Get Started for Free Contexxia identifies hard-to-find pieces of information in SEC filings. No more highlighters, no more redlining, no more poring over huge documents. FIRST CITIZENS BANCSHARES INC /DE/ (798941) 10-Q published on May 08, 2019 at 4:09 pm
Reporting Period: Mar 30, 2019
The adoption of the new standard had an impact on our Consolidated Balance Sheet, with the recording of operating Right-of-Use (ROU) assets and operating lease liabilities of $70.7 million and $71.8 million, respectively. The operating lease liability includes a $1.1 million fair value adjustment for leases assumed in the acquisition of HomeBancorp, Inc. (HomeBancorp). In addition, at the adoption date we had finance lease ROU assets and finance lease liabilities, previously classified as capital leases, of $9.1 million and $8.3 million, respectively. The Company did not have a cumulative-effect adjustment to the opening balance of retained earnings at commencement. The Company has no related party lease agreements. This ASU did not have a material impact on our Consolidated Statements of Income. See Note N in the Consolidated Financial Statements for additional disclosures.
This ASU reinstated the exception in Topic 842 for lessors that are not manufacturers or dealers for determining the fair value of leased property as the underlying asset's cost, reflecting any volume or trade discounts that may apply, allows lessors that are depository and lending institutions within the scope of ASU Topic 942 to present "principal payments received under leases" within investing activities on the Statement of Cash Flows, and provides an exemption to the ASC 250-10-50-3 interim disclosure requirements in the Topic 842 transition disclosure requirements. We early adopted this standard with ASU 2016-02 as of January 1, 2019 and the impact was not material to our Consolidated Financial Statements.
On April 23, 2019, FCB and Entegra Financial Corp. (Entegra) entered into a definitive merger agreement for the acquisition by FCB of Franklin, North Carolina-based Entegra and its bank subsidiary, Entegra Bank. Under the terms of the agreement, cash consideration of $30.18 per share will be paid to the shareholders of Entegra for each share of common stock and for each restricted stock unit after conversion to common stock, and each option to purchase Entegra common stock will be canceled and each option holder will receive a cash payment equal to $30.18 for each share underlying the option minus the applicable exercise price of the option. The total transaction value, including termination fee, is anticipated to be approximately $219.8 million. The transaction is anticipated to close during the second half of 2019, subject to the receipt of regulatory approvals and the approval of Entegra's shareholders. As of March 31, 2019, Entegra reported $1.67 billion in consolidated assets, $1.25 billion in deposits and $1.08 billion in loans.
ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our corresponding obligation to make lease payments arising from the lease. Operating and finance lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. The operating and finance lease ROU asset also includes initial direct costs and pre-paid lease payments made, excluding lease incentives. As most of our leases do not provide an implicit rate, BancShares uses its incremental borrowing rate, based on the information available at commencement date in determining the present value of lease payments. BancShares determines the incremental borrowing rate using secured rates for FHLB new advances under similar terms as the lease at inception. BancShares used the incremental borrowing rate on January 1, 2019, for operating leases that commenced prior to that date.
Most leases include one or more options to renew, with renewal terms that can extend the lease term from 1 to 25 years. The exercise of lease renewal options is at our sole discretion. When it is reasonably certain that we will exercise our option to renew or extend the lease term, that option is included in determining the value of the ROU and lease liability. The depreciable life of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise.