S-1/A 1 d33629a3sv1za.htm AMENDMENT TO FORM S-1 sv1za
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As filed with the Securities and Exchange Commission on May 31, 2006
Registration No. 333-132427
 
 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
Amendment No. 3 to
Form S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
 
HOME BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
         
Arkansas   6022   71-0682831
(State or other jurisdiction of
incorporation or organization)
  (Primary Standard Industrial
Classification Number)
  (IRS Employer
Identification Number)
719 Harkrider, Suite 100
Conway, Arkansas 72032
(501) 328-4757
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
 
John W. Allison
Chairman and Chief Executive Officer
Home BancShares, Inc.
719 Harkrider, Suite 100
Conway, Arkansas 72032
(501) 329-9330
(Name, address, including zip code, and telephone number, including area code, of agent for service)
 
Copies of Communications to:
         
John S. Selig, Esq.       Chet A. Fenimore, Esq.
Mitchell, Williams, Selig, Gates &       Jenkens & Gilchrist, P.C.
Woodyard, P.L.L.C.   and   401 Congress Avenue, Suite 2500
425 West Capitol Avenue, Suite 1800       Austin, Texas 78701
Little Rock, Arkansas 72201       Telephone: (512) 499-3800
Telephone: (501) 688-8804       Facsimile: (512) 499-3810
Facsimile: (501) 918-7804        
 
      Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement.
      If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.     o
      If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.     o
      If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.     o
      If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.     o
      The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
 
 


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The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

SUBJECT TO COMPLETION, DATED MAY 31, 2006
PRELIMINARY PROSPECTUS
2,500,000 Shares
(HOME BANCSHARES LOGO)
Common Stock
        We are a financial holding company located in Conway, Arkansas, with banking operations in central and north central Arkansas, the Florida Keys and southwestern Florida. We are offering 2,500,000 shares of our common stock.
      Prior to this offering there has been no public market for our common stock. It is currently estimated that the public offering price will be between $16.00 and $18.00 per share. See “Underwriting” for a discussion of the factors considered in determining the public offering price. The market price of the shares after the offering may be higher or lower than the public offering price.
      We have applied to have our common stock listed on The Nasdaq National Market under the symbol “HOMB.”
 
       Investing in our common stock involves risks. Please refer to the section titled “Risk Factors” beginning on page 9.
 
                 
    Per Share   Total
         
Public offering price
  $       $    
Underwriting discount
  $       $    
Proceeds to us, before expenses
  $       $    
      We have granted the underwriters an option to purchase up to 375,000 additional shares of our common stock on the same terms as set forth above to cover over-allotments, if any. The underwriters may exercise this option at any time within 30 days after the offering.
      Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
      These securities are not savings accounts, deposits or other obligations of any bank and are not insured or guaranteed by the Federal Deposit Insurance Corporation or any other governmental agency and may lose value.
      The underwriters expect to deliver the shares to purchasers on or about                     , 2006, subject to customary closing conditions.
 
Stephens Inc.
Piper Jaffray Sandler O’Neill + Partners, L.P.
The date of this prospectus is                     , 2006.


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    F-1  
 BKD, LLP Letter Re: Unaudited Interim Financial Information
 Consent of BKD, LLP
 Consent of Ernst & Young, LLP
 Consent of Hacker, Johnson & Smith, P.A.
 Consent of BKD, LLP
 
      You should rely only on the information contained in this prospectus. We have not, and the underwriters have not, authorized any other person to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. We are not, and the underwriters are not, making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should assume that the information appearing in this prospectus is accurate only as of the date on the cover page of this prospectus. Our business, financial condition, results of operations and prospects may have changed since that date.
      In this prospectus we rely on and refer to information and statistics regarding the banking industry in the Arkansas and Florida markets. We obtained the market data from independent publications or other publicly available information.
      No action is being taken in any jurisdiction outside the United States to permit a public offering of the common stock or possession or distribution of this prospectus in that jurisdiction. Persons who come into possession of this prospectus in jurisdictions outside the United States are required to inform themselves about and to observe any restrictions as to this offering and the distribution of this prospectus applicable to those jurisdictions.


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SUMMARY
      This summary highlights selected information contained elsewhere in this prospectus, including a description of the material terms of the offering, and may not contain all of the information that you should consider before investing in our common stock. To understand this offering fully, you should carefully read the entire prospectus, including the sections entitled “Risk Factors,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” together with our consolidated financial statements and the related notes, before making an investment decision. Unless the context indicates otherwise, all information in this prospectus (i) assumes that the underwriters will not exercise their option to purchase additional shares to cover over-allotments; and (ii) reflects the effect of a three-for-one stock split effected as a stock dividend on May 31, 2005.
Home BancShares
      We are a financial holding company headquartered in Conway, Arkansas. Our five wholly owned community bank subsidiaries provide a broad range of commercial and retail banking and related financial services to businesses, real estate developers and investors, individuals, and municipalities. Three of our bank subsidiaries are located in the central Arkansas market area, a fourth serves Stone County in north central Arkansas, and a fifth serves the Florida Keys and southwestern Florida.
      We have achieved significant growth through acquisitions, organic growth and establishing new (also commonly referred to as de novo) branches. Our diluted earnings per share increased from $0.29 for the year ended December 31, 2001, to $0.82 for 2005. In addition from December 31, 2001, to March 31, 2006, we have:
  •  increased our total assets from $322.0 million to $2.0 billion;
 
  •  increased our loans receivable from $235.7 million to $1.2 billion;
 
  •  increased our total deposits from $237.3 million to $1.5 billion; and
 
  •  expanded our branch network from eight to 48.
Our History and Management Team
      We were established in 1998 when an investor group led by John W. Allison, our Chairman and Chief Executive Officer, and Robert H. Adcock, Jr., our former Vice Chairman and the current Arkansas State Bank Commissioner, formed Home BancShares, Inc. to acquire a bank charter and establish First State Bank in Conway, Arkansas. We or members of our management team have also been involved in the formation of two of our other bank subsidiaries — Twin City Bank and Marine Bank — both of which we acquired in 2005. We have also acquired and integrated our two other bank subsidiaries — Community Bank and Bank of Mountain View — in 2003 and 2005, respectively.
      We acquire, organize and invest in community banks that serve attractive markets, and build our community banks around experienced bankers with strong local relationships. The historical growth of our two largest bank subsidiaries compares favorably with the fastest growing newly chartered (also commonly referred to as de novo) banks in the United States: First State Bank would rank 20th compared with the 140 commercial banks established in 1998 (based on total asset growth from December 31, 1998, to December 31, 2005), and Twin City Bank would rank seventh compared with the 173 commercial banks established in 2000 (based on total asset growth from December 31, 2000, to December 31, 2005).
      Our management team is led by our founder, Chairman and Chief Executive Officer, John W. Allison; our President and Chief Operating Officer, Ron W. Strother; and our Chief Financial Officer, Randy E. Mayor. Mr. Allison has more than 23 years of banking experience, including his service on the board of directors of First Commercial Corporation from 1984 to 1998. Prior to its sale in 1998, First Commercial Corporation was a publicly traded company and the largest bank holding company headquartered in Arkansas, with approximately $7.3 billion in assets. While on the board of First Commercial Corporation, Mr. Allison served as the Chairman of the Executive Committee from 1996 to 1998, and also served as Chairman of the Asset Quality Committee for several years. Mr. Strother joined Home BancShares in 2004 and has more than 33 years of banking experience, which includes serving as Chairman and Chief Executive Officer of Central Bank & Trust Company (Little Rock), and President and Chief Operating Officer of First Commercial Bank (Little Rock). Mr. Mayor joined Home Bancshares in 1998 as Executive Vice President and Finance Officer,

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and became our first Chief Financial Officer in 2004. From 1988 until 1998, Mr. Mayor held various positions at First National Bank of Conway, a subsidiary of First Commercial Corporation, including Senior Vice President and Finance Officer from 1992 to 1998.
      Our senior management team — the three senior executives of Home BancShares and our five bank presidents — has, on average, more than 27 years of banking experience. Our executive officers and directors beneficially owned approximately 46.2% of our outstanding common stock, as of May 23, 2006.
      Since our inception in 1998, we have grown total assets through a combination of organic growth and acquisitions. The table below lists our bank subsidiaries and the dates of the acquisitions of their respective parent companies:
         
Bank Subsidiary   Location   Effective Date of Acquisition
         
First State Bank
  Conway, Arkansas   October 26, 1998
Community Bank
  Cabot, Arkansas   December 1, 2003
Twin City Bank
  North Little Rock, Arkansas   January 1, 2005(1)
Marine Bank
  Marathon, Florida   June 1, 2005(2)
Bank of Mountain View
  Mountain View, Arkansas   September 1, 2005
          
 
  (1)  Prior to the date of the acquisition, we owned approximately 32% of the shares of TCBancorp, the parent company of Twin City Bank.
 
  (2)  In 1995, Mr. Allison, our Chairman and Chief Executive Officer, was a founding board member of Marine Bancorp, the parent company of Marine Bank. He owned approximately 13.9% of Marine Bancorp’s shares at the time of our acquisition.
      In May 2005, we invested $9.1 million to acquire 20% of the common stock of White River Bancshares, Inc., the holding company for Signature Bank in Fayetteville, Arkansas. In January 2006, we invested an additional $3.0 million to maintain this 20% ownership position.
Our Growth Strategy
      Our goals are to achieve growth in earnings per share and to create and build shareholder value. Our growth strategy entails the following:
  •  Organic growth — We believe that our current branch network provides us with the capacity to grow significantly within our existing market areas. Twenty-four of our 48 branches (including the branches of the banks we have acquired) have been opened since the beginning of 2001. As these newer branches continue to mature, we expect to see additional organic loan and deposit growth and increased profitability. Furthermore, we plan to broaden the product lines within each of our bank subsidiaries by cross-selling products such as insurance and trust services.
 
  •  De novo branching — We intend to continue to open de novo branches in our current markets and in other attractive market areas if opportunities arise. In 2006, we have opened branches in Searcy and Beebe, Arkansas, and Port Charlotte, Florida. We plan to open an additional four to six branches in 2006, including one to two in Arkansas, one to two in the Florida Keys, and two along the southwestern coast of Florida.
 
  •  Strategic acquisitions — We will continue to consider strategic acquisitions, with a primary focus on Arkansas and southwestern Florida. When considering a potential acquisition, we assess a combination of factors, but concentrate on the strength of existing executive officers, the growth potential of the bank and the market, the profitability of the bank, and the valuation of the bank. We believe that potential sellers consider us an acquirer of choice, largely due to our community banking philosophy. With each acquisition we seek to maintain continuity of executive officers and the board of directors, consolidate back office operations, add product lines, and implement our credit policy.

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Our Community Banking Philosophy and Operating Strategy
      Community Banking Philosophy — Our community banking philosophy consists of four basic principles:
  •  operate largely autonomous community banks managed by experienced bankers and a local board of directors, who are empowered to make customer-related decisions quickly;
 
  •  provide exceptional service and develop strong customer relationships;
 
  •  pursue the business relationships of our boards of directors, executive officers, shareholders, and customers to actively promote our community banks; and
 
  •  maintain our commitment to the communities we serve by supporting their civic and nonprofit organizations.
      We believe that these principles are a competitive advantage when serving our customers, particularly as we compete with larger banks headquartered outside of our markets. Through our bank subsidiaries and their boards of directors and employees, we plan to continue building a high-performing banking organization with exceptional customer service.
      Operating Strategy — Our operating strategies focus on credit quality, improving profitability, finding experienced bankers, and leveraging our infrastructure:
  •  Emphasis on credit quality — Credit quality is our first priority in the management of our bank subsidiaries. We employ a set of credit standards across our bank subsidiaries that are designed to ensure the proper management of credit risk. Our management team plays an active role in monitoring compliance with these credit standards at each of our bank subsidiaries. We have a centralized loan review process and regularly monitor each of our bank subsidiaries’ loan portfolios, which we believe enables us to take prompt action on potential problem loans. Non-performing assets as a percentage of total assets decreased from 1.18% as of December 31, 2004, to 0.45% as of March 31, 2006.
 
  •  Continue to improve profitability — We intend to improve our profitability as we leverage the available capacity of our newer branches and employees. We believe our investments in our branch network and centralized technology infrastructure are sufficient to support a larger organization, and therefore believe increases in our expenses should be lower than the corresponding increases in our revenues. We also plan to increase our fee-based revenue by offering all our products and services, including insurance and trust services, through each of our bank subsidiaries.
 
  •  Attract and motivate experienced bankers — We believe a major factor in our success has been our ability to attract and retain bankers that have experience in and knowledge of their local communities. For example, in January 2006, we hired eight experienced bankers in the Searcy, Arkansas, market (located approximately 50 miles northeast of Little Rock), where we subsequently opened a new branch. Hiring and retaining experienced relationship bankers has been integral to our ability to grow quickly when entering new markets. We will continue to recruit experienced relationship bankers as our banking franchise expands.
 
  •  Leveraging our infrastructure — The support services we provide to our bank subsidiaries are generally centralized in Conway, Arkansas. These services include finance and accounting, internal audit, compliance, loan review, human resources, training, and data processing. We believe the centralization of our support services enhances efficiencies, maintains consistency in policies and procedures, and enables our employees to focus on developing and strengthening customer relationships.

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Our Market Areas
      As of March 31, 2006, we conducted business principally through 40 branches in five counties in Arkansas, seven branches in the Florida Keys, and one branch in southwestern Florida. We opened three branches in the first quarter of 2006 and plan to open four to six additional branches by year-end. Our branch footprint includes markets in which we are the deposit market share leader, as well as markets where we believe we have significant opportunities for deposit market share growth.
Arkansas
      We are currently the deposit market share leader in Conway, Cabot, North Little Rock, and Mountain View, Arkansas. In these markets, we plan to continue our organic growth while improving profitability. Furthermore, we plan to open an additional one to two branches in certain growing communities surrounding Cabot, Conway, and North Little Rock in 2006, in addition to the branches opened in Beebe in January 2006 and Searcy in February 2006.
      Conway — First State Bank opened its first branch in Conway in 1999 and, as of June 30, 2005, had a 27.1% deposit market share. Conway is located on Interstate 40, approximately 30 miles northwest of Little Rock. Conway’s population is projected to increase by 11.6% from 2005 to 2010.
      Cabot — We entered the Cabot market in 2003 through the acquisition of Community Financial Group and, as of June 30, 2005, had a 45.8% deposit market share. Cabot is located approximately 25 miles north of Little Rock. Cabot’s population is projected to increase by 16.9% from 2005 to 2010.
      North Little Rock — Twin City Bank entered the North Little Rock market in 2000 and, as of June 30, 2005, had a 27.6% deposit market share.
      Mountain View — We entered the Mountain View market through the acquisition of Mountain View Bancshares in September 2005 and, as of June 30, 2005, the Bank of Mountain View had an 84.9% deposit market share. Mountain View is located approximately 75 miles north of Conway and is the seat of Stone County.
      Little Rock — Twin City Bank began branching into Little Rock in May 2003 and, as of June 30, 2005, had a 2.8% deposit market share. Little Rock is the state capital of Arkansas and is the state’s largest city. Little Rock had an estimated population of 189,364 in 2005, and its per capita income is projected to increase 29.0% between 2005 and 2010. Little Rock should continue to benefit economically from the growing communities on the outer edges of the greater Little Rock metropolitan statistical area, including Conway and Cabot.
Florida
      Florida Keys (Monroe County) — We entered the Florida Keys in 2005 through the acquisition of Marine Bank. As of June 30, 2005, Marine Bank had a 9.5% deposit market share in Monroe County. The Florida Keys encompass a 100-mile string of islands located in Monroe County on the southern tip of Florida, and are a popular tourist and retirement destination. We believe that we have growth opportunities both within the Keys and in nearby markets in southwestern Florida.
      Southwestern Florida — We opened a branch in Port Charlotte (Punta Gorda MSA) in March 2006 and plan to open branches in Punta Gorda and Marco Island (Naples-Marco Island MSA) during 2006. As of June 30, 2005, there were approximately $13.1 billion deposits and approximately 475,000 residents in these two combined MSAs. The expected population growth between 2005 and 2010 in the Punta Gorda MSA and the Naples-Marco-Island MSA is 11.6% and 25.5%, respectively.

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Performance Summary for the Three Months Ended March 31, 2006 and 2005
      Our net income increased $1.3 million, or 60.6%, to $3.5 million for the three-month period ended March 31, 2006, from $2.2 million for the same period in 2005. On a diluted earnings per share basis, our net earnings increased 50.0% to $0.24 for the three-month period ended March 31, 2006, as compared to $0.16 for the same period in 2005. The increase in earnings is primarily associated with our acquisitions of Marine Bancorp, Inc. and Mountain View Bancshares during the second and third quarters of 2005, respectively, combined with organic growth of our bank subsidiaries.
      For the first quarter, our annualized return on average equity was 8.51%, our annualized return on average assets was 0.74%, our annualized net interest margin was 3.53%, and our efficiency ratio was 66.68%.
Recent Developments
      Stock Split. On May 31, 2005, we effected a three-for-one stock split by means of a stock dividend. Each holder of shares of our common stock at the time of the stock dividend was issued two additional shares of common stock for each share then held. The information contained in this prospectus has been adjusted to give effect to the stock split, unless otherwise indicated.
      Proposed Conversion of Preferred Stock. As of March 31, 2006, we had 2,090,812 shares of Class A preferred stock and 169,760 shares of Class B preferred stock outstanding, as well as exercisable options for 11,703 shares of Class A preferred stock and 23,827 shares of Class B preferred stock. We will have, following this offering, the option to convert all of the outstanding preferred shares into shares of our common stock, and it is our intent to cause those conversions as soon as practicable after the offering is completed. The applicable conversion rates are 0.789474 share of common stock for each share of Class A preferred stock, and three shares of common stock for each share of Class B preferred stock. Thus, upon conversion of all outstanding shares of Class A preferred stock and Class B preferred stock, approximately 2,159,921 additional shares of our common stock will be issued. The exercise of the preferred stock options and the conversion of the underlying preferred shares into common stock would result in approximately 80,720 additional shares of our common stock being issued. If we do not convert the shares of Class A preferred stock before June 6, 2006, or the shares of Class B preferred stock before July 6, 2006, the holders of those shares may, at their option, require us to convert their shares into common stock, using the same conversion rates.
      Registration of Our Common Stock. We have filed a Form 10 registration statement to register our common stock, which, when declared effective, will make us subject to the periodic and other reporting requirements of the Securities Exchange Act of 1934. This filing was required because, as of December 31, 2005, we had more than 500 record holders of our outstanding shares of common stock. The first of our periodic filings under that Act is expected to be a Form 10-Q for the quarter ending on June 30, 2006.
Corporate Information
      Our headquarters are located at 719 Harkrider, Conway, Arkansas 72032, and our telephone number is (501)328-4757. We maintain a website at www.homebancshares.com. Information on our website is not incorporated by reference and is not a part of this prospectus.

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The Offering
Common stock offered 2,500,000 shares(1)
 
Common stock to be outstanding after this offering 14,629,355 shares(2)
 
Use of proceeds We estimate the net proceeds of this offering will be $38.7 million, based on the midpoint of the price range on the cover page of this prospectus. We will use the net proceeds of this offering for general corporate purposes, which may include, among other things, our working capital needs and providing investments in our bank subsidiaries. We may also use a portion of the net proceeds to finance bank acquisitions, though we have no present plans in that regard. See “Use of Proceeds.”
 
Risk factors See “Risk Factors” beginning on page 9 and other information included in this prospectus for a discussion of factors you should consider carefully before deciding to invest in our common stock.
 
Dividend policy We have paid quarterly cash dividends on our common stock beginning with the second quarter of 2003. We anticipate continuing to pay cash dividends on the common stock in the foreseeable future, subject to the prior payment of dividends on our outstanding shares of preferred stock and interest on our subordinated debentures. However, any future determination relating to dividends will be made at the discretion of our board of directors and will depend on a number of factors, including our future earnings, capital requirements, financial condition, future prospects, regulatory restrictions and other factors that our board of directors may deem relevant. See “Price Range of Our Common Stock and Dividends.”
 
Proposed Nasdaq National Market symbol We have applied to have our common stock listed on The Nasdaq National Market under the symbol “HOMB.”
 
(1)  The number of shares offered assumes that the underwriters do not exercise their over-allotment option. If the underwriters do exercise their over-allotment option, we will issue and sell up to an additional 375,000 shares.
 
(2)  The number of shares outstanding after this offering is based on the 12,129,355 shares outstanding as of March 31, 2006, and excludes the following: (i) 968,244 shares of common stock issuable upon the exercise of stock options outstanding as of March 31, 2006, of which options for 481,224 shares of common stock were exercisable on that date; (ii) 151,036 shares of common stock as of March 31, 2006, reserved for issuance pursuant to future grants under our 2006 Stock Option and Performance Incentive Plan; (iii) 2,159,921 shares of common stock issuable upon conversion of the shares of our Class A preferred stock and Class B preferred stock that were outstanding as of March 31, 2006 (which conversions we intend to effect as soon as practicable after this offering is completed); (iv) 80,720 shares of common stock issuable upon the exercise and conversion of preferred stock options outstanding as of March 31, 2006, all of which were exercisable on that date; and (v) up to 375,000 shares of common stock that may be issued upon the exercise of the underwriters’ over-allotment option.

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SUMMARY CONSOLIDATED FINANCIAL DATA
      We derived our summary historical consolidated financial data as of December 31, 2005 and 2004, and for each of the three years ended December 31, 2005, 2004, and 2003, from our audited financial statements and related notes included in this prospectus. The summary historical consolidated financial data as of December 31, 2003, 2002, and 2001, and for each of the two years ended December 31, 2002 and 2001, have been derived from our audited financial statements, which are not included in this prospectus. The summary historical financial data as of or for the three months ended March 31, 2006 and 2005 have been derived from our unaudited interim financial statements and include, in the opinion of management, all adjustments necessary to present fairly the data for such period. The per share financial data presented below have been adjusted to give effect to the three-for-one stock split in the form of a stock dividend effected on May 31, 2005. You should read the information below in conjunction with the audited financial statements and related notes, along with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this prospectus.
                                                           
    As of or for the Three    
    Months Ended March 31,   As of or for the Years Ended December 31,
         
    2006   2005   2005   2004   2003   2002   2001
                             
    (Dollars and shares in thousands, except per share data)
Income statement data:
                                                       
 
Total interest income
  $ 27,734     $ 16,361     $ 85,458     $ 36,681     $ 21,538     $ 20,361     $ 18,216  
 
Total interest expense
    12,928       6,355       36,002       11,580       8,240       7,490       8,872  
                                           
 
Net interest income
    14,806       10,006       49,456       25,101       13,298       12,871       9,344  
 
Provision for loan losses
    484       1,051       3,827       2,290       807       2,220       1,708  
                                           
 
Net interest income after provision for loan losses
    14,322       8,955       45,629       22,811       12,491       10,651       7,636  
 
Non-interest income
    4,401       3,813       15,222       13,681       6,739       5,354       2,895  
 
Gain on sale of equity investment
                465       4,410                    
 
Non-interest expense
    13,619       9,636       44,935       26,131       13,070       10,052       8,364  
                                           
 
Income before income taxes and minority interest
    5,104       3,132       16,381       14,771       6,160       5,953       2,167  
 
Provision for income taxes
    1,588       943       4,935       5,030       2,343       2,076       811  
 
Minority interest
                      582       48              
                                           
 
Net income
  $ 3,516     $ 2,189     $ 11,446     $ 9,159     $ 3,769     $ 3,877     $ 1,356  
                                           
Per share data:
                                                       
 
Basic earnings
  $ 0.28     $ 0.18     $ 0.92     $ 1.08     $ 0.66     $ 0.78     $ 0.30  
 
Diluted earnings
    0.24       0.16       0.82       0.94       0.63       0.77       0.29  
 
Diluted cash earnings(1)
    0.26       0.18       0.89       0.98       0.64       0.77       0.29  
 
Book value per common share
    11.68       10.88       11.45       10.75       9.79       8.36       7.28  
 
Book value per share with preferred converted to common(2)
    11.83       11.10       11.63       11.07       10.29       8.36       7.28  
 
Tangible book value per common share(3)(7)
    7.70       8.57       7.43       7.89       6.63       8.36       7.28  
 
Tangible book value per share with preferred converted to common(2)(3)(7)
    8.45       9.07       8.21       8.70       7.68       8.36       7.28  
 
Dividends — common
    0.02       0.01       0.07       0.04       0.01              
 
Average common shares outstanding
    12,123       11,745       11,862       7,986       5,721       4,956       4,557  
 
Average diluted shares outstanding
    14,392       13,548       13,889       9,783       5,964       5,019       4,605  
Annualized Performance ratios:
                                                       
 
Return on average assets
    0.74 %     0.63 %     0.69 %     1.17 %     0.85 %     1.14 %     0.52 %
 
Cash return on average assets(8)
    0.81       0.69       0.76       1.26       0.87       1.14       0.52  
 
Return on average equity
    8.51       5.89       7.27       8.61       8.88       9.87       4.27  
 
Return on average tangible equity(3)(9)
    12.86       7.72       10.16       11.54       9.44       9.87       4.27  
 
Net interest margin(4)
    3.53       3.22       3.37       3.75       3.47       4.12       3.92  
 
Efficiency ratio(5)
    66.68       65.86       64.94       57.65       64.61       55.08       68.18  

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    As of or for the Three    
    Months Ended March 31,   As of or for the Years Ended December 31,
         
    2006   2005   2005   2004   2003   2002   2001
                             
    (Dollars and shares in thousands, except per share data)
Asset quality:
                                                       
 
Nonperforming assets as a percentage of total assets
    0.45 %     0.56 %     0.47 %     1.18 %     1.24 %     0.58 %     0.48 %
 
Nonperforming loans as a percentage of total loans
    0.66       0.84       0.69       1.73       1.73       0.64       0.57  
 
Allowance for loan losses to nonperforming loans
    296.72       239.36       291.62       182.40       170.10       314.73       286.66  
 
Allowance for loan losses to total loans
    1.96       2.73       2.01       3.16       2.94       2.00       1.63  
 
Net charge-offs as a percentage of average total loans
    0.07       0.08       0.38       0.13       0.16       0.14       0.14  
Balance sheet data (period end):
                                                       
 
Total assets
  $ 1,970,910     $ 1,422,652     $ 1,911,491     $ 805,186     $ 803,103     $ 368,983     $ 322,036  
 
Investment securities
    525,257       491,500       530,302       190,466       161,951       44,317       55,285  
 
Loans receivable
    1,246,146       806,633       1,204,589       516,655       500,055       284,764       235,699  
 
Allowance for loan losses
    24,435       21,982       24,175       16,345       14,717       5,706       3,847  
 
Intangible assets
    48,302       27,165       48,727       22,816       25,252              
 
Non-interest-bearing deposits
    225,340       144,317       209,974       86,186       76,508       31,027       29,202  
 
Total deposits
    1,507,443       1,046,097       1,427,108       552,878       572,218       279,228       237,343  
 
Subordinated debentures (trust preferred securities)
    44,731       24,202       44,755       24,219       24,238              
 
Shareholders’ equity
    169,040       148,555       165,857       106,610       99,472       46,753       35,997  
Capital ratios:
                                                       
 
Equity to assets
    8.58 %     10.44 %     8.68 %     13.24 %     12.39 %     12.67 %     11.17 %
 
Tangible equity to tangible assets(3)(10)
    6.28       8.70       6.29       10.71       9.54       12.67       11.17  
 
Tier 1 leverage ratio(6)
    9.31       10.99       9.22       13.47       13.06       13.42       11.98  
 
Tier 1 risk-based capital ratio
    12.13       15.62       12.25       17.39       16.35       14.17       13.34  
 
Total risk-based capital ratio
    13.38       16.88       13.51       17.39       16.35       15.42       14.77  
 
Dividend payout — common
    6.91       5.57       7.30       3.71       2.46              
 
 (1)  Diluted cash earnings per share reflect diluted earnings per share plus per share intangible amortization expense, net of the corresponding tax effect. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Table 20,” on page 56, for the non-GAAP tabular reconciliation.
 
 (2)  Shares of Class A preferred stock and Class B preferred stock outstanding on the indicated dates are assumed to have been converted to shares of common stock. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Table 21,” on page 57.
 
 (3)  Tangible calculations eliminate the effect of goodwill and acquisition-related intangible assets and the corresponding amortization expense on a tax-effected basis.
 
 (4)  Fully taxable equivalent (tax-exempt interest earnings are adjusted as if interest earnings are taxable).
 
 (5)  The efficiency ratio is calculated by dividing non-interest expense less amortization of core deposit intangibles by the sum of net interest income on a tax equivalent basis and non-interest income.
 
 (6)  Leverage ratio is Tier 1 capital to quarterly average total assets less intangible assets and gross unrealized gains/losses on available-for-sale investment securities.
 
 (7)  See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Table 21,” on page 57, for the non-GAAP tabular reconciliation.
 
 (8)  See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Table 22,” on page 57, for the non-GAAP tabular reconciliation.
 
 (9)  See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Table 23,” on page 57, for the non-GAAP tabular reconciliation.
(10)  See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Table 24,” on page 58, for the non-GAAP tabular reconciliation.

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RISK FACTORS
      An investment in our common stock involves risks. Before making an investment decision, you should carefully consider the risks described below, together with our consolidated financial statements and the related notes and the other information included in this prospectus. The discussion below presents material risks associated with an investment in our common stock. If any of the following risks actually occur, our business, financial condition and results of operations could be harmed. In such a case, the trading price of our common stock could decline, and you may lose all or part of your investment. The risks discussed below also include forward-looking statements, and our actual results may differ substantially from those discussed in these forward-looking statements. See “Cautionary Note Regarding Forward-Looking Statements.”
Risks Related to Our Business
Our decisions regarding credit risk could be inaccurate and our allowance for loan losses may be inadequate, which would materially and adversely affect our business, financial condition, results of operations and future prospects.
      Management makes various assumptions and judgments about the collectibility of our loan portfolio, including the creditworthiness of our borrowers and the value of the real estate and other assets serving as collateral for the repayment of our secured loans. We maintain an allowance for loan losses that we consider adequate to absorb future losses which may occur in our loan portfolio. In determining the size of the allowance, we analyze our loan portfolio based on our historical loss experience, volume and classification of loans, volume and trends in delinquencies and non-accruals, national and local economic conditions, and other pertinent information. As of March 31, 2006, our allowance for loan losses was approximately $24.4 million, or 1.96% of our total loans receivable.
      If our assumptions are incorrect, our current allowance may be insufficient to cover future loan losses, and increased loan loss reserves may be needed to respond to different economic conditions or adverse developments in our loan portfolio. In addition, federal and state regulators periodically review our allowance for loan losses and may require us to increase our allowance for loan losses or recognize further loan charge-offs based on judgments different than those of our management. Any increase in our allowance for loan losses or loan charge-offs could have a negative effect on our operating results.
Because we have a high concentration of loans secured by real estate, a downturn in the real estate market could result in losses and materially and adversely affect business, financial condition, results of operations and future prospects.
      A significant portion of our loan portfolio is dependent on real estate. As of March 31, 2006, approximately 82.2% of our loans had real estate as a primary or secondary component of collateral. The real estate collateral in each case provides an alternate source of repayment in the event of default by the borrower and may deteriorate in value during the time the credit is extended. An adverse change in the economy affecting values of real estate generally or in our primary markets specifically could significantly impair the value of our collateral and our ability to sell the collateral upon foreclosure. Furthermore, it is likely that we would be required to increase our provision for loan losses. If we are required to liquidate the collateral securing a loan to satisfy the debt during a period of reduced real estate values or to increase our allowance for loan losses, our profitability and financial condition could be adversely impacted.
Because we have a concentration of exposure to a number of individual borrowers, a significant loss on any of those loans could materially and adversely affect our business, financial condition, results of operations, and future prospects.
      We have a concentration of exposure to a number of individual borrowers. Under applicable law, each of our bank subsidiaries is generally permitted to make loans to one borrowing relationship up to 20% of their respective capital in the case of our Arkansas bank subsidiaries, and 15% of capital (25% on secured loans) in the case of our Florida bank subsidiary. Historically, when our bank subsidiaries have lending relationships that exceed their individual loan to one borrower limitation, the overline, or amount in excess of the subsidiary

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bank’s legal lending limit, is participated to our other bank subsidiaries. As a result, on a consolidated basis we may have aggregate exposure to individual or related borrowers in excess of each individual bank subsidiary’s legal lending limit. As of March 31, 2006, the aggregate legal lending limit of our bank subsidiaries for secured loans was approximately $34.4 million. Currently, our board of directors has established an in-house consolidated lending limit of $16.0 million to any one borrowing relationship without obtaining the approval of our Chairman and our Vice Chairman.
      As of March 31, 2006, we had 11 borrowing relationships where we had a commitment to loan in excess of $10.0 million, with the aggregate amount of those commitments totaling approximately $180.0 million. The largest of those commitments to one borrowing relationship was $27.3 million, which is 16.1% of our consolidated shareholders’ equity. Given the size of these loan relationships relative to our capital levels and earnings, a significant loss on any one of these loans could materially and adversely affect our business, financial condition, results of operations, and future prospects.
The unexpected loss of key officers may materially and adversely affect our business, financial condition, results of operations and future prospects.
      Our success depends significantly on our executive officers, especially John W. Allison, Ron W. Strother, Randy E. Mayor, and on the presidents of our bank subsidiaries. Our bank subsidiaries, in particular, rely heavily on their management team’s relationships in their local communities to generate business. Because we do not have employment agreements or non-compete agreements with our employees, our executive officers and bank presidents are free to resign at any time and accept an employment offer from another company, including a competitor. The loss of services from a member of our current management team may materially and adversely affect our business, financial condition, results of operations and future prospects.
Our growth and expansion strategy may not be successful and our market value and profitability may suffer.
      Growth through the acquisition of banks, de novo branching, and the organization of new banks represents an important component of our business strategy. Although we have no present plans to acquire any financial institution or financial services provider, any future acquisitions we might make will be accompanied by the risks commonly encountered in acquisitions. These risks include, among other things:
  •  credit risk associated with the acquired bank’s loans and investments;
 
  •  difficulty of integrating operations and personnel; and
 
  •  potential disruption of our ongoing business.
      We expect that competition for suitable acquisition candidates may be significant. We may compete with other banks or financial service companies with similar acquisition strategies, many of which are larger 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.
      In addition to the acquisition of existing financial institutions, we plan to continue de novo branching, and we may consider the organization of new banks in new market areas. We do not, however, have any current plans to organize a new bank. De novo branching and any acquisition or organization of a new bank carries with it numerous risks, including the following:
  •  the inability to obtain all required regulatory approvals;
 
  •  significant costs and anticipated 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;

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  •  the inability to obtain attractive locations within a new market at a reasonable cost; and
 
  •  the additional strain on management resources and internal systems and controls.
      We cannot assure that we will be successful in overcoming these risks or any other problems encountered in connection with acquisitions, de novo branching and the organization of new banks. Our inability to overcome these risks could have an adverse effect on our ability to achieve our business strategy and maintain our market value and profitability.
      We expect to continue to grow our assets and deposits, the products and services we offer, and the scale of our operations, generally, both internally and through acquisitions. If we continue to grow rapidly, we may not be able to control costs and maintain our asset quality. Our ability to manage our growth successfully will depend on our ability to maintain cost controls and asset quality while attracting additional loans and deposits on favorable terms. If we grow too quickly and are not able to control costs and maintain asset quality, this rapid growth could materially and adversely affect our financial performance.
There may be undiscovered risks or losses associated with our acquisitions of bank subsidiaries which would have a negative impact upon our future income.
      Our growth strategy includes strategic acquisitions of bank subsidiaries. We acquired three bank subsidiaries in 2005, and will continue to consider strategic acquisitions, with a primary focus on Arkansas and southwestern Florida. In most cases, our acquisition of a bank includes the acquisition of all of the target bank’s assets and liabilities, including its loan portfolio. There may be instances when we, under our normal operating procedures, may find after the acquisition that there may be additional losses or undisclosed liabilities with respect to the assets and liabilities of the target bank, and, with respect to its loan portfolio, that the ability of a borrower to repay a loan may have become impaired, the quality of the value of the collateral securing a loan may fall below our standards, or the allowance for loan losses may not be adequate. One or more of these factors might cause us to have additional losses or liabilities, additional loan charge-offs, or increases in allowances for loan losses, which would have a negative impact upon our future income.
An economic downturn, natural disaster or act of terrorism, especially one affecting our market areas, could adversely affect our business, financial condition, results of operations and future prospects.
      Our business is affected by prevailing economic conditions in the United States, including inflation and unemployment rates, but is particularly subject to the local economies in Arkansas, the Florida Keys and southwestern Florida. Our relatively small size and our geographic concentration expose us to greater risk of unfavorable local economic conditions than the larger national or regional banks in our market areas. Adverse changes in local economic factors, such as population growth trends, income levels, deposits and housing starts, may adversely affect our operations.
      We are at risk of natural disaster or acts of terrorism, even if our market areas are not primarily affected. Our Florida market, in particular, is subject to risks from hurricanes, which may damage or dislocate our facilities, damage or destroy collateral, adversely affect the livelihood of borrowers or otherwise cause significant economic dislocation in areas we serve.
      If and when economic conditions deteriorate, either in our local market areas or nationwide, we may experience a reduction in the demand for our products and services and deterioration in the quality of our loan portfolio and consequently have a material and adverse effect on our business, financial condition, results of operations and future prospects.
Competition from other financial institutions may adversely affect our profitability.
      The banking business is highly competitive. We experience strong competition, not only from commercial banks, savings and loan associations, and credit unions, but also from mortgage banking firms, consumer finance companies, securities brokerage firms, insurance companies, money market funds, and other financial institutions operating in or near our market areas. We compete with these institutions both in attracting deposits and in making loans.

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      Many of our competitors are much larger national and regional financial institutions. We may face a competitive disadvantage against them as a result of our smaller size and resources and our lack of geographic diversification.
      We also compete against community banks that have strong local ties. These smaller institutions are likely to cater to the same small and mid-sized businesses that we target and to use a relationship-based approach similar to ours. In addition, our competitors may seek to gain market share by pricing below the current market rates for loans and paying higher rates for deposits. Competitive pressures can adversely affect our 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 are unlikely to sustain our historical rate of growth, and may not even be able to expand our business at all. Further, our recent growth may distort some of our historical financial ratios and statistics. In the future, we may not have the benefit of several recently favorable factors, such as a strong residential housing market or the ability to find suitable expansion opportunities. Various factors, such as economic conditions, regulatory and legislative considerations and competition, may also impede or prohibit our ability to expand our market presence. If we are not able to successfully grow our business, our financial condition and results of operations could be adversely affected.
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 bank subsidiaries to maintain adequate levels of capital to support our operations. While we believe that our capital will be sufficient to support our current operations and anticipated expansion, factors such as faster than anticipated growth, reduced earning levels, operating losses, changes in economic conditions, revisions in regulatory requirements, or additional acquisition opportunities may lead us to seek additional capital.
      Our ability to raise additional capital, if needed, will depend on our financial performance and on conditions in the capital markets at that time, 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 could be materially impaired.
We are considered by the Federal Reserve Board to be a source of “financial strength” for White River Bancshares and may be required to support its capital.
      We hold a 20% ownership interest in White River Bancshares, Inc., a bank holding company headquartered in Fayetteville, Arkansas. Our minority ownership means that we lack effective power to control the operations of the holding company. We are, nevertheless, considered by the Federal Reserve Board to be a source of financial strength for that holding company. As a result, we may be required to contribute sufficient funds for White River Bancshares to meet regulatory capital requirements if it is unable to raise funds from other sources. An obligation to support White River Bancshares may be required at times when, in the absence of this Federal Reserve Board policy, we might not be inclined to provide it. As of and for the year ended December 31, 2005, White River Bancshares had total assets of $184.7 million, total shareholders’ equity of $51.2 million, and a net operating loss of $2.7 million. The capital ratios for White River Bancshares’ wholly-owned bank subsidiary, Signature Bank of Arkansas, at year-end and the minimum ratios required to be considered “well capitalized” were: leverage ratio, 24.7% (5.0% required); Tier 1 capital ratio, 27.8% (6.0% required); and total risk-based capital ratio, 29.0% (10.0% required).

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We may be unable to, or choose not to, pay dividends on our common stock.
      Although we have paid a quarterly dividend on our common stock since the second quarter of 2003 and expect to continue this practice, we cannot assure you of our ability to continue. 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 bank subsidiaries, is subject to federal and state laws that limit the ability of these 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.
 
  •  Before dividends may be paid on our common stock in any year, dividends of $0.25 per share must first be paid on our Class A preferred stock and $0.57 per share on our Class B preferred stock.
 
  •  Before dividends may be paid on our common stock in any year, payments must be made on our subordinated debentures.
 
  •  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 your sole opportunity for gains on your investment.
Our directors and executive officers own a significant portion of our common stock and can exert significant control over our business and corporate affairs.
      Our directors and executive officers, as a group, will beneficially own approximately 38.6% of our common stock immediately following this offering. Consequently, if they vote their shares in concert, they can significantly influence the outcome of all matters submitted to our shareholders for approval, including the election of directors. The interests of our officers and directors may conflict with the interests of other holders of our common stock, and they may take actions affecting our company with which you disagree.
The holders of our subordinated debentures have rights that are senior to those of our shareholders.
      We have $44.8 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 common stock.
Risks Related to Our Industry
Our profitability is vulnerable to interest rate fluctuations and monetary policy.
      Most of our assets and liabilities are monetary in nature, and thus subject us to significant risks from changes in interest rates. Consequently, our results of operations can be significantly affected by changes in interest rates and our ability to manage interest rate risk. Changes in market interest rates, or changes in the relationships between short-term and long-term market interest rates, or changes in the relationship between different interest rate indices can affect the interest rates charged on interest-earning assets differently than the interest paid on interest-bearing liabilities. This difference could result in an increase in interest expense relative to interest income or a decrease in interest rate spread. In addition to affecting our profitability, changes in interest rates can impact the valuation of our assets and liabilities.

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      As of March 31, 2006, our one-year ratio of interest-rate-sensitive assets to interest-rate-sensitive liabilities was 104.1% and our cumulative gap position was 2.3% of total earning assets, resulting in a minimum impact on earnings for various interest rate change scenarios. Floating rate loans made up 39.1% of our $1.2 billion loan portfolio. In addition, 70.7% of our loans receivable and 81.3% of our time deposits were scheduled to reprice within 12 months and our other rate sensitive asset and rate sensitive liabilities composition is subject to change. Significant composition changes in our rate sensitive assets or liabilities could result in a more unbalanced position and interest rate changes would have more of an impact to our earnings.
      Our results of operations are also affected by the monetary policies of the Federal Reserve Board. Actions by the Federal Reserve Board involving monetary policies could have an adverse effect on our deposit levels, loan demand or business and earnings.
We are subject to extensive regulation that could limit or restrict our activities and impose financial requirements or limitations on the conduct of our business, which limitations or restrictions could adversely affect our profitability.
      We are a registered financial holding company primarily regulated by the Federal Reserve Board. Our bank subsidiaries are also primarily regulated by the Federal Reserve Board, the Federal Deposit Insurance Corporation, and the Arkansas State Bank Department or Florida Office of Financial Regulation.
      Complying with banking industry regulations is costly and may limit our growth and restrict certain of our activities, including payment of dividends, mergers and acquisitions, investments, loans and interest rates charged, interest rates paid on deposits and locations of offices. We are also subject to capital requirements by our regulators. Violations of various laws, even if unintentional, may result in significant fines or other penalties, including restrictions on branching or bank acquisitions. Recently, banks generally have faced increased regulatory sanctions and scrutiny, particularly under the USA Patriot Act and statutes that promote customer privacy or seek to prevent money laundering. As regulation of the banking industry continues to evolve, we expect the costs of compliance to continue to increase and, thus, to affect our ability to operate profitably.
      Upon completion of this offering, we will become subject to the many requirements of the Securities Exchange Act of 1934, the Sarbanes-Oxley Act of 2002, and the related rules and regulations promulgated by the Securities and Exchange Commission and Nasdaq. These laws and regulations will increase the scope, complexity and cost of our corporate governance, reporting and disclosure practices. Although we are accustomed to conducting business in a highly regulated environment, these laws and regulations have different requirements for compliance than we have previously experienced. Our expenses for accounting, legal and consulting services will increase because of the new obligations we will face as a public company. In addition, the sudden application of these requirements to our business will result in some cultural adjustments and may strain our management resources.
      To date, we have not conducted a comprehensive review and confirmation of the adequacy of our existing systems and controls as will be required under Section 404 of the Sarbanes-Oxley Act, and will not do so until after the completion of this offering. We may discover deficiencies in existing systems and controls. If that is the case, we intend to take the necessary steps to correct any deficiencies. These steps may be costly and strain our resources. A decline in the market price for our common stock may result if we are unable to comply with the Sarbanes-Oxley Act.
Risks Related to This Offering
We have broad discretion in the use of the net proceeds from this offering, and our use of those proceeds may not yield a favorable return on your investment.
      We will use the net proceeds of this offering for general corporate purposes, which may include, among other things, our working capital needs and providing investments in our bank subsidiaries. We may also use the net proceeds to finance bank acquisitions, though we have no present plans in that regard. Thus, our

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management has broad discretion over how these proceeds are used and could spend the proceeds in ways with which you may not agree. We may not invest the proceeds of this offering effectively or in a manner that yields a favorable (or any) return on our common stock, and consequently, this could result in financial losses that could have a material adverse effect on our business or cause the price of our common stock to decline.
There has been no prior active trading market for our common stock. We cannot assure you that an active public trading market will develop after the offering and, even if it does, our stock price may trade below the public offering price.
      There has been no public market for our common stock prior to this offering. An active trading market for our common stock may never develop or be sustained, which could affect your ability to sell your shares.
      Even if a market develops for our common stock after the offering, the market price of our common stock may experience significant volatility. Factors that may affect the price of our common stock include the depth and liquidity of the market for our common stock, investor perception of our financial strength, conditions in the banking industry such as credit quality and monetary policies, and general economic and market conditions. Our quarterly operating results, changes in analysts’ earnings estimates, changes in general conditions in the economy or financial markets or other developments affecting us could cause the market price of our common stock to fluctuate substantially. In addition, the initial public offering price has been determined through negotiations between us and the underwriters, and may bear no relationship to the price at which the common stock will trade upon completion of the offering.
Investors in this offering will experience immediate and substantial dilution.
      Purchasers in this offering will experience immediate dilution to the extent of the difference between the initial public offering price and the net tangible book value per share of our common stock. This dilution is estimated to be $7.50 per share, based on the assumed initial offering price of $17.00 per share (the midpoint of the range set forth on the cover page of this prospectus) and our pro forma net tangible book value of $8.45 per share as of March 31, 2006. This per-share dilution takes into account the conversion to common stock of our outstanding shares of Class A preferred stock and Class B preferred stock, as it is our intent to effect those conversions as soon as practicable after the offering is completed.
      To the extent we raise additional capital by issuing equity securities in the future, our shareholders may experience additional dilution. Our board of directors may determine, from time to time, a need to obtain additional capital through the issuance of additional shares of common stock or other securities. We may issue additional securities at prices or on terms less favorable than or equal to the public offering price and terms of this offering.
The ability of our insiders or the holders of our Class A and Class B preferred stock to sell substantial amounts of common stock after this offering may depress the market price of our common stock or cause it to decline.
      There are three potentially significant sources of shares of our common stock that may come on the market after this offering:  
  •  Our directors and executive officers will beneficially own approximately 38.6% of our common stock immediately after this offering. Although they are subject to “lock-up” agreements with our underwriters, which generally prevent them from selling their shares within 180 days after the offering, the underwriters may release them from those obligations. In any event, after the lock-up agreements expire, approximately 6.7 million additional shares of our common stock could become tradable by our directors and executive officers.
 
  •  We intend to require that all of the outstanding shares of our Class A preferred stock be converted to common stock as soon as practicable after June 6, 2006, the first date on which we can require conversion of those shares. We also intend, as soon as practicable after this offering, to require that our Class B preferred stock be converted to common stock. Conversion of our Class A preferred stock and

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  Class B preferred stock will result in approximately 2,159,921 shares of our common stock being issued. Approximately 80,720 additional shares of our common stock may be issued upon exercise of outstanding preferred stock options and the subsequent conversion to common stock of the preferred shares issued. Most of the holders of the newly issued shares of common stock will be eligible immediately to sell their shares.
 
  •  We intend to register all common stock that we may issue upon exercise of outstanding options under our 2006 Stock Option and Performance Incentive Plan. Once we register these shares, they can be sold in the public market upon issuance, subject to restrictions under the securities laws and, if applicable, the lock-up agreements described above. As of March 31, 2006, stock options to purchase 968,244 shares of our common stock had been granted under this plan, of which 481,224 are presently exercisable.

      Sales of a significant number of shares of our common stock after this offering, or the expectation that these sales may occur, could depress the market price of our common stock.

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
      Some of our statements contained in this prospectus, including matters discussed under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operation,” are “forward-looking statements.” Forward-looking statements relate to future events or our future financial performance and include statements about the competitiveness of the banking industry, potential regulatory obligations, our entrance and expansion into other markets, our other business strategies and other statements that are not historical facts. Forward-looking statements are not guarantees of performance or results. When we use words like “may,” “plan,” “contemplate,” “anticipate,” “believe,” “intend,” “continue,” “expect,” “project,” “predict,” “estimate,” “could,” “should,” “would,” and similar expressions, you should consider them as identifying forward-looking statements, although we may use other phrasing. These forward-looking statements involve risks and uncertainties and are based on our beliefs and assumptions, and on the information available to us at the time that these disclosures were prepared. These forward-looking statements involve risks and uncertainties and may not be realized due to a variety of factors, including, but not limited to, the following:
  •  the effects of future economic conditions, including inflation or a decrease in residential housing values;
 
  •  governmental monetary and fiscal policies, as well as legislative and regulatory changes;
 
  •  the risks of changes in interest rates or the level and composition of deposits, loan demand and the values of loan collateral, securities and interest sensitive assets and liabilities;
 
  •  the effects of terrorism and efforts to combat it;
 
  •  credit risks;
 
  •  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 competitors offering banking products and services by mail, telephone and the Internet;
 
  •  the effect of any mergers, acquisitions or other transactions to which we or our subsidiaries may from time to time be a party, including our ability to successfully integrate any businesses that we acquire; and
 
  •  the failure of assumptions underlying the establishment of our allowance for loan losses.
      All written or oral forward-looking statements attributable to us are expressly qualified in their entirety by this Cautionary Note. Our actual results may differ significantly from those we discuss in these forward-looking statements. For other factors, risks and uncertainties that could cause our actual results to differ materially from estimates and projections contained in these forward-looking statements, see “Risk Factors” beginning on page 9.
USE OF PROCEEDS
      Our net proceeds from the sale of 2,500,000 shares of our common stock in this offering (based on the mid-point of the price range on the cover page of this prospectus) will be approximately $38.7 million, after deducting underwriting discounts and commissions and estimated offering expenses payable by us. If the underwriters’ over-allotment option is exercised in full, we estimate that our net proceeds will be approximately $44.7 million.
      We will use the net proceeds of this offering for general corporate purposes. Those purposes may include, among other things, meeting our working capital needs and providing investments in our bank subsidiaries to support our growth, including development of additional banking offices. Additionally, we may use the net proceeds to finance bank acquisitions, though we have no present plans in that regard.

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      We have not specifically allocated the amount of the net proceeds that will be used for these purposes; however, we believe that we will be able to deploy the net proceeds of this offering in a manner that will maximize the return to our investors. We are effecting this offering at this time because we believe that based on our current financial position and considering our historical growth and development and our prospects for the future, we have reached a stage where we are ready to be a public company with access to the public markets.
      The precise amounts and timing of our use of the net proceeds will depend upon market conditions and the availability of other funds, among other factors. From time to time, we may engage in additional capital financings as we determine to be appropriate based upon our needs and prevailing market conditions. These additional capital financings may include the sale of securities other than, or in addition to, common stock.
PRICE RANGE OF OUR COMMON STOCK AND DIVIDENDS
      Prior to this offering, our common stock has not been traded on an established public trading market and quotations for our common stock were not reported on any market. As a result, there has been no regular market for our common stock. Although our shares have been infrequently traded in private transactions, those transactions have usually been between related parties and at sales prices that did not necessarily reflect the price that would be paid for our common stock in an active market.
      We have applied to have our common stock listed on The Nasdaq National Market under the symbol “HOMB.” We believe, but cannot be certain, that a Nasdaq listing will substantially enhance the trading market for our common stock. See “Risk Factors — Risks Related to This Offering,” beginning on page 14. As of March 31, 2006, there were 12,129,355 shares of our common stock outstanding, held by approximately 998 holders of record.
      Dividends are paid at the discretion of our board of directors. We have paid regular quarterly cash dividends on our common stock beginning with the second quarter of 2003, and our board of directors presently intends to continue the payment of these regular cash dividends. We paid dividends of $0.02 per common share for the first quarter of 2006, and total dividends in the amount of $0.07 per common share in 2005, $0.04 per common share in 2004 and $0.01 per common share in 2003. However, the amount and frequency of cash dividends, if any, will be determined by our board of directors after consideration of our earnings, capital requirements, our financial condition and our ability to service any equity or debt obligations senior to our common stock, and will depend on cash dividends paid to us by our bank subsidiaries. As a result, our ability to pay future dividends will depend on the earnings of our bank subsidiaries, their financial condition and their need for funds.
      There are a number of restrictions on our ability to pay cash dividends. It is the policy of the Federal Reserve Board that bank holding companies should 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. The policy provides that bank holding companies should not maintain a level of cash dividends that undermines the bank holding company’s ability to serve as a source of strength to its banking subsidiaries. For a foreseeable period of time, our principal source of cash will be dividends paid by our bank subsidiaries with respect to their capital stock. There are certain restrictions on the payment of these dividends imposed by federal banking laws, regulations and authorities. See “Supervision and Regulation — Payment of Dividends.”
      Additionally, before any dividend may be paid on our common stock in any year, dividends of $0.25 per share must first be paid on our Class A preferred stock and $0.57 per share paid on our Class B preferred stock. We are also restricted from paying dividends on our common stock if we have deferred payments of interest, or if a default has occurred, on our subordinated debentures.
      As of March 31, 2006, no significant funds were available for payment of dividends by our bank subsidiaries to us under applicable regulatory restrictions, without regulatory approval. Regulatory authorities could impose administratively stricter limitations on the ability of our bank subsidiaries to pay dividends to us if such limits were deemed appropriate to preserve certain capital adequacy requirements. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

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CAPITALIZATION
      The following table shows our consolidated capitalization as of March 31, 2006. Our capitalization is presented on an actual basis and on an as adjusted basis to give effect to the sale of 2,500,000 shares of common stock offered in this offering, less the underwriting discount, commissions and estimated expenses, at an assumed offering price of $17.00 per share (the mid-point of the price range set forth on the cover page of this prospectus). This table should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and the related notes included in this prospectus.
                   
    March 31, 2006
     
    Actual   As adjusted(1)
         
    (Dollars in thousands, except
    per share data)
Long-term indebtedness:(2)
               
Subordinated debentures, due 2030
  $ 3,493     $ 3,493  
Subordinated debentures, due 2033
    20,619       20,619  
Subordinated debentures, due 2033, floating rate
    5,155       5,155  
Subordinated debentures, due 2035
    15,464       15,464  
             
 
Total long-term indebtedness
    44,731       44,731  
             
Shareholders’ equity:
               
Class A preferred stock, $0.01 par value; 2,500,000 shares authorized; 2,090,812 shares issued and outstanding, actual and as adjusted
    21       21  
Class B preferred stock, $0.01 par value; 3,000,000 shares authorized; 169,760 shares issued and outstanding, actual and as adjusted
    2       2  
Common stock, $0.01 par value; 25,000,000 shares authorized; 12,129,355 shares issues and outstanding; 14,629,355 shares issued and outstanding as adjusted
    121       146  
Capital surplus
    146,638       185,340  
Retained earnings
    30,449       30,449  
Accumulated other comprehensive loss
    (8,191 )     (8,191 )
             
 
Total shareholders’ equity
    169,040       207,767  
             
 
Total capitalization(3)
  $ 213,771       252,498  
             
Book value per share with preferred converted to common
  $ 11.83     $ 12.37  
Capital ratios:
               
 
Equity to assets
    8.58 %     10.34 %
 
Tangible equity to tangible assets(4)
    6.28       8.13  
 
Tier 1 leverage ratio(5)
    9.31       11.13  
 
Tier 1 risk-based capital ratio
    12.13       14.60  
 
Total risk-based capital ratio
    13.38       15.84  
 
(1)  As adjusted to give effect to the assumed issuance of 2,500,000 shares of common stock.
 
(2)  Excludes FHLB advances, which were approximately $123.2 million as of March 31, 2006.
 
(3)  Consists of long-term debt and total shareholders’ equity.
 
(4)  Tangible calculations eliminate the effect of goodwill and acquisition-related intangible assets and the corresponding amortization expense on a tax-effected basis. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Table 24,” on page 58, for the non-GAAP tabular reconciliation.
 
(5)  Leverage ratio is Tier 1 capital to quarterly average total assets less intangible assets and gross unrealized gains/losses on available-for-sale investment securities.

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DILUTION
      If you invest in our common stock in this offering, your ownership interest in Home BancShares will be diluted to the extent of the difference between the initial public offering price per share and the pro forma net tangible book value per share after this offering. Net tangible book value per share is determined by dividing our tangible net worth (net tangible assets less total liabilities) by the number of shares outstanding. Our net tangible book value as of March 31, 2006, was $120.7 million, or $8.45 per share, based on the number of shares of common stock outstanding plus the conversion of preferred stock to common stock as of March 31, 2006.
      After giving effect to our sale of shares in this offering at an assumed initial public offering price of $17.00 per share (the midpoint of the range set forth on the cover page of this prospectus), assuming the underwriters’ over-allotment option is not exercised, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, our common stock net tangible book value as of March 31, 2006, would have been $159.5 million, or $9.50 per share. This represents an immediate increase in net tangible book value to present common shareholders of $1.05 per share and an immediate dilution in net tangible book value of $7.50 per share to new investors purchasing shares in this offering at the assumed initial public offering price. Dilution is determined by subtracting pro forma net tangible book value per common share after this offering from the assumed initial offering price of $17.00 per common share.
      The following table illustrates the dilution on a per-common-share basis (with preferred stock converted to common stock) as of March 31, 2006:
                   
Assumed initial public offering price
          $ 17.00  
 
Net tangible book value prior to offering
  $ 8.45          
 
Increase in net tangible book value attributable to new investors
    1.05          
             
 
Pro forma net tangible book value after offering
            9.50  
             
Dilution to new investors
          $ 7.50  
             
      The following table summarizes the total number of shares (with preferred stock converted to common stock), the total consideration paid to us and the average price paid per share by existing shareholders and new investors purchasing common stock in this offering. This information is presented on a pro forma basis as of March 31, 2006, after giving effect to the sale of the 2,500,000 shares of common stock in this offering at an assumed initial public offering price of $17.00 per share (the midpoint of the range set forth on the cover page of this prospectus).
                                         
    Shares Purchased   Total Consideration    
            Average Price
    Number   Percent   Amount(1)   Percent(1)   Per Share(1)
                     
    (Dollars in thousands, except per share amounts)
Shares previously issued
    14,289,276       85.1 %   $ 146,782       77.5 %   $ 10.27  
Shares issued in this offering
    2,500,000       14.9       42,500       22.5       17.00  
                               
Total
    16,789,276       100.0 %   $ 189,282       100.0 %   $ 11.27  
                               
 
(1)  Before deducting underwriting discounts and commissions of approximately $3.0 million and estimated offering expenses of approximately $798,000. In addition, this table does not reflect the exercise of any outstanding stock options. As of March 31, 2006, there were options outstanding under our stock option plan to purchase a total of 968,244 shares of common stock with a weighted average exercise price of $11.22 per share; options outstanding to purchase a total of 11,703 shares of Class A preferred stock with a weighted average exercise price of $6.84 per share (which can convert into 9,239 shares of common stock with a weighted average price of $8.66 per share); and options outstanding to purchase a total of 23,827 shares of Class B preferred stock with a weighted average exercise price of $19.09 per share (which can convert into 71,481 shares of common stock with a weighted average price of $6.36 per share).

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UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
      The following unaudited pro forma condensed combined statement of income for the year ended December 31, 2005, combines the historical income statements of Home BancShares with Marine Bancorp, Inc. and Mountain View Bancshares, Inc. after giving effect to our acquisitions of Marine Bancorp on June 1, 2005, and Mountain View Bancshares on September 1, 2005.
      The pro forma adjustments to the statement of income are computed as if the transactions occurred on January 1, 2005. This unaudited pro forma statement was prepared giving effect to the purchase accounting adjustments and other assumptions described in the accompanying notes. Pro forma balance sheet data is not provided, as our audited consolidated balance sheet as of December 31, 2005, included elsewhere in this prospectus, gives full effect to the Marine Bancorp and Mountain View Bancshares acquisitions.
      The unaudited pro forma condensed combined statement of income reflects pro forma adjustments that are described in the accompanying notes and are based on available information and certain assumptions we believe are reasonable but are subject to change. We have made, in our opinion, all adjustments that are necessary to present fairly the pro forma information. The unaudited condensed combined statement of income does not purport to represent what our actual results of operations or financial position would have been if our acquisitions of Marine Bancorp and Mountain View Bancshares had occurred on January 1, 2005, or to project our results of operations or financial position for any future period.
                                             
            Mountain        
    Home   Marine   View       Pro forma
    BancShares   Bancorp   Bancshares       2005 with
    As   Jan. 1-   Jan. 1-       Marine and
    Reported   May 31,   Aug. 31,       Mountain
    2005   2005   2005   Adjustments   View
                     
    (Dollars and shares in thousands, except per share data)
Interest income
                                       
 
Loans receivable
  $ 65,244     $ 5,637     $ 3,421     $     $ 74,302  
 
Investment securities
    19,829       325       3,206       (792 )(1)     22,568  
 
Deposits — other banks
    101       5                   106  
 
Federal funds sold
    284             117             401  
                               
Total interest income
    85,458       5,967       6,744       (792 )     97,377  
                               
Interest expense
                                       
 
Interest on deposits
    26,883       1,532       2,410             30,825  
 
Federal funds purchased
    399                         399  
 
FHLB and other borrowings
    4,046       413                   4,459  
 
Securities sold under agreements to repurchase
    2,657                         2,657  
 
Subordinated debentures
    2,017       155             681 (2)     2,853  
                               
Total interest expense
    36,002       2,100       2,410       681       41,193  
                               
Net interest income
    49,456       3,867       4,334       (1,473 )     56,184  
 
Provision for loan losses
    3,827       258       360             4,445  
                               
   
Net interest income after provision for loan losses
    45,629       3,609       3,974       (1,473 )     51,739  
                               

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            Mountain        
    Home   Marine   View       Pro forma
    BancShares   Bancorp   Bancshares       2005 with
    As   Jan. 1-   Jan. 1-       Marine and
    Reported   May 31,   Aug. 31,       Mountain
    2005   2005   2005   Adjustments   View
                     
    (Dollars and shares in thousands, except per share data)
Non-interest income
                                       
 
Service charges on deposits
    8,319       275       228             8,822  
 
Other service charges and fees
    2,099       171       64             2,334  
 
Mortgage banking income
    1,651       206                   1,857  
 
Other income
    3,618       15       305             3,938  
                               
Total non-interest income
    15,687       667       597             16,951  
                               
Non-interest expense
                                       
 
Salaries and employee benefits
    23,901       1,690       1,052             26,643  
 
Occupancy and equipment
    6,869       450       351             7,670  
 
Data processing expense
    1,991       298       33             2,322  
 
Advertising
    2,067       58       30             2,155  
 
Amortization of intangibles
    1,466                   330  (3)     1,796  
 
Other operating expense
    8,641       667       385             9,693  
                               
Total non-interest expense
    44,935       3,163       1,851       330       50,279  
                               
Income before taxes
    16,381       1,113       2,720       (1,803 )     18,411  
 
Income taxes — pro forma adjustment
    4,935       442             (707 )(4)     4,670  
 
Income taxes — Mountain View adjustment
                      450  (5)     450  
                               
Net income
  $ 11,446     $ 671     $ 2,720     $ (1,546 )   $ 13,291  
                               
Basic earnings per share
  $ 0.92     $     $     $     $ 1.05  
Diluted earnings per share
    0.82                         0.93  
Preferred stock dividends
  $ 574     $ 41     $     $     $ 615  
Basic — weighted average shares outstanding
    11,862             224             12,086  
Diluted — weighted average shares outstanding
    13,889       203       224             14,316  
 
(1)  This adjustment reflects the reduction in interest income that would result from the sale of $34.2 million of securities to fund our purchase of Marine Bancorp and Mountain View Bancshares for the five and eight months, respectively, prior to their acquisition by us. An average rate of 3.87% was used based on the yield of the securities sold.
 
(2)  This adjustment reflects additional interest expense on subordinated debentures for the eight months prior to the acquisition of Mountain View Bancshares. An average rate of 6.81% was used based on the additional $15.0 million of subordinated debenture issued during 2005.
 
(3)  This adjustment reflects the amortization expense for Marine Bancorp and Mountain View Bancshares core deposit intangible assets for the five and eight months, respectively, prior to their acquisitions by us.
 
(4)  This adjustment reflects the estimated tax effect of the pro forma adjustments using a marginal 39.23% tax rate.
 
(5)  This adjustment reflects the estimated tax effect of the conversion of Mountain View Bancshares from an S corporation to a C corporation tax filer using an estimated effective tax rate of 16.56%. The estimated effective tax rate is low due to the relatively high level of investments in municipal securities owned by Bank of Mountain View.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
      The following discussion and analysis presents our consolidated financial condition and results of operations for the three months ended March 31, 2006 and 2005, and for the years ended December 31, 2005, 2004 and 2003. This discussion should be read together with the “Summary Consolidated Financial Data,” our financial statements and the notes thereto, and other financial data included in this prospectus. In addition to the historical information provided below, we have made certain estimates and forward-looking statements that involve risks and uncertainties. Our actual results could differ significantly from those anticipated in these estimates and in the forward-looking statements as a result of certain factors, including those discussed in the section of this prospectus captioned “Risk Factors,” beginning on page 9, and elsewhere in this prospectus.
General
      We are a financial holding company headquartered in Conway, Arkansas, offering a broad array of financial services through our five wholly owned bank subsidiaries. As of March 31, 2006, we had, on a consolidated basis, total assets of $2.0 billion, loans receivable of $1.2 billion, total deposits of $1.5 billion, and shareholders’ equity of $169.0 million. As of December 31, 2005, we had, on a consolidated basis, total assets of $1.9 billion, loans receivable of $1.2 billion, total deposits of $1.4 billion, and shareholders’ equity of $165.9 million.
      We generate most of our revenue from interest on loans and investments, service charges, and mortgage banking income. Deposits are our primary source of funding. Our largest expenses are interest on these deposits and salaries and related employee benefits. We measure our performance by calculating our return on average equity, return on average assets, and net interest margin. We also measure our performance by our efficiency ratio, which is calculated by dividing non-interest expense less amortization of core deposit intangibles by the sum of net interest income on a tax equivalent basis and non-interest income.
Key Financial Measures
                                         
    As of or for the Three    
    Months Ended March 31,   As of or for the Years Ended December 31,
         
    2006   2005   2005   2004   2003
                     
    (Dollars in thousands, except per share data)
Total assets
  $ 1,970,910     $ 1,422,652     $ 1,911,491     $ 805,186     $ 803,103  
Loans receivable
    1,246,146       806,633       1,204,589       516,655       500,055  
Total deposits
    1,507,443       1,046,097       1,427,108       552,878       572,218  
Net income
    3,516       2,189       11,446       9,159       3,769  
Basic earnings per share
  $ 0.28     $ 0.18     $ 0.92     $ 1.08     $ 0.66  
Diluted earnings per share
    0.24       0.16       0.82       0.94       0.63  
Diluted cash earnings per share(1)
    0.26       0.18       0.89       0.98       0.64  
Net interest margin(2)
    3.53 %     3.22 %     3.37 %     3.75 %     3.47 %
Efficiency ratio
    66.68       65.86       64.94       57.65       64.61  
Return on average assets(2)
    0.74       0.63       0.69       1.17       0.85  
Return on average equity(2)
    8.51       5.89       7.27       8.61       8.88  
 
(1)  See Table 20 “Diluted Cash Earnings Per Share” for a reconciliation to GAAP for diluted cash earnings per share.
 
(2)  Annualized for March 31.
2006 First Quarter Operating Performance
      Our net income increased $1.3 million, or 60.6%, to $3.5 million for the three-month period ended March 31, 2006, from $2.2 million for the same period in 2005. On a diluted earnings per share basis, our net

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earnings increased 50.0% to $0.24 for the three-month period ended March 31, 2006, as compared to $0.16 for the same period in 2005. The increase in earnings is primarily associated with our acquisitions of Marine Bancorp, Inc. and Mountain View Bancshares during the second and third quarters of 2005, respectively, combined with organic growth of our bank subsidiaries.
      For the quarter, our annualized return on average equity was 8.51%, our annualized return on average assets was 0.74%, our annualized net interest margin was 3.53%, and our efficiency ratio was 66.68%.
2005 Overview
      Our net income increased $2.3 million, or 25.0%, to $11.4 million for the year ended December 31, 2005, from $9.2 million for the same period in 2004. The increase in earnings is primarily associated with our acquisitions during 2005, combined with organic growth of our bank subsidiaries’ earnings. In 2004, our net income included a gain on the sale of our equity investment in Russellville Bancshares. Excluding this after-tax gain of $2.7 million, net income for 2005 would have increased by $5.0 million, or 75.4%, over 2004. Diluted earnings per share decreased $0.12, or 12.8%, to $0.82 for the year ended December 31, 2005, from $0.94 for 2004. This decrease was primarily the result of the gain of $0.27 per diluted share during 2004, and a 42.0% increase in the average diluted shares outstanding for the year ended December 31, 2005, versus the same period in 2004, resulting from the shares issued in connection with our 2005 acquisitions. Excluding the gain, diluted earnings per share would have increased $0.15, or 22.4%, to $0.82 per diluted share for the year ended December 31, 2005, from $0.67 per diluted share for 2004.
      Our return on average equity was 7.27% for the year ended December 31, 2005, compared to 8.61% for 2004. The decrease was primarily due to: (i) the $59.2 million, or 55.6%, increase in shareholders’ equity to $165.9 million as of December 31, 2005, compared to $106.6 million as of December 31, 2004; and (ii) a gain of $2.7 million in 2004. Return on average equity for 2004 would have been 6.07%, excluding this gain. The increase in shareholders’ equity was primarily due to the acquisitions of TCBancorp and Marine Bancorp.
      Our return on average assets was 0.69% for the year ended December 31, 2005, compared to 1.17% for 2004. The decrease was primarily due to: (i) the $1.1 billion, or 137.4%, increase in total assets to $1.9 billion as of December 31, 2005, compared to $805.2 million as of December 31, 2004; and (ii) a gain of $2.7 million in 2004. Return on average assets would have been 0.83% excluding this gain. The increase in total assets was primarily due to the acquisitions of TCBancorp, Marine Bancorp, and Mountain View Bancshares.
      Our net interest margin was 3.37% for the year ended December 31, 2005, compared to 3.75% for 2004. The decrease was primarily due to the relatively lower net interest margin of 2.77% for Twin City Bank for the year ended December 31, 2005.
      Our efficiency ratio (calculated by dividing non-interest expense less amortization of core deposit intangibles by the sum of net interest income on a tax equivalent basis and non-interest income) was 64.94% for the year ended December 31, 2005, compared to 57.65% for 2004. The efficiency ratio for 2004 would have been 64.06% excluding our gain of $2.7 million.
      Our total assets increased $1.1 billion, or 137.4%, to $1.9 billion as of December 31, 2005, compared to $805.2 million as of December 31, 2004. Our loan portfolio increased $687.9 million, or 133.2%, to $1.2 billion as of December 31, 2005, from $516.7 million as of December 31, 2004. Shareholders’ equity increased $59.2 million, or 55.6%, to $165.9 million as of December 31, 2005, from $106.6 million as of December 31, 2004. All of these increases were primarily associated with our acquisitions during 2005.
      As of December 31, 2005, our asset quality improved as non-performing loans declined to $8.3 million, or 0.69%, of total loans from $9.0 million, or 1.73%, of total loans as of the prior year end. The allowance for loan losses as a percent of non-performing loans improved to 291.6% as of December 31, 2005, compared to 182.4% from the prior year end. These ratios reflect the continuing commitment of our management to maintain sound asset quality.

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Critical Accounting Policies
      Overview. We prepare our consolidated financial statements based on the selection of certain accounting policies, generally accepted accounting principles and customary practices in the banking industry. These policies, in certain areas, require us to make significant estimates and assumptions. Our accounting policies are described in detail in the notes to our consolidated financial statements included as part of this prospectus.
      We consider a policy critical if (i) the accounting estimate requires assumptions about matters that are highly uncertain at the time of the accounting estimate; and (ii) different estimates that could reasonably have been used in the current period, or changes in the accounting estimate that are reasonably likely to occur from period to period, would have a material impact on our financial statements. Using these criteria, we believe that the accounting policies most critical to us are those associated with our lending practices, including the accounting for the allowance for loan losses, intangible assets and income taxes.
      Investments. Securities available for sale are reported at fair value with unrealized holding gains and losses reported as a separate component of shareholders’ equity and other comprehensive income (loss). Securities that are held as available for sale are used as a part of our asset/liability management strategy. Securities that may be sold in response to interest rate changes, changes in prepayment risk, the need to increase regulatory capital, and other similar factors are classified as available for sale.
      Loans Receivable and Allowance for Loan Losses. Substantially all of our loans receivable are reported at their outstanding principal balance adjusted for any charge-offs, as it is management’s intent to hold them for the foreseeable future or until maturity or payoff. Interest income on loans is accrued over the term of the loans based on the principal balance outstanding.
      The allowance for loan losses is established through a provision for loan losses charged against income. The allowance represents an amount that, in management’s judgment, will be adequate to absorb probable credit losses on identifiable loans that may become uncollectible and probable credit losses inherent in the remainder of the loan portfolio. The amounts of provisions for loan losses are based on management’s analysis and evaluation of the loan portfolio for identification of problem credits, internal and external factors that may affect collectibility, relevant credit exposure, particular risks inherent in different kinds of lending, current collateral values and other relevant factors.
      We consider a loan to be impaired when, based on current information and events, it is probable that we will be unable to collect all amounts due according to the contractual terms thereof. We apply this policy even if delays or shortfalls in payments are expected to be insignificant. All non-accrual loans and all loans that have been restructured from their original contractual terms are considered impaired loans. The aggregate amount of impaired loans is used in evaluating the adequacy of the allowance for loan losses and amount of provisions thereto. Losses on impaired loans are charged against the allowance for loan losses when in the process of collection it appears likely that losses will be realized. The accrual of interest on impaired loans is discontinued when, in management’s opinion, the borrower may be unable to meet payments as they become due. When accrual of interest is discontinued, all unpaid accrued interest is reversed.
      Loans are placed on non-accrual status when management believes that the borrower’s financial condition, after giving consideration to economic and business conditions and collection efforts, is such that collection of interest is doubtful, or generally when loans are 90 days or more past due. Loans are charged against the allowance for loan losses when management believes that the collectibility of the principal is unlikely. Accrued interest related to non-accrual loans is generally charged against the allowance for loan losses when accrued in prior years and reversed from interest income if accrued in the current year. Interest income on non-accrual loans may be recognized to the extent cash payments are received, although the majority of payments received are usually applied to principal. Non-accrual loans are generally returned to accrual status when principal and interest payments are less than 90 days past due, the customer has made required payments for at least six months, and we reasonably expect to collect all principal and interest.
      Intangible Assets. Intangible assets consist of goodwill and core deposit intangibles. Goodwill represents the excess purchase price over the fair value of net assets acquired in business acquisitions. The core deposit intangible represents the excess intangible value of acquired deposit customer relationships as determined by

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valuation specialists. The core deposit intangibles are being amortized over 84 to 114 months on a straight-line basis. Goodwill is not amortized but rather is evaluated for impairment on at least an annual basis. We perform an annual impairment test of goodwill as required by SFAS No. 142, Goodwill and Other Intangible Assets, in the fourth quarter. No impairment of our goodwill has resulted from these annual impairment tests.
      Income Taxes. We use the liability method in accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based upon the difference between the values of the assets and liabilities as reflected in the financial statements and their related tax basis using enacted tax rates in effect for the year in which the differences are expected to be recovered or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. Any estimated tax exposure items identified would be considered in a tax contingency reserve. Changes in any tax contingency reserve would be based on specific development, events, or transactions.
      We and our subsidiaries file consolidated tax returns. Our subsidiaries provide for income taxes on a separate return basis, and remit to us amounts determined to be currently payable.
      Stock Options. Prior to 2006, we elected to follow Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25), and related interpretations in accounting for employee stock options using the fair value method. Under APB 25, because the exercise price of the options equals the estimated market price of the stock on the issuance date, no compensation expense is recorded. On January 1, 2006, we adopted SFAS No. 123, Share-Based Payment (Revised 2004) which establishes standards for the accounting for transactions in which an entity (i) exchanges its equity instruments for goods and services, or (ii) incurs liabilities in exchange for goods and services that are based on the fair value of the entity’s equity instruments or that may be settled by the issuance of the equity instruments. SFAS 123R eliminates the ability to account for stock-based compensation using APB 25 and requires that such transactions be recognized as compensation cost in the income statement based on their fair values on the measurement date, which is generally the date of the grant.
Acquisitions and Equity Investments
      On September 1, 2005, we acquired Mountain View Bancshares, Inc., an Arkansas bank holding company. Mountain View Bancshares owned The Bank of Mountain View, located in Mountain View, Arkansas which had total assets of $202.5 million, loans of $68.8 million and total deposits of $158.0 million on the date of the acquisition. The consideration for the merger was $44.1 million, which was paid approximately 90%, or $39.8 million, in cash and 10%, or $4.3 million, in shares of our common stock. As a result of this transaction, we recorded goodwill of $13.2 million and a core deposit intangible of $3.0 million.
      On June 1, 2005, we acquired Marine Bancorp, Inc., a Florida bank holding company. Marine Bancorp owned Marine Bank of the Florida Keys (subsequently renamed Marine Bank), located in Marathon, Florida, which had total assets of $257.6 million, loans of $215.2 million and total deposits of $200.7 million on the date of the acquisition. We also assumed debt obligations with carrying values of $39.7 million, which approximated their fair market values because the rates being paid on the obligations were at or near estimated current market rates. The consideration for the merger was $15.6 million comprised of approximately 60.5%, or $9.4 million, in cash and 39.5%, or $6.2 million, in shares of our Class B preferred stock. As a result of this transaction, we recorded goodwill of $4.6 million and a core deposit intangible of $2.0 million.
      On January 3, 2005, we purchased 20% of the common stock of White River Bancshares, Inc. of Fayetteville, Arkansas for $9.1 million. White River Bancshares is a newly formed corporation, which owns all of the stock of Signature Bank of Arkansas, with branch locations in northwest Arkansas. As of December 31, 2005, White River Bancshares had total assets of $184.7 million, loans of $131.3 million, and total deposits of $130.3 million. In January 2006, White River Bancshares issued an additional $15.0 million of common stock. To maintain our 20% ownership, we invested an additional $3.0 million in White River Bancshares at that time.
      Effective January 1, 2005, we purchased the remaining 67.8% of TCBancorp that we did not previously own. TCBancorp owned Twin City Bank, with branch locations in the Little Rock/ North Little Rock

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metropolitan area. The purchase brought our ownership of TCBancorp to 100%. TCBancorp had total assets of $633.4 million, loans of $261.9 million and total deposits of $500.1 million at the effective date of the acquisition. We also assumed debt obligations with carrying values of $20.9 million, which approximated their fair market values because the rates being paid on the obligations were at or near estimated current market rates. The purchase price for the TCBancorp acquisition was $43.9 million, which consisted of approximately $110,000 of cash and the issuance of 3,750,813 shares (split adjusted) of our common stock. As a result of this transaction, we recorded goodwill of $1.1 million and a core deposit intangible of $3.3 million. This transaction also increased our ownership of CB Bancorp and FirsTrust Financial Services to 100%, both of which we had previously co-owned with TCBancorp.
      On December 1, 2003, we used CB Bancorp (an acquisition subsidiary that we formed and co-owned, on an 80/20 basis, with TCBancorp) to purchase Community Financial Group, Inc. and its bank subsidiary, Community Bank. Community Bank had total assets of $326.2 million, loans of $199.5 million and total deposits of $279.6 million at the date of the acquisition. The purchase price for the Community Financial Group acquisition was $43.0 million and consisted of cash of $12.6 million from Home BancShares and $8.6 million from TCBancorp, and 2,176,291 shares of our Class A preferred stock at a value of $10 per share. We recorded goodwill of $18.6 million and a core deposit intangible of $5.0 million.
      On March 4, 2004, we sold one of the acquired branches of Community Bank to TCBancorp, which included loans of $5.9 million and deposits of $17.1 million. The negotiated purchase price for the branch was to equal 8% of the closing deposits sold plus the fair value of the physical assets. At the time of acquisition, the loans and deposits that were to be sold with the branch had not been identified. This is primarily due to the fact that the branch was in close proximity to the other branches of Community Bank. Community Bank had nine branches at the time of acquisition, all of which were within a 30-mile radius of each other. As a result, Community Bank had to review each one of its customers using that branch to determine which customers should be allocated to the branch to be sold. This process was not completed until February 2004. The amount of assets held for sale to TCBancorp as of December 31, 2003 was immaterial to our financial position.
      In February 2005, CB Bancorp merged into Home BancShares, and Community Bank thus became our wholly owned subsidiary.
Sale of Equity Investment in Russellville Bancshares
      On September 3, 2004, Russellville Bancshares repurchased the 21.7% equity interest that we had originally acquired in 2001. As a result of this sale, we recorded a pre-tax gain of $4.4 million or an after-tax gain of $2.7 million. This gain increased diluted earnings per share by $0.27 for the year ended December 31, 2004.
      Excluding the gain associated with the sale of our interest in Russellville Bancshares, our net income for the year ended December 31, 2004, was $6.5 million, or $0.67 diluted earnings per share.
Results of Operations for the Three Months Ended March 31, 2006 and 2005, and the Years Ended December 31, 2005, 2004 and 2003
      Performance Summary for the Three Months Ended March 31, 2006 and 2005. Our net income increased $1.3 million, or 60.6%, to $3.5 million for the three-month period ended March 31, 2006, from $2.2 million for the same period in 2005. On a diluted earnings per share basis, our net earnings increased 50.0% to $0.24 for the three-month period ended March 31, 2006, as compared to $0.16 for the same period in 2005. The increase in earnings is primarily associated with our acquisitions of Marine Bancorp, Inc. and Mountain View Bancshares during the second and third quarters of 2005, respectively, combined with organic growth of our bank subsidiaries.
      Performance Summary for the Years Ended December 31, 2005, 2004 and 2003. Our net income increased $2.3 million, or 25.0%, to $11.4 million for the year ended December 31, 2005, from $9.2 million for 2004. Our net income increased $5.4 million, or 143.0%, to $9.2 million for the year ended December 31, 2004, from $3.8 million for 2003. The increase in earnings is primarily associated with our acquisitions during

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2005, combined with organic growth of our bank subsidiaries. In 2004, our net income included a gain on the sale of our equity investment in Russellville Bancshares. Excluding this after-tax gain of $2.7 million, net income for 2005 would have increased $5.0 million, or 75.4%. The increase in our net income for 2004 as compared to 2003 resulted from: (i) our acquisition of Community Financial Group in December 2003; (ii) a gain of $2.7 million in 2004; and (iii) the organic growth of our bank subsidiaries’ earnings.
      On a diluted earnings per share basis, our net earnings were $0.82 for 2005, as compared to $0.94 for 2004 and $0.63 for 2003. The decrease in diluted earnings per share for 2005 is primarily due to the effect of a after-tax gain of $0.27 per diluted share from the sale of our equity ownership in Russellville Bancshares during the third quarter of 2004, and a 42.0% increase in the average diluted shares outstanding for the year ended December 31, 2005, versus the same period in 2004. This increase in average diluted shares was the result of the shares issued in connections with our acquisitions in 2005.
      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 affecting the level of net interest income include the volume of earning assets and interest-bearing liabilities, yields earned on loans and investments and rates paid on deposits and other borrowings, 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.
      Net interest income on a fully taxable equivalent basis increased $5.0 million, or 48.7%, to $15.4 million for the three-month period ended March 31, 2006, from $10.4 million for the same period in 2005. This increase in net interest income was the result of an $11.6 million increase in interest income offset by $6.6 million increase in interest expense. The $11.6 million increase in interest income was primarily the result of a $456.0 million increase in average earning assets associated with our acquisitions of Marine Bancorp, Inc. and Mountain View Bancshares, Inc. during the second and third quarter of 2005, respectively, combined with higher short-term interest rates as a result of the rising rate environment. The higher level of earning assets resulted in an improvement in interest income of $7.9 million, and the rising rate environment resulted in a $3.7 million increase in interest income for the three-month period ended March 31, 2006. The $6.6 million increase in interest expense for the three-month period ended March 31, 2006, is primarily the result of a $382.6 million increase in average interest-bearing liabilities associated with our acquisitions of Marine Bancorp, Inc. and Mountain View Bancshares, Inc. during the second and third quarter of 2005, respectively, combined with higher interest rates during 2005 as a result of the rising rate environment. The higher level of interest-bearing liabilities resulted in additional interest expense of $3.0 million. The rising rate environment resulted in a $3.6 million increase in interest expense for the three-month period ended March 31, 2006.
      Net interest income on a fully taxable equivalent basis increased $25.3 million, or 97.3%, to $51.2 million for the year ended December 31, 2005, from $26.0 million for 2004. This increase in net interest income was the result of a $49.7 million increase in interest income offset by $24.4 million increase in interest expense. The $49.7 million increase in interest income for the year ended December 31, 2005, is primarily the result of a $788.5 million increase in average earning assets associated with our acquisitions during 2005, combined with higher short-term interest rates as a result of the rising rate environment. The higher level of earning assets resulted in an improvement in interest income of $46.3 million. The rising rate environment resulted in a $3.4 million increase in interest income during 2005. The $24.4 million increase in interest expense for the year ended December 31, 2005, is primarily the result of a $686.5 million increase in average interest-bearing liabilities associated with our acquisitions during 2005, combined with higher interest rates during 2005 as a result of the rising rate environment. The higher level of interest-bearing liabilities resulted in additional interest expense of $17.3 million. The rising rate environment resulted in a $7.1 million increase in interest expense during 2005.
      Net interest income on a fully taxable equivalent basis increased $12.6 million, or 93.9%, to $26.0 million for the year ended December 31, 2004, from $13.4 million for 2003. This increase in net interest income was the result of a $15.9 million increase in interest income and a $3.3 million increase in interest expense. The

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$15.9 million increase in interest income for the year ended December 31, 2004, is primarily the result of a $307.2 million increase of average earning assets due to the December 2003 acquisition of Community Financial Group, combined with our internal growth. The higher level of earning assets resulted in an improvement in interest income of $16.3 million. The $3.3 million increase in interest expense for the year ended December 31, 2004, is primarily the result of a $228.9 million increase in average interest-bearing liabilities associated with the acquisition of Community Financial Group, combined with our internal growth. The higher level of interest-bearing liabilities resulted in additional interest expense of $4.2 million.
      Tables 1 and 2 reflect an analysis of net interest income on a fully taxable equivalent basis for the three-month periods ended March 31, 2006 and 2005, and the years ended December 31, 2005, 2004 and 2003, as well as changes in fully taxable equivalent net interest margin for the three-month period ended March 31, 2006, compared to the same period in 2005, and the years 2005 compared to 2004 and 2004 compared to 2003.
Table 1: Analysis of Net Interest Income
                                         
    Three Months Ended    
    March 31,   Years Ended December 31,
         
    2006   2005   2005   2004   2003
                     
    (Dollars in thousands)
Interest income
  $ 27,734     $ 16,361     $ 85,458     $ 36,681     $ 21,538  
Fully taxable equivalent adjustment
    583       343       1,790       874       95  
                               
Interest income — fully taxable equivalent
    28,317       16,704       87,248       37,555       21,633  
Interest expense
    12,928       6,355       36,002       11,580       8,240  
                               
Net interest income — fully taxable equivalent
  $ 15,389     $ 10,349     $ 51,246     $ 25,975     $ 13,393  
                               
Yield on earning assets — fully taxable equivalent
    6.50 %     5.20 %     5.74 %     5.42 %     5.61 %
Cost of interest-bearing liabilities
    3.39       2.31       2.75       2.00       2.36  
Net interest spread — fully taxable equivalent
    3.11       2.89       2.99       3.42       3.25  
Net interest margin — fully taxable equivalent
    3.53       3.22       3.37       3.75       3.47  
Table 2: Changes in Fully Taxable Equivalent Net Interest Margin
                         
        December 31,
    March 31,    
    2006 vs. 2005   2005 vs. 2004   2004 vs. 2003
             
    (In thousands)
Increase in interest income due to change in earning assets
  $ 7,951     $ 46,333     $ 16,267  
Increase (decrease) in interest income due to change in earning asset yields
    3,662       3,360       (344 )
Increase in interest expense due to change in interest-bearing liabilities
    3,032       17,339       4,166  
Increase (decrease) in interest expense due to change in interest rates paid on interest-bearing liabilities
    3,541       7,083       (826 )
                   
Increase in net interest income
  $ 5,040     $ 25,271     $ 12,583  
                   

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      Table 3 shows, for each major category of earning assets and interest-bearing liabilities, the average amount outstanding, the interest income or expense on that amount and the average rate earned or expensed for the three-month periods ended March 31, 2006 and 2005, and the years ended December 31, 2005, 2004 and 2003. 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. Non-accrual 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
                                                     
    Three Months Ended March 31,
     
    2006   2005
         
    Average   Income/   Yield/   Average   Income/   Yield/
    Balance   Expense   Rate   Balance   Expense   Rate
                         
    (Dollars in thousands)
ASSETS
                                               
Earning assets
                                               
Interest-bearing balances due from banks
  $ 3,706     $ 41       4.49 %   $ 2,204     $ 8       1.47 %
Federal funds sold
    14,477       159       4.45       1,036       6       2.35  
Investment securities — taxable
    430,121       4,725       4.46       458,658       4,241       3.75  
Investment securities — non-taxable
    92,627       1,510       6.61       53,922       823       6.19  
Loans receivable
    1,224,871       21,882       7.25       787,251       11,626       5.99  
                                     
 
Total interest-earning assets
    1,765,802       28,317       6.50       1,303,071       16,704       5.20  
                                     
Non-earning assets
    169,399                       116,190                  
                                     
 
Total assets
  $ 1,935,201                     $ 1,419,261                  
                                     
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities
                                               
Interest-bearing liabilities
                                               
Interest-bearing transaction and savings deposits
  $ 520,287     $ 2,739       2.14     $ 370,843     $ 1,263       1.38  
Time deposits
    715,790       6,790       3.85       541,163       3,432       2.57  
                                     
 
Total interest-bearing deposits
    1,236,077       9,529       3.13       912,006       4,695       2.09  
Federal funds purchased
    26,469       304       4.66       19,637       122       2.52  
Securities sold under agreement to repurchase
    99,344       870       3.55       68,911       458       2.70  
FHLB and other borrowed funds
    137,796       1,476       4.34       90,124       681       3.06  
Subordinated debentures
    44,746       749       6.79       24,216       399       6.68  
                                     
 
Total interest-bearing liabilities
    1,544,432       12,928       3.39       1,114,894       6,355       2.31  
                                     
Non-interest bearing liabilities
                                               
 
Non-interest-bearing deposits
    213,135                       143,485                  
 
Other liabilities
    10,067                       10,194                  
                                     
   
Total liabilities
    1,767,634                       1,268,573                  
Shareholders’ equity
    167,567                       150,688                  
                                     
 
Total liabilities and shareholders’ equity
  $ 1,935,201                     $ 1,419,261                  
                                     
Net interest spread
                    3.11 %                     2.89 %
Net interest income and margin
          $ 15,389       3.53             $ 10,349       3.22  
                                     

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    Years Ended December 31,
     
    2005   2004   2003
             
    Average   Income/   Yield/   Average   Income/   Yield/   Average   Income/   Yield/
    Balance   Expense   Rate   Balance   Expense   Rate   Balance   Expense   Rate
                                     
    (Dollars in thousands)
ASSETS
                                                                       
Earning assets
                                                                       
Interest-bearing balances due from banks
  $ 3,159     $ 101       3.20 %   $ 2,788     $ 38       1.36 %   $ 699     $ 8       1.14 %
Federal funds sold
    8,048       284       3.53       16,902       158       0.93       13,562       159       1.17  
Investment securities — taxable
    442,168       17,103       3.87       144,446       5,764       3.99       48,350       1,584       3.28  
Investment securities — non-taxable
    66,960       4,301       6.42       34,945       2,331       6.67       4,277       276       6.45  
Loans receivable
    1,000,906       65,459       6.54       493,969       29,264       5.92       318,975       19,606       6.15  
                                                       
 
Total interest-earning assets
    1,521,241       87,248       5.74       693,050       37,555       5.42       385,863       21,633       5.61  
                                                       
Non-earning assets
    137,601                       89,355                       55,302                  
                                                       
 
Total assets
  $ 1,658,842                     $ 782,405                     $ 441,165                  
                                                       
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
 
Liabilities                                                                        
Interest-bearing liabilities
                                                                       
Interest-bearing transaction and savings deposits
  $ 447,433     $ 8,267       1.85 %   $ 192,426     $ 1,435       0.75 %   $ 89,250     $ 781       0.88 %
Time deposits
    624,692       18,616       2.98       281,391       6,171       2.19       187,734       4,919       2.62  
                                                       
   
Total interest-bearing deposits
    1,072,125       26,883       2.51       473,817       7,606       1.61       276,984       5,700       2.06  
Federal funds purchased
    13,996       399       2.85       10,773       159       1.48       1,307       29       2.22  
Securities sold under agreement to repurchase
    85,876       2,657       3.09       23,068       407       1.76       22,859       256       1.12  
FHLB and other borrowed funds
    109,323       4,046       3.70       46,837       1,840       3.93       32,596       1,220       3.74  
Subordinated debentures
    29,408       2,017       6.86       24,219       1,568       6.47       16,075       1,035       6.44  
                                                       
   
Total interest-bearing liabilities
    1,310,728       36,002       2.75       578,714       11,580       2.00       349,821       8,240       2.36  
                                                       
Non-interest-bearing liabilities
                                                                       
 
Non-interest-bearing deposits
    177,511                       79,907                       37,038                  
 
Other liabilities
    13,125                       17,368                       11,875                  
                                                       
   
Total liabilities
    1,501,364                       675,989                       398,734                  
Shareholders’ equity
    157,478                       106,416                       42,431                  
                                                       
 
Total liabilities and shareholders’ equity
  $ 1,658,842                     $ 782,405                     $ 441,165                  
                                                       
Net interest spread
                    2.99 %                     3.42 %                     3.25 %
Net interest income and margin
          $ 51,246       3.37             $ 25,975       3.75             $ 13,393       3.47  
                                                       

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      Table 4 shows changes in interest income and interest expense resulting from changes in volume and changes in interest rates for the three-month period ended March 31, 2006 compared to the same period in 2005, and the year ended December 31, 2005, compared to 2004, and 2004 compared to 2003, on a fully taxable basis. The changes in interest rate and volume have been allocated to changes in average volume and changes in average rates, in proportion to the relationship of absolute dollar amounts of the changes in rates and volume.
Table 4: Volume/ Rate Analysis
                           
    Three Months Ended March 31,
    2006 over 2005
     
    Volume   Yield/Rate   Total
             
    (In thousands)
Increase (decrease) in:
                       
Interest income:
                       
 
Interest-bearing balances due from banks
  $ 8     $ 25     $ 33  
 
Federal funds sold
    144       9       153  
 
Investment securities — taxable
    (276 )     760       484  
 
Investment securities — non-taxable
    628       59       687  
 
Loans receivable
    7,447       2,809       10,256  
                   
 
Total interest income
    7,951       3,662       11,613  
                   
Interest expense:
                       
 
Interest-bearing transaction and savings deposits
    627       849       1,476  
 
Time deposits
    1,324       2,034       3,358  
 
Federal funds purchased
    52       130       182  
 
Securities sold under agreement to repurchase
    240       172       412  
 
FHLB and other borrowed funds
    445       350       795  
 
Subordinated debentures
    344       6       350  
                   
 
Total interest expense
    3,032       3,541       6,573  
                   
Increase (decrease) in net interest income
  $ 4,919     $ 121     $ 5,040  
                   
                                                   
    Years Ended December 31,
     
    2005 over 2004   2004 over 2003
         
        Yield/           Yield/    
    Volume   Rate   Total   Volume   Rate   Total
                         
    (In thousands)
Increase (decrease) in:
                                               
Interest income:
                                               
 
Interest-bearing balances due from banks
  $ 6     $ 57     $ 63     $ 28     $ 2     $ 30  
 
Federal funds sold
    (120 )     246       126       35       (36 )     (1 )
 
Investment securities — taxable
    11,521       (182 )     11,339       3,767       413       4,180  
 
Investment securities — non-taxable
    2,059       (89 )     1,970       2,046       9       2,055  
 
Loans receivable
    32,867       3,328       36,195       10,391       (732 )     9,659  
                                     
 
Total interest income
    46,333       3,360       49,693       16,267       (344 )     15,923  
                                     

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    Years Ended December 31,
     
    2005 over 2004   2004 over 2003
         
        Yield/           Yield/    
    Volume   Rate   Total   Volume   Rate   Total
                         
    (In thousands)
Interest expense:
                                               
 
Interest-bearing transaction and savings deposits
    3,231       3,601       6,832       785       (131 )     654  
 
Time deposits
    9,616       2,829       12,445       2,153       (901 )     1,252  
 
Federal funds purchased
    59       181       240       143       (13 )     130  
 
Securities sold under agreement to repurchase
    1,762       488       2,250       2       149       151  
 
FHLB and other borrowed funds
    2,319       (113 )     2,206       556       64       620  
 
Subordinated debentures
    352       97       449       527       6       533  
                                     
 
Total interest expense
    17,339       7,083       24,422       4,166       (826 )     3,340  
                                     
Increase (decrease) in net interest income
  $ 28,994     $ (3,723 )   $ 25,271     $ 12,101     $ 482     $ 12,583  
                                     
      Provision for Loan Losses. Our management assesses the adequacy of the allowance for loan losses by applying the provisions of Statement of Financial Accounting Standards No. 5 and No. 114. Specific allocations are determined for loans considered to be impaired and loss factors are assigned to the remainder of the loan portfolio to determine an appropriate level in the allowance for loan losses. The allowance is increased, as necessary, by making a provision for loan losses. The specific allocations for impaired loans are assigned based on an estimated net realizable value after a thorough review of the credit relationship. The potential loss factors associated with the remainder of the loan portfolio are based on an internal net loss experience, as well as management’s review of trends within the portfolio and related industries.
      Generally, commercial, commercial real estate, and residential real estate loans are assigned a level of risk at origination. Thereafter, these loans are reviewed on a regular basis. The periodic reviews generally include loan payment and collateral status, the borrowers’ financial data, and key ratios such as cash flows, operating income, liquidity, and leverage. A material change in the borrower’s credit analysis can result in an increase or decrease in the loan’s assigned risk grade. Aggregate dollar volume by risk grade is monitored on an ongoing basis.
      Our management reviews certain key loan quality indicators on a monthly basis, including current economic conditions, delinquency trends and ratios, portfolio mix changes, and other information management deems necessary. This review process provides a degree of objective measurement that is used in conjunction with periodic internal evaluations. To the extent that this review process yields differences between estimated and actual observed losses, adjustments are made to the loss factors used to determine the appropriate level of the allowance for loan losses.
      The provision for loan losses represents management’s determination of the amount necessary to be charged against the current period’s earnings, to maintain the allowance for loan losses at a level that is considered adequate in relation to the estimated risk inherent in the loan portfolio. The provision was $484,000 for the three-month period ended March 31, 2006, $3.8 million for the year ended December 31, 2005, $2.3 million for 2004, and $807,000 for 2003.
      Our provision for loan losses decreased $567,000, or 53.9%, to $484,000 for the three-month period ended March 31, 2006, from $1.1 million for the same period in 2005. The decrease in the provision is primarily associated with the decrease in non-performing loans to $8.2 million as of March 31, 2006 from $10.1 million as of March 31, 2005.

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      Our provision for loan losses increased $1.5 million, or 67.1%, to $3.8 million for the year ended December 31, 2005, from $2.3 million for 2004. The increase in the provision is primarily associated with our acquisitions during 2005 as a result of their continued loan growth, combined with a charge of $450,000 to the provision expense due to Hurricane Wilma that affected the Florida Keys during the fourth quarter of 2005. This expense was established based on management’s best estimate of the hurricane’s impact on the loan portfolio using currently available information. It is too early to determine with certainty the full extent of the impact, therefore the estimate is based on judgment and subject to change. Management will continue to carefully assess and review the exposure of the loan portfolio to hurricane-related factors.
      Our provision increased $1.5 million, or 183.8%, to $2.3 million for the year ended December 31, 2004, from $807,000 in 2003. The increase in the provision is primarily associated with the acquisition of Community Financial Group during the fourth quarter of 2003, combined with losses related to a former loan officer’s portfolio. The loans originated by the former loan officer were primarily agricultural and related farmland, and involved inadequate underwriting and excessive policy exceptions, among other issues.
      Non-Interest Income. Total non-interest income was $4.4 million for the three-month period ended March 31, 2006 compared to $3.8 million for the same period in 2005. Total non-interest income was $15.7 million in 2005, compared to $18.1 million in 2004 and $6.7 million in 2003. Our non-interest income includes service charges on deposit accounts, other service charges and fees, trust fees, data processing fees, mortgage banking income, insurance commissions, income from title services, equity in income of unconsolidated affiliates and other income.
      Table 5 measures the various components of our non-interest income for the three-month period ended March 31, 2006 and 2005 and the years ended December 31, 2005, 2004, and 2003, respectively, as well as changes for the three-month period ended March 31, 2006 compared to the same period in 2005, and the years 2005 compared to 2004 and 2004 compared to 2003.
Table 5: Non-Interest Income
                                   
    Three Months        
    Ended March 31,    
        2006 Change
    2006   2005   from 2005
             
    (Dollars in thousands)
Service charges on deposit accounts
  $ 2,052     $ 1,692     $ 360       21.3 %
Other service charges and fees
    611       438       173       39.5  
Trust fees
    152       118       34       28.8  
Data processing fees
    193       106       87       82.1  
Mortgage banking income
    411       292       119       40.8  
Insurance commissions
    284       241       43       17.8  
Income from title services
    237       144       93       64.6  
Increase in cash value of life insurance
    51       64       (13 )     (20.3 )
Equity in loss of unconsolidated affiliates
    (116 )           (116 )     100.0  
Gain on securities and loans, net
    34       187       (153 )     (81.8 )
Other income
    492       531       (39 )     (7.3 )
                         
 
Total non-interest income
  $ 4,401     $ 3,813     $ 588       15.4 %
                         

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    Years Ended December 31,   2005   2004
        Change from   Change from
    2005   2004   2003   2004   2003
                     
    (Dollars in thousands)
Service charges on deposit accounts
  $ 8,319     $ 5,914     $ 2,254     $ 2,405       40.7 %   $ 3,660       162.4 %
Other service charges and fees
    2,099       959       474       1,140       118.9       485       102.3  
Trust fees
    458       158       14       300       189.9       144       1,028.6  
Data processing fees
    668       1,564       1,378       (896 )     (57.3 )     186       13.5  
Mortgage banking income
    1,651       1,188       1,220       463       39.0       (32 )     (2.6 )
Insurance commissions
    674       631       22       43       6.8       609       2,768.2  
Income from title services
    823       1,110       81       (287 )     (25.9 )     1,029       1,270.4  
Increase in cash value of life insurance
    256       244       13       12       4.9       231       1,776.9  
Equity in income (loss) of unconsolidated affiliates
    (592 )     1,560       937       (2,152 )     (137.9 )     623       66.5  
Gain on sale of equity investment
    465       4,410             (3,945 )     (89.5 )     4,410        
(Loss) gain on securities and loans, net
    (10 )     (223 )     135       213       (95.5 )     (358 )     (265.2 )
Other income
    876       576       211       300       52.1       365       173.0  
                                           
 
Total non-interest income
  $ 15,687     $ 18,091     $ 6,739     $ (2,404 )     (13.3 )%   $ 11,352       168.5 %
                                           
      Non-interest income increased $588,000, or 15.4%, to $4.4 million for the three-month period ended March 31, 2006 from $3.8 million for the same period in 2005. The primary factors that resulted in the increase include:
  •  The $533,000 aggregate increase in service charges on deposit accounts and other service charges and fees was primarily a result of our acquisitions of Marine Bancorp and Mountain View Bancshares in the second and third quarters of 2005, respectively, combined with organic growth of our other bank subsidiaries’ service charges.
 
  •  The $87,000 increase in data processing fees was related to the data processing fees associated with White River Bancshares, which began banking operations in May 2005.
 
  •  The $119,000 increase in mortgage banking revenue was primarily the result of the acquisition of Marine Bancorp in the second quarter of 2005.
 
  •  The $170,000 aggregate increase in trust fees, insurance commissions and title fees was primarily a result of our organic growth in those product lines.
 
  •  The equity in loss of unconsolidated affiliate of $116,000 is related to the 20% interest in White River Bancshares that we purchased during 2005. Because the investment in White River Bancshares is accounted for on the equity method, we recorded our share of White River Bancshares’ operating loss.
 
  •  The $153,000 decrease in the gain on securities and loans between March 31, 2005 and March 31, 2006 is primarily related to gains resulting from the sale of SBA loan products originated by us. The gain from the sale of SBA loans was $34,000 for the three-month period ended March 31, 2006, compared to $230,000 for the same period in 2005.
      Non-interest income decreased $2.4 million, or 13.3%, to $15.7 million for the year ended December 31, 2005 from $18.1 million in 2004. The primary factors that resulted in the decrease from 2004 to 2005 include:
  •  The $3.8 million aggregate increase in service charges on deposit accounts, other service charges and fees, and trust fees was primarily a result of our acquisitions during 2005, combined with organic growth of our bank subsidiaries’ earnings.

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  •  The $896,000 decrease in data processing fees was primarily associated with the acquisition of TCBancorp. Prior to acquiring complete ownership of TCBancorp, we performed its data processing functions and received fees for this service. We continue to receive data processing fees from White River Bancshares and certain other non-affiliated banks.
 
  •  The rising interest rate environment during 2005 resulted in decreased mortgage production volumes for the mortgage industry as compared to 2004. While we experienced an increase of $463,000 in this revenue source, the increase primarily resulted from the additional $757,000 mortgage banking revenues associated with the acquisitions of TCBancorp and Marine Bancorp during 2005.
 
  •  The $287,000 decrease in title fees is primarily associated with lower demand for title fees as a result of the decrease in mortgage production volume associated with the rising interest rate environment in 2005.
 
  •  The $2.2 million decrease in equity in income of unconsolidated affiliates is the result of acquiring 100% ownership in TCBancorp effective as of January 1, 2005, combined with the $592,000 loss associated with the 20% interest in White River Bancshares that we purchased during 2005. Because the investment in White River Bancshares is accounted for on the equity method, we recorded our share of White River Bancshares’ operating loss. White River Bancshares is currently operating at a loss as a result of their status as a start-up entity.
 
  •  The $3.9 million decrease in gain on sale of equity investment for 2005 is primarily associated with a $4.4 million pre-tax gain recorded in the third quarter of 2004 from the sale of our equity ownership in Russellville Bancshares. During the third quarter of 2005, we recognized a $465,000 gain on sale of an equity investment. This gain was deferred as a result of our financing the purchase price for this transaction. The gain became recognizable during 2005 as a result of the financing being paid off.
 
  •  The difference in the loss on securities and loans between 2004 and 2005 is primarily associated with specific transactions for each year. During 2004, a loss of $313,000 was recorded for write-downs for other-than-temporary losses in our investment portfolio, offset by $64,000 of gains from the sale of investment securities and a $26,000 gain resulting from the sale of our SBA loan product. In 2005, we made a strategic decision to sell lower-yielding investment securities, resulting in a loss of approximately $539,000. This loss was largely offset by approximately $529,000 in gains resulting from the sale of our SBA loan product.
 
  •  The $300,000 increase in other income is primarily associated with a $324,000 gain from proceeds associated with fire damage at one of our branch banking locations during 2005.
      Non-interest income increased $11.4 million, or 168.5%, to $18.1 million for the year ended December 31, 2004, from $6.7 million in 2003. The increase is primarily associated with a $4.4 million pre-tax gain from selling our equity ownership of Russellville Bancshares during the third quarter of 2004, combined with the Community Financial Group acquisition and our internal growth. The Community Financial Group acquisition also included two non-banking subsidiaries, Community Insurance and Community Title Service, which provided new sources of non-interest income during 2004.
      Non-Interest Expense. Non-interest expense consists of salary and employee benefits, occupancy, equipment, data processing, and other expenses such as advertising, core deposit amortization, legal and accounting fees, other professional fees, operating supplies and postage.

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      Table 6 below sets forth a summary of non-interest expense for the three-month periods ended March 31, 2006 and 2005, and the years ended December 31, 2005, 2004, and 2003, as well as changes for the three-month period ended March 31, 2006 compared to the same period in 2005, and the years ended 2005 compared to 2004 and 2004 compared to 2003.
Table 6: Non-Interest Expense
                                     
    Three Months Ended    
    March 31,   2006
        Change from
    2006   2005   2005
             
    (Dollars in thousands)
Salaries and employee benefits
  $ 7,348     $ 5,260     $ 2,088       39.7 %
Occupancy and equipment
    2,005       1,492       513       34.4  
Data processing expense
    567       433       134       30.9  
Other operating expenses
                               
 
Advertising
    558       466       92       19.7  
 
Amortization of intangibles
    425       309       116       37.5  
 
ATM expense
    118       100       18       18.0  
 
Directors’ fees
    204       86       118       137.2  
 
Due from bank service charges
    70       74       (4 )     (5.4 )
 
FDIC and state assessment
    125       122       3       2.5  
 
Insurance
    223       136       87       64.0  
 
Legal and accounting
    282       176       106       60.2  
 
Other professional fees
    134       106       28       26.4  
 
Operating supplies
    229       150       79       52.7  
 
Postage
    163       121       42       34.7  
 
Telephone
    220       123       97       78.9  
 
Other expense
    948       482       466       96.7  
                         
   
Total non-interest expense
  $ 13,619     $ 9,636     $ 3,983       41.3 %
                         

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    Years Ended December 31,   2005   2004
        Change from   Change from
    2005   2004   2003   2004   2003
                     
    (Dollars in thousands)
Salaries and employee benefits
  $ 23,901     $ 14,123     $ 7,139     $ 9,778       69.2 %   $ 6,984       97.8 %
Occupancy and equipment
    6,869       3,750       1,659       3,119       83.2       2,091       126.0  
Data processing expense
    1,991       1,170       893       821       70.2       277       31.0  
Other operating expenses
                                                       
 
Advertising
    2,067       900       774       1,167       129.7       126       16.3  
 
Amortization of intangibles
    1,466       728       63       738       101.4       665       1,055.6  
 
ATM expense
    427       372       237       55       14.8       135       57.0  
 
Directors’ fees
    505       210       73       295       140.5       137       187.7  
 
Due from bank service charges
    284       197       108       87       44.2       89       82.4  
 
FDIC and state assessment
    503       301       155       202       67.1       146       94.2  
 
Insurance
    504       344       193       160       46.5       151       78.2  
 
Legal and accounting
    941       452       204       489       108.2       248       121.6  
 
Other professional fees
    534       493       315       41       8.3       178       56.5  
 
Operating supplies
    745       530       336       215       40.6       194       57.7  
 
Postage
    580       404       183       176       43.6       221       120.8  
 
Telephone
    669       377       153       292       77.5       224       146.4  
 
Other expense
    2,949       1,780       585       1,169       65.7       1,195       204.3  
                                           
 
Total non-interest expense
  $ 44,935     $ 26,131     $ 13,070     $ 18,804       72.0 %   $ 13,061       99.9 %
                                           
      Non-interest expense increased $4.0 million, or 41.3%, to $13.6 million for the three-month period ended March 31, 2006, from $9.6 million for the same period in 2005. The increase is primarily related to our acquisitions of Marine Bancorp and Mountain View Bancshares in the second and third quarters of 2005, respectively. The most significant component of the increase was the $2.1 million increase in salaries and employee benefits. This $2.1 million increase was primarily the result of $1.8 million of additional staffing and $116,000 of options-related expense due to the adoption of SFAS 123R.
      Non-interest expense increased $18.8 million, or 72.0%, to $44.9 million for the year ended December 31, 2005, from $26.1 million in 2004. The increase is related to our acquisitions of TCBancorp, Marine Bancorp and Mountain View Bancshares combined with a modest increase in staffing, particularly at the holding company level.
      Non-interest expense increased $13.1 million, or 99.9%, to $26.1 million for the year ended December 31, 2004, from $13.1 million in 2003. The increase was primarily the result of our acquisition of Community Financial Group in December 2003.
      Amortization of intangibles expense was $1.5 million for the year ended December 31, 2005, $728,000 for 2004, and $63,000 for 2003. The increase was caused by our increase in core deposit intangibles created when we completed each of our acquisitions. Including all of the mergers completed, our estimated amortization of intangibles expense for each of the following five years is $1.8 million.
      Income Taxes. The provision for income taxes increased $645,000, or 68.4%, to $1.6 million for the three-month period ended March 31, 2006, from $943,000 as of March 31, 2005. The provision for income taxes decreased $95,000, or 1.9%, to $4.9 million for the year ended December 31, 2005, from $5.0 million in 2004. The provision for income taxes increased $2.6 million, or 114.7%, to $5.0 million for the year ended December 31, 2004, from $2.3 million for 2003. The effective income tax rate was 31.1% for the three-month period ended March 31, 2006, compared to 30.1% for the same period in 2005. The effective tax rate for the years ended December 31, 2005, 2004 and 2003 were 30.1%, 34.1%, and 38.0%, respectively. The declining

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effective income tax rates for the years ended are primarily associated with the lower effective income tax rates associated with the acquisitions of Community Financial Group, TCBancorp, and Mountain View Bancshares.
Financial Conditions as of and for the Quarters Ended March 31, 2006 and 2005 and the Years Ended December 31, 2005 and 2004
      Our total assets increased $59.4 million, or 3.1%, to $2.0 billion as of March 31, 2006, from $1.9 billion as of December 31, 2005. Our loan portfolio increased $41.6 million, or 3.4%, to $1.2 billion as of March 31, 2006, from December 31, 2005. Shareholders’ equity increased $3.2 million, or 1.9%, to $169.0 million as of March 31, 2006, compared to $165.9 million as of December 31, 2005. All of these increases are primarily associated with organic growth of our bank subsidiaries.
      Our total assets increased $1.1 billion, or 137.4%, to $1.9 billion as of December 31, 2005, from $805.2 million as of December 31, 2004. Our loans receivable increased $687.9 million, or 133.2%, to $1.2 billion as of December 31, 2005, from $516.7 million as of December 31, 2004. Shareholders’ equity increased $59.2 million, or 55.6%, to $165.9 million as of December 31, 2005, compared to $106.6 million as of December 31, 2004. All of these increases resulted from organic growth.
Loan Portfolio
      Our loan portfolio averaged $1.2 billion during the first quarter of 2006, $1.0 billion during 2005 and $494.0 million during 2004. Net loans were $1.2 billion as of March 31, 2006 and December 31, 2005, compared to $500.3 million as of December 31, 2004. The most significant components of the loan portfolio were commercial and residential real estate, real estate construction, consumer, and commercial and industrial loans. These loans are primarily originated within our market areas of central Arkansas, north central Arkansas and the Florida Keys and are generally secured by residential or commercial real estate or business or personal property within our market areas.

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      Table 7 presents our loan balances by category as of the dates indicated.
Table 7: Loan Portfolio
                                                     
        As of December 31,
    As of March 31,    
    2006   2005   2004   2003   2002   2001
                         
    (In thousands)
Real estate:
                                               
 
Commercial real estate loans:
                                               
   
Non-farm/non-residential
  $ 422,618     $ 411,839     $ 181,995     $ 173,743     $ 91,352     $ 69,876  
   
Construction/land development
    331,532       291,515       116,935       74,138       37,969       22,834  
   
Agricultural
    13,197       13,112       12,912       5,065       5,024       3,651  
 
Residential real estate loans:
                                               
   
Residential 1-4 family
    220,273       221,831       86,497       79,246       58,899       49,548  
   
Multifamily residential
    36,425       34,939       17,708       16,654       6,255       5,778  
                                     
Total real estate
    1,024,045       973,236       416,047       348,846       199,499       151,687  
Consumer
    39,599       39,447       24,624       31,546       22,632       25,733  
Commercial and industrial
    166,025       175,396       69,345       102,350       46,555       47,733  
Agricultural
    8,287       8,466       6,275       14,409       16,078       10,546  
Other
    8,190       8,044       364       2,904              
                                     
   
Total loans receivable
    1,246,146       1,204,589       516,655       500,055       284,764       235,699  
Less: Allowance for loan losses
    24,435       24,175       16,345       14,717       5,706       3,847  
                                     
   
Total loans receivable, net
  $ 1,221,711     $ 1,180,414     $ 500,310     $ 485,338     $ 279,058     $ 231,852  
                                     
      Commercial Real Estate Loans. We originate non-farm and non-residential loans (primarily secured by commercial real estate), construction/land development loans, and agricultural loans, which are generally secured by real estate located in our market areas. As of March 31, 2006, less than 5% of our loans were made on raw land. Our commercial mortgage loans are generally collateralized by first liens on real estate and amortized over a 10 to 20 year period with balloon payments due at the end of one to five years. These loans are generally underwritten by addressing cash flow (debt service coverage), primary and secondary source of repayment, the financial strength of any guarantor, the strength of the tenant (if any), the borrower’s liquidity and leverage, management experience, ownership structure, economic conditions and industry specific trends and collateral. Generally, we will loan up to 85% of the value of improved property, 65% of the value of raw land and 75% of the value of land to be acquired and developed. A first lien on the property and assignment of lease is required if the collateral is rental property, with second lien positions considered on a case-by-case basis.
      As of March 31, 2006, commercial real estate loans totaled $767.3 million, or 61.6% of our loan portfolio, compared to $716.5 million, or 59.5% of our loan portfolio, as of December 31, 2005. This increase is primarily the result of organic growth of our loan portfolio and the reclassification of several large loans, which refinanced during the first quarter of 2006 and were reclassified into commercial real estate from commercial and industrial as a result of a change in the collateral.
      As of December 31, 2005, commercial real estate loans totaled $716.5 million, or 59.5% of our loan portfolio, compared to $311.8 million, or 60.4% of our loan portfolio, as of December 31, 2004. This increase is primarily the result of our acquisitions during 2005, combined with organic growth of our loan portfolio.
      Residential Real Estate Loans. We originate one to four family, owner occupied residential mortgage loans generally secured by property located in our primary market area. The majority of our residential mortgage loans consist of loans secured by owner occupied, single family residences. Residential real estate

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loans generally have a loan-to-value ratio of up to 90%. These loans are underwritten by giving consideration to the borrower’s ability to pay, stability of employment or source of income, debt-to-income ratio, credit history and loan-to-value ratio.
      As of March 31, 2006, we had $256.7 million, or 20.6% of our loan portfolio, in residential real estate loans, which is comparable to the $256.8 million, or 21.3% of our loan portfolio, as of December 31, 2005.
      As of December 31, 2005, we had $256.8 million, or 21.3% of our loan portfolio, in residential real estate loans compared to $104.2 million, or 20.2% of our loan portfolio, as of December 31, 2004. This increase is primarily the result of our acquisitions during 2005, combined with organic growth of our loan portfolio.
      Consumer Loans. Our consumer loan portfolio is composed of secured and unsecured loans originated by our banks. The performance of consumer loans will be affected by the local and regional economy as well as the rates of personal bankruptcies, job loss, divorce and other individual-specific characteristics.
      As of March 31, 2006, our installment consumer loan portfolio totaled $39.6 million, or 3.2% of our total loan portfolio, which is comparable to the $39.4 million, or 3.3% of our loan portfolio as of December 31, 2005.
      As of December 31, 2005, our installment consumer loan portfolio totaled $39.4 million, or 3.3% of our total loan portfolio, compared to $24.6 million, or 4.8% of our loan portfolio, as of December 31, 2004. This increase is primarily the result of our acquisitions during 2005, offset by a decrease associated with a strategic decision made by management not to pursue growth in consumer loans due to our risk/reward experience for this type of loan.
      Commercial and Industrial Loans. Commercial and industrial loans are made for a variety of business purposes, including working capital, inventory, equipment and capital expansion. The terms for commercial loans are generally one to seven years. Commercial loan applications must be supported by current financial information on the borrower and, where appropriate, by adequate collateral. Commercial loans are generally underwritten by addressing cash flow (debt service coverage), primary and secondary sources of repayment, the financial strength of any guarantor, the borrower’s liquidity and leverage, management experience, ownership structure, economic conditions and industry specific trends and collateral. The loan to value ratio depends on the type of collateral. Generally speaking, accounts receivable are financed at between 50% to 80% of accounts receivable less than 90 days past due. Inventory financing will range between 50% and 80% depending on the borrower and nature of inventory. We require a first lien position for those loans.
      As of March 31, 2006, commercial and industrial loans outstanding totaled $166.0 million, or 13.3% of our loan portfolio, compared to $175.4 million, or 14.6% of our loan portfolio, as of December 31, 2005. This decrease is primarily the result of the reclassification of several large loans, which refinanced during the first quarter of 2006 and were reclassified into commercial real estate as a result of a change in the collateral.
      As of December 31, 2005, commercial and industrial loans outstanding totaled $175.4 million, or 14.6% of our loan portfolio, compared to $69.3 million, or 13.4% of our loan portfolio, as of December 31, 2004. This increase is primarily the result of our acquisitions during 2005, combined with organic growth in our loan portfolio.

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      Table 8 presents the distribution of the maturity of our loans as of December 31, 2005. The table also presents the portion of our loans that have fixed interest rates versus interest rates that fluctuate over the life of the loans based on changes in the interest rate environment.
Table 8: Maturity of Loans
                                       
        Over One        
        Year        
    One Year   Through   Over Five    
    or Less   Five Years   Years   Total
                 
    (In thousands)
Real estate:
                               
 
Commercial real estate loans:
                               
     
Non-farm/non-residential
  $ 94,259     $ 234,048     $ 83,532     $ 411,839  
     
Construction/land development
    182,747       93,716       15,052       291,515  
     
Agricultural
    7,126       4,093       1,893       13,112  
 
Residential real estate loans:
                               
     
Residential 1-4 family
    72,868       70,955       78,008       221,831  
     
Multifamily residential
    10,607       20,419       3,913       34,939  
                         
Total real estate
    367,607       423,231       182,398       973,236  
Consumer
    16,603       22,107       737       39,447  
Commercial and industrial
    90,885       69,640       14,871       175,396  
Agricultural
    6,409       2,057             8,466  
Other
    698       4,412       2,934       8,044  
                         
   
Total loans receivable
  $ 482,202     $ 521,447     $ 200,940     $ 1,204,589  
                         
With fixed interest rates
  $ 294,071     $ 398,663     $ 49,477     $ 742,211  
With floating interest rates
    188,131       122,784       151,463       462,378  
                         
   
Total
  $ 482,202     $ 521,447     $ 200,940     $ 1,204,589  
                         
Non-Performing Assets
      We classify our problem loans into three categories: past due loans, special mention loans and classified loans (accruing and non-accruing).
      When management determines that a loan is no longer performing, and that collection of interest appears doubtful, the loan is placed on non-accrual status. All loans that are 90 days past due are placed on non-accrual status unless they are adequately secured and there is reasonable assurance of full collection of both principal and interest. Our management closely monitors all loans that are contractually 90 days past due, treated as “special mention” or otherwise classified or on non-accrual status. Generally, non-accrual loans that are 120 days past due without assurance of repayment are charged off against the allowance for loan losses.

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      Table 9 sets forth information with respect to our non-performing assets as of March 31, 2006 and 2005, and December 31, 2005, 2004, 2003, 2002, and 2001. As of these dates, we did not have any restructured loans within the meaning of Statement of Financial Accounting Standards No. 15.
Table 9: Non-performing Assets
                                                               
    As of March 31,   As of December 31,
         
    2006   2005   2005   2004   2003   2002   2001
                             
    (Dollars in thousands)
Non-accrual loans
  $ 7,824     $ 10,100     $ 7,864     $ 8,959     $ 8,600     $ 1,671     $ 1,175  
Loans past due 90 days or more (principal or interest payments)
    411             426       2       52       142       167  
                                           
     
Total non-performing loans
    8,235       10,100       8,290       8,961       8,652       1,813       1,342  
                                           
Other non-performing assets
                                                       
 
Foreclosed assets held for sale
    663       502       758       458       1,274       169       90  
 
Other non-performing assets
    4       46       11       53       62       151       107  
                                           
   
Total other non-performing assets
    667       548       769       511       1,336       320       197  
                                           
     
Total non-performing assets
  $ 8,902     $ 10,648     $ 9,059     $ 9,472     $ 9,988     $ 2,133     $ 1,539  
                                           
Allowance for loan losses to non- performing loans
    296.72 %     239.36 %     291.62 %     182.40 %     170.10 %     314.73 %     286.66 %
Non-performing loans to total loans
    0.66       0.84       0.69       1.73       1.73       0.64       0.57  
Non-performing assets to total assets
    0.45       0.56       0.47       1.18       1.24       0.58       0.48  
      Our non-performing loans are comprised of non-accrual loans and loans that are contractually past due 90 days. Our bank subsidiaries recognize income principally on the accrual basis of accounting. When loans are classified as non-accrual, the accrued interest is charged off and no further interest is accrued, unless the credit characteristics of the loan improves. 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.
      Total non-performing loans were $8.2 million as of March 31, 2006, compared to $8.3 million as of December 31, 2005. If the non-accrual loans had been accruing interest in accordance with the original terms of their respective agreements, interest income of approximately $152,000 and $143,000 for the three-month periods ended March 31, 2006 and 2005, respectively, would have been recorded. Interest income recognized on the non-accrual loans for the three-month periods ended March 31, 2006 and 2005 was considered immaterial.
      Total non-performing loans were $8.3 million as of December 31, 2005, compared to $9.0 million as of December 31, 2004. The acquisitions completed in 2005 had a minimal impact on non-performing loans as a result of their favorable asset quality.
      During 2003, non-performing loans increased $6.8 million from the previous year. This increase in the level of non-performing loans was due to the increase in the volume of non-performing loans associated with the acquisition of Community Financial Group during the fourth quarter of 2003.
      If the non-accrual loans had been accruing interest in accordance with the original terms of their respective agreements, interest income of approximately $550,000 for the year ended December 31, 2005, $520,000 in 2004, and $138,000 in 2003 would have been recorded. Interest income recognized on the non-accrual loans for the years ended December 31, 2005, 2004, and 2003 was considered immaterial.
      A loan is considered impaired when it is probable that we will not receive all amounts due according to the contracted terms of the loans. Impaired loans include non-performing loans (loans past due 90 days or more and non-accrual loans) and certain other loans identified by management that are still performing. As of March 31, 2006, average impaired loans were $5.7 million compared to $9.8 million as of March 31, 2005. As of December 31, 2005, average impaired loans were $8.5 million, compared to $9.6 million in 2004. The acquisitions completed in 2005 had a minimal impact on non-performing loans as a result of their favorable asset quality. The $1.1 million decrease in impaired loans from December 31, 2004, primarily relates to improvement of the asset quality associated with the loans acquired in the Community Financial Group transaction.

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Allowance for Loan Losses
      Overview. The allowance for loan losses is maintained at a level which our management believes is adequate to absorb all probable losses on loans in the loan portfolio. The amount of the allowance is affected by: (i) loan charge-offs, which decrease the allowance; (ii) recoveries on loans previously charged off, which increase the allowance; and (iii) the provision of possible loan losses charged to income, which increases the allowance. In determining the provision for possible loan losses, it is necessary for our management to monitor fluctuations in the allowance resulting from actual charge-offs and recoveries and to periodically review the size and composition of the loan portfolio in light of current and anticipated economic conditions. If actual losses exceed the amount of allowance for loan losses, our earnings could be adversely affected.
      As we evaluate the allowance for loan losses, we categorize it as follows: (i) specific allocations; (ii) allocations for classified assets with no specific allocation; (iii) general allocations for each major loan category; and (iv) miscellaneous allocations.
      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 “special mention” through “loss” in accordance with the guidelines established by the regulatory agencies. A percentage rate is applied to each loan category to determine the level of dollar allocation.
      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 residential real estate, commercial real estate consumer loans and commercial and industrial loans. The allocations in this section are based on a historical review of loan loss experience and past due accounts. We give consideration to trends, changes in loan mix, delinquencies, prior losses, and other related information.
      Miscellaneous Allocations. Allowance allocations other than specific, classified, and general are included in our miscellaneous section.
      Charge-offs and Recoveries. Total charge-offs increased $225,000, or 86.2%, to $486,000 for the three months ended March 31, 2006, compared to the same period in 2005. Total charge-offs increased $2.4 million, or 111.4%, to $4.6 million for the year ended December 31, 2005, from $2.2 million in 2004. These increases in charge-offs are due to our conservative stance associated with asset quality and does not reflect a downward trend in the asset quality of our overall loan portfolio. The acquisitions completed in 2005 had a minimal impact on the increase in net charge-offs.
      Total charge-offs increased $1.5 million, or 222.6%, to $2.2 million for the year ended December 31, 2004, from $676,000 in 2003. Approximately $1.2 million of the increase in the level of charge-offs during 2004 was related to a former loan officer’s portfolio, which included agricultural and related farmland loans that involved inadequate underwriting and excessive policy exceptions, among other issues. Evidence of problems in the portfolio were detected by internal monitoring reports and corporate loan review in the fourth quarter of 2003, at which time the loan officer was relieved of his duties. Following an extensive review of the situation, management implemented new procedures and controls to prevent the problems identified in the review. The remaining balance of the loan officer’s portfolio as of March 31, 2006 was $4.0 million. Total charge-offs related to the officer’s portfolio have been $1.6 million ($1.2 million in 2004 and $366,604 in 2005). Specific allocations in the reserve for the remainder of the portfolio are $204,317, or 5.09% as of March 31, 2006. The remainder of the increase was primarily due to the increase in the volume of non-performing loans associated with the acquisition of Community Financial Group during the fourth quarter of 2003.
      The increased level of recoveries for 2004 was primarily related to one borrower, combined with the increase in recoveries resulting from the acquisition of Community Financial Group in 2003.

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      Table 10 shows the allowance for loan losses, charge-offs and recoveries as of and for the three-month periods ended March 31, 2006 and 2005, and as of and for the years ended December 31, 2005, 2004, 2003, 2002, and 2001.
Table 10: Analysis of Allowance for Loan Losses
                                                               
    As of March 31,   As of December 31,
         
    2006   2005   2005   2004   2003   2002   2001
                             
    (Dollars in thousands)
Balance, beginning of year
  $ 24,175     $ 16,345     $ 16,345     $ 14,717     $ 5,706     $ 3,847     $ 2,414  
Loans charged off
                                                       
Real estate:
                                                       
 
Commercial real estate loans:
                                                       
   
Non-farm/non-residential
    106       50       2,448                          
   
Construction/land development
    2       14       405       5       23       32        
   
Agricultural
    8             15             17              
 
Residential real estate loans:
                                                       
   
Residential 1-4 family
    54       110       515       404       138       19        
   
Multifamily residential
                                         
                                           
Total real estate
    170       174       3,383       409       178       51        
Consumer
    70                                      
Commercial and industrial
    237       9       758       499       114       173       75  
Agricultural
                30       786       80              
Other
    9       78       440       487       304       277       239  
                                           
     
Total loans charged off
    486       261       4,611       2,181       676       501       314  
                                           
Recoveries of loans previously charged off
                                                       
Real estate:
                                                       
 
Commercial real estate loans:
                                                       
   
Non-farm/non-residential
    8       32       294       1,057       1              
   
Construction/land development
                15       13       19       17        
   
Agricultural
                                         
 
Residential real estate loans:
                                                       
   
Residential 1-4 family
    97       20       115       47       31             8  
   
Multifamily residential
                                  31       3  
                                           
Total real estate
    105       52       424       1,117       51       48       11  
Consumer
    10                                      
Commercial and industrial
    21       15       102       254       10       10        
Agricultural
                      17       45              
Other
    126       38       324       131       44       82       28  
                                           
     
Total recoveries
    262       105       850       1,519       150       140       39  
                                           
   
Net loans charged off
    224       156       3,761       662       526       361       275  
Allowance for loan losses of acquired institutions
          4,742       7,764             8,730              
Provision for loan losses
    484       1,051       3,827       2,290       807       2,220       1,708  
                                           
Balance, end of period or year
  $ 24,435     $ 21,982     $ 24,175     $ 16,345     $ 14,717     $ 5,706     $ 3,847  
                                           
Net charge-offs to average loans
    0.07 %     0.08 %     0.38 %     0.13 %     0.16 %     0.14 %     0.14 %
Allowance for loan losses to period-end loans
    1.96       2.73       2.01       3.16       2.94       2.00       1.63  
Allowance for loan losses to net charge-offs
    2,690       3,474       642       2,469       2,798       1,581       1,399  

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      Allocated Allowance for Loan Losses. We use a risk rating and specific reserve methodology in the calculation and allocation of our allowance for loan losses. While the allowance is allocated to various loan categories in assessing and evaluating the level of the allowance, the allowance is available to cover charge-offs incurred in all loan categories. Because a portion of our portfolio has not matured to the degree necessary to obtain reliable loss data from which to calculate estimated future losses, the unallocated portion of the allowance is an integral component of the total allowance. Although unassigned to a particular credit relationship or product segment, this portion of the allowance is vital to safeguard against the imprecision inherent in estimating credit losses.
      The changes for the three-month period ended March 31, 2006, and for the year 2005 in the allocation of the allowance for loan losses for the individual types of loans for the most part are consistent with the changes in the outstanding loan portfolio for those products from December 31, 2004. In the opinion of management, any allocation changes not consistent with the changes in the loan portfolio product would be considered normal operating changes, not downgrading or upgrading of any one particular type of loans in the loan portfolio.
      Table 11 presents the allocation of allowance for loan losses as of the dates indicated.
Table 11: Allocation of Allowance for Loan Losses
                                                                                                       
            As of December 31,
         
    As of March 31,                    
    2006   2005   2004   2003   2002   2001
                         
    Allowance   % of   Allowance   % of   Allowance   % of   Allowance   % of   Allowance   % of   Allowance   % of
    Amount   Loans(1)   Amount   Loans(1)   Amount   Loans(1)   Amount   Loans(1)   Amount   Loans(1)   Amount   Loans(1)
                                                 
    (Dollars in thousands)
Real estate:
                                                                                               
 
Commercial real estate loans:
                                                                                               
   
Non-farm/non-residential
  $ 7,468       33.8 %   $ 7,202       34.1 %   $ 6,212       35.3 %   $ 5,505       34.8 %   $ 1,786       32.1 %   $ 1,119       29.6 %
   
Construction/land development
    6,230       26.6       5,544       24.2       1,690       22.6       1,407       14.8       862       13.3       449       9.7  
   
Agricultural
    583       1.1       407       1.1       493       2.5       491       1.0       123       1.8       77       1.5  
 
Residential real estate loans:
                                                                                               
   
Residential 1-4 family
    3,270       17.7       3,317       18.4       2,185       16.7       2,710       15.8       1,005       20.7       673       21.0  
   
Multifamily residential
    375       2.9       423       2.9       156       3.4       85       3.3       107       2.2       78       2.5  
                                                                         
Total real estate
    17,926       82.1       16,893       80.7       10,736       80.5       10,198       69.7       3,883       70.1       2,396       64.3  
Consumer
    770       3.2       682       3.3       526       4.8       724       6.3       440       7.9       410       10.9  
Commercial and industrial
    3,977       13.3       4,059       14.6       2,025       13.4       2,241       20.5       908       16.4       766       20.3  
Agricultural
    391       0.7       505       0.7       316       1.2       572       2.9       475       5.6       275       4.5  
Other
    19       0.7             0.7             0.1             0.6             0.0             0.0  
Unallocated
    1,352               2,036               2,742               982                                      
                                                                         
     
Total
  $ 24,435       100.0 %   $ 24,175       100.0 %   $ 16,345       100.0 %   $ 14,717       100.0 %   $ 5,706       100.0 %   $ 3,847       100.0 %
                                                                         
 
(1)  Percentage of loans in each category to loans receivable.
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 held-to-maturity, available-for-sale, or trading based on the intent and objective of the investment and the ability to hold to maturity. Fair values of securities are based on quoted market prices where available. If quoted market prices are not available, estimated fair values are based on quoted market prices of comparable securities. As of March 31, 2006, and December 31, 2005, we had no held-to-maturity or trading securities.

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      Securities available-for-sale are reported at fair value with unrealized holding gains and losses reported as a separate component of shareholders’ equity as other comprehensive income. Securities that are held as available-for-sale are used as a part of our asset/liability management strategy. Securities may be sold in response to interest rate changes, changes in prepayment risk, the need to increase regulatory capital, and other similar factors are classified as available for sale. Available-for-sale securities were $525.3 million as of March 31, 2006, compared to $530.3 million as of December 31, 2005, and $190.4 million as of December 31, 2004. The estimated duration of our securities portfolio was 3.1 years as of March 31, 2006.
      Securities held-to-maturity are reported at amortized historical cost. Securities that management has the intent and ability to hold until maturity or on a long-term basis are classified as held-to-maturity. Held-to-maturity investment securities were $100,000 as of December 31, 2004.
      As of March 31, 2006, $245.4 million, or 46.7%, of our available-for-sale securities were invested in mortgage-backed securities, compared to $256.5 million, or 48.4%, of our available-for-sale securities as of December 31, 2005. To reduce our income tax burden, $105.0 million, or 20.0%, of our available-for-sale securities portfolio as of March 31, 2006, was primarily invested in tax-exempt obligations of state and political subdivisions, compared to $103.5 million, or 19.5%, of our available-for-sale securities as of December 31, 2005. Also, we had approximately $160.3 million, or 30.5%, invested in obligations of U.S. Government-sponsored enterprises as of March 31, 2006, compared to $157.5 million, or 29.7%, of our available-for-sale securities as of December 31, 2005.
      As of December 31, 2005, $256.5 million, or 48.4%, of the available-for-sale securities were invested in mortgage-backed securities, compared to $126.7 million, or 66.5%, of the available-for-sale securities in the prior year. To reduce our income tax burden, $103.5 million, or 19.5%, of the available-for-sale securities portfolio as of December 31, 2005, was primarily invested in tax-exempt obligations of state and political subdivisions, compared to $40.1 million, or 21.1%, of the available-for-sale securities as of December 31, 2004. Also, we had approximately $157.5 million, or 29.7%, in obligations of U.S. Government-sponsored enterprises in the available-for-sale securities portfolio as of December 31, 2005, compared to $15.6 million, or 8.2%, of the available-for-sale securities in the prior year. The increases in investment securities from 2004 to 2005 are primarily related to the acquisitions of TCBancorp, Marine Bancorp and Mountain View Bancshares.
      Certain investment securities are valued at less than their historical cost. These declines primarily resulted from recent increases in market interest rates. Based on evaluation of available evidence, we believe the declines in fair value for these securities are temporary. It is our intent to hold these securities to maturity. Should the impairment of any of these securities become other than temporary, the cost basis of the investment will be reduced and the resulting loss recognized in net income in the period the other-than-temporary impairment is identified.

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      Table 12 presents the carrying value and fair value of investment securities for each of the periods and years indicated.
Table 12: Investment Securities
                                                                   
    As of March 31, 2006   As of December 31, 2005
         
        Gross   Gross           Gross   Gross    
    Amortized   Unrealized   Unrealized   Estimated   Amortized   Unrealized   Unrealized   Estimated
    Cost   Gains   (Losses)   Fair Value   Cost   Gains   (Losses)   Fair Value
                                 
    (In thousands)
Held-to-Maturity
                                                               
State and political subdivisions
  $     $     $     $     $     $     $     $  
                                                 
 
Total
  $     $     $     $     $     $     $     $  
                                                 
 
Available-for-Sale
                                                               
U.S. Government-sponsored enterprises
  $ 165,262     $ 12     $ (4,960 )   $ 160,314     $ 162,165     $ 27     $ (4,723 )   $ 157,469  
Mortgage-backed securities
    254,014       8       (8,579 )     245,443       264,666       16       (8,209 )     256,473  
State and political subdivisions
    104,526       1,219       (759 )     104,986       102,928       1,279       (746 )     103,461  
Other securities
    14,979             (465 )     14,514       13,571             (672 )     12,899  
                                                 
 
Total
  $ 538,781     $ 1,239     $ (14,763 )   $ 525,257     $ 543,330     $ 1,322     $ (14,350 )   $ 530,302  
                                                 
                                                                   
    As of December 31,
     
    2004   2003
         
        Gross   Gross           Gross   Gross    
    Amortized   Unrealized   Unrealized   Estimated   Amortized   Unrealized   Unrealized   Estimated
    Cost   Gains   (Losses)   Fair Value   Cost   Gains   (Losses)   Fair Value
                                 
    (In thousands)
Held-to-Maturity
                                                               
State and political subdivisions
  $ 100     $     $     $ 100     $ 100     $ 3     $     $ 103  
                                                 
 
Total
  $ 100     $     $     $ 100     $ 100     $ 3     $     $ 103  
                                                 
 
Available-for-Sale
                                                               
U.S. Government-sponsored enterprises
  $ 15,646     $ 18     $ (86 )   $ 15,578     $ 22,019     $ 31     $ (104 )   $ 21,946  
Mortgage-backed securities
    127,316       249       (898 )     126,667       103,677       282       (203 )     103,756  
State and political subdivisions
    39,564       717       (147 )     40,134       30,684       49       (15 )     30,718  
Other securities
    8,010       15       (38 )     7,987       5,362       126       (57 )     5,431  
                                                 
 
Total
  $ 190,536     $ 999     $ (1,169 )   $ 190,366     $ 161,742     $ 488     $ (379 )   $ 161,851  
                                                 
      Table 13 reflects the amortized cost and estimated fair value of debt securities as of December 31, 2005, by contractual maturity and the weighted average yields (for tax-exempt obligations on a fully taxable equivalent basis) of those 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.

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Table 13: Maturity Distribution of Investment Securities
                                                   
    As of December 31, 2005
     
        1 Year   5 Years       Total    
    1 Year   Through   Through   Over   Amortized   Total Fair
    or Less   5 Years   10 Years   10 Years   Cost   Value
                         
    (Dollars in thousands)
Available-for-Sale
                                               
U.S. Government-sponsored enterprises
  $ 104,496     $ 36,648     $ 8,594     $ 12,427     $ 162,165     $ 157,469  
Mortgage-backed securities
    47,740       122,717       45,164       49,045       264,666       256,473  
State and political subdivisions
    27,224       58,836       13,575       3,293       102,928       103,461  
Other securities
    276       11,153       2,142             13,571       12,899  
                                     
 
Total
  $ 179,736     $ 229,354     $ 69,475     $ 64,765     $ 543,330     $ 530,302  
                                     
Percentage of total
    33.1 %     42.2 %     12.8 %     11.9 %     100.0 %        
                                     
Weighted average yield
    4.51 %     4.54 %     5.05 %     4.75 %     4.62 %        
                                     
Deposits
      Our deposits averaged $1.4 billion for the three-month period ended March 31, 2006, $1.2 billion for the year ended December 31, 2005, and $553.7 million for 2004. Total deposits increased $80.3 million, or 5.6%, to $1.5 billion as of March 31, 2006, from $1.4 billion as of December 31, 2005. Total deposits increased $874.2 million, or 158.1%, to $1.4 billion as of December 31, 2005, from $552.9 million as of December 31, 2004. Deposits are our primary source of funds. We offer a variety of products designed to attract and retain deposit customers. Those products consist of checking accounts, regular savings deposits, NOW accounts, money market accounts and certificates of deposit. Deposits are gathered from individuals, partnerships and corporations in our market areas. In addition, we obtain deposits from state and local entities and, to a lesser extent, U.S. Government and other depository institutions. Our policy also permits the acceptance of brokered deposits.
      The interest rates paid are competitively priced for each particular deposit product and structured to meet our funding requirements. We will continue to manage interest expense through deposit pricing and do not anticipate a significant change in total deposits unless our liquidity position changes. We believe that additional funds can be attracted and deposit growth can be accelerated through deposit pricing if we experience increased loan demand or other liquidity needs. The increase in interest rates paid from 2004 to 2006 is reflective of the Federal Reserve increasing the Federal Funds rate beginning in 2004 and the associated repricing of deposits during those years combined with the acquisition of Marine Bancorp. The acquisition of Marine Bancorp increased our average rate as a result of the higher interest rate environment in the Florida Keys. The decrease in interest rates paid from 2003 to 2004 is reflective of the Federal Reserve decreasing the Federal Funds rate during 2002 and 2003 and the associated repricing of deposits during those years.
      Table 14 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-month periods ended March 31, 2006 and 2005, and the years ended December 31, 2005, 2004, and 2003.

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Table 14: Average Deposit Balances and Rates
                                                                                     
    Three Months Ended March 31,   Years Ended December 31,
         
    2006   2005   2005   2004   2003
                     
    Average   Average   Average   Average   Average   Average   Average   Average   Average   Average
    Amount   Rate Paid   Amount   Rate Paid   Amount   Rate Paid   Amount   Rate Paid   Amount   Rate Paid
                                         
    (Dollars in thousands)
Non-interest-bearing transaction accounts
  $ 213,135       %   $ 143,485       %   $ 177,511       %   $ 79,907       %   $ 37,038       %
Interest-bearing transaction accounts
    435,517       2.22       334,843       1.48       389,291       1.94       164,538       0.81       76,647       0.95  
Savings deposits
    84,770       1.68       36,000       0.47       58,142       1.24       27,888       0.37       12,603       0.44  
Time deposits:
                                                                               
 
$100,000 or more
    355,514       4.82       319,686       2.61       357,464       3.16       135,902       2.11       98,425       2.55  
 
Other time deposits
    360,276       2.89       221,477       2.51       267,228       2.74       145,489       2.27       89,309       2.70  
                                                             
   
Total
  $ 1,449,212       2.67 %   $ 1,055,491       1.80 %   $ 1,249,636       2.15 %   $ 553,724       1.37 %   $ 314,022       1.82 %
                                                             
      Table 15 presents our maturities of large denomination time deposits as of December 31, 2005, and 2004.
Table 15: Maturities of Large Denomination Time Deposits ($100,000 or more)
                                     
    As of December 31,
     
    2005   2004
         
    Balance   Percent   Balance   Percent
                 
    (Dollars in thousands)
Maturing
                               
 
Three months or less
  $ 164,233       40.8 %   $ 44,143       33.9 %
 
Over three months to six months
    76,664       19.0       35,544       27.3  
 
Over six months to 12 months
    87,792       21.8       27,252       21.0  
 
Over 12 months through two years
    37,949       9.4       20,644       15.9  
 
Over two years
    36,392       9.0       2,408       1.9  
                         
   
Total
  $ 403,030       100.0 %   $ 129,991       100.0 %
                         
FHLB and Other Borrowings
      Our FHLB and other borrowings were $139.3 million as of March 31, 2006. The outstanding balance for March 31, 2006, includes $16.1 million of short-term FHLB advances and $123.2 million of FHLB long-term advances.
      Our FHLB and other borrowings were $117.1 million as of December 31, 2005, and $74.9 million as of December 31, 2004. The outstanding balance for December 31, 2005, includes $4.0 million of short-term advances and $113.1 million of long-term advances. The outstanding balance for December 31, 2004, includes $31.0 million of short-term advances and $43.9 million of long-term advances. Short-term borrowings consist primarily of short-term FHLB borrowings. Long-term borrowings consist of long-term FHLB borrowings and a line of credit with another financial institution. Our remaining FHLB borrowing capacity was $222.3 million as of December 31, 2005, and $166.9 million as of December 31, 2004.
      We increased our long-term borrowings $69.2 million, or 157.9%, to $113.1 million as of December 31, 2005, from $43.9 million as of December 31, 2004. This increase is primarily a result of the acquisition of TCBancorp and Marine Bancorp during 2005, combined with a modest increase in FHLB borrowings in our

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other bank subsidiaries and an advance on our line of credit. The FHLB borrowings increase in our other bank subsidiaries is associated with a strategic decision to better manage interest rate risk on specific new loan fundings and commitments made during 2005. The advance on our line of credit is the result of using this line for approximately $14.0 million of the purchase price of Mountain View Bancshares.
Subordinated Debentures
      Subordinated debentures, which consist of guaranteed payments on trust preferred securities, were $44.7 million, $44.8 million and $24.2 million as of March 31, 2006, and December 31, 2005, and 2004, respectively. The $20.6 million increase in subordinated debentures for 2005 is primarily associated with a $15.4 million private placement during 2005, combined with $5.2 million acquired in the acquisition of Marine Bancorp.
      On November 10, 2005, we completed a private placement of trust preferred securities in an aggregate net principal amount of $15.0 million. We used the $15.0 million of net proceeds from the offering to retire interim financing received in connection with the third quarter acquisition of Mountain View Bancshares.
      Table 16 reflects subordinated debentures as of March 31, 2006, and December 31, 2005, and 2004, which consisted of guaranteed payments on trust preferred securities with the following components:
Table 16: Subordinated Debentures
                           
        As of December 31,
    As of March 31,    
    2006   2005   2004
             
    (In thousands)
Subordinated debentures, due 2030, fixed at 10.60%, callable beginning in 2010 with a prepayment penalty declining from 5.30% to 0.53% depending on the year of prepayment, callable in 2020 without penalty
  $ 3,493     $ 3,516     $ 3,600  
Subordinated debentures, due 2033, fixed at 6.40% during the first five years and at a floating rate of 3.15% above the three-month LIBOR rate, reset quarterly, thereafter, callable in 2008 without penalty
    20,619       20,619       20,619  
Subordinated debentures, due 2033, floating rate of 3.15% above the three-month LIBOR rate, reset quarterly, callable in 2008 without penalty
    5,155       5,155        
Subordinated debentures, due 2035, fixed rate of 6.81% during the first ten years and at a floating rate of 1.38% above the three-month LIBOR rate, reset quarterly, thereafter, callable in 2010 without penalty
    15,464       15,465        
                   
 
Total
  $ 44,731     $ 44,755     $ 24,219  
                   
      The trust preferred securities are tax-advantaged issues that qualify for Tier 1 capital treatment subject to certain limitations. Distributions on these securities are included in interest expense. Each of the trusts is a statutory business trust organized for the sole purpose of issuing trust securities and investing the proceeds in our subordinated debentures, the sole asset of each trust. The trust preferred 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 subordinated debentures held by the trust. We wholly own the common securities of each trust. Each trust’s ability to pay amounts due on the trust preferred securities is solely dependent upon our making payment on the related subordinated debentures. Our obligations under the subordinated securities and other relevant trust agreements, in aggregate, constitute a full and unconditional guarantee by us of each respective trust’s obligations under the trust securities issued by each respective trust.
      Presently, the funds raised from the trust preferred offerings will qualify as Tier 1 capital for regulatory purposes, subject to the applicable limit, with the balance qualifying as Tier 2 capital.

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Shareholders’ Equity
      March 31, 2006 Overview. As of March 31, 2006, our shareholders’ equity totaled $169.0 million, and our equity to asset ratio was 8.6%, compared to 8.7% as of December 31, 2005. This decrease is reflective of the continued leveraging of our balance sheet, and is associated with the organic growth of our loans, deposits and total assets during the first quarter of 2006.
      2005 Overview. As of December 31, 2005, our shareholders’ equity totaled $165.9 million, and our equity to asset ratio was 8.7%, compared to 13.2% as of December 31, 2004. This decrease is primarily the result of leveraging our balance sheet with the acquisitions completed during 2005.
      Stock Split. On May 31, 2005, we completed a three-for-one stock split effected in the form of a stock dividend. This resulted in issuing two additional shares of stock to the common shareholders for each share previously held. As a result of the stock split, the accompanying consolidated financial statements reflect an increase in the number of outstanding shares of common stock and the $78,000 transfer of the par value of these additional shares from capital surplus. All share and per share amounts have been restated to reflect the retroactive effect of the stock split, except for our capitalization.
      Cash Dividends. We declared cash dividends on our common stock, Class A preferred stock, and Class B preferred stock of $0.02, $0.06, and $0.14 per share, respectively for the three-month period ended March 31, 2006. We declared cash dividends on our common stock, Class A preferred stock, and Class B preferred stock of $0.070, $0.250 and $0.330 per share, respectively, for the year ended December 31, 2005, and $0.043, $0.250 and $0.000 per share, respectively, for 2004. No dividends were paid on our Class B preferred stock during 2004 since the Class B preferred stock was not issued until June 2005 in connection with the acquisition of Marine Bancorp. The common per share amounts are reflective of the three-for-one stock split during 2005.
Liquidity and Capital Adequacy Requirements
      Parent Company Liquidity. The primary sources for payment of our operating expenses and dividends are current cash on hand ($7.8 million as of March 31, 2006, and $5.0 million as of December 31, 2005), dividends received from our bank subsidiaries, and a $30.0 million line of credit with another financial institution ($14.0 million borrowed as of December 31, 2005).
      Dividend payments by our bank subsidiaries are subject to various regulatory limitations. As the result of special dividends paid by our bank subsidiaries during 2005 (primarily to provide cash for the Marine Bancorp and Mountain View Bancshares acquisitions), as of December 31, 2005, our bank subsidiaries did not have any significant undivided profits available for payment of dividends to us, without prior approval of the regulatory agencies. However, two of our bank subsidiaries had excess capital as of December 31, 2005. In January 2006 we received special approval from the regulatory agencies for those bank subsidiaries to collectively pay $19.0 million in additional dividends to us, and we used those dividends to repay the $14.0 million advance on our line of credit and to fund our additional investment of $3.0 million in White River Bancshares.
      During 2006, our Arkansas bank subsidiaries may pay dividends to us up to 75% of their current earnings. The Arkansas banks paid us 50% of their current earnings during the first quarter of 2006. Due to Marine Bank’s organic growth, we do not expect to take dividends from Marine Bank during 2006. As a result of Marine Bank’s organic growth during the first quarter of 2006, we made a $2.5 million capital infusion into Marine Bank in the second quarter of 2006 to better position this institution for anticipated future growth. See “Supervision and Regulation — Payment of Dividends.”
      Risk-Based Capital. We as well as our bank subsidiaries are subject to various regulatory capital requirements administered by the federal banking agencies. Furthermore, we are deemed by federal regulators to be a source of financial strength for White River Bancshares, despite owning only 20% of its equity. Failure to meet minimum capital requirements can initiate certain mandatory and other discretionary actions by regulators that, if enforced, 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

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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 as to components, risk weightings and other factors.
      Quantitative measures established by regulation to ensure capital adequacy require us to maintain minimum amounts and ratios (set forth in the table below) of total and Tier 1 capital to risk-weighted assets, and of Tier 1 capital to average assets. Management believes that, as of March 31, 2006, and December 31, 2005 and 2004, we met all regulatory capital adequacy requirements to which we were subject.
      Table 17 presents our risk-based capital ratios as of March 31, 2006 and December 31, 2005 and 2004.
Table 17: Risk-Based Capital
                               
        As of December 31,
    As of March 31,    
    2006   2005   2004
             
    (Dollars in thousands)
Tier 1 capital
                       
 
Shareholders’ equity
  $ 169,040     $ 165,857     $ 106,610  
 
Qualifying trust preferred securities
    43,000       43,000       23,000  
 
Goodwill and core deposit intangibles, net
    (44,254 )     (44,516 )     (22,816 )
 
Qualifying minority interest
                9,238  
 
Unrealized loss on available-for-sale securities
    8,191       7,903       858  
 
Other
                (11,751 )
                   
     
Total Tier 1 capital
    175,977       172,244       105,139  
                   
Tier 2 capital
                       
 
Qualifying allowance for loan losses
    18,219       17,658       7,664  
 
Other
                (7,664 )
                   
     
Total Tier 2 capital
    18,219       17,658        
                   
     
Total risk-based capital
  $ 194,196     $ 189,902     $ 105,139  
                   
Average total assets for leverage ratio
  $ 1,890,946     $ 1,868,143     $ 779,768  
                   
Risk weighted assets
  $ 1,451,266     $ 1,406,131     $ 604,413  
                   
Ratios at end of year
                       
   
Leverage ratio
    9.31 %     9.22 %     13.47 %
   
Tier 1 risk-based capital
    12.13       12.25       17.39  
   
Total risk-based capital
    13.38       13.51       17.39  
Minimum guidelines
                       
   
Leverage ratio
    4.00 %     4.00 %     4.00 %
   
Tier 1 risk-based capital
    4.00       4.00       4.00  
   
Total risk-based capital
    8.00       8.00       8.00  
      As of the most recent notification from regulatory agencies, our bank subsidiaries were “well-capitalized” under the regulatory framework for prompt corrective action. To be categorized as “well-capitalized”, we and our bank subsidiaries must maintain minimum leverage, Tier 1 risk-based capital, and total risk-based capital ratios as set forth in the table. There are no conditions or events since that notification that we believe have changed the bank subsidiaries’ categories.

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      Table 18 presents actual capital amounts and ratios as of March 31, 2006 and December 31, 2005, and 2004, for us and our bank subsidiaries.
Table 18: Capital and Ratios
                                                     
                    To Be Well
                Capitalized Under
        For Capital   Prompt Corrective
    Actual   Adequacy Purposes   Action Provision
             
    Amount   Ratio   Amount   Ratio   Amount   Ratio
                         
    (Dollars in thousands)
As of March 31, 2006
                                               
 
Leverage ratios:
                                               
   
Home BancShares
  $ 175,977       9.31 %   $ 75,608       4.00 %   $ N/A       N/A %
   
First State Bank
    39,415       8.57       18,397       4.00       22,996       5.00  
   
Community Bank
    22,136       7.28       12,163       4.00       15,203       5.00  
   
Twin City Bank
    48,047       7.65       25,123       4.00       31,403       5.00  
   
Marine Bank
    19,910       6.76       11,781       4.00       14,726       5.00  
   
Bank of Mountain View
    14,748       8.05       7,328       4.00       9,160       5.00  
 
Tier 1 capital ratios:
                                               
   
Home BancShares
  $ 175,977       12.13 %   $ 58,030       4.00 %   $ N/A       N/A %
   
First State Bank
    39,415       9.87       15,974       4.00       23,960       6.00  
   
Community Bank
    22,136       9.73       9,100       4.00       13,650       6.00  
   
Twin City Bank
    48,047       10.15       18,935       4.00       28,402       6.00  
   
Marine Bank
    19,910       8.83       9,029       4.00       13,544       6.00  
   
Bank of Mountain View
    14,748       14.12       4,178       4.00       6,267       6.00  
 
Total risk-based capital ratios:
                                               
   
Home BancShares
  $ 194,196       13.38 %   $ 116,111       8.00 %   $ N/A       N/A    %
   
First State Bank
    44,390       11.12       31,935       8.00       39,919       10.00  
   
Community Bank
    25,024       11.00       18,199       8.00       22,749       10.00  
   
Twin City Bank
    53,933       11.39       37,881       8.00       47,351       10.00  
   
Marine Bank
    22,742       10.08       18,049       8.00       22,562       10.00  
   
Bank of Mountain View
    15,360       14.70       8,359       8.00       10,449       10.00  

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                To Be Well
            For Capital   Capitalized Under
        Adequacy   Prompt Corrective
    Actual   Purposes   Action Provision
             
    Amount   Ratio   Amount   Ratio   Amount   Ratio
                         
    (Dollars in thousands)
As of December 31, 2005
                                               
 
Leverage ratios:
                                               
   
Home BancShares
  $ 172,244       9.22 %   $ 74,726       4.00 %   $ N/A       N/A %
   
First State Bank
    38,572       8.44       18,281       4.00       22,851       5.00  
   
Community Bank
    23,129       7.59       12,189       4.00       15,236       5.00  
   
Twin City Bank
    51,679       8.07       25,615       4.00       32,019       5.00  
   
Marine Bank
    20,050       7.28       11,016       4.00       13,771       5.00  
   
Bank of Mountain View
    29,468       16.35       7,209       4.00       9,012       5.00  
 
Tier 1 capital ratios:
                                               
   
Home BancShares
  $ 172,244       12.25 %   $ 56,243       4.00 %   $ N/A       N/A %
   
First State Bank
    38,572       10.01       15,413       4.00       23,120       6.00  
   
Community Bank
    23,129       10.25       9,026       4.00       13,539       6.00  
   
Twin City Bank
    51,679       11.53       17,929       4.00       26,893       6.00  
   
Marine Bank
    20,050       9.08       8,833       4.00       13,249       6.00  
   
Bank of Mountain View
    29,468       29.75       3,962       4.00       5,943       6.00  
 
Total risk-based capital ratios:
                                               
   
Home BancShares
  $ 189,902       13.51 %   $ 112,451       8.00 %   $ N/A       N/A %
   
First State Bank
    43,362       11.26       30,808       8.00       38,510       10.00  
   
Community Bank
    26,010       11.53       18,047       8.00       22,559       10.00  
   
Twin City Bank
    57,248       12.77       35,864       8.00       44,830       10.00  
   
Marine Bank
    22,815       10.33       17,669       8.00       22,086       10.00  
   
Bank of Mountain View
    30,094       30.38       7,925       8.00