3. ACQUISITIONS

Acquisitions are an integral part of the Company’s growth strategy. All acquisitions were accounted for using the acquisition method of accounting. Accordingly, the assets and liabilities of the acquired entities were recorded at their fair values at the acquisition date. The excess of the purchase price over the estimated fair value of the net assets for tax-free acquisitions is recorded as goodwill, none of which is deductible for tax purposes. The excess of the purchase price over the estimated fair value of the net assets for taxable acquisitions was recorded as goodwill, and is deductible for tax purposes. The identified core deposit intangibles for each acquisition are being amortized using an accelerated basis over an estimated life of six to nineteen years. The results of operations for each acquisition have been included in the Company’s consolidated financial results beginning on the respective acquisition date.

The measurement period for the Company to determine the fair values of acquired identifiable assets and assumed liabilities will end at the earlier of (1) twelve months from the date of the acquisition or (2) as soon as the Company receives the information it was seeking about facts and circumstances that existed as of the acquisition date or learns that more information is not obtainable. The Company is currently in the process of finalizing fair values for certain acquired assets and assumed liabilities and therefore the following estimates for the Patriot acquisition are preliminary.

Patriot Bancshares, Inc. - On October 1, 2015, the Company completed the merger of Patriot with and into the Company and the merger of Patriot’s wholly-owned subsidiary, Patriot Bank with and into the Bank. Patriot, headquartered in Houston, TX, operated six locations in Houston, two in Dallas and one in Fannin County, Texas. As of September 30, 2015, Patriot, on a consolidated basis, reported total assets of $1.4 billion, total loans of $1.1 billion, total deposits of $1.1 billion and total shareholders’ equity of $125.2 million.

Under the terms of the merger agreement, we issued 10.4 million shares of the Company’s common stock, with a total fair value of $123.7 million based on the closing price on October 1, 2015 of $11.85 per share, for all outstanding shares of Patriot common stock, including the converted Series D and Series F preferred stock. In addition, Patriot’s $27.3 million Series B and Series C preferred stock were redeemed in connection with the closing. Consistent with the Company’s strategy, the primary reasons for the Patriot acquisition were to enhance market share in Houston and Dallas, and improve profitability through cost savings and revenue synergies.

In connection with the merger, we recognized $55.2 million of goodwill, $8.3 million of core deposit intangibles, and $7.3 million in net deferred tax assets as of December 31, 2015. These loans and deferred tax asset balances do not include subsequent fair value adjustments that are still being finalized. None of the goodwill recognized is expected to be deductible for income tax purposes.

The following table presents selected unaudited pro forma financial information reflecting the Patriot acquisition assuming it was completed as of January 1, 2014. The unaudited pro forma financial information is presented for illustrative purposes only and is not necessarily indicative of the financial results of the combined companies had the Patriot acquisition actually been completed at the beginning of the periods presented, nor does it indicate future results for any other interim or full fiscal year period. Pro forma basic and diluted earnings per common share were calculated using the Company’s actual weighted average shares outstanding for the periods presented, plus the incremental shares issued, assuming the Patriot acquisition occurred at the beginning of the periods presented. The unaudited pro forma information is based on the actual financial statements of the Company for the periods presented, and on the actual financial statements of Patriot for the 2014 period presented and in 2015 until the date of the Patriot acquisition, at which time Patriot’s results of operations were included in the Company’s financial statements.

The unaudited pro forma information, for the year ended December 31, 2015 and 2014, set forth below reflects adjustments related to (a) purchase accounting fair value adjustments; (b) amortization of core deposit and other intangibles; and (c) adjustments to interest income and expense due to amortization of premiums and accretion of discounts. Patriot acquisition related expenses incurred in the year ended December 31, 2015 are assumed to have occurred prior to January 1, 2014. Furthermore, the unaudited pro forma information does not reflect management’s estimate of any revenue enhancement opportunities or anticipated potential cost savings.


	Pro forma for the
	Year Ended December 31,
	2015		2014
	(Dollars in thousands, except per share amounts)

Net interest income	$	132,396	$	113,325
Noninterest income		20,635		22,140
Noninterest expense		93,074		94,282
Net income		26,545		25,680

Pro forma earnings per share:
Basic	$	0.72	$	0.78
Diluted		0.72		0.77

SP Bancorp, Inc. - On October 17, 2014, the Company completed the acquisition of SP Bancorp, Inc. and its wholly owned subsidiary SharePlus Bank. SharePlus Bank was a Texas chartered state bank headquartered in Plano, Texas, with four branches, two in Plano, Texas, one in Dallas, Texas and one in Louisville, Kentucky. The expansion complements the Company’s Dallas area growth. As of September 30, 2014, SharePlus, on a consolidated basis, had $348.7 million in total assets, $248.2 million in loans, $280.5 million in deposits and $33.7 million in stockholders’ equity. The acquisition was not considered significant to the Company’s financial statements and therefore pro forma financial data and related disclosures are not included.

Pursuant to the terms of the acquisition agreement, the Company paid $46.4 million in cash for all outstanding shares of SP Bancorp, Inc.’s capital stock, which resulted in goodwill of $14.5 million. Additionally, the Company recognized $3.5 million of core deposit intangibles as of December 31, 2014.

Acquisition Related Expenses - The Company incurred $4.8 million and $5.2 million of pre-tax acquisition related expenses during 2015 and 2014, respectively. The merger expenses are reflected on the Company's income statement for the applicable periods and are reported primarily in the categories of data processing, professional and regulatory fees, salaries and benefits, occupancy, software licenses and maintenance, marketing and other. Merger related costs incurred are presented in the table below by acquisition.


	2015		2014
	(Dollars in thousands)

Patriot Bancshares, Inc.	$	4,490	$	-
SP Bancorp, Inc.		386		5,226
Total	$	4,876	$	5,226