Cornerstone Community Bank President Barry Watson, Cornerstone Chairman Miller Welborn and SmartBank President and CEO Billy Carroll discuss the specifics of a partnership between SmartFinancial and Cornerstone Bancshares at a processing center for Cornerstone Bank in Chattanooga, Tenn.
Cornerstone Community Bank Chairman Miller Welborn discusses the specifics of a partnership between SmartFinancial and Cornerstone Bancshares at a processing center for Cornerstone Bank in Chattanooga.Two East Tennessee banking companies plan to merge next year to create a nearly $1 billion-asset institution poised to capitalize on the economic growth and bank consolidation in the Southeast.
Cornerstone Bancshares Inc., the parent company of Cornerstone Bank in Chattanooga, announced Monday it will combine with SmartFinancial, the parent company of SmartBank in Pigeon Forge, pending approval of bank shareholders and regulators.
The combined holding company, which will be headquartered in Knoxville, plans to eventually also merge the two banks under the SmartBank name. But Cornerstone Chairman Miller Wellborn, who will become chairman of the combined institution, said the holding company will initially keep both the Cornerstone and SmartBank names, charters and boards.
"This is a merger of equals that should help both banks to grow in scale and efficiency," Wellborn said. "There are a lot of natural synergies between our two institutions, which made this partnership so attractive."
The merger, which has been in the works for more than six months, comes as Cornerstone names a new president to lead Chattanooga's sixth biggest bank. Barry Watson, a Chattanooga native and 35-year banker, has been elevated to president of Cornerstone. Watson was previously senior lender at Cornerstone and succeeds Frank Hughes, who will remain as an executive for the holding company.
"We're ready now to play offense, not just defense," said Wellborn, who along with Hughes helped recapitalize and restore profits to Cornerstone following the 2008-2009 recession.
Investors cheered the merger announcement Monday, bidding up shares of Cornerstone stock by 8.33 percent, or 25 cents per share, to the highest level in more than four and a half years. Cornerstone's closing stock price of $3.25 per share Monday is more than double the low reached in 2010 when loan losses pushed bank profits into the red during and following the Great Recession.
SmartBank was started in 2007 and did not suffer the loan losses of most older banks. The Pigeon Forge bank expanded into Florida in October 2012 when it acquired the assets of the GulfSouth Private Bank in Destin, Fla., after regulators closed that bank.
Billy Carroll, CEO of SmartFinancial and one of the seven original investors that chartered SmartBank in 2007 in Pigeon Forge, said his bank is eager to grow "and Chattanooga is a fantastic market."
"Cornerstone has a solid reputation as one of the leading commercial lenders and most respected financial institutions in the booming Chattanooga market," said Carroll, who will be CEO of the combined company. "Smart Bank is a rapidly growing bank that has created a sound financial model, dynamic culture and exceptional client service."
The combined bank will have higher lending limits and Smart Bank brings some new technology and online banking applications to Cornerstone, officials said. Although the merger will bring some synergies in back office operations, Wellborn said he is not looking to cut staff.
"We see great opportunities for future growth," he said. "I think we can grow 30 percent with our existing footprint (with 12 branches between the two banks) and we're in a solid position to talk with other independent banks about mergers and acquisitions in the future."
Cornerstone has its roots in the Bank of East Ridge, which began operation in 1985. Cornerstone operates five branches, and has a loan production office in Dalton, Ga., with 108 employees.
SmartFinancial Inc. the parent company of SmartBank, operates five branches in Sevier and Knox counties in East Tennessee, plus a couple of branches and a loan production office in the Panhandle of Florida, and has about 120 employees.
SmartFinancial will gain another advantage through its merger with the publicly traded Cornerstone. Smart Financial will apply for listing on the Nasdaq exchange next year, which will provide more liquidity for existing shareholders and greater opportunities to raise more capital to buy other banks in the future, Carroll said.
"Our goal is to really grow this organization and this gives us the liquidity platform and puts us in one of the Southeast's best markets in Chattanooga," he said.
Under the terms of the merger agreement approved by both the boards of Cornerstone Bancshares and SmartFinancial last Friday, each outstanding share of common stock of SmartFinancial will be converted into 4.2 shares of Cornerstone common stock, subject to adjustment based on an anticipated reverse stock split of Cornerstone's common stock. The reverse stock split is expected to adjust the ratio to 1.05 shares of Cornerstone stock to each share of SmartFinancial stock. Additionally, each outstanding share of SmartFinancial preferred stock will be converted into a share of Cornerstone preferred stock with similar rights and preferences.
Subject to shareholder and regulatory approval, the merger is expected to be completed sometime in the first half of 2015.
The combined company board will be comprised of seven directors from Smart Financial, including vice chairman Bill Carroll, and four directors from Cornerstone, including Wellborn as chairman.
Contact Dave Flessner at dflessner@timesfreepress.com or at 757-6340.