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 26, 2013

 

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 25, 2013, the Registrant issued a press release reporting earnings results for the fiscal quarter ended March 31, 2013.

 

 

Item 9.01. Financial Statements and Exhibits.

 

(c) Exhibits
 
99.1 Press release dated April 25, 2013, reporting earnings results for the fiscal quarter ended March 31, 2013.

 

 

 

 

 

 

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 26, 2013    
  By: /s/ Nathaniel F. Hughes  
  Nathaniel F. Hughes,  
  President and Chief Executive Officer  

  

 

  

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

 

 

CHATTANOOGA, TN – April 25, 2013 -- Cornerstone Bancshares, Inc. (OTCBB: CSBQ; CSBQP), parent company of Cornerstone Community Bank, today reported net income of $452,000 for the first quarter of 2013, an increase of 26.8 percent over the same quarter of 2012.

 

“I am extremely pleased with the steady, gradual progress we continue to make in strengthening the Bank and our earnings footprint,” said Cornerstone’s President and CEO Frank Hughes. “The fact that we had marked improvement in earnings, in what is the shortest and typically weakest quarter of the year, is further testament that Cornerstone is on the right track and heading in the right direction.”

 

First Quarter 2013 Highlights Year-Over-Year:

 

· Net income increased 26.8%
· Transactional deposit accounts grew 35.7%
· Loans grew 3.7%
· Non-accruing loans decreased 41.1%
· Total assets increased 3.4%
· Net interest margin increased from 3.59% to 3.79%
· Shareholders’ equity increased 13.9%
· Well-capitalized status improved

 

“Cornerstone is at an exciting new juncture and now has a solid capital foundation on which to build for the future,” said Cornerstone’s Chairman Miller Welborn. “Our goal is to continue focusing on our core competency of serving the Chattanooga market as a premier community bank and returning the greatest value possible for each of our customers and shareholders.”

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.

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, 2013 and 2012

(Unaudited)

 

(Amounts in thousands, except per common share data)   2013     2012     % Change  
Balance Sheet Data at March 31                        
Total assets   $ 431,710     $ 417,475       3.4  
Interest-earning assets     396,867       377,326       5.2  
Loans     272,550       262,788       3.7  
Foreclosed assets     21,159       18,957       11.6  
Deposits     336,903       315,816       6.7  
Other interest-bearing liabilities     52,890       64,055       (17.4 )
Shareholders' equity     40,887       35,890       13.9  
Loan to deposit ratio     80.90 %     83.21 %     (2.8 )
Tier 1 leverage ratio (Bank, est)     8.64 %     8.14 %     6.1  
Total risk-based capital ratio (Bank, est)     13.29 %     12.99 %     2.3  
Outstanding common shares     6,547       6,500       0.7  
Book value per common share   $ 3.98     $ 3.91       1.6  
Tangible book value per common share   $ 3.98     $ 3.91       1.6  
Market value per common share as of March 31   $ 2.20     $ 2.50       (12.0 )
                         
                         
Loan Quality Data                        
Nonaccruing loans     6,342       10,766       (41.1 )
Loans past due 90 days – accruing     -       -       -  
Net charge-offs YTD     772       1,376       (43.9 )
Allowance for loan losses     5,669       6,024       (5.9 )
Allowance for loan losses to total loans     2.08 %     2.29 %        
Nonperforming assets to total assets     6.37 %     7.12 %        
                         
                         
Performance Data for the Year                        
Net income   $ 452     $ 357       26.8  
Return on average assets     0.42 %     0.35 %        
Return on average equity     4.40 %     4.01 %        
Net interest margin     3.79 %     3.59 %        
Per common share data:                        
Net income – basic   $ 0.01     $ 0.01          
Net income – diluted   $ 0.01     $ 0.01          
Common dividends   $ -     $ -          
Preferred dividends & accretion   $ 393     $ 280          
Average shares (000s):                        
Basic common stock     6,547       6,500          
Diluted common stock     6,671       6,500          
Preferred stock (actual)     600       425          

 

 
 

 

Cornerstone Bancshares, Inc. and Subsidiary

Quarterly Earnings Summary

 

    (Unaudited)        
      2013        2012       Q1-13/   
      First       Fourth       Third       Second       First       Q1-12  
(Amounts in thousands)     Quarter       Quarter       Quarter       Quarter       Quarter       % Chg  
Interest income                                                
Loans, including fees   $ 4,142     $ 4,718     $ 4,242     $ 4,186     $ 4,144       (0.0 )
Securities and interest-bearing deposits at other financial institutions     440       440       478       618       467       (5.8 )
Federal funds sold and other earning assets     21       16       15       13       15       41.8  
    Total interest income     4,603       5,174       4,735       4,817       4,626       (0.5 )
Interest expense                                                
Deposits     603       673       756       768       820       (26.5 )
Short-term borrowings     18       17       22       23       32       (44.2 )
FHLB advances and other borrowing     341       391       394       426       462       (26.2 )
    Total interest expense     962       1,081       1,172       1,217       1,314       (26.8 )
Net interest income     3,641       4,093       3,563       3,600       3,312       9.9  
Provision for loan losses     300       330       100       -       -        N/A   
Net interest income after the                                                
  provision for loan losses     3,341       3,763       3,463       3,600       3,312       0.9  
Noninterest income                                                
Customer service fees     188       201       198       207       197       (4.8 )
Other noninterest income     18       13       12       19       20       (11.3 )
Gain on sale of assets     149       27       48       26       50       200.0  
    Total noninterest income     355       241       258       252       267       32.8  
Noninterest expense                                                
Salaries and employee benefits     1,597       1,600       1,566       1,570       1,591       0.4  
Net occupancy and equipment     337       408       355       348       336       0.4  
Depository insurance     160       121       237       207       203       (21.2 )
Foreclosed asset expense (1)     129       156       314       481       150       (14.2 )
Other operating expense     752       1,192       731       817       794       (5.3 )
    Total noninterest expense     2,975       3,477       3,203       3,423       3,074       (3.2 )
Income before income taxes     721       527       518       429       505       42.8  
Income tax expense     269       156       154       118       149       80.5  
Net income   $ 452     $ 371     $ 364     $ 311     $ 356       27.0  
                                                 
Preferred stock dividends & accretion on preferred stock discount     393       393       325       296       280       40.2  
                                                 
Net income / (loss) available to common     59       (22 )     39       15       76       (22.6 )
                                                 
Net income / (loss) per common share:                                                
  Basic   $ 0.01     $ -     $ 0.01     $ -     $ 0.01       (23.1 )
  Diluted   $ 0.01     $ -     $ 0.01     $ -     $ 0.01       (24.5 )
Average basic shares     6,547       6,500       6,500       6,500       6,500       0.7  
Average common diluted shares     6,671       6,503       6,503       6,581       6,586       1.3  
Performance Ratios                                                
Return on average equity     4.40 %     3.81 %     3.88 %     3.42 %     4.01 %     9.6  
Return on average assets     0.42 %     0.35 %     0.35 %     0.30 %     0.35 %     21.4  
Net interest margin     3.79 %     4.21 %     3.70 %     3.87 %     3.59 %     5.6  
Average equity     41,135       38,926       37,501       36,423       35,587       15.6  
Average assets     426,827       420,608       418,443       412,305       408,711       4.4  
Average interest-earning assets     395,921       391,197       389,458       380,631       378,335       4.6  

  

(1) Includes OREO adjustments to fair value

  

 
 

 

Cornerstone Bancshares, Inc. and Subsidiary

Loan Loss Allowance and Asset Quality Review

 

   2013     2012  
      First        Fourth        Third       Second       First  
(Amounts in thousands)     Quarter       Quarter       Quarter       Quarter       Quarter  
                                         
Allowance for loan losses                                        
Balance at beginning of period   $ 6,141     $ 5,280     $ 6,029     $ 6,024     $ 7,400  
Provision for loan losses     300       330       100       -       -  
Net charge-offs     (772 )     531       (849 )     5       (1,376 )
Balance at end of period   $ 5,669     $ 6,141     $ 5,280     $ 6,029     $ 6,024  
                                         
As a % of loans     2.08 %     2.22 %     1.93 %     2.29 %     2.29 %
As a % of nonperforming loans     89.38 %     102.24 %     66.26 %     84.63 %     55.95 %
As a % of nonperforming assets     20.61 %     23.32 %     17.40 %     20.60 %     20.27 %
                                         
Net charge-offs as a % of  loans (a)     1.13 %     -0.77 %     1.24 %     -0.01 %     2.10 %
                                         
Risk element assets                                        
Accruing troubled debt restructured   $ 5,442     $ 5,316     $ 5,328     $ 2,775     $ 2,418  
Loans past due 30-89 days   $ 4,732     $ 6,534     $ 3,685     $ 2,495     $ 5,040  
                                         
Nonaccruing loans   $ 6,342     $ 6,006     $ 7,968     $ 7,124     $ 10,767  
Loans past due 90 days – accruing     -       -       -       -       -  
Total nonperforming loans   $ 6,342     $ 6,006     $ 7,968     $ 7,124     $ 10,767  
Repossessed assets     5       32       39       83       -  
Other real estate owned (b)(c)   $ 21,159     $ 20,300     $ 22,337     $ 22,061     $ 18,957  
Total nonperforming assets   $ 27,506     $ 26,338     $ 30,344     $ 29,268     $ 29,724  
                                         
                                         
Nonperforming loans as a % of loans     2.33 %     2.17 %     2.91 %     2.70 %     4.10 %
Nonperforming assets as a % of loans                                        
   and other real estate owned     9.37 %     8.86 %     10.25 %     10.24 %     10.55 %
                                         
Total loans     272,550       276,992       273,820       263,749       262,788  

 

(a) Annualized        
(b) Properties sold during 1st Q 2013   $ 235  
(c) Properties under contract to sell   $ 2,101  

 

 
 

  

Cornerstone Bancshares, Inc. and Subsidiary

Net Interest Margin Analysis

Taxable Equivalent Basis

 

    Three months ended  
    March 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   $ 275,696     $ 4,142       6.09 %   $ 265,814     $ 4,144       6.27 %
Investment securities     86,741       440       2.35 %     88,641       467       2.43 %
Other earning assets     33,484       21       0.26 %     23,880       15       0.25 %
  Total earning assets     395,921     $ 4,603       4.78 %     378,335     $ 4,626       4.99 %
Allowance for loan losses     (5,933 )                     (7,121 )                
Cash and other assets     36,838                       37,497                  
TOTAL ASSETS   $ 426,827                     $ 408,711                  
                                                 
Liabilities and Shareholders' Equity                                                
                                                 
Interest-bearing liabilities:                                                
Interest-bearing demand deposits   $ 28,438     $ 20       0.29 %   $ 24,891     $ 21       0.34 %
Savings deposits     11,620       7       0.26 %     9,859       10       0.40 %
MMDA's     74,215       110       0.60 %     39,373       90       0.92 %
Time deposits     168,789       465       1.12 %     195,111       699       1.44 %
Federal funds purchased and securities                                                
  sold under agreements to repurchase     21,090       18       0.35 %     26,291       32       0.49 %
Federal Home Loan Bank and other borrowings     32,713       340       4.22 %     42,634       461       4.35 %
  Total interest-bearing liabilities     336,865       962       1.16 %     338,159       1,314       1.56 %
Net interest spread           $ 3,641       3.62 %           $ 3,312       3.43 %
Noninterest-bearing demand deposits     46,812                       34,479                  
Accrued expenses and other liabilities     2,016                       486                  
Shareholders' equity     41,135                       35,587                  
TOTAL LIABILITIES AND                                                
  SHAREHOLDERS' EQUITY   $ 426,827                     $ 408,711                  
Net yield on earning assets                     3.79 %                     3.59 %
                                                 
Taxable equivalent adjustment:                                                
  Loans             0                       0          
  Investment securities             62                       68          
          Total adjustment             62                       68          

  

 
 

 

Cornerstone Bancshares, Inc. and Subsidiary

Loan Stratification

 

        2013           2012              
      First     % of     First     % of     % Dollar  
(Amounts in thousands)     Quarter     Total     Quarter     Total     Change  
Non-residential real estate                                        
    Owner occupied   $ 62,460       22.9     $ 61,830       23.5       1.0  
    Non-owner occupied     64,483       23.7       61,295       23.3       5.2  
    Multi-family real estate     8,255       3.0       10,249       3.9       (19.5 )
    1-4 family construction     8,168       3.0       4,520       1.7       80.7  
    Commercial land and lot development     18,965       7.0       16,421       6.2       15.5  
Total non-residential real estate     162,331       59.6       154,315       58.7       5.2  
Residential real estate                                        
    First mortgage - 1-4 family     43,429       15.9       43,372       16.5       0.1  
    Second mortgage - 1-4 family     2,185       0.8       3,528       1.3       (38.1 )
    Home equity lines     16,391       6.0       15,288       5.8       7.2  
Total residential real estate     62,005       22.7       62,188       23.7       (0.3 )
Total real estate loans     224,336       82.3       216,503       82.4       3.6  
                                         
Commercial     38,301       14.1       34,970       13.3       9.5  
Agricultural & other     7,936       2.9       8,854       3.4       (10.4 )
Consumer     1,977       0.7       2,461       0.9       (19.7 )
Total loans, net of unearned fees   $ 272,550       100.0     $ 262,788       100.0       3.7  

 

 
 

 

Cornerstone Bancshares, Inc. and Subsidiary

Consolidated Balance Sheets

 

    Unaudited        
    March 31,     December 31,  
ASSETS   2013     2012  
                 
Cash and due from banks   $ 5,074,926     $ 3,222,139  
Interest-bearing deposits at other financial institutions     30,826,261       56,173,099  
Total cash and cash equivalents     35,901,187       59,395,238  
                 
Securities available for sale     91,125,829       76,096,646  
Securities held to maturity (fair value approximates                
$43,630 and $46,212 at March 31, 2013 and December 31, 2012, respectively)     42,579       45,086  
Federal Home Loan Bank stock, at cost     2,322,900       2,322,900  
Loans, net of allowance for loan losses of                
$5,669,215 and $6,141,281 at March 31, 2013 and December 31, 2012     266,880,672       270,850,465  
Bank premises and equipment, net     5,289,384       5,399,340  
Accrued interest receivable     1,323,499       1,213,778  
Foreclosed assets     21,159,242       20,332,313  
Other assets     7,664,340       7,790,634  
     Total assets   $ 431,709,632     $ 443,446,400  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY                
                 
Deposits:                
Noninterest-bearing demand deposits   $ 55,400,253     $ 60,053,838  
Interest-bearing demand deposits     26,547,365       30,178,624  
Savings deposits and money market accounts     89,564,444       80,994,239  
Time deposits     165,391,211       173,653,892  
Total deposits     336,903,273       344,880,593  
                 
Accrued interest payable     91,268       120,558  
Federal funds purchased and securities sold under                
agreements to repurchase     21,150,464       19,587,387  
Federal Home Loan Bank advances and other borrowings     31,740,000       37,175,000  
Other liabilities     938,088       794,026  
Total liabilities     390,823,093       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, respectively     14,839,391       14,821,546  
Common stock - $1.00 par value; 20,000,000 shares authorized and                
6,709,199 shares issued in 2013 and 2012;                
6,547,074 and 6,500,396 shares outstanding in 2013 and 2012, respectively     6,547,074       6,500,396  
Additional paid-in capital     21,420,827       21,390,486  
Retained deficit     (3,149,596 )     (3,274,986 )
Accumulated other comprehensive income     1,228,843       1,451,394  
Total stockholders' equity     40,886,539       40,888,836  
Total liabilities and stockholders' equity   $ 431,709,632     $ 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

 

    Unaudited  
    Three Months Ended  
    March 31,  
    2013     2012  
             
INTEREST INCOME                
Loans, including fees   $ 4,141,736     $ 4,143,944  
Securities and interest-bearing deposits at other financial institutions     439,906       467,006  
Federal funds sold     21,472       15,087  
                 
Total interest income     4,603,114       4,626,037  
                 
INTEREST EXPENSE                
Time deposits     465,256       699,094  
Other deposits     137,930       121,243  
Federal funds purchased and securities                
sold under agreements to repurchase     18,080       32,230  
Federal Home Loan Bank advances and other borrowings     340,439       461,207  
                 
Total interest expense     961,705       1,313,774  
                 
Net interest income before provision for loan losses     3,641,409       3,312,263  
                 
Provision for loan losses     300,000       -  
                 
Net interest income after provision for loan losses     3,341,409       3,312,263  
                 
NONINTEREST INCOME                
Customer service fees     188,481       197,434  
Other noninterest income     17,818       20,288  
Net gains from sale of loans and other assets     149,200       49,664  
                 
Total noninterest income     355,499       267,386  
                 
NONINTEREST EXPENSES                
Salaries and employee benefits     1,597,291       1,591,135  
Net occupancy and equipment expense     337,879       335,813  
Depository insurance     159,844       202,783  
Foreclosed assets, net     128,692       150,320  
Other operating expenses     752,174       794,081  
                 
Total noninterest expenses     2,975,880       3,074,132  
                 
Income before income tax expense     721,028       505,517  
                 
Income tax expense     268,900       149,000  
Net income     452,128       356,517  
                 
Preferred stock dividend requirements     375,000       265,856  
Accretion on preferred stock discount     17,845       14,468  
                 
Net income available to common stockholders   $ 59,283     $ 76,193  
                 
EARNINGS PER COMMON SHARE                
Basic   $ 0.01     $ 0.01  
Diluted     0.01       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, 2013

 

                            Accumulated        
                Additional     Retained     Other     Total  
    Preferred     Common     Paid-in     Earnings     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  
                                                 
Issuance of common stock     -       46,678       30,341       -       -       77,019  
                                                 
Preferred stock dividends     -       -       -       (308,893 )     -       (308,893 )
                                                 
Accretion on preferred stock     17,845       -       -       (17,845 )     -       -  
                                                 
Net income     -       -       -       452,128       -       452,128  
                                                 
Unrealized holding gains (losses) on securities available for sale,                                                
     net of reclassification adjustment and taxes     -       -       -       -       (222,551 )     (222,551 )
                                                 
BALANCE, March 31, 2013                                                
    $ 14,839,391     $ 6,547,074     $ 21,420,827     $ (3,149,596 )   $ 1,228,843     $ 40,886,539  

  

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