SMBK SmartFinancial Inc

SUMMARY

This summary highlights material information regarding the merger and the special shareholders’ meetings contained later in this joint proxy statement/prospectus. This summary does not contain all of the information that may be important to you and we urge you to carefully read this entire document, including the appendices, exhibits and enclosures, to better understand the merger and its potential impact on you before deciding how to vote. Each item in this summary includes a page reference directing you to a more complete discussion of the item.

The Companies (page 82 for SmartFinancial and page 98 for Capstone)

SmartFinancial, Inc.

5401 Kingston Pike, Suite 600

Knoxville, Tennessee 37919

(865) 437-5700

Attention: Billy Carroll, President and Chief Executive Officer

SmartFinancial is a Tennessee corporation registered as a bank holding company with the Board of Governors of the Federal Reserve System (which we refer to as the “Federal Reserve”). The primary activity of SmartFinancial currently is the ownership and operation of SmartBank, which operates 14 branches throughout Chattanooga, Knoxville, Cleveland, and Sevierville, in east Tennessee, as well as the Florida Panhandle.

Capstone Bancshares, Inc.

2301 University Boulevard

Tuscaloosa, Alabama 35401
Attention: Robert W. Kuhn, Jr., President and Chief Executive Officer

Capstone is an Alabama corporation registered as a bank holding company with the Federal Reserve. The primary activity of Capstone currently is the ownership and management of Capstone Bank, which operates eight branches throughout Tuscaloosa, Washington, Clarke and Baldwin counties in the State of Alabama.

The Merger (page 40)

Under the terms of the merger agreement, Capstone will merge with and into SmartFinancial, with SmartFinancial being the survivor. After the merger, Capstone Bank will merge with and into SmartBank, with SmartBank surviving the merger. Both SmartFinancial and SmartBank will continue their existence under Tennessee law, while Capstone and Capstone Bank will cease to exist. The merger agreement is attached as Appendix A and is incorporated into this joint proxy statement/prospectus by reference. We encourage you to read the merger agreement carefully as it is the legal document that governs the merger.

What Capstone Shareholders and Option Holders Will Receive in the Merger (page 68)

Capstone shareholders will be able to elect to receive, for each share of Capstone common stock held, either: (a) 0.85 shares of SmartFinancial common stock, (b) $18.50 in cash, or (c) a combination of SmartFinancial common stock and cash. Elections will be limited by the requirement that 80% of the total shares of Capstone common stock be exchanged for SmartFinancial common stock and 20% be exchanged for cash.

Additionally, if the merger is completed, each option to purchase a share of Capstone common stock will be converted into an option to purchase a share of SmartFinancial common stock multiplied by the exchange ratio, and the exercise price of such option will become the exercise price of the option immediately prior to the merger divided by the exchange ratio. Options to acquire Capstone common stock that are considered “qualified” options will be converted into qualified options of SmartFinancial common stock and options to purchase Capstone stock that are not “qualified” will be converted into non-qualified options to acquire SmartFinancial common stock.

Fractional Shares (page 70)

SmartFinancial will not issue fractional shares of its common stock in connection with the merger. Instead, SmartFinancial will pay to each former Capstone shareholder who would otherwise be entitled to receive a fractional share an amount in cash determined by multiplying the fractional share by an amount of cash equal to the volume weighted average closing price of SmartFinancial common stock on the Nasdaq Capital Market for the 10 consecutive trading days before the closing date of the merger.

Regulatory Approvals (page 68)

Because the merger qualifies as a waiver transaction under the applicable rules and regulations of the Federal Reserve, we are not required to file a formal merger application with the Federal Reserve and must only make a notice filing with the Federal Reserve with respect to the merger. However, in order to consummate the merger of Capstone Bank with and into SmartBank, we must obtain approval from the Federal Reserve and the Tennessee Department of Financial Institutions (which we refer to as the “TDFI”). We have not filed such request for approval as of the date of this joint proxy statement/prospectus, and as of the date of this joint proxy statement/prospectus, we have not received any of the required regulatory approvals.

SmartFinancial’s Special Shareholders’ Meeting (page 33)

SmartFinancial will hold its special shareholders’ meeting on September 14, 2017, at 6:00 P.M., local time at the SmartBank office at 202 Advantage Place, Knoxville, Tennessee 37922.

SmartFinancial’s Record Date and Voting (pages 33-34)

If you owned shares of SmartFinancial common stock at the close of business on July 14, 2017, the record date for the SmartFinancial special shareholders’ meeting, you are entitled to vote on the proposals to approve the merger agreement and the merger and to authorize adjournment, as well as any other matters considered at the special shareholders’ meeting. On the record date, there were 8,221,761 shares of SmartFinancial common stock outstanding. You will have one vote at the meeting for each share of SmartFinancial common stock you owned on the record date. The affirmative vote of the holders of a majority of the outstanding shares of SmartFinancial common stock is required to approve the merger agreement and the merger. The affirmative vote of a majority of shares of SmartFinancial common stock present in person or by proxy and entitled to vote on the matter at the SmartFinancial special shareholders’ meeting is required to approve the proposal to authorize adjournment. As of July 14, 2017, SmartFinancial’s current directors and executive officers beneficially owned approximately 13.6% of the outstanding shares of SmartFinancial’s common stock. Each of SmartFinancial’s directors and executive officers has agreed, subject to several conditions, to vote his or her shares of SmartFinancial common stock in favor of the merger agreement. The presence, in person or by proxy, of holders of a majority of shares of SmartFinancial common stock entitled to vote on the proposals constitutes a quorum for the purposes of conducting business at the special meeting of SmartFinancial shareholders.

Capstone’s Special Shareholders’ Meeting (page 33)

Capstone will hold its special shareholders’ meeting on September 15, 2017, at 12:00 P.M., local time at 2301 University Boulevard, Tuscaloosa, Alabama 35401.

Capstone’s Record Date and Voting (pages 33-34)

If you owned shares of Capstone common stock at the close of business on July 14, 2017, the record date for the Capstone special shareholders’ meeting, you are entitled to vote on the proposals to approve the merger agreement and the merger and to authorize adjournment, as well as any other matters considered at the special shareholders’ meeting. On the record date, there were 4,276,726 shares of Capstone common stock outstanding. You will have one vote at the meeting for each share of common stock you owned on the record date. The affirmative vote of two-thirds of Capstone’s outstanding shares of common stock is required to approve the merger agreement and the merger. The affirmative vote of a majority of shares of Capstone common stock present in person or by proxy and entitled to vote on the matter at the Capstone special shareholders’ meeting is required to approve the proposal to authorize adjournment. As of July 14, 2017, Capstone’s directors and executive officers beneficially owned approximately 20% of the outstanding shares of Capstone common stock. Each of Capstone’s directors and executive officers has agreed, subject to several conditions, to vote his or her shares of Capstone common stock in favor of the merger agreement and the merger. The presence, in person or by proxy, of holders of a majority of shares of Capstone common stock entitled to vote on the proposals constitutes a quorum for the purposes of conducting business at the special meeting of Capstone shareholders.

SmartFinancial’s Board of Directors Recommends that SmartFinancial Shareholders Vote “FOR” the Approval of the Merger Agreement (page 53)

SmartFinancial’s board of directors has determined that the merger and the merger agreement are advisable and in the best interests of SmartFinancial and its shareholders and has approved the merger agreement and the merger. SmartFinancial’s board of directors recommends that SmartFinancial shareholders vote “FOR” the approval of the merger agreement and the merger. For the factors considered by SmartFinancial’s board of directors in reaching its decision to approve the merger agreement and the merger, see “ Proposal No. 1—The Merger—SmartFinancial’s Reasons for the Merger; Recommendation of the SmartFinancial Board of Directors .”

Capstone’s Board of Directors Recommends that Capstone Shareholders Vote “FOR” the Approval of the Merger Agreement (page 44)

Capstone’s board of directors has determined that the merger and the merger agreement are advisable and in the best interests of Capstone and its shareholders and has adopted the merger agreement. Capstone’s board of directors recommends that Capstone shareholders vote “FOR” the approval of the merger agreement. For the factors considered by Capstone’s board of directors in reaching its decision to adopt the merger agreement, see “ Proposal No. 1—The Merger—Capstone’s Reasons for the Merger; Recommendation of the Capstone Board of Directors .”

Capstone Directors and Officers Have Interests that Differ from the Interests of Capstone Shareholders (page 66)

When considering whether to approve the merger agreement and the merger, Capstone shareholders should be aware that some directors and officers of Capstone have interests in the merger that differ from the interests of other Capstone shareholders. The Capstone board of directors was aware of these interests and other considerations and considered them before approving and adopting the merger agreement.

Capstone will provide to certain directors and/or officers transaction bonuses and/or change in control payments prior to the closing of the merger. Other interests of directors and officers of Capstone may include rights under stock based benefit programs and awards, compensation for continued employment with SmartFinancial after the merger, and rights to continued indemnification and insurance coverage for acts or omissions occurring prior to the merger.

In addition, SmartFinancial’s board of directors will appoint two individuals currently serving as members of Capstone’s board of directors, Steven B. Tucker and J. Beau Wicks, to serve on the boards of directors of SmartBank and SmartFinancial.

Board of Directors after the Merger (page 70)

Immediately after the merger, the board of directors of the combined company will have 13 members, consisting of 11current members of SmartFinancial’s board of directors, as well as Steven B. Tucker and J. Beau Wicks, who are members of the board of directors of Capstone.

Issued Shares of SmartFinancial Common Stock Will be Eligible for Trading (page 72)

The shares of SmartFinancial common stock to be issued upon consummation of the merger will, subject to official notice of issuance, be authorized for listing and eligible for trading on the Nasdaq Capital Market under the symbol “SMBK.”

The Merger Generally Will Be Tax-Deferred to Holders of Capstone Common Stock to the Extent They Receive SmartFinancial Common Stock But Will Be Taxable With Respect to Any Cash Received (page 67)

The merger will qualify as a reorganization under Section 368(a) of the Internal Revenue Code. It is a condition to the completion of the merger that Capstone receive a legal opinion from Burr & Forman LLP to the effect that the merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code, for United States federal income tax purposes. It is also a condition that SmartFinancial receive a similar opinion from Butler Snow LLP. The opinions will not bind the Internal Revenue Service or a court, which could view the mergers differently.

Generally, for United States federal income tax purposes, U.S. holders (as defined in the section entitled “ Material United States Federal Income Tax Consequences ”) will not recognize gain or loss as a result of the exchange of their Capstone common stock for shares of SmartFinancial common stock pursuant to the merger agreement. However, if any Capstone shareholder receives cash consideration for its Capstone shares or in lieu of fractional shares of SmartFinancial common stock, such exchange generally will be treated as a taxable transaction causing such Capstone common shareholder to recognize gain or loss on the exchange. Holders of Capstone common stock should consult their own tax advisors for an understanding of the tax consequences that may be particular to them. Shareholders of SmartFinancial common stock should have no direct income tax consequences as a result of the merger.

You should read “ Material United States Federal Income Tax Consequences ” beginning on page 62 for a more complete discussion of the United States federal income tax consequences of the merger. Tax matters can be complicated and the tax consequences of the merger to you will depend on your particular tax situation. You should consult your tax advisor to fully understand the tax consequences of the merger to you.

Comparative Rights of Shareholders (page 88)

The rights of Capstone’s shareholders are currently governed by Alabama corporate law and Capstone’s charter and bylaws. The rights of SmartFinancial’s shareholders are currently governed by Tennessee corporate law and SmartFinancial’s charter and bylaws. Upon consummation of the merger, the shareholders of Capstone will become shareholders of SmartFinancial, and Tennessee law, as well as the charter and bylaws of SmartFinancial, will govern their rights. SmartFinancial’s charter and bylaws differ somewhat from those of Capstone with respect certain matters, including the shareholder vote required to approve significant corporate transactions, such as the merger. The different shareholder rights are explained more fully in “ Comparative Rights of SmartFinancial and Capstone Shareholders ” on page 88.

Termination of the Merger Agreement and Termination Fee (pages 79-80)

Capstone has agreed to pay SmartFinancial a termination fee of $2,800,000 if the merger is terminated because Capstone decides to pursue another business combination, among other things. These provisions might discourage a potential competing acquirer that might have an interest in acquiring all or a significant part of Capstone from considering or proposing that acquisition, even if it were prepared to pay consideration with a higher per share price than that proposed in the merger, or might result in a potential competing acquirer proposing to pay a lower price than it might otherwise have proposed to pay.

Dividends (page 67)

The ability of SmartFinancial to pay dividends is highly dependent on SmartBank’s ability to pay dividends. The likelihood of SmartFinancial declaring dividends to its shareholders is contingent on the anticipated growth and capital preservation strategy to maintain a strong capital level for both SmartFinancial and SmartBank. As a result, SmartFinancial cannot project or guarantee when dividends will be declared in the future.

Most Capstone Shareholders May Resell SmartFinancial Common Stock (page 72)

The shares of SmartFinancial common stock to be issued to the shareholders of Capstone in connection with the merger will be freely tradable by such shareholders, except that if any Capstone shareholders are deemed to be affiliates of SmartFinancial, they must abide by certain transfer restrictions under the Securities Act of 1933, as amended, which we refer to as the “Securities Act.”

Capstone Shareholders have Dissenters’ Appraisal Rights (page 38)

Appraisal rights, also referred to as dissenters’ rights, are statutory rights that, if applicable under law, enable shareholders to dissent from an extraordinary transaction, such as a merger, and to demand that the corporation pay the fair cash value for their shares instead of receiving the consideration offered to shareholders in connection with the extraordinary transaction. The holders of Capstone common stock are entitled to appraisal rights in the merger under the Alabama Business Corporation Law, which we refer to as the ABCL. For more information, See “ Capstone Dissenters’ Rights ” beginning on page 38.

Fairness Opinion of Financial Advisor to Capstone (page 46)

Stephens Inc., or Stephens, has delivered a written opinion to the board of directors of Capstone that, as of May 19, 2017, based upon and subject to certain matters stated in the opinion, the merger consideration is fair, from a financial point of view, to Capstone. This opinion is attached to this joint proxy statement/prospectus as Appendix C. The opinion of Stephens is not a recommendation to any Capstone shareholder as to how to vote on the proposal to approve the merger agreement, the merger or the issuance of SmartFinancial common stock to the shareholders of Capstone in the merger. You should read this opinion completely to understand the procedures followed, matters considered and limitations on the reviews undertaken by Stephens in providing its opinion.

Fairness Opinion of Financial Advisor to SmartFinancial (page 55)

At the request of SmartFinancial’s board of directors, on May 22, 2017, Raymond James & Associates, Inc., or Raymond James, rendered its opinion as to the fairness, as of May 22, 2017, from a financial point of view, to SmartFinancial of the consideration to be paid by SmartFinancial in the merger pursuant to the merger agreement based upon and subject to the qualifications, assumptions and other matters considered in connection with the preparation of its opinion. The full text of Raymond James’s written opinion, which sets forth, among other things, the various qualifications, assumptions made, procedures followed, matters considered and limitations on the review undertaken in connection with the opinion, is attached to this document as Appendix D. The opinion was provided for the information of SmartFinancial’s board of directors (solely in each director’s capacity as such) in connection with, and for purposes of, its evaluation of the merger and the opinion only addressed whether the merger consideration to be paid by SmartFinancial in the merger pursuant to the merger agreement was fair, from a financial point of view, to SmartFinancial. The opinion did not address any other term or aspect of the agreement or the merger contemplated thereby. The opinion does not constitute a recommendation to the board or to any shareholder of SmartFinancial as to how the board, such shareholder or any other person should vote or otherwise act with respect to the merger or any other matter.

UNAUDITED PRO FORMA COMBINED CONSOLIDATED FINANCIAL INFORMATION

The following unaudited pro forma combined consolidated financial information and accompanying notes show the impact on the historical financial conditions and results of operations of SmartFinancial and Capstone and have been prepared to illustrate the effects of the merger under the acquisition method of accounting. See “Proposal No. 1 — The Merger.”

The unaudited pro forma combined consolidated balance sheet as of March 31, 2017 is presented as if the merger had occurred on March 31, 2017. The unaudited pro forma combined consolidated income statements for the quarter ended March 31, 2017 are presented as if the merger had occurred on January 1, 2017. The historical consolidated financial information has been adjusted to reflect factually supportable items that are directly attributable to the merger and, with respect to the income statements only, expected to have a continuing impact on consolidated results of operations.

The selected unaudited pro forma combined consolidated financial statements are provided for informational purposes only. The unaudited pro forma combined consolidated financial statements are not necessarily, and should not be assumed to be, an indication of the results that would have been achieved had the merger been completed as of the dates indicated or that may be achieved in the future. The preparation of the unaudited pro forma combined consolidated financial statements and related adjustments required management to make certain assumptions and estimates. The unaudited pro forma combined consolidated financial statements should be read together with:

See accompanying notes to unaudited pro forma combined consolidated financial information.

NOTES TO UNAUDITED PRO FORMA COMBINED CONSOLIDATED FINANCIAL STATEMENTS  

(all amounts are in thousands, except per share data, unless otherwise indicated)

Note 1 — Basis of Pro Forma Presentation

The unaudited pro forma combined balance sheet as of March 31, 2017 and the unaudited pro forma combined income statements for the quarter ended March 31, 2017 are based on the historical financial statements of SmartFinancial and Capstone after giving effect to the completion of the merger and the assumptions and adjustments are described in the accompanying notes. Such financial statements do not reflect cost savings or operating synergies expected to result from the merger, or the costs to achieve these cost savings or operating synergies, any anticipated disposition of assets that may result from the integration of the operations of the two companies or any additional costs that may be incurred as a result of being a registered company. Certain historical financial information has been reclassified to conform to the current presentation.

The transaction will be accounted for under the acquisition method of accounting in accordance with Accounting Standards Codification (“ASC”) Topic 805, Business Combinations (“ASC 805”). In business combination transactions in which the consideration given is not in the form of cash (that is, in the form of non-cash assets, liabilities incurred, or equity interests issued), measurement of the acquisition consideration is based on the fair value of the consideration given or the fair value of the assets (or net assets) acquired, whichever is more clearly evident and, thus, more reliably measurable.

Under ASC 805, all of the assets acquired and liabilities assumed in a business combination are recognized at their acquisition-date fair value, while transaction costs and restructuring costs associated with the business combination are expensed as incurred. The excess of the acquisition consideration over the fair value of assets acquired and liabilities assumed, if any, is allocated to goodwill. Changes in deferred tax asset valuation allowances and income tax uncertainties after the acquisition date generally affect income tax expense. Subsequent to the completion of the merger, SmartFinancial and Capstone will finalize an integration plan, which may affect how the assets acquired, including intangible assets, will be utilized by the surviving corporation. For those assets in the surviving corporation that will be phased out or will no longer be used, additional amortization, depreciation and possibly impairment charges will be recorded after management completes the integration plan.

The unaudited pro forma information is presented solely for informational purposes and is not necessarily indicative of the combined results of operations or financial position that might have been achieved for the periods or dates indicated, nor is it necessarily indicative of the future results of the surviving corporation.

Note 2 — Preliminary Estimated Acquisition Consideration

Under the terms of the merger agreement, Capstone shareholders will be converted into the right to receive either (a) $18.50 in cash, without interest, (ii) 0.85 shares of SmartFinancial common stock, or (iii) a combination of stock and cash. Capstone shareholders will be asked to complete election forms requesting to receive all cash consideration, all stock consideration, or a mixture of both stock and cash consideration. The merger agreement provides that 80% of the aggregate number of Capstone stock outstanding prior to the merger shall be cancelled and converted into SmartFinancial common stock. If there is a shortfall in the number of Capstone shares elected to be converted into SmartFinancial common stock, SmartFinancial will allocate consideration to those shareholders proportionately, in accordance with procedures set out in the merger agreement.

The pro forma stock ownership related to the acquisition is as follows:

Measurement of the acquisition consideration was based on the estimated fair value of SmartFinancial common stock, which was more clearly evident than the fair value of the net assets acquired. Based on the estimate of value of the shares of SmartFinancial common stock outstanding as of March 31, 2017, the preliminary estimated acquisition consideration is as follows:

Under the acquisition method of accounting, the total acquisition consideration is allocated to the acquired tangible and intangible assets and assumed liabilities of Capstone based on their estimated fair values as of the closing of the merger. The excess of the acquisition consideration over the fair value of the acquired assets and liabilities assumed, if any, is allocated to goodwill.

The allocation of the estimated acquisition consideration is preliminary because the proposed merger has not yet been completed. The preliminary allocation is based on estimates, assumptions, valuations, and other studies which have not progressed to a stage where there is sufficient information to make a definitive allocation. Accordingly, the acquisition consideration allocation unaudited pro forma adjustments will remain preliminary until SmartFinancial management determines the final acquisition consideration and the fair values of assets acquired and liabilities assumed. The final determination of the acquisition consideration allocation is anticipated to be completed as soon as practicable after the completion of the merger and will be based on the value of the SmartFinancial common stock at the closing of the merger. The final amounts allocated to assets acquired and liabilities assumed could differ significantly from the amounts presented in the unaudited pro forma combined consolidated financial statements.

The total preliminary acquisition consideration has been allocated to Capstone tangible and intangible assets and liabilities as of March 31, 2017, based on their preliminary estimated fair values as follows:

Identifiable intangible assets . The preliminary fair values of intangible assets were determined based on the provisions of ASC 805, which defines fair value in accordance with ASC Topic 820, Fair Value Measurements and Disclosures (“ASC 820”). ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Intangible assets were identified that met either the separability criterion or the contractual-legal criterion described in ASC 805. The preliminary allocation to intangible assets is an allocation to core deposit intangibles. Based upon an independent study, an asset of $4,221 thousand was allocated to the core deposit intangible.

Goodwill . Goodwill represents the excess of the preliminary estimated acquisition consideration over the preliminary fair value of the underlying net tangible and intangible assets. Among the factors that contributed to a purchase price in excess of the fair value of the net tangible and intangible assets are the skill sets, operations, customer base, and organizational cultures that can be leveraged to enable the surviving corporation to build an enterprise greater than the sum of its parts. In accordance with ASC Topic 350, Intangible — Goodwill and Other, goodwill will not be amortized, but instead will be tested for impairment at least annually and whenever events or circumstances have occurred that may indicate a possible impairment. In the event management determines that the value of goodwill has become impaired, the surviving corporation will incur an accounting charge for the amount of the impairment during the period in which the determination is made.

Note 3 — Preliminary Unaudited Pro Forma and Acquisition Accounting Adjustments

The unaudited pro forma financial information is not necessarily indicative of what the financial position actually would have been had the merger been completed at the date indicated. Such information includes adjustments which are preliminary and may be revised. Such revisions may result in material changes. The financial position shown herein is not necessarily indicative of what the past financial position of the combined companies would have been, nor necessarily indicative of the financial position of the post-merger periods. The unaudited pro forma financial information does not give consideration to the impact of possible cost savings, expense efficiencies, synergies, strategy modifications, asset dispositions, or other actions that may result from the merger.

The following unaudited pro forma adjustments will result from accounting for the merger, including the determination of fair value of the assets, liabilities, and commitments which SmartFinancial, as the acquirer, will acquire from Capstone. The descriptions related to these preliminary adjustments are as follows.

Balance Sheet — the explanations and descriptions below are referenced to the March 31, 2017,

Adjustment to loans of $(11,645) thousand which includes a fair value component and a credit component. The estimated fair value adjustment is $(2,291) thousand and the credit adjustment is estimated to be $(9,354) thousand.

Adjustment to intangibles for a core deposit premium of $4,221 thousand.

Adjustment to time deposits of $894 thousand.

Adjustment to FHLB borrowings of $99 thousand.

Adjustment to securities of $460 thousand.

Income Statements — the explanations and descriptions below are referenced to the

Note 4 — Earnings per Common Share

Unaudited pro forma earnings per common share for the three months ended March 31, 2017 have been calculated using SmartFinancial’s historic weighted average common shares outstanding plus the common shares assumed to be issued to Capstone shareholders in the merger plus shares to be issued as part of the private offering component of the financing transaction.

Under the terms of the merger agreement, each share of Capstone common stock will be converted into the right to receive either (a) $18.50 in cash, without interest, (ii) 0.85 shares of SmartFinancial common stock, or (iii) a combination of stock and cash. Capstone shareholders will be asked to complete election forms requesting to receive all cash consideration, all stock consideration, or a mixture of both stock and cash consideration. The merger agreement provides that 80% of the aggregate number of shares of Capstone common stock outstanding prior to the Merger shall be cancelled and converted into SmartFinancial common stock. If there is a shortfall in the number of shares of Capstone common stock elected to be converted into SmartFinancial common stock, SmartFinancial will allocate consideration to those shareholders proportionately, in accordance with procedures set out in the merger agreement.

The following table sets forth the calculation of basic and diluted unaudited pro forma earnings per common share for the three months ended March 31, 2017.

Note 5 — Preliminary Unaudited Pro Form Regulatory Capital Ratios

The unaudited pro forma regulatory capital ratios shown below are not necessarily indicative of what the financial capital ratios actually would have been had the merger been completed at the date indicated. Such information includes adjustments which are preliminary and may be revised. Such revisions may result in material changes. The capital ratios shown herein are estimates and are not necessarily indicative of what the past capital ratios of the combined companies would have been, nor necessarily indicative of the capital ratios of the post-merger periods.

Average assets and risk weighted assets, for purposes of calculating regulatory capital ratios, have been estimated by using those averages and risk weighted assets as filed on each of SmartBank’s and Capstone’s regulatory reports for the first quarter of 2017, adjusted by the pro forma adjustments. Any of those adjustments that are disallowed have been reflected in average assets, risk weighted assets, and total capital accordingly. The following information reflects the unaudited adjusted pro forma balances used for calculating pro forma regulatory capital ratios as of March 31, 2017.

The following information reflects the estimated unaudited pro forma regulatory capital ratios as of March 31, 2017, and compares those ratios with the regulatory capital ratios of SmartBank and Capstone that were reported as of March 31, 2017.

UNAUDITED COMPARATIVE PER SHARE DATA

The following summary presents per share information from SmartFinancial and Capstone on a historical, unaudited pro forma combined per share basis as of and for the three months ended March 31, 2017. The information presented below should be read together with: (i) SmartFinancial’s audited consolidated financial statements and accompanying notes as of and for the year ended December 31, 2016, included in SmartFinancial’s annual report on Form 10-K which is incorporated by reference into this joint proxy statement/prospectus; (ii) Capstone’s audited consolidated financial statements and accompanying notes as of and for the year ended December 31, 2016, included elsewhere in this joint proxy statement/prospectus; and (iii) SmartFinancial’s unaudited consolidated financial statements and accompanying notes as of and for the quarter ended March 31, 2017, included in SmartFinancial’s quarterly report on Form 10-Q which is incorporated by reference into this joint proxy statement/prospectus.

The unaudited pro forma adjustments are based upon available information and certain assumptions that SmartFinancial’s and Capstone’s management teams believe are reasonable. The unaudited pro forma data, while helpful in illustrating the financial characteristics of the surviving corporation under one set of assumptions, do not reflect the impact of factors that may result as a consequence of the merger or consider any potential impacts of current market conditions of the merger on revenues, expense efficiencies, or asset dispositions, among other factors. As a result, unaudited pro forma data is presented for illustrative purposes only and does not represent an attempt to predict or suggest future results. Upon completion of the merger, the operating results of Capstone will be reflected in the consolidated financial statements of SmartFinancial on a prospective basis.

  Market Value of SmartFinancial’s Common Stock as of May 19, 2017

The following table presents the closing sale price of SmartFinancial common stock on May 19, 2017, the last trading day before the date of the public announcement of the merger agreement. The table also presents the equivalent per share value of the merger consideration of Capstone common stock on that date, calculated by multiplying the closing sale price of SmartFinancial common stock on those dates by 0.85.

SmartFinancial common stock is quoted and traded on the Nasdaq Capital Market under the symbol “SMBK.” There is no established public trading market for Capstone’s common stock. Capstone’s common stock is thinly traded solely in private transactions.