Cornerstone Posts Profit for Third Quarter of 2012

News provided by

Cornerstone Bancshares, Inc.

Oct 24, 2012, 08:00 ET

CHATTANOOGA, Tenn., Oct. 24, 2012 /PRNewswire/ -- Cornerstone Bancshares, Inc., ("Cornerstone"; OTC Bulletin Board: CSBQ; CSBQP), holding company of Cornerstone Community Bank ("Bank"), today announced net income of $364,000 for the third quarter of 2012. This marks the seventh consecutive quarter of positive earnings for Cornerstone and an increase from net income of $356,000 for the first quarter of 2012, and $311,000 for the second quarter of 2012.

Year-over-year, total net income for Cornerstone increased 12.4 percent at the end of the third quarter, from $917,000 in 2011 to $1,031,000 in 2012. Non-accruing loans decreased from $8.56 million in 2011 to $7.97 million in 2012. Net interest margin increased for the year from 3.51 percent in 2011 to 3.73 percent in 2012. In addition, the Bank's total risk-based capital ratio increased 20.8 percent year-over-year at the end of the third quarter, from 11.12 percent in 2011 to an estimated 13.43 percent in 2012.

"We continue to make steady progress in the right direction," said Cornerstone's President and Chief Executive Officer Frank Hughes. "While we still have a ways to go, it's nice that the regulators have also recognized our efforts and improvements made across the board."

On August 27, 2012, Cornerstone announced that the FDIC and Tennessee Department of Financial Institutions had officially terminated the Consent Order and Written Agreement entered into with the Bank on April 2, 2010, after loan losses sustained during the 'Great Recession." The regulatory agreement provided guidelines for the Bank to improve its capital ratios, loan portfolio and earnings. The release of the Consent Order and Written Agreement were major benchmarks for Cornerstone's success in aggressively tackling its asset quality issues, cleaning up the balance sheet and raising in excess of $12 million in capital through a Preferred Stock Offering in the local market.

"Our customers, shareholders and members of the Chattanooga community have faithfully stood by Cornerstone and are truly vested in our success," said Cornerstone's Chairman Miller Welborn. "We will continue to work diligently to serve the Chattanooga market as a premier community bank, and to deliver the greatest return on investment for all our shareholders."

Founded in 1996, Cornerstone is a single-bank holding company, with $425 million in assets, serving the Chattanooga, Tennessee MSA, with five full-service branch locations 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

Third Quarter Financial Highlights

September 30, 2012 and 2011

(Unaudited)







(Amounts in thousands, except per common share data)

2012

2011

% Change

Balance Sheet Data at September 30





Total assets

$ 425,179

$ 426,365

(0.3)

Interest-earning assets

391,685

398,316

(1.7)

Loans

273,820

270,401

1.3

Foreclosed assets

22,376

18,255

22.6

Deposits

328,963

322,552

2.0

Other interest-bearing liabilities

56,555

69,099

(18.2)

Shareholders' equity

38,128

32,447

17.5

Loan to deposit ratio

83.24%

83.83%

(0.7)

Tier 1 leverage ratio (Bank, est)

8.30%

6.65%

24.8

Total risk-based capital ratio (Bank, est)

13.43%

11.12%

20.8

Outstanding common shares


6,500

6,500

-

Book value per common share

$ 3.99

$ 3.87

3.2

Tangible book value per common share

$ 3.99

$ 3.86

3.3

Market value per common share as of September 30

$ 1.95

$ 1.03

89.3







Loan Quality Data





Nonaccruing loans

7,968

8,560

(6.9)

Loans past due 90 days - accruing

-

-

-

Net charge-offs YTD

2,220

2,413

(8.0)

Allowance for loan losses

5,280

6,864

(23.1)

Allowance for loan losses to total loans

1.93%

2.54%

Nonperforming assets to total assets

7.14%

6.29%








Performance Data for the Year





Net income


$ 1,031

$ 917

12.5

Return on average assets

0.33%

0.28%

Return on average equity

3.77%

4.27%

Net interest margin

3.73%

3.51%

Per common share data:





Net income - basic

$ 0.02

$ 0.07

Net income - diluted

$ 0.02

$ 0.07

Common dividends

$ -

$ -

Preferred dividends & accretion

$ 1.88

$ 1.88

Average shares (000s):





Basic common stock

6,500

6,500

Diluted common stock

6,559

6,500

Preferred stock (actual)

494

300

Cornerstone Bancshares, Inc. and Subsidiary

Quarterly Earnings Summary











(Unaudited)



2012

2011

Q3-12 /


Third

Second

First

Fourth

Third

Q3-11

(Amounts in thousands)

Quarter

Quarter

Quarter

Quarter

Quarter

% Chg

Interest income







Loans, including fees

$ 4,242

$ 4,186

$ 4,144

$ 4,437

$ 4,531

(6.4)

Investment securities

478

618

467

548

574

(16.6)

Other earning assets

15

13

15

16

9

61.8

  Total interest income

4,735

4,817

4,626

5,001

5,114

(7.4)

Interest expense







Deposits

756

768

820

924

1,012

(25.3)

Short-term borrowings

22

23

32

28

33

(33.9)

FHLB advances and other borrowing

394

426

462

454

465

(15.3)

  Total interest expense

1,172

1,217

1,314

1,406

1,510

(22.4)

Net interest income

3,563

3,600

3,312

3,595

3,604

(1.1)

Provision for loan losses

100

-

-

300

115

(13.0)

Net interest income after the







provision for loan losses

3,463

3,600

3,312

3,295

3,489

(0.8)

Noninterest income







Customer service fees

198

207

197

212

216

(8.4)

Other noninterest income

12

19

20

15

15

(21.3)

Gain on sale of assets

48

26

50

47

92

(47.6)

  Total noninterest income

258

252

267

274

323

(20.2)

Noninterest expense







Salaries and employee benefits

1,566

1,570

1,591

1,614

1,459

7.3

Net occupancy and equipment

355

348

336

314

362

(1.8)

Depository insurance

237

207

203

255

234

1.5

Foreclosed asset expense (1)

314

481

150

538

306

2.5

Other operating expense

731

817

794

779

715

2.2

  Total noninterest expense

3,203

3,423

3,074

3,500

3,076

4.1

Income before income taxes

518

429

505

69

736

(29.6)

Income tax (benefit) expense

154

118

149

(44)

212

(27.3)

Net income

$ 364

$ 311

$ 356

$ 113

$ 524

(30.6)









Preferred stock dividends & accretion on preferred stock discount

325

296

280

267

201

61.8









Net income / (loss) available to common


38

15

76

(154)

323

(88.1)









Net income / (loss) per common share:







  Basic

$ 0.01

$ 0.01

$ 0.01

$ (0.02)

$ 0.05

(88.2)

  Diluted

$ 0.01

$ 0.01

$ 0.01

$ (0.02)

$ 0.05

(88.2)

Average basic shares


6,500

6,500

6,500

6,500

6,500

-

Average common diluted shares


6,503

6,581

6,586

6,500

6,500

0.0

Performance Ratios







Return on average equity

3.88%

3.42%

4.01%

1.37%

6.64%

(41.5)

Return on average assets

0.35%

0.30%

0.35%

0.11%

0.49%

(29.8)

Net interest margin

3.70%

3.87%

3.59%

3.72%

3.69%

0.3

Average equity

37,501

36,423

35,587

32,912

31,569

18.8

Average assets

418,443

412,305

408,711

416,562

423,200

(1.1)

Average interest-earning assets

389,458

380,631

378,335

390,756

396,872

(1.9)









(1) Includes OREO adjustments to fair value

Cornerstone Bancshares, Inc. and Subsidiary

Loan Loss Allowance and Asset Quality Review








2012

2011

Third

Second

First

Fourth

Third

(Amounts in thousands)

Quarter

Quarter

Quarter

Quarter

Quarter







Allowance for loan losses





Balance at beginning of period

$ 6,029

$ 6,024

$ 7,400

$ 6,864

$ 6,814

Provision for loan losses

100

-

-

300

115

Net charge-offs

(849)

5

(1,376)

236

(65)

Balance at end of period

$ 5,280

$ 6,029

$ 6,024

$ 7,400

$ 6,864







As a % of loans

1.93%

2.29%

2.29%

2.76%

2.54%

As a % of nonperforming loans

66.26%

84.63%

55.95%

93.90%

80.20%

As a % of nonperforming assets

17.40%

20.60%

20.27%

28.03%

25.60%







Net charge-offs as a % of loans (a)

1.24%

-0.01%

2.10%

-0.35%

0.10%







Risk element assets





Accruing troubled debt restructured

$ 5,328

$ 2,775

$ 2,418

$ 2,750

$ 2,535

Loans past due 30-89 days

$ 3,685

$ 2,495

$ 5,040

$ 8,158

$ 2,088







Nonaccruing loans

$ 7,968

$ 7,124

$ 10,767

$ 7,882

$ 8,560

Loans past due 90 days - accruing

-

-

-

-

-

Total nonperforming loans

$ 7,968

$ 7,124

$ 10,767

$ 7,882

$ 8,560

Repossessed assets

39

83

-

-

-

Other real estate owned (b)(c)

$ 22,337

$ 22,061

$ 18,957

$ 18,524

$ 18,255

Total nonperforming assets

$ 30,344

$ 29,268

$ 29,724

$ 26,406

$ 26,815














Nonperforming loans as a % of loans

2.91%

2.70%

4.10%

2.94%

3.17%

Nonperforming assets as a % of loans and other real estate owned

 

10.25%

10.24%

10.55%

9.22%

9.29%







Total loans

273,820

263,749

262,788

267,765

270,401







(a) Annualized

(b) Properties sold during 3rd Q 2012

$ 804




(c) Properties under contract to sell

$ 3,757




Cornerstone Bancshares, Inc. and Subsidiary

Net Interest Margin Analysis

Taxable Equivalent Basis

Three months ended

September 30

(Amounts in thousands)










Assets

2012




2011


Average

Income/

Yield/

Average

Income/

Yield/

Earning assets:

Balance

Expense

Rate

Balance

Expense

Rate

Loans, net of unearned income

$ 270,109

$ 4,241

6.23%

$ 269,715

$ 4,531

6.67%

Investment securities

91,889

478

2.36%

108,963

574

2.40%

Other earning assets

27,460

16

0.23%

18,193

9

0.20%

  Total earning assets

389,458

$ 4,735

4.89%

396,872

$ 5,114

5.20%

Allowance for loan losses

(5,892)




(6,792)



Cash and other assets

34,878




33,120



TOTAL ASSETS

$ 418,443




$ 423,200















Liabilities and Shareholders' Equity






















Interest-bearing liabilities:










Interest-bearing demand deposits

$ 26,357

$ 21

0.32%

$ 24,197

$ 20

0.33%

Savings deposits

10,702

10

0.36%

9,772

13

0.51%

MMDA's

56,761

114

0.79%

30,975

79

1.01%

Time deposits

189,882

612

1.28%

218,622

900

1.63%

Federal funds purchased and securities sold under agreements to repurchase

19,471

22

0.45%

23,250

33

0.57%

Federal Home Loan Bank and other borrowings

37,336

394

4.19%

43,078

465

4.29%

Total interest-bearing liabilities

340,509

1,173

1.37%

349,894

1,510

1.71%

Net interest spread

$ 3,562

3.53%


$ 3,604

3.49%

Noninterest-bearing demand deposits

40,722




41,800



Accrued expenses and other liabilities

(288)




(64)



Shareholders' equity

37,501




31,569



TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY

$ 418,443




$ 423,200



Net yield on earning assets



3.70%




3.69%












Taxable equivalent adjustment:










  Loans

0




0

  Investment securities

69




85

    Total adjustment

69




85

Cornerstone Bancshares, Inc. and Subsidiary

Net Interest Margin Analysis

Taxable Equivalent Basis

Nine months ended

September 30

(Amounts in thousands)










Assets

2012




2011


Average

Income/

Yield/

Average

Income/

Yield/

Earning assets:

Balance

Expense

Rate

Balance

Expense

Rate

Loans, net of unearned income

$ 266,187

$ 12,571

6.31%

$ 275,267

$ 13,692

6.65%

Investment securities

91,827

1,563

2.58%

112,850

1,763

2.38%

Other earning assets

25,535

44

0.23%

22,496

38

0.22%

Total earning assets

383,549

$ 14,179

5.02%

410,613

$ 15,493

5.12%

Allowance for loan losses

(6,345)




(7,707)



Cash and other assets

35,968




32,538



TOTAL ASSETS

$ 413,172




$ 435,444















Liabilities and Shareholders' Equity






















Interest-bearing liabilities:










Interest-bearing demand deposits

$ 26,526

$ 65

0.33%

$ 26,717

$ 65

0.33%

Savings deposits

10,317

29

0.37%

9,737

37

0.51%

MMDA's

47,625

305

0.86%

27,137

202

1.00%

Time deposits

191,378

1,946

1.36%

233,079

2,964

1.70%

Federal funds purchased and securities sold under agreements to repurchase

22,309

77

0.46%

23,391

98

0.56%

Federal Home Loan Bank and other borrowings

39,990

1,281

4.28%

49,329

1,590

4.31%

Total interest-bearing liabilities

338,145

3,703

1.46%

369,390

4,957

1.79%

Net interest spread

$ 10,475

3.55%


$ 10,536

3.33%

Noninterest-bearing demand deposits

38,684




37,463



Accrued expenses and other liabilities

(163)




(81)



Shareholders' equity

36,507




28,672



TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY

$ 413,172




$ 435,444



Net yield on earning assets



3.73%




3.51%












Taxable equivalent adjustment:










  Loans

0




0

  Investment securities

212




246

     Total adjustment

212




246

Cornerstone Bancshares, Inc. and Subsidiary

Loan Stratification







2012

2011

(Amounts in thousands)

Third

% of

Third

% of

% Dollar

Quarter

Total

Quarter

Total

Change

Non-residential real estate




  Owner occupied

$ 61,229

22.4

$ 63,405

23.4

(3.4)

  Non-owner occupied

65,501

23.9

62,009

22.9

5.6

  Multi-family real estate

8,626

3.2

10,692

4.0

(19.3)

  1-4 family construction

6,305

2.3

6,346

2.3

(0.6)

  Commercial land and lot development

21,767

7.9

19,483

7.2

11.7

Total non-residential real estate

163,428

59.7

161,935

59.9

0.9

Residential real estate




  First mortgage - 1-4 family

43,454

15.9

41,334

15.3

5.1

  Second mortgage - 1-4 family

3,138

1.1

4,225

1.6

(25.7)

  Home equity lines

15,832

5.8

12,215

4.5

29.6

Total residential real estate

62,424

22.8

57,774

21.4

8.0

Total real estate loans

225,853

82.5

219,709

81.3

2.8






Commercial

38,196

13.9

38,955

14.4

(1.9)

Agricultural & other

7,533

2.8

8,938

3.3

(15.7)

Consumer

2,239

0.8

2,798

1.0

(20.0)

Total loans, net of unearned fees

$ 273,820

100.0

$ 270,401

100.0

1.3

Cornerstone Bancshares, Inc. and Subsidiary

Consolidated Balance Sheets















Unaudited







September 30,

December 31,

ASSETS

2012

2011




Cash and due from banks

$ 1,532,621

$ 1,660,204

Interest-bearing deposits at other financial institutions

33,298,912

37,222,487

     Total cash and cash equivalents

34,831,533

38,882,691




Securities available for sale

82,191,300

86,057,437

Securities held to maturity (fair value




approximates $52,820 and $70,484 at


September 30, 2012 and December 31, 2011, respectively)

51,385

68,643

Federal Home Loan Bank stock, at cost

2,322,900

2,322,900

Loans, net of allowance for loan losses of




$5,279,676 at September 30, 2012


and $7,400,049 at December 31, 2011

268,540,559

260,364,569

Bank premises and equipment, net

5,465,004

5,712,003

Accrued interest receivable

1,351,479

1,327,458

Foreclosed assets

22,376,139

18,523,960

Other assets

8,049,182

9,395,721

Total Assets

$ 425,179,481

$ 422,655,382




LIABILITIES AND STOCKHOLDERS' EQUITY






Deposits:


Noninterest-bearing demand deposits

$ 43,212,796

$ 43,989,943

Interest-bearing demand deposits

24,596,321

22,353,384

Savings deposits and money market accounts

72,958,526

46,857,118

Time deposits

188,195,355

200,841,499

                 Total deposits

328,962,998

314,041,944

Federal funds purchased and securities sold under




agreements to repurchase

19,380,035

29,390,810

Federal Home Loan Bank advances and other borrowings

37,175,000

43,045,000

Accrued interest payable

136,081

110,703

Other liabilities

1,397,583

858,620

Total Liabilities

387,051,697

387,447,077




Stockholders' Equity:


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


authorized; 494,229 shares issued and outstanding in 2012

12,175,652

9,899,544

and 403,989 shares issued and outstanding in 2011


Common stock - $l.00 par value; 20,000,000 shares authorized;


6,709,199 issued in 2012 and 2011;


6,500,396 outstanding in 2012 and 2011

6,500,396

6,500,396

Additional paid-in capital

21,371,974

21,316,438

Retained deficit

(3,347,825)

(3,627,208)

Accumulated other comprehensive income

1,427,587

1,119,135

Total Stockholders' Equity

38,127,784

35,208,305

Total Liabilities and Stockholders' Equity

$ 425,179,481

$ 422,655,382


















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

Nine months ended






September 30,

September 30,






2012

2011

2012

2011

INTEREST INCOME






Loans, including fees

$ 4,241,492

$ 4,531,390

$ 12,571,193

$ 13,691,565

Investment securities

478,172

573,699

1,563,433

1,763,479

Federal funds sold & other earning assets

15,647

9,269

44,075

37,597

Total interest income

4,735,311

5,114,358

14,178,701

15,492,641








INTEREST EXPENSE






Time deposits

612,286

899,554

1,946,341

2,963,779

Other deposits

144,157

111,985

398,859

304,533

Federal funds purchased and securities






sold under agreements to repurchase

21,889

33,135

77,193

97,850

Federal Home Loan Bank advances and other borrowings

394,066

465,534

1,281,010

1,590,605

Total interest expense

1,172,398

1,510,208

3,703,403

4,956,767








Net interest income before provision for loan losses

3,562,913

3,604,150

10,475,298

10,535,874

Provision for loan losses

100,000

115,000

100,000

145,000

Net interest income after provision for loan losses

3,462,913

3,489,150

10,375,298

10,390,874








NONINTEREST INCOME






Customer service fees

197,509

216,163

602,107

656,877

Net gains from sale of securities

-

59,671

-

107,413

Net gains from sale of loans and other assets

48,199

32,322

124,109

87,866

Other noninterest income

12,944

15,256

51,844

57,066

Total noninterest income

258,652

323,412

778,060

909,222








NONINTEREST EXPENSE






Salaries and employee benefits

1,566,359

1,458,951

4,727,049

4,503,489

Net occupancy and equipment expense

354,555

361,513

1,038,296

1,118,127

Depository insurance

236,927

233,587

682,830

797,747

Foreclosed assets, net

314,088

306,860

945,163

1,384,935

Other operating expenses

731,090

715,858

2,307,172

2,346,493

Total noninterest expenses

3,203,019

3,076,769

9,700,510

10,150,791








Income before provision for income taxes

518,546

735,793

1,452,848

1,149,305

Provision for income taxes

154,300

212,125

421,500

232,075













Net income

364,246

523,668

1,031,348

917,230













Preferred stock dividend requirements

308,893

187,538

854,780

398,626

Accretion on preferred stock discount

16,370

13,419

46,079

22,419













Net income available to common shareholders

$ 38,983

$ 322,711

$ 130,489

$ 496,185













EARNINGS PER COMMON SHARE






Basic

$ 0.01

$ 0.05

$ 0.02

$ 0.07

Diluted

$ 0.01

$ 0.05

$ 0.02

$ 0.07













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 nine months ended September 30, 2012










Accumulated







Additional


Other

Total


Preferred

Common

Paid-in

Retained

Comprehensive

Stockholders'


Stock

Stock

Capital

Deficit

Income

Equity













BALANCE, December 31, 2011

$ 9,899,544

$ 6,500,396

$ 21,316,438

$ (3,627,208)

$ 1,119,135

$ 35,208,305













Employee compensation stock option expense

-

-

55,536

-

-

55,536













Issuance of Series A Convertible Preferred Stock

2,230,029

-

-

-

-

2,230,029













Preferred stock dividends paid

-

-

-

(705,886)

-

(705,886)













Accretion on preferred stock

46,079

-

-

(46,079)

-

-













Net income

-

-

-

1,031,348

-

1,031,348













Other comprehensive income, net of tax

-

-

-

-

308,452

308,452













BALANCE, September 30, 2012

$ 12,175,652

$ 6,500,396

$ 21,371,974

$ (3,347,825)

$ 1,427,587

$ 38,127,784


























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

SOURCE Cornerstone Bancshares, Inc.

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