SIMMONS FIRST
NATIONAL CORPORATION
2 0 11 A N N U A L R E P O R T
A STRONg CONSERvATIvE
CULTURE COMMITTEd TO
ThE dELIvERy OF qUALITy
CUSTOMER SERvICE.
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 2 0 1 1 A N N U A L R E P O R T
J. Thomas May
Chairman and Chief Executive Officer
1
LETTER TO ShAREhOLdERS
2011 hAS bEEN
A gOOd yEAR
CONSIdERINg ThE
ChALLENgES IN
ThE INdUSTRy.
While the economy has recovered from the depths of the “Great
Recession”, the level of the recovery has been disappointing with many
calling it a jobless recovery similar to 1980. Generally speaking,
our banking operations have performed very well in seven of our eight
banks, with the one challenged bank beginning to see the light at
the end of the tunnel in the overbuilt market of Northwest Arkansas.
Historically low interest rates have resulted in margin pressure,
primarily based on high levels of liquidity and low reinvestment rates
in our securities portfolio. Likewise, the pressure was compounded
due to low loan demand throughout our banking network. During the
year we completed our three year focus on improving efficiency.
Bank Director magazine
“Bank Performance
Scorecard: Top 150 Banks”
Simmons First ranked 32nd
Overall, we project $5 million in annual expense savings and revenue
out of the top 150 largest
publicly traded banks
in the nation.
enhancements going forward. The state of the economy and efficiency
improvements have impacted our earnings with “core” net income
totaling $25 million or an ROAA of .77%. These earnings produced a
“core” EPS of $1.45 compared to $1.51 in 2010, down approximately
4%. Fortunately, we continue to have an impeccably strong balance
sheet when compared to our peer, with asset quality in the 82nd
percentile, risk-based capital in the 94th percentile, and high levels of
liquidity. Obviously, we are well positioned for rising interest rates;
however the Federal Reserve seems content with keeping interest
rates low for the foreseeable future based on the softness of the
economy, level of unemployment and European Sovereign Debt Crisis.
2
LETTER TO ShAREhOLdERS continued
Based on our conservative philosophy, we will continue to be patient
relative to waiting for an improved economy and not try to outguess the
market by expanding our maturities in the securities portfolio. Certainly
we will not lower our credit standards in an effort to create new loan
growth. We, like the rest of the banking industry, are prepared to meet
the loan demand that will be generated when consumers and small
businesses regain lost confidence in the economy and our government’s
willingness to deal with fiscal policy. Meanwhile, as we patiently
wait for real loan demand, we will continue our ongoing efforts to create
2010 KBW Bank Honor Roll:
Successful Navigators Through
the Financial Storm
Simmons First was one
new efficiencies in what we have come to call our right sizing initiative,
of the top 40 publicly traded
banks in the nation with
assets greater than $500 million
based on Capital, Asset
Quality and Earnings.
which includes closing branches that do not meet our benchmarks
relative to daily transactions and overall contribution to profits. In
addition, we currently have approximately $50 million in excess capital
in which we hope to deploy by consummating the acquisition of closed
banks through the “FDIC acquisition program”. Our strategy is to use
this program to enable us to expand beyond the borders of Arkansas,
which we did in acquiring Southwest Community Bank in Springfield,
Missouri in May, 2010 and Security Savings Bank in Olathe, Kansas, with
banking facilities in Olathe, Overland Park, Leawood, Wichita and
Salina, Kansas in October 2010. Each of these markets are extremely
good in per-capita income, population growth and a diversified
economic base. While we have not consummated a purchase in 2011,
we were active in performing due diligence on three banks. We bid
unsuccessfully on two banks during the year, but remain cautiously
optimistic that we will be successful in leveraging the remaining
capital by acquiring approximately $1 billion to $1.5 billion in new
assets. Our hope is to find acquisition opportunities that will
complement our existing footprints in Missouri and Kansas, and we
would like to enter new markets in Oklahoma and Tennessee.
3
2011 Bank & Thrift
Sm-All Stars
During this past year, many good recognitions have come our
way. We received high rankings in three different publications,
Research Depar tment
Richard Repetto, CFA
Principal
Jeffery J. Harte
Principal
relative to our financial strength post the recession.
Mark Fitzgibbon, CFA
Principal &
Director of Research
Research Depar tment
Mark Fitzgibbon, CFA
Principal &
Director of Research
+ Midwest Banks & Thrifts
R. Scott Siefers 212-466-7924
Brad J. Milsaps, CFA 404-442-2857
Daniel Arnold 212-466-7922
Andrew Liesch, CFA 415-978-5031
Alex Kovtun 212-466-7918
Richard Repetto, CFA
Principal
+ Asset Manager
Michael S. Kim 212-466-7722
Jeffery J. Harte
Principal
+ eFinance
Richard Repetto, CFA 212-466-7906
Michael Adams, CFA 212-466-7962
+ Midwest Banks & Thrifts
R. Scott Siefers 212-466-7924
Brad J. Milsaps, CFA 404-442-2857
Daniel Arnold 212-466-7922
Andrew Liesch, CFA 415-978-5031
Alex Kovtun 212-466-7918
+ Northeast Banks & Thrifts
Mark Fitzgibbon, CFA 212-466-7925
Joseph Fenech 212-466-7938
Frank Schiraldi, CFA 212-466-7931
Casey Orr 212-466-8061
Alex Twerdahl 212-466-7916
Michael Sarcone 212-466-7966
Matt Forgotson 212-466-8064
+ Financial Technology
Christopher Donat, CFA 212-466-8068
+ Asset Manager
Michael S. Kim 212-466-7722
+ Insurance
Paul Newsome 312-281-3445
+ eFinance
Edward Shields 312-281-3487
Richard Repetto, CFA 212-466-7906
John Barnidge 312-281-3412
Michael Adams, CFA 212-466-7962
In particular, we were recognized
by Bank Directors magazine “Bank
Performance Scorecard Top 150 Banks”,
KBW Bank Honor Roll: Successful
Navigators Through the Financial Storm
and Sandler O’Neill + Partners’
“2011 Bank & Thrift SM-All Stars”.
+ Southeast/Southwest Banks & Thrifts
Kevin Fitzsimmons 212-466-7909
Joseph Fenech 212-466-7938
Brad J. Milsaps, CFA 404-442-2857
Casey Orr 212-466-8061
Will Curtiss 212-466-8060
Michael Sarcone 212-466-7966
+ Northeast Banks & Thrifts
Mark Fitzgibbon, CFA 212-466-7925
Joseph Fenech 212-466-7938
Frank Schiraldi, CFA 212-466-7931
Casey Orr 212-466-8061
Alex Twerdahl 212-466-7916
Michael Sarcone 212-466-7966
Matt Forgotson 212-466-8064
+ Southeast/Southwest Banks & Thrifts
Kevin Fitzsimmons 212-466-7909
Joseph Fenech 212-466-7938
Brad J. Milsaps, CFA 404-442-2857
Casey Orr 212-466-8061
Will Curtiss 212-466-8060
Michael Sarcone 212-466-7966
+ West Coast Banks & Thrifts
Tim O’Brien 415-978-5033
Aaron Deer 415-978-5032
Joseph Fenech 212-466-7938
Brad J. Milsaps, CFA 404-442-2857
Andrew Liesch, CFA 415-978-5031
+ Investment, Global, and Trust Banks
Jeffery Harte 312-281-3443
Devin Ryan 212-466-8063
Ted Holzman 312-281-3417
+ Investment, Global, and Trust Banks
Jeffery Harte 312-281-3443
Devin Ryan 212-466-8063
Ted Holzman 312-281-3417
+ Real Estate
Alexander Goldfarb 212-466-7937
James Milam 212-466-8066
Andrew Schaffer 212-466-8062
+ Real Estate
Alexander Goldfarb 212-466-7937
James Milam 212-466-8066
Andrew Schaffer 212-466-8062
+ Insurance
Paul Newsome 312-281-3445
Edward Shields 312-281-3487
John Barnidge 312-281-3412
+ Specialty Finance & Mortgage REITs
Michael Taiano 212-466-7930
Michael Sarcone 212-466-7966
+ Financial Technology
Christopher Donat, CFA 212-466-8068
+ Atlanta + Boston + Chicago + San Francisco
New York
&
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+ West Coast Banks & Thrifts
Tim O’Brien 415-978-5033
Aaron Deer 415-978-5032
Joseph Fenech 212-466-7938
Brad J. Milsaps, CFA 404-442-2857
Andrew Liesch, CFA 415-978-5031
+ Specialty Finance & Mortgage REITs
Michael Taiano 212-466-7930
Michael Sarcone 212-466-7966
S
t
a
r
s
Stars”
Sandler O’Neill + Partners
“2011 Bank & Thrift SM-All
Simmons First was selected as
Bancorp of New Jersey, Inc. ~ BKJ
Bank of the Ozarks, Inc. ~ OZRK
Cardinal Financial Corporation ~ CFNL
Cass Information Systems, Inc. ~ CASS
Century Bancorp, Inc. ~ CNBKA
Citizens & Northern Corporation ~ CZNC
Community Bank System, Inc. ~ CBU
Eagle Bancorp, Inc. ~ EGBN
F.N.B. Corporation ~ FNB
Hingham Institution for Savings ~ HIFS
Independent Bank Corp. ~ INDB
Bancorp of New Jersey, Inc. ~ BKJ
Investors Bancorp, Inc. (MHC) ~ ISBC
Bank of the Ozarks, Inc. ~ OZRK
Lakeland Financial Corporation ~ LKFN
Cardinal Financial Corporation ~ CFNL
Cass Information Systems, Inc. ~ CASS
Century Bancorp, Inc. ~ CNBKA
Citizens & Northern Corporation ~ CZNC
Community Bank System, Inc. ~ CBU
Eagle Bancorp, Inc. ~ EGBN
F.N.B. Corporation ~ FNB
Hingham Institution for Savings ~ HIFS
Independent Bank Corp. ~ INDB
Investors Bancorp, Inc. (MHC) ~ ISBC
Lakeland Financial Corporation ~ LKFN
and $2 billion.
2011 Bank & Thrift
Sm-All Stars
MidWestOne Financial Group, Inc. ~ MOFG
Northrim BanCorp, Inc. ~ NRIM
Oritani Financial Corp. ~ ORIT
Pacific Premier Bancorp, Inc. ~ PPBI
Peapack-Gladstone Financial Corporation ~ PGC
S.Y. Bancorp, Inc. ~ SYBT
Simmons First National Corporation ~ SFNC
SVB Financial Group ~ SIVB
United Financial Bancorp, Inc. ~ UBNK
Valley National Bancorp ~ VLY
ViewPoint Financial Group, Inc. ~ VPFG
MidWestOne Financial Group, Inc. ~ MOFG
Washington Trust Bancorp, Inc. ~ WASH
Northrim BanCorp, Inc. ~ NRIM
Oritani Financial Corp. ~ ORIT
Pacific Premier Bancorp, Inc. ~ PPBI
Peapack-Gladstone Financial Corporation ~ PGC
S.Y. Bancorp, Inc. ~ SYBT
Simmons First National Corporation ~ SFNC
SVB Financial Group ~ SIVB
United Financial Bancorp, Inc. ~ UBNK
Valley National Bancorp ~ VLY
ViewPoint Financial Group, Inc. ~ VPFG
Washington Trust Bancorp, Inc. ~ WASH
traded banks and thrifts with
one of the top 25 of 486 publicly
market caps between $50 million
© Sandler O'Neill + Partners, L.P. All rights reserved.
Sandler O'Neill does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that
Sandler O'Neill may have a conflict of interest that could affect the objectivity of the report. Investors should consider this report as only a single
factor in making their investment decision. Please see "Important Disclosures" and the analyst certifications in the Appendix of this report.
We believe that each of these recognitions represent a commentary about
our conservative culture; patience as to when and how to expand,
+ Atlanta + Boston + Chicago + San Francisco
New York
© Sandler O'Neill + Partners, L.P. All rights reserved.
Sandler O'Neill does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that
Sandler O'Neill may have a conflict of interest that could affect the objectivity of the report. Investors should consider this report as only a single
factor in making their investment decision. Please see "Important Disclosures" and the analyst certifications in the Appendix of this report.
the belief that we are well-positioned to take advantage of rising interest
rates, and an expected return to traditional acquisitions as regulatory
reform and new capital requirements ultimately result in many community
banks seeking acquisition partners. Concerning traditional acquisitions,
we continue to believe that our strategy of maintaining separate charters
will make us an acquirer of choice because these banks will be able to
continue to have a large amount of autonomy. We believe the next eighteen
to twenty-four months (2012 and 2013) will enable us to complete our
FDIC acquisition strategy. We believe then there will be increased merger
interest on behalf of many community banks in 2014 and beyond.
We firmly believe that a major part of our future will be centered around
being a consolidator of community bank acquisitions in our current
three state footprint. Our current infrastructure will easily support a $5
billion banking organization with only minor adjustments to fixed
costs, thus our acquisition strategy will be a major part of our focus
over the next four year period.
4
LETTER TO ShAREhOLdERS continued
As we look back over the past four years, we
attribute a large part of our success to our
that understands governance responsibilities and
are extremely talented and well known throughout
culture. It is that conservative culture that has enabled
Arkansas and beyond. This last year, we lost one of
our company to be around for 109 years, and to have
Arkansas’s most talented business men, Stanley Reed,
paid dividends for 102 consecutive years. As a public
to a tragic car accident that took his life way too
company, we are responsible and accountable to
early. Mr. Reed lived a life built on his faith, his family
long term decisions, thus it is our culture, patience and
and his commitment to get involved to make a
strong team that drives our total decision making
difference. Mr. Reed was one of Arkansas’s most
process. We believe that sacrificing short term earnings,
talented ambassadors serving the farmers of our
as we have done since the beginning of the “great
state, higher education, philanthropy, insurance, and
recession,” is acceptable since we have correspondingly
banking. Needless to say, we were blessed to have
enhanced the strength of the balance sheet during
Mr. Reed as a director for six years, and I personally
these uncertain times. We will continue to prepare
was fortunate to have he and his wife Charlene
ourselves as a team to think in terms of the long-term
as friends for over twenty years. A recent memorial
interest of all of our shareholders. We are constantly
said it best of Mr. Reed, “He was a Humanitarian,
reminded that “things don’t just happen, people make
Philanthropist, Visionary, and Exemplary Man of
them happen”. We have a management team that is
Faith. He inspired us to do our best, be our best,
second to none, and we have a Board of Directors
give our best.”
STANLEy REEd
“He was a Humanitarian,
Philanthropist, Visionary, and
Exemplary Man of Faith.
He inspired us to do our best,
be our best, give our best.”
5
Our future is bright because we have built a franchise around a strong
conservative culture and a very talented young team of executives that
will lead our company into this rapidly changing industry. We will continue
to have a Board of Directors that will continue to be focused on enhancing
shareholders value in the long-term. Our earnings and dividend history speaks
for itself, but spending too much time looking in the rear view mirror and
dwelling on what was, is not always healthy. With the industry changing, it is
incumbent on our Boards of Directors, management team and associates to use
the best from the past, but to be proactive in planning for the future. Mr. Louis
Ramsay, former Chairman and CEO, once said, “We don’t do extraordinary
things, we do ordinary things in an extraordinary way.” That is who we were
in the past, and that is who we must continue to be in the future. Delivering
quality customer service is essential, but it is not enough. We must use new
technology and new product delivery systems in order to provide state-of-the-
“ThE INdUSTRy IS ChANgINg, ANd I AM CONFIdENT
ThAT wE ARE STRATEgICALLy POSITIONEd TO TAkE
AdvANTAgE OF ThOSE ChANgES.”
art products and services. The industry is changing, and I am confident that we
are strategically positioned to take advantage of those changes, which include
finding new merger partners, meeting the banking needs of Generation Y, and
last but not least, remembering what got us to where we are today - and that
is a strong conservative culture that is committed to the delivery of quality
customer service. Thank you for giving us the opportunity to make strategic
decisions, which will hopefully produce a return on your investment that will
meet or exceed your expectations.
J. Thomas May
Chairman and Chief Executive Officer
6
CORPORATE ExECUTIvE OFFICERS
dAvId bARTLETT
President & Chief
Operating Officer
MARTy CASTEEL
Executive Vice President
& Secretary
bOb FEhLMAN
Executive Vice President
& Chief Financial Officer
RObERT dILL
Executive Vice President
& Marketing Director
7
AFFILIATE ExECUTIvE OFFICERS
LEFT TO RIghT - SEATEd Steve Trusty • Tom Spillyards • Freddie Black
LEFT TO RIghT - STANdINg Robert Robinson, IV • Barry Ledbetter • Glenn Rambin • Brooks Davis • Ron Jackson
FREddIE bLACk
bARRy LEdbETTER
TOM SPILLyARdS
Chairman & CEO
President & CEO
Simmons First Bank of South Arkansas
Simmons First Bank
President & CEO
Simmons First Bank
bROOkS dAvIS
President & CEO
of Northeast Arkansas
of Northwest Arkansas
gLENN RAMbIN
STEvE TRUSTy
Simmons First Bank of Searcy
President
President & CEO
RON JACkSON
Chairman & CEO
Simmons First National Bank
Simmons First Bank
RObERT RObINSON, Iv
of Hot Springs
Simmons First Bank of Russellville
President & CEO
Simmons First Bank of El Dorado
8
SIMMONS FIRST NATIONAL CORPORATION bOARd OF dIRECTORS
LEFT TO RIghT
SEATEd
George A. Makris, Jr. • Harry L. Ryburn • J. Thomas May • Sharon L. Gaber, Ph.D. • Eugene Hunt
STANdINg Edward Drilling • Robert L. Shoptaw • Steven A. Cossé • William E. Clark, II
W. Scott McGeorge • Henry F. Trotter, Jr. • Jerry Watkins
9
wILLIAM E. CLARk, II
gEORgE A. MAkRIS, JR.
Advisory Director
Chairman & Chief Executive Officer
President
hENRy F. TROTTER, JR.
Clark Contractors, LLC
M. K. Distributors, Inc.
President
Trotter Auto Group
STEvEN A. COSSé
J. ThOMAS MAy
Retired Executive Vice President
Chairman & Chief Executive Officer
Consultant to the Board
& General Counsel
Murphy Oil Corporation
Simmons First National Corporation
JERRy wATkINS
Retired Executive
w. SCOTT MCgEORgE
Murphy Oil Corporation
EdwARd dRILLINg
President
President
AT&T Arkansas
Pine Bluff Sand & Gravel
hARRy L. RybURN, d.d.S.
ShARON L. gAbER, Ph.d.
Provost & Vice Chancellor
RObERT L. ShOPTAw
Chairman of the Board
Arkansas Blue Cross and Blue Shield
For Academic Affairs
University of Arkansas
EUgENE hUNT
Attorney
Hunt Law Firm
“wITh ThE INdUSTRy ChANgINg,
IT IS INCUMbENT ON OUR bOARdS
OF dIRECTORS, MANAgEMENT
TEAM ANd ASSOCIATES TO USE
ThE bEST FROM ThE PAST, bUT
TO bE PROACTIvE IN PLANNINg
FOR ThE FUTURE.”
– J. ThOMAS MAy, Chairman and Chief Executive Officer
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 Marty D. Casteel, 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.
10
AFFILIATE bOARd OF dIRECTORS
SIMMONS FIRST
NATIONAL bANk
Board of Directors
Met L. Jones, II
General Manager
Dickey Machine Works
John Lytle, M.D.
Orthopedic Surgeon
Clarence Roberts, III
Sherman Hiatt
Retired President
Mayor
Roberts Brothers Tire Service, Inc.
City of Charleston
Phyllis S. Thomas
Secretary/Treasurer
Harbor Oaks
Clay Hiatt
Investments
Joe Larkin
Advisory Director Emeritus
Joe S. Hiatt
Pharmacist/Owner
Medi-Sav Pharmacy
SIMMONS FIRST
bANk OF hOT SPRINgS
Board of Directors
Sara Barnett
CPA
Consultant
David L. Bartlett
Chairman
South Arkansas Orthopedic Center
Retired Banker/Rancher
Simmons First Bank of Hot Springs
J. Thomas May
Chairman & Chief Executive Officer
Simmons First National Bank
CONwAy ARkANSAS REgION
Advisory Board of Directors
Steve W. “Bo” Conner
SIMMONS FIRST
bANk OF EL dORAdO
Board of Directors
Aubra Anthony, Jr.
President & Chief Executive Officer
Anthony Forest Products Company
David L. Bartlett
President & Chief Operating Officer
Simmons First National Corporation
Partner
Conner & Sartain, P.A.
Ritchie Howell
Community President
Conway Arkansas Region
Simmons First National Bank
Bill Johnson
Retired Community Chairman
Conway Arkansas Region
Simmons First National Bank
Steven A. Cossé
Retired Executive Vice President
& General Counsel
Murphy Oil Corporation
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
Charles Nabholz
Chairman
Simmons First National Bank
The Nabholz Group
T. Alan Gober
CPA
Evers, Cox & Gober P.L.L.C.
Clifton Roaf, D.D.S.
Dentist
Phillip Stone, M.D.
President
Phil Herring
President
Adam B. Robinson, Jr.
President
Ralph Robinson & Son, Inc.
Steven C. Wade
Community Chairman
Central Arkansas Region
Harry L. Ryburn, D.D.S.
Simmons First National Bank
Denny McConathy
Retired President
Cross Oil and Refining
Company, Inc.
Conway Emergency Physicians Group
Herring Furniture Company
Steven W. Trusty
Mark Shelton, III
President
M.A. Shelton Farming
Company, Inc.
H. Ford Trotter, III
General Manager
Trotter Auto Group
Advisory Directors
Robert E. Dreher, Jr.
Partner
Dreher & Sons
Charles Nabholz
Chairman
The Nabholz Group
wESTERN ARkANSAS REgION
Advisory Board of Directors
Larry L. Bates
Kenneth P. Oliver, Jr.
Retired President
El Dorado Glass & Mirror
Community Chairman
Company, Inc.
Western Arkansas Region
Simmons First Bank of Russellville
Simmons First National Bank
Robert L. Robinson, IV
Michael F. Flynn
Community President
President & Chief Executive Officer
Simmons First Bank of El Dorado
Western Arkansas Region
Floyd M. Thomas, Jr.
Simmons First National Bank
Partner
Joe S. Hiatt
Retired Banker/Rancher
Margie Hiatt
Retired Banker
Thomas, Hickey
& Shepherd, LLP Attorneys
Larkin M. Wilson, III, D.D.S.
Dentist
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
Lance A. Porter, D.D.S.
Owner
Porter Dental Health Clinic, P.A.
Sam P. Stathakis, Jr.
President
Merritt Wholesale Distributors
President & Chief Executive Officer
Simmons First Bank of Hot Springs
Advisory Directors
John D. Selig
Retired Vice President
Weyerhaeuser
Gene Thomason
Retired President
SIMMONS FIRST
bANk OF NORThEAST
ARkANSAS
Nick J. Nabholz
Business Development Officer
Nabholz Construction
SIMMONS FIRST
bANk OF SEARCy
Board of Directors
Richard Cargile
Board of Directors
David L. Bartlett
Thomas W. Spillyards
President & Chief Executive Officer
Owner
President & Chief Operating Officer
Simmons First National Corporation
Simmons First Bank
of Northwest Arkansas
Cargile Insurance Agency
Brooks Davis
11
Tommy R. Jarrett
President
Simmons First Bank
of South Arkansas
Beverly Mihalyka
Secretary/Treasurer
Chicot Irrigation, Inc.
Barry K. Ledbetter
President & Chief Executive Officer
James L. Tull, CPA
Chief Financial Officer
President & Chief Executive Officer
Jerry Selby
Simmons First Bank of Searcy
Partner
Simmons First Bank
of Northeast Arkansas
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
SIMMONS FIRST
bANk OF NORThwEST
ARkANSAS
Board of Directors
David L. Bartlett
President & Chief Operating Officer
Simmons First National Corporation
Dennis H. Ferguson
Executive Vice President
Simmons First Bank
of Northwest Arkansas
Clark Irwin
Senior Vice President
of Commodity Sales
Tyson Foods
Sonya Jones
Retired
Crafton, Tull, Sparks & Associates
Four Star Partnership Farms
Advisory Director
Martin Gilbert
Retired Attorney
SIMMONS FIRST bANk
OF RUSSELLvILLE
Board of Directors
Leon Anderson
Nationwide Representative
Nationwide Insurance Company
Terry G. Bowie
Retired
Entergy Corporation
Keith B. Cogswell, III
President
Cogswell Motors, Inc.
Ronald B. Jackson
Chairman & Chief Executive Officer
Simmons First Bank of Russellville
Allen Laws, III
Attorney
Laws Law Firm, P.A.
Edward R. Stingley, III
Real Estate Sales Associate
Century 21
Harve J. Taylor
Owner/President
H. J. Taylor & Associates, Inc.
Advisory Director
Gene Thomason
Retired President
Simmons First Bank of Russellville
Dennis R. Donovan
Consultant
Al Fowler
Retired Administrator
Searcy Medical Center
Joe Giezeman
Consultant
David Johnston
Owner
Ag Chem Direct, Inc./Lake
Ice Company
H. Glenn Rambin
President
Simmons First National Bank
Robert Underwood
Owner
Underwood Construction/
Underwood Properties
SIMMONS FIRST bANk
OF SOUTh ARkANSAS
Board of Directors
Robert G. Bridewell, Sr.
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
Harold Smith
President & Chief
Executive Officer
Silviland, Inc.
dUMAS REgION
Advisory Board of Directors
Freddie G. Black
Chairman & Chief
Executive Officer
Simmons First Bank
of South Arkansas
C. Kelly Farmer
Consultant
ARKAT Feeds, Inc.
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
Advisory Director Emeritus
A.O. French, Jr.
Retired Farmer
French Planting Company
12
ExECUTIvE MANAgEMENT
SIMMONS FIRST NATIONAL CORPORATION
J. Thomas May
Chairman & Chief Executive Officer
Sharon K. Burdine Senior Vice President & Human Resources Director
David L. Bartlett
President & Chief Operating Officer
Tina M. Groves
Senior Vice President & Manager Corporate Audit
Robert A. Fehlman Executive Vice President & Chief Financial Officer
Marty D. Casteel
Executive Vice President & Secretary
Robert C. Dill
Executive Vice President & Marketing Director
David W. Garner
Senior Vice President & Controller
Kevin J. Archer
Senior Vice President, Special Services
& Compliance
Lisa W. Hunter
Senior Vice President, Cash Management
& Retail Delivery
Amy W. Johnson
Senior Vice President & Assistant
Marketing Director
SIMMONS FIRST NATIONAL bANk
J. Thomas May
Chairman & Chief Executive Officer
W. Greg Bell
Senior Vice President, Commercial
& Agriculture Loans
H. Glenn Rambin President
David C. Bush
Senior Vice President, Bank Card
Marty D. Casteel
Executive Vice President, Consumer Banking Group
Joel W. Cheatham
Senior Vice President, Mortgage Banking
Robert C. Dill
Executive Vice President, Marketing Group
Joe W. Clement, III President, Simmons First Trust Company, N. A.
N. Craig Hunt
Executive Vice President, Specialty Banking Group
Shirley E. Crow
Senior Vice President, Manager
Glenda K. Tolson
Executive Vice President & Cashier,
of Loan Administration
Operations Group; Secretary
Amy W. Johnson
Senior Vice President, Marketing Group
David W. Garner
Senior Vice President, Finance Group
Richard W. Johnson President, Simmons First Investment Group
Craig S. Attwood
Senior Vice President, Indirect Lending
David W. Rushing Senior Vice President, Operations Group
SIMMONS FIRST NATIONAL bANk REgIONS
Donald L. Britnell
ARkANSAS
Central Arkansas Region
Community Executive
Steven C. Wade
Community Chairman
Western Arkansas Region
Larry L. Bates
Community Chairman
Michael F. Flynn
Community President
Charles J. Brown
Senior Vice President
C. Adam Mitchell
Community Executive
Conway Arkansas Region
Ritchie D. Howell
Community President
North Arkansas Region
Stephen J. Smith
Community President
kANSAS
Patrick J. Anderson
Kansas Chairman
Wichita Kansas Region
Andrea Scarpelli
Community President
Kansas City Kansas Region
Patrick J. Anderson
Kansas Chairman
Cris D. Smith
Senior Vice President
Salina Kansas Region
Chris Yohe
Community Executive
MISSOURI
Springfield Missouri Region
Jefferson C. McNatt
Community President
Joseph B. Renner
Senior Vice President
SIMMONS FIRST bANk OF EL dORAdO
SIMMONS FIRST bANk OF NORThwEST ARkANSAS
Robert L. Robinson, IV President & Chief Executive Officer
Thomas W. Spillyards President & Chief Executive Officer
L. S. Brown
Senior Vice President
Dennis H. Ferguson
Executive Vice President
A. J. Lockwood, Jr.
Senior Vice President
Linda A. Hankins
Senior Vice President
SIMMONS FIRST bANk OF hOT SPRINgS
David L. Bartlett
Chairman
Steven W. Trusty
President & Chief Executive Officer
Christopher W. White Senior Vice President
SIMMONS FIRST bANk OF RUSSELLvILLE
Ronald B. Jackson
Chairman & Chief Executive Officer
R. Scott Hill
Community President-Russellville
Denton Tumbleson
Community President-Clarksville
SIMMONS FIRST bANk OF NORThEAST ARkANSAS
SIMMONS FIRST bANk OF SEARCy
Barry K. Ledbetter
President & Chief Executive Officer
Brooks Davis
President & Chief Executive Officer
Wayne F. Bond
Senior Vice President
Kent P. Bridger
Senior Vice President
SIMMONS FIRST bANk OF SOUTh ARkANSAS
Tony L. Futrell
Senior Vice President
Freddie G. Black
Chairman & Chief Executive Officer
Jerry K. Morgan
Senior Vice President
Tommy R. Jarrett
President
Linda S. Moreland
Senior Vice President
William F. Wisener
Senior Vice President
Teresa L. Wood
Senior Vice President
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, fair value for covered loans,
covered other real estate owned and FDIC indemnification asset; 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 $3.3 billion, loans of $1.7 billion, deposits of $2.7 billion and equity capital of $408 million as of December 31,
2011. We own eight community banks that are strategically located throughout Arkansas and conduct our
operations through 88 offices, of which 84 are branches, or “financial centers,” located in 47 communities in
Arkansas, Missouri and Kansas.
We seek to build shareholder value by (i) focusing on strong asset quality, (ii) maintaining strong capital
(iii) managing our liquidity position, (iv) improving our efficiency through specific initiatives and
(v) opportunistically growing our business, both organically and through potential Federal Deposit Insurance
Corporation (“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, 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, to 63% of total
deposits as of December 31, 2010, and to 67% of total deposits as of December 31, 2011.
Our capital levels have remained strong during the recent 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. The excess capital positions us to continue to take advantage of
2
unprecedented acquisition opportunity through FDIC-assisted transactions of failed banks. We continue to actively
pursue the right opportunities that meet our strategic plan regarding mergers and acquisitions.
In 2010, we expanded outside the borders of Arkansas by acquiring two failed institutions through FDIC-assisted
transactions. The first was a $100 million failed bank located in Springfield, Missouri and the second was a
$400 million failed thrift located in Olathe, Kansas. On both transactions, we entered into a loss share agreement
with the FDIC, which provides significant protection of 80% of covered assets. As part of the acquisitions, we
recognized a pre-tax bargain purchase gain of $3.0 million and $18.3 million, respectively, on the Missouri and
Kansas transactions.
In September 2011, we reinstated our stock repurchase program as we continue to have one of the strongest capital
positions within our peer group. A portion of our capital has been allocated for our acquisition program, and we
plan to leave this portion available for this purpose. However, we plan to utilize a portion of our annual earnings to
repurchase shares from time to time at prevailing market prices, through open market or unsolicited negotiated
transactions, depending upon market conditions.
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. We intend to continue
focusing 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 continue
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 2010 and
2011 are expected to lead to further improvements in years beyond.
3
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 began to benefit from
operating expense savings as a result of more favorable contract terms with our vendors in 2009 with the full
annualized benefits substantially realized in 2011.
Our second initiative, which is larger in scope, was to identify and implement process improvements. We have
reviewed 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 began implementing this initiative in 2010, continued
throughout 2011 and intend to finalize implementation in 2012. We have experienced savings and additional revenue
and expect to experience significant savings and revenue enhancements as this initiative takes full effect.
Subsidiary Banks
Our lead bank, SFNB, is a national bank which has been in operation since 1903. As of December 31, 2011, SFNB
had total assets of $1.8 billion, total loans of $0.9 billion and total deposits of $1.5 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 Financial Industry Regulatory Authority 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 Northeast Arkansas
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
South central Arkansas
2004 Hot Springs, Arkansas
Simmons First Bank of Hot Springs
Deposits
As of December 31, 2011
Assets
Loans
(In thousands)
$340,348 $259,573 $295,025
162,715
190,727
201,781
249,938
134,421
185,652
112,226
145,701
195,091
231,965
128,412
170,987
82,697
135,301
97,238
96,169
84,265
69,665
Our subsidiary banks provide complete banking services to individuals and businesses throughout the market areas they
serve. These banks offer consumer (credit card and other consumer), real estate (construction, single family residential
and other commercial) and commercial (commercial, agriculture and financial institutions) loans, checking, savings and
time deposits, trust and investment management services and securities and investment services.
Loan Risk Assessment
As part of 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 Boards of Directors of each of our subsidiary banks review 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
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.
The Board of Directors has delegated oversight of assets covered by FDIC loss share agreements to the Loss Share
Loan Committee, comprised of the Corporate CEO, President and an Executive Vice President, along with several
4
SFNB executives. The Board authorizes the Committee to transact loan origination, renewal and workout procedures
relative to FDIC-assisted acquisitions. Duties of the Committee shall be carried out in accordance with the Purchase
and Assumption Agreements executed between the Bank and the FDIC.
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 3, 2012, the Company and its subsidiaries had approximately 1,075 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
65
60
47
60
68
42
48
46
42
Chairman and Chief Executive Officer
President and Chief Operating Officer
Executive Vice President and Chief Financial Officer
Executive Vice President and Secretary
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
25
15
23
23
45
14
16
14
6
5
Board of Directors of the Company
The following is a list of the Board of Directors of the Company as of December 31, 2011, along with their principal
occupation.
NAME
PRINCIPAL OCCUPATION
William E. Clark, II
Chairman and Chief Executive Officer
Clark Contractors, LLC
Steven A. Cossé
Edward Drilling
Sharon L. Gaber
Eugene Hunt
George A. Makris, Jr.
J. Thomas May
W. Scott McGeorge
Executive Vice President and General Counsel (retired)
Murphy Oil Corporation
President
AT&T Arkansas
Provost and Vice Chancellor for Academic Affairs
University of 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
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
financial or bank holding company is prohibited from owning more than one subsidiary bank, if any subsidiary bank
6
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
During the fourth quarter of 2010, the Company realigned the regulatory oversight for its affiliate banks in order to
create efficiencies through regulatory standardization. We operate as a multi bank holding company and over the years,
have acquired several banks. In accordance with the corporate strategy of leaving the bank structure unchanged, each
acquired bank stayed intact as did its regulatory structure. As a result, the Company’s eight affiliate banks were
regulated by the Arkansas State Bank Department, the Federal Reserve, the FDIC, and/or the Office of the Comptroller
of the Currency (“OCC”).
Following the regulatory realignment, the lead bank remained a national bank regulated by the OCC while the other
seven affiliate banks became state member banks and with the Arkansas State Bank Department as their primary
regulator and the Federal Reserve as their federal regulator.
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 20, 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.
FDIC Deposit Insurance Assessments
On October 16, 2008, in response to the problems facing the financial markets and the economy, the FDIC published a
restoration plan (“Restoration Plan”) designed to replenish the Deposit Insurance Fund (“DIF”) such that the reserve
ratio would return to 1.15 percent within five years. On December 16, 2008, the FDIC adopted a final rule increasing
risk-based assessment rates uniformly by seven basis points, on an annual basis, for the first quarter 2009.
On February 27, 2009, the FDIC concluded that the problems facing the financial services sector and the economy at
large constituted extraordinary circumstances and amended the Restoration Plan and extended the time within which
the reserve ratio would return to 1.15 percent from five to seven years (“Amended Restoration Plan”). In May 2009,
8
Congress amended the statutory provision governing establishment and implementation of a Restoration Plan to allow
the FDIC eight years to bring the reserve ratio back to 1.15 percent, absent extraordinary circumstances.
On May 22, 2009, the FDIC adopted a final rule imposing a five basis point special assessment on each insured
depository institution's assets minus Tier 1 capital as of June 30, 2009. The special assessment was collected on
September 30, 2009.
In a final rule issued on September 29, 2009, the FDIC amended the Amended Restoration Plan as follows:
The period of the Amended Restoration Plan was extended from seven to eight years.
The FDIC announced that it will not impose any further special assessments under the final rule it adopted in
May 2009.
The FDIC announced plans to maintain assessment rates at their current levels through the end of 2010. The
FDIC also immediately adopted a uniform three basis point increase in assessment rates effective January 1,
2011 to ensure that the DIF returns to 1.15 percent within the Amended Restoration Plan period of eight years.
The FDIC announced that, at least semi-annually following the adoption of the Amended Restoration Plan, it
will update its loss and income projections for the DIF. The FDIC also announced that it may, if necessary,
adopt a new rule prior to the end of the eight-year period to increase assessment rates in order to return the
reserve ratio to 1.15 percent.
On November 12, 2009, the FDIC adopted a final rule to require insured institutions to prepay their quarterly risk-based
deposit insurance assessments for the fourth quarter of 2009, and for all of 2010, 2011 and 2012, on December 30,
2009. Our payment was $11.2 million.
The Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”), which was signed into law on
July 21, 2010, changes how the FDIC will calculate future deposit insurance premiums payable by insured depository
institutions. The Dodd-Frank Act directs the FDIC to amend its assessment regulations so that future assessments will
generally be based upon a depository institution’s average total consolidated assets minus the average tangible equity of
the insured depository institution during the assessment period, whereas assessments were previously based on the
amount of an institution’s insured deposits. The minimum deposit insurance fund rate will increase from 1.15% to
1.35% by September 30, 2020, and the cost of the increase will be borne by depository institutions with assets of
$10 billion or more.
The Dodd-Frank Act also provides the FDIC with discretion to determine whether to pay rebates to insured depository
institutions when its deposit insurance reserves exceed certain thresholds. Previously, the FDIC was required to give
rebates to depository institutions equal to the excess once the reserve ratio exceeded 1.50%, and was required to rebate
50% of the excess over 1.35% but not more than 1.5% of insured deposits. The FDIC adopted a final rule on
February 7, 2011 that implements these provisions of the Dodd-Frank Act.
Dodd-Frank Wall Street Reform and Consumer Protection Act
On July 21, 2010, the President signed into law the Dodd-Frank Act, which significantly changes the regulation of
financial institutions and the financial services industry. The Dodd-Frank Act includes provisions affecting large and
small financial institutions alike, including several provisions that profoundly affect how community banks, thrifts, and
small bank and thrift holding companies are regulated in the future. Among other things, these provisions abolish the
Office of Thrift Supervision and transfer its functions to the other federal banking agencies, relax rules regarding
interstate branching, allow financial institutions to pay interest on business checking accounts, and impose new capital
requirements on bank and thrift holding companies.
The Dodd-Frank Act also made permanent the temporary increase in deposit insurance coverage from $100,000 to
$250,000 that was included in the EESA, and extends until December 31, 2012 the period during which the FDIC will
provide unlimited deposit insurance for "noninterest bearing transaction accounts".
Effective July 21, 2011, the Dodd-Frank Act requires that the amount of any interchange fee charged by a debit card
issuer with respect to a debit card transaction must be reasonable and proportional to the cost incurred by the issuer. On
June 29, 2011, the Federal Reserve Board set the interchange rate cap at $0.24 per transaction. While the restrictions
on interchange fees do not apply to banks that, together with their affiliates, have assets of less than $10 billion, the rule
has affected the competitiveness of debit cards issued by smaller banks and has negatively impacted our earnings.
9
The Dodd-Frank Act also established the Bureau of Consumer Financial Protection (the “CFPB”) as an independent
entity within the Federal Reserve, which will be given the authority to promulgate consumer protection regulations
applicable to all entities offering consumer financial services or products, including banks. Additionally, the Dodd-
Frank Act includes a series of provisions covering mortgage loan origination standards affecting, among other things,
originator compensation, minimum repayment standards, and pre-payment penalties. The Dodd-Frank Act contains
numerous other provisions affecting financial institutions of all types, many of which may have an impact on our
operating environment in substantial and unpredictable ways.
Because many of the regulations required to implement the Dodd-Frank Act have not yet been issued, the statute’s
effect on the financial services industry in general, and on us in particular, is uncertain at this time. The Dodd-Frank
Act is likely to affect our cost of doing business, however, and may limit or expand the scope of our permissible
activities and affect the competitive balance within our industry and market areas. Our management is actively
reviewing the provisions of the Dodd-Frank Act and assessing its probable impact on our business, financial condition,
and results of operations.
Basel Committee
On September 12, 2010, the Group of Governors and Heads of Supervision, the oversight body of the Basel
Committee, announced agreement on the calibration and phase – in arrangements for a strengthened set of capital
requirements, known as Basel III. Basel III increases the minimum Tier 1 common equity ratio to 4.5%, net of
regulatory deductions, and introduces a capital conservation buffer of an additional 2.5% of common equity to risk-
weighted assets, raising the target minimum common equity ratio to 7% . This capital conservation buffer also increases
the minimum Tier 1 capital ratio from 6% to 8.5% and the minimum total capital ratio from 8% to 10.5%. In addition,
Basel III introduces a countercyclical capital buffer of up to 2.5% of common equity or other fully loss absorbing
capital for periods of excess credit growth. Basel III also introduces a non-risk adjusted Tier 1 leverage ratio of 3%,
based on a measure of total exposure rather than total assets, and new liquidity standards. The Basel III capital and
liquidity standards will be phased in over a multi-year period.
The final package of Basel III reforms was submitted to the Seoul G20 Leaders Summit in November 2010 for
endorsement by G20 leaders, and then will be subject to individual adoption by member nations, including the United
States. The Federal Reserve will likely implement changes to the capital adequacy standards applicable to the
Company and our subsidiary banks in light of Basel III.
Pending Legislation
Because of concerns relating to competitiveness and the safety and soundness of the banking industry, Congress often
considers a number of wide-ranging proposals for altering the structure, regulation, and competitive relationships of the
nation’s financial institutions. We cannot predict whether or in what form any proposals will be adopted or the extent
to which our business may be affected.
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.
From 2007 through 2009, the United States was 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
10
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 the
business environment in the states of Arkansas, Missouri and Kansas, 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, Missouri and Kansas 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.
In response to the financial crisis affecting the banking system and financial markets, the Dodd-Frank Act was
enacted in 2010, as well as several programs that have been initiated by the U.S. Treasury, the FRB, and the FDIC
to stabilize the financial system.
Some of the provisions of recent legislation and regulation that may adversely impact the Company include: the
Durbin Amendment to the Dodd-Frank Act which mandates a limit to debit card interchange fees and Regulation E
amendments to the EFTA regarding overdraft fees. These provisions may limit the type of products we offer, the
methods by which we offer them, and the prices at which they are offered. These provisions may also increase our
costs in offering these products.
The newly created CFPB has unprecedented authority over the regulation of consumer financial products and
services. The CFPB has broad rule-making, supervisory and examination authority, as well as expanded data
collecting and enforcement powers. The scope and impact of the CFPB's actions cannot be determined at this time,
which creates significant uncertainty for the Company and the financial services industry in general.
These new laws, regulations, and changes may increase our costs of regulatory compliance. They may significantly
affect the markets in which we do business, the markets for and value of our investments, and our ongoing
operations, costs, and profitability. The future impact of the many provisions in the Dodd-Frank Act and other
legislative and regulatory initiatives on the Company's business and results of operations will depend upon
regulatory interpretation and rulemaking that will be undertaken over the next several months and years. As a result,
we are unable to predict the ultimate impact of the Dodd-Frank Act or of other future legislation or regulation,
including the extent to which it could increase costs or limit our ability to pursue business opportunities in an
efficient manner, or otherwise adversely affect our business, financial condition and results of operations.
Difficult market conditions have adversely affected our industry.
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 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.
11
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.
Until our 2010 FDIC-assisted acquisitions in Missouri and Kansas, our subsidiary banks operated 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 states of
Arkansas, Missouri or Kansas, 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 2010 we put an additional $9 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. Although we experienced a decreased amount of net charge-
offs in our credit card portfolio in 2011, the amount of net charge-offs could 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 were 2.06% of our average outstanding credit card balances for the year ended
December 31, 2011, compared to 2.37% of the average outstanding balances for the year ended on December 31,
2010. 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.
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
12
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:
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:
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:
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.
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:
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.
13
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 has been terminated by the federal
government.
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 decreased the profitability of making such loans. The Company has terminated its student loan
origination activities as a result of changes mandated by the Department of Education. These changes by the federal
government eliminate banks from participating in student loan programs. Terminating our ability to originate
student loans could adversely affect our profitability in the future.
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:
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.
14
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
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.
15
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.
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.
16
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 in the states of Arkansas, Missouri and Kansas. The
Company and its eight banks conduct financial operations from 88 offices, of which 84 are financial centers, in
47 communities throughout Arkansas, Missouri and Kansas.
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, lodged the transcript with the Arkansas
Supreme Court Clerk, and filed their initial Brief. The Company and South Arkansas timely filed their Brief in
response. On September 8, 2010, the Arkansas Court of Appeals dismissed the plaintiffs’ appeal without prejudice,
finding that the Trial Court had not entered a final Order, which may allow the plaintiffs to re-file the appeal at a later
date.
On September 14, 2011, plaintiffs filed a motion for requesting the circuit court enter a judgment on this matter. The
Company and South Arkansas timely filed an objection to the plaintiffs' motion. On November 3, 2011, the circuit
court denied the plaintiffs' motion. The plaintiffs have filed a notice of appeal of the denial of the motion and have
until late February, 2012 to lodge the record for appeal. On February 13, 2012, the Company and South Arkansas filed
a motion to dismiss the appeal along with a brief and a partial transcript. At this time, no basis for any material liability
has been identified.
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.
17
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, 2011 and 2010. Also set forth below are dividends declared per share in each of
these periods:
2011
1st quarter
2nd quarter
3rd quarter
4th quarter
2010
1st quarter
2nd quarter
3rd quarter
4th quarter
Price Per
Common Share
High
Low
$ 30.16
27.28
26.83
28.41
$ 28.42
29.50
28.99
30.13
$ 26.45
24.14
18.71
20.50
$ 24.99
25.46
24.18
26.44
Quarterly
Dividends
Per Common
Share
$ 0.19
0.19
0.19
0.19
$ 0.19
0.19
0.19
0.19
On February 3, 2012, the closing price for our common stock as reported on the NASDAQ was $28.38. As of
February 3, 2012, there were 1,291 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 SFNB 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 Northeast Arkansas, Simmons First Bank of El Dorado, 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, 2011, approximately $18.7 million was available for the
payment of dividends by the subsidiary banks without regulatory approval. For further discussion of restrictions on the
payment of dividends, see "Quantitative and Qualitative Disclosures About Market Risk – Liquidity and Market Risk
Management," and Note 20, Stockholders’ Equity, of Notes to Consolidated Financial Statements.
Stock Repurchase
The Company made the following purchases of its common stock during the three months ended December 31, 2011:
Period
October 1 – October 31
November 1 – November 30
December 1 – December 31
Total
Total Number
of Shares
Purchased
Average
Price Paid
Per Share
64,628
45,347
8,169
118,144
$
$
23.70
24.84
26.93
24.36
18
Total Number
of Shares
Purchased as
Part of Publicly
Announced Plans
64,628
45,347
8,169
118,144
Maximum
Number of
Shares that May
Yet be Purchased
Under the Plans
562,044
516,697
508,528
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. 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.
On September 27, 2011, we announced that we would reinstate the existing stock repurchase program. Prior to the
suspension of the program, we had repurchased 54,328 shares, thereby leaving authority to repurchase 645,672 shares
under the program. 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.
During 2011, after announcing the reinstatement of the program, we repurchased 137,144 shares of stock with a
weighted average repurchase price of $23.98 per share. Under the current stock repurchase plan, we can repurchase an
additional 508,528 shares.
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, 2006 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
12/31/06
100.00
100.00
100.00
12/31/07
86.73
80.09
105.49
12/31/08
98.96
62.84
66.46
12/31/09
96.08
52.60
84.05
12/31/10
101.24
60.04
96.71
12/31/11
99.58
53.74
98.76
Period Ending
19
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, 2011, 2010, 2009, 2008 and 2007, 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)
2011
2010
2009
2008
2007
Years Ended December 31
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
$ 108,660
11,676
$ 101,949
14,129
$ 97,727
10,316
$ 94,017
8,646
$ 92,116
4,181
96,984
53,465
114,650
87,820
77,874
111,263
35,799 54,431
17,314
$ 37,117
10,425
$ 25,374
87,411
52,711
104,722
35,400
10,190
$ 25,210
85,371
49,326
96,360
87,935
46,003
94,197
38,337 39,741
11,427
$ 26,910
12,381
$ 27,360
1.47
1.47
1.45
23.70
20.09
0.76
17,309,488
17,317,850
2.16
2.15
1.51
23.01
19.36
0.76
17,204,200
17,264,900
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
3,320,129
697,656
1,737,844
30,108
62,184
532,259
2,650,397
89,898
30,930
407,911
345,727
3,316,432
613,662
1,915,064
26,416
63,068
428,750
2,608,769
133,394
30,930
397,371
334,303
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
12.29%
11.98%
12.00%
9.88%
10.12%
10.61%
11.86%
21.58%
22.83%
51.70%
10.28%
11.33%
20.05%
21.30%
35.35%
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%
20
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)
0.77%
6.25%
7.54%
3.85%
67.86%
1.19%
9.69%
11.71%
3.78%
65.28%
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%
Balance sheet ratios: (7)
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
1.18%
1.12%
1.12%
0.64%
0.51%
1.02%
0.83%
1.35%
0.81%
0.60%
2.44%
186.14%
2.18%
190.17%
1.83%
98.81%
0.96%
165.12%
0.75%
226.10%
1.91%
1.57%
1.33%
1.34%
1.37%
0.49%
0.71%
0.58%
0.43%
0.23%
Number of financial centers
Number of full time equivalent employees
84
1,083
85
1,075
84
1,091
84
1,123
83
1,128
(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 2011, the Company recorded a
$0.04 increase in EPS from the sale of MasterCard stock. Also in 2011, the Company recorded a $0.01 decrease in EPS from
the closing cost of a branch and a $0.01 EPS decrease from merger related costs from an FDIC-assisted acquisition. In 2010,
the Company recorded a net $0.65 increase in EPS from FDIC-assisted acquisitions (bargain purchase gains, merger related
costs, gains from disposition of investment securities and costs from disposition of FHLB borrowings). Also in 2010, the
Company recorded a $0.01 decrease in EPS from costs to close nine branches. 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 data)
2011
2010
2009
2008
2007
Years Ended December 31
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
$ 407,911 $ 397,371 $ 371,247 $ 288,792 $ 272,406
60,605
1,579
60,605
3,382
$ 345,727 $ 334,303 $ 308,873 $ 225,612 $ 208,419
60,605
2,463
60,605
2,575
60,605
1,769
23.70 $
20.09 $
$
$
17,212,317
23.01 $
19.36 $
21.72 $
18.07 $
17,271,594
17,093,931
13,960,680
20.69 $
16.16 $
19.57
14.97
13,918,368
(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 39.225%).
(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, 2011, this calculation excludes the $1.1 million gain on sale of MasterCard stock. For the year
ended December 31, 2010, this calculation excludes the gain on FDIC-assisted transactions of $21.3 million from total non-
interest income. 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
21
$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.
(7) Excludes assets covered by FDIC loss share agreements, except for their inclusion in total assets.
ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Critical Accounting Policies
Overview
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) acquisition accounting, (c) the valuation of goodwill
and the useful lives applied to intangible assets, (d) the valuation of employee benefit plans and (e) income taxes.
Allowance for Loan Losses on Loans Not Covered by Loss Share
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 appropriate 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 and at a
level considered appropriate in relation to the estimated risk inherent in the loan portfolio. 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 an allocation other 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.
Acquisition Accounting, Covered Loans and Related Indemnification Asset
The Company accounts for its acquisitions under ASC Topic 805, Business Combinations, which requires the use of
the purchase method of accounting. All identifiable assets acquired, including loans, are recorded at fair value. No
allowance for loan losses related to the acquired loans is recorded on the acquisition date as the fair value of the loans
22
acquired incorporates assumptions regarding credit risk. Loans acquired are recorded at fair value in accordance with
the fair value methodology prescribed in ASC Topic 820, exclusive of the shared-loss agreements with the Federal
Deposit Insurance Corporation (the “FDIC”). The fair value estimates associated with the loans include estimates
related to expected prepayments and the amount and timing of undiscounted expected principal, interest and other cash
flows.
Over the life of the acquired loans, the Company continues to estimate cash flows expected to be collected on pools of
loans sharing common risk characteristics, which are treated in the aggregate when applying various valuation
techniques. The Company evaluates at each balance sheet date whether the present value of its pools of loans
determined using the effective interest rates has decreased significantly and if so, recognizes a provision for loan loss in
its consolidated statement of income. For any significant increases in cash flows expected to be collected, the Company
adjusts the amount of accretable yield recognized on a prospective basis over the pool’s remaining life.
Because the FDIC will reimburse the Company for losses incurred on certain acquired loans, an indemnification asset is
recorded at fair value at the acquisition date. The indemnification asset is recognized at the same time as the
indemnified loans, and measured on the same basis, subject to collectability or contractual limitations. The shared-loss
agreements on the acquisition date reflect the reimbursements expected to be received from the FDIC, using an
appropriate discount rate, which reflects counterparty credit risk and other uncertainties.
The shared-loss agreements continue to be measured on the same basis as the related indemnified loans. Because the
acquired loans are subject to the accounting prescribed by ASC Topic 310, subsequent changes to the basis of the
shared-loss agreements also follow that model. Deterioration in the credit quality of the loans (immediately recorded as
an adjustment to the allowance for loan losses) would immediately increase the basis of the shared-loss agreements,
with the offset recorded through the consolidated statement of income. Increases in the credit quality or cash flows of
loans (reflected as an adjustment to yield and accreted into income over the remaining life of the loans) decrease the
basis of the shared-loss agreements, with such decrease being accreted into income over 1) the same period or 2) the
life of the shared-loss agreements, whichever is shorter. Loss assumptions used in the basis of the indemnified loans
are consistent with the loss assumptions used to measure the indemnification asset. Fair value accounting incorporates
into the fair value of the indemnification asset an element of the time value of money, which is accreted back into
income over the life of the shared-loss agreements.
Upon the determination of an incurred loss the indemnification asset will be reduced by the amount owed by the FDIC.
A corresponding claim receivable is recorded until cash is received from the FDIC.
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 frequently 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.
23
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 12, 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.
2011 Overview
Our net income for the year ended December 31, 2011, was $25.4 million, or $1.47 diluted earnings per share,
compared to $37.1 million, or $2.15 diluted earnings per share in 2010. Net income in 2009 was $25.2 million, or
$1.74 diluted earnings per share.
Net income for both 2011 and 2010 included several significant nonrecurring items that impacted net income, mostly
related to our FDIC-assisted acquisitions. Excluding all nonrecurring items, core earnings for the year ended
December 31, 2011, were $25.0 million, or $1.45 diluted core earnings per share, compared to $26.0 million, or
$1.51 diluted core earnings per share in 2010. See Reconciliation of Non-GAAP Measures and Table 21 –
Reconciliation of Core Earnings (non-GAAP) for additional discussion of non-GAAP measures.
During the first half of 2011, we recorded a pre-tax gain of $1.1 million on the sale of MasterCard stock. We also
recorded pre-tax merger related costs of $0.4 million and branch right sizing expenses of $0.1 million. After-taxes, the
combined 2011 nonrecurring items contributed $0.4 million to net income, or $0.02 to diluted earnings per share.
On October 15, 2010, we announced that our wholly-owned bank subsidiary, Simmons First National Bank (“SFNB”
or the “lead bank”), entered into a purchase and assumption agreement with loss share arrangements with the FDIC to
purchase substantially all of the assets and to assume substantially all of the deposits and certain other liabilities of
Security Savings Bank, FSB (“SSB”) in Olathe, Kansas. The Company recognized a pre-tax bargain purchase gain of
$18.3 million on this transaction and incurred pre-tax merger related costs of $2.0 million. As part of our acquisition
strategy, the investment portfolio was liquidated resulting in a pre-tax gain of $317,000. Additionally, in order to utilize
some of the Company’s excess liquidity, $58.4 million in FHLB advances were paid off, which resulted in a one-time
pre-payment expense of $594,000. After taxes, the combined fourth quarter 2010 nonrecurring items contributed
$9.7 million to net income, or $0.56 to diluted earnings per share, for the year ended December 31, 2010.
On May 14, 2010, we announced that our wholly-owned bank subsidiary, SFNB, entered into a purchase and
assumption agreement with loss share arrangements with the FDIC to purchase substantially all of the assets and to
assume substantially all of the deposits and certain other liabilities of Southwest Community Bank (“SWCB”) in
Springfield, Missouri. The Company recognized a pre-tax bargain purchase gain of $3.0 million on this transaction and
incurred pre-tax merger related costs of $0.4 million. After taxes, these nonrecurring items contributed $1.6 million to
net income, or $0.09 to diluted earnings per share, for the year ended December 31, 2010. Also, during the second
24
quarter of 2010, as a result of our branch right sizing initiative, we recorded a one-time, nonrecurring charge of $0.01 to
diluted earnings per share. See Efficiency Initiatives below for more information on branch right sizing.
Stockholders’ equity as of December 31, 2011, was $407.9 million, an increase of $10.5 million, or approximately
2.65%, from December 31, 2010. Book value per share was $23.70 and tangible book value per share was $20.09.
Our ratio of stockholders’ equity to total assets was 12.3% and the ratio of tangible stockholders’ equity to tangible
assets was 10.6% at December 30, 2011. The Company’s Tier I leverage ratio of 11.86%, as well as our other
regulatory capital ratios, remain significantly above the “well capitalized” levels. See Table 18 – Risk-Based Capital
for regulatory capital ratios. Our excess capital positions us to continue to take advantage of unprecedented acquisition
opportunities through FDIC-assisted transactions of failed banks. We continue to actively pursue the right
opportunities that meet our strategic plan regarding mergers and acquisitions. As with our history, we will continue to
be very deliberate and disciplined in these acquisition opportunities.
Total loans, including loans covered by FDIC loss share agreements, were $1.7 billion at December 31, 2011, a
decrease of $177 million, or 9.3%, from the same period in 2010. In our legacy portfolio, we experienced a decrease of
$104 million, or 6.2%, compared to December 31, 2010. Additionally, like the rest of the industry, we continue to
experience weak loan demand as a result of the overall general economic environment. We believe loan demand is
likely to remain soft through the first quarter of 2012, but we are becoming more optimistic relative to improved loan
demand in the last half of 2012. Loans covered by FDIC loss share agreements, which provide 80% Government
guaranteed protection against credit risk on those covered assets, were $158 million at December 31, 2011, compared to
$232 million at December 31, 2010.
Although the general state of the national economy has shown signs of improvement, it remains somewhat unsettled.
Also, despite continued challenges in the Northwest Arkansas region, overall, we continue to have good asset quality,
compared to the rest of the industry. The allowance for loan losses as a percent of total loans was 1.91% at
December 31, 2011. Non-performing loans equaled 1.02% of total loans. Non-performing assets were 1.18% of total
assets. The allowance for loan losses was 186.14% of non-performing loans. The Company’s net charge-offs for
2011 were 0.49% of total loans. Excluding credit cards, net charge-offs for 2011 were 0.30% of total loans.
Total assets at December 31, 2011, were $3.3 billion, an increase of $3.7 million, or 0.11%, over the period ended
December 31, 2010.
Simmons First National Corporation is an Arkansas based financial holding company with $3.3 billion in assets and
eight community banks in Pine Bluff, Lake Village, Jonesboro, Rogers, Searcy, Russellville, El Dorado and Hot
Springs, Arkansas. Including one office in Missouri and nine offices in Kansas acquired in 2010 through FDIC-
assisted transactions, our eight subsidiary banks conduct financial operations from 88 offices, of which 84 are financial
centers, in 47 communities in Arkansas, Missouri and Kansas.
Efficiency Initiatives
We previously reported that we hired a consultant to help us identify and implement revenue enhancements, process
improvements and branch staff level adjustments. We are in the final stages of implementation and expect to be fully
complete in 2012. We estimate a total annual benefit from the efficiency initiative of approximately $5 million before
tax, with a phase-in period from 2010 through 2012. A portion of the benefit is projected from revenue enhancements,
with the remainder from non-interest expense savings. We assured our associates that no one would lose their job as a
result of this initiative, as all positions impacted are being eliminated through attrition.
During June 2010, as scheduled as part of our branch right sizing initiative, and after much deliberation and analysis,
we closed or consolidated nine financial centers, primarily smaller branches in rural areas. During June 2011, we
closed another small branch. We believe most of the customers have been absorbed into other Simmons locations in
close proximity to the closed branches. After the closings, we now have 74 financial centers in Arkansas, still one of
the best footprints in the state. As a result of these closings, we recorded a one-time, nonrecurring pre-tax charge of
$372,000, or $0.01 to diluted earnings per share in 2010, and $141,000 in 2011. Again, staff reductions are being
realized through attrition and associates at the affected branches have been reassigned to other locations. Our branch
right sizing initiative has been under way for some time. Over the last several years we have added numerous new
financial centers, closed several and relocated others. We will continue our efforts to manage our product delivery
system in the most efficient manner possible.
25
Both our efficiency and branch right sizing initiatives resulted in significant cost savings and staff reductions. Since the
beginning of both projects in early 2009, our staffing levels are down 144 headcount. As mentioned earlier, all of the
staffing reduction is being realized through attrition, and no associate has lost their job.
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 39.225%.
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 2008 at 7.25% and 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
has remained unchanged at 3.25% since December 16, 2008.
The Federal Funds rate, which is the cost to banks of immediately available overnight funds, began 2008 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 has
remained unchanged since December 16, 2008.
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, 2011, net interest income on a fully taxable equivalent basis was $113.6 million, an
increase of $6.7 million, or 6.2%, from the same period in 2010. The increase in net interest income was the result of a
$6.6 million decrease in interest expense and a $0.1 million increase in interest income.
The $6.6 million decrease in interest expense for 2011 was primarily the result of a 29 basis point decrease in cost of
funds due to competitive repricing during a low interest rate environment, coupled with a shift in our mix of interest
bearing deposits. The lower interest rates accounted for an $5.9 million decrease in interest expense. The most
significant component of this decrease was the $3.1 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 34 basis points from 1.58% to 1.24%. Lower rates on interest bearing transaction
and savings accounts resulted in an additional $1.8 million decrease in interest expense, with the average rate
decreasing by 14 basis points from 0.44% to 0.30%. Another $1.5 million decrease in interest expense resulted from
the 2011 conversion of $10.3 million in trust preferred securities from a fixed rate of 6.97% to a floating rate of 2.80%
above the three month LIBOR rate. Another decrease for 2011 resulted from a $0.6 million one-time pre-payment
expense recorded in 2010 from the pay-off of $58.4 million in FHLB advances related to the SSB FDIC-assisted
transaction. As part of our acquisition strategy, we decided to pay-off these advances in order to utilize some of the
Company’s excess liquidity. Additional scheduled payoffs of FHLB borrowings caused a $0.8 million decrease in
interest expense, with a $0.2 million increase due to deposit growth.
The $0.1 million increase in interest income for 2011 can be attributed to our FDIC-assisted acquisitions in 2010, as the
acquired covered loans generated an additional $12.9 million of interest income in 2011 over 2010. The declining
balance of the legacy loan portfolio, which excludes loans covered by FDIC loss share agreements, caused a
$10.6 million decrease in interest income. Another $2.4 million decrease in interest income resulted from a 35 basis
point decline in the yield on investment securities.
Of the $12.9 million increase in interest income from covered loans, $8.6 million was due to higher average balances in
2011 over 2010, as the majority of the covered loans were acquired during the fourth quarter of 2010. The remaining
26
$4.3 million increase in interest income was the result of higher average yields on the covered loans in 2011. The
average yield on covered loans increased from 5.26% in 2010 to 8.90% in 2011. A portion of the yield increase was
due to additional yield accretion recognized in conjunction with the fair value of the loan pools acquired in the 2010
FDIC-assisted transactions as discussed in Note 2 and Note 5 of the Notes to Consolidated Financial Statements. Each
quarter, we estimate the cash flows expected to be collected from the acquired loan pools. During the fourth quarter of
2011, this cash flows estimate increased based on the payment histories and reduced loss expectations of the loan pools,
resulting in a total of $23.7 million of adjustments to be spread on a level-yield basis over the remaining expected lives
of the loan pools. The increases in expected cash flows also reduced the amount of expected reimbursements under the
loss sharing agreements with the FDIC, which are recorded as indemnification assets. The expected indemnification
assets have also been reduced during the fourth quarter of 2011, resulting in a total of $20.9 million of adjustments to
be amortized on a level-yield basis over the remainder of the loss sharing agreements or the remaining expected life of
the loan pools, whichever is shorter.
For the year ended December 31, 2011, the adjustments increased interest income by $1.1 million and decreased non-
interest income by $1.0 million. The net impact to pre-tax income was $146,000 for 2011. Because these adjustments
will be recognized over the estimated remaining lives of the loan pools and the remainder of the loss sharing
agreements, respectively, they will impact future periods as well. The current estimate of the remaining accretable yield
adjustment that will positively impact interest income is $22.6 million and the remaining adjustment to the
indemnification assets that will reduce non-interest income is $19.9 million. Of the remaining adjustments, we expect
to recognize $11.0 million of interest income and a $9.7 million reduction of non-interest income during 2012. The
accretable yield adjustments recorded in future periods will change as we continue to evaluate expected cash flows
from the acquired loan pools.
Our net interest margin was 3.85% for the year ended December 31, 2011, up 7 basis points from 2010. Although we
have seen an increase in margin from 2010, our margin remains compacted primarily due to two factors. First, while
keeping us prepared to benefit from rising interest rates, our high levels of liquidity are holding the margin down. Also,
margin is impacted by our drop in legacy loan balances. The increase in margin in 2011 was primarily due to covered
loans acquired through acquisitions. The accretable yield adjustment discussed above accounted for 4 basis points of
the increase, while the remainder of the increase was due to a higher yield on acquired covered loans compared to the
yield on loans in our legacy portfolio. Based on our current interest rate risk pricing model, we anticipate a slight
margin expansion in 2012 due to the impact of our FDIC-assisted acquisitions.
Our net interest margin was 3.78% for the year ended December 31, 2010, unchanged from same period in 2009.
27
Tables 1 and 2 reflect an analysis of net interest income on a fully taxable equivalent basis for the years ended
December 31, 2011, 2010 and 2009, respectively, as well as changes in fully taxable equivalent net interest
margin for the years 2011 versus 2010 and 2010 versus 2009.
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
2010
2009
2011
$ 129,056
4,970
$ 128,955
5,012
$ 136,533
4,935
134,026
20,396
133,967
27,006
141,468
38,806
Net interest income - FTE
$ 113,630
$ 106,961
$ 102,662
Yield on earning assets - FTE
Cost of interest bearing liabilities
Net interest spread - FTE
Net interest margin - FTE
4.54%
0.86%
3.68%
3.85%
4.74%
1.15%
3.59%
3.78%
5.21%
1.69%
3.52%
3.78%
Table 2:
Changes in Fully Taxable Equivalent Net Interest Margin
(In thousands)
Decrease due to change in earning assets
Increase (decrease) due to change in earning asset yields
Increase due to change in interest rates paid on
interest bearing liabilities
Increase due to change in interest bearing liabilities
Increase in net interest income
2011 vs. 2010 2010 vs. 2009
$
(1,877)
1,936
$
(2,062)
(5,439)
5,946
664
11,013
787
$
6,669
$
4,299
28
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, 2011. 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
(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 not covered by
loss share agreements
Loans covered by FDIC
loss share agreements
Total interest earning assets
Non-earning assets
Total assets
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 agreements
to repurchase
Other borrowed funds
Short-term debt (1)
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
2011
Years Ended December 31
2010
Average
Balance
Income/ Yield/
Expense Rate(%)
Average
Balance
Income/ Yield/
Expense Rate(%)
2009
Income/ Yield/
Average
Balance Expense Rate(%)
$ 486,274 $ 1,100
6
6,719
12,784
503
33
886
426,226
207,929
11,953
7,466
0.23 $
0.68
1.58
6.15
4.21
0.44
273,001 $
1,686
440,379
206,832
16,762
7,278
721
15
8,951
13,211
715
30
0.26 $
0.89
2.03
6.39
4.27
0.41
120,763 $
4,271
448,918
196,446
12,428
6,187
439
27
13,896
12,632
608
20
0.36
0.63
3.10
6.43
4.89
0.32
1,621,251
95,763
5.91 1,800,868
106,120
5.89
1,924,317 113,846
5.92
192,300
2,954,285
330,342
$ 3,284,627
17,118
134,026
8.90
4.54
79,912
2,826,718
307,143
$ 3,133,861
4,204
133,967
5.26
4.74
--
--
2,713,330 141,468
--
5.21
251,282
$ 2,964,612
$ 1,217,218 $ 3,611
11,314
14,925
913,009
2,130,227
0.30 $ 1,181,597 $ 5,227
14,310
1.24
19,537
0.70
907,146
2,088,743
0.44 $ 1,091,960 $ 8,252
939,358 22,794
1.58
31,046
0.94
2,031,318
0.76
2.43
1.53
103,557
450
0.43
101,918
532
0.52
107,975
769
0.71
667
127,577
2,362,028
51
4,970
20,396
7.65
3.90
0.86
3,135
147,042
2,340,838
58
6,879
27,006
1.85
4.68
1.15
2,583
160,963
33
6,958
2,302,839 38,806
1.28
4.32
1.69
482,651
33,855
2,878,534
406,093
375,941
33,941
2,750,720
383,141
332,998
23,565
2,659,402
305,210
$ 3,284,627
$ 3,133,861
$ 2,964,612
$ 113,630
3.68
3.85
$ 106,961
3.59
3.78
$ 102,662
3.52
3.78
(1) Interest expense on short-term debt includes fees related to an open line of credit from the FHLB. Because the average balance of short-term
debt was so low in 2011, the fees caused a significant increase to the 2011 rate.
29
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 not covered by loss share
Loans covered by FDIC loss
Years Ended December 31
2011 over 2010
Yield/
Rate
Volume
Total
2010 over 2009
Yield/
Rate
Volume
Total
$ 495 $
(6)
(280)
70
(202)
1
(10,609)
(116) $ 379
(9)
(2,232)
(427)
(212)
3
(10,357)
(3)
(1,952)
(497)
(10)
2
252
$ 429
(20)
(259)
664
192
4
(7,276)
$ (147) $ 282
(12)
(4,945)
579
107
10
(7,726)
8
(4,686)
(85)
(85)
6
(450)
share agreements
8,654
4,260
12,914
4,204
--
4,204
Total
(1,877)
1,936
59
(2,062)
(5,439)
(7,501)
Interest expense
Interest bearing transaction and
savings accounts
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
154
91
(1,770)
(3,087)
(1,616)
(2,996)
631
(758)
(3,656)
(7,726)
(3,025)
(8,484)
9
(91)
(82)
(41)
(196)
(237)
(75)
(843)
68
(1,066)
(7)
(1,909)
8
(627)
17
548
25
(79)
(664)
(5,946)
(6,610)
(787)
(11,013)
(11,800)
$ (1,213) $ 7,882
$ 6,669
$ (1,275) $5,574
$ 4,299
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 appropriate 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 2011, 2010 and 2009, was $11.7 million, $14.1 million and $10.3 million,
respectively. During 2011, we decreased our provision by approximately $2.5 million, primarily due to a decrease from
2010 in net loan charge-offs. However, we did add a special $500,000 provision during the second quarter of 2011, as
we believe there remain many economic and financial factors, including the many uncertainties related to our national
debt, spending and taxes that have recently consumed the news, that necessitate the need for a higher level of
unallocated reserve, resulting in a higher level of provision. See Allowance for Loan Losses section for additional
information.
30
During 2010, we increased our provision by approximately $3.8 million, primarily due to an increase in net loan
charge-offs. Management also determined that there were several economic and environmental factors that necessitated
the need for a higher level of unallocated reserve, resulting in a higher level of provision.
Non-Interest Income
Total non-interest income was $53.5 million in 2011, compared to $77.9 million in 2010 and $52.7 million in 2009.
Non-interest income for 2011 decreased $24.4 million, or 31.3%, from 2010. The most significant factor for the
decrease was the nonrecurring $21.3 million gain on the FDIC-assisted transactions in 2010. Another nonrecurring
item was the $317,000 gain on sale of securities related from the liquidation of the SSB investment portfolio. See 2011
Overview section for more discussion of the FDIC-assisted transactions. The decrease in non-interest income was
partially offset by a nonrecurring $1.1 million gain from the sale of MasterCard stock in the second quarter of 2011 (see
further discussion below). Normalizing for these nonrecurring items, core non-interest income for 2011 was down
6.9% from 2010.
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,
gains (losses) from sales of securities and gains (losses) related to FDIC-assisted transactions and covered assets.
Table 5 shows non-interest income for the years ended December 31, 2011, 2010 and 2009, respectively, as well as
changes in 2011 from 2010 and in 2010 from 2009.
Table 5:
Non-Interest Income
(In thousands)
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 FDIC-assisted transactions
Net gain (loss) on assets covered by
FDIC loss share agreements
Other income
Gain on sale of securities, net
Total non-interest income
Years Ended December 31
2009
2010
2011
2011
Change from
2010
2010
Change from
2009
$ 5,375 $
16,808
2,980
5,179 $ 5,227 $
17,700
2,812
17,944
2,668
196
(892)
168
3.78% $
-5.04
5.97
(48)
(244)
144
-0.92%
-1.36
5.40
4,188
4,810
4,032
(622) -12.93
778
19.30
1,478
16,828
--
1,481
--
2,236
16,140
2,524
1,670
21,314
2,153
14,392
2,333
1,270
--
(758) -33.90
4.26
688
(2,524) -100.00
(189) -11.32
(21,314) -100.00
83
1,748
191
400
21,314
3.86
12.15
8.19
31.50
--
154
4,173
--
318
306
173
$ 53,465 $ 77,874 $ 52,711 $ (24,409) -31.34% $ 25,163
(164) -51.57
46.22
(317) -100.00
318
2,854
317
--
2,548
144
1,319
100.00
12.01
120.14
47.74%
Recurring fee income for 2011 was $42.0 million, an increase of $160,000, or 0.4%, when compared with the
2010 amounts. Service charges on deposits accounts decreased by $892,000 primarily due to a significant decline in
fee income as a result of recent regulatory changes related to overdrafts on point-of-sale transactions. Credit card fees
increased $688,000 due primarily to a higher volume of credit and debit card transactions. In July, the Federal Reserve
released final rules regarding debit card fee income under the Durbin amendment. While the Durbin amendment only
applies to banks of $10 billion or more in size, we have consistently indicated that we believe all banks will ultimately
be negatively impacted. In fact, we continue to estimate the potential negative impact to our institution, going forward,
to be approximately $600,000 annually.
Recurring fee income for 2010 was $41.8 million, an increase of $1.6 million, or 4.0%, when compared with the
2009 amounts. Credit card fees increased $1.7 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
through 2009.
31
Income on sale of mortgage loans decreased by $622,000, or 12.9%, in 2011 compared to 2010 , due to the significant
industry-wide slowdown of financing and refinancing. Income on sale of mortgage loans increased by $778,000, or
19.3%, in 2010 compared to 2009. The majority of the increase resulted from the sale of mortgage loans in Kansas
from our SSB transaction, with the remainder primarily due to lower mortgage rates producing an increase in residential
refinancing volume.
Income on investment banking decreased by $758,000, or 33.9%, in 2011 compared to 2010, due in part to an industry-
wide decline in dealer-bank activities. Another factor in the decrease was a favorable mark-to-market adjustment on
trading investment during 2010, with unfavorable adjustments in 2011.
As expected, premiums on sale of student loans decreased by $2.5 million, or 100.0%, for the year ended December 31,
2011, compared to 2010. U.S. government legislation has eliminated the private sector from providing student loans
after the 2009-2010 school year. Therefore, we had no student loan sales during 2011. Premiums on sale of student
loans increased by $191,000, or 8.2%, for the year ended December 31, 2010, compared to 2009. The increase was due
to a higher volume of loan sales in 2010. During the second and third quarters of 2010, we sold the balance of our
loans that were originated for the 2009-2010 school year, approximately $65 million of student loans, to the
government, resulting in premiums of approximately $2.5 million.
We currently plan to continue servicing the remaining student loans internally until the loans pay off, we find a suitable
buyer or the students consolidate their loans. Unless we do find a suitable buyer, we do not expect to receive income
from premiums on sale of student loans during 2012 or thereafter. See Loan Portfolio section for additional
information on student loans.
Net gain (loss) on assets covered by FDIC loss share agreements decreased by $164,000 in 2011 compared to 2010.
Although the amount of the net change is not significant, there are considerable changes from 2010 to 2011 in the
components. First, we recognized $1.2 million of income from the accretion of the FDIC indemnification assets, net of
amortization of the FDIC true-up liability, during 2011, compared to $0.3 million during 2010. Because the SSB
acquisition came in October 2010, only a small amount of income was recorded in 2010, with a full year of accretion in
2011. Also, 2011 included $40,000 of gains from the sale of covered foreclosed assets, with no gains in 2010.
Finally, as described in Note 5 of the Notes to Consolidated Financial Statements, due to the increase in cash flows
expected to be collected from the FDIC-covered loan portfolios, $978,000 of amortization, a reduction of non-interest
income, was recorded in 2011 relating to reductions of expected reimbursements under the loss sharing agreements
with the FDIC, which are recorded as indemnification assets. There was no amortization adjustment recorded in
2010 relating to reductions of expected reimbursements under the loss sharing agreements with the FDIC.
Other non-interest income for 2011 increased by $1.3 million over 2010, primarily due to a $1.1 million gain from the
sale of MasterCard stock in the second quarter of 2011. On May 31, 2006, MasterCard Incorporated completed its
Initial Public Offering (“IPO”). As a part of the IPO, approximately 41% of the equity was issued to member-banks as
Class B common stock. Conversion of Class B shares to Class A shares was restricted as to the timing and number of
shares eligible until the fourth anniversary of the IPO. As a member-bank the Company received 4,077 shares of
MasterCard Class B stock. As there was no market or readily ascertainable fair market value for the class B shares,
they were recorded with no basis value. On May 31, 2010, restrictions on the conversion of the Class B shares to
Class A shares expired, permitting Class B stockholders to convert Class B shares into an equal number of Class A
shares for prompt disposition to the public. On May 13, 2011, the Company applied for conversion of its Class B
shares to Class A common stock and recorded a $1.1 million pre-tax gain upon conversion approval by MasterCard
Incorporated and immediately sold the Class A shares.
We recorded no gains or losses on sale of securities during 2011. As part of our acquisition strategy related to SSB, we
liquidated the acquired investment portfolio, resulting in net realized gain of $317,000 in 2010. We recorded $144,000
of securities gains in 2009.
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
32
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 2011 was $114.7 million, an increase of $3.4 million or 3.0%, from 2010. This increase
includes approximately $5.7 million of incremental normal operating expenses in 2011 for our FDIC-assisted
acquisitions of 2010. Also included in non-interest expense are merger related costs of $0.4 million and $2.6 million in
2011 and 2010, respectively. Normalizing for these incremental operating expenses, merger related costs and other
nonrecurring items, non-interest expense decreased by 0.2% in 2011 from 2010. This decrease is the result of the
implementation of our efficiency initiatives. See the Reconciliation of Non-GAAP Measures section for details of the
nonrecurring items. Also see the section titled Efficiency Initiatives in the 2011 Overview for additional information.
Non-interest expense for 2010 was $111.3 million, an increase of $6.6 million or 6.3%, from 2009. This increase
includes $2.6 million of merger related costs and approximately $3.0 million of normal operating expense at our two
new FDIC-assisted acquisitions. Normalizing for these expenses, as well as for $372,000 of one-time nonrecurring
costs associated with our branch closings in 2010, non-interest expense increased by 0.6% in 2010 over 2009. This
modest increase was the result of the implementation of our efficiency initiatives. See the section titled Efficiency
Initiatives in the 2010 Overview for additional information.
Deposit insurance expense during 2011 decreased to $2.4 million from $3.8 million in 2010, a decrease of $1.4 million,
or 37.4%. The decrease was primarily due to a decrease in deposit insurance premiums resulting from changes in the
FDIC’s assessment base and rates.
Deposit insurance expense during 2010 decreased to $3.8 million from $4.6 million in 2009, a decrease of $829,000, or
17.9%. The decrease in deposit insurance expense was due to the June 30, 2009, FDIC special assessment, partially
offset by increases in the fee assessment rates during 2010.
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. The special
assessment, collected by the FDIC on September 30, 2009, 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.
Fees paid for professional services increased by $98,000, or 2.2%, in 2011 over 2010, as we were in the second of three
years of increased professional fees related to our ongoing efficiency initiatives. Fees paid for professional services
increased by $833,000, or 22.9%, in 2010 over 2009. The increase in professional services, which consist of audit,
accounting, legal and consulting fees, was primarily due to costs associated with our ongoing efficiency initiatives,
which began to positively impact earnings in 2010 and 2011, and we expect to produce significant savings and revenue
enhancements in 2012 and beyond. See Item 1. Business – Efficiency Initiatives for additional information on our
efficiency initiatives.
Credit card expense for 2011 increased $726,000, or 12.4%, from 2010, following an increase of $788,000, or 15.6%,
in 2010. These increases were 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.
Core deposit premium amortization expense recorded for the years ended December 31, 2011, 2010 and 2009, was
$884,000, $786,000 and $805,000, respectively. The Company’s estimated amortization expense for each of the
following five years is: 2012 – $295,000; 2013 – $261,000; 2014 – $157,000; 2015 – $151,000; and 2016 – $148,000.
The estimated amortization expense decreases as core deposit premiums fully amortize in future years.
33
Table 6 below shows non-interest expense for the years ended December 31, 2011, 2010 and 2009, respectively, as
well as changes in 2011 from 2010 and in 2010 from 2009.
Table 6:
Non-Interest Expense
(In thousands)
Salaries and employee benefits
Occupancy expense, net
Furniture and equipment expense
Other real estate and
foreclosure expense
Deposit insurance
Merger related costs
Other operating expenses
Professional services
Postage
Telephone
Credit card expense
Operating supplies
Amortization of core deposits
Other expense
Years Ended December 31
2009
2010
2011
2011
Change from
2010
2010
Change from
2009
$ 65,058 $ 60,731 $ 58,317
7,457
6,195
7,808
6,093
8,443
6,633
$ 4,327
635
540
7.12% $ 2,414
351
8.13
(102)
8.86
4.14%
4.71
-1.65
678
2,387
357
974
3,813
2,611
453
4,642
--
(296)
(1,426)
(2,254)
-30.39
-37.40
-86.33
521
(829)
2,611
115.01
-17.86
--
4,574
2,486
2,480
6,565
1,653
884
12,452
4,476
2,465
2,328
5,839
1,403
786
11,936
3,643
2,409
2,113
5,051
1,470
805
12,167
98
21
152
726
250
98
516
2.19
0.85
6.53
12.43
17.82
12.47
4.32
833
56
215
788
(67)
(19)
(231)
22.87
2.32
10.18
15.60
-4.56
-2.36
-1.90
Total non-interest expense
$ 114,650 $ 111,263 $ 104,722
$ 3,387
3.04% $ 6,541
6.25%
Income Taxes
The provision for income taxes for 2011 was $10.4 million, compared to $17.3 million in 2010 and $10.2 million in
2009. The effective income tax rates for the years ended 2011, 2010 and 2009 were 29.1%, 31.8% and 28.8%,
respectively.
Loan Portfolio
Our loan portfolio, excluding loans covered by FDIC loss share arrangements, averaged $1.621 billion during 2011 and
$1.801 billion during 2010. As of December 31, 2011, total loans, excluding loans covered by FDIC loss share
arrangements, were $1.580 billion, compared to $1.684 billion on December 31, 2010. 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
appropriate 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
$346.6 million at December 31, 2011, or 21.9% of total loans, compared to $370.2 million, or 22.0% of total loans at
December 31, 2010. The $23.6 million consumer loan decrease from 2010 to 2011 is primarily due to a $13.9 million
decrease in our student loan portfolio, as expected. The balance of our consumer loan portfolio decreased by
$9.7 million, with declines in both our direct and indirect lending areas.
The student loan portfolio balance at December 31, 2011 was $47.4 million, a decrease of $13.9 million, or 22.7%,
from December 31, 2010. Student loans were 3.0% of total loans at December 31, 2011, compared with 3.6% at
December 31, 2010 and 6.1% at December 31, 2009.
34
Simmons First had been in the student loan business since 1966, and we believe that the banking industry had been
very efficient in serving the students and the schools in Arkansas. However, U.S. government legislation finalized
during the first quarter of 2010 has eliminated the private sector from providing student loans after the 2009-2010
school year. Therefore, as of June 30, 2010, the Company and the banking industry were no longer providers of
student loans.
As for our current student loan portfolio, we have sold the loans we originated during the 2009-2010 school year under
the program established in 2008 in which the government will purchase the loans at par plus a premium. Sales of these
loans during the third quarter of 2010 left approximately $61.3 million of student loans in our portfolio that will not
qualify for the government purchase program, down $53.0 million, or 46.4%, from December 31, 2009. Payoffs and
consolidations have left approximately $47.4 million of student loans in our portfolio at December 31, 2011. We
currently plan to continue servicing the remaining student loans internally until the loans pay off, we find a suitable
buyer or the students consolidate their loans. See Non-Interest Income section for additional information on student
loans.
The credit card portfolio balance at December 31, 2011, decreased by $359,000, or 0.2%, when compared to the same
period in 2010. After several years of significant growth, including a $19.5 million, or 11.5% increase during 2009,
growth in the credit card portfolio stabilized during 2010 and 2011. After five consecutive years of growth, we did not
see a large increase in net new accounts in 2010 or 2011, due primarily to increased competition from the large credit
card banks.
The growth in outstanding credit card balances in recent years through 2009 was primarily the result of an increase in
net new accounts. We added over 15,000 net new accounts in 2009 and over 5,000 net new accounts in 2008. We
believe the increase in outstanding balances and the addition of new accounts were 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.
Real estate loans consist of construction loans, single family residential loans and commercial loans. Real estate loans
were $1.001 billion at December 31, 2011, or 63.4% of total loans, compared to $1.067 billion, or 63.4% of total loans
at December 31, 2010, a decrease of $65.3 million, or 6.1%. Our construction and development (“C&D”) loans
decreased by $43.9 million, with loans either migrating to our commercial real estate (“CRE”) portfolio or being
liquidated or refinanced elsewhere. Single family residential loans decreased by $9.3 million and CRE loans decreased
by $12.0 million. Considering the continuing 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 7.0% of our
loan portfolio and CRE loans (excluding C&D) represent 34.0% of our loan portfolio, both of which compare very
favorably to our peers.
Commercial loans consist of commercial loans and agricultural loans. Commercial loans were $227.2 million at
December 31, 2011, or 14.4% of total loans, compared to the $236.7 million, or 14.1% of total loans at December 31,
2010. This $9.5 million decrease in commercial loans is primarily due to weak loan demand throughout Arkansas,
Kansas and southern Missouri.
35
The balances of loans outstanding, excluding loans covered by FDIC loss share agreements, at the indicated dates are
reflected in table 7, according to type of loan.
Table 7:
Loan Portfolio
(In thousands)
Consumer
Credit cards
Student loans
Other consumer
Total consumer
Real Estate
Construction
Single family residential
Other commercial
Total real estate
Commercial
Commercial
Agricultural
Total commercial
Other
2011
Years Ended December 31
2009
2008
2010
2007
$ 189,970 $ 190,329 $ 189,154 $ 169,615 $ 166,044
76,277
137,624
379,945
61,305
118,581
370,215
47,419
109,211
346,600
111,584
138,145
419,344
114,296
139,647
443,097
109,825
355,094
536,372
1,001,291
153,772
364,442
548,360
1,066,574
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
141,422
85,728
227,150
4,728
150,501
86,171
236,672
10,003
172,091
84,866
256,957
5,451
195,967
88,233
284,200
10,223
200,531
73,470
274,001
10,724
Total loans
$ 1,579,769 $ 1,683,464 $ 1,874,989 $ 1,933,074 $ 1,850,454
Table 8 reflects the remaining maturities and interest rate sensitivity of loans, excluding loans covered by FDIC loss share
agreements, at December 31, 2011.
Table 8:
Maturity and Interest Rate Sensitivity of Loans
(In thousands)
Consumer
Real estate
Commercial
Other
Total
Predetermined rate
Floating rate
Total
Covered Assets
Over 1
year
through
5 years
1 year
or less
Over
5 years
Total
$ 299,346
635,863
178,519
4,032
$
47,184
357,704
48,246
552
$
70
7,725
385
143
$ 346,600
1,001,292
227,150
4,727
$ 1,117,760
$ 453,686
$ 8,323
$ 1,579,769
$ 603,030
514,730
$ 412,895
40,791
$ 4,004
4,319
$ 1,019,929
559,840
$ 1,117,760
$ 453,686
$ 8,323
$ 1,579,769
On May 14, 2010, the Company acquired substantially all of the assets and assumed substantially all of the deposits
and certain other liabilities of SWCB in an FDIC-assisted transaction that generated a pre-tax bargain-purchase gain
of $3.0 million. On October 15, 2010, the Company acquired substantially all of the assets and assumed
substantially all of the deposits and certain other liabilities of SSB in an FDIC-assisted transaction that generated a
pre-tax bargain-purchase gain of $18.3 million. Loans comprise the majority of the assets acquired and are subject
to loss share agreements with the FDIC whereby SFNB is indemnified against 80% of losses. The loans acquired
from the former SWCB and the former SSB, as well as the acquired other real estate owned and the related
indemnification asset from the FDIC, are presented as covered assets in the accompanying consolidated financial
statements.
36
A summary of assets covered by FDIC loss share agreements is as follows.
Table 9: Covered Assets
(In thousands)
Loans, net of discount
Foreclosed assets held for sale
FDIC indemnification asset
Total covered assets
December 31,
2011
$
$
158,075
11,685
47,683
217,443
We evaluated loans purchased in conjunction with the acquisitions of SWCB and SSB for impairment in accordance
with the provisions of ASC Topic 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality.
Purchased covered loans are considered impaired if there is evidence of credit deterioration since origination and if it is
probable that not all contractually required payments will be collected. All loans acquired in these two transactions
were deemed to be covered impaired loans. These loans were not classified as nonperforming assets at December 31,
2011, or December 31, 2010, as the loans are accounted for on a pooled basis and the pools are considered to be
performing. Therefore, interest income, through accretion of the difference between the carrying amount of the loans
and the expected cash flows, is being recognized on all purchased impaired loans. See Note 2 and Note 5 of the Notes
to Consolidated Financial Statements for further discussion of assets covered by FDIC loss share agreements.
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.
Historically, we have sold our student loans into the secondary market before they reached payout status, thus requiring
no servicing by the Company. Currently, since the government takeover of the student loan origination business in
2010, there is no secondary market for student loans; therefore, we are now 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 $2.5 million of government guaranteed student loans were over 90 days past due as of
December 31, 2011. 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, excluding other real estate covered by FDIC loss share agreements, decreased by
$0.3 million from December 31, 2010, to December 31, 2011, as we continue to aggressively manage our non-
performing assets. During 2011, we moved two classified credits, previously reported as performing troubled debt
restructurings (“TDRs”), to nonaccrual status. We were also able to rid ourselves of several significant non-performing
assets through liquidation or customer refinancing at other financial institutions. As a result of these credit
reclassifications and dispositions, non-performing assets, including TDRs, as a percent of total assets decreased to
37
1.52% at December 31, 2011, compared to 1.71% at December 31, 2010. We remain aggressive in the identification,
quantification and resolution of problem loans.
Foreclosed assets held for sale, excluding other real estate covered by FDIC loss share agreements, increased by
$14.0 million from December 31, 2009, to December 31, 2010, as we continued to aggressively manage our non-
performing assets. The majority of the increase was attributable to our acceptance of a deed in lieu of foreclosure for an
$8.1 million motel loan in the Northwest Arkansas region, previously in nonaccrual status. We recorded the property at
$6.7 million, with the difference charged-off through our allowance for loan losses. This transaction is also the primary
reason our nonaccrual loans decreased by $10.9 million from the previous year. Total non-performing assets increased
$2.7 million from December 31, 2009.
Given current economic conditions, borrowers of all types are experiencing declines in income and cash flow. As a
result, many borrowers are seeking to reduce contractual cash outlays, the most prominent being debt payments. In an
effort to preserve our net interest margin and earning assets, we are open to working with existing customers in order to
maximize the collectability of the debt.
When we restructure a loan to a borrower that is experiencing financial difficulty and grant a concession that we would
not otherwise consider, a troubled debt restructuring (“TDR”) results and the Company classifies the loan as a TDR.
The Company grants various types of concessions, primarily interest rate reduction and/or payment modifications or
extensions, with an occasional forgiveness of principal.
Under ASC Topic 310-10-35, Subsequent Measurement, a TDR is considered to be impaired, and an impairment
analysis must be performed. We assess the exposure for each modification, either by collateral discounting or by
calculation of the present value of future cash flows, and determine if a specific allocation to the allowance for loan
losses is needed.
Once an obligation has been restructured because of such credit problems, it continues to be considered a TDR until
paid in full; or, if an obligation yields a market interest rate and no longer has any concession regarding payment
amount or amortization, then it is not considered a TDR at the beginning of the calendar year after the year in which the
improvement takes place. We had TDRs totaling $16.5 million and $21.6 million at December 31, 2011, and
December 31, 2010, respectively. The majority of performing and non-performing TDRs are in our CRE portfolio.
We return TDRs to accrual status only if (1) all contractual amounts due can reasonably be expected to be repaid within
a prudent period, and (2) repayment has been in accordance with the contract for a sustained period, typically at least
six months.
Although the general state of the national economy remains volatile, and despite the challenges in housing and
commercial real estate markets, we continue to maintain good asset quality, compared to the industry. The allowance
for loan losses as a percent of total loans was 1.91% as of December 31, 2011. Non-performing loans equaled 1.02%
of total loans. Non-performing assets were 1.18% of total assets. The allowance for loan losses was 186% of non-
performing loans. Our net charge-offs to total loans for 2011 were 0.49%. Excluding credit cards, the net charge-offs
to total loans were 0.30%. Net credit card charge-offs to total credit card loans for 2011 were 2.06%, compared to
2.37% in 2010, and more than 400 basis points better than the industry average charge-off ratio as reported by Moody’s
Investors Service for the same period.
We do not own any securities backed by subprime mortgage assets, and offer no mortgage loan products that target
subprime borrowers.
38
Table 10 presents information concerning non-performing assets, including nonaccrual and restructured loans and other
real estate owned (excluding loans and other real estate covered by FDIC loss share agreements).
Table 10:
Non-performing Assets
(In thousands, except ratios)
2011
Years Ended December 31
2009
2008
2010
2007
Nonaccrual loans (1)
Loans past due 90 days or more
(principal or interest payments):
Government guaranteed student loans (2)
Other loans
Total loans past due 90 days or more
Total non-performing loans
Other non-performing assets:
Foreclosed assets held for sale
Other non-performing assets
Total other non-performing assets
$ 12,907
$ 11,186
$ 21,994
$ 14,358
$ 9,909
2,483
785
3,268
16,175
1,736
969
2,705
13,891
1,939
1,383
3,322
25,316
--
1,292
1,292
15,650
--
1,282
1,282
11,191
22,887
--
22,887
23,204
109
23,313
9,179
20
9,199
2,995
12
3,007
2,629
17
2,646
Total non-performing assets
$ 39,062
$ 37,204
$ 34,515
$ 18,657
$ 13,837
Performing TDRs
$ 11,391
$ 19,426
$ 12,718
$
--
$
--
Allowance for loan losses to
non-performing loans (3)
Non-performing loans to total loans (3)
Non-performing loans to total loans
(excluding government guaranteed student loans)
Non-performing assets to total assets (3)
Non-performing assets to total assets
(excluding government guaranteed student loans)
(2) (3)
(2) (3)
186.14%
1.02
190.17%
0.83
98.81%
1.35
165.12%
0.81
226.10%
0.60
0.87
1.18
1.10
0.72
1.12
1.07
1.25
1.12
1.05
0.81
0.64
0.64
0.60
0.51
0.51
(1) Includes nonaccrual TDRs of approximately $5.2 million at December 31, 2011, and $2.1 million at December 31,
2010.
(2) 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.
(3) Excludes assets covered by FDIC loss share agreements, except for their inclusion in total assets.
There was no interest income on the nonaccrual loans recorded for the years ended December 31, 2011, 2010 and 2009.
At December 31, 2011, impaired loans, net of government guarantees, excluding loans covered by FDIC loss share
agreements, were $40.1 million compared to $50.6 million at December 31, 2010. Impaired loans at December 31,
2011 and 2010, includes government guaranteed student loans of $2.5 million and $1.7 million, respectively.
During 2010, some large commercial real estate loan relationships in the Northwest Arkansas region were
downgraded and considered impaired. However, individual impairment testing on these loans, based on current
appraisals, revealed the need for specific reserves that were actually smaller for these relationships than had
previously been applied based on our model. 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.
39
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
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 12 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 various government stimulus programs.
Various Federal Reserve articles and reports indicate the economy is in a moderate recovery, but questions remain
about the durability of growth and whether it can be sustained by private demand. While the recession may be over,
production, income, sales and employment are at very low levels. With moderate economic growth, it is possible the
recovery could take years. The unemployment rate seems likely to remain elevated for several years. In addition, there
40
is now much uncertainty related to the potential impact of the current debt and budget crisis, as well as the uncertainties
that come in times leading up to a national election. The unallocated reserve addresses inherent probable losses not
included elsewhere in the allowance for loan losses. 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.
An analysis of the allowance for loan losses for the last five years is shown in table 11.
Table 11:
Allowance for Loan Losses
(In thousands)
2011
2010
2009
2008
2007
Balance, beginning of year
$ 26,416
$ 25,016
$ 25,841
$ 25,303
$ 25,385
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
Provision for loan losses
4,703
1,890
3,165
1,411
11,169
5,321
2,471
9,564
1,246
18,602
5,336
2,758
4,814
1,920
14,828
3,760
2,105
2,987
1,394
10,246
979
604
981
621
3,185
7,984
11,676
1,035
884
3,657
297
5,873
12,729
14,129
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
Balance, end of year
$ 30,108
$ 26,416
$ 25,016
$ 25,841
$ 25,303
Net charge-offs to average loans (1)
Allowance for loan losses to period-end loans (1)
Allowance for loan losses to net charge-offs (1)
0.49%
1.91%
377.10%
0.71%
1.57%
207.53%
0.58%
1.33%
224.54%
0.43%
1.34%
318.71%
0.23%
1.37%
593.55%
(1) Excludes loans covered by FDIC loss share agreements.
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.
41
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 continuing high 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. In addition,
there is now much uncertainty related to the potential impact of the current debt and budget crisis, including a debt
crisis in several other countries.
During 2010, management determined that there were several economic and environmental factors that necessitated the
need for a higher level of unallocated reserve. Due to these factors, along with an increase in net loan charge-offs, we
increased our provision by approximately $3.8 million over 2009, resulting in the higher level of allowance at
December 31, 2010. Management continued to believe that these same factors necessitated the need for an even higher
level of unallocated allowance in 2011. Although the provision for loan losses was reduced by $2.4 million in 2011, a
decrease in net loans charge-offs resulted in an increase in the allowance for loan losses of approximately $3.7 million
from December 31, 2010.
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. During 2010, we moved some significant credits from non-performing
loans to foreclosed assets held for sale, resulting in a lower allocation in the real estate portfolio. However, the real
estate related portfolios could still be adversely impacted by the overall economic downturn and the regional market
saturation in Northwest Arkansas.
Our allocation of the allowance for loan losses to credit card loans, as well as credit card balances, remained relatively
unchanged from December 31, 2010, to December 31, 2011. Annualized net credit card charge-offs to credit card
loans decreased from 2.37% at December 31, 2010, to 2.06% at December 31, 2011. Although we continue to have
minimal credit card losses compared to the industry, credit card loans are unsecured loans. The current economic
downturn could adversely affect consumers in a more delayed fashion compared to commercial business in general.
Increasing unemployment and diminished asset values could 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 significant
adverse effect on our unsecured credit card portfolio.
The unallocated allowance for loan losses is based on our concerns over the uncertainty of the national economy and
the economy in Arkansas, Missouri and Kansas. The impact of market pricing in the poultry, timber and catfish
industries in Arkansas remains uncertain. We are also cautious regarding the continued softening of the real estate
market, specifically in the Northwest Arkansas region. The housing industry remains one of the weakest links for
economic recovery. Although the unemployment rate in Arkansas, Missouri and Kansas is lagging behind the national
average, it remains at historically high levels. 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 appropriate for the year ended
December 31, 2011.
42
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 12.
Table 12:
Allocation of Allowance for Loan Losses
2011
2010
December 31
2009
2008
2007
(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
$ 5,513
1,638
10,117
2,063
209
10,568
12.0% $ 5,549
1,703
9,692
2,277
255
6,940
9.9%
63.4%
14.4%
0.3%
11.3% $ 5,808
1,719
10.7%
11,164
63.4%
2,451
14.1%
161
0.5%
3,713
10.1% $ 3,957
1,325
13.5%
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
9.0%
11.5%
64.1%
14.8%
0.6%
Total
$ 30,108
100.0% $ 26,416
100.0% $ 25,016
100.0% $ 25,841
100.00% $ 25,303
100.0%
(1) Percentage of loans in each category to total loans not covered by FDIC loss share.
43
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 $525.4 million and $172.2 million, respectively,
at December 31, 2011, compared to the held-to-maturity amount of $465.2 million and available-for-sale amount of
$148.5 million at December 31, 2010. 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, 2011, $312.8 million, or 59.5%, of the held-to-maturity securities were invested in U.S. Treasury
securities and obligations of U.S. government agencies, 60.0% of which will mature in less than five years. In the
available-for-sale securities, $153.6 million, or 89.2%, were in U.S. Treasury and U.S. government agency securities,
47.8% of which will mature in less than five years.
In order to reduce our income tax burden, $211.7 million, or 40.3%, of the held-to-maturity securities portfolio, as of
December 31, 2011, 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, 2011.
We have approximately $62,000 in mortgaged-backed securities in the held-to-maturity portfolio at December 31,
2011. In the available-for-sale securities, approximately $2.6 million, or 1.5% were invested in mortgaged-backed
securities. Securities with limited marketability, such as stock in the Federal Reserve Bank and the Federal Home Loan
Bank, are carried at cost and are reported as other available for sale securities.
As of December 31, 2011, the held-to-maturity investment portfolio had gross unrealized gains of $7.1 million and
gross unrealized losses of $0.3 million.
We had no gross realized gains or losses during 2011. We had gross realized gains of $467,000 and gross realized
losses of $150,000 during the year ended December 31, 2010, from the sale and/or calls securities. As part of our
acquisition strategy related to SSB, we liquidated the acquired investment portfolio, resulting in net realized gain of
$317,000 in 2010. We had gross realized gains of $144,000 and no realized losses during 2009 from the sales and/or
calls of securities.
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
44
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.
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.
The unrealized losses on our investment securities 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 we do not intend to sell the investments and it is not more likely than not the we will be required
to sell the investments before recovery of their amortized cost bases, which may be maturity, we do not consider those
investments to be other-than-temporarily impaired at December 31, 2011.
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, 2011, 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, 2011,
management believes the impairments detailed in the table below are temporary.
Table 13 presents the carrying value and fair value of investment securities for each of the years indicated.
Table 13:
Investment Securities
Years Ended December 31
2011
2010
(In thousands)
Held-to-Maturity
U.S. Treasury
U.S. Government
agencies
Mortgage-backed
securities
State and political
subdivisions
Other securities
Gross
Amortized Unrealized Unrealized
Gains
(Losses)
Gross
Cost
Estimated
Fair
Value
Gross
Amortized Unrealized Unrealized
Gains
Fair
(Losses) Value
Gross Estimated
Cost
$
4,000
$
14 $
-- $
4,014 $
4,000
$
28 $
--
$
4,028
308,779
712
(154)
309,337
249,844
1,764
(507)
251,101
62
1
--
63
78
4
--
82
211,673
930
6,333
--
(144)
--
217,862
930
210,331
930
2,280
--
(1,845)
--
210,766
930
Total
$ 525,444
$ 7,060 $ (298) $ 532,206 $ 465,183
$ 4,076 $ (2,352) $ 466,907
Available-for-Sale
U.S. Government
agencies
Mortgage-backed
securities
State and political
subdivisions
Other securities
$ 153,560
$
295 $ (228) $ 153,627 $ 125,175
$
577 $ (283) $ 125,469
2,280
--
15,648
277
--
384
--
2,557
2,647
--
(5)
--
16,027
--
19,814
143
--
411
(1)
--
(4)
2,789
--
20,221
Total
$ 171,488
$
956 $ (233) $ 172,211 $ 147,636
$ 1,131 $ (288) $ 148,479
45
Table 14 reflects the amortized cost and estimated fair value of securities at December 31, 2011, by contractual maturity
and the weighted average yields (for tax-exempt obligations on a fully taxable equivalent basis, assuming a 39.225%
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 14: Maturity Distribution of Investment Securities
December 31, 2011
(In thousands)
Held-to-Maturity
U.S. Treasury
U.S. Government
agencies
Mortgage-backed
securities
State and political
subdivisions
Other securities
Over
1 year
through
5 years
1 year
or less
Over
5 years
through
10 years 10 years maturity
Over No fixed Amortized
Cost
Total
Par
Value
Fair
Value
$ 4,000 $
-- $
-- $
-- $
-- $ 4,000 $
4,000 $
4,014
18,000
165,779
125,000
--
3
42
--
17
--
308,779
308,785
309,337
--
62
62
63
14,695
--
55,143
--
56,632
--
85,203
930
--
--
211,673
930
211,961
930
217,862
930
Total
$ 36,695 $ 220,925 $ 181,674 $ 86,150 $
-- $ 525,444 $ 525,738 $ 532,206
Percentage of total
7.0%
42.0%
34.6%
16.4% 0.0%
100.0%
Weighted average yield
1.8 % 2.0%
3.4%
4.0% 0.0%
2.8%
Available-for-Sale
U.S. Government
agencies
Mortgage-backed
securities
Other securities
$
300 $ 80,498 $ 72,763 $
-- $
-- $ 153,561 $ 153,520 $ 153,627
--
--
1,432
--
844
--
3
--
--
15,648
2,279
15,648
2,303
15,648
2,558
16,027
Total
$
300 $ 81,930 $ 73,607 $
3 $ 15,648 $ 171,488 $ 171,471 $ 172,212
Percentage of total
0.2%
47.8%
42.9%
0.0% 9.1%
100.0%
Weighted average yield
0.0%
0.9%
3.2%
3.1% 2.8%
2.1%
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, 2011, core deposits comprised 86.5% 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.
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.
46
Our total deposits as of December 31, 2011 were $2.650 billion, an increase of $41.6 million, or 1.6%, from
$2.609 billion at December 31, 2010. We have continued our strategy to move more volatile time deposits to less
expensive, revenue enhancing transaction accounts throughout 2011. Non-interest bearing transaction accounts
increased $103.5 million to $532.3 million at December 31, 2011, compared to $428.8 million at December 31, 2010.
Interest bearing transaction and savings accounts were $1.240 billion at December 31, 2011, a $19.4 million increase
compared to $1.220 billion on December 31, 2010. Total time deposits decreased approximately $81.3 million to
$878.6 million at December 31, 2011, from $959.9 million at December 31, 2010. In an attempt to utilize some of our
excess liquidity, we have priced deposits in a manner to encourage a reduction in non-relationship time deposits. We
had $20.6 million and $21.5 million of brokered deposits at December 31, 2011 and 2010, respectively.
Table 15 reflects the classification of the average deposits and the average rate paid on each deposit category which is
in excess of 10 percent of average total deposits for the three years ended December 31, 2011.
Table 15:
Average Deposit Balances and Rates
2011
Average Average
Amount Rate Paid
December 31
2010
Average Average
Amount Rate Paid
2009
Average Average
Amount Rate Paid
(In thousands)
Non-interest bearing transaction
accounts
$ 482,651
--
$ 375,941
--
$ 332,998
--
Interest bearing transaction and
savings deposits
Time deposits
$100,000 or more
Other time deposits
1,217,218
0.30%
1,181,597
0.44%
1,091,960
0.76%
380,362
532,647
1.24%
1.24%
381,432
525,714
1.62%
1.55%
406,924
532,434
2.43%
2.42%
Total
$2,612,878
0.57%
$2,464,684
0.79%
$2,364,316
1.31%
The Company's maturities of large denomination time deposits at December 31, 2011 and 2010 are presented in
table 16.
Table 16: Maturities of Large Denomination Time Deposits
Time Certificates of Deposit
($100,000 or more)
December 31
2011
2010
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
$ 109,974
96,214
101,862
70,775
29.0%
25.4%
26.9%
18.7%
$ 114,891
90,141
107,658
47,659
31.9%
25.0%
29.9%
13.2%
Total
$ 378,825
100.00%
$ 360,349
100.00%
47
Short-Term Debt
Federal funds purchased and securities sold under agreements to repurchase were $114.8 million at December 31, 2011,
as compared to $109.1 million at December 31, 2010. Other short-term borrowings, consisting of U.S. TT&L Notes
and short-term FHLB borrowings, were $272,000 at December 31, 2011, as compared to $1.0 million at December 31,
2010.
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 $120.8 million and $164.3 million at December 31, 2011 and 2010, respectively. The
outstanding long-term debt balance for December 31, 2011, includes $89.9 million in FHLB long-term advances and
$30.9 million of trust preferred securities. The outstanding balance for December 31, 2010, includes $133.4 million in
FHLB long-term advances and $30.9 million of trust preferred securities.
During the year ended December 31, 2011, we reduced long-term debt by $43.5 million, or 26.5%, from December 31,
2010, through scheduled payoffs of FHLB advances.
Aggregate annual maturities of long-term debt at December 31, 2011 are presented in table 17.
Table 17: Maturities of Long-Term Debt
(In thousands)
Year
2012
2013
2014
2015
2016
Thereafter
Annual
Maturities
$
7,370
22,275
5,977
9,699
8,002
67,505
Total
$ 120,828
Capital
Overview
At December 31, 2011, total capital reached $407.9 million. Capital represents shareholder ownership in the Company
– the book value of assets in excess of liabilities. At December 31, 2011, our equity to asset ratio was 12.3% compared
to 12.0% at year-end 2010.
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, 2011, 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.
48
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 adoption by the Board of Directors of a 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. We 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.
On September 27, 2011, we announced that reinstatement of the existing stock repurchase program. Prior to the
suspension of the program, we had repurchased 54,328 shares, thereby leaving authority to repurchase 645,672 shares
under the program. 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.
During 2011, after announcing the reinstatement of the program, we repurchased 137,144 shares of stock with a
weighted average repurchase price of $23.98 per share. Under the current stock repurchase plan, we can repurchase an
additional 508,528 shares.
Cash Dividends
We declared cash dividends on our common stock of $0.76 per share for the twelve months ended December 31, 2011,
compared to $0.76 per share for the twelve months ended December 31, 2010. 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.
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.
49
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, 2011, 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, 2011 and 2010, are presented in table 18 below:
Table 18:
Risk-Based Capital
(In thousands, except ratios)
Tier 1 capital
Stockholders’ equity
Trust preferred securities
Goodwill and core deposit premiums
Unrealized gain 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
2011
2010
$ 407,911
30,000
(47,889)
$ 397,371
30,000
(49,953)
(439)
(512)
389,583
376,906
9
22,682
22,691
7
23,553
23,560
$ 412,274
$ 400,466
$1,805,585
$1,879,832
11.86%
21.58%
22.83%
4.00%
4.00%
8.00%
11.33%
20.05%
21.30%
4.00%
4.00%
8.00%
Off-Balance Sheet Arrangements and Aggregate Contractual Obligations
In the normal course of business, the Company enters into a number of financial commitments. Examples of these
commitments include but are not limited to long-term debt financing, operating lease obligations, unfunded loan
commitments and letters of credit.
Our long-term debt at December 31, 2011, 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 states of Arkansas and Kansas. 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
50
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, 2011, are shown
in table 19.
Table 19:
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
$
7,370
343,400
285,487
9,269
$ 28,252 $ 17,701
--
--
--
--
--
--
$ 67,505 $ 120,828
343,400
285,487
9,269
--
--
--
Reconciliation of Non-GAAP Measures
We have $62.2 million and $63.1 million total goodwill and core deposit premiums for the periods ended December 31,
2011 and December 31, 2010, 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, 2011, 2010, 2009, 2008, and 2007, which is similar to the GAAP calculation of return on
average stockholders’ equity, is presented in table 20.
Table 20:
Return on Tangible Equity
(In thousands, except ratios)
2011
2010
2009
2008
2007
Twelve months ended
Return on average stockholders’ equity: (A/C)
Return on tangible equity (non-GAAP): (A+B)/(C-D)
6.25%
7.54%
9.69%
11.71%
8.26%
10.61%
9.54% 10.26%
13.78%
12.54%
(A) Net income
(B) Amortization of intangibles, net of taxes
(C) Average stockholders' equity
(D) Average goodwill and core deposits, net
$ 25,374 $ 37,117 $ 25,210 $ 26,910 $ 27,360
511
266,628
64,409
537
406,093
62,631
478
383,141
62,125
503
305,210
62,789
504
282,186
63,600
The table below presents computations of core earnings (net income excluding nonrecurring items {Visa litigation
expense reversal, gain from the cash proceeds on mandatory Visa stock redemption, gain from the sale of
MasterCard stock, gains on FDIC-assisted transactions and the related merger costs, liquidation gains and losses
from FDIC-assisted transactions and the one-time costs of branch right sizing}) and diluted core earnings per share
(non-GAAP). Nonrecurring items are included in financial results presented in accordance with generally accepted
accounting principles (GAAP).
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
51
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 and 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 second quarter of 2011, we recorded an after tax gain of $688,000 on the sale of MasterCard stock,
contributing $0.04 to diluted earnings per share. Also during the second quarter, as a result of our right sizing
initiative, we recorded a nonrecurring charge of $0.01 to diluted earnings per share.
During the first and second quarters of 2011, we recorded after-tax merger related costs of $217,000 on the FDIC-
assisted acquisition of SSB, resulting in a nonrecurring charge of $0.01 to diluted earnings per share.
During the fourth quarter of 2010, we recorded an after tax bargain purchase gain of $18.3 million on the FDIC-
assisted acquisition of SSB, along with merger related costs of $2.0 million. Also, as part of our acquisition strategy,
the investment portfolio was liquidated resulting in an after tax gain of $193,000, and FHLB advances were paid off
resulting in a $361,000 pre-payment expense, after tax. These nonrecurring items related to SSB contributed
$0.56 to diluted earnings per share.
During the second quarter of 2010, we recorded an after tax bargain purchase gain of $1.8 million on the FDIC-
assisted acquisition of SWCB, along with merger related costs of $351,000. These nonrecurring items related to
SWCB contributed $0.09 to diluted earnings per share. Also during the second quarter of 2010, as a result of our
branch right sizing initiative, we recorded a nonrecurring charge of $0.01 to diluted earnings per share.
52
See table 21 below for the reconciliation of non-GAAP financial measures, which exclude nonrecurring items for
the periods presented.
Table 21:
Reconciliation of Core Earnings (non-GAAP)
(In thousands, except share data)
2011
2010
2009
2008
2007
Twelve months ended
Net Income
Nonrecurring items
Mandatory stock redemption gain (Visa)
Litigation liability expense/reversal (Visa)
Gain on sale of MasterCard stock
Gain on FDIC-assisted transactions
Merger related costs
Gains from sale of securities
FHLB prepayment penalties
Branch right sizing
Tax effect (39.225%) (1)
Net nonrecurring items
Core earnings (non-GAAP)
Diluted earnings per share
Nonrecurring items
Mandatory stock redemption gain (Visa)
Litigation liability expense/reversal (Visa)
Gain on sale of MasterCard stock
Gain on FDIC-assisted transactions
Merger related costs
Gain from sale of securities
FHLB prepayment penalties
Branch right sizing
Tax effect (39.225%) (1)
Net nonrecurring items
Diluted core earnings per share (non-GAAP)
$ 25,374 $ 37,117 $ 25,210 $ 26,910 $ 27,360
--
--
--
--
--
(1,132)
--
357
--
--
141
248
(386) (11,076)
--
1,220
--
--
--
--
--
--
(476)
744
$ 24,988 $ 26,041 $ 25,210 $ 24,352 $ 28,104
(2,973)
(1,220)
--
--
--
--
--
--
1,635
(2,558)
(21,314)
2,611
(317)
594
372
6,978
--
--
--
--
--
--
--
--
--
--
$ 1.47 $
2.15 $
1.74 $
1.91 $
1.92
--
--
(0.07)
--
0.02
--
--
0.01
0.02
(0.02)
$ 1.45
$
--
--
--
(1.23)
0.15
(0.02)
0.03
0.02
0.41
(0.64)
1.51 $
--
--
--
--
--
--
--
--
--
--
1.74 $
(0.21)
(0.09)
--
--
--
--
--
--
--
0.09
--
--
--
--
--
--
0.12 (0.04)
0.05
(0.18)
1.97
1.73 $
(1) For 2010, effective tax rate of 39.225%, adjusted for additional fair value deduction related to the donation of a closed
branch with a fair value significantly higher than its book value.
53
Quarterly Results
Selected unaudited quarterly financial information for the last eight quarters is shown in table 22.
Table 22:
Quarterly Results
(In thousands, except per share data)
First
Second
Quarter
Third
Fourth
Total
2011
Net interest income
Provision for loan losses
Non-interest income
Non-interest expense
Net income
Basic earnings per share
Diluted earnings per share
2010
Net interest income
Provision for loan losses
Non-interest income
Non-interest expense
Net income
Basic earnings per share
Diluted earnings per share
$ 26,834
2,675
12,632
29,975
5,066
0.29
0.29
$ 24,412
3,231
12,200
26,796
4,956
0.29
0.29
$ 27,250
3,328
14,364
28,692
6,746
0.39
0.39
$ 25,205
3,758
17,248
27,276
7,981
0.46
0.46
$ 27,279
2,842
13,722
27,633
7,257
0.42
0.42
$ 26,056
3,407
14,822
26,758
7,620
0.45
0.44
$ 27,297
2,831
12,747
28,350
6,305
0.37
0.37
$ 26,276
3,733
33,604
30,433
16,560
0.96
0.96
$ 108,660
11,676
53,465
114,650
25,374
1.47
1.47
$ 101,949
14,129
77,874
111,263
37,117
2.16
2.15
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, 2011, undivided profits of the Company's subsidiary banks were
approximately $189.4 million, of which approximately $18.7 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 and 2009. We
grew core deposits through various initiatives, and built additional liquidity in each of our subsidiary banks by securing
additional long-term funding from FHLB borrowings. At December 31, 2011, each subsidiary bank was within
54
established guidelines and total corporate liquidity remains strong. At December 31, 2011, cash and cash equivalents,
trading and available-for-sale securities and mortgage loans held for sale were 23.1% of total assets, as compared to
18.6% at December 31, 2010.
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 $91 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
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
$333 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 25% 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.
55
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.
The table below presents our interest rate sensitivity position at December 31, 2011. 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: 23
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
Covered 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
$ 535,119 $
-- $
-- $
-- $
-- $
-- $
-- $ 535,119
3,547
121,819
22,976
587,246
74,893
1,345,600
--
108,170
--
117,220
6,515
231,905
--
75,223
--
182,741
13,448
271,412
113,153
--
222,055
14,544
349,752
3,994
82,576
--
237,673
16,786
341,029
--
78,736
--
216,013
34,507
329,256
7,541
--
697,656
117,979
22,976
--
16,821
1,579,769
(2,618) 158,075
3,001,136
132,182
710,336
103,263
115,038
21,137
--
150,863
--
1,038
--
207,284
--
2,398
--
235,062
--
3,611
105,834
93,690
--
21,581
317,501
88,402
--
20,381
105,834 1,239,504
878,634
115,038
120,828
70
--
50,682
liabilities
949,774
151,901
209,682
238,673
221,105
426,284
156,586
2,354,004
Interest rate sensitivity Gap
Cumulative interest rate
$ 395,826 $ 80,004 $ 61,730 $ 111,079 $ 119,924 $ (97,028) $ (24,404) $ 647,132
sensitivity Gap
$ 395,826 $ 475,830 $ 537,560 $ 648,639 $ 768,564 $ 671,536 $ 647,132
Cumulative rate sensitive assets
to rate sensitive liabilities
Cumulative Gap as a % of
141.7%
143.2%
141.0%
141.8%
143.4%
130.6%
127.5%
earning assets
13.2%
15.9%
17.9%
21.6%
25.6%
22.4%
21.6%
56
ITEM 8.
CONSOLIDATED FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA
INDEX
Management’s Report on Internal Control Over Financial Reporting ............................................58
Report of Independent Registered Public Accounting Firm
Report on Internal Control Over Financial Reporting .................................................................59
Report on Consolidated Financial Statements .............................................................................60
Consolidated Balance Sheets, December 31, 2011 and 2010 .........................................................61
Consolidated Statements of Income, Years Ended
December 31, 2011, 2010 and 2009 ............................................................................................62
Consolidated Statements of Cash Flows, Years Ended
December 31, 2011, 2010 and 2009 ............................................................................................63
Consolidated Statements of Stockholders’ Equity, Years Ended
December 31, 2011, 2010 and 2009 ............................................................................................64
Notes to Consolidated Financial Statements,
December 31, 2011, 2010 and 2009 ............................................................................................65
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 54 hereof.
57
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, 2011, 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 this assessment, management determined that the Company maintained effective internal control over
financial reporting as of December 31, 2011, based on the specified 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, 2011. The report, which expresses an
unqualified opinion on the effectiveness of the Company’s internal control over financial reporting as of December 31,
2011, immediately follows.
58
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,
2011, 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 maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of
management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may
deteriorate.
In our opinion, Simmons First National Corporation maintained, in all material respects, effective internal control over
financial reporting as of December 31, 2011, 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 7,
2012, expressed an unqualified opinion thereon.
Pine Bluff, Arkansas
March 7, 2012
BKD, LLP
/s/ BKD, LLP
59
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, 2011, and 2010, 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, 2011. 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, 2011, and 2010, and the results of its
operations and its cash flows for each of the years in the three-year period ended December 31, 2011, 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, 2011, 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 7, 2012, expressed an unqualified opinion on the
effectiveness of the Company’s internal control over financial reporting.
Pine Bluff, Arkansas
March 7, 2012
BKD, LLP
/s/ BKD, LLP
60
Simmons First National Corporation
Consolidated Balance Sheets
December 31, 2011 and 2010
(In thousands, except share data)
2011
2010
ASSETS
Cash and non-interest bearing balances due from banks
Interest bearing balances due from banks
Cash and cash equivalents
Investment securities
Mortgage loans held for sale
Assets held in trading accounts
Loans not covered by loss share agreements
Loans covered by FDIC loss share agreements
Allowance for loan losses
Net loans
FDIC indemnification asset
Premises and equipment
Foreclosed assets not covered by loss share agreements
Foreclosed assets covered by FDIC loss share agreements
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
$
35,087
535,119
570,206
697,656
22,976
7,541
1,579,769
158,075
(30,108)
1,707,736
47,683
86,486
22,887
11,685
15,126
50,579
60,605
1,579
17,384
$ 3,320,129
$
532,259
1,239,504
878,634
2,650,397
114,766
272
120,828
25,955
2,912,218
$
33,717
418,343
452,060
613,662
17,237
7,577
1,683,464
231,600
(26,416)
1,888,648
60,235
77,199
23,204
8,717
17,363
49,072
60,605
2,463
38,390
$ 3,316,432
$
428,750
1,220,133
959,886
2,608,769
109,139
1,033
164,324
35,796
2,919,061
Stockholders’ equity:
Preferred stock, $0.01 par value; 40,040,000 shares authorized and
unissued at December 31, 2011 and 2010
Common stock, Class A, $0.01 par value; 60,000,000 shares authorized;
17,212,317 and 17,271,594 shares issued and outstanding
at December 31, 2011 and 2010, respectively
Surplus
Undivided profits
Accumulated other comprehensive income
Unrealized appreciation on available-for-sale securities,
net of income taxes of $283 and $331 at December 31, 2011
and 2010, respectively
Total stockholders’ equity
Total liabilities and stockholders’ equity
--
--
172
112,436
294,864
173
114,040
282,646
439
407,911
$ 3,320,129
512
397,371
$ 3,316,432
See Notes to Consolidated Financial Statements.
61
Simmons First National Corporation
Consolidated Statements of Income
Years Ended December 31, 2011, 2010 and 2009
(In thousands, except per share data)
2011
2010
2009
INTEREST INCOME
Loans not covered by loss share agreements
Loans covered by FDIC loss share agreements
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 sale of securities, net
Gain on FDIC-assisted transactions
Net gain (loss) on assets covered by FDIC loss share agreements
Other income
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
Merger related costs
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.
62
$ 95,713
17,118
6
14,583
503
33
1,100
129,056
14,925
450
51
4,970
20,396
108,660
11,676
$ 106,062
4,204
15
17,208
715
30
721
128,955
19,537
532
58
6,879
27,006
101,949
14,129
$ 113,648
--
27
21,791
608
20
439
136,533
31,046
769
33
6,958
38,806
97,727
10,316
96,984
87,820
87,411
5,375
16,808
2,980
4,188
1,478
16,828
--
1,481
--
--
154
4,173
53,465
65,058
8,443
6,633
678
2,387
357
31,094
114,650
35,799
10,425
$ 25,374
1.47
$
1.47
$
5,179
17,700
2,812
4,810
2,236
16,140
2,524
1,670
317
21,314
318
2,854
77,874
60,731
7,808
6,093
974
3,813
2,611
29,233
111,263
54,431
17,314
$ 37,117
2.16
$
2.15
$
5,227
17,944
2,668
4,032
2,153
14,392
2,333
1,270
144
--
--
2,548
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
$
Simmons First National Corporation
Consolidated Statements of Cash Flows
Years Ended December 31, 2011, 2010 and 2009
(In thousands)
OPERATING ACTIVITIES
Net income
Items not requiring (providing) cash
Depreciation and amortization
Provision for loan losses
Gain on sale of investment securities
Net accretion of investment securities
Stock-based compensation expense
Net (accretion) amortization on assets covered by
FDIC loss share agreements
Gain on FDIC-assisted transactions
Deferred income taxes
Bank owned life insurance income
Changes in
Interest receivable
Mortgage loans held for sale
Assets held in trading accounts
Other assets
Accrued interest and other liabilities
Income taxes payable
Net cash provided by operating activities
INVESTING ACTIVITIES
Net collections of loans
Net collections of covered loans
Purchases of premises and equipment, net
Proceeds from sale of covered other real estate owned
Proceeds from sale of foreclosed assets held for sale
Net (purchases) sales of short-term investment securities
Proceeds from sale of available-for-sale 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 proceeds received in FDIC-assisted transactions
Cash received on FDIC loss share
Net cash provided by investing activities
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
Net shares issued under stock compensation plans
Repurchase of common stock
Net cash (used in) provided by financing activities
INCREASE IN CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR
2011
2010
2009
$
25,374
$
37,117
$
25,210
6,067
11,676
--
(51)
1,204
(4,448)
--
(3,571)
(1,481)
2,237
(5,739)
36
4,742
(2,847)
(3,642)
29,557
75,516
66,967
(14,470)
8,200
20,512
--
5,350
302,438
(331,583)
228,284
(288,505)
(25)
--
28,872
101,556
41,628
(761)
(13,156)
4,835
(48,331)
5,627
--
474
(3,283)
(12,967)
118,146
5,724
14,129
(317)
(7)
974
(595)
(21,314)
8,428
(1,670)
518
(8,840)
(691)
3,660
2,282
(291)
39,107
128,451
26,046
(4,001)
4,284
37,310
(1)
75,948
520,883
(461,904)
331,527
(332,655)
(6,482)
99,677
3,751
422,834
(258,980)
(4,822)
(13,091)
6,278
(97,454)
3,229
--
1,374
--
(363,466)
98,475
452,060
353,585
5,841
10,316
(144)
(48)
627
--
--
1,613
(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)
(9,539)
70,486
1,626
--
150,847
214,049
139,536
CASH AND CASH EQUIVALENTS, END OF YEAR
$ 570,206
$ 452,060
$ 353,585
See Notes to Consolidated Financial Statements.
63
Simmons First National Corporation
Consolidated Statements of Stockholders’ Equity
Years Ended December 31, 2011, 2010 and 2009
Common
Stock
Surplus
$
140
$
40,807
Accumulated
Other
Comprehensive
Income (Loss)
$
3,190
Undivided
Profits
244,655
$
Total
288,792
$
(In thousands, except share data)
Balance, December 31, 2008
Comprehensive income:
Net income
Change in unrealized appreciation on
available-for-sale securities, net of
income taxes 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 – $0.76 per share
Balance, December 31, 2009
Comprehensive income:
Net income
Change in unrealized appreciation on
available-for-sale securities, net of
income taxes of ($161)
Comprehensive income
Stock issued as bonus shares – 83,245 shares
Vesting bonus shares
Stock issued for employee stock
purchase plan – 4,947 shares
Exercise of stock options – 108,604 shares
Stock granted
under stock-based compensation plans
Securities exchanged under stock option plan
Cash dividends – $0.76 per share
Balance, December 31, 2010
Comprehensive income:
Net income
Change in unrealized appreciation on
available-for-sale securities, net of
income taxes of ($47)
Comprehensive income
Stock issued as bonus shares – 47,995 shares
Vesting bonus shares
Stock issued for employee stock
purchase plan – 4,805 shares
Exercise of stock options – 30,319 shares
Stock granted
under stock-based compensation plans
Securities exchanged under stock
option plan – (5,252 shares)
--
--
30
--
--
--
--
1
--
--
--
171
--
--
1
--
--
1
--
--
70,456
702
29
(1,208)
141
689
180
(102)
--
111,694
--
--
203
801
131
1,460
--
--
--
173
173
(422)
--
114,040
--
--
--
--
--
--
--
--
98
1,066
127
385
138
--
25,210
25,210
(2,428)
--
--
--
--
--
--
--
--
--
762
--
(250)
--
--
--
--
--
--
--
512
--
(73)
--
--
--
--
--
--
--
--
--
--
--
--
--
--
(11,245)
258,620
(2,428)
22,782
70,486
702
29
(1,208)
141
690
180
(102)
(11,245)
371,247
37,117
37,117
--
--
--
--
--
--
--
(13,091)
282,646
(250)
36,867
204
801
131
1,461
173
(422)
(13,091)
397,371
25,374
25,374
--
--
--
--
--
--
(73)
25,301
98
1,066
127
385
138
--
(1)
--
172
(136)
(3,282)
--
$ 112,436
$
--
--
--
439
--
--
(13,156)
294,864
$
(136)
(3,283)
(13,156)
407,911
$
Repurchase of common stock – (137,144 shares)
Cash dividends – $0.76 per share
Balance, December 31, 2011
$
See Notes to Consolidated Financial Statements.
64
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 with offices in Arkansas,
Missouri and Kansas. 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 and the
valuation of covered loans and related indemnification asset. 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 considers all liquid investments with original maturities of three months or less to be cash equivalents.
For purposes of the consolidated statements of cash flows, cash and cash equivalents are considered to include cash and
non-interest bearing balances due from banks, interest bearing balances due from banks and federal funds sold and
securities purchased under agreements to resell.
65
Interest Bearing Deposits in Banks
Interest bearing balances due from 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 Topic 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 statements of income as of December 31, 2011 and 2010
reflect 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 this 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. Typically, the Company delivers the mortgage loans within a few days after the loans are funded. These
commitments are derivative instruments and their fair values at December 31, 2011 and 2010 are not material. 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
66
discounts collected or paid. Fees received from borrowers to guarantee the funding of mortgage loans held for sale are
recognized as income or expense when the loans are sold or when it becomes evident that the commitment will not be
used.
Loans
Loans that management has the intent and ability to hold for the foreseeable future or until maturity or pay-offs are
reported at their outstanding principal adjusted for any loans charged off, the allowance for loan losses and any
unamortized 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 loans, except on certain government guaranteed 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 appropriate 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.
67
Acquisition Accounting, Covered Loans and Related Indemnification Asset
The Company accounts for its acquisitions under ASC Topic 805, Business Combinations, which requires the use of
the purchase method of accounting. All identifiable assets acquired, including loans, are recorded at fair value. No
allowance for loan losses related to the acquired loans is recorded on the acquisition date as the fair value of the loans
acquired incorporates assumptions regarding credit risk. Loans acquired are recorded at fair value in accordance with
the fair value methodology prescribed in ASC Topic 820, exclusive of the shared loss agreements with the FDIC. The
fair value estimates associated with the loans include estimates related to expected prepayments and the amount and
timing of undiscounted expected principal, interest and other cash flows.
Over the life of the acquired loans, the Company continues to estimate cash flows expected to be collected on
individual loans or on pools of loans sharing common risk characteristics and were treated in the aggregate when
applying various valuation techniques. The Company evaluates at each balance sheet date whether the present value of
its loans determined using the effective interest rates has decreased and if so, recognizes a provision for loan loss in its
consolidated statement of income. For any increases in cash flows expected to be collected, the Company adjusts the
amount of accretable yield recognized on a prospective basis over the loan’s or pool’s remaining life.
Because the FDIC will reimburse the Company for losses incurred on certain acquired loans, an indemnification asset is
recorded at fair value at the acquisition date. The indemnification asset is recognized at the same time as the
indemnified loans, and measured on the same basis, subject to collectability or contractual limitations. The shared-loss
agreements on the acquisition date reflect the reimbursements expected to be received from the FDIC, using an
appropriate discount rate, which reflects counterparty credit risk and other uncertainties.
The shared-loss agreements continue to be measured on the same basis as the related indemnified loans. Because the
acquired loans are subject to the accounting prescribed by ASC Topic 310, subsequent changes to the basis of the
shared-loss agreements also follow that model. Deterioration in the credit quality of the loans (immediately recorded as
an adjustment to the allowance for loan losses) would immediately increase the basis of the shared-loss agreements,
with the offset recorded through the consolidated statement of income. Increases in the credit quality or cash flows of
loans (reflected as an adjustment to yield and accreted into income over the remaining life of the loans) decrease the
basis of the shared-loss agreements, with such decrease being accreted into income over 1) the same period or 2) the
life of the shared-loss agreements, whichever is shorter. Loss assumptions used in the basis of the indemnified loans
are consistent with the loss assumptions used to measure the indemnification asset. Fair value accounting incorporates
into the fair value of the indemnification asset an element of the time value of money, which is accreted back into
income over the life of the shared-loss agreements.
Upon the determination of an incurred loss the indemnification asset will be reduced by the amount owed by the FDIC.
A corresponding, claim receivable is recorded until cash is received from the FDIC. For further discussion of the
Company’s acquisition and loan accounting, see Note 2 and Note 5 to the consolidated financial statements.
Premises and Equipment
Depreciable assets are stated at cost less accumulated depreciation. Depreciation is charged to expense using the
straight-line method over the estimated useful lives of the assets. Leasehold improvements are capitalized and
amortized by the straight-line method over the terms of the respective leases or the estimated useful lives of the
improvements, whichever is shorter.
Foreclosed Assets Held For Sale
Assets acquired by foreclosure or in settlement of debt and held for sale are valued at estimated fair value as of the date
of foreclosure, and a related valuation allowance is provided for estimated costs to sell the assets. Management
evaluates the value of foreclosed assets held for sale periodically and increases the valuation allowance for any
subsequent declines in fair value. Changes in the valuation allowance are charged or credited to other expense.
68
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 frequently 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 $1.5 million at December 31, 2011, and
$1.6 million at December 31, 2010.
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.
Bankcard 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.
Income Taxes
The Company accounts for income taxes in accordance with income tax accounting guidance in ASC Topic 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
69
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)
2011
2010
2009
Net Income
$ 25,374
$ 37,117
$ 25,210
Average common shares outstanding
Average common share stock options outstanding
Average diluted common shares
Basic earnings per share
Diluted earnings per share
17,309
9
17,318
$
$
1.47
1.47
17,204
61
17,265
$
$
2.16
2.15
14,375
90
14,465
$
$
1.75
1.74
Stock options to purchase 147,470, 95,770 and 100,290 shares, respectively, for the years ended December 31, 2011,
2010 and 2009, were not included in the earnings per share calculation because the exercise price exceeded the average
market price.
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.
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 12, Employee Benefit Plans.
70
NOTE 2:
ACQUISITIONS
On May 14, 2010, the Company, through its wholly-owned subsidiary, Simmons First National Bank (“SFNB” or “lead
bank”), entered into a purchase and assumption agreement with loss share arrangements with the FDIC pursuant to
which it acquired substantially all of the assets and assumed substantially all of the deposits and certain other liabilities
of Southwest Community Bank (“SWCB”) in Springfield, Missouri. As a result of this acquisition, the Company
expanded its footprint outside the Arkansas borders for the first time. The Company recognized a pre-tax gain of
$3.0 million on this transaction and incurred pre-tax merger related costs of $0.4 million.
On October 15, 2010, the Company, through the lead bank, entered into a purchase and assumption agreement with loss
share arrangements with the FDIC to purchase substantially all of the assets and to assume substantially all of the
deposits and certain other liabilities of Security Savings Bank, FSB (“SSB”) with nine offices in Kansas, including
three in Salina, two each in Olathe and Wichita and one each in Overland Park and Leawood. This acquisition marked
the Company’s second expansion outside the State of Arkansas. The Company recognized a pre-tax gain of
$18.3 million on this transaction and incurred pre-tax merger related costs of $2.0 million.
A summary, at fair value, of the assets acquired and liabilities assumed in the SWCB and SSB transactions, as of
acquisition dates, is as follows:
(In thousands)
SWCB
SSB
Total
Assets Acquired
Cash and due from banks
Cash received from FDIC
Receivable from FDIC
Investment securities
Loans not covered by loss share agreements
Loans covered by FDIC loss share agreements
Foreclosed assets covered by FDIC loss share agreements
FDIC indemnification asset
Core deposit premium
Other assets
Total assets acquired
$
7,414
10,000
653
24,850
--
40,177
4,646
13,783
--
467
101,990
$ 11,063
71,200
1,856
75,621
991
219,158
6,363
68,330
1,480
1,577
457,639
$ 18,477
81,200
2,509
100,471
991
259,335
11,009
82,113
1,480
2,044
559,629
Liabilities Assumed
Deposits:
Non-interest bearing transaction accounts
Interest bearing transaction accounts and savings deposits
Time deposits
Total deposits
Repurchase agreements
FHLB borrowings
Accrued interest and other liabilities
Total liabilities assumed
Pre-tax gains on FDIC-assisted transactions
$
5,063
103
92,174
97,340
--
--
1,613
98,953
3,037
82,614
8,624
246,999
338,237
2,215
95,676
3,234
439,362
$ 18,277
87,677
8,727
339,173
435,577
2,215
95,676
4,847
538,315
$ 21,314
The following is a description of the methods used to determine the fair values of significant assets and liabilities
presented above.
Cash and due from banks, cash received from FDIC and receivable from FDIC – The carrying amount of these assets
is a reasonable estimate of fair value based on the short-term nature of these assets. The $10.0 million cash received
from the FDIC for SWCB and $71.2 million for SSB is the first pro-forma cash settlement received from the FDIC on
Monday following the closing weekend. The $0.7 million receivable from the FDIC for SWCB and $1.9 million for
SSB is the remaining amount due from the settlement.
71
Investment securities – Investment securities were acquired from the FDIC at fair market value. The fair values
provided by the FDIC were reviewed and considered reasonable based on SFNB’s understanding of the market
conditions.
Loans – Fair values for loans were based on a discounted cash flow methodology that considered factors including the
type of loan and related collateral, classification status, fixed or variable interest rate, term of loan and whether or not
the loan was amortizing, and current discount rates. The discount rates used for loans are based on current market rates
for new originations of comparable loans and include adjustments for liquidity concerns. The discount rate does not
include a factor for credit losses as that has been included in the estimated cash flows. Loans were grouped together
according to similar characteristics and were treated in the aggregate when applying various valuation techniques.
Foreclosed assets held for sale – These assets are presented at the estimated present values that management expects to
receive when the properties are sold, net of related costs of disposal.
FDIC indemnification asset – This loss sharing asset is measured separately from the related covered assets as it is not
contractually embedded in the covered assets and is not transferable with the covered assets should SFNB choose to
dispose of them. Fair value was estimated using projected cash flows related to the loss sharing agreements based on
the expected reimbursements for losses and the applicable loss sharing percentages. These cash flows were discounted
to reflect the uncertainty of the timing and receipt of the loss-sharing reimbursement from the FDIC.
Core deposit premium – This intangible asset represents the value of the relationships that SWCB and SSB had with
their deposit customers. The fair value of this intangible asset was estimated based on a discounted cash flow
methodology that gave appropriate consideration to expected customer attrition rates, cost of the deposit base and the
net maintenance cost attributable to customer deposits. Based on the valuation methodologies used in the analysis, the
estimated fair value of the core deposit premium at SWCB was immaterial.
Deposits – The fair values used for the demand and savings deposits that comprise the transaction accounts acquired,
by definition equal the amount payable on demand at the acquisition date. Even though deposit rates were above
market, because SFNB reset deposit rates to current market rates, there was no fair value adjustment recorded for time
deposits.
FHLB borrowings – The fair value of Federal Home Loan Bank (“FHLB”) borrowings is estimated based on
borrowing rates currently available to the Company for borrowings with similar terms and maturities. Included in the
SSB acquisition were FHLB borrowed funds with a fair value totaling $95.7 million. The Company did not need these
advances to meet its liquidity needs, and redeemed approximately $60.8 million of the advances during the fourth
quarter of 2010. The FHLB borrowings are secured by mortgage loans. The remaining borrowings are being held to
maturity to match loans with similar maturities.
FDIC True-Up Provision – The purchase and assumption agreements for SWCB and SSB allow for the FDIC to
recover a portion of the loss share funds previously paid out under the indemnification agreement in the event losses
fail to reach the expected loss level under a claw back provision (“true-up provision”). A true-up is scheduled to occur
in the calendar month in which the tenth anniversary of the respective closing occurs. If the threshold is not met, the
assuming institution is required to pay the FDIC 50 percent of the excess, if any, within 45 days following the true-up.
The value of the true-up provision liability is calculated as the present value of the estimated payment to the FDIC in
the tenth year using the formula provided in the agreements. The result of the calculation is based on the net present
value of expected future cash payments to be made by SFNB to the FDIC at the conclusion of the loss share
agreements. The discount rate used was based on current market rates. The expected cash flows were calculated in
accordance with the loss share agreements and are based primarily on the expected losses on the covered assets. The
value of the true-up provision was $3.4 million and $3.2 million at December 31, 2011 and 2010, respectively, and was
included in accrued interest and other liabilities on the balance sheet.
In connection with the SWBC and SSB acquisitions, SFNB and the FDIC will share in the losses on assets covered
under the loss share agreements. The FDIC will reimburse SFNB for 80% of all losses on covered assets. The loss
sharing agreements entered into by SFNB and the FDIC in conjunction with the purchase and assumption agreements
72
require that SFNB follow certain servicing procedures as specified in the loss share agreements or risk losing FDIC
reimbursement of covered asset losses. Additionally, to the extent that actual losses incurred by SFNB under the loss
share agreements are less than expected, SFNB may be required to reimburse the FDIC under the clawback provisions
of the loss share agreements. At December 31, 2011, the covered loans and covered other real estate owned and the
related FDIC indemnification asset (collectively, the “covered assets”) and the FDIC true-up provision were reported at
the net present value of expected future amounts to be paid or received.
Purchased loans acquired in a business combination, including loans purchased in the SWCB and SSB acquisitions, are
recorded at estimated fair value on their purchase date with no carryover of the related allowance for loan and lease
losses. Purchased loans are accounted for in accordance with ASC Topic 310-30, Loans and Debt Securities Acquired
with Deteriorated Credit Quality accounting guidance for certain loans or debt securities acquired in a transfer, when
the loans have evidence of credit deterioration since origination and it is probable at the date of acquisition that the
acquirer will not collect all contractually required principal and interest payments. The difference between
contractually required payments and the cash flows expected to be collected at acquisition is referred to as the non-
accretable difference. Subsequent decreases to the expected cash flows will generally result in a provision for loan and
lease losses. Subsequent increases in cash flows result in a reversal of the provision for loan and lease losses to the
extent of prior charges and an adjustment in accretable yield, recognized on a prospective basis over the loan’s or
pool’s remaining life, which will have a positive impact on interest income.
The Company has finalized its analysis of the acquired loans along with the other acquired assets and assumed
liabilities in these transactions. No significant adjustments to the estimated amounts and carrying values were required
as of the dates of acquisition. See Note 5 for discussion regarding subsequent evaluation of future cash flows.
During 2010, SFNB acquired the real estate (building and land) for the Springfield, Missouri location (formerly
SWCB) for a total of $1.1 million. During 2011, SFNB acquired the real estate for four of the Kansas locations
previously owned by SSB related entities for a total of $6.2 million. Also, during 2011, SFNB acquired three
additional Kansas locations upon final settlement of SSB with the FDIC for a total of $4.4 million. Two other locations
are leased from third parties and SFNB will continue to lease these facilities.
73
NOTE 3:
INVESTMENT SECURITIES
The amortized cost and fair value of investment securities that are classified as held-to-maturity and available-for-sale
are as follows:
Years Ended December 31
2011
2010
(In thousands)
Held-to-Maturity
U.S. Treasury
U.S. Government
agencies
Mortgage-backed
securities
State and political
subdivisions
Other securities
Gross
Amortized Unrealized Unrealized
(Losses)
Gains
Gross
Cost
Estimated
Fair
Value
Gross
Amortized Unrealized Unrealized
(Losses)
Gains
Cost
Fair
Value
Gross Estimated
$
4,000 $
14 $
-- $
4,014 $
4,000
$
28 $
--
$
4,028
308,779
712
(154) 309,337
249,844
1,764
(507)
251,101
62
1
--
63
78
4
--
82
211,673
930
6,333
--
(144)
--
217,862
930
210,331
930
2,280
--
(1,845)
--
210,766
930
Total
$ 525,444 $ 7,060 $
(298) $ 532,206 $ 465,183
$ 4,076 $ (2,352) $ 466,907
Available-for-Sale
U.S. Government
agencies
Mortgage-backed
securities
State and political
subdivisions
Other securities
$ 153,560 $
295 $
(228) $ 153,627 $ 125,175
$
577 $
(283) $ 125,469
2,280
277
--
2,557
2,647
143
--
15,649
--
384
--
(5)
--
16,028
--
19,814
--
411
(1)
--
(4)
2,789
--
20,221
Total
$ 171,489 $
956 $
(233) $ 172,212 $ 147,636
$ 1,131 $
(288) $ 148,479
Securities with limited marketability, such as stock in the Federal Reserve Bank and the Federal Home Loan Bank, are
carried at cost and are reported as other available-for-sale securities in the table above.
Certain investment securities are valued at less than their historical cost. Total fair value of these investments at
December 31, 2011 and 2010, was $196.3 million and $229.6 million, which is approximately 27.9% and 37.3%,
respectively, of the Company’s available-for-sale and held-to-maturity investment portfolio.
74
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, 2011
Held-to-Maturity
U.S. Government agencies
State and political subdivisions
$ 83,128 $
4,673
154 $
11
--
1,226
$ -- $ 83,128 $
133
5,899
154
144
Total
$ 87,801 $
165 $ 1,226
$
133 $ 89,027 $
298
Available-for-Sale
U.S. Government agencies
Mortgage-backed securities
Other securities
$ 106,097 $
--
1
201 $ 1,166
35
--
--
5
$
27 $ 107,263 $
--
--
35
1
228
--
5
Total
$ 106,098 $
206 $ 1,201
$
27 $ 107,299 $
233
December 31, 2010
Held-to-Maturity
U.S. Government agencies
State and political subdivisions
$ 97,437 $
62,807
1,735
507 $
--
1,837
$ -- $ 97,437 $
110
64,644
507
1,845
Total
$ 160,244 $ 2,242 $ 1,837
$
110 $ 162,081 $ 2,352
Available-for-Sale
U.S. Government agencies
Mortgage-backed securities
Other securities
$ 67,203 $
207
1
283 $
--
4
$
--
110
--
-- $ 67,203 $
1
--
317
1
283
1
4
Total
$ 67,411 $
287 $
110
$
1 $ 67,521 $
288
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, 2011.
75
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
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, 2011.
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.
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, 2011,
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, 2011, management believes the impairments detailed in the table above are temporary.
Income earned on the above securities for the years ended December 31, 2011, 2010 and 2009, is as follows:
(In thousands)
Taxable
Held-to-maturity
Available-for-sale
Non-taxable
Held-to-maturity
Available-for-sale
Total
2011
2010
2009
$ 4,229
2,490
$ 4,615
4,336
$ 2,880
11,016
7,864
--
8,257
--
7,874
21
$ 14,583
$ 17,208
$ 21,791
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, 2011, 2010 and 2009, are as
follows:
(In thousands)
2011
2010
2009
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
$
(120)
--
(120)
(47)
$
(94)
317
(411)
(161)
$ (3,740)
144
(3,884)
(1,456)
$
(73)
$
(250)
$ (2,428)
76
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
$ 36,695
220,925
181,674
86,150
--
$ 36,890
222,012
183,745
89,559
--
$
300
81,929
73,607
4
15,649
$
300
81,965
73,915
4
16,028
Total
$ 525,444
$ 532,206
$ 171,489
$ 172,212
The carrying value, which approximates the fair value, of securities pledged as collateral, to secure public deposits and
for other purposes, amounted to $410,702,000 at December 31, 2011 and $435,635,000 at December 31, 2010.
The book value of securities sold under agreements to repurchase amounted to $83,556,000 and $75,774,000 for
December 31, 2011 and 2010, respectively.
There were no gross realized gains or losses from the sale of available for sale securities during the year ended
December 31, 2011. The Company had gross realized gains of $467,000 and gross realized losses of $150,000 during
the year ended December 31, 2010, from the sale of available for sale securities. As part of its acquisition strategy
related to SSB, the Company liquidated the acquired investment portfolio, resulting in the entire net realized gain of
$317,000 in 2010. The Company had gross realized gains of $144,000 and no realized losses during the year ended
December 31, 2009. The income tax expense/benefit related to security gains/losses 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.
77
NOTE 4:
LOANS AND ALLOWANCE FOR LOAN LOSSES
At December 31, 2011, the Company’s loan portfolio was $1.74 billion, compared to $1.92 billion at December 31,
2010. 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
Total commercial
Other
Loans not covered by loss share agreements
Loans covered by FDIC loss share agreements
2011
2010
$ 189,970
47,419
109,211
346,600
109,825
355,094
536,372
1,001,291
141,422
85,728
227,150
4,728
1,579,769
158,075
$ 190,329
61,305
118,581
370,215
153,772
364,442
548,360
1,066,574
150,501
86,171
236,672
10,003
1,683,464
231,600
Total loans before allowance for loan losses
$ 1,737,844
$1,915,064
Loan Origination/Risk Management – The Company seeks to manage its credit risk by diversifying its loan portfolio,
determining that borrowers have adequate sources of cash flow for loan repayment without liquidation of collateral;
obtaining and monitoring collateral; providing an appropriate allowance for loans losses by regularly reviewing
loans through the internal loan review process. The loan portfolio is diversified by borrower, purpose and industry.
The Company seeks to use diversification within the loan portfolio to reduce its 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. Furthermore, factors that influenced the Company’s judgment regarding the allowance for loan losses
consists of a three-year historical loss average segregated by each primary loan sector. On an annual basis,
historical loss rates are calculated for each sector.
Consumer – The consumer loan portfolio consists of credit card loans, student loans and other consumer loans. The
Company no longer originates student loans, and the current portfolio is guaranteed by the Department of Education
at 97% of principal and interest. Credit card loans are diversified by geographic region to reduce credit risk and
minimize any adverse impact on the portfolio. Although they are regularly reviewed to facilitate the identification and
monitoring of creditworthiness, credit card loans are unsecured loans, making them more susceptible to be impacted by
economic downturns resulting in increasing unemployment. Other consumer loans include direct and indirect
installment loans and overdrafts. Loans in this portfolio segment are sensitive to unemployment and other key
consumer economic measures.
Real estate – The real estate loan portfolio consists of construction loans, single family residential loans and
commercial loans. Construction and development loans (“C&D”) and commercial real estate loans (“CRE”) can be
particularly sensitive to valuation of real estate. Commercial real estate cycles are inevitable. The long planning and
production process for new properties and rapid shifts in business conditions and employment create an inherent
tension between supply and demand for commercial properties. While general economic trends often move individual
markets in the same direction over time, the timing and magnitude of changes are determined by other forces unique to
each market. CRE cycles tend to be local in nature and longer than other credit cycles. Factors influencing the CRE
market are traditionally different from those affecting residential real estate markets; thereby making predictions for one
market based on the other difficult. Additionally, submarkets within commercial real estate – such as office, industrial,
apartment, retail and hotel – also experience different cycles, providing an opportunity to lower the overall risk through
78
diversification across types of CRE loans. Management realizes that local demand and supply conditions will also
mean that different geographic areas will experience cycles of different amplitude and length. The Company monitors
these loans closely and has no significant concentrations in its real estate loan portfolio.
Commercial – The commercial loan portfolio includes commercial and agricultural loans, representing loans to
commercial customers and farmers for use in normal business or farming operations to finance working capital
needs, equipment purchase or other expansion projects. Collection risk in this portfolio is driven by the
creditworthiness of the underlying borrowers, particularly cash flow from customers’ business or farming
operations. The Company continues its efforts to keep loan terms short, reducing the negative impact of upward
movement in interest rates. Term loans are generally set up with a one or three year balloon, and the Company has
recently instituted a pricing index for commercial loans. It is standard practice to require personal guaranties on all
commercial loans, particularly as they relate to closely-held or limited liability entities.
Nonaccrual and Past Due Loans – Loans are considered past due if the required principal and interest payments have
not been received as of the date such payments were due. Loans are placed on nonaccrual status when, in
management’s opinion, the borrower may be unable to meet payment obligations as they become due, as well as when
required by regulatory provisions. Loans may be placed on nonaccrual status regardless of whether or not such loans
are considered past due. When interest accrual is discontinued, all unpaid accrued interest is reversed. Interest income
is subsequently recognized only to the extent cash payments are received in excess of principal due. Loans are returned
to accrual status when all the principal and interest amounts contractually due are brought current and future payments
are reasonably assured.
Nonaccrual loans, excluding loans covered by FDIC loss share agreements, at December 31, 2011 and 2010,
segregated by class of loans, are 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
Total commercial
Other
Total
2011
2010
$
305
--
839
1,144
121
3,198
7,233
10,552
757
454
1,211
--
$
295
--
963
1,258
804
3,470
4,340
8,614
972
342
1,314
--
$
12,907
$
11,186
79
An age analysis of past due loans, excluding loans covered by FDIC loss share agreements, segregated by class of
loans, at December 31, 2011 and 2010, is as follows:
(In thousands)
December 31, 2011
Consumer:
Credit cards
Student loans
Other consumer
Total consumer
Real estate:
Construction
Single family residential
Other commercial
Total real estate
Commercial:
Commercial
Agricultural
Total commercial
Other
Total
December 31, 2010
Consumer:
Credit cards
Student loans
Other consumer
Total consumer
Real estate:
Construction
Single family residential
Other commercial
Total real estate
Commercial:
Commercial
Agricultural
Total commercial
Other
Total
Gross
30-89 Days
Past Due
90 Days
or More
Past Due
Total
Past Due
Current
Total
Loans
$
820
1,894
1,398
4,112
548
3,581
806
4,935
467
103
570
--
$
605
2,483
664
3,752
121
2,262
6,240
8,623
467
312
779
--
$ 1,425
4,377
2,062
7,864
669
5,843
7,046
13,558
934
415
1,349
--
$ 188,545
43,042
107,149
338,736
109,156
349,251
529,326
987,733
140,488
85,313
225,801
4,728
$ 189,970
47,419
109,211
346,600
109,825
355,094
536,372
1,001,291
141,422
85,728
227,150
4,728
90 Days
Past Due &
Accruing
$
300
2,483
335
3,118
--
121
15
136
9
5
14
--
$ 9,617
$ 13,154
$ 22,771
$1,556,998
$1,579,769
$ 3,268
$
971
1,505
2,016
4,492
691
1,877
7,312
9,880
1,002
25
1,027
--
$
911
1,736
448
3,095
498
2,155
2,229
4,882
500
185
685
--
$ 1,882
3,241
2,464
7,587
1,189
4,032
9,541
14,762
1,502
210
1,712
--
$ 188,447
58,064
116,117
362,628
152,583
360,410
538,819
1,051,812
148,999
85,961
234,960
10,003
$ 190,329
61,305
118,581
370,215
153,772
364,442
548,360
1,066,574
150,501
86,171
236,672
10,003
$
615
1,736
155
2,506
--
122
--
122
77
--
77
--
$ 15,399
$ 8,662
$ 24,061
$1,659,403
$1,683,464
$ 2,705
Impaired Loans – 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 loans, including scheduled principal and interest payments. 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. Impaired loans are carried at the present value of estimated future cash flows using the loan’s existing rate, or
the fair value of the collateral if the loan is collateral dependent. 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.
Impairment is evaluated in total for smaller-balance loans of a similar nature and on an individual loan basis for
other loans. Impaired loans, or portions thereof, are charged-off when deemed uncollectible.
80
Impaired loans, net of government guarantees and excluding loans covered by FDIC loss share agreements, segregated
by class of loans, at December 31, 2011 and 2010, are as follows:
(In thousands)
December 31, 2011
Consumer:
Credit cards
Student loans
Other consumer
Total consumer
Real estate:
Construction
Single family residential
Other commercial
Total real estate
Commercial:
Commercial
Agricultural
Total commercial
Other
Total
December 31, 2010
Consumer:
Credit cards
Student loans
Other consumer
Total consumer
Real estate:
Construction
Single family residential
Other commercial
Total real estate
Commercial:
Commercial
Agricultural
Total commercial
Other
Total
Unpaid
Contractual
Principal
Balance
Recorded
Investment
With No
Allowance Allowance
Recorded
Investment
With
Average
Total
Recorded
Investment Allowance
Related
Investment in Interest
Income
Impaired
Loans Recognized
$
605 $
--
1,359
1,964
605 $
--
1,203
1,808
-- $
--
128
128
605 $
--
1,331
1,936
91 $
--
266
357
715 $
--
1,298
2,013
44
--
57
101
5,324
5,152
28,538
39,014
3,783
4,243
13,642
21,668
1,498
589
13,100
15,187
5,281
4,832
26,742
36,855
415
402
1,942
2,759
6,758
5,978
30,160
42,896
298
264
1,332
1,894
949
572
1,521
--
569
332
901
--
312
104
416
--
881
436
1,317
--
214
153
367
--
1,223
538
1,761
--
54
24
78
--
$ 42,499 $ 24,377 $ 15,731 $ 40,108 $ 3,483 $ 46,670 $ 2,073
$
911 $
--
1,431
2,342
-- $
--
92
92
911 $
--
1,270
2,181
911 $
--
1,362
2,273
159
--
368
527
9,690
6,590
32,547
48,827
5,878
3,002
3,843
12,723
2,591
3,366
27,531
33,488
8,469
6,368
31,374
46,211
804
792
2,342
3,938
1,567
703
2,270
--
704
318
1,022
--
655
454
1,109
--
1,359
772
2,131
--
626
144
770
--
$ 53,439 $ 13,837 $ 36,778 $ 50,615 $ 5,235
At December 31, 2011, and December 31, 2010, impaired loans, net of government guarantees, totaled
$40.1 million and $50.6 million, respectively. Allocations of the allowance for loan losses relative to impaired loans
were $3,483,000 and $5,235,000 at December 31, 2011 and 2010, respectively. Approximately $2,073,000,
$2,389,000 and $1,398,000 of interest income was recognized on average impaired loans of $46,670,000, $55,754,000
and $36,843,000 for 2011, 2010 and 2009, respectively. Interest recognized on impaired loans on a cash basis during
2011, 2010 and 2009 was immaterial.
Included in certain impaired loan categories are troubled debt restructurings (“TDRs”). When the Company
restructures a loan to a borrower that is experiencing financial difficulty and grants a concession that it would not
otherwise consider, a “troubled debt restructuring” results and the Company classifies the loan as a TDR. The
Company grants various types of concessions, primarily interest rate reduction and/or payment modifications or
extensions, with an occasional forgiveness of principal.
Under ASC Topic 310-10-35 – Subsequent Measurement, a TDR is considered to be impaired, and an impairment
analysis must be performed. The Company assesses the exposure for each modification, either by collateral
discounting or by calculation of the present value of future cash flows, and determines if a specific allocation to the
allowance for loan losses is needed.
81
Once an obligation has been restructured because of such credit problems, it continues to be considered a TDR until
paid in full; or, if an obligation yields a market interest rate and no longer has any concession regarding payment
amount or amortization, then it is not considered a TDR at the beginning of the calendar year after the year in which the
improvement takes place. The Company returns TDRs to accrual status only if (1) all contractual amounts due can
reasonably be expected to be repaid within a prudent period, and (2) repayment has been in accordance with the
contract for a sustained period, typically at least six months.
During 2011, the Company adopted ASU 2011-02 – A Creditor’s Determination of Whether a Restructuring is a
Troubled Debt Restructuring. The amendments in ASU 2011-02 require prospective application of the impairment
measurement guidance in ASC 31-10-35 for those loans newly identified as impaired. As a result of adopting ASU
2011-02, the Company reassessed all restructurings that occurred on or after January 1, 2011, the beginning of the
current fiscal year, for identification as TDRs. The Company identified no loans as TDRs for which the allowance for
loan losses had previously been measured under a general allowance for loan losses methodology. Therefore, there was
no additional impact to the allowance for loan losses as a result of the adoption.
The following table presents a summary of troubled debt restructurings as of December 31, 2011, excluding loans
covered by FDIC loss share agreements, segregated by class of loans.
(Dollars 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
Total commercial
Other
Total
Accruing TDR Loans
Balance
Number
Nonaccrual TDR Loans
Balance
Number
Total TDR Loans
Number
Balance
--
--
5
5
1
5
13
19
2
2
4
--
$
--
--
23
23
1,277
957
8,602
10,836
332
201
533
--
28
$
11,391
--
--
--
--
--
1
7
8
1
--
1
--
9
$
--
--
--
--
$
--
--
5
5
--
34
5,082
5,116
1
6
20
27
35
--
35
--
3
2
5
--
--
--
23
23
1,277
991
13,683
15,951
367
201
568
--
$
5,151
37
$
16,542
82
The following table presents loans that were restructured as TDRs during the year ended December 31, 2011,
excluding loans covered by FDIC loss share agreements, segregated by class of loans.
(Dollars in thousands)
Year Ended December 31, 2011
Consumer:
Credit cards
Student loans
Other consumer
Total consumer
Real estate:
Construction
Single family residential
Other commercial
Total real estate
Commercial:
Commercial
Agricultural
Total commercial
Other
Total
Number of
Loans
Balance Prior December 31, Maturity
to TDR
2011
Date
Balance at
Change in
Financial Impact
Change in
Rate
on Date of
Restructure
Modification Type
--
--
4
4
--
--
4
4
2
--
2
--
$
$
--
--
30
30
$
--
--
16
16
--
--
2,112
2,112
--
--
2,112
2,112
346
--
346
--
332
--
332
--
$
--
--
16
16
--
--
2,112
2,112
332
--
332
--
10
$
2,488
$
2,460
$
2,460
$
--
--
--
--
--
--
--
--
--
--
--
--
--
$
$
--
--
--
--
--
--
--
--
--
--
--
--
--
During the year ended December 31, 2011, the Company modified a total of ten loans with a recorded investment of
$2.5 million prior to modification which were deemed troubled debt restructurings. Although there was additional
modification of terms on some of the loans, the prevailing modification on all ten loans was a change in or
extension of the maturity date. Based on the fair value of the collateral, no specific reserve was determined
necessary for any of these loans. Also, there was no immediate financial impact from the restructuring of these
loans, as it was not considered necessary to charge-off interest or principal on the date of restructure.
83
The following table presents loans for which a payment default occurred during the year ended December 31, 2011,
and that had been modified as a TDR within 12 months or less of the payment default, excluding loans covered by
FDIC loss share agreements, segregated by class of loans. We define a payment default as a payment received more
than 90 days after its due date.
(Dollars in thousands)
Year Ended December 31, 2011
Consumer:
Credit cards
Student loans
Other consumer
Total consumer
Real estate:
Construction
Single family residential
Other commercial
Total real estate
Commercial:
Commercial
Agricultural
Total commercial
Other
Total
Recorded
Balance at
December 31,
2011
Number of
Loans
Charge-offs
Transfers to
OREO
--
--
--
--
--
--
5
5
1
--
1
--
6
$
--
--
--
--
--
--
4,051
4,051
35
--
35
--
$
$
--
--
--
--
--
--
556
556
3
--
3
--
$ 4,086
$
559
$
--
--
--
--
--
--
--
--
--
--
--
--
--
Credit Quality Indicators – As part of the on-going monitoring of the credit quality of the Company’s loan portfolio,
management tracks certain credit quality indicators including trends related to (i) the weighted-average risk rating of
commercial and real estate loans, (ii) the level of classified commercial and real estate loans, (iii) net charge-offs,
(iv) non-performing loans (see details above) and (v) the general economic conditions in the States of Arkansas,
Kansas and Missouri.
The Company utilizes a risk rating matrix to assign a risk rate to each of its commercial and real estate loans. Loans
are rated on a scale of 1 to 8. A description of the general characteristics of the 8 risk ratings is as follows:
Risk Rate 1 – Pass (Excellent) – This category includes loans which are virtually free to credit risk.
Borrowers in this category represent the highest credit quality and greatest financial strength.
Risk Rate 2 – Pass (Good) - Loans under this category possess a nominal risk of default. This category
includes borrowers with strong financial strength and superior financial ratios and trends. These loans are
generally fully secured by cash or equivalents (other than those rated "excellent”).
Risk Rate 3 – Pass (Acceptable – Average) - Loans in this category are considered to possess a normal
level of risk. Borrowers in this category have satisfactory financial strength and adequate cash flow
coverage to service debt requirements. If secured, the perfected collateral should be of acceptable quality
and within established borrowing parameters.
Risk Rate 4 – Pass (Monitor) - Loans in the Watch (Monitor) category exhibit an overall acceptable level
of risk, but that risk may be increased by certain conditions, which represent "red flags". These "red flags"
require a higher level of supervision or monitoring than the normal "Pass" rated credit. The borrower may
be experiencing these conditions for the first time, or it may be recovering from weakness, which at one
time justified a harsher rating. These conditions may include: weaknesses in financial trends; marginal
cash flow; one-time negative operating results; non-compliance with policy or borrowing agreements; poor
84
diversity in operations; lack of adequate monitoring information or lender supervision; questionable
management ability/stability.
Risk Rate 5 – Special Mention - A loan in this category has potential weaknesses that deserve
management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of
the repayment prospects for the asset or in the institution's credit position at some future date. Special
Mention loans are not adversely classified (although they are "criticized") and do not expose an institution
to sufficient risk to warrant adverse classification. Borrowers may be experiencing adverse operating
trends, or an ill-proportioned balance sheet. Non-financial characteristics of a Special Mention rating may
include management problems, pending litigation, a non-existent, or ineffective loan agreement or other
material structural weakness, and/or other significant deviation from prudent lending practices.
Risk Rate 6 – Substandard - A Substandard loan is inadequately protected by the current sound worth and
paying capacity of the borrower or of the collateral pledged, if any. Loans so classified must have a well-
defined weakness, or weaknesses, that jeopardize the liquidation of the debt. The loans are characterized
by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.
This does not imply ultimate loss of the principal, but may involve burdensome administrative expenses
and the accompanying cost to carry the loan.
Risk Rate 7 – Doubtful – A loan classified Doubtful has all the weaknesses inherent in a substandard loan
except that the weaknesses make collection or liquidation in full (on the basis of currently existing facts,
conditions, and values) highly questionable and improbable. Doubtful borrowers are usually in default,
lack adequate liquidity, or capital, and lack the resources necessary to remain an operating entity. The
possibility of loss is extremely high, but because of specific pending events that may strengthen the asset,
its classification as loss is deferred. Pending factors include: proposed merger or acquisition; liquidation
procedures; capital injection; perfection of liens on additional collateral; and refinancing plans. Loans
classified as Doubtful are placed on nonaccrual status.
Risk Rate 8 – Loss - Loans classified Loss are considered uncollectible and of such little value that their
continuance as bankable assets is not warranted. This classification does not mean that the loans has
absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off this
basically worthless loan, even though partial recovery may be affected in the future. Borrowers in the Loss
category are often in bankruptcy, have formally suspended debt repayments, or have otherwise ceased
normal business operations. Loans should be classified as Loss and charged-off in the period in which
they become uncollectible.
Loans covered by FDIC loss share agreements are evaluated using this internal grading system. However, since
these loans are accounted for in pools and are currently substantially covered through loss sharing agreements with
the FDIC, all of the loan pools were considered satisfactory at December 31, 2011 and December 31, 2010,
respectively. See Note 5, Loans Covered by FDIC Loss Share Agreements, for further discussion of the acquired
loan pools and loss sharing agreements.
Classified loans for the Company include loans in Risk Ratings 6, 7 and 8. Loans may be classified, but not
considered impaired, due to one of the following reasons: (1) The Company has established minimum dollar
amount thresholds for loan impairment testing. Loans rated 6 – 8 that fall under the threshold amount are not tested
for impairment and therefore are not included in impaired loans. (2) Of the loans that are above the threshold
amount and tested for impairment, after testing, some are considered to not be impaired and are not included in
impaired loans. Total classified loans were $60.6 million and $67.6 million as of December 31, 2011 and
December 31, 2010, respectively.
85
The following table presents a summary of loans by credit risk rating as of December 31, 2011 and December 31,
2010, segregated by class of loans.
Risk Rate
1-4
Risk Rate
5
Risk Rate Risk Rate
6
7
Risk Rate
8
Total
share agreements
158,075
Total
$1,663,055
$ 14,211
$ 60,443
$
109
$
26 $1,737,844
Risk Rate
1-4
Risk Rate
5
Risk Rate Risk Rate
6
7
Risk Rate
8
Total
(In thousands)
December 31, 2011
Consumer:
Credit cards
Student loans
Other consumer
Total consumer
Real estate:
Construction
Single family residential
Other commercial
Total real estate
Commercial:
Commercial
Agricultural
Total commercial
Other
Loans covered by FDIC loss
(In thousands)
December 31, 2010
Consumer:
Credit cards
Student loans
Other consumer
Total consumer
Real estate:
Construction
Single family residential
Other commercial
Total real estate
Commercial:
Commercial
Agricultural
Total commercial
Other
Loans covered by FDIC loss
$ 189,365
44,936
107,217
341,518
100,534
345,880
491,466
937,880
136,107
84,747
220,854
4,728
$ 189,418
59,569
116,179
365,166
144,482
356,271
494,828
995,581
146,155
85,105
231,260
10,003
$
$
--
--
12
12
3,699
1,377
8,465
13,541
510
148
658
--
--
$
$
605
2,483
1,906
4,994
5,592
7,821
36,441
49,854
4,762
833
5,595
--
--
--
--
50
50
--
16
--
16
43
--
43
--
--
-- $ 189,970
--
47,419
109,211
26
346,600
26
--
--
--
--
--
--
--
--
109,825
355,094
536,372
1,001,291
141,422
85,728
227,150
4,728
--
158,075
$
--
--
15
15
570
1,158
11,543
13,271
526
--
526
--
--
$
911
$
1,736
2,323
4,970
8,720
6,992
41,989
57,701
3,806
1,066
4,872
--
--
--
--
64
64
--
21
--
21
14
--
14
--
--
99
$
-- $ 190,329
--
61,305
118,581
--
370,215
--
--
--
--
--
--
--
--
--
153,772
364,442
548,360
1,066,574
150,501
86,171
236,672
10,003
--
231,600
$
-- $1,915,064
share agreements
231,600
Total
$1,833,610
$ 13,812
$ 67,543
$
86
Net (charge-offs)/recoveries for the years ended December 31, 2011 and 2010, excluding loans covered by FDIC
loss share agreements, segregated by class of loans, were 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
Total commercial
Other
Total
2011
2010
$
(3,724)
(54)
(1,232)
(5,010)
(753)
(794)
(637)
(2,184)
(538)
(252)
(790)
--
$
(4,286)
(69)
(1,518)
(5,873)
(2,154)
(864)
(2,889)
(5,907)
(721)
(228)
(949)
--
$
(7,984)
$
(12,729)
Allowance for Loan Losses – The allowance for loan losses is a reserve established through a provision for loan
losses charged to expense, which represents management’s best estimate of probable losses that have been incurred
within the existing portfolio of loans. The allowance, in the judgment of management, is necessary to reserve for
estimated loan losses and risks inherent in the loan portfolio. The Company’s allowance for loan loss methodology
includes allowance allocations calculated in accordance with ASC Topic 310, Receivables, and allowance
allocations calculated in accordance with ASC Topic 450, Contingencies. Accordingly, the methodology is based
on historical loss experience by type of credit and internal risk grade, specific homogeneous risk pools and specific
loss allocations, with adjustments for current events and conditions. The Company’s process for determining the
appropriate level of the allowance for loan losses is designed to account for credit deterioration as it occurs. The
provision for loan losses reflects loan quality trends, including the levels of and trends related to nonaccrual loans,
past due loans, potential problem loans, criticized loans and net charge-offs or recoveries, among other factors. The
provision for loan losses also reflects the totality of actions taken on all loans for a particular period. In other
words, the amount of the provision reflects not only the necessary increases in the allowance for loan losses related
to newly identified criticized loans, but it also reflects actions taken related to other loans including, among other
things, any necessary increases or decreases in required allowances for specific loans or loan pools.
The allowance for loan losses is determined monthly based on management’s assessment of several factors such as
(1) historical loss experience based on volumes and types, (2) reviews or evaluations of the loan portfolio and
allowance for loan losses, (3) trends in volume, maturity and composition, (4) off balance sheet credit risk, (5) volume
and trends in delinquencies and nonaccruals, (6) lending policies and procedures including those for loan losses,
collections and recoveries, (7) national, state and local economic trends and conditions, (8) concentrations of credit that
might affect loss experience across one or more components of the loan portfolio, (9) the experience, ability and depth
of lending management and staff and (10) other factors and trends that will affect specific loans and categories of loans.
As management evaluates the allowance for loan losses, it is categorized as follows: (1) specific allocations,
(2) allocations for classified assets with no specific allocation, (3) general allocations for each major loan category and
(4) unallocated portion.
Specific allocations are made when factors are present requiring a greater reserve than would be required when using
the assigned risk rating allocation. As a general rule, if a specific allocation is warranted, it is the result of an analysis
of a previously classified credit or relationship. The Company’s 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.
87
The Company establishes 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, management made adjustments to the Company’s 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.
Management recognizes that unforeseen risks are inherent in the loan portfolio, and seeks to quantify, to the extent
possible, factors that affect both the value and collectability of the asset. Relative to ASC Topic 310, the Company has
identified the following risk assessment factors that have the potential to affect loan quality, and correspondingly, loan
recognition. The factors are identified as (1) lending policies and procedures, (2) economic outlook and business
conditions, (3) level and trend in delinquencies, (4) concentrations of credit and (5) external factors and competition.
The Company establishes general allocations for each major loan category. This section also includes allocations to
loans which are collectively evaluated for loss such as credit cards, one-to-four family owner occupied residential real
estate loans and other consumer loans. The allocations in this section are based on an analysis of historical losses for
each loan category. Management gives consideration to trends, changes in loan mix, delinquencies, prior losses and
other related information.
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 various government stimulus programs.
Various Federal Reserve articles and reports indicate the economy is in a moderate recovery, but questions remain
about the durability of growth and whether it can be sustained by private demand. While the recession may be over,
production, income, sales and employment are at very low levels. With moderate economic growth, it is possible the
recovery could take years. The unemployment rate seems likely to remain elevated for several years. The unallocated
reserve addresses inherent probable losses not included elsewhere in the allowance for loan losses. While calculating
allocated reserve, the unallocated reserve supports uncertainties within the loan portfolio.
Loans identified as losses by management, internal loan review and/or bank examiners are charged-off.
88
The following table details activity in the allowance for loan losses by portfolio segment for the year ended
December 31, 2011. Allocation of a portion of the allowance to one category of loans does not preclude its
availability to absorb losses in other categories.
(In thousands)
Commercial
Real
Estate
Credit
Card
Other
Consumer
and Other
Unallocated
Total
Balance, beginning of year
$ 2,277
$ 9,692
$ 5,549
$
1,958
$
6,940
$ 26,416
Provision for loan losses
576
2,609
3,688
1,175
3,628
11,676
Charge-offs
Recoveries
(1,411)
621
(3,165)
981
(4,703)
979
(1,890)
604
Net charge-offs
(790)
(2,184)
(3,724)
(1,286)
--
--
--
(11,169)
3,185
(7,984)
Balance, end of year
$ 2,063
$ 10,117
$ 5,513
$
1,847
$ 10,568
$ 30,108
Period-end amount allocated to:
Loans individually evaluated
for impairment
$
367
$ 2,759
$
91
$
266
$
--
$ 3,483
Loans collectively evaluated
for impairment
1,696
7,358
5,422
1,581
10,568
26,625
Balance, end of year
$ 2,063
$ 10,117
$ 5,513
$
1,847
$ 10,568
$ 30,108
Activity in the allowance for loan losses for the years ended December 31, 2010 and 2009, was as follows:
(In thousands)
2010
2009
Balance, beginning of year
$ 25,016
$25,841
Provision for loan losses
14,129
10,316
Charge-offs
Recoveries
(18,602)
5,873
(14,828)
3,687
Net charge-offs
(12,729)
(11,141)
Balance, end of year
$ 26,416
$ 25,016
The Company’s recorded investment in loans, excluding loans covered by FDIC loss share agreements, as of
December 31, 2011 and 2010 related to each balance in the allowance for loan losses by portfolio segment on the basis
of the Company’s impairment methodology is as follows:
(In thousands)
Commercial
Real
Estate
Credit
Card
Other
Consumer
and Other
Total
December 31, 2011
Loans individually evaluated
for impairment
Loans collectively evaluated
for impairment
$
1,317
$
36,855
$
605
$ 1,331
$
40,108
225,833
964,436
189,365
160,027
1,539,661
Balance, end of period
$ 227,150
$ 1,001,291
$ 189,970
$ 161,358
$ 1,579,769
December 31, 2010
Loans individually evaluated
for impairment
Loans collectively evaluated
for impairment
$
2,131
$
46,211
$
911
$ 1,362
$
50,615
234,541
1,020,363
189,418
188,527
1,632,849
Balance, end of period
$ 236,672
$ 1,066,574
$ 190,329
$ 189,889
$ 1,683,464
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NOTE 5:
LOANS COVERED BY FDIC LOSS SHARE AGREEMENTS
The Company evaluated loans purchased in conjunction with the acquisitions of SWCB and SSB described in Note 2,
Acquisitions, for impairment in accordance with the provisions of ASC Topic 310-30. Purchased covered loans are
considered impaired if there is evidence of credit deterioration since origination and if it is probable that not all
contractually required payments will be collected. The following table reflects the carrying value of all purchased
covered impaired loans as of December 31, 2011 and 2010, for the SWCB and SSB FDIC-assisted transactions:
(in thousands)
Consumer:
Other consumer
Total consumer
Real estate:
Construction
Single family residential
Other commercial
Total real estate
Commercial:
Commercial
Agricultural
Total commercial
Loans Covered
by FDIC Loss Share
December 31,
2011
2010
$
23
23
$
105
105
23,515
26,825
102,198
152,538
5,514
--
5,514
73,527
50,182
89,495
213,204
17,975
316
18,291
Total covered loans (1)
$ 158,075
$ 231,600
(1) These loans were not classified as non-performing assets at December 31, 2011 and 2010, as the loans are
accounted for on a pooled basis and the pools are considered to be performing. Therefore, interest income,
through accretion of the difference between the carrying amount of the loans and the expected cash flows, is
being recognized on all purchased impaired loans. The loans are grouped in pools sharing common risk
characteristics and were treated in the aggregate when applying various valuation techniques.
The acquired loans were grouped into pools based on common risk characteristics and were recorded at their estimated
fair values, which incorporated estimated credit losses at the acquisition date. These loan pools are systematically
reviewed by the Company to determine the risk of losses that may exceed those identified at the time of the acquisition.
Techniques used in determining risk of loss are similar to the Company’s non-covered loan portfolio, with most focus
being placed on those loan pools which include the larger loan relationships and those loan pools which exhibit higher
risk characteristics.
The following is a summary of the covered impaired loans acquired in the acquisitions during 2010, as of the dates of
acquisition.
(in thousands)
Contractually required principal and interest at acquisition
Non-accretable difference (expected losses and foregone interest)
Cash flows expected to be collected at acquisition
Accretable yield
Basis in acquired loans at acquisition
SWCB
SSB
$ 58,739
(15,396)
43,343
(3,166)
$ 40,177
$
$
334,582
(78,139)
256,443
(37,285)
219,158
As of the respective acquisition dates, the estimates of contractually required payments receivable, including interest,
for all covered impaired loans acquired in the SWCB and SSB transactions were $393.3 million. The cash flows
expected to be collected as of the acquisition dates for these loans were $299.8 million, including interest. These
90
amounts were determined based upon the estimated remaining life of the underlying loans, which includes the effects of
estimated prepayments.
The amount of the estimated cash flows expected to be received from the acquired loan pools in excess of the fair
values recorded for the loan pools is referred to as the accretable yield. The accretable yield is recognized as interest
income over the estimated lives of the loans. Each quarter, the Company estimates the cash flows expected to be
collected from the acquired loan pools, and adjustments may or may not be required. During the fourth quarter of
2011, the cash flows estimate increased based on payment histories and reduced loss expectations of the loan pools.
This resulted in increased interest income that will be spread on a level-yield basis over the remaining expected lives of
the loan pools. The increases in expected cash flows also reduced the amount of expected reimbursements under the
loss sharing agreements with the FDIC, which are recorded as indemnification assets. The estimated adjustments to the
indemnification assets will be amortized on a level-yield basis over the remainder of the loss sharing agreements or the
remaining expected lives of the loan pools, whichever is shorter. The impact of the fourth quarter adjustments on the
Company’s financial results for the current reporting period is shown below:
(In thousands, except basis points data)
Impact on net interest income/
net interest margin (in basis points)
Non-interest income
Net impact to pre-tax income
Net impact, net of taxes
Year Ended
December 31, 2011
4 bps
$
$
1,124
(978)
146
89
Because these adjustments will be recognized over the remaining lives of the loan pools and the remainder of the loss
sharing agreements, respectively, they will impact future periods as well. The current estimate of the remaining
accretable yield adjustment that will positively impact interest income is $22.6 million and the remaining adjustment to
the indemnification assets that will reduce non-interest income is $19.9 million. Of the remaining adjustments, the
Company expects to recognize $11.0 million of interest income and a $9.7 million reduction of non-interest income
during 2012. The accretable yield adjustments recorded in future periods will change as the Company continues to
evaluate expected cash flows from the acquired loan pools.
Changes in the carrying amount of the accretable yield for purchased impaired and non-impaired loans were as follows
for the years ended December 31, 2011 and 2010, for SWCB and SSB.
(in thousands)
Balance, January 1, 2010
Additions
Accretion
Payments received, net
Balance, December 31, 2010
Additions
Accretable yield adjustments
Accretion
Payments received, net
Balance, December 31, 2011
Accretable
Yield
$
--
40,451
(4,204)
--
$ 36,247
--
23,704
(17,118)
--
$ 42,833
Carrying
Amount of
Loans
$
$
$
--
259,335
4,204
(31,939)
231,600
--
--
17,118
(90,643)
158,075
No pools evaluated by the Company were determined to have experienced impairment in the estimated credit quality or
cash flows. There were no allowances for loan losses related to the purchased impaired loans at December 31, 2011 or
2010.
91
NOTE 6:
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, 2011,
unchanged from December 31, 2010. Although the Company had two FDIC-assisted acquisitions during the year
ended December 31, 2010, no additional goodwill was recorded, as both transactions resulted in a bargain purchase
gain. Goodwill impairment was neither indicated nor recorded in 2011 or 2010.
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, 2011 and 2010, were as follows:
(In thousands)
December 31, 2011
December 31, 2010
Gross
Gross
Carrying Accumulated
Amount Amortization
Net
Carrying Accumulated
Amount Amortization
Net
Core deposit premiums
$ 3,069
$ 1,490
$ 1,579
$ 7,885
$ 5,422
$ 2,463
Core deposit premium amortization expense recorded for the years ended December 31, 2011, 2010 and 2009, was
$884,000, $786,000 and $805,000, respectively. The Company’s estimated amortization expense for each of the
following five years is: 2012 – $295,000; 2013 – $261,000; 2014 – $157,000; 2015 – $151,000; and 2016 – $148,000.
NOTE 7:
TIME DEPOSITS
Time deposits included approximately $378,825,000 and $360,349,000 of certificates of deposit of $100,000 or more,
at December 31, 2011 and 2010, respectively. Brokered deposits were $20,629,000 and $21,472,000 at December 31,
2011 and 2010, respectively. Maturities of all time deposits are as follows: 2012 – $696,312,000; 2013 – $93,690,000;
2014 – $59,872,000; 2015 – $7,329,000; 2016 – $21,361,000 and $70,000 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.
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NOTE 8:
INCOME TAXES
The provision for income taxes is comprised of the following components:
(In thousands)
2011
2010
2009
Income taxes currently payable
Deferred income taxes
$ 13,996
(3,571)
$ 8,886
8,428
$ 8,577
1,613
Provision for income taxes
$ 10,425
$ 17,314
$ 10,190
The tax effects of temporary differences related to deferred taxes included in other liabilities on the consolidated
balance sheets were:
(In thousands)
Deferred tax assets
Loans acquired
FDIC true-up liability
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
Goodwill and core deposit premium amortization
FDIC indemnification asset
Accumulated depreciation
Available-for-sale securities
Deferred loan fee income and expenses, net
FHLB stock dividends
Other
Gross deferred tax liabilities
2011
2010
$ 7,150
1,341
11,457
393
1,591
547
1,052
767
522
24,820
(9,725)
(18,703)
(189)
(283)
(1,742)
(430)
(569)
(31,641)
$ 11,002
1,251
9,857
2,393
1,532
1,600
960
767
442
29,804
(3,688)
(32,209)
(597)
(331)
(1,413)
(414)
(1,592)
(40,244)
Net deferred tax liability
$ (6,821)
$(10,440)
A reconciliation of income tax expense at the statutory rate to the Company's actual income tax expense is shown
below.
(In thousands)
2011
2010
2009
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
$ 12,530
$ 19,051
$ 12,390
883
(2,780)
(518)
310
1,542
(2,924)
(584)
229
566
(2,877)
(444)
555
Actual tax provision
$ 10,425
$ 17,314
$ 10,190
93
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 2008 tax year and forward. The Company’s various state income tax
returns are generally open from the 2005 and later tax return years based on individual state statute of limitations.
NOTE 9:
LONG-TERM DEBT
Long-term debt at December 31, 2011, and 2010 consisted of the following components.
(In thousands)
FHLB advances, due 2012 to 2033, 0.96% 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, floating rate
2.80% above the three-month LIBOR rate,
reset quarterly, callable without penalty
Total long-term debt
2011
2010
$ 89,898
$ 133,394
10,310
10,310
10,310
10,310
10,310
10,310
$ 120,828
$ 164,324
At December 31, 2011, the Company had no Federal Home Loan Bank (“FHLB”) advances with original maturities
of one year or less.
The Company had total FHLB advances of $89.9 million at December 31, 2011, with approximately $333.4 million of
additional advances available from the FHLB.
The FHLB advances are secured by mortgage loans and investment securities totaling approximately $481.7 million at
December 31, 2011.
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
94
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, 2011 are as follows:
(In thousands)
Year
2012
2013
2014
2015
2016
Thereafter
Annual
Maturities
$
7,370
22,275
5,977
9,699
8,002
67,505
Total
$ 120,828
NOTE 10: 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, 2011, no
preferred stock has been issued.
On November 28, 2007, the Company announced the adoption by the Board of Directors of a 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 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.
On September 27, 2011, the Company announced that it would reinstate the existing stock repurchase program. Prior
to the suspension of the program, the Company had repurchased 54,328 shares, thereby leaving authority to repurchase
645,672 shares under the program. 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.
During 2011, after announcing the reinstatement of the program, the Company repurchased 137,144 shares of stock
with a weighted average repurchase price of $23.98 per share. Under the current stock repurchase plan, the Company
can repurchase an additional 508,528 shares.
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, allows
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 are
determined at the time of any offering under a separate prospectus supplement that the Company is 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.
95
NOTE 11: TRANSACTIONS WITH RELATED PARTIES
At December 31, 2011 and 2010, 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
$28.5 million in 2011 and $28.7 million in 2010.
(In thousands)
Balance, beginning of year
New extensions of credit
Repayments
Balance, end of year
2011
2010
$ 28,749
13,556
(13,833)
$ 28,472
$ 23,487
14,524
(9,262)
$ 28,749
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 12: EMPLOYEE BENEFIT PLANS
Retirement Plans
The Company’s 401(k) retirement plan covers substantially all employees. Contribution expense totaled $625,000,
$591,000 and $578,000, in 2011, 2010 and 2009, respectively.
The Company has a discretionary profit sharing and employee stock ownership plan covering substantially all
employees. Contribution expense totaled $2,936,000 for 2011, $2,738,000 for 2010 and $2,640,000 for 2009.
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 $178,000 for 2011, $109,000 for 2010 and $65,000 for 2009. 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.
Employee Stock Purchase Plan
The Company established an Employee Stock Purchase Plan in 2006 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
96
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.
The table below summarizes the transactions under the Company's active stock compensation plans at December 31,
2011, 2010 and 2009, and changes during the years then ended:
Balance, December 31, 2008
Granted
Stock Options Exercised
Stock Awards Vested
Forfeited/Expired
Balance, December 31, 2009
Granted
Stock Options Exercised
Stock Awards Vested
Forfeited/Expired
Balance, December 31, 2010
Granted
Stock Options Exercised
Stock Awards Vested
Forfeited/Expired
Balance, December 31, 2011
Exercisable, December 31, 2011
Non-Vested Stock
Awards Outstanding
Number
of Shares
(000)
Weighted
Average
Grant-Date
Fair-Value
37
28
--
(15)
(1)
49
83
--
(17)
(4)
111
48
--
(32)
--
$ 28.28
25.15
--
26.90
26.22
26.96
26.92
--
27.49
26.27
26.81
28.18
--
26.83
--
127
$ 26.49
Stock Options
Outstanding
Weighted
Average
Exercise
Price
$ 20.46
--
12.17
--
19.36
21.78
--
13.45
--
27.88
25.11
--
12.71
--
26.20
$ 26.76
$ 26.36
Number
of Shares
(000)
452
--
(57)
--
(21)
374
--
(108)
--
(7)
259
--
(30)
--
(1)
228
201
97
The following table summarizes information about stock options under the plans outstanding at December 31, 2011:
Options Outstanding
Weighted
Average
Remaining
Contractual
Life (Years)
2.56
3.39
4.33
5.41
6.41
Weighted
Average
Exercise
Price
$23.78
24.50
26.20
28.42
30.31
Number
of Shares
(000)
50
31
51
49
47
Options Exercisable
Number
of Shares
(000)
50
31
51
41
28
Weighted
Average
Exercise
Price
$23.78
24.50
26.20
28.42
30.31
Range of
Exercise Prices
$23.78 - $23.78
24.50
24.50 -
27.67
26.19 -
28.42
28.42 -
30.31
30.31 -
Stock-based compensation expense totaled $1,204,000 in 2011, $974,000 in 2010 and $627,000 in 2009. 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 $110,000 at December 31, 2011. At such date, the
weighted-average period over which this unrecognized expense is expected to be recognized was 0.7 years.
Unrecognized stock-based compensation expense related to non-vested stock awards was $2.5 million at December 31,
2011. At such date, the weighted-average period over which this unrecognized expense is expected to be recognized
was 2.5 years.
Aggregate intrinsic value of outstanding stock options and exercisable stock options was $99,000 and $167,000,
respectively, at December 31, 2011. Aggregate intrinsic value represents the difference between the Company’s
closing stock price on the last trading day of the period, which was $27.19 at December 31, 2011, and the exercise price
multiplied by the number of options outstanding. The total intrinsic value of stock options exercised was $439,000 in
2011, $1.6 million in 2010 and $886,000 in 2009.
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 2011, 2010 or 2009.
NOTE 13: ADDITIONAL CASH FLOW INFORMATION
The following table presents additional information on cash payments and non-cash items:
(In thousands)
2011
2010
2009
Interest paid
Income taxes paid
Transfers of loans to foreclosed assets held for sale
Transfers of loans covered by FDIC loss share agreements to
foreclosed assets covered by FDIC loss share agreements
$ 20,974
17,638
20,195
$ 27,703
9,177
61,938
$ 40,673
7,040
10,323
11,168
8,933
--
In connection with the SWCB and SSB acquisitions, accounted for by using the purchase method, the Company
acquired assets and assumed liabilities as follows:
(In thousands)
Assets acquired
Liabilities assumed
Bargain purchase gains
2010
$
$
559,629
538,315
21,314
98
NOTE 14: OTHER OPERATING EXPENSES
Other operating expenses consist of the following:
(In thousands)
2011
2010
2009
Professional services
Postage
Telephone
Credit card expense
Operating supplies
Amortization of core deposit premiums
Other expense
Total
$ 4,574
2,486
2,480
6,565
1,653
884
12,452
$ 31,094
$ 4,476
2,465
2,328
5,839
1,403
786
11,936
$ 29,233
$ 3,643
2,409
2,113
5,051
1,470
805
12,167
$ 27,658
The Company had aggregate annual equipment rental expense of approximately $540,000 in 2011, $311,000 in 2010
and $317,000 in 2009. The Company had aggregate annual occupancy rental expense of approximately $1,412,000 in
2011, $1,381,000 in 2010 and $1,208,000 in 2009.
NOTE 15: DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
ASC Topic 820, Fair Value Measurements 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 management believes the Company’s valuation methodologies
are appropriate and consistent with other market participants, the use of different methodologies or assumptions to
determine 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.
99
Following is a description of the inputs and valuation methodologies used for assets measured at fair value on a
recurring basis and recognized in the accompanying consolidated balance sheets, as well as the general classification of
such assets 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.
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, 2011 and 2010.
(In thousands)
Fair Value
December 31, 2011
Available-for-sale securities
U.S. Government agencies
Mortgage-backed securities
Other securities
Assets held in trading accounts
$ 153,627
2,557
16,027
7,541
December 31, 2010
Available-for-sale securities
U.S. Government agencies
Mortgage-backed securities
Other securities
Assets held in trading accounts
$ 125,469
2,789
20,221
7,577
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
1,800
--
--
1,503
2,700
$ 153,627
2,557
14,524
5,741
$ 125,469
2,789
18,718
4,877
$
$
--
--
--
--
--
--
--
--
Certain financial assets and liabilities 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 and liabilities 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
100
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.
Foreclosed assets held for sale – Foreclosed assets held for sale are reported at fair value, less estimated costs to sell.
At foreclosure, if the fair value, less estimated costs to sell, of the real estate acquired is less than the Company’s
recorded investment in the related loan, a write-down is recognized through a charge to the allowance for loan losses.
Additionally, valuations are periodically performed by management and any subsequent reduction in value is
recognized by a charge to income. The fair value of foreclosed assets held for sale is estimated using Level 3 inputs
based on observable market data. As of December 31, 2011 and 2010, the fair value of foreclosed assets held for sale,
excluding those covered by FDIC loss share agreements, less estimated costs to sell was $22.9 million and
$23.2 million, respectively.
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, 2011 and 2010, 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.
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 nonrecurring basis as of December 31, 2011 and 2010.
(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, 2011
Impaired loans (1) (2)
$ 10,173
$
(collateral dependent)
Foreclosed assets held for sale (1)
2,664
December 31, 2010
Impaired loans
(collateral dependent)
$ 45,380
$
--
--
--
$
$
--
--
--
$ 10,173
2,664
$ 45,380
(1) These amounts represent the resulting carrying amounts on the Consolidated Balance Sheets for impaired
collateral dependent loans and foreclosed assets held for sale for which fair value re-measurements took place
during the period.
(2) Specific allocations of $41,000 were related to the impaired collateral dependent loans for which fair value re-
measurements took place during the period.
101
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, excluding those covered by FDIC loss share agreements, 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.
Covered loans – Fair values of covered loans are based on a discounted cash flow methodology that considers
factors including the type of loan and related collateral, variable or fixed rate, classification status, remaining term,
interest rate, historical delinquencies, loan to value ratios, current market rates and remaining loan balance. The
loans were grouped together according to similar characteristics and were treated in the aggregate when applying
various valuation techniques. The discount rates used for loans were based on current market rates for new
originations of similar loans. Estimated credit losses were also factored into the projected cash flows of the loans.
FDIC indemnification asset – Fair value of the FDIC indemnification asset is based on the net present value of
future cash proceeds expected to be received from the FDIC under the provisions of the loss share agreements using
a discount rate that is based on current market rates.
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.
102
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 not covered by loss
share agreements
Loans covered by FDIC loss
share agreements
FDIC indemnification asset
December 31, 2011
Fair
Value
Carrying
Amount
December 31, 2010
Fair
Value
Carrying
Amount
$ 570,206
525,444
22,976
15,126
$ 570,206
532,206
22,976
15,126
$ 452,060
465,183
17,237
17,363
$ 452,060
466,907
17,237
17,363
1,549,661
1,548,034
1,657,048
1,649,773
158,075
47,683
157,424
47,683
231,600
60,235
228,375
60,235
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
532,259
532,259
428,750
428,750
1,239,504
878,634
1,239,504
882,244
1,220,133
959,886
1,220,133
962,535
114,766
272
120,828
1,437
114,766
272
126,962
1,437
109,139
1,033
164,324
2,015
109,139
1,033
176,628
2,015
The fair value of commitments to extend credit, letters of credit and lines of credit is not presented since management
believes the fair value to be insignificant.
NOTE 16:
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, covered assets and certain concentrations of credit risk are reflected
in Note 4, Loans and Allowance for Loan Losses, Note 5, Loans Covered by FDIC Loss Share Agreements and
Note 17, Commitments and Credit Risk.
103
NOTE 17: COMMITMENTS AND CREDIT RISK
The Company grants agri-business, credit card, commercial and residential loans to customers throughout Arkansas,
Kansas and southern Missouri. 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, 2011, the Company had outstanding commitments to extend credit aggregating approximately
$343,400,000 and $285,487,000 for credit card commitments and other loan commitments, respectively. At
December 31, 2010, the Company had outstanding commitments to extend credit aggregating approximately
$272,688,000 and $287,055,000 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 $9,269,000 and $11,767,000 at December 31, 2011 and 2010, respectively, with terms
ranging from one to two years. The Company’s deferred revenue under standby letter of credit agreements was
approximately $33,000 and $31,000 at December 31 2011, and 2010, respectively.
At December 31, 2011, the Company did not have concentrations of 5% or more of the investment portfolio in bonds
issued by a single municipality.
NOTE 18: NEW ACCOUNTING STANDARDS
In January 2010, the FASB issued ASU 2010-06, Fair Value Measurements and Disclosures (Topic 820) –
Improving Disclosures about Fair Value Measurements. ASU 2010-06 revises two disclosure requirements
concerning fair value measurements and clarifies two others. It requires separate presentation of significant
transfers into and out of Levels 1 and 2 of the fair value hierarchy and disclosure of the reasons for such transfers.
It will also require the presentation of purchases, sales, issuances and settlements within Level 3 on a gross basis
rather than a net basis. The amendments also clarify that disclosures should be disaggregated by class of asset or
liability and that disclosures about inputs and valuation techniques should be provided for both recurring and
nonrecurring fair value measurements. The Company’s disclosures about fair value measurements are presented in
Note 15, Disclosures About Fair Value of Financial Instruments. These new disclosure requirements were adopted
by the Company on January 1, 2010, with the exception of the requirement concerning gross presentation of Level 3
activity, which was adopted by the Company on January 1, 2011. The adoption of this standard did not have a
significant impact on the Company’s financial position, results of operations or disclosures.
In July 2010, the FASB issued ASU 2010-20, Receivables (Topic 310) – Disclosures about the Credit Quality of
Financing Receivables and the Allowance for Credit Losses. ASU 2010-20 requires entities to provide disclosures
designed to facilitate financial statement users’ evaluation of (i) the nature of credit risk inherent in the entity’s
portfolio of financing receivables, (ii) how that risk is analyzed and assessed in arriving at the allowance for credit
losses and (iii) the changes and reasons for those changes in the allowance for credit losses. Disclosures must be
disaggregated by portfolio segment, the level at which an entity develops and documents a systematic method for
determining its allowance for credit losses, and class of financing receivable, which is generally a disaggregation of
portfolio segment. The required disclosures include, among other things, a rollforward of the allowance for credit
losses as well as information about modified, impaired, nonaccrual and past due loans and credit quality indicators.
The Company adopted the disclosure provisions of the new authoritative guidance about activity that occurs during
a reporting period on January 1, 2011. The adoption of these provisions did not have a significant impact on the
Company’s financial position or results of operations. The effective date disclosures related to loans modified in a
104
troubled debt restructuring (“TDR”) was temporarily deferred to coincide with the effective date of the then
proposed ASU 2011-02, Receivables (Topic 310) – A Creditor’s Determination of Whether a Restructuring is a
Troubled Debt Restructuring, which is further discussed below.
In April 2011, the FASB issued ASU 2011-02, Receivables (Topic 310) – A Creditor’s Determination of Whether a
Restructuring is a Troubled Debt Restructuring. ASU 2011-02 amended prior guidance to provide assistance in
determining whether a modification of the terms of a receivable meets the definition of a troubled debt restructuring.
The new authoritative guidance provides clarification for evaluating whether a concession has been granted and
whether a debtor is experiencing financial difficulties. ASU 2011-02 was effective for the Company on July 1,
2011, and applies retrospectively to restructurings occurring on or after January 1, 2011. The adoption of this
guidance did not have a significant impact on the Company’s financial position or results of operations. See Note 4
for disclosures related to this ASU.
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. ASC Topic 805 became effective January 1, 2009; therefore, the
Company’s FDIC-assisted acquisitions during 2010 were accounted for in accordance ASC Topic 805. Refer to
Note 1, Nature of Operations and Summary of Significant Accounting Policies – Acquisition Accounting, Covered
Loans and Related Indemnification Asset and Note 2, Acquisitions for further information.
New authoritative accounting guidance under ASU 2010-29, Business Combinations (Topic 805), Disclosure of
Supplementary Pro Forma Information for Business Combinations. ASU 2010-29 provides clarification regarding
the acquisition date that should be used for reporting the pro forma financial information disclosures required by
Topic 805 when comparative financial statements are presented. ASU 2010-29 also requires entities to provide a
description of the nature and amount of material, nonrecurring pro forma adjustments that are directly attributable to
the business combination. ASU 2010-29 became effective for the Company for business combinations occurring
after December 31, 2010, and is not expected to have a significant impact on the Company’s ongoing financial
position or results of operations.
New authoritative accounting guidance under ASU 2010-28, Intangibles – Goodwill and Other (Topic 350), When to
Perform Step 2 of the Goodwill impairment Test for Reporting Units with Zero or Negative Carrying Amounts.
ASU 2010-28 modifies Step 1 of the goodwill impairment test for reporting units with zero or negative carrying
amounts. For those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more
likely than not that a goodwill impairment exists. In determining whether it is more likely than not that a goodwill
impairment exists, an entity should consider whether there are any adverse qualitative factors indicating that an
impairment may exist such as if an event occurs or circumstances change that would more likely than not reduce the
fair value of a reporting unit below its carrying amount. ASU 2010-28 became effective for the Company on January
1, 2011, and did not have a significant impact on the Company’s ongoing financial position or results of operations.
105
In April 2011, the FASB issued ASU 2011-03, Transfers and Servicing (Topic 860) – Reconsideration of Effective
Control for Repurchase Agreements. ASU 2011-03 is intended to improve financial reporting of repurchase
agreements and other agreements that both entitle and obligate a transferor to repurchase or redeem financial assets
before their maturity. ASU 2011-03 removes from the assessment of effective control (i) the criterion requiring the
transferor to have the ability to repurchase or redeem the financial assets on substantially the agreed terms, even in
the event of default by the transferee, and (ii) the collateral maintenance guidance related to that criterion.
ASU 2011-03 will be effective for the Company on January 1, 2012, and is not expected to have a significant
impact on the Company’s ongoing financial position or results of operations.
In May 2011, the FASB issued ASU 2011-04, Fair Value Measurement (Topic 820) – Amendments to Achieve
Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs, to converge the fair
value of measurement guidance in U.S. generally accepted accounting principles and International Financial
Reporting Standards. ASU 2011-04 clarifies the application of existing fair value measurement requirements,
changes certain principles in Topic 820 and requires additional fair value disclosures. ASU 2011-04 is effective for
the Company for annual periods beginning after December 15, 2011, and is not expected to have a significant
impact on the Company’s ongoing financial position or results of operations.
In June 2011, the FASB issued ASU 2011-05, Comprehensive Income (Topic 220) – Presentation of
Comprehensive Income, to require that all non-owner changes in stockholders’ equity be presented in either a single
continuous statement of comprehensive income or in two separate but consecutive statements. Additionally,
ASU 2011-05 requires entities to present, on the face of the financial statements, reclassification adjustments for
items that are reclassified from other comprehensive income to net income in the statement or statements where the
components of net income and the components of other comprehensive income are presented. The option to present
components of other comprehensive income as part of the statement of changes in stockholders’ equity was
eliminated. ASU 2011-05 is effective for the Company for annual periods beginning after December 15, 2011, and
is expected to result in presentation changes to the Company’s statements of income and the addition of a statement
of comprehensive income. The adoption of ASU 2011-05 is not expected to have a significant impact on the
Company’s ongoing financial position or results of operations.
In September 2011, the FASB issued ASU 2011-08, Intangibles – Goodwill and Other (Topic 350) –Testing
Goodwill for Impairment. ASU 2011-08 amends Topic 350 to give entities the option to first assess qualitative
factors to determine whether the existence of events or circumstances leads to a determination that it is more likely
than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of
events or circumstances, an entity determines it is not more likely than not that the fair value of a reporting unit is
less than its carrying amount, then performing the two-step impairment test is unnecessary. However, if an entity
concludes otherwise, then it is required to perform the first step of the two-step impairment test by calculating the
fair value of the reporting unit and comparing the fair value with the carrying amount of the reporting unit.
ASU 2011-08 is effective for annual and interim impairment tests beginning after December 15, 2011, and is not
expected to have a significant impact on the Company’s ongoing financial position or results of operations.
In December 2011, the FASB issued ASU 2011-12, Comprehensive Income (Topic 220) – Deferral of the Effective
Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive
Income in Accounting Standards Update No. 2011-05. ASU 2011-12 defers changes in ASU 2011-05 that relate to
the presentation of reclassification adjustments to allow the FASB time to redeliberate whether to require
presentation of such adjustments on the face of the financial statements to show the effects of reclassifications out of
accumulated other comprehensive income on the components of net income and other comprehensive income.
ASU 2011-12 allows entities to continue to report reclassifications out of accumulated other comprehensive income
consistent with the presentation requirements in effect before ASU 2011-05. All other requirements in ASU 2011-
05 are not affected by ASU 2011-12. ASU 2011-12 is effective for annual and interim periods beginning after
December 15, 2011, 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.
106
NOTE 19: 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, lodged the transcript with the Arkansas
Supreme Court Clerk, and filed their initial Brief. The Company and South Arkansas timely filed their Brief in
response. On September 8, 2010, the Arkansas Court of Appeals dismissed the plaintiffs’ appeal without prejudice,
finding that the Trial Court had not entered a final Order, which may allow the plaintiffs to re-file the appeal at a later
date.
On September 14, 2011, plaintiffs filed a motion for requesting the circuit court enter a judgment on this matter. The
Company and South Arkansas timely filed an objection to the plaintiffs' motion. On November 3, 2011, the circuit
court denied the plaintiffs' motion. The plaintiffs have filed a notice of appeal of the denial of the motion and have
until late February, 2012 to lodge the record for appeal. On February 13, 2012, the Company and South Arkansas filed
a motion to dismiss the appeal along with a brief and a partial transcript. At this time, no basis for any material liability
has been identified.
107
NOTE 20:
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, 2011, the Company subsidiaries had approximately $18.7 million in undivided profits available for
payment of dividends to the Company without prior approval of the regulatory agencies.
The Company’s subsidiaries are subject to various regulatory capital requirements administered by the federal banking
agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional
discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s financial
statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the
Company must meet specific capital guidelines that involve quantitative measures of the Company’s assets, liabilities
and certain off-balance-sheet items as calculated under regulatory accounting practices. The Company’s capital
amounts and classifications are also subject to qualitative judgments by the regulators about components, risk
weightings and other factors.
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, 2011, 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.
108
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, 2011
Total Risk-Based Capital Ratio
Simmons First National Corporation
Simmons First National Bank
Simmons First Bank of Northeast Arkansas
Simmons First Bank of Russellville
Simmons First Bank of Northwest Arkansas
Simmons First Bank of El Dorado
$ 412,274
176,929
34,434
28,159
35,357
23,624
22.8 $ 144,658
72,960
19.4
19,537
14.1
9,047
24.9
13,156
21.5
8,552
22.1
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 Northeast Arkansas
Simmons First Bank of Russellville
Simmons First Bank of Northwest Arkansas
Simmons First Bank of El Dorado
Leverage Ratio
Simmons First National Corporation
Simmons First National Bank
Simmons First Bank of Northeast Arkansas
Simmons First Bank of Russellville
Simmons First Bank of Northwest Arkansas
Simmons First Bank of El Dorado
As of December 31, 2010
Total Risk-Based Capital Ratio
389,583
168,382
31,438
26,735
33,281
22,285
389,583
168,382
31,438
26,735
33,281
22,285
21.6
18.5
12.8
23.6
20.2
20.9
11.9
9.2
9.5
15.2
13.2
9.8
72,145
36,407
9,824
4,531
6,590
4,265
130,952
73,210
13,237
7,036
10,085
9,096
4.0
4.0
4.0
4.0
4.0
4.0
4.0
4.0
4.0
4.0
4.0
4.0
Simmons First National Corporation
Simmons First National Bank
Simmons First Bank of Northeast Arkansas
Simmons First Bank of Russellville
Simmons First Bank of Northwest Arkansas
Simmons First Bank of El Dorado
$ 400,465
169,870
32,618
27,061
35,348
22,877
21.3 $ 150,409
75,498
18.0
20,228
12.9
9,413
23.0
14,428
19.6
9,683
18.9
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 Northeast Arkansas
Simmons First Bank of Russellville
Simmons First Bank of Northwest Arkansas
Simmons First Bank of El Dorado
Leverage Ratio
Simmons First National Corporation
Simmons First National Bank
Simmons First Bank of Northeast Arkansas
Simmons First Bank of Russellville
Simmons First Bank of Northwest Arkansas
Simmons First Bank of El Dorado
376,906
160,978
29,909
25,579
33,091
21,486
376,906
160,978
29,909
25,579
33,091
21,486
20.0
17.1
11.8
21.7
18.4
17.7
11.3
8.2
9.1
14.8
12.4
8.7
75,381
37,656
10,139
4,715
7,194
4,856
133,418
78,526
13,147
6,913
10,675
9,879
4.0
4.0
4.0
4.0
4.0
4.0
4.0
4.0
4.0
4.0
4.0
4.0
N/A
91,201
24,421
11,309
16,445
10,690
N/A
54,610
14,737
6,797
9,885
6,398
N/A
91,512
16,546
8,794
12,606
11,370
N/A
94,372
25,285
11,766
18,035
12,104
N/A
56,484
15,208
7,073
10,791
7,283
N/A
98,157
16,434
8,642
13,343
12,348
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
109
NOTE 21: CONDENSED FINANCIAL INFORMATION (PARENT COMPANY ONLY)
CONDENSED BALANCE SHEETS
DECEMBER 31, 2011 and 2010
(In thousands)
2011
2010
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 $283 and $331
at December 31, 2011 and 2010 respectively
Total stockholders’ equity
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
$ 43,431
3,251
381,236
133
687
10,103
$ 438,841
$ 49,792
3,320
370,402
133
731
6,416
$ 430,794
$ 30,930
--
30,930
$ 30,930
2,493
33,423
172
112,436
294,864
173
114,040
282,646
439
407,911
$ 438,841
512
397,371
$ 430,794
CONDENSED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 2011, 2010 and 2009
(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
2011
2010
2009
$ 19,291
6,189
25,480
13,756
11,724
(2,743)
$ 18,080
6,763
24,843
15,601
9,242
(3,278)
$ 20,082
6,308
26,390
12,201
14,189
(1,931)
14,467
10,907
12,520
24,597
16,120
9,090
NET INCOME
$ 25,374
$ 37,117
$ 25,210
110
CONDENSED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2011, 2010 and 2009
(In thousands)
2011
2010
2009
251
(411)
(9,090)
(202)
(885)
14,873
(172)
(5,000)
(59,825)
--
(64,997)
70,918
--
(11,245)
59,673
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
$ 25,374
$ 37,117
$ 25,210
187
120
(10,907)
(3,738)
(2,493)
8,543
204
204
(24,597)
183
1,384
14,495
Net purchases of premises and equipment
Additional investment in subsidiary
Purchase of available-for-sale securities
Proceeds from sale or maturity of investment securities
Net cash provided by (used in) investing activities
(143)
--
--
--
(143)
(218)
(43,000)
(100,070)
159,890
16,602
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock, net
Payment to repurchase common stock
Dividends paid
Net cash (used in) provided by financing activities
1,678
(3,283)
(13,156)
(14,761)
2,347
--
(13,091)
(10,744)
(DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR
(6,361)
20,353
9,549
49,792
29,439
19,890
CASH AND CASH EQUIVALENTS, END OF YEAR
$ 43,431
$ 49,792
$ 29,439
111
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 changes in the Company’s internal controls over financial reporting
during the quarter ended December 31, 2011, which materially affected, or are reasonably likely to materially affect, the
Company’s internal control over financial reporting.
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 17, 2012, to be filed pursuant to Regulation 14A on or about March 19, 2012.
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 17, 2012, to be filed pursuant to Regulation 14A on or about March 19, 2012.
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 17, 2012, to be filed pursuant to Regulation 14A on or about March 19, 2012.
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 17, 2012, to be filed pursuant to Regulation 14A on or about March 19, 2012.
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 17, 2012, to be filed pursuant to Regulation 14A on or about March 19, 2012.
112
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
2.1
2.2
3.1
3.2
10.1
10.2
Purchase and Assumption Agreement, dated as of May 14, 2010, among Federal Insurance
Deposit Corporation, Receiver of Southwest Community Bank, Springfield, Missouri, Federal
Deposit Insurance Corporation and Simmons First National Bank (incorporated by reference to
Exhibit 2.1 to Simmons First National Corporation’s Current Report on Form 8-K, as amended,
for May 19, 2010 (File No. 000-06253)).
Purchase and Assumption Agreement, dated as of October 15, 2010, among Federal Insurance
Deposit Corporation, Receiver of Security Savings Bank F.S.B., Olathe, Kansas, Federal
Deposit Insurance Corporation and Simmons First National Bank (incorporated by reference to
Exhibit 2.1 to Simmons First National Corporation’s Current Report on Form 8-K, as amended,
for October 21, 2010 (File No. 000-06253)).
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. 000-06253)).
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. 000-06253)).
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. 000-06253)).
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. 000-06253)).
113
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
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. 000-06253)).
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. 000-06253)).
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. 000-06253)).
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. 000-06253)).
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. 000-06253)).
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. 000-06253)).
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. 000-06253)).
Notice of discretionary bonuses to J. Thomas May, David L. Bartlett, Robert A. Fehlman, Marty
D. Casteel and Robert C. Dill (incorporated by reference to Simmons First National
Corporation’s Current Report on Form 8-K for January 25, 2010 (File No. 000-06253)).
Deferred Compensation Agreements, adopted January 25, 2010, between Simmons First
National Corporation and Robert A. Fehlman and Marty D. Casteel (incorporated by reference
to Exhibits 10.2 and 10.3 to Simmons First National Corporation’s Current Report on Form 8-K
for January 25, 2010 (File No. 000-06253)).
Simmons First National Corporation Executive Retention Program, adopted January 25, 2010,
and notice of retention bonuses to David Bartlett, Robert A. Fehlman and Marty D. Casteel
(incorporated by reference to Exhibit 10.4 to Simmons First National Corporation’s Current
Report on Form 8-K for January 25, 2010 (File No. 000-06253)).
114
10.13
10.14
10.15
10.16
10.17
10.18
10.19
10.20
10.21
10.22
10.23
10.24
10.25
Simmons First National Corporation Executive Stock Incentive Plan – 2010, adopted
January 25, 2010 (incorporated by reference to Exhibit 10.5 to Simmons First National
Corporation’s Current Report on Form 8-K for January 25, 2010 (File No. 000-06253)).
Deferred Compensation Agreement for Marty D. Casteel (incorporated by reference to Exhibit
10.3 to Simmons First National Corporation’s Current Report on Form 8-K for January 25,
2010 (File No. 000-06253)).
Simmons First National Corporation Executive Retention Program (incorporated by reference
to Exhibit 10.4 to Simmons First National Corporation’s Current Report on Form 8-K for
January 25, 2010 (File No. 000-06253)).
Simmons First National Corporation Executive Stock Incentive Plan - 2010 (incorporated by
reference to Exhibit 10.5 to Simmons First National Corporation’s Current Report on Form 8-K
for January 25, 2010 (File No. 000-06253)).
Change in Control Agreement for J. Thomas May (incorporated by reference to Exhibit 10(a) to
Simmons First National Corporation’s Quarterly Report on Form 10-Q filed August 9, 2001
(File No. 000-06253)).
Change in Control Agreement for Robert A. Fehlman (incorporated by reference to Exhibit 10.3
to Simmons First National Corporation’s Current Report on Form 8-K filed January 29, 2010
(File No. 000-06253)).
Change in Control Agreement for David Bartlett (incorporated by reference to Exhibit 10.1 to
Simmons First National Corporation’s Current Report on Form 8-K filed March 2, 2006 (File
No. 000-06253)).
Change in Control Agreement for Marty D. Casteel (incorporated by reference to Exhibit 10.2
to Simmons First National Corporation’s Current Report on Form 8-K filed January 29, 2010
(File No. 000-06253)).
Change in Control Agreement for Robert Dill (incorporated by reference to Exhibit 10.21 to
Simmons First National Corporation’s Amendment to the Annual Report on Form 10-K/A for
the Year ended December 31, 2009 (File No. 000-06253)).
Amendment to Change in Control Agreement for Robert C. Dill (incorporated by reference to
Exhibit 10.22 to Simmons First National Corporation’s Amendment to the Annual Report on
Form 10-K/A for the Year ended December 31, 2009 (File No. 000-06253)).
Amended and Restated Deferred Compensation Agreement for J. Thomas May (incorporated by
reference to Exhibit 10.23 to Simmons First National Corporation’s Amendment to the Annual
Report on Form 10-K/A for the Year ended December 31, 2009 (File No. 000-06253)).
First Amendment to the Amended and Restated Deferred Compensation Agreement for
J. Thomas May (incorporated by reference to Exhibit 10.24 to Simmons First National
Corporation’s Amendment to the Annual Report on Form 10-K/A for the Year ended
December 31, 2009 (File No. 000-06253)).
Second Amendment to the Amended and Restated Deferred Compensation Agreement for
J. Thomas May (incorporated by reference to Exhibit 10.25 to Simmons First National
Corporation’s Amendment to the Annual Report on Form 10-K/A for the Year ended
December 31, 2009 (File No. 000-06253)).
115
10.26
10.27
10.28
10.29
10.30
10.31
10.32
10.33
10.34
10.35
10.36
10.37
Executive Salary Continuation Agreement for David L. Bartlett (incorporated by reference to
Exhibit 10.26 to Simmons First National Corporation’s Amendment to the Annual Report on
Form 10-K/A for the Year ended December 31, 2009 (File No. 000-06253)).
409A Amendment to the Simmons First Bank of Hot Springs Executive Salary Continuation
Agreement for David Bartlett (incorporated by reference to Exhibit 10.27 to Simmons First
National Corporation’s Amendment to the Annual Report on Form 10-K/A for the Year ended
December 31, 2009 (File No. 000-06253)).
Simmons First National Corporation Incentive and Non-Qualified Stock Option Plan
(incorporated by reference to Exhibit 4.1 to Simmons First National Corporation’s Registration
Statement on Form S-8 filed May 19, 2006 (File No. 333-134276)).
Simmons First National Corporation Executive Stock Incentive Plan (incorporated by reference
to Exhibit 4.1 to Simmons First National Corporation’s Registration Statement on Form S-8
filed May 19, 2006 (File No. 333-134301)).
Simmons First National Corporation Executive Stock Incentive Plan – 2001 (incorporated by
reference to Definitive Additional Materials to Simmons First National Corporation’s Definitive
Proxy Materials on Schedule 14A filed April 2, 2001 (File No. 000-06253)).
Simmons First National Corporation Executive Stock Incentive Plan – 2006 (incorporated by
reference to Exhibit 1.2 to Simmons First National Corporation’s Definitive Proxy Materials on
Schedule 14A filed March 10, 2006 (File No. 000-06253)).
First Amendment to Simmons First National Corporation Executive Stock Incentive Plan –
2006 (incorporated by reference to Exhibit 10.1 to Simmons First National Corporation’s
Current Report on Form 8-K filed June 4, 2007 (File No. 000-06253)).
Simmons First National Corporation Outside Director's Stock Incentive Plan - 2006
(incorporated by reference to Exhibit 1.3 to Simmons First National Corporation’s Definitive
Proxy Materials on Schedule 14A filed March 10, 2006 (File No. 000-06253)).
Amended and Restated Simmons First National Corporation Outside Director's Stock Incentive
Plan - 2006 (incorporated by reference to Exhibit 1.1 to Simmons First National Corporation’s
Definitive Proxy Materials on Schedule 14A filed March 10, 2008 (File No. 000-06253)).
Simmons First National Corporation Dividend Reinvestment Plan (incorporated by reference to
Exhibit 4.1 to Simmons First National Corporation’s Registration Statement on Form S-3D filed
May 20, 1998 (File No. 333-53119)).
Simmons First National Corporation Amended and Restated Dividend Reinvestment Plan
(incorporated by reference to Exhibit 4.1 to Simmons First National Corporation’s Registration
Statement on Form S-3D filed July 14, 2004 (File No. 333-117350)).
Form of Lock-Up Agreement (incorporated by reference to Exhibit 10.1 to Simmons First
National Corporation’s Current Report on Form 8-K filed November 12, 2009 (File No. 000-
06253)).
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. 000-06253)).
116
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.
117
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
/s/ Marty D. Casteel
Marty D. Casteel, Secretary
March 7, 2012
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 7, 2012.
Signature
Title
/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. Cossé
Steven A. Cossé
/s/ Edward Drilling
Edward Drilling
/s/ Sharon L. Gaber
Sharon L. Gaber
/s/ Eugene Hunt
Eugene Hunt
/s/ George A. Makris, Jr.
George A. Makris, Jr.
/s/ W. Scott McGeorge
W. Scott McGeorge
/s/ Harry L. Ryburn
Harry L. Ryburn
/s/ Robert L. Shoptaw
Robert L. Shoptaw
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
118
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 7, 2012
/s/ J. Thomas May
J. Thomas May
Chairman and
Chief Executive Officer
119
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 7, 2012
/s/ Robert A. Fehlman
Robert A. Fehlman
Executive Vice President and
Chief Financial Officer
120
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, 2011, 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 7, 2012
121
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, 2011, 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 7, 2012
122
SIMMONS FIRST
NATIONAL CORPORATION
2011 ANNUAL REPORT
Corporate Headquarters:
Little Rock Corporate Office:
501 Main Street
100 Morgan Keegan Dr., Suite 410
Pine Bluff, AR 71601
(870) 541-1000
Little Rock, AR 72202
(501) 558-3100
w w w.SIMMONSFIRST.COM