20.SUBSEQUENT EVENTS

 

The Company’s management has evaluated subsequent events through March 11, 2014, the date the financial statements were available to be issued.    

 

StellarOne Acquisition

 

On January 1, 2014, the Company completed the acquisition of StellarOne, a bank holding company based in Charlottesville, Virginia, in an all stock transaction.  StellarOne’s common shareholders received 0.9739 shares of the Company’s common stock in exchange for each share of StellarOne’s common stock, resulting in the Company issuing 22,147,874 common shares at a fair value of $549.5 million.  As a result of the transaction, StellarOne’s former bank subsidiary, StellarOne Bank, became a wholly owned bank subsidiary of the Company.  The Company expects to operate StellarOne Bank as a separate wholly-owned bank subsidiary until May 2014, at which time StellarOne Bank is expected to be merged with and into the Bank.  As part of the acquisition plan and cost control efforts, the Company decided to consolidate 13 overlapping bank branches into nearby locations during 2014.  In all cases, customers can use branches within close proximity or continue to use the Bank’s other delivery channels including online and mobile banking as the Company works to retain and reassign employees affected by the branch closures.

 

 

The transaction was accounted for using the acquisition method of accounting and, accordingly, assets acquired, liabilities assumed, and consideration exchanged were recorded at estimated fair values on the acquisition date.  Fair values are preliminary and subject to refinement for up to one year after the closing date of the acquisition.  The following table provides a preliminary assessment of the assets purchased, liabilities assumed, and the consideration transferred (dollars in thousands, except share and per share data):

 

Preliminary Statement of Net Assets Acquired (at fair value) and consideration transferred:

 

 

 

The estimated fair values of the assets acquired and liabilities assumed at the acquisition date, presented in the table above, include some amounts that are based on preliminary fair value estimates.  The following factors led to certain balances having preliminary fair value estimates:

 

In many cases, determining the fair value of the acquired assets and assumed liabilities required the Company to estimate cash flows expected to result from those assets and liabilities and to discount those cash flows at appropriate rates of interest.  The most significant of those determinations related to the fair valuation of acquired loans.  For such loans, the excess of cash flows expected at acquisition over the estimated fair value is recognized as interest income over the remaining lives of the loans.  The difference between contractually required payments at acquisition and the cash flows expected to be collected at acquisition reflects the impact of estimated credit losses and other factors, such as prepayments.  In accordance with GAAP, there was no carry-over of StellarOne’s previously established allowance for credit losses.

 

The acquired loans were divided into loans with evidence of credit quality deterioration which are accounted for under ASC 310-30, Receivables – Loans and Debt Securities Acquired with Deteriorated Credit Quality, (acquired impaired) and loans that do not meet this criteria, which are accounted for under ASC 310-20, Receivables – Nonrefundable Fees and Other Costs, (acquired performing).  In addition, the loans are further categorized into different loan pools per loan types.  The Company determined expected cash flows on the acquired loans based on the best available information at the date of acquisition.  If new information is obtained about facts and circumstances about expected cash flows that existed as of the acquisition date, management will adjust accordingly in accordance with accounting for business combinations.

 

The fair values of the acquired performing loans were $2.1 billion and the fair values of the acquired impaired loans were $137.6 million.  The gross contractually required principal and interest payments receivable for acquired performing loans was $2.5 billion.  The best estimate of contractual cash flows not expected to be collected related to the acquired performing loans is $35.4 million.

 

The following table presents the acquired impaired loans receivable at the acquisition date (dollars in thousands):

 

 

 

The amounts of StellarOne’s revenue and earnings included in the Company’s Consolidated Statement of Income for the year ended December 31, 2013, and the revenue and earnings of the combined entity had the acquisition date been January 1, 2012, are presented in the pro forma table below.  These results combine the historical results of StellarOne into the Company’s Consolidated Statement of Income, and while certain adjustments were made for the estimated impact of certain fair value adjustments and other acquisition-related activity, they are not indicative of what would have occurred had the acquisition taken place on January 1, 2012.  In particular, no adjustments have been made to adjust provision for loan losses in 2013 on the acquired loan portfolio and related income taxes.  In addition, expenses related to systems conversions and other costs of integration are expected to be recorded during 2014 and those costs will be expensed as incurred.    The Company expects to achieve further operating cost savings and other business synergies, including branch closures, as a result of the acquisition which are not reflected in the pro forma amounts below (dollars in thousands):

 

 

 

 

 Other Subsequent Events

 

On January 9, 2013, the Bank finalized a forbearance agreement with a borrower in which the Bank acquired 190,152.5 shares of common stock of Virginia National Bankshares Corporation (formerly Virginia National Bank), a national banking association, with an aggregate value of approximately $2.6 million in partial settlement of certain debt owed to the Bank. The common stock served as collateral securing loans made by the Bank to the borrower.  On March 6, 2014 the Bank entered into an agreement to sell all of the above-mentioned shares at an aggregate value of $3.8 million.  In accordance with the forbearance agreement the proceeds from the sale of the common stock will be applied to the borrower’s contractually obligated loan amount that remains outstanding. The common stock acquired is recorded in Other Assets on the Company’s Consolidated Balance Sheets as of the years ended December 31, 2013 and 2012.

 

On January 30, 2014, the Company’s Board of Directors authorized a share repurchase program to purchase up to $65.0 million worth of the Company’s common stock on the open market or in privately negotiated transactions.  The repurchase program is authorized through December 31, 2015.