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Business Combinations | 9 Months Ended
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Sep. 30, 2014
Business Combinations [Abstract] |
Business Combinations | NOTE B - BUSINESS COMBINATIONS Merger with First Citizens Bancorporation, Inc. On October 1, 2014, BancShares completed the merger of First Citizens Bancorporation, Inc. (Bancorporation) with and into BancShares pursuant to an Agreement and Plan of Merger dated June 10, 2014, as amended on July 29, 2014. First Citizens Bank and Trust Company, Inc. (FCB-SC) is expected to merge with and into FCB during the first quarter of 2015. Under the terms of the Merger Agreement, each share of Bancorporation common stock will be converted into the right to receive 4.00 shares of BancShares' Class A common stock and $50.00 cash, unless the holder elects for each share to be converted into the right to receive 3.58 shares of BancShares' Class A common stock and 0.42 shares of BancShares' Class B common stock. Bancorporation shareholders have until December 5, 2014 to make this election. The merger between BancShares and Bancorporation creates a more diversified financial institution that is better equipped to respond to economic and industry developments. Additionally, cost savings, efficiencies and other benefits are expected from the combined operations. The merger will be accounted for in accordance with the acquisition method of accounting. BancShares is undertaking a comprehensive review and determination of the fair value of the assets and liabilities of Bancorporation to ensure that they conform to the measurement and reporting guidance set forth for the accounting for business combinations. Determining the fair value of asset and liabilities, especially in the loan portfolio, is a complex process involving significant judgment regarding estimates and assumptions used to calculate fair values. Accordingly, the initial accounting for the merger is not complete. A Current Report on Form 8-K was filed on October 1, 2014 with respect to completion of the merger. BancShares incurred merger expenses of $1.2 million and $2.4 million for the three and nine months ended September 30, 2014 for the merger with Bancorporation.
1st Financial Services Corporation Merger On January 1, 2014, FCB completed its merger with 1st Financial Services Corporation (1st Financial) of Hendersonville, NC and its wholly-owned subsidiary, Mountain 1st Bank & Trust Company (Mountain 1st). The merger allowed FCB to expand its presence in Western North Carolina. Mountain 1st had twelve branches located in Asheville, Brevard, Columbus, Etowah, Fletcher, Forest City, Hendersonville, Hickory, Marion, Shelby and Waynesville. FCB requested and received approval from the North Carolina Commissioner of Banks and the FDIC to close seven Mountain 1st branches due to their proximity to legacy FCB branches. The branches in Asheville, Brevard, Fletcher, Forest City, Hendersonville, Hickory and Marion were closed in May. All customer relationships assigned to those branches were transferred to the nearest FCB branch. FCB paid $10.0 million to acquire 1st Financial, including payments of $8.0 million to the U.S. Treasury to acquire and subsequently retire 1st Financial's Troubled Asset Relief Program (TARP) obligation and $2.0 million paid to the shareholders of 1st Financial. As a result of the merger, FCB recorded $24.5 million in goodwill and $3.8 million in core deposit intangibles. The 1st Financial transaction was accounted for under the acquisition method of accounting, and the purchased assets, assumed liabilities and identifiable intangible assets were recorded at their estimated fair values as of the acquisition date. Fair values are subject to refinement for up to one year after the closing date of the transaction as additional information regarding closing date fair values becomes available. During the third quarter of 2014, no adjustments were deemed necessary. The following table provides the carrying value of acquired assets and assumed liabilities, as recorded by 1st Financial, the fair value adjustments calculated at the time of the merger and the resulting fair value recorded by FCB.
| January 1, 2014
(Dollars in thousands) | As recorded by 1st Financial |  | Fair value adjustments |  | As recorded by FCB
Assets |  |  |  |  |
Cash and cash equivalents | $ | 28,194 |  |  | $ | — |  |  | $ | 28,194 |
Investment securities | 246,890 |  |  | (9,452 | ) |  | 237,438 |
Loans held for sale | 1,183 |  |  | — |  |  | 1,183 |
Restricted equity securities | 3,105 |  |  | 671 |  |  | 3,776 |
Loans | 338,170 |  |  | (21,843 | ) |  | 316,327 |
Less: allowance for loan losses | (7,796 | ) |  | 7,796 |  |  | — |
Premises and equipment | 3,871 |  |  | (1,185 | ) |  | 2,686 |
Other real estate owned | 12,896 |  |  | (1,305 | ) |  | 11,591 |
Intangible assets | — |  |  | 3,780 |  |  | 3,780 |
Other assets | 16,811 |  |  | (465 | ) |  | 16,346 |
Total assets acquired | $ | 643,324 |  |  | $ | (22,003 | ) |  | $ | 621,321 |
Liabilities |  |  |  |  |
Deposits: |  |  |  |  |
Noninterest-bearing | $ | 152,444 |  |  | $ | — |  |  | $ | 152,444 |
Interest-bearing | 477,881 |  |  | 1,546 |  |  | 479,427 |
Total deposits | 630,325 |  |  | 1,546 |  |  | 631,871 |
Short-term borrowings | 406 |  |  | — |  |  | 406 |
Other liabilities | 3,392 |  |  | 167 |  |  | 3,559 |
Total liabilities assumed | $ | 634,123 |  |  | $ | 1,713 |  |  | 635,836 |
Fair value of net liabilities assumed |  |  |  |  | 14,515 |
Cash paid to shareholders |  |  |  |  | 2,000 |
Cash paid to acquire TARP securities |  |  |  |  | 8,000 |
Goodwill recorded for 1st Financial |  |  |  |  | $ | 24,515 |
Goodwill recorded for 1st Financial represents future revenues to be derived from the existing customer base, including efficiencies that will result from combining operations and other non-identifiable intangible assets. The 1st Financial transaction is a taxable asset acquisition, and goodwill resulting from the transaction is deductible for income tax purposes. Merger costs related to the 1st Financial transaction incurred were $0.3 million and $5.0 million for the three and nine months ended September 30, 2014. Loan related interest income generated from 1st Financial was approximately $4.1 million for the third quarter of 2014 and $12.7 million for the year to date period. All loans acquired with the 1st Financial transaction are accounted for under the expected cash flow method (ASC 310-30). For loans acquired from 1st Financial, the contractually required payments including principal and interest, cash flows expected to be collected and fair values as of the merger date were:
(Dollars in thousands) | January 1, 2014
Contractually required payments | $ | 414,233 |
Cash flows expected to be collected | 400,622 |
Fair value at acquisition date | 316,327 |
The recorded fair values of loans acquired in the 1st Financial transaction as of the merger date were as follows:
(Dollars in thousands) | January 1, 2014
Commercial: |
Construction and land development | $ | 41,516 |
Commercial mortgage | 123,925 |
Other commercial real estate | 6,698 |
Commercial and industrial | 29,126 |
Total commercial loans | 201,265 |
Noncommercial: |
Residential mortgage | 113,177 |
Consumer | 1,885 |
Total noncommercial loans | 115,062 |
Total loans acquired from 1st Financial | $ | 316,327 |

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- Definition The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable). + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 10 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=25497992&loc=d3e1383-128463 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 30 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=35744584&loc=d3e6996-128479 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 20 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=39739317&loc=d3e4922-128472 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 20 -Section 50 -Paragraph 4 -URI http://asc.fasb.org/extlink&oid=39739317&loc=d3e4934-128472 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 20 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=39739317&loc=d3e4926-128472 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 30 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=35744584&loc=d3e7000-128479 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=25497992&loc=d3e1392-128463 Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=25497992&loc=d3e1486-128463 Reference 9: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 30 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=35744584&loc=d3e6927-128479 Reference 10: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 10 -Section 50 -Paragraph 5 -URI http://asc.fasb.org/extlink&oid=25497992&loc=d3e1497-128463 Reference 11: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 10 -Section 50 -Paragraph 4 -URI http://asc.fasb.org/extlink&oid=25497992&loc=d3e1490-128463 Reference 12: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 30 -Section 50 -Paragraph 4 -URI http://asc.fasb.org/extlink&oid=35744584&loc=d3e7008-128479 Reference 13: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 20 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=39739317&loc=d3e4845-128472 Reference 14: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 10 -Section 50 -Paragraph 6 -URI http://asc.fasb.org/extlink&oid=25497992&loc=d3e1500-128463 Reference 15: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 10 -Section 50 -Paragraph 7 -URI http://asc.fasb.org/extlink&oid=25497992&loc=d3e1524-128463 + Details
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