Cornerstone Bancshares, Inc saw its 3rd quarter earnings increase to $1.55 million or $.48 a share and $4.37 million year to date an increase of 46.4% while book earnings per share increased to $1.35 versus $.99, an increase of 36.4%. The earnings growth was the result of continued balance sheet growth and core deposit growth coupled with an increase in Cornerstone’s net interest margin to 5.72%. Leading the growth in deposits were certificates of deposit which on average grew 28.9% over the same period in 2005. The Bank experienced continued exceptional loan growth as the loan portfolio finished the quarter with an average 3rd quarter balance of $287 million, up 17.3% over the same period in 2005. The loan growth was concentrated in the business sector especially in asset based and commercial real estate lending as more customers choose customer service and went with a local organization that partnered with its customers. Asset growth followed in line with loan growth as the Bank averaged $350 million in assets for the 3rd quarter of 2006 up from $294 million during the 3rd quarter of 2005 an increase of 18.7%. The elevated net interest margin is due to increased number of participated loan servicing fees and a timing difference between the Bank’s repricing of assets and liabilities.

The asset quality improved slightly and remained at the superior level during the first three quarters of 2006 as non-performing assets as a percentage of average total loans remained at 0.36%. The Bank had net charge offs of $90 thousand during the third quarter and $203 thousand year to date, while providing $1,058 thousand to the loan loss allowance year to date. The large provision was created to fully fund the loan loss allowance for the loan growth realized from the first three quarters of 2006, and as a result Cornerstone was able to maintain a 1.53% allowance for possible loan losses compared to average loans.

Cornerstone Bancshares Inc. 3rd quarter 2006 earnings of $1.55 million represent a 25.7% increase over the 3rd quarter in 2005 earnings of $1,230 thousand. Earnings per share for the 3rd quarter 2006 were $0.48 compared to $0.40 per share for the 3rd quarter of 2005.

Cornerstone Bancshares, Inc. is a one-bank holding company serving the Chattanooga, Tennessee MSA with 5 branches and $350 million in assets specializing in business financial services.

Cornerstone Bancshares, Inc. saw its 2nd quarter earnings increase to $1.46 million or $.45 a share and $2.82 million year to date, an increase of 60.8% while book earnings per share increased to $.87 versus $.59, an increase of 47.5%. The earnings growth was the result of continued balance sheet growth and core deposit growth coupled with an increase in Cornerstone’s net interest margin to 5.89%. Leading the growth in deposits were certificates of deposit which on average grew 33.7% over the same period in 2005. The Bank experienced continued exceptional loan growth as the loan portfolio finished the quarter with an average 2nd quarter balance of $281 million, up 23.2% over the same period in 2005. The loan growth was concentrated in the business sector especially in asset based and commercial real estate lending as more customers choose customer service and went with a local organization that partnered with its customers. Asset growth followed in line with loan growth as the Bank averaged $338 million in assets for the 2nd quarter of 2006 up from $279 million during the 2nd quarter of 2005 an increase of 21.0%. The elevated net interest margin is due to increased number of participated loan servicing fees and a timing difference between the Bank’s repricing of assets and liabilities.

Due to the above mentioned performance Cornerstone’s Board announces an updated earnings projection for nominal EPS during 2006. EPS guidance has been increased from $1.62 per share to $1.75 per share.

The asset quality improved slightly and remained at the superior level during the first half of 2006 as non-performing assets as a percentage of average total loans decreased to 0.36%. The Bank had net charge offs of $82 thousand during the second quarter and $113 thousand year to date, while providing $853 thousand to the loan loss allowance year to date. The large provision was created to fully fund the loan loss allowance for the loan growth realized from the first two quarters of 2006, and as a result Cornerstone was able to maintain a 1.52% allowance for possible loan losses compared to average loans.

Cornerstone Bancshares, Inc. 2nd quarter 2006 earnings of $1.46 million represent a 60.4% increase over the 2nd quarter in 2005 earnings of $912 thousand. Earnings per share for the 2nd quarter 2006 were $0.45 compared to $0.30 per share for the 2nd quarter of 2005.

Cornerstone Bancshares, Inc. is a one-bank holding company serving the Chattanooga, Tennessee MSA with 5 branches and $340 million in assets specializing in business financial services.

CORNERSTONE BANCSHARES, INC.
Selected Financial Information
as of June 30, 2006
(in thousands)

Cornerstone Bancshares, Inc. Board of Directors announced the record date and payment date of Cornerstone’s quarterly dividend. The dividend $.06 a share will be issued to shareholders of record as of June 12, 2006, and will be paid July 7, 2006.

Cornerstone Bancshares, Inc. is a one-bank holding company serving the Chattanooga, Tennessee MSA with 5 branches and $340 million in assets specializing in business financial services.

As part of its Grand Opening event, Cornerstone Community Bank will be holding various promotions and activities each day. The event will conclude with the drawing for a trip for four to Walt Disney World® (approx. $3,000 value) or one of three other great prizes valued at $500 each. The drawing will be conducted at 5:30 p.m. on Friday, Aug. 13.

Cornerstone Community Bank is a locally owned and operated bank that offers the flexibility, resources and expertise to back small and medium-sized businesses. In addition to its business offerings, Cornerstone Community Bank also provides a wide range of retail banking solutions that are tailored for the individual client.

Cornerstone Community Bank is the fourth largest independent bank in the Chattanooga MSA and the second largest in Hamilton County. Cornerstone continues to see tremendous growth with a record setting year where earning increased 77 percent with more than $200 million in total assets and a net income of more than $1.8 million. This success has continued in 2004 as Cornerstone posted a successful second quarter as earnings surged to $623,000 ($1.145 million year to date).