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

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

PR Newswire

CHATTANOOGA, Tenn., Jan. 28, 2014

CHATTANOOGA, Tenn., Jan.28, 2014 /PRNewswire/ --Cornerstone Bancshares, Inc.
("Cornerstone"; OTC Bulletin Board: CSBQ; CSBQP), holding company of
Cornerstone Community Bank ("Bank"), today announced net income of $403,000
for the fourth quarter of 2013 and $1.68 million for the year, which
represents an increase of 20 percent over 2012. This marks the twelfth
consecutive quarter of positive earnings for Cornerstone.

Other financial highlights year-over-year include:

  o20% increase in net income
  o4.5% increase in loans
  o36% decrease in foreclosed assets
  o40% decrease in nonaccruals
  o10% increase in core transactional deposits

"We are extremely pleased with this solid performance for the year," said
Cornerstone's President and CEO Frank Hughes. "The Bank continued to make
steady progress in earnings and was able to use some of its revenue to
accelerate the disposition of OREO (other real estate owned)."

Based on its positive quarterly earnings, Cornerstone was able to continue
paying its Preferred Stock dividend all four quarters of 2013.

"At this new juncture of a new year, we anticipate continued improvement in
asset quality and another strong year of OREO reduction," said Hughes. "Our
focus will remain on taking care of our customers and delivering the greatest
return on investment for all of our shareholders."

Founded in 1996, Cornerstone is a single-bank holding company, with $432
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
Fourth Quarter Financial
Highlights
December 31, 2013 and 2012
(Unaudited)
(Amounts in thousands, except per    2013            2012             % Change
common share data)
Balance Sheet Data at December 31
Total assets                         $  432,223     $  443,446     (2.5)
Interest-earning assets              406,708         411,629          (1.2)
Loans                                289,440         276,992          4.5
Foreclosed assets                    12,926          20,332           (36.4)
Deposits                             341,414         344,881          (1.0)
Other interest-bearing liabilities   49,714          56,762           (12.4)
Shareholders' equity                 40,134          40,889           (1.8)
Loan to deposit ratio                84.78%          80.32%           5.5
Tier 1 leverage ratio (Bank, est)    8.56%           8.37%            2.3
Total risk-based capital ratio       13.10%          12.91%           1.5
(Bank, est)
Outstanding common shares           6,547           6,500            0.7
Book value per common share          $     3.86  $     4.01  (3.9)
Tangible book value per common       $     3.86  $     4.01  (3.9)
share
Market value per common share as of  $     2.37  $     2.29  3.5
December 31
Loan Quality Data
Nonaccruing loans                    3,566           6,005            (40.6)
Loans past due 90 days – accruing    -               -                -
Net charge-offs YTD                  3,238           1,689            91.7
Allowance for loan losses            3,203           6,141            (47.8)
Allowance for loan losses to total   1.11%           2.22%
loans
Nonperforming assets to total        3.82%           5.94%
assets
Performance Data for the Year
Net income                          $    1,681   $    1,402   19.9
Return on average assets             0.39%           0.34%
Return on average equity             4.12%           3.78%
Net interest margin                  3.80%           3.85%
Per common share data:
Net income – basic                   $     0.02  $     0.02
Net income – diluted                 $     0.02  $     0.02
Common dividends                     $         $       
                                     -              -
Preferred dividends & accretion      $     0.24  $     0.20
per common
Average shares (000s):
Basic common stock                   6,547           6,500
Diluted common stock                 6,662           6,523
Preferred stock (actual)             600             600





Cornerstone Bancshares, Inc. and Subsidiary
Quarterly Earnings Summary
                            (Unaudited)
                            2013                               2012    Q4-13 /
                            Fourth   Third   Second  First    Fourth  Q4-12
(Amounts in thousands)      Quarter   Quarter Quarter Quarter  Quarter % Chg
Interest income
Loans, including fees       $       $     $     $       $      (11.2)
                            4,190     4,294   4,079   4,142   4,718
Securities and
interest-bearing deposits   315       457     482     440      440     (28.5)
at other financial
institutions
Federal funds sold and      8         10      15      21       16      (50.5)
other earning assets
Total interest income   4,513     4,761   4,576   4,603    5,174   (12.8)
Interest expense
Deposits                    487       563     587     603      673     (27.6)
Short-term borrowings       18        21      17      18       17      3.1
FHLB advances and other     267       285     316     341      391     (31.9)
borrowing
Total interest expense  772       869     920     962      1,081   (28.6)
Net interest income         3,741     3,892   3,656   3,641    4,093   (8.6)
Provision for losses        -         -       -       300      330     (100.0)
Net interest income after
the
provision for loan        3,741     3,892   3,656   3,341    3,763   (0.6)
losses
Noninterest income
Customer service fees       213       218     202     188      201     5.9
Other noninterest income    13        13      19      18       13      2.4
Gain on sale of assets      391       39      477     149      27      1,348.1
Total noninterest       617       270     698     355      241     156.0
income
Noninterest expense
Salaries and employee       1,716     1,619   1,623   1,597    1,600   7.3
benefits
Net occupancy and           324       334     340     337      408     (20.7)
equipment
Depository insurance        162       162     161     160      121     33.9
Foreclosed asset expense    693       382     798     129      156     344.2
(1)
Other operating expense     810       967     780     752      1,192   (32.0)
Total noninterest       3,705     3,464   3,702   2,975    3,477   6.6
expense
Income before income taxes  653       698     652     721      527     24.0
Income tax expense          250       268     256     269      156     60.0
Net income                  $     $    $    $     $     8.6
                            403       430    396    452      371
Preferred stock dividends &
accretion on preferred      392       393     393     393      393     (0.2)
stock discount
Net income available to     11        36      3       59       (22)    (152.0)
common
Net income per common
share:
Basic                     $      $    $    $      $     -
                            0.00     0.01    0.00    0.01    0.00
Diluted                   $      $    $    $      $     -
                            0.00     0.01    0.00    0.01    0.00
Average basic shares       6,547     6,547   6,547   6,547    6,500   0.7
Average common diluted      6,662     6,693   6,671   6,671    6,503   2.4
shares
Performance Ratios
Return on average equity    3.98%     4.25%   4.22%   4.40%    3.81%   4.4
Return on average assets    0.38%     0.40%   0.38%   0.42%    0.35%   7.1
Net interest margin         3.76%     3.89%   3.70%   3.79%    4.21%   (10.7)
Average equity              40,487    40,382  37,501  41,135   38,926  4.0
Average assets              426,660   431,068 418,443 426,827  420,608 1.4
Average interest-earning    398,174   400,539 389,458 395,921  391,197 1.8
assets
(1) Includes OREO adjustments to fair
value





Cornerstone Bancshares, Inc. and Subsidiary
Loan Loss Allowance and Asset Quality Review
                       2013                                         2012
                       Fourth    Third      Second     First      Fourth
(Amounts in thousands) Quarter    Quarter    Quarter    Quarter     Quarter
Allowance for loan
losses
Balance at beginning   $  3,159  $  5,095 $  5,669 $  6,141  $  5,280
of period
Provision for loan     -          -          -          300         330
losses
Net charge-offs        44         (1,936)    (574)      (772)       531
Balance at end of      $  3,203  $  3,159 $  5,095 $  5,669  $  6,141
period
As a % of loans        1.11%      1.11%      1.85%      2.08%       2.22%
As a % of              89.81%     77.13%     74.02%     89.07%      102.26%
nonperforming loans
As a % of              19.42%     16.61%     19.79%     20.60%      23.32%
nonperforming assets
Net charge-offs as a % -0.06%     2.73%      0.83%      1.13%       -0.77%
of loans (a)
Risk element assets
Accruing troubled debt $  4,251  $  3,121 $  3,465 $  5,442  $  5,316
restructured
Loans past due 30-89   $  2,250  $  1,659 $  5,111 $  4,032  $  6,594
days
Nonaccruing loans      $  3,566  $  4,095 $  6,883 $  6,364  $  6,005
Loans past due 90 days -          -          -          -           -
– accruing
Total nonperforming    $  3,566  $  4,095 $  6,883 $  6,364  $  6,005
loans
Foreclosed assets (b)  $ 12,926  $ 14,924  $ 18,867  $ 21,159   $ 20,332
(c)
Total nonperforming    $ 16,492  $ 19,019  $ 25,750  $ 27,523   $ 26,337
assets
Nonperforming loans as 1.23%      1.44%      2.49%      2.33%       2.17%
a % of loans
Nonperforming assets
as a % of loans
and foreclosed      5.45%      6.36%      8.73%      9.37%       8.86%
assets
Total loans            289,440    284,181    276,062    272,550     276,992
(a) Annualized
(b) Properties sold    $  1,427
during 4th Q 2013
(c) Properties under   $  1,017
contract to sell

Cornerstone Bancshares, Inc. and Subsidiary
Net Interest Margin
Analysis
Taxable Equivalent Basis
                            Three months ended
                            December 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      $       $       5.81%   $        $       6.76%
income                      286,003  4,190            276,694  4,718
Investment securities       99,065   315      1.41%   82,917   440      2.41%
Other earning assets        13,106   8        0.23%   31,586   16       0.21%
 Total earning assets      398,174  $       4.53%   391,197  $       5.31%
                                     4,513                     5,174
Allowance for loan losses   (3,045)                   (5,530)
Cash and other assets       31,531                    34,941
TOTAL ASSETS                $                        $
                            426,660                   420,608
Liabilities and
Shareholders' Equity
Interest-bearing
liabilities:
Interest-bearing demand     $      $     0.14%   $       $     0.32%
deposits                    25,363    9             26,355   21
Savings deposits            14,149   5        0.15%   11,059   9        0.34%
MMDA's                      74,607   73       0.39%   66,838   117      0.69%
Time deposits              160,824  400      0.99%   176,882  525      1.18%
Federal funds purchased and
securities
 sold under agreements to  21,184   18       0.33%   18,343   17       0.37%
repurchase
Federal Home Loan Bank and  33,095   267      3.20%   37,175   392      4.18%
other borrowings
 Total interest-bearing    329,222  772      0.93%   336,652  1,081    1.27%
liabilities
Net interest spread                  $       3.60%            $       4.04%
                                     3,741                     4,093
Noninterest-bearing demand  55,398                    43,662
deposits
Accrued expenses and other  1,553                     1,368
liabilities
Shareholders' equity        40,487                    38,926
TOTAL LIABILITIES AND
 SHAREHOLDERS' EQUITY      $                        $
                            426,661                   420,608
Net yield on earning assets                   3.76%                     4.21%
Taxable equivalent
adjustment:
 Loans                              0                         0
 Investment securities              37                        63
 Total adjustment           37                        63





Cornerstone Bancshares, Inc. and Subsidiary
Net Interest Margin Analysis
Taxable Equivalent Basis
                          Twelve months ended
                          December 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    $        $ 16,705  5.99%   $         $       6.43%
income                    278,975                    268,828  17,289
Investment securities     98,108   1,694     1.94%   89,587    2,004    2.53%
Other earning assets      20,749   54        0.26%   27,010    60       0.22%
 Total earning assets    397,832  $ 18,453  4.69%   385,425   $       5.09%
                                                               19,353
Allowance for loan losses (4,547)                    (6,140)
Cash and other assets     35,409                     35,756
TOTAL ASSETS              $                          $
                          428,694                    415,041
Liabilities and
Shareholders' Equity
Interest-bearing
liabilities:
Interest-bearing demand   $       $      0.21%   $        $     0.33%
deposits                  26,196   55               26,483    87
Savings deposits          12,718   27        0.22%   10,504    38       0.36%
MMDA's                    76,194   392       0.51%   52,454    422      0.80%
Time deposits            165,748  1,766     1.07%   187,733   2,471    1.32%
Federal funds purchased
and securities
 sold under agreements   22,041   74        0.34%   21,312    94       0.44%
to repurchase
Federal Home Loan Bank    31,634   1,209     3.82%   39,282    1,673    4.26%
and other borrowings
 Total interest-bearing  334,531  3,523     1.05%   337,768   4,785    1.42%
liabilities
Net interest spread                $ 14,930  3.64%             $       3.67%
                                                               14,568
Noninterest-bearing       51,614                     39,936
demand deposits
Accrued expenses and      1,785                      222
other liabilities
Shareholders' equity      40,764                     37,115
TOTAL LIABILITIES AND
 SHAREHOLDERS' EQUITY    $                          $
                          428,694                    415,041
Net yield on earning                         3.80%                      3.85%
assets
Taxable equivalent
adjustment:
 Loans                            0                           0
 Investment securities            205                         260
 Total                    205                         260
adjustment





Cornerstone Bancshares, Inc. and Subsidiary
Loan Stratification
                               2013                2012
(Amounts in thousands)         Fourth        % of  Fourth       % of  % Dollar
                               Quarter       Total Quarter      Total Change
Non-residential real estate
Owner occupied             $   65,765 22.7  $   58,425 21.1  12.6
Non-owner occupied         64,053        22.1  66,468       24.0  (3.6)
 Multi-family real estate   8,249         2.9   8,508        3.1   (3.0)
1-4 family construction    10,832        3.7   6,937        2.5   56.2
Commercial land and lot    25,254        8.7   25,551       9.2   (1.2)
development
Total non-residential real     174,153       60.1  165,889      59.9  5.0
estate
Residential real estate
First mortgage - 1-4       47,931        16.6  44,145       15.9  8.6
family
 Second mortgage - 1-4      1,960         0.7   3,348        1.2   (41.5)
family
Home equity lines          18,175        6.3   15,194       5.5   19.6
Total residential real estate  68,066        23.6  62,687       22.6  8.6
Total real estate loans        242,219       83.7  228,576      82.5  6.0
Commercial                     37,221        12.9  38,101       13.8  (2.3)
Agricultural & other           7,493         2.6   8,378        3.0   (10.6)
Consumer                       2,507         0.9   1,937        0.7   29.4
Total loans, net of unearned   $  289,440   100.0 $  276,992  100.0 4.5
fees





CORNERSTONE BANCSHARES, INC. AND
SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
December 31, 2013 and 2012
                                                Unaudited
                                                2013            2012
                                ASSETS
Cash and due from banks                         $             $  
                                                2,149,467       3,222,139
Interest-bearing deposits at other financial    22,702,270      56,173,099
institutions
                        Total cash and cash     24,851,737      59,395,238
                        equivalents
Securities available for sale                   92,208,672      76,096,646
Securities held to maturity (fair value
approximates
 $34,909 at 2013 and $46,212 at 2012)       34,165          45,086
Federal Home Loan Bank stock, at cost           2,322,900       2,322,900
Loans, net of allowance for loan losses of
 $3,203,158 in 2013 and $6,141,281 in 2012  286,236,578     270,850,465
Bank premises and equipment, net                4,992,449       5,399,340
Accrued interest receivable                     977,925         1,213,778
Foreclosed assets                               12,925,748      20,332,313
Other assets                                    7,673,179       7,790,634
                        Total assets            $ 432,223,353   $ 443,446,400
                        LIABILITIES AND
                        STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing demand deposits             $  75,206,540  $  60,053,838
Interest-bearing demand deposits                24,563,987      30,178,624
Savings deposits and money market accounts      86,329,930      80,994,239
Time deposits                                   155,313,920     173,653,892
                        Total deposits          341,414,377     344,880,593
Accrued interest payable                        82,320          120,558
Federal funds purchased and securities sold
under
 agreements to repurchase                   22,974,117      19,587,387
Federal Home Loan Bank advances and other       26,740,000      37,175,000
borrowings
Other liabilities                               878,811         794,026
                        Total liabilities       392,089,625     402,557,564
Stockholders' equity:
Preferred stock - no par value; 2,000,000
shares authorized;
 600,000 shares issued and outstanding in   14,892,927      14,821,546
2013 and 2012
Common stock - $1.00 par value; 20,000,000
shares
 authorized in 2013 and 2012;
 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                      21,549,883      21,390,486
Accumulated deficit                             (3,099,451)     (3,274,986)
Accumulated other comprehensive income          243,295         1,451,394
                        Total stockholders'     40,133,728      40,888,836
                        equity
                        Total liabilities and   $ 432,223,353   $ 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
Years Ended December 31, 2013, 2012, and 2011
                                    Unaudited
                                    2013           2012          2011
INTEREST INCOME
Loans, including fees               $16,705,237    $ 17,288,855  $18,128,907
Securities and interest-bearing
deposits at other financial         1,694,292      2,003,620     2,311,690
institutions
Federal funds sold                  53,502         60,404        53,139
          Total interest income     18,453,031     19,352,879    20,493,736
INTEREST EXPENSE
Time deposits                       1,766,237      2,471,135     3,767,582
Other deposits                      473,921        546,812       424,387
Federal funds purchased and
securities
 sold under agreements to       73,903         94,402        125,538
repurchase
Federal Home Loan Bank advances and 1,208,490      1,672,478     2,044,361
other borrowings
          Total interest expense    3,522,551      4,784,827     6,361,868
          Net interest income
          before provision for loan 14,930,480     14,568,052    14,131,868
          losses
Provision for loan                  300,000        430,000       445,000
losses
          Net interest income after 14,630,480     14,138,052    13,686,868
          provision for loan losses
NONINTEREST INCOME
Customer service fees               821,072        803,251       868,935
Other noninterest                   62,457         64,519        71,542
income
Net gains from sale of securities   652,421        -             107,413
Net gains from sale of loans and    403,569        151,710       134,997
other assets
          Total noninterest income  1,939,519      1,019,480     1,182,887
NONINTEREST EXPENSES
Salaries and employee benefits      6,555,059      6,327,226     6,117,063
Net occupancy and equipment         1,335,126      1,447,204     1,431,863
expense
Depository insurance                644,918        803,902       1,052,591
Foreclosed assets, net              2,001,755      1,100,670     1,922,988
Other operating expenses            3,309,532      3,498,867     3,126,998
          Total noninterest         13,846,390     13,177,869    13,651,503
          expenses
          Income before income tax  2,723,609      1,979,663     1,218,252
          expense
Income tax expense                  1,042,800      577,600       188,200
          Net income                1,680,809      1,402,063     1,030,052
Preferred stock dividend            1,500,000      1,229,780     651,119
requirements
Accretion on preferred stock        71,381         63,924        36,718
discount
          Net income available to   $   109,428  $           $   342,215
          common stockholders                      108,359
EARNINGS PER COMMON SHARE
Basic                               $          $         $    
                                    0.02          0.02         0.05
Diluted                             0.02           0.02          0.05
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 year ended December 31, 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     -           -          129,056     -            -              129,056
expense
 Issuance of   -           46,678     30,341      -            -              77,019
common stock
 Preferred     -           -          -           (1,433,893)  -              (1,433,893)
stock dividends
 Accretion on  71,381      -          -           (71,381)     -              -
preferred stock
 Net income    -           -          -           1,680,809    -              1,680,809
 Unrealized
holding losses
on securities
available for
sale, net of
reclassification -           -          -           -            (1,208,099)    (1,208,099)
adjustment and
taxes
BALANCE,         $           $          $           $
December 31,     14,892,927  6,547,074  21,549,883  (3,099,451)  $  243,295   $ 40,133,728
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