SMARTFINANCIAL INC. - FORM 8-K - EX-99.1

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8-K - SMARTFINANCIAL INC.	v231013_8-k.htm

Exhibit 99.1

Cornerstone Bancshares, Inc. Announces Second Quarter 2011 Financial Results

CHATTANOOGA, Tenn.--(PR Newswire) -Cornerstone Bancshares, Inc. (OTC Bulletin Board: CSBQ) today announced the following:

Cornerstone Bancshares, Inc. (“Cornerstone”) reported positive earnings for the second consecutive quarter of 2011, with a net income for 2011 of $393,000 or $0.03 earnings per share. This represents an increase of 8.6 percent compared to the first six months of 2010 income of $362,000 or $0.06 per share. Cornerstone recorded net income of $141,000 for the second quarter of 2011, compared to $18,000 for the same quarter of 2010. Cornerstone fully funded its loan loss provision at the beginning of the year and has not been required to make any material provision to loan loss allowance during 2011. In addition, the Bank has seen a contraction of its operating expense, which allowed Cornerstone to offset the reduced loan income compared to 2010.

Past-dues continued to decline to approximately $2.0 million, an improvement of 71 percent over the same quarter last year. Cornerstone’s allowance for loan losses was approximately $6.8 million or 2.52 percent of total loans as of June 30, 2011, compared to approximately $7.0 million or 2.19 percent as of the same quarter of 2010. Nonperforming loans were approximately $7.2 million or 2.68 percent of total loans at June 30, 2011, compared to approximately $13.0 million or 4.09 percent at June 30, 2010. The Bank has seen a continued interest in its OREO holdings and currently has more than 50 percent of its holdings either leased or under contract to close during the third quarter of 2011.

Since launching a Preferred Stock Offering in August of 2010, Cornerstone has been successful in raising more than $7.2 million in capital as of the date this release. Cornerstone plans to continue the offering through December 31, 2011.

“The success of our capital campaign is proof that Chattanooga believes in Cornerstone,” said Cornerstone President Frank Hughes. “Today’s investment environment is difficult, which makes the capital raise that much more exciting and a true testament to the faith our community has in Cornerstone.”

Specific Trends Include:

Continued reduction of past-due loans

Capital infusion in excess of $7.2 million

“The Bank is definitely moving in the right direction,” Hughes said. “I am extremely pleased with the progress we have achieved in strengthening the Bank’s capital position and improving asset quality, which will help us progress to a more conservative banking model and a higher return for investors.”

Cornerstone is a single-bank holding company, with $440 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.

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 and its management regarding the company’s strategic directions, prospects and future results, involve certain 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 operates, governmental regulations, the company’s competitive environment, cyclical and seasonal fluctuations in its operating results, and other risks.

Cornerstone Bancshares, Inc. and Subsidiary

Second Quarter Financial Highlights

June 30, 2011 and 2010

(Unaudited)



(Amounts in thousands, except per common share data)	2011			2010			% Change
Balance Sheet Data at June 30
Total assets	$	441,210		$	523,426			(15.7	)
Interest-earning assets		416,484			492,537			(15.4	)
Loans		270,171			318,796			(15.3	)
Foreclosed assets		20,058			10,212			96.4
Deposits		334,921			400,648			(16.4	)
Other interest-bearing liabilities		75,491			91,355			(17.4	)
Shareholders' equity		28,860			29,425			(1.9	)
Loan to deposit ratio		80.67	%		79.57	%		1.4
Tier 1 leverage ratio (Bank)		6.09	%		5.78	%		5.4
Total risk-based capital ratio (Bank)		10.65	%		10.48	%		1.6
Outstanding commn shares (000s)		6,500			6,500			-
Book value per common share	$	3.74		$	4.53			(17.4	)
Tangible book value per common share	$	3.74		$	4.13			(9.5	)
Market value per common share as of June 30	$	1.10		$	2.15			(48.8	)

Loan Quality Data
Nonaccruing loans		7,233			13,030			(44.5	)
Loans past due 90 days – accruing		-			-			-
Net charge-offs YTD		2,348			1,418			65.6
Allowance for loan losses		6,814			6,967			(2.2	)
Allowance for loan losses to total loans		2.52	%		2.19	%
Nonperforming assets to total assets		6.19	%		4.44	%

Performance Data for the Year
Net income	$	393		$	362			8.6
Return on average assets		0.18	%		0.14	%
Return on average equity		2.84	%		2.49	%
Net interest margin		3.44	%		3.52	%
Per common share data:
Net income – basic	$	0.03		$	0.06
Net income – diluted	$	0.03		$	0.06
Common dividends	$	-		$	-
Preferred dividends	$	0.63		$	-
Average shares (000s):
Basic common stock		6,500			6,500
Diluted common stock		6,500			6,500
Preferred stock		189			-

Cornerstone Bancshares, Inc. and Subsidiary

Loan Loss Allowance and Asset Quality Review

	2011						2010
	Second			First			Fourth			Third			Second
(Amounts in thousands)	Quarter			Quarter			Quarter			Quarter			Quarter

Allowance for loan losses
Balance at beginning of period	$	7,914		$	9,132		$	6,271		$	6,967		$	6,760
Provision for loan losses		15			15			4,130			681			1,465
Net charge-offs		(1,115	)		(1,233	)		(1,269	)		(1,377	)		(1,258	)
Balance at end of period	$	6,814		$	7,914		$	9,132		$	6,271		$	6,967

As a % of loans		2.52	%		2.89	%		3.20	%		2.15	%		2.19	%
As a % of nonperforming loans		94.21	%		108.10	%		63.06	%		38.97	%		36.81	%
As a % of nonperforming assets		24.97	%		28.48	%		33.46	%		21.25	%		23.91	%

Net charge-offs as a % of loans (a)		1.65	%		1.80	%		1.78	%		1.89	%		1.58	%

Risk element assets
Accruing troubled debt restructuted	$	1,750		$	1,650		$	848		$	5,853		$	5,895
Loans past due 30-89 days	$	1,957		$	8,434		$	2,306		$	1,500		$	6,655

Nonaccruing loans	$	7,233		$	6,271		$	13,633		$	10,237		$	13,030
Loans past due 90 days – accruing		-			-			-			-			-
Total nonperforming loans	$	7,233		$	6,271		$	13,633		$	10,237		$	13,030
Repossessed assets		-			-			150			285			350
Other real estate owned (b)(c)(d)		20,058			20,464			12,659			13,142			9,862
Total nonperforming assets	$	27,291		$	26,735		$	26,442		$	23,664		$	23,242


Nonperforming loans as a % of loans		2.68	%		2.29	%		4.78	%		3.51	%		4.09	%
Nonperforming assets as a % of loans and other real estate owned		9.40	%		9.09	%		8.88	%		7.75	%		7.07	%

Total loans		270,171			273,750			285,247			292,046			318,796

(a) Annualized
(b) Properties sold since quarter-end	$	2,379
(c) Properties rented	$	10,416
(d) Properties under contract to sell	$	1,333

Cornerstone Bancshares, Inc.

Net Interest Margin Analysis

Taxable Equivalent Basis

	Three months ended
	June 30
(Amounts in thousands)
Assets	2011								2010
	Average			Income/		Yield/			Average			Income/		Yield/
Earning assets:	Balance			Expense		Rate			Balance			Expense		Rate
Loans, net of unearned income	$	271,952		$	4,521		6.67	%	$	321,455		$	5,494		6.86	%
Investment securities		119,751			621		2.36	%		151,220			1,216		3.44	%
Other earning assets		24,902			17		0.28	%		33,957			22		0.26	%
Total earning assets		416,605		$	5,159		5.05	%		506,632		$	6,732		5.39	%
Allowance for loan losses		(7,285	)							(6,797	)
Cash and other assets		36,152								29,821
TOTAL ASSETS	$	445,472							$	529,656

Liabilities and Shareholders' Equity

Interest-bearing liabilities:
Interest-bearing demand deposits	$	28,402		$	23		0.33	%	$	42,565		$	36		0.34	%
Savings deposits		9,938			13		0.51	%		9,090			12		0.51	%
MMDA's		25,927			64		0.99	%		21,952			52		0.95	%
Time deposits		236,873			1,012		1.71	%		299,720			1,619		2.17	%
Federal funds purchased and securities
sold under agreements to repurchase		24,288			34		0.56	%		23,807			32		0.54	%
Other borrowings		50,678			545		4.32	%		69,833			760		4.36	%
Total interest-bearing liabilities		376,107			1,691		1.80	%		466,967			2,511		2.16	%
Net interest spread				$	3,468		3.25	%				$	4,221		3.24	%
Noninterest-bearing demand deposits		41,486								39,061
Accrued expenses and other liabilities		167								(5,477	)
Shareholders' equity		27,712								29,105
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY	$	445,472							$	529,656
Net yield on earning assets							3.42	%							3.41	%

Taxable equivalent adjustment:
Loans					0								0
Investment securities					85								81
Total adjustment					85								81

Cornerstone Bancshares, Inc.

Net Interest Margin Analysis

Taxable Equivalent Basis

	Six months ended
	June 30
(Amounts in thousands)
Assets	2011								2010
	Average			Income/		Yield/			Average			Income/		Yield/
Earning assets:	Balance			Expense		Rate			Balance			Expense		Rate
Loans, net of unearned income	$	278,090		$	9,160		6.64	%	$	325,715		$	11,442		7.08	%
Investment securities		114,825			1,190		2.39	%		143,072			2,346		3.52	%
Other earning assets		23,959			28		0.24	%		39,927			45		0.23	%
Total earning assets		416,874		$	10,378		5.10	%		508,714		$	13,833		5.55	%
Allowance for loan losses		(8,173	)							(6,397	)
Cash and other assets		32,967								29,653
TOTAL ASSETS	$	441,668							$	531,970

Liabilities and Shareholders' Equity

Interest-bearing liabilities:
Interest-bearing demand deposits	$	27,998		$	45		0.32	%	$	35,277		$	66		0.38	%
Savings deposits		9,720			25		0.51	%		8,910			23		0.51	%
MMDA's		25,186			123		0.99	%		22,830			108		0.96	%
Time deposits		240,427			2,064		1.73	%		303,357			3,303		2.20	%
Federal funds purchased and securities
sold under agreements to repurchase		23,461			65		0.56	%		23,723			68		0.57	%
Other borrowings		52,507			1,125		4.32	%		71,063			1,539		4.37	%
Total interest-bearing liabilities		379,299			3,447		1.83	%		465,160			5,107		2.21	%
Net interest spread				$	6,931		3.27	%				$	8,726		3.33	%
Noninterest-bearing demand deposits		35,259								43,610
Accrued expenses and other liabilities		(91	)							(5,688	)
Shareholders' equity		27,200								28,888
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY	$	441,668							$	531,970
Net yield on earning assets							3.44	%							3.52	%

Taxable equivalent adjustment:
Loans					0								0
Investment securities					170								155
Total adjustment					170								155

Cornerstone Bancshares, Inc. and Subsidiary

Quarterly Earnings Summary


	(Unaudited)
	2011						2010									Q2-11 /
	Second			First			Fourth			Third			Second			Q2-10
(Amounts in thousands)	Quarter			Quarter			Quarter			Quarter			Quarter			% Chg
Interest income
Loans, including fees	$	4,521		$	4,639		$	4,896		$	5,160		$	5,494			(17.7	)
Investment securities and interest bearing deposits		621			568			534			754			1,216			(48.9	)
Other earning assets		17			11			15			19			22			(21.3	)
Total interest income		5,159			5,218			5,445			5,933			6,732			(23.4	)
Interest expense
Deposits		1,112			1,145			1,239			1,478			1,719			(35.3	)
Short-term borrowings		34			31			28			32			32			5.9
FHLB advances and other borrowings		545			580			651			666			760			(28.2	)
Total interest expense		1,691			1,756			1,918			2,176			2,511			(32.7	)
Net interest income		3,468			3,462			3,527			3,757			4,221			(17.8	)
Provision for loan losses		15			15			4,130			681			1,465			(99.0	)
Net interest income after the
provision for loan losses		3,453			3,447			(603	)		3,076			2,756			25.3
Noninterest income
Customer service fees		225			215			280			309			342			(34.1	)
Other noninterest income		22			20			63			34			29			(25.8	)
Gain / (loss) on sale of assets		69			34			(681	)		544			439			(84.2	)
Total noninterest income		316			269			(338	)		887			810			(61.0	)
Noninterest expense
Salaries and employee benefits		1,502			1,542			1,515			1,525			1,521			(1.3	)
Net occupancy and equipment		350			406			380			397			369			(5.1	)
Depository insurance		241			322			350			386			237			1.9
Foreclosed asset expense		716			-			-			-			-		NM
Other operating expense		847			1,145			1,255			1,372			1,476			(42.6	)
Total noninterest expense		3,657			3,415			3,500			3,680			3,603			1.5
Income (loss) before income taxes		113			301			(4,441	)		283			(37	)	NM
Income tax (benefit) expense		(28	)		49			(1,699	)		69			(55	)	NM
Net income (loss)	$	141		$	252		$	(2,742	)	$	214		$	18		NM

Preferred stock dividends & accretion preferred stock discount		102			92			-			34			-

Net income (loss) per common share:
Basic	$	0.01		$	0.02		$	(0.42	)	$	0.03		$	0.00		NM
Diluted	$	0.01		$	0.02		$	(0.42	)	$	0.03		$	0.00		NM
Average basic shares (000s)		6,500			6,500			6,500			6,500			6,500		NM
Average common diluted shares (000s)		6,500			6,500			6,500			6,500			6,500		NM
Performance Ratios
Return on average equity		2.04	%		3.78	%		-35.24	%		2.81	%		0.25	%	NM
Return on average assets		0.13	%		0.23	%		-2.42	%		0.17	%		0.01	%	NM
Net interest margin		3.42	%		3.44	%		3.36	%		3.36	%		3.41	%	NM
Average equity		27,712			26,683			31,120			30,355			29,105			(4.8	)
Average assets		445,472			437,821			453,665			488,771			529,655			(15.9	)
Average interest-earning assets		416,605			418,263			425,789			458,213			506,631			(17.8	)

NM=Not Material

Cornerstone Bancshares, Inc. and Subsidiary
Loan Stratification

	2011				2010
	Second		% of		Second		% of		% Dollar
(Amounts in thousands)	Quarter		Total		Quarter		Total		Change
Non-residential real estate
Owner occupied	$	63,801		23.6	$	73,124		22.9		(12.7	)
Non-owner occupied		62,060		23.0		71,767		22.5		(13.5	)
Multi-family real estate		10,929		4.0		12,957		4.1		(15.7	)
1-4 family construction		4,092		1.5		5,671		1.8		(27.8	)
Commercial land and lot development		18,528		6.9		27,604		8.7		(32.9	)
Total non-residential real estate		159,410		59.0		191,123		60.0		(16.6	)
Residential real estate
First mortgage – 1-4 family		40,734		15.1		41,511		13.0		(1.9	)
Second mortgage - 1-4 family		4,404		1.6		5,165		1.6		(14.7	)
Home equity lines		11,963		4.4		11,012		3.5		8.6
Total residential real estate		57,101		21.1		57,688		18.1		(1.0	)
Total real estate loans		216,511		80.1		248,811		78.0		(13.0	)

Commercial		41,680		15.4		57,790		18.1		(27.9	)
Agricultural & other		9,041		3.3		8,522		2.7		6.1
Consumer		2,939		1.1		3,673		1.2		(20.0	)
Total loans, net of unearned fees	$	270,171		100.0	$	318,796		100.0		(15.3	)

Cornerstone Bancshares, Inc. and Subsidiary

Consolidated Balance Sheets


		Unaudited
		June 30,			December 31,
ASSETS		2011			2010

Cash and cash equivalents		$	29,904,137		$	22,981,952

Securities available for sale			109,331,248			108,250,434
Securities held to maturity			81,534			95,702
Federal Home Loan Bank stock, at cost			2,322,900			2,322,900
Loans, net of allowance for loan losses of
$6,814,385 at June 30, 2011
and $9,132,171 at December 31, 2010			263,356,939			276,114,617
Bank premises and equipment, net			5,790,638			8,047,370
Accrued interest receivable			1,297,606			1,326,480
Foreclosed assets			20,057,587			12,808,838
Other assets			9,067,121			9,551,121
	Total Assets	$	441,209,710		$	441,499,414

LIABILITIES AND STOCKHOLDERS' EQUITY

Deposits:
Noninterest-bearing demand deposits		$	42,354,816		$	28,980,043
Interest-bearing demand deposits			26,262,115			24,834,214
Savings deposits and money market accounts			38,425,489			34,041,672
Time deposits			227,878,545			247,591,161
Total deposits			334,920,965			335,447,090
Federal funds purchased and securities sold under
agreements to repurchase			27,011,269			24,325,372
Federal Home Loan Bank advances and other borrowing			48,480,000			54,715,000
Accrued interest payable			180,223			176,761
Other liabilities			1,757,631			1,016,038
	Total Liabilities		412,350,088			415,680,261

Stockholders' Equity
Preferred stock - no par value; 2,000,000 shares
authorized; 188,820 shares issued and outstanding in 2011			4,540,516			2,727,424
114,540 shares issued and outstanding in 2010
Common stock - $l.00 par value; 20,000,000 shares authorized;
6,709,199 shares issued in 2011 and 2010;
6,500,396 shares outstanding in 2011 and 2010			6,500,396			6,500,396
Additional paid-in capital			21,276,868			21,237,298
Retained (deficit)			(4,024,893	)		(4,317,130	)
Accumulated other comprehensive income (loss)			566,735			(328,835	)
	Total Stockholders' Equity		28,859,622			25,819,153
	Total Liabilities and Stockholders' Equity	$	441,209,710		$	441,499,414

Cornerstone Bancshares, Inc. and Subsidiary
Consolidated Statements of Income

	Unaudited						Unaudited
	Three months ended						Six months ended
	June 30						June 30
	2011			2010			2011		2010
INTEREST INCOME
Loans, including fees	$	4,521,370		$	5,493,946		$	9,160,175	$	11,442,192
Securities		621,108			1,216,300			1,189,780		2,345,579
Federal funds sold & other earning assets		17,325			21,732			28,328		45,393
Total interest income		5,159,803			6,731,978			10,378,283		13,833,164

INTEREST EXPENSE
Time deposits		1,011,776			1,619,243			2,064,225		3,303,270
Other deposits		99,936			99,606			192,548		197,329
Federal funds purchased and securities
sold under agreements to repurchase		33,712			32,142			64,715		67,557
FHLB advances and other borrowing		545,413			759,803			1,125,071		1,539,000
Total interest expense		1,690,837			2,510,794			3,446,559		5,107,156

Net interest income before provision for loan losses		3,468,966			4,221,184			6,931,724		8,726,008
Provision for loan losses		15,000			1,465,000			30,000		2,480,000
Net interest income after the provision for loan losses		3,453,966			2,756,184			6,901,724		6,246,008

NONINTEREST INCOME
Customer service fee		225,263			342,126			440,714		684,040
Other noninterest income		21,531			20,758			41,810		41,371
Net gains from sale of loans and other assets		69,259			728,338			103,286		769,473
Total noninterest income		316,053			1,091,222			585,810		1,494,884

NONINTEREST EXPENSE
Salaries and employee benefits		1,501,836			1,521,216			3,044,538		3,154,560
Net occupancy and equipment expense		350,280			368,506			756,614		723,689
Depository insurance		241,505			259,904			564,160		529,643
Foreclosed asset expense		716,506			796,345			1,078,075		992,518
Other operating expense		847,280			938,389			1,630,635		1,883,947
Total noninterest expense		3,657,407			3,884,360			7,074,022		7,284,357

Income / (loss) income before provision for income taxes		112,612			(36,954	)		413,512		456,535
(Benefit) / provision for income taxes		(28,675	)		(55,099	)		19,950		94,602

NET INCOME	$	141,287		$	18,145		$	393,562	$	361,933

Preferred stock dividends		93,075			-			185,400		-
Accretion on preferred stock dividend		9,000			-			9,000		-

Net income available to common stockholders	$	39,212		$	18,145		$	199,162	$	361,933

EARNINGS PER COMMON SHARE
Basic net income per common share	$	0.01		$	-		$	0.03	$	0.06
Diluted net income per common share	$	0.01		$	-		$	0.03	$	0.06

DIVIDENDS DECLARED PER COMMON SHARE	$	-		$	-		$	-	$	-

Cornerstone Bancshares, Inc. and Subsidiary

Consolidated Statement of Changes in Stockholders' Equity - Unaudited

For the six months ended June 30, 2011

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

BALANCE, December 31, 2010			$	2,727,424	$	6,500,396	$	21,237,298	$	(4,317,130	)	$	(328,835	)	$	25,819,153

Employee compensation stock option expense				-		-		39,570		-			-			39,570

Issuance of Series A Convertible Preferred Stock				1,804,092		-		-		-			-			1,804,092

Preferred stock dividends paid				-		-		-		(92,325	)		-			(92,325	)

Accrection on preferred stock				9,000		-		-		(9,000	)		-			-

Comprehensive income:
Net income	$	393,562		-		-		-		393,562			-			393,562


Other comprehensive income, net of tax:
Unrealized holding gains on securities available for sale, net of reclassification adjusment		895,570		-		-		-		-			895,570			895,570

Total comprehensive income	$	1,289,132

BALANCE, June 30, 2011			$	4,540,516	$	6,500,396	$	21,276,868	$	(4,024,893	)	$	566,735		$	28,859,622

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

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SMARTFINANCIAL INC. Reports