Business Combinations

9 Months Ended

Mar. 31, 2022

Business Combinations

Business Combinations

Note 12: Business Combinations

On February 25, 2022, the Company completed its acquisition of Fortune Financial Corporation (”Fortune”), and its wholly owned subsidiary, FortuneBank (“FB”), in a stock and cash transaction valued at approximately $35.5 million. The acquired financial institution was merged with and into Southern Bank simultaneously with the acquisition of Fortune. For the three- and nine-month periods ended March 31, 2022, the Company incurred $1.1 million and $1.3 million, respectively, of third-party acquisition-related costs, included in noninterest expense in the Company’s consolidated statements of income.

Under the acquisition method of accounting, the total purchase price is allocated to net tangible and intangible assets based on their current estimated fair values on the date of the acquisition. Based on valuations of the fair value of tangible and intangible assets acquired and liabilities assumed, the purchase price for the Fortune acquisition is detailed in the following table.

Fortune Financial Corporation
Fair Value of Consideration Transferred
(dollars in thousands)
Cash	$	12,663
Common stock, at fair value		22,885
Total consideration	$	35,548
Recognized amounts of identifiable assets acquired and liabilities assumed
Cash and cash equivalents	$	34,280
Interest bearing time deposits		2,300
Loans		202,053
Premises and equipment		6,516
BOLI		3,720
Identifiable intangible assets		1,602
Miscellaneous other assets		4,236
Deposits		(213,670)
FHLB Advances		(9,681)
Subordinated debt		(7,800)
Miscellaneous other liabilities		(1,214)
Total identifiable net liabilities		22,342
Goodwill	$	13,206

Of the total purchase price, $1.6 million has been allocated to core deposit intangible, and will be amortized over seven years on a straight line basis. Additionally, $13.2 million has been allocated to goodwill, and none of the purchase price is deductible. Goodwill is attributable to synergies and economies of scale expected from combining the operations of the Bank and Fortune. To the extent that management revises any of the fair value of the above fair value adjustments as a result of continuing evaluation, the amount of goodwill recorded in the acquisition will change.

The Company acquired the $204.1 million loan portfolio at an estimated fair value discount of $2.1 million. The excess of expected cash flows above the fair value of the performing portion of loans will be accreted to interest income over the remaining lives of the loans in accordance with ASC 310-30. Loans acquired that were not subject to guidance relating to purchase credit deteriorated (PCD) loans include loans with a fair value and gross contractual amounts receivable of $187.0 million and $211.0 million at the date of acquisition. Management identified 31 PCD loans, with a book balance of $15.1 million, associated with the Fortune acquisition (ASC 310-30).

On December 15, 2021, the Company completed its acquisition of the Cairo, Illinois, branch (“Cairo”) of First National Bank, Oldham, South Dakota. The deal resulted in Southern Bank relocating its facility from its prior location to the First National Bank location in Cairo. The Company views the acquisition and updates to the new facility as an expression of its continuing commitment to the Cairo community. For the three- and nine-month periods ended March 31, 2022, the Company incurred $26,000 and $50,000, respectively, of third-party acquisition-related costs, included in noninterest expense in the Company’s consolidated statements of income.

Under the acquisition method of accounting, the total purchase price is allocated to net tangible and intangible assets based on their current estimated fair values on the date of the acquisition. Based on valuations of the fair value of tangible and intangible assets acquired and liabilities assumed, the purchase price for the Cairo acquisition is detailed in the following table.

First National Bank - Cairo Branch
Fair Value of Consideration Transferred
(dollars in thousands)
Cash	$	(26,932)
Recognized amounts of identifiable assets acquired and liabilities assumed
Cash and cash equivalents	$	220
Loans		408
Premises and equipment		468
Identifiable intangible assets		168
Miscellaneous other assets		1
Deposits		(28,540)
Miscellaneous other liabilities		(99)
Total identifiable net liabilities		(27,374)
Goodwill	$	442

Of the total purchase price, $168,000 has been allocated to core deposit intangible, and will be amortized over seven years on a straight line basis. Additionally, $442,000 has been allocated to goodwill, and none of the purchase price is deductible. Goodwill is attributable to synergies and economies of scale expected from combining the operations of the Southern Bank existing facility with the acquired Cairo branch.