SmartFinancial (SMBK) 8-K Cornerstone Reports Positive Earnings for Fifth Consecutive Quarter

Cornerstone Reports Positive Earnings for Fifth Consecutive Quarter

CHATTANOOGA, Tenn.—(PR Newswire)—April 26, 2012—Cornerstone Bancshares, Inc. (OTC Bulletin Board: CSBQ; CSBQP) today announced the following:

Cornerstone Bancshares, Inc. (“Cornerstone”), parent company of Cornerstone Community Bank (“Bank”), reported positive net income of approximately $357,000 for the first quarter of 2012. This profit represents an increase of 41.7 percent compared to the first quarter of 2011’s net income of approximately $252,000, and marks the fifth consecutive quarter of positive earnings for Cornerstone.

Other financial highlights year-over-year for the quarter ended March 31, 2012 include:

· A 31.5 percent increase in shareholders’ equity, from $27,290,000 to $35,890,000

· A 66.7 percent increase in market value per common share, from $1.50 to $2.50

· An increase in net interest margin, from 3.44 percent to 3.59 percent

· An 32.8 percent increase in the Bank’s Tier 1 leverage ratio, from 6.1 percent to 8.1 percent

· A 24.2 percent increase in the Bank’s total risk-based capital ratio, from 10.5 percent to 13.0 percent

“We are greatly encouraged by the continued progress we’ve made to raise capital, improve our underwriting and collection procedures, and produce positive earnings,” said Cornerstone President Frank Hughes. “Our goal is to stay focused on these three main areas, as we endeavor to deliver the best quality banking products, service and value to our customers, and the greatest return on investment to all of our shareholders.”

As of March 31, 2012, Cornerstone had raised in excess of $10.4 million in capital through its Preferred Stock Offering (“Offering”) launched in the third quarter of 2010. The Offering, which has been extended until June 30, 2012, features a Series A Convertible Preferred Stock with a 10 percent annual, cumulative dividend, payable in cash quarterly if, as and when declared. The Preferred dividend has been paid the last four consecutive quarters, based on positive earnings in the preceding quarters. Once the Offering is closed, the new security will trade on the Over-The-Counter (OTC) Bulletin Board under the ticker symbol “CSBQP.”

“Having this solid capital foundation will really help us build and grow for the future,” said Cornerstone Chairman Miller Welborn. “As our economy here in Chattanooga continues to strengthen and improve, and businesses continue to open and thrive in this market, Cornerstone should be ideally positioned to serve the local community for many years to come.”

Cornerstone is a single-bank holding company, with $417 million in assets, serving the Chattanooga, Tennessee MSA, with five branches throughout Chattanooga, Tennessee 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

First Quarter Financial Highlights

March 31, 2012 and 2011

(Unaudited)

(Amounts in thousands, except per common share data)	2012			2011			% Change
Balance Sheet Data at March 31
Total assets	$	417,475		$	447,540			(6.7	)
Interest-earning assets		380,527			420,104			(9.4	)
Loans		262,788			273,750			(4.0	)
Foreclosed assets		18,957			20,464			(7.4	)
Deposits		315,816			337,487			(6.4	)
Other interest-bearing liabilities		64,055			81,270			(21.2	)
Shareholders' equity		35,890			27,290			31.5
Loan to deposit ratio		83.21	%		81.11	%		2.6
Tier 1 leverage ratio (Bank)		8.14	%		6.13	%		32.8
Total risk-based capital ratio (Bank)		12.99	%		10.46	%		24.2
Outstanding common shares		6,500			6,500			-
Book value per common share	$	3.91		$	3.65			7.3
Tangible book value per common share	$	3.91		$	3.64			7.5
Market value per common share as of March 31	$	2.50		$	1.50			66.7
Loan Quality Data
Nonaccruing loans		10,766			13,633			(21.0	)
Loans past due 90 days – accruing		-			-			-
Net charge-offs YTD		1,376			1,269			8.5
Allowance for loan losses		6,024			9,132			(34.0	)
Allowance for loan losses to total loans		2.29	%		3.34	%
Nonperforming assets to total assets		7.12	%		7.62	%
Performance Data for the Year
Net income	$	357		$	252			41.3
Return on average assets		0.35	%		0.23	%
Return on average equity		4.01	%		3.78	%
Net interest margin		3.59	%		3.44	%
Per common share data:
Net income – basic	$	0.01		$	0.02
Net income – diluted	$	0.01		$	0.04
Common dividends	$	-		$	-
Preferred dividends & accretion	$	280		$	93
Average shares (000s):
Basic common stock		6,500			6,500
Diluted common stock		6,500			6,500
Preferred stock		425			149

Cornerstone Bancshares, Inc. and Subsidiary

Loan Loss Allowance and Asset Quality Review

	2012			2011
	First			Fourth			Third			Second			First
(Amounts in thousands)	Quarter			Quarter			Quarter			Quarter			Quarter
Allowance for loan losses
Balance at beginning of period	$	7,400		$	6,864		$	6,814		$	7,914		$	9,132
Provision for loan losses		-			300			115			15			15
Net charge-offs		(1,376	)		236			(65	)		(1,115	)		(1,233	)
Balance at end of period	$	6,024		$	7,400		$	6,864		$	6,814		$	7,914
As a % of loans		2.29	%		2.76	%		2.54	%		2.52	%		2.89	%
As a % of nonperforming loans		55.95	%		93.90	%		80.20	%		94.21	%		126.20	%
As a % of nonperforming assets		20.27	%		28.03	%		25.60	%		24.97	%		29.60	%
Net charge-offs as a % of  loans (a)		2.10	%		-0.35	%		0.10	%		1.65	%		1.80	%
Risk element assets
Accruing troubled debt restructured	$	2,418		$	2,750		$	2,535		$	1,750		$	1,650
Loans past due 30-89 days	$	5,098		$	8,090		$	2,048		$	1,957		$	8,434
Nonaccruing loans	$	10,766		$	7,881		$	8,559		$	7,233		$	6,271
Loans past due 90 days – accruing		-			-			-			-			-
Total nonperforming loans	$	10,766		$	7,881		$	8,559		$	7,233		$	6,271
Repossessed assets		-			-			-			-			-
Other real estate owned (b)(c)	$	18,957		$	18,524		$	18,255		$	20,058		$	20,464
Total nonperforming assets	$	29,723		$	26,405		$	26,814		$	27,291		$	26,735
Nonperforming loans as a % of loans		4.10	%		2.94	%		3.17	%		2.68	%		2.29	%
Nonperforming assets as a % of loans and other real estate owned		10.55	%		9.22	%		9.29	%		9.40	%		9.09	%
Total loans		262,788			267,765			270,401			270,171			273,750
(a) Annualized
(b) Properties sold during 1st Q 2012	$	1,778
(c) Properties under contract to sell	$	4,225

Cornerstone Bancshares, Inc. and Subsidiary

Net Interest Margin Analysis

Taxable Equivalent Basis

	Three months ended
	March 31
				2012								2011
	Average			Income/		Yield/			Average			Income/		Yield/
(Amounts in thousands)	Balance			Expense		Rate			Balance			Expense		Rate
Assets
Earning assets:
Loans, net of unearned income	$	265,814		$	4,144		6.27	%	$	284,297		$	4,639		6.62	%
Investment securities		88,641			467		2.43	%		109,844			568		2.41	%
Other earning assets		23,880			15		0.25	%		24,122			11		0.18	%
Total earning assets		378,335		$	4,626		4.99	%		418,263		$	5,218		5.14	%
Allowance for loan losses		(7,121	)							(9,071	)
Cash and other assets		37,497								28,629
TOTAL ASSETS	$	408,711							$	437,821
Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Interest-bearing demand deposits	$	24,891		$	21		0.34	%	$	27,590		$	21		0.31	%
Savings deposits		9,859			10		0.40	%		9,499			12		0.51	%
MMDA's		39,373			90		0.92	%		24,437			60		1.00	%
Time deposits		195,111			699		1.44	%		244,021			1,052		1.75	%
Federal funds purchased and securities sold under agreements to repurchase		26,291			32		0.49	%		22,625			31		0.56	%
Other borrowings		42,634			461		4.35	%		54,356			580		4.33	%
Total interest-bearing liabilities		338,159			1,314		1.56	%		382,528			1,756		1.86	%
Net interest spread				$	3,312		3.43	%				$	3,462		3.28	%
Noninterest-bearing demand deposits		34,479								28,964
Accrued expenses and other liabilities		486								(354	)
Shareholders' equity		35,587								26,683
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	408,711							$	437,821
Net yield on earning assets							3.59	%							3.44	%
Taxable equivalent adjustment:
Loans					0								-
Investment securities					68								85
Total adjustment					68								85

Cornerstone Bancshares, Inc. and Subsidiary

Quarterly Earnings Summary

	(Unaudited)
	2012			2011												Q1-12 /
	First			Fourth			Third			Second			First			Q1-11
(Amounts in thousands)	Quarter			Quarter			Quarter			Quarter			Quarter			% Chg
Interest income
Loans, including fees	$	4,144		$	4,437		$	4,531		$	4,521		$	4,639			(10.7	)
Investment securities and interest-bearing deposits		467			548			574			621			568			(17.8	)
Other earning assets		15			16			9			17			11			37.1
Total interest income		4,626			5,001			5,114			5,159			5,218			(11.3	)
Interest expense
Deposits		820			924			1,012			1,112			1,145			(28.4	)
Short-term borrowings		32			28			33			34			31			4.0
FHLB advances and other borrowing		461			454			466			545			580			(20.4	)
Total interest expense		1,314			1,405			1,510			1,691			1,756			(25.2	)
Net interest income		3,312			3,595			3,604			3,468			3,462			(4.3	)
Provision for loan losses		0			300			115			15			15			(100.0	)
Net interest income after the provision for loan losses		3,312			3,295			3,489			3,453			3,447			(3.9	)
Noninterest income
Customer service fees		197			212			216			225			215			(8.4	)
Other noninterest income		20			15			15			22			20			0.0
Gain on sale of assets		50			47			92			69			34			46.0
Total noninterest income		267			274			323			316			269			(0.6	)
Noninterest expense
Salaries and employee benefits		1,591			1,614			1,459			1,502			1,542			3.2
Net occupancy and equipment		336			314			362			350			406			(17.4	)
Depository insurance		203			255			234			241			322			(37.0	)
Goodwill impairment		-			-			-			-			-			-
Foreclosed asset expense (1)		150			538			306			716			362			(58.4	)
Other operating expense		794			780			715			847			783			1.4
Total noninterest expense		3,074			3,500			3,076			3,657			3,415			(10.0	)
Income before income taxes		506			69			736			113			301			68.1
Income tax (benefit) expense		149			(44	)		212			(28	)		49			206.4
Net income (loss)	$	357		$	113		$	524		$	141		$	252			41.4
Preferred stock dividends & accretion on preferred stock discount		280			267			201		$	128		$	93			201.4
Net income / loss available to common		76			(154	)		323			13			159			(52.1	)
Net income (loss) per common share:
Basic	$	0.01		$	(0.02	)	$	0.05		$	-		$	0.02			(52.1	)
Diluted	$	0.01		$	(0.02	)	$	0.05		$	-		$	0.02			(52.1	)
Average basic shares		6,500			6,500			6,500			6,500			6,500			-
Average common diluted shares		6,500			6,500			6,500			6,500			6,500			-
Performance Ratios
Return on average equity		4.01	%		1.37	%		6.64	%		2.04	%		3.78	%		6.0
Return on average assets		0.35	%		0.11	%		0.49	%		0.13	%		0.23	%		51.5
Net interest margin		3.59	%		3.72	%		3.69	%		3.42	%		3.44	%		4.5
Average equity		35,587			32,912			31,569			27,712			26,683			33.4
Average assets		408,711			416,562			423,200			445,472			437,821			(6.6	)
Average interest-earning assets		378,335			390,756			396,872			416,605			418,263			(9.5	)

(1) Includes OREO adjustments to fair value

Cornerstone Bancshares, Inc. and Subsidiary

Loan Stratification

	2012				2011
	First		% of		First		% of		% Dollar
(Amounts in thousands)	Quarter		Total		Quarter		Total		Change
Non-residential real estate
Owner occupied	$	61,830		23.5	$	64,492		23.6		(4.1	)
Non-owner occupied		61,295		23.3		59,336		21.7		3.3
Multi-family real estate		10,249		3.9		11,781		4.3		(13.0	)
1-4 family construction		4,520		1.7		3,827		1.4		18.1
Commercial land and lot development		16,421		6.2		19,718		7.2		(16.7	)
Total non-residential real estate		154,315		58.7		159,154		58.1		(3.0	)
Residential real estate
First mortgage - 1-4 family		43,372		16.5		42,835		15.6		1.3
Second mortgage - 1-4 family		3,528		1.3		4,639		1.7		(23.9	)
Home equity lines		15,288		5.8		11,005		4.0		38.9
Total residential real estate		62,188		23.7		58,479		21.4		6.3
Total real estate loans		216,503		82.4		217,633		79.5		(0.5	)
Commercial		34,970		13.3		44,592		16.3		(21.6	)
Agricultural & other		8,854		3.4		8,449		3.1		4.8
Consumer		2,461		0.9		3,076		1.1		(20.0	)
Total loans, net of unearned fees	$	262,788		100.0	$	273,750		100.0		(4.0	)

Cornerstone Bancshares, Inc. and Subsidiary

Consolidated Balance Sheets

	Unaudited
	March 31,			December 31,
	2012			2011
ASSETS
Cash and cash equivalents	$	34,884,877		$	38,882,691
Securities available for sale		88,249,596			86,057,437
Securities held to maturity		63,410			68,643
Federal Home Loan Bank stock, at cost		2,322,900			2,322,900
Loans, net of allowance for loan losses of $6,024,351 at March 31, 2012 and $7,400,049 at December 31, 2011		256,763,922			260,364,569
Bank premises and equipment, net		5,649,662			5,712,003
Accrued interest receivable		1,334,003			1,327,458
Foreclosed assets		18,956,631			18,523,960
Other assets		9,250,307			9,395,721
Total assets	$	417,475,308		$	422,655,382
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing demand deposits	$	47,499,843		$	43,989,943
Interest-bearing demand deposits		26,851,857			22,353,384
Savings deposits and money market accounts		52,066,221			46,857,118
Time deposits		189,397,737			200,841,499
Total deposits		315,815,658			314,041,944
Federal funds purchased and securities sold under agreements to repurchase		21,445,300			29,390,810
Federal Home Loan Bank advances and other borrowings		42,610,000			43,045,000
Accrued interest payable		110,398			110,703
Other liabilities		1,604,009			858,620
Total liabilities		381,585,365			387,447,077
Stockholders' equity
Preferred stock - no par value; 2,000,000 shares 425,369 and 403,989 shares issued and outstanding in 2012 and 2011, respectively		10,446,139			9,899,544
Common stock - $1.00 par value; 20,000,000 shares authorized; 6,709,199 shares issued in 2012 and 2011; 6,500,396 shares outstanding in 2012 and 2011		6,500,396			6,500,396
Additional paid-in capital		21,334,950			21,316,438
Retained (deficit)		(3,472,697	)		(3,627,208	)
Accumulated other comprehensive income		1,081,155			1,119,135
Total stockholders' equity		35,889,943			35,208,305
Total liabilities and stockholders' equity	$	417,475,308		$	422,655,382

Cornerstone Bancshares, Inc. and Subsidiary

Consolidated Statements of Income

	Unaudited
	Three months ended
	March 31
	2012		2011
INTEREST INCOME
Loans, including fees	$	4,143,944	$	4,638,805
Securities		467,006		568,672
Federal funds sold & other earning assets		15,087		11,003
Total interest income		4,626,037		5,218,480
INTEREST EXPENSE
Time deposits		699,094		1,052,449
Other deposits		121,243		92,612
Federal funds purchased and securities sold under agreements to repurchase		32,230		31,003
FHLB advances and other borrowings		461,207		579,658
Total interest expense		1,313,774		1,755,722
Net interest income before provision for loan losses		3,312,263		3,462,758
Provision for loan losses		-		15,000
Net interest income after the provision for loan losses		3,312,263		3,447,758
NONINTEREST INCOME
Customer service fees		197,434		215,451
Other noninterest income		20,288		20,279
Net gains from sale of loans and other assets		49,664		34,027
Total noninterest income		267,386		269,757
NONINTEREST EXPENSE
Salaries and employee benefits		1,591,135		1,542,702
Net occupancy and equipment expense		335,813		406,334
Depository insurance		202,783		322,655
Foreclosed assets, net		150,320		361,570
Other operating expense		794,081		783,354
Total noninterest expense		3,074,132		3,416,615
Income before provision for income taxes		505,517		300,900
Provision for income taxes		149,000		48,625
NET  INCOME	$	356,517	$	252,275
Preferred stock dividend requirement		265,856		93,075
Accretion on preferred stock discount		14,468		-
Net income available to common stockholders	$	76,193	$	159,200
EARNINGS PER COMMON SHARE
Basic net income per common share	$	0.01	$	0.02
Diluted net income per common share	$	0.01	$	0.02
DIVIDENDS DECLARED PER COMMON SHARE	$	-	$	-

Cornerstone Bancshares, Inc. and Subsidiary

Consolidated Statement of Changes in Stockholders' Equity - Unaudited

For the three months ended March 31, 2012

													Accumulated
								Additional					Other			Total
	Comprehensive			Preferred		Common		Paid-in		Retained			Comprehensive			Stockholders'
	Income			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					-		-		18,512		-			-			18,512
Issuance of Series A Convertible Preferred Stock					532,127		-		-		-			-			532,127
Preferred stock dividends paid					-		-		-		(187,538	)		-			(187,538	)
Accretion on preferred stock discount					14,468		-		-		(14,468	)		-			-
Comprehensive income:
Net income	$	356,517			-		-		-		356,517			-			356,517
Other comprehensive income, net of tax:
Unrealized holding gains on securities available for sale, net of reclassification adjustment		(37,980	)		-		-		-		-			(37,980	)		(37,980	)
Total comprehensive income	$	318,537
BALANCE, March 31, 2012				$	10,446,139	$	6,500,396	$	21,334,950	$	(3,472,697	)	$	1,081,155		$	35,889,943