Business Combination

12 Months Ended

Dec. 31, 2015

Business Combinations [Abstract]

Business Combination Disclosure [Text Block]

Note 2. Business Combination

On June 18, 2015, the shareholders of the SmartFinancial, Inc (“Legacy SmartFinancial”) approved a merger with Cornerstone Bancshares, Inc. ticker symbol CSBQ, the one bank holding company of Cornerstone Community Bank, which became effective August 31, 2015 at which time Cornerstone Bancshares changed its name to SmartFinancial Legacy SmartFinancial shareholders received 1.05 shares of Cornerstone common stock in exchange for each share of Legacy SmartFinancial common stock. After the merger, shareholders of Legacy SmartFinancial owned  approximately 56% of the outstanding common stock of the combined entity on a fully diluted basis, after taking into account the exchange ratio and new shares issued as part of a capital raise through a private placement. 

While Cornerstone was the acquiring entity for legal purposes, the merger is being accounted for as a reverse merger using the acquisition method of accounting, in accordance with the provisions of FASB ASC 805-10 Business Combinations. Under this guidance, for accounting purposes, Legacy SmartFinancial is considered the acquirer in the merger, and as a result the historical financial statements of the combined entity will be the historical financial statements of Legacy SmartFinancial.

 

The merger was effected by the issuance of shares of Cornerstone stock to shareholders of Legacy SmartFinancial. The assets and liabilities of Cornerstone as of the effective date of the merger were recorded at their respective estimated fair values and combined with those of Legacy SmartFinancial. The excess of the purchase price over the net estimated fair values of the acquired assets and liabilities was allocated to identifiable intangible assets with the remaining excess allocated to goodwill. Goodwill from the transaction was $4.2 million, none of which is deductible for income tax purposes.

In periods following the merger, the financial statements of the combined entity will include the results attributable to Cornerstone Community Bank beginning on the date the merger was completed. In the period ended December 31, 2015 the revenues and net income attributable to Cornerstone Community bank were $7.0 million and $1.6 million, respectively. The pro-forma impact to 2014 revenues and net income if the merger had occurred on December 31, 2013 would have been $19.6 million and $67 thousand, respectively.

The following table details the preliminary estimated financial impact of the merger, including the calculation of the purchase price, the allocation of the purchase price to the fair values of net assets assumed, and goodwill recognized:

Calculation of Purchase Price
Shares of CSBQ common stock outstanding as of August 31, 2015		6,643,341
Market price of CSBQ common stock on August 31, 2015	$	3.85
Estimated fair value of CSBQ common stock (in thousands)		25,577
Estimated fair value of CSBQ stock options (in thousands)		2,858
Total consideration (in thousands)	$	28,435

Allocation of Purchase Price (in thousands)
Total consideration above	$	28,435
Fair value of assets acquired and liabilities assumed:
Cash and cash equivalents		33,502
Investment securities available for sale		74,254
Loans		314,827
Premises and equipment		9,019
Bank owned life insurance		1,278
Core deposit intangible		2,750
Other real estate owned		5,672
Prepaid and other assets		4,301
Deposits		(349,462)
Securities sold under agreements to repurchase		(17,622)
FHLB advances and other borrowings		(42,307)
Payables and other liabilities		(11,943)
Total fair value of net assets acquired		24,269
Goodwill	$	4,166