On September 1, 2021, the Company completed the acquisition of Sevier County Bancshares, Inc., a Tennessee corporation (“SCB”), pursuant to an Agreement and Plan of Merger dated April 13, 2021 (the “Merger Agreement”).

In connection with the merger, the Company acquired $484.9 million of assets and assumed $443.1 million of liabilities. Pursuant to the Merger Agreement, at the effective time of the merger, SCB shareholders were entitled to receive for each share of SCB common stock, no par value per share, outstanding immediately prior to the Merger, either (i) $10.17 in cash (the “Per Share Cash Consideration”), or (ii) 0.4116 shares of Company common stock, par value $1.00 (the “Per Share Stock Consideration”). Pursuant to the terms of the Merger Agreement, (i) each SCB shareholder holding 20,000 shares or more of SCB common stock will receive the Per Share Stock Consideration and (ii) each SCB shareholder holding fewer than 20,000 shares of SCB common stock may elect to receive either the Per Share Stock Consideration or the Per Share Cash Consideration. SmartFinancial issued 1,691,535 shares of SmartFinancial common stock and paid $9.6 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 $15.6 million, representing the intangible value of SCB’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 $1.6 million using the effective yield method over 120 months (10 years), which represents the expected useful life of the asset.

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

⁽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):


	September 1, 2021
Accounted for pursuant to ASC 310-30:
Contractually required principal and interest	$	25,932
Non-accretable differences		4,203
Cash flows expected to be collected		21,729
Accretable yield		3,480
Fair value	$	18,249

The following table discloses the impact of the merger with SCB since the acquisition date through the three and nine months ended September 30, 2021. The table also presents certain pro-forma information (net interest income plus total noninterest income (“Revenue”) and net income) as if the SCB acquisition had occurred on January 1, 2020. The pro-forma financial information is not necessarily indicative of the results of operations had the acquisitions been effective as of these dates.

Merger-related costs for the three and nine months ended September 30, 2021, were $445 thousand and $683 thousand, respectively, and have been excluded from the pro-forma information presented below. The actual results and pro-forma information were as follows (in thousands):


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	Revenue		Net Income		Revenue		Net Income
2021:
Actual SCB results included in statement of income since acquisition date	$	1,090	$	343	$	1,090	$	343
Supplemental consolidation pro-forma as if SCB had been acquired January 1, 2021		39,207		10,516		110,745		30,984

2020:
Supplemental consolidation pro-forma as if SCB had been acquired January 1, 2020	$	32,965	$	6,624	$	93,213	$	16,473

Fountain Leasing, LLC

On May 3, 2021, the Company completed the acquisition of Fountain Leasing, LLC, a Tennessee limited liability company, pursuant to the Purchase Agreement (the “Purchase Agreement”), dated May 2, 2021, by and among the Bank and the members of Fountain Leasing, LLC. Following the closing of the acquisition, on May 4, 2021, the Company changed the name of Fountain Leasing, LLC to Fountain Equipment Finance, LLC (“Fountain”).

In connection with the acquisition, the Company acquired $54.1 million of assets and assumed $683 thousand of liabilities. Pursuant to the Purchase Agreement, the Company paid an aggregate amount of consideration to the Fountain members of $14.0 million in cash at closing, and the Company repaid approximately $45.8 million of Fountain’s indebtedness. In addition to the closing consideration, the Purchase Agreement contains a performance-based earnout, pursuant to which the former members of Fountain could be entitled to up to $6.0 million, which is excluded from consideration pursuant to ASC 805, in future cash payments from the Company based on future results of the acquired business over various periods through December 31, 2026. 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 $2.4 million, representing the intangible value of Fountains business and reputation within the markets it served. The goodwill recognized is expected to be deductible for income tax purposes. The Company established an intangible asset related to customer relationships of $2.7 million, amortizing sum-of-the-years digits over 96 months (8 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).


	As recorded		Fair value		Subsequent		As recorded
	by Fountain		adjustments		Adjustments		by the Company
Assets:
Cash & cash equivalents	$	413	$	—	$	—	$	413
Leases		54,945		(720)		—		54,225
Allowance for lease losses		(1,796)		1,796		—		—
Customer list intangible		—		2,658		—		2,658
Other repossessed assets		319		—		—		319
Other assets		233		—		—		233
Total assets acquired	$	54,114	$	3,734	$	—	$	57,848

Liabilities:
Payables and other liabilities		683		(229)		—		454
Total liabilities assumed		683		(229)		—		454
Excess of assets acquired over liabilities assumed	$	53,431
Aggregate fair value adjustments			$	3,963	$	—
Total identifiable net assets								57,394
Consideration transferred:
Cash								59,794
Total fair value of consideration transferred								59,794

Goodwill							$	2,400

(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 financing leases (ASC 310-30) of the acquired lease portfolio at the acquisition date (in thousands):


	May 3, 2021
Accounted for pursuant to ASC 310-30:
Contractually required principal and interest	$	6,018
Non-accretable differences		447
Cash flows expected to be collected		5,571
Accretable yield		649
Fair value	$	4,922

The following table discloses the impact of the merger with Fountain since the acquisition date through the three and nine months ended September 30, 2021. The table also presents certain pro-forma information (net interest income plus total noninterest income (“Revenue”) and net income) as if the Fountain acquisition had occurred on January 1, 2020. The pro-forma financial information is not necessarily indicative of the results of operations had the acquisitions been effective as of these dates.

Merger-related costs for the three and nine months ended September 30, 2021, were $18 thousand and $159 thousand, respectively, and have been excluded from the pro-forma information presented below. The actual results and pro-forma information were as follows (in thousands):


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	Revenue		Net Income		Revenue		Net Income
2021:
Actual Fountain results included in statement of income since acquisition date	$	1,696	$	357	$	2,834	$	702
Supplemental consolidation pro-forma as if Fountain had been acquired January 1, 2021		36,690		9,614		102,470		28,101

2020:
Supplemental consolidation pro-forma as if Fountain had been acquired January 1, 2020	$	31,566	$	6,744	$	89,016	$	16,274

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 $301.0 million of assets and assumed $272.1 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 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 acquired 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

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