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Cornerstone Bancshares, Inc. Reports Positive Earnings for First Quarter of 2013

 Cornerstone Bancshares, Inc. Reports Positive Earnings for First Quarter of
                                     2013

PR Newswire

CHATTANOOGA, Tenn., April 25, 2013

CHATTANOOGA, Tenn., April 25, 2013 /PRNewswire/ -- Cornerstone Bancshares,
Inc. (OTC Bulletin Board: CSBQ; CSBQP), parent company of Cornerstone
Community Bank, today reported net income of $452,000 for the first quarter of
2013, an increase of 26.8 percent over the same quarter of 2012.

"I am extremely pleased with the steady, gradual progress we continue to make
in strengthening the Bank and our earnings footprint," said Cornerstone's
President and CEO Frank Hughes. "The fact that we had marked improvement in
earnings, in what is the shortest and typically weakest quarter of the year,
is further testament that Cornerstone is on the right track and heading in the
right direction."

First Quarter 2013 Highlights Year-Over-Year:

  oNet income increased 26.8%
  oTransactional deposit accounts grew 35.7%
  oLoans grew 3.7%
  oNon-accruing loans decreased 41.1%
  oTotal assets increased 3.4%
  oNet interest margin increased from 3.59% to 3.79%
  oShareholders' equity increased 13.9%
  oWell-capitalized status improved

"Cornerstone is at an exciting new juncture and now has a solid capital
foundation on which to build for the future," said Cornerstone's Chairman
Miller Welborn. "Our goal is to continue focusing on our core competency of
serving the Chattanooga market as a premier community bank and returning the
greatest value possible for each of our customers and shareholders."

Cornerstone is a single-bank holding company, with approximately $430 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 discussed in
Cornerstone's Form 10-K and other filings with the Securities and Exchange
Commission.



Cornerstone Bancshares, Inc. and Subsidiary
First Quarter Financial Highlights
March 31, 2013 and 2012
(Unaudited)
(Amounts in thousands, except per   2013             2012             % Change
common share data)
Balance Sheet Data at March 31
Total assets                        $  431,710      $  417,475     3.4
Interest-earning assets             396,867          377,326          5.2
Loans                               272,550          262,788          3.7
Foreclosed assets                   21,159           18,957           11.6
Deposits                            336,903          315,816          6.7
Other interest-bearing liabilities  52,890           64,055           (17.4)
Shareholders' equity                40,887           35,890           13.9
Loan to deposit ratio               80.90%           83.21%           (2.8)
Tier 1 leverage ratio (Bank, est)   8.64%            8.14%            6.1
Total risk-based capital ratio      13.29%           12.99%           2.3
(Bank, est)
Outstanding common shares          6,547            6,500            0.7
Book value per common share         $     3.98   $     3.91  1.6
Tangible book value per common      $     3.98   $     3.91  1.6
share
Market value per common share as    $     2.20   $     2.50  (12.0)
of March 31
Loan Quality Data
Nonaccruing loans                   6,342            10,766           (41.1)
Loans past due 90 days – accruing   -                -                -
Net charge-offs YTD                 772              1,376            (43.9)
Allowance for loan losses           5,669            6,024            (5.9)
Allowance for loan losses to total  2.08%            2.29%
loans
Nonperforming assets to total       6.37%            7.12%
assets
Performance Data for the Year
Net income                         $     452   $      357  26.8
Return on average assets            0.42%            0.35%
Return on average equity            4.40%            4.01%
Net interest margin                 3.79%            3.59%
Per common share data:
Net income – basic                  $     0.01   $     0.01
Net income – diluted                $     0.01   $     0.01
Common dividends                    $         $       
                                    -                -
Preferred dividends & accretion     $     393   $      280
Average shares (000s):
Basic common stock                  6,547            6,500
Diluted common stock                6,671            6,500
Preferred stock (actual)            600              425



Cornerstone Bancshares, Inc. and Subsidiary
Quarterly Earnings
Summary
                          (Unaudited)
                          2013       2012                              Q1-13 /
                          First      Fourth    Third   Second  First   Q1-12
(Amounts in thousands)    Quarter    Quarter   Quarter Quarter Quarter % Chg
Interest income
Loans, including fees     $        $       $     $     $      (0.0)
                          4,142      4,718     4,242   4,186  4,144
Securities and
interest-bearing          440        440       478     618     467     (5.8)
deposits at other
financial institutions
Federal funds sold and    21         16        15      13      15      41.8
other earning assets
Total interest        4,603      5,174     4,735   4,817   4,626   (0.5)
income
Interest expense
Deposits                  603        673       756     768     820     (26.5)
Short-term borrowings     18         17        22      23      32      (44.2)
FHLB advances and other   341        391       394     426     462     (26.2)
borrowing
Total interest        962        1,081     1,172   1,217   1,314   (26.8)
expense
Net interest income       3,641      4,093     3,563   3,600   3,312   9.9
Provision for loan        300        330       100     -       -       N/A
losses
Net interest income
after the
provision for loan      3,341      3,763     3,463   3,600   3,312   0.9
losses
Noninterest income
Customer service fees     188        201       198     207     197     (4.8)
Other noninterest income  18         13        12      19      20      (11.3)
Gain on sale of assets    149        27        48      26      50      200.0
Total noninterest     355        241       258     252     267     32.8
income
Noninterest expense
Salaries and employee     1,597      1,600     1,566   1,570   1,591   0.4
benefits
Net occupancy and         337        408       355     348     336     0.4
equipment
Depository insurance      160        121       237     207     203     (21.2)
Foreclosed asset expense  129        156       314     481     150     (14.2)
(1)
Other operating expense   752        1,192     731     817     794     (5.3)
Total noninterest     2,975      3,477     3,203   3,423   3,074   (3.2)
expense
Income before income      721        527       518     429     505     42.8
taxes
Income tax expense        269        156       154     118     149     80.5
Net income                $      $      $    $    $     27.0
                          452        371      364     311   356
Preferred stock
dividends & accretion on  393        393       325     296     280     40.2
preferred stock discount
Net income / (loss)       59         (22)      39      15      76      (22.6)
available to common
Net income / (loss) per
common share:
Basic                   $       $     $    $    $     (23.1)
                          0.01       -       0.01      -   0.01
Diluted                 $       $     $    $    $     (24.5)
                          0.01       -       0.01      -   0.01
Average basic shares     6,547      6,500     6,500   6,500   6,500   0.7
Average common diluted    6,671      6,503     6,503   6,581   6,586   1.3
shares
Performance Ratios
Return on average equity  4.40%      3.81%     3.88%   3.42%   4.01%   9.6
Return on average assets  0.42%      0.35%     0.35%   0.30%   0.35%   21.4
Net interest margin       3.79%      4.21%     3.70%   3.87%   3.59%   5.6
Average equity            41,135     38,926    37,501  36,423  35,587  15.6
Average assets            426,827    420,608   418,443 412,305 408,711 4.4
Average interest-earning  395,921    391,197   389,458 380,631 378,335 4.6
assets
(1) Includes OREO adjustments to
fair value





Cornerstone Bancshares, Inc. and Subsidiary
Loan Loss Allowance and Asset Quality
Review
                         2013         2012
                         First       Fourth Third     Second      First
(Amounts in thousands)   Quarter      Quarter Quarter   Quarter     Quarter
Allowance for loan
losses
Balance at beginning of  $          $    $  6,029 $   6,024 $  7,400
period                   6,141       5,280
Provision for loan       300          330     100       -           -
losses
Net charge-offs          (772)        531     (849)     5           (1,376)
Balance at end of period $          $    $  5,280 $   6,029 $  6,024
                         5,669       6,141
As a % of loans          2.08%        2.22%   1.93%     2.29%       2.29%
As a % of nonperforming  89.38%       102.24% 66.26%    84.63%      55.95%
loans
As a % of nonperforming  20.61%       23.32%  17.40%    20.60%      20.27%
assets
Net charge-offs as a %   1.13%        -0.77%  1.24%     -0.01%      2.10%
of loans (a)
Risk element assets
Accruing troubled debt   $          $    $  5,328 $   2,775 $  2,418
restructured             5,442       5,316
Loans past due 30-89     $          $    $  3,685 $   2,495 $  5,040
days                     4,732       6,534
Nonaccruing loans        $          $    $  7,968 $   7,124 $ 10,767
                         6,342       6,006
Loans past due 90 days – -            -       -         -           -
accruing
Total nonperforming      $          $    $  7,968 $   7,124 $ 10,767
loans                    6,342       6,006
Repossessed assets       5            32      39        83          -
Other real estate owned  $  21,159   $     $ 22,337  $  22,061  $ 18,957
(b)(c)                                20,300
Total nonperforming      $  27,506   $     $ 30,344  $  29,268  $ 29,724
assets                                26,338
Nonperforming loans as a 2.33%        2.17%   2.91%     2.70%       4.10%
% of loans
Nonperforming assets as
a % of loans
and other real estate 9.37%        8.86%   10.25%    10.24%      10.55%
owned
Total loans              272,550      276,992 273,820   263,749     262,788
(a) Annualized
(b) Properties sold      $    
during 1st Q 2013        235
(c) Properties under     $   
contract to sell        2,101



Cornerstone Bancshares, Inc. and
Subsidiary
Net Interest Margin
Analysis
Taxable Equivalent Basis
                          Three months ended
                          March 31
(Amounts in thousands)
Assets                               2013                      2012
                          Average    Income/  Yield/  Average  Income/  Yield/
Earning assets:           Balance    Expense  Rate    Balance  Expense  Rate
Loans, net of unearned    $       $     6.09%   $      $     6.27%
income                    275,696    4,142            265,814  4,144
Investment securities     86,741     440      2.35%   88,641   467      2.43%
Other earning assets      33,484     21       0.26%   23,880   15       0.25%
 Total earning assets    395,921    $     4.78%   378,335  $     4.99%
                                     4,603                     4,626
Allowance for loan losses (5,933)                     (7,121)
Cash and other assets     36,838                      37,497
TOTAL ASSETS              $                        $  
                          426,827                     408,711
Liabilities and
Shareholders' Equity
Interest-bearing
liabilities:
Interest-bearing demand   $      $     0.29%   $     $     0.34%
deposits                  28,438       20          24,891     21
Savings deposits          11,620     7        0.26%   9,859    10       0.40%
MMDA's                    74,215     110      0.60%   39,373   90       0.92%
Time deposits            168,789    465      1.12%   195,111  699      1.44%
Federal funds purchased
and securities
 sold under agreements   21,090     18       0.35%   26,291   32       0.49%
to repurchase
Federal Home Loan Bank    32,713     340      4.22%   42,634   461      4.35%
and other borrowings
 Total interest-bearing  336,865    962      1.16%   338,159  1,314    1.56%
liabilities
Net interest spread                  $     3.62%            $     3.43%
                                     3,641                     3,312
Noninterest-bearing       46,812                      34,479
demand deposits
Accrued expenses and      2,016                       486
other liabilities
Shareholders' equity      41,135                      35,587
TOTAL LIABILITIES AND
 SHAREHOLDERS' EQUITY    $                        $  
                          426,827                     408,711
Net yield on earning                          3.79%                     3.59%
assets
Taxable equivalent
adjustment:
 Loans                              0                         0
 Investment securities              62                        68
 Total                      62                        68
adjustment



Cornerstone Bancshares, Inc. and Subsidiary
Loan Stratification
                               2013                2012
(Amounts in thousands)         First         % of  First        % of  % Dollar
                               Quarter       Total Quarter      Total Change
Non-residential real estate
Owner occupied             $   62,460 22.9  $   61,830 23.5  1.0
Non-owner occupied         64,483        23.7  61,295       23.3  5.2
 Multi-family real estate   8,255         3.0   10,249       3.9   (19.5)
1-4 family construction    8,168         3.0   4,520        1.7   80.7
Commercial land and lot    18,965        7.0   16,421       6.2   15.5
development
Total non-residential real     162,331       59.6  154,315      58.7  5.2
estate
Residential real estate
First mortgage - 1-4       43,429        15.9  43,372       16.5  0.1
family
 Second mortgage - 1-4      2,185         0.8   3,528        1.3   (38.1)
family
Home equity lines          16,391        6.0   15,288       5.8   7.2
Total residential real estate  62,005        22.7  62,188       23.7  (0.3)
Total real estate loans        224,336       82.3  216,503      82.4  3.6
Commercial                     38,301        14.1  34,970       13.3  9.5
Agricultural & other           7,936         2.9   8,854        3.4   (10.4)
Consumer                       1,977         0.7   2,461        0.9   (19.7)
Total loans, net of unearned   $  272,550   100.0 $  262,788  100.0 3.7
fees



Cornerstone Bancshares, Inc. and Subsidiary
Consolidated Balance Sheets
                                                Unaudited
                                                March 31,      December31,
                          ASSETS                2013           2012
Cash and due from banks                         $        $       
                                                5,074,926     3,222,139
Interest-bearing deposits at other financial    30,826,261     56,173,099
institutions
                        Total cash and cash     35,901,187     59,395,238
                        equivalents
Securities available for                        91,125,829     76,096,646
sale
Securities held to maturity (fair value
approximates
                $43,630 and $46,212 at March
                31, 2013 and December 31, 2012, 42,579         45,086
                respectively)
Federal Home Loan Bank stock, at cost           2,322,900      2,322,900
Loans, net of allowance for loan losses of
                $5,669,215 and $6,141,281 at
                March 31, 2013 and December     266,880,672    270,850,465
                31, 2012
Bank premises and equipment, net                5,289,384      5,399,340
Accrued interest                                1,323,499      1,213,778
receivable
Foreclosed assets                               21,159,242     20,332,313
Other assets                                    7,664,340      7,790,634
                           Total assets     $          $     
                                                431,709,632   443,446,400
                          LIABILITIES AND
                          STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing demand deposits             $         $      
                                                55,400,253    60,053,838
Interest-bearing demand deposits                26,547,365     30,178,624
Savings deposits and money market accounts      89,564,444     80,994,239
Time deposits                                   165,391,211    173,653,892
                          Total deposits        336,903,273    344,880,593
Accrued interest payable                        91,268         120,558
Federal funds purchased and securities sold
under
                agreements to repurchase        21,150,464     19,587,387
Federal Home Loan Bank advances and other       31,740,000     37,175,000
borrowings
Other liabilities                               938,088        794,026
                          Total liabilities     390,823,093    402,557,564
Stockholders' equity:
Preferred stock - no par value; 2,000,000
shares authorized;
                600,000 shares issued and
                outstanding
                in 2013 and 2012, respectively  14,839,391     14,821,546
Common stock - $1.00 par value; 20,000,000
shares authorized and
                6,709,199 shares issued in
                2013 and 2012;
                6,547,074 and 6,500,396 shares
                outstanding in 2013 and 2012,   6,547,074      6,500,396
                respectively
Additional paid-in                              21,420,827     21,390,486
capital
Retained deficit                                (3,149,596)    (3,274,986)
Accumulated other comprehensive income          1,228,843      1,451,394
                          Total stockholders'   40,886,539     40,888,836
                          equity
                          Total liabilities     $          $     
                          and stockholders'     431,709,632   443,446,400
                          equity
The Notes to Consolidated Financial Statements are an
integral part of these statements.



Cornerstone Bancshares, Inc. and Subsidiary
Consolidated Statements of Income
                                                  Unaudited
                                                  Three Months Ended
                                                  March 31,
                                                  2013           2012
INTEREST INCOME
Loans, including                                  $4,141,736     $4,143,944
fees
Securities and interest-bearing deposits at       439,906        467,006
other financial institutions
Federal funds sold                                21,472         15,087
                     Total interest income        4,603,114      4,626,037
INTEREST EXPENSE
Time deposits                                     465,256        699,094
Other deposits                                    137,930        121,243
Federal funds purchased and
securities
                    sold under agreements to      18,080         32,230
                    repurchase
Federal Home Loan Bank advances and other         340,439        461,207
borrowings
                     Total interest expense       961,705        1,313,774
                     Net interest income before   3,641,409      3,312,263
                     provision for loan losses
Provision for loan                                300,000        -
losses
                     Net interest income after    3,341,409      3,312,263
                     provision for loan losses
NONINTEREST INCOME
Customer service                                  188,481        197,434
fees
Other noninterest                                 17,818         20,288
income
Net gains from sale of loans and other assets     149,200        49,664
                     Total noninterest income     355,499        267,386
NONINTEREST EXPENSES
Salaries and employee benefits                    1,597,291      1,591,135
Net occupancy and equipment expense               337,879        335,813
Depository insurance                              159,844        202,783
Foreclosed assets,                                128,692        150,320
net
Other operating                                   752,174        794,081
expenses
                     Total noninterest expenses   2,975,880      3,074,132
                     Income before income tax     721,028        505,517
                     expense
                Income tax                        268,900        149,000
                expense
                     Net income                   452,128        356,517
                                  Preferred stock
                                  dividend        375,000        265,856
                                  requirements
                                  Accretion on
                                  preferred stock 17,845         14,468
                                  discount
                     Net income available to      $  59,283    $  76,193
                     common stockholders
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 three
months ended
March 31, 2013
                                                                     Accumulated
                                          Additional                 Other          Total
                  Preferred   Common      Paid-in      Retained      Comprehensive  Stockholders'
                  Stock       Stock       Capital      Earnings      Income         Equity
                                                       (Deficit)
BALANCE,          $        $          $            $          $         $   
December 31,      14,821,546  6,500,396  21,390,486  (3,274,986)  1,451,394      40,888,836
2012
Issuance of       -           46,678      30,341       -             -              77,019
common stock
Preferred stock   -           -           -            (308,893)     -              (308,893)
dividends
Accretion on      17,845      -           -            (17,845)      -              -
preferred stock
Net income        -           -           -            452,128       -              452,128
Unrealized
holding gains
(losses) on
securities
available for
sale,
 net of
reclassification  -           -           -            -             (222,551)      (222,551)
adjustment and
taxes
BALANCE, March
31, 2013
                  $        $          $            $          $         $   
                  14,839,391  6,547,074  21,420,827  (3,149,596)  1,228,843      40,886,539
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, President & Chief Executive Officer, 423-385-3009