Note 3 - Acquisition

3 Months Ended

Mar. 31, 2015

Business Combinations [Abstract]

Business Combination Disclosure [Text Block]

3. ACQUISITION

On June 13, 2014, the Company completed its acquisition of FNSC whereby FNSC merged with and into the Company in a transaction valued at approximately $124.4 million. In connection with the merger, former FNSC stockholders received in the aggregate 6,252,400 shares of Company common stock, valued at approximately $50.4 million and $74 million in cash in exchange for 100% of the outstanding shares of FNSC common stock. The Company paid $50 million of the total cash consideration and FNSC paid $24 million of the total cash consideration to its stockholders from funds it received immediately prior to the closing of the acquisition from its subsidiary bank, First National Bank. The acquisition expanded the Company’s market into Northeast and Southwest Arkansas and further diversified the Company’s loan, customer and deposit base.

The following table provides a summary of the assets acquired and liabilities assumed as recorded by FNSC, the fair value adjustments necessary to adjust those acquired assets and assumed liabilities to estimated fair value, and the resultant fair values of those assets and liabilities as recorded by the Company. As provided for under GAAP, management has up to 12 months following the date of acquisition to finalize the fair values of the acquired assets and assumed liabilities. The estimated fair values are subject to refinement as additional information relative to the closing date fair values becomes available through the measurement period. The goodwill recognized by the Company will not be deductible for income tax purposes.

	June 13, 2014
	As Recorded by FNSC			Fair Value Adjustments			As Recorded by the Company
	(Dollars in thousands)
Assets acquired:
Cash and cash equivalents	$	41,015		$	--		$	41,015
Federal funds sold		43,025			--			43,025
Investment securities available for sale		138,140			--			138,140
Other investment securities, at cost		7,480			--			7,480
Loans receivable		622,758			(17,294	)		605,464
Allowance for loan losses		(13,179	)		13,179			--
Loans receivable, net		609,579			(4,115	)		605,464
Accrued interest receivable		2,954			--			2,954
Real estate owned - net		69			--			69
Office properties and equipment, net		33,074			(2,775	)		30,299
Cash surrender value of life insurance		1,935			--			1,935
Core deposit intangible		568			7,109			7,677
Deferred tax asset, net		542			(51	)		491
Prepaid expenses and other assets		2,899			362			3,261
Total assets acquired		881,280			530			881,810
Liabilities assumed:
Deposits – noninterest bearing		151,331			--			151,331
Deposits – interest bearing		611,841			366			612,207
Total deposits		763,172			366			763,538
Short term borrowings		14,295			--			14,295
Other borrowings		27,434			64			27,498
Other liabilities		1,802			--			1,802
Total liabilities assumed		806,703			430			807,133
Net assets acquired	$	74,577		$	100			74,677
Consideration paid:
Cash								50,000
Common stock								50,394
Total consideration paid								100,394
Goodwill							$	25,717

The following is a description of the fair value adjustments used to determine the fair values of assets and liabilities presented above:

Loans – 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 fair value adjustment reflects the elimination of the recorded allowance for loan and lease losses.

Office properties and equipment – Office properties and equipment were acquired from FNSC with a $2.8 million adjustment to market value. This represents the difference between current appraisal value completed in connection with the acquisition and FNSC’s book value at the time of acquisition.

Deferred tax asset – Deferred income tax assets and liabilities are recorded to reflect the differences in the carrying values of the acquired assets and assumed liabilities for financial reporting purposes and the cost basis for federal income tax purposes, at the Company’s statutory federal and state income tax rate of 38.29%.

Core deposit intangible – This intangible asset represents the value of the relationships that FNSC 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. The Company recorded a $7.7 million core deposit intangible with a weighted average life of 12.3 years.

Deposits – The weighted average interest rate of FNSC’s time deposits was estimated to be slightly above the current market rates, resulting in a $366,000 fair value adjustment for time deposits.

Other borrowings – The fair value of Federal Home Loan Bank of Dallas (“FHLB”) borrowed funds is estimated based on borrowing rates currently available to the Company for borrowings with similar terms and maturities.