SmartFinancial (SMBK) 8-K Reports Positive Earnings for First Quarter of 2014

Cornerstone Bancshares, Inc.

Reports Positive Earnings for First Quarter of 2014

CHATTANOOGA, TN – April 28, 2014 -- Cornerstone Bancshares, Inc. (OTCBB: CSBQ; CSBQP), parent company of Cornerstone Community Bank, today reported net income of $412,000 for the first quarter of 2014. This marks the thirteenth consecutive quarter of positive earnings for Cornerstone.

First Quarter Financial Highlights for March 31, 2014, Compared to March 31, 2013:

· 7.5% increase in loans

· 24.9% reduction in non-accruing loans

· 1.4% increase in deposits

· 40.6% reduction in foreclosed assets

· 11.8% increase in market value per common share

“We continue to make great strides in strengthening the Bank and its solid earnings footprint,” said Cornerstone’s President and CEO Frank Hughes. “With a significant reduction in OREO, combined with strong growth in loans and deposits, Cornerstone can focus on our core competency of serving our local market and being Chattanooga’s premier community bank.”

Cornerstone is a single-bank holding company, with approximately $430 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.

Media Contact

Frank Hughes, President & CEO

Cornerstone Bancshares, Inc.

423-385-3009

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, 2014 and 2013

(Unaudited)

(Amounts in thousands, except per common share data)	2014			2013			% Change
Balance Sheet Data at March 31
Total assets	$	429,044		$	431,710			(0.6	)
Interest-earning assets		403,553			396,867			1.7
Loans		292,952			272,550			7.5
Foreclosed assets		12,559			21,159			(40.6	)
Deposits		341,725			336,903			1.4
Other interest-bearing liabilities		45,663			52,890			(13.7	)
Shareholders' equity		40,696			40,887			(0.5	)
Loan to deposit ratio		85.73	%		80.90	%		6.0
Tier 1 leverage ratio (Bank, est)		8.87	%		8.64	%		2.7
Total risk-based capital ratio (Bank, est)		13.11	%		13.29	%		(1.4	)
Outstanding common shares		6,627			6,547			1.2
Book value per common share	$	3.89		$	3.98			(2.2	)
Tangible book value per common share	$	3.89		$	3.98			(2.2	)
Market value per common share as of March 31	$	2.46		$	2.20			11.8
Loan Quality Data
Nonaccruing loans		4,779			6,364			(24.9	)
Loans past due 90 days – accruing		-			-			-
Net charge-offs YTD		357			772			(53.8	)
Allowance for loan losses		3,011			5,669			(46.9	)
Allowance for loan losses to total loans		1.03	%		2.08	%
Nonperforming assets to total assets		4.04	%		6.37	%
Performance Data for the Year
Net income	$	412		$	452			(8.8	)
Return on average assets		0.39	%		0.42	%
Return on average equity		4.08	%		4.40	%
Net interest margin		3.90	%		3.79	%
Per common share data:
Net income – basic	$	-		$	0.01
Net income – diluted	$	-		$	0.01
Common dividends	$	-		$	-
Preferred dividends & accretion per common	$	393		$	393
Average shares (000s):
Basic common stock		6,627			6,547
Diluted common stock		6,714			6,671
Preferred stock (actual)		600			600

Cornerstone Bancshares, Inc. and Subsidiary

Quarterly Earnings Summary

	(Unaudited)
	2014			2013												Q1-14 /
		First			Fourth			Third			Second			First			Q1-13
(Amounts in thousands)		Quarter			Quarter			Quarter			Quarter			Quarter			% Chg
Interest income
Loans, including fees	$	4,096		$	4,190		$	4,294		$	4,079		$	4,142			(1.1	)
Securities and interest-bearing deposits at other financial institutions		431			315			457			482			440			(2.2	)
Federal funds sold and other earning assets		7			8			10			15			21			(66.5	)
Total interest income		4,533			4,513			4,761			4,576			4,603			(1.5	)
Interest expense
Deposits		443			487			563			587			603			(26.6	)
Short-term borrowings		19			18			21			17			18			3.7
FHLB advances and other borrowing		261			267			285			316			341			(23.3	)
Total interest expense		723			772			869			920			962			(24.9	)
Net interest income		3,811			3,741			3,892			3,656			3,641			4.7
Provision for losses		165			-			-			-			300			(45.0	)
Net interest income after the
provision for loan losses		3,646			3,741			3,892			3,656			3,341			9.1
Noninterest income
Customer service fees		189			213			218			202			188			0.5
Other noninterest income		12			13			13			19			18			(33.3	)
Gain on sale of assets		121			391			39			477			149			(18.8	)
Total noninterest income		322			617			270			698			355			(9.3	)
Noninterest expense
Salaries and employee benefits		1,827			1,716			1,619			1,623			1,597			14.4
Net occupancy and equipment		309			324			334			340			337			(8.3	)
Depository insurance		155			162			162			161			160			(3.2	)
Foreclosed asset expense (1)		349			693			382			798			129			170.5
Other operating expense		661			810			967			780			752			(12.1	)
Total noninterest expense		3,301			3,705			3,464			3,702			2,975			10.9
Income before income taxes		667			653			698			652			721			(7.5	)
Income tax expense		255			250			268			256			269			(5.4	)
Net income	$	412		$	403		$	430		$	396		$	452			(8.8	)
Preferred stock dividends & accretion on preferred stock discount		393			393			393			393			393			(0.1	)
Net income available to common		21			11			36			3			59			(65.3	)
Net income per common share:
Basic	$	0.00		$	0.00		$	0.01		$	0.00		$	0.01			-
Diluted	$	0.00		$	0.00		$	0.01		$	0.00		$	0.01			-
Average basic shares		6,575			6,547			6,547			6,547			6,547			0.4
Average common diluted shares		6,714			6,662			6,693			6,671			6,671			0.6
Performance Ratios
Return on average equity		4.08	%		3.98	%		4.25	%		4.22	%		4.40	%		(7.3	)
Return on average assets		0.39	%		0.38	%		0.40	%		0.38	%		0.42	%		(8.7	)
Net interest margin		3.90	%		3.76	%		3.89	%		3.70	%		3.79	%		2.8
Average equity		40,447			40,487			40,382			37,501			41,135			(1.7	)
Average assets		426,282			426,660			431,068			418,443			426,827			(0.1	)
Average interest-earning assets		400,174			398,174			400,539			389,458			395,921			1.1

(1) Includes OREO adjustments to fair value

Cornerstone Bancshares, Inc. and Subsidiary

Loan Loss Allowance and Asset Quality Review

	2014			2013
		First			Fourth			Third			Second			First
(Amounts in thousands)		Quarter			Quarter			Quarter			Quarter			Quarter
Allowance for loan losses
Balance at beginning of period	$	3,203		$	3,159		$	5,095		$	5,669		$	6,141
Provision for loan losses		165			-			-			-			300
Net charge-offs		(357	)		44			(1,936	)		(574	)		(772	)
Balance at end of period	$	3,011		$	3,203		$	3,159		$	5,095		$	5,669
As a % of loans		1.03	%		1.11	%		1.11	%		1.85	%		2.08	%
As a % of nonperforming loans		63.00	%		89.81	%		77.13	%		74.02	%		89.07	%
As a % of nonperforming assets		17.37	%		19.42	%		16.61	%		19.79	%		20.60	%
Net charge-offs as a % of  loans (a)		0.49	%		-0.06	%		2.73	%		0.83	%		1.13	%
Risk element assets
Accruing troubled debt restructured	$	3,337		$	4,251		$	3,121		$	3,465		$	5,442
Loans past due 30-89 days	$	2,193		$	2,250		$	1,659		$	5,111		$	4,032
Nonaccruing loans	$	4,779		$	3,566		$	4,095		$	6,883		$	6,364
Loans past due 90 days – accruing		-			-			-			-			-
Total nonperforming loans	$	4,779		$	3,566		$	4,095		$	6,883		$	6,364
Foreclosed assets (b) (c)	$	12,559		$	12,926		$	14,924		$	18,867		$	21,159
Total nonperforming assets	$	17,338		$	16,492		$	19,019		$	25,750		$	27,523
Nonperforming loans as a % of loans		1.63	%		1.23	%		1.44	%		2.49	%		2.33	%
Nonperforming assets as a % of loans
and foreclosed assets		5.68	%		5.45	%		6.36	%		8.73	%		9.37	%
Total loans		292,952			289,440			284,181			276,062			272,550

(a) Annualized
(b) Properties sold during 1st Q 2014	$	695
(c) Properties under contract to sell	$	1,795

Cornerstone Bancshares, Inc. and Subsidiary

Net Interest Margin Analysis

Taxable Equivalent Basis

	Three months ended
	March 31
(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	$	291,830		$	4,095		5.69	%	$	275,696		$	4,142		6.09	%
Investment securities		95,968			430		1.98	%		86,741			440		2.35	%
Other earning assets		12,377			7		0.23	%		33,484			21		0.26	%
Total earning assets		400,174		$	4,533		4.63	%		395,921		$	4,603		4.78	%
Allowance for loan losses		(3,106	)							(5,933	)
Cash and other assets		29,213								36,838
TOTAL ASSETS	$	426,282							$	426,827
Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Interest-bearing demand deposits	$	27,972		$	10		0.14	%	$	28,438		$	20		0.29	%
Savings deposits		15,379			4		0.10	%		11,620			7		0.26	%
MMDA's		65,299			54		0.33	%		74,215			110		0.60	%
Time deposits		160,384			375		0.95	%		168,789			465		1.12	%
Federal funds purchased and securities
sold under agreements to repurchase		21,562			19		0.35	%		21,090			18		0.35	%
Federal Home Loan Bank and other borrowings		31,662			261		3.35	%		32,713			340		4.22	%
Total interest-bearing liabilities		322,257			723		0.91	%		336,865			962		1.16	%
Net interest spread				$	3,810		3.72	%				$	3,641		3.62	%
Noninterest-bearing demand deposits		63,077								46,812
Accrued expenses and other liabilities		501								2,016
Shareholders' equity		40,447								41,135
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY	$	426,282							$	426,827
Net yield on earning assets							3.90	%							3.79	%
Taxable equivalent adjustment:
Loans					0								0
Investment securities					39								62
Total adjustment					39								62

Cornerstone Bancshares, Inc. and Subsidiary

Loan Stratification

	2014				2013
	First		% of		First		% of		% Dollar
(Amounts in thousands)		Quarter	Total		Quarter		Total		Change
Non-residential real estate
Owner occupied	$	68,653		23.4	$	62,460		22.9		9.9
Non-owner occupied		70,089		23.9		64,483		23.7		8.7
Multi-family real estate		7,809		2.7		8,255		3.0		(5.4	)
1-4 family construction		10,117		3.5		8,168		3.0		23.9
Commercial land and lot development		17,187		8.7		18,965		7.0		(9.4	)
Total non-residential real estate		173,855		60.1		162,331		59.6		7.1
Residential real estate
First mortgage - 1-4 family		49,535		16.9		43,429		15.9		14.1
Second mortgage - 1-4 family		1,790		0.6		2,185		0.8		(18.1	)
Home equity lines		18,633		6.4		16,391		6.0		13.7
Total residential real estate		69,958		23.6		62,005		22.7		12.8
Total real estate loans		243,812		83.2		224,336		82.3		8.7
Commercial		39,374		13.4		38,301		14.1		2.8
Agricultural & other		7,219		2.5		7,936		2.9		(9.0	)
Consumer		2,547		0.9		1,977		0.7		28.8
Total loans, net of unearned fees	$	292,952		100.0	$	272,550		100.0		7.5

Cornerstone Bancshares, Inc. and Subsidiary

Consolidated Balance Sheets

		Unaudited
		March 31,			December 31,
ASSETS		2014			2013
Cash and due from banks	$	2,357,281		$	2,149,467
Interest-bearing deposits at other financial institutions		19,559,471			22,702,270
Total cash and cash equivalents		21,916,752			24,851,737
Securities available for sale		88,801,352			92,208,672
Securities held to maturity (fair value
$33,517 and $35,027 at March 31, 2014 and December 31, 2013, respectively)		32,618			34,165
Federal Home Loan Bank stock, at cost		2,322,900			2,322,900
Loans, net of allowance for loan losses of
$3,011,384 and $3,203,158 at March 31, 2014 and December 31, 2013, respectively		289,940,632			286,236,578
Bank premises and equipment, net		4,929,162			4,992,449
Accrued interest receivable		1,270,625			977,925
Foreclosed assets		12,559,374			12,925,748
Other assets		7,270,241			7,673,179
Total assets	$	429,043,656		$	432,223,353
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing demand deposits	$	68,707,888		$	75,206,540
Interest-bearing demand deposits		30,169,513			24,563,987
Savings deposits and money market accounts		79,194,510			86,329,930
Time deposits		163,652,741			155,313,920
Total deposits		341,724,652			341,414,377
Accrued interest payable		86,736			82,320
Federal funds purchased and securities sold under
agreements to repurchase		18,923,068			22,974,117
Federal Home Loan Bank advances and other borrowings		26,740,000			26,740,000
Other liabilities		873,683			878,811
Total liabilities		388,348,139			392,089,625
Stockholders' equity:
Preferred stock - no par value; 2,000,000 shares authorized;
600,000shares issued and outstanding
in 2014 and 2013		14,910,773			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		21,700,560			21,549,883
Accumulated deficit		(3,080,146	)		(3,099,451	)
Accumulated other comprehensive income		536,932			243,295
Total stockholders' equity		40,695,517			40,133,728
Total liabilities and stockholder’s' equity	$	429,043,656		$	432,223,353

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

Cornerstone Bancshares, Inc. and Subsidiary

Consolidated Statement of Income

	Unaudited
	Three months ended
	March 31,
	2014		2013
INTEREST INCOME
Loans, including fees	$	4,095,468	$	4,141,736
Securities and interest-bearing deposits at other
financial institutions		430,490		439,906
Federal funds sold & other earning assets		7,163		21,472
Total interest income		4,533,121		4,603,114
INTEREST EXPENSE
Time deposits		375,490		465,256
Other deposits		67,074		137,930
Federal funds purchased and securities
sold under agreements to repurchase		18,660		18,080
Federal Home Loan Bank advances and other borrowings		261,410		340,439
Total interest expense		722,634		961,705
Net interest income before provision for loan losses		3,810,487		3,641,409
Provision for loan losses		165,000		300,000
Net interest income after provision for loan losses		3,645,487		3,341,409
NONINTEREST INCOME
Customer service fees		188,911		188,481
Net gains from sale of securities		102,272		-
Net gains from sale of loans and other assets		18,914		149,200
Other noninterest income		12,216		17,818
Total noninterest income		322,313		355,499
NONINTEREST EXPENSE
Salaries and employee benefits		1,826,984		1,597,291
Net occupancy and equipment expense		308,832		337,879
Depository insurance		154,676		159,844
Foreclosed assets, net		349,370		128,692
Other operating expenses		661,187		752,174
Total noninterest expenses		3,301,049		2,975,880
Income before income tax expense		666,751		721,028
Income tax expense		254,600		268,900
Net income		412,151		452,128
Preferred stock dividend requirements		375,000		375,000
Accretion on preferred stock discount		17,846		17,845
Net income available to common shareholders	$	19,305	$	59,283
EARNINGS PER COMMON SHARE
Basic	$	-	$	0.01
Diluted	$	-	$	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 three months ended March 31, 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		-		-		40,000		-			-		40,000
Issuance of common stock, 80,324 shares		-		80,324		110,677		-			-		191,001
Preferred stock dividends paid		-		-		-		(375,000	)		-		(375,000	)
Accretion on preferred stock		17,846		-		-		(17,846	)		-		-
Net income		-		-		-		412,151			-		412,151
Unrealized holding gains (losses) on securities available for sale, net of reclassification adjustment		-		-		-		-			293,637		293,637
BALANCE, March 31, 2014
	$	14,910,773	$	6,627,398	$	21,700,560	$	(3,080,146	)	$	536,932	$	40,695,517

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