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 BankParent company: Cornerstone Bancshares Inc.Founded: 1985 as the Bank of East Ridge, changed to Cornerstone Bank in 1997Assets:* $412.3 millionEquity:* $39.3 millionOffices: Five bank branches in Hamilton County, Tenn., and a loan production office in DaltonHeadquarters: ChattanoogaStaff: 108 employees2013 net income: $1.9 millionCEO: Barry Watson^SmartBankParent company: SmartFinancial Inc.Founded: 2007Assets:* $533.4 millionEquity:* $54.4 millionOffices: Five bank branches in East Tennessee, two branches and a loan production office in the Panhandle of FloridaHeadquarters: Pigeon ForgeStaff: 1202013 net income: $2.7 millionCEO: Billy Carroll*As of June 30, 2014Source: Federal Deposit Insurance Corp.
The holding companies for two community banks begun in East Tennessee in the past three decades plan to merge next year to create a combined financial institution with nearly $1 billion in assets.
Cornerstone Bancshares Inc., the parent company of Cornerstone Bank in Chattanooga, announced today it will merge with SmartFinancial, the parent company of SmartBank in Pigeon Forge, pending approval of bank shareholders and regulators.
The combined company will be headquartered in Knoxville and ultimately will apply the SmartBank name to all offices. But Cornerstone Chairman Miller Wellborn will be chairman of the combined institution and the combined holding company will initially keep both banks’ 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.”
Cornerstone also announced today that Barry Watson, a Chattanooga native and 35-year banker, has been elevated to president of Cornerstone Bank. Watson was previously senior lender at Cornerstone and succeeds Frank Hughes, who will remain as an executive for the holding company.
Cornerstone is the sixth biggest bank in metro Chattanooga with 108 employees at its five offices in Hamilton County, plus a loan production office in Dalton, Ga. SmartFinancial Inc. the parent company of SmartBank, operates five branches in Seveier and Knox counties in East Tennessee, plus a couple of locations in the Panhandle of Florida, and has about 120 employees.
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. “SmartBank 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 SmartBank 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 the bank is not looking to cut staff.
“This positions us to play more offense, not just defense,” he said. “We see great opportunities for future growth.”
SmartFinancial, which has grown its bank assets to more than a half billion dollars less than eight years after its start, will gain another advantage through its merger wuth the publicly traded Cornerstone Financial. 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 to buy other banks in the future.
Under the terms of the merger agreement announced today, each outstanding share of common stock of Smart Financial 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 which is expected to adjust the ratio to 1.05 shares of Cornerstone stock to each share of Smart Financial stock. Additionally, each outstanding share of Smart Financial preferred stock will be converted into a share of Cornerstone preferred stock with similar rights and preferences.
A final merger agreement was approved Friday by the boards of both banks. 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.
Read more in Tuesday’s Times Free Press.