2 0 0 9 A N N U A L R E P O R T
inside front cover
inside back cover
J. Thomas May
Chairman & Chief Executive Officer
L E T T E R T O S H A R E H O L D E R S
p a g e 1
The financial sector will remember 2009 as one of the most challenging times in the last 50 years. While the
majority of the 8,500 or so community banks did not contribute to the financial sector problems, they will be
counted on to be a part of the solution and they will suffer from the unintended consequences of overzealous
regulatory reform. Despite the economic turbulence, our company ended the year with asset quality, capital,
liquidity, and earnings above our peer group of banks with $2.0 to $5.0 billion in assets.
In fact, we ended the year with our asset quality
economy. While we do believe that our eight banks’
ranked in the 80th percentile, capital in the 95th
conservative culture and strength of balance sheet
percentile, and earnings in the 77th percentile of
has been a major contributing factor in our success;
our peer group based on their September 30th
we know that having our banking operations in
numbers. In addition, during the year we focused
Arkansas has contributed to that success. Arkansas
on changing our deposit mix through a campaign
is primarily a rural state that does not have the
to grow core deposits. The program was a huge
same highs and lows found in many other parts of
success. We gained new customer relationships and
the country. Likewise, we do not have the same
approximately $150 million in new core deposits.
growth opportunities as other markets in contiguous
Obviously, we significantly improved our liquidity
states. Although the recession has impacted
and, based on the new deposit mix, we have less
Arkansas, as reflected in the unemployment rate
reliance on the more volatile and expensive time
going from 5.8% in 2008 to 7.5% in 2009, our
deposits. While high levels of liquidity have a
employment situation is still significantly better
negative impact on short term earnings, we believe
than the national average. Overall, 2009 was a
that liquidity is very important during a turbulent
good year for our company and for our shareholders.
Despite the economic turbulence, our company
ended the year with asset quality, capital, liquidity,
and earnings above our peer group of banks.
L E T T E R T O S H A R E H O L D E R S c o n t
i n u e d
p a g e 2
There were several significant events that took place during 2009 which we
believe will have long term benefits to our shareholders.
First, as discussed last year, we were one of the first banks to be approved
for the Treasury Department’s Capital Purchase Plan, which was offered to
healthy banks during the darkest days of the recession. With a little luck and
good timing, we were able to ultimately decline to participate because of the
strength of our balance sheet and because of improvements in the economy.
Secondly, we continued to have success with our credit card programs
gaining 15,000 net new accounts throughout the year. Most of the accounts
were received from customers moving from other credit card providers
due to aggressive pricing and lowered limits. Obviously, we did not lower our
underwriting standards as our approval rate remained in the 17% range.
Our credit card asset quality, while elevated, continued to be exceptional with
a loss ratio of 2.61% vs. 10.5% on a national basis. We have been ranked
as one of the best credit cards in America by Money Magazine, the Wall
Street Journal, and Kiplinger. Recently, cardrating.com ranked Simmons First
as having the best low-rate credit card in America. Needless to say, we are
very proud of this niche product and we look for it to continue to be a major
contributor to our overall profits for the company.
We have been ranked as one of the best
credit cards in America by Money Magazine,
the Wall Street Journal, and Kiplinger.
p a g e 3
Thirdly, our Student Loan operation continues to be a
Fourth, Simmons First Trust Company was named the
state wide leader in providing loans to the students
Largest Trust Company in Arkansas with assets in excess
of Arkansas. Unfortunately, the Federal Government
of $2 billion, and our wealth management investment
has decided to eliminate the private sector from this
team was recognized by Pensions & Investment Management
business after the 2010 and 2011 school year. Until then,
magazine for outstanding performance in the Employee
we will hope Congress will re-evaluate the government’s
Benefit Income Fund over a period of one year.
role in competing with the private sector and, hopefully,
reverse the current proposal of moving everyone to
A fifth accomplishment was that our company received
the government direct loan program.
the prestigious Arkansas Governor’s Leadership in Fitness
award for our efforts in wellness programs structured to
improve health in the workplace.
Simmons First Trust
Company was named
the Largest Trust
Company in Arkansas
with assets in excess
of $2 billion.
L E T T E R T O S H A R E H O L D E R S c o n t
i n u e d
p a g e 4
A major event occurred in November when we
The year saw us continue with certain initiatives and begin new
engaged the brokerage firms of Stephens Inc.,
initiatives that will benefit our shareholders and customers. Beginning
Stifel Nicolaus, and Raymond James to lead an
in 2008, we identified efficiency opportunities that would enable
“offensive” equity offering to raise $75 million
us to better serve our customers and create economic benefit to our
of new capital for the primary purpose of acquiring
shareholders. We are in the final year of that three-year plan and
other banks. We traveled to ten states in six days
significant progress has been made.
making thirty-nine presentations to fifty investors.
The offering proved to be very successful with
The first initiative was to use our corporate buying power to
the subscription being approximately 2.5 times the
reduce the cost of certain contracts that were being negotiated at the
intended issue. The new capital raised our tangible
individual banks. That process was completed in 2009 and we
capital ratio to 10.2%. We believe there is an
achieved in excess of $1 million in annual benefits.
unprecedented opportunity to acquire banks
through FDIC assisted transactions. Our current
The second initiative was labeled “Process Improvement Study.”
capital will enable us to acquire $1.0 to $1.5
This effort was to find ways to standardize the way we are serving our
billion in new assets, which equates to 5 to 6 banks
customers and to centralize certain back office operations. We are
in the $200 to $300 million range. We have
in the final stages of this study and will begin execution in the second
targeted an area of 325 miles from the center of
quarter of 2010. We believe these initiatives will add revenues and
Arkansas, which would include some markets
reduce expenses to a level that will create savings significantly above
contiguous to Arkansas. While moving outside
the previously mentioned “Corporate Buying Power” initiative.
Arkansas would be different, we would retain
our same conservative philosophy with a focus
on community banking. We expect to see some
of the purchase opportunities over the next
eighteen-month period.
2009 has been a busy year.
We have weathered the economic turbulence amazingly well.
p a g e 5
A final initiative is related to what we call
As you can see, 2009 has been a busy year. We have weathered the
“Branch Right Sizing.” Over the past two years we
economic turbulence amazingly well, and we will continue to
have added branches, closed selected branches,
manage our bank into 2010 with a sense of caution as we believe
and relocated or consolidated other branches. Our
the recovery is likely to be longer than normal. However, we
purpose is to make sure our financial centers
continue to look for opportunities that are often created during the
are located in the most convenient locations to best
most troubling times. We believe opportunities are available to
serve our customers, and to accomplish this
strong banks with strong capital through the acquisition of failed
goal in an efficient and profitable manner. We will
banks in the FDIC assisted transactions. Likewise, we will
continue to manage our branch locations with
continue to look for traditional acquisitions of healthy banks which
further changes during 2010. Our philosophy has
are consistent with our history of being an acquirer of choice.
and continues to be that, when we close a location,
Finally, we are strategically executing initiatives to create long-term
we will find a job for every associate through
benefits for our shareholders. We are cautiously optimistic about
attrition. That is our culture and it enables us to
the Arkansas economy and we fully expect the national economy
best serve our customers.
to continue a recovery, albeit a slow recovery.
As always, we appreciate your support and we look forward to
serving your banking needs in any way possible.
J. Thomas May
Chairman & Chief Executive Officer
C O R P O R A T E E X E C U T I V E O F F I C E R S
p a g e 6
David Bartlett
President & Chief
Operating Officer
Bob Fehlman
Marty Casteel
Robert Dill
Executive Vice President
Executive Vice President
Executive Vice President
& Chief Financial Officer
Marketing Group
A F F I L I A T E E X E C U T I V E O F F I C E R S
p a g e 7
Standing - Left to Right
Freddie Black Chairman & CEO, Simmons First Bank of South Arkansas
John Dews Chairman & CEO, Simmons First Bank of El Dorado, N.A.
Steve Trusty President & CEO, Simmons First Bank of Hot Springs
Tom Spillyards President & CEO, Simmons First Bank of Northwest Arkansas
Glenn Rambin President, Simmons First National Bank
Seated - Left to Right
Barry Ledbetter President & CEO, Simmons First Bank of Jonesboro
Ron Jackson Chairman & CEO, Simmons First Bank of Russellville
Brooks Davis President & CEO, Simmons First Bank of Searcy
S I m m O n S F I R S T n A T I O n A L C O R P O R A T I O n
p a g e 8
B O A R D O F D I R E C T O R S
Left to Right
Seated: Eugene Hunt • Stanley E. Reed • J. Thomas May • George A. Makris, Jr. • W. Scott McGeorge
Standing: Edward Drilling • Robert L. Shoptaw • Harry L. Ryburn • Steven A. Cossé • William E. Clark, II
Henry F. Trotter, Jr. • Lara F. Hutt, III • David R. Perdue • Jerry Watkins
p a g e 9
William E. Clark, II
Eugene Hunt
Chairman & Chief Executive Officer
Attorney
Clark Contractors, LLC
Hunt Law Firm
W. Scott McGeorge
President
Pine Bluff Sand & Gravel
Steven A. Cossé
George A. Makris, Jr.
Stanley E. Reed
Executive Vice President & General
President
Farmer & Retired President
Counsel
Murphy Oil Corporation
Edward Drilling
President
AT&T Arkansas
M. K. Distributors, Inc.
Arkansas Farm Bureau
J. Thomas May
Harry L. Ryburn, D. D. S.
Chairman & Chief Executive Officer
Simmons First National Corporation
Robert L. Shoptaw
Chairman of the Board
Arkansas Blue Cross and Blue Shield
A d v i s o r y d i r e c t o r s
c o n s u l t A n t t o t h e B o A r d
Lara F. Hutt, III
President
Jerry Watkins
Retired Executive
Hutt Building Material Company, Inc.
Murphy Oil Corporation
David R. Perdue
Vice President
JDR, Inc.
Henry F. Trotter, Jr.
President
Trotter Auto Group
Shareholders may obtain a copy of the Company’s annual report as filed 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 simmonsfirst.com. Simmons First National Corporation is an Equal Opportunity Employer.
A F F I L I A T E B O A R D O F D I R E C T O R S
p a g e 1 0
S i m m o n S F i r S t
n a t i o n a l B a n k
B o A r d o f d i r e c t o r s
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 Officer
Simmons First National Bank
Beverly Morrow
Vice President
TLM Management
A.W. Nelson, Jr.
President
A.W. Nelson, Jr. Architect, P.A.
Mary Pringos
President
Phillips Planting Co., 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.
H. Ford Trotter, III
General Manager
Trotter Auto Group
A d v i s o r y d i r e c t o r s
Robert E. Dreher, Jr.
Partner
Dreher & Sons
Joe S. Hiatt
Retired Banker/Rancher
Larkin M. Wilson, III, D. D. S.
Dentist
Lara F. Hutt, III
President
Hutt Building Material Company, Inc.
Charles Nabholz
Chairman
The Nabholz Group
Phyllis S. Thomas
Chief Executive Officer & Corporate
Secretary/Treasurer
Smithwick, Inc.
Margie Hiatt
Retired Banker
Sherman Hiatt
Mayor
City of Charleston
Clay Hiatt
Investments
A d v i s o r y d i r e c t o r e m e r i t u s
Joe S. Hiatt
Retired Banker/Rancher
Joe Larkin
Pharmacist/Owner
Medi-Sav Pharmacy
C o n W a Y r E G i o n
A d v i s o r y B o A r d o f d i r e c t o r s
S i m m o n S F i r S t B a n k
o F E l D o r a D o , n . a .
Steve W. “Bo” Conner
Partner
Conner & Sartain, P.A.
Bill Johnson
Community Chairman
Conway Region
Simmons First National Bank
Charles Nabholz
Chairman
The Nabholz Group
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
W E S t E r n r E G i o n
A d v i s o r y B o A r d o f d i r e c t o r s
Larry Bates
Community Chairman
Simmons First National Bank
Michael F. Flynn
Community President
Simmons First National Bank
B o A r d o f d i r e c t o r s
Aubra Anthony, Jr.
President & Chief Executive Officer
Anthony Forest Products Company
David L. Bartlett
President & Chief Operating Officer
Simmons First National Corporation
Steven A. Cossé
Executive Vice President
& General Counsel
Murphy Oil Corporation
John F. Dews
Chairman & Chief
Executive Officer
Simmons First Bank of El Dorado, N. A.
Phil Herring
President
Herring Furniture Company
Sarah P. Kinard
Private Investor
Denny McConathy
Retired President
Cross Oil and Refining Company, Inc.
Kenneth P. Oliver, Jr.
Private Investor
Floyd M. Thomas, Jr.
Partner
Compton, Prewett, Thomas & Hickey,
P. A., Attorneys
S i m m o n S F i r S t B a n k
o F H o t S P r i n G S
B o A r d o f d i r e c t o r s
David L. Bartlett
Chairman
Simmons First Bank of Hot Springs
Stuart A. Fleischner, D. D. S.
Co-owner
Hot Springs National Park
Dental Group
Louis F. Kleinman
Chairman
Falk Supply Company
James B. Newman
President
Douglass-Newman Insurance Agency
Sam P. Stathakis, Jr.
President
Merritt Wholesale Distributors
Sara Stough
CPA
Consultant
Gene Thomason
Retired President
Simmons First Bank of Russellville
Steven W. Trusty
President & Chief Executive Officer
Simmons First Bank of Hot Springs
A d v i s o r y d i r e c t o r
John D. Selig
Retired Vice President
Weyerhaeuser
S i m m o n S F i r S t B a n k
o F J o n E S B o r o
B o A r d o f d i r e c t o r s
David L. Bartlett
President & Chief Operating Officer
Simmons First National Corporation
Barry Ledbetter
President & Chief Executive Officer
Simmons First Bank of Jonesboro
p a g e 1 1
Joe Dan Yee
Partner
Yee’s Food Land
A d v i s o r y d i r e c t o r
A. O. French
Retired Director
French Planting Company
A d v i s o r y d i r e c t o r e m e r i t u s
Fred P. Michael
Retired Chairman of the Board
Simmons First Bank
of South Arkansas
D u m a S r E G i o n
A d v i s o r y B o A r d o f d i r e c t o r s
Freddie Black
Chairman & Chief Executive Officer
Simmons First Bank
of South Arkansas
C. Kelly Farmer
Consultant
ARKAT Feeds, Inc.
A.O. French, Jr.
Retired Farmer
French Planting Company
Martin Henry
Farmer
M & A 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
H. Glenn Rambin
President
Simmons First National Bank
Robert Underwood
Owner
Underwood Construction/Underwood
Properties
S i m m o n S F i r S t B a n k
o F S o u t H a r k a n S a S
B o A r d o f d i r e c t o r s
Robert G. Bridewell
Attorney
Robert G. Bridewell, Sr., P.A.
Freddie G. Black
Chairman & Chief Executive Officer
Simmons First Bank of South Arkansas
James Haddock
Attorney
James Haddock, P.A.
N. Craig Hunt
Executive Vice President
Simmons First National Bank
Tommy R. Jarrett
President
Simmons First Bank of South Arkansas
Beverly Rowe
Secretary/Treasurer
Chicot Irrigation, Inc.
Jerry Selby
Partner
Four Star Partnership Farms
Harold Smith
President & Chief Executive Officer
Silviland, Inc.
Sonya Jones Yates
Investments
Joe Giezeman
Consultant
Ben Owens, Jr., M.D.
Physician/Partner
Clopton Clinic
David Pyle, M.D.
Vice President, Medical Affairs
St. Bernards Regional Healthcare
Jim Scurlock
President
Scurlock Industries of Jonesboro, Inc.
Berl A. (Skipper) Smith
Attorney/CPA
Rainwater & Cox, Inc.
Mark Wimpy
Self Employed
Farmer
S i m m o n S F i r S t B a n k
o F r u S S E l l v i l l E
B o A r d o f d i r e c t o r s
Leon Anderson
Nationwide Representative
Nationwide Insurance Company
Terry G. Bowie
Retired
Entergy Corporation
Keith B. Cogswell, III
President
Cogswell Motors, Inc.
S i m m o n S F i r S t B a n k o F
n o r t H W E S t a r k a n S a S
Ronald B. Jackson
Chairman & Chief Executive Officer
Simmons First Bank of Russellville
B o A r d o f d i r e c t o r s
David L. Bartlett
President & Chief Operating Officer
Simmons First National Corporation
Dennis H. Ferguson
Executive Vice President
Simmons First Bank
of Northwest Arkansas
Martin Gilbert
Retired Attorney
Ray Hobbs
President & Chief Executive Officer
Daisy Outdoor Products
Clark Irwin
Vice President
Tyson Foods
Eric Pianalto
Chief Administration Officer
Mercy Health Systems
of Northwest Arkansas
Thomas W. Spillyards
President & Chief Executive Officer
Simmons First Bank
of Northwest Arkansas
James L. Tull, CPA
Chief Financial Officer
Crafton Tull Sparks
Allen Laws, III
Attorney
Laws & Murdoch, P. A.
Edward R. Stingley, III
Century 21
Real Estate Sales Associate
Harve J. Taylor
Owner/President
H. J. Taylor & Associates, Inc.
Gene Thomason
Retired President
Simmons First Bank of Russellville
S i m m o n S F i r S t B a n k
o F S E a r C Y
B o A r d o f d i r e c t o r s
Richard Cargile
Owner
Cargile Insurance Agency
Brooks Davis
President & Chief Executive Officer
Simmons First Bank of Searcy
Dennis R. Donovan
Consultant
Al Fowler
Retired Administrator
Searcy Medical Center
E X E C U T I V E m A n A g E m E n T
p a g e 1 2
S i m m o n S F i r S t
n a t i o n a l C o r P o r a t i o n
J. Thomas May
Chairman & Chief Executive Officer
David L. Bartlett
President & Chief Operating Officer
Robert C. Dill
Executive Vice President
Marketing Group
N. Craig Hunt
Executive Vice President
Specialty Banking Group
n o r t h r e g i o n
Stephen J. Smith
Community President
Donald L. Britnell
Community Executive
w e s t e r n r e g i o n
Larry L. Bates
Community Chairman
Michael F. Flynn
Community President
Charles J. Brown
Senior Vice President
S i m m o n S F i r S t B a n k
o F E l D o r a D o , n . a .
John F. Dews
Chairman & Chief Executive Officer
L. S. Brown
Senior Vice President
A. J. Lockwood, Jr.
Senior Vice President
Robert J. Robinson, IV
Senior Vice President
S i m m o n S F i r S t B a n k
o F H o t S P r i n G S
David L. Bartlett
Chairman
Steven W. Trusty
President & Chief Executive Officer
Rick Harris
Senior Vice President
S i m m o n S F i r S t B a n k
o F J o n E S B o r o
Barry K. Ledbetter
President & Chief Executive Officer
S i m m o n S F i r S t B a n k o F
n o r t H W E S t a r k a n S a S
Thomas W. Spillyards
President & Chief Executive Officer
Dennis H. Ferguson
Executive Vice President
Linda A. Hankins
Senior Vice President
S i m m o n S F i r S t B a n k
o F r u S S E l l v i l l E
Ronald B. Jackson
Chairman & Chief Executive Officer
R. Scott Hill
Community President-Russellville
Denton Tumbleson
Community President-Clarksville
S i m m o n S F i r S t B a n k
o F S E a r C Y
Brooks Davis
President & Chief Executive Officer
S i m m o n S F i r S t B a n k
o F S o u t H a r k a n S a S
Freddie G. Black
Chairman & Chief Executive Officer
Tommy R. Jarrett
President
William F. Wisener
Senior Vice President
Teresa L. Wood
Senior Vice President
Linda S. Moreland
Senior Vice President
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
Commercial Loans
Craig S. Attwood
Senior Vice President
Indirect Lending
W. Greg Bell
Senior Vice President
Agriculture Loans
Joel W. Cheatham
Senior Vice President
Real Estate
David W. Rushing
Senior Vice President & Manager
Operations Group-Information
Technology
Joe W. Clement, III
President
Simmons First Trust Company, N. A.
Richard W. Johnson
President
Simmons First Investment Group
Wayne F. Bond
Senior Vice President
S i m m o n S F i r S t
n a t i o n a l B a n k r E G i o n S
Kent P. Bridger
Senior Vice President
c e n t r A l r e g i o n
Steven C. Wade
Community President
c o n w A y r e g i o n
Ritchie D. Howell
Community President
Tony L. Futrell
Senior Vice President
Jerry K. Morgan
Senior Vice President
Robert A. Fehlman
Executive Vice President
& Chief Financial Officer
Marty D. Casteel
Executive Vice President
Robert C. Dill
Executive Vice President
Marketing Group
John L. Rush
Secretary
David W. Garner
Senior Vice President
Finance Group
Sharon K. Burdine
Senior Vice President
& Human Resources Director
Tina M. Groves
Senior Vice President & Manager
Corporate Audit & Compliance
Kevin J. Archer
Senior Vice President
Special Services
Amy W. Johnson
Senior Vice President
& Corporate Sales Director
Marketing Group
Lisa W. Hunter
Senior Vice President
Cash Management / e-Banking
S i m m o n S F i r S t
n a t i o n a l B a n k
J. Thomas May
Chairman & Chief Executive Officer
H. Glenn Rambin
President
Marty D. Casteel
Executive Vice President
Consumer Banking Group
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, 2009
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 Global Select 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, 2009, was $338,095,535 based upon the last trade price as reported on the NASDAQ Global Select Market® of
$26.72.
The number of shares outstanding of the Registrant's Common Stock as of February 5, 2010, was 17,127,789.
Part III is incorporated by reference from the Registrant's Proxy Statement relating to the Annual Meeting of Shareholders
to be held on April 20, 2010.
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 we believe will
be of interest to investors. We hope investors will find it useful to have all of this information available in a single
document.
The Securities and Exchange Commission allows us 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 ......................................................................................................................................... 9
Item 1B Unresolved Staff Comments ............................................................................................................. 16
Properties ........................................................................................................................................... 16
Item 2
Legal Proceedings .............................................................................................................................. 16
Item 3
Submission of Matters to a Vote of Security-Holders ...................................................................... 17
Item 4
Part II
Item 5 Market for Registrant's Common Equity and Related Stockholder Matters .................................... 17
Item 6
Selected Consolidated Financial Data ............................................................................................... 19
Item 7 Management's Discussion and Analysis of Financial Condition and
Results of Operations ......................................................................................................................... 21
Item 7A Quantitative and Qualitative Disclosures About Market Risk ......................................................... 48
Consolidated Financial Statements and Supplementary Data .......................................................... 51
Item 8
Changes in and Disagreements with Accountants on Accounting and
Item 9
Financial Disclosure .......................................................................................................................... 88
Item 9A Controls and Procedures .................................................................................................................... 88
Item 9B Other Information .............................................................................................................................. 88
Part III
Item 10 Directors and Executive Officers of the Company ........................................................................... 88
Executive Compensation ................................................................................................................... 88
Item 11
Item 12
Security Ownership of Certain Beneficial Owners and Management.............................................. 88
Item 13 Certain Relationships and Related Transactions ............................................................................... 88
Principal Accounting Fees and Services ........................................................................................... 88
Item 14
Part IV
Item 15
Exhibits and Financial Statement Schedules ..................................................................................... 89
Signatures ........................................................................................................................................... 91
Certifications ...................................................................................................................................... 92
CAUTIONARY NOTE REGARDING 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,”
“believe,” “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.
These forward-looking statements involve risks and uncertainties, and may not be realized due to a variety of factors,
including, without limitation: the effects of future economic conditions, governmental monetary and fiscal policies, as
well as legislative and regulatory changes; the risks of changes in interest rates and their effects on the level and
composition of deposits, loan demand and the values of loan collateral, securities and interest sensitive assets and
liabilities; the costs of evaluating possible acquisitions and the risks inherent in integrating acquisitions; the effects of
competition from other commercial banks, thrifts, mortgage banking firms, consumer finance companies, credit unions,
securities brokerage firms, insurance companies, money market and other mutual funds and other financial institutions
operating in our market area and elsewhere, including institutions operating regionally, nationally and internationally,
together with such competitors offering banking products and services by mail, telephone, computer and the Internet;
the failure of assumptions underlying the establishment of reserves for possible loan losses; and those factors set forth
under Item 1A. Risk-Factors of this report and other cautionary statements set forth elsewhere in this report. Many of
these factors are beyond our ability to predict or control. In addition, as a result of these and other factors, our past
financial performance should not be relied upon as an indication of future performance.
We believe the expectations reflected in our forward-looking statements are reasonable, based on information available
to us on the date hereof. However, given the described uncertainties and risks, we cannot guarantee our future
performance or results of operations and you should not place undue reliance on these forward-looking statements. We
undertake no obligation to update or revise any forward-looking statements, whether as a result of new information,
future events or otherwise, and all written or oral forward-looking statements attributable to us are expressly qualified
in their entirety by this section.
PART I
ITEM 1.
BUSINESS
Company Overview
Simmons First National Corporation (the “Company) is a multi-bank financial holding company registered under
the Bank Holding Company Act of 1956, as amended. The Company is headquartered in Arkansas with total assets
of $3.1 billion, loans of $1.9 billion, deposits of $2.4 billion and equity capital of $371 million as of December 31,
2009. We own eight community banks that are strategically located throughout Arkansas. We conduct our
operations through 88 offices, of which 84 are branches, or “financial centers,” located in 47 communities in
Arkansas.
We seek to build shareholder value by (i) focusing on strong asset quality, (ii) maintaining strong capital and
managing our liquidity position, (iii) improving our efficiency, and (iv) opportunistically growing our business,
both organically and through potential FDIC-assisted transactions and traditional private community bank
acquisitions. We believe the depth and experience of our corporate executive management team and the
management teams and directors of each of our community banks has allowed us to achieve excellent asset quality,
a strong capital position and increased liquidity, even in the current challenging economic climate.
1
Community Bank Strategy
Our community banks feature locally based management and boards of directors, community-focused growth
strategies, and flexibility in pricing of loans and deposits. Our community banks are supported by our main
subsidiary bank, Simmons First National Bank (“SFNB” or “lead bank”), which allows our community banks to
provide products and services, such as a bank-issued credit card, that are usually offered only by larger banks.
We believe that our enterprise-wide support system enables us to “out-product” our smaller, Arkansas community
bank competitors while our local focus allows us to “out-service” our larger interstate bank competitors.
Our community banking business model involves some additional administrative costs as a result of maintaining
multiple bank charters, but has allowed us to maintain strong management at the local level to meet the needs of
local customers while ensuring good asset quality. In addition we, along with our lead bank, provide efficiencies
through consolidated back office support for information systems, loan review, compliance, human resources,
accounting and internal audit. Likewise, through a standardizing initiative, our banks share a common name,
signage and products that enable us to maximize our branding and overall marketing strategy.
Growth Strategy
Over the past 20 years, as we have expanded our markets and services, our growth strategy has evolved and diversified.
From 1989 through 1991, in addition to our internal branching expansion, we acquired nine branches from the
Resolution Trust Corporation, the federal agency that oversaw the sale or liquidation of assets of closed savings and
loans institutions.
From 1995 to 2005, our strategic focus was on creating geographic diversification throughout Arkansas, driven
primarily by acquisitions of other banking institutions. During this period we completed acquisitions of nine financial
institutions and a total of 20 branches from five other banking institutions, some of which allowed us to enter key
growth markets such as Conway, Hot Springs, Russellville, Searcy and Northwest Arkansas. In 2005, we initiated a de
novo branching strategy to enter selected new Arkansas markets and to complement our presence in existing markets.
From 2005 to 2008, we opened 12 new financial centers, a regional headquarters in Northwest Arkansas and a
corporate office in Little Rock. We substantially completed our de novo branching strategy in 2008.
In late 2007, as we anticipated deteriorating economic conditions, we concentrated on maintaining our strong asset
quality, building capital and improving our liquidity position. We intensified our focus on loan underwriting and on
monitoring our loan portfolio in order to maintain asset quality, which is well above our peer group and the industry
average. From late 2007 to December 31, 2009, our liquidity position (net overnight funds sold) improved by
approximately $150 million as a result of a strategic initiative to introduce deposit products that grew our core deposits
in transaction and savings accounts and improved our deposit mix. Transaction and savings deposits increased from
48% of total deposits as of December 31, 2007, to 62% of total deposits as of December 31, 2009.
Our capital levels have remained strong during the current economic downturn. As part of our strategic focus on
building capital, we suspended our stock repurchase program in July 2008. Additionally, despite our strong capital
position, in October 2008 we applied, and were one of the earliest banks approved, for funding of up to $60 million
under the U.S. Treasury’s Capital Purchase Program, referred to as the “CPP.” After careful consideration and
analysis, we believed there had been considerable improvement in the economic indicators since October 2008 and we
determined that participation in the CPP was not necessary nor in the best interest of our shareholders. We notified the
Treasury in July 2009 that we did not intend to participate in the CPP.
On August 26, 2009, we filed a shelf registration statement with the Securities and Exchange Commission (“SEC”).
The shelf registration statement will allow us to raise capital from time to time, up to an aggregate of $175 million,
through the sale of common stock, preferred stock, or a combination thereof, subject to market conditions. Specific
terms and prices will be determined at the time of any offering under a separate prospectus supplement that we will
be required to file with the SEC at the time of the specific offering.
In December 2009, we completed a secondary stock offering by issuing a total of 3,047,500 shares of common
stock, including the over-allotment, at a price of $24.50 per share, less underwriting discounts and commissions.
The net proceeds of the offering after deducting underwriting discounts and commissions and offering expenses
were approximately $70.5 million. Subsequent to the stock offering, we have approximately $100 million available
from our shelf registration for future offerings.
2
Acquisition Strategy
We believe we are strategically positioned to leverage our strong capital position to grow through acquisitions. In the
near term, the disruptions in the financial markets continue to create opportunities for strong financial institutions to
acquire selected assets and deposits of failed banks through FDIC-assisted transactions on attractive terms. We intend
to focus our near term acquisition strategy on such transactions. We also believe that the challenging economic
environment combined with more restrictive bank regulatory reform will cause many financial institutions to seek
merger partners in the intermediate future. We believe our community bank model, strong capital and successful
acquisition history position us as a purchaser of choice for community banks seeking a strong partner.
We expect that our primary geographic target area for acquisitions, both FDIC-assisted and negotiated, will fall within a
325 mile radius of central Arkansas. Our first priority will be to focus on acquisitions within Arkansas while also
seeking acquisitions within our target area in states contiguous to Arkansas. The senior management teams of both our
parent company and lead bank have had extensive experience during the past twenty years in acquiring banks, branches
and deposits and post-acquisition integration of operations. We believe this experience positions us to successfully
acquire and integrate banks on both an FDIC assisted and unassisted basis.
With respect to FDIC-assisted transactions:
• We believe one of our key strengths is our management depth at the community bank level that will enable us
to redeploy our human resources to integrate and operate an acquired institution’s business with minimal
disruption to our existing operations. From our management pool we have assembled an in-house acquisition
team to focus on evaluating and executing FDIC-assisted transactions.
• We have retained a consultant with FDIC-assisted transaction experience that has supplemented our
management’s acquisition experience with additional training focused on the unique aspects of acquiring,
converting and integrating banks through FDIC-assisted transactions.
With respect to negotiated community bank acquisitions:
• We have historically retained the target institution’s senior management and have provided them with an
appealing level of autonomy post-integration. We intend to continue to pursue negotiated community bank
acquisitions and we believe that our history with respect to such acquisitions has positioned us as an
acquirer of choice for community banks.
• We encourage acquired community banks, their boards and associates to maintain their community
involvement, while empowering the banks to offer a broader array of financial products and services. We
believe this approach leads to enhanced profitability after the acquisition.
Efficiency Initiatives
In 2008, we began two significant initiatives to improve our operating performance by implementing cost efficiencies
and selected revenue enhancements. These initiatives have led to cost savings and revenue enhancements in 2009 and
are expected to lead to further improvements in 2010 and beyond.
Our first such initiative was an effort to leverage our corporate buying power to renegotiate our existing vendor
contracts at lower prices and to maximize the return on our investment in technology. We have begun to benefit from
operating expense savings as a result of more favorable contract terms with our vendors in 2009 with the full
annualized benefits expected to be realized in 2010.
Our second initiative, which is larger in scope, is to identify and implement process improvements. We are reviewing
our business processes in an effort to improve our profitability while preserving the quality of our customer service.
The scope of this initiative includes implementing revenue enhancements, further consolidating back office processes
and refining our organizational structure. We intend to begin implementing this initiative in 2010 and to continue its
implementation in 2011. We expect to experience significant savings and revenue enhancements as this initiative takes
effect.
3
Subsidiary Banks
Our lead bank, SFNB, is a national bank which has been in operation since 1903. SFNB’s primary market area, with
the exception of its nationally provided credit card product, is southeastern, central and western Arkansas. As of
December 31, 2009, SFNB had total assets of $1.6 billion, total loans of $945 million and total deposits of $1.3 billion.
Simmons First Trust Company N.A., a wholly owned subsidiary of SFNB, performs the trust and fiduciary business
operations for SFNB and for us. Simmons First Investment Group, Inc., a wholly owned subsidiary of SFNB, is a
broker-dealer registered with the SEC and a member of the National Association of Securities Dealers and performs the
broker-dealer operations for SFNB.
The following table shows our community subsidiary banks other than the lead bank:
Subsidiary
Year
Acquired
Primary Market
Northeast Arkansas
1984
Simmons First Bank of Jonesboro
Southeast Arkansas
Simmons First Bank of South Arkansas
1984
Northwest Arkansas
Simmons First Bank of Northwest Arkansas 1995
Russellville, Arkansas
1997
Simmons First Bank of Russellville
Searcy, Arkansas
1997
Simmons First Bank of Searcy
1999
Simmons First Bank of El Dorado, N.A.
South central Arkansas
2004 Hot Springs, Arkansas
Simmons First Bank of Hot Springs
Deposits
As of December 31, 2009
Assets
Loans
(In thousands)
$312,835 $258,807 $263,327
139,898
219,009
138,661
113,771
249,118
122,857
165,682
272,463
193,498
149,732
289,326
172,256
88,585
175,485
106,436
106,632
116,675
77,477
Our subsidiary banks provide complete banking services to individuals and businesses throughout the market areas they
serve. These banks offer 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.
Credit Cards
We held the 62nd largest credit card portfolio in the U.S. as of August 31, 2009, with a balance of $175 million, which
has grown to $189 million at December 31, 2009. Since the 1960s, we have offered these products through our lead
bank. Our portfolio had an all-in yield, net of any credit losses, of over 15% for the year ended December 31, 2009.
Our number of accounts has grown 10.6% since December 31, 2008, to over 123,000 accounts as of December 31,
2009. This growth has been balanced by a lower approval rate for credit card applications of only 17% for the quarter
ended December 31, 2009, which is down from an approval rate of approximately 34% during 2007. Our strong credit
underwriting is reflected in our credit card charge-off ratio of 2.41% for the quarter ended December 31, 2009. This is
790 basis points better than the industry average charge-off ratio of 10.31% as reported by Moody’s Investors Service
for the same three month period. Our portfolio is geographically diversified, with approximately 41% of our credit card
customers in Arkansas and no geographic concentration greater than 7% in any other state. Our credit card customers
carry an average balance of approximately $2,100. Their average credit limit is approximately $3,600 and their average
FICO score is above 725. We believe these attributes contribute to the success of our credit card product offering in
terms of both growth and credit quality.
Loan Risk Assessment
As part of our 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 our 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. Our 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 our 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
4
loan files on a semi-annual basis. Additionally, we have instituted a Special Asset Committee for the purpose of
reviewing criticized loans in regard to collateral adequacy, workout strategies and proper reserve allocations.
Competition
There is significant competition among commercial banks in our various market areas. In addition, we also compete
with other providers of financial services, such as savings and loan associations, credit unions, finance companies,
securities firms, insurance companies, full service brokerage firms and discount brokerage firms. Some of our
competitors have greater resources and, as such, may have higher lending limits and may offer other services that we do
not provide. We generally compete on the basis of customer service and responsiveness to customer needs, available
loan and deposit products, the rates of interest charged on loans, the rates of interest paid for funds, and the availability
and pricing of trust and brokerage services.
Principal Offices and Available Information
Our principal executive offices are located at 501 Main Street, Pine Bluff, Arkansas 71601, and our telephone number
is (870) 541-1000. We also have corporate offices in Little Rock, Arkansas. We maintain a website at
http://www.simmonsfirst.com. On this website under the section “Investor Relations”, we make our filings with the
Securities and Exchange Commission available free of charge, along with other Company news and announcements.
Employees
As of February 5, 2010, the Company and its subsidiaries had approximately 1,096 full time equivalent employees.
None of the employees is represented by any union or similar groups, and we have not experienced any labor disputes
or strikes arising from any such organized labor groups. We consider our relationship with our 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
Robert C. Dill
David W. Garner
Kevin J. Archer
Sharon K. Burdine
Tina M. Groves
John L. Rush
63
58
45
58
66
40
46
44
40
75
Chairman and Chief Executive Officer
President and Chief Operating Officer
Executive Vice President and Chief Financial Officer
Executive Vice President
Executive Vice President, Marketing
Senior Vice President and Controller
Senior Vice President/Credit Policy and Risk Assessment
Senior Vice President and Human Resources Director
Senior Vice President/Manager, Audit/Compliance
Secretary
23
13
21
21
43
12
14
12
4
42
5
Board of Directors of the Company
The following is a list of the Board of Directors of the Company as of December 31, 2009, along with their principal
occupation.
NAME
PRINCIPAL OCCUPATION
William E. Clark, II
Chief Executive Officer
Clark Contractors LLC
Steven A. Cosse′
Edward Drilling
Eugene Hunt
George A. Makris, Jr.
J. Thomas May
W. Scott McGeorge
Stanley E. Reed
Executive Vice President and General Counsel
Murphy Oil Corporation
President
AT&T Arkansas
Attorney
Hunt Law Firm
President
M.K. Distributors, Inc.
Chairman and Chief Executive Officer
Simmons First National Corporation
President
Pine Bluff Sand and Gravel Company
Farmer
President (retired)
Arkansas Farm Bureau
Harry L. Ryburn
Orthodontist (retired)
Robert L. Shoptaw
Chairman of the Board
Arkansas Blue Cross and Blue Shield
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 Simmons First National Corporation,
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, we are 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.
We are 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
6
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 five 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
SFNB, Simmons First Bank of El Dorado, N.A. 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 First Bank of Jonesboro, Simmons First Bank
of South Arkansas, Simmons First Bank of Northwest Arkansas and Simmons First Bank of 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 First Bank of
Russellville and Simmons First Bank of 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.
All of our 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, our 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 that 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 Subsidiary 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 our risk-weighted capital ratios, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations – Capital" and Note 18, 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 (net of any deferred tax liability associated with that 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
7
certain further requirements. At least 50% of the banking organization's total regulatory capital must consist of Tier 1
Capital.
Tier 2 Capital is an amount equal to the sum of the qualifying portion of the allowance for loan losses, certain preferred
stock not included in Tier 1, hybrid capital instruments (instruments with characteristics of debt and equity), certain
long-term debt securities and eligible term subordinated debt, in an amount up to 50% of Tier 1 Capital. The eligibility
of these items for inclusion as Tier 2 Capital is subject to certain additional requirements and limitations of the federal
banking agencies.
Under the risk-based capital guidelines, balance sheet assets and certain off-balance sheet items, such as standby letters
of credit, are assigned to one of four-risk weight categories (0%, 20%, 50%, or 100%), according to the nature of the
asset, its collateral or the identity of the obligor or guarantor. The aggregate amount in each risk category is adjusted by
the risk weight assigned to that category to determine weighted values, which are then added to determine the total
risk-weighted assets for the banking organization. For example, an asset, such as a commercial loan, assigned to a
100% risk category, is included in risk-weighted assets at its nominal face value, but a loan secured by a one-to-four
family residence is included at only 50% of its nominal face value. The applicable ratios reflect capital, as so
determined, divided by risk-weighted assets, as so determined.
Federal Deposit Insurance Corporation Improvement Act
The Federal Deposit Insurance Corporation Improvement Act ("FDICIA"), enacted in 1991, requires the FDIC to
increase assessment rates for insured banks and authorizes one or more "special assessments," as necessary for the
repayment of funds borrowed by the FDIC or any other necessary purpose. As directed in FDICIA, the FDIC has
adopted a transitional risk-based assessment system, under which the assessment rate for insured banks will vary
according to the level of risk incurred in the bank's activities. The risk category and risk-based assessment for a bank is
determined from its classification, pursuant to the regulation, as well capitalized, adequately capitalized or
undercapitalized.
FDICIA substantially revised the bank regulatory provisions of the Federal Deposit Insurance Act and other federal
banking statutes, requiring federal banking agencies to establish capital measures and classifications. Pursuant to the
regulations issued under FDICIA, a depository institution will be deemed to be well capitalized if it significantly
exceeds the minimum level required for each relevant capital measure; adequately capitalized if it meets each such
measure; undercapitalized if it fails to meet any such measure; significantly undercapitalized if it is significantly below
any such measure; and critically undercapitalized if it fails to meet any critical capital level set forth in regulations. The
federal banking agencies must promptly mandate corrective actions by banks that fail to meet the capital and related
requirements in order to minimize losses to the FDIC. The FDIC and OCC advised the Company that the subsidiary
banks have been classified as well capitalized under these regulations.
The federal banking agencies are required by FDICIA to prescribe standards for banks and bank holding companies
(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.
Temporary Liquidity Guarantee Program
On November 21, 2008, the Board of Directors of the FDIC adopted a final rule relating to the Temporary Liquidity
Guarantee Program (“TLG Program”). The TLG Program was announced by the FDIC on October 14, 2008, preceded
by the determination of systemic risk by the Secretary of the Department of Treasury (after consultation with the
President) as an initiative to counter the system-wide crisis in the nation’s financial sector. Under the TLG Program the
FDIC will (i) guarantee, through the earlier of maturity or June 30, 2012, certain newly issued senior unsecured debt
issued by participating institutions on or after October 14, 2008, and before June 30, 2009, and (ii) provide full FDIC
deposit insurance coverage for non-interest bearing transaction deposit accounts, Negotiable Order of Withdrawal
(“NOW”) accounts paying less than 0.5% interest per annum and Interest on Lawyers Trust Accounts (“IOLTA”)
8
accounts held at participating FDIC- insured institutions through December 31, 2009. Coverage under the TLG
Program was available for the first 30 days without charge. The fee assessment for coverage of senior unsecured debt
ranges from 50 basis points to 100 basis points per annum depending on the initial maturity of the debt. The fee
assessment for deposit insurance coverage is an annualized 10 basis points paid quarterly on amounts in covered
accounts exceeding $250,000. On December 5, 2008, we elected to participate in both guarantee programs. On
February 10, 2009, the FDIC extended the date for issuing debt under the TLG Program from June 30 to October 31,
2009. On August 26, 2009, the FDIC extended the Transaction Account Guaranty (“TAG”) portion of the TLG
Program for six months, through June 30, 2010. The annual assessment rate that will apply during the extension period
will be raised from the initial annualized 10 basis points on amounts in covered accounts exceeding $250,000 to either
15, 20 or 25 basis points, depending on the Risk category assigned to the participating institution under the FDIC's risk-
based premium system.
ITEM 1A.
RISK FACTORS
Risks Related to Our Industry
Our business may be adversely affected by conditions in the financial markets and general economic conditions.
Since December 2007, the United States has been in a recession, although there are some indicators of
improvement. Business activity across a wide range of industries and regions has been greatly reduced and local
governments and many businesses are having difficulty due to the lack of consumer spending, the lack of liquidity
in the credit markets and high unemployment.
Market conditions have also led to the failure or merger of a number of prominent financial institutions. Financial
institution failures or near-failures have resulted in further losses as a consequence of defaults on securities issued
by them and defaults under contracts entered into with such entities as counterparties. Furthermore, declining asset
values, defaults on mortgages and consumer loans, and the lack of market and investor confidence, as well as other
factors, have all combined to increase credit default swap spreads, to cause rating agencies to lower credit ratings,
and to otherwise increase the cost and decrease the availability of liquidity, despite very significant declines in
Federal Reserve borrowing rates and other government actions. Some banks and other lenders have suffered
significant losses and have become reluctant to lend, even on a secured basis, due to the increased risk of default
and the impact of declining asset values on the value of collateral. The foregoing has significantly weakened the
strength and liquidity of some financial institutions worldwide.
The Company’s financial performance generally, and in particular the ability of borrowers to pay interest on and
repay principal of outstanding loans and the value of collateral securing those loans, is highly dependent upon on
the business environment in the state of Arkansas and in the United States as a whole. A favorable business
environment is generally characterized by, among other factors, economic growth, efficient capital markets, low
inflation, high business and investor confidence and strong business earnings. Unfavorable or uncertain economic
and market conditions can be caused by: declines in economic growth, business activity or investor or business
confidence; limitations on the availability or increases in the cost of credit and capital; increases in inflation or
interest rates; natural disasters; or a combination of these or other factors.
The business environment in Arkansas could continue to deteriorate. There can be no assurance that these business
and economic conditions will improve in the near term. The continuation of these conditions could adversely affect
the credit quality of our loans and our results of operations and financial condition.
Recent legislative and regulatory initiatives to address difficult market and economic conditions may not stabilize
the U.S. banking system.
Under the Troubled Asset Relief Program, or “TARP,” the U.S. Treasury is authorized to purchase from financial
institutions and their holding companies up to $700 billion in mortgage loans, mortgage-related securities and
certain other financial instruments, including debt and equity securities issued by financial institutions and their
holding companies. The purpose of TARP is to restore confidence and stability to the U.S. banking system and to
encourage financial institutions to increase their lending to customers and to each other. The Treasury allocated
$250 billion toward TARP’s Capital Purchase Program to fund the purchase of equity securities from participating
institutions.
9
Numerous actions have been taken by the United States Congress, the Federal Reserve, the Treasury, the FDIC, the
SEC and other governmental agencies to address the recent liquidity and credit crisis. These actions have included,
among others:
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encouraging residential mortgage loan restructuring and modification to provide homeowners relief;
establishing significant liquidity and credit facilities for financial institutions and investment banks;
lowering of the federal funds rate;
taking emergency action against short selling practices;
establishing a temporary guaranty program for money market funds;
establishing a commercial paper funding facility to provide back-stop liquidity to commercial paper issuers; and
coordinating international efforts to address illiquidity and other weaknesses in the banking sector.
A significant goal of these legislative and regulatory actions is to stabilize the U.S. banking system. The legislative
and regulatory initiatives described above may not have their desired effects or may have unintended consequences.
Should these or other legislative or regulatory initiatives fail to stabilize the financial markets, our business,
financial condition, results of operations and prospects could be materially and adversely affected.
Recent increases in deposit insurance coverage and the FDIC’s efforts to restore the deposit insurance fund have
increased our FDIC insurance assessments and resulted in higher noninterest expense. Additional increases in
deposit insurance rates may occur and continue to negatively impact our operations.
The Emergency Economic Stabilization Act of 2008, referred to as “EESA,” temporarily raised the limit on federal
deposit insurance coverage from $100,000 to $250,000 per depositor. The limits are scheduled to return to $100,000
on January 1, 2014. The temporary increase in insured deposits has been accompanied by a higher assessment for
our subsidiary banks and will adversely affect our results of operations as an increase in noninterest expense.
Separate from the EESA, in October 2008, the FDIC announced the Temporary Liquidity Guarantee Program (the
“TLG Program”). Banks that participate in the TLG Program are subject to a coverage charge of ten basis points per
annum for noninterest-bearing deposit accounts exceeding the existing deposit insurance limit of $250,000. In
August 2009, the FDIC issued a final rule regarding the extension of the deposit guarantee portion of the TLG
Program. Under this rule, the expiration of the program is extended to June 30, 2010. In connection with the
extension, the annual fees associated with the deposit guarantee portion of the TLG Program increase from ten basis
points to 15 to 25 basis points after December 31, 2009. The particular rate to be assessed will be based upon the
risk category to which an institution is assigned.
In addition, the large number of recent bank failures combined with the potential for significant numbers of
additional bank failures has placed significant stress on the deposit insurance fund. In order to maintain a strong
funding position and restore reserve ratios of the deposit insurance fund, the FDIC increased assessment rates of
insured institutions uniformly by seven cents for every $100 of deposits beginning with the first quarter of 2009,
with additional charges which began April 1, 2009.
In May 2009, the FDIC voted to amend the deposit insurance fund restoration plan and impose a special assessment
of 5 basis points of each insured institution’s assets less its Tier 1 capital as of June 30, 2009, which was collected
on September 30, 2009. Based on our deposit levels at June 30, 2009, we accrued a special assessment amount
approximately $1.4 million. The amended rule also permits the FDIC to impose an additional emergency special
assessment after June 30, 2009, of up to five basis points if necessary to maintain public confidence in federal
deposit insurance. The imposed special assessment, as well as any future increases in assessments, will adversely
affect our noninterest expense and results of operations.
In September 2009, the FDIC announced that it would require insured banks to prepay their estimated FDIC
assessments for the fourth quarter of 2009 and for the next three years on December 30, 2009. The total amount of
our prepaid assessment was approximately $11.2 million.
Should more bank failures occur, the FDIC’s premium assessments may continue to increase or accelerate. We are
generally unable to control the amount of premiums that we are required to pay for FDIC insurance. There is a
significant possibility that the FDIC will further increase or accelerate the timing of payment of FDIC insurance
premiums, whether or not there are more bank failures.
10
Current levels of market volatility are unprecedented.
The financial markets have continued to experience significant volatility. In some cases, the financial markets have
produced downward pressure on stock prices and credit availability for certain issuers without regard to those
issuers’ underlying financial strength. If financial market volatility continues or worsens, or if there are more
disruptions in the financial markets, including disruptions to the United States or international banking systems,
there can be no assurance that we will not experience an adverse effect, which may be material, on our ability to
access capital and on our business, financial condition and results of operations.
Risks Related to Our Business
Our concentration of banking activities in Arkansas, including our real estate loan portfolio, makes us more
vulnerable to adverse conditions in the particular Arkansas markets in which we operate.
Our subsidiary banks operate exclusively within the state of Arkansas, where the majority of the buildings and
properties securing our loans and the businesses of our customers are located. Our financial condition, results of
operations and cash flows are subject to changes in the economic conditions in our home state, the ability of our
borrowers to repay their loans, and the value of the collateral securing such loans. We largely depend on the
continued growth and stability of the communities we serve for our continued success. Declines in the economies of
these communities or the state of Arkansas in general could adversely affect our ability to generate new loans or to
receive repayments of existing loans, and our ability to attract new deposits, thus adversely affecting our net
income, profitability and financial condition.
The ability of our borrowers to repay their loans could also be adversely impacted by the significant changes in
market conditions in the region or by changes in local real estate markets, including deflationary effects on
collateral value caused by property foreclosures. This could result in an increase in our charge-offs and provision
for loan losses. Either of these events would have an adverse impact on our results of operations.
Our loan portfolio in Northwest Arkansas has been more negatively impacted than our loan portfolio comprised
from other regions in Arkansas. This fact results primarily from the acute contraction in that region’s economy and
its real estate markets as compared to Arkansas as a whole. In 2009 we have put an additional $5 million in capital
into our Northwest Arkansas bank. A continued deterioration of the Northwest Arkansas economy or its failure to
fully participate in an economic recovery could require us to further tighten our local lending standards, inject more
capital into our Northwest Arkansas bank and increase allowances for loan losses relative to loans made in the
region.
A significant decline in general economic conditions caused by inflation, recession, unemployment, acts of
terrorism or other factors beyond our control could also have an adverse effect on our financial condition and results
of operations. In addition, because multi-family and commercial real estate loans represent the majority of our real
estate loans outstanding, a decline in tenant occupancy due to such factors or for other reasons could adversely
impact the ability of our borrowers to repay their loans on a timely basis, which could have a negative impact on our
results of operations.
Deteriorating credit quality, particularly in our credit card portfolio, may adversely impact us.
We have a significant consumer credit card portfolio. We have experienced an increased amount of net charge-offs
in our credit card portfolio in 2009, which could continue or worsen. While we continue to experience a better
performance with respect to net charge-offs than the national average in our credit card portfolio, our net charge-
offs nevertheless increased to 2.41% of our average outstanding credit card balances for the quarter ended
December 31, 2009, from 2.02% of the average outstanding balances for the quarter ended on December 31, 2008.
The current economic downturn could adversely affect consumers in a more delayed fashion compared to
commercial businesses in general. Increasing unemployment and diminished asset values may prevent our credit
card customers from repaying their credit card balances which could result in an increased amount of our net
charge-offs that could have a material adverse effect on our unsecured credit card portfolio.
11
Changes to consumer protection laws may impede our origination or collection efforts with respect to credit card
accounts, change account holder use patterns or reduce collections, any of which may result in decreased
profitability of our credit card portfolio.
Credit card receivables that do not comply with consumer protection laws may not be valid or enforceable under
their terms against the obligors of those credit card receivables. Federal and state consumer protection laws regulate
the creation and enforcement of consumer loans, including credit card receivables. For instance, the federal Truth in
Lending Act was recently amended by the “Credit Card Accountability, Responsibility and Disclosure Act of
2009,” or the “Credit CARD Act,” which, among other things:
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prevents any increases in interest rates and fees during the first year after a credit card account is opened, and
increases at any time on interest rates on existing credit card balances, unless (i) the minimum payment on the
related account is 60 or more days delinquent, (ii) the rate increase is due to the expiration of a promotional rate,
(iii) the account holder fails to comply with a negotiated workout plan or (iv) the increase is due to an increase in
the index rate for a variable rate credit card;
requires that any promotional rates for credit cards be effective for at least six months;
requires 45 days notice for any change of an interest rate or any other significant changes to a credit card
account;
empowers federal bank regulators to promulgate rules to limit the amount of any penalty fees or charges for
credit card accounts to amounts that are “reasonable and proportional to the related omission or violation;” and
requires credit card companies to mail billing statements 21 calendar days before the due date for account holder
payments.
As a result of the Credit CARD Act and other consumer protection laws and regulations, it may be more difficult for
us to originate additional credit card accounts or to collect payments on credit card receivables, and the finance
charges and other fees that we can charge on credit card account balances may be reduced. Furthermore, account
holders may choose to use credit cards less as a result of these consumer protection laws. Each of these results,
independently or collectively, could reduce the effective yield on revolving credit card accounts and could result in
decreased profitability of our credit card portfolio.
Our growth and expansion strategy may not be successful, and our market value and profitability may suffer.
We have historically employed, as important parts of our business strategy, growth through acquisition of banks
and, to a lesser extent, through branch acquisitions and de novo branching. Any future acquisitions, including any
FDIC-assisted transactions, in which we might engage will be accompanied by the risks commonly encountered in
acquisitions. These risks include, among other risks:
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credit risk associated with the acquired bank’s loans and investments;
difficulty of integrating operations and personnel; and
potential disruption of our ongoing business.
In the current economic environment, we anticipate that in addition to opportunities to acquire other banks in
privately negotiated transactions, we may also have opportunities to bid to acquire the assets and liabilities of failed
banks in FDIC-assisted transactions. These acquisitions involve risks similar to acquiring existing banks. Because
FDIC-assisted acquisitions are structured in a manner that would not allow us the time normally associated with due
diligence investigations prior to committing to purchase the target bank or preparing for integration of an acquired
bank, we may face additional risks in FDIC-assisted transactions. These risks include, among other things:
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loss of customers of the failed bank;
strain on management resources related to collection and management of problem loans; and
problems related to integration of personnel and operating systems.
12
In addition to pursuing the acquisition of existing viable financial institutions or the acquisition of assets and
liabilities of failed banks in FDIC-assisted transactions, as opportunities arise we may also continue to engage in de
novo branching to further our growth strategy. De novo branching and growing through acquisition involve
numerous risks, including the following:
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the inability to obtain all required regulatory approvals;
the significant costs and potential operating losses associated with establishing a de novo branch or a new bank;
the inability to secure the services of qualified senior management;
the local market may not accept the services of a new bank owned and managed by a bank holding company
headquartered outside of the market area of the new bank;
the risk of encountering an economic downturn in the new market;
the inability to obtain attractive locations within a new market at a reasonable cost; and
the additional strain on management resources and internal systems and controls.
We expect that competition for suitable acquisition candidates, whether such candidates are viable banks or are the
subject of an FDIC-assisted transaction, will be significant. We may compete with other banks or financial service
companies that are seeking to acquire our acquisition candidates, many of which are larger competitors and have
greater financial and other resources. We cannot assure you that we will be able to successfully identify and acquire
suitable acquisition targets on acceptable terms and conditions. Further, we cannot assure you that we will be
successful in overcoming these risks or any other problems encountered in connection with acquisitions and de novo
branching. Our inability to overcome these risks could have an adverse effect on our ability to achieve our business
and growth strategy and maintain or increase our market value and profitability.
Our recent results do not indicate our future results and may not provide guidance to assess the risk of an
investment in our common stock.
We may not be able to sustain our historical rate of growth or be able to expand our business. Various factors, such
as economic conditions, regulatory and legislative considerations and competition, may also impede or prohibit our
ability to expand our market presence. We may also be unable to identify advantageous acquisition opportunities or,
once identified, enter into transactions to make such acquisitions. If we are not able to successfully grow our
business, our financial condition and results of operations could be adversely affected.
Our cost of funds may increase as a result of general economic conditions, interest rates and competitive
pressures.
Our cost of funds may increase as a result of general economic conditions, fluctuations in interest rates and
competitive pressures. We have traditionally obtained funds principally through local deposits as we have a base of
lower cost transaction deposits. Our costs of funds and our profitability and liquidity are likely to be adversely
affected, if we have to rely upon higher cost borrowings from other institutional lenders or brokers to fund loan
demand or liquidity needs. Also, changes in our deposit mix and growth could adversely affect our profitability and
the ability to expand our loan portfolio.
We have been active in making student loans and this part of our business could decrease or terminate in the
future.
Our subsidiary banks historically have been active in the student loan market and our student loan portfolio has
been profitable in the past. Recent interruptions in the credit markets and certain changes in the federal government
programs affecting student loans, however, have decreased the marketability of student loans and increased our
holding period for such loans. These events have increased our expenses associated with making and holding
student loans and have decreased the profitability of making such loans. The federal government is currently
considering additional revisions to the student loan program which may either eliminate participation by banks or
substantially reduce the profitability to banks of participating in student loan programs. Future regulatory and
legislative changes may further decrease the profitability of our student loan portfolio and may cause us to decrease
the size of the student loan portfolio or eliminate it all together. Eliminating or decreasing that portfolio could
adversely affect our profitability in the future.
13
We may not be able to raise the additional capital we need to grow and, as a result, our ability to expand our
operations could be materially impaired.
Federal and state regulatory authorities require us and our subsidiary banks to maintain adequate levels of capital to
support our operations. Many circumstances could require us to seek additional capital, such as:
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faster than anticipated growth;
reduced earning levels;
operating losses;
changes in economic conditions;
revisions in regulatory requirements; or
additional acquisition opportunities.
Our ability to raise additional capital will largely depend on our financial performance, and on conditions in the
capital markets which are outside our control. If we need additional capital but cannot raise it on terms acceptable to
us, our ability to expand our operations or to engage in acquisitions could be materially impaired.
Accounting standards periodically change and the application of our accounting policies and methods may
require management to make estimates about matters that are uncertain.
The regulatory bodies that establish accounting standards, including, among others, the Financial Accounting
Standards Board and the SEC, periodically revise or issue new financial accounting and reporting standards that
govern the preparation of our consolidated financial statements. The effect of such revised or new standards on our
financial statements can be difficult to predict and can materially impact how we record and report our financial
condition and results of operations.
In addition, our management must exercise judgment in appropriately applying many of our accounting policies and
methods so they comply with generally accepted accounting principles. In some cases, management may have to
select a particular accounting policy or method from two or more alternatives. In some cases, the accounting policy
or method chosen might be reasonable under the circumstances and yet might result in our reporting materially
different amounts than would have been reported if we had selected a different policy or method. Accounting
policies are critical to fairly presenting our financial condition and results of operations and may require
management to make difficult, subjective or complex judgments about matters that are uncertain.
The Federal Reserve Board’s source of strength doctrine could require that we divert capital to our subsidiary
banks instead of applying available capital towards planned uses, such as engaging in acquisitions or paying
dividends to shareholders.
The Federal Reserve Board’s policies and regulations require that a bank holding company, including a financial
holding company, serve as a source of financial strength to its subsidiary banks, and further provide that a bank
holding company may not conduct operations in an unsafe or unsound manner. It is the Federal Reserve Board’s
policy that a bank holding company should stand ready to use available resources to provide adequate capital to its
subsidiary banks during periods of financial stress or adversity, such as during periods of significant loan losses,
and that such holding company should maintain the financial flexibility and capital-raising capacity to obtain
additional resources for assisting its subsidiary banks if such a need were to arise.
A bank holding company’s failure to meet its obligations to serve as a source of strength to its subsidiary banks will
generally be considered to be an unsafe and unsound banking practice or a violation of the Federal Reserve Board’s
regulations, or both. Accordingly, if the financial condition of our subsidiary banks were to deteriorate, we could be
compelled to provide financial support to our subsidiary banks at a time when, absent such Federal Reserve Board
policy, we may not deem it advisable to provide such assistance. Under such circumstances, there is a possibility
that we may not either have adequate available capital or feel sufficiently confident regarding our financial
condition, to enter into acquisitions, pay dividends, or engage in other corporate activities.
We may incur environmental liabilities with respect to properties to which we take title.
A significant portion of our loan portfolio is secured by real property. In the course of our business, we may own or
foreclose and take title to real estate and could become subject to environmental liabilities with respect to these
properties. We may become responsible to a governmental agency or third parties for property damage, personal
14
injury, investigation and clean-up costs incurred by those parties in connection with environmental contamination,
or may be required to investigate or clean-up hazardous or toxic substances, or chemical releases at a property. The
costs associated with environmental investigation or remediation activities could be substantial. If we were to
become subject to significant environmental liabilities, it could have a material adverse effect on our results of
operations and financial condition.
Our management has broad discretion over the use of proceeds from our recent common stock offering.
Although we have indicated our intent to use the proceeds from our recent common stock offering for general
corporate purposes, including funding internal growth and selected future acquisitions, our Board of Directors
retains significant discretion with respect to the use of proceeds from this offering. If we use the funds to acquire
other businesses, there can be no assurance that any business we acquire will be successfully integrated into our
operations or otherwise perform as expected. Likewise, other uses of the proceeds from this offering may not
generate favorable returns for us.
Risks Related to Owning Our Stock
The holders of our subordinated debentures have rights that are senior to those of our shareholders. If we defer
payments of interest on our outstanding subordinated debentures or if certain defaults relating to those
debentures occur, we will be prohibited from declaring or paying dividends or distributions on, and from making
liquidation payments with respect to our common stock.
We have $30.9 million of subordinated debentures issued in connection with trust preferred securities. Payments of
the principal and interest on the trust preferred securities are unconditionally guaranteed by us. The subordinated
debentures are senior to our shares of common stock. As a result, we must make payments on the subordinated
debentures (and the related trust preferred securities) before any dividends can be paid on our common stock and, in
the event of our bankruptcy, dissolution or liquidation, the holders of the debentures must be satisfied before any
distributions can be made to the holders of our common stock. We have the right to defer distributions on the
subordinated debentures (and the related trust preferred securities) for up to five years, during which time no
dividends may be paid to holders of our capital stock. If we elect to defer or if we default with respect to our
obligations to make payments on these subordinated debentures, this would likely have a material adverse effect on
the market value of our common stock. Moreover, without notice to or consent from the holders of our common
stock, we may issue additional series of subordinated debt securities in the future with terms similar to those of our
existing subordinated debt securities or enter into other financing agreements that limit our ability to purchase or to
pay dividends or distributions on our capital stock.
We may be unable to, or choose not to, pay dividends on our common stock.
We cannot assure you of our ability to continue to pay dividends. Our ability to pay dividends depends on the
following factors, among others:
• We may not have sufficient earnings since our primary source of income, the payment of dividends to us by our
subsidiary banks, is subject to federal and state laws that limit the ability of those banks to pay dividends;
Federal Reserve Board policy requires bank holding companies to pay cash dividends on common stock only out
of net income available over the past year and only if prospective earnings retention is consistent with the
organization’s expected future needs and financial condition; and
•
• Our Board of Directors may determine that, even though funds are available for dividend payments, retaining the
funds for internal uses, such as expansion of our operations, is a better strategy.
If we fail to pay dividends, capital appreciation, if any, of our common stock may be the sole opportunity for gains
on an investment in our common stock. In addition, in the event our subsidiary banks become unable to pay
dividends to us, we may not be able to service our debt or pay our other obligations or pay dividends on our
common stock. Accordingly, our inability to receive dividends from our subsidiary banks could also have a material
adverse effect on our business, financial condition and results of operations and the value of your investment in our
common stock.
15
There may be future sales of additional common stock or preferred stock or other dilution of our equity, which
may adversely affect the value of our common stock.
We are not restricted from issuing additional common stock or preferred stock, including any securities that are
convertible into or exchangeable for, or that represent the right to receive, common stock or preferred stock or any
substantially similar securities. The value of our common stock could decline as a result of sales by us of a large
number of shares of common stock or preferred stock or similar securities in the market or the perception that such
sales could occur.
Anti-takeover provisions could negatively impact our shareholders.
Provisions of our articles of incorporation and by-laws and federal banking laws, including regulatory approval
requirements, could make it more difficult for a third party to acquire us, even if doing so would be perceived to be
beneficial to our shareholders. The combination of these provisions effectively inhibits a non-negotiated merger or
other business combination, which, in turn, could adversely affect the market price of our common stock. These
provisions could also discourage proxy contests and make it more difficult for holders of our common stock to elect
directors other than the candidates nominated by our Board of Directors.
ITEM 1B.
UNRESOLVED STAFF COMMENTS
There are currently no unresolved Commission staff comments.
ITEM 2.
PROPERTIES
The principal offices of the Company and the lead 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, we also have corporate
offices located in Little Rock, Arkansas.
The Company and its subsidiaries own or lease additional offices throughout the state of Arkansas. The Company and
its eight banks conduct financial operations from 88 offices, of which 84 are financial centers, in 47 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 the following lawsuit
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 Company was later added as a party defendant.
The plaintiffs were seeking $2,000,000 in compensatory damages and $10,000,000 in punitive damages. The
Company and the banks filed Motions to Dismiss. The plaintiffs were granted additional time to discover any evidence
for litigation, and submitted such findings. At the hearing on the Motions for Summary Judgment, the Court dismissed
Simmons First National Bank due to lack of venue. Venue was changed to Jefferson County for the Company and
Simmons First Bank of South Arkansas. Non-binding mediation failed on June 24, 2008. A pretrial was conducted on
July 24, 2008. Several dispositive motions previously filed were heard on April 9, 2009, and arguments were presented
on June 22, 2009. On July 10, 2009, the Court issued its Order dismissing five claims, leaving only a single claim for
further pursuit in this matter. On August 18, 2009, Plaintiffs took a nonsuit on their remaining claim of breach of good
faith and fair dealing, thereby bringing all claims set forth in this action to a conclusion.
Plaintiffs subsequently filed their Notice of Appeal to the appellate court, have timely lodged the transcript with the
Supreme Court Clerk, and a briefing schedule has been issued. The Company intends to contest the appeal and seek
affirmance of the Court's dismissal of Plaintiffs' claims. At this time, no basis for any material liability has been
identified.
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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
Our common stock is listed on the NASDAQ Global Select Market under the symbol “SFNC.” Set forth below are the
high and low sales prices for our common stock as reported by the NASDAQ Global Select Market for each quarter of
the fiscal years ended December 31, 2009 and 2008. Also set forth below are dividends declared per share in each of
these periods:
2009
1st quarter
2nd quarter
3rd quarter
4th quarter
2008
1st quarter
2nd quarter
3rd quarter
4th quarter
Price Per
Common Share
High
Low
$ 29.54
30.02
30.84
30.00
$ 29.90
32.99
36.49
35.00
$ 20.30
23.90
26.15
24.50
$ 24.00
27.82
26.20
22.41
Quarterly
Dividends
Per Common
Share
$ 0.19
0.19
0.19
0.19
$ 0.19
0.19
0.19
0.19
On February 5, 2010, the closing price for our common stock as reported on the NASDAQ was $25.97. As of
February 5, 2010, there were 1,337 shareholders of record of our common stock.
The timing and amount of future dividends are at the discretion of our Board of Directors and will depend upon our
consolidated earnings, financial condition, liquidity and capital requirements, the amount of cash dividends paid to
us by our subsidiaries, applicable government regulations and policies and other factors considered relevant by our
Board of Directors. Our Board of Directors anticipates that we will continue to pay quarterly dividends in amounts
determined based on the factors discussed above. However, there can be no assurance that we will continue to pay
dividends on our common stock at the current levels or at all.
Our principal source of funds for dividend payments to our stockholders is distributions, including dividends, from our
subsidiary banks, which are subject to restrictions tied to such institution’s earnings. Under applicable banking laws,
the declaration of dividends by the lead bank and Simmons First Bank of 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 First Bank of Jonesboro, Simmons First Bank of
Northwest Arkansas, Simmons First Bank of South Arkansas, Simmons First Bank of Hot Springs, Simmons First
Bank of Russellville and Simmons First Bank of 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, 2009, approximately $15.2 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 18, Stockholders’ Equity, of Notes to Consolidated Financial Statements.
Stock Repurchase
On November 28, 2007, we announced the substantial completion of the existing stock repurchase program and the
adoption by the Board of Directors of a new stock repurchase program. The program authorizes the repurchase of up to
17
700,000 shares of Class A common stock, or approximately 5% of the outstanding common stock. Under the
repurchase program, there is no time limit for the stock repurchases, nor is there a minimum number of shares we
intend to repurchase. 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. We intend to use the repurchased
shares to satisfy stock option exercise, payment of future stock dividends and general corporate purposes. We may
discontinue purchases at any time that management determines additional purchases are not warranted. As part of our
strategic focus on building capital, we suspended our stock repurchase program in July 2008. We made no purchases
of our common stock during the three months or year ended December 31, 2009. Because of the recently completed
stock offering and based on our strategy to retain capital, we do not anticipate resuming our stock repurchase during
2010.
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 and the S&P 500 Stock Index. The graph assumes an investment of $100 on December 31, 2004 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.
Index
Simmons First National Corporation
NASDAQ Bank Index
S&P 500 Index
12/31/04
100.00
100.00
100.00
12/31/05
97.93
95.67
104.91
12/31/06
113.63
106.20
121.48
12/31/07
98.55
82.76
128.16
12/31/08
112.44
62.96
80.74
12/31/09
109.17
51.31
102.11
Period Ending
18
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, 2009, 2008, 2007, 2006 and 2005, were derived from consolidated financial statements of the Company,
which were audited by BKD, LLP. Results from past periods are not necessarily indicative of results that may be
expected for any future period.
Management believes that certain non-GAAP measures, including diluted core earnings per share, tangible book value,
the ratio of tangible common equity to tangible assets, tangible stockholders’ equity and return on average tangible
equity, may be useful to analysts and investors in evaluating the performance of our Company. We have included
certain of these non-GAAP measures, including cautionary remarks regarding the usefulness of these analytical tools, in
this table. 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.
(In thousands, except per share & other data)
2009
Years Ended December 31
2007
2008
2006
2005
Income statement data:
Net interest income
Provision for loan losses
Net interest income after provision
for loan losses
Non-interest income
Non-interest expense
Income before taxes
Provision for income taxes
Net income
Per share data:
Basic earnings
Diluted earnings
Diluted core earnings (non-GAAP) (1)
Book value
Tangible book value (non-GAAP) (2)
Dividends
Basic average common shares outstanding
Diluted average common shares outstanding
Balance sheet data at period end:
Assets
Investment securities
Total loans
Allowance for loan losses
Goodwill & other intangible assets
Non interest bearing deposits
Deposits
Long-term debt
Subordinated debt & trust preferred
Stockholders’ equity
Tangible stockholders’ equity (non GAAP) (2)
Capital ratios at period end:
Stockholders’ equity to total assets
Tangible common equity to tangible assets
(non-GAAP) (3)
Tier 1 leverage ratio
Tier 1 risk-based ratio
Total risk-based capital ratio
Dividend payout
$ 97,727
10,316
$ 94,017
8,646
$ 92,116
4,181
$ 88,804
3,762
$ 90,257
7,526
87,411
52,711
104,722
85,371
49,326
96,360
35,400 38,337
11,427
$ 26,910
10,190
$ 25,210
87,935
46,003
94,197
39,741
12,381
$ 27,360
85,042
43,947
89,068
82,731
42,318
85,584
39,921 39,465
12,503
$ 26,962
12,440
$ 27,481
1.75
1.74
1.74
21.72
18.07
0.76
14,375,323
14,465,718
1.93
1.91
1.73
20.69
16.16
0.76
13,945,249
14,107,943
1.95
1.92
1.97
19.57
14.97
0.73
14,043,626
14,241,182
1.93
1.90
1.90
18.24
13.68
0.68
14,226,481
14,474,812
1.88
1.84
1.84
17.04
12.46
0.61
14,375,005
14,686,927
3,093,322
646,915
1,874,989
25,016
62,374
363,154
2,432,172
128,894
30,930
371,247
308,873
2,923,109
646,134
1,933,074
25,841
63,180
334,998
2,336,333
127,741
30,930
288,792
225,612
2,692,447
530,930
1,850,454
25,303
63,987
310,181
2,182,857
51,355
30,930
272,406
208,419
2,651,413
527,126
1,783,495
25,385
64,804
305,327
2,175,531
52,381
30,930
259,016
194,212
2,523,768
521,789
1,718,107
26,923
65,634
331,113
2,059,958
56,090
30,930
244,085
178,451
12.00%
9.88%
10.12%
9.77%
9.67%
10.19%
11.64%
17.91%
19.17%
43.68%
7.89%
9.15%
13.24%
14.50%
39.79%
7.93%
9.06%
12.43%
13.69%
38.02%
7.51%
8.83%
12.38%
13.64%
35.79%
7.26%
8.62%
12.26%
13.54%
33.15%
19
Annualized performance ratios:
Return on average assets
Return on average equity
Return on average tangible equity (non-GAAP) (2) (4)
Net interest margin (5)
Efficiency ratio (6)
0.85%
8.26%
10.61%
3.78%
65.69%
0.94%
9.54%
12.54%
3.75%
66.84%
1.03%
10.26%
13.78%
3.96%
64.94%
1.07%
10.93%
15.03%
3.96%
64.81%
1.08%
11.24%
15.79%
4.13%
62.30%
Balance sheet ratios:
Nonperforming assets as a percentage of
period-end assets
Nonperforming loans as a percentage
of period-end loans
Nonperforming assets as a percentage of
period-end loans & OREO
Allowance/to nonperforming loans
Allowance for loan losses as a
percentage of period-end loans
Net (recoveries) charge-offs as a percentage
of average loans
Other data
1.12%
0.64%
0.51%
0.45%
0.40%
1.35%
0.81%
0.60%
0.56%
0.49%
1.83%
98.81%
0.96%
165.12%
0.75%
226.10%
0.67%
252.46%
0.58%
319.48%
1.33%
1.34%
1.37%
1.42%
1.57%
0.58%
0.43%
0.23%
0.22%
0.43%
Number of financial centers
Number of full time equivalent employees
84
1,091
84
1,123
83
1,128
81
1,134
79
1,110
(1) Diluted core earnings (net income excluding nonrecurring items) is a non-GAAP measure. The following nonrecurring items
were excluded in the calculation of diluted core earnings per share (non-GAAP). In 2008, the Company recorded a $0.13
increase in EPS from the cash proceeds on a mandatory Visa stock redemption and a $0.05 increase in EPS from the reversal
of Visa, Inc.’s litigation expense recorded in 2007. In 2007, the Company recorded a $0.05 reduction in EPS from litigation
expense associated with the recognition of certain contingent liabilities related to Visa, Inc.’s litigation.
(2) Because of our significant level of intangible assets, total goodwill and core deposit premiums, management believes a useful
calculation for investors in their analysis of our Company is tangible book value per share (non-GAAP). This non-GAAP
calculation eliminates the effect of goodwill and acquisition related intangible assets and is calculated by subtracting
goodwill and intangible assets from total stockholders’ equity, and dividing the resulting number by the common stock
outstanding at period end. The following table reflects the reconciliation of this non-GAAP measure to the GAAP
presentation of book value for the periods presented above:
(In thousands, except per share & other data)
2009
Years Ended December 31
2007
2008
2006
2005
Stockholders’ equity
Less: Intangible assets
Goodwill
Other intangibles
Tangible stockholders’ equity (non-GAAP)
Book value per share
Tangible book value per share (non-GAAP)
Shares outstanding
$ 371,247 $ 288,792 $ 272,406 $ 259,016 $ 244,085
60,605
1,769
60,605
5,029
$ 308,873 $ 225,612 $ 208,419 $ 194,212 $ 178,451
60,605
2,575
60,605
4,199
60,605
3,382
21.72 $
18.07 $
$
$
17,093,931
20.69 $
16.16 $
19.57 $
14.97 $
13,960,680
13,918,368
14,196,855
18.24 $
13.68 $
17.04
12.46
14,326,923
(3) Tangible common equity to tangible assets ratio is tangible stockholders’ equity (non-GAAP) divided by total assets less
goodwill and other intangible assets as and for the periods ended presented above.
(4) Return on average tangible equity is a non-GAAP measure that removes the effect of goodwill and intangible assets, as well
as the amortization of intangibles, from the return on average equity. This non-GAAP measure is calculated as net income,
adjusted for the tax-effected effect of intangibles, divided by average tangible equity.
(5) Fully taxable equivalent (assuming an income tax rate of 37.5%).
(6) The efficiency ratio is total non-interest expense less foreclosure expense and amortization of intangibles, divided by the sum
of net interest income on a fully taxable equivalent basis plus total non-interest income less security gains, net of tax. For the
year ended December 31, 2009, this calculation excludes the FDIC special assessment of $1.4 million from total non-interest
expense. For the year ended December 31, 2008, this calculation adds the VISA litigation expense reversal of $1.2 million to
total non-interest expense and excludes gain on partial redemption of Visa shares of $3.0 million from total non-interest
income. For the year ended December 31, 2007, this calculation excludes VISA litigation expense of $1.2 million from total
non-interest expense.
20
ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Critical Accounting Policies
Overview
As discussed in Note 16, New Accounting Standards, in the accompanying Notes to Consolidated Financial Statements
included elsewhere in this report, on July 1, 2009, the Accounting Standards Codification (“ASC”) became the
Financial Accounting Standards Board’s (“FASB”) officially recognized source of authoritative U.S. generally
accepted accounting principles (“GAAP”) for all nongovernmental entities, with the exception of guidance issued by
the SEC and its staff. All other accounting literature is considered non-authoritative. The switch to the ASC affects the
way companies refer to GAAP in financial statements and accounting policies. Citing particular content in the ASC
involves specifying the unique numeric path to the content through the Topic, Subtopic, Section and Paragraph
structure. We adopted this accounting standard in preparing the Consolidated Financial Statements beginning with the
period ended September 30, 2009.
We follow accounting and reporting policies that conform, in all material respects, to generally accepted accounting
principles and to general practices within the financial services industry. The preparation of financial statements in
conformity with generally accepted accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes. While we base estimates on historical
experience, current information and other factors deemed to be relevant, actual results could differ from those estimates.
We consider accounting estimates to be critical to reported financial results if (i) the accounting estimate requires
management to make assumptions about matters that are highly uncertain and (ii) different estimates that management
reasonably could have used for the accounting estimate in the current period, or changes in the accounting estimate that
are reasonably likely to occur from period to period, could have a material impact on our financial statements.
The accounting policies that we view as critical to us are those relating to estimates and judgments regarding (a) the
determination of the adequacy of the allowance for loan losses, (b) the valuation of goodwill and the useful lives
applied to intangible assets, (c) the valuation of employee benefit plans and (d) income taxes.
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 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 our ongoing risk management system.
A loan is considered impaired when it is probable that we 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 we established based on our analysis of historical losses for each loan category.
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.
21
Goodwill and Intangible Assets
Goodwill represents the excess of the cost of an acquisition over the fair value of the net assets acquired. Other
intangible assets represent purchased assets that also lack physical substance but can be separately distinguished
from goodwill because of contractual or other legal rights or because the asset is capable of being sold or exchanged
either on its own or in combination with a related contract, asset or liability. We perform an annual goodwill
impairment test, and more than annually if circumstances warrant, in accordance with ASC Topic 350, Intangibles –
Goodwill and Other. ASC Topic 350 requires that goodwill and intangible assets that have indefinite lives be
reviewed for impairment annually, or more frequently if certain conditions occur. Impairment losses on recorded
goodwill, if any, will be recorded as operating expenses.
Employee Benefit Plans
We have adopted various stock-based 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 directors,
officers and other key employees.
In accordance with ASC Topic 718, Compensation – Stock Compensation, 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. This model
requires the input of highly subjective assumptions, changes to which can materially affect the fair value estimate. For
additional information, see Note 10, Employee Benefit Plans, in the accompanying Notes to Consolidated Financial
Statements included elsewhere in this report.
Income Taxes
We are subject to the federal income tax laws of the United States, and the tax laws of the states and other jurisdictions
where we conduct business. Due to the complexity of these laws, taxpayers and the taxing authorities may subject
these laws to different interpretations. Management must make conclusions and estimates about the application of these
innately intricate laws, related regulations, and case law. When preparing the Company’s income tax returns,
management attempts to make reasonable interpretations of the tax laws. Taxing authorities have the ability to
challenge management’s analysis of the tax law or any reinterpretation management makes in its ongoing assessment of
facts and the developing case law. Management assesses the reasonableness of its effective tax rate quarterly based on
its current estimate of net income and the applicable taxes expected for the full year. On a quarterly basis, management
also reviews circumstances and developments in tax law affecting the reasonableness of deferred tax assets and
liabilities and reserves for contingent tax liabilities.
2009 Overview
Our net income for the year ended December 31, 2009, was $25.2 million, a 6.3% decrease from net income of
$26.9 million in 2008. Net income in 2007 was $27.4 million. Diluted earnings per share decreased $0.17, or 8.9%, to
$1.74 in 2009 compared to $1.91 in 2008. Diluted earnings per share in 2007 were $1.92.
During the first quarter of 2008, we recorded a nonrecurring $0.05 increase in diluted earnings per share related to the
reversal of a $1.2 million pre-tax contingent liability established during the fourth quarter of 2007. That contingent
liability represented our pro-rata portion of Visa, Inc.’s, and its related subsidiary Visa U.S.A.’s (collectively “Visa”)
litigation liabilities, which was satisfied in conjunction with Visa’s initial public offering (“IPO”). Also as a result of
Visa’s IPO, we received cash proceeds from the mandatory partial redemption of our equity interest in Visa, resulting in
a nonrecurring $3.0 million pre-tax gain in the first quarter 2008, or $0.13 per diluted common share. Excluding these
nonrecurring items, our core earnings per share increased by $0.01 in 2009 over 2008. See Reconciliation of Non-
GAAP Measures and Table 20 - Reconciliation of Core Earnings (non-GAAP) for additional discussion of non-GAAP
measures.
At December 31, 2009, our loan portfolio totaled $1.875 billion, which is a $58.1 million, or 3.0%, decrease from the
same period last year. This decrease was due due primarily to a $49.8 million decrease in real estate loans, primarily in
construction and development loans. Even during this period of soft loan demand, our consumer loan portfolio
increased by $23.8 million, or 5.7%, primarily driven by a $19.5 million increase in credit card balances.
22
Although the general state of the national economy remains volatile, and despite the challenges in the Northwest
Arkansas region, we continue to maintain relatively good asset quality. The allowance for loan losses as a percent of
total loans was 1.33% at December 31, 2009. Non-performing loans equaled 1.35% of total loans, up 54 basis points
from 2008. Non-performing assets were 1.12% of total assets, up 48 basis points from 2008. The allowance for loan
losses was 99% of non-performing loans. The Company’s annualized net charge-offs for 2009 were 0.75% of total
loans. Excluding credit cards, annualized net charge-offs for 2009 were 0.57% of total loans. Net credit card charge-
offs for 2009 were 2.61%, more than 750 basis points below the most recently published credit card charge-off industry
average. We do not own any securities backed by subprime mortgage assets and we have no mortgage loan products
that target subprime borrowers.
Total assets at December 31, 2009, were $3.093 billion, an increase of $170 million, or 5.8%, over the period ended
December 31, 2008. Stockholders’ equity as of December 31, 2009, was $371.2 million, an increase of $82.4 million,
or approximately 28.6%, from December 31, 2008. Approximately $70.5 million of the increase in stockholders’
equity was the result of the secondary stock offering we completed in December 2009, in which we issued a total of
3,047,500 shares of common stock, including the over-allotment, at a price of $24.50 per share, less underwriting
discounts and commissions
Simmons First National Corporation is an Arkansas based, Arkansas committed financial holding company with
$3.1 billion in assets and eight community banks in Pine Bluff, Lake Village, Jonesboro, Rogers, Searcy, Russellville,
El Dorado and Hot Springs, Arkansas. Our eight subsidiary banks conduct financial operations from 88 offices, of
which 84 are financial centers, in 47 communities.
U.S. Treasury’s Capital Purchase Program
On October 29, 2008, the U.S. Department of the Treasury (“Treasury”) gave the Company approval to participate in
the Troubled Asset Relief Program – Capital Purchase Program (“CPP”), designed to provide additional capital to
healthy financial institutions, thereby increasing confidence in our banking industry and encouraging increased lending.
On January 6, 2009, the Treasury amended its approval to allow us to participate in the CPP at a level up to
$59.7 million. At a Special Meeting of Shareholders held on February 27, 2009, our shareholders voted to amend the
Articles of Incorporation to authorize the issuance of preferred shares and common stock warrants required for
participation in the CPP.
Approximately 600 banks nationwide have participated in the CPP. We were the thirty-second bank in the country to
be approved. Our original plans were to issue the shares under the CPP on March 27, 2009. However, due to the
continued ambiguity resulting from changes being proposed by Congress, we requested and were granted an extension
by the Treasury due to the ambiguity and uncertainty regarding the ability to repay the funds at the time of our
choosing.
On July 7, 2009, management notified the Treasury that the Company would not participate in the CPP. After careful
consideration and analysis, The Arkansas economy continued doing well relative to many other geographic regions of
the country, and we continued to have strong asset quality, liquidity and capital. Accordingly, we did not believe our
participation in the CPP was necessary nor in the best interest of our shareholders.
Net Interest Income
Net interest income, our 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. Our loan portfolio
is significantly affected by changes in the prime interest rate. The prime interest rate, which is the rate offered on loans
to borrowers with strong credit, began 2006 at 7.25% and increased 50 basis points in the first quarter and 50 basis
points in the second quarter to end the year at 8.25%. During 2007, the prime interest rate decreased 50 basis points in
the third quarter and 50 basis points in the fourth quarter to end the year at 7.25%. During 2008, the prime interest rate
23
decreased 200 basis points in the first quarter, 25 basis points in the second quarter and another 175 basis points in the
fourth quarter to end the year at 3.25%. The prime interest rate remained at 3.25% throughout 2009.
The Federal Funds rate, which is the cost to banks of immediately available overnight funds, began 2006 at 4.25%.
During 2006, the Federal Funds rate increased 50 basis points in the first quarter and 50 basis points in the second
quarter to end the year at 5.25%. During 2007, the Federal Funds rate decreased 50 basis points in the third quarter and
50 basis points in the fourth quarter to end the year at 4.25%. During 2008, the Federal Funds rate decreased 200 basis
points in the first quarter, 25 basis points in the second quarter and another 175-200 basis points in the fourth quarter to
end the year at 0.00%-0.25%. The Federal Funds rate remained unchanged throughout 2009.
Our 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 our loan portfolio and
approximately 80% of our time deposits have repriced in one year or less. These historical percentages are consistent
with our current interest rate sensitivity.
For the year ended December 31, 2009, net interest income on a fully taxable equivalent basis was $102.7 million, an
increase of $4.6 million, or 4.7%, from the same period in 2008. The increase in net interest income was the result of a
$23.3 million decrease in interest expense offset by an $18.7 million decrease in interest income. As a result, the net
interest margin was 3.78% for the year ended December 31, 2009, an increase of 3 basis points from 2008.
The $23.3 million decrease in interest expense for 2009 is primarily the result of a 108 basis point decrease in cost of
funds due to competitive repricing during a falling interest rate environment, partially offset by a $57.3 million increase
in average interest bearing liabilities. The growth in average interest bearing liabilities was primarily due to our
initiatives to enhance liquidity during 2008 and 2009 through (1) the introduction of a new high yield investment
deposit account and (2) securing additional long-term FHLB advances. The lower interest rates accounted for a $22.8
million decrease in interest expense. The most significant component of this decrease was the $12.6 million decrease
associated with the repricing of our 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. Historically, approximately 80% of our time deposits
reprice in one year or less. As a result, the average rate paid on time deposits decreased 131 basis points from 3.74% to
2.43%. Lower rates on federal funds purchased and other debt resulted in an additional $1.7 million decrease in interest
expense, with the average rate paid on debt decreasing by 108 basis points from 2.77% to 1.69%. The higher level of
average interest bearing liabilities resulted in a $522,000 decrease in interest expense. More specifically, the higher
level of average interest bearing liabilities was the result of increases of approximately $50.3 million from internal
deposit growth and $7.0 million in federal funds purchased and other debt.
The $18.7 million decrease in interest income for 2009 is primarily the result of a 91 basis point decrease in yield on
earning assets associated with the repricing to a lower interest rate environment, offset by a $95.8 million increase in
average interest earning assets due to internal growth. The lower interest rates accounted for a $24.3 million decrease
in interest income. The most significant component of this decrease was the $14.6 million decrease associated with the
repricing of our loan portfolio that resulted from loans that matured during the period or were tied to a rate that
fluctuated with changes in market rates. Historically, approximately 70% of our loan portfolio reprices in one year or
less. As a result, the average rate earned on the loan portfolio decreased 76 basis points from 6.68% to 5.92%. The
growth in average interest earning assets resulted in a $5.5 million improvement in interest income. The growth in
investment securities accounted for $3.0 million of the increase, while the growth in average loans resulted in
$2.2 million of this increase.
Our net interest margin decreased 21 basis points to 3.75% for the year ended December 31, 2008, when compared to
3.96% for the same period in 2007. Based on our current interest rate risk pricing model, we anticipate flat to slight
margin improvement in 2010.
24
Tables 1 and 2 reflect an analysis of net interest income on a fully taxable equivalent basis for the years ended
December 31, 2009, 2008 and 2007, respectively, as well as changes in fully taxable equivalent net interest
margin for the years 2009 versus 2008 and 2008 versus 2007.
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
2008
2007
2009
$ 136,533
4,935
$ 156,141
4,060
$ 168,536
3,463
141,468
38,806
160,201
62,124
171,999
76,420
Net interest income - FTE
$ 102,662
$ 98,077
$ 95,579
Yield on earning assets - FTE
Cost of interest bearing liabilities
Net interest spread - FTE
Net interest margin - FTE
5.21%
1.69%
3.52%
3.78%
6.12%
2.77%
3.35%
3.75%
7.13%
3.69%
3.44%
3.96%
Table 2:
Changes in Fully Taxable Equivalent Net Interest Margin
(In thousands)
Increase due to change in earning assets
(Decrease) due to change in earning asset yields
Increase due to change in interest rates paid on
interest bearing liabilities
Increase (decrease) due to change in interest bearing liabilities
Increase in net interest income
2009 vs. 2008 2008 vs. 2007
$
5,523
(24,256)
$
10,688
(22,486)
22,796
522
16,216
(1,920)
$
4,585
$
2,498
25
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, 2009. 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
2009
Years Ended December 31
2008
Average
Balance
Income/ Yield/
Expense Rate(%)
Average
Balance
Income/ Yield/
Expense Rate(%)
2007
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
$
120,763 $
4,271
448,918
196,446
12,428
6,187
1,924,317
2,713,330
251,282
439
27
13,896
12,632
608
20
113,846
141,468
83,547 $ 1,415
0.36 $
748
34,577
0.63
21,057
437,612
3.10
10,173
157,793
6.43
411
6,909
4.89
73
0.32
5,711
126,324
5.92 1,891,357
2,617,506
160,201
5.21
250,675
1.69 $
2.16
4.81
6.45
5.95
1.28
6.68
6.12
22,957 $ 1,161
1,418
26,798
18,362
395,388
8,454
131,369
505
7,971
100
4,958
1,822,777 141,999
2,412,218 171,999
5.06
5.29
4.64
6.44
6.34
2.02
7.79
7.13
254,656
$ 2,666,874
Total assets
$ 2,964,612
$ 2,868,181
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
$ 1,091,960 $ 8,252
22,794
31,046
939,358
2,031,318
0.76 $
2.43 1,021,427
1,980,994
1.53
959,567 $ 14,924
38,226
53,150
1.56 $
3.74
2.68
736,160 $ 13,089
1,124,557 52,385
65,474
1,860,717
1.78
4.66
3.52
107,975
769
0.71
113,964
2,110
1.85
113,167
5,371
4.75
2,583
160,963
2,302,839
33
6,958
38,806
1.28
4.32
1.69
4,333
146,218
2,245,509
111
6,753
62,124
2.56
4.62
2.77
14,757
81,408
804
4,771
2,070,049 76,420
5.45
5.86
3.69
332,998
23,565
2,659,402
305,210
317,772
22,714
2,585,995
282,186
307,041
23,156
2,400,246
266,628
$ 2,964,612
$ 2,868,181
$ 2,666,874
$ 102,662
3.52
3.78
$ 98,077
3.35
3.75
$ 95,579
3.44
3.96
26
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, 2009 and 2008, 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
2009 over 2008
Yield/
Rate
Volume
Total
2008 over 2007
Yield/
Rate
Volume
Total
$ 451 $ (1,427) $ (976) $ 1,436
332
2,094
1,704
(64)
2
5,184
(322)
(7,692)
(26)
(84)
(59)
(14,646)
(721)
(7,161)
2,459
197
(53)
(12,478)
(399)
531
2,485
281
6
2,168
$ (1,182) $ 254
(670)
2,665
1,719
(94)
3
(15,675)
(1,002)
571
15
(30)
1
(20,859)
Total
5,523
(24,256)
(18,733)
10,688
(22,486)
(11,798)
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
1,835
(2,870)
(8,507)
(12,562)
(6,672)
(15,432)
3,620
(4,504)
(1,785)
(9,655)
1,835
(14,159)
(106)
(1,235)
(1,341)
38
(3,299)
(3,261)
(35)
654
(43)
(449)
(78)
205
(396)
3,162
(297)
(1,180)
(693)
1,982
(522)
(22,796)
(23,318)
1,920
(16,216)
(14,296)
$ 6,045 $ (1,460) $ 4,585
$ 8,768
$ (6,270) $ 2,498
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 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, and, after considering the factors previously noted, to determine the level of provision made to the
allowance.
The provision for loan losses for 2009, 2008 and 2007, was $10.3 million, $8.6 million and $4.2 million, respectively.
During 2009, we increased our provision by approximately $1.7 million, primarily due to increases in net credit card
charge-offs, increases in non-performing loans and a continued deterioration of the real estate market in the Northwest
Arkansas region. The 2008 increase was related to special provisions totaling approximately $2.4 million for possible
loan losses in the Northwest Arkansas region and credit card charge-off increases from the historical lows we
experienced in 2007 and 2006.
27
Non-Interest Income
Total non-interest income was $52.7 million in 2009, compared to $49.3 million in 2008 and $46.0 million in 2007.
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, 2009, 2008 and 2007, respectively, as well as
changes in 2009 from 2008 and in 2008 from 2007.
Table 5:
Non-Interest Income
(In thousands)
Years Ended December 31
2007
2008
2009
2009
Change from
2008
2008
Change from
2007
Trust income
Service charges on deposit accounts 17,944
2,668
Other service charges and fees
Income on sale of mortgage loans,
$ 5,227 $ 6,230 $ 6,218
14,794
3,016
15,145
2,681
$(1,003) -16.10% $
2,799
(13)
18.48
-0.48
12
351
(335)
0.19%
2.37
-11.11
net of commissions
Income on investment banking,
net of commissions
Credit card fees
Premiums on sale of student loans
Bank owned life insurance income
Gain on mandatory partial
redemption of Visa shares
Other income
Gain (loss) on sale of securities, net
Total non-interest income
4,032
2,606
2,766
1,426
54.72
(160)
-5.78
2,153
14,392
2,333
1,270
1,025
13,579
1,134
1,547
623
12,217
2,341
1,493
813
1,128 110.05
5.99
1,199 105.73
(277) -17.91
402
1,362
(1,207)
54
64.53
11.15
-51.56
3.62
--
2,548
144
--
2,535
--
$ 52,711 $ 49,326 $ 46,003
2,973
2,406
--
(2,973) -100.00
5.90
--
2,973
(129)
--
6.86% $ 3,323
142
144
$ 3,385
--
-5.09
--
7.22%
Recurring fee income for 2009 was $40.2 million, an increase of $2.6 million, or 6.9%, when compared with the
2008 amounts. Service charges on deposit accounts increased by $2.8 million, principally due to changes in our fee
structure, along with core deposit growth. Credit card fees increased $814, 000, primarily due to a higher volume of
credit and debit card transactions, with the credit card volume increase a direct result of the addition of new credit card
accounts in 2007 through 2009. Trust income decreased $1.0 million, primarily due to the sharp decline seen in our
money fund shareholder service fees in the corporate trust area as money market rates have gone to near zero. We
anticipate those revenues will return when rates begin to rise. Also, we had some large one-time estate administration
fees in 2008 that impacted the decrease in fees in 2009.
Recurring fee income for 2008 was $37.6 million, an increase of $1.4 million, or 3.8%, when compared with the
2007 amounts. Service charges on deposit accounts increased by $351,000, principally due improvement in our fee
structure, along with core deposit growth. Other service charges and fees decreased by $335,000, primarily due to a
decrease in commission revenue from a third party official check vendor as a result of a contract expiration and the
change in business related to Check 21. Credit card fees increased $1.4 million, primarily due to a higher volume of
credit and debit card transactions, with the credit card volume increase a direct result of the addition of new credit card
accounts in 2007 and 2008.
Income on sale of mortgage loans increased by $1.4 million, or 54.7%, in 2009 compared to 2008. Lower mortgage
rates led to a significant increase in residential financing and refinancing volume. Like the rest of the industry, a
significant portion of the increase came from refinancing. However, the federal first time buyer program was also a
major stimulus for our overall mortgage production.
During the year ended December 31, 2009, income on investment banking increased $1.1 million, or 110%, from the
year ended 2008. This improvement was primarily due to a volume-driven revenue increase in our dealer bank
operation, which carried over from 2008. During 2008, income on investment banking increased $402,000, or 64.5%,
28
from 2007, due to additional sales volume driven by the interest rate environment, called securities and customer
liquidity.
Premiums on sale of student loans increased by $1.2 million, or 106%, for the year ended December 31, 2009,
compared to 2008. Premiums on sale of student loans had decreased by $1.2 million from 2007 to 2008. These
fluctuations in income from student loan sales are due to timing of sales and do not reflect historical levels of income.
During 2008, the student loan industry began going through major challenges related to secondary market liquidity,
leaving the Company with no private market to sell student loans at a premium. In July 2008, the United States
Department of Education announced a one-year program to create temporary stability and liquidity in the student loan
market. We sold one package of student loans into the government program during the second quarter of 2009, and,
during the third quarter of 2009, sold the remaining student loans originated and fully funded during the 2008-2009
school year. The federal government has announced a one-year extension of its program to purchase student loans. For
the immediate future, it is our intention, and we have the liquidity, to continue to fund new loans and hold those loans
that normally would be sold into the secondary market through the 2009-2010 school year. Those loans would all be
sold into the government program during the second and third quarters of 2010. Under the terms of the government
program, the loans are sold at par plus reimbursement of the 1% lender fee and a premium of $75 per loan.
We expect to record a total of approximately $2.5 million of non-interest income from premiums on sale of student
loans during the second and third quarters of 2010, when the loans are sold. We will continue to evaluate the
profitability and viability of this strategic business unit going forward.
During the first quarter of 2008, we recognized a nonrecurring $3.0 million gain from the cash proceeds received on the
mandatory partial redemption of our equity interest in Visa, which was the result of Visa’s IPO completed in March
2008.
We recorded net gains of $144,000 from the sale of securities during 2009. There were no gains or losses on sale of
securities during 2008 and 2007.
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. We utilize an
extensive profit planning and reporting system involving all subsidiaries. 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. We also regularly monitor staffing levels at each affiliate to ensure
productivity and overhead are in line with existing workload requirements.
Non-interest expense for 2009 was $104.7 million, an increase of $8.4 million or 8.7%, from 2008. Included in non-
interest expense for 2008 was a $1.2 million nonrecurring item related to the reversal of the Company’s portion of
Visa’s contingent litigation liabilities. We established the liability and recorded a $1.2 million nonrecurring expense
item during the fourth quarter of 2007. This liability represented our share of legal judgments and settlements related to
Visa’s litigation, which was satisfied by the $3 billion escrow account funded by the proceeds from Visa’s IPO, which
was completed during the quarter ended March 31, 2008. When normalized for the Visa litigation expense reversal,
non-interest expense for 2009 increased by 7.3% over 2008.
Deposit insurance expense during 2009 increased to $4.6 million from $793,000 in 2008, an increase of $3.8 million, or
485%. The increase in deposit insurance expense was due to increases in the fee assessment rates during 2009, the
utilization of available credits to offset assessments during 2008 and a special assessment applied to all insured
institutions as of June 30, 2009.
In May 2009, the FDIC issued a final rule which levied a special assessment applicable to all insured depository
institutions totaling 5 basis points of each institution’s total assets less Tier 1 capital as of June 30, 2009, not to exceed
10 basis points of domestic deposits. The special assessment is part of the FDIC’s efforts to rebuild the Deposit
Insurance Fund (“DIF”). Deposit insurance expense during 2009 included $1.5 million related to the special
assessment. The amended rule also permits the FDIC to impose an additional emergency special assessment after
29
June 30, 2009, of up to five basis points if necessary to maintain public confidence in federal deposit insurance. We
cannot provide any assurance as to the ultimate amount or timing of any such special assessments, should such special
assessments occur, as such special assessments depend upon a variety of factors which are beyond our control. The
imposed special assessment, as well as any future increases in assessments, adversely affects our noninterest
expense and results of operations.
In September 2009, the FDIC announced that it would require insured banks to prepay their estimated FDIC
assessments for the fourth quarter of 2009 and for the next three years on December 30, 2009. The FDIC also
adopted a uniform three basis point increase in assessment rates effective on January 1, 2011. The total amount of
our prepaid assessment at was approximately $11.2 million.
Fees paid for professional services increased by $819,000, or 29.0%, in 2009 over 2008. The increase in professional
services, which consist of audit, accounting, legal and consulting fees, was primarily due to the following proactive
ititiatives that we undertook in 2009. First, we expensed legal and accounting fees associated with the CPP approval
process and the filing of our $175 million shelf registration. Next, as part of our strategic acquisition initiatives, we
contracted a consultant to help us prepare for potential opportunities related to FDIC-assisted transactions. Finally,
during the last half of 2009, we began to expense costs, associated with our ongoing efficiency initiatives, which we
expect to produce significant savings and revenue enhancements in 2010 and beyond. See Item 1. Business –
Efficiency Initiatives for additional information on our efficiency initiatives.
Credit card expense for 2009 increased $380,000, or 8.14%, over 2008, primarily due to increased card usage,
interchange fees and other related expense resulting from initiatives we have taken to grow our credit card portfolio.
See Loan Portfolio section for additional information on our credit card portfolio.
Non-interest expense for 2008 was $96.4 million, an increase of $2.2 million or 2.3%, from 2007. The increase in non-
interest expense during 2008 compared to 2007 is primarily attributed to normal on-going operating expenses and the
incremental expenses of approximately $1.6 million associated with the operation of new financial centers opened
during 2008.
As previously mentioned, also included in non-interest expense for 2008 is a $1.2 million nonrecurring item related to
the reversal of the Company’s portion of Visa’s contingent litigation liabilities, originally established and recorded as a
$1.2 million nonrecurring expense item during the fourth quarter of 2007. When normalized for the Visa litigation
expense, its reversal and the additional expenses from the expansion, non-interest expense for 2008 increased by
3.2% over 2007.
Deposit insurance expense increased by $465,000 in 2008, or 142%, over 2007. During 2007, the FDIC issued credits
based on historical deposit levels to be used in offsetting deposit insurance assessments; our subsidiary banks received
approximately $1.8 million of these credits. The majority of the credits were exhausted by the third quarter of 2008.
As these credits were used, FDIC insurance expense increased.
Credit card expense for 2008 increased $576,000, or 14.1%, over 2007, primarily due to increased card usage,
interchange fees and other related expense resulting from initiatives the Company has taken to grow its credit card
portfolio.
Other non-interest expense for 2008 includes an increase of $289,000 for compensation expense. In 2008, as required
by ASC Topic 715, Compensation – Retirement Benefits, we began to recognize the expense for endorsement split-
dollar life insurance policies that provide benefits to employees that extend to post-retirement periods.
Core deposit premium amortization expense recorded for the years ended December 31, 2009, 2008 and 2007, was
$805,000, $807,000 and $817,000, respectively. The Company’s estimated amortization expense for each of the
following five years is: 2010 – $702,000; 2011 – $451,000; 2012 – $321,000; 2013 – $268,000; and 2014 – $28,000.
The estimated amortization expense decreases as core deposit premiums fully amortize in future years.
30
Table 6 below shows non-interest expense for the years ended December 31, 2009, 2008 and 2007, respectively, as
well as changes in 2009 from 2008 and in 2008 from 2007.
Table 6:
Non-Interest Expense
Years Ended December 31
2007
2008
2009
2009
Change from
2008
2008
Change from
2007
$ 58,317 $ 57,050 $ 54,865
6,674
5,865
212
328
7,457
6,195
453
4,642
7,383
5,967
239
793
$1,267
74
228
214
2.22% $ 2,185
709
1.00
102
3.82
89.54
27
465
3,849 485.37
3.98%
10.62
1.74
12.74
141.77
3,643
2,409
2,113
5,051
1,470
805
--
2,824
2,256
1,868
4,671
1,588
807
(1,220)
2,780
2,309
1,820
4,095
1,669
817
1,220
12,167 12,134 11,543
$104,722 $ 96,360 $ 94,197
819
153
245
380
(118)
(2)
44
29.00
(53)
6.78
48
13.12
576
8.14
(81)
-7.43
(10)
-0.25
(2,440)
1,220 -100.00
0.27
591
8.68% $ 2,163
33
$8,362
1.62
-2.30
2.64
14.07
-4.85
-1.22
--
5.11
2.30%
(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
Visa litigation liability expense
Other expense
Total non-interest expense
Income Taxes
The provision for income taxes for 2009 was $10.2 million, compared to $11.4 million in 2008 and $12.4 million in
2007. The effective income tax rates for the years ended 2009, 2008 and 2007 were 28.8%, 29.8% and 31.2%,
respectively.
Loan Portfolio
Our loan portfolio averaged $1.924 billion during 2009 and $1.891 billion during 2008. As of December 31, 2009,
total loans were $1.875 billion, compared to $1.933 billion on December 31, 2008. 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).
We seek to manage our credit risk by diversifying the 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. We seek 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. We use 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
$443.1 million at December 31, 2009, or 23.6% of total loans, compared to $419.3 million, or 21.7% of total loans at
December 31, 2008. The $23.8 million consumer loan increase from 2008 to 2009 is primarily due to an increase in the
credit card portfolio.
The credit card portfolio balance at December 31, 2009, increased by $19.5 million, or 11.5%, when compared to the
same period in 2008. This follows a $3.5 million, or 2.2% growth during the previous year. The growth in outstanding
credit card balances is primarily the result of an increase in net new accounts. We added over 15,000 net new accounts
in 2009, compared to approximately 5,000 net new accounts in 2008. We believe the increase in outstanding balances
31
and the addition of new accounts are the result of the introduction of several initiatives over the past few years to make
our credit card products more competitive, while maintaining extremely high underwriting standards.
The student loan portfolio balance at December 31, 2009 was $114.3 million, an increase of $2.7 million, or 2.43%,
from December 31, 2008. The student loan portfolio balance at December 31, 2008 was $111.6 million, an increase of
$35.3 million, or 46.3%, from December 31, 2007. The significant increase in student loan balances from 2007 to 2008
was due to the lack of a secondary student loan market and our decision to hold loans normally sold in the secondary
market until we could sell them at a premium into the government program. See Non-Interest Income section for
additional information.
Real estate loans consist of construction loans, single family residential loans and commercial loans. Real estate loans
were $1.169 billion at December 31, 2009, or 62.4% of total loans, compared to $1.219 billion, or 63.1% of total loans
at December 31, 2008, a decrease of $49.8 million. Our construction and development (“C&D”) loans decreased by
$44.2 million, with approximately $11.7 million migrating to our commercial real estate (“CRE”) loans and the balance
being liquidated or refinanced elsewhere. Considering the challenges in the economy, we believe it is important to note
that we have no significant concentrations in our real estate loan portfolio mix. Our C&D loans represent only 9.6% of
our loan portfolio and, CRE loans (excluding C&D) represent 31.8% of our loan portfolio, both of which compare very
favorably to our peers.
Commercial loans consist of commercial loans, agricultural loans and loans to financial institutions. Commercial loans
were $257.0 million at December 31, 2009, or 13.7% of total loans, compared to the $284.2 million, or 14.7% of total
loans at December 31, 2008. This $27.2 million decrease in commercial loans is primarily due to a $24.3 million
decrease in commercial loans and $3.4 million decrease in agricultural loans.
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)
2009
Years Ended December 31
2007
2006
2008
2005
Consumer
Credit cards
Student loans
Other consumer
Total consumer
Real Estate
Construction
Single family residential
Other commercial
Total real estate
Commercial
Commercial
Agricultural
Financial institutions
Total commercial
Other
$ 189,154 $ 169,615 $ 166,044 $ 143,359 $ 143,058
89,818
138,051
370,927
84,831
142,596
370,786
76,277
137,624
379,945
111,584
138,145
419,344
114,296
139,647
443,097
180,759
392,208
596,517
1,169,484
224,924
409,540
584,843
1,219,307
260,924
382,676
542,184
1,185,784
277,411
364,450
512,404
1,154,265
238,898
340,839
479,684
1,059,421
168,206
84,866
3,885
256,957
5,451
192,496
88,233
3,471
284,200
10,223
193,091
73,470
7,440
274,001
10,724
178,028
62,293
4,766
245,087
13,357
184,920
68,761
20,499
274,180
13,579
Total loans
$1,874,989 $ 1,933,074 $ 1,850,454 $ 1,783,495 $ 1,718,107
32
Table 8 reflects the remaining maturities and interest rate sensitivity of loans at December 31, 2009.
Table 8:
Maturity and Interest Rate Sensitivity of Loans
Over 1
year
through
5 years
1 year
or less
Over
5 years
Total
$ 364,232
746,924
198,464
4,569
$ 78,234
395,216
57,024
608
$
631
27,344
1,469
274
$ 443,097
1,169,484
256,957
5,451
$1,314,189
$ 531,082
$ 29,718
$ 1,874,989
$ 684,919
629,270
$ 479,559
51,523
$ 26,711
3,007
$ 1,191,189
683,800
$1,314,189
$ 531,082
$ 29,718
$ 1,874,989
(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 we will not receive all amounts due according to the contractual
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 uncollectible, the portion of the loan determined to be uncollectible is then charged to
the allowance for loan losses.
Credit card loans are classified as impaired when payment of interest or principal is 90 days past due. Litigation
accounts are placed on nonaccrual until such time as deemed uncollectible. Credit card loans are 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 uncollectible.
The increase in nonaccrual loans from December 2008 to December 2009 is primarily attributable to the downgrade
and subsequent nonaccrual status of one commercial real estate facility in the Northwest Arkansas region. This credit
represents $8.1 million of the $22.0 million nonaccrual loans at year-end.
Historically, we have sold our student loans into the secondary market before they reached payout status, thus requiring
no servicing by the Company. Currently, with the banking industry no longer able to access the secondary market, and
because the temporary federal government program only purchases student loans originated in the current year, we are
required to service loans that have converted to a payout basis. Student loans are classified as impaired when payment
of interest or principal is 90 days past due. Approximately $1.9 million of government guaranteed student loans were
over 90 days past due as of December 31, 2009. Under existing rules, when these loans exceed 270 days past due, the
Department of Education will purchase them at 97% of principal and accrued interest. Although these student loans
remain guaranteed by the federal government, because they are over 90 days past due they are included in our non-
performing assets.
Foreclosed assets held for sale increased during 2009 by a net $6.2 million as we received title to collateral securing
approximately $10.3 million for loans previously classified as nonaccrual, offset by proceeds from the sales of such
properties of approximately $4.1 million. The increase in foreclosed assets held for sale during 2008 was insignificant.
33
Approximately $5.7 million of the foreclosed assets held for sale as of December 31, 2009, are related to C&D projects
in the Northwest Arkansas region. These were primarily residential real estate development ventures and associated
businesses.
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, except ratios)
2009
Years Ended December 31
2007
2006
2008
2005
Nonaccrual loans
Loans past due 90 days or more
(principal or interest payments)
Government guaranteed student loans (1)
Other loans
Total non-performing loans
Other non-performing assets
Foreclosed assets held for sale
Other non-performing assets
Total other non-performing assets
$ 21,994
$ 14,358
$ 9,909
$ 8,958
$ 7,296
1,939
1,383
25,316
--
1,292
15,650
--
1,282
11,191
--
1,097
10,055
--
1,131
8,427
9,179
20
9,199
2,995
12
3,007
2,629
17
2,646
1,940
52
1,992
1,540
16
1,556
Total non-performing assets
$ 34,515
$ 18,657
$ 13,837
$ 12,047
$ 9,983
Allowance for loan losses to
non-performing loans
Non-performing loans to total loans
Non-performing loans to total loans
98.81%
1.35
165.12%
0.81
226.10%
0.60
252.46%
0.56
319.48%
0.49
(excluding government guaranteed student loans) (1)
Non-performing assets to total assets
Non-performing assets to total assets
1.25
1.12
(excluding government guaranteed student loans) (1)
1.05
0.81
0.64
0.64
0.60
0.51
0.51
0.56
0.45
0.45
0.49
0.40
0.40
(1) Student loans past due 90 days or more are included in non-performing loans. Student loans are guaranteed by the
federal government and will be purchased at 97% of principal and accrued interest when they exceed 270 days past
due; therefore, non-performing ratios have been calculated excluding these loans.
There was no interest income on the nonaccrual loans recorded for the years ended December 31, 2009, 2008 and 2007.
At December 31, 2009, impaired loans, net of government guarantees, were $46.9 million compared to $15.7 million at
December 31, 2008. Impaired loans at December 31, 2009, include $1.9 million of government guaranteed student
loans. 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 our 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 non-
accruals, (6) lending policies and procedures including those for loan losses, collections and recoveries, (7) national,
state and local economic trends and conditions, (8) concentrations of credit that might affect loss experience across one
34
or more components of the loan portfolio, (9) the experience, ability and depth of lending management and staff and
(10) other factors and trends that will affect specific loans and categories of loans.
As we evaluate 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.
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. Our evaluation process in specific allocations 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
We establish allocations for loans rated “watch” through “doubtful” based upon analysis of historical loss experience
by category. A percentage rate is applied to each of these loan categories to determine the level of dollar allocation.
During the second quarter of 2009, we made adjustments to our methodology in the evaluation of the collectability of
loans, which added quantitative factors to the internal and external influences used in determining the credit quality of
loans and the allocation of the allowance. This adjustment in methodology resulted in an addition to impaired loans
from classified loans and a redistribution of allocated and unallocated reserves.
It is likely that the methodology will continue to evolve over time. Allocated reserves are presented in table 11 below
detailing the components of the allowance for loan losses.
General Allocations
We establish 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 an analysis of historical losses for each loan
category. We give consideration to trends, changes in loan mix, delinquencies, prior losses and other related
information.
Unallocated Portion
Allowance allocations other than specific, classified and general are included in the unallocated portion. While
allocations are made for loans based upon historical loss analysis, the unallocated portion is designed to cover the
uncertainty of how current economic conditions and other uncertainties may impact the existing loan portfolio. Factors
to consider include national and state economic conditions such as increases in unemployment, the recent real estate
lending crisis, the volatility in the stock market and the unknown impact of the Economic Stimulus package. The
extent and duration of the current economic recession remains uncertain at this time. The unallocated reserve addresses
inherent probable losses not included elsewhere in the allowance for loan losses. The decrease in the unallocated
portion of the reserve was due to allocations for higher historical losses and a higher percentage allocated to qualitative
factors for internal and external influences. While calculating allocated reserve, the unallocated reserve supports
uncertainties within the loan portfolio.
Reserve for Unfunded Commitments
In addition to the allowance for loan losses, we have established a reserve for unfunded commitments, classified in
other liabilities. This reserve is 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 our methodology for determining the allowance for loan losses. Net adjustments to the reserve for unfunded
commitments are included in other non-interest expense.
35
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)
2009
2008
2007
2006
2005
Balance, beginning of year
$ 25,841
$ 25,303
$ 25,385
$ 26,923
$ 26,508
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
Reclass to reserve for unfunded commitments (1)
Provision for loan losses
5,336
2,758
4,814
1,920
14,828
3,760
2,105
2,987
1,394
10,246
920
673
1,393
701
3,687
11,141
--
10,316
883
519
207
529
2,138
8,108
--
8,646
2,663
1,538
1,916
715
6,832
1,024
483
648
414
2,569
4,263
--
4,181
2,454
1,242
1,868
1,317
6,881
4,950
1,240
1,048
3,688
10,926
1,040
629
901
536
3,106
3,775
(1,525)
3,762
832
636
251
2,096
3,815
7,111
--
7,526
Balance, end of year
$ 25,016
$ 25,841
$ 25,303
$ 25,385
$ 26,923
Net charge-offs to average loans
Allowance for loan losses to period-end loans
Allowance for loan losses to net charge-offs
0.58%
1.33%
224.54%
0.43%
1.34%
318.71%
0.23%
1.37%
593.55%
0.22%
1.42%
672.45%
0.43%
1.57%
378.6%
(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, and after considering the factors previously noted, to determine the
level of provision made to the allowance.
Allocated Allowance for Loan Losses
We utilize a consistent methodology in the calculation and application of the 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 uncertainty and imprecision inherent when estimating credit losses, especially when trying to
determine the impact the current and unprecedented economic crisis will have on the existing loan portfolios.
Accordingly, several factors in the national economy, including the increase of unemployment rates, the continuing
credit crisis, the mortgage crisis, the uncertainty in the residential and commercial real estate markets and other loan
sectors which may be exhibiting weaknesses and the unknown impact of various current and future federal government
economic stimulus programs influence our determination of the size of unallocated reserves.
As of December 31, 2009, the allowance for loan losses reflects a decrease of approximately $825,000 from December
31, 2008. The decrease in the allowance correlates directly with a $58.1 million decrease in the total loan portfolio.
The $58.1 million decrease was concentrated in our C&D and single family residential portfolios, which declined by
36
$44.2 million and $17.3 million, respectively. These real estate related portfolios have been most adversely impacted
by the overall economic downturn and the regional market saturation in Northwest Arkansas.
In late 2006, the economy in Northwest Arkansas, particularly in the residential real estate market, started showing
signs of deterioration which caused concerns over the full recoverability of this portion of our loan portfolio. We
continued to monitor the Northwest Arkansas economy and, beginning in the third quarter of 2007, specific credit
relationships deteriorated to a level requiring increased general and specific reserves. These credit relationships
continued to deteriorate, and others were identified, prompting special loan loss provisions each quarter, beginning with
the second quarter of 2008, resulting in an increase to the allowance allocation for real estate loans through December
31, 2008.
As the economic downturn continued through 2009, additional problem loans were identified and specific allocations
were applied, resulting in a significant decrease in the unallocated portion of the allowance for loan losses. Although
several non-performing loans with large specific allocations were charged off during 2009, the identification of other
non-performing loans with specific allocations late in 2009 resulted in a relatively small decrease in the total allocation
to real estate loans as of December 31, 2009.
Our allocation of the allowance for loan losses to credit card loans increased by approximately $1.9 million from
December 31, 2008, to December 31, 2009, while credit card loan balances increased by $19.5 million during the
period. Annualized net credit card charge-offs to credit card loans increased from 2.02% at December 31, 2008, to
2.41% at December 31, 2009. Due to this increase in charge-offs, an increase in past due balances, elevated national
unemployment levels and continued economic uncertainty, we increased the allocation to credit cards to 3.0%.
The unallocated allowance for loan losses is based on our concerns over the uncertainty of the national economy and
the economy in Arkansas. The impact of market pricing in the poultry, timber and catfish industries in Arkansas
remains uncertain. Excessive rains received in Arkansas during 2009 delayed efforts to harvest and reduced the yield
and quality of some crops. We are also cautious regarding the continued softening of the real estate market in
Arkansas, specifically in the Northwest Arkansas region. The housing industry remains one of the weakest links for
economic recovery. Although Arkansas’s unemployment rate is lagging behind the national average, it has continued
to rise. We actively monitor the status of these industries and economic factors as they relate to our loan portfolio and
make changes to the allowance for loan losses as necessary. Based on our analysis of loans and external uncertainties,
we believe the allowance for loan losses is adequate for the year ended December 31, 2009.
We allocate 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
2009
2008
December 31
2007
2006
2005
(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
$ 5,808
1,719
11,164
2,451
161
3,713
10.1% $ 3,957
13.5%
1,325
11,695
62.4%
2,255
13.7%
209
0.3%
6,400
12.9%
63.1%
14.7%
0.5%
8.8% $ 3,841
1,501
10,157
2,528
187
7,089
11.5%
64.1%
14.8%
0.6%
9.0% $ 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
8.3%
13.3%
61.7%
15.9%
0.8%
Total
$ 25,016
100.0% $ 25,841
100.0% $ 25,303
100.0% $ 25,385
100.0% $ 26,923
100.0%
(1) Percentage of loans in each category to total loans
37
Investments and Securities
Our 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.
Our 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. Our general policy is not to invest in derivative type investments or high-risk securities, except for
collateralized mortgage-backed securities for which collection of principal and interest is not subordinated to significant
superior rights held by others.
Held-to-maturity and available-for-sale investment securities were $464.1 million and $182.9 million, respectively,
at December 31, 2009, compared to the held-to-maturity amount of $187.3 million and available-for-sale amount of
$458.8 million at December 31, 2008. During 2009, we made a decision to change our portfolio targets from
75% available-for-sale to 25% available-for-sale. We chose this strategy due to our level of pledging and our history of
holding securities to maturity.
As of December 31, 2009, $254.2 million, or 54.8%, of the held-to-maturity securities were invested in U.S. Treasury
securities and obligations of U.S. government agencies, 50.3% of which will mature in less than five years. In the
available-for-sale securities, $165.9 million, or 90.7%, were in U.S. Treasury and U.S. government agency securities,
62.8% of which will mature in less than five years.
In order to reduce our income tax burden, an additional $208.8 million, or 45.0%, of the held-to-maturity securities
portfolio, as of December 31, 2009, was invested in tax-exempt obligations of state and political subdivisions. In the
available-for-sale securities, there was none 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 or political subdivision issuer
exceeding ten percent of our stockholders' equity at December 31, 2009.
As of December 31, 2009, $1.5 million, or 0.82%, of the available-for-sale securities were invested in a money market
mutual fund (the “AIM Fund”), included in other securities. The AIM Fund is invested entirely in U.S. Treasury
securities and obligations of U.S. government agencies, or repurchase agreements secured by such obligations. The
AIM Fund has no stated maturity date. Investment amounts in the Fund are adjusted by management as needed,
without penalty.
We have approximately $90,000, or 0.02%, in mortgaged-backed securities in the held-to-maturity portfolio at
December 31, 2009. In the available-for-sale securities, approximately $3.0 million, or 1.6% were invested in
mortgaged-backed securities.
As of December 31, 2009, the held-to-maturity investment portfolio had gross unrealized gains of $3.532 million and
gross unrealized losses of $1.928 million.
We had gross realized gains of $144,000 and no gross realized losses during the year ended December 31, 2009, from
the sales and/or calls of securities. We had no gross realized gains or losses during the years ended December 31, 2008
and 2007, resulting from the sales and/or calls of securities.
38
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. Our 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. As of December 31, 2009, $5.4 million, or 78%, of the trading
securities were invested in the AIM Fund.
Declines in the fair value of held-to-maturity and available-for-sale securities below their cost that are deemed to be
other than temporary are reflected in earnings as realized losses. In estimating other-than-temporary impairment
losses, management considers, among other things, (i) the length of time and the extent to which the fair value has
been less than cost, (ii) the financial condition and near-term prospects of the issuer and (iii) the intent and ability of
the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated
recovery in fair value.
During the third quarter of 2008, we determined that our investment in FNMA common stock, held in the available-
for-sale other securities category, had become other-than-temporarily impaired. As a result of this impairment the
security was written down by $75,000. We had accumulated this stock over several years in the form of stock
dividends from FNMA. The remaining balance of this investment is approximately $5,000. We have no investment
in FNMA or FHLMC preferred stock.
Management has the ability and intent to hold the securities classified as held to maturity until they mature, at which
time we expect to receive full value for the securities. Furthermore, as of December 31, 2009, management also had
the ability and intent to hold the securities classified as available-for-sale for a period of time sufficient for a
recovery of cost. The unrealized losses are largely due to increases in market interest rates over the yields available
at the time the underlying securities were purchased. The fair value is expected to recover as the bonds approach
their maturity date or repricing date or if market yields for such investments decline. Management does not believe
any of the securities are impaired due to reasons of credit quality. Accordingly, as of December 31, 2009,
management believes the impairments detailed in the table below are temporary.
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
2009
2008
(In thousands)
Held-to-Maturity
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
$ 254,229
$
799 $ (1,348) $ 253,680 $
18,000
$
629 $
--
$ 18,629
90
5
--
95
109
2
--
111
208,812
930
2,728
--
(580)
--
210,960
930
168,262
930
1,264
--
(1,876)
--
167,650
930
Total
$ 464,061
$ 3,532 $ (1,928) $ 465,665 $ 187,301
$ 1,895 $ (1,876) $ 187,320
Available-for-Sale
U.S. Treasury
U.S. Government
agencies
Mortgage-backed
securities
State and political
subdivisions
Other securities
$
4,297
$
32 $
-- $
4,329 $
5,976
$
113 $
--
$
6,089
160,807
953
(236)
161,524
346,585
5,444
(868)
351,161
2,896
--
13,633
78
--
399
(2)
2,972
2,909
37
(67)
2,879
--
(3)
--
14,029
635
97,625
2
448
--
(6)
637
98,067
Total
$ 181,633
$ 1,462 $ (241) $ 182,854 $ 453,730
$ 6,044 $ (941) $ 458,833
39
Table 13 reflects the amortized cost and estimated fair value of securities at December 31, 2009, 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, 2009
Over
1 year
through
5 years
1 year
or less
Over
5 years
Total
through Over No fixed Amortized Par
10 years 10 years maturity
Cost
Value
Fair
Value
$
-- $127,929 $126,300 $
-- $
-- $254,229 $254,245 $253,681
--
7
59
25
--
91
90
95
9,833
--
62,255
--
55,375
--
81,348
930
-- 208,811 209,123 210,959
930
--
930
930
(In thousands)
Held-to-Maturity
U.S. Government
agencies
Mortgage-backed
securities
State and political
subdivisions
Other securities
Total
$ 9,833 $190,191 $181,734 $ 82,303 $
-- $464,061 $464,388 $465,665
Percentage of total
2.1% 41.0%
39.2% 17.7%
0.0% 100.0%
Weighted average yield
4.4% 2.3%
4.1% 4.1%
0.0% 3.4%
Available-for-Sale
U.S. Treasury
U.S. Government
agencies
Mortgage-backed
securities
Other securities
$ 4,297 $
-- $
-- $
-- $
-- $ 4,297 $ 4,300 $ 4,329
7,000
92,938
60,869
--
-- 160,807 160,815 161,524
--
--
1,221
1,667
--
--
8
2,972
-- 13,633 13,633 13,633 14,029
2,930
2,896
--
Total
$ 11,297 $ 94,159 $ 62,536 $
8 $ 13,633 $181,633 $ 181,678 $ 182,854
Percentage of total
6.2%
51.8%
34.4% 0.0% 7.5%
100.0%
Weighted average yield 3.9%
1.6%
5.1% 3.0% 0.6%
2.9%
Deposits
Deposits are our primary source of funding for earning assets and are primarily developed through our network of
84 financial centers. We offer a variety of products designed to attract and retain customers with a continuing focus on
developing core deposits. Our core deposits consist of all deposits excluding time deposits of $100,000 or more and
brokered deposits. As of December 31, 2009, core deposits comprised 81.8% of our total deposits.
We continually monitor the funding requirements at each subsidiary bank along with competitive interest rates in the
markets it serves. Because of our community banking philosophy, subsidiary bank 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.
We believe we are paying a competitive rate when compared with pricing in those markets.
40
We manage our interest expense through deposit pricing and do not anticipate a significant change in total deposits. We
believe 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. We also utilize brokered deposits as an additional source
of funding to meet liquidity needs.
Our total deposits as of December 31, 2009 were $2.432 billion, an internal deposit growth of $96 million, or 4.1%,
from $2.336 billion at December 31, 2008. We introduced a new high yield investment deposit account during the first
quarter of 2008 as part of our strategy to enhance liquidity. While attracting new customers, the account has also
resulted in existing customers moving more volatile, expensive time deposits to the high yield investment account.
Interest bearing transaction and savings accounts were $1.156 billion at December 31, 2009, a $129.4 million increase
compared to $1.027 billion on December 31, 2008. Total time deposits decreased approximately $61.8 million to
$912.75 million at December 31, 2009, from $974.56 million at December 31, 2008.
Non-interest bearing transaction accounts increased $28.2 million to $363.2 million at December 31, 2009, compared to
$335.0 million at December 31, 2008. We had $21 million and $33 million of brokered deposits at December 31, 2009
and 2008, 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, 2009.
Table 14:
Average Deposit Balances and Rates
2009
Average Average
Amount Rate Paid
December 31
2008
Average Average
Amount Rate Paid
2007
Average Average
Amount Rate Paid
(In thousands)
Non-interest bearing transaction
accounts
$ 332,998
--
$ 317,772
--
$ 307,041
--
Interest bearing transaction and
savings deposits
Time deposits
$100,000 or more
Other time deposits
1,091,960
0.76%
959,567
1.56%
736,160
1.78%
406,924
532,434
2.43%
2.42%
426,304
595,123
3.80%
3.70%
441,854
682,703
4.81%
3.55%
Total
$2,364,316
1.31%
$2,298,766
2.31%
$2,167,758
3.02%
The Company's maturities of large denomination time deposits at December 31, 2009 and 2008 are presented in
table 15.
Table 15: Maturities of Large Denomination Time Deposits
Time Certificates of Deposit
($100,000 or more)
December 31
2009
2008
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
$ 161,762
102,670
120,162
35,943
38.5%
24.4%
28.6%
8.5%
$ 144,982
107,093
119,186
47,133
34.6%
25.6%
28.5%
11.3%
Total
$ 420,537
100.00%
$ 418,394
100.00%
41
Short-Term Debt
Federal funds purchased and securities sold under agreements to repurchase were $105.9 million at December 31, 2009,
as compared to $115.4 million at December 31, 2008. Other short-term borrowings, consisting of U.S. TT&L Notes
and short-term FHLB borrowings, were $3.6 million at December 31, 2009, as compared to $1.1 million at
December 31, 2008.
We have historically funded our 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
Our long-term debt was $159.8 million and $158.7 million at December 31, 2009 and 2008, respectively. The
outstanding balance for December 31, 2009 includes $128.9 million in FHLB long-term advances and $30.9 million of
trust preferred securities. The outstanding balance for December 31, 2008, includes $127.8 million in FHLB long-term
advances and $30.9 million of trust preferred securities.
During the year ended December 31, 2009, we increased long-term debt by $1.2 million, or 0.73% from December 31,
2008.
Aggregate annual maturities of long-term debt at December 31, 2009 are presented in table 16.
Table 16: Maturities of Long-Term Debt
(In thousands)
Year
2010
2011
2012
2013
2014
Thereafter
Annual
Maturities
$ 29,013
43,766
6,713
16,658
4,985
58,688
Total
$ 159,823
Capital
Overview
At December 31, 2009, total capital reached $371.2 million. Capital represents shareholder ownership in the Company
– the book value of assets in excess of liabilities. At December 31, 2009, our equity to asset ratio was 12.0% compared
to 9.88% at year-end 2008.
Capital Stock
On February 27, 2009, at a special meeting, our shareholders approved an amendment to the Articles of
Incorporation to establish 40,040,000 authorized shares of preferred stock, $0.01 par value. The aggregate
liquidation preference of all shares of preferred stock cannot exceed $80,000,000. As of December 31, 2009, no
preferred stock has been issued.
On August 26, 2009, we filed a shelf registration statement with the Securities and Exchange Commission (“SEC”).
The shelf registration statement, which was declared effective on September 9, 2009, will allow us to raise capital
from time to time, up to an aggregate of $175 million, through the sale of common stock, preferred stock, or a
combination thereof, subject to market conditions. Specific terms and prices will be determined at the time of any
offering under a separate prospectus supplement that we will be required to file with the SEC at the time of the
specific offering.
42
In November 2009, the Company raised common equity through an underwritten public offering by issuing
2,650,000 shares of common stock at a price of $24.50 per share, less underwriting discounts and commissions.
The net proceeds of the offering after deducting underwriting discounts and commissions and offering expenses
were $61.3 million. In December 2009, the underwriters of our stock offering exercised and completed their option
to purchase an additional 397,500 shares of common stock at $24.50 to cover over-allotments. The net proceeds of
the exercise of the over-allotment option after deducting underwriting discounts and commissions were $9.2
million. The total net proceeds of the offering after deducting underwriting discounts and commissions and offering
expenses were approximately $70.5 million.
Stock Repurchase
On November 28, 2007, we announced the substantial completion of the existing stock repurchase program and the
adoption by the Board of Directors of a new stock repurchase program. The program authorizes the repurchase of up to
700,000 shares of Class A common stock, or approximately 5% of the outstanding common stock. Under the
repurchase program, there is no time limit for the stock repurchases, nor is there a minimum number of shares we
intend to repurchase. 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. We intend to use the repurchased
shares to satisfy stock option exercises, for payment of future stock dividends and for general corporate purposes. We
may discontinue purchases at any time that management determines additional purchases are not warranted. As part of
our strategic focus on building capital, we suspended our stock repurchase program in July 2008. We made no
purchases of our common stock during the three months or year ended December 31, 2009. Because of the recently
completed stock offering and based on our strategy to retain capital, we do not anticipate resuming our stock repurchase
during 2010.
Cash Dividends
We declared cash dividends on our common stock of $0.76 per share for the twelve months ended December 31, 2009,
compared to $0.76 per share for the twelve months ended December 31, 2008. The timing and amount of future
dividends are at the discretion of our Board of Directors and will depend upon our consolidated earnings, financial
condition, liquidity and capital requirements, the amount of cash dividends paid to us by our subsidiaries, applicable
government regulations and policies and other factors considered relevant by our Board of Directors. Our Board of
Directors anticipates that we will continue to pay quarterly dividends in amounts determined based on the factors
discussed above. However, there can be no assurance that we will continue to pay dividends on our common stock
at the current levels or at all. See Item 5, Market for Registrant’s Common Equity and Related Stockholder Matters,
for additional information regarding cash dividends.
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 subsidiary banks is subject to various regulatory limitations. See Item 7A, Liquidity and Qualitative
Disclosures About Market Risk, for additional information regarding the parent company’s liquidity.
43
Risk-Based Capital
Our 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 our financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action, we must meet specific capital
guidelines that involve quantitative measures of our assets, liabilities and certain off-balance-sheet items as calculated
under regulatory accounting practices. Our 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 us 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, 2009, we meet all capital adequacy requirements to which we are 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.
Our risk-based capital ratios at December 31, 2009 and 2008, are presented in table 17 below:
Table 17:
Risk-Based Capital
(In thousands, except ratios)
Tier 1 capital
Stockholders’ equity
Trust preferred securities
Goodwill and core deposit premiums (1)
Unrealized gain (loss) on available-for-sale
securities, net of income taxes
Total Tier 1 capital
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
December 31
2009
2008
$ 371,247
30,000
(51,128)
$ 288,792
30,000
(53,034)
(762)
(3,190)
349,357
262,568
5
24,405
24,410
179
24,827
25,006
$ 373,767
$ 287,574
$1,950,227
$1,983,654
11.64%
17.91%
19.17%
4.00%
4.00%
8.00%
9.15%
13.24%
14.50%
4.00%
4.00%
8.00%
(1) For December 31, 2009 and 2008, in accordance with an Interagency Final Rule, goodwill deducted
from Tier 1 capital has been reduced by the amount of any deferred tax liability associated with that
goodwill.
44
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.
Our long-term debt at December 31, 2009, includes notes payable, FHLB long-term advances and trust preferred
securities, all of which we are 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 our
financial centers located throughout the state of Arkansas. Our financial obligation on these locations is considered
immaterial due to the limited number of financial centers that 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 funding requirements.
The funding requirements of the Company's most significant financial commitments, at December 31, 2009, 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
$ 29,013
262,257
393,437
10,391
$ 50,479 $ 21,643
--
--
--
--
--
--
$ 58,688 $ 159,823
262,257
393,437
10,391
--
--
--
Reconciliation of Non-GAAP Measures
We have $62.4 million and $63.2 million total goodwill and core deposit premiums for the periods ended December 31,
2009 and December 31, 2008, respectively. Because of our high level of these two intangible assets, management
believes a useful calculation is return on tangible equity (non-GAAP). This non-GAAP calculation for the twelve
months ended December 31, 2009, 2008, 2007, 2006 and 2005, 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, except ratios)
2009
2008
2007
2006
2005
Twelve months ended
Return on average stockholders equity: (A/C)
8.26%
Return on tangible equity (non-GAAP): (A+B)/(C-D) 10.61%
9.54%
12.54%
10.26%
13.78%
10.93% 11.24%
15.79%
15.03%
(A) Net income
(B) Amortization of intangibles, net of taxes
(C) Average stockholders' equity
(D) Average goodwill and core deposits, net
$ 25,210 $ 26,910 $ 27,360 $ 27,481 $ 26,962
522
239,976
65,913
503
305,210
62,789
504
282,186
63,600
519
251,518
65,233
511
266,628
64,409
The table below presents computations of core earnings (net income excluding nonrecurring items {Visa litigation
expense and reversal, gain from the cash proceeds on mandatory Visa stock redemption and the write-off of
deferred debt issuance costs}) and diluted core earnings per share (non-GAAP). Nonrecurring items are included in
financial results presented in accordance with generally accepted accounting principles (GAAP).
45
We believe the exclusion of these nonrecurring items in expressing earnings and certain other financial measures,
including “core earnings,” provides a meaningful base for period-to-period and company-to-company comparisons,
which management believes will assist investors and analysts in analyzing the core financial measures of the
Company and predicting future performance. This non-GAAP financial measure is also used by management to
assess the performance of the Company’s business because management does not consider these nonrecurring items
to be relevant to ongoing financial performance. Management and the Board of Directors utilize “core earnings”
(non-GAAP) for the following purposes:
• Preparation of the Company’s operating budgets
• Monthly financial performance reporting
• Monthly “flash” reporting of consolidated results (management only)
• Investor presentations of Company performance
We believe the presentation of “core earnings” on a diluted per share basis, “diluted core earnings per share” (non-
GAAP), provides a meaningful base for period-to-period and company-to-company comparisons, which
management believes will assist investors and analysts in analyzing the core financial measures of the Company and
predicting future performance. This non-GAAP financial measure is also used by management to assess the
performance of the Company’s business, because management does not consider these nonrecurring items to be
relevant to ongoing financial performance on a per share basis. Management and the Board of Directors utilize
“diluted core earnings per share” (non-GAAP) for the following purposes:
• Calculation of annual performance-based incentives for certain executives
• Calculation of long-term performance-based incentives for certain executives
• Investor presentations of Company performance
We believe that presenting these non-GAAP financial measures will permit investors and analysts to assess the
performance of the Company on the same basis as that applied by management and the Board of Directors.
“Core earnings” and “diluted core earnings per share” (non-GAAP) have inherent limitations, are not required to be
uniformly applied and are not audited. To mitigate these limitations, we have procedures in place to identify and
approve each item that qualifies as nonrecurring to ensure that the Company’s “core” results are properly reflected
for period-to-period comparisons. Although these non-GAAP financial measures are frequently used by
stakeholders in the evaluation of a company, they have limitations as analytical tools and should not be considered
in isolation or as a substitute for analyses of results as reported under GAAP. In particular, a measure of earnings
that excludes nonrecurring items does not represent the amount that effectively accrues directly to stockholders (i.e.,
nonrecurring items are included in earnings and stockholders’ equity).
During the first quarter 2008, we recorded a nonrecurring $1.8 million after tax gain, or $0.13 per diluted earnings
per share, from the cash proceeds on the mandatory partial redemption of our equity interest in Visa. Also during
the first quarter 2008, we recorded nonrecurring after tax earnings of $744,000, or $0.05 per diluted earnings per
share, from the reversal of the Visa contingent liability established in the fourth quarter 2007. During the fourth
quarter 2007, we recorded a nonrecurring $744,000 after tax charge, or a $0.05 reduction in diluted earnings per
share, to establish a contingent liability related to indemnification obligations with Visa U.S.A. litigation, which was
reversed in 2008. For further discussion related to the Visa U.S.A. litigation, see the analysis of Non-Interest Expense
included elsewhere in this section.
46
See table 20 below for the reconciliation of non-GAAP financial measures, which exclude nonrecurring items for
the periods presented.
Table 20:
Reconciliation of Core Earnings (non-GAAP)
(In thousands, except share data)
2009
2008
2007
2006
2005
Twelve months ended
Net Income
Nonrecurring items
Mandatory stock redemption gain (Visa)
Litigation liability expense/reversal (Visa)
Tax effect (39%)
Net nonrecurring items
Core earnings (non-GAAP)
Diluted earnings per share
Nonrecurring items
Mandatory stock redemption gain (Visa)
Litigation liability expense/reversal (Visa)
Tax effect (39%)
Net nonrecurring items
Diluted core earnings per share (non-GAAP)
Quarterly Results
$ 25,210 $ 26,910 $ 27,360 $ 27,481 $ 26,962
--
--
--
--
--
1,220
--
--
--
--
$ 25,210 $ 24,352 $ 28,104 $ 27,481 $ 26,962
(2,973)
(1,220)
1,635
(2,558)
(476)
744
--
--
--
--
$ 1.74 $ 1.91 $ 1.92 $ 1.90 $ 1.84
--
--
--
--
--
--
--
--
$ 1.74 $ 1.73 $ 1.97 $ 1.90 $ 1.84
(0.21)
(0.09)
0.12
(0.18)
--
0.09
(0.04)
0.05
--
--
--
--
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
2009
Net interest income
Provision for loan losses
Non-interest income
Non-interest expense
Net income
Basic earnings per share
Diluted earnings per share
2008
Net interest income
Provision for loan losses
Non-interest income
Non-interest expense
Net income
Basic earnings per share
Diluted earnings per share
$ 23,393
2,138
11,459
25,658
5,236
0.37
0.37
$ 22,792
1,467
14,992
23,130
8,816
0.63
0.63
$ 23,720
2,622
13,358
26,951
5,509
0.40
0.39
$ 23,098
2,214
11,720
24,209
5,994
0.43
0.42
$ 25,393
2,789
14,963
26,307
7,660
0.54
0.54
$ 24,347
2,214
11,288
24,441
6,474
0.47
0.46
$ 25,221
2,767
12,931
25,806
6,805
0.44
0.44
$ 23,780
2,751
11,326
24,580
5,626
0.40
0.40
$ 97,727
10,316
52,711
104,722
25,210
1.75
1.74
$ 94,017
8,646
49,326
96,360
26,910
1.93
1.91
47
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, 2009, undivided profits of the Company's subsidiary banks were
approximately $164.8 million, of which approximately $15.2 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.
Subsidiary Banks
Generally speaking, the Company's subsidiary banks 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
subsidiary 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 subsidiary bank monitor these same indicators and
make adjustments as needed.
In response to tightening credit markets in 2007 and anticipating potential liquidity pressures in 2008, the Company’s
management strategically planned to enhance the liquidity of each of its subsidiary banks during 2008. We introduced
a new high yield investment deposit account during the first quarter of 2008 as part of this strategy to enhance liquidity.
The new account generated approximately $146 million in new core deposits during 2008. We built additional
liquidity in each of our subsidiary banks by securing approximately $55 million in additional long-term funding from
FHLB borrowings during 2008. We managed our liquidity during 2009 at similar levels as in 2008. At December 31,
2009, each subsidiary bank was within established guidelines and total corporate liquidity remains strong. At
December 31, 2009, cash and cash equivalents, trading and available-for-sale securities and mortgage loans held for
sale were 17.8% of total assets, as compared to 21.0% at December 31, 2008.
Liquidity Management
The objective of our 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. Our liquidity sources are prioritized for both
availability and time to activation.
Our 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 five 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 subsidiary banks have approximately $104 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, we have a plan for rotating the usage of the funds among the upstream correspondent banks, thereby
48
providing approximately $40 million in funds on a given day. Historical monitoring of these funds has made it possible
for us to project seasonal fluctuations and structure our funding requirements on a month-to-month basis.
A second source of liquidity is the retail deposits available through our network of subsidiary 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.
Third, our subsidiary banks have lines of credits available with the Federal Home Loan Bank. While we use portions
of those lines to match off longer-term mortgage loans, we also use those lines to meet liquidity needs. Approximately
$389 million of these lines of credit are currently available, if needed.
Fourth, we use 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 28% of the investment portfolio is classified as available-for-sale. We also use securities held in the
securities portfolio to pledge when obtaining public funds.
Finally, we have the ability to access large deposits from both the public and private sector to fund short-term liquidity
needs.
We believe 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. We have 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.
49
The table below presents our interest rate sensitivity position at December 31, 2009. 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
$ 282,010 $
-- $
-- $
-- $
-- $
-- $
-- $ 282,010
6,886
84,464
8,397
647,213
1,028,970
--
80,470
--
252,277
332,747
--
40,276
--
185,912
226,188
--
68,621
--
221,193
289,814
--
168,775
--
276,742
445,517
--
166,727
--
254,340
421,067
--
37,582
--
37,312
74,894
6,886
646,915
8,397
1,874,989
2,819,197
755,906
132,452
109,550
17,485
--
193,212
--
14,662
--
226,858
--
2,385
--
252,144
--
15,403
80,072
89,323
--
43,133
240,215
18,765
--
28,853
80,071 1,156,264
912,754
109,550
159,823
--
--
37,902
liabilities
1,015,393
207,874
229,243
267,547
212,528
287,833
117,973
2,338,391
Interest rate sensitivity Gap
Cumulative interest rate
$ 13,577 $ 124,873 $
(3,055) $ 22,267 $ 232,989 $ 133,234 $ (43,079) $ 480,806
sensitivity Gap
$ 13,577 $ 138,450 $ 135,395 $ 157,662 $ 390,651 $ 523,885 $ 480,806
Cumulative rate sensitive assets
to rate sensitive liabilities
Cumulative Gap as a % of
101.3%
111.3%
109.3%
109.2%
120.2%
123.6%
120.6%
earning assets
0.5%
4.9%
4.8%
5.6%
13.9%
18.6%
17.1%
50
ITEM 8.
CONSOLIDATED FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA
INDEX
Management’s Report on Internal Control Over Financial Reporting ............................................52
Report of Independent Registered Public Accounting Firm
Report on Internal Control Over Financial Reporting .................................................................53
Report on Consolidated Financial Statements .............................................................................54
Consolidated Balance Sheets, December 31, 2009 and 2008 .........................................................55
Consolidated Statements of Income, Years Ended
December 31, 2009, 2008 and 2007 ............................................................................................56
Consolidated Statements of Cash Flows, Years Ended
December 31, 2009, 2008 and 2007 ............................................................................................57
Consolidated Statements of Stockholders’ Equity, Years Ended
December 31, 2009, 2008 and 2007 ............................................................................................58
Notes to Consolidated Financial Statements,
December 31, 2009, 2008 and 2007 ............................................................................................59
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 47 hereof.
51
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, 2009, 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 of the Treadway Commission (COSO).
Based on the assessment, management determined that the Company maintained effective internal control over
financial reporting as of December 31, 2009, 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 the effectiveness of the
Company’s internal control over financial reporting as of December 31, 2009. The report, which expresses an
unqualified opinion on the effectiveness of the Company’s internal control over financial reporting as of December 31,
2009, immediately follows.
52
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Audit Committee, Board of Directors and Stockholders
Simmons First National Corporation
Pine Bluff, Arkansas
We have audited Simmons First National Corporation’s internal control over financial reporting as of December 31,
2009, 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, included in the accompanying Management’s Report on Internal Control over Financial Reporting.
Our responsibility is to express an opinion on 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. Our audit included obtaining
an understanding of internal control over financial reporting, assessing the risk that a material weakness exists and
testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit
also included performing such other procedures as we considered 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 maintenances 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, Simmons First National Corporation maintained, in all material respects, effective internal control over
financial reporting as of December 31, 2009, 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 March 2,
2010, expressed an unqualified opinion thereon.
Pine Bluff, Arkansas
March 2, 2010
BKD, LLP
/s/ BKD, LLP
53
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, 2009, and 2008, and the related consolidated statements of income, cash flows, and stockholders’ equity
for each of the years in the three-year period ended December 31, 2009. The Company’s management is responsible for
these financial statements. 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 audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. Our audits included examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and
significant estimates made by management and 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, 2009, and 2008, and the results of its
operations and its cash flows for each of the years in the three-year period ended December 31, 2009, 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), Simmons First National Corporation’s internal control over financial reporting as of December 31, 2009, 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 March 2, 2010, expressed an unqualified opinion on the
effectiveness of the Company’s internal control over financial reporting.
Pine Bluff, Arkansas
March 2, 2010
BKD, LLP
/s/ BKD, LLP
54
Simmons First National Corporation
Consolidated Balance Sheets
December 31, 2009 and 2008
(In thousands, except share data)
2009
2008
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 AND STOCKHOLDERS’ EQUITY
Deposits:
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
$
71,575
282,010
--
353,585
646,915
8,397
6,886
1,874,989
(25,016)
1,849,973
78,126
9,179
17,881
40,920
60,605
1,769
19,086
$ 3,093,322
$ 363,154
1,156,264
912,754
2,432,172
105,910
3,640
159,823
20,530
2,722,075
$
71,801
61,085
6,650
139,536
646,134
10,336
5,754
1,933,074
(25,841)
1,907,233
78,904
2,995
20,930
39,617
60,605
2,575
8,490
$ 2,923,109
$
334,998
1,026,824
974,511
2,336,333
115,449
1,112
158,671
22,752
2,634,317
Stockholders’ equity:
Preferred stock, $0.01 par value; 40,040,000 shares authorized and
unissued at December 31, 2009; no shares authorized
at December 31, 2008
Common stock, Class A, $0.01 par value; 60,000,000 shares authorized:
17,093,931and 13,960,680 shares issued and outstanding
at December 31, 2009 and 2008, respectively
Surplus
Undivided profits
Accumulated other comprehensive income
Unrealized appreciation on available-for-sale securities,
net of income taxes of $457 and $1,913 at December 31,2009
and 2008, respectively
Total stockholders’ equity
Total liabilities and stockholders’ equity
--
--
171
111,694
258,620
140
40,807
244,655
762
371,247
$ 3,093,322
3,190
288,792
$ 2,923,109
See Notes to Consolidated Financial Statements.
55
Simmons First National Corporation
Consolidated Statements of Income
Years Ended December 31, 2009, 2008 and 2007
(In thousands, except per share data)
2009
2008
2007
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
Gain on mandatory partial redemption of Visa shares
Other income
Gain on sale of securities
TOTAL NON-INTEREST INCOME
NON-INTEREST EXPENSE
Salaries and employee benefits
Occupancy expense, net
Furniture and equipment expense
Other real estate and foreclosure expense
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.
56
$ 113,648
27
21,791
608
20
439
136,533
31,046
769
33
6,958
38,806
97,727
10,316
$ 126,079
748
27,415
411
73
1,415
156,141
53,150
2,110
111
6,753
62,124
94,017
8,646
$ 141,706
1,418
23,646
505
100
1,161
168,536
65,474
5,371
804
4,771
76,420
92,116
4,181
87,411
85,371
87,935
5,227
17,944
2,668
4,032
2,153
14,392
2,333
1,270
--
2,548
144
52,711
58,317
7,457
6,195
453
4,642
27,658
104,722
35,400
10,190
$ 25,210
1.75
$
1.74
$
6,230
15,145
2,681
2,606
1,025
13,579
1,134
1,547
2,973
2,406
--
49,326
57,050
7,383
5,967
239
793
24,928
96,360
38,337
11,427
6,218
14,794
3,016
2,766
623
12,217
2,341
1,493
--
2,535
--
46,003
54,865
6,674
5,865
212
328
26,253
94,197
39,741
12,381
$ 26,910
1.93
$
1.91
$
$ 27,360
1.95
$
1.92
$
Simmons First National Corporation
Consolidated Statements of Cash Flows
Years Ended December 31, 2009, 2008 and 2007
(In thousands)
2009
2008
2007
CASH FLOWS FROM OPERATING ACTIVITIES
Net income
Items not requiring (providing) cash
Depreciation and amortization
Provision for loan losses
Gain on mandatory partial redemption of Visa shares
Net amortization of investment securities
Stock-based compensation expense
Deferred income taxes
Gain on sale of securities, net
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 collections (originations) of loans
Purchases of premises and equipment, net
Proceeds from sale of foreclosed assets
Proceeds from mandatory partial redemption of Visa shares
Sales (purchases) of short-term investment securities
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 provided by (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
Shares issued from public stock offering, net of
offering costs of $4,178
Shares issued (exchanged) under stock
compensation plans, net
Repurchase of common stock
Net cash provided by financing activities
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR
$ 25,210
$ 26,910
$ 27,360
5,841
10,316
--
(48)
627
1,613
(144)
(1,270)
3,049
1,939
(1,132)
(12,417)
(5,387)
1,552
29,749
36,621
(4,257)
4,139
--
84,033
361
573,604
(384,080)
281,986
(558,921)
(33)
33,453
95,839
2,528
(11,245)
9,166
(8,014)
5,729
8,646
(2,973)
194
548
739
--
(1,547)
415
761
(96)
(960)
(2,709)
(768)
34,889
(96,447)
(8,353)
5,353
2,973
(85,536)
--
318,114
(349,416)
41,680
(38,778)
(32)
(210,442)
153,476
(665)
(10,601)
91,029
(14,643)
5,510
4,181
--
116
338
865
--
(1,493)
629
(4,006)
(1,171)
2,603
508
538
35,978
(75,161)
(12,240)
3,250
--
--
--
146,379
(136,033)
31,123
(41,466)
(413)
(84,561)
7,326
(4,337)
(10,234)
10,786
(11,812)
(9,539)
(13,357)
23,770
70,486
--
1,626
--
150,847
900
(1,280)
204,859
--
725
(8,562)
7,662
214,049
29,306
(40,921)
139,536
110,230
151,151
CASH AND CASH EQUIVALENTS, END OF YEAR
$ 353,585
$ 139,536
$ 110,230
See Notes to Consolidated Financial Statements.
57
Simmons First National Corporation
Consolidated Statements of Stockholders’ Equity
Years Ended December 31, 2009, 2008 and 2007
Common
Stock
Surplus
Accumulated
Other
Comprehensive
Income (Loss)
Undivided
Profits
Total
$
142
$
48,678
$
(2,198)
$
212,394
$
259,016
(In thousands, except share data)
Balance, December 31, 2006
Comprehensive income:
Net income
Change in unrealized depreciation on
available-for-sale securities, net of
income taxes of $2,356
Comprehensive income
Stock issued as bonus shares – 15,146 shares
Exercise of stock options – 33,720 shares
Stock granted under
stock-based compensation plans
Securities exchanged under stock option plan
Repurchase of common stock
– 320,726 shares
Cash dividends declared ($0.73 per share)
Balance, December 31, 2007
Cumulative effect of adoption of a new
accounting principle, January 1, 2008 (Note 16)
Comprehensive income:
Net income
Change in unrealized appreciation on
available-for-sale securities, net of
income taxes of $877
Comprehensive income
Stock issued as bonus shares – 17,490 shares
Stock issued for employee stock
purchase plan – 5,359 shares
Exercise of stock options – 97,497 shares
Stock granted under
stock-based compensation plans
Securities exchanged under stock option plan
Repurchase of common stock
– 45,180 shares
Cash dividends declared ($0.76 per share)
Balance, December 31, 2008
Comprehensive income:
Net income
Change in unrealized appreciation on
available-for-sale securities, net of
income tax credits of $1,456
Comprehensive income
Stock issued from public stock offering, net of
offering costs of $4,178
Stock issued as bonus shares – 27,915 shares
Cancelled bonus shares – 1,113 shares
Non-vested bonus shares
Stock issued for employee stock
purchase plan – 5,823 shares
Exercise of stock options – 56,700 shares
Stock granted under
stock-based compensation plans
Securities exchanged under stock option plan
Cash dividends declared ($0.76 per share)
Balance, December 31, 2009
$
See Notes to Consolidated Financial Statements.
--
--
--
--
--
--
--
--
419
509
178
(203)
(3)
--
139
(8,562)
--
41,019
--
--
--
530
135
1,207
169
(973)
(1,280)
--
40,807
--
--
70,456
702
29
(1,208)
141
689
--
--
--
--
--
1
--
--
--
--
140
--
--
30
--
--
--
--
1
--
--
--
171
--
27,360
27,360
3,926
--
--
--
--
--
--
1,728
--
--
1,462
--
--
--
--
--
--
--
--
--
--
--
(10,234)
229,520
(1,174)
26,910
--
--
--
--
--
--
--
--
3,190
--
(10,601)
244,655
3,926
31,286
419
509
178
(203)
(8,565)
(10,234)
272,406
(1,174)
26,910
1,462
28,372
530
135
1,208
169
(973)
(1,280)
(10,601)
288,792
--
25,210
25,210
(2,428)
--
--
--
--
--
--
--
--
--
--
--
--
--
(2,428)
22,782
70,486
702
29
(1,208)
141
690
180
(102)
--
$ 111,694
58
$
--
--
--
762
--
--
(11,245)
258,620
$
180
(102)
(11,245)
371,247
$
Simmons First National Corporation
Notes to Consolidated Financial Statements
NOTE 1:
NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Nature of Operations
Simmons First National Corporation (the “Company”) 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 real estate acquired in connection with foreclosures or in satisfaction of loans. 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 consolidated financial statements for previous years have been reclassified to
provide more comparative information. These reclassifications had no effect on net earnings.
Cash Equivalents
The Company Bank considers all liquid investments with original maturities of three months or less to be cash
equivalents. The financial institutions holding the Company’s cash accounts are participating in the FDIC’s
Transaction Account Guarantee Program. Under that program, through June 30, 2010, all noninterest-bearing
transaction accounts are fully guaranteed by the FDIC for the entire amount in the account.
59
Interest Bearing Deposits in Banks
Interest-bearing deposits in banks mature within one year and are carried at cost.
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.
Effective April 1, 2009, the Company adopted new accounting guidance related to recognition and presentation of
other-than-temporary impairment, ASC 320-10. When the Company does not intend to sell a debt security, and it is
more likely than not, the Company will not have to sell the security before recovery of its cost basis, it recognizes the
credit component of an other-than-temporary impairment of a debt security in earnings and the remaining portion in
other comprehensive income. For held-to-maturity debt securities, the amount of an other-than-temporary impairment
recorded in other comprehensive income for the noncredit portion of a previous other-than-temporary impairment is
amortized prospectively over the remaining life of the security on the basis of the timing of future estimated cash flows
of the security.
As a result of this guidance, the Company’s consolidated statement of income as of December 31, 2009, reflects the full
impairment (that is, the difference between the security’s amortized cost basis and fair value) on debt securities that the
Company intends to sell or would more likely than not be required to sell before the expected recovery of the amortized
cost basis. For available-for-sale and held-to-maturity debt securities that management has no intent to sell and believes
that it more likely than not will not be required to sell prior to recovery, only the credit loss component of the
impairment is recognized in earnings, while the noncredit loss is recognized in accumulated other comprehensive
income. The credit loss component recognized in earnings is identified as the amount of principal cash flows not
expected to be received over the remaining term of the security as projected based on cash flow projections. Prior to
the adoption of the recent accounting guidance on April 1, 2009, management considered, in determining whether
other-than-temporary impairment exists, (1) the length of time and the extent to which the fair value has been less than
cost, (2) the financial condition and near-term prospects of the issuer and (3) the intent and ability of the Company to
retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.
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 buy back 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
60
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.
For loans amortized at cost, interest income is accrued based on the unpaid principal balance. Loan origination fees, net
of certain direct origination costs, as well as premiums and discounts, are deferred and amortized as a level yield
adjustment over the respective term of the loan.
The accrual of interest on mortgage and commercial loans is discontinued at the time the loan is 90 days past due unless
the credit is well-secured and in process of collection. Past due status is based on contractual terms of the loan. In all
cases, loans are placed on nonaccrual or charged off at an earlier date if collection of principal or interest is considered
doubtful.
Discounts and premiums on purchased residential real estate loans are amortized to income using the interest method
over the remaining period to contractual maturity, adjusted for anticipated prepayments. Discounts and premiums on
purchased consumer loans are recognized over the expected lives of the loans using methods that approximate the
interest method.
Allowance for Loan Losses
The allowance for loan losses is 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 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 by the Company based on its analysis of historical losses for
each loan category. 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
61
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 and Intangible Assets
Goodwill represents the excess of the cost of an acquisition over the fair value of the net assets acquired. Other
intangible assets represent purchased assets that also lack physical substance but can be separately distinguished from
goodwill because of contractual or other legal rights or because the asset is capable of being sold or exchanged either
on its own or in combination with a related contract, asset or liability. The Company performs an annual goodwill
impairment test, and more than annually if circumstances warrant, in accordance with ASC Topic 350, Intangibles –
Goodwill and Other. ASC Topic 350 requires that goodwill and intangible assets that have indefinite lives be reviewed
for impairment annually, or more frequently if certain conditions occur. Impairment losses on recorded goodwill, if
any, will be recorded as operating expenses.
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 has entered into one fair value hedge. 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 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 $1.7 million at December 31, 2009, and
$1.8 million at December 31, 2008.
Securities Sold Under Agreements to Repurchase
The Company sells securities under agreements to repurchase to meet customer needs for sweep accounts. At the point
funds deposited by customers become investable, those funds are used to purchase securities owned by the Company
and held in its general account with the designation of Customers’ Securities. A third party maintains control over the
securities underlying overnight repurchase agreements. The securities involved in these transactions are generally
U.S. Treasury or Federal Agency issues. Securities sold under agreements to repurchase generally mature on the
banking day following that on which the investment was initially purchased and are treated as collateralized financing
transactions which are recorded at the amounts at which the securities were sold plus accrued interest. Interest rates and
maturity dates of the securities involved vary and are not intended to be matched with funds from customers.
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.
62
Income Taxes
The Company accounts for income taxes in accordance with income tax accounting guidance in ASC 740, Income
Taxes. The income tax accounting guidance results in two components of income tax expense: current and deferred.
Current income tax expense reflects taxes to be paid or refunded for the current period by applying the provisions of the
enacted tax law to the taxable income or excess of deductions over revenues. The Company determines deferred
income taxes using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is
based on the tax effects of the differences between the book and tax bases of assets and liabilities, and enacted changes
in tax rates and laws are recognized in the period in which they occur.
Deferred income tax expense results from changes in deferred tax assets and liabilities between periods. Deferred tax
assets are recognized if it is more likely than not, based on the technical merits, that the tax position will be realized or
sustained upon examination. The term more likely than not means a likelihood of more than 50 percent; the terms
examined and upon examination also include resolution of the related appeals or litigation processes, if any. A tax
position that meets the more-likely-than-not recognition threshold is initially and subsequently measured as the largest
amount of tax benefit that has a greater than 50 percent likelihood of being realized upon settlement with a taxing
authority that has full knowledge of all relevant information. The determination of whether or not a tax position has
met the more-likely-than-not recognition threshold considers the facts, circumstances and information available at the
reporting date and is subject to management’s judgment. Deferred tax assets are reduced by a valuation allowance if,
based on the weight of evidence available, it is more likely than not that some portion or all of a deferred tax asset will
not be realized.
The Company files consolidated income tax returns with its subsidiaries.
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)
2009
2008
2007
Net Income
$ 25,210
$ 26,910
$ 27,360
Average common shares outstanding
Average common share stock options outstanding
Average diluted common shares
Basic earnings per share
Diluted earnings per share
14,375
90
14,465
$
$
1.75
1.74
13,945
163
14,108
$
$
1.93
1.91
14,044
197
14,241
$
$
1.95
1.92
Stock options to purchase 100,290 and 57,000 shares, respectively, for the years ended December 31, 2009 and 2007,
were not included in the earnings per share calculation because the exercise price exceeded the average market price.
All stock options were included in the earnings per share calculation for the year ended December 31, 2008.
Stock-Based Compensation
The Company has adopted various stock-based 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
directors, officers and other key employees.
63
In accordance with ASC Topic 718, Compensation – Stock Compensation, 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. This model
requires the input of highly subjective assumptions, changes to which can materially affect the fair value estimate. For
additional information, see Note 10, Employee Benefit Plans.
NOTE 2:
INVESTMENT SECURITIES
The amortized cost and fair value of investment securities that are classified as held-to-maturity and available-for-sale
are as follows:
Years Ended December 31
2009
2008
(In thousands)
Held-to-Maturity
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
$ 254,229 $ 799 $ (1,348) $ 253,680 $ 18,000
$ 629 $
--
$ 18,629
90
5
--
95
109
2
--
111
208,812
930
2,728
--
(580)
--
210,960
930
168,262
930
1,264
--
(1,876)
--
167,650
930
Total
$ 464,061 $ 3,532 $ (1,928) $ 465,665 $ 187,301
$ 1,895 $ (1,876) $ 187,320
Available-for-Sale
U.S. Treasury
U.S. Government
agencies
Mortgage-backed
securities
State and political
subdivisions
Other securities
$
4,297 $
32 $
-- $
4,329 $
5,976
$ 113 $
--
$
6,089
160,807
953
(236)
161,524
346,585
5,444
(868)
351,161
2,896
78
(2)
2,972
2,909
37
(67)
2,879
--
13,633
--
399
--
(3)
--
14,029
635
97,625
2
448
--
(6)
637
98,067
Total
$ 181,633 $ 1,462 $ (241) $ 182,854 $ 453,730
$ 6,044 $ (941) $ 458,833
Certain investment securities are valued at less than their historical cost. Total fair value of these investments at
December 31, 2009 and 2008, was $256.6 million and $167.8 million, which is approximately 39.7% and 25.9%,
respectively, of the Company’s available-for-sale and held-to-maturity investment portfolio.
64
The following table shows the gross unrealized losses and fair value of the Company’s investments with unrealized
losses, aggregated by investment category and length of time that individual securities have been in a continuous
unrealized loss position at December 31:
Less Than 12 Months
Estimated Gross
Fair Unrealized
Value
Losses
12 Months or More
Gross
Estimated
Unrealized
Fair
Losses
Value
Total
Estimated
Fair
Value
Gross
Unrealized
Losses
(In thousands)
December 31, 2009
Held-to-Maturity
U.S. Government agencies
Mortgage-backed securities
State and political subdivisions
$161,081 $ 1,348 $
2,188
24,140
--
321
--
--
5,075
$ -- $161,081 $ 1,348
--
580
2,188
29,215
--
259
Total
$187,409 $ 1,669 $ 5,075
$
259 $192,484 $ 1,928
Available-for-Sale
U.S. Government agencies
Mortgage-backed securities
Other securities
$ 62,822 $ 236 $
1,195
4
1
3
--
128
--
$
1
--
-- $ 62,822 $
236
2
3
1,323
4
Total
$ 64,021 $ 240 $
128
$
1 $ 64,149 $
241
December 31, 2008
Held-to-Maturity
Mortgage-backed securities
State and political subdivisions
$ 3,623 $
58,790
1,673
-- $
--
3,854
$ -- $ 3,623 $ --
1,876
62,644
203
Total
$ 62,413 $ 1,673 $ 3,854
$
203 $ 66,267 $ 1,876
Available-for-Sale
U.S. Government agencies
Mortgage-backed securities
Other securities
$ 99,424 $ 868 $
1,571
49
46
6
--
493
--
$
21
--
-- $ 99,424 $
868
67
6
2,064
49
Total
$101,044 $ 920 $
493
$
21 $101,537 $
941
U.S. Government Agencies
The unrealized losses on the Company’s investments in direct obligations of U.S. government agencies were caused by
interest rate increases. The contractual terms of those investments do not permit the issuer to settle the securities at a
price less than the amortized cost bases of the investments. Because the Company does not intend to sell the
investments and it is not more likely than not the Company will be required to sell the investments before recovery of
their amortized cost bases, which may be maturity, the Company does not consider those investments to be other-than-
temporarily impaired at December 31, 2009.
State and Political Subdivisions
The unrealized losses on the Company’s investments in securities of state and political subdivisions were caused by
interest rate increases. The contractual terms of those investments do not permit the issuer to settle the securities at a
price less than the amortized cost bases of the investments. Because the Company does not intend to sell the
65
investments and it is not more likely than not the Company will be required to sell the investments before recovery of
their amortized cost bases, which may be maturity, the Company does not consider those investments to be other-than-
temporarily impaired at December 31, 2009.
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.
During the third quarter of 2008, the Company determined that its investment in FNMA common stock, held in the
available-for-sale other securities category, had become other-than-temporarily impaired. As a result of this
impairment the security was written down by $75,000. The Company had accumulated this stock over several years
in the form of stock dividends from FNMA. The remaining balance of this investment is approximately $5,000.
The Company has no investment in FNMA or FHLMC preferred stock.
Management has the ability and intent to hold the securities classified as held to maturity until they mature, at which
time the Company expects to receive full value for the securities. Furthermore, as of December 31, 2009,
management also had the ability and intent to hold the securities classified as available-for-sale for a period of time
sufficient for a recovery of cost. The unrealized losses are largely due to increases in market interest rates over the
yields available at the time the underlying securities were purchased. The fair value is expected to recover as the
bonds approach their maturity date or repricing date or if market yields for such investments decline. Management
does not believe any of the securities are impaired due to reasons of credit quality. Accordingly, as of December
31, 2009, management believes the impairments detailed in the table above are temporary.
Income earned on the above securities for the years ended December 31, 2009, 2008 and 2007, is as follows:
(In thousands)
Taxable
Held-to-maturity
Available-for-sale
Non-taxable
Held-to-maturity
Available-for-sale
Total
2009
2008
2007
$ 2,880
11,016
$ 1,444
19,613
$ 2,521
15,841
7,874
21
6,323
35
5,228
56
$ 21,791
$ 27,415
$ 23,646
The Statement of Stockholders’ Equity includes other comprehensive income. Other comprehensive income for the
Company includes the change in the unrealized appreciation on available-for-sale securities. The changes in the
unrealized appreciation on available-for-sale securities for the years ended December 31, 2009, 2008 and 2007, are as
follows:
(In thousands)
2009
2008
2007
Unrealized holding gains (losses) arising during the period
Gains realized in net income
Income tax expense (benefit)
Net change in unrealized appreciation
on available-for-sale securities
$ (3,740)
144
(3,884)
(1,456)
$ 2,339
--
2,339
877
$ 6,282
--
6,282
2,356
$ (2,428)
$ 1,462
$ 3,926
66
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
$
9,833
190,191
181,734
82,303
--
$
9,967
190,989
181,846
82,863
--
$ 11,297
94,159
62,536
8
13,633
$ 11,336
94,066
63,415
8
14,029
Total
$ 464,061
$ 465,665
$ 181,633
$ 182,854
The carrying value, which approximates the fair value, of securities pledged as collateral, to secure public deposits and
for other purposes, amounted to $446,189,000 at December 31, 2009 and $435,120,000 at December 31, 2008.
The book value of securities sold under agreements to repurchase amounted to $80,050,000 and $87,514,000 for
December 31, 2009 and 2008, respectively.
The Company had gross realized gains of $144,000 and no gross realized losses during the year ended December 31,
2009, from the sale of available for sale securities. There were no gross realized gains or losses from the sale of
available for sale securities during the years ended December 31, 2008 and 2007. The income tax expense related to
security gains was 39.225% of the gross amounts.
The state and political subdivision debt obligations are primarily non-rated bonds and represent small, Arkansas issues,
which are evaluated on an ongoing basis.
NOTE 3:
LOANS AND ALLOWANCE FOR LOAN LOSSES
The various categories of loans are summarized as follows:
(In thousands)
Consumer
Credit cards
Student loans
Other consumer
Total consumer
Real estate
Construction
Single family residential
Other commercial
Total real estate
Commercial
Commercial
Agricultural
Financial institutions
Total commercial
Other
2009
2008
$ 189,154
114,296
139,647
443,097
180,759
392,208
596,517
1,169,484
168,206
84,866
3,885
256,957
5,451
$ 169,615
111,584
138,145
419,344
224,924
409,540
584,843
1,219,307
192,496
88,233
3,471
284,200
10,223
Total loans before allowance for loan losses
$1,874,989
$1,933,074
67
As of December 31, 2009, credit card loans, which are unsecured, were $189,154,000 or 10.1% of total loans, versus
$169,615,000, or 8.8% of total loans at December 31, 2008. 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.
At December 31, 2009 and 2008, impaired loans, net of Government guarantees, totaled $46,859,000 and $15,689,000,
respectively. Allocations of the allowance for loan losses relative to impaired loans were $8,343,000 and $4,238,000 at
December 31, 2009 and 2008, respectively. During the second quarter of 2009, the Company made adjustments to its
methodology in the evaluation of the collectability of loans, which added quantitative factors to the internal and
external influences used in determining the credit quality of loans and the allocation of the allowance. This adjustment
in methodology resulted in an addition to impaired loans from classified loans and a redistribution of allocated and
unallocated reserves. Approximately $1,398,000, $198,000 and $203,000 of interest income was recognized on
average impaired loans of $36,843,000, $15,315,000 and $11,724,000 for 2009, 2008 and 2007, respectively. Interest
recognized on impaired loans on a cash basis during 2009, 2008 and 2007 was immaterial.
At December 31, 2009 and 2008, accruing loans delinquent 90 days or more totaled $3,322,000 and $1,292,000,
respectively. Nonaccruing loans at December 31, 2009 and 2008 were $21,994,000 and $14,358,000, respectively.
Transactions in the allowance for loan losses are as follows:
(In thousands)
Balance, beginning of year
Additions
Provision for loan losses
Deductions
2009
2008
2007
$ 25,841
$ 25,303
$ 25,385
10,316
36,157
8,646
33,949
4,181
29,566
Losses charged to allowance, net of recoveries
of $3,687 for 2009, $2,138 for 2008 and $2,569 for 2007
Balance, end of year
11,141
$ 25,016
8,108
$ 25,841
4,263
$ 25,303
NOTE 4:
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, 2009,
unchanged from December 31, 2008, as the Company made no acquisitions during the year ended December 31, 2009,
and no goodwill impairment was recorded.
Core deposit premiums are periodically evaluated as to the recoverability of their carrying value. The carrying basis
and accumulated amortization of core deposit premiums (net of core deposit premiums that were fully amortized) at
December 31, 2009 and 2008, were as follows:
(In thousands)
December 31, 2009
December 31, 2008
Gross
Gross
Carrying Accumulated
Amount Amortization
Net
Carrying Accumulated
Amount Amortization
Net
Core deposit premiums
$ 6,822
$ 5,053
$ 1,769
$ 6,822
$ 4,247
$ 2,575
Core deposit premium amortization expense recorded for the years ended December 31, 2009, 2008 and 2007, was
$805,000, $807,000 and $817,000, respectively. The Company’s estimated amortization expense for each of the
following five years is: 2010 – $701,000; 2011 – $451,000; 2012 – $321,000; 2013 – $268,000; and 2014 – $28,000.
68
NOTE 5:
TIME DEPOSITS
Time deposits included approximately $420,537,000 and $418,394,000 of certificates of deposit of $100,000 or more,
at December 31, 2009 and 2008, respectively. Brokered deposits were $21,443,000 and $33,155,000 at December 31,
2009 and 2008, respectively. At December 31, 2009, time deposits with a remaining maturity of one year or more
amounted to $114,447,000. Maturities of all time deposits are as follows: 2010 – $798,307,000; 2011 – $89,323,000;
2012– $24,472,000; 2013 – $442,000; 2014 – $210,000 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 interest margin.
NOTE 6:
INCOME TAXES
The provision for income taxes is comprised of the following components:
(In thousands)
2009
2008
2007
Income taxes currently payable
Deferred income taxes
$ 8,577
1,613
$ 10,688
739
$ 11,516
865
Provision for income taxes
$ 10,190
$ 11,427
$ 12,381
The tax effects of temporary differences related to deferred taxes shown on the consolidated balance sheets
were:
(In thousands)
Deferred tax assets
Allowance for loan losses
Valuation of foreclosed assets
Deferred compensation payable
FHLB advances
Vacation compensation
Loan interest
Other
Gross deferred tax assets
Deferred tax liabilities
Accumulated depreciation
Deferred loan fee income and expenses, net
FHLB stock dividends
Goodwill and core deposit premium amortization
Available-for-sale securities
Other
Gross deferred tax liabilities
2009
2008
$ 8,859
99
1,603
6
898
195
385
12,045
(451)
(1,310)
(503)
(9,805)
(457)
(1,657)
(14,183)
$ 9,057
63
1,451
14
866
88
276
11,815
(406)
(1,229)
(586)
(8,643)
(1,913)
(1,019)
(13,796)
Net deferred tax liability
$ (2,138)
$ (1,981)
69
A reconciliation of income tax expense at the statutory rate to the Company's actual income tax expense is shown
below.
(In thousands)
2009
2008
2007
Computed at the statutory rate (35%)
Increase (decrease) in taxes resulting from:
State income taxes, net of federal tax benefit
Tax exempt interest income
Tax exempt earnings on BOLI
Other differences, net
$ 12,390
$ 13,418
$ 13,910
566
(2,877)
(444)
555
466
(2,369)
(542)
454
647
(2,020)
(523)
367
Actual tax provision
$ 10,190
$ 11,427
$ 12,381
The Company follows ASC Topic 740, Income Taxes, which 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. 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. ASC Topic 740 also provides guidance
on the accounting for and disclosure of unrecognized tax benefits, interest and penalties.
The amount of unrecognized tax benefits may increase or decrease in the future for various reasons including adding
amounts for current tax year positions, expiration of open income tax returns due to the statutes of limitation, changes in
management’s judgment about the level of uncertainty, status of examinations, litigation and legislative activity and the
addition or elimination of uncertain tax positions.
The Company files income tax returns in the U.S. federal jurisdiction. The Company’s U.S. federal income tax returns
are open and subject to examinations from the 2006 tax year and forward. The Company’s various state income tax
returns are generally open from the 2003 and later tax return years based on individual state statute of limitations.
NOTE 7:
SHORT-TERM AND LONG-TERM DEBT
Long-term debt at December 31, 2009, and 2008 consisted of the following components.
(In thousands)
2009
2008
FHLB advances, due 2010 to 2033, 2.02% to 8.41%,
secured by residential real estate loans
Trust preferred securities, due 12/30/2033, fixed at 8.25%,
callable without penalty
Trust preferred securities, due 12/30/2033, floating rate
of 2.80% above the three-month LIBOR rate,
reset quarterly, callable without penalty
Trust preferred securities, due 12/30/2033, 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
70
$ 128,893
$ 127,741
10,310
10,310
10,310
10,310
10,310
10,310
$ 159,823
$ 158,671
At December 31, 2009 the Company had Federal Home Loan Bank (“FHLB”) advances with original maturities of
one year or less of $2.0 million with a weighted average rate of 0.65% which are not included in the above table.
The Company had total FHLB advances of $128.9 million at December 31, 2009, with approximately $388.8 million of
additional advances available from the FHLB.
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 Company, 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 Company.
Each trust’s ability to pay amounts due on the trust preferred securities is solely dependent upon the Company making
payment on the related junior subordinated debentures. The Company’s obligations under the junior subordinated
securities and other relevant trust agreements, in aggregate, constitute a full and unconditional guarantee by the
Company 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, 2009 are as follows:
(In thousands)
Year
2010
2011
2012
2013
2014
Thereafter
Annual
Maturities
$ 29,013
43,766
6,713
16,658
4,985
58,688
Total
$ 159,823
NOTE 8:
CAPITAL STOCK
On February 27, 2009, at a special meeting, the Company’s shareholders approved an amendment to the Articles of
Incorporation to establish 40,040,000 authorized shares of preferred stock, $0.01 par value. The aggregate
liquidation preference of all shares of preferred stock cannot exceed $80,000,000. As of December 31, 2009, no
preferred stock has been issued.
On November 28, 2007, the Company announced the substantial completion of the existing stock repurchase program
and the adoption by the Board of Directors of a new stock repurchase program. The program authorizes the repurchase
of up to 700,000 shares of Class A common stock, or approximately 5% of the outstanding common stock. 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 shares are to be purchased from time to time at prevailing market prices, through
open market or unsolicited negotiated transactions, depending upon market conditions. The Company intends to use
the repurchased shares to satisfy stock option exercises, for payment of future stock dividends and for general corporate
purposes. The Company may discontinue purchases at any time that management determines additional purchases are
not warranted.
As part of its strategic focus on building capital, management suspended the Company’s stock repurchase program in
July 2008. During the year ended December 31, 2008, by June 30, the Company repurchased a total of 45,180 shares
of stock with a weighted average repurchase price of $28.38 per share. The Company made no purchases of its
common stock during the three months or year ended December 31, 2009. Under the current stock repurchase plan, the
Company can repurchase an additional 645,672 shares. However, because of the recently completed stock offering and
based on management’s strategy to retain capital, the Company does not anticipate resuming its stock repurchases
during 2010.
71
On August 26, 2009, the Company filed a shelf registration statement with the Securities and Exchange
Commission (“SEC”). The shelf registration statement, which was declared effective on September 9, 2009, will
allow the Company to raise capital from time to time, up to an aggregate of $175 million, through the sale of
common stock, preferred stock, or a combination thereof, subject to market conditions. Specific terms and prices
will be determined at the time of any offering under a separate prospectus supplement that the Company will be
required to file with the SEC at the time of the specific offering.
In November 2009, the Company raised common equity through an underwritten public offering by issuing
2,650,000 shares of common stock at a price of $24.50 per share, less underwriting discounts and commissions.
The net proceeds of the offering after deducting underwriting discounts and commissions and offering expenses
were $61.3 million. In December 2009, the underwriters of the Company’s stock offering exercised and completed
their option to purchase an additional 397,500 shares of common stock at $24.50 to cover over-allotments. The net
proceeds of the exercise of the over-allotment option after deducting underwriting discounts and commissions were
$9.2 million. The total net proceeds of the offering after deducting underwriting discounts and commissions and
offering expenses were approximately $70.5 million.
NOTE 9:
TRANSACTIONS WITH RELATED PARTIES
At December 31, 2009 and 2008, the subsidiary banks had extensions of credit to executive officers and directors and
to companies in which the subsidiary banks' executive officers or directors were principal owners in the amount of
$23.5 million in 2009 and $35.3 million in 2008.
(In thousands)
Balance, beginning of year
New extensions of credit
Repayments
Balance, end of year
2009
2008
$ 35,311
9,240
(21,064)
$ 23,487
$ 30,445
14,808
(9,942)
$ 35,311
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 10: EMPLOYEE BENEFIT PLANS
Retirement Plans
The Company’s 401(k) retirement plan covers substantially all employees. Contribution expense totaled $578,000,
$575,000 and $550,000, in 2009, 2008 and 2007, respectively.
The Company has a discretionary profit sharing and employee stock ownership plan covering substantially all
employees. Contribution expense totaled $2,640,000 for 2009, $2,565,000 for 2008 and $2,490,000 for 2007.
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 $65,000 for 2009, $12,000 for 2008 and $358,000 for 2007. 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.
72
Employee Stock Purchase Plan
The Company established an Employee Stock Purchase Plan in 2007 which generally allows participants to make
contributions of up 3% of the employee’s salary, up to a maximum of $7,500 per year, for the purpose of acquiring the
Company’s stock. Substantially all employees with at least two years of service are eligible for the plan. At the end of
each plan year, full shares of the Company’s stock are purchased for each employee based on that employee’s
contributions. The stock is purchased for an amount equal to 95% of its fair market value at the end of the plan year,
or, if lower, 95% of its fair market value at the beginning of the plan year.
Stock-Based Compensation Plans
The Company’s Board of Directors has adopted various stock-based 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 directors, officers and other key employees.
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 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.
73
The table below summarizes the transactions under the Company's active stock compensation plans at December 31,
2009, 2008 and 2007, and changes during the years then ended:
Stock Options
Outstanding
Number
of Shares
(000)
517
57
(34)
--
(4)
536
49
(98)
--
(35)
452
--
(57)
--
(21)
374
289
Weighted
Average
Exercise
Price
$ 16.32
28.42
15.11
--
12.13
17.71
30.31
12.38
--
14.77
20.46
--
12.17
--
19.36
$ 21.78
$ 19.72
Non-Vested Stock
Awards Outstanding
Number
of Shares
(000)
Weighted
Average
Grant-Date
Fair-Value
22
15
--
(6)
--
31
18
--
(12)
--
37
28
--
(15)
(1)
$ 25.69
27.68
--
25.31
--
26.72
30.31
--
27.16
--
28.28
25.15
--
26.90
26.22
49
$ 26.96
Balance, December 31, 2006
Granted
Stock Options Exercised
Stock Awards Vested
Forfeited/Expired
Balance, December 31, 2007
Granted
Stock Options Exercised
Stock Awards Vested
Forfeited/Expired
Balance, December 31, 2008
Granted
Stock Options Exercised
Stock Awards Vested
Forfeited/Expired
Balance, December 31, 2009
Exercisable, December 31, 2009
The following table summarizes information about stock options under the plans outstanding at December 31, 2009:
Range of
Exercise Prices
$12.13 - $12.13
16.32
15.65 -
24.50
23.78 -
27.67
26.19 -
28.42
28.42 -
30.31
30.31 -
Number
of Shares
(000)
121
6
91
56
52
48
Options Outstanding
Weighted
Average
Remaining
Contractual
Life (Years)
1.35
2.09
4.87
6.26
7.41
8.41
Weighted
Average
Exercise
Price
$12.13
16.07
24.05
26.20
28.42
30.31
Options Exercisable
Number
of Shares
(000)
121
6
91
35
26
10
Weighted
Average
Exercise
Price
$12.13
16.07
24.05
26.21
28.42
30.31
Stock-based compensation expense totaled $627,000 in 2009, $548,000 in 2008 and $338,000 in 2007. 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 $422,000 at December 31, 2009. At such date, the
weighted-average period over which this unrecognized expense is expected to be recognized was 1.41 years.
Unrecognized stock-based compensation expense related to non-vested stock awards was $1.2 million at December 31,
2009. At such date, the weighted-average period over which this unrecognized expense is expected to be recognized
was 2.70 years.
74
Aggregate intrinsic value of outstanding stock options and exercisable stock options was $2.3 million and $2.3 million,
respectively, at December 31, 2009. Aggregate intrinsic value represents the difference between the Company’s
closing stock price on the last trading day of the period, which was $27.80 at December 31, 2009, and the exercise price
multiplied by the number of options outstanding. The total intrinsic value of stock options exercised was $886,000 in
2009, $1.7 million in 2008 and $384,000 in 2007.
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. There were no stock options granted in 2009. The weighted-average fair value of stock
options granted was $6.60 for 2008 and $5.96 for 2007. 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
2009
--
--
--
--
2008
2.51%
23.00%
3.68%
7 Years
2007
2.53%
19.00%
5.17%
7 - 10 Years
NOTE 11: ADDITIONAL CASH FLOW INFORMATION
The following table presents additional information on cash payments and non-cash items:
(In thousands)
2009
2008
2007
Interest paid
Income taxes paid
Transfers of loans to other real estate
Post-retirement benefit liability established upon
adoption of EITF 06-4
$ 40,673
7,040
10,323
$ 64,302
11,456
5,713
$ 76,958
10,563
3,939
--
1,174
--
NOTE 12: OTHER OPERATING EXPENSES
Other operating expenses consist of the following:
(In thousands)
2009
2008
2007
Professional services
Postage
Telephone
Credit card expense
Operating supplies
Amortization of core deposit premiums
Visa litigation liability expense
Other expense
Total
$ 3,643
2,409
2,113
5,051
1,470
805
--
12,167
$ 27,658
$ 2,824
2,256
1,868
4,671
1,588
807
(1,220)
12,134
$ 24,928
$ 2,780
2,309
1,820
4,095
1,669
817
1,220
11,543
$ 26,253
The Company had aggregate annual equipment rental expense of approximately $317,000 in 2009, $356,000 in 2008
and $546,000 in 2007. The Company had aggregate annual occupancy rental expense of approximately $1,208,000 in
2009, $1,220,000 in 2008 and $1,168,000 in 2007.
75
NOTE 13: DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
Effective January 1, 2008, the Company adopted ASC Topic 820, Fair Value Measurements and Disclosures. ASC
Topic 820 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value
measurements.
ASC Topic 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement date. The guidance also establishes a fair value
hierarchy that requires the use of observable inputs and minimizes the use of unobservable inputs when measuring fair
value. Topic 820 describes three levels of inputs that may be used to measure fair value:
• Level 1 Inputs – Quoted prices in active markets for identical assets or liabilities.
• Level 2 Inputs – Observable inputs other than Level 1 prices, such as quoted prices for similar
assets or liabilities in active markets; quoted prices for similar assets or liabilities in markets that
are not active; or other inputs that are observable or can be corroborated by observable market
data for substantially the full term of the assets or liabilities.
• Level 3 Inputs – Unobservable inputs that are supported by little or no market activity and that are
significant to the fair value of the assets or liabilities.
In general, fair value is based upon quoted market prices, where available. If such quoted market prices are not
available, fair value is based upon internally developed models that primarily use, as inputs, observable market-based
parameters. Valuation adjustments may be made to ensure that financial instruments are recorded at fair value. These
adjustments may include amounts to reflect counterparty credit quality and the Company’s creditworthiness, among
other things, as well as unobservable parameters. Any such valuation adjustments are applied consistently over time.
The Company’s valuation methodologies may produce a fair value calculation that may not be indicative of net
realizable value or reflective of future fair values. While the use of different methodologies or assumptions to
determined the fair value of certain financial instruments could result in a different estimate of fair value at the reporting
date. Furthermore, the reported fair value amounts have not been comprehensively revalued since the presentation
dates, and therefore, estimates of fair value after the balance sheet date may differ significantly from the amounts
presented herein. A more detailed description of the valuation methodologies used for assets and liabilities measured at
fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth
below.
Following is a description of the financial assets and liabilities measured at fair value on a recurring basis and
recognized in the accompanying consolidated balance sheets, as well as the general classification of such financial
assets and liabilities pursuant to the valuation hierarchy.
Available-for-sale securities – Where quoted market prices are available in an active market, securities are classified
within Level 1 of the valuation hierarchy. Level 1 securities would include highly liquid Government bonds, mortgage
products and exchange traded equities. Other securities classified as available-for-sale are reported at fair value
utilizing Level 2 inputs. For these securities, the Company obtains fair value measurements from an independent
pricing service. The fair value measurements consider observable data that may include dealer quotes, market spreads,
cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment
speeds, credit information and the security’s terms and conditions, among other things. In certain cases where Level 1
or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy. The Company’s investment
in a Government money market mutual fund (the “AIM Fund”) is reported at fair value utilizing Level 1 inputs. The
remainder of the Company's available-for-sale securities are reported at fair value utilizing Level 2 inputs.
Assets held in trading accounts – The Company’s trading account investment in the AIM Fund is reported at fair value
utilizing Level 1 inputs. The remainder of the Company's assets held in trading accounts are reported at fair value
utilizing Level 2 inputs.
76
The following table sets forth the Company’s financial assets by level within the fair value hierarchy that were
measured at fair value on a recurring basis as of December 31, 2009 and 2008.
(In thousands)
Fair Value
December 31, 2009
Available-for-sale securities
U.S. Treasury
U.S. Government agencies
Mortgage-backed securities
Other securities
Assets held in trading accounts
$
4,329
161,524
2,972
14,029
6,886
December 31, 2008
Available-for-sale securities
U.S. Treasury
U.S. Government agencies
Mortgage-backed securities
States and political subdivisions
Other
Assets held in trading accounts
6,089
351,161
2,879
637
98,067
5,754
Fair Value Measurements Using
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
Significant Other
Observable Inputs Unobservable Inputs
Significant
(Level 2)
(Level 3)
$
--
--
--
1,503
5,350
--
--
--
--
85,536
4,850
$
4,329
161,524
2,972
12,526
1,536
6,089
351,161
2,879
637
12,531
904
$
--
--
--
--
--
--
--
--
--
--
--
Certain financial assets are measured at fair value on a nonrecurring basis; that is, the instruments are not measured at
fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when
there is evidence of impairment). Financial assets measured at fair value on a nonrecurring basis include the following:
Impaired loans (Collateral Dependent) – Loan impairment is reported when full payment under the loan terms is not
expected. Allowable methods for determining the amount of impairment include estimating fair value using the fair
value of the collateral for collateral-dependent loans. If the impaired loan is identified as collateral dependent, then the
fair value method of measuring the amount of impairment is utilized. This method requires obtaining a current
independent appraisal of the collateral and applying a discount factor to the value. A portion of the allowance for loan
losses is allocated to impaired loans if the value of such loans is deemed to be less than the unpaid balance. If these
allocations cause the allowance for loan losses to require an increase, such increase is reported as a component of the
provision for loan losses. Loan losses are charged against the allowance when management believes the
uncollectability of a loan is confirmed. Impaired loans that are collateral dependent are classified within Level 3 of the
fair value hierarchy when impairment is determined using the fair value method.
Mortgage loans held for sale – Mortgage loans held for sale are reported at fair value if, on an aggregate basis, the fair
value of the loans is less than cost. In determining whether the fair value of loans held for sale is less than cost when
quoted market prices are not available, the Company may consider outstanding investor commitments, discounted cash
flow analyses with market assumptions or the fair value of the collateral if the loan is collateral dependent. Such loans
are classified within either Level 2 or Level 3 of the fair value hierarchy. Where assumptions are made using
significant unobservable inputs, such loans held for sale are classified as Level 3. At December 31, 2009 and 2008, the
aggregate fair value of mortgage loans held for sale exceeded their cost. Accordingly, no mortgage loans held for sale
were marked down and reported at fair value.
77
The following table sets forth the Company’s financial assets and liabilities by level within the fair value hierarchy that
were measured at fair value on a non-recurring basis as of December 31, 2009 and 2008.
(In thousands)
Fair Value
Fair Value Measurements Using
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
Significant Other
Observable Inputs Unobservable Inputs
Significant
(Level 2)
(Level 3)
December 31, 2009
Impaired loans
(collateral dependent)
December 31, 2008
Impaired loans
(collateral dependent)
$ 40,445
$
--
$
--
$ 40,445
12,992
--
--
12,992
ASC Topic 825, Financial Instruments, requires disclosure in annual financial statements of the fair value of
financial assets and financial liabilities, including those financial assets and financial liabilities that are not measured
and reported at fair value on a recurring basis or nonrecurring basis. 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.
Held-to-maturity securities – Fair values for held-to-maturity 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.
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.
78
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
Mortgage loans held for sale
Interest receivable
Loans, net
December 31, 2009
Fair
Value
Carrying
Amount
December 31, 2008
Fair
Value
Carrying
Amount
$ 353,585
464,061
8,397
17,881
1,849,973
$ 353,585
465,665
8,397
17,881
1,844,509
$ 139,536
187,301
10,336
20,930
1,907,233
$ 139,536
187,320
10,336
20,930
1,904,421
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
363,154
363,154
334,998
334,998
1,156,264
912,754
1,156,264
914,977
1,026,824
974,511
1,026,824
977,789
105,910
3,640
159,823
2,712
105,910
3,640
173,847
2,712
115,449
1,112
158,671
4,579
115,449
1,112
173,046
4,579
The fair value of commitments to extend credit and letters of credit is not presented since management believes the fair
value to be insignificant.
NOTE 14:
SIGNIFICANT ESTIMATES AND CONCENTRATIONS
The current economic environment presents financial institutions with continuing circumstances and challenges which
in some cases have resulted in large declines in the fair values of investments and other assets, constraints on liquidity
and significant credit quality problems, including severe volatility in the valuation of real estate and other collateral
supporting loans. The financial statements have been prepared using values and information currently available to the
Company.
Given the volatility of current economic conditions, the values of assets and liabilities recorded in the consolidated
financial statements could change rapidly, resulting in material future adjustments in asset values, the allowance for
loan losses and capital that could negatively impact the Company’s ability to meet regulatory capital requirements and
maintain sufficient liquidity.
Estimates related to the allowance for loan losses and certain concentrations of credit risk are reflected in Note 3, Loans
and Allowance for Loan Losses, and Note 15, Commitments and Credit Risk.
79
NOTE 15: COMMITMENTS AND CREDIT RISK
The Company grants agri-business, credit card, commercial and residential loans to customers throughout Arkansas.
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition
established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since a portion of the commitments may expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash requirements. Each customer's creditworthiness is
evaluated on a case-by-case basis. The amount of collateral obtained, if deemed necessary, is based on management's
credit evaluation of the counterparty. Collateral held varies but may include accounts receivable, inventory, property,
plant and equipment, commercial real estate and residential real estate.
At December 31, 2009, the Company had outstanding commitments to extend credit aggregating approximately
$262,257,000 and $393,437,000 for credit card commitments and other loan commitments, respectively. At
December 31, 2008, the Company had outstanding commitments to extend credit aggregating approximately
$247,969,000 and $422,127,000 for credit card commitments and other loan commitments, respectively.
Standby 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 $10,391,000 and $10,186,000 at December 31, 2009 and 2008, respectively, with terms
ranging from 90 days to three years. The Company’s deferred revenue under standby letter of credit agreements was
approximately $46,000 and $52,000 at December 31 2009, and 2008, respectively.
At December 31, 2009, the Company did not have concentrations of 5% or more of the investment portfolio in bonds
issued by a single municipality.
NOTE 16: NEW ACCOUNTING STANDARDS
In June 2009, the Financial Accounting Standards Board (“FASB”) issued an accounting standard which
established the Accounting Standards Codification (“Codification” or “ASC”) to become the single source of
authoritative U.S. generally accepted accounting principles (“GAAP”) recognized by the FASB to be applied by
nongovernmental entities, with the exception of guidance issued by the SEC and its staff. All guidance
contained in the Codification carries an equal level of authority. The Codification is not intended to change
GAAP, but rather is expected to simplify accounting research by reorganizing current GAAP into approximately
90 accounting topics. The switch to the ASC affects the away companies refer to GAAP in financial statements
and accounting policies. Citing particular content in the ASC involves specifying the unique numeric path to the
content through the Topic, Subtopic, Section and Paragraph structure. The Company adopted this accounting
standard in preparing the Consolidated Financial Statements for the period ended September 30, 2009. The
adoption of this accounting standard, which was subsequently codified into ASC Topic 105, Generally Accepted
Accounting Principles, had no impact on the Company’s ongoing financial position or results of operations.
New authoritative accounting guidance under ASC Topic 715, Compensation – Retirement Benefits, provides
guidance related to an employer’s disclosures about plan assets of defined benefit pension or other post-retirement
benefit plans. Under ASC Topic 715, disclosures should provide users of financial statements with an
understanding of how investment allocation decisions are made, the factors that are pertinent to an understanding of
investment policies and strategies, the major categories of plan assets, the inputs and valuation techniques used to
measure the fair value of plan assets, the effect of fair value measurements using significant unobservable inputs on
changes in plan assets for the period and significant concentrations of risk within plan assets. The new authoritative
accounting guidance under ASC Topic 715 became effective for the Company’s financial statements for the year-
ended December 31, 2009, and did not have a material impact on the Company’s ongoing financial position or
results of operations.
80
Additional new authoritative accounting guidance under ASC Topic 715, Compensation – Retirement Benefits,
requires the recognition of a liability and related compensation expense for endorsement split-dollar life insurance
policies that provide a benefit to an employee that extends to post-retirement periods. Under ASC Topic 715, life
insurance policies purchased for the purpose of providing such benefits do not effectively settle an entity’s
obligation to the employee. Accordingly, the entity must recognize a liability and related compensation expense
during the employee’s active service period based on the future cost of insurance to be incurred during the
employee’s retirement. The Company adopted the new authoritative accounting guidance under ASC Topic 715 on
January 1, 2008, as a change in accounting principle through a cumulative-effect adjustment to retained earnings of
approximately $1 million. The adoption of this guidance did not have a material impact on the Company’s ongoing
financial position or results of operations.
New authoritative accounting guidance under ASC Topic 810, Consolidation, amends prior guidance to establish
accounting and reporting standards for the non-controlling interest in a subsidiary and for the deconsolidation of a
subsidiary. ASC Topic 810 clarifies that a non-controlling interest in a subsidiary, which is sometimes referred to
as minority interest, is an ownership interest in the consolidated entity that should be reported as a component of
equity in the consolidated financial statements. Among other requirements, ASC Topic 810 requires consolidated
net income to be reported at amounts that include the amounts attributable to both the parent and the non-controlling
interest. It also requires disclosure, on the face of the consolidated income statement, of the amounts of
consolidated net income attributable to the parent and to the non-controlling interest. ASC Topic 810 was effective
on January 1, 2009, and did not have a significant impact on the Company’s ongoing financial position or results of
operations.
New authoritative accounting guidance under ASC Topic 815, Derivatives and Hedging, amends prior guidance to
amend and enhance the disclosure requirements for derivatives and hedging to provide greater transparency about
(i) how and why an entity uses derivative instruments, (ii) how derivative instruments and related hedge items are
accounted for under ASC Topic 815, and (iii) how derivative instruments and related hedged items affect an entity’s
financial position, results of operations and cash flows. To meet those objectives, ASC Topic 815 requires
qualitative disclosures about objectives and strategies for using derivative instruments, quantitative disclosures
about fair values of derivative instruments and their gains and losses and disclosures about credit-risk-related
contingent features of the derivative instruments and their potential impact on an entity’s liquidity. ASC Topic 815
was effective on January 1, 2009, and did not have a significant impact on the Company’s ongoing financial
position or results of operations.
New authoritative accounting guidance under ASC Topic 855, Subsequent Events, establishes general standards of
accounting for and disclosure of events that occur after the balance sheet date but before financial statements are
issued or available to be issued. ASC Topic 855 defines (i) the period after the balance sheet date during which a
reporting entity’s management should evaluate events or transactions that may occur for potential recognition or
disclosure in the financial statements, (ii) the circumstances under which an entity should recognize events or
transactions occurring after the balance sheet date in its financial statements, and (iii) the disclosures an entity
should make about events or transactions that occurred after the balance sheet date. ASC Topic 855 became
effective for the Company’s financial statements for periods ending after June 15, 2009, and did not have a
significant impact on the Company’s ongoing financial position or results of operations.
New authoritative accounting guidance under ASC Topic 820, Fair Value Measurements and Disclosures, affirms
that the objective of fair value when the market for an asset is not active is the price that would be received to sell
the asset in an orderly transaction, and clarifies and includes additional factors for determining whether there has
been a significant decrease in market activity for an asset when the market for that asset is not active. ASC Topic
820 requires an entity to base its conclusion about whether a transaction was not orderly on the weight of the
evidence. The new accounting guidance amended prior guidance to expand certain disclosure requirements. The
Company adopted the new authoritative accounting guidance under ASC Topic 820 during the first quarter of 2009.
Adoption of the new guidance did not have a significant impact on the Company’s ongoing financial position or
results of operations.
Further new authoritative accounting guidance (Accounting Standards Update No. 2009-5) under ASC Topic 820
provides guidance for measuring the fair value of a liability in circumstances in which a quoted price in an active
81
market for the identical liability is not available. In such instances, a reporting entity is required to measure fair
value utilizing a valuation technique that uses (i) the quoted price of the identical liability when traded as an asset,
(ii) quoted prices for similar liabilities or similar liabilities when traded as assets, or (iii) another valuation technique
that is consistent with the existing principles of ASC Topic 820, such as an income approach or market approach.
The new authoritative accounting guidance also clarifies that when estimating the fair value of a liability, a
reporting entity is not required to include a separate input or adjustment to other inputs relating to the existence of a
restriction that prevents the transfer of the liability. The foregoing new authoritative accounting guidance under
ASC Topic 820 became effective for the Company’s financial statements beginning October 1, 2009, and did not
have a significant impact on the Company’s ongoing financial position or results of operations.
New authoritative accounting guidance under ASC Topic 825, Financial Instruments, requires an entity to provide
disclosures about the fair value of financial instruments in interim financial information and amends prior guidance
to require those disclosures in summarized financial information at interim reporting periods. The Company
adopted this accounting standard in preparing its financial statements for the period ended June 30, 2009. As ASC
Topic 825 amended only the disclosure requirements about the fair value of financial instruments in interim periods,
the adoption had no impact on the Company’s ongoing financial position or results of operations.
New authoritative accounting guidance under ASC Topic 320, Investments – Debt and Equity Securities, amended
other-than-temporary impairment (“OTTI”) guidance in GAAP for debt securities by requiring a write-down when
fair value is below amortized cost in circumstances where: (1) an entity has the intent to sell a security; (2) it is more
likely than not that an entity will be required to sell the security before recovery of its amortized cost basis; or (3) an
entity does not expect to recover the entire amortized cost basis of the security. If an entity intends to sell a security
or if it is more likely than not that the entity will be required to sell the security before recovery, an OTTI write-
down is recognized in earnings equal to the entire difference between the security’s amortized cost basis and its fair
value. If an entity does not intend to sell the security or it is not more likely than not that it will be required to sell
the security before recovery, the OTTI write-down is separated into an amount representing credit loss, which is
recognized in earnings, and an amount related to all other factors, which is recognized in other comprehensive
income. This accounting standard does not amend existing recognition and measurement guidance related to OTTI
write-downs of equity securities. This accounting standard also extends disclosure requirements related to debt and
equity securities to interim reporting periods. ASC Topic 320 became effective for the Company’s financial
statements for periods ending after June 15, 2009, and did not have a significant impact on the Company’s ongoing
financial position or results of operations.
On January 1, 2009, new authoritative accounting guidance under ASC Topic 805, Business Combinations, became
applicable to the Company’s accounting for business combinations closing on or after January 1, 2009. ASC Topic
805 applies to all transactions and other events in which one entity obtains control over one or more other
businesses. ASC Topic 805 requires an acquirer, upon initially obtaining control of another entity, to recognize the
assets, liabilities and any non-controlling interest in the acquiree at fair value as of the acquisition date. Contingent
consideration is required to be recognized and measured at fair value on the date of acquisition rather than at a later
date when the amount of that consideration may be determinable beyond a reasonable doubt. This fair value
approach replaces the cost-allocation process required under previous accounting guidance whereby the cost of an
acquisition was allocated to the individual assets acquired and liabilities assumed based on their estimated fair
value. ASC Topic 805 requires acquirers to expense acquisition-related costs as incurred rather than allocating such
costs to the assets acquired and liabilities assumed, as was previously the case under prior accounting guidance.
Assets acquired and liabilities assumed in a business combination that arise from contingencies are to be recognized
at fair value if fair value can be reasonably estimated. If fair value of such an asset or liability cannot be reasonably
estimated, the asset or liability would generally be recognized in accordance with ASC Topic 450, Contingencies.
Under ASC Topic 805, the requirements of ASC Topic 420, Exit or Disposal Cost Obligations, would have to be
met in order to accrue for a restructuring plan in purchase accounting. Pre-acquisition contingencies are to be
recognized at fair value, unless it is a non-contractual contingency that is not likely to materialize, in which case,
nothing should be recognized in purchase accounting and, instead, that contingency would be subject to the
probable and estimable recognition criteria of ASC Topic 450, Contingencies. Although the Company has not
entered into any business combinations since adopting ASC Topic 805 on January 1, 2009, the new accounting
guidance is expected to have a significant impact on the Company’s accounting for future business combinations.
82
New authoritative accounting guidance under ASC Topic 860, Transfers and Servicing, amends prior accounting
guidance to enhance reporting about transfers of financial assets, including securitizations, and where companies have
continuing exposure to the risks related to transferred financial assets. The new authoritative accounting guidance
eliminates the concept of a “qualifying special-purpose entity” and changes the requirements for derecognizing
financial assets. The new authoritative accounting guidance also requires additional disclosures about all continuing
involvements with transferred financial assets including information about gains and losses resulting from transfers
during the period. The new authoritative accounting guidance under ASC Topic 860 will be effective January 1, 2010,
and is not expected to have a significant impact on the Company’s ongoing financial position or results of
operations.
Presently, the Company is not aware of any other changes to the Accounting Standards Codification that will have a
material impact on the Company’s present or future financial position or results of operations.
NOTE 17: 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 the following lawsuit
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 Company was later added as a party defendant.
The plaintiffs were seeking $2,000,000 in compensatory damages and $10,000,000 in punitive damages. The
Company and the banks filed Motions to Dismiss. The plaintiffs were granted additional time to discover any evidence
for litigation, and submitted such findings. At the hearing on the Motions for Summary Judgment, the Court dismissed
Simmons First National Bank due to lack of venue. Venue was changed to Jefferson County for the Company and
Simmons First Bank of South Arkansas. Non-binding mediation failed on June 24, 2008. A pretrial was conducted on
July 24, 2008. Several dispositive motions previously filed were heard on April 9, 2009, and arguments were presented
on June 22, 2009. On July 10, 2009, the Court issued its Order dismissing five claims, leaving only a single claim for
further pursuit in this matter. On August 18, 2009, Plaintiffs took a nonsuit on their remaining claim of breach of good
faith and fair dealing, thereby bringing all claims set forth in this action to a conclusion.
Plaintiffs subsequently filed their Notice of Appeal to the appellate court, have timely lodged the transcript with the
Supreme Court Clerk, and a briefing schedule has been issued. The Company intends to contest the appeal and seek
affirmance of the Court's dismissal of Plaintiffs' claims. At this time, no basis for any material liability has been
identified.
In October 2007, the Company, as a member of Visa U.S.A. Inc. (Visa U.S.A.), received shares of restricted stock in
Visa, Inc. (Visa) as a result of its participation in the global restructuring of Visa U.S.A., Visa Canada Association, and
Visa International Service Association in preparation for an initial public offering. Visa U.S.A asserts that the
Company and other Visa U.S.A. member banks are obligated to share in potential losses resulting from certain
litigation. The Company accrued $1.2 million in 2007 in connection with the Company’s obligation to indemnify Visa
U.S.A. for costs and liabilities incurred in connection with certain litigation based on the Company’s proportionate
membership interest in Visa U.S.A.
As part of Visa’s IPO in the first quarter of 2008, Visa set aside a cash escrow fund for future settlement of covered
litigation. As a result, in the first quarter of 2008, the Company reversed the $1.2 million contingent liability
established in 2007. On October 27, 2008, Visa notified its U.S.A. members that it had reached a settlement on covered
litigation with Discover Financial Services, Inc. This obligation was covered by the litigation escrow fund through an
additional dilution of Visa Class B shares in the fourth quarter of 2008. The remaining covered litigation against Visa
is primarily with card retailers and merchants, mostly related to fees and interchange rates. As of December 31, 2009,
the Company has no litigation liability recorded for any additional contingent indemnification obligation. The
Company believes that it will not incur litigation expense on the remaining litigation due to the value of its Visa Class B
shares; however, additional accruals may be required in future periods should the Company’s estimate of its obligations
83
under the indemnification agreement change. The Company must rely on disclosures made by Visa to the public about
the covered litigation in making estimates of this contingent indemnification obligation.
NOTE 18:
STOCKHOLDERS’ EQUITY
The Company’s subsidiaries are subject to a legal limitation on dividends that can be paid to the parent company
without prior approval of the applicable regulatory agencies. The approval of the Office of the Comptroller of the
Currency is required if the total of all the dividends declared by a national bank in any calendar year exceeds the total of
its net profits, as defined, for that year, combined with its retained net profits of the preceding two years. Arkansas
bank regulators have specified that the maximum dividend limit state banks may pay to the parent company without
prior approval is 75% of the current year earnings plus 75% of the retained net earnings of the preceding year. At
December 31, 2009, the Company subsidiaries had approximately $15.2 million in undivided profits available for
payment of dividends to the Company without prior approval of the regulatory agencies.
The Company’s subsidiaries are subject to various regulatory capital requirements administered by the federal banking
agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional
discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s financial
statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the
Company must meet specific capital guidelines that involve quantitative measures of the Company’s assets, liabilities
and certain off-balance-sheet items as calculated under regulatory accounting practices. The Company’s capital
amounts and classifications are also subject to qualitative judgments by the regulators about components, risk
weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy require the Company to maintain minimum
amounts and ratios (set forth in the table below) of total and Tier 1 capital (as defined in the regulations) to risk-
weighted assets (as defined) and of Tier 1 capital (as defined) to average assets (as defined). Management believes that,
as of December 31, 2009, 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.
84
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, 2009
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, N.A.
$ 373,766
115,945
29,832
25,726
29,275
21,056
19.2 $ 155,736
76,030
12.2
19,888
12.0
9,800
21.0
15,718
14.9
11,698
14.4
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, N.A.
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, N.A.
349,357
106,740
27,124
24,189
26,811
19,793
349,357
106,740
27,124
24,189
26,811
19,793
17.9
11.2
10.9
19.7
13.6
13.5
11.6
6.8
8.7
13.2
9.9
6.9
78,069
38,121
9,954
4,911
7,886
5,865
120,468
62,788
12,471
7,330
10,833
11,474
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, 2008
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, N.A.
$ 287,594
112,220
27,532
24,639
24,358
20,325
14.5 $ 158,673
77,393
11.6
18,509
11.9
10,160
19.4
17,093
11.4
12,134
13.4
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, N.A.
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, N.A.
13.2
10.6
10.7
18.2
10.1
12.4
9.1
7.3
8.4
11.5
7.7
7.3
79,566
38,646
9,305
5,066
8,582
6,061
115,415
56,116
11,853
8,018
11,257
10,296
4.0
4.0
4.0
4.0
4.0
4.0
4.0
4.0
4.0
4.0
4.0
4.0
262,568
102,412
24,891
23,051
21,669
18,790
262,568
102,412
24,891
23,051
21,669
18,790
85
N/A
95,037
24,860
12,250
19,648
14,622
N/A
57,182
14,931
7,367
11,828
8,797
N/A
78,485
15,589
9,163
13,541
14,343
N/A
96,741
23,136
12,701
21,367
15,168
N/A
57,969
13,958
7,599
12,873
9,092
N/A
70,145
14,816
10,022
14,071
12,870
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
NOTE 19: CONDENSED FINANCIAL INFORMATION (PARENT COMPANY ONLY)
CONDENSED BALANCE SHEETS
DECEMBER 31, 2009 and 2008
(In thousands)
2009
2008
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
Unrealized appreciation on available-for-sale
securities, net of income taxes of $457 at 2009
and $1,913 at 2008
Total stockholders’ equity
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
$ 29,439
62,851
303,183
147
716
6,950
$ 403,286
$ 19,890
2,401
291,392
158
796
7,079
$ 321,716
$ 30,930
1,109
32,039
$ 30,930
1,994
32,924
171
111,694
258,620
140
40,807
244,655
762
371,247
$ 403,286
3,190
288,792
$ 321,716
CONDENSED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 2009, 2008 and 2007
(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
2009
2008
2007
$ 20,082
6,308
26,390
12,201
14,189
(1,931)
16,120
9,090
$ 27,705
6,015
33,720
10,969
22,751
(1,799)
24,550
2,360
$ 21,548
6,288
27,836
10,797
17,039
(1,438)
18,477
8,883
NET INCOME
$ 25,210
$ 26,910
$ 27,360
86
CONDENSED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2009, 2008 and 2007
(In thousands)
2009
2008
2007
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
Net (purchases) sales of premises and equipment
Additional investment in subsidiary
Purchase of held-to-maturity securities
Purchase of available-for-sale securities
Proceeds from sale or maturity of investment securities
Net cash provided by (used in) investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
$ 25,210
$ 26,910
$ 27,360
251
(411)
(9,090)
(202)
(885)
14,873
(172)
(5,000)
--
(59,825)
--
(64,997)
265
1,122
(2,360)
(295)
(2,763)
22,879
1,431
--
(19)
(1,511)
1,481
1,382
298
33
(8,883)
366
505
19,679
(126)
--
(74)
--
--
(200)
Principal reduction on long-term debt
Issuance (repurchase) of common stock, net
Dividends paid
Net cash provided by (used in) financing activities
--
70,918
(11,245)
59,673
--
(212)
(10,601)
(10,813)
(2,000)
(7,661)
(10,234)
(19,895)
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR
9,549
13,448
(416)
19,890
6,442
6,858
CASH AND CASH EQUIVALENTS, END OF YEAR
$ 29,439
$ 19,890
$
6,442
87
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 20, 2010, to be filed pursuant to Regulation 14A on or about March 18, 2010.
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 20, 2010, to be filed pursuant to Regulation 14A on or about March 18, 2010.
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 20, 2010, to be filed pursuant to Regulation 14A on or about March 18, 2010.
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 20, 2010, to be filed pursuant to Regulation 14A on or about March 18, 2010.
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 20, 2010, to be filed pursuant to Regulation 14A on or about March 18, 2010.
88
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 3.1 to Simmons First National Corporation’s Quarterly Report on Form
10-Q for the Quarter ended March 31, 2009 (File No. 6253)).
Amended By-Laws of Simmons First National Corporation (incorporated by reference to
Exhibit 3.2 to Simmons First National Corporation’s Annual Report on Form 10-K for the Year
ended December 31, 2007 (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)).
89
10.6
10.7
10.8
10.9
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)).
12.1
Computation of Ratios of Earnings to Fixed Charges.*
14
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)).
23
Consent of BKD, LLP.*
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.
90
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
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 March 2, 2010.
/s/ John L. Rush
John L. Rush, Secretary
March 2, 2010
Signature
/s/ J. Thomas May
J. Thomas May
/s/ Robert A. Fehlman
Robert A. Fehlman
/s/ William E. Clark II
William E. Clark II
/s/ Steven A. Cosse′
Steven A. Cosse′
/s/ Edward Drilling
Edward Drilling
/s/ Eugene Hunt
Eugene Hunt
/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
Title
Chairman and Chief Executive Officer
and Director
Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
Director
Director
Director
Director
Director
Director
Director
Director
Director
91
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: March 2, 2010
/s/ J. Thomas May
J. Thomas May
Chairman and
Chief Executive Officer
92
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: March 2, 2010
/s/ Robert A. Fehlman
Robert A. Fehlman
Executive Vice President and
Chief Financial Officer
93
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 Annual Report of Simmons First National Corporation (the "Company"), on Form 10-K for
the period ending December 31, 2009, 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
March 2, 2010
94
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 Annual Report of Simmons First National Corporation (the "Company"), on Form 10-K for
the period ending December 31, 2009, 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
March 2, 2010
95
w w w . s i m m O N s f i R s T . c O m
Corporate Headquarters:
501 Main Street
Pine Bluff, AR 71601
(870) 541-1000
Little Rock Corporate Office:
100 Morgan Keegan Dr., Suite 410
Little Rock, AR 72202
(501) 558-3100