Cornerstone Bancshares, Inc. Announces 3rd Quarter 2011 Financial Results

News provided by

Cornerstone Bancshares, Inc.

Oct 20, 2011, 08:00 ET

CHATTANOOGA, Tenn., Oct. 20, 2011 /PRNewswire/ -- Cornerstone Bancshares, Inc. (OTC Bulletin Board: CSBQ) today announced the following:

Cornerstone Bancshares, Inc. ("Cornerstone") of Chattanooga, TN, parent company of Cornerstone Community Bank ("the "Bank"),  reported positive net income of $524,000 for the third quarter of 2011, an increase of 145 percent compared with $214,000 during the third quarter of 2010.  This marks a third consecutive quarter of positive earnings for Cornerstone, bringing the company's net income for the year to $917,000 or $0.09 per diluted Common share, an increase of 59 percent compared with $576,000 during the first nine months of 2010.

"I'm extremely pleased with the progress made thus far and where we stand today," said Cornerstone's President Frank Hughes.  "At every level and in every department, our Cornerstone team has really pulled together and put forth the effort to help us regain our solid earnings footprint and return to greater profitability."

Cornerstone's increase in net income was driven by several factors:  First, net interest income remained relatively stable quarter over previous year's quarter, with only a four percent decrease in its net interest income.  Second, Cornerstone's loan portfolio asset quality stabilized, and only a minor loan loss provision was required.  Third, the Bank saw a material reduction in non-interest expense that offset last year's securities gains.   Cornerstone's nonperforming assets decreased slightly and show signs of significant improvement as a large percentage of the Bank's non-accruing loans will finish the collection process in the next two quarters.  Past-due loans remained below peer Bank levels and remain a positive indicator that the Bank's general asset quality will improve over the next several quarters.  Net charge-offs were $65,000 for the third quarter of 2011, compared to $1.4 million for the third quarter of 2010. Cornerstone's allowance for loan losses was $6.9 million or 2.54 percent of total loans as of September 30, 2011, compared to $6.3 million or 2.15 percent as of September 30, 2010.  The Bank is aggressively acting to originate loans in order to support its strategic plan of reducing its risk profile and improving its loan stratification. These steps place the Bank in a positive position to move forward as the capital campaign progresses.

To date, Cornerstone has been successful in raising more than $7.5 million in capital through a Preferred Stock Offering launched in the third quarter of 2010.  Extended through December 31, 2011, the Offering features a new security with a 10 percent cumulative annual dividend, and is convertible into common stock after five years and a 50 percent increase in common stock value over the preferred stock's strike price.

"We are proud of Cornerstone's heritage and solid reputation in the local market," said Cornerstone's Chairman Miller Welborn.  "With recent investments by Volkswagen, Amazon, Wacker and other major corporations in Chattanooga, prospects for the local economy are very bright indeed," he said. "Given our improvement and continued strides in the right direction, I have every reason to be optimistic for the future of Cornerstone."

Cornerstone is a single-bank holding company with $426 million in assets, serving the Chattanooga, Tennessee MSA.  Locally owned and locally operated, Cornerstone Community Bank was founded in 1996, and is one of Chattanooga's oldest and largest community banks.  With five branches serving the Hamilton County area and one loan production office in Dalton, Georgia, Cornerstone Community Bank 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 discussed in Cornerstone's Form 10-K and other filings with the Securities and Exchange Commission.

Cornerstone Bancshares, Inc. and Subsidiary 

Third Quarter Financial Highlights

September 30, 2011 and 2010

(Unaudited)







(Amounts in thousands, except per common share data)

2011

2010

% Change

Balance Sheet Data at September 30





Total assets

$ 426,365

$ 483,351

(11.8)

Interest-earning assets

391,452

459,720

(14.9)

Loans

270,401

292,046

(7.4)

Foreclosed assets

18,255

13,427

36.0

Deposits

322,552

351,367

(8.2)

Other interest-bearing liabilities

69,099

98,947

(30.2)

Shareholders' equity

32,447

30,965

4.8

Loan to deposit ratio

83.83%

83.12%

0.9

Tier 1 leverage ratio (Bank)

6.65%

6.20%

7.3

Total risk-based capital ratio (Bank)

11.12%

11.31%

(1.7)

Outstanding common shares (000s)

6,500

6,500

-

Book value per common share

$       3.87

$       4.76

(18.8)

Tangible book value per common share

$       3.86

$       4.37

(11.5)

Market value per common share as of September 30

$       1.03

$       1.55

(33.5)







Loan Quality Data





Nonaccruing loans

8,559

10,491

(18.4)

Loans past due 90 days – accruing

-

-

-

Net charge-offs YTD

2,413

2,795

(13.7)

Allowance for loan losses

6,864

6,271

9.5

Allowance for loan losses to total loans

2.54%

2.15%

Nonperforming assets to total assets

6.29%

4.95%








Performance Data for the Year





Net income

$        917

$        576

59.2

Return on average assets

0.28%

0.15%

Return on average equity

4.27%

2.61%

Net interest margin

3.51%

3.45%

Per common share data:





Net income – basic

$       0.09

$       0.09

Net income – diluted

$       0.09

$       0.09

Common dividends

$             -

$             -

Preferred dividends

$       1.25

$             -

Average shares (000s):





Basic common stock

6,500

6,500

Diluted common stock

6,500

6,500

Preferred stock (actual shares outstanding)

300

115

Cornerstone Bancshares, Inc. and Subsidiary 

Loan Loss Allowance and Asset Quality Review









 2011

2010

Third

Second

First

Fourth

Third

(Amounts in thousands)

Quarter

Quarter

Quarter

Quarter

Quarter








Allowance for loan losses






Balance at beginning of period

$       6,814

$        7,914

$        9,132

$       6,271

$       6,967

Provision for loan losses

115

15

15

4,130

681

Net charge-offs

(65)

(1,115)

(1,233)

(1,269)

(1,377)

Balance at end of period

$       6,864

$        6,814

$        7,914

$       9,132

$       6,271








As a % of loans

2.54%

2.52%

2.89%

3.20%

2.15%

As a % of nonperforming loans

80.20%

94.21%

126.20%

66.99%

61.26%

As a % of nonperforming assets

25.60%

24.97%

29.60%

34.54%

26.50%








Net charge-offs as a % of  loans (a)

0.10%

1.65%

1.80%

1.78%

1.89%








Risk element assets






Accruing troubled debt restructured

$       2,535

$        1,750

$        1,650

$          848

$       5,853

Loans past due 30-89 days

$       2,048

$        1,957

$        8,434

$       2,306

$       1,500








Nonaccruing loans

$       8,559

$        7,233

$        6,271

$     13,633

$     10,237

Loans past due 90 days – accruing

-

-

-

-

-

Total nonperforming loans

$       8,559

$        7,233

$        6,271

$     13,633

$     10,237

Repossessed assets

-

-

-

150

285

Other real estate owned (b)(c)(d)

$     18,255

$      20,058

$      20,464

$     12,659

$     13,142

Total nonperforming assets

$     26,814

$      27,291

$      26,735

$     26,442

$     23,664
















Nonperforming loans as a % of loans

3.17%

2.68%

2.29%

4.78%

3.51%

Nonperforming assets as a % of loans






   and other real estate owned

9.29%

9.40%

9.09%

8.88%

7.75%








Total loans

270,401

270,171

273,750

285,247

292,046








(a) Annualized

(b) Properties sold since quarter-end

$       1,470





(c) Properties rented

$       8,724





(d) Properties under contract to sell

$          292





Cornerstone Bancshares, Inc. and Subsidiary 



Cornerstone Bancshares, Inc. and Subsidiary 







Net Interest Margin Analysis 



Net Interest Margin Analysis 







Taxable Equivalent Basis 



Taxable Equivalent Basis 








Three months ended

Nine months ended

September 30

September 30

(Amounts in thousands)










(Amounts in thousands)










Assets

2011




2010

Assets

2011




2010


Average

Income/

Yield/

Average

Income/

Yield/

Average

Income/

Yield/

Average

Income/

Yield/

Earning assets:

Balance

Expense

Rate

Balance

Expense

Rate

Earning assets:

Balance

Expense

Rate

Balance

Expense

Rate

Loans, net of unearned income

$       269,715

$       4,531

6.67%

$     305,743

$       5,160

6.70%

Loans, net of unearned income

$   275,267

$      13,692

6.65%

$     318,985

$       16,602

6.96%

Investment securities

108,963

574

2.40%

116,930

754

2.82%

Investment securities

112,850

1,763

2.38%

134,262

3,099

3.32%

Other earning assets

18,193

9

0.20%

35,540

19

0.22%

Other earning assets

22,496

38

0.22%

39,634

65

0.22%

 Total earning assets

396,872

$       5,114

5.20%

458,213

$       5,933

5.20%

 Total earning assets

410,613

$      15,493

5.12%

492,881

$       19,766

5.42%

Allowance for loan losses

(6,792)




(6,655)



Allowance for loan losses

(7,707)




(6,484)



Cash and other assets

33,120




37,213



Cash and other assets

32,538




31,015



TOTAL ASSETS

$       423,200




$     488,771



TOTAL ASSETS

$   435,444




$     517,412



























Liabilities and Shareholders' Equity










Liabilities and Shareholders' Equity


































Interest-bearing liabilities:










Interest-bearing liabilities:










Interest-bearing demand deposits

$         24,197

$            20

0.33%

$       31,858

$            25

0.31%

Interest-bearing demand deposits

$     26,717

$             65

0.33%

$       34,125

$              91

0.36%

Savings deposits

9,772

13

0.51%

9,547

12

0.50%

Savings deposits

9,737

37

0.51%

9,124

35

0.51%

MMDA's

30,975

79

1.01%

22,961

56

0.97%

MMDA's

27,137

202

1.00%

22,875

164

0.96%

Time deposits

218,622

900

1.63%

270,204

1,386

2.04%

Time deposits

233,079

2,964

1.70%

292,184

4,689

2.15%

Federal funds purchased and securities










Federal funds purchased and securities










 sold under agreements to repurchase

23,250

33

0.57%

23,256

32

0.55%

 sold under agreements to repurchase

23,391

98

0.56%

23,565

99

0.56%

Federal Home Loan Bank and other borrowings

43,078

465

4.29%

62,612

665

4.21%

Federal Home Loan Bank and other borrowings

49,329

1,590

4.31%

68,215

2,205

4.32%

 Total interest-bearing liabilities

349,894

1,510

1.71%

420,438

2,176

2.05%

 Total interest-bearing liabilities

369,390

4,957

1.79%

450,088

7,283

2.16%

Net interest spread

$       3,604

3.49%


$       3,757

3.15%

Net interest spread

$      10,536

3.33%


$       12,483

3.26%

Noninterest-bearing demand deposits

41,800




36,875



Noninterest-bearing demand deposits

37,463




41,341



Accrued expenses and other liabilities

(64)




1,103



Accrued expenses and other liabilities

(81)




(3,399)



Shareholders' equity

31,569




30,355



Shareholders' equity

28,672




29,382



TOTAL LIABILITIES AND










TOTAL LIABILITIES AND










 SHAREHOLDERS' EQUITY

$       423,200




$     488,771



 SHAREHOLDERS' EQUITY

$   435,444




$     517,412



Net yield on earning assets



3.69%




3.32%

Net yield on earning assets



3.51%




3.45%
























Taxable equivalent adjustment:










Taxable equivalent adjustment:










 Loans

0




0

 Loans

0




0

 Investment securities

85




77

 Investment securities

246




232

         Total adjustment

85




77

         Total adjustment

246




232

Cornerstone Bancshares, Inc. and Subsidiary 

Quarterly Earnings Summary












(Unaudited)







2011

2010

Q3-11 /


Third

Second

First

Fourth

Third

Q3-10

(Amounts in thousands)

Quarter

Quarter

Quarter

Quarter

Quarter

% Chg

Interest income







Loans, including fees

$       4,531

$          4,521

$             4,639

$        4,896

$        5,160

(12.2)

Investment securities

574

621

568

534

754

(23.9)

Other earning assets

9

17

11

15

19

(51.9)

    Total interest income

5,114

5,159

5,218

5,445

5,933

(13.8)

Interest expense







Deposits

1,012

1,112

1,145

1,239

1,478

(31.5)

Short-term borrowings

33

34

31

28

32

4.5

FHLB advances and other borrowings

465

545

580

651

666

(30.2)

    Total interest expense

1,510

1,691

1,756

1,918

2,176

(30.6)

Net interest income

3,604

3,468

3,462

3,527

3,757

(4.1)

Provision for loan losses

115

15

15

4,130

681

(83.1)

Net interest income after the







  provision for loan losses

3,489

3,453

3,447

(603)

3,076

13.4

Noninterest income







Customer service fees

216

225

215

280

309

(30.0)

Other noninterest income

15

22

20

63

34

(55.8)

Gain / (loss) on sale of assets

92

69

34

(681)

544

(83.1)

    Total noninterest income

323

316

269

(338)

887

(63.6)

Noninterest expense







Salaries and employee benefits

1,459

1,502

1,542

1,515

1,525

(4.3)

Net occupancy and equipment

362

350

406

380

397

(8.8)

Depository insurance

234

241

322

350

386

(39.4)

Goodwill impairment

-

-

-

2,541

-

-

Foreclosed asset expense (1)

306

716

-

-

-

N/A

Other operating expense

715

847

1,145

1,255

1,372

(47.9)

    Total noninterest expense

3,076

3,656

3,415

6,041

3,680

(16.4)

Income (loss) before income taxes

736

113

301

(6,982)

283

160.3

Income tax (benefit) expense

212

(28)

49

(1,699)

69

206.1

Net income (loss)


$          524

$             141

$                252

$      (5,283)

$           214

145.5









Preferred stock dividends & accretion on preferred stock discount

131

102

92

34

-









Net income (loss) per common share:







  Basic

$         0.06

$            0.01

$               0.02

$        (0.82)

$          0.03

83.9

  Diluted

$         0.06

$            0.01

$               0.02

$        (0.82)

$          0.03

83.9

Average basic shares (000s)      

6,500

6,500

6,500

6,500

6,500

-

Average common diluted shares (000s)  


6,500

6,500

6,500

6,500

6,500

-

Performance Ratios







Return on average equity

6.64%

2.04%

3.78%

-67.91%

2.81%

136.0

Return on average assets

0.50%

0.13%

0.23%

-4.66%

0.17%

183.5

Net interest margin

3.69%

3.42%

3.44%

3.36%

3.36%

9.8

Average equity

31,569

27,712

26,683

31,120

30,355

4.0

Average assets

423,200

445,472

437,821

453,665

488,771

(13.4)

Average interest-earning assets

396,872

416,605

418,263

425,789

458,213

(13.4)









(1) Includes OREO adjustments to fair value

Cornerstone Bancshares, Inc. and Subsidiary 

Loan Stratification







2011

2010

(Amounts in thousands)

Third

% of

Third

% of

% Dollar

Quarter

Total

Quarter

Total

Change

Non-residential real estate




    Owner occupied

$        63,405

23.4

$     68,998

23.6

(8.1)

    Non-owner occupied

62,009

22.9

65,091

22.3

(4.7)

   Multi-family real estate

10,692

4.0

12,871

4.4

(16.9)

    1-4 family construction

6,346

2.3

4,320

1.5

46.9

    Commercial land and lot development

19,483

7.2

22,162

7.6

(12.1)

Total non-residential real estate

161,935

59.9

173,442

59.4

(6.6)

Residential real estate




    First mortgage – 1-4 family

41,334

15.3

41,753

14.3

(1.0)

   Second mortgage - 1-4 family

4,225

1.6

4,709

1.6

(10.3)

    Home equity lines

12,215

4.5

10,113

3.5

20.8

Total residential real estate

57,774

21.4

56,575

19.4

2.1

Total real estate loans

219,709

81.3

230,017

78.8

(4.5)






Commercial

38,955

14.4

50,127

17.2

(22.3)

Agricultural & other

8,938

3.3

8,581

2.9

4.2

Consumer

2,799

1.0

3,321

1.1

(15.7)

Total loans, net of unearned fees

$      270,401

100.0

$   292,046

100.0

(7.4)

Cornerstone Bancshares, Inc. and Subsidiary 

Consolidated Balance Sheets


























Unaudited








September 30,

December 31,



ASSETS

2011

2010










Cash and cash equivalents

$              32,934,352

$            22,981,952










Securities available for sale

93,666,153

108,250,434

Securities held to maturity



75,810

95,702

Federal Home Loan Bank stock, at cost

2,322,900

2,322,900

Loans, net of allowance for loan losses of







   $6,864,196 at September 30, 2011





   and $9,132,171 at December 31, 2010

263,536,587

276,114,617

Bank premises and equipment, net

5,676,290

8,047,370

Accrued interest receivable

1,337,407

1,326,480

Foreclosed assets

18,254,741

12,808,838

Other assets

8,560,558

9,551,121

Total Assets

$            426,364,798

$          441,499,414













LIABILITIES AND STOCKHOLDERS' EQUITY















Deposits:





Noninterest-bearing demand deposits

$              40,115,385

$            28,980,043

Interest-bearing demand deposits

22,773,718

24,834,214

Savings deposits and money market accounts

43,477,203

34,041,672

Time deposits



216,185,314

247,591,161

 Total deposits

322,551,620

335,447,090

Federal funds purchased and securities sold under  




   agreements to repurchase

26,053,577

24,325,372

Federal Home Loan Bank advances and other borrowing

43,045,000

54,715,000

Accrued interest payable

90,706

176,761

Other liabilities

2,176,468

1,016,038

Total Liabilities

393,917,371

415,680,261










Stockholders' Equity





Preferred stock - no par value; 2,000,000 shares




   authorized; 300,060 shares issued and outstanding in 2011

7,300,221

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

21,296,653

21,237,298

Retained deficit

(3,725,732)

(4,317,130)

Accumulated other comprehensive income

1,075,889

(328,835)

Total Stockholders' Equity

32,447,427

25,819,153

Total Liabilities and Stockholders' Equity

$            426,364,798

$          441,499,414

Cornerstone Bancshares, Inc. and Subsidiary 





Consolidated Statements of Income
























Unaudited

Unaudited






Three months ended

Nine months ended






September 30

September 30






2011

2010

2011

2010

INTEREST INCOME










Loans, including fees



$    4,531,390

$    5,159,963

$  13,691,565

$  16,602,155

Securities




573,699

753,783

1,763,479

3,099,362

Federal funds sold & other earning assets

9,269

19,289

37,597

64,682

Total interest income



5,114,358

5,933,035

15,492,641

19,766,199













INTEREST EXPENSE










Time deposits



899,554

1,385,938

2,963,779

4,689,208

Other deposits



111,985

92,437

304,533

289,766

Federal funds purchased and securities








   sold under agreements to repurchase

33,135

31,649

97,850

99,206

FHLB advances and other borrowings

465,534

665,961

1,590,605

2,204,961

Total interest expense



1,510,208

2,175,985

4,956,767

7,283,141













Net interest income before provision for loan losses

3,604,150

3,757,050

10,535,874

12,483,058

Provision for loan losses


115,000

681,000

145,000

3,161,000

Net interest income after the provision for loan losses

3,489,150

3,076,050

10,390,874

9,322,058













NONINTEREST INCOME










Customer service fee



216,163

308,579

656,877

992,619

Other noninterest income


15,256

14,214

57,066

55,585

Net gains from sale of loans and other assets

91,993

1,093,212

195,279

1,862,685

Total noninterest income


323,412

1,416,005

909,222

2,910,889













NONINTEREST EXPENSE









Salaries and employee benefits


1,458,951

1,525,311

4,503,489

4,679,871

Net occupancy and equipment expense

361,513

397,461

1,118,127

1,121,150

Depository insurance





233,587

385,722

797,747

915,365

Foreclosed asset expense


306,860

905,504

1,384,935

1,898,022

Other operating expense


715,858

995,082

2,346,493

2,879,029

Total noninterest expense


3,076,769

4,209,080

10,150,791

11,493,437













Income before provision for income taxes

735,793

282,975

1,149,305

739,510

Provision for income taxes


212,125

69,301

232,075

163,903













NET  INCOME



$       523,668

$       213,674

$       917,230

$       575,607













Preferred stock dividends


118,013

-

303,413

-

Accretion on preferred stock dividend

13,419

-

22,419

-













Net income available to common shareholders

$       392,236

$       213,674

$       591,398

$       575,607













EARNINGS PER COMMON SHARE









Basic net income per common share

$             0.06

$             0.03

$             0.09

$             0.09

Diluted net income per common share

$             0.06

$             0.03

$             0.09

$             0.09













DIVIDENDS DECLARED PER COMMON SHARE

$                -

$                -

$                -

$                -

Cornerstone Bancshares, Inc. and Subsidiary 









Consolidated Statement of Changes in Stockholders' Equity - Unaudited







For the nine months ended September 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


-

-

59,355

-

-

59,355















  Issuance of Series A Convertible Preferred Stock

4,550,378

-

-


-

4,550,378















  Preferred stock dividend


-

-

-

(303,413)

-

(303,413)















 Accretion on preferred stock


22,419

-

-

(22,419)

-

-

    Comprehensive income:













       Net income

$            917,230

-

-

-

917,230

-

917,230















       Other comprehensive income, net of tax:













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

1,404,724

-

-

-

-

1,404,724

1,404,724

       Total comprehensive income

$         2,321,954


























BALANCE, September 30, 2011


$    7,300,221

$ 6,500,396

$      21,296,653

$  (3,725,732)

$         1,075,889

$         32,447,427

SOURCE Cornerstone Bancshares, Inc.

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