Market Overview

Cornerstone Posts Profit for Third Quarter of 2012

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

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

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

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

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

Founded in 1996, Cornerstone is a single-bank holding company, with $425 million in assets, serving the Chattanooga, Tennessee MSA, with five full-service branch locations throughout Chattanooga and one loan production office in Dalton, Georgia. Locally owned and locally operated, Cornerstone specializes in providing a comprehensive range of customized financial solutions for businesses and individuals.

Certain of the statements made in this release may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such forward-looking statements, including statements regarding the intent, belief or current expectations of Cornerstone and its management regarding the company's strategic directions, prospects and future results, involve certain risks and uncertainties. Certain factors may cause actual results to differ materially from those contained in the forward-looking statements, including economic and other conditions in the markets in which Cornerstone operates, governmental regulations, the company's competitive environment, cyclical and seasonal fluctuations in its operating results, and other risks.

 

 

Cornerstone Bancshares, Inc. and Subsidiary

Third Quarter Financial Highlights

September 30, 2012 and 2011

(Unaudited)








(Amounts in thousands, except per common share data)


2012


2011


% Change

Balance Sheet Data at September 30







Total assets


$ 425,179


$ 426,365


(0.3)

Interest-earning assets


391,685


398,316


(1.7)

Loans


273,820


270,401


1.3

Foreclosed assets


22,376


18,255


22.6

Deposits


328,963


322,552


2.0

Other interest-bearing liabilities


56,555


69,099


(18.2)

Shareholders' equity


38,128


32,447


17.5

Loan to deposit ratio


83.24%


83.83%


(0.7)

Tier 1 leverage ratio (Bank, est)


8.30%


6.65%


24.8

Total risk-based capital ratio (Bank, est)


13.43%


11.12%


20.8

Outstanding common shares


6,500


6,500


-

Book value per common share


$ 3.99


$ 3.87


3.2

Tangible book value per common share


$ 3.99


$ 3.86


3.3

Market value per common share as of September 30


$ 1.95


$ 1.03


89.3








Loan Quality Data







Nonaccruing loans


7,968


8,560


(6.9)

Loans past due 90 days - accruing


-


-


-

Net charge-offs YTD


2,220


2,413


(8.0)

Allowance for loan losses


5,280


6,864


(23.1)

Allowance for loan losses to total loans


1.93%


2.54%



Nonperforming assets to total assets


7.14%


6.29%










Performance Data for the Year







Net income


$ 1,031


$ 917


12.5

Return on average assets


0.33%


0.28%



Return on average equity


3.77%


4.27%



Net interest margin


3.73%


3.51%



Per common share data:







Net income - basic


$ 0.02


$ 0.07



Net income - diluted


$ 0.02


$ 0.07



Common dividends


$ -


$ -



Preferred dividends & accretion


$ 1.88


$ 1.88



Average shares (000s):







Basic common stock


6,500


6,500



Diluted common stock


6,559


6,500



Preferred stock (actual)


494


300



 

Cornerstone Bancshares, Inc. and Subsidiary

Quarterly Earnings Summary












(Unaudited)





2012


2011

Q3-12 /



Third

Second

First


Fourth

Third

Q3-11

(Amounts in thousands)


Quarter

Quarter

Quarter


Quarter

Quarter

% Chg

Interest income









Loans, including fees


$ 4,242

$ 4,186

$ 4,144


$ 4,437

$ 4,531

(6.4)

Investment securities


478

618

467


548

574

(16.6)

Other earning assets


15

13

15


16

9

61.8

  Total interest income


4,735

4,817

4,626


5,001

5,114

(7.4)

Interest expense









Deposits


756

768

820


924

1,012

(25.3)

Short-term borrowings


22

23

32


28

33

(33.9)

FHLB advances and other borrowing


394

426

462


454

465

(15.3)

  Total interest expense


1,172

1,217

1,314


1,406

1,510

(22.4)

Net interest income


3,563

3,600

3,312


3,595

3,604

(1.1)

Provision for loan losses


100

-

-


300

115

(13.0)

Net interest income after the









provision for loan losses


3,463

3,600

3,312


3,295

3,489

(0.8)

Noninterest income









Customer service fees


198

207

197


212

216

(8.4)

Other noninterest income


12

19

20


15

15

(21.3)

Gain on sale of assets


48

26

50


47

92

(47.6)

  Total noninterest income


258

252

267


274

323

(20.2)

Noninterest expense









Salaries and employee benefits


1,566

1,570

1,591


1,614

1,459

7.3

Net occupancy and equipment


355

348

336


314

362

(1.8)

Depository insurance


237

207

203


255

234

1.5

Foreclosed asset expense (1)


314

481

150


538

306

2.5

Other operating expense


731

817

794


779

715

2.2

  Total noninterest expense


3,203

3,423

3,074


3,500

3,076

4.1

Income before income taxes


518

429

505


69

736

(29.6)

Income tax (benefit) expense


154

118

149


(44)

212

(27.3)

Net income


$ 364

$ 311

$ 356


$ 113

$ 524

(30.6)










Preferred stock dividends & accretion on preferred stock discount


325

296

280


267

201

61.8










Net income / (loss) available to common


38

15

76


(154)

323

(88.1)










Net income / (loss) per common share:









  Basic


$ 0.01

$ 0.01

$ 0.01


$ (0.02)

$ 0.05

(88.2)

  Diluted


$ 0.01

$ 0.01

$ 0.01


$ (0.02)

$ 0.05

(88.2)

Average basic shares


6,500

6,500

6,500


6,500

6,500

-

Average common diluted shares


6,503

6,581

6,586


6,500

6,500

0.0

Performance Ratios









Return on average equity


3.88%

3.42%

4.01%


1.37%

6.64%

(41.5)

Return on average assets


0.35%

0.30%

0.35%


0.11%

0.49%

(29.8)

Net interest margin


3.70%

3.87%

3.59%


3.72%

3.69%

0.3

Average equity


37,501

36,423

35,587


32,912

31,569

18.8

Average assets


418,443

412,305

408,711


416,562

423,200

(1.1)

Average interest-earning assets


389,458

380,631

378,335


390,756

396,872

(1.9)










(1) Includes OREO adjustments to fair value

 

 

Cornerstone Bancshares, Inc. and Subsidiary

Loan Loss Allowance and Asset Quality Review









2012


2011


Third

Second

First


Fourth

Third

(Amounts in thousands)

Quarter

Quarter

Quarter


Quarter

Quarter








Allowance for loan losses







Balance at beginning of period

$ 6,029

$ 6,024

$ 7,400


$ 6,864

$ 6,814

Provision for loan losses

100

-

-


300

115

Net charge-offs

(849)

5

(1,376)


236

(65)

Balance at end of period

$ 5,280

$ 6,029

$ 6,024


$ 7,400

$ 6,864








As a % of loans

1.93%

2.29%

2.29%


2.76%

2.54%

As a % of nonperforming loans

66.26%

84.63%

55.95%


93.90%

80.20%

As a % of nonperforming assets

17.40%

20.60%

20.27%


28.03%

25.60%








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

1.24%

-0.01%

2.10%


-0.35%

0.10%








Risk element assets







Accruing troubled debt restructured

$ 5,328

$ 2,775

$ 2,418


$ 2,750

$ 2,535

Loans past due 30-89 days

$ 3,685

$ 2,495

$ 5,040


$ 8,158

$ 2,088








Nonaccruing loans

$ 7,968

$ 7,124

$ 10,767


$ 7,882

$ 8,560

Loans past due 90 days - accruing

-

-

-


-

-

Total nonperforming loans

$ 7,968

$ 7,124

$ 10,767


$ 7,882

$ 8,560

Repossessed assets

39

83

-


-

-

Other real estate owned (b)(c)

$ 22,337

$ 22,061

$ 18,957


$ 18,524

$ 18,255

Total nonperforming assets

$ 30,344

$ 29,268

$ 29,724


$ 26,406

$ 26,815















Nonperforming loans as a % of loans

2.91%

2.70%

4.10%


2.94%

3.17%

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

 

10.25%

10.24%

10.55%


9.22%

9.29%








Total loans

273,820

263,749

262,788


267,765

270,401








(a) Annualized


(b) Properties sold during 3rd Q 2012

$ 804






(c) Properties under contract to sell

$ 3,757






 

Cornerstone Bancshares, Inc. and Subsidiary

Net Interest Margin Analysis

Taxable Equivalent Basis


Three months ended


September 30

(Amounts in thousands)












Assets



2012






2011




Average


Income/


Yield/


Average


Income/


Yield/

Earning assets:

Balance


Expense


Rate


Balance


Expense


Rate

Loans, net of unearned income

$ 270,109


$ 4,241


6.23%


$ 269,715


$ 4,531


6.67%

Investment securities

91,889


478


2.36%


108,963


574


2.40%

Other earning assets

27,460


16


0.23%


18,193


9


0.20%

  Total earning assets

389,458


$ 4,735


4.89%


396,872


$ 5,114


5.20%

Allowance for loan losses

(5,892)






(6,792)





Cash and other assets

34,878






33,120





TOTAL ASSETS

$ 418,443






$ 423,200

















Liabilities and Shareholders' Equity
























Interest-bearing liabilities:












Interest-bearing demand deposits

$ 26,357


$ 21


0.32%


$ 24,197


$ 20


0.33%

Savings deposits

10,702


10


0.36%


9,772


13


0.51%

MMDA's

56,761


114


0.79%


30,975


79


1.01%

Time deposits

189,882


612


1.28%


218,622


900


1.63%

Federal funds purchased and securities sold under agreements to repurchase

19,471


22


0.45%


23,250


33


0.57%


Federal Home Loan Bank and other borrowings

37,336


394


4.19%


43,078


465


4.29%

Total interest-bearing liabilities

340,509


1,173


1.37%


349,894


1,510


1.71%

Net interest spread



$ 3,562


3.53%




$ 3,604


3.49%

Noninterest-bearing demand deposits

40,722






41,800





Accrued expenses and other liabilities

(288)






(64)





Shareholders' equity

37,501






31,569





TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY

$ 418,443






$ 423,200





Net yield on earning assets





3.70%






3.69%













Taxable equivalent adjustment:












  Loans



0






0



  Investment securities



69






85



    Total adjustment



69






85



 

 

Cornerstone Bancshares, Inc. and Subsidiary

Net Interest Margin Analysis

Taxable Equivalent Basis


Nine months ended


September 30

(Amounts in thousands)












Assets



2012






2011




Average


Income/


Yield/


Average


Income/


Yield/

Earning assets:

Balance


Expense


Rate


Balance


Expense


Rate

Loans, net of unearned income

$ 266,187


$ 12,571


6.31%


$ 275,267


$ 13,692


6.65%

Investment securities

91,827


1,563


2.58%


112,850


1,763


2.38%

Other earning assets

25,535


44


0.23%


22,496


38


0.22%

Total earning assets

383,549


$ 14,179


5.02%


410,613


$ 15,493


5.12%

Allowance for loan losses

(6,345)






(7,707)





Cash and other assets

35,968






32,538





TOTAL ASSETS

$ 413,172






$ 435,444

















Liabilities and Shareholders' Equity
























Interest-bearing liabilities:












Interest-bearing demand deposits

$ 26,526


$ 65


0.33%


$ 26,717


$ 65


0.33%

Savings deposits

10,317


29


0.37%


9,737


37


0.51%

MMDA's

47,625


305


0.86%


27,137


202


1.00%

Time deposits

191,378


1,946


1.36%


233,079


2,964


1.70%

Federal funds purchased and securities sold under agreements to repurchase

22,309


77


0.46%


23,391


98


0.56%

Federal Home Loan Bank and other borrowings

39,990


1,281


4.28%


49,329


1,590


4.31%

Total interest-bearing liabilities

338,145


3,703


1.46%


369,390


4,957


1.79%

Net interest spread



$ 10,475


3.55%




$ 10,536


3.33%

Noninterest-bearing demand deposits

38,684






37,463





Accrued expenses and other liabilities

(163)






(81)





Shareholders' equity

36,507






28,672





TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY

$ 413,172






$ 435,444





Net yield on earning assets





3.73%






3.51%













Taxable equivalent adjustment:












  Loans



0






0



  Investment securities



212






246



     Total adjustment



212






246



 

 

Cornerstone Bancshares, Inc. and Subsidiary

Loan Stratification








2012


2011



(Amounts in thousands)

Third

% of

Third

% of

% Dollar

Quarter

Total

Quarter

Total

Change

Non-residential real estate






  Owner occupied

$ 61,229

22.4

$ 63,405

23.4

(3.4)

  Non-owner occupied

65,501

23.9

62,009

22.9

5.6

  Multi-family real estate

8,626

3.2

10,692

4.0

(19.3)

  1-4 family construction

6,305

2.3

6,346

2.3

(0.6)

  Commercial land and lot development

21,767

7.9

19,483

7.2

11.7

Total non-residential real estate

163,428

59.7

161,935

59.9

0.9

Residential real estate






  First mortgage - 1-4 family

43,454

15.9

41,334

15.3

5.1

  Second mortgage - 1-4 family

3,138

1.1

4,225

1.6

(25.7)

  Home equity lines

15,832

5.8

12,215

4.5

29.6

Total residential real estate

62,424

22.8

57,774

21.4

8.0

Total real estate loans

225,853

82.5

219,709

81.3

2.8







Commercial

38,196

13.9

38,955

14.4

(1.9)

Agricultural & other

7,533

2.8

8,938

3.3

(15.7)

Consumer

2,239

0.8

2,798

1.0

(20.0)

Total loans, net of unearned fees

$ 273,820

100.0

$ 270,401

100.0

1.3

 

 

Cornerstone Bancshares, Inc. and Subsidiary

Consolidated Balance Sheets
















Unaudited









September 30,


December 31,

ASSETS

2012


2011





Cash and due from banks

$ 1,532,621


$ 1,660,204

Interest-bearing deposits at other financial institutions

33,298,912


37,222,487

     Total cash and cash equivalents

34,831,533


38,882,691





Securities available for sale

82,191,300


86,057,437

Securities held to maturity (fair value




approximates $52,820 and $70,484 at




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

51,385


68,643

Federal Home Loan Bank stock, at cost

2,322,900


2,322,900

Loans, net of allowance for loan losses of




$5,279,676 at September 30, 2012




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

268,540,559


260,364,569

Bank premises and equipment, net

5,465,004


5,712,003

Accrued interest receivable

1,351,479


1,327,458

Foreclosed assets

22,376,139


18,523,960

Other assets

8,049,182


9,395,721


Total Assets

$ 425,179,481


$ 422,655,382





LIABILITIES AND STOCKHOLDERS' EQUITY








Deposits:




Noninterest-bearing demand deposits

$ 43,212,796


$ 43,989,943

Interest-bearing demand deposits

24,596,321


22,353,384

Savings deposits and money market accounts

72,958,526


46,857,118

Time deposits

188,195,355


200,841,499

                 Total deposits

328,962,998


314,041,944

Federal funds purchased and securities sold under




agreements to repurchase

19,380,035


29,390,810

Federal Home Loan Bank advances and other borrowings

37,175,000


43,045,000

Accrued interest payable

136,081


110,703

Other liabilities

1,397,583


858,620


Total Liabilities

387,051,697


387,447,077





Stockholders' Equity:




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




authorized; 494,229 shares issued and outstanding in 2012

12,175,652


9,899,544

and 403,989 shares issued and outstanding in 2011




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




6,709,199 issued in 2012 and 2011;




6,500,396 outstanding in 2012 and 2011

6,500,396


6,500,396

Additional paid-in capital

21,371,974


21,316,438

Retained deficit

(3,347,825)


(3,627,208)

Accumulated other comprehensive income

1,427,587


1,119,135


Total Stockholders' Equity

38,127,784


35,208,305


Total Liabilities and Stockholders' Equity

$ 425,179,481


$ 422,655,382



















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

 

Cornerstone Bancshares, Inc. and Subsidiary

Consolidated Statements of Income




















Unaudited


Unaudited







Three months ended


Nine months ended







September 30,


September 30,







2012


2011


2012


2011

INTEREST INCOME








Loans, including fees

$ 4,241,492


$ 4,531,390


$ 12,571,193


$ 13,691,565

Investment securities

478,172


573,699


1,563,433


1,763,479

Federal funds sold & other earning assets

15,647


9,269


44,075


37,597

Total interest income

4,735,311


5,114,358


14,178,701


15,492,641









INTEREST EXPENSE








Time deposits

612,286


899,554


1,946,341


2,963,779

Other deposits

144,157


111,985


398,859


304,533

Federal funds purchased and securities








sold under agreements to repurchase

21,889


33,135


77,193


97,850

Federal Home Loan Bank advances and other borrowings

394,066


465,534


1,281,010


1,590,605

Total interest expense

1,172,398


1,510,208


3,703,403


4,956,767









Net interest income before provision for loan losses

3,562,913


3,604,150


10,475,298


10,535,874

Provision for loan losses

100,000


115,000


100,000


145,000

Net interest income after provision for loan losses

3,462,913


3,489,150


10,375,298


10,390,874









NONINTEREST INCOME








Customer service fees

197,509


216,163


602,107


656,877

Net gains from sale of securities

-


59,671


-


107,413

Net gains from sale of loans and other assets

48,199


32,322


124,109


87,866

Other noninterest income

12,944


15,256


51,844


57,066

Total noninterest income

258,652


323,412


778,060


909,222









NONINTEREST EXPENSE








Salaries and employee benefits

1,566,359


1,458,951


4,727,049


4,503,489

Net occupancy and equipment expense

354,555


361,513


1,038,296


1,118,127

Depository insurance

236,927


233,587


682,830


797,747

Foreclosed assets, net

314,088


306,860


945,163


1,384,935

Other operating expenses

731,090


715,858


2,307,172


2,346,493

Total noninterest expenses

3,203,019


3,076,769


9,700,510


10,150,791









Income before provision for income taxes

518,546


735,793


1,452,848


1,149,305

Provision for income taxes

154,300


212,125


421,500


232,075














Net income

364,246


523,668


1,031,348


917,230














Preferred stock dividend requirements

308,893


187,538


854,780


398,626

Accretion on preferred stock discount

16,370


13,419


46,079


22,419














Net income available to common shareholders

$ 38,983


$ 322,711


$ 130,489


$ 496,185














EARNINGS PER COMMON SHARE








Basic

$ 0.01


$ 0.05


$ 0.02


$ 0.07

Diluted

$ 0.01


$ 0.05


$ 0.02


$ 0.07














DIVIDENDS DECLARED PER COMMON SHARE

$ -


$ -


$ -


$ -



























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














 

 

Cornerstone Bancshares, Inc. and Subsidiary

Consolidated Statement of Changes in Stockholders' Equity - Unaudited

For the nine months ended September 30, 2012











Accumulated









Additional




Other


Total



Preferred


Common


Paid-in


Retained


Comprehensive


Stockholders'



Stock


Stock


Capital


Deficit


Income


Equity














BALANCE, December 31, 2011


$ 9,899,544


$ 6,500,396


$ 21,316,438


$ (3,627,208)


$ 1,119,135


$ 35,208,305














Employee compensation stock option expense

-


-


55,536


-


-


55,536














Issuance of Series A Convertible Preferred Stock

2,230,029


-


-


-


-


2,230,029














Preferred stock dividends paid


-


-


-


(705,886)


-


(705,886)














Accretion on preferred stock


46,079


-


-


(46,079)


-


-














Net income


-


-


-


1,031,348


-


1,031,348














Other comprehensive income, net of tax


-


-


-


-


308,452


308,452














BALANCE, September 30, 2012


$ 12,175,652


$ 6,500,396


$ 21,371,974


$ (3,347,825)


$ 1,427,587


$ 38,127,784



























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

 

 

SOURCE Cornerstone Bancshares, Inc.

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