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

 

 

CHATTANOOGA, Tenn. -- October 21, 2013 -- (PR Newswire) 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:

 

·

17.9% increase in net income

·

9.2% increase in net interest income

·

3.8% increase in total loans

·

33.3% decrease in Other Real Estate Owned (OREO)

·

37.3% 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.

 

 

Contact: Frank Hughes, Cornerstone President & CEO, 423-385-3009

 

 

Cornerstone Bancshares, Inc. and Subsidiary

Third Quarter Financial Highlights

September 30, 2013 and 2012

(Unaudited)

 

(Amounts in thousands, except per common share data)		2013				2012				% Change
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 (Bank, est)			12.91	%			12.84	%			0.5
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 share		$	3.86			$	3.99				(3.3	)
Market value per common share as of September 30		$	2.45			$	1.95				25.6
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 loans			1.11	%			1.93	%
Nonperforming assets to total assets			4.43	%			7.14	%
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 common		$	0.18			$	0.14
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 thousands)			Quarter				Quarter				Quarter				Quarter				Quarter			% Chg
Interest income
Loans, including fees		$	4,294			$	4,079			$	4,142			$	4,718			$	4,242				1.2
Securities and interest-bearing deposits at other financial institutions			457				482				440				440				478				(4.4	)
Federal funds sold and other earning assets			10				15				21				16				15				(36.7	)
Total interest income			4,760				4,576				4,603				5,174				4,735				0.5
Interest expense
Deposits			563				587				603				673				756				(25.6	)
Short-term borrowings			21				17				18				17				22				(2.1	)
FHLB advances and other borrowing			285				316				341				391				394				(27.7	)
Total interest expense			869				920				962				1,081				1,172				(25.8	)
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 losses			3,891				3,656				3,341				3,763				3,463				12.4
Noninterest income
Customer service fees			218				202				188				201				198				10.3
Other noninterest income			13				19				18				13				12				4.2
Gain on sale of assets			39				477				149				27				48				(18.7	)
Total noninterest income			270				698				355				241				258				4.6
Noninterest expense
Salaries and employee benefits			1,619				1,623				1,597				1,600				1,566				3.4
Net occupancy and equipment			334				340				337				408				355				(6.0	)
Depository insurance			162				161				160				121				237				(31.7	)
Foreclosed asset expense (1)			382				798				129				156				314				21.6
Other operating expense			967				780				752				1,192				731				32.3
Total noninterest expense			3,464				3,702				2,975				3,477				3,203				8.1
Income before income taxes			698				652				721				527				518				34.7
Income tax expense			268				256				269				156				154				73.8
Net income		$	429			$	396			$	452			$	371			$	364				18.1
Preferred stock dividends & accretion on preferred stock discount			393				393				393				393				325				20.8
Net income available to common			36				3				59				(22	)			39				(6.6	)
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 diluted shares			6,693				6,671				6,671				6,503				6,503				2.9
Performance Ratios
Return on average equity			4.25	%			4.22	%			4.40	%			3.81	%			3.88	%			9.7
Return on average assets			0.40	%			0.38	%			0.42	%			0.35	%			0.35	%			14.6
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 assets			400,539				389,458				395,921				391,197				389,458				2.8

 

(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 period		$	5,095			$	5,669			$	6,141			$	5,280			$	6,029
Provision for loan losses			-				-				300				330				100
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 loans			77.13	%			74.02	%			89.07	%			102.24	%			66.26	%
As a % of nonperforming assets			16.61	%			19.79	%			20.60	%			23.32	%			17.40	%
Net charge-offs as a % of  loans (a)			2.73	%			0.83	%			1.13	%			-0.77	%			1.24	%
Risk element assets
Accruing troubled debt restructured		$	3,121			$	3,465			$	5,442			$	5,316			$	5,328
Loans past due 30-89 days		$	1,659			$	5,111			$	4,032			$	6,594			$	3,819
Nonaccruing loans		$	4,095			$	5,864			$	6,364			$	6,005			$	7,971
Loans past due 90 days – accruing			-				-				-				-				-
Total nonperforming loans		$	4,095			$	6,883			$	6,364			$	6,005			$	7,971
Foreclosed assets (b)©		$	14,924			$	18,867			$	21,159			$	20,300			$	22,376
Total nonperforming assets			19019.225				25750				27523.237				26337				30347
Nonperforming loans as a % of loans			1.44	%			2.49	%			2.33	%			2.17	%			2.91	%
Nonperforming assets as a % of loans
and other real estate owned			6.36	%			8.73	%			9.37	%			8.86	%			10.25	%
Total loans			284,181				276,062				272,550				276,992				273,820

 

(a) Annualized
(b) Properties sold during 3rd Q 2013	$	3,753
(c) Properties under contract to sell	$	1,196

 

 

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 income		$	281,341			$	4,294				6.05	%		$	270,109			$	4,241				6.23	%
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			$	4,760				4.75	%			389,458			$	4,735				4.89	%
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 deposits		$	25,388			$	10				0.16	%		$	26,357			$	21				0.32	%
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 to repurchase			25,102				22				0.34	%			19,471				22				0.45	%
Federal Home Loan Bank and other borrowings			29,012				285				3.90	%			37,336				394				4.19	%
Total interest-bearing liabilities			337,476				869				1.02	%			340,509				1,173				1.37	%
Net interest spread						$	3,891				3.73	%						$	3,562				3.53	%
Noninterest-bearing demand deposits			51,727												40,722
Accrued expenses and other liabilities			1,483												(288	)
Shareholders' equity			40,382												37,501
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY		$	431,068											$	418,443
Net yield on earning assets											3.89	%											3.70	%
Taxable equivalent adjustment:
Loans							0												0
Investment securities							39												69
Total adjustment							39												69

  

 

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 income		$	276,606			$	12,515				6.05	%		$	266,187			$	12,571				6.31	%
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			$	13,939				4.74	%			383,549			$	14,179				5.02	%
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			$	65				0.33	%
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 repurchase			22,330				56				0.34	%			22,309				77				0.46	%
Federal Home Loan Bank and other borrowings			31,142				941				4.04	%			39,990				1,281				4.28	%
Total interest-bearing liabilities			336,319				2,750				1.09	%			338,145				3,703				1.46	%
Net interest spread						$	11,189				3.65	%						$	10,475				3.55	%
Noninterest-bearing demand deposits			50,338												38,684
Accrued expenses and other liabilities			1,865												(163	)
Shareholders' equity			40,857												36,507
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY		$	429,379											$	413,172
Net yield on earning assets											3.81	%											3.73	%
Taxable equivalent adjustment:
Loans							0												0
Investment securities							156												212
Total adjustment							156												212

 

 

Cornerstone Bancshares, Inc. and Subsidiary

Loan Stratification

 

		2013								2012
		Third				% of				Third				% of				% Dollar
(Amounts in thousands)		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 development			23,162				8.1				21,767				7.9				6.4
Total non-residential real estate			173,919				61.2				163,428				59.7				6.4
Residential real estate
First mortgage - 1-4 family			43,776				15.4				43,454				15.9				0.7
Second mortgage - 1-4 family			2,028				0.7				3,138				1.1				(35.4	)
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 fees		$	284,181				100.0			$	273,820				100.0				3.8

  

 

Cornerstone Bancshares, Inc. and Subsidiary

Consolidated Balance Sheets

  

		Unaudited
		September 30,				December 31,
ASSETS		2013				2012
Cash and due from banks		$	2,148,352			$	3,222,139
Interest-bearing deposits at other financial institutions			19,106,638				56,173,099
Total cash and cash equivalents			21,254,990				59,395,238
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, respectively)			36,620				45,086
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, respectively			281,021,767				270,850,465
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 borrowings			26,740,000				37,175,000
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 outstanding in 2013 and 2012			6,547,074				6,500,396
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' equity			40,149,854				40,888,836
Total liabilities and stockholders' equity		$	429,681,283			$	443,446,400

  

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 & other earning assets			9,510				15,647				45,515				44,075
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 repurchase			21,435				21,889				56,258				77,193
Federal Home Loan Bank advances and other borrowings			284,882				394,066				941,269				1,281,010
Total interest expense			869,041				1,172,398				2,750,311				3,703,403
Net interest income before provision for loan losses			3,891,351				3,562,913				11,189,214				10,475,298
Provision for losses			-				100,000				300,000				100,000
Net interest income after provision for loan losses			3,891,351				3,462,913				10,889,214				10,375,298
NONINTEREST INCOME
Customer service fees			218,304				197,509				608,087				602,107
Net gains from sale of securities			-				-				424,971				-
Net gains from sale of loans and other assets			39,164				48,199				240,746				124,109
Other noninterest income			12,500				12,944				48,968				51,844
Total noninterest income			269,968				258,652				1,322,772				778,060
NONINTEREST EXPENSE
Salaries and employee benefits			1,619,030				1,566,359				4,838,822				4,727,049
Net occupancy and equipment expense			333,850				354,555				1,011,335				1,038,296
Depository insurance			161,956				236,927				482,920				682,830
Foreclosed assets, net			381,847				314,088				1,308,995				945,163
Other operating expenses			967,888				731,090				2,500,107				2,307,172
Total noninterest expenses			3,464,571				3,203,019				10,142,179				9,700,510
Income before provision for income taxes			696,748				518,546				2,069,807				1,452,848
Provision for income taxes			268,200				154,300				793,100				421,500
Net income			428,548				364,246				1,276,707				1,031,348
Preferred stock dividend requirements			375,000				308,893				1,125,000				854,780
Accretion on preferred stock discount			17,845				16,370				53,535				46,079
Net income available to common shareholders		$	35,703			$	38,983			$	98,172			$	130,489
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, 2012		$	14,821,546			$	6,500,396			$	21,390,486			$	(3,274,986	)		$	1,451,394			$	40,888,836
Stock compensation expense			-				-				96,793				-				-			$	96,793
Issuance of common stock			-				46,678				30,341				-				-			$	77,019
Preferred stock dividends			-				-				-				(1,058,893	)			-			$	(1,058,893	)
Accretion on preferred stock			53,535				-				-				(53,535	)			-				-
Net income			-				-				-				1,276,707				-			$	1,276,707
Unrealized holding gains (losses) on securities available for sale, net of reclassification adjustment and taxes			-				-				-				-				(1,130,608	)		$	(1,130,608	)
BALANCE, September 30, 2013		$	14,875,081			$	6,547,074			$	21,517,620			$	(3,110,707	)		$	320,786			$	40,149,854

 

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