CHATTANOOGA, Tenn., April 17 /PRNewswire-FirstCall/ -- Cornerstone Bancshares, Inc. (BULLETIN BOARD: CSBQ) today announced the following:

   Cornerstone Bancshares, Inc. experienced an earnings contraction for the first quarter 2008 as a result of margin compression brought on by the Federal Reserve's 300 basis point reduction in the federal funds rate and the corresponding reduction in the banking industry's prime rate. Cornerstone's net interest margin decreased 135 basis points from 5.68% for the first quarter of 2007 to 4.33% for the first quarter of 2008. This decrease was due primarily to the timing in repricing of loans which are tied to the Cornerstone Community Bank's prime rate and the majority of the bank's certificates of deposit which are generally fixed for a one-year period of time. The lag in repricing will take approximately six months to catch up and within that time frame the net interest margin level should reach the low that the Bank will experience. Cornerstone saw its first quarter 2008 earnings decrease to $1.01 million versus $1.65 million, a decrease of 38.6% from first quarter 2007 while book earnings per share decreased in the first quarter of 2008 to $0.16 versus $0.25, a decrease of 36.9% over first quarter 2007. The Bank continued to increase its loan portfolio during the first quarter of 2008, which increased to $386 million an improvement of 20.5% over the first quarter of 2007. Notably, commercial real estate loans, lead all loan classifications. The Company's performance metrics pulled back to normal peer levels, Return on assets was 0.91% for the first quarter of 2008 compared to 1.75% during the first quarter in 2007. Return on equity was 10.93% during the first quarter in 2008 compared to 16.83% in 2007.

   Presently the Company is operating at an 8.32% leverage ratio and has the ability to continue to grow, but will spend the remainder of 2008 building capital until the economic environment improves.

   Asset quality declined from the superior level during first quarter of 2008. Non-performing loans as a percentage of average total loans increased to 0.63% while loans over 30 days past due as a percentage of total loans increased to 1.88%.

   Cornerstone Bancshares, Inc. is a one-bank holding company with $450 million in assets which serves the Chattanooga, Tennessee MSA with 5 branches. It also has loan production offices in Dalton, Georgia and Knoxville, Tennessee. The company specializes in business financial services.

  CORNERSTONE BANCSHARES, INC.
  Selected Financial Information
  as of March 31, 2008
  (in thousands)

                          Three Months               Year-to-Date
                         Ending March 31    %       Ending March 31    %
  EARNINGS SUMMARY      2008      2007    Change    2008     2007   Change

  Interest income      $8,060    $8,107    -0.6%   $8,060    $8,107    -0.6%
  Interest expense      3,470     3,133    10.7%    3,470     3,133    10.7%
  Net interest income   4,590     4,974    -7.7%    4,590     4,974    -7.7%
  Provision for loan
   loss                   317         2 15750.0%      317         2 15750.0%
  Net interest income
   after provision      4,273     4,972   -14.1%    4,273     4,972   -14.1%
  Noninterest income      394       375     5.2%      394       375     5.2%
  Noninterest expense   3,097     2,747    12.7%    3,097     2,747    12.7%
  Pretax income         1,571     2,600   -39.6%    1,571     2,600   -39.6%
  Income taxes            556       948   -41.4%      556       948   -41.4%
  Net income           $1,015    $1,652   -38.6%   $1,015    $1,652   -38.6%

  Earnings per
   common share         $0.16     $0.25   -36.9%    $0.16     $0.25   -36.9%
  Weighted average
   common shares
   outstanding      6,336,202 6,511,951         6,336,202 6,511,951



                           Three Months               Year-to-Date
    AVERAGE BALANCE        Ending March 31   %       Ending March 31    %
     SHEET SUMMARY        2008      2007  Change     2008      2007  Change

  Loans, net of
   unearned income     $386,056  $320,296  20.5%  $386,056  $320,296  20.5%
  Investment
   securities & Other    42,456    37,111  14.4%    42,456    37,111  14.4%
  Earning assets        428,512   357,407  19.9%   428,512   357,407  19.9%
  Total assets          446,473   378,146  18.1%   446,473   378,146  18.1%
  Noninterest bearing
   deposits              44,503    38,315  16.2%    44,503    38,315  16.2%
  Interest bearing
   transaction
   deposits              93,410    90,466   3.3%    93,410    90,466   3.3%
  Certificates of
   deposit              182,539   147,624  23.7%   182,539   147,624  23.7%
  Total deposits        320,452   276,405  15.9%   320,452   276,405  15.9%
  Other interest
   bearing liabilities   86,642    60,080  44.2%    86,642    60,080  44.2%
  Shareholder's equity   37,131    39,252  -5.4%    37,131    39,252  -5.4%



                                        Three Months        Year-to-Date
                                       Ending March 31     Ending March 31
          SELECTED RATIOS            2008         2007      2008     2007

  Average equity to
    average assets                    8.32%        10.38%    8.32%   10.38%
  Average net loans to
    average total assets             86.47%        84.70%   86.47%   84.70%
  Return on average assets            0.91%         1.75%    0.91%    1.75%
  Return on average total
   equity                            10.93%        16.83%   10.93%   16.83%
  Actual Equity on Mar. 31,    $36,754,223   $39,578,839
  Actual # shares
   outstanding on Mar. 31,       6,319,718     6,515,118
  Book value per common share        $5.82         $6.07

Source: Cornerstone Bancshares, Inc.