UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

 

FORM 8-K

 

CURRENT REPORT

 

Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934

 

 

Date of Report (Date of earliest event reported)   April 28, 2014

 

 

CORNERSTONE BANCSHARES, INC.
(Exact name of registrant as specified in its charter)

 

 

Tennessee 000-30497 62-1173944

(State or other jurisdiction

of incorporation)

(Commission

File Number)

(I.R.S. Employer

Identification No.)

 

 

835 Georgia Avenue, Chattanooga, Tennessee 37402
(Address of principal executive offices) (Zip Code)

 

 

Registrant’s telephone number, including area code   (423) 385-3000

 

 

 
(Former name or former address, if changed since last report.)

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

 

  ¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

  ¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

  ¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

  ¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

  

 
 

 

Item 2.02. Results of Operations and Financial Condition.

 

On April 28, 2014, the Registrant issued a press release reporting earnings results for the fiscal quarter ended March 31, 2014.

 

 

Item 9.01. Financial Statements and Exhibits.

 

(c) Exhibits

 

99.1 Press release dated April 28, 2014 reporting earnings results for the fiscal quarter ended March 31, 2014.

   

 
 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

  CORNERSTONE BANCSHARES, INC.  
  (Registrant)  
     
Date: April 30, 2014    
  By: /s/ Nathaniel F. Hughes  
  Nathaniel F. Hughes,  
  President and Chief Executive Officer  

  

 

 

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;                
600,000 shares 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.