UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

Form 10-Q

QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period) and (2) has been subject to such filing requirements for the past 90 days.

YES   X       NO    

Indicate the number of shares outstanding of each of issuer’s classes of common stock.

SIMMONS FIRST NATIONAL CORPORATION

INDEX

Page No.

Part I: Summarized Financial Information

Simmons First National Corporation
Consolidated Balance Sheets
March 31, 2003 and December 31, 2002

ASSETS

See Condensed Notes to Consolidated Financial Statements.

3

Simmons First National Corporation
Consolidated Balance Sheets
March 31, 2003 and December 31, 2002

LIABILITIES AND STOCKHOLDERS’ EQUITY

See Condensed Notes to Consolidated Financial Statements.

4

Simmons First National Corporation
Consolidated Statements of Income
Three Months Ended March 31, 2003 and 2002

See Condensed Notes to Consolidated Financial Statements.

5

Simmons First National Corporation
Consolidated Statements of Cash Flows
Three Months Ended March 31, 2003 and 2002

See Condensed Notes to Consolidated Financial Statements.

6

Simmons First National Corporation
Consolidated Statements of Stockholders’ Equity
Three Months Ended March 31, 2003 and 2002

See Condensed Notes to Consolidated Financial Statements.

7

SIMMONS FIRST NATIONAL CORPORATION

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1:       ACCOUNTING POLICIES

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

        All adjustments made to the unaudited financial statements were of a normal recurring nature. In the opinion of management, all adjustments necessary for a fair presentation of the results of interim periods have been made. Certain prior year amounts are reclassified to conform to current year classification. The results of operations for the period are not necessarily indicative of the results to be expected for the full year.

        Certain information and note disclosures normally included in the Company’s annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Form 10-K annual report for 2002 filed with the Securities and Exchange Commission.

Allowance for Loan Losses

        The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to income. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.

        The allowance is maintained at a level considered adequate to provide for potential loan losses related to specifically identified loans as well as probable credit losses inherent in the remainder of the loan portfolio that have been incurred as of period end. This estimate is based on management’s evaluation of the loan portfolio, as well as on prevailing and anticipated economic conditions and historical losses by loan category. General reserves have been established, based upon the aforementioned factors and allocated to the individual loan categories. Allowances are accrued on specific loans evaluated for impairment for which the basis of each loan, including accrued interest, exceeds the discounted amount of expected future collections of interest and principal or, alternatively, the fair value of loan collateral. The unallocated reserve generally serves to compensate for the uncertainty in estimating loan losses, including the possibility of changes in risk ratings and specific reserve allocations in the loan portfolio as a result of the Company’s ongoing risk management system.

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        A loan is considered impaired when it is probable that the Company will not receive all amounts due according to the contractual terms of the loan. This includes loans that are delinquent 90 days or more, nonaccrual loans and certain other loans identified by management. Certain other loans identified by management consist of performing loans with specific allocations of the allowance for loan losses. Specific allocations are applied when quantifiable factors are present requiring a greater allocation than that established using the classified asset approach, as defined by the Office of the Comptroller of the Currency. Accrual of interest is discontinued and interest accrued and unpaid is removed at the time such amounts are delinquent 90 days, unless management is aware of circumstances which warrant continuing the interest accrual. Interest is recognized for nonaccrual loans only upon receipt and only after all principal amounts are current according to the terms of the contract.

Mortgage Loans Held For Sale

        Mortgage loans held for sale are carried at the lower of cost or fair value, determined using an aggregate basis. Write-downs to fair value are recognized as a charge to earnings at the time the decline in value occurs. Forward commitments to sell mortgage loans are acquired to reduce market risk on mortgage loans in the process of origination and mortgage loans held for sale. The forward commitments acquired by the Company for mortgage loans in process of origination are not mandatory forward commitments. These commitments are structured on a best efforts basis; therefore the Company is not required to substitute another loan or to buyback the commitment if the original loan does not fund. Gains and losses resulting from sales of mortgage loans are recognized when the respective loans are sold to investors. Gains and losses are determined by the difference between the selling price and the carrying amount of the loans sold, net of discounts collected or paid. Fees received from borrowers to guarantee the funding of mortgage loans held for sale are recognized as income or expense when the loans are sold or when it becomes evident that the commitment will not be used.

Earnings Per Share

        Basic earnings per share is computed based on the weighted average number of common shares outstanding during each year. Diluted earnings per share are computed using the weighted average common shares and all potential dilutive common shares outstanding during the period.

        The following is the computation of per share earnings for the three months ended March 31, 2003 and 2002. All share and per share data reflect the effect of the Company’s two for one stock split effective May 1, 2003.

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NOTE 2:       STOCK SPLIT

        On March 25, 2003 the Company announced the declaration of a two for one stock split. The stock split was distributed May 1, 2003 to shareholders of record as of April 18, 2003. As a result of the stock split, generally accepted accounting principles require the change be given retroactive effect in the accompanying consolidated financial statements. Thus, all per share amounts have been restated to reflect the retroactive effect of the stock split. The number of shares outstanding and stock options outstanding of the Company have not been restated.

NOTE 3:       ACQUISITIONS

        On July 19, 2002, the Company expanded its coverage in South Arkansas with the purchase of the Monticello location from HEARTLAND Community Bank. Simmons First Bank of South Arkansas, a wholly owned subsidiary of the Company, acquired the Monticello office. As of July 19, 2002, the new location had total loans of $8 million and total deposits of $13 million. As a result of this transaction, the Company recorded additional goodwill and core deposits of $1,058,000 and $217,000, respectively.

NOTE 4:       INVESTMENT SECURITIES

        The amortized cost and fair value of investment securities that are classified as held-to-maturity and available-for-sale are as follows:

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        The carrying value, which approximates the market value, of securities pledged as collateral, to secure public deposits and for other purposes, amounted to $314,759,000 at March 31, 2003 and $306,082,000 at December 31, 2002.

        The book value of securities sold under agreements to repurchase amounted to $53,053,000 and $43,060,000 for March 31, 2003 and December 31, 2002, respectively.

        Income earned on securities for the three months ended March 31, 2003 and 2002, is as follows:

        Maturities of investment securities at March 31, 2003 are as follows:

        There were no gross realized gains or losses as of March 31, 2003 and 2002.

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

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NOTE 5:       LOANS AND ALLOWANCE FOR LOAN LOSSES

        The various categories are summarized as follows:

        During the first three months of 2003, foreclosed assets held for sale decreased $279,000 to $2,426,000 and are carried at the lower of cost or fair market value. Other non-performing assets, non-accrual loans and other non-performing loans for the Company at March 31, 2003, were $418,000, $10,401,000 and $1,605,000, respectively, bringing the total of non-performing assets to $14,850,000.

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        Transactions in the allowance for loan losses are as follows:

        At March 31, 2003 and December 31, 2002, impaired loans totaled $18,244,000 and $14,646,000, respectively. All impaired loans had designated reserves for possible loan losses. Reserves relative to impaired loans at March 31, 2003, were $3,872,000 and $2,895,000 at December 31, 2002.

        Approximately, $115,000 and $182,000 of interest income were recognized on average impaired loans of $16,445,000 and $20,805,000 as of March 31, 2003 and 2002, respectively. Interest recognized on impaired loans on a cash basis during the first three months of 2003 and 2002 was immaterial.

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NOTE 6:       GOODWILL AND OTHER INTANGIBLES

        The carrying basis and accumulated amortization of core deposits (net of core deposits that were fully amortized) at March 31, 2003 and December 31, 2002, were as follows:

        Core deposit amortization expense recorded for the three months ended March 31, 2003 and 2002, was $26,000 and $28,000, respectively. The Company’s estimated amortization expense for each of the following five years is: 2003 - $98,000; 2004 - $94,000; 2005 - - $93,000; 2006 - $91,000 and 2007 - $79,000.

        Goodwill is tested annually for impairment. If the implied fair value of goodwill is lower than its carrying amount, goodwill impairment is indicated and goodwill is written down to its implied fair value. Subsequent increases in goodwill value are not recognized in the financial statements.

NOTE 7:       TIME DEPOSITS

        Time deposits include approximately $308,440,000 and $310,581,000 of certificates of deposit of $100,000 or more at March 31, 2003 and December 31, 2002, respectively.

NOTE 8:       INCOME TAXES

        The provision for income taxes is comprised of the following components:

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        The tax effects of temporary differences related to deferred taxes shown on the balance sheets are shown below:

15

        A reconciliation of income tax expense at the statutory rate to the Company’s actual income tax expense is shown below:

NOTE 9:       LONG-TERM DEBT

        Long-term debt at March 31, 2003 and December 31, 2002, consisted of the following components,

        The Company owns a wholly owned grantor trust subsidiary (the Trust) to issue preferred securities representing undivided beneficial interests in the assets of the respective Trust and to invest the gross proceeds of such preferred securities into notes of the Company. The sole assets of the Trust are $17.8 million aggregate principal amount of the Company’s 9.12% Subordinated Debenture Notes due 2027 which are currently redeemable. Trust preferred securities qualify as Tier 1 Capital for regulatory purposes.

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        Aggregate annual maturities of long-term debt at March 31, 2003, are:

NOTE 10:       CONTINGENT LIABILITIES

        A number of legal proceedings exist in which the Company and/or its subsidiaries are either plaintiffs or defendants or both. Most of the lawsuits involve loan foreclosure activities. The various unrelated legal proceedings pending against the subsidiary banks in the aggregate are not expected to have a material adverse effect on the financial position of the Company and its subsidiaries.

NOTE 11:       UNDIVIDED PROFITS

        The subsidiary banks are subject to a legal limitation on dividends that can be paid to the parent company without prior approval of the applicable regulatory agencies. The approval of the Comptroller of the Currency is required, if the total of all dividends declared by a national bank in any calendar year exceeds the total of its net profits, as defined, for that year combined with its retained net profits of the preceding two years. Arkansas bank regulators have specified that the maximum dividend limit state banks may pay to the parent company without prior approval is 75% of current year earnings plus 75% of the retained net earnings of the preceding year. At March 31, 2003, the bank subsidiaries had approximately $12 million available for payment of dividends to the Company, without prior approval of the regulatory agencies.

        The Federal Reserve Board’s risk-based capital guidelines include the definitions for (1) a well-capitalized institution, (2) an adequately-capitalized institution, and (3) an undercapitalized institution. The criteria for a well-capitalized institution are: a 5% “Tier l leverage capital” ratio, a 6% “Tier 1 risk-based capital” ratio, and a 10% “total risk-based capital” ratio. As of March 31, 2003, each of the seven subsidiary banks met the capital standards for a well-capitalized institution. The Company’s “total risk-based capital” ratio was 15.70% at March 31, 2003.

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NOTE 12:       STOCK OPTIONS AND RESTRICTED STOCK

        At March 31, 2003, the Company had stock options outstanding of 373,150 shares and stock options exercisable of 229,730 shares. During the first three months of 2003, there were 5,150 shares issued upon exercise of stock options, options for 4,850 shares expired and no additional stock options of the Company were granted. Also, no additional shares of common stock of the Company were granted or issued as bonus shares of restricted stock, during the first three months of 2003. This information has not been adjusted for the two for one stock split which was distributed to shareholders effective May 1, 2003.

NOTE 13:       ADDITIONAL CASH FLOW INFORMATION

NOTE 14:       CERTAIN TRANSACTIONS

        From time to time the Company and its subsidiaries have made loans and other extensions of credit to directors, officers, their associates and members of their immediate families. From time to time directors, officers and their associates and members of their immediate families have placed deposits with the Company’s subsidiary banks. Such loans, other extensions of credit and deposits were made in the ordinary course of business, on substantially the same terms (including interest rates and collateral) as those prevailing at the time for comparable transactions with other persons and did not involve more than normal risk of collectibility or present other unfavorable features.

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NOTE 15:       COMMITMENTS AND CREDIT RISK

        The seven affiliate banks of the Company grant agribusiness, commercial, consumer, and residential loans to their customers. Included in the Company’s diversified loan portfolio is unsecured debt in the form of credit card receivables that comprised approximately 13.2% and 14.4% of the portfolio, as of March 31, 2003 and December 31, 2002, respectively.

        Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since a portion of the commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Each customer’s creditworthiness is evaluated on a case-by-case basis. The amount of collateral obtained, if deemed necessary, is based on management’s credit evaluation of the counterparty. Collateral held varies, but may include accounts receivable, inventory, property, plant and equipment, commercial real estate and residential real estate.

        At March 31, 2003, the Company had outstanding commitments to extend credit aggregating approximately $221,172,000 and $306,405,000 for credit card commitments and other loan commitments, respectively. At December 31, 2002, the Company had outstanding commitments to extend credit aggregating approximately $216,167,000 and $289,389,000 for credit card commitments and other loan commitments, respectively.

        Letters of credit are conditional commitments issued by the bank subsidiaries of the Company, to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements, including commercial paper, bond financing, and similar transactions. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers. The Company had total outstanding letters of credit amounting to $3,826,000 and $2,474,000 at March 31, 2003 and December 31, 2002, respectively, with terms ranging from 90 days to one year.

NOTE 16:       IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS

        The Financial Accounting Standards Board recently issued Interpretation No. 45 (FIN 45), Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. FIN 45 requires a guarantor to recognize a liability for the fair value of the obligation undertaken in issuing a guarantee at its inception and prescribes disclosures regarding guarantees. The Interpretation applies only to guarantees issued or modified after December 31, 2002. Guarantees issued by the Bank are principally in the form of letters of credit. The adoption of FIN 45 did not have a material impact on the Company’s financial Statements.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

OVERVIEW

        Simmons First National Corporation achieved record first quarter earnings of $5,332,000, or $0.37 diluted earnings per share (stock spilt adjusted) for the three-month period ended March 31, 2003. These earnings reflect an increase of $391,000, or $0.03 per share over the March 31, 2002, earnings of $4,941,000, or $0.34 diluted earnings per share (stock split adjusted). Reference is made to the Capital discussion for additional information regarding the Company’s stock split.

        Return on average assets and return on average stockholders’ equity for the three-month period ended March 31, 2003, was 1.10% and 10.76%, compared to 1.00% and 10.79%, respectively, for the same period in 2002. The increase in first quarter earnings were primarily due to an improvement in the Company’s net interest margin and improved asset quality.

        Total assets for the Company at March 31, 2003, were $1.958 billion, a decrease of $19.4 million from the same figure at December 31, 2002. Average quarter to date total assets for the Company during the first quarter of 2003 was $1.972 billion, a decrease of $39.1 million over the average for the first quarter of 2002. Stockholders’ equity at the end of the first quarter of 2003 was $201.0 million, a $3.4 million, or 1.7%, increase from December 31, 2002.

        The allowance for loan losses as a percent of total loans equaled 1.74% and 1.75% as of March 31, 2003 and December 31, 2002, respectively. As of March 31, 2003, non-performing loans equaled 0.95% of total loans compared to 0.97% as of year-end 2002. As of March 31, 2003, the allowance for loan losses equaled 182% of non-performing loans compared to 179% at year-end 2002.

        Simmons First National Corporation is an Arkansas based, Arkansas committed, financial holding company, with community banks in Pine Bluff, Jonesboro, Lake Village, Rogers, Russellville, Searcy and El Dorado, Arkansas. The Company’s seven banks conduct financial operations from 64 offices, of which 62 are financial centers, in 34 communities throughout Arkansas.

CRITICAL ACCOUNTING POLICIES

Overview

        Management has reviewed its various accounting policies. After this review management believes the policies most critical to the Company are the policies associated with its lending practices including the accounting for the allowance for loan losses, treatment of goodwill, recognition of fee income, estimates of income taxes and employee benefit plan as it relates to stock options.

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Loans

        Loans the Company has the intent and ability to hold for the foreseeable future or until maturity or pay-offs are reported at their outstanding principal adjusted for any loans charged off and any deferred fees or costs on originated loans and unamortized premiums or discounts on purchased loans. Interest income is reported on the interest method and includes amortization of net deferred loan fees and costs over the estimated life of the loan. Generally, loans are placed on non-accrual status at ninety days past due and interest is considered a loss, unless the loan is well secured and in the process of collection.

        Discounts and premiums on purchased residential real estate loans are amortized to income using the interest method over the remaining period to contractual maturity, adjusted for anticipated prepayments. Discounts and premiums on purchased consumer loans are recognized over the expected lives of the loans using methods that approximate the interest method.

Allowance for Loan Losses

        The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to income. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.

        The allowance is maintained at a level considered adequate to provide for potential loan losses related to specifically identified loans as well as probable credit losses inherent in the remainder of the loan portfolio that have been incurred as of period end. This estimate is based on management’s evaluation of the loan portfolio, as well as on prevailing and anticipated economic conditions and historical losses by loan category. General reserves have been established, based upon the aforementioned factors and allocated to the individual loan categories. Allowances are accrued on specific loans evaluated for impairment for which the basis of each loan, including accrued interest, exceeds the discounted amount of expected future collections of interest and principal or, alternatively, the fair value of loan collateral. The unallocated reserve generally serves to compensate for the uncertainty in estimating loan losses, including the possibility of changes in risk ratings and specific reserve allocations in the loan portfolio as a result of the Company’s ongoing risk management system.

        A loan is considered impaired when it is probable that the Company will not receive all amounts due according to the contractual terms of the loan. This includes loans that are delinquent 90 days or more, nonaccrual loans and certain other loans identified by management. Certain other loans identified by management consist of performing loans with specific allocations of the allowance for loan losses. Specific allocations are applied when quantifiable factors are present requiring a greater allocation than that established using the classified asset approach, as defined by the Office of the Comptroller of the Currency. Accrual of interest is discontinued and interest accrued and unpaid is removed at the time such amounts are delinquent 90 days, unless management is aware of circumstances which warrant continuing the interest accrual. Interest is recognized for nonaccrual loans only upon receipt and only after all principal amounts are current according to the terms of the contract.

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Goodwill

        Goodwill represents the excess of cost over the fair value of net assets of acquired subsidiaries and branches. Financial Accounting Standards Board Statement No. 142 and No. 147 eliminated the amortization for these assets as of January 1, 2002. Although, goodwill is not being amortized, it is being tested annually for impairment.

Fee Income

        Periodic bankcard fees, net of direct origination costs, are recognized as revenue on a straight-line basis over the period the fee entitles the cardholder to use the card. Origination fees and costs for other loans are being amortized over the estimated life of the loan.

Income Taxes

        Deferred tax assets and liabilities are recognized for the tax effects of differences between the financial statement and tax bases of assets and liabilities. A valuation allowance is established to reduce deferred tax assets if it is more likely than not that a deferred tax asset will not be realized.

Employee Benefit Plans

        The Company has a stock-based employee compensation plan. The Company accounts for this plan under recognition and measurement principles of APB Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations. No stock-based employee compensation cost is reflected in net income, as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the grant date.

ACQUISITIONS

        On July 19, 2002, the Company expanded its coverage in South Arkansas with the purchase of the Monticello location from HEARTLAND Community Bank. Simmons First Bank of South Arkansas, a wholly owned subsidiary of the Company, acquired the Monticello office. As of July 19, 2002, the new location had total loans of $8 million and total deposits of $13 million. As a result of this transaction, the Company recorded additional goodwill and core deposits of $1,058,000 and $217,000, respectively.

SALE OF MORTGAGE SERVICING

        On June 30, 1998, the Company sold its $1.2 billion residential mortgage-servicing portfolio. As a result of this sale, the Company established a $1.0 million reserve for potential liabilities under certain representations and warranties on the sale date. The balance for this reserve was $807,000 as of March 31, 2003. The potential liability for the representations and warranties for the mortgage-servicing sale will expire on June 30, 2003, and until that time the buyer has the ability to make claims on the entire balance. As such, management believes it is necessary to maintain the reserve until the term expires. If there is a remaining balance in the representations and warranties reserve, it will be reflected as an additional gain on sale of mortgage servicing on the expiration date.

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NET INTEREST INCOME

        Net interest income, the Company’s principal source of earnings, is the difference between the interest income generated by earning assets and the total interest cost of the deposits and borrowings obtained to fund those assets. Factors that determine the level of net interest income include the volume of earning assets and interest bearing liabilities, yields earned and rates paid, the level of non-performing loans and the amount of non-interest bearing liabilities supporting earning assets. Net interest income is analyzed in the discussion and tables below on a fully taxable equivalent basis. The adjustment to convert certain income to a fully taxable equivalent basis consists of dividing tax-exempt income by one minus the combined federal and state income tax rate (37.50% for March 31, 2003 and 2002).

        Throughout 2001, the Federal Reserve Bank steadily decreased the Federal Funds rate by a total of 475 basis points to 1.75% in an effort to stimulate economic growth. In 2002, the Federal Reserve continued to decrease the Federal Funds rate from 1.75% at the end of 2001 to 1.25% at the end of 2002. This declining rate environment contributed to the decline in interest income. This decline was more than offset by a decline in interest expense, driven by the declining interest rate environment, which resulted in growth in net interest income.

        For the three-month period ended March 31, 2003, net interest income on a fully taxable equivalent basis was $19.7 million, an increase of $758,000, or 4.0%, from the same period in 2002. The increase in net interest income was the result of a $3.1 million decrease in interest income and a $3.8 million decrease in interest expense. As a result, the net interest margin improved 25 basis points to 4.39% for the three-month period ended March 31, 2003, when compared to 4.14% for the same period in 2002.

        The $3.1 million decrease in interest income primarily is the result of a 55 basis point decrease in the yield earned on earning assets associated with the lower interest rates environment. The lower interest rates accounted for $2.9 million, or 95.5%, of the decrease in interest income. More specifically, $2.2 million of the decrease is associated with the repricing of the Company’s loan portfolio that resulted from loans that matured during the period or were tied to a rate that fluctuated with changes in market rates. Historically, approximately 70% of the Company’s loan portfolio reprices in one year or less. As a result, the average rate paid on the loan portfolio decreased 70 basis points from 7.92% to 7.22%.

        The $3.8 million decrease in interest expense is the result of a 91 basis point decrease in cost of funds, due to repricing opportunities during the lower interest rate environment last year. The lower interest rates accounted for $3.3 million, or 86.3%, of the decrease in interest expense. More specifically, $2.6 million of the decrease is associated with management’s ability to reprice the Company’s time deposits that resulted from time deposits that matured during the period or were tied to a rate that fluctuated with changes in market rates. Historically, approximately 85% of the Company’s time deposits reprice in one year or less. As a result, the average rate paid on time deposits decreased 125 basis points from 4.01% to 2.76%. Also, contributing to the decrease in interest expense was the $57 million decline in interest bearing liabilities. While this decline resulted in a $522,000 decrease in interest expense, it was a strategic decision made by the Company to allow interest bearing liabilities to decrease in the same relationship as the decrease in earning assets.

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        Table 1 and 2 reflect an analysis of net interest income on a fully taxable equivalent basis for the three-month periods ended March 31, 2003 and 2002, respectively, as well as changes in fully taxable equivalent net interest margin for the three-month periods ended March 31, 2003 versus March 31, 2002.

Table 1: Analysis of Net Interest Income
(FTE =Fully Taxable Equivalent)

Table 2: Changes in Fully Taxable Equivalent Net Interest Margin

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        Table 3 shows, for each major category of earning assets and interest bearing liabilities, the average (computed on a daily basis) amount outstanding, the interest earned or expensed on such amount and the average rate earned or expensed for the periods ended March 31, 2003 and 2002. 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

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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, 2003, as compared to the same period of the prior year. 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

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PROVISION 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, in order to maintain the allowance for loan losses at a level, which is considered adequate, in relation to the estimated risk inherent in the loan portfolio. The provision for the three-month period ended March 31, 2003 and 2002, was $2.197 and $2.361 million, respectively. The decrease in the provision for loan losses for the first quarter 2003 reflects the improvement in asset quality from March 31, 2002 to 2003.

NON-INTEREST INCOME

        Total non-interest income was $9.3 million for the three-month period ended March 31, 2003, compared to $8.4 million for the same period in 2002. Non-interest income is principally derived from recurring fee income, which includes service charges, trust fees and credit card fees. Non-interest income also includes income on the sale of mortgage loans and investment banking profits.

        Table 5 shows non-interest income for the three-month periods ended March 31, 2003 and 2002, respectively, as well as changes in 2003 from 2002.

Table 5: Non-Interest Income

        Recurring fee income for the three-month period ended March 31, 2003, was $6.8 million, an increase of $451,000, or 7.1% from the three-month period ended March 31, 2002. For the three-month period ended March 31, 2003, trust fees and service charges on deposit accounts increased $186,000 and $216,000 from the March 31, 2002, level. The increase in trust fees for 2003 is the result of extra work that was performed on one estate that settled during the first quarter of 2003. The increase in service charges on deposit accounts for 2003 is primarily the result of an improved fee structure.

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        During the three-month period ended March 31, 2003, income on the sale of mortgage loans and income on investment banking increased $353,000 and $265,000 from the same period during 2002. These increases were the result of a higher volume for those products during the first quarter of 2003 compared to the first quarter of 2002. The lower interest rate environment primarily drove the volume increases.

        During the first quarter ended March 31, 2002, the Company recorded one item in other income that was of a non-recurring nature. This item was a gain on the sale of one of the Company’s branch facilities in the Northwest Arkansas area.

NON-INTEREST EXPENSE

        Non-interest expense consists of salaries and employee benefits, occupancy, equipment, foreclosure losses and other expenses necessary for the operation of the Company. Management remains committed to controlling the level of non-interest expense, through the continued use of expense control measures that have been installed. The Company utilizes an extensive profit planning and reporting system involving all affiliates. Based on a needs assessment of the business plan for the upcoming year, monthly and annual profit plans are developed, including manpower and capital expenditure budgets. These profit plans are subject to extensive initial reviews and monitored by management on a monthly basis. Variances from the plan are reviewed monthly and, when required, management takes corrective action intended to ensure financial goals are met. Management also regularly monitors staffing levels at each affiliate, to ensure productivity and overhead are in line with existing workload requirements.

        Non-interest expense for the three-month period ended March 31, 2003, was $18.2 million, an increase of $1.2 million or 6.8%, from the same period in 2002. The increase in non-interest expense during the first three months of 2003, compared to the first three months of 2002 is primarily derived from the $792,000 increase in salary and employee benefits and a $205,000 increase in occupancy expense. The salary and employee benefits increase is associated with normal salary adjustments and the increased cost of health insurance. While the increase in occupancy expense was due to accelerated depreciation on two branches that the Company plans to replace in the near future, combined with the increased costs of the new headquarters that opened in one of our community banks in third quarter of 2002.

        Table 6 below shows non-interest expense for the periods ended March 31, 2003 and 2002, respectively, as well as changes to the first three months of 2003 from first three months of 2002, respectively.

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Table 6: Non-Interest Expense