Note 16: Acquisition of Loans, Deposits and Branches

3 Months Ended

Mar. 31, 2016

Notes

Note 16: Acquisition of Loans, Deposits and Branches

NOTE 16:  ACQUISITION OF LOANS, DEPOSITS AND BRANCHES

On September 30, 2015, the Company announced that it entered into a purchase and assumption agreement to acquire 12 branches and related deposits and loans in the St. Louis, Mo., area from Cincinnati-based Fifth Third Bank. The acquisition was completed at the close of business on January 29, 2016.

The deposits assumed totaled approximately $229 million and had a weighted average rate of approximately 0.28%, the composition of which was: demand deposits and NOW accounts – 42%; money market accounts – 40%; and time deposits and IRAs – 18%.

The loans acquired totaled approximately $158 million and had a weighted average yield of approximately 3.92%, the composition of which was:  one- to four-family residential – 75%; commercial real estate – 8%; home equity lines – 10%; commercial business – 5%; and consumer and other – 2%.  The one- to four-family residential loans are primarily loans made to professional individuals in the St. Louis market, such as doctors and persons working in the field of medicine.  Approximately 55% of the total balance of these loans have fixed rates of interest for varying terms up to 30 years.  Approximately 45% of the total balance of these loans have rates of interest that are fixed for varying terms (generally three to seven years), with rates that adjust annually thereafter.

The Fifth Third banking centers presented an attractive franchise for the Company to acquire because it provided the opportunity for expansion in the Company’s existing St. Louis, Mo., market area through banking centers which, for the most part, held competitive market positions in transaction account deposits in desirable locations.  We have successfully grown loans and deposits in the St. Louis market for a number of years and this addition should provide new or enhanced opportunities for loan and deposit growth.  These new locations are in areas that enjoy significant business and consumer activity.  The Company was also able to increase its loan portfolio as part of the transaction.  The Company anticipates that this transaction will be accretive to earnings on a going-forward basis.

The fair values of the assets acquired and liabilities assumed in the transaction were as follows:

	January 29,
	2016
(In Thousands)
Assets
Cash and cash equivalents	$44,363
Loans receivable	157,524
Premises and equipment	17,990
Accrued interest receivable	410
Core deposit intangible	4,424
Deferred income taxes	100
Total assets acquired	224,811
Liabilities
Total deposits	228,528
Accrued interest payable	50
Advances from borrowers for taxes and insurance	403
Accounts payable and accrued expenses	20
Total liabilities assumed	228,598
Goodwill recognized on business acquisition	$4,069

This acquisition was determined to constitute a business combination 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, January 29, 2016.  Based upon the preliminary acquisition date fair values of the net liabilities acquired, goodwill of $4.2 million was recorded.  The goodwill will be deductible for tax purposes.  Details related to the purchase accounting adjustments are as follows:

	January 29,
	2016
(In Thousands)
Deposit premium per Purchase and Assumption Agreement	$(7,135)
Purchase accounting adjustments
Deposits	(277)
Loans	(1,340)
Deferred income taxes	100
Core deposit intangible	4,424
Goodwill recognized on business acquisition	$4,228