Note 31: FDIC-assisted Acquisition of Certain Assets and Liabilities of Valley Bank

12 Months Ended

Dec. 31, 2014

Notes

Note 31: FDIC-assisted Acquisition of Certain Assets and Liabilities of Valley Bank

Note 31:     FDIC-Assisted Acquisition of Certain Assets and Liabilities of Valley Bank

On June 20, 2014, Great Southern Bank entered into a purchase and assumption agreement with the FDIC to purchase a substantial portion of the loans and investment securities, as well as certain other assets, and assume all of the deposits, as well as certain other liabilities, of Valley Bank (“Valley”), a full-service bank headquartered in Moline, IL, with significant operations in Iowa. The provisional fair values of the assets acquired and liabilities assumed in the transaction were as follows:

	June 20,
	2014
(In Thousands)
Cash	$2,729
Due from banks	106,680
Cash and cash equivalents	109,409
Investment securities	88,513
Loans receivable, net of discount on loans purchased of $30,103	165,098
Accrued interest receivable	1,004
Premises	10,850
Core deposit intangible	2,800
Other assets	1,060
Total assets acquired	378,734
Liabilities
Demand and savings deposits	186,902
Time deposits	179,125
Total deposits	366,027
Securities sold under reverse repurchase agreements with customers	567
Accounts payable	561
Accrued interest payable	182
Advances from borrowers for taxes and insurance	592
Total liabilities assumed	367,929
Gain recognized on business acquisition	$10,805

Under the terms of the Purchase and Assumption Agreement, the FDIC agreed to transfer net assets to Great Southern at a discount of $37.5 million to compensate Great Southern for estimated losses related to the loans acquired. No premium was paid to the FDIC for the deposits, resulting in a net purchase discount of $37.5 million. Details related to the transfer are as follows:

	June 20,
	2014
(In Thousands)
Net liabilities as determined by the FDIC	$(21,897)
Cash transferred by the FDIC	59,394
Discount per Purchase and Assumption Agreement	37,497
Purchase accounting adjustments
Loans	(28,088)
Deposits	(399)
Investments	(1,005)
Core deposit intangible	2,800
Gain recognized on business acquisition	$10,805

The acquisition of the net assets of Valley was determined to constitute a business acquisition in accordance with FASB ASC 805. FASB ASC 805 allows a measurement period of up to one year to adjust initial fair value estimates as of the acquisition date. Therefore, provisional measurements of assets acquired and liabilities assumed were recorded on a preliminary basis at fair value on the date of acquisition. Based upon the preliminary acquisition date fair values of the net assets acquired, no goodwill was recorded. The transaction resulted in a preliminary bargain purchase gain of $10.8 million for the year ended June 30, 2014. The transaction also resulted in the recording of a deferred tax liability in the initial amount of $3.6 million.

The carrying amount of assets related to the Valley Bank transaction at June 20, 2014 (the acquisition date), consisted of impaired loans required to be accounted for in accordance with FASB ASC 310-30 and other loans not subject to the specific criteria of FASB ASC 310-30, but accounted for under the guidance of FASB ASC 310-30 (FASB ASC 310-30 by Policy Loans) as shown in the following table:

		FASB ASC
	FASB	310-30
	ASC	by
	310-30	Policy
	Loans	Loans	Total
(In Thousands)
Loans	$3,920	$161,178	$165,098

On the acquisition date, the preliminary estimate of the contractually required payments receivable for all FASB ASC 310-30 loans acquired was $5.7 million, the cash flows expected to be collected were $4.0 million including interest, and the estimated fair value of the loans was $3.9 million. These amounts were determined based upon the estimated remaining life of the underlying loans, which include the effects of estimated prepayments. At June 20, 2014, a majority of these loans were valued based on the liquidation value of the underlying collateral, because the expected cash flows were primarily based on the liquidation of underlying collateral and the timing and amount of the cash flows could not be reasonably estimated.

On the acquisition date, the preliminary estimate of the contractually required payments receivable for all FASB ASC 310-30 by Policy Loans acquired in the acquisition was $187.4 million, of which $28.4 million of cash flows were not expected to be collected, and the estimated fair value of the loans was $161.2 million. A majority of these loans were valued as of their acquisition dates based on the liquidation value of the underlying collateral, because the expected cash flows were primarily based on the liquidation of underlying collateral and the timing and amount of the cash flows could not be reasonably estimated.

At December 31, 2014, the Company has finalized its initial analysis of these assets and liabilities without adjustments to the preliminary estimated recorded carrying values.

The amount of the estimated cash flows expected to be received from the acquired loan pools in excess of the fair values recorded for the loan pools is referred to as the accretable yield. The accretable yield is recognized as interest income over the estimated lives of the loans. The initial accretable yield recorded for Valley was $23.0 million.