Unassociated Document

Cornerstone Bancshares, Inc. Announces 3^rd Quarter 2007 Financial Results

Thursday, October 18, 2007 8:00 AM

- PR Newswire

Chattanooga, Tenn., October 18, 2007 /PRNewswire-FirstCall via COMTEX/ -- Cornerstone Bancshares, Inc. (OTC Bulletin Board: CSBQ) today announced the following:

Cornerstone Bancshares, Inc posted 3^rd quarter earnings of $559 thousand or $.09 a share, outpacing performance by many in Financial Services sector. These positive net results occurred despite significant volatility experienced in the financial services industry. The Bank had no sub prime losses to report. It maintains a strong position against risk from sub prime issues due to proactive management policy and underwriting guidelines established internally over two years ago restricting lending practices in this arena.

Total year to date earnings through September 2007 were reported at $3.78 million resulting in a year-to-date earnings per share of $.58. Earnings for the same period last year were $4.37 million with earnings per share of $.68. Year-to-date net interest income increased 12.5% from last year, and was the result of continued above average growth in the Bank’s balance sheet. The Bank experienced continued exceptional loan growth as the loan portfolio finished the 3^rd quarter with an average balance of $367 million, up 27.7% over the same period last year. Asset growth followed this upward direction as the Bank ended the 3^rd quarter with an average balance of $434 million, up 24.2% from the same period last year. Total deposits increased 19.1% from the 3^rd quarter last year to September 2007, ending with an average balance of $314 million. Overall, the Bank’s double digit growth represents results that exceed national trends for the sector.

The Bank’s outlook for the remainder of 2007 and into 2008 remains strong with above industry average yields expected. The strategic position of the Bank in the marketplace remains highly favorable as it continues to capitalize on market opportunities created by the continued fallout from other financial institutions with sub prime lending problems and the consolidation of regional and national banks. Growing consumer dissatisfaction with declining customer service levels and increased offshore account servicing operations of larger banking institutions provides the Bank with a highly attractive business proposition relative to its competitors due to its low fee structure, personal service approach and consistent record of performance.

The Bank did experience a slight compression in the net interest margin this quarter, largely due to the Bank’s deposits repricing at a faster rate than the earning assets. The Bank’s year to date net interest margin for 2007 was 5.42% compared to 5.82% for the same period in 2006. The Company expects its net interest margin to continue to compress over the next 12 months until it reaches a more sustainable range of 4.85% to 5.00%. Other corrective action in the 3^rd quarter was taken by management to address potential financial implications of an isolated loan matter announced last quarter. The Bank provided $2.5 million to the loan loss allowance this quarter specifically to offset the potential impact of this particular loan. During the 3^rd quarter, the Bank successfully executed arrangements resulting in continued operation of the responsible entity, greatly increasing the prospects for positive repayment of the $5.5 million in collateralized debt associated with the account. Management determined in consultation with external accountants the appropriate allowance level in order to offset any potential shortfalls of collateral if the company were to unexpectedly discontinue operations and to satisfy the requirements of FAS 114. While the Company’s earnings forecast for 2007 year-end has been adjusted to $5.4 million or $.83 per share, down from $6.5 million or $1.00 per share to adjust for the specific loan loss provision previously reported and general economic conditions, the Company’s overall earnings record continues to show exceptional performance compared to the industry and its peers.

Cornerstone Bancshares, Inc. is a one-bank holding company headquartered in Chattanooga, Tennessee with 5 branches and loan production offices in Dalton, GA and Knoxville, TN. The Bank has $450 million in assets and specializes in financial and banking services for businesses.

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, which contains a safe harbor for forward-looking statements. The Company relies on this safe harbor in making such disclosures. The statements are based on management's current beliefs and assumptions about expectations, estimates, strategies and projections. These statements are not guarantees of future performance or results and involve risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements.

Media Contact:

Frank Hughes, President & COO of Cornerstone Bancshares, Inc.

Phone number: 423-385-3009

CORNERSTONE BANCSHARES, INC.

Selected Financial Information

as of September 30, 2007

(in thousands)

	Three Months								Year-to-Date
	Ending September 30					%			Ending September 30				%
EARNINGS SUMMARY	2007			2006		Change			2007		2006		Change
Interest income	$	9,131		$	7,534		21.2	%	$	25,978	$	21,229		22.4	%
Interest expense		3,785			2,781		36.1	%		10,388		7,375		40.8	%
Net interest income		5,346			4,753		12.5	%		15,590		13,854		12.5	%
Provision for loan loss		2,964			205		1345.6	%		3,201		1,058		202.5	%
Net interest income after provision		2,383			4,548		-47.6	%		12,390		12,796		-3.2	%
Noninterest income		359			418		-14.2	%		1,162		1,535		-24.3	%
Noninterest expense		2,371			2,423		-2.1	%		8,115		7,221		12.4	%
Pretax income		370			2,543		-85.4	%		5,437		7,110		-23.5	%
Income taxes		(189	)		997		-119.0	%		1,662		2,745		-39.5	%
Net income	$	559		$	1,546		-63.8	%	$	3,775	$	4,365		-13.5	%

Earnings per common share	$	0.09		$	0.24		-64.3	%	$	0.58	$	0.68		-14.2	%
Weighted average common shares outstanding (1)		6,520,059			6,501,630					6,517,249		6,471,364

	Three Months							Year-to-Date
AVERAGE BALANCE	Ending September 30				%			Ending September 30				%
SHEET SUMMARY	2007		2006		Change			2007		2006		Change
Loans, net of unearned income		367,056		287,354		27.7	%	$	344,890	$	280,166		23.1	%
Investment securities & Other		43,561		43,486		0.2	%		40,453		38,817		4.2	%
Earning assets		410,618		330,840		24.1	%		385,343		318,983		20.8	%
Total assets		434,018		349,508		24.2	%		407,445		338,902		20.2	%
Noninterest bearing deposits		46,673		35,752		30.5	%		42,541		36,139		17.7	%
Interest bearing transaction deposits		93,978		92,026		2.1	%		91,263		91,970		-0.8	%
Certificates of deposit		173,773		136,164		27.6	%		161,730		129,905		24.5	%
Total deposits		314,425		263,942		19.1	%		295,534		258,014		14.5	%
Other interest bearing liabilities		75,625		46,708		61.9	%		68,977		43,715		57.8	%
Shareholder's equity		41,729		36,359		14.8	%		40,561		34,917		16.2	%

	Three Months						Year-to-Date
	Ending September 30						Ending September 30
SELECTED RATIOS	2007			2006			2007			2006

Average equity to average assets		9.61	%		10.40	%		9.95	%		10.30	%
Average net loans to average total assets		84.57	%		82.22	%		84.65	%		82.67	%
Return on average assets		0.52	%		1.77	%		1.24	%		1.72	%
Return on average total equity		5.36	%		17.01	%		12.41	%		16.67	%
Actual Equity on September 30,	$	41,273,694		$	36,864,528
Actual # shares outstanding on Sept. 30		6,519,718			6,506,318
Book value per common share	$	6.33		$	5.67

Date of Report (Date of earliest event reported)		October 18, 2007
CORNERSTONE BANCSHARES, INC.
(Exact name of registrant as specified in its charter)

Tennessee	000-30497			62-1175427
(State or other jurisdiction of incorporation)	(Commission File Number)			(I.R.S. Employer Identification No.)
835 Georgia Avenue, Chattanooga, Tennessee				37343
(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):

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

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

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

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


	CORNERSTONE BANCSHARES, INC. (Registrant)

Date: October 18, 2007	By:	\s\ Nathaniel F. Hughes
		Nathaniel F. Hughes,
		President and Chief Operating Officer