Cornerstone Posts Profit for Third Quarter of 2012

              Cornerstone Posts Profit for Third Quarter of 2012

PR Newswire

CHATTANOOGA, Tenn., Oct. 24, 2012

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  2012       2011       % Change
data)
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   $ 1.95     $ 1.03     89.3
30
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      394     426     462      454      465     (15.3)
borrowing
 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        1,566   1,570   1,591    1,614    1,459   7.3
benefits
Net occupancy and equipment  355     348     336      314      362     (1.8)
Depository insurance         237     207     203      255      234     1.5
Foreclosed asset expense     314     481     150      538      306     2.5
(1)
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)         154     118     149      (44)     212     (27.3)
expense
Net income                   $ 364   $ 311   $ 356    $ 113    $ 524   (30.6)
Preferred stock dividends &
accretion on preferred       325     296     280      267      201     61.8
stock discount
Net income / (loss)          38      15      76       (154)    323     (88.1)
available to common
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       6,503   6,581   6,586    6,500    6,500   0.0
shares
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     389,458 380,631 378,335  390,756  396,872 (1.9)
assets
(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  1.24%    -0.01%   2.10%     -0.35%   0.10%
(a)
Risk element assets
Accruing troubled debt           $ 5,328  $ 2,775  $ 2,418   $ 2,750  $ 2,535
restructured
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    2.91%    2.70%    4.10%     2.94%    3.17%
loans
Nonperforming assets as a % of   
loans and other real estate               10.24%   10.55%    9.22%    9.29%
owned                            10.25%
Total loans                      273,820  263,749  262,788   267,765  270,401
(a) Annualized
(b) Properties sold during 3rd Q $ 804
2012
(c) Properties under contract to $ 3,757
sell



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   $ 270,109  $ 4,241  6.23%   $         $ 4,531  6.67%
income                                               269,715
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       (5,892)                     (6,792)
losses
Cash and other assets    34,878                      33,120
TOTAL ASSETS             $ 418,443                   $
                                                     423,200
Liabilities and
Shareholders' Equity
Interest-bearing
liabilities:
Interest-bearing demand  $ 26,357   $ 21     0.32%   $ 24,197  $ 20     0.33%
deposits
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      19,471     22       0.45%   23,250    33       0.57%
under agreements to
repurchase
Federal Home Loan Bank   37,336     394      4.19%   43,078    465      4.29%
and other borrowings
Total interest-bearing   340,509    1,173    1.37%   349,894   1,510    1.71%
liabilities
Net interest spread                 $ 3,562  3.53%             $ 3,604  3.49%
Noninterest-bearing      40,722                      41,800
demand deposits
Accrued expenses and     (288)                       (64)
other liabilities
Shareholders' equity     37,501                      31,569
TOTAL LIABILITIES AND    $ 418,443                   $
SHAREHOLDERS' EQUITY                                 423,200
Net yield on earning                         3.70%                      3.69%
assets
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  $         $ 12,571  6.31%   $         $ 13,692  6.65%
income                  266,187                     275,267
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      (6,345)                     (7,707)
losses
Cash and other assets   35,968                      32,538
TOTAL ASSETS            $                           $
                        413,172                     435,444
Liabilities and
Shareholders' Equity
Interest-bearing
liabilities:
Interest-bearing demand $ 26,526  $ 65      0.33%   $ 26,717  $ 65      0.33%
deposits
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     22,309    77        0.46%   23,391    98        0.56%
under agreements to
repurchase
Federal Home Loan Bank  39,990    1,281     4.28%   49,329    1,590     4.31%
and other borrowings
Total interest-bearing  338,145   3,703     1.46%   369,390   4,957     1.79%
liabilities
Net interest spread               $ 10,475  3.55%             $ 10,536  3.33%
Noninterest-bearing     38,684                      37,463
demand deposits
Accrued expenses and    (163)                       (81)
other liabilities
Shareholders' equity    36,507                      28,672
TOTAL LIABILITIES AND   $                           $
SHAREHOLDERS' EQUITY    413,172                     435,444
Net yield on earning                        3.73%                       3.51%
assets
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      33,298,912     37,222,487
institutions
 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,         51,385         68,643
respectively)
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         37,175,000     43,045,000
borrowings
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 12,175,652     9,899,544
in 2012
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 &      15,647       9,269        44,075        37,597
other earning assets
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  21,889       33,135       77,193        97,850
repurchase
Federal Home Loan Bank
advances and other        394,066      465,534      1,281,010     1,590,605
borrowings
Total interest expense    1,172,398    1,510,208    3,703,403     4,956,767
Net interest income
before provision for loan 3,562,913    3,604,150    10,475,298    10,535,874
losses
Provision for loan losses 100,000      115,000      100,000       145,000
Net interest income after 3,462,913    3,489,150    10,375,298    10,390,874
provision for loan losses
NONINTEREST INCOME
Customer service fees     197,509      216,163      602,107       656,877
Net gains from sale of    -            59,671       -             107,413
securities
Net gains from sale of    48,199       32,322       124,109       87,866
loans and other assets
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     1,566,359    1,458,951    4,727,049     4,503,489
benefits
Net occupancy and         354,555      361,513      1,038,296     1,118,127
equipment expense
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         3,203,019    3,076,769    9,700,510     10,150,791
expenses
Income before provision   518,546      735,793      1,452,848     1,149,305
for income taxes
Provision for income      154,300      212,125      421,500       232,075
taxes
Net income                364,246      523,668      1,031,348     917,230
Preferred stock dividend  308,893      187,538      854,780       398,626
requirements
Accretion on preferred    16,370       13,419       46,079        22,419
stock discount
Net income available to   $ 38,983     $ 322,711    $ 130,489     $ 496,185
common shareholders
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,   9,899,544   6,500,396  21,316,438  (3,627,208)  $ 1,119,135    $ 35,208,305
2011
Employee
compensation   -           -          55,536      -            -              55,536
stock option
expense
Issuance of
Series A
Convertible    2,230,029   -          -           -            -              2,230,029
Preferred
Stock
Preferred
stock          -           -          -           (705,886)    -              (705,886)
dividends
paid
Accretion on
preferred      46,079      -          -           (46,079)     -              -
stock
Net income     -           -          -           1,031,348    -              1,031,348
Other
comprehensive  -           -          -           -            308,452        308,452
income, net
of tax
BALANCE,       $           $          $           $
September 30,  12,175,652  6,500,396  21,371,974  (3,347,825)  $ 1,427,587    $ 38,127,784
2012
The Notes to Consolidated Financial Statements are an integral part of these statements.





SOURCE Cornerstone Bancshares, Inc.

Website: http://www.cscbank.com
Contact: Frank Hughes, Cornerstone President & CEO, +1-423-385-3009
 
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