)
470
--
--
--
--
$
1.90 $
1.84 $
1.65 $
1.65 $
1.54
Gain on sale of mortgage servicing
Write off of deferred debt issuance cost
Tax effect
Net nonrecurring items
Diluted operating earnings per share
--
--
--
--
1.90 $
--
--
--
--
1.84 $
--
0.05
(0.02)
0.03
1.68 $
(0.05)
--
0.02
(0.03)
1.62 $
--
--
--
--
1.54
$
Quarterly Results
Selected unaudited quarterly financial information for the last eight quarters is shown in table 21.
Table 21:
Quarterly Results
(In thousands, except per share data)
First
Second
Quarter
Third
Fourth
Total
2006
Net interest income
Provision for loan losses
Non-interest income
Non-interest expense
Loss on sale of securities, net
Net income
Basic earnings per share
Diluted earnings per share
2005
Net interest income
Provision for loan losses
Non-interest income
Non-interest expense
Loss on sale of securities, net
Net income
Basic earnings per share
Diluted earnings per share
$ 22,377
602
11,026
22,135
--
7,447
0.53
0.51
$ 22,283
663
10,793
22,507
--
6,750
0.47
0.47
$ 22,872
$ 22,815
1,736
10,740
21,226
--
7,334
0.51
0.50
1,630
10,678
21,979
--
6,825
0.48
0.47
$ 88,804
3,762
43,947
89,068
--
27,481
1.93
1.90
$ 90,257
7,526
42,486
85,584
(168)
26,962
1.88
1.84
$ 21,952
1,708
10,612
22,125
--
5,988
0.42
0.41
$ 22,093
2,221
10,071
21,415
--
5,860
0.41
0.40
$ 22,192
789
11,516
22,301
--
7,296
0.51
0.51
$ 22,477
1,939
10,997
20,964
(168)
6,943
0.48
0.47
36
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
Liquidity and Market Risk Management
Parent Company
The Company has leveraged its investment in subsidiary banks and depends upon the dividends paid to it, as the
sole shareholder of the subsidiary banks, as a principal source of funds for dividends to shareholders, stock
repurchases and debt service requirements. At December 31, 2006, undivided profits of the Company's
subsidiaries were approximately $142 million, of which approximately $13 million was available for the
payment of dividends to the Company without regulatory approval. In addition to dividends, other sources of
liquidity for the Company are the sale of equity securities and the borrowing of funds.
Banking Subsidiaries
Generally speaking, the Company's banking subsidiaries rely upon net inflows of cash from financing activities,
supplemented by net inflows of cash from operating activities, to provide cash used in investing activities.
Typical of most banking companies, significant financing activities include: deposit gathering; use of short-term
borrowing facilities, such as Federal funds purchased and repurchase agreements; and the issuance of long-term
debt. The banks' primary investing activities include loan originations and purchases of investment securities,
offset by loan payoffs and investment maturities.
Liquidity represents an institution's ability to provide funds to satisfy demands from depositors and borrowers,
by either converting assets into cash or accessing new or existing sources of incremental funds. A major
responsibility of management is to maximize net interest income within prudent liquidity constraints. Internal
corporate guidelines have been established to constantly measure liquid assets, as well as relevant ratios
concerning earning asset levels and purchased funds. The management and board of directors of each bank
subsidiary monitor these same indicators and make adjustments as needed. At December 31, 2006, each
subsidiary bank was within established guidelines and total corporate liquidity remains strong. At
December 31, 2006, cash and cash equivalents, trading and available-for-sale securities and mortgage loans held
for sale were 19.4% of total assets, as compared to 19.2% at December 31, 2005.
Liquidity Management
The objective of the Company’s liquidity management is to access adequate sources of funding to ensure that
cash flow requirements of depositors and borrowers are met in an orderly and timely manner. Sources of
liquidity are managed so that reliance on any one funding source is kept to a minimum. The Company’s
liquidity sources are prioritized for both availability and time to activation.
The Company’s liquidity is a primary consideration in determining funding needs and is an integral part of
asset/liability management. Pricing of the liability side is a major component of interest margin and spread
management. Adequate liquidity is a necessity in addressing this critical task. There are six primary and
secondary sources of liquidity available to the Company. The particular liquidity need and timeframe determine
the use of these sources.
The first source of liquidity available to the Company is Federal funds. Federal funds, primarily from
downstream correspondent banks, are available on a daily basis and are used to meet the normal fluctuations of a
dynamic balance sheet. In addition, the Company and its affiliates have approximately $106 million in Federal
funds lines of credit from upstream correspondent banks that can be accessed, when needed. In order to ensure
availability of these upstream funds, the Company has a plan for rotating the usage of the funds among the
upstream correspondent banks, thereby providing approximately $40 million in funds on a given day. Historical
monitoring of these funds has made it possible for the Company to project seasonal fluctuations and structure its
funding requirements on a month-to-month basis.
A second source of liquidity is the retail deposits available through the Company’s network of affiliate banks
throughout Arkansas. Although this method can be a somewhat more expensive alternative to supplying
liquidity, this source can be used to meet intermediate term liquidity needs.
37
Third, the Company’s affiliate banks have lines of credits available with the Federal Home Loan Bank. While
the Company uses portions of those lines to match off longer-term mortgage loans, the Company also uses those
lines to meet liquidity needs. Approximately $409 million of these lines of credit are currently available, if
needed.
Fourth, the Company uses a laddered investment portfolio that ensures there is a steady source of intermediate
term liquidity. These funds can be used to meet seasonal loan patterns and other intermediate term balance sheet
fluctuations. Approximately 66% of the investment portfolio is classified as available-for-sale. The Company
also uses securities held in the securities portfolio to pledge when obtaining public funds.
The fifth source of liquidity is the ability to access large deposits from both the public and private sector to fund
short-term liquidity needs.
Finally, the Company has established a $5 million unsecured line of credit with a major commercial bank that
could be used to meet unexpected liquidity needs at both the parent company level as well as at any affiliate
bank.
The Company believes the various sources available are ample liquidity for short-term, intermediate-term and
long-term liquidity.
Market Risk Management
Market risk arises from changes in interest rates. The Company has risk management policies to monitor and
limit exposure to market risk. In asset and liability management activities, policies designed to minimize
structural interest rate risk are in place. The measurement of market risk associated with financial instruments is
meaningful only when all related and offsetting on- and off-balance-sheet transactions are aggregated, and the
resulting net positions are identified.
Interest Rate Sensitivity
Interest rate risk represents the potential impact of interest rate changes on net income and capital resulting from
mismatches in repricing opportunities of assets and liabilities over a period of time. A number of tools are used
to monitor and manage interest rate risk, including simulation models and interest sensitivity gap analysis.
Management uses simulation models to estimate the effects of changing interest rates and various balance sheet
strategies on the level of the Company’s net income and capital. As a means of limiting interest rate risk to an
acceptable level, management may alter the mix of floating and fixed-rate assets and liabilities, change pricing
schedules and manage investment maturities during future security purchases.
The simulation model incorporates management’s assumptions regarding the level of interest rates or balance
changes for indeterminate maturity deposits for a given level of market rate changes. These assumptions have
been developed through anticipated pricing behavior. Key assumptions in the simulation models include the
relative timing of prepayments, cash flows and maturities. These assumptions are inherently uncertain and, as a
result, the model cannot precisely estimate net interest income or precisely predict the impact of a change in
interest rates on net income or capital. Actual results will differ from simulated results due to the timing,
magnitude and frequency of interest rate changes and changes in market conditions and management strategies,
among other factors.
38
The table below presents the Company’s interest rate sensitivity position at December 31, 2006. This analysis is
based on a point in time and may not be meaningful because assets and liabilities are categorized according to
contractual maturities, repricing periods and expected cash flows rather than estimating more realistic behaviors,
as is done in the simulation models. Also, this analysis does not consider subsequent changes in interest rate
level or spreads between asset and liability categories.
Table: 22
Interest Rate Sensitivity
(In thousands, except ratios)
Earning assets
Short-term investments
Assets held in trading
accounts
Investment securities
Mortgage loans held for sale
Loans
Total earning assets
Interest bearing liabilities
Interest bearing transaction
and savings deposits
Time deposits
Short-term debt
Long-term debt
Total interest bearing
0-30
Days
31-90
Days
91-180
Days
181-365
Days
1-2
Years
2-5
Years
Over 5
Years
Total
Interest Rate Sensitivity Period
$ 67,699 $
-- $
-- $
-- $
-- $
-- $
-- $ 67,699
4,487
8,469
7,091
585,505
673,251
--
27,905
--
152,157
180,062
--
31,012
--
183,546
214,558
--
44,459
--
333,129
377,588
--
88,565
--
293,000
381,565
--
89,687
--
224,783
314,470
--
237,029
--
11,375
248,404
4,487
527,126
7,091
1,783,495
2,389,898
416,081
106,816
111,700
14,950
--
185,399
--
1,415
--
245,220
--
2,112
--
374,118
--
6,424
64,536
194,426
--
12,319
193,609
25,462
--
15,129
64,537
738,763
-- 1,131,441
111,700
--
83,311
30,962
liabilities
649,547
186,814
247,332
380,542
271,281
234,200
95,499
2,065,215
Interest rate sensitivity Gap
Cumulative interest rate
$ 23,704 $
(6,752) $ (32,774) $
(2,954) $ 110,284 $ 80,270 $ 152,905 $ 324,683
sensitivity Gap
$ 23,704 $ 16,952 $ (15,822) $ (18,776) $ 91,508 $ 171,778 $ 324,683
Cumulative rate sensitive assets
to rate sensitive liabilities
Cumulative Gap as a % of
103.6%
102.0%
98.5%
98.7%
105.3%
108.7%
115.7%
earning assets
1.0%
0.7%
-0.7%
-0.8%
3.8%
7.2%
13.6%
39
ITEM 8.
CONSOLIDATED FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA
INDEX
Management’s Report on Internal Control Over Financial Reporting ............................................41
Report of Independent Registered Public Accounting Firm
Report on Internal Control Over Financial Reporting .................................................................42
Report on Consolidated Financial Statements .............................................................................43
Consolidated Balance Sheets, December 31, 2006 and 2005 .........................................................44
Consolidated Statements of Income, Years Ended
December 31, 2006, 2005 and 2004 ............................................................................................45
Consolidated Statements of Cash Flows, Years Ended
December 31, 2006, 2005 and 2004 ............................................................................................46
Consolidated Statements of Stockholders’ Equity, Years Ended
December 31, 2006, 2005 and 2004 ............................................................................................47
Notes to Consolidated Financial Statements,
December 31, 2006, 2005 and 2004 ............................................................................................48
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 36 hereof.
40
Management’s Report on Internal Control Over Financial Reporting
The management of Simmons First National Corporation (the “Company”) is responsible for establishing and
maintaining adequate internal control over financial reporting. The Company’s internal control over financial
reporting is a process designed under the supervision of the Company’s Chief Executive Officer and Chief Financial
Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the
Company’s financial statements for external purposes in accordance with generally accepted accounting principles.
As of December 31, 2006, management assessed the effectiveness of the Company’s internal control over financial
reporting based on the criteria for effective internal control over financial reporting established in “Internal Control
— Integrated Framework,” issued by the Committee of Sponsoring Organizations (COSO) of the Treadway
Commission. Based on the assessment, management determined that the Company maintained effective internal
control over financial reporting as of December 31, 2006, based on those criteria.
BKD, LLP, the independent registered public accounting firm that audited the consolidated financial statements of
the Company included in this Annual Report on Form 10-K, has issued an attestation report on management’s
assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2006.
The report, which expresses unqualified opinions on management’s assessment and on the effectiveness of the
Company’s internal control over financial reporting as of December 31, 2006, immediately follows.
41
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Audit Committee, Board of Directors and Stockholders
Simmons First National Corporation
Pine Bluff, Arkansas
We have audited management’s assessment, included in the accompanying Management’s Report on Internal
Control over Financial Reporting, that SIMMONS FIRST NATIONAL CORPORATION maintained effective
internal control over financial reporting as of December 31, 2006, based on criteria established in Internal Control –
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO). The Company’s management is responsible for maintaining effective internal control over financial
reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility
is to express an opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal
control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether effective internal control over financial reporting was maintained in all material respects. An audit includes
obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing
and evaluating the design and operating effectiveness of internal control and performing such other procedures as
we consider necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions or that the degree of compliance with the policies or
procedures may deteriorate.
In our opinion, management’s assessment that SIMMONS FIRST NATIONAL CORPORATION maintained
effective internal control over financial reporting as of December 31, 2006, is fairly stated, in all material respects,
based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). Also in our opinion, SIMMONS FIRST NATIONAL
CORPORATION maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2006, based on criteria established in Internal Control – Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO).
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), the consolidated financial statements of SIMMONS FIRST NATIONAL CORPORATION and our
report dated February 19, 2007 expressed an unqualified opinion thereon.
Pine Bluff, Arkansas
February 19, 2007
/s/ BKD, LLP
BKD, LLP
42
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Audit Committee, Board of Directors and Stockholders
Simmons First National Corporation
Pine Bluff, Arkansas
We have audited the accompanying consolidated balance sheets of SIMMONS FIRST NATIONAL
CORPORATION as of December 31, 2006 and 2005, and the related consolidated statements of income, cash
flows and stockholders' equity for each of the three years in the period ended December 31, 2006. These
financial statements are the responsibility of the Company’s management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board
(United States). 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, 2006 and 2005, and
the results of its operations and its cash flows for each of the three years in the period ended December 31, 2006,
in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), the effectiveness of Simmons First National Corporation’s internal control over financial
reporting as of December 31, 2006, based on criteria established in Internal Control – Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report
dated February 19, 2007 expressed unqualified opinions on management’s assessment and the effectiveness of
the Company’s internal control over financial reporting.
/s/ BKD, LLP
BKD, LLP
Pine Bluff, Arkansas
February 19, 2007
43
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2006 and 2005
(In thousands, except share data)
2006
2005
ASSETS
Cash and non-interest bearing balances due from banks
Interest bearing balances due from banks
Federal funds sold
Cash and cash equivalents
Investment securities
Mortgage loans held for sale
Assets held in trading accounts
Loans
Allowance for loan losses
Net loans
Premises and equipment
Foreclosed assets held for sale, net
Interest receivable
Bank owned life insurance
Goodwill
Core deposit premiums
Other assets
TOTAL ASSETS
LIABILITIES
Non-interest bearing transaction accounts
Interest bearing transaction accounts and savings deposits
Time deposits
Total deposits
Federal funds purchased and securities sold
under agreements to repurchase
Short-term debt
Long-term debt
Accrued interest and other liabilities
Total liabilities
STOCKHOLDERS’ EQUITY
Capital stock
Class A, common, par value $0.01 a share,
authorized 30,000,000 shares, 14,196,855
issued and outstanding at 2006 and 14,326,923 at 2005
Surplus
Undivided profits
Accumulated other comprehensive income (loss)
Unrealized depreciation on available-for-sale
$
83,452
45,829
21,870
151,151
527,126
7,091
4,487
1,783,495
(25,385)
1,758,110
67,926
1,940
21,974
36,133
60,605
4,199
10,671
$ 2,651,413
$ 305,327
738,763
1,131,441
2,175,531
105,036
6,114
83,311
22,405
2,392,397
$
75,461
14,397
11,715
101,573
521,789
7,857
4,631
1,718,107
(26,923)
1,691,184
63,360
1,540
18,754
33,269
60,605
5,029
14,177
$ 2,523,768
$
331,113
749,925
978,920
2,059,958
107,223
8,031
87,020
17,451
2,279,683
142
48,678
212,394
143
53,723
194,579
securities, net of income tax credits of $1,319 at 2006
and $2,615 at 2005
Total stockholders’ equity
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
(2,198)
259,016
$ 2,651,413
(4,360)
244,085
$ 2,523,768
See Notes to Consolidated Financial Statements.
44
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 2006, 2005 and 2004
(In thousands, except per share data)
2006
2005
2004
INTEREST INCOME
Loans
Federal funds sold
Investment securities
Mortgage loans held for sale
Assets held in trading accounts
Interest bearing balances due from banks
TOTAL INTEREST INCOME
INTEREST EXPENSE
Deposits
Federal funds purchased and securities sold
under agreements to repurchase
Short-term debt
Long-term debt
TOTAL INTEREST EXPENSE
NET INTEREST INCOME
Provision for loan losses
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES
NON-INTEREST INCOME
Trust income
Service charges on deposit accounts
Other service charges and fees
Income on sale of mortgage loans, net of commissions
Income on investment banking, net of commissions
Credit card fees
Premiums on sale of student loans
Bank owned life insurance income
Other income
Loss on sale of securities, net of taxes
TOTAL NON-INTEREST INCOME
NON-INTEREST EXPENSE
Salaries and employee benefits
Occupancy expense, net
Furniture and equipment expense
Loss on foreclosed assets
Deposit insurance
Other operating expenses
TOTAL NON-INTEREST EXPENSE
INCOME BEFORE INCOME TAXES
Provision for income taxes
NET INCOME
BASIC EARNINGS PER SHARE
DILUTED EARNINGS PER SHARE
See Notes to Consolidated Financial Statements.
45
$ 130,248
1,057
20,438
476
71
1,072
153,362
$ 112,238
925
18,677
552
99
580
133,071
$ 96,853
748
17,447
575
41
400
116,064
54,250
4,615
1,227
4,466
64,558
88,804
3,762
34,208
3,104
1,101
4,401
42,814
90,257
7,526
23,163
1,227
175
5,863
30,428
85,636
8,027
85,042
82,731
77,609
5,612
15,795
2,561
2,849
341
10,742
2,071
1,523
2,453
--
43,947
53,442
6,385
5,718
136
270
23,117
89,068
39,921
12,440
$ 27,481
1.93
$
1.90
$
5,589
15,818
2,017
2,919
416
10,252
1,822
953
2,700
(168)
42,318
51,270
5,840
5,758
191
279
22,246
85,584
39,465
12,503
$ 26,962
1.88
$
1.84
$
5,421
14,564
2,016
3,391
645
10,001
2,114
261
2,292
--
40,705
48,533
5,500
5,646
346
284
22,076
82,385
35,929
11,483
$ 24,446
1.68
$
1.65
$
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2006, 2005 and 2004
(In thousands)
2006
2005
2004
CASH FLOWS FROM OPERATING ACTIVITIES
Net income
Items not requiring (providing) cash
Depreciation and amortization
Provision for loan losses
Net amortization of investment securities
Deferred income taxes
Provision for losses on foreclosed assets
Loss on sale of securities, net of taxes
Bank owned life insurance income
Changes in
Interest receivable
Mortgage loans held for sale
Assets held in trading accounts
Other assets
Accrued interest and other liabilities
Income taxes payable
Net cash provided by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES
Net originations of loans
Purchase of bank and branch locations, net funds
received (disbursed)
Purchases of premises and equipment, net
Proceeds from sale of foreclosed assets
Proceeds from sale of securities
Proceeds from maturities of available-for-sale securities
Purchases of available-for-sale securities
Proceeds from maturities of held-to-maturity securities
Purchases of held-to-maturity securities
Purchases of bank owned life insurance
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits
Net change in short-term debt
Dividends paid
Proceeds from issuance of long-term debt
Repayment of long-term debt
Net change in Federal funds purchased and
securities sold under agreements to repurchase
Repurchase of common stock, net
Net cash provided by financing activities
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR
CASH AND CASH EQUIVALENTS, END OF YEAR
See Notes to Consolidated Financial Statements.
46
$ 27,481
$ 26,962
$ 24,446
5,501
3,762
188
2,221
--
--
(1,523)
(3,220)
766
143
3,508
3,596
(863)
41,560
4,861
7,526
370
1,342
--
168
(953)
(4,506)
1,389
285
(1,949)
1,366
142
37,003
5,385
8,027
686
2,946
89
--
(261)
(775)
2,965
(4,826)
4,733
(3,027)
(1,317)
39,071
(72,137)
(156,243)
(93,105)
--
(9,238)
1,049
2,161
130,345
(106,088)
29,431
(59,213)
(1,341)
(85,031)
115,573
(1,917)
(9,666)
7,275
(10,984)
(2,187)
(5,045)
93,049
1,945
(10,150)
2,700
1,225
88,382
(73,921)
32,921
(32,220)
(25,000)
(170,361)
98,609
5,658
(8,757)
1,821
(9,464)
2,438
(9,105)
81,200
(2,943)
(10,212)
3,229
17,958
134,106
(161,857)
46,496
(22,165)
--
(88,493)
38,813
(4,460)
(8,263)
9,900
(28,934)
(4,123)
(1,395)
1,538
49,578
(52,158)
(47,884)
101,573
$ 151,151
153,731
$ 101,573
201,615
$ 153,731
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
YEARS ENDED DECEMBER 31, 2006, 2005 and 2004
(In thousands, except share data)
Balance, December 31, 2003
Comprehensive income
Net income
Change in unrealized depreciation on
available-for-sale securities, net of
income tax credits of $503
Comprehensive income
Stock issued as bonus shares – 2,000 shares
Change in the par value of common stock
Stock issued in connection with the merger
of Alliance Bancorporation, Inc.
Exercise of stock options – 68,997 shares
Securities exchanged under
employee option plan
Repurchase of common stock
– 73,465 shares
Cash dividends declared ($0.57 per share)
Balance, December 31, 2004
Comprehensive income
Net income
Change in unrealized depreciation on
available-for-sale securities, net of
income tax credits of $1,942
Comprehensive income
Stock issued as bonus shares – 5,620 shares
Exercise of stock options – 106,420 shares
Securities exchanged under
employee option plan
Repurchase of common stock
– 371,453 shares
Cash dividends declared ($0.61 per share)
Balance, December 31, 2005
Comprehensive income
Net income
Change in unrealized depreciation on
available-for-sale securities, net of
income taxes of $1,296
Comprehensive income
Stock issued as bonus shares – 10,200 shares
Exercise of stock options – 106,880 shares
Securities exchanged under
employee option plan
Repurchase of common stock
– 203,100 shares
Cash dividends declared ($0.68 per share)
Balance, December 31, 2006
Common
Stock
$ 14,102
Surplus
$ 35,988
Accumulated
Other
Comprehensive
Income (Loss)
$
(286)
Undivided
Profits
$ 160,191
Total
$ 209,995
--
--
2
(14,523)
545
43
(22)
(1)
--
146
--
--
--
1
--
(4)
--
143
--
--
--
1
--
--
--
50
14,523
13,732
922
(606)
(1,783)
--
62,826
--
--
138
1,432
(988)
(9,685)
--
53,723
--
--
275
1,516
(1,291)
--
24,446
24,446
(838)
--
--
--
--
--
--
--
--
--
--
--
--
--
(1,124)
--
(8,263)
176,374
(838)
23,608
52
--
14,277
965
(628)
(1,784)
(8,263)
238,222
--
26,962
26,962
(3,236)
--
--
--
--
--
--
--
--
--
(4,360)
--
(8,757)
194,579
(3,236)
23,726
138
1,433
(988)
(9,689)
(8,757)
244,085
--
27,481
27,481
2,162
--
--
--
--
-
--
--
2,162
29,643
275
1,517
(1,291)
(2)
--
142
(5,545)
--
$ 48,678
$
--
--
(2,198)
--
(9,666)
$ 212,394
$
(5,547)
(9,666)
$ 259,016
See Notes to Consolidated Financial Statements.
47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1:
NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Nature of Operations
Simmons First National Corporation is primarily engaged in providing a full range of banking services to
individual and corporate customers through its subsidiaries and their branch banks in Arkansas. The Company is
subject to competition from other financial institutions. The Company also is subject to the regulation of certain
federal and state agencies and undergoes periodic examinations by those regulatory authorities.
Operating Segments
The Company is organized on a subsidiary bank-by-bank basis upon which management makes decisions
regarding how to allocate resources and assess performance. Each of the subsidiary banks provides a group of
similar community banking services, including such products and services as loans; time deposits, checking and
savings accounts; personal and corporate trust services; credit cards; investment management; and securities and
investment services. The individual bank segments have similar operating and economic characteristics and
have been reported as one aggregated operating segment.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the
United States of America requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reporting period. Actual results could
differ from those estimates.
Material estimates that are particularly susceptible to significant change relate to the determination of the
allowance for loan losses, the valuation of foreclosed assets and the allowance for foreclosure expenses. In
connection with the determination of the allowance for loan losses and the valuation of foreclosed assets,
management obtains independent appraisals for significant properties.
Principles of Consolidation
The consolidated financial statements include the accounts of Simmons First National Corporation and its
subsidiaries. Significant intercompany accounts and transactions have been eliminated in consolidation.
Reclassifications
Various items within the accompanying financial statements for previous years have been reclassified to provide
more comparative information. These reclassifications had no effect on net earnings.
Cash Equivalents
For purposes of the statement of cash flows, the Company considers due from banks, Federal funds sold and
securities purchased under agreements to resell as cash equivalents.
48
Investment Securities
Held-to-maturity securities, which include any security for which the Company has the positive intent and ability
to hold until maturity, are carried at historical cost adjusted for amortization of premiums and accretion of
discounts. Premiums and discounts are amortized and accreted, respectively, to interest income using the
constant yield method over the period to maturity.
Available-for-sale securities, which include any security for which the Company has no immediate plan to sell
but which may be sold in the future, are carried at fair value. Realized gains and losses, based on specifically
identified amortized cost of the individual security, are included in other income. Unrealized gains and losses
are recorded, net of related income tax effects, in stockholders' equity. Premiums and discounts are amortized
and accreted, respectively, to interest income using the constant yield method over the period to maturity.
Trading securities, which include any security held primarily for near-term sale, are carried at fair value.
Gains and losses on trading securities are included in other income.
Interest and dividends on investments in debt and equity securities are included in income when earned.
Mortgage Loans Held For Sale
Mortgage loans held for sale are carried at the lower of cost or fair value, determined using an aggregate basis.
Write-downs to fair value are recognized as a charge to earnings at the time the decline in value occurs.
Forward commitments to sell mortgage loans are acquired to reduce market risk on mortgage loans in the
process of origination and mortgage loans held for sale. The forward commitments acquired by the Company
for mortgage loans in process of origination are not mandatory forward commitments. These commitments are
structured on a best efforts basis; therefore the Company is not required to substitute another loan or to buyback
the commitment if the original loan does not fund. Gains and losses resulting from sales of mortgage loans are
recognized when the respective loans are sold to investors. Gains and losses are determined by the difference
between the selling price and the carrying amount of the loans sold, net of discounts collected or paid. Fees
received from borrowers to guarantee the funding of mortgage loans held for sale are recognized as income or
expense when the loans are sold or when it becomes evident that the commitment will not be used.
Loans
Loans that management has the intent and ability to hold for the foreseeable future or until maturity or pay-offs
are reported at their outstanding principal adjusted for any loans charged off and any deferred fees or costs on
originated loans and unamortized premiums or discounts on purchased loans. Interest income is reported on the
interest method and includes amortization of net deferred loan fees and costs over the estimated life of the loan.
Generally, loans are placed on nonaccrual status at ninety days past due and interest is considered a loss, unless
the loan is well secured and in the process of collection.
Discounts and premiums on purchased residential real estate loans are amortized to income using the interest
method over the remaining period to contractual maturity, adjusted for anticipated prepayments. Discounts and
premiums on purchased consumer loans are recognized over the expected lives of the loans using methods that
approximate the interest method.
Derivative Financial Instruments
The Company may enter into derivative contracts for the purposes of managing exposure to interest rate risk to
meet the financing needs of its customers. The Company records all derivatives on the balance sheet at fair
value. Historically, the Company’s policy has been not to invest in derivative type investments but in an effort
to meet the financing needs of its customers, the Company entered into its first fair value hedge during the
second quarter of 2003. Fair value hedges include interest rate swap agreements on fixed rate loans. For
derivatives designated as hedging the exposure to changes in the fair value of the hedged item, the gain or loss is
49
recognized in earnings in the period of change together with the offsetting loss or gain of the hedging
instrument. The fair value hedge is considered to be highly effective and any hedge ineffectiveness was deemed
not material. The notional amount of the loan being hedged was $1.9 million at December 31, 2006 and $2.0
million at December 31, 2005.
Allowance for Loan Losses
The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan
losses charged to income. Loan losses are charged against the allowance when management believes the
uncollectability of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.
The allowance is maintained at a level considered adequate to provide for potential loan losses related to
specifically identified loans as well as probable credit losses inherent in the remainder of the loan portfolio that
have been incurred as of period end. This estimate is based on management's evaluation of the loan portfolio, as
well as on prevailing and anticipated economic conditions and historical losses by loan category. General
reserves have been established, based upon the aforementioned factors and allocated to the individual loan
categories. Allowances are accrued on specific loans evaluated for impairment for which the basis of each loan,
including accrued interest, exceeds the discounted amount of expected future collections of interest and principal
or, alternatively, the fair value of loan collateral. The unallocated reserve generally serves to compensate for the
uncertainty in estimating loan losses, including the possibility of changes in risk ratings and specific reserve
allocations in the loan portfolio as a result of the Company’s ongoing risk management system.
A loan is considered impaired when it is probable that the Company will not receive all amounts due according
to the contractual terms of the loan. This includes loans that are delinquent 90 days or more, nonaccrual loans
and certain other loans identified by management. Certain other loans identified by management consist of
performing loans with specific allocations of the allowance for loan losses. Specific allocations are applied
when quantifiable factors are present requiring a greater allocation than that established using the classified asset
approach, as defined by the Office of the Comptroller of the Currency. Accrual of interest is discontinued and
interest accrued and unpaid is removed at the time such amounts are delinquent 90 days, unless management is
aware of circumstances which warrant continuing the interest accrual. Interest is recognized for nonaccrual
loans only upon receipt and only after all principal amounts are current according to the terms of the contract.
Premises and Equipment
Depreciable assets are stated at cost, less accumulated depreciation. Depreciation is charged to expense using
the straight-line method over the estimated useful lives of the assets. Leasehold improvements are capitalized
and amortized by the straight-line method over the terms of the respective leases or the estimated useful lives of
the improvements whichever is shorter.
Foreclosed Assets Held For Sale
Assets acquired by foreclosure or in settlement of debt and held for sale are valued at estimated fair value as of
the date of foreclosure and a related valuation allowance is provided for estimated costs to sell the assets.
Management evaluates the value of foreclosed assets held for sale periodically and increases the valuation
allowance for any subsequent declines in fair value. Changes in the valuation allowance are charged or credited
to other expense.
Goodwill
Goodwill represents the excess of cost over the fair value of net assets of acquired subsidiaries and branches.
Financial Accounting Standards Board Statement No’s. 142 and No. 147 eliminated the amortization for these
assets as of January 1, 2002. While goodwill is not amortized, impairment testing of goodwill is performed
annually, or more frequently if certain conditions occur.
50
Core Deposit Premiums
Core deposit premiums represent the amount allocated to the future earnings potential of acquired deposits. The
unamortized core deposit premiums are being amortized using both straight-line and accelerated methods over
periods ranging from 8 to 11 years. Unamortized core deposit premiums are tested for impairment annually, or
more frequently if certain conditions occur.
Fee Income
Periodic bankcard fees, net of direct origination costs, are recognized as revenue on a straight-line basis over the
period the fee entitles the cardholder to use the card. Origination fees and costs for other loans are being
amortized over the estimated life of the loan.
Income Taxes
Deferred tax liabilities and assets are recognized for the tax effects of differences between the financial
statement and tax bases of assets and liabilities. A valuation allowance is established to reduce deferred tax
assets if it is more likely than not that a deferred tax asset will not be realized.
Earnings Per Share
Basic earnings per share are computed based on the weighted average number of shares outstanding during each
year. Diluted earnings per share are computed using the weighted average common shares and all potential
dilutive common shares outstanding during the period.
The computation of per share earnings is as follows:
(In thousands, except per share data)
2006
2005
2004
Net Income
$ 27,481
$ 26,962
$ 24,446
Average common shares outstanding
Average common share stock options outstanding
Average diluted common shares
Basic earnings per share
Diluted earnings per share
14,226
248
14,474
$
$
1.93
1.90
14,375
312
14,687
$
$
1.88
1.84
14,515
333
14,848
$
$
1.68
1.65
51
Stock-Based Compensation
On January 1, 2006, the Company began recognizing compensation expense for stock options with the adoption
of Statement of Financial Accounting Standards (SFAS) No. 123, Share-Based Payment (Revised 2004). See
Note 11, Employee Benefit Plans, for additional information.
SFAS No. 123R requires pro forma disclosures of net income and earnings per share for all periods prior to the
adoption of the fair value accounting method for stock-based employee compensation. The pro forma
disclosures presented in Note 11, Employee Benefit Plans, use the fair value method of SFAS 123 to measure
compensation expense for stock-based compensation plans for years prior to 2006.
NOTE 2:
ACQUISITIONS
On November 1, 2005, the Company completed a branch purchase in which Bank of Little Rock sold its Southwest
Little Rock, Arkansas location at 8500 Geyer Springs Road to Simmons First National Bank, a subsidiary of the
Company. The acquisition included approximately $3.5 million in total deposits in addition to the fixed assets used
in the branch operation. No loans were involved in the transaction. As a result of this transaction, the Company
recorded additional goodwill and core deposit premiums of $151,000 and $31,000, respectively.
On June 25, 2004, the Company completed a branch purchase in which Cross County Bank sold its Weiner,
Arkansas location to Simmons First Bank of Jonesboro, a subsidiary of the Company. The acquisition included
approximately $6 million in total deposits and the fixed assets used in the branch operation. No loans were
involved in the transaction. As a result of this transaction, the Company recorded additional goodwill and core
deposit premiums of $344,000 and $117,000, respectively.
On March 19, 2004, the Company merged with Alliance Bancorporation, Inc. (“ABI”). ABI owned Alliance Bank
of Hot Springs, Hot Springs, Arkansas with consolidated assets (including goodwill and core deposits), loans and
deposits of approximately $155 million, $70 million and $110 million, respectively. During the second quarter of
2004, Alliance Bank changed its name to Simmons First Bank of Hot Springs and continues to operate as a separate
community bank with virtually the same board of directors, management and staff. As a result of this transaction,
the Company recorded additional goodwill and core deposit premiums of $14,690,000 and $1,245,000, respectively.
The system integration for the 2005 acquisition was completed on the acquisition date. The system integration for
the 2004 mergers and acquisitions were completed during the second quarter of 2004.
52
NOTE 3:
INVESTMENT SECURITIES
The amortized cost and fair value of investment securities that are classified as held-to-maturity and available-
for-sale are as follows:
Years Ended December 31
2006
2005
(In thousands)
Held-to-Maturity
U.S. Treasury
U.S. Government
agencies
Mortgage-backed
securities
State and political
subdivisions
Other securities
Gross
Amortized Unrealized Unrealized
(Losses)
Gains
Gross
Cost
Estimated
Fair
Value
Gross
Amortized Unrealized Unrealized
(Losses)
Gains
Cost
Fair
Value
Gross Estimated
$
-- $
-- $
-- $
-- $
1,004
$
-- $
(20) $
984
54,998
367
(272)
55,093
28,000
155
3
(1)
157
187
--
3
(473)
27,527
--
190
122,472
2,319
667
--
(892)
--
122,247
2,319
117,148
3,960
662
--
(1,298)
--
116,512
3,960
Total
$ 179,944 $ 1,037 $(1,165) $ 179,816 $ 150,299
$ 665 $ (1,791) $ 149,173
Available-for-Sale
U.S. Treasury
U.S. Government
agencies
Mortgage-backed
securities
State and political
subdivisions
Other securities
$
6,970 $
-- $
(30) $
6,940 $ 10,989
$
-- $ (102) $ 10,887
326,301
287
(4,177) 322,411
348,570
35
(7,615)
340,990
3,032
--
(76)
2,956
3,392
9
(92)
3,309
1,360
13,035
10
470
--
--
1,370
13,505
3,014
12,561
39
690
--
--
3,053
13,251
Total
$ 350,698 $ 767 $ (4,283) $ 347,182 $ 378,526
$ 773 $ (7,809) $ 371,490
Certain investment securities are valued less than their historical cost. Total fair value of these investments at
December 31, 2006, was $404.5 million, which is approximately 76.8% of the Company’s available-for-sale and held-
to-maturity investment portfolio. These declines primarily resulted from recent increases in market interest rates.
Based on evaluation of available evidence, management believes the declines in fair value for these securities are
temporary. It is management’s intent to hold these securities to maturity.
Should the impairment of any of these securities become other than temporary, the cost basis of the investment will be
reduced and the resulting loss recognized in net income in the period the other-than-temporary impairment is identified.
53
The following table shows the Company’s investments’ estimated fair value and gross unrealized losses, aggregated by
investment category and length of time that individual securities have been in a continuous unrealized loss position at
December 31, 2006:
Less Than 12 Months
Estimated Gross
Fair Unrealized
Value
Losses
12 Months or More
Estimated
Fair
Value
Gross
Unrealized
Losses
Total
Estimated
Fair
Value
Gross
Unrealized
Losses
(In thousands)
Held-to-Maturity
U.S. Treasury
U.S. Government Agencies
Mortgage-backed securities
State and political subdivisions
$
-- $
9,990
--
17,290
$
-- $
8
--
139
--
22,736
86
49,328
-- $
-- $
32,726
86
66,618
264
1
753
--
272
1
892
Total
$ 27,280 $ 147 $ 72,150
$ 1,018 $ 99,430 $
1,165
Available-for-Sale
U.S. Treasury
U.S. Government Agencies
Mortgage-backed securities
State and political subdivisions
$ 2,471 $
42,455
788
--
2 $ 4,469 $
252,679
2,167
--
287
23
--
28 $ 6,940 $
295,134
2,955
--
3,890
53
--
30
4,177
76
--
Total
$ 45,714 $
312 $ 259,315 $
3,971 $305,029 $
4,283
The following table shows the Company’s investments’ estimated fair value and gross unrealized losses, aggregated by
investment category and length of time that individual securities have been in a continuous unrealized loss position at
December 31, 2005:
Less Than 12 Months
Estimated Gross
Fair Unrealized
Value
Losses
12 Months or More
Estimated
Fair
Value
Gross
Unrealized
Losses
Total
Estimated
Fair
Value
Gross
Unrealized
Losses
(In thousands)
Held-to-Maturity
U.S. Treasury
U.S. Government Agencies
Mortgage-backed securities
State and political subdivisions
-- $
$
10,901
49
45,410
-- $
99
--
515
984
16,627
45
33,308
$
20 $
374
--
783
984 $
27,528
94
78,718
20
473
--
1,298
Total
$ 56,360 $ 614 $ 50,964
$ 1,177 $107,324 $
1,791
Available-for-Sale
U.S. Treasury
U.S. Government Agencies
Mortgage-backed securities
State and political subdivisions
$ 2,980 $
57,869
774
--
16 $ 7,907 $
678
9
--
284,175
1,706
--
86 $ 10,887 $
342,044
2,480
--
6,937
83
--
102
7,615
92
--
Total
$ 61,623 $
703 $ 293,788 $
7,106 $355,411 $
7,809
54
Income earned on the above securities for the years ended December 31, 2006, 2005 and 2004 is as follows:
(In thousands)
Taxable
Held-to-maturity
Available-for-sale
Non-taxable
Held-to-maturity
Available-for-sale
Total
2006
2005
2004
$ 2,007
13,698
$ 1,056
12,842
$ 1,436
10,980
4,635
98
4,588
191
4,794
237
$ 20,438
$ 18,677
$ 17,447
The Statement of Stockholders’ Equity includes other comprehensive income (loss). Other comprehensive
income (loss) for the Company includes the change in the unrealized depreciation on available-for-sale
securities. The changes in the unrealized depreciation on available-for-sale securities for the years ended
December 31, 2006, 2005 and 2004 are as follows:
(In thousands)
2006
2005
2004
Unrealized holding gains (losses) arising during the period
Losses realized in net income
$ 2,162
--
$ (3,511)
275
$
(838)
--
Net change in unrealized depreciation
on available-for-sale securities
$ 2,162
$ (3,236)
$
(838)
The amortized cost and estimated fair value by maturity of securities are shown in the following table. Securities are
classified according to their contractual maturities without consideration of principal amortization, potential
prepayments or call options. Accordingly, actual maturities may differ from contractual maturities.
(In thousands)
One year or less
After one through five years
After five through ten years
After ten years
Other securities
Held-to-Maturity
Available-for-Sale
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
$ 20,549
57,399
84,048
16,559
1,389
$ 20,501
57,224
84,083
16,619
1,389
$ 93,047
130,260
112,237
2,119
13,035
$ 92,284
127,957
111,369
2,067
13,505
Total
$ 179,944
$ 179,816
$ 350,698
$ 347,182
The carrying value, which approximates the fair value, of securities pledged as collateral, to secure public
deposits and for other purposes, amounted to $400,668,000 at December 31, 2006 and $411,580,000 at
December 31, 2005.
The book value of securities sold under agreements to repurchase amounted to $80,566,000 and $67,778,000 for
December 31, 2006 and 2005, respectively.
55
The Company had no gross realized gains during the years ended December 31, 2006, 2005 and 2004, resulting
from the sales and/or calls of securities. Gross realized losses of $0, $275,000 and $0 resulting from sales and/or
calls of securities were realized for the years ended December 31, 2006, 2005 and 2004, respectively.
Most of the state and political subdivision debt obligations are non-rated bonds and represent small Arkansas
issues, which are evaluated on an ongoing basis.
NOTE 4:
LOANS AND ALLOWANCE FOR LOAN LOSSES
The various categories of loans are summarized as follows:
(In thousands)
Consumer
Credit cards
Student loans
Other consumer
Real estate
Construction
Single family residential
Other commercial
Commercial
Commercial
Agricultural
Financial institutions
Other
2006
2005
$ 143,359
84,831
142,596
$ 143,058
89,818
138,051
277,411
364,450
512,404
178,028
62,293
4,766
13,357
238,898
340,839
479,684
184,920
68,761
20,499
13,579
Total loans before allowance for loan losses
$1,783,495
$1,718,107
At December 31, 2006 and 2005, impaired loans totaled $12,829,000 and $14,804,000, respectively. All impaired
loans had either specific or general allocations within the allowance for loan losses. Allocations of the allowance for
loan losses relative to impaired loans at December 31, 2006 and 2005 were $3,418,000 and $3,868,000, respectively.
Approximately, $350,000, $452,000 and $477,000 of interest income was recognized on average impaired loans of
$13,072,000, $15,748,000 and $18,937,000 for 2006, 2005 and 2004, respectively. Interest recognized on impaired
loans on a cash basis during 2006, 2005 and 2004 was immaterial.
At December 31, 2006 and 2005, accruing loans delinquent 90 days or more totaled $1,097,000 and $1,131,000,
respectively. Non-accruing loans at December 31, 2006 and 2005 were $8,958,000 and $7,296,000, respectively.
As of December 31, 2006, credit card loans, which are unsecured, were $143,359,000 or 8.0%, of total loans versus
$143,058,000 or 8.3%, of total loans at December 31, 2005. The credit card loans are diversified by geographic region
to reduce credit risk and minimize any adverse impact on the portfolio. Credit card loans are regularly reviewed to
facilitate the identification and monitoring of creditworthiness.
56
Transactions in the allowance for loan losses are as follows:
(In thousands)
Balance, beginning of year
Additions
Provision for loan losses
Allowance for loan losses of acquired banks and branches
Deductions
Losses charged to allowance, net of recoveries
of $3,106 for 2006, $3,815 for 2005 and $2,431 for 2004
Reclassification of reserve for unfunded commitments (1)
2006
2005
2004
$ 26,923
$ 26,508
$ 25,347
3,762
--
30,685
3,775
1,525
7,526
--
34,034
7,111
--
8,027
1,108
34,482
7,974
--
Balance, end of year
$ 25,385
$ 26,923
$ 26,508
(1) On March 31, 2006, the reserve for unfunded commitments was reclassified from the allowance for loan losses
to other liabilities.
NOTE 5:
GOODWILL AND CORE DEPOSIT PREMIUMS
Goodwill is tested annually for impairment. If the implied fair value of goodwill is lower than its carrying amount,
goodwill impairment is indicated and goodwill is written down to its implied fair value. Subsequent increases in
goodwill value are not recognized in the financial statements. Goodwill totaled $60.6 million at December 31, 2006,
unchanged from December 31, 2005, as the Company made no acquisitions during the year ended December 31, 2006.
The carrying basis and accumulated amortization of core deposit premiums (net of core deposit premiums that were
fully amortized) at December 31, 2006 and 2005 were:
(In thousands)
December 31, 2006
December 31, 2005
Gross
Gross
Carrying Accumulated
Amount Amortization
Net
Carrying Accumulated
Amount Amortization
Net
Core deposit premiums
$ 7,246
$ 3,047
$ 4,199
$ 7,246
$ 2,217
$ 5,029
Core deposit premium amortization expense recorded for the years ended December 31, 2006, 2005 and 2004, was
$830,000, $830,000 and $791,000, respectively. The Company’s estimated amortization expense for each of the
following five years is: 2007 – $818,000; 2008 – $807,000; 2009 – $802,000; 2010 – $699,000; and
2011 – $451,000.
NOTE 6:
TIME DEPOSITS
Time deposits included approximately $450,310,000 and $364,177,000 of certificates of deposit of $100,000 or
more, at December 31, 2006 and 2005, respectively. Brokered deposits were $42,522,000 and $50,725,000 at
December 31, 2006 and 2005, respectively. At December 31, 2006, time deposits with a remaining maturity of
one year or more amounted to $219,888,000. Maturities of all time deposits are as follows:
2007 – $911,553,000; 2008 – $194,426,000; 2009 – $24,950,000; 2010 – $265,000; 2011 – $247,000 and none
thereafter.
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.
57
NOTE 7:
INCOME TAXES
The provision for income taxes is comprised of the following components:
(In thousands)
2006
2005
2004
Income taxes currently payable
Deferred income taxes
$ 10,219
2,221
$ 11,161
1,342
$ 8,537
2,946
Provision for income taxes
$ 12,440
$ 12,503
$ 11,483
The tax effects of temporary differences related to deferred taxes shown on the balance sheet were:
(In thousands)
Deferred tax assets
Allowance for loan losses
Valuation of foreclosed assets
Deferred compensation payable
FHLB advances
Vacation compensation
Loan interest
Available-for-sale securities
Other
Deferred tax liabilities
Accumulated depreciation
Deferred loan fee income and expenses, net
FHLB stock dividends
Goodwill and core deposit premium amortization
Other
Net deferred tax assets included in other assets
on balance sheets
2006
2005
$ 8,543
63
1,275
58
740
140
1,319
174
12,312
(852)
(787)
(887)
(6,051)
(880)
(9,457)
$ 8,329
74
1,109
97
727
241
2,615
363
13,555
(1,128)
(657)
(740)
(3,852)
(807)
(7,184)
$ 2,855
$ 6,371
A reconciliation of income tax expense at the statutory rate to the Company's actual income tax expense is
shown below.
(In thousands)
2006
2005
2004
Computed at the statutory rate (35%)
Increase (decrease) resulting from
Tax exempt income
Non-deductible interest
State income taxes
Other non-deductible expenses
Other differences, net
$13,972
$13,813
$12,575
(1,858)
276
792
97
(839)
(1,882)
187
862
86
(563)
(1,988)
137
822
112
(175)
Actual tax provision
$12,440
$12,503
$11,483
58
NOTE 8:
SHORT-TERM AND LONG-TERM DEBT
Long-term debt at December 31, 2006, and 2005 consisted of the following components.
(In thousands)
2006
2005
Note Payable, due 2007, at a floating rate of
0.90% above the one-month LIBOR rate, reset
monthly, unsecured
FHLB advances, due 2006 to 2024, 2.58% to 8.41%,
secured by residential real estate loans
Trust preferred securities, due 2033, fixed at 8.25%,
callable in 2008 without penalty
Trust preferred securities, due 2033, floating rate
of 2.80% above the three-month LIBOR rate,
reset quarterly, callable in 2008 without penalty
Trust preferred securities, due 2033, fixed rate of 6.97%
through 2010, thereafter, at a floating rate of
2.80% above the three-month LIBOR rate, reset
quarterly, callable in 2010 without penalty
Total long-term debt
$
2,000
$
4,000
50,381
10,310
52,090
10,310
10,310
10,310
10,310
10,310
$ 83,311
$ 87,020
At December 31, 2006 the Company had Federal Home Loan Bank (“FHLB”) advances with original maturities of one
year or less of $5.0 million with a weighted average rate of 5.26% which are not included in the above table.
The trust preferred securities are tax-advantaged issues that qualify for Tier 1 capital treatment. Distributions on these
securities are included in interest expense on long-term debt. Each of the trusts is a statutory business trust organized
for the sole purpose of issuing trust securities and investing the proceeds thereof in junior subordinated debentures of
the Corporation, the sole asset of each trust. The preferred trust securities of each trust represent preferred beneficial
interests in the assets of the respective trusts and are subject to mandatory redemption upon payment of the junior
subordinated debentures held by the trust. The common securities of each trust are wholly-owned by the Corporation.
Each trust’s ability to pay amounts due on the trust preferred securities is solely dependent upon the Corporation
making payment on the related junior subordinated debentures. The Corporation’s obligations under the junior
subordinated securities and other relevant trust agreements, in aggregate, constitute a full and unconditional guarantee
by the Corporation of each respective trust’s obligations under the trust securities issued by each respective trust.
Aggregate annual maturities of long-term debt at December 31, 2006 are:
(In thousands)
Year
2007
2008
2009
2010
2011
Thereafter
Annual
Maturities
$ 10,383
12,987
5,842
5,087
3,881
45,131
Total
$ 83,311
59
NOTE 9:
CAPITAL STOCK
On May 25, 2004, the Company announced the adoption by the Board of Directors of a repurchase program.
The program authorizes the repurchase of up to 5% of the outstanding Common Stock, or 733,485 shares.
Under the repurchase program, there is no time limit for the stock repurchases, nor is there a minimum number
of shares the Company intends to repurchase. The Company may discontinue purchases at any time that
management determines additional purchases are not warranted. The shares are to be purchased from time to
time at prevailing market prices, through open market or unsolicited negotiated transactions, depending upon
market conditions. The Company intends to use the repurchased shares to satisfy stock option exercise, payment
of future stock dividends and general corporate purposes.
During the year ended December 31, 2006, the Company repurchased a total of 203,100 shares of stock with a
weighted average repurchase price of $27.80 per share. Under the current stock repurchase plan, the Company
can repurchase an additional 340,967 shares.
NOTE 10: TRANSACTIONS WITH RELATED PARTIES
At December 31, 2006 and 2005, the subsidiary banks had extensions of credit to executive officers, directors
and to companies in which the banks' executive officers or directors were principal owners, in the amount of
$51.4 million in 2006 and $61.5 million in 2005.
(In thousands)
Balance, beginning of year
New extensions of credit
Repayments
Balance, end of year
2006
2005
$ 61,544
26,734
(36,836)
$ 55,293
26,328
(20,077)
$ 51,442
$ 61,544
In management's opinion, such loans and other extensions of credit and deposits (which were not material) were
made in the ordinary course of business and were made on substantially the same terms (including interest rates
and collateral) as those prevailing at the time for comparable transactions with other persons. Further, in
management's opinion, these extensions of credit did not involve more than the normal risk of collectability or
present other unfavorable features.
NOTE 11: EMPLOYEE BENEFIT PLANS
Retirement Plans
The Company’s 401(k) retirement plan covers substantially all employees. Contribution expense totaled
$525,000, $505,000 and $408,000, in 2006, 2005 and 2004, respectively.
The Company has a discretionary profit sharing and employee stock ownership plan covering substantially all
employees. Contribution expense totaled $2,370000 for 2006, $2,258,000 for 2005 and $2,153,000 for 2004.
The Company also provides 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 $481,000 for 2006, $306,000 for 2005 and $130,000 for 2004. Such charges reflect the straight-line accrual
over the employment period of the present value of benefits due each participant, as of their full eligibility date, using
an 8 percent discount factor.
60
Stock-Based Compensation Plans
Prior to January 1, 2006, employee compensation expense under stock option plans was reported only if options
were granted below market price at grant date in accordance with the intrinsic value method of Accounting
Principles Board Opinion (APB) No.25, "Accounting for Stock Issued to Employees," and related
interpretations. Because the exercise price of the Company's employee stock options always equaled the market
price of the underlying stock on the date of grant, no compensation expense was recognized on options granted.
As stated in Note 1, Significant Accounting Policies, the Company adopted the provisions of SFAS 123R on
January 1, 2006. SFAS 123R eliminates the ability to account for stock-based compensation using APB 25 and
requires that such transactions be recognized as compensation cost in the income statement based on their fair
values on the measurement date, which is generally the date of the grant. The Company transitioned to fair-
value based accounting for stock-based compensation using a modified version of prospective application
("modified prospective application"). Under modified prospective application, as it is applicable to the
Company, SFAS 123R applies to new awards and to awards modified, repurchased, or cancelled after January 1,
2006. Additionally, compensation cost for the portion of awards for which the requisite service has not been
rendered (generally referring to non-vested awards) that were outstanding as of January 1, 2006, will be
recognized as the remaining requisite service is rendered during the period of and/or the periods after the
adoption of SFAS 123R. The attribution of compensation cost for those earlier awards is based on the same
method and on the same grant date fair values previously determined for the pro forma disclosures required for
companies that did not previously adopt the fair value accounting method for stock-based employee
compensation.
Stock-based compensation expense for all stock-based compensation awards granted after January 1, 2006, is
based on the grant date fair value. For all awards except stock option awards, the grant date fair value is the
market value per share as of the grant date. For stock option awards, the fair value is estimated at the date of
grant using the Black-Scholes option-pricing model. This model requires the input of highly subjective
assumptions, changes to which can materially affect the fair value estimate. Additionally, there may be other
factors that would otherwise have a significant effect on the value of employee stock options granted but are not
considered by the model. Accordingly, while management believes that the Black-Scholes option-pricing model
provides a reasonable estimate of fair value, the model does not necessarily provide the best single measure of
fair value for the Company's employee stock options.
The Company’s Board of Directors has adopted various stock compensation plans. The plans provide for the
grant of incentive stock options, nonqualified stock options, stock appreciation rights, and bonus stock awards.
Pursuant to the plans, shares are reserved for future issuance by the Company, upon exercise of stock options or
awarding of bonus shares granted to officers and other key employees.
The fair value of each option award is estimated on the date of grant using the Black-Scholes option-pricing
model that uses various assumptions. Expected volatility is based on historical volatility of the Company’s stock
and other factors. The Company uses historical data to estimate option exercise and employee termination
within the valuation model. The expected term of options granted is derived from the output of the option
valuation model and represents the period of time that options granted are expected to be outstanding. The risk-
free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at
the time of grant. Forfeitures are estimated at the time of grant, and are based partially on historical experience.
61
The table below summarizes the transactions under the Company's stock option plans at December 31, 2006,
2005 and 2004 and changes during the years then ended:
2006
Weighted
Average
Exercisable
Price
Shares
(000)
2005
Weighted
Average
2004
Weighted
Average
Shares Exercisable Shares Exercisable
(000)
(000)
Price
Price
Outstanding, beginning of year
Granted
Forfeited/Expired
Exercised
609
60
(45)
(107)
$ 14.77
26.19
13.50
14.19
676
40
(1)
(106)
$ 14.00
24.53
22.63
13.46
698
68
(21)
(69)
$ 13.00
23.85
12.89
14.05
Outstanding, end of year
517
16.32
609
14.77
676
14.00
Exercisable, end of year
452
$ 14.97
595
$ 14.55
535
$ 13.25
The following table summarizes information about stock options under the plans outstanding at December 31, 2006:
Options Outstanding
Weighted
Average
Remaining
Contractual
Life
Number
Outstanding
(000)
333
16
66
40
62
1.9 Years
1.8 Years
4.2 Years
5.4 Years
6.3 Years
Weighted
Average
Exercise
Price
$12.06
$15.84
$23.69
$24.50
$26.20
Options Exercisable
Number
Exercisable
(000)
333
16
59
35
9
Weighted
Average
Exercise
Price
$12.06
$15.84
$23.68
$24.50
$26.21
Range of
Exercise Prices
$10.56
$15.35
$22.63
$24.50
$26.19
to $12.22
to $16.32
to $23.78
to $24.50
to $27.67
The total intrinsic value of outstanding stock options and outstanding exercisable stock options was $6.4 million and
$6.2 million at December 31, 2006. The total intrinsic value of stock options exercised was $1.6 million in 2006,
$1.4 million in 2005 and $872 thousand in 2004.
As a result of applying the provisions of SFAS 123R during 2006, the Company recognized additional stock-
based compensation expense related to stock options of $89 thousand. The increase in stock-based
compensation expense related to stock options during 2006 resulted in no change in basic or diluted earnings per
share.
Stock-based compensation expense totaled $233 thousand in 2006, $117 thousand in 2005 and $118 thousand in
2004. Stock-based compensation expense is recognized ratably over the requisite service period for all stock-based
awards. Unrecognized stock-based compensation expense related to stock options totaled $287 thousand at
December 31, 2006. At such date, the weighted-average period over which this unrecognized expense is expected
to be recognized was 2.00 years. Unrecognized stock-based compensation expense related to non-vested stock
awards was $437 thousand at December 31, 2006. At such date, the weighted-average period over which this
unrecognized expense is expected to be recognized was 2.24 years.
As of December 31, 2006, there was $724 thousand of total unrecognized compensation cost related to nonvested
share-based compensation arrangements. That cost is expected to be recognized over a weighted-average period of
2.15 years.
62
The fair value of the Company’s employee stock options granted is estimated on the date of grant using the Black-
Scholes option-pricing model. The weighted-average fair value of stock options granted was $5.01 for 2006, $5.11
for 2005 and $5.56 for 2004. The Company estimated expected market price volatility and expected term of the
options based on historical data and other factors. The weighted-average assumptions used to determine the fair
value of options granted are detailed in the table below:
Expected dividend yield
Expected stock price volatility
Risk-free interest rate
Expected life of options
2006
2.67%
17.74%
4.84%
5 – 10 Years
2005
2.61%
16.00%
5.17%
7 Years
2004
2.54%
16.00
5.17%
10 Years
The following pro forma information presents net income and earnings per share for 2005 and 2004 as if the fair
value method of SFAS 123R had been applied to measure compensation cost for stock-based compensation
plans.
(In thousands, except per share data)
Net income, as reported
Add: Stock-based employee compensation included
in reported net income, net of related tax effects
Less: Total stock-based employee compensation
expense determined under fair value based method
for all awards, net of related tax effects
Pro forma net income
Earnings per share:
Basic – as reported
Basic – pro forma
Diluted – as reported
Diluted – pro forma
2005
$ 26,962
73
(544)
$ 26,491
$ 1.88
$ 1.84
$ 1.84
$ 1.80
2004
$ 24,446
73
(283)
$ 24,236
$ 1.68
$ 1.67
$ 1.65
$ 1.63
NOTE 12: ADDITIONAL CASH FLOW INFORMATION
In connection with cash acquisitions accounted for using the purchase method, the Company acquired assets and
assumed liabilities as follows:
(In thousands)
2006
2005
2004
Liabilities assumed
Fair value of assets acquired
Cash received (disbursed)
Funds acquired
Net funds received (disbursed)
Additional cash payment information
Interest paid
Income taxes paid
$
$
--
--
--
--
--
$
$
2,156
311
1,845
100
1,945
$ 152,955
159,637
(6,682)
3,739
(2,943)
$
$ 65,108
7,926
$ 41,007
11,232
$ 30,245
10,090
63
NOTE 13: OTHER OPERATING EXPENSES
Other operating expenses consist of the following:
(In thousands)
2006
2005
2004
Professional services
Postage
Telephone
Credit card expense
Operating supplies
Amortization of core deposit premiums
Write off of deferred debt issuance cost
Other expense
Total
$ 2,490
2,278
1,961
3,235
1,611
830
--
10,712
$ 23,117
$ 2,201
2,281
1,847
2,693
1,555
830
--
10,839
$ 22,246
$ 2,029
2,256
1,784
2,374
1,528
791
771
10,543
$ 22,076
The Company had aggregate annual equipment rental expense of approximately $534,000 in 2006, $481,000 in 2005
and $406,000 in 2004. The Company had aggregate annual occupancy rental expense of approximately $1,106,000 in
2006, $1,111,000 in 2005 and $1,079,000 in 2004.
NOTE 14: DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of each class of financial
instruments:
Cash and Cash Equivalents
The carrying amount for cash and cash equivalents approximates fair value.
Investment Securities
Fair values for investment securities equal quoted market prices, if available. If quoted market prices are not
available, fair values are estimated based on quoted market prices of similar securities.
Loans
The fair value of loans is estimated by discounting the future cash flows, using the current rates at which similar
loans would be made to borrowers with similar credit ratings and for the same remaining maturities. Loans with
similar characteristics were aggregated for purposes of the calculations. The carrying amount of accrued interest
approximates its fair value.
Deposits
The fair value of demand deposits, savings accounts and money market deposits is the amount payable on
demand at the reporting date (i.e., their carrying amount). The fair value of fixed-maturity time deposits is
estimated using a discounted cash flow calculation that applies the rates currently offered for deposits of similar
remaining maturities. The carrying amount of accrued interest payable approximates its fair value.
Federal Funds Purchased, Securities Sold Under Agreement to Repurchase
and Short-Term Debt
The carrying amount for Federal funds purchased, securities sold under agreement to repurchase and short-term
debt are a reasonable estimate of fair value.
64
Long-Term Debt
Rates currently available to the Company for debt with similar terms and remaining maturities are used to
estimate the fair value of existing debt.
Commitments to Extend Credit, Letters of Credit and Lines of Credit
The fair value of commitments is estimated using the fees currently charged to enter into similar agreements,
taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties.
For fixed rate loan commitments, fair value also considers the difference between current levels of interest rates
and the committed rates. The fair values of letters of credit and lines of credit are based on fees currently
charged for similar agreements or on the estimated cost to terminate or otherwise settle the obligations with the
counterparties at the reporting date.
The following table represents estimated fair values of the Company's financial instruments. The fair values of
certain of these instruments were calculated by discounting expected cash flows. This method involves
significant judgments by management considering the uncertainties of economic conditions and other factors
inherent in the risk management of financial instruments. Fair value is the estimated amount at which financial
assets or liabilities could be exchanged in a current transaction between willing parties, other than in a forced or
liquidation sale. Because no market exists for certain of these financial instruments and because management
does not intend to sell these financial instruments, the Company does not know whether the fair values shown
below represent values at which the respective financial instruments could be sold individually or in the
aggregate.
(In thousands)
Financial assets
Cash and cash equivalents
Held-to-maturity securities
Available-for-sale securities
Assets held in trading accounts
Mortgage loans held for sale
Interest receivable
Loans, net
December 31, 2006
Fair
Value
Carrying
Amount
December 31, 2005
Fair
Value
Carrying
Amount
$ 151,151
179,944
347,182
4,487
7,091
21,974
1,758,110
$ 151,151
179,816
347,182
4,487
7,091
21,974
1,777,257
$ 101,573
150,299
371,490
4,631
7,857
18,754
1,691,184
$ 101,573
149,173
371,490
4,631
7,857
18,754
1,702,119
Financial liabilities
Non-interest bearing transaction accounts
Interest bearing transaction accounts and
savings deposits
Time deposits
Federal funds purchased and securities
sold under agreements to repurchase
Short-term debt
Long-term debt
Interest payable
305,327
305,327
331,113
331,113
738,763
1,131,441
738,763
1,150,274
105,036
6,114
83,311
7,296
105,036
6,114
85,125
7,296
749,925
978,920
107,223
8,031
87,020
4,846
749,925
992,789
107,223
8,031
87,930
4,846
The fair value of commitments to extend credit and letters of credit is not presented since management believes
the fair value to be insignificant.
65
NOTE 15:
SIGNIFICANT ESTIMATES AND CONCENTRATIONS
Accounting principles generally accepted in the United Sates of America require disclosure of certain significant
estimates and current vulnerabilities due to certain concentrations. Estimates related to the allowance for loan
losses and certain concentrations of credit risk are reflected in Note 4, Loans and Allowance for Loan Losses.
NOTE 16: COMMITMENTS AND CREDIT RISK
The Company grants agri-business, credit card, commercial and residential loans to customers throughout
Arkansas. Commitments to extend credit are agreements to lend to a customer, as long as there is no violation of
any condition established in the contract. Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. Since a portion of the commitments may expire without
being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Each
customer's creditworthiness is evaluated on a case-by-case basis. The amount of collateral obtained, if deemed
necessary, is based on management's credit evaluation of the counterparty. Collateral held varies, but may
include accounts receivable, inventory, property, plant and equipment, commercial real estate and residential real
estate.
At December 31, 2006, the Company had outstanding commitments to extend credit aggregating approximately
$202,047,000 and $529,697,000 for credit card commitments and other loan commitments, respectively. At
December 31, 2005, the Company had outstanding commitments to extend credit aggregating approximately
$194,614,000 and $429,442,000 for credit card commitments and other loan commitments, respectively.
Letters of credit are conditional commitments issued by the Company to guarantee the performance of a
customer to a third party. Those guarantees are primarily issued to support public and private borrowing
arrangements, including commercial paper, bond financing and similar transactions. The credit risk involved in
issuing letters of credit is essentially the same as that involved in extending loans to customers. The Company
had total outstanding letters of credit amounting to $5,477,000 and $4,573,000 at December 31, 2006 and 2005,
respectively, with terms ranging from 90 days to three years. The Company’s deferred revenue under standby
letter of credit agreements was approximately $35,000 and $43,000 at December 31, 2006 and 2005,
respectively.
At December 31, 2006, the Company did not have concentrations of 5% or more of the investment portfolio in
bonds issued by a single municipality.
NOTE 17: NEW ACCOUNTING STANDARDS
SFAS No. 123, Share-Based Payment (Revised 2004), establishes standards for the accounting for transactions
in which an entity (i) exchanges its equity instruments for goods or services, or (ii) incurs liabilities in exchange
for goods or services that are based on the fair value of the entity’s equity instruments or that may be settled by
the issuance of the equity instruments. SFAS 123R eliminates the ability to account for stock-based
compensation using APB 25 and requires that such transactions be recognized as compensation cost in the
income statement based on their fair values on the measurement date, which is generally the date of the grant.
The Company adopted the provisions of SFAS 123R on January 1, 2006. Details related to the adoption of
SFAS 123R and the impact to the Company’s financial statements are more fully discussed in Note 11,
Employee Benefit Plans.
FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of FASB
Statement 109, prescribes a recognition threshold and a measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken in a tax return. Benefits from tax
positions should be recognized in the financial statements only when it is more likely than not that the tax
position will be sustained upon examination by the appropriate taxing authority that would have full knowledge
of all relevant information. A tax position that meets the more-likely-than-not recognition threshold is measured
at the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement.
66
Tax positions that previously failed to meet the more-likely-than-not recognition threshold should be recognized
in the first subsequent financial reporting period in which that threshold is met. Previously recognized tax
positions that no longer meet the more-likely-than-not recognition threshold should be derecognized in the first
subsequent financial reporting period in which that threshold is no longer met. Interpretation 48 also provides
guidance on the accounting for and disclosure of unrecognized tax benefits, interest and penalties. Interpretation
48 is effective for the Company on January 1, 2007 and is not expected to have a significant impact on the
Company’s financial statements.
Presently, the Company is not aware of any other changes from the Financial Accounting Standards Board that will
have a material impact on the Company’s present or future financial statements.
NOTE 18: CONTINGENT LIABILITIES
The Company and/or its subsidiaries 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. The Company or its subsidiaries remain the subject of two (2) lawsuits asserting
claims against the Company or its subsidiaries.
On October 1, 2003, an action in Pulaski County Circuit Court was filed by Thomas F. Carter, Tena P. Carter and
certain related entities against Simmons First Bank of South Arkansas and Simmons First National Bank alleging
wrongful conduct by the banks in the collection of certain loans. The plaintiffs are seeking $2,000,000 in
compensatory damages and $10,000,000 in punitive damages. The Company has filed a Motion to Dismiss. The
plaintiffs have been granted additional time to discover any evidence for litigation. At this time, no basis for any
material liability has been identified. The Company and the banks continue to vigorously defend the claims asserted in
the suit.
On April 3, 2006, an action in Johnson County Circuit Court was filed by Tria Xiong and Mai Lee Xiong against
Simmons First Bank of Russellville and certain individuals alleging wrongful conduct by the bank in the underwriting
and origination of certain loans. The plaintiffs are seeking an unspecified sum in compensatory damages and
$1,000,000.00 in punitive damages. Discovery is in process, and the suit is pending, with no court date set. At this
time, no basis for any material liability has been identified. The Company and the bank plan to vigorously defend the
claims asserted in the suit.
NOTE 19:
STOCKHOLDERS’ EQUITY
The Company’s subsidiaries are subject to a legal limitation on dividends that can be paid to the parent company
without prior approval of the applicable regulatory agencies. The approval of the Office of the Comptroller of
the Currency is required, if the total of all the dividends declared by a national bank in any calendar year exceeds
the total of its net profits, as defined, for that year, combined with its retained net profits of the preceding two
years. Arkansas bank regulators have specified that the maximum dividend limit state banks may pay to the
parent company without prior approval is 75% of the current year earnings plus 75% of the retained net earnings
of the preceding year. At December 31, 2006, the Company subsidiaries had approximately $12.7 million in
undivided profits available for payment of dividends to the Company, without prior approval of the regulatory
agencies.
The Company’s subsidiaries are subject to various regulatory capital requirements administered by the federal
banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly
additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the
Company’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Company must meet specific capital guidelines that involve quantitative measures of the
Company’s assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting
practices. The Company’s capital amounts and classifications are also subject to qualitative judgments by the
regulators about components, risk weightings and other factors.
67
Quantitative measures established by regulation to ensure capital adequacy require the Company to maintain
minimum amounts and ratios (set forth in the table below) of total and Tier 1 capital (as defined in the
regulations) to risk-weighted assets (as defined) and of Tier 1 capital (as defined) to average assets (as defined).
Management believes that, as of December 31, 2006, the Company meets all capital adequacy requirements to
which it is subject.
As of the most recent notification from regulatory agencies, the subsidiaries were well capitalized under the
regulatory framework for prompt corrective action. To be categorized as well capitalized, the Company and
subsidiaries must maintain minimum total risk-based, Tier 1 risk-based and Tier 1 leverage ratios as set forth in
the table. There are no conditions or events since that notification that management believes have changed the
institutions’ categories.
68
The Company’s actual capital amounts and ratios along with the Company’s most significant subsidiaries are
presented in the following table.
To Be Well
Capitalized Under
Prompt Corrective
Adequacy Purposes Action Provision
Minimum
For Capital
Amount Ratio-%
Amount Ratio-%
Actual
Amount Ratio-%
(In thousands)
As of December 31, 2006
Total Risk-Based Capital Ratio
Simmons First National Corporation
Simmons First National Bank
Simmons First Bank of Jonesboro
Simmons First Bank of Russellville
Simmons First Bank of Northwest Arkansas
Simmons First Bank of El Dorado
$ 250,000
100,895
23,743
19,789
22,699
18,728
13.6 $ 147,059
71,430
11.3
16,097
11.8
10,280
15.4
17,131
10.6
10,702
14.0
8.0 $
8.0
8.0
8.0
8.0
8.0
Tier 1 Capital Ratio
Simmons First National Corporation
Simmons First National Bank
Simmons First Bank of Jonesboro
Simmons First Bank of Russellville
Simmons First Bank of Northwest Arkansas
Simmons First Bank of El Dorado
Leverage Ratio
Simmons First National Corporation
Simmons First National Bank
Simmons First Bank of Jonesboro
Simmons First Bank of Russellville
Simmons First Bank of Northwest Arkansas
Simmons First Bank of El Dorado
226,880
91,859
21,217
18,176
20,133
17,278
226,880
91,859
21,217
18,176
20,133
17,278
12.4
10.3
10.5
14.1
9.4
12.9
8.8
7.4
8.0
9.8
7.4
7.9
73,187
35,673
8,083
5,156
8,567
5,358
103,127
50,334
10,609
7,419
11,032
8,748
4.0
4.0
4.0
4.0
4.0
4.0
4.0
4.0
4.0
4.0
4.0
4.0
As of December 31, 2005
Total Risk-Based Capital Ratio
Simmons First National Corporation
Simmons First National Bank
Simmons First Bank of Jonesboro
Simmons First Bank of Russellville
Simmons First Bank of Northwest Arkansas
Simmons First Bank of El Dorado
$ 235,316
95,633
21,806
22,096
21,393
18,158
13.5 $ 139,447
66,527
11.5
16,004
10.9
10,585
16.7
15,847
10.8
9,950
14.6
8.0 $
8.0
8.0
8.0
8.0
8.0
Tier 1 Capital Ratio
Simmons First National Corporation
Simmons First National Bank
Simmons First Bank of Jonesboro
Simmons First Bank of Russellville
Simmons First Bank of Northwest Arkansas
Simmons First Bank of El Dorado
Leverage Ratio
Simmons First National Corporation
Simmons First National Bank
Simmons First Bank of Jonesboro
Simmons First Bank of Russellville
Simmons First Bank of Northwest Arkansas
Simmons First Bank of El Dorado
213,167
87,353
19,294
20,444
18,917
16,628
213,167
87,353
19,294
20,444
18,917
16,628
12.3
10.5
9.6
15.5
9.6
13.4
8.6
7.4
7.4
11.2
7.3
7.9
69,323
33,277
8,039
5,276
7,882
4,964
99,147
47,218
10,429
7,301
10,365
8,419
4.0
4.0
4.0
4.0
4.0
4.0
4.0
4.0
4.0
4.0
4.0
4.0
N/A
89,288
20,121
12,850
21,414
13,377
N/A
53,510
12,124
7,734
12,851
8,036
N/A
62,917
13,261
9,273
13,790
10,935
N/A
83,159
20,006
13,231
19,808
12,437
N/A
49,916
12,059
7,914
11,823
7,445
N/A
59,022
13,036
9,127
12,957
10,524
10.0
10.0
10.0
10.0
10.0
6.0
6.0
6.0
6.0
6.0
5.0
5.0
5.0
5.0
5.0
10.0
10.0
10.0
10.0
10.0
6.0
6.0
6.0
6.0
6.0
5.0
5.0
5.0
5.0
5.0
69
NOTE 20: CONDENSED FINANCIAL INFORMATION (PARENT COMPANY ONLY)
CONDENSED BALANCE SHEETS
DECEMBER 31, 2006 and 2005
(In thousands)
2006
2005
ASSETS
Cash and cash equivalents
Investment securities
Investments in wholly-owned subsidiaries
Intangible assets, net
Premises and equipment
Other assets
TOTAL ASSETS
LIABILITIES
Long-term debt
Other liabilities
Total liabilities
STOCKHOLDERS’ EQUITY
Common stock
Surplus
Undivided profits
Accumulated other comprehensive income (loss)
Unrealized depreciation on available-for-sale
securities, net of income tax credits of $1,319 at 2006
and $2,615 at 2005
Total stockholders’ equity
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
$
6,858
2,490
275,872
134
2,664
7,006
$ 295,024
$
4,853
3,030
265,714
134
2,248
6,173
$ 282,152
$ 32,930
3,078
36,008
$ 34,930
3,137
38,067
142
48,678
212,394
143
53,723
194,579
(2,198)
259,016
$ 295,024
(4,360)
244,085
$ 282,152
CONDENSED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 2006, 2005 and 2004
(In thousands)
INCOME
Dividends from subsidiaries
Other income
EXPENSE
Income before income taxes and equity in
undistributed net income of subsidiaries
Provision for income taxes
Income before equity in undistributed net
income of subsidiaries
Equity in undistributed net income of subsidiaries
2006
2005
2004
$ 20,472
5,809
26,281
10,111
16,170
(1,546)
$ 18,394
5,473
23,867
9,346
14,521
(1,342)
$ 15,650
4,486
20,136
10,349
9,787
(2,098)
17,716
9,765
15,863
11,099
11,885
12,561
NET INCOME
$ 27,481
$ 26,962
$ 24,446
70
CONDENSED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2006, 2005 and 2004
(In thousands)
2006
2005
2004
CASH FLOWS FROM OPERATING ACTIVITIES
Net income
Items not requiring (providing) cash
Depreciation and amortization
Deferred income taxes
Equity in undistributed income of bank subsidiaries
Changes in
Other assets
Other liabilities
Net cash provided by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of premises and equipment
Purchase of subsidiary
Return of capital from subsidiary
Purchase of held-to-maturity securities
Proceeds from sale of investment securities
Net cash (used in) provided by investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Principal reduction on long-term debt
Dividends paid
Repurchase of common stock, net
Net cash used in financing activities
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR
$ 27,481
$ 26,962
$ 24,446
213
226
(9,765)
(996)
(58)
17,101
(629)
--
1,706
(4,100)
4,640
1,617
178
(134)
(11,099)
1,066
936
17,909
(232)
--
--
(1,530)
550
(1,212)
164
149
(12,561)
(646)
(848)
10,704
(113)
(10,225)
--
--
17,958
7,620
(2,000)
(9,666)
(5,047)
(16,713)
(2,000)
(8,757)
(9,105)
(19,862)
(19,783)
(8,263)
(1,395)
(29,441)
2,005
(3,165)
(11,117)
4,853
8,018
19,135
CASH AND CASH EQUIVALENTS, END OF YEAR
$
6,858
$
4,853
$
8,018
71
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
No items are reportable.
ITEM 9A. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures. The Company's Chief Executive Officer and Chief Financial
Officer have reviewed and evaluated the effectiveness of the Company's disclosure controls and procedures (as
defined in 15 C. F. R. 240.13a-14(c) and 15 C. F. R. 240.15-14(c)) as of the end of the period covered by this
report. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the
Company's current disclosure controls and procedures are effective.
(b) Changes in Internal Controls. There were no significant changes in the Company's internal controls or in other
factors that could significantly affect those controls subsequent to the date of evaluation.
ITEM 9B. OTHER INFORMATION
No items are reportable.
PART III
ITEM 10.
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
Incorporated herein by reference from the Company's definitive proxy statement for the Annual Meeting of
Stockholders to be held April 10, 2007, to be filed pursuant to Regulation 14A on or about March 9, 2007.
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 10, 2007, to be filed pursuant to Regulation 14A on or about March 9, 2007.
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 10, 2007, to be filed pursuant to Regulation 14A on or about March 9, 2007.
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 10, 2007, to be filed pursuant to Regulation 14A on or about March 9, 2007.
ITEM 14.
PRINCIPAL ACCOUNTING FEES AND SERVICES
Incorporated herein by reference from the Company's definitive proxy statement for the Annual Meeting of
Stockholders to be held April 10, 2007, to be filed pursuant to Regulation 14A on or about March 9, 2007.
72
PART IV
ITEM 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) 1 and 2. Financial Statements and any Financial Statement Schedules
The financial statements and financial statement schedules listed in the accompanying index to the consolidated
financial statements and financial statement schedules are filed as part of this report.
(b) Listing of Exhibits
Exhibit No.
Description
3.1
3.2
10.1
10.2
10.3
10.4
10.5
Restated Articles of Incorporation of Simmons First National Corporation (incorporated by
reference to Exhibit 4 to Simmons First National Corporation’s Quarterly Report on Form 10-Q
for the Quarter ended March 31, 2004 (File No. 6253)).
Amended By-Laws of Simmons First National Corporation (incorporated by reference to
Exhibit 3 (ii) to Simmons First National Corporation’s Quarterly Report on Form 10-Q for the
Quarter ended June 30, 1994 (File No. 6253)).
Amended and Restated Trust Agreement, dated as of December 16, 2003, among the Company,
Deutsche Bank Trust Company Americas, Deutsche Bank Trust Company Delaware and each
of J. Thomas May, Barry L. Crow and Bob Fehlman as administrative trustees, with respect to
Simmons First Capital Trust II (incorporated by reference to Exhibit 10.1 to Simmons First
National Corporation’s Annual Report on Form 10-K for the Year ended December 31, 2003
(File No. 6253)).
Guarantee Agreement, dated as of December 16, 2003, between the Company and Deutsche
Bank Trust Company Americas, as guarantee trustee, with respect to Simmons First Capital
Trust II (incorporated by reference to Exhibit 10.2 to Simmons First National Corporation’s
Annual Report on Form 10-K for the Year ended December 31, 2003 (File No. 6253)).
Junior Subordinated Indenture, dated as of December 16, 2003, among the Company and
Deutsche Bank Trust Company Americas, as trustee, with respect to the junior subordinated
note held by Simmons First Capital Trust II (incorporated by reference to Exhibit 10.3 to
Simmons First National Corporation’s Annual Report on Form 10-K for the Year ended
December 31, 2003 (File No. 6253)).
Amended and Restated Trust Agreement, dated as of December 16, 2003, among the Company,
Deutsche Bank Trust Company Americas, Deutsche Bank Trust Company Delaware and each
of J. Thomas May, Barry L. Crow and Bob Fehlman as administrative trustees, with respect to
Simmons First Capital Trust III (incorporated by reference to Exhibit 10.4 to Simmons First
National Corporation’s Annual Report on Form 10-K for the Year ended December 31, 2003
(File No. 6253)).
Guarantee Agreement, dated as of December 16, 2003, between the Company and Deutsche
Bank Trust Company Americas, as guarantee trustee, with respect to Simmons First Capital
Trust III (incorporated by reference to Exhibit 10.5 to Simmons First National Corporation’s
Annual Report on Form 10-K for the Year ended December 31, 2003 (File No. 6253)).
73
10.6
10.7
10.8
10.9
10.10
14
Junior Subordinated Indenture, dated as of December 16, 2003, among the Company and
Deutsche Bank Trust Company Americas, as trustee, with respect to the junior subordinated
note held by Simmons First Capital Trust III (incorporated by reference to Exhibit 10.6 to
Simmons First National Corporation’s Annual Report on Form 10-K for the Year ended
December 31, 2003 (File No. 6253)).
Amended and Restated Trust Agreement, dated as of December 16, 2003, among the Company,
Deutsche Bank Trust Company Americas, Deutsche Bank Trust Company Delaware and each
of J. Thomas May, Barry L. Crow and Bob Fehlman as administrative trustees, with respect to
Simmons First Capital Trust IV (incorporated by reference to Exhibit 10.7 to Simmons First
National Corporation’s Annual Report on Form 10-K for the Year ended December 31, 2003
(File No. 6253)).
Guarantee Agreement, dated as of December 16, 2003, between the Company and Deutsche
Bank Trust Company Americas, as guarantee trustee, with respect to Simmons First Capital
Trust IV (incorporated by reference to Exhibit 10.8 to Simmons First National Corporation’s
Annual Report on Form 10-K for the Year ended December 31, 2003 (File No. 6253)).
Junior Subordinated Indenture, dated as of December 16, 2003, among the Company and
Deutsche Bank Trust Company Americas, as trustee, with respect to the junior subordinated
note held by Simmons First Capital Trust IV (incorporated by reference to Exhibit 10.9 to
Simmons First National Corporation’s Annual Report on Form 10-K for the Year ended
December 31, 2003 (File No. 6253)).
Long-Term Executive Incentive Agreement, dated as of January 1, 2005, by and between the
Company and J. Thomas May (incorporated by reference to Exhibit 10.10 to Simmons First
National Corporation’s Annual Report on Form 10-K for the Year ended December 31, 2005
(File No. 0-6253)).
Code of Ethics, dated December 2003, for CEO, CFO, controller and other accounting officers
(incorporated by reference to Exhibit 14 to Simmons First National Corporation’s Annual
Report on Form 10-K for the Year ended December 31, 2003 (File No. 6253)).
31.1
Rule 13a-14(a)/15d-14(a) Certification - J. Thomas May, Chairman and Chief Executive
Officer.*
31.2
32.1
32.2
Rule 13a-14(a)/15d-14(a) Certification – Robert A. Fehlman, Executive Vice President and
Chief Financial Officer.*
Certification Pursuant to 18 U.S.C. Sections 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 – J. Thomas May, Chairman and Chief Executive Officer.*
Certification Pursuant to 18 U.S.C. Sections 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 – Robert A. Fehlman, Executive Vice President and Chief
Financial Officer.*
* Filed herewith.
74
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.
SIGNATURES
/s/ John L. Rush
February 26, 2007
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 or about February 26, 2007.
Signature
Title
/s/ J. Thomas May
J. Thomas May
Chairman and Chief Executive Officer
and Director
/s/ Robert A. Fehlman
Robert A. Fehlman
Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
/s/ William E. Clark
William E. Clark
/s/ Steven A. Cosse′
Steven A. Cosse′
/s/ George A. Makris, Jr.
George A. Makris, Jr.
/s/ W. Scott McGeorge
W. Scott McGeorge
/s/ Stanley E. Reed
Stanley E. Reed
/s/ Harry L. Ryburn
Harry L. Ryburn
/s/ Robert L. Shoptaw
Robert L. Shoptaw
/s/ Henry F. Trotter, Jr.
Henry F. Trotter, Jr.
Director
Director
Director
Director
Director
Director
Director
Director
75
Exhibit 31.1
I, J. Thomas May, certify that:
CERTIFICATION
1. I have reviewed this annual report on Form 10-K of Simmons First National Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this
report, fairly present in all material respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and
internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to
the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented
in this report our conclusions about the effectiveness of the disclosure controls and procedures, as
of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting
that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter
in the case of an annual report) that has materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal
control over financial reporting which are reasonably likely to adversely affect the registrant's
ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant's internal control over financial reporting.
Date: February 26, 2007
/s/ J. Thomas May
J. Thomas May
Chairman and
Chief Executive Officer
76
Exhibit 31.2
I, Robert A. Fehlman, certify that:
CERTIFICATION
1. I have reviewed this annual report on Form 10-K of Simmons First National Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this
report, fairly present in all material respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and
internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to
the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented
in this report our conclusions about the effectiveness of the disclosure controls and procedures, as
of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting
that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter
in the case of an annual report) that has materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal
control over financial reporting which are reasonably likely to adversely affect the registrant's
ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant's internal control over financial reporting.
Date: February 26, 2007
/s/ Robert A. Fehlman
Robert A. Fehlman
Executive Vice President and
Chief Financial Officer
77
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED
PURSUANT TO SECTION 906 OF
THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Simmons First National Corporation (the "Company"), on Form 10-K
for the period ending December 31, 2006 as filed with the Securities and Exchange Commission on the date hereof
(the "Report"), and pursuant to 18 U.S.C. Section 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of
2002, J. Thomas May, Chairman and Chief Executive Officer of the Company, hereby certifies that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of
1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and
results of operations of the Company.
/s/ J. Thomas May
J. Thomas May
Chairman and
Chief Executive Officer
February 26, 2007
78
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED
PURSUANT TO SECTION 906 OF
THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Simmons First National Corporation (the "Company"), on Form 10-K
for the period ending December 31, 2006 as filed with the Securities and Exchange Commission on the date hereof
(the "Report"), and pursuant to 18 U.S.C. Section 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of
2002, Robert A. Fehlman, Executive Vice President and Chief Financial Officer of the Company, hereby certifies
that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of
1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and
results of operations of the Company.
/s/ Robert A. Fehlman
Robert A. Fehlman
Executive Vice President and
Chief Financial Officer
February 26, 2007
79
NOTES 2/22/07 8:09 PM Page 1
NOTES
NOTES 2/22/07 8:09 PM Page 1
NOTES
NOTES 2/22/07 8:09 PM Page 1
NOTES
Simmons First National Corporation
www.simmonsfi rst.com
Corporate Headquarters:
501 Main Street
Pine Bluff, AR 71601
(870) 541-1000
Little Rock Corporate Offi ce:
100 Morgan Keegan Dr., Suite 410
Little Rock, AR 72202
(501) 558-3100