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Note 2 - Acquisitions

6 Months Ended

Jun. 30, 2015

Disclosure Text Block Supplement [Abstract]

Mergers, Acquisitions and Dispositions Disclosures [Text Block]

NOTE 2: ACQUISITIONS

Liberty Bancshares, Inc.

On February 27, 2015, the Simmons First National Corporation completed the acquisition of Liberty Bancshares, Inc. (“Liberty”), headquartered in Springfield, Missouri, including its wholly-owned bank subsidiary Liberty Bank (“LB”). Simmons issued 5,181,337 shares of its common stock valued at approximately $212.2 million as of February 27, 2015 in exchange for all outstanding shares of Liberty common stock.

Prior to the acquisition, Liberty conducted banking business from 23 branches located in southwest Missouri. Including the effects of the purchase accounting adjustments, the Company acquired approximately $1.1 billion in assets, approximately $780.7 million in loans including loan discounts and approximately $874.7 million in deposits. The Company completed the systems conversion and merged LB into Simmons Bank on April 24, 2015.

Goodwill of $95.6 million was recorded as a result of the transaction. The merger strengthened Simmons’ position in the southwest Missouri market and Simmons believes that it will be able to achieve cost savings by integrating the two companies and combining accounting, data processing, and other administrative functions all of which gave rise to the goodwill recorded. The goodwill will not be deductible for tax purposes.

A summary, at fair value, of the assets acquired and liabilities assumed in the Liberty transaction, as of the acquisition date, is as follows:

(In thousands)	Acquired from Liberty			Fair Value Adjustments			Fair Value

Assets Acquired
Cash and due from banks, including time deposits	$	102,637		$	(14	)	$	102,623
Federal funds sold		7,060			-			7,060
Investment securities		99,123			(335	)		98,788
Loans acquired, not covered by FDIC loss share		790,493			(9,835	)		780,658
Allowance for loan losses		(10,422	)		10,422			-
Premises and equipment		34,239			(3,215	)		31,024
Bank owned life insurance		16,972			-			16,972
Core deposit intangible		699			13,857			14,556
Other intangibles		3,063			(3,063	)		-
Other assets		17,703			(3,843	)		13,860
Total assets acquired	$	1,061,567		$	3,974		$	1,065,541

Liabilities Assumed
Deposits:
Non-interest bearing transaction accounts	$	146,618		$	-		$	146,618
Interest bearing transaction accounts and savings deposits		543,183			-			543,183
Time deposits		184,913			-			184,913
Total deposits		874,714			-			874,714
FHLB borrowings		46,128			223			46,351
Subordinated debentures		20,620			(840	)		19,780
Accrued interest and other liabilities		7,828			300			8,128
Total liabilities assumed		949,290			(317	)		948,973
Equity		112,277			(112,277	)		-
Total equity assumed		112,277			(112,277	)		-
Total liabilities and equity assumed	$	1,061,567		$	(112,594	)	$	948,973
Net assets acquired								116,568
Purchase price								212,176
Goodwill							$	95,608

The following is a description of the methods used to determine the fair values of significant assets and liabilities presented in the Liberty acquisition above.

Cash and due from banks, time deposits due from banks and federal funds sold – The carrying amount of these assets is a reasonable estimate of fair value based on the short-term nature of these assets. Due from banks – time were acquired with an adjustment to fair value based on rates currently available to the Company for deposits in banks with similar maturities.

Investment securities – Investment securities were acquired with an adjustment to fair value based upon quoted market prices.

Loans acquired – 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.

Premises and equipment – Bank premises and equipment were acquired with an adjustment to fair value, which represents the difference between the Company’s current analysis of property and equipment values completed in connection with the acquisition and book value acquired.

Bank owned life insurance – Bank owned life insurance is carried at its current cash surrender value, which is the most reasonable estimate of fair value.

Goodwill – The consideration paid as a result of the acquisition exceeded the fair value of the assets acquired, resulting in an intangible asset, goodwill, of $95.6 million.

Core deposit intangible – This intangible asset represents the value of the relationships that Liberty had with its 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.

Other assets – The fair value adjustment results from certain assets whose value was estimated to be less than book value, such as certain prepaid assets, receivables and other miscellaneous assets. The deferred tax asset, included in other assets, is based on 39.225% of fair value adjustments related to the acquired assets and assumed liabilities and on a calculation of future tax benefits. The Company also recorded Liberty’s remaining deferred tax assets and liabilities as of the acquisition date.

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. The Company performed a fair value analysis of the estimated weighted average interest rate of Liberty’s certificates of deposits compared to the current market rates. Based on the results of the analysis, the estimated fair value adjustment was immaterial.

FHLB borrowings – The fair value of Federal Home Loan Bank borrowings is estimated based on borrowing rates currently available to the Company for borrowings with similar terms and maturities.

Subordinated debentures – The fair value of subordinated debentures is estimated based on borrowing rates currently available to the Company for borrowings with similar terms and maturities.

Accrued interest and other liabilities – The adjustment establishes a liability for unfunded commitments equal to the fair value of that liability at the date of acquisition.

The purchase price allocation and certain fair value measurements remain preliminary due to the timing of the acquisition and due to the number of assets acquired and liabilities assumed. Management will continue to review the estimated fair values of loans, property and equipment, intangible assets, subordinated debentures, and other assets and liabilities, and to evaluate the assumed tax positions. The Company expects to finalize its analysis of the acquired loans and subordinated debentures along with the other acquired assets and assumed liabilities in this transaction over the next few months, within one year of the acquisition. Therefore, adjustments to the estimated amounts and carrying values may occur.

The Company’s operating results for 2015 include the operating results of the acquired assets and assumed liabilities of Liberty subsequent to the acquisition date.

Community First Bancshares, Inc.

On February 27, 2015, the Simmons First National Corporation completed the acquisition of Community First Bancshares, Inc. (“Community First”), headquartered in Union City, Tennessee, including its wholly-owned bank subsidiary First State Bank (“FSB”). Simmons issued 6,552,915 shares of its common stock valued at approximately $268.3 million as of February 27, 2015, plus $9,974 in cash in exchange for all outstanding shares of Community First common stock. Simmons also issued $30.9 million of preferred stock in exchange for all outstanding shares of Community First preferred stock.

Prior to the acquisition, Community First conducted banking business from 33 branches located across Tennessee. Including the effects of the purchase accounting adjustments, the Company acquired approximately $1.9 billion in assets, approximately $1.1 billion in loans including loan discounts and approximately $1.5 billion in deposits. The Company expects to complete the systems conversion and merge FSB into Simmons Bank by September 4, 2015.

Goodwill of $111.3 million was recorded as a result of the transaction. The merger allowed Simmons’ entrance into the Tennessee market and will serve as a launching platform for possible expansion into adjacent areas. Simmons believes that it will be able to achieve cost savings by integrating the two companies and combining accounting, data processing, and other administrative functions. Further Simmons believes it can benefit from the addition of Community First's small-business lending platform while cross-selling its trust products in Community First’s market. This combination of factors gave rise to the goodwill recorded. The goodwill will not be deductible for tax purposes.

A summary, at fair value, of the assets acquired and liabilities assumed in the Community First transaction, as of the acquisition date, is as follows:

(In thousands)	Acquired from Community First			Fair Value Adjustments			Fair Value

Assets Acquired
Cash and due from banks	$	39,848		$	-		$	39,848
Federal funds sold		76,508			-			76,508
Investment securities		570,199			(3,381	)		566,818
Loans acquired, not covered by FDIC loss share		1,163,398			(26,855	)		1,136,543
Allowance for loan losses		(14,635	)		14,635			-
Foreclosed assets not covered by FDIC loss share		747			-			747
Premises and equipment		44,837			(2,794	)		42,043
Bank owned life insurance		22,149			-			22,149
Goodwill		100			(100	)		-
Core deposit intangible		-			11,273			11,273
Other intangibles		-			420			420
Deferred tax asset		3,700			3,667			7,367
Other assets		11,474			-			11,474
Total assets acquired	$	1,918,325		$	(3,135	)	$	1,915,190

Liabilities Assumed
Deposits:
Non-interest bearing transaction accounts	$	103,825		$	-		$	103,825
Interest bearing transaction accounts and savings deposits		995,207			-			995,207
Time deposits		436,181			849			437,030
Total deposits		1,535,213			849			1,536,062
Federal funds purchased and securities sold under agreement to repurchase		16,230			-			16,230
FHLB borrowings		143,047			1,347			144,394
Subordinated debentures		21,754			(510	)		21,244
Accrued interest and other liabilities		8,769			601			9,370
Total liabilities assumed		1,725,013			2,287			1,727,300
Equity		193,312			(193,312	)		-
Total equity assumed		193,312			(193,312	)		-
Total liabilities and equity assumed	$	1,918,325		$	(191,025	)	$	1,727,300
Net assets acquired								187,890
Purchase price								299,204
Goodwill							$	111,314

The following is a description of the methods used to determine the fair values of significant assets and liabilities presented in the Community First acquisition above.

Cash and due from banks and federal funds sold – The carrying amount of these assets is a reasonable estimate of fair value based on the short-term nature of these assets.

Investment securities – Investment securities were acquired with an adjustment to fair value based upon quoted market prices.

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.

Bank owned life insurance – Bank owned life insurance is carried at its current cash surrender value, which is the most reasonable estimate of fair value.

Goodwill – The consideration paid as a result of the acquisition exceeded the fair value of the assets acquired, resulting in an intangible asset, goodwill, of $111.3 million. Goodwill established prior to the acquisition was written off.

Core deposit intangible – This intangible asset represents the value of the relationships that Community First had with its 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.

Other intangibles – This intangible asset represents the value of the relationships that Community First’s insurance subsidiary had with their customers. The fair value of this intangible asset was estimated based on a combination of discounted cash flow methodology and a market valuation approach.

Deferred tax asset – The deferred tax asset is based on 39.225% of fair value adjustments related to the acquired assets and assumed liabilities and on a calculation of future tax benefits. The Company also recorded Community First’s remaining deferred tax assets and liabilities as of the acquisition date.

Other assets – The carrying amount of these assets was deemed to be a reasonable estimate of fair value.

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. The Company performed a fair value analysis of the estimated weighted average interest rate of Community First’s certificates of deposits compared to the current market rates and recorded a fair value adjustment for the difference.

Federal funds purchased and securities sold under agreement to repurchase – The carrying amount of federal funds purchased and securities sold under agreement to repurchase is a reasonable estimate of fair value based on the short-term nature of these liabilities.

FHLB borrowings – The fair value of Federal Home Loan Bank borrowings is estimated based on borrowing rates currently available to the Company for borrowings with similar terms and maturities.

Subordinated debentures – The fair value subordinated debentures is estimated based on borrowing rates currently available to the Company for borrowings with similar terms and maturities.

Accrued interest and other liabilities – The adjustment establishes a liability for unfunded commitments equal to the fair value of that liability at the date of acquisition.

The purchase price allocation and certain fair value measurements remain preliminary due to the timing of the acquisition and due to the number of assets acquired and liabilities assumed. Management will continue to review the estimated fair values of loans, foreclosed assets, property and equipment, intangible assets, subordinated debentures, and other assets and liabilities, and to evaluate the assumed tax positions. The Company expects to finalize its analysis of the acquired loans and subordinated debentures along with the other acquired assets and assumed liabilities in this transaction over the next few months, within one year of the acquisition. Therefore, adjustments to the estimated amounts and carrying values may occur.

The Company’s operating results for 2015 include the operating results of the acquired assets and assumed liabilities of Community First subsequent to the acquisition date.

Summary of Unaudited Pro forma Information

The unaudited pro forma information below for the three and six months ended June 30, 2015 and 2014 gives effect to the Liberty and Community First acquisitions as if the acquisitions had occurred on January 1, 2014. Pro forma earnings for the three months ended June 30, 2015 were adjusted to exclude $7.4 million of acquisition-related costs, net of tax, incurred by Simmons during 2015. Supplemental pro-forma earnings for the six months ended June 30, 2014 were also adjusted to include these charges. The pro forma financial information is not necessarily indicative of the results of operations if the acquisitions had been effective as of this date.

(In thousands)	Three Months Ended June 30, 2015		Three Months Ended June 30, 2014
Revenue ⁽¹⁾	$	96,942	$	95,504
Net income	$	30,043	$	9,934
Earnings per share	$	1.00	$	0.35

(In thousands)	Six Months Ended June 30, 2015		Six Months Ended June 30, 2014
Revenue ⁽¹⁾	$	194,203	$	185,977
Net income	$	42,090	$	26,191
Earnings per share	$	1.40	$	0.93

^{(1) Net interest income plus noninterest income.}

Consolidated year-to-date 2015 results included approximately $18.8 million of revenue and $8.3 million of net income attributable to the Liberty acquisition and $32.5 million of revenue and $8.4 million of net income attributable to the Community First acquisition.

Ozark Trust & Investment Corporation (Pending Acquisition)

On April 28, 2015, the Company entered into a definitive agreement and plan of merger (the “Agreement”) with Ozark Trust & Investment Corporation (“OTIC”), including its wholly-owned non-deposit trust company, Trust Company of the Ozarks (“TCO”). TCO is headquartered in Springfield, Missouri and has over $1 billion in assets under management. Under the terms of the Agreement, each outstanding share of common stock of OTIC held by banks or bank holding companies will be converted into the right to receive $701.9268 in cash and each share of common stock or common stock equivalents held by any other type of shareholder will be converted into the right to receive 16.7205 shares of the Company’s common stock, all subject to certain conditions and potential adjustments. The Company owns 1,000 shares of OTIC’s common stock, which it acquired through its acquisition of Liberty Bancshares, Inc. in February 2015. The transaction is valued at $20.7 million (based on the Company’s April 27, 2015 closing price). The purchase price will be allocated among the net assets of OTIC acquired as appropriate, with the remaining balance being reported as goodwill. The transaction is subject to the routine regulatory review by the Missouri Department of Finance and other customary closing conditions. The transaction is expected to close during the third quarter of 2015. Upon closing, OTIC will merge into the Company.