Cornerstone Bancshares, Inc. (OTCBB: CSBQ), which operates Cornerstone Community Bank of Chattanooga, announced financial results for the fourth quarter of 2009, including a net loss of $2.96 million or ($0.46) per share.

For all of 2009, Cornerstone reported a net loss of $8.18 million or ($1.26) per share.

Officials said the fourth quarter 2009 loss "was a direct result of Cornerstone’s continued commitment to reduce problem assets, as the bank provided $4.15 million of additional provision for loan losses.

"During the fourth quarter 2009, management charged off the loan portfolio’s possible losses and wrote down the bank’s other real estate to a level that should allow the bank to sell the property without any further material loss. If the economy does not deteriorate further in 2010, the bank should see a material improvement in its asset quality metrics and should see improvements in earnings, as problem assets have less of a negative impact on earnings generation. Cornerstone’s net interest margin remained at a historically low rate of 3.27% year-to-date; however, management expects an improvement as the amount of non-accrual loans decreases and the certificate of deposit portfolio re-prices to lower current rates.

"The bank remains committed to reducing expenses and improving core earnings.

"Cornerstone expects positive earnings in 2010, as asset quality stabilizes and the associated expenses reduce to allow the Bank’s efficiency to improve.

"The bank’s asset quality improved during the fourth quarter in 2009, as non-performing loans as a percentage of average total loans decreased to 2.14%. The Bank’s past-due loans materially improved from 5.46% at the end of third quarter 2009 to 1.30% as of the end of fourth quarter 2009.

"Cornerstone had net charge-offs of $5.6 million during the fourth quarter 2009. The bank’s total non-performing assets increased to $17.5 million, as problem loans identified during the first half of 2009 progressed through the collection cycle. The Bank believes these numbers have reached their height and will begin reducing steadily during 2010.

"Overall, Cornerstone is optimistic and has retained its strong core earnings platform that, once its asset quality issues improve, will return as a well-performing company."

Cornerstone announced last November that its chairman and chief executive officer, Gregory B. Jones, had resigned from all positions he holds as an officer or director of Cornerstone and its subsidiaries and affiliates, including Cornerstone Community Bank.

The action came after Cornerstones revealed additional losses after an FDIC examination. Cornerstone at the time said it had a net loss of $5.2 million for the first nine months of 2009.

Nathaniel F. "Frank" Hughes, president, chief operating officer and treasurer, is serving as Cornerstone’s interim chief executive officer while Cornerstone conducts an executive search for a permanent CEO, giving consideration to both internal and external candidates.

Miller Welborn, a non-employee director, was appointed to serve as the chairman of the board of directors.

Cornerstone Bancshares, Inc. is a one-bank holding company serving the Chattanooga MSA, with five full-service branches and one loan
production office in Dalton, Ga., and $500 million in assets, specializing in business financial services.

CORNERSTONE BANCSHARES, INC.
Selected Financial Information ( Unaudited)
as of December 31, 2009
(in thousands)
Three Months Year-to-Date
Ending December 31 % Ending December 31 %
EARNINGS 2009 2008 Change 2009 2008 Change
SUMMARY
Interest $ 6,610 $ 7,401 -10.7 % $ 26,308 $ 30,680 -14.2 %
income
Interest 2,762 2,978 -7.3 % 11,189 12,698 -11.9 %
expense
Net interest 3,848 4,423 -13.0 % 15,119 17,982 -15.9 %
income
Provision for 4,150 2,571 61.4 % 14,899 3,528 322.3 %
loan loss
Net interest
income (loss) (302 ) 1,852 116.3 % 220 14,454 -98.5 %
after
provision
Noninterest (561 ) 496 -213.1 % 541 1,892 -71.4 %
income
Noninterest 4,006 3,104 29.1 % 14,276 12,538 13.9 %
expense
Pretax income (4,869 ) (756 ) -544.1 % (13,515 ) 3,808 -454.9 %
(loss)
Income taxes (1,904 ) (320 ) -495.8 % (5,336 ) 1,297 -511.6 %
(benefit)
Net income $ (2,965 ) $ (436 ) -579.5 % $ (8,179 ) $ 2,512 -425.6 %
(loss)

Earnings per $ (0.46 ) $ (0.07 ) -559.8 % $ (1.26 ) $ 0.39 -425.7 %
common share
Weighted
average
common shares
outstanding 6,500,396 6,493,222 6,500,396 6,502,828

Three Months Year-to-Date
AVERAGE Ending December 31 % Ending December 31 %
BALANCE
SHEET SUMMARY 2009 2008 Change 2009 2008 Change
Loans, net of
unearned $ 344,606 $ 391,885 -12.1 % $ 363,146 $ 385,957 -5.9 %
income
Investment
securities & 154,441 51,664 198.9 % 103,939 47,965 116.7 %
Other
Earning 499,047 443,550 12.5 % 467,085 433,922 7.6 %
assets
Total assets 519,520 462,576 12.3 % 484,669 452,605 7.1 %
Noninterest
bearing 38,028 43,592 -12.8 % 40,816 42,915 -4.9 %
deposits
Interest
bearing 57,684 69,298 -16.8 % 63,133 81,706 -22.7 %
transaction
deposits
Certificates 305,134 210,187 45.2 % 256,551 190,221 34.9 %
of deposit
Total 400,845 323,077 24.1 % 360,500 314,842 14.5 %
deposits
Other
interest 92,990 102,379 -9.2 % 93,773 100,109 -6.3 %
bearing
liabilities
Shareholders' 31,104 37,519 -17.1 % 33,600 37,435 -10.2 %
equity

Three Months Year-to-Date
Ending December 31 Ending December 31
SELECTED 2009 2008 2009 2008
RATIOS

Average
equity to
average 5.99 % 8.11 % 6.93 % 8.27 %
assets
Average net
loans to
average total 66.33 % 84.72 % 74.93 % 85.27 %
assets
Return on
average -2.26 % -0.37 % -1.69 % 0.55 %
assets
Return on
average total -37.82 % -4.65 % -24.34 % 6.71 %
equity
Actual Equity
on December $ 27,837,479 $ 36,501,509
31,
Actual #
shares
outstanding 6,500,396 6,319,718
on December
31,
Book value
per common $ 4.28 $ 5.78
share