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Cornerstone Reports Positive Net Income for the Second Quarter of 2014


News provided by

Cornerstone Bancshares, Inc.

Jul 22, 2014, 03:37 ET

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CHATTANOOGA, Tenn., July 22, 2014 /PRNewswire/ -- Cornerstone Bancshares, Inc. (OTCBB: CSBQ; CSBQP), parent company of Cornerstone Community Bank, today reported earnings for the second quarter ended June 30, 2014.  Net income for the quarter was $409,000, a 3.3 percent increase from the same quarter of 2013.  Net interest income increased 5.5 percent from the same quarter last year.

"Cornerstone had another solid quarter of positive earnings and steady growth," said Cornerstone's President and CEO Frank Hughes.  "We continue to strengthen our earnings platform, with a significant reduction in nonperforming assets, which decreased 38 percent year-over-year."

Second Quarter Highlights Year-Over-Year

  • Loans increased 5.9 percent
  • Foreclosed assets decreased 31.1 percent
  • Non-accruing loans decreased 58.6 percent
  • Net charge-offs decreased 71.2 percent
  • Market value per common share increased 26.9 percent

"There is a lot of positive momentum, and major investments are being made in our market right now," said Cornerstone's Chairman Miller Welborn.  "With Volkswagen's recent announcement of another production line here in Chattanooga, the economic forecast for Chattanooga is very bright.  Our goal is to position Cornerstone to take full advantage of the opportunities that lie ahead."

Cornerstone is a single-bank holding company, with approximately $420 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

Second Quarter Financial Highlights

June 30, 2014 and 2013

(Unaudited)








(Amounts in thousands, except per common share data)


2014


2013


% Change

Balance Sheet Data at June 30







Total assets


$ 419,911


$ 435,334


(3.5)

Interest-earning assets


393,879


403,917


(2.5)

Loans


292,369


276,062


5.9

Foreclosed assets


12,996


18,867


(31.1)

Deposits


331,412


339,199


(2.3)

Other interest-bearing liabilities


46,913


54,647


(14.2)

Shareholders' equity


40,369


40,234


0.3

Loan to deposit ratio


88.22%


81.39%


8.4

Tier 1 leverage ratio (Bank, est)


8.91%


8.42%


5.8

Total risk-based capital ratio (Bank, est)


13.61%


13.10%


3.9

Outstanding common shares 


6,627


6,547


1.2

Book value per common share


$      3.84


$      3.88


(1.0)

Tangible book value per common share


$      3.84


$      3.88


(1.0)

Market value per common share as of June 30


$      2.55


$      2.01


26.9








Loan Quality Data







Nonaccruing loans


2,853


6,883


(58.6)

Loans past due 90 days – accruing


-


-


-

Net charge-offs YTD


388


1,346


(71.2)

Allowance for loan losses


3,330


5,095


(34.6)

Allowance for loan losses to total loans


1.14%


1.85%



Nonperforming assets to total assets


3.77%


5.91%










Performance Data for the Year







Net income 


$       822


$       848


(3.1)

Return on average assets


0.39%


0.39%



Return on average equity


4.05%


4.22%



Net interest margin


3.90%


3.79%



Per common share data:







Net income – basic


$      0.01


$      0.01



Net income – diluted


$      0.01


$      0.01



Common dividends


$            -


$            -



Preferred dividends & accretion per common 


$       786


$       786



Average shares (000s):







Basic common stock


6,601


6,547



Diluted common stock


6,761


6,665



Preferred stock (actual)


600


600



Cornerstone Bancshares, Inc. and Subsidiary

Quarterly Earnings Summary












(Unaudited)








2014


2013

Q2-14 /



Second

First


Fourth 

Third

Second

Q2-13

(Amounts in thousands)


Quarter

Quarter


Quarter

Quarter

Quarter

% Chg

Interest income









Loans, including fees


$ 4,225

$ 4,095


$ 4,190

$ 4,294

$4,079

3.6

Securities and interest-bearing deposits at

other financial institutions


347

431


315

457

482

(28.1)

Federal funds sold and other earning assets


10

7


8

9

15

(28.8)

    Total interest income


4,582

4,533


4,513

4,760

4,576

0.1

Interest expense









Deposits


442

442


487

563

587

(24.8)

Short-term borrowings


21

19


18

21

17

25.4

FHLB advances and other borrowing


263

261


267

285

316

(16.7)

    Total interest expense


726

722


772

869

920

(21.1)

Net interest income


3,856

3,811


3,741

3,891

3,656

5.5

Provision for losses


350

165


-

-

-

-

Net interest income after the









  provision for loan losses


3,506

3,646


3,741

3,891

3,656

(4.1)

Noninterest income









Customer service fees


210

189


213

218

202

3.7

Other noninterest income


18

12


13

13

19

(3.5)

Gain on sale of assets


307

121


391

39

477

(35.7)

    Total noninterest income


535

322


617

270

698

(23.4)

Noninterest expense









Salaries and employee benefits


1,723

1,827


1,716

1,619

1,623

6.2

Net occupancy and equipment


324

309


324

334

340

(4.6)

Depository insurance


164

155


162

162

161

1.9

Foreclosed asset expense (1)


363

349


693

382

798

(54.5)

Other operating expense


801

661


810

967

780

2.7

    Total noninterest expense


3,375

3,301


3,705

3,464

3,702

(8.8)

Income before income taxes


666

667


653

697

652

2.1

Income tax expense


257

255


250

268

256

0.2

Net income


$    409

$   412


$   404

$   429

$   396

3.3










Preferred stock dividends & accretion on

preferred stock discount


393

393


393

393

393

(0.1)










Net income available to common 


16

19


11

36

3

443.8










Net income per common share:









  Basic


$   0.00

$  0.00


$  0.00

$  0.01

$  0.00

-

  Diluted


$   0.00

$  0.00


$  0.00

$  0.01

$  0.00

-

Average basic shares 


6,627

6,575


6,547

6,547

6,547

1.2

Average common diluted shares 


6,807

6,714


6,662

6,693

6,671

2.0

Performance Ratios









Return on average equity


4.02%

4.08%


3.98%

4.25%

3.86%

4.2

Return on average assets


0.38%

0.39%


0.38%

0.40%

0.37%

4.1

Net interest margin


3.89%

3.90%


3.76%

3.89%

3.77%

3.2

Average equity


40,710

40,447


40,487

40,382

41,065

(0.9)

Average assets


426,951

426,282


426,660

431,068

430,196

(0.8)

Average interest-earning assets


400,760

400,175


398,174

400,539

395,517

1.3










(1) Includes OREO adjustments to fair value

Cornerstone Bancshares, Inc. and Subsidiary

Loan Loss Allowance and Asset Quality Review









2014


2013


Second

First


Fourth 

Third

Second

(Amounts in thousands)

Quarter

Quarter


Quarter

Quarter

Quarter








Allowance for loan losses







Balance at beginning of period

$   3,011

$  3,203


$  3,159

$  5,095

$  5,669

Provision for loan losses

350

165


-

-

-

Net charge-offs

(32)

(357)


44

(1,936)

(574)

Balance at end of period

$   3,330

$  3,011


$  3,203

$  3,159

$  5,095








As a % of loans

1.14%

1.03%


1.11%

1.11%

1.85%

As a % of nonperforming loans

116.72%

63.00%


89.81%

77.13%

74.02%

As a % of nonperforming assets

21.01%

17.37%


19.42%

16.61%

19.79%








Net charge-offs as a % of  loans (a)

0.04%

0.49%


-0.06%

2.73%

0.83%








Risk element assets







Accruing troubled debt restructured

$   3,787

$  3,337


$  4,251

$  3,121

$  3,465

Loans past due 30-89 days

$   1,365

$  2,193


$  2,250

$  1,659

$  5,111








Nonaccruing loans

$   2,853

$  4,779


$  3,566

$  4,095

$  6,883

Loans past due 90 days – accruing

-

-


-

-

-

Total nonperforming loans

$   2,853

$  4,779


$  3,566

$  4,095

$  6,883

Foreclosed assets (b) (c)

$ 12,996

$ 12,559


$ 12,926

$ 14,924

$ 18,867

Total nonperforming assets

$ 15,849

$ 17,338


$ 16,492

$ 19,019

$ 25,750















Nonperforming loans as a % of loans

0.98%

1.63%


1.23%

1.44%

2.49%

Nonperforming assets as a % of loans







   and foreclosed assets

5.19%

5.68%


5.45%

6.36%

8.73%








Total loans

292,369

292,952


289,440

284,181

276,062








(a) Annualized

(b) Properties sold during 2nd Q 2014

$       474






(c) Properties under contract to sell 

$    3,374






Cornerstone Bancshares, Inc. and Subsidiary

Net Interest Margin Analysis

Taxable Equivalent Basis


Three months ended


June 30

(Amounts in thousands)












Assets



2014






2013




Average


Income/


Yield/


Average


Income/


Yield/

Earning assets:

Balance


Expense


Rate


Balance


Expense


Rate

Loans, net of unearned income

$   292,039


$  4,225


5.80%


$   272,718


$  4,079


6.00%

Investment securities

93,074


347


1.64%


102,164


482


2.13%

Other earning assets

15,647


10


0.26%


20,635


15


0.28%

  Total earning assets

400,760


$  4,582


4.62%


395,517


$  4,576


4.70%

Allowance for loan losses

(3,112)






(5,315)





Cash and other assets

29,303






39,994





TOTAL ASSETS

$   426,951






$   430,196

















Liabilities and Shareholders' Equity
























Interest-bearing liabilities:












Interest-bearing demand deposits

$     28,462


$       11


0.16%


$     25,640


$       16


0.24%

Savings deposits

15,054


4


0.11%


12,214


8


0.25%

MMDA's

65,740


61


0.37%


77,206


108


0.56%

Time deposits 

160,174


366


0.92%


167,078


455


1.09%

Federal funds purchased and securities












  sold under agreements to repurchase

22,580


21


0.37%


20,752


17


0.32%

Federal Home Loan Bank and other borrowings

27,776


263


3.80%


31,740


316


3.99%

  Total interest-bearing liabilities

319,786


726


0.91%


334,630


920


1.10%

Net interest spread



$  3,856


3.71%




$  3,657


3.60%

Noninterest-bearing demand deposits

65,528






52,401





Accrued expenses and other liabilities

926






2,100





Shareholders' equity

40,710






41,065





TOTAL LIABILITIES AND












  SHAREHOLDERS' EQUITY

$   426,951






$   430,196





Net yield on earning assets





3.89%






3.77%













Taxable equivalent adjustment:












  Loans



0






0



  Investment securities



33






60



          Total adjustment



33






60



Cornerstone Bancshares, Inc. and Subsidiary

Net Interest Margin Analysis

Taxable Equivalent Basis


Six months ended


June 30

(Amounts in thousands)












Assets



2014






2013




Average


Income/


Yield/


Average


Income/


Yield/

Earning assets:

Balance


Expense


Rate


Balance


Expense


Rate

Loans, net of unearned income

$   291,935


$  8,321


5.75%


$   274,199


$  8,221


6.05%

Investment securities

94,513


777


1.81%


94,495


922


2.27%

Other earning assets

13,760


17


0.25%


26,668


36


0.27%

  Total earning assets

400,208


$  9,115


4.63%


395,362


$  9,179


4.75%

Allowance for loan losses

(3,109)






(5,622)





Cash and other assets

29,519






38,781





TOTAL ASSETS

$   426,618






$   428,521

















Liabilities and Shareholders' Equity
























Interest-bearing liabilities:












Interest-bearing demand deposits

$     28,218


$       20


0.14%


$     27,031


$       35


0.26%

Savings deposits

15,216


7


0.09%


11,919


15


0.25%

MMDA's

65,521


116


0.36%


75,719


219


0.58%

Time deposits 

160,278


741


0.93%


167,919


921


1.11%

Federal funds purchased and securities












  sold under agreements to repurchase

22,074


39


0.36%


20,920


35


0.34%

Federal Home Loan Bank and other borrowings

29,708


525


3.56%


32,224


656


4.11%

  Total interest-bearing liabilities

321,015


1,448


0.91%


335,732


1,881


1.13%

Net interest spread



$  7,667


3.72%




$  7,298


3.62%

Noninterest-bearing demand deposits

64,310






49,632





Accrued expenses and other liabilities

714






2,058





Shareholders' equity

40,579






41,099





TOTAL LIABILITIES AND












  SHAREHOLDERS' EQUITY

$   426,618






$   428,521





Net yield on earning assets





3.90%






3.79%













Taxable equivalent adjustment:












  Loans



0






0



  Investment securities



72






142



          Total adjustment



72






142



Cornerstone Bancshares, Inc. and Subsidiary

Loan Stratification








2014


2013



(Amounts in thousands)

Second

% of

Second

% of

% Dollar

Quarter

Total

Quarter

Total

Change

Non-residential real estate






    Owner occupied

$  70,808

24.2

$  60,725

22.0

16.6

    Non-owner occupied

71,306

24.4

67,241

24.4

6.0

    Multi-family real estate

8,375

2.9

7,451

2.7

12.4

    1-4 family construction

10,879

3.7

8,269

3.0

31.6

    Commercial land and lot development

16,577

5.7

21,898

7.9

(24.3)

Total non-residential real estate

177,945

60.9

165,584

60.0

7.5

Residential real estate






    First mortgage - 1-4 family

47,027

16.1

43,282

15.7

8.7

    Second mortgage - 1-4 family

1,731

0.6

2,129

0.8

(18.7)

    Home equity lines

18,482

6.3

14,483

5.2

27.6

Total residential real estate

67,240

23.0

59,894

21.7

12.3

Total real estate loans

245,185

83.9

225,479

81.7

8.7







Commercial

37,253

12.7

40,586

14.7

(8.2)

Agricultural & other

7,157

2.4

7,994

2.9

(10.5)

Consumer

2,774

0.9

2,005

0.7

38.4

Total loans, net of unearned fees

$292,369

100.0

$276,063

100.0

5.9

Cornerstone Bancshares, Inc. and Subsidiary

Consolidated Balance Sheets













Unaudited





June 30,


December 31,

ASSETS


2014


2013






Cash and due from banks


$    2,222,077


$    2,149,467

Interest-bearing deposits at other financial institutions


16,818,780


22,702,270

Total cash and cash equivalents


19,040,857


24,851,737






Securities available for sale


83,314,607


92,208,672

Securities held to maturity (fair value





     $31,191 and $35,027 at June 30, 2014 and December 31, 2013, respectively)


30,993


34,165

Federal Home Loan Bank stock, at cost


2,322,900


2,322,900

Loans, net of allowance for loan losses of





     $3,329,789 and $3,203,158 at June 30, 2014 and December 31, 2013, respectively


289,039,362


286,236,578

Bank premises and equipment, net


4,862,213


4,992,449

Accrued interest receivable


1,082,522


977,925

Foreclosed assets


12,996,286


12,925,748

Other assets


7,221,565


7,673,179

Total assets


$ 419,911,305


$ 432,223,353






LIABILITIES AND STOCKHOLDERS' EQUITY










Deposits:





Noninterest-bearing demand deposits


$   65,965,561


$   75,206,540

Interest-bearing demand deposits


26,241,666


24,563,987

Savings deposits and money market accounts


82,268,935


86,329,930

Time deposits


156,935,842


155,313,920

Total deposits


331,412,004


341,414,377






Accrued interest payable


80,077


82,320

Federal funds purchased and securities sold under





     agreements to repurchase


21,913,135


22,974,117

Federal Home Loan Bank advances and other borrowings


25,000,000


26,740,000

Other liabilities


1,137,134


878,811

Total liabilities


379,542,350


392,089,625






Stockholders' equity:





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





     600,000 shares issued and outstanding 





     in 2014 and 2013


14,928,618


14,892,927

Common stock - $1.00 par value; 20,000,000 shares authorized;





     6,709,199 shares issued in 2014 and 2013;





     6,627,398 and 6,547,074 shares outstanding in 2014 and 2013, respectively


6,627,398


6,547,074

Additional paid-in capital


21,740,560


21,549,883

Accumulated deficit


(3,063,508)


(3,099,451)

Accumulated other comprehensive income


135,887


243,295

Total stockholders' equity


40,368,955


40,133,728

Total liabilities and stockholders' equity


$ 419,911,305


$ 432,223,353











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


Six months ended



June 30,


June 30,



2014


2013


2014


2013

INTEREST INCOME









Loans, including fees


$      4,225,125


$      4,079,369


$      8,320,593


$    8,221,105

Securities and interest-bearing deposits at other









  financial institutions


346,507


482,117


776,997


922,023

Federal funds sold 


10,112


14,533


17,275


36,005

Total interest income


4,581,744


4,576,019


9,114,865


9,179,133










INTEREST EXPENSE









Time deposits


365,537


455,340


741,027


920,596

Other deposits


75,965


131,534


143,039


269,464

Federal funds purchased and securities









    sold under agreements to repurchase


20,621


16,743


39,281


34,823

Federal Home Loan Bank advances and other borrowings


263,201


315,948


524,611


656,387

Total interest expense


725,324


919,565


1,447,958


1,881,270










Net interest income before provision for loan losses


3,856,420


3,656,454


7,666,907


7,297,863

Provision for loan losses


350,000


-


515,000


300,000

Net interest income after provision for loan losses


3,506,420


3,656,454


7,151,907


6,997,863










NONINTEREST INCOME









Customer service fees


209,538


201,302


398,449


389,783

Net gains from sale of securities


300,201


424,971


402,473


424,971

Net gains from sale of loans and other assets


6,529


52,382


25,443


201,582

Other noninterest income


18,220


18,650


30,436


36,468

Total noninterest income


534,488


697,305


856,801


1,052,804










NONINTEREST EXPENSE









Salaries and employee benefits


1,722,503


1,622,501


3,549,487


3,219,792

Net occupancy and equipment expense


324,086


339,606


632,918


677,485

Depository insurance


164,167


161,120


318,843


320,964

Foreclosed assets, net


363,122


798,456


712,492


927,148

Other operating expenses


801,047


780,045


1,462,234


1,532,219

Total noninterest expenses


3,374,925


3,701,728


6,675,974


6,677,608










Income before income tax expense


665,983


652,031


1,332,734


1,373,059

Income tax expense


256,500


256,000


511,100


524,900










Net income


409,483


396,031


821,634


848,159










Preferred stock dividend requirements


375,000


375,000


750,000


750,000

Accretion on preferred stock discount


17,845


17,845


35,691


35,690










Net income available to common shareholders


$          16,638


$            3,186


$          35,943


$        62,469










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 six months ended June 30, 2014
























Accumulated









Additional




Other


Total



Preferred


Common


Paid-in


Accumulated


Comprehensive


Stockholders'



Stock


Stock


Capital


Deficit


Income


Equity














BALANCE, December 31, 2013


$ 14,892,927


$ 6,547,074


$ 21,549,883


$ (3,099,451)


$        243,295


$ 40,133,728














   Stock compensation expense


-


-


80,000


-


-


80,000














   Issuance of common stock, 80,324 shares


-


80,324


110,677


-


-


191,001














   Preferred stock dividends paid


-


-


-


(750,000)


-


(750,000)














   Accretion on preferred stock


35,691


-


-


(35,691)


-


-














   Net income


-


-


-


821,634


-


821,634














   Unrealized holding losses on securities available for sale,













     net of reclassification adjustment


-


-


-


-


(107,408)


(107,408)














BALANCE, June 30, 2014















$14,928,618


$6,627,398


$21,740,560


$(3,063,508)


$135,887


$40,368,955














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

SOURCE Cornerstone Bancshares, Inc.

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