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

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8-K - FORM 8-K - SMARTFINANCIAL INC.	v384603_8-k.htm

Cornerstone Reports Positive Net Income for the Second Quarter of 2014

CHATTANOOGA, TN – July 22, 2014 – Cornerstone Bancshares, Inc. (OTCBB: CSBQ; CSBQP), parent company of Cornerstone Community Bank, today reported earnings for the second quarter ended June 30, 2014. Net income for the quarter was $409,000, a 3.3 percent increase from the same quarter of 2013. Net interest income increased 5.5 percent from the same quarter last year.

“Cornerstone had another solid quarter of positive earnings and steady growth,” said Cornerstone’s President and CEO Frank Hughes. “We continue to strengthen our earnings platform, with a significant reduction in nonperforming assets, which decreased 38 percent year-over-year.”

Second Quarter Highlights Year-Over-Year

Loans increased 5.9 percent

Foreclosed assets decreased 31.1 percent

Non-accruing loans decreased 58.6 percent

Net charge-offs decreased 71.2 percent

Market value per common share increased 26.9 percent

“There is a lot of positive momentum, and major investments are being made in our market right now,” said Cornerstone’s Chairman Miller Welborn. “With Volkswagen’s recent announcement of another production line here in Chattanooga, the economic forecast for Chattanooga is very bright. Our goal is to position Cornerstone to take full advantage of the opportunities that lie ahead.”

Cornerstone is a single-bank holding company, with approximately $420 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 Contact

Frank Hughes, President & CEO

Cornerstone Bancshares, Inc.

423-385-3009

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 discussed in Cornerstone’s Form 10-K and other filings with the Securities and Exchange Commission.

Cornerstone Bancshares, Inc. and Subsidiary
Second Quarter Financial Highlights
June 30, 2014 and 2013
(Unaudited)

(Amounts in thousands, except per common share data)	2014			2013			% Change
Balance Sheet Data at June 30
Total assets	$	419,911		$	435,334			(3.5	)
Interest-earning assets		393,879			403,917			(2.5	)
Loans		292,369			276,062			5.9
Foreclosed assets		12,996			18,867			(31.1	)
Deposits		331,412			339,199			(2.3	)
Other interest-bearing liabilities		46,913			54,647			(14.2	)
Shareholders' equity		40,369			40,234			0.3
Loan to deposit ratio		88.22	%		81.39	%		8.4
Tier 1 leverage ratio (Bank, est)		8.91	%		8.42	%		5.8
Total risk-based capital ratio (Bank, est)		13.61	%		13.10	%		3.9
Outstanding common shares		6,627			6,547			1.2
Book value per common share	$	3.84		$	3.88			(1.0	)
Tangible book value per common share	$	3.84		$	3.88			(1.0	)
Market value per common share as of June 30	$	2.55		$	2.01			26.9

Loan Quality Data
Nonaccruing loans		2,853			6,883			(58.6	)
Loans past due 90 days – accruing		-			-			-
Net charge-offs YTD		388			1,346			(71.2	)
Allowance for loan losses		3,330			5,095			(34.6	)
Allowance for loan losses to total loans		1.14	%		1.85	%
Nonperforming assets to total assets		3.77	%		5.91	%

Performance Data for the Year
Net income	$	822		$	848			(3.1	)
Return on average assets		0.39	%		0.39	%
Return on average equity		4.05	%		4.22	%
Net interest margin		3.90	%		3.79	%
Per common share data:
Net income – basic	$	0.01		$	0.01
Net income – diluted	$	0.01		$	0.01
Common dividends	$	-		$	-
Preferred dividends & accretion per common	$	786		$	786
Average shares (000s):
Basic common stock		6,601			6,547
Diluted common stock		6,761			6,665
Preferred stock (actual)		600			600

Cornerstone Bancshares, Inc. and Subsidiary
Quarterly Earnings Summary

	(Unaudited)
	2014						2013									Q2-14 /
	Second			First			Fourth			Third			Second			Q2-13
(Amounts in thousands)	Quarter			Quarter			Quarter			Quarter			Quarter			% Chg
Interest income
Loans, including fees	$	4,225		$	4,095		$	4,190		$	4,294		$	4,079			3.6
Securities and interest-bearing deposits at other financial institutions		347			431			315			457			482			(28.1	)
Federal funds sold and other earning assets		10			7			8			9			15			(28.8	)
Total interest income		4,582			4,533			4,513			4,760			4,576			0.1
Interest expense
Deposits		442			442			487			563			587			(24.8	)
Short-term borrowings		21			19			18			21			17			25.4
FHLB advances and other borrowing		263			261			267			285			316			(16.7	)
Total interest expense		726			722			772			869			920			(21.1	)
Net interest income		3,856			3,811			3,741			3,891			3,656			5.5
Provision for losses		350			165			-			-			-			-
Net interest income after the
provision for loan losses		3,506			3,646			3,741			3,891			3,656			(4.1	)
Noninterest income
Customer service fees		210			189			213			218			202			3.7
Other noninterest income		18			12			13			13			19			(3.5	)
Gain on sale of assets		307			121			391			39			477			(35.7	)
Total noninterest income		535			322			617			270			698			(23.4	)
Noninterest expense
Salaries and employee benefits		1,723			1,827			1,716			1,619			1,623			6.2
Net occupancy and equipment		324			309			324			334			340			(4.6	)
Depository insurance		164			155			162			162			161			1.9
Foreclosed asset expense (1)		363			349			693			382			798			(54.5	)
Other operating expense		801			661			810			967			780			2.7
Total noninterest expense		3,375			3,301			3,705			3,464			3,702			(8.8	)
Income before income taxes		666			667			653			697			652			2.1
Income tax expense		257			255			250			268			256			0.2
Net income	$	409		$	412		$	404		$	429		$	396			3.3

Preferred stock dividends & accretion on preferred stock discount		393			393			393			393			393			(0.1	)

Net income available to common		16			19			11			36			3			443.8

Net income per common share:
Basic	$	0.00		$	0.00		$	0.00		$	0.01		$	0.00			-
Diluted	$	0.00		$	0.00		$	0.00		$	0.01		$	0.00			-
Average basic shares		6,627			6,575			6,547			6,547			6,547			1.2
Average common diluted shares		6,807			6,714			6,662			6,693			6,671			2.0
Performance Ratios
Return on average equity		4.02	%		4.08	%		3.98	%		4.25	%		3.86	%		4.2
Return on average assets		0.38	%		0.39	%		0.38	%		0.40	%		0.37	%		4.1
Net interest margin		3.89	%		3.90	%		3.76	%		3.89	%		3.77	%		3.2
Average equity		40,710			40,447			40,487			40,382			41,065			(0.9	)
Average assets		426,951			426,282			426,660			431,068			430,196			(0.8	)
Average interest-earning assets		400,760			400,175			398,174			400,539			395,517			1.3

(1) Includes OREO adjustments to fair value

Cornerstone Bancshares, Inc. and Subsidiary
Loan Loss Allowance and Asset Quality Review

	2014						2013
	Second			First			Fourth			Third			Second
(Amounts in thousands)	Quarter			Quarter			Quarter			Quarter			Quarter

Allowance for loan losses
Balance at beginning of period	$	3,011		$	3,203		$	3,159		$	5,095		$	5,669
Provision for loan losses		350			165			-			-			-
Net charge-offs		(32	)		(357	)		44			(1,936	)		(574	)
Balance at end of period	$	3,330		$	3,011		$	3,203		$	3,159		$	5,095

As a % of loans		1.14	%		1.03	%		1.11	%		1.11	%		1.85	%
As a % of nonperforming loans		116.72	%		63.00	%		89.81	%		77.13	%		74.02	%
As a % of nonperforming assets		21.01	%		17.37	%		19.42	%		16.61	%		19.79	%

Net charge-offs as a % of loans (a)		0.04	%		0.49	%		-0.06	%		2.73	%		0.83	%

Risk element assets
Accruing troubled debt restructured	$	3,787		$	3,337		$	4,251		$	3,121		$	3,465
Loans past due 30-89 days	$	1,365		$	2,193		$	2,250		$	1,659		$	5,111

Nonaccruing loans	$	2,853		$	4,779		$	3,566		$	4,095		$	6,883
Loans past due 90 days – accruing		-			-			-			-			-
Total nonperforming loans	$	2,853		$	4,779		$	3,566		$	4,095		$	6,883
Foreclosed assets (b) (c)	$	12,996		$	12,559		$	12,926		$	14,924		$	18,867
Total nonperforming assets	$	15,849		$	17,338		$	16,492		$	19,019		$	25,750


Nonperforming loans as a % of loans		0.98	%		1.63	%		1.23	%		1.44	%		2.49	%
Nonperforming assets as a % of loans
and foreclosed assets		5.19	%		5.68	%		5.45	%		6.36	%		8.73	%

Total loans		292,369			292,952			289,440			284,181			276,062

(a) Annualized
(b) Properties sold during 2nd Q 2014	$	474
(c) Properties under contract to sell	$	3,374

Cornerstone Bancshares, Inc. and Subsidiary
Net Interest Margin Analysis
Taxable Equivalent Basis
	Three months ended
	June 30
(Amounts in thousands)
Assets				2014								2013
	Average			Income/		Yield/			Average			Income/		Yield/
Earning assets:	Balance			Expense		Rate			Balance			Expense		Rate
Loans, net of unearned income	$	292,039		$	4,225		5.80	%	$	272,718		$	4,079		6.00	%
Investment securities		93,074			347		1.64	%		102,164			482		2.13	%
Other earning assets		15,647			10		0.26	%		20,635			15		0.28	%
Total earning assets		400,760		$	4,582		4.62	%		395,517		$	4,576		4.70	%
Allowance for loan losses		(3,112	)							(5,315	)
Cash and other assets		29,303								39,994
TOTAL ASSETS	$	426,951							$	430,196

Liabilities and Shareholders' Equity

Interest-bearing liabilities:
Interest-bearing demand deposits	$	28,462		$	11		0.16	%	$	25,640		$	16		0.24	%
Savings deposits		15,054			4		0.11	%		12,214			8		0.25	%
MMDA's		65,740			61		0.37	%		77,206			108		0.56	%
Time deposits		160,174			366		0.92	%		167,078			455		1.09	%
Federal funds purchased and securities
sold under agreements to repurchase		22,580			21		0.37	%		20,752			17		0.32	%
Federal Home Loan Bank and other borrowings		27,776			263		3.80	%		31,740			316		3.99	%
Total interest-bearing liabilities		319,786			726		0.91	%		334,630			920		1.10	%
Net interest spread				$	3,856		3.71	%				$	3,657		3.60	%
Noninterest-bearing demand deposits		65,528								52,401
Accrued expenses and other liabilities		926								2,100
Shareholders' equity		40,710								41,065
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY	$	426,951							$	430,196
Net yield on earning assets							3.89	%							3.77	%

Taxable equivalent adjustment:
Loans					0								0
Investment securities					33								60
Total adjustment					33								60

Cornerstone Bancshares, Inc. and Subsidiary
Net Interest Margin Analysis
Taxable Equivalent Basis
	Six months ended
	June 30
(Amounts in thousands)
Assets				2014								2013
	Average			Income/		Yield/			Average			Income/		Yield/
Earning assets:	Balance			Expense		Rate			Balance			Expense		Rate
Loans, net of unearned income	$	291,935		$	8,321		5.75	%	$	274,199		$	8,221		6.05	%
Investment securities		94,513			777		1.81	%		94,495			922		2.27	%
Other earning assets		13,760			17		0.25	%		26,668			36		0.27	%
Total earning assets		400,208		$	9,115		4.63	%		395,362		$	9,179		4.75	%
Allowance for loan losses		(3,109	)							(5,622	)
Cash and other assets		29,519								38,781
TOTAL ASSETS	$	426,618							$	428,521

Liabilities and Shareholders' Equity

Interest-bearing liabilities:
Interest-bearing demand deposits	$	28,218		$	20		0.14	%	$	27,031		$	35		0.26	%
Savings deposits		15,216			7		0.09	%		11,919			15		0.25	%
MMDA's		65,521			116		0.36	%		75,719			219		0.58	%
Time deposits		160,278			741		0.93	%		167,919			921		1.11	%
Federal funds purchased and securities
sold under agreements to repurchase		22,074			39		0.36	%		20,920			35		0.34	%
Federal Home Loan Bank and other borrowings		29,708			525		3.56	%		32,224			656		4.11	%
Total interest-bearing liabilities		321,015			1,448		0.91	%		335,732			1,881		1.13	%
Net interest spread				$	7,667		3.72	%				$	7,298		3.62	%
Noninterest-bearing demand deposits		64,310								49,632
Accrued expenses and other liabilities		714								2,058
Shareholders' equity		40,579								41,099
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY	$	426,618							$	428,521
Net yield on earning assets							3.90	%							3.79	%

Taxable equivalent adjustment:
Loans					0								0
Investment securities					72								142
Total adjustment					72								142

Cornerstone Bancshares, Inc. and Subsidiary
Loan Stratification

	2014			2013
(Amounts in thousands)	Second		% of	Second		% of	% Dollar
	Quarter		Total	Quarter		Total	Change
Non-residential real estate
Owner occupied	$	70,808	24.2	$	60,725	22.0	16.6
Non-owner occupied		71,306	24.4		67,241	24.4	6.0
Multi-family real estate		8,375	2.9		7,451	2.7	12.4
1-4 family construction		10,879	3.7		8,269	3.0	31.6
Commercial land and lot development		16,577	5.7		21,898	7.9	(24.3)
Total non-residential real estate		177,945	60.9		165,584	60.0	7.5
Residential real estate
First mortgage - 1-4 family		47,027	16.1		43,282	15.7	8.7
Second mortgage - 1-4 family		1,731	0.6		2,129	0.8	(18.7)
Home equity lines		18,482	6.3		14,483	5.2	27.6
Total residential real estate		67,240	23.0		59,894	21.7	12.3
Total real estate loans		245,185	83.9		225,479	81.7	8.7

Commercial		37,253	12.7		40,586	14.7	(8.2)
Agricultural & other		7,157	2.4		7,994	2.9	(10.5)
Consumer		2,774	0.9		2,005	0.7	38.4
Total loans, net of unearned fees	$	292,369	100.0	$	276,063	100.0	5.9

Cornerstone Bancshares, Inc. and Subsidiary
Consolidated Balance Sheets


	Unaudited
	June 30,			December 31,
ASSETS	2014			2013

Cash and due from banks	$	2,222,077		$	2,149,467
Interest-bearing deposits at other financial institutions		16,818,780			22,702,270
Total cash and cash equivalents		19,040,857			24,851,737

Securities available for sale		83,314,607			92,208,672
Securities held to maturity (fair value
$31,191 and $35,027 at June 30, 2014 and December 31, 2013, respectively)		30,993			34,165
Federal Home Loan Bank stock, at cost		2,322,900			2,322,900
Loans, net of allowance for loan losses of
$3,329,789 and $3,203,158 at June 30, 2014 and December 31, 2013, respectively		289,039,362			286,236,578
Bank premises and equipment, net		4,862,213			4,992,449
Accrued interest receivable		1,082,522			977,925
Foreclosed assets		12,996,286			12,925,748
Other assets		7,221,565			7,673,179
Total assets	$	419,911,305		$	432,223,353

LIABILITIES AND STOCKHOLDERS' EQUITY

Deposits:
Noninterest-bearing demand deposits	$	65,965,561		$	75,206,540
Interest-bearing demand deposits		26,241,666			24,563,987
Savings deposits and money market accounts		82,268,935			86,329,930
Time deposits		156,935,842			155,313,920
Total deposits		331,412,004			341,414,377

Accrued interest payable		80,077			82,320
Federal funds purchased and securities sold under
agreements to repurchase		21,913,135			22,974,117
Federal Home Loan Bank advances and other borrowings		25,000,000			26,740,000
Other liabilities		1,137,134			878,811
Total liabilities		379,542,350			392,089,625

Stockholders' equity:
Preferred stock - no par value; 2,000,000 shares authorized;
600,000 shares issued and outstanding
in 2014 and 2013		14,928,618			14,892,927
Common stock - $1.00 par value; 20,000,000 shares authorized;
6,709,199 shares issued in 2014 and 2013;
6,627,398 and 6,547,074 shares outstanding in 2014 and 2013, respectively		6,627,398			6,547,074
Additional paid-in capital		21,740,560			21,549,883
Accumulated deficit		(3,063,508	)		(3,099,451	)
Accumulated other comprehensive income		135,887			243,295
Total stockholders' equity		40,368,955			40,133,728
Total liabilities and stockholders' equity	$	419,911,305		$	432,223,353

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

Cornerstone Bancshares, Inc. and Subsidiary
Consolidated Statements of Income

	Unaudited				Unaudited
	Three months ended				Six months ended
	June 30,				June 30,
	2014		2013		2014		2013
INTEREST INCOME
Loans, including fees	$	4,225,125	$	4,079,369	$	8,320,593	$	8,221,105
Securities and interest-bearing deposits at other
financial institutions		346,507		482,117		776,997		922,023
Federal funds sold		10,112		14,533		17,275		36,005
Total interest income		4,581,744		4,576,019		9,114,865		9,179,133

INTEREST EXPENSE
Time deposits		365,537		455,340		741,027		920,596
Other deposits		75,965		131,534		143,039		269,464
Federal funds purchased and securities
sold under agreements to repurchase		20,621		16,743		39,281		34,823
Federal Home Loan Bank advances and other borrowings		263,201		315,948		524,611		656,387
Total interest expense		725,324		919,565		1,447,958		1,881,270

Net interest income before provision for loan losses		3,856,420		3,656,454		7,666,907		7,297,863
Provision for loan losses		350,000		-		515,000		300,000
Net interest income after provision for loan losses		3,506,420		3,656,454		7,151,907		6,997,863

NONINTEREST INCOME
Customer service fees		209,538		201,302		398,449		389,783
Net gains from sale of securities		300,201		424,971		402,473		424,971
Net gains from sale of loans and other assets		6,529		52,382		25,443		201,582
Other noninterest income		18,220		18,650		30,436		36,468
Total noninterest income		534,488		697,305		856,801		1,052,804

NONINTEREST EXPENSE
Salaries and employee benefits		1,722,503		1,622,501		3,549,487		3,219,792
Net occupancy and equipment expense		324,086		339,606		632,918		677,485
Depository insurance		164,167		161,120		318,843		320,964
Foreclosed assets, net		363,122		798,456		712,492		927,148
Other operating expenses		801,047		780,045		1,462,234		1,532,219
Total noninterest expenses		3,374,925		3,701,728		6,675,974		6,677,608

Income before income tax expense		665,983		652,031		1,332,734		1,373,059
Income tax expense		256,500		256,000		511,100		524,900

Net income		409,483		396,031		821,634		848,159

Preferred stock dividend requirements		375,000		375,000		750,000		750,000
Accretion on preferred stock discount		17,845		17,845		35,691		35,690

Net income available to common shareholders	$	16,638	$	3,186	$	35,943	$	62,469

EARNINGS PER COMMON SHARE
Basic	$	-	$	-	$	0.01	$	0.01
Diluted	$	-	$	-	$	0.01	$	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 six months ended June 30, 2014

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

BALANCE, December 31, 2013	$	14,892,927	$	6,547,074	$	21,549,883	$	(3,099,451	)	$	243,295		$	40,133,728

Stock compensation expense		-		-		80,000		-			-			80,000

Issuance of common stock, 80,324 shares		-		80,324		110,677		-			-			191,001

Preferred stock dividends paid		-		-		-		(750,000	)		-			(750,000	)

Accretion on preferred stock		35,691		-		-		(35,691	)		-			-

Net income		-		-		-		821,634			-			821,634

Unrealized holding losses on securities available for sale, net of reclassification adjustment		-		-		-		-			(107,408	)		(107,408	)

BALANCE, June 30, 2014
	$	14,928,618	$	6,627,398	$	21,740,560	$	(3,063,508	)	$	135,887		$	40,368,955

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

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