EX-99.1 2 v408659_ex99-1.htm EXHIBIT 99.1

Exhibit 99.1

Cornerstone Bancshares, Inc.

Reports Positive Earnings for First Quarter of 2015

CHATTANOOGA, TN – April 28, 2015 — Cornerstone Bancshares, Inc. (“Cornerstone”; OTCBB: CSBQ; CSBQP), parent company of Cornerstone Community Bank (“Bank”), today reported net income of approximately $480,000 for the first quarter of 2015, compared with approximately $412,000 for the same quarter last year. This marks the seventeenth consecutive quarter of positive earnings for Cornerstone.

First Quarter Financial Highlights for March 31, 2015, Compared to March 31, 2014:

16.5% increase in net income

1.1% increase in loans

15.8% increase in total non-interest income

3.0% decrease in total non-interest expenses

32.1% decrease in net foreclosed assets

Cornerstone saw material improvement of its net income quarter-over-quarter, due to a reduction in its foreclosed asset expense and a decrease in interest expense of the Bank’s Federal Home Loan Bank borrowings.

“The Bank has seen continued improvement in its asset quality as the Bank ratios return to more historic levels, which will allow the Bank to see additional reduced foreclosed asset expenses over the next two years,” said Cornerstone Community Bank President Barry Watson.

“This marks another strong quarter for Cornerstone’s earnings and strength in our stock for shareholders,” said Cornerstone’s Chairman Miller Welborn. “This positive momentum should position us well for the upcoming merger with SmartFinancial and the tremendous growth opportunities ahead.”

Cornerstone is a single-bank holding company, with approximately $426 million in assets, serving the Chattanooga, Tennessee MSA, with five branches throughout Chattanooga and one loan production office in Dalton, Georgia. Locally owned and locally operated, Cornerstone specializes in providing a comprehensive range of customized financial solutions for businesses and individuals.

Media & Investor Relations Contact

Frank Hughes, President & CEO

Cornerstone Bancshares, Inc.

423-385-3009

Important Information for Shareholders

This communication shall not constitute an offer to sell, the solicitation of an offer to sell, or the solicitation of an offer to buy any securities or the solicitation of any vote or approval, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. In connection with the proposed Merger, Cornerstone will file a registration statement on Form S-4 with the SEC, which will contain the joint proxy statement/prospectus of SmartFinancial and Cornerstone. Shareholders of Cornerstone and SmartFinancial are encouraged to read the registration statement, including the joint proxy statement/prospectus that will be part of the registration statement, because it will contain important information about the Merger, Cornerstone and SmartFinancial. After the registration statement is filed with the SEC, the joint proxy statement/prospectus and other relevant documents will be mailed to all Cornerstone and SmartFinancial shareholders and will be available for free on the SEC’s website (www.sec.gov). The joint proxy statement/prospectus will also be made available for free by contacting the President and CEO of SmartFinancial at (865) 868-0613 or the President and CEO of Cornerstone at 423-385-3009. No offer of securities shall be made except by means of a prospectus meeting the requirements of Section 10 of the Securities Act of 1933, as amended.

Cornerstone, SmartFinancial and their respective directors, executive officers, and certain other members of management and employees of Cornerstone and SmartFinancial may be deemed to be participants in the solicitation of proxies in connection with the proposed Merger. Information concerning the interests of the persons who may be considered “participants” in the solicitation will be set forth in the joint proxy statement/prospectus relating to the Merger and the other relevant documents filed with the SEC when they become available. Information about the directors and executive officers of Cornerstone is also set forth in Cornerstone’s Annual Report on Form 10-K for the year ended December 31, 2014, filed with the SEC.

Forward-Looking Statements

Certain of the statements made in this release may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such forward-looking statements, including statements regarding the intent, belief or current expectations of Cornerstone, SmartFinancial and their respective management regarding the companies’ strategic directions, prospects, future results and benefits of the merger, are subject to numerous risks and uncertainties. Certain factors may cause actual results to differ materially from those contained in the forward-looking statements, including economic and other conditions in the markets in which Cornerstone and SmartFinancial operate, governmental regulations, the ability to obtain regulatory and shareholder approval, the possibility that conditions to completion of the merger will not be satisfied, the ability to complete the merger in the expected timeframe, the companies’ competitive environment, cyclical and seasonal fluctuations in their operating results, and other risks.

Cornerstone Bancshares, Inc. and Subsidiary

First Quarter Financial Highlights

March 31, 2015 and 2014

(Unaudited)


(Amounts in thousands, except per common share data)	2015			2014			% Change
Balance Sheet Data at March 31
Total assets	$	426,010		$	429,044			(0.7	)
Interest-earning assets		406,751			403,553			0.8
Loans		296,033			292,952			1.1
Foreclosed assets, net		8,523			12,559			(32.1	)
Deposits		333,198			341,725			(2.5	)
Other interest-bearing liabilities		50,510			45,663			10.6
Shareholders' equity		40,926			40,696			0.6
Loan to deposit ratio		88.85	%		85.73	%		3.6
Tier 1 leverage ratio (Bank, est)		9.62	%		8.87	%		8.5
Total risk-based capital ratio (Bank, est)		13.48	%		13.11	%		2.8
Outstanding common shares		6,638			6,627			0.2
Book value per common share	$	3.91		$	3.89			0.5
Tangible book value per common share	$	3.91		$	3.89			0.5
Market value per common share as of March 31	$	3.32		$	2.46			35.0



Loan Quality Data
Nonaccruing loans		1,450			4,779			(69.7	)
Loans past due 90 days – accruing		-			-			-
Net charge-offs YTD		189			357			(47.0	)
Allowance for loan losses		3,656			3,011			21.4
Allowance for loan losses to total loans		1.23	%		1.03	%
Nonperforming assets to total assets		2.34	%		4.04	%



Performance Data for the Year
Net income	$	480		$	412			16.5
Return on average assets		0.46	%		0.39	%
Return on average equity		4.71	%		4.08	%
Net interest margin		3.98	%		3.90	%
Per common share data:
Net income – basic	$	0.01		$	-
Net income – diluted	$	0.01		$	-
Common dividends	$	-		$	-
Average shares (000s):
Basic common stock		6,629			6,575
Diluted common stock		7,011			6,714
Preferred stock (actual)		600			600

Cornerstone Bancshares, Inc. and Subsidiary

Adjusted Income Pre-tax & Pre-provision (PTPP)

Net of Security Gains & Foreclosed Assets Expense

	(Unaudited)
	2015			2014												Q1-15 /
	First			Fourth			Third			Second			First			Q1-14
(Amounts in thousands)	Quarter			Quarter			Quarter			Quarter			Quarter			% Chg

Net interest income	$	3,957		$	3,870		$	3,810		$	3,856		$	3,811			3.8
Total noninterest income		373			459			504			535			322			15.8
Sub-total		4,330			4,329			4,314			4,391			4,133			4.8
Total noninterest expense		3,202			3,664			3,659			3,375			3,301			(3.0	)
Pre-tax, pre-provision income		1,128			665			655			1,016			832			35.6
Net gains from sale of securiites		-			(129	)		(169	)		(300	)		(102	)		N/A
Net gains from sale of foreclosed assets		(73	)		-			-			-			-			N/A
Foreclosed assets expense, net		58			441			688			363			349			(83.4	)
Adjusted PTPP		1,113			977			1,174			1,079			1,079			3.2

Reconciliation of Non-GAAP Financial Measures	(Unaudited)
	2015			2014
	First			Fourth			Third			Second			First
(Amounts in thousands)	Quarter			Quarter			Quarter			Quarter			Quarter

Pre-tax, pre-provision income	$	1,128		$	665		$	655		$	1,016		$	832
Income tax expense		(298	)		(253	)		(250	)		(257	)		(255	)
Provision for loan losses		(350	)		-			-			(350	)		(165	)
Net income		480			412			405			409			412

Adjusted PTPP		1,113			977			1,174			1,079			1,079
Net gains from sale of securities		-			129			169			300			102
Net gains from sale of foreclosed assets		73			-			-			-			-
Foreclosed assets expense, net		(58	)		(441	)		(688	)		(363	)		(349	)
Provision for loan losses		(350	)		-			-			(350	)		(165	)
Income tax expense		(298	)		(253	)		(250	)		(257	)		(255	)
Net income		480			412			405			409			412

Cornerstone Bancshares, Inc. and Subsidiary

Quarterly Earnings Summary

	(Unaudited)
	2015			2014												Q1-15 /
	First			Fourth			Third			Second			First			Q1-14
(Amounts in thousands)	Quarter			Quarter			Quarter			Quarter			Quarter			% Chg
Interest income
Loans, including fees	$	4,198		$	4,202		$	4,168		$	4,225		$	4,095			2.5
Securities and interest-bearing deposits at other financial institutions		347			312			327			347			431			(19.5	)
Federal funds sold and other earning assets		5			6			7			10			7			(28.6	)
Total interest income		4,550			4,520			4,502			4,582			4,533			0.4
Interest expense
Deposits		418			415			442			442			442			(5.4	)
Short-term borrowings		22			26			19			21			19			15.8
FHLB advances and other borrowing		153			209			231			263			261			(41.4	)
Total interest expense		593			650			692			726			722			(17.9	)
Net interest income		3,957			3,870			3,810			3,856			3,811			3.8
Provision for losses		350			-			-			350			165			112.1
Net interest income after the
provision for loan losses		3,607			3,870			3,810			3,506			3,646			(1.1	)
Noninterest income
Customer service fees		219			237			215			210			189			15.9
Other noninterest income		20			14			13			18			12			66.7
Gain on sale of assets		134			208			276			307			121			10.7
Total noninterest income		373			459			504			535			322			15.8
Noninterest expense
Salaries and employee benefits		1,737			1,803			1,702			1,723			1,827			(4.9	)
Net occupancy and equipment		287			282			315			324			309			(7.1	)
Depository insurance		155			158			163			164			155			-
Foreclosed asset expense (1)		58			441			688			363			349			(83.4	)
Other operating expense		966			980			791			801			661			46.1
Total noninterest expense		3,203			3,664			3,659			3,375			3,301			(3.0	)
Income before income taxes		777			665			655			666			667			16.5
Income tax expense		298			253			250			257			255			17.0
Net income	$	479		$	412		$	405		$	409		$	412			16.2

Preferred stock dividends & accretion on preferred stock discount		393			393			393			393			393			-

Net income available to common		86			19			12			16			19			354.7

Net income per common share:
Basic	$	0.01		$	0.01		$	0.00		$	0.00		$	0.00			220.7
Diluted	$	0.01		$	0.01		$	0.00		$	0.00		$	0.00			227.5
Average basic shares		6,629			6,627			6,627			6,627			6,575			0.8
Average common diluted shares		7,011			6,952			6,844			6,807			6,714			4.4
Performance Ratios
Return on average equity		4.70	%		4.05	%		4.01	%		4.02	%		4.08	%		15.4
Return on average assets		0.46	%		0.40	%		0.39	%		0.38	%		0.39	%		19.5
Net interest margin		3.98	%		3.97	%		3.86	%		3.89	%		3.90	%		2.0
Average equity		40,742			40,649			40,481			40,710			40,447			0.7
Average assets		414,763			409,170			416,247			426,951			426,282			(2.7	)
Average interest-earning assets		396,389			388,746			394,156			400,760			400,174			(0.9	)

(1) Includes OREO adjustments to fair value

Cornerstone Bancshares, Inc. and Subsidiary

Loan Loss Allowance and Asset Quality Review

	2015			2014
	First			Fourth			Third			Second			First
(Amounts in thousands)	Quarter			Quarter			Quarter			Quarter			Quarter

Allowance for loan losses
Balance at beginning of period	$	3,495		$	3,474		$	3,330		$	3,011		$	3,203
Provision for loan losses		350			-			-			350			165
Net charge-offs		(189	)		21			145			(32	)		(357	)
Balance at end of period	$	3,656		$	3,495		$	3,474		$	3,330		$	3,011

As a % of loans		1.24	%		1.18	%		1.16	%		1.14	%		1.03	%
As a % of nonperforming loans		252.16	%		122.00	%		96.51	%		116.72	%		63.00	%
As a % of nonperforming assets		36.66	%		32.17	%		23.81	%		21.01	%		17.37	%

Net charge-offs as a % of loans (a)		0.26	%		-0.03	%		-0.19	%		0.04	%		0.49	%

Risk element assets
Accruing troubled debt restructured	$	2,833		$	3,903		$	3,698		$	3,787		$	3,337
Loans past due 30-89 days	$	107		$	2,162		$	2,846		$	1,365		$	2,193

Nonaccruing loans	$	1,450		$	2,865		$	3,600		$	2,853		$	4,779
Loans past due 90 days – accruing		-			-			-			-			-
Total nonperforming loans	$	1,450		$	2,865		$	3,600		$	2,853		$	4,779
Foreclosed assets (b) (c)	$	8,523		$	8,000		$	10,994		$	12,996		$	12,559
Total nonperforming assets	$	9,973		$	10,865		$	14,594		$	15,849		$	17,338


Nonperforming loans as a % of loans		0.49	%		0.97	%		1.21	%		0.98	%		1.63	%
Nonperforming assets as a % of loans and foreclosed assets		3.27	%		3.58	%		4.72	%		5.19	%		5.68	%

Total loans		296,033			295,364			298,390			292,369			292,952

(a) Annualized
(b) Properties sold during 1st Q 2015	$	595
(c) Properties under contract to sell	$	1,173

Cornerstone Bancshares, Inc. and Subsidiary

Net Interest Margin Analysis

Taxable Equivalent Basis

	Three months ended
	March 31
(Amounts in thousands)
Assets				2015								2014
	Average			Income/		Yield/			Average			Income/		Yield/
Earning assets:	Balance			Expense		Rate			Balance			Expense		Rate
Loans, net of unearned income	$	295,127		$	4,198		5.64	%	$	291,830		$	4,095		5.69	%
Investment securities		88,675			347		1.63	%		95,968			431		1.99	%
Other earning assets		12,587			5		0.16	%		12,377			7		0.23	%
Total earning assets		396,389		$	4,550		4.57	%		400,175		$	4,533		4.63	%
Allowance for loan losses		(3,400	)							(3,106	)
Cash and other assets		21,774								29,213
TOTAL ASSETS	$	414,763							$	426,282

Liabilities and Shareholders' Equity

Interest-bearing liabilities:
Interest-bearing demand deposits	$	32,306		$	10		0.12	%	$	27,972		$	10		0.14	%
Savings deposits		13,731			3		0.09	%		15,379			4		0.10	%
MMDA's		63,420			57		0.36	%		65,299			54		0.33	%
Time deposits		153,987			348		0.90	%		160,384			375		0.95	%
Federal funds purchased and securities sold under agreements to repurchase		29,105			22		0.30	%		21,562			19		0.35	%
Federal Home Loan Bank and other borrowings		31,822			153		1.91	%		31,661			261		3.35	%
Total interest-bearing liabilities		324,371			593		0.73	%		322,257			723		0.91	%
Net interest spread				$	3,957		3.84	%				$	3,811		3.72	%
Noninterest-bearing demand deposits		48,439								63,077
Accrued expenses and other liabilities		1,211								501
Shareholders' equity	$	40,742								40,447
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	414,763							$	426,282
Net yield on earning assets							3.98	%							3.90	%

Taxable equivalent adjustment:
Loans					0								0
Investment securities					16								39
Total adjustment					16								39

Cornerstone Bancshares, Inc. and Subsidiary

Loan Composition

2015

2014

First

% of

First

% of

% Dollar

(Amounts in thousands)

Quarter

Total

Quarter

Total

Change

Non-residential real estate

Owner occupied

70,879

23.9

68,653

23.4

3.2

Non-owner occupied

73,891

25.0

70,089

23.9

5.4

Multi-family real estate

8,799

3.0

7,809

2.7

12.7

1-4 family construction

8,690

2.9

10,117

3.5

(14.1

)

Commercial land and lot development

21,864

7.4

17,187

5.9

27.2

Total non-residential real estate

184,123

62.2

173,855

59.3

5.9

Residential real estate

First mortgage - 1-4 family

45,928

15.5

49,535

16.9

(7.3

)

Second mortgage - 1-4 family

1,425

0.5

1,790

0.6

(20.4

)

Home equity lines

20,103

6.8

18,633

6.4

7.9

Total residential real estate

67,456

22.8

69,958

23.9

(3.6

)

Total real estate loans

251,579

85.0

243,813

83.2

3.2

Commercial

35,249

11.9

39,374

13.4

(10.5

)

Agricultural & other

6,471

2.2

7,219

2.5

(10.4

)

Consumer

2,734

0.9

2,547

0.9

7.3

Total loans, net of unearned fees

296,033

100.0

292,953

100.0

1.1

CORNERSTONE BANCSHARES, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

	Unaudited
	March 31, 2015			December 31, 2014

ASSETS

Cash and due from banks	$	2,141,864		$	1,930,751
Interest-bearing deposits at other financial institutions		23,304,264			13,596,970

Total cash and cash equivalents		25,446,128			15,527,721

Securities available for sale		85,093,357			87,192,909
Securities held to maturity (fair value $23,787 and $25,702 at March 31, 2015 and December 31, 2014, respectively)		23,636			25,428
Federal Home Loan Bank stock, at cost		2,322,900			2,322,900
Loans, net of allowance for loan losses of $3,656,545 and $3,495,129 at March 31, 2015 and December 31, 2014, respectively		292,376,801			291,869,338
Bank premises and equipment, net		6,296,773			4,828,123
Accrued interest receivable		1,124,989			1,142,899
Foreclosed assets		8,523,267			8,000,365
Other assets		4,802,640			4,830,113

Total assets	$	426,010,491		$	415,739,796

LIABILITIES AND STOCKHOLDERS' EQUITY

Deposits:
Noninterest-bearing demand deposits	$	56,620,286		$	57,034,792
Interest-bearing demand deposits		37,175,706			26,464,173
Savings deposits and money market accounts		73,729,602			80,861,110
Time deposits		165,672,183			144,294,390

Total deposits		333,197,777			308,654,465

Accrued interest payable		105,724			71,925
Federal funds purchased and securities sold under agreements to repurchase		19,509,728			29,409,505
Federal Home Loan Bank advances and other borrowings		31,000,000			36,000,000
Other liabilities		1,270,984			941,796

Total liabilities		385,084,213			375,077,691

Stockholders' equity:
Preferred stock - no par value; 2,000,000 shares authorized; 600,000 shares issued and outstanding in 2015 and 2014		14,982,155			14,964,309
Common stock - $1.00 par value; 20,000,000 shares authorized; 6,709,199 shares issued in 2015 and 2014; 6,637,941 and 6,627,398 shares outstanding in 2015 and 2014, respectively		6,637,941			6,627,398
Additional paid-in capital		21,902,768			21,821,060
Accumulated deficit		(2,945,867	)		(3,032,551	)
Accumulated other comprehensive income		349,281			281,889

Total stockholders' equity		40,926,278			40,662,105

Total liabilities and stockholders' equity	$	426,010,491		$	415,739,796

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

Cornerstone Bancshares, Inc. and Subsidiary

Consolidated Statements of Income

	Unaudited
	Three Months Ended
	March 31,
	2015		2014
INTEREST INCOME
Loans, including fees	$	4,198,215	$	4,095,468
Securities and interest-bearing deposits at other financial institutions		347,063		430,490
Federal funds sold		5,271		7,163
Total interest income		4,550,549		4,533,121

INTEREST EXPENSE
Time deposits		348,311		375,490
Other deposits		69,752		67,074
Federal funds purchased and securities sold under agreements to repurchase		22,407		18,660
Federal Home Loan Bank advances and other borrowings		152,955		261,410
Total interest expense		593,425		722,634

Net interest income before provision for loan losses		3,957,124		3,810,487
Provision for loan losses		350,000		165,000
Net interest income after provision for loan losses		3,607,124		3,645,487

NONINTEREST INCOME
Customer service fees		218,583		188,911
Net gains from sale of securities		-		102,272
Net gains from sale of loans and other assets		61,077		18,914
Net gains from sale of foreclosed assets		72,785		-
Other noninterest income		20,253		12,216
Total noninterest income		372,698		322,313

NONINTEREST EXPENSE
Salaries and employee benefits		1,736,672		1,826,984
Net occupancy and equipment expense		286,987		308,832
Depository insurance		155,353		154,676
Foreclosed assets, net		57,615		349,370
Other operating expenses		965,865		661,187
Total noninterest expenses		3,202,492		3,301,049

Income before income tax expense		777,330		666,751
Income tax expense		297,800		254,600

Net income		479,530		412,151

Preferred stock dividend requirements		375,000		375,000
Accretion on preferred stock discount		17,846		17,846

Net income available to common shareholders	$	86,684	$	19,305

EARNINGS PER COMMON SHARE
Basic	$	0.01	$	-
Diluted	$	0.01	$	-

DIVIDENDS DECLARED PER COMMON SHARE	$	-	$	-

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

Cornerstone Bancshares, Inc. and Subsidiary

Consolidated Statement of Changes in Stockholders' Equity - Unaudited

For the Three Months Ended March 31, 2015

										Accumulated
					Additional					Other		Total
	Preferred		Common		Paid-in		Accumulated			Comprehensive		Stockholders'
	Stock		Stock		Capital		Deficit			Income		Equity

BALANCE, December 31, 2014	$	14,964,309	$	6,627,398	$	21,821,060	$	(3,032,551	)	$	281,889	$	40,662,105

Stock compensation expense		-		-		66,000		-			-		66,000

Issuance of common stock, 10,543 shares		-		10,543		15,708		-			-		26,251

Preferred stock dividends paid		-		-		-		(375,000	)		-		(375,000	)

Accretion on preferred stock		17,846		-		-		(17,846	)		-		-

Net income		-		-		-		479,530			-		479,530

Unrealized holding gains on securities available for sale, net of reclassification adjustment		-		-		-		-			67,392		67,392


BALANCE, March 31, 2015	$	14,982,155	$	6,637,941	$	21,902,768	$	(2,945,867	)	$	349,281	$	40,926,278

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