Business Combinations

9 Months Ended

Sep. 30, 2020

BUSINESS COMBINATIONS

Recently Announced Business Combinations

CIT Group Inc.

On October 15, 2020, BancShares and CIT Group Inc., a Delaware corporation (“CIT”), entered into an Agreement and Plan of Merger (the “Merger Agreement”) by and among BancShares, FCB, FC Merger Subsidiary IX, Inc., a direct, wholly owned subsidiary of FCB (“Merger Sub”), and CIT, the parent company of CIT Bank, N.A., a national banking association (“CIT Bank”). Pursuant to the terms and subject to the conditions set forth in the Merger Agreement, Merger Sub will merge with and into CIT, with CIT as the surviving entity (the “First-Step Merger”), and as soon as reasonably practicable following the effective time of the First-Step Merger, CIT will merge with and into FCB, with FCB as the surviving entity (together with the First-Step Merger, the “Mergers”). The Merger Agreement further provides that immediately following the consummation of the Mergers, CIT Bank will merge with and into FCB, with FCB as the surviving bank (together with the Mergers, the “Transaction”).

The Merger Agreement was unanimously approved by the Board of Directors of each of BancShares and CIT. Subject to the fulfillment of customary closing conditions, the parties anticipate that the Transaction will close in the first half of 2021.

Upon the terms and subject to the conditions set forth in the Merger Agreement, at the effective time of the First-Step Merger (the “Effective Time”), each share of CIT common stock, par value $0.01 per share, issued and outstanding immediately prior to the Effective Time (“CIT Common Stock”), except for certain shares of CIT Common Stock owned by CIT or BancShares, will be converted into the right to receive .06200 shares of BancShares Class A common stock, par value $1.00 per share. Holders of CIT Common Stock will receive cash in lieu of fractional shares.

In addition, at the Effective Time, each share of Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series A, par value $0.01 per share, of CIT and 5.625% Non-Cumulative Perpetual Preferred Stock, Series B, par value $0.01 per share, of CIT issued and outstanding will automatically be converted into the right to receive one share of a newly created series of preferred stock, Series B, of BancShares and one share of a newly created series of preferred stock, Series C, of BancShares, respectively.

The Merger Agreement requires that, effective as of the Effective Time, the Boards of Directors of the combined company and the combined bank will consist of 14 directors, (i) 11 of whom will be members of the current Board of Directors of BancShares, and (ii) three of whom will be selected from among the current Board of Directors of CIT and will include as one of those three Ellen R. Alemany, Chairwoman and Chief Executive Officer of CIT.

Completed Business Combinations

BancShares evaluated the financial statement significance for all business combinations completed during 2020 and concluded the completed business combinations noted below are not material to its consolidated financial statements, individually or in aggregate, and therefore, pro forma financial data is not included.

Each transaction is accounted for under the acquisition method of accounting and, accordingly, assets acquired and liabilities assumed are recorded at their estimated fair values as of the acquisition date. Fair values are preliminary and subject to refinement for up to one year after the closing date of the acquisition as additional information regarding closing date fair value becomes available.

As part of the accounting for each acquisition, we perform an analysis of the acquired bank’s loan portfolio and based on such credit factors as past due status, nonaccrual status, life-to-date charge-offs and other quantitative and qualitative considerations segregate the acquired loans into PCD loans and non-PCD loans. PCD loans are accounted for under ASC 326-20, and non-PCD loans which do not meet this criteria are accounted for under ASC 310-20. Additionally, we perform an analysis of the acquired bank’s portfolio of debt securities to determine if any debt securities should be designated PCD.

Community Financial Holding Company, Inc.

On February 1, 2020, FCB completed the merger of Duluth, Georgia-based Community Financial Holding Company, Inc. (“Community Financial”) and its bank subsidiary, Gwinnett Community Bank. Under the terms of the agreement, total cash consideration of $2.3 million was paid to the shareholders of Community Financial. The merger allows FCB to expand its presence and enhance banking efforts in Georgia.

The fair value of the assets acquired was $221.4 million, including $110.6 million in non-PCD loans, $23.4 million in PCD loans, net of an ACL of $1.2 million, and $536 thousand in a core deposit intangible. No debt securities purchased in the transaction were designated PCD. Liabilities assumed were $219.8 million, of which $209.3 million were deposits. As a result of the transaction, FCB recorded $686 thousand of goodwill. The amount of goodwill represents the excess purchase price over the estimated fair value of the net assets acquired. The premium paid reflects the increased market share and related synergies expected to result from the acquisition. None of the goodwill was deductible for income tax purposes as the merger was accounted for as a qualified stock purchase.

The following table provides the purchase price as of the acquisition date and the identifiable assets acquired and liabilities assumed at their estimated fair values:


(Dollars in thousands)	As recorded by FCB
Purchase price			$	2,320
Assets
Cash and due from banks	$	1,085
Overnight investments	35,129
Investment securities	30,146


Loans	133,989

Premises and equipment	7,624
Other real estate owned	9,813
Income earned not collected	558
Intangible assets	536
Other assets	2,520
Total assets acquired	221,400
Liabilities
Deposits	209,340
Borrowings	9,925

Other liabilities	501
Total liabilities assumed	$	219,766
Fair value of net assets acquired			1,634
Goodwill recorded for Community Financial			$	686

Merger-related expenses of $342 thousand and $2.1 million were recorded for the three and nine months ended September 30, 2020, respectively. Loan-related interest income generated from Community Financial was approximately $4.1 million since the acquisition date. The ongoing contribution of this transaction to BancShares’ financial statements is not considered material, and therefore pro forma financial data is not included.

Entegra Financial Corp.

On December 31, 2019, FCB completed the merger of Franklin, North Carolina-based Entegra Financial Corp. (“Entegra”) and its bank subsidiary, Entegra Bank. In order to obtain regulatory approval, FCB entered into an agreement for Select Bank & Trust Company (“Select Bank”) to purchase three North Carolina branches, located in Highlands, Sylva and Franklin. On April 17, 2020, FCB completed the divestiture of the branches including loans and leases, premises and equipment and total deposits with fair values of $110.1 million, $2.1 million and $184.8 million, respectively. The Select Bank purchase price for the divested branches included an 8% premium for deposits acquired that was applied against goodwill generated as part of the merger with Entegra Bank.