Business Combinations

3 Months Ended

Mar. 31, 2021

Business Combinations [Abstract]

Business Combinations

Note 2. Business Combinations

Progressive Financial Inc.

On March 1, 2020, the Company completed the merger of Progressive Financial Group, Inc., a Tennessee corporation (“PFG”), pursuant to an Agreement and Plan of Merger dated October 29, 2019 (the “Merger Agreement”).

In connection with the merger, the Company acquired $301 million of assets and assumed $272 million of liabilities. Pursuant to the Merger Agreement, each outstanding share of Progressive common stock was converted into and cancelled in exchange to the right to receive $474.82 in cash, and 62.3808 shares of SmartFinancial common stock. SmartFinancial issued 1,292,578 shares of SmartFinancial common stock and paid $9.8 million in cash as consideration for the Merger. The fair value of consideration paid exceeded the fair value of the identifiable assets and liabilities acquired and resulted in the establishment of goodwill in the amount of $8.8 million, representing the intangible value of Progressive’s business and reputation within the markets it served. None of the goodwill recognized is expected to be deductible for income tax purposes. The Company is amortizing the related core deposit intangible of $1.4 million using the effective yield method over 120 months (10 years), which represents the expected useful life of the asset.  The Company also established two intangible assets related to the insurance agency acquired as part of the PFG acquisition; 1.) Customer relationships of $1.1 million, amortizing sum-of-the-years digits over 120 months (10 years), 2.) Tradename of $63 thousand, amortizing straight-line over 60 months (5 years).

The purchased assets and assumed liabilities were recorded at their acquisition date fair values ⁽¹⁾ and are summarized in the table below (in thousands).

			Initial
	As recorded		Fair value		Subsequent		As recorded
	by PFG		adjustments		Adjustments		by the Company
Assets:
Cash & cash equivalents	$	55,971	$	—	$	—	$	55,971
Investment securities available-for-sale		27,054		203		—		27,257
Restricted investments		692		—		—		692
Loans		191,672		(3,691)		—		187,981
Allowance for loan losses		(2,832)		2,832		—		—
Premises and equipment, net		15,681		(2,919)		—		12,762
Bank owned life insurance		5,560		—		—		5,560
Deferred tax asset, net		—		813		193		1,006
Intangibles		—		1,370		1,127		2,497
Other real estate owned		3,695		(100)		(1,862)		1,733
Interest Receivable		1,061		(280)		—		781
Prepaids		375		(174)		—		201
Goodwill		231		(231)		—		—
Other assets		1,881		—		—		1,881
Total assets acquired	$	301,041	$	(2,177)	$	(542)	$	298,322
Liabilities:
Deposits	$	271,276	$	—		—	$	271,276
Time deposit premium		—		729		—		729
Payables and other liabilities		776		—		—		776
Total liabilities assumed		272,052		729		—		272,781
Excess of assets assumed over liabilities assumed	$	28,989
Aggregate fair value adjustments			$	(2,906)	$	(542)
Total identifiable net assets								25,541
Consideration transferred:
Cash								9,838
Common stock issued (1,292,578 shares)								24,547
Total fair value of consideration transferred								34,385
Goodwill							$	8,844

⁽¹⁾ Fair values are preliminary and are subject to refinement for a period of one year after the closing date of an acquisition as information relative to the closing date fair value becomes available.

The following table presents additional information related to the purchased credit impaired loans (ASC 310-30) of the acquired loan portfolio at the acquisition date (in thousands):

	March 1, 2020
Accounted for pursuant to ASC 310-30:
Contractually required principal and interest	$	21,107
Non-accretable differences		4,706
Cash flows expected to be collected		16,401
Accretable yield		2,515
Fair value	$	13,886