Acquisitions

12 Months Ended

Jun. 30, 2020

Acquisitions

Acquisitions

NOTE 17: Acquisitions

On May 22, 2020 the Company completed its acquisition of Central Federal Bancshares, Inc. (“Central”), and its wholly owned subsidiary, Central Federal Savings and Loan Association (“Central Federal”), in an all-cash transaction valued at approximately $21.9 million. Net cash paid for the acquisition totaled approximately $9.1 million. The conversion of data systems took place on June 7, 2020. Through June 30, 2020, the Company incurred $1.2 million of third-party acquisition-related costs with $1.2 million being included in noninterest expense in the Company’s consolidated statement of income for the year ended June 30, 2020.

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 Central acquisition is detailed in the following table.

Central Federal Bancshares
Fair Value of Consideration Transferred
(dollars in thousands)
Cash	$	21,942
Recognized amounts of identifiable assets acquired and liabilities assumed
Cash and cash equivalents	$	12,862
Investment securities		4,355
Loans		51,449
Premises and equipment		723
Identifiable intangible assets		540
Miscellaneous other assets		639
Deposits		(46,720)
Miscellaneous other liabilities		(1,783)
Total identifiable net assets		22,065
Bargain Purchase Gain	$	(123)

Of the total purchase price of $21.9 million, $540,000 has been allocated to core deposit intangible. None of the purchase price was allocated to goodwill, as the acquisition resulted in a bargain purchase gain of $123,000. The core deposit intangible will be amortized over six years on a straight line basis.

The Company acquired the $52.1 million loan portfolio at an estimated fair value discount of $662,000. 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. Management identified no purchased credit-impaired loans associated with the Central acquisition (ASC 310-30).

On November 21, 2018, the Company completed its acquisition of Gideon Bancshares Company (“Gideon”), and its wholly owned subsidiary, First Commercial Bank (“First Commercial”), in a stock and cash transaction. Upon completion of the Merger, each share of Gideon common stock was converted into the right to receive $72.48 in cash, as well as 2.04 shares of Southern Missouri common stock, with cash payable in lieu of fractional Southern Missouri shares (the “Merger Consideration”). The Company issued an aggregate of 317,225 shares of common stock for the stock portion of the Merger Consideration and paid an aggregate of approximately $11.3 million for the cash portion of the Merger Consideration. The conversion of data systems took place on December 8, 2018. The Company acquired First Commercial primarily for the purpose of conducting commercial banking activities in markets where it believes the Company’s business model will perform well, and for the long-term value of its core deposit franchise. Through June 30, 2020, the Company incurred $871,000 of third-party acquisition-related costs with $14,000 being included in noninterest expense in the Company’s consolidated statement of income for the year ended June 30, 2020, $783,000 for the year ended June 30, 2019, and $75,000 for the year ended June 30, 2018.

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 Gideon acquisition is detailed in the following table.

Gideon Bancshares Company
Fair Value of Consideration Transferred
(dollars in thousands)
Cash	$	11,271
Common stock, at fair value		10,757
Total consideration	$	22,028
Recognized amounts of identifiable assets acquired and liabilities assumed
Cash and cash equivalents	$	2,894
Investment securities		54,866
Loans		144,286
Premises and equipment		3,663
Identifiable intangible assets		4,125
Miscellaneous other assets		5,926
Deposits		(170,687)
FHLB Advances		(18,701)
Note Payable		(4,400)
Miscellaneous other liabilities		(956)
Total identifiable net assets		21,016
Goodwill	$	1,012

Of the total purchase price of $22.0 million, $4.1 million has been allocated to core deposit intangible. Additionally, $1.0 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 First Commercial. Total goodwill was assigned to the acquisition of First Commercial. The core deposit intangible will be amortized over seven years on a straight line basis.

Loans purchased with evidence of credit deterioration since origination and for which it is probable that all contractually required payments will not be collected are considered to be credit impaired. Evidence of credit quality deterioration as of the purchase date may include information such as past-due and non-accrual status, our assessment of the ability of the borrower to service the debt, and recent loan-to-value percentages. Purchased credit-impaired loans are accounted for under the accounting guidance for loans and debt securities acquired with deteriorated credit quality (ASC 310-30) and initially measured at fair value, which includes estimated future credit losses expected to be incurred over the life of the loan. Accordingly, an allowance for credit losses related to $25.5 million of purchased credit impaired loans was not carried over and recorded at the acquisition date. Management estimated the cash flows expected to be collected at acquisition using individual analysis of each purchased credit impaired loan.

The Company acquired the $154.0 million loan portfolio at an estimated fair value discount of $9.7 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.

The acquired business contributed revenues of $4.1 million and earnings of $565,000 for the period from November 21, 2018 through June 30, 2019. The following unaudited pro forma summaries present consolidated information of the Company as if the business combination had occurred on the first day of each period:

	Pro Forma
	Twelve months ended
	June 30,
	2019		2018
Revenue	$	90,954	$	84,981
Earnings		29,583		22,791