Edgar Filing: SIMMONS FIRST NATIONAL CORP

f10q_080812.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT UNDER SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For Quarter Ended June 30, 2012

Commission File Number 000-06253

SIMMONS FIRST NATIONAL CORPORATION

(Exact name of registrant as specified in its charter)

Arkansas	71-0407808
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

501 Main Street, Pine Bluff, Arkansas	71601
(Address of principal executive offices)	(Zip Code)

870-541-1000

(Registrant's telephone number, including area code)

Not Applicable

Former name, former address and former fiscal year, if changed since last report

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [x] Yes [ ] No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer [ ]

Accelerated filer [x]

Non-accelerated filer [ ]

Smaller reporting company [ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act.). [ ] Yes [x] No

The number of shares outstanding of the Registrant’s Common Stock as of July 26, 2012, was 16,796,578.

Simmons First National Corporation

Quarterly Report on Form 10-Q

June 30, 2012

Table of Contents

		Page
Part I:	Financial Information
Item 1.	Financial Statements (Unaudited)
	Consolidated Balance Sheets	3
	Consolidated Statements of Income	4
	Consolidated Statements of Other Comprehensive Income	5
	Consolidated Statements of Cash Flows	6
	Consolidated Statements of Stockholders' Equity	7
	Condensed Notes to Consolidated Financial Statements	8-42
	Report of Independent Registered Public Accounting Firm	43
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	44-74
Item 3.	Quantitative and Qualitative Disclosure About Market Risk	74-77
Item 4.	Controls and Procedures	78


Part II:	Other Information
Item 1A.	Risk Factors	78
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	78
Item 6.	Exhibits	79-84


Signatures		85

Part I: Financial Information

Item 1. Financial Statements

Simmons First National Corporation

Consolidated Balance Sheets

June 30, 2012 and December 31, 2011

(In thousands, except share data)	June 30, 2012			December 31, 2011
	(Unaudited)
ASSETS
Cash and non-interest bearing balances due from banks	$	29,708		$	35,087
Interest bearing balances due from banks		515,874			535,119
Cash and cash equivalents		545,582			570,206
Investment securities		692,488			697,656
Mortgage loans held for sale		15,495			22,976
Assets held in trading accounts		7,812			7,541
Loans not covered by loss share agreements		1,614,736			1,579,769
Loans covered by FDIC loss share agreements		114,189			158,075
Allowance for loan losses		(28,397	)		(30,108	)
Net loans		1,700,528			1,707,736
FDIC indemnification asset		35,038			47,683
Premises and equipment		85,171			86,486
Foreclosed assets not covered by loss share agreements		23,947			22,887
Foreclosed assets covered by FDIC loss share agreements		11,252			11,685
Interest receivable		12,975			15,126
Bank owned life insurance		51,326			50,579
Goodwill		60,605			60,605
Core deposit premiums		1,431			1,579
Other assets		13,494			17,384
Total assets	$	3,257,144		$	3,320,129

LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:
Non-interest bearing transaction accounts	$	517,854		$	532,259
Interest bearing transaction accounts and savings deposits		1,290,954			1,239,504
Time deposits		820,476			878,634
Total deposits		2,629,284			2,650,397
Federal funds purchased and securities sold under agreements to repurchase		70,220			114,766
Other borrowings		90,866			90,170
Subordinated debentures		30,930			30,930
Accrued interest and other liabilities		28,431			25,955
Total liabilities		2,849,731			2,912,218

Stockholders’ equity:
Preferred stock, $0.01 par value; 40,040,000 shares authorized and unissued at June 30, 2012 and December 31, 2011		--			--
Common stock, Class A, $0.01 par value; 60,000,000 shares authorized; 16,956,991 and 17,212,317 shares issued and outstanding at June 30, 2012 and December 31, 2011, respectively		170			172
Surplus		105,825			112,436
Undivided profits		300,917			294,864
Accumulated other comprehensive income		501			439
Total stockholders’ equity		407,413			407,911
Total liabilities and stockholders’ equity	$	3,257,144		$	3,320,129

See Condensed Notes to Consolidated Financial Statements.

Simmons First National Corporation

Consolidated Statements of Income

Three and Six Months Ended June 30, 2012 and 2011

	Three Months Ended June 30,					Six Months Ended June 30,
(In thousands, except per share data)	2012			2011		2012			2011
	(Unaudited)					(Unaudited)
INTEREST INCOME
Loans not covered by loss share agreements	$	22,358		$	23,883	$	44,630		$	47,977
Loans covered by FDIC loss share agreements		4,994			4,347		10,967			8,688
Federal funds sold		1			1		1			2
Investment securities		3,313			3,771		6,588			7,476
Mortgage loans held for sale		164			87		317			175
Assets held in trading accounts		13			9		25			18
Interest bearing balances due from banks		349			298		652			533
TOTAL INTEREST INCOME		31,192			32,396		63,180			64,869

INTEREST EXPENSE
Deposits		2,680			3,799		5,645			7,975
Federal funds purchased and securities sold under agreements to repurchase		77			103		176			219
Other borrowings		799			867		1,613			1,844
Subordinated debentures		385			377		777			747
TOTAL INTEREST EXPENSE		3,941			5,146		8,211			10,785

NET INTEREST INCOME		27,251			27,250		54,969			54,084
Provision for loan losses		775			3,328		1,546			6,003

NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES		26,476			23,922		53,423			48,081

NON-INTEREST INCOME
Trust income		1,240			1,243		2,549			2,589
Service charges on deposit accounts		3,930			4,212		7,795			8,069
Other service charges and fees		738			780		1,530			1,586
Mortgage lending income		1,445			849		2,739			1,475
Investment banking income		442			381		1,141			981
Credit card fees		4,207			4,264		8,286			8,207
Bank owned life insurance income		368			414		723			817
Net gain (loss) on assets covered by FDIC loss share agreements		(2,153	)		323		(4,818	)		693
Other income		876			1,865		1,871			2,516
TOTAL NON-INTEREST INCOME		11,093			14,331		21,816			26,933

NON-INTEREST EXPENSE
Salaries and employee benefits		16,590			16,436		33,414			33,552
Occupancy expense, net		2,029			2,100		4,110			4,289
Furniture and equipment expense		1,608			1,560		3,212			3,149
Other real estate and foreclosure expense		194			223		401			317
Deposit insurance		457			842		1,028			1,881
Merger related costs		--			167		--			357
Other operating expenses		7,366			7,331		14,716			15,059
TOTAL NON-INTEREST EXPENSE		28,244			28,659		56,881			58,604

INCOME BEFORE INCOME TAXES		9,325			9,594		18,358			16,410
Provision for income taxes		2,789			2,848		5,467			4,598

NET INCOME	$	6,536		$	6,746	$	12,891		$	11,812
BASIC EARNINGS PER SHARE	$	0.38		$	0.39	$	0.75		$	0.68
DILUTED EARNINGS PER SHARE	$	0.38		$	0.39	$	0.75		$	0.68

See Condensed Notes to Consolidated Financial Statements.

Simmons First National Corporation

Consolidated Statements of Comprehensive Income

Three and Six Months Ended June 30, 2012 and 2011

	Three Months Ended June 30,						Six Months Ended June 30,
(In thousands, except per share data)	2012			2011			2012			2011
	(Unaudited)						(Unaudited)

NET INCOME	$	6,536		$	6,746		$	12,891		$	11,812

OTHER COMPREHENSIVE INCOME
Net unrealized gains on available-for-sale securities		186			451			102			295
Tax effect of net unrealized gains on available-for-sale securities		(73	)		(177	)		(40	)		(116	)
TOTAL OTHER COMPREHENSIVE INCOME		113			274			62			179

COMPREHENSIVE INCOME	$	6,649		$	7,020		$	12,953		$	11,991

See Condensed Notes to Consolidated Financial Statements.

Simmons First National Corporation

Consolidated Statements of Cash Flows

Six Months Ended June 30, 2012 and 2011

(In thousands)	June 30, 2012			June 30, 2011
	(Unaudited)
OPERATING ACTIVITIES
Net income	$	12,891		$	11,812
Items not requiring (providing) cash
Depreciation and amortization		2,751			3,052
Provision for loan losses		1,546			6,003
Net (accretion) amortization of investment securities		(138	)		12
Stock-based compensation expense		769			613
Net accretion on assets covered by
FDIC loss share agreements		(1,494	)		(2,317	)
Deferred income taxes		(802	)		(2,495	)
Bank owned life insurance income		(723	)		(817	)
Changes in
Interest receivable		2,151			2,160
Mortgage loans held for sale		7,481			7,254
Assets held in trading accounts		(271	)		221
Other assets		2,014			3,318
Accrued interest and other liabilities		1,816			(1,208	)
Income taxes payable		897			2,215
Net cash provided by operating activities		28,888			29,823

INVESTING ACTIVITIES
Net collections of covered loans		43,343			31,873
Net (originations) collections of loans		(41,648	)		30,637
Purchases of premises and equipment, net		(1,288	)		(7,550	)
Proceeds from sale of covered other real estate owned		7,875			4,281
Proceeds from sale of foreclosed assets held for sale		2,364			15,307
Proceeds from sale of available-for-sale securities		730			2,933
Proceeds from maturities of available-for-sale securities		153,832			126,831
Purchases of available-for-sale securities		(149,254	)		(159,974	)
Proceeds from maturities of held-to-maturity securities		310,755			128,571
Purchases of held-to-maturity securities		(310,695	)		(69,750	)
Purchase of bank owned life insurance		(25	)		(25	)
Cash received on FDIC loss share		9,682			21,249
Net cash provided by investing activities		25,671			124,383

FINANCING ACTIVITIES
Net change in deposits		(21,113	)		(1,589	)
Dividends paid		(6,838	)		(6,588	)
Net change in other borrowed funds		696			(41,056	)
Net change in federal funds purchased and securities sold under agreements to repurchase		(44,546	)		(15,579	)
Net shares issued under stock compensation plans		324			473
Repurchase of common stock		(7,706	)		--
Net cash used in financing activities		(79,183	)		(64,339	)

(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS		(24,624	)		89,867
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		570,206			452,060

CASH AND CASH EQUIVALENTS, END OF PERIOD	$	545,582		$	541,927

See Condensed Notes to Consolidated Financial Statements.

Simmons First National Corporation

Consolidated Statements of Stockholders’ Equity

Six Months Ended June 30, 2012 and 2011

(In thousands, except share data)	Common Stock			Surplus			Accumulated Other Comprehensive Income			Undivided Profits			Total

Balance, December 31, 2010	$	173		$	114,040		$	512		$	282,646		$	397,371
Comprehensive income
Net income		--			--			--			11,812			11,812
Change in unrealized appreciation on available-for-sale securities, net of income taxes of $116		--			--			179			--			179
Comprehensive income														11,991
Stock issued as bonus shares – 47,995 shares		--			97			--			--			97
Vesting bonus shares		--			535			--			--			535
Stock issued for employee stock purchase plan – 4,805 shares		--			127			--			--			127
Exercise of stock options – 28,566 shares		--			358			--			--			358
Stock granted under stock-based compensation plans		--			78			--			--			78
Securities exchanged under stock option plan – (4,185 shares)		--			(109	)		--			--			(109	)
Cash dividends – $0.38 per share		--			--			--			(6,588	)		(6,588	)

Balance, June 30, 2011 (Unaudited)		173			115,126			691			287,870			403,860
Comprehensive income
Net income		--			--			--			13,562			13,562
Change in unrealized appreciation on available-for-sale securities, net of income taxes of $($163)		--			--			(252	)		--			(252	)
Comprehensive income														13,310
Stock issued as bonus share		--			1			--			--			1
Vesting bonus shares		--			531			--			--			531
Exercise of stock options – 1,753 shares		--			27			--			--			27
Stock granted under stock-based compensation plans		--			60			--			--			60
Securities exchanged under stock option plan – (1,067 shares)		--			(27	)		--			--			(27	)
Repurchase of common stock – (137,144 shares)		(1	)		(3,282	)		--			--			(3,283	)
Cash dividends – $0.38 per share		--			--			--			(6,568	)		(6,568	)

Balance, December 31, 2011		172			112,436			439			294,864			407,911
Comprehensive income
Net income		--			--			--			12,891			12,891
Change in unrealized appreciation on available-for-sale securities, net of income taxes of ($40)		--			--			62			--			62
Comprehensive income														12,953
Stock issued as bonus shares – 51,245 shares		1			191			--			--			192
Vesting bonus shares		--			718			--			--			718
Stock issued for employee stock purchase plan – 5,103 shares		--			132			--			--			132
Stock granted under stock-based compensation plans		--			51			--			--			51
Repurchase of common stock – (311,674 shares)		(3	)		(7,703	)		--			--			(7,706	)
Cash dividends – $0.40 per share		--			--			--			(6,838	)		(6,838	)

Balance, June 30, 2012 (Unaudited)	$	170		$	105,825		$	501		$	300,917		$	407,413

See Condensed Notes to Consolidated Financial Statements.

SIMMONS FIRST NATIONAL CORPORATION

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1: BASIS OF PRESENTATION

The consolidated financial statements include the accounts of Simmons First National Corporation (the “Company”) and its subsidiaries. Significant intercompany accounts and transactions have been eliminated in consolidation.

All adjustments made to the unaudited financial statements were of a normal recurring nature. In the opinion of management, all adjustments necessary for a fair presentation of the results of interim periods have been made. Certain prior year amounts are reclassified to conform to current year classification. The consolidated balance sheet of the Company as of December 31, 2011, has been derived from the audited consolidated balance sheet of the Company as of that date. The results of operations for the period are not necessarily indicative of the results to be expected for the full year.

Certain information and note disclosures normally included in the Company’s annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Form 10-K Annual Report for 2011 filed with the U.S. Securities and Exchange Commission (the “SEC”).

Recently Issued Accounting Pronouncements

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 was effective for the Company on January 1, 2012, and did not have a significant impact on the Company’s 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 was effective for the Company on January 1, 2012. The adoption of this guidance did not have a significant impact on the Company’s 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 was effective for the Company beginning January 1, 2012, and resulted in the addition of a statement of comprehensive income. The adoption of ASU 2011-05 did not have a significant impact on the Company’s 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 2011-11, Balance Sheet (Topic 210) – Disclosures about Offsetting Assets and Liabilities. ASU 2011-11 amends Topic 210 to require an entity to disclose both gross and net information about financial instruments, such as sales and repurchase agreements and reverse sale and repurchase agreements and securities borrowing/lending arrangements, and derivative instruments that are eligible for offset in the statement of financial position and/or subject to a master netting arrangement or similar agreement. ASU 2011-11 is effective for annual and interim periods beginning on January 1, 2013, 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 became effective for the Company on January 1, 2012, and did not have a significant impact on the Company’s financial position or results of operations.

There have been no other significant changes to the Company’s accounting policies from the 2011 Form 10-K. The Company is not aware of any other changes from the FASB that will have a significant impact on the Company’s present or future financial position or results of operations.

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 5, Loans Covered by FDIC Loss Share Agreements.

NOTE 2: EARNINGS PER SHARE (“EPS”)

Basic EPS is computed by dividing reported net income by weighted average number of common shares outstanding during each period. Diluted EPS is computed by dividing reported net income by the weighted average common shares and all potential dilutive common shares outstanding during the period.

Following is the basic and diluted EPS computation for the three and six months ended June 30, 2012 and 2011:

	Three Months Ended June 30,				Six Months Ended June 30,
(In thousands, except per share data)	2012		2011		2012		2011

Net income	$	6,536	$	6,746	$	12,891	$	11,812

Average common shares outstanding		17,044		17,342		17,130		17,320
Average potential dilutive common shares		5		33		4		33
Average diluted common shares		17,049		17,375		17,134		17,353

Basic earnings per share	$	0.38	$	0.39	$	0.75	$	0.68
Diluted earnings per share	$	0.38	$	0.39	$	0.75	$	0.68

Stock options to purchase 227,670 and 95,770 shares for the three and six months ended June 30, 2012 and 2011, respectively, were not included in the diluted EPS calculation because the exercise price of those options exceeded the average market price.

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:

	June 30, 2012									December 31, 2011
(In thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)			Estimated Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)			Estimated Fair Value

Held-to-Maturity
U.S. Treasury	$	--	$	--	$	--		$	--	$	4,000	$	14	$	--		$	4,014
U.S. Government agencies		315,493		243		(135	)		315,601		308,779		712		(154	)		309,337
Mortgage-backed securities		56		3		--			59		62		1		--			63
State and political subdivisions		209,043		5,960		(93	)		214,910		211,673		6,333		(144	)		217,862
Other securities		930		--		--			930		930		--		--			930

	$	525,522	$	6,206	$	(228	)	$	531,500	$	525,444	$	7,060	$	(298	)	$	532,206

Available-for-Sale
U.S. Government agencies	$	148,731	$	187	$	(81	)	$	148,837	$	153,560	$	295	$	(228	)	$	153,627
Mortgage-backed securities		2,207		286		--			2,493		2,280		277		--			2,557
Other securities		15,202		438		(4	)		15,636		15,649		384		(5	)		16,028

	$	166,140	$	911	$	(85	)	$	166,966	$	171,489	$	956	$	(233	)	$	172,212

Certain investment securities are valued at less than their historical cost. These declines primarily resulted from the rate for these investments yielding less than current market rates. Based on evaluation of available evidence, management believes the declines in fair value for these securities are temporary. Management does not have the intent to sell these securities and management believes it is more likely than not the Company will not have to sell these securities before recovery of their amortized cost basis less any current period credit losses. 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.

As of June 30, 2012, securities with unrealized losses, segregated by length of impairment, were as follows:

	Less Than 12 Months					12 Months or More					Total
(In thousands)	Estimated Fair Value		Gross Unrealized Losses			Estimated Fair Value		Gross Unrealized Losses			Estimated Fair Value		Gross Unrealized Losses

Held-to-Maturity

U.S. Government agencies	$	124,365	$	(135	)	$	--	$	--		$	124,365	$	(135	)
State and political subdivisions		3,673		(3	)		1,012		(90	)		4,685		(93	)

Total	$	128,038	$	(138	)	$	1,012	$	(90	)	$	129,050	$	(228	)

Available-for-Sale

U.S. Government agencies	$	42,461	$	(39	)	$	1,151	$	(42	)	$	43,612	$	(81	)
Other securities		1		(4	)		--		--			1		(4	)

Total	$	42,462	$	(43	)	$	1,151	$	(42	)	$	43,613	$	(85	)

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.

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 June 30, 2012, 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 June 30, 2012, management believes the impairments detailed in the table above are temporary.

The carrying value, which approximates the fair value, of securities pledged as collateral, to secure public deposits and for other purposes, amounted to $423,790,000 at June 30, 2012, and $410,702,000 at December 31, 2011.

The book value of securities sold under agreements to repurchase amounted to $59,545,000 and $83,556,000 for June 30, 2012, and December 31, 2011, respectively.

Income earned on securities for the three and six months ended June 30, 2012 and 2011, is as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
(In thousands)	2012		2011		2012		2011

Taxable
Held-to-maturity	$	829	$	1,130	$	1,681	$	2,300
Available-for-sale		585		656		1,111		1,205

Non-taxable
Held-to-maturity		1,899		1,985		3,796		3,971

Total	$	3,313	$	3,771	$	6,588	$	7,476

Maturities of investment securities at June 30, 2012, are as follows:

	Held-to-Maturity				Available-for-Sale
(In thousands)	Amortized Cost		Fair Value		Amortized Cost		Fair Value

One year or less	$	35,145	$	35,298	$	300	$	300
After one through five years		275,496		276,371		105,100		105,275
After five through ten years		141,053		142,900		45,534		45,751
After ten years		73,828		76,931		4		4
Other securities		--		--		15,202		15,636

Total	$	525,522	$	531,500	$	166,140	$	166,966

There were no realized gains or losses on investment securities for the three and six months ended June 30, 2012 or 2011.

The state and political subdivision debt obligations are primarily non-rated bonds and represent small, Arkansas issues, which are evaluated on an ongoing basis.

NOTE 4: LOANS AND ALLOWANCE FOR LOAN LOSSES

At June 30, 2012, the Company’s loan portfolio was $1.73 billion, compared to $1.74 billion at December 31, 2011. The various categories of loans are summarized as follows:

(In thousands)	June 30, 2012		December 31, 2011

Consumer
Credit cards	$	176,325	$	189,970
Student loans		39,823		47,419
Other consumer		107,284		109,211
Total consumer		323,432		346,600
Real Estate
Construction		117,235		109,825
Single family residential		355,978		355,094
Other commercial		550,418		536,372
Total real estate		1,023,631		1,001,291
Commercial
Commercial		140,868		141,422
Agricultural		122,245		85,728
Total commercial		263,113		227,150
Other		4,560		4,728
Loans not covered by loss share agreements		1,614,736		1,579,769
Loans covered by FDIC loss share agreements		114,189		158,075

Total loans before allowance for loan losses	$	1,728,925	$	1,737,844

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 adequate 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 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, segregated by class of loans, are as follows:

(In thousands)	June 30, 2012		December 31, 2011

Consumer:
Credit cards	$	318	$	305
Student loans		4		--
Other consumer		870		839
Total consumer		1,192		1,144
Real estate:
Construction		795		121
Single family residential		2,513		3,198
Other commercial		3,813		7,233
Total real estate		7,121		10,552
Commercial:
Commercial		484		757
Agricultural		192		454
Total commercial		676		1,211
Other		--		--

Total	$	8,989	$	12,907

An age analysis of past due loans, excluding loans covered by FDIC loss share agreements, segregated by class of loans, is as follows:

(In thousands)	Gross 30-89 Days Past Due		90 Days or More Past Due		Total Past Due		Current		Total Loans		90 Days Past Due & Accruing

June 30, 2012
Consumer:
Credit cards	$	614	$	530	$	1,144	$	175,181	$	176,325	$	212
Student loans		1,187		3,279		4,466		35,357		39,823		3,275
Other consumer		999		553		1,552		105,732		107,284		181
Total consumer		2,800		4,362		7,162		316,270		323,432		3,668
Real estate:
Construction		357		412		769		116,466		117,235		--
Single family residential		2,444		1,705		4,149		351,829		355,978		106
Other commercial		753		3,194		3,947		546,471		550,418		--
Total real estate		3,554		5,311		8,865		1,014,766		1,023,631		106
Commercial:
Commercial		525		247		772		140,096		140,868		10
Agricultural		369		190		559		121,686		122,245		--
Total commercial		894		437		1,331		261,782		263,113		10
Other		--		--		--		4,560		4,560		--

Total	$	7,248	$	10,110	$	17,358	$	1,597,378	$	1,614,736	$	3,784

December 31, 2011
Consumer:
Credit cards	$	820	$	605	$	1,425	$	188,545	$	189,970	$	300
Student loans		1,894		2,483		4,377		43,042		47,419		2,483
Other consumer		1,398		664		2,062		107,149		109,211		335
Total consumer		4,112		3,752		7,864		338,736		346,600		3,118
Real estate:
Construction		548		121		669		109,156		109,825		--
Single family residential		3,581		2,262		5,843		349,251		355,094		121
Other commercial		806		6,240		7,046		529,326		536,372		15
Total real estate		4,935		8,623		13,558		987,733		1,001,291		136
Commercial:
Commercial		467		467		934		140,488		141,422		9
Agricultural		103		312		415		85,313		85,728		5
Total commercial		570		779		1,349		225,801		227,150		14
Other		--		--		--		4,728		4,728