Note 1. Presentation of Financial Information

Nature of Business-SmartFinancial, Inc. (the “Company”) is a bank holding company whose primary business is performed by its wholly owned subsidiaries, SmartBank and Cornerstone Community Bank (collectively referred to herein as the “Banks”). As discussed more fully in Note 7 below, the Company acquired Cornerstone Bancshares, Inc., the one bank holding company of Cornerstone Community Bank, in a merger that became effective August 31, 2015. The Banks provide a full range of banking services to the Sevierville, Knoxville and Chattanooga, Tennessee markets. SmartBank also provides a full range of banking services to the Florida panhandle. Additionally, Cornerstone Community Bank has established a loan production office in Dalton, Georgia and SmartBank has established a loan production in Panama City, Florida.

Interim Financial Information (Unaudited)-The financial information in this report for September 30, 2015 and September 30, 2014 has not been audited. The information included herein should be read in conjunction with the Company’s 2014 annual consolidated financial statements and footnotes included elsewhere herein and in our Form 8-K/A filed on November 12, 2015. 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.

Use of Estimates-The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the balance sheet date and the 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 include the determination of the allowance for loan losses, foreclosed assets and deferred tax assets.

Consolidation-The accompanying consolidated financial statements include the accounts of SmartFinancial and the Banks. Substantially all intercompany transactions, profits and balances have been eliminated.

Reclassification-Certain amounts in the prior consolidated financial statements have been reclassified to conform to the current period presentation. The reclassifications had no effect on net income, total assets or stockholders’ equity as previously reported.

Accounting Policies-During interim periods, SmartFinancial follows the accounting policies set forth in its annual audited financial statements for the year ended December 31, 2014 as filed with the Securities and Exchange Commission. Since December 31, 2014, there have been no significant changes in any accounting principles or practices, or in the method of applying any such principles or practices.

In May 2014, the FASB issued Accounting Standards Update 2014-09, "Revenue from Contracts with Customers." This update is a joint project with the International Accounting Standards Board initiated to clarify the principles for recognizing revenue and to develop a common revenue standard that is meant to remove inconsistencies and weaknesses in revenue requirements, provide a more robust framework for addressing revenue issues, improve comparability of revenue recognition practices, provide more useful information to users of financial statements and simplify the preparation of financial statements. The guidance in this update supersedes the revenue recognition requirements in ASC Topic 605, "Revenue Recognition" and most industry-specific guidance throughout the Industry Topics of Codification. This update is effective for annual and interim periods beginning after December 15, 2016. SmartFinancial does not believe this update will have a significant impact on the consolidated financial statements.

Earnings per Common Share- Basic earnings per share (“EPS”) is computed by dividing income available to common shareholders (numerator) by the weighted average number of common shares outstanding during the period (denominator). Diluted EPS is computed by dividing income available to common shareholders (numerator) by the adjusted weighted average number of shares outstanding (denominator). The adjusted weighted average number of shares outstanding reflects the potential dilution occurring if securities or other contracts to issue common stock were exercised or converted into common stock resulting in the issuance of common stock that share in the earnings of the entity.

The following is a summary of the basic and diluted earnings per share for the three and nine month periods ended September 30, 2015 and September 30, 2014.

	Three Months Ended September 30,
	2015		2014
Net income (loss) available to common shareholders	$	(106,909)	$	675,207
Weighted average common shares outstanding		3,936,638		3,111,815
Effect of dilutive stock options		307,215		194,545
Diluted shares		4,243,853		3,306,360
Basic earnings (loss) per common share	$	(0.03)	$	0.22
Diluted earnings (loss) per common share	$	(0.03)	$	0.20

	Nine Months Ended September 30,
	2015		2014
Net income available to common shareholders	$	237,585	$	1,386,178
Weighted average common shares outstanding		3,391,274		3,111,055
Effect of dilutive stock options		307,548		194,545
Diluted shares		3,698,822		3,305,600
Basic earnings per common share	$	0.07	$	0.45
Diluted earnings per common share	$	0.06	$	0.42

For the three and nine months ended September 30, 2015 and 2014, 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 are 22,309 antidilutive stock options as of September 30, 2015. There were no antidilutive stock options as of September 30, 2014.