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Note 15: Disclosures About Fair Value of Financial Instruments: Fair Value FDIC Indemnification Asset Policy (Policies)
12 Months Ended
Dec. 31, 2017
Policies  
Fair Value FDIC Indemnification Asset Policy

 

FDIC Indemnification Asset

 

As part of certain Purchase and Assumption Agreements, the Bank and the FDIC entered into loss sharing agreements.  These agreements covered realized losses on loans and foreclosed real estate subject to certain limitations which are more fully described in Note 4.  All of these loss sharing agreements were mutually terminated by the Company and the FDIC during 2017 and 2016.

 

Under the InterBank agreement, the FDIC agreed to reimburse the Bank for 80% of realized losses.  The indemnification asset was originally recorded at fair value on the acquisition date (April 27, 2012) and at December 31, 2017 and 2016, the carrying value of the FDIC indemnification asset was $-0- million and $13.1 million, respectively.

 

The loss sharing assets were measured separately from the loan portfolios because they were not contractually embedded in the loans and were not transferable with the loans should the Bank have chosen to dispose of them.  Fair values on the acquisition dates were estimated using projected cash flows available for loss sharing based on the credit adjustments estimated for each loan pool and the loss sharing percentages.  These cash flows were discounted to reflect the uncertainty of the timing and receipt of the loss sharing reimbursements from the FDIC.  The loss sharing assets were also separately measured from the related foreclosed real estate.  Although the assets were contractual receivables from the FDIC, they did not have effective interest rates.  The Bank collected the assets over several years.  The amount ultimately collected was dependent on the timing and amount of collections and charge-offs on the acquired assets covered by the loss sharing agreements.  While the assets were recorded at their estimated fair values on the acquisition dates, it was not practicable to complete fair value analyses on a quarterly or annual basis.  Estimating the fair value of the FDIC indemnification asset would involve preparing fair value analyses of the entire portfolios of loans and foreclosed assets covered by the loss sharing agreements from all four acquisitions on a quarterly or annual basis.  The loss sharing agreements for TeamBank, Vantus Bank and Sun Security Bank were terminated on April 26, 2016, and the carrying value of the related indemnification assets became $-0-.  The loss sharing agreements for InterBank were terminated on June 9, 2017, and the carrying value of the related indemnification asset became $-0-.  The termination of the loss sharing agreements is discussed in Note 4.