NOTE 2: ACQUISITIONS

Liberty Bancshares, Inc.

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

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

Goodwill of $95.2 million was recorded as a result of the transaction. The merger strengthened the Company’s position in the southwest Missouri market and the Company is able to achieve cost savings by integrating the two companies and combining accounting, data processing, and other administrative functions all of which gave rise to the goodwill recorded. The goodwill will not be deductible for tax purposes.

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

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

Assets Acquired
Cash and due from banks, including time deposits	$	102,637		$	(14	)	$	102,623
Federal funds sold		7,060			-			7,060
Investment securities		99,123			(335	)		98,788
Loans acquired, not covered by FDIC loss share		790,493			(9,835	)		780,658
Allowance for loan losses		(10,422	)		10,422			-
Premises and equipment		34,239			(3,215	)		31,024
Bank owned life insurance		16,972			-			16,972
Core deposit intangible		699			13,857			14,556
Other intangibles		3,063			(3,063	)		-
Other assets		17,703			(3,112	)		14,591
Total assets acquired	$	1,061,567		$	4,705		$	1,066,272

Liabilities Assumed
Deposits:
Non-interest bearing transaction accounts	$	146,618		$	-		$	146,618
Interest bearing transaction accounts and savings deposits		543,183			-			543,183
Time deposits		184,913			-			184,913
Total deposits		874,714			-			874,714
FHLB borrowings		46,128			223			46,351
Subordinated debentures		20,620			(510	)		20,110
Accrued interest and other liabilities		7,828			300			8,128
Total liabilities assumed		949,290			13			949,303
Equity		112,277			(112,277	)		-
Total equity assumed		112,277			(112,277	)		-
Total liabilities and equity assumed	$	1,061,567		$	(112,264	)	$	949,303
Net assets acquired								116,969
Purchase price								212,176
Goodwill							$	95,207

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

Cash and due from banks, time deposits due from banks and federal funds sold

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

Investment securities

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

Loans acquired

– Fair values for loans were based on a discounted cash flow methodology that considered factors including the type of loan and related collateral, classification status, fixed or variable interest rate, term of loan and whether or not the loan was amortizing, and current discount rates. The discount rates used for loans are based on current market rates for new originations of comparable loans and include adjustments for liquidity concerns. The discount rate does not include a factor for credit losses as that has been included in the estimated cash flows. Loans were grouped together according to similar characteristics and were treated in the aggregate when applying various valuation techniques.

Premises and equipment

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

Bank owned life insurance

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

Goodwill

– The consideration paid as a result of the acquisition exceeded the fair value of the assets acquired, resulting in an intangible asset, goodwill, of $95.2 million.

Core deposit intangible

– This intangible asset represents the value of the relationships that Liberty had with its deposit customers. The fair value of this intangible asset was estimated based on a discounted cash flow methodology that gave appropriate consideration to expected customer attrition rates, cost of the deposit base and the net maintenance cost attributable to customer deposits.

Other assets

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

Deposits

– The fair values used for the demand and savings deposits that comprise the transaction accounts acquired, by definition equal the amount payable on demand at the acquisition date. The Company performed a fair value analysis of the estimated weighted average interest rate of Liberty’s certificates of deposits compared to the current market rates. Based on the results of the analysis, the estimated fair value adjustment was immaterial.

FHLB borrowings

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

Subordinated debentures

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

Accrued interest and other liabilities

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

During 2015 the Company finalized its analysis of the acquired loans and subordinated debentures along with the other acquired assets and assumed liabilities.

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

Community First Bancshares, Inc.

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

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

Goodwill of $110.4 million was recorded as a result of the transaction. The merger allowed the Company’s entrance into the Tennessee market and will serve as a launching platform for possible expansion into adjacent areas. The Company is able to achieve cost savings by integrating the two companies and combining accounting, data processing, and other administrative functions. Further the Company can benefit from the addition of Community First's small-business lending platform while cross-selling its trust products in Community First’s market. This combination of factors gave rise to the goodwill recorded. The goodwill will not be deductible for tax purposes.

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

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

Assets Acquired
Cash and due from banks	$	39,848		$	-		$	39,848
Federal funds sold		76,508			-			76,508
Investment securities		570,199			(3,381	)		566,818
Loans acquired, not covered by FDIC loss share		1,163,398			(26,855	)		1,136,543
Allowance for loan losses		(14,635	)		14,635			-
Foreclosed assets not covered by FDIC loss share		747			-			747
Premises and equipment		44,837			(2,794	)		42,043
Bank owned life insurance		22,149			-			22,149
Goodwill		100			(100	)		-
Core deposit intangible		-			11,273			11,273
Other intangibles		-			420			420
Deferred tax asset		3,700			3,538			7,238
Other assets		11,474			-			11,474
Total assets acquired	$	1,918,325		$	(3,264	)	$	1,915,061

Liabilities Assumed
Deposits:
Non-interest bearing transaction accounts	$	103,825		$	-		$	103,825
Interest bearing transaction accounts and savings deposits		995,207			-			995,207
Time deposits		436,181			849			437,030
Total deposits		1,535,213			849			1,536,062
Federal funds purchased and securities sold under agreement to repurchase		16,230			-			16,230
FHLB borrowings		143,047			674			143,721
Subordinated debentures		21,754			(840	)		20,914
Accrued interest and other liabilities		8,769			601			9,370
Total liabilities assumed		1,725,013			1,284			1,726,297
Equity		193,312			(193,312	)		-
Total equity assumed		193,312			(193,312	)		-
Total liabilities and equity assumed	$	1,918,325		$	(192,028	)	$	1,726,297
Net assets acquired								188,764
Purchase price								299,204
Goodwill							$	110,440

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

Cash and due from banks and federal funds sold

– The carrying amount of these assets is a reasonable estimate of fair value based on the short-term nature of these assets.

Investment securities

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

Loans acquired

Foreclosed assets held for sale

– These assets are presented at the estimated present values that management expects to receive when the properties are sold, net of related costs of disposal.

Premises and equipment

Bank owned life insurance

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

Goodwill

– The consideration paid as a result of the acquisition exceeded the fair value of the assets acquired, resulting in an intangible asset, goodwill, of $110.4 million. Goodwill established prior to the acquisition was written off.

Core deposit intangible

– This intangible asset represents the value of the relationships that Community First had with its deposit customers. The fair value of this intangible asset was estimated based on a discounted cash flow methodology that gave appropriate consideration to expected customer attrition rates, cost of the deposit base and the net maintenance cost attributable to customer deposits.

Other intangibles

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

Deferred tax asset

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

Other assets

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

Deposits

– The fair values used for the demand and savings deposits that comprise the transaction accounts acquired, by definition equal the amount payable on demand at the acquisition date. The Company performed a fair value analysis of the estimated weighted average interest rate of Community First’s certificates of deposits compared to the current market rates and recorded a fair value adjustment for the difference.

Federal funds purchased and securities sold under agreement to repurchase

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

FHLB borrowings

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

Subordinated debentures

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

Accrued interest and other liabilities

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

During 2015 the Company finalized its analysis of the acquired loans and subordinated debentures along with the other acquired assets and assumed liabilities.

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

Ozark Trust & Investment Corporation

On October 29, 2015, Simmons First National Corporation completed the acquisition of Ozark Trust & Investment Corporation (“Ozark Trust”), headquartered in Springfield, Missouri, including its wholly-owned non-deposit trust company, Trust Company of the Ozarks (“TCO”). Simmons issued 339,290 shares of its common stock valued at approximately $17.9 million as of October 29, 2015, plus $5.8 million in cash in exchange for all outstanding shares of Ozark Trust common stock.

Prior to the acquisition, Ozark Trust had over $1 billion in assets under management. The Company owned 1,000 shares of Ozark Trust’s common stock, which it acquired through its acquisition of Liberty in February 2015. The purchase price is allocated among the net assets of Ozark Trust acquired as appropriate, with the remaining balance being reported as goodwill.

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

(In thousands)	Acquired from Ozark Trust		Fair Value Adjustments			Fair Value

Assets Acquired
Cash	$	1,756	$	-		$	1,756
Investment securities		241		-			241
Premises and equipment		1,126		418			1,544
Other intangibles		-		9,733			9,733
Other assets		752		-			752
Total assets acquired	$	3,875	$	10,151		$	14,026

Liabilities Assumed
Deferred tax liability		63		3,982			4,045
Accrued and other liabilities		302		-			302
Total liabilities assumed		365		3,982			4,347
Equity		3,510		(3,510	)		-
Total equity assumed		3,510		(3,510	)		-
Total liabilities and equity assumed	$	3,875	$	472		$	4,347
Net assets acquired							9,679
Purchase price							23,623
Goodwill						$	13,944

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

Cash

– The carrying amount of these assets is a reasonable estimate of fair value based on the short-term nature of these assets.

Investment securities

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

Premises and equipment

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

Goodwill

– The consideration paid as a result of the acquisition exceeded the fair value of the assets acquired, resulting in an intangible asset, goodwill, of $13.9 million.

Other intangibles

– These intangible assets represent the value of the relationships that Ozark Trust had with their customers. The fair value of these intangible assets was estimated based on a combination of discounted cash flow methodology and a market valuation approach.

Other assets

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

Deferred tax liability

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

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

Citizens National Bank (Pending Acquisition)

On May 18, 2016, the Company entered into a stock purchase agreement (the “Agreement”) with Citizens National Bancorp, Inc. (“Citizens”) and Citizens National Bank (“CNB”) to acquire CNB, headquartered in Athens, Tennessee. CNB had assets of approximately $552 million at March 31, 2016. According to the terms of the Agreement, the Company will acquire all of the outstanding common stock of CNB. The transaction is valued at $77.0 million (based on the Company’s May 17, 2016 closing price). The purchase price will be allocated among the net assets of CNB acquired as appropriate, with the remaining balance being reported as goodwill. The transaction has received to the routine regulatory approval, but is subject to other customary closing conditions, including approval by the shareholders of Citizens. The transaction is expected to close during the third quarter of 2016. After closing, CNB is expected to continue operations as a separate bank subsidiary of the Company for an interim period until it is merged into Simmons Bank.