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NOTE 7: ACQUIRED LOANS, LOSS SHARING AGREEMENTS AND FDIC INDEMNIFICATION ASSETS | 9 Months Ended
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Sep. 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 September 30, 2020 and December 31, 2019.
|  |  |  |  |  |  |  | Sun Security |  |  |  |  |  |  |
|  | TeamBank |  |  | Vantus Bank |  |  | Bank |  |  | InterBank |  |  | Valley Bank |
|  | (In Thousands) |
September 30, 2020 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Gross loans receivable | $ | 6,019 |  | $ | 8,502 |  | $ | 14,479 |  | $ | 49,483 |  | $ | 32,435 |
Balance of accretable discount due to change in expected losses |  | (108 | ) |  | (40 | ) |  | (212 | ) |  | (1,761 | ) |  | (815 | )
Net carrying value to loans receivable |  | (5,882 | ) |  | (8,449 | ) |  | (14,163 | ) |  | (46,722 | ) |  | (30,913 | )
Expected loss remaining | $ | 29 |  | $ | 13 |  | $ | 104 |  | $ | 1,000 |  | $ | 707 |
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 September 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 $5.1 million, respectively, to the accretable yield to be spread over the estimated remaining lives of the loans on a level-yield basis. During the nine months ended September 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 $10.4 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 September 30, 2020, the remaining accretable yield adjustment that will affect interest income is $2.9 million. Of the remaining adjustments affecting interest income, we expect to recognize $932,000 of interest income during the three months ending December 31, 2020. The impact to income of adjustments on the Company’s financial results is shown below:
|  | Three Months Ended |  |  | Three Months Ended
|  | September 30, 2020 |  |  | September 30, 2019
|  | (In Thousands, Except Per Share Data and Basis Points Data)
Impact on net interest income/ |  |  |  |  |  |  |  |  |
net interest margin (in basis points) | $ | 1,229 |  | 9 bps |  | $ | 2,251 |  | 20 bps
Net impact to pre-tax income | $ | 1,229 |  |  |  | $ | 2,251 |  |
Net impact net of taxes | $ | 949 |  |  |  | $ | 1,738 |  |
Impact to diluted earnings per share | $ | 0.07 |  |  |  | $ | 0.12 |  |
|  | Nine Months Ended |  |  | Nine Months Ended
|  | September 30, 2020 |  |  | September 30, 2019
|  | (In Thousands, Except Per Share Data and Basis Points Data)
Impact on net interest income/ |  |  |  |  |  |  |  |  |
net interest margin (in basis points) | $ | 4,632 |  | 12 bps |  | $ | 5,162 |  | 15 bps
Net impact to pre-tax income | $ | 4,632 |  |  |  | $ | 5,162 |  |
Net impact net of taxes | $ | 3,576 |  |  |  | $ | 3,985 |  |
Impact to diluted earnings per share | $ | 0.25 |  |  |  | $ | 0.28 |  |
Changes in the accretable yield for acquired loan pools were as follows for the three and nine months ended September 30, 2020 and 2019:
|  |  |  |  |  |  |  | Sun Security |  |  |  |  |  |  |
|  | TeamBank |  |  | Vantus Bank |  |  | Bank |  |  | InterBank |  |  | Valley Bank |
|  | (In Thousands) |
Balance, July 1, 2020 | $ | 918 |  | $ | 954 |  | $ | 1,893 |  | $ | 5,252 |  | $ | 4,123 |
Accretion |  | (94 | ) |  | (238 | ) |  | (238 | ) |  | (1,599 | ) |  | (658 | )
Change in expected accretable yield(1) |  | 178 |  |  | 88 |  |  | 79 |  |  | 808 |  |  | 92 |
Balance, September 30, 2020 | $ | 1,002 |  | $ | 804 |  | $ | 1,734 |  | $ | 4,461 |  | $ | 3,557 |
Balance, July 1, 2019 | $ | 1,350 |  | $ | 1,227 |  | $ | 1,859 |  | $ | 8,465 |  | $ | 5,544 |
Accretion |  | (196 | ) |  | (259 | ) |  | (414 | ) |  | (2,371 | ) |  | (1,257 | )
Change in expected accretable yield(1) |  | (9 | ) |  | 305 |  |  | 872 |  |  | 2,840 |  |  | 1,565 |
Balance, September 30, 2019 | $ | 1,145 |  | $ | 1,273 |  | $ | 2,317 |  | $ | 8,934 |  | $ | 5,852 |
(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 September 30, 2020, totaling $178,000, $88,000, $79,000, $808,000 and $92,000, respectively, and for the three months ended September 30, 2019, totaling $(21,000), $132,000, $565,000, $(644,000) and $482,000, 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 |  | (334 | ) |  | (657 | ) |  | (831 | ) |  | (5,563 | ) |  | (2,398 | )
Change in expected accretable yield(1) |  | 179 |  |  | 338 |  |  | 617 |  |  | 1,747 |  |  | 1,377 |
Balance, September 30, 2020 | $ | 1,002 |  | $ | 804 |  | $ | 1,734 |  | $ | 4,461 |  | $ | 3,557 |
Balance, January 1, 2019 | $ | 1,356 |  | $ | 1,432 |  | $ | 2,242 |  | $ | 4,994 |  | $ | 3,063 |
Accretion |  | (811 | ) |  | (738 | ) |  | (1,195 | ) |  | (6,350 | ) |  | (3,243 | )
Change in expected accretable yield(1) |  | 600 |  |  | 579 |  |  | 1,270 |  |  | 10,290 |  |  | 6,032 |
Balance, September 30, 2019 | $ | 1,145 |  | $ | 1,273 |  | $ | 2,317 |  | $ | 8,934 |  | $ | 5,852 |
(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 nine months ended September 30, 2020, totaling $179,000, $338,000, $617,000, $1.7 million and $1.4 million, respectively, and for the nine months ended September 30, 2019, totaling $526,000, $406,000, $812,000, $4.0 million and $2.7 million, respectively.

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