Annual Report - CoBank

Note 18 – Subsequent Events (Unaudited)We have evaluated subsequent events through March 1,2012, which is the date the financial statements were issued.Merger with AgBankIn December 2010, the Boards of Directors of CoBankand AgBank unanimously approved a Letter of Intent topursue a merger. In March 2011, following unanimous votesby the Boards, a merger application was submitted to theFCA, and in June 2011, the FCA granted preliminary approvalof the merger, subject to certain conditions. CoBank andAgBank stockholders approved the merger transaction inSeptember 2011. The FCA issued its final approval of themerger in December 2011, and the merger became effectiveJanuary 1, 2012. The merged bank operates under the CoBankname and is headquartered outside Denver, Colorado. RobertB. Engel is the president and chief executive officer of themerged bank.As a result of the merger with AgBank, on January 1,2012 the number of our affiliated Associations increased by 25and now includes Associations headquartered in Arizona,California, Colorado, Connecticut, Hawaii, Idaho, Kansas,Maine, New Mexico, Oklahoma, Utah, Vermont andWashington. We believe the merger will create a strongerbank, both financially and operationally, with an enhancedability to fulfill our mission.On January 1, 2012, in connection with the merger, eachshare of outstanding common stock of AgBank ($5 par value,177,162,554 shares outstanding) was converted into onetwentiethof a share of common stock of CoBank ($100 parvalue, 8,858,128 shares outstanding). In addition, AgBank’s$225.0 million (par value) of preferred stock was convertedinto $225.0 million (par value) of a new series of CoBankpreferred stock with substantially the same terms andconditions.The fair values of the identifiable assets acquired andliabilities assumed were substantially equal to the fair value ofthe equity interests converted in the merger. As a result, nogoodwill was recorded. The fair value of the assets acquiredtotaled $25.6 billion, including $20.2 billion of loans and$4.8 billion of investment securities. The fair value of theliabilities assumed totaled $24.6 billion, including$24.3 billion of bonds and notes. These fair values, along withother information, are preliminary. Fair values related tobusiness combinations are subject to refinement for up to oneyear following the close of the merger as additionalinformation relative to closing date fair values becomesavailable.The merger was accounted for under the acquisitionmethod of accounting. Under this method of accounting,CoBank is treated as acquiring the assets and assuming theliabilities of AgBank at their acquisition-date fair values. Theaccompanying unaudited pro forma condensed combinedbalance sheet reflects the estimated fair value of the assets andliabilities of AgBank as of December 31, 2011.The unaudited pro forma condensed combined balancesheet as of December 31, 2011 combines the December 31,2011 consolidated balance sheets of CoBank and AgBank(together, the Banks) and gives effect to the merger as if it hadbeen completed on such date. The unaudited pro formacondensed combined statement of income for the year endedDecember 31, 2011 combines the consolidated statements ofincome of CoBank and AgBank for their respective yearsended December 31, 2011 and gives effect to the merger as ifit had been completed as of the beginning of 2011.The unaudited pro forma condensed combined financialinformation was prepared in accordance with FCArequirements, and all merger adjustments included are inconformity with accounting principles generally accepted inthe United States of America. They are presented forillustrative purposes only and are not necessarily indicative ofthe financial condition or results of operations of futureperiods or the financial condition or results of operations thatactually would have been realized had the entities been asingle company during the periods presented.($ in Millions)Pro Forma Balance SheetAs of December 31, 2011AssetsTotal Loans $66,486Less: Allowance for Loan Losses 388Net Loans 66,098Investment Securities 17,827All Other 4,990Total Assets $88,915LiabilitiesBonds and Notes $80,428Subordinated Debt 1,000All Other 1,575Total Liabilities 83,003Total Shareholders’ Equity 5,912Total Liabilities and Shareholders’ Equity $88,915Pro Forma Statement of IncomeYear Ended December 31, 2011Net Interest Income $1,266Provision for Loan Losses 57Noninterest Income and Expenses, Net 133Provision for Income Taxes 200Net Income $876CoBank 2011 Annual Report106