SMARTFINANCIAL INC. (Form: 10-Q, Received: 11/14/2017 15:59:40)

United States Securities and Exchange Commission

Washington, D.C. 20549

FORM 10-Q

(Mark One)



x	QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2017



¨	TRANSITION REPORT PURSUANT SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________to

Commission File Number: 333-203449

(Exact name of small business issuer as specified in its charter)



Tennessee		62-1173944
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

5401 Kingston Pike, Suite 600 Knoxville, Tennessee		37919
(Address of principal executive offices)		(Zip Code)

865-453-2650
(Registrant’s telephone number, including area code)		(Former name, former address and former fiscal
		year, if changes since last report)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such period that the registrant was required to submit and post such files).

Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):



Large accelerated filer ¨	Accelerated filer ¨	Non-accelerated filer ¨	Smaller reporting company x	Emerging growth company ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨ No x

As of October 31, 2017 there were 8,243,717 shares of common stock, $1.00 par value per share, issued and outstanding.

TABLE OF CONTENTS



	PART I –FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)	4

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	32

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	45

Item 4.	Controls and Procedures	45

	PART II – OTHER INFORMATION

Item 1.	Legal Proceedings	46

Item 1A.	Risk Factors	46

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	46

Item 3.	Defaults Upon Senior Securities	46

Item 4.	Mine Safety Disclosures	46

Item 5.	Other Information	46

Item 6.	Exhibits	47

FORWARD-LOOKING STATEMENTS

SmartFinancial, Inc. (“ SmartFinancial ” or the " Company ") may from time to time make written or oral statements, including statements contained in this report (including, without limitation, certain statements in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 2), that constitute forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 (the “ Exchange Act ”). The words “expect,” “anticipate,” “intend,” “consider,” “plan,” “believe,” “seek,” “should,” “estimate,” and similar expressions are intended to identify such forward-looking statements, but other statements may constitute forward-looking statements. These statements should be considered subject to various risks and uncertainties. Such forward-looking statements are made based upon management’s belief as well as assumptions made by, and information currently available to, management pursuant to “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. SmartFinancial’s actual results may differ materially from the results anticipated in forward-looking statements due to a variety of factors. Such factors include, without limitation, those specifically described in Item 1A of Part I of the Company’s most recent Annual Report on Form 10-K, as well as the following: the expected revenue synergies and cost savings from the merger with Capstone may not be fully realized or may take longer than anticipated to be realized; the disruption from the Capstone merger with customers, suppliers or employees or other business partners’ relationships; the risk of successful integration of our business with that of Capstone after consummation of the merger; the amount of costs, fees, expenses, and charges related to the merger; changes in management’s plans for the future, prevailing economic and political conditions, particularly in our market area; credit risk associated with our lending activities; changes in interest rates, loan demand, real estate values and competition; changes in accounting principles, policies, and guidelines; changes in any applicable law, rule, regulation or practice with respect to tax or legal issues; and other economic, competitive, governmental, regulatory and technological factors affecting our operations, pricing, products and services. Many of such factors are beyond SmartFinancial’s ability to control or predict, and readers are cautioned not to put undue reliance on such forward-looking statements. SmartFinancial does not intend to update or reissue any forward-looking statements contained in this report as a result of new information or other circumstances that may become known to SmartFinancial.

Non-GAAP Financial Measures

Under SEC Regulation G, public companies making disclosures containing financial measures that are not in accordance with GAAP must also disclose, along with each non-GAAP financial measure, certain additional information, including a reconciliation of the non-GAAP financial measure to the closest comparable GAAP financial measure, as well as a statement of the company’s reasons for utilizing the non-GAAP financial measure. The SEC has exempted from the definition of non-GAAP financial measures certain commonly used financial measures that are not based on GAAP. However, two non-GAAP financial measures commonly used by financial institutions, namely tax-equivalent net interest income and tax-equivalent net interest margin (as presented in the tables in the section labeled “Net Interest Income and Yield Analysis”), have not been specifically exempted by the SEC, and may therefore constitute non-GAAP financial measures under Regulation G. We are unable to state with certainty whether the SEC would regard those measures as subject to Regulation G. Management believes that these non-GAAP financial measures are useful in evaluating the Company’s financial performance and facilitate comparisons with the performance of other financial institutions. However, that information should be considered supplemental in nature and not as a substitute for related financial information prepared in accordance with GAAP.

PART I –FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

SMARTFINANCIAL, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS



	Unaudited September 30, 2017			December 31, 2016
ASSETS
Cash and due from banks	$	40,867,054		$	34,290,617
Interest-bearing deposits at other financial institutions	24,833,385			34,457,691
Federal funds sold	18,398,000			—
Total cash and cash equivalents	84,098,439			68,748,308

Securities available for sale	115,534,979			129,421,914
Restricted investments, at cost	6,080,700			5,627,950
Loans, net of allowance for loan losses of $5,392,606 at September 30, 2017 and $5,105,255 at December 31, 2016	866,286,380			808,271,003
Bank premises and equipment, net	33,777,723			30,535,594
Foreclosed assets	2,887,556			2,386,239
Goodwill and core deposit intangible, net	7,414,120			6,635,655
Cash surrender value of life insurance	11,483,915			1,320,723
Other assets	8,258,028			9,508,899
Total assets	$	1,135,821,840		$	1,062,456,285

LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing demand deposits	$	185,385,953		$	153,482,650
Interest-bearing demand deposits	156,953,397			162,702,457
Money market and savings deposits	306,357,476			274,604,724
Time deposits	311,490,253			316,275,340
Total deposits	960,187,079			907,065,171

Securities sold under agreement to repurchase	26,541,772			26,621,984
Federal Home Loan Bank advances and other borrowings	6,000,000			18,505,390
Accrued expenses and other liabilities	6,505,401			5,023,600
Total liabilities	999,234,252			957,216,145

Stockholders' equity:
Preferred stock - $1 par value; 2,000,000 shares authorized; None issued and outstanding as of 9/30/2017; 12,000 issued and outstanding in 2016.	—			12,000
Common stock - $1 par value; 40,000,000 shares authorized; 8,243,256 and 5,896,033 shares issued and outstanding in 2017 and 2016, respectively	8,243,256			5,896,033
Additional paid-in capital	107,064,832			83,463,051
Retained earnings	21,653,303			16,871,296
Accumulated other comprehensive loss	(373,803		)	(1,002,240		)
Total stockholders' equity	136,587,588			105,240,140

Total liabilities and stockholders' equity	$	1,135,821,840		$	1,062,456,285

The Notes to Consolidated Financial Statements are an integral part of these statements.

SMARTFINANCIAL, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME



	Unaudited Three Months Ended September 30,					Unaudited Nine Months Ended September 30,
	2017			2016		2017			2016
INTEREST INCOME
Loans, including fees	$	11,491,016		$	10,110,680	$	32,448,666		$	29,439,355
Securities and interest-bearing deposits at other financial institutions	739,905			601,815		2,092,948			1,984,041
Federal funds sold and other earning assets	86,267			50,981		237,213			164,218
Total interest income	12,317,188			10,763,476		34,778,827			31,587,614

INTEREST EXPENSE
Deposits	1,373,236			1,065,092		3,712,326			3,039,044
Securities sold under agreements to repurchase	15,054			16,614		46,593			48,353
Federal Home Loan Bank advances and other borrowings	4,769			17,165		31,925			91,714
Total interest expense	1,393,059			1,098,871		3,790,844			3,179,111
Net interest income before provision for loan losses	10,924,129			9,664,605		30,987,983			28,408,503
Provision for loan losses	30,000			260,567		340,482			616,543
Net interest income after provision for loan losses	10,894,129			9,404,038		30,647,501			27,791,960
NONINTEREST INCOME
Customer service fees	294,315			295,951		849,614			850,632
Gain on sale of securities	143,508			18,224		143,508			199,587
Gain on sale of loans and other assets	224,494			286,966		910,250			706,371
(Loss) gain on sale of foreclosed assets	(27,250		)	130,383		(42,314		)	184,626
Other noninterest income	584,621			472,300		1,543,018			1,294,318
Total noninterest income	1,219,688			1,203,824		3,404,076			3,235,534

NONINTEREST EXPENSES
Salaries and employee benefits	5,035,443			4,311,708		14,471,602			13,292,864
Net occupancy and equipment expense	1,113,542			965,159		3,054,594			3,120,234
Depository insurance	101,665			153,353		315,951			440,100
Foreclosed assets	19,928			78,988		30,449			199,419
Advertising	176,998			179,145		470,657			536,657
Data processing	483,411			450,289		1,291,969			1,333,082
Professional services	471,707			558,368		1,483,108			1,564,973
Amortization of intangible assets	78,057			79,761		191,705			266,467
Service contracts	363,114			271,921		971,648			873,160
Other operating expenses	1,703,338			1,000,924		4,239,594			2,846,886
Total noninterest expenses	9,547,203			8,049,616		26,521,277			24,473,842
Income before income tax expense	2,566,614			2,558,246		7,530,300			6,553,652
Income tax expense	881,745			947,354		2,553,293			2,402,267
Net income	1,684,869			1,610,892		4,977,007			4,151,385
Preferred stock dividends	—			270,000		195,000			752,000
Net income available to common stockholders	$	1,684,869		$	1,340,892	$	4,782,007		$	3,399,385

EARNINGS PER COMMON SHARE
Basic	$	0.20		$	0.23	$	0.60		$	0.58
Diluted	0.20			0.22		0.59			0.56

Weighted average common shares outstanding
Basic	8,234,783			5,834,520		7,994,661			5,820,834
Diluted	8,332,680			6,096,333		8,086,346			6,092,035
Dividends per share	—			—		—			—

The Notes to Consolidated Financial Statements are an integral part of these statements.

SMARTFINANCIAL, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME



	Unaudited Three Months Ended September 30,
	2017			2016
Net income	$	1,684,869		$	1,610,892

Other comprehensive income (loss), net of tax:
Unrealized holding gains (losses) arising during the period, net of tax (benefit) expense of $(23,286) and $114,925 in 2017 and 2016, respectively	(37,312		)	185,360

Reclassification adjustment for gains included in net income, net of tax expense of $54,533 and $6,925 in 2017 and 2016, respectively	(88,975		)	(11,299		)

Total other comprehensive income (loss)	(126,287		)	174,061

Comprehensive income	$	1,558,582		$	1,784,953



	Unaudited Nine Months Ended September 30,
	2017			2016
Net income	$	4,977,007		$	4,151,385

Other comprehensive income, net of tax:
Unrealized holding gains arising during the period, net of tax expense of $444,467 and $573,073 in 2017 and 2016, respectively	717,412			924,675

Reclassification adjustment for gains included in net income, net of tax expense of $54,533 and $75,843 in 2017 and 2016, respectively	(88,975		)	(123,744		)

Total other comprehensive income	628,437			800,931

Comprehensive income	$	5,605,444		$	4,952,316

The Notes to Consolidated Financial Statements are an integral part of these statements.

SMARTFINANCIAL, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY - UNAUDITED

For the Nine Months Ended September 30, 2017



	Preferred Shares		Common Shares	Preferred Stock			Common Stock		Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total Stockholders' Equity

BALANCE, December 31, 2016	12,000		5,896,033	$	12,000		$	5,896,033	$	83,463,051		$	16,871,296		$	(1,002,240	)	$	105,240,140

Net income	—		—	—			—		—			4,977,007			—			4,977,007

Other comprehensive income	—		—	—			—		—			—			628,437			628,437

Issuance of common stock	—		1,840,000	—			1,840,000		31,094,676			—			—			32,934,676

Issuance of stock grants	—		1,511	—			1,511		30,280			—			—			31,791

Exercise of stock options	—		505,712	—			505,712		4,368,045			—			—			4,873,757

Cash dividend on preferred stock	—		—	—			—		—			(195,000		)	—			(195,000		)

Redemption of preferred stock	(12,000	)	—	(12,000		)	—		(11,988,000		)	—			—			(12,000,000		)

Restricted stock compensation expense	—		—	—			—		22,532			—			—			22,532

Stock compensation expense	—		—	—			—		74,248			—			—			74,248

BALANCE, September 30, 2017	—		8,243,256	$	—		$	8,243,256	$	107,064,832		$	21,653,303		$	(373,803	)	$	136,587,588

The Notes to Consolidated Financial Statements are an integral part of these statements.

SMARTFINANICAL, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS



	Unaudited Nine Months Ended September 30,
	2017			2016
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	4,977,007		$	4,151,385
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	1,776,958			1,624,809
Provision for loan losses	340,482			616,543
Stock compensation expense	74,248			99,635
Restricted stock compensation expense	22,532			—
Gains from sale of securities	(143,508		)	(199,587		)
Net gains from sale of loans and other assets	(910,250		)	(706,371		)
Net losses (gains) from sale of foreclosed assets	42,314			(184,626		)
Changes in other assets and liabilities:
Accrued interest receivable	(38,985		)	355,796
Accrued interest payable	38,172			(23,177		)
Other assets and liabilities	2,427,408			6,480,504
Net cash provided by operating activities	8,606,378			12,214,911

CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from security sales, maturities, and paydowns	27,070,170			50,055,118
Purchase of securities	(12,507,860		)	(21,351,789		)
Purchase of bank owned life insurance	(10,000,000		)	—
Purchase of restricted investments	(452,750		)	(200		)
Net cash for purchase of branch acquisition	(1,049,878		)	—
Loan originations and principal collections, net	(33,957,948		)	(66,811,239		)
Purchase of bank premises and equipment	(1,693,323		)	(3,932,566		)
Proceeds from sale of foreclosed assets	41,636			1,152,775
Net cash used in investing activities	(32,549,953		)	(40,887,901		)

CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits	26,234,084			2,359,290
Net decrease in securities sold under agreements to repurchase	(80,212		)	(3,866,120		)
Issuance of common stock	37,840,224			693,092
Redemption of preferred stock	(12,000,000		)	—
Payment of dividends on preferred stock	(195,000		)	(752,000		)
Proceeds from Federal Home Loan Bank advances and other borrowings	95,804,205			38,100,000
Repayment of Federal Home Loan Bank advances and other borrowings	(108,309,595		)	(29,239,039		)
Net cash provided by financing activities	39,293,706			7,295,223
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	15,350,131			(21,377,767		)
CASH AND CASH EQUIVALENTS, beginning of year	68,748,308			79,964,633
CASH AND CASH EQUIVALENTS, end of period	$	84,098,439		$	58,586,866

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for interest	$	3,742,255		$	3,202,288
Cash paid during the period for taxes	2,795,584			1,570,558

NONCASH INVESTING AND FINANCING ACTIVITIES
Change in unrealized losses on securities available for sale	$	(1,018,370	)	$	(1,298,161	)
Acquisition of real estate through foreclosure	585,267			1,431,857
Financed sales of foreclosed assets	—			3,286,138

The Notes to Consolidated Financial Statements are an integral part of these statements.

SMARTFINANCIAL, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 1. Presentation of Financial Information

Nature of Business:

SmartFinancial, Inc. (the “Company”) is a bank holding company whose principal activity is the ownership and management of its wholly-owned subsidiary, SmartBank (the “Bank”). The Company provides a variety of financial services to individuals and corporate customers through its offices in eastern Tennessee, northwest Florida, and north Georgia. The Company’s primary deposit products are interest-bearing demand deposits and certificates of deposit. Its primary lending products are commercial, residential, and consumer loans. On May 22, 2017, the Company along with the Bank entered into an agreement and plan of merger with Capstone Bancshares, Inc., an Alabama corporation and Capstone Bank, an Alabama-chartered commercial bank and wholly owned subsidiary of Capstone Bancshares, Inc. Under the terms of the merger agreement, Capstone Bancshares, Inc. will merge with the Company to be the surviving entity and Capstone Bank will merge with and into the Bank with the Bank surviving. The mergers were consummated on November 1, 2017.

Interim Financial Information (Unaudited):

The financial information in this report for September 30, 2017 and September 30, 2016 has not been audited. The information included herein should be read in conjunction with the Company’s annual consolidated financial statements and footnotes included in the Company's most recent Annual Report on Form 10-K. The consolidated financial statements presented herein conform to U.S. generally accepted accounting principles and to general industry practices. In the opinion of SmartFinancial’s management, the accompanying interim financial statements contain all material adjustments necessary to present fairly the financial condition, the results of operations, and cash flows for the interim period. Results for interim periods are not necessarily indicative of the results to be expected for a full year.

Basis of Presentation and Accounting Estimates:

All adjustments consisting of normal recurring accruals, that in the opinion of management, are necessary for a fair presentation of the financial position and the results of operations for the periods covered by the report have been included. The accompanying unaudited consolidated financial statements and related notes should be read in conjunction with those appearing in the most recent Annual Report previously filed on Form 10-K.

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary. All significant intercompany balances and transactions have been eliminated in consolidation.

In preparing the consolidated financial statements in conformity with accounting principles generally accepted in the U.S, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet, and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, the valuation of foreclosed assets and deferred taxes, other-than-temporary impairments of securities, and the fair value of financial instruments.

The determination of the adequacy of the allowance for loan losses is based on estimates that are particularly susceptible to significant changes in the economic environment and market conditions. In connection with the determination of the estimated losses on loans, management obtains independent appraisals for significant collateral.

The Company’s loans are generally secured by specific items of collateral including real property, consumer assets, and business assets. Although the Company has a diversified loan portfolio, a substantial portion of its debtors’ ability to honor their contracts is dependent on local economic conditions.

While management uses available information to recognize losses on loans, further reductions in the carrying amounts of loans may be necessary based on changes in local economic conditions. In addition, regulatory agencies, as an integral part of their examination process, periodically review the estimated losses on loans. Such agencies may require the Company to recognize additional losses based on their judgments about information available to them at the time of their examination. Because of these factors, it is reasonably possible that the estimated losses on loans may change materially in the near term. However, the amount of the change that is reasonably possible cannot be estimated.

SMARTFINANCIAL, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 1. Presentation of Financial Information, Continued

Recently Issued Accounting Pronouncements:

During interim periods, the Company follows the accounting policies set forth in its annual audited financial statements for the year ended December 31, 2016 as filed with the Securities and Exchange Commission. The following is a summary of recent authoritative pronouncements not yet effective that could impact the accounting, reporting, and/or disclosure of financial information by the Company issued since December 31, 2016 .

In January 2017, FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. The ASU clarifies the definition of a business to assist with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The amendments in this update are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company does not expect these amendments to have a material effect on its financial statements.

In January 2017, FASB issued ASU No. 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment . The ASU simplifies the subsequent measurement of goodwill and eliminates Step 2 from the goodwill impairment test. The Company should perform its goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit's fair value. The impairment charge is limited to the amount of goodwill allocated to that reporting unit. The amendments in this update are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted for goodwill impairment tests performed on testing dates after January 1, 2017. The Company does not expect these amendments to have a material effect on its financial statements.

In March 2017, FASB issued ASU No. 2017-08, Receivables - Nonrefundable Fees and Other Costs (Topic 310-20): Premium Amortization on Purchased Callable Debt Securities. The ASU shortens the amortization period for certain callable debt securities held at a premium. The premium on individual callable debt securities shall be amortized to the earliest call date. This guidance does not apply to securities for which prepayments are estimated on a large number of similar loans where prepayments are probable and reasonably estimable. The amendments in this update are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. This update should be adopted on a modified retrospective basis with a cumulative-effect adjustment to retained earnings on the date of adoption. The Company does not expect these amendments to have a material effect on its financial statements.

In August 2017, the FASB issued ASU 2017-12, Targeted Improvements to Accounting for Hedging Activities , which amends the hedge accounting recognition and presentation requirements in Accounting Standards Codification (ASC) 815, Derivatives and Hedging . The goals of the ASU are to (1) improve the transparency and understandability of information conveyed to financial statement users about an entity’s risk management activities by better aligning the entity’s financial reporting for hedging relationships with those risk management activities and (2) reduce the complexity of and simplify the application of hedge accounting by preparers . The amendments will be effective for the Company for interim and annual periods beginning after December 15, 2018. The Company does not expect these amendments to have a material effect on its financial statements.

Reclassifications:

Certain captions and amounts in the 2016 financial statements were reclassified to conform to the 2017 presentation.

Earnings per common share:

Basic earnings per common share represents income available to common stockholders divided by the weighted-average number of common shares outstanding during the period. Diluted earnings per common share reflects additional common shares that would have been outstanding if dilutive potential common shares had been issued, as well as any adjustment to income that would result from the assumed issuance. Potential common shares that may be issued by the Company relate solely to outstanding stock options, determined using the treasury stock method., and restricted stock awards, determined by the fair value of the Company's stock on date of grant.

SMARTFINANCIAL, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 2. Earnings per share

The following is a summary of the basic and diluted earnings per share for the three and nine month periods ended September 30, 2017 and September 30, 2016 .



	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016
Net income available to common shareholders	$	1,684,869	$	1,340,892	$	4,782,007	$	3,399,385
Weighted average common shares outstanding	8,234,783		5,834,520		7,994,661		5,820,834
Effect of dilutive stock options	97,897		261,813		91,685		271,201
Diluted shares	8,332,680		6,096,333		8,086,346		6,092,035
Basic earnings per common share	$	0.20	$	0.23	$	0.60	$	0.58
Diluted earnings per common share	$	0.20	$	0.22	$	0.59	$	0.56

For the three and nine months ended September 30, 2017 and 2016 , the effects of outstanding antidilutive stock options are excluded from the computation of diluted earnings per common share because the exercise price of such options is higher than the market price. There were 13,166 and 18,100 antidilutive stock options as of September 30, 2017 and 2016 , respectively.

Note 3. Securities

The amortized cost and fair value of securities available-for-sale at September 30, 2017 and December 31, 2016 are summarized as follows (in thousands):



	September 30, 2017
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
U.S. Government-sponsored enterprises (GSEs)	$	16,217	$	3	$	(309	)	$	15,911
Municipal securities	8,341		63		(41		)	8,363
Other debt securities	973		—		(35		)	938
Mortgage-backed securities	90,610		208		(495		)	90,323
	$	116,141	$	274	$	(880	)	$	115,535



	December 31, 2016
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
U.S. Government-sponsored enterprises (GSEs)	$	18,279	$	8	$	(564	)	$	17,723
Municipal securities	8,182		16		(179		)	8,019
Mortgage-backed securities	104,585		185		(1,090		)	103,680
	$	131,046	$	209	$	(1,833	)	$	129,422

At September 30, 2017 , securities with a fair value totaling approximately $77,000,000 were pledged to secure public funds and securities sold under agreements to repurchase.

SMARTFINANCIAL, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 3. Securities, Continued

For the three and nine months ended September 30, 2017 , there were available-for-sale securities sold with proceeds totaling $12,363,748 which resulted in gross gains realized of $145,288 and gross losses realized of $1,780 . For the three and nine months ended September 30, 2016 there were available-for-sale securities sold with proceeds totaling $ 5,578,023 and $13,748,623 which resulted in gross gains realized of $ 18,224 and $199,587 , respectively.

The amortized cost and estimated fair value of securities at September 30, 2017 , by contractual maturity, are shown below (in thousands). Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.



	Amortized Cost		Fair Value
Due in one year or less	$	2,173	$	2,175
Due from one year to five years	11,607		11,374
Due from five years to ten years	8,311		8,206
Due after ten years	3,440		3,457
	25,531		25,212
Mortgage-backed securities	90,610		90,323
	$	116,141	$	115,535

The following tables present the gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities available-for-sale have been in a continuous unrealized loss position, as of September 30, 2017 and December 31, 2016 (in thousands):



	As of September 30, 2017
	Less than 12 Months					12 Months or Greater					Total
	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
U.S. Government- sponsored enterprises (GSEs)	$	6,110	$	(113	)	$	7,804	$	(196	)	$	13,914	$	(309	)
Municipal securities	1,839		(18		)	1,305		(23		)	3,144		(41		)
Other debt securities	938		(35		)	—		—			938		(35		)
Mortgage-backed securities	32,389		(175		)	16,881		(320		)	49,270		(495		)
	$	41,276	$	(341	)	$	25,990	$	(539	)	$	67,266	$	(880	)



	As of December 31, 2016
	Less than 12 Months					12 Months or Greater					Total
	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
U.S. Government- sponsored enterprises (GSEs)	$	14,702	$	(564	)	$	—	$	—		$	14,702	$	(564	)
Municipal securities	6,368		(179		)	—		—			6,368		(179		)
Mortgage-backed securities	67,063		(690		)	8,948		(400		)	76,011		(1,090		)
	$	88,133	$	(1,433	)	$	8,948	$	(400	)	$	97,081	$	(1,833	)

At September 30, 2017 , the categories of temporarily impaired securities, and management’s evaluation of those securities, are as follows:

SMARTFINANCIAL, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 3. Securities, Continued

U.S. Government-sponsored enterprises : At September 30, 2017 , 5 (or five) investment in U.S. GSE securities had unrealized losses. These unrealized losses related principally to changes in market interest rates. The contractual terms of the investments do not permit the issuer to settle the securities at a price less than the amortized cost bases of the investments. Because the Bank does not intend to sell the investments and it is more likely than not that the Bank will not be required to sell the investments before recovery of their amortized cost bases, which may be maturity, the Bank does not consider these investments to be other-than temporarily impaired at September 30, 2017 .

Municipal securities : At September 30, 2017 , 8 (or eight) investments in obligations of municipal securities had unrealized losses. The Bank believes the unrealized losses on those investments were caused by the interest rate environment and do not relate to the underlying credit quality of the issuers. Because the Bank does not intend to sell the investments and it is not more likely than not that the Bank will be required to sell the investments before recovery of their amortized cost bases, which may be maturity, the Bank does not consider these investments to be other-than temporarily impaired at September 30, 2017 .

Other debt securities : At September 30, 2017 , 1 (or one) investment in other debt securities had unrealized losses. The Bank believes the unrealized loss on this investment was caused by the interest rate environment and does not relate to the underlying credit quality of the issuer. Because the Bank does not intend to sell the investment and it is not more likely than not that the Bank will be required to sell the investment before recovery of its amortized cost bases, which may be maturity, the Bank does not consider this investment to be other-than temporarily impaired at September 30, 2017 .

Mortgage-backed securities : At September 30, 2017 , 40 (or forty) investments in residential mortgage-backed securities had unrealized losses. This impairment is believed to be caused by the current interest rate environment. The contractual cash flows of those investments are guaranteed by an agency of the U.S. Government. Because the decline in market value is attributable to the current interest rate environment and not credit quality, and because the Bank does not intend to sell the investments and it is not more likely than not that the Bank will be required to sell the investments before recovery of their amortized cost bases, which may be maturity, the Bank does not deem these investments to be other-than-temporarily impaired at September 30, 2017 .

Note 4. Loans and Allowance for Loan Losses

Portfolio Segmentation:

At September 30, 2017 and December 31, 2016 , loans are summarized as follows (in thousands):



	September 30, 2017								December 31, 2016
	PCI Loans		All Other Loans			Total			PCI Loans		All Other Loans			Total
Commercial real estate	$	13,202	$	434,418		$	447,620		$	14,943	$	400,265		$	415,208
Consumer real estate	6,143		193,561			199,704			9,004		178,798			187,802
Construction and land development	1,576		96,636			98,212			1,678		116,191			117,869
Commercial and industrial	1,085		118,697			119,782			1,568		83,454			85,022
Consumer and other	—		6,361			6,361			—		7,475			7,475
Total loans	22,006		849,673			871,679			27,193		786,183			813,376
Less: Allowance for loan losses	—		(5,393		)	(5,393		)	—		(5,105		)	(5,105		)
Loans, net	$	22,006	$	844,280		$	866,286		$	27,193	$	781,078		$	808,271

For purposes of the disclosures required pursuant to the adoption of ASC 310, the loan portfolio was disaggregated into segments. A portfolio segment is defined as the level at which an entity develops and documents a systematic method for determining its allowance for credit losses. There are five loan portfolio segments that include commercial real estate, consumer real estate, construction and land development, commercial and industrial, and consumer and other.

SMARTFINANCIAL, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 4. Loans and Allowance for Loan Losses, Continued

Portfolio Segmentation (continued):

The following describe risk characteristics relevant to each of the portfolio segments:

Commercial Real Estate: Commercial real estate loans include owner-occupied commercial real estate loans and loans secured by income-producing properties. Owner-occupied commercial real estate loans to operating businesses are long-term financing of land and buildings. These loans are repaid by cash flow generated from the business operation. Real estate loans for income-producing properties such as apartment buildings, office and industrial buildings, and retail shopping centers are repaid from rent income derived from the properties. Loans within this portfolio segment are particularly sensitive to the valuation of real estate.

Consumer Real Estate: Consumer real estate loans include real estate loans secured by first liens, second liens, or open end real estate loans, such as home equity lines. These are repaid by various means such as a borrower's income, sale of the property, or rental income derived from the property. One to four family first mortgage loans are repaid by various means such as a borrower's income, sale of the property, or rental income derived from the property. Loans within this portfolio segment are particularly sensitive to the valuation of real estate.

Construction and Land Development: Loans for real estate construction and development are repaid through cash flow related to the operations, sale or refinance of the underlying property. This portfolio segment includes extensions of credit to real estate developers or investors where repayment is dependent on the sale of the real estate or income generated from the real estate collateral. Loans within this portfolio segment are particularly sensitive to the valuation of real estate.

Commercial and Industrial: The commercial and industrial loan portfolio segment includes commercial, financial, and agricultural loans. These loans include those loans to commercial customers for use in normal business operations to finance working capital needs, equipment purchases, or expansion projects. Loans are repaid by business cash flows. Collection risk in this portfolio is driven by the creditworthiness of the underlying borrower, particularly cash flows from the customers' business operations.

Consumer and Other: The consumer loan portfolio segment includes direct consumer installment loans, overdrafts and other revolving credit loans, and educational loans. Loans in this portfolio are sensitive to unemployment and other key consumer economic measures.

Credit Risk Management:

The Company employs a credit risk management process with defined policies, accountability and routine reporting to manage credit risk in the loan portfolio segments. Credit risk management is guided by credit policies that provide for a consistent and prudent approach to underwriting and approvals of credits. Within the Credit Policy, procedures exist that elevate the approval requirements as credits become larger and more complex. All loans are individually underwritten, risk-rated, approved, and monitored.

Responsibility and accountability for adherence to underwriting policies and accurate risk ratings lies in each portfolio segment. For the consumer real estate and consumer and other portfolio segments, the risk management process focuses on managing customers who become delinquent in their payments. For the other portfolio segments, the risk management process focuses on underwriting new business and, on an ongoing basis, monitoring the credit of the portfolios, including a third party review of the largest credits on an annual basis or more frequently as needed. To ensure problem credits are identified on a timely basis, several specific portfolio reviews occur periodically to assess the larger adversely rated credits for proper risk rating and accrual status.

Credit quality and trends in the loan portfolio segments are measured and monitored regularly. Detailed reports, by product, collateral, accrual status, etc., are reviewed by the Senior Credit Officer and the Directors Loan Committee.

The allowance for loan losses is a valuation reserve allowance established through provisions for loan losses charged against income. The allowance for loan losses, which is evaluated quarterly, is maintained at a level that management deems sufficient to absorb probable losses inherent in the loan portfolio. Loans deemed to be uncollectible are charged against the allowance for loan losses, while recoveries of previously charged-off amounts are credited to the allowance for loan losses. The allowance for loan losses is comprised of specific valuation allowances for loans evaluated individually for impairment and general allocations for pools of homogeneous loans with similar risk characteristics and trends.

SMARTFINANCIAL, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 4. Loans and Allowance for Loan Losses, Continued

Credit Risk Management (continued):

The allowance for loan losses related to specific loans is based on management's estimate of potential losses on impaired loans as determined by (1) the present value of expected future cash flows; (2) the fair value of collateral if the loan is determined to be collateral dependent or (3) the loan's observable market price. The Company's homogeneous loan pools include commercial real estate loans, consumer real estate loans, construction and land development loans, commercial and industrial loans, and consumer and other loans. The general allocations to these loan pools are based on the historical loss rates for specific loan types and the internal risk grade, if applicable, adjusted for both internal and external qualitative risk factors.

The qualitative factors considered by management include, among other factors, (1) changes in local and national economic conditions; (2) changes in asset quality; (3) changes in loan portfolio volume; (4) the composition and concentrations of credit; (5) the impact of competition on loan structuring and pricing; (6) the impact of interest rate changes on portfolio risk and (7) effectiveness of the Company's loan policies, procedures and internal controls. The total allowance established for each homogeneous loan pool represents the product of the historical loss ratio adjusted for qualitative factors and the total dollar amount of the loans in the pool.

The composition of loans by loan classification for impaired and performing loan status at September 30, 2017 and December 31, 2016 , is summarized in the tables below (amounts in thousands):



	September 30, 2017
	Commercial Real Estate		Consumer Real Estate		Construction and Land Development		Commercial and Industrial		Consumer and Other		Total
Performing loans	$	434,300	$	192,628	$	96,089	$	118,570	$	6,361	$	847,948
Impaired loans	118		933		547		127		—		1,725
	434,418		193,561		96,636		118,697		6,361		849,673
PCI loans	13,202		6,143		1,576		1,085		—		22,006
Total	$	447,620	$	199,704	$	98,212	$	119,782	$	6,361	$	871,679



	December 31, 2016
	Commercial Real Estate		Consumer Real Estate		Construction and Land Development		Commercial and Industrial		Consumer and Other		Total
Performing loans	$	400,146	$	177,977	$	115,326	$	83,244	$	7,475	$	784,168
Impaired loans	119		821		865		210		—		2,015
	400,265		178,798		116,191		83,454		7,475		786,183
PCI loans	14,943		9,004		1,678		1,568		—		27,193
Total loans	$	415,208	$	187,802	$	117,869	$	85,022	$	7,475	$	813,376

The following tables show the allowance for loan losses allocation by loan classification for impaired, PCI, and performing loans as of September 30, 2017 and December 31, 2016 (amounts in thousands):



	September 30, 2017
	Commercial Real Estate		Consumer Real Estate		Construction and Land Development		Commercial and Industrial		Consumer and Other		Total
Performing loans	$	2,543	$	1,315	$	565	$	670	$	125	$	5,218
Impaired loans	—		100		—		75		—		175
Total	$	2,543	$	1,415	$	565	$	745	$	125	$	5,393

SMARTFINANCIAL, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 4. Loans and Allowance for Loan Losses, Continued

Credit Risk Management (continued):



	December 31, 2016
	Commercial Real Estate		Consumer Real Estate		Construction and Land Development		Commercial and Industrial		Consumer and Other		Total
Performing loans	$	2,369	$	1,382	$	717	$	516	$	117	$	5,101
Impaired loans	—		—		—		4		—		4
Total	$	2,369	$	1,382	$	717	$	520	$	117	$	5,105

There was no allowance for PCI loans at September 30, 2017 or December 31, 2016 .

The following tables detail the changes in the allowance for loan losses for the nine month period ending September 30, 2017 and year ending December 31, 2016 , by loan classification (amounts in thousands):



	September 30, 2017
	Commercial Real Estate		Consumer Real Estate			Construction and Land Development			Commercial and Industrial			Consumer and Other			Total
Beginning balance	$	2,369	$	1,382		$	717		$	520		$	117		$	5,105
Loans charged off	—		(110		)	—			(18		)	(106		)	(234		)
Recoveries of loans charged off	8		58			10			55			51			182
Provision (reallocation) charged to operating expense	166		85			(162		)	188			63			340
Ending balance	$	2,543	$	1,415		$	565		$	745		$	125		$	5,393



	December 31, 2016
	Commercial Real Estate		Consumer Real Estate			Construction and Land Development			Commercial and Industrial			Consumer and Other			Total
Beginning balance	$	1,906	$	1,015		$	627		$	777		$	29		$	4,354
Loans charged off	—		(102		)	(14		)	(35		)	(155		)	(306		)
Recoveries of charge-offs	45		76			22			58			68			269
Provision (reallocation) charged to operating expense	418		393			82			(280		)	175			788
Ending balance	$	2,369	$	1,382		$	717		$	520		$	117		$	5,105

A description of the general characteristics of the risk grades used by the Company is as follows:

Pass: Loans in this risk category involve borrowers of acceptable-to-strong credit quality and risk who have the apparent ability to satisfy their loan obligations. Loans in this risk grade would possess sufficient mitigating factors, such as adequate collateral or strong guarantors possessing the capacity to repay the debt if required, for any weakness that may exist.

Special Mention: Loans in this risk grade are the equivalent of the regulatory definition of "Other Assets Especially Mentioned" classification. Loans in this category possess some credit deficiency or potential weakness, which requires a high level of management attention. Potential weaknesses include declining trends in operating earnings and cash flows and /or reliance on the secondary source of repayment. If left uncorrected, these potential weaknesses may result in noticeable deterioration of the repayment prospects for the asset or in the Company's credit position.

SMARTFINANCIAL, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 4. Loans and Allowance for Loan Losses, Continued

Credit Risk Management (continued):

Substandard: Loans in this risk grade are inadequately protected by the borrower's current financial condition and payment capability or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the orderly repayment of debt. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.

Doubtful: Loans in this risk grade have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or orderly repayment in full, on the basis of current existing facts, conditions and values, highly questionable and improbable. Possibility of loss is extremely high, but because of certain important and reasonably specific factors that may work to the advantage and strengthening of the exposure, its classification as an estimated loss is deferred until its more exact status may be determined.

Uncollectible: Loans in this risk grade are considered to be non-collectible and of such little value that their continuance as bankable assets is not warranted. This does not mean the loan has absolutely no recovery value, but rather it is neither practical nor desirable to defer writing off the loan, even though partial recovery may be obtained in the future. Charge-offs against the allowance for loan losses are taken in the period in which the loan becomes uncollectible. Consequently, the Company typically does not maintain a recorded investment in loans within this category.

The following tables outline the amount of each loan classification and the amount categorized into each risk rating as of September 30, 2017 and December 31, 2016 (amounts in thousands):

Non PCI Loans



	September 30, 2017
	Commercial Real Estate		Consumer Real Estate		Construction and Land Development		Commercial and Industrial		Consumer and Other		Total
Pass	$	433,468	$	191,969	$	96,089	$	117,633	$	6,361	$	845,520
Watch	828		727		—		898		—		2,453
Special mention	—		15		—		—		—		15
Substandard	122		850		547		166		—		1,685
Doubtful	—		—		—		—		—		—
Total	$	434,418	$	193,561	$	96,636	$	118,697	$	6,361	$	849,673

PCI Loans



	September 30, 2017
	Commercial Real Estate		Consumer Real Estate		Construction and Land Development		Commercial and Industrial		Consumer and Other		Total
Pass	$	10,416	$	4,473	$	916	$	851	$	—	$	16,656
Watch	841		1,081		648		14		—		2,584
Special mention	—		—		—		196		—		196
Substandard	1,945		589		12		—		—		2,546
Doubtful	—		—		—		24		—		24
Total	$	13,202	$	6,143	$	1,576	$	1,085	$	—	$	22,006
Total loans	$	447,620	$	199,704	$	98,212	$	119,782	$	6,361	$	871,679

SMARTFINANCIAL, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 4. Loans and Allowance for Loan Losses, Continued

Credit Risk Management (continued):

Non PCI Loans



	December 31, 2016
	Commercial Real Estate		Consumer Real Estate		Construction and Land Development		Commercial and Industrial		Consumer and Other		Total
Pass	$	399,505	$	177,466	$	115,237	$	82,992	$	7,238	$	782,438
Watch	640		550		89		252		—		1,531
Special mention	—		104		—		—		237		341
Substandard	120		678		865		210		—		1,873
Doubtful	—		—		—		—		—		—
Total	$	400,265	$	178,798	$	116,191	$	83,454	$	7,475	$	786,183

PCI Loans



	December 31, 2016
	Commercial Real Estate		Consumer Real Estate		Construction and Land Development		Commercial and Industrial		Consumer and Other		Total
Pass	$	11,836	$	6,811	$	1,019	$	1,507	$	—	$	21,173
Watch	1,045		1,577		645		22		—		3,289
Special mention	—		—		—		12		—		12
Substandard	2,062		616		14		—		—		2,692
Doubtful	—		—		—		27		—		27
Total	$	14,943	$	9,004	$	1,678	$	1,568	$	—	$	27,193
Total loans	$	415,208	$	187,802	$	117,869	$	85,022	$	7,475	$	813,376

Past Due Loans:

A loan is considered past due if any required principal and interest payments have not been received as of the date such payments were required to be made under the terms of the loan agreement. Generally, management places a loan on nonaccrual when there is a clear indicator that the borrower’s cash flow may not be sufficient to meet payments as they become due, which is generally when a loan is 90 days past due.

The following tables present the aging of the recorded investment in loans as of September 30, 2017 and December 31, 2016 (amounts in thousands):



	September 30, 2017
	30-89 Days Past Due and Accruing		Past Due 90 Days or More and Accruing		Nonaccrual		Total Past Due and NonAccrual		PCI Loans		Current Loans		Total Loans
Commercial real estate	$	414	$	—	$	122	$	536	$	13,202	$	433,882	$	447,620
Consumer real estate	137		—		506		643		6,143		192,918		199,704
Construction and land development	—		—		547		547		1,576		96,089		98,212
Commercial and industrial	114		—		85		199		1,085		118,498		119,782
Consumer and other	31		3		—		34		—		6,327		6,361
Total	$	696	$	3	$	1,260	$	1,959	$	22,006	$	847,714	$	871,679

SMARTFINANCIAL, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 4. Loans and Allowance for Loan Losses, Continued

Past Due Loans (continued):



	December 31, 2016
	30-89 Days Past Due and Accruing		Past Due 90 Days or More and Accruing		Nonaccrual		Total Past Due and NonAccrual		PCI Loans		Current Loans		Total Loans
Commercial real estate	$	395	$	—	$	—	$	395	$	14,943	$	399,870	$	415,208
Consumer real estate	695		699		386		1,780		9,004		177,018		187,802
Construction and land development	690		—		865		1,555		1,678		114,636		117,869
Commercial and industrial	257		—		164		421		1,568		83,033		85,022
Consumer and other	17		—		—		17		—		7,458		7,475
Total	$	2,054	$	699	$	1,415	$	4,168	$	27,193	$	782,015	$	813,376

Impaired Loans:

The following is an analysis of the impaired loan portfolio, excluding PCI loans, detailing the related allowance recorded as of September 30, 2017 and December 31, 2016 (amounts in thoudands):



							For the nine months ended
	At September 30, 2017						September 30, 2017
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
Impaired loans without a valuation allowance:
Commercial real estate	$	118	$	124	$	—	$	149	$	7
Consumer real estate	309		314		—		398		11
Construction and land development	547		547		—		648		—
Commercial and industrial	42		42		—		44		2
Consumer and other	—		—		—		—		—
	1,016		1,027		—		1,239		20

Impaired loans with a valuation allowance:
Commercial real estate	—		—		—		—		—
Consumer real estate	624		649		100		499		24
Construction and land development	—		—		—		—		—
Commercial and industrial	85		85		75		103		3
Consumer and other	—		—		—		—		—
	709		734		175		602		27
Total impaired loans	$	1,725	$	1,761	$	175	$	1,841	$	47

SMARTFINANCIAL, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 4. Loans and Allowance for Loan Losses, Continued

Impaired Loans (continued):



							For the year ended
	At December 31, 2016						December 31, 2016
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
Impaired loans without a valuation allowance:
Commercial real estate	$	119	$	119	$	—	$	1,311	$	73
Consumer real estate	821		849		—		2,334		100
Construction and land development	865		865		—		967		3
Commercial and industrial	46		46		—		47		4
Consumer and other	—		—		—		—		—
	1,851		1,879		—		4,659		180

Impaired loans with a valuation allowance:
Commercial real estate	—		—		—		—		—
Consumer real estate	—		—		—		—		—
Construction and land development	—		—		—		—		—
Commercial and industrial	164		243		4		306		70
Consumer and other	—		—		—		—		—
	164		243		4		306		70
Total impaired loans	$	2,015	$	2,122	$	4	$	4,965	$	250

Troubled Debt Restructurings:

At September 30, 2017 and December 31, 2016 , impaired loans included loans that were classified as Troubled Debt Restructurings ("TDRs"). The restructuring of a loan is considered a TDR if both (i) the borrower is experiencing financial difficulties and (ii) the creditor has granted a concession.

In assessing whether or not a borrower is experiencing financial difficulties, the Company considers information currently available regarding the financial condition of the borrower. This information includes, but is not limited to, whether (i) the debtor is currently in payment default on any of its debt; (ii) a payment default is probable in the foreseeable future without the modification; (iii) the debtor has declared or is in the process of declaring bankruptcy; and (iv) the debtor's projected cash flow is sufficient to satisfy contractual payments due under the original terms of the loan without a modification.

The Company considers all aspects of the modification to loan terms to determine whether or not a concession has been granted to the borrower. Key factors considered by the Company include the debtor's ability to access funds at a market rate for debt with similar risk characteristics, the significance of the modification relative to unpaid principal balance or collateral value of the debt, and the significance of a delay in the timing of payments relative to the original contractual terms of the loan.

The most common concessions granted by the Company generally include one or more modifications to the terms of the debt, such as (i) a reduction in the interest rate for the remaining life of the debt; (ii) an extension of the maturity date at an interest rate lower than the current market rate for new debt with similar risk; (iii) a temporary period of interest-only payments; and (iv) a reduction in the contractual payment amount for either a short period or remaining term of the loan. As of September 30, 2017 and December 31, 2016 , management had approximately, $42,000 and $608,000 , respectively, in loans that met the criteria for restructured, which included approximately $0 and $442,000 , respectively, of loans on nonaccrual. A loan is placed back on accrual status when both principal and interest are current and it is probable that management will be able to collect all amounts due (both principal and interest) according to the terms of the loan agreement.

SMARTFINANCIAL, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 4. Loans and Allowance for Loan Losses, Continued

Troubled Debt Restructurings (continued):

There were no loans that were modified as troubled debt restructurings during the nine month period ended September 30, 2017.

The following table presents a summary of loans that were modified as troubled debt restructurings during the twelve month period ended December 31, 2016 (amounts in thousands):



		Pre-Modification Outstanding Recorded		Post-Modification Outstanding Recorded
December 31, 2016	Number of Contracts	Investment		Investment
Construction and land development	1	$	278	$	278
Commercial and industrial	1	$	164	$	164

There were no loans that were modified as troubled debt restructurings during the past twelve months and for which there was a subsequent payment default.

Purchased Credit Impaired Loans:

The Company has acquired loans which there was, at acquisition, evidence of deterioration of credit quality since origination and it was probable, at acquisition, that all contractually required payments would not be collected. The carrying amount of those loans as of is as follows (amounts in thousands):



	September 30, 2017			December 31, 2016
Commercial real estate	$	16,036		$	18,473
Consumer real estate	8,955			12,111
Construction and land development	1,920			2,553
Commercial and industrial	1,740			2,482
Consumer and other	—			—
Total loans	28,651			35,619
Less remaining purchase discount	(6,645		)	(8,426		)
Total loans, net of purchase discount	22,006			27,193
Less: Allowance for loan losses	—			—
Carrying amount, net of allowance	$	22,006		$	27,193

SMARTFINANCIAL, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 4. Loans and Allowance for Loan Losses, Continued

Purchased Credit Impaired Loans (continued):

Activity related to the accretable yield on loans acquired with deteriorated credit quality is as follows for the three and nine months period ended September 30, 2017 and 2016 :



	Three Months Ended September 30, 2017			Three Months Ended September 30, 2016			Nine Months Ended September 30, 2017			Nine Months Ended September 30, 2016
Accretable yield, beginning of period	$	8,475		$	10,209		$	8,950		$	10,216
Additions	—			—			—			—
Accretion income	(1,061		)	(661		)	(2,731		)	(1,876		)
Reclassification to accretable	134			174			743			1,511
Other changes, net	460			(334		)	1,046			(463		)
Accretable yield	$	8,008		$	9,388		$	8,008		$	9,388

Note 5. Employee Benefit Plans

401(k) Plan:

The Company provides a deferred salary reduction plan (“ Plan ”) under Section 401(k) of the Internal Revenue Code covering substantially all employees. After one year of service the Company matches 100 percent of employee contributions up to 3 percent of compensation and 50 percent of employee contributions on the next 2 percent of compensation. The Company's contribution to the Plan for the three month period ending September 30, 2017 and 2016 respectively was $89,463 and $110,107 and for the nine month period ending September30, 2017 and 2016 respectively was $ 298,309 and $ 300,530

Stock Option Plans:

As of September 30, 2017 , the Company had one currently active equity incentive plan administered by the Board of Directors, and three plans or programs, pursuant to which the Company has outstanding prior grants. These plans are described below:

Legacy Cornerstone Bancshares, Inc. 2002 Long Term Incentive Plan – The plan provided Cornerstone Bancshares, Inc. officers and employees incentive stock options or non-qualified stock options to purchase shares of common stock. The exercise price for incentive stock options was not less than 100 percent of the fair market value of the common stock on the date of the grant. The exercise price of the non-qualified stock options was equal to or more or less than the fair market value of the common stock on the date of the grant. This plan expired in 2012.

Legacy Cornerstone Non-Qualified Plan Options — During 2013 and 2014, Cornerstone issued non-qualified options to employees and directors. The options were originally documented in 2013 as being issued out of the Cornerstone Bancshares, Inc. 2002 Long Term Incentive Plan but that plan expired in 2012. The non-qualified options are governed by the grant document issued to the holders which incorporate the terms of the plan by reference.

Legacy SmartFinancial, Inc. 2010 Incentive Plan - This plan was assumed by the Company on August 31, 2015. This plan provides for incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock, performance awards, dividend equivalents and stock or other stock-based awards. The maximum number of common shares that could be sold or optioned under the plan is 525,000 shares. Under the plan, the exercise price of each option could not be less than 100 percent of the fair market value of the common stock on the date of grant.

SMARTFINANCIAL, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 5. Employee Benefit Plans, Continued

Stock Option Plans (Continued):

2015 Stock Incentive Plan – This plan provides for incentive stock options, nonqualified stock options, and restricted stock. The maximum number of shares of common stock that can be sold or optioned under the plan is 2,000,000 shares. The term of each option shall be no more than ten years from the date of grant. In the case of an incentive stock option granted to a participant who, at the time the option is granted, owns stock representing more than ten percent of the voting power of all classes of stock of the Company or any parent or subsidiary thereof, the term of the option shall be five years from the date of grant or such shorter term as may be provided in the award agreement.

The per share exercise price for the shares to be issued upon exercise of an option shall be such price as is determined by the plan administrator, subject to the following: In the case of an incentive stock option: (1) granted to an employee who, at the time of grant of such option, owns stock representing more than ten percent of the voting power of all classes of stock of the company or any parent or subsidiary thereof, the exercise price shall be no less than one hundred and ten percent of the fair market value per share on the date of grant; or (2) granted to any other employee, the per share exercise price shall be no less than one hundred percent of the fair market value per share on the date of grant. In the case of a nonstatutory stock option, the per share exercise price shall be no less than one hundred percent of the fair market value per share on the date of grant, unless otherwise determined by the Administrator.

The incentive stock options vest 30% on the second anniversary of the grant date, 30% on the third anniversary of the grant date and 40% on the fourth anniversary of the grant date. Director non-qualified stock options vest 50% on the first anniversary of the grant date and 50% on the second anniversary of the grant date.

A summary of the status of these stock option plans is presented in the following table:



	Number		Weighted Average Exercisable Price
Outstanding at December 31, 2016	717,524		$	10.57
Exercised	(505,712	)	9.64
Forfeited	(24,496	)	19.90
Outstanding at September 30, 2017	187,316		$	11.85



	Number		Weighted Average Exercisable Price
Outstanding at December 31, 2015	817,414		$	10.62
Exercised	(89,556	)	8.98
Forfeited	(10,334	)	28.49
Outstanding at December 31, 2016	717,524		$	10.57

SMARTFINANCIAL, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 5. Employee Benefit Plans, Continued

Stock Option Plans (continued):

Information pertaining to options outstanding at September 30, 2017 , is as follows:



	Options Outstanding			Options Exercisable
		Weighted- Average Remaining	Weighted- Average		Weighted- Average
Exercise	Number	Contractual	Exercise	Number	Exercise
Prices	Outstanding	Life	Price	Exercisable	Price
6.60	38,250	4.4 years	6.60	38,250	6.60
6.80	16,875	3.4 years	6.80	16,875	6.80
9.48	26,875	5.4 years	9.48	26,875	9.48
9.60	35,625	6.4 years	9.60	35,625	9.60
11.67	2,000	3.3 years	11.67	2,000	11.67
14.40	12,805	1.4 years	14.40	12,805	14.40
15.05	41,720	8.0 years	15.05	18,265	15.05
31.96	13,166	0.4 years	31.96	13,166	31.96
Outstanding, end of period	187,316	5.1 years	11.85	163,861	11.40

The Company recognized stock option-based compensation expense of $23,718 and $33,000 for the three months ended September 30, 2017 and September 30, 2016, respectively and $ 74,248 and $ 99,635 for the nine months ended September 30, 2017 and September 30, 2016, respecitvely. For the nine months period ended September 30, 2017, direct stock grant expense issued to local advisory board members of $31,791 was included in salary and employee benefits expense. There was no direct grant stock grant expense for the nine months period ended September 30, 2016. The total fair value of shares underlying the options which vested during the nine months period ended September 30, 2017 and September 30, 2016 was $348,124 and $84,010 , respectively. There were no income tax benefits recognized for the exercise of options for the periods ended September 30, 2017 and September 30, 2016, respectively.

The intrinsic value of options exercised during the period ended September 30, 2017 was $5,451,319 . The aggregate intrinsic value of total options outstanding and exercisable options at September 30, 2017 was $2,390,463 and $2,179,133 , respectively. Cash received from options exercised under all share-based payment arrangements for the period ended September 30, 2017 was $4,873,757 .

Information related to non-vested options for the period ended September 30, 2017 , is as follows:



	Number		Weighted Average Grant-Date Fair Value
Nonvested at December 31, 2016	47,970		$	12.31
Granted	—		—
Vested	(14,469	)	12.31
Forfeited/expired	(10,046	)	12.31
Nonvested at September 30, 2017	23,455		$	12.31

As of September 30, 2017 , there was approximately $282,000 of total unrecognized compensation cost related to nonvested stock-based compensation arrangements granted under the Plans. The cost is expected to be recognized over a weighted-average period of 1.0 year . There were no stock options granted during the nine month period ended September 30, 2017 .

SMARTFINANCIAL, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 5. Employee Benefit Plans, Continued

Restricted Stock Awards:

On August 4, 2017, the the Board of Directors of the Company made grants of 27,500 shares of restricted stock under the Company’s 2015 Stock Incentive Plan to certain executives of the Company. The restricted shares of stock, which are subject to

the terms of a Restricted Stock Grant Agreement between the Company and each recipient, will fully vest on the fifth anniversary of the grant date. Prior to vesting, the recipient will be entitled to vote the shares and receive dividends, if any, declared by the Company with respect to its common stock. Compensation expense for restricted stock is based on the fair value of the restricted stock awards at the time of the grant, which is equal to the market value of the Company’s common stock on the date of grant. The value of the restricted stock grants that are expected to vest is amortized monthly into compensation expense over the five year vesting period.

The restricted shares had a fair value of $24.58 per share on the date of issuance. For the three and nine months ended September 30, 2017, compensation expense of $22,532 was recognized related to non-vested restricted stock awards. There was no compensation expense related to these awards in 2016. As of September 30, 2017, there was $653,418 of unrecognized compensation cost related to non-vested restricted stock awards granted under the plan.

The following table summarizes activity relating to non-vested restricted stock awards:



		Number
Balance at December 31, 2016		—
Granted		27,500
Forfeited		—
Vested		—
Balance at September 30, 2017		27,500

Note 6. Commitments and Contingent Liabilities

Off Balance Sheet Arrangements In the normal course of business, the Bank has entered into off-balance sheet financial instruments which include commitments to extend credit (i.e., including unfunded lines of credit) and standby letters of credit. Commitments to extend credit are usually the result of lines of credit granted to existing borrowers under agreements that the total outstanding indebtedness will not exceed a specific amount during the term of the indebtedness. Typical borrowers are commercial concerns that use lines of credit to supplement their treasury management functions; thus their total outstanding indebtedness may fluctuate during any time period based on the seasonality of their business and the resultant timing of their cash flows. Other typical lines of credit are related to home equity loans granted to consumers. Commitments to extend credit generally have fixed expiration dates or other termination clauses and may require payment of a fee.

Standby letters of credit are generally issued on behalf of an applicant (our client) to a specifically named beneficiary and are the result of a particular business arrangement that exists between the applicant and the beneficiary. Standby letters of credit have fixed expiration dates and are usually for terms of two years or less unless terminated beforehand due to criteria specified in the standby letter of credit. A typical arrangement involves the applicant routinely being indebted to the beneficiary for such items as inventory purchases, insurance, utilities, lease guarantees or other third party commercial transactions. The standby letter of credit would permit the beneficiary to obtain payment from the Bank under certain prescribed circumstances. Subsequently, the Bank would seek reimbursement from the applicant pursuant to the terms of the standby letter of credit.

The Bank follows the same credit policies and underwriting practices when making these commitments as it does for on-balance sheet instruments. Each client’s creditworthiness is evaluated on a case-by-case basis, and the amount of collateral obtained, if any, is based on management’s credit evaluation of the customer. Collateral held varies but may include cash, real estate and improvements, marketable securities, accounts receivable, inventory, equipment and personal property.

The contractual amounts of these commitments are not reflected in the consolidated financial statements and would only be reflected if drawn upon. Since many of the commitments are expected to expire without being drawn upon, the contractual amounts do not necessarily represent future cash requirements. However, should the commitments be drawn upon and should customers default on their resulting obligation to the Bank the maximum exposure to credit loss, without consideration of collateral, is represented by the contractual amount of those instruments.

SMARTFINANCIAL, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 6. Commitments and Contingent Liabilities, Continued

A summary of the Bank’s total contractual amount for all off-balance sheet commitments at September 30, 2017 is as follows:



Commitments to extend credit	$	166.8	million
Standby letters of credit	$	3.2	million

Various legal claims also arise from time to time in the normal course of business. In the opinion of management, the resolution of claims outstanding at September 30, 2017 will not have a material effect on SmartFinancial’s consolidated financial statements.

Note 7. Fair Value Disclosures

Determination of Fair Value:

The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. In accordance with the “Fair Value Measurements and Disclosures” ASC Topic 820, the fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is best determined based upon quoted market prices. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument.

ASC Topic 820 provides a consistent definition of fair value, which focuses on exit price in an orderly transaction between market participants at the measurement date under current market conditions. If there has been a significant decrease in the volume and level of activity for the asset or liability, a change in valuation technique or the use of multiple valuation techniques may be appropriate. In such instances, determining the price at which willing market participants would transact at the measurement date under current market conditions depends on the facts and circumstances and requires the use of significant judgment. The fair value is a reasonable point within the range that is most representative of fair value under current market conditions.

Fair Value Hierarchy:

In accordance with this guidance, the Company groups its financial assets and financial liabilities generally measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value.

Level 1 - Valuation is based on quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 1 assets and liabilities generally include debt and equity securities that are traded in an active exchange market. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities.

Level 2 - Valuation is based on inputs other than quoted prices included within Level I that are observable for the asset or liability, either directly or indirectly. The valuation may be based on quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liability.

Level 3 - Valuation is based on unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which determination of fair value requires significant management judgment or estimation.

A financial instrument's categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

The following methods and assumptions were used by the Company in estimating fair value disclosures for financial instruments:

SMARTFINANCIAL, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 7. Fair Value Disclosures, Continued

Fair Value Hierarchy (continued):

Cash and Cash Equivalents: For cash and due from banks, interest-bearing deposits, and federal funds sold, the carrying amount is a reasonable estimate of fair value based on the short-term nature of the assets and are considered Level 1 inputs.

Securities Available for Sale: Where quoted prices are available in an active market, management classifies the securities within Level 1 of the valuation hierarchy. If quoted market prices are not available, management estimates fair values using pricing models and discounted cash flows that consider standard input factors such as observable market data, benchmark yields, interest rate volatilities, broker/dealer quotes, and credit spreads. Examples of such instruments, which would generally be classified within Level 2 of the valuation hierarchy, including GSE obligations, corporate bonds, and other securities. Mortgage-backed securities are included in Level 2 if observable inputs are available. In certain cases where there is limited activity or less transparency around inputs to the valuation, management classifies those securities in Level 3.

Restricted Investments: It is not practicable to determine the fair value of restricted investments due the restrictions placed on its transferability.

Loans: For variable-rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values. Fair value for fixed rate loans are estimated using discounted cash flow analyses, using market interest rates for comparable loans. Fair values for nonperforming loans are estimated using discounted cash flow analyses or underlying collateral values, where applicable. These methods are considered Level 3 inputs.

Deposits: The fair values disclosed for demand deposits (for example, interest and noninterest checking, savings, and certain types of money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (that is, their carrying amounts) and are considered Level 1 inputs. Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies market interest rates on comparable instruments to a schedule of aggregated expected monthly maturities on time deposits, and are considered Level 2 inputs.

Securities Sold Under Agreement to Repurchase: The carrying value of these liabilities approximates their fair value, and are considered Level 1 inputs.

Federal Home Loan Bank Advances and Other Borrowings: The fair value of the FHLB fixed rate borrowings are estimated using discounted cash flows, based on the current incremental borrowing rates for similar types of borrowing arrangements, and are considered Level 2 inputs.

Commitments to Extend Credit and Standby Letters of Credit: Because commitments to extend credit and standby letters of credit are made using variable rates and have short maturities, the carrying value and the fair value are immaterial for disclosure.

Measurements of Fair Value:

Assets and liabilities recorded at fair value on a recurring basis are as follows (in thousands):



	Balance as of September 30, 2017		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Other Unobservable Inputs (Level 3)
Debt securities available-for-sale:
U.S. Government-sponsored enterprises (GSEs)	$	15,911	$	—	$	15,911	$	—
Mortgage-backed securities	90,323		—		90,323		—
Other debt securities	938		—		938		—
Municipal securities	8,363		—		8,363		—
Total securities available-for-sale	$	115,535	$	—	$	115,535	$	—

SMARTFINANCIAL, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 7. Fair Value Disclosures, Continued

Measurements of Fair Value (continued):



	Balance as of December 31, 2016		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Other Unobservable Inputs (Level 3)
Debt securities available-for-sale:
U.S. Government-sponsored enterprises (GSEs)	$	17,723	$	—	$	17,723	$	—
Mortgage-backed securities:	103,680		—		103,680		—
Municipal securities	8,019		—		8,019		—
Total securities available-for-sale	$	129,422	$	—	$	129,422	$	—

The Company has no assets or liabilities whose fair values are measured on a recurring basis using Level 3 inputs. Additionally, there were no transfers between Level 1 and Level 2 in the fair value hierarchy.

Assets Measured at Fair Value on a Nonrecurring Basis:

Under certain circumstances management makes adjustments to fair value for assets and liabilities although they are not measured at fair value on an ongoing basis. The following tables present the financial instruments carried on the consolidated balance sheets by caption and by level in the fair value hierarchy, for which a nonrecurring change in fair value has been recorded (in thousands):



	Balance as of September 30, 2017		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Other Unobservable Inputs (Level 3)
Impaired loans	$	534	$	—	$	—	$	534
Foreclosed assets	2,888		—		—		2,888



	Balance as of December 31, 2016		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Other Unobservable Inputs (Level 3)
Impaired loans	$	239	$	—	$	—	$	239
Foreclosed assets	2,386		—		—		2,386

For Level 3 assets measured at fair value on a non-recurring basis as of September 30, 2017 and December 31, 2016 , the significant unobservable inputs used in the fair value measurements are presented below (in thousands).



	Balance as of September 30, 2017		Valuation Technique	Significant Other Unobservable Input	Weighted Average of Input
Impaired loans	$	534	Appraisal	Appraisal Discounts	24.7	%
Foreclosed assets	2,888		Appraisal	Appraisal Discounts	19.3	%

SMARTFINANCIAL, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 7. Fair Value Disclosures, Continued

Assets Measured at Fair Value on a Nonrecurring Basis (continued):



	Balance as of December 31, 2016 (in thousands)		Valuation Technique	Significant Other Unobservable Input	Weighted Average of Input
Impaired loans	$	239	Cash Flow	Discounted Cash Flow / Appraisal Discounts	2.4	%
Foreclosed assets	2,386		Appraisal	Appraisal Discounts	12.2	%

Impaired Loans: Loans considered impaired under ASC 310-10-35, Receivables , are loans for which, based on current information and events, it is probable that the Company will be unable to collect all principal and interest payments due in accordance with the contractual terms of the loan agreement. Impaired loans can be measured based on the present value of expected payments using the loan’s original effective rate as the discount rate, the loan’s observable market price, or the fair value of the collateral less selling costs if the loan is collateral dependent.

The fair value of impaired loans were measured based on the value of the collateral securing these loans or the discounted cash flows of the loans, as applicable. Impaired loans are classified within Level 3 of the fair value hierarchy. Collateral may be real estate and/or business assets including equipment, inventory, and/or accounts receivable. The Company determines the value of the collateral based on independent appraisals performed by qualified licensed appraisers. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Appraised values are discounted for costs to sell and may be discounted further based on management’s historical knowledge, changes in market conditions from the date of the most recent appraisal, and/or management’s expertise and knowledge of the customer and the customer’s business. Such discounts by management are subjective and are typically significant unobservable inputs for determining fair value. Impaired loans are reviewed and evaluated on at least a quarterly basis for additional impairment and adjusted accordingly, based on the same factors discussed above.

Foreclosed assets: Foreclosed assets, consisting of properties obtained through foreclosure or in satisfaction of loans, are initially recorded at fair value less estimated costs to sell upon transfer of the loans to other real estate. Subsequently, other real estate is carried at the lower of carrying value or fair value less costs to sell. Fair values are generally based on third party appraisals of the property and are classified within Level 3 of the fair value hierarchy. The appraisals are sometimes further discounted based on management’s historical knowledge, and/or changes in market conditions from the date of the most recent appraisal, and/or management’s expertise and knowledge of the customer and the customer’s business. Such discounts are typically significant unobservable inputs for determining fair value. In cases where the carrying amount exceeds the fair value, less estimated costs to sell, a loss is recognized in noninterest expense.

SMARTFINANCIAL, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 7. Fair Value Disclosures, Continued

Carrying value and estimated fair value:

The carrying amount and estimated fair value of the Company’s financial instruments at September 30, 2017 and December 31, 2016 are as follows (in thousands):



	September 30, 2017				December 31, 2016
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Assets:
Cash and cash equivalents	$	84,098	$	84,098	$	68,748	$	68,748
Securities available for sale	115,535		115,535		129,422		129,422
Restricted investments	6,081		N/A		5,628		N/A
Loans, net	866,286		855,882		808,271		803,057

Liabilities:
Noninterest-bearing demand deposits	185,386		185,386		153,483		153,483
Interest-bearing demand deposits	156,953		156,953		162,702		162,702
Money Market and Savings deposits	306,357		306,357		274,605		274,605
Time deposits	311,490		311,755		316,275		316,734
Securities sold under agreements to repurchase	26,542		26,542		26,622		26,622
Federal Home Loan Bank advances and other borrowings	6,000		6,000		18,505		18,505

Limitations

Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument. Because no market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on many judgments. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

Fair value estimates are based on existing on and off-balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. Significant assets and liabilities that are not considered financial instruments include deferred income taxes and premises and equipment. In addition,

the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in the estimates.

SMARTFINANCIAL, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 8. Small Business Lending Fund

In connection with the Company's merger with Legacy SmartFinancial, Inc. in 2105, the company assumed Legacy SmartFinancial's obligations under that certain stock purchase agreement with the U.S. Department of the Treasury and issued 12,000 shares of preferred stock at $1,000 per share under the Small Business Lending Fund Program (the " SBLF Program ").The Company paid cash dividends at a one percent rate or $120,000 for the year ended December 31, 2015 on the preferred shares. On February 4, 2016 the dividend rate for the preferred shares increased to nine percent and as a result the company incurred preferred stock dividends of $1,022,000 for the year ended December 31, 2016 .

On January 30, 2017, the Company completed a public offering of 2,010,084 shares of its common stock with the net proceeds to the Company of approximately $33.2 million . On March 6, 2017 the Company used proceeds from the offering to redeem the $12 million of preferred stock and pay the $195 thousand accrued dividend.

Note 9. Business Combination

On December 8, 2016, the Bank entered into a purchase and assumption agreement with Atlantic Capital Bank, N.A. that provided for the acquisition and assumption by the Bank of certain assets and liabilities associated with Atlantic Capital Bank’s branch office located at 3200 Keith Street NW, Cleveland, Tennessee 37312. The purchase was completed on May 19, 2017 for total cash consideration of $1,183,007 .

The assets and liabilities as of the effective date of the transaction were recorded at their respective estimated fair values. 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.

In the periods following the acquisition, the financial statements will include the results attributable to the Cleveland branch purchase beginning on the date of purchase. For the nine months period ended September 30, 2017 , the revenues and net income attributable to the Cleveland branch were $308,854 and $92,598 , respectively. It is impracticable to determine the pro-forma impact to the 2016 revenues and net income if the acquisition had occurred on January 1, 2016 as the Company does not have access to those records for a single branch.

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



Allocation of Purchase Price (amounts in thousands)
Total consideration in cash	$	1,183
Fair value of assets acquired and liabilities assumed:
Cash and cash equivalents	133
Loans	24,073
Premises and equipment	2,839
Core deposit intangible	310
Prepaid and other assets	77
Deposits	(26,888		)
Payables and other liabilities	(21		)
Total fair value of net assets acquired	523
Goodwill	$	660

As of September 30, 2017 there have not been any changes to the initial fair values recorded as part of the business combination.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

SmartFinancial, Inc. (the “Company” or “SmartFinancial”) is a bank holding company incorporated under the laws of Tennessee and headquartered in Knoxville, Tennessee. The Company conducts its business operations primarily through its wholly-owned subsidiary, SmartBank, a Tennessee chartered community bank providing services through fourteen branches, one loan production office, and one mortgage production office located in East Tennessee, the Florida Panhandle, and North Georgia.

Executive Summary

The following is a summary of the Company’s financial highlights and significant events during the third quarter and the first nine months of 2017 :


•	Net income available to common shareholders totaled $1.7 million , or $0.20 per diluted common share, during the third quarter of 2017 compared to $1.3 million , or $0.22 per diluted common share, during the third quarter of 2016 .


•	Closed acquisition of Cleveland, Tennessee branch, purchasing approximately $24.4 million in loans and assuming $26.8 million in deposits, in book value, resulting in approximately $1.0 million in intangible assets.


•	Annualized return on average assets was 0.61 percent for first nine months of 2017 , compared to 0.55 percent for the same period in 2016.


•	Gross loan growth of $58.3 million for first nine months of 2017 , including loans purchased in 2017 which had a net carrying of approximately $20.6 million at quarter end.


•	Net interest margin, taxable equivalent, of 4.13 percent for first nine months of 2017 , up from 4.06 percent for the same period in 2016.


•	.


•	Asset quality remains outstanding with nonperforming assets to total assets of just 0.37 percent .


•	Prepared for November 1 acquisition of Capstone Bancshares, Inc. of Tuscaloosa, Alabama, after which the Company will have assets in excess of $1.6 billion.

Analysis of Results of Operations

Third quarter of 2017 compared to 2016

Net income was $1.7 million in the third quarter of 2017 , which was up from $1.6 million in the third quarter of 2016 . Net income available to common shareholders was $1.7 million , or $0.20 per diluted common share, in the third quarter of 2017 , compared to $1.3 million , or $0.22 per diluted common share, in the third quarter of 2016 . Net interest income to average assets of 3.81 percent in the third quarter of 2017 was up from 3.76 percent in the third quarter of 2016 as the average earning asset balances and yields increased compared to the prior year. Noninterest income to average assets of 0.43 percent was down from 0.47 percent in the third quarter of 2016 . Noninterest expense to average assets increased from 3.13 percent in the third quarter of 2016 to 3.33 percent in third quarter of 2017 primarily due to higher salaries and employee benefits and merger and conversion costs.

The first nine months of 2017 compared to 2016

Net income was $5.0 million in the first nine months of 2017 , which was up from $4.2 million in the first nine months of 2016 . Net income available to common shareholders was $4.8 million , or $0.59 per diluted common share, in the first nine months of 2017 , an increase from $3.4 million , or $0.56 per diluted common share, in the first nine months of 2016 . Net interest income to average assets of 3.81 percent in the first nine months of 2017 was up from 3.76 percent in the first nine months of 2016 as the average earning asset balances and yields increased compared to the prior year. Noninterest income to average assets of 0.42 percent was down from 0.43 percent in the first nine months of 2016 . Noninterest expense to average assets increased from 3.24 percent in the first nine months of 2016 to 3.26 percent in first nine months of 2017 primarily due to to higher salaries and employee benefits and merger and conversion costs.

Net Interest Income and Yield Analysis

Third quarter of 2017 compared to 2016

Net interest income, taxable equivalent, improved to $10.9 million in the third quarter of 2017 from $9.7 million in the third quarter of 2016 . The increase in net interest income was primarily due to increases in loan balances and increases in the yields of the loan and securities portfolios. Average earning assets increased from $953.7 million in the third quarter of 2016 to $1,042.3 million in the third quarter of 2017 . Over this period, average loan balances increased by $79.8 million primarily as a result of organic growth. In addition, average interest-bearing deposits increased by $67.1 million and average noninterest-bearing deposits increased $31.8 million , a result of organic growth combined with the acquired deposits. Net interest income to average assets of 3.81 percent for the third quarter in 2017 was up from 3.76 percent during the same period in 2016 . Net interest margin, taxable equivalent, was 4.17 percent in the quarter, compared to 4.03 percent a year ago as a result a higher percentage of average interest-earning assets to average interest-bearing liabilities and increases in the yield on earning assets. The yield on earning assets increased from 4.48 percent a year ago to 4.70 percent in the quarter due to higher loan balances and higher yields on loans and securities.

The following table summarizes the major components of net interest income and the related yields and costs for the periods presented.



	Three Months Ended September 30, 2017						Three Months Ended September 30, 2016
	Average				Yield/		Average				Yield/
	Balance		Interest *		Cost*		Balance		Interest *		Cost*
Assets
Loans (1)	$	868,352	$	11,496	5.25	%	$	788,585	$	10,112	5.09	%
Investment securities and interest-bearing due from banks (2)	142,089		757		2.11	%	159,683		615		1.53	%
Federal funds and other	31,864		86		1.07	%	5,442		51		3.72	%
Total interest-earning assets	1,042,305		12,339		4.70	%	953,710		10,778		4.48	%
Noninterest-earning assets	96,147						66,735
Total assets	$	1,138,452					$	1,020,445

Liabilities and Stockholders’ Equity
Interest-bearing demand deposits	$	153,838	$	118	0.30	%	$	147,102	$	73	0.20	%
Money market and savings deposits	329,933		519		0.62	%	268,307		283		0.42	%
Time deposits	311,668		736		0.94	%	312,889		709		0.90	%
Total interest-bearing deposits	795,439		1,373		0.68	%	728,298		1,065		0.58	%
Securities sold under agreement to repurchase	20,589		15		0.29	%	22,471		17		0.30	%
Federal Home Loan Bank advances and other borrowings	381		5		5.21	%	11,187		17		0.60	%
Total interest-bearing liabilities	816,409		1,393		0.68	%	761,956		1,099		0.57	%
Noninterest-bearing deposits	179,968						148,178
Other liabilities	5,978						6,194
Total liabilities	1,002,355						916,328
Stockholders’ equity	136,097						104,117
Total liabilities and stockholders’ equity	$	1,138,452					$	1,020,445

Net interest income, taxable equivalent			$	10,946					$	9,679
Interest rate spread (3)					4.02	%					3.91	%
Tax equivalent net interest margin (4)					4.17	%					4.03	%

Percentage of average interest-earning assets to average interest-bearing liabilities					127.67	%					125.17	%
Percentage of average equity to average assets					11.95	%					10.20	%
* Taxable equivalent basis

(1)

Loans include nonaccrual loans. Loan fees included in loan income was $624 thousand and $556 thousand for the quarters ended September 30, 2017 and 2016 , respectively. Yields related to loans exempt from income taxes are stated on a taxable-equivalent basis assuming a federal income tax rate of 34.0 percent. The taxable-equivalent adjustment was $5 thousand for the period ended September 30, 2017 and $1 thousand for the period ended September 30, 2016 .


(2)	Yields related to investment securities exempt from income taxes are stated on a taxable-equivalent basis assuming a federal income tax rate of 34.0 percent. The taxable-equivalent adjustment was $17 thousand for the period ended September 30, 2017 and $13 thousand for the period ended September 30, 2016 .


(3)	Net interest spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities.


(4)	Net interest margin represents net interest income divided by average interest-earning assets.

The first nine months of 2017 compared to 2016

Net interest income, taxable equivalent, improved to $31.1 million in the first nine months of 2017 from $28.5 million in the first nine months of 2016 . The increase in net interest income was primarily due to increases in average loan balances and higher yields on securities. Average earning assets increased from $936.4 million in the first nine months of 2016 to $1,004.9 million in the first nine months of 2017 . Over this period, average loan balances increased by $80.0 million primarily as a result of organic growth. In addition, average interest-bearing deposits increased by $38.6 million and average noninterest-bearing deposits increased $27.7 million , a result of organic growth combined with the acquired deposits. Net interest income to average assets of 3.81 percent in the first nine months of 2017 was up from 3.76 percent in the first nine months of 2016 due to increases in the net interest spread and higher interest earning assets to interest bearing liabilites. Net interest margin, taxable equivalent, was 4.13 percent in the first nine months of 2017 , compared to 4.06 percent a year ago due to higher yields on earning assets and increases in the balances of noninterest bearing deposits. The yield on earning assets increased from 4.51 percent a year ago to 4.64 percent due to higher loan balances and higher yields on securities.

The following table summarizes the major components of net interest income and the related yields and costs for the periods presented.



	Nine Months Ended September 30, 2017						Nine Months Ended September 30, 2016
	Average				Yield/		Average				Yield/
	Balance		Interest *		Cost*		Balance		Interest *		Cost*
Assets
Loans (1)	$	838,388	$	32,463	5.18	%	$	758,420	$	29,450	5.19	%
Investment securities and interest-bearing due from banks (2)	147,411		2,141		1.94	%	171,356		2,023		1.58	%
Federal funds and other	19,089		237		1.66	%	6,655		165		3.31	%
Total interest-earning assets	1,004,888		34,841		4.64	%	936,431		31,638		4.51	%
Noninterest-earning assets	82,746						69,202
Total assets	$	1,087,634					$	1,005,633

Liabilities and Stockholders’ Equity
Interest-bearing demand deposits	$	156,473	$	326	0.28	%	$	150,495	$	208	0.18	%
Money market and savings deposits	302,185		1,271		0.56	%	253,000		854		0.45	%
Time deposits	306,400		2,115		0.92	%	322,935		1,977		0.82	%
Total interest-bearing deposits	765,058		3,712		0.65	%	726,430		3,039		0.56	%
Securities sold under agreement to repurchase	19,732		47		0.32	%	21,155		49		0.31	%
Federal Home Loan Bank advances and other borrowings	3,744		32		1.14	%	15,311		91		0.79	%
Total interest-bearing liabilities	788,534		3,791		0.64	%	762,896		3,179		0.56	%
Noninterest-bearing deposits	162,525						134,777
Other liabilities	3,744						5,209
Total liabilities	954,803						902,882
Stockholders’ equity	132,831						102,751
Total liabilities and stockholders’ equity	$	1,087,634					$	1,005,633

Net interest income, taxable equivalent			$	31,050					$	28,459
Interest rate spread (3)					4.00	%					3.95	%
Tax equivalent net interest margin (4)					4.13	%					4.06	%

Percentage of average interest-earning assets to average interest-bearing liabilities					127.44	%					122.75	%
Percentage of average equity to average assets					12.21	%					10.22	%
* Taxable equivalent basis

(1)

Loans include nonaccrual loans. Loan fees included in loan income was $1.8 million and $1.9 million for the first nine months ended September 30, 2017 and 2016 , respectively. Yields related to loans exempt from income taxes are stated on a taxable-equivalent basis assuming a federal income tax rate of 34.0 percent. The taxable-equivalent adjustment was $14 thousand for the period ended September 30, 2017 and $12 thousand for the period ended September 30, 2016 .


(2)	Yields related to investment securities exempt from income taxes are stated on a taxable-equivalent basis assuming a federal income tax rate of 34.0 percent. The taxable-equivalent adjustment was $48 thousand for the period ended September 30, 2017 and $39 thousand for the period ended September 30, 2016 .


(3)	Net interest spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities.


(4)	Net interest margin represents net interest income divided by average interest-earning assets.

Rate and Volume Analysis

Changes in net interest income are attributed to changes in average balances (volume change), changes in average rates (rate change), and, when applicable, changes in the number of days (days change) in the period presented (for earning assets and sources of funds on which interest is received or paid. Days change is calculated as change in days times current interest per day, volume change is calculated as change in volume times the previous rate, and rate change is change in rate times the previous volume. The change attributed to rates and volumes (change in rate times change in volume) is considered as a change in volume.

Third quarter of 2017 compared to 2016

Net interest income, taxable equivalent, increased by $1.3 million between the quarters ended September 30, 2017 and 2016 . The following is an analysis of the changes in net interest income comparing the changes attributable to days those attributable to rates and those attributable to volumes (in thousands):



	Three Months Ended September 30,
	2017				Compared to			2016
	Increase (decrease) due to
		Rate			Volume				Net
Interest-earning assets:
Loans (1)		$	361		$	1,023			$	1,384
Investment securities and interest-bearing due from banks (2)		210			(68		)		142
Federal funds and other		(213		)	248				35
Total interest-earning assets		358			1,203				1,561

Interest-bearing liabilities:
Interest-bearing demand deposits		42			3				45
Money market and savings deposits		171			65				236
Time deposits		30			(3		)		27
Total interest-bearing deposits		243			65				308
Securities sold under agreement to repurchase		(1		)	(1		)		(2		)
Federal Home Loan Bank advances and other borrowings		4			(16		)		(12		)
Total interest-bearing liabilities		246			48				294
Net interest income		$	112		$	1,155			$	1,267


(1)	Loans include nonaccrual loans.Yields related to loans exempt from income taxes are stated on a taxable-equivalent basis assuming a federal income tax rate of 34.0 percent. The taxable-equivalent adjustment was $5 thousand for the period ended September 30, 2017 and $1 thousand for the period ended September 30, 2016 .


(2)	Yields related to investment securities exempt from income taxes are stated on a taxable-equivalent basis assuming a federal income tax rate of 34.0 percent. The taxable-equivalent adjustment was $17 thousand for the period ended September 30, 2017 and $13 thousand for the period ended September 30, 2016 .

The first nine months of 2017 compared to 2016

Net interest income, taxable equivalent, increased by $2.6 million between the first nine months ended September 30, 2017 and 2016 . The following is an analysis of the changes in net interest income comparing the changes attributable to days those attributable to rates and those attributable to volumes (in thousands):



	Nine Months Ended September 30,
	2017				Compared to						2016
	Increase (decrease) due to
		Rate			Days			Volume				Net
Interest-earning assets:
Loans (1)		$	5		$	(108	)	$	3,116			$	3,013
Investment securities and interest-bearing due from banks (2)		409			(7		)	(284		)		118
Federal funds and other		(236		)	(1		)	309				72
Total interest-earning assets		178			(116		)	3,141				3,203

Interest-bearing liabilities:
Interest-bearing demand deposits		111			(1		)	8				118
Money market and savings deposits		254			(3		)	166				417
Time deposits		247			(7		)	(102		)		138
Total interest-bearing deposits		612			(11		)	72				673
Securities sold under agreement to repurchase		1			—			(3		)		(2		)
Federal Home Loan Bank advances and other borrowings		10			—			(69		)		(59		)
Total interest-bearing liabilities		623			(11		)	—				612
Net interest income		$	(445	)	$	(105	)	$	3,141			$	2,591

(1)


(2)	Yields related to investment securities exempt from income taxes are stated on a taxable-equivalent basis assuming a federal income tax rate of 34.0 percent. The taxable-equivalent adjustment was $48 thousand for the period ended September 30, 2017 and $39 thousand for the period ended September 30, 2016 .

Noninterest Income

Third quarter of 2017 compared to 2016

Noninterest income totaled $1.2 million in the third quarter of 2017 , compared to $1.2 million in the third quarter of 2016 . Noninterest income to average assets of 0.43 percent for the quarter was down from 0.47 percent in 2016 primarily due to losses instead of gains on the sale of foreclosed assets.



	Three months ended September 30,
(Dollars in thousands)	2017			2016
Service charges and fees on deposit accounts	$	294		$	296
Gain on sale of securities	144			18
Gain on sale of loans and other assets	224			287
Gain (loss) on sale of foreclosed assets	(27		)	131
Other noninterest income	585			472
Total noninterest income	$	1,220		$	1,204

The first nine months of 2017 compared to 2016

Noninterest income totaled $3.4 million in the first nine months of 2017 , compared to $3.2 million in the first nine months of 2016 . Noninterest income to average assets of 0.42 percent was down from 0.43 percent in the first nine months of 2016 primarily due to higher losses on the sale of foreclosed assets. Charges and fees on deposit accounts were unchanged from a year ago. Gains on the sale of loans, which includes mortgage and SBA loans, were $910 thousand , up from $706 thousand a year ago.



	Nine months ended September 30,
(Dollars in thousands)	2017			2016
Service charges and fees on deposit accounts	$	850		$	851
Gain on sale of securities	143			200
Gain on sale of loans and other assets	910			706
Gain (loss) on sale of foreclosed assets	(42		)	185
Other noninterest income	1,543			1,294
Total noninterest income	$	3,404		$	3,236

Noninterest Expense

Third quarter of 2017 compared to 2016

Noninterest expense totaled $9.5 million in the third quarter of 2017 compared to $8.0 million in the third quarter of 2016 . Noninterest expense to average assets decreased from 3.13 percent a year ago to 3.33 percent in the quarter. The increase in noninterest expense compared to the prior year was primarily due to higher salary and employee benefit expenses and merger and conversion costs of $303 thousand for the third quarter of 2017 , which is included in other operating expenses.



	Three months ended September 30,
(Dollars in thousands)	2017		2016
Salaries and employee benefits	$	5,035	$	4,312
Net occupancy and equipment expense	1,114		965
Depository insurance	102		153
Foreclosed assets	20		79
Advertising	177		179
Data processing	483		450
Professional services	472		559
Amortization of intangible assets	78		80
Service contracts	363		272
Other operating expenses	1,703		1,001
Total noninterest expense	$	9,547	$	8,050

The first nine months of 2017 compared to 2016

Noninterest expense totaled $26.5 million in the first nine months of 2017 compared to $24.5 million in the first nine months of 2016 . Noninterest expense to average assets increased from 3.24 percent a year ago to 3.26 percent in the during the period. The increase in noninterest expense compared to the prior year was primarily due higher salary and employee benefit expenses and merger and conversion costs merger and conversion costs of $723 thousand for the first nine months of 2017 , which is included in other operating expenses.



	Nine months ended September 30,
(Dollars in thousands)	2017		2016
Salaries and employee benefits	$	14,472	$	13,293
Net occupancy and equipment expense	3,054		3,120
Depository insurance	316		440
Foreclosed assets	30		199
Advertising	471		537
Data processing	1,292		1,333
Professional services	1,483		1,565
Amortization of intangible assets	192		267
Service contracts	972		873
Other operating expenses	4,239		2,847
Total noninterest expense	$	26,521	$	24,474

Taxes

Third quarter of 2017 compared to 2016

In the third quarter of 2017 income tax expense totaled $882 thousand compared to $947 thousand a year ago. The effective tax rate was approximately 37.0 percent a year ago compared to approximately 34.4 percent in the third quarter of 2017 .

The first nine months of 2017 compared to 2016

In the first nine months of 2017 income tax expense totaled $2.6 million compared to $2.4 million a year ago. The effective tax rate was approximately 36.6 percent a year ago compared to approximately 33.9 percent in the first nine months of 2017 .

Loan Portfolio Composition

The Company had total net loans outstanding, including organic and purchased loans, of approximately $866.3 million at September 30, 2017 and $808.3 million at December 31, 2016 . Loans secured by real estate, consisting of commercial or residential property, are the principal component of our loan portfolio. We do not generally originate traditional long-term residential fixed rate mortgages for our portfolio but we do originate and hold traditional second mortgage residential real estate loans, adjustable rate mortgages and home equity lines of credit. Even if the principal purpose of the loan is not to finance real estate, when reasonable, we attempt to obtain a security interest in the real estate in addition to any other available collateral to increase the likelihood of ultimate repayment or collection of the loan.

Organic Loans

Our organic net loans increased by $87.8 million , or 14.3 percent , from December 31, 2016 , to $699.7 million at September 30, 2017 as we continue to originate well underwritten loans. Our goal of streamlining the credit process has improved our efficiency and is a competitive advantage in many of our markets. In addition, the overall business environment continues to rebound from recessionary conditions. Organic loans include loans which were originally purchased non-credit impaired loans but have been renewed since purchase.

Purchased Loans

Purchased non-credit impaired loans of $144.6 million at September 30, 2017 were down from $169.2 million at December 31, 2016 as a result of loan payoffs and renewals. Since December 31, 2016 , our net purchased credit impaired (“PCI”) loans decreased by $5.2 million to $22.0 million at September 30, 2017 . The activity within the purchased credit impaired loans will be impacted by how quickly these loans are resolved and/or our future acquisition activity.

The following tables summarize the composition of our loan portfolio for the periods presented (dollars in thousands):



	September 30, 2017
	Organic Loans			Purchased Non-Credit Impaired Loans		Purchased Credit Impaired Loans		Total Amount			% of Gross Total
Commercial real estate-mortgage	$	344,282		$	90,136	$	13,202	$	447,620		51.4	%
Consumer real estate-mortgage	154,974			38,587		6,143		199,704			22.9	%
Construction and land development	92,381			4,255		1,576		98,212			11.3	%
Commercial and industrial	107,930			10,767		1,085		119,782			13.7	%
Consumer and other	5,546			815		—		6,361			0.7	%
Total gross loans receivable, net of deferred fees	705,113			144,560		22,006		871,679			100.0	%
Allowance for loan and lease losses	(5,393		)	—		—		(5,393		)
Total loans, net	$	699,720		$	144,560	$	22,006	$	866,286



	December 31, 2016
	Organic Loans			Purchased Non-Credit Impaired Loans		Purchased Credit Impaired Loans		Total Amount			% of Gross Total
Commercial real estate-mortgage	$	297,689		$	102,576	$	14,943	$	415,208		51.0	%
Consumer real estate-mortgage	135,923			42,875		9,004		187,802			23.1	%
Construction and land development	108,390			7,801		1,678		117,869			14.5	%
Commercial and industrial	68,235			15,219		1,568		85,022			10.5	%
Consumer and other	6,786			689		—		7,475			0.9	%
Total gross loans receivable, net of deferred fees	617,023			169,160		27,193		813,376			100.0	%
Allowance for loan and lease losses	(5,105		)	—		—		(5,105		)
Total loans, net	$	611,918		$	169,160	$	27,193	$	808,271

Loan Portfolio Maturities

The following table sets forth the maturity distribution of our loans, including the interest rate sensitivity for loans maturing after one year.



									Rate Structure for Loans
									Maturing Over One Year
	One Year or Less		One through Five Years		Over Five Years		Total		Fixed Rate		Floating Rate
Commercial real estate-mortgage	$	39,118	$	233,750	$	174,752	$	447,620	$	273,157	$	135,345
Consumer real estate-mortgage	21,869		87,451		90,384		199,704		98,305		79,530
Construction and land development	24,512		38,087		35,613		98,212		38,322		35,378
Commercial and industrial	27,234		64,464		28,084		119,782		80,608		11,940
Consumer and other	2,913		2,782		666		6,361		2,038		1,410
Total Loans	$	115,646	$	426,534	$	329,499	$	871,679	$	492,430	$	263,603

Nonaccrual, Past Due, and Restructured Loans

Nonperforming loans as a percentage of total gross loans, net of deferred fees, was 0.14 percent as of September 30, 2017 , which was down from 0.26 percent as of December 31, 2016 . Total nonperforming assets as a percentage of total assets as of September 30, 2017 totaled 0.37 percent compared to 0.42 percent as of December 31, 2016 . Acquired PCI loans that are included in loan pools are reclassified at acquisition to accrual status and thus are not included as nonperforming assets unless the pools are 90 days or greater past due.

The following table summarizes the Company's nonperforming assets for the periods presented.



(Dollars in thousands)	September 30, 2017		December 31, 2016
Nonaccrual loans	$	1,260	$	1,415
Accruing loans past due 90 days or more (1)	3		699
Total nonperforming loans	1,263		2,114
Foreclosed assets	2,888		2,386
Total nonperforming assets	$	4,151	$	4,500

Restructured loans not included above	$	42	$	166

(1) Balances include PCI loans past due 90 days or more that are grouped in pools which accrue interest based on pool yields.

Potential Problem Loans

At September 30, 2017 potential problem loans amounted to approximately $471 thousand or 0.05 percent of total loans outstanding. Potential problem loans, which are not included in nonperforming loans, represent those loans with a well-defined weakness and where information about possible credit problems of borrowers has caused management to have doubts about the borrower's ability to comply with present repayment terms. This definition is believed to be substantially consistent with the standards established by the Bank’s primary regulators, for loans classified as substandard or worse, but not considered nonperforming loans.

Allocation of the Allowance for Loan Losses

We maintain the allowance at a level that we deem appropriate to adequately cover the probable losses inherent in the loan portfolio. As of September 30, 2017 and December 31, 2016 , our allowance for loan losses was $5.4 million and $5.1 million , respectively, which we deemed to be adequate at each of the respective dates. The increase in the allowance for loan losses in 2017 as compared to 2016 is the result of increases in the organic loan portfolio. Our allowance for loan loss as a percentage of total loans has decreased slightly from 0.63 percent at December 31, 2016 to 0.62 percent at September 30, 2017 . As a percentage of organic loans the allowance for loan losses decreased from 0.83 percent at December 31, 2016 to 0.76 percent at September 30, 2017 .

Our purchased loans were recorded at fair value upon acquisition. The fair value adjustments on the performing purchased loans will be accreted into income over the life of the loans. As of September 30, 2017 the balance on PCI loans was $28.7 million while the carrying value was $22.0 million . These loans are subject to the same allowance methodology as our legacy portfolio. The calculated allowance is compared to the remaining fair value discount to determine if additional provisioning should be recognized. At September 30, 2017 , there were no allowances on PCI loans.

The following table sets forth, based on our best estimate, the allocation of the allowance to types of loans as of September 30, 2017 and December 31, 2016 and the percentage of loans in each category to total loans (in thousands):



	September 30, 2017				December 31, 2016
	Amount		Percent		Amount		Percent
Commercial real estate-mortgage	$	2,543	47.2	%	$	2,369	46.4	%
Consumer real estate-mortgage	1,415		26.2	%	1,382		27.1	%
Construction and land development	565		10.5	%	717		14.0	%
Commercial and industrial	745		13.8	%	520		10.2	%
Consumer and other	125		2.3	%	117		2.3	%
Total allowance for loan losses	$	5,393	100.0	%	$	5,105	100.0	%

The increase in the overall allowance for loan losses is due to the increased balance of organic loans offset by improvements of our loan portfolio and the reduction of nonperforming loans and net charge-offs, which is largely influenced by the overall improvement in the economies in our market areas. The allocation by category is determined based on the assigned risk rating, if applicable, and environmental factors applicable to each category of loans. For impaired loans, those loans are reviewed for a specific allowance allocation. Specific valuation allowances related to impaired loans were approximately $4 thousand at December 31, 2016 compared to $175 thousand at September 30, 2017 .

Analysis of the Allowance for Loan Losses

The following is a summary of changes in the allowance for loan losses for the periods ended September 30, 2017 and December 31, 2016 including the ratio of the allowance for loan losses to total loans as of the end of each period (in thousands):



	September 30, 2017			December 31, 2016
Balance at beginning of period	$	5,105		$	4,354
Provision for loan losses	340			788
Charged-off loans:
Commercial real estate-mortgage	—			—
Consumer real estate-mortgage	(110		)	(102		)
Construction and land development	—			(14		)
Commercial and industrial	(18		)	(35		)
Consumer and other	(106		)	(155		)
Total charged-off loans	(234		)	(306		)
Recoveries of previously charged-off loans:
Commercial real estate-mortgage	8			45
Consumer real estate-mortgage	58			76
Construction and land development	10			22
Commercial and industrial	55			58
Consumer and other	51			68
Total recoveries of previously charged-off loans	182			269
Net charge-offs	(52		)	(37		)
Balance at end of period	$	5,393		$	5,105

Ratio of allowance for loan losses to total loans outstanding at end of period	0.62		%	0.63		%
Ratio of net charge-offs (recoveries) to average loans outstanding for the period	0.01		%	—		%

We assess the adequacy of the allowance at the end of each calendar quarter. This assessment includes procedures to estimate the allowance and test the adequacy and appropriateness of the resulting balance. The level of the allowance is based upon our evaluation of the loan portfolio, past loan loss experience, known and inherent risks in the portfolio, the views of the Bank’s regulators, adverse situations that may affect the borrower's ability to repay (including the timing of future payments), the estimated value of any underlying collateral, composition of the loan portfolio, economic conditions, industry and peer bank loan quality indications and other pertinent factors. This evaluation is inherently subjective as it requires material estimates including the amounts and timing of future cash flows expected to be received on impaired loans that may be susceptible to significant change.

Investment Portfolio

Our investment portfolio, consisting primarily of Federal agency bonds, mortgage-backed securities, and state and municipal securities amounted to fair values of $115.5 million and $129.4 million at September 30, 2017 and December 31, 2016 , respectively. Our investments to assets ratio decreased from 12.2 percent at December 31, 2016 to 10.2 percent at September 30, 2017 as we reduced reinvestments when the five year treasury rate, and other fixed income investments of a similar term, fell during the quarter. Our investment portfolio serves many purposes including serving as a potential liquidity source, collateral for public funds, and as a stable source of income.

The following table shows the amortized cost of the Company’s investment securities. In the periods ended September 30, 2017 and December 31, 2016 all investment securities were classified as available for sale.



Book Value of Investment Securities
(in thousands)	September 30, 2017		December 31, 2016
U.S. Government agencies	$	16,217	$	18,279
State and political subdivisions	8,341		8,182
Mortgage-backed securities	90,610		104,585
Other debt securities	973		—
Total securities	$	116,141	$	131,046

The following table presents the contractual maturity of investment securities by contractual maturity date and average yields based on amortized cost (for all obligations on a fully taxable basis). The composition and maturity / repricing distribution of the securities portfolio is subject to change depending on rate sensitivity, capital and liquidity needs.



Contractual Maturity of Investment Securities
September 30, 2017
(in thousands)	Maturity By Years
	1 or Less			1 to 5			5 to 10			Over 10			Total
Available for Sale
U.S. Government agencies	$	1,995		$	11,000		$	3,222		$	—		$	16,217
State and political subdivisions	178			607			4,116			3,440			8,341
Mortgage-backed securities	—			6,076			28,474			56,060			90,610
Other debt securities	—			—			973			—			973
Total securities available for sale	$	2,173		$	17,683		$	36,785		$	59,500		$	116,141
Weighted average yield (1)	1.55		%	1.75		%	1.94		%	2.08		%	2.00		%

(1) Based on amortized cost, taxable equivalent basis

Deposits

Deposits are the primary source of funds for the Company's lending and investing activities. The Company provides a range of deposit services to businesses and individuals, including noninterest-bearing checking accounts, interest-bearing checking accounts, savings accounts, money market accounts, IRAs and CDs. These accounts generally earn interest at rates the Company establishes based on market factors and the anticipated amount and timing of funding needs. The establishment or continuity of a core deposit relationship can be a factor in loan pricing decisions. While the Company's primary focus is on establishing customer relationships to attract core deposits, at times, the Company uses brokered deposits and other wholesale deposits to supplement its funding sources. As of September 30, 2017 , brokered deposits represented approximately 10.3 percent of total deposits.

Over the last two years the overall mix of average deposits has shifted to a higher percentage of noninterest-bearing and money market and savings deposits, with reductions in the percentage of deposits held in interest-bearing demand accounts. The Company believes its deposit product offerings are properly structured to attract and retain core low-cost deposit relationships. The average cost of interest-bearing deposits for the three and nine months ended September 30, 2017 was 0.68 percent and 0.65 percent , compared to 0.58 percent and 0.56 percent for the same period in 2016 . The increase in the costs were due to changes in deposit mix and higher rates on interest-bearing deposit accounts.

Total deposits as of September 30, 2017 were $960.2 million , which was an increase of $53.1 million from December 31, 2016 . As of September 30, 2017 the Company had outstanding time deposits under $100,000 with balances of $131.6 million , time deposits over $100,000 with balances of $179.7 million , and a fair value premium for time deposits of approximately $158 thousand .

The following table summarizes the maturities of time deposits $100,000 or more as of September 30, 2017 .



Remaining maturity: (Dollars in thousands)	September 30, 2017
Three months or less	$	41,770
Three to six months	97,105
Six to twelve months	28,063
More than twelve months	12,745
Total	$	179,683

Borrowings

The Company uses short-term borrowings and long-term debt to provide both funding and, to a lesser extent, regulatory capital using debt at the Company level which can be downstreamed as Tier 1 capital to the Bank. There were $6.0 million in short-term borrowings at September 30, 2017 . Short-term borrowings totaled $18.5 million at December 31, 2016 comprised of $5 million in FHLB advances maturing within twelve months and the remainder consisted of Federal Funds purchased. There was no long-term debt outstanding at September 30, 2017 or December 31, 2016 .

Capital Resources

The Company uses leverage analysis to examine the potential of the institution to increase assets and liabilities using the current capital base. The key measurements included in this analysis are the Bank’s Common Equity Tier 1 capital, Tier 1 capital, leverage and total capital ratios. At September 30, 2017 and December 31, 2016 , our capital ratios, including our Bank’s capital ratios, exceeded regulatory minimum capital requirements. From time to time we may be required to support the capital needs of our bank subsidiary. We believe we have various capital raising techniques available to us to provide for the capital needs of our bank, if necessary.

Liquidity and Off-Balance Sheet Arrangements

At September 30, 2017 , we had $166.8 million of pre-approved but unused lines of credit and $3.2 million of standby letters of credit. These commitments generally have fixed expiration dates and many will expire without being drawn upon. The total commitment level does not necessarily represent future cash requirements. If needed to fund these outstanding commitments, the Bank has the ability to liquidate Federal funds sold or securities available-for-sale, or on a short-term basis to borrow and purchase Federal funds from other financial institutions.

Market Risk and Liquidity Risk Management

The Bank’s Asset Liability Management Committee (“ALCO”) is responsible for making decisions regarding liquidity and funding solutions based upon approved liquidity, loan, capital and investment policies. The ALCO must consider interest rate sensitivity and liquidity risk management when rendering a decision on funding solutions and loan pricing. To assist in this process the Bank has contracted with an independent third party to prepare quarterly reports that summarize several key asset-liability measurements. In addition, the third party will also provide recommendations to the Bank’s ALCO regarding future balance sheet structure, earnings and liquidity strategies. Two critical areas of focus for ALCO are interest rate sensitivity and liquidity risk management. We do not believe there have been any material changes to the Company’s interest rate sensitivity or liquidity risk from December 31, 2016 to the period ended September 30, 2017 .

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

This Item is not applicable to smaller reporting companies.

ITEM 4. CONTROLS AND PROCEDURES

Under the supervision and with the participation of management, including SmartFinancial’s Chief Executive Officer and Chief Financial Officer, SmartFinancial has evaluated the effectiveness of its disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of September 30, 2017 (the “Evaluation Date”). Based on such evaluation, such officers have concluded that, as of the Evaluation Date, SmartFinancial’s disclosure controls and procedures were effective in alerting them on a timely basis to material information relating to SmartFinancial (including its consolidated subsidiaries) required to be included in SmartFinancial’s periodic filings under the Exchange Act.

There were no changes in SmartFinancial’s internal control over financial reporting during SmartFinancial’s fiscal quarter ended September 30, 2017 that have materially affected, or are reasonably likely to materially affect, SmartFinancial’s internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

There are various claims and lawsuits in which SmartFinancial is periodically involved incidental to the Bank’s business. In the opinion of management, no material loss is expected from any of such pending claims or lawsuits.

SmartFinancial and its wholly owned subsidiary, SmartBank, are periodically involved as a plaintiff or a defendant in various legal actions in the ordinary course of business. While the outcome of these matters is not currently determinable, neither SmartFinancial nor SmartBank is involved in any litigation that is expected to have a material impact on our financial position, results of operations, or cash flow. Management believes that any claims pending against SmartFinancial or SmartBank are without merit or that the ultimate liability, if any, resulting from such claims will not materially affect SmartBank’s financial condition or SmartFinancial’s consolidated financial position.

Item 1A. Risk Factors.

SmartFinancial, as a smaller reporting company, is not required to provide the information required by this Item.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not Applicable.

Item 5. Other Information.

On October 31, 2017, SmartFinancial entered into a Loan Agreement (the “ Loan Agreement ”) with CapStar Bank (the “ Lender ”), providing for a revolving line of credit in an amount up to $15,000,000 (the “ Revolving Line of Credit ”). SmartFinancial borrowed $10,000,000 under the Revolving Line of Credit on October 31, 2017, with the borrowings to be used to fund a portion of the cash consideration payable in the merger with Capstone Bancshares, Inc. (" Bancshares ") to holders of Bancshares Class A voting common stock and general corporate purposes. SmartFinancial may borrow and re-borrow under the Revolving Line of Credit until January 15, 2019, after which time there can be no further advances under the Revolving Line of Credit. The Revolving Line of Credit will convert to a term loan (the “ Term Loan ”) on January 16, 2019.

Borrowings under the Revolving Line of Credit and the Term Loan will be subject to a floating interest rate of the Lender’s prime rate minus 0.25%, subject to a floor of 3.50%. Interest on the Revolving Line of Credit and the Term Loan will be payable quarterly in arrears on January 15, April 15, July 15, and October 15. Additionally, upon conversion of the Revolving Line of Credit to the Term Loan, SmartFinancial must pay quarterly principal amortization payments of $262,500 on each interest payment date in 2019, quarterly principal amortization payments of $287,500 on each interest payment date in 2020, quarterly principal amortization payments of $312,500 on each interest payment date in 2021, and quarterly principal amortization payments of $337,500 for the first three fiscal quarters in 2022. The scheduled principal amortization payments are based on the assumption that the Revolving Line of Credit is fully drawn at the time it converts to the Term Loan, and the required payments will be reduced on a pro-rata basis relative to the amount of the Revolving Line of Credit if the Revolving Line of Credit is not fully drawn at such time. The Term Loan will mature on October 15, 2022, at which time all outstanding amounts under the Loan Agreement will become due and payable.

In connection with entering into the Loan Agreement, SmartFinancial executed in favor of the Lender a Line of Credit Note (the “ Line of Credit Note ”) dated as of October 31, 2017.

The Loan Agreement contains customary representations, warranties and covenants for a revolving line of credit that converts to a term loan, including certain financial covenants and capital ratio requirements. Pursuant to the Loan Agreement, no financial institution subsidiary of SmartFinancial (a “ Financial Institution Subsidiary ”) may permit its non-performing assets to exceed 3.25% of its total assets at the end of a fiscal quarter. Each Financial Institution Subsidiary must not permit its Texas ratio (nonperforming assets divided by the sum of tangible equity plus the allowance for loan and lease losses) to exceed 35.00% at the end of a fiscal quarter and must not permit its liquidity ratio to be less than 9.00% at the end of a fiscal quarter (or less than 10.00% for two consecutive fiscal quarters). Each Financial Institution Subsidiary must not permit its return on average assets to be less than 0.45% at the end of a fiscal quarter through September 30, 2018, and not less than 0.50% at the end of a fiscal quarter from December 31, 2018 and thereafter. In addition, SmartFinancial will not permit its debt service coverage ratio to be less than 1.25:1.00 as of June 30 or December 31 of a fiscal year (commencing December 31, 2017).

The Loan Agreement contains customary and commercially reasonable events of default, such as non-payment, failure to perform any covenant or agreement, breach of any representation or warranty, failure to pay other material indebtedness, bankruptcy, insolvency, any ERISA event, any material judgment, any material adverse effect, any change in control, any failure to be insured by the FDIC or any action by a governmental or regulatory authority, etc. The Lender has the right to accelerate the indebtedness upon an event of default. Additionally, under the Loan Agreement, SmartFinancial may not, and may not permit any of its subsidiaries to, pay dividends on its stock if an event of default has occurred and is continuing or would be caused by such payment.

The obligations of SmartFinancial under the Loan Agreement are secured by a pledge of all of the capital stock of SmartBank pursuant to a Stock Pledge and Security Agreement dated as of October 31, 2017, between SmartFinancial and the Lender (the “ Pledge Agreement ”). In the event of a default by SmartFinancial under the Loan Agreement, the Lender may terminate the commitments made under the Loan Agreement, declare all amounts outstanding to be payable immediately, and exercise or pursue any other remedy permitted under the Loan Agreement or the Pledge Agreement or conferred upon the Lender by law.

The descriptions contained herein of the Loan Agreement, the Line of Credit Note, and the Pledge Agreement are qualified in their entirety by reference to the terms of such documents, which are attached as Exhibits 2.2, 2.3, and 2.4, respectively, to this Quarterly Report on Form 10-Q and are incorporated herein by reference.

Item 6. Exhibits



2.1	Agreement and Plan of Merger, dated as of May 22, 2017, by and among SmartFinancial, Inc., SmartBank, Capstone Bancshares, Inc. and Capstone Bank ⁽¹⁾⁺
2.2	Loan Agreement, dated as of October 31, 2017, by and between SmartFinancial, Inc. and CapStar Bank+
2.3	Stock Pledge and Security Agreement, dated as of October 31, 2017, by and between SmartFinancial, Inc. and CapStar Bank
2.4	Line of Credit Note, dated as of October 31, 2017, executed by SmartFinancial, Inc. in favor of CapStar Bank
31.1	Certification pursuant to Rule 13a-14(a)/15d-14(a)
31.2	Certification pursuant to Rule 13a-14(a)/15d-14(a)
32.1	Certification pursuant to 18 USC Section 1350 - Sarbanes-Oxley Act of 2002
32.2	Certification pursuant to 18 USC Section 1350 - Sarbanes-Oxley Act of 2002
101	Interactive Data Files

+ The Schedules have been omitted pursuant to Item 601(b)(2) of Regulation S-K


(1)	Incorporated herein by reference to Exhibit 2.1 to the Company's Form 8-k filed on May 23, 2017

SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



		SmartFinancial, Inc.

Date:	November 14, 2017		/s/ William Y. Carroll, Jr.
			William Y. Carroll, Jr.
			President and Chief Executive Officer
			(principal executive officer)

Date:	November 14, 2017		/s/ Christopher Bryan Johnson
			Christopher Bryan Johnson
			Executive Vice President and Chief Financial Officer
			(principal financial officer and accounting officer)

Execution Version

LOAN AGREEMENT

dated as of October 31, 2017

among

SMARTFINANCIAL, INC.
as Borrower

and

CAPSTAR BANK
as Lender

TABLE OF CONTENTS

ARTICLE I. DEFINITIONS; CONSTRUCTION 1

Section 1.1. Definitions. 1

Section 1.2. Accounting Terms and Determination. 14

Section 1.3. Terms Generally. 14

ARTICLE II. AMOUNT AND TERMS OF THE LOANS 15

Section 2.1. Commitment. 15

Section 2.2. Procedure for Borrowings 15

Section 2.3. Funding of Borrowings. 15

Section 2.4. Reserved. 15

Section 2.5. Repayment and Prepayments of Borrowings. 15

Section 2.6. Interest on Borrowings. 16

Section 2.7. Late Payment Fee. 17

Section 2.8. Computation of Interest and Fees. 17

Section 2.9. Closing Fee.. 17

Section 2.10. Evidence of Indebtedness. 17

Section 2.11. Reserved. 18

Section 2.12. Reserved. 18

Section 2.13. Reserved. 18

Section 2.14. Taxes. 18

ARTICLE III. CONDITIONS PRECEDENT TO EFFECTIVENESS 19

Section 3.1. Conditions To Effectiveness. 19

Section 3.2. Line of Credit Borrowing. 21

Section 3.3. Reserved. 21

ARTICLE IV. REPRESENTATIONS AND WARRANTIES 21

Section 4.1. Existence; Power. 21

Section 4.2. Organizational Power; Authorization. 22

Section 4.3. Governmental Approvals; No Conflicts. 22

Section 4.4. Financial Statements. 22

Section 4.5. Litigation Matters and Enforcement Actions. 23

Section 4.6. Compliance with Laws and Agreements. 23

Section 4.7. Investment Company Act. 23

Section 4.8. Taxes. 23

Section 4.9. Margin Regulations. 23

Section 4.10. ERISA. 24

Section 4.11. Disclosure. 24

Section 4.12. Subsidiaries. 25

Section 4.13. Dividend Restrictions; Other Restrictions. 25

Section 4.14. Capital Measures. 25

Section 4.15. FDIC Insurance. 25

Section 4.16. Ownership of Property. 25

Section 4.17. OFAC. 26

Section 4.18. Patriot Act. 26

Section 4.19. Solvency. 26

ARTICLE V. AFFIRMATIVE COVENANTS 27

Section 5.1. Financial Statements and Other Information. 27

Section 5.2. Notices of Material Events. 28

Section 5.3. Existence; Conduct of Business. 29

Section 5.4. Compliance with Laws, Etc. 29

Section 5.5. Payment of Obligations. 29

Section 5.6. Books and Records. 29

Section 5.7. Visitation, Inspection, Etc. 29

Section 5.8. Maintenance of Properties; Insurance. 30

Section 5.9. Use of Proceeds. 30

Section 5.10. CBI Merger. 30

Section 5.11. Further Assurances. 30

ARTICLE VI. FINANCIAL COVENANTS 30

Section 6.1. Ratio of Nonperforming Assets to Total Assets. 30

Section 6.2. Texas Ratio. 31

Section 6.3. Liquidity Ratio. 31

Section 6.4. Return on Average Assets. 31

Section 6.5. Debt Service Coverage Ratio 31

Section 6.6. Regulatory Capital 31

Section 6.7. Interest Coverage Ratio. 32

ARTICLE VII. NEGATIVE COVENANTS 32

Section 7.1. Indebtedness. 32

Section 7.2. Negative Pledge. 33

Section 7.3. Fundamental Changes. 33

Section 7.4. Restricted Payments. 34

Section 7.5. Restrictive Agreements. 34

Section 7.6. Investments, Etc. 35

Section 7.7. Transactions with Affiliates. 36

Section 7.8. Hedging Transactions. 36

Section 7.9. Unsafe and Unsound Practices. 36

ARTICLE VIII. EVENTS OF DEFAULT 36

ARTICLE IX. RESERVED 40

ARTICLE X. MISCELLANEOUS 40

Section 10.1. Notices. 40

Section 10.2. Waiver; Amendments. 41

Section 10.3. Expenses; Indemnification. 42

Section 10.4. Successors and Assigns. 43

Section 10.5. Governing Law; Jurisdiction; Consent to Service of Process. 43

Section 10.6. WAIVER OF JURY TRIAL. 44

Section 10.7. Right of Setoff. 44

Section 10.8. Counterparts; Integration. 44

Section 10.9. Survival. 44

Section 10.10. Severability. 45

Section 10.11. Confidentiality. 45

Section 10.12. Waiver of Effect of Corporate Seal. 45

Section 10.13. Patriot Act. 46

Schedules


Schedule 4.12	- Subsidiaries


Schedule 4.13	- Restrictions


Schedule 7.1	- Outstanding Indebtedness


Schedule 7.7	- Transactions with Affiliates

Exhibits


Exhibit A	- Form of Line of Credit Note


Exhibit 2.2	- Form of Notice of Borrowing


Exhibit 3.1(b)(vi)	- Form of Officer's Certificate (Effective Date)


Exhibit 3.2(b)	- Form of Officer's Certificate (Closing Date)


Exhibit 5.1(d)	- Form of Compliance Certificate

LOAN AGREEMENT

THIS LOAN AGREEMENT (this " Agreement ") is made and entered into as of October 31, 2017, by and among SMARTFINANCIAL, INC., a Tennessee corporation (along with its successors and assigns, the " Borrower "), and CAPSTAR BANK, a Tennessee banking corporation, (along with its successors and assigns the " Lender ").

W I T N E S S E T H:

WHEREAS, promptly following the Effective Date, the CBI Merger (as defined herein) shall occur whereby Borrower shall merge with CBI (as defined herein), pursuant to that certain Agreement and Plan of Merger by and among CBI, Capstone (as defined herein), the Borrower and SmartBank (as defined herein) dated as of May 22, 2017 (the " Merger Agreement ");

WHEREAS, in connection with the CBI Merger, and no more than five (5) days following the closing thereof, the Capstone Merger (as defined herein) shall occur whereby Capstone (as defined herein) shall merge with and into SmartBank (as defined herein);

WHEREAS , the Borrower has requested that the Lender, and the Lender has agreed subject to the terms and conditions of this Agreement, to provide a line of credit facility in an original principal amount of up to Fifteen Million Dollars and 00/100 ($15,000,000.00); and

NOW, THEREFORE , in consideration of the premises and the mutual covenants herein contained, the Borrower and the Lender agree as follows:

ARTICLE I. DEFINITIONS; CONSTRUCTION

Section 1.1. Definitions. In addition to the other terms defined herein, the following terms used herein shall have the meanings herein specified (to be equally applicable to both the singular and plural forms of the terms defined):

" Accounting Firm " shall mean Mauldin & Jenkins, LLC, or other independent public accountants of regionally recognized standing or otherwise with the prior written consent of the Lender, not to be unreasonably withheld, conditioned or delayed, and engaged by the Borrower.

" Acquisition " shall mean, other than the CBI Merger and the Capstone Merger, any transaction or a series of related transactions for the purpose of, or resulting, directly or indirectly, in (a) the acquisition of all or substantially all of the assets of a Person, or of any business or division of any Person, (b) the acquisition of greater than 50% of the capital stock, partnership interest, membership interest or other equity interests of any Person, or otherwise causing a Person to become a Subsidiary, or (c) a merger or consolidation of, or any other combination with, another Person (other than a Person that is a Subsidiary), provided that the Borrower or any Subsidiary is the surviving entity.

" Additional Covenant " shall mean any affirmative or negative covenant or similar restriction applicable to the Borrower or any of its Subsidiaries (regardless of whether such provision is labeled or otherwise characterized as a covenant) the subject matter of which either (i) is similar to that of any covenant in Articles V , VI or VII of this Agreement, or related definitions in Section 1.1 of this Agreement, but contains one or more percentages, amounts or formulas that is more restrictive than those set forth herein or more beneficial to the holder or holders of the Indebtedness of the Borrower or its Subsidiaries created or evidenced by the document in which such covenant or similar restriction is contained (and such covenant or similar restriction shall be deemed an Additional Covenant only to the extent that it is more restrictive or more beneficial) or (ii) is different from the subject matter of any covenant in Articles V , VI or VII of this Agreement, or related definitions in Section 1.1 of this Agreement.

" Additional Default " shall mean any provision contained in any document or instrument creating or evidencing Indebtedness of the Borrower or any of its Subsidiaries which permits the holder or holders of such Indebtedness to accelerate (with the passage of time or giving of notice or both) the maturity thereof or otherwise requires the Borrower or any of its Subsidiaries to purchase such Indebtedness prior to the stated maturity thereof and which either (i) is similar to any Default or Event of Default contained in Article VIII of this Agreement, or related definitions in Section 1.1 of this Agreement, but contains one or more percentages, amounts or formulas that is more restrictive or has a shorter grace period than those set forth herein or is more beneficial to the holder or holders of such other Indebtedness (and such provision shall be deemed an Additional Default only to the extent that it is more restrictive or more beneficial) or (ii) is different from the subject matter of any Default or Event of Default contained in Article VIII of this Agreement, or related definitions in Section 1.1 of this Agreement.

" Affiliate " shall mean, as to any Person, any other Person that directly, or indirectly through one or more intermediaries, Controls, is Controlled by, or is under common Control with, such Person.

" Allowance for Loan and Lease Losses " shall mean the total amount of the Financial Institution Subsidiary's allowance for loan and lease losses as reported in Schedule RC of the Call Report.

" Amortization Payment " shall have the meaning given to it in Section 2.5(a)(ii).

" Bank " shall mean SmartBank.

" Borrowing " shall mean a Line of Credit Borrowing.

" Business Day " shall mean (i) any day other than a Saturday, Sunday or other day on which commercial banks in Nashville, Tennessee or New York, New York are authorized or required by law to close.

" Call Report " shall mean, with respect to each Financial Institution Subsidiary, the "Consolidated Reports of Condition and Income" (FFIEC Form 031 or 041 or any successor form of the Federal Financial Institutions Examination Council).

" Capstone " shall mean Capstone Bank, an Alabama chartered commercial bank and wholly-owned subsidiary of CBI.

"Capstone Merger" shall mean the merger of Capstone with and into SmartBank within five (5) days following the closing of the CBI Merger on terms and conditions reasonably acceptable to Lender.

" CBI " shall mean Capstone Bancshares, Inc. an Alabama corporation and the parent of Capstone.

" CBI Merger " means the merger of CBI with and into the Borrower, as more particularly described in Section 5.10 herein.

" Change in Control " shall mean (a) with respect to the Borrower, the occurrence of one or more of the following events: (i) any sale, lease, exchange or other transfer (in a single transaction or a series of related transactions) of all or substantially all of the assets of the Borrower to any Person or "group" (within the meaning of the Securities Exchange Act of 1934 and the rules of the Securities and Exchange Commission thereunder in effect on the date hereof), (ii) other than in connection with the CBI Merger, the acquisition of ownership, directly or indirectly, beneficially or of record, by any Person or "group" (within the meaning of the Securities Exchange Act of 1934 and the rules of the Securities and Exchange Commission thereunder as in effect on the date hereof) of 25% or more of the outstanding shares of the voting stock of the Borrower or (iii) (A) before the CBI Merger, occupation of a majority of the seats (other than vacant seats) on the board of directors of the Borrower by Persons who were neither (1) nominated by the Borrower’s board of directors as constituted as of the Effective Date or (2) appointed by directors so nominated, or (B) after the CBI Merger, a change in any twelve (12) month period of a majority of the seats (other than vacant seats) on the board of directors of the Borrower by Persons who were neither (1) nominated pursuant to the Merger Agreement or (2) appointed by directors so nominated; or (b) the Borrower shall own, directly or indirectly, less than 100% of the voting stock of any Financial Institution Subsidiary.

" Change in Law " shall mean (i) the adoption of any applicable law, rule or regulation after the date of this Agreement, (ii) any change in any applicable law, rule or regulation, or any change in the interpretation or application thereof, by any Governmental Authority after the date of this Agreement, or (iii) compliance by Lender with any request, guideline or directive (whether or not having the force of law) of any Governmental Authority made or issued after the date of this Agreement; provided , however , that notwithstanding anything herein to the contrary, (x) the Dodd-Frank Wall Street Reform and Consumer Protection Act and all requests, rules, guidelines or directives thereunder or issued in connection therewith and (y) all requests, rules, guidelines or directives promulgated by the Bank for International Settlements, the Basel Committee on Banking Supervision (or any successor or similar authority) or the United States regulatory authorities, in each case pursuant to Basel III, shall in each case be deemed to be a "Change in Law," regardless of the date enacted, adopted or issued.

" Code " shall mean the Internal Revenue Code of 1986, as amended and in effect from time to time.

" Compliance Certificate " shall mean a certificate from the Chief Financial Officer or the President of the Borrower in the form of, and containing the certifications set forth in, the certificate attached hereto as Exhibit 5.1(d) .

" Contractual Obligation " of any Person shall mean any provision of any security issued by such Person or of any agreement, instrument or undertaking under which such Person is obligated or by which it or any of the property in which it has an interest is bound.

" Control " shall mean the power, directly or indirectly, to direct or cause the direction of the management and policies of a Person, whether through the ability to exercise voting power, by contract or otherwise. The terms " Controlling ", " Controlled by ", and " under common Control with " have meanings correlative thereto.

" Debt Service Coverage Ratio " shall mean for each Semiannual Period, commencing on December 31, 2017, the net income of the Borrower, plus the interest expenses incurred by the Borrower; divided by the Amortization Payments and all cash interest payments made by the Borrower.

" Default " shall mean any condition or event that, with the giving of notice or the lapse of time or both, would constitute an Event of Default.

" Default Interest " shall have the meaning set forth in Section 2.6(d) .

" Dollar(s) " and the sign " $ " shall mean lawful money of the United States of America.

" Effective Date " shall mean the date on which the conditions precedent set forth in Section 3.1 have been satisfied or waived in accordance with the terms of this Agreement.

" Employee Benefit Plan " shall have that meaning as defined in Section 3(3) of ERISA and for which the Borrower or an ERISA Affiliate maintains, contributes to or has an obligation to contribute to on behalf of participants who are or were employed by the Borrower or its ERISA Affiliates or on behalf of beneficiaries of such participants.

" Environmental Laws " shall mean all laws, rules, regulations, codes, ordinances, orders, decrees, judgments, injunctions, notices or binding agreements issued, promulgated or entered into by or with any Governmental Authority, relating in any way to the environment, preservation or reclamation of natural resources, the management, Release or threatened Release of any Hazardous Material or to health and safety matters.

" Environmental Liability " shall mean any liability, contingent or otherwise (including any liability for damages, costs of environmental investigation and remediation, costs of administrative oversight, fines, natural resource damages, penalties or indemnities), of the Borrower or any Subsidiary directly or indirectly resulting from or based upon (a) any actual or alleged violation of any Environmental Law, (b) the generation, use, handling, transportation, storage, treatment or disposal of any Hazardous Materials, (c) any actual or alleged exposure to any Hazardous Materials, (d) the Release or threatened Release of any Hazardous Materials or (e) any contract, agreement or other consensual arrangement pursuant to which liability is assumed or imposed with respect to any of the foregoing.

" Equity Interests " means shares of capital stock, partnership interests, membership interests in a limited liability company, beneficial interests in a trust or other equity ownership interests in a Person.

" ERISA " shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time, and any successor statute including any regulations promulgated thereunder.

" ERISA Affiliate " shall mean any trade or business (whether or not incorporated), which, together with the Borrower, is treated as a single employer under Section 414(b) or (c) of the Code or, solely for the purposes of Section 303 of ERISA and Section 430 of the Code, is treated as a single employer under Section 414 of the Code.

" ERISA Event " shall mean with respect to the Borrower or any ERISA Affiliate, (i) any "reportable event", as defined in Section 4043 of ERISA with respect to a Plan (other than an event for which the 30-day notice period is waived); (ii) the failure to make required contributions when due to a Multiemployer Plan or Plan or the imposition of a Lien in favor of a Plan under Section 430(k) of the Code or Section 303(k) of ERISA; (iii) the filing pursuant to Section 412(c) of the Code or Section 302(c) of ERISA of an application for a waiver of the minimum funding standard with respect to any Plan; (iv) the imposition of any liability under Title IV of ERISA, other than for PBGC premiums due but not delinquent under Section 4007 of ERISA, or the imposition of a Lien in favor of the PBGC under Title IV of ERISA; (v) the receipt from the PBGC or a plan administrator appointed by the PBGC of any notice relating to an intention to terminate any Plan or Plans or to appoint a trustee to administer any Plan; (vi) any other event or condition that might reasonably be expected to constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan or Multiemployer Plan or for the imposition of liability under Section 4069 or 4212(c) of ERISA; (vii) the incurrence of any liability with respect to the withdrawal or partial withdrawal from any Plan including the withdrawal from a Plan subject to Section 4063 of ERISA during a plan year in which it was a substantial employer, as defined in Section 4001(a)(2) of ERISA, or a cessation of operations that is treated as such a withdrawal under Section 4062(e) of ERISA; (viii) the incurrence of any Withdrawal Liability with respect to any Multiemployer Plan; (ix) the receipt of any notice, concerning the imposition of Withdrawal Liability or a determination that a Multiemployer Plan is, or is expected to be, insolvent (within the meaning of Section 4245 of ERISA) or in reorganization (within the meaning of Section 4241 of ERISA), or in "critical" status (within the meaning of Section 432 of the Code or Section 305 of ERISA); or (x) a determination that a Plan is, or is reasonably expected to be, in "at risk" status (within the meaning of Section 430 of the Code or Section 303 of ERISA).

" Event of Default " shall have the meaning provided in Article VIII .

" Excluded Taxes " shall mean with respect to the Lender or any other recipient of any payment to be made by or on account of any obligation of the Borrower hereunder, (a) income or franchise taxes imposed on (or measured by) its net income by the United States of America, or by the jurisdiction under the laws of which such recipient is organized or in which its principal office is located or its applicable lending office is located and (b) any branch profits taxes imposed by the United States of America or any similar tax imposed by any other jurisdiction in which Lender is located.

" FDIC " shall mean the Federal Deposit Insurance Corporation.

" Financial Institution Subsidiary " shall mean each of (a) those Financial Institution Subsidiaries set forth on Schedule 4.12 and designated as a "Financial Institution Subsidiary" and (b) each other Subsidiary hereafter formed or acquired that is a regulated financial institution.

" Fiscal Quarter " shall mean each fiscal quarter (including the fiscal quarter at the fiscal year-end) of the Borrower and its Subsidiaries.

" Fiscal Year " shall mean each fiscal year of the Borrower and its Subsidiaries.

" FR Y-9 Report " shall mean the "Parent Company Only Financial Statements for Bank Holding Companies-FR Y-9" submitted by the Borrower as required by Section 5(c) of the Bank Holding Company Act (12 U.S.C. 1844) and Section 225.5(b) of Regulation Y (12 CFR 225.5(b)), or any successor or similar replacement report.

" FRB " shall mean the Board of Governors of the Federal Reserve System.

" GAAP " shall mean generally accepted accounting principles in the United States applied on a consistent basis and subject to the terms of Section 1.2 .

" Governmental Authority " shall mean the government of the United States of America, any other nation or any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government, including without limitation, the FRB, the FDIC and any other federal or state agency charged with the supervision or regulation of depositary institutions or holding companies of depositary institutions (as used herein, including any trust company subsidiaries whether or not they take deposits), or engaged in the insurance of depositary institution deposits, or any court, administrative agency or commission or other governmental agency, authority or instrumentality having supervisory or regulatory authority with respect to the Borrower and/or any of its Subsidiaries.

" Hazardous Materials " means all explosive or radioactive substances or wastes and all hazardous or toxic substances, wastes or other pollutants, including petroleum or petroleum distillates, asbestos or asbestos containing materials, polychlorinated biphenyls, radon gas, infectious or medical wastes and all other substances or wastes of any nature regulated pursuant to any Environmental Law.

" Hedging Obligations " of any Person shall mean any and all obligations of such Person, whether absolute or contingent and howsoever and whensoever created, arising, evidenced or acquired under (i) any and all Hedging Transactions, (ii) any and all cancellations, buy backs, reversals, terminations or assignments of any Hedging Transactions and (iii) any and all renewals, extensions and modifications of any Hedging Transactions and any and all substitutions for any Hedging Transactions.

" Hedging Transaction " of any Person shall mean (a) any transaction (including an agreement with respect to any such transaction) now existing or hereafter entered into by such Person that is a rate swap transaction, swap option, basis swap, forward rate transaction, commodity swap, commodity option, equity or equity index swap or option, bond option, interest rate option, foreign exchange transaction, cap transaction, floor transaction, collar transaction, currency swap transaction, cross-currency rate swap transaction, currency option, spot transaction, credit protection transaction, credit swap, credit default swap, credit default option, total return swap, credit spread transaction, repurchase transaction, reverse repurchase transaction, buy/sell-back transaction, securities lending transaction, or any other similar transaction (including any option with respect to any of these transactions) or any combination thereof, whether or not any such transaction is governed by or subject to any master agreement and (b) any and all transactions of any kind, and the related confirmations, which are subject to the terms and conditions of, or governed by, any form of master agreement published by the International Swaps and Derivatives Association, Inc., any International Foreign Exchange Master Agreement, or any other master agreement (any such master agreement, together with any related schedules, a "Master Agreement"), including any such obligations or liabilities under any Master Agreement.

" Indebtedness " of any Person shall mean, without duplication (i) all obligations of such Person for borrowed money, (ii) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (iii) all obligations of such Person in respect of the deferred purchase price of property or services (other than trade payables incurred in the ordinary course of business; provided, that for purposes of Section 8.1(f) , trade payables overdue by more than 90 days shall be included in this definition except to the extent that any of such trade payables are being disputed in good faith and by appropriate measures), (iv) all obligations of such Person under any conditional sale or other title retention agreement(s) relating to property acquired by such Person, (v) all obligations of such Person under capital leases and all monetary obligations of such Person under Synthetic Leases, (vi) all obligations, contingent or otherwise, of such Person in respect of letters of credit, acceptances or similar extensions of credit, (vii) all guarantees by such Person of Indebtedness of others, (viii) all Indebtedness of a third party secured by any Lien on property owned by such Person, whether or not such Indebtedness has been assumed by such Person, (ix) all obligations of such Person, contingent or otherwise, to purchase, redeem, retire or otherwise acquire for value any capital stock of such Person, (x) all Hedging Obligations of such Person; and (xi) all obligations of such Person in respect of any trust preferred securities, preferred equity or other types of hybrid capital securities issued by such Person.

" Indemnified Taxes " shall mean Taxes other than Excluded Taxes.

"Interest Coverage Ratio" shall mean for each Semiannual Period, commencing on December 31, 2017, the net income of the Borrower, plus the interest expenses incurred by the Borrower; divided by all cash interest payments made by the Borrower.

" Interest Period " shall mean a period of one Fiscal Quarter, provided that:

(i) the initial Interest Period for the Loans shall commence on the Effective Date and terminate on December 31, 2017. Each Interest Period occurring thereafter shall commence on the day on which the next preceding Interest Period expires;

(ii) if any Interest Period would otherwise end on a day other than a Business Day, such Interest Period shall be extended to the next succeeding Business Day, unless such Business Day falls in another calendar month, in which case such Interest Period would end on the next preceding Business Day;

(iii) any Interest Period which begins on the last Business Day of a calendar month or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period shall end on the last Business Day of such calendar month; and

(iv) no Interest Period may extend beyond the Maturity Date.

" Investments " shall have the meaning set forth in Section 7.6 hereof.

" Lender " shall have the meaning assigned to such term in the opening paragraph of this Agreement.

" Lien " shall mean any mortgage, pledge, security interest, lien (statutory or otherwise), charge, encumbrance, hypothecation, assignment, deposit arrangement, or other arrangement having the practical effect of the foregoing or any preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including any conditional sale or other title retention agreement and any capital lease having the same economic effect as any of the foregoing).

" Line of Credit Borrowing " shall mean any borrowing of the Line of Credit Facility.

" Line of Credit Closing Date " shall mean the date on which the conditions precedent set forth in Section 3.2 have been satisfied or waived in accordance with the terms of this Agreement, provided that no Line of Credit Closing Date shall occur after the Line of Credit Termination Date.

" Line of Credit Commitment " shall mean the Lender's obligation to make Loans constituting Line of Credit Borrowings of up to Maximum Line of Credit Amount.

" Line of Credit Facility " shall have the meaning set forth in Section 2.1(a) .

" Line of Credit Note " shall mean a promissory note of the Borrower in substantially the form of Exhibit A .

" Line of Credit Termination Date " means January 15, 2019.

" Liquidity Ratio " shall mean the Financial Institution Subsidiary's cash and balances due from depository institutions as reported on Schedule RC of the Call Report, plus securities as reported on Schedule RC of the Call Report, plus federal funds sold and securities purchased under agreements to resell as reported on Schedule RC of the Call Report, plus trading assets as reported on Schedule RC of the Call Report, less pledged securities as reported on Schedule RC-B of the Call Report; divided by the total liabilities as reported on Schedule RC of the Call Report.

" Loan " shall mean any extension of credit by the Lender to the Borrower under Article II in the form of a Line of Credit Borrowing.

" Loan Closing Statement " shall mean that certain Loan Closing Statement dated the date hereof, between the Borrower and the Lender.

" Loan Documents " shall mean, collectively, this Agreement, the Line of Credit Note, and any and all other instruments, agreements, documents and writings executed in connection with any of the foregoing.

" Material Adverse Effect " shall mean, with respect to any event, act, condition or occurrence of whatever nature (including any adverse determination in any litigation, arbitration, or governmental investigation or proceeding), whether singly or in conjunction with any other event or events, act or acts, condition or conditions, occurrence or occurrences whether or not related, a material adverse change in, or a material adverse effect on, (i) the business, results of operations, financial condition, assets or liabilities of the Borrower and its Subsidiaries taken as a whole, (ii) the ability of the Borrower to perform any of its material obligations under the Loan Documents, (iii) the rights and remedies of Lender under any of the Loan Documents or (iv) the legality, validity or enforceability of any of the Loan Documents.

" Maturity Date " shall mean October 15, 2022.

" Maximum Line of Credit Amount " means Fifteen Million US Dollars ($15,000,000).

" Multiemployer Plan " shall have the meaning set forth in Section 4001(a)(3) of ERISA.

" Net Mark-to-Market Exposure " of any Person shall mean, as of any date of determination with respect to any Hedging Obligation, the excess (if any) of all unrealized losses over all unrealized profits of such Person arising from such Hedging Obligation. "Unrealized losses" shall mean the fair market value of the cost to such Person of replacing the Hedging Transaction giving rise to such Hedging Obligation as of the date of determination (assuming the Hedging Transaction were to be terminated as of that date), and "unrealized profits" means the fair market value of the gain to such Person of replacing such Hedging Transaction as of the date of determination (assuming such Hedging Transaction were to be terminated as of that date).

" Nonperforming Assets " shall mean the sum of (a) Nonperforming Loans, and (b) Other Real Estate Owned.

" Nonperforming Loans " shall mean the sum of (a) nonaccrual loans and lease financing receivables (as determined by reference to Schedule RC-N of the Financial Institution Subsidiary's Call Report) and (b) loans and lease financing receivables that are contractually past due 90 days or more as to interest or principal and are still accruing interest (as determined by reference to Schedule RC-N of the Financial Institution Subsidiary's Call Report).

" Notice of Borrowing " shall have the meaning set forth in Section 2.2 .

" Obligations " shall mean all indebtedness, obligations, liabilities and other amounts owing by the Borrower to the Lender and, only with respect to Hedging Transactions, any Affiliate of the Lender, pursuant to or in connection with (a) this Agreement or any other Loan Document, including without limitation, all principal, interest (including any interest accruing after the filing of any petition in bankruptcy or the commencement of any insolvency, reorganization or like proceeding relating to the Borrower, whether or not a claim for post-filing or post-petition interest is allowed in such proceeding), all reimbursement obligations under letters of credit, all Hedging Obligations of the Borrower, fees, expenses, indemnification and reimbursement payments, costs and expenses (including all fees and expenses of counsel to Lender incurred pursuant to this Agreement or any other Loan Document), whether direct or indirect, absolute or contingent, liquidated or unliquidated, now existing or hereafter arising hereunder or thereunder, together with all renewals, extensions, modifications or refinancings thereof and (b) any agreement governing the provision to the Borrower or any Subsidiary of treasury or cash management services.

" Other Real Estate Owned " shall mean the sum of real estate acquired in satisfaction of debts through foreclosure as reported on Schedule RC-M of the Call Report.

" Other Taxes " shall mean any and all present and future stamp, court, intangible, recording, filing or documentary taxes or any other property taxes, charges or similar levies arising from any payment made by, or on behalf of, the Borrower hereunder or from the execution, delivery or enforcement of, or otherwise with respect to, this Agreement or any other Loan Documents.

" Participant " shall have the meaning set forth in Section 10.4(c) .

" Payment Office " shall mean the office of the Lender located at 201 4 ^th Avenue North, Suite 950, Nashville, Tennessee 37219, or such other location as to which the Lender shall have given written notice to the Borrower.

" PBGC " shall mean the Pension Benefit Guaranty Corporation referred to and defined in ERISA, and any successor entity performing similar functions.

" Permitted Encumbrances " shall mean

(i) Liens imposed by law for taxes not yet due or which are being contested in good faith by appropriate proceedings and with respect to which adequate reserves are being maintained in accordance with GAAP;

(ii) statutory Liens of landlords and Liens of carriers, warehousemen, mechanics, materialmen and other Liens imposed by law created in the ordinary course of business for amounts not yet due or which are being contested in good faith by appropriate proceedings and with respect to which adequate reserves are being maintained in accordance with GAAP;

(iii) pledges and deposits made in the ordinary course of business in compliance with workers' compensation, unemployment insurance and other social security laws or regulations and Liens arising by statute in connection with worker's compensation, unemployment insurance, old age benefits, social security obligations, taxes, assessments, statutory obligations or other similar charges, good faith cash deposits in connection with tenders, contracts or leases to which the Borrower or any of its Subsidiaries is a party or other cash deposits in any such foregoing case that is required to be made in the ordinary course of business, provided in each case that the obligation is not for borrowed money and that the obligation secured is not overdue or, if overdue, is being contested in good faith by appropriate proceedings which prevent enforcement of the matter under contest and adequate reserves have been established therefor;

(iv) deposits to secure the performance of bids, trade contracts, leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature, in each case in the ordinary course of business;

(v) judgment and attachment Liens not giving rise to an Event of Default or Liens created by or existing from any litigation or legal proceeding that are currently being contested in good faith by appropriate proceedings and with respect to which adequate reserves are being maintained in accordance with GAAP;

(vi) easements, zoning restrictions, rights-of-way and similar encumbrances on real property imposed by law or arising in the ordinary course of business that do not secure any monetary obligations and do not materially detract from the value of the affected property or materially interfere with the ordinary conduct of business of the Borrower and its Subsidiaries taken as a whole;

(vii) Liens, charges and encumbrances incidental to the conduct of the business of the Financial Institution Subsidiaries incurred in the ordinary course of business and consistent with past practices;

(viii) Liens to secure public funds or other pledges of funds required by law to secure deposits; and

(ix) repurchase agreements, reverse repurchase agreements and other similar transactions entered into by any Financial Institution Subsidiary in the ordinary course of its banking, deposit or trust business;

provided , that the term "Permitted Encumbrances" shall not include any Lien securing Indebtedness.

" Permitted Financial Institution Subsidiary Indebtedness " means obligations incurred by any Financial Institution Subsidiary in the ordinary course of business in such circumstances as may be incidental or usual in carrying on the banking or trust or mortgage business of a bank, thrift, trust company, or mortgage company incurred in accordance with applicable laws and regulations and safe and sound practices, including obligations incurred in connection with: (a) any deposits with or funds collected by such Subsidiary; (b) the endorsement of instruments for deposit or collection in the ordinary course of business, (c) any bankers acceptance credit of such Subsidiary; (d) any check, note, certificate of deposit, money order, traveler's check, draft or bill of exchange issued, accepted or endorsed by such Subsidiary or letter of credit issued by such Subsidiary; (e) any discount with, borrowing from, or other obligation to, any Federal Reserve Bank or any Federal Home Loan Bank; (f) any agreement made by such Subsidiary to purchase or repurchase securities, loans or Federal funds or any interest or participation in any thereof; (g) any guarantee, indemnity or similar obligation incurred by such Subsidiary in the ordinary course of its banking or trust business and consistent with past practices; (h) any transaction in the nature of an extension of credit, whether in the form of a commitment or otherwise, undertaken by such Subsidiary for the account of a third party with the application of the same banking considerations and legal lending limits that would be applicable if the transaction were a loan to such party; (i) any transaction in which such Subsidiary acts solely in the fiduciary or agency capacity; (j) other short-term liabilities similar to those enumerated in clauses (a) and (f) above, including United States Treasury tax and loan borrowings, (k) any Hedging Obligations or other obligations or liabilities relating to Hedging Transactions entered into by such Subsidiary in connection with facilitating the hedging risk of a customer of such Subsidiary or another Financial Institution Subsidiary, but excluding any Hedging Obligations or other obligations or liabilities relating to Hedging Transactions entered into for speculative purposes or that are speculative in nature, (l) any Indebtedness of one Financial Institution Subsidiary to another Financial Institution Subsidiary and (m) any Indebtedness of such Subsidiary relating to letters of credit issued or confirmed by a third party financial institution for the account of such Subsidiary for the ultimate account of such Subsidiary's customer.

" Person " shall mean any individual, partnership, firm, corporation, association, joint venture, limited liability company, trust or other entity, or any Governmental Authority.

" Plan " shall mean any Employee Benefit Plan (other than a Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section 412 of the Code or Section 302 of ERISA, and in respect of which the Borrower or any ERISA Affiliate either (i) maintains, contributes to or has an obligation to contribute to on behalf of participants who are or were employed by any of them (or on behalf of beneficiaries of such participants) or (ii) is (or, if such plan were terminated, would under Section 4069 of ERISA be deemed to be) an "employer" as defined in Section 3 (5) of ERISA or a "contributing sponsor" (as defined in ERISA Section 4001(a)(13)).

" Pledged Stock " shall mean all of the Equity Interests of the Bank registered on the stock transfer records of the Bank in the name of the Borrower (including, for the avoidance of doubt, all of the Equity Interests of SmartBank as pledged by Borrower in favor of Lender pursuant to those certain Stock Pledge and Security Agreements dated as of August 28, 2015, and September 1, 2015) and the Stock Pledge and Security Agreement dated as of even date herewith.

" Prime Rate " shall mean the rate of interest per annum publicly announced from time to time by Lender as its base rate in effect for dollars at its principal office in Nashville, Tennessee; each change in the Prime Rate shall be effective from and including the date such change is publicly announced as being effective.

" Qualified Plan " shall mean an Employee Benefit Plan that is intended to be tax-qualified under Section 401(a) of the Code.

" Release " means any release, spill, emission, leaking, dumping, injection, pouring, deposit, disposal, discharge, dispersal, leaching or migration into the environment (including ambient air, surface water, groundwater, land surface or subsurface strata) or within any building, structure, facility or fixture.

" Responsible Officer " shall mean any of the president, the chief executive officer, the chief operating officer, the chief financial officer or the treasurer of the Borrower or such other representative of the Borrower as may be designated in writing by any one of the foregoing with the consent of the Lender; and, with respect to the financial covenants only, the chief financial officer, controller or the treasurer of the Borrower.

" Restricted Payment " shall have the meaning set forth in Section 7.4 .

" Return on Average Assets " shall mean net income as reported on Schedule RI of the Call Report; divided by average total assets for the period as reported on Schedule RC-K of the Call Report.

" RICO Related Law " shall mean the Racketeer Influenced and Corrupt Organizations Act of 1970 or any other federal, state or local law for which forfeiture of assets is a potential penalty.

" Semiannual Period " shall mean the six month period ending on June 30 or the twelve month period ending on December 31, respectively.

" Senior Management " shall mean the Chief Executive Officer, the Chief Financial Officer, Chief Credit Officer or Chief Loan Officer of the Borrower or SmartBank as applicable.

" SmartBank " shall mean SmartBank, a Tennessee chartered commercial bank and wholly-owned subsidiary of SmartFinancial.

" SmartFinancial " means SmartFinancial, Inc. a Tennessee corporation.

" Stock Pledge and Security Agreement " shall mean that certain Stock Pledge and Security Agreement, dated as of even date herewith, by and between Borrower as pledgor in favor of Lender.

" Subsidiary " shall mean, with respect to any Person (the " parent "), any corporation, partnership, joint venture, limited liability company, association or other entity the accounts of which would be consolidated with those of the parent in the parent's consolidated financial statements if such financial statements were prepared in accordance with GAAP as of such date, as well as any other corporation, partnership, joint venture, limited liability company, association or other entity (i) of which securities or other ownership interests representing more than 50% of the equity or more than 50% of the ordinary voting power, or in the case of a partnership, more than 50% of the general partnership interests are, as of such date, owned, Controlled or held, or (ii) that is, as of such date, otherwise Controlled, by the parent or one or more subsidiaries of the parent or by the parent and one or more subsidiaries of the parent. Unless otherwise indicated, all references to "Subsidiary" under this Agreement shall mean a Subsidiary of the Borrower.

" Synthetic Lease " of any Person shall mean (a) a lease designed to have the characteristics of a loan for federal income tax purposes while obtaining operating lease treatment for financial accounting purposes, or (b) an agreement for the use or possession of property creating obligations that are not required to appear on the balance sheet of such Person but which, upon the insolvency or bankruptcy of such Person would be characterized by a court of competent jurisdiction as indebtedness of such Person.

" Tangible Equity " shall mean the total equity capital as reported on Schedule RC of the Call Report, less any intangible assets as reported on Schedule RC of the Call Report.

" Taxes " means all present or future taxes, levies, imposts, duties, deductions, withholdings, assessments, fees or other charges imposed by any Governmental Authority, including any interest, additions to tax or penalties applicable thereto.

" Term Loan " shall mean the amount of the Line of Credit Borrowings then outstanding as of the Line of Credit Termination Date which shall be converted into a term loan as of the Term Loan Commencement Date.

" Term Loan Commencement Date " shall mean January 16, 2019.

" Texas Ratio " shall mean (i) Nonperforming Assets divided by (ii) the sum of Tangible Equity plus the Allowance for Loan and Lease Losses.

" Total Assets " shall mean the total amount of the Financial Institution Subsidiary's assets as reported on Schedule RC of the Call Report.

" Withdrawal Liability " shall mean liability to a Multiemployer Plan as a result of a complete or partial withdrawal from such Multiemployer Plan, as such terms are defined in Part I of Subtitle E of Title IV of ERISA.

Section 1.2. Accounting Terms and Determination. Unless otherwise defined or specified herein, all accounting terms used herein shall be interpreted, all accounting determinations hereunder shall be made, and all financial statements required to be delivered hereunder shall be prepared, in accordance with GAAP as in effect from time to time, applied on a basis consistent (except for such changes approved by the Borrower's independent public accountants) with the most recent audited consolidated financial statement of the Borrower delivered pursuant to Section 5.1(a) ; provided , that if the Borrower notifies the Lender that the Borrower wishes to amend any covenant in Article VI to eliminate the effect of any change in GAAP on the operation of such covenant (or if the Lender notifies the Borrower that the Lender wishes to amend Article VI for such purpose), then the Borrower's compliance with such covenant shall be determined on the basis of GAAP in effect immediately before the relevant change in GAAP became effective, until either such notice is withdrawn or such covenant is amended in a manner satisfactory to the Borrower and the Lender.

Section 1.3. Terms Generally. The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. The words "include", "includes" and "including" shall be deemed to be followed by the phrase "without limitation." In the computation of periods of time from a specified date to a later specified date, the word "from" means "from and including" and the word "to" means "to but excluding." Unless the context requires otherwise (i) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as it was originally executed or as it may from time to time be amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein), (ii) any reference herein to any Person shall be construed to include such Person's successors and permitted assigns, (iii) the words "hereof," "herein" and "hereunder" and words of similar import shall be construed to refer to this Agreement as a whole and not to any particular provision hereof, (iv) all references to Articles, Sections, Exhibits and Schedules shall be construed to refer to Articles, Sections, Exhibits and Schedules to this Agreement and (v) all references to a specific time shall be construed to refer to Nashville, Tennessee time, unless otherwise indicated.

ARTICLE II. AMOUNT AND TERMS OF THE LOANS

Section 2.1. Commitment.

(a) Subject to the terms and conditions set forth herein, including, without limitation, satisfaction of the conditions set forth in Section 3.1 and Section 3.2 , the Lender agrees that it will fund a line of credit facility (the " Line of Credit Facility ") to the Borrower in an aggregate maximum principal amount of up to the Line of Credit Commitment.

(b) Reserved .

Section 2.2. Procedure for Borrowings . From the Effective Date through and including the Line of Credit Termination Date, the Borrower may borrow any Borrowing on any Business Day, provided that the Borrower shall give the Lender irrevocable telephonic notice confirmed promptly in writing in the form of Exhibit 2.2 attached hereto (the " Notice of Borrowing "), which telephonic notice must be received by the Lender prior to 11:00 a.m., Nashville, Tennessee time, on the date of the Borrowing, specifying (i) the type of Borrowing (e.g., Line of Credit Borrowing), (ii) the amount of the Borrowing, (iii) the requested Line of Credit Closing Date (which shall be a Business Day), and (iv) the account of the Borrower to which the proceeds of the Borrowing should be credited.

Section 2.3. Funding of Borrowings. Subject to the terms and conditions herein, the Lender will make available the Borrowing to the Borrower on each Line of Credit Closing Date promptly crediting the proceeds of the Borrowing by the close of business on such date, to an account maintained by the Borrower with the Lender as set forth in the Notice of Borrowing.

Section 2.4. Reserved.

Section 2.5. Repayment and Prepayments of Borrowings.

(a) Line of Credit Facility

(i) Interest on the Line of Credit shall be due quarterly fifteen (15) calendar days after the end of each Fiscal Quarter of Borrower, beginning January 15, 2017, as more particularly set forth in Section 2.6(e ) hereof.

(ii) In addition to the interest payments due and payable under Section 2.5(a)(i) above, on the Term Loan Commencement Date, the Borrower shall, subject to adjustment for the actual amount of the Term Loan as set forth in the following paragraph, make quarterly principal amortization payments of principal on the following dates and in the following amounts (such payments, the " Amortization Payments "):



Amortization Payment Date	Amortization Payment
January 15, April 15, July 15 and October 15 of 2019	$262,500 each
January 15, April 15, July 15 and October 15 of 2020	$287,500 each
January 15, April 15, July 15 and October 15 of 2021	$312,500 each
January 15, April 15, July 15 of 2022	$337,500 each

The Amortization Payments set forth above are based on the assumption that the Term Loan is equal to the Maximum Line of Credit Amount as of the Term Loan Commencement Date. If the Line of Credit Borrowings as of the Term Loan Commencement Date are less than the Maximum Line of Credit Amount, the Amortization Payments shall be reduced by Lender on a pro-rata basis relative to the Maximum Line of Credit Amount.

Any remaining outstanding principal amount of the Term Loan shall be due and payable (together with accrued and unpaid interest thereon) on the Maturity Date. All payments in respect of a Line of Credit Loan and Term Loan shall be applied first to accrued interest and the balance, if any, to principal.

(iii) Provided no Default or Event of Default is in existence hereunder, and subject to the satisfaction of the conditions in Section 3.2 , Borrower may obtain a Line of Credit Borrowing, repay without penalty or premium and reborrow under the Line of Credit Facility, from the date of this Agreement through the Line of Credit Termination Date. After the Line of Credit Termination Date, no advances of the Line of Credit Facility may be reborrowed.

(iv) The Borrower shall have the right at any time and from time to time to prepay the Loan, in whole or in part, without premium or penalty, and solely with respect to prepayments in excess of $150,000, by giving irrevocable written notice to the Lender no later than three (3) Business Days prior to any such prepayment. Each such notice shall be irrevocable and shall specify the proposed date of such prepayment and the principal amount of the Loan to be prepaid. If such notice is given, the aggregate amount specified in such notice shall be due and payable on the date designated in such notice, together with accrued interest to such date on the amount so prepaid in accordance with Section 2.15(a) .

(b) Reserved .

Section 2.6. Interest on Borrowings.

(a) The Borrower shall pay interest on the Line of Credit Borrowings and converted Term Loan for the applicable Interest Period at the Prime Rate minus 0.25%, subject to a floor of 3.50%.

(b) Reserved .

(d) Following the occurrence of an Event of Default, and in any event after acceleration, the Borrower shall pay interest (" Default Interest ") at the rate otherwise applicable for the then-current Interest Period plus an additional 2% per annum until the last day of such Interest Period.

(e) Interest on the Line of Credit Borrowings shall accrue from and include its respective Line of Credit Closing Date but exclude the date of any repayment thereof (or portion thereof). Prior to the Line of Credit Termination Date, interest shall be payable in arrears on the date which is the fifteenth calendar (15 ^th ) day following the end of each Interest Period applicable thereto, and in any case on the Maturity Date. All Default Interest shall be payable on demand.

Section 2.7. Late Payment Fee. If a payment of principal or interest with respect to a Line of Credit Borrowing or an Amortization Payment is ten (10) or more days late, then the Borrower shall pay the greater of (i) 5% of the unpaid portion of such regularly scheduled payment or (ii) $15.00.

Section 2.8. Computation of Interest and Fees. All computations of interest and fees hereunder shall be made on the basis of a year of 360 days for the actual number of days (including the first day but excluding the last day) occurring in the period for which such interest or fees are payable (to the extent computed on the basis of days elapsed). Each determination by the Lender of an interest amount or fee hereunder shall be made in good faith and, except for manifest error, shall be final, conclusive and binding for all purposes.

Section 2.9. Closing Fee. No later than 30 days after the Effective Date, the Borrower shall pay to Lender a fully earned and non-refundable closing fee of $2,500 in immediately available funds.

Section 2.10. Evidence of Indebtedness. Lender shall maintain in accordance with its usual practice appropriate records evidencing the Indebtedness of the Borrower to Lender resulting from the Loans made or held by Lender from time to time, including the amounts of principal and interest payable thereon and paid to Lender from time to time under this Agreement. The entries made in such records shall be prima facie evidence (absent manifest error) of the existence and amounts of the obligations of the Borrower therein recorded; provided , that the failure or delay of Lender in maintaining or making entries into any such record or any error therein shall not in any manner affect the obligation of the Borrower to repay the Loans (both principal and unpaid accrued interest) in accordance with the terms of this Agreement. On the Effective Date, the Borrower will execute and deliver a Line of Credit Note to the Lender.

Section 2.11. Reserved.

Section 2.12. Reserved.

Section 2.13. Reserved.

Section 2.14. Taxes.

(a) Any and all payments by or on account of any Obligation of the Borrower under this Agreement shall be made free and clear of and without deduction for any Indemnified Taxes or Other Taxes; provided , that if the Borrower shall be required to deduct any Indemnified Taxes or Other Taxes from such payments, then (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section) the Lender shall receive an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower shall make such deductions and (iii) the Borrower shall pay the full amount deducted to the relevant Governmental Authority in accordance with applicable law.

(b) In addition, the Borrower shall pay any Other Taxes to the relevant Governmental Authority in accordance with applicable law.

(c) The Borrower shall indemnify the Lender, within thirty (30) Business Days after written demand therefor, for the full amount of any Indemnified Taxes or Other Taxes paid by the Lender on or with respect to any payment by or on account of any Obligation of the Borrower hereunder (including Indemnified Taxes or Other Taxes imposed or asserted on or attributable to amounts payable under this Section) and any penalties, interest and reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes or Other Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability, together with reasonable evidence of such payment, as applicable, delivered to the Borrower by Lender shall be conclusive absent manifest error.

(d) As soon as practicable after any payment of Indemnified Taxes or Other Taxes by the Borrower to a Governmental Authority, the Borrower shall deliver to the Lender the original or a certified copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to the Lender.

(e) Reserved .

Section 2.15. Payments Generally .

(a) The Borrower shall make each payment required to be made by it hereunder (whether of principal, interest or fees or of amounts payable under Section 2.5 , Section 2.6 or Section 2.7 or otherwise) prior to 1:00 p.m., Nashville, Tennessee time, on the date when due, in immediately available funds, without set-off or counterclaim. Any amounts received after such time on any date may, in the discretion of the Lender, be deemed to have been received on the next succeeding Business Day for purposes of calculating interest thereon. All such payments shall be made to the Lender at the Payment Office, except that payments pursuant to Section 10.3 shall be made directly to the Persons entitled thereto. If any payment hereunder shall be due on a day that is not a Business Day, the date for payment shall be extended to the next succeeding Business Day, and, in the case of any payment accruing interest, interest thereon shall be made payable for the period of such extension. All payments hereunder shall be made in Dollars.

(b) If at any time insufficient funds are received by and available to the Lender to pay fully all amounts of principal, interest and fees then due hereunder, such funds shall be applied first, towards payment of interest and fees then due hereunder and second, towards payment of principal then due hereunder.

Section 2.16. Mitigation of Obligations .

(a) If the Borrower is required to pay any additional amount to Lender or any Governmental Authority for the account of Lender pursuant to Section 2.14 , then Lender shall use reasonable efforts to designate a different lending office for funding or booking its portion of the Loans hereunder or to assign its rights and obligations hereunder to another of its offices, branches or affiliates, if, in the reasonable credit judgment of Lender, such designation or assignment (i) would eliminate or reduce amounts payable under Section 2.14 in the future and (ii) would not subject Lender to any unreimbursed cost or expense and would not otherwise be disadvantageous to Lender. The Borrower hereby agrees to pay all costs and expenses incurred by Lender in connection with such designation or assignment.

ARTICLE III. CONDITIONS PRECEDENT TO EFFECTIVENESS

Section 3.1. Conditions To Effectiveness. This Agreement shall not become effective until the date on which each of the following conditions is satisfied (or waived in accordance with Section 10.2 ).

(a) The Lender shall have received all fees and other amounts due and payable on or prior to the Effective Date, including reimbursement or payment of all out-of-pocket expenses (including reasonable fees, charges and disbursements of counsel to the Lender) required to be reimbursed or paid by the Borrower hereunder or under any other Loan Document.

(b) The Lender (or its counsel) shall have received the following, each in form and substance satisfactory to the Lender:

(i) a counterpart of this Agreement signed by or on behalf of each party hereto;

(ii) a duly executed Line of Credit Note payable to the Lender;

(iii) a duly executed Stock Pledge and Security Agreement;

(iv) a duly executed Loan Closing Statement;

(v) a certificate of a Responsible Officer, attaching and certifying copies of Borrower’s bylaws and of the resolutions of Borrower’s board of directors, authorizing the execution, delivery and performance of the Loan Documents and certifying the name, title and true signature of each officer of the Borrower executing the Loan Documents;

(vi) (a) certified copies of the charter of the Borrower and CBI, together with certificates of good standing or existence, as may be available from the Secretary of State of the jurisdiction of incorporation of the Borrower and CBI and each other jurisdiction where the Borrower and CBI are required to be qualified to do business as foreign corporations, and (b) certificates of good standing or existence with respect to each Subsidiary of the Borrower and CBI (which shall include, in any event, each Financial Institution Subsidiary), as may be available from the Secretary of State of the jurisdiction of incorporation of each such Subsidiary and each other jurisdiction where such Subsidiary is required to be qualified to do business as a foreign corporation;

(vii) a certificate in the form of Exhibit 3.1(b)(vii) , dated the Effective Date and signed by a Responsible Officer, certifying that (a) no Default or Event of Default exists, (b) all representations and warranties of the Borrower as set forth in the Loan Documents are true and correct on and as of the Effective Date, (c) since December 31, 2016, there shall have been no change, event or other circumstance which has had or could reasonably be expected to have a Material Adverse Effect and (d) no consents, approvals, authorizations, registrations, filings or orders of the type described in Section 3.1(b)(viii) below are required to be made or obtained in connection with the execution, delivery, performance, validity and enforceability of the Loan Documents or any transaction contemplated thereby;

(viii) certified copies of all consents, approvals, authorizations, registrations and filings and orders required to be made or obtained under any applicable laws (other than such as may be required by or under the Securities Exchange Act of 1934, as amended), or by any Contractual Obligation of the Borrower, in connection with the execution, delivery, performance, validity and enforceability of the Loan Documents or any of the transactions contemplated hereby or thereby, and such consents, approvals, authorizations, registrations, filings and orders shall be in full force and effect and all applicable waiting periods shall have expired, and no investigation or inquiry by any Governmental Authority regarding the Loans or any transaction being financed with the proceeds thereof shall be ongoing;

(ix) copies of (A) the FR Y-9 Report for the period ending December 31, 2016; (B) the Call Report for the period ended June 30, 2017; and (C) the audited consolidated financial statements for Borrower and its Subsidiaries for the Fiscal Year ending December 31, 2016;

(x) the results of recent lien searches from the Secretary of State in respect of the Borrower and CBI, and such searches shall reveal no Liens of record other than Liens expressly permitted pursuant to Section 7.2 ;

(xi) the Merger Agreement;

(xii) such other documents, agreements and instruments as the Lender may reasonably request.

Section 3.2. Line of Credit Borrowing. The obligation of the Lender to make a Line of Credit Borrowing under this Agreement is subject to the satisfaction of the following conditions:

(a) all of the conditions set forth in Section 3.1 shall have been satisfied;

(b) a certificate in the form of Exhibit 3.2(b) , dated the Line of Credit Closing Date and signed by a Responsible Officer, certifying that (x) at the time of and immediately after giving effect to the Borrowing, no Default or Event of Default exists, (y) all representations and warranties of the Borrower set forth in the Loan Documents are true and correct on and as of the Line of Credit Closing Date (except for representations and warranties expressly made as of a prior date, which such representations and warranties shall be true and correct in all material respects as of such date) and (z) since the date of the delivery of the last audited financial statements there shall have been no change, event or other circumstance which has had or could reasonably be expected to have a Material Adverse Effect;

(c) no legislation has been passed or any suit, challenge, claim or other proceeding has been instituted the effect of which is to prohibit, enjoin (or to declare unlawful or improper) or otherwise adversely affect, in the Lender's reasonable discretion, the Borrower's performance of its obligations hereunder, and no litigation or governmental proceeding has been instituted or threatened against the Borrower or any Financial Institution Subsidiary or any of their officers or shareholders which could reasonably be expected to have a Material Adverse Effect;

(d) the Lender shall have received a duly executed Notice of Borrowing in accordance with Section 2.2 hereof;

(e) the Lender shall have received a duly completed and executed Compliance Certificate calculated as of the end of the most recent Fiscal Quarter (giving pro forma effect to the funding of, and the use of any Borrowings funded on such Line of Closing Date), as required in this Agreement; and

(f) the Lender shall have received such other documents, certificates, information or legal opinions as it may reasonably request, all in form and substance reasonably satisfactory to the Lender.

The delivery by the Borrower of the Notice of Borrowing shall be deemed to constitute a representation and warranty by the Borrower on the date thereof as to the matters specified in paragraphs (a), (b), (c), (d), (e) and (f), of this Section 3.2 .

Section 3.3. Reserved.

ARTICLE IV. REPRESENTATIONS AND WARRANTIES

The Borrower represents and warrants to Lender as follows:

Section 4.1. Existence; Power. Each of the Borrower and its Subsidiaries (i) is duly organized and validly existing as a corporation, bank or other entity, as the case may be, under the laws of the jurisdiction of its organization, (ii) has all requisite power and authority to carry on its business as now conducted, and (iii) is duly qualified to do business, and is in good standing, in each jurisdiction where such qualification is required, except where a failure to be so qualified could not reasonably be expected to result in a Material Adverse Effect.

Section 4.2. Organizational Power; Authorization. The Borrowing, and the execution, delivery and performance by the Borrower of each of the Loan Documents are within the Borrower's corporate powers and have been duly authorized by all necessary corporate, and if required, stockholder, action. This Agreement has been duly executed and delivered by the Borrower and constitutes, and each other Loan Document when executed and delivered by the Borrower will constitute, valid and binding obligations of the Borrower, enforceable against it in accordance with their respective terms, except as may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws affecting the enforcement of creditors' rights generally and by general principles of equity.

Section 4.3. Governmental Approvals; No Conflicts. The execution, delivery and performance by the Borrower of this Agreement and the other Loan Documents (a) do not require any consent or approval of, registration or filing with, or any action by, any Governmental Authority, except those as have been obtained or made and are in full force and effect and except such as may be required by or under the Securities Exchange Act of 1934, as amended, or the rules and regulations thereunder, (b) will not violate any applicable law or regulation or the charter or by-laws of the Borrower or any order of any Governmental Authority binding upon Borrower, (c) will not violate or result in a default under any indenture, material agreement or other material instrument binding on the Borrower or any of its Subsidiaries or any of their respective assets or give rise to a right thereunder to require any payment to be made by the Borrower or any such Subsidiary and (d) other than the Pledged Stock and the Liens created in connection with the execution and delivery of the Loan Documents, will not result in the creation or imposition of any Lien on any asset of the Borrower or any Subsidiary. All necessary regulatory approvals have been obtained for the Borrower and its Subsidiaries to conduct their respective businesses.

Section 4.4. Financial Statements. The Borrower has furnished to the Lender (i) the audited consolidated balance sheet of the Borrower and its Subsidiaries as of December 31, 2016, and the related consolidated statements of income, stockholders' equity and cash flows for the Fiscal Year then ended prepared by the Accounting Firm. These financial statements fairly present, in all material respects, the consolidated financial position of the Borrower and its Subsidiaries as of such date and the consolidated results of operations and cash flows for such period in conformity with GAAP consistently applied. Since December 31, 2016, there have been no changes with respect to the Borrower and its Subsidiaries which have had or could reasonably be expected to have, singly or in the aggregate, a Material Adverse Effect. In addition, the Borrower has provided to the Lender copies of the Call Reports filed by its Financial Institution Subsidiaries for the period ending June 30, 2017, and copies of the FRY-9 Report filed by the Borrower for the period ending December 31, 2016. Each of such reports filed by the Borrower or the Financial Institution Subsidiaries with any Governmental Authority is true and correct in all material respects and is in accordance with the respective books of account and records of the Borrower and the Financial Institution Subsidiaries, and has been prepared in compliance with, in all material respects, applicable banking regulations, rules and guidelines on a basis consistent with prior periods, and fairly and accurately presents, in all material respects, the financial condition of the Borrower and the Financial Institution Subsidiaries and their respective assets and liabilities and the results of their respective operations as of such date.

Section 4.5. Litigation Matters and Enforcement Actions. No litigation, investigation or proceeding of or before any arbitrators or Governmental Authorities is pending against, or, to the knowledge of the Borrower, threatened against or affecting the Borrower or any of its Subsidiaries (i) as to which there is a reasonable possibility of an adverse determination that could reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect or (ii) which in any manner draws into question the validity or enforceability of this Agreement or any other Loan Document. None of the Borrower, or any of the Financial Institution Subsidiaries, or any of their respective officers or directors, is now operating under any currently effective written restrictions agreed to by the Borrower or any of the Financial Institution Subsidiaries, or agreements, memoranda, or written commitments by the Borrower or any of the Financial Institution Subsidiaries (other than restrictions of general application) imposed or required by any Governmental Authority nor, to the knowledge of the Borrower, are any such restrictions threatened or agreements, memoranda or commitments being sought by any Governmental Authority.

Section 4.6. Compliance with Laws and Agreements. The Borrower and each Subsidiary is in compliance with all applicable laws (including without limitation all Environmental Laws and all federal and state banking statutes) and all rules, regulations (including without limitation all applicable federal and state banking regulations) and orders of any Governmental Authority, except where failure to do so could not reasonably be expected to result in a Material Adverse Effect. Neither the Borrower nor any of the Financial Institution Subsidiaries is in material default in the performance, observance or fulfillment of any of the terms, obligations, covenants, conditions or provisions contained in any indenture or other agreement creating, evidencing or securing indebtedness of any kind or pursuant to which any such indebtedness is issued, or other agreement or instrument to which the Borrower or any Financial Institution Subsidiary is a party or by which the Borrower or any such Financial Institution Subsidiary or any of their respective properties may be bound or affected.

Section 4.7. Investment Company Act. Neither the Borrower nor any of its Subsidiaries is an "investment company," as defined in, or subject to regulation under, the Investment Company Act of 1940, as amended.

Section 4.8. Taxes. The Borrower and its Subsidiaries have timely filed or caused to be filed (taking into account extensions) all Federal income tax returns and all other material tax returns that are required to be filed by them, and have paid all taxes shown to be due and payable on such returns or on any assessments made against it or its property and all other taxes, fees or other charges imposed on it or any of its property by any Governmental Authority, except (i) to the extent the failure to do so would not have a Material Adverse Effect or (ii) where the same are currently being contested in good faith by appropriate proceedings and for which the Borrower or such Subsidiary, as the case may be, has set aside on its books adequate reserves.

Section 4.9. Margin Regulations. None of the proceeds of the Loans will be used for "purchasing" or "carrying" any "margin stock" with the respective meanings of each of such terms under Regulation U as now and from time to time hereafter in effect or for any purpose that violates the provisions of Regulation U.

Section 4.10. ERISA. (a) No ERISA Event has occurred or is reasonably expected to occur that, when taken together with all other such ERISA Events for which liability is reasonably expected to occur, could reasonably be expected to result in a Material Adverse Effect. The "benefit obligations" of all Plans did not, as of December 31, 2016, exceed the "fair market value of the assets" of such Plans by more than $250,000. No event has occurred since December 31, 2016, that would cause the "benefit obligations" of all Plans to exceed the "fair market value of the assets" of such Plans by the dollar amount specified in the previous sentence. The terms "benefit obligations" and "fair market value of assets" shall be determined by and with such terms defined in accordance with Statement of Financial Accounting Standards No. 158.

(b) Each Employee Benefit Plan is in compliance in all material respects with the applicable provisions of ERISA, the Code and other applicable law. Except with respect to Multiemployer Plans, each Qualified Plan (I) has received a favorable determination from the IRS applicable to the Qualified Plan's current remedial amendment cycle (as described in Revenue Procedure 2007-44 or "2007-44" for short), (II) has timely filed for a favorable determination letter from the IRS during its staggered remedial amendment cycle (as defined in 2007-44) and such application is currently being processed by the IRS, (III) has filed for a determination letter prior to its "GUST remedial amendment period" (as defined in 2007-44) and received such determination letter and the staggered remedial amendment cycle first following the GUST remedial amendment period for such Qualified Plan has not yet expired or (IV) is maintained under a prototype or volume submitter plan and may rely upon a favorable opinion or letter issued by the IRS with respect to such prototype or volume submitter plan. To Borrower’s knowledge, no event has occurred which would cause the loss of the Borrower's or any ERISA Affiliate's reliance on the Qualified Plan's favorable determination letter or opinion or advisory letter.

(c) With respect to any Employee Benefit Plan that is a retiree welfare benefit arrangement, all amounts have been accrued on the Borrower's financial statements in accordance with Statement of Financial Accounting Standards No. 106.

(d) Except as would not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect: (i) there are no pending or to the best of the Borrower's knowledge, threatened claims, actions or lawsuits or actions by any Governmental Authority, participant or beneficiary with respect to an Employee Benefit Plan; (ii) there are no violations of the fiduciary responsibility rules with respect to any Employee Benefit Plan; and (iii) neither the Borrower nor any ERISA Affiliate has engaged in a non-exempt "prohibited transaction," as defined in Section 406 of ERISA and Section 4975 of the Code, in connection with any Employee Benefit Plan, that would subject the Borrower to a tax on prohibited transactions imposed by Section 502(i) of ERISA or Section 4975 of the Code.

Section 4.11. Disclosure. To Borrower's knowledge, no event or circumstance currently exists or is threatened that could reasonably be expected to result in a Material Adverse Effect. None of the reports (including without limitation all reports that the Borrower is required to file with the Securities and Exchange Commission), financial statements, certificates or other information furnished by or on behalf of the Borrower to the Lender in connection with this Agreement or any other Loan Document or delivered hereunder or thereunder (as modified or supplemented by any other information so furnished) contains any material misstatement of fact or omits to state any material fact necessary to make the statements therein, taken as a whole, in light of the circumstances under which they were made, not misleading.

Section 4.12. Subsidiaries. Schedule 4.12 sets forth the name of, the ownership interest of the Borrower in, and the jurisdiction of incorporation of each Financial Institution Subsidiary and each other Subsidiary, in each case as of each Line of Credit Closing Date. All of the capital stock of each of the Borrower's Subsidiaries has been duly authorized and validly issued, and is fully paid and non-assessable. Except as set forth on Schedule 4.12 , the Borrower owns all of the issued and outstanding capital stock of each of its Subsidiaries free and clear of any Lien.

Section 4.13. Dividend Restrictions; Other Restrictions.

(a) No Financial Institution Subsidiary has violated any applicable regulatory restrictions on dividends and no Governmental Authority has taken any action which is still applicable to restrict the payment of dividends by any Financial Institution Subsidiary.

(b) Except as set forth on Schedule 4.13 , neither the Borrower nor any Subsidiary is under investigation by, or is operating under any restrictions (excluding any restrictions on the payment of dividends referenced in subsection (a) above) imposed by or agreed to with, any Governmental Authority, other than routine examinations by such Governmental Authorities.

(c) Except as set forth on Schedule 4.13 , and other than as set forth in its charter, as amended, neither the Borrower nor any of the Financial Institution Subsidiaries is a party to, nor is bound by, any material contract or agreement or is subject to any charter or other corporate restriction that restricts the payment of dividends.

Section 4.14. Capital Measures. (a) The Borrower is "well capitalized," as determined in accordance with regulations established by any Governmental Authority having regulatory authority over it and (b) each Financial Institution Subsidiary has been, or is deemed to have been, notified by the appropriate Governmental Authority having regulatory authority over each of them that each of them is "well capitalized," as determined in accordance with any regulations established by such Governmental Authority.

Section 4.15. FDIC Insurance. The deposits of each Financial Institution Subsidiary that is an "insured depository institution" (within the meaning of § 12 U.S.C. 1831(c)) are insured by the FDIC and no act has occurred that would adversely affect the status of such Financial Institution Subsidiary as an FDIC insured bank.

Section 4.16. Ownership of Property.

(a) Each of the Borrower and its Subsidiaries has good title to, or valid leasehold interests in, all of its real and personal property material to the operation of its business, including all such properties reflected in the most recent audited consolidated balance sheet of the Borrower referred to in Section 4.4 or purported to have been acquired by the Borrower or any Subsidiary after said date (except as sold or otherwise disposed of in the ordinary course of business), in each case free and clear of Liens other than those Liens permitted by Section 7.2 . All leases that individually or in the aggregate are material to the business or operations of the Borrower and its Subsidiaries are valid and subsisting and are in full force.

(b) Each of the Borrower and its Subsidiaries owns, or is licensed, or otherwise has the right to use, all patents, trademarks, service marks, trade names, copyrights and other intellectual property material to its business, and the use thereof by the Borrower and its Subsidiaries does not infringe in any material respect on the rights of any other Person.

(c) The properties of the Borrower and its Subsidiaries are insured with financially sound and reputable insurance companies which are not Affiliates of the Borrower, in such amounts with such deductibles and covering such risks as are customarily carried by companies engaged in similar businesses and owning similar properties in localities where the Borrower or any applicable Subsidiary operates.

Section 4.17. OFAC. Neither the Borrower nor any of its Subsidiaries (i) is a person whose property or interest in property is blocked or subject to blocking pursuant to Section 1 of Executive Order 13224 of September 23, 2001 Blocking Property and Prohibiting Transactions With Persons Who Commit, Threaten to Commit, or Support Terrorism (66 Fed. Reg. 49079 (2001)), (ii) engages in any dealings or transactions prohibited by Section 2 of such executive order, or is otherwise associated with any such person in any manner violative of Section 2 or (iii) is a person on the list of Specially Designated Nationals and Blocked Persons or subject to the limitations or prohibitions under any other U.S. Department of Treasury's Office of Foreign Assets Control regulation or executive order.

Section 4.18. Patriot Act. Each of the Borrower and its Subsidiaries is in compliance, in all material respects, with (i) the Trading with the Enemy Act, as amended, and each of the foreign assets control regulations of the United States Treasury Department (31 CFR, Subtitle B, Chapter V, as amended) and any other enabling legislation or executive order relating thereto and (ii) the Uniting And Strengthening America By Providing Appropriate Tools Required To Intercept And Obstruct Terrorism (USA Patriot Act of 2001). No part of the proceeds of the Obligations will be used, directly or indirectly, for any payments to any governmental official or employee, political party, official of a political party, candidate for political office, or anyone else acting in an official capacity, in order to obtain, retain or direct business or obtain any improper advantage, in violation of the United States Foreign Corrupt Practices Act of 1977, as amended.

Section 4.19. Solvency. After giving effect to the execution and delivery of the Loan Documents and the making of any Borrowings under this Agreement, neither the Borrower nor its Subsidiaries will be "insolvent," within the meaning of such term as defined in § 101(32) of Title 11 of the United States Code, as amended from time to time, or be unable to pay its debts generally as such debts become due, or have an unreasonably small capital to engage in any business or transaction, whether current or contemplated.

ARTICLE V. AFFIRMATIVE COVENANTS

The Borrower covenants and agrees that so long as any Borrowings, interest on the Borrowings, or any fee or other obligation owing hereunder remains unpaid:

Section 5.1. Financial Statements and Other Information. The Borrower will deliver to the Lender:

(a) as soon as available and in any event within one hundred and twenty (120) days after the end of each Fiscal Year of Borrower, a copy of the annual audited report for such Fiscal Year for the Borrower and its Subsidiaries, containing a consolidated balance sheet and the related consolidated statements of income, of changes in stockholders' equity and of cash flows (together with all footnotes thereto), setting forth in each case in comparative form the figures for the previous Fiscal Year, all in reasonable detail and reported on by the Accounting Firm (without a "going concern" or like qualification, exception or explanation and without any qualification or exception as to scope of such audit) to the effect that such financial statements present fairly in all material respects the financial condition and the results of operations and cash flows on a consolidated and consolidating basis of the Borrower for such Fiscal Year in accordance with GAAP; provided, that the requirements set forth in this clause (a), other than the certification of the Borrower's certified public accountants, may be fulfilled by providing to the Lender the report of the Borrower to the SEC on Form 10-K for the applicable Fiscal Year;

(b) as soon as available and in any event upon the earlier of (i) filing and (ii) thirty (30) days after the end of each Fiscal Quarter of the Borrower, a duly executed copy of the then-current Call Report for each Financial Institution Subsidiary;

(c) concurrently with (i) the delivery of the financial statements referred to in clause (a) above, (ii) the Bank's filing of any year end Call Report, and (iii) any other Bank filing of a quarterly Call Report, if an event of default then exists, a Compliance Certificate, certifying as to whether there exists a Default or Event of Default on the date of such certificate, and if a Default or an Event of Default then exists, specifying the details thereof and the action which the Borrower has taken or proposes to take with respect thereto, and setting forth in reasonable detail calculations demonstrating compliance with Article VI ;

(d) as soon as available and in any event upon the earlier of (i) filing and (ii) forty five (45) days after the end of each Semiannual Period, a duly executed copy of the Borrower's FR Y-9 Report;

(e) if at any Fiscal Quarter end the Bank is in default of any covenant set forth in Sections 6.1, 6.2 and/or 6.6 hereof, as soon as available and in any event within thirty (30) days after the end of each Fiscal Quarter of each Financial Institution Subsidiary, a report that includes the total aggregate amount of each classification of loans and leases classified by the Financial Institution Subsidiary as either "watch" or "classified." The report will list those borrowers, and related borrowers, that have aggregate outstanding debt that is classified by the Financial Institution Subsidiary as either "watch" or "classified" of $250,000 or more;

(f) if at any Fiscal Quarter end the Bank is in default of any covenant set forth in Sections 6.1, 6.2 and/or 6.6 hereof, as soon as available and in any event within 40 days after the end of each Fiscal Quarter of each Financial Institution Subsidiary, each Financial Institution Subsidiary's "loan and lease losses" allowance calculations in compliance with Accounting Standard Codification Topics 310 and 450. A listing of specific borrowers, and related borrowers, will be limited to those with aggregate "impaired" loan amounts of $250,000 or more;

(g) promptly, but in any event no later than five (5) Business Days after receiving knowledge thereof, written notice of all material charges, material assessments, actions, suits and proceedings (as well as notice of the outcome of any such charges, assessments, orders, actions, suits and proceedings) that are proposed or initiated by, or brought before, any court or Governmental Authority, in connection with the Borrower or any of its Financial Institution Subsidiaries, other than ordinary course of business litigation or proceedings which, if adversely decided, could not reasonably be expected to have a Material Adverse Effect; and

(h) promptly, but in any event no later than ten (10) Business Days following any request therefor, such other information regarding the results of operations, business affairs and financial condition of the Borrower or any Subsidiary, as the Lender may reasonably request.

Section 5.2. Notices of Material Events. The Borrower will furnish to the Lender written notice within five (5) Business Days of its knowledge of the occurrence of any of the following:

(a) the occurrence of any Default or Event of Default;

(b) the filing or commencement of any action, suit or proceeding by or before any arbitrator or Governmental Authority against or, to the knowledge of the Borrower, affecting the Borrower or any Subsidiary which, if adversely determined, could reasonably be expected to result in a Material Adverse Effect;

(c) the occurrence of any ERISA Event that alone, or together with any other ERISA Events that have occurred, could reasonably be expected to result in liability of the Borrower or its Subsidiaries in an aggregate amount exceeding $500,000;

(d) any investigation of the Borrower or any Subsidiary by any Governmental Authority having regulatory authority over the Borrower or any such Subsidiary (other than routine examinations of the Borrower and/or any such Subsidiary) to the extent that such Governmental Authority has consented to the giving of such notice (if the consent of such Governmental Authority is required for the Borrower to give such notice) which, if adversely determined, could reasonably be expected to result in a Material Adverse Effect;

(e) the issuance of any cease and desist order (whether written or oral), written agreement, cancellation of insurance or other public or enforcement action by the FDIC or other Governmental Authority having regulatory authority over the Borrower or any Subsidiary;

(f) the issuance of any informal enforcement action, including, without limitation, a memorandum of understanding or proposed disciplinary action by or from any Governmental Authority having regulatory authority over the Borrower or any Subsidiary, to the extent that the Borrower or any such Subsidiary is permitted to disclose such information (provided that the Borrower shall take all reasonable efforts to obtain any necessary regulatory consents), which results in or could reasonably be expected to result in a Material Adverse Effect;

(g) any other development that results in, or could reasonably be expected to result in, a Material Adverse Effect. Each notice delivered under this Section shall be accompanied by a written statement of a Responsible Officer setting forth the details of the event or development requiring such notice and any action taken or proposed to be taken with respect thereto (to the extent permitted by applicable law, rules and regulations); and

(h) any change of any member of Senior Management by the Borrower or the Bank, other than changes in connection with the CBI Merger pursuant to the Merger Agreement.

Section 5.3. Existence; Conduct of Business. The Borrower will, and will cause each of its Subsidiaries to, do or cause to be done all things necessary to preserve, renew and maintain in full force and effect its legal existence and its respective rights, licenses, permits, privileges, franchises, patents, copyrights, trademarks and trade names material to the conduct of its business and will continue to engage in the same business as presently conducted or such other businesses that are reasonably related thereto; provided , that nothing in this Section shall prohibit any merger, consolidation, liquidation or dissolution permitted under Section 7.3 , including without limitation the CBI Merger pursuant to the Merger Agreement and the Capstone Merger.

Section 5.4. Compliance with Laws, Etc. The Borrower will, and will cause each of its Subsidiaries to, comply with all laws, rules, regulations and requirements of any Governmental Authority (including without limitation all federal and state banking statutes and regulations) applicable to its assets, except where the failure to do so, either individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. No part of the proceeds of the Loans will be used, whether directly or indirectly, for any purpose that would violate any rule or regulation of the FRB, including Regulation T, U or X.

Section 5.5. Payment of Obligations. The Borrower will, and will cause each of its Subsidiaries to, pay and discharge at or before maturity, all of its obligations and liabilities (including without limitation all tax liabilities and all claims that could result in a statutory Lien) before the same shall become delinquent or in default, except where (a) the validity or amount thereof is being contested in good faith by appropriate proceedings, (b) the Borrower or such Subsidiary has set aside on its books adequate reserves with respect thereto in accordance with GAAP and (c) the failure to make payment pending such contest could not reasonably be expected to result in a Material Adverse Effect.

Section 5.6. Books and Records. The Borrower will, and will cause each of its Subsidiaries to, keep proper books of record and account in which full, true and correct entries shall be made of all material dealings and transactions in relation to its business and activities to the extent necessary to prepare the consolidated and consolidating financial statements of Borrower in conformity with GAAP.

Section 5.7. Visitation, Inspection, Etc. The Borrower will, and will cause each of its Subsidiaries to, permit a representative or representatives of the Lender, subject to Section 10.11 and applicable laws, rules and regulations pertaining to the access and disclosure of the same, to visit and inspect its properties, to examine its books and records and to make copies and take extracts therefrom, and to discuss its affairs, finances and accounts with any of its officers and with its independent certified public accountants, all at such reasonable times and as often as the Lender may reasonably request after reasonable prior notice to the Borrower, and, after the occurrence and during the continuation of an Event of Default, at Borrower's expense.

Section 5.8. Maintenance of Properties; Insurance.

(a) The Borrower will, and will cause each of its Subsidiaries to, (i) keep and maintain all property material to the conduct of its business in good working order and condition, except for ordinary wear and tear and except where the failure to do so, either individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect and (ii) maintain with financially sound and reputable insurance companies, insurance with respect to its properties and business, and the properties and business of its Subsidiaries, against loss or damage of the kinds customarily insured against by companies in the same or similar businesses operating in the same or similar locations.

(b) The deposits of each Financial Institution Subsidiary will at all times be insured by the FDIC.

Section 5.9. Use of Proceeds. The Borrower shall use the proceeds of the Line of Credit Facility for (i) the CBI Merger and the Capstone Merger and/or (ii) a capital injection into SmartBank or for its operating needs.

Section 5.10. CBI Merger. On or before the date which is fifteen (15) days after the Line of Credit Closing Date, the Borrower shall have delivered to Lender the following, each in form and substance reasonably satisfactory to Lender: (i) [reserved]; (ii) a copy of the articles of merger effectuating the CBI Merger and Capstone Merger promptly after execution and filing thereof with the Tennessee Secretary of State; (iii) each of CBI and Borrower's historical financial statements as of December 31,2016, and the quarterly period ending June 30, 2017; and (iv) evidence satisfactory to Lender of the relevant regulatory approvals for the CBI Merger and the Capstone Merger.

Section 5.11. Further Assurances. The Borrower agrees, upon written request of the Lender, to execute and deliver or cause to be executed and delivered such further instruments, documents and certificates, and to and cause to be done such further acts that may be reasonably necessary or advisable in the reasonable opinion of the Lender to carry out more effectively the provisions and purposes of this Agreement and the other Loan Documents.

ARTICLE VI. FINANCIAL COVENANTS

The Borrower covenants and agrees that so long as any Borrowings, interest on the Borrowings, or any fee or other obligation owing hereunder remains unpaid:

Section 6.1. Ratio of Nonperforming Assets to Total Assets. Each Financial Institution Subsidiary will not permit at the end of each Fiscal Quarter its Nonperforming Assets to be greater than 3.25% of Total Assets.

Section 6.2. Texas Ratio. Each Financial Institution Subsidiary will not permit at the end of each Fiscal Quarter its Texas Ratio to be greater than 35.00%.

Section 6.3. Liquidity Ratio. Each Financial Institution Subsidiary will not permit at the end of each Fiscal Quarter its Liquidity Ratio to be less than 9.00%, provided that each Financial Institution Subsidiary shall not permit its Liquidity Ratio to be less than 10.00% for more than two (2) consecutive Fiscal Quarters.

Section 6.4. Return on Average Assets. Each Financial Institution Subsidiary will not permit at the end of each Fiscal Quarter its Return on Average Assets to be less than the following:



Fiscal Quarter	Minimum Return on Average Assets
December 31, 2017 through and including September 30, 2018	0.45%
December 31, 2018 and thereafter	0.50%

Section 6.5. Debt Service Coverage Ratio The Borrower will not permit, as of June 30 and December 31 of each Fiscal Year, commencing December 31, 2017, its Debt Service Coverage Ratio to be less than 1.25:1.00.

For purposes of determining compliance with each of the Financial Covenants in this Section, the defined terms used in this Section shall exclude, without duplication, assets that are covered under loss-sharing or risk-sharing agreements with the FDIC.

Section 6.6. Regulatory Capital .

(a) The Borrower will be "well capitalized," or such other successor term with a similar meaning, for all applicable state and federal regulatory purposes at all times, and will not be subject to any written agreement, order, capital directive or prompt corrective action directive by any Governmental Authority having regulatory authority over the Borrower, except where such order, capital directive or prompt corrective action directive does not result in, nor could reasonably be expected to result in, a Material Adverse Effect, or if required by any Governmental Authority having regulatory authority over the Borrower in order to remain "well capitalized" and in compliance with all applicable regulatory requirements, will have such higher amounts of Total Risk-based Capital and Tier 1 Risk-based Capital and/or such greater Tier 1 Leverage Ratio as specified by such Governmental Authority.

(b) Each Financial Institution Subsidiary of the Borrower will be "well capitalized , " or such other successor term with a similar meaning, for all applicable state and federal regulatory purposes at all times, and such Financial Institution Subsidiary (i) will have a Total Risk-based Capital Ratio of 10.50% or greater, a Tier 1 Risk based Capital Ratio of 9.50% or greater, and a Tier 1 Leverage Ratio of 8.00% or greater (each as defined by applicable federal and state regulations or orders) and not be subject to any written agreement, order, capital directive or prompt corrective action directive by any Governmental Authority having regulatory authority over such Financial Institution Subsidiary, except where such order, capital directive or prompt corrective action directive does not result in, nor could reasonably be expected to result in, a Material Adverse Effect, or (ii) if required by any Governmental Authority having regulatory authority over such Financial Institution Subsidiary in order to remain "well capitalized" and in compliance with all applicable regulatory requirements, will have such higher amounts of Total Risk-based Capital and Tier 1 Risk-based Capital and/or such greater Tier 1 Leverage Ratio as specified by such Governmental Authority.

(c) Notwithstanding the foregoing, if at any time any such Governmental Authority changes the definition of "well capitalized" either by amending such ratios or otherwise, such amended definition, and any such amended or new ratios, shall automatically, and in lieu of the existing definitions and ratios set forth in this Section, be incorporated by reference into this Agreement as the minimum standard for the Borrower or any Financial Institution Subsidiary, as the case may be, on and as of the date that any such amendment becomes effective by applicable statute, regulation, order or otherwise.

Section 6.7. Interest Coverage Ratio.

The Borrower will not permit, as of June 30 and December 31 of each Fiscal Year, commencing December 31, 2017, its Interest Coverage Ratio to be less than 2.50:1.00.

ARTICLE VII. NEGATIVE COVENANTS

The Borrower covenants and agrees that so long as any Borrowings, interest on the Borrowings, or any fee or other obligation owing hereunder remains unpaid:

Section 7.1. Indebtedness. The Borrower will not, and will not permit any of its Subsidiaries to, create, incur, assume or suffer to exist any Indebtedness, except:

(a) Indebtedness of the Borrower created pursuant to the Loan Documents;

(b) Indebtedness existing on the date hereof and set forth on Schedule 7.1 , and extensions, renewals and replacements of any such Indebtedness that do not increase the outstanding principal amount thereof (immediately prior to giving effect to such extension, renewal or replacement) or shorten the maturity or the weighted average life thereof;

(d) (i) Indebtedness owed by the Borrower or any "affiliate" of the Borrower (as defined in Regulation W of the FRB and sections 23A and 23B of the Federal Reserve Act) to any Financial Institution Subsidiary not in violation of Regulation W of the FRB (as amended, supplemented or otherwise modified), (ii) Indebtedness owed by any Subsidiary to the Borrower, or (iii) Indebtedness owed by the Borrower or any Subsidiary to a Subsidiary other than a Financial Institution Subsidiary;

(e) Indebtedness constituting capital leases of any real property and improvements thereon that are owned by the Borrower or any Subsidiary and that have been sold by the Borrower or such Subsidiary to a third person and have been leased back from such Person;

(f) Purchase money indebtedness and capitalized lease obligations secured by Liens permitted under this Agreement in an aggregate amount outstanding at any time not to exceed $750,000, without Lender approval.

Section 7.2. Negative Pledge. The Borrower will not, and will not permit any of its Subsidiaries to, create, incur, assume or suffer to exist any Lien on any of its assets or property now owned or hereafter acquired (including without limitation in the case of the Borrower, the capital stock of any Financial Institution Subsidiary), except:

(a) Liens (if any) created in favor of the Lender;

(b) Permitted Encumbrances;

(c) Liens granted to secure any Indebtedness expressly permitted pursuant to Section 7.1(c) , and Section 7.1(e) (as long as such Liens shall extend only to the real property and improvements subject to such capital leases);

(d) Liens on property of the Borrower or any of its Subsidiaries created solely for the purpose of securing Indebtedness expressly permitted by Section 7.1(f) , representing or incurred to finance, refinance or refund the purchase price of property, provided that no such Lien shall extend to or encumber other property of the Borrower or such Subsidiary other than the respective property so acquired, and the principal amount of Indebtedness secured thereby shall at no time exceed the original purchase price of such property; and

(e) extensions, renewals, or replacements of any Lien referred to in paragraphs (a), (b), (c) and (d) of this Section.

Notwithstanding anything herein or otherwise to the contrary, the Borrower shall not grant any Lien, or otherwise permit any Lien to exist, on the capital stock of any Financial Institution Subsidiary (other than Liens in favor of the Lender).

Section 7.3. Fundamental Changes.

(a) Other than the CBI Merger and the Capstone Merger, the Borrower will not, and will not permit any Subsidiary to, (i) merge into or consolidate into any other Person, or permit any other Person to merge into or consolidate with it, or (ii) sell, lease, transfer or otherwise dispose of (in a single transaction or a series of transactions) all or a material portion of its assets (other than in the ordinary course of business) or all or substantially all of the stock of any of its Subsidiaries or (iii) liquidate or dissolve; provided , that if at the time thereof and immediately after giving effect thereto on a pro forma basis, no Default or Event of Default shall have occurred, (A) the Borrower or any Subsidiary may merge with a Person, provided that (1) if the Borrower is a party to such merger, the Borrower shall be the surviving Person in connection with such merger, (2) if a Subsidiary is a party to such merger, such Subsidiary shall be the surviving Person (if two Subsidiaries are party to such merger, one of those Subsidiaries shall be the surviving Person, including the Capstone Merger) and (3) such merger shall not constitute a Change in Control of the Borrower, (B) any Subsidiary may sell, lease, transfer or dispose of its assets to the Borrower or another Subsidiary, (C) any Financial Institution Subsidiary may sell loans, investments, or other similar assets in the ordinary course of its business, provided , that such sale or series of sales do not constitute a sale of all or substantially all of such Financial Institution Subsidiary's assets, and (D) the Borrower and any Subsidiary may sell any (i) real property and improvements thereon that are owned (in whole or in part) by the Borrower or such Subsidiary and that are subsequently leased back by the Borrower or such Subsidiary and (ii) Other Real Estate Owned.

(b) The Borrower will not dispose of any stock or other equity interest in any of its Financial Institution Subsidiaries, whether by sale, assignment, lease or otherwise, without the prior written consent of Lender; provided , however , that, if at the time thereof and immediately after giving effect thereto, on a pro forma basis, no Default or Event of Default shall exist or shall have occurred, the Borrower shall be permitted to allow Financial Institution Subsidiaries to be merged into or consolidated with any other Financial Institution Subsidiary, including the Capstone Merger.

(c) The Borrower will not, and will not permit any of its Subsidiaries to, engage to any material extent in any business other than businesses of the type conducted by the Borrower and its Subsidiaries on the date hereof and businesses reasonably related thereto and any types of businesses that are expressly permitted by any Governmental Authority having jurisdiction over the Borrower and/or any Financial Institution Subsidiary.

Section 7.4. Restricted Payments. While an Event of Default has occurred and is continuing, or an Event of Default would result (on a pro forma basis) from the making of such Restricted Payment (as defined below), the Borrower will not, and will not permit its Subsidiaries to, declare or make, or agree to pay or make, directly or indirectly, any dividend on any class of its stock, or make any payment on account of, or set apart assets for a sinking or other analogous fund for, the purchase, redemption, retirement, defeasance, prepayment or other acquisition of, any shares of capital stock or Indebtedness subordinated to the Obligations of the Borrower or any options, warrants, or other rights to purchase such capital stock or such Indebtedness, whether now or hereafter outstanding (each a " Restricted Payment "); provided , however , that the Borrower and its Subsidiaries may make and agree to make Restricted Payments in order to pay any Taxes then due of the Borrower or its Subsidiaries; provided , further , however , that any Subsidiary may make Restricted Payments to the Borrower at any time.

Section 7.5. Restrictive Agreements. The Borrower will not, and will not permit any Subsidiary to, directly or indirectly, enter into, incur or permit to exist any agreement that prohibits, restricts or imposes any condition upon (a) the ability of the Borrower or any Subsidiary to create, incur or permit any Lien upon any of its assets or properties, whether now owned or hereafter acquired, or (b) other than in connection with the CBI Merger and the Merger Agreement, the Capstone Merger or a transaction permissible under Section 7.3 , the ability of any Subsidiary to pay dividends or other distributions with respect to its common stock, to make or repay loans or advances to the Borrower or any other Subsidiary, to guarantee Indebtedness of the Borrower or any other Subsidiary or to transfer any of its property or assets to the Borrower or any Subsidiary of the Borrower; provided , that (i) the foregoing shall not apply to restrictions or conditions imposed by law or by this Agreement or any other Loan Document, (ii) the foregoing shall not apply to customary restrictions and conditions contained in agreements relating to the sale of a Subsidiary pending such sale, provided such restrictions and conditions apply only to the Subsidiary that is sold and such sale is permitted hereunder, and (iii) clause (a) shall not apply to customary provisions in leases restricting the assignment thereof.

Section 7.6. Investments, Etc. The Borrower will not, and will not permit any of its Subsidiaries to, purchase, hold or acquire (including pursuant to any merger with any Person that was not a wholly-owned Subsidiary prior to such merger), any capital stock, Indebtedness or other securities (including any option, warrant, or other right to acquire any of the foregoing) of, make or permit to exist any loans or advances to, guarantee any obligations of, or make or permit to exist any investment or any other interest in, any other Person, or purchase or otherwise acquire (in one transaction or a series of transactions) all or substantially all of the assets of a Person, or of any business or division of any Person (all of the foregoing being collectively called " Investments "), except:

(a) Investments existing on the date hereof (including Investments in Subsidiaries) that have been disclosed to the Lender and/or that are set forth on the most current financial statements that have been delivered to the Lender;

(b) Investments purchased in the ordinary course of business by any Financial Institution Subsidiary;

(c) Investments made by the Borrower in or to any Subsidiary and by any Subsidiary in or to the Borrower or in or to another Subsidiary;

(d) Investments made for the purpose of making or consummating an Acquisition; provided , that (i) no Default or Event of Default shall have occurred or would result (on a pro forma basis) from the making or consummation of such Acquisition, (ii) such Acquisitions are undertaken in accordance with all applicable laws, and (iii) the prior written consent or approval of such Acquisition of the board of directors or equivalent governing body of the Person being acquired has been obtained; provided , further , that in the case of any Investment by the Borrower or any Subsidiary in which the Borrower or such Subsidiary acquires, directly or indirectly, fifty percent (50%) or more of the voting stock any Person that is a regulated financial institution, such acquired Person shall become a Financial Institution Subsidiary for purposes of this Agreement;

(e) Investments pursuant to the CBI Merger and the Merger Agreement and the Capstone Merger; and

(f) Other Investments made in the ordinary course of business and in accordance with applicable laws and regulations and safe and sound business practices including, but not limited to, any Investments acquired by any Subsidiary as a result of such Subsidiary's reasonable decision to exercise remedies against collateral obtained by such Subsidiary in its ordinary course of business (such as foreclosure).

Section 7.7. Transactions with Affiliates. Other than as set forth on Schedule 7.7 , the Borrower will not, and will not permit any of its Subsidiaries to, sell, lease or otherwise transfer any property or assets to, or purchase, lease or otherwise acquire any property or assets from, or otherwise engage in any other transactions with, any of its Affiliates, except (a) in the ordinary course of business at prices and on terms and conditions not less favorable to the Borrower or such Subsidiary than could be obtained on an arm's-length basis from unrelated third parties, (b) transactions between or among the Borrower and any Subsidiary not involving any other Affiliates and (c) any Restricted Payment expressly permitted by Section 7.4 .

Section 7.8. Hedging Transactions. The Borrower will not, and will not permit any of its Subsidiaries to, enter into any Hedging Transaction, other than (i) those permitted under section (k) of the defined term Permitted Financial Institution Indebtedness, or (ii) Hedging Transactions entered into in the ordinary course of business to hedge or mitigate risks to which the Borrower or any Subsidiary is exposed in the conduct of its business or the management of its liabilities. Solely for the avoidance of doubt, the Borrower acknowledges that a Hedging Transaction entered into for speculative purposes or of a speculative nature (which shall be deemed to include any Hedging Transaction under which the Borrower or any of its Subsidiaries is or may become obliged to make any payment (i) in connection with the purchase by any third party of any Equity Interests or any Indebtedness or (ii) as a result of changes in the market value of any Equity Interests or any Indebtedness) is not a Hedging Transaction entered into in the ordinary course of business to hedge or mitigate risks.

Section 7.9. Unsafe and Unsound Practices. The Borrower will not, and will not permit any of its Subsidiaries to, engage in any unsafe or unsound business practice that could reasonably be expected to have a Material Adverse Effect.

ARTICLE VIII. EVENTS OF DEFAULT

Section 8.1. Events of Default . If any of the following events (each an " Event of Default ") shall occur:

(a) the Borrower shall fail to pay any Borrowings when and as the same shall become due and payable, whether at the due date thereof or otherwise and such failure shall continue unremedied for a period of five (5) Business Days; or

(b) the Borrower shall fail to pay any interest on the Borrowings or any fee or any other Obligation (other than an amount payable under clause (a) of this Article), when and as the same shall become due and payable and such failure shall continue unremedied for a period of ten (10) days; or

(c) any representation or warranty made or deemed made by or on behalf of the Borrower or any Subsidiary in or in connection with this Agreement or any other Loan Document (including the Schedules attached thereto) and any amendments or modifications hereof or waivers hereunder, or in any certificate, report, financial statement or other document submitted to the Lender by the Borrower or any representative of the Borrower pursuant to or in connection with this Agreement or any other Loan Document shall prove to be incorrect in any material respect when made or deemed made or submitted; or

(d) the Borrower shall fail to observe or perform any covenant or agreement contained in Section 5.1 , Section 5.2 , Section 5.3 (with respect to the Borrower's existence), Section 5.7 , Section 5.9, Section 5.11 or Article VI or Article VII ; or

(e) the Borrower or any of its Subsidiaries shall fail to observe or perform any covenant or agreement contained (i) in this Agreement (other than those referred to in clauses (a), (b) and (d) above), and such failure shall remain unremedied for thirty (30) days after the earlier of (x) any Senior Management actually becomes aware of such failure, or (y) notice thereof shall have been given to the Borrower by the Lender or (ii) in any other Loan Document (after taking into consideration any applicable grace periods); or

(f) the Borrower or any Subsidiary (whether as primary obligor or as guarantor or other surety) shall fail to pay any Indebtedness (other than under the Loan Documents) owed to Lender in an amount greater than $1,000,000 that is outstanding, when and as the same shall become due and payable (whether at scheduled maturity, required prepayment, acceleration, demand or otherwise), and such failure shall continue after the applicable grace period, if any, specified in the agreement or instrument evidencing such Indebtedness; or any other event shall occur or condition shall exist under any agreement or instrument relating to such Indebtedness and shall continue after the applicable grace period, if any, specified in such agreement or instrument, if the effect of such event or condition is to accelerate, or permit the acceleration of, the maturity of such Indebtedness (without regard to whether such holders or other Persons shall have exercised or waived their right to do so); or any such Indebtedness shall be declared to be due and payable or required to be prepaid or redeemed (other than by a regularly scheduled required prepayment), purchased or defeased, or any offer to prepay, redeem, purchase or defease such Indebtedness shall be required to be made, in each case prior to the stated maturity thereof (and for purposes of determining the amount of attributed Indebtedness under this clause (f) from Hedging Obligations, the "principal amount" of any Hedging Obligations at any time shall be the Net Mark-to-Market Exposure of such Hedging Obligations); or

(g) the security interest granted in the Stock Pledge and Security Agreement ceases to be valid or fails to or ceases to create a first priority security interest in and to the collateral described therein (subject to the Permitted Encumbrances), any transfer, sale or other disposition that has a Material Adverse Effect the value of the Pledged Stock, or any Loan Document ceases to be in full force and effect, in each case other than as a result of the action or inaction of the Lender or its Subsidiaries or Affiliates; or

(h) the Borrower or any Subsidiary shall (i) commence a voluntary case or other proceeding or file any petition seeking liquidation, reorganization or other relief under any federal, state or foreign bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a custodian, trustee, receiver, liquidator or other similar official of it or any substantial part of its property, (ii) consent to the institution of, or fail to contest in a timely and appropriate manner, any proceeding or petition described in clause (i) of this Section, (iii) apply for or consent to the appointment of a custodian, trustee, receiver, liquidator or other similar official for the Borrower or any such Subsidiary or for a substantial part of its assets, (iv) file an answer admitting the material allegations of a petition filed against it in any such proceeding, (v) make a general assignment for the benefit of creditors, or (vi) take any action for the purpose of effecting any of the foregoing; or

(i) an involuntary proceeding shall be commenced or an involuntary petition shall be filed seeking (i) liquidation, reorganization or other relief in respect of the Borrower or any Subsidiary or its debts, or any substantial part of its assets, under any federal, state or foreign bankruptcy, insolvency or other similar law now or hereafter in effect or (ii) the appointment of a custodian, trustee, receiver, liquidator or other similar official for the Borrower or any Subsidiary or for a substantial part of its assets, and in any such case, such proceeding or petition shall remain undismissed for a period of sixty (60) days or an order or decree approving or ordering any of the foregoing shall be entered; or

(j) without duplication of clause (f) of this Section 8.1 , the Borrower or any Subsidiary shall become unable to pay, shall admit in writing its inability to pay, or shall fail to pay, its debts as they become due; or

(k) an ERISA Event shall have occurred that, in the reasonable opinion of the Lender, when taken together with other ERISA Events that have occurred, could reasonably be expected to result in liability to the Borrower and the Subsidiaries in an aggregate amount exceeding $500,000; or

(l) any judgment or order for the payment of money in excess of $1,500,000 in the aggregate shall be rendered against the Borrower or any Subsidiary, and either (i) enforcement proceedings shall have been commenced by any creditor upon such judgment or order or (ii) there shall be a period of thirty (30) consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; or

(m) any non-monetary judgment or order shall be rendered against the Borrower or any Subsidiary that could reasonably be expected to have a Material Adverse Effect, and there shall be a period of thirty (30)consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; or

(n) [intentionally deleted]

(o) a Change in Control shall occur without the prior written consent of the Lender; or

(p) any Governmental Authority having regulatory authority over the Borrower or any Subsidiary shall take any action that restricts, or has the practical effect of restricting, the payment of dividends from any such Subsidiary to the Borrower or the payment of any debt owing by a Subsidiary to the Borrower; or

(q) any Financial Institution Subsidiary shall cease for any reason (other than as a result of being merged into another Financial Institution Subsidiary) to be an insured bank under the Federal Deposit Insurance Act, as amended; or

(r) the FRB, the OCC, the FDIC or any other Governmental Authority charged with the regulation of bank holding companies or depository institutions: (i) issues (whether orally or in writing) to the Borrower or any Financial Institution Subsidiary, or initiates through formal proceedings any action, suit or proceeding to obtain against, impose on or require from the Borrower or any Financial Institution Subsidiary, a cease and desist order or similar regulatory order, the assessment of civil monetary penalties in an aggregate amount exceeding $500,000, articles of agreement, a memorandum of understanding, a capital directive, a capital restoration plan, restrictions that prevent or as a practical matter impair the payment of dividends by any Financial Institution Subsidiary or the payments of any debt by the Borrower, restrictions that make the payment of dividends by any Financial Institution Subsidiary or the payment of debt by the Borrower subject to prior regulatory approval, a notice or finding under subsection 8(a) of the Federal Deposit Insurance Act, as amended, or any similar enforcement action, measure or proceeding; or (ii) proposes or issues (whether orally or in writing) to any senior executive officer or director of the Borrower or any Financial Institution Subsidiary, or initiates any action, suit or proceeding to obtain against, impose on or require from any such officer or director, a cease and desist order or similar regulatory order, a removal order or suspension order, or the assessment of civil monetary penalties in an aggregate amount exceeding $500,000, unless, in each and every case, any such orders or penalties would not reasonably be expected to have a Material Adverse Effect; or

(s) there shall occur with respect to any Financial Institution Subsidiary any event that is grounds for the required submission of a capital restoration plan under 12 U. S. C. §1831o (e)(2) and the regulations thereunder, or a conservator or receiver is appointed for any Financial Institution Subsidiary; or

(t) any order or decree is entered by any court of competent jurisdiction directly or indirectly enjoining or prohibiting the Lender or the Borrower from performing any of their respective obligations under this Agreement or under any of the other Loan Documents and such order or decree is not vacated, and the proceedings out of which such order or decree arose are not dismissed, within sixty (60) days after the granting of such decree or order, except where the same is a result of the action or inaction of the Lender or its Subsidiaries or Affiliates; or

(u) the Borrower or any Financial Institution Subsidiary shall enter into a written agreement with any Governmental Authority having regulatory authority over such Person for any reason which could reasonably be expected to have a Material Adverse Effect; or

(v) the filing of formal charges by any Governmental Authority or quasi-governmental entity, including, without limitation, the issuance of an indictment under a RICO Related Law against Borrower or any Subsidiary of Borrower; then, and in every such event (other than an event with respect to the Borrower or any Subsidiary described in clause (h) or (i) of this Section) and at any time thereafter during the continuance of such event, the Lender may, by notice to the Borrower, take any or all of the following actions, at the same or different times: (i) declare the Borrowings and any accrued interest on the Borrowings, and all other Obligations owing hereunder, to be, whereupon the same shall become due and payable immediately, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower and (ii) exercise all remedies contained in any other Loan Document; and that, if an Event of Default specified in either clause (h) or (i) shall occur, the Borrowings then outstanding, together with accrued interest thereon, and all fees, and all other Obligations shall automatically become due and payable, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower.

ARTICLE IX. RESERVED

ARTICLE X. MISCELLANEOUS

Section 10.1. Notices.

(a) Except in the case of notices and other communications expressly permitted to be given by telephone, all notices and other communications to any party herein to be effective shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by email, as follows:


To the Borrower:	SmartFinancial, Inc.

5401 Kingston Pike, Suite 600

Knoxville, TN 37919

Attn: William Y. Carroll, Jr.

Telephone Number: (865) 868-0613
Fax Number: (865) 453-2204

Email: Billy.Carroll@smartbank.com

with a copy (which shall not constitute notice) to:

Butler Snow LLP

150 3 ^rd Avenue South

Suite 1600

Nashville, Tennessee 37201

Attention: Adam G. Smith

Facsimile: (615) 651-6701

Email: Adam.Smith@butlersnow.com


To the Lender:	CapStar Bank PO Box 305065

Nashville, Tennessee 37230

Attn: Larry Brooks, Senior Credit Officer
Telephone Number: (615) 732-7522
Fax Number: (615) 732-7523

Email: lbrooks@capstarbank.com

with a copy (which shall not constitute notice) to:

Waller Lansden Dortch & Davis, LLP

511 Union Street, Suite 2700

Nashville, Tennessee 37219

Attention: Robert L. Harris

Facsimile: (615) 244-6804

Email: rharris@wallerlaw.com

Any party hereto may change its address or telecopy number for notices and other communications hereunder by notice to the other parties hereto. All notices and other communications hereunder will be effective (i) immediately when personally delivered; (ii) upon receipt if delivered by facsimile, e-mail or courier (by overnight or same-day delivery) or (iii) on the third business day after being sent if sent by Uni ted States Postal Service first-class postage prepaid. ; provided , that notices delivered to the Lender shall not be effective until actually received by the Lender at its address specified in this Section 10.1 .

(b) Any agreement of the Lender herein to receive certain notices by telephone or facsimile is solely for the convenience and at the request of the Borrower. The Lender shall be entitled to rely on the authority of any Person purporting to be a Person authorized by the Borrower to give such notice, and the Lender shall not have any liability to the Borrower or other Person on account of any action taken or not taken by the Lender in reliance upon such telephonic or facsimile notice. The obligation of the Borrower to repay the Loans and all other Obligations hereunder shall not be affected in any way or to any extent by any failure of the Lender to receive written confirmation of any telephonic or facsimile notice or the receipt by the Lender of a confirmation which is at variance with the terms understood by the Lender to be contained in any such telephonic or facsimile notice.

Section 10.2. Waiver; Amendments.

(a) No failure or delay by the Lender in exercising any right or power hereunder or any other Loan Document, and no course of dealing between the Borrower and the Lender, shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power or any abandonment or discontinuance of steps to enforce such right or power, preclude any other or further exercise thereof or the exercise of any other right or power hereunder or thereunder. The rights and remedies of the Lender hereunder and under the other Loan Documents are cumulative and are not exclusive of any rights or remedies provided by law. No waiver of any provision of this Agreement or any other Loan Document or consent to any departure by the Borrower therefrom shall in any event be effective unless the same shall be permitted by paragraph (b) of this Section, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. Without limiting the generality of the foregoing, the making of the Loans and the allowance of any Borrowings shall not be construed as a waiver of any Default or Event of Default, regardless of whether the Lender may have had notice or knowledge of such Default or Event of Default at the time.

(b) No amendment or waiver of any provision of this Agreement or the other Loan Documents, nor consent to any departure by the Borrower therefrom, shall in any event be effective unless the same shall be in writing and signed by the Borrower and the Lender, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. Notwithstanding anything herein or otherwise to the contrary, any Event of Default occurring hereunder shall continue to exist (and shall be deemed to be continuing) until such time as such Event of Default is waived in writing in accordance with the terms of this Section notwithstanding (i) any attempted cure or other action taken by the Borrower or any other Person subsequent to the occurrence of such Event of Default or (ii) any action taken or omitted to be taken by the Lender prior to or subsequent to the occurrence of such Event of Default (other than the granting of a waiver in writing in accordance with the terms of this Section).

Section 10.3. Expenses; Indemnification.

(a) The Borrower shall pay (i) all reasonable, out-of-pocket costs and expenses of the Lender and its Affiliates (including, without limitation, the reasonable fees, charges and disbursements of outside counsel and the allocated cost of inside counsel for the Lender and its Affiliates) in connection with any amendments, modifications or waivers hereof (whether or not the transactions contemplated in this Agreement or any other Loan Document shall be consummated), and (ii) all reasonable, out-of-pocket costs and expenses (including, without limitation, the reasonable fees, charges and disbursements of outside counsel and the allocated cost of inside counsel) incurred by the Lender in connection with the enforcement or protection of its rights in connection with this Agreement, including its rights under this Section, or in connection with the Borrowings made hereunder, including all such reasonable, out-of-pocket expenses incurred during any workout, restructuring or negotiations in respect of the Loans.

(b) The Borrower shall indemnify the Lender and each officer, director, employee, agent, advisor and Affiliate of the Lender (each, an " Indemnitee ") against, and hold each of them harmless from, any and all costs, losses, liabilities, claims, damages and related expenses, including the fees, charges and disbursements of any counsel for any Indemnitee, which may be incurred by any Indemnitee, or asserted against any Indemnitee by the Borrower or any third Person, arising out of, in connection with or as a result of (i) the execution or delivery of any this Agreement or any other Loan Document, the performance by the parties hereto of their respective obligations hereunder or the consummation of any of the transactions contemplated hereby, (ii) the Loans or any actual or proposed use of the proceeds therefrom, (iii) any actual or alleged presence or release of Hazardous Materials on or from any property owned by the Borrower or any Subsidiary or any Environmental Liability related in any way to the Borrower or any Subsidiary or (iv) any actual or prospective claim, litigation, investigation or proceeding relating to any of the foregoing, whether brought by the Borrower or any third Person and whether based on contract, tort, or any other theory and regardless of whether any Indemnitee is a party thereto; provided , that such indemnity shall not, as to any Indemnitee, be available to the extent that such costs, losses, claims, damages, liabilities or related expenses are determined by a court of competent jurisdiction in a final and nonappealable judgment to have resulted from the gross negligence or willful misconduct of such Indemnitee.

(c) The Borrower shall pay, and hold the Lender harmless from and against, any and all present and future stamp, documentary, and other similar taxes with respect to this Agreement and any other Loan Documents, or any payments due thereunder, and save the Lender harmless from and against any and all liabilities with respect to or resulting from any delay or omission by the Borrower to pay such taxes.

(d) Reserved .

(e) To the extent permitted by applicable law, the Borrower shall not assert, and hereby waives, any claim against any Indemnitee, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to actual or direct damages) arising out of, in connection with or as a result of, this Agreement or any agreement or instrument contemplated hereby, the transactions contemplated therein, the Loans or the use of proceeds thereof.

(f) All amounts due under this Section shall be payable promptly after written demand therefor.

Section 10.4. Successors and Assigns.

(a) The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, except that the Borrower may not assign or transfer any of its rights hereunder without the prior written consent of the Lender (and any attempted assignment or transfer by the Borrower without such consent shall be null and void).

(b) Lender reserves the right to sell, assign, transfer, negotiate or grant participations in all or any part of, or any interest in, Lender's rights and benefits under this Agreement and each of the other Loan Documents. In connection therewith, Lender may disclose all documents and information which Lender now has or may hereafter acquire relating to any credit subject hereto, Borrower or its business, or the business of Borrower, or any collateral for the Loan.

(c) The Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement and/or the Line of Credit Note to secure its obligations to a Federal Reserve Bank without complying with this Section; provided , that no such pledge or assignment shall release Lender from any of its obligations hereunder or substitute any such pledgee or assignee for Lender as a party hereto.

Section 10.5. Governing Law; Jurisdiction; Consent to Service of Process.

(a) THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAW (WITHOUT GIVING EFFECT TO THE CONFLICT OF LAW PRINCIPLES THEREOF) OF THE STATE OF TENNESSEE.

(b) The Borrower hereby irrevocably and unconditionally submits, for itself and its property, to the non-exclusive jurisdiction of any Federal and/or state court located in the State of Tennessee and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement or any other Loan Document or the transactions contemplated hereby or thereby, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such Tennessee state court or, to the extent permitted by applicable law, such Federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement or any other Loan Document shall affect any right that the Lender may otherwise have to bring any action or proceeding relating to this Agreement or any other Loan Document against the Borrower or its properties in the courts that have jurisdiction over the Borrower.

(c) The Borrower irrevocably and unconditionally waives any objection which it may now or hereafter have to the laying of venue of any such suit, action or proceeding described in paragraph (b) of this Section and brought in any state or federal court located in the State of Tennessee and referred to in paragraph (b) of this Section. Each of the parties hereto irrevocably waives, to the fullest extent permitted by applicable law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court.

(d) Each party to this Agreement irrevocably consents to the service of process in the manner provided for notices in Section 10.1 . Nothing in this Agreement or in any other Loan Document will affect the right of any party hereto to serve process in any other manner permitted by law.

Section 10.6. WAIVER OF JURY TRIAL. EACH PARTY HERETO IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY).

Section 10.7. Right of Setoff. In addition to any rights now or hereafter granted under applicable law and not by way of limitation of any such rights, Lender shall have the right, at any time or from time to time upon the occurrence and during the continuance of an Event of Default, without prior notice to the Borrower, any such notice being expressly waived by the Borrower to the extent permitted by applicable law, to set off and apply against all deposits (general or special, time or demand, provisional or final) of the Borrower at any time held or other obligations at any time owing by Lender to or for the credit or the account of the Borrower against any and all Obligations owed to Lender under this Agreement, irrespective of whether Lender shall have made demand hereunder and although such Obligations may be unmatured. Lender agrees promptly to notify the Borrower after any such set-off and any application made by Lender; provided, that the failure to give such notice shall not affect the validity of such set-off and application.

Section 10.8. Counterparts; Integration. This Agreement may be executed by one or more of the parties to this Agreement on any number of separate counterparts (including by telecopy, PDF, or other electronic medium, the same having full force and effect), and all of said counterparts taken together shall be deemed to constitute one and the same instrument. This Agreement, the other Loan Documents, and any separate letter agreement(s) relating to any fees payable to the Lender constitute the entire agreement among the parties hereto and thereto regarding the subject matters hereof and thereof and supersede all prior agreements and understandings, oral or written, regarding such subject matters.

Section 10.9. Survival. All covenants, agreements, representations and warranties made by the Borrower herein and in the certificates or other instruments delivered in connection with or pursuant to this Agreement shall be considered to have been relied upon by the other parties hereto and shall survive the execution and delivery of this Agreement and the Loans, regardless of any investigation made by any such other party or on its behalf and notwithstanding that the Lender may have had notice or knowledge of any Default or incorrect representation or warranty at the time any credit is extended hereunder, and shall continue in full force and effect as long as the principal of or any accrued interest on the Borrowings or any fee or any other amount payable under this Agreement is outstanding and unpaid. The provisions of Section 10.3 shall survive and remain in full force and effect regardless of the consummation of the transactions contemplated hereby, the repayment of the Loans or the termination of this Agreement or any provision hereof. All representations and warranties made herein, in the certificates, reports, notices, and other documents delivered pursuant to this Agreement shall survive the execution and delivery of this Agreement and the other Loan Documents, and the making of the Loans.

Section 10.10. Severability. Any provision of this Agreement or any other Loan Document held to be illegal, invalid or unenforceable in any jurisdiction, shall, as to such jurisdiction, be ineffective to the extent of such illegality, invalidity or unenforceability without affecting the legality, validity or enforceability of the remaining provisions hereof or thereof; and the illegality, invalidity or unenforceability of a particular provision in a particular jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

Section 10.11. Confidentiality. Lender agrees to maintain the confidentiality of and not to disclose any and all non-public, confidential or proprietary information, identified to the Lender as such, of or relating to the Borrower, CBI, or any Subsidiary (including without limitation Capstone and SmartBank) and their respective businesses, operations, finances or strategies (" Confidential Information "). For purposes of this Section, Confidential Information shall not include: (1) information that was already known to the recipient without an obligation of confidentiality to the Borrower, CBI or any Subsidiary with respect to such information, (2) information that was obtained from a third party who was not known to Lender to be under an obligation of confidentiality to the Borrower, CBI or any Subsidiary with respect to such information, or (3) information that is or becomes publicly available, other than through a breach of this Section by the Lender or any Participant or any of their respective representatives, employees or agents. Notwithstanding the foregoing, Confidential Information may be disclosed (i) to any officer, director, agent, affiliate or representative of the Lender, including without limitation accountants, legal counsel and other advisors; provided , however , that such Person shall agree to be bound by the confidentiality provisions set forth in this Section with respect to such information, (ii) to the extent required by applicable laws or regulations or by any subpoena or similar legal process, (iii) to the extent requested by any regulatory agency or authority, (iv) to the extent necessary in connection with the exercise of any remedy hereunder or any suit, action or proceeding relating to this Agreement or the enforcement of rights hereunder, (v) subject to provisions substantially similar to this Section 10.11 , to any actual or prospective assignee or Participant, or (vi) with the prior written consent of the Borrower. Any Person required to maintain the confidentiality of any information as provided for in this Section shall be considered to have complied with its obligation to do so if such Person has exercised the same degree of care to maintain the confidentiality of such information as such Person would accord its own confidential information, but in no event less than a reasonable degree of care.

Section 10.12. Waiver of Effect of Corporate Seal. The Borrower represents and warrants that it is not required to affix its corporate seal to this Agreement or any other Loan Document pursuant to any requirement of law or regulation, agrees that this Agreement is delivered by Borrower under seal and waives any shortening of the statute of limitations that may result from not affixing the corporate seal to this Agreement or such other Loan Documents.

Section 10.13. Patriot Act. The Lender hereby notifies the Borrower that pursuant to the requirements of the USA PATRIOT Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)) (the " Patriot Act "), it is required to obtain, verify and record information that identifies the Borrower, which information includes the name and address of the Borrower and other information that will allow Lender to identify the Borrower in accordance with the Patriot Act. The Borrower shall, and shall cause each of its Subsidiaries to, provide to the extent commercially reasonable, such information and take such other actions as are reasonably requested by the Lender in order to assist the Lender in maintaining compliance with the Patriot Act.

[Remainder of page intentionally left blank. Signatures appear on following pages]

IN WITNESS WHEREOF , the parties hereto have caused this Loan Agreement to be duly executed by their respective authorized officers as of the day and year first above written.

SMARTFINANCIAL, INC.

a Tennessee corporation

Name: William Y. Carroll, Jr.
Title: President and Chief Executive Officer

CAPSTAR BANK

as Lender

Name: Larry Brooks

Title: Senior Credit Officer

EXHIBIT A

FORM OF LINE OF CREDIT NOTE

Attached

EXHIBIT 2.2

FORM OF NOTICE OF BORROWING

[Date]

CapStar Bank

PO Box 305065

Nashville, Tennessee 37230

Attention: Mr. Larry Brooks

Ladies and Gentlemen:

Reference is made to the Loan Agreement dated as of October 31, 2017 (as amended and in effect on the date hereof, the " Agreement "), among the undersigned, as Borrower and CapStar Bank, as Lender. Terms defined in the Agreement are used herein with the same meanings. This notice constitutes the Notice of Borrowing, and the Borrower hereby requests a Borrowing pursuant to the Agreement, and in that connection the Borrower specifies the following information:

(A) The Borrowing is a Line of Credit Borrowing

(B) Amount of Borrowing: $[________]


(D)	Location and number of Borrower's account to which Borrowing is to be disbursed: _________________________

The Borrower hereby represents and warrants that the conditions specified in Section 3.2 of the Agreement are satisfied.

Very truly yours,

[SMARTFINANCIAL, INC.]

By:

Name:

Title:

EXHIBIT 3.1(b)(vii)

FORM OF OFFICER'S CERTIFICATE

[Insert Effective Date]

Reference is made to that certain Loan Agreement dated as of October 31, 2017 (as amended and in effect on the date hereof, the " Agreement ") among SMARTFINANCIAL, INC., a Tennessee corporation (the " Borrower ") and CAPSTAR BANK, as Lender. Terms defined in the Agreement are used herein with the same meanings. This certificate is being delivered pursuant to Section 3.1(b)(vii) of the Agreement.

I, _________, the ___________ of the Borrower, DO HEREBY CERTIFY that:


(a)	the representations and warranties of the Borrower set forth in the Agreement are true and correct on and as of the date hereof;


(b)	no Default or Event of Default has occurred and is continuing at the date hereof;


(c)	since December 31, 2016, there has been no change, event or other circumstance which has had or could reasonably be expected to have a Material Adverse Effect; and


(d)	no consents, approvals, authorizations, registrations, filings or orders of the type described in Section 3.1(b)(viii) of the agreement are required to be made or obtained in connection with the execution, delivery, performance, validity and enforceability of the Loan Documents or any of the transactions contemplated thereby.

IN WITNESS WHEREOF, I have hereunto signed my name as _________ of the Borrower and not in an individual capacity this _________ day of __________, 201_.

Name:

Title:

EXHIBIT 3.2(b)

FORM OF OFFICER'S CERTIFICATE

[Insert Closing Date]

Reference is made to that certain Loan Agreement dated as of October 31, 2017 (as amended and in effect on the date hereof, the " Agreement ") among SMARTFINANCIAL, INC., a Tennessee corporation (to be renamed SmartFinancial, Inc., the " Borrower ") and CAPSTAR BANK, as Lender. Terms defined in the Agreement are used herein with the same meanings. This certificate is being delivered pursuant to Section 3.2(b) of the Agreement.

I, _________, the ___________ of the Borrower, DO HEREBY CERTIFY that:


(a)	the representations and warranties of the Borrower set forth in the Agreement are true and correct on and as of the date hereof;


(b)	no Default or Event of Default has occurred and is continuing at the date hereof;


(c)	since December 31, 2016, there has been no change, event or other circumstance which has had or could reasonably be expected to have a Material Adverse Effect; and


(d)	no consents, approvals, authorizations, registrations, filings or orders of the type described in Section 3.1(b)(viii) of the agreement are required to be made or obtained in connection with the execution, delivery, performance, validity and enforceability of the Loan Documents or any of the transactions contemplated thereby.

IN WITNESS WHEREOF, I have hereunto signed my name as _________ of the Borrower and not in an individual capacity this _________ day of __________, 201_.

Name:

Title:

EXHIBIT 5.1(d)

FORM OF COMPLIANCE CERTIFICATE


To:	CapStar Bank

PO Box 305065

Nashville, Tennessee 37230

Attention: Larry Brooks

Ladies and Gentlemen:

Reference is made to that certain Loan Agreement dated as of October 31, 2017 (as amended and in effect on the date hereof, the " Agreement "), among SMARTFINANCIAL, INC., a Tennessee corporation (the " Borrower ") and CAPSTAR BANK, as Lender. Capitalized terms used herein and not otherwise defined shall have the meanings assigned to such terms in the Agreement.

I, ________________, being the duly elected and qualified, and acting only in my capacity as [Chief Financial Officer][President] of the Borrower, hereby certify to the Lender as follows:

1. The financial statements of the Borrower and its Subsidiaries for the Fiscal [Quarter / Year] ending provided to the Lender as provided in Section 5.1 of the Agreement fairly present in all material respects the financial condition of the Borrower and its Subsidiaries as at the end of such Fiscal [Quarter / Year] on a consolidated [(and, as applicable, consolidating)] basis, and the related statements of income and cash flows of the Borrower and its Subsidiaries for such Fiscal [Quarter / Year] , in accordance with generally accepted accounting principles consistently applied (subject, in the case of such quarterly Call Reports and FR-Y-9 Reports, to normal year-end audit adjustments and the absence of footnotes).

2. The calculations set forth in Attachment I are computations of the financial covenants set forth in Article VI of the Agreement calculated in accordance with the terms of the Agreement.

3. Based upon a review of the activities of Borrower and its Subsidiaries and the financial statements attached hereto during the period covered thereby, as of the date hereof, there exists no Default or Event of Default.

IN WITNESS WHEREOF, I have hereunto signed my name as [Chief Financial Officer][President] of the Borrower and not in an individual capacity this ____ day of _______________, 201_.

Name:

Title: [Chief Financial Officer][President]

Attachment I to Compliance Certificate

For the Fiscal [Quarter / Semiannual Period] ended___________, 201_


I.	Section 6.1 – Ratio of Nonperforming Assets to Total Assets (Tested for Each Financial Institution Subsidiary)



A. Nonperforming Loans:
1. Nonaccrual loans and lease financing receivables:		$
2. Loans and lease financing receivables that are contractually past due 90 days or more as to interest or principal and are still accruing interest:		$
3. Nonperforming Loans (Lines I.A.1 + I.A.2):		$
B. Other Real Estate Owned:		$
C. Nonperforming Assets (Lines I.A.3 + I.B.):		$
D. Total Assets:		$
E. Ratio of Nonperforming Assets to Total Assets (Line I.C ÷ Line I.D):		%
Maximum permitted at the end of each Fiscal Quarter :		3.25% [Pass] [Fail]

II. Section 6.2 – Texas Ratio (Tested for Each Financial Institution Subsidiary)
A. Nonperforming Assets (Lines I.C.):		$
B. Tangible Equity:
1. Total Equity Capital		$
2. Total Intangible Assets		$
3. Tangible Equity (Lines II.B.1 – II.B.2)		$
C. Allowance for Loan and Lease Losses:		$
D. Texas Ratio (Line II.A ÷ [Line II.B.3 + Line II.C]):		%
Maximum permitted at the end of each Fiscal Quarter :		35.00% [Pass] [Fail]

III. Section 6.3 – Liquidity Ratio (Tested for Each Financial Institution Subsidiary)
A. Cash and Balances Due From Depository Institutions:	$
B. Securities:	$
C. Federal Funds Sold and Securities Purchased Under Agreements to Resell:	$
D. Trading Assets:	$
E. Pledged Securities:	$
F. Total Liabilities:	$
G. Liquidity Ratio ([Line III.A + Line III.B + Line III.C + Line III.D – Line III.E] ÷ Line III.F0 (Current Fiscal Quarter)):	%
H. Liquidity Ratio for the prior two Quarters	%, %
Requirement:	More than 9.00%, and cannot be less than 10.00% for more than 2 quarters [Pass] [Fail]
IV. Section 6.4 – Return on Average Assets (Tested for Each Financial Institution Subsidiary)
A. Net Income:	$
B. Average Total Assets:	$
C. Return on Average Assets (Line IV.A ÷ Line IV.B):	%
Minimum permitted for each Fiscal Quarter:	0.45% for 12/31/17 through 9/30/18; 0.50% for 12/31/18 and thereafter [Pass] [Fail]
V. Section 6.5 – Debt Service Coverage Ratio (Tested for the Borrower and its Subsidiaries as of 6/30 and 12/31 of each Fiscal Year, commencing 12/31/2017)
A. Consolidated Net Income of the Borrower	$
B. Borrower's Interest Expenses:	$
C. Scheduled Amortization Payments of Borrower:	$
D. Cash Interest Payments of the Borrower:	$
E. Debt Service Coverage Ratio ([Line V.A + Line V.B] ÷ [Line V.C + Line V.D]):	___ :1.00
Minimum permitted:	1.25 : 1.00 [Pass] [Fail]
VI. Section 6.6 – Regulatory Capital As of the end of the Fiscal Quarter ended _________________, 201__, the Borrower and each Financial Subsidiary is "well capitalized" in accordance with, and satisfy each of the ratios specified in, Section 6.5 of the Credit Agreement.	[Yes - Pass] [No - Fail]
Total Risk-Based Capital Ratio (Tested for Each Financial Institution Subsidiary) – Not Less Than 10.50%	________% [Pass] [Fail]
Tier 1 Risk-Based Capital Ratio (Tested for Each Financial Institution Subsidiary) – Not Less Than 9.50%	________% [Pass] [Fail]
Tier 1 Leverage Ratio (Tested for Each Financial Institution Subsidiary) – Not Less Than 8.00%	________% [Pass] [Fail]

VI. Section 6.7 – Interest Coverage Ratio (Tested for the Borrower and its Subsidiaries as of 6/30 and 12/31 of each Fiscal Year, commencing 12/31/2017)
A. Consolidated Net Income of the Borrower	$
B. Borrower's Interest Expenses:	$
C. Cash Interest Payments of the Borrower:	$
D. Interest Coverage Ratio ([Line VII.A + Line V.B] ÷ [Line V.C]):	___ :1.00
Minimum permitted:	2.50 :1.00 [Pass] [Fail]

4830-2860-7570

Execution Version

STOCK PLEDGE AND SECURITY AGREEMENT

THIS STOCK PLEDGE AND SECURITY AGREEMENT (the “ Agreement ”), dated as of October 31, 2017, by SMARTFINANCIAL, INC., a Tennessee corporation (formerly known as CORNERSTONE BANCSHARES, INC., along with its successors and assigns, “ Pledgor ”) in favor of CAPSTAR BANK (the “ Secured Party ”) in order to further secure the Obligations (as herein defined) and for the consideration herein specified.

WITNESSETH :

WHEREAS, the Pledgor has requested a line of credit facility from the Secured Party in the original principal amount of up to Fifteen Million Dollars ($15,000,000.00) (the “ Loan ”); and

WHEREAS, the Pledgor acknowledges that the Secured Party would not make the Loan but for the pledge of the Pledged Shares (as herein defined) to the Secured Party, as the pledgee hereunder, to secure the Loan and all other Obligations (as herein defined), including all principal, interest, fees and other charges owed and to be owing thereon; and

WHEREAS, this Agreement is given by the Pledgor in favor of the Secured Party to secure the payment and performance of all of the Obligations;

NOW, THEREFORE, in consideration of the foregoing and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

AGREEMENT :

Section 1. Pledge . As security for the prompt payment, observance and performance when due (by acceleration or otherwise) of the Obligations, the Pledgor hereby pledges and grants to the Secured Party, a continuing first priority security interest in all of the Pledgor’s right, title and interest in and to, whether now existing or hereafter acquired, the following property:

(a) 100% of the common stock and Equity Interests of SmartBank, a Tennessee chartered commercial bank headquartered at Pigeon Forge, Tennessee (the “ Bank ”) registered on the stock transfer records of the Bank in the name of the Pledgor (the “ Pledged Shares ”) (which to the extent permitted by law are, and shall remain at all times until this Agreement terminates, certificated securities);

(b) all additional shares of Equity Interests of the Bank from time to time issued or issuable to the Pledgor, in whole or in part, including replacement securities, the securities of any successor in interest to the Bank, and any stock dividends (which to the extent permitted by law are, and shall remain at all times until this Agreement terminates, certificated securities) (which shares shall be deemed to be part of the Pledged Shares);

(c) all dividends, cash, options, warrants, rights, instruments, distributions, returns of capital, income, profits and other property, interests or proceeds from time to time received, receivable or otherwise distributed by the Bank (and any successor in interest of the Bank) in respect of or in exchange for any or all of the Pledged Shares (collectively, “ Distributions ”);

(d) all “proceeds” (as defined under the Uniform Commercial Code as in effect in Tennessee or under other relevant law) of any of the foregoing, and in any event including, without limitation, any and all (1) amounts paid or payable to the Pledgor with respect to the Pledged Shares; (2) payments (in any form whatsoever) made or due and payable to the Pledgor from time to time in connection with any requisition, confiscation, condemnation, seizure or forfeiture of all or any part of the Pledged Shares by any governmental authority (or any person acting on behalf of a governmental authority), (3) instruments representing obligations to pay amounts in respect of Pledged Shares, (4) products of the Pledged Shares, and (5) other amounts from time to time paid or payable under or in connection with any of the Pledged Shares.

Section 2. Obligations . This Agreement secures, and the Pledged Shares are hereby pledged to the Secured Party as collateral security for, the prompt payment and performance in full when due, whether at stated maturity, by acceleration or otherwise, of (a) the obligations of the Pledgor under this Agreement (including, without limitation, the obligation of the Pledgor to repay any and all sums advanced by the Secured Party, at its option, in respect of the Pledged Shares), and (b) the present and future obligations of the Pledgor to the Secured Party, including, without limitation, the “Obligations,” as such term is defined in the Loan Agreement, defined below (the “ Obligations ”).

Section 3. Loan and Loan Documents . The consideration for this Agreement consists of the Secured Party’s agreement to make the Loan and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by the Pledgor. At the date hereof, the “ Loan Documents ” are this Agreement, that certain Loan Agreement dated as of October 31, 2017 between Pledgor, as borrower, and Secured Party, as lender (as amended from time to time, the “ Loan Agreement ”), that certain Line of Credit Note dated as of October 31, 2017 from Pledgor, as borrower, to Secured Party, as payee. The “Loan Documents” shall also be deemed to include all present and future documents and instruments relating to the Obligations executed by Borrower, by Pledgor, by Bank, and/or by any other Person, together with all amendments, modifications, extensions, and/or other changes thereto at any time and from time to time. Any violation of this Agreement shall constitute an Event of Default; and any Default or Event of Default shall be a default hereunder.

Section 4. Delivery of Pledged Shares . All certificates evidencing the Pledged Shares shall be delivered to (to the extent not already delivered) and held by the Secured Party pursuant hereto. All Pledged Shares shall be in suitable form for transfer by delivery and shall be accompanied by duly executed undated transfer powers in blank (with signatures appropriately guaranteed) (the “ Transfer Powers ”), all in form and substance satisfactory to the Secured Party. The Secured Party shall have the right, at any time, and without notice to the Pledgor, to endorse, assign or otherwise transfer to or to register in the name of the Secured Party or any of its nominees any or all of the Pledged Shares. In addition, the Secured Party shall have the right at any time to exchange certificates representing or evidencing Pledged Shares for certificates of smaller or larger denominations.

Section 5. Supplements; Further Assurances .

(a) At any time and from time to time, at the expense of the Pledgor, the Pledgor shall promptly execute and deliver all further instruments and documents, including supplemental or additional UCC-1 financing statements, and take all further action that may be necessary or that the Secured Party may reasonably request, in order to perfect and protect any pledge or security interest granted or purported to be granted hereby or to enable the Secured Party to exercise and enforce its rights and remedies hereunder with respect to any Pledged Shares.

(b) The Pledgor shall, upon obtaining any additional shares of the stock of the Bank, promptly (and in any event within five business days) deliver to the Secured Party any certificates evidencing such shares of stock and duly executed Transfer Powers, all in form and substance satisfactory to the Secured Party. In the absence of any such stock transfer document or documents, the Pledgor hereby authorizes the Secured Party to execute such document or documents as it shall deem proper as attorney-in-fact for the Pledgor.

Section 6. Representations and Warranties . The Pledgor represents and warrants to the Secured Party, as an inducement to the Secured Party to make the Loan and to enter into the Loan Documents, that:

(a) The Pledgor is, and at the time of any delivery of any Pledged Shares to the Secured Party pursuant to Section 4 of this Agreement will be, the legal and beneficial owner of the Pledged Shares. All Pledged Shares are on the date hereof and will be, subject to Section 8 hereof, so owned by the Pledgor free and clear of any lien or other encumbrance except for the lien created by this Agreement and those certain Loan Documents (as defined in that certain Loan Agreement dated as of August 28, 2015, by and between Pledgor, as borrower and Secured Party as lender, the “ Prior Loan Documents ”). The Pledged Shares pledged by the Pledgor hereunder constitute all the issued and outstanding Equity Interests of all classes of the Bank.

(b) The Pledgor is a Tennessee corporation in good standing in the State of Tennessee and has full power, authority and legal right to pledge all the Pledged Shares pursuant to this Agreement.

(c) To Pledgor’s knowledge, no consent of any party (including, without limitation, any governmental agencies, boards, departments, stockholders or creditors of the Pledgor) and no authorization, approval, or other action by, and no notice to or filing with, any governmental authority or other Person or entity is required either (1) for the pledge by the Pledgor of the Pledged Shares pursuant to this Agreement or for the execution, delivery or performance of this Agreement by the Pledgor, (2) for the exercise by the Secured Party of the voting or other rights provided for in this Agreement, or (3) for the exercise by the Secured Party of the remedies in respect of the Pledged Shares pursuant to this Agreement.

(d) To Pledgor’s knowledge, all of the Pledged Shares have been, and to the extent hereafter issued will be upon such issuance, duly authorized and validly issued and fully paid and nonassessable.

(e) As of the date of this Agreement, the Pledgor’s chief executive office address is the one specified in Section 17 of this Agreement.

(f) The Pledgor has delivered to the Secured Party all certificates representing the Pledged Shares and such delivery and pledge of the Pledged Shares pursuant to this Agreement (or any prior Stock Pledge and Security Agreement between the parties) creates a valid and perfected first priority security interest or the comparable interest under foreign law in the Pledged Shares securing the payment of the Obligations pursuant to the Uniform Commercial Code in effect in the State of Tennessee.

(g) This Agreement constitutes the legal, valid and binding obligation of the Pledgor, enforceable against the Pledgor in accordance with its terms except as may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws affecting the enforcement of creditors' rights generally and by general principles of equity.

(h) All information set forth herein relating to the Pledged Shares is accurate and complete in all respects.

(i) The pledge of the Pledged Shares pursuant to this Agreement does not violate Regulation G, T, U or X or any other provision of any applicable law or regulation or any order, judgment, writ, award or decree of any court, arbitrator or governmental authority applicable to the Pledgor, to the Bank, or to the Pledged Shares.

(j) The Pledgor at all times will be the beneficial owner of the Pledged Shares.

Section 7. Voting Rights, Distributions, Etc .

(a) Prior to any Default or any vote that would be or result in a Default or Event of Default:

(1) The Pledgor shall be entitled to exercise any and all voting and other consensual rights pertaining to the Pledged Shares or any part thereof for any purpose not inconsistent with the terms or purpose of this Agreement or any of the other Loan Documents; provided, however, that the Pledgor shall not in any event exercise such rights in any manner which could reasonably be expected to have a material adverse effect on the value of the Pledged Shares or the security intended to be provided by this Agreement.

(2) Subject to the provisions of Section 1 hereof and the terms of the Loan Agreement, the Pledgor shall be entitled to receive and retain, and to utilize free and clear of the lien of this Agreement any and all cash Distributions; provided , however , that any and all Distributions consisting of rights or interests in the form of shares of stock shall be, and shall be forthwith delivered to the Secured Party to hold as Pledged Shares and shall, if received by the Pledgor, be received in trust for the benefit of the Secured Party, be segregated from the other property or funds of the Pledgor, and be forthwith delivered to the Secured Party as Pledged Shares in the same form as so received (with any necessary endorsement and stock powers executed in blank).

(3) The Secured Party shall be deemed without further action or formality to have granted to the Pledgor all necessary consents relating to voting rights and shall, if necessary, upon written request of the Pledgor and at the Pledgor’s sole expense, from time to time execute and deliver (or cause to be executed and delivered) to the Pledgor all such instruments as the Pledgor may reasonably request in order to permit the Pledgor to exercise the voting and other rights which it is entitled to exercise pursuant to Section 7(a)(1) hereof and to receive the Distributions which it is authorized to receive and retain pursuant to Section 7(a)(2) hereof.

(b) Upon any Default or Event of Default, or if the vote(s) to be cast by Pledgor would violate the terms of the Loan Documents or otherwise result in a default under this Agreement or Default or Event of Default under any of the other Loan Documents:

(1) All rights of the Pledgor to exercise the voting and other consensual rights Pledgor would otherwise be entitled to exercise pursuant to Section 7(a)(1) hereof without any action or the giving of any notice shall cease, and all such rights shall thereupon become vested in the Secured Party, which shall thereupon have the sole right to exercise such voting and other consensual rights.

(2) All rights of the Pledgor to receive cash Distributions which Pedgor would otherwise be authorized to receive and retain pursuant to Section 7(a)(2) hereof shall cease and all such rights shall thereupon become vested in the Secured Party, which shall thereupon have the sole right to receive such cash Distributions and to apply them to reduce the Obligations and the obligations of the Pledgor under this Agreement in such order and manner as Secured Party shall determine.

(3) The Pledgor shall, at its own expense, from time to time execute and deliver to the Secured Party appropriate instruments as the Secured Party may request in order to permit the Secured Party to exercise the voting and other rights which it may be entitled to exercise pursuant to Section 7(b)(1) hereof and to receive all Distributions which it may be entitled to receive under Section 7(b)(2) hereof.

(c) All Distributions which are received by the Pledgor contrary to the provisions of Section 7(b)(2) hereof shall be received in trust for the benefit of the Secured Party, shall be segregated from other funds of the Pledgor and shall immediately be paid over to the Secured Party.

Section 8. Transfers and Other Liens; Principal Office; Suretyship Defenses .

(a) The Pledgor shall not (1) sell, convey, assign or otherwise dispose of, or grant any option, right or warrant with respect to, any of the Pledged Shares or (2) create, suffer or permit to exist any lien or other encumbrance upon or with respect to the Pledged Shares other than the lien and security interest granted to the Secured Party under this Agreement and the Prior Loan Documents.

(b) The Pledgor shall not change the location or address of its chief executive office without giving the Secured Party not less than 45 days prior written notice of such change.

(c) By the signature below the Pledgor waives any claims or defenses based on suretyship defenses including, without limitation, release or impairment of collateral, impairment of rights of subrogation or contribution, or any comparable right, claim or defense.

Section 9. Reasonable Care . The Secured Party shall be deemed to have exercised reasonable care in the custody and preservation of the Pledged Shares in its possession if the Pledged Shares are accorded treatment substantially equivalent to that which the Secured Party, in its individual capacity, accords its own property consisting of similar instruments or interests, it being understood that the Secured Party shall not have responsibility for:

(a) ascertaining or taking action with respect to calls, conversions, exchanges, maturities, tenders or other matters relating to any Pledged Shares, whether or not the Secured Party has or is deemed to have knowledge of such matters, or

(b) taking any necessary steps to preserve rights against any person or entity with respect to any Pledged Shares.

Section 10. Remedies upon Default; Decisions Relating to Exercise .

(a) After a Default or Event of Default, the Secured Party shall be entitled to exercise any rights, powers and remedies (whether vested in it by this Agreement or by any other Loan Document or by law) for the protection and enforcement of the rights of the Secured Party in respect of the Pledged Shares, and the Secured Party may, in addition to other rights and remedies provided for herein or otherwise available to it to be exercised from time to time, do any one or more of the following acts, which the Pledgor hereby agrees to be commercially reasonable: (1) retain and apply the Distributions to the Obligations as provided for in Section 11 hereof, (2) transfer all or any part of the Pledged Shares into the Secured Party’s name or the name of its nominee or nominees, and (3) exercise all the rights and remedies of a secured party upon default under the Uniform Commercial Code in effect in any applicable jurisdiction at that time, and the Secured Party may also in its sole discretion, without notice except as specified below, sell the Pledged Shares or any part thereof (including, without limitation, any partial interest in the Pledged Shares) in one or more parcels at public or private sale, at any exchange, broker’s board or at any of the Secured Party’s offices or elsewhere, for cash, on credit or for future delivery, and at such price or prices and upon such other terms as the Secured Party may deem commercially reasonable, irrespective of the impact of any such sales on the market price of the Pledged Shares. The Secured Party or any of its affiliates may be the purchaser of any or all of the Pledged Shares at any such sale and shall be entitled, for the purpose of bidding and making settlement or payment of the purchase price for all or any portion of the Pledged Shares sold at such sale, to use and apply any of the Obligations owed to such person or entity as a credit on account of the purchase price of any Pledged Shares payable by such person at such sale. Each purchaser at any such sale shall acquire the property sold absolutely free from any claim or right on the part of the Pledgor, and the Pledgor hereby waives (to the full extent permitted by law) all rights of redemption, stay and/or appraisal which it now has or may at any time in the future have under any rule of law or statute now existing or hereafter enacted. The Pledgor acknowledges and agrees that, to the extent notice of sale shall be required by law, the sending or personal delivery of written notice to the Pledgor ten (10) days in advance of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification to the Pledgor. The Secured Party shall not be obligated to make any sale of Pledged Shares regardless of notice of sale having been given. The Secured Party may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned. The Pledgor hereby waives any claims against the Secured Party arising by reason of the fact that the price at which any Pledged Shares may have been sold at such a private sale was less than the price which might have been obtained at a public sale.

(b) The Pledgor recognizes that, by reason of certain prohibitions contained in the Securities Act of 1933, as amended (the “ Securities Act ”), and applicable state securities laws, the Secured Party may be compelled, with respect to any sale of all or any part of the Pledged Shares, to limit purchasers to persons who will agree, among other things, to acquire the Pledged Shares for their own account, for investment and not with a view to the distribution or resale thereof. The Pledgor acknowledges that any such private sales may be at prices and on terms less favorable to the Secured Party than those obtainable through a public sale without such restrictions (including, without limitation, a public offering made pursuant to a registration statement under the Securities Act), and, notwithstanding such circumstances, agrees that any such private sale shall be deemed to have been made in a commercially reasonable manner and that the Secured Party shall have no obligation to engage in public sales and no obligation to delay the sale of any Pledged Shares for the period of time necessary to permit the issuer thereof to register it for a form of public sale requiring registration under the Securities Act or under applicable state securities laws, even if such issuer would agree to do so.

(c) If the Secured Party determines to exercise its right to sell any or all of the Pledged Shares, upon written request, the Pledgor shall from time to time furnish to the Secured Party all such information as the Secured Party may request in order to determine the number of Pledged Shares which may be sold by the Secured Party as exempt transactions under the Securities Act and the rules of the Securities and Exchange Commission thereunder, and/or any applicable state securities commission or agency, as the same are from time to time in effect.

(d) In addition to any of the other rights and remedies hereunder, the Secured Party shall have the right to institute a proceeding seeking specific performance in connection with any of the agreements or obligations hereunder.

Section 11. Application of Proceeds . All Distributions held from time to time by the Secured Party and all cash proceeds received by the Secured Party in respect of any sale of, collection from, or other realization upon all or any part of the Pledged Shares pursuant to the exercise by the Secured Party of its remedies as a secured creditor as provided in Section 10 hereof shall be applied from time to time by the Secured Party to reduce the Obligations of the Pledgor to the Secured Party for principal, interest, fees or other charges, whether as to direct debt or guaranteed obligations, or both, as the Secured Party shall deem proper.

Section 12. Expenses . The Pledgor shall upon demand pay to the Secured Party the amount of any and all reasonable out of pocket expenses, including the reasonable fees and expenses of its counsel and the reasonable fees and expenses of any experts and agents, which the Secured Party may incur in connection with (a) the collection of the Obligations, (b) the administration of this Agreement, (c) the custody or preservation of, or the sale of, collection from, or other realization upon, any of the Pledged Shares, (d) the exercise or enforcement of any of the rights of the Secured Party hereunder or (e) the failure by the Pledgor to perform or observe any of the provisions hereof. All amounts payable by the Pledgor under this Section 12 shall be due upon demand and shall be part of the Obligations. The Pledgor’s obligations under this Section shall survive the termination of this Agreement and the discharge of the Pledgor’s other obligations hereunder.

Section 13. No Waiver; Cumulative Remedies .

(a) No failure on the part of the Secured Party to exercise, no course of dealing with respect to, and no delay on the part of the Secured Party in exercising, any right, power or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power or remedy hereunder preclude any other or further exercise thereof or the exercise of any other right, power or remedy. The remedies herein provided are cumulative and are not exclusive of any remedies provided by law.

(b) In the event the Secured Party shall have instituted any proceeding to enforce any right, power or remedy under this instrument by foreclosure, sale, entry or otherwise, and such proceeding shall have been discontinued or abandoned for any reason or shall have been determined adversely to the Secured Party, then and in every such case, the Pledgor and the Secured Party shall be restored to their respective former positions and rights hereunder with respect to the Pledged Shares, and all rights, remedies and powers of the Secured Party shall continue as if no such proceeding had been instituted.

Section 14. The Secured Party May Perform; The Secured Party Appointed Attorney-in-Fact . If the Pledgor shall fail to do any act or thing that the Pledgor has covenanted to do hereunder or any warranty on the part of the Pledgor contained herein shall be breached, the Secured Party may (but shall not be obligated to) do the same or cause it to be done or remedy any such breach, and may expend funds for such purpose. Any and all amounts so expended by the Secured Party shall be paid by the Pledgor promptly upon demand therefor, with interest at the highest rate then in effect under any promissory note of Pledgor held by Secured Party during the period from and including the date so expended to the date of repayment. The Pledgor’s obligations under this Section 14 shall survive the termination of this Agreement and the discharge of the Pledgor’s other obligations hereunder and under the Loan Documents. The Pledgor hereby appoints the Secured Party as its attorney-in-fact (a power coupled with an interest ) , with full authority in the place and stead of the Pledgor and in the name of the Pledgor, or otherwise, from time to time in the Secured Party’s discretion to take any action and to execute any instrument consistent with the terms of this Agreement and the other Loan Documents which the Secured Party may deem necessary or advisable to accomplish the purposes of this Agreement; provided , however , that Secured Party's authority granted in this Section 14 shall be exercisable only after the occurrence of a Default or Event of Default. The foregoing grant of authority is a power of attorney coupled with an interest and such appointment shall be irrevocable until this Agreement has been terminated as specified herein. The Pledgor hereby ratifies all that such attorney shall lawfully do or cause to be done by virtue hereof other than anything that constitutes gross negligence or willful misconduct by such attorney.

Section 15. Amendments; Etc . This Agreement may not be amended or modified except by written agreement of the Pledgor and the Secured Party, and no consent or waiver hereunder shall be valid unless in writing and signed by the person or persons giving such consent or waiver, provided that any amendment or modification that releases all or a significant portion of the Pledged Shares hereunder shall require only the written consent of the Secured Party.

Section 16. Future Advances, Etc . This Agreement shall secure payment of any amounts advanced from time to time pursuant to and/or in connection with the Obligations and shall secure all amounts now and hereafter owing with respect to the Obligations.

Section 17. Notices . All notices, requests and demands will be given to or made upon the respective parties hereto in writing (the term “in writing” to include reference to communications by overnight or same-day delivery (charges prepaid) by a courier, e-mail, or by facsimile provided the same are promptly confirmed by letter sent through the United States Postal Service, first-class postage prepaid) at their respective addresses as follows:


If to Pledgor	SmartFinancial, Inc.

5401 Kingston Pike, Suite 600

Knoxville, TN 37919

Attn: William Y. Carroll, Jr.

Telephone Number: (865) 868-0613
Fax Number: (865) 453-2204

Email: Billy.Carroll@smartbank.com


with a copy (which shall	Butler Snow LLP


not constitute notice) to:	150 3 ^rd Avenue South

Suite 1600

Nashville, Tennessee 37201

Attention: Adam G. Smith

Facsimile: (615) 651-6701

Email: Adam.Smith@butlersnow.com


If to Secured Party:	Capstar Bank PO Box 305065

Nashville, Tennessee 37230

Attn: Larry Brooks, Senior Risk Officer

Telephone Number: (615) 732-7522

Fax Number: (615) 732-7523

Email: lbrooks@capstarbank.com


with a copy (which shall	Waller Lansden Dortch & Davis, LLP


not constitute notice) to:	511 Union Street, Suite 2700

Nashville, Tennessee 37219

Attention: Robert L. Harris

Facsimile: (615) 244-6804

Email: rharris@wallerlaw.com

or as to any party at such other address as may be designated by it in a written notice to all other parties. All notices, requests, consents and demands hereunder will be effective (i) immediately when personally delivered; (ii) upon receipt if delivered by facsimile, e-mail or courier (by overnight or same-day delivery) or (iii) on the third business day after being sent if sent by United States Postal Service first-class postage prepaid.

Section 18. Governing Law . This Agreement shall be governed by, and shall be construed and enforced in accordance with, the internal laws of the State of Tennessee (without giving effect to the conflict of law provisions thereof).

Section 19. Severability of Provisions . Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof or affecting the validity or enforceability of such provision in any other jurisdiction.

Section 20. Execution in Counterparts . This Agreement and any amendments, waivers, consents or supplements hereto may be executed in any number of counterparts (including by telecopy, PDF, or other electronic medium, the same having full force and effect) and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original, but all such counterparts together shall constitute one and the same agreement.

Section 21. Loan Documents; Definitions . This Agreement, as the same may be amended or otherwise modified from time to time, is one of the Loan Documents executed by Pledgor in favor of the Secured Party in connection with the Loan. Capitalized terms used but not defined herein shall have the meanings set forth in the Loan Agreement.

Section 22. Headings . The Section headings used in this Agreement are for convenience of reference only and shall not affect the construction of this Agreement.

Section 23. Termination . When the Obligations have been indefeasibly and finally paid in full in cash and have been terminated this Agreement shall terminate. Upon termination of this Agreement, the Secured Party shall release the pledge of the Pledged Shares, shall return all certificates evidencing or representing the Pledged Shares and the Transfer Powers to the Pledgor, and shall terminate any UCC financing statements related to the Pledged Shares, unless otherwise required by law.

[Signatures on the following page]

IN WITNESS WHEREOF, the Pledgor has caused this Stock Pledge and Security Agreement to be duly executed and delivered by its officer thereunto duly authorized as of the date first above written.

PLEDGOR:

SMARTFINANCIAL, INC. , a Tennessee corporation

By:

Name: William Y. Carroll, Jr.
Its: President and Chief Executive Officer

SECURED PARTY:

CAPSTAR BANK

By:

Larry Brooks, Senior Credit Officer

4835-8151-5859

Execution Version

LINE OF CREDIT NOTE

$15,000,000 October 31, 2017

Nashville, Tennessee

FOR VALUE RECEIVED, the undersigned, SMARTFINANCIAL, INC., a Tennessee corporation (along with its successors and assigns, the “ Borrower ”), hereby promises to pay to CAPSTAR BANK (the “ Lender ”) or its registered assigns at its principal office, or any other office that the Lender designates, on the Maturity Date (as defined in the Loan Agreement dated as of the date hereof (as the same may be amended, restated, supplemented or otherwise modified from time to time, the “ Loan Agreement ”)), among the Borrower and Lender, the lesser of the principal sum of FIFTEEN MILLION AND 00/100 DOLLARS ($15,000,000.00) and the aggregate unpaid principal amount of the Line of Credit Facility made by the Lender to the Borrower pursuant to the Loan Agreement, in lawful money of the United States of America in immediately available funds, and to pay interest from the date hereof on the principal amount thereof from time to time outstanding, in like funds, at said office, at the rate or rates per annum and payable on such dates as provided in the Loan Agreement. Capitalized terms which are undefined herein shall have the meanings given to them in the Loan Agreement.

The Line of Credit Facility evidenced by this Line of Credit Note is secured by the Pledged Stock.

Upon the occurrence of an Event of Default, at the option of the Lender, the Borrower promises to pay interest, on demand, at a rate or rates provided in the Loan Agreement.

This Line of Credit Note is issued in connection with, and is entitled to the benefits of, the Loan Agreement which, among other things, contains provisions for the acceleration of the maturity hereof upon the happening of certain events and for the amendment or waiver of certain provisions of the Loan Agreement, all upon the terms and conditions therein specified.

THIS LINE OF CREDIT NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF TENNESSEE (WITHOUT GIVING EFFECT TO ANY CONFLICT OF LAWS) AND ANY APPLICABLE LAWS OF THE UNITED STATES OF AMERICA.

[SIGNATURE ON THE FOLLOWING PAGE]

IN WITNESS WHEREOF , intending to be legally bound, and intending that this agreement constitute an agreement executed under seal, the undersigned has executed this Note under seal as of the day and year first hereinabove set forth.

SMARTFINANCIAL, INC.

a Tennessee corporation

Name: William Y. Carroll, Jr.
Title: President and Chief Executive Officer

4811-4071-9186

EXHIBIT 31.1

CERTIFICATION

I, William Y. Carroll, Jr., certify that:


1.	I have reviewed this quarterly report on Form 10-Q of SmartFinancial, Inc (the “Registrant”);


2.	Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this period report;


4.	The Registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:


(a)	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervisions, to ensure that material information relating to the registrant, including its consolidated subsidiary, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


(b)	designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


(c)	evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


(d)	disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and


5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of Registrant’s board of directors:


(a)	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and


(b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.



Date: November 14, 2017	/s/ William Y. Carroll, Jr.

	William Y. Carroll, Jr.

	President and Chief Executive Officer

EXHIBIT 31.2

CERTIFICATION

I, Christopher Bryan Johnson, certify that:


1.	I have reviewed this quarterly report on Form 10-Q of SmartFinancial, Inc (the “Registrant”);


2.	Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this period report;


4.	The Registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:


(a)	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervisions, to ensure that material information relating to the registrant, including its consolidated subsidiary, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


(b)	designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


(c)	evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


(d)	disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and


5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of Registrant's board of directors:


(a)	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and


(b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.



Date: November 14, 2017	/s/ Christopher Bryan Johnson

	Christopher Bryan Johnson

	Chief Financial Officer

Exhibit 32.1

18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of SmartFinancial, Inc., (the “ Company ”), on Form 10-Q for the quarter ended September 30, 2017 , as filed with the Securities and Exchange Commission on the date hereof (the “ Report ”), I, William Y. Carroll, Jr., President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.



/s/ William Y. Carroll, Jr.

William Y. Carroll, Jr.

President and Chief Executive Officer

November 14, 2017

Exhibit 32.2

18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of SmartFinancial, Inc., (the “ Company ”), on Form 10-Q for the quarter ended September 30, 2017 , as filed with the Securities and Exchange Commission on the date hereof (the “ Report ”), I, Christopher Bryan Johnson, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.



/s/ Christopher Bryan Johnson

Christopher Bryan Johnson

Chief Financial Officer

November 14, 2017