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Note 25 - Acquisitions

12 Months Ended

Dec. 31, 2021

Business Combination Disclosure [Text Block]

Note 25. Acquisitions

Acquisition of the Bank of Fincastle

On July 1, 2021, the Company completed its acquisition of Fincastle for an aggregate purchase price of $33.8 million of cash and stock. The Company paid cash consideration of $6.8 million and issued 1,348,065 shares of its common stock to the shareholders of Fincastle. Upon completion of the transaction, Fincastle was merged with and into First Bank. At the time of closing of the acquisition, The Bank of Fincastle had six retail bank offices operating in the greater Roanoke region of Virginia. The former Fincastle branches continued to operate as The Bank of Fincastle, a division of First Bank, until the systems were converted on October 16, 2021. As of June 30, 2021, Fincastle reported total assets of $267.9 million, total loans of $194.5 million and total deposits of $236.3 million. For the year ended December 31, 2021, the Company recorded merger related expenses of $3.4 million in connection with the acquisition of Fincastle. The Company estimates that it will incur aggregate costs related to the merger of $3.4 million, with $20 thousand of merger related expenses expected to be recorded in the first and second quarters of 2022.

Acquisition of SmartBank Loan Portfolio

On September 30, 2021, the Bank acquired $82.0 million of loans and certain fixed assets from SmartBank related to its Richmond area branch, located in Glen Allen, Virginia. First Bank paid cash consideration of $83.7 million for the loans and fixed assets. Additionally, an experienced team of bankers based out of the SmartBank location have transitioned to become employees of First Bank. First Bank did not assume any deposit liabilities from SmartBank in connection with the transaction, and SmartBank closed their branch operation on December 31, 2021. First Bank assumed the facility lease at the branch on December 31, 2021 and now operates a loan production office in the location of the former SmartBank branch. First Bank’s assumption of the lease and acquisition of the remaining branch assets was completed in the fourth quarter of 2021. The Company incurred $101 thousand of expenses related to the acquisition of loans and fixed assets during 2021.

The acquisitions were accounted for as business combinations under ASC 805, Business Combinations. Under acquisition accounting, assets acquired, and liabilities assumed are recorded at their acquisition date fair values, and any excess of the purchase price over the aggregate fair value of the net assets acquired is recognized as goodwill. Determining the fair value of assets and liabilities, particularly related to the loan portfolio, is inherently subjective and involves significant judgment regarding the methods and assumptions used to estimate fair value. During the measurement period, the acquirer shall adjust the amounts recognized at the acquisition date and may recognize additional assets or liabilities to reflect new information obtained from facts and circumstances that existed as of the acquisition date that, if known, would have affected the measurement of the amounts recognized as of that date. Measurement period adjustments are recognized in the reporting period in which they are determined. The measurement period may not exceed one year from the acquisition date.

The following table presents the total consideration paid by the Company in connection with the acquisition of Fincastle and the SmartBank loan portfolio, the fair values of the assets acquired and liabilities assumed, and the resulting goodwill. Amounts for the Bank of Fincastle acquisition are as of July 1, 2021. Amounts for
SmartBank are as of September 30, 2021.

(Dollars in thousands)	Bank of Fincastle		SmartBank		Total
Purchase price:
Cash paid	$	6,752	$	83,745	$	90,497
Common stock issued		27,069		-		27,069
Total purchase price	$	33,821	$	83,745	$	117,566

Identifiable assets acquired:
Cash and due from banks	$	46,158	$	-	$	46,158
Federal funds sold		120		-		120
Securities, AFS, at fair value		12,112		-		12,112
Restricted securities		183		-		183
Loans, net of ALLL		194,617		81,637		276,254
Bank premises and equipment		3,471		172		3,643
Accrued interest receivable		1,588		143		1,731
OREO		2,137		-		2,137
BOLI		5,852		-		5,852
Other assets		4,259		-		4,259
Total identifiable assets acquired	$	270,497	$	81,952	$	352,449

Identifiable liabilities assumed:
Demand deposits & savings accounts	$	184,535	$	-	$	184,535
Time deposits		52,246		-		52,246
Accrued expenses and other liabilities		1,132		-		1,132
Total identifiable liabilities assumed	$	237,913	$	-	$	237,913

Net identifiable assets acquired at fair value	$	32,584	$	81,952	$	114,536

Goodwill resulting from acquisitions	$	1,237	$	1,793	$	3,030

The following table presents certain unaudited pro forma information as if the acquisition had taken place on January 1, 2020. These results combine the historical results of Fincastle and the Company for the period prior to the merger. While certain adjustments were made for estimated effects resulting from the application of
the acquisition method, including certain fair value adjustments, this pro forma information is not indicative of what would have occurred had the acquisition actually taken place on January 1, 2020. Pro forma adjustments for the year ended December 31, 2021 and December 31, 2020 include the net impact of accretion of loan discounts related to market interest rates, amortization of premiums on deposits, amortization of intangible assets and related income taxes. Unaudited pro forma net income for the years ended December 31, 2021 and 2020 includes after tax merger related expenses of $3.4 million, or $(0.61) per share. These amounts include $629 thousand recorded by Fincastle prior to the merger, which was primarily related to fees paid for legal and financial advisors. Unaudited pro forma net income also includes provision for loan losses recorded by Fincastle for loans that were recorded by the Corporation at fair value upon acquisition and have no allowance for loan losses in the books of the Corporation. Additionally, the Company expects to achieve further operational cost savings and other efficiencies as a result of the acquisition which are not reflected in the unaudited pro forma amounts below.

	Unaudited Pro Forma		Unaudited Pro Forma
	Twelve Months Ended		Twelve Months Ended
(Dollars in thousands, except per share amounts)	December 31, 2021		December 31, 2020
Total revenues (net interest income plus noninterest income)	$	42,116	$	43,234
Net income	$	9,826	$	7,660
Net income per share, basic	$	1.77	$	1.57
Net income per share, diluted	$	1.77	$	1.57

The revenue and earnings amounts specific to SmartBank since the acquisition date that are included in the consolidated results for 2021 and 2020 are not readily determinable. The disclosures of these amounts are impracticable due to the merging of certain processes and systems at the acquisition date. Merger related expenses associated with the acquisition of Fincastle and SmartBank combined totaled $3.5 million through December 31, 2021. These costs included the integration of systems and operations and legal and consulting expenses, which have been expensed as incurred. Additional merger related expenses of $20 thousand are expected to be incurred throughout the first and second quarters of 2022.