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NOTE 7: ACQUIRED LOANS, LOSS SHARING AGREEMENTS AND FDIC INDEMNIFICATION ASSETS
 6 Months Ended
Jun. 30, 2020
Notes  
NOTE 7: ACQUIRED LOANS, LOSS SHARING AGREEMENTS AND FDIC INDEMNIFICATION ASSETS

NOTE 7: FDIC-ASSISTED ACQUIRED LOANS

 

On March 20, 2009, Great Southern Bank entered into a purchase and assumption agreement with loss share with the Federal Deposit Insurance Corporation (FDIC) to assume all of the deposits (excluding brokered deposits) and acquire certain assets of TeamBank, N.A., a full service commercial bank headquartered in Paola, Kansas.  The related loss sharing agreement was terminated early, effective April 26, 2016, by mutual agreement of Great Southern Bank and the FDIC.  Based upon the acquisition date fair values of the net assets acquired, no goodwill was recorded.

 

On September 4, 2009, Great Southern Bank entered into a purchase and assumption agreement with loss share with the FDIC to assume all of the deposits and acquire certain assets of Vantus Bank, a full service thrift headquartered in Sioux City, Iowa. The related loss sharing agreement was terminated early, effective April 26, 2016, by mutual agreement of Great Southern Bank and the FDIC.  Based upon the acquisition date fair values of the net assets acquired, no goodwill was recorded.

 

On October 7, 2011, Great Southern Bank entered into a purchase and assumption agreement with loss share with the FDIC to assume all of the deposits and acquire certain assets of Sun Security Bank, a full service bank headquartered in Ellington, Missouri. The related loss sharing agreement was terminated early, effective April 26, 2016, by mutual agreement of Great Southern Bank and the FDIC.  Based upon the acquisition date fair values of the net assets acquired, no goodwill was recorded.

 

On April 27, 2012, Great Southern Bank entered into a purchase and assumption agreement with loss share with the FDIC to assume all of the deposits and acquire certain assets of Inter Savings Bank, FSB (“InterBank”), a full service bank headquartered in Maple Grove, Minnesota. The related loss sharing agreement was terminated early, effective June 9, 2017, by mutual agreement of Great Southern Bank and the FDIC.  Based upon the acquisition date fair values of the net assets acquired, no goodwill was recorded.

 

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, a full-service bank headquartered in Moline, Illinois, with significant operations in Iowa.  This transaction did not include a loss sharing agreement.  Based upon the acquisition date fair values of the net assets acquired, no goodwill was recorded.

 

The following table presents the balances of the acquired loans related to the various FDIC-assisted transactions at June 30, 2020 and December 31, 2019.

 

 

 

 

 

 

 

 

 

Sun Security

 

 

 

 

 

 

 

 

 

TeamBank

 

 

Vantus Bank

 

 

Bank

 

 

InterBank

 

 

Valley Bank

 

 

 

(In Thousands)

 

 

 

 

 

 

June 30, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross loans receivable

$

6,380 

 

$

8,953 

 

$

15,298 

 

$

52,327 

 

$

33,565 

 

Balance of accretable discount
due to change in expected losses

 

(120)

 

 

(53)

 

 

(251)

 

 

(2,665)

 

 

(1,076)

 

Net carrying value to loans receivable

 

(6,231)

 

 

(8,887)

 

 

(14,919)

 

 

(48,851)

 

 

(31,773)

 

Expected loss remaining

$

29 

 

$

13 

 

$

128 

 

$

811 

 

$

716 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross loans receivable

$

7,304 

 

$

9,899 

 

$

17,906 

 

$

60,430 

 

$

41,032 

 

Balance of accretable discount
due to change in expected losses

 

(159)

 

 

(89)

 

 

(374)

 

 

(5,143)

 

 

(1,803)

 

Net carrying value to loans receivable

 

(7,118)

 

 

(9,797)

 

 

(17,392)

 

 

(54,442)

 

 

(38,452)

 

Expected loss remaining

$

27 

 

$

13 

 

$

140 

 

$

845 

 

$

777 

 

 

 

Fair Value and Expected Cash Flows.  At the time of these acquisitions, the Company determined the fair value of the loan portfolios based on several assumptions. Factors considered in the valuations were projected cash flows for the loans, type of loan and related collateral, classification status, fixed or variable interest rate, term of loan, current discount rates and whether or not the loan was amortizing. Loans were grouped together according to similar characteristics and were treated in the aggregate when applying various valuation techniques. Management also estimated the amount of credit losses that were expected to be realized for the loan portfolios. The discounted cash flow approach was used to value each pool of loans. For non-performing loans, fair value was estimated by calculating the present value of the recoverable cash flows using a discount rate based on comparable corporate bond rates.

 

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 Company continues to evaluate the fair value of the loans including cash flows expected to be collected.  Increases in the Company’s cash flow expectations are recognized as increases to the accretable yield while decreases are recognized as impairments through the allowance for loan losses.  During the three months ended June 30, 2020 and 2019, improvements in expected cash flows (reclassification of discounts from non-accretable to accretable) related to the acquired loan portfolios resulted in adjustments of $0 and $3.7 million, respectively, to the accretable yield to be spread over the estimated remaining lives of the loans on a level-yield basis.  During the six months ended June 30, 2020 and 2019, improvements in expected cash flows (reclassification of discounts from non-accretable to accretable) related to the acquired loan portfolios resulted in adjustments of $0 and $5.3 million, respectively, to the accretable yield to be spread over the estimated remaining lives of the loans on a level-yield basis.  

 

Because the balance of these adjustments to accretable yield will be recognized generally over the remaining lives of the loan pools, they will impact future periods as well.  As of June 30, 2020, the remaining accretable yield adjustment that will affect interest income is $4.2 million.  Of the remaining adjustments affecting interest income, we expect to recognize $2.2 million of interest income during the remainder of 2020.  

 

The impact to income of adjustments on the Company’s financial results is shown below:

 

 

 

Three Months Ended

 

 

Three Months Ended

 

 

June 30, 2020

 

 

June 30, 2019

 

 

(In Thousands, Except Per Share Data and Basis Points Data)

 

 

 

 

 

 

 

 

 

 

Impact on net interest income/

 

 

 

 

 

 

 

 

 

net interest margin (in basis points)

$

1,537

12 bps

 

$

1,399

12 bps

Net impact to pre-tax income

$

1,537

 

 

 

$

1,399

 

 

Net impact net of taxes

$

1,187

 

 

 

$

1,080

 

 

Impact to diluted earnings per share

$

0.08

 

 

 

$

0.08

 

 

 

 

 

Six Months Ended

 

 

Six Months Ended

 

 

June 30, 2020

 

 

June 30, 2019

 

 

(In Thousands, Except Per Share Data and Basis Points Data)

 

 

 

 

 

 

 

 

 

 

Impact on net interest income/

 

 

 

 

 

 

 

 

 

net interest margin (in basis points)

$

3,403

14 bps

 

$

2,911

13 bps

Net impact to pre-tax income

$

3,403

 

 

 

$

2,911

 

 

Net impact net of taxes

$

2,627

 

 

 

$

2,247

 

 

Impact to diluted earnings per share

$

0.19

 

 

 

$

0.16

 

 

 

 

Changes in the accretable yield for acquired loan pools were as follows for the three and six months ended June 30, 2020 and 2019:

 

 

 

 

 

 

 

 

 

Sun Security

 

 

 

 

 

 

 

 

 

TeamBank

 

 

Vantus Bank

 

 

Bank

 

 

InterBank

 

 

Valley Bank

 

 

 

(In Thousands)

 

 

 

 

 

 

Balance, April 1, 2020

$

1,078 

 

$

1,086 

 

$

2,280 

 

$

6,357 

 

$

4,612 

 

Accretion

 

(114)

 

 

(189)

 

 

(266)

 

 

(1,857)

 

 

(833)

 

Change in expected accretable yield(1)

 

(46)

 

 

57 

 

 

(121)

 

 

752 

 

 

344 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, June 30, 2020

$

918 

 

$

954 

 

$

1,893 

 

$

5,252 

 

$

4,123 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, April 1, 2019

$

1,399 

 

$

1,302 

 

$

2,444 

 

$

7,948 

 

$

4,329 

 

Accretion

 

(180)

 

 

(261)

 

 

(340)

 

 

(1,951)

 

 

(1,132)

 

Change in expected accretable yield(1)

 

131 

 

 

186 

 

 

(245)

 

 

2,468 

 

 

2,347 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, June 30, 2019

$

1,350 

 

$

1,227 

 

$

1,859 

 

$

8,465 

 

$

5,544 

 

 

(1)

Represents increases (decreases) in estimated cash flows expected to be received from the acquired loan pools, partially due to lower estimated credit losses.  The amounts also include changes in expected accretion of the loan pools for TeamBank, Vantus Bank, Sun Security Bank, InterBank and Valley Bank for the three months ended June 30, 2020, totaling $(46,000), $57,000, $(121,000), $752,000 and $344,000, respectively, and for the three months ended June 30, 2019, totaling $68,000, $186,000, $(336,000), $468,000 and $839,000, respectively.  

 

 

 

 

 

 

 

 

 

 

 

Sun Security

 

 

 

 

 

 

 

 

 

TeamBank

 

 

Vantus Bank

 

 

Bank

 

 

InterBank

 

 

Valley Bank

 

 

 

(In Thousands)

 

 

 

 

 

 

Balance, January 1, 2020

$

1,157 

 

$

1,123 

 

$

1,948 

 

$

8,277 

 

$

4,578 

 

Accretion

 

(239)

 

 

(420)

 

 

(592)

 

 

(3,963)

 

 

(1,740)

 

Change in expected accretable yield(1)

 

- 

 

 

251 

 

 

537 

 

 

938 

 

 

1,285 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, June 30, 2020

$

918 

 

$

954 

 

$

1,893 

 

$

5,252 

 

$

4,123 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, January 1, 2019

$

1,356 

 

$

1,432 

 

$

2,242 

 

$

4,994 

 

$

3,063 

 

Accretion

 

(615)

 

 

(478)

 

 

(781)

 

 

(3,979)

 

 

(1,985)

 

Change in expected accretable yield(1)

 

609 

 

 

273 

 

 

398 

 

 

7,450 

 

 

4,466 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, June 30, 2019

$

1,350 

 

$

1,227 

 

$

1,859 

 

$

8,465 

 

$

5,544 

 

 

(1)

Represents increases (decreases) in estimated cash flows expected to be received from the acquired loan pools, partially due to lower estimated credit losses.  The amounts also include changes in expected accretion of the loan pools for TeamBank, Vantus Bank, Sun Security Bank, InterBank and Valley Bank for the six months ended June 30, 2020, totaling $0, $251,000, $537,000, $938,000 and $1.3 million, respectively, and for the six months ended June 30, 2019, totaling $546,000, $273,000, $247,000, $4.6 million and $2.2 million, respectively.