SmartFinancial (SMBK) 8-K Cornerstone Bancshares, Inc. Reports Positive Earnings for Second Quarter of 2012

Cornerstone Bancshares, Inc. Reports Positive Earnings for Second Quarter of 2012

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

Cornerstone Bancshares, Inc. (“Cornerstone”), parent company of Cornerstone Community Bank (“Bank”), reported continued positive earnings for the second quarter of 2012, with a net income of $310,585 for the quarter, compared with net income of $141,287 for the same quarter of 2011. This marks the sixth consecutive quarter of positive earnings for Cornerstone and represents a 69.7 percent increase in net income year-over-year, from approximately $393,000 at June 30, 2011, to approximately $667,000 at June 30, 2012.

Other financial highlights year-over-year at quarter-end included an increase in the Bank’s tier one leverage ratio from 6.09 percent to 8.24 percent; an increase in the total risk-based capital ratio from 10.65 percent to 13.11 percent; an increase in book value per common share of 5.8 percent, from $3.74 to $3.96; an increase in net interest margin from 3.44 percent to 3.73 percent; and a decrease in non-accruing loans from $7.2 million to $7.1 million. In addition, Cornerstone has successfully raised in excess of $11 million in capital through its Preferred Stock Offering.

“The Directors are extremely pleased with the strong, positive strides made in every segment of the Bank’s operations,” said Cornerstone’s Board Chairman Miller Welborn. “We have a solid team in place and will continue to work diligently to strengthen the Bank’s foundations, in order to continue serving our customers and this thriving Chattanooga market.”

Founded in 1996, Cornerstone is a single-bank holding company, with $421 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.

Contact:

N. Frank Hughes

President & Chief Executive Officer

423-385-3009

Cornerstone Bancshares, Inc. and Subsidiary

Second Quarter Financial Highlights

June 30, 2012 and 2011

(Unaudited)

(Amounts in thousands, except per common share data)	2012			2011			% Change
Balance Sheet Data at June 30
Total assets	$	420,874		$	441,210			(4.6	)
Interest-earning assets		387,995			410,691			(5.5	)
Loans		263,749			270,171			(2.4	)
Foreclosed assets		22,144			20,058			10.4
Deposits		321,740			334,921			(3.9	)
Other interest-bearing liabilities		60,909			75,491			(19.3	)
Shareholders' equity		36,759			28,860			27.4
Loan to deposit ratio		81.98	%		80.67	%		1.6
Tier 1 leverage ratio (Bank)		8.24	%		6.09	%		35.3
Total risk-based capital ratio (Bank)		13.11	%		10.65	%		23.1
Outstanding common shares		6,500			6,500			-
Book value per common share	$	3.96		$	3.74			5.8
Tangible book value per common share	$	3.96		$	3.74			6.0
Market value per common share as of June 30	$	1.75		$	1.10			59.1
Loan Quality Data
Nonaccruing loans		7,124			7,233			(1.5	)
Loans past due 90 days – accruing		-			-			-
Net charge-offs YTD		1,381			2,348			(41.2	)
Allowance for loan losses		6,029			6,814			(11.5	)
Allowance for loan losses to total loans		2.29	%		2.52	%
Nonperforming assets to total assets		6.95	%		6.19	%
Performance Data for the Year
Net income	$	667		$	394			69.3
Return on average assets		0.33	%		0.18	%
Return on average equity		3.71	%		2.89	%
Net interest margin		3.73	%		3.44	%
Per common share data:
Net income – basic	$	0.01		$	0.02
Net income – diluted	$	0.01		$	0.02
Common dividends	$	-		$	-
Preferred dividends & accretion	$	1.25		$	1.25
Average shares (000s):
Basic common stock		6,500			6,500
Diluted common stock		6,581			6,500
Preferred stock		448			189

Cornerstone Bancshares, Inc. and Subsidiary

Loan Loss Allowance and Asset Quality Review

	2012						2011
	Second			First			Fourth			Third			Second
(Amounts in thousands)	Quarter			Quarter			Quarter			Quarter			Quarter
Allowance for loan losses
Balance at beginning of period	$	6,024		$	7,400		$	6,864		$	6,814		$	7,914
Provision for loan losses		-			-			300			115			15
Net charge-offs		5			(1,376	)		236			(65	)		(1,115	)
Balance at end of period	$	6,029		$	6,024		$	7,400		$	6,864		$	6,814
As a % of loans		2.29	%		2.29	%		2.76	%		2.54	%		2.52	%
As a % of nonperforming loans		84.63	%		55.95	%		93.90	%		80.20	%		94.21	%
As a % of nonperforming assets		20.60	%		20.27	%		28.03	%		25.60	%		24.97	%
Net charge-offs as a % of  loans (a)		-0.01	%		2.10	%		-0.35	%		0.10	%		1.65	%
Risk element assets
Accruing troubled debt restructured	$	2,775		$	2,418		$	2,750		$	2,535		$	1,750
Loans past due 30-89 days	$	2,399		$	5,098		$	8,090		$	2,048		$	1,957
Nonaccruing loans	$	7,124		$	10,766		$	7,881		$	8,559		$	7,233
Loans past due 90 days – accruing		-			-			-			-			-
Total nonperforming loans	$	7,124		$	10,766		$	7,881		$	8,559		$	7,233
Repossessed assets		83			-			-			-			-
Other real estate owned (b)(c)	$	22,061		$	18,957		$	18,524		$	18,255		$	20,058
Total nonperforming assets	$	29,268		$	29,723		$	26,405		$	26,814		$	27,291
Nonperforming loans as a % of loans		2.70	%		4.10	%		2.94	%		3.17	%		2.68	%
Nonperforming assets as a % of loans and other real estate owned		10.24	%		10.55	%		9.22	%		9.29	%		9.40	%
Total loans		263,749			262,788			267,765			270,401			270,171
(a) Annualized
(b) Properties sold during 2nd Q 2012	$	852
(c) Properties under contract to sell	$	6,000

Cornerstone Bancshares, Inc. and Subsidiary

Net Interest Margin Analysis

Taxable Equivalent Basis

	Three months ended
(Amounts in thousands)	June 30
	2012								2011
	Average			Income/		Yield/			Average			Income/		Yield/
	Balance			Expense		Rate			Balance			Expense		Rate
Assets
Earning assets:
Loans, net of unearned income	$	262,598		$	4,186		6.39	%	$	271,952		$	4,521		6.67	%
Investment securities		94,949			618		2.91	%		119,751			621		2.36	%
Other earning assets		23,084			13		0.23	%		24,902			17		0.28	%
Total earning assets		380,631		$	4,817		5.15	%		416,605		$	5,159		5.05	%
Allowance for loan losses		(6,028	)							(7,285	)
Cash and other assets		37,702								36,152
TOTAL ASSETS	$	412,305							$	445,472
Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Interest-bearing demand deposits	$	28,332		$	23		0.33	%	$	28,402		$	23		0.33	%
Savings deposits		10,387			9		0.36	%		9,938			13		0.51	%
MMDA's		46,639			101		0.87	%		25,927			64		0.99	%
Time deposits		189,169			635		1.35	%		236,873			1,012		1.71	%
Federal funds purchased and securities sold under agreements to repurchase		21,198			23		0.44	%		24,288			34		0.56	%
Federal Home Loan Bank and other borrowings		40,028			426		4.27	%		50,678			545		4.32	%
Total interest-bearing liabilities		335,751			1,217		1.45	%		376,107			1,691		1.80	%
Net interest spread				$	3,600		3.70	%				$	3,468		3.25	%
Noninterest-bearing demand deposits		40,829								41,486
Accrued expenses and other liabilities		(698	)							167
Shareholders' equity		36,423								27,712
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	412,305							$	445,472
Net yield on earning assets							3.87	%							3.42	%
Taxable equivalent adjustment:
Loans					0								0
Investment securities					71								85
Total adjustment					71								85

Cornerstone Bancshares, Inc. and Subsidiary

Net Interest Margin Analysis

Taxable Equivalent Basis

	Six months ended
(Amounts in thousands)	June 30
	2012								2011
	Average			Income/		Yield/			Average			Income/		Yield/
	Balance			Expense		Rate			Balance			Expense		Rate
Assets
Earning assets:
Loans, net of unearned income	$	264,205		$	8,330		6.36	%	$	278,090		$	9,160		6.64	%
Investment securities		91,795			1,085		2.70	%		114,825			1,190		2.39	%
Other earning assets		24,913			28		0.23	%		23,959			28		0.24	%
Total earning assets		380,913		$	9,443		5.07	%		416,874		$	10,378		5.10	%
Allowance for loan losses		(6,574	)							(8,173	)
Cash and other assets		36,169								32,967
TOTAL ASSETS	$	410,508							$	441,668
Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Interest-bearing demand deposits	$	26,611		$	44		0.33	%	$	27,998		$	45		0.32	%
Savings deposits		10,123			19		0.38	%		9,720			25		0.51	%
MMDA's		43,006			192		0.90	%		25,186			123		0.99	%
Time deposits		192,139			1,334		1.40	%		240,427			2,064		1.73	%
Federal funds purchased and securities sold under agreements to repurchase		23,744			55		0.47	%		23,461			65		0.56	%
Federal Home Loan Bank and other borrowings		41,331			887		4.33	%		52,507			1,125		4.32	%
Total interest-bearing liabilities		336,954			2,532		1.52	%		379,299			3,447		1.83	%
Net interest spread				$	6,912		3.56	%				$	6,931		3.27	%
Noninterest-bearing demand deposits		37,654								35,259
Accrued expenses and other liabilities		(105	)							(91	)
Shareholders' equity		36,005								27,200
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	410,508							$	441,668
Net yield on earning assets							3.73	%							3.44	%
Taxable equivalent adjustment:
Loans					0								0
Investment securities					142								170
Total adjustment					142								170

Cornerstone Bancshares, Inc. and Subsidiary

Quarterly Earnings Summary

	(Unaudited)
	2012						2011									Q1-12 /
	Second			First			Fourth			Third			Second			Q1-11
(Amounts in thousands)	Quarter			Quarter			Quarter			Quarter			Quarter			% Chg
Interest income
Loans, including fees	$	4,186		$	4,144		$	4,437		$	4,531		$	4,521			(7.4	)
Investment securities		618			467			548			574			621			(0.4	)
Other earning assets		13			15			16			9			17			(23.2	)
Total interest income		4,817			4,626			5,001			5,114			5,159			(6.6	)
Interest expense
Deposits		768			820			924			1,012			1,112			(30.9	)
Short-term borrowings		23			32			28			33			34			(31.9	)
FHLB advances and other borrowing		426			462			454			465			545			(21.9	)
Total interest expense		1,217			1,314			1,406			1,510			1,691			(28.0	)
Net interest income		3,600			3,312			3,595			3,604			3,468			3.8
Provision for loan losses		0			0			300			115			15			(100.0	)
Net interest income after the provision for loan losses		3,600			3,312			3,295			3,489			3,453			4.3
Noninterest income
Customer service fees		207			197			212			216			225			(8.0	)
Other noninterest income		19			20			15			15			22			(13.6	)
Gain on sale of assets		26			50			47			92			69			(62.1	)
Total noninterest income		252			267			274			323			316			(20.3	)
Noninterest expense
Salaries and employee benefits		1,570			1,591			1,614			1,459			1,502			4.5
Net occupancy and equipment		348			336			314			362			350			(0.7	)
Depository insurance		207			203			255			234			241			(14.3	)
Foreclosed asset expense (1)		481			150			538			306			716			(32.9	)
Other operating expense		818			794			779			715			847			(3.4	)
Total noninterest expense		3,423			3,074			3,500			3,076			3,656			(6.4	)
Income before income taxes		429			505			69			736			113			281.1
Income tax (benefit) expense		118			149			(44	)		212			(28	)		(514.8	)
Net income	$	311		$	356		$	113		$	524		$	141			120.5
Preferred stock dividends & accretion on preferred stock discount		296			280			267			201			127			133.1
Net income / (loss) available to common		15			76			(154	)		323			14			7.4
Net income / (loss) per common share:
Basic	$	-		$	0.01		$	(0.02	)	$	0.05		$	-			-
Diluted	$	-		$	0.01		$	(0.02	)	$	0.05		$	-			-
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		3.42	%		4.01	%		1.37	%		6.64	%		2.04	%		67.8
Return on average assets		0.30	%		0.35	%		0.11	%		0.49	%		0.13	%		138.3
Net interest margin		3.87	%		3.59	%		3.72	%		3.69	%		3.42	%		13.1
Average equity		36,423			35,587			32,912			31,569			27,712			31.4
Average assets		412,305			408,711			416,562			423,200			445,472			(7.4	)
Average interest-earning assets		380,631			378,335			390,756			396,872			416,605			(8.6	)

(1) Includes OREO adjustments to fair value

Cornerstone Bancshares, Inc. and Subsidiary

Loan Stratification

	2012				2011
	Second		% of		Second		% of		% Dollar
(Amounts in thousands)	Quarter		Total		Quarter		Total		Change
Non-residential real estate
Owner occupied	$	60,068		22.8	$	63,801		23.6		(5.9	)
Non-owner occupied		61,671		23.4		62,060		23.0		(0.6	)
Multi-family real estate		10,279		3.9		10,929		4.0		(5.9	)
1-4 family construction		5,477		2.1		4,092		1.5		33.8
Commercial land and lot development		17,210		6.5		18,528		6.9		(7.1	)
Total non-residential real estate		154,705		58.7		159,410		59.0		(3.0	)
Residential real estate
First mortgage - 1-4 family		42,333		16.1		40,734		15.1		3.9
Second mortgage - 1-4 family		3,252		1.2		4,404		1.6		(26.2	)
Home equity lines		16,180		6.1		11,963		4.4		35.3
Total residential real estate		61,765		23.4		57,101		21.1		8.2
Total real estate loans		216,470		82.1		216,511		80.1		(0.0	)
Commercial		36,765		13.9		41,680		15.4		(11.8	)
Agricultural & other		8,528		3.2		9,041		3.3		(5.7	)
Consumer		1,986		0.8		2,939		1.1		(32.4	)
Total loans, net of unearned fees	$	263,749		100.0	$	270,171		100.0		(2.4	)

Cornerstone Bancshares, Inc. and Subsidiary

Consolidated Balance Sheets

	Unaudited
	June 30,			December 31,
	2012			2011
ASSETS
Cash and cash equivalents	$	36,879,105		$	38,882,691
Securities available for sale		86,538,060			86,057,437
Securities held to maturity		56,880			68,643
Federal Home Loan Bank stock, at cost		2,322,900			2,322,900
Loans, net of allowance for loan losses of $6,028,690 at June 30, 2012 and $7,400,049 at December 31, 2011		257,720,495			260,364,569
Bank premises and equipment, net		5,574,683			5,712,003
Accrued interest receivable		1,246,603			1,327,458
Foreclosed assets		22,143,571			18,523,960
Other assets		8,391,530			9,395,721
Total assets	$	420,873,827		$	422,655,382
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing demand deposits	$	43,006,586		$	43,989,943
Interest-bearing demand deposits		28,501,796			22,353,384
Savings deposits and money market accounts		60,693,247			46,857,118
Time deposits		189,537,979			200,841,499
Total deposits		321,739,608			314,041,944
Federal funds purchased and securities sold under agreements to repurchase		23,299,119			29,390,810
Federal Home Loan Bank advances and other borrowings		37,610,000			43,045,000
Accrued interest payable		114,503			110,703
Other liabilities		1,351,440			858,620
Total liabilities		384,114,670			387,447,077
Stockholders' equity:
Preferred stock - no par value; 2,000,000 shares authorized 448,049 and 403,989 shares issued and outstanding in 2012 and 2011, respectively		11,018,339			9,899,544
Common stock - $l.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		21,353,462			21,316,438
Retained deficit		(3,429,846	)		(3,627,208	)
Accumulated other comprehensive income		1,316,806			1,119,135
Total stockholders' equity		36,759,157			35,208,305
Total liabilities and stockholders' equity	$	420,873,827		$	422,655,382

Cornerstone Bancshares, Inc. and Subsidiary

Consolidated Statements of Income

	Unaudited					Unaudited
	Three months ended					Six months ended
	June 30,					June 30,
	2012		2011			2012		2011
INTEREST INCOME
Loans, including fees	$	4,185,757	$	4,521,370		$	8,329,701	$	9,160,175
Investment securities		618,255		621,108			1,085,261		1,189,780
Federal funds sold & other earning assets		13,341		17,325			28,428		28,328
Total interest income		4,817,353		5,159,803			9,443,390		10,378,283
INTEREST EXPENSE
Time deposits		634,961		1,011,776			1,334,055		2,064,225
Other deposits		133,459		99,936			254,702		192,548
Federal funds purchased and securities sold under agreements to repurchase		23,074		33,712			55,304		64,715
FHLB advances and other borrowings		425,737		545,413			886,944		1,125,071
Total interest expense		1,217,231		1,690,837			2,531,005		3,446,559
Net interest income before provision for loan losses		3,600,122		3,468,966			6,912,385		6,931,724
Provision for loan losses		-		15,000			-		30,000
Net interest income after the provision for loan losses		3,600,122		3,453,966			6,912,385		6,901,724
NONINTEREST INCOME
Customer service fees		207,164		225,263			404,598		440,714
Net gains from sale of securities		-		47,742			-		47,742
Net gains from sale of loans and other assets		26,246		21,517			75,910		55,544
Other noninterest income		18,612		21,531			38,900		41,810
Total noninterest income		252,022		316,053			519,408		585,810
NONINTEREST EXPENSE
Salaries and employee benefits		1,569,555		1,501,836			3,160,690		3,044,538
Net occupancy and equipment expense		347,928		350,280			683,741		756,614
Depository insurance		206,866		241,505			409,649		564,160
Foreclosed assets, net		480,755		716,505			631,075		1,078,075
Other operating expense		818,255		847,281			1,612,336		1,630,635
Total noninterest expense		3,423,359		3,657,407			6,497,491		7,074,022
Income before provision for income taxes		428,785		112,612			934,302		413,512
Provision (benefit) for income taxes		118,200		(28,675	)		267,200		19,950
Net income		310,585		141,287			667,102		393,562
Preferred stock dividend requirements		280,031		118,013			545,887		211,088
Accretion on preferred stock discount		15,241		9,000			29,709		9,000
Net income available to common shareholders	$	15,313	$	14,274		$	91,506	$	173,474
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 six months ended June 30, 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				-		-		37,024		-			-		37,024
Issuance of Series A Convertible Preferred Stock				1,089,086		-		-		-			-		1,089,086
Preferred stock dividends paid				-		-		-		(440,031	)		-		(440,031	)
Accretion on preferred stock discount				29,709		-		-		(29,709	)		-		-
Comprehensive income:
Net income	$	667,102		-		-		-		667,102			-		667,102
Other comprehensive income, net of tax:
Unrealized holding gains on securities available for sale, net of reclassification adjustment		197,671		-		-		-		-			197,671		197,671
Total comprehensive income	$	864,773
BALANCE, June 30, 2012			$	11,018,339	$	6,500,396	$	21,353,462	$	(3,429,846	)	$	1,316,806	$	36,759,157