Cornerstone Bancshares, Inc. Announces 1st Quarter 2010 Financial Results

Cornerstone Bancshares, Inc. (OTC Bulletin Board: CSBQ) today announced the following:

Cornerstone Bancshares, Inc. ("Cornerstone”) reported positive net income for the first quarter 2010 of $344,000, or $0.5 per diluted share. This represents an increase of 111.8 percent compared to the first quarter of 2009’s loss of $(2.9) million or $(0.45) per share. Cornerstone saw a 12.8 percent increase in its net interest margin driven by top-line interest revenue growth and lower interest expense. Cornerstone added $1.0 million to the loan loss provision to fund identified loan impairments, and this amount represents a decrease compared to the first quarter of 2009. Other growth and performance ratios are included in the attached financial tables.

Total assets increased 16.7 percent to $562.1 million at March 31, 2010, up $80.6 million from $481.5 million at March 31, 2009. Loans totaled $325.9 million as of March 31, 2010, compared with $379.0 million as of March 31, 2009, a decrease of 14.0 percent. The Bank increased its security portfolio to $150.6 million as of March 31, 2010, from $52.3 million as of March 31, 2009, an increase of 190 percent. These changes allowed the Bank to greatly increase the reliability and amount of its liquidity. This was funded with an increase of the Bank’s deposits to $429.2 million as of March 31, 2010 from $349.9 million as of March 31, 2009, an increase of 22.7 percent.

As of March 31, 2010, Cornerstone Community Bank ("Bank”) returned to a well-capitalized status, as a result of the Bank’s reduced risk profile and growth of its total capital account generated by net income for the current quarter.

"Given the aggressive steps we’ve taken over the past year to improve our loan credit quality and to reshape our balance sheet, we’re especially pleased to record a profit this first quarter,” said Cornerstone President and CEO Frank Hughes. "Our directors and officers own more than 20 percent of Cornerstone’s common shares and are fully engaged and invested to keep Cornerstone tracking in the right direction.”

Cornerstone’s allowance for loan losses was $6.8 million or 2.1 percent of total loans as of March 31, 2010, compared to $5.9 million or 1.8 percent as of December 31, 2009. Nonperforming assets were $17.2 million or 3.1 percent of total assets at March 31, 2010, compared to $17.9 million or 3.4 percent at December 31, 2009. Net charge-offs were $160,000 for the first quarter of 2010, compared to $5.6 million for the fourth quarter of 2009. Cornerstone has seen a leveling off of loan deterioration in the Chattanooga, Tennessee MSA and has experienced a slight decrease in non-performing assets.

"In this ever-changing economy, Cornerstone remains steadfast in our commitment to provide exceptional products, service and value for each and every one of our customers,” said Hughes. "These fundamental tenets and our solid earnings footprint will serve as the foundation on which Cornerstone will build, to take full advantage of the opportunities that lie ahead.”

Cornerstone is a one-bank holding company, with $560 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.