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Note 4 - Goodwill

3 Months Ended

Mar. 31, 2012

Goodwill and Intangible Assets Disclosure [Text Block]

GOODWILL

As of March 31, 2012 and December 31, 2011, gross goodwill, accumulated impairment losses and net goodwill were $21.8 million, $7.5 million and $14.3 million, respectively. As of January 1, 2011, gross goodwill, accumulated impairment losses, and net goodwill were $21.8 million, $4.5 million, and $17.3 million, respectively. Impairment losses for the year ending December 31, 2011 were $3.0 million. There were no impairment losses for the three months ending March 31, 2012.

Goodwill is recorded on the acquisition date of each entity, and evaluated annually for possible impairment. Goodwill is required to be tested for impairment on an annual basis or as events occur or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. The Company’s only reporting unit with assigned goodwill is Metro United.

Annual Evaluation

The Company completed its 2011 annual impairment test based on information as of August 31, 2011. The review utilized guideline company and guideline transaction information where available, discounted cash flow analysis and the market capitalization of the Company to estimate the fair value of Metro United.

Due to the limited number of bank transaction multiples and fluctuations in market capitalization of peer banks used in the market methods, management put more weight on the income approach for the step one evaluation. The Company also performed a reconciliation of the estimated fair value to the stock price of the Company which was performed by first using the Company’s market price on a minority basis with an estimated control premium of 30%. The Company then allocated the total fair value to both of its reporting units, MetroBank and Metro United.

Under the discounted cash flow method, the Company used an average asset growth rate of 6.5% for the five-year period and discounted Metro United’s terminal value using a 10% rate of return. The Company also performed a sensitivity analysis utilizing additional discount rates ranging from 8% to 15%. An 8% discount rate indicated a fair value that was $9.8 million greater than carrying value, an 11% discount rate indicated that fair value and carrying value were approximately equal, and a 15% discount rate indicated a fair value that was $9.8 million less than the carrying value. The derived fair value of Metro United was compared with the carrying value of its equity. The fair value at the evaluation date exceeded the carrying value, therefore the Company determined there was no impairment of goodwill as of that date.

Year End Evaluation

The Company’s stock price continued to trade below book value per share after the annual test and an additional goodwill impairment test was conducted as of December 31, 2011. The test was similar to the annual test but the conclusion of value was mainly based on utilizing the market capitalization of the Company.

Under the step-one analysis, the Company allocated the market capitalization of the Company, adjusted for a 20% control premium, to Metro United based on a pro rata basis using various balance sheet metrics of Metro United and MetroBank.

The derived fair value of Metro United was lower than the carrying value of its equity; and therefore Metro United failed the step-one impairment test.

The Company then performed the step-two analysis to derive the implied fair value of goodwill. As a result of improved market liquidity and the increase in fair value of loan assets, the implied fair value of goodwill was below the carrying value as of the evaluation date by $3.0 million; and as a result, the Company recorded a goodwill impairment of $3.0 million as of December 31, 2011.

First Quarter Evaluation

The Company’s stock price traded below book value per share after the annual test and after the additional goodwill impairment test which was performed as of December 31, 2011. Although the Company’s stock price traded slightly above its book value as of March 31, 2012, the Company performed an impairment test as of March 31, 2012. The test was similar to the annual test, but the conclusion of value was mainly based on utilizing the market capitalization of the Company. Under the step-one analysis, the Company allocated the market capitalization of the Company, adjusted for a 20% control premium, to Metro United based on a pro rata basis using various balance sheet metrics of Metro United and MetroBank.

The derived fair value of Metro United was lower than the carrying value of its equity therefore the step-one impairment test failed, which was consistent with the year end test. The Company performed the step-two analysis to derive the implied fair value of goodwill. In this analysis, the estimated fair value of Metro United as of March 31, 2012 exceeded its respective carrying value in the step-two analysis; therefore, the Company determined there was no impairment of goodwill as of that date.

The size of the implied goodwill under the step-two analysis was significantly affected by the estimated fair value of the loans pertaining to Metro United and the Company’s stock price. The significant market risk adjustment, that is a consequence of the current market conditions, was a substantial contributor to the valuation discounts associated with Metro United’s loan portfolio. To the extent that market liquidity returns and the fair value of the individual assets or loans of Metro United increases at a faster rate than the fair value of Metro United as a whole, that may cause the implied goodwill to be lower than the carrying value of goodwill. Future potential changes in valuation assumptions may also impact the estimated fair value of Metro United, therefore resulting in additional impairment of the goodwill under the step-two analysis. The stock price performance of the Company and the fair value of Metro United's loans are factors that may impact the potential future goodwill impairment.

Goodwill impairment, if any, is a noncash adjustment to the Company’s financial statements. As goodwill and other intangible assets are not included in the calculation of regulatory capital, the Company’s well capitalized regulatory ratios are not affected. Subsequent reversal of goodwill impairment is prohibited.

- Definition

The entire disclosure for the aggregate amount of goodwill and a description of intangible assets, which may include (a) for amortizable intangible assets (also referred to as finite-lived intangible assets), the carrying amount, the amount of any significant residual value, and the weighted-average amortization period, (b) for intangible assets not subject to amortization (also referred to as indefinite-lived intangible assets), the carrying amount, and (c) the amount of research and development assets acquired and written off in the period, including the line item in the income statement in which the amounts written off are aggregated, if not readily apparent from the income statement. Also discloses (a) for amortizable intangibles assets in total and by major class, the gross carrying amount and accumulated amortization, the total amortization expense for the period, and the estimated aggregate amortization expense for each of the five succeeding fiscal years, (b) for intangible assets not subject to amortization the carrying amount in total and by major class, and (c) for goodwill, in total and for each reportable segment, the changes in the carrying amount of goodwill during the period (including the aggregate amount of goodwill acquired, the aggregate amount of impairment losses recognized, and the amount of goodwill included in the gain (loss) on disposal of a reporting unit). If any part of goodwill has not been allocated to a reportable segment, discloses the unallocated amount and the reasons for not allocating. For each impairment loss recognized related to an intangible asset (excluding goodwill), discloses: (a) a description of the impaired intangible asset and the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method for determining fair value, (c) the caption in the income statement or the statement of activities in which the impairment loss is aggregated, and (d) the segment in which the impaired intangible asset is reported. For each goodwill impairment loss recognized, discloses: (a) a description of the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method of determining the fair value of the associated reporting unit, and (c) if a recognized impairment loss is an estimate not finalized and the reasons why the estimate is not final. May also disclose the nature and amount of any significant adjustments made to a previous estimate of an impairment loss.

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