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EX-32.2 - EXHIBIT 32.2 JUNE 30, 2017 - SMARTFINANCIAL INC.smbk_063017xex322.htm
EX-32.1 - EXHIBIT 32.1 SMBK JUNE 30, 2017 - SMARTFINANCIAL INC.smbk_063017xex321.htm
EX-31.2 - EXHIBIT 31.2 SMBK JUNE 30, 2017 - SMARTFINANCIAL INC.smbk_063017xex312.htm
EX-31.1 - EXHIBIT 31.1 SMBK JUNE 30, 2017 - SMARTFINANCIAL INC.smbk_063017xex311.htm


United States Securities and Exchange Commission
Washington, D.C. 20549
 
FORM 10-Q
(Mark One) 
x
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2017
¨
TRANSITION REPORT PURSUANT SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________to               

 
Commission File Number:333-203449
tlogoa01.jpg 

(Exact name of small business issuer as specified in its charter) 
Tennessee
 
62-1173944
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
 
 
5401 Kingston Pike, Suite 600 Knoxville, Tennessee
 
37919
(Address of principal executive offices)
 
(Zip Code)
 
 
 
865-453-2650
 
 
(Registrant’s telephone number, including area code)
 
(Former name, former address and former fiscal
 
 
year, if changes since last report)
 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes  x   No  ¨
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such period that the registrant was required to submit and post such files).
Yes  x    No  ¨
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer  ¨
Accelerated filer  ¨
Non-accelerated filer  ¨
Smaller reporting company  x
Emerging growth company ¨
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes  ¨    No  x
 
As of August 8, 2017 there were 8,221,761 shares of common stock, $1.00 par value per share, issued and outstanding.

1



TABLE OF CONTENTS
 
 


2



FORWARD-LOOKING STATEMENTS
 
SmartFinancial, Inc. (“SmartFinancial”) may from time to time make written or oral statements, including statements contained in this report (including, without limitation, certain statements in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 2), that constitute forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”). The words “expect,” “anticipate,” “intend,” “consider,” “plan,” “believe,” “seek,” “should,” “estimate,” and similar expressions are intended to identify such forward-looking statements, but other statements may constitute forward-looking statements. These statements should be considered subject to various risks and uncertainties. Such forward-looking statements are made based upon management’s belief as well as assumptions made by, and information currently available to, management pursuant to “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. SmartFinancial’s actual results may differ materially from the results anticipated in forward-looking statements due to a variety of factors. Such factors include, without limitation, those specifically described in Item 1A of Part I of the Company’s 2016 Annual Report on Form 10-K, as well as the following:  (i) the possibility that our asset quality would decline or that we experience greater loan losses than anticipated, (ii) increased levels of other real estate, primarily as a result of foreclosures, (iii) the impact of liquidity needs on our results of operations and financial condition, (iv) competition from financial institutions and other financial service providers, (v) economic conditions in the local markets where we operate, (vi) our ability to consummate and realize all of the anticipated benefits of the merger between Capstone and SmartBank and the acquisition of the Cleveland, TN branch, (vii) the impact of negative developments in the financial industry and U.S. and global capital and credit markets, (viii) the impact of recently enacted legislation on our business, (ix) the relatively greater credit risk of commercial real estate loans and construction and land development loans in our loan portfolio, (x) adverse impact on operations and financial condition of changes in interest rates, (xi) the impact of recently enacted legislation on our business, (xii) the impact of federal and state regulations on our operations and financial performance, (xiii) our ability to retain the services of key personnel, (xiv) the impact of Tennessee’s anti-takeover statutes and certain charter provisions on potential acquisitions of the holding company, and (xv) our ability to adapt to technological changes. Many of such factors are beyond SmartFinancial’s ability to control or predict, and readers are cautioned not to put undue reliance on such forward-looking statements. SmartFinancial does not intend to update or reissue any forward-looking statements contained in this report as a result of new information or other circumstances that may become known to SmartFinancial.
 
Non-GAAP Financial Measures

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



3



PART I –FINANCIAL INFORMATION 
ITEM 1. FINANCIAL STATEMENTS
 
SMARTFINANCIAL, INC. AND SUBSIDIARY 
CONSOLIDATED BALANCE SHEETS 
 
 
Unaudited
June 30,
2017
 
December 31,
2016
ASSETS
 
 

 
 

Cash and due from banks
 
$
54,553,718

 
$
34,290,617

Interest-bearing deposits at other financial institutions
 
28,281,708

 
34,457,691

Total cash and cash equivalents
 
82,835,426

 
68,748,308

 
 
 
 
 
Securities available for sale
 
132,761,710

 
129,421,914

Restricted investments, at cost
 
6,080,700

 
5,627,950

Loans, net of allowance for loan losses of $5,498,169 at June 30, 2017 and $5,105,255 at December 31, 2016
 
859,922,516

 
808,271,003

Bank premises and equipment, net
 
33,764,516

 
30,535,594

Foreclosed assets
 
2,369,056

 
2,386,239

Goodwill and core deposit intangible, net
 
7,492,177

 
6,635,655

Cash surrender value of life insurance
 
11,391,637

 
1,320,723

Other assets
 
8,861,374

 
9,508,899

Total assets
 
$
1,145,479,112

 
$
1,062,456,285

 
 
 
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
 

 
 

Deposits:
 
 

 
 

Noninterest-bearing demand deposits
 
$
183,324,236

 
$
153,482,650

Interest-bearing demand deposits
 
156,149,846

 
162,702,457

Money market and savings deposits
 
324,014,445

 
274,604,724

Time deposits
 
318,146,778

 
316,275,340

Total deposits
 
981,635,305

 
907,065,171

 
 
 
 
 
Securities sold under agreement to repurchase
 
22,945,984

 
26,621,984

Federal Home Loan Bank advances and other borrowings
 

 
18,505,390

Accrued expenses and other liabilities
 
6,163,812

 
5,023,600

Total liabilities
 
1,010,745,101

 
957,216,145

 
 
 
 
 
Stockholders' equity:
 
 

 
 

Preferred stock - $1 par value; 2,000,000 shares authorized; None issued and outstanding in 2017. 12,000 issued and outstanding in 2016.
 

 
12,000

Common stock - $1 par value; 40,000,000 shares authorized; 8,219,261 and 5,896,033 shares issued and outstanding  in 2017 and 2016, respectively
 
8,219,261

 
5,896,033

Additional paid-in capital
 
106,793,832

 
83,463,051

Retained earnings
 
19,968,434

 
16,871,296

Accumulated other comprehensive loss
 
(247,516
)
 
(1,002,240
)
Total stockholders' equity
 
134,734,011

 
105,240,140

 
 
 
 
 
Total liabilities and stockholders' equity
 
$
1,145,479,112

 
$
1,062,456,285


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

4



SMARTFINANCIAL, INC. AND SUBSIDIARY 
CONSOLIDATED STATEMENTS OF INCOME 
 
 
Unaudited
Three Months Ended
June 30,
 
Unaudited
Six Months Ended
June 30,
 
 
2017
 
2016
 
2017
 
2016
INTEREST INCOME
 
 

 
 

 
 
 
 
Loans, including fees
 
$
10,747,217

 
$
9,954,218

 
$
20,962,823

 
$
19,328,675

Securities and interest-bearing deposits at other financial institutions
 
692,223

 
665,402

 
1,353,043

 
1,381,982

Federal funds sold and other earning assets
 
78,049

 
50,171

 
150,946

 
113,481

Total interest income
 
11,517,489

 
10,669,791

 
22,466,812

 
20,824,138

 
 
 
 
 
 
 
 
 
INTEREST EXPENSE
 
 

 
 

 
 
 
 
Deposits
 
1,241,551

 
1,012,684

 
2,339,089

 
1,973,951

Securities sold under agreements to repurchase
 
15,588

 
15,279

 
31,539

 
31,739

Federal Home Loan Bank advances and other borrowings
 
11,682

 
29,263

 
27,156

 
74,549

Total interest expense
 
1,268,821

 
1,057,226

 
2,397,784

 
2,080,239

Net interest income before provision for loan losses
 
10,248,668

 
9,612,565

 
20,069,028

 
18,743,899

Provision for loan losses
 
298,033

 
218,420

 
310,482

 
355,976

Net interest income after provision for loan losses
 
9,950,635

 
9,394,145

 
19,758,546

 
18,387,923

NONINTEREST INCOME
 
 

 
 

 
 
 
 
Customer service fees
 
290,626

 
258,877

 
555,299

 
554,680

Gain on sale of securities
 

 
98,100

 

 
181,363

Gain on sale of loans and other assets
 
405,418

 
197,479

 
680,583

 
419,405

(Loss) gain on sale of foreclosed assets
 
500

 
(3,734
)
 
(15,064
)
 
54,243

Other noninterest income
 
555,963

 
410,155

 
958,396

 
822,018

Total noninterest income
 
1,252,507

 
960,877

 
2,179,214

 
2,031,709

 
 
 
 
 
 
 
 
 
NONINTEREST EXPENSES
 
 

 
 

 
 
 
 
Salaries and employee benefits
 
4,757,618

 
4,486,148

 
9,404,367

 
8,981,156

Net occupancy and equipment expense
 
962,593

 
1,136,648

 
1,941,052

 
2,155,075

Depository insurance
 
60,987

 
150,943

 
214,286

 
286,747

Foreclosed assets
 
12,008

 
63,773

 
10,521

 
120,431

Advertising
 
129,398

 
184,065

 
293,659

 
357,510

Data processing
 
475,343

 
554,612

 
808,558

 
895,992

Professional services
 
473,351

 
551,432

 
1,043,192

 
1,006,605

Amortization of intangible assets
 
61,071

 
93,353

 
113,648

 
186,706

Service contracts
 
312,905

 
315,611

 
608,534

 
601,239

Other operating expenses
 
1,583,888

 
935,740

 
2,536,257

 
1,832,765

Total noninterest expenses
 
8,829,162

 
8,472,325

 
16,974,074

 
16,424,226

Income before income tax expense
 
2,373,980

 
1,882,697

 
4,963,686

 
3,995,406

Income tax expense
 
725,694

 
691,067

 
1,671,548

 
1,454,913

Net income
 
1,648,286

 
1,191,630

 
3,292,138

 
2,540,493

Preferred stock dividends
 

 
270,000

 
195,000

 
482,000

Net income available to common stockholders
 
$
1,648,286

 
$
921,630

 
$
3,097,138

 
$
2,058,493

 
 
 
 
 
 
 
 
 
EARNINGS PER COMMON SHARE
 
 

 
 

 
 
 
 
Basic
 
$
0.20

 
$
0.16

 
$
0.39

 
$
0.35

Diluted
 
0.20

 
0.15

 
0.39

 
0.34

 
 
 
 
 
 
 
 
 
Weighted average common shares outstanding
 
 

 
 

 
 
 
 
Basic
 
8,216,567

 
5,820,342

 
7,872,609

 
5,813,915

Diluted
 
8,325,538

 
6,131,820

 
7,977,282

 
6,118,530

Dividends per share
 

 

 

 

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

5



SMARTFINANCIAL, INC. AND SUBSIDIARY 
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 
 
 
Unaudited
Three Months Ended
June 30,
 
 
2017
 
2016
Net income
 
$
1,648,286

 
$
1,191,630

 
 
 
 
 
Other comprehensive income, net of tax:
 
 

 
 

Unrealized holding gains arising during the period, net of tax expense of $270,461 and $76,857 in 2017 and 2016, respectively
 
435,890

 
124,607

 
 
 
 
 
Reclassification adjustment for gains included in net income, net of tax expense of $0 and $32,278 in 2017 and  2016, respectively
 

 
(60,822
)
 
 
 
 
 
Total other comprehensive income
 
435,890

 
63,785

 
 
 
 
 
Comprehensive income
 
$
2,084,176

 
$
1,255,415

 
 
 
 
 
 
 
 
 
 
 

 
 
Unaudited
Six Months Ended
June 30,
 
 
2017
 
2016
Net income
 
$
3,292,138

 
$
2,540,493

 
 
 
 
 
Other comprehensive income, net of tax:
 
 

 
 

Unrealized holding gains arising during the period, net of tax expense of $468,293 and $458,148 in 2017 and 2016, respectively
 
754,724

 
739,315

 
 
 
 
 
Reclassification adjustment for gains included in net income, net of tax expense of $- and $68,918 in 2017 and  2016, respectively
 

 
(112,445
)
 
 
 
 
 
Total other comprehensive income
 
754,724

 
626,870

 
 
 
 
 
Comprehensive income
 
$
4,046,862

 
$
3,167,363

 
 
 
 
 










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




6



SMARTFINANCIAL, INC. AND SUBSIDIARY 
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY - UNAUDITED
For the Six Months Ended June 30, 2017
 
 
 
Preferred
Shares
 
Common
Shares
 
Preferred
Stock
 
Common
Stock
 
Additional
Paid-in
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Total
Stockholders'
Equity
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
BALANCE, December 31, 2016
 
12,000

 
5,896,033

 
$
12,000

 
$
5,896,033

 
$
83,463,051

 
$
16,871,296

 
$
(1,002,240
)
 
$
105,240,140

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income
 

 

 

 

 

 
3,292,138

 

 
3,292,138

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other comprehensive income
 

 

 

 

 

 

 
754,724

 
754,724

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Issuance of common stock
 

 
1,840,000

 

 
1,840,000

 
31,094,676

 

 

 
32,934,676

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Issuance of stock grants
 

 
1,511

 

 
1,511

 
30,280

 

 

 
31,791

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Exercise of stock options
 

 
481,717

 

 
481,717

 
4,143,295

 

 

 
4,625,012

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash dividend on preferred stock
 

 

 

 

 

 
(195,000
)
 

 
(195,000
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   Redemption of preferred stock
 
(12,000
)
 
 
 
(12,000
)
 
 
 
(11,988,000
)
 
 
 
 
 
(12,000,000
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   Stock compensation expense
 

 

 

 

 
50,530

 

 

 
50,530

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
BALANCE, June 30, 2017
 

 
8,219,261

 
$

 
$
8,219,261

 
$
106,793,832

 
$
19,968,434

 
$
(247,516
)
 
$
134,734,011

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


7



SMARTFINANICAL, INC. AND SUBSIDIARY 
CONSOLIDATED STATEMENTS OF CASH FLOWS 
 
 
Unaudited
Six Months Ended June 30,
 
 
2017
 
2016
CASH FLOWS FROM OPERATING ACTIVITIES
 
 

 
 

Net income
 
$
3,292,138

 
$
2,540,493

Adjustments to reconcile net income to net cash provided by operating activities:
 
 

 
 

Depreciation and amortization
 
1,165,930

 
1,063,117

Provision for loan losses
 
310,482

 
355,976

Stock compensation expense
 
50,530

 
66,635

Gains from sale of securities
 

 
(181,363
)
Net gains from sale of loans and other assets
 
(680,583
)
 
(419,405
)
Net losses (gains) from sale of foreclosed assets
 
15,064

 
(54,243
)
Changes in other assets and liabilities:
 
 

 
 

Accrued interest receivable
 
18,144

 
280,727

Accrued interest payable
 
13,117

 
4,315

Other assets and liabilities
 
1,457,176

 
5,330,459

Net cash provided by operating activities
 
5,641,998

 
8,986,711

 
 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES
 
 

 
 

Proceeds from security sales, maturities, and paydowns
 
10,062,386

 
29,349,635

Purchase of securities
 
(12,507,860
)
 
(5,000,000
)
Purchase of bank owned life insurance
 
(10,070,914
)
 

Purchase of restricted investments
 
(452,750
)
 
(200
)
Net cash for purchase of branch acquisition
 
(1,049,878
)
 

Loan originations and principal collections, net
 
(27,248,001
)
 
(45,399,008
)
Purchase of bank premises and equipment
 
(1,226,898
)
 
(1,454,765
)
Proceeds from sale of foreclosed assets
 
41,636

 
652,364

Net cash used in investing activities
 
(42,452,279
)
 
(21,851,974
)
 
 
 
 
 
CASH FLOWS FROM FINANCING ACTIVITIES
 
 

 
 

Net increase in deposits
 
47,682,310

 
30,266,395

Net decrease in securities sold under agreements to repurchase
 
(3,676,000
)
 
(1,185,467
)
Issuance of common stock
 
37,591,479

 
135,079

Redemption of preferred stock
 
(12,000,000
)
 

Payment of dividends on preferred stock
 
(195,000
)
 
(482,000
)
Proceeds from Federal Home Loan Bank advances and other borrowings
 
79,268,072

 
100,000

Repayment of Federal Home Loan Bank advances and other borrowings
 
(97,773,462
)
 
(24,196,260
)
Net cash provided by financing activities
 
50,897,399

 
4,637,747

NET INCREASE IN CASH AND CASH EQUIVALENTS
 
14,087,118

 
(8,227,516
)
CASH AND CASH EQUIVALENTS, beginning of year
 
68,748,308

 
79,964,633

CASH AND CASH EQUIVALENTS, end of period
 
$
82,835,426

 
$
71,737,117

 
 
 
 
 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
 
 

 
 

Cash paid during the period for interest
 
$
2,374,250

 
$
2,075,924

Cash paid during the period for taxes
 
1,366,172

 
726,528

 
 
 
 
 
NONCASH INVESTING AND FINANCING ACTIVITIES
 
 

 
 

Change in unrealized losses on securities available for sale
 
$
(1,223,017
)
 
$
(1,016,100
)
Acquisition of real estate through foreclosure
 
39,517

 
1,296,077

Financed sales of foreclosed assets
 

 
1,120,138

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

8

SMARTFINANCIAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)



Note 1. Presentation of Financial Information
 
Nature of Business:
 
SmartFinancial, Inc. (the “Company”) is a bank holding company whose principal activity is the ownership and management of its wholly-owned subsidiary, SmartBank (the “Bank”). The Company provides a variety of financial services to individuals and corporate customers through its offices in eastern Tennessee, northwest Florida, and north Georgia. The Company’s primary deposit products are interest-bearing demand deposits and certificates of deposit. Its primary lending products are commercial, residential, and consumer loans. On May 22, 2017, the Company along with the Bank entered into an agreement and plan of merger with Capstone Bancshares, Inc., an Alabama corporation and Capstone Bank, an Alabama-chartered commercial bank and wholly owned subsidiary of Capstone Bancshares, Inc where the Company will be the surviving entity and Capstone Bank will merge with and into the Bank. A copy of the agreement and plan of merger is attached as Exhibit 2.1 and is incorporated by reference herin.
 
Interim Financial Information (Unaudited):
 
The financial information in this report for June 30, 2017 and June 30, 2016 has not been audited. The information included herein should be read in conjunction with the Company’s 2016 annual consolidated financial statements and footnotes included elsewhere. The consolidated financial statements presented herein conform to U.S. generally accepted accounting principles and to general industry practices. In the opinion of SmartFinancial’s management, the accompanying interim financial statements contain all material adjustments necessary to present fairly the financial condition, the results of operations, and cash flows for the interim period. Results for interim periods are not necessarily indicative of the results to be expected for a full year.
 
Basis of Presentation and Accounting Estimates:
 
All adjustments consisting of normal recurring accruals, that in the opinion of management, are necessary for a fair presentation of the financial position and the results of operations for the periods covered by the report have been included. The accompanying unaudited consolidated financial statements and related notes should be read in conjunction with those appearing the in the 2016 Annual Report previously filed on Form 10-K.
 
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary. All significant intercompany balances and transactions have been eliminated in consolidation.
 
In preparing the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet, and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
 
Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, the valuation of foreclosed assets and deferred taxes, other-than-temporary impairments of securities, and the fair value of financial instruments.
 
The determination of the adequacy of the allowance for loan losses is based on estimates that are particularly susceptible to significant changes in the economic environment and market conditions. In connection with the determination of the estimated losses on loans, management obtains independent appraisals for significant collateral.
 
The Company’s loans are generally secured by specific items of collateral including real property, consumer assets, and business assets. Although the Company has a diversified loan portfolio, a substantial portion of its debtors’ ability to honor their contracts is dependent on local economic conditions.
 
While management uses available information to recognize losses on loans, further reductions in the carrying amounts of loans may be necessary based on changes in local economic conditions. In addition, regulatory agencies, as an integral part of their examination process, periodically review the estimated losses on loans. Such agencies may require the Company to recognize additional losses based on their judgments about information available to them at the time of their examination. Because of these factors, it is reasonably possible that the estimated losses on loans may change materially in the near term. However, the amount of the change that is reasonably possible cannot be estimated.
 


9

SMARTFINANCIAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)


 
Note 1. Presentation of Financial Information, Continued

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

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

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

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

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

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















10

SMARTFINANCIAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)






Note 2. Earnings per share
 
The following is a summary of the basic and diluted earnings per share for the three and six month periods ended June 30, 2017 and June 30, 2016.
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
Net income available to common shareholders
$
1,648,286

 
$
921,630

 
$
3,097,138

 
$
2,058,493

Weighted average common shares outstanding
8,216,567

 
5,820,342

 
7,872,609

 
5,813,915

Effect of dilutive stock options
108,971

 
311,478

 
104,673

 
304,615

Diluted shares
8,325,538

 
6,131,820

 
7,977,282

 
6,118,530

Basic earnings per common share
$
0.20

 
$
0.16

 
$
0.39

 
$
0.35

Diluted earnings per common share
$
0.20

 
$
0.15

 
$
0.39

 
$
0.34


 
For the three and six months ended June 30, 2017 and 2016, the effects of outstanding antidilutive stock options are excluded from the computation of diluted earnings per common share because the exercise price of such options is higher than the market price. There were 13,916 and 18,100 antidilutive stock options as of June 30, 2017 and 2016, respectively.
  
Note 3. Securities
 
The amortized cost and fair value of securities available-for-sale at June 30, 2017 and December 31, 2016 are summarized as follows (in thousands):
 
 
 
June 30, 2017
 
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
U.S. Government-sponsored enterprises (GSEs)
 
$
18,244

 
$
5

 
$
(278
)
 
$
17,971

Municipal securities
 
8,362

 
77

 
(42
)
 
8,397

Other debt securities
 
972

 

 
(24
)
 
948

Mortgage-backed securities
 
105,585

 
347

 
(486
)
 
105,446

 
 
$
133,163

 
$
429

 
$
(830
)
 
$
132,762

 
 
 
December 31, 2016
 
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
U.S. Government-sponsored enterprises (GSEs)
 
$
18,279

 
$
8

 
$
(564
)
 
$
17,723

Municipal securities
 
8,182

 
16

 
(179
)
 
8,019

Mortgage-backed securities
 
104,585

 
185

 
(1,090
)
 
103,680

 
 
$
131,046

 
$
209

 
$
(1,833
)
 
$
129,422

 
At June 30, 2017, securities with a fair value totaling approximately $81,000,000 were pledged to secure public funds and securities sold under agreements to repurchase.
 
For the three and six months ended June 30, 2017, there were no available-for-sale securities sold. For the three and six months ended June 30, 2016 there were available-for-sale securities sold with proceeds totaling $3,098,100 and $8,170,600 which resulted in gross gains realized of $98,100 and $181,363, respectively.

11

SMARTFINANCIAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)


Note 3. Securities, Continued

The amortized cost and estimated fair value of securities at June 30, 2017, by contractual maturity, are shown below (in thousands). Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
 
 
 
Amortized
Cost
 
Fair
Value
Due in one year or less
 
$
4,179

 
$
4,182

Due from one year to five years
 
11,165

 
10,961

Due from five years to ten years
 
8,789

 
8,703

Due after ten years
 
3,445

 
3,470

 
 
27,578

 
27,316

Mortgage-backed securities
 
105,585

 
105,446

 
 
$
133,163

 
$
132,762

 

The following tables present the gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities available-for-sale have been in a continuous unrealized loss position, as of June 30, 2017 and December 31, 2016 (in thousands):
 
 
 
As of June 30, 2017
 
 
Less than 12 Months
 
12 Months or Greater
 
Total
 
 
Fair
Value
 
Gross
Unrealized
Losses
 
Fair
Value
 
Gross
Unrealized
Losses
 
Fair
Value
 
Gross
Unrealized
Losses
U.S. Government- sponsored enterprises (GSEs)
 
13,572

 
(278
)
 

 

 
13,572

 
(278
)
Municipal securities
 
2,897

 
(41
)
 
253

 
(1
)
 
3,150

 
(42
)
Other debt securities
 
948

 
(24
)
 

 

 
948

 
(24
)
Mortgage-backed securities
 
33,086

 
(139
)
 
17,662

 
(347
)
 
50,748

 
(486
)
 
 
50,503

 
(482
)
 
17,915

 
(348
)
 
68,418

 
(830
)
 
 
 
As of December 31, 2016
 
 
Less than 12 Months
 
12 Months or Greater
 
Total
 
 
Fair
Value
 
Gross
Unrealized
Losses
 
Fair
Value
 
Gross
Unrealized
Losses
 
Fair
Value
 
Gross
Unrealized
Losses
U.S. Government- sponsored enterprises (GSEs)
 
$
14,702

 
$
(564
)
 
$

 
$

 
$
14,702

 
$
(564
)
Municipal securities
 
6,368

 
(179
)
 

 

 
6,368

 
(179
)
Mortgage-backed securities
 
67,063

 
(690
)
 
8,948

 
(400
)
 
76,011

 
(1,090
)
 
 
$
88,133

 
$
(1,433
)
 
$
8,948

 
$
(400
)
 
$
97,081

 
$
(1,833
)
  
At June 30, 2017, the categories of temporarily impaired securities, and management’s evaluation of those securities, are as follows:
  
U.S. Government-sponsored enterprises: At June 30, 2017, 4 (or four) investment in U.S. GSE securities had unrealized losses. These unrealized losses related principally to changes in market interest rates. The contractual terms of the investments do not permit the issuer to settle the securities at a price less than the amortized cost bases of the investments. Because the Bank does not intend to sell the investments and it is more likely than not that the Bank will not be required to sell the investments before recovery of their amortized cost bases, which may be maturity, the Bank does not consider these investments to be other-than temporarily impaired at June 30, 2017.


12

SMARTFINANCIAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)


Note 3. Securities, Continued

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

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

Mortgage-backed securities: At June 30, 2017, 43 (or forty three) investments in residential mortgage-backed securities had unrealized losses.  This impairment is believed to be caused by the current interest rate environment.  The contractual cash flows of those investments are guaranteed by an agency of the U.S. Government.  Because the decline in market value is attributable to the current interest rate environment and not credit quality, and because the Bank does not intend to sell the investments and it is not more likely than not that the Bank will be required to sell the investments before recovery of their amortized cost bases, which may be maturity, the Bank does not deem these investments to be other-than-temporarily impaired at June 30, 2017. 

Note 4. Loans and Allowance for Loan Losses
 
Portfolio Segmentation:
 
At June 30, 2017 and December 31, 2016, loans are summarized as follows (in thousands):
 
 
 
June 30, 2017
 
December 31, 2016
 
 
PCI Loans
 
All Other
Loans
 
Total
 
PCI 
Loans
 
All Other
Loans
 
Total
Commercial real estate
 
$
14,417

 
$
430,772

 
$
445,189

 
$
14,943

 
$
400,265

 
$
415,208

Consumer real estate
 
8,071

 
198,596

 
206,667

 
9,004

 
178,798

 
187,802

Construction and land development
 
1,474

 
99,682

 
101,156

 
1,678

 
116,191

 
117,869

Commercial and industrial
 
1,249

 
103,984

 
105,233

 
1,568

 
83,454

 
85,022

Consumer and other
 

 
7,176

 
7,176

 

 
7,475

 
7,475

Total loans
 
25,211

 
840,210

 
865,421

 
27,193

 
786,183

 
813,376

Less:  Allowance for loan losses
 

 
(5,498
)
 
(5,498
)
 

 
(5,105
)
 
(5,105
)
Loans, net
 
$
25,211

 
$
834,712

 
$
859,923

 
$
27,193

 
$
781,078

 
$
808,271

 
For purposes of the disclosures required pursuant to the adoption of ASC 310, the loan portfolio was disaggregated into segments. A portfolio segment is defined as the level at which an entity develops and documents a systematic method for determining its allowance for credit losses. There are five loan portfolio segments that include commercial real estate, consumer real estate, construction and land development, commercial and industrial, and consumer and other.
 
The following describe risk characteristics relevant to each of the portfolio segments:
 
Commercial Real Estate: Commercial real estate loans include owner-occupied commercial real estate loans and loans secured by income-producing properties. Owner-occupied commercial real estate loans to operating businesses are long-term financing of land and buildings. These loans are repaid by cash flow generated from the business operation. Real estate loans for income-producing properties such as apartment buildings, office and industrial buildings, and retail shopping centers are repaid from rent income derived from the properties. Loans within this portfolio segment are particularly sensitive to the valuation of real estate.
 

13

SMARTFINANCIAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)


 Note 4. Loans and Allowance for Loan Losses, Continued

Portfolio Segmentation (continued):

Consumer Real Estate: Consumer real estate loans include real estate loans secured by first liens, second liens, or open end real estate loans, such as home equity lines. These are repaid by various means such as a borrower's income, sale of the property, or rental income derived from the property. One to four family first mortgage loans are repaid by various means such as a borrower's income, sale of the property, or rental income derived from the property. Loans within this portfolio segment are particularly sensitive to the valuation of real estate.
 
Construction and Land Development: Loans for real estate construction and development are repaid through cash flow related to the operations, sale or refinance of the underlying property. This portfolio segment includes extensions of credit to real estate developers or investors where repayment is dependent on the sale of the real estate or income generated from the real estate collateral. Loans within this portfolio segment are particularly sensitive to the valuation of real estate.
 
Commercial and Industrial: The commercial and industrial loan portfolio segment includes commercial, financial, and agricultural loans. These loans include those loans to commercial customers for use in normal business operations to finance working capital needs, equipment purchases, or expansion projects. Loans are repaid by business cash flows. Collection risk in this portfolio is driven by the creditworthiness of the underlying borrower, particularly cash flows from the customers' business operations.

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

Credit Risk Management:
 
The Company employs a credit risk management process with defined policies, accountability and routine reporting to manage credit risk in the loan portfolio segments. Credit risk management is guided by credit policies that provide for a consistent and prudent approach to underwriting and approvals of credits. Within the Credit Policy, procedures exist that elevate the approval requirements as credits become larger and more complex. All loans are individually underwritten, risk-rated, approved, and monitored.
 
Responsibility and accountability for adherence to underwriting policies and accurate risk ratings lies in each portfolio segment. For the consumer real estate and consumer and other portfolio segments, the risk management process focuses on managing customers who become delinquent in their payments. For the other portfolio segments, the risk management process focuses on underwriting new business and, on an ongoing basis, monitoring the credit of the portfolios, including a third party review of the largest credits on an annual basis or more frequently as needed. To ensure problem credits are identified on a timely basis, several specific portfolio reviews occur periodically to assess the larger adversely rated credits for proper risk rating and accrual status.
 
Credit quality and trends in the loan portfolio segments are measured and monitored regularly. Detailed reports, by product, collateral, accrual status, etc., are reviewed by the Senior Credit Officer and the Directors Loan Committee.

The allowance for loan losses is a valuation reserve allowance established through provisions for loan losses charged against income. The allowance for loan losses, which is evaluated quarterly, is maintained at a level that management deems sufficient to absorb probable losses inherent in the loan portfolio. Loans deemed to be uncollectible are charged against the allowance for loan losses, while recoveries of previously charged-off amounts are credited to the allowance for loan losses. The allowance for loan losses is comprised of specific valuation allowances for loans evaluated individually for impairment and general allocations for pools of homogeneous loans with similar risk characteristics and trends.
 
The allowance for loan losses related to specific loans is based on management's estimate of potential losses on impaired loans as determined by (1) the present value of expected future cash flows; (2) the fair value of collateral if the loan is determined to be collateral dependent or (3) the loan's observable market price. The Company's homogeneous loan pools include commercial real estate loans, consumer real estate loans, construction and land development loans, commercial and industrial loans, and consumer and other loans. The general allocations to these loan pools are based on the historical loss rates for specific loan types and the internal risk grade, if applicable, adjusted for both internal and external qualitative risk factors.
 

14

SMARTFINANCIAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)


Note 4. Loans and Allowance for Loan Losses, Continued

Credit Risk Management (continued):

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

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

 
 
June 30, 2017
 
 
Commercial
Real Estate
 
Consumer
Real Estate
 
Construction
and Land
Development
 
Commercial
and
Industrial
 
Consumer
and Other
 
Total
Performing loans
 
$
430,653

 
$
197,755

 
$
99,135

 
$
103,940

 
$
7,176

 
$
838,659

Impaired loans
 
119

 
841

 
547

 
44

 

 
1,551

 
 
430,772

 
198,596

 
99,682

 
103,984

 
7,176

 
840,210

PCI loans
 
14,417

 
8,071

 
1,474

 
1,249

 

 
25,211

Total
 
$
445,189

 
$
206,667

 
$
101,156

 
$
105,233

 
$
7,176

 
$
865,421

 
 
December 31, 2016
 
 
Commercial
Real Estate
 
Consumer
Real Estate
 
Construction
and Land
Development
 
Commercial
and
Industrial
 
Consumer
and Other
 
Total
Performing loans
 
$
400,146

 
$
177,977

 
$
115,326

 
$
83,244

 
$
7,475

 
$
784,168

Impaired loans
 
119

 
821

 
865

 
210

 

 
2,015

 
 
400,265

 
178,798

 
116,191

 
83,454

 
7,475

 
786,183

PCI loans
 
14,943

 
9,004

 
1,678

 
1,568

 

 
27,193

Total loans
 
$
415,208

 
$
187,802

 
$
117,869

 
$
85,022

 
$
7,475

 
$
813,376


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

 
 
June 30, 2017
 
 
Commercial
Real Estate
 
Consumer
Real Estate
 
Construction
and Land
Development
 
Commercial
and
Industrial
 
Consumer
and
Other
 
Total
Performing loans
 
$
2,489

 
$
1,556

 
$
609

 
$
644

 
$
103

 
$
5,401

Impaired loans
 

 
97

 

 

 

 
97

Total
 
$
2,489

 
$
1,653

 
$
609

 
$
644

 
$
103

 
$
5,498

 
 
December 31, 2016
 
 
Commercial
Real Estate
 
Consumer
Real Estate
 
Construction
and Land
Development
 
Commercial
and
Industrial
 
Consumer
and
Other
 
Total
Performing loans
 
$
2,369

 
$
1,382

 
$
717

 
$
516

 
$
117

 
$
5,101

Impaired loans
 

 

 

 
4

 

 
4

Total
 
$
2,369

 
$
1,382

 
$
717

 
$
520

 
$
117

 
$
5,105

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

15

SMARTFINANCIAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)


Note 4. Loans and Allowance for Loan Losses, Continued

Credit Risk Management (continued):

The following tables detail the changes in the allowance for loan losses for the six month period ending June 30, 2017 and year ending December 31, 2016, by loan classification (amounts in thousands):
 
 
 
June 30, 2017
 
 
Commercial
Real Estate
 
Consumer
Real
Estate
 
Construction
and Land
Development
 
Commercial
and
Industrial
 
Consumer
and Other
 
Total
Beginning balance
 
$
2,369

 
$
1,382

 
$
717

 
$
520

 
$
117

 
$
5,105

Loans charged off
 

 
(6
)
 

 

 
(40
)
 
(46
)
Recoveries of loans charged off
 
6

 
47

 
8

 
32

 
36

 
129

Provision (reallocation) charged to operating expense
 
114

 
230

 
(116
)
 
92

 
(10
)
 
310

Ending balance
 
$
2,489

 
$
1,653

 
$
609

 
$
644

 
$
103

 
$
5,498


 
 
December 31, 2016
 
 
Commercial
Real Estate
 
Consumer
Real
Estate
 
Construction
and Land
Development
 
Commercial
and
Industrial
 
Consumer
and Other
 
Total
Beginning balance
 
$
1,906

 
$
1,015

 
$
627

 
$
777

 
$
29

 
$
4,354

Loans charged off
 

 
(102
)
 
(14
)
 
(35
)
 
(155
)
 
(306
)
Recoveries of charge-offs
 
45

 
76

 
22

 
58

 
68

 
269

Provision (reallocation) charged to operating expense
 
418

 
393

 
82

 
(280
)
 
175

 
788

Ending balance
 
$
2,369

 
$
1,382

 
$
717

 
$
520

 
$
117

 
$
5,105


A description of the general characteristics of the risk grades used by the Company is as follows:
 
Pass: Loans in this risk category involve borrowers of acceptable-to-strong credit quality and risk who have the apparent ability to satisfy their loan obligations. Loans in this risk grade would possess sufficient mitigating factors, such as adequate collateral or strong guarantors possessing the capacity to repay the debt if required, for any weakness that may exist.
 
Special Mention: Loans in this risk grade are the equivalent of the regulatory definition of "Other Assets Especially Mentioned" classification. Loans in this category possess some credit deficiency or potential weakness, which requires a high level of management attention. Potential weaknesses include declining trends in operating earnings and cash flows and /or reliance on the secondary source of repayment. If left uncorrected, these potential weaknesses may result in noticeable deterioration of the repayment prospects for the asset or in the Company's credit position.
 
Substandard: Loans in this risk grade are inadequately protected by the borrower's current financial condition and payment capability or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the orderly repayment of debt. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.
 
Doubtful: Loans in this risk grade have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or orderly repayment in full, on the basis of current existing facts, conditions and values, highly questionable and improbable. Possibility of loss is extremely high, but because of certain important and reasonably specific factors that may work to the advantage and strengthening of the exposure, its classification as an estimated loss is deferred until its more exact status may be determined.
 

16

SMARTFINANCIAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)


Note 4. Loans and Allowance for Loan Losses, Continued

Credit Risk Management (continued):

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

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

Non PCI Loans
 
 
June 30, 2017
 
 
Commercial
Real Estate
 
Consumer
Real Estate
 
Construction
and Land
Development
 
Commercial
and
Industrial
 
Consumer
and Other
 
Total
Pass
 
$
430,490

 
$
197,314

 
$
99,048

 
$
103,031

 
$
6,959

 
$
836,842

Watch
 
159

 
509

 
87

 
870

 

 
1,625

Special mention
 

 
16

 

 

 
217

 
233

Substandard
 
123

 
757

 
547

 
83

 

 
1,510

Doubtful
 

 

 

 

 

 

Total
 
$
430,772

 
$
198,596

 
$
99,682

 
$
103,984

 
$
7,176

 
$
840,210

 
PCI Loans
 
 
June 30, 2017
 
 
Commercial
Real Estate
 
Consumer
Real Estate
 
Construction
and Land
Development
 
Commercial
and
Industrial
 
Consumer
and Other
 
Total
Pass
 
$
11,548

 
$
6,116

 
$
816

 
$
970

 
$

 
$
19,450

Watch
 
865

 
1,221

 
646

 
16

 

 
2,748

Special mention
 

 

 

 
238

 

 
238

Substandard
 
2,004

 
734

 
12

 

 

 
2,750

Doubtful
 

 

 

 
25

 

 
25

Total
 
$
14,417

 
$
8,071

 
$
1,474

 
$
1,249

 
$

 
$
25,211

Total loans
 
$
445,189

 
$
206,667

 
$
101,156

 
$
105,233

 
$
7,176

 
$
865,421


Non PCI Loans
 
 
December 31, 2016
 
 
Commercial
Real Estate
 
Consumer
Real Estate
 
Construction
and Land
Development
 
Commercial
and
Industrial
 
Consumer
and Other
 
Total
Pass
 
$
399,505

 
$
177,466

 
$
115,237

 
$
82,992

 
$
7,238

 
$
782,438

Watch
 
640

 
550

 
89

 
252

 

 
1,531

Special mention
 

 
104

 

 

 
237

 
341

Substandard
 
120

 
678

 
865

 
210

 

 
1,873

Doubtful
 

 

 

 

 

 

Total
 
$
400,265

 
$
178,798

 
$
116,191

 
$
83,454

 
$
7,475

 
$
786,183

  

17

SMARTFINANCIAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)


Note 4. Loans and Allowance for Loan Losses, Continued

Credit Risk Management (continued):

PCI Loans
 
 
December 31, 2016
 
 
Commercial
Real Estate
 
Consumer
Real Estate
 
Construction
and Land
Development
 
Commercial
and
Industrial
 
Consumer
and Other
 
Total
Pass
 
$
11,836

 
$
6,811

 
$
1,019

 
$
1,507

 
$

 
$
21,173

Watch
 
1,045

 
1,577

 
645

 
22

 

 
3,289

Special mention
 

 

 

 
12

 

 
12

Substandard
 
2,062