BUSINESS COMBINATION

12 Months Ended

Dec. 31, 2011

BUSINESS COMBINATION

NOTE C – BUSINESS COMBINATION

On September 16, 2011 the Company completed the purchase of seven (7) branches located on the Mississippi Gulf Coast and one (1) branch located in Bogalusa, Louisiana from Whitney National Bank and Hancock Bank of Louisiana (the “Whitney branches”). As part of the agreement, the Company purchased loans of $46.8 million and assumed deposit liabilities of $179.3 million, and purchased the related fixed assets and cash of the branches. The Company operates the acquired bank branches under the name The First, A National Banking Association. The acquisition allowed the Company to expand its presence in South Mississippi as well as enter a new market in Louisiana. The Company’s condensed consolidated statements of income include the results of operations of the Whitney branches from the closing date of the acquisition.

In connection with the acquisition, the Company recorded $8.7 million of goodwill and $2.4 million of core deposit intangible. The core deposit intangible of $2.4 million will be expensed over 10 years. The recorded goodwill is deductible for tax purposes. The Company acquired the $46.8 million loan portfolio at a fair value discount of $.7 million. The discount represents expected credit losses, adjustments to market interest rates and liquidity adjustments. The noncredit quality portion of the discount was $.1 million and the credit quality portion of the discount was $.6 million.

The amounts of the acquired identifiable assets and liabilities as of the acquisition date were as follows (dollars in thousands):

Purchase price
Cash	$	9,100
Total purchase price		9,100
Identifiable assets:
Cash		125,243
Loans, leases and interest receivable		46,118
Core deposit intangible		2,402
Personal and real property		7,481
Other assets		95
Total assets		181,339
Liabilities and equity:
Deposits and interest payable		179,196
Other liabilities		1,703
Total liabilities		180,899
Net assets acquired	$	440
Goodwill resulting from acquisition	$	8,660

Interest income of $693,000 was recorded on loans acquired in the Whitney branch acquisition. The outstanding principal balance and the carrying amount of these loans included in the consolidated balance sheet at December 31, 2011 were as follows (dollars in thousands):

Outstanding principal balance	$	39,426
Carrying amount		38,830

All loans obtained in the acquisition of the Whitney branches reflect no specific evidence of credit deterioration and very low probability that the Company would be unable to collect all contractually required principal and interest payments.

The following unaudited pro forma financial information presents the combined results of operations as if the acquisition had been effective January 1, 2010. These results include the impact of amortizing certain purchase accounting adjustments such as intangible assets, compensation expenses and the impact of the acquisition on income tax expense. There were no material nonrecurring pro forma adjustments directly attributable to the acquisition included within the following pro forma financial information. The pro forma financial information does not necessarily reflect the results of operations that would have occurred had the combination constituted a single entity during such periods. Growth opportunities are expected to be achieved in various amounts at various times during the years subsequent to the acquisition and not ratably over, or at the beginning or end of such periods. No adjustments have been reflected in the following pro forma financial information for anticipated growth opportunities.

	Year Ended December 31,
(In thousands)	2011		2010
	(Unaudited)
Interest income	$	28,860	$	27,838
Net income		3,328		3,032

Acquisition-related expenses associated with the acquisition of the Whitney branches were $651,000 for the twelve month period ended December 31, 2011, which are included in other expenses of the income statement. Such costs included principally system conversion and integrating operations charges which have been expensed as incurred.