ACQUISITION ACTIVITY

12 Months Ended

Dec. 31, 2011

ACQUISITION ACTIVITY [Abstract]

ACQUISITION ACTIVITY

2.  ACQUISITION ACTIVITY

On July 29, 2011, the Bank purchased all five former Jefferson Bank locations in the Dallas-Fort Worth, Texas area. The Bank acquired the branch network from First Bank and Trust Company, which purchased Jefferson Bank's assets in connection with the bankruptcy of Jefferson Bank's parent company.  The Bank acquired at fair value approximately $57.7 million in performing loans and assumed approximately $165.8 million in Jefferson Bank deposits for a purchase price of approximately $10.4 million.

On December 1, 2011, the Bank purchased substantially all of the assets of First Louisiana National Bank (“FLNB”), a wholly owned subsidiary of First Bankshares of St. Martin, Ltd, for total consideration of $20.3 million, which resulted in preliminary goodwill of $4.1 million, as shown in the following table (in thousands):

	Number of Shares		Amount
Equity consideration:
Common stock issued		725,000	$	8,838
Non-equity consideration:
Cash				11,500
Total consideration paid				20,338
Fair value of net assets acquired including identifiable intangible assets				(16,230	)
Goodwill			$	4,108

On December 2, 2011, the Bank purchased the Tyler, Texas branch of Beacon Federal, a wholly owned federal savings bank of Beacon Federal Bancorp, Inc.  The Bank acquired at fair value approximately $22.2 million in performing loans and assumed approximately $79.8 million in Beacon Federal deposits.

The three transactions were accounted for using the acquisition method of accounting, and accordingly, assets acquired, liabilities assumed and consideration exchanged were recorded at their estimated fair values on the acquisition dates. Fair values are preliminary and subject to refinement for up to one year after the closing date of the acquisition as additional information relative to fair values become available.  Assets acquired totaled $370.4 million, including $127.8 million in loans, $177.2 million in cash, $32.8 million of investment securities, $7.8 million of fixed assets and $23.0 million of intangibles.  Liabilities assumed were $350.0 million, including $349.6 million of deposits.

Preliminary goodwill of $15.7 million is calculated as the purchase premium after adjusting for the fair value of net assets acquired and represents the value expected from the synergies created from combining the businesses as well as the economies of scale expected from combining the operations of the acquired banks with those of the Bank.

The following table provides the assets purchased and the liabilities assumed and the adjustments to fair value for the Jefferson Bank acquisition (in thousands):

Assets	As Recorded By Jefferson		Fair Value Adjustments			Fair Value
Cash	$	93,800	$	-		$	93,800
Investment securities		175		-			175
Loans receivable		59,818		(2,124	)		57,694
Fixed assets		2,240		1,392			3,632
Core deposit intangible		-		2,702			2,702
Other assets		327		-			327
Total assets acquired	$	156,360	$	1,970		$	158,330
Liabilities
Deposits	$	164,368	$	1,405		$	165,773
Other liabilities		283		-			283
Total liabilities assumed		164,651		1,405			166,056
Excess of liabilities assumed over assets acquired	$	8,291
Aggregate fair value adjustments			$	565
Goodwill						$	7,726

The following table provides the assets purchased and the liabilities assumed and the adjustments to fair value for the FLNB acquisition (in thousands):

Assets	As Recorded By FLNB		Fair Value Adjustments			Fair Value
Cash	$	31,208	$	-		$	31,208
Time deposits held in banks		710		-			710
Investment securities		32,625		(1	)		32,624
Other investments		140		-			140
Loans receivable		48,645		(693	)		47,952
Fixed assets		2,234		1,445			3,679
Core deposit intangible		-		3,434			3,434
Other assets		641		-			641
Total assets acquired	$	116,203	$	4,185		$	120,388
Liabilities
Deposits	$	103,857	$	134		$	103,991
Other liabilities		167		-			167
Total liabilities assumed	$	104,024	$	134		$	104,158

The following table provides the assets purchased and the liabilities assumed and the adjustments to fair value for the Beacon Federal acquisition (in thousands):

Assets	As Recorded By Beacon		Fair Value Adjustments			Fair Value
Cash	$	52,170	$	-		$	52,170
Loans receivable		23,760		(1,600	)		22,160
Fixed assets		288		153			441
Core deposit intangible		-		1,126			1,126
Other assets		51		-			51
Total assets acquired	$	76,269	$	(321	)	$	75,948
Liabilities
Deposits	$	76,466	$	3,331		$	79,797
Other liabilities		5		-			5
Total liabilities assumed		76,471		3,331			79,802
Excess of liabilities assumed over assets acquired	$	202
Aggregate fair value adjustments			$	(3,652	)
Goodwill						$	3,854

The discounts on loans receivable will be accreted to interest income over the estimated average life of the loans using the level yield method. The core deposit intangible assets are being amortized over a 10 year life on an accelerated basis. The deposit premiums will be amortized over the average life of the related deposits as a reduction of interest expense.

The following table provides a reconciliation of goodwill:

Balance, December 31, 2010	$	9,271
Addition: Jefferson Bank		7,726
Addition: First Louisiana National Bank		4,108
Addition: Beacon Federal		3,854
Balance, December 31, 2011	$	24,959

In many cases, determining the fair value of the acquired assets and assumed liabilities requires the Company to estimate cash flows expected to result from those assets and liabilities and to discount those cash flows at appropriate rates of interest. The most significant of those determinations related to the fair valuation of acquired loans. For such loans, the excess of cash flows expected at acquisition over the estimated fair value is recognized as interest income over the remaining lives of the loans.  Management determined that the acquired loans were performing and that there was no evidence of credit quality deterioration. Therefore, these loans are accounted for under ASC 310-20, and, accordingly, contractual cash flows equal the expected cash flows. The loans are categorized into different loan pools per loan types. The Company determined expected cash flows on the acquired loans based on the best available information at the date of acquisition.  In accordance with GAAP, there was no carry-over of each acquired bank's previously established allowance for loan losses.