Bank merger creates East Tennessee's biggest locally owned bank

Billy Carroll, president and CEO of SmartFinancial, left, and Miller Welborn, chairman of SmartFinancial, speak during an interview in the offices of Cornerstone Bank onTuesday, Sept. 1, 2015, in Chattanooga, Tenn.
Billy Carroll, president and CEO of SmartFinancial, left, and Miller Welborn, chairman of SmartFinancial, speak during an interview in the offices of Cornerstone Bank onTuesday, Sept. 1, 2015, in Chattanooga, Tenn.

Company at a glance

* Name: SmartFinancial Inc.* Stock symbol: SMBK (soon to be traded on Nasdaq) replacing Cornersone’s CSBQ* Banks: SmartBank in Knoxville and Cornerstone Bank in Chattanooga* Assets: $980 million* CEO: Billy Carroll* Chairman: Miller Welborn* Offices: 12 bank offices and two loan production offices* Staff: 225 employeesSource: SmartFinancial Inc.

Other local bank mergers

* CapitalMark acquired by Pinnacle Financial Partners, Inc., in Nashville last month to create combined company with assets of $7.6 billion.* FSG Bank will merge with Atlantica Capital Bancshares Inc. in Atlanta later this year to create combined company with $2.7 billion in assets.* Northwest Georgia Bank will merge with FirstBank, the wholly owned subsidiary of First South Bancorp Inc., to create a combined bank with $2.8 billion in assets by year’s end

Since he joined the board of Cornerstone Bancshares Inc. six years ago, Miller Welborn has worked to help navigate the Chattanooga bank through the storms of the Great Recession, often under the watchful eye of federal regulators who placed additional oversight on Cornerstone following several years of losses.

But with the bank profitable again for the past couple of years and with a stronger capital footing, Cornerstone merged Tuesday with the Knoxville-based SmartFinancial Inc., to create the largest bank holding company based in East Tennessee. The combined bank has a relatively clean balance sheet, nearly $1 billion in assets and a market capital of nearly $95 million in a more liquid stock.

"After playing defense for six years, we're ready to play offense again," said Welborn, the new chairman of SmartFinancial Inc. "We think we're hitting the starting line at a pretty good jogging pace and we're in the best part of the country, we believe, for future growth."

Cornerstone Bank, the sixth largest bank in metro Chattanooga with five offices in Hamilton County, plus a loan production office in Dalton, Ga., will combine with Smart Bank in the first quarter of 2016. SmartBank operates five branches in Sevier and Knox counties in East Tennessee, plus a couple of locations in the Panhandle of Florida.

For now, Cornerstone and SmartBank will operate as separate banks under a common bank holding company.

"This is a true merger of equals which will allow us to retain our existing talented team, build on our combined strengths, shared values and culture, while operating more efficiently for the benefit of shareholders," said Billy Carroll, the CEO of SmartFinancial.

Carroll, who father Bill previously operated Citizens National Bank in Sevierville, started SmartBank in 2007. With the addition of a couple of branches acquired from a bank failure in Florida in 2010, Carroll has grown the Knoxville-based bank to more than $500 million in assets through the recession and its aftermath. The Florida bank operations alone in the past five years have grown assets by nearly $80 million.

"We're in a sweet spot for banking," Carroll said. "We're small enough to make credit decisions quickly in local markets by local people, but we also have the horsepower to do about any deal that you want to do."

At age 47, Carroll says he is eager to grow SmartBank, both organically and with acquisitions of other community banks in the Southeast.

"Bank is an old school business that is never going away, but often it is slow moving and cumbersome - but it doesn't have to be," Welborn said. "As we transform into a more dynamic and innovative bank, we will be better positioned to grow with our strong Southeastern markets."

photo Billy Carroll, president and CEO of SmartFinancial, speaks during an interview in the offices of Cornerstone Bank onTuesday, Sept. 1, 2015, in Chattanooga, Tenn.

To help cut the bank's cost of capital, Cornerstone's preferred stock that previously paid a 10 percent annual coupon was replaced with the sale this summer of $15 million of additional common stock. The company expects the new stock, which will trade under the symbol SMBK, will soon be added to the Nasdaq stock exchange to provide more liquidity and opportunities for future bank purchases involving stock, as well as cash.

The lower cost of capital, combined with cost advantages of combining the two banks, should help boost the bank's profits.

For now, Welborn said he expects to retain all of the bank staff, at least initially, and to soon add credit officers. The bank also plans to move into residential lending with an expanded effort to market mortgages, both for its own portfolio and to sell in the secondary market, Carroll said.

The merger of Cornerstone and SmartBank is one of four such bank combinations this year among Chattanooga's four biggest independent banks.

CapitalMark Bank merged last month with Pinnacle Bank in Nashville; FSG is preparing to combine with Atlantic Capital Bancshares by the end of the year, and FirstBank is buying Northwest Georgia Bank.

Contact Dave Flessner at dflessner@timesfreepress.com or at 757-6340.

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