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

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

PR Newswire

CHATTANOOGA, Tenn., Oct. 21, 2013

CHATTANOOGA, Tenn., Oct. 21, 2013 /PRNewswire/ --Cornerstone Bancshares, Inc.
("Cornerstone"; OTC Bulletin Board: CSBQ; CSBQP), holding company of
Cornerstone Community Bank ("Bank"), today announced net income of $429,000
for the third quarter of 2013. This marks the eleventh consecutive quarter of
positive earnings for Cornerstone and an increase of 17.9 percent from net
income of $364,000 for the same quarter of 2012. Net income for the year
increased 23.9 percent from $1,031,000 in 2012 to $1,277,000 in 2013 at
quarter-end.

Quarterly financial highlights year-over-year include:

  o17.9% increase in net income
  o9.2% increase in net interest income
  o3.8% increase in total loans
  o33.3% decrease in Other Real Estate Owned (OREO)
  o37.3% decrease in total nonperforming assets

"We continue to make steady, gradual progress in nearly all sectors of the
Bank," said Cornerstone's President and Chief Executive Officer Frank Hughes.
"We are especially pleased with the significant reduction of OREO and related
expenses," he said. "The key to the Bank's success is the disposition of our
nonperforming assets."

Based on positive earnings in preceding quarters, Cornerstone continued paying
its quarterly Preferred Stock dividend. The most recent payment, made on
August 22, 2013, marks the tenth consecutive quarterly dividend payment since
the new security was issued in the third quarter of 2010. As of December 31,
2012, Cornerstone had sold all 600,000 shares of the convertible, preferred
stock, successfully raising $15 million in new capital and refortifying its
capital foundation for the future.

"Cornerstone is in a solid position to grow and thrive right along with the
Chattanooga community," said Cornerstone's Chairman Miller Welborn. "We will
continue to keep a laser-sharp focus on smart business fundamentals and taking
care of our customers, employees and shareholders."

Founded in 1996, Cornerstone is a single-bank holding company, with $430
million in assets, serving the Chattanooga, Tennessee MSA, with five
full-service branch locations throughout Chattanooga. Locally owned and
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, 2013 and 2012
(Unaudited)
(Amounts in thousands, except per   2013             2012             % Change
common share data)
Balance Sheet Data at September 30
Total assets                        $  429,681      $  425,179     1.1
Interest-earning assets             400,929          391,685          2.4
Loans                               284,181          273,820          3.8
Foreclosed assets                   14,924           22,376           (33.3)
Deposits                            340,756          328,963          3.6
Other interest-bearing liabilities  47,249           56,555           (16.5)
Shareholders' equity                40,150           38,128           5.3
Loan to deposit ratio               83.40%           83.24%           0.2
Tier 1 leverage ratio (Bank, est)   8.45%            8.30%            1.8
Total risk-based capital ratio      12.91%           12.84%           0.5
(Bank, est)
Outstanding common shares          6,547            6,500            0.7
Book value per common share         $     3.86   $     3.99  (3.3)
Tangible book value per common      $     3.86   $     3.99  (3.3)
share
Market value per common share as of $     2.45   $     1.95  25.6
September 30
Loan Quality Data
Nonaccruing loans                   4,095            7,971            (48.6)
Loans past due 90 days – accruing   -                -                -
Net charge-offs YTD                 3,282            2,220            47.8
Allowance for loan losses           3,159            5,280            (40.2)
Allowance for loan losses to total  1.11%            1.93%
loans
Nonperforming assets to total       4.43%            7.14%
assets
Performance Data for the Year
Net income                         $    1,277    $    1,031   23.8
Return on average assets            0.40%            0.33%
Return on average equity            4.17%            3.77%
Net interest margin                 3.81%            3.73%
Per common share data:
Net income – basic                  $     0.01   $     0.02
Net income – diluted                $     0.01   $     0.02
Common dividends                    $         $       
                                    -                -
Preferred dividends & accretion per $     0.18   $     0.14
common
Average shares (000s):
Basic common stock                  6,547            6,500
Diluted common stock                6,675            6,559
Preferred stock (actual)            600              494



Cornerstone Bancshares, Inc. and Subsidiary
Quarterly Earnings
Summary
                      (Unaudited)
                      2013                        2012                Q3-13 /
                      Third    Second   First     Fourth    Third     Q3-12
(Amounts in           Quarter  Quarter  Quarter   Quarter   Quarter   % Chg
thousands)
Interest income
Loans, including fees $ 4,294  $ 4,079  $ 4,142   $ 4,718  $  4,242 1.2
Securities and
interest-bearing
deposits at other     457      482      440       440       478       (4.4)
financial
institutions
Federal funds sold
and other earning     10       15       21        16        15        (36.7)
assets
Total interest    4,760    4,576    4,603     5,174     4,735     0.5
income
Interest expense
Deposits              563      587      603       673       756       (25.6)
Short-term borrowings 21       17       18        17        22        (2.1)
FHLB advances and     285      316      341       391       394       (27.7)
other borrowing
Total interest    869      920      962       1,081     1,172     (25.8)
expense
Net interest income   3,891    3,656    3,641     4,093     3,563     9.2
Provision for losses  -        -        300       330       100       (100.0)
Net interest income
after the
provision for loan  3,891    3,656    3,341     3,763     3,463     12.4
losses
Noninterest income
Customer service fees 218      202      188       201       198       10.3
Other noninterest     13       19       18        13        12        4.2
income
Gain on sale of       39       477      149       27        48        (18.7)
assets
Total noninterest 270      698      355       241       258       4.6
income
Noninterest expense
Salaries and employee 1,619    1,623    1,597     1,600     1,566     3.4
benefits
Net occupancy and     334      340      337       408       355       (6.0)
equipment
Depository insurance  162      161      160       121       237       (31.7)
Foreclosed asset      382      798      129       156       314       21.6
expense (1)
Other operating       967      780      752       1,192     731       32.3
expense
Total noninterest 3,464    3,702    2,975     3,477     3,203     8.1
expense
Income before income  698      652      721       527       518       34.7
taxes
Income tax expense    268      256      269       156       154       73.8
Net income            $  429 $  396 $  452  $   371 $       18.1
                                                            364
Preferred stock
dividends & accretion 393      393      393       393       325       20.8
on preferred stock
discount
Net income available  36       3        59        (22)      39        (6.6)
to common
Net income per common
share:
Basic               $  0.01 $  0.00 $  0.01  $      $       -
                                                  -        0.01
Diluted             $  0.01 $  0.00 $  0.01  $      $       -
                                                  -        0.01
Average basic shares 6,547    6,547    6,547     6,500     6,500     0.7
Average common        6,693    6,671    6,671     6,503     6,503     2.9
diluted shares
Performance Ratios
Return on average     4.25%    4.22%    4.40%     3.81%     3.88%     9.7
equity
Return on average     0.40%    0.38%    0.42%     0.35%     0.35%     14.6
assets
Net interest margin   3.89%    3.70%    3.79%     4.21%     3.70%     5.2
Average equity        40,382   37,501   41,135    38,926    37,501    7.7
Average assets        431,068  418,443  426,827   420,608   418,443   3.0
Average
interest-earning      400,539  389,458  395,921   391,197   389,458   2.8
assets
(1) Includes OREO adjustments to fair
value



Cornerstone Bancshares, Inc. and Subsidiary
Loan Loss Allowance and Asset Quality Review
                         2013                              2012
                         Third       Second    First      Fourth   Third
(Amounts in thousands)   Quarter     Quarter   Quarter     Quarter   Quarter
Allowance for loan
losses
Balance at beginning of  $  5,095   $  5,669 $  6,141  $  5,280 $  6,029
period
Provision for loan       -           -         300         330       100
losses
Net charge-offs          (1,936)     (574)     (772)       531       (849)
Balance at end of period $  3,159   $  5,095 $  5,669  $  6,141 $  5,280
As a % of loans          1.11%       1.85%     2.08%       2.22%     1.93%
As a % of nonperforming  77.13%      74.02%    89.07%      102.24%   66.26%
loans
As a % of nonperforming  16.61%      19.79%    20.60%      23.32%    17.40%
assets
Net charge-offs as a %   2.73%       0.83%     1.13%       -0.77%    1.24%
of loans (a)
Risk element assets
Accruing troubled debt   $  3,121   $  3,465 $  5,442  $  5,316 $  5,328
restructured
Loans past due 30-89     $  1,659   $  5,111 $  4,032  $  6,594 $  3,819
days
Nonaccruing loans        $  4,095   $  5,864 $  6,364  $  6,005 $  7,971
Loans past due 90 days – -           -         -           -         -
accruing
Total nonperforming      $  4,095   $  6,883 $  6,364  $  6,005 $  7,971
loans
Foreclosed assets (b)(c) $ 14,924    $ 18,867  $ 21,159   $ 20,300  $ 22,376
Total nonperforming      19019.225   25750     27523.24    26337     30347
assets
Nonperforming loans as a 1.44%       2.49%     2.33%       2.17%     2.91%
% of loans
Nonperforming assets as
a % of loans
and other real estate 6.36%       8.73%     9.37%       8.86%     10.25%
owned
Total loans              284,181     276,062   272,550     276,992   273,820
(a) Annualized
(b) Properties sold      $   3,753
during 3rd Q 2013
(c) Properties under     $   1,196
contract to sell





Cornerstone Bancshares, Inc. and Subsidiary
Net Interest Margin Analysis
Taxable Equivalent Basis
                          Three months ended
                          September 30
(Amounts in thousands)
Assets                               2013                      2012
                          Average    Income/  Yield/  Average  Income/  Yield/
Earning assets:           Balance    Expense  Rate    Balance  Expense  Rate
Loans, net of unearned    $       $     6.05%   $      $     6.23%
income                    281,341    4,294            270,109  4,241
Investment securities     104,261    457      1.89%   91,889   478      2.36%
Other earning assets      14,937     9        0.24%   27,460   16       0.23%
 Total earning assets    400,539    $     4.75%   389,458  $     4.89%
                                     4,760                     4,735
Allowance for loan losses (3,933)                     (5,892)
Cash and other assets     34,462                      34,878
TOTAL ASSETS              $                        $  
                          431,068                     418,443
Liabilities and
Shareholders' Equity
Interest-bearing
liabilities:
Interest-bearing demand   $      $     0.16%   $     $     0.32%
deposits                  25,388       10          26,357     21
Savings deposits          12,858     7        0.22%   10,702   10       0.36%
MMDA's                    78,715     100      0.50%   56,761   114      0.79%
Time deposits            166,401    445      1.06%   189,882  612      1.28%
Federal funds purchased
and securities
 sold under agreements   25,102     22       0.34%   19,471   22       0.45%
to repurchase
Federal Home Loan Bank    29,012     285      3.90%   37,336   394      4.19%
and other borrowings
 Total interest-bearing  337,476    869      1.02%   340,509  1,173    1.37%
liabilities
Net interest spread                  $     3.73%            $     3.53%
                                     3,891                     3,562
Noninterest-bearing       51,727                      40,722
demand deposits
Accrued expenses and      1,483                       (288)
other liabilities
Shareholders' equity      40,382                      37,501
TOTAL LIABILITIES AND
 SHAREHOLDERS' EQUITY    $                        $  
                          431,068                     418,443
Net yield on earning                          3.89%                     3.70%
assets
Taxable equivalent
adjustment:
 Loans                              0                         0
 Investment securities              39                        69
 Total                      39                        69
adjustment





Cornerstone Bancshares, Inc. and Subsidiary
Net Interest Margin Analysis
Taxable Equivalent Basis
                           Nine months ended
                           September 30
(Amounts in thousands)
Assets                              2013                       2012
                           Average  Income/   Yield/  Average  Income/  Yield/
Earning assets:            Balance  Expense   Rate    Balance  Expense  Rate
Loans, net of unearned     $       $       6.05%   $      $     6.31%
income                     276,606  12,515           266,187  12,571
Investment securities      97,786   1,379     2.10%   91,827   1,563    2.58%
Other earning assets       23,232   45        0.26%   25,535   44       0.23%
 Total earning assets     397,624  $       4.74%   383,549  $     5.02%
                                    13,939                    14,179
Allowance for loan losses  (5,053)                    (6,345)
Cash and other assets      36,808                     35,968
TOTAL ASSETS               $                         $  
                           429,379                    413,172
Liabilities and
Shareholders' Equity
Interest-bearing
liabilities:
Interest-bearing demand    $      $              $     $   
deposits                   26,477      46  0.23%   26,526         0.33%
                                                               65
Savings deposits           12,235   22        0.24%   10,317   29       0.37%
MMDA's                     76,729   319       0.56%   47,625   305      0.86%
Time deposits             167,406  1,366     1.09%   191,378  1,946    1.36%
Federal funds purchased
and securities
 sold under agreements to 22,330   56        0.34%   22,309   77       0.46%
repurchase
Federal Home Loan Bank and 31,142   941       4.04%   39,990   1,281    4.28%
other borrowings
 Total interest-bearing   336,319  2,750     1.09%   338,145  3,703    1.46%
liabilities
Net interest spread                 $       3.65%            $     3.55%
                                    11,189                    10,475
Noninterest-bearing demand 50,338                     38,684
deposits
Accrued expenses and other 1,865                      (163)
liabilities
Shareholders' equity       40,857                     36,507
TOTAL LIABILITIES AND
 SHAREHOLDERS' EQUITY     $                         $  
                           429,379                    413,172
Net yield on earning                          3.81%                     3.73%
assets
Taxable equivalent
adjustment:
 Loans                             0                          0
 Investment securities             156                        212
 Total adjustment          156                        212





Cornerstone Bancshares, Inc. and Subsidiary
Loan Stratification
                               2013                2012
(Amounts in thousands)         Third        % of  Third        % of  % Dollar
                               Quarter       Total Quarter      Total Change
Non-residential real estate
Owner occupied             $   66,143 23.3  $   61,229 22.4  8.0
Non-owner occupied         66,454        23.4  65,501       23.9  1.5
 Multi-family real estate   8,295         2.9   8,626        3.2   (3.8)
1-4 family construction    9,865         3.5   6,305        2.3   56.5
Commercial land and lot    23,162        8.1   21,767       7.9   6.4
development
Total non-residential real     173,919       61.2  163,428      59.7  6.4
estate
Residential real estate
First mortgage - 1-4       43,776        15.4  43,454       15.9  0.7
family
 Second mortgage - 1-4      2,028         0.7   3,138        1.1   (35.4)
family
Home equity lines          15,847        5.6   15,832       5.8   0.1
Total residential real estate  61,651        21.7  62,424       22.8  (1.2)
Total real estate loans        235,570       82.9  225,852      82.5  4.3
Commercial                     38,095        13.4  38,196       13.9  (0.3)
Agricultural & other           8,381         2.9   7,533        2.8   11.3
Consumer                       2,135         0.8   2,239        0.8   (4.6)
Total loans, net of unearned   $  284,181   100.0 $  273,820  100.0 3.8
fees



Cornerstone Bancshares, Inc. and Subsidiary
Consolidated Balance Sheets
                                              Unaudited
                                              September 30,    December31,
                      ASSETS                  2013             2012
Cash and due from banks                       $   2,148,352  $   3,222,139
Interest-bearing deposits at other financial  19,106,638       56,173,099
institutions
                 Total cash and cash          21,254,990       59,395,238
                 equivalents
Securities available for sale                 95,282,416       76,096,646
Securities held to maturity (fair value
approximates
       $37,589 and $46,212 at September 30,
       2013 and December 31, 2012,            36,620           45,086
       respectively)
Federal Home Loan Bank stock, at cost         2,322,900        2,322,900
Loans, net of allowance for loan losses of
       $3,158,766 and $6,141,281 at September
       30, 2013 and December 31, 2012,        281,021,767      270,850,465
       respectively
Bank premises and equipment, net              5,094,668        5,399,340
Accrued interest receivable                   1,221,841        1,213,778
Foreclosed assets                             14,923,933       20,332,313
Other assets                                  8,522,148        7,790,634
                       Total assets       $ 429,681,283    $ 443,446,400
                      LIABILITIES AND
                      STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing demand deposits           $  54,452,293   $  60,053,838
Interest-bearing demand deposits              25,463,874       30,178,624
Savings deposits and money market accounts    90,665,979       80,994,239
Time deposits                                 170,174,142      173,653,892
                      Total deposits          340,756,288      344,880,593
Accrued interest payable                      100,129          120,558
Federal funds purchased and securities sold
under
       agreements to repurchase               20,508,655       19,587,387
Federal Home Loan Bank advances and other     26,740,000       37,175,000
borrowings
Other liabilities                             1,426,357        794,026
                      Total liabilities       389,531,429      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         14,875,081       14,821,546
Common stock - $1.00 par value; 20,000,000
shares authorized;
       6,709,199 shares issued in 2013 and
       2012;
       6,547,074 and 6,500,396 shares         6,547,074        6,500,396
       outstanding in 2013 and 2012
Additional paid-in capital                    21,517,620       21,390,486
Accumulated deficit                           (3,110,707)      (3,274,986)
Accumulated other comprehensive income        320,786          1,451,394
                      Total stockholders'     40,149,854       40,888,836
                      equity
                      Total liabilities and   $ 429,681,283    $ 443,446,400
                      stockholders' equity
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,
                      2013         2012         2013           2012
INTEREST INCOME
Loans, including fees $ 4,293,583  $ 4,241,492  $ 12,514,688  $ 
                                                               12,571,193
Investment securities 457,299      478,172      1,379,322      1,563,433
Federal funds sold &  9,510        15,647       45,515         44,075
other earning assets
Total interest income 4,760,392    4,735,311    13,939,525     14,178,701
INTEREST EXPENSE
Time deposits         445,397      612,286      1,365,993      1,946,341
Other deposits        117,327      144,157      386,791        398,859
Federal funds
purchased and
securities
 sold under
agreements to         21,435       21,889       56,258         77,193
repurchase
Federal Home Loan
Bank advances and     284,882      394,066      941,269        1,281,010
other borrowings
Total interest        869,041      1,172,398    2,750,311      3,703,403
expense
Net interest income
before provision for  3,891,351    3,562,913    11,189,214     10,475,298
loan losses
Provision for losses  -            100,000      300,000        100,000
Net interest income
after provision for   3,891,351    3,462,913    10,889,214     10,375,298
loan losses
NONINTEREST INCOME
Customer service fees 218,304      197,509      608,087        602,107
Net gains from sale   -            -            424,971        -
of securities
Net gains from sale
of loans and other    39,164       48,199       240,746        124,109
assets
Other noninterest     12,500       12,944       48,968         51,844
income
Total noninterest     269,968      258,652      1,322,772      778,060
income
NONINTEREST EXPENSE
Salaries and employee 1,619,030    1,566,359    4,838,822      4,727,049
benefits
Net occupancy and     333,850      354,555      1,011,335      1,038,296
equipment expense
Depository insurance  161,956      236,927      482,920        682,830
Foreclosed assets,    381,847      314,088      1,308,995      945,163
net
Other operating       967,888      731,090      2,500,107      2,307,172
expenses
Total noninterest     3,464,571    3,203,019    10,142,179     9,700,510
expenses
Income before
provision for income  696,748      518,546      2,069,807      1,452,848
taxes
Provision for income  268,200      154,300      793,100        421,500
taxes
Net income            428,548      364,246      1,276,707      1,031,348
Preferred stock       375,000      308,893      1,125,000      854,780
dividend requirements
Accretion on
preferred stock       17,845       16,370       53,535         46,079
discount
Net income available  $          $          $          $    
to common             35,703      38,983      98,172         130,489
shareholders
EARNINGS PER COMMON
SHARE
Basic                 $        $        $        $      
                      0.01        0.01        0.01            0.02
Diluted               $        $        $        $      
                      0.01        0.01        0.01            0.02
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, 2013
                                                                  Accumulated
                                        Additional                Other          Total
                 Preferred   Common     Paid-in     Accumulated   Comprehensive  Stockholders'
                 Stock       Stock      Capital     Deficit       Income         Equity
BALANCE,         $           $          $           $             $           $ 
December 31,     14,821,546  6,500,396  21,390,486  (3,274,986)  1,451,394     40,888,836
2012
 Stock                                                                         $    
compensation     -           -          96,793      -             -              96,793
expense
 Issuance of   -           46,678     30,341      -             -              $    
common stock                                                                     77,019
 Preferred     -           -          -           (1,058,893)   -              $ 
stock dividends                                                                 (1,058,893)
 Accretion on  53,535      -          -           (53,535)      -              -
preferred stock
 Net income    -           -          -           1,276,707     -              $  
                                                                                 1,276,707
 Unrealized
holding gains
(losses) on
securities
available for
sale, net of                                                                     $ 
reclassification -           -          -           -             (1,130,608)    (1,130,608)
adjustment and
taxes
BALANCE,         $           $          $           $             $         $ 
September 30,    14,875,081  6,547,074  21,517,620  (3,110,707)  320,786        40,149,854
2013
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, 423-385-3009
 
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