SmartFinancial (SMBK) 8-K Cornerstone Bancshares, Inc. Reports Positive Earnings for Fourth Quarter of 2013

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

CHATTANOOGA, Tenn. – January 28, 2014 -- (PR Newswire) Cornerstone Bancshares, Inc. (“Cornerstone”; OTC Bulletin Board: CSBQ; CSBQP), holding company of Cornerstone Community Bank (“Bank”), today announced net income of $403,000 for the fourth quarter of 2013 and $1.68 million for the year, which represents an increase of 20 percent over 2012. This marks the twelfth consecutive quarter of positive earnings for Cornerstone.

Other financial highlights year-over-year include:

· 20% increase in net income

· 4.5% increase in loans

· 36% decrease in foreclosed assets

· 40% decrease in nonaccruals

· 10% increase in core transactional deposits

“We are extremely pleased with this solid performance for the year,” said Cornerstone’s President and CEO Frank Hughes. “The Bank continued to make steady progress in earnings and was able to use some of its revenue to accelerate the disposition of OREO (other real estate owned).”

Based on its positive quarterly earnings, Cornerstone was able to continue paying its Preferred Stock dividend all four quarters of 2013.

“At this new juncture of a new year, we anticipate continued improvement in asset quality and another strong year of OREO reduction,” said Hughes. “Our focus will remain on taking care of our customers and delivering the greatest return on investment for all of our shareholders.”

Founded in 1996, Cornerstone is a single-bank holding company, with $432 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
Fourth Quarter Financial Highlights
December 31, 2013 and 2012
(Unaudited)
(Amounts in thousands, except per common share data)	2013			2012			% Change
Balance Sheet Data at December 31
Total assets	$	432,223		$	443,446			(2.5	)
Interest-earning assets		406,708			411,629			(1.2	)
Loans		289,440			276,992			4.5
Foreclosed assets		12,926			20,332			(36.4	)
Deposits		341,414			344,881			(1.0	)
Other interest-bearing liabilities		49,714			56,762			(12.4	)
Shareholders' equity		40,134			40,889			(1.8	)
Loan to deposit ratio		84.78	%		80.32	%		5.5
Tier 1 leverage ratio (Bank, est)		8.56	%		8.37	%		2.3
Total risk-based capital ratio (Bank, est)		13.10	%		12.91	%		1.5
Outstanding common shares		6,547			6,500			0.7
Book value per common share	$	3.86		$	4.01			(3.9	)
Tangible book value per common share	$	3.86		$	4.01			(3.9	)
Market value per common share as of December 31	$	2.37		$	2.29			3.5
Loan Quality Data
Nonaccruing loans		3,566			6,005			(40.6	)
Loans past due 90 days – accruing		-			-			-
Net charge-offs YTD		3,238			1,689			91.7
Allowance for loan losses		3,203			6,141			(47.8	)
Allowance for loan losses to total loans		1.11	%		2.22	%
Nonperforming assets to total assets		3.82	%		5.94	%
Performance Data for the Year
Net income	$	1,681		$	1,402			19.9
Return on average assets		0.39	%		0.34	%
Return on average equity		4.12	%		3.78	%
Net interest margin		3.80	%		3.85	%
Per common share data:
Net income – basic	$	0.02		$	0.02
Net income – diluted	$	0.02		$	0.02
Common dividends	$	-		$	-
Preferred dividends & accretion per common	$	0.24		$	0.20
Average shares (000s):
Basic common stock		6,547			6,500
Diluted common stock		6,662			6,523
Preferred stock (actual)		600			600

Cornerstone Bancshares, Inc. and Subsidiary
Quarterly Earnings Summary
	(Unaudited)
	2013												2012			Q4-13 /
	Fourth			Third			Second			First			Fourth			Q4-12
(Amounts in thousands)	Quarter			Quarter			Quarter			Quarter			Quarter			% Chg
Interest income
Loans, including fees	$	4,190		$	4,294		$	4,079		$	4,142		$	4,718			(11.2	)
Securities and interest-bearing deposits at other financial institutions		315			457			482			440			440			(28.5	)
Federal funds sold and other earning assets		8			10			15			21			16			(50.5	)
Total interest income		4,513			4,761			4,576			4,603			5,174			(12.8	)
Interest expense
Deposits		487			563			587			603			673			(27.6	)
Short-term borrowings		18			21			17			18			17			3.1
FHLB advances and other borrowing		267			285			316			341			391			(31.9	)
Total interest expense		772			869			920			962			1,081			(28.6	)
Net interest income		3,741			3,892			3,656			3,641			4,093			(8.6	)
Provision for losses		-			-			-			300			330			(100.0	)
Net interest income after the
provision for loan losses		3,741			3,892			3,656			3,341			3,763			(0.6	)
Noninterest income
Customer service fees		213			218			202			188			201			5.9
Other noninterest income		13			13			19			18			13			2.4
Gain on sale of assets		391			39			477			149			27			1,348.1
Total noninterest income		617			270			698			355			241			156.0
Noninterest expense
Salaries and employee benefits		1,716			1,619			1,623			1,597			1,600			7.3
Net occupancy and equipment		324			334			340			337			408			(20.7	)
Depository insurance		162			162			161			160			121			33.9
Foreclosed asset expense (1)		693			382			798			129			156			344.2
Other operating expense		810			967			780			752			1,192			(32.0	)
Total noninterest expense		3,705			3,464			3,702			2,975			3,477			6.6
Income before income taxes		653			698			652			721			527			24.0
Income tax expense		250			268			256			269			156			60.0
Net income	$	403		$	430		$	396		$	452		$	371			8.6
Preferred stock dividends & accretion on preferred stock discount		392			393			393			393			393			(0.2	)
Net income available to common		11			36			3			59			(22	)		(152.0	)
Net income per common share:
Basic	$	0.00		$	0.01		$	0.00		$	0.01		$	0.00			-
Diluted	$	0.00		$	0.01		$	0.00		$	0.01		$	0.00			-
Average basic shares		6,547			6,547			6,547			6,547			6,500			0.7
Average common diluted shares		6,662			6,693			6,671			6,671			6,503			2.4
Performance Ratios
Return on average equity		3.98	%		4.25	%		4.22	%		4.40	%		3.81	%		4.4
Return on average assets		0.38	%		0.40	%		0.38	%		0.42	%		0.35	%		7.1
Net interest margin		3.76	%		3.89	%		3.70	%		3.79	%		4.21	%		(10.7	)
Average equity		40,487			40,382			37,501			41,135			38,926			4.0
Average assets		426,660			431,068			418,443			426,827			420,608			1.4
Average interest-earning assets		398,174			400,539			389,458			395,921			391,197			1.8

(1) Includes OREO adjustments to fair value

Cornerstone Bancshares, Inc. and Subsidiary
Loan Loss Allowance and Asset Quality Review
	2013												2012
	Fourth			Third			Second			First			Fourth
(Amounts in thousands)	Quarter			Quarter			Quarter			Quarter			Quarter
Allowance for loan losses
Balance at beginning of period	$	3,159		$	5,095		$	5,669		$	6,141		$	5,280
Provision for loan losses		-			-			-			300			330
Net charge-offs		44			(1,936	)		(574	)		(772	)		531
Balance at end of period	$	3,203		$	3,159		$	5,095		$	5,669		$	6,141
As a % of loans		1.11	%		1.11	%		1.85	%		2.08	%		2.22	%
As a % of nonperforming loans		89.81	%		77.13	%		74.02	%		89.07	%		102.26	%
As a % of nonperforming assets		19.42	%		16.61	%		19.79	%		20.60	%		23.32	%
Net charge-offs as a % of  loans (a)		-0.06	%		2.73	%		0.83	%		1.13	%		-0.77	%
Risk element assets
Accruing troubled debt restructured	$	4,251		$	3,121		$	3,465		$	5,442		$	5,316
Loans past due 30-89 days	$	2,250		$	1,659		$	5,111		$	4,032		$	6,594
Nonaccruing loans	$	3,566		$	4,095		$	6,883		$	6,364		$	6,005
Loans past due 90 days – accruing		-			-			-			-			-
Total nonperforming loans	$	3,566		$	4,095		$	6,883		$	6,364		$	6,005
Foreclosed assets (b) (c)	$	12,926		$	14,924		$	18,867		$	21,159		$	20,332
Total nonperforming assets	$	16,492		$	19,019		$	25,750		$	27,523		$	26,337
Nonperforming loans as a % of loans		1.23	%		1.44	%		2.49	%		2.33	%		2.17	%
Nonperforming assets as a % of loans
and foreclosed assets		5.45	%		6.36	%		8.73	%		9.37	%		8.86	%
Total loans		289,440			284,181			276,062			272,550			276,992

(a) Annualized
(b) Properties sold during 4th Q 2013	$	1,427
(c) Properties under contract to sell	$	1,017

Cornerstone Bancshares, Inc. and Subsidiary
Net Interest Margin Analysis
Taxable Equivalent Basis
	Three months ended
	December 31
(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	$	286,003		$	4,190		5.81	%	$	276,694		$	4,718		6.76	%
Investment securities		99,065			315		1.41	%		82,917			440		2.41	%
Other earning assets		13,106			8		0.23	%		31,586			16		0.21	%
Total earning assets		398,174		$	4,513		4.53	%		391,197		$	5,174		5.31	%
Allowance for loan losses		(3,045	)							(5,530	)
Cash and other assets		31,531								34,941
TOTAL ASSETS	$	426,660							$	420,608
Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Interest-bearing demand deposits	$	25,363		$	9		0.14	%	$	26,355		$	21		0.32	%
Savings deposits		14,149			5		0.15	%		11,059			9		0.34	%
MMDA's		74,607			73		0.39	%		66,838			117		0.69	%
Time deposits		160,824			400		0.99	%		176,882			525		1.18	%
Federal funds purchased and securities
sold under agreements to repurchase		21,184			18		0.33	%		18,343			17		0.37	%
Federal Home Loan Bank and other borrowings		33,095			267		3.20	%		37,175			392		4.18	%
Total interest-bearing liabilities		329,222			772		0.93	%		336,652			1,081		1.27	%
Net interest spread				$	3,741		3.60	%				$	4,093		4.04	%
Noninterest-bearing demand deposits		55,398								43,662
Accrued expenses and other liabilities		1,553								1,368
Shareholders' equity		40,487								38,926
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY	$	426,661							$	420,608
Net yield on earning assets							3.76	%							4.21	%
Taxable equivalent adjustment:
Loans					0								0
Investment securities					37								63
Total adjustment					37								63

Cornerstone Bancshares, Inc. and Subsidiary
Net Interest Margin Analysis
Taxable Equivalent Basis
	Twelve months ended
	December 31
(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	$	278,975		$	16,705		5.99	%	$	268,828		$	17,289		6.43	%
Investment securities		98,108			1,694		1.94	%		89,587			2,004		2.53	%
Other earning assets		20,749			54		0.26	%		27,010			60		0.22	%
Total earning assets		397,832		$	18,453		4.69	%		385,425		$	19,353		5.09	%
Allowance for loan losses		(4,547	)							(6,140	)
Cash and other assets		35,409								35,756
TOTAL ASSETS	$	428,694							$	415,041
Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Interest-bearing demand deposits	$	26,196		$	55		0.21	%	$	26,483		$	87		0.33	%
Savings deposits		12,718			27		0.22	%		10,504			38		0.36	%
MMDA's		76,194			392		0.51	%		52,454			422		0.80	%
Time deposits		165,748			1,766		1.07	%		187,733			2,471		1.32	%
Federal funds purchased and securities
sold under agreements to repurchase		22,041			74		0.34	%		21,312			94		0.44	%
Federal Home Loan Bank and other borrowings		31,634			1,209		3.82	%		39,282			1,673		4.26	%
Total interest-bearing liabilities		334,531			3,523		1.05	%		337,768			4,785		1.42	%
Net interest spread				$	14,930		3.64	%				$	14,568		3.67	%
Noninterest-bearing demand deposits		51,614								39,936
Accrued expenses and other liabilities		1,785								222
Shareholders' equity		40,764								37,115
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY	$	428,694							$	415,041
Net yield on earning assets							3.80	%							3.85	%
Taxable equivalent adjustment:
Loans					0								0
Investment securities					205								260
Total adjustment					205								260

Cornerstone Bancshares, Inc. and Subsidiary
Loan Stratification
	2013				2012
	Fourth		% of		Fourth		% of		% Dollar
(Amounts in thousands)	Quarter		Total		Quarter		Total		Change
Non-residential real estate
Owner occupied	$	65,765		22.7	$	58,425		21.1		12.6
Non-owner occupied		64,053		22.1		66,468		24.0		(3.6	)
Multi-family real estate		8,249		2.9		8,508		3.1		(3.0	)
1-4 family construction		10,832		3.7		6,937		2.5		56.2
Commercial land and lot development		25,254		8.7		25,551		9.2		(1.2	)
Total non-residential real estate		174,153		60.1		165,889		59.9		5.0
Residential real estate
First mortgage - 1-4 family		47,931		16.6		44,145		15.9		8.6
Second mortgage - 1-4 family		1,960		0.7		3,348		1.2		(41.5	)
Home equity lines		18,175		6.3		15,194		5.5		19.6
Total residential real estate		68,066		23.6		62,687		22.6		8.6
Total real estate loans		242,219		83.7		228,576		82.5		6.0
Commercial		37,221		12.9		38,101		13.8		(2.3	)
Agricultural & other		7,493		2.6		8,378		3.0		(10.6	)
Consumer		2,507		0.9		1,937		0.7		29.4
Total loans, net of unearned fees	$	289,440		100.0	$	276,992		100.0		4.5

CORNERSTONE  BANCSHARES,  INC.  AND  SUBSIDIARY

CONSOLIDATED  BALANCE  SHEETS

December 31, 2013 and 2012

	Unaudited
	2013			2012
ASSETS
Cash and due from banks	$	2,149,467		$	3,222,139
Interest-bearing deposits at other financial institutions		22,702,270			56,173,099
Total cash and cash equivalents		24,851,737			59,395,238
Securities available for sale		92,208,672			76,096,646
Securities held to maturity (fair value approximates
$34,909 at 2013 and $46,212 at 2012)		34,165			45,086
Federal Home Loan Bank stock, at cost		2,322,900			2,322,900
Loans, net of allowance for loan losses of
$3,203,158 in 2013 and $6,141,281 in 2012		286,236,578			270,850,465
Bank premises and equipment, net		4,992,449			5,399,340
Accrued interest receivable		977,925			1,213,778
Foreclosed assets		12,925,748			20,332,313
Other assets		7,673,179			7,790,634
Total assets	$	432,223,353		$	443,446,400
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing demand deposits	$	75,206,540		$	60,053,838
Interest-bearing demand deposits		24,563,987			30,178,624
Savings deposits and money market accounts		86,329,930			80,994,239
Time deposits		155,313,920			173,653,892
Total deposits		341,414,377			344,880,593
Accrued interest payable		82,320			120,558
Federal funds purchased and securities sold under
agreements to repurchase		22,974,117			19,587,387
Federal Home Loan Bank advances and other borrowings		26,740,000			37,175,000
Other liabilities		878,811			794,026
Total liabilities		392,089,625			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		14,892,927			14,821,546
Common stock - $1.00 par value; 20,000,000 shares
authorized in 2013 and 2012;
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		21,549,883			21,390,486
Accumulated deficit		(3,099,451	)		(3,274,986	)
Accumulated other comprehensive income		243,295			1,451,394
Total stockholders' equity		40,133,728			40,888,836
Total liabilities and stockholders' equity	$	432,223,353		$	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

Years Ended December 31, 2013, 2012, and 2011

	Unaudited
	2013		2012		2011
INTEREST INCOME
Loans, including fees	$	16,705,237	$	17,288,855	$	18,128,907
Securities and interest-bearing deposits at other financial institutions		1,694,292		2,003,620		2,311,690
Federal funds sold		53,502		60,404		53,139
Total interest income		18,453,031		19,352,879		20,493,736
INTEREST EXPENSE
Time deposits		1,766,237		2,471,135		3,767,582
Other deposits		473,921		546,812		424,387
Federal funds purchased and securities
sold under agreements to repurchase		73,903		94,402		125,538
Federal Home Loan Bank advances and other borrowings		1,208,490		1,672,478		2,044,361
Total interest expense		3,522,551		4,784,827		6,361,868
Net interest income before provision for loan losses		14,930,480		14,568,052		14,131,868
Provision for loan losses		300,000		430,000		445,000
Net interest income after provision for loan losses		14,630,480		14,138,052		13,686,868
NONINTEREST INCOME
Customer service fees		821,072		803,251		868,935
Other noninterest income		62,457		64,519		71,542
Net gains from sale of securities		652,421		-		107,413
Net gains from sale of loans and other assets		403,569		151,710		134,997
Total noninterest income		1,939,519		1,019,480		1,182,887
NONINTEREST EXPENSES
Salaries and employee benefits		6,555,059		6,327,226		6,117,063
Net occupancy and equipment expense		1,335,126		1,447,204		1,431,863
Depository insurance		644,918		803,902		1,052,591
Foreclosed assets, net		2,001,755		1,100,670		1,922,988
Other operating expenses		3,309,532		3,498,867		3,126,998
Total noninterest expenses		13,846,390		13,177,869		13,651,503
Income before income tax expense		2,723,609		1,979,663		1,218,252
Income tax expense		1,042,800		577,600		188,200
Net income		1,680,809		1,402,063		1,030,052
Preferred stock dividend requirements		1,500,000		1,229,780		651,119
Accretion on preferred stock discount		71,381		63,924		36,718
Net income available to common stockholders	$	109,428	$	108,359	$	342,215
EARNINGS PER COMMON SHARE
Basic	$	0.02	$	0.02	$	0.05
Diluted		0.02		0.02		0.05

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 year ended December 31, 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		-		-		129,056		-			-			129,056
Issuance of common stock		-		46,678		30,341		-			-			77,019
Preferred stock dividends		-		-		-		(1,433,893	)		-			(1,433,893	)
Accretion on preferred stock		71,381		-		-		(71,381	)		-			-
Net income		-		-		-		1,680,809			-			1,680,809
Unrealized holding losses on securities available
for sale, net of reclassification adjustment and taxes		-		-		-		-			(1,208,099	)		(1,208,099	)
BALANCE, December 31, 2013	$	14,892,927	$	6,547,074	$	21,549,883	$	(3,099,451	)	$	243,295		$	40,133,728

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