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Note 7: FDIC Acquired Loans, Loss Sharing Agreements and FDIC Indemnification Assets: Business Acquisition Fair Value and Expected Cash Flows Policy (Policies) | 9 Months Ended
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Sep. 30, 2016
Policies |
Business Acquisition Fair Value and Expected Cash Flows Policy | 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. This valuation of the acquired loans is a significant component leading to the valuation of the loss sharing assets recorded. 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 and nine months ended September 30, 2016, improvements in expected cash flows related to the acquired loan portfolios resulted in adjustments of $3.4 million and $8.9 million, respectively, to the accretable yield to be spread over the estimated remaining lives of the loans on a level-yield basis. During the three and nine months ended September 30, 2015, similar such adjustments totaling $3.4 million and $11.6 million, respectively, were made to the accretable yield. The increases in expected cash flows also reduced the amount of expected reimbursements under the loss sharing agreements, when applicable. During the three and nine months ended September 30, 2016, this resulted in corresponding adjustments of $552,000 and $2.4 million, respectively, to the indemnification assets to be amortized on a level-yield basis over the remainder of the loss sharing agreement or the remaining expected lives of the loan pools, whichever is shorter. During the three and nine months ended September 30, 2015, corresponding adjustments of $-0- and $4.4 million, respectively, were made to the indemnification assets. Because these adjustments will be recognized over the remaining lives of the loan pools and the remainder of the loss sharing agreement, respectively, they will impact future periods as well. The remaining accretable yield adjustment that will affect interest income is $7.8 million and the remaining adjustment to the indemnification asset related to InterBank, including the effects of the clawback liability, that will affect non-interest income (expense) is $(3.2) million. The $7.8 million of accretable yield adjustment relates to Team Bank, Vantus Bank, Sun Security Bank, InterBank and Valley Bank. The expense, as noted, is only related to InterBank, as there is no longer, nor will there be in the future, indemnification asset amortization expense related to Team Bank, Vantus Bank, or Sun Security Bank due to the termination of the related loss sharing agreements for those transactions in April 2016. Of the remaining adjustments, we expect to recognize $2.3 million of interest income and $(817,000) of non-interest income (expense) during the remainder of 2016. Additional adjustments may be recorded in future periods from the FDIC-assisted transactions, as the Company continues to estimate expected cash flows from the acquired loan pools.

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