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Acquisitions | 9 Months Ended
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Sep. 30, 2018
Business Combinations [Abstract] |
Acquisitions | Note 4 – Acquisitions Since January 1, 2017, the Company completed the acquisitions described below. The results of each acquired company are included in the Company’s results beginning on its respective acquisition date.
| (1) | On March 3, 2017, the Company completed the acquisition of Carolina Bank Holdings, Inc. (“Carolina Bank”), headquartered in Greensboro, North Carolina, pursuant to an Agreement and Plan of Merger and Reorganization dated June 21, 2016. The results of Carolina Bank are included in First Bancorp’s results beginning on the March 3, 2017 acquisition date.
Carolina Bank Holdings, Inc. was the parent company of Carolina Bank, a North Carolina state-charted bank with eight bank branches located in the North Carolina cities of Greensboro, High Point, Burlington, Winston-Salem, and Asheboro, and mortgage offices in Burlington, Hillsborough, and Sanford. The acquisition complemented the Company’s expansion into several of these high-growth markets and increased its market share in others with facilities, operations and experienced staff already in place. The Company was willing to record goodwill primarily due to the reasons just noted, as well as the positive earnings of Carolina Bank. The total merger consideration consisted of $25.3 million in cash and 3,799,471 shares of the Company’s common stock, with each share of Carolina Bank common stock being exchanged for either $20.00 in cash or 1.002 shares of the Company’s stock, subject to the total consideration being 75% stock / 25% cash. The issuance of common stock was valued at $114.5 million and was based on the Company’s closing stock price on March 3, 2017 of $30.13 per share. This acquisition was accounted for using the purchase method of accounting for business combinations, and accordingly, the assets and liabilities of Carolina Bank were recorded based on estimates of fair values as of March 3, 2017. The Company was able to change its valuations of acquired Carolina Bank assets and liabilities for up to one year after the acquisition date. The table below is a condensed balance sheet disclosing the amount assigned to each major asset and liability category of Carolina Bank on March 3, 2017, and the related fair value adjustments recorded by the Company to reflect the acquisition. The $65.1 million in goodwill that resulted from this transaction is non-deductible for tax purposes.
($ in thousands) |  | As Recorded by Carolina Bank |  |  | Initial Fair Value Adjustments |  |  | Measurement Period Adjustments |  |  | As Recorded by First Bancorp |
Assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 81,466 |  |  |  | (2 | ) (a) |  |  | — |  |  |  | 81,464 |
Securities |  |  | 49,629 |  |  |  | (261 | ) (b) |  |  | — |  |  |  | 49,368 |
Loans, gross |  |  | 505,560 |  |  |  | (5,469 | ) (c) |  |  | 146 | (l) |  |  | 497,522 |
|  |  |  |  |  |  | (2,715 | ) (d) |  |  | — |  |  |  |  |
Allowance for loan losses |  |  | (5,746 | ) |  |  | 5,746 | (e) |  |  | — |  |  |  | ̶ |
Premises and equipment |  |  | 17,967 |  |  |  | 4,251 | (f) |  |  | (319 | ) (m) |  |  | 21,899 |
Core deposit intangible |  |  | — |  |  |  | 8,790 | (g) |  |  | — |  |  |  | 8,790 |
Other |  |  | 34,976 |  |  |  | (4,804 | ) (h) |  |  | 2,225 | (n) |  |  | 32,397 |
Total |  |  | 683,852 |  |  |  | 5,536 |  |  |  | 2,052 |  |  |  | 691,440 |
Liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Deposits |  | $ | 584,950 |  |  |  | 431 | (i) |  |  | — |  |  |  | 585,381 |
Borrowings |  |  | 21,855 |  |  |  | (2,855 | ) (j) |  |  | (262 | ) (o) |  |  | 18,738 |
Other |  |  | 12,855 |  |  |  | 225 | (k) |  |  | (444 | ) (p) |  |  | 12,636 |
Total |  |  | 619,660 |  |  |  | (2,199 | ) |  |  | (706 | ) |  |  | 616,755 |
Net identifiable assets acquired |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 74,685 |
Total cost of acquisition |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Value of stock issued |  |  |  |  |  | $ | 114,478 |  |  |  |  |  |  |  |  |
Cash paid in the acquisition |  |  |  |  |  |  | 25,279 |  |  |  |  |  |  |  |  |
Total cost of acquisition |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 139,757 |
Goodwill recorded related to acquisition of Carolina Bank |  |  |  |  |  |  |  | $ | 65,072 |
Explanation of Fair Value Adjustments
| (a) | This adjustment was recorded to a short-term investment to its estimated fair value.
| (b) | This fair value adjustment was recorded to adjust the securities portfolio to its estimated fair value.
| (c) | This fair value adjustment represents the amount necessary to reduce performing loans to their fair value due to interest rate factors and credit factors. Assuming the loans continue to perform, this amount will be amortized to increase interest income over the remaining lives of the related loans.
| (d) | This fair value adjustment was recorded to write-down purchased credit impaired loans assumed in the acquisition to their estimated fair market value.
| (e) | This fair value adjustment reduced the allowance for loan losses to zero as required by relevant accounting guidance.
| (f) | This adjustment represents the amount necessary to increase premises and equipment from its book value on the date of acquisition to its estimated fair market value.
| (g) | This fair value adjustment represents the value of the core deposit base assumed in the acquisition based on a study performed by an independent consulting firm. This amount was recorded by the Company as an identifiable intangible asset and will be amortized as expense on an accelerated basis over seven years.
| (h) | This fair value adjustment primarily represents the net deferred tax liability associated with the other fair value adjustments made to record the transaction.
| (i) | This fair value adjustment was recorded because the weighted average interest rate of Carolina Bank’s time deposits exceeded the cost of similar wholesale funding at the time of the acquisition. This amount is being amortized to reduce interest expense on an accelerated basis over the deposits’ remaining five year life.
| (j) | This fair value adjustment was primarily recorded because the interest rate of Carolina Bank’s trust preferred securities was less than the current interest rate on similar instruments. This amount is being amortized on approximately a straight-line basis to increase interest expense over the remaining life of the related borrowing, which is 18 years.
| (k) | This fair value adjustment represents miscellaneous adjustments needed to record assets and liabilities at their fair value.
| (l) | This fair value adjustment was a miscellaneous adjustment to increase the initial fair value of gross loans.
| (m) | This fair value adjustment relates to miscellaneous adjustment to decrease the initial fair value of premises and equipment.
| (n) | This fair value adjustment relates to changes in the estimate of deferred tax assets/liabilities associated with the acquisition and adjustments to decrease the initial fair value of the foreclosed real estate acquired in the transaction based on newly obtained valuations.
| (o) | This fair value adjustment relates to miscellaneous adjustments to decrease the initial fair value of borrowings.
| (p) | This fair value adjustment relates to a change in the estimate of a contingent liability.
The following unaudited pro forma financial information presents the combined results of the Company and Carolina Bank as if the acquisition had occurred as of January 1, 2016, after giving effect to certain adjustments, including amortization of the core deposit intangible, and related income tax effects. The pro forma financial information does not necessarily reflect the results of operations that would have occurred had the Company and Carolina Bank constituted a single entity during such period.
($ in thousands, except share data) |  | Pro Forma Combined Nine Months Ended September 30, 2017 |
Net interest income |  | $ | 119,899 |
Noninterest income |  |  | 35,236 |
Total revenue |  |  | 155,135 |
Net income available to common shareholders |  |  | 35,176 |
Earnings per common share |  |  |  |
Basic |  | $ | 1.43 |
Diluted |  |  | 1.43 |
The above pro forma results for the nine months ended September 30, 2017 include merger-related expenses and charges recorded by Carolina Bank prior to the acquisition that are nonrecurring in nature and amounted to $4.6 million pretax, or $3.1 million after-tax ($0.12 per basic and diluted share).
| (2) | On September 1, 2017, First Bank Insurance completed the acquisition of Bear Insurance Service (“Bear Insurance”). The results of Bear Insurance are included the Company’s results beginning on the September 1, 2017 acquisition date.
Bear Insurance, an insurance agency based in Albemarle, North Carolina, with four locations in Stanly, Cabarrus, and Montgomery counties and annual commission income of approximately $4 million, represented an opportunity to complement the Company’s insurance agency operations in these markets and the surrounding areas. Also, this acquisition provided the Company with a larger platform for leveraging insurance services throughout the Company’s bank branch network. The transaction value was $9.8 million, with the Company paying $7.9 million in cash and issuing 13,374 shares of its common stock, which had a value of approximately $0.4 million. Per the terms of the agreement, the Company also recorded an earn-out liability valued at $1.2 million, which will be paid as a cash distribution after a four-year period if pre-determined goals are met for the periods. This acquisition was accounted for using the purchase method of accounting for business combinations, and accordingly, the assets and liabilities of Bear Insurance were recorded based on estimates of fair values as of September 1, 2017. In connection with this acquisition, the Company recorded $5.3 million in goodwill, which is deductible for tax purposes, and $3.9 million in other amortizable intangible assets, which are also deductible for tax purposes.
| (3) | On October 1, 2017, the Company completed the acquisition of ASB Bancorp, Inc. (“Asheville Savings Bank”), headquartered in Asheville, North Carolina, pursuant to an Agreement and Plan of Merger and Reorganization dated May 1, 2017. The results of Asheville Savings Bank are included in First Bancorp’s results beginning on the October 1, 2017 acquisition date.
ASB Bancorp, Inc. was the parent company of Asheville Savings Bank, a North Carolina state-chartered savings bank with eight bank branches located in Buncombe County, North Carolina and five bank branches located in the counties of Henderson, Madison, McDowell and Transylvania, all in North Carolina. The acquisition complemented the Company’s existing presence in the Asheville and surrounding markets, which are high-growth and highly desired markets. The Company was willing to record goodwill primarily due to the reasons just noted, as well as the positive earnings of Asheville Savings Bank. The total merger consideration consisted of $17.9 million in cash and 4,920,061 shares of the Company’s common stock, with each share of Asheville Savings Bank common stock being exchanged for either $41.90 in cash or 1.44 shares of the Company’s stock, subject to the total consideration being 90% stock / 10% cash. The issuance of common stock was valued at $169.3 million and was based on the Company’s closing stock price on September 30, 2017 of $34.41 per share. This acquisition was accounted for using the purchase method of accounting for business combinations, and accordingly, the assets and liabilities of Asheville Savings Bank were recorded based on estimates of fair values as of October 1, 2017. The Company may change its valuations of acquired Asheville Savings Bank assets and liabilities for up to one year after the acquisition date. The table below is a condensed balance sheet disclosing the amount assigned to each major asset and liability category of Asheville Savings Bank on October 1, 2017, and the related fair value adjustments recorded by the Company to reflect the acquisition. The $88.2 million in goodwill that resulted from this acquisition is non-deductible for tax purposes.
($ in thousands) |  | As Recorded by Asheville Savings Bank |  |  | Initial Fair Value Adjustments |  |  | Measurement Period Adjustments |  |  | As Recorded by First Bancorp |
Assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 41,824 |  |  |  | — |  |  |  | — |  |  |  | 41,824 |
Securities |  |  | 95,020 |  |  |  | — |  |  |  | — |  |  |  | 95,020 |
Loans, gross |  |  | 617,159 |  |  |  | (9,631 | ) (a) |  |  | — |  |  |  | 606,180 |
|  |  |  |  |  |  | (1,348 | ) (b) |  |  | — |  |  |  |  |
Allowance for loan losses |  |  | (6,685 | ) |  |  | 6,685 | (c) |  |  | — |  |  |  | — |
Presold mortgages |  |  | 3,785 |  |  |  | — |  |  |  | — |  |  |  | 3,785 |
Premises and equipment |  |  | 10,697 |  |  |  | 9,857 | (d) |  |  | — |  |  |  | 20,554 |
Core deposit intangible |  |  | — |  |  |  | 9,760 | (e) |  |  | 120 | (i) |  |  | 9,880 |
Other |  |  | 35,944 |  |  |  | (5,851 | ) (f) |  |  | (777 | ) (j) |  |  | 29,316 |
Total |  |  | 797,744 |  |  |  | 9,472 |  |  |  | (657 | ) |  |  | 806,559 |
Liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Deposits |  | $ | 678,707 |  |  |  | 430 | (g) |  |  | — |  |  |  | 679,137 |
Borrowings |  |  | 20,000 |  |  |  | — |  |  |  | — |  |  |  | 20,000 |
Other |  |  | 8,943 |  |  |  | 298 | (h) |  |  | (822 | ) (k) |  |  | 8,419 |
Total |  |  | 707,650 |  |  |  | 728 |  |  |  | (822 | ) |  |  | 707,556 |
Net identifiable assets acquired |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 99,003 |
Total cost of acquisition |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Value of stock issued |  |  |  |  |  | $ | 169,299 |  |  |  |  |  |  |  |  |
Cash paid in the acquisition |  |  |  |  |  |  | 17,939 |  |  |  |  |  |  |  |  |
Total cost of acquisition |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 187,238 |
Goodwill recorded related to acquisition of Asheville Savings Bank |  |  |  |  |  | $ | 88,235 |
Explanation of Fair Value Adjustments
| (a) | This fair value adjustment represents the amount necessary to reduce performing loans to their fair value due to interest rate factors and credit factors. Assuming the loans continue to perform, this amount will be amortized to increase interest income over the remaining lives of the related loans.
| (b) | This fair value adjustment was recorded to write-down purchased credit impaired loans assumed in the acquisition to their estimated fair market value.
| (c) | This fair value adjustment reduced the allowance for loan losses to zero as required by relevant accounting guidance.
| (d) | This adjustment represents the amount necessary to increase premises and equipment from its book value on the date of acquisition to its estimated fair market value.
| (e) | This fair value adjustment represents the value of the core deposit base assumed in the acquisition based on a study performed by an independent consulting firm. This amount was recorded by the Company as an identifiable intangible asset and is being amortized as expense on an accelerated basis over seven years.
| (f) | This fair value adjustment primarily represents the net deferred tax liability associated with the other fair value adjustments made to record the transaction.
| (g) | This fair value adjustment was recorded because the weighted average interest rate of Asheville Savings Bank’s time deposits exceeded the cost of similar wholesale funding at the time of the acquisition. This amount is being amortized to reduce interest expense on an accelerated basis over their remaining five year life.
| (h) | This fair value adjustment represents miscellaneous adjustments needed to record assets and liabilities at their fair value.
| (i) | This fair value adjustment relates to a change in the final amount of the core deposit intangible asset from the amount originally estimated.
| (j) | This fair value adjustment relates to the write-down of a foreclosed property based on an updated appraisal and the related deferred tax asset adjustment.
| (k) | This fair value adjustment was recorded to adjust the tax liability assumed on the acquisition date based on updated information.

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- Definition The entire disclosure for business combinations, including leverage buyout transactions (as applicable), and divestitures. This may include a description of a business combination or divestiture (or series of individually immaterial business combinations or divestitures) completed during the period, including background, timing, and assets and liabilities recognized and reclassified or sold. This element does not include fixed asset sales and plant closings. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 205 -SubTopic 20 -URI http://asc.fasb.org/subtopic&trid=2122178 Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -URI http://asc.fasb.org/topic&trid=2303972 + Details
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