EX-99.1 2 a6717803ex99_1.htm EXHIBIT 99.1

Exhibit 99.1

Cornerstone Bancshares, Inc. Announces 1st Quarter 2011 Financial Results

CHATTANOOGA, Tenn.--(BUSINESS WIRE)--April 27, 2011--Cornerstone Bancshares, Inc. (OTC Bulletin Board: CSBQ) today announced the following:

Cornerstone Bancshares, Inc. (“Cornerstone”), parent company of Cornerstone Community Bank (“Bank”), reported positive net income for the first quarter 2011 of approximately $252,000. This represents a decrease of 26.7 percent compared to the first quarter of 2010’s net income of approximately $344,000. Cornerstone saw a 58.4 percent decrease in its non accrual loans compared to December 31, 2010, as the Bank was able to take control of troubled properties and moved them to the final phase in the collection process. During the first quarter of 2011, Cornerstone added $15,000 to the loan loss provision as the Bank believes it has sufficient funding to handle loan impairments, which represents a decrease of 98.5 percent compared to the first quarter of 2010.

Total assets decreased 20.4 percent to $447.5 million at March 31, 2011, down $114.6 million from $562.1 million at March 31, 2010. Loans totaled $273.7 million as of March 31, 2011, compared with $325.9 million as of March 31, 2010, a decrease of 16.0 percent. The Bank decreased its security portfolio to $100.9 million as of March 31, 2011, from $150.6 million as of March 31, 2010, a decrease of 33.0 percent. These are planned reductions to take the Bank to a $400-$425 million level. Once at this level, management believes the Bank will be able to stabilize with an appropriate level of capital and an asset mix to return to its normal peer level of profitability.

“We continue to reshape our balance sheet and move problem loans through the collection cycle. We have seen an improvement in the real estate market in Chattanooga and believe that the speed of disposal of properties will accelerate during 2011 as properties either sell or are rented to produce noninterest income,” said Cornerstone President Frank Hughes. “While we still have some improvement to make, I’m pleased with the progress we’ve made and the tremendous strides we’ve taken toward a continued trend in positive net earnings.”

Cornerstone’s allowance for loan losses was $7.9 million or 2.9 percent of total loans as of March 31, 2011, compared to $6.8 million or 2.1 percent of total loans as of March 31, 2010. Nonperforming assets were $27.8 million or 6.2 percent of total assets at March 31, 2011, compared to $19.8 million or 3.5 percent at March 31, 2010. Net charge-offs were $1.2 million for the first quarter of 2011, compared to $160,000 for the first quarter of 2010. Cornerstone has seen a leveling off of loan deterioration in the Chattanooga, Tennessee MSA and expects a decrease in non-performing assets during 2011.

“Our Directors and Management team remain fully committed and engaged to keep Cornerstone tracking in the right direction,” said Cornerstone Chairman Miller Welborn. “Our goal is to provide the best products, service and value to each of our Bank customers, and a positive return on investment for all of our Cornerstone stakeholders.”

Cornerstone is a single-bank holding company, with $448 million in assets, serving the Chattanooga, Tennessee MSA, with five branches throughout Chattanooga, Tennessee 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, 2011 and 2010
(Unaudited)
             
(Amounts in thousands, except per common share data)  

2011

  2010   % Change

Balance Sheet Data at March 31

     
Total assets $ 447,540 $ 562,065 (20.4 )
Interest-earning assets 420,104 533,523 (21.3 )
Loans 273,750 325,948 (16.0 )
Foreclosed assets 20,464 8,240 148.3
Deposits 337,487 429,198 (21.4 )
Other interest-bearing liabilities 81,270 102,256 (20.5 )
Shareholders' equity 27,290 28,583 (4.5 )
Loan to deposit ratio 81.11 % 75.94 % 6.8
Tier 1 Leverage Ratio (Bank) 5.75 % 5.64 % 2.0
Total Risk-Based Capital Ratio (Bank) 10.06 % 10.01 % 0.5
Outstanding common shares (000s) 6,500 6,500 -
Book value per common share $ 3.65 $ 4.40 (17.0 )
Tangible book value per common share $ 3.64 $ 4.00 (9.0 )
Market value per common share as of March 31 $ 1.50 $ 2.70 (44.4 )
 

Loan Quality Data

Nonaccruing loans 5,671 8,469 (33.0 )
Loans past due 90 days – accruing - - -
Net charge-offs YTD 1,233 160 670.8
Allowance for loan losses 7,914 6,760 17.1
Allowance for loan losses to total loans 2.89 % 2.07 %
Nonperforming assets to total assets 5.84 % 2.97 %
 

Performance Data for the Year

Net income available to common stockholders $ 181 $ 344 47.5
Return on average assets 0.17 % 0.26 %
Return on average equity 2.71 % 4.80 %
Net interest margin 3.44 % 3.64 %
Per common share data:
Net income – basic $ 0.03 $ 0.05
Net income – diluted $ 0.03 $ 0.05
Common dividends paid $ - $ -
Preferred dividends paid $ - $ -
Average shares (000s):
Basic common stock 6,500 6,500
Diluted common stock 6,500 6,500
Preferred stock 149 -
 
Cornerstone Bancshares, Inc. and Subsidiary
Loan Loss Allowance and Asset Quality Review
           
2011 2010
First Fourth Third Second First
(Amounts in thousands)   Quarter     Quarter   Quarter   Quarter   Quarter
 
Allowance for loan losses
Balance at beginning of period $ 9,132 $ 6,271 $ 6,967 $ 6,760 $ 5,905
Provision for loan losses 15 4,130 681 1,465 1,015
Net charge-offs     (1,233 )     $ (1,269 )   $ (1,377 )   $ (1,258 )   $ (160 )
Balance at end of period   $ 7,914       $ 9,132     $ 6,271     $ 6,967     $ 6,760  
 
As a % of loans 2.89 % 3.20 % 2.15 % 2.19 % 2.07 %
As a % of nonperforming loans 108.10 % 63.06 % 38.97 % 36.81 % 61.21 %
As a % of nonperforming assets 28.48 % 33.46 % 21.25 % 23.91 % 39.21 %
 
Net charge-offs as a % of loans (a) 1.80 % 1.78 % 1.89 % 1.58 % 0.20 %
 
Risk element assets
Nonaccruing loans $ 5,671 $ 13,633 $ 10,237 $ 13,030 $ 8,468
Accruing troubled debt restructured 1,650 $ 848 $ 5,853 $ 5,895 $ 2,576
Loans past due 90 days – accruing   $ -         -       -       -       -  
Total nonperforming loans 7,321 14,481 16,090 18,925 11,044
Repossessed assets - 150 285 350 473
Other real estate owned (b)(c)(d)     20,464         12,659       13,142       9,862       8,241  
Total nonperforming assets   $ 27,785       $ 27,290     $ 29,517     $ 29,137     $ 19,758  
 
Loans past due 30-89 days $ 8,434 $ 2,306 $ 1,500 $ 6,655 $ 6,669
 
Nonperforming loans as a % of loans 2.67 % 5.08 % 5.51 % 5.94 % 3.39 %

Nonperforming assets as a % of loans and other real estate owned

9.44 % 9.16 % 9.67 % 8.87 % 5.91 %
 
Total loans 273,750 285,247 292,046 318,796 325,948
 
(a) Annualized
(b) Properties sold since quarter-end $ 1,227
(c) Properties rented $ 868
(d) Properties under contract to sell $ 8,065
 
Cornerstone Bancshares Inc. and Subsidiary
Net Interest Margin Analysis
Taxable Equivalent Basis
 
  Three months ended
March 31
(Amounts in thousands)  
Assets 2011     2010
Average   Income/   Yield/ Average   Income/   Yield/
Earning assets: Balance   Expense   Rate Balance   Expense   Rate
Loans, net of unearned income $ 284,297 $ 4,639 6.62 % $ 330,024 $ 5,948 7.31 %
Investment securities 109,844 568 2.41 % 134,834 1,129 3.62 %
Other earning assets   24,122     11 0.18 %   45,528     24 0.21 %
Total earning assets 418,263 $ 5,218 5.14 % 510,386 $ 7,101 5.70 %
Allowance for loan losses (9,071 ) (5,993 )
Cash and other assets   28,629     29,919  
TOTAL ASSETS $ 437,821   $ 534,312  
 
Liabilities and Shareholders' Equity
 
Interest bearing liabilities:
Interest bearing demand deposits $ 27,590 $ 21 0.31 % $ 27,908 $ 30 0.44 %
Savings deposits 9,499 12 0.51 % 8,727 11 0.51 %
MMDA's 24,437 60 1.00 % 23,718 57 0.97 %
Time deposits 244,021 1,052 1.75 % 307,034 1,684 2.22 %

Federal funds purchased and securities sold under agreements to repurchase

22,625 31 0.56 % 23,637 35 0.61 %
Other borrowings   54,356     580 4.33 %   72,306     779 4.37 %
Total interest bearing liabilities 382,528   1,756 1.86 % 463,330   2,596 2.27 %
Net interest spread $ 3,462 3.28 % $ 4,505 3.43 %
Noninterest bearing demand deposits 28,964 48,211
Accrued expenses and other liabilities (354 ) (5,897 )
Shareholders' equity 26,683 28,668
   

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY

$ 437,821   $ 534,312  
Net yield on earning assets 3.44 % 3.64 %
 
Taxable equivalent adjustment:
Loans - -
Investment securities   85   74
Total adjustment   85   74
 
Cornerstone Bancshares Inc. and Subsidiary
Quarterly Earnings Summary
                         
(Unaudited) (Unaudited)
2011 2010   Q1-11 /
First Fourth   Third   Second   First Q1-10
(Amounts in thousands) Quarter Quarter   Quarter   Quarter   Quarter   % Chg
Interest Income
Loans, including fees $ 4,639 $ 4,896 $ 5,160 $ 5,494 $ 5,948 -22.0 %
Investment securities and interest bearing deposits 568 534 754 1,216 1,129 -49.7 %
Other earning assets   11     15       19       22       24   -54.2 %
Total interest income   5,218     5,445       5,933       6,732       7,101   -26.5 %
Interest expense
Deposits 1,145 1,239 1,478 1,719 1,782 -35.8 %
Short-term borrowings 31 28 32 32 35 -11.4 %
FHLB advances and other borrowings   580     651       666       760       779   -25.6 %
Total interest expense   1,756     1,918       2,176       2,511       2,596   -32.4 %
Net interest income 3,462 3,527 3,757 4,221 4,505 -23.1 %
Provision for loan losses   15     4,130       681       1,465       1,015   -98.5 %
Net interest income after the
provision for loan losses   3,447     (603 )     3,076       2,756       3,490   -1.2 %
Noninterest income
Customer service fees 215 280 309 342 342 -37.0 %
Other noninterest income 20 63 34 29 31 -34.6 %
Gain / (loss) on sale of loans and other assets     34       (681 )     544       439       (53 ) -164.2 %
Total noninterest income   269     (338 )     887       810       320   -15.9 %
Noninterest expense
Salaries and employee benefits 1,542 1,515 1,525 1,521 1,633 -5.6 %
Net occupancy and equipment 406 380 397 369 355 14.5 %
Depository insurance 322 350 386 237 247 30.4 %
Goodwill impairment - 2,541 - - - -
Other operating expense   1,145     1,255       1,372       1,476       1,081   5.9 %
Total noninterest expense   3,415     6,041       3,680       3,603       3,316   3.0 %
Income (loss) before income taxes 301 (6,982 ) 283 (37 ) 494 -39.1 %
Income tax expense (benefit)   49     (1,699 )     69       (55 )     150   -67.6 %
Net income (loss)   252     (5,283 )     214       18       344   -26.7 %
 
Preferred stock dividend requirements 72 34 - - -
 
Net income (loss) available to common
shareholders $ 180 $ (5,317 ) $ 214 $ 18 $ 344
 
Net income (loss) per common share:
Basic $ 0.03   $ (0.82 )   $ 0.03     $ 0.00     $ 0.05   NM
Diluted $ 0.03   $ (0.82 )   $ 0.03     $ 0.00     $ 0.05   NM
Average basic shares (000s) 6,500 6,500 6,500 6,500 6,500 NM
Average diluted shares (000s) 6,500 6,500 6,500 6,500 6,500 NM
Performance Ratios
Return on average equity 3.78 % -67.90 % 2.81 % 0.25 % 4.80 % NM
Return on average assets 0.23 % -4.66 % 0.17 % 0.01 % 0.26 % NM
Net interest margin 3.44 % 3.36 % 3.36 % 3.41 % 3.64 % NM
Average equity 26,683 31,120 30,355 29,105 28,668
Average assets 437,821 453,665 488,771 529,655 534,312
Average interest-earning assets 418,263 425,789 458,213 506,631 510,386
 
NM=Not Material
         
Cornerstone Bancshares, Inc. and Subsidiary
Loan Stratification
 
2011 2010
(Amounts in thousands) First % of First % of % Dollar
    Quarter     Total   Quarter   Total   Change
Non-residential real estate
Owner occupied $ 64,492 23.6 $ 76,016 23.3 (15.2 )
Non-owner occupied 59,336 21.7 74,690 22.9 (20.6 )
Multi-family real estate 11,781 4.3 13,172 4.0 (10.6 )
1-4 family construction 3,827 1.4 6,318 1.9 (39.4 )
Commercial land and lot development     19,718     7.2     33,121   10.3   (40.5 )
Total non-residential real estate     159,154     58.2     203,317   62.4   (21.7 )
Residential real estate
First Mortgage - 1-4 family 42,835 15.6 43,074 13.2 (0.6 )
Second Mortgage - 1-4 family 4,639 1.7 5,277 1.6 (12.1 )
Home equity lines     11,005     4.0     10,073   3.2   9.3  
Total residential real estate     58,479     21.3     58,424   18.0   0.1  
Total real estate loans 217,633 79.5 261,741 80.4 (16.9 )
 
Commercial 44,592 16.3 54,814 16.8 (18.6 )
Agricultural & other 8,449 3.1 6,013 1.8 40.5
Consumer     3,076     1.1     3,380   1.0   (9.0 )
Total loans, net of unearned fees   $ 273,750     100.0   $ 325,948   100.1   (16.0 )
 
Cornerstone Bancshares, Inc. and Subsidiary
Consolidated Statement of Changes in Stockholders' Equity - Unaudited
For the three months ended March 31, 2011
             
Additional Other Total
Comprehensive Preferred Common Paid-in Retained Comprehensive Stockholders'
Income Stock Stock Capital Deficit Income Equity
 
BALANCE, December 31, 2010 $ 2,727,424 $ 6,500,396 $ 21,237,298 $ (4,317,130 ) $ (328,835 ) $ 25,819,153
 
Employee compensation stock option expense - - 19,785 - - 19,785
 
Issuance of Series A Convertible Preferred Stock 851,661 - - - - 851,661
 
Comprehensive income:
Net income $ 252,275 - - - 252,275 - 252,275
 
Other comprehensive income, net of tax:

Unrealized holding gains on securities available for sale, net of reclassification adjustment

346,702 - - - - 346,702 346,702
Total comprehensive income $ 598,977
 
BALANCE, March 31, 2011 $ 3,579,085 $ 6,500,396 $ 21,257,083 $ (4,064,855 ) $ 17,867   $ 27,289,576
 
Cornerstone Bancshares, Inc. and Subsidiary
Consolidated Statements of Operations
       
Unaudited
Three months ended
March 31,
2011 2010
INTEREST INCOME
Loans, including fees $ 4,638,805 $ 5,948,246
Investment securities 568,672 1,129,279
Federal funds sold & other earning assets   11,003   23,661
Total interest income   5,218,480   7,101,186
 
INTEREST EXPENSE
Time deposits 1,052,449 1,684,027
Other deposits 92,612 97,723

Federal funds purchased and securities sold under agreements to repurchase

31,003 35,415
FHLB advances and other borrowings   579,658   779,197
Total interest expense   1,755,722   2,596,362
 
Net interest income before provision for loan losses 3,462,758 4,504,824
Provision for loan losses   15,000   1,015,000
Net interest income after the provision for loan losses   3,447,758   3,489,824
 
NONINTEREST INCOME
Customer service fee 215,451 341,914
Other noninterest income 20,279 20,611
Net gains from sale of loans and other assets   34,027   41,137
Total noninterest income   269,757   403,662
 
NONINTEREST EXPENSE
Salaries and employee benefits 1,542,702 1,633,344
Net occupancy and equipment expense 406,334 355,183
Depository insurance 322,655 269,740
Foreclosed assets, net 361,570 196,173
Other operating expense   783,354   945,558
Total noninterest expense   3,416,615   3,399,998
 
Income before provision for income taxes 300,900 493,488
Provision for income taxes   48,625   149,701
 
Net income 252,275 343,787
 
Preferred stock dividend requirement   71,588   -
 
Net income available to common shareholders $ 180,687 $ 343,787
 
EARNINGS PER COMMON SHARE
Basic net income per common share $ 0.03 $ 0.05
Diluted net income per common share $ 0.03 $ 0.05
 
DIVIDENDS DECLARED PER COMMON SHARE $ - $ -
 
Cornerstone Bancshares, Inc. and Subsidiary
Consolidated Balance Sheets
   
 
Unaudited
March 31, December 31,
ASSETS 2011 2010
 
Cash and due from banks $ 1,508,964 $ 1,490,030
Interest-bearing deposits at other financial institutions 39,921,667 21,491,922
 
Securities available for sale 100,788,157 108,250,434

Securities held to maturity (fair value approximates of $94,528 and $98,388 at March 31, 2011 and December 31, 2010, respectively)

92,064 95,702
Federal Home Loan Bank stock, at cost 2,322,900 2,322,900

Loans, net of allowance for loan losses of $7,913,933 at March 31, 2011 and $9,132,171 at December 31, 2010

265,835,680 276,114,617
Bank premises and equipment, net 6,142,044 8,047,370
Accrued interest receivable 1,430,772 1,326,480
Foreclosed assets 20,463,835 12,808,838
Other assets   9,033,919     9,551,121  
Total Assets $ 447,540,002   $ 441,499,414  
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
Deposits:
Noninterest-bearing demand deposits $ 33,529,178 $ 28,980,043
Interest-bearing demand deposits 27,945,913 24,834,214
Savings deposits and money market accounts 34,775,755 34,041,672
Time deposits 241,235,748 247,591,161
Total deposits 337,486,594 335,447,090

Federal funds purchased and securities sold under agreements to repurchase

27,789,544 24,325,372
Federal Home Loan Bank advances and other borrowings 53,480,000 54,715,000
Accrued interest payable 211,452 176,761
Other liabilities   1,282,836     1,016,038  
Total Liabilities   420,250,426     415,680,261  
 
Stockholders' Equity:

Preferred stock - no par value; 2,000,000 shares authorized; 148,920 shares issued and outstanding in 2011 and 114,540 shares issued and outstanding in 2010

3,579,085 2,727,424

Common stock - $l.00 par value; 20,000,000 shares authorized; 6,709,199 issued in 2011 and 2010; 6,500,396 outstanding in 2011 and 2010

6,500,396 6,500,396
Additional paid-in capital 21,257,083 21,237,298
Retained deficit (4,064,855 ) (4,317,130 )
Accumulated other comprehensive income   17,867     (328,835 )
Total Stockholders' Equity   27,289,576     25,819,153  
Total Liabilities and Stockholders' Equity $ 447,540,002   $ 441,499,414  
 

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CONTACT:
Cornerstone Bancshares, Inc.
Frank Hughes, President and CEO, 423-385-3009