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Section 1: 8-K (8-K SUBORDINATED DEBT OFFERING)

Document


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 8-K

CURRENT REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

Date of earliest event reported: September 28, 2018

SMARTFINANCIAL, INC.
(Exact Name of Registrant as Specified in its Charter)
 
 
 
 
 
Tennessee
 
333-203449
 
62-1173944
(State or Other Jurisdiction of Incorporation)
 
(Commission File Number)
 
(IRS 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)

N/A
(Former Name or Former Address, if Changed Since Last Report)


Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
 
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR §230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR §240.12b-2).

Emerging growth company   ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.   ☐






Item 1.01           Entry into a Material Definitive Agreement

On September 28, 2018, SmartFinancial, Inc. (the “Company”) entered into Subordinated Note Purchase Agreements (the “Purchase Agreements”) with certain institutional accredited investors (the “Purchasers”) pursuant to which the Company sold and issued $40,000,000 in aggregate principal amount of 5.625% Fixed-to-Floating Rate Subordinated Notes due October 2, 2028 (the “Notes”). The Notes were issued by the Company to the Purchasers at a price equal to 100% of their face amount. The Notes were offered and sold by the Company to eligible purchasers in a private offering in reliance on the exemptions from registration available under Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”), and the provisions of Regulation D thereunder (the “Private Placement”). The Company intends to use the net proceeds of the Private Placement to repay the outstanding balance on the Company’s existing revolving line of credit with CapStar Bank, to pay the cash consideration payable to holders of Foothills Bancorp, Inc. common stock and holders of options to purchase Foothills Bancorp, Inc. common stock in connection with the Company’s pending acquisition of Foothills Bancorp, Inc., and for other general corporate purposes, including improving the liquidity position at the Company and its wholly owned bank subsidiary, SmartBank. The Company’s line of credit with CapStar Bank remains in place and future borrowings thereunder, if any, will be subject to the terms of the loan agreement between the Company and CapStar Bank evidencing the line of credit.
 
The Notes have a stated maturity date of October 2, 2028, and will bear interest at a fixed annual rate of 5.625% from and including September 28, 2018, to but excluding October 2, 2023 (the “Fixed Interest Rate Period”). From and including October 2, 2023, to but excluding the maturity date or early redemption date (the “Floating Interest Rate Period”), the interest rate will reset quarterly to an annual floating rate equal to three-month LIBOR, or an alternative rate determined in accordance with the terms of the Notes if three-month LIBOR cannot be determined, plus 255 basis points. The Company will pay interest semi-annually in arrears during the Fixed Interest Rate Period and quarterly in arrears during the Floating Interest Rate Period. The Notes are redeemable by the Company, in whole or in part, on or after October 2, 2023, and at any time, in whole but not in part, upon the occurrence of certain events. The Purchase Agreements contain certain customary representations, warranties, and covenants made by the Company, on the one hand, and the Purchasers, severally and not jointly, on the other hand.
  
The form of Purchase Agreement is attached as Exhibit 10.1 to this Current Report on Form 8-K and is incorporated herein by reference. The description of the Purchase Agreements contained herein is a summary and is qualified in its entirety by reference to the form of the Purchase Agreement.
 
The Notes are not subject to any sinking fund and are not convertible into or exchangeable for any other securities or assets of the Company or any of its subsidiaries. The Notes are not subject to redemption at the option of the holder. Principal and interest on the Notes are subject to acceleration only in limited circumstances. The Notes are unsecured, subordinated obligations of the Company and generally rank junior in right to payment to the prior payment in full of all existing claims of creditors of the Company, whether now outstanding or subsequently created, assumed, or incurred. The Notes were designed to qualify initially as Tier 2 capital for regulatory capital purposes.
 
The form of Note is attached as Exhibit 4.1 to this Current Report on Form 8-K and is incorporated herein by reference. The description of the Notes contained herein is a summary and is qualified in its entirety by reference to the form of Note.

Item 2.03
Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant

The information set forth under Item 1.01 above is incorporated by reference into this Item 2.03.

Item 7.01    Regulation FD Disclosure

The Company used the presentation materials furnished herewith as Exhibit 99.1 to present the Private Placement to prospective eligible purchasers. The Company does not undertake to update these materials after the date of this

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Current Report on Form 8-K, nor will this Current Report on Form 8-K be deemed a determination or admission as to the materiality of any information contained herein (including the information in Exhibit 99.1).

The information set forth in this Item 7.01 (including the information in Exhibit 99.1) is being furnished to the Securities and Exchange Commission and shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to liability under the Exchange Act. Such information shall not be incorporated by reference into any registration statement or other document filed under the Securities Act or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.

Item 8.01    Other Events

On October 1, 2018, the Company issued a press release announcing the completion of the Private Placement. A copy of the press release is attached as Exhibit 99.2 to this Current Report on Form 8-K and incorporated herein by reference.
    
Item 9.01    Financial Statements and Exhibits

(d)     Exhibits

Number        Description of Exhibit

4.1
Form of 5.625% Fixed-to-Floating Subordinated Note due October 2, 2028
10.1
Form of Subordinated Note Purchase Agreement dated September 28, 2018, by and between SmartFinancial, Inc. and each Purchaser*
99.1        Investor Presentation Materials
99.2        Press Release, issued by SmartFinancial, Inc., dated October 1, 2018
* The registrant has omitted schedules and similar attachments to the subject agreement pursuant to Item 601(b)(2) of Regulation S-K. The registrant will furnish a copy of any omitted schedule or similar attachment to the SEC upon request.




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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

SMARTFINANCIAL, INC.

Date: October 1, 2018
/s/ William Y. Carroll Jr.            
William Y. Carroll, Jr.
President & Chief Executive Officer


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EXHIBIT INDEX

Number        Description of Exhibit

4.1Form of 5.625% Fixed-to-Floating Subordinated Note due October 2, 2028
10.1Form of Subordinated Note Purchase Agreement dated September 28, 2018, by and between SmartFinancial, Inc. and each Purchaser*
99.1Investor Presentation Materials
99.2Press Release, issued by SmartFinancial, Inc., dated October 1, 2018

* The registrant has omitted schedules and similar attachments to the subject agreement pursuant to Item 601(b)(2) of Regulation S-K. The registrant will furnish a copy of any omitted schedule or similar attachment to the SEC upon request.


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Section 2: EX-4.1 (EXHIBIT 4.1)

Exhibit
Exhibit 4.1

FORM OF SUBORDINATED NOTE

SMARTFINANCIAL, INC.

Fixed-to-Floating Rate Subordinated Note due October 2, 2028

Certificate No.:

QIB (CUSIP / ISIN): 83190LAB5 / US83190LAB53

THE INDEBTEDNESS EVIDENCED BY THIS SUBORDINATED NOTE (THIS “NOTE”) IS NOT A SAVINGS ACCOUNT, DEPOSIT OR OTHER OBLIGATION OF ANY BANK OR SAVINGS ASSOCIATION, AND IS NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION (THE “FDIC”) OR ANY OTHER GOVERNMENT AGENCY OR FUND.

THE INDEBTEDNESS EVIDENCED BY THIS NOTE IS SUBORDINATED AND JUNIOR IN RIGHT OF PAYMENT TO THE CLAIMS OF CREDITORS (OTHER THAN CREDITORS HOLDING EXISTING SUBORDINATED DEBT OR DEBT THAT BY ITS TERMS EXPRESSLY IS JUNIOR TO, OR RANKS EQUALLY IN RIGHT OF PAYMENT WITH, THIS NOTE) OF SMARTFINANCIAL, INC., A TENNESSEE CORPORATION (THE “ISSUER”), INCLUDING OBLIGATIONS OF THE ISSUER TO ITS GENERAL AND SECURED CREDITORS, AND IS UNSECURED. IT IS INELIGIBLE AS COLLATERAL FOR ANY EXTENSION OF CREDIT BY THE ISSUER OR ANY OF ITS SUBSIDIARIES. IN THE EVENT OF LIQUIDATION OF THE ISSUER, ALL CREDITORS OF THE ISSUER (OTHER THAN CREDITORS HOLDING EXISTING SUBORDINATED DEBT OR DEBT THAT BY ITS TERMS EXPRESSLY IS JUNIOR TO, OR RANKS EQUALLY IN RIGHT OF PAYMENT WITH, THIS NOTE) SHALL BE ENTITLED TO BE PAID IN FULL WITH SUCH INTEREST AS MAY BE PROVIDED BY LAW BEFORE ANY PAYMENT SHALL BE MADE ON ACCOUNT OF PRINCIPAL OF OR INTEREST ON THIS NOTE. AFTER PAYMENT IN FULL OF ALL SUMS OWING TO SUCH CREDITORS OF THE ISSUER, THE HOLDER OF THIS NOTE SHALL BE ENTITLED TO BE PAID FROM THE REMAINING ASSETS OF THE ISSUER THE UNPAID PRINCIPAL AMOUNT OF THIS NOTE PLUS ACCRUED AND UNPAID INTEREST THEREON BEFORE ANY PAYMENT OR OTHER DISTRIBUTION, WHETHER IN CASH, PROPERTY OR OTHERWISE, SHALL BE MADE ON ACCOUNT OF ANY SHARES OF CAPITAL STOCK OF THE ISSUER OR ANY OBLIGATION THAT BY ITS TERMS EXPRESSLY IS JUNIOR TO THIS NOTE. THIS NOTE IS NOT GUARANTEED BY THE ISSUER’S SUBSIDIARIES, INCLUDING SMARTBANK, A TENNESSEE STATE-CHARTERED BANK (THE “BANK”), AND, THEREFORE, THE NOTE IS STRUCTURALLY SUBORDINATE TO THE EXISTING AND FUTURE INDEBTEDNESS OF SUCH SUBSIDIARIES, INCLUDING WITHOUT LIMITATION THE BANK’S DEPOSITORS, LIABILITIES TO GENERAL CREDITORS AND LIABILITIES ARISING DURING THE ORDINARY COURSE OF BUSINESS OR OTHERWISE.

THIS NOTE WILL BE ISSUED AND MAY BE TRANSFERRED ONLY IN MINIMUM DENOMINATIONS OF $1,000 AND MULTIPLES OF $1,000 IN EXCESS THEREOF. ANY ATTEMPTED TRANSFER OF THIS NOTE IN A DENOMINATION OF LESS THAN $1,000 SHALL BE DEEMED TO BE VOID AND OF NO LEGAL EFFECT WHATSOEVER. ANY SUCH PURPORTED TRANSFEREE SHALL BE DEEMED NOT TO BE THE HOLDER OF THIS NOTE FOR ANY PURPOSE, INCLUDING, BUT NOT LIMITED TO, FOR PURPOSES OF THE RECEIPT OF PAYMENTS ON THIS NOTE, AND SUCH PURPORTED TRANSFEREE SHALL BE DEEMED TO HAVE NO INTEREST WHATSOEVER IN THIS NOTE.



THIS IS A GLOBAL NOTE WITHIN THE MEANING OF SECTION 2(a) OF THE ISSUING AND PAYING AGENT AGREEMENT DATED AS OF SEPTEMBER 28, 2018, BETWEEN THE ISSUER AND U.S. BANK NATIONAL ASSOCIATION, AS ISSUING AND PAYING AGENT (THE “PAYING AGENT AGREEMENT”).

UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION (“DTC”), TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATED NOTE ISSUED IN EXCHANGE FOR THIS NOTE OR ANY PORTION HEREOF IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC) PURSUANT TO AND IN ACCORDANCE WITH THE PAYING AGENT AGREEMENT, ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON OTHER THAN DTC OR A NOMINEE THEREOF IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.

THIS NOTE MAY BE SOLD ONLY IN COMPLIANCE WITH APPLICABLE FEDERAL AND STATE SECURITIES LAWS. THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY STATE SECURITIES LAWS OR ANY OTHER APPLICABLE SECURITIES LAWS. NEITHER THIS NOTE NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. THIS NOTE IS ISSUED SUBJECT TO THE PROVISIONS OF THE PAYING AGENT AGREEMENT, A COPY OF WHICH IS ON FILE WITH THE ISSUER.

CERTAIN ERISA CONSIDERATIONS:

EACH PURCHASER AND HOLDER OF THIS NOTE, OR ANY INTEREST HEREIN, BY ITS ACCEPTANCE HEREOF OR THEREOF ALSO AGREES, REPRESENTS AND WARRANTS THAT EITHER (i) IT IS NOT AN EMPLOYEE BENEFIT PLAN, INDIVIDUAL RETIREMENT ACCOUNT OR OTHER PLAN OR ARRANGEMENT SUBJECT TO TITLE I OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED (“ERISA”), OR SECTION 4975
OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE “CODE”) (EACH A “PLAN”), A TRUSTEE OR OTHER PERSON ACTING ON BEHALF OF ANY SUCH PLAN, OR AN
ENTITY WHOSE UNDERLYING ASSETS INCLUDE “PLAN ASSETS” BY REASON OF ANY PLAN’S INVESTMENT IN THE ENTITY, OR (ii) SUCH PURCHASER OR HOLDER IS ELIGIBLE
FOR THE EXEMPTIVE RELIEF AVAILABLE UNDER U.S. DEPARTMENT OF LABOR PROHIBITED TRANSACTION CLASS EXEMPTION 96-23, 95-60, 91-38, 90-1 OR 84-14 OR
ANOTHER APPLICABLE EXEMPTION OR ITS PURCHASE AND HOLDING OF THIS NOTE, OR
ANY INTEREST HEREIN, ARE NOT PROHIBITED BY SECTION 406 OF ERISA OR SECTION
4975 OF THE CODE. ANY FIDUCIARY OF ANY PLAN WHO IS CONSIDERING THE
ACQUISITION OF THIS NOTE OR ANY INTEREST HEREIN SHOULD CONSULT WITH HIS OR HER LEGAL COUNSEL PRIOR TO ACQUIRING THIS NOTE OR ANY INTEREST HEREIN.



Principal Amount: $40,000,000


SMARTFINANCIAL, INC.
Fixed-to-Floating Rate Subordinated Note due October 2, 2028

1. Payment. SmartFinancial, Inc., a Tennessee corporation (the “Issuer”), for value received, hereby promises to pay to the order of Cede & Co., or registered assigns, as nominee of The Depository Trust Company (“DTC”), the principal sum of forty million dollars (U.S.) ($40,000,000) plus accrued but unpaid interest on October 2, 2028 (the “Maturity Date”) and to pay interest in arrears on such principal amount: (i) for the period from September 28, 2018 to but excluding October 2, 2023, at the rate of 5.625% per annum (computed on the basis of a 360-day year of twelve 30-day months) from September 28, 2018, or from the most recent Fixed Interest Payment Date (as defined below) to which interest has been paid or duly provided, on April 2 and October 2 of each year (each, a “Fixed Interest Payment Date”), commencing April 2, 2019; and (ii) for the period from October 2, 2023 to but excluding the Maturity Date, at a rate per annum, reset quarterly, equal to Three -Month LIBOR (as defined below) determined on the Interest Rate Determination Date (as defined below) of the applicable Floating Rate Interest Period (as defined below) plus 255 basis points (computed on the basis of a 360-day year and the number of days actually elapsed) from October 2, 2023, or from the most recent Floating Interest Payment Date (as defined below) to whic h interest has been paid or duly provided, on January 2, April 2, July 2 and October 2 of each year (each, a “ Floating Interest Payment Date,” and each Fixed Interest Payment Date or Floating Interest Payment Date, an “Interest Payment Date”), commencing January 2, 2024, until the principal hereof is paid or made available for payment. For purposes of this Note (as defined herein), (x) “Floating Rate Interest Period” means each three-month period beginning on a scheduled Floating Interest Payment Date and (y) “Three- Month LIBOR” shall mean that rate for deposits in United States dollars for a three-month period as published by Reuters on Reuters Screen LIBOR03 (or such other page that may replace that page on that service or a successor service) as of 11:00 a.m., London, England, time on the day (the “Interest Rate Determination Date”) that is two LIBOR Business Days preceding the first day of such Floating Rate Interest Period (or if not so reported, then as determined by the Issuer from another recognized source or interbank quotation, and disclosed to the Noteholders (as defined herein)). Notwithstanding the foregoing, if the Three-Month LIBOR rate cannot be so determined as of an Interest Rate Determination Date for any reason, the Issuer shall select (with notice to each Holder (as defined herein)) an alternative rate, including any spread adjustments thereto (the “Alternative Rate”). Issuer shall use its commercially reasonable judgment in determining the Alternative Rate based on that rate determined by the U.K Financial Conduct Authority (the “FCA”) and generally being used as the successor to 3-month USD LIBOR; if no such successor rate has been determined by the FCA, Issuer shall use its commercially reasonable judgment in determining the Alternative Rate generally being used as the successor to 3-month USD LIBOR; provided, however, that, in either case, if the Issuer is notified by Noteholders holding a majority in principal amount of the outstanding Notes within five Business Days after the receipt by all Noteholders of notice of such Alternative Rate selection that such Noteholders reasonably believe that such Alternative Rate is not consistent with the successor for LIBOR, including any spread adjustments, generally used in quarterly pay floating rate obligations, then the Alternative Rate shall be the rate selected by the Issuer and consented to by the Noteholders holding a majority in principal amount of the outstanding Notes. All references herein to “LIBOR” will mean such Alternative Rate selected by the Issuer. A “LIBOR Business Day” shall mean a day on which the office of the Issuer is open for business and on which dealings in United States dollar deposits are carried out on the London interbank market.

Any payment of principal of or interest on this Fixed-to-Floating Rate Subordinated Note due October 2, 2028 (this “Note”) that would otherwise become due and payable on a day which is not a Business Day shall become due and payable on the next succeeding Business Day, with the same force




and effect as if made on the date for payment of such principal or interest, and no interest shall accrue in respect of such payment for the period after such day. The term “Business Day” means any day that is not a Saturday or Sunday and that is not a day on which banks in the State of New York are generally authorized or required by law or executive order to be closed.

2. Subordinated Notes. This Note is one of a duly authorized issue of notes of the Issuer designated as Fixed-to-Floating Rate Subordinated Notes due October 2, 2028 (herein called the “Subordinated Notes”), initially limited in aggregate principal amount to $40,000,000 and issued under the Issuing and Paying Agent Agreement dated as of September 28, 2018 (the “Paying Agent Agreement”), by and between the Issuer and U.S. Bank National Association, as Issuing and Paying Agent (herein called the “Paying Agent,” which term includes any successor issuing and paying agent under the Paying Agent Agreement), and reference is hereby made to the Paying Agent Agreement for a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Issuer and the Paying Agent and of the terms upon which the Subordinated Notes are, and are to be, authenticated and delivered. The holder in whose name any Subordinated Notes are registered on the Security Register (as defined herein) is referred to as a “Holder,” and all such Holders collectively are referred to as the “Noteholders.”

3. Subordination. The indebtedness of the Issuer evidenced by the Subordinated Notes, including the principal and interest on this Note, shall be subordinate and junior in right of payment to the prior payment in full of all existing claims of creditors of the Issuer, whether now outstanding or subsequently created, assumed or incurred (collectively, “Senior Indebtedness”), which shall consist of: (a) the principal of (and premium, if any) and interest, if any, on all indebtedness of the Issuer for money borrowed, whether or not evidenced by bonds, debentures, securities, notes or other written instruments, and including, but not limited to, all obligations to the Issuer’s general and secured creditors; (b) any deferred obligations of the Issuer for the payment of the purchase price of property or assets acquired other than in the ordinary course of business; (c) all obligations, contingent or otherwise, of the Issuer in respect of any letters of credit, bankers’ acceptances, security purchase facilities and similar credit transactions; (d) any capital lease obligations of the Issuer; (e) all obligations of the Issuer in respect of interest rate swap, cap or other similar agreements, interest rate future or option contracts, currency swap agreements, currency future or option contracts, commodity contracts and other similar arrangements; (f) all obligations of the type referred to in clauses (a) through (e) of other persons for the payment of which the Issuer is responsible or liable as obligor, guarantor or otherwise; (g) all obligations of the types referred to in clauses (a) through (f) of other persons secured by a lien on any property or asset of the Issuer; and (h) any and all amendments, renewals, extensions, modifications, and deferrals of the indebtedness and obligations of the type referred to in clauses (a) through (g); except “Senior Indebtedness” does not include (i) the Subordinated Notes, (ii) any obligation that by its terms expressly is junior to, or ranks equally in right of payment with, the Subordinated Notes, or (iii) any indebtedness between the Issuer and any of its subsidiaries or controlled Affiliates. This Note is not secured by any assets of the Issuer and is not covered by a guarantee of the Issuer or any Affiliate of the Issuer. This Note is also not guaranteed by the Issuer’s subsidiaries, including SmartBank, a Tennessee state-chartered bank (the “Bank”), and, therefore, this Note is structurally subordinate to the existing and future indebtedness of such subsidiaries, including without limitation the Bank’s depositors, liabilities to general creditors and liabilities arising during the ordinary course of business or otherwise. The term “Affiliates” means, with respect to any Person, such Person’s immediate family members, partners, members or parent and subsidiary corporations, and any other Person directly or indirectly controlling, controlled by, or under common control with said Person and their respective Affiliates. “Person” means an individual, a corporation (whether or not for profit), a partnership, a limited liability company, a joint venture, an association, a trust, an unincorporated organization, a government or any department or agency thereof or any other entity or organization.




Each Holder by accepting a Note authorizes and directs the Paying Agent on its behalf to take such action as may be necessary or appropriate to acknowledge or effectuate the subordination between the Noteholders and the holders of Senior Indebtedness of the Issuer as provided in this Section 3 and appoints the Paying Agent as attorney-in-fact for any and all such purposes.

In the event of any bankruptcy, insolvency, dissolution, assignment for the benefit of creditors, reorganization, restructuring of debt, marshaling of assets and liabilities, or similar proceedings or any liquidation or winding up of or relating to the Issuer, whether voluntary or involuntary, holders of Senior Indebtedness shall be entitled to be paid in full before any payment shall be made on account of the principal of or interest on the Subordinated Notes, including this Note. In the event of any such proceeding, after payment in full of all sums owing with respect to the Senior Indebtedness, the Noteholders, together with the holders of any obligations of the Issuer ranking on a parity with the Subordinated Notes, shall be entitled to be paid pro rata from the remaining assets of the Issuer the unpaid principal thereof (and premium, if any) and the unpaid interest thereon before any payment or other distribution, whether in cash, property or otherwise, shall be made on account of any capital stock of the Issuer or any obligation of the Issuer that, by its terms, expressly is junior to the Subordinated Notes.

If there shall have occurred and be continuing (a) a default in any payment with respect to any Senior Indebtedness or indebtedness that ranks equally in right of payment with the Subordinated Notes or (b) an event of default with respect to any Senior Indebtedness or indebtedness that ranks equally in right of payment with the Subordinated Notes as a result of which the maturity thereof is accelerated, unless and until such payment default or event of default shall have been cured or waived or shall have ceased to exist, no payments shall be made by the Issuer with respect to the Subordinated Notes. The provisions of this paragraph shall not apply to any payment with respect to which the immediately preceding paragraph of this Section 3 would be applicable.

Nothing herein shall act to prohibit, limit or impede the Issuer from issuing additional debt of the Issuer having the same rank as the Subordinated Notes or which may be junior or senior in rank to the Subordinated Notes.

4. Merger and Sale of Assets. The Issuer shall not consolidate with or merge into another entity, except for consolidations and mergers in which the Issuer continues as the surviving entity, or convey, transfer or lease substantially all of its properties and assets to any Person, unless:

(a) the entity formed by such consolidation or into which the Issuer is merged or the Person which acquires by conveyance or transfer or which leases substantially all of the properties and assets of the Issuer shall be a corporation, limited liability company, partnership, trust, association or other legal entity organized and existing under the laws of the United States of America, any State thereof or the District of Columbia and expressly assumes the due and punctual payment of the principal of and any premium and interest on the Subordinated Notes according to their terms, and the due and punctual performance of all covenants and conditions on the part of the Issuer to be performed or observed contained herein and in the Paying Agent Agreement; and

(b) immediately after giving effect to such transaction, no Event of Default (as defined below), and no event which, after notice or lapse of time or both, would become an Event of Default, shall have happened and be continuing.

Upon any such consolidation or merger, or conveyance, transfer, or lease, the successor Person formed, or into which the Issuer is merged or to which such conveyance, transfer, or lease is made, shall succeed to, and be substituted for, the Issuer under the Paying Agent Agreement, and the Issuer shall be released from all of its obligations pursuant thereto.




5. Negative Covenant(s). The Issuer shall not declare or pay any dividend or make any distribution on the capital stock or other equity securities of the Issuer (except for (a) dividends or distributions in shares of, or options, warrants or rights to subscribe for or purchase shares of, any class of the Issuer’s capital stock; (b) the declaration of dividends in connection with the implementation of a shareholders’ rights plan, or the issuance of stock under any such plan in the future, or the redemption or repurchase of any such rights pursuant thereto; (c) as a result of a reclassification of the Issuer’s capital stock or the exchange or conversion of one class or series of the Issuer’s capital stock for another class or series of the Issuer’s capital stock; (d) the purchase of fractional interests in shares of the Issuer’s capital stock pursuant to the conversion or exchange provisions of such capital stock or the security being converted or exchanged; and (e) purchases of shares of any class of the Issuer’s capital stock related to the issuance of common stock or rights under any benefit plans for the Issuer’s directors, officers or employees or any of the Issuer’s dividend reinvestment plans), if either of the Issuer or the Bank is not “well capitalized” for regulatory capital purposes both immediately prior to the declaration of such dividend or distribution and after giving effect to the payment of such dividend or distribution.

6. Events of Default; Acceleration. Each of the following events shall constitute an “Event of Default”:

(a) the Issuer materially fails to keep or perform any of its material agreements, undertakings, obligations, or covenants under the Subordinated Note Purchase Agreement pursuant to which this Note was issued (the “Purchase Agreement”) or under this Note and such failure continues (i) for a period of 30 days, in the event of the failure of the Issuer to make any required payment of interest on this Note, or (ii) for a period of 30 days after the Issuer has received written notice thereof, in the event of any other failure other than a failure addressed by clause (i) of this Section 6(a) or a failure to pay any required principal on this Note when due, which failure to pay principal shall constitute an Event of Default immediately upon the occurrence of such failure;

(b) any certification made by the Issuer to the Holder pursuant to the Purchase Agreement or otherwise made in writing by the Issuer to the Noteholders in connection with or as contemplated by the Purchase Agreement or the Subordinated Notes shall be materially incorrect or false as of the delivery date of such certification, or any representation by the Issuer to the Noteholders as to the financial condition or credit standing of the Issuer is or proves to be materially false or misleading as of the date such representation was made; provided that no such Event of Default shall be deemed to be continuing after such time as Issuer has notified the Noteholders thereof;

(c) a court or other governmental agency or body having jurisdiction on the premises shall enter a decree or order for the appointment of a receiver, liquidator, trustee or other similar official in any bankruptcy, liquidation, insolvency or similar proceeding with respect to the Issuer or all or substantially all of the property of the Issuer or for the winding up of the affairs or business of the Issuer and such decree or order shall have remained in effect for 90 days; or

(d) if, pursuant to any bankruptcy, reorganization, arrangement, insolvency, readjustment of debt, dissolution or liquidation law or statute of the federal government or any state government that, by its express terms, is applicable to the Issuer, (i) any proceedings involving the Issuer are commenced by or against the Issuer, or (ii) a trustee of any substantial part of the assets of the Issuer is applied for or appointed, and the Issuer by any action or failure to act indicates its approval of, consent to or acquiescence in any of the foregoing, or an order shall be entered approving the petition in such proceedings, or approving the application for or appointment of such trustee, and within 60 days after the entry of such order or such appointment such order or appointment is not vacated or stayed on appeal or otherwise, or shall not otherwise have ceased to continue in effect.




Notwithstanding any cure periods provided for above, the Issuer shall, promptly upon becoming aware of any Event of Default, deliver or cause to be delivered to each Holder, at the Holder’s address shown on the Security Register (as defined in Section 11 below), written notice of such Event of Default, unless such Event of Default shall have been cured or waived before the giving of such notice as certified by the Issuer in writing.

Unless the principal of this Note already shall have become due and payable, if an Event of Default set forth in subsections (c) or (d) above shall have occurred and be continuing, the Holder of this Note, by notice in writing to the Issuer, may declare the principal amount of this Note to be due and payable immediately and, upon any such declaration, the same shall become and shall be immediately due and payable. In such case, the Issuer hereby waives demand, presentment for payment, notice of nonpayment, notice of protest, and all other notices.

7. Failure to Make Payment. Notwithstanding any cure period provided for in Section 6, in the event of failure by the Issuer to make any required payment of principal or interest on this Note (and, in the case of payment of interest, such failure to pay shall have continued for 30 calendar days), the Issuer will, upon demand of the Holder, pay to the Holder the amount then due and payable on this Note for principal and interest (without acceleration of the Note in any manner), with interest on the overdue principal and interest at the rate borne by this Note, to the extent permitted by applicable law. If the Issuer fails to pay such amount upon such demand, the Holder may, among other things, institute a judicial proceeding for the collection of the sums so due and unpaid, may prosecute such proceeding to judgment or final decree and may enforce the same against the Issuer and collect the amounts adjudged or decreed to be payable in the manner provided by law out of the property of the Issuer.

During the continuance of an Event of Default, except as required by any federal or state governmental agency, the Issuer shall not (a) declare or pay any dividends or distributions on, or redeem, purchase, acquire, or make a liquidation payment with respect to, any of the Issuer’s capital stock, (b) make any payment of principal or interest or premium, if any, on or repay, repurchase or redeem any debt securities of the Issuer that rank equal with or junior to the Subordinated Notes, or (c) make any payments under any guarantee that ranks equal with or junior to the Subordinated Notes, in each case other than (i) any dividends or distributions in shares of, or options, warrants or rights to subscribe for or purchase shares of, any class of the Issuer’s capital stock; (ii) any declaration of a dividend in connection with the implementation of a shareholders’ rights plan, or the issuance of stock under any such plan in the future, or the redemption or repurchase of any such rights pursuant thereto; (iii) as a result of a reclassification of the Issuer’s capital stock or the exchange or conversion of one class or series of the Issuer’s capital stock for another class or series of the Issuer’s capital stock; (iv) the purchase of fractional interests in shares of the Issuer’s capital stock pursuant to the conversion or exchange provisions of such capital stock or the security being converted or exchanged; or (v) purchases of shares of any class of the Issuer’s capital stock related to the issuance of capital stock or rights under any benefit plans for the Issuer’s directors, officers or employees or any of the Issuer’s dividend reinvestment plans.

8. Redemption.

(a) Special Event Redemption. In the event (i) this Note no longer qualifies, or there is a material risk that this Note will, within 120 days, no longer qualify, as “Tier 2” capital (as defined by the Board of Governors of the Federal Reserve System (the “Federal Reserve”) (“Tier 2 Capital”)) as a result of a change (or potential change) in law or regulation or any interpretation or application of law or regulation by any judicial, legislative or regulatory authority that becomes effective after the date of issuance of this Note, (ii) of a Tax Event (as defined below) or (iii) the Issuer becomes required, or there is a material risk that the Issuer will be required, within 120 days, to register as an investment company pursuant to the Investment Company Act of 1940, as amended (an “Investment Company Event”), the




Issuer may redeem this Note in whole, but not in part, at any time upon giving not less than 10 days’ notice to the Holder of this Note at an amount equal to 100% of the principal amount outstanding plus accrued but unpaid interest and any late fee, if applicable, to but excluding the redemption date, which notice may be conditional. “Tax Event” means the receipt by the Issuer of an opinion of counsel to the Issuer that as a result of any amendment to, or change (including any final and adopted (or enacted) prospective change) in, the laws (or any regulations thereunder) of the United States or any political subdivision or taxing authority thereof or therein, or as a result of any official administrative pronouncement or judicial action or decision interpreting or applying such laws or regulations, there exists a material risk that interest payable by the Issuer on the Subordinated Notes is not, or within 120 days after the receipt of such opinion will not be, deductible by the Issuer, in whole or in part, for United States federal income tax purposes.

(b) Redemption on or after October 2, 2023. On or after the Interest Payment Date of October 2, 2023, this Note shall be redeemable by the Issuer on any Interest Payment Date, in whole at any time, or in part from time to time, at an amount equal to 100% of the outstanding principal amount to be redeemed, plus accrued but unpaid interest thereon to but excluding the redemption date.

(c) Any such redemption or prepayment shall be subject to receipt of any and all required federal and state regulatory approvals, including, but not limited to, the consent of the Federal Reserve. In the case of any redemption or prepayment of this Note, the Issuer will give the Holder notice not less than 30 nor more than 60 calendar days prior to the redemption or prepayment date as to the aggregate principal amount to be redeemed or prepaid, which notice may be conditional. Any partial redemption of the Subordinated Notes shall be made pro rata among the Noteholders based on the aggregate principal amount of Subordinated Notes held by each Holder.

(d) If notice of redemption has been duly given, and notwithstanding that this Note has been called for redemption but has not yet been surrendered for cancellation, on and after the date fixed for redemption, interest shall cease to accrue on the portion of this Note called for redemption, the portion of this Note called for redemption shall no longer be deemed outstanding and all rights with respect to the portion of this Note called for redemption shall forthwith on such date fixed for redemption cease and terminate unless the Issuer shall default in the payment of the redemption price, except only the right of the Holder to receive the amount payable on such redemption, without interest.

(e) Subject to any required federal and state regulatory approvals and the provisions of this Note, the Issuer shall have the right to purchase any of the Subordinated Notes at any time in the open market, private transactions or otherwise. If the Issuer purchases any Subordinated Notes, it may, in its discretion, hold, resell or cancel any of the purchased Subordinated Notes.

9. Payment Procedures. Payment of the principal and interest payable on the Maturity Date will be made by check, or by wire transfer in immediately available funds to a bank account in the United States designated by the registered Holder of this Note if such Holder shall have previously provided wire instructions to the Paying Agent, upon presentation and surrender of this Note at the office of the Paying Agent or at such other place or places as the Issuer shall designate by notice to the registered Noteholders as the payment office, provided that this Note is presented to the Paying Agent in time for the Paying Agent to make such payments in such funds in accordance with its normal procedures. Payments of interest (other than interest payable on the Maturity Date) shall be made by wire transfer in immediately available funds or check mailed to the registered Holder, as such Person’s address appears on the Security Register (as defined below) maintained by the Paying Agent. Interest payable on any Interest Payment Date shall be payable to the Holder in whose name this Note is registered at the close of business on the March 15, June 15, September 15 or December 15, as the case may be (whether or not a Business Day), immediately preceding such Interest Payment Date (such date being referred to herein as the “Regular




Record Date”), except that interest not paid on the Interest Payment Date, if any, will be paid to the Holder in whose name this Note is registered at the close of business on a special record date fixed by the Issuer (a “Special Record Date”), notice of which shall be given to the Holder not less than 10 calendar days prior to such Special Record Date. The Regular Record Date and Special Record Date are referred to herein collectively as the “Record Dates”. To the extent permitted by applicable law, interest shall accrue, at the rate at which interest accrues on the principal of this Note, on any amount of principal or interest on this Note not paid when due. All payments on this Note shall be applied first against interest due hereunder; and then against principal due hereunder. Holder acknowledges and agrees that the payment of all or any portion of the outstanding principal amount of this Subordinated Note and all interest hereon shall be pari passu in right of payment and in all other respects to the other Subordinated Notes. In the event Holder receives payments in excess of its pro rata share of the Issuer’s payments to the Noteholders, then Holder shall hold in trust all such excess payments for the benefit of the other Noteholders and shall pay such amounts held in trust to such other Noteholders upon demand by such Noteholders.

10. Form of Payment; Unclaimed Payments. Payments of principal and interest on this Note shall be made in such coin or currency of the United States of America as at the time of payment shall be legal tender for the payment of public and private debts. Any money that the Issuer pays to the Paying Agent for the purpose of making payments on this Note and that remains unclaimed two years after the payments were due will, at the Issuer’s request, be returned to it. After that time, the Holder of this Note can only look to the Issuer for payment on this Note.

11. Registration of Transfer; Security Register. Except as otherwise provided herein, this Note is transferable in whole or in part, and may be exchanged for a like aggregate principal amount of Subordinated Notes of other authorized denominations, by the Holder in person, or by his attorney duly authorized in writing, at the office of the Paying Agent or at such other place or places as the Issuer shall designate by notice to the registered Noteholders as the payment office. The Paying Agent shall maintain a register providing for the registration of the Subordinated Notes and any exchange or transfer thereof (the “Security Register”). Upon surrender or presentation of this Note for exchange or registration of transfer, the Issuer shall execute and deliver in exchange therefor a Subordinated Note or Subordinated Notes of like aggregate principal amount, each in a minimum denomination of $1,000 or any amount in excess thereof which is an integral multiple of $1,000 (and, in the absence of an opinion of counsel satisfactory to the Issuer to the contrary, bearing the restrictive legend(s) set forth hereinabove) and that is or are registered in such name or names requested by the Holder. Any Note presented or surrendered for registration of transfer or for exchange shall be duly endorsed and accompanied by a written instrument of transfer in such form as is attached hereto and incorporated herein, duly executed by the Holder or his attorney duly authorized in writing, with such tax identification number or other information for each Person in whose name a Subordinated Note is to be issued, and accompanied by evidence of compliance with any restrictive legend(s) appearing on such Subordinated Note or Subordinated Notes as the Issuer may reasonably request to comply with applicable law. No exchange or registration of transfer of this Note shall be made on or after the fifteenth day immediately preceding the Maturity Date.

12. Charges and Transfer Taxes. No service charge (other than any cost of delivery) shall be imposed for any exchange or registration of transfer of this Note, but the Paying Agent or the Issuer may require the payment from the Holder of this Note of a sum sufficient to cover any stamp or other tax or governmental fee or charge that may be imposed in connection therewith (other than exchanges pursuant to the Paying Agent Agreement not involving any transfer) or presentation of evidence that such tax, charge or fee has been paid.

13. Ownership. Prior to due presentment of this Note for registration of transfer, the Issuer may treat the Holder in whose name this Note is registered in the Security Register as the absolute owner




of this Note for receiving payments of principal and interest on this Note and for all other purposes whatsoever, whether or not this Note be overdue, and the Issuer shall not be affected by any notice to the contrary.

14. Notices. All notices to the Issuer under this Note shall be in writing and addressed to the Issuer at 5401 Kingston Pike, Suite 600, Knoxville, Tennessee 37919 , Attention: Chief Executive Officer and Chief Financial Officer, or to such other address or to the attention of such other Person(s) as may be designated by the Issuer by notice to the Holder. All notices to the Noteholders shall be in writing and sent by first-class mail to each Holder at his or its address as set forth in the Security Register. For so long as the Subordinated Notes are represented by a Global Note, any notices to Noteholders will be delivered to DTC as the sole Holder in accordance with its applicable policies as in effect from time to time.

15. Denominations. The Subordinated Notes are issuable only as fully registered notes without interest coupons in minimum denominations of $1,000 or any amount in excess thereof which is an integral multiple of $1,000.

16. Absolute and Unconditional Obligation of the Issuer. No provisions of this Note shall alter or impair the obligation of the Issuer, which is absolute and unconditional, to pay the principal and interest on this Note at the times, places and rate, and in the coin or currency, herein prescribed.

17. Waiver and Consent; Amendment; Modification.

(a) Any consent or waiver given by the Holder of this Note shall be conclusive and binding upon such Holder and upon all future Holders of this Note and of any Subordinated Note issued upon the registration of transfer hereof or in exchange therefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this Note. This Note and any provision hereof may be also amended or waived pursuant to, and in accordance with, the provisions of Section 8.3 of the Purchase Agreement. If all or any portion of the Subordinated Notes ceases to be deemed to be Tier 2 Capital, to the extent it is being treated as such by the Issuer, other than due to the limitation imposed on the capital treatment of subordinated debt during the five years immediately preceding the Maturity Date of the Subordinated Notes, the Issuer will immediately notify the Holder, and thereafter, subject to the Issuer’s right to redeem the Subordinated Notes pursuant to Section 8, if the Issuer elects to restructure the Subordinated Notes to qualify as Tier 2 Capital, the Issuer and the Holder will work together in good faith to execute and deliver all agreements as reasonably necessary in order to restructure the applicable portions of the obligations evidenced by this Note to qualify as Tier 2 Capital.

(b) No delay or omission of the Holder to exercise any right or remedy accruing upon any Event of Default shall impair such right or remedy or constitute a waiver of any such Event of Default or an acquiescence therein.

(c) Any insured depository institution which shall be a Holder of this Note or which otherwise shall have any beneficial ownership interest in this Note shall, by its acceptance of such Note (or beneficial interest therein), be deemed to have waived any right of offset with respect to the indebtedness evidenced thereby.

(d) Notwithstanding any other portion of this Section 17, without the consent of any Noteholders, the Issuer and the Paying Agent may make or enter into one or more amendments to or modifications of the Paying Agent Agreement or the Subordinated Notes, in form reasonably satisfactory to both the Issuer and the Paying Agent, to (i) evidence the succession of another entity to the Issuer and the assumption by any such successor of the obligations of the Issuer contained in the Paying Agent




Agreement and in the Subordinated Notes, (ii) change or eliminate any of the provisions of the Paying Agent Agreement, provided that any such change or elimination shall become effective only when there is no outstanding Subordinated Note created prior to the execution of such change or elimination which is entitled to the benefit of such change or elimination, (iii) establish other forms or terms of the Subordinated Notes as permitted in the Paying Agent Agreement, (iv) evidence and provide for the acceptance of appointment under the Paying Agent Agreement by a successor Paying Agent, (v) cure any ambiguity or correct or supplement any provisions in the Paying Agent Agreement or in this Note which may be inconsistent with any other provisions herein or in the Paying Agent Agreement, or make any other provisions with respect to matters or questions arising herein or in the Paying Agent Agreement; provided that such action shall not adversely affect the interests of any Holder in any material respect as determined in good faith by the board of directors of the Issuer, (vi) modify the restrictions on and procedures for resales and other transfers of the Subordinated Notes to reflect any change in applicable law or regulation (or the interpretation thereof) or in practices relating to the resale or other transfer of restricted securities generally, or (vii) modify, eliminate or add to the provisions of the Paying Agent Agreement to such extent as shall be necessary to qualify the Paying Agent Agreement (including any supplemental agreement thereto) under the Trust Indenture Act of 1939, as amended, or under any similar statute hereafter enacted.

18. Further Issues. The Issuer may, without the consent of the Noteholders, create and issue additional notes having the same terms and conditions as the Subordinated Notes (except for the issue date and issue price) so that such additional notes shall be consolidated and form a single series with the Subordinated Notes.

19. Governing Law; Interpretation. This Note shall be governed by and construed in accordance with applicable federal law and the laws of the State of New York, without regard to conflict of laws principles of said state. This Note is intended to meet the criteria for qualification of the outstanding principal as Tier 2 Capital under the regulatory guidelines of the Federal Reserve, and the terms hereof shall be interpreted in a manner to satisfy such intent.

20. Priority. The Subordinated Notes rank pari passu among themselves and pari passu, in the event of any insolvency, bankruptcy, dissolution, assignment for the benefit of creditors, reorganization, restructuring of debt, marshaling of assets and liabilities or similar proceedings or any liquidation or winding up of the Issuer, with all other present or future unsecured subordinated debt obligations of the Issuer, except any unsecured subordinated debt that, pursuant to its express terms, is senior or subordinate in right of payment to the Subordinated Notes.

21. No Sinking Fund; Convertibility. This Note is not entitled to the benefit of any sinking fund or any compensating balance or any other funds or assets subject to a legal right of offset, as defined by applicable state law. This Note is not convertible into or exchangeable for any of the equity or other securities or assets of the Issuer or any of its subsidiaries.

22. No Recourse Against Others. This Note shall be binding upon the Issuer and its successors and permitted assigns. Other than the obligations, covenants and agreements to be performed hereunder by the Issuer and its successors and permitted assigns, no recourse under or upon any obligation, covenant or agreement contained in this Note, or for any claim based thereon or otherwise in respect thereof, will be had against any past, present or future shareholder, employee, officer, or director, as such, of the Issuer or of any predecessor or successor (other than any successor to the Issuer), either directly or through the Issuer or any predecessor or successor (other than any successor to the Issuer), under any rule of law, statute or constitutional provision or by the enforcement of any assessment or by any legal or equitable proceeding or otherwise, all such liability being expressly waived and released by




the acceptance of this Note by the Holder of this Note and as part of the consideration for the issuance of this Note.




IN WITNESS WHEREOF, the undersigned has caused this Note to be duly executed and attested and its corporate seal to be hereunto affixed.

SMARTFINANCIAL, INC.




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


ATTEST:




_________________________
Christopher Bryan Johnson
Chief Financial Officer










































[Signature Page to Subordinated Note]




ISSUING AND PAYING AGENT CERTIFICATE OF AUTHENTICATION

This is one of the Notes of SmartFinancial, Inc. issued under the within-referenced Paying Agent
Agreement:

U.S. BANK NATIONAL ASSOCIATION, as Issuing and Paying Agent




By:     

Name:     

Title:     

Dated:     




ASSIGNMENT FORM To assign this Note, fill in the form below:
I or we assign and transfer this Note to:

__________________________________________________________________
(Print or type assignee’s name, address and zip code)


____________________________________________________________________________________________
(Insert assignee’s social security or tax I.D. No.)



and irrevocably appoint agent to transfer this Note on the books of
SmartFinancial, Inc. (the “Issuer”). The agent may substitute another to act for him.

Date: Your Signature:     



Signature Guarantee:      (Signature must be guaranteed)

______________________________________________________________________________________________
Sign exactly as your name appears on the other side of this Note.

The signature(s) should be guaranteed by an eligible guarantor institution (banks, stockbrokers, savings and loan associations and credit unions with membership in an approved signature guarantee medallion program), pursuant to Rule 17Ad-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

The signatory hereto hereby certifies that it __ is / ___ is not an Affiliate of the Issuer and that, to its knowledge, the proposed transferee __is/ __ is not an Affiliate of the Issuer.

In connection with any transfer or exchange of any of the Note(s) evidenced by this certificate occurring prior to the date that is one year after the later of the date of original issuance of such Note(s) and the last date, if any, on which such Note(s) were owned by the Issuer or any Affiliate of the Issuer, the undersigned confirms that such Note(s) are being:

(1) 395194985_exhibit41formofsubord_image3.gif acquired for the undersigned’s own account, without transfer; or

(2) 395194985_exhibit41formofsubord_image3.gif transferred to the Issuer; or

(3) 395194985_exhibit41formofsubord_image3.gif transferred pursuant to and in compliance with Rule 144A under the Securities Act of
1933, as amended (the “Securities Act”); or

(4) 395194985_exhibit41formofsubord_image3.gif transferred pursuant to an effective registration statement under the Securities Act; or

(5) 395194985_exhibit41formofsubord_image3.gif transferred pursuant to and in compliance with Regulation S under the Securities Act; or

(6) 395194985_exhibit41formofsubord_image3.gif transferred to an institutional “accredited investor” (as defined in Rule 501(a)(1), (2), (3) or under the Securities Act) or an “accredited investor” (as defined in Rule 501(a)(4) under the Securities Act), that has furnished a signed letter containing certain representations and agreements; or





(7) 395194985_exhibit41formofsubord_image3.gif transferred pursuant to another available exemption from the registration requirements of the Securities Act.

Unless one of the above boxes is checked, the Issuer will refuse to register any of the Notes evidenced by this certificate in the name of any person other than the registered holder thereof; provided, however, that if box (5), (6) or (7) is checked, the Issuer may require, prior to registering any such transfer of the Notes, in its sole discretion, such legal opinions, certifications and other information as the Issuer may reasonably request to confirm that such transfer is being made pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act, such as the exemption provided by Rule 144 under the Securities Act.
_______________________________________
Signature


Signature Guarantee:
__________________________________________________________________________________
Signature (must be guaranteed) Signature

The signature(s) should be guaranteed by an eligible guarantor institution (banks, stockbrokers, savings and loan associations and credit unions with membership in an approved signature guarantee medallion program), pursuant to Exchange Act Rule 17Ad-15.


TO BE COMPLETED BY PURCHASER IF BOX (1) OR (3) ABOVE IS CHECKED.

The undersigned represents and warrants that it is purchasing this Note for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a “qualified institutional buyer” within the meaning of Rule 144A under the Securities Act of 1933, as amended, and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Issuer as the undersigned has requested pursuant to Rule
144A or has determined not to request such information and that it is aware that the transferor is relying
upon the undersigned’s foregoing representations in order to claim the exemption from registration
provided by Rule 144A.


_________________________________
Signature
Date:     





25445419.1


(Back To Top)

Section 3: EX-10.1 (EXHIBIT 10.1)

Exhibit
Exhibit 10.1

SUBORDINATED NOTE PURCHASE AGREEMENT

This SUBORDINATED NOTE PURCHASE AGREEMENT (this “Agreement”) is dated as of September 28, 2018, and is made by and among SmartFinancial, Inc., a Tennessee corporation (“Company”), and the purchaser(s) of the Subordinated Notes (as defined herein) named on Schedule I hereto (each a “Purchaser” and collectively, the “Purchasers”).

RECITALS

WHEREAS, Company has requested that the Purchasers purchase from Company a portion of the up to $40,000,000 in aggregate principal amount of Subordinated Notes that Company intends to issue pursuant to this Agreement and the Additional Note Purchase Agreements (as defined herein), which aggregate amount is intended to be eligible to qualify as Tier 2 Capital (as defined herein) for the Company.

WHEREAS, Company has engaged Keefe, Bruyette & Woods, Inc. as its exclusive placement agent (“Placement Agent”) for the offering of the Subordinated Notes.

WHEREAS, each of the Purchasers is an institutional “accredited investor” as such term is defined by Rule 501 of Regulation D (“Regulation D”) promulgated under the Securities Act of 1933, as amended (the “Securities Act”).

WHEREAS, the offer and sale of the Subordinated Notes by Company is being made in reliance upon the exemptions from registration available under Section 4(a)(2) of the Securities Act and Rule 506(b) of Regulation D.

WHEREAS, each Purchaser is willing to purchase from Company a Subordinated Note in the principal amount set forth in Schedule I (the “Subordinated Note Amount”), and Company is willing to sell such Subordinated Notes, in each case in accordance with the terms, subject to the conditions and in reliance on the recitals, representations, warranties, covenants and agreements set forth herein and in the Subordinated Notes.

WHEREAS, concurrently with the Company’s entering into this Agreement, the Company is entering into additional Subordinated Note Purchase Agreements, each dated as of the date hereof (each, an “Additional Note Purchase Agreement”), with other purchasers of Subordinated Notes, and pursuant to this Agreement and the Additional Note Purchase Agreements, the Company will issue up to $40,000,000 in aggregate principal amount of Subordinated Notes.

NOW, THEREFORE, in consideration of the mutual covenants, conditions and agreements herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:

AGREEMENT

1. DEFINITIONS AND INTERPRETATION.

1.1 Defined Terms. The following capitalized terms used in this Agreement have the meanings defined or referenced below.

Additional Note Purchase Agreement” has the meaning set forth in the Recitals.



Affiliate(s)” means, with respect to any Person, such Person’s immediate family members, partners, members or parent and subsidiary corporations, and any other Person directly or indirectly controlling, controlled by, or under common control with said Person and their respective Affiliates.

Agreement” has the meaning set forth in the preamble hereto.

Bank” means SmartBank, a Tennessee state-chartered bank and wholly owned subsidiary of
Company.

Business Day” means any day other than a Saturday, Sunday or any other day on which banking institutions in the State of New York are permitted or required by any applicable law or executive order to close.

Closing” has the meaning set forth in Section 2.2.

Closing Date” means September 28, 2018.

Company” has the meaning set forth in the preamble hereto and shall include any successors to
Company.

Company’s Liabilities” means Company’s obligations under the Transaction Documents.

Company’s Reports” means (i) Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017 as filed with the Securities and Exchange Commission on March 16, 2018; (ii) Company’s Quarterly Reports on Form 10-Q for the quarterly periods ended March 31, 2018 and June 30,
2018, as filed with the Securities and Exchange Commission on May 10, 2018 and August 9, 2018, respectively; (iii) Company’s Definitive Proxy Statement on Schedule 14A related to its 2018 Annual
Meeting of Shareholders, as filed with the Securities and Exchange Commission on April 2, 2018; and
(iv) the report on Form FRY-9LP filed by Company for the six-months ended June 30, 2018.

Disbursement” has the meaning set forth in Section 3.1.

Equity Interest” means any and all shares, interests, participations or other equivalents (however designated) of capital stock of a corporation, any and all equivalent ownership interests in a Person which is not a corporation, and any and all warrants, options or other rights to purchase any of the foregoing.
Event of Default” has the meaning set forth in the Subordinated Notes. “FDIC” means the Federal Deposit Insurance Corporation.

FRB” means the Board of Governors of the Federal Reserve System.

GAAP” means generally accepted accounting principles in effect from time to time in the United
States of America.

Governmental Agency(ies)” means, individually or collectively, any federal, state, county or local governmental department, commission, board, regulatory authority or agency (including, without limitation, each applicable Regulatory Agency) with jurisdiction over Company, Bank, or any of their Subsidiaries.

Governmental Licenses” has the meaning set forth in Section 4.3.




Hazardous Materials” means flammable explosives, asbestos, urea formaldehyde insulation, polychlorinated biphenyls, radioactive materials, hazardous wastes, toxic or contaminated substances or similar materials, including, without limitation, any substances which are “hazardous substances,” “hazardous wastes,” “hazardous materials” or “toxic substances” under the Hazardous Materials Laws and/or other applicable environmental laws, ordinances or regulations.

Hazardous Materials Laws” means any laws, regulations, permits, licenses or requirements pertaining to the protection, preservation, conservation or regulation of the environment which relate to real property, including: the Clean Air Act, as amended, 42 U.S.C. Section 7401 et seq.; the Federal Water Pollution Control Act, as amended, 33 U.S.C. Section 1251 et seq.; the Resource Conservation and Recovery Act of 1976, as amended, 42 U.S.C. Section 6901 et seq.; the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended (including the Superfund Amendments and Reauthorization Act of 1986), 42 U.S.C. Section 9601 et seq.; the Toxic Substances Control Act, as amended, 15 U.S.C. Section 2601 et seq.; the Occupational Safety and Health Act, as amended, 29 U.S.C. Section 651, et seq.; the Emergency Planning and Community Right-to-Know Act of 1986, 42 U.S.C. Section 11001 et seq.; the Mine Safety and Health Act of 1977, as amended, 30 U.S.C. Section 801 et seq.; the Safe Drinking Water Act, 42 U.S.C. Section 300f et seq.; and all comparable state and local laws, laws of other jurisdictions or orders and regulations.

Indebtedness” means and includes: (i) all items arising from the borrowing of money that, according to GAAP as in effect from time to time, would be included in determining total liabilities as shown on the consolidated balance sheet of Company or any Subsidiary of Company; and (ii) all obligations secured by any lien in property or other assets owned by Company or any Subsidiary of Company whether or not such obligations shall have been assumed; provided, however, Indebtedness shall not include deposits or other indebtedness created, incurred or maintained in the ordinary course of Company’s or Bank’s or their respective Subsidiaries’ business (including, without limitation, federal funds purchased, advances from any Federal Home Loan Bank, secured deposits of municipalities, letters of credit issued by Company or Bank and repurchase arrangements) and consistent with customary banking practices and applicable laws and regulations.

Leases” means all leases, licenses or other documents providing for the use or occupancy of any portion of any Property, including all amendments, extensions, renewals, supplements, modifications, sublets and assignments thereof and all separate letters or separate agreements relating thereto.

Material Adverse Effect” means, with respect to any Person, any change or effect that (i) is or would be reasonably likely to be material and adverse to the financial position, results of operations or business of such Person, or (ii) would materially impair the ability of such Person to perform its respective obligations under any of the Transaction Documents, or otherwise materially impede the consummation of the transactions contemplated hereby; provided, however, that “Material Adverse Effect” shall not be deemed to include the impact of (1) changes in applicable laws, rules or regulations or interpretations thereof by Governmental Agencies, (2) changes in GAAP or regulatory accounting requirements applicable to financial institutions and their holding companies generally, (3) changes after the date of this Agreement in general economic or capital market conditions affecting financial institutions and their holding companies or their market prices generally and not specifically related to Company or Purchasers, (4) direct effects of compliance with this Agreement or the Additional Note Purchase Agreements on the operating performance of Company or Purchasers, including expenses incurred by Company or Purchasers in consummating the transactions contemplated by this Agreement or the Additional Note Purchase Agreements, (5) the effects of any action or omission taken by Company with the prior written consent of Purchasers, and vice versa, or as otherwise contemplated by this Agreement and the Subordinated Notes or the Additional Note Purchase Agreements, and (6) changes in global or national political conditions, including the outbreak or escalation of war or acts of terrorism.




Maturity Date” has the meaning ascribed to such term in the Subordinated Note.

Paying Agent Agreement” means the Issuing and Paying Agent Agreement to be dated as of
September 28, 2018 by and between Company and U.S. Bank National Association.

Person” means an individual, a corporation (whether or not for profit), a partnership, a limited liability company, a joint venture, an association, a trust, an unincorporated organization, a government or any department or agency thereof (including a Governmental Agency) or any other entity or organization.

Placement Agent” has the meaning set forth in the Recitals.

Property” means any real property owned or leased by Company, Bank or any Subsidiary of
Company or Bank.

Purchasers” has the meaning set forth in the preamble hereto.

Regulation D” has the meaning set forth in the Recitals.

Regulatory Agencies” means any federal or state agency charged with the supervision or regulation of depository institutions or holding companies of depository institutions, or engaged in the insurance of depository institution deposits, or any court, administrative agency or commission or other authority, body or agency having supervisory or regulatory authority with respect to Company, Bank or any of their Subsidiaries.

SEC” means the Securities and Exchange Commission.

Secondary Market Transaction” has the meaning set forth in Section 5.5.

Securities Act” has the meaning set forth in the Recitals.

Subordinated Notes” means the Fixed-to-Floating Rate Subordinated Notes due October 2,
2018, in the form attached as Exhibit A hereto (including, for the avoidance of doubt, the Subordinated
Notes issued pursuant to the Additional Note Purchase Agreements), as amended, restated, supplemented or modified from time to time, and each Subordinated Note delivered in substitution or exchange for such Subordinated Notes.

Subordinated Note Amount” has the meaning set forth in the Recitals.

Subsidiary” means with respect to any Person, any corporation or entity in which a majority of the outstanding Equity Interest is directly or indirectly owned by such Person.

Tier 2 Capital” has the meaning given to the term “Tier 2 capital” in 12 C.F.R. Part 217 and 12
C.F.R. Part 250, as amended, modified and supplemented and in effect from time to time or any replacement thereof.

Transaction Documents” has the meaning set forth in Section 3.2.1.

1.2 Interpretations. The foregoing definitions are equally applicable to both the singular and plural forms of the terms defined. The words “hereof”, “herein” and “hereunder” and words of like import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement. The word “including” when used in this Agreement without the phrase “without limitation,” shall mean “including, without limitation.” All references to time of day herein are




references to Eastern Time unless otherwise specifically provided. All references to the Agreement and Subordinated Notes shall be deemed to be to such documents as amended, modified or restated from time to time. With respect to any reference in this Agreement to any defined term, (i) if such defined term refers to a Person, then it shall also mean all heirs, legal representatives and permitted successors and assigns of such Person, and (ii) if such defined term refers to a document, instrument or agreement, then it shall also include any amendment, replacement, extension or other modification thereof.

1.3 Exhibits Incorporated. All Exhibits attached are hereby incorporated into this
Agreement.

2. SUBORDINATED DEBT.

2.1 General Matters.

2.1.1 Certain Terms. Subject to the terms and conditions herein contained, Company proposes to issue and sell to the Purchasers, severally and not jointly, Subordinated Notes in an aggregate principal amount equal to the aggregate of the Subordinated Note Amounts. Purchasers, severally and not jointly, each agree to purchase such Subordinated Notes at a purchase price equal to
100% of the principal amount of the Subordinated Notes purchased (the “Purchase Price”) from Company on the Closing Date in accordance with the terms of, and subject to the conditions and provisions set forth in, this Agreement and the Subordinated Notes. The Subordinated Note Amounts shall be disbursed in accordance with Section 3.1.

2.2 The Closing. The execution and delivery of the Transaction Documents (the “Closing”) shall occur at the offices of Company at 10:00 a.m. (local time) on the Closing Date, or at such other place or time(s) or on such other date(s) as the parties hereto may agree.

2.3 No Right of Offset. Each Purchaser hereby expressly waives any right of offset it may have against Company.

3. DISBURSEMENT.

3.1 Disbursement. On the Closing Date, assuming all of the terms and conditions set forth in Section 3.2 have been satisfied by Company, each Purchaser shall disburse in immediately available funds the Subordinated Note Amount set forth next to its name in Schedule I to Company in exchange for a Subordinated Note with a principal amount equal to such Subordinated Note Amount (the “Disbursement”). Delivery of the Subordinated Notes shall be through the facilities of The Depository Trust Company. To the extent that any payment of the Purchase Price to Company is initiated by any third party (including any placement agent in respect of the Subordinated Notes) on behalf of one or more Purchasers, each Purchaser and Company hereby acknowledge that such third party shall not be deemed a purchaser of Subordinated Notes for purposes of this Agreement or otherwise, and that any and all obligations of Company and each Purchaser hereunder shall remain in full force and effect with respect to each other, and such third party shall not be deemed to have assumed any obligation or liability hereunder.

3.2 Conditions Precedent to Disbursement. In conjunction with and as additional (but independent) supporting evidence for certain of the covenants, representations and warranties made by Company herein, prior to and as a condition of the Disbursement, Company shall deliver or cause to be delivered to Purchasers each of the following:




3.2.1 Transaction Documents. This Agreement, the Paying Agent Agreement and the Subordinated Notes issued pursuant hereto (collectively, the “Transaction Documents”), each duly authorized and executed by Company.

3.2.2 Authority Documents.

3.2.2.1 A copy, certified by the Secretary or Assistant Secretary of
Company, of the Charter of Company;

3.2.2.2 A certificate of good standing of Company issued by the Secretary of
State of the State of Tennessee;

3.2.2.3 A copy, certified by the Secretary or Assistant Secretary of
Company, of the Bylaws of Company;

3.2.2.4 A copy, certified by the Secretary or Assistant Secretary of Company, of the resolutions of the board of directors of Company or a committee thereof authorizing the execution, delivery and performance of the Transaction Documents;

3.2.2.5 An incumbency certificate of the Secretary or Assistant Secretary of Company certifying the names of the officer or officers of Company authorized to sign the Transaction Documents and the other documents provided for in this Agreement; and

3.2.2.6 The opinion of Butler Snow LLP, counsel to Company, dated as of the Closing Date, substantially in the form set forth as Exhibit B attached hereto addressed to the Purchasers and Placement Agent.

3.2.3 Officer’s Certificate. A certificate signed on behalf of Company by a senior executive officer certifying that: (i) the representations and warranties of Company set forth in Sections
4.2.1, 4.2.3, 4.4.3 and 4.5 are true and correct in all respects on and as of the date of this Agreement and on and as of the Closing Date as though made on and as of the Closing Date; (ii) the other representations and warranties of Company set forth in Section 4 of this Agreement are true and correct in all respects on
and as of the date of this Agreement and on and as of the Closing Date as though made on and as of the
Closing Date, except where the failure to be true and correct (without regard to any materiality or
Material Adverse Effect qualifications contained therein), individually or in the aggregate, would not be reasonably likely to have a Material Adverse Effect on Company (except that representations and warranties made as of a specified date shall only be required to be true and correct as of such date); and (iii) Company has performed, satisfied, and complied with in all material respects all covenants, agreements, and conditions required by this Agreement to be performed, satisfied, or complied with by Company at or prior to the Closing.

3.2.4 Other Documents. Such other certificates, affidavits, schedules, resolutions, notes and/or other documents which are provided for hereunder or as a Purchaser may reasonably request.

3.2.5 3.2.5 Aggregate Investment. The obligation of each Purchaser to consummate the purchase of the Subordinated Notes to be purchased by it at Closing and to effect the Disbursement is subject to delivery by or at the direction of the Company to such Purchaser evidence that the aggregate initial principal amount of Subordinated Notes to be sold at Closing pursuant to this Agreement and the Additional Note Purchase Agreements equals or exceeds $35,000,000.




4. REPRESENTATIONS AND WARRANTIES OF COMPANY.

Company hereby represents and warrants, as of the date hereof, to each Purchaser that:

4.1 Organization and Authority.

4.1.1 Organization Matters of Company and Its Subsidiaries.

4.1.1.1 Company is duly organized, validly existing and in good standing under the laws of the State of Tennessee and has all requisite corporate power and authority to conduct its business and activities as presently conducted, to own its properties, and to perform its obligations under the Transaction Documents. Company is duly qualified as a foreign corporation to transact business and is in good standing in each other jurisdiction in which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of business, except where the failure so to qualify or to be in good standing would not result in a Material Adverse Effect on Company. Company is duly registered as a bank holding company under the Bank Holding Company Act of 1956, as amended.

4.1.1.2 Each Subsidiary of Company has been duly organized and is validly existing as a corporation or limited liability company, in each case in good standing under the laws of the jurisdiction of its incorporation or organization, has corporate or other similar power and authority to own, lease and operate its properties and to conduct its business and is duly qualified as a foreign entity to transact business and is in good standing in each jurisdiction in which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of business, except where the failure so to qualify or to be in good standing would not result in a Material Adverse Effect on Company. All of the issued and outstanding shares of capital stock or other equity interests in each Subsidiary of Company have been duly authorized and validly issued, are fully paid and non-assessable and are owned by Company, directly or through Subsidiaries, free and clear of any security interest, mortgage, pledge, lien, encumbrance or claim, except that all of the outstanding shares of capital stock and other equity interests of the Bank have been pledged by Company to secure certain indebtedness of the Company to CapStar Bank (Nashville, Tennessee); none of the outstanding shares of capital stock of, or other equity interests in, any Subsidiary were issued in violation of the preemptive or similar rights of any securityholder of such Subsidiary or any other entity.

4.1.1.3 Bank is a Tennessee state-chartered bank, the deposit accounts of which are insured by the FDIC up to applicable limits. Bank has not received any notice or other information indicating that Bank is not an “insured depository institution” as defined in 12 U.S.C. Section 1813, nor has any event occurred which would reasonably be expected to materially and adversely affect the status of Bank as an FDIC-insured institution.

4.1.2 Capital Stock and Related Matters. All of the outstanding capital stock of Company has been duly authorized and validly issued and is fully paid and nonassessable. None of the outstanding shares of capital stock of Company were issued in violation of the preemptive or other similar rights of any security holder of Company. There are, as of the date hereof, no outstanding options, warrants, rights, or other agreements or instruments obligating Company to issue, deliver or sell, or cause to be issued, delivered or sold, additional shares of the capital stock of Company or obligating Company to grant, extend or enter into any such option, warrant, right, or other agreement or instrument to or with any Person other than Company, except for such as are outstanding pursuant to equity incentive or similar plans duly adopted by Company’s board of directors or assumed by Company.




4.2 No Impediment to Transactions.

4.2.1 Transaction is Legal and Authorized. Company’s issuance of the Subordinated Notes, the borrowing by Company of the aggregate of the Subordinated Note Amounts, Company’s execution of the Transaction Documents and compliance by Company with all of the provisions of the Transaction Documents are within the corporate and other powers of Company.

4.2.2 Agreement and Paying Agent Agreement. Each of this Agreement and the Paying Agent Agreement has been duly authorized, executed and delivered by Company, and, assuming due authorization, execution and delivery by the other parties hereto and thereto, constitutes the legal, valid and binding obligation of Company, enforceable in accordance with its terms, except as enforcement thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to or affecting creditors’ rights generally or by general equitable principles.

4.2.3 Subordinated Notes. The Subordinated Notes have been duly authorized by Company and when issued and delivered to and paid for by the Purchasers in accordance with the terms of the Agreement and the Paying Agent Agreement, will have been duly executed, issued and delivered, and will constitute legal, valid and binding obligations of Company and will be enforceable in accordance with their terms, except as enforcement thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to or affecting creditors’ rights generally or by general equitable principles.

4.2.4 No Defaults or Restrictions. Neither the execution and delivery of the Transaction Documents nor compliance with their respective terms and conditions will (i) violate, conflict with or result in a breach of, or constitute a default under: (1) the Charter or Bylaws of Company; (2) any of the terms, obligations, covenants, conditions or provisions of any contract, indenture, mortgage, deed of trust, pledge, bank loan or credit agreement, or any other agreement or instrument to which Company or Bank, as applicable, is now a party or by which it or any of its properties may be bound or affected; (3) any judgment, order, writ, injunction, decree or demand of any court, arbitrator, grand jury, or Governmental Agency; or (4) any statute, rule or regulation applicable to Company, except, in the case of items (2), (3) and (4), for such violations, conflicts, breaches and defaults that would not reasonably be expected to have, singularly or in the aggregate, a Material Adverse Effect on Company, or (ii) result in the creation or imposition of any lien, charge or encumbrance of any nature whatsoever upon any property or asset of Company. Except for covenant breaches that have been waived, neither Company nor Bank is in 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 any other agreement or instrument to which Company or Bank, as applicable, is a party or by which Company or Bank, as applicable, or any of its properties may be bound or affected, except, in each case, such defaults that would not reasonably be expected to have, singularly or in the aggregate, a Material Adverse Effect on Company.

4.2.5 Governmental Consent. No governmental orders, permissions, consents, approvals or authorizations are required to be obtained by Company that have not been obtained, and no registrations or declarations are required to be filed by Company that have not been filed, in connection with or in contemplation of the execution and delivery of, and performance under, the Transaction Documents, except for such as are required by applicable requirements, if any, of the Securities Act and state securities or blue sky laws.




4.3 Possession of Licenses and Permits. Company and its Subsidiaries possess such permits, licenses, approvals, consents and other authorizations (collectively, “Governmental Licenses”) issued by the appropriate Governmental Agencies necessary to conduct the business now conducted by them except where the failure to possess such Governmental Licenses would not, singularly or in the aggregate, have a Material Adverse Effect on Company; Company and each Subsidiary of Company is in compliance with the terms and conditions of all such Governmental Licenses, except where the failure so to comply would not, singularly or in the aggregate, have a Material Adverse Effect on Company; all of the Governmental Licenses are valid and in full force and effect, except where the invalidity of such Governmental Licenses or the failure of such Governmental Licenses to be in full force and effect would not have a Material Adverse Effect on Company; and neither Company nor any Subsidiary of Company has received any notice of proceedings relating to the revocation or modification of any such Governmental Licenses, which proceedings if not favorably determined would, singularly or in the aggregate, have a Material Adverse Effect on Company.

4.4 Financial Condition.

4.4.1 Company Financial Statements. The financial statements of Company included in the Company’s Reports (including the related notes, where applicable), which have been made available to Purchasers (i) have been prepared from, and are in accordance with, the books and records of Company; (ii) fairly present in all material respects the results of operations, cash flows, changes in shareholders’ equity and financial position of Company and its consolidated Subsidiaries for the respective fiscal periods or as of the respective dates therein set forth (subject in the case of unaudited statements to recurring year-end audit adjustments normal in nature and amount), as applicable; (iii) complied as to form, as of their respective dates of filing, in all material respects with applicable accounting and banking requirements with respect thereto; and (iv) have been prepared in accordance with GAAP consistently applied during the periods involved, except, in each case, (x) as indicated in such statements or in the notes thereto; and (y) to the extent that any unaudited interim financial statements do not contain the footnotes required by GAAP, and were or are subject to normal and recurring year-end adjustments, which were not or are not expected to be material in amount, either individually or in the aggregate. The books and records of Company and its Subsidiaries have been, and are being, maintained in all material respects in accordance with GAAP and any other applicable legal and accounting requirements. Company does not have any material liability of any nature whatsoever (whether absolute, accrued, contingent or otherwise and whether due or to become due), except for those liabilities that are reflected or reserved against on the consolidated balance sheet of Company contained in Company’s Reports, those liabilities associated with Company’s pending acquisition of Foothills Bancorp, Inc., and those liabilities incurred in the ordinary course of business consistent with past practice or in connection with the Transaction Documents and the transactions contemplated hereby and thereby.

4.4.2 Absence of Default. Since the date of the latest audited financial statements included in the Company’s Reports, no event has occurred which either of itself or with the lapse of time or the giving of notice or both, would give any creditor of Company the right to accelerate the maturity of any material Indebtedness of Company.

4.4.3 Solvency. After giving effect to the consummation of the transactions contemplated by this Agreement and the Additional Note Purchase Agreements, Company has capital sufficient to carry on its business and transactions and is solvent and able to pay its debts as they mature. No transfer of property is being made and no indebtedness is being incurred in connection with the transactions contemplated by this Agreement or the Additional Note Purchase Agreements with the intent to hinder, delay or defraud either present or future creditors of Company or any Subsidiary of Company.




4.4.4 Ownership of Property. Company and each of its Subsidiaries have good and marketable title to all real property owned by them and good title to all other assets and properties owned by them in the conduct of their businesses, subject to no encumbrances, liens, mortgages, security interests or pledges, except (i) those items which secure liabilities for public or statutory obligations or any discount with, borrowing from or other obligations to the Federal Home Loan Bank, inter-bank credit facilities, reverse repurchase agreements or any transaction by Bank acting in a fiduciary capacity, (ii) statutory liens for amounts not yet delinquent or which are being contested in good faith and (iii) such as do not, singly or in the aggregate, materially and adversely affect the value of such property and do not materially and adversely interfere with the use made and proposed to be made of such property by Company or any of its Subsidiaries. Company and each of its Subsidiaries, as lessee, have the right under valid and existing leases of real and personal properties that are material to Company or its Subsidiaries, as applicable, in the conduct of their business to occupy or use all such properties as presently occupied and used by them.

4.5 No Material Adverse Change. Since the date of the latest audited financial statements included in Company’s Reports, and except as previously disclosed to the Purchasers, there has been no development or event which has had or would reasonably be expected to have a Material Adverse Effect on Company.

4.6 Legal Matters.

4.6.1 Compliance with Law. Company and each of its Subsidiaries (i) has complied with, (ii) to Company’s knowledge, is not under investigation with respect to, and (iii) has not been threatened to be charged with or given any notice of any material violation of any applicable statutes, rules, regulations, orders and restrictions of any domestic or foreign government, or any instrumentality or agency thereof, having jurisdiction over the conduct of its business or the ownership of its properties, except in each case as would not reasonably be expected to have a Material Adverse Effect on Company. Company and each of its Subsidiaries (x) is, and at all times since September 1, 2015 has been, in compliance with all applicable statutes, rules, regulations, orders and restrictions of any domestic or foreign government, or any Governmental Agency, and its own privacy policies and written commitments to its respective customers, depositors, consumers and employees, concerning data protection and the privacy and security of personal data and the nonpublic personal information of its respective customers, consumers and employees, except, in each case, where the failure to comply would not result, individually or in the aggregate, in a Material Adverse Effect on Company, and (y) has not received at any time since September 1, 2015 any written notice asserting any violations of any of the foregoing.

4.6.2 Regulatory Enforcement Actions. None of Company, Company’s Subsidiaries nor any of their officers or directors is now operating under any agreements, memoranda, commitments, or material restrictions (other than restrictions of general application) imposed by any Governmental Agency, nor are, to Company’s knowledge, (a) any such restrictions threatened; (b) any agreements, memoranda or commitments being sought by any Governmental Agency or (c) any material legal or regulatory violations previously identified by, or penalties or other remedial action previously imposed by, any Governmental Agency unresolved.

4.6.3 Pending Litigation. There are no actions, suits, or proceedings pending, or, to Company’s knowledge, threatened or proposed, against Company or any of its Subsidiaries at law or in equity or before or by any federal, state, municipal, or other governmental department, commission, board, or other administrative agency, domestic or foreign, that, either separately or in the aggregate, would reasonably be expected to have a Material Adverse Effect on Company; and neither Company nor any of its Subsidiaries is a party to or named as subject to the provisions of any order, writ, injunction, or decree of, or any written agreement with, any court, commission, board or agency, domestic or foreign,




that either separately or in the aggregate, could reasonably be expected to have a Material Adverse Effect on Company.

4.6.4 Environmental. No Property is currently or, to Company’s knowledge, has been a site for the use, generation, manufacture, storage, treatment, release, threatened release, discharge, disposal, transportation or presence of any Hazardous Materials and neither Company nor any of its Subsidiaries has engaged in such activities on or at the Property. There are no claims or actions pending or, to Company’s knowledge, threatened against Company or any of its Subsidiaries by any Governmental Agency or by any other Person relating to any Hazardous Materials or pursuant to any Hazardous Materials Law.

4.6.5 Brokerage Commissions. Company has engaged Placement Agent as its exclusive placement agent for the offering of the Subordinated Notes. Except for commissions paid to the Placement Agent, neither Company nor any Affiliate of Company is obligated to pay any brokerage or other commission or finder’s fee to any Person in connection with the transactions contemplated by this Agreement.

4.6.6 Investment Company Act. Neither Company nor any of its Subsidiaries is an “investment company” or a company “controlled” by an “investment company,” within the meaning of the Investment Company Act of 1940, as amended.

4.6.7 Offering of Securities. Neither Company nor any Person acting on its behalf has engaged in any form of general solicitation or general advertising (within the meaning of Regulation D under the Securities Act) in connection with any offer or sale of the Subordinated Notes pursuant to the transactions contemplated by this Agreement. Assuming the truth and accuracy of each Purchaser’s representations and warranties set forth in this Agreement and the Additional Note Purchase Agreements, the Subordinated Notes will be issued in a transaction exempt from the registration requirements of the Securities Act.

4.7 No Misstatement. No information, exhibit, report, schedule or document, when viewed together as a whole, furnished or made available by Company to Purchasers in connection with the negotiation, execution or performance of the Transaction Documents contains any untrue statement of a material fact, or omits to state a material fact necessary to make the statements contained therein, in light of the circumstances under which they were made, not misleading, except for any statement therein or omission therefrom which was corrected, amended or supplemented or otherwise disclosed or updated in a subsequent exhibit, report, schedule or document furnished or made available to Purchasers prior to the date hereof.

4.8 Internal Accounting Controls. Company, Bank and each other material Subsidiary of the Company has established and maintains a system of internal control over financial reporting that pertains to the maintenance of records that accurately and fairly reflect the transactions of and dispositions of assets by Company (on a consolidated basis), provides reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that Company’s and Bank’s receipts and expenditures and receipts and expenditures of each of the Company’s other material Subsidiaries are being made only in accordance with authorizations of management, and provides reasonable assurance regarding prevention or timely detection of the unauthorized acquisition, use or disposition of assets of the Company on a consolidated basis that could have a material effect on financial statements. The Company believes such system of internal control over financial reporting is effective to provide reasonable assurance regarding the reliability of the Company’s financial reporting and the preparation of the Company’s financial statements for external purposes in accordance with GAAP. Since the conclusion of the Company’s last completed fiscal year, to




the Company’s knowledge there has not been and there currently is not (i) any significant deficiencies or material weaknesses in the design or operation of its internal control over financial reporting which are reasonably likely to adversely affect its ability to record, process, summarize and report financial information, or (ii) any fraud, whether or not material, that involves management or other employees who have a role in the Company’s or Bank’s internal control over financial reporting and the internal control over financial reporting of each other applicable Subsidiary of the Company. The Company (A) has implemented and maintains disclosure controls and procedures it believes are reasonably designed and maintained to ensure that material information relating to the Company is made known to the Chief Executive Officer and the Chief Financial Officer of the Company by others within the Company and (B) has disclosed, based on its most recent evaluation prior to the date hereof, to the Company’s outside auditors and the audit committee of the Company’s board of directors any significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the Company’s internal controls over financial reporting and of which the Company has knowledge. Such disclosure controls and procedures are effective for the purposes for which they were established.

4.9 Tax Matters. Company has timely filed or caused to be timely filed all material tax returns (including, but not limited to, those filed on a consolidated, combined or unitary basis) required to have been filed by Company prior to the date hereof, or requests for extensions to file such returns have been timely filed (“Tax Returns”). All such Tax Returns are true, correct, and complete in all material respects.

4.10 Representations and Warranties Generally. The representations and warranties of Company set forth in this Agreement and in any certificate or other document delivered to Purchasers by or on behalf of Company pursuant to or in connection with this Agreement are true and correct as of the date hereof and will be true and correct as of the Closing Date and as otherwise specifically provided herein or therein (except that representations and warranties made as of a specified date shall only be required to be true and correct as of such date). None of the representations, warranties, covenants and agreements of Company made in this Agreement or in any certificate or other document delivered to Purchasers by or on behalf of Company pursuant to or in connection with this Agreement contains any untrue statement of a material fact or omits to state a material fact or any fact necessary to make the statements contained therein not misleading in light of the circumstances when made and as of the Closing Date. Any certificate signed by a duly authorized representative of Company and delivered to Purchaser or to counsel for Purchaser shall be deemed to be a representation and warranty by Company to Purchaser as to the matters set forth therein.

5. GENERAL COVENANTS, CONDITIONS AND AGREEMENTS.

Company hereby further covenants and agrees with each Purchaser as follows:

5.1 Compliance with Transaction Documents. Company shall comply with, observe and timely perform each and every one of Company’s covenants, agreements and obligations under the Transaction Documents.

5.2 Affiliate Transactions. Company shall not itself, nor shall it cause, permit or allow any Subsidiary of Company to, enter into any transaction, including the purchase, sale or exchange of property or the rendering of any service, with any Affiliate of Company except in the ordinary course of business and pursuant to the reasonable requirements of Company’s or such Affiliate’s business and upon terms consistent with applicable laws and regulations and reasonably found by the appropriate board(s) of directors to be fair and reasonable and no less favorable to Company or such Affiliate than would be obtained in a comparable arm’s length transaction with a Person not an Affiliate.




5.3 Compliance with Laws.

5.3.1 Generally. Company shall comply and cause each of its Subsidiaries to comply in all material respects with all applicable statutes, rules, regulations, orders and restrictions in respect of the conduct of its business and the ownership of its properties, except, in each case, where such noncompliance would not reasonably be expected to have a Material Adverse Effect on Company.

5.3.2 Regulated Activities. Company shall not itself, nor shall it cause, permit or allow any Subsidiary of Company to, (i) engage in any business or activity not permitted by all applicable laws and regulations, except where such business or activity would not reasonably be expected to have a Material Adverse Effect on Company or Bank or (ii) make any loan or advance secured by the capital stock of another bank or depository institution, or acquire the capital stock, assets or obligations of or any interest in another bank or depository institution, in each case other than in accordance with applicable laws and regulations.

5.3.3 Taxes. Company shall and shall cause any of its Subsidiaries to promptly pay and discharge all taxes, assessments and other governmental charges imposed upon Company or any Subsidiary or upon the income, profits, or property of Company or any Subsidiary and all claims for labor, material or supplies which, if unpaid, might by law become a lien or charge upon the property of Company or any Subsidiary. Notwithstanding the foregoing, none of Company or any Subsidiary of Company shall be required to pay any such tax, assessment, charge or claim, so long as the validity thereof shall be contested in good faith by appropriate proceedings, and appropriate reserves therefor shall be maintained on the books of Company or such Subsidiary.

5.3.4 Corporate Existence. Company shall do or cause to be done all things reasonably necessary to maintain, preserve and renew its corporate existence and that of Bank and its and Bank’s rights and franchises; provided, however, that Company may consummate a merger in which (i) Company is the surviving entity or (ii) if Company is not the surviving entity, Company and the surviving entity comply in all respects with Section 4 (Merger and Sale of Assets) of the Subordinated Notes and the surviving entity assumes, by operation of law or otherwise, all of the obligations of Company under the Subordinated Notes, and in connection with any such merger, Bank may be merged with and/or into another insured depository institution.

5.3.5 Dividends, Payments, and Guarantees During Event of Default. During the continuance of an Event of Default, except as required by any federal or state Governmental Agency, Company agrees not to (a) declare or pay any dividends on, or redeem, purchase, acquire or make a liquidation payment with respect to, any of its capital stock; (b) make any payment of principal of, or interest or premium, if any, on, or repay, repurchase or redeem any of Company’s debt that ranks equal with or junior to the Subordinated Notes; or (c) make any payments under any guarantee that ranks equal with or junior to the Subordinated Notes, other than (i) any dividends or distributions in shares of, or options, warrants or rights to subscribe for or purchase shares of, any class of Company’s capital stock; (ii) any declaration of a dividend in connection with the implementation of a shareholders’ rights plan, or the issuance of stock under any such plan in the future, or the redemption or repurchase of any such rights pursuant thereto; (iii) as a result of a reclassification of Company’s capital stock or the exchange or conversion of one class or series of Company’s capital stock for another class or series of Company’s capital stock; (iv) the purchase of fractional interests in shares of Company’s capital stock pursuant to the conversion or exchange provisions of such capital stock or the security being converted or exchanged; or (v) purchases of shares of any class of Company’s capital stock related to the issuance of common stock or rights under any benefit plans for Company’s directors, officers or employees or any of Company’s dividend reinvestment plans.




5.3.6 Tier 2 Capital. If all or any portion of the Subordinated Notes, to the extent that the Subordinated Notes are treated as Tier 2 Capital, ceases to be deemed, or there is a material risk that all or any portion of the Subordinated Notes will, within one hundred twenty (120) days, cease to be deemed to be Tier 2 Capital, other than due to the limitation imposed on the capital treatment of subordinated debt during the five (5) years immediately preceding the Maturity Date of the Subordinated Notes, Company will immediately notify the Purchasers, and thereafter Company shall have the option to redeem the Subordinated Notes, in whole but not in part, in accordance with the terms of the Subordinated Notes. If Company elects to restructure the Subordinated Notes to qualify as Tier 2 Capital (which Company shall have the right to do), Company will work together with the Purchasers in good faith to execute and deliver all agreements as reasonably necessary in order to restructure the applicable portions of the obligations evidenced by the Subordinated Notes to qualify as Tier 2 Capital.

5.4 Absence of Control. It is the intent of the parties to this Agreement that in no event shall Purchasers, by reason of any of the Transaction Documents, be deemed to control, directly or indirectly, Company, and Purchasers shall not exercise, or be deemed to exercise, directly or indirectly, a controlling influence over the management or policies of Company. If requested by the FRB, the Purchasers shall enter into a customary passivity commitment with respect to the Company.

5.5 Secondary Market Transactions. Each Purchaser shall have the right at any time and from time to time to securitize its Subordinated Notes or any portion thereof in a single asset securitization or a pooled loan securitization of rated single or multi-class securities secured by or evidencing ownership interests in the Subordinated Notes (each such securitization is referred to herein as a “Secondary Market Transaction”). In connection with any such Secondary Market Transaction, Company shall reasonably cooperate with the Purchasers and otherwise reasonably assist the Purchasers in satisfying the market standards to which Purchasers customarily adhere or which may be reasonably required in the marketplace or by applicable rating agencies in connection with such Secondary Market Transactions. Each Purchaser shall be responsible for the cost and expenses of any such Secondary Market Transaction, except that for any Secondary Market Transaction that represents an aggregate principal amount of Subordinated Notes of at least $5,000,000, the Company shall bear the costs and expenses incurred by each Purchaser participating therein that, together with its Affiliates, purchases at least $10,000,000 in aggregate principal amount of Subordinated Notes pursuant to this Agreement (each, an “Eligible Purchaser”); provided that Company’s obligation to bear such costs and expenses shall be limited to, and shall not exceed, $5,000 in the aggregate for all Eligible Purchasers. Subject to the terms of any written confidentiality obligations, whether entered into in connection with the receipt of confidential information at that time or otherwise, information regarding Company may be furnished, without liability except in the case of gross negligence or willful misconduct, to any Purchaser and to any Person reasonably deemed necessary by a Purchaser in connection with such Secondary Market Transaction. Each Purchaser shall cause any Person to whom such Purchaser wishes to deliver confidential Company information related to the Secondary Market Transaction to execute and deliver to Company a non-disclosure agreement reasonably acceptable to Company unless such Person is a party to a commercially reasonable non-disclosure agreement to which Company is a third party beneficiary. All documents, financial statements, appraisals and other data relevant to Company or the Subordinated Notes may be retained by any such Person, subject to the terms of any applicable non-disclosure agreement.

5.6 Bloomberg. Company shall use commercially reasonable efforts to cause the
Subordinated Notes to be quoted on Bloomberg.




5.7 Rule 144A Information. While any Subordinated Notes remain “restricted securities” within the meaning of the Securities Act, the Company will make available, upon request, to any seller of such Subordinated Notes the information specified in Rule 144A(d)(4) under the Securities Act, unless the Company is then subject to Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended.

6. REPRESENTATIONS, WARRANTIES AND COVENANTS OF PURCHASERS.

Each Purchaser hereby represents and warrants to Company, and covenants with Company, severally and not jointly, as follows:

6.1 Legal Power and Authority. It has all necessary power and authority to execute, deliver and perform its obligations under this Agreement and to consummate the transactions contemplated hereby. It is an entity duly organized, validly existing and in good standing under the laws of its jurisdiction of organization.

6.2 Authorization and Execution. The execution, delivery and performance of this Agreement have been duly authorized by all necessary action on the part of such Purchaser, and this Agreement is a legal, valid and binding obligation of such Purchaser, enforceable against such Purchaser in accordance with its terms, except as enforcement hereof may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to or affecting creditors’ rights generally or by general equitable principles.

6.3 No Conflicts. Neither the execution or delivery of or performance under the Transaction Documents nor the consummation of any of the transactions contemplated thereby will conflict with, violate, constitute a breach of or a default (with the passage of time, the giving of notice, or otherwise) under (i) its organizational documents, (ii) any agreement to which it is party, (iii) any law applicable to it or (iv) any order, writ, judgment, injunction, decree, determination or award binding upon or affecting it.

6.4 Purchase for Investment. It is purchasing the Subordinated Notes for its own account and not with a view to distribution and with no present intention of reselling, distributing or otherwise disposing of the same. It has no present or contemplated agreement, undertaking, arrangement, obligation, indebtedness or commitment providing for, or which is likely to compel, a disposition of the Subordinated Notes in any manner.

6.5 Institutional Accredited Investor. It is and will be on the Closing Date an institutional “accredited investor” as such term is defined in Rule 501(a) of Regulation D and as contemplated by subsections (1), (2), (3) and (7) of Rule 501(a) of Regulation D, and has no less than $5,000,000 in total assets.

6.6 Financial and Business Sophistication. It has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of the prospective investment in the Subordinated Notes. It has relied solely upon its own knowledge of, and/or the advice of its own legal, financial or other advisors with regard to, the legal, financial, tax and other considerations involved in deciding to invest in the Subordinated Notes.

6.7 Private Placement; Registration of Securities. It understands and acknowledges that the Subordinated Notes are being sold by Company without registration under the Securities Act in reliance on the exemption from federal and state registration set forth in, respectively, Rule 506(b) of Regulation D promulgated under Section 4(a)(2) of the Securities Act and Section 18 of the Securities Act, or any state securities laws, and accordingly, may be resold, pledged or otherwise transferred only if exemptions from the Securities Act and applicable state securities laws are available to it. It further




understands and acknowledges that the Company will not be obligated in the future to register the Subordinated Notes under the Securities Act or the Securities Exchange Act of 1934, as amended, or under any state securities laws and that neither the Placement Agent nor Company has made or is making any representation, warranty or covenant, express or implied, as to the availability of any exemption from registration under the Securities Act or any applicable state securities laws for the resale, pledge or other transfer of the Subordinated Notes. It is not subscribing for the Subordinated Notes as a result of or subsequent to any advertisement, article, notice or other communication published in any website, newspaper, magazine or similar media or broadcast over television or radio, or presented at any seminar or meeting. It further acknowledges and agrees that all certificates or other instruments representing the Subordinated Notes will bear the restrictive legend set forth in the form of Subordinated Note. It further acknowledges its primary responsibilities under the Securities Act and, accordingly, will not sell or otherwise transfer the Subordinated Notes or any interest therein without complying with the requirements of the Securities Act and the rules and regulations promulgated thereunder and the requirements set forth in this Agreement.

6.8 Ability to Bear Economic Risk of Investment. It recognizes that an investment in the Subordinated Notes involves substantial risk. It has the ability to bear the economic risk of the prospective investment in the Subordinated Notes, including the ability to hold the Subordinated Notes indefinitely, and further including the ability to bear a complete loss of all of its investment in Company.

6.9 Information. It acknowledges that: (i) it is not being provided with the disclosures that would be required if the offer and sale of the Subordinated Notes were registered under the Securities Act, nor is it being provided with any offering circular or prospectus prepared in connection with the offer and sale of the Subordinated Notes; (ii) it has conducted its own examination of Company and the terms of the Subordinated Notes to the extent it deems necessary to make its decision to invest in the Subordinated Notes; and (iii) it has availed itself of publicly available financial and other information concerning Company to the extent it deems necessary to make its decision to purchase the Subordinated Notes. It has reviewed the information set forth in Company’s Reports, the exhibits and schedules hereto and otherwise disclosed to it.

6.10 Access to Information. It acknowledges that it and its advisors have been furnished with all materials relating to the business, finances and operations of Company that have been requested by it or its advisors and have been given the opportunity to ask questions of, and to receive answers from, persons acting on behalf of Company concerning terms and conditions of the transactions contemplated by this Agreement in order to make an informed and voluntary decision to enter into this Agreement.

6.11 Investment Decision. It has made its own investment decision based upon its own judgment, due diligence and advice from such advisors as it has deemed necessary and not upon any view expressed by any other Person, including the Placement Agent. Neither any inquiries nor any other due diligence investigations conducted by it or its advisors or representatives, if any, shall modify, amend or affect its right to rely on Company’s representations and warranties contained herein. It is not relying upon, and has not relied upon, any advice, statement, representation or warranty made by any Person by or on behalf of Company, including, without limitation, the Placement Agent, except for the express statements, representations and warranties of Company made or contained in this Agreement. Furthermore, it acknowledges that (i) the Placement Agent has not performed any due diligence review on behalf of it and (ii) nothing in this Agreement or any other materials presented by or on behalf of Company to it in connection with the purchase of the Subordinated Notes constitutes legal, tax, accounting or investment advice.




6.12 Placement Agent. It will purchase the Subordinated Note(s) directly from Company and not from the Placement Agent and understands that neither the Placement Agent nor any other broker or dealer has any obligation to make a market in the Subordinated Notes.

6.13 Tier 2 Capital. To the extent the Subordinated Notes were treated as Tier 2 Capital, if Company notifies the Purchasers, pursuant to Section 5.3.6, that all or any portion of the Subordinated Notes ceases to be deemed, or there is a material risk that all or any portion of the Subordinated Notes will, within one hundred twenty (120) days, cease to be deemed to be Tier 2 Capital and Company notifies Purchasers of its election to restructure the Subordinated Notes to qualify as Tier 2 Capital the Purchasers will work together with Company in good faith to execute and deliver all agreements as reasonably necessary in order to restructure the applicable portions of the obligations evidenced by the Subordinated Notes to qualify as Tier 2 Capital.

6.14 Accuracy of Representations. It understands that the Placement Agent and Company will rely upon the truth and accuracy of the foregoing representations, acknowledgements and agreements in connection with the transactions contemplated by this Agreement, and agrees that if any of the representations or acknowledgements made by it are no longer accurate as of the Closing Date, or if any of the agreements made by it are breached on or prior to the Closing Date, it shall promptly notify the Placement Agent and Company.

6.15 Representations and Warranties Generally. The representations and warranties of Purchaser set forth in this Agreement are true and correct as of the date hereof and will be true and correct as of the Closing Date and as otherwise specifically provided herein. None of the representations, warranties, covenants and agreements made in this Agreement by Purchaser contains any untrue statement of a material fact or omits to state a material fact or any fact necessary to make the statements contained therein not misleading in light of the circumstances when made and as of the Closing Date. Any certificate signed by a duly authorized representative of Purchaser and delivered to the Company or to counsel for Company shall be deemed to be a representation and warranty by Purchaser to Company as to the matters set forth therein.

7. TERMINATION. Each Purchaser may terminate this Agreement, with respect to such Purchaser only, (i) at any time prior to the Closing Date by written notice given by such Purchaser to Company if such Purchaser shall decline to purchase the Subordinated Notes for any reason permitted by this Agreement or (ii) on the Closing Date if any condition described in Section 3.2 is not fulfilled by the Company or waived in writing by such Purchaser on or prior to the Closing Date. Any termination pursuant to this Section shall be without liability on the part of (i) Company to Purchasers or (ii) Purchasers to Company.

8. MISCELLANEOUS.

8.1 Prohibition on Assignment. Except as described in Section 4 (Merger and Sale of Assets) of the Subordinated Notes, Company may not assign, transfer or delegate any of its rights or obligations under this Agreement or the Subordinated Notes without the prior written consent of Purchasers. In addition, in accordance with the terms of the Subordinated Notes, any transfer of such Subordinated Notes must be made in accordance with the Assignment Form attached thereto and the requirements and restrictions thereof.

8.2 Time of the Essence. Time is of the essence of this Agreement.

8.3 Waiver or Amendment. No waiver or amendment of any term, provision, condition, covenant or agreement herein or in the Subordinated Notes shall be effective except with the prior written




consent of the holders of more than fifty percent (50%) in aggregate principal amount (excluding any Subordinated Notes held by Company or any of its Affiliates) of the Subordinated Notes at the time outstanding; provided, however, that without the consent of each holder of an affected Subordinated Note, no such amendment or waiver may: (i) reduce the principal amount of the Subordinated Note; (ii) reduce the rate of or change the time for payment of interest on any Subordinated Note; (iii) extend the maturity of any Subordinated Note; (iv) change the currency in which payments of the obligations of Company under this Agreement and the Subordinated Notes are to be made; (v) lower the percentage of aggregate principal amount of outstanding Subordinated Notes required to approve any amendment of this Agreement or the Subordinated Notes; (vi) make any changes to Section 6 (Failure to Make Payment) of the Subordinated Notes that adversely affects the rights of any holder of a Subordinated Note; (vii) disproportionately and adversely affect any of the holders of the then outstanding Subordinated Notes; or (viii) amend or modify the immediately preceding subsections (i)-(vii). Notwithstanding the foregoing, Company may amend or supplement the Subordinated Notes without the consent of the holders of the Subordinated Notes to cure any ambiguity, defect or inconsistency or to provide for uncertificated Subordinated Notes in addition to or in place of certificated Subordinated Notes, or to make any change that does not adversely affect the rights of any holder of any of the Subordinated Notes. No failure to exercise or delay in exercising, by any party hereto or any holder of the Subordinated Notes, any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege preclude any other or further exercise thereof, or the exercise of any other right or remedy provided by law. The rights and remedies provided in this Agreement are cumulative and not exclusive of any right or remedy provided by law or equity. No notice to or demand on Company in any case shall, in itself, entitle Company to any other or further notice or demand in similar or other circumstances or constitute a waiver of the rights of Purchasers to any other or further action in any circumstances without notice or demand. No consent or waiver, expressed or implied, by Purchasers to or of any breach or default by Company in the performance of its obligations hereunder shall be deemed or construed to be a consent or waiver to or of any other breach or default in the performance of the same or any other obligations of Company hereunder. Failure on the part of Purchasers to complain of any acts or failure to act or to declare an Event of Default, irrespective of how long such failure continues, shall not constitute a waiver by Purchasers of their rights hereunder or impair any rights, powers or remedies on account of any breach or default by Company.

8.4 Severability. Any provision of this Agreement which is unenforceable or invalid or contrary to law, or the inclusion of which would adversely affect the validity, legality or enforcement of this Agreement, shall be of no effect and, in such case, all the remaining terms and provisions of this Agreement shall subsist and be fully effective according to the tenor of this Agreement the same as though any such provision had never been included herein. Notwithstanding any of the foregoing to the contrary, if any provisions of this Agreement or the application thereof are held invalid or unenforceable only as to particular Persons or situations, the remainder of this Agreement, and the application of such provision to Persons or situations other than those to which it shall have been held invalid or unenforceable, shall not be affected thereby, but shall continue valid and enforceable to the fullest extent permitted by law.

8.5 Notices. Any notice which any party hereto may be required or may desire to give hereunder shall be deemed to have been given if in writing and if delivered personally, mailed, postage prepaid, by United States registered or certified mail, return receipt requested, or delivered by a responsible overnight commercial courier promising next business day delivery, addressed:

if to Company: SmartFinancial, Inc.
5401 Kingston Pike, Suite 600
Knoxville, TN 37919
Attention: President/CEO





with a copy to: Butler Snow LLP
150 3rd Avenue South, Suite 1600
Nashville, TN 37201
Attention: Adam Smith

if to Purchasers: To the addresses indicated on Schedule I.

or to such other address or addresses as the party to be given notice may have furnished in writing to the party seeking or desiring to give notice, as a place for the giving of notice; provided that no change in address shall be effective until five (5) Business Days after being given to the other party in the manner provided for above. Any notice given in accordance with the foregoing shall be deemed given when delivered personally or, if mailed, three (3) Business Days after it shall have been deposited in the United States mails as aforesaid or, if sent by overnight courier, the Business Day following the date of delivery to such courier (provided next business day delivery was requested).

8.6 Successors and Assigns. This Agreement shall inure to the benefit of the parties and their respective heirs, legal representatives, successors and assigns; except that, unless a Purchaser consents in writing, no assignment made by Company in violation of this Agreement shall be effective or confer any rights on any purported assignee of Company. The term “successors and assigns” will not include a purchaser of any of the Subordinated Notes from any Purchaser merely because of such purchase.

8.7 No Joint Venture. Nothing contained herein or in any document executed pursuant hereto and no action or inaction whatsoever on the part of a Purchaser shall be deemed to make a Purchaser a partner or joint venturer with Company.

8.8 Documentation. All documents and other matters required by any of the provisions of this Agreement to be submitted or furnished to a Purchaser shall be in form and substance reasonably satisfactory to such Purchaser.

8.9 Entire Agreement. This Agreement and the Subordinated Notes along with the Exhibits thereto constitute the entire agreement between the parties hereto with respect to the subject matter hereof. No party, in entering into this Agreement, has relied upon any representation, warranty, covenant, condition or other term that is not set forth in this Agreement or in the Subordinated Notes.

8.10 Choice of Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York without giving effect to its laws or principles of conflict of laws. Nothing herein shall be deemed to limit any rights, powers or privileges which a Purchaser may have pursuant to any law of the United States of America or any rule, regulation or order of any department or agency thereof and nothing herein shall be deemed to make unlawful any transaction or conduct by a Purchaser which is lawful pursuant to, or which is permitted by, any of the foregoing.

8.11 No Third Party Beneficiary. This Agreement is made for the sole benefit of Company and the Purchasers, and no other Person shall be deemed to have any privity of contract hereunder nor any right to rely hereon to any extent or for any purpose whatsoever, nor shall any other Person have any right of action of any kind hereon or be deemed to be a third party beneficiary hereunder; provided, that the Placement Agent may rely on the representations and warranties contained herein to the same extent as if it were a party to this Agreement.




8.12 Legal Tender of United States. All payments hereunder shall be made in coin or currency which at the time of payment is legal tender in the United States of America for public and private debts.

8.13 Captions; Counterparts. Captions contained in this Agreement in no way define, limit or extend the scope or intent of their respective provisions. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which taken together shall constitute but one and the same instrument. In the event that any signature is delivered by facsimile transmission, or by e-mail delivery of a “.pdf” format data file, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile signature page were an original thereof.

8.14 Knowledge; Discretion. All references herein to Purchaser’s or Company’s knowledge shall be deemed to mean the knowledge of such party based on the actual knowledge of such party’s Chief Executive Officer and Chief Financial Officer or such other persons holding equivalent offices. Unless specified to the contrary herein, all references herein to an exercise of discretion or judgment by a Purchaser, to the making of a determination or designation by a Purchaser, to the application of a Purchaser’s discretion or opinion, to the granting or withholding of a Purchaser’s consent or approval, to the consideration of whether a matter or thing is satisfactory or acceptable to a Purchaser, or otherwise involving the decision making of a Purchaser, shall be deemed to mean that such Purchaser shall decide using the reasonable discretion or judgment of a prudent lender.

8.15 Waiver Of Right To Jury Trial. TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, EACH PARTY HERETO HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHT THAT IT MAY HAVE TO A TRIAL BY JURY IN ANY LITIGATION ARISING IN ANY WAY IN CONNECTION WITH ANY OF THE TRANSACTION DOCUMENTS, OR ANY OTHER STATEMENTS OR ACTIONS OF COMPANY OR PURCHASERS. EACH PARTY HERETO ACKNOWLEDGES THAT IT HAS BEEN REPRESENTED IN THE SIGNING OF THIS AGREEMENT AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL SELECTED OF ITS OWN FREE WILL. EACH PARTY HERETO FURTHER ACKNOWLEDGES THAT (i) IT HAS READ AND UNDERSTANDS THE MEANING AND RAMIFICATIONS OF THIS WAIVER, (ii) THIS WAIVER HAS BEEN REVIEWED BY EACH PARTY’S COUNSEL AND IS A MATERIAL INDUCEMENT FOR THE OTHER PARTIES TO ENTER INTO THIS AGREEMENT, AND (iii) THIS WAIVER SHALL BE EFFECTIVE AS TO EACH OF SUCH TRANSACTION DOCUMENTS AS IF FULLY INCORPORATED THEREIN.

8.16 Expenses. Except as otherwise provided in this Agreement, including Section 5.5 and this Section 8.16, each of the parties will bear and pay all costs and expenses incurred by it or on its behalf in connection with the transactions contemplated pursuant to this Agreement. The Eligible Purchasers shall be entitled to reimbursement from the Company at Closing for the reasonable out-of- pocket fees and expenses (including attorneys’ fees) incurred by the Eligible Purchasers in connection with the negotiation and preparation of this Agreement and the consummation of the transactions contemplated hereby; provided, however, that the Company’s reimbursement obligation shall not exceed
$5,000, in the aggregate, for all Eligible Purchasers.




8.17 Survival. Each of the representations and warranties set forth in this Agreement shall survive the Closing under this Agreement for a period of one year. Except as otherwise provided herein, all covenants and agreements contained herein shall survive until, by their respective terms, they are no longer operative, other than those which by their terms are to be performed in whole or in part prior to or on the Closing Date, which shall terminate as of the Closing Date.

[Signature Pages Follow]




IN WITNESS WHEREOF, Company has caused this Subordinated Note Purchase Agreement to be executed by its duly authorized representative as of the date first above written.
COMPANY: SMARTFINANCIAL, INC.


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




IN WITNESS WHEREOF, the undersigned Purchaser has caused this Subordinated Note
Purchase Agreement to be executed by its duly authorized representative as of the date first above written.
PURCHASER: [Name]



By:     

Name:     

Title:     




SCHEDULE I



Purchaser Subordinated Note Amount ($)

 
 
 
 
 
 
Aggregate Amount of Subordinated Notes:


$40,000,000





EXHIBIT A
FORM OF SUBORDINATED NOTE




EXHIBIT B
FORM OF OPINION OF COUNSEL




EXHIBIT C
CERTAIN DISCLOSURES CONCERNING


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Section 4: EX-99.1 (EXHIBIT 99.1)

exhibit991investorpresen
Nasdaq: SMBK Investor Presentation September 2018


 
Important Information Forward-Looking Statements Certain of the statements made in this presentation may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements, including statements regarding the intent, belief, or current expectations of SmartFinancial’s management regarding the company’s strategic direction, prospects, or future results or the benefits of the proposed merger with Foothills Bancorp, Inc. (the “proposed transaction”), are subject to numerous risks and uncertainties. Such risks and uncertainties include, among others, (1) expected revenue synergies and cost savings from the proposed transaction or the recently completed mergers with Tennessee Bancshares, Inc. (the “Tennessee Bancshares merger”) and Capstone Bancshares, Inc. (the “Capstone merger”) may not be fully realized or may take longer than anticipated to be realized, (2) disruption from the proposed transaction, the Tennessee Bancshares merger, or the Capstone merger with customers, suppliers, or employee or other business relationships, (3) the occurrence of any event, change, or other circumstances that could give rise to the termination of the agreement and plan of merger for the proposed transaction, (4) the risk of successful integration of the businesses of SmartFinancial and Foothills Bancorp, Inc. following the proposed transaction, (5) the failure of Foothills Bancorp’s shareholders to approve the agreement and plan of merger, (6) the amount of costs, fees, expenses, and charges related to the proposed transaction, (7) risks of expansion into new geographic or product markets, like the recent expansion into the Nashville, TN MSA associated with the Tennessee Bancshares merger, (8) the ability to obtain required governmental and regulatory approvals for the proposed transaction, (9) reputational risk and the reaction of the parties’ customers to the proposed transaction, (10) the failure of the conditions to closing of the proposed transaction to be satisfied, (11) the possibility that the proposed transaction may be more expensive to complete than anticipated, including as a result of unexpected factors or events, (12) the dilution caused by SmartFinancial’s issuance of additional shares of its common stock in the proposed transaction, (13) changes in SmartFinancial’s management’s plans for the future, (14) prevailing economic and political conditions, particularly in SmartFinancial's market areas, (15) credit risk associated with SmartFinancial's lending activities, (16) changes in interest rates, loan demand, real estate values, and competition, (17) changes in accounting principles, policies, or guidelines, (18) changes in applicable laws, rules, or regulations, and (19) other competitive, economic, political, and market factors affecting SmartFinancial's business, operations, pricing, products, and services. Certain additional factors which could affect the forward-looking statements can be found in SmartFinancial’s annual report on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K, in each case filed with or furnished to the SEC and available on the SEC’s website (www.sec.gov). SmartFinancial disclaims any obligation to update or revise any forward-looking statements contained in this presentation, which speak only as of the date hereof, whether as a result of new information, future events, or otherwise. Non-GAAP Financial Measures Statements included in this presentation include non-GAAP financial measures and should be read along with the accompanying tables, which provide a reconciliation of non-GAAP financial measures to GAAP financial measures. SmartFinancial management uses several non-GAAP financial measures, including: (i) core net income; (ii) core efficiency ratio; (iii) tangible common equity, (iv) return on average assets excluding certain items and (v) return on average tangible common equity excluding certain items in its analysis of the company’s performance. Each of core net income and return on average assets excludes the following from net income available to common shareholders: securities gains and losses, merger-related expenses, amortization of intangibles and goodwill impairment, and the effect of the December, 2017 tax law change on deferred tax assets, and the income tax effect of adjustments. The core efficiency ratio excludes securities gains and losses and merger-related expenses, along with expenses related to foreclosure and repossession of assets, from the efficiency ratio. Tangible common equity excludes goodwill and other intangible assets. Return on average tangible common equity represents annualized or year-to-date core net income available to common shareholders as a percent of average tangible common equity. Management believes that non-GAAP financial measures provide additional useful information that allows readers to evaluate the ongoing performance of the company and provide meaningful comparisons to its peers. Non-GAAP financial measures should not be considered as an alternative to any measure of performance or financial condition as promulgated under GAAP, and investors should consider SmartFinancial's performance and financial condition as reported under GAAP and all other relevant information when assessing the performance or financial condition of the company. Non-GAAP financial measures have limitations as analytical tools, and investors should not consider them in isolation or as a substitute for analysis of the results or financial condition as reported under GAAP. 2


 
Offering Summary Issuer • SmartFinancial, Inc. (Nasdaq: SMBK) Security • Holding Company Subordinated Debt Security Rating • BBB- by Kroll Bond Rating Agency Format • Reg D (settlement through DTC / DTC eligible) Offering Amount • $30.0 million (to grow) Maturity • 10 years Optional Redemption • Non-call 5-year at par Coupon Type • Fixed-to-floating rate: semi-annual until non-call 5-year, quarterly thereafter Covenants • Consistent with regulatory requirements for Tier 2 capital • Repayment of $15.0 million holding company line of credit; Cash consideration payments of $6.1 Use of Proceeds million related to pending acquisition of Foothills Bancorp, Inc.; General corporate purposes Sole Placement Agent • Keefe, Bruyette & Woods, A Stifel Company 3


 
SMBK Capital Ratios Impact of Offering 16.0% 200% 12.6% 12.0% 11.2% 11.0% 150% 10.8% 10.6% 10.6% 10.8% 10.6% 10.6% 9.8% 9.3% 9.3% 9.0% 107% 8.7% 8.6% 104% 106% 8.0% 100% 4.0% 50% 0.0% 0% TCE / TA Leverage Ratio CET1 Ratio Tier 1 Ratio Total Capital Ratio Double Leverage Ratio (3) Standalone Pro Forma (1) Pro Forma + (2) debt offering Data as of 6/30/18; capital ratios are shown at the holding company level (1) Pro forma for pending acquisition of Foothills Bancorp, Inc., as of 6/30/18 (2) Pro forma for pending acquisition of Foothills Bancorp, Inc., including cash consideration payments of $6.1mm, $30mm subordinated debt offering and $15mm repayment of holding company line of credit (3) Assumes net proceeds from this subordinated debt offering are downstreamed to SmartBank; net proceeds derived from gross proceeds of a $30mm subordinated debt offering less (a) offering related expenses, (b) repayment of $15mm holding company line of credit, (c) cash consideration payment of $6.1mm related to acquisition of Foothills Bancorp, Inc., and (d) maintenance of two years of future debt services coverage of the holding company 4


 
Our Management Team Over 26 years in banking Over 15 years in banking Over 23 years in banking and Over 20 years in financial Led company from start-up in Responsible for driving key financial services services 2007 to over $2.0 billion in strategic initiatives and Responsible for driving M&A, Oversees the risk management assets today oversees the Board of investor relations, financial functions within the bank, Former EVP and Chief Directors analysis and development including audit, compliance Financial Officer of Citizens President of Welborn and management and loan review National Bank Associates, Inc.; Managing Former EVP and Chief Former Chief Financial Officer Partner of Foresight Holdings, Accounting Officer of BNC; and and Chief Operating Officer for LP; Former Partner – Lamp CFO of Square 1 Bank Cornerstone Community Bank Post Group Billy Carroll Miller Welborn Ron Gorczynski Gary Petty President & Chairman of the Chief Administrative Chief Risk Officer CEO Board Officer Over 16 years in financial Over 20 years in banking Over 30 years in financial Over 30 years in financial services Responsible for credit risk industry industry Responsible for finance and including credit underwriting, Oversees the commercial and Oversees the commercial and accounting policy and special assets consumer lending divisions retail deposit divisions Former investment advisor at Former SVP and East Former bank examiner for TN Former President & CEO of Moon Capital Management Tennessee Area Credit Officer Dep. of Financial Institutions; Southern Community Bank; of Regions Bank SVP and City Executive for District Manager for US Bank BB&T C. Bryan Johnson Rhett Jordan Greg Davis Bill Yoder Chief Financial Chief Credit Chief Lending Chief Banking and Officer Officer Officer Deposit Officer Note: Dark blue shading denotes presenter 5


 
Investment Summary Experienced management team with ties to the local markets Strong risk management culture with disciplined underwriting process and exceptional asset quality Proven ability to execute a disciplined growth strategy, both organically and through strategic acquisitions Presence in attractive metro markets Attractive core funding base 6


 
Overview of SmartFinancial (1) • SmartFinancial, Inc. (Nasdaq: SMBK) is a $2.3 billion asset bank Branch Footprint holding company headquartered in Knoxville, Tennessee ‒ Operates one subsidiary bank, SmartBank, which was Nashville Knoxville Greensboro Jonesboro founded in January 2007 40 ‒ Located primarily in attractive, high-growthARKANSAS markets NORTH CAROLINA TENNESSEE throughout East Tennessee, Alabama and Florida Chattanooga Memphis ‒ 365 full-time employees 77 (1)(2) ‒ ~$335 million market capitalization Huntsville SOUTH 85 (1) CAROLINA • Balance Sheet (6/30/18) (Standalone / Pro Forma ) ‒ Assets: $2.1 / $2.3 billion Atlanta 20 Birmingham ‒ Gross Loans: $1.6 / $1.7 billion ‒ Deposits: $1.7 / $1.9 billion Tuscaloosa GEORGIA ‒ Tangible Common Equity: $179 / $192 million MISSISSIPPI ALABAMA Columbus Jackson 16 (3) • Profitability (Q2 ’18) Montgomery ‒ Core Net Income: $5.0 million Savannah ‒ Core ROAA: 1.04% 65 75 95 ‒ Core ROATCE: 11.9% ‒ Core Efficiency Ratio: 63.7% Mobile 10 Baton Rouge • Asset Quality ‒ Superior asset quality and proven credit culture Tallahassee SMBK Branch New Orleans FLORIDA ‒ NPAs / Loans + OREO of 0.36% ‒ NCOs / Average Loans of 0.01% Source: SNL Financial, UT Knoxville College of Business Financial data as of or for the three months ended 6/30/18 (1) Pro forma for pending acquisition of Foothills Bancorp, Inc., as of 6/30/18 (2) Pricing data as of 9/5/18 7 (3) Core figures exclude gain on sale of securities, amortization of intangibles, merger-related expenses and nonrecurring items Note: For a reconciliation of these non-GAAP financial measures to their most directly comparable GAAP measures see Appendix


 
Our History 1/8/07 8/20/15 2/29/16 5/19/17 11/1/17 6/27/18 SmartBank opened Announced ~$14.6mm Charter Completed Completed acquisition of Announced first office in private placement of combination of Acquisition of Capstone Bancshares, Inc. proposed Pigeon Forge, common stock SmartBank and Cleveland, TN / acquisition of Tennessee 10/19/12 8/31/15 Cornerstone Bradley County Foothills FDIC-assisted Merger with Community Bank branch ($32mm Bancorp, Inc. acquisition of Cornerstone completed loans acquired) GulfSouth Private Bank Bancshares, Inc. completed completed, pushing ($159mm assets at SMBK past closure) $1.0bn asset mark 2007 2012 2015 2016 2017 2018 SmartBank (legacy) 12/17/15 1/13/17 GulfSouth Private Bank (1) Cornerstone Bancshares, Inc. SMBK listed on Announced Cleveland, TN Branch Nasdaq Capital Market lift-out of Cleveland-based Capstone Bancshares, Inc. Tennessee Bancshares, Inc. banking team Foothills Bancorp, Inc. 1/18/17 5/1/18 Announced follow-on Completed acquisition of common equity offering Tullahoma, TN-based of ~$38mm Tennessee Bancshares, Inc. (1) Nasdaq listing certification letter filed with the SEC on 12/17/15 8


 
Core Strategy $2.1 Billion in Assets After 3 Completed Whole Management Team with Bank Acquisitions Opportunity to Create a Decades of Banking & M&A Regional Southeastern Experience Community Bank Attractive Demographics Strong Asset Quality and Growth Opportunities in Primary Markets Potential to Gain Strong Organic Dislocated Customers and Loan Growth High Percentage of Bankers from Recent M&A Deposit Base is Low‐Cost Deals Transaction Accounts 9


 
Improving the Diversification of Our Franchise 2011 2015 Today Gulf Coast Gulf Coast 14% 17% Northeast Northeast Central TN TN Northeast Alabama Market 35% 23% TN 25% 100% Southeast TN Southeast 48% TN Loans by by Loans 31% North AL / Middle TN 7% 2011 2015 Today Gulf Coast 6% Gulf Coast 9% Central Alabama Market Northeast Northeast Southeast TN 19% TN by by TN Northeast 44% 100% TN 30% North AL / 61% Middle TN 11% Southeast TN Deposits Deposits 21% Note: Data includes pending acquisitions 2011 and 2015 loan data as of 12/31 of each respective year; “Today” loan data as of 6/30/18 Deposit data as of 6/30 of each respective year 10


 
Attractive Markets of Operation Knoxville MSA ‘18 – ‘23 Proj. Population Growth (%) • Third largest MSA by population in Tennessee 8.0% 7.7% • Knoxville is among the 10 fastest-growing U.S. cities with roughly 25% of 6.9% 6.7% employers in the area expecting to hire 6.3% 6.0% • Home to The University of Tennessee 5.3% 4.5% 4.3% 4.3% 3.9% 3.9% Chattanooga MSA 4.0% 3.6% 3.5% 3.2% • Fourth largest MSA by population in Tennessee • The third fastest growing MSA in Tennessee and only one to increase 2.0% 1.4% population each year since 2010 • Home to The University of Tennessee at Chattanooga 0.0% Tuscaloosa MSA • Consistently in the top 20 U.S. markets for entrepreneurial success • Home to Randall-Reilly, Mercedes-Benz plant, Phifer Wire Products • Home to The University of Alabama ‘18 – ‘23 Proj. HHI Growth (%) Huntsville MSA 14.0% 12.4% • Second largest MSA in Alabama and projected to become the largest 10.8% 11.0% 10.6% 11.0% 10.4% MSA within ten years 9.4% 9.1% 8.7% 8.9% 8.2% • Known as “Rocket City” with an established and quickly growing 7.8% 8.0% advanced manufacturing industry 8.0% • Home to The University of Alabama in Huntsville 5.2% 5.0% Florida Panhandle 3.9% • Home to Naval Air Station Pensacola, which is the main base for the Blue 2.0% Angels and the initial training base for all Naval Aviators • Port of Pensacola provides one of the fastest routes through the Gulf of Mexico and is a hub for international shipping trade • Home to University of West Florida and Northwest Florida State College Source: SNL Financial, Pensacola News Journal, Pensacola Chamber of Commerce, Forbes, al.com, Chamber of Commerce of West Alabama, Economic Development Partnership of Alabama SMBK demographic data deposit weighted by county as of 6/30/17; pro forma for announced transactions 11


 
Deposit Market Share by State Alabama Florida Deposits Market Deposits Market Rank Institution ($mm) Share Branches Rank Institution ($mm) Share Branches 1 Regions Financial Corp. $22,628 22.93 % 218 1 Bank of America Corp. $106,900 20.11 % 549 2 Banco Bilbao Vizcaya Argentaria SA 13,843 14.03 89 2 Wells Fargo & Co. 78,014 14.68 605 3 Wells Fargo & Co. 8,320 8.43 117 3 SunTrust Banks Inc. 48,487 9.12 426 4 ServisFirst Bancshares Inc. 4,390 4.45 13 4 JPMorgan Chase & Co. 32,338 6.08 410 5 Synovus Financial Corp. 4,230 4.29 37 5 TIAA Board of Overseers 19,290 3.63 12 6 BB&T Corp. 3,757 3.81 75 6 Citigroup Inc. 19,032 3.58 55 7 PNC Financial Services Group Inc. 3,191 3.23 65 7 Regions Financial Corp. 18,705 3.52 315 8 Cadence Bancorp. 2,669 2.71 26 8 BB&T Corp. 17,002 3.20 288 9 Trustmark Corp. 1,585 1.61 43 9 BankUnited Inc. 14,463 2.72 87 10 Bryant Bank 1,271 1.29 15 10 Toronto-Dominion Bank 12,496 2.35 154 29 SmartFinancial, Inc. 476 0.48 9 155 SmartFinancial, Inc. 79 0.01 3 Tennessee Deposits Market Rank Institution ($mm) Share Branches 1 First Horizon National Corp. $21,695 15.03 % 164 2 Regions Financial Corp. 18,488 12.81 222 3 SunTrust Banks Inc. 13,504 9.36 120 4 Bank of America Corp. 11,459 7.94 59 5 Pinnacle Financial Partners Inc. 9,064 6.28 47 6 U.S. Bancorp 3,221 2.23 103 7 FB Financial Corp. 3,196 2.21 60 8 Franklin Financial Network Inc. 2,878 1.99 15 9 BB&T Corp. 2,519 1.75 42 10 Wilson Bank Holding Co. 2,022 1.40 27 18 SmartFinancial, Inc. 1,301 0.90 16 Source: SNL Financial Deposit data as of 6/30/17; pro forma for announced transactions 12


 
Deposit Market Share by Major MSAs Sevierville, TN MSA Chattanooga, TN-GA MSA Deposits Market Deposits Market Rank Institution ($mm) Share Branches Rank Institution ($mm) Share Branches 1 CNB Bancshares Inc. $652 27.10 % 13 1 First Horizon National Corp. $2,479 25.65 % 18 2 SmartFinancial, Inc. 484 20.11 3 2 SunTrust Banks Inc. 1,692 17.51 21 3 Tennessee State Bancshares Inc. 478 19.87 11 3 Regions Financial Corp. 1,281 13.25 19 4 Sevier County Bancshares Inc. 300 12.48 6 4 Pinnacle Financial Partners Inc. 649 6.71 3 5 First Horizon National Corp. 127 5.29 3 5 First Volunteer Corp. 456 4.72 11 6 BB&T Corp. 123 5.13 4 6 Bank of America Corp. 440 4.55 4 7 Home Federal Bank of Tennessee 120 5.00 4 7 FB Financial Corp. 336 3.48 6 8 SunTrust Banks Inc. 85 3.52 1 8 SmartFinancial, Inc. 334 3.46 5 9 U.S. Bancorp 19 0.79 3 9 Sequatchie Valley Bancshares Inc. 334 3.46 10 10 Highlands Bankshares Inc. 17 0.71 2 10 LaFayette Bankshares Inc. 209 2.16 3 Tuscaloosa, AL MSA Knoxville, TN MSA Deposits Market Deposits Market Rank Institution ($mm) Share Branches Rank Institution ($mm) Share Branches 1 Regions Financial Corp. $752 19.80 % 9 1 First Horizon National Corp. $2,742 17.76 % 28 2 Bryant Bank 559 14.73 3 2 SunTrust Banks Inc. 2,480 16.06 23 3 Synovus Financial Corp. 466 12.27 5 3 Regions Financial Corp. 2,095 13.57 30 4 SmartFinancial, Inc. 326 8.60 3 4 Home Federal Bank of Tennessee 1,614 10.45 19 5 West Alabama Capital Corp. 284 7.48 8 5 Pinnacle Financial Partners Inc. 903 5.85 7 6 FNB Bancshares of Central Alabama Inc. 243 6.41 5 6 BB&T Corp. 865 5.60 13 7 Banco Bilbao Vizcaya Argentaria SA 202 5.32 3 7 United Community Banks Inc. 447 2.89 6 8 Wells Fargo & Co. 174 4.58 4 8 Bank of America Corp. 445 2.89 4 9 PNC Financial Services Group Inc. 159 4.18 3 9 Educational Services of America Inc. 429 2.78 4 10 Southeastern Financial Inc. 90 2.36 3 10 Mountain Commerce Bancorp Inc. 392 2.54 2 12 SmartFinancial, Inc. 290 1.88 5 Source: SNL Financial Deposit data as of 6/30/17; pro forma for announced transactions 13


 
Disciplined M&A Process • SmartFinancial has adhered to a disciplined set of merger criteria including: ‒ No more than 3 years of initial TBV-per-share dilution ‒ Meaningful EPS accretion in the first full year of operations ‒ Conservative loan marks ‒ Franchise additive • SmartFinancial is committed to balancing organic growth with thoughtful acquisitions and will not make acquisitions simply for the sake of growth • The table below shows the initial projected impacts of the three whole bank acquisitions announced within the last 6 quarters First Full Year Credit TBV EPS Accretion P/TBV Mark Target Announcement Earnback (1) (Projected) (1) (Announce) Approach Capstone Bancshares, Inc. May 2017 ~ 3.0 years 25% 159% >ALLL Tennessee Bancshares, Inc. December 2017 < 2.5 years 10% 149% >ALLL Foothills Bancorp, Inc. June 2018 ~ 2.7 years 8% 168% >ALLL Note: Earnback and EPS accretion figures projected as of announcement (1) Earnback periods and EPS accretion for previous deals were projected prior to federal tax reform and should be more favorable to shareholders under the lower corporate tax rate 14


 
Additional Acquisition Opportunities • Includes all banks and thrifts headquartered in select Alabama, Florida, Georgia, North Carolina, South Carolina and Tennessee markets with total assets between $300 million and $2.0 billion(1) Opportunities by State # of Assets Nashville Knoxville NORTH State Banks ($mm) Branches TENNESSEE RaleighAlabama 29 $19,859 337 Asheville CAROLINA Florida 4 1,694 23 Chattanooga Charlotte Memphis Georgia 4 1,469 23 Greenville North Carolina 4 3,715 52 Huntsville South Carolina 7 5,607 47 Columbia Tennessee 37 26,891 412 Birmingham Atlanta SOUTH Total: 85 $59,235 894 GEORGIA CAROLINA ALABAMA Opportunities by Asset Size Columbus 40 37 Montgomery 29 8 30 5 13 20 12 Mobile Tallahassee 10 7 Jacksonville 16 12 4 4 4 1 2 4 Number Opportunities of 4 4 FLORIDA 0 1 2 AL FL GA NC SC TN Banks: $300mm – $500mm $300mm - $500mm $500mm - $1.0bn $1.0bn - $2.0bn Banks: $500mm – $1.0bn Banks: $1.0bn – $2.0bn Source: SNL Financial Data as of 6/30/18 (1) Non-whole state markets include Eastern and Middle TN, Northwest GA, Western NC, SC Upstate and FL Panhandle 15


 
Our Balance Sheet Growth Historical Balance Sheet $2,400 $2,291 (1) CAGR $2,062 Assets 38.0 % $1,903 $1,760 Deposits 37.5 $1,721 $1,717 $1,730 $1,800 Gross Loans 41.4 $1,575 $1,439 $1,500 $1,323 $1,374 $1,200 $1,024 $1,062 $907 $858 $813 $728 $600 $0 (1) 2015 2016 2017 Q1 '18 Q2 '18 Pro Forma Assets Deposits Gross Loans Dollars in millions Data as of 12/31 each respective year; Q1 ’18 data as of 3/31/18; Q2 ’18 data as of 6/30/18 (1) Pro forma for pending acquisition of Foothills Bancorp, Inc., as of 6/30/18 16


 
Profitability Metrics ROAA (%) ROATCE (%) 1.20% 14.0% 1.04% 11.9% 0.91% 0.82% 10.1% 0.90% 10.5% 0.77% 0.79% 9.5% 7.2% 7.6% 8.3% 0.57% 0.60% 0.60% 7.0% 0.36% 0.42% 5.9% 0.22% 3.9% 3.9% 0.30% 3.5% 2.7% 0.00% 0.0% 2015 2016 2017 Q1 '18 Q2' 18 2015 2016 2017 Q1 '18 Q2 '18 Net Interest Margin (%) Efficiency Ratio (%) 4.75% 90.0% 4.55% 85.0% 4.29% 4.32% 80.0% 79.4% 4.25% 4.07% 4.06% 76.4% 75.2% 76.0% 72.4% 72.3% 70.6% 3.75% 70.0% 66.8% 63.7% 3.25% 60.0% 2.75% 50.0% 2015 2016 2017 Q1 '18 Q2 '18 2015 2016 2017 Q1 '18 Q2 '18 Reported Core (1) Data as of or for the twelve months ended each respective year; Q1 ’18 data as of or for the three months ended 3/31/18; Q2 ’18 data as of or for the three months ended 6/30/18; quarterly ROAA, ROATCE and Net Interest Margin figures are annualized (1) Core figures exclude gain on sale of securities, amortization of intangibles, merger-related expenses and 17 nonrecurring items Note: For a reconciliation of these non-GAAP financial measures to their most directly comparable GAAP measures see Appendix


 
Attractive Deposit Mix Deposit Composition (6/30/18) Historical Deposit Composition ($mm) $2,000 $1,907 Non-interest $1,720 Demand 18% $576 Time Deposits $1,501 30% $1,500 $1,440 Interest-bearing $536 Demand 14% $453 $443 MMDA & Savings 38% Cost of Deposits: $1,000 $908 $859 $724 0.79% $633 $492 $316 $544 $341 Historical Cost of Deposits $500 $271 $275 $248 2.00% $237 $279 $214 $163 1.50% $150 $336 $240 $277 $303 $131 $155 1.00% $0 2015 2016 2017 Q1 '18 Q2 '18 Pro Forma (1) 0.79% 0.50% 0.66% Non-interest Demand Interest-bearing Demand 0.54% 0.56% 0.57% 0.44% 0.45% 0.47% 0.49% 0.49% 0.50% MMDA & Savings Time Deposits 0.00% Source: SNL Financial Data as of 12/31 each respective year; Q1 ‘18 data as of 3/31/18; Q2 ’18 data as of 6/30/18 (1) Pro forma for pending acquisition of Foothills Bancorp, Inc., as of 6/30/18; excludes future purchase accounting adjustments 18


 
Overview of Loan Portfolio Loan Composition (6/30/18)(1) Historical Loan Composition ($mm) Consumer $2,000 C&I & Other 16% 2% $1,734 C&D $37 12% $1,575 $35 $272 $1,500 $1,374 Non $1,323 $259 $35 Owner- $37 Occupied $234 $381 $215 CRE $358 22% $1,000 $813 $303 $331 $360 1-4 Family $728 $8 24% $7 $85 $338 $84 $63 $218 $281 $289 Owner- Multifamily $187 $50 $500 Occupied 4% $59 $44 $181 $413 CRE $162 $356 $17 21% $20 $293 $299 $188 Loan Portfolio Amount ($mm) % of Total $162 $208 $135 $143 $179 C&D $208 12.0 % $105 $118 (1) $0 1-4 Family 413 23.8 2015 2016 2017 Q1 '18 Q2'18 Pro Forma Multifamily 63 3.6 Owner-Occupied CRE 360 20.8 C&D 1-4 Family Non Owner-Occupied CRE 381 22.0 Mulitfamily Owner-Occupied CRE C&I 272 15.7 Consumer & Other 37 2.2 Non-Owner-Occupied CRE C&I Consumer & Other Gross Loans & Leases $1,734 100.0 % Data as of 12/31 each respective year; Q1 ‘18 data as of 3/31/18; Q2 ’18 data as of 6/30/18 (1) Pro forma for pending acquisition of Foothills Bancorp, Inc., as of 6/30/18; excludes future purchase accounting adjustments 19


 
Diversified C&D / CRE Portfolio C&D Composition (6/30/18) Non-Owner-Occupied CRE Composition (6/30/18) Unimproved Multifamily Land Other Non Farm 8% 4% Non Residential Self Storage Permanent Construction Only Permanent Financing Financing Improved Lots Loans 15% 1% Hospitality 5% 10% Permanent Financing Loans Industrial & 19% Warehouse Permanent Office Permanent Land Development Financing Financing Retail Loans Construction to 6% 10% Permanent 3% Perm Loans 10% Financing 10% Data excludes pending acquisition of Foothills Bancorp, Inc. 20


 
Loan Concentrations Over Time C&D / Total Bank Capital (%) CRE / Total Bank Capital (%) 200% 600% 150% 450% 113% 336% 305% 100% 89% 94% 283% 290% 284% 289% 100% 300% 81% 82% 50% 150% 0% 0% (1) (1) (2) (2) 2015 2016 2017 Q1' 18 Q2 '18 Pro Forma 2015 2016 2017 Q1' 18 Q2 '18 Pro Forma Data as of 12/31 each respective year; Q1 ‘18 data as of 3/31/18; Q2 ‘18 data as of 6/30/18 (1) Ratios are for SmartBank as of 12/31/15. Cornerstone Community Bank ratios for C&D and CRE were 113% and 323%, respectively, as of 12/31/15 (2) Pro forma for pending acquisition of Foothills Bancorp, Inc., as of 6/30/18; excludes future purchase 21 accounting adjustments


 
Superior Asset Quality NPAs / Loans + OREO (%) (1) NCOs / Average Loans (%) 2.00% 0.40% 1.54% 1.50% 0.30% 1.00% 0.20% 0.49% 0.38% 0.33% 0.36% 0.50% 0.10% 0.09% 0.02% 0.00% 0.00% 0.01% 0.00% 0.00% 2015 2016 2017 Q1 '18 Q2 '18 2015 2016 2017 Q1 '18 Q2 '18 Reserves / Loans (%) Reserves / NPLs (%) 0.80% 400% 350% 323% 325% 322% 0.60% 0.63% 0.60% 300% 0.44% 0.47% 0.45% 0.40% 200% 0.20% 100% 73% 0.00% 0% 2015 2016 2017 Q1 '18 Q2 '18 2015 2016 2017 Q1 '18 Q2 '18 Data as of or for the twelve months ended each respective year; Q1 ’18 NCOs / Average Loans data annualized as of or for the three months ended 3/31/18; Q2 ’18 NCOs / Average Loans data annualized as of or for the three months ended 6/30/18 (1) NPAs include nonaccruals, OREO and restructured loans 22


 
SMBK Current Capital Position TCE / TA (%) Leverage Ratio (%) 10.0% 12.0% 9.3% 9.3% 9.0% 10.5% 9.0% 8.7% 10.5% 9.8% 9.8% 9.6% 8.2% 9.5% 8.0% 9.3% 8.0% 9.0% 7.0% 7.5% 6.0% 6.0% 2015 2016 2017 Q1 '18 Q2 '18 Pro Forma(1) 2015 2016 2017 Q1 '18 Q2 '18 Pro Forma(1) CET1 Ratio (%) Total Capital Ratio (%) 12.0% 14.0% 10.8% 10.8% 10.3% 10.6% 10.6% 12.3% 10.5% 10.1% 12.5% 12.0% 11.3% 11.2% 11.0% 11.0% 9.0% 11.0% 7.5% 9.5% 6.0% 8.0% 2015 2016 2017 Q1 '18 Q2 '18 Pro Forma(1) 2015 2016 2017 Q1 '18 Q2 '18 Pro Forma(1) Data as of 12/31 each respective year; Q1 ’18 data as of 3/31/18; Q2 ‘18 data as of 6/30/18; capital ratios shown at the holding company level Note: For a reconciliation of TCE / TA to its most directly comparable GAAP measures, see Appendix (1) Pro forma for pending acquisition of Foothills Bancorp, Inc., as of 6/30/18 23


 
Positioned For Rising Interest Rates SMBK Interest Rate Sensitivity June 30, 2018 Net Interest Income Economic Value of Equity % Change % Change Change in Interest Rates From Base Policy Limit From Base Policy Limit Up 400 bps -3.1 % +/-25.0 % -20.1 % +/-35.0 % Up 300 bps -1.0 +/-20.0 -14.6 +/-30.0 Up 200 bps 1.2 +/-14.0 -8.6 +/-25.0 Up 100 bps 1.1 +/-9.0 -5.7 +/-20.0 Down 100 bps -6.2 +/-9.0 -10.6 +/-20.0 Down 200 bps -13.3 +/-14.0 -18.1 +/-25.0 24


 
Appendix 25


 
Historical Financial Highlights Twelve months ended Pro December 31, Standalone Forma(1) 2015 2016 2017 Q1 '18 Q2 '18 Balance Sheet Data: Total Assets $1,023,963 $1,062,456 $1,720,771 $1,760,425 $2,062,232 $2,291,008 Total Loans 727,715 813,376 1,323,258 1,374,256 1,575,435 1,730,238 Deposits 858,483 907,065 1,438,583 1,499,733 1,716,658 1,903,223 Tangible Common Equity 81,236 86,604 155,015 158,289 179,038 191,544 Income Statement Data: Interest Income $27,753 $42,564 $52,022 $19,378 $22,993 Interest Expense 2,757 4,300 5,693 2,567 3,455 Net Interest Income 24,996 38,264 46,329 16,811 19,538 Provision for Loan Losses 923 787 783 689 617 Net Interest Income After Provision 24,073 37,477 45,546 16,122 18,921 Noninterest Income 2,243 4,183 4,980 1,455 1,577 Noninterest Expense 23,166 32,499 39,082 13,222 15,272 Income Before Income Taxes 3,150 9,161 11,444 4,355 5,226 State Income Tax Expense 1,641 3,362 6,429 940 1,295 Net income (loss) 1,510 5,799 5,015 3,415 3,932 Selected Operating Ratios: ROAA 0.22 % 0.57 % 0.42 % 0.79 % 0.82 % ROAE 2.15 5.60 3.44 6.16 6.74 ROATCE 2.68 5.89 3.91 8.34 9.47 Net Interest Margin (FTE) 4.07 4.06 4.29 4.32 4.55 Efficiency Ratio (FTE) 85.0 76.4 76.0 72.4 72.3 Effective Tax Rate 52.1 36.7 56.2 21.6 24.8 Per Share Data: Common Shares Outstanding 5,806,477 5,896,033 11,152,561 11,233,806 12,705,000 13,888,432 Asset Quality: Nonperforming Assets / Total Assets 1.10 % 0.37 % 0.29 % 0.26 % 0.28 % Reserves / Gross Loans 0.60 0.63 0.44 0.47 0.45 Reserves / Nonperforming loans 73 323 325 350 322 NPAs / Loans + OREO 1.54 0.49 0.38 0.33 0.36 Net Charge Offs (Recoveries) / Average Loans 0.09 0.00 0.00 0.02 0.01 Capital Ratios: Tang Common Equity / Tang Assets 8.0 % 8.2 % 9.3 % 9.3 % 9.0 % 8.7 % Leverage Ratio 9.5 9.8 10.5 9.6 9.8 9.3 Common Equity Tier 1 Capital Ratio 10.3 10.1 10.6 10.8 10.8 10.6 Tier 1 Capital Ratio 11.8 11.4 10.6 10.8 10.8 10.6 Total Capital Ratio 12.3 12.0 11.0 11.3 11.2 11.0 Dollars in thousands Data as of or for the twelve months ended 12/31 each respective year; Q1 ‘18 data as of or for the three months ended 3/31/18; Q2 ’18 data as of or for the three months ended 6/30/18 Note: For a reconciliation of these non-GAAP financial measures to their most directly comparable 26 GAAP measures see Appendix (1) Pro forma for pending acquisition of Foothills Bancorp, Inc., as of 6/30/18


 
Historical Interest Coverage Historical Interest Coverage 2014 2015 2016 2017 Q1 ‘18 Q2 '18 Pro Forma (1) Bank-Level Equity $55,412 $56,197 $100,023 $168,103 $212,961 $257,056 $293,908 Consolidated Equity 55,888 100,177 105,240 205,852 208,949 247,487 277,594 Double Leverage Ratio 99% 56% 95% 82% 102% 104% 106% Interest Coverage Total Deposit Interest $2,025 $2,626 $4,105 $5,519 $2,401 $3,238 A Total Debt Interest 12 131 194 174 166 217 B Total Interest Expense $2,037 $2,757 $4,299 $5,693 $2,567 $3,455 C = A + B Pre-Tax Income 2,950 3,150 9,161 11,444 4,355 5,227 D Interest Coverage (Excluding Deposit Interest Expense) 246.8x 25.0x 48.2x 66.8x 27.2x 25.1x ( D + B ) / B Interest Coverage (Including Deposit Interest Expense) 2.4x 2.1x 3.1x 3.0x 2.7x 2.5x ( D + C ) / C Dollars in thousands Data as of or for the twelve months ended 12/31 each respective year; Q1 ‘18 data as of or for the three months ended 3/31/18; Q2 ’18 data as of or for the three months ended 6/30/18 (1) Pro forma for pending acquisition of Foothills Bancorp, Inc., as of 6/30/18 27


 
Non-GAAP Reconciliations TCE / TA 2015 2016 2017 Q1 ‘18 Q2 '18 Pro Forma (1) Pro Forma (2) Shareholders' Equity (GAAP) $88,177 $93,240 $205,852 $208,949 $247,487 $277,594 $277,594 Less: Intangible Assets 6,941 6,636 50,837 50,660 68,449 86,051 86,050 Tangible Common Equity $81,236 $86,604 $155,015 $158,289 $179,038 $191,543 $191,544 Total Assets $1,023,963 $1,062,456 $1,720,771 $1,760,425 $2,062,232 $2,291,008 $2,311,008 Less: Intangible Assets 6,941 6,636 50,837 50,660 68,449 86,051 86,050 Tangible Assets $1,017,022 $1,055,820 $1,669,934 $1,709,765 $1,993,783 $2,204,957 $2,224,958 TCE / TA 8.0 % 8.2 % 9.3 % 9.3 % 9.0 % 8.7 % 8.6 % Dollars in thousands Data as of or for the twelve months ended 12/31 each respective year; Q1 ‘18 data as of or for the three months ended 3/31/18; Q2 ’18 data as of or for the three months ended 6/30/18 (1) Pro forma for pending acquisition of Foothills Bancorp, Inc., as of 6/30/18 28 (2) Pro forma for pending acquisition of Foothills Bancorp, Inc., $30mm subordinated debt offering and $15mm repayment of holding company line of credit, as of 6/30/18


 
Non-GAAP Reconciliations Core Net Income & Core ROAA 2015 2016 2017 Q1 ‘18 Q2 '18 Net Income before Extraordinary (GAAP) $1,510 $5,799 $5,015 $3,415 $3,932 Less: After-Tax Nonrecurring Items, Including Merger-Related Expenses (783) (38) (1,477) (393) (888) Plus: After-Tax Amortization of Intangibles & Goodwill Impairment 151 198 225 149 181 Plus: Tax Act Charges 0 0 2,482 0 0 Core Net Income $2,445 $6,035 $9,199 $3,957 $5,001 Average Assets $683,519 $1,012,232 $1,188,589 $1,735,162 $1,924,071 Core ROAA 0.36 % 0.60 % 0.77 % 0.23 % 0.26 % Multiplied by: Annualization Factor 1.00 1.00 1.00 4.00 4.00 Core ROAA 0.36 % 0.60 % 0.77 % 0.91 % 1.04 % Dollars in thousands Data as of or for the twelve months ended 12/31 each respective year; Q1 ‘18 data as of or for the three months ended 3/31/18; Q2 ’18 data as of or for the three months ended 6/30/18 29


 
Non-GAAP Reconciliations Core ROATCE 2015 2016 2017 Q1 ‘18 Q2 '18 Core Net Income $2,445 $6,035 $9,200 $3,957 $5,001 Average Tangible Common Equity $62,433 $83,920 $120,810 $156,652 $168,664 Core ROATCE 3.92 % 7.19 % 7.62 % 2.53 % 2.96 % Multiplied by: Annualization Factor 1.00 1.00 1.00 4.00 4.00 Core ROATCE 3.92 % 7.19 % 7.62 % 10.10 % 11.86 % Dollars in thousands Data as of or for the twelve months ended 12/31 each respective year; Q1 ‘18 data as of or for the three months ended 3/31/18; Q2 ’18 data as of or for the three months ended 6/30/18 30


 
Non-GAAP Reconciliations Core Efficiency Ratio 2015 2016 2017 Q1 ‘18 Q2 '18 Total Noninterest Expense $23,166 $32,500 $39,082 $13,222 $15,272 Less: Nonrecurring Expenses, Including Merger-Related Expenses 1,257 258 2,417 498 1,123 Less: Foreclosure & Repossession Expense 289 236 84 336 465 Less: Amortization of Intangible Assets and Goodwill Impairment 233 305 346 188 229 Operating Expense $21,386 $31,701 $36,235 $12,200 $13,455 Net Interest Income, FTE (GAAP) $25,020 $38,336 $46,447 $16,823 $19,561 Plus: Total Noninterest Income 2,243 4,183 4,979 1,455 1,577 Less: Gain on Sale of Securities 52 200 144 0 (1) Less: Gain (Loss) on Sale of Foreclosed Assets 267 190 (48) 0 0 Operating Revenue $26,944 $42,129 $51,331 $18,278 $21,139 Core Efficiency Ratio 79.4 % 75.2 % 70.6 % 66.7 % 63.7 % Dollars in thousands Data as of or for the twelve months ended 12/31 each respective year; Q1 ‘18 data as of or for the three months ended 3/31/18; Q2 ’18 data as of or for the three months ended 6/30/18 31


 
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Section 5: EX-99.2 (EXHIBIT 99.2)

Exhibit
Exhibit 99.2

395194985_exhibit992image1a01.gif

FOR IMMEDIATE RELEASE

SmartFinancial, Inc. Completes $40 Million Subordinated Debt Offering

KNOXVILLE, Tenn., October 1, 2018 – SmartFinancial, Inc., Knoxville, Tennessee (the “Company) (Nasdaq: SMBK), parent company of SmartBank (the “Bank”) today announced the completion of an offering of $40 million in aggregate principal amount of fixed-to-floating rate subordinated notes due 2028 (the “Notes”) to certain institutional accredited investors. The Company intends to use the net proceeds of the offering to repay the outstanding balance on the Company’s existing revolving line of credit, to pay the cash consideration payable to holders of Foothills Bancorp, Inc. common stock and holders of options to purchase Foothills Bancorp, Inc. common stock in connection with the Company’s pending acquisition of Foothills Bancorp, Inc., and for other general corporate purposes, including improving the Company’s and the Bank’s liquidity position.

The Notes will initially bear interest at a rate of 5.625% per annum from and including September 28, 2018, to but excluding October 2, 2023, with interest during this period payable semi-annually in arrears. From and including October 2, 2023, to but excluding the maturity date or early redemption date, the interest rate will reset quarterly to an annual floating rate equal to three-month LIBOR, or an alternative rate determined in accordance with the terms of the Notes if three-month LIBOR cannot be determined, plus 255 basis points, with interest during this period payable quarterly in arrears. The Notes are redeemable by the Company, in whole or in part, on or after October 2, 2023, and at any time, in whole but not in part, upon the occurrence of certain events. The Notes have been structured to qualify initially as Tier 2 capital for the Company for regulatory capital purposes.

In anticipation of the subordinated debt offering, the Company recently obtained ratings from Kroll Bond Rating Agency (“KBRA”), a nationally recognized statistical rating organization registered with the Securities and Exchange Commission (the “SEC”). KBRA assigned the Notes an investment grade rating of BBB-.

“We are very pleased with the execution of this subordinated debt offering” said Billy Carroll, SmartFinancial’s President and CEO. “Moreover, we are pleased with KBRA’s rating, which we believe is indicative of our strong asset quality, experienced management team, and overall business strategy. Our Company has seen tremendous growth and success since its inception, and we believe that we are positioned well to pursue future growth having completed this offering.”

Keefe, Bruyette & Woods, Inc. served as exclusive placement agent for the offering. Butler Snow LLP served as legal counsel to the Company, and Bass, Berry & Sims PLC served as legal counsel to the placement agent.

The Notes have not been registered under the Securities Act of 1933, as amended, or any state securities laws and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements. This press release is for informational purposes only and shall not constitute an offer to sell, or the solicitation of an offer to buy, and security, nor shall there by any sale in any jurisdiction in which such an offer, solicitation, or sale would be unlawful prior to registration or qualification under the securities laws of such jurisdiction. The indebtedness evidenced by the Notes is not a deposit and is not insured by the Federal Deposit Insurance Corporation or any other government agency or fund.

About SmartFinancial, Inc.

SmartFinancial, Inc., based in Knoxville, Tennessee, is the bank holding company for SmartBank. SmartBank is a full-service commercial bank founded in 2007, with 25 branches across Tennessee, Alabama, and the Florida Panhandle.



Recruiting the best people, delivering exceptional client service, strategic branching and acquisitions and a disciplined approach to lending have contributed to SmartBank’s success. More information about SmartFinancial can be found on its website: www.smartfinancialinc.com.

Forward-Looking Statements

Certain of the statements made in this press release may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements, including statements regarding the intent, belief, or current expectations of the Company’s management regarding the Company’s strategic direction, prospects, or future results or the benefits of the Company’s recently completed or pending acquisitions, are subject to numerous risks and uncertainties. Such factors include, among others, the risk that the Company’s pending acquisition of Foothills Bancorp, Inc. will not be consummated within the time periods and on the terms currently proposed or at all; the risk that expected cost savings and revenue synergies from the Company’s recently completed or pending acquisitions may not be realized or may take longer than anticipated to be realized; the risk that the acquisitions may be more expensive to complete than anticipated, including as a result of unexpected factors or events; disruption from the acquisitions with customers, suppliers, or employee or other business relationships; the risks associated with the integration of acquired companies’ businesses; the amount of costs, fees, expenses, and charges related to the Company’s completed and pending acquisitions; changes in management’s plans for the future; prevailing economic and political conditions, particularly in the Company’s market areas; credit risk associated with the Company’s lending activities; changes in interest rates, loan demand, real estate values, and competition; changes in accounting principles, policies, or guidelines; changes in applicable laws, rules, or regulations; the dilution caused by the Company’s issuance of additional shares of its common stock as consideration for any pending acquisitions; and other competitive, economic, political, and market factors affecting the Company’s business, operations, pricing, products, and services. Certain additional factors which could affect the forward-looking statements can be found in the Company’s report on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K, in each case filed with or furnished to the SEC and available on the SEC’s website at http://www.sec.gov. The Company disclaims any obligation to update or revise any forward-looking statements contained in this press release, which speak only as of the date hereof, whether as a result of new information, future events, or otherwise.

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Investor Contacts

William Y. (“Billy”) Carroll, Jr.
President and Chief Executive Officer
SmartFinancial, Inc.
Email: billy.carroll@smartbank.com
Phone: 865.868.0613

Ron Gorczynski
Executive Vice President
Chief Administrative Officer
SmartFinancial, Inc.
Email: ron.gorczynski@smartbank.com
Phone: 865.437.5724

Media Contact        

Kelley Fowler
Senior Vice President
Public Relations/Marketing
SmartFinancial, Inc.
Email: kelley.fowler@smartbank.com
Phone: 865.868.0611

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